Saudi Arabian companies close “fertile” deal

Saudi Arabian Basic Industries Company (SABIC), a global giant in petrochemical derivatives production, and the Saudi Arabian Mining Company (Ma'aden), the state owned mining company, have joined forces in a $3.5 billion strategic partnership to develop the kingdom's phosphate fertiliser production.

The deal was signed on March 13 by Ma'aden's President and CEO Abdullah Dabbagh and SABIC's Chairman and CEO Mohammed al-Mady under the supervision of Ali Ibrahim al-Naimi, the minister of petroleum and mineral resources. This project is predicted to directly create 1400 new jobs and will start production in 2010.

The project involves SABIC taking a 30% stake in the development of a phosphate mine and processing plant at Al-Jalamid, North West Saudi Arabia. There will also be a phosphate fertiliser production complex north of Al-Jubail at Ras Az Zawr. Ma'aden will retain 70% ownership of the project.

Ma'aden recently awarded contracts for the designing of sulphuric acid, phosphoric acid, ammonia and diammonium phosphate plants within the fertiliser complex, with a projected production capacity of 3 million tonnes per year of diammonium phosphate fertiliser (DAP). It is set to become one of the world's largest phosphate fertiliser complexes of its kind.

Dabbagh told reporters the project is designed to leverage each of the company's respective strengths, "Ma'aden will provide technology and expertise in the phosphate industry while SABIC will provide technology and marketing expertise in the field of nitrogen fertilisers."

SABIC currently produces 8 million tonnes of fertiliser per annum for a global market that is experiencing demand growing at a annual rate of over 3%. Demand is particularly high in Asia, notably in China and India. Saudi Arabia is considered to be an ideal location for fertiliser production as it benefits from large deposits of raw material, cheap energy and good access to markets.

According to Ma'aden, the kingdom's north-west area offers extractable phosphate resources of 1.6 billion tonnes with a further 1.5 billion tonne in reserves. The phosphate will then be transported by train, via the new north-south rail-link, for processing at the fertiliser complex at Ras Az Zawr.

SABIC was established in 1976 with the aim of utilising hydrocarbon gases derived from the kingdom's considerable oil production as the principal feedstock for developing chemicals, polymers and fertilizers. The government retains 70% of SABIC whilst 30% is publicly listed on the Tadawul All Share Index (TASI) - the kingdom's stock exchange.

Ma'aden was established in 1997 and is currently 100% government owned. The primary goal of the company is to develop Saudi Arabia's non-petroleum mineral resources - in line with the government's broader economic strategy of diversifying the kingdom's revenues away from its traditional reliance on hydrocarbons. Ma'aden is currently undergoing structural changes as it prepares to become a listed company. The initial public offering (IPO), which is planned for later this year, will be open to Saudi citizens and Gulf Cooperation Council (GCC) nationals, in accordance with Saudi regulations.

The newly signed fertiliser project is a significant step in the development of Ma'aden and the mineral sector as a whole. In addition to mining ore, particularly gold, the company has a strategy to expand its bauxite (the raw material for aluminium) and phosphate production.

The deal also increases the company's capital prior to its listing, which is good news for investors.

"This agreement is a leading step that should be followed by similar initiatives to...optimise the use of hydrocarbon and mineral resources nation-wide to drive industrial development, increase contribution to the GDP and diversify national income resources," said al-Mady.

(C) Oxford Business Group - www.oxfordbusinessgroup.com

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