Alcoa cuts stake in Saudi aluminium JV to 25pct

Alcoa has cut its stake in a planned $10.8 billion aluminium complex in Saudi Arabia by more than a third, its partner said on Saturday, the second time a foreign partner has reviewed its position in the plan.

State-run Saudi Mining Co (Maaden), the main stakeholder in the project, called Alcoa's stake cut to 25.1 per cent from 40 per cent "a rejig" in the joint venture project. Maaden's statement gave no further details.

The move raises the prospect of a cash injection by the Saudi government in the project, crucial to the kingdom's efforts to diversify the economy away from oil.

The stake reduction corresponds to a reduction of Alcoa's investment to $2.71bn from $4.32bn. Maaden said the project's size and schedule would not be affected by this change, which raises its stake to 74.9 per cent.

Shares in Maaden closed 0.3 per cent lower after the news.

Hesham Abu Jamea, head of asset management at investment bank Bakheet Financial Group, played down the impact on Maaden.

"Financing needed for this project is huge. Alcoa may have realised that getting the financing will be difficult. We have met them (Maaden) a month ago and they were positive about ensuring their part of the financing. Maaden is government-run, it should not face a (financing) problem," Abu Jamea said.

Alcoa agreed in December to take the 40 per cent stake in the Ras Azzour plant after tight credit conditions forced Rio Tinto Alcan to abandon a 49 per cent stake in a similar plan with Maaden about a year earlier. The project was then budgeted at $8bn.

Since its agreement with Alcoa, Maaden has said little about progress in raising financing for the project scheduled to start production in 2013.

"The (Saudi) government will have to foot the bill," John Sfakianakis, chief economist at Banque Saudi Fransi, said of Alcoa's stake reduction move. "It could be a good development since it may push the government to help accelerate the execution of this project."

Ras Azzour is the biggest of the investments Maaden pledged to deliver in 2008 when it raised 9.25bn riyals ($2.47bn) in an IPO that was open only to Saudi investors. Saudi Arabia's three biggest state funds together hold 64 per cent of Maaden's capital.

Maaden's deal with Alcoa provided for the setting up of a 1.8 million tonne-per-year refinery, a 740,000 tonne-per-year smelter, a bauxite mine with an annual capacity of 4 million tonnes and a rolling mill with a capacity of up to 460,000 tonnes.

The smelter and mill are slated to start production in 2013 while the refinery and mine would come online in 2014.

Alcoa's Chief Executive Klaus Kleinfeld said in December the project's cost would be split, with the US firm and its partners paying 40 per cent while Maaden would handle 60 per cent.

Maaden is investing about 60bn riyals to develop the kingdom's phosphate, bauxite, gold and industrial minerals and help reduce reliance on oil.