Saudi Arabian Mining Company (Maaden) (1211) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Ma'aden Earnings Call for the Fourth Quarter and Full Year of 2024. Thank you for joining us. My name is Abdulaziz AlNaim. [Operator Instructions] Once the call has been concluded the presentation and all relevant material will be available on our website and on [indiscernible]. Please refer to our disclaimer on Slide 2, which applies to all of the disclosure made in today's presentation. Kindly note that all figures discussed in this presentation are in Saudi riyadh unless otherwise stated. I'm joined today by our CEO, Bob Wilt; and our CFO, Louis Irvine. They will take us through the company performance in 2024. As usual, we will open the floor for your questions at the end of the presentation. However, the chat function is open. So please feel free to post your questions during the call. We hope to go through as much as possible today. However, if you have any follow-up questions, please e-mail us. With that, let me hand it over to Bob.

Thank you, Abdulaziz, and thank you to everyone for joining today's call. 2024 was a standout year for Ma'aden with record production and one of the strongest financial performances in our history. We delivered the second highest full-year revenue on record at $32.5 billion with 34% EBITDA growth year-on-year. On the back of this, our net profit grew 82% year-on-year, and we generated over $11 billion in operating cash flow, giving us the flexibility to keep driving our key growth initiatives, while maintaining our leverage ratio within the guided range. We are in a strong position to fund our growth ambitions and create long-term value for our shareholders. Behind these strong results is our exceptional operational performance. In 2024, we set new records across our business units. We achieved the highest ever production and sales volume for phosphate surpassing '24 guidance. Gold production and sales volumes also hit a record, supported by all-time high prices and our aluminum business delivered strong production as well. We are consolidating our shareholding structure across the organization. We successfully completed the acquisition of Mosaic's 25% stake in our Wa'ad Al Shamal phosphate business, increasing our ownership to 85% in a move that is set to our marketed phosphate volumes. We announced the acquisition of Alcoa's stake in our upstream aluminum businesses, which we expect to close in the first half of this year. And in February, we completed the acquisition of SABIC's 20% stake in Alba. These represent a big step forward in growing our aluminum footprint. Additionally, we broke ground on the first phase of our Phosphate 3 project. This project will further expand our fertilizer production capacity and strengthen Saudi Arabia's role in global food security. We are also advancing our exploration efforts with promising discoveries of copper intercepts across key sites in the Arabian shield. I'll discuss these in more detail shortly. Outside of the Kingdom, we advanced our international presence with the completion of our 10% stake in Vale Base Metals through Manara Minerals, our joint venture with the PIF. We remain focused on building mining as the third pillar of the Saudi economy. And for us, this means that we will be a KSA-based, globally significant tech-enabled people-centric mining champion. We are accelerating our efforts to unlock the $2.5 trillion mineral endowment in the Kingdom. And our exploration program is one of the largest in the world in any single jurisdiction. Our latest discoveries confirm the Arabian Shield's potential. We are positioned as a global leader in strategic and critical minerals with an established international presence. We sell into 55 countries already and own or operate assets in 9. Technology is central to our transformation, and we are deploying advanced technology, artificial intelligence and digitization across every step of our value chain. At the same time, a safety-first culture is integral to how we operate. We are building a global mining champion and are committed to becoming the employer of choice in Saudi Arabia. We are creating a values-based culture to develop the next generation of mining leaders. Saudi Arabia's mining sector is transforming and Ma'aden is leading the way. Exploration is a key enabler to our long-term growth. Through partnerships and technology, we are tapping into the Kingdom's rich mineral endowment to position Saudi Arabia as the next -- the world's next mining and minerals processing hub. As you know, we have been making significant investment in our exploration program and are now seeing results. Earlier this year, at the Future Minerals Forum in Riyadh, we announced a number of significant discoveries in the Arabian shield. We made a brand-new discovery at Wadi Al Jaww. Early drilling shows wide gold mineralization at shallow depths, opening significant potential for further exploration. At Jabal Shayban, we confirmed multiple intercepts of high-grade copper and gold. The mineralization extends widely and at depth, reaffirming the long-term potential of this site. In the Central Arabian Gold region, the latest drilling results at Mansoura Massarah deeps indicate significant high-grade mineralization below the current open pit. We confirmed intercepts extending up to 220 meters deeper than previously modeled, strengthening the case for underground expansion. We expect to make further announcements in 2025, as we continue our extensive exploration efforts. As we accelerate exploration and deliver across our operations, we are shaping the future of mining with a strong focus on safety, people and talent development. Safety is a fundamental part of our culture that drives everything. And in 2024, we made significant progress in reducing our serious injury frequency rate alongside our continuous improvement in our all injury frequency rate. However, we also suffered a contractor fatality during the year. Obviously, we have more to do, and we've remain fully committed to strengthening our culture and ensuring that every Ma'aden employee and contractor goes home safely. The driving force behind our success is our people. We continue to expand diversity with females now making up more than 8% of our workforce, growing more than 4x in just the last 3 years. Our investment in talent is delivering results. And in '24, over 800 individuals graduated for Ma'aden affiliated career training and educational programs. This includes 80 graduates that completed our in-house professional development program, preparing them for leadership in mining. And our Saudiization rate remains above 80%, reinforcing our role as a key employer driving national workforce development. And we're improving sustainability in our operations. For example, we increased the use of recycled water versus groundwater to 70% at Wa'ad Al Shamal. Safety, diversity and talent will be critical to delivering our growth ambitions. Building on our performance in 2024, this year has started with strong momentum. We advanced discussions with Saudi Aramco to establish an exploration joint venture. This partnership will bring together decades of Aramco data and experience with our mining expertise to accelerate exploration in the Arabian platform and strengthen our role in securing the minerals essential for future growth and development, including lithium. Financially, we reinforced our capital structure with the successful issuance of our first international Sukuk, raising $1.25 billion. Lu will give you details about this later. And we enhanced our aluminum portfolio with the completion of our acquisition of SABIC's 20% stake in Alba. This transaction firmly supports Ma'aden's ambitions of growing our aluminum business. These early milestones set the tone for the year ahead. Now I'll pass it over to Louis to talk about the financials.

Thank you, Bob, and good afternoon, everyone. We continue to build on our momentum throughout the year and delivered near record results for 2024. Revenue increased by 11%, reaching SAR 32.5 billion, our second highest reported revenue on record. EBITDA showed 34% growth year-on-year to SAR 12.4 billion. In the fourth quarter, we recorded a noncash impairment charge of SAR 1.4 billion, comprising of SAR 1.29 billion charge against the capital assets of the Ma'aden Rolling Company within the Aluminum business unit as we revised production volume growth assumptions from the rolling mill as part of our annual capital allocation review process. We also recorded a SAR 159 million charge against goodwill in the Phosphate business unit, and this is linked to Meridian as we reassess the fertilizer distribution market in Africa. Excluding the impact of the impairment charges, our adjusted net profit came in at SAR 4.3 billion, a remarkable 2.7x increase compared to last year. Turning to the EBITDA bridge for the year. As mentioned previously, we achieved strong EBITDA growth, primarily driven by improved overall pricing, higher sales volumes and lower overall raw material costs. In particular, we saw a large boost from our aluminum business as our production resumed at its regular rate after the pot relining program of pot training 2023. We also saw a strong increase in the base metals new business -- new minerals business unit and their EBITDA given record gold prices and production volumes. There were a few one-offs that we recorded during the year. Notably, we received a SAR 563 million insurance claim payment in 2024, as I have previously reported. We also recorded a SAR 167 million ECL provision in our fertilizer distribution network in Africa as well as SAR 103 million inventory obsolescence charge in our phosphate business in the fourth quarter. Moving to our cash flow for the full year. We generated strong operating cash flows of SAR 11 billion following strong underlying business performance, further supported by a release of working capital of almost SAR 900 million. Our largest cash outflows were linked to strategic growth initiatives, including the ZAR 5 billion investment in Manara Minerals to fund their investment in Vale-based metals, as well as growth and sustaining CapEx. Most of our growth capital expenditure was focused on progressing Phosphate 3 Phase 1 and completing Mansourah Massarah in the first quarter. We ended the period with a cash position of SAR 15.3 billion, a slight decrease of 1.8% from 2023. Turning to the balance sheet. Our net debt decreased by 4%, largely due to the reduction of our long-term borrowings, offsetting the slight reduction in our cash balance. Our improved profitability has allowed us to maintain leverage comfortably with net debt-to-EBITDA at 1.8x, which is below our target range of 2 to 3x. While our growth initiatives, including potential future investments may impact leverage in the short term, we are committed to ensuring that our balance sheet remains robust and capable of supporting our growth plans throughout the cycle. We expect this ratio to increase during the first quarter of this year as our acquisition of our 20% interest in Alba was closed during the first quarter. With regards to our international sukuk, Bob referred to earlier, the offering was a major success and was oversubscribed more than 9x, making it one of the most successful debuted international sukuk offerings in Saudi Arabia. The issuance reflects the strength of our business, our disciplined financial strategy and the confidence of global investors in Maaden's future. As we look ahead, we remain focused on balancing strategic investments with financial discipline, while maintaining a healthy balance sheet. Turning our attention to the Phosphate business unit. In the fourth quarter, we reported record DAP production and sales volumes, up 3% and 9%, respectively, quarter-on-quarter. For the year, we saw a 4% increase in DAP production, close to 6.2 million metric tonnes, while sales volumes grew 5% year-on-year. Average realized prices were up 9% year-on-year as supply constraints on the production side, along with China's export restrictions were met with increased demand from major agricultural economies. Ammonia production for the year was lower by 3%, mainly due to plant shutdowns at our ammonia 2 and 3 plants during the year. However, ammonia production largely resumed in the fourth quarter and volumes were up 12% sequentially. Overall, quarter-on-quarter ammonia prices increased given supply issues, coupled with strong demand. On a year-on-year basis, the full year EBITDA margin remained healthy at 45% despite higher operating costs in line with higher production volumes. Turning to the phosphate EBITDA bridge. Year-on-year, higher DAP prices more than offset softer ammonia prices, positively impacting EBITDA by ZAR 674 million. Overall, raw material costs were higher in this business unit, mainly due to higher gas and diesel prices announced at the start of the year. Higher DAP production volumes offset lower ammonia production and the combined volume effect positively impacted EBITDA. Production costs were higher year-on-year, largely in line with higher production volumes in addition to the impact of the ammonia plant turnaround maintenance plans. The credit loss provision of ZAR 167 million I mentioned earlier impacted our EBITDA. The ECL provision was recorded due to a bad credit account in Africa. We are actively pursuing payment, and we will reverse this if received. Transition to the quarterly bridge, stronger DAP and ammonia prices, combined with higher volumes supported an EBITDA increase of 17% to ZAR 2.3 billion in the fourth quarter. On the cost front, we saw higher production costs in line with increased production and as well as higher raw material prices. Additionally, we also recognized a one-off charge of approximately ZAR 100 million in an allowance for inventory obsolescence. Turning to the aluminum BU. Aluminum production was up 3% quarter-on-quarter and 10% year-on-year, reflecting continued operational improvements following the successful completion of the pot relining program, which impacted performance in 2023. The fourth quarter saw a 44% increase in alumina prices given multiple supply chain disruptions globally and aluminum prices were up 4% quarter-on-quarter. Sales and production volumes for flat-rolled product increased quarter-on-quarter and year-on-year, supported by a gradual recovery in demand in the can sheet market. However, FRP premiums continue to be under pressure, resulting in a 12% lower conversion revenue for us in 2024. Alumina sales volumes increased materially due to a shipping delay in the third quarter, which was pushed into the fourth, and aluminum sales volumes stayed consistent quarter-on-quarter. Overall, the strong pricing environment and higher sales volumes in the aluminum business unit supported the significant EBITDA growth. Turning to the breakdown of this period's EBITDA. Year-on-year, strong primary aluminum and alumina volumes drove a significant positive impact of SAR 705 million. We also benefited from favorable raw material costs, contributing SAR 455 million year-on-year to EBITDA. Production costs were a positive impact of SAR 97 million, primarily due to lower fixed costs and the absence of the one-off utility charge that we incurred in 2023. EBITDA for the year was further supported by an insurance claim benefit of SAR 563 million, which was recorded during the first 9 months of the year. Quarter-on-quarter, EBITDA increased by SAR 786 million, mainly due to higher prices and sales volumes. Higher production costs were in line with higher volumes and partially offset by lower fixed costs. The last tranche of the insurance claim of SAR 94 million was recorded in the third quarter, which was not present in the fourth quarter, therefore, impacting the sequential comparison. Moving to our Base Metals and New Minerals business unit. The business unit recorded strong growth this quarter with revenue increasing by 43%, supported by record gold prices and volumes as Mansoura and Masarrah became fully operational during the course of the year. EBITDA margin expanded by 13 percentage points, supported by the higher prices. Gold prices continue to show strength with the average realized prices up 7% quarter-on-quarter to a record USD 2,676 per ounce. Year-on-year, revenue increased by 49%, driven by higher prices and increased production from Mansoura and Masarrah. Moving on to the EBITDA bridge. Higher gold prices and increased contribution from Mansoura and Masarrah drove a significant improvement in EBITDA, reaching SAR 2.6 billion, up 70% year-on-year. This was partially offset by higher production costs and accelerated exploration activities. On a quarterly basis, EBITDA increased to $915 million, driven by higher volumes and prices. I'll now hand back to Bob to take us through the outlook and conclude the presentation. Thank you, Louis.

Before I get into our expansion and capital investment plans for '25 and beyond, let's take a look at some of the key drivers behind market fundamentals in 2025. Starting with phosphate, the market outlook remains strong. Low opening inventories in key regions such as India and the Americas continue to support demand. On ammonia, supply has stabilized after some production disruptions globally in 2024 and demand is expected to gradually strengthen in '25, supported by additional phosphate fertilizer production resuming. On aluminum, fundamentals remain supportive in '25 despite trade uncertainties. Aluminum remains driven by supply constraints in China and increased global demand. However, shifting trade flows given potential U.S. tariffs may impact that market dynamics. Regarding the proposed 25% tariff on U.S. aluminum imports, less than 5% of our combined aluminum sales are to the U.S. So we expect the direct impact to Ma'aden to be minimal. However, if U.S. metal sales are rerouted, this may disrupt trade flows and impact non-U.S. regional premiums, especially in Europe and Asia. Despite the near-term uncertainty around these tariffs, mid- to long-term fundamentals for aluminum remain strong. Finally, gold has had an excellent year, as Louis mentioned, reaching record highs, and we expect gold prices to remain strong in '25, supported by the same factors. With strong fundamentals across our business, we are well positioned for growth. As mentioned, Phosphate 3 is well underway. Last year, we broke ground on Phase 1 and awarded SAR 3.5 billion in construction contracts. This phase will add 1.5 million tonnes of annual capacity starting in 2027. Phase 2 will follow, bringing total capacity to 3 million tonnes, making the project our largest ever phosphate expansion. Once fully online, this project will make Ma'aden the third largest phosphate producer globally and the second largest phosphate exporter in the world. Alongside fertilizers, we are advancing our aluminum strategy. Our aluminum recycling and smelter expansion projects are currently in bankable feasibility study. We're also progressing the Ar. Rjum Gold mine, also in bankable feasibility stage. As mentioned, early intercepts from our latest drilling results at Mansoura and Masarrah show promising results below the open pit, reinforcing the underground expansion at the site. Executing this pipeline requires a disciplined capital expenditure program. We expect to invest around $8.5 billion in 2025 and future spend will remain in this range, pending necessary Board approvals with 70% to 75% allocated to growth. As you can see, our CapEx spend aligns with our expansion plans. Phosphate will take the largest share over the next couple of years, as we ramp-up Phosphate Phase 3. Aluminum projects follow with gold CapEx increasing from 2026. As we've discussed, '24 was one of our strongest financial years in history. We delivered the second highest full year revenue on record, while advancing strategic priorities to position us for long-term growth. We made record DAP and gold production, completed the acquisition of Mosaic's stake in Wa'ad Al Shamal, secured new exploration licenses and are driving forward with our growth projects. Exploration remains central to our growth ambitions, and we are accelerating efforts across the Arabian Shield, building on promising early results. In the near term, we will complete the Alcoa transaction and further accelerate construction on Phosphate 3. Our 2025 guidance reflects our commitment to delivering on the strategy. We expect another strong year of production with increased volumes across all of our businesses. All of our assets are currently at or above nameplate capacity, and we will continue to sweat them. We also intend to invest around $8.5 billion in CapEx with the majority allocated to growth. Our focus is clear, operational excellence with disciplined growth, all with a value-driven culture. Ma'aden is well positioned to advance confidently into 2025.

Thank you, Bob. Thank you, Louis, for the presentation. Now we'll open the floor for audience questions.

[Operator Instructions] I have a question in the chat here to Louis. So the question is, what's drive the higher cost of goods sold Q-over-Q?

In which business unit are you referring?

I think you're referring to the phosphate.

Okay. So just let me unpick that for you very quickly. So the higher production costs during the fourth quarter relate to volume increases. So there's a volume impact of higher production, and that is about 114 million. There was the inventory obsolescence write-down that we booked, which is [ 103% ]. And then we have seen raw material prices tick up slightly in the fourth quarter relative to the third quarter around molten sulfur of approximately [ SAR 100 million ] that was the impact there. And then yes, we had a shutdown of the sulfuric acid plant during the fourth quarter as well, and we have to purchase in some sulfuric acid to augment and provide the feedstock for the production of DAP. And then just lastly, there were a number of year-end accruals that we posted. But in principle, stock obsolescence, [ 103% ], higher raw material prices and then the volume impact as well.

[Indiscernible] Waheed would like to ask a question from [ JRR ].

I have 2. First of all, on the DAP volumes for Q4, they seem to have come above the implied expectations from the full year '24 guidance. What drove this? And how much of that momentum has spilled into 1Q '25? The second question is despite prices increasing Q-on-Q across the different segments, we saw EBITDA margins remain flat. Could you just comment on the drivers for such movement? I think this question was partly answered in the first one, but any additional color would be appreciated.

I'll take the second one. Our EBITDA margins were up...

Yes, but on phosphate that were held flat at 45%. So I think it's the same question again. So if I understood you correctly, is it phosphate related?

Yes, mainly phosphate related is correct.

Yes, because as Bob was going to say, our EBITDA margin has actually increased by 6 percentage points at the group level. So as I mentioned to you, the margin was impacted by one-off adjustments. So the inventory obsolescence had an impact on that. We had a shutdown at the sulfuric gas plant that had an impact on costs in the fourth quarter. And then there was obviously the production volume increase as well. But I think the inventory obsolescence largely had an impact on the margin as well.

Thank you, Waheed. Now let me move to [ Pratik ].

I have 2. The first is on your aluminum business. So look, in the past couple of quarters, we have seen alumina prices increase a lot. But your production did not increase as much. So my question is, what kind of flexibility does Ma'aden have to kind of increase its production in light of very strong prices in the aluminum business? That's #1. #2 is on the gold business, right? So if you look at your guidance, obviously, you had a very good year in terms of gold production. But if you look at our guidance, the midpoint is basically in line with what we produced in 2024. So I was wondering if Mansourah Massarah is ramping up, is there some part of your mines, where the productivity will decline because of which the volumes will be flat year-on-year in gold? Or how should we think about it?

I'll take the aluminum one. The refinery is running at about 103% nameplate. So not much opportunity even in light of good pricing to ramp that up further. So expect us to be running above nameplate, but not much more.

With regards to gold, Pratik, on a call earlier during the course of last year, when we spoke about guidance, I said that the way we think about we have 2 large mines going forward, which is Ad Duwayhi and Mansourah Massarah. And between those 2, we're looking for 400 to 450 per annum and then the short life operations is 50 to 100. So that's broadly how we derive the range. Then you -- and then with the comment I also made during the course of last year is that Ad Duwayhi was under taking a major pushback at that operation. So -- and that is happening over 2 years. So 2025 will be the last year of that pushback after which it will come back up to a more normal run rate. So that's the reason guidance has remained stable for next year.

Now we'Il be going to [ Paul ] from Bank of America.

Can you hear me?

Yes, we can go ahead.

I have 2. So one is on phosphate Phosphate 3 Phase 1 and 2. Can you talk about the associated CapEx, sort of the ranges of associated with that? And then second question is on your joint venture with Ivanhoe Electric. Can you talk about if deployment of Typhoon exploration equipment yielded any interesting results?

You take Typhoon, I just want to...

We'll give the exact numbers on what we're spending in CapEx on Phase 1 and 2 for Phos 3 hold on a second. The joint venture with Ivanhoe Electric here, we announced in the Future Minerals Forum very promising results from the first phases of discovery. They found copper mineralization at 1,600 meters mild, but it was a very good proof of concept. But now we're working with Taylor and the team at Ivanhoe to redeploy that to some more promising areas in the Kingdom as we continue to grow the venture. But definitely, the technology was proven on our terrain and expect more good results this year.

With regards to Phosphate 3 Phase 1, our expectation of the project's capital cost is around SAR 12 billion. And then we would expect Phase 2 to come in below that as we benefit from the economies of scale of the infrastructure that's been developed.

So moving on to a couple of questions on the chat. So there's a question about Alba acquisition. So what's your plan after that?

So you'll recall that last year, we entered into discussions on a potential merger of assets with Alba. And early this year, both sides decided to walk away from those discussions. They've got a robust growth plan as do we. At the same time, when we were in the middle of those discussions, we decided that we would be the more natural owner of the 20% stake that SABIC owns being that we're an aluminum player. Alba is a great company. It's a great investment. So we decided to continue with that purchase, and we completed it in February. Very happy to be a minority owner in Alba now and where that conversation goes, they've been a great partner with us in cooperation, technical safety and talent for the last 15 or 20 years, and that will continue.

For above question on the same subject. Do you have any plans to acquire SABIC shares on your plans?

Not at this time.

I don't see any other questions raised. I didn't see any hands. So with that, I'm going to conclude today's call. Thank you all for attending this presentation. All material will be uploaded on our website under IR. If you have any follow-up question please try to contact us and try e-mail through [email protected]. With that, I conclude today's call. Thank you all for attending, and goodbye.