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

Good afternoon, ladies and gentlemen. Welcome to Ma'aden's Earnings Call First Quarter of 2025. Thank you for joining us. My name is Abdulaziz AlNaim. [Operator Instructions] On today's call, all the presentation and relevant material will be available in our website on maaden.com. Please refer to our disclosure in Slide 2 that include all the disclaimers made in this presentation. Kindly note that all figures disclosed during the presentation is in Saudi riyal unless otherwise stated. I'm joined today by Ma'aden CEO, Bob Wilt; and Ma'aden CFO, Louis Irvine. They will take us through the company's performance for the first quarter. As usual, we'll open the floor for 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, I'll hand the call back to Bob.

Thank you, Abdulaziz, and thank you to everyone for joining today's call. As you can see, we started the year strong, building on the momentum of 2024. We continued with our operational excellence program across all businesses with production results, safety improvements, exploration success and project advancement. We delivered 16% growth for both revenue and EBITDA year-on-year. On the back of this, our net profit increased 58% year-on-year, and we generated almost SAR 2 billion in operating cash flow. With a cash position exceeding SAR 12 billion, we are in a strong position to fund our growth ambitions. In the first quarter, we achieved solid operation production growth in phosphate and aluminum. This was further supported by strong commodity prices. Safety remains a priority, and we recorded an all injury frequency rate of 0.02 and a serious injury frequency of just 0.01. Looking to growth, our Phosphate 3 Phase 1 project is well underway and is making excellent progress. We finalized the acquisition of our strategic stake in ALBA, strengthening our presence in the global aluminum industry. On the exploration front, we signed a heads of terms with Aramco to form a potential joint venture focused on exploration and mining of critical minerals in the Kingdom's Arabian platform. Additionally, our exploration efforts continue to deliver results with new gold and copper discoveries at Wadi Al Jaww, Jabal Shayban and Mansourah-Massarah deep zones. We are positioning our core business units for long-term growth. Starting with phosphate, we strengthened our position in the sector by acquiring Mosaic's 25% stake in Wa'ad Al Shamal Phosphate Company, increasing our ownership to 85%. This strengthens our position as a global phosphate leader by consolidating control over one of the world's largest integrating facilities. It also gives us greater operational control and earnings upside. On Phosphate 3, construction is well underway with a project completion rate of 35%. In aluminum, our recent deal with ALBA positions Ma'aden as a strategic shareholder in a key regional aluminum player, strengthening our market presence. Meanwhile, we are progressing the deal to acquire Alcoa's stake in our upstream aluminum businesses. The deal is expected to close before midyear, giving us full autonomy and drive value. We are also seeing continued success in our exploration program with promising new discoveries at numerous sites and expect these to add to our gold and copper production in the coming years. Looking ahead, our JV with Aramco is set to explore critical minerals, reinforcing our commitment to accelerating Saudi's mining and industrial development. Together, all these steps signal a strong commitment to our growth. As mentioned, our Phosphate 3 project is making good progress. Phase 1 is moving rapidly, now standing at 35% complete. We've awarded over SAR 9 billion in contracts. Engineering is nearly complete, and procurement is well ahead of schedule. Site preparation and access roads are done with more than 30% of civil foundations in place. Delivery of proprietary equipment has been completed and structural steel installation has reached 6%. Phase 1 when complete, will add 1.5 million tonnes of annual capacity starting in 2027. Phosphate 3 is a long-term investment that strengthens our market leadership and reinforces our role in the agricultural supply chains worldwide. Once fully online, the project will make Ma'aden the third largest phosphate producer globally and the second largest exporter in the world. With that, I'll pass it over to Louis for the financials.

Thank you, Bob, and good afternoon, everyone. We continue to build on our strong 2024 performance and delivered strong results during the first quarter of 2025. Year-on-year, revenue increased by 16%, reaching SAR 8.5 billion on the back of higher volumes sold, supported by increased prices. EBITDA demonstrated similar growth to SAR 3.5 billion as we balanced our costs effectively and maintained our margin. Our net profit level saw an increase of 58%, reflecting higher EBITDA and lower zakat, income tax and severance expenses. Our increased stake in Wa'ad Al Shamal contributed SAR 108 million to attributable net profit during the quarter. Further, since we closed the ALBA deal during the quarter, we've reported our initial portion of ALBA's earnings in our results as well. Turning to the EBITDA bridge for the first quarter. As mentioned previously, we achieved strong EBITDA growth, primarily driven by higher sales volumes in phosphate and aluminum and improved prices across all our business units. Our increased volumes and prices were able to offset the impact of higher raw material prices and volume-related operating costs. Further, we were able to offset the SAR 199 million one-off insurance payment we received in the prior year quarter and still demonstrate 16% growth year-on-year. Our investments contributed SAR 48 million, including the attributable income from the ALBA acquisition, as I mentioned earlier. Moving to our cash flow for the quarter. We generated strong operating cash flows of almost SAR 2 billion, following strong underlying business performance despite a draw of SAR 1.3 billion related to working capital. Our largest cash outflows were linked to strategic growth initiatives, including the SAR 3.6 billion investment in acquiring 20% of ALBA in addition to SAR 1.4 billion for growth and non-growth CapEx. Most of our growth capital expenditure was focused on progressing Phosphate 3 Phase 1. On the financing side, we raised USD 1.25 billion or around SAR 4.7 billion to our first international Sukuk while paying off the SAR 3.5 billion MPC sukuk, which matured during the quarter. Just to recap on our inaugural international sukuk, the offering was a major success and was oversubscribed more than 9x, making it one of the most successful debut international sukuk offerings in Saudi Arabia. As Bob mentioned earlier, we ended the period with a healthy cash position of SAR 12.4 billion. As we push forward with our growth strategy, we're ensuring our financial position remains strong and provides a strong foundation. Given our investment in ALBA, which impacted our cash position, our net debt increased by 19%. Further, as I mentioned earlier, we repaid the MPC sukuk while issuing our first international sukuk, which slightly increased gross debt levels. As a result of our investments and debt repositioning, our net debt-to-EBITDA increased slightly to 1.9x, in line with our expectations and remains 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. Turning our attention to the Phosphate BU. In the first quarter, we reported strong DAP production and sales volumes, up 9% and 18%, respectively, year-on-year. This was accompanied by higher prices. Average realized DAP prices were up 4% year-on-year as low global inventory levels were met with increased demand from major agricultural economies. Ammonia production was higher by 7% as our operations performed well. And ammonia sales, we saw an increase of 13% over the period, too. As a result, phosphate revenue increased by 5% with EBITDA margins remaining stable at a healthy 48%, coming off a record production quarter in the fourth quarter of last year, we saw revenue decline 19% quarter-on-quarter as we saw a 6% decrease in DAP production due to scheduled plant maintenance during the first quarter, while sales volumes were further impacted by a DAP shipment, which we've deferred into the second quarter. Further, we saw prices decline across the phosphate product range, which also impacted our revenues. Despite the revenue impact, EBITDA margin increased by 6 percentage points quarter-on-quarter. Turning to the phosphate EBITDA bridge. Year-on-year, higher DAP and ammonia production positively impacted EBITDA by SAR 133 million. Overall, raw material costs were higher, mainly due to higher molten sulfur and natural gas prices. Higher DAP and ammonia production volumes had the largest positive impact on EBITDA. Production costs were higher year-on-year, given higher production volumes. Quarter-on-quarter, EBITDA declined 7% to SAR 2.3 billion. The sequential drop was driven by lower production volumes, softer DAP and ammonia prices and higher raw material costs. As reported at the year-end, quarter 4 also carried higher maintenance spending and a one-off ECL charge of about SAR 80 million, which helped offset the impact in the first quarter. Turning our attention to the Aluminum business unit. In the first quarter, we delivered strong operational execution across the business unit. Year-on-year, primary aluminum output increased 1% as we maintained near nameplate rates. Alumina production rose 9%, while FRP production increased 48%. This was accompanied by strong price increases. Average realized prices increased 25% for primary aluminum and 50% for alumina, reflecting supply disruption in the alumina sector towards the middle and the end of last year. On the sales side, FRP volumes grew 26%, supported by increased demand in both can body and auto body sheets. On the other hand, primary aluminum and alumina slayer sales were slightly lower year-on-year. The business unit's revenue rose 29% year-on-year to SAR 2.7 billion, and the EBITDA margin expanded to 30%, up 2 percentage points. Looking at the quarter-on-quarter performance, revenue declined 9%, mainly due to alumina sales normalizing after a strong sales quarter at the end of last year, followed by lower aluminum and FRP sales in line with production. Turning to the breakdown of this period's EBITDA. Year-on-year, price increases across all products drove a net positive impact of SAR 502 million. Higher FRP production offset aluminum production declines, while alumina was flat year-on-year, driving a net positive impact of SAR 116 million. This quarter, we recorded incremental earnings from our newly acquired 20% stake in ALBA, which closed during the first quarter. Notably, we received a SAR 199 million insurance claim benefit last year, which impacts our year-on-year performance. Quarter-on-quarter, EBITDA increased by 4% to SAR 815 million despite the decline in revenue I mentioned earlier. Primary aluminum offset aluminum price declines and raw material price increases. We also saw lower production-related costs in line with lower production. Additionally, quarter-on-quarter, EBITDA benefited from the initial contribution from our recently closed 20% stake in ALBA. Moving to our Base Metals and New Minerals business unit. The business unit reported strong growth year-on-year with revenue increasing by 19%, supported by record gold prices offsetting volume declines. Volume declined due to planned maintenance at Mansourah-Massarah and slightly lower grades during the first quarter. EBITDA margin expanded by 11 percentage points to 68%, supported by higher prices. Gold prices continue to show strength with average realized prices up 37% year-on-year to a record USD 2,858 per ounce. Quarter-on-quarter revenue declined by 18%, again, due to planned maintenance impacting production at Mansourah-Massarah. Moving on to the EBITDA bridge of the business unit. Higher gold prices were partially offset by lower volumes. The net impact resulted in EBITDA growing 43% to 807 million year-on-year. On a quarterly basis, EBITDA declined 15% as volume declines offset price gains. I'll now hand back to Bob to take us through the outlook and conclude the presentation.

Thank you, Louis. So I'd like to first take a moment to go over Ma'aden's position amid tariff-related uncertainty. As you know, the situation remains dynamic. However, based on what we know today, Ma'aden holds a relatively strong position. Saudi Arabia faces the minimum 10% tariff, which is the lowest tariff rate implemented. On top of that, Ma'aden's products are critical to the global economy, and we hold a gold portfolio that provides a natural hedge during economic uncertainty. Our products are supplied to a geographically diverse customer base. In addition, we've seen strong growth in local and regional demand. About 90% of our sales come from markets outside the U.S. and only 10% of our total revenue is from the U.S., 8% from phosphate and 2% from aluminum. We also maintain a highly competitive cost structure with reliable production, which gives us additional flexibility. These facts make Ma'aden the preferred global trading partner, and we will certainly continue to monitor the situation closely, and we'll leverage our global network of clients to reroute trade if necessary. Let's take a look at some of the key drivers behind market fundamentals during Q1 and the remainder of 2025. Starting with phosphate. Prices have held firm in Q1 and are expected to remain strong. Low opening inventories in key agricultural regions continue to support demand, along with continued export restrictions from China. On ammonia, while supply has stabilized after prior global disruptions, the market has turned to surplus supply in a seasonally low demand quarter. Demand is expected to return gradually, supported by phosphate fertilizer production potentially ramping up. On aluminum, fundamentals remain supportive in 2025 despite trade uncertainties. Aluminum remains driven by supply constraints, along with the potential ban for Russian aluminum in Europe, while long-term demand fundamentals remain strong. However, shifting trade flows given U.S. tariffs may impact market dynamics. Alumina has seen prices ease as supply ramps up given increased bauxite availability. Finally, gold prices have continued their excellent run, reaching new highs. We expect gold prices to remain strong in 2025. Let's take a look at our strong organic pipeline across all of our business units. Progress on Phosphate 3 continues, as we discussed earlier. We also have plans for Phase 2 of the project that will add another 1.5 million tonnes of annual capacity. We are progressing our aluminum strategy as we advance Ma'aden's role as a key global aluminum producer. Our aluminum recycling projects, and smelter expansions are currently in bankable feasibility stages and are aimed at increasing our production capacity. We're also progressing with Ar-Rujum Gold Mine also in bankable feasibility stage and early intercepts from our latest drilling results at Mansourah-Massarah showed promising results below the open pit, reinforcing the underground expansion at the site. We had a strong start to the year and remain firmly on track to achieve our 2025 guidance. We initially announced our CapEx for 2025 to be between SAR 8.6 billion and SAR 10.6 billion. However, given our discipline and focus on capital allocation, we're reducing our 2025 CapEx guidance by SAR 1 billion to a range of SAR 7.6 billion to SAR 9.6 billion, with 70% to 75% allocated to growth. This was primarily due to streamlining and reprioritizing our asset development time lines, and we'll continue to provide updates in upcoming quarters. We increased the lower end of our gold production guidance by 25,000 ounces to 475,000 ounces. All business units delivered strong performance in the first quarter, underpinned by operational excellence. We completed the strategic acquisition of our 20% stake in ALBA. Our large-scale exploration program continues to yield promising new discoveries and progress on our projects is continuing. Looking ahead, our near-term priorities this quarter are to finalize the Alcoa transaction by the end of the quarter, maintain momentum on construction works at Phosphate 3 Phase 1, to further assess the promising discoveries of Wadi Al Jaww, Jabal Sayid and Jabal Shayban, , building on our recent exploration successes. We will continue to focus our exploration efforts on Mansourah-Massarah across the Central Arabian Gold region and advanced discussions on our strategic JV with Aramco, which represents significant opportunities for future value creation. We are driving Ma'aden forward with disciplined execution and clear priorities to position us for sustained growth. With that, I'll pass it off to Abdulaziz to kick off the Q&A session.

Thank you, Bob. Thank you, Louis, for the presentation. Now the floor is open for the questions. [Operator Instructions]. Anoop, you're unmuted, please go ahead. Moving to Anna. Anna, please ask your question.

Yes. Apologies, there is some technical difficulty on the line. One question from our side on CapEx. So you mentioned that you reduced the guidance for this year after streamlining and prioritizing projects. Could you maybe talk about which exactly were the projects that were kind of reprioritized maybe by segment or by project? Any details would be appreciated.

Yes. Thanks for your question. Yes, I think we've got 3 projects that are in bankable feasibility, Ar-Rujum Gold Mine, our recycling projects and our line 1 and 2 expansions in aluminum. All 3 of them as we are getting into the feasibility studies, we're value engineering them, and sequencing them appropriately to maintain a proper capital discipline approach to sequencing and timing. So those are the 3 projects that we've spent time value engineering and resequencing. Final completion dates shouldn't change, but it's just a matter of spend in the early phases.

All right. Any change in the time lines for those? Or it's just a matter of kind of reshuffling them for this year?

No, it's just a matter of spend this year.

Anoop, I'll give you another chance, please unmute yourself and ask your question.

Can you hear me now?

Yes, we can. Go ahead.

I have 2. The first is on Ad Duwayhi. So your annual report 2024 AR mentions that the production was 110,000 ounces. Could you please update us on what is the production run rate currently? And I believe there are some stripping activities going on at the mine. So once that is complete, where do you see the production run rate going?

Okay. Anoop, so you may recall that there's a pushback, quite a large pushback underway, an 18- to 24-month pushback. And so that will continue through the course of this year. And then we hope for it to be back up to full run rate by the end of the year. I think what we have previously guided is that between Ad Duwayhi and Mansourah-Massarah, we'd be looking to produce between 400,000 and 450,000 ounces, and that's how you should look at those 2 mines.

That was very helpful. Just the second one is on the Aramco JV, the critical metals JV. Just trying to understand what value does Aramco bring to this joint venture? I mean their exploration is in a completely different commodity compared to yours. So if you could give us some color on what value they bring to the joint venture.

Yes, absolutely. The concept is we've, up to this point, done most of our exploration activities on the Arabian Shield in the West. The Arabian platform is where Aramco has over 80 years of exploration data related to oil and gas. So they've got vast warehouses of core samples, data, et cetera, and an intimate knowledge of the Arabian platform, where we think there's huge potential that we have yet to begin exploration on. So coupling our expertise in hard rock mining and exploration with their vast domain experience in the Arabian platform and their historic data, we think it's a powerful combination to accelerate exploration and development of critical minerals in the platform.

Nathan, I see that you have a question. Go ahead.

Yes. Is it audible now?

Yes, go ahead.

Apologies, I joined a bit late if it's a repeat question or you have already discussed this. If you can share some insights on DAP as a commodity, DAP prices have done well year-to-date. So DAP prices were more than USD 650 per tonne. What is driving this? Is there any supply-demand tightness? Or is it seasonal or there is a big tender from an importing country? Or is it driven by some tariffs? What is driving the DAP demand and the strong prices?

Yes. I think, as we said, the heavy agriculture producers started the year with low inventories. So there's demand from every region for demand this year, this early part of the year where they started with low inventories. Couple that with the continued ban or the lack of exports coming from China. So the market has been undersupplied, and we expect that to continue through the first half of the year.

Thank you, Bob. I see another question from Yousef.

Can you guys hear me?

Yes. Go ahead, please.

First off, congratulations on a very, very strong set of numbers. I was just wondering kind of looking at your cost per unit across sort of all 3 divisions actually. You guys seem to have been very, very lean in terms of cost this quarter. At least sequentially, it seemed across the board, everything was lower on a per unit basis. Despite the fact that, as you mentioned, sulfur was higher, of course, we've had higher gas prices in KSA since the start of the year. So just wondering how sustainable you view this. And is there some lag effect in terms of the sulfur pricing and the gas pricing that we might see in the second quarter?

I'll speak at the high level and Louis can give any details you might want to. But when we started the transformation effort 3 years ago, some of our biggest efforts were on the core business performance, improving volumes and reducing costs of the 3 business units. And the organization galvanized around the transformation and identified over SAR 6 billion worth of opportunities. And some of that was in production improvements, some of those in efficiencies, some of those cost takeout. So the organization had about SAR 6 billion of opportunities. In that 3-year period, we've realized about half of that. So we've seen about SAR 3 billion come through to the financials, whether in volume, cost, some of it in working capital improvements as well. So we still think we have a ways to go to realize the opportunity and the potential that the organization has identified. So I think it's very sustainable. In that period, we used some of that upside to offset increased natural gas, diesel prices, sulfur increases and things like that. So we've adopted a mentality in the company that we're a commodity company, and we need to be able to weather the downturns and weather the cost increases that we face from raw material supplies and the organization has responded admirably to that.

Anoop, I see that you are raising your hand again.

Just another housekeeping question from my side. So an understanding of your power cost in the aluminum business, if I understand it right, it is the cost of fuel plus the O&M and plus the capacity charge, right? I mean you do pay a capacity charge. Is my understanding correct?

Anoop, there's a minimum demand. That's the capacity charge that you may refer to. But apart from that, it's charged on a consumption basis. So I need to try and remind myself. But over the past 2 years, what we have seen is, we've been able to convert from a gross demand to a net demand basis for setting the tariffs with the utility, and that has now come down. But other than that, it's based on a utilization and consumption factor. And then obviously, there's a slight depreciation charge as well from the supplier.

Okay. So basically, Ma'aden doesn't own the power asset, right? It is -- or is it owned or -- and managed by somebody else? How does it work? How is the arrangement here?

[indiscernible] owns and operates the facilities. And yes, we contract with them.

Thank you, Anoop. I don't see any more questions. So with this, I'm going to conclude today's call. Thank you all for attending. All material will be uploaded in [ our website and on the app ]. Please, if you have any follow-up questions, do not hesitate to e-mail us on [email protected]. With this, I'll be concluding today's call. Thank you all for your time, and have a good day.