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Exports will largely depend on market conditions
Part of the NTP relies on growing Saudi exports, including that of the mining industry.
While it is easy build a plant, the timing of when there projects come online and how it
coincides with the cycle matters. The ability to dump will largely depend on the position
on the cost curve, which seems to be fading with the recent reduction of subsidies.
The conglomerate model to continue
Saudi Arabia has historically adapted the conglomerate model to build up its industrial
sectors, such as petrochemicals (SABIC), metals & mining (Maaden) and steel (Hadeed).
We believe the government continues to focus on this model in its NTP plan and will use
a number of vehicles to expand the sectors in question: Maaden in metals & mining and
the new military company in defence.
Maaden has transformed from a pure gold producer to one of the largest conglomerates
in Saudi Arabia at the moment. Through three key Joint-Ventures (JVs), the company is a
top producer of DAP (Diammonium Phosphate) and gold and aluminium. The NTP clearly
sets the stage for Maaden to grow even further but is unclear on how this is to be
achieved and what it would mean for shareholders. Also, in our view, the all-in-one
model has delivered subpar returns globally and the trend is towards the streamlining of
operations and specialised vehicles. As an example, the largest petrochemical and
agrichem companies, Dow and Dupont, plan to merge and then split into three different
businesses, providing more specialisation. We can see the advantages of the specialised
entity model as it provides cost synergies, efficiency and a clear strategy for the
company. Also, in the conglomerate model, certain parts of the company are often
dwarfed as other revenues streams represent a larger contribution to returns. Board and
management could be more or solely focused on the sub-segment had if it is a stand-
alone entity they have to monitor and manage, in our view.
Table 23: National Transformation Plan objectives in the mining sector
Baseline Target 2020 Regional benchmark Global benchmark
Overall kingdom:
Number of jobs created 65k 90k 75k 210k
Contribution to GDP SAR64bn ~=SAR97bn SAR13bn SAR262bn
Number of localized technologies Under study 125 NA NA
Less developed regions in Saudi:
Number of jobs created 0 12k NA NA
Expected contribution from private sector 0 SAR28bn NA NA
memo:
Initiative cost to the government: SAR310mn (US$83mn)
Source: Saudi National Transformation Plan
68 GEMs Paper #26 | 30 June 2016 3S Merrill Lynch
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