Saudi Arabian Mining Company, or Ma'aden, is up almost 50 per cent in the past five months - not surprising for a company that earns 95 per cent of its revenues from gold production.
But the company's futures are more closely tied to the fate of another project with a future that is less lustrous. Ma'aden went public in 2008, raising 10.5bn riyals to start two projects: a phosphate joint venture with Saudi Basic Industries (SABIC) and an aluminium joint venture with Alcoa.
The phosphate venture should come on line by the end of the year and almost immediately turn the company from a gold player into a more diverse minerals firm, said Ahmed al Qahtani, an analyst at NCB Capital based in Riyadh.
Mr al Qahtani considers the aluminium project, which is split into two phases, as the more difficult. Stage one, expected to begin by 2013, consists of a smelter with a capacity of 740,000 tonnes a year and an aluminium rolling mill with an initial capacity of 380,000 tonnes a year. Stage two, expected to start a year after stage one, consists of a bauxite mine with an annual capacity of 4 million tonnes and an alumina refinery with an annual capacity of 1.8 million tonnes.
Like the phosphate project, the aluminium facility has a significant cost advantage thanks to its location in a country where energy is relatively inexpensive. But the large capital expenditure requirement, 40.5bn riyals, will make it difficult to generate solid returns. Mr al Qahtani calculates the facility will not justify the massive investment, even after allocating generous prices for aluminium at US$2,500 a tonne.
He has an "underweight" rating on the stock, with a target price of 16.8 riyals, down from its 23.10 riyals at yesterday's close of trade.
Ma'aden was originally established to enable the development of Saudi Arabia's non-petroleum mineral resources and to diversify the kingdom's economy away from the petrochemical sectors.