RIYADH, (Reuters) – Saudi Arabian Mining Co 1211.SE said on Tuesday its $10.6 aluminium venture with Rio Tinto was still viable despite a 40 percent increase in costs due to greater capacity and inflation.
The projected aluminium smelter will now have an annual production capacity of 740,000 tonnes instead of 650,000 tonnes, Maaden said in written replies to Reuters’ questions.
“Cost estimates have been adjusted upwards. It is now estimated that the total cost of the Aluminium Project is 39.56 billion riyals ($10.55 billion),” said the Saudi firm, also known as Maaden.
This is the second time Maaden revised up the project’s cost which it raised in May to $7.53 billion from $7 billion.
Rio Tinto said last week it had put its aluminium smelter project in neighbouring Abu Dhabi on hold, pending a review by the Gulf emirate’s government of its energy requirements.
Maaden also attributed the rise in costs to inflationary pressures in the region that affected construction prices, import costs due to exchange rates and to human capital because of skilled labour shortages.
The 40 percent increase takes into account “working capital and contingency costs but not projected annual inflation or estimated financing costs during the construction phase.”
Asked if the spiralling increase in the cost would compromise the project’s margins, a Maaden spokesman said: “Not at all … We are going to push more bauxite in the plant.”
“We are close to signing the joint venture agreement with Rio Tinto based on the latest cost. We will sign the contract before the end of the year,” he said.
Rio Tinto Alcan will hold 49 percent of AlumCo, the joint venture company that will operate the plant.
Across the oil-exporting Gulf, companies have been raising their forecasts for the cost of projects, leading to delays and, in some cases, cancellations.
The region is booming on the back of record oil prices, fuelling demand for contractors, labour and materials, compounded by higher global prices for goods such as steel.
Saudi Arabia is the world’s largest holder of crude oil supplies. Energy is the single biggest cost in making aluminium.