Alcoa 2010 Annual Report Download - page 109

Equity Investments. As of December 31, 2010 and 2009, Equity investments included an interest in a project to
develop a fully-integrated aluminum complex in Saudi Arabia (see below), hydroelectric power construction projects in
Brazil (see Note N), a smelter operation in Canada, bauxite mining interests in Guinea and Brazil, and a natural gas
pipeline in Australia (see Note N). During 2009, Alcoa also had the following equity investments (see below): a
45.45% investment in Sapa AB, a 50% investment in Elkem, and an 8.5% investment in Shining Prospect Pte. Ltd.
(SPPL).
In December 2009, Alcoa and Saudi Arabian Mining Company (known as “Ma’aden”) entered into a 30-year joint
venture shareholders’ agreement (automatic extension for an additional 20 years, unless the parties agree otherwise or
unless earlier terminated) setting forth the terms for the development, construction, ownership, and operation of an
integrated bauxite mine, alumina refinery, aluminum smelter, and rolling mill, in Saudi Arabia. Specifically, the project
to be developed by the joint venture will consist of: (i) a bauxite mine for the extraction of approximately 4,000 kmt of
bauxite from the Al Ba’itha bauxite deposit near Quiba in the northern part of Saudi Arabia; (ii) an alumina refinery
with an initial capacity of 1,800 kmt; (iii) a primary aluminum smelter with an initial capacity of 740 kmt; and (iv) a
rolling mill with an initial capacity of 380 kmt. The refinery, smelter, and rolling mill will be constructed in an
industrial area at Ras Az Zawr on the east coast of Saudi Arabia. The facilities will use critical infrastructure, including
power generation derived from reserves of natural gas, as well as port and rail facilities, developed by the government
of Saudi Arabia. First production from the smelter and rolling mill is anticipated in 2013, and first production from the
mine and refinery is expected in 2014.
As initially conceived, the joint venture was to be owned 60% by Ma’aden with the other 40% being controlled by
Alcoa through a special-purpose vehicle (SPV). Through this SPV arrangement, Alcoa and Aluminum Financing
Limited would each have had a 20% economic interest in the joint venture. Aluminum Financing Limited’s investment
was in the form of subordinated, participating convertible notes issued by the SPV (the “Notes”), which had common
equity rights in the SPV, and were to be converted into permanent equity at a future date based on certain conditions as
defined in the underlying SPV agreement.
Following the signing of the joint venture shareholders’ agreement, Alcoa paid Ma’aden $80 representing the initial
investment of the 40% interest in the project. This investment was included in Additions to investments on the
accompanying Statement of Consolidated Cash Flows. Aluminum Financing Limited’s 50% share of the $80 was
reflected as Convertible securities of subsidiary on the accompanying Consolidated Balance Sheet and in Contributions
from noncontrolling interests on the accompanying Statement of Consolidated Cash Flows.
In March 2010, Alcoa and Ma’aden executed a supplement to the joint venture shareholders’ agreement and modified
the ownership structure such that the joint venture now will be owned 74.9% by Ma’aden and 25.1% by Alcoa
(Aluminum Financing Limited is no longer a participant). Concurrent with modifying the joint venture shareholders’
agreement with Ma’aden, Alcoa entered into an agreement with Aluminum Financing Limited under which Alcoa
redeemed the $40 in Notes, and Aluminum Financing Limited terminated all of its current and future interests in the
SPV, for a payment of $60. This $60 was included in Acquisitions of noncontrolling interests on the accompanying
Statement of Consolidated Cash Flows. The difference between the redemption amount and the carrying value of the
Notes was reflected as a reduction in Additional capital on the accompanying Consolidated Balance Sheet.
Going forward, Ma’aden and Alcoa will have put and call options, respectively, whereby Ma’aden can require Alcoa to
purchase from Ma’aden, or Alcoa can require Ma’aden to sell to Alcoa, a 14.9% interest in the joint venture at the then
fair market value. These options may only be exercised in a six-month window that opens five years after the
Commercial Production Date (as defined in the joint venture shareholders’ agreement) and, if exercised, must be
exercised for the full 14.9% interest. In addition, Alcoa paid $34 (rather than the previously disclosed $55) to Ma’aden,
representing Alcoa’s pro rata share of certain agreed upon pre-incorporation costs incurred by Ma’aden before
formation of the joint venture (this payment was made on September 15, 2010 and is subject to audit adjustment).
The Alcoa affiliate that holds Alcoa’s interests in the smelting company and the rolling mill company is wholly owned
by Alcoa, and the Alcoa affiliate that holds Alcoa’s interests in the mining and refining company is owned 60% by
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