Alcoa 2012 Annual Report Download - page 119

Capital investment in the project is expected to total approximately $10,800 (SAR 40.5 billion). Alcoa’s equity
investment in the joint venture will be approximately $1,100 over a five-year period (2010 through 2014), and Alcoa
will be responsible for its pro rata share of the joint venture’s project financing. Alcoa has contributed $661, including
$253 and $249 in 2012 and 2011, respectively, towards the $1,100 commitment. As of December 31, 2012 and 2011,
the carrying value of Alcoa’s investment in this project was $816 and $565, respectively.
In late 2010, the smelting and rolling mill companies entered into project financing totaling $4,035, of which $1,013
represents Alcoa’s share (the equivalent of Alcoa’s 25.1% interest in the smelting and rolling mill companies). Also, in
late 2012, the smelting and rolling mill companies entered into additional project financing totaling $480, of which
$120 represents Alcoa’s share. In conjunction with the financings, Alcoa issued guarantees on behalf of the smelting
and rolling mill companies to the lenders in the event that such companies default on their debt service requirements
through June 2017 and December 2018, respectively, (Ma’aden issued similar guarantees for its 74.9% interest).
Alcoa’s guarantees for the smelting and rolling mill companies cover total debt service requirements of $121 in
principal and up to a maximum of approximately $60 in interest per year (based on projected interest rates). At
December 31, 2012 and 2011, the combined fair value of the guarantees was $10 and $8, respectively, and was
included in Other noncurrent liabilities and deferred credits on the accompanying Consolidated Balance Sheet. Under
the project financings, a downgrade of Alcoa’s credit ratings below investment grade by at least two agencies would
require Alcoa to provide a letter of credit or fund an escrow account for a portion or all of Alcoa’s remaining equity
commitment to the joint venture project in Saudi Arabia.
In late 2011, the refining and mining company entered into project financing totaling $1,992, of which $500 represents
AWAC’s 25.1% interest in the refining and mining company. In conjunction with the financing, Alcoa, on behalf of
AWAC, issued guarantees to the lenders in the event that the refining and mining company defaults on its debt service
requirements through June 2019 (Ma’aden issued similar guarantees for its 74.9% interest). Alcoa’s guarantees for the
refining and mining company cover total debt service requirements of $60 in principal and up to a maximum of
approximately $25 in interest per year (based on projected interest rates). At December 31, 2012 and 2011, the
combined fair value of the guarantees was $4. In the event Alcoa would be required to make payments under the
guarantees, 40% of such amount would be contributed to Alcoa by Alumina Limited, consistent with its ownership
interest in AWAC. Under the project financing, a downgrade of Alcoa’s credit ratings below investment grade by at
least two agencies would require Alcoa to provide a letter of credit or fund an escrow account for a portion or all of
Alcoa’s remaining equity commitment to the joint venture project in Saudi Arabia.
Power for the refinery, smelter, and rolling mill will be supplied under a gas allocation from Saudi Aramco, based on
authorization of the Ministry of Petroleum and Mineral Resources of Saudi Arabia (the “Ministry of Petroleum”). The
letter authorizing the gas allocation provides for gas to be tolled and power to be supplied to the refinery, smelter, and
rolling mill from an adjacent power and water desalination plant being constructed by a company ultimately owned by
the government of Saudi Arabia, with the major tolling elements fixed at cost. The gas allocation is contingent on the
finalization of implementing contractual arrangements and on the achievement of certain milestones, as defined in the
joint venture shareholders’ agreement, and includes possible penalties if the milestones are not met, including the
following: (i) potential forfeiture of a $350 letter of credit required to be provided to the Ministry of Petroleum by
Ma’aden (with Alcoa responsible for its pro rata share) to ensure completion of the refinery, (ii) potential forfeiture of
the gas allocation if the smelter is not completed, (iii) a potential requirement for the smelter to allocate 275 kmt of
aluminum to other entities determined by the Ministry of Petroleum if the rolling mill is not constructed, and (iv) under
a new version of the gas allocation (issued in early 2011 and further extended in May 2012), forfeiture of a $60 letter of
credit if certain auxiliary rolling facilities are not completed.
The parties subject to the joint venture shareholders’ agreement may not sell, transfer, or otherwise dispose of, pledge,
or encumber any interests in the joint venture until certain milestones have been met as defined in both agreements.
Under the joint venture shareholders’ agreement, upon the occurrence of an unremedied event of default by Alcoa,
Ma’aden may purchase, or, upon the occurrence of an unremedied event of default by Ma’aden, Alcoa may sell, its
interest for consideration that varies depending on the time of the default.
108