Alcoa 2013 Annual Report Download - page 127

Ma’aden and Alcoa 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.
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 wholly owned by
AWAC. Except in limited circumstances, Alcoa may not sell, transfer or otherwise dispose of or encumber or enter into
any agreement in respect of the votes or other rights attached to its interests in the joint venture without Ma’aden’s
prior written consent.
A number of Alcoa employees perform various types of services for the smelting, rolling mill, and refining and mining
companies as part of the construction of the fully-integrated aluminum complex. At December 31, 2013 and 2012,
Alcoa had an outstanding receivable of $31 and $28, respectively, from the smelting, rolling mill, and refining and
mining companies for labor and other employee-related expenses.
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, and Alcoa will be responsible for its pro rata share of the
joint venture’s project financing. Alcoa has contributed $832, including $171 and $253 in 2013 and 2012, respectively,
towards the $1,100 commitment. As of December 31, 2013 and 2012, the carrying value of Alcoa’s investment in this
project was $951 and $816, 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, 2013 and 2012, the combined fair value of the guarantees was $10, which 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 mining and refining company. In conjunction with the financing, Alcoa, on behalf of
AWAC, issued guarantees to the lenders in the event that the mining and refining 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
mining and refining 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, 2013 and 2012, the
combined fair value of the guarantees was $4, which was included in Other noncurrent liabilities and deferred credits
on the accompanying Consolidated Balance Sheet. 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.
In June 2013, all three joint venture companies entered into a 20-year gas supply agreement with Saudi Aramco,
replacing the previous authorized gas allocation of the Ministry of Petroleum and Mineral Resources of Saudi Arabia
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