Alcoa 2015 Annual Report Download - page 144

Equity Investments. As of December 31, 2015 and 2014, Equity investments included an interest in a project to develop a
fully-integrated aluminum complex in Saudi Arabia (see below); bauxite mining interests in Guinea (45% of Halco Mining,
Inc.) and Brazil (18.2% of Mineração Rio do Norte S.A.); two hydroelectric power projects in Brazil (see Note N); a natural
gas pipeline in Australia (see Note N); a smelter operation in Canada (50% of Pechiney Reynolds Quebec, Inc.); and a
hydroelectric power company in Canada (40% of Manicouagan Power Limited Partnership). Pechiney Reynolds Quebec,
Inc. owns a 50.1% interest in the Bécancour smelter in Quebec, Canada thereby entitling Alcoa to a 25.05% interest in the
smelter. Through two wholly-owned Canadian subsidiaries, Alcoa also owns 49.9% of the Bécancour smelter. Halco Mining,
Inc. owns 100% of Boké Investment Company, which owns 51% of Compagnie des Bauxites de Guinée. The investments in
the bauxite mining interests in Guinea and Brazil and the natural gas pipeline in Australia are held by wholly-owned
subsidiaries of Alcoa World Alumina and Chemicals (AWAC), which is owned 60% by Alcoa and 40% by Alumina
Limited. In 2015, 2014, and 2013, Alcoa received $152, $86, and $89, respectively, in dividends from its equity investments.
Alcoa and Saudi Arabian Mining Company (known as “Ma’aden”) have a 30-year (from December 2009) 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
aluminum complex in Saudi Arabia. Specifically, the project being developed by the joint venture consists 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 have been constructed in an industrial area at Ras Al Khair on the east coast of Saudi
Arabia. The facilities 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, rolling
mill, and mine and refinery occurred in December of 2012, 2013, and 2014, respectively.
In 2012, Alcoa and Ma’aden agreed to expand the capabilities of the rolling mill to include a capacity of 100 kmt
dedicated to supplying aluminum automotive, building and construction, and foil stock sheet. First production related
to the expanded capacity occurred in 2014. This expansion is not expected to result in additional equity investment (see
below) due to significant savings anticipated from a change in the project execution strategy of the initial 380 kmt
capacity of the rolling mill.
The joint venture is owned 74.9% by Ma’aden and 25.1% by Alcoa and consists of three separate companies as
follows: one each for the mine and refinery, the smelter, and the rolling mill. Following the signing of the joint venture
shareholders’ agreement, Alcoa paid Ma’aden $80 representing the initial investment in the project. In addition, Alcoa
paid $56 to Ma’aden, representing Alcoa’s pro rata share of certain agreed upon pre-incorporation costs incurred by
Ma’aden prior to formation of the joint venture.
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 Commercial Production Date for the smelting company was declared on September 1, 2014.
There have not been similar declarations yet for the rolling mill company and the mining and refining company.
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, 2015 and 2014,
Alcoa had an outstanding receivable of $19 and $30, respectively, from the smelting, rolling mill, and refining and
mining companies for labor and other employee-related expenses.
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