New Partnerships With Vale Base Metals And Ivanhoe Electric Will Support Operational Efficiency And Global Competitiveness

Key Takeaways

• Significant expansion efforts and strategic acquisitions are expected to boost revenue, increase production capacity, and enhance profitability through greater control and consolidation.
  
• Strategic international investments and technological advancements aim to enhance operational efficiency, supporting growth and maintaining a competitive edge globally.
  
• Rising production costs and strategic hurdles across key segments could challenge Ma'aden's ability to sustain earnings and margin growth amid market uncertainties.

Catalysts

Operates as a mining and metals company in the Kingdom of Saudi Arabia, Indian Subcontinent, Japan, the United States, Europe, Australia, Brazil, Africa, GCC, and internationally.

• Ma'aden's expansion into the Phosphate 3 project, with Phase 1 and Phase 2 increasing annual capacity by 3 million tonnes, is expected to significantly boost revenue by scaling up production capacity, positioning Ma'aden as a top global phosphate producer.
  
• The acquisition of equity stakes from Mosaic, Alcoa, and SABIC in key aluminum and phosphate ventures is likely to enhance net margins and earnings, as increasing stakes allows Ma'aden to gain greater control and consolidate profits from these ventures.
  
• Ongoing exploration in the Arabian Shield, marked by promising new discoveries of copper and gold, is projected to boost future revenue streams through the expansion of mineral reserves and increase production capacity.
  
• The successful issuance of an oversubscribed international Sukuk of $1.25 billion strengthens Ma'aden's financial capacity to pursue strategic growth initiatives, potentially leading to higher future revenues and increased earnings ability.
  
• Strategic international expansion through a 10% stake in Vale Base Metals and the partnership with Ivanhoe Electric, coupled with advancements in technology, AI, and digitization, should enhance operational efficiency and support growth in revenue, maintaining competitive advantage in global markets.

Saudi Arabian Mining Company (Ma'aden) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Saudi Arabian Mining Company (Ma'aden)'s revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 19.2% in 3 years time.
• Analysts expect earnings to reach SAR 7.3 billion (and earnings per share of SAR 1.9) by about March 2028, up from SAR 2.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SAR8.1 billion in earnings, and the most bearish expecting SAR6.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.5x on those 2028 earnings, down from 59.9x today. This future PE is greater than the current PE for the SA Metals and Mining industry at 30.4x.
• Analysts expect the number of shares outstanding to grow by 2.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.92%, as per the Simply Wall St company report.

Saudi Arabian Mining Company (Ma'aden) Future Earnings Per Share Growth

Risks

• Ma'aden faced a noncash impairment charge of SAR 1.4 billion in Q4 2024, primarily due to revised production volume growth assumptions within their Aluminum business, indicating potential challenges in sustaining earnings growth.
  
• The company reported higher production costs and a SAR 103 million inventory obsolescence charge in their phosphate business, possibly affecting their future net margins.
  
• Mansourah Massarah's gold production, after a strong year, is expected to remain static in 2025, reflecting potential limitations in sustaining high production levels and impacting future revenue growth.
  
• Potential U.S. tariffs on aluminum could disrupt trade flows and affect regional premiums, introducing market uncertainties that might impact revenue in the aluminum business.
  
• Higher raw material and operating costs, as noted in both phosphate and aluminum segments, could pressure Ma'aden's profit margins and reduce net earnings over the subsequent periods.

Valuation

• The analysts have a consensus price target of SAR45.609 for Saudi Arabian Mining Company (Ma'aden) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SAR58.0, and the most bearish reporting a price target of just SAR30.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SAR38.0 billion, earnings will come to SAR7.3 billion, and it would be trading on a PE ratio of 45.5x, assuming you use a discount rate of 20.9%.
• Given the current share price of SAR45.35, the analyst price target of SAR45.61 is 0.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.