Year of
achievements
despite challenges

It is very rare that a company can look to the future with heightened optimism and confidence at a time when markets and profitability are suffering. At Ma’aden, we are experiencing exactly that as we close the 2016 financial year. I am confident that Ma’aden’s new vision and the 2025 strategy will take the Group to new heights. Our internal control mechanisms and risk oversight have grown stronger over the years, with the active supervision of the Board of Directors, both directly and through its committees.

There are two reasons behind this optimism:

  • The substantial newly commercialized business in 2016, which was recognized when the Custodian of the Two Holy Mosques King Salman Bin Abdulaziz Al Saud inaugurated Ras Al Khair industrial city and Ma’aden’s large-scale operations there on November 29, 2016.
  • Ma’aden’s adoption of new vision and 2025 strategy, building on our previous strategy, but revised to align our plans with Saudi Vision 2030 and potential opportunities for growth.

The King’s visit is one of the most meaningful events in the history of our company because it signals the highest level of recognition for Ma’aden’s role in industrial diversification and national economic development. Ras Al Khair is a symbol of our success as it has become the hub of Saudi Arabia’s mining industry and hosts our phosphate, ammonia and aluminium plants.

Ma’aden’s new vision is to be a sustainable Saudi mining champion with global presence and our new strategy seeks to integrate the two new elements in the vision with our business plans. The rationale to be the sustainable Saudi mining champion and the context of our global ambitions are explained in the Chairman’s message as well as in a dedicated strategy chapter in this report. Our vision and strategy are aligned with Saudi Vision 2030 and the NTP.

2016 achievements
Admittedly, the financial results for 2016 are lower than previous years, but not unexpected. The long-lasting commodity price downcycle and other global economic factors are driving our financial performance. Our net profit dropped to SAR401 million from SAR808 million and annual revenue declined by 13 percent to SAR9.51 billion from SAR10.96 billion.

Ma’aden has remained consistently profitable throughout the current global market downcycle that began in 2011, underlining our status as a low-cost producer. We proved our resilience during this period by completing the large-scale projects underway, focusing on operational excellence, and carefully managing our costs. Our total assets at the close of 2016 stood at SAR97.07 billion, up SAR7.69 billion from SAR89.38 billion at the end of 2015.

However, these figures do not tell the whole story of our achievements. During 2016, we achieved a number of successes and our determined efforts to manage the consequences of low commodity prices will have a long-term impact on Ma’aden’s performance and profitability.

Four of our new production facilities reached commercial production during the year: Ad Duwayhi mine (gold), Jabal Sayid mine (copper), Al Ba’itha mine (bauxite) and Ras Al Khair refinery (alumina). Just as the year ended, we announced the commercial startup of our ammonia plant at Ras Al Khair, which is part of our large-scale Wa’ad Al Shamal phosphate fertilizer value chain.

Construction work on other Wa’ad Al Shamal facilities has also progressed well. We overcame a number of challenges in Umm Wu’al, and will start seeing our Wa’ad Al Shamal plants start up in 2017.

Excellence and consolidation
Operational excellence, which remains a key pillar of our strategy, is the common theme in everything we have done over the past two years to mitigate the consequences of low commodity prices. Our emphasis on excellence is not limited to manufacturing operations, but includes the management of capital, marketing and sales, human resources and all other corporate functions.

In 2016, we made considerable progress in achieving higher levels of efficiency, cost reduction and productivity improvement. We also launched cash generation initiatives across the Group under ETGAN, our business transformation program. These were made possible partly through our initiative to consolidate resources with the specific goals of reducing costs and enhancing efficiency.

Our people worked hard throughout the year to ensure that we succeed in implementing Group-wide plans to

reduce costs and enhance efficiency. The results are heartening: we have achieved higher production and productivity and met higher Environment, Health, Safety and Security (EHSS) targets. We achieved significant cost reductions across general and administrative expenses (26 percent) exploration and technical services (65 percent), and marketing, sales and logistics (23 percent), while our cash cost of production fell 17 percent in phosphate fertilizer and 20 percent in aluminium. Our cash cost in gold increased by 36 percent due to the declaration of commercial production of Ad Duwayhi mine on April 1, 2016 and we are ramping up towards design capacity.

Ma’aden has adopted the goal of making the Group one of the top three employers of choice in Saudi Arabia. We will attain that position with our current focus on performance-based career progression, leadership development and employee engagement programs.

Sustainability
Sustainability is a key element in the 2025 strategy. We are committed to strengthening our sustainability program by adopting international mining industry standards at our operations as well as by reporting our progress in their implementation. In recent years, our sustainability efforts have focused on achieving consistently high results in Environment, Health, Safety and Security (EHSS), delivering community programs and optimizing the value from our assets and resources.

We have identified a number of initiatives under our sustainability strategy, each with clear objectives and investment criteria. These initiatives are broadly categorized under seven of the 17 United Nations Sustainable Development Goals (SDGs), and will together make up a cohesive Ma’aden sustainability program.

Governance and ethics
We are continually working to enhance Ma’aden’s governance, risk and compliance systems. Our internal control mechanisms and risk oversight have grown stronger over the years, with the active supervision of the Board of Directors, both directly and through its committees.

Going beyond a step-by-step approach, our focus now is to build a strong compliance culture at Ma’aden. During the past year, we developed specific learning and engagement programs that are aimed at developing awareness and instilling stronger commitment to compliance and ethics. These programs include Ma’aden’s values, Code of Conduct and our anti-corruption policy, which is based on the highest global standards, and came into effect across Ma’aden and its subsidiaries during 2016.

Looking forward
In conclusion, I want to emphasize that Ma’aden and the mining industry have a crucial role to play in Saudi Arabia’s plans for the future. For Ma’aden, the aspiration to be the champion of the industry comes with major responsibilities to help

achieve the national vision for the sector. And over time our plans to explore global opportunities will offer exciting possibilities.

I am confident that Ma’aden’s new vision and the 2025 strategy will take the Group to new heights. I am also optimistic that the global markets have found their floor and we can look forward to a better market environment and a financial performance in 2017 that will match our operational achievements.



Khalid Bin Saleh Al-Mudaifer
President and CEO