With the price of gold going into meltdown, many mining companies are quaking in their boots.
But Saudi Arabian Mining Company, also known as Ma'aden, had difficulties in making money from its gold-mining operations even when the price of bullion was rising. Famously, Ma'aden recorded a loss of 9.19 million riyals last year, despite the price of gold surging 27.8 per cent that year.
But what now for the company's stock after gold plunged as much as US$208 per troy ounce in a three-day period?
Ironically, the company's large cash deposits from brisk sales of bullion were to blame, after Ma'aden underestimated its Zakat payments, worth 207.3m riyals.
So far this year, the company has performed more favourably. Ma'aden reported profits of 61.9m riyals in the second quarter following a sharp increase in revenue from gold sales. But with the growth in revenues now looking uncertain, the company may need to get to grips with its Zakat provisions sooner rather than later.
"The recent rally in gold prices … coupled with relatively low Zakat provision fed through to an exceptional increase of 100 per cent in net profit," wrote Mazhar Khan, an equity research analyst at Al Rajhi Capital, in a research note.
"Nevertheless, we believe that low provision on Zakat is unsustainable and set to rise."
Ma'aden's ability to profit is likely to hinge upon management's ability to recycle its cash reserves.
Early signs are that the company has been able to do so - Ma'aden has developed a $5.6 billion phosphate joint venture with Saudi Basic Industries Company to produce diammonium phosphate, which is used for a variety of purposes including as fertilisers and fire retardants.
This is now starting to pay off, with recently announced shipments to India. Aluminium production is also expected to start in 2013.
Nevertheless, worth bearing in mind is the fact that in the year to date, gold has been the better investment - even accounting for the plunge of the past few days.
ghunter@thenational.ae
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Tips for newlyweds to better manage finances
All couples are unique and have to create a financial blueprint that is most suitable for their relationship, says Vijay Valecha, chief investment officer at Century Financial. He offers his top five tips for couples to better manage their finances.
Discuss your assets and debts: When married, it’s important to understand each other’s personal financial situation. It’s necessary to know upfront what each party brings to the table, as debts and assets affect spending habits and joint loan qualifications. Discussing all aspects of their finances as a couple prevents anyone from being blindsided later.
Decide on the financial/saving goals: Spouses should independently list their top goals and share their lists with one another to shape a joint plan. Writing down clear goals will help them determine how much to save each month, how much to put aside for short-term goals, and how they will reach their long-term financial goals.
Set a budget: A budget can keep the couple be mindful of their income and expenses. With a monthly budget, couples will know exactly how much they can spend in a category each month, how much they have to work with and what spending areas need to be evaluated.
Decide who manages what: When it comes to handling finances, it’s a good idea to decide who manages what. For example, one person might take on the day-to-day bills, while the other tackles long-term investments and retirement plans.
Money date nights: Talking about money should be a healthy, ongoing conversation and couples should not wait for something to go wrong. They should set time aside every month to talk about future financial decisions and see the progress they’ve made together towards accomplishing their goals.
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
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