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The Kingdom of Saudi Arabia may be renowned for its vast reserves of ‘black gold’, but it is by no means the only variety of ‘gold’ beneath its deserts. The country benefits from an abundance of mineral reserves, which it has increasingly sought to exploit as it looks to diversify its oil-dependent economy. Exciting developments are gathering pace, bringing a fresh wave of opportunity to the mining sector.
From its inception in 1932, the modern Kingdom of Saudi Arabia has looked to capitalise upon its bountiful natural resources. Following a government commissioned geological survey, both oil and gold were discovered in the country. Whilst the former has been at the forefront of the Saudi economy ever since, the latter has, until recently, remained largely peripheral.
The same can be said for much of the Kingdom’s mineral wealth. The country contains large deposits of not just gold, but bauxite, silver, copper, iron, tin, zinc and lead, as well as non-metallic minerals like phosphate and tantalum.
Although there has been plenty of exploration undertaken (spearheaded principally by the Deputy Ministry for Mineral Resources (‘DMMR’), the state regulator of the mining sector), there has been correspondingly little in the way of extraction and processing. Some public-private partnerships have arisen over the years, but this has not precipitated much growth in the domestic mining industry.
Nonetheless, this has begun to change with the advent of the Saudi Arabian Mining Company, Ma’aden. Established in 1997 by the government, Ma’aden is responsible for regulating mineral exploration and mining. It has acted as a catalyst for investment and delivered vital commercial impetus to the mining sector, particularly following Ma’aden’s partial privatisation in 2008.
In its brief history, it has pursued strategic partnerships both at home and abroad, with the aim of exploiting what has already been explored and discovered. Much of its work has entailed creating the necessary infrastructure that can facilitate extraction and processing, as two of its current flagship projects demonstrate.
After discovering significant deposits of bauxite in north-eastern Saudi Arabia, Ma’aden has formed a $10.8 billion joint venture with America’s Alcoa to create what it describes as ‘the largest and most efficient vertically integrated aluminium complex in the world.’
It is envisaged that ultimately the mine will produce 4.0 million tonnes of bauxite per annum, which will then be transported around 600km by rail to a processing plant, in order to be refined into alumina.
The 1.8 million tonnes of alumina generated will then be smelted to produce 0.74 million tonnes of aluminium. Up to half of this aluminium can then be processed by an adjacent rolling mill to produce ‘sheet, end and tab stock for the manufacture of cans and other products including auto, construction and foil applications.’
At present, the refinery is still under construction and is expected to be completed in 2014. In the interim period, alumina is being supplied by Alcoa (via import) for smelting. Once the complex is fully operational and thus integrated, it is anticipated that the aluminium produced will undercut global prices and thus be much sought after by the markets.
Ma’aden is responsible for implementing the project infrastructure. This extends beyond mining operations per se and encompasses an ambitious cooperative project with Saudi’s water and electricity utility companies, whereby the parties are developing a joint power and desalination plant. This will fulfil the daily water and electricity requirements of the aluminium complex, whilst the surplus will be supplied to the national grid.
Gold, for obvious reasons, has been a key focus for Ma’aden. Saudi Arabia has significant deposits, particularly in the ‘Nubian shield’: a rich seam of gold either side of the Red Sea. In addition to five existing mines, it is currently developing two more sites, including one at Ad-Duwayhi. Mining and milling operations will be employed, with the resultant gold to be transported south to Jeddah, 450km away. Flowing in the opposite direction will be treated water from the Red Sea, courtesy of a 500km pipeline, that will also service other nearby mines and facilitate mining operations.
It is not just water that Saudi Arabia may soon be extracting from the Red Sea. In conjunction with Sudan, mining for minerals such as gold, silver and copper is scheduled to commence on the seabed by 2014. Although the existence of deposits was first confirmed in the middle of the twentieth century, only in 2010 was a licence obtained for mining, awarded to a joint venture between Saudi and Canadian companies (the latter acting on Sudan’s behalf). Further exploration is ongoing, but recent core samples have revealed the presence of silver, zinc and copper.
Recent progress in the mining sector of Saudi Arabia is merely a foretaste of things to come, as the government’s policy of diversification continues to take shape. Between 2010 and 2012, revenues from non-petroleum mining rose nearly 17%. There has been an almost exponential increase in mineral exports since the turn of the century, with exports of base metals quadrupling and exports of precious metals increasing a hundredfold. The government continues to invest heavily in the mining sector, providing tax incentives and improving infrastructure.
Clearly, opportunities abound as the Kingdom seeks to capitalise upon its bounty of mineral resources. Entry into this potentially lucrative market is conditional upon obtaining a licence. These are issued by the Ministry of Petroleum and Mineral Resources (of which DMMR is an offshoot) in accordance with the government’s Mining Code, and can relate to exploration and/or exploitation.
Mining licences enjoy several perks: there are no royalties payable, no import duties on imported mining equipment and no surface rental for exploration licences. Moreover, although restricted in duration to thirty years, they are renewable.
Vast tracts of land are already nominally under licence, though the licence-holder often lacks the wherewithal to maximise its use. Therefore, joint ventures with state-owned operators are, in practice, the optimum way into the Saudi mining sector.
Opportunities undoubtedly exist in mining, but there are risks and challenges too. The aforementioned licensing scheme has become increasingly unwieldy. The Ministry’s right to remove inactive licences is rarely employed and is a hollow gesture that has done little to dissuade passive speculators domestically. Expertise and infrastructure can also prove difficult to access, though this tends to be a geographical issue.
Finally, mining represents a tiny proportion of Saudi’s economy. Despite growth within the sector, its overall size within the country’s GDP has actually fallen from 0.4% to 0.3% in the last couple of years.
At this stage, there is still some way to go for mining to become the ‘third pillar’ in the national economy (after oil and petrochemicals) , but the will is certainly there and the mining sector is displaying positive signs of growth.
The article above was first published in "Materials World" in January 2014.
This article was written by Clive Hopewell.
For more information contact Clive on +44 (0)207 203 5203 or firstname.lastname@example.org