Riyadh – Decypha: Consider a world leader in oil production; Saudi Arabia is currently exerting efforts to rely economically on other sectors in post-oil declines including the mining sector which is being anticipated to become one of the main pillars of Saudi economy. Saudi Arabia is among the richest countries in the gulf region to possess many minerals such as gold, copper, phosphate, and a unique array of industrial minerals according to a report by US- Saudi Arabia Business Council.
The government has diversified its investment policies and enhanced its transportation infrastructure to encourage the contribution by the mining sector and the minerals export by making these minerals easy to process among other procedures; however requires crucial capital to validate the sector’s success.
Market Performance
The Saudi mining industry has recorded a total of SAR 248631 million in the first quarter of 2017 compared to SAR 264505 million in the fourth quarter of 2016, according to data by Trading Economies. Saudi gold has managed to record total reserves worth of $ 240 billion while other minerals such as bauxite, copper, uranium and phosphate has achieved total reserves of $ 1.3 trillion according to a recent report by Oxford Business Group. Saudi Arabia aims to exceed the average annual growth made by the sector which amounts a total of 9.2% over the past decade.
There are plans to expose the sector’s potential by year 2020 where it can achieve a total worth of $ 25.9 billion. The country holds over 48 minerals that have been identified, 15 of which were validated commercially, whereas the Deputy Minister for Mineral Resources has previously identified 1,273 sites for metals extraction and 1,171 sites for non- metal substances.
Government policies & Foreign Investments
In efforts to further rely on non-oil sectors to incur revenues, Saudi Arabia has proceeded with several steps and regulations to revive the sector and attract open up new avenues to attract foreign investments including easing up ownership regulations on the stock exchange, according to OGB report.
The country has also recently signed a memorandum of understanding with American President Donald Trump in May that permits a partnership between Saudi company Ma’aden and U.S-based Alcoa and Mosaic. The Saudi company will be responsible for assessing the feasibility of expanding capacity at its aluminum smelting complex which is located in Ras Al Khair Industrial City by 600,000 tons per year, while the American companies are expected to contribute in the country’s phosphate industry. Other international investments include Canada-based Barrick Gold that invested a $ 220 million in a joint-venture copper mine with Ma’aden, whereas both companies began production in 2016.
The government has adjusted the country’s long-going mining code, according to US-Saudi Arabia Business Council report, which stated that the new code allows the Ministry of Petroleum and Mineral Resources to issue seven types of licenses where investors can select from three non-exploitation licenses which include inspection and material collection licenses and valid for two years, and four exploitation licenses.
Saudi Arabia is currently finalizing strategies and policies to triple the sector’s contribution to the country’s economic growth and GDO by 2030 where it is expected to rise from the current $ 17 billion to $ 64 billion. To make these strategies work, the government will be heavily relying on reserves of bauxite, phosphate, gold, copper, and uranium, as well as boost some of the sector’s beaming projects.
Mining Sector Projects
Among these projects is the anticipated Mansourah- Massarah Project, according to Reuters, which is located in the central regional of Saudi Arabia and is expected to be completed by the end of 2020. Also named as the “Greenfield project”, Mansourah – Massarah will include the mine, processing plant and infrastructure. It is expected to blend four million tons of blended Sulphide and oxide ore feed with gold exportation of 3.75 million ounces annually.
A new gold mine called Ad Duwayhi mine has been recently open in Makkah city in April, according OGB. The project is able to produce 180,000 oz annually, making it one of the country’s largest mines today.
The abovementioned projects are owned and operated by state-controlled mining company that were able to overcome a major challenge of developing gold mines in the central region by building a 430 kilometers pipeline reaching the area of Taif to bring in treated wastewater to the mines. The company was then able to re-use the water all through the project to this day.
Industry Challenges & Opportunities
Ma’aden was not the only company subject to challenges; the entire industry features a main challenge by default that includes water scarcity and the lack of suitable infrastructure such as rail transportation and mines, according to an article released by Saudi Mining. Outdated mines in the country and its aging operations are also another barrier that affects a short-term output; for example Al Hajar mine which began production in 2001 is said to have reached the closure to its mine life and can’t further operate.
Despite the challenges, the sector is expected to witness promising investment chances. Gold extraction- oriented companies hold a chance in the Ad Duwayhi which is one of the six gold mines that are operate by Ma’aden.
The country carried well-studied opportunities gold mines where approximately 600 gold-bearing sites are ready for operations, most of them are located in the country’s western side and 29 of which have been initial exploratory drilling.
Other opportunities are being formed by the government in the mining industry where the country is formulation a total of six economic cities that will feature regional development, attracting over $ 100 billion worth of investments. These investments are currently either about mined or explored while other have not been experienced. The country holds a competitive advantage an edge in its mining industry apart from its ambitious industrial projects, including the availability of low-cost feedstock, sulfur, and ammonia located in the Jubail area of the Kingdom. The minerals are easy to access through a network of established eight ports which are said to be the largest in the region.
Mining Industry Key Players
Once owned by state and has been later privatized, Ma’aden has long been one of the industry’s main key players as it was entrusted with consolidating the government-owned mining projects and rebranding them into commercial ventures in efforts to invite foreign and private participation. The company, profiting $ 73.5 million in the first quarter of 2017, is in the current process of creating individual companies for its gold, industrial minerals, phosphate, and aluminum interests.
Ma’aden strong sales incurred from gold and aluminum has driven the first quarter by 19.68% YoY. Another contributor to the mining industry is Saudi’s Aramco’s Initial Public Offering (IPO) which is a fund that will provide 70% of the cash flow to new sectors in the country including mining as key investment. The company owns a total capital worth of $ 2 trillion and its IPO initiative is scheduled to launch in 2018 and will offer only 5% of the company’s shares
Another major company in the mining industry is called Alujain Corporation that achieved a net profit of SAR 35.75 million in the fourth quarter of 2016 which is 27.4% higher compared to the same period last year. The reason for the increase, according to the company’s financial data, is due to the higher sales quantities and sale price that are supported by lower finance charges and lower share of losses from subsidiary’s joint ventures.
The Saudi mining sector although awaits government strategies’ implementation, is filled with prosperous opportunities embarking a total estimate of $ 11.9 billion as a future plan for mining and mineral development in 2019. The challenges in the sector could be enhanced by providing a full appropriate infrastructure for treating water scarcity in mines and transporting through proper railways.
By Fatma Khaled
