Saudi Arabia's mining sector poised for serious expansion

Saudi Arabia has put in place ambitious plans to raise the value of its mining operations to reach SR260bn ($69.3bn) by 2030. Currently, the direct and indirect contribution of the sector to the Kingdom’s GDP is estimated to be around SR80bn ($21.3bn), with the sector accounting for 265,000 jobs, according to a speech made by Ali Al Naimi, former minister of petroleum and mineral resources, in October 2015.

A Priority Sector

The Kingdom has vast mineral resources which, due to the ready supply and market for its oil, remained largely untapped for decades. However, as the Kingdom attempts to diversify its economy and revenue stream away from its reliance on oil, mining has taken on more importance as a growth driver. This process began in 1997 with the establishment of the state-owned Saudi Arabian Mining Company (Ma’aden) and was followed in 2004 by the introduction of a revised mining code, which aimed to encourage greater investment in the sector. Today, mining features heavily in the Kingdom’s Vision 2030. Highlighting the importance being given to mining as the third pillar of the Saudi economy, the Ministry of Petroleum and Mineral Resources has been reorganised, resulting in the formation of the Ministry of Energy, Industry and Mineral Resources. “Mining and the related downstream production that will follow suit will give a significant boost to non-oil economic growth,” Mohammed Khalid Al Ali, CEO of Arabian United Float Glass Company, told OBG. “There is substantial finance and support going towards innovation in the Saudi economy, but it is not well coordinated and is largely scattered. It needs to be unified under a common vision from all parties.”

Opening Up

Some industry players believe more regulatory changes need to be made to fully utilise the Kingdom’s mineral reserves. “Saudi Arabia is an incredibly mineral-rich country, but so far we have not leveraged this as fully as we should,” Ibrahim Alsenaidi, CEO of Advanced Mashreq Mining Company (AMMCO), told OBG. “Greater liberalisation is necessary to encourage the development of a robust mining sector. The government should allow the private sector to play a greater role and encourage foreign companies to come and invest here. They will bring expertise and take the risk, so it will benefit the government.”

At a workshop attended by senior officials and experts in December 2015, Deputy Crown Prince Mohammed bin Salman Al Saud emphasised the government’s aim to attract more investment in the Kingdom’s mining sector, in part by reducing restrictions and obstacles. He also said that large-scale investments in mineral development were essential for finding alternative revenue streams for the Kingdom, and that Saudi authorities wanted to prepare an attractive climate for foreign investors interested in the country’s mineral resources. “There are opportunities for international collaboration and investment, especially in the areas of advanced mining techniques, research and development, and mining education,” Ali Al Jabrah, CEO of Astra Mining, told OBG.

Ma’aden

At present the mining sector in Saudi Arabia is dominated by Ma’aden. The company’s original focus was gold, but in the years since it was established the company has pursued opportunities in phosphate, ammonia and copper mining. The firm has entered into several significant joint ventures, and in 2008, 50% of Ma’aden was floated on the Saudi Stock Exchange.

In 2015 the company achieved its highest production levels to date in a number of segments, including phosphates, where production exceeded 2.6m tonnes of phosphate fertiliser, up from 2.4m tonnes in 2014; aluminium, with sales reaching 836,000 tonnes, compared to 663,000 in 2014; and gold, where production increased from 154,000 oz to 164,000 oz. Even so, the company’s net profit for the year was down 55% at SR605m ($161.3m) due to lower global commodity prices.

In January 2016 the company’s CFO, Khalid Al Rowais, highlighted a number of important milestones from the previous year that pointed towards future growth. These included the successful trial production at Ad Duwayhi mine – Ma’aden’s largest gold mine – and the start of trial production at the Kingdom’s largest copper mine, Jabal Sayid, which is being developed in partnership with Canada’s Barrick Gold.

Geographical Development

While the Kingdom is pushing the development of the mining sector as a way to diversify revenue streams, it is also promoting mining as a means of increasing employment opportunities and developing regions of the country. Gold, phosphates and bauxite are found in Saudi Arabia’s western and northern regions, which are far less developed than the east and coastal areas. “Mining now accounts 265,000-300,000 jobs; by 2030 the government wants to make that number 400,000,” Abdulkadir Farah, vice-president of business development at Modern Industrial Investment Holding Group, told OBG. “The government has demonstrated a clear desire to diversify the industrial base of the country, while also committing to policies that insure social harmony and economic equity within the Kingdom’s provinces,” he added, going on to say that the development of the mining sector also meets the dual role of fulfilling this commitment by extending financial resources, infrastructure and job creation initiatives to rural and less developed regions. “Ma’aden’s bauxite and phosphate mines, which are mainly in the central and northern regions of the Kingdom, are expected to transform the economies of the immediate regions, while also creating substantial value-added opportunities through the establishment of downstream industries in Ras Al Khair, including, for example, Ma’aden Aluminium and Ma’aden Phosphate,” Farah told OBG.

Gold

Ma’aden Gold and Base Metals Company, a wholly owned subsidiary of Ma’aden, operates five gold mines in Saudi Arabia, which have produced more than 4m oz of gold since 1988 and 164,000 oz in 2015 alone. Two additional gold mines are currently under development in line with the company’s stated goal to produce 500,000 oz of gold annually by 2017. The two mines it plans to open next are both open cast. In 2011 an Australian-Saudi joint venture, Ausenco, won a contract worth $150m to develop As Suq, which is around 365 km north-east of Jeddah, and Ad Duwayhi, which is located 450 km south-west of Riyadh. In October 2015 Ma’aden announced the start of trial production at Ad Duwayhi, located in Makkah Province. The mine is estimated to have 1.9m oz in reserves and, once operating at full capacity, it is expected to produce a total of 180,000 oz of gold per year, which would be one-third of Ma’aden’s total production. Commercial production started in April 2016.

More gold mines are expected to come on-line in the next few years thanks to a new $160m pipeline, which allows for the piping of treated waste-water from Taif city to the mine sites, thereby enabling the development of new mining projects without depleting precious local water supplies. “Thanks to our new 450-km treated water pipeline in the Arabian Shield, we anticipate opening more mining sites in the coming years, including those based on current development projects at Ar Rjum, Mansourah and Masarrah,” the company wrote in its 2014 annual report.

Secure Supply

The Kingdom relies heavily on treated water, and further development of this industry is critical for the country’s future. “In the Gulf region, desalinated water makes up the bulk of potable drinking water. This is especially the case in Saudi Arabia, where it accounts for almost 100% of the supply, yielding dependence on the supply of chemicals for desalination plants,” Jamal Fawzi Matalka, CEO of Specialty Chemical Industries, told OBG. Closer coordination with the GCC should help Saudi businesses, particularly in the area of food safety and drinking water, both of which are essential for the development of the new economic cities as they will require a steadily increasing amount of water. “Streamlining of regulation across the GCC has facilitated business in the region. In Saudi Arabia, the Saudi Food and Drug Authority has invested in its online platforms to process requests or allow paperwork to be submitted in a more efficient manner, saving companies time and money,” Salman Al Hajjar, general manager, Al Safi Foods, told OBG.

Phosphates

Another important area of development in the mining sector is phosphates. The industry currently revolves around a Ma’aden subsidiary called the Ma’aden Phosphate Company (MPC), which is a joint venture between Ma’aden and Saudi Basic Industries Corporation (SABIC) that was formed in 2007 and operates the Al Jalamid mine in the north, as well as within Ras Al Khair Industrial City, which is located 90 km north of Jubail on the Gulf coast.

Ras Al Khair Industrial City is run by the Royal Commission of Jubail, which falls under the broader Royal Commission of Jubail and Yanbu. The facility includes plants producing phosphoric and sulphuric acids, as well as an ammonia facility, with a second coming on-line in 2017, and a phosphate plant that can produce 3m tonnes of fertiliser per year. In 2015 MPC produced 2.6m tonnes of fertiliser. “Last year Ma’aden made SR1bn ($266.6m) in profit off of phosphates alone. This is from a small capacity and only one company. Imagine how high the revenues would be generated for the economy with many companies operating at a large capacity,” AMMCO’s Alsenaidi told OBG.

The slate of new projects has made industry insiders optimistic about future growth prospects. “Mining is a very promising industry in Saudi Arabia. Phosphates have especially high potential, with diammonium phosphate being the most attractive given its competitive margins and high demand worldwide. We can be number one in the world for phosphate-based fertilisers if we develop this industry properly,” Abdulaziz Barakat Al Hamwah, vice-chairman and CEO of Modern Chemicals and Services Company, told OBG.

One project that could serve this goal is the facility being built in Waad Al Shamal, 20 km from Turaif. The project is being developed as a partnership between MPC, which owns 60%; SABIC, with 15%; and US-based Mosaic Company, with 25%. With its seven plants and ancillary facilities, Ma’aden says it is on course to become one of the world’s largest phosphate production facilities. Indeed, the facility could more than double the Kingdom’s total phosphate production capacity when it comes on-stream in late 2016.

In January 2016 the Ma’aden Waad Al Shamal Phosphate Company obtained four long-term loans totalling some SR4bn ($1.1bn) from the Saudi Industrial Development Fund. These will be used to construct a second ammonia facility, integrate associated infrastructure to the existing diammonium phosphate plants in Ras Al Khair, finance the construction of a sulphuric acid plant and power plant in Waad Al Shamal city, as well as to fund the construction of a phosphoric acid plant and a phosphate concentrate plant to be based in Waad Al Shamal.

Aluminium & Copper

Aluminium is a recent addition to the Kingdom’s mining assets. According to Ma’aden, 2014 was the year the company successfully completed its mine-to-market value chain. In May 2014 the first bauxite was produced in the company’s Al Ba’itha mine, located in Al Qassim Province. The following month Saudi Arabia’s first-ever can sheet coil was produced at Ma’aden’s Ras Al Khair rolling mill, with the company’s smelter reaching full production in July 2015.

The firm claims its aluminium facility, a $10.8bn joint venture with US firm Alcoa, is the world’s largest and most efficient integrated aluminium processing complex, able to produce the world’s most economical aluminium, with a smelter production capacity of 740,000 tonnes per year.

In January 2016 Ma’aden began initial production of copper at its joint venture with Barrick Gold at Jabal Sayid, 120 km south of Medina. Barrick acquired the asset in 2011 after it bought copper mining firm Equinox for $5.3bn, with Ma’aden coming on board after agreeing in July 2014 to buy 50% of the project for $210m. The mine’s production capacity is eventually expected to reach 51,000 tonnes of copper in concentrate per year, with the lifespan of the mine forecast to be around 15 years based on current reported reserves.

Industrial Minerals

Ma’aden also mines three non-fuel, non-metal and non-gem materials – namely, low-grade bauxite, which is used in the production of cement; kaolin, one of the world’s most versatile clays; and caustic calcined magnesia – through a wholly owned subsidiary, Ma’aden Industrial Minerals Company, which was established in 2011. The company is also looking into refractory clays, kyanite, graphite, precipitated calcium carbonate products, potash and iron ore.