Mining clusters support extractive expansion in Saudi Arabia

As part of the Kingdom’s broader economic diversification strategy, billions of dollars in public and private investments have been allocated to develop the mining industry in recent years. The driving force behind the sector’s expansion is the Saudi Arabian Mining Company (Ma’aden), which is majority owned by the Public Investment Fund (PIF) – the country’s sovereign wealth fund – and listed on the Saudi Stock Exchange (Tadawul). The diversified business, which is active in the gold, phosphates, industrial minerals and copper concentrates segments, has emerged as one of the largest and fastest-growing companies of its type in the MENA region.

Under the National Industrial Development and Logistics Programme, the government has outlined a number of major targets for the expansion of Ma’aden and the mining sector as a whole. Two new industrial cities, a port and an expanded railway network have been built to facilitate these efforts. In addition, Ma’aden is seeking to boost capacity and production, with work under way on new phosphate and gold facilities. While public investment and government-related institutions have taken the lead in the sector, the authorities are seeking to create a more diversified mining environment in which private companies and foreign investors play a greater role.

Industry Giant

The rapid growth of Ma’aden has highlighted what can be achieved through a combination of proactive government measures, partnerships with international companies and increased private sector investment. This approach forms part of Saudi Vision 2030, the country’s bold economic diversification programme aimed at transitioning the country away from a dependence on oil. Ma’aden was founded by royal decree in 1997 and remained wholly state owned until July 2008 when it launched an initial public offering (IPO). Raising approximately SR9.3bn ($2.5bn), it was the biggest mining IPO in the MENA region to date. This set off a series of major investments, with the company commissioning eight new mines and 17 processing plants, all of which were operational by 2018. The total value of the company’s assets increased dramatically during this time, rising from SR29bn ($7.7bn) in 2009 to SR97.7bn ($26bn) in 2019, while the value of its sales rose SR622m ($165.8m) to SR17.7bn ($4.7bn). Meanwhile, the company’s gold sales grew from 45,000 oz in 2009 to 394,117 oz in 2019. As of December 2019 the company operated six gold, one bauxite and two phosphates mines, in addition to three mines producing low-grade bauxite, kaolin and magnesite.

The most recent extraction facility to come on-line was the Al Khabra phosphates mine, which opened in 2017. The mine is operated by Ma’aden’s Wa’ad Al Shamal Phosphate Company – an $8bn joint venture (JV) between Ma’aden, Mosaic and SABIC – and is located in the Northern Borders region of the Kingdom, forming a key part of the Wa’ad Al Shamal Industrial City.

Mining Cities

The construction of specialised cities to serve as nodes clustering industrial facilities, transport infrastructure and human resources constitutes a central part of the Kingdom’s industrial development strategy. Completed in November 2018 Wa’ad Al Shamal Industrial City covers over 440 sq km and cost around SR22.5bn ($6bn). The project, which includes residential units, public amenities and new roads, was designed to provide a centre for the expansion of the Kingdom’s phosphate mining activities and generate around 30,000 jobs for Saudi citizens.

The city is connected by a rail freight line to Ma’den’s other mining city, Ras Al Khair Industrial City, which is located on the eastern coast 60 km north of Jubail. Initiated in 2016, the city is currently under development and managed by the Royal Commission for Jubail and Yanbu. The completed urban development will span 179 sq km and include an aluminium production complex, a water desalination and power plant, and a major port. In addition, the city will include a new railway network linking it with bauxite and phosphate mines. As of December 2019 the project had attracted investments of SR100bn ($26.7bn).

Challenges & Opportunities

While Ma’aden has experienced impressive growth in output and sales over the last decade, it nonetheless faces challenges, particularly in terms of the fluctuation of global commodity prices. Indeed, while overall sales increased by 25% to SR17.7bn ($4.7bn) in 2019, the international price of phosphate and aluminium fell by 18% and 15%, respectively. These sharp declines, coupled with significant capital expenditure in new operations, resulted in the company recording a net loss of SR1.5bn ($399.9m), compared to a net profit of SR2.3bn ($666.5m) the previous year.

Despite these challenges Ma’aden continues to expand its capacity and reach. In April 2019 the company announced an agreement to acquire an 85% stake in the Mauritius-based fertiliser distributor Meridian Group, marking its first overseas acquisition. Additionally, in June 2019 it was announced that the US-based aluminium producer Alcoa would divest its 25.1% share in Ma’aden Rolling Company (MRC), bringing the company under complete ownership of Ma’aden. MRC owns and operates a beverage can rolling facility in Ras Al Khair Industrial City, in addition to auto rolling assets. As part of the deal, MRC’s $796m in outstanding debt to the PIF was transferred to Ma’aden. Furthermore, Ma’aden aims to double its production capacity of gold to 1m oz per year by 2025 through its wholly owned subsidiary Ma’aden Gold and Base Metals Company. The firm, which already has six gold mines in operation, plans to commence production by 2023 at two new extraction sites at Mansourah-Massarah and Ar Rjum.

New Investment

While majority state-owned Ma’adan is likely set to dominate the sector for the foreseeable future, private companies are playing an increasingly active role, particularly in the upstream segment. For example, Modern Chemicals and Services Company – a JV between the domestic firm Modern Industrial Investment Holding Group and the French multinational EPC Groupe – has supplied civil explosives to the mining and construction industries since 2009. The company is currently developing a 350,000-tonne-per-annum, low-density ammonium nitrate project to produce components for mining explosives. Furthermore, Modern Mining Holding Company, a subsidiary of Modern Industrial Investment Holding Group, formed a JV with the Amsterdam-based resource trading firm Trafigura in October 2018 to develop an integrated copper, lead and zinc smelting and refining facility. Both these projects will form part of Ras Al Khair Industrial City.

The government is aiming to release more concessions for mining and quarrying to private firms in order to unlock the Kingdom’s estimated SR5trn ($1.3trn) in mineral deposits. One firm looking to expand operations is Saudi company Astra Mining. Since 2017 Astra Mining has produced lime and dolomite products at a plant in Al Kharj. The company has applied for licences to operate four quarries to extract lime, dolomite, magnesite and quartz, and plans to launch licence applications for feldspar, kaolin and pozzolan. “We currently buy limestone and dolomite from the market, but if we had our own mines our business would be transformed,” Ali Mousa Al Jabrah, CEO of Astra Mining, told OBG.

As part of this effort, the Saudi Geological Survey has been tasked with conducting detailed surveys and creating an accessible database to help in exploration activity. In addition, a new mining law is currently under development and is set to be enacted around the middle of 2020. The new legislation is expected to provide foreign investors with greater access to the market. “We believe the mining sector in Saudi Arabia can be as significant as it is in Chile, Australia or Canada,” Abdulkadir Farah, vice-president for business development at Modern Industrial Investment Holding Group, told OBG. “The new law presents exciting potential opportunities in the upstream segment.”