Desert outside of Riyadh, Saudi Arabia. Getty Images
Pinched by low oil prices, Saudi Arabia is looking to create a new pillar for its economy: mining. The first-ever Saudi Mining and Minerals Symposium, a three day event held in Riyadh, wraps up on Thursday. In his keynote speech, Minister of Petroleum and Mineral Resources Ali Al-Naimi declared that Saudi Arabia’s mining sector is set to triple by 2030, at which point its contribution to GDP is expected to reach $69.3 billion. He also highlighted that the mining industry has created 265,000 jobs, and the planned expansion will “create more than 100,000 jobs for citizens.”
By 2035, Saudi Arabia wants mining to account for between four and five percent of GDP, double the current contribution, said Sultan bin Jamal Shawli, deputy minister for mineral resources, at the event. Mining is thus envisioned to become the country’s third “economic pillar” after petroleum and petrochemicals.
And the mining sector is already off to a good start. According to MEED Projects, which is organizing the conference component of the symposium, Saudi Arabia’s projects under execution or pre-execution are worth $4 billion upstream (in extraction), and $15 billion downstream (in processing of minerals and metals). And Dr. Zohair A. Nawab, president of the Saudi Geological Survey, said “In 2016, studies will be made for confirmed reserves of more than 50 minerals in order to know their quantities and possible uses in industry.”
The sector’s most important player, Saudi Arabian Mining Company (Maaden), announced at the symposium that its total investment in projects now exceeds $26.6 billion. One is the $10.8 billion joint venture (JV) with U.S. mining giant Alcoa that includes a bauxite mine. Maaden also has share in other large JVs, such as those from Ras Al-Khair Industrial City which are worth a total of $34.6 billion.
Furthermore, Maaden is not a loss-generating, inefficient state-backed behemoth. It was formed by royal decree in 1997 and was entirely state-owned, but in 2008, 50% of its shares were publicly listed on the Saudi Stock Exchange. Since then the firm has done very well — its profits from mining for phosphate, aluminum, gold, and copper have doubled to $2.9 billion currently.
Maaden’s CEO and President Khalid Al-Mudaifer noted that many opportunities exist in the sector, but emphasized “Our mining sector is characterized by a focus on developing full value chains within the Kingdom and delivering the maximum possible benefit to local economies.” He added, “So whether companies are seeking opportunities in technology, infrastructure, or equipment, in order to be successful they must develop a local footprint, they must participate in the development of local businesses and they must ensure that mining projects benefit local communities to the greatest extent possible. In our own localization strategy, Maaden requires all of our contractors to meet minimum local content requirements for hiring and spending.”
Looking ahead, the firm’s “Maaden 2022” strategy focuses on exploration to maximize value from existing licenses quickly, and proactively acquiring new licenses in a diversified range of high-priority minerals. It is targeting annual growth above 15% through 2022 and average return on investor capital above 10% to be reached over the next decade.
That could be possible, but it seems overly optimistic. The harsh desert environment and geopolitical uncertainty throughout the Middle East make the emerging sector’s future very risky. Any of these factors should give investors pause: war in neighboring Yemen and Iraq, tensions with Iran in the shipping lanes used by Saudi Arabia, unpredictable volatility in energy prices, the lack of water and electricity needed for mining operations, and so on. That said, the sector could turn out to be a diamond in the rough.
