Can Saudi Arabia emerge as a mining powerhouse amid global race for minerals?


Saudi Arabia’s strategy to invest in exploration and mining of key mineral resources within the country and abroad could make the kingdom a key player in the global minerals supply chain, analysts say.

As the world’s leading economies race for a share of critical mineral resources with new investments in the mining sector, the kingdom is speeding up efforts to position itself as a major player in mineral mining in the region, according to an S&P Commodities Insights report this month.

“Saudi Arabia is taking a holistic approach to invest in the sector, inside and outside the country,” S&P says.

Earlier this month, the kingdom unveiled a$182 million mineral exploration incentive programme and 33 new mining licences.

Last year, Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, and state mining company Ma’aden established Manara Minerals to acquire global mining assets.

In July, Manara announced its first high-profile acquisition, a 10 per cent stake in Brazil’s Vale Base Metals.

Manara’s investment in Vale will help it expand the production of copper and nickel.

“This illustrates the growing role of the PIF in using its financial resources for domestic investment and access to foreign technology,” says Nasser Saidi, a former Lebanese economy minister and vice governor of the country’s central bank.

Ma’aden also acquired a 9.9 per cent stake in mineral exploration and development company Ivanhoe Electric and established a joint venture in May last year to explore copper, gold, silver and other metals in Saudi Arabia.

“Saudi Arabia is making sure that the country is seen as determined in its efforts to become the leader of the ‘super region’, which has become the new buzzword, comprising Africa, the Middle East, Central Asia and South Asia,” S&P says in its report.

Earlier this month, Saudi Arabia’s Industry and Mineral Resources Minister Bandar Alkhorayef told the Future Minerals Forum in Riyadhthat the kingdom’s mineral resources had nearly doubled to $2.5 trillion from the earlier estimate of $1.3 trillion.

“This is based on new discoveries in the form of rare earth elements, and a combination of the increase of volumes of phosphate, gold, zinc and copper, as well as the revaluation of these minerals,” he said at the time.

The kingdom’s mining strategy is backed by systematic planning. In 2019, it created the Ministry of Industry and Mineral Resources to accelerate the sector’s growth.

To attract international and domestic investment, Saudi Arabia introduced a new mining law in 2020, making it easier for companies to explore for and extract minerals and offering financial incentives.

Achieving critical mineral resource security will be a key focus for major economies, including Saudi Arabia, in the context of energy transition and potential disruption in the mineral supply chain, analysts say.

Critical minerals, such as cobalt, copper, lithium, nickel and rare earths, play a crucial role in the production of clean energy technology, from wind turbines to electric cars, according to the World Trade Organisation.

In the past 20 years, annual trade in energy-related critical minerals has increased from $53 billion to $378 billion. However, the high demand for clean technology is putting pressure on supply chains for these minerals, the WTO said in a recent blog.

Trade in critical minerals has grown over the past two decades, with an average annual growth rate of 10 per cent. In 2021, growth surged to 37 per cent as trade bounced back following the pandemic-induced slump, it said.

“As the move towards energy transition intensifies, the world’s leading economies are working towards critical mineral resource security that will drive new investments in the sector,” says Amelia Haines, a commodities analyst at BMI.

Global mineral resource supply chains face challenges including the concentration of proven deposits in a few countries, resource nationalism, government interventions through tariff and non-tariff measures and strikes, Ms Haines adds.

WTO data shows Chile is the world’s leading exporter of critical minerals, accounting for 11 per cent of global exports in 2022, followed by South Africa (10 per cent), Australia, Peru and the Russian Federation.

According to the WTO, rising export restrictions and export tariffs are becoming a major challenge to global trade in critical minerals.

“These measures could potentially impact the global supply of critical minerals, resulting in upward pressures on prices and concerns about how to secure the supply of raw materials,” it said in a blog earlier this month.

The Organisation for Economic Co-operation and Development database shows an upward trend of export restrictions on energy-related raw minerals, with the number of export restrictions, including tariffs, increasing from 396 measures in 2009 to 472 in 2012, 489 in 2017 and 502 in 2021.

As the world’s leading economies race for a share of the critical mineral resources, Saudi Arabia’s Vision 2030 reform agenda has elevated the mining sector’s role in its economy, analysts say.

Saudi Arabia, the Arab world’s biggest economy and Opec’s top oil exporter, is aiming to tap into the growing demand for metals that are used to produce batteries – an integral component in electric cars.

The kingdom aims to more than triple the mining sector’s contribution to the nation’s economic output by 2030.

The minerals strategy is key to the country’s Vision 2030 objectives, such as achieving a green transition, digitising the economy, becoming a global hub for technology and localising military procurement.

“The push for investment [in mining] abroad is complemented by additional focus on developing domestic mining,” says Ionut Lazar, principal consultant at London-based business intelligence firm CRU Group.

Mining is also an important driver of Saudi Arabia’s aim to attract foreign direct investment, as laid out in the Vision 2030 plan. The kingdom aims to attract $170 billion to its mining sector by 2030.

“Foreign investment and domestic development are mutually necessary in order to develop Saudi Arabia into a large mineral processing hub,” Mr Lazar says.

The kingdom has proven deposits of critical industrial metals including aluminium, iron, copper, zinc, manganese, and chromium as well as rare earth elements, such as tantalum, for which it has a quarter of the world’s reserves, according to the Ministry of Industry and Mineral Resources.

In the last week of December, Ma’aden announced the discovery of a “significant gold resource potential” in the kingdom.

The new discovery, the first from an exploration programme launched by the company in 2022, was made at a 100km strip in the south of Ma’aden’s Mansourah-Massarah gold mine.

Samples collected from two random drilling locations, 400 metres below the surface and adjacent to Mansourah-Massarah, revealed the existence of high-grade gold deposits, measuring 10.4 grams per tonne (g/t) and 20.6g/t, respectively, the company said at the time.

Higher-grade mines typically have densities of eight to 10g/t, while lower-grade mines have densities of 1g/t to 4g/t.

Late last week, Ma’aden announced the start of the commercial production for the Mansourah & Massarah gold plant under the engineering, procurement and construction contract signed with a consortium of Outotec and Larsen & Toubro.

The financial impact of commercial production is expected to be reflected in the first quarter of the current year, Ma’aden said in a statement on Thursday to the Saudi Tadawul stock exchange.

Although it is not clear if the recent gold discoveries will make a significant difference to Saudi Arabia’s export earnings and gross domestic product, analysts say it is the beginning of a major shift towards developing a new resource pool.

“Gold mining can create significant economic opportunities that have the potential to attract investments,” Andrew Naylor, head of Middle East and public policy of World Gold Council, tells The National.

Data from the WGC shows its member countries cumulatively attracted $60 billion in investments in 2022.

“The impact of these investments on the local economies have been big as our data shows about $40 billion went to local suppliers, simply showing how gold mining can be a major contributor to the local economy,” Mr Naylor says.

The WGC expects large-scale gold mining to have a trickle-down effect on the Saudi economy in terms of creating jobs and developing infrastructure and new geographic regions.

“Mostly, gold mines are located in remote areas and development of mines comes with the creation of new jobs, infrastructure and new urban centres,” says Mr Naylor.

While the size of potential gold resources in Saudi Arabia is unclear, the WGC does not expect it to have a major effect on the global demand-supply dynamics and price of gold.

“Mining is still a very expensive business. From discovery to actual production, it could take several years and a new high yielding discovery historically has increased only about 1.5 per cent in the total supply,” he says.

Gold’s performance is largely driven by investment flows, fabrication and central bank demand, according to the WGC.

The precious metal had a strong 2023, defying expectations amid the high interest rate environment. It hit a record high of $2,144 an ounce in early December.

Analysts expect it to remain strong this year.

“Gold has benefitted from economic and geopolitical risks from 2020,” says Sabrin Chowdhury, head of commodities analysis at BMI.

“In the context of continuing wars and dovish stand of the US Federal Reserve on interest rates, we expect gold prices to remain strong this year,” she adds.

Ehsan Khoman, head of commodities, ESG and emerging markets research at MUFG agrees.

“We expect bullion to hit a new record in 2024 with our forecast at $2,350/oz by year-end, owing to a trifecta of Fed cuts, supportive central bank demand and its role as the geopolitical hedge of last resort,” he says.

Saudi Arabia has been looking to diversify away from crude exports by developing sectors including tourism, hospitality and finance.

It aims to more than triple the mining sector’s contribution to the nation’s economic output by the end of the decade.

The kingdom has more than 5,300 mining sites, valued at about $1.3 trillion, containing minerals including gold, silver, copper, zinc, phosphate, bauxite and limestone, according to a 2022 study by the Ministry of Industry and Mineral Resources.

Saudi Arabia currently accounts for about 37.9 per cent of the Middle East and North Africa’s $16 billion metals and mining market, official data shows. Its mining industry grew 27 per cent annually to reach more than $194 million – achieving its highest revenue in 2022.

Local mining investments are expected to reduce Saudi mineral imports from $19 billion currently to $11.5 billion by 2035, according to the Ministry of Industry and Mineral Resources.

The kingdom’s economy, which expanded 8.7 per cent in 2022, the highest annual growth rate among the world’s 20 biggest economies, was forecast to grow 0.8 per cent last year, according to the International Monetary Fund.

The World Bank has estimated GDP growth of 4.1 per cent this year for Saudi Arabia.

While the new gold discoveries are adding some glitter to Saudi Arabia’s mining sector, analysts say the kingdom has a much larger mining story that could catapult it into the big league of critical mineral exporters.

Updated: January 22, 2024, 11:57 AM



This article was originally published by a www.thenationalnews.com . Read the Original article here. .