In the next four years, some $11.9 billion will be invested in mining projects in the Kingdom, much of it by the state-run Saudi Arabian Mining Company (Maaden). The main minerals are gold, phosphates and bauxite. While an aluminum smelter and fertilizer plants will add value, perhaps the biggest value will come with the new freight rail network to carry minerals to the coast for export.
Saudi Arabia has already issued more than 1,200 mining licenses to some 600 companies. Annual earnings have reached SR13 billion and profits SR4.1 billion on estimated investments of more than SR32 billion. These investors have extracted gold, silver and construction materials for local market and exports. New regulatory provisions have also helped to encourage national and foreign investors to the sector.
Maaden President Dr. Abdallah E. Dabbagh recently outlined his company’s part in this new stage in the development of the Saudi mining sector.
It includes developing four gold projects and a complete mining system at the Ras Azzour industrial area linked by railways with the company’s industrial utilities and a port for exporting phosphate and aluminum. Maaden wants to become a force in the world phosphate fertilizer market.
By 2011, in addition to the Ras Azzour development, there will be new bauxite production from Al-Zubeira, phosphates from Al-Jalamid and the Jubail Aluminum Smelter. Maaden, which currently has cash resources of over $1.3 billion, is 100 percent state owned. However, an initial public offering (IPO) of at least 50 percent of stock is favored by the board and this may happen before the end of the year.
Maaden is still in the process of creating individual companies for its gold, industrial minerals, phosphates and aluminum interests. The Saudi mineral giant is also establishing an infrastructure development company to build and operate the prestigious Ras Azzour project. This includes a multibillion-dollar project for the construction of a railroad linking northern deposits of bauxite and phosphate with aluminum and fertilizer-producing facilities.
With low energy prices giving Saudi Arabia a production cost advantage, the output is expected to become an important export throughout the Middle East, the Indian Subcontinent and Africa. “And in order to speed up the ground works in the mining sector, the railway project has already been kicked off,” says Dabbagh. The railroad has been primarily designed for freight transport. However, its potential for carrying passengers could be tapped in the long run.
Minister of Finance Dr. Ibrahim Al-Assaf has already signed a SR512 million ($136.8 million) contract with a multinational consortium led by the Louis Berger Group of the US for a design and construction survey of the 2,400 km network. A major feature of the railroad project is that it will provide job opportunities for 16,000 people over more than six years.
The contract also calls for the training of Saudis and technology transfer to the Kingdom. Besides the Louis Berger Group, other members of the consortium include Systra Engineering Consultancy of France, Canarail of Canada and the Saudi Consolidated Engineering Co. (Khatib & Alami) of Saudi Arabia.
All the companies have a successful track record in major engineering and railroad projects in the Middle East and the Mediterranean region. Describing the project as extremely important in terms of mineral development and transportation, Dabbagh says it will pave the way for building a network of railroads in the Kingdom. A company will be set up for operating the railroad project on a commercial basis. The railroad network will run from Al-Hudaitha near the border with Jordan and continue all the way to Riyadh via Al-Jouf, Al-Zabira (Hail), Qasim and Sudair. A railroad spur will connect Hazm Al-Jalamid and Al-Zubairah (Hail) to Ras Azzour and Jubail.
Saudi Arabia is home to some of the largest phosphate deposits in the world. Reserves stand at 3.1 billion tons, with 1.6 billion tons of indicated phosphate resource and 1.5 billion tons of inferred resource.
“We believe the organization and structure envisioned for Maaden not only will provide great opportunities for Saudi citizens to benefit from the country’s wealth but will also provide great opportunities for our strategic partners to benefit from our highly competitive world-class projects,” says Dabbagh. He believes that because the privatization of Maaden will broaden the ownership base of the company, it will bring direct participation of local business houses into Maaden’s operations. He has revealed that the Maaden board now believes that the businesses should be sold off completely.
Maaden’s gold mining unit produces around 300,000 ounces of gold a year. “We are ready today to privatize the gold company,” Dabbagh says. “As for phosphates, we will be ready for that in six months, but it will take longer than that for aluminum.” The government recently approved the construction of an SR14.086 billion ($3.76 billion) aluminum smelter plant, a Maaden project with an annual capacity of 623,000 tons. The plant will be located in the Ras Azzour Industrial Zone in eastern Saudi Arabia.
Maaden plans to exploit phosphate reserves in the north of the country to export fertilizer by 2008 and to mine bauxite for aluminum production shortly after that.
It believes its $1.8-billion Al-Jalamid mine project will yield enough phosphate to produce three million tons of di-ammonium phosphate a year. The Al-Zabira mine will provide bauxite for production of 1.4 million tons of aluminum. The company has signed an SR900 million deal with a consortium led by Al-Qahtani Group to build three sulfuric acid plants in Ras Azzour. The plants will have a daily capacity of 13,500 tons. The project, which will be ready within three years, is described as the largest in the world. The new sulfuric acid plants are part of a SR10 billion di-ammonium phosphate complex. Maaden has also finalized plans to set up phosphoric acid plants, which will be constructed at Ras Azzour for the Maaden phosphate project within 30 months. The plant will produce 4,380 tons of phosphate a day, making it the largest facility of its kind in the world.
As the state minerals company, Maaden has also been responsible for producing the long-term strategy to exploit the Kingdom’s mineral wealth. Maaden believes the Ras Azzour mineral industrial complex will attract more than SR30 billion in investment for the phosphate and aluminum projects, a power plant and a port on the Arabian Gulf.
In April 2006, Maaden awarded an SR900 million contract to Finland’s Outokumpu to construct three sulfuric acid plants in Ras Azzour. An SR133 million project management consultancy contract was awarded to Worley Parsons in February 2006. In July, Maaden let the contract to construct four ammonium phosphate granulation plants to Dragados Industrial SA.
Maaden currently runs six mines for precious metals. Four of them, Mahd Al-Dahab, Sukhaibayrat, Bulgah and Al-Haja are fully operational. The Ammar mine, the first gold mine in the Central Region will be ready for mining early next year. Operating underground, average production will be 1,100 tons per year of copper, 54,000 oz of gold, 840 oz of silver and 6,500 tons of zinc.
The work at the Al-Dowaihi mine, 125 km southeast of Zalim is under way and the mine will start producing in 2008. The company is hoping through an extensive prospecting program covering 6,000 square kilometers to increase the gold resources to 10 million oz by 2010. “The increase in gold prices in the international gold market will accelerate the mining investment and will encourage the investor to seize the mining opportunities in the precious metals in the Kingdom,” says Dabbagh.