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Oxford Business Group

Oxford Business Group

Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Middle East, Africa, Asia…

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Saudis Expand Mining Sector As Part Of Diversification Push

Mining grew by 6.3 percent year-on-year (y-o-y) in the first quarter of 2018, according to data issued by the General Authority for Statistics on July 2.

Coupled with expansion in non-oil manufacturing (4.6 percent) and government services (3.4 percent), the strong performance of the mining sector helped drive overall GDP growth to 1.2 percent over the period, breaking a run of four consecutive quarters of negative growth.

The industry also helped offset slower growth in the oil industry (0.6 percent), along with contractions in retail and hospitality (-0.5 percent) and construction (-2.4 percent).

Private investment to boost mining contribution

The expansion in mining activity comes amid a push to attract private investment into the sector to further develop it as one of the main contributors to the economy.

On July 9 Khalid Al Falih, the minister of energy, industry and mineral resources, announced the completion of an adjusted mining investment system designed to incentivize investment in projects.

Under the revised mechanism, the Kingdom aims to build a comprehensive database of its mineral resources, intensify exploration and develop new funding methods for projects.

The development aligns with the Kingdom’s Vision 2030 economic strategy, which looks towards greater private sector involvement to diversify the economy away from its dependence on hydrocarbons.

As for the extent of mining’s contribution, Al Falih said the government plans to make the sector the third pillar of the economy, alongside oil and downstream petrochemical production.

The Ministry of Energy, Industry and Mineral Resources (MEIMR) seeks to increase mining’s contribution to GDP from $17bn currently to $64bn by 2030, as well as generate more than 25,000 new jobs in the industry.

Strong mineral reserves strengthen prospects

The pursuit of these goals is likely to be supported by high levels of mineral deposits: the MEIMR estimates the Kingdom’s mineral wealth at around $1.3trn, with gold reserves put at $240bn and significant deposits of bauxite, copper and phosphates. Related: Is Oil On Its Way To $80?

This figure could rise further as more survey work is undertaken. In February officials said the Saudi Geological Survey had at least five more years of testing to undertake to identify and quantify new deposits.

Rising demand and commodity prices could make the country’s mining sector an attractive buy, with leading local extractor the Saudi Arabian Mining Company (Ma’aden) experiencing higher returns this year. Half-yearly results showed an 82.9 percent y-o-y rise in net profits to SR1.2bn ($320m), and the company cited an increase in sales volume and mineral prices as factors underpinning growth.

One commodity that Ma’aden is looking to develop is copper, according to Darren Davis, the company’s acting CEO.

“We would like to be a lot bigger in copper,” he told international media on August 6. “We think it is a great metal for the future.” Related: Will Canada’s $30 Billion Megaproject Be Approved?

While looking at buying into assets overseas, Davis said Ma’aden wanted to build on its existing domestic copper operation, which currently consists of a single mine located 350 km south-east of Jeddah that began production in 2016.

Mining growth to spur development in related industries

Continued expansion in the mining industry is expected to present growth opportunities to firms operating in related sectors, with the expected quadrupling of mining’s economic output to require significant investment in dedicated infrastructure, equipment and technology.

While Saudi Arabia is investing extensively in its rail network, providing heavy-moving capacity and linking its mineral reserves with ports and logistics hubs, demand for earth moving and loading equipment, engines and rail rolling stock for moving the take from the new mines is set to rise sharply in the coming years.

In mid-May Saudi-U.S. rail services joint venture Savage Saudi Arabia delivered five new locomotives and two locomotive booster units to Ma’aden’s Wa’ad Al Shamal Phosphate Company, to be used to move mining offtake to the industrial towns of Wa’ad Al Shamal and Ras Al Khair.

By Oxford Business Group

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