(Bloomberg) — In scorching summer heat, Renier Swiegers march across the desert to drill rigs. Although Saudi Arabia’s economic dynamo for the past 80 years has not been looking for oil. It is another potential source of wealth and the government has now caught its eye.
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Saudi Arabia’s Crown Prince Mohammed bin Salman, who has been using his wealth to boost the world of sports, tourism and film, is ready to invest billions of dollars in producing more than $1.3 trillion in metals that his kingdom says are buried in places like this.
The plan may be among the least attractive elements of the Grand Vision 2030 to transform the Saudi economy. There is no shortage of doubts about the prospect of making the country a steel center and making a dent in the international industry. The 38-year-old Saudi Arabian leader has no shortage of wealth and ambition. The key is convincing global mining companies that their time is valuable.
If partially successful, the dream would have implications not only for metals extraction beyond the Middle East, but also for Saudi Arabia’s relationship with the US, China and emerging markets the kingdom is approaching.
Swiegers, a Namibian who works for British mining firm Moxico Resources P.C.C., is a believer. It is helping establish a new zinc and copper open pit 200 kilometers west of the Saudi capital, Riyadh.
“I’ve done projects all over Africa, and I know the geology and where it works for me,” says Swigers, pulling up earth samples from 200 meters deep and pointing out copper deposits that glisten in the sun. “This site is just like those.”
If all goes well, By 2025, the Khnaiguiyah site he is working on will produce metals, including 100,000 tons of zinc and 10,000 tons of copper, in the first phase. That’s small by international standards – the equivalent of 18 hours of copper production from Chile – but it aims to double the volume. It is one of the many projects in the kingdom.
As well as developing local mines, there is another component to the plan, which industry insiders say is a lot of speculation and a quick take-off. Saudi Arabia wants to buy resources from elsewhere to refine and process in new facilities in the kingdom.
Read more: Forget China, the hot money in mining is suddenly Saudi.
In July, the country announced its first major push into international mining. Along with investment fund Engine No. 1, it participated in a $3.4 billion deal in Brazil to buy Vale SA’s base metals division.
The transaction was the first between Manara Minerals, Saudi Arabia’s powerful sovereign wealth fund — the Public Investment Fund, or PIF — and the Saudi Minerals Company, also known as Maaden, a vehicle. The deal will give the kingdom, which beat off competition from Japan and Qatar, 10% of its nickel and copper suppliers, the essential metals needed to release carbon.
It will be more. Manara’s two shareholders will initially provide about $3 billion for two or three international deals a year, with additional funding if needed, people familiar with the strategy said. It is part of the hunt’s objective to maximize its role in domestic production and buy access to global resources.
The pillar of the new Saudi economy
Using government subsidies and lending through state-controlled funds, the main goal is to position Saudi Arabia as an alternative supplier of electric cars, the metals and minerals necessary for the global energy transition. In short, dirty old mining is one of the pillars of a clean new future.
“Saudi Arabia needs more than one engine to achieve its vision,” Khalid al-Mudaifar, deputy minister of mineral affairs, said in an interview. He said the government’s plan is to transform itself into an economic and industrial power. “For this we need minerals.”
The main metal of interest to companies is copper, but Saudi Arabia wants to extract uranium and phosphates for its nuclear program. This has attracted the attention of Western powers and the United Nations, which are wary of nuclear proliferation in the Middle East.
Saudi Arabia has repeatedly said its atomic program is strictly for peaceful purposes, but Prince Mohammed said the kingdom would launch a bomb if Iran, another major Middle Eastern power, did so.
Although some executives and advisers at the world’s biggest miners are skeptical about the kingdom’s domestic mining plans, they point first to its geology. The uranium reserves in it were called “very uneconomical”. Copper deposits – the most desirable metal for most mines – are mainly formed by volcanic activity.
This means that they can only be found in small and medium areas. It makes them more attractive to me than the deposits that run through the Andes in Latin America and provide most of the world’s supply, or the sedimentary-rock formations in places like central Africa.
These jurisdictions – and even the largely undeveloped copper crescent that runs through Iran and Pakistan – are seen as more promising for the large, long-life mines that many of the major international companies are looking to develop.
There is a water supply problem in Saudi Arabia, which is 95% desert. “There is also the challenge of providing infrastructure, particularly for deposits in desert areas,” said Carol Nakle, founder and CEO of London-based Kristall Energy Consulting.
Much of Saudi planning focuses on how successful projects like Khnaiguiyah can get mineral deposits from identification to commercial production. Ajlan & Bros, the local investor developing Khnaiguiyah, along with UK-based Moxico Resources, has earmarked $14 billion to develop mines and processing facilities by 2030.
“Saudi Arabia could become a new source of minerals and rare earths away from China,” said Fahad Alenezi, chief executive of Metals & Minerals, a bet on the company, which is controlled by the wealthy Saudi family that built the fortune. Group at Ajlan & Bros. “This is healthy for us,” he said, as China and the US compete for resources.
Ajlan plans to develop the Middle East’s largest zinc and copper processing plant in Yanbu on Saudi Arabia’s west coast. Most of the focus will be on domestic demand, but the company is also getting supplies from Chinese and European trading houses to pick up any items it produces.
Saudi Arabia is partnering with China’s Geological Survey on a $207 million contract to help identify minerals in the region’s so-called Arabian Shield, where most of the deposits are located, officials said at a Saudi-China trade conference in June. The Beijing government has led efforts to identify the country’s uranium reserves.
“The bottom line is that Saudi Arabia is a unique prospect,” Barrick Gold Corp. CEO Mark Bristow said in an interview during a visit to Riyadh in January. As for the $1 trillion-plus estimate of metals in the ground, “whatever that number is, it’s worth investing in,” said Bristow, whose company helped reach its peak 25 years ago when it struck Mali. African gold producer.
Canada’s Barrick operates a copper mine on the southwest coast of Saudi Arabia near the Red Sea. He is in talks with the PIF about bringing Saudi money and political influence into a copper project in Pakistan, people familiar with the matter said.
Vision 2030 eyes 75 billion dollars
The government is giving huge incentives to companies to start mining. The Saudi Industrial Development Fund provides up to 75% funding for a project. There is a five-year grace period on royalty payments, a cap on tax rates and a commitment not to levy windfall tax. All government revenue from mining goes into a special fund for reinvestment in the industry.
Mining is the so-called “third pillar” of the economy by 2030. The others are petroleum and petrochemicals, meaning mining is the largest component of the economy after oil and gas. The industry will eventually employ more than 250,000 people and contribute $75 billion to Saudi GDP by 2030.
The metals refining and processing industry may have the potential to attract interest from international partners looking to provide greater competition to China, which currently dominates mineral processing and battery manufacturing. That is, of course, if all goes to plan.
So far, Saudi Arabia’s auctions in the country have attracted only a small number of players. In August, the government announced another round of tenders for investment and development of eight mining sites across the country.
Skepticism among the big miners, however, does not mean they are not watching Saudi efforts closely. Under the crown prince, Saudi Arabia is willing to take on the business risks of other countries with mining interests, and the future of the desert city of Neom and recent heavy spending on soccer show the kingdom’s confidence. It is a purpose.
“Others in the industry have been telling me that this is true and it’s something you have to approach,” Mike Henry, CEO of BHP Group Ltd., the world’s largest mining company, said on a trip to Saudi Arabia. “It’s definitely the right deal.” It was in January when he attended the country’s annual mining conference. Whether giants like BHP will be involved remains to be seen.
–With assistance from Anthony Di Paola, Tiffany Toi, Paul Wallace, Jonathan Tyrone and Samuel Dodge.
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