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Saudi to lead mining super region

Saudi Arabia is establishing the framework to make it a mining hub capable of supporting expanded mining operations across the region, according to a heavyweight delegation currently building mining relevant relationships across the world.

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Mining Journal

This ambition would create expansive employment opportunities and includes building a mining services and technology sector. The industry in Saudi Arabia would target an estimated US$1.3 trillion in mineral wealth hosted by the underlying Arabian-Nubian Shield. 
 
The mined products would feed into a "mid-stream" manufacturing sector for which the government expects to attract $32 billion of investment on its own, and already includes foreign direct investment for a $4 billion steel plate mill complex and a $2 billion electric-vehicle battery plant.
 
The globe-trotting delegation has been courting governments and investors in Northern Hemisphere mining strongholds and is currently on its way to Australia. The assemblage includes minister of industry and mineral resources Bandar Al-Khorayef, vice-minister for mining affairs Khaled Al-Mudaifer, Saudi Industrial Development Fund chief executive Ibrahim Saad Al-Mojel, Saudi Geological Survey chief executive Abdullah Al-Shamrani, and senior representatives from the Ministry of Industry and Mineral Resources ecosystem. 
 
The Kingdom isn't reliant on mining to supplement its petroleum industry, pointing out the impact of a buoyant minerals sector on the balance sheet of the world's most famous petroleum-based economy - hydrocarbons account for some 42% of The Kingdom's handsome $1.5 trillion GDP, as well as 87% of budget revenues - would be negligible. 
 
But, still, it is recognised mining must form part of the plan to limit Saudi Arabia's reliance on fossil fuels, and it is one of two secondary economic "pillars" the country is attempting to grow alongside its petroleum mainstay. The other pillar is petrochemicals.
 
The national budget has been in deficit year-on-year since the oil price crashed in 2014. And, though 2022 is expected to yield a large surplus, this is on the coat tails of what is seen by many as unsustainable strength in oil prices, combined with government spending cuts. 
 
Work to reduce reliance on oil and gas has been in play for some time. The Saudi Vision 2030 - within which its minerals ambitions fall - was launched back in 2016 with this express goal. Some five years later, the Kingdom started promoting its progress directly to the mining sector and touting for foreign direct investment and, more importantly, exploration and mining expertise. 
 
This is obviously not the first time the mining world has been propositioned by a lesser-known mining jurisdiction with plans to create material value from its natural endowments by establishing a supportive environment for private investment. 
Africa, for example, is a hotbed for failed mineral development, where emerging economies with unstable regimes make big promises and sometimes meaningful investments, only to have a lack of administrative competence, corruption or the rise of leaders with conflicting objectives derail short-term progress.
 
There are recent examples, too, in Saudi's direct neighbourhood. Former Soviet republics Kazakhstan and Kyrgyzstan have both shown promise, but progress has seemingly stalled. 
 
According to the Investment Risk Index - published as part of the Mining Journal Intelligence World Risk Report (feat. MineHutte Ratings) - Kazakhstan's risk profile improved 20% between 2017 and 2019 following a roundly positive review of its updated mining code, but it has lost momentum and about half of those gains since then. 
 
Meanwhile, Kyrgyzstan registered similar gains into 2019 and was off marginally in 2020, while there was insufficient industry data to produce a rating for 2021 - usually a bad sign. The Kyrgyzstan government was recently in a dispute with Centerra Gold over the country's most high-profile and at one point partially state-owned mine, Kumtor. 
 
But, while Saudi Arabia's advances will therefore be met with caution, there is just cause for optimism based on a review of The Kingdom's commitments.
 
The Kingdom as a catalyst
 
The overall impression of the government's plans is that they are reassuringly well rounded. Rather than focusing on a single piece of the puzzle - the mining code or physical infrastructure or tax breaks - the Saudi vision is built on multiple and complementary pillars of support. 
 
And the state has put its money where its mouth is, reportedly committing to $3.7 billion worth of direct and supporting initiatives for mining.
 
At the centre of the vision is a reformed mining code. Mining Journal will reserve judgement on those amendments until MineHutte - the only legal consultancy that reviews global mining codes - has taken a fresh look at the detail, but the high-level foundations Al-Mudaifer outlined were positive.
 
For a start, local and foreign firms are on an equal footing in the eyes of the law and there is no restriction on ownership. The permitting periods are long to create the stability essential to the industry, the royalty structure taxes profits rather than revenues, and there is a five-year tax holiday to allow front-loaded development investment to be recouped. Other fiscal incentives include co-funding up to 75% of new investments.
 
There is a somewhat questionable auction system for key tenements, which some would prefer were allocated on a ‘first come, first served' basis, but the objective is to make the process transparent. In the circumstances, that need to demonstrate fairness is arguably the greater priority.
 
The mining industry will also be examining the detail around clauses to promote in-country, downstream processing. This has been a popular tactic in emerging economies to capture more - and a lucrative part - of the value chain. Amendments have sometimes been applied retrospectively and caused material reputational damage in places like Indonesia and Tanzania. 
 
However, Saudi Arabia has said it is relying on incentives rather than directives or penalties, issuing a 90% royalty discount on local downstream sales and "support" for hiring Saudi nationals. 
 
And there is a requirement on mining groups to report against key performance indicators to keep licences in good order. If this process is clear and fair, it should help ensure companies behave as good corporate citizens and valuable resources are developed, rather than deprioritised by large miners, or wasted by juniors who cannot raise the capital to progress them.
 
Supporting this foundation is a growing geological dataset that will be free to access. Saudi Arabia is completing geochemical and varied geophysical surveys to assist target generation. The Saudi Geological Survey launched the National Geological Database Initiative last month to enable potential investors and operators to receive and transfer data.
 
Access to such data is becoming increasingly important to improve discovery rates globally, which have been allowed to fall to 70-year lows, despite the increasing appetite for metals driven by a growing population and an energy transition. The low-hanging fruit (near surface, high grade), in safe-haven jurisdictions at least, has been picked. And, so, the ability to generate data through cutting-edge geochemical and geophysical processes to feed into contemporary software programmes capable of identifying opportunities at depth, likely holds the key to homing in on the next generation of world-class deposits. 
 
If Saudi Arabia can prove itself a hospitable mining jurisdiction with free access to a comprehensive data library, it will be hard to ignore.
 
Meanwhile, the country's domestic transport (roads, rail and port) and energy infrastructure is also broadly supportive, rating a serviceable 71 out of 100 in the Mining Journal Transport Index (part of the Investment Risk Index). And there are plans for further investment.
 
The Saudi vision for a thriving mining industry isn't limited to The Kingdom. The goal is for Saudi Arabia to play the role of ‘regional hub', which services a region that stretches from Africa to Central Asia with technical expertise and equipment, much as Perth and Santiago serve as the prominent hubs for Australasia and Latin America, respectively.
 
The investments in technology needed to build such a position are underway and will include not only mining equipment and expertise, but will be part of a broader technology centre that also targets the decarbonisation of industry and the world, with programmes focused on hydrogen and other more established renewable energies. 
 
That collaborative intent is at the heart of a conference held in Riyadh, which aims to promote investment in mineral development across the region. The Future Minerals Forum in January included presentations from ministers representing Saudi's neighbours stretching from Sudan to the southwest and Kazakhstan to the northeast, and there are plans for expansion in 2023. 
 
Rock ‘The Cradle'
 
All the policy, infrastructure and collaboration in the world are of little use if the resources aren't in the ground. 
 
On this point, Saudi Arabia has pedigree. Home to Mahd Al Thahab or ‘Cradle of Gold', mining has been a part of the region since 3,000 BC. But efforts to expand the industry to its full potential have barely moved forward, relatively speaking.
The Vision 2030 has initially focused on existing gold resources and expanding bauxite operations, though the emerging, integrated, energy-hungry aluminium industry contradicts the carbon-neutral future the Kingdom is seeking - that is, without success in the renewables and hydrogen programmes that are being advanced in parallel. 
 
As the Kingdom attempts to develop its mining sector in parallel with a decarbonisation theme, it will be keen to further explore known VMS occurrences. VMS deposits are usually rich in base metals, particularly copper, which are critical in electrification. They occur in stratigraphic horizons and so one often brings two, or more.
 
Saudi Arabia is targeting a 300% increase in mining's GDP contribution to $64 billion by 2030 based on this foundation of minerals. There are roughly $321 billion of phosphates, $229 billion of gold, $222 billion of copper, and $138 billion of zinc for the taking.
 
But there is a need and ambition for broader mineral diversification to make this happen and the Kingdom has a specific interest in other commodities central to decarbonisation, such as lithium and cobalt. 
 
Fresh and fertile ground has been farmed out through the bidding process earlier this year. Qualified bidders - who must clear several hurdles including technical, financial, environmental, and social management plans to gain access to independent technical reports on available land and additional data such as 3D modelling - have been navigating the tender process.
 
The early winners have heavily featured those already invested in Saudi Arabia, such as Ma'aden and Barrick, though an encouraging crop of smaller resources firms like African Rainbow Minerals and private junior Moxico Resources, have qualified to bid and in the case of the latter, secured tenements. Other qualified bidders include Robert Friedland-led Ivanhoe Electric and India-based Vedanta.
 
Some 150 foreign-owned companies have applied for licences and over the last 20 months, 250 exploration licenses had been issued, almost equal to those issued in the last 10 years, and 20 mining licenses had been issued, "with more on the way", according to the Kingdom.
 
Reputations weren't built in a day
 
While these initiatives should encourage the mining industry and in concert define the framework for the sector - potentially across the region - there are significant challenges. Primarily, the lack of a mining culture will take time to overcome. This is true from both an operational skills perspective and a bureaucratic competence standpoint. 
 
The established petroleum sector has relied on an ex-pat community of professionals. In contrast, the vision for the mining industry will require locals to be trained. The presence of well-resourced groups like Barrick Gold (Barrick owns half the 75 million pound per annum Jabal Sayid copper operation in partnership with proxy state miner, Ma'aden), which has a track record of investing in local talent elsewhere, will help this. But building a deep local pool of mining expertise will not happen overnight.
 
Administrative competence is equally important. For example, the middling quality of Australia's mining codes belies the country's well-earned reputation as one of the world's premium mining jurisdictions, according to MineHutte's analysis. Yet, there are few examples of legal conflict over the application of these middling codes. This comes down to the simple fact Australian bureaucracies understand the industry and the intent of the laws when executing permitting decisions - it is part of the culture. The absence of experience in Saudi will put more pressure on the new code.
 
The investor community also likes known quantities. Less than 2% of resource investors are actively looking at opportunities in the Middle East at the moment and this is consistent over at least the past five years, according to the Mining Journal Intelligence Investor Sentiment Survey (within the Global Finance Report).
 
Ultimately, Saudi Arabia will need to prove itself and build its mining industry over several years, seeing projects through from discovery to production with the help of the supportive framework it is currently selling the sector, and avoiding big mistakes. This is vital, as frontier jurisdictions can set themselves back markedly by poorly managing a high-profile development. 
 
Saudi Arabia will get its chances - junior resources companies in particular are speculative by nature. It will be up to the state to make the most of those opportunities. The Kingdom seems refreshingly aware of this reality and has been laying the foundations to deliver mineral wealth in the near to the long term.
 
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