Business | Markets
Saudi Arabia hopes to go for gold as companies wake up to mining potential
A kilometre below a rock-strewn green mountain in western Saudi Arabia, half a dozen Saudi and Filipino miners in orange helmets and olive-green overalls are boring into the ore veins of the Al Amar gold mine. Others carefully plant explosives in the cracks, while ore-laden trucks move back up the labyrinthine shaft to an extraction plant sweltering under the desert sun far above.
- By Abeer Allam, Financial Times
- Published: 23:23 June 26, 2009
Riydah: A kilometre below a rock-strewn green mountain in western Saudi Arabia, half a dozen Saudi and Filipino miners in orange helmets and olive-green overalls are boring into the ore veins of the Al Amar gold mine. Others carefully plant explosives in the cracks, while ore-laden trucks move back up the labyrinthine shaft to an extraction plant sweltering under the desert sun far above.
Al Amar, 200km southwest of Riyadh, is one of five gold mines operated by Ma'aden, the Saudi mining company. Ma'aden produced 127,744 ounces of gold worth 420 million riyals ($112 million) last year, and is responsible for the bulk of Saudi Arabia's production which last year reached 5.7 tonnes.
But, despite gold discoveries which added another 1.3 million ounces to reserves previously estimated at 8.2 million ounces, production dropped 14 per cent last year, from a peak of eight tonnes in 2003.
"The challenge we face is infrastructure and water in particular," Abdullah al-Dabbagh, Ma'aden's chief executive, says. "We are developing several small mines. You cannot build a water pipeline for each small mine."
In metals mining, large quantities of water combined with chemicals are typically needed to add to the mined rock to extract concentrates.
In the case of Al Amar, water is trucked in. Ayman Badirah, the young Saudi geologist who manages the mine, says he and his team recycle up to 60 per cent of their water to control costs.
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In the medium term, Ma'aden plans a "Gold City", which will enable several small mines at different locations to centralise processing by using one water pipeline, Dabbagh says.
Ma'aden, which was established in 1997 and went public last year, is still 50 per cent state owned. It is a leading player in the government's drive to diversify the economy, which is largely dependent on petroleum flows.
By developing the kingdom's mineral reserves, the government aims to create careers for young Saudis and reduce an unemployment rate officially put at nine per cent. Moreover, mining provides jobs in remote areas where unemployment is often highest. The kingdom also hopes to develop a competitive edge in gold and other industries that benefit from cheap fuel and relative political stability.
Several projects are located in what Saudis call the Cradle of Gold region, an ore-rich area in the west where the precious metal has been mined for more than 3,000 years. It forms part of the Arabian Shield, a belt of mineral-rich rock stretching from the Red Sea coast of Egypt and Sudan to central Saudi Arabia.
After passing a new mining code in 2004, the government opened the sector to foreign companies, which can now own 100 per cent of a project. Government fees and taxes are limited to 20 per cent.
Saudi Arabia's gold prospects represent a good opportunity for companies seeking greenfield sites, says William Tankard, senior analyst at GFMS, a London-based precious metals consultancy.
"Relative to major mining states, the kingdom has been underexplored," Tankard says. "It has become increasingly difficult to develop promising gold mines. Many deposits have matured, forcing companies to look to operate in less conventional territories."
But thus far only a few small companies have moved into the kingdom. One reason is economics. In 2004 the average gold price was only $409 an ounce but now, in part because of a fall in supply and in part because of the global economic crisis, prices have surged to $900 this year, according to GFMS.
Foreign companies were also reluctant to enter the kingdom's mineral sector or forge partnerships with Ma'aden because of strict conditions requiring them to sponsor, train and educate Saudi geologists and miners. But the government has slowly cut the requirement, especially after the oil boom, to encourage contractors.
Citadel Resources Group, a listed Australian mining operation, is one company with eight projects under way, including an exploration project in Jabal Sayid in the west of the kingdom. It is prospecting for copper, gold and other base and precious metals.
"Saudi Arabia has excellent potential, with large mineral areas and promising geology," says Ines Scotland, Citadel's chief executive.
"In 20 years, Saudi Arabia will be a major mining country with ample gold, copper, zinc and nickels deposits."
Citadel says it has found "significant resources" in its Shayban gold deposit, also in the west of the kingdom in the Wadi Shugea project. The company is also developing copper projects and expects deposits to reach 100 million tonnes and production to start in 2011.
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