Saudis go for gold and phosphates

Saudi mining sector gaining momentum

The government views mining as an important diversifier and, as a result, foreign companies are taking note of the possibilities but, water in particular remains a challenge

Reuters

1 February 2010

KHOBAR, Saudi Arabia - The mining sector in top oil exporter Saudi Arabia is slowly gaining momentum as foreign companies look to make investment in a sector the government sees as important for economic diversification.

Saudi Arabia holds the world's largest oil reserves and is the biggest crude exporter, but it also has one of the largest phosphate deposits in the world and also holds precious metals.

A new mining law adopted in 2004 to allow greater access for foreign companies to the kingdom's mineral resources is beginning to bring results, mining executives said.

"I think that the mining industry in Saudi is going to start booming and we will see a lot more of foreign money pouring into exploration," said Ben Stockdale, commercial manager at Australian Citadel Resource Group said. The changes in the law and increasing knowledge of prospecting in Saudi Arabia has created the conditions for the boom, he added.

Citadel, through a joint venture company called Bariq Mining, owns a copper project in western Saudi Arabia called Jabal Sayid that it plans to develop. Jabal Sayid has ore reserves of about 24.4 million tonnes with about 2.2 percent of copper.

"We have just completed a bankable feasibility study into the development of that project and it is definitely economic," he added.

Over 10 years, the project would produce 57,000 tonnes of copper concentrate per year, he said. First production would be by the third quarter of 2011 if the company receives its licence soon, he said.

Citadel also plans to develop three projects of high grade gold, porphyry gold and copper, Stockdale said.

The new mining law allows for companies to work with Saudi's state-run Saudi Arabian Mining Co (Maaden) or through joint ventures with local companies.

Maaden is spending 60 billion riyals ($16 billion) to develop the kingdom's phosphate, bauxite, gold and industrial minerals.

Australian minier Syrah Resources Ltd was looking for opportunities in gold, its chairman told Reuters.

"We seek spaces where we think the gold exploration has been very underdone, we are quite excited about the gold exploration," Syrah Chairman Tom Eadie said. It would also look for opportunities in base metals and particularly in copper, he added.

"We got interested because the mining regulations changed, so there are very prospective rocks that have never been explored with modern exploration," Eadie said. Syrah hoped it would be granted licenses it has applied for by the end of 2010. The company is focused on mineral deposits in the west coast of Saudi.

Licences

Twelve Australian companies planned to open offices in Saudi Arabia, said Andre Barbour, senior business development manager at the Australian Trade Commission in Saudi Arabia. They included Hatch, Syrah Resources and Ausenco (AAX.AX: Quote), he added.

But a tardy licensing process in the kingdom had slowed development down, industry sources said.

"The department at the ministry is being overwhelmed with applications... procedures are not smooth and regulated enough," Michael Ware, exploration manager at Syrah said. "There are opportunities elsewhere but the good thing about Saudi is the potential is very, very significant in gold and base metals."

Seven types of mining licences are available from the Saudi Ministry of Petroleum and Mineral Resources. The new code reduced the area covered in licences from 10,000 square kilometres to 100 square km.

Water, Infrastructure

Lack of water resources is one of the main challenges crippling potential gold projects, Abdullah al-Dabbagh, chief executive of Maaden told Reuters last year.

Maaden had said several of its projects rely on the successful development and operation of several substantial infrastructure projects, including a port and a railway project.

The industry also lacks the services and contractors that it needs to grow more quickly, Barbour said.

"The industry lacks local contractors who work in the mining sector...There are not enough companies and demand is higher than that," Barbour said.

"Foreign companies will ask for certain logistics. They need drilling, mining exploration, manpower and companies who provide these services. This would facilitate the development of the industry which is very promising," Barbour added.

(Reporting by Reem Shamseddine, Editing by Simon Webb and David Cowell)