Ongoing Investments Propel Long-Term Growth of Saudi Mining Sector

The Kingdom currently and in the future will maintain long-term large and growing domestic demand to go along with the abundance of mineral resources and competitive energy costs, revealed a new report by the U.S.-Saudi Arabian Business Council.

Hailed as Saudi Arabia’s third pillar after oil & gas and petrochemicals, the mining sector is undergoing significant investments as the government aims to boost the sector’s contribution to GDP, provide numerous employment opportunities, enhance localization competencies, and become a global leader in exploration and extraction capabilities. The Saudi Arabian Mining Company (Ma’aden) is the lead developer for mining projects across the Kingdom.

Saudi Arabia is endowed with significant mineral deposits that are widespread across many types, ranging from gold to lightweight aggregate. In terms of precious metals, Saudi Arabia produced approximately 10,850 kilograms of gold and 5,322 kilograms of silver in 2018. Gold production grew by an impressive compounded annual growth rate (CAGR) of 11.7 percent between 2010 and 2018. As for base metals, copper and zinc production witnessed significant increases between 2010 and 2018. Copper production grew at a CAGR of 60 percent while zinc production grew at a CAGR of 23.5 percent.

The Kingdom’s mining sector’s contribution to nominal GDP in 2010 was a marginal 0.43 percent. However, mining’s contribution to the mining & quarrying category stood at 1.42 percent in 2018. Although not a significant contributor, mining activities as a proportion of mining & quarrying did grow at a CAGR of 4.74 percent between 2010 and 2018. These figures indicate that substantial growth opportunities exist in the Kingdom but have yet to be tapped as a growing contributor to the economy. In tandem with Vision 2030, the Ministry of Industry and Mineral Resources further seeks to increase mining’s contribution to GDP from a stated SAR64 billion ($17 billion) currently to SAR240 billion ($64 billion) by 2030.

Albara’a Alwazir, Economist at the U.S.-Saudi Arabian Business Council commented: “The Saudi Arabian mining sector is in the midst of sweeping changes that will propel it as the Kingdom’s third pillar. The ongoing development will provide much needed benefits to the government, private sector players, and citizens. The mineral resources the Kingdom is endowed with provides it with numerous opportunities to become a global leader in line with Vision 2030’s ambitions.”

According to the Business Council’s report, capital injections into the mining sector by the government has consistently increased over the last few years as portions of the “Infrastructure and Transportation” sector is dedicated to the development of Ras Al-Khair Mining and its supporting transportation needs. The “Infrastructure and Transportation” sector grew from SAR35 billion ($9.3 billion) in 2017 to a budgeted SAR70 billion ($18.7 billion) in 2019, marking a 100 percent increase.

Export of base metals represented the third largest category by value in 2018 as exports grew from 5.6 percent of total non-oil exports in 2010 to 8.7 percent in 2018. Furthermore, exports of base metals grew by a CAGR of 13.9 percent versus 7.3 percent for total non-oil exports during the same period. Only the machinery, appliances, electrical equipment category grew at a faster rate of 15.4 percent during the period. Based on these growth rates, exports are expected to surpass imports by 2023.

Funding of mega-projects have attracted lenders both locally and abroad across commercial banks, ECAs, sukuk issuances, and government support. This healthy appetite signals strong confidence in the mining sector as an attractive investment environment.

Beyond local and foreign partners, the government is and will continue to be a strong financial supporter as it provides ongoing important debt cushions for funding Ma’aden’s needs over the medium to long-term. This level of engagement by all parties adds credence to the mining sector’s role as a growing contributor to the Saudi Arabian economy.