Saudi Arabia to ramp up copper mining to meet rising global demand

To:

Al-Monitor Pro Members

From:

Afshin Molavi

Senior Fellow, Johns Hopkins School of Advanced International Studies

Date:

Jan. 6, 2023

Bottom Line:

In order to meet ambitious net zero targets pledged by governments and companies worldwide, copper demand is expected to explode given its vital role as a key conductor metal for a wide range of renewable energies from electric batteries to wind farms and more. Saudi Arabia’s deposits, coupled with government resolve to develop its mining sector, positions the kingdom well to benefit from the enormous rise in copper demand expected over the next two decades and beyond. A new mining law unveiled in 2021 with flexible terms and rapid license processing will attract more international firms to the Saudi market.

Background Facts:
  • The future of renewable energy and the "electrification economy" will be highly reliant on copper. Global refined copper demand will nearly double to 49 million metric tons by 2035, according to S&P Global, hitting 53 million tons by 2050. To put that into perspective, this amounts to more than eight times the annual output of Chile, the world’s largest copper producing nation.
  • Investment needs for future copper production are immense. According to global research and consulting firm Wood Mackenzie, some $23 billion will need to be invested annually for the next three decades. This would amount to a copper investment boom only seen for a few years from 2012-16 during the China-driven commodities super-cycle. 
  • This unprecedented demand could lead to copper shortages worldwide. As S&P Global noted, “the world has never produced anywhere close to this much copper in such a short time frame.” New sources of copper beyond the heavyweights — Chile, Peru, the United States, China and the Democratic Republic of Congo — are needed.
  • Robert Friedland, founder of Vancouver-based Ivanhoe Mines and a key figure in the mining world, points to the Arabian Shield geological formation of western Saudi Arabia as well as the broader African continent as the next sources of growth for copper production.
  • Saudi Arabia’s Vision 2030 initiative highlighted mining as a key strategy toward its economic diversification goals. The kingdom has announced plans to quadruple mining’s contribution to GDP, making it “the third pillar of the kingdom’s economy,” according to Bandar Alkhorayef, Minister of Industry and Mineral Resources, a newly formed ministry that became operational in 2020.
  • The ministry estimates that the kingdom holds some $1.3 trillion of mineral wealth across 48 different commodities. Of that amount, it is estimated that Saudi Arabia holds $222 billion worth of copper reserves.
  • A new mining law introduced in 2021 includes dramatic reductions in red tape for prospective investors and rapid license applications. Saudi Arabia is putting processes into place that would allow mining permits to be processed within 30 days — a sharp contrast to the United States, where it can take anywhere from seven to ten years amid multiple layers of regulations.
  • A recent tender for a major zinc and copper mine 170km southwest of Riyadh attracted international players from the US, UK, India, China and Australia. The winning consortium — Moxico Resources of the UK and the Saudi firm Ajlan and Bros Mining — paid $68 million in the first-ever multi-round auction for a Saudi mining license. The Khnaigiuyah site covers more than 350 square kilometers with an estimated resource of about 25 million tons of zinc and copper ores.
  • A second tender for a smaller project 300 Km northeast of Jeddah was awarded in October to a Canadian-Saudi consortium composed of Saudi Arabian Mining Company (Ma’aden) and Barrick of Canada. The Barrick-Ma’aden consortium already operates the Jabal Sayyid copper mine nearby.
  • The three major existing copper mines in Saudi Arabia produce nearly 70,000 tons of copper. Partially state-owned and publicly-listed Saudi mining company, Ma’aden, is involved in two of those mines. Two international players, Barrick of Canada and KEFI of Cyprus (and now recently Moxico of the UK) are currently engaged in copper mining projects in the kingdom. Ma’aden is already a significant producer of phosphate, aluminum and gold. 
  • Significant challenges to copper mining include water management and infrastructure bottlenecks in remote mining regions.
Alternative Scenarios:

Scenario 1: A severe economic slowdown worldwide leads governments to slow energy transition targets and slide back into more familiar, fossil fuel-driven growth models.

This is less likely given the policy momentum displayed in the United States, Europe and China, the three key poles of the global economy. Regardless of the macro-economic environment, all three have demonstrated both policy commitment and commercial dynamism around energy transition. The recently passed US Inflation Reduction Act creates a bonanza of incentives and subsidies for renewable energy innovation that will ignite US innovation. European political elites and civil society are highly united around meeting net zero targets and EU-wide legislation is peppered with both carrots and sticks to ensure countries and firms meet net zero targets. Russia’s invasion of Ukraine also laid bare to Europe its dangerous dependence on Russian fossil fuels. As for China, it stands to benefit from greater electrification worldwide as it is a major producer of the raw materials needed, like copper, and it is also a significant manufacturer of electrical vehicles and batteries.

Scenario 2: Copper price rises prompt existing players to double down, collapsing prices in the long-term amid a supply glut, squeezing out newer players like Saudi Arabia.

Given the unprecedented scope of copper needed, the complexity of licensing and regulatory obstacles on new and existing projects, and the long lead time required for new mines to produce, it is unlikely that prices could collapse over the next two decades. The main problem will be copper shortages rather than supply gluts. Still, even amid the unlikely scenario of a deteriorating price environment, partially state-owned players like Ma’aden would be well-positioned to ride out the storm and states with large cash reserves like Saudi Arabia could provide attractive incentive packages for international mining firms.

Conclusion - Most Likely Scenario:

As the world faces unprecedented copper demand over the next two decades and beyond, the Arabian Shield geological bounty coupled with rising commercial interest, Saudi policy momentum and a history of success in exploiting mineral resources will position the kingdom well to leverage the coming copper wave. While its discovered reserves are still unproven and modest compared to the big players, growing interest in the sector from local and international players portends a new energy in Saudi mining more broadly, and copper in particular, potentially leading to new discoveries. Logistical challenges from water management and infrastructure in remote mining regions will need to be overcome, but the key factors of rising copper demand and government resolve will grow the sector rapidly.

Contributor Background:

Afshin Molavi has nearly 25 years of experience covering the geo-economics of the Middle East and North Africa and broader emerging markets with postings in Riyadh, Jeddah, Dubai, Tehran and elsewhere. Currently a senior fellow at the Johns Hopkins School of Advanced International Studies in Washington, he has also held various research, reporting, analyst and leadership roles at Reuters, Oxford Analytica, the International Finance Corporation of the World Bank, emerge85 and the New America Foundation. His articles have also appeared in Bloomberg, the Financial Times, the Washington Post and the Journal of Commerce, and he is the founding editor of Emerging World, a Substack newsletter that explores the intersection of emerging markets, globalization and the key global trends shaping our future. 
 

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