City slickers: Two new clusters are expected to spark an uptick in private investment

The emergence of two mining cities in Saudi Arabia could galvanise further private sector investment both upstream and downstream, with a host of new rail linkages set to sweeten the deal.

Promise Of The North

Plans are moving ahead for the development of a mining city named Wa’ad Al Shimaal (“Promise of the North”), which is being developed by government-owned mining company Ma’aden in the Umm Wual area, north-east of Turaif.

The first clear signal of commitment to the project came in February 2012, when the Council of Ministers approved the establishment of the city. Ma’aden has since awarded a contract for a general engineering plan of the city to the US’s Bechtel, as well as a contract for front-end engineering and design to Jacobs Engineering, also of the US.

The entire city is phosphates-oriented: ore will be mined from the nearby Al Khabra deposit, after which it will be processed at eight plants. Preliminary investments of $1.87bn have been made in the city, and 2015 and 2016 have been variously cited as completion dates for the construction work.

Ultimately, the site has room for much more investment: Khalid Al Mudaifer, Ma’aden’s CEO, told press in early 2012 that he foresaw the city offering around 20 opportunities to private investors.

The city will both expand and diversify Ma’aden’s output: the company hopes the processing plants will churn out 16m tonnes per year of a range of phosphate-based chemicals that will be of value to sectors as wide-ranging as fertilisers, food processing and manufacturing detergents. Some of these chemicals will be new to Ma’aden, helping the firm diversify its product mix. While much of the output is expected to be for export initially, it provides new scope for downstream industries, meaning the city fits into the country’s industrial clusters programme.

Ras Al Khair

Grander schemes are under way in a separate industrial city being built at Ras Al Khair, on the eastern coast, at a cost of $31bn. Here, too, Ma’aden has significant interests, in both bauxite and phosphates. In a joint venture with Saudi Basic Industries Corporation, Ma’aden began commercial operations in 2012 at a $5.5bn phosphate and fertiliser complex. The main product is a fertiliser called diammonium phosphate (DAP), which is produced from phosphates, along with inputs of natural gas and sulphur, both of which are also available in Saudi Arabia. While technical difficulties with the phosphoric acid facility – which feeds into the DAP production line – have prevented the plant from reaching full capacity so far, Ma’aden hopes to eventually produce 3m tonnes of DAP per year.

Even larger is the $10.8bn aluminium complex the company is developing with US mining giant Alcoa. Despite being the only Gulf Arab nation with known bauxite reserves, Saudi Arabia has until now not developed the resource. By 2015, however, bauxite mined from Al Azbirah is to be transported to Ras Al Khair on a freight rail line completed in 2011. There it will be processed in a $1.5bn refinery currently being built by South Korea’s Hyundai.

Rail Links

With the mining community having cited a lack of transportation infrastructure as a major challenge, the government is looking to enhance rail connectivity between the new cities and relevant marine ports. The city and port of Ras Al Khair is to be linked by a railway that will be built by the Saudi Binladin Group, local press reported in July 2012, while a rail link will be just one of the fruits of the $1.2bn to be spent on infrastructure in Wa’ad Al Shimaal. These announcements came in the wake of the completion in 2011 of the first phase of the North-South Railway. The project is scheduled to ramp up to full freight capacity by mid-2013, when it will allow both phosphate ores from Al Jalamid and bauxite from Al Azbirah to be transported to Ras Al Khair. The government is hoping that this new linkage will go a long way to fulfilling Saudi Arabia’s target of making the mining industry the third pillar of its economy.

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The Report: Saudi Arabia 2013

Mining chapter from The Report: Saudi Arabia 2013

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