MENA Mining (III): Saudi Arabia (II)

THIS POST WAS ORIGINALLY PUBLISHED JUNE 25, 2011

MENA Mining (III): Saudi Arabia (II)

In my Blog posts I frequently touch the issues of investments in mining

·                  Mining Companies: Where to Get Money? - An Eyeball on Investors

·                  Mining Companies: Where to Get Money?

Here I would like tor reproduce this slide from my earlier post:

2011 Africa - Investment Destination for Miners (Part I) this helps to understand existing risks for investors in mining.

Source: The Equator Principles - David Glenister, International Sales Manager, Systems & Services Certification, SGS

According to the latest World Bank’s publication Doing Business in the Arab World 2011, Saudi Arabia is No.1 in Arab World as to ease of doing business. Indeed, it holds the top ranking position in the ‘protection of investors’ ratings. 

In 2010 the Saudi Council of Ministers adopted a Ninth Five-Year Development Plan (2010-14) – here an important role is allocated to development of mineral resources. Alongside with detailed analysis of the previous years, the plan lists the goals for 2010-14. In particular, on the issue of foreign investments, it sets, among the others, the following tasks:

·                  Increasing investment opportunities in exploring and manufacturing mineral wealth and providing all possible incentives and support for such activities.

·                  Providing a safe, attractive, efficient and transparent investment environment.

·                  Incentivising national and foreign investors to set up mining projects, especially those closely related to existing projects in other productive sectors.

Source: MINERAL RESOURCES part of Plan

Looking at investor attraction issues, here I would like to divide it into two components: 

(i) Country Specific; and (ii) Industry Specific.

Country Specific

Financing.

The Kingdom is a member of the Multilateral Investment Guarantee Agency (MIGA) and SAUDI ARABIAN GENERAL INVESTMENT AUTHORITY (SAGIA) provides all necessary assistance to foreign investors. SAIGA’s Website is the first thing that any investors should visit, before making any moves. There is a comprehensive set of all relevant information – starting from the process of obtaining a license,  cost of doing business, and download center that has very useful documents.

 Another valuable for investors organization is the Saudi Industrial Development Fund (SIDF). SIDF provides financial assistance in the form of short term loans to investors, plus offers technical, administrative, financial and marketing advice. The loans are medium and long-term for up to 50 percent of the total cost of the project. The payback period is up to 15 years, with a two-year grace period from the start of production. As the previous, the Website is meticulously worked out and has a very detailed information for investors.

Legal.

The Kingdom has established a highly supportive legal and regulatory framework. Under Foreign Investment Code foreign investors can own 100% of a business with or without a Saudi partner. Comprehensive information, including numerous links is provided on this Webpage: A Brief Overview of Saudi Arabian Legal System, while some other links include Legal considerations for new Investors. Saudi Arabia Investment guide 2010 by Al-Ghazzawi Professional Association and Herbert Smith LLP. There is a certain issue with investors’ anxiety on specific legal aspects of doing business. Here what the actual investor says: “The legal system of Saudi Arabia, Shariah, is sometimes viewed as an area of concern in the West and among major investors. In Bariq’s experience, although all dealings are Shariah compliant, there is no differentiation in practice at all.” (Saudi Arabia: A destination of choice for investors  Arab News, January 25, 2011)

Material Assistance.

Industrial projects get electricity, water, and other fuels to at low prices. The Kingdom’s industrial parks feature a variety of public utilities: high quality roads, electricity supply systems, desalinated water plants, sewage, communications facilities and services, as well as all necessary utilities infrastructure (mosques, fire stations, medical facilities, restaurants, post offices and police stations). Available land is located throughout Saudi Arabia in different industrial cities at nominal charges. Land for other uses is available on lease or sale. For development of industrial projects Saudi Arabia has advanced, state-of-the-art engineering supply and construction/contracting companies (equipment suppliers, maintenance, etc.)

Industry Specific

Leading position in world industry. Saudi Arabia is one of the Top 20 Emerging Mining Countries as cited by Business Monitor International.

Advantageous geographic position. Ample domestic, regional and neighboring markets in the Middle East and Asia for high grade, industrial raw materials from the Kingdom.

Third Pillar.  Mining sector is advancing as the third pillar of the Saudi economy at a projected rate of 9.1%.

Industrial Minerals is an essential segment of Saudi Arabia’s Non-Oil Mining sector, and its Saudi Diversification Plan

In its current Ninth Development Plan “calls for intensification of efforts to maximize exploitation of discovered mineral deposits and promote appropriate regulatory frameworks in order to attract investment into this promising sector, thereby increasing its contribution to GDP”.

Practical incentives for miners. Flat corporate tax rate of 20% ; absence of mineral royalties; highly competitive energy costs; import duties exemptions for approved mining equipment - 5% on other imported equipment. This all affects mine production costs, as it is shown on the following slide:

 

Source: Nov 2010 Kefi Minerals Plc Presentation on Mines and Money 2010 Conference

Substantial Developments in Infrastructure. As an example, an extensive rail network that benefits mining projects (see map in the previous post).The North-South railway is only one element of a national rail and road building program that drastically changes the accessibility to mining sites.Moreover, it is expanding continuously, as it is seen from the recent news: “… King Abdullah has ordered the linking of the new Hazm Al-Jalameed-Ras Al-Zour rail with Dammam through Jubail Industrial City… new rail will connect the major industrial facilities in Jubail, Ras Al-Zour and Northern Border Province with King Fahd Industrial Port and Commercial Port in Jubail and the King Abdul Aziz Port in Dammam.”

 There are also some challenges for investors, looking for Saudi Arabia – and according to certain analysts – these are: limited availability of drilling and lab facilities; and inadequate quantities of water supply systems. So these are possible areas for urgently required investments.

This ends my brief overview of investment attraction of Saudi Arabia’s mining sector. Comments are welcome

UPDATE. 
The upcoming issue of the International Resource Journal publishes the interview with Dr. Abdullah Basodan—the chairman of United Mining Investments Company (UMIC):
“A continent rather than a country” - this discusses opportunities and recent events in non-oil mining in Saudi Arabia. READ HERE