The kingdom of Saudi Arabia has a surprisingly extensive legacy of mining gold that traces back to antiquity. Now, the Saudi gold industry is getting a shot in the arm with the opening of the Ad Duwayhi gold mine.
One significant feature of the Ad Duwayhi project is its location. It is outside of the Mahd adh Dhahab area—which translates to "Cradle of Gold." This area is the top producer of Saudi gold, with roughly 100,000 oz of annual output. Impressively, it also has a lineage of mining the precious metal that stretches back as far as the third millennium BCE. In fact, many geologists and archaeologists believe the fabled gold mine of King Solomon described in the Bible is located here.
Gold mining was long ignored in favor of crude oil drilling, but Mahd adh Dhahab finally became more active beginning in the 1970s. The Saudi gold mining industry was also revitalized in the late 1990s and early 2000s as laws governing mining were liberalized. Among many other mines located in the Cradle of Gold, the Sukhaybarat mine accounts for almost half of the region's yearly production.
Diverse Resource Sector
Saudi Arabia is best known as the world's top producer of petroleum. However, in addition to extensive underground gold reserves, the country also boasts a robust array of natural resources. It is only recently that the government has begun to diversify its oil-dominated economy to include other resource mining operations.
The Saudi gold mining industry is the most mature of these alternative resource projects. Yet the Arabian Peninsula is also becoming a major producer of copper, zinc, aluminum, and phosphate. This has attracted multinationals.
In fact, the well-known Barrick Gold (ABX), who is a partner in the Ad Duwayhi gold project just coming online, also undertook a joint copper mining venture with the state-owned mining monopoly, Saudi Arabian Mining Co. (also known as Ma'aden), in 2014. The site is known as the Jabal Sayid copper mine and is expected to see over 100 million pounds (~50,000 metric tonnes) of annual output.
Leap Forward for Saudi Gold Mining
The Ad Duwayhi mine is located east of Mecca and Medina, approximately 450 kilometers southwest of the country's capital (and most populous) city, Riyadh.
The project is an open-pit mine that will produce gold doré bars (about 80% pure) on-site before shipping them to Jeddah on the country's western coastline with the Red Sea. Ma'aden indicated in a press release this week that the mine is now commercially operational. It is expected to produce roughly 180,000 oz of gold per annum—more than the entire Cradle of Gold region!
Traditionally, Saudi Arabia is a country with a fairly strong appetite for gold. Retail sales are closely connected to domestic mining, so many local gold producers (under the umbrella of Ma'aden) also run their own retail operations. Saudi gold bullion sales have risen with softer metal prices over the last three years, as both investor demand and cultural affinity for gold are present in Saudi Arabia. Like much of the Middle East, there is an attraction to gold jewelry. Coins and bars are also increasingly popular investments for the country's growing business community.
The opening of the new gold mine in partnership with Barrick could prove to be a pivotal point in the growth of the country's mining industry and domestic gold market, with the potential to more than double annual gold production.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.