Analysis Mining Saudi Arabia’s zinc project is set for the long term By Jonathan Gorvett October 16, 2024, 7:52 AM Oriental Image via Reuters Connect An offshore wind farm in China. Zinc is vital for anti-corrosion coating in offshore turbines but China has reached a point of oversupply Saudi zinc capacity is growing Khnaiguiyah is largest mine Zinc central to energy transition In the deserts of Saudi Arabia, 170km southwest of Riyadh, the Khnaiguiyah mining project is the kingdom’s largest mineral exploration site. Geologists and miners are looking to extract 25 million tonnes of zinc and copper ore from this opencast prospect over the next 12 years. That would establish Khnaiguiyah as the Gulf’s first world-level zinc mine – and add a further string to Saudi Arabia’s mining bow. The scheme was awarded to a consortium of Ajlan & Bros Group, a local conglomerate, and Moxico, London-based specialists, in January 2023. The Saudi mine would also be one of only two producing zinc prospects in the GCC, the other being Oman’s gold, copper and zinc Al Amar mine. Zinc is a central material in solar panels, batteries, wind turbines and a whole range of alloys and coatings in construction. Demand for the ore may be about to surge. “Zinc is often overlooked compared to copper and other minerals,” Tom Rutland, base metals analyst at consultancy CRU, tells AGBI. “As a result, by 2027, ‘28 and ’29 we could see a massive supply gap.” Khnaiguiyah may help to fill some of that, while also forming a pivotal part of Saudi Arabia’s plans to establish whole supply chains, from mines to manufacturing, within its own territory. Price wobbles When interior designers first decided to put restaurant pipework out on view, rather than hidden away behind walls, they also provided us with a neat demonstration of zinc’s usefulness. Those long ventilation tubes and ducts in a favourite modish eatery are likely to be zinc-coated galvanised pipe. Zinc is more resistant to corrosion than iron and steel, so for many years, its main use has been this type of coating. That has also made it an important player in the energy transition. A wind turbine out at sea is particularly susceptible to corrosion. Solar panels, too, need protection from the elements. Zinc coating has provided an answer for both, creating extra demand. A 10 megawatt-hour offshore turbine, for example, needs around four metric tonnes of zinc to coat it, while a 100MWh solar park requires about 240 tonnes, according to World Economic Forum figures. That means the Mohammed bin Rashid Al Maktoum Solar Park in Dubai, for example, will have used around 12,000 tonnes of zinc by the time it reaches its 5GW capacity in 2030. Indeed, the UAE’s imports of zinc have been rising steadily, from $258 million in 2020 to $424 million in 2022, according to UN Comtrade. At the same time, zinc-ion batteries are also now a major alternative to lithium-ion. The former use a water-based chemistry and so are not prone to the fire risks of their sometimes-overheating rival. Alamy via ReutersUAE’s demands for zinc has risen steadily in response to its increased use across a number of installations including Mohammed bin Rashid Al Maktoum Solar Park in Dubai The other one Yet, despite these important features, zinc has long been the poor relation in energy transition minerals. “A copper project, for example, can have a massive upside, compared to zinc,” CRU’s Rutland says. Zinc prices have tended to be low and flat. A major reason for this is that zinc mining and smelting is dominated by China, where there is now considerable overcapacity – particularly as the country’s construction sector has slowed. There have been some slight rises, however. On the London Metals Exchange, zinc prices averaged $2,266 a tonne in 2020, rising to $2,643 a tonne in 2022 and about $3,000 a tonne at present. Most of this rise has been a result of temporary supply shortages. In 2023, five large mines closed around the world, and the giant Antamina mine in Peru halved output. In consequence, several smelters also closed or cut back production, reducing output of processed zinc products. “Zinc has been doing a little bit better than expected due to this fall in mine production,” says Kieran Tompkins, commodities economist with Capital Economics in London. Saudi-backed Vale plans to increase copper output Mineral wealth leads global lab to open in Saudi Arabia Opinion: Gulf giants need to take a lead role in the age of ‘Big Shovel’ Next year, though, these mines resume full operations, while a large new mine in Russia, Ozernoye – the world’s fifth largest – started producing last month. “This return of supply is likely to outweigh any demand growth,” adds Tompkins. “So we’re pretty negative about zinc prices in 2025, 2026.” Indeed, Capital Economics predicts a 2025 price of about $2,400 a tonne, while Fitch Ratings foresees $2,600 a tonne next year falling to $2,500 a tonne in 2026. Lights on the horizon After that, however, zinc may be in line for some better news. “Zinc may become whatever the opposite of being ‘a victim of its own success’ is,” says Rutland. Neglect by investors and low prices in the short term will coincide with steadily increasing demand, as the world attempts to treble its renewable energy capacity under the Cop28 UAE Consensus. “As people have not been developing zinc, we are thinking that by 2029, zinc could reach $4,000 a tonne – a massive upside, as zinc supply falls short,” Rutland says. That could be good news out in the desert south of Riyadh. If all goes well with the exploration and financing phases at Khnaiguiyah, the Saudi mine’s zinc reserves might start coming online just when they are needed – and not just by your local upmarket eatery.