Gulf giants need to take a lead role in the age of ‘Big Shovel’

If the age of Big Oil is on the wane, will it be replaced by the era of “Big Shovel”?

This is the phrase used by commodities commentators to describe the shift towards new forms of power generation, transportation and industrial production that will need mineral resources in vast quantities.

Big Shovel is also the global mining industry, which will be instrumental in extracting and refining those resources – rare earth metals as well as the more mundane but vital commodities such as iron and copper.

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These metals and minerals are essential for the manufacture of renewable energy technologies from solar panels to electric car batteries, while one resource – uranium – is at the heart of nuclear power generation.

The Arabian Gulf countries – especially the UAE and Saudi Arabia – have identified mining and mineral extraction as a strategic sector, both at home via the exploitation of hitherto underexplored resources and around the world through financial investment in other countries’ natural resources.

There are big potential opportunities in each approach, but also significant challenges to overcome before the Gulf becomes a mining powerhouse like the US and China.

The challenges were highlighted in a recent invitation by the Saudi Arabia Ministry of Industry and Mineral Resources to international companies to get involved in its mining enablement programme.

Minerals such as copper, lithium, gold and iron were stipulated as of special interest for the Saudis, in parts of the country that have not already been explored. Geological surveys have demonstrated significant potential but – much as in the early days of oil in the kingdom – Saudi Arabia needs international expertise and investment to bring its plans to fruition.

Saudi Arabia estimates that there is up to $2.5 trillion worth of non-hydrocarbon minerals in its soil, but without financial investment and expert exploration it is impossible to know how much is practically exploitable.

Most domestic mining activity is under the responsibility of Ma’aden, in which the Public Investment Fund has a key stake. Last year Riyadh set up Manara, another PIF-backed institution, to lead international mineral exploration efforts.

Manara has already grabbed a slice of a Brazilian copper and nickel project, and is believed to be looking at other investments in North America and Africa.

Much as in the early days of oil in Saudi Arabia, the country needs international expertise and investment to bring its plans to fruition

International investment is the preferred route of the UAE, which does not have the same potential as Saudi Arabia in domestic resources. Abu Dhabi recently invested an estimated $1.1 billion in Zambia’s Mopani copper mine through International Resources Holding, an offshoot of the country’s financial conglomerate International Holding Company.

In both Saudi Arabia and the UAE, expansion in the global mining business is backed by state development institutions, implying that both governments are deadly serious about a global strategy for the post-oil era.

Other Gulf countries, notably Oman and Qatar, have announced their own initiatives in either local mining operations or financial investments in global businesses.

It is an increasingly crowded marketplace. The US and China lead the world as consumers of strategically important minerals and are also significant producers via their own mining industries. The growing rivalry between the two makes competition for resources in other parts of the world a geopolitical race, as much as an economic one.

The Gulf has good economic relations with both superpowers – and can offer potential partners in Africa and Latin America deals that come without geopolitical strings to either East or West.

They can also offer the prospect of investment in other areas – infrastructure, agriculture and tourism – to sweeten mining deals for developing economies.

The shift to a global strategy in mining by the Gulf countries brings other complications. Mining has often been regarded as an environmentally destructive industry, with a dubious track record on labour rights and conditions.

The same environmental activists who rail against the hydrocarbon producers are sure to be doubly vocal in their opposition to oil-exporting nations seeking to exploit the earth’s natural resources further.

But the Gulf countries would seem to have little alternative. Under the triple imperative of geopolitical forces, climate change and national development strategies, they are under pressure to pick up the Big Shovel.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE