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Saudi Arabia's new gold mine

Forget oil. Prospectors are looking to strike it rich off of gold - the shiny kind.

By Barney Gimbel, writer
Last Updated: August 17, 2008: 8:11 AM EDT


(Fortune Magazine) -- A new generation of fortune hunters is seeking riches under the sands of Saudi Arabia.

But this time they're searching for gold - the shiny kind, not the black, liquid variety - and potentially even more lucrative metals and minerals. "Gold, copper, phosphate, bauxite - this place could be the next Canada or Australia," says Inés Scotland, CEO of Citadel Resource Group, an Australian company that is mining copper in the kingdom. "The geology here is fantastic."

Prospectors have been extracting gold in Arabia for more than 3,000 years - some say King Solomon's riches came from here - but the Saudi government only recently opened up the land for large-scale commercial exploration and production.

"Saudi Arabia is the size of a small continent," says Abdallah Dab-bagh, CEO of the state-run mining company, Ma'aden (whose name means "minerals" in Arabic). "But if you look at the amount of exploration drilling that has been done here from 1945 until today, it's the equivalent of what happens in Canada in one year."

When the company was founded in 1997, only one gold mine was in operation. A decade later Ma'aden - the government took half the company public in July to the tune of $2.5 billion - has five gold mines and two multibillion-dollar projects in the development and planning stages.

Ma'aden's $5.5 billion endeavor promises to make the kingdom the world's largest exporter of diammonium phosphate, a fertilizer. The company is also finalizing a $10.5 billion deal with Rio Tinto Alcan (RTP) to mine bauxite and build a refinery, smelter, and power station to become a major aluminum exporter.

Driving the government's mining push are job creation and diversifying an economy fueled overwhelmingly by petrodollars. Experts say bauxite and phosphate will generate huge new profits for the Saudis, and not just because their supplies of those minerals are prodigious. The country also has a special advantage.

"The value in those minerals isn't captured from digging it out of the ground," says Peter Searle, a geologist with consultancy CRU International. "It's captured by processing them."

And turning bauxite into aluminum, as it happens, requires an enormous amount of energy. That, as we all know, shouldn't be a problem for the Saudis. To top of page