Middle East ramps up investment in industrial minerals

By Laura Syrett, Liz Gyekye
Published: Monday, 21 December 2015

Gulf states are seeking stakes in mining projects and aiming to bring downstream industry to the Arab region.

Middle Eastern investment in industrial mineral projects is on the rise as the region looks to diversify against its historic reliance on oil and gas.

Speaking at the Mines and Money 2015 conference in London in December, Mohamed Mughal, CEO of Dubai-based First Forte Consultancy, said that the Gulf Cooperation Council (GCC) states were witnessing strong investment growth in local steel, aluminium, phosphate and cement capacity.

He said that the Arab region was home to around 67 steel plants and that its steel industry was continuing to grow at approximately 5-6% per annum, compared to much of the rest of the world where steel consumption is stagnating or even contracting.

Middle Eastern investors, which typically consist of sovereign wealth funds, "family offices" and locally-headquartered conglomerates, are looking for "stable, long-term [mining] projects with opportunities to invest upstream and downstream," Mughal said.

He explained that for the family offices and conglomerates, in particular, investments in mining projects were usually made "with a view to bringing parts of the downstream into the [GCC] region". This is one way of bringing non-hydrocarbons reliant industry into the Middle East, he said.

In terms of where different GCC states are putting their money, Mughal said that UAE was still investing in coal, iron ore and copper but that garnet was also an important target commodity. For Oman, phosphate, iron ore and gypsum projects are among the top recipients of funding, while Jordan is becoming increasingly involved in the phosphate industry.

Mughal noted that investors are interested in both the mining projects themselves as well as mining equity, although the priorities tended to vary according to the type of investor. For those looking to invest directly into mining developments, he said that in order to receive funding the projects had to be structured in a certain way and allow Middle Eastern investors the option of taking small stakes.

Offtakes, Mughal said, were also becoming increasingly common between Middle Eastern companies and mining projects, including many developments in Africa.

Iran

The lifting of international sanctions against Iran is a specific focus for many GCC investors, Mughal said. He said that funding groups were "just sitting and waiting for the country to open up" and that there would be a "whole pool of capital" available to be poured into the country, once the green light was given by international regulators.

He noted that Iranians are among the most academically educated in the Middle East and that this would create a positive environment for investors.

Others were more cautious about the Iranian opportunity, however. "Iran has signed a deal with the Americans not to go nuclear, but my understanding is that this agreement can easily be broken," said Rudolph de Bruin, founding partner of private equity group, AMED.

"Mining companies looking to get into Iran had better take out good insurance," he added.

Iran’s government, meanwhile, is encouraging the perception of the country as a promising new market for mining activity, in place of oil. At the end of November, the country’s Deputy Minister for Industry, Mine and Trade, Mojtaba Khosrowtaj, said in an interview with Bloomberg that, "the Iran of the future is one where mining can gradually start replacing oil."

"We have asked potential investors to pay attention to the mining sector," he added.

Iran is opening $30bn-worth of energy projects and $29bn of mining deals to investors once international sanctions imposed on Iran are officially lifted, Bloomberg’s report said. Khosrowtaj noted that metals discovered in the country, such as copper, lead and higher-priced rare earth elements, could be worth "much more" than the nation’s oil industry revenue of around $30bn, assuming crude prices of $40/barrel and exports of 2m barrels per day.

In 2012, more than 40 minerals were mined in Iran and around 20 metals and minerals were processed or produced in Iran, according to US Geological Survey (USGS) statistics. The USGS states that the country has more than 3,000 active mines, most of which are privately owned. However, the sector is still using equipment developed 15-20 years ago because of a lack of funds to due to sanctions, Khosrowtaj said.

"We could use new technologies. Expansion of construction projects in oil and gas or mining is reliant on banks and insurance companies, and sanctions have delayed them," he added. "With lifting of sanctions, there will be new opportunities that will accelerate growth."