Saudi Maaden sees positive Q4 on high gold prices

GOLD PRICE: Higher gold prices to positively impact bottom line at Saudi miner Maaden. (Getty Images)

State-controlled minerals firm Saudi Arabian Mining Co (Maaden) expects high gold prices to be a boon for fourth-quarter results, the company's chief executive said on Tuesday.

"I think it [results] will be positive because of the high gold price," Abdullah Dabbagh told reporters on the sidelines of a mining event in Bahrain when asked about his outlook for fourth-quarter earnings, although he declined to say whether it would beat the same quarter last year.

Spot gold prices hit a record high earlier in October at just over $1,070 an ounce. Investors have used gold as a safe haven during the financial crisis and economic downturn.

Higher gold revenues contributed to higher operating income for the company in the third quarter. Operating profit came in at 21 million riyals ($5.60 million) in the third quarter, compared with a loss of 28 million riyals in the same quarter last year.

Dabbagh said Maaden's spending power has been diminished in the wake of the global economic crisis, prompting the firm to seek financing from foreign players.

"After the financial crisis, we developed a new unit within our company to look out for outside investors who would be interested in exploration," said Dabbagh.

The firm has extracted 8.5 million ounces of gold in the kingdom over the past six years and there is scope for further output with more unexplored sites, he added.

"The potential is really big," he told Reuters, adding that the company is in talks with a few international players but nothing has been finalised.

Lack of water resources is one of the main challenges crippling the exploration of gold projects, said Dabbagh.

The company is in advanced talks with a firm that can pump treated water from the city of Taif into central Saudi Arabia where a number of gold mines have been identified.

No timeline was given for the project.

"Scarcity of water is a real problem in Saudi, but we are trying to overcome this by bringing water from Taif to what we call Gold City in central Arabia," Dabbagh said.

Finding investors may not be an easy task as potential funders shy away from capital intensive projects that yield revenues in the very long term, said Elena Clarici, chief executive of London-based investment firm Commodity Energy Capital.

"We are running out of cheap gold, it is no longer close enough to the surface and therefore extraction is a lot more expensive," she said.

"This is why we see a lot of companies sitting on very high gold reserves because they are unable to attract investment for this deep exploration."

Maaden has the capital to double capacity at its Saudi fertiliser plant to 6 million tonnes per year from 2.92 million tonnes, Khalid al-Mudaifer, vice president of business development, told Reuters at the same event.

Maaden's phosphate and fertiliser plant is a joint-venture with Saudi Basic Industries Corp (SABIC). The expansion would make it one of the largest plants of its kind in the world, with production from the first phase expected to start in 2010. Mudaifer said it was still unclear when the second phase would start.

"The capital is there, but we still don't know when it will happen," he said.

The project would use phosphate from a deposit at Al Jalamid in the north of the Kingdom and local gas and sulphur supplies to manufacture the fertiliser diammonium phosphate (DAP).

The fertiliser would all be exported, he said. In June, the company said it had secured loans worth several billion dollars from Saudi and South Korean institutions for the project.

Maaden said in 2007 the bill for the phosphate venture had soared to 21 billion riyals, 62 percent more than it had expected previously, due to a rise in labour and material costs on the international construction market. (Reuters)

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