DAMMAM, Saudi Arabia () -- A city within a city is rising in the midst of the barren desert and scrub of Saudi Arabia's Eastern province. Construction is now well under way at Ras az Zawr, a planned mining and industrial zone inside the Arabian/Persian Gulf coast port and industrial city of Al Jubail in the Kingdom of Saudi Arabia.
There, a phosphate mining, granulation and diammonium phosphate production complex is being built in one stage over a 34-month period which, upon completion, will be one of the largest integrated phosphate processing and DAP production facilities in the world.
The region, not far from the Kuwaiti border, is one of the richest natural and mineral resources areas in the world. It is home to the Dharan Dome, the geological structure that contains Saudi Arabia's first major, and still producing, oil field.
Ma'aden, the Saudi National Mining Company, has estimated that a $3.4 billion investment is required to fully develop the Al Jalamid phosphate deposit and associated infrastructure, including establishing an industrial railway network. Ma'aden has signed a $2.5 billion joint venture project contract with the Saudi Oger company to manage the project, according to a report by the U.S.-Saudi Arabian Business Council.
A host of foreign mining and chemicals project management and engineering firms, including U.S.-based Jacobs Group [NYSE:JEC], Canada's SNC Lavallin [TSX:SNC], Australia's WorleyParsons [ASX:WOR] and Spain's Dragados Industriales, a holding company owned entirely by ACS Servicios Industriales, the industrial division of Grupo ACS (Bolsas y Mercados Espa~noles: ACS), have begun carrying out their ends of the mammoth phosphate mining and DAP production project, having been awarded contracts earlier this year.
Upon coming on-line, scheduled 2008, the integrated phosphate processing and diammonium phosphate production complex will quadruple Saudi Arabia's DAP and fertilizer production - from 1 to 4 million tonnes per year - literally vaulting the Kingdom from into the top ranks of fertilizer producers worldwide.
Sedimentary phosphate rock is the primary mined source of DAP in the world today. DAP, in turn, is the most common agricultural fertilizer, and is also used in making fire retardants, detergents and other industrial and consumer products.
Ma'aden plans to construct a plant to process up to 5.2 million tonnes of phosphate from the Al Jalamid deposit and produce 3 million tonnes of diammonium phosphate (DAP) fertilizer annually. The Ras az Zawr-Al Jubail Complex will also include a phosphoric acid factory with an annual capacity of 1.3 million tonnes, a sulphuric acid factory and an ammonia factory.
The long-term strategic initiative is one of a group of mega-projects the Saudi government is carrying out with the intention of diversifying the kingdom's economic base. The state mining agency intends to use the phosphoric acid associated with mining the Al-Jalamid deposit in the production of a number of value added products, such as chemicals, animal feed and detergents, according to the U.S.-Saudi Arabian Business Council report.
Ma'aden awarded a $133 million contract to WorleyParsons, a natural resources engineering services company based in Sydney, at the end of February to provide engineering and project management services for the Al Jalamid phosphate mine and chemical complex, as well as the town site and related infrastructure at the Ras Az Zawr aluminium site on the nearby east coast.
The Saudi national mining agency has also awarded a SR25.5 million ($7 million) with the Saudi Arabian Phosphates Consortium, which comprises SNC Lavalin Europe BV, a member of Canada's SNC Lavalin Group and Delta Catalytic Saudi Arabia Ltd., a member of the U.S.-based Jacobs Engineering Group, for the provision of advanced engineering services at Al Jalamid and fertilizer complex in the Persian, or Arabian, Gulf port city of Al Jubail. Total investment in these two aspects of the project is expected to reach SR7 billion ($1.9 billion).
In late July, Dragados Industriales, a member of Grupo ACS, one of Spain's largest industrial engineering and construction companies, was awarded a contract valued at $240 million to build four phosphate beneficiation-DAP production plants.
The award is one of four mineral and oil and gas resources development and electrical power projects ACS Group companies have won in the Middle East in the past 12 months. Others include petrochemical projects in Iran and Kuwait, and an electricity power generation facility in Abu Dhabi. Grupo ACS' shares have risen more than 76% in price in the 12-month period ending July, 2006 and 45% year-to-date, making them one of the best performers on the European stock exchanges.
Saudi and Spanish firms are setting up a $5 billion joint investment fund as part of a bilateral agreement concluded during an April visit by Spain's King Juan Carlos and Custodian of the Two Holy Mosques King Abdullah to promote and protect investments between the two nations.
SNC Lavalin did not respond to inquiries and Dragados Industriales would not provide any additional information about the project outside of publicly released statements. RI was likewise unable to obtain any additional information from Ma'aden or the Saudi Ministry of Petroleum and Mineral Resources.
High-Quality Ore From the Paleocene
When completed, the Ras az Zawr phosphate project will be one the largest integrated phosphate processing plants in the world, able to produce some 9,000 to 10,000 tonnes of diammonium phosphate (DAP) per day (up to 4 million tonnes per year), which will amount to 10% of global production.
Saudi Arabia is home to some of the largest phosphate deposits in the world. The Al-Jalamid deposit is believed to contain 313 million tonnes of mineable sedimentary phosphate rock. The Kingdom's phosphate reserves stand at 3.1 billion tonnes, with 1.6 billion tonnes of indicated phosphate resource and 1.5 billion tonnes of inferred resource. Ma'aden expects the Al-Jalamid deposit to have an annual yield of 11 million tonnes/year for 27 years, including 4.5 million tonnes of phosphate concentrates, according information from the U.S.-Saudi Arabia Business Council report.
Sedimentary phosphorite ore from the Paleocene age Thanivat Phosphorite Member of the Al Jalamid Formation is composed of dolomitic limestone, chert and phosphorite pellets that have been weathered and leached into a friable, high-quality ore-grade rock about 6.5 metres thick covering an area of approximately 18 square kilometres, according to Saudi Geological Survey information.
The phosphorite ore will be extracted by surface mining and processed by size classification and flotation to yield a concentrate containing 32% to 33% P2O5. A Bank Feasibility Study completed at the behest of Ma'aden estimated that reserves at Al Jalamid are sufficient to provide ore beyond the expected 20-year life of the project at a rate of 11 to 12 million tonnes per year.
Ras Az Zawr's fertilizer production facilities will include three 4.1 million tonne-per-year sulphuric acid plants, three 1.4 MTPY phosphoric acid plants, a 650,000 tonne-per-year ammonia plant and three 2.9 MTPY (Mega-Tonnes per Year) DAP plants, in addition to a port specifically for Panamax-size ships.
Construction is well under way at the new port facility in Al Jubail, the fourth on Saudi Arabia's northeastern Arabian/Persian Gulf coast and the terminus of mineral resource products for phosphate concentrate to be produced at Ras Az Zawr.
Comparative Advantages and the DAP Market
"Saudi Arabia enjoys a number of comparative advantages that will make it a major phosphate producer and potentially a leading exporter. The most important of these are the availability of low-cost energy in the form of oil and natural gas, the availability of sulphur and ammonia in the Jubail area, and the Kingdom's proximity to the Asian market. Saudi Arabia expects to capture 16% of the world phosphate market," wrote the authors of the U.S.-Saudi Arabian Business Council report.
Annual worldwide production of phosphate ore was 138 million tonnes (Mt) in 1997, 145 Mt in 1998, 141 Mt in 1999 and 139 Mt in 2000, according to industry statistics. The U.S. has traditionally been the world's largest producer, but U.S. production has fallen in recent years to less than 40 Mt per year largely due to depletion of Florida reserves and environmental restrictions. China (26 Mt), Morocco (21 Mt), Russia (11 Mt), Tunisia (8 Mt) and Jordan (6 Mt) are other large producers.
"The international DAP market and prices have remained relatively inactive in the past several months, due to limited production in the United States and continued absence of changes in demand. In April, however, United States producers secured business totalling almost 1 million tonnes for an April/May shipment to India and China," according to the U.N. Food and Agriculture Organization's June 2006 Food Outlook report. DAP prices increased 10-15% between 2004 and 2005, according to the FAO's September 2005 report.
Source: FAO, Food Outlook, June 2006
In addition to privately brokered and direct transactions, DAP futures and options contracts are traded on the Chicago Board of Trade. The CBOT provides DAP market data for a fee.
Ma'aden's president, Dr. Abdallah E. Al-Dabbagh, said in a press announcement that molten sulphur and natural gas from within the Kingdom would be used as feedstock which, together with the size, nature and location of the phosphorite deposit, will make it a highly competitive integrated production facility within easy reach of growing Asian markets. He added that the plant's designs are based on the latest proven technologies that meet stringent mining, production and environmental standards.
He also added that a railway line linking the mine to the fertilizer complex was part of a larger infrastructure development effort led by the Saudi government-owned Public Investment Fund (PIF). Ma'aden has committed $500 million in the form of an interest-free loan towards construction of the railway in order to guarantee efficient for transportation of the concentrate.
Saudi Arabia's Council of Ministers in May announced that approval had been granted to publicly float a 50% ownership interest in Ma'aden through an IPO by the end of the year. The IPO is to include shares in the company's gold, bauxite and phosphate operations.