The mineral resource world is gripped with the almost bizarre details of reports that the giant Australian mining and minerals company Rio Tinto has been charged with espionage over a six-year period by the Chinese authorities. The plot thickens with news that four Rio Tinto employees have been detained, with China claiming that the alleged espionage activity had cost the country an estimated US$100 billion (Dh367.3bn) in over-priced raw material imports in those years. This is no laughing matter, however, for mineral-rich Gulf countries, especially Saudi Arabia, as they enter the highly competitive and lucrative mineral exploitation sector. The kingdom has been particularly blessed with a variety of natural resources, with oil and gas in the eastern part of the country and as yet untapped mineral resources in the western region. By all accounts Saudi Arabia has sizeable deposits of bauxite, iron ore, copper, zinc, phosphate, gold and silver. There are also significant deposits of tantalum, which is used in semiconductor microchips. The Chinese incident could also signal a potential hardening of conditions for foreign companies doing business in China, as well as being a lesson for countries exporting to the largest mineral market. What was the issue, then, with Rio Tinto in China? The country's national administration for the protection of state secrets said the case should force Chinese officials and companies to do more to protect sensitive commercial information, and that foreign businesses must come under stricter controls to deter them from spying. The Australian citizen Stern Hu, Rio's chief iron ore negotiator, and three of his Chinese colleagues were detained early last month on suspicion of commercial spying. The state secrets agency's report said Rio Tinto's commercial spying involved "winning over and buying off, prying out intelligence, and gaining things by deceit" over six years. The Chinese seemed confident in their accusations and stated that a large amount of intelligence and data from the country's steel sector were found on Rio Tinto computers. They maintain that Chinese steel makers paid about 700bn yuan (Dh376.8bn) more for imported iron ore than they otherwise would have. The accusations have sent shock waves through the industry as China consumes more than half of the world's iron ore, turning it into steel for making goods that it exports to the West. Sales to China by Rio's operations in Australia account for about 20 per cent of the company's $60bn annual turnover. But the relations between China and Rio Tinto go far back, and have been troubled at times. Last February, Rio said the Chinese state-owned aluminium group Chinalco would double its stake in Rio, which is listed in both London and Australia, to 18 per cent in exchange for $20bn of investment. Rio's British shareholders protested and the deal was scrapped, to the annoyance of the Chinese authorities. Rio Tinto did a rights issue among existing shareholders instead. Even before this issue broke out, Rio Tinto was having second thoughts about long-term investments in Saudi Arabia due to the global credit crunch. Last December, it revised its participation from an equity partner in the integrated aluminium "mine-to-metal" project in Saudi Arabia to the role of working with the Saudi Arabian Mining Company (Ma'aden) towards project development through a smelter technology transfer agreement and a co-operation agreement. These events have spurred Saudi Arabia to look inward for equity for its mining industry. Last month, Ma'aden launched one of the largest Saudi IPOs by offering 50 per cent of the company, or 462.5 million shares, at a nominal value of 10 Saudi riyals (Dh9.79). The public subscription raised a little more than 9bn riyals for the company. The Saudi government, through its privatisation programme for Ma'aden, has signalled that it is moving away from the policy of mere mineral extraction to one aimed at creating an integrated mining sector, which has been dubbed the "hidden gem". The list of prohibited mining areas has been eliminated and the operating framework of the industry has been reformed through a new mining code to make it more investor-friendly and bring it into line with international practice. These changes, it is hoped, will open up the Gulf's largest mineral resource country to international companies that will help diversify the Saudi economy away from its reliance on oil. The Chinese have had a cordial relationship with Saudi Arabia in the energy sector, with Chinese companies such as Sinopec competing and winning major exploration contracts against the most technologically advanced western companies. The recent spat with SABIC over Chinese allegations of Saudi petrochemical dumping seems on its way to being resolved, and China will certainly be eyeing strategic partnerships in the Saudi minerals sector. The lessons of Rio Tinto and China should be learnt so that both sides know where they stand in what to do and what not to do in business in a sensitive economic area of strategic importance for both parties. Dr Mohamed A Ramady is a former banker and visiting associate professor, department of finance and economics, at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia