The Saudi Defense Ministry declined comment on the report by Intelligence Online, publishing from Paris. Denel also refused to comment.
But Riyadh has for some time been seeking to acquire missile-carrying UAVs and Denel has been dropping strong hints it was looking for customers in the Middle East, Asia and Africa for an armed version of its Seeker 400 drone.
That's developed from Denel's Seeker II surveillance/reconnaissance craft, which was recently sold to the United Arab Emirates, which has a powerful air force and an emergent defense industry, through a joint venture with the state investment fund Tawazun.
The Emirates' air force signed a $197 million deal with the U.S. General Atomics Aeronautical Systems in February for an unspecified number of Predator XP UAVs, the first foreign sale of that variant.
But these craft aren't intended to carry weapons for offensive operations, in line with U.S. policy regarding foreign sales of such technology.
The Saudis asked Washington for Predator MQ-1 craft, which are used by the U.S. Air Force and the CIA and carry Lockheed's AGM-114 Hellfire missiles.
The Americans, reluctant to provide such systems to other states, refused but are reported to have supplied Predators specifically engineered to make it extremely difficult to mount weapons.
Intelligence Online says that Denel engineers and technicians are in Saudi Arabia to help the kingdom, the world's leading oil exporter, move ahead with an armed UAV development program.
Denel has adapted the Seeker 400, with a range of 160 miles and an endurance of 16 hours, to carry the company's Mokopa air-to-ground missile and the Impi laser-guided missile.
Intelligence Online says Algeria has acquired the naval version of the Mokopa for the Super Lynx helicopters carried aboard its navy's Meko A200 frigates.
South Africa's Mail and Guardian newspaper reported that the Impi was designed specifically for light aircraft and carries a multipurpose warhead that's suitable for assassination missions like those operated by the Americans in Pakistan, Yemen and elsewhere -- "and which is the presumed primary objective of the Saudi Arabian military" in acquiring armed UAVs.
If the sale of the missile-armed Seeker 400 goes through, Saudi Arabia would be the first to acquire the craft.
However, to employ the killer UAV the Saudis would need to operate a military satellite communications system, which they don't have.
Regionally, Israel is the only state with a functioning satellite system. Iran is pushing ahead with one but it's years behind the Israelis.
In Saudi Arabia, the Prince Sultan Advanced Technologies Research Institute, established in 2008 by the Saudi air force and King Fahd University in Riyadh, is currently reported to be working on a UAV surveillance project for eventual deployment on Saudi Arabia's borders.
The primary objective is to boost surveillance of the mountainous frontier with Yemen to counter infiltration, particularly by al-Qaida in the Arabian Peninsula which seeks to topple the Saudi monarchy.
The United States and Israel both deploy missile-armed UAVs for counter-terrorism missions, primarily to assassinate high-value targets such as al-Qaida commanders.
These operations, particularly used by the Americans in Pakistan, Afghanistan, Yemen and Somalia, have caused an international outcry because of the civilian casualties they cause.
Guy Lamb, director of the Safety and Violence Institute at the University of Cape Town, questioned the morality of Denel selling such weapons systems to Saudi Arabia.
"A moral line is crossed when a government chooses to use armed drones as part of its defense and security strategy ... killing by remote control," he observed.
He noted that "in constitutional democracies, such operations are subject to "checks, balances and judicial procedures. However in the case of authoritarian regimes, such measures are unlikely to be adopted, and armed drones may even be used against domestic targets."
Even so, he observed, South Africa's National Conventional Arms Control Committee has approved the export of unarmed UAVs to various governments in the Middle East and North Africa, "many of which have questionable democratic credentials and shoddy human rights records."