31 August 2010

Nigeria: Mining in Nigeria - An Expert's Experience


Nigeria's focus on its oil industry has resulted in an under-developed solid minerals industry, yet exploitation of the vast and largely untapped solid mineral reserves could provide the answer to the country's power-supply problems. The government is keen on putting in place an attractive regulatory framework and has produced substantial geo-science data for use by investors who are now showing interest in the sector.

One significant mining investor is Rhodium Ltd, which currently holds over 25 rights and licences to commercial mineral deposits. TradeInvestNigeria interviewed Ehioma Goodwill, chief executive officer of Rhodium, on the prospects for Nigeria's solid mineral industry.

Which projects are Rhodium Ltd currently involved in?

Rhodium Ltd is currently focused on developing a highly prospective 37 425.5 hectare tantalum-niobium and tin concession in Nigeria, which includes the Lake Shiroro coltan project, Agata and Kujama coltan properties, and Mariga coltan project. The company is also developing a highly profitable gold, silver and PGM concession from its Pago and Kutomgba gold field in Niger State. The approval of grants for the Saura chromite prospect in Zamfara State are in the pipeline in order to fast-track exploration activities due to the huge demand of chromite by Asian countries.

Debt financing is scarce to come by today as compared to the period before the credit crunch. How are mining investors fairing?

It is almost impossible to access funding for mining or exploration activities in Nigeria today largely because the banks do not have mining desks or lack interest in long-term investments. They are also not well imbibed and have little faith in the solid mineral sector and its potential to contribute greatly to revenue and employment generation. Moreover, the government continues to pay lip service to the implementation of the much anticipated Mining Development Fund (MDF).

Editor's note: The proposed Mining Development Fund (contained in the Minerals Act) will complement the $120-million loan established by the World Bank in 2005 to promote sustainable development in the solid minerals sector. Its main objective is to provide mining investors with funding to acquire expensive equipment.

Exploitation of Nigeria's huge solid mineral reserves has the potential to solve the country's chronic energy crisis and boost the industrial sector, yet there are major bottlenecks stifling its rapid exploitation.

The major challenges faced by the industry today can be traced to project funding and lack of a clear directive from the Ministry of Mines and Steel Development. Frequent changes in mining policies are not a good omen for a developing industry and particularly mining and exploration. These factors are critical and often determine whether a potential mining investor will set up shop in a given country. For example, the issue of community consent, which the former minister Diezani Alison-Madueke had addressed by clearly defining the rights of the federal government, administrative states and communities pertaining to solid minerals, is unfortunately still a problem. The issuance of a grace period of 45 days from the date of the application of a mining licence to when all necessary documents required are presented to the mining cadastre office, is a myth. Lack of basic infrastructure required for mining and exploration development is also an issue. Several incomplete projects, that have been abandoned by contractors in the power and construction industries, have played major roles in sabotaging the federal government's efforts to develop Nigeria's mineral wealth.

Many mining ventures are sometimes abandoned due to lack of adequate infrastructure and this is particularly difficult for Nigeria's indigenous companies who probably require mining majors to partner with. Are there viable synergies that the federal government and investors can establish to develop a supportive infrastructure?

This is very unlikely because the federal government has privatized most of the public companies therefore any such synergy is likely not to hold water. However, the federal government is exhausting all efforts in revitalizing basic infrastructure, such as the rail routes and stable power supply. Contracts are frequently awarded for revamping and upgrading existing roads and building new ones, while private telecommunications companies are actively deploying and expanding rural networks.

Does the mining industry have the potential to rival oil in terms of revenue and employment generation?

Most definitely. One cannot dispute the existence of world-class mineral deposits in all states of the federation. For instance the recently discovered iron ore deposits in Zamfara State, which are being touted as the largest iron ore deposits in Africa form part of Nigeria's mineral wealth that includes deposits of uranium, gold, nickel, tin and coltan. The country's mining industry has the capacity to indeed rival the oil sector if the government employs concerted effort to develop the industry.

Why should foreign investors consider Nigeria's solid minerals industry?

Nigeria has enormous resources, and most of them are yet to be fully exploited in various sectors such as minerals, agriculture and human resources. The country is gradually embracing a politically stable environment, which is a plus for investors. Other notable factors include unrestricted movement of investment capital, a free market economy and a well-developed banking and financial sector - even though it doesn't finance mining activities at the moment. Other factors that should draw mining investors to Nigeria include rapid development of physical and industrial infrastructure, as well as the attractive tax holidays, tariff concessions and export support known as Pioneer status.

A sound mining policy framework is one of the main criteria investors require in a mining environment. How will the ongoing review of the draft minerals and mining regulations affect your company's operations?

Personally I don't think it will be reasonable to assume that the policy will be 100% effective, initially, in terms of implementation because the Nigerian mining industry is still at its infancy. While the ministry of mines and steel development is gradually educating the indigenous companies, the miners and explorers are also trying to absorb the new regulations, which have hampered some of their operations and halted many. I will be right to say - and I speak only for Rhodium - it has in some way affected us in the past two years, especially in 2008 when all licences where revoked for re-validation. The re-validation also took longer than expected, which I believe was due to the fact that the ministry experienced a leadership crisis that resulted in the ministry having three different ministers in less than four years. This is not a good precedent in an environment where a crucial policy is in the process of implementation. However, I believe that the federal government is doing everything to ensure that the current Mining Act is implemented as soon as possible because Nigeria is currently awakening to the potential of its solid minerals industry.

Assuring the of safety of investments is crucial for any investment, especially in mining where it's impossible to relocate an investment. Are you confident that the regulations that guarantee safety for your investment?

The Nigerian government is strongly supportive of foreign investment and has set up Investment Promotion and Protection Agreements (IPPAs) via the Nigeria Investment Promotion Commission (NIPC) to guarantee safety of investments. The NIPC has been established to promote and facilitate foreign investment in Nigeria. As part of additional efforts to foster foreign investors' confidence in Nigeria, the federal government continues to enter into bilateral IPPAs with countries that do business with Nigeria. The IPPA helps to guarantee the safety of the investment of the contracting parties in the event of war, revolution, expropriation or nationalisation. It also guarantees investors the transfer of interests, dividends, profits and other incomes as well as compensation for dispossession or loss. It is in my understanding that most Western countries are signatories to the IPPA and negotiations are ongoing to bring in several other countries.

Given the problems in the oil-rich Niger Delta region, does Rhodium engage local host communities where the company operates?

As a matter of fact this has been a crucial issue, which the current Mining Act has tackled. The ministry of mines and steel development is also very keen on engaging the local communities in order to avoid an experience similar to the Niger Delta in the mining regions of the country. The procedure sees a balanced agreement between the landowners or district head of chief of the host community and Rhodium Ltd. The agreement is designed to benefit both parties in terms of community development when proper mining activity commences but not during exploration. Based on the agreement, a consent letter is issued by the district head of chief to Rhodium Ltd and it is presented to the mining cadastre office at the first instance of submitting applications for licencing. Prospective investors are advised to ensure that community consent and a balanced agreement is in place when considering acquiring a mining or exploration project in Nigeria.

What level of Chinese activity is there in Nigeria's mining industry, and how has it affected the development of the industry?

I don't think Chinese investors have had a major effect on the industry because their participation is currently minimal. They have not yet invested in large-scale production as most of those currently operating in Nigeria are procurement agents of smelting plants in China. One chinese company is currently exploring while others are scavenging for raw materials produced by small-scale miners for use in factories based in China.

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