With an estimated $700bn in commercially viable minerals, Nigeria possesses the capacity to diversify its revenue sources and boost foreign exchange earnings. However, the mining sector is faced with challenges on multiple fronts, writes OLUWAKEMI ABIMBOLA
In 2016, the mining roadmap for 2025 was developed with the aim of increasing the sector’s contribution to the Gross Domestic Product to three per cent by 2025. The sector has only been able to contribute a mere 0.17 per cent between 2018 and 2022 with three years left to 2025.
Historical reports showed that the mining industry was once a substantial contributor to the growth of the Nigerian economy, accounting for approximately four to five per cent of the GDP in the 1960s and 1970s. However, the discovery of crude oil and its fast turnover rate led to the neglect that the industry suffered.
The latest report on the mining industry titled ‘Nigerian Mining – Progress, but still a long way to go’ by professional services firm, PwC in July, states that the sector’s performance has been marred by slow growth, insecurity, illegal mining, smuggling, state and Federal Government tax alignment, weak value addition to a low level of mining mechanisation and inadequate funding.
The report also highlighted some emerging threats and potential roadblocks, which the country must watch out for. These include quick revenue verse long-term addition, brain drain and human capacity and increased competition for Foreign Direct Investment.
On the issue of weak value addition, the Federal Government recently expressed concern at the way minerals were being exported raw to Asian and European countries at ridiculous prices. For the government, that was a disservice to the nation’s technological and industrial growth.
The Permanent Secretary, Ministry of Mines and Steel Development, Dr Mary Ogbe, represented by the Deputy Director, Mines Inspectorate Department in the Ministry of Mines and Steel Development, Okhuoya Onah, stated this during the inauguration of the new National Executive Council of Miners Association of Nigeria in Abuja recently.
She said, “I am happy to say that this country is highly blessed with abundant mineral resources. Some of these minerals occur in commercial quantities and they are of good grades. However, it is disturbing to observe that our local industries largely depend on imported minerals such as gypsum, barite, talc, kaolin, etc., as their raw materials, despite the availability of such minerals in Nigeria.
“It is also disheartening that minerals such as lead/zinc, copper, tin, columbite, manganese, tantalite, wolframite, and gemstones, just to mention but few, are exported raw to the Asian and European countries at ridiculous prices without value addition. This has not helped the technological and industrial growth of the nation and has added to the unemployment challenge prevailing in Nigeria.”
According to the mining roadmap, the following minerals have been designated strategic in Nigeria: gold, lead & zinc, coal, bitumen, iron ore, limestone and barite.
Apart from limestone, most of these minerals continue to be predominantly exported in their raw form, and the value chain is largely underdeveloped, says PwC in their July report.
A report from the Oxford Business Group titled ‘Mining reforms in Nigeria to drive sector growth’ noted Nigeria has 600,000 tonnes of combined estimated reserves of alluvial and primary gold deposits.
It disclosed the deposits are generally among the highest quality in sub-Saharan Africa, adding that there are large proven reserves of gold in the southwestern schist belt, as well as in the north and centre of the country.
There have also been several major lithium discoveries in recent years, concentrated in the northern states of Kogi, Nasarawa, Kwara and Plateau, as well as in the south in Oyo, Ekiti and Cross River. The deposits are high-grade and hard rock, making these findings potentially attractive to investors.
However, some 80 per cent of gold mining is conducted by artisanal and small-scale miners at present, revealed the report. Such a high figure of ASMs affects the financial viability of the sector.
In February, a pan-African multilateral development financial institution, the Africa Finance Corporation established a partnership with the Nigerian mining sovereign wealth fund, Solid Minerals Development Fund, to accelerate commercial-scale, private sector-led mining projects by providing much-needed funding and technical advisory.
SMDF says that Nigeria’s mining sector boasts 44 different types of commercially viable minerals worth an estimated $700bn. However, the sector has been challenged by limited capital injections, inadequate geo-mapping tools and widespread illegal mining.
Commenting on funding in the non-oil export space, the Chief Executive Officer of the Nigerian Export Promotion Council, Dr Ezra Yakusak, said that limited access to banks’ financial services was one of the significant challenges stifling the growth of non-oil export in the country.
Speaking with export desk officers from 29 financial institutions during a capacity building for bankers on non-oil export commodities at the council headquarters in Abuja, Yakusak said that the lending institutions’ high-interest rates and low disbursement of credit facilities to finance non-oil export trade, adversely affect the country’s non-oil exports.
The Monetary Policy Committee of the Central Bank of Nigeria in July increased the benchmark interest rate to 18.75 per cent from 18.5 per cent in May.
Speaking on the theme ‘Enhancing Non-Oil Export Growth through Effective Export Procedures, Documentation and Logistics’, Yakusak said that statistics had shown that the country was not benefiting maximally from its vast export potential because of a number of issues such as: knowledge gap, access to finance, cumbersome procedures and documentation, poor packaging among others.
“Without the banks, no formal export trade can be undertaken because the various NXPs are usually processed by banks. In the year 2022 non-oil export performance report, a total number of 30 banks participated in the issuance and processing of NXPs forms. This led to a total export value of $4.8bn, the highest recorded since the creation of the NEPC in 1976,” Yakusak added.
Echoing a similar stance at a two-day workshop on raising capital for the mining sector organised by the Securities and Exchange Commission and the Federal Ministry of Mines and Steel Development, as well as other stakeholders, the Executive Commissioner, Operations, SEC, Dayo Obisan, said the solid minerals sector possessed immense transformative potential for sustainable economic growth in Nigeria, with a potential to contribute significantly to national economic diversification and sustainable development goals but was impacted by funding.
He said, “Despite the sector’s vast potential, the mining industry in Nigeria has faced significant challenges, with one of the most critical being inadequate access to capital. The traditional sources of capital, such as bank loans, are a total mismatch in terms of capital structuring for the project types in the mining sector, leading to the importance of long-term sources of funding required for mining projects.”
Obisan said financiers’ perceptions of the high risks associated with mining had led to limited opportunities for raising capital, making it a pressing concern to attract strategic investors into the sector.
He added that the sector required investments in various stages, from exploration to development, adding that investors need to be convinced of the potential for quick wins in mining.
“We all acknowledge that the success of any industry, including mining, is heavily reliant on access to adequate and sustainable funding. The peculiarities of the mining sector, such as high upfront capital requirements and lengthy development periods, make it essential for players in this industry to have access to long-term financing. This is where the capital market steps in as a catalyst for economic transformation,” Obisan said.
He pointed out that with over 44 minerals discovered across the federation, the mining industry could play a vital role in diversifying Nigeria’s economy away from crude oil dependency.
Meanwhile, the SEC, the Federal Ministry of Mines and Steel Development, as well as other stakeholders, have agreed to promote alternative means of raising capital for the non-oil sector.
The alternative means include non-interest products, tokenisation of assets, as well as adoption of innovative technologies.
At the end of the workshop, SEC and partners issued a communiqué, highlighted the need for the capital market community to ensure market infrastructure that supports mining ventures and the protection of investors.
“All stakeholders should be involved in promoting sustainable practices and ESG standards within the mining industry, while the Federal Ministry of Mines and Steel Development is to ensure the availability of geoscience data, given that it is essential alongside relevant market data in enabling intermediaries and commodities exchanges to structure products for the mining industry,” part of the communiqué stated.
The stakeholders also urged the SEC and FMMSD to interface on how to utilise the Feasibility Studies and Competent Persons’ report to enhance due diligence in the fundraising process and for key stakeholders to collaborate in continuously de-risking the mining value chain to encourage confidence in prospective investors and venture partners.
In a warning to potential investors, PwC said that the mining industry must demonstrate its commitment to addressing environmental, social, and governance (ESG) issues in all aspects of its operations, while also recognising the associated risks and opportunities. By doing so, mining companies can deliver long-term benefits to governments, shareholders, workers, and the communities in which they operate.
“Companies that proactively respond to these emerging trends tend to perform better financially. In a previous study, PwC found that mining companies with higher ESG ratings outperformed the overall market during the peak of the COVID-19 crisis. These companies achieved an average total shareholder return of 34 per cent over the previous three years, surpassing the general market index by 10 per cent. This demonstrates the positive correlation between strong ESG practices and financial success,” part of the report said.
Speaking to The PUNCH, the President of the Miners Association of Nigeria, Dele Ayanleke, bemoaned the lack of data in the sector, which had made financing hard on a large and profitable scale.
He said, “We have realised that the finance sector in Nigeria is not ready to do anything regarding mining. They don’t have a desk to do an in-depth study of the industry. They think that the risk is high and definitely, the risk is high, until recently when the government started doing exploration, which provided data as to what is in the ground and what quantity you can get, thus minimising the risks. Even with that in place, we still use a lot of intuition to discover the occurrence of minerals beneath the ground. There are no serious exploratory results for us to be able to invite investors.”
Ayanleke added that despite the challenges, his association had been urging its members to actively look for investors and partners.
“We have been sensitising our members to look for partnerships either with local or foreign investors and I think this is the only way we can unlock the potential in this sector,” he concluded.