Thursday, 9 September 2010

Nigeria rediscovering its minerals

Nigerian mines minister Musa Mohammed Sada perhaps truly believed that the African oil major's "mining story" was worth more than 15 minutes of air time at the Africa Downunder mining conference in Western Australia. And in a few years time, he might be right. But in the current African, let alone world context, Nigeria's nascent minerals sector remains very much a story of unrealised potential.

The country's Ministry of Mines and Steel Development (MMSD) was established in 1985"as a bold attempt by the Nigerian Government to spur the rapid and beneficial development of the country's solid mineral resources" and "transform Nigeria's mineral sector into an irresistible mining destination for global capital", but a quarter of a century later these ambitions remain far from being realised.

One Africa commentator said in its 15 years as a "fully fledged ministry", the MMSD had had 15 different ministers so "at best Sada would have to put in about one year and three months if all goes right for him before the coming of a new government in April, 2011".

"The high turnover rate of ministers in this establishment, according to watchers of the Nigerian mineral and metal sector, is largely responsible for the blurred focus of the mineral and steel sector," the commentator said. "Suffice to add that Sada [is] saddled with huge challenges. But they are not insurmountable."

One such challenge was efficient processing of new mining licences, which remained bogged as the country sought to frame new mining regulations to complement its 2007 mining act and 2008 minerals and metals policy guidelines.

"One of the most important things that we are working on now is the mining regulations that will support these acts and policy," Sada said on his first visit to Australia at the Africa Downunder conference in Perth. "The way we are going about is we are getting the private sector involved."

Sada said the mining act had already created a single issuing authority for mining titles and provided clarity on transferability of mining titles, royalty payments, environmental protection, taxation and royalty payments, foreign ownership, and repatriation of capital, profits and dividends.

"These are some of the encouragements put in place by the law to ensure that private investors are comfortable enough to come into the country and do mining business," he said. "The aim is to build a strong self-sustaining private-sector led mining industry with minimum government interference.”

"The focus of government is on the spread of opportunities to generate employment [beyond the 60-year reliance on the country's oil industry]. We are looking at the mining industry as a very valuable option for providing jobs for the teeming populace."

One financial media report earlier this year said the Nigerian government wanted to grow the economic contribution of its mining sector from less than 1% of gross domestic product to 15% of GDP by 2015. The director of Nigeria's Mining Cadastre Office in the MMSD, Goni Sheikh, said the ambitious growth target was achievable because Nigeria was "attractive virgin territory" that had not yet seen the level of minerals investment of other West African countries.

Nigeria's geological survey commissioned, and has completed, a $US12 million high resolution airborne geophysical survey of the entire country (the work was done by Dutch survey group Fugro) and has started a major geochemical mapping program.

"Of course we also believe a stable political environment is very, very important to any mining investment," Sada said. "The government has assured the nation and the international community of transparency and fairness [particularly in national elections]. "The country has also worked hard, and is still working to sustain the civil democracy."

Also critical are economic reforms, including continued modernisation of the banking sector, and investment in infrastructure which, as in other parts of Africa, is sadly lacking in most areas. In others, though, answers might be close at hand.

"We have large deficits of power in the country and we are looking at our coal resources as an option to generate the required power," Sada said.

A country of nearly 140 million people, Nigeria is the largest oil producer in Africa and in the top 20 in the world. Yet it has struggled to invest in the necessary infrastructure to harness gas generated by the oil sector, leading to waste on a massive scale. "Nigeria has depended entirely on oil as a source of income for quite some time," Sada said. "This to me personally is a bit detrimental to the mining industry because ... [during] colonial times Nigeria was doing quite well in some of the mineral resources to the point of being among the leaders in the world." English law - and language - remain key legacies of those colonial times.

"The resources are thought to be there - uranium, iron ore, gold, coltan, coal, tin and bauxite - and it had a fairly promising, solid minerals mining industry up until the 1950s," Christopher Melville, senior associate at London-based political and business risk advisory Menas Associates, told HighGrade.

"But like many other areas of the economy, it suffered hugely from the development of Nigeria's oil industry. Symptoms of Dutch Disease aside, oil was the only game in town and it was much easier for government to collect rents from oil production than it was t pursue the necessary infrastructure development needed to cultivate a modern mining sector. Now the government is starting to take more of an interest in solid minerals.

"Security problems in the [Niger] delta and a growing preoccupation with a future post-oil period are driving this, along with the realisation that a mining industry may help to solve some of Nigeria's crippling power problems, as well as providing a new filip to the country's once vibrant manufacturing industries." Melville said for the Nigerian Government transforming intent in the mineral policy and growth arenas into practice was going to be difficult.

"There hasn't been a tremendous amount of consistency in mineral policy in recent years and a number of the regulatory reforms introduced have yet to bed down," he said.

"Institutional knowledge of the mining industry remains pretty shallow and once people in government start thinking about it, expectations are bound to be excessively high. The possible scale of largely undeveloped resources is bound to spark the interest of risk tolerant investors, and the government will doubtless offer a range of incentives to draw miners in. However, once in, it'll be a hugely steep learning curve for all concerned."

As regards the community and security issues facing mining companies in Nigeria, it would be wrong to extrapolate from the Niger delta, Melville believes.

"The country is hugely diverse and the dynamics of the conflict in the delta are very specific to its experience of hydrocarbons development over the past 50 years," he said.

"However, one thing the delta does show us is how the impact of industry on local communities can be a key driver of security risks to companies operating in Nigeria - as elsewhere. Mining companies won't be able to excuse themselves from engagement with local communities and I'd anticipate that managing community relations will be among the most pressing day-to-day concerns for companies operating in all but the most remote areas of the country."

Source: HighGrade

For more news about Nigeria, please visit the Menas Associates Newsroom.

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