harnessing the opportunities in mines and steel development – the role of the private sector

FEDERAL REPUBLIC OF NIGERIA

MINISTRY OF MINES AND STEEL DEVELOPMENT OFFICE OF THE MINISTER

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HARNESSING THE OPPORTUNITIES IN MINES AND STEEL DEVELOPMENT – THE ROLE OF THE PRIVATE SECTOR

Being the text of the keynote address by

Dr. Kayode Fayemi, CON Minister of Mines and Steel Development

Federal Republic of Nigeria

at the Quarter 4, 2016 Advocacy Roundtable of the NIGERIAN-BRITISH CHAMBER OF COMMERCE

Lagos, Nigeria | Tuesday, November 29, 2016

Protocols and Introduction It gives me great pleasure to be here, to engage with this distinguished audience under the auspices of the Nigerian-British Chamber of Commerce. I consider the NBCC – the foremost bilateral Chamber of Commerce in Nigeria – a very important partner in the promotion of Anglo-Nigerian diplomatic relations, and mutually beneficial trade relations between both countries since the organisation was established close to forty years ago. Nigeria and Great Britain have a longstanding history of commercial, cultural and diplomatic alliances built over the course of two centuries. The vibrancy of relations is evident not just in our active membership of the commonwealth, but also in the numerous instances of high-level cooperation on issues of regional, global and geostrategic significance. Nigeria is currently the United Kingdom’s second largest trading partner in Africa. In 2015, the volume of trade between Nigeria and Great Britain hit the 6 billion pound mark, signaling the importance of this relationship, and its potential for future growth. However, with increased ultra-nationalist sentiments sweeping across the world, the future vitality of our bond is predicated on our ability to leverage platforms like this to strengthen the ties that bind us together. We need to remind ourselves through fora like this, that the pursuit of national prosperity is not necessarily a zero-sum game. The expansion of markets spreads innovation and creativity; it not only erodes borders, it also builds bridges. From our perspective in Nigeria, we want to deepen this relationship, and we perceive new possibilities and frontiers of opportunity for doing so, particularly in the form of emerging investment opportunities in Nigeria. In this regard, our administration considers it important to periodically engage with stakeholder trade groups like yours. We have established a consistent pattern of engaging and listening to stakeholders as necessary, to secure your input into policy

Ministry of Mines and Steel Development

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formulation and implementation. I have had the opportunity to engage similar audiences earlier this year; the first being a session organized at the Parliament in the United Kingdom, by the All-Party Parliamentary Group (APPG) on Nigeria; the second being a session organized by the Royal African Society (RAS) in London. I am also aware that some of my colleague ministers have been guest speakers at previous editions of this Advocacy Roundtable series. I therefore thank the President & Chairman of Council of the NBCC, Prince Adedapo O. Adelegan, and all council members, especially my dear senior friend, Mr. Kayode Falowo, for inviting me to deliver this keynote address, but more importantly, for the opportunity to listen and receive feedback from you. On the Road to Shared Mining Prosperity: Our Journey So Far Ladies and gentlemen, as you may know already, the Muhammadu Buhari administration has as one of our strategic priorities the diversification of the Nigerian economy’s revenue base from dependence on Crude oil. We are repositioning other key sectors, particularly mining and agriculture to meet this objective. Our decades-long fixation on hydrocarbon resources made our economy uni-dimensional and insufficiently versatile to absorb global price shocks of a single commodity, while obscuring the immense scale of riches we have in other sectors. We are therefore committed to executing our vision of repositioning the Mining sector to play an increasingly prominent role in revenue generation and jobs creation. I must however warn that the mining sector is one that requires a lot of patience. Yes, there are quick-wins in the industry which we have already started achieving; however, fixing the sector sustainably requires consistency in policy and unrelenting political will to achieve. The challenges we face in the industry have taken several decades to calcify and will not disappear overnight. Nonetheless, the sector has witnessed some positive developments in past years, and what we are now doing is building on the efforts of our ministerial predecessors. Successive administrations since 1999 have conducted reforms based on an important philosophical principle: government as an administrator-regulator, and the recognition of the private sector as owner-operator. Key expressions of the reformist agenda include, but are not limited to the following:

Development of the Nigerian Minerals and Mining Act, 2007

Development of the National Minerals and Metals Policy, 2008

Development of the Nigerian Minerals and Mining Regulations, 2011

Establishment of the Mining Cadastre Office (MCO) for mineral rights management

Establishment of the Nigerian Institute of Mining and Geosciences (NIMG)

Establishment of control departments for Mines Environmental Compliance (MEC) and Artisanal and Small Scale Mining (ASM)

The Act and the supporting body of regulations have been designed to give Nigeria a competitive legal and regulatory framework in the global mining space. For example, in the design and set-up of the Mining Cadastre Office as the sole issuer of mineral titles today, a great deal of effort went into understanding the best practices globally. The Cadastre’s predecessor entity had overseen a cumbersome process


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fraught with unclear licenses, limited control, inefficiency, opacity and long delays. For this reason, the reformed Mining Cadastre office adopted a “first-come-first-served” and non-discretionary granting of mineral titles rule. Today, the MCO issues 6 types of licenses and permits to cover all activities from exploration to mineral production. Licenses can be granted in 30 – 45 days using transparent rules and regulations. In spite of these far reaching reforms, Nigeria’s abundant mineral endowments still remain largely untapped. These minerals can be broadly categorized according to use, into five groups:

Industrial minerals (such as barite, kaolin, gypsum, feldspar, limestone)

Energy minerals (such as bitumen, lignite, uranium)

Metallic ore minerals (such as gold, cassiterite, columbite, iron ore, lead-zinc, copper)

Construction minerals (such as granite, gravel, laterite, sand)

Precious stones (such as sapphire, tourmaline, emerald, topaz, amethyst, garnet, etc.)

Our mineral assets are available across the federation in varying mixes and proven reserves, with no corner of Nigeria lacking in one mineral asset or the other. There are significant quantities of at least 44 known mineral assets, with our most promising being gold, iron ore, barite, bitumen, lead, zinc, tin, coal and limestone. There have however been a number of challenges that have stunted the growth of the mining sector over the past decades. The sector has underperformed since the 1970s, initially as a result of poor policy choices which subsequently became compounded by deterioration in the fiscal regime, lack of supporting infrastructure, shortage of investment quality geosciences data, and weak institutional capacity of the ministry to properly regulate the industry. Stretched over two decades, these challenges have since become growth limiting constraints on the sector’s full potential. Over the past year on this ministerial mandate, our ministry has made concerted efforts to address these issues. I am pleased to inform you that we have recorded major shifts that have ushered in a new chapter in the sector, defined by greater clarity and more competitive incentives for investors considering our jurisdiction. Some of these include: Mining Sector Roadmap – a multi-stakeholder committee has developed a new roadmap for the transformation of the minerals and metals sector. They identified key challenges hindering the sector from significantly contributing to GDP, and outlined strategies with timelines for tackling the observed challenges. The roadmap has been approved by the Federal Executive Council and is available for prospective investors on our online channels.

Improved Funding – we have secured improved funding for the mining sector through increased budgetary allocation; Intervention Funds from the Natural Resources Development Fund (NRDF); and development finance from International Development Partners through the World Bank. While the funds from the NRDF will be utilized for geosciences data generation; improved mines field security;


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monitoring and enforcement of the provisions of the Nigerian Minerals and Mining Act 2007 and its Regulations of 2011 amongst others; the funds from the International Development Partners will be used for implementing Nigeria Mineral Sector Support for Economic Diversification (MinDiver) Project.

The MinDiver will amongst others, provide assistance to a selection of mineral exploration and/or mining projects in order to assist in their development. The project will give attention to identified strategic minerals (gold, lead-zinc ores, iron ore, barite and limestone), tin ore, tantalite, columbite, gemstones and kaolin, precious stones. I urge operators and prospective investors to exploit the opportunity this funding window provides to advance their mining projects.

Broadening Partnerships – Engaging our development partners towards implementing signed MoUs, especially those that border on geosciences data generation, storage and dissemination – an aspect considered vital in attracting mining investment into the country. Just last week we signed a Memorandum of Understanding between the Nigerian Geological Survey Agency and its Chinese counterpart, the Geological Survey of China (CGS) on a geosciences data generation programme. We are following through with a number of these very beneficial MoUs and bilateral agreements that have been in existence for several years without being operationalised.

Improving Institutional Capacities of Ministry – For the first time in many years, we have operationalised provisions of the Nigerian Minerals and Mining Act, 2007, and its regulations of 2011 that relate to mineral titles administration, by revoking non-performing mineral titles, thereby making such titles available for acquisition by financially and technically competent investors. We have sent the right signal that mining in Nigeria is for serious operators, not for speculators that want to hold on to titles without concrete plans for utilizing them. We have also improved the ministry’s capacity for revenue generation and collection through: the identification and blockage of sources of revenue leakages; the review of royalty rates to reflect current global commodity prices; and the review of mineral licensing fees. The target of the Ministry is to achieve 5% contribution to GDP by 2020 as against the current 0.34%. Already, the mining sector has recorded an average of 7% growth this year, in spite of the economic recession that our economic team is assiduously tackling.

Supporting Infrastructure – we have facilitated the provision of supporting infrastructure through collaboration with relevant Ministries, Departments and Agencies (MDAs). Current works being carried out on the standard gauge rail line from Warri – Ajaokuta – Abuja – Kaduna – Kano and the dredging of the inland waterways will go a long way in lowering haulage costs for mineral commodities, thus making previously unattractive mineral assets very attractive.

Resolving Ajaokuta Issues – we have facilitated the resolution of the litigation issues surrounding Ajaokuta Steel Company Limited and NIOMCO, Itakpe considered crucial to Nigeria’s industrialization aspirations. With the resolution, Ajaokuta Steel Plant has been released to the Federal Government for operation or concession to a


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competent investor, while GNIL will retain NIOMCO for a period of seven years with the iron ore requirements of Ajaokuta guaranteed during this period. The resolution has therefore made it possible for the two facilities to add value to the Nigerian economy as against remaining a drain to the national economy. Improved Mines Security – we have facilitated more effective operations of the Mines Surveillance Task Team aimed at minimizing illegal mining operations along with the negative impacts associated with such operations. This is in addition to the formalization and extension services being rendered by the Artisanal and Small Scale Mining Department of the Ministry for the purpose of making artisanal operations safer and more sustainable.

Cultivation of State Governments Participation in Sector Growth – we have rightly identified as one of our priorities the need to improve our engagement of stakeholders at the sub-national level, particularly the state governments and communities. We realize that in order to give the states good reason to work with us, we need to create avenues for a greater degree of financial participation and revenue sharing. Accordingly, we have been able to secure approval for state governments to be beneficiaries of thirteen percent (13%) derivation from mining revenue generated in their respective jurisdictions. This is a significant shift, that signposts our commitment to facilitating a win-win situation for all stakeholders.

In addition, in the spirit of cooperative federalism, we are establishing a Council of Mining and Mineral Resources, which will hold at least once a year with Commissioners responsible for Mining and Natural Resources at the states, as well as other relevant government officials at the federal level, academia, industry and civil society. This will be an avenue to discuss pertinent issues on the mining sector, which is of concern to the critical stakeholders. These regular meetings will also allow us the opportunity to track progress on agreed areas of collaboration.

Our ministry is also working with State Governors to revive the MIREMCO provisions of the Mining Act, so that all the key governance provisions are adhered to. We are in the process of setting up zonal offices of the Cadastral function so that its operations are closer to the states, and there is as much transparency about the MCO as possible. Working with the National Assembly, and recognizing the role of States in implementing the Land Use Act, we will ensure alignment between the two key acts to prevent conflict. Finally, and equally importantly, we will work with States to find commercial means for them to co-invest alongside private companies to bring mining assets to market faster and more profitably. Emerging Opportunities in the Nigerian Mining Sector We have worked hard over the past months to create a conducive environment that can nurture sustainable mining sector growth. We have outlined our plans in the Mining Sector Roadmap which has been approved by the Federal Executive Council. I encourage all prospective investors looking to take advantages of emerging opportunities in the mining sector, to study our roadmap, in order to align their business objectives with the strategic direction we have created for the sector.


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Highlights of the new thinking that has characterized the provisions in our roadmap are as follows: Aspiration: Our aspiration as articulated in the Mining Sector Roadmap is to build a world class minerals and mining ecosystem designed to serve a targeted domestic and export market for minerals and ores. Where to Play: We will achieve this by focusing on Nigeria’s minerals, mining and related processing industry over a three phase period:

Phase 1 – Nigeria will seek to rebuild market confidence in its minerals and mining sector and win over domestic users of industrial minerals that are currently imported. During this Phase, Nigeria will also seek to expand domestic use of its energy minerals. This phase will likely last about two to three years;

Phase 2 – Nigeria will focus on expanding our domestic ore and mineral asset processing industry. This phase will last about five to ten years;

Phase 3 – Nigeria would return to global ore and mineral markets at a market competitive price point. We expect this to coincide with the next global commodity upswing.

How to Win: We intend to win by building a minerals and mining sector initially focused on using our industrial mineral endowments to support our industrialization. Government policy should seek to support private industry by building overall competitiveness (e.g. quality, price, loss ratios) and improving the ease of doing business. Nigeria would seek to create domestic demand by competing to replace ores and minerals currently imported. Over time, with an expansion in domestic processing, Nigeria would seek to build a cost-led sector, as well as production expertise in select non-industrial minerals.

Key Enablers: Finally, strategy without the appropriate set of enablers will remain just a plan. Working alongside the private sector, other MDAs and in partnership with the legislative branch, we will facilitate investment in a range of enablers including bulk handling terminals, railroad and rolling stock capacity, technical and engineering capacity, regulatory reform, reorganization of the Ministry itself, and expansion of access to financing to drive sector transformation. All of these are of themselves opportunities calling for private sector participation.

Ladies and gentlemen, we are determined to leverage our mineral endowments to power a new age of economic growth in Nigeria. We invite the participation of local and foreign investors, to take advantage of this new season, as we are working to ensure we deliver shared value for all participants in the sector. I doubt that we can sufficiently address all areas of opportunities in the sector in the course of this session – it is vast indeed. I however hope to start a conversation that will hopefully lead to more robust engagements between serious prospects and officials of our ministry, as well as other industry stakeholders – in order to provide the necessary guidance for those interested. Government remains committed to our role of stimulating the deepening of the industry as facilitators, not necessarily as active players. Local and international prospective investors are therefore encouraged to similarly engage players already in


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the sector, and other stakeholders, in order to have a more robust perspective of the business opportunities in the sector. I am pleased that some of our mining operators are present here today, as panellists and participants. Private sector players are better positioned to leverage the ‘truly Nigerian’ creative spirit of enterprise, in spotting emerging opportunities while we as government do as much as possible to help them succeed, knowing that the outcome of their success will help in meeting key government priorities such as creating jobs and increasing revenue. As I often say, the only way we can be considered to have delivered on our mandate, is when we have more and more mining operators with success stories, of thriving mining enterprises. Conclusion As I conclude my remarks, I will seek attempt to speak to specific opportunities that might be of interest to one or two peeople. Mining is the foundation for modern industrialization. Industrial minerals most times are used in their natural state or after beneficiation either as raw materials or as additives in a wide range of applications. Most industries use minerals such as steel, limestone, manganese, coal e.t.c. as basic raw materials. Bauxite is the main raw material for the aluminum industry while the fertilizer industry relies on phosphate and gypsum. Ceramics industry is supported by clay minerals. Kaolin as an industrial mineral is used in the manufacture of paint, paper coating and filling. Everywhere around you, you see the outputs from mining activity. This is why the mining industry holds the greatest promise for stimulating industry, creating employment and generating revenue, if all aspects of the vast mining sector value chain is optimally exploited. The exploitation for coal resources in time past led to the establishment of rail infrastructure from Enugu to Port-harcourt. Morerover Tin ore mining in Jos led to establishment of Makeri Smelter and a Power Plant in Jos (NESCO plant). Opportunities in Core Mining There are unprecedented opportunities for those interested in mineral prospecting and exploration. The following minerals occur in different parts of the country and are good revenue earners for local use or export. Limestone Let me start with Limestone, because this is a good example of one mineral we have gotten right, and a remarkable success story that I like to share. Deposits of Limestone abound in Sokoto, Gombe, Benue, Kogi, Edo, Oyo, Ebonyi, Ogun and Cross River States. National annual demand is about 18 Million Tons with eight cement companies operating in Nigeria. Even though Nigeria has had known endowments in limestone and gypsum for decades, this did not result in self-sufficiency in cement production until local producers like Dangote, BUA Group, Lafarge Plc e.t.c. were encouraged through deliberate government policy to increase local production. Today, with an aggressive import substitution strategy via the local manufacturing of cement, the local cement manufacturers have moved Nigeria from being a net-


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importer of cement to a net-exporter in less than a decade. Almost $10 bn was saved in foreign exchange over the last ten years, with $2bn in savings in 2014. The Dangote Group alone is projected to earn over $600m in 2016 from cement exports. The limestone success story is a win-win one that has created shared prosperity for all stakeholders. We are open and ready to support new investors in Limestone, and also those who want to work with us to replicate this winning model with the beneficiation of our other minerals. Bitumen Nigeria is estimated to have the second largest deposit of Bitumen in the World. Extensive bituminous seepage occurs along a belt from Ogun state to Edo state for a distance of approximately 110km. It is however unfortunate that we remain a net-importer of Asphalt which is required in large quantities for the construction of roads. There are huge opportunities in the mining of bitumen in Nigeria. I have since set up a Bitumen transaction advisory committee which has been working to ensure the success of the process of awarding new licenses. The committee has drafted a strategic path to Bitumen self-sufficiency in Nigeria. We are currently in updating the geo-data for the Bitumen resource in the country, which is being done to international standards and to the quality that will attract both local and foreign investors with the requisite technical skills and financial capabilities. Therefore, it should be significant for you to note that a new round of bitumen licensing will come on stream within the course of 2017. Coal Production started in 1902 and was the main energy source until 1960. It occurs in about 16 states of the federation stretching for about 800km. Coal exploration offers a lot of opportunities especially with the Coal to Power project of this administration, as we are eager to create a more sustainable energy mix for the country. About 1000MW of clean energy is projected to be generated by 2020 from Coal.

Opportunities in Beneficiation There are immense opportunities in the mining of several other minerals, too numerous to mention. What is most important is that we strive to make our mining sector more sophisticated by charting new courses in the beneficiation of our minerals. Currently, most minerals are exported out of Nigeria as raw materials without beneficiation. This has resulted in loss of revenue for the country, as we are not able to derive premium value on the commodities in their primary state. There exists abundant opportunities for mineral beneficiation in our jurisdiction, especially to provide feed stock for intra-sector industrialization. The Minerals such as coal, lignite, iron ore, clay, kaolin e.t.c., could serve as entry point for many beneficiation processes. A case in point as mentioned earlier is limestone which through adequate processing has led to the establishment of cement plants in Nigeria, creating jobs and adding value to the economy and host communities. The beneficiation of our minerals in-country is one of the pillars of our roadmap for the mining sector, and we would be happy to guide prospective investors interested in this path.


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Opportunities in Support Services For those interested, but who are not technically grounded in the geo-sciences, vast opportunities still abound in the Mining industry for you. There are opportunities for practitioners from other sectors to participate on the sides of every node in the mining value chain. Lawyers, Risk Analysts, and Business Service Consultants are required to support new companies entering into the market with business plans, feasibility studies, market research, e.t.c; Community Relations and Strategic Communications experts are needed to professionally engage stakeholders in the communities on behalf of companies when they begin prospecting and exploration in the fields. Also, just like in other mining jurisdictions, our industry will welcome Mining Specialist Blogs and Publications. Government’s renewed commitment to environmental justice requires Safety Experts for necessary Environment Impact Assessment; Considering Mining is a very risky endeavor, Doctors and Paramedics are needed on mines to respond to emergencies; even the welfare of different cadres of mining workers require such services as Catering and Hospitality, especially on very large mines. Another area of opportunity is in equipment sales and leasing. Equipment used for mining is generally expensive, so not everyone in the mining industry can afford to buy all of the equipment they need. You could purchase these equipment to re-sell or rent them out for a fee. We need the private sector to contribute to the actualisation of our Mining Sector Roadmap by participating in making new investments into the sector, and growing existing ones, while encouraging your members to play a part in creating an enviable mining ecosystem that would deliver shared value for us all. Lastly, I must reiterate my earlier note of caution that the Mining Sector is not for those interested in becoming overnight millionaires or those looking to launder ill-gotten wealth – the mining sector favours those who patiently nurture viable investments over the long-term, and who also commit to diligently building their knowledge about the dynamic industry, in order to be best positioned to seize emerging opportunities. Ladies and gentlemen, I invite you to the opportunities that the Nigerian Mining Sector offers – I invite you to join us on our road to shared Mining prosperity.

Thank you for listening.

Dr. Kayode Fayemi, CON

Minister of Mines and Steel Development

Lagos, Nigeria | Tuesday, November 29, 2016

harnessing the opportunities in mines and steel development – the role of the private sector

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