Mining

Why Nigeria is missing on $20b global miners’ profit chart

The PricewaterhouseCoopers (PwC’s) “Mine 2017 Report” has put the aggregate net profit of the world’s 40 largest listed mining companies at $20 billion (about N6.29 trillion). But, Nigeria, with its over 44 mineral deposits, is missing out. Experts blame it on the government’s failure to implement the mining sector roadmap. They warn that further delay may hurt efforts at increasing the sector’s GDP contribution from 0.46 per cent to 10 per cent by 2020.

If policy pronouncements were the only drivers of a strong and virile sector, the mining and extractive-related industry would have been sufficiently stimulated to pull the Nigerian economy out the worst recession in three decades.

More than any other sector, mining has witnessed several policy responses in the Federal Government’s desperate bid to diversify the economy since 2014 when oil prices crashed at the global market.

The tumbling oil prices resulted into huge revenue losses in Nigeria. The crash in the value of the Naira compounded the economic woes, thus pushing the country into recession.

But as ambitious as the various policies look, the government has not been able to muster the needed political will to translate them into concrete actions.

The government’s strategic plan to exploit the enormous but largely untapped potential in the mining industry to diversify the economy raised the hopes of an early rebound of the economy.

But, despite the launch of the roadmap for the development of the mining sector since April 2012, the document has remained on paper.

The blueprint was, among others, expected to rebuild the minerals, mining and related processing industry, rebuild market confidence in minerals and mining sector and win over domestic users of industrial minerals that are currently imported. Unfortunately, the strategic actions contained in the roadmap are yet to be implemented.

The roadmap was not the only policy intervention that put industry operators in an expectant mood, The Nation learnt also learnt that the federal authority has given franchise to states desiring permission to exploit mineral resources in their domains.

To encourage the states, the Federal Government went a step further, approving the payment of 13 per cent derivation from mining revenue to the 36 states of the federation and a N30 billion intervention fund for the mining sector.

According to Mines & Steel Development Minister Kayode Fayemi explained that the fund would focus more on exploration, which, according to him, was at the heart of mining.

He added that the intervention fund was in fulfilment of the administration’s campaign promise to diversify the economy with emphasis on agriculture and mining. The minister has also inaugurated the long-awaited Solid Minerals Development Fund (SMDF) Board. The Board has a mandate to address the barrage of challenges holding the sector down.

Acting President Yemi Osinbajo also announced a fortnight ago that the Federal Government has initiated the process of raising $600 million for the development of the solid mineral sector.

Osinbajo, who spoke at the opening of the National Mining Summit in Abuja, said the fund would be raised through the Nigerian Sovereign Wealth Investment Authority (NSWIA) and the Nigerian Stock Exchange (NSE).

He said: “We are working with the NSWIA, the NSE and others to assemble a $600 million investment fund for the sector. Internationally, we have secured $150 million in funding from the World Bank for the minerals sector’s economic diversification.

“This will provide technical assistance in restructuring and operationalisation of the SMDF. The SMDF will make finance available to artisanal and small mining operators through mining finance and lease institutions.

“The mining sector is a priority for the Nigerian Government and a crucial part of our economic growth and diversification agenda. The President (Muhammadu Buhari) has seized every opportunity over the last two years to highlight the diversification vision and central role of the mining sector in it.”

Observers believe that the intended objectives of the policy responses have not yet manifested because of what they call government’s lack of political will to push the diversification policy through.

Some industry players and analysts, who spoke with The Nation, expressed concerns that the government’s failure to transform its diversification intention into concrete and practical actions was seriously hurting efforts at riding on the sector’s back to rebound the economy, create jobs and grow the Gross Domestic Product (GDP).

Obiora Akabogu, a Lagos-based, observed that Nigeria has not been moving fast enough in the area of diversification. Describing the slow pace of diversification anchored on the minerals sector as “suicidal,” he said the requisite political will to translate policy statements into concrete actions was evidently lacking.

A Partner and Head of Mining, PricewaterhouseCoopers (PwC) Nigeria, a consulting firm, Mr. Cyril Azobu, also said that despite the launch of the roadmap for the development of the mining sector since April 2012, it has remained on paper.

“It’s time to begin to put these things into action. We have to put some political will around all these. It’s a long term thing, but we have to start now,” Azobu said.

Counting the costs

Statistics have shown that 44 solid mineral deposits abound across the 36 states, including the Federal Capital Territory (FCT), Abuja.

According to experts, some of the deposits found to be in commercial quantities include: coal, tin, iron ore, columbite, limestone, gold, gypsum, kaolin, lead, zinc and bitumen.

They said the government ought to have fast-tracked efforts at exploring and exploiting the mineral resources to exit recession.

Despite its rich mineral endowment, no Nigeria company was among the world’s 40 largest listed mining countries that returned to profitability in 2016, with an aggregate net profit of $20 billion (about N6.29 trillion).

A “Mine 2017 Report” released by the PwC’s said the market capitalisation of the top 40 miners rose 45 per cent to $714 billion.

Energy, Utilities & Mining Industry Leader for PwC Africa, Michal Kotzé, said the report analysed the 40 companies by market capitalisation, and that the financial information for 2016 covered the periods April 1, 2015 to December 31, 2016, with each company’s results included for the 12-month financial reporting period that falls into this time frame.

He said the rapidly rising commodity prices sparked renewed market optimism and improved credit ratings across the top 40 firms. Valuations also climbed, especially for the traditional miners, with the trend continuing through the first quarter of 2017 even as commodity prices remained flat.

PwC Assurance Partner Andries Rossouw said: “Mining companies need to combine engineering excellence and know-how with a new open-mindedness to learn from advanced analytics and a need to embrace robotics and platforms that fundamentally challenge decades of doing things the same way …it is as much about behaviour as technology.”

Projected GDP growth threatened

There are fears that Nigeria may fail to meet some of its projections based on the emergence of a strong and virile mining sector, if the government failed to implement its policies on diversification of the economy to non-oil sectors, especially, mining.

The solid minerals sector, on the average, contributes a paltry 0.46 per cent to the GDP, according to Azobu. Also, the Nigeria Extractive Industries Transparency Initiative (NEITI) has reported that the sector contributed only N113 billion to the nation’s coffers in five years.

The sector’s which contributed N52 billion to the GDP in 2010 could only contribute N103 billion five years after.

Observers say that swelling its GDP contribution by only 12 per cent was a far-cry for a sector that was a major contributor to the economy before the discovery of oil in the 1950s.

Even with the current target of increasing the sector’s GDP contribution to 10 per cent by 2020, there is nothing to suggest that Nigeria will meet the target.

Dearth of infrastructure as a sore point

In a paper entitled: “Developing the Solid Minerals Sector: Quick Wins for the New Government”, Azobu listed adequate infrastructure, particularly a well-established transportation network as one of the requirements for a thriving mining industry.

The facilities, he noted, are necessary for the movement of equipment to mining sites and the evacuation of minerals for sale and export.

“Infrastructure is a key element for the success of any mining industry,” he said, noting that although, there are a number of infrastructure development initiatives in road and rail being embarked upon by the federal and state governments, such initiatives do not take into consideration planned linkage with existing or intended mining sites.

Azobu said: “The linkage of mining sites via rail or roads, and the resultant ease of transportation of minerals for sale, would act as catalyst for the development of the solid minerals sector.”

He further said the required raw materials for infrastructure development (e.g. Bitumen for road construction, iron ore to manufacture steel for rail construction) should be sourced internally.

According to him, this will aid the development of local markets for these solid minerals. He noted that previous administrations recorded some success with regards to limestone for cement production.

The PwC Nigeria Head of Mining therefore urged the federal government to take a holistic view regarding infrastructure development and mining sector plan. He also spoke of the need for the federal and state governments to develop and adopt a master plan for roads and rail.

Azobu said: “All identified mining locations should be considered when drafting this master plan and it should be made mandatory for adoption by any level of government embarking on infrastructure development.”

Hope rising for Itakpe-Ajaokuta-Warri rail line

The recent developments in the rail sector appear to offer some hopes. Fayemi announced last week that the on-going Itakpe-Ajaokuta-Warri rail line will be ready by December.

Speaking at the inauguration of the Development Partners and Donor Agencies’ Coordination Group on According to Dr. Fayemi, the project, being handled by the Ministry of Transport, was critical to the Federal Government’s effort to revive the Ajaokuta Steel plant and its iron feeder plant, NIOMCO.

However, while most industry experts and stakeholders agree with Fayemi that an inclusive, well-articulated roadmap was imperative for rebuilding the mining industry, they argue that the pace of actual implementation of the strategic actions contained in the roadmap has been evidently slow.

Akabogu said he expected that by now, the Presidency would have forwarded an executive bill to the National Assembly for modification or necessary amendment of the nation’s extant mining laws with a view to removing the hindrances to the maximisation of the potentials of the industry.

The Petroleum Act 1969, for instance, stipulates “that all minerals belong to the Federal Government.” The 1999 Constitution (as amended) in Item 39 of the Second Schedule also reinforced this position by stating that: “All mines and minerals, including oil and gas fields, belong to the Federal Government.”

Akabogu told our correspondent that the extant provisions of the law has put the exploitation of solid minerals on the Exclusive Legislative List, meaning that only the Federal Government has the right to grant approval  for mining licences and to regulate the industry.

Although, Fayemi said the states have been authorised to explore and exploit their mineral resources, experts insist that there is still the need for a proper review and amendment of the relevant mining laws to truly open up the industry.

According to them, a review and amendment of the relevant mining laws was not only long overdue, but also a matter of urgent national importance following dwindling oil revenue and the need to diversify the economy away from its over-dependence on oil and gas.

Flip-flop on artisanal mining

Nigeria’s 0.46 per cent GDP contribution from mining of solid minerals, according to Azobu, is solely from the formal mining sector.

He said between 80-85 per cent of current mining activities in Nigeria is through artisanal and small scale mining, which is largely informal and fraught with the use of crude equipment and extremely dangerous working practices.

Besides, the sales channel is largely unofficial, and embedded with smuggling and distribution cartels, which hurts the nation’s economy in the form of revenue loss in taxes and royalties.

It also exposes miners to uncontrolled risks, even as uncontrolled and non-systematic evacuation results in environmental degradation, erosion and excessive pollution, amongst other negative effects.

“There is an urgent need to formalise the artisanal and small scale mining by formulating policies aimed at integrating informal artisanal miners into the formal mining sector”, Asobu said.

He listed some of the benefits of such integration as; training and equipment supply; funding; possible absorption by bigger companies; and enlightenment on safe mining practices.

During his visit to Rivers State, Osinbajo announced government’s plans to establish modular refineries to engage youths operating illegal oil refinery in the Niger Delta.

He restated the commitment of the President Buhari-led administration to ensuring properly engaged of youths in the region.

Observers view the initiative as a masterstroke to sustain the relative peace in the region where Niger Delta militants had disrupted oil production. The planned adaptation of illegal refineries scattered across the region to modular refineries will give the operators a sense of belonging, they said.

The Chairman of  Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and National Union of Petroleum and Natural Gas Workers & NUPENG) and Petroleum Industry Bill (PIB) Committee, Hyginus Onuegbu, said that on the strength of the planned modular refineries’ proposal, Niger Delta youths have started organising themselves with a view to establishing refineries.

“When the Acting President came to the Niger Delta, he made a promise about modular refinery. In fact, there was an association of modular refiners in Nigeria,” he told The Nation. A number of investors have reportedly indicated interest in investing in the project, which has prospects of attracting about $160 million investments.

Pulling the rug off investors’ feet.

As Niger Delta youths and prospective investors in the modular refinery business wait for the government to come out with modalities for the project take-off, the Federal Government backpedaled, declaring that it would no longer allow the proliferation of such refineries across the Niger Delta.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, explained that having such refineries scattered across the length and breadth of the Niger Delta would worsen environmental degradation and gas flaring, which will increase the problems of the region.

He spoke at the presentation of the report of the New Nigerian Oil and Gas Sector Governance Policy Consultation Workshop held in Aberdeen, Scotland. The workshop was organised by Nigerians in Diaspora Organisation, Europe, United Kingdom and North Aberdeen.

According to Dr. Kachikwu, the government was considering a situation where modular refineries would be located only in areas where its products would be easily evacuated and where getting feedstock to them would not be cumbersome.

He stated that the government was commissioning a broad study that would lead to the development of an intelligent plan for the construction of modular refineries in the region.

The minister said: “It is important to clear a misconception, especially as it has to do with modular refineries. Setting up smaller modular refineries in so many places in the Niger Delta would worsen gas flares in the region and also bring about environmental challenges.

“It is critical to develop an integrated approach and plan to modular refineries construction in the Niger Delta, ensure that they are properly optimised and are not scattered everywhere.”

Kachikwu argued that the proliferation of such refineries would not provide significant economic benefits to the country.

“The relative peace in the Niger Delta was because the Acting President went round the Niger Delta and had a truce with militants. And of course, they are waiting for the Federal Government to fulfil its own side of the agreement, which is the issue around modular refineries”.

He urged the government to keep faith with its promise on the modular refineries, as according to him, sustaining the peace in the region was necessary to avoid the disruption in oil and gas operations.

Glimmer of hope from coal industry

The recent developments in the Enugu coal industry have shown that there will be light at the end of the tunnel.

About a fortnight ago, the Federal Government announced that it had chosen the Simang Group of South Africa to work along with the Enugu State Government to revive the coal industry for the benefit of the Southeast geopolitical zone.

The investors, led by Dr. Odilim Enwegbara of the Pan Africa Group and Stephen Paddy, Chairman of the Simang Group, explained that the principal objective of the investment drive was to use coal to generate electricity and then spin a chain of allied business activities for the benefit of the local economy.

Receiving the investors at the Government House in Enugu, Governor Ifeanyi Ugwuanyi said he had always believed that coal would be a major catalyst to economic development of the Southeast in particular and the country in general.

But observers have described the expected investment in coal as a drop in the ocean considering the quantum of mineral resources in the country. They urged the government to take advantage of the more than 44 minerals across the country to stimulate the economy.

The way out

Azobu urged the government to revisit the mining sector roadmap and take necessary action to ensure achievement of the set goals. He pointed out that the roadmap appears to have been treated as a theoretical exercise by either not setting realistic targets or not working to achieve them.

He listed some of the major milestones set by the road map to include: increasing the sector’s contribution to the nation’s GDP from the current 0.46 per cent to 10 per cent by 2020 and facilitating the production of coal needed to fire coal-fired power plants that would contribute 30 per cent of the nation’s power generation by 2020.

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