Nigeria-SA mining pact agreed

A mining site in Nigeria
Nigeria and South Africa have concluded an agreement on mining sector cooperation, suggesting that Nigeria is taking the promotion of mining seriously.

Abuja sees the sector as a key part of its diversification plan. It has toughened its stance on informal mining operations and is seeking to see the mothballed Ajaokuta steel plant and associated iron ore mine finally brought into use.

The agreement commits the two governments to implementing an earlier memorandum of understanding on the issue over the next two years. As by far the biggest mining centre in Africa, South Africa will provide advice on geology; the regulatory framework and licensing; mineral processing; metallurgy; artisanal and small-scale mining; investment promotion; and capacity building.

Mosebenzi Zwane, the South African Minister of Mineral Resources, said: “With the implementation of this action plan, we will be able to better advance and ensure benefits to both countries from the development of our respective mining value chains, in line with our respective national priority programmes; which include diversification of the economy, job creation, energy security and industrialisation.” Pretoria will help to organise a mining investment conference in Nigeria later this year.

Abuja has identified mining and agriculture as the two best sectors to help with economic diversification. The government’s mining sector roadmap was launched in December and its strategy seems to have two main elements: encouraging large scale projects and formalising the activities of artisanal and small-scale miners. The World Bank has provided $150m for the Mineral Sector for Economic Diversification programme, which will provide finance to small-scale miners. State royalties and fees from mining activity are still low but jumped from N700m ($2.2m) in 2015 to N2bn ($6.3m) in 2016.

Although the government has to cut expenditure because of the recession and sustained low oil prices, it has increased the Ministry of Mines and Steel Development’s budget from N1bn ($3.1m) in 2015 to N7.3bn ($22.9m) in 2016 and N12.9bn ($40.5m) for 2017. The government’s other measures include helping banks to build up their expertise in the sector and working with the Nigerian Stock Exchange and the Nigerian Sovereign Investment Authority to set up a $600m investment fund this year.

State regulation of the industry is also being stepped up. At the end of January, Salim Salaam, the director of the Mines Environmental Compliance Department, said that 20 mining companies had been sanctioned over their operations.

He said: “Honestly speaking, the level of mining companies’ compliance with the ministry’s law and regulation is very low. We have started a sensitisation programme across all the zones, educating them on why it is mandatory to adhere to our law to avoid sanctions.”

Itakpe and Ajaokuta

The biggest project likely to be developed is the Itakpe iron ore mine in Kogi State, which will be developed to supply the Ajaokuta steel plant. Work on the facility, which would have annual production capacity of 5m tonnes a year, began as long ago as 1979 but a succession of disputes saw the project mothballed.

President Muhammadu Buhari seems determined to ensure that it is finally completed and the Minister of Mines and Steel Development, Dr Kayode Fayemi, believes that $2bn in investment is needed to bring the plant on stream.

Once operational, output on Itakpe could be increased to supply other steel producers in the country. However, the scheme’s fate hangs in the balance. Global Steel Holdings of India has agreed to take on the mine but Chinese investors are also reported to be in talks with the government.

Malte Liewerscheidt, senior Africa analyst at global risk consultancy Verisk Maplecroft, said: “An inherent risk with these kinds of brownfield investments is that investors underestimate the turnaround cost to start production. Protectionist tariffs on steel or even an outright import ban are certainly on the cards to shield the Ajaokuta plant from international competition. This would lead to a rise in costs for building.”

Neil Ford – African Business Magazine

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