• Friday, June 14, 2024
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Innovative financing, cooperation will de-risk Nigeria’s mining sector – AFC’s Iyahen

Innovate financing, cooperation will de-risk Nigeria’s mining sector – AFC’s Iyahen

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 facing challenges on multiple fronts. Osam Iyahen, senior director, natural resources, at Africa Finance Corporation speaks on the importance of mining in Africa, the negative impacts of illegal mining, the importance of data, and future outlook for Nigeria’s mining sector. Dipo Oladehinde brings excepts:

How important is Nigeria’s mining sector to Africa Finance Corporation?

Mining is very important for Africa, given the vast resources we have on the continent and the developmental potential, developmental benefits, GDP, employment, and others. To further contextualise, nearly 50 percent of Sub-Saharan Africa’s export value has historically been composed of revenue generated from natural resources, which have historically served as a significant revenue earner for Sub-Saharan African countries.

Eight years ago, the board of directors of AFC requested that we consider mining as part of our natural resource offering. Since then, we and other partners have deployed resources worth $900 million in the sector, with diverse exposures to gold, copper, cobalt, manganese, diamonds, and bauxite. We continue to seek investment opportunities in precious, EV, and bulk metals across the entire continent.

Of all the investments we have made so far, the most important one for us, or the one we are most proud of, is our investment in Segilola Mine, Osun State.

It was a unique project. This came on during a difficult time (the COVID period), which was challenging from a logistics perspective globally. If the Segilola project was located in a more established mining jurisdiction, the project would have been able to access capital, within a much shorter timeframe. The project produces one of the highest-grade gold projects in West Africa.

But the issue has always been the zip code problem. The fact that Nigeria has not been known as a mining jurisdiction globally, has historically made it challenging to attract international investors into the country.

I think with Segilola reaching commercial production, it’s now a demonstration project for us. For us at AFC, the Segilola project is a template that shows mining can be commercially viable in Nigeria. It just takes the right financing partner to provide the requisite support and dedication. That’s what we have done with the Segilola project.

Simply acquiring a mining license does not make miners eligible for funding.

Illegal mining is a big challenge facing the sector. What can the new government do differently?

If you look at other jurisdictions, artisanal mining is not something that is specific to Nigeria. It exists in Mali, Burkina Faso, and other mining regions.

Wherever you have a promising gold region, you’re going to find illegal miners. So, for me, illegal miners are an indication of how prolific an area is.

With this understanding, I recommend the need to have some sort of support or some formalisation programme, to promote legal and responsible mining practices we earnestly desire.

We need to create opportunities that allow illegal miners to operate legally; this development can also ensure that the mining is done in a sustainable and responsible manner.

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Secondly, the government has to also ensure that its main responsibility of security is ensured. The government needs to strengthen the law enforcement presence and coordination around the mining areas. It’s very important.

We also need to provide better training for law enforcement to be able to tackle the menace of illegal miners. We need to provide them with equipment. We need to coordinate the effort more effectively so that we can book some of the illegal miners that are not abiding by the law.

There needs to be increased awareness campaigns on the negative impacts of illegal mining. Definitely, that’s a thing that the government can do because a lot of the illegal mining activity often results in environmental damage.

Awareness of the negative impacts of illegal mining needs to be amplified. So, I think the communities are the ones who are going to have to eventually fight or prevent the illegal miners from doing what they’re doing. Because if they understand the negative impact, then it’s not just the government.

You need to get the buy-in of everyone so that illegal mining needs to be formalized and done properly. So, it is important for industry stakeholders to promote public awareness campaigns around the negative impacts of illegal mining.

And then lastly, obviously if you can adopt technologies, advanced technologies are available for enhanced surveillance that go alongside security that I mentioned will allow law enforcement to better monitor mining areas and identify illegal activities. Yes, so I think those are the key areas that I would highlight.

What is Thor Exploration doing differently compared to other players in Nigeria’s mining sector?

They start off with the identification of the right assets. The Segilola Project is a world-class gold project. They acquired a world-class project, a high-grade project in a jurisdiction, Osun state that is not considered volatile, that is what you can operate in.

The second thing they got right was the composition of the right team that is capable of delivering on the right mandate. A lot of Nigerian companies do not have a penchant for institutionalizing their companies, I think Thor got that right in putting the right people in the right place.

The other thing that they also did was extremely important is the ESG. I’ll mention that when AFC made its $86 million investment total package, we were very instrumental in helping them formulate their ESG policy. And even after making the investment, we were part of the steering committee that helped them in assessing how they were doing, in monitoring their progress.

So ESG is no longer just a buzzword. It’s actually important for improving the returns of investors.

The fourth thing they got right was their openness to the type of financing that is available. I dare say that other investors and other project sponsors might have said it’s too expensive and may not have been open to it, but they embraced it because they saw the big picture that you need this type of financing to be able to unlock the value. It’s not the cheapest financing, but at the end of the day, it opens up the door to further opportunities down the line.

How can Nigeria replicate the success stories of Thor Exploration across different players?

Yes, every company, sponsor, or project is unique. So it’s difficult for me to ascribe a universal model across the board. But what I would say is that there needs to be a strong commitment to some of those four or five factors that I mentioned earlier in order to replicate it.

We are seeing a lot of companies that are dedicated and looking to adopt some of those templates and we are hopeful that it will happen sooner rather than later.

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What structures do companies put in place to attract early-stage funding for Nigeria’s mining projects?

Basically, we need to go back to the fundamentals by looking at the entire value chain.

Simply acquiring a mining license does not make miners eligible for funding. First, the financier will need to understand more about the assets. To do that, we’ll need to spend some money to get them JORC certified, which is a global standard. This certification will give us a clear picture of how much risk is involved with the resources, helping us better understand the situation.

You need to be able to do some drilling as well. This helps to increase the level of certainty around the asset’s resources and reserves estimates and helps the project sponsor better understand what portion of the reserves/resources can be economically mined under certain price and cost assumptions.

Not every sponsor has the capacity or the funding to be able to do some of those initial works. Fortunately, AFC is rolling out what will help in terms of early-stage project development for mining, which will help to high grade or help to finance some of those early type of financing that is required by sponsors.

For example, AFC’s collaboration with the Solid Minerals Development Fund (“SMDF”), is underpinned by the need for a ‘bridge’ to work with Project Sponsors to increase the pipeline of “bankable” mining projects (i.e., mining projects that have a Bankable Feasibility Study (“BFS”), that would facilitate increased deployment of construction capital into projects) in Nigeria. Both AFC and SMDF will deploy our balance sheets to co-develop mining projects, with the core aim of mitigating risks that would otherwise have prevented financing to drive project bankability.

Our intervention is essentially designed to create a pipeline of high-quality and feasible projects with considerable economic impact and scope for AFC, SMDF, and other indigenous and international investors to deploy their balance sheets and unlock the mining sector’s potential.

How were you able to scale the hurdles that come with dealing with host communities?

We work very collaboratively with the host community because the first principle is that we don’t own the asset, the community owns the asset.

We demonstrate this through our CSR programs by providing electricity, water, and good gestures to show that we are visitors.

Ultimately, while our operations are sanctioned by the federal government, it’s crucial to prioritize the inclusion of local communities. This involves creating employment opportunities for the local community and provides the project sponsor with a sense of belonging to the community. We actively employ the youth, women, and able bodily men and increase their skills to work on the project. And so that becomes mutually beneficial.

Therefore, through the inclusion of local communities into the project, both the sponsors and communities achieve alignment in terms of desiring project success, which is beneficial to all. They guard the project; it is part of it. You have to build trust. It’s not usually easy, as you’ve mentioned, but I just think it takes having a greater purpose than just making money.