Market formation framework seen as driver to solid mineral sector development

Market formation framework has been seen as the key to optimally exploit Nigeria’s precious metal and solid minerals endowments.

Ifie Sekibo, managing director/CEO of Heritage Bank Plc, said this during a webinar organised by the Securities and Exchange Commission (SEC) in collaboration with the Federal Ministry of Mines and Steel Development with the theme, “Financing the Solid Minerals Sector through the Capital Market and the Critical Role of Commodity Exchanges.”

Sekibo explained that a fully established market formation process that would lead to having a Corporation as an integrated solid mineral institution like NNPC which allows the collateralisation of assets that banks can rely on for alternative funding options.

According to him, this will guarantee other creative ways of raising funds for financing commercial activities relating to solid minerals and viable projects along its value chain.

Sekibo who was represented by Olusegun Akanji, divisional head, strategy and business solutions, of the bank, said for the sector to be viable, it requires lots of converged government interventions because for any development focused sector to kick-off around the world, it needs government intervention to lay the foundation for the private sector and funders to step-in and pool their resources.

“Once, we can collateralise these assets, whether they are under the ground or being determined, you use different instruments to bring liquidity into them. Then investors will follow up once we have established there is enough they can explore,” he stated.

He further suggested that finance sector regulators need to expand its prudential guidelines to accommodate the instruments such that precious metal backed or solid minerals backed assets could qualify as part of the computation of liquidity ratios.

“Once banks start injecting their resources, customers would certainly follow that trend. You can start arranging for sophisticated solutions like bonds, bullion backed assets and pension notes. Again, banks will have to be poised to hold the funding that comes from this sector; that way, they can open new transactional frontiers either locally or internationally.

“At the base of this, are the issues of pricing and integrity of the market. Once banks play in that sector and we have a government institution like the NNPC type to hold all these documentations, it would be very easy to establish price discovery on an ongoing basis. This will in turn attract international funders, hedge funds and retail investors. Today, we have retail bonds in the same way; we can have gold backed or any of the solid mineral assets where retail investors can put in the funds,” Sekibo explained.

Meanwhile, it would be recalled that the bank has said its involvement in the private sector collaboration with Dukia Gold & Precious Metals Refining Co. Limited is set to unlock the over N344 trillion market worth of gold investible instruments in the solid minerals sector.

However, he reiterated that consistent packaged framework, which could only be held by an established government institution, as part of the layers of framework, would help to tackle major challenges in trying to support Dukia Gold’s clients.

“With consistent packaged framework, it will be easier for Dukia Gold and help in less spending. If Dukia Gold should speak of their challenges, they will speak about tonnes of tonnes of documents they have to produce. But with a unified source of documentation, it makes the process easier and improves cost management. These are some of the challenges we have experienced in trying to support a few clients we worked with,” Sekibo stated.