A legal and regulatory analysis of lithium mining in Nigeria

INTRODUCTION TO MINING IN NIGERIA

Lithium has become a vital alternative energy resource in the 21st century and it has the potential to reshape the world’s energy landscape. The global demand for lithium is estimated to surpass 2.4 million metric tons of lithium carbonate by 2030, doubling the 2025 forecast. With the major demand drive being the Electric Vehicle (EV) industry. With global demand on the rise, the industry has significant revenue earning potential.

Nigeria is endowed with Lithium bearing minerals and offers promising opportunities for mining operations. Geologically, sites in Nasarawa, Kogi, Kwara, Ekiti, Cross-River and a few other states have been identified as lithium-rich, providing a solid foundation for the establishment of mining operations. The Nigerian Lithium Belt is a northeast-trending belt that stretches for about 450 miles from the southwest corner of Nigeria to Kano State in the north. It lies within the Basement Complex, an area covering roughly 50% of Nigeria. With its geology, relatively high skilled labour and regulatory framework, Nigeria can play a key role in the emerging high demand lithium industry and take steps to enhance the competitiveness of its lithium mining industry.

This paper attempts to provide a guide to assist a new entrant into the Nigerian lithium mining industry to navigate the legal and regulatory framework in the country. It also attempts to provide an understanding of the nuances that exist in understanding the unique commercial and industry framework that exists in Nigeria.

LEGAL FRAMEWORK FOR MINING IN NIGERIA

Nigeria has developed a framework that governs players that operate in its mining industry and the industry continues to be a key focus in efforts to attract investment into the country. A key aspect of this effort is the establishment of a modern legislative framework embodied in the Mineral and Mining Act 2007 (the ‘Act’). This Act provides a comprehensive framework for the exploration and exploitation of minerals in Nigeria, and includes specific provisions designed to promote a private led drive to grow the mining industry.

Key provisions of the Act:

Ownership and Control of Minerals: Section 1 of the Act vests ownership of all mineral resources in Nigeria in the Federal Government of Nigeria (government), on behalf of the people of Nigeria. Additionally, Section 1(2) grants the Government the authority to take control of lands with significant mineral deposits, subject to the provisions of the Land Use Act.

Transfer of Property in Mineral Resources: Section 1(3) of the Act stipulates that the Government retains ownership of mineral resources until they are extracted. Upon extraction, ownership is transferred to the extractor, provided they have complied with the legal requirements outlined in the Act.

Administration of the Act and Mineral Titles: Section 4 of the Act states that the Minister for Solid Mineral Development (Minister) is responsible for developing a comprehensive and coherent program for the exploitation of Nigeria’s mineral resources. Section 5 establishes the Mining Cadastre Office (MCO) as the sole agency responsible for managing mineral titles and permits. The MCO has exclusive jurisdiction over the entire country and is responsible for:

Considering applications for mineral titles and permits

Issuing mineral titles and permits

Suspending mineral titles and permits

Revoking mineral titles and permits, subject to the written approval of the Minister.

Section 8 mandates the MCO to prioritise applications for titles and permits based on the order they are received, in case where multiple applications are submitted on the same day.

Section 34 of the Act established the Solid Minerals Development Fund (SMDF) to support the development of the solid minerals sector in various ways, including capacity building, data gathering and infrastructure development.

Designation of Areas for Exploration and Mining: Section 9(1) of the Act empowers the Minister to designate areas where exploration licenses and mining leases will be granted through a competitive bidding process. While section 9(2) mandates the MCO to consider competing bids and select the best bidder for the designated areas.

Priority of Mining Over Other Land Uses: Section 22 of the Act gives mining a special status, allowing it to override other interests in land use. This provision ensures that mining activities can proceed without being hindered by conflicting land uses and takes precedence over other uses of land.

Revocation of Mineral Titles: Section 151 of the Act provides that mineral titles can be revoked if the holder violates the law, regulations, or terms of the lease, or if they become insolvent or bankrupt, and fail to remedy the situation within the given timeframe.

Licences Granted Under the Act: The government has put in place regulations to ensure that mining activities are carried out in a responsible and sustainable manner. One of the key requirements for mining companies is to obtain a license under the Act. This license includes:

Reconnaissance permit: It allows the holder to search for mineral resources on a non-exclusive basis (the holder does not have exclusive right to the land or resources, others may also have access to the same area), and collect small surface samples, but it cannot be granted over areas already licensed for mining or water use permit. The permit is issued for one-year term and to maintain its validity, the holder must comply with the relevant laws and regulations. If the requirements are met, the permit can be renewed for an additional year, allowing the holder to continue exploring for mineral resources. Eligible applicants include Nigerian citizens with clean criminal record, companies incorporated under the Companies and Allied Matters Act 2020 (CAMA) and mining cooperatives. MCO has 30 days to issue a reconnaissance permit to a qualified applicant who has paid the required fees, provided that the applicant meets all the necessary requirements prescribed in the Act.

Exploration licence: This grants the holder exclusive rights to explore a designated area (up to 200 square kilometres) for a period of 3 years and it can be renewed for two further periods of 2 years each, totalling 7 years, with priority rights to secure mining lease for any mineral for which the holder was authorised to explore, subject to fulfilling all licence obligation provided in the Act.

Pursuant to regulation 137 of the Nigerian Mining Regulation 2011, a holder of an exploration licence seeking to retain or dispose of mineral deposit obtained during exploration in a specific location must obtain consent from the Director of Mines Inspectorate. This consent is granted through a written application.

Small-scale mining: It is granted for a specific area, and the holder must comply with any additional requirements or regulations set by the small-scale and Artisanal Mining Departments, which may include, environmental, safety and operational standard. It is issued upon fulfilment of all the conditions attached to the exploration licence. T The lease is valid for five years and is renewable for a further period of five years.

Mining lease: Mining lease is granted to the holder of an exploration licence or small-scale mining licence allowing them to explore and extract minerals within a specific area, subject to meeting minimum work obligations and commitments. Mining lease requires the company to employ a qualified and experienced mining professionals to supervise operations, and the lease remains in force only if such a person is continuously employed. It is is granted for 25 years and is renewable every 24 years.

Quarry lease: Under the Act, it applies to a wide range of naturally occurring minerals, and quarry lease grants the holder the right to extract and dispose of these minerals within a designated area, not exceeding 5 kilometres, for a 5-year period, unless renewed.

Mining Incentives: The Act provides various incentives to encourage investments in mining sector. These incentives aim to promote the development of Nigeria’s mineral resources, attract foreign investment, increase government revenue. They include:

Capital allowance: Section 24(1) of the Act allows a licence holder eligible under the Act to deduct 95% of qualifying capital expenditure from their assessable profits in the year the investment is made. This deduction applies to:

Certified exploration, development, and processing expenditure (including feasibility study and sample assaying costs).

All infrastructure costs (regardless of ownership and replacement).

Section 24(2) further states that if the licence holder incurs a loss, they can deduct it from their assessable profits in the following ways:

First, from the assessable profits of the first year of assessment after the loss was incurred.

If the loss cannot be fully deducted in the first year, it can be carried forward and deducted from the assessable profits of the next year, and so on.

This process can be repeated for up to four years. If the loss is still unrelieved after four years, it will lapse (i.e. cannot be carried forward anymore).

Exemption from customs and import duties: section 25(1) of the Act allows mining companies to bring in necessary equipment and materials without paying customs and import duties, subject to approval from Mines Inspectorate Department (MID). MID is a body that ensures that mineral title holders comply with section 25 of the Act and not abuse the exemptions. The Act further grants mining companies an expatriate quota, allowing them to hire approved expatriate personnel and grant resident permits to enable expatriates to live and work in Nigeria. It allows expatriate personnel to transfer their earning out of Nigeria without paying taxes imposed by any enactment for the transfer of external currency out of Nigeria.

Retention of foreign exchange earnings for mining operations: Section 26 of the Act permits that the Central Bank of Nigeria (CBN) allows mining companies to keep a portion of their foreign exchange earnings in a special account (domiciliary account), which can be used to import necessary materials and spare parts for their mining operations.

Guarantee of free transferability of funds: Section 27 of the Act provides a guarantee to holder of a mineral title (mining companies or individual) the ability to transfer funds out of Nigeria in a convertible currency through CBN in the following situations:

If the holder has obtained a foreign loan for their mining operations.

If the holder sells or liquidates their mining operations or any interest in them, they can transfer proceeds of the sale or liquidation out of Nigeria.

Tax relief and extension: Section 28 of the Act provides that a mining company granted a mineral title will enjoy tax relief for an initial period of three years, starting from the date of their mining operation. This relief can potentially be extended by the Minister for an additional two years. It also provides that before extending the tax relief period, the Minister must be satisfied that the mining company has demonstrated progress and growth in its mining activities, compliance with any terms and conditions attached to the mineral title, and commitment to developing Nigerian staff in the mining operations.

Secure funding for environmental and social responsibilities: Section 30 of the Act ensures that mining companies prepares for and account for the environmental and social impacts of their operations. It provides that companies engaged in mining activities must set up a special fund, called a tax-deductible reserve, to cover costs related to environmental protection, mine rehabilitation, reclamation, and mine closure. This fund is subject to the facts that:

The funds must be recorded in the company’s audited financial statements.

The company can only deduct the actual amount spent on reclamation from their taxes.

The company must set aside an amount of money equal to the tax-deductible reserve every year and the money invested in a dedicated account or trust fund, managed by independent trustees appointed according to the Act. The trustees will oversee the management of the funds and ensure they are used solely for the intended purpose, such as environmental protection.

Mandatory pension contribution for mining employees: Section 31 of the Act ensures that mining companies prioritize their employees’ retirement benefits and make necessary contributions to secure their future well-being by mandating mining companies to set aside a certain amount of money, calculated based on a predetermined rate (rate specified in the Pension Reform Act 2004), to ensure that employees receive pension benefits.

Adjustment for inflation- Annual capital cost indexation: Section 32 of the Act ensures that the company’s tax deduction remain accurate and reflect the true economic value of the capital costs. For example: when a mining company invests in a new project and has incurred significant capital cost, such as buying equipment of which costs are typically deducted from the company’s taxable income, when such costs have not yet been fully deducted or claimed by the mining company, annual capital cost indexation ensures that the unclaimed balance of these costs is increased each year to reflect inflationary effect (it is possible that a company can incur a capital cost of $100 in its first year of mining operation and same cost value may be reduced to $94 in the upper year due to inflation). The unclaimed balance will be increased by 5%.

Royalty payment on minerals: Section 33 of the Act establishes that minerals extracted during exploration or mining are subject to royalty payment, but the Minister has the authority to reduce, waive, or defer these payments under certain circumstances, such as exporting minerals for analysis or scientific purposes, or with the approval from the Federal Executive Council.

Sections 93 and 94 of the Act regulates the possession and purchase of minerals in Nigeria, ensuring that only authorised persons, those with proper licenses and permits, or authorised agents/employee of a holder can possess or purchase minerals. This aims to prevent illegal mining, smuggling, and other unauthorised activities in the mining sector.

The Nigerian Mineral and Mining Regulations 2011 provides further guidance on the implementation of the Nigerian Mineral and Mining Act 2007. It covers aspects such as licensing, environmental impact assessment, and health and safety standards.

The Nigerian Investment Promotion Commission (NIPC) Act applies to mining activities involving foreign investments in relation to any mineral title granted under the Nigerian Mineral and Mining Act. This means that foreign investors in the mining sector are subject to the provisions of the NIPC Act, which aims to promote and protect investments in Nigeria.

The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act applies to investment made in foreign currency in relation to any mineral title granted under the Nigerian Mineral and Mining Act. This means that any foreign currency investment in mining activities is subject to the provisions of the Foreign Exchange Act, which regulates foreign exchange transactions in Nigeria.

OTHER TYPES OF LICENSES

Possess & Purchase License: Possess & Purchase License is issued to companies that do not want to commence the mining process but want to purchase minerals from mining companies, either for processing or immediate export. This licence allows them to purchase and possess lithium deposits for processing or export. The Possess & Purchase License is also issued by the Ministry of Mines Steel Development and is renewable annually.

Mineral Buying Centre Licence (MBCL): This license permits a license holder to buy, warehouse, store and trade lithium.

A Mineral Export Permit: This permit is required for companies to export minerals, including lithium, out of Nigeria. To be eligible, companies must:

Have acquired or prepared lithium for export.

Paid royalties to the government on the mineral

The Export permit is only granted for available minerals, and it is a crucial requirement for exporting lithium out of Nigeria.

CONCLUSION

By implementing regulations that mandates local processing and refining, the Nigerian government is ensuring that the country derives maximum value from its lithium resources, creating a sustainable and equitable future for its citizens. As the demand for lithium continues to soar, Nigeria is well-positioned to capitalise on this opportunity, driving economic growth, and cementing its position to a significant contributor to the global clean energy transition. This also presents a significant opportunity to investors who seek to benefit from the Nigerian lithium resource base.

Oladiran Ajayi and Precious Anaenyeonu, are lawyers with ADESOKAN & AJAYI LP.