Mohammed Shosanya

Nigeria’s mining industry can play a vital role in diversifying the country’s economy away from crude oil dependency.

This is further strengthened by the discovery of over 44 minerals across the country,the Executive Commissioner Operations of the SEC, Mr. Dayo Obisan said .

He spoke at the end of a two-day workshop on financing the Nigerian solid minerals sector through the capital market and the critical role of the commodities exchanges.

He also said the solid minerals sector possesses immense transformative potential for sustainable economic growth in Nigeria and holds immense potential to contribute significantly to national economic diversification and sustainable development goals.

“However, despite the sector’s vast potential, the mining industry in Nigeria has faced significant challenges, with one of the most critical being inadequate access to capital. The traditional sources of capital, such as bank loans are a total mismatch in terms of capital structuring for the project types in the mining sector, leading to the importance of long-term sources of funding required for mining projects.

He said financiers’ perceptions of the high risks associated with mining have led to limited opportunities for raising capital, making it a pressing concern to attract strategic investors into the sector adding that the sector requires investments in various stages, from exploration to development, and investors need to be convinced of the potential for quick wins in mining.

He said:“Today, we come together to address these challenges by providing appropriate capital structuring and creating an enabling environment for mining companies to raise funds through the capital market.

“We all acknowledge that the success of any industry, including mining, is heavily reliant on access to adequate and sustainable funding. The peculiarities of the mining sector, such as high upfront capital requirements and lengthy development periods, make it essential for players in this industry to have access to long-term financing. This is where the capital market steps in as a catalyst for economic transformation.

In order to address the financing challenges faced by the mining industry, the SEC Commissioner said stakeholders must recognize the crucial role of the capital market in providing the needed funding for large-scale mining projects as the capital market offers a wide array of financial instruments and products, attracting long-term investments and diversified sources of funding.

He said by tapping into this market, mining companies can strengthen their financial position and promote transparency, accountability, and good corporate governance practices to attract both domestic and foreign investors, stimulating investment inflows and fostering growth in the sector.

“We need to adopt practical solutions that leverage the capital market’s strengths. Some of the key considerations for capital formation in the mining industry include the size of the exploration company, the availability of strategic investors, and the trend of commodity prices. Additionally, alternative financing methods such as off-take financing, streaming finance, and royalty grants can provide short-term capital to support working capital needs or secure payment upon delivery of minerals while securing a share of future production.

“On the part of the Ministry, the Solid Mineral Development Fund (SMDF) established by the Federal Government in 2007 has also been leveraged to drive investments in the mining sector. The SMDF operates as a funding vehicle aimed at improving economic parameters and unlocking growth across the mining value chain. We commend the FMMSD for its efforts in repositioning the Fund and making it operational. The Fund’s strategic investments across the mining value chain will undoubtedly drive growth aspirations and catalyze other investments in exploration, mine development, and production” he stated.

He stated that to address these challenges, some practical solutions may include, but not limited to; attracting strategic investors who have established mining operations can bring expertise, technology, resources, and access to international markets. Such partnerships can be in the form of equity capital or debt financing, allowing miners to benefit from immediate cash injections and technology support.

“Bridge financing can also serve as interim funding to meet short-term project needs until long-term financing becomes available. It provides a means of support for working capital while projects are in the development stage. Revenue Assurance through Off-Take Financing arrangements between mining companies and buyers can also provide short-term capital by pre-selling the mine’s products at an agreed price. This mechanism ensures a market for the products and offers financial stability to the mining companies.

“Upfront Commodity Sale through Streaming Finance involves selling the right to a commodity by the miner in exchange for an upfront payment from the purchaser. This method allows miners to receive payment upon delivery of the minerals while securing a share of future mineral production at a discounted price. Regarding royalty grants, mining companies can enter royalty contracts to receive upfront cash payments in exchange for a percentage of revenue or profit generated from selling minerals or products produced at the mine. This approach provides an alternative financing method for developed projects with quantifiable commodity outputs.

“Additionally, we cannot overlook the significance of commodities exchanges in this equation. Commodity exchanges play a crucial role in the context of solid minerals as they provide specialized, organized markets for buying and selling commodities under established rules and regulations. The Nigerian Commodities Trading Ecosystem offers a well-regulated environment for trading commodities. The successes recorded in agriculture project financing through commodities exchanges demonstrate the potential impact on the mining sector. By formalizing the trading of solid minerals, commodity exchanges can reduce transaction costs, stimulate interest from the investing community in funding mining projects, and provide valuable geoscience data for future investments.

He expressed the firm belief that the Nigerian Commodities Trading Ecosystem and the capital market can act as transformational catalysts to bring about positive changes in the solid minerals sector. By connecting the mining sector to organized trading platforms provided by commodity exchanges, we can enhance transparency, efficiency, and traceability in the trading of mineral commodities, thereby reducing illegal mining activities.

Mohammed Shosanya

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has assessed Shell Petroleum Development Company -operated onshore joint venture as industry leader in the implementation of the chapter three of the Petroleum Industry Act (PIA) dealing with host community development.

Speaking at the announcement of fund managers for Host Community Trust Funds recently in Abuja, NUPRC’s Assistant Director, Host Communities Department, Olatokunbo Karimu, said from the 61 fully incorporated Host Community Development Trusts (HCDTs) in the industry, The Shell Petroleum Development Company of Nigeria (SPDC) with its joint venture partners has the highest number of fully incorporated HCDTs of 23 followed by Agip with 13 while Newcross Petroleum has seven in the third position.

Karimu said:“We have a total of 113 HCDT submissions. We’ve issued approval to incorporate 84 and we have a total of 61 fully incorporated by the Corporate Affairs Commission.”

SPDC, on behalf of the NNPC/SPDC/TotalEnergies/NAOC joint venture has upped the JV’s HCDT to 25 and has unveiled the trusts in three of its states of operations of Rivers, Bayelsa and Delta. “We plan to complete the incorporation of the 33 HCDTs for the joint venture by the end of the year and our next port of call for HCDT unveiling is Imo State where the joint venture’s multimillion dollar Assa North/Ohaji South Gas Development Project is situated,” SPDC Director and Country Head, Corporate Relations, Igo Weli said.

On when the incorporated HCDTs would be operational, Weli explained that the next step was the setting up of Management Committees by the Trusts which will in turn establish Host Community Advisory Committees to complete the structure for the new dispensation to take off with access to funds for community projects.

The SPDC-operated joint venture and Shell’s deep-water business, Shell Nigeria Exploration and Production company in partnership with NNPC have earmarked over $56 million from their 2022 operations for distribution to the HCDTs in compliance with the PIA.

Weli however cautioned that a host community would only enjoy the full benefit of the fund if they ensured undisrupted operations of the settlor and security of its facilities. “Where operations are disrupted or the settlor’s facilities are destroyed, the benefit to the HCDT will be adversely affected,” he said.

He advised the host communities to create a conducive and safe business environment for their settlors to achieve a dispensation of ‘shared prosperity’.