AFC will pioneer early-stage funding of Nigeria’s mining projects —Osam Iyahen

Osam Iyahen is a Director at Africa Finance Corporation (AFC), a leading investment grade infrastructure solutions provider, created by sovereign African states to provide pragmatic solutions to Africa’s Infrastructure deficit and challenging operating environment, by developing and financing infrastructure, natural resources, and industrial assets, for enhanced productivity and economic growth of African States.

He is in charge of the Natural Resources sector where he leads client coverage, transaction origination, in addition to providing technical advisory in deal execution. He has over a decade of international energy finance experience, including involvement in multi-billion dollar development projects with international institutions.

Osam obtained his MBA from the Johnson School of Management Cornell University (Johnson School of Management) in New York State. He is bilingual and has presented and moderated various topics at international oil & gas, mining and infrastructure conferences.

Osam was part of the discussant at the just-concluded Nigeria Mining Week (NMW) in Abuja. In this interview with OKE PETER, he speaks on the challenges facing the sector and how the government can leverage its natural resources advantage to advance the Nigerian economy. Excerpt

How can the mining sector advance the Nigerian economy and income?

If you look at the current contribution of the mining sector to the country’s Gross Domestic Product (GDP), it is estimated to be about 0.3 percent compared to 5 percent in the 1960s and 1970s. Interestingly, the Nigerian government has a target of increasing the mining sector’s contribution to GDP in the next few years to 5-10 percent, which is very ambitious and will require a lot of government support. However, to do this, there needs to be more investment in the sector and currently there is a funding gap. This is why African Finance Corporation exists — to engage in mining projects and help overcome government capacity gaps such as financing, technical, regulatory framework, etc.

Secondly, the Nigerian economy requires diversification – into mining, agriculture, etc – and this is one of the key points of the current administration. Obviously, we need to do more in terms of liberalising the sector and having more investor-friendly regulations that would allow the inflow of new funds into the sector.

Also, one of the most important things that need improvement is revenue collection. Currently, the royalty collection is relatively weak in Nigeria. There is illegal mining and artisanal mining, wherein the government does not benefit from in terms of taxation. These procedures need to be formalised so that the country can accrue some benefits.

Segilola Gold Project site in Nigeria.

What are the challenges confronting the mining sector and how can the government lend a helping hand in resolving them?

The most important thing to be done is drive investment into the sector and, for this, we need access to credible data and information i.e. geosciences data and geological data, which will be archived and easy to disseminate to investors. It is my understanding that there are a lot of investors who are interested in the Nigerian mining sector but they just don’t know where to start. The Ministry of Mines and Steel Development has now started to put together all the mining data into an online portal which will provide relevant information to potential investors who are looking into the Nigerian mining sector as a destination. I urge the Ministry to fast track and formalise the process and provide viable information to all relevant stakeholders so that people will know where to get information and data around the sector.

Something else that can be an improvement for the sector is to do with the physical policies and incentives. Nigeria has probably one of the friendliest tax regimes but I think more can still be done in order to attract more investors such as relax some regulatory policies to make it easier for them to enter the country. For example, the three-year tax holiday needs to be reconsidered. I think the current one is sufficient, but it can still be made friendlier.  Also, duties paid on imported items, such as expatriate quota, and other fiscal regimes should be looked into. They are relatively good right now but we can improve on some of those incentives.

Consequently, the perception of the sector around the world needs to change. It will change with examples and successes.  The moment you have a success story for mining projects that can be demonstrated to the investors, the investor takes a second look at the project. Only a few investors would want to be the first to go in. To that extent, the Nigerian government can leverage a successful story and show investors that it is possible to have a profitable mining investment in Nigeria.

The above, I would say, are the most important issues and improvements to be done, but further to this, I would say that illegal mining is part of the issues at hand. It is a problem because, as I have mentioned earlier, you don’t get the full benefit for the government regarding tax collection.

Alufer Mining project.

Are the Nigerian laws, regulatory instruments and taxes friendly to the mining companies and project sponsors?

I would say Nigerian taxes are friendly when compared to some other African countries. Currently, there are various tax incentives in place for the mining industry, such as the three-year tax holiday as well as the import duty waiver.  Although as I reference above, I do think there can be improvements made here.

What are the alternative funding sources for mining projects particularly the Africa Finance Corporation (AFC), how do you source for the fund?

There are several projects in Nigeria that have not been able to move beyond the early stage because of lack of funding and the right type of reporting or data to allow investors to invest because they do not have access to credible data.

AFC is able to intervene with early-stage funding for projects, such as the pre-feasibility study of a project, to support scoping-level work as well as to look for resources. Sometimes, sponsors need just $2 or $3 million to do some drilling work to prop up resources and AFC is well-positioned to pioneer that type of early-stage funding. For instance, if we can get $20 to $30 million size funds to intervene in four or five projects with an outcome of one or two being successful, that is a good outcome.

We also provide larger funding for existing projects, such as the Segilola gold project in Nigeria which is operated by Thor Explorations. AFC has provided a $78 million financing package for the construction and ramp-up of its project as part of an $87.5 million funding round. This is an example of establishing a flagship project to position Nigeria as a credible investment destination. This investment into Thor Explorations is the largest investment in the mining sector ever made by a private institution, which we hope will encourage more investment in the future.

With regards to sourcing the funding, we do this in various ways through funding from governments and institutions as part of our goal of building a coalition of global investors to support our mandate of providing solutions to Africa’s infrastructure deficit. A recent example is our debut dual currency Samurai Term Loan Facility, which raised US$ 233 million.

How can the government strengthen local capacity and private sector participation in the mining sector? Why do we always go out shopping for investors, are there not indigenous investors in Nigeria.

The reality is that we need funding. Indigenous companies do not have the necessary funding, and if local financing institutions can’t provide the funds to support the projects then we need to go outside the country to get funding. Unfortunately, the local financing environment is not set up for these types of projects due to the early-stage risk and exploration risk, and as a result, many commercial banks are not ready to get involved or fund long term projects.

In terms of alternative sources of funding and development financing institutions, National Import and Export Bank (NEXIM) and Bank of Industry are doing great. The organisation [NEXIM] has been doing mining financing for a long time and it has the balance sheet and the network of mining financing, however it still doesn’t have enough funding because there are constraints. Therefore, there needs to be encouragement of more private sector funding and foreign investment.

AFC offers a solution. Since its establishment in 2007, we have been at the forefront of pioneering infrastructure solutions that transform lives, communities and economies. We also work to attract more investors into the continent, and our track record enables us to create a strong network globally.  I believe for more investment to happen, there needs to be more trust from investors. Hopefully we are a good example of building that trust and delivering positive returns. AFC is seeking to make early interventions by serving as an incubator for projects, preparing them to meet the tests of financiers so they are bankable, as well as implementing de-risking strategies.

There is a lot of opportunity abroad. Institutional investors with a focus on Africa have a current combined AUM of US$ 11 trillion, with an average 5% of their portfolio targeted for allocation to infrastructure investment. Insurance companies can provide balance sheet optimisation coverage for these financiers, for example the provision of a securitisation program for an investment. At AFC, we used the securitisation of a loan facility of EUR577 million for an asset that required debt refinancing in Cote d’Ivoire.

What is your advice to the miners, host communities and the government on how to achieve profitable mining exploration and peaceful coexistence?

That’s an interesting question and an important one to us at AFC because we take environmental and social issues seriously – we see it as bedrock of any successful project.  Perhaps, it is one of the most important things for any project, if the community is not happy, you can’t execute and deliver a meaningful project. That is one of the first things we look at in terms of commercial viability of projects to the extent that the government has a framework for environmental and a social impact planning for approving a project that is to be well scrutinised to ensure that any company embarking on a project has a very good environmental and social impact before it can do such and that needs to meet up with the International Finance Corporation (IFC) compliance standard.  The government must also play its role as a regulator.

We were successfully involved in a project with Alufer Mining Ltd, which brought these elements together. The Bel Air mine in Western Guinea was delivered on time, to budget, while creating a net positive impact on the surrounding communities, which was a key goal of the project. At the time of the announcement in August 2018, 40 community projects were completed, including small infrastructure projects that focused on power, water and waste management. This underpins our strategy, as we focus on creating ‘ecosystems’ from investment, that help provide long term benefits to the economy.  We believe a responsible investor is the one that relates well with the community. The community should be able to benefit from the provision of power and water, be employed by the project to ensure that there is a knowledge transfer, etc.

Every company owes it to itself to provide a social plan for projects, for instance, most companies have a Memorandum of Understanding (MOU) regarding this policy.  Similarly, we have agreements with communities that are mutual between both parties. Unfortunately for many mining companies in Nigeria, those plans are not in place, and this is where the government needs to step in to ensure a harmonious relationship between the project sponsors and the communities, otherwise, it will never be successful.

In addition, it is important to also think about the perspective of the local community and ensure they don’t believe investors are encroaching on their land but see this as a positive collaboration. 

Aerial view of the Alufer Mining project.

What are your expectations and a five-year plan for the mining sector?

I think in Nigeria, if the current policies are pursued, in terms of access to improved and reliable geological data, training of competent industry personnel, relaxation of some of the fiscal terms and the initiatives which are being put in place, can improve the mining sector’s contribution to the country’s GDP to at least 3 to 5 percent. The country is full of natural resources but I think they need to be well harnessed and a lot needs to be done to increase the use of our resources domestically. For example, road construction requires bitumen, coal for power, etc. Those are the things that will help the government if there is an enabling environment. Mining survives mostly on infrastructure. It does not matter how many deposits you have if they cannot be transferred to the end-user. The Nigerian government needs to ensure that there is a connection between the mining sites and the ports, because the linkage will help the economy.

Recently, there were media reports that the nation’s congested ports are delaying the take-off of the Dangote Refinery. What is the implication of this trend on the Nigerian economy?

Of course, it has an impact. For any economy to grow, we need accessible and functional ports. Infrastructure is extremely important to ensure that any industrial project is successful. When one part of the chain is not working well, this impacts the rest of the economy.

As I have said, we believe it is important to invest in every step of the value chain and looking at infrastructure investments holistically to enable integrates economies and communities.

You participated at the just-concluded NMW in Abuja, what is your takeaway, projections as well as those things you would like to improve on at the 2020 NMW?

I think one of the things that have impeded the sector for a long time is the lack of continuity of policies. I’m glad to now see that the current Minister of Mines and Steel Development, Architect Olamilekan Adegbite is building on the master plan created by the previous administration. This event is part of the commitment to the mining industry and it will help not just the mining sector but even impact other sectors – power, oil & gas, etc. I also believe policy somersault is one of the things hampering development but on the other hand, it is a positive step for the mining sector, and it will help accelerate development. Moreover, the Nigerian Government must show the commitment that will make the mining sector flourish through intervention in mining-related infrastructure. I think there are certainly examples of this happening, now we just need it to progress well and continue its development.