Mining: Possibly next on the Agenda

Proshare

Friday, February 13, 2015 9:40 AM / FBN Capital Research

 

 

The National Bureau of Statistics (NBS) has recently released a report on Nigeria’s mining and quarrying sector.

 

It disclosed that total formal output in the sector (excluding crude petroleum and natural gas activities) between 2010 and 2012 was estimated at N262bn.

 

Nigeria has over 30 different solid minerals distributed across the country, including coal, bitumen and iron ore. Industry reports estimate Nigeria’s coal reserves at a minimum of two billion metric tonnes.

 

Reviving the coal industry is key to providing energy for the iron and steel segment, which offers new jobs as well as savings on imports. Nigeria has, of course, previously been down this route without success.

                                                                 

As part of the FGN’s national industrial revolution plan, a US$380m integrated steel mill was inaugurated in Ogun State last month. Currently, there are over 15 steel rolling mills producing reinforced bars as well as three cold-rolled steel mills producing flat sheets.

 

Furthermore, plans are underway to reinvigorate industrial activity at the Ajaokuta Steel Company, a celebrated “white elephant”. When fully operational, it will have the capacity to produce 1.3m tonnes of steel annually in the first phase.

 

Based on data from the NBS, total taxes on production in the sector were as low as N6.2bn within the survey period (2010 through to 2012).

 

Under the mining act, a core incentive is a tax holiday for an initial period of three years from the commencement of operations, renewable for an additional two years. Others include an exemption from customs and import duties on plants, machinery, equipment and accessories imported exclusively for mining operations.

 

In light of the current macro uncertainties which have re-emphasized the need for a diversified economy, investment geared towards boosting the mining sector would be welcome. The Dangote Group has announced plans to commence mining of coal, iron ore and gold this year, and six international companies have such intentions for 2016.

 

Without adequate power, roads and ports, mining growth is hampered. In our view the power supply in the country portends the stiffest challenge but we would also mention competition for available capital and the cost of funds.

 

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