Caption: From left, Chairman Dukia Cold; Chief Tunde Fagbemi; Executive Commissioner Operations at the Securities and Exchange Commission (SEC), Temidayo Obisan; Chairperson, Commodities Trading Ecosystem implementation Committee (CTEIC)Ms Daisy Ekineh; and Director Metallurgical Inspectorate & Raw Materials Development Department at Ministry of Mines & Steel Development, Mr Ime Ekrikpo during a workshop titled “Financing the Solid Minerals Sector through the Capital Market and the critical role of the Commodities Exchange in Lagos.
The Securities and Exchange Commission and the Capital Market Community have agreed to partner the Federal Ministry of Mines and Steel Development and other stakeholders on the use of alternative means of raising capital such as Non-Interest products, tokenization of assets and adopting technologies such as FinTech.
This among resolutions reached during a two-day workshop on financing the Nigerian solid minerals sector through the capital market and the critical role of the commodities exchanges.
The event also emphasised the need for the FMMSD and Federal Ministry of Education to re-prioritize the focus on STEM education at basic, secondary and tertiary institutions.
According to a communique issued at the workshop, “there is a need for the Capital Market Community to ensure that the market infrastructure that supports the bringing to market of mining ventures is in place, while also protecting investors.
“All stakeholders should be involved in promoting sustainable practices and ESG standards within the mining industry while the FMMSD is to ensure the availability of geoscience data, given that it is essential alongside relevant market data in enabling intermediaries and commodities exchanges to structure products for the mining industry.
The participants also agreed that the FMMSD should collaborate with SEC and other stakeholders to develop capacity in the industry and address the issue of interference in mining activities by the State Government, which is identified as a major challenge faced by mining companies, the FMMSD is to take concrete steps to resolve the conflict in State and Federal laws as well as overlapping oversight.
“SEC and FMMSD to interface on how to utilize the Feasibility Studies and Competent Persons’ Report to enhance due diligence in the fundraising process and Key stakeholders are to collaborate in continuously de-risking the mining value chain to encourage confidence in prospective investors and venture partners” The Communique stated.
Earlier in a keynote address, the Executive Commissioner Operations of the SEC, Dayo Obisan 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.
“With over 44 minerals discovered across the Federation, the mining industry can play a vital role in diversifying our economy away from crude oil dependency. The FMMSD has embarked on various initiatives to increase the sector’s contribution to Nigeria’s GDP from 0.5% to approximately 3% by 2025.
“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.
“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.
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 much-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.
Obisan 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.