Legal and Market Entry Considerations For Investment in the Nigerian Mining and Solid Minerals Sector
Nigeria is a rich diverse country with a host of natural resources. It is a country with a lot of solid minerals, many of which are found in industrial quantities. With about 34 different solid minerals, the sheer size of Nigeria makes the prospect for exploration and mining of natural resources very appealing to investors.
Nigeria has a GDP of about $440 billion making it the largest economy in Africa. Though the mining industry has suffered globally due to the negative impact of Covid-19, the mining and solid minerals sector contributed an average of about 7 percent to Nigeria’s GDP in 2020.
Nigeria has developed a comprehensive legal framework for the mining sector. The Ministry of Mines and Steel Development (MMSD) as the apex regulatory body has facilitated the introduction of the Nigerian Minerals and Mining Act, 2007, the Minerals and Metals Policy of 2008, and the Nigerian Minerals and Mining Regulations, 2011. All these enactments are the principal regulatory and policy framework governing the Nigerian mining sector.
Market Entry Considerations
We have taken liberty to highlight some considerations that investors would want to look out for coming into Nigeria.
Ownership: The Nigerian government has been vested with the entire ownership and control of all the mineral resources to administer for and on behalf of the people of Nigeria. The lands in which any mineral resources are found in commercial quantities also is the property of the government of Nigeria. The material implication of this is that individuals and corporations cannot bring up a claim of ownership to the mineral resources situated in Nigeria neither can they maintain a claim of ownership to the land in which mineral resources are found in commercial quantities. The property in the mineral resources can only pass from the government of Nigeria to the person who has won such mineral resources only upon the issuance of a governmental license to that effect.
Regulatory Bodies: The Ministry of Mines and Steel Development is the apex regulatory body in the Nigerian mining sector. There are also other bodies established by law to administer certain corollary activities related to mining operations. There is the Mining Cadastre Office (MCO) which is responsible for minerals title administration and is invested with the duty of ensuring licensing transparency in the Nigerian mining sector. There are other bodies like the Environmental Protection Agency, the Nigerian Investment Promotion Commission which regulates the participation of foreign investors, the Securities and Exchange Commission, the Corporate Affairs Commission, the Nigerian Immigration Service amongst other government agencies.
Incorporation and Registrations: Under Nigerian law, the general rule is that no foreign company can carry on business in Nigeria without registration as a corporate entity pursuant to the Companies and Allied Matters Act 2020. The law, however, provides for situations where foreign companies can apply for exemptions. Nonetheless, it is our opinion that a foreign company looking at carrying out mining business may not be considered for such exemption unless the foreign company is invited into Nigeria by or with the approval of the Federal Government to carry out any specified individual project; the foreign company is invited into Nigeria for the execution of specific individual loan projects on behalf of a donor country or international organisation; the company is owned by a foreign government and is engaged solely in export promotion activities; it involves engineering consultants and technical experts engaged on any individual specialist project under contract with any of the governments in the Federation or any of their agencies or with any other body or person, where such contract has been approved by the Federal Government.
There is also the general requirement to obtain expatriate quota from the Ministry of Internal Affairs which allows indigenous or foreign-owned companies to employ or perhaps recruit foreign employees or perhaps directors of the company to legitimately work and live in Nigeria. There are other regulatory requirements, not covered in this guide, that such companies would have to comply with especially with respect to capital importation and obtaining other relevant licenses and permits.
Grant of Mining Title: Mineral titles are granted by the Minister of Mines and Steel Development and they are administered by the Mining Cadastral Office. Mining titles are granted on a priority basis but may also be granted through competitive bidding. Competitive bidding is administered by the Minister. Areas in which mineral titles may be granted include areas free of any valid mineral titles; areas in which minerals classified as “security minerals” have been found and those areas the Minister may declare as security minerals from time to time; areas which the committee for any other reason deems fit to recommend to the Minister.
Permits and Licenses: Permits and licenses are usually granted based on individual requests. The Minerals and Mining Act specifies those who are qualified to apply and spells out conditions for a grant of a permit or license. The Licenses and permits granted include:
- Reconnaissance Permit: It is a non-exclusive, non-transferable permit granted to a person, company or mining cooperative in order to carry out reconnaissance activities which is issued and valid for a period of one year. The holders of a Reconnaissance Permit are not permitted to engage in drilling, excavation or use any other sub-surface techniques. Only an individual who has not been convicted of a crime, an incorporated company and a mining cooperative are qualified to apply for a reconnaissance permit.
- Exploration License: The exploration license is an exclusive license granted to the holder for a period of three years which is renewable for two further periods of two years each, which rounds up to a total license period of seven years. The License permits the holder to exclusively conduct exploration activities on land within the area specified on the license. Only an incorporated company, a mining cooperative and the holder of a reconnaissance permit are qualified to apply for an exploration license.
- Mining Lease: The application for a Mining Lease is to be made during the currency of an Exploration License by the title holder of the Exploration License. The applicant must also be a company incorporated in Nigeria. It grants the holder an exclusive right to exploit mineral resources in the licensed area. The duration of a mining lease can either be as specified by the applicant during application if less than 25 years, or for 25 years, and this may be renewed for consecutive periods of 25 years subject to satisfactory compliance with the minimum work obligations and any commitments that may be specified by the MMSD. There is no maximum limit to the amount of times a mining lease can be renewed. When applying for a Mining Lease, it must be demonstrated that minerals have been found in commercial quantities in the area. It is also a requirement that the Applicant should have employed a person that has sufficient qualification and experience in mining, and there must be assurances that such persons must remain employed.
- Small Scale Mining Lease: This is generally granted to alluvial and artisanal miners which does not use extensively explosives, toxic chemicals and agents, does not employ more than 50 people on a typical work day, does not have underground workings of more than 7 meters below the surface of the ground, or galleries of more than 10 meters from the shaft. This lease is granted for a period of five years and may be renewed for another five years. The small scale mining lease holder may subsequently apply to enlarge the mining lease area.
- Possess or Purchase License: The Possess or Purchase license is required from a company seeking to deal in mineral resources. The Nigerian Mineral Resources Act 2007 stipulates a strict punishment for any individual or company who engage in any mineral resources handling without this particular license.
- Mineral Buying Centre License: The Mineral Buying Centre License is required for companies or industries willing to process mineral resources in Nigeria. It is also relevant for any companies that choose to warehouse mineral resources, either temporarily or permanently. The purpose of the license is to regulate and authorize any warehouse where mineral resources will be kept. Any company that wishes to engage in warehousing of different quantities of materials for the purpose of storing or trading same can obtain this license. The requirements for obtaining Mineral Buying Centre License are similar to that of Possess and purchase License. However, every applicant for the license must have acquired a warehouse to be used for the purpose prior to the application, as such facility would be duly inspected before the issuance of the license.
- Water Use Permit: This is a right granted to a mining title holder to obtain water for use in mining exploration and exploitation. The permit is granted for the period for which the mining title is granted. Usually the holder of an exploration license, mining lease, or small scale mining lease can apply for this license. Also, an applicant of a mining lease, small scale mining lease or quarry lease can apply for a water use permit simultaneously as it applies for the relevant leases.
- Quarry Leases: Under the Minerals and Mining Act, only the Minister can grant a lease or license for quarry operations in Nigeria. Quarry leases are granted for the quarrying of all quarriable minerals such as asbestos, china clay, gypsum, marble, limestone, sand, stone, grave etc. A quarry lease is granted in respect of an area not exceeding 5 square kilometers. A Quarry Lease may be issued for the term applied for or for a maximum period of 5 years. It can also be renewed for further terms, each one not exceeding the first one granted. There is no maximum limit to the amount of time a quarry lease may be renewed.
Incentives: In Nigeria, apart from the generally applicable incentives and guarantees available to all foreign investors, all companies and enterprises engaged in mining operations are entitled to certain specific incentives. Some of which includes:
- Capital allowances: A license holder in this case is eligible to deduct a capital allowance of 95% of Qualifying Capital Expenditure from its assessable profits incurred in the year in which the investment is incurred. The investment incurred includes all certified exploration, development and processing expenditure including feasibility study and sample assaying costs, and all infrastructure costs incurred regardless of ownership and replacement. Furthermore, the amount of any loss incurred by any eligible license holder shall also be deducted from the assessable profits of the first year and for the assessable profit of each year of assessment for up to four years, after which period the unrelieved loss shall become lapse.
- Exemption from custom duties: Operators in the mining sector are granted exemption from payment of custom/import duties in respect of plants and machineries imported specifically and exclusively for mining operations.
- Tax relief: There is a tax relief period of three years and a further extension of up to two years can be granted to companies engaged in mining operations.
- Tax deductible reserve: There is also allowance to set up a tax deductible reserve for environmental protection, mine rehabilitation, reclamation and mine closure costs.
- Royalties waiver: Mining companies may benefit from a waiver of between 3% to 5% of applicable royalties depending on the nature of minerals being mined.
Royalties: Royalties payable on minerals obtained from mining activities are prescribed by the Minerals and Mining Regulations of 2011. Where minerals are sought to be exported solely for the purposes of analysis or experiment, the Minister may waive the payment of royalty on such minerals. Furthermore, the Minister may also defer the payment of royalties’ payable on minerals for any prescribed period.
Tax: All entities engaged in Mining operations are to pay a corporate tax of their assessable profits payable to the Federal Inland Revenue Service at the central level and the revenue services of states where applicable. The enactment of the Finance Act (FA) 2019 and its follow-up in 2020 brought about amendments and new introductions to various tax legislations including the Companies Income Tax Act, Value Added Tax Act, Withholding Tax Act, Petroleum Profits Tax Act, Excise Tariff Act, Stamp Duties Act, etc. The FA, amongst other objectives, sought to promote small and medium scale businesses with incentives. Specifically, the FA introduces a progressive CIT regime wherein:
- Start-ups and small enterprises (SEs) with annual gross turnover of not more than N25 million would be completely exempted from paying CIT;
- Medium scaled companies (MSCs) whose gross turnover exceeds N25 million but is less than N100 million will be subject to CIT at 20%.
The FA also exempts SEs from payment of minimum tax. Furthermore, the FA introduced a VAT compliance threshold to exempt SEs (as defined above) from registering for the tax, charging VAT, rendering a monthly return of its sales and purchases and from the penalties prescribed by the Act for non-compliance with the administrative provisions. Given that more than 80% of the operators in the Sector are artisanal and small-scale miners i.e. they fall within the SE- MSC bracket; these incentives would go a long way to encourage the legalisation and/or formalization of the teeming illegal miners.
Liaisons: The holders of a mining permit are to maintain liaise with regulatory bodies and with other stakeholders e.g. communities and chiefs. They are to enter into a Community Development Agreement. They are also required to maintain liaisons with the MMSD and other government agencies.
Conclusion
Current metrics show that there a renewed interest in the Nigerian mining sector given the amount of new projects announced in 2020 especially in gold mining. The Nigerian Federal Government must, therefore, ensure effective monitoring and vigilance especially in the areas of regulations and reform. There must be improved standards and effective cooperation among industry stakeholders to ensure continuous growth in the sector.
