Nigeria Wants To Revive Mining To Diversify From Oil

Nigeria, Africa's leading oil producer, is seeking to revive its once-thriving mining sector as part of a push to diversify away from crude, which has dominated the continent's second-largest economy since the 1970s.

Mines Minister Musa Mohammed Sada said Nigeria aimed to increase mining's contribution to the economy to 5 percent by 2015. That is up from roughly 1 percent or below - depending on estimates - as it turns to coal as a source of power, bets on industrial minerals, and taps iron ore and even gold.

"We are hoping it will be even better than 5 percent. Most of the companies (active in Nigeria) are just exploring, so our expectation is they will start production around then - and 

that is when we will see the impact," Sada told Reuters.

Mining, Nigeria hopes, will help a government push to diversify the economy but could also help resolve structural issues, including a critical power shortage. Sada said electricity from coal-fuelled power plants could make up 30 percent of the country's total supply by 2020.

Currently, Nigeria relies largely on the world's ninth biggest gas reserves and hydroelectric plants for power.

Yet like many other emerging producers seeking to boost mining income as the cycle turns, Nigeria is coming up against drastic spending cuts across industry. Risk-averse investors in major miners are pushing for fewer mines built from scratch, while smaller development firms are facing a funding crunch.

To counter this, Sada said, Nigeria had brought in investor-friendly rules, allowing for duty free imports of equipment and tax holidays for new investors, along with other concessions.

It has also collected data with an airborne geophysical survey which it hopes will help encourage exploration.

"What we tried to do is take it to a level where investors can see the real potential, and have the clarity to make an investment decision," Sada said.

It remains, though, an uphill struggle.

Nigeria's untapped mine wealth has attracted far fewer investors than regional rivals, not 

least because of what analysts say is a tough operating environment with tensions in the country's north and sometimes difficult state authorities.

"Nigeria's geology, being where it is, should be interesting, but the difficulties of operating on the ground - that is the real problem," said Tara O'Connor, managing director of Africa Risk Consulting. "While you have a fantastic mining code, exploration area still has to be negotiated with the state governors... and obviously some deposits will be in the north."

INDUSTRIAL FOCUS

Sada said Nigeria had seen "quite a lot" of interest from foreign firms, though small development firms, many of them Australian, still lead the way. They include Australia's Kogi Iron working in iron ore and Australian Mines and Savannah Gold in gold, all betting Nigeria could be host to deposits similar to its West African neighbours.

Rather than focus on gold and iron ore, though, Sada said Nigeria, advised by the World Bank, was betting on industrial minerals. Limestone and clays, he said, could be processed in Nigeria into construction materials, ceramic tiles and consumed - regardless of external demand - by a domestic population of roughly 167 million, Africa's largest.

Iron ore and bauxite can also feed Nigeria's domestic steel and aluminium industry, serving local demand, he said.

Yet in revisiting a mining industry long dwarfed by crude, Nigeria is also keen not to repeat mistakes made during an oil boom that critics say has failed to benefit many.

"We try to learn a lot from the oil industry issues - community, environment issues," Sada said, adding community consent was a key step towards obtaining a mining licence and investors also had to lay out comprehensive mine closure plans.

Reuters