Attracting Investment in the Mining Sector across Africa
INTRODUCTION
Nigeria is taking steps to diversify its economy by expanding its mineral extraction sector and reducing its overreliance on oil exploration. To achieve this goal, the government plans to establish the Nigerian Solid Minerals Corporation, a state-backed company that will help attract investments into the extraction of gold, coal, iron ore, bitumen, lead, limestone, and baryte.[i] The corporation will seek and secure partnership investment agreements with multinational companies worldwide to leverage the attractive investment-friendly regime operating in the country and secure massive foreign direct investment for the mining sector. The government aims to engage local financial institutions, which have shied away from the mining sector in the past, due to a long gestation period for projects aimed at promoting investment.. At the same time, a mining police force will be active from October 2023, to detect illegal mining. President Bola Tinubu's administration aims to improve Nigeria's investment climate and draw foreign investors to Africa's biggest economy. Tinubu plans to attend the upcoming G20 summit to attract foreign investment in Nigeria.[ii]
MINING IN AFRICA
The demand for Rare Earth Elements (REE) has significantly increased due to the rise of electric vehicles, renewable energy technology, etc. However, extracting these elements pose a challenge, as they are usually dispersed and found in small amounts, often associated with other minerals like uranium. Mining companies are now focused on commercial deposits, particularly in Africa, and are already working on several notable projects[iii].
In South Africa's Limpopo province, Rainbow Rare Earths, a London-listed company, owns the Phalaborwa project, representing one of the world's lowest-cost producers of separated magnet rare-earth oxides with an estimated mineral resource of 30.4 million tons. A pre-feasibility study is underway, building on the solid economic outcome of the preliminary economic assessment conducted in October 2022.
Moving to Namibia, the Lofdal project is owned by Namibia Critical Metals, a Canadian-based mineral company. With an annual production capacity of 2,000 tons of Total Rare Earth Oxide (TREO), this project can potentially produce both dysprosium and terbium, two of the world's most valuable rare earth elements. Collaboration with Japan Oil, Gas, and Metals National Cooperation and a letter of intent with SGS Canada for pilot plant testing reflect the project's promising development.
In Angola, Pensana, a UK-based company, owns the Longonjo REE project, featuring an open-pit mine and flotation concentration plant. The project's estimated mineral resource of 313 million tons is expected to yield 40,000 tons annually, processed at a UK-based refinery. Progressing into the construction stage in 2022, the mine anticipates a 20-year lifespan, contributing significantly to the rare earth supply chain.
Uganda's Makuutu REE project, developed by Australia's Ionic Rare Earths, spans six licenses across 298 square kilometers. With a total mineral resource estimate of 532 million tons, the project's feasibility study for phase one, targeting 1,300 tons annually over ten years and 1,160 tons annually over 35 years, was published in March 2023. The project recently received approval for a demonstration plant from Uganda's Ministry of Energy and Mineral Development in April 2023.
In Tanzania, Australian-based Peak Rare Earths is advancing the Ngualla Rare Earth project, which is home to one of the world's largest high-grade and low-cost Neodymium Praseodymium rare earth deposits. The mine's estimated mineral resource of 18.5 million tons is set for processing at an on-site concentration plant. Completing a bankable feasibility study in October 2022 and an offtake strategic cooperation agreement with Chinese group Shenghe Resources highlights the project's growth. In May 2023, the company secured a special mining license.
Malawi hosts the Songwe Hills REE project, developed by Canadian mineral exploration company Mkango Resources. With mineral resources totaling 18.1 million tons, this open-pit mine is slated for an 18-year operational lifespan, producing an average of 5,954 tons annually. Mining operations are scheduled to commence in February 2025, with processing accelerating by July of the same year.
Finally, South Africa's Steenkampskraal Project is a unique operation, housing all fifteen rare earth elements. Incorporating an existing project previously operated by Anglo American, this mine possesses exceptional rare-earth deposits, including neodymium, praseodymium, dysprosium, and terbium. It is set to produce 2,700 tons of Total Rare Earth Oxide (TREO) annually for over 20 years, and ranks among the world's highest-grade rare-earth deposits, contributing significantly to the global rare earth supply chain.
LEGAL AND POLICY CONSIDERATIONS FOR ATTRACTING INVESTMENT IN THE MINING SECTOR
Mining Legislation and Regulations: To attract investment in the mining sector, it is crucial to establish clear and robust mining legislation and regulations. Such regulations should clarify exploration and mining rights, tenure security, and dispute resolution mechanisms. Keeping mining legislation up-to-date with industry best practices and changing environmental and social standards is essential for maintaining investor confidence.[iv]
Investor Protection: Ensuring the protection of investors is of utmost importance. Governments should put in place legal measures to safeguard the rights of mining investors. This includes providing clear and transparent contract terms, dependable dispute resolution mechanisms, and safeguarding against arbitrary government actions. In addition, creating independent arbitration processes or international arbitration mechanisms can facilitate a prompt and impartial resolution of conflicts between mining companies and governments.[v]
Geological Data Availability: Ensuring easy access to geological and exploration data for potential investors is imperative to mitigate exploration risks, reduce costs, and foster investor confidence. Such readily available information enables investors to assess the geological potential of a project swiftly, make informed decisions, and allocate resources prudently, which augments investment in the mining sector. To illustrate, in Namibia, foreign investors in the mining and extractive resources sectors perceive the country's geological prospects as a positive attribute. However, they face a significant dearth of data that would aid their decision-making process.[vi]
Environmental and Social Regulations Implementing stringent regulations that address both environmental and social concerns is crucial for ensuring responsible mining practices. Such regulations should encompass thorough environmental impact assessments and reclamation requirements to minimize any negative ecological impacts. Furthermore, it is imperative that governments implement policies that address the social and economic implications of mining, including community development programs and local content requirements. By doing so, high standards of environmental and social responsibility in the mining industry can be upheld.[vii]
Transparency and Accountability: To ensure the prevention of corruption and to increase investor confidence, transparency and accountability are of utmost importance. Governments are encouraged to promote transparency in the allocation of mining rights, revenue collection, and revenue sharing. The publication of mining contracts and revenue data provides stakeholders with access to critical information, ultimately fostering trust within the sector. Such measures not only promote good governance but also support sustainable development.[viii]
Permitting and Licensing: The expeditious and seamless issuance of exploration and mining licenses is paramount for successful investment endeavors. Cumbersome bureaucratic regulations and procedural delays can significantly deter potential investors. Therefore, governments must establish streamlined and concise mechanisms to administer these processes, thereby reducing the administrative burdens associated with acquiring licenses.[ix]
Infrastructure Development: Infrastructure development is integral to the successful operation of mining ventures. It is recommended that governments allocate resources towards constructing and maintaining transportation networks such as roads and railways and also ensure a reliable power supply to facilitate mining activities and the transportation of extracted minerals to market. To achieve optimal efficiency, collaboration between public and private sector entities can prove instrumental in developing critical infrastructure.[x]
Security and Stability: Ensuring security and stability in mining regions is crucial to minimize the risks that may arise due to political or social instability and conflicts. Therefore, it is advisable to take adequate security measures to protect mining operations and personnel. This will create a safe and secure environment that encourages investment.[xi]
CONCLUSION
Creating a favourable climate for investing in the mining industry requires a carefully balanced approach that takes into account legal, policy, and transparency concerns. By implementing clear and consistent regulations, investor rights are protected and fiscal consistency is established. Furthermore, implementing strong environmental and social policies ensures responsible mining practices. Providing timely access to geological data minimizes exploration risks, encourages investment, and streamlines decision-making processes. These elements work together to promote investment, drive economic growth, and encourage sustainable resource development. Regions and countries that prioritize these factors are more likely to attract mining investments, which is crucial for global resource security and responsible mining.
[i] Camillus Eboh, ‘Nigeria to set up solid minerals corporation to attract investment’ <https://www.reuters.com/markets/commodities/nigeria-set-up-solid-minerals-corporation-attract-investment-2023-09-03/ >
[ii] Ibid
[iii] EnergyCapital & Power, ‘Rare Earth Projects to Watch in Africa’ < https://energycapitalpower.com/rare-earth-projects-to-watch-in-africa/ >
[iv] FAO, ‘Tenure rights in large-scale and artisanal mining: Implications of the Tenure Guidelines’ <https://www.fao.org/3/cb6130en/cb6130en.pdf >
[v] OECD, ‘Guiding Principles for Durable Extractive Contracts’ < https://www.oecd.org/dev/Guiding-Principles-Durable-Extractive-Contracts-2020.pdf >
[vi]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/324601/IPPR_Investment_Book_web.pdf
[vii] Preston Chiaro, ‘Environmental Strategies in the Mining Industry: One Company's Experience’ <https://nap.nationalacademies.org/read/4982/chapter/15 >
[viii] EITI, ‘EITI Requirements’ < https://eiti.org/eiti-requirements >
[ix] TerraLex Inc, ‘Why should foreign investment in mining increase significantly in Brazil’ <https://www.lexology.com/library/detail.aspx?g=588a6f17-cfa8-47c8-9335-a16e15a34867 >
[x] SAIIA, ‘No Mine is an Island: Shared Infrastructure for Social Benefit in the African Extractives Industry’ <https://saiia.org.za/research/no-mine-is-an-island-shared-infrastructure-for-social-benefit-in-the-african-extractives-industry/ >
[xi] ‘Extractive Industries and Conflict’ < https://www.un.org/en/land-natural-resources-conflict/pdfs/GN_Extractive.pdf >