West Africa: The next global iron ore destination - CNBC Africa

West Africa: The next global iron ore destination

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Iron ore deposit. PHOTO: Getty Images

According to mining weekly, important discoveries have already been made on the coast as junior miners from Canada, Australia and the UK have been active in the region for the past three years. Nonetheless, Ehioma Goodwill, CEO of Rhodium, believes that Nigeria is far behind other West African countries because of its tumultuous political environment.

“The mining industry in Nigeria is far behind in comparison to other West African countries that have won investors’ confidence due to a more favourable Political Climate such as Liberia, Guinea, Sierra Leone and Mauritania,” Goodwill told CNBC Africa online.

HISTORY OF MINING IN NIGERIA

Nigeria’s organised mining industry dates back to as far as 1903 as it began under the British colonial government and by the 1940’s the country had become a major player in the production of tin columbite and coal. However, with the discovery of oil in 1956, came a rapid decline in the extraction of minerals and the industry has faced and continues to face numerous challenges.

“The basic factors that numbed the Nigerian mining industry till date includes project funding, lack of a clear directive from the Ministry of Mines and Steel Development, lack of basic infrastructure required for mining and exploration development,” he explained.

Goodwill believes that these factors are critical and often determine whether a potential mining investor will invest in the given country.

THE DEMAND OF IRON ORE

Nevertheless, as the global demand for iron ore is expected to double in the coming years, the West African mining industry can be expected to undergo a substantial revolution as it will only continue to acquire world-wide acknowledgement.

“It will automatically transform the West African mining industry which is already gaining international recognition due to recent discoveries of significant untapped resources of high-grade iron-ore occurrence,” he said.

The industry can also expect rapid development and investment because steelmakers are pressured by high iron ore prices and driven by demand. There are already investments of several billion dollars over the last five years in mining and infrastructure projects in West Africa. 

In addition, after years of neglect, the government increasingly seems willing to revive the once lucrative industry as its potential becomes more obvious. The expected demand will also ensure that the region experiences more strategic alliances between junior iron-ore companies operating in West Africa, major mining companies and Chinese steelmakers will be forged. 

While many may be concerned about how the influx of mining expatriates will affect the local communities, Goodwill, is confident that this will only have a positive impact on the local economy. 

“Locally trained miners will gain first-hand experience working with internationally recognised expatriates from around the world. Rapid increase in wages is expected but only those with the right qualification will survive.” 

In 2004, the World Bank committed 120 million US dollars to help establish the Sustainable Management of Mineral Resources Project. Since then, the World Bank alongside the Canadian International Development Agency launched a two year programme to support mines and steel development in Nigeria. 

REGULATING THE INDUSTRY

On the other hand the government has been trying to create an attractive regulatory environment to draw in foreign investors by making noteworthy changes to the 2007 minerals and mining Act. 

The development of this industry is also expected to bring the much needed improvements to the West African region such as the infrastructure and logistics networks. 

“West Africa is undoubtedly the next [global] iron ore destination because of the untapped resources of high grade iron ore reserves.” 

The high grade iron content causes low production costs which reduces processing cost. Low Tax rates in comparison to Australia and Canada and in some cases like Nigeria that offer’s tax-free holidays for certain years. 

“Most West African mining iron ore industries are gradually introducing a mining-friendly approach with supportive legislations that benefits the extractive industry.” 

Nonetheless, while there are still a number of challenges that could hinder this industry from attaining its full potential as the world’s next iron ore destination, the Nigerian government is making ambitious plans. 

Earlier this year, Musa Mohammed Sada, the minister for Mines and Steel told Reuters that by 2015, Nigeria is seeking to increase the mining industry’s contribution to the country’s economy by five per cent from its current level of 0.5 per cent. 

“Inadequate education of local communities about the advantages of encouraging [a] promising environment.  Inadequate transparency policies by companies and governments. Which is a must for such newly rooted democracies.” 

While West African countries adhere to international codes of ethics, these are not always respected and this can create a climate of suspicion and insecurity for mining companies and their management.  

In conclusion, despite the fact that there is no doubt that West Africa is the world’s next iron ore destination, the region still has a lot of work to do in preparation of the world’s arrival. Nevertheless, despite the political uncertainty in the region, it is still very attractive as international miners have begun looking for new frontiers. 

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