Unlocking Opportunities In The Iron And Steel Sector In Nigeria

MINISTRY OF SOLID MINERALS DEVELOPMENTFEDERAL REPUBLIC OF NIGERIA

UNLOCKING OPPORTUNIES

IN THE IRON AND STEEL SECTOR IN NIGERIA

Dr. Kayode FAYEMIMinister of Solid Minerals Development

May, 2016

A presentation at the Stanbic IBTC Bank Plc’s

Iron & Steel Workshop

1. About the Ministry of Solid Minerals Development.

2. An Overview of Nigeria’s Iron Ore and Steel Sector

3. Our Strategy for Unlocking the Sector’s Full

Potential

Today’s presentation will focus on 3 key

issues:

ABOUT THE

MINISTRY OF SOLID MINERALS DEVELOPMENT

About the Ministry of Solid Minerals Development.

OUR MANDATE :-

The Ministry of Solid Minerals Development supervises the orderly development of

the nation’s minerals and metals Sector.

VISION:-

To transform Nigeria’s solid minerals and metals sector into a strategic catalyst for

domestic growth and to achieve a high level of global relevance.

MISSION:-

To exploit the nation’s mineral endowments in an environmentally sustainable

manner and establish a vibrant minerals and metals industry for wealth creation,

poverty reduction, promotion of economic growth and significant contribution to the

GDP of Nigeria.

About the Ministry of Solid Minerals Development.

REDUCE ECONOMY’S

HISTORICAL OIL DEPENDENCY

SOLVE THE YOUTH BULGE AND

JOBS CHALLENGE

DELIVERING ON THE PROMISE

OF DIVERSIFICATION

• Nigeria’s economy, and government

expenditures is heavily dependent on

earnings from the oil and gas sector

export earnings (~$76 billion in 2014)

• Mining and related services is ~0.3%

or about N400 billion of GDP; other

key sectors include agribusiness at

22% and manufacturing 6.8%

• Vital that policy choices incentize

investors to help build up mining

• About 70% of Nigeria’s population

is under 35 years of age.

• Unemployment levels are high, in

some cases approaching 30% -

50% in certain age and education

categories

• Critical that we 2 million jobs per

annum to help absorb such

talent over the coming decade;

mining can be an important part of

the solution

“Our government came into office

at a time when many people had

abandoned the country’s

manufacturing, agricultural and

mining sectors. We are doing

our utmost best to encourage

diversification into these sectors

which can employ a lot of

people...”

President Muhammadu Buhari, Oct. 5, 2015

Source: Lit search, Investor interviews, Ministry of Solid Minerals Development

In the past 12 months, the Ministry’s role has taken on added significance as

Nigeria works to rapidly deliver on the President’s diversification promise:

An Overview of Nigeria’s Iron Ore and Steel Sector .

Steel is the world’s most important engineering material and it is crucial to any

country’s industrialisation objectives.

In Nigeria most steel operations are focused on using imported scrap metal, and

hot/cold rolled steel and wire coils to produce finished products such as steel

roofing sheets, nails, pipes and reinforced steel bars.

Nigeria imports an estimated $3.3 billion of processed steel and associated

Derivatives representing 80% of the $4.2 billion total metal products imported per

year (~25MT/annum).

Despite the country's relatively robust iron ore reserves, there are only ~30 steel

rolling mills in the country with combined installed capacity of

6.5MT/annum; only 18 are operational, producing about 2.8 MT/annum using

100% scrap metal.

An Overview of Nigeria’s Iron Ore and Steel sector

An estimated $3.3 billion of much needed forex

is spent on steel imports annually.

The steel sector is weak due to factors such as poor infrastructure for extracting,

processing and transporting bulk material e.g. freight rail transport, access roads

to mines, electrical power.

That said, the FGN is of the view that the Nigerian steel industry can be

attractive to investors due to the large untapped demand potential similar to

cement in 1990s.

The current market size of ~$3.3 billion/annum has potential to grow to $15.1

billion/annum with increased industrialization.

The growth can of course be driven off domestic feedstock i.e. the 12th largest

iron ore deposits globally (2nd in Africa) with over 2 billion tonnes of iron ore

reserves.



Source: USGS, 2012

Nigeria is the 12-richest country in the

world in terms of iron ore deposits

Steel production in Nigeria is via

melting of metal scrapNigeria’s reserves remain

underexploited

▪ Most reserves of iron ore are in Kogi,

others in Zamfara, Yobe, Niger states

▪ The only iron ore mine is in

Itakpe; government owned -

currently encumbered

▪ Demand largely met by imports

using scraps and cold rolled

steel bars

Iron ore reserves

Billion tonnes

Iron ore production

Mtpa Steel production ()

Mtpa

Mexico 0.4

South Africa 0.7

Mauritania 0.7

Nigeria 2.0

Guinea 4.5

India 4.5

China 7.2

Russia 14.0

Brazil 16.0

Australia 17.0 1

2

3

4

5

6

12

15

16

17 14.0

59.0

11.0

230.0

1,070.0

101.0

370.0

433.0

16.7

67.0

627.0

67.0

33.0


Consumption of

steel per capita

per annum

Kg/yr

Nigeria currently lags behind global benchmarks on steel

consumption per capita with potential to grow

Egypt

Brazil

Russia

China

South Korea 1119

South Africa

Other Africa Average

India

World average

Nigeria

▪ South Korea’s demand for steel is largely fuelled

by increased industrial activity

▪ Between 1965 and 1970, dramatic increase in

demand for intermediate and capital goods (20kg

to 175kg per capita per year)

– Steel beams, flat sheets, rods, coils, bars

– Rise in real estate development, construction

of roads and bridges, fabrication, etc.

▪ Increased steel demand owing to increased

industrialization

– Building construction; power

– Automotive construction; Agriculture

– Road and bridge building; Military

– Refinery investments

– Machinery for rubber and plastics, textiles,

etc.

South Korea leads the world due to high

industrialization levels

Nigeria can expect an increase in demand for

steel in the coming decade driven by

industrialization


Nigeria’s domestically focused iron ore and steel strategy is driven by our ability to

serve domestic demand, as well as the challenges in export markets today. Few

global steel investors have the capacity to expand into Nigeria:

• China: ~60 million tons of steel capacity was mothballed in

2015 as part of a plan to reduce production capacity; that has

had a knock on effect on global commodities market

• Britain/Tata Steel: Decision by Tata to sell / shut down its UK

branch has also signaled the end of British steel production

which declined from 18M tons/annum to 8M tons/annum

between 1988 - 2015 ; other European steel makers are also

challenged

• Private Companies: Many steel producers and suppliers from

Vale to Rio Tinto to BHP are struggling due to the down turn in

commodity prices and excess capacity in markets; we

anticipate continued cost cutting to rebalance the market


WHY IRON AND STEEL INDUSTRY IN NIGERIA ?

Estimated amount of iron & steel requirements met by the local market,

(%). (V20:2020, NTWG, Mineral & Metal Development)

Our optimism is also informed by the fact that current local producers are meeting

less than 25% of estimated demand


“Nigeria’s current “core infrastructure” stock

(roads, rail, ports, airports, power, water, ICT) gap

based on international benchmarks is estimated to be USD80 billion.

To fund the infrastructure needs of its growing economy over the next 30

years, Nigeria would need to spend about USD 3 trillion. This investment

would allow Nigeria to close its current infrastructure gap and sustain an

ideal infrastructure stock level of 70% of GDP as it builds and maintains

infrastructure assets across all its seven key sectors.

”Excerpt from a recent report by the National Integrated Infrastructure Master Plan

Iron Ore and Steel would account for the bulk of the material inputs

needed to industrialise Nigeria.


That demand can be easily met as key precursor materials required by the steel

industry is also in abundance in Nigeria

Iron Ore Availability

• Conservative estimates of

over 2 billion tons of iron

ore resources are

projected to occur in

several locations.

• High grades of 50% Fe

discovered recently.

• Reserves likely to be

adjusted upwards as new

wave of exploration and

mapping starts to build on

insight developed pre-

1960.


■ Coal

Over 1 trillion tonnes of

coal resources occur in

over thirteen (13) states

of the federation

YobeBorno

Taraba

Bauchi

Kogi

Kwara

Benue

Edo

Adamawa

Delta

PlateauNasarawa

Ondo

Imo

EnuguAnambra

Map of Nigeria showing Coal & Lignite

bearing States

Coal Mines in Kogi and Gombe States

Other key raw materials e.g. coal, manganese and limestone are in abundant supply

in Nigeria


Limestone/Dolomite

Large resources discovered in

several locations around the

country

Manganese

Several areas discovered including

Kaduna, Kebbi and Niger States.Limestone Extraction

Other key raw materials e.g. coal, manganese and limestone are in abundant supply

in Nigeria


The ownership structure and industry dynamics in Nigeria today is a barrier to

growth. That will change as we systematically move to resolve legal issues and

refine the industry structure through privatization and joint ventures.

Ownership Category Entity Name April 2016 Status

FGN Controlled

/ Owned

• Steel plant and/or

mills

• Ajaokuta Steel Company

Limited

• Nigerian Iron Ore and

Mining Company

• Not producing; assets

subject to arbitration /

quasi-legal proceeding

Privatized Steel Plant and Rolling

Mills

• Delta Steel Company

(DSC)

• Inland Rolling Mill

(Oshogbo, Jos and

Katsina)

• Partial production

Privately

Owned /

Controlled

• Steel Rolling Mills

• Foundry

• Cold Rolled Steel

Mill

• Multiple private mills e.g.

in Ogun State; Bua

Group

• Use 100% scrap metal

• Foundry at low capacity

utilization

• Uses imported hot

rolled coils as feed

stock

Our Strategy for Unlocking the

Sector’s Full Potential

Our Strategy for Unlocking the Sector’s Full Potential

Aspiration: Build a world class minerals and mining ecosystem designed to serve a

targeted domestic and export market for minerals and ores.

Where to Play: Nigeria will focus on rebuilding its minerals and mining and related

processing industry in 3 phases.

o Phase 1: Win over domestic users of industrial minerals that are currently

importing

o Phase 2: Focus on expanding domestic ore and mineral asset processing industry.

o Phase 3: Return to global ore and mineral markets at a market competitive price

point.

How to Win: Nigeria will seek to build a minerals and mining sector initially focused on

using its industrial mineral endowment to support its industrialization; private investors

will be facilitated to lead this charge

Initiatives: Nigeria will invest in a range of initiatives including infrastructure

investments, technical and engineering capacity, regulatory reform, reorganization of

the Ministry itself, and expansion of access to financing to drive sector transformation

Results: Ministry will shortly launch a Mining Implementation Strategy Team to own

the implementation of the Roadmap over the coming decade.

To turnaround the broad mining and metals sector, at the end of March

2016, we completed a roadmap anchored on a set of key ideas:


Prod-

uction

Trade

Aspirations Assumptions

2Based on plans for Iron Ore mining

operation in NIOMCO Itakpe and other

deposits

3

Midstream and downstream parts of the

industry (e.g., Ajaokuta Steel, DSC and

private companies) are developed in

tandem with the iron ore mining and steel

demand

Nigeria will constantly increase its

consumption of steel per capita from

current levels of 12kg per year to ~60kg

per year in 2020.

1

Within the iron ore and steel sectors, Nigeria’s objective is to be self-sufficient with end-to-end

integration from iron ore mining to crude steel production and forming and; to strengthen the steel

sector by developing functional linkages to the real economy.

202020172012

2012

N/A

20202017

Production of finished steel

products

Mtpa

Export of finished steel products

Mtpa

4.5


1 Support the development of an institutionalised coal/gas-to power plan for local

players to guaranty affordable energy.

2 Identify and foster locations for steel development sites/clusters

3 Support the provision of concessional loans to current downstream players to encourage

backwards integration

4 Support incentive to local sourcing of raw materials wherever possible (iron ore, coal,

limestone, scrap) using specific levers such as tailored import tariffs or subsidized prices

5 Develop and support a skill building program or encourage the transfer of knowledge by

attracting global experts

6 Ensure logistics corridors with iron ore mines

7 Offer favourable tax holiday and zero duties and levies on iron and steel.

.

Nigeria intends to drive industry growth via a series of targeted midstream actions:


Similarly, we intend driving industry growth via a series of targeted downstream actions:

1 Promote backwards integration capabilities for current processing players through

necessary incentives

2 Develop and enforce specific finished steel quality limits (e.g. dimensional accuracy,

brittleness, etc)

3 Incentivize local production of crude steel.

4 Ensure continued free trade agreements within the ECOWAS region

5 Develop and enforce crude steel quality limits through necessary regulation.

6 Design and advocate local content development in the sector through industry protection

7 Facilitate the acquisition of mineral titles for Steel raw materials by Steel plant owners.


Likewise, Nigeria intends driving industry growth via a series of targeted upstream actions:

1 Encourage and expedite the development of a robust fact base on Nigerian mineral

reserves

2 Modernize and publicize the Nigerian mining code for transparency into terms of mining

operations and ensuring commitments to the sector are specific and binding..

3 Work with states to build an enabling environment for mineral exploration and exploitation

4 Ensure Gas, Road and Rail infrastructure are extended to mining locations and or provide

incentives for mining related infrastructure and equipment investments.

5 Offer favourable tax incentives to attract reputable mining companies and zero duties and levies

on mining equipment and rigs

6. Support for low-cost and long-term capital.

7. Support restriction on the importation of Iron and Steel to fill the supply gap from the mining and

steel companies till self-sufficiency is attained.


Successful execution of our growth plan will unlock significant value for Nigeria’s GDP:

Note: 1. We assume a 10% per annum mining sector growth rate. 2. We assume a conservative 2x multiplier effect for Nigeria. Based on global comparable analysis of mining jurisdictions including South Africa, Ghana and Australia. Mining typically has a 1.5x – 4.0x multiplier effect on related and supporting

sectors e.g. chemicals, equipment and services, hence its impact is broader than direct royalty and tax receipts Source: Facts about mining ins South Africa (South Africa Chamber of Mines, November 2012), The Socio-Economic Impact of Newmont Ghana Gold Limited (Newmont Ghana Gold Limited, June 2011), The economic contribution of large scale gold mining in Peru (World Gold Council, May 2012). South Africa:

IDC and Quantec study, Bain Analysis, Federal Ministry of Solid Minerals

ESTIMATE OF MINING SECTORS’ CONTRIBUTION TO GDP (2015 – 2025) (US$ BILLIONS)

CAGR 2015-25 10%

Mining Sector’s Indirect GDP

Multiplier Effect Ranges

~2.5x for S. Africa

~3.2x for Ghana

~1.7x in Peru

Nigeria Target: 2.0x

THANK YOU

CONTACT DETAILS

FOR ENQUIRIES, PLEASE CONTACT

Dr. Kayode Fayemi, CON

Minister

[email protected]

Ministry of Solid Minerals Development

2, Luanda Crescent, off Adetokunbo Ademola Crescent

Wuse II, Abuja, F.C.T, Nigeria

Director General

Mining Cadastre Office

37 Lobito Crescent, Wuse II, Abuja

www.miningcadastre.gov.ng

Director General

Nigeria Geological Survey Agency

Plot 31, Shetima Ali Munguno Crescent,

Behind Julius Berger Office

Utako District, Abuja

www.ngsa-ng.org

Engr. ALSO Abdullahi

Director, Steel Development

Ministry of Solid Minerals Development

2, Luanda Crescent, off Adetokunbo

Ademola Crescent ,Wuse II, Abuja, F.C.T,

Nigeria

mailto:[email protected]

Investor Relations

Unlocking Opportunities In The Iron And Steel Sector In Nigeria