Background

Nigeria has vast and diverse mineral resources including gold, coal, lithium, iron-ore, lead, zinc, bitumen, tin, limestone, gypsum, columbite, and gemstones, however, the Nigerian mining industry is currently plagued by the widening infrastructure deficit and illegal, small-scale mining operations. The Nigerian Government has sought to revitalise the mining industry through myriad legal and structural reforms to combat illegal mining and incentivise private sector investment.

For potential investors in the Nigerian mining industry, this article has compiled ten critical highlights relevant to mining activities:

Mining Legislation

The primary legislation regulating mining in Nigeria is the Nigerian Minerals and Mining Act 2007, (the “Mining Act”). The Mining Act covers eligibility for mining operations, the granting of mineral titles, rights of a mineral titleholder, and responsibility for socially responsible mining operations. The Nigerian Minerals and Mining Regulations (the “Regulations”) issued in 2011, further to the Mining Act, defines procedures and processes for matters provided under the Mining Act, such as licence processes, social obligation of titleholders to host communities, mineral title administration, and dispute resolution, amongst others.

State Ownership of Mineral Resources

All mineral resources, excluding petroleum and water, in, under or upon any land in Nigeria is under the ownership and control of the Government of the Federal Republic of Nigeria. The Federal Government is also empowered to acquire land by requesting that the Governor of a state revoke a right of occupancy to a land where mineral resources are discovered in commercial quantities for public purposes and overriding public interest. The Federal Government grants a licence to legal entities for the exploration and exploitation of mineral resources in specified areas. Upon lawful extraction, ownership of the mineral resources mined transfers from the Federal Government to the entities, subject to the terms and conditions of the mining licenses held.

Mining Oversight

The Ministry of Solid Minerals Development (the “Ministry”) is responsible for overseeing sustainable mineral development, creating an enabling environment for private investment, and promoting safety in mineral operations. The Mining Cadastre Office (“MCO”), with its central and zonal offices across the country, operates as the sole agency responsible for administering mineral titles, considering applications for mineral licences and permits, and maintaining cadastral registers.

Mining Licenses

The MCO keeps a register of all licences and permits obtainable under the Mining Act. Applications for licences and permits can be submitted by applicants online. Where several applications are received for the same area or for overlapping areas from multiple people, the first application which is received in the proper form is deemed to have priority over the other applications. The priority rule is strictly applied by the MCO where there are competing applications for the same exclusive area.  

The MCO collects a fee for processing applications for mineral licences and permits, and annual service fees are also paid by mineral titleholders. Applications can be made to the MCO or the Mines Inspectorate Department for the following licenses and permits:

1. Reconnaissance Permit (“RP”): this permit confers a non-exclusive right to enter on or fly over any land in Nigeria to conduct reconnaissance activities, holders of this permit may remove surface samples in small quantities but are prohibited from engaging in sub-surface activities such as drilling. A RP is valid for one (1) year and is renewable annually.
2. Exploration Licence (“EL”): this licence allows for specific exploration activities within the defined licence area but not for land exceeding 200 square kilometers. An EL is valid for three (3) years and is renewable for a maximum of two (2) subsequent terms of two (2) years.
3. Small-Scale Mining Lease (“SSML”): this lease gives the holder an exclusive right to carry out artisanal mining and other forms of mining operations involving the use of low-level technology or methods within the lease area which must not exceed 3 square kilometers. A SSML is valid for five (5) years, and renewable for further periods of five (5) years without limit.
4. Mining Lease (“ML”): this lease confers an exclusive right to occupy and carry out mineral exploration and exploitation within the leased area. A ML is valid for twenty-five (25) years and renewable every twenty-four (24) years provided that the obligations of the holder under the Mining Act and the Regulations are met.
5. Quarry Lease (“QL”): this lease allows the holder to extract building materials like granite, sand and gravel. The validity period of the QL is as defined in the term of the lease issued by the MCO or an initial period of five (5) years, whichever is shorter, unless renewed.
6. Water Use Permit (“WUP”): this permit is granted to holders of the licences listed above to use water for their mining operations. The WUP remains in force as long as the EL, SSML, ML, or QL for which it was granted remains valid.
7. Possess and Purchase Licence: this licence allows the holder to only buy and trade in the minerals for which the license was granted, anywhere in the country, without having a mining licence. This licence is valid for a period of twelve (12) months but can be renewed yearly.
8. Mineral Buying Center Licence: this licence allows the holder to purchase, store and trade in any mineral within the location for which the licence was granted. This licence is valid for a period of twelve (12) months but can be renewed yearly.
9. Mineral Export Permit: this permit is granted to holders of mineral titles to export minerals for commercial purposes outside Nigeria. This permit is valid per shipment applied for.

Host Community Development

Holders of a ML, SSML, or QL are required to execute a Community Development Agreement (“CDA”) prior to commencing any development activities within the lease area, with the host community to ensure the transfer of social and economic benefits. The CDA operates as a form of a social licence to operate and should address various issues for the host community such as educational opportunities, infrastructure support, assistance for small-scale enterprises, agricultural marketing, and environmental management, and it is subject to review every five (5) years with binding effect until reviewed by the parties.

Right of Foreign Investors

Foreign participation in the mining sector is permissible, however, there are additional incorporation requirements for companies with foreign shareholders to have, including a minimum issued share capital of ₦100 million. Companies with foreign investors are also given Expatriate Quota and Resident Permits in respect of approved expatriate personnel in accordance with the Immigration Act, 2015.

Export Proceeds

The holder of a mineral title that earns foreign exchange from the sale of minerals may be permitted by the Central Bank of Nigeria to retain a portion of his foreign earnings in a foreign exchange domiciliary account, for use in acquiring spare parts and other inputs required for the mining operations, which would otherwise not be readily available without the use of such earnings. Section 24 of the Nigerian Investment Promotion Commission (“NIPC”) Act, 1995 provides that a foreign investor in an enterprise to which the NIPC Act applies (mining companies inclusive) is guaranteed unconditional transferability of funds through an authorised dealer, in freely convertible currency of dividends or profits (net of taxes) attributable to their investment.

Taxes, duties, royalties and tax incentives

Mineral title holders are expected to pay taxes and royalties on their mining operations, however the Mining Act also makes provisions for certain mining incentives that mineral title holders are entitled to. The following payments are expected to be made by a mineral title holder:

1. Licensees are required to pay royalties on mineral resources except for holders of RP and WUP, as this is waived by the Regulations. In accordance with the newly enacted Nigeria Tax Act, the mineral royalty rate, now varies between 7.5% to 15% depending on the mineral type.
2. Companies Income Tax - All companies are required to pay company income taxes on the company’s total profit at the rate of 30%, except small companies that are not taxed. Small companies are those with an annual gross turnover of ₦100million or less per annum and total fixed assets not exceeding ₦250million.

Mineral title holders are entitled to the following incentives:

1. Capital Allowances – In determining total profit, licensees are entitled, to offset ninety-five percent (95%) of qualifying capital expenditure, including exploration, development, processing, and infrastructure costs, against their assessable profits in the year the investment is made.
2. Licensees are exempted from paying customs duty and import duties in respect of plant, machinery, equipment and accessories imported for mining operations.
3. Companies engaged in exploitation of mineral resources are required to have a reserve for environmental protection, mine rehabilitation, reclamation and mine closure costs. The reserve is however, tax deductible.

Protection of the Environment/ESG Considerations

Mineral title holders must adhere to environmental obligations, including submitting approved CDAs, Environmental Impact Assessments, Protection and Rehabilitation Programs, as well as mine designs with details regarding any environmental concerns. They are required to rehabilitate the land damaged by mining operations to its natural or predetermined state, in accordance with the Mining Act, the Regulations and established best practices.

In particular, Section 118 (b) of the Mining Act provides that:

“Every holder of a mineral title under this Act shall as far as it is reasonably practicable rehabilitate and reclaim where applicable the land disturbed, excavated, explored, mined, covered with tailings arising from mining operations to its natural or predetermined state or to such state as may be specified in this Act, its Regulations and other pertinent laws in force and in accordance with established best practices”.

Mineral title holders are also required to pay compensation for land disturbance, damage to crops, trees, and buildings.  The Regulations also provide that a mineral title holder must submit a rehabilitation program to the Mines Environmental Compliance Department for approval before commencing mining operations. The State Minerals and Environmental Management Committee, in collaboration with the MCO, assesses and determines the compensation for the affected parties, and failure to pay within six (6) months after project commissioning can result in the suspension of the mineral title.

Compliance with Anti-Money Laundering Regulations

As dealers in precious metals, mining companies are classified as a Designated Non-Financial Business and Profession (“DNFBP”). Consequently, mining companies are statutorily required to register with the Special Control Unit Against Money Laundering (“SCUML”). Mining companies are also required to establish and implement Anti-Money Laundering (“AML”), Combating the Financing of Terrorism (“CFT”) and Countering Proliferation Financing (“CPF”) programmes designed on a risk-based approach tailored to the size of their business, and integrate their customers or clients into these programmes.

Conclusion

In addition to the highlights this article has discussed, potential investors cannot overlook the security risks tied to mining in Nigeria. Illegal mining has led to revenue losses for the Government and mineral title holders, perpetuated unsafe labour practices and encouraged mineral smuggling with links to financing terrorism particularly in the Northern and middle- belt areas of Nigeria.

These activities previously necessitated a ban on mining activities in Zamfara State by the Federal Government in 2019 in a bid to eradicate terrorism, but this ban was lifted in 2024. Additionally, there have been recent calls by the Northern Governors’ Forum for the Federal Government to suspend mining activities in the Northern region on the basis that illegal mining is a major source of financing terrorism in that region. This political instability tied to illegal mining must be a major consideration for investors.

Before investing in mining projects, investors must also consider the constraints to beneficiation and distribution of mineral resources in Nigeria, such as poor roads, weak rail links, limited access to water, unreliable electricity, limited processing facilities and high transportation costs, in determining the viability of such projects. The scaling and growth of commercial mining in Nigeria is heavily dependent on capital-intensive infrastructure investment by the private sector in partnership with the Federal and State Governments, as well as the Government effectively combatting illegal mining and its raging impact across the nation.