Pioneers, copycats, capital markets and Nigeria’s mining industry
Nigeria’s mining sector holds potentials to create value for investors and help boost fortunes of the Nigerian Stock Exchange. Okey Uche leverages his experience as a Solicitor and Development Adviser in the mining industry to advocate better protection for individual mining investors while deepening the Nigerian Capital Markets.
Contextually, a Pioneer is someone who takes the risk to establish a new type of business or improve a business process or move an existing type of business from one territory to another. There are many ways to be a Pioneer and Pioneers often inspire “Next Generation” or “Copycat” businesses to follow in their steps and even improve the business or process.
Basically, Copycats are risk averse. They want someone else to take the risk of showing the way for them to follow. In Nigeria, where business creativity and innovation runs in short supply, Copycats have driven economic growth in diverse enterprises from “pure water” to petroleum “tank farm” businesses. In the 1990s, there was a rush to establish banks and other “finance houses”. In the 2000s, many invested in communications enterprises. Nigerians know Pioneers and Copycats that became wealthy (or wealthier) from the licenses, rights, waivers or other concessions and privileges granted them by the government. But despite more than 3,000 mineral licenses issued by Nigeria’s Mining Cadastre Office, most Nigerians don’t know the people (Pioneers or Copycats) who are legitimately making money from mining in Nigeria and hence little investment excitement for the sector.
On the contrary, it seems more Nigerians know other people who lost money in mining. But, there are whispers about Chinese miners in rural areas across Nigeria where they are rumoured to be making lots of money from mining. If these rumours are true and the Chinese miners legitimate, then the Ministry of Mines and Steel Development (MMSD) needs to upgrade the rumours to front page news. The narrative about mining in Nigeria needs to change to include proof that people actually make money from mining. Too much effort is spent trying to attract foreign mining investors whereas there is enough money in Nigeria to finance mining projects. If locals have faith in the mining industry and invest, it will be easier to attract foreign investment. Once locals see mining Pioneers making money from mining, Copycat investors will surge forward with attendant benefits to Nigeria’s economy.
In the late 1990s, a successful Nigerian businessman, Baba Investee (not his real name) invested about US$500,000 cash in return for 5% of the gold from a “gold mining” project promoted by EasyMiiner Limited (not real name). The CEO of EasyMiiner told him they would extract “hundreds of millions of dollars worth of gold” in the first year and Baba Investee’s share would be in tens of millions of dollars each year. Baba Investee didn’t get his promised gold.
Baba Investee’s loss is Nigeria’s loss because if he had succeeded as a mining Pioneer, Copycats would have followed him to invest in Nigeria’s mining sector and create many new jobs. Some have lost money investing in Nigeria’s mining sector through a scenario that usually plays out as follows: A businessman owns a mining company (let us also call the company “ EasyMiiner 2”). He shows an investor samples of minerals produced from his site (let’s say lead). He also shows documents from the Mining Cadastre Office showing EasyMiiner’s mineral titles covering the lead. He finally shows an order for EasyMiiner to supply 5,000 tons of lead per month at $1,750 per ton or $105 million annually; and he needs from the investor “just” N50 million to mine and begin shipments. The investor’s due diligence team gets samples of lead ore from the mining site which independent assay results confirm as high grade. They confirm EasyMiiner holds the mining titles over the site from where the samples came from and also confirm authenticity of the order. Investor then advances the N50 million and discovers too late that all the projections were not based on scientific investigation and that EasyMiiner has no capacity to produce and supply the contracted quantities of lead.
Whether the scenario depicted above is fraud or incompetence, investors are still losing money to EasyMiiners and Nigeria’s mining industry is largely silent. Where are the institutional measures to protect individual investors from other “mining investors”? Protecting individual investors is not a job for the government alone. For his loss not to be in vain, Baba Investee should step forward and lead a campaign to create better institutions and implement measures to protect other private investors from misleading, incomplete, false or fraudulent statements by promoters of mining projects. Baba Investee invested $500,000 because he believed the statements made to him by the CEO of EasyMiiner about “hundreds of millions of dollars worth of gold”. But the statements were not derived from a scientific exploration to prove existence of gold in commercial quantities and the extractability of the gold. Therefore, statements on value made by the CEO of EasyMiiner would have been wrong if not fraudulent.
In response to mining scams, developed mining economies implemented measures to protect private mining investors. These countries principally adopted different Codes to regulate Standards of Disclosure for Reporting Mining Projects. In other words, promoters of mining projects are not at liberty to say anything just to persuade investors to part with their money. Some of the Codes are: JORC Code – Joint Ore Reserve Committee (Australia); SAMREC Code – South African Mineral Committee (Republic of South Africa); CIM Guidelines (or NI43-101) – Canadian Institute of Mining, Metallurgy and Petroleum (Canada); Certification Code – (Chile); SEC Code – Security and Exchange Commission (USA).
The various Codes seek to prevent false statements to investors by demanding that such statements must be derived from a Technical Report prepared by or under the supervision of a “Qualified Person” as described by the Canadian NI 43-101 or “Competent Person” (Australian JORC Code) or “Competent Qualified Person” (Chilean Certified Code). A Qualified Person, or Competent Person, or Competent Qualified Person is someone who is an engineer or geo-scientist; is a member of a recognised professional body of engineers or geo-scientists; has at least five years work experience in the technical aspects of mining; and must have specific experience relevant to the Technical Report bearing his signature. Ideally, the Person should be independent. With the exception of the USA’s SEC Code (that prohibits disclosures) the types of statements covered by the other Codes include Press Releases, Reporting of Resources and Reserves, Presentations, Oral Comments, and Websites.
The NI 43-101 and SEC Code are derived from Canadian and USA Government’s Securities Authorities respectively and purposely targets publicly quoted mining companies. Australia’s JORC Code and South Africa’s SAMREC Code are derived from independent Committees consisting of relevant professional associations. The JORC and SAMREC Codes seek to know the status of a mineral resource irrespective of whether the resource belongs to a publicly listed company or not.
Nigeria needs a blend of the different types of Codes. The Nigerian Securities and Exchange Commission, in consultation with mining associations and professionals can facilitate the establishment of an independent Committee to prepare Guidelines for Reporting Mining Projects in Nigeria (GRMP). The GRMP should be applicable to all mining projects promoted by public and private companies. Nigerian SEC is justified to take the lead because it is so empowered by Section 13 of the Investment and Securities Act, 2007 and by its position as the “Apex Regulatory Authority for the Nigerian Capital Market”; and by its key role of ensuring the Protection of Investors, maintain fair, efficient and transparent market ….” The GRMP will promote honesty and competence in Nigeria’s mining sector and this will attract more mining companies to list on the Nigerian Stock Exchange (NSE), significantly raising NSE’s market capitalisation. The GRMP will improve foreign direct investment (FDI) to the mining sector and help the government monitor mineral revenue.
The last time I enquired, Baba Investee was still in court trying to recover his investment. His lawyers have to overcome the Nigerian legal system that emphasises “Buyer Beware” which places the onus on the buyer to exercise due diligence. If individual investors bear the full responsibility of due diligence then there will be fewer investors for technical ventures such as mining. Canada’s Toronto Stock Exchange (TSX) is a platform for investors (majority of who have no technical understanding of mining) yet they finance most of the global exploration expenditure because they are confident that the NI 43-101 and other measures implemented by TSX will improve their protection. In addition to “Buyer Beware”, Nigerian investors need the confidence that Nigerian institutions are proactively enforcing laws, regulations and measures that demand competence, diligence and truth from mining companies; and where these are lacking, impose stiff sanctions as deterrence.
Unknown to many Nigerians, there already is a successful mining Pioneer in Nigeria. The President of the NSE, Alhaji Aliko Dangote is Africa’s richest man with a net worth of more than US$23 billion. Mining limestone is the root of cement production and cement is the cornerstone of Dangote’s wealth. So, if it is true that Copycats follow money making ventures, then where are the Copycats following in the mining investment footsteps of Dangote? Pioneers can make money from gold, kaolin, tin, lead, iron and other minerals found in Nigeria? Coal in Nigeria could be a foundation for a Pioneer to overtake Dangote as Africa’s richest man.