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Cablegate: Nigerian Mining Sector Replete with Challenges And

VZCZCXRO9480
PP RUEHMA RUEHPA
DE RUEHOS #0550/01 2141536
ZNR UUUUU ZZH
P 021536Z AUG 07
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 9294
INFO RUEHUJA/AMEMBASSY ABUJA 9084
RUEHWR/AMEMBASSY WARSAW 0483
RUEHCD/AMCONSUL CIUDAD JUAREZ 0462
RUEHIT/AMCONSUL ISTANBUL 0461
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000550

SIPDIS

SIPDIS

DEPT PLEASE PASS TO USTR; OPIC FOR JAMES WILLIAMS; USTDA FOR PIERCE
DAVIS

E.O. 12958: N/A
TAGS: ECON PGOV EINV PREL NI
SUBJECT: NIGERIAN MINING SECTOR REPLETE WITH CHALLENGES AND
OPPORTUNITIES


LAGOS 00000550 001.2 OF 002


1. Summary: On July 15, US Trade and Development Agency officials
met with representatives of the private mining sector and the
Nigerian Geological Survey Agency. They discussed the untapped
opportunities in the mining sector since the passage of the 2006
Minerals and Mining legislation. The greatest challenges to
harnessing these opportunities were access to financing and
technical expertise. Financing would be crucial to the development
of a mechanized mining sector with export capacity. End summary.

--------------------------------------
Solid Mineral Deposits Look Promising
--------------------------------------

2. On July 15, Enoh Ebong, Acting Regional Director and Pierce
Davis, Nigeria Country Manager, US Trade and Development Agency
(USTDA) met with representatives of the private mining sector and
the Nigeria Geological Survey Agency (NGSA). Sele Obomhense,
Managing Director (MD), Mekios; Chief Emeka Okengwu, Chief Executive
Officer (CEO), Kulfana Mining; and Omokhoa Okaisabor, Director,
Kulfana Mining, emphasized the enormous potential for growth of the
mining sector. While solid mineral deposits have not been thoroughly
assayed in most locations, limited assaying in some areas had
revealed ample deposits of coltan (columbite-tantalite),
fine-grained gold, tin, and coal. Henry Davies, Assistant Director
for Special and International Projects, NGSA, and Mr. N. Ayi, Deputy
Director - Regional Geology, NGSA, said Nigeria was replete with
solid mineral deposits, which remained to be explored.

--------------------------------------------- ----------
Sectoral Constraints: Financing And Technical Expertise
--------------------------------------------- ----------

3. Lack of financing was the biggest challenge for private mining
firms. Banks typically did not lend to this sector, said Obomhense.
When financing was available, a lack of understanding of the sector
made investors wary. In 2006, under the small and medium enterprises
equity investment scheme (SMEEIS), Mekios received naira 48 million
(USD 381,000) from First Fund, a venture capital arm of First Bank.
Return on the investment was not what First Fund anticipated, and
the fund called for an early exit. Understanding the risks and
longer-terms nature of investment in the sector was therefore
critical.

4. With no funds to purchase machinery, most mining companies
remained artisanal, in turn, limiting exports. Obomhense said most
of his customers were Chinese firms, as they were willing to accept
smaller volumes. Mekios had the capacity to export 25 tons of solid
minerals every two months, whereas Western customers required 20-40
tons per month. A Russian customer, for example, required 40 tons of
coltan per month.

5. Private sector representatives complained of a lack of technical
expertise at all levels. Mekios had suffered significant losses of
fine-grained gold, what Obomhense termed "invisible gold", because
the company's engineers did not know how to detect the deposits and
process them. Obomhense later identified a California-based company,
Boleo, which possessed such technology.

--------------------------------
The Regulatory Framework Is Good
--------------------------------

6. Since 2002, the Federal Government aimed to modernize the mining
sector. With the assistance of a USD 120 million World Bank credit,
this effort resulted in the 2006 Minerals and Mining Act. The
legislation had three components: to fold artisanal and small-scale
mining into the formal economy; strengthen governance and
transparency through the establishment of autonomous mineral titling
and land registration system, a new mining code and attendant
regulations; and support private-sector led production and
restructuring of state-owned enterprises.

7. Obomhense, Okengwu, and Okaisabor agreed that the regulatory
system was good. With a fully automated cadastre, licensing was
straightforward and was no longer a political process. The new
legislation was sound and facilitated foreign direct investment
(FDI).


LAGOS 00000550 002.2 OF 002


--------------------
Filling The Data Gap
--------------------

8. To fill the data gap resulting from the lack of continuous
investment since the 1960s, the NGSA relied on survey data from
international oil companies. The NGSA also undertook regional
mapping, aerial and regional geophysics projects, and the mapping of
mineral targets. Data was updated by private firms as they sought
and renewed licenses. This data was synthesized into commodity maps
and an occurrence database for each state, available to the public
in digital format.

9. Davies and Ayi asked for assistance in geomapping inaccessible
areas using remote sensing and ground truthing. Capacity building
was also needed, as there were few NGSA staff who possessed the
specialized skills necessary to undertake research. Ayi said the
U.S. Geological Survey (USGS) had collaborated with the NGSA to map
the federal capital territory in Abuja, and he hoped this
collaboration could continue in the future.

10. Pierce Davis and Enoh Ebong cleared this cable.

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