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Cablegate: Nigeria Seeks to Rekindle Its Dilapidated Mining Sector -

VZCZCXRO0012
PP RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHUJA #2072/01 3210733
ZNR UUUUU ZZH
P 170733Z NOV 09
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 7494
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHBJ/AMEMBASSY BEIJING 0054
RUEHPE/AMEMBASSY LIMA 0009
RUEHLO/AMEMBASSY LONDON 0613
RUEHMO/AMEMBASSY MOSCOW 0092
RUEHNE/AMEMBASSY NEW DELHI 0024
RUEHFR/AMEMBASSY PARIS 0470
RUEHOT/AMEMBASSY OTTAWA 0071
RUEHSG/AMEMBASSY SANTIAGO 0015
RUEHOS/AMCONSUL LAGOS 2296
RUEHJO/AMCONSUL JOHANNESBURG 0120
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 04 ABUJA 002072

SENSITIVE
SIPDIS

STATE PASS USGS FOR MICAEL FOOSE, INTERNATIONAL PROGRAMS
STATE PASS TO USAID AFR/SD FOR CURTIS, ATWOOD AND SCHLAGENHAUF
STATE PASS TO USTDA-PAUL MARIN
STATE PASS TO EXIM-JRICHTER
STATE PASS TO USTR-LAURIE-ANN AGAMA
STATE PASS TO OPIC-BARBARA GIBIAN AND STEVE SMITH
STATE FOR EEB/ESC/IEC/ENR-DAVID HENRY, CBA
STATE PASS TO S/CIEA-DAVID GOLDWYN AND MICHAEL SULLIVAN
DOC FOR 3317/ITA/OA/BURRESS AND 3130/USFC/OIO/ANESA/REED
USDOE FOR GEORGE PERSON AND THOMAS SPERL, OPIA
TREASURY FOR IERONIMO AND BARCAN, OAN
JOHANNESBURG FOR USTDA/JASON NAGY

E.O. 12958: N/A
TAGS: EMIN ENRG EINV ECON ETRD SENV NI

SUBJECT: NIGERIA SEEKS TO REKINDLE ITS DILAPIDATED MINING SECTOR -
PLATEAU STATE

ABUJA 00002072 001.2 OF 004


-------
SUMMARY
-------

1. (SBU) Nigeria, a leading hydrocarbon producer, has allowed its
mineral sector to decline through an overdependence on oil and the
relative neglect of its non-oil sectors. The Government of Nigeria
(GON) now seeks to restore its mineral sector and declare itself
"open for business." GON officials implemented new policy and
legislation in 2007 that sought to create a more attractive minerals
investment environment, but still needs to establish implementing
regulations to provide an investor-friendly framework. The Embassy
Minerals Team found enthusiasm for mining in the old, tin-mining
capital of Jos in Plateau State, but existing mining activity is
vestigial, artisanal, and lacking in significant domestic and
foreign investment. The World Bank has promulgated a small-scale
mining program that has funded a mining institute in Jos and may be
able to play a useful role. The USGS may be able to partner some
activities with the World Bank. Scope exists for further minerals
assessment in other regions in Nigeria. END SUMMARY.

-----------------------------------
OVERVIEW OF THE MINERALS TEAM VISIT
-----------------------------------

2. (U) The Minerals Team, comprised of Embassy Abuja Economic
Counselor and Deputy Chief, Embassy Pretoria Minerals/Energy Officer
and Specialist, and USGS Africa Coordinator, conducted meetings
recently in Abuja and in and around the Plateau State capital of Jos
to assess the status and potential of minerals production in
Nigeria. The Minerals Team worked closely with former Commissioner
of Mines Markus Pwajok and Engineer Francis Ahmadu to generate a
full program involving a dinner meeting with government
representatives, visits to three active mines, a tour of the Nesco
Power Plant, and a Miners Roundtable at the Nigerian Institute of
Mining. The team also visited the Nigerian Extractive Industries
Transparency Initiative (NEITI), the Sustainable Management of
Mineral Resources Project, and the Nigerian Geological Survey Agency
in Abuja.

3. (U) Mining has occurred in Plateau State as far back as 1902.
The British developed a robust tin, columbite, and associated
minerals exploitation during colonial times, but these suffered from
tin price busts, under-investment, and nationalization over time.
The state claims to have very large reserves of tin-related minerals
columbite, cassiterite, and zircon, which have specialized uses as
tantalum, niobium, and alloy products used in aircraft engines and
Qtantalum, niobium, and alloy products used in aircraft engines and
nuclear reactors. In addition, significant potential exists for
extracting gemstones, lead, zinc, kaolin (for pharmaceuticals and
detergents), tantalite (computers, aircraft, and nuclear systems),
gypsum, dimension stone, and titanium.

--------------------------------------------- ----
MINING ROUND-TABLE - CHALLENGES AND OPPORTUNITIES
--------------------------------------------- ----

4. (SBU) The team's flagship event involved the Miners Roundtable at
the Nigerian Institute of Mining on September 29, televised and
covered by the local press. Economic Counselor noted the positive
attributes for Jos in attracting mining investment: the plateau's
relatively pleasant climate, a reliable source of power, a good

ABUJA 00002072 002.2 OF 004


international school, and proven reserves. The key challenges he
identified included: obtaining domestic or foreign financing,
volatile commodity prices, and assuring a stable investment
environment. Various mining representatives asserted that the
region possessed adequate and economic mineral deposits and proven
reserves, although a few noted that the information was out-dated.
Consolidated Tin Mines (CTM) Managing Director Frank Kwueme said
they had 80,000 tons of proven reserves of cassiterite and 14,000
tons of columbite under 600 leases previously owned by Amalgamated
Tin Mines. He asserted that this was based on reliable (albeit old)
work done by the British. Kwueme applauded the GON decision
eventually to privatize the 60 percent stake it held as a result of
nationalization in 1972. He and others noted that nationalization
was an abject failure that created a legacy of under-investment in
the sector. (He cited the image of the large, defunct Bucyrus Erie
drag line that has rusted in place next to a flooded strip mine on
the edge of Jos.) Kwueme observed that the new mining legislation
imparted a spirit to promote investment. He also noted that CTM has
a legacy of liabilities that complicate privatization (i.e., $2
million in unfunded obligations to former employees and suppliers).

5. (SBU) CTM and other mining representatives lamented the dearth of
capital and equipment available as companies have departed the
sector. Many participants noted the environmental contingent
liability from the years of mining and then neglect, resulting in
around 4,000 flooded and, according to some, toxic pits in the area.
The new law requires adequate rehabilitation, but it is unclear how
effectively it will be implemented. Participants cited the new
Nigerian Institute of Mining as a useful establishment to develop
human resources. Pennsylvania State, already involved in curriculum
development, will train trainers in early 2011. The World
Bank-funded institute could be a partner for the USGS in Nigeria.
The team toured the facility which includes multiple classrooms and
a minerals processing area, available for both research and
practical use by miners.

--------------------------------
SMALL-SCALE AND ARTISANAL MINING
--------------------------------

6. (SBU) The three active mines visited around Jos were small-scale,
almost artisanal in scope. Rayfield Mine owner/operator Joshua
Egbagbe hosted the Minerals Team at his open pit "junior-miner"
QEgbagbe hosted the Minerals Team at his open pit "junior-miner"
columbite mine on September 28. He told the team that his mine,
with a potential of 50-100 tons per month ($500,000 per month at
current prices), was substantially shut down because of the price
drop. He said he had partnered with a Russian interest and had
entertained unrequited interest from Chinese and South African
investors. Egbagbe criticized the Chinese as murky buyers, alleging
that Chinese interests had unsuccessfully sought to steal rights to
the ground beneath his mine. He lets some 500 artisanal workers
operate freely on the mine pit site. The Minerals Team observed
that any serious investor would want to carefully remove the
informal mining by job offers or compartmentalizing their
activities; any attempt to drive them off could easily result in the
sabotage of unfenced and unguarded equipment.

7. (SBU) The Rim Mine is a small-scale operation, reached by fording
a small river. (The Minerals Team shared boots and/or were ferried
across on the backs of workers.) This mine relies on a dilapidated
pump to supply water for sluicing to provide primary separation of

ABUJA 00002072 003.2 OF 004


tin, ilmenite, and cassiterite-bearing ores, mined under a 60-foot
over-burden. The economics of the mine looked challenging,
exacerbated by the antiquated pump. The Minerals Team will look at
potential sourcing of a jig that might be used by the Minerals
Institute to help this and other mines increase the recovery of tin,
ilmenite, and cassiterite, for which much of the finer material is
currently washed down the river. This mine is an old lease of
Consolidated Tin Mines. The Team also visited the small-scale Sho
mine, which is exploiting kaolin and gypsum. This mine employs a
crusher to generate 90 tons per month of Kaolin worth $50 per ton.
The kaolin is used as filler for detergent, paint, and fertilizer
produced in Nigeria.

--------------------------------------------- -----
VINTAGE HYDRO-PLANT PROVIDES RELIABLE POWER SOURCE
--------------------------------------------- -----


8. (SBU) Plateau State enjoys adequate power supply, which is
unusual in Nigeria. The team visited the 1929
British-colonial-vintage Nesco Power Plant which produces 25
megawatts out of an installed capacity of 33 megawatts. The plant
houses three turbines turned by gravity-fed water pipelines below
the Kura dam. The management is successfully maintaining the old
equipment and selling power and serving as a stand-by for the
Nigerian grid in Plateau State. The Nesco Plant sits in a
spectacular canyon off the Plateau escarpment, which has significant
unrealized tourism potential.

9. (SBU) The Abuja office of the Nigeria Extractive Industries
Transparency Initiative (NEITI) provided additional perspective on
the mining sector. The NEITI is viewed as an EITI "good pupil",
achieving great success in implementing the initiative in Nigeria's
hydrocarbon sector as a way of building domestic trust and
confidence. NEITI Director Stan Rerri participated in an EITI
workshop in South Africa, aimed at prodding South Africa to become
an implementor and leader on the continent for EITI. The NEITI
management admitted to the Minerals Team that the NEITI needed to do
more ground-work on solid minerals to allow solid minerals before
allowing their inclusion in its implementation work.

--------------------------------------------- -------
POSITIVE MINING LEGISLATION, BUT REGULATIONS DELAYED
--------------------------------------------- -------

10. (SBU) The GON decided to promote exploration and development
investment in its solid minerals sector following almost 50 years of
Qinvestment in its solid minerals sector following almost 50 years of
neglect. Nigeria was one of the world's biggest producers of tin,
but a combination of "Dutch Disease", caused by the discovery of
oil, and nationalization of mines following independence in 1960 has
reduced the mining industry to a few small mines and hundreds of
informal (subsistent) workings. The GON produced a new minerals
policy document and a minerals and mining act in 2007 to encourage
investment. The accompanying regulations have not yet been
published and are still being negotiated, although industry has been
minimally consulted.

11. (SBU) The National Minerals and Metals Policy of January 2008
stipulates that minerals are owned by the state and are to be
exploited for the benefit of Nigerians. It makes clear government's
intention that industry must be driven by private investment,

ABUJA 00002072 004.2 OF 004


management, and operation. The document appears to be an "apple
pie" expression of all things a potential investor wants to hear and
differs little from mining policies the world over. Its main tenets
involve privatization of the industry, security of tenure, and
minimum government interference in the running of mines and
marketing of product. Indigenization and adding value to raw
materials is an expressed GON goal.

12. (U) The Nigerian Minerals and Mining Act of 2007 addresses most
aspects of the governance of the mineral industry, the various types
of permits, leases and licenses available, their qualifying
requirements and durations, and time limits in which government
officials must reply to the respective applications, usually within
30 to 45 days. These include:

-- reconnaissance permit for one year and renewable;
-- exploration license for three years and renewable;
-- small-scale mining lease for a time dependent on the particular
circumstances;
-- mining lease for 25 years and renewable;
-- quarry lease for five years and renewable; and
-- water use permit, presumably for the period of the specific right
granted.

13. (SBU) Important provisions address requirements for
environmental management, access to a deposit with compensation to
land-owners for damages incurred, freedom to market mineral
products, freedom to maintain off-shore revenues for purchases of
capital equipment and supplies, together with other concessions,
conditions, stipulations, and requirements. One concerning aspect
is the mining company's need to negotiate a consensus social plan
and "approval-to-mine" from all affected communities, which
introduces uncertainty and may delay or even prevent the start of
proposed mining operations. Specific implementation details must
await the publishing of the Regulations. South African Mining
Expert Peter Leon recently publicly characterized Nigeria's mining
regime and cadastre as effective and a potential model for South
Africa.

-------
COMMENT
-------

14. (SBU) Nigeria still has a long way to go to demonstrate large,
commercial reserves that can draw domestic and foreign investors.
Large-scale investment will require proven reserves, a stable
investment environment, and assurances on environment or other
liabilities. Nigeria seems to have lost most of its mining culture
as a result nationalism, neglect, and under-investment.
Opportunities exist for the USGS and other agencies to assist the
GON's new-found objective to develop its solid minerals sector. Jos
QGON's new-found objective to develop its solid minerals sector. Jos
city and the Plateau State appear to be likely targets, given their
history of tin-mining and the remains of a once-thriving mining
culture. They have many qualities that could lure investment, but
the area has experienced some recent political conflict over
political franchise and perceived disenfranchisement between
ethnic/religious groups.

15. Embassy Abuja, Embassy Pretoria, and the U.S. Geological Service
collaborated on this telegram.

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