This guide has been produced by Norton Rose Fulbright in association with Aluko & Oyebode. Any matters pertaining to Nigerian law are made by Aluko & Oyebode only.
Early on in its lifecycle, a mining company will undertake initial exploration and prospecting activities. A right – typically an exploration licence – is applied for and obtained and exploration of various types (such as exploration drilling and aerial and geotechnical surveys) is then undertaken to see whether there is resource potential present.
Assuming the results indicate a resource presence, the mining company will explore the extent of the resource to estimate the size and grade of the deposit. Initial feasibility studies will be conducted to estimate the theoretical economics of the project and to identify whether further feasibility and engineering studies are warranted.
The feasibility stage usually involves expenditure of significant funds and for that reason is carried out once the initial exploration stage has produced some promising results. Feasibility studies will evaluate the overall economic viability and technical and financial risks of the project. They will consider details of the operations and management, market research, legal and accounting requirements and tax obligations, as well as the development and operating costs. These studies take into account the economically recoverable portion of the deposit, engineering and construction costs, environmental and social impact, finance and capital requirements, marketability, location of the mine, proximity to infrastructure, geological considerations and access to land, power and water.
There are three levels of feasibility studies relevant for the JORC code1; from a bankability perspective, the ‘measured’ study – a detailed geological survey – is the most significant.
Involving local communities in mine development is an increasingly important aspect of successful mine construction and operation. At a minimum, the communities involved should be identified and a communication strategy established at the outset.
The principal laws relevant to mining in Nigeria are:
- the Constitution of the Federal Republic of Nigeria (the Constitution)
- the Nigerian Minerals and Mining Act 2007 (the Mining Act)
- the Nigerian Minerals and Mining Regulations 2011 (the Mining Regulations)
- the Guidelines on Mineral Titles Application (the Guidelines).2
The Federal Ministry of Mines and Steel Development is responsible for the administration of the Mining Act and Mining Regulations, as well as the Guidelines.
By the combined effect of the provisions of section 44(3) of the Constitution and section 1 of the Mining Act, ownership and control of the mineral resources in, under or upon any land in Nigeria is vested in the Federal Government of Nigeria.
Prior to prospecting for any mineral or commencing any incidental work, a person must obtain a prospecting right from the Federal Ministry of Mines and Steel Development. Similarly, in order to mine for any mineral or commence any work incidental thereto, a person must obtain a mining right from such body.
It is worth noting that a person does not need to own an interest in the land in order to hold a mining permit, Licence or lease.
Section 46 of the Mining Act, together with the Mining Regulations, provides for the following types of prospecting/exploration and mining titles:
- Reconnaissance Permit – granted to individuals who are Nigerian citizens, companies incorporated in Nigeria and/or mining co-operatives.
Whilst the Mining Act and the Mining Regulations do not provide any definition of ‘mining co-operatives’, it is considered that a ‘mining co-operative’ would comprise a group of individuals registered by the Corporate Affairs Commission as a corporative society for the purpose of carrying on mining activities. This position has been confirmed with the Mining Cadastre Office (MCO).
A Reconnaissance Permit confers on the holder the non-exclusive right to search for mineral resources on any land within the territory of Nigeria. It also confers on the holder the right to obtain and remove samples in small quantities. It does not, however, confer the right to drill, excavate or engage in other sub-surface techniques.
- Exploration Licence – granted to the holder of a Reconnaissance Permit, companies incorporated in Nigeria and/or mining co-operatives. It is worth noting that it is not necessary to apply for a Reconnaissance Permit prior to an application for an Exploration Licence. The Exploration Licence can be applied for from the outset.
The holder of an Exploration Licence benefits from the following rights, among others:
- the exclusive right to conduct exploration for mineral resources within a specified area
- the right to erect and maintain machinery and plant necessary for exploration operations
- the right to remove specimens and samples
- the right to conduct bulk sampling and trial processing of mineral resources not exceeding the area of land covered by the Exploration Licence
- the right to employ any number of persons for the purpose of exploration.3
- Mining Lease – granted to incorporated companies or other legal entities that have demonstrated that a commercial quantity of mineral resources exists in the area in respect of which the application is made, and have fulfilled all the conditions attached to the Exploration Licence in respect of the area subject to the application. The rights of a Mining Lease holder include:
- the exclusive right to use, occupy and carry out mineral exploitation and exploration within the Mining Lease area
- the right to use water, wood and other construction materials necessary for mineral exploitation in line with the Mining Law and Mining Regulations
- the right to store, remove, transport, transform, market, sell, export or dispose of the mineral products from the mining operations
- the right to use some portions of the land for growing plants and vegetables or keeping animals, poultry and fish for the use of employees at the mine.4
The legislation also provides for Quarry Leases, which confer on the holder the right to carry out quarry operations within the lease area; remove and dispose of any quarry-able minerals specified in the lease; erect and construct engines, machinery, buildings, electrical transmission lines and tramways; and lay water pipes and make water courses, ponds, dams and reservoirs.
Water Use Permits are granted to holders of, or applicants for, an Exploration Licence, Mining Lease, Quarry Lease and/or small scale mining lease. A Water Use Permit confers on the holder the exclusive right to obtain and convey water and occupy land upon which a mineral title, lease or permit has been granted, for the conveyance of water.
The process for acquisition of any such mining rights is by application to the Mining Cadastre Office. Upon valid application and payment of the prescribed fees by a qualified applicant, the Director-General of the MCO will grant approval for the issuance of the relevant mineral title/mining permit. In the case of a Reconnaissance Permit or an Exploration Licence, the permit is usually awarded within 30 days of the receipt of the application; the period is 45 days in the case of a Mining Lease.
Generally, there are no restrictions on mining operations being owned or managed by foreign persons. However, the Mining Act requires that a qualified applicant of a mineral title be a body corporate duly incorporated under the Companies and Allied Matters Act or other legal entity that satisfies stipulated conditions under the Mining Regulations –
that is, foreign parties cannot acquire mining rights in Nigeria unless they incorporate a company in Nigeria. It is worth noting, however, that there is no requirement for minimum state or domestic ownership of such exploration or mining companies.
Obligations imposed on mineral titleholders
The Mining Act and Mining Regulations set out various obligations on mineral titleholders; these are incorporated in typical mining Licences and leases. They include:
- All mineral titleholders are required to meet the prescribed reporting requirements in line with the template contained in Schedule 5 of the Mining Regulations.5
The report shall contain, among other things:
- details of the Licence
- names of persons submitting technical data and analysis
- executive summary of work performed
- report of work performed
- details of expenditure incurred
- an updated plan of mining operations.
- An Exploration Licence titleholder shall meet the minimum annual work obligations as may be prescribed under the Mining Act and the Mining Regulations.6
- All mineral title holders are required to:
- pay all rents due under the Licence or permit
- use the land solely for exploration and mining purposes
- obtain the prior written consent of the Minister before any transfer or assignment of permit, Licence or lease
- promptly report in writing to the Minister details of all minerals discovered
- comply with the terms and conditions contained in any Community Development Agreement (see further details below) to which the holder of a mineral title is a party
- comply with all environmental, health and safety provisions contained in the Mining Act and the Mining Regulations
- comply with all reasonable directives and instructions which may be issued from time to time by the Federal Ministry of Mines and Steel Development or any of its agencies.7
A typical mining Licence or lease incorporates the terms of the Mining Act and the Mining Regulations: supplementary stability/development agreements do not feature within the Nigerian mining regime.
There are no provisions in the Mining Act or the Mining Regulations stipulating a maximum number of Licences and/or leases which may be held by one company and its affiliates. However, there are controls on the maximum area over which mining titles may be granted; the level of such controls depends on the type of Licence or lease held by a mineral titleholder, as follows:
- the area of land covered by a Mining Lease is determined in relation to the ore body as defined in the feasibility study submitted in respect of such Mining Lease, together with an area reasonably required for the workings of the mineral resources; provided such area does not exceed 50 km2
- the area of land covered by an Exploration Licence may not exceed 200 km2 consisting of one contiguous polygonal area
- the area of land covered by a Quarry Lease may not exceed 5 km2
- the area of land in respect of which any WUP is granted is more loose; the legislation states that it may not exceed the area reasonably required for the purpose of the permit.
Approvals and permits
Prior to commencement of any development activities or extraction of mineral resources, certain pre-conditions must be met by a Mining Lease holder.8 They are as follows:
- submission to, and approval by, the Mines Environmental Compliance Department of all Environmental Impact Assessment Studies and mitigation plans required under applicable environmental laws and regulations
- submission to, and approval by, the Mines Inspectorate Department of the details of the work which the applicant is prepared to undertake or a programme for carrying out any minimum work obligations imposed by the Mines Inspectorate Department
- conclusion of a Community Development Agreement approved by the Mines Environmental Compliance Department (this also applies to other mineral titleholders)
- evidence or confirmation that the holder has duly notified, compensated, or offered compensation to, all users of land within the area where the mining Licence or lease has been granted in accordance with the Mining Act or, in the event of a dispute, evidence that the matter has been resolved by arbitration
- evidence of completion of placement of all demarcation point markers defining the boundary of the mineral title area.
In addition to the above, it is also worth noting that the holder of a Mining Lease (save for a Mining Lease in respect of mineral water exploitation) is required to have resolved the above matters with the Mines Environmental Compliance and Inspectorate Departments within three years from the issuance of the Mining Lease, failing which the Mining Lease may be temporarily suspended without affecting continued payment of rentals.
With regard to the building and operation of the mine, a mineral titleholder is required to comply with the Nigerian Urban and Regional Planning Act 1992 (NURPA), the law regulating town planning in Nigeria. Pursuant to section 28 of the NURPA, the approval of the relevant Development Control Department (DCD) of the state where the mine is located, is required for any land development. A developer is required to submit a development plan for approval to the DCD, and apply for a development permit from such body. In the event that the DCD fails to grant an approval for the development of any land, the developer has the legal right to appeal to the Urban and Regional Planning Tribunal.
A Mining Lease holder is required to commence mine development within 18 months from the grant of the mine lease for mineral resources, and commence production no later than 36 months. It is stated that the 36 months will become effective from ‘the date that the requirements of the Act have been met.’ The Mining Act and the Mining Regulations do not elucidate on the phrase ‘the date that the requirements of the Act have been met.’ However, the Mining Cadastre Office has confirmed that the 36 months begin to run from the date that the relevant Mining Lease is issued.
After the commencement of mining operations, a mineral titleholder is required to:
- comply with all conditions and perform all obligations contained in the Mining Act and the Mining Regulations
- comply with the minimum annual working obligations as prescribed by the Mines Inspectorate Department
- comply with all environmental and payment obligations and all other obligations which may be contained in any Community Development Agreement signed by the mineral titleholder.9
Pursuant to Section 3 of the Mining Act, certain lands are excluded from minerals exploration and exploitation. These include lands: occupied by any town or village; held as burial grounds, ancestral, sacred or archaeological sites; appropriated for a railway or situated within fifty metres of a railway; within fifty metres of any government or public building, reservoir, dam or public road.
The Mining Act specifically prohibits mining operations in areas held to be sacred, and the destruction of anything which is the object of veneration. A Licencee or lessee will be required to pay fair and adequate compensation to persons or communities affected by such injury or damage.
As noted above, prior to the commencement of any development activity in an area, the holder of a Mining Lease is required to conclude a Community Development Agreement (CDA) with the host community in which operations are to be performed, for the transfer of economic and social benefits.10 The CDA is subject to review every five years.
In addition, every holder of a mineral title is required to minimise the environmental impact resulting from activities carried out in the area subject thereto, and reclaim and rehabilitate disturbed lands, as far as is reasonably practicable.11 Compliance in this regard is monitored by the Mines Environmental Compliance Department of the Federal Ministry of Mines and Steel Development.
Where a mineral title is granted to someone other than the owner/occupier of the subject land, there are provisions in the Mining Act and the Mining Regulations which allow the owner/occupier of such land to use it for cultivation and grazing purposes, so long as it does not interfere with the mining operations. For example, section 72 of the Mining Act guarantees the rights of a lawful occupier or holder of a certificate of occupancy, of any land upon which a mining lease has been granted, to graze livestock or cultivate the surface of the land; provided that such grazing or cultivation does not interfere with the mining operations in the mining lease. Further, there are provisions in the Mining Act and the Mining Regulations regarding payment of compensation by the mineral title holder to the occupier/land owner for interference with land rights. Pursuant to section 70(1)(j) of the Mining Act, a Mining Lease holder is required to compensate owners or lawful occupiers of land for the revocation of their rights to use the land under the Mining Act. Also, pursuant to section 107 of the Mining Act and section 162 of the Mining Regulations, a mineral title holder is required to pay to the occupier of the land held under a state lease, or right of occupancy, reasonable compensation for interference with the surface rights of the owner or occupier, and damage done to the surface of the land, crop, economic tree and building. It is pertinent to note that the amount of compensation payable is to be determined by the Mining Cadastre Office after consultation with the State Minerals Resource and Environmental Management Committee and a Government Licenced Valuer.
Applicable environmental law
Environmental issues are an important part of any mining project. Environmental impact assessments and monitoring and management plans will usually form part of the feasibility studies. If a mining company seeks finance from the international lending community, it is likely to have to comply with established environmental standards such as the Equator Principles or the IFC environmental standards. There are also provisions in the Mining Act which require a mineral titleholder to comply with certain environmental obligations, including carrying out mining operations in an environmentally friendly manner. There are also mine and safety provisions contained in the Mining Regulations.
Section 119 of the Mining Act requires every holder of an Exploration Licence, Mining Lease, Quarry Lease and Water Use Permit to submit to the Mines Environmental Compliance Department: (i) an environmental impact assessment statement, approved by the Federal Ministry of the Environment; and (ii) an Environmental Protection and Rehabilitation Program, before the commencement of mining operations or upon application for extension of term of a mining Licence or lease.
Further, section 2 of the Environmental Impact Assessment Act (EIAA) restricts undertaking, embarking or authorisation of projects or activities without prior consideration, at an early stage, of their environmental effect. An environmental impact assessment is to be performed before activities commence. The Nigerian Environmental Protection Agency is the regulatory body responsible for performing this assessment.
It is also worth noting that section 1 of the Harmful Wastes (Special Criminal Provisions) Act prohibits the purchase, sale, transit, transportation, deposit or storage of harmful waste.
The National Environmental Standards and Regulation Enforcement Agency (NESREA) Act establishes the National Environmental Standards and Regulation Enforcement Agency (the Agency). The Agency is responsible for the protection and development of environment, bio-diversity conversion and sustainable development of Nigeria’s natural resources in general. The Agency is also responsible for the enforcement of all environmental laws, guidelines and policies in Nigeria. The NESREA is administered by the Federal Ministry of the Environment.
Environmental review and permitting process for a mining project
As noted above, section 71 of the Mining Act provides pre-conditions for the commencement and development of any work or extraction of mineral resources on a Mining Lease area. The pre-conditions include:
- submission to and approval by the Mines Environmental Compliance Department of all Environmental Impact Assessment Studies and mitigation plans required under applicable laws and regulations
- submission to and approval by the Mines Inspectorate Department of the details of the work which the applicant is prepared to undertake or a programme for carrying out any minimum work obligations imposed by the Mines Inspectorate Department
- conclusion of a Community Development Agreement approved by the Mines Environmental Compliance Department
- the holder has duly notified, compensated or offered compensation to all users of land within the Mining Lease areas.
It is worth noting that, pursuant to section 7 of the Environmental Impact Assessment Act, before the Nigerian Environmental Protection Agency (the Agency) gives a decision on environmental assessment of an activity, the Agency is required to give the government agencies, members of the public, expert in any relevant discipline, and interested groups, the opportunity to make comments on the environmental impact assessment of the activity.
Any Environmental Impact Assessment (EIA) has to be approved by the Federal Ministry of Environment; and an EIA approval and certificate will be issued in relation thereto.
There is no statutory obligation requiring the employment of local personnel or recruitment of local contractors or sub-contractors. However, a non-Nigerian would require work permits and expatriate quotas to work in Nigeria.
It is worth noting that in order to obtain work permits and expatriate quota, the applicant would need to show that his type of expertise is not available locally and that the company will put in a program pursuant to which local personnel would be trained to assume such role in the future.
The Nigerian Immigration Act is the legislation regulating the employment of foreign personnel in Nigeria (NIA). Pursuant to the NIA, Combined Expatriate Residence Permit and Aliens Card (CERPAC) is required for expatriates who are resident or working in Nigeria. This is a document which may be applied for and is issued by the Nigeria Immigration Service (NIS). Alternatively, expatriates who are invited to provide specialised skilled services for a short period may apply for a Temporary Work Permit (TWP) from the NIS.
We have set out below a summary of the taxes which are most commonly imposed on a mining company in Nigeria:
A mineral titleholder who obtains any mineral in the course of exploration or mining operations is liable to pay royalty. The royalty is calculated on an ad valorem basis. The Minister may reduce or waive royalty on any mineral which the Minister is satisfied is being exported solely for the purpose of analysis or experiment or as a scientific specimen. The rate of royalty is either 3 per cent or 5 per cent depending on the type of minerals. The royalty rates for selected minerals are contained in schedule 4 of the Mining Regulations. The rates applicable to the most commonly mined minerals are set out below:
Annual service fee
A mineral titleholder, other than the holder of a Reconnaissance Permit, is required to pay an annual service fee to the MCO in an amount equal to the number of cadastral units that comprise the title area multiplied by the fee per cadastral unit for the type of title.
Pursuant to the Companies Income Tax Act, mining companies operating in Nigeria are required to pay income tax at the rate of 30 per cent of total profit. However, if the mining company’s turnover is below NGN1 million within the first five years of commencement of business, it will be liable to tax at the rate of 20 per cent.
Nigerian companies engaged in mining activities are also liable to education tax at the rate of 2 per cent of assessable profit.
Capital gains tax
Gains arising from the disposal of assets are taxed at the rate of 10 per cent. Taxable assets include land and buildings situated in Nigeria, as well as plant and machinery.
There are no restrictions on the importation of machinery and equipment required for mining activities; however, such imports are subject to the payment of import duty on the equipment. Most items of mining machinery and equipment are subject to an import duty of 5 per cent.
A number of transactions attract stamp duties. These include incorporation of companies, increase in companies authorised share capital, mortgage bonds, debentures and dealing in securities, settlement of estates and conveyance of property.
The tax advantages and incentives available to private parties carrying on mining activities in Nigeria are set out below:
- Section 36 of the Companies Income Tax Act (CITA) grants tax exemption to a new company going into the mining of solid minerals for the first three years of its operation.
- Section 28 (2) of the Mining Act provides that this initial tax relief period may be extended by the Minister of Mines and Steel Development for a further period of two years.
- Pursuant to section 30 of the Mining Act, costs incurred with respect to environmental protection, mine rehabilitation, reclamation and mine closure are tax deductible.
- Pursuant to section 33 of the Mining Act, the Minister may defer payment of royalty payable on any mineral for a number of years, subject to the approval of the Federal Executive Council.
- Pursuant to section 25 of the Mining Act, personal remittance quota for expatriate personnel is granted free from any tax imposed by any enactment for the transfer of external currency out of Nigeria.
- Pursuant to Section 24 of the Mining Act, a mineral titleholder is allowed to deduct from its assessable profits a capital allowance of 95 per cent of Qualifying Capital Expenditure incurred in the year in which the investment is incurred.
Transferability of funds
The Mining Act does not place any restriction on transferability of funds for mining activities. Section 27 of the Mining Act guarantees free transferability of funds through the Central Bank in convertible currency of payments in respect of loan servicing, where a certified foreign loan has been obtained for mining operations; and for the remittance of foreign capital in the event of sale or liquidation of the mining operations or any interest attributable to foreign investment.
However, neither the Mining Act nor the Mining Regulations specify the requirements for the certification of a loan. When one looks to the Central Bank of Nigeria Foreign Exchange Manual, it states that an Authorised Dealer is required to issue a Certificate of Capital Importation (CCI) to an investor within 24 hours of the receipt of the capital. An Authorized Dealer is required to issue the CCI on the basis of the following documents:
- Where the investment takes the form of Inflow of Funds:
- tested telex message advising payment
- board resolution of the local beneficiary authorizing the investment
- purpose of capital importation
- evidence of incorporation where applicable.
- Where capital takes the form of equipment/machinery or raw materials:
- original final attested invoice/clean report of inspection
- certified copy of bill of lading (original to be sighted)
- certified copy of bill of entry/single goods declaration form (original copy to be sighted)
- original import duty payment receipt bearing single goods declaration form number.
An Authorised Dealer, as referenced above, refers to any bank Licenced under the Banks and Other Financial Institutions Act 1991 as amended and such other specialised banks issued with licence to deal in foreign exchange.
Further, pursuant to section 19 of the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, all exporters of goods are required to open and maintain a foreign currency domiciliary account; to which foreign currency corresponding to the entire proceeds of the exported goods concerned will be deposited.
Security over mining rights
The rights arising from a mineral title may be wholly or partially assigned, subleased, pledged, mortgaged, charged, hypothecated or made subject to any security interest12 in favour of a third party. It should be noted, however, that the Mining Act and the Mining Regulations are silent on whether a mining title can be made subject to an option right in favour of a third party.
The Mining Act requires that the approval of the Minister be had and obtained before transfer of mineral title. Pursuant to Section 2 of the Mining Regulations, ‘transfer of mineral title’ is defined to include assignment, mortgage, pledge, sublease, charge or hypothecation. Further, pursuant to section 147 of the Mining Act, a charge, encumbrance or option affecting a mining title has to be registered with the MCO.
The MCO maintains a series of files known as the Mining Cadastre Office Registers which contain the particulars of all the mineral titles granted under the Mining Act; as well as any encumbrances or charges created in relation thereto. Therefore, it is possible to conduct a search at the MCO to ascertain the status of any permit.
For the purpose of conducting searches at the MCO, the applicant is required to make a written application to the MCO, together with payment of a N50,000 application fee. The MCO then conducts the relevant search and issues a search report to the applicant. The MCO usually give a timeline of two weeks within which the MCO will issue a search report from the date of application.
Nigeria is a signatory of the New York Convention. Nigeria acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on March 17, 1970. The convention is reproduced as Schedule 2 to the Arbitration and Conciliation Act. The convention entered into force on June 15, 1970. It establishes a framework for enforcement of foreign arbitral awards; although the enforcement process and how Nigeria approaches defences to enforcement are a matter of local law.
Nigeria is also a signatory to the International Centre for Settlement of Investment Disputes (ICSID) Convention.
Public sources indicate that Nigeria has bilateral investment treaties (BITs) with Finland, France, Germany, Italy, Korea, the Netherlands, Romania, Serbia, Spain, Sweden, Switzerland, Taiwan and the United Kingdom.
1 The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code) is widely accepted as a standard for professional reporting purposes.
2 January, 2014.
3 Section 60 of the Mining Act.
4 Section 68 of the Mining Act.
5 See Sections 34, 44, 66 & 55 of the Mining Regulations.
6 Section 44 of the Mining Regulations.
7 Paragraph 22 of the Mining Regulations.
8 Section 71 of the Mining Act.
9 Section 110-114 of the Mining Act.
10 Section 116 of the Mining Act.
11 Section 118 of the Mining Act.
12 Section 147 of the Mining Act.