Kogi Iron

Pioneer iron ore and steel production to accelerate Nigeria’s industrial development

 


 

The wheels of full-scale industrialisation in Nigeria have been in motion for several decades following independence in 1960 and the establishment of a large-scale oil sector in the 1970s. However, achieving economic development through rapid industrialisation has remained a major challenge in Africa’s most populous nation and largest economy, which was still reliant on oil and gas for 65% of government revenues in 2018. Industrial development in Nigeria is generally constrained by high cost of supply and this is glaringly apparent in the raw materials market. Nigeria does not produce any domestic steel, which means its existing fabrication facilities are dependent on the import of all steel raw materials – most of which is scrap metal – to produce low quality items such as rebar and hot/cold rolled steel and wire coils. The high cost of importing scrap to produce low quality steel is an equation that has stunted industrial growth in Nigeria for too long and changing this requires a trailblazer. Step forward ASX-listed Kogi Iron. The company plans to deliver the country’s first fully integrated cast steel project on the Agbaja iron ore plateau in Kogi State, central Nigeria. 

 

“Ours is a pioneer project,” Kogi’s managing director David Turvey proclaims. “There isn’t any other steel production in Nigeria so we have first mover advantage, but that comes with good and bad sides to it. There isn’t much policy with it because nobody else produces, so we’re pioneering policy as well as producing steel.” 

 

Kogi spent the best part of a decade exploring, discovering and defining an iron ore resource at the Agbaja Project, located approximately 200 km South of capital city Abuja. The JORC-compliant mineral resource on the plateau has been estimated at 586 million tonnes (Mt) with an in-situ grade of 41.3% Fe. The project is Nigeria’s only JORC-classified iron ore resource. 

 

The company’s original plan for the project was to develop the mine and become an iron ore export play, but after evaluating the difficult logistics and escalating costs of exporting the ore, Kogi pivoted towards the idea of developing a fully integrated steel production facility, a move that Turvey describes as ‘a real paradigm shift’. 

 

“The Nigerian domestic steel market has both current demand and significant latent demand. If you can produce domestically than you are likely to benefit from that latent demand. At the moment, they are importing scrap steel at a very high price 

 

“If we can match that price and over time lower it, then were supporting the growth of the local industry. I see it as a unique opportunity to be the first, but also to work with the country in developing the policy for their first successful integrated steel plant. 

 

In order to build a lowcost steel producing facility, you need a few fundamental components, firstly a source of suitable quality and quantity iron ore. Tick. Reliable power supply is also a necessity. Fortunately for Kogi, running quite nearby the iron ore deposit is a large gas pipeline, ideally suited to supply a gas-fired power plant. Tick.  

 

“These are two very significant fundamental competitive advantages that are very rare in the rest of the world,” Turvey explains. Coal and limestone are the other ingredients required for steel making, and the company has noted that both can be drawn from local sources. Tick. 

 

Feasibility study work 

 

The company completed a substantial amount of pre-feasibility level work for the fully integrated project between 2014 and 2018, including the manufacturing of a sample steel product using iron ore mined from the Agbaja plateau and local coal. 

 

We took bulk samples of our iron ore and local coal down to South Africa and Mintek produced internationally marketable steel billet. Steel billet is a traded intermediate product, and that’s what we’re aiming at. We’re not looking at being a fabricator of rebar or the finished steel products, we’re looking at selling to the pre-existing steel fabricators. 

 

In 2018 Kogi hired Fast Markets to conduct a market feasibility survey, taking in all aspects of the contemporary steel industry in Nigeria and West Africa. The survey concluded that Kogi would be able to sell 1.5 million tonnes per year of billet steel in Nigeria and into neighbouring countries. 

 

Following the publication of the survey, Kogi received several expressions of interest from existing Nigerian steel fabricators which will be progressed into offtake discussions, although Turvey stresses this will take time and the company must arrange a strategy with the government for the eventual replacement of imports. 

 

“As a pioneer, we have an obligation to listen to what the government wants because there is no current steel production and it’s a mutual process. There has been quite a bit of time and effort spent on pre-feasibility studies on the steel side, including environmental work. We’re currently converting these to bankable feasibility level.” 

 

Many of these components will not take long to update to a bankable level, such as the upgrading of the iron ore resource to reserve classification (at a cost of approximately US$1 million) and the Fast Markets study, which should be a relatively straightforward task according to Turvey. 

 

Process flowsheet refining tests are another important aspect of the bankable feasibility work, particularly the chosen steel refining technique to remove phosphorous – a well-known contaminant. This refining stage is not a big capital item, but it’s crucial to receive sign off on the process guarantee from a world expert. 

 

Critical path value drivers 

 

These elements, along with confirmation of a gas supply contract, comprise the company’s ‘critical path six-month value drivers’ – a plan formulated by the board to essentially de-risk and expedite key parts of the study following the onset of the COVID-19 pandemic. 

 

“The bankable feasibility will take up to 18 months to complete and we will need to raise US$8 million to fund it. But we will probably only need $1-2 million for our key value drivers over the next six months. 

 

The steel test work in Sweden is expected to cost less than $500,000 and will probably take three months. Then the market entry is likely to be hand in glove with the gas supply contract, if not slightly afterwards.” 

 

The design engineering will be the longest lead item on the BFS because it is reliant on the refining process and power supply being in place. Once design engineering is complete, a six-month timeline is expected before equity and debt financing is secured, in Q2 2022 at the earliest. 

 

We’ve received positive feedback and progressed relationships with the UK ECA and with other banks on the debt side of project financingIt relates to the unique advantages of the Agbaja steel project and the quality of the investment opportunity destined in the bankable feasibility study, says Turvey. 

 

As a result of the impact of the COVID-19 pandemic on equity markets, and the subsequent economic challenges that have emerged in Nigeria this year, Kogi has decided to take a phased approach to the development of the project, which involves construction of a lower risk, smaller-scale steel billet plant. 

 

The plant’s design will allow for expansion to larger scale production capacity relative to market demand, but the phased approach means the front end of the project can be fast-tracked and de-risked, while easing the short-term funding conundrum the company would have faced under the original plan. 

 

Community support 

 

In Nigeria, mining companies are obliged to draft community development agreements (CDAs) for their projects far in advance of work on all technical and financial aspects, and it has been no different for Kogi, who finalised an early CDA back in 2016. 

 

The CDA details Kogi’s support for the local communities across four key areas: Education, health, infrastructure (power and water supply) and employment. Recently, the company has overseen the installation of a water bore and storage tank at one of the remotest villages near the project, it has provided education bursaries and contributed to maintenance work on a key access road leading to the plateau. 

 

“This has been rewarding for me to watch and report. The sooner we can raise money to fund the feasibility study, the sooner we can plough more into our community development commitments. I’m an explorer, I drive from the bottom up and unless I have that community support, it is not worthwhile. 

 

When the fully integrated Agbaja project is operational, Kogi expects to directly employ over 2,000 people and substantially more indirectly in related local businesses, and the creation of a modern mining and steelmaking hub will bring innumerable benefits to the local communities. 

 

These local ‘spin-off’ businesses will be based on sustainability practices for all water and wastes, and are in addition to the project itself supporting Nigeria’s ongoing path to industrialisation by providing a maiden source of domestic billet steel, after years of reliance on expensive imported scrap for steel production. 

 

As the country’s first domestic steel producer, Kogi is also working closely with the government to formulate an appropriate policy framework, thus opening the doors for others to follow in Kogi’s footsteps. 

 

Clearly, Nigeria has a lot to gain from Kogi’s pioneer project, but Turvey is keen to stress the mutually advantageous nature of the relationship“Now is the right time in a macro sense, because Nigeria is a big economy in Africa and it has highly intelligent, highly skilled people with a drive to succeed. 

 

Nigeria has a lot of the ingredients that can make this thing work – the iron ore resource, potential low-cost gas and power supply, British law, improved sovereign risk – and that is what attracted me.” Now it is full steam ahead towards the trailblazer company’s six-month and two-year timelines to bankable feasibility and beyond.