Nigeria has the largest economy in Africa with a GDP of approximately US$376 billion in 2017 and is also the continent’s most populous nation, comprising of close to 200 million citizens according to latest UN estimates. Therefore, it is a great surprise to learn that Africa’s primary economic engine consumes only 6.8 million tonnes per annum (Mtpa) of steel, giving Nigeria one of the lowest levels of consumption per capita in the world. More than half of Nigeria’s steel demand is met from imported goods, with the balance provided by domestically produced, low quality steel largely from recycled metal. However, Kogi Iron plans to drastically enrich Nigeria’s domestic steel industry by setting up the country’s first integrated cast steel project in Kogi State.
Kogi Iron is an ASX-listed company that has been in operation for around 10 years, with its primary asset the 100%-owned Agbaja iron ore project located near the town of Lokoja in central Nigeria. The project is operated through Kogi Iron’s 100% owned partner – KCM Mining.
All currently required licences and permits are in place at the project level, says Kogi Iron’s CEO and managing director Martin Wood, and the resource has been estimated at 586 Mt with an in-situ grade of 41.3% Fe from a 2014 pre-feasibility study.
The company’s initial plan was to prove up the resource, develop the mine and then export the iron ore out of Nigeria. However, it soon became clear that this wasn’t going to work, primarily for two reasons: Iron ore prices had receded after the China-led boom ended in 2014, and the process of transporting the produce from Lokoja down to Warri Port in the South became too complex.
Pivoting towards steel production
“About two years ago the idea was floated to pivot from being an iron ore exporter to a local steel producer,” reveals Wood. “The idea was that we would build a steel mill in front of the iron ore deposit.
“We’ve also got access to two local sources of coal and there is lots of readily available limestone in the region, therefore we have all the ingredients needed to produce steel for the home markets.”
As it transpired, all the factors that made it difficult for the company to export its product lent themselves to becoming an import replacement play, says Wood. Logistically speaking, from the project’s central location potential offtakers could be found in a horseshoe arc down to Lagos in the Southwest and Port Harcourt in the Southeast.
In this scenario, Kogi Iron can truck its steel product down to these regions, as opposed to having to barge iron ore down a river before loading it onto a narrow gauge railway to eventually reach Warri Port. In addition, the integrated project would operate inside the Nigerian Tariff Barrier which is a major plus for the firm.
Since deciding to pivot towards integrated steel production, Kogi Iron has carried out a number of tests on its iron ore to determine its suitability for the manufacturing of international quality steel products.
The company employed consultancy groups Tenova, SGS Bateman and Mintek RSA to perform a bulk sample test work programme in July last year. The mineralogy specialists ran successful tests which confirmed the suitability of Agbaja iron ore to produce a high quality steel product.
Russia-based specialist Torex also confirmed the viability of Kogi Iron’s two local sources of coal for use in the rotary kilns as part of the sponge iron process. “Once you know you can produce a high quality steel product, then you know the project is a go,” Wood declares. “Our idea is that we are inured to the international prices of coal and iron ore because we have our own supplies.
“We will produce a cast steel product that will be sold to the rolling mills that are currently operational in Nigeria. In order to check that thesis, we recently commissioned Fast Markets to carry out a market study for us.”
The Fast Markets study concluded that Kogi Iron would be able to sell one and a half million tonnes of its steel product in Nigeria and into neighbouring countries, which is an encouraging sign for the company at this stage.
Nigeria’s current domestic rolling mills predominantly use imported scrap metal to produce low quality items such as rebar and hot/cold rolled steel and wire coils. Therefore, the Fast Markets report indicated that there will be no shortage of demand for the company’s higher quality material.
DFS and project financing
Kogi Iron is currently working through its definitive feasibility study (DFS) and has commissioned an independent engineering consultancy called McLellan and Partners to conduct an interim review of the company’s progress at the Agbaja project.
“That review is going to give us objective numbers on the capex needed to build the project and the opex required to run the facility. It will also give us a pathway towards the full DFS, advising on things like what tonnage we should be producing and where we should be sourcing equipment from.”
In terms of project financing, the firm has been in discussions with export credit agency (ECA) lenders for quite some time and has made sure that each potential ECA is kept firmly in the loop with regards to key milestones and news pieces.
For example, after the Tenova, SGS and Mintek sample test work programme was completed, the results were shown to the ECAs in order to demonstrate that the work fits the necessary criteria. Kogi Iron will continue to share goals and milestones with potential lenders to keep itself ECA compliant.
“That means that when we finish all our studies, assuming the DFS is positive, we will have taken ECAs with us on our journey and they will have a very short turnaround in deciding whether or not they can lend to us,” says Wood.
It has been indicated that ECAs will be willing to lend up to 70% of the project cost, leaving the company with 30% to raise through equity. Kogi Iron is considering various options for this equity raise, including a second listing on an international exchange.
“One of the options we are exploring is a dual listing in London to raise that 30% capex to finish off the project. That would give us a good footprint in London and allow investors in who understand West Africa, steel and the long-term economics of the project.”
Wood believes the UK exchange has a very strong understanding of African markets along with a large Nigerian contingent residing in London, which makes it a highly suitable option for a secondary listing. “That would be a conceivable path to market and liquidity for us,” he adds.
A social licence to operate
Aside from moving through the technical and financial aspects of the Agbaja project, Kogi Iron has also developed a highly attuned social licence to operate in Nigeria, which is rooted in the notion of providing local, regional and national benefit from its presence in the country.
On a local level, the firm has negotiated a thorough community development agreement (CDA) with the paramount ruler of the region, who presides over the more than 60 communities which will be impacted by the development.
“Through the paramount ruler, a local lawyer and local dignitaries who represent the stakeholders, we negotiated a CDA which ensured local employment opportunities in both unskilled, semi-skilled and skilled roles, to ensure that local benefits will accrue”
Kogi Iron’s national subsidiary KCM Mining is led by a geologist named Alabi Samuel, who is Lokoja born and bred which has helped the company form strong relations in the surrounding communities, not least with the paramount ruler.
“His [the Paramount Ruler] view is very overtly what can we do for you, not what can you do for us. On several occasions he has said: ‘I know there is nothing in it for us now but we can see the future jobs and education for Lokoja which are being driven by this economic engine you are building’. That’s a very sensible, mature approach and I love it.”
Kogi Iron also maintains strong relations at state and federal level, including with the Minister of Mines and Steel in Abuja. “When we first had some steel produced from our own iron ore by Mintek, they sent us some samples,” Wood explains.
“I took a sample and gave it to the Minister of Mines and Steel as a paperweight. It’s the first steel produced by Nigerian iron ore, so he was really pleased about. It was a nice gesture from us.”
Kogi Iron is making strong progress towards its goal of developing Nigeria’s first primary steel production facility, which is set to bring myriad benefits to the local communities in Kogi State and to the Nigerian economy.
Above all, Kogi Iron must be commended for developing the operation in-country through its 100% owned partner KCM Mining and for advancing a project that will support Nigerian industry and Nigerian people.