In the last couple of days, Ajaokuta Steel Company has resurfaced in the mainstream media with calls by various stakeholders for its resuscitation.
No doubt the moribund steel plant conceptualized in 1958 holds lots of promises for the country. The entire project is located on 24,000 hectares Greenfield land mass with the plant itself sitting on 800 hectares of land bordering the River Niger.
The Ajaokuta Steel Complex is an integrated metallurgical process cum engineering complex with an erection base for the sub-assemblage of all the steel plant equipment and facilities before erecting.
Importantly, the upstream and downstream industrial and economic activities critical to the diversification of the nation’s economy along the path of industrialization are embedded in this single complex.
Some stakeholders have recommended that the Federal Government should avert a commercial risk exposure by an out-and-out closure of Ajaokuta on the ground that it is not economically viable.
Some have said that the technology in place at the steel plant is obsolete;as such the government should jettison the idea of bringing it to life.To a very large extent, Ajaokuta is viable, and the technology in use, is far from obsolete.
The technology undergirding the Steel Complex is Blast Furnace-Basic Oxygen Furnace (BF-BOF) process route for the production of Iron and Steel. According to findings, The (BF-BOF) process route is the most versatile means of producing large quantities of crude steel. From year 2010 world steel production statistics, about 75% of the world output of Liquid Steel is produced through thisprocess line.
The process is usually referred to as the conventional Steel Making Process because of its wide acceptability and applicability. This technology has been in use for over a century in Russia and Ukraine.
The same Russians, under the then USSR, supportedPakistan set up the Pakistan Steel Mill which is still running with this technology.
This is however not to say there have been no technological improvements over the years.
A functional Ajaokuta will save the country several billions in foreign exchange annually, as Nigeria imports over 4 million tons of rolled steelproducts and over 12 million tons of other steel products.
It has the capacity to employ over 10,000 people in the first phase, and create 500,000 employment opportunities from the downstream and upstream industries that will service the plant. The impact of this sleeping giant if it ever rises is across board.
Little wonder it is seen as the bedrock of the nation’s industrialization.All options considered, the functionality of Ajaokuta can only be achieved outside of government’s direct involvement. Government’s responsibility is to create and ensure the sustenance of an enabling environment. Ajaokuta should not be run by government.
Neither should it be unbundled for it is an integrated steel plant with each unit dependent on the other for results. An out-and-out closure of Ajaokuta as recommended by some stakeholders is not an option as the plant is already 98% completed with well over $5 billion spent over the years. The lead option is to privatize this all important asset.
The British Steel Cooperation formed in 1967 was privatised in 1988 to become the British Steel PLC, before an eventual merger with Koninklijke Hoogovens to form Corus Group in 1999, and now Tata Steel Europe. It is currently the second largest steel maker in Europe.
While we await the magic wand that will turn around the fortunes of Ajaokuta, it is important to note the presence of an Australian based iron ore development company, Kogi Iron Limited (ASX: KFE) and its’ 100% owned Nigerian operating company, KCM Mining Limited.
In 2014, it listed on the floor of the Australian StockExchange with a 1:5 entitlement offer at $0.03 which raised $1.921 million.
The Company holds17 iron ore exploration licenses in Kogi State, with its main focus being EL12124, which coversmore than half of the Agbaja Plateau and within which is the Agbaja iron ore deposit.Available documents indicate that the Agbaja Plateau hosts an extensive, shallow, flat-lying channel iron deposit and Mineral Resources currently estimated at 586 million tonnes at 41.3% Fe (within EL12124) (Agbaja Mineral Resource).
It is said that the Agbaja Mineral Resource is one of the highest grade beneficiable iron ore resources in West Africa.
Please note that the estimated 586 million tonnes covers only 20% of the Agbaja Plateau area within EL12124. Overall, the company has an Exploration Target of between 1.8 billion tonnes and 3Bt at 32% to 48% iron that offers further growth potential.
Prefeasibility studies conducted by Kogi Iron Limited established a robust economic and technical viability of a 5 million tonnes per annum iron ore project at Agbaja with an IRR of 23.7% and estimated pretax NPV of US$420 million based on a long term forecast of FOB price of US$73.00/t.
Based on the studies, the company had set out to establish a US$ 497.1 million mine in Agbaja with an operations cost of USD$42.98 million with an elaborate plan for mines development, processing and concentrate production.
The most interesting part for me is its barging and transhipment process. Rather than trucking and rail, barging was identified as a low cost form of bulk commodity transportation. Rail cost is put at around 2 to 2.5 times more than that of barging.
A study work commissioned by the company demonstrated that the barging and transhipmentof iron ore concentrate from Banda via the Niger River to the Gulf of Guinea is not only feasible, but highly economical. According to the report,”Barge loading will be by a travelling, luffing, telescoping barge loader filling Mississippi type barges, in a configuration of four barges.
This configuration will have dimensions of 21 m beam by 286 m long and designed to carry loadsof 4800 t to 8000 t depending on river water levels. The river barge configuration will be propelled by shallow draft four engine push boats with a preferred speed of 10 knots.
The iron ore concentrate will be transported around 602 km from Banda along the Niger River to the Escravos Transfer Station in the Niger Delta, the travel time will be approximately 33 hours.
From documents dating November 2015, the Kogi Iron Limited had changed its plans thanks to the drop in global steel prices. Why the drop inthe price of steel? you might ask.
China forges 46% of the world’s steel and consumes far more than 75% of the world’s seaborne iron ore trade, but years of overproduction and unprofitability at the country’s giant state-owned mills have seen steel prices drop to record lows.
It would therefore no longer be profitable for Kogi Iron Limited to continue its planned operations based on a US$73/t long term FOB forecast.
The forecast had been downgraded to US$50/t. As I type this, it has dipped below$40/t. With an estimated operations cost of US$42.98/T, the initial plan had become a no no.
As we say in this part of the world, the Kogi Iron Limited had to go back to the drawing board. It has reviewed its strategy with a focus on the local market.
It now seeks to to build a smaller, commercial scale, integrated mine and process plant to produce a high quality low carbon steel feedstock product highly suitable as feed for existing electric arc furnace(EAF) operations in Nigeria. Existing Electric Arc Furnaces (“EAF”) steel producers in Nigeria currently import about2.8 Million tons per annum of scrap / billet products as feed. It has identified that a substantial market exists inside Nigeria as import replacement EAF feed.
This is no doubt consistent with the government of Nigeria’s aspirations to significantly reduce import dependency and diversify the nation’s economy.
There are no doubts also that the Federal Government under Muhammadu Buhari, the Ministry of Solid Minerals Development led by Dr. Kayode Fayemi, the incoming Kogi State Government led byAlhaji Yahaya Belloand otherstakeholders will create the enabling environment and provide all the support necessary.
Heritage Bank has already indicated willingness to facilitate in raising the debt finance required for building the plant in Nigeria.
Available timeline developed by Kogi Iron Limited indicates that activities will commence by the second quarter of 2016 running through first quarter 2018 when they hope to commission the plant.
As stakeholders in the sustainable development discourse as it relates to Kogi State and Nigeria as a whole, it is pertinent we engage with this whole process and have a clearer understandingof the issues.*.
Where is Agbaja in Kogi State?
I understand the Agbaja Plateau lies 15 km northwest of Lokoja, the Kogi State capital and165 km south west of Abuja. Has an Environmental and Social Impact Assessment(ESIA) been conducted? The Kogi Iron Limited states that the ESIA commenced in January 2013 and was conducted by Greenwater Environmental Services Limited (Greenwater).
What were the findings and conclusion of the ESIA?
According to company documents, the ESIA concluded that there are no environmental or social impediments for the development of the Agbaja Project.
In terms of environmental impact, the ESIA reported that the areas directly affected by Kogi Iron’s proposed mining and processing activities are predominantly low value scrub land and savannah woodland intercepted by grasslands,all of which have limited agricultural use or environmental significance.
There were also norare or endangered species of flora or fauna identified in the proposed mine and operationalareas and furthermore the ESIA stated that anticipated environmental impacts from planned mining, processing and associated activities can be mitigated and managed via the requisite Environmental Management Plan,submitted as part of the ESIA.
Is there a Community Development Agreement(CDA) between the Kogi Iron Limited and communities making the Agbaja Plateau catchment area?It is not very clear if there is CDA between the company and the communities, but a land consent agreement exists. Is there a Water Use Plan in place? I can’t say.
Is there a Mine Closure Plan?there should be one. Was an ESIA ever conducted for Ajaokuta Steel Company? I don’t know!
It is encouraging to see that an ESIA was conducted for the Agbaja project, but it would begood for sustainable development advocates to get copies of this document with a view to ensuring it conforms with best ESIA practices, and its conclusions valid.
It is also important to get a copy of the land consent agreement to ensure that the good people of Agbaja have not been short changed inany way.
A CDA is also a critical requirement. If an agreement has not been entered, efforts should be made to build the capacity of the communities to participate in the whole agreement process.
By the company’s initial prefeasibility, a mine plan of 21 years was established. What becomes of the “low value scrub land and savannah woodland intercepted by grasslands, all of which have limited agricultural use or environmental significance.”?
There is the need to also get a copy of the mines closure plan to ensure the low value land will not be left devastated.
Henry Agbonika is a Certified Knowledge Manager.
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