The Nigerian mining sector continues its long hibernation with a few flashes of activity in the formal sector and the billion-dollar underground illegal mining industry. Between financing challenges and a significant geological information gap, the sector has been reduced to its current sorry state where it contributes less than 1% to the nation’s GDP; a far cry from the reality in other African countries where mining is the leading export earner, especially for minerals which Nigeria plays host to in abundance. This article focuses on the potential for solving these twin challenges by harnessing alternative financing arrangements outside the local banking and capital markets.

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The State of Play
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The challenges in the mining sector are multi-fold. Among the direst are the surge in insecurity in key mining locations, the absence of detailed geological and mineral-related information necessary for decision-making, the cold attitude of financial markets towards greenfield mining deals, and difficulty in raising international funding, itself a result of unconvincing mines-related information and data.

These challenges have reduced the sector to its current state. While the mining industry possesses significant potential, the level of activities has been restricted to a few mines in the southwest, largely focused on gold, and the recent strings of Chinese-financed lithium deals in parts of Nasarawa and Kaduna, In these, and other successful commercial scale activities, the sponsors bore the cost of preliminary studies to establish base level information on the potential reserve values, in addition to more detailed studies required to make investment decisions. This significantly increases the cost of doing business in Nigeria, compared with other countries where the host government (national or provincial) makes requisite investments into acquiring and providing base-level data through their geological survey agencies and other similar bodies. Nigeria continues to lose investments to nearby countries due to the opacity or lack of easily accessible data on the location and potential values of its mineral resources.

Beyond the dearth of information highlighted above, the financial markets, including banking and capital markets, continue to shy away from investments in the mining sector. The absence of actionable information on the potential risks and rewards of any greenfield project remains a major barrier. Combined with the huge upfront cost of mining projects and the high cost of capital in the local markets, it is easy to see why local companies continue to struggle to raise funds from the local financial market and repeatedly rely on mining-friendly stock markets abroad, or resign themselves to quarrying activities and reselling licenses to foreign-funded companies.

Chart: Nigeria Interest Rate. Source: Trading Economics

Potential for Royalty and Streaming Financing

Royalty and streaming financing is an alternative financing structure where a royalty or mineral streaming company provides upfront capital to mining companies in exchange for future “streams” of cash and/or underlying metals. Both structures are similar to arrangements in other capital-intensive sectors, such as oil & gas and power, where sponsors provide upfront financing in exchange for future supplies of the underlying commodity at a pre-agreed price and quantity. The key difference between royalty financing and streaming financing is that in the former, the royalty company expects future flows of cash over many years, while in the latter, the streaming company expects physical delivery of the mined metals over a period of time.

The royalty and streaming financing option could be structured to achieve different aims. In the Nigerian mining sector, where the dearth of mineral data remains a key challenge, discouraging investment inflows and increasing the perceived risk in the sector, the financing option could be harnessed to close the information gap. An exploration company financed by royalty and streaming companies could focus solely on acquiring exploration licenses in promising areas and conducting detailed studies. The licenses and detailed data developed could, in turn, be sold to junior or senior mining companies looking for “shovel-ready” mining locations to develop. The deals could be structured as a cash purchase, with pre-agreed returns sent to the royalty companies, or as a royalty deal where the senior mining company provides a percentage of the cash generated from mineral sales in the location to the exploration company. The exploration company, in turn, sends part of the revenue to the royalty and streaming company that provided the initial financing.

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In addition to its potential role in rapidly closing the data gap in the mining sector and unleashing interest from investors and senior mining companies, the royalty and streaming financing option could serve as a viable source of financing for regular mining activities in Nigeria. The option is attractive for several reasons, the most obvious being its lower capital cost compared to local loans and bonds on the capital markets. The Central Bank of Nigeria’s focus on driving down inflation has led to significant spikes in interest rates, which in turn increases the cost of capital for local companies. With many banks and capital market operators charging above 24% per annum, and the potential to demand even higher rates for a risky sector like mining, the debt servicing cost for companies borrowing from the local markets is likely to be prohibitive.

Furthermore, the high capital cost puts these companies at a significant disadvantage vis-à-vis competing companies in low-interest environments. Royalty and streaming financing could ease the high interest rate pressure and enable Nigerian mining companies to compete with producers in other locations around the world.

Conclusion

The Royalty and streaming financing industry has enjoyed consistent growth since its debut in the 1980s, with total deals growing from just over $2 billion in 2010 to over $15 billion in 2020. Considering the aforementioned state of the mining industry in Nigeria, the royalty and streaming financing option could help plug the mining data gap, provide a reliable and cost-competitive financing source for local companies, and provide a potential new product to further deepen the Nigerian capital market if the products or securitised versions are standardised and traded on existing or new exchanges.

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References

Central Bank of Nigeria. (2025). Money market indicators. https://www.cbn.gov.ng/rates/mnymktind.html

Gold Royalty Corp. (2025). Royalty & streaming 101. https://www.goldroyalty.com/why-grc/royalty-and-streaming-101/

McKinsey & Company. (2021). Streaming & royalties in mining: Let the music play on. https://www.mckinsey.com/industries/metals-and-mining/our-insights/streaming-and-royalties-in-mining-let-the-music-play-on

World Gold Council. (2025). All-in sustaining costs. https://www.gold.org/about-gold/gold-supply/responsible-gold/all-in-costs#from-login=1

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