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Back into Positive Territory



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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets are off to a positive start to the week in Europe and the US, in keeping with the price action we’ve seen over the last week since the new variant discovery.

Reports of the Omicron symptoms being less severe are boosting risk appetite but it’s too soon to get carried away. For one, we’ve seen this repeatedly since the initial news broke a little over a week ago. Markets have been very headline-driven and this is just the latest rally on the back of some positive reports.

While this may be the first in a slew of positive data around the new variant, it could also be the anomaly and what follows could explain why world leaders and various agencies have been so anxious. Let’s hope for the former but I expect extreme caution to remain until the data gives us cause for more optimism.

Weeks like this, the economic data would always play second fiddle but as it turns out, it’s looking a little thin on that front and central banks are in the same position as the rest of us. So the rest of the week will remain very Omicron headline-driven which will likely mean plenty more volatility.

By then, we may know a lot more which means the conversation can move on to the monetary response. Unfortunately, that comes too late for the RBA and BoC tomorrow and Wednesday, respectively, and perhaps just in time for the Fed, ECB, and BoE next week. If the news isn’t good on the variant then central banks are going to find themselves in an awful position, which could rock the boat somewhat.

Oil rebounds as Saudi Arabia boosts prices

Oil prices are bouncing back on Monday, up more than 2% after coming under significant stress last week. Reports of Saudi Arabia raising crude prices are apparently behind the move, although I’m not entirely convinced. Sure, it portrays confidence in the markets but it doesn’t alter the uncertain outlook in any way. I think it’s probably just a risk rebound as we’re seeing elsewhere.

Ultimately, the most bullish thing for prices is that Omicron is reportedly less severe and if more good news follows, we can all relax a little and the downside risks to the economy will abate. If the good news doesn’t follow, OPEC+ will pare back output and support prices that way. The question is how much the lows will be tested in the interim, if at all. Producers’ resolve has been tested before on many occasions.

Gold remains under pressure as USD creeps higher

Gold remains under pressure, as US yields at the shorter end of the curve and the dollar continue to creep higher. As is the case with every other asset class, the yellow metal will remain extremely sensitive to developments over the next couple of weeks as we learn how great a threat Omicron will pose and what the monetary response will be.

It’s found some support around $1,760 late last week where it has repeatedly done so since the middle of October. A move below here could see focus shift back towards $1,720 and then $1,680 which would be around the lows for this year.

Bitcoin partly recovers after crash

Bitcoin has had an eventful few days, having been pummelled on Saturday before recouping much of those losses. Whatever the cause of the flash crash, it hasn’t managed to fully reverse the losses and remains below $50,000. That could leave it vulnerable in the near term, especially with it struggling to track other risk instruments higher on the day. Bad news on Omicron could really put it under pressure.

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Mining: Potential Still Largely Untapped – Coronation Economic Note



mining sector

The mining sector is a crucial component of the industrial value chain, providing essential raw materials for the manufacturing and construction sectors.

Similar to the oil and gas sector, Nigeria possesses substantial reserves of metallic minerals, offering the potential for significant economic diversification.

However, Nigeria is yet to fully exploit this potential for industrial growth. Challenges confronting the sector include inadequate infrastructure for mineral extraction, processing and transportation, illegal mining activities, regulatory hurdles, and limited access to finance.

Almost a decade ago (in 2016), the FGN introduced a roadmap for the mining industry, to stimulate its growth and by extension, boost its contribution to total GDP to at least 3%.

Over the past five years, growth in this sector has averaged just 13.2% y/y. A positive surprise was the 25.5% y/y growth recorded in FY2022.

The latest national accounts for Q2 ’23 show that the mining and quarrying sector grew by 31.9% y/y in Q2’ 23 vs 20.9% y/y recorded in the corresponding period of 2022. On a q/q basis, it expanded by an impressive 342.2% but from a low base.

Despite growing global demand for select minerals driven by clean energy initiatives, the contribution of mining to total GDP in Nigeria is significantly low relative to other African counterparts. Increased investments (foreign and domestic) into the mining sector, better regulation and structure will improve mining output and positively impact GDP figures.

In 2015, the FGN identified seven strategic minerals – coal, bitumen, lead and zinc, limestone, iron ore, barites, and gold, for priority development.

This initiative is aimed at revitalizing the mining sector and diversifying the economy. However, to promote the development of these strategic minerals, it is crucial to expedite the planned concession of the Nigerian Iron Ore Mining Company (NIOMCO) and Ajaokuta Steel Complex Limited (ASCL).

Additionally, ongoing efforts to concession bitumen blocks should be completed to enable import substitution for steel and steel products.

The FGN should also provide support to local baryte miners and encourage processing facilities to add value, particularly for export purposes.

Regarding gold, Nigeria possesses substantial deposits with diverse applications, including jewelry, electronic plating, medical services, dentistry, and as a store of value. The FGN’s focus on the gold sector centers around the Presidential Artisanal Gold Mining Initiative (PAGMI), aimed at formalizing and organizing artisanal and small-scale gold miners across several states. Upon the implementation of PAGMI, the CBN will serve as the primary off taker of artisanal gold at international prices, thereby bolstering Nigeria’s bullion gold reserves.

We note that gold accounted for 3.4.% of Nigeria’s gross external reserves in 2021.

On the other hand, Nigeria boasts commercial quantities of “future minerals” like lithium, nickel, cobalt, and tin. However, these minerals are yet to be designated as strategic in Nigeria. There is a supply gap with these minerals given growing global demand. Therefore, creating revenue diversification opportunities for the FGN. For example, following the discovery of high-grade lithium deposits in Nigeria, several investors and mining companies have expressed interest in mining this resource.

Notably, a Chinese mineral separation company has been selected to construct Nigeria’s first lithium processing plant in Kaduna, with plans to manufacture batteries for electric vehicles locally.

We note that insecurity remains a prominent challenge in the mining sector as some mining regions remain prone to banditry and terrorism. The sector is also characterized by widespread illegal mining (i.e. mining operations that take place without state approval, mining licenses, land rights, or permissions for mineral exploration or transportation). This practice leads to smuggling, frequent violent communal clashes and environmental damage.

The absence of proper regulation poses a challenge for sustainability and revenue collection.

The Solid Mineral Development Fund (SMDF) established in 2007 and Mineral Sector Support for Economic Diversification Project (MinDiver Project) established in 2017 have been key government initiatives in providing funding for the sector.

However, funding is still inadequate. According to the latest data from the CBN, credit allocation to the sector by DMBs increased by 33.8% y/y to N84.4trn in Q1 ‘23. However, on a q/q basis, credit allocation to mining declined by -5% from N88.9trn in Q4 ’22.

The FGN has begun the review of the 2007 Minerals and Mining Act, which is one of the primary instruments governing minerals and metals policy in the country. However, a unified approach to regulating mining activities is essential, involving cooperation between federal, state, and local

For instance, currently, mining rights must be obtained from the FG, while land access rights fall under the jurisdiction of states and communities. Simplifying regulatory approvals into a single point of access would significantly boost investor confidence in the industry.

Other challenges facing the sector include the infrastructure deficit, geological data deficiency, double taxation as well as limited access to international markets and global supply chains.

The current administration has the responsibility of expediting fiscal consolidation efforts, primarily aimed at revenue generation, and has articulated ambitious strategies to unlock the potential of the solid minerals sector to attract foreign direct investment within the next 3-4 years.

These strategies encompass geospatial mapping initiatives to pinpoint mineral-rich areas for economic growth, partnering with state governments and security agencies to tackle security issues, crafting a new mining industry roadmap to reinvigorate the sector and establishing a framework to formalize and legitimize illegal mining activities.

The global mining sector increasingly considers environmental, social, and governance (ESG) factors. It is imperative that Nigeria’s mining sector embraces environmentally friendly mining methods and actively address ESG issues across all operations, acknowledging both risks and opportunities.

This approach not only benefits governments, shareholders, and workers but also the communities with mining activities.

Nigeria’s mining sector holds immense promise as a key driver of economic growth and diversification; with the right policies, investments, and commitment to responsible mining, Nigeria can transform its mining sector into a catalyst for job creation, foreign exchange earnings, and industrialization.

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Three Chinese Groups Vying to Acquire $2 Billion Botswana Copper Mine



Iron ore

In a race to acquire a lucrative Botswana copper mine, three prominent Chinese groups have emerged as leading contenders, with the potential transaction estimated to be worth around $2 billion, according to sources with knowledge of the matter.

Zijin Mining Group Co., MMG Ltd., and Aluminium Corp. of China, known as Chinalco, have all advanced to the second round of bidding for the prestigious Khoemacau project, the sources revealed.

Also, it has been reported that MMG is engaged in discussions to collaborate with Citic Metal Co., an entity within the Chinese state-owned conglomerate Citic Group. However, these talks remain private, and the sources requested anonymity in light of the confidential nature of the matter.

Implala Platinum Holdings Ltd., recognized as Implats, and fellow South African mining company Exxaro Resources Ltd. have also been shortlisted as potential suitors, the sources added.

Khoemacau’s primary shareholder, London-based private equity firm GNRI, is anticipated to select a winning bidder in the coming weeks, although discussions are ongoing, and there is no certainty that they will result in a final transaction.

This competitive pursuit of the Botswana copper mine reflects the global mining industry’s growing interest in expanding its copper holdings, given the anticipated surge in copper consumption driven by the demand for electric vehicles and renewable energy sources.

Khoemacau, which commenced operations in mid-2021 and has been steadily increasing its annual production to reach 60,000 tons, would further bolster the substantial copper portfolios already held by Zijin and MMG.

The mine, situated in the Kalahari copper belt spanning from northwest Botswana to western Namibia, has the potential for expansion to approximately 130,000 tons annually, as per information available on the company’s website.

When contacted for comments, representatives for Citic Metal, Implats, and Khoemacau declined to provide statements. Spokespeople for Chinalco, Exxaro, GNRI, and MMG did not immediately respond to requests for comment, while a representative for Zijin stated that they were not aware of the matter.

GNRI, formed as a result of a management buyout of Barclays Plc’s natural resources private equity business in 2015, retains its position as a key player in this high-stakes bidding process.

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Nigeria Plans to Establish 9,000 Autogas Filling Stations



Gas Plant

The Federal Government has unveiled its ambitious plan to establish 9,000 autogas filling stations across the nation within the next six months.

This transformative initiative is a pivotal component of the National Gas Expansion Programme (NGEP), designed to harness Nigeria’s abundant natural gas resources and revolutionize the country’s energy landscape.

Chairman of the NGEP, Dr. Mohammed Ibrahim, made this announcement during the Annual Training Workshop of the Nigeria Auto Journalists Association (NAJA).

The workshop’s theme, “Fuel Subsidy Removal: Autogas/Electric Vehicles as Alternatives,” underscored the significance of this bold energy transition.

The NGEP, conceived to unlock the full potential of Nigeria’s natural gas reserves, promises to usher in a new era of sustainable energy. Dr. Ibrahim passionately argued that autogas, especially in the wake of fuel subsidy removal, was the cost-effective and environmentally friendly choice for vehicles.

He confidently asserted that the administration’s pledge to create 100 million jobs was not only realistic but could be expedited through the NGEP.

The program introduces a multi-fuel scheme allowing vehicle owners to fill their tanks with either liquefied natural gas (LNG) or compressed natural gas (CNG) in addition to the traditional premium motor spirit.

According to Dr. Ibrahim, approximately 5 million conversion kits will be required to adapt 30 million internal combustion engine (ICE) vehicles to CNG or LNG. This monumental shift in the automotive sector has the potential to generate a staggering 12.5 million jobs, providing a significant boost to the economy.

He emphasized that if executed meticulously, autogas could be the catalyst for economic resurgence.

Explaining the NGEP’s multi-fuel scheme, Dr. Ibrahim said, “When you visit a filling station, you’ll find dispensing facilities for petrol, diesel, and kerosene. Additionally, you’ll have access to dispensing facilities equipped with cryogenic towers for LNG, CNG dispensing pumps, and charging points for electric vehicles. This creates a one-stop-shop for multiple fuel options, catering to the diverse needs of vehicle owners.”

Also, he highlighted the system’s adaptability, saying, “You won’t even need a separate CNG facility because, with a cryogenic tower, you can generate CNG from your LNG right at the station by simply adding a pump.”

However, despite the NGEP’s enormous potential, its 250-billion-naira fund, held in the Central Bank of Nigeria for the past four years, has remained untapped. Dr. Ibrahim expressed frustration over the stringent conditions attached to the fund and noted that calls to relax these conditions, made during the tenure of former CBN Governor Godwin Emefiele, went unheeded, rendering it inaccessible to companies involved in the autogas value chain.

As Nigeria stands on the precipice of a monumental energy transformation, the NGEP’s audacious plan to establish 9,000 autogas filling stations has the potential to reshape the nation’s economic and environmental landscape. If executed successfully, this initiative could herald a cleaner, more sustainable energy future for Nigeria while creating millions of jobs and fostering economic growth.

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