ASX-listed Kogi Iron has announced that it will adopt a staged funding and development programme to ensure the development of its Agbaja cast steel project, in Nigeria, continues to progress.
The company also revised down its initial envisaged production rate during Phase 1 of the project to 250 000 t/y to rather help protect shareholder value at the moment, considering the challenging environment.
The staged approach takes into account the impacts of the Covid-19 pandemic in the first half of the year and the subsequent economic challenges that have emerged in Nigeria.
Nigeria has been hit hard by the global drop in oil demand, considering that the country is a net exporter of oil and 95% of its export earnings are derived from oil.
Kogi has been unable to raise equity by its target date of June 30, given the virus and related volatile equity market conditions globally.
Additionally, the impacts of the oil price shock are adversely affecting near-term growth in the Nigerian economy, although ongoing government initiatives remain supportive of investment in infrastructure and the mining industry to diversify Nigeria’s economic base.
Kogi estimates the completion of a bankable feasibility study (BFS) for the Agbaja steel project will require about $8-million in funding.
Given current equity market conditions, the company has amended its expected timeline to the next five to six months to raise this full amount, with the timing being subject to no further decline in global equity markets.
Raising funds in the least dilutive manner may be best achieved by funding in stages, with initial funding sufficient to start early work and focus on “critical path” key value drivers.
These include, on the technical side, steel refining test work for removal of phosphorus and investment policy related to gas, electricity supply and market entry.
In parallel, Kogi’s in-country team will continue to progress the project’s environmental, social and governance engagement with local communities.
Engineering consultancy Tenova Pyromet South Africa has presented a draft proposal to carry out the required steel test work and plant design engineering for the Agbaja project’s BFS.
This is being amended to take a staged approach, to be progressed as sufficient funds are raised.
The technical work includes evaluation of building a steel plant producing 750 000 t/y of steel billet in a phased approach, with a Phase 1 capacity of 250 000 t.
The steel plant design will use conventional, well established and simple-to-operate technology, based on readily available inputs and raw materials.
This will enable the company to de-risk the commissioning and operation of the plant, reduce lead times for the build and mitigate the impacts of the economic downturn in Nigeria.
The technical work will also involve confirmation of removal of phosphorous from the feedstock iron-ore, on an industrial scale in the refining process step, based on the successful preliminary tests undertaken by Tenova and mineral technology company Mintek announced in September 2018.
This further test work is important as it is envisaged that Kogi will require any future contract for the design and construction of the steel plant to contain warranties that the plant will produce steel billets to industry specification. In turn, it is anticipated that these warranties will be required to secure project finance.
Meanwhile, from an investment policy perspective, Kogi will progress discussions with the Nigerian government to identify and secure the most cost-effective sources and availability of power for the steel plant and for the expansion of production capacity to at least 750 000 t/y.
Kogi anticipates that power will make up between 40% and 45% of the project’s operating costs.
The company is also planning to work with international corporate advisory groups and steel market consultants on a domestic market entry strategy to align with government objectives for replacement of steel imports.
The market entry strategy will help create investment policies that support growth of the domestic steel industry and the Nigerian economy.