Mining Royalties in Nigeria

When people think of Nigeria and its economy, they probably think of oil. Those with (very) long memories may also think of cocoa, palm oil, groundnuts or leather. But Nigeria is also well endowed with minerals, and was a recognised mining centre at one time. Port Harcourt is a major centre for the petroleum industry, but its port was established in order to export coal mined in Enugu. Enugu is an industrial city (and was the capital of the breakaway state of Biafra), but was once the centre of a coal mining industry, and I remember seeing a road there called Colliery Avenue. Jos was a significant tin mining centre.

These days, most mining is construction materials, limestone for use in cement manufacture, coal (much of it used also in the cement industry) and relatively small scale mining of other minerals. However, there are some working gold mines (including the Segilola mine, owned by Thor Explorations Ltd which is listed in Canada and the UK).

The country hopes to re-build its mining industry, to make better use of the minerals it has been endowed with, and to diversify its economy.

Nigeria imposes royalties on the production of minerals, which is normal practice. Royalties are a useful method of raising revenue from the mining industry. However, they can be a rather crude tool to do this. If they are imposed at a flat rate (say, x Naira per tonne or cubic metre), that rate will not have a relationship with the value of what is produced. If prices increase, the government may be dissatisfied with what it is receiving. Conversely, if prices fall, the miners may be dissatisfied with what they are paying. In extreme cases, this could affect the economic viability of the mine, or could lead to the miner prioritising the extraction of higher grade parts of the ore body, which in turn may lead to the mine being exhausted earlier than could have been the case.

If the royalty is linked to profit, then it starts to look more like an additional income tax, but brings some extra complexity to the tax system.

The more normal method, which is the one used in Nigeria, is to impose the royalty as a percentage of the value of what is produced. This gives the government some exposure to increased prices (but also exposure to reduced prices); and also gives the miner a connection between the value of what is produced and the amount of the royalty to be paid. As the royalty creates an increase in cost, it can still affect profitability, and the economic cut-off grade below which ore cannot be economically extracted (and therefore sterilises some part of the ore body), but the effect should be less extreme than with a flat rate royalty.

At the moment, Nigeria’s royalties are administered by the Ministry of Solid Minerals. A long list of minerals has been published, which is updated periodically. The list shows the royalty to be charged as a percentage of value, but then goes on to state the “approved market value” on which the royalty is based. This approved market value may be close to the actual market price, at least at the time when the list is produced, but this is not certain. As an example, the approved market value of gold is NGN 1 081 200 per ounce, which is about USD 750. The quoted price for gold on 12 November 2025, on the London market, is USD 4 138 per ounce. In July 2024, when the royalty list was last updated, the London price was about USD 2 300. These figures suggest that the value used to calculate the royalties is not always closely related to the actual market value, and this may have led to one of the issues we will discuss below. The real effect of the current approach is that the royalty is a fixed amount per unit of production, until the approved market value is changed.

This approach also means that the deemed value on which the royalties are based only changes infrequently, when the list is reissued. The current list was issued on 4 July 2024. The previous version was dated in May 2022, and the one before that was in 2011.

The effect of the change in 2024 was to double the royalties, by doubling the approved market value for most minerals.

The Nigerian Tax Act (NTA) will bring some more changes, which might be significant. These changes take effect on 1 January 2026, and are listed below:

1. Royalties will now be collected by the Federal Inland Revenue Service, rather than by the Ministry of Solid Minerals.
2. Royalty rates will be increased, and will be between 7.5% and 15%. Again, there is a long list of minerals, and any mineral that is not specifically listed will be subject to a royalty rate of 10%.
3. The royalty will be ad valorem (as now), and will be charged on any mineral extracted. So, royalty is payable even if the person who mined it also uses it, rather than selling it. It is payable when the mineral is “obtained.” That is probably when it is excavated, but could be when the mineral is separated from waste material. This may depend on the exact mineral, how it is sold, and how it is separated from other material. As an example, gold is typically concentrated at a mine and then processed into a gold doré bar. This will then be refined into pure, selling grade, gold, at a gold refinery. If the gold is refined on behalf of the miner, then it can be said that the gold has only been “obtained” when the gold has been refined. However, this maintains the current position under the Nigerian Minerals and Mining Act, under which royalty is also payable on mineral “obtained.” Mineral obtained during an exploration phase is also subject to royalty, both under the current Nigerian Minerals and Mining Act, and the NTA.
4. The royalty will no longer be charged on an “approved market value,” but rather on either the “official selling price” specified by the Ministry of Solid Minerals, or quoted on an international trading platform or market. This is a bit vague, as it does not clearly state which value should be used if the official selling price is different to an international quoted price. If the Ministry of Solid Minerals does not specify an official selling price, and the mineral has a price quoted on an international platform or market, this could lead to the royalty being charged on a price rather higher than the current approved market value. Minerals or products such as nickel, copper, tin, lead and zinc have international quoted prices, from the London Metal Exchange (LME) and New York Mercantile Exchange among other markets. Gold and silver prices are quoted by the London Bullion Market Association (LBMA) among others. The LME offers contracts, and thus prices, for cobalt and molybdenum, and also for lithium hydroxide. However, the price for molybdenum and for lithium hydroxide are for futures contracts only. It is not clear from the wording of the legislation which quoted price should be used.
5. Royalty is to be paid by all producers, even if they are small scale or artisanal.
6. Some example rates, and how these compare to the 2024 list, are shown below

Overall

The new royalty regime will commence on 1 January 2026. Producers of minerals will in future pay the royalty to the FIRS. The royalty rates will increase significantly, and this is likely to be exacerbated by the new royalties being based on an official selling price (if one is announced) or on an international quoted price (if one exists). There are some uncertainties in how the royalties will be applied, and at which point they are payable.

Increases in royalty rate can upset the economics of a mining project, and reduce its viability. This can lead to the miner selectively mining only higher grade or, or even closing the mine prematurely. In the case of mining projects in the exploration or development phases, an increase in royalty can influence a decision not to proceed with the project, or to reduce its scale.

Furthermore, frequent changes/ increases in royalty rate may also affect mining projects, by making the investor more uncertain of future royalty rates. Mining projects are normally very long-term projects, taking a long time from the start of exploration to a decision to proceed with developing a mine, to bringing it into production. Uncertain future royalty policies add to the existing uncertainty about the future, and thus make it more difficult to satisfy the investor that they should proceed with the investment. These changes in the NTA are not likely to encourage investment in Nigeria’s mining industry, and thus may not be seen as helping the country to rejuvenate this sector of the economy.

If your organisation is investing in, operating, or advising on mining projects in Nigeria, these changes matter. The new royalty regime will reshape project economics, investment decisions, and long-term viability across the sector.

If you’d like to understand how these reforms could affect your mining operations or planned investments, please get in touch with us.