CBG Expansion

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The Compagnie des Bauxites de Guinée (“CBG” or the “Company”) holds the exclusive rights for the 579 km2 Halco (Sangarédi) or South Cogon mining concession granted by the Government until 2038. The concession straddles the Boké, Télimélé and Gaoual prefectures and has been continuously mined by CBG since 1973. In addition, CBG also holds the exclusive rights to a concession area of 2360 km2 issued in 2005 valid until 2040 which is the area north of the Cogon River, this has not yet been exploited and is not part of the current mine plan. CBG also operates (under a concession agreement from the Government of Guinea) a heavy-haul railway, 120 km in length, from Sangaredi to the CBG plant and port at Kamsar from where the bauxite is exported. All of these facilities have been in continuous operation since the mine opened in 1973. IFC and other lenders are proposing to fund an increase in production from the current 13.5 million tonnes per annum (“mtpa”) to 18.5 mtpa by 2018 (the “Expansion Project”). Guinea produces 9% of the world’s bauxite and holds 28% of global reserves including the world’s largest and highest quality bauxite deposits, grading 40-60% alumina, attracting investment interest from a number of major aluminum companies. CBG is the largest company in Guinea, and accounts for around 80% of export revenues, 12% of government revenues and 7% of GDP. CBG is Guinea’s largest employer, with around 5000 workers.The ore exists in bauxite plateaus that host superficial laterite deposits. This means that mining is very straightforward in relatively shallow open pits but is widespread and results in a patchwork of mining areas dependent on grade rather than a single large open pit. This results in mined areas being relatively easy to rehabilitate.CBG’s shareholders are the Guinean government, which holds 49% of the shares, and Halco, which holds the other 51%. Halco is a consortium made up of Alcoa (USA, 45%), Rio Tinto (UK, 45%) and Dadco (Guernsey Channel Islands - UK, 10%). In 2012, CBG finalized with its buyers (Alcoa, Rio Tinto and Dadco) a 13.5 million tonnes per annum (mtpa) bauxite contract for fifteen years duration starting January 1, 2013 and has also concluded a 5 mtpa bauxite supply agreement with Mubadala (UAE) starting in Q4/2017. The Expansion Project involves increasing the rate of bauxite extraction, building extra capacity in transport and processing systems as well as making modifications to CBG’s existing facilities, equipment and operations. The construction cost for the Expansion Project is estimated at US$ 570 million with a total project cost of up to US$ 752 million (including construction plus financing costs). The proposed IFC investment is a corporate loan to CBG of US$ 200 million comprising a US$ 135 million A loan plus US$ 65 million loan from the Managed Co-Lending Portfolio Program (MCPP). The proposed Expansion Project has three elements: (i) increase of the mining extraction rate (which will include extraction in new areas already permitted within the CBG concession); (ii) capacity expansion of the railway, and (iii) expansion of the Kamsar port and other logistics infrastructure necessary to support the increased tonnage. The timeline for the Expansion Project is rapid, driven by the Mubadala (Emirates Global Aluminum /EGA) contract that requires first bauxite deliveries in Q4 2017 for which a start of construction in early 2016 is indicated. To meet this deadline the environmental, social, health and safety (ESHS) work program related to compliance with IFC Performance Standards is split into three priority areas:Priority 1: Work to close IFC Performance Standards gaps in the ESIA identified as critical for disclosure (completed)Priority 2: Work to close gaps in the ESIA identified as critical for disclosure prior to the IFC Board meeting (for completion by December 2015)Priority 3: Work to achieve compliance with IFC Performance Standards objectives for the Expansion Project with remaining gaps defined in the ESAP. This also includes actions to achieve consistency with the intent of the IFC Performance Standards for the CBG Health, Safety, Environment and Communities Management System (HSEC MS) which covers the existing operations. It should be noted that the scope of the Expansion Project as originally envisaged by CBG has changed. Originally CBG envisaged Phase 1 as an increase to 18.5 mtpa and later 22.5 mtpa, followed by Phase 2, which envisaged a further expansion to 27.5 mtpa. The scope covered by the proposed financing is for an increase in production from 13.5mtpa to 18.5 mtpa, however some of the documentation provided for review (such as the Environmental & Social Impact Assessment referenced below) considers the potential 27.5 mtpa production level.Should any additional increases in production be proposed beyond the 18.5 mtpa financed, CBG is committed to follow an appropriate environmental and social assessment process (e.g.: preparation of an ESIA addendum) consistent with the IFC Performance Standards, including a cumulative impact assessment.