Mauritania - Miferma Iron Ore Mining Project

RESTRICTED RETUR,' TO Report NO.T.O. 225a REPORTS DESK VITHIN ONE WEEK This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE MIFERMA IRON ORE MINING PROJECT (ISLAMIC REPUBLIC OF MAURITANIA) February 12, 1960 Department of Technical Operations CURRENCY EQUIVALENTS $U.S. 1 - F.Fr. 493.7 F.Fr. 1 billion - $2,025,522 1 CFA Fr. - 2 F.Fr. All amounts are expressed in Francs existing prior to the introduction of the New Franc on January 1, 1960. All tons are metric tons unless otherwise specified. APPRAISAL OF THE MIFERMA IRON ORE MINING PROJECT (ISLAMIC REPUBLIC OF MAURITANIA) TABLE OF CONTENTS Paragraphs SUMMARY AND CONCLUSIONS . . . . . . . . . . .i x I. INTRODUCTION . . . . . . . . . . . . . . .1- 3 II. THEBORROWER .......... . . .... 4-15 A. The Company . . . . . . . . . . . . . . 5 - 10 B. Management and Staff . . . . . . . . . 11 - 15 III. THE PROJECT . . . . . . . . . . . . . . . . . 16 - 54 A. General . . . . . . . . . . . . . . . . 16 B. Project Details . . . . . . . . . . . . 17 - 54 1. The Mine . . . . . . * . . . . . 17 - 26 2. Transport System . . . . . . * . 27 - 35 3. General Services and Townships . . 36 - 39 4. Present Status . . . . . . . . . . 40 5. Construction Schedule . . . . . . 41 6. Labor Requirements . . . . . . . . 42 - 43 7. Procurement . . . . . . . . . . . 44 8. Investment Cost Estimates . . 45 - 52 9. Schedule of Expenditures . . . . 53 - 54 IV. MARKETS AND MARKETING . . . . . . . . . .. 55 - 62 A. The Market for Iron Ore . . . . . . . 55 - 60 B. MIrketing Arrangements . . . . . . . . 61 - 62 V. ECONOMIC JUSTIFICATION . . . . . . . . . . . 63 VI. FINANCING PLAN AND FINANCIAL PROSPECTS . . . 64 - 82 A. Financing Plan . . . . . . . . . . . . 65 - 71 B. Production Cost Estimates . . . . . . . 72 - 73 C. Financial Prospects . . . . . . . . . . 74 - 77 D. Proposed Protective Arrangements . . . 78 - 82 VII. CONCLUSION . . . . . . . . . . . . . . . . . 83 - 2 - LIST OF ANNEXES 1. Principal Agreements Relating to the Project 2. Distribution of Capital Shares 3. Mining Program 4. Income Estimates 5. Cash Flow Forecasts 6. Balance Sheet Forecasts 7. Assumptions for Financial Forecasts 8. Ability to Service Long-Term Debt under Adverse Conditions Map 1 - Miferma Iron Ore Deposits Map 2 - Miferma Project Railway Route Map 3 - Miferma Project Installations at Port Etienne APPRAISAL OF THE MIrERMk IRON ORE MINING PROJECT (ISLAMIC REPUBLIC OF MAURITANIA) SUNMARY AND CONCLUSIONS 1. The project consists of the exploitation of iron ore deposits near Fort Gouraud, 1buritania, at the rate of 6.0 million tons per year and the transport of this ore to Port Etienne for shipment to market. It includes the construction of a 675 km. railroad, port facilities at Port Etienne, and housing, workshops and power generation facilities at Fort Gouraud and Port Etienne. ii. The borrower would be the Societe Anonyme des Mines de Fer de Mauritanie (Miferma). Miferma's shares are held in France (55%) and abroad (45%) in England, Italy and Germany. Ore consumers directly or through holding companies hold 60% of the shares; French financial interest and the Bureau Minier hold the remainder. iii. All preliminary studies and designs have been completed and the construction of the port and railroad could begin within a few months after financing has been arranged. It is estimated that the construction of the railroad would require four years; the first commercial shipments of ore should be made early in 1964. Upon completion of the railroad, the company would be in a position to mine and transport about 4.0 million tons of ore annually. During the first few years of operations, additional mining and transport equipment would be added to permit mining and shipping ore at an annual rate of 6.0 million tons. iv. The total cost of the project, including working cipital and in- terest during construction, is estimated at F.Fr. 94 billion- (about $190.4 million equivalent). Disregarding preliminary expenses for studies and planning which have been met by Miferma's shareholders, the company's re- quirements during the four-year construction period are estimated at F.Fr.71.1 billion (about $144 million equivalent). An estimated F.Fr. 19.9 billion (about $40.2 million equivalent) would be required for additional mining and transport equipment and working capital during the first 2 3/4 operating years. v. In addition to the proposed Bank loan of $66 million equivalent, the com- pany would contract long-term loans amounting to F.Fr. 15.5 billion ($31.4 million equivalent) and increase share capital by about F.Fr. 24.1 billion ($48.8 million equivalent) in order to meet the estimated construction period expenditures. The company expects to generate sufficient funds from operations to meet the capital expenditures during the early years of operation. 1/ All amounts are expressed in Francs at the rate of F.Fr. 493.7 per U.S.$l, the rate existing prior to the introduction of the New Franc on January 1, 1960. - ii - vi. The appraisal of the project and the construction and operating cost estimates have been based on the assumption that the railroad would follow an all-Mauritanian route which would involve the construction of a two km. tunnel or deep cut at Choum. Savings in construction costs, esti- mated at F.Fr. 2-3 billion(,4-6 million equivalent), would be possible if the tunnel could be avoided. The company has been negotiating, without success, with Spanish authorities for transit rights through Rio de Oro for a few kilometers of railroad in order to avoid the tunnel. Unless a satis- factory agreement can be reached soon, the company would proceed with the all-Mauritanian route. vii. Iron ore reserves are estimated at 94 million tons, sufficient for about 16 years at the planned maximum rate of production. Some addi- tional reserves, estimated at 10-20 million tons are known to exist. However, since these reserves have not been adequately explored in order to determine the investment necessary for their exploitation, they have not been taken into account in the appraisal of the project. viii. The project is well planned, The cost estimates are conservative and contain adequate provision for contingencies. The financing plan is satisfactory. According to a study by the Bank, the company should be able to dispose of its output at satisfactory prices. At least 3.0 million tons annually will be sold on long-term contracts. ix. Conservative financial projections indicate that the company would be able to earn a substantial return on its net investment. While the debt/ equity ratio would be about 64/36 on completion of construction, it should fall rapidly during the early operating years. External debt service should be covered by an adequate margin (1.9 times) at all times. X. The project is a mining venture, and mining ventures are inherently risky. Since the company would not have firm commitments for its output at firm prices, the shareholders have agreed to a financial guarantee as an al- ternative means by which the Bank's investment would be protected. The project is a suitable basis for a Bank loan of about $66 million equivalent with a tern of 15 years, including a 51 year grace period. The loan would be guaranteed by the Islamic Republic of Mauritania and the Republic of France. I INTRODUCTI1 1. late in 1957 the Societe Anonyme des Mines de Fer de Mauritanie (Miferma) requested the Bank to finance its project for the exploitation of high-grade iron ore deposits near Fort Gouraud, Mauritania, the trans- port of this ore about 675 km. to the Atlantic coast and the provision of port facilities. 2. In March and April of 1958, a Bank mission surveyed the project in the field and had further discussions in Paris. Its findings were that the planning had not yet reached a stage where the Bank could come to a definite conclusion on the merits of the project, and Miferma was asked to make additional studies, negotiate for firmer assurances of income from sales of its iron ore and strengthen the staff which would carry out the project. By April 1959 Miferma had concluded the bulk of this work and a second apprai- sal mission was sent to the field to resurvey the status of the project. 3. This report is based on the results of the Bank's two field inves- tigations, information submitted by the company and the reports by consultantr! retained by the Bank to study the ore reserves and the mining plan. II. THE BORROWER 4. The Borrower would be the Societe Anonyme des Mines de Fer de Mauritanie, a corporation founded in 1952 in what was then the Territory of Mauritania and now existing under the laws of the Islamic Republic of Mauritania for the exploration and exploitation of the iron ore deposits around Fort Gouraud. Pertinent agreements with the Mauritanian Government concerning the establishment and operations of the company are listed in Annex 1. These agreements and the concession granted to the company provide a generally satisfactory framework on which to base the company's operations. A. The Company 5. Miferma is the successor to the company, Societe Francaise d'Explorations Minieres (SFEM), formed in 1948 for the initial exploration of the Fort Gouraud deposits. 6. As at February 5, 1960, the capital stock of Miferma (Fr.CFA 1.24 billion, equivalent to about US$5.0 million) was fully paid and distributed as follows: Bureau de Recherches Geologiques et Minieres (Bureau Minier) 22.15%) French Steel Industry 13.25/) 55% French Financial Groups 17.60%) British Iron and Steel Corporation (Ore) Ltd.) British Ore Investment Corporation Ltd. ) 20.00%) Finsider (Italian) 15.00%) 45% German Steel Industry 10.00%) 100.00% - 2 - A list of the shareholders is given in Annex 2. Ore consumers directly or through holding companies hold 60% of the shares; the Bureau Minier and the French financial interests hold the remainder. 7. The Bureau de Recherches Geologiques et Minieres (formerly known as the Bureau Minier de la France d'Outre-Mer) is an agency of the Republic of France whose object is the promotion of mining development in the French community. It works independently or in association with private groups for the exploration and financing of mineral developments. It is the Bureau's policy to reduce its holdings as opportunity offers. 8. The British Iron and Steel (Ore) Ltd. (BISC (Ore) Ltd.) purchases the ore required for the majority of the steel companies in England. A new company, British Ore Investment Corporation Ltd. (BOIC) has been organized by ten leading British ore consumers to invest in overgeas mining projects. 9. The Societa Finanziaria Siderurgica (Finsider) is a 45.6% Govern- ment-owned Italian holding company which controls companies producing the major portion of Italy's iron and steel. The Finsider Group accounts for about 80% of the pig iron, 50% of the crude steel and 90% of the iron ore production in Italy. 10. In addition to the ordinary shares, the company has issued Founders' shares. These Founders' shares have no nominal value nor do they represent any of the subscribed capital. The Founders' shares have no voice in the conduct of the business but have rights to 20% of the net income after pro- vision of 5% to legal reserves and payment of a cumulative 6% dividend to the ordinary shareholders. However, the ordinary shareholders may vote to retain any portion of the net income remaining for use in the company without making any distributions to the holders of Founders' shares. B. Management and Staff 11. The company's activities to date have been confined to the explora- tion and assessment of the ore deposit as well as the studies and planning for the mining, railway, port and related facilities. Much of the detailed planning on the railway and port has been carried out by experienced con- sultants. 12. The officials of the company have had little previous experience in mining and no previous experience with the operation of a large open-pit mine and such as will be required by the project under consideration. For this reason, Miferma will sign a Technical ?ssistance Agreement with Societe Miniere et Metallurgique de Penarroya for assistance in the development and operation of the mine and mine general services. Penarroya, which owns and operates mines of various types in different countries, has a large experienced staff and was responsible for the preparation of the final mining plan pre- sented to the Bank. - 3 - 13. The Miferma staff would oversee the construction of the railroad, pcrt and townships and would operate the railroad and port works. The staff has carried out the planning work successfully but would have to be greatly expanded when actual construction work gets under way. Miferma's proposals for this expansion are generally sound. However, the company has agreed that the staff should be strengthened during the construction period by the addi- tion of one or more highly experienced heavy construction engineers to super- vise the work in the field. By the end of the construction period, the per- sonnel would have acquired considerable experience in operating the railroad and port and should have no difficulty in shifting to routine operation. 14. The sales staff would be located in Paris under the immediate di- rection of the president and general manager of the company. 15. Accounts would be audited in accordance with French practice by independent auditors. III. THE PROJECT A. General 16. The project consists of the exploitation of iron ore deposits near Fort Gouraud and the transportation of this ore to Port Etienne on the Atlantic coast for shipment at an annual rate of 6.0 million tons. B. Project Details 1. The Mine a) Ore Deposits 17. The company has been granted a concession for 75 years on iron ore deposits near Fort Gouraud, about 40 km. east of the border of Rio de Oro. The deposits are located in the Kedia D'Idjil, a low mountain range in the form of a triangle covering about 220 km2 rising up to 600 meters above the surrounding Saharan plain (see Map 1). Ore outcrops occur all along the northern and eastern rim of the Kedia but active exploration has been con- fined to the three major outcrops, F'Derik, Tazadit and Rouessa. F'Derik and Tpzadit, the largest and best explored deposits, are the two ore bodies on which the project is based. 18. The ores of the two major deposits are chemically similar but possess different physical characteristics. The F'Derik ore is hard, dense and homogenous and breaks into large lumps with little tendency to form fines. The Tazadit ore on the other hand is less dense and is laminated and friable. It is expected that considerable fines will be formed in mining and handling. 19. The Miferma ore will be a high-grade ore, similar to the high- grade Swedish and South American ores. The iron (Fe) content of the ore ranges up to 68%; the silica content varies between 1% and 5% and other elements such as phosphorous and sulfur are so low as to be negligible. However, low-grade intrusions in the ore body are expected to reduce the average Fe content of the ore shipped to 63% with silica increased to a maximum of 8%. In all probability the average silica content will not be much above 5%. 20. The Miferma high-grade ores bodies are surrounded by large quan- tities of iron-bearing formation having an Fe content from 25% up to 45% but because of its high silica content this ore cannot be used at the present time and has not been taken into account in calculating ore reserves. Should dry concentration of these lower-grade ores become commercially feasible, the life of the mine would be considerably extended. b) Ore Rejerves 21. Exploration of the deposits was started in 1948 but was confined to surface prospecting until 1952. Since then exploration has been carried out by surface trenches, drill holes and adits driven into the deposits. Most of the work has been concentrated on the major deposits, F'Derik and Tazadit. Rouessa has been drilled to a limited extent, but other outcrops in the Kedia have been explored only on the surface. 22. Miferma presented the project on the basis of the FtDerik and Tazadit deposits, estimating open-pit reserves at about 110 million tons of shippable ore. The Bank's consulting geologist, after reviewing the data submitted by Miferma and examining the deposits, confirmed that the exploratory work had been carried out in a sound manner but stated that the number of drill holes and the spacing of the drill holes did not show the exact limits of the ore bodies in all locations. Within the ore bodies some uncertainties existed about the location and volume of low-grade intru- sions. Taking these factors into consideration, the consulting geologist recommended that the Bank base its appraisal on proven and probable open- pit reserves in F'Derik and Tazadit amounting to 94 million tons of recover- able ore. This is sufficient for about 16 years at the proposed maximum output. The company has agreed to this figure and has revised its forecasts accordingly. 23. The consulting geologist also estimated that the Rouessa deposit contained about 10 million tons and that as much as 10 million tons might be found in the other known ore outcrops. However, since these deposits are not well explored and would require additional investment for exploita- tion, these reserves have not been taken into account in the appraisal of the project. They do provide, however, a certain margin of safety. There are indications in the F'Derik and Tazadit ore bodies that some ore may extend to depth but there is not sufficient data available at present to determine whether enough deep ore exists to permit underground mining after the open-pit is exhausted. Exploration would be continued during the con- struction and operating periods in an effort to extend proven reserves. -5- c) Minin Perations 24. The Miferma mining operation would be large: for an annual out- put of 6 million tons, an additional 12 million tons of waste would have to be moved or a total of 18 million tons. Mining would be carried out by conventional open-pit methods. Operating benches would be 10 meters high. The slopes of the pit wall generally have been assumed to have an angle of 450. This is conservative and there are reasonable expectations that the slope of some walls may be steeper, perhaps up to 570, without danger but this cannot be determined until mining operations have been carried on for some time. Such steeper slopes would eliminate the need for removing 5-10 million tons of waste during the life of the mine. 25. Large power shovels (up to 8 cubic yards) and trucks (22 and 40 tons) would be used for hauling ore to the crushing plants and waste rock to the dumps outside the pits. Stripping of waste rock from around the ore bodies will be carried on simultaneously with mining. Stripping schedules are arranged so that about the same amount of waste is removed each year (Annex 3). Mine operations will be on a two-shift basis during the months of October through May and on a one-shift basis during the four hottest months of the year. d) Ore Processing 26. The ore will not require any processing other than crushing beforc shipment. The soft Tazadit ore would be crushed to a maximum size of 8" while the hard F'Derik ore would be crushed to a maximum size of 4". After crushing, the ore would be carried on conveyors to stockpiles at the railway loading stations. The longest conveyor system would be required in the Tazadit mine with a length of about 1,400 meters. The capacity of each of the two conveyor and loading systems would make possible the loading of one 10,000 ton trainload in less than three hours. The crushing stations would be moved as the mine depth increases in order to keep the truck-hauling distance to a minimum. 2. Transport System a) Selection of Route 27. The port closest to the deposits is Villa Cisneros in the Spanish territory of Rio de Oro (see Map 2). Villa Cisneros is about 350 km. in a direct line from Fort Gouraud and there would be no physical difficulties in constructing a railway to the port. However, a study of Villa Cisneros by the Danish consulting engineers, Kampsax, showed that the port was too shallow to be used by large ore carriers without extensive dredging. It was estimated that 10 million cubic meters of dredging would be necessary to accommodate ships of 25,000 tons d.w. and 30 million cubic meters for ships of 60-65,000 tons d.w. It was also estimated that continuous main- tenance dredging (about 1.5 and 4 million cubic meters respectively annually) would be required to keep the port open. - 6 - 28. The next closest port is Port Etienne, Mauritania, about 540 km. from Fort Gouraud by a straight line route which would be mostly in Rio de Oro. The distance would be about 675 km. by an all-Mauritanian route. The port can provide berthage for vessels of about 60,000 tons d.w. without dredging and with a minimum of work could handle larger vessels. The econo- mies of developing Port Etienne would largely compensate for the increased cost of the railway. Therefore, the company has decided to develop Port Etienne as its ore terminal. 29. An all-Mauritanian route for the railroad would involve a two km. tunnel through the escarpment at Choum to get around the southeast corner of Rio de Oro. In order to avoid this tunnel, the company has been negotiating with the Spanish authorities for a passage through Rio de Oro for a few kilo- meters of railway. This would reduce the total project cost by an estimated $4-6 million equivalent, but negotiations to date have been unsuccessful. Since the tunnel would require about two years to construct, work must start within the first year after the project gets under way in order for it to be ready for track laying at the proper time. Unless a reasonable settlement can be made in a short time, the company would proceed with the all-Mauritanian route. Recently the company has been investigating the possibility of a deep cut and fill as an alternative to the tunnel. However, the appraisal of the project has been made on the assumption that the tunnel would be built. b) The Railroad 30. A single track, standard-gauge railway would be built from the Fort Gouraud mines to Port Etienne (see Map 2). The length of the track would be about 675 km. with passing sidings at approximately 80 km. intervals. The railway will traverse open desert with no permanent inhabitants along the route, although nomadic tribes are sometimes encountered. 31. The terrain is generally excellent for railway construction. The only natural difficulties, apart from the Choum tunnel, are areas of drifting sand and some sand dunes through which the track would run for about 105 km. Both of these difficulties have been successfully overcome on desert railways in other countries and neither should present any particular problems for Miferma. The buildup of sand may be controlled where necessary by elevating the track slightly, by preserving the scrub vegetation where possible or by spraying the sand with heavy oil. Track drainage would be no problem even for the runoff from rare cloud bursts. 32. The railway would carry 6.0 million tons of ore annually after the mine has reached capacity output. It is planned to use long, heavy trains (carrying 10,000 tons of ore) and the type of equipment adopted has been patterned after that of the Quebec, North Shore and Labrador Railroad. Steel sleepers and heavy rails (54 Kg.), welded throughout, would be used. With maximum speeds of 65 km. per hour, the track should require a minimum of maintenance. 33. Terminal installations would include marshalling yards and loading facilities at the mines (Tazadit and F'Derik), and a marshalling yard and un- loading facilities at Port Etienne. A radio network would be used to control traffic movement. -7- c) The Fort 34. The bay at Port Etienne offers an ideal site for the construction of the port works. Among its maritime advantages are protection from swell, good depth of water close inshore, a stable seabed with virtually no silting occurring, regular winds of medium strength and a maximum tidal range of 2.1 meters with low velocity tidal currents. 35. The new port facilities, to be built near the town of Port Etienne, would provide berthage without dredging for ships drawing up to 12.5 meters (about 60,000 tons d.w.) (see Map 3). The design would be such that, with a small amount of dredging, ships drawing 15 meters could be berthed. Storage space would be provided on the shore for 650,000 tons of ore in order to main- tain shipments during the hot months when the mine operates at 50% capacity. The ore would be unloaded from the trains by a rotary car dumper with a capa- city of 4,000 tons per hour, weighed and transported by belt conveyor either to the stockpile or to the loading tower on the quay. Ore would be reclaimed from stock through tunnels under the ore dump. Two different grades of ore could be loaded simultaneously. It is planned that loading facilities ini- tially would be installed with a capacity of 3,000 tons per hour, with pro- vision for increase to 6,000 tons per hour. 3. General Services and Townships 36. Because of the project's isolated location, the company would have to construct housing, community facilities, workshops, power generation and other facilities at Fort Gouraud and Port Etienne. Some 640 housing units would be required for senior and subordinate employees and their families at the mine and about 670 at the port. Unskilled labor recruited locally would be responsible for its own housing. The main workshops would be located at the port where all major repairs would be made on the railroad, port and mining equipment. The workshops at the mine would take care of normal mine maintenance requirements and minor emergency repairs. 37. One of the major uncertainties concerning the development of the mine has been the water supply. The mine's and community's requirements are estimated at about 700 m3 per day. Recent hydrological studies and a test drilling program assure a potable water supply of about 500 m3 per day from a catchment area~east5oT the Tazadit mine. In addition, on the northern and western slopes of the Kedia, there are several smaller catchment areas which together should be able to supply about the same amount. 38. Water at Port Etienne is at present supplied from distillation of sea water and supplies are expensive and limited. Exploration has proved the existence of abundant sweet water about 110 km. from Port Etienne along the railway route. Water will be brought in from this source by trucks during the construction period and later on by rail tank cars. Water could also be shipped to Fort Gouraud by rail should additional water be required for the mines. 39. Both Port Etienne and Fort Gouraud have airfields and a commercial airline maintains regular services to each. -8- 4. Present 'tatus 40. All the major planning and engineering studies have been completed. Bids have been called for the preliminary port installations necessary to get the work under way. Bids could be called for the railway construction within a short time. 5. Construction Schedule 41. The company estimates that the railway would require about four years to complete after financing is arranged. This estimate is realistic. Mining operations would start at Tazadit about two years before the completton of the railroad in order to open up the pits, train personnel, and build an ore stockpile. Prior to the completion of the railroad, supplies and equip- ment required at the mine would be transported across the open desert by truck. On the completion of the railroad, the operation would be equipped to mine and ship about 4.0 million tons of ore annually. Mining at F'Derik would start in the second year after completion of the railroad. Additional mining and transport equipment would be added during the first operating years to bring the capacity up to 6.0 million tons annually. 6. Labor Requirements 42. In full operation, the mine, railway, port and auxiliary services would employ about 2,000 people. About 30% of this total would be super- visory and highly skilled personnel from Europe. During the construction period about the same total number would be required so that most of the construction personnel could be retained for operations. 43. Unskilled labor needs probably can be recruited locally but the supply is limited and recruitment may have to be extended to the Canary Islands and Senegal. Experience to date has shown that Mauritanian labor can be trained quickly for semi-skilled and skilled work. A training center will be set up in order to reduce the amount of skilled labor to be imported. 7. Procurement 44. Procurement of goods and services would be on an international basis to the fullest practicable extent, althouLh invitation5 to bid on certain heavy mining and loading equipnent may necessarily be limited to manufacturers with specialized experience. 8. Investment Cost Estimates 45. The total cost of the project, including expenditures to date, working capital and interest during construction, is estimated at about F.Fr. 9)4 billion (about '19LO4 million equivalent). However, investment expenditures must be considered in two stages: a) The construction period for the project (Stage 1) which, when completed, would permit the production and shipment of about 4.0 million tons of ore annually; and -9- b) The post-construction period during which additional mining and transport equipment would be added to permit the produc- tion and shipment of 6.0 million tons of ore annually. The major portion of these expenditures would be made during the first two operating years although some expenditures may be required during the following nine years on a dcclining scale. For the purposes of this report, Stage 2 will be defined as the first 2 3/4 operating years. 46. The cost of Stage 1 is estimated at F.Fr. 74.2 billion (about $150 million equivalent) as shown below: Billion F.Fr. Mine 1 11.7 Railway 32.8 Port i/ 10.6 Exploration and Planning 3,7 Construction Supervision 3.1 Paris Office Expenses 1.7 Initial Working Capital 5.9 Interest and Other Charges during Construction _4.6 Total Stage 1 2L 1/ Including housing and general services. 47. Exploration and planning expenditures to the end of 1959, included in the above total, amount to F.Fr. 3 billion. Therefore the estimated cash cost to complete Stage 1 is F.Fr. 71.1 billion (about $144 million equivalent). 48. The estimate is based on prices current in the last quarter of 1958 adjusted in March 1959 to reflect the intervening devaluation of the franc. In addition to a 10% contingency allowance on construction labor, a general contingency allowance of 15% is included in the amounts for the mine, railway and port construction, supervision and the remaining engineer- ing expenses. The amounts for Paris expenses, initial working capital re- quirements and interest during construction are estimated without an allow- ance for contingencies. In view of the prudence with which the basic cost estimates have been established, the contingency item should be adequate to cover physical contingencies and allow a margin for increases in material and equipment costs during the four-year construction period of Stage 1. - 10 - 49. The Stage 2 costs (the first 2 3/4 operating years) are estimated at about F.Fr. 19.9 billion (about $40.2 million equivalent) as shown below: Billion F.Fr. Mine 7.1 Railway 2.8 Port 0.8 Supervision 0.1 Additional Working Capital 9.1 Total Stage 2 19.9 50. Costs for Stage 2 materials and equipment were estimated on the same basis as for Stage 1 costs. However, these figures are less firm than those for Stage 1. Actual equipment requirements, for the mine especially, cannot be predicted with certainty at this time but will depend upon condi- bions encountered as mining is carried out. Equipment requirements have been calculated on the most pessimistic basis as far as pit wall angles and stripping ratios are concerned and some savings may be possible. 51. The amount of F.Fr. 9.1 billion allocated for additional working capital includes an amount (F.Fr. 4.0 billion) normally required to cover tax and dividend accruals shown in the balance sheets. 52. The estimates of the project costs are realistic. 9. Schedule of Expenditures 53. It is estimated that the remaining expenditures for Stage 1 would be made at the following rate (billion F.Fr.): Year 1960 1961 1962 1963 1964 Total Fixed Assets 1.9 12.7 23.8 14.6 2.1 55.1 Planning and Supervision 1.1 1.3 1.5 1.3 0.3 5.5 Working Capital 0.1 0.4 0.8 2.3 2.3 5.9 Financial Charges 0.2 . 1.0 1.9 1.1 _4.6 Total 3.3 14.8 27.1 20.1 5.8 71.1 54. Of the F.Fr. 60.6 billion for Fixed Assets and Planning and Super- vision, it is estimated that about F.Fr. 15 billion would be required for expenditures in CFA francs in Mauritania. The actual currency requirements for the balance would be known only after bids have been called. - 11 - IV. ARKETS AND MARKETING A. The Market for Iron Ore 55. Iron ore is used primarily for the manufacture of pig iron for steel making although small quantities are used to make foundry iron and as a refining agent in steel furnaces. On the average, 1.4 tons of iron ore are required per ton of steel, although this figure may vary because of the variation of iron content of the ore and the amount of scrap used. 56. On a global basis, there is no shortage of iron ore reserves at present nor is there likely to be one in the future. However, known re- serves are unevenly distributed in relation to steel production facilities. The leading steel producing regions of the Free World (North America, Western Europe and Japan) are already importing large quantities of iron ore, and their dependence upon imports is increasing steadily. Insufficiency of domestic reservesis the major reason for increasing ore imports, but the economy in blast furnace operation with rich imported ore is an important contributing factor. 57. Based on conservative assumptions aq to the growth in steel pro- duction, it is estimated that the combined import demands of Western Europe and the United States will rise from about 71 million tons in 1957 to 104 million tons in 1962 and 156 million tons in 1970. Through 1962 the demand should be met from increases in production from existing mines and concen- tration plants through expansion programs which are already under way or are reasonably firm. 58. In order to meet the additional demand of about 52 million tons (divided about equally between Western Europe and the United States) between 1962 and 1970, some new mines will have to be developed. The Miferma pro- ject, which should commence operations in 1964, is one of the sources from which European steel producers expect to meet their increased ore demands. The Miferma ore has a high average iron content (63%) with no impurities other than silica (maximum of 8%) so that it should enjoy a preference over ores of lower iron content. 59. The results of the Bank study of iron ore indicate that a reason- able estimate of the average price over the period of the proposed Bank loan for an ore with the general characteristics of Miferma's ore would be about 22.50 equivalent (in terms of the 1959 dollar) per long-ton unit 1/ cif Western Europe, i.e. $13.95 per metric ton for Miferma ore. Based on the expected trends in freight rates this would correspond to an estimated price for Miferma ore of 16.90 equivalent per long-ton unit ($10.48 per metric ton) fob Port Etienne. A more detailed analysis of the market and price prospects is contained in a Supplement to this report. 1/ One long-ton unit is equal to 1% of Fe contained per long ton of ore or 22.4 pounds of iron per long ton of ore. - 12 - 60. Miferma has based its plans on an estimated market price of 16.49 equivalent per long-ton unit ($10.17 per ton) fob Port Etienne. The companyo estimate is consistent with the conclusions of the Bank's study and has been accepted as the basis for the financial forecasts. Taking into account the ore to be sold at a discount to shareholders on long-term contracts, the average sales price is estimated at 15.970 equivalent per long-ton unit ($9.90 per ton) when sales are at the rate of 6.0 million tons per year. B. Marketing Arrangements 61. The ore consuming shareholders would like to obtain ore at a low price while the financial interests would like to obtain a maximum financial return. Under these conditions, it would not be practical for the company to make long-term sales contracts at fixed prices for the full output over the life of the mine. 62. Arrangements have been made under which the ore-consuming share- holders would agree to purchase the minimum annual tonnages shown below. The sales prices for these tonnages would be subject to annual revisions based on the prevailing European prices for equivalent ores less 5%. Miferma has granted these same shareholders options for additional tonnages (shown below) at prevailing prices, Minimum Optional Purchases Purchases Total - - - - - - - - - Tons - - - - - - - - USINOR (French Group) 1,000,000 500,000 1,500,000 BISO (Ore) Ltd. 1,000,000 500,000 1,500,000 Finsider 750,000 375,000 1,125,000 A. Thyssen (German Group)-/ 250,000 125,000 375,000 Total 3,000,000 1,500,000 4,500,000 The company would be free to sell the remainder of its output (1,500,000 tons) plus any amount not taken up under the option arrangements on the oper market. 1/ Thyssen at present has agreed to minimum and optional purchases of 135,000 and 67,500 tons respectively. If Thyssen does not take the full amount allocated to the German Group, BISC (Ore) and Finsider will increase their purchases proportionately to assure minimum purchases of 3.0 million tons by shareholders. - 13 - V. ECONOMIC JUSTIFICATION 63. The economy of Mauritania is at present rudimentary, based on nomadic stock raising and, to a lesser extent, settled agriculture. Pros- pects for expansion in either sector are strictly limited by the severity of natural conditions. The Miferma project would open up completely new opportunities for development. In terms of the present economy the project is enormous: at about $60 million equivalent per year exports of iron ore would correspond in value to more than twice the present national income and would be many times larger than exports of traditional products. By creatinv new markets, the provision of employment at the port and at the mine would be a stimulus to traditional stock raising and fishing. When Miferma reaches full operation, export and profits tax receipts of the order of $10 million equivalent a year would about double present budget revenues and the prescu)' intractable deficits could be converted into comparatively large surpluses on current account. The Miferma project could thus not only stimulate development directly but would also put the country on its own feet finan- cially, and make funds available for its own investment expenditures. VI. FINANCING PLAN AND FINANCIAL PROSPECTS 64. Financial projections are attached showing the expected earnings of the company (Annex 4), the cash flow (Annex 5) and the financial situa- tion (Annex 6) for the duration of the proposed Bank loan. The assumptionr on which these forecasts are based are listed in Annex 7. A. Financing Plan 65. The estimated cost for Stage 1 of the project (see para. 45 for definitions of Stage 1 and 2) is F.Fr. 74.1 billion (about $150 million equivalent). This includes interest during construction and initial work- ing capital. In addition, the company would repay short-term loans of F.Fr. 480 million from shareholders, raising total financial requirements to F.Fr. 74.6 billion. The company expects to finance these costs from the following sources: $ million Billion F.Fr. fEuivalent o Share Capital 26.600 53.879 35.6 Caisse Centrale loan 5.000 10.128 6.7 Other long-term loans 10.500 21.268 14.1 IBRD loan 32.584 66.000 436' Total 74,684 51L275 100.0 - 14 - 66. The shareholders have agreed to finance any shortfall for the proj2t oc,urring from an overrun on construction costs and provision of the necessary working capital. S7. The shareholders have authorized the increase in share capital, of which 25% will be paid in before the start of construction. The balance would be called as required to meet construction expenditures. 68. Miferma has assurances from the French Government for assistance ir obtaining long-term loans amounting to F.Fr. 15.5 billion. An amount of up to F.Fr. 5.0 billion would come from the Caisse Centrale de Cooperation Economique in order to help Miferma meet the increased cost of the all- Mauritanian route including the Choum tunnel. If the Choum tunnel were not built, the loan would be reduced by the amount of savings effected, estimated at F.Fr. 2-3 billion. The terms have been agreed in principle at 3% for 30 years, including a grace period of 6 years. 69. The French Treasury has undertaken to provide the remaining F.Fr. 10.5 billion in the form of a loan although the alternative of a public bond issue with a French Government guarantee is not excluded. Interest would be at the going market rate. The Government has agreed that Miferma could start to use these funds after 75% of the IBRD loan had been disbursed and that the whole amount would be drawn before the last one million dollars of IBRD funds. Any savings on the project,apart from the Choum tunnel, would reduce the IBRD loan and the F.Fr. 10.5 billion loan equally. 70. The costs of Stage 2, estimated at F.Fr. 19.9 billion (about $40.2 million equivalent) are expected to be financed from funds generated from operations. The financial forecasts indicate that the company should be able to generate such funds. However, during the first year of operations, some short-term financing by the shareholders may be required as the generation of funds in the course of the year may not coincide with expenditure require- ments. 71. The financing plan is satisfactory. B. Production Cost Estimates 72. Production and operating costs per ton of ore mined are expected to be somewhat above normal during the first few operating years and allow- ance has been made for this in the forecasts. Thereafter unit costs should decrease rapidly but may not be stabilized until the sixth operating year (1969). By that time, total operating expenses (excluding interest and de- preciation) are estimated at about F.Fr. 9.1 billion annually for an output of 6.0 million tons, or about F.Fr. 1,523 ($3.08 equivalent) per ton. De- preciation would amount to about F.Fr. 6.2 billion or F.Fr. 1,036 ($2.10 equivalent) per ton. Total expenses, including interest and depreciation, would amount toabout F.Fr. 17.6 billion, or about F.Fr. 2,933 per ton. This would be the equivalent of $5.94 per ton or 9.580 per long-ton unit compared to the estimated average selling price of $9.90 per ton or 15.970 per long- ton unit. - 15 - 73. Production costs have been conservatively estimated. Estimates have been based on prices current in the last quarter of 1958 adjusted in March 1959 to reflect the December devaluation of the franc. In addition to a 10% contingency allowance on all labor costs, a general contingency allowance of 15% has been included. C. Financial Prospects 74. The income estimates indicate that the company should be able to operate at a profit from the start of shipments. No profit is shown in the first year since the company would be allowed to write off all development expenses during the first year of operations. Profits after taxes would amount to about 15% of share capital in the second year of operations, in- creasing to about 26% in the eleventh year. 75. On the assumption that the company would pay an annual 6% dividend, the long-term debt:equity ratio would decrease rapidly from 64:36 at the ena of the construction period (1964) to 41:59 at the end of the sixth year of operations in 1969 and would continue to improve thereafter. Sufficient fund3 should be generated from operations in the first 2 3/4 years to cover the costs of Stage 2, estimated at F.Fr. 19.9 billion. The company's liquidity position would be good from the end of the first year of operations and sholid improve rapidly thereafter. By the end of the third year (1966), after pro- viding for expenditures on Stage 2, payment of dividends at the rate of 6% annually and the establishment of a liquid reserve equal to six months' debt service, the company should have been able to accumulate funds in excess of its needs amounting to about F.Fr. 3 billion increasing rapidly thereafter by about F.Fr. 5 billion per year. This accumulationcf funds could be used to accelerate repayment of the company's external long-term debt and the company should be encouraged to do so. On the other hand, it would be reasonable to allow a somewhat higher dividend rate than the 6% assumed in the forecasts. 76. Under normal conditions, the coverage after taxes on total long- term debt service should not fall below 1.9 times. The total long-term debt service would still be covered even if the selling price of iron ore were to fall by 36% from the average $0.1597 per long-ton unit fob Port Etienne assumed in the forecasts to $0.1023 per long-ton unit, or if sales fell by one third to 4.0 million tons and the price fell simultaneously by about 19% to $0.1299 per long-ton unit (Annex 8). 77. These forecasts are conservative in that they take no account of! (a) possible increases in total ore reserves through additional exploration which could reduce the amount of depreciation per ton of ore; (b) possible changes in the slopes of the pit walls which could reduce substantially the amount of waste to be removed and thus reduce the amount of equipment to be purchased and operated; and (c) any increase in selling prices above that assumed. - 16 - D.. Proiosed Protective Arrangements 78. On conservative assumptions therefore and given normal business conditions, the service of the company's debt should be well covered. How- ever, mining ventures, and particularly new mining ventures, are inherently risky. Moreover, the steel industry is subject to very marked fluctuations which are immediately reflected in the demand for iron ore. Usually, there- fore, new mining ventures are financed mainly with equity capital; but in this case the company's debt at the time of beginning operations would be high in relation to its equity. 79. One way to protect the Bank's investment in these circumstances would be for the company's shareholders to enter into long-term commitments to buy ore at fixed prices which would ensure that the company's income would always be sufficient to meet the service of the Bank loan without impairing its liquidity or unduly depleting its working capital. 80. Primarily because a considerable portion of the shares is held by financial interests which are not ore consumers, the shareholders are not prepared to enter into such commitments. The shareholders have agreed to a financial guarantee as an alternative means by which the Bank's investment may be protected. The contractual arrangements for a Bank loan contain pro- visions to the following effect: a) The shareholders would undertake to make available, either as share capital or as loans, funds to meet any gap between the total amount of money required by the company to achieve and maintain production and shipment of six million tons of ore annually and the amount of money provided by the present fin- ancing plan. Any such shareholders' loans would not be repaid until the company has fully repaid the Bank loan; b) If the company's net current assets fall below a level satis- factory to the Bank, the shareholders would make good the deficiency either by share capital or by loans. Such loans might subsequently be repaid if the company has funds avail- able. In this connection, current liabilities are so defined to include any amortization payments on long-term debt other than the Bank loan and the Caisse Centrale loan falling due within 12 months; c) The company would establish and maintain, in cash or readily marketable securities, a reserve fund equivalent to six months' service (interest and principal payments) on the Bank loan and Caisse Centrale loan; d) Interest on any shareholders' loans would be payable only if earned; - 17 - e) Dividends would be payable only from accumulated earnings, and only if their payment would not reduce working capital below a satisfactory level. If cash dividends exceed a cumu- lative annual rate of 10%, an amount at least equal to the excess would be applied to the accelerated repayment of the loan; f) For the purposes of these covenants, minimum depreciation rates would be calculated on the economic life of the equip- ment or installations, or on the basis of 94 million tons of ore reserves whichever would be the shorter; g) The company would not, without the Bank's consent, incur any additional long-term debt other than loans from shareholders; h) The company would not without the Bank's consent invest money for purposes other than the mining and transportation of iron ore from the deposits near Fort Gouraud. (This prohibition would not apply to the investment of the debt service reserve fund in marketable securities.) 81. These arrangements should be adequate to ensure that the company could meet all its financial obligations without jeopardizing its liquidity or running short of working capital. 82. For purposes of calculation, the proposed Bank loan has been assumed to carry interest at 6% and to have a term of 15 years (including 5! years grace). The long grace period is required because the company needs at least four years to complete construction, and one full year of operations to generate funds for repayment. Although the projections show that given normal business conditions, the company should be able to accel- erate considerably the repayment of its debt, it is not recommended that a Bank loan be made for a shorter period. VII. CONCLUSION 83. The project is a suitable basis for a Bank loan of about $66 mil- lion equivalent for a term of 15 years, including a 5-year grace period. The loan would be guaranteed by the Islamic Republic of Mauritania and the Republic of France. M I F E R KI A Principal Agreements Relating to the Project 1. Arrete No. 373/MCIM of October 20, 1958 - granting M1iferma a concession for 75 years for the exploitation of the Fort Gouraud iron ore deposits. 2. Arrete No. 380 of December 5, 1957 - granting Miferma the right of eminent domain for the acquisition of necessary land for the railroad and port works. 3. Law No. 59-060 of July 10, 1959 - establishment of long- term fiscal regime for companies holding iron ore conces- sions, setting rates for export duties and income taxes. 4. Law No. 59-061 of July 10, 1959 - provides for the applica- tion of Law No. 59-060 to Hiferma and for an Establishment Convention. 5. Establishment Convention of October 11, 1959 - relating to the conditions of operation. 6. Installation and Operating Convention of October 11, 1959 - relating to the loading and unloading facilities at Port Etienne, and to the water and electric power supply at Port Etienne and Fort Gouraud. 7. Railway Convention of October 11, 1959 - relating to the con- struction and operation of the railway. 8. Port Convention of October 11, 1959 - outlining the maritime conditions to be provided during the construction and operation of the port at Port Etienne. ANNEX 2 MIFERMA Distribution of Capital Shares As at February 5, 1960 Voting Shares Number French Shareholders Bureau de Recherches Geologiques et Minieres (B.R.G.M.) 54,820 22.15 Union Siderurgique du Nord de la France "USINOR" 19,800 8.00 Denain-Anzin 12,375 5.00 Ste des Mines de Fer de Giraumont 3,712 1.50 Ste Metallurgique de Normandie 1,857 0.75 de Rothschild Freres 2,631 1.06 SLYP - Ste Financiere de Gerance et de Participations 1 Cie Financiere pour l'Outre-Mer (COFIMER) 14,850 6.00 Cie du Chem,in de Fer du Nord 12,375 5.00 Minerais et Metaux 4,950 2.00 Cie des Chemins de Fer P.L.M. 2,475 1.00 Ste Miniere et Metallurgique de Penarroya 2,475 1.00 Banque de 1'Afrique Occidentale (B.A.C.) 2,475 1.00 Ste de Mines et de Produits chimiques 1,237 0.50 Individuals 92 0.04 Sub total 136,125 55.00 Foreign Shareholders B.I.S.C. (English): BISC (Ore) Limited 11,962 British Ore Investment Corporation Ltd. 37,537 M. Reynaud 1 49,500 20.00 Finsider (Italian) 37,125 15.00 German steel companies 24,750 10.00 Sub total 111,375 45.00 Total 247,500 100.00 MIFERMA Mjjii2rgram Estimated Open Pit Ore Reserves Tazadit F'Derik (1,000 metric tons) 75,630 18,370 Extraction Years Ore Waste Ore Waste 1961 - - - 1962 355 87 - - 1963 and 1st quarter 1964 1,690 780 - - Total Construction Period 2,045 867 - - Remainder 1964 2,460 2,158 - 76 1965 4,000 7,085 200 567 1966 4,500 8,234 300 827 1967 4,500 8,234 900 1,900 1968 4,500 8,234 1,400 3,038 1969 4,500 8,283 1,500 3,341 .970 4,500 9,182 1,500 3,341 In the following years, the amount of waste to be stripped would remain alcut on the level of 1970 but would decline towards the end. of the life of the mine. M I F E R M A Income Estimate (Million French Francs) Year ended December 31, +1 +2 +3 +4 +5 +6 +7 +8 +9 +10 +11 +12 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Production ) 2,460 4,200 4,800 5,400 5,900 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Shipments to Port Etienne )(1,000 tons) 3,000 4,600 5,300 5,900 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Sales ) 2,800 4,500 5,300 5,900 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Gross Sales - fob Port Etienne 13,337 21,810 25,822 28,830 29,332 29,332 29,332 29,332 29,332 29,332 29,332 29,332 Export Tax 800 1,309 2,o66 2,595 2,640 2,640 2,640 2,640 2,640 2,640 2,640 2,640 Net Sales 12,537 20,501 23,756 26,235 26,692 26,692 26,692 26,692 26,692 26,692 26,692 26,692 Operating Expenses 4,490 7,4 8,180 8,87 9,100 9,14 9 9,140 9,140 9,1 9,140 9,140 Gross Profit 8,047 13,101 15,576 17,365 17,592 17,552 17,552' 17,552 17,552 17,552 17,552 17,552 Interest: IBRD 1,466 1,955 1,900 1,800 1,626 1,441 1,245 1,036 815 581 332 68 Caisse Centrale 112 150 149 145 141 137 131 127 123 117 112 107 Other 840 831 791 -2 702 653 598 5 400 3 Total Interest 2,208 2,945 2,880 2,73 2,516 2,280 2,029 1,761 1,478 1,175 852 510 Denreciation 5,435 4,663 4,867 5,935 6,205 6,216 6,217 6,217 6,216 6,217 5,501 5,263 Inventory Cost 404 343 697 657 130 - - - - - - - Total Expenses 12,537 15,351 16,624 18,198 17,951 17,636 17,306 17,118 16,834 16,532 15,493 14,913 Net Profit before Tax - 5,150 7,132 8,037 8,741 9,056 9,306 9,574 9,858 10,160 11,199 11,779 Income tax - 1,039 2,25 2,446 2,775 2,933 3,05 3,192 3,334 3,485 4,210 4,569 Net Profit - 4,111 4,74 5,591 5,966 6 6,248 6,32 6,524 6,675 63,989 7,210 Net Profit - % of Share Capital - 15.5 18.3 21.0 22.4 23.0 23.5 24.o 24.5 25.1 26.3 27.1 Net Profit plus Interest - % Long-term Debt and Equity - 9.44 1o.64 11.39 31.54 11.39 11.19 11.01 10.85 10.69 1o.ho 9.90 Long-term Debt service covered times 2.62 3.27 2.57 2.15 2.11 2.o6 2.0 2.02 2.00 1.97 1.86 2.87 1�12 ё ERTIA Fah F1ow Foxecast (�lillion French Frиcs) + 1 Тоtз1 + 1 Thraugh - 4 - 3 - 2 - 1 19£а4 Constпctlon 1964 + 2 + 3 + 4 + 5 + 6 + 7 + 8 * 9 + 10 + 11 + 12 1959 1960 � 19Ь2 � 1st ouarter Period 9 monthв ]965 1966 19б7 1969 196Q �70 1971 ,11о_ 1973 � � tOURCE9 � . �Е� s �` Proflte Ье£оге Interest алд Taxes - - - - - - - 2,208 4,095 10,G1? 1U,773 ll,?57 11,336 ц,335 1],Э35 11,336 ц,335 12,051 1г,289 Dapгвciation - - - - - - - 5,435 4,Ь63 l+,S67 `„935 6,205 б,цб б,ц7 6,217 6,216 Ь,?17 5,501 5,263 Inventory Decтсase ' - ' ' - - - 701 520 6�7 657 130 - ' - - - - - 5hare Capital 2,k75 6,000 2,500 12,500 3,125 - 26,600 - - - - - - - - - - - - Зhareholders' Loans 4в0 - - - - - 4в0 - - - - - - - - - - - - гвнд ьоаn - - 7,5оо 13,о0о 1о,ооо г,оя4 Э2,5в4 - - - - - - - - - - - - Саlвsе Centrale Lоап - - 3,500 1,500 - - 5,000 - - - - - - - - - - - - Other long-term 1д1т ' - - - В,5о0 2,000 10,500 - - - - ' - - - - - - - Ассоипtв РаугЫе ` _ _ _ ^ _ _� �`2 _ 90 55 � ._� _ � ' � � _ _� Tota1 5ourcee 2,955 6,000 13,500 ?7,000 21,6?5 4,Ов4 75,164 в,639 13,ЭЬв 15,G31 17,405 17,59г 17,55? 17,55г 17,55г 17,55г 17,552 17,552 17,55г �PPLICATIONS FЭхед Assetв г,955 2,в9в 1li,075 25,2В5 15,978 2,k01 63,5Ч2 5,264 /о,651 в97 792 292 12 - 120 1L+ - ц3 - Fquipment непеиаls - - - - - - - - 123 375 766 1,46в 1,7оо ],70о 1,7о0 1,70о 1,700 1,700 7,700 Current Aaaets; Spare ParES апд СопsитаЫе Stoxcs - 15 2г1 64 966 - 1,266 33г 469 109 45 7 1 - 2 2 - 6 - Cash апд ReceitъЫes - 30 - - - 1,9в4 г,014 425 3,810 Э,Ь25 (93Ь) 423 165 125 234 11с2 151 725 3S9 pre at М1пе - 20 174 775 1,327 355 2,651 - - - - - - - - - - - - Охе at Port - - ' - - - - г97 177 - - - - - - - - - - Liquid Reserve for Debt 8ervice - - - - - _ - _ �05� _605 313 __ - - - _ - - - _ - Tota1 Current Assets - � 395 839 г,г93 ?,339 5,931 7.,107 S,оЫ �2 891) -Тэ0 166 12S 136 144 1511 731 359 Flrencial Charges: IBRD Intereat - - 176 ЬвЭ 1,4А5 - 2,3W+ 1,940 1,955 1,пОр 1,в00 г,бгб 1,441 1,:1�5 1,ОЭб в15 5в1 332 6R Саlsве Centrale Interest - - 36 L+4 150 - 330 150 150 149 145 141 137 131 127 12Э 117 112 107 Otha� гахетевt - - - 2�;5 - ?k5 в2о ч4о 831 791 749 7ог 653 598 54о 477 40в Э35 Coamdtmeпt спагgе - 2внD - 16Э ггг 159 S9 - 603 г - - - - - - - - - - - Capital Zncrease С: зкgе - 2 __.._�. ,� _� - _ 16 _ -_ - _ - - - - - - Tota1 Flnancial Chargea - � 4эв 991 1,944 - 3,533 ^,912 2,945 г,вв0 2,� 2,51� 2,?в0 2,029 � 1,/д7в 1,175 85?. 510 Repaymeпt of 5hort-Term Loan - 430 - - - - (,в0 - - - - - - - - - - - - Amortization of Lлзпs: iaнn - - - - - - - - бо5 1,265 �,ч65 3,040 3,гг5 3,k21 3,629 3,g50 4,г�чS 4,334 ^,гGS Calese Centrale - - - - - - - - - 137 11;1 L,5 11ь9 154 159 163 16в 173 179 Otheг - - - - - - - - +33 �.3 5б5 61г 6Ы 716 � в37 906 979 тоtаl Amortization - - - - - - - - --� 1,вв5 3,5г9 3,750 � k,2}6 4,504 4,'�в7 5,090 5,4г3 3,423 гпсотв Тахев - - - - - - - - - 1,о39 2,25s ?,44б г,775 г,933 3,05В 3,192 3,3Э4 3,4в5 4,?1о D1vldeпda - - - -� - - - - - 1,596 3,19? 1,596 1,596 1,59Ь 1,596 1,59б 1,596 1,596 1,596 тоtаl Аррl�сасiодв z,955 з,ЬОв и,9ов 27,ц5 г0,?15 4,740 73,541 1п,2вз 1з,эа5 13,о24 12,382 1г,498 i2,5д5 12,ы9 I2,875 13,о11 1з,о1,б гЭ,89о 11,798 '�aeh Surplus for Yeas - 2,392 (1,40б) (115) 1,410 (656) - (1,59�s) (17) 2,607 $,023 5,094 5,о37 4,933 4,Ь77 4,541 4,5об з,ЬЬ2 5,754 авг, А„а11аы е at нв�лдlлЕ сТ Уааг - - г,з9г 9в4 вб9 ?,z79 1,ьzз 29 1г г,ы9 т,б4г 1г,7зь 17,7гэ zг,7об г7,заэ з1,9г4 зб,43о 4o,o9z ;аsп Аvаllаые at Едд of Уеаг - 2,39г 9н4 в69 г,г79 1,6z3 1,бг3 ?9 1г 2,Ы9 7,642 I2,736 17,ТТз г2,7об г7,з83 зI,9г4 36,43о 4о,о9г 45,846 1ote: The cssh suxplus ог cash availaЫe represeг:ta lцпдв not lптадlаtеlу гециiгед in the tn,siness. ,п Ip M I F ,' R E A Balance 5heet Forec-ts (Milli.n :-.,,h P- Construction Period OperatinZ 1 ( rLod End of Construction - 4 - 1 March 31, 1 - 2 + 3 1 4 + 5 + 6 + 7 S, + 9 + 10 + 11 Year ended Deember 31 1960 1963 1964 LNL 1965 1966, 1967 1968 1969 1970 1971 1972 i9KU 1974 ASSETS Liquid Reserve for Debt Service - - - 1,053 1,658 2,476 2,476 2,476 2,L76 2,476 2,476 2,476 2,476 2,476 Cash (required for cps rations) 30 30 2,014 587 3,977 6,985 5,736 6,lo7 6,272 6,397 6,531 6,673 6,824 7,549 Receivables - - 1,852 2,272 2,689 3,002 3,054 3,054 3,054 3,054 3,054 3,054 3,054 Ore Stocks- Mine 20 2,296 2,651 1,950 1,430 780 130 - - - - - - - Port - - P97 474 427 420 420 420 420 420 420 420 420 Sparts Parts and Supplies 15 1,266 1,266 1,598 2,06 P,176 2 221 2,228 2,229 2,229 2,231 2,233 2,233 2,239 Additional Assets 2,392 2,279 -L.623 2,600 __j; E5 12,661 17,667 22,5;67 27,209 31,733 36,179 39,722 Total Current Assets 2,457 5,871 7,554 7,366 la,886 18,133 21,5qO 26,946 32,118 37,143 41,921 46,569 51,186 55,537 Fixed Assets 6,049 65,o64 68,202 73,466 78,117 79,01-4 79,8o6 80,098 80,110 80,110 80,230 80, Y,4 80,344 80,457 Equipment Renewals - 123 49 1,264 2,732 4 432 - 6 132 7 8 2 - 2,532 1-1,5132 12,932 Total Fixed Asset. T,_C49 75-,094 8,252 ?3TZ96 78,240 79,512 81,070 82,830 84,542 8t,;O '+02 89,877 9157 93,389 Less Depreciation 5,435 10.09 _149 5 .200 27,105 33,321 39,538 45,755 51,971 58,188 62 82 Net Fixed Assets 6,C49 65,064 68,202 68,031 68,142 64,547 60,170 55,725 51,221 46,701, 42,307 37,905 33,388 29, 700 80_028 82,6 - 84,57 Total Assets W2 V-222 J 7 6 81,750 82,6 13,339 83,847 84 228 84,47 85.23 LIABILITIES Curre,rt Liabilities: Accounts Payable 345 435 490 530 5 30 53D 530 530 530 530 530 Due Long-tem Creditors within 12 mnths 605 1,885 3,529 3,750 3,986 4,236 4, 504 4,787 5,090 5,413 3,423 Interest A.cru.d 31 335 1,072 368 364 349 3'1 293 262 229 194 157 117 75 Taxes Accrued - - - 1,039 2,258 2,446 2,775 2,933 3,C58 3,192 3,334 3,485 4,210 Dividends Payable __::_ ___7_ - ___Z_ 1.59 3,192 1,596 1,596 1,596 1 59 1,59 1,59 1,5?6 1,596 Total Current Liabilities 31 335 1,072 1,318 5,319 9,818 8,643 9,180 9,557 9,917 10,299 10,707 11, 141 9,834 Long-Term Debt: IBRD 30,500 32,584 31,979 30,714 27,849 ?4,809 21,584 18,163 14,534 lo,684 6,599 2,?65 - Cai.5e Centrals 5,000 5, 000 5,()GO 4,863 4,722 4,577 4,428 4,274 4, 115 3,952 3,784 3,611 3,432 Other 8,5 10,500 10,5 10,01 -94% 8,922 1,31 7,656 6,94 6,166 5,32 4.42 3. Total L=g-Term Debt 44,000 1,8,084 47,479 45,594 42,065 38,315 34,329 30, 093 25,589 20,802 15,712 10,299 6,876 Sh.re Capital 8,475 26,600 26,600 26,6oo 26, 6w 26,600 26,600 ?6,600 26,(,00 26, 6w 6,6ou 26,600 26, 600 26, 600 Res-s and Surplus: Legal Reserve - - - 206 450 730 1,028 1,334 1,646 1,965 2,291 2,625 2,660 Other Earned Surplus 2,30 _3_47 ?,46 11,5 15,755 20,095 24,562 29,16 33,909 39.26 Total Res-es and Surplus 2,95 4,197 8,192 12 562 17.08 21, 741 26,52 31,455 36,534 41,927 Total Equity 8,475 26,600 26, 600 26, 600 29,115 3j,797 34,792 39,162 43,689 48, 341 53,lf-7 58,055 63,134 68,527 Total Liabilities and Equity 8,506 Z2,9 82,671 83,3 228 75,756 7 97 80,OP8 82,6a 81,750 83,84 IIL V 1, 7 251 Long-term Debt/Equity 62/38 61V36 64/36 61/39 58/42 52/48 47/53 41/59 35165 28/72 21/79 14/86 9/91 current Asstel// Curreut Liahilitles - 5-53221 5.57:1 2.23.-l 1.58-1 1.62tl 1.56.1 1.51:1 1.47:1 1.43:1 1.39:1 1.35:1 1.60:1 P-MMUMg aiditional assets 01 ANNEX 7 Page 1 MIFERMA Assumtions for Financial Forecasts The financial forecasts are based on the following assumptions: 1. The company would be able to secure long-term loans as follows: a) IBRD - $66.0 million (F.Fr. 32.584 billion equivalent) for 15 years, including a grace period of 5-21 years, at an interest rate of 6%. Amortization and interest payments would be based on semi-annual installments due May 15 and November 15. The first repayment date would be November 15, 1965; b) Caisse Centrale - F.Fr. 5.0 billion for 30 years,including a grace period of 6 years, at an interest rate of 3%. Payment dates would be as for the IBRD loan; c) Other long term loan(s) - F.Fr. 10.5 billion for 15 years, including a grace period of 3 years, at an interest rate of 8%. Payment dates would be as for the IBRD loan. This loan would either be provided by the Treasury or the French Govern- ment would guarantee a bond issue, depending on the circumstances at the time. 2. Increases in share capital would be as follows (billion F.Fr.): 1960 - 6.0 1961 - 2.5 1962 - 12.5 -963 - 3.1 Total 24.1 Shareholders' loans, shown in the Cash Flow Forecast, were made to finance some of the exploration and planning expenses and would be repaid from the proceeds of the share issue. 3. Earnings would be based on: a) the yearly production and sales indicated in the Income Estimates; b) ore analyzing 63%; c) an fob Port Etienne price for iron ore of $0.164 per long-ton unit. This would correspond to F.Fr. 5,014.00 per metric ton. d) the first 3.0 million tons in each year would be purchase by shareholders at a discount of 5%, corresponding to a price of F.Fr. 4,763.33 per metric ton fob, Port Etienne. ANNEX 7 Page 2 4. In accordance with the terms of the fiscal agreement, export taxes would be payable on the actual fob Port Etienne sales receipts of the ore sold as follows: a) 6% on annual exports up to 4.5 million tons; b) 7% on annual exports from 4.5 to 5.0 million tons; c) 8% on annual exports from 5.0 to 5.5 million tons; d) 9% on annual exports above 5.5 million tons. 5. Fixed assets with an expected life in excess of the estimated life of the mine would be depreciated over 94.0 million tons of ore. In accord- ance with the terms of the fiscal agreement, the company would be allowed to write off in the first years of operations the total expenses incurred in exploring the deposits and planning for the project. Financial charg&S and construction supervision expenses would be depreciated over 10 years. 6. The company would receive payment for sales as follows: a) 90% within 30 days after shipment on the basis of shipping documents, and b) 10% within 60 days after shipment on the basis of assay after receipt of the ore. 7. Accounts payable would amount to the equivalent of 30 days requirements of operating materials and supplies. 8. Income taxes would be payable at the rate of 50% of taxable profits. However, the company, in accordance with the terms of the fiscal agree- ment, for 10 years would be allowed to deduct from the income tax cal- culated, an annual amount equal to 10% of the total import taxes paid during the construction period. If the export taxes should exceed the amount of taxable net profits, 50% of the difference between the two could be deducted from the income tax in the following year. 9. "Additional assets" are defined as cash, or other assets readily conver- tible into cash, not required in the business. They would be available for the prepayment of the external debt, investment, or the payment of additional dividends. 10. Inventories would be valued on the FIFO system. The inventory cost represents the cost of ore produced in previous years but sold in the year charged. ANNEX 7 Page 3 11. Dividends would be payable at the rate of 6% on share capital on a cumulative basis. Dividends not paid in 1965 would be paid in 1967. 12. Cash shown in "applications" of the cash flow forecast includes sufficient cash to maintain operations, meet tax and dividend payments as well as interest and amortization payments on the Treasury Loan. 13. No earnings have been assumed from the investment of the Debt Service Reserve funds. These could be invested in readily negotiable securi- ties which might yield 4% or F.Fr. 100 million in additional income annually. ANNEX 8 MIFERMA Ability to Service Long-term Debt under A seConditions Million Tons Production and Sales 6.0 5.0 4.0 3.0 Million F.Fr. - fob Port Etienne Operating Expe ses 10,840 9,780 8,686 7,637 Debt Service - 6,266 6,266 6,266 6,266 Export Taxes 1,692 1,208 954 887 Gross Sales required to meet Debt Service 18,798 17,254 15,906 14,79C F.Fr. per ton - fob Port Etienne Average Price assumed in Financial Forecasts Y3 4,889 4,863 4,826 4,763 Average Price required to meet Debt Service 3,133 3,451 3,977 4,930 Amount Price could drop without impairing Debt Service 1,756 1,412 849 4/ U.S. cents per long-ton unit - fob Port Etienne Average Price assumed in Financial Forecasts 3/ 15.97 15.88 15.77 15.55 Average Price required to meet Debt Service 10.23 11.27 12.99 16.10 Amount Price could drop without impairing Debt Service 5.74 4.61 2.78 4/ / Excluding depreciation and interest but including equipment renewals. 2/ including interest and amortization of total long-term debt. Assuming that shareholders take 3.0 tons at 5% below market price. Debt service could be met only by using part of the funds allocated for equipment renewals or calling upon the shareholders. o 00 000 -0 ~ GER!AI )<+ ,i I+ -iIi N sasuair.saa T S A H A R A POI oFort \ Etienn ISLAMIC REPUBLIC OF wl. MAURITANIA iSUANESE. REPUB I ------~ --. C REPUBLIC 1 D.kr, OF NIGER SENEGAL- -------- trpHmanae Wadi -- rip Gouraud- - MAUR ITANIA - MIFERMA IRON ORE DEPOSITS i Existmg Road ---' -Wadis Mountains over 500 meters i •.-Iron Ore Deposits i0 2 3 4 5 KM EB U R 1 R -1 i iiii i -' i$ i FEBRUARY 1960 IR-1R 므 : MAP 3 PORT ETIENNEý,;ý'--- N Existing quay B(7ie d,- C0nS0d0 MAURITANIA MIFERMA PROJEGT INSTALLATIONS AT PORT ETIENNE G 2KM 0 5 1 mi E Te Fort Gourou N 8 A E DU Ql PORT ETIENN= L E VRIEI? CO v ered by mop AUGUST 1959 IBRD-485R1