Guinea - Boke Bauxite Extension Project

RESTRICTED Report No. PTR-84a Thas report as for official use only by the Bank Group and specificaly authorzed organzations or persons. It may not be pubhshed, quoted or cited without Bank Group authorization The Bank Group does not accept responsibility for the accuracy or completeness of the report INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF BOKE BAUXITE EXTENSION PROJECT REPUBLIC OF GUINEA May 28, 1971 Transportation Projects Department Currency Equivalents Currency Unit * Guinea Franc (GF) US$1. GF 250 GF 100 = US$0.40 GF 1 billion - US$4O million Fiscal Year October 1 - September 30 Weights and Measures 1 kilometer (km) = 0.62 mile 1 meter (m) - 3.28 feet 1 metric ton * 2,204 lbs. Acronyms Bamidi - Bauxites du Midi CBG - Compagnie des Bauxites de Guinee CCC - Construction Coordination Committee Halco - Halco Mining, Inc. OFAB - Office d'Amenagement de Boke F2PUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS 1, INTRODUCTION 1 2. BACKGROUND 2 A. Existing Project Organization and Agreements 2 B. Country Economy 3 C. Bauxite Reserves and Marketability 3 3. THE ORIGINAL PROJECT 5 A. OFAB 5 B. CBG Installations 7 4. THE EXTENSION PROJECT 8 A. OFAB 8 Description and Cost of Works 8 Financing 10 Procurement 10 Construction Schedule and Disbursement 10 Retroactive Financing 11 B. CBG 11 Additions, Improvements and Extensions 11 Cost Estimates and Contract Status 11 Construction Schedule 12 5. FINANCIAL 13 A. C:BG Investment and Financing 13 B. Guinea Investment and Financing 16 C. Forecast of CBG Operating Results 16 D. CBG Balance Sheet and Cash Flow 17 E. Government Income from Bauxite Operations 19 F. Rates of Return 21 G. Financial Advice and Audit 22 This report was prepared by Messrs. R. Carmignani (Industrial Economist), F. Higginbottom (Engineer) and F. Sander (Financial Analyst) and edited by Miss L. Soifer. - ii - Page_No. 6. ECONOIC EVAIUATION 22 7. CONCLUSIONS AND RECOMENDATIONS 23 ANNEXES 1. Summary of the Basic 1963 Agreement, Creating CBG 2. "Statuts" of OFAB 3. Terms of Reference of Construction Coordination Committee 4. Debt Service Security and Other Important Legal Arrangements 5. (i) Description of Boke Deposits and Bauxite Reserves (ii) Compagnie des Bauxites de Guinea (CBG) Product Specification (iii) CBG - Sales Contracts (iv) Proposed FOB Selling Prices of Bauxite (v) World Bauxite Farket and Reserves 6. CBG Construction Budget, Status and Schedule (i) Equipment and Construction Cost (ii) Additions and Changes for Expanded Project (iii) Construction Budget (iv) Replacement and additions to equipment TABLES 1. OFAB Contracts for Loan 57-GUI 2. Allocation of loan Proceeds - Loan 57-GUI, Revised Loan 57-GUI, the Proposed Loan and Expanded Loan. 3. Disbursement Schedule - Loan 557-GUI and Expanded Loan 4. Details of Costs of Proposed Extension Loan 5. CBG Financing Plan 6. CBG Depreciation Schedule 7. CBG Projected Income Statement 8. (a) CBG Balance Sheet, September 30, 1970 (b) CBG Projected Balance Sheets 9. CBG Projected Source and Application of Funds 10. Estimated CBG Advances to Government of Guinea 11. Discounted Cash Flow Calculation of Financial Rate of Return 12. Estdnated Increases in National Income of Guinea 13. Generation of Foreign Exchange for Guinea 1 4. Benefits to Guinea and Halco with and without extension MAPS 1. Guinea - Ine and Infrastructure Location 2. General Layout of Kamsar Region 3. Harbor Works 4. Toinsite Works REPUBLIC OF GUINEA APPRAISAL OF BOKE BAUXITE EXTENSION PROJECT SUMARY AND CONCLUSIONS i. In 1963 the Government entered into a basic agreement with a company subsequently incorporated as Halco Mining, Inc. to create the Compagnie des Bauxites de Guinee (CBG) for the exploitation of the large bauxite deposits near Boke in northwest Guinea. The Government owns 49% and Halco 51% of C7BG. The Government was to provide the infrastructure for the project consisting of a railway, a port and township, and Halco was to supply the mining, processing and bauxite train equipment. ii. In 1966 the Bank made an engineering loan of US$1.7 million (S.1 GUI) for final engineering and preparation of contract documents and the Government set up the Office dtAmenagement de Boke (OFAB) to carry out this part of the project. Subsequently, Halco was reorganized to include six major aluminum companies as shareholders and the project was enlarged so as to accommodate the mining of 6.6 million tons of bauxite and transportation of up to 8 million tons per annum. Following these developments, a Bank loan for US$64.5 million (557-GUI) was signed in September 1968 and became effective December 1968. It provided the foreign exchange content of the estimated US$83.5 million total cost of the transport infrastructure. Local currency with a margin of security was provided by a loan from USAT for US$21-0 mDion. iii. The original (Loan 557-GUI) project comprised a new port installa- tion at Kamsar on the Rio Nunez with a dredged access channel, a 136 km railway from Kamsar to Sangaredi, and a new town at Kamsar to house OFAB and CBG personnel. The total cost originally estimated at US$83.5 million, is now expected to be US$88.5 million, with foreign exchange overruns of US$7.5 million financed by CBG, and local currency savings of US$2.5 million. All these works are being undertaken by one civil engineering contractor. Com- pletion, originally forecast for April 1972, is now expected in December 1972. CBG's mining project provided mine operating equipment, locomotives, ore cars, crushing, drying and loading equipment at an estimated original cost of US$99.0 million, now revised to US$113.9 including pre-operating expenses. Tractionel (Belgium) carried out engineering for both OFAB and CBG works. iv. Because of the increased world demand for aluminum and the Halco shareholders wish to diversify bauxite ore sources, the shareholders and thB Guinea Government representatives agreed, at a CBG meeting in November 1970, to further increase the annual production and sales of bauxite to 9.2 million tons. The Government of Guinea has now asked the Bank to finance the US$9.0 million foreign exchange component of the estimated US$12.9 million total ccst of an extension of the project financed under Loan 557-GUI. Sufficient locaL funds will be available from the original USAID loan. v. In addition to the Bank and USAID loan agreements, and the Bank Project Agreement with the Government, eight other agreements were signed by the Bank, the Government, OFAB, CBG and Halco. These included the Financial Assurances Agreement which because of the Government's lack of creditworthnMew, - ii - covered, inter alia, satisfactory arrangements to service Loan 557-GUI and arrangements whereby Halco shareholders would finance any foreign exchange overrun thereon. The Construction Coordination Committee (CCC) was formed at the Bank's suggestion to coordinate OFAB's and CBG's planning and con- struction. All these arrangements will continue in force for the extension project. vi. The extension of the Government's transportation infrastructure under the proposed project includes additional harbor works to increase capac- ity, longer railway passing stations and heavier rail, additional roads and services at the Kamsar townsite, an increase to the hospital, and ancillary works. Construction will be carried out by variation orders on the existing contracts. It is expected to be fully completed by March 1973 and sufficiently advanced for the first shipments of bauxite to be made in December 1972. It will be impractical to disburse from the original and extension loans separately and it is proposed that the two now be considered as an expanded loan of US$73.5 million. Total cost of the OFAB expanded project will be US$101. million. CBG will expand ore production and processing capacity to 9.2 million tons/annually and its investment will increase to US$143.5 million. Total cost of the overall project will be US$245.0 million vii. On the basis of the projected sales and selling prices, the latter protected by escalation clauses, it is estimated that the discounted financial rate of return on the Government's investment will increase from 14.5% (origi- nal project) to 20.8% (expanded project), and the internal economic return from 18% to 26%, over an economic life conservatively estimated at 20 years. The Government's financial rate of return on the extension project alone will be 48%. The increase in net foreign exchange earnings of Guinea should amount in aggregate, to about US$575 million over 20 years for the expanded project, compared with US$300 million estimated for the original project. This sum, if stated as an annual average of US$28.8 million, is equal to aboutlOO%of the present annual net export earnings of Guinea. viii. The extension project provides a suitable basis for a Bank loan of US$9.0 million equivalent to the Government of Guinea for a term of 21 years including a two-year grace period. REPUBLIC OF GUINEA APPRAISAL OF BOKE BUXITE EXTENSION PROJECT 1. INTRODUCTION 1.01 The original Boke bauxite project loan - 557-GUI for US$64.5 million - was signed on September 8, 1968 and became effective December 15, 1968 (Report TO-672a, August 30, 1968). It provided the estimated foreign exchange for construction of transport infrastructure and a townsite (See Chapter 3 below) to enable some 6.6 million tons of bauxite to be exported annually from a new mine. The mine was to be developed and financed by the Compagnie des Bauxites de Guinee (CBG). The total cost of the transport infrastructure and townsite was estimated to be US$83.5 million, of which the local curren4-. US$19.0 million equivalent, was provided by a loan from USAID set at 1,2'21.0 million equivalent to provide a margin of security. A previous Bank eng...aring loan - S.1 .-GUI for US,'1.7 .illion - had been signed on Iatch 30, 1966 to finance con- sultant services required to provide detailed engineering and cost estimates. Loan S.1.-GUI was refinanced by Loan 557-GUI. 1 .02 The Government of Guinea has now asked the Bank for a further US$9.0 million loan to finance the foreign exchange component of the estimated US$12.9 million equivalent total cost for an extension of the infrastructure of the Boke project. This extension will enable the production and sale of bauxite to be increased from the originally proposed 6.6 million tons to 9.2 million tons. Halco shareholders (para. 2.01) contracted to take 5.1 million tons of the original production and 9.0 million tons of the increased produc- tion in order to diversify their sources of bauxite ore to meet increased world aluminum demand. The balance of 0.2 million tons represents sales of calcined ore on the free market. CBG will finance the necessary extension of the mine facilities. 1.03 This appraisal report was prepared by R. Carmignani (Industrial Projects Department), F. Higginbottom and F. Sander (Transportation Projects Department). Assistance with the country economy and legal sections was provided by 1M.J.W.M. Paijmans (Western Africa Department) and G. Delamae (Legal Department). 1.04 The appraisal is based on: (a) engineering reports by the Belgian consulting firn Traction et Electricite (Tractionel) on the transportation and mining aspects of the project; (b) consultations with CBG on legal and tech- nical aspects and on production and operating costs; and (c) findings of Bank staff following visits in Conakry, on the site of the project and in Pittsburgh, Pennsylvania. - 2 - 2. BACKGROUND A. Existing Project Organization and Agreements 2.01 In October 1963, a long term contract was signed between the Govern- ment and Halco Mining, Inc., at that time a subsidiary of the Harvey Aluninma Co. As a result of subsequent re-organization the present shareholders of Halco are: Percentage of Ownership Aluminum Company of America 27% Alcan Aluminum Limited 27% Harvey Aluminum Ccmpany 20% Vereinigte Aluminum Works 10% Pechiney-Ugine 10% Montecatini-Edison 6% The contract governs the terms and conditions for the mining and marketing of the large bauxite deposits in northwest Guinea and specifically in the Boke region (para. 2.12), through the establishment of a mixed company called "Compagnie des Bauxites de Guinee" (CBG) owned 51% by Halco and 49% by the Government. Annex 1 gives details of its main provisions. 2.02 To carry out its part of the project, mainly construction and oper- ation of the infrastructure, the Government, by decree, established a semi- autonomous agency, the Office d'Amenagement de Boke (OFAB) in 6; Details of OFAB's constitution and duties are given in Annex 2. 2.03 Because of the complexity of the project and because the consulting engineers, Tractionel, were appointed for CBG as well as for the Government, the Construction Coordination Committee (CCC) was established. This comprises an independent chairman and the construction managers of CBG and OFAB. Its duties and mode of operation are given in Annex 3. 2.04 The Boke project, with its many responsibilities divided among the Government, OFAB, CBG and the Halco shareholders, required eight agreements in addition to the Bank's loan and project agreements and the loan agreement with USAID. These are listed and summarized in Annex 4. 2.05 In view of the lack of creditworthiness of the Guinean economy (Economic Report AF 63.b, September 1967), the Bank obtained zatisfactory arrang'ements to secure service of Loan 557-GUI from funds provided by CBG and the Ba-co shareholders. These are dealt with in the Financial Assurances Agree:ent as supplemented by the Trust Agreement. Guineals lack of credit- worthiness persists. Should CBG's operations not provide sufficient funds to enable the Government to fulfill its debt service obligation to the Bank then G13, Haico and ultimately the shareholders themseaves are bound to make paym,;it to the Trustee. The Financial Assurances Agreannt also covers the arrangements wh(,roby the shareholders will advance, thrugh the truF7tee, funds to complete the project in case of an overrun in foreign exchange cost. Halco is, of course, responsible for the necessary investment in the mining section of the project. - 3 - 2.06 The Financial Aszurances Agreement includes a "force majeure"l clause which relieves CBG and the Halco shareholders of their obligations under certain conditions. Namely, if events make it impossible to construct or operate the OFAB or the CBG project for a period of 180 days and only when such events arise from political causes within, or acts of war directly relating to, Guinea or its territory. These obligations may be terminated only if the suspension continues for 600 days or in certain other circum- stances outlined in Annex 4, page 2. B. Country Economy 2.0? Guinea has an area of 95,000 sq ni and a total populatio :o about 3.8 million, increasing at an annual rate of about 2.8%. Agriculture is the principal economic activity and contributes about one-half of GDP, mining and manufacture account for about 13%, construction and energy for 20% and administration for 20%. 2.08 Although the pace of investment has steadily risen, the economic growth rate is not likely to have exceeded that of population growth. Indeed, because of decreasing incentives, agriculture has grown very slowly. GDP per capita has stagnated at around US$80, Although manufacturing has expanded since 1960, the value added is still relatively small. In recent years, mining value has declined, because of termination of iron mining and exhaus- tion of bauxite reserves on Kassa Island. The long term prospects for mining in Guinea appear promising, however, with bauxite exports from Boke and the Russian development at Kindia, Mineral exports, which represent about two- thirds of total exports will probably continue to be the most important source of foreign exchange earnings. 2.09 Mining is largely owned by private foreign interests. Halco Mining, Inc. has the exclusive right to mine bauxite on Tamara Island; production was expected to reach one million tons in 1970. Halco will market 600,000 tons, Guinexport (commercial state enterprise) will market the remainder. The most important bauxite mining venture actually operating in Guinea is the Compagnie Internationale pour la production d'Alumine (Fria), owned 48.5% by Olin Mathieson Chemical Corporation (US) and 26.5% by Pechiney-Ugine (France). Fria owns and operates various mines near Kimbo, an alumina plant, a railway and export facilities in Conakry. Annual production is expected to increase to 700,000 tons in 1971, and to 1,000,000 in 1975. The company retains two- thirds of its foreign exchange receipts and surrenders the rest to the Central Bank for local currency. C. Bauxite Reserves and Marketability World Bauxite Market 2.10 Following the rapid growth in consumption of aluminum (9.2% per year over the period 1959-1969), world bauxite production increased rapidly over the same period (9,5% per year) to reach 46 million tons in 1969. Developing countries accounted for about 64% of the world bauxite production in 1969 and four leading countries (Jamaica, Australia, Surinam and Guyana) for more than 62% (Annex 5(v)). 2,11 The expected future trend in world aluminum production and con- sumption will result in increased demand for bauxite. According to Bank - 4~- projections, world demand in 1975 will reach about 60 million tons (Annsx 5(v)). Guinea will, by That date, account for about 17% of world supply anad the Boke project (8.0 million tons by 1975) for about 13%. Furthermore, the Boke project would account for some 50% of the increase in world supply between 1969 and 1975. Ore Reserves 2.12 Bauxite deposits in the northwest of Boke are estimated to contain at least 1.75 billion tons of high grade bauxite. The project's mining facilities will extract bauxite from the Sangaredi block which contains about 210 to 220 million tcns with a dry alumina content above 58% and a minimnum of 185 million tons of bauxite with a dry alumina content of 58.9% (Annex 5(i)). 2.13 It can be concluded that there are sufficient bauxite reserves in the Sangaredi block alone to meet the requirement of the bauxite sales con- tracts signed between CBG and Halco's shareholders (para. 2.14). Sales and Prices 2.14 CBG has signed 20-year contracts with Halco shareholders guarantee- ing, subject only to CBG's production of the required quantities, the sale of the proposed increased production of metallurgical grade bauxite up to 9.0 million tons per annum. These contracts, compared with the original project contracts are detailed below: Quantities (in thousand tons of bauxite) Year of Operation 1 2 3 4 5 6 to 20 Original contracts (December 1966) 14,700 4,700 4,700 4,700 4,700 5,100 Extension contracts (November 1970) - 2,125 3,300 3,450 3,450 3,900 Total h,700 6,825 8,000 8,150 815 0 9,000 The quality and quantities of metallurgical grade bauxite contracted by Halco's different shareholders are shown in Annex 5(ii) and (iii). 2.15 Under the original project the balance of bauxite ore sales (1.3 million tons/annum) and some 200,000 tons of calcined bauxite, for use as abrasives in the chemical industry, were to be sold on the free market. Under the expanded project only 200,000 tons of calcined bauxite are to be sold on the free market. 2.16 The contractual base prices for metallurgical bauxite are as follow, US$ ton Price Escalation to Base Price January 1971 Original contracts (year 1 to 20) 7 0.55 Extension contracts (year 1 to 15) 9 0.42 Extension contracts (year 15 to 20) 10 - The base prices will be adjusted for alumina, silica and water content. Price escalation clauses which protect CBG against increases in production cost, have been reviewed and tested by the Bank; they have been found favorable to Guinea. Calcined bauxite will be sold on the free market at about US$33/ton. Adjustments and escalation clauses are discussed in Annex 5(iv) and are found acceptable. The contractual prices are irrespective of world production levaeL 3. THE ORIGINAL FROJECT A. CFAB 3.01 The works being financed by Loan 557-GUI, which were based on a forecast 6.6 million tons of bauxite to be exported annually and which have a maximum capacity of 8.0 million tons/annum, comprise: (i) A single track standard gauge railway 136 an long from the mine location at Sangaredi to a new port at Kamsar. (ii) A new port at Kamsar with an approach and loading jetty and a 17 km approach channel from the open sea to enable 30,000 dmt vessels (9.8 m draft) to navigate it at half tide, and a turning basin for unloaded vessels. (iii) A new township at Kamsar, 2 km upstream of the port, with an area of some 88 ha on which CBG provides 370 houses, and OFAB 225. Water supply is being piped some 60 km from Boke. (iv) Supply of floating and heavy lift equipment to operate the port, three locomotives and some passenger and goods wagons for CFAB traffic. 3.02 The original engineering loan (S.1.-GUI) enabled consultants to prepare final engineering and cost estimates. Loan 557-GUI provided for letting contracts, professional services for engineering supervision and other supervision costs of OFAB. 3.03 Because of the complexity of the works to be undertaken, and the logistic problems involved in carrying out the work in the undeveloped area between Kamsar, Boke and Sangaredi, one overall contractor was selected to -onstruct all OFAB's and CBG's civil engineering works, following international competitive bidding. The contractor comprised an association of Impresa Astaldi Estero (Italy), Constructions et Enterprises Industrielles (Belgium), and Westminister Dredging Company, Ltd. (UK)-!JTA0EW). Threbreparate supply contracts were also let for OFAB equipment. Details of all contracts are given in Table 1. 3.04 The CCC, on behalf of OFAB, supervises the consultants' work and certifies the money due to the contractor. - 6 - 3.05 The present cost estimate for the Loan 5.7-GUI project, compared with the original estimate, is as follows: $USLillions (equiv.) Foreign Exchange Local Currency Construe- Construc- Grand Item tion Interest Total tion Interest Total Total Appraisal Report Estimate 59.o 5.5 66.5 17.9 1.1 19.0 83.5 Estimated Overrun Y (a) Construction and interest 2.4 2.4 4.8 (3.5) 0.2 (3.3) 1. (b) Additional cons- truction claim 2.5 0.2 2.7 0.8 0.8 3.5 Total 63.9 8.1 72.0 15.2 1.3 16.5 88.5 1/ Overrun is financed by CBG overage loan. The estimated foreign exchange overrun for construction is due to increased quantities, an allowance for construction claims and a higher cost escalation than originally provided. The increase in interest and the additional con- tractor's claim are due to anticipated late completion (para. 3.07). Official escalation on the local currency portion of the expenditure has proved less than anticipated but an additional claim is expected. Details of the original allocation of loan funds together with the present estimated expenditure under each category are given in Table 2. 3.06 Work coTnenced on site in October 1969 and is expected to be suffi- ciently completed to enable bauxite to be shipped by December/January 1972/73, about ten months after the contract date. On March 31, 1971 the value of civil engineering work completed was US$28.26 equivalent - about 38t- including US$23.1 million foreign exchange. Disbursements from the loan on April 30, 1971 amounted to US$27.5 million; disbursement is normally made 90 days after measurement of work on site, but includes also costs of supply contracts supervision and interest. A disbursement schedule showing the present estimated disbursements from Loan 557-GUI is given in Table 3. 3.07 Delays on the project have occurred due to: (i) the contractorts problems caused by strikes in Italy which delayed arrival of plant and equip- ment; (ii) lack of suitable skilled labor in Guinea; (iii) the bankruptcy of the subcontractor employed for construction of the jetty; and (iv) the political situation in Guinea which has resulted in: (a) problems in labor recruitment; (b) difficulties in interpretation of agreements; and (c) the disturbances of November 1970. - 7 - 3.08 Imediately following the November 1970 disturbances, and until late February 1971, difficulties were experienced in obtaining visas for consul- tant's and contractorts personnel to enter and leave the country. These latter events caused considerable delays and are likely to give rise to claims by the contractor. 3.09 Experience since October 1969 has indicated a need for close supervision by Bank staff and the usefulness of the CCC in promoting liaison between all parties involved. However, most problems have been resolved and the project is proceeding satisfactorily, although some ten months late overall. 3.10 One particular item on which experience has shown that special attention must be given is the maintenance of road traffic between Boke and Conakry via the ferry at Boffa. During negotiations for the extension loan, the Goverment undertook to maintain the road and ferry in a satisfactory condition. B. CBG Installations 3.11 The contracts for CBG's installations at Sangaredi and Kamsar, and for the railway transport equipment provide: (i) At the Sangaredi mine site: Necessary drilling equipment and loading shovels, electrical power supplies, and a township with housing for a staff of about 250. (ii) At the Kamsar Industrial Installation: Bauxite ore-handling, drying and storage equipment, con- veyors on the loading wharf and a shiploader, and construction of houses at the township site provided by CFAB. (iii) Transportation equipment comprising diesel locomotives and ore cars. 3.12 The original CBG processing equipment was designed for a maximum annual production of 6.6 million tons. Annex 6(i) gives details of the origi4al project together with the 1968 estimate of its capital cost. The present cost, compared with that of 1968 is given below: (US$ Millions) may 1968 February 1971 Estimated Cost Estimated Cost Construction and supervision 76.7 86.7 Interest during construction 5.1 9.5 Pre-operating expenses 11.2 11.2 Advances to G Vlea 0.8 0.8 Overage Loan - 7.5 Mining Rights 1.0 1.0 Working Capital 4 4.7 Totals 990 121.1 1/ CBG loan to Guinea to finance overrun on OFAB project. -8- 3.1) The CBG mining cost overrun is about US$1h.h million due to increase of interest duririg construction and price escalation;including CBG's. overage loan and working capital increase, the total CBG overrun readhes US$22.4 million. 3.14 All construction and equipment purchase contracts had been let by 1970. Annex 6(iii), gives details of contractors, and dates on which contracts were let; the present status of contracts is discussed in Chapter 4-B.- 4. TE EXTENSION PROJECT 4.01 In the light of increased world demand for aluminvm (Annex 5(v)) the Guinean and Halco directors of CBG, at their meeting in November 1.970, agreed to increase the annual production and sales of bauxite from Sangaredi to 9 million tons, and the Halco partners signed contracts to take the in- creased.quantities. It will therefore be necessary to increase CBG's invest- ment in the mine facilities and make additions and improvements to the port railway and townsite being constructed by the Guinea Government. Details of the necessary works and their estimated cost are given below. A. CFAB Description and Cost of Works Harbor Works 4.02 The original project provided for 30,000 dvt ships to leave the load- ing wharf for the open sea at half tide; if they missed the tide they had to remain alongside the wharf. With exports at a maximum of 6.6 million tons annually, this arrangement was acceptable whatever the arrival sequence of ships for loading, and up to 8.0 million tons could be handled if the arrival sequence followed a regular pattern. For exports of 9.2 million tons annually, better use of the loading capacity must be ensured. This will be done by providing a waiting berth with breasting and mooring dolphins to which a loaded ship can be moved to await the tide, thus permitting the loading of any waiting ship as soon as the previous vessel is loaded. The opportunity will be taken to make provision for handling oil imports for the mine facili- ties at the new berth. The depth of water available at the new waiting berth and the existing loading berth has already been increased to enable the hann dling of up to 4),000 dwt vessels. This was done, on CBGrs instructions, on completion of the original dredging contract so as to avoid the expense of bringing the dredger back to the site. Ancillary works included are the foundations for the heavy lift derrick in its new location, and a slipway at Kamsar to reduce the time required for necessary overhauls to floating craft. Railway 4.03 The additional tonnage will be handled on the railway by using longer trains so that the track at the three passing stations will have to be length- ened. Earthworks, to enable longer sidings to be constructed, were included -9- in the original project. A decision to use heavier rail had already been taken on the original project to increase the useful life of the track and would have been financed by CBG as part of the overrun. As the heavier rail is necessary with the increased traffic to give normal running life, the cost is included in the proposed loan., Townsite 4.04 Extra roads and services will be required at the Kamsar townsite to serve the additional houses to be built by CBG and the hospital will have to be enlarged; the original loan provided for sufficient fill to enable exten- sions to take place. 4.05 OFAB also proposes to make improvements to its houses, to match similar improvements to CBG houses and to improve the drainage and sanitation of the surrounding area; the Bank will include part of the foreign exchange cost involved in the Loan. General 4.06 The foreign exchange cost of the extended consulting engineers', legal and audit services for OFAB, together with that of OFAB's and CCC's supervisory services is included in the proposed loan. 4.07 The estimated cost of the additional works and services in the OFAB extension project are given below, with detail of individual items at Table 4. G. Francs Million US$ Million Foreig,_ Local Foreign Total Local Foreign Total Exchangfe Harbor works 106 512 618 0.42 2.05 2.47 85 Railway improvements 19 238 257 0.07 0.95 1.02 90 Townsite extension 507 600 1,107 2.03 2.40 4.43 55 Consulting engineers services, other professional services, OFAB and CCC 120 437 557 0.48 1.75 2.23 80 Contingencies Physical (12%) 100 200 300 0.40 0.80 1.20 65 Price (8%) 64 113 177 0.25 0.45 0.70 65 Interest during construction 64 150 214 0.25 0.60 0.85 - Total 980 2,250 32230 3.90 9.00 12.90 70 4.08 The estimated costs are based on estimates prepared by the engineer- ing consultants and are related to existing contract prices as increased by the appropriate escalation rate. They are considered satisfactory by the Bank. The physical contingencies are about 12% on all items with an addi- tional 8% for price contingencies but excluding supervision costs. - 10 Financing 4.09 The total investment in the expanded OFAB project thus becomes: $US Million (equivalent) Foreign Local Exchange Currenc Total Original Project Revised Estimate (para. 3.05) 72.0 16.5 88.5 Extension Project 9.0 3.9 12.9 Total Expanded Project 81.0 20.4 101.4 Of which US$7.5 million provided by the CBG overage loan 7.5 7.5 Bank/USAID Financed 73.5 20.4 93.9 4.10 The proposed extension loan would finance the total foreign currency cost of the new works and the supervision and other professional services required, amounting to US$9.0 million equivalent. The local currency cost will be financed from the original US$21.0 million equivalent USAID loan (see also para. 5.07). Should the US$9 million foreign exchange provision prove in- adequate, CBG will also be responsible for any overrun on the extension. Procurement 4.11 The works to be constructed for the extension project fall within the scope of existing contracts 1, 5 and 6 (Table 1). Apart from the extra cost involved in a new contractor setting up in Guinea, it would be impractcal to have two contractors on the same sites. It is therefore proposed to issue variation orders on the existing contracts based on the existing prices plus escalation. Construction Schedule and Disbursement 4.12 All the new works are expected to be completed by April/May 1973. Work on both the items financed by the original loan and those included in the proposed extension loan will proceed concurrently; it is therefore considered impractical to attempt to isolate expenditure on work perfonned under the two loans. Accordingly, it is recommended that the new loan, if approved, be added to the existing loan to make the sum available for disbursement US$73.5 million. It is expected that disbursement of US$64.5 million provided under the original loan will be completed during the quarter ending September 1972. Although contingencies have necessarily been included in arriving at the US$9.0 million cost of the new works, the full amount of the expanded US$73.5 million loan will be disbursed because in accordance - 11 - with the Financial Assurances Agreement, CBG only provides Overage Loans to OFAB to cover expenditure in excess of funds available from the Bank Loan. By April 30, 1971, US$27.5 million had been disbursed. A schedule of disbursement from such an expanded loan is given in Table 3 and sumarized belOW: Bank Fiscal Year Amount Disbursed at End of Period US$ Million 1971 32.5 1972 60.0 1973 73.5 Expenditures all come within the allocation categories of the existing loan as is shown in Table 2. Retroactive Financing 4.13 The existing contracts require the contractor to be advised of additional work requirements before the loan is expected to be signed. However, the only actual expenditures anticipated prior to loan signature are for dredging (the new dredging had to be done before the dredgers left the site), possibly the cost of additional rails required depending on when they are delivered (they have been ordered), and electrical supplies. The cost of dredging, US$160,000 and perhaps the rail US$70,000, will be paid from existing loan funds. CBG has guaranteed to cover such expenditure in the event the extension loan is not approved and up to an additional US$500,000 if required. B. CBG Additions, Improvements and Extensions Financed by CBG 4.14 The original project's equipment and construction contracts have been modified by increasing the size/capacity of the individual items of equipment ordered under the original project to increase the overall capacity of the mine and processing plant to 9.2 million tons/annum. Some improvements in design have also been incorporated. The proposed extensions are detailed in Annex 6(ii). Cost Estimates and Contract Status 4.15 With the exception of some mining and general equipment (contract 50), all contracts have been let and the additions to the original project have been approved. All variation orders to cover improvements and extension items have been prepared and most had been signed by December 1970; provision has also been allowed for claims on each contract. All equipment contracts are fixed price contracts and construction contracts are fixed unit price. Annex 6(iii) gives the name of the supplier/contractor, the date of contract, the construction budget and the commitments as of December 1970 for each contract. - 12 - 4.16 On the basis of the total construction cost shown in Annex 6(iii) the following table shows the capital cost of the expanded CBG project as of February 1971 at start of operations. The total cost of construction at start-up is estimated at US$117 million, of which about US$9 million is local currency. Some US$7 million of this amount will be supplied by hard currency converted into Guinean Francs and about US$2 million by non- repatriated earnings from Halco's Guinean subsidiary. CBG - Capital Cost Estimate at Start of Operations of Expanded Project (US$ Million) Original Additions and Extension Expanded Project Improvements Project, Project Construction cost 86.7 6.7 13.8 107.2 Interest during construction 2_ - 0.4 9.9 Total 96.2 6.7 14.2 117.1 Preoperating Expenses 11.2 - 2.8 14.0 Advances to Guinea 0.8 - - 0.8 Overage Loans to Guinea 7.5 - - 7. 1ining Rights 1.0 - - 1.0 Working Capital 4.7 - 5.9 10.6 121.4 6.7 22.9 151.0 4.17 Annex 6(iv), shows the cost of equipment to be purchased in the second year of operation and additions to be financed in the fourth y ear as well as replacement costs over the first fifteen years of operation. Construction Schedule 4.18 Annex 6(iii) also shows physical progress on each contract as of December 1970 in percentage of engineering supplied by the contractor and in percentage of progress at factory for equipment contracts, the likel i,date of shipment of equipment, and the progress on site as of February 1971 .-1 1/ Contract 10 (soil im.Drovement for the Kamsar plant) has been completed and work has started on contracts 25 (housing at Kamsar) and 35 (housing at Sangaredi). - 13 - 4.19 All equipment is expected to arrive on site at the end of 1971 and during spring 1972. The erection of drying kilns to be completed in October/ November 1972 will terminate CBG's construction work. Stockpiling of metal- lurgical grade bauxite is therefore scheduled to start in December 1972. Shipping Date for Bauxite 4.20 Under the original project, shipment of bauxite to fulfill Halco's contractual obligations was to commence not later than 90 days after issue of a completion certificate as defined in the Financial Assurances Agreement. Extension of the project and consequent later completion requires issuing a certificate of substantial completion, (when the state of construction has been advanced to a point where bauxite can be shipped) which will obligate Halco to commence shipment 90 days or less thereafter. Such a definition has been agreed and incorporated as paragraphs 4.08 and 4.09 of the amended Financial Assurances Agreement. 5. FINANCIAL 5.01 The total initial investment in the integrated mining and transport complex will be about US$245 million for the expanded project (paras. 4.09 and 4.16) as compared to about US$182.5 million for the original project (1968 estimate excluding CBG and OFAB overruns). A. CBG Investment and Financing 5.02 The initial investment in the expanded project to be provided by CBG, together with preliminary expenses incurred by Halco and its shareholders and the working capital necessary to start operations (including US$7.5 million overage loan), is estimated at US$151.0 million (para. 4.16). Further capital expenditures will be incurred after start-up to bring the plant capa- city to 9.2 million tons per year (Annex 6). 5.03 The initial financing plan and additional financing required in early years of operation are given in Table 5 and summarized below. Due to delays in start-up, principal repayments (amounting to US$2.1 million) will have to be made in 1972, prior to start-up and are included in the total capital requirement. Interest payments have been capitalized until start-upe - 14 - CBG - Initial Financing Plan and Additional Financing in First and Second Years of Operation (in US$ million) Initial Financing Financing after start up Original Expanded (Ekpanded Project) Project Project 1st year 2nd year Senior Debt Loan Agreements executed 90.1 Loan Agreements under negotiation 26.0 Expansion equipment tied loans 4.6 Short-term loans 6.0 2.0 Total Senior Debt 62.0 116.1 6.0 6.6 Equity Subordinated debti/ 20.0 20.0 Capital stock Class A - Government of Guinea 1.0 1.0 Class B - Halco Mining, Inc. 1.0 1.0 Class B - Stockholders capital contribution 15.0 15.0 Total Equity 37.0 37.0 Total Capital Requirement 99.0 153.1 6.0 6.6 5.04 The Financial Assurances Agreement defines the obligations of Halco and its shareholders to provide all the funds needed to complete the original mining project; in particular, it stipulates that Halco and its shareholders will provide (according to a schedule) US$36 million as a part of CBG's equity of US$37 million. However, the agreement does not stipulate any rules concerning the obligation of Halco and its shareholders to increase their equity contribution in case of overrun or expansion. The initial financing plan of the original project (determined by the Agreement) and of the ex- panded project (as proposed by Halco) show the same equity contribution - US$37 million. Given the increase in capital cost due both to the CBG/OFAB overruns and to the extension project costs, the initial debt-equity ratio for the original project 63/37 becomes 76/24 for the expanded project. YInterest free and principal moratorium for the first five years. - 15 - 5.05 Halco has no legal obligation to increase its equity contribution and, for the following reasons, the Bank is satisfied with the expanded project's initial debt-equity ratio and with the proposed financing plan. (i) The long-term debts contracted by CBG are fully guaranteed by Halco and its shareholders; Halco commitments to the project have substantially increased since the 1968 appraisal. (ii) The debt service coverage of the Bank loan improves as a result of the expansion (para. 5.15) and improves with each year of project operation (para. 5.11). (iii) The income to the Goverment of Guinea will increase in proportion more rapidly than the dividends earned by Halco after the extension (Table 14). (iv) There are no market risks, given the contractual arrangements; Guinea is protected against increases in operating costs by satisfactory escalation clauses. (v) The general conditions stipulated in the "811Z letter'll/ addressed by Halco to the Government of Guinea (December 11, 1968) are likely to be met. (vi) The initial debt-equity ratio improves quickly after start-up of operations. The debt-equity ratio is therefore not of critical financial significance to the Bank or to the Government of Guinea. 5.o6 Except for US$26 million, shown under senior debt loan agreements not yet executed (para. 5.03), and to which the provisions of the "183 letter" will also apply, financing for the mining project has been arranged at terms and conditions given in Table 5. Additional financing required during the early years of operation to supplement cash generation To insure that unforeseen developments with respect to interest rates to be borne by CBG will not reduce too much the Profits Tax to be paid by CBG to the Government of Guinea, Halco has agreed that it will cause CBG not to claim, in determining the Profits Tax to the Government of Guinea,any deduction from its annual income with respect to interest to be paid by CBG, to the extent that such interest might exceed an average rate of 800 on all CBG debt (excluding US$20 million free subordinated debt). - 16 - for working capital and equipment purchases, will be supplied partly in tha form of a revolving credit (US$8 million) during the first three years of operation, and partly through long-term tied financing (US$4.6 million) for the purchase of expansion equipment. B. Guinea Investment and Financing 5.07 The total investment of the Government of Guinea in the expanded project is expected to be about US$101.4 (para. 4.09). The sources of the estimated finance are as follows: US$ million Foreign Local Total IBRD Loan 517-GUI 64.5 - 64.5 Proposed IBRD Loan 9.0 - 9.0 CBG Overage Loan 7 .5 - 7.5 USAID Loan - 20.4 20.4 Total Finance 81.0 20.4 101.4 5.08 Loan 557-GUI is for a term of 24 years including a five yaar grace period, with an interest rate of 61- per annum. The first redemption pa yment is due on October 1, 1973. The CBG Overage Loan will be made, in accordance with the terms of the Financial Assurances Agreement, on substantially the same terms and conditions as Loan 557-GUI as to rate of interest and grace period. However, subject to the proviso in the Financial Assurances Agreemant that Guinea, after payment of debt service, shall not receive in cash in any year a payment of less than 60% of the total profits tax, the Overage Lan may be redeemed at such a rate as the profits from the bauxite operaions permit. In the forecasts which follow it is assumed that the proposed Bark Loan of US$9.0 million for the expansion project will be for a term of 21 yea:s including two years' grace, with interest at the rate of 7V per a.num, and that the first redemption payment will coincide with that of Loan ?57-GUI, i.e. on October 1, 1973. The term of the USAID loan is 30 years inclusive of a grace period of !g years counting from the date of the first interest pay- ment. Interest is at the rate of 2w per annum. Repayment will be by equal half-yearly installments, with declining interest. C. Forecast of C3 Operating Results 5.09 Table 7 shows a projection of CBG's income account for the first 1" years of operation of the expanded project. To facilitate comparison, the results of the earlier and present projections are summarized for the second, sixth and tenth years of operation. - 17 - Original Project Expaneld Proj ect Years of Operation 2 6 10 2 6 10 CBG operating account Sales in million of tons 4.8 5.8 6.6 6.9 9.2 9.2- US$ million Revenue 35.4 4.9 50.7 57.0 81.7 81.8 Production costs: Working costs 12.9 12.4 12.8 17.6 18.2 17.3 Depreciation and amor- tization of pre-operating expenses 8.7 9.7 7.4 12.1 13.2 9.6 interest charges on CBG debt 4.4 3.0 1.6 8.5 5.2 1.0 Total 26.0 25.1 21.8 38.2 36.6 27.9 Pre-tax income 9.4 19.8 28.9 18.8 LQ1 53.9 Tax at 65% 2/ 6.1 12.9 18.8 12.2 K.? 35.0 Net after-tax income 3.3 6.9 10.1 6.6 K 18.9 - Including 0.2 million tons of calcined bauxite. See Annex 1, page 4. Because of economies of scale, the net income and profits tax increase more than proportionately to the increase in the level of production. Other points of interest are: (i) Working costs tend to decrease because of the progreFiive replacement of high-cost expatriate staff by lower-cost local staff. (ii) Provision for depreciation of fixed assets also decroases over time, because the service lives of assets, as pre- cribed in the basic agreement for purpo-es of calculating depreciation charges, are shorter than the expected eco- nomic service lives of the assets in actual use (Table 6 gives CBG depreciation schedule). 5.10 The end result is that increased net income for Guinea and CBG's private shareholders amply justifies the additional investment needed to increase the level of production to 9.2 million tons of bauxite per year (paras. 5.17, 5.18). D. CBG Balance Sheet and Cash Flow 5.11 Table 8a shows CBG's Balance Sheet for September 30, 1970 and Table 8b shows the projected balance sheets of CBG at the end of each of the first fifteen years of operation. Conpared with the projections of the earlier - 18 - Appraisal Report the figures for the second, sixth and tenth years are as follows: Original Project Expanded Project Years of Operation 2 6 10 2 6 10 US$ million CBG Balance Sheet Fixed assets - net 66.6 44.0 20.2 100.6 60.0 23.6 Pre-operating expenses 10.2 6.1 2.0 12.5 7.5 2.5 Mining rights 1.0 1.0 1.0 1.0 1.0 1.0 Current assets less current liabilities 1.1 18.2 19.5 21.6 33.8 29.9 Advances to Government 6.3 13.5 10.7 15.5 6.6 - Total 98.2 82.8 53.4 151.2 108.9 57.0 Debt 55.1 36.5 18.0 1o6.5 61.3 9.5 Equity 4.1 6.3 35.4 .7 47.6 47.5 98.2 82.8 53. 151.2 108.9 57.0 Debt Equity Ratio 56/A6 44/66 3b/56 70/30 55/45 17/83 The following points are of interest: (i) Net fixed assets increase proportionately to the increased investment. (ii) Current assets, the majority of which represents 90 days' credit on bauxite sales, increase proportionately to output. (iii) Advances to Government include the overage loan and are therefore greater at the outset, but are repaid faster because of the greater revenues made available to the Government by the expanded operation. (iv) The initial debt equity ratio 76/24 improves only slightly in the second year of operation and more rapidly thereafter. As explained in para. 5.05 this position is acceptable to the Bank although less satisfactory than for the original project. - 19 - Cash Flow 5.12 The cash flow of the companr, which is shown in detail in Table 9 may be summarized as follows for the fifteen years of the proj ection: Years 1-15 Original Expanded Project Project (US$ million) Source of Funds: Cash generation from operations 231-.1 380.4 Borrowing after start-up - 12.6 Repayment of advances by Guinea Government .7 8.2 Cash draw-down .2 4.3 Total sources 232.0 405.5 Application of Funds: Capital investient 21.2 17.5 Training 1.0 1.0 Increase in working capital 13.6 23.7 Debt Redemption 80.4 146.6 Dividends 115.8 217.0 Total Applications 232.0 405.8 5.13 The projection maintains the principle, agreed during negotiations for the original project, that in any one year the sum paid out in current and deferred dividends to the Halco shareholders shall not exceed the residual sum received by the Government of Guinea as profits tax (after payment of debt service on the Bank loans). CBG's debt service coverage is shown in Table 9 and is satisfactory. E. Government Income from Bauxite Operations 5.14 In the original Appraisal Report, the financial responsibilities of the Government of Guinea, OFAB, CBG and the Trustee were described. It was shown that the financial benefits accruing to the Government of Guinea from the bauxite operation, supported by the financial assurances given by CBG, Halco and the individual shareholders of Halco, would assure that service of the Bank loan would be amply secured. By increasing bauxite sales to 9.2 million tons a year the financial benefits to Guinea will be more than doubled and, in consequence, the service of the Banks loans will be even more soundly secured, as the following figures demonstrate. - 20 - Original Project xpanded Project Years of operation 2 0 10 2 6--7 ~ T0 million Net income for Guinea from Bauxite Operation Profits tax / 6.1 12.9 18.8 12.2 29.3 35.,0 Advances from CEG (or repayments) 3.4 .7 (1.6) 2.3 ( 4.5) - Depreciation charges to CBG and port users .8 .8 .9 .8 .9 .9 Total 10.3 14.4 18.1 15.3 25.7 35.9 Less: Debt service 6.8 7.1 7.0 8.1 8.5 7.9 Renewal of assets of town - and harbor - .1 .2 .1 .1 . Net gain to Government 3.5 7.2 10.9 7.1 17.1 27.6 Guinea Government return on investment in lieu of dividends or royalties. See Annex 1, page I. 5.15 The application of the formula for calculating the amount of the advances which must be made by CBG to the Government (to ensure that the Government receives not less than 60% of the total profits tax after service of the Bank loans) is shown in Table 10. It will be seen from the above figures that the net gain to Government at the higher rate of production (after service of debt, bothforeign and local) is expected to be twice as great in the second year of operation as it would have been under the original project, and that it tends proportionately to increase thereafter. Debt service coverage of the Bank loan which ranged between 1.5 and 2.6 under the original project, increases to between 1.9 and 4.5 under the expanded project. Return to Guinea per ton of Bauxite 5.16 Earlier calculations showed that Guinea would derive directly from its participation in CBG operations (exclusive of customs duties, payroll taxes and other imposts of a general revenue nature) a net benefit of US$1.78 per ton of bauxite sales during the 20 year term of the existing sales con- tracts. The present projections indicate that at the expanded rate of production now envisaged, Guinea will benefit from its participation in CBG operations at the rate of US$2.82 per ton of bauxite sold. - 21 - F. Rates of Return 5.17 In calculating the rate of return on the investment, it is assumed that the economic service life of the assets will be 20 years, because the term of the bauxite sales contracts entered into between CBG and the share- holders of Halco is 20 years, after which it is conceivable that the infra- structure assets nay not be recuired for the purpose for which they were built, or may be used only at sub-economic levels. The average technical service life of the assets includedinthe infrastructure is of the order of 37 years but a calculation based on this longer life would not add signifi- cantly to the rate of return. On this basis, the results given in detail in Table 11 may be sumarized as follows: Incremental Total Investment investment For the For the -Fcr the original expanded extension 1prject project project Original Revised Estinate Estimate Estimate Estimate (US$ million) Initial investment: Guine. 83.5 88.6 101.4 12.9 CBG1' 99.0 113.9 143.5 29.6 Combined investment 182.5 202.4 244.9 42.6 Discounted cash flow financial rate of return (see Table 9): (a) On the combined investment 16.5% 12.85 19.5% 39% (b) On Guinea's investment 146.% 13.8% 20.8' 48% 1/ Foreign exchange overrun on original OFAB project included in Guinea investment. 5.18 It will be noted that, whereas the return on Guinea's investment was initially calculated to be the same as the return on the combined invest- ment, the benefits to be derived from expansion of the project will accrue in proportionately greater degree to Guinea than to the Halco participants, because the additional investment needed to increase infrastructure capacity is proportionately less than that needed to increase mining and processing capacity. - 22 - 5.19 Table 14 compares increased benefits to the Government of Guinea and dividends paid to Halco shareholders on the original and expanded projects. During years four to six, because of repayments of CBG advances for the overrun, Government benefits increase by 2.2 times against 2.5 times increase in dividends paid to Halco; but for years seven to fifteen. Government increase is in the ratio 2.5 against Halco's 1.8, These projections are conservative since they are based on 1971 constant prices with a price escalation clause favorable to Guinea. The Government and CBG's return on the incremental investment establishes a clear justification for the expanded project. By undertaking the extension, the rate of return on the total investment is substantially improved. Pay-back Period 5.20 The earlier appraisal indicated that, at the average rate of interest payable on the whole of the borrowing for the infrastructure, pay-back period would be slightly less than 10 years. A similar calculation based on the revised estimate of US$101.4 million for Guinea's total invest- ment gives a pay-back period of 6.8 years; the incremental investment would be recovered in only 2.8 years. Similar calculations for the combined Government/CBG investment produces pay-back periods of 11 years for the total investment and 4.6 years for the incremental investment. The longer pay-back periods for the combined investment result from the proportionately greater increase in CBG investment and the higher rates of interest payable on CBG borrowings. G. Financial Advice and Audit 5.21 The Government of Guinea has retained Price Waterhouse and Company as financial advisers and auditors of OFAB accounts. 6. ECONOmIC EVALUATION 6.01 The Boke project will make a substantial contribution to the economic development of Guinea by creating employment, generating foreign exchange and increasing the Government's tax revenues. The economic analysis of the original project, as set out in Report No. TO-672a of August 30, 1968, evaluates the future annual additions to Guinea's national income to yield an economic rate of return of 18% on the Government's investment in the infrastructure of the project. 6.02 The proposed extension will further improve the cost-benefit rela- tions of the project and bring the economic rate of return of the total expanded project to 26%. The net increase in Government income will be more than doubled and the stream of net foreign exchange earnings is expected to yield a surplus, undiscounted, of about US$575 million over the loan repay- ment period of 20 years. This sun, if stated as an annual average of US$29 million, is equal to about 100% of the present annual net export earnings of the country. Details of the calculations are given in Table 12 and a summary of the principal results follows below: - 23 - Oriinal Proj etnde Project Years of Operation 2 6 10 2 6 10 US$ Millions Increase in net domestic income (Table 12) 7.8 10.9 14.4 11.0 21.1 31.8 Increase in net Government income (Table 12) 4.3 7.9 11.7 7.9 18.0 28.7 Net foreign exchange earnings (Table 13) 8.6 11.7 15.8 11.4 21.7 32.9 Economic Rate of Return over 20-year life 18% 26j 7. CONCLUSIONS AND RECOMENDATIONS 7.01 Some information on the function of various organizations involved in connection with existing Loan 557-GUI and of the existing agreements signed have been briefly described in Chapter 2-A and Annexes 1, 2, 3 and 4. The loan and project agreements for the proposed extension project incorporate by reference the substantive provisions, of the 1968 agreements. 7.02 During the negotiations for the proposed loan, the following matter was agreed with the Government. (a) Maintenance of the existing surface of the road between Conakry and Boke in an acceptable condition to the Bank and of regular and reliable operation of Boffa ferry (para. 3.09). Conditions and Effectiveness 7.03 In addition to the usual legal instruments, the following are also conditions of effectiveness of the proposed loan: (i) The Financial Assurances Agreement, the Participation Agreement, and the Bauxite contracts, as amended, shall have become effective. (ii) The USAID Loan Agreement shall have been amended to make reference to the extended Project as described in Schedule 2 to the Bank Loan Agreement. 7.04 The extension project provides a suitable basis for a Bank loan to the Government of Guinea of US$9.0 million equivalent for a term of 21 years including a grace period of two years. May 28, 1971 ANNE 1 Page 1 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Summary of the Basic 1963 Agreement, Creating CBG 1. The Agreement was signed October 1, 1963 between Harvey Aluminum Company of Delaware and the Guinean Minister of Economic Development. The agreement was ratified by the National Assembly October 24, and signed by the President of Guinea October 26, 1963. The name Harvey Aluminum Company was later changed to its present name Halco Mining, Inc., incorporated under the laws of the state of Delaware, USA. The Agreement establishes the terms and conditions of the exploitation of the Boke bauxite deposits, of which the main features are summarized in the following paragraphs. Structure of CBG 2. A mixed-economy corporation, the "Compagnie des Bauxites de Guinee" (CBG) was established within six months after the effective date of the Agreement. The corporation is a Delaware corporation which is also registered in Conakry. The initial capital stock is US$2 million divided in 100,000 shares of a par value of US$20. Of these, 49,000 "A" shares were issued to the Government against the grant of mining rights, and 51,000 "B" shares to Halco, when the latter deposited the par value of its shares (US$1,020,000) in the country's central bank. Voting rights of each "A" and "B" share are equal in stockholders meetings. The stock capital may be increased up to US$10 million by mutual Agreement of the parties. Before selling their shares to others, each party must offer them first to the other party at equal prices and conditions; "B" shares may be transferred to any other corporation belonging to the Halco group. Only "B" shares are entitled to dividends, which are repatriable in the original currency of investment. The Government, as holder of the "A" shares, does not receive dividends but derives its profits from defined "profit taxes" (para. 8). 3. The President of the corporation, who is not a member of the Board of Directors, shall perform the function of general manager. He will be designated by the directors representing the "B" shares. The Government designates the Vice President. The Board of Directors is composed of 10 members, of which the "A" and "B" stockholders each designate five. The nomination is for four years. In the event that voting in the Board results in a tie, the non-member President (designated by the "B" shareholders) will have the decisive vote for that particular case. 4. The Board of Directors is generally responsible for the managing of CBG's affairs and its finances. The President of the corporation, assisted by the Vice President, assumes the general management and is responsible for all transactions including sales, the corporation's finances, the recruiting and dismissal of staff, etc. ANNEX 1 Page 2 1ining Rights The agreement defines the perimeters of the region in which CBG is entitled to mining rights and exploitation permits. The duration of the permits is 75 years; they grant the rights to explore, to mine and to export bauxite (and if later so decided, to transform it into alumina or aluminum), and to construct all plants and installations required therefor.. Financing 6. Under the Agreement, the Government undertakes to finance and build the infrastructure as described in the report (Chapter 3); the Government will own it, and it may also be used for purposes other than those related to CBG activities. The Agreement grants Halco the option to realize the infrastructure for the Government's account, but this procedure will not be followed. The Government shall make the infrastructure available to CBG at rates reflecting the operating cost of the use of the infrastructure, excluding financial charges corresponding to amortization and interest of funds borrowed by the Government. It is assumed that the latter charges will be paid from the "profit taxes" paid by CBG to the Government. The Agreement stipulates, however, that CBG may pay advances against future profit taxes, so as to allow the Government to meet its financial obligations. 7. Halco will advance to the corporation all funds needed for the original installations of machinery and equipment, and for the initial working capital for CBG's mining operations. The terms for such advances, including interest rates, are to be mutually agreed upon between the parties. These advances were to be considered as loans to CBG, and the resulting financial charges would be charged to the corporation. Fiscal Regime and "Profits Tax" 8. The Agreement includes a special fiscal regime, granted by the Government to CBG for 25 years, of which the arrangements are as follows: (a) all imports needed for the original installations shall be free of import duties; (b) all imports needed for subsequent operations shall be subject to an import duty of 5.66 (on FOB value); (c) there will be no export duty on CBG's exported products; and (d) CBG will pay the Government a "profits tax" computed as the first 30o of "net taxable profits", and 50% of the remainder thereof, thus working out as 65% of the total net taxable profits. ANNE 1 Page 3 The net taxable profits, the 65% share whereof replaces dividend to the "All shareholders, is defined as: gross income, minus (i) interest and other expenses related to funds advanced by Halco to CBG; (ii) exploita- tion charges incurred by both CBG and OFAB: (iii) depreciation of CBG plant, equipment and buildings; (iv) any profits actually reinvested in CBG; and (v) provisions for renewal of equipment and tools. This definition of net taxable profits has been modified, as shown in para. 6.11 of report TO-672a dated August 30, 1968. 9. CBG will pay, in accordance with normal tax laws, payroll taxes and social security taxes. Wages of expatriate personnel, however will be exempt from the social security tax, and only the locally paid part of expatriate salaries will be subject to income tax. Since CBG arranges for its own apprenticeships, it is excluded from the usual apprenticeship taxes. Dividends to "B" shareholders will be exempted from all taxes and duties. Mining Volumes 10. The 1963 Agreement provided that a minimum of one million tons of bauxite should be exported annually, and if not, that the Government would receive profit taxes as if the above volume were actually exported. It also established the principle that CBG would accept all reasonable orders for additional sales to others, and if not, that other parties would be allowed to infringe on CBG's mining rights. It further stipulated that CBG would examine, at an appropriate time, the feasibility of erecting in Guinea a plant for transforming all or part of the extracted bauxite into alumina or aluminum. The mining volumes states above have since been greatly increased. Technical Assistance 11. Under the Agreement, Halco shall make technical assistance available to CBG, at cost. Guinean personnel will exclusively be used for work for which specialization is not necessary. As to staff requiring specialization, preference will be given to Guinean personnel if it is of equal competence and has the same qualifications as expatriate staff. Other Conditions 12. The Government reserves the right to have 50% of exported bauxite shipped in vessels under Guinean flag, if this would not adversely affect the bauxite sales. 13. The Agreement included a "force majeure" clause which, in the Bank's view, covered a rather wide assortment of risks. Insofar as the Bank's security arrangements and the financing and operations of the project are concerned, the "force majeure" clause has been superseded. ANNEX 1 Page 4 14. The Agreement further stipulates that Guinean law will apply as the laws and regulations were at the date of the Agreement, and that sub- sequent changes therein will not apply to the Agreement. An arbitration clause is included, calling for the appointment of three arbitrators in case of disputes. Subsequent Events 15. The mining rights decree, based on the Agreement, was signed in June 1964. When the Bank made an engineering loan in March 1966, bring- ing the realization of the plans for the exploitation of the Boke bauxite a step further, several aluminum companies began to show interest in the high grade Boke bauxite. As a result, in April 1967, firm sales contracts for 4.7 million tons annually, to be increased to 5.1 million tons after five years, were concluded between CBG and six large aluminum companies: Harvey Aluminum, Alcoa, Alcan, Pechiney-Ugine, Vereinigte Aluminum Werke and .E0ntecatini-Edion. By mid-1967 it became apparent that the cost of both the infrastructure and the CBG installations would be close to three time the initially envisaged US$55 to US$60 million, largely as a result of increased capacity of the installations, and to some extent because of initial underestimation. The investment requirements and other obligations having increased so much, it was decided in October 1967 to expand and re-organize Halco by making the purchase contractors shareholders in the company. This event strengthened the case of a Bank loan for the infra- structure, not only because the increased volume of sales improved the financial and economic justification of the project but also because the expansion of Halco made it possible to make the shareholders ultimately responsible for guaranteeing the service of the Bank loan under all circum- stances, except if so-called political risks should occur. 16. The reorganization of Halco caused the role played by its initial single shareholder, Harvey Aluminum, to be greatly reduced, and the lead in further preparation of the project and the negotiations and discussions between shareholders, the Government and the Bank to be taken over by Alcoa and Alcan, who now together own 54f of the Halco shares. This, together with the fact that, in mid-1967, the Bank started with the pre-appraisal of the project, has led to the need for clarifying the interpretation of the original 1963 Agreement and superseding certain of its provisions in a number of agreements, the signature and effectiveness whereof was a condition of effectiveness of Loan 557-GUI. May 28, 1971 ANNEX 2 Page 1 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT "Statuts" of OFAB I - PURPOSES: 177, GENERALITTES Article 1. The Office d'Amenagement de Boke (OFAB), established by Decree No. 425/PFG of December 31, 1965, is a public industrial and commercial institution, with the head office located in Conakry. OFAB has an independent legal and financial status. OFAB is under the supervision of the Minister of Economic Development. Article 2. The capital of this public institution is fixed at the amount of 125,000,000 Guinea francs. It has been completely subscribed by the Republic of Guinea, and has been paid in. Article 3. The essential purpose of OFAB is to facilitate the exploitation of the bauxite deposits, the transportation and the removal of the bauxite to the harbor. As a secondary aim, it shall insure the transportation of persons or of merchandise. Article 4. In addition, the purposes of OFAB are: (1) the study and the formulation of draft agreements between the Republic of Guinea, or one of its local subdivisions, on the one hand, and the Compagnie des Bauxites de Boke (CBG) or a third party purchaser of bauxite, on the other. (2) the adoption of means intended to facilitate the completion of infrastructure works for the development of the bauxite deposits of Boke, such as the railway, the harbor, and the town. (3) the management of the buildings in the town and the control of the operations of the railway and the harbor. (4) furnishing certain services related to its activities. (5) the conclusion and signature of all agreements necessary to the attainment of its purposes, and in particular of all agreements to be concluded with IBRD. ANNEX 2 Page 2 (6) the carrying out of the agreement dated October 1, 1963 between the Government and the Harvey Aluminum Company of Delaware and of related documents. Article 3. The Board of Directors of OFAB shall be composed of: - the 'Ministre du Developpement Economique", President; - the "Ministrecdr .ommerce, des Transpoj,ts-et dee Telecommunications "1; - the "M1inistre i-legue de la Guinee Maritime"; - the "Secretaire d'Etat au Controle Financier"; - the "Secretaire d'Etat a la Fonction Publique et au Travail"; - the "Secretaire d'Etat aux Travaux Publics"; - the "Secretaire Federal de Boke"; - the "Gouverneur de Boke". The presence of five members of the Board shall constitute a quorum for any meeting. The Board shall meet at least once every six months. Article 6. The budget shall be prepared annually by the Director General of OFAB, submitted to the President of the Board of Directors and approved by the Board. The Board shall approve the annual balance sheet. The Board shall approve the railway rates, the harbor fees, the rental charges for buildings. It shall be competent to deal with loans and the terms thereof; it shall approve construction entered into to that end by the Director General. The principles applicable to procurement of goods and to the supply of services and works shall be the responsibility of the Board of Directors. Furthermore, the Board shall be competent to approve the acquisition by OFAB of immovable assets, as well as the documents purporting to dispose of such goods. The Board shall approve the by-laws of OFAB. ANNEX 2 Page 3 Article 7. The Director General shall perform all acts of administration and, if need be, of disposition, under the control of the Board of Directors. In particular, he shall carry out the budget of OFAB, shall negotiate and enter into contracts for the supply of services, those relating to the works of OFAB, and represent OFAB in all legal acts. In particular, he shall have the capacity to sue. Article 8. He shall be assisted by three deputy directors respectively in charge of the town, the railway, and the harbor, all appointed as he is by decree and all entitled thereby to the benefits of the Guinean civil service. The status of the Guinean personnel shall furthermore be governed by Article 12 of Decree No. 175/PRG. OFAB may in addition use the services of foreign experts, either as technical consultants, or as superior managerial personnel. Article 9. The Director and each deputy director shall be liable under civil and criminal law for all their acts of administration. Article 10. In accordance with the provisions in force relating to its enterprise, the State shall control the administration of OFAB. The account- ing documents and books shall to that end be communicated at the end of each fiscal year, and, as often as necessary, to the "Ministre d'Etat, Charge du Domaine Financier" as well as to the 11inister of Economic Develop- ment who, in addition, may at any time visit the installations, with the help of the competent officers of their departments. II - OPERATION Article 11. OFAB shall study and determine the elements of the cost price with respect to the harbor, the railway, and the town. In this determination, it shall take into account the interest and the principal of loans as well as expenses in Guinean francs. Article 12. OFAB shall maintain accurate records of expenditures for administration and other incidentals during the construction period, and shall provide reports to the Board of Directors in such manner and at such intervals as the Board shall direct. At the completion of the construction, the Republic of Guinea shall convey to OFAB title to all the infrastructure assets necessary to achieve its objectives as defined in Article 3 above. OFAB shall maintain its accounting records in an orderly fashion in order to expedite the preparation and presentation for audit of a periodic balance sheet and statement of operations. AiANEX 2 Page 4 OFAB shall keep its accounts in accordance with the National Accounting Plan. Article 13. Within a month following receipt from CBG of the plan of production, OFAB shall submit to the Minister of Economic Development its comments regFrding the possible consequences thereof for the operations of the railway and of the harbor. Article 14. The resources of OFAB shall include: - income from the operation of the railway - harbor fees - building rental - compensation for services and various works - subsidies from the Government - borrowed monies - advances from CBG Article 15. The liabilities of OFAB shall include: - the cost of personnel and material necessary to its activities - the interest and reimbursement of principal relating to loans - amortization - maintenance of all facilities and buildings - other fixed or variable charges Article 16. OFAB shall transfer each month to a special account held at the Centrl Bank of the Republic of Guinea the funds representing that part of depreciation which, in accordance with the agreed definition of opaational cost, shall be charged by OFAB against CBG. The balance of the afosaid special account shall be freely available for the replacement of fied ascet or additions thereto, and for such other purposes relevant to the development of the bauxite deposit as the Board of Directors may direct. Article 17. In accordance with the provision of Article 2 of organic decree 175iP G,BCRG may accept, discount, endorse, or receive as guarantee negotiable instruments issued by OFAB. The activities of the Office, its administration and its account- ing procedures shall be governed by commercial rules and usages. Article 18. Any bearer of these "Statuts" is authorized to deposit the saie with the clerk of the Tribunal of Conakry. Articl!e 19. If any provision of these "Statuts" is inconsistent with a provision of Decree No. 425/PRG instituting OFAB or of Decree No. 175/PRG, ANI 2 Page 5 containing "Statut types" of state enterprises, the provision of these "Statuts" shall govern. Article 20. The Minister of Economic Development is charged with the execution of the present Decree, which will be registered and published wherever necessary. Conakry, AEIED SEKOU TOURE May 28, 1971 REPUBLIC OF GUINEA BOKE BLUXITE EXENSION PROJECT Terms of Reference of Construction Coordination Committee 1. The Construction Coordination Committee will be composed of the following three members: Chairman OFAB Construction Manager CBG Construction Manager 2. The Committee shall report to the Director General of OFAB and President of CBG. 3. The purpose and objective of the Committee will be to coordinate construction of the Boke project, including planning, scheduling of contracts, construction operations, etc., to ensure optimum efficiuncy both in terms of construction cost and time on both the OFAB and CG phaes of the overall project. The Committee will work closely with the Director General of OFAB, the President of CBG and the Consulting Engineer to ensure the desired coordination of planning and execution and standards of work. 4. The Committee shall endeavor to reach unanimous decisions, but failing that, decisions shall be by majority vote. 5. The Committee shall meet as often as requested by the Chairman or by either the CBG or OFAB Construction Manager or the Bank; the Chairman shall cause timely notice of each meeting to be given to each member of the Committee. The Chairman shall delegate a representative to act for him in his absence and each of the OFAB or the CBG Constructioc Managers shall delegate a representative to act for him in his absence. No meeting shall be held in the absence of the Chairman unless he has specifically authorized same and his representative is present. 6. Copies of minutes of all meetings will be promptly transmitted to OFAB, CBG and the Bank. 7. The Committee shall have the following functions: (a) Supervision of activities of Consulting Engineer during construction. (b) Approval of tender documents prior to issue in accordance with the Terms of Reference and Contracts of OFAB and CBG with the Consulting Engineer. AINEK 3 Page 2 (c) Recommending to CBG and/or OFAB the awarding of contracts, taking into account the Consulting Engineer's recomenda- tions. (d) Allocation of resources, facilities and materials which are not directly supplied by or the responsibility of a contractor. (e) In accordance with the Terms of Reference and Contracts of OFAB and CBG with the Consulting Engineer, approval of variation orders issued by the Consulting Engineer, and any proposals for additional works not included in the original contracts. Copies of all variations orders and proposals for additional works will be given to the Committee. (f) Selection, in consultation with the Consulting Engineer, of the solution for the Kamsar water supply. (g) Supervision of maintaining the construction schedule, and approval of possible changes to be made therein. (h) Check on preparation of contract documents for any subcon- tracting work and programming of preparation of engineering detail therefor. (i) Quarterly review of all claims presented by contractors whether accepted by Consulting Engineer or not. (j) Consideration of any matter concerning construction referred to it by OFAB, CBG or the Bank. (k) Performance of such other duties as may be assigned thereto in any agreement among Guinea, OFAB, Halco, CBG, the Bank, or others with respect to the Railway-Port Project or the Mining Project, or both. The Conmittee shall not approve any documents or proposals materially increasing the scope of capacity of the Railway-Port Project or the Mining Project without the approval of the Director General of OFAB, the President of CBG and the Bank. CHAIRNO 1. The Chairman shall be an independent engineer appointed by OFAB and CBG with the approval of the Bank. ANNEX 3 Page 3 2. The Chairman shall report to the Director General of OFAB and the President of CBG. The Chairman shall have the right of direct access to (i) the Board of OFAB, (ii) the Board of CBG and (iii) the Bank. 3. In addition to his functions as a member of the Committee, the Chairman shall have the following functions: (a) Commenting upon and promptly transmitting to the Bank the periodic progress reports submitted by the Consulting Engineer. (b) When appropriate, issuance of the written statement and countersignature of the written request referred to in Section 3.03(b) (2) and (c) of the Financial Assurances Agreement, with respect to Overage Loans. (c) Performance of the duties set forth in Section 4.03 of the Financial Assurances Agreement. (d) When appropriate, issuance of the Certificates referred to in Sections 4.05 and 4.06(2) of the Financial Assurances Agreement with respect to Completion of the Railway-Port Project and Mining Project. (e) When appropriate approval of the schedule referred to in Section 5.04(a) (2) of the Financial Assurances Agreement, with respect to additional funds required for completion of the Mining Project. (f) Countersignature of the Consulting Engineer's monthly certificates and of vouchers for expenditures relating to construction, construction management and construction organization. (g) Performance of such other duties as may be assigned to him in any agreement among Guinea, OFAB, Halco, CBG, the Bank, or others, with respect to the Railway-Port Project or the Mining Project or both. May 28, 1971 ANNEX 4 Page 1 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Debt Service Security and Other Important Legal Arrangements 1. A project as complicated as the Boke project, with many respon- sibilities divided among the Government, OFAB, CBG and the Halco share- holders, requires numerous legal documents. These are: Financial Assurances Agreement Trust Agreement Railway-Port Project Agreement OFAB Training Agreement OFAB Technical Assistance Agreement CBG Technical Assistance and Training Agreements Participation Agreement Special Matters Agreement The substance of some of these has already been discussed in this appraisal report. Others are discussed and all are summarized below. 2. The basic 1963 agreement is described at Annex 1. It is now supplemented by detailed agreem nts regarding financing, construction and operation of the infrastructure project, the mining project and the sale of bauxite; these last agreements provide that to the extent there is inconsistency with the basic agreement, their provisions shall prevail. 3. The then, as does the present most recent report on the Guinean economy shows that the country has practically no creditworthiness. Therefore, the Bank insisted upon satisfactory arrangements which secure service of the Bank loan from funds provided by CBG and the Halco share- holders. These arrangements are treated in a Financial Assurances Agree- ment as supplemented by a Trust Agreement. If CBG's operations do not provide sufficient profits to enable the Government to fulfill its debt service obligations to the Bank, then CBG, Halco and ultimately the shareholders themselves are bound to make payment to the trustee in amounts adequate to cover the debt service; any such payments will be treated as advances against CBG's obligation under the basic agreement to pay a profits tax to Guinea. The Financial Assurances Agreement also incorpo- rates the arrangements whereby the shareholders will advance, through the trustee, funds to complete the infrastructure in case of an overrun in the foreign currency cost of the project. The Financial Assurances Agreement and the Trust Agreement were made effective at the same time as Loan 557-GUI. Certain amendments of the Financial Assurances Agreement are required to account for the extension of the original project. The ANNEX L Page 2 supplemental agreement amending the Financial Assurances Agreement is acceptable to the Bank and will be signed and made effective as a condition of effectiveness of the Bank Loan. 4. The Financial Assurances Agreement includes a "force majeure" clause which relieves CBG and the Halco shareholders of their obligations under certain conditions. These obligations are subject to suspension only upon events making it impossible to construct or operate the railway, the port or the mining project for a period of 180 days and only when such events arise from political causes within, or acts of war directly relating to, Guinea or its territory. These obligations may be terminated if the suspension continues for 600 days, or if the Bank loan is accelerated because of the suspension, or because of compulsory deprivation by Guinea of the shareholders' fundamental rights of ownership, of the effective control of CBG, or of the ownership or control by CBG of its property or assets essential to the construction or operation of the mining project. There are of course considerable political uncertainties connected with such a project, as illustrated by the history of the present project itself and of its predecessor, Bamidi. However, the numerous assurances which have been obtained and the great importance of the success of the project to the economy of the country justify the extension loan. 5. The Participation Agreement which concerns the re-organization of Halco was made effective at the same time as Loan 57-GUI. A competant official has been designated as the president of Halco, and a full manage- ment is in office. Minor amendments to the Participation Agreement conse- quent upon the amendment of the Financial Assurances Agreement are needed. The supplemental agreement amending the Participation Agreement is acceptable to the Bank and will be signed and made effective as a condition of effec- tiveness of the Bank Loan. 6. The shareholders have arranged finance in order to comply with the requirements of the Financial Assurances Agreement. 7. The following additional agreements were signed and made effective at the .same time as Loan 557-GUI. (i) Railway-Port Project Agreement among Guinea, OFAB and CBG dealing with the management and administration of the infrastructure. (ii) OFAB Technical Assistance Agreement among Guinea, OFAB and Halco wherein Halco undertakes to furnish technical assistance to OFAB in connection with the construction and operation of the infrastructure. (iii) CBG Technical Assistance and Training Agreement among Guinea, CBG and Halco wherein Halco agreed to provide ANNEX m Page 3 technical assistance to CBG in the construction and operation of the mine, and CBG undertakes to train Guinean personnel. (iv) OFAB Training Agreement among Guinea, OFAB, CBG and Halco wherein Halco and CBG undertake to train Guineans to work on the infrastructure. (v) Special Matters Agreement among Guinea, Halco and CBG dealing with the arrangements governing the use by CBG of Guinean francs derived from business operations in Guinea of Halco or CBG. May 28, 1971 ANNEX 5 (i) Page 1 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Description of Boke Deposits and Bauxite Reserves 1. Bauxite deposits located in Guinea in the area northwest of Boke are estimated to contain at least 1.75 billion tons of high grade ore. These reserves are among the largest concentrated deposits known in the world, amounting to about 301 of proven reserves and 18% of potential bauxite resources (excluding USSR and some Eastern Block countries). 2. The initial mining area granted to CBG near the settlement of Sangaredi (see map 1) covers an area of 500 sq mi and is estimated to contain a minimum of 257 million tons of high quality bauxite with a dry average alumina content of r8.2% and a silica content below 1.5%. The best ore body discovered in the mining area contains 53 million tons with an-alumina content of 61.1% and a silica content of only 0.8o. Boke bauxite is predominantly of the desirable trihydrate type which, together ;ith the low silica content, facilitates chemical processing to alumina, which is the basic raw material for aluminum smelters. 3. The Boke deposits begin approximately 50 miles inland and the bauxite is found at the top of low, flat-topped hills. There is virtually no overburden on these deposits, thus mining costs are low. Bauxite depth varies from 8 ft to more than 100 ft, and the initial mining area has an average depth of about 70 ft. 4. The original geological exploration of the Sangaredi block (permit 883) which was conducted in 1956/57 by the former concessionaire, a consortium led by Alcan, indicated the presence of 185 million tons of bauxite with a dry alumina content of 58.9%. A subsequent Alcan survey included further drillings and proved the overall reserves to be about 210 to 220 million tons of high grade bauxite (above 58%). 5. In April 1965, the Bank appointed Mr. Lloyd M. Schofield to review the geological data available on Boke deposits in the office of hessrs. Harvey Aluminum, Torrance, California. The conclusions of Mr. Schofield's report, sent to the Bank under his covering letter dated May 4, 1965, were as follows: "From the foregoing,and in view of the fact that the southern and eastern limits of the bauxite area on Sangaredi claim covered by permit No. 883 have not yet been reached, it is my opinion that there are on Sangaredi 883 at least a quarter of ANNEX 5 (1 Page 2 a billion natural metric tons of bauxite containing 5% of moisture, with a dry available alumina content of more than 57%. Other elements are within the US Government specifications for 'stockpile' metallurgical bauxite. A considerable amount of this bauxite, particularly near the bottom of the deeper portion of the deposit, is of such grade as to make it highly suitable as raw material for premium calcine. Although I cannot offer my opinion of the total tonnage of bauxite within the entire Boke concession, nevertheless, estimates by others do exist which suggest the existence of over one-half billion tons of bauxite averaging over 55% of available alumina, and over 1.75 billion tons of bauaxite averaging over 50% of available alumina including the half-billion tons of high grade." 6. Both Alcan's and Schofield's conclusions show that there are sufficient bauxite reserves in the Sangaredi block alone to meet the requirements expressed in the two sales contracts passed between CBG and Halco's shareholders and thus to sustain an annual mining rate of an average of 7.1 million tons of metallurgical grade bauxite during the first five years of operation and 9.0 million tons afterwards for the next 15 years. The product specifications are shown in Annex 5 (ii) for both the metallurgical grade and the calcined bauxite. 7. The proposed railroad from the port of Kamsar to Sangaredi will adequately service the bauxite reserves of that area and will easily permit expansion of mining operations to new sites.if necessary. M Iayr 28. '1971 ANNEX 5(ii) REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Cmpagnie des Bauxites de Guinea (CBG) Product Specification Guaranteed Analysis Technical Analysis Min. Max. Bauxite Metallurgical Grade Alumina (A1203 9.0% 59.7% Silica (SiO ) 1.o5 0.8% Iron Oxide ?Fe203) 7.0% 6.3% Titania (Ti02) 3.5% 3.2% Chemical Grade Alumina (A1203) 61.0% 63.8% Silica (SiO ) 1.75% 1.4% Iron Oxide (Fe203) 2.25% 1.7% Titania (Ti02) 3.50% 2.9% Organic 0.20% Trace Calcined Bauxites Abrasive Grade Alumina (A120 3) 88.0% 89.5% Silica (Si02) 1.5% 1.4% Total Alkalies 0.1% Trace Total Iron (Fe203) 5.0% 4.6% Phosphorus (P205) Trace - Minor Elements Trace - Titania (Ti02) 3.5% 4.5% 4.0% Loss on Ignition (L.O.I.) 0.6% 0.5% Refractory Grade Alumina (Al203) 90.0% 92.50% Silica (SiO ) 1.50% 1.25% Iron Oxide F?e203) 2.75% 2.65% Titania (Ti02) 3.75% 3.35% Loss on Ignition 0.30% 0.25% Bulk Density 3.10% 3.18% May 28, 1971 Page 1 REPUBLIC OF GUINEA BOKE BAUXITE EXTEISION PROJECT CBG - Sales Contracts 1. CBG has entered into two sets of firm contracts with Halco share- holders. 2. The first agreement, signed in December 1966, covered a 20-year period and was concluded for the supply, at a base price of US$7/ton, of about five million tons a year of metallurgical grade bauxite after start up of the CBG operations. 3. In November 1970, in view of the excellent quality of the Boke bauxite and the desire of the aluminum companies to obtain raw materials from a number of different sources to ensure continuity of supply, comple- mentary 20-year contracts were agreed upon between CBG and Halco's share- holders for the supply of additional metallurgical grade bauxite. Contract- ual prices are US$9/ton for the first 15 years and US$10/ton for the re- maining five years. 4. As a result of these two agreements, Halco's shareholders and their respective yearly purchasing commitments are as shown below: Purchasing Commitments by Halco's Shareholders (in thousand tons) Original Contracts Extension Contracts Years 1 Years 5 Years Years to 5 to 20 Year 2 Year 3 4 & 5 6 to 20 Alcan 1,200 1,400 325 613 613 981 Alcoa 1,200 1,)00 50o 633 633 981 Harvey Aluminum 1,000 1,000 - 470 620 727 Pechiney Ugine 500 500 700 900 900 630 Vereignite Aluminum Werke 500 400 h00 453 453 363 Montecatini-Edison 300 300 200 230 230 218 4,700 5,100 2,125 3,300 3,hSO 3,900 5. Besides sales of metallurgical grade bauxite, CBG will sell small quantitites of calcined bauxite for use as abrasives and, possibly, in ceramic-a. ANNETX $ Iii) Page 2 6. On the basis of contractual arrangements and of planned sales of calcined bauxite, CBG's total sales are projected as follows: CBG's Projected Sales (in thousand tons, dry basis) Year of.Lperation Metallurgical Calcined (contractual sales) (free sales) 1 4,700 - 2 6,825 65 3 8,000 95 4 8,150 95 5 8,150 195 6 9,000 195 7 to 20 9,000 200 May 28- 1971 ANNEX 5 (i) Page 1 REPUBLIC OF (TJINPA BOKE BAUXITE EXTENSION PROJECT ProEosed FOB Selling Prices of Bauxite 1. Bauxite is not freely traded and the world bauxite market is strictly controlled by a small number of aluminum companies. Most bauxite is mined by subsidiaries of these aluminum companies; the arrangements which these organizations make with the countries where the bauxite is mined, and the production costs involved, are not normally revealed by the parties concerned. Bauxite of a certain specification will have different values for aluminum companies depending on location of the alumina plant in re-lation to mine and smelter, the tax agreements which cover the contracts, and whether the companies' alumina plants are adapted to handle the type of bauxite offered. 2. For example, European countries have used French and Yugoslav mono-hydrate bauxite extensively and have therefcre built plants adapted for the higher temperatures and pressures required to process this type of bauxite to alumina. Such a company would therefore riot be willing to pay a substantial premium to obtain tri-hydrate bauxite which can be processed at lower temperatures and pressures. On the other hand, American and Canadian producers have plants designed to treat the Caribbean tri-hydrate type of bauxite, and their equipment cannot process mono-hydrate efficiently without costly modifications. 3. Shipping costs of bauxite from the Caribbean area to Canada or Europe would not be greatly different from those from Guinea, and bauxite of similar quantity in both locations would therefore have the same FOB values for aluminum producers in these countries. However, American companies with alumina plants on the Mexican Gulf coast would incur considerably higher shipping charges for Boke bauxite than for bauxite from Jamaica,Surinam or Guyana, and this difference in transportation cost must be compensated by lower prices for Boke bauxite to make it attractive. h. Another important factor affecting the cost of bauxite is the quality. Due allowances must be made for silica content, which affects the cost of processing to alumina because of caustic requirements, as well as for other impurities and water content which affect not only the processing cost but also the shipping cost. 5. Under the terms of the initial and extension contracts concluded between CBG and Halco' nhareholders, the base price will be US$7/ton (first contracts) or US$9/to-1 (second contracts) FOB vessel at the sellerts load- 1/ For the extension contracts, the base price is US$9.0/ton for the first 15 years and US$10.0 for the remaining five years. AITEX 5 iv) Page 2 ing facilities Port Kamsar, Guinea, for bau-ite crushed below 100 mm, with 3% free moisture, and containing about 58 to 60% (initial contract) and 58.5% (extension contract) alumina (A1203) and 1.5% silica (Si02) or less. The base price shall be subject to increases or decreases, depending upon the alumina and silica content of the bauxite as shown below: Price adjustments based on alumina, silica and moisture content (in US$/ton per 1% of alumina, of silica, or of moisture content) December 1966 Contract November 1970 Contract Decrease Increase Decrease Increase Alumina TOT"-058% 0.30 - - - 50% to 58.5% - 0.30 - 58.5% to 60% - - 0.30 60% to 66% - 0.15 - - Silica Above 1.5% 0.70 - 0.40 - Moisture Above E.0% 0.10 - 0.10 - 6. Besides the price adjustment clauses related to the chemical characteristics of the bauxite sold, the sales agreements also include price escalation clauses in relation to the costs of operational inputs: local wage costs, diesel and fuel oil, and the US wholesale commodity index. Price excalations to January 1971 are attached (page 3), and show a bauxite price increase of US$0.55 for the initial contracts and $0.42 for the extension contracts. 7. Calcined bauxite will be sold on the free market at US$33/ton. 8. The Bank has carefully reviewed the proposed bauxite selling prices for both the metallurgical grade bauxite and the calcired ba ;:ite. The price of US$7/ton for the initial contract appears today to have s slightly on the low side in comparison to estimated FOB prices in the Ca:ibbean area (even after allowance for transport cost differentia.s); but the difference is well covered by the escalation clause. On the other hand, the price of US$9/ton for the extension contract is favorable to Guinea. Long-term contract FOB prices today are estimated at US$6 to 8 for Jamaica (50% alumina) and US$ 8 to 9 for Surinan (55% alumina). 9. In addition, net income received by Guinea on bauxite exports (an average of US$2.7 per ton compares favorably with royalties and taxes derived by Jamaica for which figures are obtainable (US$2.2 per ton). 10. The contractual prices and price adjustment clauses are therefore considered satisfactory. ANNE= (iv Page 3 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT CBG - Bauxite Price Determinations (February 1971 Base Recent Factors Initial Expansion Indices Contracts Contracts I. Labor - II. Oil $0.065 $o.o65 $0.097 January 11, 1971 III. Bunker C $2.00 $2.00 $2.00 January 11, 1971 IV. Industral Commodities $105.5 $114.6 $118.3 November 1970 Bauxite Price (Initial Contracts dated 1966, 4.7-5.1 million MT/Year Labor: Assumed wage rate increases $0.50 wk each year 4 years x $0.50/week-year x $0.02 per $1.00 weekly increase $0.040 Oil: $0.097 less $0.065 equals $0.032 increase $0.032 x $0.03 per $0.005 change 0.192 Bunker C: No change - Industrial Commodities:$118.3 less $105.5 equals $12.8 increase $12.8 x $0.025 per point change 0.320 Price Escalation $0.552 Used $7.55/MT Bauxite Price (Epansion Contracts, November 1970, 3.9 million MT/Year) Labor 1 year x $0.50 x $0.02 per $1.00 $0.010 Oil: $0.032 x $0.03 per $0.005 0.192 Bunker C: No change - Industrial Commodities: $118.3 less $114.6 equals 3.7 x 6 per 1 point increase 0.222 Price Escalation $0.424 Used $9.42/MT May 28, 1971 AVTEX 5 v Page 1 REPUBLIC OF GUINEA BOKE BAUXITE EXTEISION PROJECT 1/ World- Bauxite Market and Reserves 1. Aluminum accounts for about 90% of the total world demand for bauxite, and is the most important metal, after iron, in terms of annual world tonnage produced. World Aluminum Supply and Demand 2. Aluminum has recorded a long-terra demand growth (9.2% over the period 1959-1969) that ranks well above those of other major traded commodities including petroleum. The world aluminum demand by major regions from 1959 to 1969 is shown below: World Aluminum Demand - 1959-1969 (in million tons) 1959 19614 1969 Western Europe 1.04 164 2.40 North America 1.93 2.69 3.91 South America 0.05 0.11 0.17 Asia 0.15 0.37 1.03 Africa 0.01 0.03 0.06 Oceania 0.04 0.07 0.12 Total world 3.22 4.81 7.69 3. The Bank forecasts a 9.5% average annual rate of growth foa aluminum demand over the period 1970-1975. The US Bureau of Xine,s12' fore- casts an annual rate between 5.1% and 7.776 for the period 1970-1990. The world aluminum demand will be about 12.5 million tons in 1975, and using a rate of 6.4% for the period 1970-1990, it will reach 19.5 million tons in 1985. 4. World aluminum production more than doubled between 1959 and 1969 (Annex 5 (v), page 4). In 1969, North America accounted for about 59% of world 1/ Throughout this Annex, the World excludes centrally planned economies. 2/ US Bureau of Mines, Division of Mineral Studies; J.W. Stomper (1970). Page 2 aluminum production, Europe about 251 and Asia about 11.5%. In the same year, the seven main producing countries (US, Canada, Japan,, Norway, France, West Germany,and Italy) accounted for 83% of world production, the United States alone contributing about 46%. World Bauxite Suppl and De:and 5. The location of alumina processing plants has been mainly deter- mined by the availability of cheap electricity. Among the major aluminum producing countries, however, only France covers its requirements with locally mined bauxite; others are net bauxite importers. Major reserves and major existing bauxite mining facilities are located in developing countries (Annex 5 (v), pages 5 and 6). The world bauxite trade consists therefore mainly of flow from developing countries to developed countries. 6. World bauxite production increased at a 9.05% annual rate over the period 1959-1969, and in 1969, developing countries accounted for about 64% of production. The major world producers in 1969 are shown below: Iajor 'orld Bauxite Producers - 1969 Developing countries Million tons of bauxite % Jamaica 10.5 22.7 Surinam 6.2 13.4 Guyana 4.3 9.3 Guinea 2.5 5.4 Others 6.0 13.0 'otal 29.5 63.8 Developed Countries Australia 7.9 17.1 France 2.7 5.8 Yugoslavia 2.1 14.5 Greece 1.9 4.1 United States 1.8 3.9 Others 0. -0,.0 Total 16.8 36.2 Total world 46.3 100.0 Four countries (Jamaica, Australia, Surinam and Guyana) account for more than 62%o of world bauxite production. Currently, the United States relies on the Caribbean area (Jamaica, Dominican Republic and Haiti.) and on North- eastern South America (Surinam and Guyana) for over 85% of its bauxite supply. ..NEX 5 (v) Page 3 Other major bauxite importing countries are: (i) Canada from Jamaica and South America; (ii) Japan from Indonesia, Malaysia and Australia; (iii) West Germany from Greece, Yugoslavia and Australia; and (iv) Norway from Jamaica. 7. The rapid trend in world aluminum production and demand will result in increased dependence of developed countries on bauxite supplies from developing countries. On the basis of 4.5 tons of bauxite per ton of aluminum, the Bank has projected the world bauxite demand and supply in 1975, and Guinea's share in the world in 1975 and the supply increase between 1969 and 1975, as shown below: Guinea's share in world bauxite supply Increase from 1975 1969 to 1975 million tons % million tons o World demand 60 - - - World supply 1/ 62 100.0 16 100 of which Guinea- 10.5 16.9, 8 50 1/ The Boke project alone will contribute to about 13% of the world bauxite supply in 1975 and some 50% of the world increase in supply between 1969 and 1975. May 28,19-7'f SNNEX 6 REPUBLIC OF GUIN;A BOKE BAUXITE EXTENSION PROJECT CBG Construction Budget, Status and Schedule This Annex describes CBG's construction budLet and shows physical progress of work, expenditures on contracts and present financial position of CDG, detailed as follows: (i) Equipment and Construction Cost - Original Project; (ii) Additions and changes to the original project; (iii) Construction budget and status - Expanded Project; and (iv) Replacement and additions to equipment. Hay 28, 1971 ANNEX 6 (j) REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT CoMagnie des Bauxites de Guinee Equipment and Construction Cost - Origina1 Project (1968 Estimate) Foreign Local Exchange Currency Total UT00 or equivalen-T Sangaredi Mine area and townsite; Land, roads and services 2,291 1,053 Housing and community buildings 2 460 19371 7,175 Mine railroad track 417 1 2,258 Mine plant: Electric drills, 4 no. 422 - Electric shovels, 8 cu. yds., 3 no. 1,500 - Bulldozers, 3 no. 323 - Miscellaneous plant 668 70 2,983 Locomotives and rolling stock: Main-line locomotives, 0n 2,695 89 Shunting locomotives, 3 no. 676 20 Ore-cars, 230 no. 3,772 115 Other freight cars, 9 no. 196 6 Breakdown crane, 1 no. 305 10 7,884 Kamsar Lan and buildings 5,718 2,251 7,969 Electricity supply 5,286 470 5,756 Water and other services 669 387 1,056 Railroad tracks 960 299 1,259 Plant and machinery: Workshops plant 1,374 110 Ore-car discharging plant installation 883 57 Crushing plant 1,217 80 Drying kilns, 3 no., and accessories 3,035 238 Recovery and stacking equipment 3,749 320 Calciner, with conveyor and accessories 1,385 142 Transporter to Jetty with sampling plant and accessories 1,932 224 Conveyors, shiploader and other equipment on jetty and harf 2,746 200 Miscellaneous equipment and spares 780 - 18,472 Foundations, piling and general civil engineering works (for plant installation) 2,279 1,742 4,021 Conakry - Office building 400 - 400 Total construction cost estimate 9,895 5 ,3 Contingencies and Erice escalation 11,005 2,206 13,211 Engineering, administration and supervision 3,699 539 4,238 Interest during construction 1,266 848 5,114 Total cost estimate 683 81826 May 28, 197L ANNEX 6 (ii) F: PUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT 0.B.G. Equipment Original Project - Additions & Changes for Expanded Project Original Expanded Items: Number Additions & Changes Sangaredi mine: Railroad track increase length Electric drills 3 Electric shovels 3 Bulldozers 3 Kamsar equigMent: Ore car discharging equipment 1 increase capacity Crushing equipment 1 Drying kilns 3 Calciner 1 Conveyors increase capacity (width) Ship loader 1 increase capacity Power plant 1 increase capacity Storage facilities increase capacity Rolling stock: Mainline locomotives 8 +3 Shunting locomotives +3 Ore cars 230 +200 Freight cars 9 -- May 28, 1971 REPUBLIC OF GUINEA BOKE BAU."ITE EXTENSION PROJECT CBG - Construction Budget (February 1971 Estinate)-Expaned Project (Inthousand US do J ars) % of Total Commitments Invoicing Engineering % Contract Construction as of as of Supplied by Progress Progress Number Supplier-Contractor Date of Contract Budget Dec.31, 1970 Dec. 31, 1970 Contractor at Faotory Shipment on Site in Fixed Price Equipment Contracts 3 Shiploader & jetty conveyor Krupp 14 March 1970 2,606 2,606 340 60 25 Sept-Nov. 1971 - 12 Ore car elevators Strachan & Henshaw 13 March 1970 1,206 1,117 380 75 30 Nov-Dec. 1971 - 13 Belt conveyors Krupp 14 March 1970 5,858 5,803 705 60 25 May- Nov. 1971 - 14 Crushing plant Hammermills 5 June 1970 1,883 1,629 570 80 90 Mar-Apr. 1971 - 15 Bucket wheels Fives Lille 13 March 1970 3,057 3,057 277 75 15 July-Oct. 1971 - 16 Drying kilns & lst caloiner Fuller 5 June 1970 6,887 5,897 - 25 30 L/ . 17 Electrical Equipment in Kamsar CGEE 23 May 1970 9,709 6,744 586 35 25 Apr.71-Apr. 72 - 18 Erection Energoprojekt 27 Aug. 1970 11,203 8,976 562 - - - 19 Kampar workshop CNE 21 May 1970 3,761 3,639 295 85 65 Start February 1971 20 Fuel tanks Pittsburg Des Moines 20 Oct. 1970 350 307 - - - March-June 1971 - 23 Sampling plant Fives Lille 29 Sept.1970 685 589 62 15 - January 1972 - 26 Wrecking crane Demag 3 Apr. 1970 425 425 63 100 85 April 1971 - 27 Line locomotives General Motors 26 Oct. 1970 3,350 2,000 - - - March 1972 - 28 Ore cars Gregg 18 Sept.1970 7,333 3,743 746 100 - June 1972 - 29 Yard locomotives General Motors 26 Oct. 1970 1,417 900 - - - March 1972 - 33 Piping Mannesman 30 Sept.1970 1,080 1,030 154 10 - Oct. 1971 - 37 Sangaredi electrical equipment CGEE 23 May 1970 2,855 2,474 217 10 10 July 71/har.1972 Start Mar.1971 39 Sangaredi workshop CME 21 May 1970 403 352 18 30 5 Dec. 1971 50 Mining & general equipment 2195 18 - - -- Subtotal equipment contracts/ 68,506 53,483 4,993 Construction Contracts 10 Soil improvement Amacew 2 Sept.1969 2,749 2,203 2,294 100 - - 100 11 Civil engineering works Amacew 2 Sept.1969 6,802 5,462 156 20 - - 5 25 Kamsar housing Amacew 2 Sept.1969 6,687 4,001 719 90 - - Start Feb.1971 35 Sangaredi housing Amacew 2 Sept.1969 8,015 6,386 401 10 - -- 36 Railroad Amacew 2 Sept.1969 5,343 3,926 194 50 - - Start Mar.1971 40 Transportation NY Navigation 24 Nov. 1970 4,223 - - 97 LCT renting Scheldt 268 268 70 98 Insurance Henrijean 1,137 845 416 Subtotal construction contracts 35,224 23,091 4,250 Miscellaneous Contingencies2/ 3,474 - - 95 Tractionnel Engineering 1 6298 Total construction cost 1112,619 7Y,936 10,441 CBG office building 551 Construction Coordination Co ttee 266 Interest during constructioz1 9,870 Total Construction Budgew 123,306 Less expansion equipment purchased 5,110 in second operating year Total Fixed Assetsil 118,196 I/Including initial spare parts (US$1081 thousand) and Suppliers' Supervision (US$812 thousand) apportionated in each contract. L/ Contingency for design modification, improvement and enlargement: 5% of the total estimated cost of civil works and 2.5% of the total estimated cost of equipment (including * 0o spare parts and Suppliers' Supervision. 3/Assuming an average 8o annual interest on loans disbursements during construction. / Jan-June 1971 (drying kilns; June 1972 (calciner)). May 28, 1971 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT CBG - Replacement and Additions to Equipment (in US$ thousand) Year 1 2 3 4 - 6 7 8 9 10 11 12 13 k 15 Rolling stock purchased in second year of op. - 5,110i/ - - - - - - - - - - - - - Replacement - - 470 110 1,800 330 500 110 470 1,900 230 350 230 360 2,100 Additions - - - 3,450?J - - - - - - - - - - - 1/Extension ore cars and locomotives. Second calciner and additional storage silo. May 28, 1971f REPUBLIC OF GUINEA BOKE BAUXITE EITENSION PRGJECT gFAB Contracts for Completion of the oroject to be constructed under Loan 557-GUI for exporting 5.1 million tons/annum of bauxite Original Estimatei Present Estimate Local Foreign Local Foreign Contractor No. Contract Currenc Echange Total (A en c Exchange Total 1 Harbor works and hydraulic file 400 6,700 7,100 1,550 8,600 10,150 AMACEW 5 Townsite 3,850 9,900 13,750 5,300 12,750 18,050 6 Railway 5,900 20,200 26,100 5600 27,000 32,600 Sub-total construction contracts 10,150 36,000 46,950 12,45o 48,350 60,800 Forrestal (Germany) 2 Floating and heavy lift equipment - 1,060 1,060 1. 095 . 095 General Electric (USA) 7 Locomotives - 680 680 - 680 680 Gregg (Belgium) 8 Wagons and carriages - 1 920 1,920 - 1 ,05 1105 Sub-total supply contracts 3,660 3,600 -2288( 2,880 *Excluding contingecies AMACEW are also contractors for CBG contracts 11 Industrial site foundationS 25 CBG Houses Kamsar, 35 CBG Houses Sangaredi. I! 36 Railway in mine and industrial sector. May 28, 1971 TABLE 2 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Allocation of Loan Procee6a Estimated Existing Proposed Final Revised Loan Extension Expanded 557-GUI Category Description 557-GUI Loan Loan 9.95 I Harbor works and equipment and provision of hydraulic fill 10.25 2.6 12.25 13.10 II Kamsar townsite and railway and port buildings 9.95 2.40 12.35 30.20 III Railway 19.90 0.95 20.90 5.30 IV Engineering consultants and and professional services 5.00 1.60 6.60 8.10 V Interest and other charges on the loan 5.50 0.60 6.10 1.80 VI Refunding - Loan S.I. GUI 1.80 - 1.80 1.05 VII Supervision during construction 1.00 0.15 1.15 - VIII Unallocated 11.10 1.25 12.35 69.50 TOTALS 64.50 9.00 73.50 2.50- * Possible claim by contractor due to delays caused by political disturbance 72.00 / $7.5 million overrun payable by CBG in accordance with terms of Financial Assurances Agreement May 28, 1971 REPUBLIC OF GUINEA BOKE BAUXITE EXTEN4SION PROJECT Estimated disbursements from Loan 557-GUI, the overrun thereon and proposed new loan Loan 557-GUI - $64.5 million Overrun - $ 7.5 million Proposed extension loan - $ 9.0 million Disbursed from Loan 557-GUI April 30, 1971 - $27.5 million ExstiLan7GUI E=canded Loan Overrun Period end.mg st !isb. Undisbursed Est. Disb. Undisbursed March 1971 37.9 46.9 June 1971 5o5 32.4 5.5 41.4 September 1971 6.1 26.3 7.7 33.7 December 1971 30 23.3 3.6 30.1 March 1972 8.6 14.7 9.3 20.8 1.4 June 1972 6,8 7.9 7.4 13.4 September 1972 4.0 3.9 4.8 8.6 1.1 December 1972 3.9 - 5.1 3.5 2.5 March 1973 - - 1.5 2.0 2.5 June 1973 - - 2.0 7*5 37.9 - 46.9 May 28, 1971 TABLE 4 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Cost of Extension Works US$ 000 Guinea Francs Millions Item Local Foreign Total Local Foreign Total Harbor Dredging to wharf and waiting basins 25 245 270 6 61 67 Breasting and mooring dolphins and oil pier 145 780 925 36 195 Additional buoyage 5 150 155 1 32 33 Slipway construction 60 480 540 15 113 128 Derrick foundations 185 395 580 45 99 144 Railway Increased length of crossings '45 400 445 11 100 111 Heavier rail 25 550 575 6 150 156 Townsite Extensions to roads and services 240 190 430 60 48 108 Increased electrical distribution system 160 720 880 40 180 220 Extension to hospital 200 1,050 1,250 50 262 312 Improvements to OFAB houses 30 180 210 7 45 52 Drainage to Kamsar region around housing site 1,400 260 . 11,660 350 65 415 Supervision Consulting engineers and other professional services 450 1,610 2,060 112 405 517 OFAB and CCC Budrets 70 150 220 17 35 52 engineering Contingencies 370 800 1,170 95 200 295 Cost Contingencies 250 440 690 65 110 175 Interest during construction 240 600 840 60 150 210 Totals 3j900 9j000 12,900 976 22250 226 May 28, 1971 TABLE 5 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT CBG - Initial Financing Plan- and Borrowings in 1st & 2nd Years of Operation for Expanded Project Initial Financing Amorti- Amount zation Borrowings (US$ 1st year of 2nd year of million) (years) operation operation SENIOR DEBT Signed loan Agreements 1. Exim-Bank A notes (at 7%) 12,500 15 B notes (at 6%) 7,500 7 2. Kreditanstalt Untied loan (at 7%)2/ 2,700 15 Tied loan (at 6%) 7,200 10 3. Deutsche Bank (at 9.5%) 8,100 6 4. Societe Financiere Europeene Original (at 8%) 10,000 9 Additional (at 8% (estimated)- ) 15,000 10 5. Credit Lyonnais (at 6.15%) 14,500 10 6. Societe Generale de Banque (at 7.1%) 7,500 8 7. Suppliers' Credit Yugoslav (at 7.5%) 4,500 5 French (at 6.52%) 600 5 Loan Agreements under Negotiation Unknown source (at 8%) 18,900 10 Additiona' Financing R d Additional long-tern debt At 8%) 7,100 10 Exparsion Equip. tied loan- (at 8%) - - - ,60C Short-tueP loans (revolving credit) - - 6,000 2,000 2otal Senior Debt 116,100 6,000 6,60C EQUITY Subordinated Daet 20,000 Capital Stock 17,000 A sharea (49% QovernMent of Guinea) 980 B shares (51% Halco) 1,020 B shares (stockholders' cap. contribution) 15,000 Total EqUity 37,000 TOTAL CAPITtL REqI&REMNT 73000,6 1/ Includes US$2_.1 million principal repayments prior to start up (loans from Exim-Bank, Kreditanstalt, Credit Lyonnais, Yugoslav and French suppliers credit)(para. 5.03). 2/ 6.5% through 1975 and 6% thereafter. 3/ German discount rate (6% plus 3.5%. 1i/ At 1% above Inter Bank Euro dollar rate with option to convert to fixed rate. 3/ 10 years suppliers' credit to finance expansion ore cars and locomotives. '/ Excluding US$0.5 million for accounts payable before start up. May 28, 1971 REPUBLIC OF G INEA BOKE BAMXITE EXE ION PROJECT _G_ -_Depreciation Schedule (Original Filities, Ryplacements and Major New Additions) (thouzands US$) Year of Operation 1_ 2 4 J _i__ 6 7 8 9 10 11 12 _1 Construction Budget Capital Original Equipment & Facilities Equipment SRpaes Mine - Sangaredi Housing (15 years) 12,050 803 803 3G3 803 8m4 803 803 803 803 504 803 803 803 803 80i Mining Facilities (7 years) 10.800 3 th3 5 3 1,543 1,543 T,543 1543 4542 - - - . Spare Parts Total 22,79 2379 24 237 ,6 235 803~ - 803 ~ Procesving Plant -Kamar iousing (15 years) 10,600 707 707 707 707 707 707 707 707 707 707 706 706 706 706 706 Plant (12 years) 63,yj 5,326 59326 5,326 5,326 05326 5,326 53236 5,326 5,326 5,326 5,327 5,327 - Spare Parts _IJO12 L532----------------------- --------------- ---------------- 7;--7 70 Total k3,66 1,052 MI3 033 6 033 63 6,03 30, 6, 6 33 6,033 6,033 6,033 033 6,033 7706 706 Rolling Stock (8 years) 19,200 2,400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 - - nonary Office Building - _ 6. 37 _ X Total Februar7 1973 118,196 1,081 10,816 10 816 10,815 10,816 10,817 10,815 10,815 9,273 6,872 6,874 6,873 6,872 1,546 1,546 1,549 Expansion Items Purchased during Second Year of Operation Rolling Stock (8 years) 5,0_ _ 38 _39 _61 4a 638 3 _631 - - TOTAL CONSTRUCTION BUDGET 123,306 10ö16 3 8.36 i 450 11,454 5,j4,6 7,4 ,5 4 9,911 7,511 7,513 6,873 6,872 1,546 1,546 1,549 MaJor Additions Second Caloining Kiln 2,700 Storage Silo 750 Total - Major 3,40- 288 288 288 288 288 288 288 288 288 288 288 Replacements (7 years) - - 68 ___8 241 387 5 J74 1 74 762 556 6 521 Total Yearly Depreciation 10,8.6 10,816 11,454 11,522 11,827 11,983 12,129 10,658 8,273 8,342 7,917 7,922 2,390 2,374 2,358 1/ Purchased in second year of operation. May 28, 1971 REPUBLIC OF (UINA T BOKE BAUXITE EXTESION PROJECT Compagnie des Bauxites de Guinee e Projected Income Statement Year of operation: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Production (ons 000) Year: 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 Metal grade Lauxite 5,700 6,825 8,000 8,150 8,r50 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 Calcined grade bauxite - 5 95 95 210 195 200 200 200 200 200 200 200 200 200 Sales (tons 000) 1/ Metal grade bauxite 4,700" 6,825 8,000 8,150 8,150 9,0C 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 Calcined grade bauxite - 45 95 95 195 195 200 200 200 200 200 200 200 200 200 Income from Sales .................................... ...... .........................(US$000).... .......................... ........................................ Metal grade bauxite Initial contracts (at $7.55/ton) 35,485 35,485 35,485 35,485 35,485 5[,505 38,505 38,505 38 505 38,505 38,505 38,505 38,505 38 505 38 505 Expansion contracts (at $9.42/ton) - 20,018 31,086 32,199 32,499 36,738 36,738 36,738 36,738 36,738 36,738 36,738 36,738 36,738 36,738 Calcined grade bauxite (at $33/ton) 1,M3L 6,435 6,600 6, 6,6 00 6,6 6,600 6,600 6,600 6,6o0 6,600 6,600 Total Income from Sales 35,485 6,988 69,706 11 74419 81,678 81,843 81,843 81,843 81,843 81,843 81,843 81,843 81,843 81,843 Operating Costs Labor 6,776 6,77( 6,399 6,399 6,399 5,110 4,557 4,065 4,0665 4,065 4,065 L,o65 4,065 4,065 4,065 Fuel 2,613 3,498 ,311 4,154 4,573 4,8514 4,899 4,899 4,899 4,899 4,899 4,899 4,899 4,899 4,899 Supplies 2,577 2,703 2,897 2,911 3,017 3,097 3,097 3,097 3,097 3,097 3,097 3,097 3,097 3,097 3,097 Repas' and maintenance 1,549 1,809 1,503 1,531 1,733 1,734 1,734 1,734 1,734 1,734 1,734 1,734 1,734 1,734 1,734 Duty on imported consumables 377 "49 477 481 522 542 545 545 545 545 545 545 545 545 545 OFAB costs chargeable to CBG 2,533 2,633 2,699 2,755 2,816 2,784 2,784 2,784 2,784 2,784 2,784 2,784 2,784 2,784 2,784 Foreign office 600 600 600 600 600 600 600 600 600 6cc 600 600 6cc 600 6oo Less: Payroll credit (677) (677) (640 (640) (640) (511) _(456) (406) (406) (406) (406) (406) (406) (406) (406) Sub-total 16,348 _ 17,791 18,0L16 18,191 19,020 18,210 17,760 17,318 17,318 17,318 17,318 17,318 17,318 17,318 17,318 Inventory Adjustment (1,873) (240) - - (69) - - - - - - - - -- 7eciatkis'. o10,816 10,816 11,4541 11,522 11,827 11,983 12,129 10,658 8,273 8,342 7,907 7,922 2,390 2,374 2,358 Amortieation of "reooerating L.penses 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 - - - Interest and Guarantee Fees on CBG Debt 8 7 8539 7,908 6599 6,016 5,136 4,544 3,517 2,446 1,047 640 470 302 164 30 Total Cost 35,119 38,156 38,658 37,960 38,o4 36,j79 35,683 32,743 29,287 27,957 27,115 26,960 20,010 19,856 19,706 Net Income Subject to Tax 366 18,832 31,048 33,159 36,375 45,099 46,160 49,100 52,556 53,886 54,728 54,883 61,833 61,987 62,137 Tax at 65% 238 12,241 20,181 21,553 23,644 29,31L 30,004 31,915 34,161 35,026 35,573 35,674 40,191 40,292 40,389 Net After-Tax Income 128 6,591 10,867 11,606 12,731 15,785 16,156 17,185 18,395 18,860 19,155 19,209 21,642 21,695 21,748 1/ Year of operation means a2perio of twelve months beginning 90 days after issue of ti certificate of substantial comple tion for th prjet (para- 4.20). Owing to delay in construction the first year of operation may not necessarily coincide with Ir the calendar year 1973. May 28, 1971 TABLE 8(a) REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT CBG Balance Sheet, September 30, 1970 Assets Current Assets: Cash, including Guinean francs in Guinean banks equivalent to $82,625 $ 240,055 Construction funds to liquidate accounts payable 2,200,000 Certificates of deposit 807,636 Accounts receivable 6,519 Prepaid expenses 19,344 Total current assets 3,273,554 Construction fund account $5,329,456 Less construction funds to liquidate accounts payable 2,200,000 3,129,456 Plant and equipment, at cost, less accumulated depreciation 9,839,231 Prepaid taxes to the Republic of Guinea 750,000 Deferred costs 8,933,130 Bauxite mining rights 980,000 Other assets 16,321 $ 26,921,692 Liabilities Current liabilities: Accounts payable $2 2,364,093 Accrued interest and loan fees 888,748 Total current liabilities 3,252,841 Loans payable 13,876,675 Due affiliated company 587,319 Commitments and contingent liabilities 17,716,835 Capital Capital stock Class A common, $20 par, authorized and issued 49,000 shares 980,000 Class B common, $20 par, authorized and issued 51,000 shares 1,020,000 Paid-in capital 7,204,857 9,204,857 $ 26,921,692 May 28, 1971 REPUBLIC OF GUINEA BOKE BAUXITE EiTENSION PRO.ECT Compagnie des BAnxites de Guinee Projected Balance Sheets Year of operation: Prior to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Year: 1973 1973 1974 1975 1976 1977 1978 1979 1990 1981 1982 1983 1984 1985 1986 1987 Asset..................................... .................................................................... UST milli-ons ......... ............................... Assets 7ash - CBG account 6.15 1.15 .63 1.51 1.79 2.16 5.6( 7.16 2,02 1.98 1.68 2.38 2.01 1.87 1.65 1.83 - Trustee Expansion Account - - - 3.45 - - - - - - - - - . - - Accounts receivable - 8.87 14.24 17.42 17.78 18.60 2042 20.46 20.46 2046 20.46 20.46 20.46 2046 20.L6 20.46 Inventoriec - Materials 5.00 5.00 5.00 5.50 5.50 5.70 6.00 6.0o 6.00 6.00 6.00 6.00 6.00 6.00 6.0o 6.00 - Buxite - 1.67 2.11 2.11 2.11 2.18 2.18 2.19 2.18 2.18 2.18 2.18 2.18 2.18 Total current assets 11.15 K79 -2l.9 39.15 23.6)4 51t 07 30.51 Advances to Guinea Government 8.25 13.22 15-5= 14.Y' 13.32 11.02 6.57 1.56 - - - Gross fixed assets 117.12 117.12 122.23 122.70 126.26 128.06 128.39 128.89 129.00 12947 131.37 131.60 131.95 132.18 132.54 134z4 Less: Depreciation - 11.63 33.08 44.60 43 6814 80.54 91.20 9.14 107.81 115.72 12364 126.03 1 130.76 Net fixed assets 117.12 106. 100. 89.62 81. 71.63 9 1 37 . 23.56 15 3.88 Corporate formation, training and pre-operating expenses 14.00 13142 12.50 11.25 10.00 8.75 7.50 6.25 5.00 3.75 .50 1.25 - Mining rights .99 .98 .98 .98 .98 .98 .98 .98 .98 .98 .98 .98 .98 .98 .98 .98 Total assets 151.5D 150.81 151.61 1146.55 133.114 121.09 109.30 9294 74.4 65.35 57.36 49.13 3994 3764 35.41 35.33 Liabilities Accounts payable .50 .40 .40 .40 .0 .40 J'O .40 .40 .40 .40 .40 .40 .40 .14 .40 Dividends 6eferred - .62 7.70 16.06 15.15 1L.36 12.62 11.03 9.22 20.61 20.47 16.63 11.84 13.48 15.18 17.93 Senior debt i114.RO 112.79 106.51 9 09 80.59 69.33 63.28 1.51 3.82 1534 9 7.10 4.70 2.76 0.83 - Total liabilities 114.50 84.09 74.30 43.U 36.35 30.36 214. Equity lass A stock 20 .00 20 .0 0 20 .00 20 .00 2 26. 00 1 4 2.00 - Class A stock.8 .9 .9 .9 .9 .9 .9 .9 .9.9.9.9.8 .9.8.8 Class B stock 1.0 1.0 1.02 1.02 10.02 10.02 18.02 1.02 1h.02 1.02 1.02 1.02 1.02 1.02 1.02 1.0 Class B stockholders' captal contribution 10 .2.8 .8. Net inc-e meo 50 5oo10 .2 102 10 .2 10 caia otiuin1.0 1.0 1.0 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00 N et snc: D d .62 7.08 11.36 12.09 13.21 16.26 16141 17.19 18.39 18.86 19.16 19.21 21.61 21.70 21.75 Les iied elrd- (.62) (7.08) (11.36) (12.09) (13.21) 1i6.26) (16141) (17.19) (18.39) (18.86) (19.16) (19.21) (2164) (21.70) (21.75) Total shareholders' funds 37.00 37.00 37.00 37.00 37.00 37.00 35.00 Total liabilities and e u t y 151.50 150.81 151.61 146. 055 133 .14 121 .09 6..00 6.-00 64.4o 63.00 3 . oo .1 00 35.3 1109 3 9209 66.4 653 62 .9 30932 32 30 64 30.51 3-1 53 YAY 25, 1971 REPUBLIC OF GUIEA BOKE BAUITE EXTENSION PROJECT Comepagnie, des Bauxites do QuLinc Projected Source and Application. of Funds Year of :eationt Prior 1 2 3 4 5 6 7 8 9 10 11 12 13 lh 15 to Year: 1973 1973 i2L 1975 1976 1977 1978 L272 1980 1981 1982 1983 994 198$ z86 1987 (US$ million) Source After-tax income .13 6.59 10.87 11.61 12.73 15.79 16.16 17.19 18.39 18.86 19.16 19,21 21.64 21.70 21.75 Interest on average loan .49 .49 .49 .L3 .4B .h7 .25 - - - - - - - - Depreciation 10.82 1o.81 11.65 11.52 11,83 21.98 12.13 10.66 8.27 8.31 7.91 7.92 2.39 2,37 2.36 Amortiration 1.25 1.25 1.29 1.25 1.25 1.251 1.25 1.25 1.25 1.2 1.25 1.25 - - - Cash generation 12.69 19114 24.06 2L.8( 26.29 29.9 29.79 29.30 27.91 28.95 28.32 28.38 2),.03 24,07 29.11 Senior del't 16.1o 6,00 6.6o Equity: Subordinated debt 20.00 Class A stock .98 Olass B stock 1.02 Class B atockhoiderst capital contribution 15.O Total Surcea 153.10 13.69 25.74 21.06 2L.86 26.29 29.19 29.79 29.10 27.91 28.46 28.32 28.38 24.03 21407 24.11 Applicati.on Fixed assets: Original plant 117.12 - 5.11 - - - - Additions - - - - 3.45 - - - Replacements - - - .47 .11 1. 80 .33 .50 .11 .47 1.90 .23 .35 .23 .36 2.10 Trustee Expansion Account - - - 3.95 (3.45) - - - - - - Corporate f ormation, training and pro-operating expenses 11.00 .67 .33 - - - - - - - - - - - - - Iining rights .98 - - - - - - - - - - - Working capital (excluding cash) 4.50 10.8) 5.61 3.68 .36 1.09 2.12 .D1 - - - - - - - Advances to Guinean Government 8.25 4.97 2.33 (.84) (1.39) (2.23) (1.52) (5.01) (1.56) - - - - - Repayment of senior debt 2.10 7.21 12.88 13.t2 12.50 11.26 8.06 12.77 1).69 18.8 5.85 2.39 2.1,0 1.94 1.93 .83 Repayment of subordinated debt - - - - - - 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Paynent of deferred and current dividends - - - 3.00 i3.00 14.00 18.00 18.00 19.00 7.CO 19.00 23.00 21.00 20.00 20.00 19.00 Cash 6.15 (5,00) (.52) .88 .28 .37 3.51 1.49 (5.1) (.1L) (.30) .70 (.37) (.14) (.22) .18 Tonal appl±-tU s 153.10 18.69 25.74 24.06 24.86 26.39 29.9 29.79 27.10 27.91 28.5 28.3 28.38 24.03 24,07 24.11 IOB's debt service coverage 1.3 1.3 1.5 1.6 1.8 2.6 2.0 1.6i8 1.51' 4.3 9.5 9.6 10.0 11.0 30.0 1/ Start of repayment of Export Import Bank loan (A notes) and of long term loan presently under negotiation (see Table 5) May 28, 1971 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Compagnie des Bauxites de Guinee Estimated CBG Advances to Government of Guinea Balance Required for Payment of OFAB Debt Service; Cumulative Payment by Trustee to Balance of OFAB Debt Service Payment Remaining Balance ( ) Balance of Profits Tax Government of Guinea Profits Tax by Trustee to World Bank to be Applied to Reimbursement Advances to Payments by (Minimum of 60% Remaining in $6. million $9.0 million of Advances and Loans by CBG Interest on Government Year CBG to Trustee Profits Tax) Trustees' Hands Loan Loan to the Government of Guinea Overage Loan of Guinea 790 750 0 OVER RUNS 7,500 8,250 1 238 143 95 3,989 593 4,487 487 13,224 2 12,241 7,395 4,896 5,882 859 1,845 488 15,557 20,181 12,109 8,072 5,882 859 (1,331) 487 14,713 21,553 12,932 8,621 5,882 859 (1,880) 488 13,321 5 23,644 14,186 9,458 5,882 859 (2,717) 487 11,091 6 29,314 17,588 11,726 5,882 859 (4,985) 469 6,575 7 30,009 18,002 12,002 5,882 859 (5,261) 296 1,560 8 31,915 23,614 8,301 5,882 859 (1,560) - - 9 34,161 27,920 6,741 5,882 859 10 35,026 28,285 6,741 5,882 859 11 35,573 28,832 6,741 5,882 859 12 35,674 28,933 6,741 5,882 859 13 90,191 33,950 6,791 5,882 859 14 90,292 33,551 6,791 5,882 859 15 40,389 33,698 6,791 5,882 859 May 28, 1971 REPUBLIC CF GUTINA BOKE BAUXITE EXTE1SION PROJECT Discounted Cash Flow Calculation of Financial Rate of Return Return on Total Investment Return on Government Investment Depreciation Total charges re- Government Government C nvestment Cash Net covered by Total receipts investment Year of Discounted Gross operating working Discounted Profits OFAR from CBG Government discounted discounted Operation CBGI/ Guinea Total at 19.5% receipts expenses2/ receipts at 19.5% tax and port users_/ receipts at 20.8% at 20.8% (US$ million) 0 14k.0 101.5 255.5 255.5 101.5 1 - - - - 35.5 13.7 21.8 18.2 .2 .8 1.0 .8 - 2 5.1 .3 5.5 3.8 57.0 16.8 40.2 28.2 12.2 .8 13.0 8.9 .2 3 .5 .2 .7 .4 69.7 17.3 52.5 30.7 20.2 .8 21.0 11.9 .1 6 3.6 .3 3.9 1.9 71.1 17.5 53.7 26.3 21.6 .9 21.5 10.6 .1 5 1.8 .5 2.3 .9 7h.4 18.2 56.2 23.1 23.6 .9 24.5 9.5 .2 6 .3 .3 .6 .2 81.7 17.5 65.2 22.0 29.3 .9 30.2 9.7 .1 7 .5 .2 .7 .2 81.8 17.1 66.7 18.6 30.0 .9 30.9 8.2 .1 8 .1 .3 .h .1 81.8 16.6 65.2 ) 31.9 .9 32.8 7.2 .1 9 .5 .2 .7 .1 81.8 16.6 65.2) 34.2 .9 35.1 6.5 - 10 1.9 .6 2.5 .4 81.8 16.6 65.2 ) 35.0 .9 35.9 5.2 .1 11 .2 .2 .4 .1 81.8 16.6 65.2 ) 35.6 .9 36.5 5.6 .1 12 .4 .3 .7 .1 81.8 16.6 65.2 ) 86.8 35.7 .9 36.6 3.8 - 13 .2 .2 .5 - 81.8 16.6 65.2 ) 50.2 .9 61.1 14 .4 .3 .7 .1 81.8 16.6 65.2 ) 50.3 .9 51.2 15 2.1 1.5 3.6 .2 81.8 16.6 65.2 ) 50.4 .9 51.3 ) .1 16 .2 .3 .5 - 81.8 16.6 65.2 ) 50.4 .9 61.3 ) 16.0 - 17 .4 .2 .6 - 81.8 16.6 65.2 ) 50.5 .9 61.3 18 2.1 .3 2.5 .1 81.8 16.6 65.2 ) 40.5 .9 41.3 19 .2 .2 .4 - 81.8 16.6 65.2 ) 50.4 .9 41.3 20 15.5 6.5 21.9 .6 81.8 16.6 65.2 ) 40.4 .9 L1.3 ) .2 255.6 253.9 102.8 102.8 Notes: 1/ Initial investment in Year 0 is adjusted from the figure shown in CBG accounts. The over-run on the foreign-exchange component of the original infrastructure project, which will be financed by CBG in the first place and recovered from Guinea through earnings, is in this statement included as investment of Guinea. Future investments of CBG are as shown in Table 6. US$13.0 million is included in Year 20 for renewal of railway track and locomotives. 2/ Cash operating expenses are CBG costs as shown in Table 7, but exclude depreciation of Kamsar town assets (approximately US$0.7 million p.a.) provision for which is included in charges raised by OFAB against CBG. ' 3/ Depreciaiton of Kamsar town assets, recoverable from CBG, and of harbor assets, recoverable through harbor dues and fees. Replacement of town and harbor assets is included under future investments of Guinea. 4/ This Statement assumes that operations wiLl start on January 1, 1973. If further delay is incurred then additional price escalat on, contractors' claims and accruing interest charges will increase the initial investment cost by about US$2 million, and reduce the investment return by about one-third of 1%, for each month during which such delay continues. May 28, 1971 REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT Estinated Increase in National Tnome of Guinea Depreciation Interest and charge re- amortioation Total debt Net incaea Other additions to national income covered by Advances Gross incone pRente Repayment service and for Guinea Social increase Ln Locally raid Purchase of Total increase Year of Frofiia OFAB from OBD by CBG to from bauxite IBRD USAID Interest. on of CBG repaymenst from boauite Payroll seouriLy Tmport government wages, salaries locally- in national operation and port users Guinea operations loan loan oerage loan advances of advances sales taxes contributions duties income and allwances produced goods income 1/ 2/ 3/ 5/ 5/ 6/ // 8/ 97 (t9$ million or equivalent in Guinean Francs) 1 .2 .8 1.0 6.o 5.6 .5 .5 - 5.6 .4 .1 .3 .4 1.2 2.9 .1 6.2 2 12.2 .7 2.3 15.2 6.7 .9 .5 - 8.1 7.1 .1 .3 .4 7.9 3.0 .1 11.0 3 20.2 .8 - 21.0 6.8 1,2 .5 .8 9.3 11.7 .2 .3 .5 12.7 3.0 .1 15.8 2 01.6 .8 - 22.4 6.7 1.2 .5 1. 9.8 12.6 .1 .3 .5 13.5 3.0 .1 16.6 5 23.6 .6 - 2.2 6.7 L.2 .5 2.2 1o.6 13.6 .2 .3 .5 14.6 3.0 .1 17.7 6 29.3 .8 - 30.1 6.8 1.2 .5 4.5 13.0 17.1 .1 .3 .5 18,0 3.0 .1 21.1 7 30.0 .9 - 30.9 6.7 1,2 .2 5.0 13.1 17.8 .1 .3 .6 18.8 3.0 .1 21.9 8 31.9 .8 - 32.7 6.8 1.1 - 1.6 9.5 2.2 .2 .3 .5 24.2 3.0 .1 27.3 9 34.2 .9 - 35.1 6,7 1.1 - - 7.8 27.3 .1 .3 .5 28.2 3.0 .1 31.3 10 35.0 .5 35.5 6M8 1.1 - - 7.9 27.i .2 .3 .6 28-7 3.0 .1 31.8 11 35.6 .9 - 36.5 6.7 1.1 - - 0.8 28.7 .1 .3 .5 29.6 3.0 .1 32.7 12 35.7 .8 - 36.5 6.7 1.1 - - 7.8 2.7 .2 .3 .6 29.8 3.0 .1 32.9 13 50.2 .9 - h1.1 6.8 1.0 - - 7.8 30.3 .1 .3 .5 35.2 3.0 .1 37.3 1 50.3 .8 - 51.1 6.7 1.0 - - 0.0 33.6 .2 .3 .6 34.5 3.0 .1 37.6 15 80.4 (.i) - 50.0 6.8 1.0 - - 7.8 32.2 .1 .3 .5 33.1 3.0 .1 36.2 16 0.A .8 - 51.2 6.7 1.0 - 7.7 33.5 .2 .3 .6 34.6 3.0 .1 37.7 17 60.L .9 - 51.3 6.7 1.0 - - 7.7 33.6 .1 .3 .5 3h.5 3.0 .1 37.6 18 50.6 .8 - 51.2 6.8 .9 - - 7.7 33.5 .2 .3 .6 35.6 3.0 .1 37.7 19 60.5 .9 - 51.3 6.7 .9 - - 7.6 33.7 .1 .3 .5 35.6 3.0 .1 3(.( 20 50.5 (5.4) - 35.0 6.8 .9 - - 7.7 27.3 .2 .4 .6 28.5 3.0 .1 31.6 632.4 8.6 7.3 668.3 130.7 20.6 3.2 15.5 120' 132.0 76.3 2.9 8.1 10.5 595.8 59.9 2.0 557.7 1/ In addition to oprating and maintenance costs of tho infrastruclure paid in cash OAB will chargo to, and b reimbursed by, CBG and the port uners an annual sn in respect of depreciation of Kamsar township and harbor facilities. The coot of maintenance dredging and replacement of fTod assets of the township and harbor must be met out of the funds so provided. 2/ fB will make advances to the Government sufficient to ensure that, after oervice of the Bank loan and the overage loan, Government will receive a miniu payment of 60% of the profits tax (see Tablell). 1/ Government will repay CG advances whenever profits tax exceeds debt service of the Bank loan and the overage loan by more than 60% o the total prorits tax. 5/ Payroll tan of 5% of wages and salaries of Gunican staff and of that part of expatriates' wages and salaries which is paid in Gunican frans. j/ 15.2% of wages and salaries of Guinean staff only. 6/ 5.6% of imported material costs. 7/ Estimate of proportion of wages, salaries, allowances, etc., paid in Guinea; does not include home salary allotments of expatriate staff, leave pay, passages, children's allowances, ntc., paid in foreign currency. Because of prevailing levels of unemployment and underemployment in Guinea, it is assumed that the wages, salaries, etc., included here represent additional income. 8/ Added value, representing additional incsee, assesed at 20% of purchase price of loolly produced materials which in turn are estimated at 5% of the total estimated material purchases of CBG and OFAB. 9/ F.clud4ng nquantifiable bonefits resulting from other activities ctimulntnd by the project. 10/ Includes repayment of advances amounting to US$750,000 and the overage loan estimated at US$7.5 million, outstanding prior to start of aoprations. May 28, 1971 REPUBLIC OF GUINEA BOKE BAUKfTE EXTENSION PROJEbT Generation of Foreign Exchange for Guinea Gross Harbor maintenance Salaries generation Imported v and operations expatriated and Imported Profits and Debt service Total Year of Sales Less increase Harbor of foreign consumble (foreign exchange overseas passages, capital other funds (foreign exchange only) exteaial Net generation of operation FOB in receivables dues exca goods costs leave pay, etc. goods CBG Guinea payments foreign exchange ........... ......... .. ................................................................................(US$ million)..... . 1 35.5 (8.9) .9 27.5 7.3 .7 5.7 - (1h.) 15.8 5.6 23.1 4.4 2 57.0 (5.3) 1.1 52.8 8.6 .9 5.5 5.2 (6.9) 21.4 6.7 41.4 11.4 3 69.7 (3.2) 1.3 67.8 9.1 .9 5.0 .6 9.1 19.3 7.6 51.6 16.2 4 71.1 (.4) 1.3 72.0 9.3 .4 .9 3.7 8.8 19.5 7.9 55.0 17.0 5 74.4 ( 8) 1.5 75.1 10.0 1.1 L., 2.1 154.2 17.3 7.2 56.8 18.3 6 81.7 (1.8) 1.5 81.5 10.5 1.1 3.? .5 23.5 13.2 7.3 59.7 21.7 7 81.8 (.)1.5 83.2 1o.6 1.1 3.3 .7 21.1 17.3 6.9 6i.o 22.2 8 81.8 -1.5 83.3 10.6 1.1 3.3 .4 15.2 18.2 6.8 55.6 27.7 9 81.8 -1.5 83.3 10.6 1.1 2.5 .6 9.0 20.9 6.7 51.5 31.9 10 81.8 -1.5 83.3 lo.6 1.1 2.0 2.3 20.7 6.9 6.8 50.5 32.9 11 8i.8 T1.5 83.3 10.6 1.1 2.0 .3 25.7 3.0 6.o 29.0 33.9 12 81.8 -1.5 83.3 1o.6 1.1 2.0 .6 25.6 2.9 6.7 49.5 33.8 13 81.8 -1.5 83.3 lo.6 1.1 2.0 .4 21.9 2.2 6.8 45.o 38.3 14 8i.8 -1.5 83.3 io.6 1.1 2.0 .6 21.8 2.1 6.7 44.9 38,4 15 81.8 -1.5 83.3 lo.6 1.1 2.0 3.4 21.2 .9 6.8 56.0 37.3 16 8i.8 - 1.5 83.3 10.6 1.1 2.0 .5 23.2 - 6.7 55.1 39.2 17 81.8 - 1.5 83.3 10.6 1.1 2.0 .5 23.2 - 6.y 55.1 39.2 18 8i.8 - 1.5 83.3 lo.6 1.1 2.0 2.2 21.5 - 6.8 54.2 39.1 19 81.8 - 1.5 83.3 10.6 1.1 2.0 .4 23.3 - 6.7 55.1 39.2 20 8i.8 - 1.5 83.3 lo.6 1.1 2.0 21.6 8.1 - 6.8 50.2 33.1 Total for 20 years 575.2 Annual average 28.8 1/ Includes funds transferred to Trustee for credit of the Trustee Expansion Account and the Harbor Depreciation Account. May 28, 1971 REPUBLIC OF GUINEA BOKE BAJXITE EXTENSION PROJECT Comparison of increased benefits to Guinea Goverment and CBG shareholders resulting from the expended project (in US$ million) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1T73 - - - - 17 Payment of Deferred and Current Diviends to CBG Shareholders 1. Original project - - - 3.4 6.1 7.2 8.1 9.1 10.2 11.0 11.0 11.2 13.2 12J.1 13.1 2. Expanded project - - 3.0 13.0 14.0 18.0 18.0 19.0 7.0 19.0 23.0 24.0 20.0 20.0 19.0 Guinea Government Income 3. Original project 4.1 4.3 5.4 5.5 7.0 7.9 8.7 9.8 11.2 11.7 12.0 11.9 14.2 14.1 16.9 4. Expanded project 1.2 7.9 12.7 13.5 14.6 18.0 18.8 24.2 28.2 28.7 29.6 29.8 34.2 34.5 33.1 Ratio of Increase in Net Benefits Resulting from the Extension for CBG shareholders (Line 2/Line 1) - - - 3.8 2.3 2.5 2.2 2.1 0.7 1.7 2.1 2.2 1.5 1.6 1.4 for Guinea Government (Line t/Line 3) 0.3 1.8 2.4 2.5 2.1 2.3 2.2 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.0 May 28, 1971 MAP 1 S E N EG AL M A L P O R T U G U E S E ' ..Yoonkoun GOTUUI E SENN G U IMN E A GAOUAL 0i oToouu SI GUI RIO O jogu Dinguiraoye SGII Sangaredi LABE 0 iy P ITA DBOKE Tél¡inéléo DABOLA DAL ABA Port of Kamsar KU S FRIA MAMOUKANKAN . .. BOFFA KINDIA .---- --Foarah .DU.IBRE-KA CONAK FORECARIAH 1000 10020003000 KISSIDOUGOUO Kerouone Ben GUEKEDOU BEYLA REPUBLIC OF GUINEA MACENTA BOKE BAUXITE EXTENSION PROJECT L l B E R I A Propose railra for Exsigrailroad N'ZER EKOR E Navigable rivers A F GUINEA 0 50 00 150 KILOMETERS MARCH 1971 1BRD 1633R1 H^P Z 긷 ýubjg E TURNING .:IRCLE rn f j> DOLPHINS t 011 WHARF 10 SHORt WHARF BERTH el REPUBLIC OF GUINEA BOKE BAUXITE EXTENSION PROJECT ADDITIONAL PORT FACILITIES Existing project Future works for 60,000 DWT vessels Work for extension project N 5[0. . . . 0 510 100 1510 200 Meters APRIL 1971 IBRD 3384 MAP 4 RIO NUNE2 *- -- -- - -- - 0 ~ r OT 1 SCHOOL 2 HEADMASTER'S HOUSE 6 ADMINISTRATIVE C3NTRE 7 POST-OFFICE 8 FRE-ERIGADE 9 AREA RESERVED FOR SOCIAL CENTRE NEW PROJECTr ROADS 10 SHOPPING CENTRE 11 TRADE AND CRAFTSMANSHIP NEW CBG HOUSING A D 12 PUBLIC PARK -_-- HOSP|TAL EXTENSION 13 E.sPIvAL BOKE BAUXITE EXTENSION PROJECT 14 AREA RESERVED FOR SPORTS FIELD 15 AREA RESERVED MOR GOVERIMENT 16 AREA RESERVED FOR AN HOTEL KAMSAR TOWNSITE 17 MEETING PLACE 18 PUMPING-STATION SEWAGE 19 WATER TUWER-TANK 20 SERVICE STATION 21 GUEST-HDUSE H3USE A B' 32BB C CC2 D E 23 o AS SI 3 o 120 sos OFAB - - 4 56 183 7[ MwE-ERS C- 22 4 2 42 80 [10 A)DITIONAL CBG 3 2 6 6 l' 0 MARCH 1971 BRD 239R