Dominican Republic - Falconbridge Nickel Project

Document of RETURN TO The World Bank REPCRD DS FOR OFFICIAL USE ONLY ONE WEEK Report No. 1812 FILE COPy PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) December 2, 1977 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) TABLE OF CONTENTS Page No. Preface Basic Data Sheet Highlights Summary and Findings i - ii PROJECT PERFORMANCE AUDIT REPORT I. Introduction 1 II. Design, Cost and Financing of the Project 1 - 4 Financing of the Project 4 III. Start-up and Initial Operations 4 - 5 Manpower Requirements and Training 5 - 6 Ore Reserves and Initial Plant Working 6 IV. Revenues and Operating Costs: 1973-1976 7 - 9 Financial Performance of Falconbridge Nickel Mines 9 V. Market and Falcondo's Position 9 Demand and Supply Trends 9 - 11 Industry Structure and Price Trends 11 Falcondo's Market Position 11 - 12 VI. Financial and Economic Returns 12 - 13 Economic Rate of Return 14 Distribution of Benefits 14 VII. Conclusions 15 Attachments I. Project Facilities II. Total Project Expenditure III. Bank-financed Facilities IV. Maturity Structure of Long-term Debt This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -2- (Loan 646-DO) Page No. Attachments: V.1 Falconbridge Dominicana, C. por A. Property, Plant and Equipment/Development and Preproduction Expenses As at December 31, 1972 V.2 Falconbridge Dominicana, C. por A. Total Project Cost and Its Financing VI.1 Start-up Dates: Process Plant VI.2 Operations of Individual Sections VII.1 Training Program for Staff and Workers VII.2 Manpower Distribution VIII.1 Falconbridge Dominicana, C. por A. Statement of Earnings VIII.2 Falconbridge Dominicana, C. por A. Balance Sheet VIII.3 Falconbridge Dominicana, C. por A. Five-year Review IX.1 Falconbridge Nickel Mines Limited Consolidated Statement of Earnings IX.2 Falconbridge Nickel Mines Limited Consolidated Balance Sheet IX.3 Falconbridge Nickel Mines Limited Five-year Review X. Trends in Consumption and Supply of Nickel XI.1 Falconbridge Dominicana, C. por A. Income Statement: 1972-1991 as Projected at Appraisal XI.2 Falconbridge Dominicana, C. por A. Income Statement: 1972-1991 as Estimated in 1977 XII. Falconbridge Dominicana, C. por A. Distribution of Benefits PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) PREFACE This Report covers an audit of performance of the Falconbridge Ferronickel Project supported by Loan 646-DO. The loan, for an amount of US$25 million, was approved in December 1969 and fully disbursed by September 30, 1973. A Project Com- pletion Report (PCR) was prepared by the Industrial Projects Department of the Central Projects Staff in 1973. The audit is based on a review of project documents and discussions with Bank staff and with the borrower. As considerable time has elapsed since the preparation of the PCR, the Audit Report incorporates the main findings of the PCR and updates data relating to the operations of the project. Comments were received from the Latin America and the Caribbean Regional Office, the country through the Region and the borrower.  PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) BASIC DATA SHEET Amounts (in US$ mln) As of 9/30/77 Original Disbursed Cancelled Repaid Outstanding Loan 646-DO 25.0 25.0 - 8.7 16.3 Project Data Original Plan Actual or Est. Actual Loan Agreement 12/10/69 12/10/69 Effectiveness 2/26/70 Physical Completion 6/72 6/72 Loan Closing 9/30/73 9/30/73 Total Costs (mln) US$196.3 US$191.9 Econ. Rate of Return 17.1% 14.5% Mission Data Month, No.of No. of Year Weeks Persons Manweeks Date of Report Appraisal 11/26/69 n.a. n.a. n. a. n. a. Supervision I 3/71 6 days 1 6 days 4/07/71 Supervision II 4/73 4 days 1 4 days 8/17/73 Supervision III 3/76 5 days 1 5 days 4/09/76 n.a. = Not available from the files.  PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) HIGHLIGHTS Falconbridge Dominicana C. por A., a subsidiary of Falconbridge Nickel Mines, Ltd., a Canadian company, established a plant in the Dominican Republic with an annual capacity of 63 million lbs. nickel in ferronickel form. The project was completed and went into production on schedule and investment costs were approximately as estimated. In spite of the severe impact of rising petroleum prices the financial performance has been satisfactory and the projected rates of financial and economic returns for the project near to those estimated at appraisal. The following points may be of particular interest: - Training of labor (para. 3.04 and Annex VII); - Impact of oil price changes on the project (paras. 4.02 and 4.03); and - Distribution of benefits (paras. 6.07 and 6.08).  PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) SUMMARY AND FINDINGS 1. The Falconbridge Nickel Mines Ltd. (Falconbridge), a Canadian company with large interest in nickel production, had set up a subsidiary, Falconbridge Dominicana C. por A. (Falcondo), in the Dominican Republic to produce nickel from lateritic ore mined in the Republic, using a pyro- metallurgical process developed in a pilot plant. The capacity of the plant was to be 63 million lbs. nickel in ferro-nickel form. The Bank approved, in December 1969, a loan of US$25 million to set up a thermal power generating unit and associated facilities needed for the project. 2. As against an estimated cost US$196.3 million for the project, the actual cost worked out to US$191.9 million. There was an overrun in the cost of Bank-financed facilities, which was made good by savings in other items. The funding of the project followed the financial plan envisaged at the appraisal stage. Though construction work commenced about 7 months later than originally expected, the project was completed with an overall delay of two to three months only. On the whole, given the scale of the project and the innovative nature of the process involved, the implementation of the project, within the cost and time taken, is considered creditable. 3. Falcondo provided adequate training facilities for local labor. The individual parts of the facilities were started up as they were completed; the project took longer to start operations than expected at the appraisal stage. It was.deemed to have gone into commercial produc- tion in June 1972. The build-up of production was rapid, and production in the first two full years of operation, 1973 and 1974, was around 67 million lbs. nickel, about 5% above rated capacity. In the subsequent two years, production was curtailed owing to market constraints. 4. The process involves pyro-metallurgical refining of nickel ore, which is highly energy-intensive; the financial operations of Falcondo are, therefore, highly sensitive to oil prices. The increase in oil prices, beginning 1973, has had a great impact on Falcondo's cost of production. This was neutralized to some extent by improvements in pro- duction efficiency and higher nickel prices. Falcondo has made a profit, before and after tax, each year since it went into commercial operation. - ii - 5. Projections of financial operations to 1991 indicate that the financial rate of return on the project, in 1969 real terms, would be 13.2% against 19.4% estimated in the appraisal. The economic rate of return would be 14.3% against 17.1% at the appraisal stage as recal- culated on the same assumptions. Adverse changes in three important parameters (a 10% rise in oil prices, a 5% fall in product price, a 10% fall in production rate), either singly or together, would still leave a positive rate of return, financial and economic, on the project. 6. The net present value of the stream of benefits to the host Government (using a discount factor of 10%), taking into account benefits already received in the years 1972-76, is estimated at US$45.7 million and to the foreign shareholders, US$59.3 million, both in 1969 real prices. In addition, the host Government would have non-financial benefits in the form of additional jobs created and productive use of a natural resource. 7. The Bank supervision of the project was satisfactory. The project represents an important contribution to the development of the Dominican economy. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) I. Introduction 1.01 The Bank approved, in December 1969, a loan for US$25 million to finance a thermal power generating unit and associated facilities, for a project comprising a new ferronickel mining-metallurgical complex to be set up in the Dominican Republic, with a capacity to produce 63 million lbs. of nickel in ferro-nickel form (subsequently referred to as nickel only) per annum. The borrower was Falconbridge Dominicana, C. por A., a subsidiary of Falconbridge Nickel Mines Ltd., the then third largest nickel producer in the world, headquartered in Toronto, Canada; Falconbridge of Canada and Armco Steel of Ohio (the other major shareholders) provided part of the financing and supported the project as sponsors and guarantors. The total cost of the facilities, including a pilot plant, was estimated, at the time of appraisal, at US$195 million. 1.02 At appraisal, the project was judged to be a worthwhile and timely addition to the investment program of the Dominican Republic, not only in terms of the estimated economic benefits and financial returns, but also because it would focus on one of the basic problems facing the Dominican Republic, viz, the need to develop its natural resources. 1.03 The audit incorporates the findings contained in a Project Completion Report (PCR) prepared by the Industrial Projects Department of the Central Projects Staff in 1973. In addition to updating data on the operations of the project, the audit provides revised calculations of financial and economic returns on the project. II. Design, Cost and Financing of the Project 2.01 The project comprised mining and metallurgical processing of lateritic nickel ore to produce ferronickel for sale on the world market. The process proposed involved pyro-metallurgical refining which is highly energy-intensive, and was developed over a decade on a pilot plant basis by Falconbridge. A list of the major items covering the project facilities is given in Annex I. - 2 - 2.02 During project implementation and start-up, various changes were made in the design of, and facilities included in, the project. The major project modifications and additions were the following: 1. In order to gain greater flexibility in ferronickel production, a second reheat station was added. 2. A remelting furnace for scrap was added. With this addition, scrap is not required to be charged back to the arc furnaces. 3. In the ore preparation circuit, a hammer mill was added to the system, replacing jaw and roller crushers which were not operating as designed. 4. In order to have more mechanical reliability, a second boiler pump was added to each unit of the power plant. The above changes were reasonable and might be expected to take place in the application of a new process to a large production facility like the Falcondo project. 2.03 The appraisal referred to a total project cost estimate (including contingencies, price escalation and working capital) of US$195 million. Project cost accounting during the implementation phase was not on the same basis as the cost estimate in the appraisal report. Therefore, figures relating to estimates of project expenditures were obtained from original Falcondo estimates. This gives a more detailed, itemized estimate of total project expenditure at a figure of US$195.885 million. This is compared with revised and final cost figures. The details of these sets of figures are given in Annex II; a summary table, derived from this Annex, is given below: (in US$ 000) Original Revised Final Estimate Estimate Cost Sept. 1969 June 1970 Dec. 1972 Properties, plant and equipment-/ 130,601 134,615 126,153 Development and pre-production expen- diture (other than operating expen- diture prior to receipt of revenue)2/ 53,644 53,710 52,007 Working capital/ 11,640 8L000 13767 195,885 196,325 191,927 11 Covers the first eleven items under Annex II. 2/ Includes pilot plant cost. 3/ Same as operating expenditure prior to receipt of revenue under Annex II. - 3 - 2.04 The Bank-financed facilities comprised: - Power plant, - Pipeline and storage facilities, and - Topping unit. Expenditure on these facilities is given in Annex III. The table below gives a summary of cost of the Bank-financed facilities: (In US$ 000) Original Final Increase Estimate Cost Sept. 1969 Dec. 1972 % Power Plant 21,006 26,525 26.3 Pipeline and storage 4,838 6,510 34.6 Topping unit 2,558 3,892 52.2 Interest 1,000 1,000 - Total 29,402 37,927 29.0 of which - foreign 25,000 32,193 28.9 - local 4,402 5,734 30.3 The total cost was up by US$8.5 million, which represented an increase of 29% above the original estimate. The reasons for this increase were mainly changes in the scope of work and underestimation. Increase in the capacity of the water treatment plant and compressors, increase in the storage capacity of the fuel tanks, inadequate provisions in general works, and underestimation of the cost of pipeline were main factors contributing to the cost overrun. Even with this overrun, however, the unit capital cost figure worked out to US$130 per kw of installed capacity of the power plant, which is considered reasonable. 2.05 Compared to the original estimate, a total saving of almost US$4 million was obtained in total project expenditure, most of it in process plant construction. The major items under which savings were obtained were "process plant construction" (-US$16.09 million) and "process plant capital equipment" (-US$2 million) which more than neutralized the overrun under "power plant" (+US$5.52 million),"pipeline and storage tanks" (+US$1.67 million) and "topping unit" (+US$1.33 million). "Pre-production expenditure" was higher (+US$1.48 million), minly because the plant took longer to reach commercial production (9 months against the appraisal estimate of 4-5 months). On the whole, given the scale of the project and the innovative nature of the process involved, the implementation of the project, within the cost and time taken, is considered creditable. Financing of the Project 2.06 The Appraisal report had envisaged the following financing plan for the project: US$ million Equity investment 15.00 Subordinated debt 34.00 IBRD loan for power plant and related facilities 25.00 Medium-term commercial banks' term loan for treatment plant and working capital 41.00 Long-term private institutional loans for treatment plant and working capital 80.00 195.00 The company raised the equity and loans, as envisaged under the Appraisal. A statement on the maturity structure of the loans raised and currencies used under the Bank loan is given in Annex IV. 2.07 Data on project cost and on its financing, as it appears in the Annual Report of the company for 1972, is summarized in tables in Annex V. The classification in the published accounts is different from that given in Annex I on Project Expenditure, as the classification of items is according to trade and accounting practices and reflects company practices for transfers of entries under various heads. The working capital figure is arrived at as a net of current assets and current liabilities. The financing of the total financial requirements, so arrived at, includes internal sources like depreciation provision and retained earnings. III. Start-up and Initial Operations 3.01 Scheduled and actual start-up dates of the process plant are given in Annex VI. While the original feasibility study had envisaged a start-up date of the project in September 1971 and full production by January 1972, plant construction was started about 7 months later than the date assumed in the study. Actual construction of the project was faster than these earlier estimates. Different units of the metallurgical plant and service facilities of the plant were mechanically completed during May 1071 through January 172: - Ore preparation circuits were completed during the period May to July 1971. - 5 - - Units of the power plant were completed between July and September 1971. - Pipeline, storage tanks, and topping unit facilities were completed between May and July 1971. The start-up date of the process plant, therefore, was generally close to scheduled dates. As seen from the Annex VI.1, there was a delay of 2-3 months in actual start-up of the reduction and melting line units as compared to the earlier schedule. 3.02 The first metal was produced in October 1971, but it did not meet commercial specification. The first export shipment of 514 tons of ferro- nickel ingots to commercial specification was made from the port of Haina on December 29, 1971. Start-up and trial operations which were in progress at the end of 1971 continued with commissioning and small adjustments of the different units through the end of May 1972; a note on the start-up of different sections of the plant is given in Annex VI.2. Although the pro- ject produced approximately 9.9 million pounds of nickel in ferronickel form from December 1971 to May 1972, the period between September 1971 and May 1972 was considered to be pre-production and development period. Thus, the project was assumed to have gone into commercial operation in June 1972. 3.03 The operation period required in reaching commercial production (defined as 85% of rated production capacity) exceeded 9 months, as compared to 4-5 months originally estimated, due to start-up difficulties in the process plant. Such difficulties during early trials can be considered normal in view of the fact that the plant operation was based on a new process and operative people had to be trained on the new plant: the opera- tion of the plant, because of its size, required more experienced people than available from the pilot plant stage, and more time had to be spent on the training of personnel during the trial period. Manpower Requirements and Training 3.04 During the last phase of construction and early trials, Falcondo designed an extensive training program for different trades in the project: a note on this program is given as Annex VII. The total number of personnel employed by Falcondo at the beginning of 1973 was 1,954, including 42 temporary workers; the total.number of expatriates was 138. The details of employment are given in Annex VII.2. The number of personnel required was substantially higher than the appraisal estimate, which was 1,150. The main reasons for this increase are: - Underestimation of employment in the feasibility studies; particularly, manpower requirements of the process plant had been substantially underestimated. - Dust problem of the process plant, requiring additional clean-up workers. Additional staffing required because of continuous heavy training needs of the process plant during the early years of operation. - 6 - The total number of expatriates was well within the ratios established by the concession agreement. 3.05 Labor contracts are for three years. As against the maximum weekly 44 working hours under regulation, the Falcondo contract is for 42 hours, with increased payment for overtime calculated for hours worked above 44. The hourly pay is increased 40% for working hours in excess of 44 and 100% for above 66 hours. 3.06 Falcondo's pay scale for local labor is reasonable, in the top 10% of the Dominican pay scale. Falcondo gives $200 bonus to workers for Christmas and assists its labor in housing. According to the labor law, all employees get yearly one month's salary as bonus if the company makes sufficient profit. Ore Reserves and Initial Plant Working 3.07 The exploration made in 1976 increased the ore reserves to 72.5 million dry short tons, with average nickel content of 1.65%, as compared to the appraisal figures of 62.8 million dry short tons with 1.55% nickel content. New proven ore reserves increased nickel content of the ore and higher recovery extended the project life, at 63 million lb. nickel produc- tion, to 38 years from the earlier estimate of 26 years. At 66 million lb. production, project life would be 36 years. 3.08 According to the design of the plant, ferronickel ingots were to have an average of 35% nickel content, and the number of metal taps of each melting furnace in a day would average 10. However, in actual operation, average nickel content of the ingots was 40%, fluctuating between 38% and 43%, and the number of metal taps was decreased to six. This mode of operation was found more efficient than the original plan, and the final product had better acceptance by the market. 3.09 During 1972, approximately 1.5 million dry short tons of ore were mined and delivered to the ore preparation plant. During the year, minor interference to mining schedules resulted from the heavy annual rainfall. Mining and ore handling facilities, up to wet storage, were operated on a two-shift basis. Deliveries for export amounted to 38 million lbs. in 1972. 3.10 The initial start-up and operations of the project were satisfactory with one exception--dust problems in the ore preparation circuit. While some dust problem had been anticipated during operation because of the nature of the ore, the magnitude of the problem turned out to be greater than estimated. - 7 - IV. Revenues and Operating Costs: 1973-1976 4.01 Since the appraisal was made and the project went into operation, two major changes occurred to influence substantially the financial operations of the project: firstly, a four-fold rise in oil prices, and secondly, a fall in demand for nickel. The impact of these changes on Falcondo is examined in detail below. 4.02 Oil is an important element in the cost of production of nickel from lateritic ore. The cost of crude oil, originally assumed at US$1.75 per barrel, rose in early 1973 to US$3.40 per barrel, and by the end of 1973, it had increased three-fold from that level. At US$1.75 per barrel, fuel was expected to form 10% of operating costs (total cost less depreciation and interest); with the price of oil rising to $3.40 in early 1973 and going up to US$10.55 per barrel in the last months of 1973, the cost of fuel averaged more than 30% of operating costs in that year. In 1974 and 1975, with the cost of oil remaining at the 1973-end level or increasing marginally, the cost of fuel stabilized at a little over 50% of operating costs. 4.03 The effect of the crude oil price on production cost is substantial. Every US$1/barrel increase in crude oil price has an effect of increasing the cost of production per lb. of nickel by 6.1 cents. The cost of fuel (average) per lb. of nickel rose to 18 cents in 1973, 54 cents in 1974 and further to 67 cents in 1975. 4.04 During the years since operations started, Falcondo had also to face other cost increases, attributed to the following factors: - Number of permanent personnel increased to nearly 2,200 as compared to 1,150 estimated at the appraisal stage. - Introduction of new decrees and legislation increased the cost of employment. - Cost of materials, supplies and services rose substantially, parallel to inflation in developed countries. 4.05 Production efficiencies brought about by Falcondo were more than counter-balanced by the cost increases mentioned above. As a result, the cash operating cost of Falcondo worked out to 62 cents per lb. of nickel in 1973, US$1.01 in 1974 and US$1.21 in 1975, as against the appraisal estimate of 34 cents. 4.06 The base price of ferronickel assumed in the appraisal was US$1.03 per lb. of nickel content, prevailing in 1969;.with sulphur discount, transport and sale commission, net sale price per lb. of nickel in ferro- nickel for Falcondo was calculated at 98 cents. Since the appraisal, ferro- nickel base prices have risen. The average invoice price for Falcondo worked out to US$1.32 per lb. of nickel content in 1973, US$1.48 in 1974 and US$2 in 1975. -8- 4.07 The rise in the price of nickel in the past lagged behind the cost increases of Falcondo. As a result, the profit margins of Falcondo were squeezed, particularly after the end of 1973 when the full force of the new oil prices was felt, as the following figures on Falcondo's actual performance over the period 1973 to 1975, compared with that estimated at the time of appraisal, show: Performance Indicators Unit Appraisal,/ 1973-/ 19742/ 19751 Nickel Production lbs. million 63.0 66.8 67.2 59.4 Nickel Shipments lbs. million 63.0 66.3 68.7 52.3 Full Costs (Total) US$ million-, 58.3 77.1 99.4 95.7 Full Costs (Unit) US$ (per lb. of Ni.) .92 1.16 1.44 1.83 Operating Costs (Total) US$ million_/ 21.5 40.8 69.4 63.2 Operating Costs (Unit) US$ (per lb. of Ni.) .34 .62 1.01 1.21 Average Invoice Price US$ (per lb. of Ni.)AI 1.03 1.32 1.48 2.00 Cash Margin US$ (per lb. of Ni.) .69 .70 .47 .79 1/ The appraisal assumed a constant 1969 price/cost relationship over the life of the project starting in the year ending December 31, 1q72. 2/ After income taxes. 3/ Operating costs include salaries and wages, fuel, operating supplies and maintenance, management fees and administration, and are adjusted for inventories. 4/ Before marketing and delivery expenses. 5/ In current prices. In current terms, cash operating costs per pound of nickel shipped increased by 95% during the period 1973 to 1975 inclusive. The cash margin fell to 40% of the achieved selling price in 1975 against the appraisal estimate of approximately 65%. During the same period, Falcondo's debt service ability in absolute terms actually improved as the 95% (59 cents) increase in unit operating costs was more than offset by a 52% (68 cents) increase in the product's achieved selling price. Falcondo's working during the five years 1972 to 1976 has shown wide fluctuations. After a sharp rise in sales and earnings in 1973, the first year of full operation, earnings showed a sharp fall in 1974 even when production and sales were maintained, mainly due to - 9 - the increase in oil prices. Since then, with costs stabilizing, the company has made a slow recovery in profits, as the market for nickel remained weak and has shown only slow improvement. 4.08 The actual net foreign exchange generated, as proportion of Falcondo's estimated revenues, as also the contribution of the project to gross domestic product, based on comparisons of actual operations with appraisal estimates for 1973-75, are in consonance with expectations at the stage of appraisal. The following table shows the operating results of Falcondo over the last four years: Falcondo: Operating Results, 1973 to 1976 (lbs. million) 1973 1974 1975 1976 Nickel Shipments 66.3 68.7 52.3 56.5 (US$ million) Operating Revenues 91.2 101.5 104.4 118.0 Other Income 2.0 3.0 2.9 1.3 Profit before Income Tax 21.0 3.0 12.9 16.7 Profit after Income Tax 14.1 2.1 8.8 11.3 Net Cash Flow 9.5 0.1 2.0 3.9 A summary of accounts for the five years 1972 to 1976 and a five-year review is given as Annex VIII. Financial Performance of Falconbridge Nickel Mines 4.09 Annex IX gives financial and operational data on Falconbridge Nickel Mines Ltd. (Falcondo's parent company) in summarized form. As the tables show, the company's financial position deteriorated over the three years 1973 to 1975; while revenue fluctuated around a level of Can.$440 million, operating expenses increased sharply over the three years, reducing earnings before taxes from Can.$103 million in 1973 to Can.$14.7 million in 1975. The results for 1976 show an improvement in operations. Falconbridge was able to reduce its long-term debt substantially over the three-year period 1973 to 1976. Total assets and net worth showed a marginal improvement over the same period. As a result, its long-term debt to net worth ratio declined from 1:1 to 0.70:1. V. Market and Falcondo's Position Demand and Supply Trends 5.01 A note on the uses of nickel and recent trends in nickel consumption and production is given as Annex X. It is estimated that the overall nickel - 10 - consumption will increase at an average rate of 4.5% per annum, composed of a 3% growth rate in Class I products and a 6% growth rate in Class II products. Thus, world nickel consumption is expected to reach 825,000 metric tons by 1980. 5.02 It is difficult to estimate additions to nickel capacity through 1980 because many unknown factors are involved in project decision. How- ever, a rough estimate, based on proposed projects and the world nickel ore reserve situation, gives the following position: (in million lbs.) Caribbean 80 - 100 Africa 10 - 20 Europe 12 - 25 Asia 40 - 50 Australia (including New Caledonia) 200 - 250 Total 342 - 445 Delays in completion of some projects may involve a slightly later reali- zation of this capacity. Because of difficulties in the early years of operation, it is safe to assume that 75% of the above capacity will be utilized. On this basis, it is estimated that world production of nickel would be in the range of 825,000/875,000 metric tons by 1980. 5.03 Probably a major difficulty in the implementation of new projects would be the volume of financing involved. The capacity additions up to 1980 will require an investment of at least US$6 billion. In addition to this, one should also consider investment required to sustain existing pro- duction. Therefore, a level of investment of US$7-8 billion for the nickel industry between 1975 and 1980 should be considered a reasonable, even a conservative, estimate. In addition to this, most of the future operations would be in new areas, and it has been the experience that negotiations have become more difficult and time-consuming to conclude because of the increasing demand of host countries for benefits. 5.04 The following table gives estimates of likely supply and demand projections for nickel in the market economies. (000 tons) 1973-74 1980 1985 average Supply Primary 515 645 785 Secondary 30 40 50 Total 545 685 835 Demand 514 691 860 - 11 - International supply/demand projections for primary nickel thus indicate that there will be a basically balanced nickel supply and demand trend over the next 10 years. Fluctuations of ± 10% around the trend line have tradi- tionally been experienced in any one year, and are likely to recur in future. Falconbridge estimates that fluctuations in demand are of a larger magnitude and that a surplus in supply is likely to emerge over the next 10 years. A certain over-supply of Class I nickel products may be expected over the 1980-85 period. Industry Structure and Price Trends 5.05 The nickel market and industry structure is a classic case of oligopoly. Three major companies (INCO, Canada; Falconbridge, Canada; and Le Nickel, New Caledonia) produce about 75% of the free world's primary nickel. Traditionally, INCO, accounting for nearly 40% of the market and the lowest cost producer, has acted as price leader. Generally, nickel price increases have been modest compared with other commodities. During the 1969-76 period, nickel prices increased from US$1.03 /lb. to US$2.20/lb., equivalent to an average increase of 11.3% per annum in current terms or 1.7% per annum in real terms. As from September 23, 1976, INCO increased prices for electrolytic nickel and refined pellets. Recently demand for nickel has again shown a sharp drop and prices have shown a tendency to soften. 5.06 Future nickel prices are likely to depend upon the international nickel supply/demand balance, inflationary and real cost increases in the nickel industry and INCO's price strategy. The foregoing discussion indicates that new capacity additions in the nickel industry will be more difficult and costly than before. It will probably require a substantial increase in nickel prices. In addition, two new factors are emerging as important elements in the nickel price. One of these is fuel, which is the basic input for lateritic nickel ore treatment. The increase in the prices of petroleum products used in nickel processing has had a substantial effect on production costs. The other is the demand of the host countries for an increasing share in project benefits. Nickel prices, based on the above consideration, are likely to rise by about 1-2% per annum in real terms over the next five years. 5.07 The most important factor in limiting the increase in nickel price would be substitution possibilities from other minerals. Manganese, chromium and aluminium are rivals of nickel in many of the applications. However, in some dynamic growth areas such as nuclear power, desalination, high tempera- ture alloys and aerospace, the use of nickel is almost indispensable. Falcondo's Market Position 5.08 The following table gives the top three producers of nickel and their capacities in.1973: - 12 - Million lbs.per year INCO 610 Falconbridge 170 Le Nickel 130 % of the free world production 77% 5.09 With the introduction of the Falcondo project, Falconbridge Canada not only regained its number two position in the nickel industry from Society Le Nickel, but also obtained a very valuable Class II product for marketing. Before 1972, Falconbridge essentially had only two products, namely, electrolytic nickel and nickel 98, both of which are in Class I. Now, with a large capacity of ferronickel, Falconbridge is able to cover almost 90-95% of the end-use area of nickel. Thus, the competitiveness of the company has substanitally improved. Ferronickel produced by Falcondo is accepted by the market. 5.10 In 1971, Falconbridge established Falconbridge International, Ltd., a wholly-owned subsidiary, to coordinate and further reinforce the group's marketing capability. With this new approach, Falconbridge expects to satisfy better their customer demands. Their sales of electrolytic nickel and nickel 98 are roughly proportioned 67% to 33% between European and American markets; their ferronickel sales to the two markets is 50/50. Finally, Falcondo would have certain advantages over production facilities established in future, such as an early market penetration, though the high oil consumption involved in the process used by it makes its cost of production vulnerable to oil price changes. VI. Financial and Economic Returns 6.01 At the time of the appraisal, projections were made as a basis for estimating the financial returns of the project. The revised financial fore- cast is built up from raw data obtained during the completion mission, actual operations during the last five years and assumptions, which were reviewed with Falcondo. These assumptions are detailed below. 6.02 The main assumptions made for the projections are as follows: (i) Actual data on operating results, based on the accounts of Falcondo, have been used for the years 1972-1976. Falcondo spends annually US$4 to 8 million towards normal addition for capital maintenance; no allowance has been made for such expenditure in the projections. (ii) On the basis of production levels reached in the past (1973 and 1974), capacity production is assumed at 66 million lbs. (about 5% above the designed capacity of 63 million lbs.). It is assumed that this level of production would be reached in 1978; production for 1977 is assumed at 59 million lbs. (about 90% of capacity). - 13 - (iii) Oil prices fluctuate with shipments, and the cost of oil to Falcondo so far in 1977 has been 11% above the 1976 level. In making the long-term projections, the cost of oil is assumed 8% higher than the level in 1976. Other costs have been estimated on the basis of 1976 operations. (iv) The price of nickel has been assumed to take into account the price rise brought about in September 1976. (v) The life of the project is assumed at 20 years from the commencement of production (1972 onwards). 6.03 Projections made on this basis are given in Annex XI (together with projections made at the appraisal stage for comparison). Making adjustments for financial charges and costs and applying the GNP deflator to the cost (capital and operating) and benefit (revenue) streams to arrive at real 1969 figures, the overall project rate of return is estimated at 13.2%, as compared to the appraisal estimate of 19.4%. 6.04 The key factors which would influence the future profits of Falcondo would be the price of oil, the level of output and the level of nickel prices. Keeping all the other data constant, the sensitivity of the financial rate of return was tested to variations in these three key factors, each individually. The results obtained were as follows: (i) It is calculated that a rise of 10% in oil price would reduce the financial rate of return to 12.6%. (ii) A short-fall of 10% in output (implying production at the rate of 59 m. lbs. per annum) would lead to a financial rate of return of 12.4%. (iii) Finally, a fall of 5% in price realization would lead to a financial rate of return of 12.1%. These results show the satisfactory long-term viability of the project under adverse changes in individual key variables. Putting together the three possibilities - a 10% rise in oil price, a 5% discount on list prices and output/sales at the level of 59 million lbs. per annum - as the most pessimistic projection, it is estimated that the financial rate of return on the project would work out to 7.5%. These calculations show the long-term strength of the project. 6.05 The equity capital of 'the project was US$15 million, including US$1.425 million held by the Dominican Government. In addition, for the construction of the project, the promoters arranged for a subordinated loan of US$34 million. The balance requirement of US$146 million was obtained from borrowings, including that from the Bank. The financial rates of return on shareholders' funds (both including and excluding the subordinated loan) were calculated by using constant 1969 prices and assuming full distribution of profit. Including subordinated loan in equity (and interest on the subordinated loan in return), the return on promoters' funds works out to 15.7%. The financial rate of return on equity capital in real 1969 terms works out to 27.4%. - 14 - Economic Rate of Return 6.06 Economic rates of return on the project were calculated, taking international prices and making assumptions regarding shadow wage rates. Only minor adjustments were needed in financial data to make calculations of economic rates of return. Fuel and output prices were not changed as these are actual import/export prices, and no taxes are levied on imports or exports. Of the total employment, about 4% in number comprises expatriates; their share in total wage-and-salary bill is assumed at 20%. In respect of the balance wage-and-salary cost attributable to local labor, a shadow wage rate factor of 0.75 was applied to arrive at the shadow wage of labor. On this basis, the economic rate of return worked out to 14.3%. The appraisal did not contain an economic rate of return calculation. However, using the financial figures in the appraisal and the present methodology and assumptions, the economic rate of return would have worked out to 17.1% at a shadow wage rate of 0.75 at the time of appraisal. It is calculated that (i) a 10% rise in oil price would reduce the economic rate of return to 13.7%, (ii) operation at 90% capacity to 13.5%, (iii) a 5% fall in nickel price to 13.2%, and (iv) a combination of all the above three factors, to 9.1%. Distribution of Benefits 6.07 The main elements of return accruing to the Government of the Dominican Republic would be corporate taxes, dividends on shares, guarantee commission on the Bank loan and withholding tax on U.S. shareholdings. The main financial benefit accruing to the foreign shareholders would be dividends. Using base level operations and assuming tax at 33% and full distribution of profit, it is estimated that the present value of the stream of benefits over 20 years (in real 1969 terms and at a discount rate of 10% to the first year of profit) to the Government of the Dominican Republic would be US$51.3 million and to the foreign shareholders, US$71.5 million; the distribution is, therefore, 42:58 between the Government and the foreign shareholders; Annex XII gives a table on the distribution of cash benefits between the host government and foreign shareholders. Actual distributions during the years 1972 to 1976 were US$13.3 million to the Dominican Government and US$2.5 million to the foreign shareholders (both amounts in current dollars). Using actual distribution to 1976 and assuming that deferred tax (US$8.4 million) and retained profit (US$20.7 million) would be divided up in the four years 1979 to 1982, the distribution of benefits works out to US$45.7 million to the Dominican Government and US$59.3 million to the foreign shareholders (or in the ratio of 44:56). 6.08 The actual volume of benefits is highly volatile and is dependent upon external forces affecting the cost of fuel, product off-take and price of nickel. Therefore, caution must be exercised in interpreting any projec- tions of the split. Under existing arrangements, the actual distribution of benefits between the Dominican Government and the foreign shareholders is affected by dividend distribution. Both sides also obtain intangible benefits from the project; exchange earnings, additional employment (and consequent earnings) and training for labor, and diversification of the economy through the use of a local natural resource in the case of the Dominican Republic; and larger, diversified output and strengthening of the market position in the case of the sponsors. The assessment of the appropriateness of the - 15 - distribution of benefits between host countries and foreign investors is a complex matter involving a number of imponderable aspects. While the original analysis in the Bank's appraisal report dealt only with one set of assumptions, Bank practice in recent years has been to prepare a more complete analysis, incorporating a comprehensive study of the effect on the benefit split of possible variations in significant price or cost inputs. VII. Conclusions 7.01 The project was implemented successfully, within the time estimated and at a capital cost lower than the original estimate. The plant's produc- tion, in the first two years, was above its rated capacity. The financial and economic rates of return, though lower than estimated at the appraisal stage, are considered satisfactory. 7.02 The project was sponsored by a large multinational company, after considerable work at the pilot plant stage. The Bank played little role in the design of the project or changes in it. Bank supervision of the project was satisfactory. 7.03 The project makes an important contribution to the development of the Dominican economy; this contribution comprises financial gains through dividend, tax and foreign exchange earnings. The project also provides general benefits to the economy in the form of use of a domestic natural resource, employment and training of local labor and diversification of the economic base of the country. In this sense, the project contributed to the Bank's general developmental objectives of its operations in the Dominican Republic. Operations Evaluation Department  PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX 1: PROJECT FACILITIES Main project facilities comprise the following: (1) Mining and Transport Equipment (a) 13 thirty-two-ton dump trucks (b) 3 power shovels (c) 2 tractors (2) Ore Preparation Circuits A. (a) Ore Shute (b) Wubbler, for separation of large pieces (c) Rubbler (rubs the ore and rejects the rock) (d) Conveyor system to storage (e) Storage of wet ore, 3 x 65,000 ton (f) Front loaders in storage area for reclaiming B. Dry Ore Circuit (a) Conveyor system to dryers (b) Two naphtha burning dryers (c) Disintegrator Cd) Jaw and roller crushers (e) Daily stock silos (4 x 8,000 ton dried ore) (3) Process Plants A. Calcining and Reduction of Ore (a) Briquet presses (b) Shaft furnaces for reduction B. Melting, Reheating and Casting (a) 3 x 40 MVA are furnaces Cb) Reheat furnaces Cc) Pig casting machine Cd) Remelting and casting of scrap (4) Service Facilities (a) 3 x 66 Mw fuel oil power plant - b) Topping unit - 12,000 barrels/day Storage tanks- 2 x 60,000 barrel capacity Cc) Haina tank farm and pumping station and Haina - Banao pipeline Tanks - 2 x 96,000 barrel, pipeline 44 mile, 8" 5 million barrels yearly capacity (5) Housing (a) Phase I - 85 houses Cb) Phase II - 100 houses Falcondo had originally planned to build 500 houses in Phase III; it is now arranging for the construction of additional housing for Its W1 forl.r a - PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX II: TOTAL PROJECT EXPENDITURE (in US$ 000) (1) (2) (3) Original Estimate Revised Estimate Final Cost Sept. 1969 June 1970 Dec. 1972 Land and Mining Properties 1,544 1,374 708 Access Road, Highway and Dock 3,094 3,181 2,951 Geology and Mine Development 4,761 5,180 4,485 Process Plant Construction 52,294 48,568 36,203 Process Plant Capital Equipment 29,135 28,845 27,114 Process Plant Engineering 6,571 6,844 6,635 Power Plant 21,006 24,650 26,525 Pipeline & Storage Tanks 4,838 6,227 6,510 Topping Unit 2,558 3,720 3,892 Capitalized Alterations -- -- 3,529 Urbanization, Phase I 3,064 2,789 2,932 Phase II 1,736 3,237 4,523 Phase III -- -- 146 Construction Supervision 1,392 1,806 1,758 Corp. Admin-. & Office Expenses 4,872 4,768 5,066 Insurance 1,760 1,750 1,403 Financing Fees & Related Costs 3,632 3,220 3,198 Supplies Inventory 1,100 1,705 113 Interest Prior to Receipt of Revenue 25,488 18,246 23,585 Pre-production Expenditures 1,575 2,119 3,059 Operating Expenditure Prior Receipt of Revenue 11,640 8,000 13,767 Provision for Startup and for Other Difficulties -- 6,271 Total Cash Requirement 182,060 182,500 178,102 Pilot Plant 13,825 13,825 13,825 Total Project Expenditure 195,885 196,325 191,927 Note: This table is based upon, and the various items clasestfied according to, data kept on the records of the company. The original e3timate figure, given here, is within less than US$1 million of the project cost figure given in the appraisal. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX III: BANK-FINANCED FACILITIES (US$ 000 equivalent) Claims List of Goods Submitted Actual Actual .In Loan to Bank Total Total CategorX Document As Revised- Actual Foreign Local Turbines 3,500 3,800 3,811 3,161 156 Boilers 2,900 3,200 3,141 3,370 156 Civil Works 1,600 1,900 1,900 2,421 3,749 Miscellaneous 3/ 6,200 6,600 6,784 10,200 3/ 190 Pipeline, Topping Unit and Tank Farm Facilities 5,600 5,600 5,464 7,730 1,297 Engineering Services 2,900 2,900 2,900 4,311 186 Interest 1,000 2/ 1,000 2/ 1,000 1,000 - Unallocated 1,300 - - - - 25,000 25,000 25,000 32,193 5,734 SUMMARY Power Plant 26,525 Pipeline and Storage 6,510 Topping Unit 3,892 Interest 1,000 37,927 1/ Revised estimate November 1970. 2/ A nominal value agreed on at negotiations. 3/ Includes equipment installation. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX IV. MATURITY STRUCTURE OF LONG TERM DEBT (in US$) L 0 AN N 0 TES - SERIES Medium-term Long-term Subordinated WORLD BANK Loan Loan Debt Loan 1973 $ 1,086,956 1974 $10,250,000 2,173,912 1975 10,250,000 2,173,912 1976 10,250,000 $ 3,810,000 2,173,912 1977 10,250,000 7,620,000 2,173,912 1978 7,620,000 2,173,912 1979 7,620,000 2,173,912 1980 7,620,000 2,173,914 1981 7,620,000 2,173,914 1982 7,620,000 2,173,914 1983 7,620,000 2,173,914 1984 7,620,000 2,173,916 1985 7,620,000 1986 7,610,000 1987 $ 6,800,000 1988 6,800,000 1989 6,800,000 1990 6,800,000 1981 6,800,000 $41,000,000 $80,000,000 $34,000,000 $25,000,000 * Repayment is subject to exchange adjustment on foreign currencies as repayable on due dates, the currencies used being as under: Currencies of Debt under the Bank Loan US$ (000) Amount Equivalent US dollar (000) 8,517 8,517 Canadian dollars (000) 4,469 4,403 Japanese yen (million) 1,512 4,293 Netherland guilders (000) 13,445 3,931 Swiss francs (000) 6,927 1,611 Pounds sterling (000) 411 986 German marks (000) 3,384 932 Libyan pounds (000) 117 327 25,000 PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX V.1: FALCONBRIDGE DOMINICANA, C. POR A. PROPERTY, PLANT AND EQUIPMENT/DEVELOPMENT AND PREPRODUCTION EXPENSES* As at December 31, 1972 PROPERTY, PLANT AND EQUIPMENT Account Item (in US$ 000) 10.10 Mining properties $ 199,346 10.01 Land 865,675 10.05 Rights-of-Way 738,170 10.20 Land Improvements 515,556 Structures and contents Process Plant 67,796,050 Power Plant 26,485,077 Fuel Department 10,205,295 Plant access road 1,569,986 Housing - Phase I 1,871,531 10.40 107,927,939 10.90 Automotive equipment 3,838,112 11.00 Construction work in progress 8,197,717 $122,083,169 DEVELOPMENT AND PREPRODUCTION EXPENSES 12.10 Deferred exploration including pilot plant costs 13,825,144 12.10 Net deferred preproduction and start-up expenditures 25,551,475 12.10 Net interest cost and commitment fees 23,585,460 12.10 Financing fees and related costs 3,197,930 Net Metal sales (8,210,929) $ 57,949,080 $180,032,249 * Source: Falconbridge Dominicana C. por A., Annual Report 1972. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX V.2: FALCONBRIDGE DOMINICANA, C. POR A. TOTAL PROJECT COST AND ITS FINANCING* As at December 31, 1972 (in US$ 000) TOTAL PROJECT COST A. Project Cost I. Properties, Plant & Equipment Properties and right-of-way 1,803 Plant and Equipment 120,479 Total 122,283 II. Development & Pre-production Expenses 57,949 57,949 Total I and II 180,232 B. Net Working Capital Current Assets - Current Liabilities 25,852 25,852 Total A + B 206,084 FINANCING Share Capital 15,000 Long-term debt 180,946 Accumulated Depreciation & Amortization 5,564 Deferred Taxes 183 Retained Earning 4,391 Total 206,08'+ * Source: Falconbridge Dominicana C. por A., Annual Report 1972. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VI.l: INITIAL OPERATIONS Table 1: Start-up Dates: Process Plant Scheduled Scheduled July 1, 1970 April 12, 1971 Actual Ore Preparation April 1, 1971 May 1, 1971 May 16, 1971 Dryers July 1, 1971 July 1, 1971 July 19, 1971 Reduction - Line #1 July 15, 1971 July 30, 1971 Aug. 11, 1971 I Line #2 Sept. 15, 1971 Sept. 30, 1971 Nov. 14, 1971 1/ Line #3 Nov. 15, 1971 Nov. 30, 1971 Jan. 24, 1972 1/ Melting - Furnace #1 July 15, 1971 July 30, 1971 Sept. 3, 1971 2/ Furnace #2 Sept. 15, 1971 Sept. 30, 1971 Nov. 20, 1971 2/ Furnace #3 Nov. 15, 1971 Nov. 30, 1971 Mar. 28, 1972 2/ 1/ Start-up of first furnace in each line. 2/ Scheduled dates for melting furnaces are the same as for the reduc- tion furnaces and show, therefore, the date of the initial charging of the melting furnaces. These actual dates would be the same as those given for the reduction furnaces. The actual start-up dates given for the electric furnaces are those on which the first slag tap was made from the furnaces. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VI.2 NOTE ON OPERATION OF INDIVIDUAL SECTIONS OF THE PROCESS PLANT 1. The ore preparation circuit, including driers after installa- tion of hammer mill, easily attained its design capacity. It appears that capacities in mining, ore handling and ore preparation can be increased to 25% above the rated design capacities without much diffi- culty. 2. Reduction and melting furnaces reached rated design capacity for 63 million pounds of nickel with an availability factor of 85%. The addition of the second reheat furnace and the remelt furnace for scrap gave flexibility in operation and some increase to the capacity of the plant. Although reduction and melting furnaces were not tested for higher capacity, they seemed to have at least 15% more capacity than their design rating. 3. The operation of the power plant was satisfactory. In 1973, exclusive of the downtime for warranty inspection, it had an availability factor of over 93%. Two units of the power plant are sufficient to give the required power to the process plant when it is operated at 85% rated capacity. This shows that the power plant would also be capable of supplying additional power when process plant capacity increases by 20%-25%. 4. The oil pipeline and topping unit are also performing satis- factorily. The designed capacities of these units are: Fuel pipeline 5 million barrels/year Topping unit 12,000 barrels/day Both of these units have some extra capacity: the fuel pipeline can go as high as 6 million barrels/year and the topping unit can handle up to 16,000 barrels/day. Originally, the topping unit was considered to operate on 60/40 ratio between fuel oil and naphtha. But in actual operation this ratio was found to be 52/48. On the other hand, it seems that the total fuel consumption was less than the consumption estimated at the design stage. The reasons for this improvement are: ANNEX VI.2 Page 2 -- Driers are operated on naphtha instead of fuel oil because of increase of sulphur in ferronickel. -- Power plant is found to be more efficient than the appraisal estimate, although Falcondo did not give the actual fuel con- sumption figures of the power plant because they considered it a matter of process efficiency which they did not want to disclose. However, with the help of some fragmented informa- tion gathered during a mission, the power plant overall efficiency was estimated approximately at about 10,020 BTU per kwh as compared to 10,750 BTU in the appraisal. -- Power consumption per ton of ferronickel ingot of the melting furnaces and naphtha consumption of the reduction furnaces also seemed to be less than the design figures (again, no data was given in this aspect). 5. Overall consumption of fuel, as compared to the appraisal figures, is estimated in the following table: Actual (1973) Appraisal Situation Fuel oil (million barrels) 2.50 2.05 Naphtha " " 1.70 1.89 Total " " 4.20 3.94 Barrel per pound of nickel 0.0694 0.0625 PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VII.1: TRAINING PROGRAM FOR STAFF AND WORKERS 1. The main training courses were: (a) Training of shift engineers and operators; under this program, eight young Dominican graduate engineers were trained. Falconbridge Canada supplied the instructors for this course. The program was for three months. Later, these engineers trained the shift operators. These shift operators were generally high school or trade school graduates of the Dominican Republic. The duration of this course was 3.5 months. (b) Electrical maintenance training course. This course takes 5 months. (c) Instrument group training. Falcondo was training 23 people in this area. (d) Supervisory training course. (e) Adult education. It was programmed for plain mathematics, science, reading and writing. (f) Language training. It was designated for teaching local people English, and expatriates Spanish. (g) Safety training. The Safety Department has continuous programs for job safety. 2. In addition to offering the above special courses for its employees, Falcondo also reimburses to any employee 75% of the cost of successfully completing his education through correspondence or trade schools. Falcondo also provides some scholarships in Canada and in the Dominican Republic. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VII.2: MANPOWER DISTRIBUTION January 1973 Temporary Workers Included Dominicans Department Expatriates Salaried Hourly Total Management 9 20 11 40 General Office - 8 5 13 Finance Department 7 56 - 63 Ind. Rel. & Personnel 5 18 2 25 Engineering & Maintenance 40 77 440 557 Power Plant 8 12 69 89 Mine & Development 6 26 110 142 Process Plant 33 50 512 595 Fuel 7 2 35 44 Metallurgy 9 27 24 60 Acc. Prev. & Ind. Hygiene 1 14 83 98 Construction 8 19 97 124 Warehouse 2 24 7 33 Export - Import 2 16 11 29 Auditing 1 5 - 2 Purchasing - 11 - 11 Public Relations 2 - 2 Townsite - 8 15 23 Total 138 395 1,421 1,954 PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VIII.1: FALCONBRIDGE DOMINICANA, C. por A. STATEMENT OF EARNINGS (RD$ million) (US$ million) 1976 1975 1974 1973 1972 Metal Shipments 118.0 104.5 101.5 91.2 41.5 Cost of Metal Shipped (including marketing services and delivery expenses) 77.7 68.1 74.9 45.3 19.9 Operating Profit 40.3 36.4 26.6 45.9 21.6 Interest on Debt 14.4 15.6 16.7 17.1 9.8 Depreciation and Amortization 10.5 10.8 9.9 9.8 5.6 24.9 26.4 26.6 26.9 15.4 Earnings before Undernoted Items 15.4 10.0 - 19.0 6.2 Other Income - Interest 1.0 1.3 2.1 0.9 0.2 - Sundry 0.3 1.6 0.9 1.1 0.1 Earnings before Provision for Income Tax 16.7 12.9 3.0 21.0 6.5 * Provision for Income Tax Current 2.0 2.0 2.0 3.1 2.0 Deferred 3.4 2.1 ( 1.1) 3.8 0.2 5.4 4.1 0.9 6.9 2.2 Earnings for the Year 11.3 8.8 2.1 14.1 4.3 * Falcondo has, under agreement with the Government, special arrangements for making depreciation provision, which leads to a deferment of its tax liability in the early years of its operation. ** Falcondo has, so far, declared a cash dividend only for 1973. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VIII.2: FALCONBRIDGE DOMINICANA, C. por A. BALANCE SHEET (RD$ million) (US$ million) 1976 1975 1974 1973 1972 Assets Current Cash and Investment at Cost 20.7 16.7 14.7 14.6 5.1 Accounts Receivable 31.0 22.7 28.1 36.4 20.7 Inventories - Metals 6.1 10.3 0.2 1.1 2.9 - Supplies 11.2 10.8 11.7 6.6 5.6 69.0 60.5 54.7 58.7 34.3 Fixed Property, Plant and Equipment 133.0 131.5 129.7 124.3 122.3 Less Accumulated Depreciation and Amortization 33.0 25.5 17.8 10.7 3.9 100.0 106.1 111.9 113.6 118.4 Preproduction and Other Deferred Charges 59.7 59.7 58.1 58.0 58.0 Less Accumulated Amortization 13.4 10.4 7.5 4.6 1.7 46.3 49.3 50.6 53.4 56.3 Total 215.3 215.8 217.2 225.7 209.0 Liabilities Current Long-term Debt Maturity within One Year 20.5 16.6 12.9 12.9 1.2 Others 11.1 10.8 12.5 9.4 7.3 31.6 27.3 25.4 22.3 8.5 Deferred Income Tax 8.4 5.0 2.8 4.0 0.2 Long-term Debt 122.6 142.0 156.3 168.9 180.9 Shareholders' Equity Capital Issued 30.0 30.0 15.0 15.0 15.0 Retained Earnings 20.7 10.0 16.6 14.6 4.2 Legal Reserve 2.0 1.5 1.1 0.9 0.3 52.7 41.5 32.7 30.5 19.4 Total 215.3 215.8 217.2 225.7 209.0 * On deposit with Trustee. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX VIII.3: FALCONBRIDGE DOMINICANA C por A. FIVE-YEAR REVIEW 1976 1975 1974 1973 1972 (desde junio 1) (from June 1) EARNINGS (RDS 000) 117,986 104,492 101.517 91,283 41.458 Metal shipments 14,429 15,553 16,690 17,119 9.839 Interest on debt 1,980 1.980 1.994 3.092 1.980 Current income tax 11,312' 8,801 2.112 14,157 4,390 Earnings for year $3.77 $2.93 $0.70 $4.72 $1.46 Earnings per share (1) - - - 3.000 - Dividends paid FINANCIAL POSITION (RD $ 000) 37,410 33,172 29.216 36,359 25,852 Working capital 122,567 142.055 156,342 168,829 180.946 Long term debt 16,300 12.484 12,482 830 (493)(2) Debt retirement - net 1,490 1.934 5.571 2.123 10.400(2) Capital expenditures 52,773 41.461 32,659 30.548 19,390 Shareholders' equity $17.59 $13.82 $10.89 $10.18 $ 6.46 - per share (1) STATISTICS Metal deliveries - million pounds 56.5 52.3 68.7 66.3 38.4(2) of nickel Ore reserves - million dry 72.5 63.7 66.0 68.5 70.8 short tons 2,110 2.098 2,068 1,955 1,827 Number of employees at year end (1) All years adiusted to reflect one-for-one distribution to shareholders in 1975. (2) For complete calendar year. PRO.11D:T PER.IORMAIJCE AUDIT REPORT DOMINICAN REPUDLTC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX IX.1: FALCONBRIDGE NICKEL MINES LIMITED CONSOLIDATED STATEMENT OF EARNINGS (Can$ million) 1976 1975 1974 1973 Revenues 483.4 429.5 457.8 438.2 Operating Expenses Cost other than Undermentioned Items 376.7 330.0 309.1 249.4 Development and Preproduction Expenditures Written off 16.4 18.6 20.6 20.8 Depreciation and Depletion 33.0 35.3 30.3 30.4 426.1 383.9 360.0 300.6 Operating Profit 57.3 45.6 97.8 137.6 Interest and Amortization of Debt Expenses 20.1 15.7 11.2 20.5 Others 12.1 15.2 18.1 14.1 32.2 30.9 29.3 34.6 Earnings before Taxes and Other Items 25.1 14.7 68.5 103.0 Income and Mining Taxes Current 5.4 11.8 19.7 15.3 Deferred 2.0 ( 3.7) 14.2 19.2 7.4 8.1 33.9 34.5 Earnings after Taxes, before Other Items 17.7 6.6 34.6 68.5 Income from Investment in Associated and Other Companies 4.7 2.4 4.8 3.3 Earnings before Minority Interest 22.4 9.0 39.4 71.8 Minority Shareholders' Interest in Earnings of Subsidiary Companies 7.7 5.8 9.4 22.9 Earnings for the Year 14.7 3.2 30.0 56.0 * 1976 figures exclude those relating to Alminex Ltd. which were not fully consolidated as it ceased to be a subsidiary. These figures are, therefore, not comparable with those for 1975 as given in the present Table. ** Figures as adjusted in 1975 accounts. *** Includes deferred tax adjustment of $7.1 million. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX IX.2: FALCONBRIDGE NICKEL MINES LIMITED CONSOLIDATED BALANCE SHEET (Can$ million) 1976 1975 1974 1973 Assets Current Assets 252.6 263.0 282.8 266.5 Fixed Assets Plant and Equipment at Cost 494.5 493.3 462.6 447.2 Land and Properties at Cost 20.3 41.1 39.1 39.2 Accumulated Depreciation and Depletion (316.3) (300.1) (268.2) (240.3) Net Development and Preproduction Expenditure 56.8 70.7 70.8 79.0 Projects in Preproduction State and Other Non-productive Assets - net 422.9 454.4 446.2 432.8 Other Assets 60.5 45.7 44.9 44.4 Total Assets 736.0 763.1 773.9 743.7 Liabilities ** Current Liabilities 100.5 94.6 84.1 77.0 Long-term Liabilities Falconbridge Nickel 100.2 110.9 113.7 114.6 Falconbridge Dominicana 123.2 143.9 160.6 173.4 Others 0.3 0.6 0.6 1.1 Total Long-term Debt 223.7 255.4 274.9 289.1 Deferred Income and Mining Taxes 31.6 32.0 35.7 21.4 Minority Interest 58.9 70.8 67.3 64.3 Net Worth Share Capital 89.0 88.9 88.8 88.8 Retained Earnings 235.5 224.6 226.3 206.3 Shares Heldby Subsidiary Companies ( 3.2) ( 3.2) ( 3.2) ( 3.2) Total Net Worth 321.3 310.3 303.9 291.9 Total Liabilities 736.0 763.1 773.9 743.7 * 1976 figures exclude those relating to Alminex Ltd. (See footnote to Annex IX.1 ** Figures as adjusted in 1975 accounts. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX IX.3: FALCONBRIDGE NICKEL MINES LIMITED NINE-YEAR REVIEW 1976 1975 1974 1973 1972 1971 1970 1969 1968 EARNINGS Revenues . . 483 480 409.888 443.508 426,834 266.851 204.407 214.315 186.C30 143,811 k000 s) Earn;ngs (oe'ore extraordinary item) 5 14.703 3.221 30,595 49.343 5 165 17,468 42,190 46.890 34,946 Per share ..$. 296 0 65 6 17 9.96 1.04 352 852 9 53 7.13 Extraordinary item. ..... . $ 7,100 (49,456) (475) 669 Per sh3re . 5 1 43 (9 98) (010) 0 14 EARNINGS (LOSS) Un;oocared corporate (note4) $ (5,717) (4.352) (2,688) (2,711) (3,402) CONTRIBUT'ONS Alm)ier L,mted $ 3.424 2.952 2,922 2.040 1,263 - fter consoldaton Faiconuriage Copre, Limited . . S 1.637 198 3.961 12.295 3,058 ao1ustments before Falconbnage Dominican,, C por A 5 8,834 5,689 3.309 9.933 503 exlrac,dinr/ tems Indusmin Limited (note) . 5 2.019 2.821 1.307 1,287 1.290 (000,s) Integrated niclel operations S 4.727 (5.390) 16395 19,425 5.118 Oamites Mining Company iProp) Limited 5 128 739 1.433 2.406 205 United Keno Hill Mines Limited S 841 1.422 2.946 1.159 (350) Westrob Mines Limited S . (337) (1.361) 539 2,753 (2,490) Others (note 5)..... $ (853) 503 451 756 "30 Earnings (before extraordinary item) .. $ 14,703 3,221 30 595 49.343 5.165 FINANCIAL Working capital - POSITION integrated niukel operations $ 82.461 98,816 137.163 116.582 71,137 67.611 (000's) Falconbsidye Dorrinicana. C por A S 37,410 33703 28.941 36.214 25.680 26601 Fai.oncridge Cooper Limited S 24,409 20768 18.840 25.776 14 044 15,340 Consolidated total . . $ 152.083 164,102 195.467 186,640 113.463 117,954 Property. plant and equipment (net) - Producing. .... ... $255.217 283.611 282.803 303.767 330,965 160,132 Non-producing . ...........$167.654 143,178 137.504 105.021 86.507 312.799 Long-term debt . $223.715 255.121 274.616 288,493 301.921 293.336 SHAREHOLDERS Shareho!oers equity (000's) S 321.249 311.433 312.437 291.887 242.099 289,832 DATA Amcunt oer share $ 64 13 6221 6247 5837 4842 5797 Dividends pa;d per share . S 1 00 1 00 200 1.00 1 00 275 350 350 350 Number of shares outstanding at end of year (note 1 (000-s) . 5,009 5,006 5.001 5,001 5,000 5.000 4.955 4.946 4,905 Number of shareholders .. . 9,788 10.732 11.205 11,104 12.254 12.178 12,273 12.887 13.799 EXPLORATION. Exploration $ . S 8.325 7826 11.432 8.895 6,768 10.246 9.307 6,036 4,659 RESEARCH AND Research and developmen e S 3,769 4.100 4.382 3,304 2,546 3,311 4.208 .2.683 2.207 DEVELOPMENT (000'S) CAPI rAL Expenditures (net) on property. plant. EXPENDITURES equpment, development and (Wo's) preproduction - Integrated nickel operations..... $ 27.954 38,161 30.442 21 156 36,717 59 474 51 567 37,245 40,294 Faiconbridge Dominicana, C por A ROS 1 490 1,934 5.571 2 123 10.400 67,887 67.540 17,174 2.599 Falconindge Copper Limited (note Z . S 8.903 7.400 14,968 9,076 3,9'0 5,968 4.946 1.778 1.692 .__ _ Conschdated total . .. . . .. .. . . ..... S 44.188 56.367 59.315 40,632 61 804 144.862 METAL Integrated n.cket operations - DELIVERIES Nickel. ..... ..... ........ ..... ...80,178 61.524 89.464 99.408 89.665 85 864 84,141 80,647 70.712 (000's pounds) Copper . 34 076 40,713 53,981 53.725 56 464 60.985 56,922 49.456 39.787 Falconbndge Nickel M.nes Limited - Nickel in terronickel (note 3) . . 59.781 50.270 73.828 67.644 Falconbrdge Copper Limted (note 2 - Copper .... . . ........ .. . ..... 82.939 77.503 56.911 80,935 80870 62,012 50,320 52 752 56,817 Zinc .................. . 73430 73,767 30.838 S7.950 38.218 14,569 10.648 12249 24.612 ORE RESERVES Falconbridge Nickel Mines Limited 63,405 89.099 90.578 92,798 92,646 99.933 97405 9A 217 91.639 (000's tons) Falcorbrudqe Domnicana. C por A . , 72.500 63.700 66.000 68,500 70.800 72,300 62.800 62 300 62,800 Fatcor:brrtgie Copper Limited (note Z . 7.187 9,234 11.004 11.287 11 724 11.543 9.777 7321 7.986 Notes: 1. WIcude,s sha,es held by consolidated suos:o.ares. 2* ints couioany was tormed through an amalgamaton or a number of companies in 1971 For comparative purposes the figures have been presented as if the amalgamaton had beer. in effect throughout 1968 to 1971. 3. Ferron4cxe' delivered to customers, see note 3, page 24, of the notes to statement of supplementary information 4. Before .nterest in earn;rgs of Alminex Limited and United Keno Hill Mines Limited which are shown separately 5. For comparative purposes the 1972 to 1975 figures have been restated to comt:ne !ne contributon of Indusmtr and Fahrahioy Canada Limited in 1976. Fatramet Limited, a subsidiary of indusmn Lim.tea. acquired the Cperating assets of Fahra.oy Canada Limited. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX X: TRENDS IN CONSUMPTION AND SUPPLY OF NICKEL 1. Nickel is produced in about twenty different product forms, varying from each other in small or large degrees. By the grouping of these, the number of forms can be reduced to eight. Further, these eight can be classified into two broad classes and a specialty group. (a) Class I Products Electrolytic nickel Carbonyl pellets Briquettes Rondells Nickel 98 (b) Class II Products Ferronickel Nickel Oxide (c) Specialty Group 2. Class I products are defined as: - very low level of residual element; - very narrow range of nickel content at a very high level, close to 100%; and - universal application On the other hand, Class II products are distinguished by the following characteristics: - moderate range of residual elements, from low to high; - very wide range of possible nickel content, 1% - 95%; and - limited application. ANNEX X Page 2 3. Because of price differential in favor of Class II products, stainless steel and other industrial applications which do not require pure forms of nickel are increasingly turning to Class II products. The present pattern of consumption consists of 63% Class I products and specialty group and 37% Class II. Consumption of Nickel 4. There is a parallelism between nickel demand and investment activity in general. This can be explained with the following table showing the end-uses of nickel: Area Percent Used Stainless steel 44.6 Electroplating 13.6 Super alloys 13.8 Alloyed steels 9.8 Iron and steel castings 7.2 Copper nickel alloys 3.7 Other uses 7.3 100.0 5. The past and present primary nickel consumption is given in the table below: Nickel Consumption Years 000 Metric Tons 1965 431.0 1970 576.9 1971 528.4 1972 581.4 1973 662.2 1974 715.4 1975 588.6 1/ Including nickel content in ferronickel and nickel oxide sinter. Note: About 25 to 30% of consumpion is accounted for by eastern countries. ANNEX X Page 3 6. As is seen from the above table, parallel to the investment boom in 1970, the nickel demand was substantially high. However, in 1971 and the early part of 1972, nickel demand decreased due to the general reces- sion. In 1973 and 1974, there was a revival in the market. However, by 1975, the market again weakened, and the weakness continued till the middle of 1976. The recovery in the market for nickel, noticed after mid- 1976, proved short-lived, and in recent months, the market has tended to soften. Production of Nickel 7. Production of nickel has kept pace with the increase in demand, as the following Table shows: Production of Refined Nickel (000 Metric Tons) 1965 412.5 1970 598.7 1971 618.9 1972 592.3 1973 643.4 1974 707.1 1975 641.5 1/ Primary nickel and nickel contained in ferronickel, nickel oxide sinter and monel metal smelted directly from ores. 2/ Preliminary. Note: About 25 to 30% of the production is accounted for by eastern countries. 8. Growth of nickel production has been uneven, depending upon inventory policies of producers and coming into being of new production capacity. In the 1970s, production increased at an average annual rate of about 3%. PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 656-Do) ANNEX XI.1: FALCONBRIDGE DOMINICANA C. por A. INGOME STATEMENT AS PROJECTED IN APPRAISAL (In US$ '000) &M, M6 .M 12 mL MI mi iMi L* I&o _n! if 10 I u & m m gi. Ø,725 6a,3o 30 62,3 .623M 62,3 62,3 62.3M 62,30 630 62,300 62 » 62,300 6a,» 62,300 62,3M 62. 62, 62,3M 6 ) rof, a~ "I nåp- ýnm 1152 !W2a 532 a8 ui>-8 UJ52 mixA UJ1MS J .5 ,3 .2 x.3 . i £2 i5 J221LLO op=~ing ?mt Jo0,572 L0,762 40,762 J0,762 1.0,762 b0,762 b0,762 60,762 40,762 b0,762 ho,762 k0,762 k0,762 ho,762 40,762 bo,762 h0769 40,76z ko,762 b0,762 bpreoat:Lon 13,669 10,765 19,744 1,265 19,287 19,30r 19,347 19.467 19,547 19.627 6,196 1,63 1,385 1,IL32 1;490 1,550 1,550 1,550 1,550 1,550 IBÅo 1,59. 2,125 2,033 1,B66 1,664 1,478 1,294 1,109 92 739 554 370 185 Inuraeo Cma~e 5.625 7,500 7,500 7,500 7,500 7,125 6,375 5,625 ik,875 4,125 3,375 2,625 1,875 1,125 375 c~mrtal 9a 2,793 3,16 2,274 1,365 k.55 rdln&t4" d*% jj9 )8 > LJ.. a._f, a .LJ&L L»L .LtL i.ap .,Mi9 J-]i LW. il& asiý J.L!L _ L L2 M - 56 --u Total Intit 32j4.9 95gg g.92Æ 13.901 Y60 11a7I, 12a8 Lg"l 87 02 8 6 ProfILt bafor taxoø 4,500 6,00 6,023 7,596 8,668 9,664 10,518 U,374 12,228 13,083 ?7,449 32,945 3,129 35,017 35,709 36,33 36,91& 37,68 31,256 3*,89) Inc.m Tax lJW Lg _1,988 2,50 2.860 3.189 j.71 3. -,3 .1. 05 10.872 ,6j 11.556 Ual 1i2^ 12 , 183 512,62 12,835 het Profit 2 .863.10 2 26.o5O PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX XI.2: FALCONBRIDGE DOMINICANA C. por A. YNCOME STATEMENT AS PROJECTED IN 1977: 1972-1991 (U$000) Ac t u a 1* Pro j ec ted 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Net Sales 41.5 91.2 101.5 104.5 118.0 131.0 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 146.5 Cost of Sales 19.9 45.3 74.9 68.1 77.7 84.4 93.7 93.7 93.7 93.7 93.7 93.7 93.7 93.7 93.7 93 7 93.7 93.7 93.7 93.7 Operating Profit 21.6 45.9 26.6 36.4 40.3 46.6 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 Depreciation ** 5.6 9.8 9.9 10.8 10.5 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 Interest 9.8 17.1 16.7 15.6 14.4 12.4 10.8 9.9 9.0 8.1 7.2 6.3 5.4 4.5 3.8 3.1 2.4 1.8 1.1 0.5 Other Income 0.3 2.0 3.0 2.9 1.3 - - - - - - - - - - - - - - - Profit before Taxes 6.5 21.0 3.0 12.9 16.7 23.4 31.2 32.1 33.6 33.9 34.8 35.7 36.6 37.5 38.2 38.9 39.6 40.2 40.8 41.4 Income Tax ** 2.2 6.9 0.9 4.1 5.4 7.7 10.3 10.6 10.9 11.2 11.5 11.9 12.1 12.4 12.6 12.8 13.1 13.3 13.5 13.7 Net Profit 4.3 14.1 2.1 8.8 11.3 15.7 20.9 21.5 22.1 22.7 23.3 23.8 24.5 25.1 25.6 26.1 26.5 26.9 27.2 27.7 * All figures except those for depreciation and income tax (see below), for the years 1972 to 1976, are taken from published accounts. ** Depreciation and Income Tax, shown here, are calculated at normal rates, and do not represent actual provisions or payments. Assumptions Used in Making Projections 1. Production and shipments are assumed at 59 million lbs. nickel for 1977, and at 66 million lbs. for 1978 and subsequent years. 2. The price of nickel fakes into account the price rise announced in September 1976. 3. Cost of oil is taken 8% higher than the level in 1976, and is assumed to remain constant at that level. 4. The life of the project is taken at 20 years after the year of commencement of production (that is, beginning 1972). PROJECT PERFORMANCE AUDIT REPORT DOMINICAN REPUBLIC: FALCONBRIDGE FERRONICKEL PROJECT (LOAN 646-DO) ANNEX XII: FALONBRIDGE DOMINICANA C. por A. DISTRIBUTION OF BENEFITS: 1972-1991 Ac tii 1* Pr o i rcted 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Dominican Republic Corporate Taxes 2.2 6.9 0.9 4.1 5.4 7.7 10.3 10.6 10.9 11.2 11.5 11.9 12.1 12.4 12.6 12.8 13.1 13.3 13.5 13.7 Dividend 0.4 1.4 0.2 0.9 1.1 1.5 2.0 2.1 2.1 2.2 2.2 2.3 2.4 2.4 2.4 2.5. 2.5 2.6 2.6 2.6 Comision on Bank Loan 0.4 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 neg. - - - - - - - Withholding Tax 0.1 0.4 e- 0.3 0.3 0.5 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8 0.8 0.9 Total 3.1 9.1 1.5 5.5 7.0 9.9 13.1 13.5 13.8 14.2 14.5 15.0 15.2 15.5 15.8 16.1 16.4 16.7 16.9 17.2 Foreign Shareholders Gross Dividend 3.9 12.7 1.9 7.9 10.2 14.2 18.9 19.4 20.0 20.6 21.1 21.5 22.2 22.7 23.1 23.6 24.0 24.4 24.7 25.1 Withholding Tax (0.1) (04) (0.3) (0.3) (0.5) (6 (0.6) (06) (0.7) 17 (.7 (0.7) .7 ( ) 0) 0. ) Total 3.8 12.3 1.9 7.6 9.9 13.7 18.3 18.8 19.4 19.9 20.4 20.8 21.5 22.0 22.3 22.8 23.2 23.6 23.9 24.2 neg. - Negligible * Distribution of benefits for the years 1972 to 1976 is based on actual profits before tax. In making the calculations of the shares of each party, it is assumed that corporate taxes were paid on the normal basis and that the whole of the remaining profit was distributed to the shareholders.