Mining Infrastructure in the Republic of Guinea: Expansion Opportunities, Greenfield Challenges

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1 C ining Infrastructure in the Republic of Guinea: Expansion Opportunities, Greenfield Challenges InfraShare Partners 24 February InfraShare Partners Limited

2 C Guinea s Bulk ineral Potential Bauxite: 26% of world s reserves, but only 7% of production ain bauxite deposits located in the northwest of the country, inland from amsar ( ) Iron ore: Extensive high-grade deposits, including Simandou (North and South) ain occurrences in the southeast Rail/port infrastructure: Bulk mining is an infrastructure game Undeveloped bauxite deposits are potentially served by existing rail and port infrastructure and/or corridors New Trans-Guinean Railway proposed for Simandou South could potentially open up iron ore region 2

3 C Existing and Proposed Rail/Port Infrastructure A. Sangaredi-Boké-amsar: A B ~140 km rail line Sangaredi to amsar port ( ) supports existing bauxite exports (CBG) expansion of rail planned expansion of port also planned B. inda-conakry: C ~105 km rail line from india to Conakry port ( ) Supports existing bauxite exports (CB/RUSAL) + some cargo/passenger Inefficiencies limit capacity of line Rail corridor continues from india to ankan (not currently operational) C. Fria-Conakry: D ~140 km narrow gauge rail line from Fria to Conakry port ( ) Historically supported alumina exports + cargo (Friguia/RUSAL) Condition of line has degrading after Friguia refinery closure D. Trans-Guinean Railway: Proposed ~650 km rail line from Simandou South project to orebaya river in Forécariah ( ) (cost: >$15B) Feasibility/financing/timing uncertain A C B D 3

4 C Sangaredi-Boké-amsar Infrastructure Existing rail and port assets are owned by the State (ANAI) Financed and constructed with State borrowings in early 1970s Loans repaid by GoG in early 1990s CBG has operated a bauxite export operation since 1970s CBG has always operated the rail and port infrastructure under concession CBG has been the only substantial mining operation in the region Historically, CBG was subject to a very weak access undertaking CBG operates a limited passenger service CBG s rail/portconcession was recently extended CBG operations (Rio Tinto/Alcoa/Dadco and GoG) 4

5 C Leveraging Boke Rail and Port Infrastructure GAC project ( ): First to successfully negotiate access with CBG (6+ years) Project is now controlled by EGA Phase 1 comprises a bauxite export operation CBG mine ( ): Controlled by Halco consortium (Rio Tinto, Alcoa, Dadco) Now proposes an expansion to increase production from ~13 mpta to ~24mpta Dian Dian project ( ): Owned by RUSAL Has also sought access to rail infrastructure ulti-user" agreements have now been signed between CBG, GAC, RUSAL and GoG However, the ability of future projects to access existing infrastructure remains unclear GoG is contemplating the sale of Santou-Houda-Boffa mineral rights ( ) any other bauxite projects await development By effectively leveraging its existing Boké infrastructure, Guinea can assume its rightful place as one of the world s leading bauxite producers CBG operations (Rio Tinto/Alcoa/Dadco and GoG) GAC project (ubadala/dubal) Dian-Dian project (Rusal) Santou-Houda-Boffa licenses (ex-bhp Billiton) 5

6 C CBG s Current View? CBG has published an ESIA in connection with its proposed expansion project ESIA considers the cumulative effects of the CBG project and other existing/future projects CBG s ESIA: Assumes separate and parallel Dian Dian (RUSAL) rail and port Assumes no use of its rail corridor by future sponsors of Boffa-Santou-Houda Considers no other potential projects Doubts about access for future Boké bauxite projects persist This could discourage much-needed investment GoG will need to clarify the situation going forward 6

7 C india-conakry Infrastructure india-conakry: Infrastructure owned by the State through ANAI Long-term concession rights over the railway were granted many years ago to CB (RUSAL) ( ) No access obligation was imposed on CB CB has a dedicated terminal at Conakry port CB output is declining (5-6 years remaining) ankan-inda: Corridor has been established, but no operational rail line is in place Potential value of this corridor is significant arginal cost of constructing a rail line relatively low GoG has plans for Central Guinea Growth Corridor Opportunities/challenges: any other bauxite projects could use this infrastructure Size and quality of deposits is somewhat lower than in Boké to the prospect of constructing new infrastructure is very low RUSAL has resisted sharing the infrastructure CB operations (RUSAL) 7

8 C Infrastructure ey to Unlocking Simandou Iron Ore Cost of Simandou infrastructure: >$15 billion GoG has required an internal infrastructure solution for Simandou Rail and port to be backbone of planned South Guinea Growth Corridor Global iron ore market currently over-supplied Timing of next generation W. African iron ore is now unclear Rio Tinto, BHP Billiton elected to leverage existing infrastructure in Pilbara Financing of Trans-Guinean railway impossible without Simandou South or North (or both) as anchor clients Infrastructure must be genuinely open access if Guinea is to emerge as the next Pilbara 8

9 C Access Through Liberia for ount Nimba Exploitation of Guinea s minerals in the Nimba region requires access through Liberia Arcelorittal operates the ekepa mine in Liberia (close to the Guinean border) Integrated operation that utilises State-owned ekepa- Buchanan rail corridor Long-term concession granted to Arcelorittal to refurbish/operate Government of Liberia imposed a third party access obligation on Arcelorittal: Terms are highly problematic, giving an effective veto right Arcelorittal has largely resisted access negotiations Arcelorittal is seeking to acquire BHP Billiton s interest in the Euronimba project in Guinea: Transfer of control requires consent of the GoG Arcelorittal seeks a bauxite export permit from GoG 9

10 C Shared-Use Infrastructure is Not Easy! Access obligation: Scope: o Assets subject to sharing o Own-use exceptions o Access holiday o Sharing with direct competitors o Use-it-or-lose-it principles Process for third parties seeking access: o Qualifications for successful accessseekers o Priority (e.g., first come, first served) o Timing / stages o Transparency of information o Determinations of capacity o Independent technical studies o Commercial access terms o Term of access and renewal rights o Dispute resolution (application process and operating period) Allocation of scarce capacity Access tariffs: Basic principles (e.g., cost reflective ) Capital cost component: o Cost of capital o Allocation of partial network costs to individual users o Expansion costs o Stranded facilities Operating costs: o Scope /definition o Related party costs o Separate accounting for integrated projects Founder compensation for: o Completion risks assumed o Take-or-pay commitment o Excess capital costs imposed by the state o Third party credit risks assumed Currency: o Tariffs o Allocation of currency risks SEs: o Qualification / test o Limits on capacity allocation o arginal cost pricing principles o Adjustments to commercial terms o Allocation of risks / burden among non-se users Project implementation: Greenfield: o Concession terms re: infrastructure sharing o Infrastructure project proposals o Stakeholder engagement o Final project definition decision Expansions: o Expansion proposals o Stakeholder engagement o Final expansion definition decision o Funding obligations o anagement of expansion project o Allocation of interruption costs o Allocation of expansion project overrun and delay risks o Roll-up or separation of capital and operating costs re: tariffs Operations: Basic obligations (e.g., fair and nondiscriminatory ) Founder rights: o Infrastructure F (e.g., priority use) o Upstream F (e.g., catch-up right) Regulatory: Integrated vs. independently-operated infrastructure Scope of authority o Access decisions o Tariffs o Operational matters Independence Expertise / external support

11 C The Path Forward Guinea has an opportunity to secure its rightful place as the leading bauxite supplier in the Atlantic basin: To succeed, it must leverage its existing rail and port infrastructure When and if market conditions allow the exploitation of Simandou iron ore: Guinea can secure its future position as a global iron ore leader by ensuring open access to the rail and port infrastructure (SGGC) Shared-use of mining infrastructure will also be critical in helping Guinea to achieve: Broad-based economic development Economic diversification Reduced reliance on volatile commodity markets 11

12 C 2016 InfraShare Partners Limited