IFC requires that this document is made available through the World Bank InfoShop and to the locally affected community no less than 30 days prior to project consideration by the IFC Board of Directors. The Summary of Project Information (SPI) also provides details of where the ERS has been made available to the locally affected community. The SPI must be sent to World Bank InfoShop no less than 30 days prior to project consideration by the IFC Board of Directors.

This is a category B project according to IFC’s Environmental and Social Review Procedure. The review of this project consisted of appraising technical, environmental, and social information submitted by the project sponsor and site visits by Environment and Social Development Department staff. Environmental, social and health and safety issues associated with this project include - Mining operation (air emissions, groundwater contamination, water bodies protection, reclamation and reforestation, etc.); - Processing facilities (including air emissions and waste water effluents, solid waste, and use of hazardous materials); - Occupational health and safety issues throughout all operations including underground mining; - Corporate capacity in environmental and social management; - Sustainable community relations and development initiatives; and - Employment opportunities and small business development (SME). Hernic has presented plans to ensure that the proposed project will comply with or exceed applicable host country laws and regulations and World Bank Group (WBG)/IFC requirements. Current status as well as information about how the needed actions will be addressed by the company are summarized in the paragraphs that follow. Details are included in the Environmental and Social Action Plan (ESAP) completed in April 2003. The action plans have been written in response to the Environmental, Social, Health and Safety (ESHS) Audit report, which was undertaken in January 2003 by WSP Walmsley, an independent consulting firm, at the request of IFC and a major shareholder.

The sponsor has presented plans to address impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable South African laws and regulations (namely submission of EMPRs - Environmental Management Programme Reports), WBG/IFC requirements and with Hernic corporate policies, as well as the best industry practice. A brief summary of the environmental and social impacts is presented in the paragraphs below, including details of proposed mitigation measures, to address these potential impacts. - Mine. Hernic conducts mining and metallurgical operations, which involve the exploitation of chromite seams of the Bushveld Igneous Complex in the Maroelabult area. The Hernic operations consist of open cast mining, as well as an underground mine which is currently being developed; mineral processing; smelting; and mine rehabilitation. These operations are conducted from various sites, namely: - Maroelabult; - Bokfontein; - Krokodil West; - Kafferskraal; and - Elandskraal. In addition Hernic is developing a new underground chromite mine (to be opened in mid-2005, with an approximate life of +/-25 years) to replace the closed opencast mine next to the plant. Currently supplement ore supply is 1) being purchased externally (Rustenberg and Marikana) and 2) recovered from beneficiation plant slimes dams. Future expansion plans include possible new opencast mines in other areas of the holding (Uitvalgrond and Krokodildrift). Hernic is not doing any open pit mining at present but is buying supplies of chrome to Bayer and RMD. The increase in production of chromite will come from the new underground mine. Mining chromite does not require the use of chemicals and is located in dry areas therefore it generates a limited amount of emissions, effluents and waste. Air emissions from the mining operation include dust from the loading and unloading of chromite and overburden, road opening, and blasting. Actions implemented by the Company to minimize these impacts include road irrigation, speed controls on operations vehicles, road maintenance, height control for release of materials, dust controls systems when blasting, etc. Ambient air conditions within the mine premises will be monitored periodically. It is anticipated that the emissions tests will demonstrate compliance with the applicable World Bank Group guidelines. All mining run-off waters are conducted to settlement ponds before being properly discharged. The company will build channels around the exploitation pits, overburden disposal areas, and ore storage areas so that the storm waters are collected and pumped to ponds. Mine dewatering is not an issue at this stage, but adequate plans will be prepared as necessary. Hernic will implement a Sediment and Erosion Control Plan which indicates measures to addresses potential erosion of topsoil, ore and waste dumps at the mines. These are done as part of the EMPRs and will allow to demonstrate compliance with the applicable World Bank Group guidelines. Methods should include devices to reduce storm water runoff from exposed soil surfaces and waste rock dumps. Vegetative and on-vegetative methods must form part of the plan as this will improve the visual impacts of the operation. As part of its operations, Hernic has a practice to sequence and determine sound mining practices including the reclamation and closure stages. Practices applied include appropriate slope contouring, topsoil removal and appropriate storage for later use, and timely reforestation. Reclamation and closure plans form part of the EMPRs, which are going to be updated and completed by December 2003. A long-term comprehensive reclamation and closure plan should be developed to incorporate the current reclamation and closure objectives, and have the following long-term goals: - establish stable topographic and drainage conditions that are compatible with the surrounding landscape and controlling erosion; - establish surface conditions that are conductive to regeneration of a stable plant community through removal, stockpiling and re-application of a suitable soil cover; and - establish long terms productive, self-sustaining, biotic community compatible with the proposed future land uses, and comparable to what currently exists at the site. The plans should also include fencing of open pit areas, and ongoing monitoring of the re-vegetation of the waste rock and topsoil dumps to check for erosion. Actual tasks and activities would be specified, along with a breakdown of the financial/material resources required, rehabilitation plans for the slag and waste rock dumps being reworked as well as for sealing and securing of all mined areas. These plans will be updated regularly as mining progresses and will need to be annually reassessed to review progress, and to ensure sufficient funds are available for final closure. These must be submitted to the IFC for review and approval. Hernic is committed to enhancing the health and safety conditions as well as environmental management of the underground and surface operations (Rustenberg and Marikana), which are currently conducted by respectively Bayer and RDM. Thus, the company will conduct before the end of June 2003 an assessment of the overall environmental conditions of these associated facilities and prepare and submit to IFC an environmental improvement plan including actions and implementation timeframe. - Processing plant. The plant processes chromite ore through a gravity beneficiation plant to produce chrome pellets at a modern pelletiser and sintering plant, and finally produces ferrochrome using open (#1 & 2) and close (# 3) furnaces. - Air quality. Information is available on source/quality of air emissions (CO, Cr 6, heavy metals, PAH) from furnaces and pelletizing plant, including all aspects of the plant. Under the current South African Air Pollution Prevention Act and since October 2002, Hernic is in possession of a provisional Air Pollution Control Registration Certificate (APCRC) which is issued by the Chief Air Pollution Control Officer (CAPCO). The CAPCO requirements are based on a detailed analysis of the process, and the limits specified in the certificate are more stringent than WBG limits. A final certificate will be issued pending the supply of additional information and the promulgation of the new Air Quality Bill. The data which is required from Hernic by CAPCO relates to the nature and quantities of pollutants emitted from the process sources (i.e. stack emission data). Hernic has begun with a procurement process to find a suitable and qualified consultant to conduct detail and accurate process emission tests. The consultant is expected to have finished the assessment not later than June 2003. Hernic will have to reapply for a new APCRC after the promulgation of the Air Quality Bill. - Water management. Groundwater, within an approximate 2km radius of the plant, has been identified as being contaminated with Cr VI. This is due to a seepage at the slimes dam designed to receive dust collected in the baghouse filters. Shortly after construction, the liner ruptured and the dam was closed. A quarterly groundwater monitoring system has been implemented, as stipulated by regulatory permit requirements. A Cr VI pump and treatment system have been installed adjacent to the old tailings dam for the treating of contaminated water emanating from this dam. The audit report indicated that this system could be optimized more effectively. The surface water runoff from the site is channeled into the process water dam that discharges into the overflow dam, if and when full. The Karee Spruit is a non-perennial stream into which any overflow from the plant dams will flow. The Karee Spruit flows into the Crocodile River, that supplies water to many farmers downstream. However, there is no formal surface water monitoring program or bio-monitoring program, both of which need to be implemented in terms of South Africa and WBG requirements. The quality of the surface water on site is regularly monitored and within local requirements. However under normal operating conditions Hernic does not discharge any surface water into surrounding rivers. The sponsor will implement a comprehensive water action plan to include a surface discharge management plan, a water monitoring program/plan/report, a QA/QC program, and an independent Cr VI water contamination review and improvement program. These actions will ensure that the water discharge and liquid effluents will be fully controlled and in compliance with the applicable IFC guidelines. - Soil Contamination. There are concerns associated with the contamination of soils at the site, such as hydrocarbon staining, diesel spillage at refuelling points, dust from the baghouse falling on open ground (potential hexavalent chromium [Cr VI] contamination), wash water from the plant and water from the cooling towers flowing over open ground, and silt (potentially contaminated) from the silt trap stored on open ground. This contamination is as a result of inadequate bunding and past and current practices in fuel and materials handling and disposal. Dust from slag heaps, processing and finished product probably contains Cr VI or other pollutants, and are likely to be found on soil outside the property. Dust control from slag heaps consists primarily of watering down during dry periods. Hernic is currently in the process of obtaining and installing a dust extraction hood in the furnace tapping area, to extract fumes. The company has clearly identified dust control and the need to establish appropriate containment measures as ongoing issues. To reduce the potential long term impacts associated with soil contamination, Hernic will develop Spill Prevention, Control and Countermeasure Plan (SPCC Plan). A new slimes dam is currently being constructed, using double liner technology, which will replace the emergency dam and will also be large enough to contain all the slurry in the old slimes dam. Under normal operation no slurry is generated as the slimes are recycled into the pelletizing plant. - Hazardous Materials and Waste Management. Hazardous substances reportedly used on-site include corrosion inhibitors, cooling water biocides, anti-scalents, nitric acid, ferrous chloride, ferrous sulphate, paints, thinners, fluorescent tubes, oils and greases and related maintenance items, and diesel. As such, Hernic is required to adhere to IFC Hazardous Materials Guidelines. Solid residues and wastes are correctly stored and disposed of, however, there is poor waste housekeeping at the contactor areas. In addition, it was noted that old oil filters and waste contaminated with hydrocarbons, were disposed of with general waste. Slag from the ferrochrome plant is currently classified as a hazardous waste by regulators and as such should be disposed of in accordance with South Africa’s Minimum Requirements for the Handling, Classification and Disposal of Hazardous Waste, and therefore in a hazardous waste site. Slag is stored on-site in stockpiles, which are not lined, and slag has also been used to form a boundary (berm) for the site, and is used on the roads and the airstrip. Reportedly, this waste is inert and the Ferro Alloy Producers Association (FAPA) is currently undertaking investigations to determine whether or not this slag should be classified as a hazardous waste, and to determine what the minimum requirements for this waste should be. The company will prepare an Hazardous Materials Management Program and has committed to implement feasible measures to ensure that the storage, handling and disposal of hazardous materials are in compliance with South African legislation, and adhere to IFC Hazardous Materials Management Guidelines. Hernic will implement a Waste Management Plan to include reasonable measures to prevent inappropriate disposal of waste and reduce problems with waste management. In addition, the ‘Minimum Requirements for the Handling, Classification and Disposal of Hazardous Waste’ will be reviewed to minimize the risk of hazardous substances affecting the health of the public, employees, plants and animals. This document will be submitted to IFC. Occupational Health and Safety (OHS) Issues. In addition to the Hernic Health and Safety Policy, the company has a formal health and safety system (based on NOSA) to include many aspects of management of safety and health risks in place. A formal technical training procedure was published in September 2002. However, further development of policy, procedures and work instructions should contribute to an overall improvement. The plant currently employs 380 staff and about 200 contractors. Under the expansion the workforce will increase by 100 staff. The focus will be to develop a work-related risk assessment plan, conducts training, implement additional work-place monitoring (mainly PAH and silica) and equipment/machinery preventive maintenance. A medical surveillance system is in place, based on physical capability requirements for the various occupations, and general routine medical examination. As part of the project, Hernic will prepare and submit to IFC by May 2004, emergency response and contingency plans, acceptable to IFC, for the mines and plant operations. Land use and cultural properties. The project is not anticipated to result in any significant social, resettlement and cultural property impacts, as it is an existing site located in an agricultural area at the fringe of an industrial zone. The areas around Brits and Rustenburg consist of mixed-crop farming. In the Brits district there are citrus and vegetable production, with the latter mainly directed at the consumer market. The only people residing on the property are 11 households renting houses from Hernic Ferrochrome, as well as approximately 40 squatter households. The squatters will, for the time being, remain where they are, as this area is not going to be affected by the mine and processing operations. If there is any land acquisition, relocation or economic displacement (including the squatters) then an appropriate Resettlement Action Plan (RAP) will be required. Community development activities will allow them to improve their livelihood. Land acquisition issues including compensation and housing/relocation will be integrated in the Hernic social management policy. There are approximately 10 graves in the project area, some of them fall under the Natural Heritage Resources Act. A cultural properties management plan will be prepared and will involve all affected parties. Capacity in Environmental and Social Areas. Hernic has a Mission Statement and a Quality Policy Statement. The Mission Statement includes a commitment to implement environmentally efficient methods to produce chrome products. There is, however, no specific environmental policy in place. The Quality Policy includes a commitment to maintain a formal Safety, Health, Environmental and Quality (SHEQ) Management System. Hernic has agreed to establish a specific environmental policy, with a set of objectives and targets, together with a strategy to achieve those objectives and targets. This policy must be endorsed by senior management and shareholders. This forms the first steps of an ISO 14001 Environmental Management System (EMS). Hernic has agreed to revise its organizational structure for environmental and social management, including new positions and detailed job descriptions. Hernic has a specialized team of professionals to oversee and implement the environmental, health and safety aspects of the mine. It is anticipated that Hernic will appoint an Environmental Specialist in charge of overseeing environmental monitoring and to ensure that all appropriate mitigation measures, included in the ESAP and required by national regulations, are taken. Environmental awareness is an essential component of any EMS. As such, Hernic should formalize and develop a capacity building program and training plan for all company management, employees and contractors to: - raise environmental awareness of company management and employees and increase the understanding of the potential impacts their activities may have on the environment; - train employees in the company’s environmental policy and procedures; and - train and induct contractors and part time employees in the mines procedures and in the correct management of environmental issues. The company is currently promoting corporate social responsibility as an integral part of its business. Hernic does not currently employ a Community Liaison Officer (CLO) but has agreed to fill this position (or this position can be outsourced for a period of time) The a CLO will have responsibility for the various social action plans. As needed, Hernic will appoint dedicated staff for social and economic development to promote and manage public involvement, SME and community development initiatives which are underway at the company’s operations. Community Relations and Development Initiatives. The social audit that was conducted as part of the ESHS audit, highlighted the following challenges: management of informal settlements on Hernic land; HIV/AIDS; and poverty. In order to improve its relationship with all stakeholders, a Public Consultation and Disclosure Plan (PCDP) is currently being prepared, and its implementation will be closely monitored in the next month. The purpose of the PCDP is to build a relationship with stakeholders, address environmental and social challenges of development and to ensure that stakeholders are informed of the company’s activities. This will promote trust between Hernic and its stakeholders. Hernic has agreed to: - prepare a Community Development policy to address how they wish to interact with local communities; - engage, as outlined in the PCDP, more proactively with surrounding communities, unions, business associations and municipal/local government and will prepare a comprehensive Community Development Plan (CDP) to include, if needed, a socio-economic baseline survey and Social Impact Assessment (SIA); - address the presence of squatters in the concession area through implementing community programs and provide them with job opportunities. Hernic is however, together with the local authority, looking at alternatives to relocate the squatters to a proper service area. If this is undertaken an appropriate RAP will be prepared. Hernic will also conduct public consultation at the mine and plant sites, including several meetings and a presentation of the project to local citizens, authorities and community organizations in the project area, to maintain close contact with the relevant local communities and authorities. A program of ongoing consultation will also be prepared. Through the World Bank Group intervention on SME Linkage Program, Hernic has agreed to include in the community development activities projects such as business education training and HIV-AIDS awareness programs and voluntary testing. In addition, Hernic would like to improve its medical health care system for lower-level staff. Hernic will initiate contacts with the Brits Municipality and local associations to develop joint programs. On Black Economic Empowerment (BEE) implementation, Hernic will work with IFC staff on community/SMEs initiatives to develop items required by law for BEE, i.e. Procurement Element (SMEs) and Social responsibilities (CDP). IFC’s SME Department will coordinate further with Hernic to establish other potential SME linkages. The action plan will form the basis for the environmental monitoring and management programs. Hernic should review the frequency and types of monitoring regularly to ensure: - compliance with South African legislation and IFC requirements; - compliance will all permit conditions; and - effective monitoring and mitigation of project impacts. By early 2004 Hernic will develop and implement a complete set of environmental and community monitoring plans that are supported and approved by regulatory authorities and the IFC. The ESAP will be revised in the first quarter of 2005. This will allow Hernic to incorporate additional information about the new underground mining operations and the 4th Furnace. The actions listed have been discussed and agreed to by Hernic. The costs and schedules associated with the actions can be updated or revised in line with their time of implementation. The indicated actions and plans are applicable to all of Hernic’s operations. Finally IFC will provide technical and financial assistance to Hernic using the Donor’s facilities set up for promoting sustainable projects to further assess - potential options for energy efficiency and emissions reduction and - initiatives to develop small business in the surrounding communities.

The Environmental, Social, Health and Safety (ESHS) Audit and the Environmental and Social Action Plan (ESAP) reports, both completed by WSP Walmsley during the first quarter of 2003 are available at the offices of Hernic Ferrochrome for consultation by the public.

Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environment and social policies and the environmental, health and safety guidelines, and Government of South Africa requirements upon successful implementation of the agreed mitigation measures.

IFC will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project, covering ongoing performance of project-specific environmental, social, health and safety activities. Periodic site supervision visits will also be conducted. The environmental and social performance of Hernic will be evaluated through audits. The audits will provide an objective verification process to determine whether there is conformance with the EMS, CDP, PCDP and EMPR objectives and targets, and to establish the effectiveness of management actions.