The project sponsor is Bema Gold Corporation (Bema), a Canadian gold exploration and mining company incorporated in 1998, with producing mines in Russia and South Africa and developing projects in Chile and Russia. Bema operates the IFC financed Julietta gold mine in Russia and is experienced in cold weather logistics. Bema also has the Petrex mine in South Africa, is a 50% owner of the Refugio Mine in Chile,and a 24% owner of Cerro Casale one of the world’s largest undeveloped gold and copper projects in Chile. Kupol with its low cost operating costs and rich deposit will be Bema’s flagship mine. Bema (through its fully owned subsidiary, Kupol Ventures Limited (a Cyprus registered company) can acquire up to 75% ownership of CMGC, with the remaining 25% to be held by the Chukotka government.

Bema is listed on the Toronto Stock Exchange

The total project cost is estimated at $460 million. IFC is proposing an investment of $35 million, comprising an A loan of $10 million and a C loan of $25 million for IFC’s own account.

41.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	41.0
Equity

* These investment figures are indicative

Kupol is located in the Northwest part of the Anadyr foothills on the boundary between the Anadyr and Bilibino Regions in Chukotka, an autonomous Okrug (region) in northeast Russia. It is 200 kilometers east of the city of Bilibino. The remote area is presently accessible only by helicopter during the summer months and over a winter road from December until the middle of April. Kupol’s remoteness requires it to be self-sufficient, and a mining camp, power generation, and ancillary facilities will be built in addition to the mine. An airstrip is being constructed to allow year-round access by fixed-wing aircraft.

- World Bank Group Strategy:

The World Bank Group’s Country Assistance Strategy for Russia, covering the period 2002-2006, is designed to support the Government’s comprehensive reform program, to mitigate risks to the sustainability of Russia’s growth, and to extend the opportunities presented by reform and growth to larger part of the Federation’s population. IFC has successfully increased its investment in Russia in recent years. Going forward, IFC will continue to seek investments that contribute to the growth of less developed regions of the Federation or that develop sectors with significant development impact, such as processing of natural resources, infrastructure, and the strengthening of sectors that will improve the economy’s diversification.

- Project Development Impact:

The main industry in the Chukotka region is mining. Although Chukotka has some of the most promising ‘hard rock’ gold deposits in Russia, the gold-mining industry remains undeveloped, and possesses good mine development opportunities. The proposed project will promote the modernization of the local mining industry, and advance the process of sector development in this region. Specific project development impacts include:

- direct employment creation, as the project is expected to generate up to 750 jobs during mine construction and 850 jobs during operation, including a siginifcant proportion of indigenous people;
- generation of substantial fiscal receipts, as the Chukokta government is expected to earn in excess of $110m in tax revenues over the life of the project; and
- linkages with local suppliers of goods and services. In addition, the project sponsor is planning on establishing charitable fund that will work with indigenous people to identify projects or activities that require funding.

During the project, key indicators that will be monitored include:
- tax payments from the project to the federal, regional and district governments;
- employment opportunities created, and the number of indigenous people employed.

- Governance Context:

It is expected that a substantial share of net project benefits from the Kupol mine will accrue to the government in the form of taxes and royalties. The current taxation system in Russia is complex, with taxes levied at the Central, Regional and Local levels. The main tax categories are gross revenue taxes and profit taxes. The estimated NPV of incremental government revenues over the initial projected six-year project life accounts for a substantial share of the Project’s pre-tax NPV. The Chukotka region has an official website that discloses the annual budget, and its sources, uses and implementation.

On balance, given the prevailing governance situation and the project’s expected development benefits, IFC believes that this is a project in which it should invest.
IFC Role and Expected Contribution

Several financial institutions have indicated a willingness to provide financing for the Kupol project. On account of project size, the project sponsor is dealing with a number of banks simultaneously to complete the financial plan. The IFC’s participation in the financing, which will build on an existing long-term relationship developed on another mining project, can help to mitigate political risk and also advise on environmental and social issues.

Major environmental, health and safety risks associated with this greenfield project are tailings management, acid mine drainage, water and effluent management (including permafrost and hydrogeological conditions) and underground mine safety. The project is not expected to have major adverse impacts on biodiversity, human populations or cultural property, as it is located in a remote, sparsely populated area that is subject to extreme climatic conditions.

The sponsor has prepared a comprehensive Environmental and Social Impact Assessment (ESIA), a detailed environmental and social action plan (ESAP), a Public Consultation and Disclosure Plan (PCDP) supported by key stakeholders and the necessary environmental documents for initiating permits and exploration works at the mine site. Strong emphasis was especially put on public consultation, land acquisition, indigenous people development, water resource management, and assessing local economic development activities during construction (supplier and other SME development, training, etc).

As a result of IFC involvement with the sponsor over the last 6 years, Bema Gold has developed a set of environmental, safety and social policies and environmental, health and safety procedures in line with IFC requirements. During the Julietta investment, Bema has demonstrated to IFC that they are operating in an environmentally and socially responsible manner throughout their mining activities, including on safety and reclamation (two major issues in the mining industry in Russia). IFC is working closely with Bema to design and implement community development projects that will benefit the IP living in the area.

Location of environmental documents In locally affected community
ZAO “Chukotka Mining and Geological Company” presents the opportunity to all interested parties, public representatives, and organizations to become acquainted with material prepared for the bankable ESIA (OVOS/TEO). This document is a DRAFT version of the ESIA and will be available for review over the course of the next two months from the day that it was announced in the newspaper. The text is in English and an Executive Summary is available in Russian.

The text is available for review in the company’s offices at:

Magadan:
Proletarskaya Street,
Building 11, 2nd floor,
Telephone: (413-22) 2-60-76

Anadyr:
Otke Street,
Building 26, Room 48,
Telephone: (427-22) 2-41-58

Bilibino:
Subregion Vostochnyi 1/7,
Section 7, 5th floor,
Telephone: (427-38) 2-68-92

Pevek:
Kuvaeva Street,
Building 51,
Telephone (427-37) 422-83.

An electronic version of the Executive Summary can be found at http://www.kupolgold.com/. The company is currently preparing an OVOS (Russian version of ESIA) for the Kupol site that is in accordance with Russian legislation.

The full ESIA and ESAP have been released by MIGA staff at the World Bank Infoshop on July 19, 2005. In addition, Bema has released them in the Chukotka region (on July 22, 2005 in Bilibino and Pevek and on July 23, 2005 in Anadyr). When final design is approved by the Russian Authorities, IFC will disclose a revised ESAP.