Rio Tinto plc. through its subsidiaries own 100% of SIMFER S.A. Rio Tinto is a leading mining company with exploration and mining operations in North America, Asia, Europe, South America, Southern Africa and Australia. The Simandou project reflects a corporate long-term commitment to exploration and regional diversification. Rio Tinto is one of the world’s largest iron ore producers with a 23% market share as at 2004. Rio Tinto is an industry leader in sustainable mining development and is currently leading several mining sector initiatives on conservation, land rehabilitation, biodiversity, climate change, and water and energy use.

The total project cost up until the completion of the Feasibility Studies for exploitation of various iron ore targets at Simandou is currently estimated to be approximately $100 million.

The proposed IFC investment is for up to $5 million for
- the acquisition of an initial 5% stake in the Simandou Project.; and
- future contributions to equity cash calls until completion of the Feasibility Studies.

5.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	0.0
Equity	5.0

* These investment figures are indicative

The Simandou concession area is located along 110 kms of the Simandou mountain range in south eastern Guinea. The Simandou range is located in the prefectures of Kérouané, Beyla and Macenta. Two Forêts Classées (i.e. protected forest), Pic de Fon and Pic de Tibé, cover approximately 12% of the concession area. The southern part of the Simandou mountain range is within Conservation International’s (“CI”) designated “Guinean Forest Hotspot”.

Rio Tinto has established two camps in the area, Canga East, which is the major project base camp for exploration (the nearest village is Moribadou, about 15 minutes drive, 7 kms, away), and an office and accommodation base in Kerouane where the Project rents buildings within the existing town. The Canga East camp is approximately 1,000 kilometers by road from the capital, Conakry.

Fit with World Bank Group Strategy:

The Guinea Country Assistance Strategy (“CAS”) was discussed at the Board in July, 2003. The key development objective of the Bank Group’s Assistance Strategy is to help create the conditions for sustained poverty reduction, with particular focus on the poorest people. In support of Guinea’s Poverty Reduction Strategy Paper (“PRSP”) the Bank Group’s key priorities include:

- fostering sustainable and equitable growth;
- improving access and quality of basic social services; and
- strengthening governance and institutional and human capacity.

The mining sector continues to play a significant role in Guinea contributing approximately 20% of GDP and 85% of export revenues. The WBG is supportive of Government’s efforts to use the mining sector to underpin the sustainable development of other sectors in the economy. A significant portion of the poorest people in the country are resident in the eastern regions of Guinea. Any large scale economic activity in this region has the potential to have a significant impact on livelihoods in this region.

- Development Impact:

The proposed IFC investment will contribute to continued exploration activities and completion of a feasibility study for the resource in the Simandou concession area. The iron ore resource in the concession will not be mined and exported during this period. The developmental impact during this period is expected to include:

- Employment (of approximately 100-150 people) and training opportunities at the exploration camps in Kerouane, Canga East and associated prefectures;

- Purchases from suppliers in-country estimated at an annual value of approximately US$1.5M;

Biodiversity and conservation:

Rio Tinto has sponsored studies by Conservation International, Bird Life Int., Centre Forestier de N’Zérékoré (CFN/PGRR), Guinée Ecologie (local NGO) and Kew Gardens (international research institution) aimed at outlining the biodiversity in the Simandou Mountain Range and the Déré, Diéké and Mt. Béro forest reserves. Their findings have also assisted programs by PGRR and USAID in forestry management in the Simandou mountain range. It is anticipated that additional programs in environmental, biodiversity and forestry management involving capacity building in the respective governmental institutions will be supported by the World Bank Group. The prospective programs may also target local community involvement in the conservation issues and implementation of a biodiversity and forestry management plan that will allow the potential operational phase of the project achieve a net positive biodiversity impact.

Education and Literacy:

An education and literacy program, valued at $150,000, will be implemented in the impacted and affected villages in 2006. This program will be managed by World Education Group, building on the experience they have gained from implementing the highly successful “Community Support and Equity in Guinean Primary Education (PACEEQ)” project in Guinea. Dependent on the success of this program in 2006, plans are in place for it to continue during the feasibility study period.

Community Social Investment Funds:

A total of $90,000 per annum is available for social investment projects in impacted and affected villages. Criteria for selection of the social investment projects have been discussed and agreed with the affected communities and are widely distributed.

The development impacts during the operational phase of the project are difficult to quantify without the benefit of a Feasibility Study. In the event the project proceeds to the development / construction phase, following favorable feasibility studies and environmental and social impact assessments, the benefits are broadly expected to include:

- diversification of the mining sector from bauxite, gold and diamond;
- long term economic impact as resource indicate a mine life exceeding 25 years, including direct and indirect employment generation, linkages with local suppliers of goods and services, and returns to Government in the form of royalties, taxes, and customs duties;
- regional and local economical development – south-eastern Guinea is currently isolated from the key economic centers in Guinea, primarily in the bauxite mining prefectures of Boke and the capital, Conakry. Majority of Guinean’s living below the poverty line are primarily in the Eastern region of the country;
- local community development and access to basic services including access to education, healthcare – including an HIV/AIDS program, and power, water and sanitation services;
- Rio Tinto has committed 0.25% of annual turnover to community development programs;

Biodiversity and natural resources management.

- Governance Context:

To realize the expected impacts during both the exploration and investment phases of the project, the support and competent contribution from various governmental agencies involved in the sector will be essential. The Government of Guinea has shown good initiative in this regard by engaging with the World Bank Mining Policy Division on governance, transparency and capacity initiatives in the mining sector. In June 2005, the Government formally accepted the principles of the Extractives Industries Transparency Initiative (“EITI”), and set up an EITI Implementation Committee with an ambitious target date of March 31, 2006 for the first publishing of the unaudited government revenues from the mining sector. Governance improvement initiatives include capacity building in the negotiation of fiscal and legal terms of mining projects, ensuring adequate application of the existing mining code and balanced fiscal terms in the respective agreements negotiated.

Rio Tinto has already committed to full local disclosure of all payments made to the government during the development and operational phase of the project. Additional policy programs under discussion with the government include implementing a transparent cadastre and titling system, and implementing a revenue sharing / allocation framework between the central, regional, provincial governments (prefectures), and local communities. At this stage IFC considers that this is a project that it should support, given the potential positive developmental impacts of exploitation of the iron ore resource in Simandou, and the prospects for improved governance in the sector.

IFC Role and Expected Contribution:

IFC’s early engagement in the development of this project will assist in developing a sustainable iron ore sector in Guinea. Most of the medium to high grade iron ore targets in Guinea are located in the environmentally sensitive eastern highlands of Guinea. The quantities of medium to high grade iron ore discovered in this region has gained substantial interest with various parties bidding to access and exploit the iron ore resources. IFC’s role is to support a credible sponsor with good environmental sustainability credentials to study the potential sustainable exploitation of the resource. IFC will have a positive role in assisting with biodiversity and forestry management and conservation practices, capacity building with the governmental institutions involved in the sector (with particular focus on the environmental and forest management authorities), facilitating community and civil society partnerships, and sustainable local economic development through linkages programs with any mine developments.

This project is a Category B according to IFC’s Procedure for Environmental and Social Review of projects because it is an equity investment in an exploration project with limited environmental and social impacts which can be avoided or mitigate. Since 2003 a number of environmental and social baseline studies have been undertaken, including an assessment of biodiversity of the Simandou Forêt Classée using Conservation International (“CI”), Fauna and Flora International (“FFI”) and local consultants. Rio Tinto has based a team of environmental and social specialists in Guinea to supervise the field work, develop the SEA documentation and interact with communities.
The development phase will start upon completion of a Feasibility Study which includes detailed engineering studies, full Social and Environmental Assessments (“SEA”) and appropriate due diligence, documentation and stakeholder consultation prior to Rio Tinto’s decision to progress to construct a mine. Rio Tinto’s exploration and evaluation programs make use of remote sensing technology and helicopter supported field work to ensure that the environmental impacts are kept to a minimum throughout this phase of the project.

When the project reaches the development stage it will be classified by IFC as a Category A project. Rio Tinto is committed to prepare and publicly disclose a full Social and Environmental Assessment (“SEA”) and an Action Plan (“AP”) for each deposit prior any decision to mine is taken, in line with IFC requirements. Specific Public Consultation and Disclosure Strategies (PCDS) will also be conducted and publicly disclosed.
Rio Tinto has presented plans that address the expected impacts to ensure that the proposed Project, during the exploration and developmental phases will, upon implementation of the specific measures agreed, comply with the applicable Guinean laws and regulations, IFC''s new Polices and Performance Standards, IFC’s Policy on Disclosure of Information, Rio Tinto corporate policies, and industry best practice.

Overview of Environmental and Social Issues: Based on prior assessments and an IFC site visit, the potential environmental and social issues associated with the development / mining operation phase of this project include:

- major change to topography and landscape, and possible change to local orographic rainfall and surface water patterns, as the ore deposit straddles a mountain ridge of which at least a section will be removed;
- water management, including erosion and potential contamination of surface streams / aquifers;
- cumulative impacts associated with infrastructure needed to transport iron ore;
- biodiversity conservation (including the two Forêts Classées);
- change of traditional livelihoods in the local villages (may include land acquisition/resettlement locally, and potentially with regard to establishing a rail and port facility);
- influx management at late exploration/construction stage; and
- community development around the mine site.

This early stage in the project primarily focused on exploration; evaluation drilling; initial pre-feasibility work of various targets; and proposed locations of mining sites. Production facilities and ore transportation routes will be also determined. Once these aspects have been thoroughly assessed through feasibility studies, respective SEA documents will be prepared and publicly disclosed. To date the project has met Rio Tinto’s internal E&S standards.

Mining development in the southern part of the Simandou range could have an impact on the rich biodiversity in the region. Rio Tinto is fully cognizant of this risk and has commissioned detailed additional baseline studies and impacts assessments as part of the decision making process on any mining activities in the region. In the event that these studies identify critical habitats in areas outlined for proposed mining activities, Rio Tinto agrees to initiate an independent review of the area concerned to ensure that the requirements of the IFC new Polices and Performance Standards and the own Rio Tinto corporate policies are being met.

Rio Tinto has recently finalized to IFC’s requirements a Public Consultation and Disclosure Strategy (“PCDS”) for the project. Currently, Rio Tinto is developing key environmental and social strategy documents on sustainable development, community, environment, biodiversity and regional development linkages, with input from IFC. A summary of the strategy documents will be publicly available within the second quarter of 2006.
IFC concludes that upon successful completion of the agreed documentation and implementation of the proposed working plan, the proposed project will be implemented in compliance with the applicable IFC''s new Polices and Performance Standards, IFC’s Policy on Disclosure of Information, and the requirements of the laws and regulations of Guinea.
Location of environmental documents In locally affected community
The PCDS and other public project documentation relating to the social and environmental aspects can be obtained from the RTIO Conakry Office and the RTIO Beyla Infoshop. Copies of the documents will also be distributed to the Administrative offices in the Prefectures of Beyla, Kerouane, Macenta and the Governor of N’zérékoré. The existence and availability of the SPI and ERS will be made known through an advertisement in a local newspaper.