Baobab was established in 2005 and was subsequently listed on AIM on 1 February 2007. The company’s shareholder register includes mining companies and financial institutions.

The financial plan reflects the company’s budget for exploration activities in Mozambique over the next 3 years, in addition to any pre-feasibility and feasibility study work, should the exploration activities be successful in discovering commercial quantities of copper and iron ore. With its investment, IFC aims to assist the company to achieve its program.

5.0 million (USD)

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

* These investment figures are indicative

The Manica Project Area is in western Mozambique, close to the Zimbabwe border. The main Harare-Beira railway line passes within 10 kilometers, as does the Cabora Bassa power line, while the Chicamba hydro-electric scheme is also nearby. The major paved highway from Beira to Zimbabwe is 5 kilometers to the west, while access to the site is via a dirt road.

The Tete Project Area is located immediately north of the provincial capital of Tete. The railway connecting Tete to the deep water port of Beira is being refurbished, as is the port. Power is readily available from the Cabora Bassa hydroelectric scheme with additional schemes on the Zambezi River in advanced planning stages.

IFC’s early involvement in Mozambique’s growing mining sector will have an important demonstration effect in terms of setting environmental and social standards. IFC will assist Baobab to handle social, environmental, community development and mine closure issues in line with IFC Performance Standards on environmental and social sustainability.

The proposed IFC investment will contribute to continued exploration and associated feasibility studies. The direct development impacts during the pure exploration and feasibility study stage are expected to be limited. Nonetheless, key impacts that will be monitored during the exploration and feasibility study phase will include:

- employment;
- consultation with stakeholders including local communities and Government; and
- development of an appropriate environmental, social and community development plans for a mining exploitation project.

Because the investment predates any feasibility study, it is not yet possible to fully quantify or specify the potential development impacts during production stage. Potential development impacts at the mine production stage could include:

- local employment and sourcing;
- taxes, royalties and other payments to the government;
- technology and management skills transfer; and
- setting new environmental and social benchmarks for mining operations in Mozambique.

IFC’s proposed investment is consistent with the World Bank’s Country Partnership Strategy covering the period FY08 – 11 that emphasizes the need for Mozambique to pursue a vision based on regional economic integration, promoting foreign direct investment and export enhancement. Extractive industries are specifically mentioned as some of the sectors that should be developed to make optimal use of the country’s natural resource base to expand export earnings and facilitate rural development, a central theme of the joint IMF-WBG Action Plan for the Reduction of Absolute Poverty.

IFC has an opportunity through this project to be a key player that would positively influence an emerging sector in Mozambique, an IDA country. The extractive sector in Mozambique offers WBG an opportunity to demonstrate how a sustainable extractive sector can contribute to poverty reduction. By early engagement with companies in the exploration phases of their projects, IFC can help set benchmarks for sustainable resource development across the various development phases of the company’s projects.

Additional targeted contributions will include:

- working with the World Bank Mining Policy Division in supporting sector policy reforms; and
- providing comfort to investors in mobilizing equity and debt financing through different phases of the project, particularly given the currently difficult capital market conditions.

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards and guidelines. The review of the company consisted of appraising technical, environmental and social information associated with its projects.

The key environmental issues related to Baobab’s projects are

- management of exploration activities – control of erosion and rehabilitation of drill roads, drill sites and trenches, safe disposal of oils, waste, etc.;
- water management – mine water flows from 8 level adit but pH is neutral with only slightly elevated metal concentrations; and - infrastructure & associated facilities – public safety, dust control, hazards management and mitigation of transportation risks.

The key social issues related to Baobab’s projects include

- management of community expectations during ongoing consultation and disclosure;
- influx management;
- community development planning;
- consultation & disclosure – free, prior, informed consultation (FPIC) and broad community support (BCS) for the projects; and - artisanal miners working within the exploration license areas but not in any areas that Baobab may be likely to mine.

In the 18 months that Baobab has been undertaking exploration activities in Mozambique there have been no fatalities or lost time injuries, including during underground exploration work at Mundonguara mine, which is in the Manica Project Area. The Company provides a safety induction and ongoing training for all workers and visitors and appropriate personal protective equipment is issued. During the appraisal mission in May 2008, Baobab employees were observed to generally follow the Company’s safety policies. IFC will provide guidance to help Baobab develop a sustainable environmental management system, build its internal environmental and social management capacity and ensure the Company’s projects are developed in a sustainable manner.

The Mozambique government is actively engaged with the IMF and the World Bank Group (WBG) to establish fiscal and macroeconomic policies, e.g. a transparent public budgeting process, to ensure that government revenues are targeted at poverty reduction goals and objectives. With the recent commencement of commercial mining activities in the country, the Government has requested and won WBG support in assessing the barriers to EITI (Extractive Industries Transparency Initiative) implementation, and in assessing the net financial benefits and improvement in investment climate likely to accrue to Mozambique from the adoption of EITI principles. The WBG is working with the secretariat established by the Government on this project to implement EITI.

Baobab is supportive of the efforts to implement good governance and transparency in the sector and will provide IFC with an undertaking that it will disclose publicly all payments made in the form of taxes, royalties, fees, etc., to the Government once it begins production. The proposed investment in Baobab provides IFC with an opportunity to support the WBG’s strategy in Mozambique of promoting private investments in mining in a transparent and socially sustainable way.