The mining concession holder and project company is Simfer SA, which is owned 95% by Rio Tinto plc and 5% by IFC. The Government of Guinea has a right to acquire up to a 35% interest in Simfer (under various option arrangements) and a 51% fully funded interest in the related Simandou infrastructure (port and rail). Subject to satisfaction of certain completion requirements, Chalco (a subsidiary of Chinalco, a multinational Chinese state-backed holding company) will have an indirect participation in Simfer through a joint venture agreement with Rio Tinto plc.

Rio Tinto plc is a diversified multinational mining and resources group with headquarters in London and Melbourne. It is the world’s largest bauxite, alumina and aluminum producer and second largest iron ore producer. It is an industry leader in sustainable mining and leads numerous mining sector initiatives on conservation, land rehabilitation, biodiversity, climate change and water and energy use. Rio Tinto plc is listed on the London Stock Exchange and the Australian Securities Exchange.

The total project cost for Simandou III (through to Decision to Mine) is currently forecast at in excess of $3.5 billion. This amount includes the $700 million settlement sum (as agreed in the agreement recently signed between Simfer and the Government of Guinea, announced by Rio Tinto plc on 22 April 2011), technical studies and resource definition drilling through to the completion of the PEA and DE, as well as long lead item orders and early construction works. The long lead item orders and early construction works will be necessary during this period in order to achieve the targeted first exported production deadline of June 2015.

IFC is seeking board approval to invest an additional $150 million of equity in Simfer to contribute towards achieving the Decision to Mine milestone at the end of 2012. IFC African, Latin American and Caribbean Fund, managed by IFC Asset Management Company LLC, may at a date yet to be determined participate in this investment. In 2006 IFC obtained board approval to invest $5 million of equity in Simfer (Simandou I project) and a further $30 million in 2007 (Simandou II project), of which $32 million in total has been disbursed.

150.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	150.0
Equity

* These investment figures are indicative

The Simandou concession area is located along 60km of the Simandou mountain range in South-eastern Guinea. The Simandou range is located in the prefectures of Kérouané, Beyla and Macenta. Simfer has established two camps in the area, Canga East, which is the major project base camp for exploration (the nearest village is Moribadou, about 7kms away), and an office and accommodation base in Kerouane, where it rents buildings within the existing town. The Canga East camp is approximately 1,000km by road from the capital, Conakry.

Economic transformation for Guinea: At full production the Simandou iron ore project will be the largest mining and commercial project in the country and will make a large direct positive contribution to Guinea''s economy for decades. Annual taxes and royalties to the Government of Guinea have the potential, at full production and after tax holiday, to exceed US$1 billion p.a. (subject to iron ore prices) and will directly employ over 4,000 Guineans.

Infrastructure development: The Simandou infrastructure, particularly the rail, will open up the east of the country to new private sector development opportunities. Simfer has committed to the provision of a multi-use/multi-user facility, which will include passenger rail services. The construction of the rail will also require the construction of a feeder road network along its alignment, further facilitating local movement and trade.

Emerging sustainable mining sector: Guinea is an emerging iron ore producer and, based on its resource endowment, is expected to become one of the main global producers in the coming years. The Simandou iron ore project will be the first of several large projects and will set key benchmarks going forward in terms of standards of operation and E&S management. In addition, Simandou''s infrastructure could in the future potentially be shared on a commercial basis with other emerging iron ore operations in the region.

Community development: Simfer will spend a minimum of 0.25% of project revenues on socioeconomic activities in affected prefectures (particularly Beyla and Forecariah), including investments in electricity, roads, water and sanitation, communication, and health and education.     

Environmental and Social management: The Simandou iron ore project is in an environmentally sensitive area and IFC has already provided and expects to continue to provide significant input regarding the assessment of environmental risks, especially those regarding bio-diversity. The ore evacuation route is expected to involve the resettlement of some 2,000 people. IFC anticipates providing significant guidance in relation to the overall stakeholder engagement and resettlement action plans.

Supply development: An IFC supported supplier development program is already underway to enhance the development impact of Simfer''s operations by implementing a Guinea "Buy Local" program to increase the amount of local sourcing and hence maximize benefits to Guinea businesses from Simfer''s supply chain.

Project financing: The Simandou iron ore project will require several billion dollars of debt (particularly for the infrastructure development) when it goes to development. IFC''s presence as a bought-in partner is likely to give comfort to the wider market to finance the project and IFC can play a debt mobilization role.     

While the IFC environmental and social categorization when IFC made its first investment in 2006 (i.e. Simandou I and II) was a “B”, consistent with the very early stage nature of the project at that time, this categorization has now been revised to “A”, on the basis that a proportion of the investments planned during Simandou III (through to Decision to Mine) will include initial development activities, including early construction works.

The main E&S issues identified at this stage are: 1) biodiversity, 2) in-migration and 3) water usage. Numerous biodiversity studies have been completed (by Simfer and several reputable international consultants) for the mine site areas and similar studies will be undertaken for the rail and port sites. The mine site areas include various levels of protected forest, which are rich in biodiversity, and inter alia include endangered species, including West African chimpanzees.
Significant in-migration has already occurred in towns and villages near Simandou (particularly Traorela, Beyla and Moribadou) and is expected to increase as the project progresses. Studies to understand the in-migration dynamics have been completed and a number of activities have started as a result, including village planning for Moribadou and employment information centres.

The Simandou mountain range is part of a key watershed at the head of a complex hydrographic system feeding the Niger and other important regional river systems. A number of hydrological and climatological studies have been completed to assess potential impacts of mining at Simandou and a strategic plan to manage those impacts is in progress.

Finally, although the precise alignment of the rail and location of the port are yet to be finalized, there may be as many as 2,000 economically or physically displaced households along the infrastructure corridor. Simfer is committed to implementing the Simandou iron ore project in accordance with international best practices and IFC’s Performance Standards.
More details regarding the above can be found in the current Environmental and Social Review Summary (ESRS).

Governance

Governance in Guinea has historically been weak. In 2010 Transparency International ranked the country 164th of 178 countries and the World Bank’s “Ease of Doing Business” ranked Guinea 179th of 183. Nonetheless, following successful Presidential elections in November 2010, the Government of Guinea has continued to show a strong commitment to strengthening governance and ensuring the country derives greater benefits from the mining sector. The country has embarked on a process of reform that includes a review of all existing mining concessions. In this regard, the Government recently completed the review of the Simandou concession culminating in a revision of the convention terms. Guinea has made an important stride forward by reaching out to the IMF regarding the management of the $700 million settlement sum (equivalent to approximately 15% of GDP) received under the revised convention terms.

On transparency, Guinea became an EITI candidate country in 2007 but was (voluntarily) suspended in 2009 due to the political unrest in the country. This suspension was lifted in March 2011 and Guinea has until mid-2012 to complete EITI Validation. The country appears to be moving in the right direction and with the wide support of the international community following the recent advent of democracy, it is expected to complete the EITI validation process and to continue strengthen its governance structures. Guinea is already working closely with the IMF and the World Bank on reaching Completion Point under HIPC. Decision Point was achieved in 2000 when it was confirmed that around $2 billion in debt (of $3 billion) would be written off subject to meeting certain criteria on fiscal management and stability. The success of a world class project such as Simandou will reinforce this reform process.

For its part, Simfer recognizes that good corporate governance and transparency in the sector will enhance the developmental impact of the Simandou iron ore project and, in line with IFC requirements, will continue to disclose publicly all material payments made in the form of taxes, royalties, and fees to the Government.