Operations - Basic Agreement

Guinea Alumina’s Basic Agreement was unanimously ratified by Guinea’s National Assembly and published as law by Presidential decree in 2005. The agreement is a renewable, 75-year comprehensive investment and concession agreement that grants the Company exclusive rights to build and operate an alumina refinery within its 690 square kilometer mining concession area within the Prefecture of Boke in the country’s northwest quadrant. The Basic Agreement also grants priority rights to access and improve existing state-owned port, rail and road facilities as well as land required for implementation of the project. The Basic Agreement grants the right to produce and market alumina and to export alumina from Guinea without any restriction. Further, Guinea Alumina is permitted to transfer currency freely and retain off-shore, foreign currency accounts. Guinea Alumina has agreed to use—to the extent practicable—services, products and raw materials from Guinean sources and to employ as a matter of priority Guinean nationals or residents for its unskilled labor requirements.

Guinea Alumina will be subject to a bauxite mining royalty starting with the first fiscal year following the start-up of commercial alumina production equal to five percent of the CBG "free on board" value of bauxite.

The Government of Guinea has agreed to facilitate all steps and procedures and provide all reasonable assistance necessary for implementation of the project. Guinea Alumina will enjoy an advantageous Guinean tax policy, including exemption until commencement of alumina production from all Guinean taxes except employee withholding taxes. Payment of fixed annual tax payments of $5 million, $8 million and $12.5 million for each of three successive five-year periods will be followed by reversion to the statutory income tax rate, currently 35 percent.

In addition to the foregoing guarantees and assurances, the Government of Guinea has guaranteed that it will not expropriate or nationalize all or part of the assets of the project. The Government of Guinea has also agreed not to restrict the employment of expatriate personnel, the free choice of manufacturers and direct subcontractors, the free movement in Guinea of equipment, goods and expatriate personnel, the free importation of foodstuffs, spares, materials, consumables and other goods necessary for the project and the importation of satellite equipment in compliance with applicable regulations.

Bauxite

The mining concession contains 19 bauxite-bearing plateaus distributed throughout the property. The bauxite occurs at or close to the surface on the flat, elevated areas of the concession, usually above 200 meters elevation. Though CBG previously conducted extensive bauxite exploration activity in the area, no mining activities have exploited the bauxite in the mining concession. Guinea Alumina has carried out systematic exploration on three plateaus to formulate its preliminary 25-year mine plan.

Refinery

Guinea Alumina is designing a 3.2 million metric tons-per-year capacity smelter grade alumina refinery using low temperature digestion and consisting of initially two processing lines of 1.6 million metric tons-per-year, expandable by an additional 1.6 million metric tons-per-year processing line. The refinery is designed to operate 24 hours per day, 365 days per year. It will be provided with storage capacity sufficient for all consumables and for alumina. Additional bulk storage facilities will be provided at the port, based on maximum anticipated ship cargo capacities and the consumption rate of the refinery. The design standards for the refinery are expected to be equivalent to or exceed the relevant standards of the American Society of Mechanical Engineers, International Organization for Standardization, British Standards and European Standards.

Power Plant

The energy requirements of the refinery are expected to be met by a steam and electricity cogeneration plant designed on circulating fluidized bed boiler technology to be built concurrent with the construction of the refinery. The refinery and associated town will require initially approximately 90 megawatts of electricity and 700 tons per hour of process steam. Guinea Alumina evaluated various technology and fuel alternatives (oil, coal, petroleum coke, biomass, etc.) and selected the circulating fluidized bed boiler technology which is suited for burning coal and/or petroleum coke. Coal for the power plant is likely to be sourced from South Africa.

Water Supply

The refinery's water supply is expected to be served by a new reservoir and related delivery system to be built concurrently with the refinery. The reservoir will be created by a 30-meter high dam with associated spillway and outlet works, to be built using 350,000 cubic meters of laterite material available near the site. The reservoir will store five million cubic meters of water, enough to supply the annual water requirements of the refinery and the contemplated future expansions. The water works will include a pumping station, dual underground water pipes connecting the reservoir to the refinery's water treatment plant and a 33 kilo-volt transmission line connecting the pumping station to the power plant. The town will be supplied by wells drilled in the river valleys. Wells will also be used at the refinery during construction and will be maintained as a further reserve to ensure that the refinery has a source of water during unforeseen prolonged periods of drought.

Red Mud Disposal

Red mud is a residue of the bauxite refining process, consisting primarily of un-dissolved iron-oxides, silica-oxides and titanium-oxides. At its rated capacity of 3.2 million metric tons-per-year, the refinery is expected to produce 3.6 million metric tons of red mud on a dry basis annually. Guinea Alumina intends to manage disposal of the red mud to be produced by the alumina refinery in accordance with international standards by processing, transporting and storing it as a thickened tailings product in a lined storage facility. Guinea Alumina has retained SNC-Lavalin Inc. to develop the specific elements of its red mud storage program to ensure that the storage facility adequately isolates the red mud from groundwater, captures and recycles all runoff from the red mud stack back to the refinery, routes clean storm water around the red mud storage area, and protects surface water from potential contamination.

Port Facilities

The alumina refinery will require an expansion of the existing port of Kamsar and a dedicated alumina operations terminal and jetty separate from the existing CBG bauxite operations terminal and jetty.. The expanded facilities will accomodate the importation of coal, limestone, heavy fuel oil, diesel oil, sulfuric acid, caustic soda and other supplies necessary to operate the refinery and export of the alumina produced. The new Guinea Alumina port terminal and jetty are being constructed to the south of the existing CBG terminal and jetty.

Container Quay

A new quay to be constructed at the end of the existing quay will allow for the transportation of bulk goods and equipment for construction of the refinery. This quay will be able to handle vessels up to 10,000 metric tons and will greatly facilitate the import of containers and general cargo to both the refinery and the region.

Rail Transportation

The existing railway is standard, western gauge track and extends approximately 130 kilometers from CBG's mining operations in Sangarédi passing through Guinea Alumina’s concession area and on to the port of Kamsar. It has capacity sufficient to handle 12 trains per day provided that one of the railway's passing loops are extended. CBG currently operates up to seven trains per day and it is expected that Guinea Alumina’s initial refinery operations will require an additional two trains per day. Guinea Alumina plans to build a 14 kilometer spur from the main line to its refinery, and an extension in the area of its port terminal site to serve its operational requirements.

Town and Infrastructure Facilities

The proposed refinery will require the construction of housing, utility, social and recreational facilities to accommodate approximately 1,000 of the expected 1,500 full-time employees and their families. The remaining workers are expected to be drawn from existing communities in the surrounding area. In addition to housing, Guinea Alumina intends to provide electricity, potable water, health services, public safety services, waste disposal, recreational space and transportation.

Training of local Guineans

Guinea Alumina places a premium on the importance of adding value to Guinean natural resources by transferring skills to the Guinean workforce and creating jobs for the Guinean people. Guinea Alumina therefore identified four primary job categories (construction, operations, government and indirect) and created targeted training programs for each.

Environmental Impact Assessment

In addition to complying with Guinean requirements, Guinea Alumina elected to conduct its economic impact assessments in accordance with the guidelines, policies and requirements of the Equator Principles and the International Finance Corporation. The IFC is a member of the World Bank Group and a recognized authority and standard for the conduct of environmental impact assessments. The Equator Principles are a set of guidelines, broadly based on the IFC guidelines that have been adopted by many major commercial lending institutions as criteria for evaluating the environmental and social acceptability of projects. By conducting the EIAs to these standards, Guinea Alumina believes it is both demonstrating its commitment to environmentally responsible sustainable development and maximizing the likelihood of acceptance of the studies by potential multilateral and bilateral development lending agencies, commercial lending institutions and socially responsible equity investors.

The EIA’s for the new port terminal and the refinery were initially approved by the Ministry of Environment in September 2004 and May 2005, respectively. Two EIA addenda presenting changes arising from project optimization during the course of development were subsequently approved in June 2006 and November 2006.

Resettlement Activities

The EIAs are supported by two resettlement action plans that were developed to address the relocation and compensation mitigation measures required as a result of the project. These plans were developed in accordance with the requirements of the IFC and describe the assets and livelihood activities affected by the project and how people will be compensated for lost or damaged assets and livelihood activities.

The resettlement action plans set out the framework for the detailed, person-specific compensation and resettlement packages required in connection with the project. Any household identified as having assets affected by the project is eligible for a resettlement and/or compensation package that is proportionate to the level of impact, regardless of the land tenure regime (formal or customary, ownership or tenancy). Resettlement packages include provision of replacement homes, a school and health facility for each village, agricultural plots, cash compensation for lost structures and value of lost crops, cash compensation for three months’ rent for tenants, a disturbance allowance and compensation for actual relocation costs.

The resettlement and compensation packages for affected persons located in the port area have been developed and fully implemented. Compensation for all physical assets affected in the refinery area has been fully paid. In addition, the 94 households of two villages, Touldé and Petoun Djiga, will be resettled to accommodate the refinery facilities. These villages were invited to identify potential resettlement sites and following extensive consultations and technical analyses, the villages decided to be resettled together in the northern part of the Lopé valley. Guinea Alumina is currently constructing the resettlement village based on the site plan and housing types selected by the villagers.