Review and Assessment for the Establishment of a “Gold Hub”, Egypt DMT Presentation of Study findings Prepared and presented by General content - S Jones, MBA & Technical content – Dr. H Osthof Cairo, 20th July 2022 Basis of the presentation Egypt is expecting to have a gold refining capacity of raw gold from national resources as well as from neighboring countries from 50 up to 100 tpa, this presentation addresses the basis to: 1. Establish a gold refinery (located near the gold resources), a full-service laboratory, a residential area, as well as industrial units and Vocational facilities are to be amalgamated in an integrated hub to support the gold mining industry; and 2. Present the findings of a study whose purpose is to establish a high-level design (business units and key considerations) for the establishment of the hub covering site selection, layout, utilities, key activities, etc. ▪ Hub concept – GoE is the owner: − Business units: operating revenue from - refinery, laboratory, gold room and vocational college; and − Industrial units: Rental income from - mining service companies: e.g. drilling, EM surveys, geotechnical, hydrogeological ▪ Hub Governance – GoE is the investor and operator of the hub: − Supervisory Board – GoE and elected members; and − Management Team – GoE, EMRA and elected members. Location for the Hub Plot 1 is considered to be too small at around 20,000m2 Key features for the location of the Hub included Plot 5 is considered to be too far from services and Aswan very poor road. No further action • Should not be less that 20km and needed not more than 30km from the nearest major town; Plot 2 is considered to be suitable • Minimum footprint of 200,000m2 (500m x 400m); • Water required at circa 30m3 per hour; (raw) and potable; • Power required for the whole Hub circa 25MW; and • Must be near main road and Plot 3/Plot 4 are too far from services and airport township. No further action needed Hub Pilot Plan Business Units Key facets • Accredited Refinery 50- • Refinery is the main revenue 100tpa; stream; • Accredited Laboratory • Laboratory is essential; (e.g. ISO, ILAC, or • Potential delayed impact of: others) − Industrial units; and • 10 x 500m2 Industrial − Vocational college units total • Industrial units: • Vocational college − Attract mining service providers; • Minimal external infrastructure; • Already has airport adjacent • Employment; and • GDP impact Infrastructure Utilities External Internal Services − Power – sub-station − Modify main road – − Roads – between − Firefighting – full within Hub, mains resurface 2km and zones, design as scale personnel, power 25Mw; and add two external roads 3km; facilities and − Water – desalination roundabouts − Reticulation – utilities equipment; plant (not part of by buried pipelines − Medical – full scale Hub) 30m3/hour and cables; and personnel, facilities − Fire hydrants – and equipment; and covers all three zones − Security – controlled access, 24/7 CCTV monitoring Environmental & Social • Ecosystems - littoral salt marsh, the coastal desert and coastal mountains Assessment used • Flora - Dew sustains a rich flora of over 350 species, including several tree species that grow at high elevations IFC Performance • Fauna - 22 species of reptiles and amphibians; 40 species of breeding birds.;21 species recent a siting of Standards in part leopard • Human habitation - traditional groups, migratory livestock farmers, traditional lifestyle. • Wadi el Gamal National Park, a large land & sea area with islands, mammals & birds Protected plus marine life including coral & turtles, centered around Abu Ghushun; and • Elba National Park (Gebel Elba), including the Alaba Nature Reserve, home to the only natural areas natural forest (Acacias) in the Egypt. • Employees from Berenice and region • Specialists from nationally • Education opportunities (vocation college) Employment • Create spin-off opportunities for services and suppliers who may choose to have facilities or stock and stores near to the Hub. • Transient nature (Bedouins) Implementation Construction period of up to 4 years Construction • Specifications; • Tendering process; • Selection of contractors; and • Construction timeframe Sourcing • Raw gold (GoE responsibility); and • Personnel (GoE responsibility) Implementation timelines • Capex budget allocation; • External infrastructure refurbishment; • Refinery & laboratory – immediate; • Industrial units and college – delayed; • Internal infrastructure; • Utilities connection; and • Recruitment. Investment and viability Viability – key factors Project Capex & Cashflow • The Project is viable considering assumptions made of refinery operating to its 50tpa capacity within three years; • Sourcing raw gold sources from Egypt and neighbouring countries (is GoE responsibility) for the refinery is key for success; • Main Hub revenue stream is the refinery, After reaching the refinery full capacity (50tpa) the annual revenue is USD65 million, while the annual net cash flow is USD47 million; • Capex according to DMT estimates reaches USD371m including USD173m for the refinery. MoP has lower estimate for the refinery based on actual quotation and estimates (USD81m) which can further improve the hub viability; • NPV @ 7% discount rate is USD47m based on DMT refinery estimates , and USD159m based on MoP estimates; and • Refinery and laboratory to be developed first; while Industrial units and vocational college need time to build credibility, and require further detailed market studies. Cost benefit analysis and sensitivity Local community Local community Benefits Government COSTS Government CBA /industry /industry − Subjective; Government profit Significant Negative cost (safer share cost based artisanal mining − Based on specific agenda; Corporation tax Injuries and upon an operation) − Difficulties are: Non-monetizable; -- loss of life payments average cost Unpredictable, Inaccurate estimation Income tax payments Income per life lost Pension payments Air pollution/ world-class Income Dust /Water monitoring and Sensitivity Penalties compensate for pollution/ control to minimise − Income oriented; All these costs Possible effect and mitigating − Sensitivity tested on throughput, gold hazardous non-financial financial penalties to price and refining fee = exact same Royalty payments Small income -- costs are products/ compensate. effect; borne locally Job creation, and Noise − Effect is large, 10% change in one factors Major boost to but Can be mitigated by Associated jobs affects the valuation by 33%; the local economy Damaged government careful site selection − Hub is not robust, next steps must Economic infrastructure may be Indirect where no other include efforts to firm up on capex and development and exposed to initiative might be economic income; and inward investment Wage inflation marginal lack benefits possible- especially Increased GDP of popularity − Capex is key, the higher the Capex, the Other potential beneficial greater the effect is of changes in key Foreign exchange -- initiatives do initiatives. factors, improvements not proceed Governance Establish a steering committee: • Discuss and evaluate remit options for operations/activities of the Hub • Suggest the key areas of activity and responsibility • Detail desired outcomes Key governance Two-tier approach for overall governance for GoE to requirements set guidance and a management team: • Supervisory Board with a membership drawn from MoPMR/EMRA and other relevant GoE bodies • Management Team – delegate Day-to-day management of Hub operations Operate in line with good governance and management - Egyptian Institute of Directors (EIoD) guide Promotion & Marketing • Setting promotional goals/objectives; • Setting promotion budget and prioritise actions; Promotion strategy • Defining the stakeholders; • Choosing the promotion types to be used; focusing on • Starting work on the key message before entering the campaign; and • Regular measurement of the promotion campaign’s results • Aimed at potential clients for the business units – mining companies, exploration drilling companies, etc • Attract private sector into Hub – drilling contractor, EM survey contractor, mining contractors, etc Marketing • Identifying and informing mining industry operators; campaign • Engaging and informing the local community and local businesses; objectives • Participating in major mining conventions (MENA (Dubai), Indaba (RSA), PDAC (Canada) and MWC (UK); and • Raising awareness of developments of mining activities in Egypt • initial budget for first year (Est. USD300k) thereafter USD125k per annum; • Stakeholder identification & management; Promotion & • Liaison with the local community; Marketing require • Procurement program; and • Point of contact. Marketing strategy Covering the first two years of operations for the Hub (other business units have their own – in the reports): o Mission: “We are a responsible gold refinery that refine gold to the highest accredited level and “state of art” gold products and trading activities to a world class level for local and global business partners”; Mission/Vision o Vision: “ To be a highly respected and trustworthy refinery committed to international standards of gold refining with environmentally friendly manner, delivering excellent value to our clients, partners, employees and civil society”; o Increase FDI contribution by 5% by 2030; Strategic goals o Available 250 direct employment opportunities and 1,000 indirect within 4 years of launching; and o Make Egypt a regional Gold Hub by 2030 o Decision on strategy before construction (of the Hub) competition for existing refineries; refining technology is very sensitive better to entertain alliances to gain technical input from existing refinery operators or ask them for investment in the refinery in the Hub! Strategic alliances o Formulate a strategy to provide complementary technical services and vocational opportunities with European refineries (Switzerland and now Austria – this will be difficult as this refinery opens in 2023); and o Formulate a strategy to provide complementary technical services and vocational opportunities with the Dubai refinery Selection of strategy as Integration or penetration or else strategy type Marketing strategy o The refinery is a key beneficiary and instigator in the marketing strategy, see note above, the marketing strategy can only be decided once the refinery and laboratory business units composition has been decided. Conclusions & Next Steps − Capex: Initial estimate USD371m; (~30%) − Primary business units: Refinery – depends on gold sourced by GoE; and Laboratory – depends on exploration activities; Conclusions − Secondary business units: Industrial units and College - take time to establish; − Viability is established with at an NPV of 7%; and − Environment: Two protected areas near Hub; and ESIA is essential − Commit to location for Hub and decision to “Go”; − Decide if third party technical assistance is required; − Tender and engage consultant to perform ESIA; − Tenders to establish budgets for each component in the Hub (including market study); Next steps − Appoint Supervisory Board - overall strategy and − Appoint Management Team – delegate authority to operation; − Identify raw gold sources – nationally, neighbouring countries; − Engage engineering contractor to design Hub foundations and civil works; and − Instructions to change external road layout Main business units - What if scenarios? What if Impact Hub impact The refinery is not − No need for raw gold sources; Questions the need for the Hub as the refinery is The included in the −is USD173m refinery Hub not included in the Capex Hub reduction; the principle revenue stream. − Reduced security level; Assuming that gold production in Egypt grows − Reduced employment; and Egypt’s gold would continue to be refined outside − Reduced income for GoE Egypt; additionally, gold produced by neighbouring countries would be refined elsewhere, which represents technical and commercial loss for Egypt. The laboratory is not − Capex for refinery increases to Laboratory could be developed at Marsa Alam to included provide laboratory services provide assay and metallurgical services. − USD40m Capex reduced − Reduced employment Hub is located in − Potentially Capex dependent on It depends where, if in the eastern desert area another location (not proximity of major road and air then minimal impact; but if well away from gold Plot 2) connections; mining sector, this may reduce opportunities for gold miners and thus reduce interest in Egypt.