Document of The World Bank FOR OFFICIAL USE ONLY FI'LF C()PYu .. 1 F, Report No. 2224a-MAU STAFF APPRAISAL REPORT MAURITANIA THE GUELBS IRON ORE PROJECT June 20, 1979 Industrial Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their officiai duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Except where otherwise indicated, all figures are quoted in Mauritanian Uguiyas (UM) and U.S. Dollars (US$). EXCHANGE RATES UM 1.0 = US$0.022 UM 45.0 US$:L.00 UM 1,000,000 US$22,222 ABBREEVIATIONS AND AC(RONYMS ADB - African Development Bank AFESD - Arab Fund for Economic and Social Development AISI - American Iron and Steel Institute ARMICO - Arab Mining Company BCM - Banque Centrale de Maur:itanie BRGM - Bureau des Recherches Geologiques et Minieres BRPM - Bureau de Recherche et de Prospection Miniere CCCE - Caisse Centrale de Cooperation Economique COMINOR - Complex Minier du Nord CVRD - Companhia Vale do Rio Doce DCPP - Departement de Commercialisation des Produits Petroliers EIB - European Investment Bank FCB - Fives Cail Babcock IISI - International Iron and Steel Institute IRSID - Institut de Recherche de la Siderurgie KFTCIC - Kuwait Foreign Trading, Contracting and Investment Company MIFERMA - Mines de Fer de Mauritanie MSI - Mineral Services Incorporated ObECF - Overseas Economic Cooperation Fund of Japan OPEC - Organization of Oil Producing Exporting Countries eNIM - Societe Nationale Industrielle et Miniere SNIMEX - SNIM Explosif SOCOMINE - Societe de Cooperation Miniere et Industrielle SOFREMINES - Societe Francaise d'Etudes Minieres SOFRESID - Societe Francaise d'Etudes de la Siderurgie SOMIMA - Societe des Mines de Mauritanie SGTE - Societe Generale de Teclnique et d'Etudes WEIGHTS AND MEASURES 1 Metric Ton = 2,205 pounds 1 Kilometer (km) = 0.62 miles MAURITANIAN FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY MAURITANIA THE GUELBS IRON ORE PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. INTRODUCTION ............................................. 1 II. THE MINING SECTOR ........................................ 2 A. Description of the Sector ........................... 2 1. Iron Ore Operations ............................ 2 2. Copper Operations .............................. 3 3. Gypsum ......................................... 3 B. Contribution to the Economy ..... ........... . 3 1. Contribution to GDP ............................ 4 2. Public Revenues ................................. 5 3. Balance of Payments Effects ..................... 5 4. Employment Effects ............................. 6 III. SNIM - THE COMPANY ....................................... 6 A. Background and Ownership ............................ 6 B. Organization and Management ......................... 7 C. Past Operations ...................................... 12 D. Past Performance and Recent Financial Position ...... 17 IV. THE MARKET FOR IRON ORE ................................. 19 A. The Demand for Crude Steel and Production ........... 19 B. The Supply of Iron Ore ............. .. ............... 22 C. The Demand for Iron Ore ............. .. .............. 24 D. Supply and Demand BaLance for Seaborne Iron Ore 25 E. Pricing of Iron Ore ............... .. ................ 26 1. International Prices ........................... 26 2. Prices for the Kedia and Guelbs Ores .... ....... 28 F. Market Prospects for Guelbs Sinter Feed ............. 29 1. Testing of Guelbs Concentrates .... ............. 29 2. Future Sinter Demand ........................... 30 3. Conclusion ..................................... 32 G. Local Sales ...... ............... .................... 32 V. THE PROJECT .............................................. 32 A. Scope and Objective ................................. 32 B. Technical Description ............................... 33 C. Water ............................................... 38 D. Ecology ............................................. 38 This report was prepared by Messrs. Christoph Lorenz, Yves Duvivier, and Guy de Selliers and Miss Veronica Bates of the Industrial Projects Department. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without Worid Bank authorization. Table of Contents (Continued) Page No. VI. CAPITAL COST AND FINANCINC PLAN .......................... 39 A. Capital Cost ........................................ 39 B. Financing Plan for Phase 1 .......................... 42 VII. PROJECT IMPLEMENTATION ................................... 44 A. Project Organization and Management ....... .. ........ 44 B. Implementation ................. .. ................... 48 C. Procurement, Disbursement and Allocation of Bank Loan 48 1. Procurement .................................... 48 2. Allocation of Bank Loan and Disbursement ....... 51 VIII. FINANCIAL ANALYSIS ....................................... 53 A. Methodology Used in Financial Projections ........... 53 B. Production Build-Up and Sales .......... .. ........... 53 C. Operating Costs ................. .. .................. 54 D. Dividends ........................................... 55 E. Royalties ........................................... 55 F. Financing of Phase 2 .............. .. ................ 56 G. Other SNIM Units and Head Office ........ .. .......... 56 H. Future Profitability and Financial Position ......... 58 1. COMINOR ........................................ 58 2. Other SNIM Units, excluding COMINOR .... ........ 59 3. SNIM ........................................... 60 I. Break-Even Point ................ .. .................. 61 J. Financial Covenants ............... .. ................ 61 K. Trust Arrangement and SNIM Operational Account . . 61 1. Purpose ........................................ 61 2. Description .................................... 62 L. Financial Rate of Return ............ .. .............. 64 M. Auditing and Reporting ............. .. ............... 65 N. Major Risks ...... ............... .................... 65 IX. ECONOMIC ANALYSIS ........................................ 67 A. Economic Rate of Return ............. .. .............. 67 B. Foreign Exchange Effects ............ .. .............. 68 C. Other Benefits ...................................... 69 XI. SUMMARY OF RECOMMENDATIONS .............. .. ............... 69 LIST OF ANNEXES 3-1 SNIM Operating Units other tha.- COMINOR 3-2 SNIM Historical Financial Data 4-1 Iron Ore Exports - Industrialized Countries 4-2 Iron Ore Exports - Developing Countries 4-3 Steel Production and Iron Ore Demand - Major Steel Producers 4-4 Steel Production and Iron Ore Demand - Other Developed Countries 4-5 Steel Production and Iron Ore Demand - Non-Iron Ore Exporting Steel Producing Developing Countries 6-1 Capital Cost Breakdown 6-2 COMINOR Projected Working Capital Exchanges 6-3 COMINOR Projected Investments 6-4 Terms and Conditions of External Financing 8-1 Assumptions and other Bases of the Financial Projections 8-2 COMINOR's Projected Financial Results 8-3 SNIM's Units Other than COMINOR - Projected Income Statement and Balance Sheet 8-4 SNIM's Projected Consolidated Cash Flow and Balance Sheet 8-5 Financial Rate of Return and Sensitivity Analysis 9-1 Economic Rate of Return and Sensitivity Analysis 9-2 Foreign Exchange Effects MAP S IBRD 13583 - General Project Location IBRD 13584 - Site Plan of Mining Operations (page 13) DOCUMENTS AVAILABLE IN THE PROJECT FILE A. General Technical 1. The Guelbs Project--Technical-Economic Feasibility Study by SOCOMINE, Blue Version; Paris, April 1976 (French/English). 2. The Guelbs Project--Technical-Economic Feasibility Study by SOCOMINE, TSR Version; Paris, July 1976 (French/English). 3. Guelbs Project, Mauritania---Technical Report by A. Khilkhoff- Choubersky; London, April 1977 (English). 4. The Geology of the Guelbs--COMINOR's Geological Service Department, Ref. 800-060; Souerak, Mauritania (French). DOCUMENTS AVAILABLE IN THE PROJECT FILE (Continued) B. Beneficiation 1. Centre de Recherches Metallurgiques (CRM)--Industrial Test Series; Liege, Belgium, November 16, 1977 (French). 2. Institut de Recherches de la Siderurgie Francaise (IRSID)-- Industrial Test Series, Ref. Nos. MCF.RC 596, 618, 664 and 704; Paris, June 1977 (French). 3. Studiengesellschaft fur Eisenerzaufbereitung--Industrial Test Series; Othfresca, Germany, November 1977 (German). 4. The Guelbs Concentrates--SOCOMINE, Ref. No. PG511; Paris, March 15, 1977 (French). 5. Pilot Plant Results--Mr. Coursin, SOCOMINE, Report PG595; Paris, May 1977 (French). 6. Realized Beneficiation Plant Results--SNIM/COMINOR; Zouerate, Mauritania, February 1977 (French). 7. Preliminary Direct Reduction Studies on Mauritanian Iron Ore-- Allis Chalmers Direct Reduction Division, Ref. No. 1629, July 23, 1975 (English). C. Market 1. Report on Iron Ore--Future Requirements on Physical Forms, Sizes and Impurities, IISI; Brussels, Belgium, 1974 (English). 2. Guelbs Concentrates--Market Survey, Vols. 1 and 2 (Annexes), SNIM; Paris, December 1976 (English/French). 3. Supply and Demand of Iron Ore--SNIM; Paris, April 1977 (French). 4. Evolution of the Iron Ore and Steel Industries' Requirements for Sintering of Iron Ore Fines--SNIM; Paris, October 1977 (English). 5. Forecast for the Use of Ore for Sintering--SOFRESID; Paris, October 1977 (English). 6. International Prices for Rolled Steel Products--Mrs. Doggart, July 22, 1978 - commissioned by the World Bank. I. INTRODUCTION 1.01 Bank involvement in Mauritanian iron ore dates back to 1957, when Societe Anonyme des Mines de Fer de Mauritanie (MIFERMA), a company owned predominantly by French, British, German and Italian interests, requested the Bank to finance the exploitation of a high-grade iron ore deposit in the Kedia mountains (Map IBRD-13583). The Bank loan, made in 1960 1/. amounted to US$66 million, out of a total project cost of US$190 million. 1.02 Even during MIFERMA's init:ial appraisal of the Kedia project it was apparent that although the mountains contained a satisfactory reserve, it was limited. The sponsors therefore intended from the outset, to explore and develop the so-called "guelbs" (a number of iron ore outcroppings nearby), in order to continue to make use of the large infrastructure investments - notably the 650 km railway and port facilities-once the Kedia ore was ex- hausted. This exploration work was largely carried out during the 1970s. 1.03 Since start-up in 1963, mining has proceeded smoothly, and by 1973 a production level of about 10 million tons of ore per year (tpy), had been reached, i.e., well above the 6 million tpy output originally intended. Even the nationalization of MIFERMA in 1974 did not seriously disrupt iron ore deliveries, and following successful negotiations with the former share- holders--which led to a US$90 million nationalization compensation - a normal business relationship was resumed. 1.04 In 1976, due to the impencling exhaustion of the known iron ore reserves in the Kedia mountains, the Government of Mauritania and the Societe Nationale Industrielle et Miniere (SNIM) - the state corporation which had taken over the MIFERMA operations - requested the Bank to help finance the Guelbs iron ore project. This project, is to be carried out in two phases. The first phase, which will partiaLly replace the Kedia mining operations, is to be carried out between 1979 and ].982, and will develop the El Rhein mine. The second phase (1986-1989) will develop a second mine (Oum Arwagen), after which time the Kedia operation will cease. Although this appraisal deals primarily with the first phase, it is imperative that the second phase be forthcoming, both in order to maintain the projected ore output of 12-14 million tpy, and to assure the continued financial viability of SNIM. 1.05 The process of project preparation for Board presentation has been a lengthy one. A first identification mission in January 1977, was followed by an appraisal mission in October 1977, led by C.W. Lorenz (Chief), and Y.A.A. Duvivier (Industrial Projects Department), who were joined by repre- sentatives of most of the Arab and European co-lenders. I`he complexity of the project required a total of 12 missions up until April 1979, because: (i) SNIM had to be reconstituted, and made into a viable and creditworthy borrower 1/ Loan 249-FR, March 17, 1960. (principally through the divestiture of its highly unprofitable copper opera- tions); (ii) four lenders' meetings had to be convened in order to develop a viable financing plan; (iii) meetings with banks and iron ore consumers were necessary in order to structure an acceptable security arrangement for the parties involved; and (iv) extensive working sessions had to be held with SOCOMINE (Societe de Cooperation Miniere et Industrielle), the project con- sultant, in order to ensure proper project management. 1.06 The first phase of the project is expected to be completed by end 1982, and total financing requirements - including working capital, interest during construction and normal and extraordinary contingencies - are expected to be approximately US$500.7 million equivalent, of which US$456.1 million (or 91%) is expected to be in foreign exchange. The financing plan for the first phase envisages US$338 million of long-term loans, US$120 million of new equity to be provided by five new shareholders, the Arab Mining Co. (ARMICO), the Islamic Development Bank, the Kuwait Foreign Trading, Contracting and Investment Co. (KFTCIC), and the Governnents of Morocco and Iraq, in addition to US$42.7 million from SNIM's internal cash generation. 1.07 The proposed Bank loan of US$60 million will finance the ore handling equipment, miscellaneous items in the beneficiation plant, the ore wagons and the civil works contracts, as well as interest during construction on the Bank loan itself. II. THE MINING SECTOR A. Description of the Sector 2.01 Mining is the most important sector of the Mauritanian economy. It consists primarily of the exploitation of iron ore and, to a lesser extent, of copper and gypsum. 1. Iron Ore Operations 2.02 The exploitation of iron ore in Mauritania dates back to 1963, when MIFERMA commenced operations with a French, British, Italian and German con- sortium as the principal shareholders. This same consortium also purchased a major proportion of the ore output. Since MIFERMA's nationalization in 1974, the mines have been operated by the Complex Minier du Nord (COMINOR) - SNIM's primary operating unit. Since the beginning, production capacity has increased steadily; rising from the 6 million tpy originally envisaged, to about 11.5 million tpy. The most recent significant expansion took place in 1973, when somewhat lower grade pits were brought into production. The operations are located inland, about 650 km eastnortheast of Nouadhibou, the port of shipment, which is connected with the mining town of Zouerate by rail. -3- 2. Copper Operations 2.03 The Societe des Mines de Mlauritanie (SOMIMA) was created in March 1967, 1/ to mine the copper deposits of Akjoujt (200 km Northeast of Nouak- chott). SOMIMA exploited copper ox:.de ore and produced a concentrate based un the TORCO process, which had a very high fuel cost. Furthermore, the arsenic content of the copper concentrate made marketing difficult, and the product therefore sold at a discount from world market prices. 2.04 From the commencement of operations in 1971, major technical diffi- culties were experienced, and most of the time SOMIMA operated at less than 50% capacity, turning out a profit (of UM137 million) only once, in 1973, when copper prices reached an all time peak. 2.05 In late 1974, as a result of the increase in fuel prices and rapidly deteriorating copper prices, the sh.areholders closed the mine. To maintain jobs, the Government of Mauritania took over the copper company, and integrated it with SNIM. SOMIMA resumed operations in the second half of 1975, and its continuous high losses seriously afEected SNIM's overall financial position (para. 3.21) thereafter. As a result, the Government was obliged to separate SOMIMA from SNIM in March 1978, and, in turn, to halt copper operations in May. 3. Gypsum 2.06 The large deposits of gypsum found to the north of Nouakchott have been exploited by SNIM since 1973, with the entire output (roughly 17,000 tpy) being sold to the Rufisque Cement Plant in Senegal, as part of an agreement whereby Senegal purchases Mauritanian gypsurn, and accords a 12% rebate on the price of cement sold in Mauritania in return. Recently, the Government decided to separate the gypsum operation from SNIM. B. Contribution to the Economy 2.07 Iron ore mining by COMINOR is the mainstay of the Mauritanian economy and its development throughout the 1960s has been the principal determinant of the country's rapid economic growth. By the mid-1970s, COMINOR directly accounted for 21% of Mauritania's GDP at factor cost, and 80% of its exports. It is the second largest employer in the country after the Government - with 1/ The share capital was distributed as follows: Charter Consolidated ................................. 44.6% Islamic Republic of Mauritiania ......................... 22.0% French Group ........ ........................ 18.4% IFC ................................ 15.0% - 4 - a total of about 4,800 workers 1/ - and provides about 25% of total public revenues. Aside from these direct contributions, iron ore mining also sup- ports a host of other economic activities in Mauritania. Moreover, the con- tinuous exploitation of this resource is necessary to finance the development of other sectors, which would in time constitute a renewable base for the country's economic growth. 1. Contribution to GDP 2.08 As mentioned above, COMINOR directly accounts for 21% of GDP at factor cost, but its total contribution is considerably higher. Mauritania: GDP in Current Prices, 1974-76 (In billions of UM) 1974 1975 1976 1977 Traditional sector 4.6 5.2 5.4 4.7 (of which livestock) (3.9) (4.5) (4.7) (4.0) Industrial sector 6.8 5.0 5.6 4.9 Mining (5.2) (3.3) (3.7) (3.0) Fish processing (0.2) (0.2) (0.2) (0.2) Other industries (1.4) (1.5) (1.7) (1.7) Construction and public works 1.2 1.5 1.7 1.7 Transport, commerce and services 2.4 2.3 2.5 2.4 Public administration 2.8 3.1 3.8 4.3 GDP at factor cost 17.8 17.1 19.0 18.0 Indirect taxes less subsidies 2.5 1.9 2.2 2.3 GDP at market prices 20.3 19.0 21.2 20.3 Source: Data provided by the Mauritanian authorities. 2.09 Iron ore mining has a substantial indirect impact on GDP. Many industrial and construction enterprises work mainly, or exclusively, for COMINOR. An analysis of the services sector also shows that mining creates -- directly or indirectly -- local added value amounting to about 25% of public utilities, commerce, transport, and services. In addition, since mining accounts for one-quarter of total current public revenues directly, it pro- vides the means for substantial expenditures in the services sector. 1/ Of which 4,300 are Mauritanian nationals. .- 5 - 2.10 In summary, iron ore mining generates about 20% of the added value in the other industrial and construction sectors, and about a third in the services sector. This, in turn, represents about 10% of GDP - implying a con- tribution of some 31% in toto. On the other hand, were the iron-ore mines to close (ie. were the Guelbs project not to be executed and t:he current Kedia operations to cease for lack of ore), the ensuing reduction in GDP would almost certainly be more severe than these calculations indicate, as the resultant excess capacity in the services sector would lead to uneconomic levels of operation, and so to a further reduction in value added. In addition, there would be multiplier effects on demand for public and private services, as both Government and private spenders would be forced to rearrange the uses of their remaining disposable incomes. 2.11 Beyond the reduction in GDP, a closing of the iron ore mines would also cause a de facto destruction of the present capital stock in both the mining and services sectors, as most of these investments would become obsolete long before a comparable source of income (and so demand for their services) could be generated. 2. Public Revenues 2.12 In 1976, total taxes received from COMINOR amounted to DM 1,208 million (US$26.9 million), or 29% of total public revenues. Of these, taxes from mineral sales amounted to UM 702 million, while UM 405 million related to personal income tax - the remainder being generated by import duties and other miscellaneous taxes. 2.13 Aside from this direct contribution to Government revenues, a sub- stantial part of the income of employees and enterprises in public admin- istration, public utilities, commerce, and services is supported by iron ore mining. A closure of the mines would therefore cause a further decrease in Government revenues, as the taxes on the personal incomes of the people affected would decline, along with the taxes on the imports related to these incomes. In this context it should be noted that the income tax base in Mauritania is extremely narrow, consisting only of the public sector and a relatively small number of private firms, many of which work directly with COMINOR. 2.14 In conclusion, the total loss in Government revenues which would result from the closure of the mines would most likely be such as to severely impair, and perhaps even prevent, the attainment of the country's social and development goals. Indeed, the capacity of the Governnent to maintain basic health, education and social expenditures would be in question. 3. Balance of Payments Effects 2.15 At present, iron ore exports account for 80% of Mauritania's foreign exchange earnings. Even assuming a major expansion in fish exports, iron ore would still represent 70% of exports of goods and non-factor services for - 6 - some time to come. The continuation of iron ore production is, therefore, also essential in order to maintain Mauritania's capacity to import the intermediate and capital goods which are necessary for the development of the country. If iron ore exports were to disappear, only a substantial devaluation would permit Mauritania to balance its external accounts. Such a devaluation would have further severe disruptive effects on development, because of the resultant sharp changes in relative factor prices, and the likelihood that foreign exchange rationing would have to be introduced in order to secure essential imports. It is also likely that the remaining foreign exchange earnings would be insufficient to cover the food bill (50% of Mauritania's food requirements are imported), and would thus cause mass migration. 4. Employment Effects 2.16 Iron ore operations currently provide 4,300 direct jobs to Mauritanians. These, in turn, sustain the entire population of Zouerate (30,000 people), along with a substantial proportion of that of Nouadhibou (also about 30,000 people) where the only other industry-fishing-directly employs less than 1,000 workers. The closure of the iron ore mines would, therefore, directly affect between 40-50,000 people. Furthermore, as dis- cussed above, if mining indirectly accounts for a third of service sector value added, then probably almost a third of employment in the services sector, or 6,500 jobs, would be lost. Employment in public administration would also be affected, as a large component of the civil servants' salary bill is supported by royalties on iron ore exports. The repercussions on the economy of a loss of employment of this magnitude would be difficult to exaggerate. 2.17 Both resettling these individuals in some other part of the country, and finding them alternative employment would be difficult. There are no significant alternatives in industry, while the sparsity of farmland would *not offer a viable alternative, and would require investments in housing and social services which are beyond the Government's means. III. SNIM -- THE COMPANY A. Background and Ownership 3.01 As noted earlier (para 2.02), the iron ore operations, originally established by MIFERMA in 1963, were nationalized in 1974. The effects of this change of ownership were fortunately not disruptive. Even though the question of compensation remained unresolved for almost two years, the former shareholders did not interrupt their iron ore purchases, and a satisfactory compensation agreement between the Government of Mauritania and the former shareholders was reached in January 1976. This called for a total payment of US$90 million from Mauritania, of which US$40 million was to be paid in cash, and US$50 million was to be paid in five equal annual installments. The cash payment was funded by a KFTCIC (Kuwait Foreign Trading, Contracting and - 7 - Investment Company) loan to the Government, at an interest rate of 8% for 6 years. The first US$10 million installment for December 1976 was paid by COMINOR, while the 1977 installment was paid by the Government. SNIM is to be reimbursed for the initial installment as part of a royalties rebate package to be granted by the Goveronent from 1978-85 (para 8.14), under whi<> the Government has also agreed to assume the liability for the remaining installments. 3.02 SNIM was established in 1972, as a State Company into which COMINOR was subsequently incorporated after the nationalization of MIFERMA. Other than COMINOR, which alone generates 90% of SNIM's revenues and constitutes 95% of fixed assets, SNIM includes a few minor ventures such as: (i) SNIM Explosifs (SNIMEX), an explosives factory which is entirely captive to the iron ore mine, (ii) Department de Commercialisation des Produits Petroliers (DCPP), 1/ a petroleum products distribution system, 40% of whose output is sold to the iron ore operations; and (iii) the gypsum operations referred to in para 2.06 above. In 1979 SNIbI will commence operation of SNIM/Acier, a mini steel mill to smelt COMINOR-generated scrap for the production of rebars for the local market (Annex 3-1). SNIM has its head-office and support ser- vices in Nouakchott; these include a technical department for miscellaneous project studies, a geological research group, and training facilities. In addition to separating the gypsum operation from SNIM (para. 2.06), the Government is making plans also to separate the DCPP from SNIM. As the DCPP is a profitable enterprise, the Government will compensate SNIM for all financial effects of the separation and has agreed to discuss with the Bank the level of an adequate compensation. In any event, SNIM would not be prevented from directly importing iLs oil at world market prices should the price of oil on the local market be higher. 3.03 The Government passed a decree officially separating SOMIMA, the copper company, from SNIM, on March 31, 1978, and actual operations were terminated on May 31. The associated financial settlement was reached on .August 10. Under this, the Government has agreed to assume SOMIMA's debt on SNIM's behalf. While there is a project under consideration to mine the underlying sulfide ore body and produce blister copper, the Bank has voiced strong doubts as to whether: (i) the envisioned smelter technique could in fact produce blister; and (ii) the ore's arsenic contamination could be reduced to levels which would not seriously impair the marketability of the final product. UNDP is presently financing a prefeasibility study. B. Organization and Management 3.04 SNIM was initially constituted as a State-owned Company, placed directly under the responsibility of the President of Mauritania, and admin- istered by a Board of Supervisors. In April 1978, following the divestiture 1/ Originally called UCPP - Unite de Commercialisation des Produits Petroliers - 8 - of SOMIMA, the company was reconstituted as a State-controlled, limited liability corporation (Societe d'Economie Mixte a Majorite d'Etat), permit- ting private and foreign ownership. The new SNIM is to be administered by a Board of Directors, chaired by a Mauritanian Governnent official and whose vice-chairman is a representative of the foreign shareholders. 3.05 SNIM's organization chart is shown on the following page (Chart 3-1). As can be seen, all operational units report directly to the Director General, who is assisted by a Secretary General. As mentioned earlier, COMINOR's position within SNIM is of exceptional importance, and its or- ganization chart is therefore shown on the subsequent page (Chart 3-2). 3.06 Although COMINOR's mining operations are physically dispersed between the mining town, which is 650 km inland, the railroad line, and the railroad maintenance yard and port facilities at Nouadhibou, operations have thus far been carried out in a smooth and efficient manner. This has been essentially due to: (i) an experienced and qualified expatriate staff which dates back to the operations prior to nationalization; (ii) a very capable Mauritanian General Manager; and (iii) a cooperative attitude on the part of the Government. In addition, MIFERMA's key management figures, who left after nationalization to form the consultant firm SOCOMINE, have remained closely involved with the management of COMINOR on a full-time basis ever since, and have in fact been chosen by SNIM to be the Guelbs project managers. 3.07 Also, in order to assist the Director General of SNIM, SNIM has agreed to employ prior to December 31, 1979, an experienced Director of Operations who will manage all technical, operational and personnel aspects of the mining, railroad and port operations. He will also be closely involved in coordinating the efforts of SOCOMINE and SNIM's project group at Zouerate. 3.08 Until 1977, the high caliber of SNIM's technical management was not matched by that of the financial management. While COMINOR's financial man- agement was adequate, that of the other operating units, and of SNIM itself, was poor. The problem was compounded by the steady addition of other diverse operating units, the continuing losses of SOMIMA, and the hasty development of SNIM's central organization in Nouakchott. Corrective measures commenced in 1977 with the hiring of a high calibre financial director and the contract- ing of the assistance of Helios (France), a reputable international auditing firm. Some progress has already been achieved, but further improvements are necessary. In particular, improved financial appraisal of new projects and other investments is required, along with the establishment of a new corpo- rate planning capability. SNIM has given assurances that (i) further strengthening of the financial department will take place; (ii) it will keep separate accounts for all its operating units; and (iii) it will not commit itself to new projects, or take over projects from others, without the prior consent of the Bank. MAURITANIA: THE GUELBS IRON ORE PROJECT SNIM ORGANIZATION CHART Chart 3-1 SharchoIders tDJ,ector GCneral Sra persJnnel Staff Develop- Organzat.on & Fn Ore Techn cal Exploration Mrt Departmene ment & Training Data Procesainn COMINOR Department & Geclogy _ari Oetfic Accounting ExpIotivet MCnOg I Prse n C as Distributions | | Treasury O i Cost Control - Gypsuin Quarry Fin & Plannirng -| Steel Fcunrdry Industrial Projects Department March 1978 V\Drid Bark 18868 MAURITANIA: THE GUELBS IRON ORE PROJECT COMINOR CHART 3-2 ORGANIZATION CHART SNiM Director General Director of NOUADHIBOU Operations ZOUERATE Port atid | Railroad Minin 7 Cost Control Public Relation _ining Public Ore Pr cessing Ortins eatotPltPlant Purchasing Personnel Railad Track Roadsand Schools Data Processing Schools Serice Roads and ~~~~~~~~~~~~~~~~~~~Othe Buildsangsd |-- Medical Service Infrast Buildings Infrastructure Other Infrastructure m Industrial Projects Department Vorld Bank 18867 March 1978 - il - 3.09 SNIM's head office in Nouakchott has grown considerably over the last three years into a complex of some 520 persons. In addition to the facili- ties provided by this organization, overseas commercial and personnel ser- vices are provided by recruitment and marketing agencies in Paris and a pur- chasing agency in Zurich. The cost of these facilities has been increasing rapidly; the technical department has been expending considerable funds in geological and other research, the construction of a new Head Office building in Nouakchott has required a heavy capital outlay, and SNIM's support services have been expanded to provide for the construction of a new State-owned re- finery in Nouadhibou, as well as the initiation of other industrial ventures. As a result, total operating costs of SNIM's central organization amounted to US$14.7 million in 1978, of which the Paris and Zurich offices alone accounted for more than US$3.0 million. This rapid expansion has led to some redun- dancies within the support services of SNIM's operating units, while both the divestiture and closure of SOMIMA, and the cessation of overhead expenditures for the oil refinery, should permit drastic reductions to be made in the central organization. Similarly, although activities not directly related to iron ore mining may in the long term yield benefits to SNIM and the country, they put considerable pressure on SNIM's cash-flow in the short term and thus on its ability to provide adequate equity for the Guelbs financing. They are therefore prime candidates for reduction. SNIM has now presented a compre- hensive program which will substantially cut overhead costs over a 3-year period. This will be partially achieved by closing the purchasing office in Zurich and transferring its activities to Mauritania, and by consolidating the two Paris offices into one, in line with the reduced needs of the company. 3.10 SNIM's training efforts are concentrated in a modern training center in Nouadhibou, on the job training in Zouerate, supplemented by a facility in Nouakchott and a trainee program abroad. While there is a clear need for intensive training at all technical levels, duplication is involved in having training dispersed in 3 locations. It appears that training in Nouakchott, primarily in clerical, administrative and accounting procedures, is largely of benefit to the country, rather than SNIM, as many trainees leave after program completion. The Bank has recently financed 1/ a training center in Nouakchott, which will become operational towards the end of 1979, at which time SNIM should phase out those aspects of training which are duplicated in the new center. Training in SNIM's Nouadhibou facilities concentrates on teaching basic mechanical and electro-mechanical skills. The success rate there, meas- ured in terms of the number of successfully promoted personnel retained within SNIM, is astonishingly high. Out of a total entry of 226 persons at the beginning of 1977, only 15% had been lost at the end of that year. Finally, on-the-job training takes place at Zouerate. Such training of equipment oper- ators is also very successful - all 53 candidates at the beginning of 1977 became successful operators. There are 10 expatriate technical instructors and 9 Mauritanian instructors involved in this latter training effort. 1/ Credit No. 459 MAU, Appraisal Report IBRD No. 255A, February 11, 1974. - 12 - 3.11 In the future, the major task of the training centers will be the education of the Mauritanians required to manage the Guelbs iron ore opera- tions, and so reduce the need for additional expatriate staff. These require- ments are as follows: Gross Additions of Staff for the Guelbs Project Staff Technicians Foremen Artisans Laborers Total Phase 1 5 24 102 115 352 598 Phase 2 0 6 17 89 455 567 5 30 119 204 807 1,165 Although personnel from the diminishing Kedia operation will be transferred to the Guelbs project, a considerable increase in mining machine operators is nonetheless required. However, SNIM is well equipped to provide the necessary training for these. 3.12 External financial support is justified for those training and research activities whose benefits accrue primarily to the country, rather than SNIM itself. SNIM is therefore preparing a program to find external financial support for such activities, and is to periodically report to the Bank on the progress of this effort. C. Past Operations 3.13 Mining of iron ore in the Kedia mountains occurs over a 25 km east/ west stretch: including Tazadit pits 1 through 9 in the east, followed by Rouessa pits 1 through 9, and Segala Azouazil and F'Derik 1 and 2 in the west (Map IBRD-13584). The remaining ore reserve in the Kedia mountains as of the beginning of 1979 was about 88 million tons. Under the existing ex- ploitation schedule, this will be completely mined out by 1990/91. Exploita- tion of Kedia has been, and will remain, conventional, with excavating shovels and front-end loaders loading the blasted ore onto dump trucks, which deliver the material to three primary gyratory crusher stations. These then either transport the ore via secondary and tertiary crushing stations to the stock areas (Rouessa), or deliver it directly to the storage areas (Tazadit and F'Derik). The ore wagons are loaded by bucket-wheel reclaimers, via load- out stations with a charging capacity of between 26 to 30 80-ton wagons at the Tazadit and Rouessa stations, and 14 wagons at F'Derik. At the end of June 1978, the operations at Zouerate employed 2,225 men, of which 115 were expatriates. 3.14 The railroad line connects the mining town of Zouerate with the Port of Nouadhibou, some 650 km to the west. Daily traffic currently consists of two trains, each 2 km long and transporting up to 15,000 tons. This gives the line an annual capacity of 11.5 million tons. The line could, however, easily accommodate 12 million tpy on a three-train-per day basis IBRD-13584 ISLAMIC REPUBLIC OF MAURITANIA INDUSTRIAL THE GUELBS IRON ORE PROJECT INSTAtLATONS I> Site Plan of Kedia Mining Operations and EL RHEINGUELB Location of the Eastern Guelbs Y g OUM ARWAGEN GJELE ^:F'DER F i U E RATE î ROUSS5A t I D 3I LL K E DIA IAIIMBEROFPITS 012045J \ 9 ° t Z ? t ? '° l MERIZET GUELS - L4 - and, with additional sidings, up to 14 million tpy could be transported. The railroad maintenance department is organized as shown on the following page (Chart 3-3). The Nouadhibou and Zouerate services are the most important divisions, each operating three or more equally-spaced, fixed maintenance stations along the track. Ore transport is effected by 26 Alsthom diesel electric locomotives, and 1,080 ore wagons. 3.15 The main railroad shops at Nouadhibou have developed a rigorous overhaul system over the years, which is essential for effective operation in desert conditions. The main features for locomotive maintenance are: (i) daily three-hour, routine servicing; (ii) 7,500 and 15,000 km partial over- hauls; (iii) 30,000 km full overhauls; and (iv) total disassembly after 275,000 km, and re-assembly over a period of 17 days. Currently, 111 expatri- ates are employed in the railroad operations, along with 1,127 Mauritanians. 3.16 At the mineral port, located about 14 km south of Nouadhibou, the ore trains are subdivided into lots c,f 15 cars. Each car is emptied by an ore car tipper which can handle 40 wagons per hour. After this the ore is transported by conveyors to the crushing and screening station, and eventually deposited by two stackers alongside the port, in an area capable of holding a total of 2 million tons of ore. The mineral is carefully stocked according to the 9 Kedia qualities marketed. l`he reclaiming of the stocks is effected by 3 bucket wheels, with a capacity of 3,000 tons per hour each. These units are augmented by power shovels. The shiploader can handle 5,500 tons per hour and can charge 100,000 tons in about 30 hours if the ship demands only one quality of ore. Currently the pier handles ships up to 150,000 dwt. The port department employs a total of 514 persons (of which 68 are expatriates) in operating and managing these facilit:Les, which are capable of handling a total of 12 to 14 million tons per year. A layout of the port area, with a func- tional description, is given in Chari: 3-4. 3.17 Port, railyard and mining operations are supplemented by adequate *power generation in Nouadhibou, as well as in Zouerate. Social infrastruc- ture includes an integrated primary and secondary school, a modern hospital in Zouerate, and adequate housing and sports facilities for staff and workers in both Zouerate and Nouadhibou. 3.18 The physical security of CtDMINOR's entire iron ore operation remains potentially threatened by guerilla attacks. The attacks of the Polisario against the mining town of Zouerate in the spring of 1977, and the frequent disruption of railroad operations in late fall of the same year and there- after, taxed COMINOR's management heavily. However, while the successful spring attack caused about 30% of the expatriate staff to Leave and had a temporary negative effect on the morale of those remaining, it resulted in a lowering of operating costs because of salary savings due to expatriate departures. Additional lowering of operating costs were simultaneously achieved through improvement of the ore-handling system and reductions in the cost of truck haulage. While these simultaneous operational improvements would indicate that management has been more than successful in Mauritaniz- ing key posts at the mine (which, te an extent, is certainly due to the elaborate training programs COMINOR has mounted), there is, nevertheless, a limit as to how many expatriates can be lost without affecting efficient MAURITANIA: THE GUELBS IRON ORE PROJECT ORGANIGRAMM DEPARTEMTMENT RAILROAD-MAINTENANCE CHART3-3 Department Chief Rail \Norks Stud ips Administrativ Maintenance Service Maintenance Service Include Sand Removal, Nouadhibou Zouerate ~~~~~~~Ballaeting and Rail ResearchService Nouadhibou Zouerate VVWeld ing Shop Permanent Station Permanent Station Nouadhibou KM 319 j _Permanent Station Permanent Station KM 96 KM 460 2 Permanent Station i | Permanent Station | KM 180 J 7 KM 569 Grinding Train Permanent Station Unit 1 J Zouerate Grinding Train _Unit 2 Industrial Projects Department March 1978 World Bank - 18866 MAURITANIA: THE GUELBS IRON ORE PROJECT CHART 3-4 PORT INSTALLATIONS S N Distribute 10GE3 -108 Crusher Double Deck 1 m Screening 5ûl1 0 ,rm I * ~ >\~ ^;Si6r cm i 06 A 5 I Mobile Feeder v m ~~~~~~~~~ ^t-Silo 2 Screens - - Pre Screened I of 50 mm ç Rclaimer1 X o n -5 E-: -- _= DD 1 2 - _ - D mmm...] m iua Tt TmTS los a ,_-3D - --"3 D -CE, »w- | t^o L- Front End Loader < < I End ' 4 1 : ; :1Secondary :~ J tt .i st} J S c re e n in g Reclaimer 1 Screen at 40mm LJ-1 -3E 1i Screen at lOmm L.J t~) Shore LUne Moistering $ | Legend Stathiong muwmmwwmwmW -Minerais to Stock mz/mcm _ Primary Screening Sampl ing Station / mummumM Secondary Screening Secondary Crushing Load i ng Shiploader 4D -/ ~~~~~~~~~~Pontons Industrial Projects Department World Bank 18869 March, 1978 - 17 - operations. Efforts must therefore be made to hire and retain the necessary key expatriate personnel. In addition, whether the Company could cope with other continuing disruptions of the railway line and keep up proper maintenance despite such disruptions over extended periods of time remains to be seen. Whilst the mining town of Zouerate ncw appears well protected by mobile Mauritanian units surrounding a walled defense perimeter, which is in turn permanently manned by Moroccan troops, the railroad line to the coast remains vulnerable to guerilla attack, and this has already had repercussions on COMINOR's excellent track maintenance system. However, it should be noted that since the new government took over on July 10, 1978, the ceasefire proclaimed by the Polisario has held, and no military incident has occurred since. It is to an extent a measure of confidence that all maintenance stations along the track have been remanned and are operating normally. Nevertheless, due to events in the early part of 1978, iron ore sales for 1978 amounted to 6.5 million tons instead of the 8.6 million tons originally projected. D. Past Performance and Recent Financial Position 3.19 As noted earlier, COMINOR is the most significant entity in SNIM, representing about 85% of total sales, or 90 to 95% of the Company's sales excluding SOMIMA. The financial position of SNIM is therefore, predominantly determined by COMINOR's operating results. Recent sales and financial data for COMINOR - for which separate financial statements and accounts are kept - are summarized below and are detailed in Annex 3-2: COMINOR: FiLnancial Indicators (US$ million) /a /b 1971 1972 1973 1974- 1975- 1976 1977 1978 Sales volume (million tons) 8.60 8.62 10.33 10.69 9.65 9.66 8.42 6.5 Average FOB price/ton (US$) 10.5 10.1 9.5 11.6 15.6 16.3 15.5 14.4 Iron ore sales 98.7 87.6 98.2 124.0 150.4 156.2 130.6 94.7 Taxes /c 7.1 6.5 8.1 10.5 10.0 15.9 13.2 4.2 Net profit after taxes 3.5 3.7 4.2 21.6 22.0 18.6 (4.8) (9.9) Cash generation n.a. 20.8 14.2 31.8 28.9 40.0 15.5 11.0 Gross fixed assets 282.2 306.2 325.1 332.2 351.8 366.1 369.1 382.7 Net profit after taxes as % of sales 3.6 4.3 4.3 17.2 14.6 15.0 (3.2) (9.7) Total direct costs/ton (US$/ton) 4.8 4.6 4.8 5.8 9.3 9.0 10.4 9.3 Debt/equity ratio 45:55 44:56 44:56 25:75 19:81 14:86 12:88 11:89 Current ratio 1.62 1.393 1.04 0.94 19.81 1.51 1.14 0.98 Debt service coverage n.a. 2.14 1.17 1.96 1.00 6.1 n.a. n.a. /a Eleven months. /b Thirteen months. /c Royalties and other direct taxes, but excluding taxes on salaries, imports, etc. - 18 - COMINOR's, and before 1974, MIFERMA's, sales and profitability have varied closely in line with the cycles in the world iron ore market, and the general level of economic growth in the major steel producing countries. Sales and profitability peaked in 1973-74, when the completion of MIFERMA's expansion program, resulting in a total capacity of 11.5 million tpy, coincided with a very strong demand for iron ore world-wide. Average FOB prices for Kedia ore further increased to US$15.6/ton in 1975, but sales volumes began to decrease, as the first effects of the recession of the steel industry in the major producing countries were felt. 3.20 Profitability was further reduced in 1977 as export prices dropped almost US$1 per ton on average against 1976 and as security problems seriously affected operations. In 1977, the net effect of the security problems was to reduce exports from an estimated 9.5 million to 8.4 million tons, with a corresponding reduction in net cash flow of US$12 million. In 1978 the production further dropped to 6.5 million tons resulting in a net loss for COMINOR of about US$10 million. The last two years' results cannot however be considered a valid illustration of COMINOR's earning capacity under normal operating conditions. It should also be noted that in bad years COMINOR's financial results have been further adversely affected by the tax system, under which, since 1976, COMINOR has essentially been paying an export royalty of 10% of FOB sales, regardless of the operation's actual net profits. This system has been perpetuated because of the Government's need to keep its main source of revenues steady, rather than depend on fluctuating income taxes or dividends. The Government has however, agreed to change the rate of taxation - at least during the project execution period (para. 8.07). 3.21 Within SNIM, the positive results generated by COMINOR have in the past unfortunately been offset by the substantial losses of SOMIMA, and, for the last two years, by the heavy expenditures of SNIM's Nouakchott organiza- tion as well (para. 3.08). This is illustrated by the financial data summar- ized below from that provided in Annex 3-2. SNIM: Selected Financial Data 1975-78 (US$ Million) 1975 1976 1977 1978 Total Revenues: Total SNIM 192.0 189.1 166.9 119.8 of which COMINOR /a 169.1 168.2 141.0 102.4 Net Profit: Total SNIM (0.2) (0.8) (22.6) (15.6) of which COMINOR 22.0 18.6 (4.8) (9.9) Cash Generation: Total SNIM 39.4 30.2 10.6 9.5 of which COMINOR 28.9 40.0 15.5 11.0 /a Includes also other revenues than from iron ore sales. - 19 - A more detailed breakdown is given below for 1978. SNIM: Selected 1978 Financial Data (US$ Million) Total Other SNIM SNIM COMINOR lJnits Revenue 119.8 102.4 17.4 Taxes 4.9 4.2 0.7 Net profit after tax (NPAT) (15.6) (9.9) (5.7) Cash generation 11.0 9.5 1.5 Net fixed assets 170.8 140.4 30.4 NPAT as % of sales (13.0) (9.7) (32.8) Debt/equity ratio 25:75 11:89 81:19 Current ratio 0.66 0.98 0.45 /a Includes US$10.4 million of revenues other than iron ore sales. b After allocation of 83% of SNIM's overhead to COMINOR. (If, for example, the high cost of SNIM's Nouakchott training center could be financed otherwise, the loss is reduced to US$2.2 million). From 1975 to 1977, SNIM's consolidat.ed results reflected the poor perfor- mance of SOMIMA, which generated average net losses of US$20.3 million and cash shortfalls of US$11.8 million per annum throughout the period. As the above tables indicate, excluding SOMIMA, SNIM has been an essentially profit- able venture, with the exception of a net loss incurred in 1977 and 1978. This result, however, stemmed principally from COMINOR's low profit generation in the face of security problems, coupled with the high royalty payments referred to above, and was combined with the first effects of the ambitious program initiated by SNIM in 1975 for the development and diversification of its central organization. IV. THE MARKET FOR IRON ORE A. The Demand for Crude Steel and Production 4.01 Forecasting of future steel demand is particularly difficult given the present depressed market and the uncertain prospects for the steel industry in traditional steel producing counlries. This is demonstrated by various recent forecasts (EC, UNIDO, IISI, AISI and the 1977 Bank study) 1/ which differ substantially. 1/ EC = European Community, IISI = International Iron and Steel Institute, AISI = American Iron and Steel Institute. - 20 - 4.02 The latest published (1977) forecast of the IISI was the following: Crude Steel Demand in 1981 and 1985 (In Million Tons of Crude Steel Equivalent) 1977-85 Projections Annual Rate 1981 1985 of Growth % Total World 995 1,058 +4.9% World, excluding Centrally Planned Economies (CPEs) 606 717 _ of which Industrialized countries 512 588 +4.7% Developing countries 94 129 +8.4% The above projection is roughly in line with UNIDO's forecast 1/ of 1,069 million tons in 1985, but is considerably higher than the 900 million tons that the 1977 Bank study 2/ would suggest for the same year. 4.03 For the purpose of this market study, three new demand forecasts have been prepared. The first 2 forecasts, prepared by the Bank's Economic Analysis and Projection Department (EPD), use a trend line (based on the elasticity of demand for steel and GNP growth) for specific groups of coun- tries, assuming future growth rates of GNP lower than the historic ones. The first of these (Case A) uses a trend line adjusted for a decline in elastici- ties below historic values after 1977. The second forecast (Case B) uses as a "high case" the unadjusted historical trend line i.e. with historic elasticity values. The third forecast, the base case, was prepared by the Bank's Indus- trial Projects Department, and uses as a base the 1977 actual consumption (instead of the high base of 1974/1975 used by other studies), and a growth rate of 3.4%, 3/ against the historical 4.5% for the period of 1955-77. Cases A and B generate projections which are perhaps over-optimistic and out of line with views expressed by industry sources. The base case, on the other hand, is conservative but not unreasonable considering present expectations. The three projections are detailed below: 1/ UNIDO Draft Worldwide Study of the Iron and Steel Industry 1975-2000 (December 1976). 2/ International Prices for Rolled Steel Products, Report commissioned by the Bank, by Mrs. Caroline Doggart (June 1977). 3/ IJsing for specific groups of countries specific growth rates of steel consumption intermediate between those of the 1977 Bank study and Case A above. - 21 - Crude SteeL Demand Forecast (Million Tons) Growth Rates 1977-85 (%) 1977 1980 1985 la lb BC BC- A B BC A B US, Japan, EEC 3 316 345 357 380 400 408 436 Other Developed Countries 3 64 70 78 78 81 90 90 LDCs 7 69 85 94 104 119 128 165 Total, excluding CPEs - 449 500 529 562 600 626 691 CPEs 3 250 280 275 275 319 341 341 Total: World 3.4 699 780 804 837 919 967 1,032 /a IISI preliminary data for 1977. /b BC = Base Case; A = declining income elasticity after 1977. B = historical income elasticity. 4.04 A forecast of world steel production has been established by compar- ing data from different sources (IISI, 1977 World Bank study, UNIDO, AISI 1/ and various project feasibility studies), and by making various corrections regarding capacity utilization, probable delays in start-up of new plants, and export patterns. In particular, production from plants in LDCs has been discounted in 1980 and 1985 by 10% and 15% respectively below announced production capacity, to account for longer than expected implementation delays and slower than foreseen learning curves in new plants. A likely pattern of crude steel production, corresponding to the Base Case of steel demand, would look as follows: 1/ Economics of the International Steel Trade, Putnam, Ilayes and Bartlett, May 1977, prepared for the American Iron and Steel Institute (AISI). - 22 - Crude Steel Production Forecast (Market Economies) (Million Tons) 1976 1977 1980 1985 us 115 113 127 141 Japan 107 101 115 134 EEC 134 127 138 162 Subtotal 356 341 380 437 Other DCs 58 56 77 93 LDCs 36 40 57 87 Subtotal 94 96 134 180 Total, excluding CPEs 450 437 514 617 Net exports to CPEs 10 10 Total Available Production 504 607 The country by country production forecasts corresponding to the summary table above are detailed in Annexes 4-1 to 4-5 inclusive. Total production in Market Economies is projected at 514 million tons of crude steel in 1980 and 617 million tons in 1985. Net exports to CPEs are estimated to be about 10 million tons 1/ during the eighties. The resulting steel production available for consumption in the Market Economies corresponds to the "Base Case" demand forecast of para. 4.03. B. The Supply of Iron Ore 4.05 During recent months, documentation on iron ore developments has been compiled on a country-by-country basis, in order to establish the degree of certainty with which additional iron-ore capacity is likely to be forthcoming. The following categories of capacity additions, with their varying degrees of certainty, have been differentiated: (i) expansions and new projects currently under implementation, to be completed prior to 1981; (ii) other expansions and new projects which are firmly planned to come on stream by 1981; 1/ The forecast of the Japan Iron and Steel Exporters Association foresees continued steel imports into the CPEs. Net imports of steel by the CPEs reached 10.7 million tons in 1975. - 23 - (iii) planned increases in mining capacity to be completed during 1983-85 through expansions of existing and new mines; and (iv) possible increases in mining capacity by 1985, through expansions of existing ancl new mines, the implementation of whicti is not yet assured. 4.06 Production estimates under categories (i) and (ii) can be forecast fairly reliably, since they generally relate to firmly committed capacity ex- pansions. On the other hand, forecasts for the period 1983 to 1985 (catego- ries (iii) and (iv)) are less reliable. Many projects, though well developed on the drawing board, are not yet firmly planned, and will tend to slip if market expectations are not forthcoming. The total production of all mines which could be operative by 1985 should therefore be considered a "possible" maximum. Furthermore, the production of all new projects cannot entirely be treated as incremental, since some of these projects replace existing mines. To take these factors into account (as well as realistie capacity utilization sites) nominal capacities have been discounted by 10% in the projections of available production given here. 4.07 The supply of iron ore worldwide is essentially dominated by the seaborne iron ore trade. Available seaborne iron ore exports consist of net exports of iron ore-producing countries, calculated as the total iron ore pro- duction minus internal requirements. Annexes 4-1 and 4-2 contain detailed forecasts of seaborne iron ore supply from major export areas. In these forecasts, the portion of ore production not available for exports i.e. required for the domestic steel industry, has been estimated on the basis of the Base Case steel production forecast of para. 4.03. The resulting projected seaborne iron ore supply is summarized below: Total Supply of Seaborne Iron Ore (In Million Tons) 1975 1980 /a 1985 /b (Actual) (Implemented) (Possible) Iron Ore Exports From Developed Countries 155 213 266 Frnm LDCs 175 202 263 Total (nominal capacity) 330 415 529 Total available (at 90% capacïty utilization) 374 476 /a Based on categories (i) and (ii) of para. 4.05. /b Based on categories (i), (ii), (iii) and (iv). - 24 - C. The Demand for Iron Ore 4.08 Total iron ore requirements can be derived from steel production forecasts. However, the ratio of iron ore to crude steel varies with such factors as Fe content and the use of scrap as a source of additional iron units. Such factors have been examined on a country-by-country basis. The iron ore/crude steel ratio for Japan, the EEC and other countries where the conventional blast furnace is the major route for steel making, was assumed to be 1.2, which corresponds to an average iron-ore grade of 56% Fe. Steel producers with existing or future direct reduction capacities are projected to use a factor of 1.5 for the conversion of iron ore to sponge iron. On the other hand, the actual average ore/crude steel ratio for the US in the 1970s has been only 1.07, which reflects the high use of scrap in that country. 4.09 The demand for seaborne iron ore in major steel producing countries (Annex 4-3) is, of course, also determined by domestic iron ore production, 1/ particularly in the US. Since 1950, US domestic ore supplies have steadily decreased, to the benefit of imported ores. Although reserves are available to cover the entire US demand in the foreseeable future, benefication of taconite iron ore resources is expensive. Whether the US mining companies, and the steel companies who operate many captive mines, are willing or able to commit substantial additional financial resources to taconite mining and expensive benefication (pelletizing) plants remains open to question. For the purposes of this study, it has been conservatively assumed that the US will not allow imports above the 1965-75 average, which means a domestic iron ore production of no less than 70% of their total requirements. 4.10 Another important domestic market exists in France, where the Lorraine region produces about 50 million tons of ore annually. However, all market studies consulted indicate that this region will produce increasingly less in the future because of: (i) the low grade and high phosphorus content of the ore; (ii) ever-increasing mining costs as the mines get deeper; and (iii) rail transportation costs to inland steel plants, which are increasingly uncompetitive with ocean freight costs to coastal steel mills. Although at least a partial phase-out of the Lorraine iron ore mines will be inevitable, the analysis in this report assumes that for socio/political reasons only a slight reduction in the volume of domestic iron ore volume supply will occur through 1985. 4.11 The demand forecast for seaborne iron ore in other industrialized countries, and steel producing LDCs which are not iron ore exporters, are detailed in Annexes 4-4 and 4-5. The total demand for seaborne iron ore corresponding to the three cases of world steel demand/production detailed above, is projected below: 1/ Recent market studies of SNIM, IRSID, CVRD and Ecole des Mines (Paris) have been used to estimate domestic iron ore supply. - 25 - World: Total DemarLd for Seaborne Iron Ore (In Million Tons) 1975 1980 1985 (Actual) Case Case la la BC A - BC A B- US, Japan, EEC 323 317 336 346 378 386 408 Other DCs 10 19 21 23 31 34 34 LDCs 4 14 15 15 43 47 53 CPEs - 12 12 12 18 18 18 Total World 337 362 384 396 470 485 513 /a Cases of world steel demand described in para 4.03. While the major steel producing countries (US, Japan and the EEC) will continue to dominate world iron ore demand in the foreseeable future, other markets, par- ticularly in LDCs, will grow faster, albeit from a very low base. Thus, the share of the seaborne trade in iron ore going to the major steel producing coun- tries is expected to shrink from 90-95% in the mid-70s, to about 80% by 1985. At the same time, demand for seaborne iron ore in developing countries is pro- jected to increase from less than 5 million tons per annum in the mid-70s, to about 15 million tons in 1980 and 43-53 million tons in 1985. In addition, recently initiated exports to CPEs are expected to grow, tespecially to main- land China. D. Supply and Demand Balance for Seaborne Iron Ore 4.12 The projected supply and demand for seaborne iron ore are compared below: Supply and Demand - Seaborne Iron Ore Trade (In Million Tons) 1975 1980 1985 (Actual) Case Case BC A B BC A B Total Supply 330 374 374 374 476 476 476 Total Demand 337 362 384 396 470 485 513 Excess (Deficit) (7) 12 (10) (22) 6 (9) (37) - 26 - 4.13 The supply/demand base case for seaborne iron ore shows in a rela- tively small oversupply in both 1980 and 1985. But the 12 million tons of excess iron ore in 1980 could easily diminish, or entirely disappear, if: (i) US domestic production turns out to be lower than assumed, because of insufficient investments in mine expansions or new mines in the near future; (ii) production of low-grade ore in Europe is further decreased due to dec- lining grades and increasing operating costs; (iii) ore to steel conversion ratios in LDCs are worse than assumed, because of less efficient operations than those of traditional steel producers; and (iv) the USSR production available for export to other CPEs is lower, due to emerging problems of lower grades, deeper pits and exhaustion of reserves, particularly at mines located near existing steel centers (Ural, Krivoi-Rog). On the other hand, should the iron ore supply become potentially tight due to one, or a combination, of the above factors, it can reasonably be assumed that capacity utilization at existing mines could be increased, at least over the short term, so that a supply/demand balance would be forthcoming without necessitating additional investments. 4.14 As indicated, the supply/demand balance for 1985 could turn out to be tight. In practice, however, the projected shortfall of iron ore sup- ply, as derived under cases A and B, is unlikely to occur as existing mines have sufficient flexibility to rapidly expand production temporarily. Also, it can be assumed that there would be some advance warning of such strong demand for iron ore, and that this would, in the first instance, spur rela- tively cheap and quick expansions in mining capacity in the period 1980-85. The overall effect is expected to be a fairly balanced supply/demand situation through the mid-1980s, with the possibility of oversupply developing once more towards the end of the period 1985-90, when new mine investments, such as Carajas in Brazil, will start production. It should also be noted that the Guelbs Project should not experience substantial marketing problems, since the increment in iron-ore supply which the project will introduce on to the world market is rather small (3-4 million tpy, or less than 1% of total net exports). E. Pricing of Iron Ore 1. International Prices 4.15 Like most major commodities, iron ore prices fluctuate between high and low cycles of about five years. Although many major cornmodities have gained in real terms over the past 25-years, iron ore prices have remained generally constant. Thus iron ore prices of the late 1950s compare to those of the late 1960's and, although abnormally high prices were experienced in 1974 and 1975, prices are now back on the flat trend line that has prevailed throughout the past 25 years. 4.16 World market prices for iron ore are generally quoted CIF Rotterdam, and are calculated on the basis of iron units contained. Price differences are related to the types of ore, which are generally categorized as fines, run-of-mine (R-0-M), lumpy, and pellets. Historical Rotterdam prices have been as follows: - 27 - Iron Ore Price - CIF Rotterdam (US$ per ironi unit per ton) Fines R-O-M Lumpy Pellets 1967 0.127 - 0.135 0.14 - 0.155 0.16 - 0.185 0.225 - 0.235 1968 0.12 - 0.135 0.14 - 0.155 0.165 - 0.18 0.22 - 0.23 1969 0.12 - 0.135 0.14 - 0.155 0.165 - 0.175 0.21 - 0.23 1970 0.135 - 0.148 0.15 - 0.165 0.18 - 0.195 0.23 - 0.25 1971 0.16 - 0.17 0.185 - 0.195 0.20 - 0.21 0.265 - 0.275 1972 0.145 - 0.165 0.16 - 0.18 0.19 - 0.20 0.25 - 0.27 1973 0.16 - 0.17 0.17 - C0.19 0.20 - 0.21 0.27 - 0.29 1974 0.23 - 0.24 0.255 - C'.265 0.29 - 0.30 0.35 - 0.36 1975 0.32 - 0.33 0.34 - 0.35 0.40 - 0.41 0.53 - 0.54 1976 0.275 - 0.285 0.30 - 0.31 0.34 - 0.345 0.48 - 0.49 1977 0.28 - 0.285 0.29 - 0.30 0.33 - 0.335 0.47 - 0.48 1978 0.25 - 0.265 0.255 - 0.265 0.28 - 0.29 0.40 - 0.405 Sinter feed, such as the concentrates to be produced by the Guelbs, would generally fall under "Fines." However, since sufficient lumpy high-grade ores and run-of-mine material are increasingly hard to come by, fine ore with a predictable granularity, such as the Guelbs concentrates, is likely to be increasingly used as a replacement. This process of (gradual) replacement is expected to be accompanied by an increase in prices for "Fines," but the price forecast presented in this report ignores such a possibility. 4.17 Since most of the seaborne-traded iron ores are similar in their respective grade categories, FOB prices tend to be comparable as well. What then becomes important are the freight rates. These fluctuate greatly but also clearly favor ores close to major markets, such as Mauritanian ores for Western Europe, as indicated in the following table. Freight Rates for Iron Ores from Different Destination to Rotterdam (US$ per metric ton) Country and Ports 1973 1974 1975 1976 1977 of Embarkation AFRICA Nouadhibou 2.02 3.55 3.23 1.82 2.00 Monrovia 2.60 4.04 4.08 2.71 3.15 Lower Buchanan 2.60 4.14 4.13 2.76 3.20 BRAZIL Tubarao 3.50 5.90 5.40 2.76 3.40 CANADA Port Cartier-Sept Iles 2.32 3.94 3.80 1.86 2.32 SCANDINAVIA Narvik 1.40 2.32 2.24 1.50 1.80 Kirkenes 1.86 2.49 2.90 1.81 2.23 Lulea 2.10 3.70 3.53 3.00 3.55 - /8 - 2. Prices for the Kedia and Guelbs Ores 4.18 Total production costs (inclusive of depreciation and financial charges) and returns on equity for existing efficient mining operations are important yardsticks for future price levels, as it can be assumed that sales prices will generally allow reasonable returns to efficient producers over the longer term. The following are indicative costs for some major existing mines: 1977 Iron Ore Costs of Selected Mines (US$/ton) Total F.O.B. Cost Freight Rotterdam FOB CIF Mt. Wright (Canada) 12.8 /a 3.2 16.0 Sishen (S. Africa) 13.0 5.0 18.0 Kedia (Mauritania) 13.0 /b 2.0 15.0 /a Adjusted for pellet feed. /b Break-even cost. 4.19 CIF costs (in 1977 terms) of some major new iron ore projects are estimated to be the following: US$15/ton for Mt. Nimba; US$16/ton for Mt. Klahoyo, and about US$17/ton for Carajas--all expected to come on stream by 1985, or somewhat later. This would compare to a projected average of US$15/ton (mix of Kedia and Guelbs products) in 1983, and US$14/ton in 1991, for Guelbs concentrates, also in 1977 terms . As shown in the above table, the competitiveness of Kedia/Guelbs material is further enhanced by a freight advantage in the European market, over the Australian, Brazilian and other West African producers. This plays an important role in a buyer's market situation such as exists at present, and such as is expected to redevelop in the late 1980s. 4.20 For the purposes of financial projections, the FOB Nouadhibou price in 1977, of US$15.2/ton, has been taken as a base, around which the actual sales price for Kedia ore is expected to fluctuate year-by-year, according to the projected market cycles (para. 4.15). After a drop in 1978 and 1979 due to poor short-term prospects and to the high silica content of the ore which SNIM is marketing at the requests of its clients, prices have been assumed to gradually recover and again to reach the 1977 level of US$15.2/ton in constant 1977 terms in 1982. In line with the projected balanced supply and demand situation after 1981, prices have been assumed to rise to pre-1977 levels (in constant terms) in the 1984-85 period. Thereafter, they would gradually decline again during the next low cycle. By 1990/91, prices are assumed to have recovered to the 1981 levels. The resulting price variations are as follows: - 29 - Average Kedia Ore Sales Price (US$/ton, FOB Noadhibou) 1977 1978 1979 1980 1981 1982 1984k 1986 1989 1991 Current terms 15.2 14.1 13.8 16.4 19.0 21.7 25.4 28.5 29.9 39.9 Constant 1977 terms 15.2 13.1 11.8 13.1 14.2 15.2 15.5 15.2 13.1 15.2 4.21 For the Guelbs ore, a similar pattern of price changes has been retained, but around a base price of US$16.9/ton in constant 1977 terms. This price is about 10% higher than that of the Kedia ores because of a higher Fe content (65% instead of an average of 55% for Kedia). The Guelbs ore is also likely to command an additional premium in view of the magnetic characteris- tics of two-thirds of the output. This, however, has not been taken into account. 4.22 It should be noted that, with the iron ore prices as forecast above, new mines such as Mt. Klahoyo and Carajas with their projected higher FOB costs, might be expected to be financially marginal. ODn the other hand, this could perhaps indicate that a real increase in prices ought to be forth- coming after 1990, once a larger proportion of these new, more expensive, iron ore mines are in operation, requiring higher prices to achieve a reasonable operating profit. F. Market Prospects for Guelbs Sinter Feed 1. Testing of Guelbs Concentrates 4.23 Laboratory testing of the Guelbs ore qualities, magnetite and hematite has been completed. In gerneral, the results show that Guelbs sinter, when mixed 20:80 with a known, accepted sinter base feed, will have the following results in blast furnace operations: (i) increase productivity; (ii) decrease overall fuel consuumption; and (iii) slightly increase the mechanical resistance of the sinter. The table on page 30 summarizes the laboratory test findings carried out with magnetite ore in Japan, in order to determine the sinter efficiency of the ore. - 30 - Guelbs Sinter Efficiency (Magnetite A) Increase (Decrease) in Blast Furnace Productivity with varying Percentages of Guelbs Ore in Total Feed % of Guelbs Ore in Total Feed Japanese Companies 5% la 10% /a 20% /a which executed tests % Increase (Decrease) in Blast Furnace Productivity Kawasaki 2% 10% 17% Kobe 1% 3% (4%) Nippon-Kokan - - (4%) Nippon Steel - - (13%) Sumitomo 2% - 7% Nisshen - - 25% /a Indicates percentage of Guelbs ore in total feed. Similarly, commercial tests in Europe demonstrated that a 20% to 30% replacement of various feeds (such as Morro Agudo base Feed, Venezuelan fines, and normal Cockeril base feed) with each of the Guelbs qualities brought about productivity gains in the blast furnace of up to 11% (with an average of 6.2%), and fuel savings of up to 6.6% (with an average of 4.9%). This confirms that the Guelbs material is a prime sinter feed, which permits a reduction of sinter costs when mixed with various well-known European and Japanese base feeds. 2. Future Sinter Demand 4.24 The cost of coke and iron units constitutes, on average, 80 to 85% of the production cost of iron making. For this reason great efforts are being made to decrease these cost items. A reduction in the cost of coke may perhaps be achieved in the long run by way of "form coke", which is a blend of different coals of poor, or non-coking quality, treated to form a high-quality coke briquette. However, while several techniques exist to produce form coke, this has not yet resulted in any substantial cost savings. A major concern of the iron and steel industry is, therefore, to optimize coke and iron unit consumption, as well as general blast furnace productivity. Competition in this respect between the various iron ore feeds, such as pellets, lumpy ores, natural fines, and concentrates, is thus likely to become more severe in the future. A premium demand may therefore be assumed for: (i) a high iron con- tent feed; (ii) a feed with high thermal efficiency, to minimize fuel and reductants consumption; and (iii) good physical resistivity in the blast furnace, for optimal productivity. 4.25 In terms of iron units, pellets or sinter feed concentrates are normally of equally high grade. The advantage of sinter, however, lies in the fact that it can be self-fluxing, thus reducing coke consumption, whilst pellets can only be made self-fluxing at additional cost, and are not suitable for transportation thereafter. A recent SOFRESID study indicates that, theoretically, cost savings of US$8 per ton of pig iron could be achieved - 31 - by using 100% sinter in the feed, instead of 100% pellets. This is primarily due to: (i) savings in the grinding required for pellets; (ii) smaller initial capital outlays; and (iii) overall reduction in thermal requirements. 4.26 In addition, the SOFRESID comparison does not take into account the fact that the coking plants attached to normal blast furnace (BF) oper- ations in Europe and Japan produce coke breeze of the order of 60 kg per ton of pig iron. This coke breeze - which can seldom be sold, even at low prices --is recycled into the sinter strand, and thereby results in an added thermic benefit not found with the pellet route. In terms of mechanical properties, the pellet is perhaps superior to the finer sinter, but only to a very limited extent. 4.27 It has become general practice in the EEC and Japan to feed the blast furnace with a charge of agglomerated feeds (sinter and pellets) varying from a minimum of 60% to a maximum of 100%. Within these parameters, the blast furnace operator accepts no more than 20% (acid) pellets and 20% graded ore (lumps). The steady historical growth of the use of agglomerated feeds, at the expense of natural lumpy ores and fines, is illustrated below: Composition of Iron Ore Consumption in Steel Plant Operations (%) Direct Iron Ore Consumption Iron Ore Consumption in Blast Furnaces in Sinter Plants EEC Japan EEC Japan /a 1960 74 43 25 57 1965 44 29 57 71 1970 38 12 61 87 1974 18 9 81 91 .1975 21 7 77 93 1976 20 6 79 94 /a Includes pellets which contribuited 4% of total BF charge in 1969, 15% in 1970, and 12% in 1976. Source: Iron Ore Manual; Tex Report. 4.28 The present tendency in Europe and Japan is to use increasingly larger percentages of self-fluxing sinter in the blast furnace (at least 70%). The scarcity of natural high-grade :Lumpy ores of the non-decrepitating kind will result in a growing use of agglomerated feeds as a substitute. Within this framework, however, pellets will be used in BF operations only as far as necessary, as pellets are more expensive and their acidity poses problems for the burden preparation. The growth of pellet use is expected to level off in - 32 - both Japan and the EEC, perhaps not only for cost reasons, but also due to the fact that sintering installations with sufficient capacity to handle feed requirements corresponding to the projected growth of steel production until the mid-80s are already available. This will enhance the market prospects of good sinter feed. 3. Conclusion 4.29 The Kedia hematite ores, in the form of both natural fines and lumpy material, constitute well-established sinter and direct BF feeds in Europe and, more recently, in Japan. This production will be gradually replaced by the Guelbs self-fluxing magnetic sinter feed, which shows com- parable, if not superior, properties when compared to currently used European and Japanese ore feeds in terms of: (i) fuel savings on the sinter strand; and (ii) productivity gains in the BF. As it is now foreseeable that the demand for prime sinter will grow in the EEC and Japan, the relative dis- advantage for COMINOR of marketing a new product should be more than com- pensated for by the good characteristics of the Guelbs concentrates. SNIM's marketing efforts will be facilitated by the good relationship SNIM has maintained with its traditional clients, particularly the reputation for reliability which SNIM enjoys among iron ore producers. Letters of intent or expression of interest covering more than 50% of SNIM's production have already been obtained, and the Government has agreed not to authorize any entity other than SNIM to market SNIM's products. G. Local Sales 4.30 Samia, a Mauritanian company with a participation of KFTCIC, is currently considering the possibility of erecting a pellet plant of about 2 million tpy capacity to supply Quatar, Iraq and, at a later date, Saudi Arabia with Direct Reduction (DR) pellets. This plant has been engineered to use Guelbs magnetite as feed. However, since Samia's ore requirements would represent a large proportion of the Guelbs magnetite production the feed requirement of the pellet plant might affect the marketing of SNIM's ore. It has been recommended by the Bank that discussions should be held between Samia, SNIM and Kobe Steel who has engineered the plant and who would be in charge of the construction, to ensure coordination with SNIM's marketing strategy. In any event, it has been agreed with the Government and SNIM that SNIM will always sell its ore at world market prices and for convertible foreign exchange and that it will not enter into any contract or marketing arrangement which would preclude SNIM from maximizing its sales revenues and its profits. V. THE PROJECT A. Scope and Objective 5.01 The Guelbs project consists of opening new mines and constructing beneficiation facilities, in order to replace the declining production of the current Kedia ore bodies, which will be exhausted by 1991. The project - 33 - will be implemented in two phases, and will increase production capacity from 11.5 million tons to about 14 million tons per year by 1984. hne first phase will bring a new ore body, El Rhein (located 22 km northeast of Zouerate), into production in 1983. This ore bcdy is of a lower grade than that of the Kedia Mountain and has different physical characteristics. Major capital expenditures are therefore required, in the form of beneficiation facilities, in order to upgrade the ore to acceptable market levels. The second phase will open mines at Oum Arwagen (12 kmi east of El Rhein). These arze to come into production in 1988, to replace the final ores from Kedia. The granting of the mining concession for both El Rhein and Oum Arwagen is a condition of loan effectiveness. This report deals primarily with the first phase. B. Technical Description 5.02 The geology of the region has undergone severe movements of the earth's crust. The resultant formations have been attacked by erosion and reduced to a peneplain from which a ifew "Guelbs" (mountain remnlants) and "Kedias" (mountain chains) still emerge. These remnants are often iron- bearing. In the case of the Kedia mountains near Zouerate, the concentra- tion of iron is as high as 55 to 65% Fe, which has given rise to the present iron ore operations. The Guelbs on the other hand, contain a lower concen- tration of iron, averaging about 30 to 40% Fe. 5.03 The El Rhein deposit is triangular in shape, extending 1,600 m in a north-south direction, with the peak of the triangle to the south. The whole structure forms a syncline, the axis of which dives 300 to the north. The deposit continues below the plain where, in fact, most of the ore reserves are located. Oum Arwagen is a mountain chain of 14 km in length. Only a small part of this area has been drilled out and added to the ore reserve of the project (Map IBRD 13584 page 13). 5.04 Proven ore reserves at El Rhein and Oum Arwagen are 285 and 101 million tons, respectively. To this must be added the remaining 95 million ton reserve of the Kedia, to yield a total proven reserve inventory of 481 million tons. Probable extensions of these ore bodies could add another 180 million tons. Furthermore, in the general area of Zouerate, more than a dozen mineralized Guelbs are known to exist, indicating a substantial long-run potential. 5.05 The overall mineralogy of the Guelbs ore is simple. It consists of a facies of coarse and fine magnetite, as well as coarsc and fine hematite (referred to by SNIM as oxidised ore), with a ratio between the two of 2:1 respectively. The mean mining grade has been established as being about 38% Fe. The mineralogical studies undertaken to establish the first parameters for the pilot plant flow sheet were extensive. During the period 1971 through 1975, both laboratory-type and semi-industrial tests, were carried out in France, the US, the UK, Canada, Germany and Japan. Due to the lack of ex- tensive water resources at the prospective mining site, a dry milling process has been chosen for which successful tests were obtained from Aerofall Mills Ltd of Canada. Also, Swedish and French tests established that lc>w-intensity, magnetic separators were probably the best route toward developing a successful flow sheet. - 34 - 5.06 To supplement the earlier laboratory work, a pilot plant was erected in Zouerate in June 1974, to: (i) separately treat ail major ore types; (ii) determine the permissible mixtures between magnetic and oxidized ores, so as to arrive at an optimum recovery level, and (iii) produce sufficient concen- trates for a testing campaign in Europe and Japan, in order to ascertain the suitability of Guelbs sinter feed for the blast furnace (para. 4.23). 5.07 Mining at El Rhein, as in the existing Kedia operations, will be done in open pits, using 9-inch drills for blast hole preparation, 8 to 13 cubic yard shovels for loading, and 85 to 120-ton dump trucks for dispensing the ore into the primary crusher. The entire mining machinery will work in three eight-hour shifts, 18 shifts per week, assuming a 300-day per year work cycle. The benches will be 15 m high. The design of the final pit is based on an optimized computer design, given the economic cut-off point of 28% Fe, and a mean 38% Fe of crude ore. The final pit slope has been somewhat arbitrarily fixed at 500, which appears conservative, as the slopes at Kedia are considerably steeper. The waste to ore ratio is 2:1. Mining operations at Oum Arwagen (Phase 2) are identical, with the exception that the bench height will be 12 m, and the cut-off grade somewhat lower, at 26% Fe, due to a slightly lower waste to ore ratio. 5.08 Primary crushing will be done at the El Rhein crushing yard to pro- vide greater flexibility of operation. Ore from the Oum Arwagen mine will be loaded on railwagons at several loading points (in order to cut down on expensive truck haulage), and brought to the primary crusher at El Rhein. Concentrates from the El Rhein plant will be transported to F'Derik, on a new 45 km railway line linking the new operation to the existing rail system. 5.09 SOCOMINE first proposed magnetic dry pre-concentration at the El Rhein plant, to be followed by wet concentration near Nouadhibou. After considerable trials, they now propose a new flow sheet (TSR 1/), which essen- tially involves a finer grinding of the preconcentrate (to 400 microns) at the mine, and eliminates the proposed beneficiation at the port. This TSR alternative results in satisfactory metal recoveries of 82% and a Fe content of about 65%. This new flowsheet results in: : (i) savings in transport; (ii) having all treatment facilities at one location for better control; and (iii) removal of difficulties connected with treating concentrates with seawater (contamination, corrosion). The flow sheet for the ore concentration/ beneficiation is shown on the page 36 (Chart 5-1). The crushed ore (200 mm) is homogenized at the mine dump, and conveyed to the semi-autogenous mill. The dry dust overflow is caught in the baghouse and discharged to the tailings area. The mill discharge and classifier underflow are sent through a 1.6 mm mesh screen, with the underflow being directed to the magnetic separators. The overflow is sent to the aerofall mill. The preconcentrates, or middling products of the oxide are ground and treated in the oxide plant and crushed to 400 micron. Fine concentrates are also ground and treated in the oxide plant. Two products are recovered: (i) magnetic concentrates; and (ii) oxidized 1/ Tout a sec au Rhein. - 35 - concentrates. They are conveyed to load-out bins to be transferred to the ore wagons. A general layout of the El Rhein industrial plant is given in Chart 5-2. _/ 5.10 The bulk of the new power will be consumed by the grinding (aerofall mills) operation, and the benefication plant. In addition, power must be gen- erated for the electric shovels, for workshops and services and for the town- ship. Since the generator station at Zouerate is worn out and cannot be expected to supply adequate reliable power, a new power station with asso- ciated standby facilities is required. Peak power during the first phase will be 34 IW. This will increase to 63 MW at the beginning of the second phase. 5.11 A new road linking Zouerate with El Rhein will be constructed during Phase 1. Due to the excellent topographical conditions, very little embank- ment will be necessary. The access rcad from El Rhein to Oum Arwagen will not be constructed until Phase 2. This will be 11.5 km long, and of more rudi- mentary design, in line with requirements of normal mining traffic. 5.12 An additional 528 housing units will be necessary in the mining town of Zouerate, in order to accommocLate the additional manpower needed for the project. 5.13 During Phase 1 (1979-82), transport requirements will increase to upwards of 14 million tons of ore per year. This will require three trains per day in each direction, and will necessitate the purchase of four addi- tional main locomotives and 293 x 100 ton ore wagons, as well as the con- struction of additional minor maintenance facilities in Nouadhibou. During Phase 2 (1986-89), COMINOR will also construct a new single access line between El Rhein and Oum Arwagen, to be operated by trains of 32 ore wagons, pulled by one locomotive each. The total additional equipment requirement for this line will be 4 diesel electric locomotives, and 159 x 77 tons ore wagons with rotating couplings and side openings for lateral tipping. Maintenance facilities at Zouerate will remain unchanged. Total additional personnel re- quirements will be 114 employees for El Rhein/Oum Arwagen, and 162 employees for the main line. 5.14 The existing port handling and loading system described in para. 3.16 and Chart 3-4 will be retained. Nevertheless, in order to bring the loading capacity up to 14 million tons per year, a number of modifications will be made. Reclaiming facilities will be strengthened by adding a crawler- mounted bucket wheel, and the capacity of the shiploading conveyor line will be upgraded by 40%. The main acquisition, however, will be a new shiploader, as the old one, now rated at 5,200 tph, has already undergone several modifi- cations and had to be partially rebuilt after a serious accident in 1973. The new shiploader, with a longer boom length of 25 m and a loading capacity of 7,500 tph, will give the necessary capacity, whilst the old equipment will be used as standby. If the pellet plant project (para. 4.30) were to be 1/ The second half of the plant, designated as line B, will be needed for the second phase only, which starts up in 1988. > 0 MO 10 _ O o 2SS: _- - - - - - - - - - _ _9C_~~~~~ C AT 5-2 ATo OoMARLE AR AGEAN TO TAILNOS L -J OAJMP rDER r k j| 2-; f t ! ^ / t aC_ , l~~~~~SG~ 1 | 1FRE r,~ ~ ~ ~ ~ ~~~AE DEPT_________ATR_L___ ___~ A-OWER CLNCENTR _ _ _ t -_ _ _ _ _ WORK SHEOPS E STATSIONM MAURITANIA ~~SER,CESTATION i1 ~~~~~~~~~EATONGUELBS IRON ORE PRtOJECT rAERVrCESTA ON ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~EL RHEIN INflUSTRiAL SITE SHOPS ~ ~ ~ N EEATERODEPOT - j POWEER PLANT F AERIK 17 - 38 - implemented, the loading angle of the shiploader would have to be modified, which should not pose any technical problems. In any event, this will be the only modification required for the totality of SNIM's industrial plant at Nouadhibou. C. Water 5.15 The supply of water for social as well as industrial purposes is of great importance in the eastern Sahara. At present, Nouadhibou is supplied with water by pipeline from a strong aquifer at Boulanouar, which is located some 80 km to the east of the railway line. Zouerate, on the other hand, gets its water from a number of producing wells along the Kedia moun- tains. These tap fossil, and, to a lesser extent, renewable water resources. An adequate and continuous drilling program will be necessary in order to develop the requisite water resources during the Guelbs exploitation period. While the industrial use of water will not have to be appreciably increased, the increase in manpower will mean a higher overall water consumption. Thus, the total water consumption of 850,000 cubic meters (cum) in 1977 is projected to increase as follows: Guelbs Water Requirements (In cum Per Year) Uses Supply Social Industrial Total Sweet Brackish Phase 1 775,000 332,000 1,107,000 857,000 250,000 Phase 2 869,000 372,000 1,241,000 991,000 250,000 5.16 Such a detailed drilling program has already been initiated, and the following potential sources of water supply are currently under development or exploration: (i) the north border of the Kedia mountains - under production; (ii) the Breccia zone of d'Idjill - one promising, new operating well; (iii) the border of the Taoudeni Basin near the Kedia - contains both sweet and brackish water; and (iv) the Boulanouar aquifer - where new wells will be developed, and water wagons could supply Zouerate in case of an extremely hot year. Currently proven reserves will cover the Guelbs operation's require- ments for a period of 30 years. Additional reserves will, however, have to be developed thereafter. The Company will furnish the Bank with annual reports on the status of water reserves and prospecting efforts. D. Ecology 5.17 The pollution generated by COMINOR's iron ore operations is not significant. Dust generation at the port can be at times severe, but prevail- ing winds tend to blow the dust towards the open sea. Dust generation at the crusher station at Rouessa has, however, been observed to be very severe whenever the waterspraying system is out of order. There is therefore a covenant in the loan agreement to the effect that COMINOR will continue to operate its installations with due regard to ecological and environmental safety standards, and to carry out a long-term study on the effects of dust - 39 - inhalation by the workers in order to determine whether adequate protection exists. The Company will report annually to the Bank on dust levels, and if needed, suitable equipment will be installed to protect the workers. VI. CAPITAL COST AND FINANCING PLAN A. Capital Cost 6.01 Total financing required for Phase 1 of the Guelbs project is estimated at US$500.7 million equivalent, of which US$456.1 million is in foreign exchange, as shown below. A more detailed breakdown of capital costs is provided in Annex 6-1. Guelbs Project - Phase 1 Summary of Cap:Ltal Cost Estimates (US$ Million) Foreign /a Local Total % Mining and Mechanical Equipment for Beneficiation Plant /b 87.2 1.8 89.0 31.6 Port and Railroad Equipment /b /c 35.0 0.7 35.7 12.7 Power Plant and Main Electrical Equipment /b 30.3 0.6 30.9 11.0 Miscellaneous Plant, Water Supply and Auxiliary Electrical Equipment /b 4.0 - 4.0 1.4 Civil Works, Buildings and Housing 48.6 9.0 57.6 20.5 Erection and Installation /d 22.4 10.9 33.3 11.8 Engineering and Project Management 20.4 1.1 21.5 7.6 Preliminary Works and Training /e 7.0 2.7 9.7 3.4 Base Cost Estimate (mid-1977 prices) 254.9 26.8 281.7 100.0 Physical Contingencies 24.9 2.7 27.6 Price Contingencies 99.7 10.4 110.1 Installed Costs 379.5 39.9 419.4 Incremental Working Capital 30.0 3.5 33.5 Interest During Construction 26.6 1.2 27.8 Extraordinary Contingencies 20.0 - 20.0 Total Financing Requirements 456.1 44.6 500.7 /a Including indirect foreign exchange. /b CIF values. /c Including US$1.0 million of rails purchased before 1978. /d Including handling and transport in Mauritania. /e Including laying of track for railway connection by COMINOR. - 40 - In addition to the above, approximately IJS$10 million 1/ was expended over the period 1970-77, in geological investigations, pilot plant testing, feasibility studies, and preliminary engineering studies. 6.02 The equipment costs used here have been derived from estimates prepared by SOCOMINE, with the assistance of SNIM. The original estimates were prepared in early 1976, and were updated in late 1977 on the basis of mid-1977 quotations or SNIM's current replacement costs for its ongoing operations. Cost estimates for mining and other equipment have been pre- pared on the basis of detailed equipment lists and are considered adequate. Those for civil works, transportation and erection are estimates based on contract prices for the Segazou expansion of the Kedia deposit, or on the cost of other works recently or currently carried out by SNIM. They, also, are considered reliable. It should be noted that the foundation character- istics are well known, and that soil conditions for the port components may readily be established since these works are a simple extension of the exist- ing installations. Construction costs for the railway extension are estimated on the basis of COMINOR's ongoing experience in track replacement, and recent realignment works of some sections of the main line. 6.03 The project will be totally exempt from import duties. Freight estimates, including transport from the port of Nouadhibou to Zouerate, are based on COMINOR's current experience, and amount to about 10% of the FOB value for mining equipment, 4% for other equipment, and 15% for structural steel and railway stock. Engineering, procurement and project management have been estimated separately for the various project components, at 15% of the total cost of the beneficiation plant, 6 to 10% for other fixed plant and infrastructure, and 3% for mining equipment and railway stock. Physical con- tingencies amount to 15% for the beneficiation plant, material handling and storage and power plants, 10% for the port installation, and 3% for the other project components. In view of the fact that the design and specifications of the different project components are already well defined, and that the overall working conditions are very familiar to both SNIM and SOCOMINE, these physical contingencies--amounting to a total of about 10% of base costs--are considered reasonable. Price contingencies have been estimated on the basis of average escalation rates of 8% per annum for 1977-79, and 7% thereafter. An additional extraordinary contingency of US$20 million (4.4% of total project cost) has, however, been added to reflect the particular problems which may affect the implementation of this project. Total contingencies are, therefore, estimated at US$137.7 million, or 27% of total project costs. These are not out of line with total contingencies on similar mining projects in other countries. 6.04 Incremental working capital requirements--estimated at US$33.5 million--have been calculated on the basis of COMINOR's historical needs, and the anticipated operating schedule. Detailed calculations are provided in Annex 6-2. 1/ SNTM has treated these as sunk costs for the purpose of future investment decisions. In the financial statements they have either been charged off during the year of expenditure, or capitalized (and are in the process of being amortized), according to their potential impact on future operations. - 41 - 6.05 For Phase 2 of the Guelbs, to be constructed over the period 1986-89, capital costs have been estimated on the same basis. The total estimate amounts to US$436.9 million in current terms, and is detailed below: Guelbs Project - Phase 2 Summary of Capital Cost Estimates (US$ Million) Foreign Local Total Mining Equipinent and Beneficiation Plant 111.2 2.2 113.4 Railroad and Rolling Stock 19.7 0.7 20.4 Power Plant 17.1 0.7 17.8 Miscellaneous Plant, Services and Housing 8.6 2.5 11.1 Engineering and Project Management 16.4 0.9 17.3 Preliminary Works 6.5 2.4 8.9 Total Base Cost (mid-1977 prices) 179.5 9.4 188.9 Physical Contingencies 17.8 0.8 18.6 Price Contingencies 212.2 11.2 223.4 Total Fixed Assets 409.5 21.4 430.9 Incremental Working Capital 5.4 0.6 6.0 414.9 22.0 436.9 In addition, during the period of transition between Phases 1 and 2, SNIM will purchase about US$36.8 million of additional mining equipment, in order to handle the large amounts of overburden that will have to be cleared for mining to evolve from hill into pit exploitation. 6.06 Based on the capital cost estimates presented above, the total fixed asset cost (i.e. base cost plus physical contingencies) for Phases 1 and 2 would be approximately US$517 million in mid-1977 terms. This repre- sents a cost per annual ton of about US$37 which, as shown below, compares favorably with other iron ore projects under construction, or recently completed): Investment Cost per Ton of Annual Capacity /a Country US$ Goldworthy, Mara-Bamba, Deepdale Australia 40 to 42 Hammersley, Mount Newman Australia 47 to 50 Sishen S. Africa 46 Guelbs (Phases 1 and 2) Mauritania 37 /a Mid-1977 US$, excluding working capital and interest during con- struction, but including infrastructure. - 42 - The Guelbs project cost is probably lower than that of the other projects because of the limited infrastructure required. If a new railroad and port were needed, and particularly if a new greenfield pellet plant was essential, the above cost would be increased by 100-150%. B. Financing Plan for Phase 1 6.07 The total financing required for Phase 1, of US$500.7 million, will be provided by equity and loans from foreign sources, and by SNIM/COMINOR's cash generation, as shown below: Guelbs - Proposed Financing Plan for Phase 1 (US$ Million) Equity % Additional Share Capital: Kuwait Foreign Trading, Contracting and Investment Company 40 8 Arab Mining Company 28 6 Irak 22 4 Bureau de Recherche et Prospection Miniere (Morocco) 20 4 Islamic Development Bank 10 2 COMINOR Retained Cash Generation 42.7 9 Total Equity 162.7 33 Loans Saudi Fund 65 13 IBRD 60 12 Caisse Centrale 50 10 Kuwait Fund 45 9 AFESD 35 7 EIB 30 6 Abu Dhabi Fund 20 4 Japan OECF 16 3 African Development Bank 12 2 OPEC Special Fund 5 1 Total Loans 338 67 Total Financing 500.7 100 6.08 The proposed foreign contributions, amounting to US$458 million (or 91% of financing requirements), would cover 100% of the foreign exchange cost of the project. However, SNIM's financial effort will still have to be substantial, as during the period 1979-82 SNIM will have to expend some US$38.6 million on new investments and replacements for the Kedia - 43 - operation, as well as repay about US$48 million of existing debt, 1/ mostly in foreign exchange. Annex 6-3 gives a year by year breakdown of SNIM's total investment expenditures. COMINOR's internal cash generation during this period is therefore, critical to the successful financing of the project. Equity financing will amount to US$120 million, which is expected to result in a debt/equity ratio of 50:50 at the SNIM consolidated level, at the end of construction of Phase 1. 6.09 The capital increase of US$120 million will be subscribed by the KFTCIC, ARMICO, the Iraqi Government, BRPM of Morocco and the Islamic Develop- ment Bank. About US$77 million comprised of 25% of the nominal price of the shares newly issued plus the capital contributed as a premium in excess of par value is expected to be paid in very shortly. The remaining capital will be paid in, according to the project's expected requirement timetable. The submission to the Bank of an acceptable calendar is a condition of loan effectiveness. The share capital of the foreign shareholders will represent 28% of SNIM's recently reconstituted capital. 6.10 The proposed Bank loan of US$60 million equivalent, will be made directly to SNIM for 15 years, including 5 years of grace, at the prevailing interest rate (7.9% p.a. at present), plus a guarantee fee (2.1% p.a.) payable to the Government of Mauritania, to bring SNIM's total financing charges to 10% p.a. Such a Bank loan would cover 13% of the project's foreign exchange cost. The foreign exchange risk would be borne by SNIM. 6.11 The terms and conditions of the other foreign loans are detailed in Annex 6-4. The loans of the Saudi Fund and the OPEC Special Fund are made directly to the Government, which will relend them to SNIM. The Kuwait Fund, AFESD and the Abu Dhabi Fund will lend directly to SNIM. The weighted average interest rate is about 3.3%, with an average maturity of 17 years, including over 4 years of grace. The EIB loan will be made directly to SNIM, at an interest rate of between 5.25% and 6% p.a., with an associated maturity of 15 years (including 5 years of grace). The Caisse Centrale loan will also be made directly to SNIM, and will consist of a blend of a direct loan and suppliers' credits, guaranteed by the French Government, at an average interest rate of 9% p.a. for an average period of about 15 years, includ- ing 3 years of grace. The Japanese DECF contribution will be a loan of Yen 36 billion (US$16 million equivalent) to SNIM at 4%, for 25 years, including 7 years of grace. Finally, the African Development Bank loan will consist of two loans of US$6 million each, both to be made to the Government, at 8% p.a. for 15 years, including 5 years of grace. In the financial projections it has been assumed that all of the above loans which are to be made to the Government will be onlent to SNIM in foreign exchange and under the same terms. Effectiveness of foreign loans totalling at least 80% of the total external loans financing for the project and satisfactory assurance that the loans representing the remaining 20% will be forthcoming will be a condition of loan effectiveness. 1/ This does not include US$30 million of outstanding compensation payments due to the former shareholders of MIFERMA, since assumption of this liability by the Government has been confirmed. - 44 - 6.12 US$20 million of additional equity (para. 6.03) has been added to the basic financing, as a minimum contingency to provide a measure of security against the extraordinary risks of this project. In addition, it must be considered possible that slippage and/or cost overruns could increase the financing requirement substantially, even though the estimates presented above (para 6.01) are thought to be reasonable and the implementation schedule (para 7.05) attainable. In similar projects elsewhere, financially strong shareholders have been asked to provide unlimited overrun commitments or, where unlimited commitments have not been forthcoming, the committed overrun financing has been at least 30-40% of the base cost. In this case, however, it is proposed only that the Government provide a full project completion guarantee. There is, nonetheless, thought to be satisfactory assurance of adequate financing for project completion since (i) SNIM's consolidated cash surplus should amount to over US$44 million by 1981 and US$69 million by 1982 (para. 8.18); (ii) the Company's debt:equity ratio is not expected to fall below 50:50 or its current ratio below 2:1 after 1981, which should permit the Company to raise additional long-term debt (estimated at up to US$30 million) should the bank deem such borrowings appropriate; and (iii) the commitment of certain of the shareholders and of the colenders to the project and to Mauritania is such, that even without a formal commitment, they would consider themselves obligated to maintain the financial viability of SNIM, on which the Mauritanian economy depends. 6.13 To ensure that SNIM will generate the cash necessary for its contribu- tion to the project financing and for other recurrent needs, the Government will grant a reduction in royalties, whereby the export levy on iron ore will be reduced from 10% of FOB iron ore exports, to an average of 6.5% (as detailed in para. 8.07), during the construction period of the project. These rates will however be reviewed on an annual basis in light of the company's actual financial situation and will need the approval of the Bank (para 8.07). In addition, in order to further ensure project completion, tihe Goverament bas agreed to defer SNIM's royalty payments, and so increase the company's retained earnings, should cost overruns require additional funds (para 8.07). VII. PROJECT IMPLEMENTATION A. Project Organization and Management 7.01 The project organization chart is shown on the following page (Clhart 7-1). SOCOMINE, a French consulting firm, has been contracted by SNIM to be responsible for overall design, construction supervision, start-up and commissioning of the project, and to assist SNIM during the first years of operation. Considering the project's size and SOCOMINE's relatively small manpower of 18 professionals, the consultant and SNIM have been led to seek assistance from various other well-known French consultant groups, namely SOFRESID, SGTE (Societe Generale de Techniques et d'Etudes) and FCB (Fives CaiL, Babcock). In addition, SOCOMINE will utilize the capabilities already avaîlable within SNIM for preliminary mine development, laying of railroad tracks, and erecting railroad stations. Specifically, SOCOMINE will sub- contract to the consultants the following tasks: - 45 - Chart 7-1 MAURITANIA: THE GUELBS IRON ORE PROJECT PROJECT ORGANIZATION CHART GENERAL MANAGER OF SNIM (Nouakchott or Nouadhibou) MII FINANCIAL DIRECTOR INouakchott) ADMINISTRATIVE DIRECTOR (PARIS> General Engineering ++ f ~~SOCOMINE Suppliers r *. .......... '''''~ Detail Engineering .~~~~ n Construction Site Contractors .............a..... Stocks CONTROLLER \ / <(Nouadhibou) ............ .... ...... . 7. J ~~~~~Stocks and Supplies ........... ..... Procurement J \ (~~Nouadhibou) Production Department LJ ( Zouerate and ~~~~Nouadhibou) Induistrial Projects Department, May 1978 World Bank - 18972 - 46 - (i) engineering and technical specification - SOFRESID, SGTE, FCB; (ii) procurement and sea freight - SNIM, SOFRESID, SGTE; (iii) project design and follow-up - SOFRESID and SGTE; (iv) expediting and inspection - SOFRESID; (v) scheduling and cost follow-up (partly) - SOFRESID and SGTE; and (vi) supervision of construction - COMINOR assisted by SOFRESID and SGTE. 7.02 Once the go-ahead decision has been taken, the SOCOMINE team will be attached to the project as full time consultants, and organized as shown on the following page (Chart 7-2). Although it might appear that SOCOMINE's manpower base is small, the fact that SOCOMINE'S senior management are all former MIFERMA managers who were involved in both the implementation and the subsequent operations of this company, has reassured the Bank that SOCOMINE will be up to the task. Specifically SOCOMINE has moved decisively to (i) better distinguish the lines of responsibility between SOCOMINE, SNIM and all other entities participating in the project implementation; (ii) study and develop the total manpower requirements and appropriate organization for the tasks to be performed; (iii) improve the procedures for, and thus speed up, bid evaluation and procurement; and (iv) better define the methodology and systems used in the area of scheduling and cost control. The estimated cost per man-month for SOCOMINE's consultants is US$6,500 and the total cost of SOCOMINE's services, including the cost of subcontracts to SOFRESID, SGTE and FCB, will amount to approximately US$6.7 million p.a. In order to guarantee that the fullest attention is given to the project it has been agreed that SNIM shall ensure that SOCOMINE will not take on any additional major engage- ments which might be detrimental to the project implementation. 7.03 SOCOMINE's responsibilities include overall design and layout, preparation of bid documents and vendors lists, bid evaluation, and contract preparation, overall control and coordination of equipment supply and erection at site, and daily planning and coordination. Detailed engineering will be provided by the consultant firms. Under the guidance of SOCOMINE, COMINOR's project group will closely coordinate activities at the construction site. 7.04 Problems which need highly technical know-how will be referred to an expert committee which will act as a periodic review board. The committee will consist of Mr. Coursin (senior engineer of SOCOMINE), representatives of the Institute de Recherche de la Siderurgie (IRSID), and Mineral Services Incorporated (MSI), and Mr. A. Dor, an independent consultant. All have been closely involved in the feasibility study of the Guelbs project, particularly in designing the pilot plant at Zouerate. As the most critical equipment items in the project are the Aerofall Mills, and as FCB has no experience in building equipment of the size needed in the concentration plant, detailed engineering will be checked at regular intervals, and will be subject to - 47 - Chart 7-2 MAURITANIA: THE GUELBS IRON ORE PROJECT SOCOMINE'S PROJECT MANAGEMENT ORGANIZATION Project Director Coursin BENEFICIATION PLANT Enieer1TchncalAsista A. de Maistre r EQUIPMENT Engineer I Collardav MINING EQUIPMENT Mech. Engineer Technical Assistant ORE HANDLING r Y1 Elect. Engineer Tech. Assistant X2 _ Y2 CIVIL ENGINEERING Engineer Tech. Assistant INFfRASTRFUCTURE - L t PORT Y . ~~~~~~~~~~EngineerTehAsitn ................................ .. PLANN ING _ A A. Phillippe r Y4 Adm. Assistant Office Chief zi SDIITRATION Anne Mme Basta Mme Riant N E eDESIGN OFFICE MINE Engineer Project Officers Bastid Boussarie Grandjean Engineer Maillot X, Y, Z Personnel to be hired Draftsman RAILROAD | E 1| N Nicolas r Industrial Proipc'tç l)orusr1-mpni Mnx7 1 Q7R - 48 - approval by MSI and/or Mr. Dor, as they have both been intimately involved in the original design of the system for Aerofall Mills in Canada. Adequate arrangements for the functioning of the expert committee and the extent of its review/approval responsibilities have been agreed upon. Although relatively complex, the package of all the above arrangements is expected to result in adequate project management. B. Implementation 7.05 The project management contract between SOCOMINE and SNIM has already been signed. The foreseen date of completion of all physical work and delivery is January 1, 1983, which is reasonable. However, the official date of completion of Phase 1 is the date on which the El Rhein iron ore mine shall have produced 3.1 million tons of concentrate during a period of 6 months and is expected to be end 1983. The dates above are imposed by the long construc- tion and erection time of the Aerofall Mills, and suppose that orders for this critical item as well as for the generating sets can be placed by early September 1979. A definitive implementation plan, and detailed critical path schedule are being worked out by SOCOMINE, and will be presented to the Bank shortly. A summary schedule is illustrated in Chart 7-3. C. Procurement, Disbursement and Allocation of Bank Loan 1. Procurement 7.06 Procurement for the project will be carried out in accordance with the rules of the lending agencies, which generally require international com- petitive bidding (ICB). Preparation of the bid documents is being carried out by SOCOMINE and the other consultants, who will assist SNIM both in selecting contractors and in contract negotiations. Procurement has been divided into 18 packages, separating supply of imported equipments from construction work in Mauritania. These arrangements, previously used by SNIM on other works, appear best-suited for this kind of project in Mauritariia. A detailed pro- curement schedule is given in Chart 7-4. 7.07 The Bank loan will finance the following equipment items, all in foreign exchange and all to be procured under ICB or international shopping procedures in line with the Bank's Procurement Guidelines: (i) all ore- handling equipment in the beneficiation plant; (ii) miscellaneous equipment in the beneficiation plant; (iii) railroad ore wagons to transport ore over the main line; and (iv) the civil works contract. The proportion of the Bank loan allocated to the latter has been estimated to cover the total foreign cost of the contractor's equipment and back-up maintenance personnel. Local costs will be born by SNIM. International shopping for Bank financed items is not expected to surpass some US$2.0 million (or about 10% of the total value of items) under categories (i) and (ii) above. There will be no international shopping under category (iii); and the list of items to which international shopping will apply, has been agreed with the Bank. None of the equipment items in the project are produced locally and, therefore, no local suppliers will be prequalified for such items on the Bank list. For the civil works -49- Chart 7-3 MAURITANIA: THE GUELBS IRON ORE PROJECT GENERAL IMPLEMENTATION SCHEDULE 1979 1980 1981 1982 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Mine Ecquipment - -- Preliminary Works . _ _ - _ _ Treatment Plant Equipment . _ _ _ _ _ _ _ Civil Works _ _ _ Electrical Equipment Erection _ _ _ _ Steel Framework and Mechanical Erection _ _ - = = Power Plant Equipment - _ _ _ _ Civil Works Electrical Equipment Erection Steel Framework and Mechanical Erection Port Equipment _ Civil VVorks Erection Industrial Building Equipment Civil Works _ _ _ _ _ _ _ Industrial Infrastructural (Power, Water Supply) Equipment - -M Erection Housing _ _ _ _ _ _ Steel Frameworks Earth Moving * Start-up after Completion Tests Industrial Projects April 1979 World Bank - 20296 -50- Chart 7-4 MAURITANIA: THE GUELBS IRON ORE PROJECT PROCUREMENT SCHEDULE 1979 1980 1981 1982 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 LOT 1 - Beneficiation _ ;_ L Crusher . ... Aerofalls . *.,_ J ...... Screens and Separators m ...- Conveyors . ......- - Miscellaneous _ ..... LOT 2 - Mining Equipment Drills - - .... Shovels _t _ I D umpers L Dozers, Graders and Other Automotive ,,.! _ LOT 3 - Port Equipment and Erection Ore Handling ... Shipl oader ,,_,__,_r Bucket Wheel Reclaimer ,_.. LOT 4 - Rail Road Locomotives 2....... Wagons ...... Rails and Other Track Equipment , ,,_, ... LOT 5 - Power Plant Equipment and Erection Generating Sets . . ..... Auxilaries LOT 6 - Treatment Plant Electrical Equipment and Erection _,- ., LOT 8 - Steel Framework _ LOT 9 - Housing _ ,_ , LOT 10 - Equipment for Industrial Buildings '. _, ,_M - -. LOT il - Pipe, Power, Gat, Substation Equipment * - LOT 12 - Engineering _ 7 LOT 13a - Civil Works _ Treatment Plant Industrial Building . _ _ Port Facilities Power Plant LOT 13b - Earth Moving LOT 14 - Erection Treatment Plant Framework and Mechanical _ . Power Plant Framework Port LOT 15 - Pipes, Power Lines, Substation Erection * V * Mail Tender Documents V Bid Closing * Placement of Orders _,_Bidding Procedure _Manufacturing or Contracting ....... Transport - . _Mobilization Industrial Projects VUorid Bank - 20297 April 1979 - 51. - contract there might be a local contractor interested in bidding. However, because of the large size of the contract, it is likely that the local contrac- tor would participate through a joint venture with established foreign entre- prises. Depending on the terms of the venture, it will have to be established, following Bank guidelines, whether the joint contractors would be entitled to the normal 7-1/2% preference granted to local contractors in the evaluation of bids. 7.08 Financing of the railroad ore wagons will be shared between the OECF (Japan) under untied financing, and the Bank. Since the OECF procure- ment guidelines require that the bid price, as well as the final contract, be quoted in Yen, the wagons will be financed in parallel. This may easily be achieved since the cars are to be procured in several lots (starting in 1979 through 1981), according to a standard design, and the lots can be structured so as to accommodate the earmarked amoints of the two institutions. The tentative allocation of procurement packages between the Bank and the other sources of financing is detailed on the following page. 2. Allocation of Bank Loan and D)isbursement 7.09 The allocation of the Bank loan will cover the following foreign exchange items: Allocation of Bank Loan Amount of Category Loan Allocated (US$ Million) 1. Ore-handling Equipment in Beneficiation Plant 13.5 (Lot 1-7) Primary Crusher/Screening Magnetic Separation/Concentrates/Waste (including spare parts and foreign freight) 2. Miscellaneous Equipment in Beneficzation Plant (Lot 1-8) 7.4 Dust Control/Sampling/Ventilation/Filtration (including spare parts and foreign freight) 3. Railroad Ore Wagons (Lot 3-4) 11.4 (including spare parts and foreign freight) 4. Civil Works (Lot 13a) 18.0 5. Interest During Construction 9.7 Total 60.0 7.10 The financing of interest during construction is justified, as it relieves Mauritania of the burden of p.aying hard currency (of which it finds itself desperately short at this time), during project implementation. 7.11 As noted above, the Bank loan is expected to be disbursed against 100% of foreign expenditures, except for the civil works contract should it be won by a Mauritanian firm, according to the following schedule: -52- hAURITANIA, GUELBS IRON ORE PROJECT ALIOCATION OF FINAd1CING AND PACKAGES BY CO-LENDERS (0S$ Thou nde) JOINT ANA8 FUNDS (165) SNIM'. CATEGORY CCCE EIB IBRD 0EOF BAD OPEC KOWAIT/SAODI/?ADES/AU DIIABI Shene- TOTAL __________ 50 30 60 15 12 5 45 65 35 20 h.1dev. FOREIGN EXCRMGE LOT 1 - Benefici.ti.. 1-1 Primtsr Croer ) 1-2 Aerof-ll Mili. 1-3 B.11 Mii. 24,033 3,000 2,000 29,033 1-4 Semons 2, 1-5 Megoxetie Oepevetete 15,509 11,758 1-6 C-nvny-vn 21,233 21,2~33 1-7 HOndling Equipnent I 1-O 2i0ceii0neeee Cost C nood-- Sold 61.1 76.. 50.9 86.1 119.3 159.0 13.4,i 193.0 263.2 ,;et ?rSf!t After Tax 2.6 12.3 35.0 .6 22.2 3S.9 59 .7 10. 7 3 ' 7-~er-. Des 3C.9 91. 0 2,6.0 213.z. 325.6 333.4 233.7 57 3 6 1 7 1 59.7 r34.7 '7 57.9 1.7.9 1i-97.3 1' .c 1;53.7 166.0 219.0 2!9.8 230.5 317.0 422,4 62.3 37..3 Ci:: Su=3:: 3.9 4.5 C0 62.1 312.9 4. 5 35. 20 1, 3 A`-'S7 CS e 2.0 7.5 18.7 20.4 7.5 1r. 4 15.3 5., (5.99 X-.t -- _ T %.,%.o 17:83 ^':63 .':49 3:417 CJ 47 43 51 37: , 42:6 49 :S1 . z;re; R:_ c /.97 1.24 3.21 4.57 4.59 4.87 5. `9 5.14 2 7- Je'- S7cvice Cove._ôg Ttatio 1. 4 3.'.2 4.77 '.49 4.58 3.89 3.22 1.52 1.92 While COMINOR's projected results fluctuate widely, on the whole, performance is expected to be satisfactory. COMINOR is projected to have generated a cumulated cash surplus of about US$62 million by the end of 1982 and about US$103 million by the end of 1983. This cash surplus remains a major potential source of financing for any cost overruns not covered by the basic financing plan. 8.16 Similarly, COMINOR's cumulated cash surplus is projected to increase by a further US$118 million (current terms) over the period 1983-90, even after having contributed some US$187 million to the financing of Phase 2. During the same period, COMINOR's debt:equity ratio is not expected to exceed 55:45 or its debt service coverage ratio to fall below 1.8. It must be recognized, - 59 _ however, that the projected cumulative cash surplus for the entire period 1979-90, of US$180 million, would be wiped out if revenues from iron ore sales were to fall below the levels assumed for the period, by a mere 5% on average. However, given the conservative export prices and cyclical sales volumes assumed in the projections, this is thought unlikely, and the expectation that Phase 2 of the Guelbs project can be implemented without major financial difficulties appears, therefore, to be reasonably good. Finally, if worst came to worst, COMINOR's financial situation could be remedied by deferring the export royalty obligations for some years. 2. Other SNIM Units Excluding COMINOR 8.17 Although COMINOR dominates SNIM, the latter's financial situation is also greatly affected by the results of its other units. Combined finan- cial projections for all these other units are given in Annex 8-3. Excluding the equity, the net cash shortfall of these units, for the critical period 1978-82, would amount to about UM 2,5'90 million (US$57.6 million). Therefore of the total new equity, US$65 million will be used in 1979 and 1980 to cover the losses of the other units and to restructure their working capital. In particular the reimbursement of the overdrafts SNIM has with local banks as a result of the losses incurred by SOMIMA (para 8.12) is one of the main causes of the large cash shortfall of the other units during the first year. It implies a cash drain on the company of about UM 1,780 million in 1979 which will not be fully compensated during the period 1979-82 by the tax rebates which are to compensate SNIM for the SOMIMA losses which the Government has agreed to assume. However, even excluding these the net cash shortfall directly attributable to the other units is still substantial as it amounts to about UM 1,700 million (US$38 million). DCPP, SNIMEX and the gypsum plant all have a positive contribution margin. That of the steel plant on the other hand is negative during its first 4 years of operation until 1983, as the normal losses of the learning process are compounded by the heavy repayment burden of the suppliers credits (up to 1982-83) for which the original loan period was too short in relation to the nature of the project. However, as is indicated by the data for 1983-85, even with a positive contribution from the steel plant, the consolidated margin is inadequate to cover the head office and support services expenditures generated by these very same units. In this context, however, it should also be rnoted that there is some contention as to the proportion of these expenditures which may rightfully be attributed to COMINOR. In the financial projections COMINOR has been allocated as general overheads only the costs of the overseas offices (Annex 8-1, page 4), or about 16% of the net total, whilst in the financial and economic rate of return calculations (for maximum conservatism), all those overheads pertaining even very indirectly to the iron ore operations have been included (Annex 8-5, page 1). This means that the overhead cost allocated to COMINOR in this case amounts to 70% of the total for SNIM as a whole. In any case, past overhead expenditures have been excessive (in relation to SNIM's requirements) and have therefore been tabulated separately in Annex 8-3 in order to show the signif- icance of the assumptions that SNIM' s planned overhead reduLction programme (para 3.09) will prove successful, and thus allow maintaining such costs relatively constant in real terms, despite an increase in the volume of COMINOR's annual operations of the o-rder of 65%. - 60 - 3 SNIM 8.18 Consolidated financial data for SNIM as a whole are summarized below from Annex 8-4. SNIM: Summary of Projected Consolidated Financial Indicators (UM million) 1979 1980 1982 1984 1986 1988 1990 Total Revenues 7,497 9,603 13,357 20,263 21,705 22,453 28,348 Net Profit After Royalties (NPAR) (421) 203 1,975 1,681 2,700 975 (848) Cumulated Cash Surplus /a 368 690 3,125 7,959 9,250 10,064 9,326 Cumulated Cash Surplus (US$ million) 8.2 15.3 69.5 176.9 205.6 223.7 207.2 Long-Term Debt 1,913 5,033 14,475 13,727 11,453 16,672 16,466 Total Equity 8,912 9,791 14,481 15,993 20,708 24,261 18,875 NPAR as % of Revenues (5.6) 2.1 14.8 8.3 12.4 4.3 (3.0) Debt/Equity Ratio 18:82 34:66 50:50 46:54 36:64 41:59 47:53 Current Ratio 1.58 2.44 4.50 5.10 5.00 4.87 3.12 Debt Service Coverage 0.5 1.6 3.8 3.4 3.3 1.9 1.6 /a After deduction of SNIM's contribution to the financing of Phase 1 and Phase 2 of the Project. Except during 1978-82, when the cash losses of other units have a negative effect, SNIM's financial situation is generally similar to that of COMINOR. SNIM's net consolidated, cumulative cash surplus for the period 1979-82 is projected to amount to US$69 million and US$138 million for the period 1983-90. With an overall debt service coverage ratio which will be on average above 2.0, and a projected maximum debt/equity ratio of 50:50, throughout the period 1979-92, SNIM should be able to borrow some additional funds if required. The conclusions drawn above (para. 8.16) at the level of COMINOR, with respect to the financial viability of the operation, and the expectation that Phase 2 will be adequately financed, therefore, remain valid at the consolidated level. In order to ensure that SNIM's cash generation will be preserved for Phase 2 (and for Phase 1 overruns if necessary), SNIM has committed itself: (i) not to distribute any dividends, unless retained - 61 - earnings accrue according to a schedule agreed upon with thes Bank 1/; and (ii) to place the cumulated cash in a special account at the Central Bank. Simi- larly, the Government will guarantee that any foreign exchange deposited in this account will be made available to SNIM, as and when required for the purposes of Phase 1 cost overruns and of Phase 2 financing. I. Break-Even Point 8.19 In 1986, at full production of Phase 1, the profit break-even point for COMINOR would be about 66% of production capacity. Altiernatively, average export prices of ore at full production could fall by 19% before COMINOR would show a loss. The cash break-even point would be only 57% oF capacity due to the favorable lending terms. J. Financial Covenants 8.20 SNIM has agreed to the following financial covenants: (i) to main- tain at all times, unless the Bank should agree otherwise, a debt/equity ratio not exceeding 60:40, a current ratio of at least 1.3:1 and a debt service ratio of at least 1.5:1; (ii) until completion of Phase 2 of the project, not to contract any additional loans above US$5 million annually without prior consent of the Bank; (iii) not to undertake--without prior consent of the Bank--any new projects, either on its own behalf, or through subsidiaries, or any capital expenditures outside the project aggregating to more than US$5 million annually; and (iv) not to invest in any other corporate entity more than US$2 million annually without prior approval of the Bank. SNIM will not distribute any dividends unless the above financial ratios are met and the retained earnings are accumulated as cash up to the amounts required for the financing of Phase 2 (para. 8.18). K. Trust Arrangement and SNIM Operational Account 1. Purpose 8.21 To provide the Bank and certain other lenders with an adequate debt service payment mechanism as well as with some additional, albeit limited, security, and to help maintain SNIM on a sound financial footing and minimize its dependence on the Government with respect to the foreign exchange it needs for its operations, the Bank has sought to obtain agreement that: (i) proceeds from the sale of iron ore will be allocated as a matter of priority to debt service payment, and not diverted for other purposes; and (ii) sufficient foreign exchange for SNIM's day-to-day operation of its mine related facilities will be at its disposal at all times. 1/ US$25, 75, 125 million, respectively, by 1983, 1984 anil 1985. - 62 - 2. Description 8.22 Under normal Mauritanian foreign exchange procedures, all proceeds from exports must be repatriated. By derogation thereto, part of the iron ore export sales proceeds will be kept abroad as follows. 8.23 SNIM will covenant that SNIM's purchasers will be instructed to make all payments of sales of proceeds directly to a designated account at its bank, the Societe Generale of Paris (SG Paris). SNIM will be under an obligation to put into all its sales contracts a provision to that effect. As a condition of effectiveness, such payment instructions shall have been given with respect to the existing sales contracts. 8.24 A Set-Aside Agreement will be entered into between SNIM, the Central Bank of Mauritania, the lenders and the SG Paris, and a Trust Deed will be entered into between SNIM, the Central Bank, the lenders and the Law Debenture Corporation of London, the latter acting as trustee. SG Paris, as recipient of all iron ore sales proceeds will be under permanent irrevocable instruc- tions to transfer monthly (with priority over any other allocations or trans- fers of proceeds received) to a trust account in London such amounts as will be required to (i) accumulate therein the necessary amounts for the next semiannual debt service payment due (through equal monthly deposits of 1/6 of the next semiannual payment due and (ii) accumulate and maintain therein a permanent cushion equivalent to the next semi-annual payment due. The table on the following page details year by year what amounts are affected by the trust arrangement. 8.25 Societe Generale of Paris will further be under permanent instructions in the Set-Aside Agreement to transfer monthly out of the remaining funds, certain minimum balances to a "SNIM Operational Account". Such amounts will be determined on the basis of annual budgets for COMINOR's anticipated foreign exchange operating expenses which will have received prior approval from the Central Bank. The remaining funds will then be repatriated to Mauritania and credited to SNIM's account at the Central Bank. 8.26 In addition to the above, as security for their loans SNIM will provide the participating lenders collectively under a Security Agreement with (i) an unconditional global assignment of all future sales proceeds from the sale of iron ore and (ii) specific assignments of sales proceeds under contracts covering at all times 50% of the iron ore production. SNIM also covenants in the Loan Agreement not to assign sales proceeds to any other party, unless agreed by the Bank. The lenders have agreed not to notify the purchasers of these assignments except in the event that: (i) SNIM fails to instruct any purchaser as provided in paragraph 8.24 and such default shall continue for a period of 30 days after notice from one of the lenders to SNIM; (ii) SNIM changes existing payment instructions to its buyers; MAURITANIA - GUELBS IRON ORE PROJECT FLOWS OF FOREIGN EXCHANGE UNDER THE PROPOSED TRUSTEE ARRANGEMENT (US$ Million - Current Terms) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 IRON ORE SALES 128.8 164.1 202.8 233.1 297.0 373.4 399.6 390.7 387.6 384.1 391.2 498.7 616.0 659.2 TRUSTEE ARRANCEMENT 1. Debt Se Svice Phase 1 a l'O 6.5 10.8 17.3 22.0 32.0 39.9 40.3 40.5 39.7 38.7 37.0 35 9 36.3 Phase 2 - - - - - 2.3 9.1 18.2 20.6 51.2 48.7 TOTAL 1.0 6.5 10.8 17.3 22.0 32.0 39.9 40.3 42,8 48.8 56.9 37.6 87.1 85.0 2. Annual rncrement (Decrease) in Debt Service Cushion - - - 11.0 5.0 3.9 .2 .1 3.0 4.0 .4 14.7 (1.0) (1.8) 3. Total Foreign Exchange for Debt Service (1+2) 1.0 6.5 10.8 28.3 27.0 35.9 40.1 40.4 45.3 52.8 57.3 72.3 86.1 83.2 w es % of iron on sales 1.0 4.0 5.3 12.1 9.1 9.6 10.0 11.3 11.7 13.7 14.7 14.5 14.0 7.9 4. Average Amount in Trustee Account .2 1.6 2.7 8.4 21.4 27.5 30.1 30.9 34.9 40.2 44.8 55.9 64.2 62.5 For all loans excluding interest payment for IBRD loan during period of construction and including 1/5 of SNIM's existing debt outstanding. Includes spares, fuel and supplies plus expatriate salaries estimated at 70% of COMINOR's total operating costs. dustrial Projects Department iy 1979 - 64 - (iii) SNIM fails to provide the lenders with assignments with respect to ore sales contracts together with a copy of such contracts within 30 days after notice from one of the lenders to SNIM; (iv) SNIM assigns sales proceeds under any contract in a manner inconsistent with the above requirements; and (v) the funds transferred during any given month to the trust account are inferior to the monthly debt service deposit as a result of a deliberate action by SNIM, or as a result of an attachment by third parties of funds in the domiciliatory account in Paris or of sales proceeds due to SNIM. The right to notify the assignments to the purchasers and instruct the purchasers to pay into a collective account at the SG Paris may be exercised independently by two representatives of the lenders designated by the lenders. However, a majority of two-thirds of the lenders could veto the decision of notification. Therefore, before notification, all other lenders will have to be informed and will have seven working days to respond. As a condition of loan effectiveness, the global assignment and specific assignments covering existing contracts shall have been provided to the lenders. 8.27 The above arrangements will protect the lending institutions par- ticipating in the arrangement without penalizing the Government unduly as it deals only with obligations related to the Guelbs project. The table on the previous page details year by year what annual amounts would be affected by the trust arrangement, should all the colenders participate. These amounts vary over the next 14 years from 4 to 14% of annual sales proceeds and average 11%. 1/ At the same time the "SNIM Operational Account" will strengthen the company by assuring that foreign exchange will be available for its day-to-day operations. Agreement on the principle of these various arrangements has now been reached. Together with payment instructions for all existing contracts and specific assignments covering 50% of the produc- tion, the conclusion of the Set-Aside Agreement, of the Trust Agreement and of the Security Agreement will be conditions of effectiveness. L. Financial Rate of Return 8.28 The incremental financial rate of return for the combined Phases 1 and 2 is 5.4% before royalties, and 1.39% after royalties. If the US$20 million of extraordinary contingencies are not included, the rates of return are 5.8% and 1.7% respectively. These returns have been calculated by com- paring the situation "with" the Guelbs project with a situation "without" the project; in the latter case COMINOR would maintain production at the Kedia at 1/ Assuming also the participation of one third of SNIM's existing creditors exercising their rights of negative pledge. - 65 - an average rate of 8 million tpy, which would assure a reasonable profit, until exhaustion of the deposit in 1990. Details on the incremental financial cost and benefit streams are given in Annex 8-5 1/. Incremental Financial Rates of Return - Sensitivity Analysis (in %) Base Case (before royalties) 5.4 10% Increase in Investment Costs 4.3 10% Increase in Operating Costs 2.9 10% Decrease in Revenues 1.6 10% Increase in Revenues 8.8 Slippage 1 year in start-up 4.8 Base Case (after royalties) 1.3 US$20 million contingency eKcluded 5.8 The incremental rate of return does not provide a good indi.cation of COMINOR's financial situation, as it is compensated for by the higher returns accruing to the existing operation. Also, no adjustment has been made in the calcula- tions for the costs that would be incurred on closure in 1990-91, if the proj- ect were not to proceed, such as for resettlement and welfare payments, since these are not, strictly speaking, SNIM costs. Furthermore, the overwhelming concern of the major shareholder, the Mauritanian Government, is the high economic benefit of the project, extending the life of the mine, and thus developing in the long term, the major productive sector of the country's economy and the only sustainable activity in the northern part of Mauritania. M. Auditing and Reporting 8.29 SNIM has its 1978 accounts audited by the French firm Helios and has agreed to have its future accounts audited annually, by auditors accept- able to the Bank and to submit these to the Bank within four months after the end of the year. N. Major Risks 8.30 The major risk faced by SNIM/COMINOR is related to the recent Polisario guerrilla activity which could be very damaging to the future of the entire mining venture. Were such activity to resume at the level attained in late 1977 and early 1978, it is possible that the company would not be able to maintain a financially viable operation. In any case, it would have to be expected that the contribution the -existing operations are assumed to make to the financing of the project would decrease. The financial projections assume continued cessation of such guerrilla activity or at least a substantial reduction from the levels reached in 1977-78. 1/ A proportion of SNIM's head office costs that are indirectly related to COMINOR, has been added to the financial cost streams derived from the financial projections, resulting in an aggregate allocation to COMINOR of about 70% of the total head office and support service expenditures generated by SNIM's as a whole. - 66 - 8.31 The risk related to project implementation is two-fold: the quality of project management itself and the possible damaging effect of guerrilla activity during implementation: (a) While SOCOMINE, the project manager, is a relatively small concern, it is staffed with experienced people many of whom occupied management positions during the implementation and operation of the original MIFERMA project, and it will in addition be reinforced by qualified people from several large consulting organizations. To ensure that the entire SOCOMINE staff will be assigned to the project full-time during imple- mentation, a covenant precludes SOCOMINE from taking on any outside activities which might be detrimental to the project implementation. With this restriction, overall project manage- ment during implementation is expected to be satisfactory; and (b) Implementation could be adversely affected by a renewal of guerrilla activity, damaging essential equipment and seriously delaying project completion. Therefore, to provide COMINOR with access to the financial resources which might in such a case be needed, an additional US$20 million in the form of equity has been included as an extraordinary contingency in the financing plan. 8.32 While the Government will guarantee repayment of the Bank loan to SNIM, a direct debt service payment mechanism will also be set up (paras. 8.21- 8.27), to be built up and replenished by the Company's receipts from its iron ore exports. This will assure automatic repayment of debt for a period of at least 6-12 months, thereby providing the lenders with an opportunity to seek a solution in the event of difficulties. At the same time the Government will allow SNIM to open an operating account to be maintained outside Mauritania and to be replenished directly from iron-ore sales revenues. This should ensure that SNIM has sufficient foreign exchange to meet its operational requirements at all times. Furthermore, to safeguard the Company's financial resources and ability to properly execute and operate the project, and to avoid any management diversion from other tasks, SNIM will not proceed with any investments that are unrelated to its iron ore operation without the prior consent of the Bank. 8.33 Another potential risk is that Phase 2 would not be implemented as scheduled, with the consequence that, after exhaustion of the Kedia reserves, COMINOR would only be able to count on a production of 6 million tpy from Phase 1, and would therefore operate below the break-even point. To counter this threat, the financing plan for Phase 1 has been designed so that implementation of Phase 2 would not, under reasonably foreseeable cir- cumstances, be retarded because of financing problems. The proposed financing should put SNIM on such a footing, that even a financing plan for Phase 2 including a somewhat larger amount of debt, or a larger proportion of commer- cial loans than is proposed here (para. 8.08) would still be acceptable. Furthermore, it can be expected that many of the Phase l lenders and investors - 657 - would be willing to contribute to the financing of Phase 2. The financial projections also indicate that, over the period 1983-90 (i.e., the years presently envisaged for completion of Phases 1 and 2, respectively) inclusive, SNIM will generate cash in excess of the US$187 million projected as their own contribution to the Phase 2 financing. Finally, the covenant limiting dividends distribution should cause SNIM to retain the necessary cash genera- tion, whilst that on the Government (para. 8.18) should ensure that the associated foreign exchange is also available. 8.34 The project faces the normal market risk of any iron ore export project. Nevertheless, SNIM is expected to produce a good quality iron ore at internationally competitive costs, and any marketing difficulties should therefore, at most, be temporary. Also, the incremental amount of iron ore which the project will introduce ontc the world market is relatively small. In any event, letters of intent amounting to about 50% of its production have already been obtained, and the general response from the ore purchasers to the sales campaign initiated by SNIM for the Guelbs production is quite favorable. 8.35 Finally, the project is not expected to face any particular risks as regards mining and transportation, since these are merely an extension of activities presently being carriecl out. Operations of the concentration/ benefication plant, on the other hand, will constitute a new activity for the Company. However, since the process to be employed is relatively simple and well-proven commercially, and adequate training of operators is envisaged, no extraordinary difficulties are expected in running this plant satisfactorily. IX. ECON041C ANALYSIS A. Economic Rate of Return 9.01 In calculating the incremental economic rate of return (for which the major assumptions are given in Annex 9-1), the financial cost streams have been amended by excluding payment of all taxes (export royalty and all indirect taxes), and shadow pricing Mauritanian labor costs. Indirect taxes represent, on average, about 3% of FOB ore export value. The costs of Mauritanian laborers and foremen have been shadow priced at, respectively, 30% and 50% of the financial costs. The corresponding reduction in operating costs is about 7%. Similarly, the local components of project construction work by contractors, and by SNIM's own force, have been reduced to take into account indirect taxes and shadow-priced labor. The corresponding reduction is about 3% of capital costs. These assumptions are conservative for in comparing the "with" and "without" project situations, the shadow price of labor in 1990 at the time the Kedia deposits would otherwise be exhausted, would be very much lower, due to the lack of alternative sources of employ- ment and the financially satisfactory nature of the project. All costs and benefits in the return calculations are expressed in 1977 real terms. - 68 - 9.02 The benefit streams have been amended to take into account the cost of closing the mine, the town site of Zouerate, the communities along the railway line, and the Nouadhibou facilities, should the project not be implemented. Few alternative means of employment or subsistence are avail- able in Nouadhibou, and none exist in the desert. Once the existing Kedia deposit is exhausted, all mining of iron ore would come to a halt and most of the population - estimated at 40,000 - would have to be resettled in other parts of the country (near the capital Nouakchott or in the agriculture lands along the Senegal river). Because of the shortage of adequate infrastructure and the high cost of building in Mauritania, as well as of creating alter- native urban or agricultural employment, the resettlement cost is expected to be high. On the basis of new or on-going projects with comparable compo- nents in Mauritania and neighboring Senegal, the resettlement cost has been estimated at a minimum of US$2,000 per person. 9.03 The results of the incremental rate-of-return calculations are shown in the following table, indicating a "Base Case" economic rate of return for the combined Phases 1 and 2 of 11.8%. If the US$20 million of extraordinary contingencies are not included, this rate of return increases to 12.4%. The detailed calculations and sensitivity tests are shown in Annex 9-1. Incremental Economic Ratesof Return - Sensitivity Analysis (in %) Base Case 11.8 Capital Cost Increase 10% 10.3 Operating Cost Increase 10% 10.2 Sales Revenue Decrease 10% 8.6 Sales Revenue Increase 10% 14.7 1 Year Delay in Start-up 10.3 Base Case with Pre-1978 Exploration and Study Expenditures Considered as Sunk Costs 12.6 US$20 million contingency excluded 12.4 The economic rate of return is relatively high compared to the financial rate of return, because of the important indirect taxes paid by COMINOR and the high labor content of the operating costs. The sensitivity tests indicate that there is little likelihood that the project would have an unsatisfactory economic rate of return. B. Foreign Exchange Effects 9.04 One of the most important benefits that Mauritania will receive from the project is its foreign exchange earnings. At full production, Phases 1 and 2 are expected to yield incremental net foreign exchange earnings after debt service of US$14.0 million and US$51.0 million p.a. on average (in real terms) respectively. The payback period for the total foreign exchange com- ponents of the two phases is estimated to be about 3 years from startup of Phase 2. Combining the existing mining operation with the two Phases of the - 69 - project, COMINOR is projected to yield total net foreign exchange earnings of US$60 million p.a. in real terms, on average, over the period 1979-92. Further details on the foreign exchange effects are contained in Annex 9-2. C. Other Benefits 9.05 Implementation of the project will maintain the mining operations in existence, as well as further deve]op them. This, as outiined in Chapter II, is crucial to Mauritania in order to sustain Government revenues and foreign exchange inflows, and to create direct and indirect employment effects. In addition, the project will ensure the continuing existence of SNIM, which through its training programs, geological research and project promotion, is the main instrument for future development of mining activities and industry in Mauritania. X. SUMMARY OF RECOMMENDATIONS 10.01 The following major assurances or agreements have been obtained. (a) From SNIM (i) to implement the Second Phase of the Project (paras. 1.04 and 8.33); (ii) to (a) strengthen its financial department, (b) keep separate accounts for all its operating units and (c) not commit itself to new projects without the prior consent of the Bank (paras. 3.08, 8.21 and 8.32); (iii) to seek external financial support for those aspects of its research and training activities which are primarily of benefit to Mauritania rather than SNIM itself, and to periodically report to the Bank on the progress of this effort (para. 3.12); (iv) to sell its iron ore at world market prices and in return for convertible foreign exchange and to adopt a sales strategy which shall maximize its sales revenues and profits (para. 4.30); (v) to report on the effort to develop the necessary new water resources on an annual basis (para. 5.16); (vi) to operate its iron ore installations with due regard to ecological and environmental safety standards and carry on a long term study c,n the effects of dust inhalation by workers (para. 5.17); - 70 - (vii) to obtain binding assurances from SOCOMINE not to enter into any other major engagement during project implementation which could hamper the execution of the project (paras 7.02 and 8.31); (viii) to establish and implement adequate arrangements for the functioning of the expert committee and its review responsibilities (para 7.04); (ix) to review its depreciation practices (para. 8.05); (x) to restrict dividend payments under certain financial conditions, and place the accumulated cash in a special account in order to preserve it for the financing of Phase 2 (paras. 8.06, 8.18 and 8.33); (xi) to implement the central organization and overhead reduction program, and regularly review its results with the Bank (para. 8.10); (xii) to meet certain financial covenants (para. 8.20); (xiii) to contract additional loans only under specific con- ditions (para 8.20); (xiv) to restrict expenditures and investments outside the project (paras. 8.20 and 8.32); (xv) to comply with its obligations under the Set Aside and Security Agreements and Trust Deed, to instruct all payments to be made in the Domiciliatory account and to assign to the lenders the proceeds of a certain proportion of its long-term sales contracts (paras. 8.21 through 8.27); and (xvi) to maintain satisfactory auditing and reporting practices (para. 8.29). (b) From the Government (i) to free SNIM of any payments for compensation of the MIFERMA nationalization (paras. 3.01 and 8.14); (ii) not to allow SNIM to become involved in any new project or any other entity within SNIM to become involved in non-iron ore related investments, without the prior consent of the Bank (paras. 3.08, 8.20 and 8.32); (iii) not to authorize any entity other than SNIM to market SNIM's iron ore without the prior approval of the Bank (para. 4.29); - 71 - (iv) to guarantee SNIM's right to sell its iron ore both at world market prices and in return for convertible foreign exchange (para. 4.30); (v) to onlend to SNIM, all loans made to the Government for the purpose of the project (para. 6.11); (vi) to provide a project completion guarantee (para. 6.12); (vii) to grant to SNIM the new proposed royalty system, and, agree in the Convention Particuliere to defer, if neces- sary,a certain proportion of SNIM's royalty obligations, in order to enable the company to meet possible cash shortfalls (paras. 6.13, 8.07 and 8.16); (viii) to guarantee to SNIM the right to import fuel directly and at prices in line with international market prices (para. 8.04); (ix) to assume repayment of the debt of SOMIMA vis-a-vis its external creditors, and to repay to SNIM the US$30.8 million equivalent balance outstanding of SOMIMA and state debts vis-a-vis SNIM, according to a specified time schedule and terms as well as to reimburse SNIM for any expenditure incurred on account of the State (para. 8.12); (x) to undertake that any foreign exchange deposited by SNIM in the special account at the central bank, will be made available to SNIM, as and when required, for the purposes of financing both Phase 2 and possible Phase 1 cost overruns (para. 8.18); and (xi) to take all measures necessary for the establishment and operation of the arrangements detailed in the Set Aside Agreement, Security Agreement and Trust Deed (paras. 8.21 through 8.27). 10.02 The following items will be conditions of effectiveness: (i) granting of the El Rhein and Oum Arwagen mining concession (para. 5.01); (ii) establishment of a calendar satisfactory to the Bank for the paying in of the remaining new capital (para. 6.09); (iii) effectiveness of foreign loans totalling at least 80% of total external loan financing for the project, and (at least) satisfactory assurances that the loans representing the remaining 20% will be forthcoming (para. 6.11); - 72 - (iv) signing of a Convention Particuliere between SNIM and the Government satisfactory to the Bank (para 8.07); (v) repayment of the bank overdrafts amounting to US$39.5 million or conclusion of an alternative arrangement satisfactory to the Bank transforming the overdrafts into a long-term loan (para. 8.13); and (vi) entering the Set Aside and Security Agreements and the Trust Deed, submission of satisfactory insurance that adequate payment instructions have been given to the ore purchasers and the assignnent to the lenders of the proceeds of a certain proportion of SNIM's long-term sales contracts (paras. 8.21 through 8.27). 10.03 Subject to the foregoing commitments and agreements, the project provides a sound basis for a loan to SNIM, of US$60 milliDn for a period of 15 years, including 5 years of grace. Industrial Projects Department May 1979 - 73 - ANNEX 3-1 Page 1 of 8 MAURITANIA--GUEI,BS IRON ORE PROJECT SNIM UNITS OTEHER THAN COMINOR A. Introduction 1. Besides COMINOR, SNIM includes the following units or departments: (i) Departement de Commercialisation des Produits Petroliers (DCPP)-- an organization for the distribution of petroleum products. (ii) a gypsum mining and sales operation. (iii) SNIM Explosifs (SNIMEX)--an explosives factory (iv) SNIMACIER--a new mini-steel plant (due to commence production). (v) The "Siege", a central organization, comprising the head office, training and research units. Up until early 1978, SNIM also included SOMIMA, the copper mining operation, and was responsible for supervising the implementation of a new oil-refinery in Nouadhibou. In March 1978, SOMIMA was divested from SNIM and it was decided that the refinery wou:Ld not be incorporated into SNIM if and when it should be made operational. B. DCPP 2. DCPP was first created under the name UCPP in 1973, when the Government gave SNIM the authority to set up an organization for refining and distributing oil products. The main reasons for this course of action was: dissatisfaction with foreign companies (who had handled imports and distribution up to that time) due to their erratic supply, rising prices and above all lack of interest in expanding their networks. SNIM was viewed as being the only Mauritanian organization capable of handling the logistics of such an enterprise and, in addition, oil was critical to SNIM's own mining activities. 3. Since 1975, DCPP has been the sole importer for the Mauritanian market; it supplies its own distribution system as well as those of its remaining private competitors, BP and Mobil. It has expanded its network by buying out Shell Senegal (in Mauritania) in 1975 and Texas Mauritania in 1976 and by building new stations such that, in 1978, the DCPP network was comprised of: (i) main depots in Nouadhibou, Nouakchott and Dakh la; (ii) 29 filling stations; (iii) 4 airport depots; and (iv) about: 30 tank trucks. The stations are maintained and supplied by DCPP, while the manager pays rent and receives a salary on a commission basis. DCPP's work force consists of about 60 persons, including 4 expatriates. Maintenance of the truck fleet is carried out separately in the wor-kshops of SNIM's central organization. - 74 - ANNEX 3-1 Page 2 of 8 4. DCPP has a clear marketing advantage through its import function and its role as supplier to captive markets in the form of both SNIM and the Government. Consumption of oil products in the Mauritanian market has been estimated at 200,000 cubic meters in 1978 with a share of 82% going to DCPP (in 1975 its share was 36%) and the remainder to Mobil and BP. SNIMNs needs alone account for 45% of the total market whilst Gas-oil constitutes the largest proportion of sales volume of around 2/3 of total demand. 5. The sales prices of oil products are fixed by the Government accord- ing to a complex formula at levels varying according to location within the country. These prices include miscellaneous taxes plus a reasonable margin above import cost for the importer/distributor and are regularly revised. In late 1977, for example, the sales price, ex-depot Nouakchott, for gas-oil was computed as follows: Price per lOOL (UM) CIF price 694 Taxes 788 Import/Distribution Margin 95 Total 1,427 (US$31.7) SNIM is exempted from taxes on fuel for its own internal consumption require- ments. The import/distribution margin is sufficient, both to cover operating costs and to provide an adequate return on investment and DCPP is therefore a profitable operation. Net profit in 1977, for example, reached UM 66 million on net sales (excluding taxes) of UM 1,153 million (or 6%). 6. As already mentioned in para. 3.02 of the text, the decision has been taken to separate DCPP from SNIM. Because of the positive cash flow generated by DCPP, this separation will imply a net loss for SNIM, which the Government has nonetheless agreed to compensate. The compensation level will be discussed and approved by the Bank. A preliminary study based on the financial projections indicates that SNIM's cumulative net loss would amount to US$130 million by 1992 in current terms. C. Gypsum Operation 7. Since 1973, SNIM has mined the gypsum contained in a high-quality dune deposit about 60 km from Nouakchott, which currently has reserves of some 14 million tons. Mining is a very simple quarry operation with trucks and shovels and involves about 10 people. Production is currently roughly 17,000 tons per year, all of which is sold to the Rufisque cement plant near Dakar in Senegal at a delivered price of UM 1,640/ton (US$36.4). SNIM trucks trans- port the gypsum to the Senegalese border and, on their return trip, carry Senegalese cargo back to Nouakchott. - 75 - ANNEX 3-1 Page 3 of 8 8. Although small, this venture is profitable. On the basis of sales of 17,000 tons, 1978 net revenues (after deduction of the expensive trans- port within Senegal's border) are projected at UM 16 million and net profit at UM 6 million (US$133,333), or 38%. 9. The export market in Senegal is fairly secure since the closest competing sources are in Morocco. However, miere exportation does not fully exploit the local value added potential of the gypsum, while at the same time Mauritania is destitute of indigenous building materials. A project is therefore under consideration to build a 22,000 tpy plaster plant, producing both materials for plastering and components, such as blocks and panels. This output would substitute about 2 for 1 for imported cement and reduce foreign exchange outflows, which for cement are currently the order of US$3 million p.a. (60,000 tpy at a cost of about US$50/ton CIF Nouakchott). The technical feasibility of the project has been studied by Pfeiffer/Belgochaux of Germany and Belgium, but neither a market study nor a comprehensive feasibility study has yet been undertaken. Capital costs are estimated at UM 253 million (US$5.6 million). The project would be established as a private company, primarily by private interests but with a minority participation by SNIM. To this end, SNIM plans to use UM 27 million (US$600,000) from a line of credit provided by Caisse Centrale specifically for such small-scale projects. At full production the plaster plant would require an input of 26,400 tpy of gypsum; this would be sold to them by SNIM, at cost. 10. Gypsum could also be used in clinker-grinding to produce cement from imported clinker. Preliminary proposals for such a plant, with a capacity of 100,000 tpy of cement have been made to SNIM. It is unlikely, however, that this project will go ahead in the near future. il. A Government-level decision has also been taken to divest SNIM of its gypsum operation (para. 3.02 of the text). Because of the small size of the operation, the financial implication on SNIM will be minimal, especially since the Government has agreed to compensate SNIM for any present or future losses resulting from separation activities (para. 3.02.). D. SNIMEX 12. SNIMEX was started by SNIM; in 1975 near Nouadhibou in order to produce the explosives required by COMINOR and SOMIMA. It is a small plant, mixing and packing the imported components for resale as two explosive prod- ucts, SNIMEX (a mixture of TNT and nitrates) and ANFO (a mixture of ammonium nitrates and fuel oil). In the past, production has averaged 1,700 tpy of SNIMEX for COMINOR and 400 tpy of ANFO for SOMIMA, but capacity is suffi- cient to supply the 2,600 tpy peak requirement of COMINOR during the first years of Guelbs operation. About 50 persons work at the plant, of which only one is an expatriate. The UM 90 million (US$2 million) initial investments were financed by a UM 33.5 million boan from Caisse Centrale (fully repaid by early 1978) and by SNIM's cash generation. SNIMEX sells its production at a price equivalent to those of imported explosives i.e. UM 47.7/kg (US$1.06) in 1977/78. At these prices, SNIMEX more or less breaks even. However, in 1978, it incurred losses of UM 36 million on sales of 52 million because of the - 76 - ANNEX 3-1 Page 4 of 8 low level of production of explosives due to the slowdown of COMINOR's activi- ties. In 1979, a slight profit of about UM 1 million (US$22,000) on sales of UM 90 million (US$2 million) is projected. SNIMEX is, therefore, a viable alternative to the import of ready-to-use explosives. E. SNIM/ACIER--THE STEEL PROJECT 13. SNIM has just completed construction of a small steel plant in Nouadhibou, for which the projected output is 10,000 tpy of reinforcement bars. Essentially, the plant consists of an electric arc furnace and a rolling mill. Production will be based on the high-grade steel scrap gene- rated by COMINOR (through the continuous replacement of the railtrack and wheels of the ore wagons). Previously, COMINOR's rate of generation averaged between 6,000 and 9,000 tpy; this is projected to increase to about 10,000 tpy during the 1980's. In addition, in anticipation of project start-up, some 16,000 tons have been accumulated at Nouadhibou over the past 2 years. 14. The purpose of the plant is to supply rebars to the domestic con- struction industry, whose demand is currently estimated at about 5,000 to 6,000 tpy 1/ and is projected to increase at about 10% p.a. During the first four years or so of full production, SNIM/ACIER will, therefore, have to export to Senegal. Prospects for such exports are reasonable: the quantities involved are small; Senegal has no domestic source of supply; several dam and irrigation projects requiring such steel are to be constructed in the border areas of Senegal and Mauritania in the near future; and SNIM has in fact already received a letter of intent from a trading company, DAVOB in Dakar. Production and exports are projected as follows: Production and Sales of SNIM/ACIER (tons) 1979 1980 1981 1982 1983 1984 1985 Production 5,000 10,000 10,000 10,000 10,000 10,000 10,000 Local Consumption 5,000 10,000/a 6,610 7,270 8,000 8,800 10,000 Exports - - 3,390 2,730 2,000 1,200 - /a Peak during the construction of the Guelbs. SNIM expects to sell the steel at an average wholesale price of UM 25,700/ton (US$555) in 1977 terms, which is equivalent to the current price of imported steel, determined as follows: 1/ Excluding the exceptional surge in consumption in 1975/77 when several public buildings and mosques were constructed simultaneously. - 77 - ANNEX 3-1 Page 5 of 8 UM/ton Cost CIF Nouakchott 16,750 Custom Duties 3,500 Port Charges 2,850 Miscellaneous Costs 800 Importer Margin 1,800 25,700 On the basis of a current import price CIF Dakar of UM 16,000/ton, and in view of the major rebate on custom duties allowed within the framework of agree- ments between the two countries, SNIM expects to sell to Senegal at about UM UM 16,500/ton ex-factory. 15. The project engineering, construction and staff training have been carried out by the French firm, STEG, under a turnkey contract, with the assistance of Italian steel producers, OMAV, of the Brescia area who special- ize in mini-steel plants. Construction was completed in the second half of 1978 and production is expected to commence during the first quarter of 1979. The key components of the plant are the electric furnace with a capacity of 12,000 tpy (on the basis of 3 shifts) and the rolling mill with a capacity of 18,000 tpy (on a 1-shift basis). The plant will employ about: 130 persons, of whom about 20 will be expatriates. Total project cost including interest during construction and working capital was UM 505 million (US$11.2 million). External financing consisted of: (i) a UM 190 million loan at 4.5% p.a. for 12 years from Abu Dhabi and (ii) a UM 291.4 million loan bearing an interest rate of 7.2% p.a., plus a COFACE insurance premium from the Credit Commercial de France, for about 7 years including 2 years of grace. This second loan, has a repayment period that is too short for this kind of investment and will therefore penalize SNIM/ACIER heavily during its first few years of production. 16. The transfer cost for COMINOR scrap is estimated at UN 2,500/ton (US$55) in line with the price that such unprepared scrap could fetch (FOB Nouadhibou) on the world market. This transfer price is very favorable to SNIM/ACIER. On the other hand, the cost of imported refractories and power (UM 4.5/kWh) will be high. SNIM projects total operating costs at IJM 21,100/ ton and UM 19,500/ton (1977 terms) for production levels of 7,800 tpy and 10,000 tpy, respectively. When compared with the projected sales price of UM 16,000 to 25,000/ton, this leaves cnly a small margin to cover capital charges. As a result, as shown in the projections of Annex 8-3, SNIM/ACIER is expected to experience average cash losses of about UM 50 million p.a. in current terms during the first 4 years of operation. - 78 - ANNEX 3-1 Page 6 of 8 F. SNIM/SIEGE 17. The central organization, "Siege" includes the Company's headquarters; the support services and research and technical department in Nouakchott, the training units; and the European offices. In early 1978 its personnel con- sisted of about 600, 1/ of which some 150 were expatriates including about 80 in the European offices. This heavy central organization was developed along the lines proposed in 1974-75 by SEMA, a French management consulting firm, at a time when it was envisaged that SNIM would develop into a 10,000-man group. 18. The headquarters in Nouakchott include the general management depart- ment, the "secretariat general" (which deals with new works, buildings, public relations and supplies), the financial department, the personnel department and the technical department. The technical department consists of a geo- logical research unit and a group dealing with general technical studies; it is also responsible for supervising the gypsum mine. The financial depart- ment is still incomplete as it does not yet have an internal audit unit or a corporate planning capability. 19. The personnel department handles personnel planning and training. It controls the CAFM training school in Nouadhibou and the CAPAT training school in Nouakchott. It also controls training programs abroad. On the whole, there is some duplication between this department, the personnel unit of COMINOR and the administrative office in Paris. The support services include workshops, stores and a procurement unit. The workshop maintains the service vehicles as well as the trucks used for the transport of gypsum and DCPP's equipment. 20. The European offices include the marketing office and the adminis- trative office in Paris and the purchasing office in Zurich. The marketing office basically handles all of SNIM's iron ore (and formerly copper concen- trate) marketing aspects. The administrative service deals with the recruit- ment and general administrative questions relating to expatriates. The Zurich office handles procurement on the basis of instructions from SNIM in Mauritania. 21. The capital expenditures and operating costs of this large organiza- tion have been high. Total operating costs reached UM 654 million (US$14.5 million) in 1977. Of this, UM 156 million was for the European offices, UM 117 million for the CAFM training center and UM 146 million for SOMIMA and the refinery. The capital cost of the CAFIM amounted to about UM 300 million (US$6.7 million), representing an investment per student of US$33,500. This is extremely high. Operating costs at Nouakchott are worsened by the high cost of rented housing and other benefits provided to staff and of the 1/ Some of this personnel was dealing essentially with transport and other support services for SOMIMA. - 79 - ANNEX 3-1 Page 7 of 8 rented office scattered through the town as SNIM has only recently acquired a building of its own. This building is still under construction and its high cost (UM 340 million, for the building, plus UM 180 million for equipment and furniture) will heavily burden SNIM's future cash flow. 22. SNIM now plans to reduce the costs of its central organization substantially by narrowing the scope of its activities, consolidating services currently spread between the different central departments and the operating units and reducing staff and manpower at many levels. The proposed reduction program would primarily consist of: (i) consolidating personnel services between Nouakchott, Nouadhibou and Paris; (ii) eliminating positions in Nouadhibou which duplicate those in Nouakchott; (iii) reducing the number of expatriate teachers and technical assistants in the training centers; (iv) reducing general training abroad for Mauritanians, wherever this is not directly required for some specific function; (v) consolidating the procurement department in Zurich with the Mauritanian office; (vi) eventually consolidating the remaining departments of the three European offices into one; (vii) reducing geological researc:h and technical studies; (viii) reducing the units handlingr public relations, purchasing new works, etc.; and (ix) generally eliminating any activities which were previously needed for SOMIMA and/or the refinery. This program should lead to a 30%-40% recurrent reduction as compared with 1978 operating costs and a drastic reduction in capital expenditures, as is illustrated in the financial projections in Annex 8-3. G. PARTICIPATIONS 23. SNIM also holds participations in the following ventures: (i) a 52% participation in SAMMA (Societe d'Acconage et de Manutention) a trading and investment company which generated revenues of UM 194 million in 1977; - 80 - ANNEX 3-1 Page 8 (ii) a 33-1/3% participation in MEPP (Compagnie Mauritanienne d'Entreposage des produits Petroliens), an oil products storage tank facility in Nouadhibou, which SNIM owns together with Mobil and BP; (iii) a 51% participation in COMETE (Compagnie Mauritanienne d'Etudes Techniques et Economiques), a small engineering firm in Nouakchott, which generated revenues of UM 66 million in 1977; (iv) an 81.2% share in SIRCA (Societe de Fabrication et de Commercial- isation de Produits pour le Batiment), a tile manufacturing plant with sales of UM Il million in 1977; and (v) a 20% share in SOMAR (Societe de Representation et de Services), a trading firm in Dakar, which represents SNIM in Senegal. SNIM also holds 30% of the shares of a geological research consortium for phosphates with BRGM, GEOMIN and SSPT (Senegal), which has a total capital of FF 1.5 million. It also holds 50% of the geological research consortium with BRGM for uranium prospecting in the Diaguili region. Industrial Projects Department May 1979 - 81-- ANNEX 3-2 Page 1 of 5 MAURITANIA - GUELBS IRON ORE PROJECT SNIM - HISTORICAL CON'SOLIDATED INCOME STATEMENTS (UM Billion) SNIM Conso]idated 1976 1977 1978 I. Revenue 8.49 7.54 5.39 II. Cost of Goods Sold Salaries and wages 2.48 1.99 1.67 Materials 2.96 2.61 1.88 External services 0.42 0.50 0.30 Transport 0.12 0.06 0.05 Stock variation 0.00 0.48 (0.39) Subtotal 5.98 5.64 3.51 III. Gross Profit 2.51 1.90 1.88 IV. Operating Expenses Administration 0.0411 0.59 0.66 Duties and taxes 0.82 0.69 0.22 Depreciation and provisions 1.40 1.32 1.13 Exept. & previous profit and losses 0.09 0.04 0.26 Subtotal 2.35 2.64 2.27 V. O _erating Profit 0.16 (0.74) (0.39) VI. Financial Charges 0.19 0.29 .31 VII. Net Profit (0.03) (1.03) (0.70) Net profit/revenue (%) o (13.7) 0 Net profit/gross fixed assets (%) o (4.6) 0 /l In 1976, headquarters' expenses are included in the costs of goods sold. Industrial Projects Department May 1979 -82- ANNEX 3-2 Page 2 of 5 MAURITANIA: GUELBS IRON ORE PROJECT SNIM - HISTORICAL CONSOLIDATED BALANCE SHEET (UM Billion) SNIM SNIM Consolidated excluding SOMIMA 1975 1976 1977 1977 1978 ASSETS Current Assets Cash and Banks 0.22 0.08 0.18 0.18 0.27 Receivables a/ 3.14 2.74 2.98 4.32 1.70 Inventories 2.47 2.43 2.19 1.87 1.91 Subtotal 5.83 5.25 5.35 6.37 3.88 Fixed Assets Gross Fixed Assets 20.78 22.28 22.53 18.13 18.93 Less depreciation 12.01 13.14 13.55 10.54 11.25 Net Fixed Assets 8.77 9.14 8.98 7.59 7.68 Other Assets 0.42 1.54 0.98 1.07 2.09/ Total Assets 15.02 15.93 15.31 15.03 13.65 LIABILITIES Current Liabilities Payables 0.90 1.41 1.80 1.80 1.29 Current portion of LT debt/short-term borrowings 2.35 1.01 0.59 0.59 0.71 Overdraft 0.65 1.61 1.71 1.71 1.78 Others 2.03 1.18 1.88 1.82 2.09 Subtotal 5.93 5.21 5.98 5.92 5.87. Long-Term Debt b/ 2.24 2.51 2.54 2.49 1.91 Equity Contributed capital 6.62 7.16 7.06 6.03 6.44 Treasury grants 0.10 0.35 0.07 0.04 - Ret,trned savings and reserves (0.52) 0.43 (0.60) 0.32 (0.70) Provisions 0.65 0.27 0.26 0.23 0.13 Subtotal 6.85 8.21 6.79 6.62 5.87 Total Liabilities 15.02 15.93 15.31 15.03 13.65 Debt/Equity 25:75 23:77 27:73 27:73 24:76 Current Ratio 0.98 1.01 0.89 1.08 0.66 Quick Ratio 0.57 0.54 0.53 0.76 0.33 Debt Service Coverage n.a. 0.61 0.58 n.a. n.a a/ Includes UM 0.45 billion paid by SNIM to MIFERMA's former shareholders for which Govern- ment reimbursement was due. b/ Including notes payable to MIFERMA's shareholders for which SNIM is to be reimbursed by the State, as due. These totalled UM 1.35 billion in 1976 and UM 0.9 billion in 1977 and UM 0.45 billion in 1978. c/ The net debt of the State due to SNIM is included and amounts UM 1.59 billion end 1978. Industrial Projects Department -83- ANNEX 3-2 Page 3 of 5 MAURITANIA: GUELB'i IRON ORE PROJECT COMINOR - EVOLUTION 0F OPERATING COSTS/TN (UN') 1971 1972. 1973 1974 197. 1976 1921 1978 Production (Million tns)/ 8.5 9.1 10.2 11.8 8.7 9.4 7.2 7.1 Operating Costs/tn (UM) Direct Mining 87.16 84.05 84.61 96.48 152.42 159.53 170.0 132.0 Railway 51.98 49.64 55.02 62.73 99.53 101.76 121.0 111.2 Port 20.06 18.35 19.39 22.16 37.05 35.23 41.0 41.1 Sub-total 159.20 152.04 159.02 181.37 289.00 296.52 332.0 284.3 Indirect Zouerate 24.89 23.,'4 26.10 32.12 60.14 51.91 64.0 57.4 Nouadhibou 33.09 31.10 31.90 45.96 69.60 57.65 74.0 80.5 Sub-total 57.98 54.84 58.00 78.08 129.74 109.56 138.0 137.9 Total Operating Costs/tn 217.18 206.88 217.02 259.45 418.74 406.08 470.0 L22. Total Operating Costs US$/ton 4.82 4.59 4.82 5.76 9.31L3 9.02 10.4 9.38 /l At the end of November /2 Average between amounts mined, transported by rail and exported /3 Fuel oil increase and doubling of salaries Industrial Projects Department May 1979 -84- ANNEX 3-2 Page 4 of 5 MAURITANIA - GUELBS IRON ORE PROJECT COMINOR - HISTORICAL INCOME STATEMENT (UM Billion) 1971 1972 1973 1974 1975 1976 1977 1978 il mos 13 mos I. Sales Volume (million tn) 8.60 8.62 10.33 10.69 9.65 9.66 8.42 6.5 II. Revenue Iron ore sales 4.45 3.94 4.42 5.58 6.77 7.03 5.91 4.26 Others 0.36 0.51 0.49 0.73 0.84 0.54 0.46 .35 Total Revenue 4.81 4.45 4.91 6.31 7.61 7.57 6.37 4.61 III. Cost of Goods Sold Salaries and wages 0.95 1.06 1.24 1.44 2.10 1.92 1.73 1.62 Materials 1.13 1.06 1.25 1.45 2.51 2.14 1.92 1.45 External services 0.28 0.15 0.20 0.36 0.41 0.32 0.34 0.26 Transport 0.02 0.02 0.03 0.04 0.06 0.05 0.04 0.03 Stock variation (0.22) (0.08) 0.03 (0.05) (0.85) 0.10 0.41 (.39) Subtotal 2.17 2.21 2.75 3.24 4.23 4.53 4.44 2.97 IV. Gross Profit 2.64 2.24 2.19 3.07 3.38 3.04 1.93 1.64 V. Operating Expenses Administration and Selling 0.44 0.32 0.47 0.45 0.23 0.42 0.49 .59 Duties and taxes 0.39 0.36 0.40 0.04 0.45 0.71 0.59 .19 Depreciation and provisions 1.34 1.14 0.86 1.25 1.03 0.96 0.93 .94 Except & previous profit & losses 0.09 0.03 (0.01) 0.05 0.36 (0.10) (0.07) .14 Others - - - - 0.10 - - - Subtotal 2.26 1.85 1.72 1.84 2.17 1.99 1.94 1.86 VI. Operating Profit 0.40 0.39 0.47 1.23 1.21 1.05 (0.01) (0.22) VII. Financial Charges 0.22 0.22 0.28 0.26 0.22 0.21 0.19 0.22 VIII. Net Profit After Taxes 0.16 0.17 0.19 0.97 0.99 0.84 (0.20) (0.44) Net Profit/Iron Ore Sales (%) 3.6 4.3 4.3 17.3 14.6 11.95 (3.4) (10.0) Net Profit/Gross Fixed Assets (%) 1.3 1.2 1.3 6.4 6.2 5.1 (1.2) (2.6) Dividends (UM Billion) 0.15 0.16 0.18 - - - Dividends/Capital (%) 4.1 4.2 4.5 - - - Industrial Projects Department May 1979 -85- ANNEX 3-2 MAURITANIA - GUELBS IRON ORE PROJECT Page 5 of 5 COMINOR - HISTORICAL BALANCE SHEETS (UM Billion) 1971 1972 1973 1974 1975 1976 1977 1978 ASSETS Current Assets Cash and Banks 0.15 0.14 C.04 0.61 0.35 0.02 0.07 0.01 Receivables 0.61 0.74 0.93 1.06 1.87 1.26 1.00 0.79 Inventories 0.91 0.90 0.97 1.03 1.89 1.78 1.65 1.72 Subtotal 1.67 1.78 1.94 2.70 4.11 3.06 2.72 2.52 Fixed Assets Gross Fixed Assets 12.70 13.78 14.63 14.95 15.93 16.45 16.59/a 17.22 Less Depreciation 6.73 7.52 8.19 8.88 9.160 10.27 10.23 10.90 Net Fixed Assets 5.97 6.26 6.44 6.07 6.23 6.18 6.36 6.32 Other Assets 0.04 0.04 0.12 0.10 0.11 0.03 0.02 0.01 Total Assets 7.68 8.08 8.50 8.87 10.45 9.27 9.10 8.85 LIABILITIES Current Liabilities Payables 0.24 0.20 0.32 0.53 0.55 0.60 1.08 .83 Inter-unit accounts - - - - 0.62 0.44 0.62 .41 Current portion of LT debt/short- term borrowings 0.32 0.50 0.60 1.76 0.74 0.61 0.66 .30 Overdraft - - 0.24 0.03 0.07 - - - Others 0.47 0.58 0.69 0.54 1.68 0.38 - 1.03 Subtotal 1.03 1.28 1.85 2.86 3.66 2.03 2.36 2.57 Long-Term Debt 3.02 3.02 2.90 1.52 1.27 0.98 0.83 .68 Equity Share Capital 2.66 2.66 2.66 2.66 2..66 2.66 4.57/ 5.98 Retained Earnings plus Reserves 0.33 0.40 0.48 1.37 2.53 3.36 1.16 (.44) Provisions 0.64 0.72 0.61 0.46 0.33 0.24 - .06 Subtotal 3.63 3.78 3.75 4.49 5.52 6.26 5.91 5.60 Total Liabilities 7.68 8.08 8.50 8.87 10.45 9.27 9.10 8.85 Debt equity ratio 45:55 44:56 44:56 25:75 19:81 14:86 12:88 11:89 Current ratio 1.62 1.39 1.04 0.94 1.12 1.51 1.15 .98 Quick ratio 0.74 0.68 0.52 0.58 0.60 0.63 0.45 .31 /a From 1976 to 1977, geological research and other research expenses on project wh-ch have not materialized have been written off. /b Reflects capitalization of excess reserves. Industrial Projects Department May 1979 -86- ANNEX 4-1 MAURITANIA: GUELBS IRON ORE PROJECT IRON ORE EXPORTS - INDUSTRIALIZED COUNTRIES (Million Tons of Ore) 1975 1980 1980 1983 1985 Canada (Implemented) (Planned) (Possible) Ore production 47 70 70 70 83 Steel production 13 17 - - 21 Ore requirements 13 19 - - 23 Ore exports (net) 33 51 - - 60 Australia Ore production 99.4 121 136 138 148 Steel production 8 10 - - 13 Ore requirements 14.1 12 - - 15 Ore exports (net) 85.3 109 - - 133 Sweden Ore production 32.6 36 38 33 40 Steel production 5.6 6 - - 7 Ore requirements 5.3 6 - - 7 Ore exports (net) 27.3 30 - - 33 Norway Ore production 4.0 4 4 4 7 Steel production 0.9 1 - - 1 Ore requirements 0.7 1 - - 1 Ore exports (net) 3.3 3 - - 6 South Africa Ore production 12 27 27 27 41 Steel production 6 7 7 7 7 Ore requirements 6 7 - - 7 Ore exports (net) 6 20 - - 34 TOTAL: Ore Exports (net) 154.9 213 - 266 Industrial Projects Department May 1979 -87- ANNEX 4- 2 MAURITANIA: GUELBS IKON ORE PROJECT IRON ORE EXPORTS - DEVELOPING COUNTRIES (Million Tons of Ore) 1975 1980 1980 1983 1985 Brazil (Implemented) (P1anned) (Possible) Ore production 80 103 108 115 127 Steel production 8.4 16 16 21 26 Ore requirements il 20 20 26 32 Ore exports (net) 69 83 88 95 95 Venezuela Ore production 26 26 26 24 20 Steel production 1 6 6 6 7.5 Ore requirements 1.2 7 7 7 9 Ore exports (net) 24.8 19 19 17 il Chile Ore production 11.2 12 12 12 14.5 Steel production 0.7 1.6 1.6 1.6 1.6 Ore requirements 1.4 2 2 2 2 Ore exports (net) 9.8 10 10 10 12.5 Peru Ore production 10.5 10.5 10.5 10.5 14 Steel production .5 1.4 1.4 1.4 1.4 Ore requirements 1.0 2 2 2 2 Ore exports (net) 9.5 8.5 8.5 8.5 12 India Ore production 40.3 56 56 56 66 Steel production 8 9 9 12 12 Ore requirements 15 17.5 17.5 18 22 Ore exports (net) 25.3 38.5 38.5 38 44 SUBTOTAL: Ore exports 138.4 159.0 164.0 168.5 174.5 (net) Liberia 18.8 25.5 25.5 25.5 39 Mauritania 11.5 11.4 12 13 14 Angola 3.9 - - - - Gabon - -- - 10 Ivory Coast - - - - 10 Guinea - - - - 15 Othersl/ 2.0 - - - - TOTAL: Ore exports (net) 174.6 195.9 201.5 207.0 262.5 /1 Algeria, Morocco, Tunisia, etc. Industrial Projects Department May 1979 -88- ANNEX 4-3 MAURITANIA: THE GUELBS IRON ORE PROJECT STEEL PRODUCTION AND IRON ORE DEMAND - MAJOR STEEL PRODUCERS (Million Tons of Ore) 1975 1980 1985 Japan 1/ Ore Demand 132 138 161 Steel Production 102 115 134 Domestic Ore 1 1 1 Ore Imports 131 137 160 EEC 1/ Ore Demand 176 166 194 Steel Production 124 138 162 Domestic Ore (Gross) 62 50.5 47.2 2/ Domestic Ore (Net) 35 28 26 Ore Imports 141 138 168 us 2/ Ore Demand 132 137 152 Steel Production 106 127 141 Domestic Ore 81 95 102 Ore Imports 51 42 50 TOTAL: Ore Imports 323 317 378 1/ Ore to crude steel ratio of 1.2. 2/ Low grade Loraine ore converted to generally marketed ore. 3/ Ore to crude steel ratio of 1.08. Industrial Projects Department May 1979 -89- ANNEX 4-4 MAURITANIA: THE GUELBS IRON ORE PROJECT STEEL PRODUCTION AND IRON ORE DEMAND - OTHER DEVELOPED COUNTRIES 1975 1980 1985 Ore Demand 12.8 16.8 20.2 Steel Production 11.8 16.0 19.0 Domestic Ore 8.2 6.3 6.1 Ore Imports 4.6 10.5 14.1 Portugal Ore Demand - 0.8 1.4 Steel Production 0.4 0.9 1.2 Ore imports - 0.8 1.4 Austria Ore Demand 4.2 5.0 5.0 Steel Production 5.7 6.9 7.3 Domnestic Ore 3.8 3.8 4,0 Ore Inmports 1.9 3.1 3.3 Finland Ore Demand 1.6 2.3 2.5 Steel Production 2.5 3.8 4.1 Domestic & Russian Ore 0.9 2.5 2.8 Ore Inmports 1.6 1.3 1.3 Turkey Ore Demand 1.5 2.9 7.5 Steel Production 1.9 2.5 7.6 Domnestic Ore 1.9 1.7 3.9 Ore Imports - 0.7 3.7 Greece Ore Demand 0.9 1.2 1.4 Steel Production 1.0 1.0 1.2 Ore Import 1.0 1.2 1.4 Yugo slavia Ore Demand 5.8 9.2 13.6 Steel Production 2.9 5.3 5.3 Domestic Ore 5.2 7.5 8.0 Oie îI,,ppets O (6 1.7 5.6 TOTAL: Ore Imports 9.7 19.3 30.8 Industrial Projects Department May 1979 -90- ANNEX 4-5 Page 1 of 2 MAURITANIA: THE GUELBS IRON ORE PROJECT STEEL PRODUCTION AND IRON ORE DEMAND - NON-IRON ORE EXPORTING STEEL PRODUCING DEVELOPING COUNTRIES (1) 1975 1980 1985 Ar-Bc tina Ore Demand 1.7 4.0 9.4 Steel Production 2.2 5.0 8.0 Domestic Ore 0.2 1.5 3.0 Ore Imports 1.5 2.5 6.4 Trinidad Steel Production - 0.4 0.5 Ore Importe . 0.5 0.7 Algeria Ore Demand 0.8 1.7 3.0 Steel Production 0.5 1.4 2.5 Domestic Ore 1/ - 3.0 3.0 - Ore Imports-(Exports) (1.6) <1.3) - Tunisia Steel Production 0.2 0.2 0.2 Ore Imports--(Exports) (0.3) - - Morocco Ore Demand - - 0.9 Steel Production - - 1.1 Domestic Ore 0.4 - 1.0 Ore Imports-(Exports) (0.1> - 0.3 Mexico Steel Production 5.1 6.7 6.7 Ore Imports - - - Libya Steel Production - - 0.8 Ore Imports - - - Egvpt Ore Demand 1.1 2.0 4.0 Stsel Production 0.5 1.0 2.5 Domestic Ore 1.1 2.0 4.0 Ore Imports - - - Nigeria Ore Desnand - 0.5 1.0 Steel Production - 0.4 0.8 Domestic Ore - - 0.2 Ore Imports - 0.5 0.8 SUBTOTIAL: Ore hIqorts- 1.5 3.5 8.2 (Exports) (2.0) (1.3) - 1/ Some Il ore exporter:; are expectrd. to eanse exports or 1,eùr,me let f "'1 '' u ' r ':. Industrial Projects Department May 1979 -91- ANNEX 4-5 Page 2 of 2 MAURITANIA: THE GUELES IRON ORE PROJECT STEEL PRODUCTION AND IRON ORE DEMAND - NON-IRON ORE EXPORTING STEEL PRODUCING DEVELOPING COUNTRIES (2) 1975 1980 1985 Ir.an Ore Demand 7.4 - 15.0 Steel Production 0.8 5.9 11.0 Domestic Ore 5.0 - 5.0 Ore Importe 2.4 - 10.0 Saudi Arabia Steel Production - - 0.9 Ore Imports - - 1.3 Quatar Steel Production - 0.4 0.t Ore Imports - 0.6 1.2 Abu Dhabi/Kuwait Steel Production - - 0.8 Ore Imports - - 1.2 lraq Steel Production - 1.0 2.0 Ore Importa - 1.5 3.0 Pakis tan Steel Production - 0.4 1.0 Ore Importe - 0.6 1.5 Indonesia Steel Production 0.2 0.5 1.5 Ore br,parts - 0.7 2.3 China Steel Production 0.7 1.5 2.4 Ore Importe - 1.8 3.0 South Korea Ore Demiiand - 6.0 9.5 Steel Production 2.0 5.0 8.0 Domcstie Ore - 0.5 0.5 Ore Importa - 5.5 9.0 Pailipplnes Stecl Production 0.1 0.5 2.0 Ore Imports - 0.6 2.4 Culo,ob ia Ore Demand 0.6 - 1.2 Steel Production 0.3 0.4 0.8 Doo,ustic Ore Or. Imports _- - SU8TCTAL: Ore Imports 2.4 11.3 34.9 iOTAL: Ore Importa 13.5 43.1 Pdgt s (1> al-d (2) Industlial Projects Department May 1979 ANNEX 6-1 MAURITANIA: GUELBS IRON ORE PROJECT CAPITAL COST BREAKDOWN 1978-82 Expenditures (US$000) Base Cost Physical Price Foreign Local Total Contingency Escalation TOTAL 1. Beneficiation 50,958 1,040 51,998 7,330 30,269 89,597 2. Mining 36,266 740 37,006 1,480 22,031 60,517 3. Port 7,480 152 7,632 229 3,146 11,007 4. Railroad /1 27,457 616 28,073 1,452 10,322 39,847 5. Power Plant 17,768 360 18,128 2,822 8,715 29,665 6. General Electrical Equipment 12,520 256 12,776 1,960 5,679 20,415 7. Miscellaneous Mechanical Equipment 239 5 244 7 94 345 8. Steel Structure 18,280 370 18,650 2,725 6,472 27,847 9. Housing 10,080 3,269 13,349 430 -5,523 19,302 10. Equipment for Building 1,262 - 1,262 38 458 1,758 11. Water Supply 2,520 - 2,520 76 673 3,269 12. Engineering 20,425 1,075 21,500 665 6,502 28,667 13. Civil Works 20,202 5,402 25,604 3,311 4,507 33,422 14. Mechanical Erection 13,180 5,644 18,824 2,763 8,808 30,395 15. Electrical Erection 9,260 5,212 14,472 1,838 6,503 22,813 16. Work by COMINOR 4,145 1,533 5,678 397 2,028 8,103 17. Preliminary Work 186 69 255 8 49 312 18. Training 2,720 1,006 3,726 112 1,610 5,448 TOTAL 254,948 26,749 281,697 27,643 123,389 432,729 of which spares 13,357 /1 Including about US$1.0 million of rails purchased prior to 1978. Industrial Projects Department May 1979 868Ltl616989 6NSEX 6-2 SLL5I0-3F FETC (USS 000) i979 1<49 91 'R 91' l'p iF 1984 1 9B5 1986 1987 1 991 1 91_ 1999 9991 9927 199.3 1994 INCRFAfiE 131 ITN9M9N 7951, (1,. I<50-1 4H1.'' 8',.:, '1.9 L) L. -.1 1IbO.71 (154.171 (4414.6.) 3 ,286.099 112,91. 493.I,2 527. 99 462.37 95.83 370.784 (308.03, 1NI.fiEA9f I)F f(ECL tI49L11 2` .59.l0<1,1< 1740./,:' ,31.E2 ''3: '-. ''.' 2 l 2(338.(7 - 11939.91 (1266,', 1 19-, B.1> 1 9.91 292<1,29 2 .l'? 619.24 - *42.50) 115209900 FNCRf fASE OV OrOCK£ EF4RfE: I'hRII; If.(.)) 3, ," . (000) 200.000 .00 000) Itl) l 1 4I)().0L 5V.OO SO.O 240,0 -(- 999N (1RF031 3510. 0 1 '30 35). .71 19-.411 1 .,î< - 1399.911< 14.994) 1323.83`el1 I0(1 .* 4 9O18.93., 99b.011 .69.0 211.960 88.92 (3 [998 (169>3> ("49.91 9J 99 5223 <9.491 1949 .197l1>16.9 11349.411 17461"2.4 I51.< 19., 599.99 35.9 21,6 82859 1338.561 SIJ79-1916912,1 10'Y21 ...2()) ''()3 rS 199:'.41 .,1'99.'; ` 1» .94'''7 ' 1761.98 <3$349.3(O<î(2714,94< (2923,84 4 3.2(,19.2 <999.19, '.S' ,.08 415.49 451.,9 828.92 398.561 LES5 989 1 1 <4 ':<4514.43< 911.43 .092, '. ,,, 1 40' 7 1596 1399.33< <947.991 (29:1.3 : 49 .50 9f4.99 4I 34950 349,9 1<71.47 799.83 l3y6.929 9N8RE99941: TN WOR9I9N9 1F 1,440,01< <,74 199<1,119 -<.'..«1' '1(.1 4614. '6 (3181-11231 4191.77 î35133. 17î 9.79 11' .2, 3 3 45,95 31844.2" 35,.77 406.33 (1859.93) ,Ii1; 1C3N'il 4NT lNI 9FA9.T (I)F IN. L99,H 9119, 437.1,5 O9.3,l 1 30 ( 153;. 1.' 29634,19 1299.741 1826.99 1 12( 2 i 49,) <49. 71 9295,6 6299.29 289 1114. 66 (9.95) IN98774!iE Of RLCEIU71 Tb9 <99 Z.l4 2979 ,9 2.79.49 1.3'4 9'.,.' 4941,19 - (1J068.bF (2531.6b) 6255-.51î) î«53.. . 979. 'H 9,.49 .12 .78 14889.931 TNCRt-S 4 F iffSi UL,K9 SRF66 991199 4991.97, - 2'47..0 45 ' 11< 5.L3>14 _ (5249,551 13744,h8' >4006.8.> 12'4.41 3219.19 922.71 18.78 674.37 - 1898 3811 <'485.72< ''6,05 (, '.9.991 52,9i7.H. 2479, ?291t9.51 1585.65) (1338.42) 1648.791 99.53,2'l 2496. 9 12399.9 1012.29 594.57 2492.21 1189.16) `3US- )()I.lL 3494;;,1< ';;8.0b .'99 '5;,'? ',4. 1 7<99 '-, O8.61 .'L39.51 (5649,221 9 5038,1 <4655.5l1 5398 9,1 3 '07. i'. 1362.31 39(1907 9268.94 2492.21 (1089.16) 7S9 187911899 3JF 1191491.E'i <29425.39< 342.21( 12 49.74 < .' . <999,910.06 (1539Y,5) (81 212.34> (587,811 94985.,3 ?2291 .20 0122,8, 916.93 539,56 2257.43 (986.56) INI`R. 9N 81J. 'I` . 22497.94 2991.9' ..8-' , 993,43'f 110913.' 2549.86 2044.5 ,''4l.S3 8.11 .:1> D253.75 999.66 1221.65 '5903.44) 'l' IwLI) twtf-t r)~ n11+FRAlINm O:il9s to 1)111NI-H r- E: (21 ONE tSUN rH (I'f ,;,1 L ' , J, ( . I Oe HL*r:l ,[CLI( :(:N AFltD 41t_ '1.1,: opEil fC , l;MI, 3NT .4) THÉF MIJ"Ili >[:P'lAFFNC. E1:'P; REf'lR FI> 9 f(l -.94- AMMER6-3 R3400R163346 OURSES3 IRON ORR PROJET COINORE PROJECTED 3INVRTRSNTS 1929 19130 1993 93(2 153(73 3334 I le," 3933 343,3,40 40003,4 5.0 3, 4333,4<4 4/344 2.0 5 54.313 1<345,04 :`00.440( 3144.00 1116.00 3067.00 RENEWALT_ N45s.00T,10 .4 43 .5L 4.>4 1. 3 10<.0 0 134 3.30 12:04 <.0 35304. 0 5343 .4(4 [020, 4476.0 4404,0 5051.00 11406.00 19110.00 9430.00 roTAL INVEsTMHNTF. l 3.;7v3 ,44 3.400 30434.50 12o13.044 14554.00 20226.40 333SS.00 PRI0E CUNOINRENCRFS 35 91 3.3 13043.43 40 .41 4.43 1 35.43<3 . 43. ; 1i< 4 .i/ .4,'5.44 413:2.25 H441,.30 34405-,40 < .3.34 32504. 04 26340.98 405s4.90 24297.49 NEW INUEsrHENTrs AN RENEWAL S (CUR3 . U343 0335039 36454.313301354,433332392,94 ^ 3 4310», 4 32e X .ofi :0.)43,4< -`4i.',Y ' 44,34,<3 34z91394,.: n 133472 3< 34553,5 5452J 5v:3 .42 39444,4 <::4,0 095, L94 3 31ss.343544 95356439 «34.33 6 97t.04 03325,S4 5442 <<3 34473.431 o35.0< 223<30 2-3344, n- 49,5/.5 225,49 43<225,,3 23234.91 21142.37 32049.43 52455.27 29936.29 4 3 9AL INEVEsIENrs (CU3 2.ENI U5s9.4.?p ' .3'3 .3.. 17 544.4<3 13,44 j: 34 4i 1 544312..4 4 14Y41. 44 15 605 39463 46 423226.4S 29406.04 404244.9 9240.00 889339.40 ANNULI4 LEPRECIAI ION t l 51. 00) SS(.3 j r.t.. .o./ (.4b>< fi,h.)l .?100 54él82 .01l 4.,814.)0 4i)..0 19 7'O '7 O 10,10 30.7~3 0,28 ? 2090 2.92 89 87 30 ECE VA05EES 11,2 10.0. î0l 5. 40 ,40 1<110' 54.10 49.09 51 1,25.35315,15.0 0U07-070î 79.07S 51 G Il I l la105,a~ 2[ 2'îo.24 .0<' 254 l,3 293.06 3177.,6~ 367,62 40.5435 F1000 A70E00 30.' 27 017.'33 "I"063 01.0. 754.. T0<' 13 L010 O3 1051 11040.00 03 17,2 1.102. 57 I4l.' 14541 450 598 518 LSO :100.4082. 6 "03.1' 0 174.07 .102.0 O14 971 .01 067,5 1.47 S70,02- 9o3,51 1002 123 212 OTFIEOO A5010 77 1"1 71I.'.0.7 .17 1 1 1 rf0T00 ASEr0 16-, 3. 70 0I1t,2 4,3î 7,2 94 <0 S. o1.4>1 10,9 1'- 70.35 F15.4 19301.9 0.9182 0000, 1094100 GO 7.1.1901 O 76 0.03, 0,41 .1.01 4.7' 17,.0 0 27 717 1,37 7927 2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.î3 50.07 58.36 59,36 03.55 36,58~~~~~~~~~~~~------ -- --- 00000 1.10 9,00 .7.77 3,03 0,7 4>0 7 0.72 4.73 0,70 4.90 0,90 4,00 4.98 4,98 4.94~~~~~ 4.~IIA il's.8 ~ 194.9 4:9 499 .984.~ 00UP0TOTAL II..A .35 I.1 L . . 0.04 o.1.14 7<2 2,4',7 O .07. Il. IL 4.90 - 7 0080 l~~~ ~ ~~~~~ ~ ~~~~~ ~~~~~~~~~ ~~~~~~~~~~~~099 U,0' '. 5,î7 1.3 31,70 20-<2:, 7.96 17.15 51.43 5.72-- 0000 -O 0,77 3.A 43.U LI37.7< 2 e i 1I 2 17,49 11,1545.0.0 000010 0040 0,01. 45.9- 30,72 O 31.27 28,70 20,05 23.75 21.25~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~_ 3:531.2 8 1 5..L13. 0 21 F4WAIT FO NI 43.9 27 17 1 13~9.54 2,8 40-- 000 O 77 20.7.. <0.07 O 10.55 7,24 3,73 .02 .02~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 43 060F~~~~ ~~~~~ ~ ~~~~~~~~~ ~ ~~~~~~~~~~~ ~ ~~~~~~~~~~~~ 141," 5 720 I 3./ 8,89 8.00 7,18 6,22 0811 0080 0080 70,0 7)1.0 ". 00 19,91. 14 35 'I '3 Il 0.03 5,71 3.81 1,90 -~~~~~~~~~~~~~~~~~1 ~41:4371 .91 19 00070 Olo' 7.03 4.40 3,11 1.61 .00 .00~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~9 I'A4 9 . 10 AFDI0 0000 000000 . . 20,797 .97 0 0000112 1125037 75062 000-0E 0 F3,9 3,4U00 9'N1,1D3 3 0.,1 '77 4 6 25' . 7 35.0 30.52281 4.2100 LI0 1 O ) O1 S~ O '.0 009 ANK00 44S0 00 <.0 0 0'1<00 170 7107.1 23.023,93085370 '00PFLIERS CREDIT <" 7"( 11.0 14. 3,9 - .2-127l.9 ,2 008-30106 1.9.35 ""7 Il 0 0"1 19 199<0 770 Il 000 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 370,22 421.10 473,11 536,07 576.40~~~~~éIT4,, 4B,1 -6215.0 TOTOL £7001110000/1 1>, ~~~~~~~~~~~~~~~~~~~~~~~0 277.39~jl,'A LI 1l7,23 000 ,35 807.94 009,90 779.2 rAN400 L,IG 7000<0 0000 03700 1 7,041 .00 2 .300 346 3 00 7007T 01. . A1 .7r,773 41 -,pO1 tb' 21974 3,3.,6 .905 A07T091 D 1131 l7.I1S NEF P1711 AT~ T'.1,701'0'V .7 -108- MAURIIMIA t25n1z6.-i18 GUELES IRON OU PROJET COEINOR-PRCtRCTRD ROU3EUR AIR OPEP0T75C COSTS (Ugo 000) 197Y OR80 t'01 19112 19R1 1904 1905 t9tl6 1787 t9S13 190 1990 *991 1992 1993 1994 1. VARIABLE RATA A. SALES VOLUME 1000 TNSI ED1I4 9300.00 10000.00 007/0.00 10701,.10 70(0.0-1 70,J00 /800,00( 0800,0 0000OO S800.00 2600000 500.00 1500.00 1500.00 1200.00 1100.00 3UEELBS -- - - - 3111.00` 02:(`0.00 ?0200,00 2.?00).011 6200,00 0200.00 0400.00 12200.00 12500,00 12500.00 12200.00 11000.00 lOTAL SALES VOLUME 9300.00 100()0.0 1 07000. 1020.1.00 1200(.00 lO'.00 140000.00 2(0001 .00 12000,00.020E 0OU 12000,00 13000.00 140000.00 14000.0E 14000.00 13000.0 R. SELLINE PROCES (USO/TON, IIEIIIA 11840.0>0 1.310)'1,00tY 10050.00) 15 21111,0,1 15210,0 I > 5500.00 î2504.î0OiS2î.00 169201100 10 2 4 40 14483 30 1079.0 1 520000 65200 00 15200,00 12900.00 Il. REVENUE 6EDIA 111112.00 131000.00 151405.01 162.400.,1) t1113,. .00 120,1.20 1209302(0 102:100,00 00610000 .IlîOO.91` 33000,00 0037.0 228O()00 22800000 27380.00 14190.00 GUELES 22 0.1 10o02 .60 l25.00 140/0,00 14/0,H101 W -6 o (/ 1 45103,02 198610,50 211250.00 211250.00 208100,00 201110.00 TOTAL REVENUE 100E CONASTI 4020 134000 , (10 1U .(,0 110000(,î2000.00 .916 /5-00 )1 .2'îH, 22/007-00 20` 040.0 0 192000.00 171862.44 170011.6b 202255 SE 234050.Oîl "OOSO.00 233540.00 215300,00 TOTAL RFUENIJE (lJi CURRR 42E1390.59 163438.22 201 10.2 23:305.00 200525.20 .i500,02 '90021,.0E 213-09,10 31(620.-s 382000.57 3S9055.49 497367.77 6l4000.28 657652.24 702154.55 092o28.7 III.OPERATING COS0S KEDIA ININRE 24645.00 30 ,00 2000.0. 2000.00 250 0 200.0 (1.00 15000.1,0 15000. OODO 000.1 1000 00 3200.00 2/00,00 3500.00 2000,00 OURLES5M7NIES - -- 0110.00 0400,00 5921(',00 11.3,0,00 11200,0>0 100.00 13200. 00 10200. 00 28700 00 2 U000 0 2UEOO 00 22000 64940000 31000.00 POUUESOORU - - - I 044.î.îî I 20500,00 20530,00 20520.00 20530.00 20050.00 35050.00 03590.00 03590.00 05800,00 04400,00 48400.800O 29b 870000 1800.0 480 .0 4 4000,0 4100.0 RAILROAII TRANSFORT 20779.00 232030.00 20020 .00) 20020.00 2'000).004 30000.0)0 2000î1).00 290000.00 2/l2,1.010 27120.00) 27/20.00 20120.00 32270.00 32500.00 32540.00 380610.00 PORT HANDLINR 6805 .0 8020.00 820.00) 0 520.0 100'0.00 10100.00 1 /2/0,0 0950.00 8520.00 0520,00 0520,00 8540500 050000 U540.00 E230.0 0230,00 7LRTÉOUÉRES WITI WIND 2?-4 2 620 00 30 O? 2Ho)46 44bt 110 0 00lO . 3-, 25402543L46tO48t0 OOO IO O SELLINS /L00E OO 1R20.2 000 22.0 2520 05 0 501 OSol OloO.So 305.0 3502.2C~ 5 2400,/O 0053,40 4080.00 OoEV 800 300 ZORERATE OVERHEADO 100000 110000 11000C,0 14000.0 lUOQ .00, 410/10.00' 1 0000,00 'loC 110.00 14000 .00 11000,0 140.00 11000,00 41000,00 10.0 11000 10.0 NOUBADHIBU OVERHEArlS 10 3300.00 133000.00 1.32500.00. 1 3300.0(1 1[3300 1 30 (1300.00) 1 3300.00 133(10.00 13300.00 13300.00 13300.00 13300.00 13300.00 13300 00 13300.00 rENERAL OUVRHEARS 2010,00 2390.00, 1000,00 . 181,1.00 1o711.00 îo'0.00) IO0.00 îo'0,00 167 0.00 10/0,00 1820,00 1800.00 1670.00 1870,00 1120,00 RESER 1800.0 ,0 1800, 100 4 , 0.Ot0 30040 0 60000 i300 00 300 00 300.00 0 LERS SEVIRGS MEURIUSA 4" 02.0 0490.00 1210.00 2 O 8,0.003420.00" 0500/9,00 30.00 5500,00 5o21 31.O0,00 5800,00 5000.0 8400 TOTAL. COST (US$ CONSTANT) 03401,24 91900.00 94052,(4 9003.0b0 4(090215. 00 12900.. 1 4254 150. L 0602L. 11310.00 403.3;25 230370.O 53 4533. 10174351.00 10305. 00 1526SOSO48506.8 000 TOIAL C080 (USS TURRENTI 0/321.07 114/60.56 1 21.0 ,1 12-24.3j0 10.02.6211. 0 2..14 21-,l4.00 219-115.04 2267222.05 /5002479 209075.80 3350)87.37 371195.56 403041,02 050955,0 420070,00 TDTAL C00T/TN (US$ CUNSFI 0975.40 9199.00 H0,9.504 (1l9.4 ' 792. O 0204.01 0i4./2 019.4i5 0430. 23 E94.044 1086.0 ,5 10502.55 1(096.50 10260.79 10903.63 IL431.23 F'ROFITBFFORF TAXE, DEPRECIATION ANI' FIN. CHARES RlISS CORN) 340O3.02 48,69.0, 110501, 31 i2 1oO./0 t29420,. 'A 16182134. 1 -023.04 I0 10.01140.03 l28761 162?O.402 24042.71 254010.40 20319.11 21055o.05 INDUSTRTAIL PFRUJECTS DEFOAO1NFNI 13EfORl IREP AREj 05,4 t5./79 MAURITANIA - GUELBS IRON ORE PROJECa SNIM UTS OTIER TANI COMINOR PROJECTED INCOME STATEMENT (UM Millions - Current Terme) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 STEEL PLANT Total Revenues 150.2 311.9 293.0 316.3 344.8 379.8 411.1 448.9 488.2 543.8 581.9 622.6 666.2 712.8 Less: Operating CostL9a 184.1 253.0 263.9 280.2 264.7 283.2 303.0 324.5 347.1 378.3 405.9 434.3 464.7 497.2 Depreciation 25.0 51.0 51.0 51.0 51.0 53.0 53.0 53.0 53.0 53.0 4.0 4.0 4.0 4.0 Financial Charges 20.0 23.0 18.0 13.0 8.1 4.2 3.4 2.7 2.0 1.2 .5 - - Net Profit (65.9) (15.1) (39.9) (27.9) 21.0 39.4 51.7 68.7 86.1 111.3 171.5 184.3 197.5 211.6 SN7MEX Total Revenues 90.0 109.2 157.7 167.4 197.1 188.6 178.6 187.0 193.4 197.0 210.8 225.5 241.3 258.2 Less: Operating Costs 76.5 87.2 127,0 135.1 155.2 152.8 143.7 148.8 152.0 156.2 167.1 178.8 187.8 201.0 Depreciation 12.7 12.5 8.3 5.4 5.2 5.8 5.8 6.1 6.1 6.5 1.0 1.0 1.0 1.0 Financial Charges - -- - - - - - - Net Profit .8 9.5 22.4 26.9 36.7 30.0 29.1 32.1 35.3 34.3 42.7 45.7 52.5 56.2 DCPP Total Revenues 1,279.2 1,512.7 1,853.5 2,201.3 2,427.0 2,678.5 3.032.9 3.246.3 3,578.4 4,150.7 4,441.3 4,752.2 5,084.9 5,440.8 Less:Operating Costs 1,178.3 1,283.8 1,590.0 1,875.8 2.065.7 2,278.3 2,595.0 2,765.3 3,045.2 3,54Z.4 3,790.4 4,055.8 4,338.7 4,743.4 Depreciation 11.0 17,9 19.6 20.1 21.4 26.9 32.9 39.3 46.1 54.4 55.4 57.4 59.4 62.1 Financial Charges .7 - - - - - - - - - - Net Profit 89.2 211.0 243.9 305.6 339.9 373.3 405.0 441.7 487.1 553.9 595.5 639.0 686.8 635.3 CYPSUn OPERATION Total Revenues 24,4 42.3 44.3 70.3 75.2 80.5 86.1 92.1 98.6 105.5 112.8 120.7 129.2 138.2 Less: Operating Costs 18.4 32.7 34.0 48.3 51.7 53.6 57.3 63.3 67.8 72.5 77.3 82.9 88.8 95.0 Depreciation 1.1 3.5 0.4 0.4 1,2 1.2 1.2 1.2 1.2 1.6 1.6 1.6 1.6 1.6 Financial Charges - - - - - - - _ - - - _ - - Net Profit 4.9 6.1 9,9 21.6 22.3 25.7 27.6 27.6 29.6 31.4 33.9 36.2 38.8 41.6 H1EAD OFFICE & SUPPORT SERVICES Total Revenues 158.5 134.6 106.3 113.8 121.7 130.3 138.2 148.3 158.7 169.8 181.6 194.4 208.0 222.5 Less: Operating Caste 550.6 557.4 495.6 530.5 567.7 607.4 641.8 652.0 697.9 746.8 799.0 855.0 914.8 978.9 Deprecistion 103.3 115.1 103.1 75.3 61.0 63.7 70.6 82.0 93.3 111.4 106.3 119.8 139.1 151.7 Financial Charges 70.5 23.2 6 2.4 0.8 - - - - - - - - _ Net Profit (565.9) (561.1) (499.3) (494.4) (507.S) (540,8) (574.2) (585.7) (632.5) (688.4) (723.7) (780.4) (845.9) <908.1 TOTAL NET PROFIT (536.9) (349.6) (263.0) (168.2) (87.9) (72.4) (60.7) (15.6) 5.6 42.5 119.9 124.3 129.7 36.6 Industrial Prajeets Oepartment May 1979 tLAURTTANIA - GU8LBS IRON ORE P.ROJECT Nl NTITS_R TRANCOEIINOR _O0CTED_0BALNCE Sh'ET (UM Million) 1978 1979 1980 1981 19S2 1983 1934 1933 1986 1 37 1988 1989 1990 199' 992 (Jurreet Assola Caa7 and B-ske 261.0 147.2 442.7 296,7 285.0 406.2 592.0 835.6 875.0 931.7 1,017.5 1,067,2 1,165.7 1,271.8 1,283.2 Onveevableîn 793.2L 518.012 67.0 81.2 95.4 103,6 113.5 125.9 138.3 151.1 174.6 181.2 188.2 195.7 2.73.8 Inaventories 492.1 264.0 283 3 298.5 352.4 322.2 325.6 332.8 340.0 345.4 368.3 368.3 368.3 368.3 368.3 vInte Unît Acceenîns _ 409,8 _- - - _ snbtotal 1,856.1 921.2 792.6 676.4 692.8 832.8 1,031.1 1,294.3 1,353.3 1,428.2 1,560.4 1,616.7 1,722.2 1,835.8 1.860.3 Fixed Asslet Fiord assola 1,714.4 1,991.0 2,137.3 2,184.3 2,241.1 2,318.8 2,411.3 2,520.0 2,657.0 2,818.6 3,025.4 3,260.5 3,492.7 3,745,4 4,031.0 Less dnprnstina (35. t505.3) 785.3) 887.7) (1.039.9) (1.179.7) (1,330.3) (1,493.8) (16735.4) (1.875.1) (2_102,0) (227O.3) (2_454.1) (2659%2) (2879.6) Not Fiord A-nota 1,362.2 1,485.7 1,432.0 1,296,6 1,201.2 1,139.1 1,081.0 1,026.2 981.6 943.5 923.4 99012 1,038.5 1,086.2 1,151.7 0_cr Anneat ste 17007 4/ 1,319,5/3 1,205.5 1,O61.2 887.2 657.4 23854 - 4- - Oth-e 49912L2 49.2 49.2 49.2 49.2 49.2 49.2 49.2 49.2 49.2 49.2 49.2 49.2 49.Z 49.2 SOnhtotl 2.199.6 1,3i8.7 1.254.7 1,110,4 936.4 706.6 587.8 49.2 49.2 49 4949.2 49.2 49.2 49.2 49.2 TOTAI. ASSErS 3,217.9 3,775 6 3 479.3 3,083 4 2,830.4 2,677.7 2,399.7 2.369.7 2,384.1 2,420.9 2,533.0 2,656.1 2,810.0 2,971.2 3,061.2 LIAB LITIE Cnrrent 1.iahilitlrs Areontat payables 456.4 273,4 304.1 363.3 414.9 454.3 494.1 542.2 i90.3 639.5 727.1 754.3 783.4 814.6 84S.0 Othver bor-tterm liabilities 2,838.41 53. , s O 88.0 88,0 88.0 88.0 38.0 38.0 38.0 38.0 88.0 38.0 88.0 S8.0 38.0 i C_nront pnrtien of Ivvg tern dAnt 413.9 427.4 192.1 136.4 104.1 245.4 18.18 .8.0 18.O 18.0 18.0 - - - S.btetal 3,708.8 1,238.8 584.2 587.7 607.0 787.7 600,1 648.2 694.3 745.5 833.1 842.3 871.4 902.6 936.0 Lee,e-Trrn Dobt Bsnk tsars 778.4 543.0 579.9 439.5 335.4 90.0 72.0 54.0 36.0 19.0 - . - Lnag- toerm nvr 450_ - _ - - SOnhtotal t,526 4 543 0 575.9 439.5 335.4 90.0 72.0 54.0 36.0 18.0 Shsrohn1dors capItal 458.0 2,708.0 3,383.0 3,383.0 3.383.0 3,383.0 3.383.0 3,383.0 3,383.0 3,383.0 3,383.0 3,383.0 3,383.0 3,383.0 3,383.0 Reltiord .areivgr (253,9) (790.8) (1,149 4) (1,403.4) (1,571.6) (1,659,6) (1,732.0) (1,792.1) (1,807.3) (1,802.2) (1,759.7) (1,645.8) (1,521.0) (1,391.0) (1.334.4) Pînniaion- 76,5 _ 7'. 6 77.6 736. 6 73.6 6 54 7.6 75.6 7.5 74. 6 74.6 .6 76.6 Snbtntal 298,7 1,993.8 2,319.2 2,056.2 1,888.0 1,800.2 1,727.6 1,667.5 1,651.9 1,657.4 1,699.9 1,831.8 1,938.6 2,068,6 2,118.9 TOTAL LIA31LITTES 5,217,9 3,775.6 3,479.3 3,083.4 2,836.4 2,677.7 2,399.7 2,369.7 2,384.1 2,420.9 2,533.0 2,656.1 2,810.0 2,971.2 3,061.2 1 Inelnding 450M U mIllion noton te br pAid by SNIM eld 1979 or secon. t oE hllFE8RM enpen -otlnn a,,d reimbnrsed by Stal:e nlneltoernsly. L2 Il " 1 v ' " ed 1980 " v " /3 e1-l1,ding aonneta dibvared by SSIM on Slote' aoeen-t i 1978 ..d in 1979 rospoetivly 112.5 UM million Le 1978 .,d 230 cil illion in 1979 On tn loduatriai Prvrecta llep snlvetl 9 May 1979 MAURITANTA - GUELBS IRON ORE PROJECT SNIM - PROJECTED CONSOLIDATED CASH PLOW (UM Millions - Current Terms) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 T - COMINOR Total sourceo.-l 3,610.4 5,458.6 10,177.0 9,374.3 6,885.4 7,258.6 8,058.0 7,652.9 9,413.2 11,150.4 7,206.8 7,717.2 10,916.7 11,390.1 Total Application /L 3,436.5 5,432.3 8,755.1 8,203.4 5,048.5 4,568.7 5,216.7 9,486.8 10,086.1 9,805.4 8,092.8 7,717.9 8,912.5 9,206.4 Net Annual Surplus 173.9 26.3 1,421.9 1,170.9 1,836.9 2,689.9 2,841.4 (1,833.9) (672.9) 1,345,0 (886.0) (0.7) 2.004.3 2,183.7 II - SNIN UNITS OTHER TRAN COMINOR Sources Profit before Taxes & Fin. Charges (445.7) (303.4) (238.1) (152.8) (79.0) (68.2) (57.4) (12.9) 7.6 43.7 120.4 124.8 129.7 36.6 Depreciation 153.1 200.0 182.4 152.2 139.8 150.6 163.5 181.6 199.7 226.9 168.3 183.8 205.1 220.4 Sabtotal (292,6) (103.4) (55.7) (.6) 60.8 82.4 106.1 168.7 207.3 270.6 288.7 308.6 334.8 257.0 Additional EqCity 2,250.0 6750 - - - - - - - - - - Disbursement Existing L.0.. 243 4 225.01k - - _ - - _ _ _ _ _ Reioborseeent State Debts 630.9- 114.0 144.3 174.0 229.8 419.0 238.4 Reimb.re.ment Cooinor Debt 409.8 - - - - - Total Sources 3,241.5 910.6 88.6 173,4 290.6 501.4 344.5 168.7 207.3 270.6 288.7 308.6 334.8 257.0 ApPlications Investneu-s 276.6 146.3 47.0 56.8 77.7 92.5 108.7 137.1 161.6 206.8 235.7 232.2 252.4 265.9 Incre.ents in WHrki.g capital 1,964.0 (4.4) (29.8) (23.5) (21.3) (26.5) (29.2) (28.5) (31.0) (41.2) (14.6) (22.1) (23.7) (25.3) S Disbursemsent State 250.0 - - - - - - - - - - _ _ _ Financial Charges 91.2 46.2 24.9 15,4 8.9 4.2 3.4 2.7 2.0 1.2 .5 - _ _ Losn Repsyments 465.3 390.6Lb 192.1 136.4 104.0 245.4.1k l8.0 18.0 18.0 18.0 18.0 - Total Application 3,047.1 615.5 234.2 185.1 169.4 315.6 100.9 129.2 150.6 184.8 239.0 210.1 228.7 240.6 Net Annual Surplus 194.4 295.1 (145.6) (11.7) 121.2 185.8 243.6 39.5 56.7 85.8 49.7 98.5 106.1 16.4 11I - TOTAL NET ANNUAL SURPLUS 368.3 321.4 1,276.3 1,159.2 1,95S.1 2,875.7 3.085.0 (1,794.4) (616.2) 1,430.8 (836.3) 97.8 2,110.4 2,200.1 C17MULATED ANNUAL SURPLUS 368.3 689.7 1,966.0 3,125.2 5,083.3 7,959.0 11,044.0 9,249.6 8,633.4 10,064.2 9,227.9 9,325.7 11,436.1 13,636.2 CUMULATED ANNUAL SURPLUS ($ Million) 8.18 15.33 43.69 69.45 112.96 176.87 245.42 205.55 191.85 223.65 205.06 207.23 254.14 303.03 /e S.mmarleed fr00 Annex 8-2, Page 2 IF UM 225.0 million is recorded as both a source and se aof fonds in 1980 repreaenting a US$5 million loan with UES which SNIM hopes to roll over. Le Includes 25% of taxes payable In 1979 plus *11 1978 taxes which are due to State and which appear iS 1978 balance Bh.et in the short ter. debts. Induatrial Projeeta Lepartasnta May 1979 MAURITANIA - GUELBS IRON ORE PROJECT SNIM - PROJECTED CONSOLIDATED BALANCE ShEET (bM Million - Cornent Tenon) 1978 1979 1980 1981 1982 1983 1984 1983 1986 1987 1988 1989 1990 1991 1992 Cotrrect Assets Cash anAd Be-ks 271.5 528.2 877.0 2,158.0 3,320.5 5,348.1 8,342.3 11,415.1 9,583.4 8,941.4 10,383.1 9,589.5 9,745.6 11,91086 14,122.8 Receivobles 1,586.6 991.7 646.5 762.8 837.2 1,023.7 1,242.5 1,254.9 1,129.2 1,027.8 936.5 868.7 1,176.2 1,492.9 1,501.0 Inventories I,.912.0 1_838 1,894.2 2,029.1 2 ,287.2 2 ,639.4 2,772.5 2,516.6 2.295.1 2,090.9 2.,356.8 2613. 2,675.0 2,724,1 2 781.2 SbLtota 3,770.1 3,350.7 3,417.7 4,949.9 6,444.9 9,011.2 12,357.3 15.186.6 13,007.7 12,080.1 13,676.4 13,071.9 13,596.8 16,127.6 18,405.0 Finad Annota Fixed assets 18,935.9 20,457.6 24,999.4 32,254.7 38,665.6 40,77'.5 41.445.0 42,872.2 49,258.5 56,1S4.3 62,127.8 65,479.3 67,656.9 69,188.0 71,314.0 L,ess leprociati: f4(11,254.1) (12.2 352 1 (13534.7) (14,421001 (15,665.2) (18_49 .6± (21,952.7) (24.916.5) (27,559.1) (29,823.3) (32,123.4) (36,810.8) (41,608.8) (46,021.4) L3054B.i.5 Not Fixeld Asets 7,681.8 8,223.5 11,544.7 17,834.7 23,000.4 21,933.9 19,492.3 17,955.7 21,699.4 26,321.0 30,004.4 28,668.5 26,048.1 23,166.6 20,725.1 Othcr Assots stlte 1,700.3 1,319.5 1,205.5 1,061.2 807.2 657.4 238.4 - - - - - - Oth-e 507.0 56.9 56.9 56.9 56.9 56.9 56.9 56.9 56,9 56.9 56.9 56.9 56.9 56.9 _ 56.9 Oubtotal 2,207.3 1,376.4 1,262.4 1,118.1 944.1 714.3 295.3 56.9 56.9 56.9 56.9 56.9 56.9 56.9 59.9 TOTAL ASSET8 13.6 L5 12,952.6 16,224.8 23,902.7 30,359.4 31.659.4 32,144.9 33,199.2 34,764.0 38,438.0 43,737.7 41,797.3 39,701.8 39,351.1 394l87.0 L.IA3ILITIES Cornent Liablities Accounts psa/bles 1.289.4 628.9 697.5 750.0 799.2 939.3 1,096.6 1,120.4 1,113.9 1,136.7 1,271.3 1,400.3 1,479.9 1,552.4 1,610.0 Oth-e shoot taon l3onlu8ien 5,673.3 7.i2.1 312.1 312.1 312.1 312.1 312.1 312.1 312.1 312.1 312.1 312.1 312.1 312.1 317.l Cerront p-rtior cf Iocg-rercs dobt 709.3 735.7 390.6 317.0 322.2 812.1 1,015.7 1,097.8 1.176.7 1,210.7 _t.? 1_237 5 2,568.3 2,626.5 2t.r71.2 Sob total 5,872.0 2,126.7 1,400.2 1,379.1 1,433.5 2,063.5 2,424.4 2,530.3 2,602.7 2,659.5 2,804.6 2,949.9 4,360.3 4,491.0 4,593.3 Leno-terîo Dabt Bonk loins 1,460.8 1,913,4 5,033.1 1O,51L,8 14,475.0 14,743.0 13,727.3 12,629.5 11,452.8 12,492.3 16,671.7 18,584.5 16,466.3 13,839.8 11,168.5 Log tem nootes 450.0 - - - _- __ - - Sobtotal 1,910.8 1,913.4 5,033.1 10,51t.6 14,475.0 13,727.3 12,629.5 11,452.8 12,492.3 16,671.7 18,584.5 16,466.3 13,839.8 11,168.5 Sharohlldcts capital 6,433.9 9,896.6 10,571.6 L1,246.6 11,840.7 IL,840.7 11,840.7 11,840.7 11,840.7 11,840.7 11,840.7 11,840.7 11,840.7 11,840.7 11,840.7 Rotalnil earolngs (698.1) (1,115.8) (911.8) 530.5 2,505.5 2,877.5 4,018.0 6,064.0 8,733.1 11,310.8 12,286.0 8,287.5 6,899.8 9,044.9 11,449,8 Provisions 134.6 134.7 134.7 134.7 134.7 154.7 134.7 134.7 134.7 134.7 134.7 134.7 134.7 134.7 134.7 Subtotal 5,876.6 8,912.4 9,791.5 11,911.8 14,480.9 14,852.9 15,993,2 18,039.4 20,708.5 23,206.2 24,261.4 20,2 2.9 18,975.2 21,023.3 23,425.2 TOTAL LIABILITIES 13.659.4 12,952.6 16,224.8 23,902.7 30.389.4 31659 4 32.144. 33,199,2 3457ô4.0 384438.943_7377 41,797 3 307701.8 39,351.' 39%187.0 Debt Eq,ity Ratio 25:75 18:82 34:66 47:53 50:50 50:50 46:54 41:59 36:64 35:65 41:59 48:52 47:53 40:60 32:68 Cornent Ratio 0.64 1.58 2.44 3.59 4.50 4.37 5.10 6.00 5.00 4.53 4.87 4.43 3 12 3.59 4,00 Dobt Servioo CoJeta3e Ratio .7 .5 1,6 3.5 3.8 4,2 3.4 3.4 3.3 2.9 1.9 1.0 1.6 2.1 2.3 Inloatnial Projents Departt.ent May 1979 - 11.1 - ANNEX 8-5 Page 1 of 3 MAURITANIA - GUELBS IRON ORE PROJECT FINANCIAL RATE OF RETURN AND SENSITIVITY ANALYSIS Input Data The incremental, internal financial rate of return calculation for the project is based on incremental cost/benefit streams in 1977 real terms, obtained by comparing the financial data for COMINOR as a whole with a hypothetical case "without the project" in which only the production of the existing Kedia mines would be available until their exhaustiLon. The methodo- logy and assumptions were the following: (a) For the case "without the project" it was assumed that COMINOR would have to maintain production at Kedia at an average rate of 8 million tpy until exhaustion of the deposit in 1990 in order to attain the breakeven point. This production level is higher than the 5-6 million tpy assumed Ito be the Kedia's share in COMINOR total output in the case "with the project". Costs of additional investments and replacements for Kedia have been recalculated accordingly; (b) A scrap value of 5% of fixed assets and 100% of working capital was assumed in the case "without the project". The scrap value of fixed assets in the case "with the project" was assumed at 25% in the year 2000 since in this case production from the Guelbs would continue after that date; (c) Operating costs of COMINOR have been increased to include that part of SNIM's overheads pertaining indirectly to COMINOR. The total overheads pertaining to COMINOR (the indirect ones plus those included in COMINOR's financial projections) have been assumed at 70% of SNIM's total overheads; and (d) Preinvestment expenditures for the Guelbs, prior to 1979, esti- mated at US$18.6 million have been added to the capital costs. All calculations are based on a 25-year period which includes 16 years of full production of the Guelbs Phase 2. - 112 - ANNEX 8-5 Page 2 of 3 INCREMENTAL FINANCIAL RATE OF RETURN Sensitivity Tests Capital Operating Revenue Rate of Return Case Cost Cost % 1 Base - Before royalties 100 100 100 5.4 2 Base - Capital costs up 10% 110 100 100 4.3 3 Base - Operating costs up 10% 100 110 100 2.9 4 Base - Revenues down 10% 100 100 90 1.6 5 Base - Revenues up 10% 100 100 110 8.8 6 Base case with one year slippage in startup 100 100 100 4.8 7 Base case after payment of royalties 100 100 100 1.3 8 Base case excluding US$20 million in extraordinary contingencies 100 100 100 5.8 Industrial Projects Department May 1979 - 113 - ANNEX 8-5 Page 3 of 3 MAURITANIA - GUELBS IRON ORE PROJECT INCREMENTAL FINANCIAL RATE OF RETURN COST AND BENEFIT STREAMS (US$ million) Incremental Incremental Incremental Year Capital Costs Operating Costs Benefits 1978 19.8 - 1979 18.3 0.8 - 1980 76.9 7.8 7.8 1981 123.4 10.2 28.2 1982 96.6 12.3 41.1 1983 26.9 23.1 70.2 1984 12.5 56.1 85.6 1985 1.5 53.5 103.8 1986 6.8 52.0 103.8 1987 62.1 46.9 86.5 1988 67.6 43.8 71.3 1989 58.1 49.5 66.0 1990 29.6 61.4 65.8 1991 67.8 68.3 89.6 1992 14.8 147.1 234.1 1993 14.7 149.4 234.1 1994 19.1 152.7 233.6 1995 6.2 148.6 215.6 1996 4.2 149.0 215.6 1997 13.5 140.3 215.6 1998 12.7 140.3 215.6 1999 20.2 140.3 215.6 2000 18.2 140.3 215.6 2001 - 140.3 215.6 2002 (232.9) 140.3 215.6 Financial Rate of Return Base Case 5.4% Industrial Projects Department May 1979 - 114 - ANNEX 9-1 Page 1 of 3 MAURITANIA - GUELBS IRON ORE PROJECT ECONOMIC RATE OF RETURN AND SENSITIVITY ANALYSIS Assumptions The incremental economic rate of return has been calculated on the same basis (with and without the project) as the financial rate of return. The incremental costs and benefits streams have been derived from cost/benefit streams shown in Annex 8-5, with the following modifications: (a) Mauritanian personnel costs have been shadow priced at 30% and 50% of the financial costs, respectively, for labor and foremen. The corresponding reduction in operating costs is 7%. This is a conservative assumption in view of the non- marginal nature of the project, and the lack of alternative employment opportunities that would be available, were the project not to be implemented and the Kedia deposits ex- hausted in 1990; (b) The various indirect taxes have been deducted from the operating costs. Their aggregate represents an average of roughly 3% of FOB ore export value; (c) Similarly, Mauritanian personnel costs have been shadow priced and indirect taxes deducted, in the local components of initial capital costs and replacement costs, representing civil works and erection works carried out by contractors, as well as the same works and replacements carried out by SNIM's own forces, throughout project life. The corresponding reduction averages 3% of capital costs; (d) The costs resulting from the closure of the mine have been added in the case "without the project". They consist of the cost of resettling the population of Zouerate, F'derik, the railway main- tenance stations and part of the population of Nouadhibou which will have no alternative means of subsistence in these desert areas and would have to be relocated in other parts of Mauritania if the mines were to be closed. The corresponding costs includ- ing moving, the creation of basic-work and other infrastructure, etc., have been estimated at US$2,000 per person on the basis of comparable costs for existing or new rural and urban resettlement projects in Senegal and Mauritania. The resettlement cost for the 40,000 persons assumed to be involved has been spread over the 1990-92 period; and (e) No shadow pricing of foreign exchange has been assumed since 100% of iron-ore sales revenues, 70% of recurrent operating costs, 90% of investment outlays and 70-80% of replacement costs are denominated in foreign exchange. - 115 - ANNEX 9-1 Page 2 of 3 INCREMENTAL ECONOMIC RATE OF RETURN Sensitivity Tests Capital Operating Revenue Rate of Return Case Cost Cost _ 1 Base 100 100 100 11.8 2 B. - - Capital casts up 10% 110 100 100 10.3 3 Base - Operatir.g costs up 10% 100 110 100 10.2 4 Base - RevenuAs down 10% 100 100 90 8.6 5 Base - Revenues up 10% 100 100 110 14.7 6 Base Ca-se witth one year delay in Startup 100 100 100 10.3 7 Base Case with pre-1978 exploration & study expendi- tures as sunk costs 100 100 100 12.6 8 Base Case excluding USS20 mii lion extraordinary contingencies 100 100 100 12.4 industrial Projects Department May 1979 ANNEX 9-1 Page 3 oL 3 MAURITANTIA - GIJELBS IPON.' ORE PRvo)ECT INC RrMFNTAL ECONC`MIC R-TF, 0F RET'LlN COST AND BENEFIT STREAMS (US$ million) Incremental Incremental Increment ai Year Capital Costs Operating Costs Benefits- 1978 19.2 - 1979 17.3 0.7 - 1980 79.2 5.2 7.8 1981 119.1 9.1 28.2 1982 93.0 10.9 41.1 1983 25.5 18.2 70.2 1984 11.8 45.9 85.6 1985 1.0 44.2 103.8 1986 6.5 39.2 103.8 1987 60.7 38.4 86.5 1988 66.1 34.4 71.3 1989 57.2 39.1 66.0 1990 29.5 48.9 65.8 1991 64.7 53.9 119.6 1992 13.3 121.0 264.1 1993 14.5 122.9 254.1 .1994 18.9 130.4 233.5 1995 7.4 127.0 215.3 1996 5.1 127.3 215.3 1997 12.7 120.1 215.3 1998 12.3 120.1 215.3 1999 19.6 120.1 215.3 2000 17.6 120.1 215.3 2002 - 120.1 215.3 2002 (226.1) 120.1 215.3 Economic Rate of Return Base Case: 11.8% /1 Including saving of costs which would be incurred because of closing mines and townsites if the project is not implemented. Industrial Projects Department May 1979 MAURITANIA - GUELBS IRON ORE PROJECT TOTAL FOREIGN EXCdANGE EFFECTS OF COMINOR (US$ Million - Current Terms) 19'9 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 I. FOR l(3i. EXCIANGE INFLOWS Forc,igT. FinaAcing 49.8 73.0 146.0 106.2 24.0 - - - 50.0 120.0 70.0 10.0 - - ExuorL 'a1es '28.4 163.4 202.1 232.3 296.1 372.6 398.6 389.7 386.5 383.0 390.0 497.4 614.6 657.7 To.aJ Inflows 1.78.2 236.4 348.1 338.5 320.1 372.6 398.6 389.7 436.5 503.0 460.0 507.4 614.6 657.7 2. trOISiGN ;XCHOANGE OTLFLOWS Cr5pitel Ex.enditure/.sl- 24.5 85.9 146.2 127.1 40.7 1'.5 21.3 118.3 128.2 117.6 64.9 50.8 32.4 37.7 81.5 95.1 98.3 104.8 133.3 167.3 165.5 166.0 172.0 192.7 225.7 252.5 279.5 303.7 Deb.: Servïce 9y3 12,2 14.1 19.4 23.7 31,9 40.3 40.7 43.2 49.2 56.8 58.3 87.9 85.0 Dividands _ _ _ 12.0 12.0 12.0 _- - 12.0 12.0 12.0 12.0 Total Ou,5lows 115.3 193.2 258.6 251.3 207.7 222.7 239.1 325.0 343.4 359.5 359.4 373.6 411.8 438.4 3. ÎOET FOREIGN EXCRANGE SURPLUS_ (ficit) 62.9 43.2 89.5 87.2 110.4 149.9 159.5 64.7 93.1 143.5 100.6 133.8 202.8 219.3 N2t Foreigr. Exchange 54,n 34.6 67.0 61.0 72.2 91.6 91.1 34.5 46.5 66.9 43.8 54.5 77.2 78.0 Surç t,if, (lefiçit) Di constant 1977 terns /1 Foreig.7 exchange comnponent estima_e4 ar 90% of total cost. /7 Operating costs of COMINOR plus the part of SNIM's overheads pertaining to COMINOR (estimated at 70%); foreign exchange comiponent estimated at 'T/ for 19'7-80, 76', in 1981, ?757. lr 1982; 741; in 1983-84, 73% thereafter. lidus--rial Prujects Departmineu >5 z MAURITANIA - GUELBS IRON ORE PROJECT INCREMENTAL FOREIGN EXCHANGE EFFECTS OF GUELBS PROJECT (US$ Million - Current Terms 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 I. FOREIGN EXCHANGE INFLOW 1. Foreign Loans and Equity 43.8 73.0 146.0 106.2 24.0 - - - 50.0 120.0 70.0 10.0 - - 2. Incremental Export SaleseL 8.0 30.1 46.2 80.5 110.5 152.9 163.5 145.8 128.6 129.3 137.8 200.9 561.4 600.6 Total Inflow 51.8 103.1 192.2 186,7 134.5 152.9 163.5 145.8 178.6 249.3 207.8 210.9 561.4 600.6 Il. FOREIGN EXCHANGE OUTFLOW Capital Expenditures 15.2 77.6 139.8 124,4 32.1 3.7 10.5 105.5 122.8 115.4 63.8 49.5 32.9 38.2 2, Operating _ExpndituresL3 5.4 10.3 13.2 20.8 59.2 64.5 60.4 63.2 60.5 74.8 100.2 118.0 283.6 308.2 3. Debt Service 0.3 3.9 8.8 16.0 21.0 30.6 39.7 40.1 42.6 46.6 56.8 57.6 87.1 85.0 4. Dividends - - - - 12.0 12.0 12.0 - _ 12.0 12.0 12.0 12.0 Total Outflow 20.9 91.8 161.8 161.2 124.3 110.8 122.6 208.8 225.9 236.8 232.8 237.1 415.6 443.4 III. FOREIGN EXCHANGE SURPLUS 30.9 11.3 30.4 25.5 10.2 42.1 40.9 (63.0) (47.3) 12.5 (25-0) (26.2) 45.8 15i.2 (Deficit) (Current Terms) Foreign Exchange Surplus 26.5 9.1 22.8 17.8 6.7 25.7 23.4 (33.6) (23.6) 5.8 (10.9) (10.8) 55.5 55.9 (Deficit) in Constant 77 Terms /1 Incremental sales as compared to case without the Guelbs with slow exhaustion of existing Kedia mine /2 Incremental costs " " " " " " " " " /3 Incremental " " " " I " " including COMINOR's share of SNIM's overheads Industrial Projects Department May 1979 IBRD-13583R ISLAMK REPUBDC OF MAURI.ANIA THE GUELBS IRON ORE PROJEC : .......... / o 5~~~~~~~~~~~~~~0 , 50 le 250 PAYEjRMM 0 ~ / KILOMETERS PRAVED. RQAOUIDE - TRAVI;P«S 8 ------- TRACKSAo ;Q -100- ANNUAL- . f * RRtEt.0;S . Q N " , f ~~~~~~~~~~~~---t------------0 ----------- ----I F c owi XrnON AJME ' O N ALG E R I A 2J #I«ATW6 . N. . _-_ INATEADES .- } \Bir-Moghrein " tEN lSPI$ SMIAM Sz/ ID ~ ~ ~ ~ ~ ~ ~ ~ ~~~ML cWmiII5 ~ F< D|i \,RÊ FPOECT M A L J^s pv Akjj( I ItBRt13584) / t ' 9 - ' F )GHOUM T~~~UNNEL dh X f _OOuadjane l > / ,Zx ~~~~~~~~Chinguetti 2tr <0 / - / \ j 200 - . ) // ~~~~~~~~~~~~Rare Ecarts I < 0ov Sm Aso o~~~~~~~~~TdjkjTichittj NOdUAKCHOTrE/Muj*i ot« Stg LouisS 0 0i \ < t6-- og 2~~~~~~~~~~~~~~~~ 00 e~~~~~~~~~~~~od 22 5 0°2;+,>~50 300 / DAKAR *2 °7:zSlia6 O O O Sts E N Etd.tle, Gh< A nLth;s m p do oot Itttojtfi th p tt pof th.W Wd-d k-d itd 16° 20 8 , > | | \ I NOVEMBER 1978