Gold Ridge

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27766
Company name	Australian Solomons Gold Limited
Country	Solomon Islands
Sector	Oil, Gas and Mining
Environmental category	A
Department	Oil, Gas, Mining And Chemicals
Status	Pending Signing

Date SPI disclosed	May 15, 2009
Projected board date	July 20, 2009
Previous Events	Approved: September 3, 2009

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project is a $134 million investment to restart operations of Gold Ridge mine, owned and operated by Gold Ridge Mining Limited (“GRML”), an indirect wholly owned subsidiary of Australian Solomons Gold Limited (“ASG” or “the Company”). The Gold Ridge mine is an open pit gold mine on Guadalcanal Island (the largest of the Solomon Islands) which operated from August 1998 before closing due to civil unrest in June 2000. Following an international tender, the mine assets were purchased in December 2004 by ASG, a company listed on the Toronto Stock Exchange (“TSX”), which was established to acquire and redevelop the Gold Ridge mine.

The Gold Ridge mine area consists of 4 adjacent deposits together with a crusher, mill and processing plant located 27 km by road from Honiara, the capital city of the Solomon Islands. The proposed investment program will rehabilitate and replace existing equipment and redevelop the mine area with a view to restarting production by 4th
quarter 2010. At full production GRML is expected to produce an average of 124,000 oz. of gold annually. The projected mine life, based on current reserve estimates is just under 8 years, with potential to extend mine life to 12 – 15 years and beyond.

Anticipated development impact of the project

The Gold Ridge Mine redevelopment is the largest private sector project in the Solomon Islands and is a strong fit with IFC investment strategy in the Pacific area and in support of financing of poorer (IDA eligible) countries. At full production the project can be expected to account for as much as 20% of Solomon Islands GDP, which relies today on external aid and rapidly dwindling revenues from logging. If successful, the project would also encourage investment in other mining developments and generally would enhance the reputation of the Solomon Islands as an investment destination. The Project is expected to generate a range of positive development impacts including:

Revenues for the Government of Solomon Islands and provincial government: The Solomon Islands government will receive an export tax of 1.5% of revenues for the life of mine, with an additional royalty of 0.3% to provincial government. GRML will pay corporate taxes of 30%, which are expected (depending on gold prices) to become payable in the fourth year of operations. GRML will also pay a 15% goods tax on consumables and fuel.

Benefits to local communities: In addition to new housing and direct compensation to meet the Company’s obligations to compensate households affected by the mine redevelopment, local landowners will receive, through a representative local landowner council, a royalty of 1.2% of revenues for the life of the mine. In addition the Company will implement community development initiatives under a Community Economic Development Plan.

Job Creation In addition to employment during construction, the Project would create approximately 500 full time jobs. Additional employment will be generated in downstream service businesses (food services, various local contractor services, fuel supply, haulage, travel and bank services).

Development indicators to be monitored during the life of the IFC investment are:

- direct employment levels
- payments to Government in the form of royalties and taxes
- annual Company expenditures on domestic goods and services
- community development expenditures by the company.

Governance risks assessment

A part of the project's expected benefits are in the form of royalties, corporate and other tax payments to Government. In coming to a view of whether to support this project, IFC considered the value of the Project’s benefits and the governance and other risks to these benefits. In doing so, IFC has reviewed a variety of governance assessments on Solomon Islands, including the 2008 World Bank Doing Business rankings which ranks Solomon Islands 5th out of 47 low income countries. Solomon Islands compares favorably with peer countries, ranking 109th of 180 on Transparency International’s Corruption Perceptions Index. A key consideration for IFC’s proposed investment is the active engagement of regional partners through the Regional Assistance Mission for the Solomon Islands (RAMSI), which is working closely with the Solomon Islands Government: in stabilizing public finances, enabling the delivery of basic services to the community, payment of salaries to public servants and budget management.

IFC's expected development contribution

Funding: Given the project risk profile and very limited availability of commercial bank financing in the current stressed lending environment, development finance institutions (“DFI’s”), together with equity finance partners are the only viable source of financing for the Gold Ridge mine redevelopment. In addition to providing debt and equity finance, IFC is leading the structuring of the project financing, working with the Company to attract parallel funding from other DFI’s. IFC’s involvement is also a catalyst for attracting equity finance under a planned public offering.

Management of E&S Risks: IFC is playing an active role in assisting the Company to ensure compliance with Performance Standards and in managing environmental and social risks, especially with the challenges associated with a relocation of some 1,350 people who are directly impacted by the mine redevelopment.

Community Development: IFC is drawing from experience of similar mine developments to explore ways to help the Company with community development programs for affected communities including SME and agricultural linkages, community investment strategy and measuring results.

Environmental and social issues - Category A

IFC’s review of this Brownfield investment has identified the following main environmental issues: strengthening of project EHS capacity to ensure full implementation of the Environmental Management Plan (EMP) and development of more detailed mitigation procedures; erosion and sediment control related to open pit development in steep topography with high rainfall; protection of ground and surface water quality with respect to acid rock drainage, cyanide and metals loading; overall management of cyanide in accordance with the International Cyanide Management Code; emergency response procedures; proper management of the waste rock dump and tailings storage facility (TSF), including tailings and return water pipelines; control over biodiversity impacts such as vegetation clearing and timber sourcing (note that no protected areas or critical habitats have been identified); and comprehensive closure planning/costing. Several legacy issues will need to be dealt with, e.g. treatment and release of rainwater which has collected in the TSF since mining ceased, to ensure technical stability of that facility and repair of damaged sediment control dams.

The main social issue associated with the project is the proposed relocation, to adjacent land areas, of some 1,350 persons residing on or near the Mine Lease area, in order to pave the way for restart of open pit operations and haul road development. This will involve somewhat complex compensation and royalty arrangements which were exhaustively negotiated under the prior mine owners and which have subsequently been modified in consultation with affected parties. Many of the people who will resettle had moved away as part of the original mine development but subsequently returned to the concession area during the unrest period around 2000. Most affected households are currently engaged in subsistence artisanal gold mining activities on Gold Ridge. Cessation of these activities will be accompanied by alternative livelihood programs and – for eligible households – payment of royalty monies. Stakeholder engagement is a key issue for this Project and is currently managed by a team of eight community liaison staff, including a manager, backed up by expatriate consultants. There are no critical cultural heritage sites impacted by the mine redevelopment. All IFC Performance Standards except PS 7: Indigenous Peoples are applicable for this investment. Based on IFC’s review this investment will require 60 days public disclosure by IFC prior to Board and has been categorized as “A”.

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