Greystar

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	27961
Company name	Greystar Resources
Country	Colombia
Sector	Oil, Gas and Mining
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Active

Date SPI disclosed	February 9, 2009
Projected board date	March 11, 2009
Previous Events	Invested: March 20, 2009 Signed: March 16, 2009 Approved: March 13, 2009

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Greystar Resources Ltd. (“the Company” or “Greystar”) is a TSX and AIM listed junior mining company that owns 100% of the Angostura gold and silver exploration project (the Project”) near Bucaramanga, in the Santander region of Colombia. Greystar has acquired concessions covering approximately 30,000 hectares over a 15-year timeline and during this time has spent approximately C$95 million in exploration and concession acquisition/maintenance costs.

As of December, 2008, the company had completed an intensive drilling program yielding a resource estimate of 11.6 million ounces of measured and indicated gold in 330.9 million tonnes of material grading 1.09 grams gold per tonne and 3.47 million ounces of inferred gold in 90.8 million tonnes grading 1.11 grams gold per tonne, making it one of the world’s largest undeveloped gold resources.

The company is now commencing with a bankable feasibility study (“BFS”), environmental and social impact assessment (“ESIA”), and other associated work, with the goal of developing the mine in late 2009/early 2010.

Anticipated development impact of the project

Colombia has substantial mineral resources, but the country still suffers from country risk perceptions among many potential foreign investors. A successful project of this size would likely spur significant additional global mining interest in Colombia, particularly valuable at a time when Colombia has demonstrated considerable progress in addressing security issues and political risk and is well positioned for continued economic success.

IFC has identified Colombia as a primary target for mining investment because of the potential for substantial development impact from the mining sector. This would be IFC’s first mining investment in Colombia.

A mine development of the expected size could have substantial impact on the local communities, not only through direct employment and services, but also from government royalties and taxes that flow back directly to local municipalities. It is estimated that 97% of the royalties will flow back directly to the region, with 87% of total royalties flowing to the municipality level. The Government of Colombia and oil and gas companies have been working with IFC on a pilot municipal level royalty management and capacity building program in the petroleum sector. The Government of Colombia, the Ministry of Mines, and mining associations have expressed interest in expanding this program to the mining sector. The two municipalities where the project is located could be part of any second pilot program, further ensuring greater development benefits to the local communities.

IFC’s proposed investment will fund the completion of a BFS and ESIA, which will be used as the basis by which a decision for mine development will be made. The immediate development impacts from this investment will be limited. However, in the event that the mine goes forward, it is currently estimated that the Angostura project will generate approximately 1,500 direct jobs during the construction phase and approximately 500 during operations. It is currently estimated that approximately four indirect jobs will be created for each direct job created in the mine. The majority of the new jobs would be for local residents from the California municipality and for Colombian engineers from the region; one of the leading engineering schools in the country is located in the city of Bucaramanga, which is close to the mining site. The company is working with local technical institutes to train local people for future employment at the expected mine.

Governance risks assessment

A part of the benefits of a future mine development will come in the form of taxes and royalties that will be paid to government (part of which will be distributed to local level). The IFC has considered the risks to these benefits and, given its assessment of the Government capacity to effectively use these revenues (including the potential for engagement in programs at the municipal level), believes that on balance this is a project it should support. The company has agreed to disclose publicly in Colombia its payments to governments at the state and local level.

The World Bank’s Mining Policy Division is in discussions with the Government of Colombia regarding participation in the Extractive Industries Transparency Initiative (EITI) program.

IFC's expected development contribution

Capital: The project is at a critical stage - completing its BFS, ESIA, and preparing to move to project development stage is paramount. The company sees IFC as a strategic partner with potential to provide long term value added services (see below).
IFC Input to ESIA and Other Environmental and Social Studies: IFC environmental and social specialists will engage with the company to provide input and guidance to ensure that Environmental and Social Baseline Study and the Environmental and Social Impact Assessment meets the IFC Performance Standards.

Political Risk: Despite significant improvements to security in Colombia, the country still suffers from a lack of investor confidence. IFC’s investment is expected to help reassure foreign investors and encourage increased participation in Colombia’s growing economy.

Subsequent Project Development Support: In the event the mine development moves forward, IFC expects to contribute in various ways:

IFC Royalty/Taxes Management Program: IFC has applied its royalty/taxes municipal management program developed in Peru to Colombia’s petroleum sector, and there is interest from the Government, Ministry of Mines, and mining associations to pilot this program in the mining sector. The company has considerable interest in including the two municipalities in the project area in this type of pilot.

SME Linkages: Given the large scale of the project, there should be opportunities for engagement from IFC's Linkages program, which would help maximize local benefits.

Project Financing: After completion of the pre-development phase and move to the project development stage, IFC would consider other ways to continue financing support to the company.

Environmental and social issues - Category B

This is a Category “B” project according to IFC’s Environmental and Social Review Procedure. This investment covers the exploration and feasibility study activities. The development phase will require additional financing and with an IFC requirement of a full ESIA, with appropriate consultation and disclosure prior to any substantive work taking place.

The key environmental and social issues related to Greystar’s project are:

- Management of exploration activities – control of erosion and rehabilitation of drill roads and drill sites, safe disposal of oils and waste, potential mercury and cyanide contamination from artisanal and small scale miners downstream from the concession areas, etc.;
- Development of Environmental, Health & Safety Management System and Policy commitments to ensure PS compliance of any future mining development to manage, plan and document the environmental and social issues relating to their activities;
- Infrastructure– public safety, dust control, hazards management and mitigation of transportation risks.
- Management of community expectations during ongoing consultation and disclosure;
- Local capacity building and employment generation;
- Community development planning;
- Management of Armed Security Forces through implementation of the Voluntary Principles for Human Rights and Security

The project area is a traditional mining area with communities demonstrably supportive of mining projects. Three villages are located within 10 km of the project site and are considered within its zone of influence. Greystar management has had a particular focus on community engagement, and in 2006 Greystar won the Prospectors & Developers Association of Canada (PDAC) Environmental Excellence in Exploration award. Greystar has met with LAC’s royalty management program team and has expressed interest in tapping into this program to ensure greater benefits accrue to the local communities.
The company is committed to conduct its operations in accordance to the provisions of the International Cyanide Management Code (ICMC) and has commissioned an ESIA which will address the requirements of the IFC Performance Standards. The company will be required to commit to a Health, Safety, Environment and Community (HSEC) Policy and an ‘Action Plan’ as needed addressing mitigation actions from its related exploration activities and potential mine development. The company will prepare a Community Consultation and Disclosure Plan to ensure proper stakeholder consultation, monitor community support and identify needs and priorities for sustainable development. The company will implement procedures in accordance with the Voluntary Principles due to the presence of armed public forces in the project area. The company has expressed interest in obtaining IFC support in the implementation of a royalty management program.

IFC will provide guidance for Greystar to develop a sustainable environmental management system and build its internal environmental and social management capacity.

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