Aricom

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	25914
Company name	Aricom Plc
Country	Russian Federation
Sector	Oil, Gas and Mining
Environmental category	A
Department	Oil, Gas, Mining And Chemicals
Status	Active

Date SPI disclosed	March 20, 2007
Projected board date	May 24, 2007
Date revised SPI disclosed	April 22, 2008
Previous Events	Invested: May 31, 2007 Signed: May 25, 2007 Approved: May 24, 2007

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The project is the continued exploration, appraisal and development of Aricom’s or the company’s iron ore resource properties and associated infrastructure in the Russian Federation, including feasibility studies, detailed engineering, environmental and social impact assessments and other preparatory activities. Progress in these respects could lead to substantial mine development focused on supplying strong growth of demand for steel making manufacturers in nearby China.

Anticipated development impact of the project

The proposed IFC investment will contribute to continued exploration, feasibility studies and some infrastructure development for the company’s main assets to allow for their future development which will require close to $1billion. Consequently, it is not yet possible to fully quantify or specify the development impacts. Potential development impacts at the mine production stage should include employment, federal, regional and local revenues, increased exports of iron ore. Currently, ,for example, initial exploration and development work at Aricom’s Kuranakh property employs 50 people from its nearest town Olekma, a town of 150 households.

Both the Amur Oblast and the Evreskaya Autonomous Oblast, considered by IFC as Frontier Regions, are remote, relatively poor and undeveloped parts of Russia, with high unemployment. So far gold has been the main new mining development in Amur as a result of Peter Hambro Mining’s Pokrovskiy project. Aricom’s developments will allow Amur and EAO to sell their lower unit value ferrous resources into the Chinese market at a transport cost advantage and help diversify their dependence on precious metals and oil and gas revenues.

Governance risks assessment

It is expected that a significant benefit of the potential future development of Aricom’s developments will accrue to government I the form of taxes and royalties to different levels of government. The current taxation system in Russia is complex and levied at the central, oblast and Raion (local) level. The main tax categories are revenue taxes (including royalty, property and environmental taxes) and profit taxes. The Amur Oblast has an official website (www.amurobl.ru) which discloses the full annual budget, the sources, the uses and implementation. The Evreskaya Oblast also has an official website (www.eao.ru). In addition, once Aricom brings its properties to production, Aricom’s published accounts will summarize revenue payments to government. On balance, IFC considers the governance risks to realization of project benefits to be reasonable.

IFC's expected development contribution

IFC’s early engagement will assist in making Aricom a leader in sustainable mining initiatives. IFC will help contribute to the Company’s successful development in the following ways.

Future Project Financing:

An estimated $1 billion of project development is needed over the next few years. This will be a major challenge for Aricom. IFC’s early stage equity investment and partnership will help it to position the company to be able to mobilize the large amount of financing needed, especially given Amur’s and EAO’s remoteness and unfamiliarity to financial markets.

Environmental and Social Aspects:

IFC will help the company improve its E&S management capacity and implement its projects in line with international best practice. Aricom is already strengthening its E&S governance in active consultation with IFC and is seeking IFC help in developing its E&S corporate procedures and capacity and in engaging an independent E&S auditor.

Community Development:

Aricom’s potential mining operations will be large scale and relatively simple and hence there is the potential for local business supplies. Aricom is interested in engaging with IFC Private Enterprise Partnership (PEP) Moscow to assess and develop linkage potentials.

Environmental and social issues - Category A

The following Performance Standards (PS) are applicable to this project:

- PS1: Social & Environmental Assessment and Management Systems
- PS2: Labor & Working Conditions
- PS3: Pollution Prevention & Abatement
- PS4: Community Health, Safety & Security
- PS5: Land Acquisition & Involuntary Resettlement
- PS6: Biodiversity Conservation & Sustainable Natural Resource Management
- PS7: Indigenous People
- PS8: Cultural Heritage

The key environmental, social and occupational health & safety and community aspects and issues associated with this project include:

Corporate level:

- Health, Safety & Environmental (HSE) management;
- Social Responsibility and Community Engagement
- S&E Assessment and HSE Permitting;
- Labor & working conditions; and
- Community health, safety & security.

Project level:

- Processing facilities: air emissions, dust control, chemicals management, water and effluent management including groundwater protection, solid waste management, hazardous materials handling and management as well as emergency response and pollution prevention & abatement;
- Mining activities: dust control, drainage, pit rehabilitation, land use and agriculture/reindeer development, occupational health and safety, visual impacts and mine safety;
- Infrastructure and associated facilities: footprint minimization, public safety, resource conservation, dust control and hazards management and mitigation of transportation risks;
- Surrounding communities: land acquisition; emergency preparedness & response; community health, safety & security; social/community development and development of sustainable solutions to manage artisanal mining;
- Protection and conservation of biodiversity and cultural heritage.

Future development projects may have impacts on biodiversity, human populations including indigenous people and/or cultural property – this will be assessed on a case by case basis for each proposed mine development. Documentation relating to SEA and community engagement and consultation is being and will be done in line with PS requirements.

In this context, IFC’s due diligence findings and application of IFC’s Policy on Environmental & Social Review Procedures to this suite of aspects and issues resulted in this project being classified as Category A.

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