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I REPOPTS nF7SZI BE RETURNED TO REPORTS DESK LA-5WITHIN IN CENTRAL FILES

| ONE '.'EK-- {i

f Thl; ranort wins nrenared for use within the Bank and its affiHintatd nrganizatinns.I. They do not accept responsibility for its accuracy or completeness. The report may

n not be published nor mnv it kb qontetd nc renreentinn their viws

INTEIRATIONAL BANK FOR RECONSTRUCTION AND DE'VELOPMENT

INTERNATIONAL FINANCE CORPORATIONAs- ' T I V T>T" rTTT r T 1 R TTT I e l IT k t "T

UN 1 £MK1NA I I1VAAL D r- V 1Z~r'V1IiNl 1 iD'Vi1-A 1 l)J.N

APPFRATSAT. OF THE

iN '%~r n Tmr 7 -, -r T yrr~ f ,'% r Yr C-rFAL CON BRID G E DU %JI.Jf NICKrEJ .LJ PRJE TLA-

DOMINICAN REPUBLIC

i.uri

November 25, 1969

IFC - Department of Investments

Latin Anierica, Europe and Australasia

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APPRAISAL OF THE

FALCONBRIDGE NICKEL PROJECT

DOMrINICAN REPUBLIC

TABLE OF CONTENTS

Paragraphs

I. Introduction 1 - 7

II. The Borrower and Sponsors 8 - 28

A. Falconbridge Dominicana C por A 8 - 12B. Falconbridge Nickel Mines Limited 13 - 16C. Armco Steel Corporation 17 - 20D. Management Arrangements 21 - 28

III. The Project 29 - 74

Introducticn 29A. Mining 30 - 40B. Processing 41 - 49C. Water Supply 50 - 52D. Transport 53 - 55E. Townsite 56F. Project Cost Estimate 57 - 62G. Engineering and Construction 63 - 67H. Procurement 68 - 69I. Personnel 70 - 71J. Production Cost Estimates 72 - 74

IV. Bank Financed Facilities 75 - 90

A. Description of Facilities 75 - 78B. Cost Estimates 79 - 84C. Operating Cost - Thermal Plant 85 - 86D. Pomer Reauirements 87E. Engineering, Procurement & Construction 88 - 90

V. The Market 91 - 117

A. General 91 - 95R- Connsmrtio rn 96 - 102C. SuLpply 103 - 108D. rPenPi for Ferronickel 109 - 113E. Marketing and Price 114 - 117

Paragraphs

VT. Financing Plan and Financial Prospects 118 - 161

A. Pronosed Financing Plan 119 - 131B. Financial Prospects 132 - 138G. nehbt Servicing ruarantee 139 - 1c)6

D. Concessions and Incentives 157 - 161

VII. Economic Benefits 162 - 174

Gains in Foreign Exchange 164 - 167Fiscal Ben.efits 168 - 17'0Indirect Benefits 171 - 174

VIII. Protective Arrangements 175 - 181

IX. Conclusvon 182

List of Annexes and ilaaps

Annex 1 - Historical Sampling Program

Annex 2 - Ore Preparation and Processing

Annex 3 - World Nickel Production

Annex 4 - Future Production of Nickel

Annex 5 - World Ferronickel Production

Annex 6 - Financial Statements of Falconbridge DominicanaC por A

Annex 7 - Financial Statements of Falconbridge NickelMines Limited

Annex 8 - Financial Statements of Armco Steel Corporation

Annex 9 - Economic Data

Maps - Dominican Republic

Mining Area of Falconbridae Dominicana

APPRAISAL OF THEFAiCONMBRIDGE Ii-1Cn-, PROjECT

DOIVINICAN REPUBLIC

SUMMARY AND CONCLUSIONS

i. Falconbridge Dominicana C por A has asked the BEInk for a loanof $25 million to meet the foreign exchange requirements of the powerplant and related facilities which will form part of a ferronickelproject in the Dominican Republic. The company is sponsored byFalconbridge Nickel Mnes Limited of Canada and Armco Steel Corporationof Ohic. The Government of the Dominican Republic owns 9.6% of thecompany'-s shares.

ii. The ferronickel project consists of the mining and metallurgicalprocessing of :Laterite nickel ore to produce ferronickel. The treatmentplant is designed for an annual production of approximately 63 millionpounds of nickel in the form of ferronickel. Extensive supportingfacilities incLuding power generation, fuel pipeline, storage and toppingfacilities, roads, water supply and housing,form part of the project.The proposed Bank loan is to help finance the thermal nower generatinestation, including the pipeline which transports bulk fuel from the Portof Haina to the nlant site,

iii. The cntt. nf t.he prorjerct i. Pvnrnri +.ns hed to be lQ9 m:illion. Tnthe proposed financing plan the shareholders will contribute $15 million(7.7%) -in equit;y and $3i million (17 .5%) in subordinated debt. Mdiu.-term loans of $141 million (21.0%) will be provided by commercial banksin the United 'tates anrd Canada, and the long-erm- loans of $105 mi"ion(53.8%) will be provided by IBRD $25 million (12.8%) and United States

insurar.e- cpies 80 11milion (11 .0W%

Av. Tr n I; .IanciaJl forecasts buaseud o, thLIile IL Lnown interest .ates andUmaturity periods of loans, on current prices for nickel and on conserv-ative cost estimates, indicate a net cumu-lative surplu a.fter r.paym.entof loans of $311 million in the period 1972 to 1991, the date of maturityof the subordir4-.ate~d loCans. MIe payback perio 4of th prjcti 7 '1/2

years, and the present value return on investment is 16.8%.

v. The Dominican Republic would derive substantial benefits fromULMe pro;ject u, whIJch woUU uid IA Uleom v i±ajUlr indusvi1rial ±utrIUerai.U1g in Wietcountry. In addition to dividends which are expected to average $1.5million annUually, the coUntr1'y iS exAPected tO recei-ve taxes of about$3.3 million annually in the early years of the project, and a yearlyaverage of $12.2 million after 1981.

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vi. Present nickel consumption in the non-Communist world is about800 million lbos. per annum. Consumption has been limited by short supplyin recent vea-rs. but a P'rowth in consumntion at an averaee annual rateof 6p is expected. Although rapid growth is anticipated in the produc-tnrn of f orrmni nkel- i4t Si prn-'bhle that Apmned will1 eointinue to exceedavailable supply. Falconbridge Canada, which has an international salesorganization- T.I11 sll +.hea fr-rniek.1l vrndiive in the niminican Re-public and it has already received purchasing intentions for about 80%oof th poecedotpt

'4 4-~~,~11 & 1-~ T'L,,,4,4^nnv 11%414?' 0vii Fal;,or,bridAge Do,,in ----- W -1 pa ohen, 4ria" eubnV.LJ. .L 0. L%.%JXLLJ.L LJU V IL" L'C.LLa. VV.L..L.&. FCX 'JJ VILU~LJl .C.~

fee of 1½-% of the outstanding Bank loan in return f'or guaranteeing theloan.

Viii.. TIhe sponsors hi[ave agreteu t provieu a'' uJ add uuUitior.al fU. neU--

ed for any project cost overrun, subject to a time limitation which isdescribed in the Completion Agreement. The hRBD loan will be premLat-urdshould the project be abandoned before completion.

ix. The loan will have a term of 15 years with a grace period ofSt years. Repayment will be made in 23 equal semi-annual maturitiesof principal.

x. Subject to protective trrangements the proposed project wouldbe a suitable basis for a Bank loan of $25 million.

APPRATIAT OF rPH

FALCONBRIDGE NICKEL PROJECTnnMAMTt.TT,AU DDTrDTTf'~J'JL_J.I'd.LWZ"1.' L6UA .UJ..U.L~L

I. INTRODUCTION

1. The International Bank for Reconstruction and Development hasUeen asked Lor a "loan of $2 mlillon 1/ Dy Falconbridge DominicanaC por A (Falconbridge Dominicana), to assist in establishing a ferronickelproject in the Dominican Repuolic. The loan is required to meet theforeiLgn exchange component of the capital cost of the power plant,pipe:Line and. related facilities included in the project.

2. Since 1955 Falconbridge Nickel Mines Limited (FalconbridgeCanadla) has catried on in the Dominican Republic a program for theexploration and development of indicated nickel deposits. For thispurpose they established a subsidiary, Minera y BeneficiadoraFalconbridge Dominicana C por A, the name of which was subsequentlyshortened to the present title. Initially, Falconbridge Canada owned81.7, of the company's shares, the Government of the Dominican Republicowned 9.6% a.nd the balance was held by individuals and companies inCanada and United States.

3. In January 1969, Armco Steel Corporation (Armco) of Ohioauthorised participation in Falconbridge Dominicana through thepurchase of stock from Falconbridge Canada and the assutmption of40% of the latter's liability for project financing. Armco's sharerepresents 1.6.3% of outstanding common stock of Falconbridge Dominicanaand Falconbridge Canada's residual share is 65.4%.

4. As of December 1968, FalconbridRe Dominicana had msade investmentsvalued at approximately $17.25 million in the Dominican Republic forgeological exploration and pilot Dlant operations. Ore reserves of63 m:Lllion tons 2/ containing 1.55% nickel have been established.The ores are of lateritic origin and Falconbridge has developed anappropriate metallurgical process for the recovery of ferronickel andhas tested the process by large-scale pilot plant operations locatedon the concession area in the Dominican Republic.

5. The project will comprise mining and transportation facilities,a treatment plant and a nower plant. The treatment plant is designedfor an annual production of approximately 63 million polnds of nickelin the form of ferronickel. The exmendit.ire on the eomnlete oroiectis expected to approximate $195 million.

1/ Culrrency throughout this report is expressed in US$.~/ The term "%tons"t in this report means short tons of 2 nOOv pounds.

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6 Th.e GOvernen of the Donmnican Republic has 4-n lica *tssupport for the project and is prepared to guarantee the proposed loan.TI wever, the - -- sec rity for loar9 t-o F--1 'obie ^. na wil be£1~JW ~ ULM J 1 .JX C .¶LLA OV%.4L .LVY L%JJ L u IJ. JAJ"±~ I~LL~ --

the talce or pay clauses of the Sales Agreement between Fa]LconbridgeDro r,i-iL"cana "alconJ-idge C- adand A---oUVI5 X~~ £L ~ULALUU±Ur IAUtwu ut JLU A111kv.

7. Information on the project was s-upplied by raiconbridge Canada,Dillon Read and Co. Inc. of New York who are financial advrisors toFalconbridge, and by various technical consultants. at; thre request oIthe prospective U.S. institutional lenders, Sanderson and Porter Inc. ofNew York, a leading firm of engineering consultantss, made a comprehensiveexaminr&tion of the Dominican project and of the managementi9 technicaland firtancial ability of FiLconbridge Canada. During 1968 and 1969,several IBRD/IFC missions carried out field investigations in Canada andthe Dominican Republic.

II THE BORROWER AND SPONSORS

A. Falconbridge Dominicana C por A

8. Falconbridge Dominicana is registered in the Domiinican Republicwith the head office in Santo Domingo. The issued capital consists of1,4,99,CGO shares of a par value of $10 each.

9. The shareholdings in Falconbridge Dominicana are:

Table I: FALCONBRIDGE DOMINICANA SHAREROLDfIG

F§lconbridge Canada 65.4Armco l/ 16.3Dominican Government 9.6Private U.S. and Canadian holdings 8.7

100.0

10. The history of the Dominican proiect commenced in 1955 whenthe Concession Quisqueya No. 1 (the Concession) was granted to Minera yReneficiadora Dominicana a nor A (Minera. . a cormanv controlled at thattime by citizens of the United States, who souglt associates to carryouit. thp nRnRsa.nrv investiotiatin and nPrnlnration. A nontrant wascompleted between Falconbridge and Minera, and a new company was createdunder the name of Minera y B neficJadoralFnnonhridnge Tominit-na G nor A.

lX Tr. 96 wbc..rih de Dmnm.ricar.a made a 1 for 2 Qhne isueapar' ($10). Falconbridge Canada purchased all of the shares

off'ered to the v-te aau.. ofP thea 1V y4.icr. P*pubic;4. l+ +aten

Government has the right to repurchase such shares at $10 perShI...a TI- 4ip o +h-e +I-. f411 v.a4man wil d +nhi. by supply=

t .4 Lu .LO v&WJ.k..so;NJ W,AL~ u uust W'-' ot;.*w,t u avj..&A. a-4% uns.j. Li JA YI.

ir,g services to Falcorbridge Dominica^a dluring he constructionperiJodl 4vo, +1fl 1,e v* Vr- o.fl l p' 3f C,fe s.-; A- 4-'Ž

L tI.. v Z V". Q.LAX '.Jl VIOIJ. L4AJ*~A J.~aa2t L& . .

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which subsequently acquired the Concession from Minera. Later the nameof Minera y Beneficiadora Falconbridge Dominicana C por A was changed toFalconbridge I)ominicana C por A (Falconbridge Dominicana).

11. The Concession was orioginfl1v granted to Xhnera for a term of30 years, i.e., through January 15, 1986. In accordance with the provi--slonns -of the Minineg Lw a550 o,-' f 1056, w inera subs-qun"tly declared to tilet:> ~ ., ~, 0 - .1 -- -- ¾ --

authorities that the Concession would be governed by said new law:Falconbridge and the Do.mnrnicaJn G-overernment state that this declaration hasthe effect of making the Concession run for an unlimited period of timea-vd a notatio.- to- this effect is esntered into th be Plegistry. -W'ith Vileapproval of the Dominican authorities Minera assigned its rights to the

~~Lk)JI Uk)V LkV L3ure AJAI k).1 (i U)'LIUV.L4 .LJ. VIL iUk;tWIUUConcess-ion to vValconbri`ge Domin,cana on 'eceri-bier 14, 96 r eeb24, 1956, Falconbridge Dominicana and the Dominican Republic signed anagreement (vhe Basic Contract) determi-nig the respective rights andduties of the two parties with respect to the Concession. This agree-ment was sup] Lemented ani'd amended by a further agreement 'between theparties dated September 26, 1969 (the Supplementary Agreement).

12. Falc:onbridge Canada has been the technical sponsor from theinception of Falconbridge Dominicana. In January 1969, 20% ofFalconbridge Canada shares in Falconbridge Dominicana were sold to Armcc.Aitnou;n Armco will not participate inthe technical operation ofFalcon'bridge Dominicana, the company has distinct financial responsibil-ities which are described together with the financial prospects ofFalcon'bridge Canada and Armco in Section VI. The corporate backgroundsof the two companies are given below.

B. Falconbridge Nickel Mines Limited

13. Falconbridge Canada which owns 65.4% of FalconbridgeDominicana's issued stock is responsible for putting together the finan--cial package and will assume technical and commercial management of theproject.

14. Falconbridge Nickel Mines Limited was incorporated in 1928under the laws of the Province of Ontario, Canada. Since 1930, thecompany has been continuously engaged in the production of nickel andcopper, and has mining and smelting facilities in the Sudbury Districtin Ontario. It also has refining facilities at a wholly-owned plant inKristiansand, Norway. The company maintains general offices in Toronto,Canada.

15. The company is the third largest producer of primary nickel inthe western world and in addition has extensive shareholdings in othermining enterprises which produce copper, gold, silver, iron ore, magnesium,lead, zinc and some industrial minerals. However, the company's principalsource of revenue is the operations in the Sudburv Basin. Consolidatedrevenue for 1968 was $97 million.

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16. Falconbridge Canada is a public company whose shares aretraded on the Toronto, Mbntreal and Vancouver Stock Exchange. Approxi-mate2v 80% of the outstanding shares are registered in Canadian names.McIntyre Porcupine Nines Limited, a Canadian company, owns approximately37% of Falconbridce. The chief shareholder of McIntvre is Superior OilCoMmpcny of Houston, Texas, which directly and through its subsidiary,Can-ar rn pintrrnr Oil TimitptA nwnq nnnrnximqstPlv '9t of McTntvre. The

gst single shareholding in Superior Oil Company is held by the Keclkfa m iJy Mb= HowTT R. .A- Keck iS a director And chief PcyrutivP offf7ieer ofSuperior. In Fbbruary 1969, following the death of Mr. Horace Fraser,the pres±dent of Prrnd, Tvfe Mmrch A. Gooper- fnrmrilv Presidentof McIntyre, became President of Falconbridge. Subsequently, Mr. Keck

~ ~ ,4rns+ ,.P U-T-+,- -,A - --,m4, n~+reA r'1-n4 ,.m_,i nv' nf4,'n,+.evr,* mfb Is. 4. s -- dera' of ,a-t.bye -.J was nomina*ed rJ.a4r,.n of Directors o Falconbridge.

C. l tIIoJ Ste Iel Corporation

stock. The company will undertake financial liabilities to FalconbridgeAoju in1cana for part oI the subordinated aeot, Tone overrun UULFWJiIJUMUb"Zand the take or pay clauses of the Sales Agreement, but will have nopart in the m:nanagement of operations.

i8. Armco Steel Corporation was incorporated in Ohio in 1917 asthe American Rolling Mill Co. The present title was adopted in 1948.The corporation is an industrial complex that includes 9 steel-producingplants in the United States, 37 specialized manufacturing operations inNorth America and 24 manufacturing plants elsewhere in the world. Armcois listed on the New York Stock Exchange. l/

19. Armco is the fourth largest steel company in terms of salesin the Unitedl States. Its activities range from mining to the product-ionand fabrication of steel. The company manufactures various metalproducts, such as steel buildings, equipment for oil and gas drilling madrainage prodlucts. It has specialized in new steels, alloys and advancedmaterials for the aerospace and hydrospace industries.

20. The company uses nickel and ferronickel in its productiveprocesses, but the Sales Agreement will make explicit, FalconbridgeCanada's obligation not to give preference or price concessions to Armcoin selling ferronickel from the project.

D. Management Arrangements

21. Falconbridge Dominicana is incorporated in the DominicanRepublic, but the meetings of the Board of Directors and the annualmeetings of the company have been held in Toronto, Canada. At presentthe Board is lareelv comDrised of Falconbridge personnel. The President

1/ Total sales of Armco - $1.138 million in 1967. S1.375 million in 1963.

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and Chairrmn of the Falconbridge Dominicana Board (Mr. Marsh A. Co=oer).is also Presicdent of Falconbridge Canada. The Vice President, (Mr. E. L.Healy) is Ryecutive Vice President of Fa1reonhrir1e and is a member ofboth Boards of Directors. Falconbridge Dominicana's General Manager andTreasu:rer are both from Facrbig aaa

22. T l alconbriLdge Dominicana .ntr.int

Technical Services Agreement with Falconbridge Canada. Under this Agree-4.en F,al c onb ridL-ge Canalda tWi12l manage a~n'd sne)ii h cosrcinanrd

operation of the project facilities.

23. The management fee payable to Falconbridge Canada is US$500,00'Jper annum, comi,,ier.cing from the date of ll-e general conssruc ontract.

After production commences, the fee will be 1% of the revenue ofra±LonUi±L1'gLUge JU lullUaIZA lr irvi wie Ca±e U1 pIoUUcuts Uer-±veu IUSIJ UXL>

Quisqueya No. 1 Mining Concession, with a minimum annual fee of US$500,000.IFC staff considers that this fee is reasonable for the services to berendered.

2b. Falconbridge Canada and Armco will enter into a Sales Agreementwith Falconbridge Dominicana whereby the entire output of ferronickelwill be sold by Falconbridge Canada.

25. Falconbridge Dominicana will transport the ferronickel tostorage facilities at the Port of Haina and will load the metal intoships provided by Falconbridge Canada, which assumes title to and riskof loss once loading is completed.

26. Falconbridge Canada is to sell the metal at competitive worldprices and deduct transport costs and a sales commission of 1 1/2%. Theobligation of the sponsors to obtain fair prices is made explicit inthe Sales Agreement. The proceeds of the sales will be paid in foreigncurrencyr to a T'rustee (a U.S. Bank) appointed under a Current AccountsTrust Agreement between Falconbridge Dominicana, the Central Bank of theDominican Republic and Loma Corporation (a U.S. corporation through whichloans, other than from IBRD are to be channelled). IBRD w,ill be partyto the Trust Agreement.

27. The Trustee will make payments for all obligations of FalconbridgeDominicEina including authorized payments to lenders, trade creditors andshareholders.

28. The Sales Agreement and the Management and Technical ServicesAgreement are to remain in existence until all loan obligations byFalconbridge Dominicana to IBRD and Loma Corporation lenders are ful-filled. Falconlbridge Canada will then have the option to review thesections of the agreements dealing with production, sales and othercommercial matters.

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III. THE PROJECT

Intoduction

29. The project consists of the mining and metallurgical processingof lateritic nickel ore to produce ferronickel for sale on the worldmarket. Extensive supporting facilities including power generation,fuel pipeline storage and topping facilities, roads, water supply andhousing form part of the project. Power generation and atssociatedfacilities are discussed separately in Section IV since the proposedBank loan will be for the financing of the foreign exchange conponentof these facilities.

A. Mining

Exploration

30. Dominican nickel-bearing laterites have bee-n knowmn since thebeginning of the century. In 1918-19 a preliminary examination andsome sanpling was carm-ied out hv geologists of the United StatesGeological Su;rvey. A further survey by this agency in 1941-42 estab-lished the most pro-mising areas for fullscale

31_ In L!955 Falconrbridge geologists began a detailed geolopicalinvestigation and sampling program. The main ore-bearing areas were

saw le ;,rhpits a 100 eer 'Iaras and in -tain a.-eas at, 50 SmsetErintervals. Pitting was completed in 1958 and further sampling has^-nliriUeA us4Ing auger arda churn wu-u d-lng rLi fhUUb wruch fi iJaLte samplJngof the lower rocky strata.

32. Annex I tabulates the extensive sampling work carried out onthe ore deposits, and Tablel2 below summarizes the calculations of orereserves and nickel grades which have been checked and confirmed bySanderson and Porter:s consulting geologist.

TL-able 2; ORE RESMVES IN TIE QUISQuEM CONCESSION AKmA

JANUARY 1, 1968

Overburden Stripping Ore

No. of Dry Short Dry ShortArea Ore Blocks tons % Ni tons % Ni % Fe

Peguera 15 1479,000 0.81 17,987,000 1.64 19.6Guardarraya 7 1,683,000 0.79 11,173,000 1.52 19.2Caribe 11 3,162,000 0.85 26,058,000 1.51 -Guard Extension 8 305,000 o.84 3,505,000 1.54 -Fraser 5 666,000 0.83 4,118,000 1.55 21.2

Total 46 7,295,000 0.83 62,841,000 1.55 -

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33. The company's estimate of ore reserves as at JaLnuary 1, 1968~i3 bhefelt1oI O63 iiLl on dry sIhoLtb uu Uof ore avera1r L..5)5 ickl,

this is considered acceptable. These reserves are sufficient for about25 yez.rs at the proposed level of extraction, and continnuing explordtionwork indicates that additional reserves of commercial value are likelyto be proven.

Geology

34. The ore deposits are dispersed over the length of FalconbridgeDominicana's concession area extending in a narrow zone from sierraPrieta about :L2 km. north of Santo Domingo some 100 km. northwest toLa Vega (see Maps). The deposits of commercial value occur midway inthe length of the Concession on the area.s of high ground where weatherirnghas prDduced a lateritic capping on the ridges and plateaux. In placesunder this capping secondary enrichment has taken place.

35. There are two general types of material carrying economicconcentrations of nickel: the overlying layer of laterite containing35 - 50% iron and 0.6 - l.h% nickel distributed relatively homogeneouslythroughout; and the underlying layer of rock at various s-tages ofalteration, which is heterogenous in character with iron varying from5 - 30% and nickel from about 0.8 up to b% in pockets of :Local enrich-ment.

36. The depth of ore varies from 1 meter up to 55 meters, but theaverage depth is around 10 meters on the main deposits.

Minine Plan

37. The variable nature of the denosits reouires the adontion ofa flexible mining system, which will take into account the dispersionof the ore bodies the lnrge nnd rapid e-hanges in the plet'.tinn of theterrairi and the variations in the physical and chemical constitution of

38. Minino, will he oarrieRd oit hb rnonventionnl strin mining methodn

using large bulldozers equipped with riDpers. No drilling and blastingwill be necessary other thnn to lear occasional la.rge rock int- uions.The ore will be loaded into trucks by L4 yd. diesel electric shovelsfrom a. nu..ber Oe"4 face s u s to provide fo bPg Because

of the large drop in elevation between most of the mining areas and ther.l nv~+.Cc4 +- m +-,^,.r.r -.,4+1&, -, , ,, .

411 1,k. -,,A 4.-. W1,-

US,VW s W U%.-Ltd n . UW 6 ,lSaJ ; V WL n...,4,6

WUL.J J U VWS L-U.A

ore from the various faces to the ore dump at the plant.

39. Becauise of the wide dispersion of the ore deposits and theneesit t o work a nsum,ber of ore bodies _1m'nosy,asbttane~cessJ.-- J4J W.L~ A . LL tULIJL %.J U.~ UUU.LVO O.LMIU.L LK-LUMULU,.)L~y 9 , 0UJ ~UU I Usd L±j.LdJ

road building program will be an important part of the min:ing operationsover the first Lew years.

40. The mining rate required for a plant output of 63,hoo,000 lbs.per year of nickel in ferronickel is about 16,000 short tons of run-of-mineore per day. Two shifts per day will be adequate to handle this tonnageusing the proposed equipment.

B. Processing

hi. The Falconbridge process for the extraction of ferronickelfrom laterite ores was developed by Falconbridge Canada specifically totreat Dominican ores but also with a view to general application else-where. Certain aspects of the process are the subject of patent applica-tions by FalconbridPe Canadaj buit. Falconbridge Dominicana is to haveaccess to the process without payment of royalties.

42. Pilot plant work was initiated in 1959 on a site adjacent tothe m,ain ore bodies. Progressive experimentation established 1-mprovedplant designs and operating techniques until the stage was reached wherea sa'is kr p r- es s h,a d 'been. developed. ihes imrovements were in-corporated in a large-scale pilot plant which was commissioned in early-196,' and operatLled on a continuous "-as-'s unt-i1 thI'e er.d of 'gu 1968,

when it was closed down, having successfully fulfilled its objectives.

43. This pilot plant was visited in July 1968 by engineering staffof International Finance Corporation, who subsequently concluded thata satisfactory technical process had been developed to produce ferro-nickel from the Dominican laterites.

44. The Falconbridge process has a number of attractive featuresincluding: all of the ore deposit can be treated without the need forselective mining; the flow sheet is relatively simple,and marketaDieferronickel is produced without any refining steps; and the productionof atmospheric pollutants has been minimized and there are no harmfuleffluents to pollute rivers.

45. Processing consists essentially of three successive stages -ore preparation, selective reduction, and electric melting. These aredescribed in detail in Annex 2.

46. The ore is upgraded and blended by autogenous milling undercontrolled conditions. Milled and screened ore is stockpiled and formsthe prepared feed for the metallurgical plant. Ore preparation is carriedout on a two-slhift per day basis; the other operations of the plant willbe continuous, three shifts per day.

47. Ore from the stockpiles is fed to briquetting presses which inturn feed the reduction furnaces. Carefully controlled conditions inthe furnaces produce the required degree of reduction of the briquetteswhich are then transferred to electric arc furnaces for melting andseparation into slae and ferronickel. The ferronickel is cast intopigs for shipment.

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48. IThe overall recovery of nickel from run-of-mine ore toferr-onickel. is of the order of 81.5% and indicates an efficient process.

49. The plant site is located mid-way in the Concession area,about 90 kilometers northwest of Santo Domingo near the town of Bonao.These locations are illustrated in the annexed maps.

C. Water Supply

50. The entire water requirements of the plant and supportingfacilities are drawn from the nearby Yuna River which has a minimumflow of 60,000 U.S. gallons per minute. The company proposes to erecba cc,ntrol structure in the form of an earthwork or concrete dam whichwill direct a sufficient flow of water into an old channel of the riverthat runs alongside the plant site. This plan is being studied byAqueductos y Alcantarillados, S.A., a DoTminican company experienced inthis work.

51. A pumping station will be installed On thhe. old chan-nel witth apumping capacity of 12,000 gallons per minute, and storage capacity for800,000 galLons is provided. A water treatment plant filters and treatswater for the plant and power stations, and a separate treatment unitprovides dlrkinkig water. The pumping station and water treatment plantwill be included in the facilities to be financed by the Bank loan.

52. The make-up water requirements are about 6,00o gallons perminut o f W.hi rh about 4,000 are required for the power i'lant and thebalance for the process plant.

Ai. Transpor-t

53. Tit!o methods of traSr.port are used. The large 4' -' 0l of,eloil Xor the power plant and processing plant are transported by pipelinefrom a tanker unloading dock at the Port of Haina to storage tanks atthe site. Ihe port will have to be dredged from 25ft to 31ft alongsidepnie r t+o b e capabl, 1e o f b,e r thirn. g a '20nw,000A (4 4on ntan-r

54. Dieel oilsgasoline and ,,.iscellaneous s-upplies9 are 'ranspor'Le'dfrom Haina by road, and ferronickel is transported to Haina by road.

55.- The main road from Haina and Santo Domingo passes close to thesite, and a connection by a new access road and bridge over tne YuboaRiver is part of the project. The main road will be more than adequateto hasndLe thge additional traffic resulting from the proJect.

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E. Townsite

56. It has been decided that accommodation at the plant site shouldbe limited to a lodge, some single quarters and hospita]L facilities.Tne main housing for expatriate staff is to be provided by an urbanisationschenme at the local township of Bonao (about 6 kilometers distant), andsome 75 family homes and 38 single apartments are required. Negotiationsbetween the Government and Falconbridge Dominicana on the provision oftownsite facilities and housing are in progress, and it is anticipatedthat the company will contribute approximately $2.5 million.

F. Project Cost Estimate

57. Table 3 summarises the latest estimate of the capital cost of theproject:

Table 3: PROJECT COST ESTIMATE

US$ million

Mining and mine road building 4.0Producltion and service facilities 47.0Power plant 17.3Pipelirne fuel storage and topping facilities 6.2Access road and bridge 1.4HousingP 2.5Port facilities 0.2Freieht 3.7Engineering and construction costs 28.0Proiect administration 4.0

Spares 3.3_ont.inoenr 12.1Escalat,ion 13.3

Total construction cost i4.

Pre-prc,duction expenses 1[tInterest and financing charges Working capital 10-4 52.0

Total project cost 195.0

58 ApproYiLmately 3 millinn of' t.he tota.jl nipronc conq+ will bepexpencled in the Dominican Republic.

59. The estimate for the process plant and service faciLlities, preparedby,. he -consu14ti -n, -eers A^.1,Av UH+cUh ar.d Asocaia+e,s~ To"ror.+o is

based on quotations received for the supply of major iterms of equipment;bthee reaA.aindher ofn thee equip aaent costs plu3s installatior. and cors"+ructon

costs were established in accordance with sound engineering practice,

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using pertinent information obtained from supplies and contractors and theirpast experience with the construction of the two pilot plants. Estimatesfor mining and mine road building were determined in a similar way byFalconbridge. The cost of the access road and bridge into the plant sitE!was estimated bv the Comnanv's (onsultants. Marshall Macklin Monaphan Limitedof Don Mills, Ontario. The power plant estimate is described in Section IV.

60. 0bher installations were defined by company personne'l in accordancewith erperiencej cuirrent data where available and normal sond practice

61= The general corntingency allcnaence of $12. 1 million is' approxirmately10% of -the installed cost of the plant and other facilitieis. Price

eim4J.'l L -sL- h,as be et,n.atied at 4 - _per an.u.. givin4a total of $13.3 million from 1968 through 1971.

62. The detailed build-up of this capital cost estimate has beeniscusse d andU e.va]uated w £ U1 lc11dg i officials, an d4 4 -l;e .l - s

accepted as reasonable. Sanderson and Porter have also reviewed- lconbridgtjt U±, CoLiS c ruc Lu±u Costs aniu liave CuHIirujeu Laemm

to withiLn 1%.

G. Engineering and Construction

63. TLe primary responsibility for the engineering and supervisionof the project will lie with Falconbridge Canada's general engineeringdepartment. Up to the present they have contracted out the major workin design and engineering to a number of consulting engineers.

64. The mining aspects of the project have been the responsibilityof Falconbridge Canada. The production and service facilities have beencontracted to Atkins, Hatch and Associates of Toronto. Uther consultantspresently involved in the project are:

Scrgent and Lundy of Chicago - power plant

Pipe Line Technologists Inc of Houston - pipelines

Marshall Macklin and Monaghan of Toronto - access,road and bridge

William Trow Associates of Toronto - s6il testing

ILternational Water Supply Co. of London, Ontario - water supply

Ac[ueductos y Alcantarillados of Santo Domingo - water supply

All of these consultants are well qualified in their fields.

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65. Engineering work is at present about 2,5% " c0 pleted ar.d a num.beof bids for the major plant items have been received and evaluated.The a,ctual construction will be performed by a general contractor assistedas necessary by the various consultants. The main contractor,Brown and Root Inc of HoIuson Texas was selected fom bids receivedfrom four leading companies all with experience in the Caribbean area.I is expected tuba utie contracuor will ut on s±te wiJ.IALI nex

three months and in anticipation, clearing and drainage works havecommenced. The contractor will be paid on a cost plus fixed Lee basls.

66. Tne construction of the access road and bridge has been let toa local contractor, and is well advanced.

67. The project is scheduled to start up in March 1972.

H. Procurement

68. The procurement of the Bank financed facilities is beingcarried out according to usual Bank procedures (see Section IV).

69. The procurement of most of the remaining plant and equipment istied up with the proposed United States Agency for InternationalDevelopment (U.S.A.I.D.) guarantee of the other lenders and consequent]ybids are beirng obtained mainly from U.S. and Canadian suppliers. It isprobable that about 10% of machinery and equipment will come fromCanadian sources.

I. Personnel

70. The total number of persons employed in the Dominican Republicwill 'be 1,15C); an additional staff of 9 will be required in the HeadOffice in Toronto. Of this total, expatriate technicians or administrcativepersonnel wi]l number 81. Of the remaining 1,069 Dominicans, 411 willbe classified as unskilled although some may be doing work above thatof lalborer.

71. No diff'iculty is anticipated in obtaining the required number ofDominicans and Falconbridge will provide or recruit the necessaryexpatr,iate personnel. The pilot plant operations have provided anucleus of key personnel for the start up of the commercial operation.

J. Production Cost Estimates

72. The production program envisbges start up in March 1972 andadditional expense during the running-in period until June 1972 has beencapitalised. Cost estimates shown in table 4 are based on a normalyear.; oneration.

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73.

Table 4: ESTIMATED PRODUCTION COSTS

US$ % of Total

Mining

Labor 751,000 3.5O+her 93.-7 180 , 7.8

T 11 nf%^~~~~~' ~r' nVA'I~ 0Labor 5,35,0 2l4.UFuels 9,362,000 43.4M SL _- _ /.I -- _ I OUl1the rmater-ial anU supplies 2,67,000uu .4Services 1,659,000 7.8

Toronto office 198,000 1.0

Management fee 623,000 2.8

$21,538,000 10.0.0

Equivalent to per lb. nickel in ferronickel - 3l&.

7T. The important items of cost are labor and fuels, which togetheraccount for about 75% of the total cost. Labor costs have been conser-vatively derived on anticipated wage rates and a productivity factor ofhalf that which would be adopted for North American conditions. Fuelconsumption is based on the large pilot plant operations and on wellestablished rates for power generation and for earthmoving equipment.Costs are calculated on current market prices for fuel. T'he consumptionrates for other materials are also based on the pilot plan,t operations.The current estimate of annual operating costs seems soundly based andis therefore accepted as reasonable.

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IV. BANK FINANCED FACILITIES

A. Descrintion of Facilities

75. The proposed Bank loan will be to finance the foreign exchangeportioris of the thermal power generating station, a ninnln to tasport crude oil from the Port of Haina to the plant site and a toppingnit at the site, to convert +e crde in+o appropriate -ractions. A

portior, of interest and other charges on the loan due during constructionwoll-ld be irncluded as well.1 The_ power -sttir 4s to be 4integral p-4t-, ~ ~ W~.&.A* *J~ PWMZ Ud ~UJ.LL .LW O d IA U CLI~ ."1.± C.J_ jJOJ.u

of the project designed to provide power only for the ferronickel process-i.g5 pl-a.+.' and. ar,cl..L al e '.Jhe pJowe.Lr statCLo.L WLl opeat Uat'.LdAd' did

the same frequency as the domestic electrical power system, so that inter-conn.ection in uthe fu uwe is nou preci l j LUUde.

76. The thesrma1Ll pUower b ation with a capacity of 198 iVTw will consistof three 66 IAW turbo-generators, boilers and associated ecuipment, in-cludiung water supply and treatment plant. Ine generators are of conven-tional design, operating at a voltage of 13.d kV, 0.85 power factor,three phase, sLxty cycles and hydrogen cooled.

77. Each boiler, of the fully outdoor type, has a capacity of 600,000lbs. of steam per hour, 9500F, 1,250 psi, and is fired with heavy fueloil. Condenser cooling water is recirculated and cooled in heat exchangertowers. The overall heat rate of the thermal plant is estimated at10,750 BTU/kwnh, based on the boiler and turbine contracts. The outputof the power p:Lant will be transformed to 34kV for primary mine distribu-tion and operation of the smelter furnaces.

78. The pipeline has a diameter of b", is 44 miles in length and hasthe capacity to transport up to 5.0 million barrels of oil per year.The topping unit converts crude oil into fuel oil and higher petroleumfractions by volume ratio of 60 percent and 40 percent respectively,giving an annual fuel oil capacity of 3 million barrels, compared withan estimated fuel oil requirement of 2.5 million barrels, includingabout 300,000 for the ore drying kilns. Adequate storage facilitiesat Haina and the plant site would be provided.

B. Cost Estimates

79. The est;imated capital cost of the thermal station and associatedfacilities is shown in table 5 below:

*1!El- 15 -

iabe-u- 5: WnnIl CUDI linIirl

Local Fore!ignCurrency Gurr.ency Total($'000) 77-075) ($1000)

Tnermal StationCivil works 900 1,600 2,500Equipment 2,200 12,6100 lh,OuuEngineering services 150 2,300 2,450Contmingencies 50 80c0 _ 850

3,300 1,3,, O,u

Associated Facii'vitiesToFping unit 100 2,200 2,300Pipeline and storage facilities 500 3,400 3,900Engineering services 150 600 750Corntingencies 50 500 550

Grn -T /. 1U, ocvu 28,1

UVL1±ud mU £LL,UU\.) eU .LUU

80. I'he es-timated total cost of the thermal station and associatedfacilities amounts to $28.1 million with a foreign exchange componentof $2h.0 million, exclusive of interest. The Bank loan would financethiS Z'lt.O million and a nortion of interest; estimated at less thanhalf that which will be payable during the construction period.

81. The estimate of the cost of the thermal station was prepared bySargent and Taindy of rhicago c-nsuling engineers for this part of theproject. As virtually all of the contracts for the thermal plant havennw beehn placed on a firm. price basis the -onntingencyv allowance includesonly a nominal amount of about 5 per cent. The unit cost of the thermalstatioin is $103 per kie uohich is w-el below average for a plant of this t rpeand results from the favorable contracts placed.

82. T7he cost estimate of the pipeline and accessories uslit was madeby PplreTecbnol ogi4sts T-c, Houton Teas - h - re vh. nineso

this part of the project. This firm operates on a world-wqide basis andi;s hi.;g}'y -Aeie e so 4that 4-he estimate,- based on s veys fPor theik.L~ ~~LLj y experiencied.L~ ov b1m.v U1 th .LJL&V. , ~O ' iJLA 01U g.Y V .1 'J lU11

routing, should be adequate. An amount of 8 per cent is :included for

03nting ordcer to meet th schaedule in Spite of delaysaireaching final financial agreements, expenditures for engineering servicesof -up lo $1 million, and for equipment of -up to $0.5 mill:on are beingincurred prior to signing, which mould be eligible for reimbursement.

84. Disbursements would be for the CIF cost of imported materialsand equipment required for the project ana for the Iforeign exchange cos tof civil works and engineering services, together with up toUS$1,Ci00,000 for interest and other charges. if, at such time as projectconstruction is sufficiently advanced to indicate there may be surplusfunds to any of these requirements, consideration woula at that timebe given to disbursing them for other categories.

C. Operating Cost - Thermal Flant

85.. Crude oil (Bunker "C") is estimated to cost $1.70 per barrel($Il.5O per ton) CIF Haina, with an additional $0.05 per barrel,repreEsenting the operation cost. The total delivered cost of fuel oilto the thermal plant amounts to about $0.28/million BTU and is reasonablylow priced.

86. The cost of fuel will amount to about 3 mills/kWh and operationand ma.intenance charges will add a further 1 mill.

D. Power Requirements

87. The metallurgical plant comprises three electric meltingfurnaces (Annex 2) taking a total of 120 MS under normal operatingconditions and a holding furnace and ore preparation facility requiringan additional 30 MI. The estimated peak demand is 172 MI. Total annualenergy consumption is estimated at 1.22 billion kWh giving a load factorof 81 per cent.

E. Engineering, Procurement and Construction

88. Economic and other considerations dictated that the thermal plantshoulcd be located at the site of the production plant and the fueltransported by pipeline.

89. Equipment and materials for the thermal plant and associatedfaciliLties are being purchased on the basis of international competitivebidding excent in the case of minor items for which such bidding wouldbe impractical. The general construction contract has been awarded toSociedad Venezolana de Electrificacion G.A. of Venezuela. followinginternational competitive bidding. There are separate contracts forthe nurchase of other maior comnonents of' ele.trinal eqpmrnent, for thefabrication and construction of the pipelines and of the topping unit.

90. The schedule calls for the placing of most orders during 1969and full-scale operation of the pnwer plant by the end of 1971It is likely that most, if not all contracts, for the thermal plant,

as this was necessary to meet the schedule.

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v. THE MAR KeT

A. General

91. The principal use for nickel is as an alloy element in wroughtand cast steels and non-ferrous alloys. When alloyed with othermeta:Ls it imparts strength, toughness, hardness and ductility, togetherwith resistance to oxidation and corrosion. Despite reSearch overmany years to find a cheaper and more plentiful substitute, littleheadway has been made.

92. Although the use of nickel is widespread throughout industrialisedcountries, almost 90% of the non-communist supply is produced bythree Canadian companies and a company operating in New Caledonia,due to the fact that the principal nickel deposits that have beenuntil. now exploitable commercially, are located in these two area9of the world.

93. Primary nickel is traded in three main forms - reiined metal,oxide and ferronickel. In addition, a considerable quantity ofsecondary nickel is recovered principally from stainless steel andnon-ierrous alloy scrap. The major consumer of nickel is theIJnit.ed States whieh anrniints fnr about )40% of the total nonsumotionin the western world.

9h. The principal companies engaged in the mining and processingof nrnima'ry nickepl nre Tn+.trnati ona1 Niclekel of anndai (bh faqr the

largest), Falconbridge and Sherritt Gordon, also of Canada, Hanna Miniagof the TTni+edQn+ Stte an Te NNick01 ofP New rCaledonia. =5)6 estimate

produLCtion of these companies was:

million lbs.

International Nickel lt80TLe IEJ;1.UIi.kel 8Fa-Lconbridge: ;; 72

Henna Mining 26

95. The major consumers in 1968 were:

milliLon lbs.

United States :320Europe (including UK) :317Japan 129Canada 22

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B. Consumition

96. Nickel has many import-ant and vnried nses hit by fnr the largestquantities are used for the production of ferrous and non-ferrous alloys.Table 6S shows the distrhiuti+n of' Pnd-ge averaePd fr fr +nh neriod 1998-67.

Table 6: DISTRIBUTION OF END-USE OF NICKEL

b. Alloy-steel - wrought 13.0c. Ir-on and steel cast-ings 11.1

d. Electroplating 15.6e. NiJ.cke.l al.loy ''.94

f. Copper alloys 4.0g. OJhE' Wr tuses 79.

Y9. The nicKel consumed for tne various end-uses can ce dividedfrom the application aspect into two product classes. Class I includeselectrolytic nickel and other pure forms of nickel and nickel salts;Class rI includes ferronickel and nickel oxide.

98. End-use categories d, e, f, and much of g, require Class Imaterialis for reasons of production technology. Categories a, b and c,which account for about 57% of total consunmption, can use either ClassI or GLass II but are tending to swing to the latter since the unitcost is lower.

99. Most of the above uses have good growth prospects. For example,the use of stainless steel is increasing steadily in important manufac-turing industries, including automobiles, aircraft, domestic appliancesand building. The use of low and mediumn alloy constructional steels isincreasing at a rate of growth considerably above that for steel as awhole. Space-age superalloys also promise an increasing requirement fornickel. The excellent corrosion-resistant properties of nickel electro-plate should aLso assure a steady, if not spectacular, growth area.

100. Because of the relative scarcity and high cost of nickel, metal-lurgists have for many years carried out research with a view to develop-ing alLoy compositions in which nickel could be replaced by cheaper andmore p:Lentifu]. elements. So far however, only limited success has beenachievted. In some applications such as high temperature alloys for gasturbines, substitute materials impair performance; in othiers such asalloy steels, the possible substitute elements like molybdenum,vanadilm or chromium may be in even more limited supply. In certainstainlless steel compositions, the technology is proved for substitutingabout half of the nickel content by manganese; however, a real incentiveto make the change has so far been lacking. At this point it does notseem likely that substitution of this kind will result in any seriousrp.,ine1t.-inn ir, tl:p. 4,-_mqnri fnr ninkpl.

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101. World conRumntion of nrimarv nickel has grown eLt an averagerate cf 6% per annum over the period 1947-68. Total consumption whichr_ehd npe of Sin million Ihb in 196h. fell to 810 million lbs. in1967, and was expected to reach about the same level in 1968. Thisapnnrtmntlu q-..ntie- th?-pp_vpy.r nprid was nrofoiinidlv affected bvydficiencles

of supply and in 1967, 40 million lbs. was made available from the U.S.stoc4rrile- W<lcon.hridge Canadn, on the basis of nvnilahlpe market inform-ation, forecast that consumption will continue to increase by approximately6 = 7% anr.nually to about 1.2 billion lbs. b'y 1Q75 This estimate gnsumnsthat the utilization of secondary nickel will increase proportionately.

102. Taking into account the dynamic nature of the end-usingM =Q4 W 1.L. '.f VLF U V I .L 'i UAL~ 6 U ~C'V ~ 'v -

rate cf growth is a reasonable assumption.

J * o UIJ,J.,y

103. lnnex J gi-ves details of the historical pattern of supplyover the period 1955-67 in terms of mine production of recoverablenickel, and FalconDridge's forecast of possible future production forthe period 19,68-75.

104. The following points should be noted with regard to thesefigures. First nickel production over the period 1955-67 has beenconsistently Less than reported nickel consumption. The reasons for thediscrepancy !ie in purchases and disbursements by the U.S. stockpile;imports from Communist countries; and changes in consumers' inventories.Thus past experience shows no indication of over-supply of nickel,even for short periods.

105. Secondly, in many cases, the ore mined is semi-processed at athe mine site and refined at another location. For example, some of thematte ! produced by International Nickel, and all produced by Falconbridgein Canada, is refined in England and Norway respectively, and matte fromLe Nickel in New Caledonia is refined in Canada, France and Japan.

106. Thirdly, there is considerable difficulty and uncertainty inattempting to forecast future changes of nickel production, since notonly the deveLopment of existing mines is involved, but also the open-ing up of undeveloped newly-discovered or as yet undiscovered deposits.

107. The forecast is based on many published trade reports, informa-tion obtained from Government departments and other sources of intelli-gence concerning the development of nickel deposits around the world. Ethas to be recognized that plans to develop deposits may change betweennow and 1975 but this is not calculated to influence unduly the supplypicture. W,hat might upset the balance later is the exploitation ofdeposits not yet discovered or proved. However, this factor could notbe expected to make a serious impact before 2975. Annex f briefly

1/ Unrefined nickel sulphide

- 20 -

descri.bes the naJor developments that have been taken into considerationin making the forecast.

108. Over the last few years the picture has consistently been ofa supply shortage that may well have restricted potential] consumption.Consicderation of the probable future supply/demand position indicatesthat sun approximate balance is likely to be- achieved up t, 1975;especially if it is assumed that mine production will not exceed 90% ofprojecrted capacity. IyWTevertheless1 delays in opening new deposits - anot unlikely possibility - may mean a continuation of the tight supplysituation for a year or ta,i w. In d virtiua In trol of nickel

mining rests with three or four large producers, which suggests that newipr-.flJ wilI be developeA at a rate wV"Lnjch.,L wllj aVoid a se-riou9orer=

supply situation.

UD Prospects Lor £Ferronicke.LLA.

.LU7 r* .L "e broad pictUare oJ spply anu GENU,an f'or nickel, the

particular case of ferronickel is of special importance.

ULO. The development of ferronickel production for the years 1955-1967 is shown in Annex n.. Growth which has been rapid and relativelyconsistent over the period, averaged 15% per annum. This is more thantwice the rate of' increase of total nickel consumption for the sameperiod.

111. TabLe 7 below shous Falconbridge's forecast of world productionof the different types of nickel product.

Table 7: PRODUCTION OF NICKEL

1966 1970 1975

Class II

Ferronickel 19 19 29Nickel oxide _5 20 17

34 39 46

Class I

P1ure nickel and salts 66 61 54

100 100 100

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112. The sharn increase in the nronortion of ferronickel hetween1970 and 1975 is due to the unit cost advantage of ferroriickel as com-pared with pure nickel. and to the intrrPa'dr1 avniuI ility of ferro-nickel. Whereas it is forecast that 39% and 46% respectively of totalnickel produced *in 1Q70 and 1Q7n 711will be Motas TT m*rin, thepotential maximum consumption from the technological aspect is of the corder

11~~ TI-*+~I.AA1. ------ A 1.v

IFC, that the supply and demand situation for nickel up to 1975 will bereasonably Jir. ---- baarc ar.d -4-4 poe.tia der,,JLL&PJCLJ%~ LAAULL PJWA.C4 LUan.d fPor fLerronicAc'sl mlay,

perhaps exceed the available supply.

E. Il.r11ybketing ald Price

1'w.4 ralconbridge Canada will contract with Falconbridge Dominicanato purchase the entire output of ferronickel. Falconbridge Canada hasa worldwide saues network in nickei and other metals and is experiencedin this business, so that it can be reasonably assumed that the salesorganization vill be adequate. During the period 1964 - 1968 the pilotplant :Droduction of ferronickel has been sold to a large number of steelmakers in North -nerica and Europe in order to test acceptance. WIrittenoffers have been made to a number of consumers undertaking to deliverspecific quantities starting in 1972. Favorable verbal and writtenrespon3es have been received, and within the limitations cf the deliveryand purchasing intentions expressed, it may be said that 150 millionlbs. amnually (or about 80% of the projected output) has lbeen tentativelyaccepted on the market.

115. Unde!r the terms of the iCanada will take delivery of the ferronickel, FOB vessel Port of Haina.The realized value of each shipment will be the CIF sellinlg price ofnickel contained in the ferronickel received from buyers in the UnitedStates and Europe. Under this Agreement the estimated ne-b FOB priceused in financial projections of this report is 98.26 cents per lb.after deducticns for sales commissions of 1.5% of the market value lesstransportation costs.

116. Sales will be made according to competitive commercial terms,without special concessions for any purchaser including AiRMCO.

117. The price for cathode nickel in the western wor:Ld has risensteadi]y over the last 10 years from $0.7h per lb. in 1959 to $l.03 in1969. There is little reason to expect a decline in the f!uture in viewof the rising costs of production in Cnnadrin mines and the fct that.serious over-supply is unlikely for the next 5 years.

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VI. FICINGi P-LAN AND FINANCIL PROSPEClT,

118. Projected Income Statements, Sources and Application of FundsStater,lents and Balance Sheets of Falconbridge Dbmini cana, FalconbridgeCanada and Armco are attached as Annexes 4 through 6.

A. Proposed Financing Plan

119. The total,financial requirements for the project are estimated1at $195 million. _

120. The proposed sources of the project funds are:

Source of Funds Amount of Fund.s %US$ Millions

Equity investment 15 7.7

Subordinated debt 34 17.5

IBRD loan for power plant and relatedfacilities 25 12.8

Medium-term commercial banks' term loanfor treatment plant and working capital 41 21.0

Long-term private institutional loans fortreatm.nt plant and working capital 80 41.0

195 100.0

121. Eq-uiuy u ue vai-ue OI 5,5)5 miiilon is tne amount, or issuedstock of Falconbridge Dominicana. An additional $34 million of sub-ordinated loans is to 'be made available by the sponsors as quasi-equity,resulting in an effective debt to equity ratio of 75:25. The subprdi.neted loan,are to be preided by the three.U.Si-insurance companist%that are-provd:Lng t:,?-long-term loana. The debt is subordinated fQr repayment and security and wirank after Falconbridge Dominicanais other borrowings. However, it willbe guaranteed to the insurance companies by Falconbridge Canada and Armcoin the proportion of 60%u and 4u$. Subordinated loans will, have a term of22 years withl? year grace period at 81-% interest.

.L PrCject cost estimate is shown in Table 3.

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122. IBRD has been asked to provide a loan of $25 milli:on towardsfinancing the foreign exchange costs of the power generation facilities,pipeline and other ancillary services, which are estimated to cost$33 million. The loan which will rank equally with the senior loansfrom banks and institutions, will be senior in security to the subordi-nated debt and will be made directly to Falconbridge Dominicana. Theterm of the loan is 15 years with a St years period of grace.

123. Falconbridge Dominicana proposes to repay the IBRD loan withsemi-annual equal-payments of principal which returns thet bulk of theloan funds to IBRD earlier than the normal level line met-hod.

124. Long-term loans of $80 million will be provided by the followingcompanies in the proportions shown:

M4etropolitan Life Insurance Company - 60%Equitable Life Assurance Society - 20%Nlorthwestern Mutual Life Insurance - 20%Company

125. The repayments on the principal commence in 1976 and the loansmature on June 15, 1986. The interest rate is &A%, payable semi-annual:Ly, and, the commitment fee is ½6_ of 1%. The loans will rankpari passu with the IBRD loan.

126. Medium-term loans totalling $h1 million are being provided bytwo banks; the First National City Bank will lend $21 mil:Lion and theCanadian Imperial Bank of Corinerce $20 million.

127. Repayment of the commercial bank loans commence in 1972 andthe loans reach maturity on June 15, 1976. The rate of initerest is8% and the commitnment fee is ½ of 1%= The nommPercial bank loans willrank pari passu with the IBRD loan and. the $80 million loans from theinsurance companies, and will have a term of 7 years including 21½ yeargrace period.

128. Falconbridge Canada and Armco also agree to provide all additionalfunds needed to com-plete the nroieAt in the event of cost overruns.Such additional funds will be provided on the same 60% to 40% basis and.there i.s no liimit to the amount un to a time limit of JanLarv 1, 1974.In case completion is not feasible or the sponsors decide to abandont+he project the sponsors undertake to repay pro rata the unnaid balanceof the Bank's loan.

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129. Interim financing during the construction period wAill be providedby the co-mmercial banks, which will establish revolving credits up to$55 million. Falconbridge Dominicana will use the credi-ts to meetpayments between drawdowns of long-term institutional loans, and thecredits will cease with the final drawdown on December 3:l, 1971.TLhis procedure does not apply to payment for constructioni and plantfinanced by ]:BRD. The company has established tendering procedureswhich satisfy requirements for IBRD disbursement.

130. U.S. A.I.D. will provide investment guarantees to cover risksagainst inconvertibility, expropriation and war, revolution and insurrectionon Arrnco's equity subscription and on all loans othler than the IBRD loan.

131. In order to be eligible for U.S. A.I.D. guarantees, the sponsorshave organised a U.S. based financing corporation (Loma Corporation) towhich the loans of the commercial banks and the private institutionallenders and the subordinated debt will be made. The IBRI) loan will bemade clirectly to Falconbridge Dominicana.

B. Financial Prospects

132. Falconbridge Dominicana is expected to be in production inMarch 1972 and to yield profits for that year. The expected profitsin the first five years of operations are shown below.

Table 8: FALCONBRIDGE DOivIfICANA PROJECTED INCOME 1972-1976- - ~~~~~(uss'ooo)

1972 1973 197h 1975 1976

Net Sales h61-72-r 62.300 621300 62 3cio 62?300Ccst of Sales i6'i53 21,538 21,538 21,538 21,538

Operating Profit 30,572 40,762 40,762 40,762 40,672Depreciation 13,669 18,765 19,744 19,265 19,287Interest Charges 12,403 15,997 1h,995 13,901 12,807

Profit before Taxes 4h-500 6,ooo 6,023 7,596 8,668Income Taxes 19485 9980 1,988 9,50r7 2,80n

Net Profit n - c1 4 5

- 25 -

133. The financial projections (shown in full in Annex 6) indicatethat the net profits will be about $4 million in the early years of theproject and w ll have grown by 1980 to more than $8 million. Depreciationallowances (10% per annum on $180 million of the investment and5% per annum on remaining $15 million) will be substantially exhaustedby 198L and subsequent annual net profits range upwards from $18 milliorn.These profits are estimated to exceed $25 million annually after 1989.

134. The yield of the investment to the company is the after taxprofits plus the interest on the subordinated debt for each particularyear on the total of the equity and quasi-equity. For the first fouryears of operations the yield averages 16.1%. The yield in 1976 is18.3% and increases in 1981 to 24.3%. Th re mainr dpnrecia-tion allowancescease in 1982 and yield in that year is 44.0%.

135. The discounted present value of the investment is 16.8%.

136. In each year income from operations and depreciation allowancescreate sufficient funds to meet the debt servicing requirements of thecompany. In 1973 the portion of debt due for repayment in that year iscoverer- 2.01 times b,ty available funds, and in the three subsequentyears the projected coverage averages 2.1 times. The repayments of thelsrncei"nnr-m co..panies loans - 4.nCp in 1076 and av-Iable f'u.nds in the

five subsequent years are expected to cover debt repayments 2.6 times.ine fAne ox fu6. ds statement which re"ates to debt repaments is s ,win Annex 6.

- 26 -

137. The flow of funds indicates T+at the period !Th(in w h +he costsof the entire investment are returned to the sponsors is 71½ years from

I ?.T0 A4-,p4n - A Ann,, 4-l

that, apart from an unspecified reserve and minor reinvestment, all sur-pls iAunds whue oVII LrtL1d.Lng, fLro, operationsLLS or fror,. de,preciation,

allowc.nces would be distributed as dividends. The tables showing returnsto %1 JtJUe! L±L1L.cdaL UUV;tuLlUtI hacLve biteei UcldaULUtedU Uon f,his- basis.

C. Debt Servicing Guarantee

139. Alth-ough Falconbridge Canada and Armco are assured of A.I.D.guarantee against inconvertibility, expropriation, and war, revolutionand insurrection and have the protection of force majeure clauses, itmay become necessary for them to assume debt servicing (see Section VIII).Their ability to do so is demonstrated below.

Falconbridge Canada

140. In the period 1964 - 1968 the annual sales of FalconbridgeCanada have increased from $74 million to $97 million, which is anannual growth rate of 7%. Gross profit on sales have averaged 39% overthe period (see Annex 7).

141. Annual net earnings after tax of the company have ranged from$22 million to $25 million over the 5 year period with an annual averageof $23.9 million. Net earnings after tax in 1968 represented 22.7% pro-fit margin on sales.

142. Since 1965 Falconbridge Canada has spent $100 million on majorexpansion and modernization projects in Canada and Norway. Furtherexpenditure of' $180 million will be made on plant and mines in theperiod 1969 - 1975.

143. In its investment program Falconbridge Canada has seldom usedloan funds. Short-term loans from banks in December 1968 were $25 millionbut there werei no substantial long-term debts. The short-term creditwill be retired in 1969 while a small continuing mortgage relates to thefinance of company housing. Capital required for expansion after 1970 isgenerated entirely from internal sources. The debt to equity ratio wasat a peak of 17:83 in 1968 and is expected to be 0.1:99.9 in 1970.

144. The company expects increases in profit of about 30% annuallyun to :1970 as new projer-ts hPeGOm onprative Higher depreciationcharges lower the net profit after 1970, but total funds provided fromorprn+a:nnL nare, conicstz+.en+.tl abnhaver tA T4nmllieonn in ^ vaor frrom 1970-

- 27. -

145. Falconbridge Canada's projected funds are sufficient to coveriL US 0 li/O aCLULLiyU Fa U.L Mconbridge £LL1irc bL1 y '4.) t,.ir,,es in L79J7 adIU LJ'y

2.0 times for the whole of the first six years of operations. In addition,over the sa!t( period, the comJpa-ny canLLaintain the payrt,eat of dividendULat the current rate.

146. The :Loan potential of Falconbridge is considerable as borrowingsare negligible after 1970. The company nas tne financiali capacity toborrow4 and service up to $260 million, which is $150 million in excessof the whole of the company's 60% liability to Falconbridge Dominicana.

147. It can be concluded that Falconbridge Canada has the financialability to meet its part of the debt service guarantee included in theSales Agreeme!nt.

148. In the Ancillary Agreement between First Nationa:L City Bank(acting as Trustee for Loma Corporation), Falconbridge Canada and Armco,a deblt limit of 45% of consolidated net tangible assets :is to be imposedon Fa:Lconbridge Canada. This is a debt:equity ratio of about 31:69,and this restriction is more than adequate to protect al:L lendersincluding IERD.

Armco Steel Corporation

1)49. Since 196)4 Armco's annual sales in the U.S. and Canada haveexceecled one billion dollars. Sales outside these countries are madethrough subsidiaries. whose profits are included only as dividends paidto Arnmco. Sales in 1968 were $1.4 billion and 10% higher than salesrecorded in 1967. Gross Drofit on sales averaged 23% from 1964 through1967, but declined to 21% during 1968. With extensive modernisation thecomparny expects a substantial lowering of production costs and increasedproUtits from 1969.

150. Annual net earnings of the Corporation have averaged $83.8 millionsince 1964. In 1968 net earnings increased to $88.9 million, and were$17.L4 million higher than the previous year. This conforms to thepattern of increased sales and higher cross Drofit recorcled for the vear.The nEt earnings figure for 1968 represents 6.h% profit margin on salesafter n1llow2nre fnr tn-r

11. In 196A4 the cormpany e.mnbark.ed npnn an fl+ensi-v expanqion nrlmodern,isation program which to date has cost $650 million. In additionloca'l ;mini-rn1 i+.1in m- =v,rnr.dinr7 53 mrillifn or. fan 1cili+tie whlic-h are

to be leased to the company upon completion in 1969.

152. Long-term debt of Armco at the end of 1968 was $241 million,while current leasing arrangei,,ents with the Ohio .m,unicip-1ites addeda

contingent liability of US$199 m,illion. The long-term debt:equity ratio.LS )L41 Ur. UrLen' "liabl es are h L±U iigh anA 4the total debt:eq-uity raio

is 41:59. These liabilities are well covered by current assets and the±iI4uidiU±t ratio waC.U 2 t. bUItnU Ue of1U96, aLUILUugli preJL'tViUUs ye

- 28 -

it was in excess of 3.0. The ratio of debt to equity has been risingeach year since 1964 with the increased borrowings for the heavy invest-ment program, but is expected to decline after 1969.

153. Armco future nlanning is based on a 5 year financial plan,(shown in Annex 8) which extends to 1972 and estimates beyond this dateare not available.. The coiupann predifts a ilC increase in earnings eachyear w:hich together with depreciation of the new equipment, create arapidl;y incre-sing, cash flowTT. Cpital expenditure is to continue at ahigher rate but only in 1969 is extensive recourse made tio loan financing.Bevond 1969 c-ash flow is sufficient for ca t>al expenditure, repa,Trent sfloans and dividends and should still yield a large surplus. The cumul-ative surplus in 19 ic e.ected to be four tim.es Amco'^s contingentliability for 40% of Falconbridge Dominicana's debts.

154. On the assumption of a 50:50 debt:equity, Armco has a currentborrowing capacity of nearl US$1 billlon, which is $300 ri-llion hithan the present level of total debt. Annual earnings are sufficient toser vice debt Increases of this magnitude. I necessary, Artco has thecapacity to raise sufficient loans to service its liability toF ' ~LconvDr-' dge Vomr,Linicana.

155. It is apparent that Armco has the financial abiiity, in bothearnings capacity and loan potential, to meet the 40% debt; servicingguarantee, should it become necessary.

156. The institutional lenders to Falconbridge Dominicana have notimposed. debt restrictions on Armco, but the parties have agreed thatreasonable debt covenants will be applied should Armco take over itsshare cf the senior debt in the event of default by Falcon.bridgeDominicana.

D. Concessions and Incentives

157. Concession arrangements between the Government of the DominicanRepublic and Falconbridge Dominicana were re-examined recently andagreement was reached in June 1969. A memorandum of agreed stipulationswas signed on June 15, 1969 by President Balaguer and M4r. Marsh A. Cooper.

158. The efi.ective tax rate on profits of Falconbridge Dominicanais to be 33% with no reduction for depletion.

- 29 -

159. Depreciation on the $15 million equity investment is to beallowed over 20 years and depreciation on the remaining costs of fixedassets is allowed over 10 years. However deDreciation will not becharged in any year if it reduces the taxable profits below $6 million.Depreciation disallowed in one year can be charged fully or partlyin any subsequent year, subject to the taxable prof'its in that yearbeinge above the minimum.

160. An income tax of 18% is to be withheld from dividends paidto any foreign shareholder of FaLconbridge Dominicana, subject to thetax being allowed as .redi t or deducti on against the shareholder'staxation in his home country. At the moment this tax wouLd probablyapolv to Uriited States sharehol ders. hut not to Ganadian.

161. Falcoribridge Dominianan will n2v an anniiua fee of 114on the outstanding balance of the IBRD loan to the Govermnent of thenominic-an Republic for guaranteeing the loan.

- 30 -

VII. ECONOMIC BENEFITS

162. The proposed project would be the most important industrialundertaking in the Dominican Republic and would represent the largestexternal invesftmPnt in any singRle nroiect to date including those whichare currently under consideration. It would tap a potential source ofnati ona:1 weal; which hit±herto has nott hbn e,xnloitefi and because ofthe nature of the ore cannot be economically exploited without specialProcess1n g whno ch reqTTires considernhle outlay and t.echnic1 expnerience.neither of which could be supplied from domestic sources. The projectrwvould prode+. +bni tth ncnorm o,f' tfhe. coirntrv in vuarious fields.

1- ----- -…- 1 - - Lo . -h - e- n -V

163. qhe GNP of the Domini can Republic inl,63 was aToundl U$ 1.1 billion,of which about $187 million represented gross investment. The operationsw . C L E O .L | us; Qt >wu % > u V~4. y IiI y.LU1L s I ws L' JA 1 , J U U A i5

the construction period, increasing total investment above the 1963i baseby some 12 p~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~erer.. ThL'e viarious ecor.omic benefits e.x ete to accu to

the country ares briefly discussed in the following under three aspects:Ia) gains in .oriL± idLa,, (b) fiscal bets; (c ---JployII,ent a.I.

other indirect benefits which cannot be easily estimated at this time.

Gains iL Foreian Exchanr-e

164. Tables in Annex 9 estimate the net generation of foreiign exchange,which consist amainly of construction costs (both ori,4inai aWnd subseL-ueU.-),

operatin; costs, corporate taxes and dividends on shares held by Gov-ern-ment. Construction and operatingr costs incLude the costs o^ purchasingland, local materials and employment of local labor. The corporate taxie;)resents 33 percent on the tax-able income of Falconbridge Jo-nicana.The latt;er is affected by depreciation over 13 years *if the tutal costof fixecL assets and over 2, years of the pre-operating expenses. Di-Videndswould be received by the Gcvernment on its hcldings of 9.6 percent of thetotal outstandin7 com-cmon shares of Falconbridge D,minicana.

6. Durin- the period 1966-1966, the value of exports from the Do.mnicanR.epublic averasedi P152 iaillion. The average annual value of exports offerronicKel, beJinning in 1972, would be $462.4 million.

Lo6. Total net foreian exchange generated by the project range from 44.3-rillion to over $11.7 million a year from 1969 through 1981, except for1970, the year of most intensive construction work, when it will bearound $16.5 million. From 19d2 onwards, i.e., after the tenth year ofoperatio:a when the depreciation allowance comes to an end and the cor-,:orate tax increases substantially, total net foreign exchange receiptswill ranige from $16.0 million to over $21 million. The grand total offoreign exchange generated between 1969 and 1991, i.e., over a 23 yearperiod, :Lncluding 20 years of operations, is estimated at $325 million.

- 31 -

167. From the point of view of foreign exchange benefits, the 23years covered by the estimates can be divided into three periods.During the construction period (1969-1971) there will be a largeinflow of foreign exchange, concentrated, according to present plans,around 1970. This neriod will be followed by 13 relatively "lean"years when depreciation and interest payments cut deeply into taxableinnnom!s. Finally; from 1982 onwards; taxes ani cnonsoillentTv foreignexchange receipts will pick up considerably.

Fiscal. Benefits

160. Annual fiscal revenue of the Dominican Government since 1905 has'~tTlflOn 1 71. ' ll p- nnn, n e n,

4n no o-, 4r A n c ,n. n o

0.e e $1,705 '-L 9. l;on. -L aS-.er.ts or.J ncome %.L V .J.A.a.. genera+ed

by the project would add between 1972 and 1961, an average of $3.3mill4on per annum , and ng. thAe subseq-ent I 1 years, a yearly a-r-rageof $12.2 million. The grand total of tax receipts from the project up4.A ±1 7±' WUU±U. U' V4J± - -1-i±±±±UtIo 1991 wouldU bue $1,5 r,illuio.

169. In adoit;ion, there woUld be dividends accr-i ng to the GoverriUfe±.tas shareholder of Falconbridge Dominicana. Between 1972 and 1991 annual.dividends would range from $0.6 million to $2.3 million and would average$1.5 million. Total dividends would amount t.o over $2d.9 million. In theestimated Total Government Revenue, shoam in Annex 9, dividends are cal-culated on the assumption that all cash surpluses are dec:Lared as dividendsduring the twenty year production period. Moreover, nickel prices areunlikeLy to remain constant during the period under consideration and anincrease would. probably exceed labor cost increases as the project employslittle labor relative to its size.

170. IL mnall amount of annual revenue is gained through the guarantee feefor the IBRD loan which is calculated at 1 1/2 percent of the outstandingamount of the loan. The annual amount is initialAy about $0.4 million,but decreases as repayments are made, and amounts to $3.7 million overthe term of the loan.

Indirect Benefits

171. There would arise from the project a number of further quiteimportant benefits to the country which, however, cannot be very wellestimated at this time. They are briefly summarized as follows.

- 32 -

172. The project would help to diversify the local economy which islargelr agricultural. In the field of mining. at nresent the onlv maioroperat-Lon is the export of bauxite by Alcoa, although several othermining onnes, ions have been granted and some prosnpeting is goine on.Apart from being the largest mining and industrial venture, the projectwouldf r st+.imil na+t +.the rowt7rF.h of' smanl l Pr subshci Hi ary i nrd1u.stri e3s nsuch ascement,, woodworking, etc., as well as service industries in the projectarea T+ It vld thus lead +o an econom c upr ng of a . dn ofthe couLntry in wihich multiplier effects of the new employment would be

.L~..L W.

J17 . For aL %coUL1 Lt.Y sU.L.LVf L f1ro L .LVII. LA4oJ.LA' unJA e..p lSl--

employment, between 1,500 and 2,500 new jobs during the constructionpe-Loud andu arounu 1,000 em voyees thereafterv a±re of consiLcera'D'e -mport-

ance. Apart from the generation of income for those immediately con-cerned, this additional employmen wo-uld also lead 4o various revenuesfor the central and local government from income and businLess taxes.

174. Finally, there will be in the country an increase in technicalSKills due to the training of Dominican staff as geologica3L, cnemical,mining, electrical, administrative, etc. operators.

VIII. PROTECTIVE ARRANGEMENJTS

175. The protective arrangements for the financing of FalconbridgeDominicana eccur at two levels; protection of the loans an,d protectionof onerational cemmitments._ The Bank has to be satisfied in relation toboth arrangements.

176. The loan from IBRD is to be guaranteed by the Government oftbha D1min-iicnn. Paroiinr- TLons from other :n,1rrqes will be guaranteed bvU.S.A.I.D. against specific risks mentioned previously.

177. Loans from IBRD, the commercial banks and $80 million of loansfrom the insura nce onmnniPs will rank equally and will be senior to the$34 million of subordinated loans supplied by the insurance companiesand guaranteed by Flor.nbiridge Canada and A-rmeco against eommercial. butnot political risks. The senior loans will be secured pari passu by(i) a mortgage and mining hyroth.ec on F.teOnhrirge nomininana's fixedassets, (ii) an assignment by Falconbridge Dominicana of its rightsag-ainst Fr , ^nn d-A CAar.d nA A?mr-. iiunrdr +t-.' Rnles Agreement and ofits rights against Falconbridge Canada under a license agreement, and(iii) a pledge by F- conbridge Can--ada- and AAw'^ +their sharp_s ofstock of Falconbridge Dominicana.

178. Falconbridge Dominicana will enter into contractual arrangements-wt 'aconlbrdge CftnaWda a-nd A-'t-C th1rough a Sa-les ^g.reer.en hc gaaW-Iitl r aicoribriug UU arU RIaMUiu tlAIUU'll CZ Oa.Lv JMr,I~U l~

tees the payment to Falconbridge Dominicana of sufficient funds to servicethe companyis debts. Tne sales contract waii require Fdlconbuiudge Canada

- 33 -

to purchase the whole of the production of Falconbridge Dominicana andto pay full market price for the metal, less transportation costs and aselling commission of 14. Falconbridge Canada is obliged to apply thediligence of an agent in obtaining the best available price for themetal or obtain the market price if such price for ferronickel becomesestablished.

179. Payments for sales will be made to a Trustee who will representthe interest of the Bank, the other financial institutions, the CentralBank of the Dominican Republic and the Loma Corporation. Ern the eventFaLconbridge Dominicana is unable to produce or Falconbridge Canadaunable to sell in any one year sufficient metal to allow FalconbridgeDominicana to meet its debt services obligationp then FalconbridgeCanada will prepay for future deliveries so as to meet debt servicingobliaat:ions. The liability for the nrenavments will devolve 60% onFalconbridge and 40% on Armco. The liability under the Sales Agreementis to remain in force until all Fnnconbri dpe fomi nic2na's obligations tothe long-term lenders including the Bank are fulfilled. TDe liability iEsubiet. trn for-en mnaijere- exrnepn+ s cronfineo +.n nnli ti cal rickVc hiltexcluding commercial risks. Liability will not be contingent on anyothe.r eveTnt. or timep allnwan n n

18R0. In the ev.ent of an overrun n project costs, the excess beyondthe present limit is to be raised by Falconbridge Canada and Armco inthe ra:L .P 6():4.n Such funds wi" Ib e lent 4to Tom Copoato and-in

'~'*'' ~'.~'- ''- - .", 4w.. LD)U'.111 .L'UA.& VL 4.L L LV LiU IkJ .LV-AIISC~L /±j' U~~l J. .

turn to Falconbridge Dominicana. These debts will be subordinated toth-e senior deb1;s as lite 1 in- paarp 120 _bove.

181. During nergotia-L-CZ full understanding was reached on the agree-ments to be signed by the Bank, which, in addition to the Loan andGuarantee Agreements, also include hle Trust AgreemUentL, the Com-,.pletionAgreement, the Lenders' Agreement and the Pledge Agreement. Substantialundeqrsta,ndin-g ral so reachedA on the Oa'les Agree.-ment and on the11-_ u %U' LLS~ =J OLJ 1. .1~ %A L ULIV %J A.LV M VIL IJ ~Lu VIU L

remaining agreements, in particular with regard to provisions affectingt+ne posit-ion 04i 4the BnkAl and thbe arrangem,ents des4igned 4to secure U-eJ.UA JU . L,LI V JdLr. 'I.A V,I= 0±±0uAkL %AVi L4V±L V. 1U i .V U1 V

Bank loan. To the extent that the final language on all these Agree-m,ents wlll WL no[U Iha-ve bJeen worhliCed out at the tIJmLe of th=e sigLniL1ng, U.L tlih

proposed loan, its acceptability to the Bank should be a condition ofthe effectiveness of the loan.

IX. CONCLUSION

182. Tne project provides a suitable basis for a Bank loan of$25 milLion to be repaid in equal maturities of principal during 15years with a -s year period of grace.

HISTDRICAL SAMPLING PROGRAM1DE

YEAR - - PITS - AUGERS - ---- CH URNS - - - - - - -Number TotaL Number Total Number Total

of Depth in of Depth in of Tbpth in,ocat,iorI Fi'U *-1t-ies locat:Lon i o:Les I.trCo Lo-atic-n Hles M_e_

1956 Pegueera 299 2293.l,GuardarrayaCaribe

1957 Peguera 416 31.58.6 Peguera 21,5 2281.8Guardarraya GuardarrayaCaribe Caribe

1958 Peguera 94 606.1 Peguera 1'36 1829.0 Peguera 27 :348.cGuardarraya Guardarrayafl-aser CaribeGuardarrayaExtension

1959 PelgueraL 53 427.5 Caribe 152 1IL29.L Guardarraya 8 :L59.0Guardarraya Fraser

1960 Peguera i1 361. 3 Peguera 40 803.9Caribe Guardar rayaGuardarraya.Extens:ion

196:L Peguera 112 1693.ElGuardarr aya

1962 Pegu,era 133 154 8.9'GuardarravaCaribe

19 61 Peguera 81L 4,86.C)

196', Peguera 77 517.8

19 66 Peguera 264 3'102.0

19 67 Caribe 62 12747 -4

TOTiALS 862 6485.6 614 5901.2 801, 10206.8 |

IFC - LAEA

ATINEX 2

Or-E- rMEPARATION AND PROCESSING

1. The aim in ore preparation is to obtain the max:imum rejectionof hard rocks and boulder cores of little value; to achieve thoroughmixing and blending of all the reta.ined material; and to give a blendthat will yiel.d strong briquettes for the reduction furnaces.

2. Ore is delivered from the mine in large dump trucks whichnormally discharge into the feed hopper for the coarse screens. Asurge pile of 6,ooo short tons of ore will be maintained to providefor truck delays.

3. The run-of-mine ore is first screened to reject coarse rock+3O",-30" material is screened again at 3" and the unders.Lze is con-veyed directly- into three bedding stock piles of one week capacity each.+3" mal;eria.l passes to an autogenous mill where a 'rubbling' actionbreaks down softer high-grade lumps and abrades the nickeL-rich materialfrom the softer surfaces of the hard boulder cores. The rock passesthrough the end of the mill as reject, and the -3" material is dis-charged through peripheral grates to be conveyed to the bedding stockpiles.

4. Opera.tions up to this sta.ge are on a. two shift/clay basis -the remainder of the processing plant will operate three shifts/day.

5. Blended material reclaimed from the stockpiles by mobilebucket loaders forms the feed for the metallurgical oneration. It isfirst subjected to controlled drying in twio rotary oil-fired dryers inwhich mloisture evaooration is cnntrnlled to ield A dlust-free screen-able product containing from 16 - 18% moisture, and is then crushedand screened to i" before nassing to the storage bins whic:h feed thebriquette presses.

6. Briquettes are formed by a simple gravity feed between therolls of twelve rofl-fvne presses - one press to feed each of twelvereduction furnaces. The formed briquettes are conveyed to the shaftfurnaces where a shuttle conveyror distributes a.n even charge along thefurnace top. Twelve identical furnaces are provided, the basic designparamet.ers of which have been established by the pilot pl.t operations.Each furnace has a gasification reactor which produces the heating andrneliiririog gas h%r panr+tiacmuto ofr nap.n.tha. (Fuel oil c:ould also beused but this would raise the level of sulphur in the ferronickel.)The teVi erature and reducing co.dio inside the-controlled since it is at this stage that the composition of the finalferronickel is deter,ined.

ANNEX 2Page 2

7. The hot calcined briquettes are discharged from the furnacebottom into a gas-tight transfer ca.r so that re-oxidation of the reducedmaterial is prevented. The ca.rs are hauled by small locorotives on atrack svstem to the electric furnaces charging platform.

8. The hot briquettes are dischareed from the transfer cars viamultipLe feed ports in the roofs of the electric melting furnaces with-out coining into atmospheric contact. There are three identical arcfurnaces of rectangular cross-section with a nominal power rating eachOf 1L,000O KVA supplied frnm three single-phase 17j000 IkT t.ransformersper fu:rnace. The furnaces carry out purely a. melting operation inwhich -the briq,uettes are m.elted and separated into ferroni-kel and slag.The ferronickel is tapped at regular intervals into a lad:Le ca.r, which

9. The mtal Js first superbea.ed by pling ar

unit with electrodes over the top of the ladle which will have a stainlessueel ,;hel tcL pUIl Uilm Uthe U.L o LfUinducULI stirring. tThni correc

pouring temperature has been reached the metal is cast into pigs on asingle-strand pig casting unit fitted with water-cool-ing s,pray-s. Whencool the metal. pigs are stacked ready for shipment.

10. Slag is tapped from the furnaces into slag ladles which arehauled to a disposal area ana tipped.

11. Table 10: OVERhW NIMELRECOUVERY

(Dry Ba.sis)

lb. Ni per dry% Ni short ton of ore

100% run-of-mine ore 1.55 31.00156 ruhbler reject 0.90 2.700.5% preparation loss - 0.1484.5% plant feed ore 1.67 28.160.5% plant loss 0.14Slag loss 0.20 2.80Ferroniclcel 35 00 25.22

Overall recovery 81.5%Metallurgical plant recovery 90.0%

HISTORICAL FREE WDRLD MINE PODUrCTIDN OF NICKEL CRECOVERABLE) POSSInIY F UTRF MIN E __nn __!r _ CF ___" __RE_---- iilflimo of Poioids (miVirms of Pound)T

1955 1956 1Q57 1958 L959 1960 1961 1962 1963 196h 1965 1966 15'67 1968 2369 1970 1971 1972 1973 1976 1975

North AkerVaInco - 2/ 279.6 289.8 306.2 202.9 287.7 336.7 368.5 367.3 345.8 377.5 648.2 389.3 416.3 480 50 560 580 600 610 6(1, 625Fa'r:idge- 42.7 45.4 4ci.6 514. 60.2 66.6 67.13 67.6 63.9 55.9 68.6 66.3 62.2 78 95 98 100 100 110 125 150Sherritt Gordon 27.5 21.9 20.1 L9.6 20.3 18.1 22.0 26.3 20.7 20.2 14.5 18.2 12.6 15 15 15 16 13 12 11 10Giant Mascot 1.4 1.1 3.8 L .2 3.5 3.7 3.4 3.3 3.6 1.8 h 4 5 5 5 5 5 5Other Canadian 1..1 3.9 .8 3.8 3.4 1.8 5 10 10 1

Wusia 3/ 37- -37:T 377 773T1 629.0 W7 M7~ UJwI ' 7.0 77 v7~ r9,7 377 r. PT W9 T~ 7 '7 6zUnited States 7.6 13.4 20.1 23.4 23.2 25.0 22.3 22.6 22.9 24.4 27.0 26.5 26.7 27 27 27 27 27 27 27 27

South AmericaEtrazil 0.1 0.1 C).1 0.2 0.2 0.3 0.3 C.8 2.3 2.2 2.5 2.4 2.6 3 3 4 5 5 5 5 5CGbe 30.3 32.2 4h.5 39.6 39.3 28.3Dominican Republic 0.1 0.1 C0.3 1 13 63 63 63Guatemala 5 25 50 50

F'inLand 0.2 0.3 C).3 0.2 0.8 4.2 4.0 5.0 6.o 6.4 6.2 6.6 6.6 7 7 9 12 12 12 12 12Gireece 1.3 3.0 0.5 0.3 2.0 4 8 9 9 9 9 9 9lugoalwria 1 5 7 7 7 7

AfricaElotvwanAt 2 10 25 25Rhodeaiai 0.1 0.2 0.2 0.3 1.5 1.5 2.5 4 11 16 16 18 '24 28 28South Af'rica 6.8 6.6 2.6 5.7 6.4 5.7 6.o 7.0 7.7 8.0 10.0 11.6 12.0 13 15 17 19 19 19 19 19

Asia and OceaniaAustraLiLa 4.7 11 16 20 30 45 60 60 75Indcnesia o.6 1.0 0.8 2.8 3.0 3.1 4.7 7.0 7 7 7 7 7 7 7 7New CaLedoia 40.4 48.8 76.0 26.4 53.8 96.5 102.83 55.8 764.1 102.4 104.9 125., 135.7 166 160 190 205 22D 2'40 260 285PhilippineB 20 50

Other Free! World 0.1 0.1 0.2 _0.2 005 .5 0.6 o.6 0.8 0.9 1. 1.0 1 1 1 1 _1 I 1 1

TotaL 435.3 459.9 522.8 375.4 497.3 590.1 602. 9 557.1 550.7 6i04.6 6yo.8 657.o 694.0 799 909 979 1035 1113 12'56 1359 1463

V Sor_e]967 figue eesitd2/ FaLccmbridge Canada and Iinco figlrAa tcc1",d. - b - ideper_!^.t in,.1 hHoe oUtpUt tlay pr:o .

3/ Canadian statLstics include mime 3hiplinnt figuree where production figures are not available.

4/ Includes EBura, Morocco ancl South Korrts. IIFC - L&EA

ANNEX 4

FUTURE PRODUCTION OF NICKEL

1. Production of nickel by International Nickel in Canada isexpected to exceed 600 million pounds per year in the latter part of1971. Future production by Sherritt Gordon will decrease steadily dueto dec:Lning cre reserves. Between 1957 and 1962 nickel was p mduced byNorth Rankin Nlines and included under "Other Canadian." There is thepossib:ilitv that one or more of a ntmber of Canadian orebbdis 7nder

invest:igation by companies not presently producing nickel could bedeveloped before 1975. Provision for this possibility is made ulnder"other Canadian."

2. Hanna Mining has been exploring nickel deposits in Colombiafor some time. Plans to produce nickel in this country have not yetbeen amnounced.

3. After the Cuban facilities were nationalized in 1960, nickelproduced there was consmed almost entirely in Co ..... ast *otntr-es. Ithas therefore not been considered as part of world production.

4. A production facility is to be brought into operation inGulatemala by Inte..zational Nickel. A mino- holding in Jte operationis owned by Hanna Mining.

5. Le Nickel has been studying laterite deposits in Venezuela todetermeine the possibilities of a nickel mining venture in the countryiscentral states. A facility producing 10,000 metric tons of ferronickelmay result buti production is not likely to start before 1975.

6. irniand may increase its production of nickel if new deposits,recently located, are mined.

7. The Greek facility which started producing nickel in 1966 ispa-ruially owned by Le Nickel.

8. Yugoslavia will become a ferronickel producer by 1971 ifmetallurgical problems can be overcome. This is included in worldproduction although there is a possibility that some will be exportedto Comnmunist countries.

9. Roan Selection Trust is studying a substantial body of nickel-copper ore in Botswana. As the orebody is probably sulphide ore,metallurgical problems should be overcome relatively quickly and it ispossible that production could begin in 1972.

ANNEX 4Page 2

10. In Rhodesia, Anglo American is expanding the annual capacityof the Trojan mine to 8 million pounds. The Madziwa mine, also owned byAnglo American, will begin production in 1969. A refinery is beingbuilt to process concentrates from both mines and is expected to reachfull capacity bY the middle of 1969. Rio Tinto will begin. productionat its Empress mine in 1972 at the rate of 12 million pounds per year.

11. Substantial increases in production have taken place inSouth AfriGa wh!re ninok>l i minnet in onniinntionn with platinum. Sinceproduction figures have not been published for many years, future

12. Pro^duction of nicke concentate ~+ at 1Art+r¶ Mln,g's Vah.ba.ld

mine in Westeni Australia was started during 1967. Concentrates con-ta.ininv 11 mil-ion pus-nA of nickel p ya r bein sod_t japan- -cf .- a F v - - - ew du- _' _ s fiFsgV-. v5 X z_v -l-arnd some are being sold to Sherritt Gordon. A refinery with annual^apacity of 33 ml..lino14-'1 -. L f rik - ill - egin U-- -- A,4 ion in I 9 71

There is a possibility too, that at least one other of the many ore-bo:IJes d"iscove;r-ed in AustraliJa w-ill be -ln P1-Vduct.Lion befor 1975

1 n e=na.t1,1 L: L .-L L U__ .11 pLUL ILO11 U:jAjU J.7-i ) * 1 U J:114idU1 UidJ.DGC 3V-U~ ± UyXl ±1X L S^U WUHUDAJ. ; 4-1U

British Solomon Islands. Production is not expected from this sourcebefore 197Y

14. International Nickel is also exploring deposits of lateritesin Indonesia. Due to the remote location of the deposits, the explora.-tion phase is expected to take another two years at least and productionis not likely before 1975. The Japanese interests which already minenickel in Indonesia are not likely to expand the facilities therebecause of concentrates and matte available from other sources.

15. Nickel production in New Caledonia includes production byLe Nickel, independant producers, the Kaiser-Le Nickel project whichwill start up in 1970, and future production by the consortium of Frenchinterests and I]nternational Nickel.

16. The right to develop nickel deposits in the Philippines hasbeen awarded to a local mining company and Sherritt Gordon. Two and ahalf years will be required to complete metallurgical studies, and itis doubtful whether production on a commercial scale will begin before197h.

WORLD FERRON:[CKEL PRODUCTION 1955 TO 1967T(l1ion Pounds of Nickel 'Contained)

1955 19,56 1957 1958 1959 1960 19 61 19 62 19?63 1964 1965 1966 1967

Brazil 0.5 2.3 ,2.2 2.5 2.4 2.6

Japan '12.5 15.0 17'.9 6. 17.5 28.9 37.3 20.8 28.4 45 9 1.9.5 50.0 68.0

New Caledonia 6.9 7.3 71.1 5.1 10.8 25.1 29 .4 12.1 13.3 29.3 3L.3 4h4.7 45.5

U.S.A. 6.7 12.2 159.1 22.5 22'.2 24.h 21.1 21.1 21.5 22.5 25.3 2l4.5 24.7

Total 26.1 3h.5 44.1 34.o 50.5 81.4 87'.8 51s.6 70.5 99.9 106.6 121.6 140.8

IFC - IALEA

FAWONBRIDGE DO)1NICAN C POR A

PFUJECTED INGOPM ST&Tn4Nr

19'2 1973 197 1975 1976 19T7 1978 15979 1980 1l91 1982 1983 1984 1985 1986 19f!7 1988 1989 1990 1991

Net Sales 46,725 62,300 62,300 62,300 62,300 62,300 62,300 62,300 62,330 62,300 62,300 62,300 62,300 62,300 62,300 62,300 62,X30 62,300 62,300 62 300

Cost of Salea 161 L '18 21.538 1,538 21.538 21j538 *.538 21.538 21.538 1.538 21.538 21.D8 21.5 21 5338 21.58 21.538

Operiting Profit 30,572 40,7 62 40,762 40,762 40,762 40,762 40,,762 40,762 40,762 4o,762 40,762 4Io,7 6

2 40,,762 40,762 40,762 40,,762 ,40,762 40,762 40,762 40,762

Depreciation 13,669 18,765 19,7114 19,265 19,287 19,3C0 19,387 L9,467 19,547 19,627 6,196 1,634 1,385 1,1432 1,45'0 1,,550 1,550 1,550 1,550 1,550

Interest:IBR4D 1,594 2,125 2,0 l3 1,848 1,664 1,478 1,294 1,109 924 739 554 370 185

Irtmrance tompanLee 5,625 7,500 7,500 7,500 7,500 7,125 6,375 5,625 4,875 4,125 3,375 2,625 1,875 1,125 375

Co,mercial Banks 2,793 3,181 2,274 10365 455

Sabordinated debts 2,9391_ 3>188 3jLE8_ 2,188 .3)A 21§8 2,I8 2j1 2),B! 3,88 )38_ .23LL_8 ?,§62 3 8 3,18 -,8 -_32Toia IntAret 12 5,997 14.955 ,901 12.807 11.791 10o857 9,921 8.987 852 717 6.186 L2148 3.5 2.2314 956 319

ProfiLt before taxes 4,500 6,0oc 6,023 7,596 8,668 9,664 10,518 ]1,374 12,228 13,083 27,449 32,945 34,129 35,017 35,709 36,343 36,918 37,618 38,256 38893

Incomne Tax 45 1,980 1.988 2J507 .2 3.189 ).471 _3,753 4.035 4=s318 9,058 10.872 -15263 :Lz556 1 U78 ?9 4L2,8 12 6 1 2.3

Net Plrofit _3 14.020 84.03 5 j _a 5808 621 1 87. 7,J7 6 18

.39k j 1 22,073 22.866 2 3.4 2392 243 2.C1 2 .352 26.058

A.- -ILI -Lgk -L241 _1._ -2,22 1&2L 866 &.350 L,632~~~~~~~~~~~I

FALaNBRDti8 LX)KU,IOANA C. FOR A. PROJECTEI) FUNDS STKTEMHT

F,iid :Provided 1969 19.70 1971 1972 1.97,1 19~1 1?7 _1976 197 1978 1929 lq80 1931 1982 1963 1984 1985 198 1981 198 ]8 1-9 19nOperations:

Not b-rAr, 3,01.5 4,020 4,o35 5,o89 5,808 6,175 7,047 7,621 8, 193 8,765 18,391 22,073 22,866 23,061 23,92 5 24,350 2b,735 25,201 25,632 26,058Dep-ioltion Allo,,a-e 13,6619 18,765 19,7114 19,265 19,287 19,307 19,387 19,167r 19,517 19,627 6,196 1,631 1,385 1,132 1,4190 1,550 1,550 .1,550 1,550 1,550

Total 9wuIs from Operations 16,684 22,7.35 23,779 21,354 25,095 25,782 26,134 27,088i 27,710o 28,392 24,587 23,707 21,251 24,593 25,4115 25,900 26,285 26,751 27,182 27,6)8Capita]. Soorea:

Shar,, Capi tal 15,000Long Tern toa,u,

CBRD8 16,750 8,250Coeeroial Ba,*o 7,500 15,00 18,500I,,ouraoe Caqarde s 11,70D 29,300 36,000-W*dimtod Ioans _620D p 1500 300O

Total Fonds Provided h340 7355 780 16.6814 22,7835 23j779 145 ILM ?.L 26.434 a27.08 27.71,0 28.392 24O ZL 24.251 24.893 3LIi~ 3&2 MA8 26Aa _;lJa= U~

U.. of Fond,

Construction end Plant 30,000 68,073 58,668 15,370 3,295 3125 220 200 800 800 800t 800 Bo0 800 Boo 800 800 8oo Boo 800 80D BOO 8amFi.aoi g Charge. dringCoE truction 1,050 8,561 10,357 4,35o

Loan etoritlf.ee188WD i,086 2,1.74 2,17 2,174 2,171 2,171 2,17k4 2,1714 2,1L7h 2,171 2,171 2,171CoUiROXi.1 Rri*B 5,125 10, 250 10,2150 10,250 5,125Inrorance Goqanl* 0 14,000 8,000 8,000 8,000c 8,000 8,000 8, 2)O 8,000 3,000 8,000 4,0wSubordinat,ed Loan

J- - - - - - - - - . - - - -2 6.820 .AAS00 gJ0 6.80 BW IO

Total Puwds Used E lLk6.05 2185 I1 279 3-,,4 E1.499 1.91 10.4 972 10.97k 10.974~ 1O, IM 10 1 0 2D4 10 4 . 8.20 7.) -600 7 __ kSmrp3a (Deficit) Year 12,350 (3,081) 9,025 (8,163) 8,1l51 11,030 11,710 1:3,596 :11,808 15,160 16,111. 16,766 17,118 13.613 12,733 13.277 16,093 17, 215 19.1100 19AJ85 19,951 20,382 21,208Rumba~ (Defielt) Coenjative 12,350 9,266 18,291- 10, 130 -18,281 29,331 11,0o21 514,620 659,428 84,886 101,002 117,708 135,186 118,799 161,532 174,809 190,902 208,117i 227,2L7 21,6,702 266,656 21r[,038 311,216

Annex 6

The financial assumptions used in the projections for Falconbridge Dominicanaare as fcll]ows:

Assumed Financial Terms

World Bank Commercial Bank Insurance Company SubordinatedLoan Term Loans LoaT,'n Loapns

(US$ '000)

Amount $25,o00 $41,000 $80,000 $34,(000

Interest Rate 8.5 j 8. ol 8.5% 8.id

Commitment Fee 0.75% 0.5% 5%

US AID Insurance.:iL±LLLAO.L I -.ui±Wl -. lLI V .L V )7Annual Pre.l_ - o.75 o.87 0.857

T' - A. --AP - 4 -

Repayment Dec.31,1973 Dec.15,1972 Dec.15,1976 Dec.15,1986

>'laturity Dec.31,1984 June 15,1976 June 15,1986 June 15,1991

For the purposes oi projections it has been assumed that Interest on t;he SLID-ordinated loans will not be paid during the construction period and paymentwill be made during the first four years of operations.

1/ IBRD interest rate 7.0%, guarantee fee to Dominican Government 1.5%

IFC - LAEA

FALCONBRIDGE NICKE'L MINES 'LIMITED

C ONS dLIDATED IN C3E1 STATEMENTu LJLL ~uuuj

1963 19 i 'L965 1966 1967 1968

Siples of Metal 55,282 7LI,283 76,627 85,558 87,359 97,316Cost of 'Sales 33,568 16, 538 46,651 56,196 55,244 57,830

Gross; Profit 21.,714 28,695 29,976 29,362 32,115 39,486Administrative Fcpenses 2,,942 3,438 4,164 4,452 4,121 5,501I)epreciation and

I)eveLopment Allowances 363 3,0'58 4,186 4,596 5;788 12,257

Operating Profit 15,129 22,199 21,626 :20,314 22,206 21,728

Other Inconme:Operations ( non-nickel) 378 936 1,157 1,188 805 4,514Dividerids 3,267 8,2.33 14,289 20,072 15,174 9,533Securities 2,017 1,993 1,822 1,397 405 359

Other Charges:Interest 255 158 79 31 413 1,521Exploration and Research 4,267 98 6,101 11,582 7S7(J8 6-351

Earn.ings before Tax 16,269 29,105 32,714 31,358 30,469 28,262.Income Tax 305 613 7,955 5,712 6,612 6,105

Net Earnings 13,216 23,092 24,759 25,646 23,857 22,157

IFC - LAEA rIx

FALCONBRIDGE NICKEL MINES LIMITED

CONSOLIDATED FUNDS STATEI1ENT(US$ '0OT-

1968 1969 1970 1971 1972 1.73 1974 975 1976 177Actual -- Projected--

F-unds Provided

Operations:Net Earnings 22,157 27,038 36,250 40,087 27,551. 29,114 28,478 35,883 3 9,O45 :38,153Depreciation 9,1C9 12,970 16,688 16,677 19,238 20,0590 20,377 20,751 20,9293 20,677Income Tax Deferred 5,805 (65) (3,707) (526) 3,534 1,925 (447) (4,235) (h1,869) (4,823)Development Expenditure 3,148 10,655 10,677 10,855 11,371 11,362 11,555 9,392 9,251 9,087

Non-operations:Sale of Shares in

Subsidiary 14,722Housing Payments 814 379Other 2,118 1,892 190 ___

Total Funds Provided 57,873 52,869 60,098 67,093 61,694. 62,4q91 59,913 61,791 64,35'3 63,09k

Application of Funds

Expenditure on Property,Plant aid Mines hl,l56 37,119 21.998 28,921 3 L4L2 30,095 16,120 11,045 1:1,202 12,254

Dividends 15,879 15,916 15,916 15,916 1EL6 1 15,916 15,916 15,916 1, 916

Total Funds Used 57,035 53,035 37,914 L4,837 49,358 46,o0l1 32,036 26,961 27,118 :28,170

Surplus (Deficit) Year 8140 (166) 22,184 22,256 12,336 16,480 27,877 34,830 37,2L41 3L,92L_1Iul at i ve 2 09'5 1,929 2L.11.3 ) 6 36 9 58 705 75,186 103,063 137,893 17. ,134 210,058

IFC - LAEA

ANNEX 7Page 3

FALCONBRIDGE NICKEL MINES LIMITED

CONSUL. 1UATUD IIANU.CE SIsWr(uss 'oo0)

1963 1964 1965 1966 1967 19;)68

Current Assets:

Cash 1,637 1,792 1,624 2,576 1,100 2,585orverwnment ani other

Marketable Securities 35,106 30,261 30,491 9,914 1,388 1,703Accounts ReceLvable 15,941 19,222 16,701 17,281 17,403 20,s96 4Inventories 21,041 12,L39 12,727 17,038 11,999 16,385

Total C-urrent A*;3sets 73s72 63,71). 61, L3 A Ar6o T 31,890 Cl , 7

Fixed Akssets:

Investments 44,877 60,237 61,171 55,235 59,063 60,765Flant and Equipment 87,480 93,584 lOO,159 i36,388 169,898 197,].80Less Accumulated Depreciation(71,1B1) (73,419) (75,523) (78,547) (81,261) (89,777)Mining Properties 4,027 h,520 -,A).R8 JIj525 4.673 4$919Other 7,507 11,337 24 273 35,935 5,746 48, 121

Total Net Fixed Assets 72,710 96,259 111,h28 153,536 198,119 29l,LO81

Tot.al Assets II.Z 1 159 ,9n n73, ,9r n 2, n-00 n263 ' I i,120

Current Liabilities:Bank 786 20,119 25,090Accounts Payable 5,127 7,105 8,050 1I,900 10,309 13,6h5Current Portion LT Liability 1,850 925 925Taxes: Payable 2,305 1,266 1,308 808 206 Fo8

Total Current Liability 9,282 9,296 -10,283 16,494 30,634 39,543

Long-term Liabi:Lity:

"__.~~~~~~~ ___ ,t-, "i' ,r'e , Zn ortgage 1/ ,L, ±Ii 7Co yU7

Deferred Incorne Taxes - 6,013 10,730 17,385 23.190

Total Long-term Liabilities 1,850 925 6,013 10,730 17,740 24,359

Tota] Liabilities 11,132 10,221 16,296 27,224 48,374 63,902

Net Worth:

Share Capital 71,506 72,429 73,148 73,274 73,630 73,648Reserves and Surpluses 63,797 77,323 86,527 99,847 108,005 125,570

Shareholders' Ecquity 135,303 149,752 159,675 173,121 181,635 199,218

Current Ratio 7.9:1 6.9:1 6.0:1 2.8:1 1.1:1 1.1:1LTD/Equity Ratio i.4:98.6 0. 6 :99.4 3.6:96.4 3.7:96.3 8.8:91.2 11.4:a8.6TD/Equity Ratio 7.6:92.4 6.3:93.7 9.2:90.8 13.5:86.5 21.0:79.0 24.2:75.8Debt/Fruity Ratio 7.6:924.h 6 !91 7 60n!:9J,.O 8_A Q91, 1 16=9:83.(ExcluCing Tax Liability)-

1/ Commencing .965 the company adopted a policy of claiming for tax purposes the maximumal]--- ior depreciation and pre-production expend 4itures permLtted under inco.e laxlaw, whereas for accounting purposes the items are written off according to theirestimated productive life.

IFC-LAEA

AR_O STEEL CORPORA1'ION

INCOME STATEMENT.7TSWT '000)

196h 1965 19 66 1967 1968

N'et Sales, 1,063,521 1,l88,51S 1,224,605 1,138,138 1,375,157Cost of Sales 811,550 8L6,I87 9:38,2o6 907, 739 1,74,696

Gross Profit 251,97'1 291, 6i75 286,399 230,399 300,461Administrative Expenses El1,926 86, 368 88,623 90,760 106,273Depreciation 62, 531 6 79,160 7 1I07 52,850

operating Profit 107,514 11,2,15'1 1:L8,6:L6 68,612 141,338

Other Income:Dividends, RoyaLlty, etc:, 22,564 23,763 26,2:19 2;5,529 18,759OthLer (324) 708 281 1,194

Other Charges - - - ,1366013 _ 5,727 9 h39 '10,675 13.094

Earnings before Tax 123,741 160,8595 1:35,627 134,,66o 142,867Taxes 43,3C,4 6 7,38 7 148,8990 :14,013 5h,860

N'et Earnings 80,387 93,50)8 86,737 70,6147 88,007

Vhrgins:

Gro,ss Profi.t/Sa.les .236 .245 .2:33 .202 .210Operating Profit/Sales .102 .120 .096 .060 .103Net, Profit/Sales .07'5 .079 .071 .06S2 .O6,4

IFC - LAEA

ARMCO STEEL CORPORATION

FUNDS STATEMENT

1564 1965 1966 1967 1968 1969 1970 1971 1972---- E'st iLmated -- -- ---

Funds Providied

Net Earnings 80,387 93,5C18 86,737 70,647 88,007 596,000 105,000 115,000 126,000Depreciation 62,531 63,156 79,160 71,027 52,850 68,900 8L,ooo 90,900 93,200Deferred Incomse Tax (8,357) (1,267) (1,264) (216) 26,189 1.1,000 18,200 18,200 18,200Long Term Debt 92,000 60,000 20,714 100,000 10,000Bank Loans 8,000C)ther Sources 2,073 11.3 68 6,613 30,806

Total Funds 'ProviLded 136,634 2147,510 172,701 208,071 218,566 275,900 217,200 224,100 237,4oo

Use of Fands

Capital Expenditure 59,100 127,247 1951,103 154,110 ]16,259 1L2,700 130,400 64,800 79,880[Envestments 2,586 1Lo,487 5,331 31,373 7,818

Repayment of Loans 7,838 8,273 21,749 45,100 2,540 13,560 25,320 29,880I)ividends Paicd 44,411 144,411 44,411 44,475 44,316 hW,oo0 45,000 45,000 45,cooWorking Capital 16,362 (274) ___ S625 35,879 9,000 10,000 1_0,}000

TotEal Funds IUsed 130,297 190,l4 272,510 254,583 249,372 199,240 197,960 L45,120 164,760

Surp)lus--Yea:r 6,337 57,3616 (959,809) (46,512) (30,806) 76,660 19,240 78,980 72,640-- Cumulative 178,993 2:36,359 136,550 90,038 59,232 135,892 155,132 234,112 306,752

IFC - LAiA

A~I ,

OD'

AR CO STEEL CORF'ORAI ON

BALANCE SHEET7Tu I U oOoT-

1964 1965 1966 19,67 1963

Current Assets 5)42,399 627,370 5)4)4,559 505,,107 532,191

Current Liabilities 135,701 170, 579 177,92)4 152622 6 189 ,644

Net Working Capital 406,698 L456,791 366,63'5 352,881 3L42,5L47

Fixed Assets 521,617 595,239 725455 9)4),36)4 '121,016

928,315 1,052,030 1,092',09)4 1,297,2L45 1,L4,43,563

Long Term Liabilities 159,332 233,950 23-, 68 )8X409256 489,578

Shareholders' Equity 768,983 818,080 860, 405 887,989 953,9854

Ratios:

Current Ratio 4.00 3.68 3.06 3.32 2.8'1

LT Debt:Equity 17.1:82.9 22.2:77.8 21.2:78.8 31.5:68.5 33.9:66.1

Total Debt:Equity 27.7:72.3 33.1:66.9 32.2:67.8 38.7: 61.3 41.5:58.5

I]K-LAEA

Est:imated Net Generation of Foreign Exchange

Withholdin2 Govp.mrnmpr Total NetSubsequen't Tax (U.S. Share of Comission Foreign

Construc- Construc- Operatin-ig Corporate Shareholders Maxinrrum I/ on IBRI) Exchangetion Costs tion Costs Costs _ Taxes Only) Dividends_ Loan (enerated

1969 4315 4, 3151970 16,269 18:1 16,14701971 9,381 1,220 28:3 10,83841972 1.,672 1,290 5.,M64 1,1485 37 5 9,8861973 1,15'4 5.,064 1, 980 242 783 375 9,5981974 160 5,064 1, 988 32J4 1,059 359 8,S)541.975 59 5,064 2,507 3414 1,124L 326 9,L241.976 140 5.06L4 2,860 399 :1,305 294 9,9'21.977 L40 5,064 3,189 4314 1,422 261 10,4.101978 140 5,0614 3,471 1454 .1,485 229 10,7431979 L40 5,064 3,75 3 47:3 :1,547 196 11, 0731.980 140 5,064 1i,035 492) 1,6103 163 11,14041981 40 5,064 14,318 511 :1,672 130 11,7351982 140 5,064 9,058 399 1,307 98 15,9,661983 440 5,064 1c),8372 3714 :1,222 65 17,6371984 40 5,064 11,263 390( :1,27.5 33 18,0o651985 40 5,064 11,556' 472 :1,54.5 18,6771986 40 5,064 11,7814 505 :L,653 19,0o461987 140 5,064 11,99 3 56( 1:,8314 19,4.911988 40 5,064 12,183 572l :1,871 19,7301989 40 5,064 12,14114 5851 :L,916 20,0191990 40 5,064 12,624 598 ,9527 20,2831991 14 5,0614 12,835 710 2,3214 20,973

$ 31,727 $ 3,303 $102,400 $146,168) $8,838 $28,911 $3,368 $324,715

/ Assumes all anticipated cash surpluses are paid out as dividends.

ANLEX 9

Page 2

Estimated Local Project Construction Expendituresin the Dominican Republic 1968 - 1972

(us$ iooo)

LocalTotal Local Materials Local

Cost Item Expenditures & Services Labor

Production andService Facilities $ 20,954 $ 7,768 $13,186

Phowerr GleneratizngFacilities 5,348 215 5,133

Pipeline 1,100 - 1.100

Project Admidnistration 1,600 100 1,500

Mining EquipmEnt - - -

Mine Roads 1,100 1,100

Spare Parts & Inventory - - -

Access Road & Bridge 700 700 -

CapitalH zed Alterations 100 - 100

Start-up Costs 425 -425

Working Capital

Escalation-Materials __ __

TOTILLS $ 31,327 $ 8,783 $22,554

AIETNFX 9Pa3e 3

Estimated Total Government Revenue(us$ '000)

Withholding Government

Corporate Shareholders Maximum on IBRD Total EstimatedAxes ,.A Di4 viden4d 1/ T-" o TorerV)M.ent PTrrniin

$ $ $ $ $

1.970 181 1811971 283 283*L)72 1,485 375 1,860137h 1,980 242 783 375 3,380

1974 1,988 324 1,059 359 3,7301975 2,507 344 1,124 326 4,3011976 2,860 399 1,305 29h 4,8581977 3,189 h34 1,422 261 5,3061978 3.471 L5L 1.485 229 5,6391979 3,753 473 1,547 196 5,9691980 L,035 h92 1.610 163 6,3001931 4,318 511 1,672 130 6,631'1982 9.058 399 1.307 98 10.862

9'33 10,872 374 1,222 65 12,533:. 984 Yi.263 390 1.275 33 12,961

--1985 11,556 472 1,545 13,5731.386 1- 711,784 An5 1 ,653 13.9h21987 11,993 560 1,834 14,387-L938 12,183 572 1,871 T)-6261S,189 12,414 585 1,916 1h,915

0 -.12,624 598 1,957 15l1791)91 12,835 710 2,32h 15,869

$146,168 $8,838 $28,911 $3,368 $187,285

1,/ AsXl,e all antlipated cash srpr'uses naici out as divildends.

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August 1969 ISPO-2547

DOMINICAN REPUBLIC

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