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TABLE OF CONTENTS OE ANNEXES
Annex I ACCESSION NOTICE Error! Bookmark not defined.
Annex II BE CONSTRUCTION CONDITIONS Error! Bookmark not defined.
Annex III TARIFF FRAMEWORKS Error! Bookmark not defined.
Annex IV COLLECTIVE BARGAINING AGREEMENT Error! Bookmark not defined.
Annex V TAX DEPRECIATION SCHEDULE Error! Bookmark not defined.
Annex VI PROHIBITED IMPORTS Error! Bookmark not defined.
Annex VII FISCAL AND CUSTOMS REGIME Error! Bookmark not defined.
Annex VIII ROAD PLAN Error! Bookmark not defined.
Annex IX MINE GATE VALUE DETERMINATION Error! Bookmark not defined.
Annex X CERTAIN SHAREHOLDER PROVISIONS Error! Bookmark not defined.
page 1198
Annex I ACCESSION NOTICE
To: The Parties to the Mbalam Mining Convention
From:
Dated: ^
Dear Sir/Madam.
We refer to the Mbalam Mining Convention (the "Convention"). Terms defined in the Convention
shall have the same meaning in this Accession Notice unless given a different meaning in this
Convention.
We hereby confirm that we |are one of the Acceding Parties named in the Convention and] hereby
wish to accede to the Convention as a Party, in accordance with Article 6.4 (Accession to this
Convention) of the Convention and to he hound hy and benefit from all of the rights and obligations
of the (Mine Project Company/Railway Project Company/Mineral Terminal Project Company]. We
hereby represent and warrant to the State that as of the date of this Agreement, the representations and
warranties in Article [5.1] of the Convention arc true and correct with references to Cam Iron being
replaced with references to us.
We hereby give you notice that we wish to become a Party to the Convention in accordance with
Article 6.4 thereof
The address and the fax number to which any communication to be given to us in connection with the
Convention should be addressed are as follows:
Address: M
Fax No.: M
Attention: M
This Accession Notice is governed by the laws of the Republic of Cameroon.
p»0«|199
Annex I ACCESSION NOTICE
y0. The Parlies to the Mbalam Mining Convention
From: W
Dated: l#l
Dear Sir/Madam,
We refer to the Mbalam Mining Convention (the "Convention"). Terms defined in the Convention
shall have the same meaning in this Accession Notice unless given a different meaning in this
Convention.
We hereby confirm that we |are one of the Acceding Parties named in the Convention and] hereby
wish to accede to the Convention as a Party, in accordance with Article 6.4 (Accession to this
Convention) of the Convention and to be bound by and benefit from all of the rights and obligations
of the (Mine Project Company/Railway Project Company/MincraJ Terminal Project Company]. We
hereby represent and warrant to the State that as of the date of this Agreement, the representations and
warranties in Article [5.1] of the Convention are true and correct w ith references to Cam Iron being
replaced w ith references to us.
We hereby give you notice that we wish to become a Party to the Convention in accordance with
Article 6.4 thereof.
The address and the fax number to which any communication to be given to us in connection with the
Convention should be addressed are as follows:
Address: |*]
Fax No.: |«]
Attention: |»]
This Accession Notice is governed by the laws of the Republic of Cameroon.
The Republic of Cameroon Cam Iron SA
Represented by: Represented bv:
Mr. Giulio CASELLO. Chairman of the Board of
BONDE. Minister of
Technological Development Directors, and Mr. Serge ASSO'O MENDOMO
General Manager
Excellency
Emmanuel
BONDE
page | 200
Annex II BF CONSTRUCTION CONDITIONS
hem BF Con,.ruction Condition
I The estimated investment and exploitation costs (including reasonable
contingency, escalation and inflation allowances and the estimated charge for
power supply referred to in Article I0.5) and the actual and forecast iron ore prices
for the relevant iron ore products (based on the CRU benchmark price assessments
with necessary modifications and adjustments) as at that date being such that they
would enable the marketing of each of the High Grade Ore and the Beneficiated
Ore at internationally competitive prices and Cam Iron is to achieve an Internal
Rate of Return for the aggregate of the Bcneficiation Operations of not less than
the Reference Rate plus five hundred (500) basis points.
The Republic of Cameroon Cam Iron SA
cd by:
BONDE. Minister of Mr. Giulio CASELLO. Chairman of the Board of
Directors, and Mr. Serge ASSOO MENDOMO
General Manager
Excellenc>
Mr. Emmanuel
BONDE
Mr. Serge ASSO O
MENDOMO
P»9*|201
Annex III
Tariff Framework
Framework for Tariff for Railway Services
1 Definitions
Terms and expressions used in this Framework shall have the same meaning as in the
Convention unless the contrary intention appears:
Access Holder means a party that has entered into a Railway Haulage Agreement with
the Railway Project Company in respect of obtaining access to Railway Services to be
provided in an Expansion Stage, which party may be the Mine Project Company, an
Affiliate, Congo Iron or Third Party.
Expansion Capital Cost means the total of all direct and indirect costs incurred by or on
behalf of an Access Holder for the purposes of an Expansion Stage, being costs incurred
in developing the following assets:
(a) all assets comprising the Additional Spur to be utilised by Railway Project
Company for the purposes of providing the Railway Services to an Access Holder;
(b) such assets as are required for the purposes of upgrading the Mainline Railway in
order to:
(I) provide Railway Services to that Access Holder; and
(Ii) maintain the capacity of the Mainline Railway for the Initial Capacity Users
or any other Access Holder that may have entered into a Railway Haulage
Agreement and incurred Expansion Capital Costs: and
(c) such assets comprising the Mainline Railway as are for the purposes of the
integration of the Additional Spur referred to in paragraph (a) with the Mainline
Railway
Fixed Operating Costs means all direct and indirect costs incurred by or on behalf of
the Railway Project Company in operating the Railway, other than the Variable Operating
Costs
Initial Capacity User means either the Mine Project Company or Congo Iron as a party
to a Railway Haulage Agreement with respect to the Initial Capacity of the Railway
Facilities
Initial Capital Cost means the total of all direct and indirect costs incurred by or on
behalf of the Railway Project Company in developing the Initial Capacity of the Railway
Facilities including costs incurred before the Date of Entry into Force of the Convention
OBV means the opening balance value of an asset
PV means present value
Railway Services means haulage and freight services which the Railway Project
Company has contracted to provide to a User.
State means the Republic of Cameroon.
State Charge means the charge referred to in Article 4 6Republic of Cameroon
System Efficiency means the capacity of Mainline Railway which is being achieved or
which should be being achieved if fully utilised poor to the Access Holder being provided
with a Railway Service
Tariff means the charge per unit of Railway Service payable under Article 2 for the
Railway Project Company providing Railway Service
User means either an Initial Capacity User or an Access Holder
Variable Operating Costs means the following direct and indirect costs incurred by or
on behalf of the Railway Project Company *1 operating the Railway: including diesel fuel,
maintenance, labour costs for tram and maintenance crews
WACC means the weighted average cost of capital
2 Payment obligation
(a) Dunng the term of the Railway Haulage Agreement, the Mine Project Company
must pay the Railway Project Company the Tariff on a monthly basis as
calculated m accordance with Article 3 and otherwise m accordance with the terms
of the Railway Haulage Agreement
(b) During the term of the Congo Railway Haulage Agreement. Congo Iron must pay
the Railway Project Company the Tariff on a monthly basis, as calculated m
accordance with Article 3 and otherwise in accordance with the terms of the
Congo Railway Haulage Agreement
(c) During the term of a Railway Haulage Agreement with an Access Holder, that
Access Holder must pay the Railway Project Company the Tariff on a monthly
basis, as calculated in accordance with Article 4 and otherwise in accordance with
the terms of the Railway Haulage Agreement with that Access Holder
3 Tariff payable by Mine Project Company and Congo Iron for
Initial Capacity
3.1 Two part tariff structure
(a) The Tariff payable by Mine Project Company and Congo Iron for the Initial
Capacity of the Railway Facilities is based on a two part tariff structure The two
part tariff proposes that the Initial Capacity User pays a fee to use any amount of
the Railway Service provided using the Railway Facilities and a charge per unit of
the Railway Service actually used which does not vary with the level of usage
(b) The two part tariff comprises of
(i) a capital charge for forecast capacity of the Railway infrastructure to cover
capital costs associated with the initial Capacity: and
(it) a usage charge for the actual use of the Railway infrastructure to cover the
Fixed Operating Costs and Vanable Operating Costs
3.2 Capital chargo
(a) The capital charge for any tariff will consist of a return on capital and return of
capital, where
V page | 201
(i) the capital charge component it calculated using an annuity formula on the
share of capital costs attnbutablo to an Initial Capacity User.
(ii) the return on capital is determined with reference to a WACC: and
(iu) the return of capital is determined with reference to a capital payback
period
(b) Dunng the Construction Phase and Project Commissioning, the return on capital
element is to be calculated and capitalised (added to the asset base) The interest
rate applied to the capital balance dunng the Construction Phase is to be equal to
the tanff WACC.
(c) Return of capital to be deprecated using the straight line method for assets with a
useful life less than the remaining life of the Railway Concession Assets with
useful lives longer than the remaining Me of the Railway Concession (other than
assets acquired using sustaining capital which is neither budgeted for or funded
from insurance proceeds m the last 5 years of the life of the Railway Concession)
are to be deprecated using the units of production method to ensure that al
capital it depreciated over the life of the Railway Concession.
(d) The WACC is to be based on a real, pre-tax basis in US currency or other
currency equivalent
3.3 Singlo price path
(a) The capital charge component for the Railway Services is. subject to Article 3 3(c).
determined over a single interval equal to the duration of the Railway Concess-on
(b) The interval is known as the building block horizon and establishes the period over
which revenues (and hence charges) are calculated to meet the costs calculated
via the building blocks (not the overall cost of investments)
(C) Pnce revisions will occur (and building block honzons will be adjusted) when
external economic events occur (such as changes to the risk free rate, cost of debt
or market risk premium) or unplanned capital expansion is incurred (threshold
levels to be determined) Where the charges are revised the capital value of the
investment should be adjusted for any new investment in the Railway
Infrastructure.
(d) Where capital is invested to provide Railway Services for different products, or
where the handling characteristics of an Initial Capacity User’s product is such that
they require a disproportionate usage of the capacity then the total cost to be
recovered, via the capital cost component, is to be allocated equitably to distribute
the capital value of dedicated facilities or capital value based on the effective use
of the capacity in the provision of the Railway Services
(e) At the end of each service year, the capital charge for that year is to be
determined by reference to actual gross tonne kilometres against projected gross
tonne kilometres for below Railway Services and actual cycle times against
projected cycle times for the above Railway Services and an adjustment is to be
made To the extent that the total actual tonnes of the Initial Capacity Users are
less than the Initial Capacity then each shall pay a proportionate share of the
capital charge attached to the shortfall
3.4 Allocation of the capital chargo
Services
The capital charge is to comprise of the following Railway Services:
i p«g#|202
(a) provision of below Railway infrastructure. Below Railway infrastructure includes
the Railway Facilities, namely track work, roads and crossing, bndges, drainage,
earthworks, signalling and communications, camps, buildings, indirect
expenditure, maintenance and associated spares, and sustaining capital
expenditure;
(b) provision of above Railway infrastructure Above Railway infrastructure includes
locomotives, ore cars, bogies and other rolling stock, and other associated
sustaining capital expenditure, and
(c) provision of any other service (to be determined) that is associated with use of an
asset that is not contemplated in Articles 3 4(a) or 3 4(b).
Nodes/ Junctions
The capital charge is to be calculated for sections of the Railway Facilities between each
node/junction for the use of the below Railway infrastructure in the provision of the
Railway Services to the Initial Capacity User.
The capital charge is to be calculated for distances between the loading point at the mine
and the unloading point at the Mineral Terminal for the use of the above Railway
infrastructure in the provision of the Railway Services to the Initial Capacity User.
Flag Fall
The capital charge is to be separated into a flag fall component and a mass distance
component in respect of the use of the below Railway infrastructure in the provision of
the Railway Sen/ices to the Initial Capacity User.
The flag fall component is to be 25% of the CCsd (as determined in accordance with
Article 3 7(a)) and the mass distance component is 75% of the CCsd (as determined in
accordance with Article 3 7(a)) where the sum of 25% and 75% equals 100%.
The flag-fall component will be calculated with reference to the number of return
journeys, and the mass distance component will be calculated with reference to the mass
distance measured in gross tonnes per kilometre.
3.5 Determining the return of capital (depreciation)
(a) The assets which are to comprise the Railway infrastructure are all long life
assets
(b) In determining the depreciation rate consideration is given to the asset lives of
each major component of Railway infrastructure. Generally the depreciation rate is
determined by the shorter of the economic life of the mme served by the Railway
infrastructure, the technical life of the Railway infrastructure or the term of the
Railway Concession. In assessing the life of the Project served by the Railway
infrastructure asset consideration should also be paid to the term of the Railway
Haulage Agreement entered into by the parties.
3.6 Rotum on and return of capital
(a) The capital charge for the Railway Services is to be determined from the following
(i) the return on the capital value of the Railway infrastructure at the beginning
of each penod and this is to be calculated by applying a real rate of return to
the capital value of the Railway infrastructure at the beginning of each year,
and
2539051 1 1/ 1203
41 4T
(ii) the return of capital calculated as depreciation on the capital value of the
Railway infrastructure
(b) At the beginning of the first year for which the capital charges for Railway Services
are to be determined the capital value of the Railway infrastructure is to be the
total capital cost of developing the Railway infrastructure (including all expenditure
on the Railway relating to earthworks, drainage, culverts, bridges, roads,
crossings, track work, signalling, communications, rolling stock, maintenance
facilities, spares, camps contractor indirects. engmeenng and working capital
costs such as capitalised interest)
(c) At the beginning of each subsequent period the capital value of the Railway
infrastructure »:
C, * Cm ♦ Capex-, - DEP,,
Where
• C, is the capital value of the Railway infrastructure at the beginning of year t
• Cv- is the capital value of the Railway infrastructure at the beginning of the
year t-1;
• Capex., is any new investment in Railway infrastructure during the year t-1;
and
• DEP,, is the depreciation in year t-1 on the capital value of the Railway
infrastructure
(d) Using this notion the return on capital in year t is to be the product of the real rate
of return and the capital value of the Railway infrastructure at the beginning of year
t such that:
RET, = C.x WACC,
Where:
• RET, is the return on the capital for the Railway infrastructure during year t
• C, is the capital value of the Railway infrastructure at the beginning of the year
t and
• WACC. is the real rate of return applicable dunng the penod of 25 years for
which the capital charges are determined The real WACC is discussed m
Amde 3.9
(e) The return of capital, that is the depreciation on the capital value of the Railway
infrastructure, is to be calculated on the foSowing basis
(0 over the asset s useful life for those assets with useful lives of less than the
life of the Railway Concession
(■) assets with useful lives longer than the remaining life of the Railway
Concession are to be depreciated using the units of production method to
ensure that all capital it depreciated over the life of the mine and
(iii) any sustaining capital incurred within 5 years of the end of the Railway
Concession is to be depreciated in accordance with the economic life of the
asset and any amount not depreciated at the end of the Railway
P®9° I 204
Concession where it is neither budgeted for or funded from insurance
proceeds shall be paid to the Railway Project Company by the State
3.7 Determining the Capital Charge
(a) The capital charge for the Railway Service is calculated as:
E?=1(/?grf4,, + DEP,MJt)x (1 + WACC)-'
CCtA m Z?al TfAX * (' + WACC)-*
Where
• CC, „ is the capital charge (in real terms, at the commencement of the
penod) for the Railway Service s and track length d;
• RET, a, is that part of the forecast return on the capital value of the Railway
infrastructure allocated to the Ratfway Service s and track length d at the
beginning of year t:
• DEP,a« is that part of the forecast depreciation in year t on the capital value
of the Railway infrastructure allocated to the Railway Service s over track
length d;
• T, 4I is the nominated capacity * the Railway infrastructure available for
provision of the Railway Service s over track length d in year t where
nominated capacity is measured m both mass distance and return |Oumeys
for the use of the below Railway infrastructure m the provision of the Railway
Service and cyde days (or cycle hours) for above Railway infrastructure
used in the provision of the Railway Service.
• s designates service (whether it be for below Railway or above Railway
infrastructure):
• d designates the distance between nodal points or Railway junctions over
which the charge is determined; and
• t*1.2.....n designates a year during the period of 25 years for which the
capital charges for the Railway Service are determined.
(b) The usage charge for the Railway Service is to be calculated from the cost of
operating and maintaining the Railway infrastructure.
3.8 Determining Usage Charges
(a) The usage charge Is to compnse of the following Railway Services:
(i) provision of Railway transportation of iron ore from the mine site to the
Mineral Terminal and ore car dumping, general maintenance of the system;
and
(ii) provision of Railway transportation of freight from the Mineral Terminal to
the mine site
(b) The usage charges for the Railway Services are to be calculated from the cost of
operating and maintaining the Railway infrastructure
(c) The Rail Project Company will recover any revenue shortfall (or repay any over
recovery) at the end of each year
WI205
(d) The allocation it to be based on the projected grott matt (in wet metnc tonnes) of
ore handled by the Railway infrastructure
(e) At the commencement of each year the usage charge (not including any end of
year repayment or recovery) for the Railway Service is to be calculated as
UC*, =
Where
• UC* It the usage charge for the Railway Service t to apply dunng the year for
the track length d;
• EVCm is that part of the estimated Variable Operating Cost of operating and
maintaining the Railway infrastructure during the year which is allocated to the
Railway Service s and track length d;
• Q*, is the forecast total quantity (measured In gross tonnes) in respect of the
Railway Service s over track length d is to be provided during the year.
• EFCm is that part of the estimated Fixed Operating Cost of operating and
maintaining the Railway infrastructure during the year which is allocated to the
Railway Service s and track length d; and
• UCM it the operating margin of 12% to be applied to the usage charge to be
charged by the Railway Project Company.
(0 The Fixed Operating Cost component of estimated costs for a tariff represents that
portion of the operating and maintenance costs (both direct and indirect) incurred
in providing the Railway Services that do not vary, irrespective of the users
utilisation of the Railway Services, including a margin
(g) The Variable Operating Cost component of operating costs for a tariff represents
that portion of the operating and maintenance costs (both direct and indirect)
incurred in providing the Railway Service that vanes depending upon the users
utilisation of the Railway Service, including a margin
3.9 Annual indexation
To accommodate increases in factor costs, capital investment plans and operating model
changes, the charge should be adjusted periodically (preferably annually) The charges
should be adjusted annually based on an indexation adjustment factor using the
consumer price index applicable in the United States of Amenca unless otherwise
agreed
3.10 Determining the rate of return
(a) Cost of capital is the rate of return required by investors for financing a project
which is similar to the Project For a project that is financed with a combination of
equity and debt, the cost of capital is the WACC required by equity holders and the
debt holders in the capital market
where:
^is the proportion of equity in the total financing of the project
Ke is the nominal cost of equity
P*9® I 206
--- is the proportion of debt in the total financing of the project
Kd is the nominal cost of debt
(b) The WACC can be expressed m either post-tax or pre-tax terms The nominal
post-tax WACC is:
WACC * £ x Ke + £ x Kd x (1 - Tax)
(c) As the proposed pricing method uses real pre-tax WACC. the nominal post-tax
WACC would need to be converted to real pre-tax WACC using the forward
transformation method
E Cost of Equity
WACC V * (1 - Tax) + - x Cost of Debt
<•> Then, the nominal post-tax WACC is adjusted for expected inflation, using the
Fisher equation, to provide a real pre-tax WACC:
(1 -MV/tCCBom,n.,p„.M,)
WACC i»l (1 + Expected Inflation)
(f) Determining the cost of equity (Ke): Capital Asset Pricing Model (CAPM) is the
most widely accepted method for estimating cost of equity. The rate of return
required by equity investors on a risk asset is the sum of the risk free rate of return
and a nsk premium as the product of the excess return on a well-diversified market
portfolio of risky asset and the beta’ of the risky asset.
Ke= Rr + P. x(R„-Rf)
Where
• R. is the nsk free rate of return
• (R_ - R.) is the market nsk premium: and
• 0. is the equity beta, a normalised measure of the covanance between the
return of the nsky asset and the return on a well-diversified market portfolio of
risky assets
(g) Determining the cost of debt The cost of debt is the rate of return required by debt
holder for a nsky asset
Kd b Rr + Debt Risk Premium + Debt Issuing Cost
(h) Theoretically, the debt nsk premium can be calculated from the CAPM equation
with the debt ’Beta’ applied. However, m practice, market practitioners commonly
use the observed yield of issued debt securities with same credit rating to estimate
the debt nsk premium.
(i) Regulators also recognise the cost of issuing debt, therefore, a margin is provided
to recover the cost of obtaining a credit rating, legal fees and underwriting
expenses
0) Parameters for WACC calculation
(i) Risk free rate (R,): This parameter cannot be measured directly, therefore it
has to be theoretically constructed The Australian approach is to measure
the most recent 20 trading days' average yield on Australian Government
bonds with 10 years to maturity. An equivalent international proxy may be
the US bond market of similar maturity.
(ii) Market Risk Premium (Rm): This parameter cannot be observed directly,
therefore it has to be estimated using econometric methods.
(iii) Capital Structure: The capital structure usually follows market practice as
evidence in decisions by regulators
(iv) Debt Margin and Debt Issuing Cost: The parameter is calculated with
reference to the current debt margin observed in the market for the entities
with BBB+ credit ratings. The cost of raising capital is measured by debt
financing fees for the Project.
(v) Expected Inflation: Expected inflation rates can be calculated with reference
to the difference between nominal and indexed US Government bond yields
using the Fisher equation
(vi) Tax: 25% corporate tax rate.
4 Tariff payable by Access Holder for Expansion Stage
4.1 Access Holder Tariff
The Tariff payable by the Access Holder is comprised of the following elements
(a) a capital charge for forecast capacity on that portion of the Mainline Railway which
is being used to provide the Access Holder with the Railway Services which
charge is to be calculated on the same principals and capital costs as the charge
for the Initial Capacity Users:
(b) less a notional charge for the Access Holder s investment in the upgrade of the
Mainline Railway and to provide above Railway infrastructure capacity in order to
provide the Expansion Capacity but does not include capital expended in order to
maintain System Efficiency or to construct the Additional Spur Line
(c) a usage charge for actual use of the Railway infrastructure to cover the Fixed
Operating Costs and Variable Operating Costs, and
(d) a State Charge for granting of Railway Services to the Access Holder over part of
the track length in the territory of the State
4.2 Capital Charge
The capital charge for the Access Holder is the same capital charge for the Initial
Capacity as payable by the Initial Capacity Users for the Railway Services and track
length being used by the Access Holder.
4.3 Notional Chargo
(a) The notional charge is designed to compensate the Access Holder's Expansion
Capital Costs in the common use Railway infrastructure
(b) The notional charge is to be calculated such that it mirrors the same provisions as
the capital charge as set out in Article 3 above, with the exception that only the
mass distance component will apply to the calculation of the use of the below
Railway infrastructure in the provision of the Railway Service
page! 208
(c) In calculating the nobonal charge the following applies
(i) the WACC remains unchanged.
(ii) the capital value is the amount invested by the Access Holder.
(M) the depreciation is based on the Access Holder s We of mine at the time of
its decision to provide the expansion capital;
(vv) the return on capital is based on the Expansion Capital Cost and the
WACC.
(v) the Access Holder’s forecast capacity in the Railway infrastructure, and
(vi) the flag fall component is 0% and mass distance component is 100%
4.4 Usage Charge
The usage charge for the Access Holder is the same as the usage charge as payable by
the Initial Capacity Users for the Railway Service and track length being used by the
Access Holder,
4.5 Base Charge
(a) The base charge is to be included in the Tariff and is payable by the Access
Holder where the capital charge less the notional charge referred to in Article 4 3
and the notional capital charge referred to in Article 4 9 is a positive number, This
base charge is to shared [50%) Cam Iron and [50%) the State
(b) If after calculating the base charge the amount is negative i.e it is greater than the
capital charge calculated in accordance with Article 4 1(a) then for the purposes of
the tariff payable by the Access Holder, the base charge mil be zero
4.6 State Chargo
The State Charge represents an amount being charged by the State, which amount shall
not be unreasonable in all the circumstances, having regard, amongst other things, to the
development and operation of an internationally competitive iron ore Industry In and
about the territory of the State and collected by the Railway Project Company for
allowing the Railway Project Company to provide Railway Services to the Access Holder
over part of the track length in the territory of the State.
4.7 Tariff Payable
At the commencement of each period the Tariff for the Railway Service will be calculated
as:
AHT* « (CC,d x IA) - AHRM + UC*+ SC*
Where:
• AHT* is the Access Holder Tariff for the Railway Service s to apply dunng the
year for the track length d;
• CC, is the capital charge (in real terms) for the Railway Service s and track
length d;
'■'V page | 209
• IA is the inflation adjustment factor applied to the capital charge (CCsd) to
escalate the capital charge from the effective price level date to the revised
price level date consistent with the date that AHTm is being calculated;
• AHRtd is the notional charge (in real terms) for the Railway Service s and track
length d;
• UCM is the usage charge for the Railway Service s to apply during the year for
the track length d; and
• SCM is the State charge for the Railway Service s to apply during the year for
the track length d
4.8 Efficiency Provisions
(a) Expansion Capital must provide the same or greater levels of operating efficiency
and latent capacity as the Initial Capacity Users realised in undertaking the initial
investment.
(b) Each Access Holder to the Mainline Railway must:
(i) ensure disruptions to existing operations are minimised throughout the
Construction Phase. Each successive Access Holder must communicate
all planned disruptions to the Initial Capacity Users and any preceding
Access Holder and liquidated damages may result in the event this does not
occur or where the length of the actual disruption is greater than the penod
of the planned disruption; and
(ii) hold harmless each Initial Capacity User and any preceding Access Holder
against any increase in either Fixed Operating Costs or Vanable Operating
Costs arising as a consequence of that Access Holder being provided with
Railway Services.
5 Illustrative Worked Examples
5.1 Worked Example Number 1: Base Charge for Below Railway Infrastructure
(a) Charge applies to the use of below Railway infrastructure for the provision of
Railway Services between nodes A (Mineral Terminal) and B (Nabeba / Mbarga
rail junction)
(b) Below Railway capital costs of the Mainline Railway from node A to B are
USS2.0B
page | 210
(c) WACC is 10% (Real. Pre-Tax)
(d) The estimate production rate is 35Mtpa (excluding moisture)
(e) Free moisture content is 7%
(f) The Mainline Railway is 489km in length between nodes A and B
(g) Gross (or laden) weight is 25.000t per consist
(h) Tare (or unladen) weight is 5.000t per consist
(i) The Construction Phase is 3 years
(j) The Exploitation Phase is 25 years
(k) The total project life is 28 years
(l) Capitalised interest applies dunng the Construction Phase
(m) Capex is assumed to be fully depreciated over the Exploitation Phase
(n) No sustaining capital is assumed
(o) Capital charge is calculated In real terms
(p) Flag fall component is 25% and mass distance component is 75%
Using the formula as set out in Article 3.7(a) determine the capital charge for the use of
the below Railway infrastructure in the provision of the Railway Service over the distance
between nodes A and B
_ £T* DEP.4J,) X (1 + WACC)-
S'.,!*, » (1 + HMCC)-'
The numerator can be separated into the return component and the depreciation
component as follows:
ZhtRET^jt x (1 + WACC)-' + If-1 DEP,mj * U ♦ WACC)-*
TtAX x (1 + WACC)-'
The above formula can be simply restated as follows
CClM - (/v of Return on Capital+PV of Rrfum of Capital)/ PV of Capacity
Therefore. CCtM is determined based on three components:
1. PV of return on capital (refer Step 2);
2. PV of return of capital (refer Step 3). and
3 PV of the capacity (refer Step 4).
wge|2H 4
The calculation of the return on captal requires the sub-component calculations of the
OBV during the Construction Phase and OBV dunng the Exploitation Phase before finally
calculating the PV of the return on capital
Step 2a. Calculate tht.QBV
OBVldt is the opening balance value of the asset at penod t
OBV calculation is different between the Construction Phase and the Exploitation Phase
OBV during the Construction Phase
• OBV is adjusted for new capital expenditure and capitalised interest (the return on
capital earned during Construction Phase)
OBViAJ = OBVlXJ.t ♦ Capitalised Interestr_, + New Capex,
* OBV.*,-, + OBViAj., x WACC + New Capex,.,
- OBV.^., x (1 + WACC) + New Capex,.,
• Therefore, at the completion of the Construction Phase or the commencement of the
Exploitation Phase at year 3:
*■4
OBVs/L4 = Annual Capex x (1 + WACC)n
' i (J512.8 m x 1.10 + $672.2 m x 1.10' + $810Jm x 1.103)
- $2.170.2 m
• The total of S2.170.2m represents the S1.995.3m capital expenditure and S174 9m
of capitalised interest
• Column 2 of Table 1 (below) illustrates the penods 1 through 3 in the Construction
Phase.
OBV during the Exploitation Phase
• 0BVSid,i does not incur capitalised interest, however, it should be adjusted by any new
capital expenditure and depreciation:
OBVsAX = 0BV,M.t + New Capex,., + Depreciation,.,
• Column 2 of Table 1 illustrates the OBV over the periods 4 through to 28 in the
Exploitation Phase.
• The interest during construction period is capitalised into the OBVt d 4 , which is
recovered via return of capital during the Exploitation Phase Therefore, the PV of
return on capital will only Include return on capital during the Construction Phase
1-28
PV (Return on Capital) ■ HETsd t x (1 + WACC)-f
r-4
(-28
■ £ 0BV,4j x WACC x (1 + WACCY*
r-4
2MB1M1.1 pa3« | 212
* obviAA x WACC X (1 + WACCT4 + I M\\OBViAj.x +
Capex,-, - DEPlAJ-t) x WMCC x (1 + KMCC)"f
- $2.170.2m x 10% x l.l"4 + ($2.083.4m + $0m - S86.8m)
x 10% x 1.1-* + + ($173.6m ♦ $0m
- $86.8m) x 10% x l.rM
- $1,382.2 m
• Column 7 of Table 1 below illustrates the return on capital through the Construction
Phase and Exploitation Phase
Step 3 Calculate the PV R^um Of Capital
The annual depreciation DEPs. d. t is calculated below
DFP = 0BV
,dt Operational life
_ $2,170.2 m
25 years
= $86.8 m/year
• OBVm4a is the opening balance value of the asset at the commencement of the
Exploitation Phase.
,■21
PV (Return of Capital) - 0EPldl = x (1 + WACC)-'
i ■« + $86.8m x l.l-8 + - + S86.8m x
- $86.8m X l.l"4
= $788.0 m
• Column 8 of table 1 below illustrates the Return of Capital
SUULiMlSm distanqqsmRQMnt
The mass distance component is measured in gross tonne kilometres and is represented
by
Moss Distance (gt.km) = {GCW + TCW) x / x d
Where
• GCW ■ Gross consist weight
• TCW ■ Tare consist weight
• J ■ Number of round trip journeys in the year
• d ■ distance between nodes A and B
And J is calculated as follows
page 1213
J = Production volume / (gross consist weight - tare consist weight)
= 37.45mtpa / (25.000t - 5.000t)
B 1873 journeys per annum
On an annual basis, this is represented by:
Mass Distance (gt.km) *» (25.000t + 5,000t) x 1872.5 journeys per annum x 489km ■
27,470 x 10®gt.km
n
PV (Mass Distance) * x (1 + WACCy1
= 25.076M gt.km x l.r4 + 27,470M gt.km x l.r5 + - + 21 MOM gt.km
x l.r28 = 247,169Mgt.km
Column 9 of Table 1 illustrates the mass distance values during the Exploitation Phase.
Step 4b. Flag Fall Qompqnent
The flag fall component is measured return journeys and is represented by:
J ■ Production volume / (GCW - TCW)
Where:
• GCW * Gross consist weight
• TCW ■ Tare consist weight
• J ■ Number of round trip journeys in the year
And J is calculated as follows
J * Production volume / (gross consist weight - tare consist weight)
= 37.45mtpa / (25,000t - 5.000t)
• 1873 journeys per annum
Column 10 of Table 1 illustrates the capacity values dunng the Exploitation Phase
The PV of the return journeys is calculated as:
PV (Return Journeys) = x (1 + WACC)'1
= 1,709J X l.r4 + 1,873J x l.r5 + - + 1.873J x l.l"28 = 16.849/
Step 5. Calculate the Capital Charge
Step 5a. Mass distance component
The capital charge in real terms is represented by:
(PV of Return on Capital + PV of Return of Capital) x (1 - FlagtoR
CCiM = PV of Gross Tonne Kilomtres
I 214
Therefore. using the amounts at determined m the above step* the capital charge for the
ute of the below Railway infrastructure m the provision of Railway Services over the
distance between nodes A and B
($1,382.2m + $788.0m) *75%
CC'*m 247,169 x \(3*gtkm
- $0.00642/gtkm
Thm equates to
CC,j • $0-00659/gf. km x 27.470 x 10**f.*m
* $ 180.9m annually or $5.17/dmt equivalent
Sfyp jp fili1M Simnnent
The flag fan components of the capital charge m real terms is represented by:
cctA (PV of Return on Capital + PV of Return of Capital)x Flag fall %
PV of Return Journeys
Therefore, using the amounts as determined m the above steps the capital charge for the
use of the below Railway infrastructure m the provision of Railway Services over the
distance between nodes A and B
($ 1,382.2m 4 S788.0m) x 2SH
CCIA 16.849/
- $32.201//
This equates to
CClA • $32,201// x 1.873/
$60.3m annually or $1.72/dmt equivalent
P*9«|21S
10 1649 3 (868) 1.562 5 164 9 868 27.470 1872
11 1.562.5 - . (86 8) 1.475 7 1563 868 27 470 1.873
12 1.475.7 (868) 1.388 9 1476 eee 27.470 1873
13 1.388 9 (868) 1.302 1 138 9 86 8 27.470 1 873
14 1.302 1 (868) 1.215 3 130 2 86 8 27.478 1.873
15 1.2153 (868) 1.128 5 121.5 86 8 27.470 1.873
16 1.128 5 (868) 1.041,7 1128 868 27.470 1873
17 1.041.7 (868) 954 9 1042 868 27.470 1873
18 954 9 (868) 868 1 95 5 86 8 27.470 1.873
19 868 1 (86 8) 781.3 868 868 27.470 1,873
20 781.3 (868) 694.5 78.1 86 8 27.470 1873
21 694.5 (868) 607.7 69 4 85 8 27.470 1.873
22 607.7 (868) 5208 608 668 27.470 1.873
23 620 8 (86 8) 434 0 521 668 27.470 1.873
24 434.0 (868) 347.2 43 4 868 27 470 1.873
25 347 2 . (868) 2604 34 7 86.8 27470 1.673
26 2604 (86 8) 173 6 26.0 868 27.470 1.873
27 1736 (86 8) 868 17.4 86 8 27.470 1.673
28 86 8 (86 8) (0.0) 8 7 86 8 27.470 1.873
NPV 1.382 2 788 0 247.169 16.849
Tariff ($/0!.km & VReiurn Journey) 0 00659 32.201
25381351 1 page| 216
Worked Example 2: Base Capital Charge - Abovo Railway Intra.tructure
(a) Charge applies to the use of the below Railway infrastructure for the provision of
Railway Services between nodes A (Mineral Terminal) and B (Nabeba / Mbarga
rail junction) and nodes C and D
(b) Above Railway capital costs are USS394M
(c) WACC is 10% (Real. Pre-Tax)
(d) The Mainline Railway and relevant Initial Spur is 515km in length between nodes
A and C (Mbalam). and 564km between notes A and D (Nabeba)
(e) The estimate production rate is 35Mtpa (excluding free moisture)
(0 Free moisture content is 7%
(g) The train cycle time is 22hrs 43mm for Mbalam and 24hrs 26mm for Nabeba with
a weighted average cyde time of 23hrs and 45mm
(h) Gross (or laden) weight is 25.0001 per consist
(i) Tare (or unladen) weight it 5.000t per consist
(j) The construction period is 3 years
(k) The production penod is 22 years
(l) The total project life is 28 years
(m) Capitalised interest applies dunng the construction period
(n) Capital expenditure is assumed to be fully depreciated over 10 years
(o) No sustaining capital is assumed
(p) Capital charge is calculated m real terms
page | 217
Using the formula as set out in Article 3.7(a) determine the capital charge for the use of
the below Railway infrastructure for the provision of Railway Services over the distance
between nodes A and B
JX.ilRET,'* + DEPSJU) x (14- WACC)-'
,A zr=i Tw*x x (! + WACC)-* 1
The numerator can be separated into the return component and the depreciation
component as follows:
YZ=lRETstA x (1 + WACC)-1 + IP=, DEPsAi x (1 + WACC)-1
E?=, Ts4Jt x (1 + WACC)-'
The above formula can be simply restated as follows:
CCfM= (PV of Return on Capital+PV of Return of Capital)/ PV of Capacity
Therefore. CCs. d is determined based on three components:
1. PV of return on capital (refer Step 2);
2. PV of return of capital (refer Step 3); and
3. PV of the capital charge (refer Step 4).
Step 2. Calculate the Return On Capital
The calculation of the return on capital requires the sub-component calculations of the
OBV during the Construction Phase and OBV during the Exploitation Phase before finally
calculating the PV of the return on capital.
Stepja. Calculate the Opening Balance Value (OBV)
OBVI>d | is the opening balance value of the asset at period t.
OBV calculation is different between the Construction Phase and the Exploitation Phase.
OBV during Construction Phase
• OBV is adjusted for new capital expenditure and capitalised interest (the return on
capital earned during the Construction Phase).
OBV.jd, = OBVsdl„l + Capitalised Interest+ New Capex,-,
- OWfAt-i + OBVSiiil., x WACC + New Capex
= x (1 + WACC) + New Capex,
• Therefore, at the completion of the Construction Phase or the commencement of the
Exploitation Phase at year 4
OBVl dA = Capital expenditure x (1 + WACC)n
i-i
= ($101.4m x 1.1 + $132.9m x l.l2 3 + $160.2m x 1.1*)
= $429.Om
page | 218
• The total of $429.Om represents the $394 4m in capital expenditure and $34 6m of
capitalised Interest.
• Column 2 of Table 2(below) illustrates the OBV over the periods 1 through 3 in the
Construction Phase
OBV during the Exploitation Phase
• OBVl/U does not incur capitalised interest, however, it should be adjusted by any new
capital expenditure and depreciation:
OBVtdi, ■ ODVgdt.1 + New Capext„x + Deprecation
• Column 2 of Table 2 illustrates the OBV over periods 4 through to 13 In the
Exploitation Phase.
• The interest during the Construction Phase is capitalised into the OBVtdA . which is
recovered via return of capital during the Exploitation Phase Therefore, the PV of
return on capital will only include return on capital during Construction Phase
r-i4
PV (Return on Capital) = ^ RETsdt x (1 + WACC)'1
f = 4
r»i*
= £ OBViAJ x WACC x (1 + WACC)-«
r*4
= OBVtdA x WACC x (1 + WACCy4 ♦ V,l¥[pBV,AJ.x + Capex,., - DEPlAJ.x) x WACC x
a + wAccy1
= $429.0 m x 10% x 1.1“4 + ($390.0 m + $0m - S39.0m) x 10% x 1.1“* + - + (S78.0m +
$0m --- $39.0m) x 10% x l.l"14 » $175.7 m
• Column 7 of Table 2 below illustrates the return on capital through the Construction
Phase and the Exploitation Phase.
Step 3. Calculate the PV of Return Qf Capital
The annual depreciation DEPs.d.tis calculated below:
DFP =
s,(,t Operational life
$429.0 m
* ----- $39.0 m/annum
11 years
OBVt4 4 is the opening balance value of the asset at the commencement of the
Exploitation Phase.
Step 3b. Calculajethe PV of fri? Rtfprn Of Capital
pago | 219
/n &
C" 14
PV (Return of Capital) - £ DEPl/tJ x (1 + WACCy1
= $39.0m x 1.10"4 + $39!om x UO"5 + • •• + $39.0m x 1.10"u = S253.3m
• Column 8 of Table 2 below illustrates the return of capital.
Step 4. Calculate fho_£fllgg/ty measured in cycle days.per_annum
The capacity is measured in cycle days per annum and is represented by:
Delivery time Production Volume (Wet)
24 hours Ore delivered per train
23.52 37.45Mf
24 X 20.000f
= 1,836 cycle days per annum
Where:
• CD ■ Cycle days: and
• Delivery time ■ Time in hours for ore train to complete a full circuit of the Mainline
Railway including loading and unloading.
Step 4a Calculate the PV of the Capacity
n
PV (Capacity) * £ TtjU x (1 + WACCY*
= 1,676 cd x 1*10“4 ♦ 1.836 cd x 1.10"* + ••• + 109cd x 1.10-14 = 11.172 cd
The capital charge in real terms is represented by:
PV of Return on Capital ♦ PV of Return of Capital
PV of Cycle Days
Therefore, using the amounts determined in the above steps the capital charge for the
use of the above Railway infrastructure for the provision of the Railway Services «s
ccs4 = SI75.7 m + S2S3-3m S38,397/cd
11,172 cd
On an annual basis this equates to:
CC^ = $38,397 x 23.52 x 37.50Aft
24 20.000t
- $70.5m
Or S2 01/dmt equivalent
P*je i 220
Table 1 - Calculation detail for worked example 2
Column 1 Column 2 Column 3 Capitalised Column 6 Return on Return of Capacity
interest Depreciation Capital Capital (cd)
1 101.4 - - 101.4 * •
2 101.4 132 9 10.1 • 244.4
3 244.4 160.2 24.4 429 0 -
4 429.0 - (39 0) 3900 429 39.0 1.676
6 390.0 • - (39.0) 351.0 39 0 39.0 1.836
6 351.0 - - (39.0) 3120 35.1 39.0 1.836
7 312.0 - • (39.0) 273.0 31.2 390 1.836
a 273.0 - (39.0) 2340 27.3 390 1.836
9 234 0 - (39.0) 195.0 234 390 1,836
10 195.0 - (39.0) 156.0 19.5 39.0 1,836
11 156 0 (390) 117.0 15.6 390 1.836
12 117 0 - (390) 78 0 11.7 39.0 1.836
13 78.0 - (390) 390 7.8 39.0 1.836
14 39.0 - - (39.0) - 39 39.0 109
NPV 176.7 253.3 11.172
Tariff (S/cd) 38.397
(a) XYZ Co is a 35Mtpa (excluding moisture) operation
(b) Free moisture contents is 7%
(c) XYZ Co is an Access Holder
(d) XYZ Co first production in Q1 2019 and has a mine life of 20 years
(e) XYZ Co spends US$200m upgrading the Mainline Railway.
(f) XYZ Co uses 350km of the Mainline Railway network between nodes A and E
A
(g) XYZ Co has a cycle time of 18.5 hours or 0.77 days
(h) Gross (or laden) weight is 27.000t per consist
(i) Tare (or unladen) weight is 7.000t per consist
(j) Operating costs are charged at S4/t (real October 2010)
TariffPayable - Below Railway:
The below Railway tariff is represented as follows:
AHT,fl = (CC*, x IA) - AHR„ +UCM + SC90
Where:
• AHT* is the Access Holder Tanff for the Railway Service s to apply dunng the
year for the track length d;
• CC* is the capital charge fin real terms) for the Railway Service s and track
length d.
• IA is the inflation adjustment factor applied to the capital charge (CCsd) to
escalate the capital charge from the effective price level date to the revised
price level date consistent with the date that AHTsd is being calculated;
• AHRS0 is the notional charge (in real terms) for the Railway Service s and track
length d;
• UC,a is the usage charge for the Railway Service s to apply during the year for
the track length d; and
• SC*, is the State Charge for the Railway Service s to apply during the year for
the track length d.
Step 1 ^Calculate the Access Holder Capacity measured in gross tonne kilometres
The capacity is measured in gross tonne kilometres and is represented by.
Capacity fgt.km) = (GCW + TCW) x J x d
Where:
• GCW = Gross consist weight
• TCW = Tare consist weight;
• J = Number of round trip journeys in the annum; and
• d = distance between nodes A and E.
And J is calculated as follows
J = Production volume / (gross consist weight - tare consist weight)
= 37.45Mtpa / (27,000t - 7.000t)
= 1.872.5 journeys per annum
On an annual basis, this is represented by
Capacity (gt.km) = (27.000t ♦ 7,000t) x 1.872 5 journeys per annum x 350km = 22.283 x
106gt km
Using the real below Railway infrastructure capital charge of SO 00659/gt km this equates
to a nominal charge of SO 00827/gt.km in 2019 and is equivalent to a charge of S184 4m
on an annual nominal basis in 2019
CC,4 * 22.283 gL km x $0.00827/*. km = S184.4m
Using the formula as set out in Article 3.7(a) determine the capital charge for the use of
the below Railway infrastructure for the provision of the Railway Service over the track
section between nodes A and E
_ J2mi(*ETgJjg + dep.mj) x (14 WACC)-'
CC,A = rr», tiAJ x (i ♦ waccrr
The numerator can be separated into the return component and the deprecation
component as follows
X?atRET,lA x (1 + WACC)"* + £?„, DEPl4t x (1 + WACC)-'
CCtd ” E?., TtAJ x (1 + WACC)"'
The above formula can be simply restated as follows
CCltd- (PV of Return On Capital*PV of Return Of Capital)/ PV of Capacity
Therefore. CCtA is determined based on three components
1. PV of return on capital;
2. PV of return of capital; and
3. PV of the capacity.
• Applying the above parameters this equates to a nominal notional charge of
$0.00108/gt km or S24 1m annually m 2019
• Using the results of Step 2 and Step 3, this equates to a net capital charge of
$0.00719/gt km or $160 3m on a nominal, annual basis in 2019
Using the real below Railway infrastructure fixed capital charge of $32 201 /return journey
this equates to a nominal charge of $40 463/J in 2019 This implies a charge of $75 8m
on an annual basis
This gives a total annual capital charge of $236 1m on a nominal, annual basis in 2019 as
shown in the table below
WI223
Nominal Mass Mass Net Mass Mass Fixed Total
Distance Distance Distance Distance Fixed Annual Annual
Capital Capital Capital Annual Capital Capital Capital
Chargos Charge
Charge Offsel Charge Charge Charge Charge Charge
Yoar $/gt.km S/gt.km S/gt.km Sm S/J Sm Sm
2019 000827 0.00108 000719 160 30 40.463 3 75 8 236 1
2020 0 00848 0.00111 000737 164 31 41.474 9 777 242 0
2021 0CO869 0.00114 0 00758 168 42 42.51' 8 79 6 248 0
2022 0COS91 000118 0 00775 172 63 43.574 6 816 254 2
202J 000913 000119 0 00794 176 95 44.663 9 83 8 260 6
2024 0 00936 000122 000814 181 37 45.780 5 85 7 267 1
2025 0 00960 0 00125 0 00834 185 90 46.9250 87 9 273 8
2026 0 00984 0 00128 0 00855 190 55 48 098.2 90 1 280 6
2027 001008 0 00132 0 00877 195 31 49.300 6 92 3 287 6
2028 0.01033 000135 0 00898 200.20 50.533.1 94 6 294 8
2029 0.01059 0.00138 0 00921 205 20 51.796 5 97 0 302 2
2050 001086 0 00142 0 00944 21033 53.091 4 994 309 7
2031 0 01113 0 00145 0 00968 215 59 54 4187 101 9 317 5
2052 001141 0 00149 0 00992 220 98 55 779 1 104 4 325 4
2053 0.01169 000153 001017 226 51 57.1736 107 1 333 6
2054 0 01198 000157 001042 232 17 58.6029 109 7 341 9
2035 001228 0 00160 001088 237 97 60.0680 1125 350 4
2036 001259 0 00164 001095 243 92 61.569.7 115 3 359 2
2037 0.01291 0.00169 0 01122 250 02 63.109 0 118 2 368 2
2038 0.01323 0 00173 0 01150 256 27 64.656 7 1211 377 4
Step 5. Calculate the Usage Charge
• Operating costs will be passed through to XYZ Co on a cost plus 12% rate which forms
the usage charge.
This results in a nominal usage charge of $5.03/1 or $ 187.4m per annum for XYZ Co.
Step 6. Calculate the Access Holder Tariff
• At the rate of 37 45Mtpa on an annual, nominal basis in 2019, this equates to:
AHT%a= $236.1 m +$187.4 ♦ SC*
= $423.5m ♦ SCW
Or $12.1 /dmt equivalent * SCM
25MU51.1 P*9® I 224
/h
Appendix 1
Additional Access Holders
(a) Where there are multiple Access Holders of the Expansion Capacity of the
Railway and those Access Holders gain access at differing times during the term
of the Railway Concession then any subsequent Access Holder to the first Access
Holder to the Expansion Capacity of the Railway will pay an Access Holder Tariff
comprising:
(i) the base charge referred to in Article 4 5;
(ii) less a notional capital charge for the cost of the first Access Holder having
to fund the Expansion Capital Costs The calculation of the notional capital
charge is the sum of
(A) the Expansion Capital Cost incurred by the first Access Holder as
adjusted for WACC and depreciation; and
(B) multiplied by the proportion of the Expansion Capacity created by the
first Access Holder that is to be utilised by the subsequent Access
Holder,
and the product of paragraphs (a)(ii)(A) and (B) is to be multiplied by the
number of wet tonnes of the subsequent Access Holder ore which at the
date of calculation is the expected reserves of the mine in order to
determine the per wet tonne charge;
(iii) a usage charge for actual use of the Ratfway infrastructure to cover the
Fixed Operating Costs and VanaWe Operating Costs, and
(iv) a State Charge for granting the Railway Services to the Access Holder in
the territory of the State.
(b) The first Access Holder is entitled to recover from subsequent Access Holder an
upfront lump sum payment in the amount calculated by operation of paragraphs
(a)(ll)(A) and (B) in return for the subsequent Access Holder being entitled to
utilise all or part of the unused Expansion Capacity
(c) The lump sum amount referred to in paragraph (a)(ii) is to be calculated as follows
Amount = (Investment x (WACC uplift factor) - Depreciation) x
Usage/Capacity
(d) Where a subsequent Access Holder has an obligation to pay a notional capital
Charge as referred to in paragraph (b) then it is a condition precedent to being
provided with a Railway Service that the subsequent Access Holder makes
payment in full to the first Access Holder.
3SM1M1J page | 225
Framework for Tariff for Mineral Terminal Services
1 Definitions
Terms and expressions used in this Framework shall have the same meaning as in the
Convention unless the contrary intention appears:
Access Holder means a party that has entered into a Mineral Terminal Agreement with
the Mineral Terminal Project Company in respect of being provided with the Mineral
Terminal Services to be provided in an Expansion Stage, which party may be the Mine
Project Company, an Affiliate. Congo Iron or a Third Party
Expansion Capital Cost means the total of all direct and indirect costs incurred by or on
behalf of an Access Holder for the purposes of an Expansion Stage, being costs incurred
in developing the following assets
(a) such assets as are required for the purposes of upgrading the Mineral Terminal in
order to:
(i) provide Mineral Terminal Services to that Access Holder and
(ii) maintain the capacity of the Mineral Terminal for the Initial Capacity Users
or any other Access Holder that may have entered into a Mineral Terminal
Services Agreement and incurred Expansion Capital Costs: and
(b) such assets comprising the Mineral Terminal as are for the purposes of integrating
the existing and new assets into the Mineral Terminal.
Flxod Oporating Costs means all direct and indirect costs incurred by or on behalf of
the Mineral Terminal Project Company in operating the Mineral Terminal, other than the
Variable Operating Costs.
Initial Capacity User means either the Mine Project Company or Congo Iron as a party
to a Mineral Terminal Agreement with respect to the Initial Capacity of the Mineral
Terminal.
Initial Capital Cost means the total of all direct and indirect costs incurred by or on
behalf of the Mineral Terminal Project Company in developing the Initial Capacity of the
Mineral Terminal including costs incurred before the Date of Entry into Force.
Mineral Terminal Services means the loading and unloading services utilising both the
materials handling and marine services infrastructure which the Mineral Terminal Project
Company has contracted to provide to a User.
OBV means the opening balance value of an asset.
PV means present value.
State means the Republic of Cameroon.
Stato Chargo means the charge referred to in Article 4.6.
System Efficiency means the capacity of Mineral Terminal which is being achieved or
which should be achieved if fully utilised prior to the Access Holder being provided with a
Mineral Terminal Service.
Tariff means the change per unit of Mineral Terminal Service under Article 2 for the
Mineral Terminal Project Company providing Mineral Terminal Services
page 1226
User means either an Initial Capacity User or an Access Holder.
Variable Operating Costs means the following direct and indirect costs incurred by or
on behalf of the Mineral Terminal Project Company in operating the Mineral Terminal,
including port management (labour and on-costs) and operational tasks, structures
maintenance and maintenance dredging and pilotage
WACC means the weighted average cost of capital.
2 Payment obligation
(a) Dunng the term of the Mineral Terminal Agreement, the Mine Project Company
must pay the Mineral Terminal Project Company the Tanff on a monthly basis, as
calculated in accordance with Article 3 and otherwise in accordance with the terms
of the Mineral Terminal Agreement
(b) Dunng the term of the Congo Mineral Terminal Agreement. Congo Iron must pay
the Mineral Terminal Project Company the Tariff on a monthly basis, as calculated
in accordance with Article 3 and otherwise in accordance with the terms of the
Congo Mineral Terminal Agreement
(c) During the term of a Mineral Terminal Agreement with the Access Holder, that
Access Holder must pay the Mineral Terminal Project Company the Tanff on a
monthly basis, as calculated in accordance with Article 4 and otherwise in
accordance with the terms of the Mineral Terminal Agreement with that Access
Holder
3 Tariff payable by Mine Project Company and Congo Iron for the
Initial Capacity
3.1 Two part tariff structure
(a) The Tariff payable by Mine Project Company and Congo Iron for the Initial
Capacity of the Mineral Terminal is based on a two part tariff structure. The two
part tariff proposes that the Initial Capacity User pays a fee to use any amount of
the Mineral Terminal Services provided using the Mineral Terminal and a charge
per unit of the Mineral Terminal Service actually used which does not vary with the
level of usage
(b) The two part tariff compnses of:
(i) a capital charge for forecast capacity of the Mineral Terminal infrastructure
to cover capital costs associated with the Initial Capacity: and
(N) a usage charge for the actual use of the Mineral Terminal infrastructure to
cover the Fixed Operating Costs and Variable Operating Costs
3.2 Capital charge
(a) The capital charge for any tanff will consist of a return on capital and return of
capital, where:
(0 the capital charge component is calculated using an annuity formula on the
share of capital costs attnbutable to an Initial Capacity User.
the return on capital is determined with reference to a WACC. and
WI227
(ili) the return of capital is determined with reference to a capital payback
period
(b) Dunng the Construction Phase and Project Commissioning, the return on capital
element is to be calculated and capitalised (added to the asset base) The interest
rate applied to the capital balance dunng the Construction Phase is to be equal to
the tariff WACC.
(c) Return of capital to be depreciated using the straight line method for assets with a
useful life less than the remaining life of the Mineral Terminal Concession. Assets
with useful lives longer than the remaining life of the Mineral Terminal Concession
(other than assets acquired using sustaining capital in the last 5 years of the life of
the Mineral Terminal Concession) are to be depreciated using the units of
production method to ensure that all capital is depreciated over the life of the
Mineral Terminal Concession.
(d) The WACC is to be based on a real, pre-tax basis in US currency or other
currency equivalent.
3.3 Single price path
(a) The capital charge component for the Mineral Terminal Services is subject to
Article 3.3(c). determined over a single interval equal to the duration of the Mineral
Terminal Concession.
(b) The interval is known as the building block horizon and establishes the period over
which revenues (and hence charges) are calculated to meet the costs calculated
via the building blocks (not the overall cost of investments).
(c) Price revisions will occur (and building block horizons will be adjusted) when
external economic events occur (such as changes to the risk free rate, cost of debt
or market risk premium) or unplanned capital expansion is incurred (threshold
levels to be determined). Where the charges are revised the capital value of the
investment should be adjusted for any new investment in the Mineral Terminal
infrastructure.
(d) Where capital is invested to provide Mineral Terminal Services for different
products or where the handling characteristics of an Initial Capacity User's
product is such that they require a disproportionate usage of the capacity then the
total cost to be recovered, via the capital cost component is to be allocated
equitably to distribute the capital value of dedicated facilities or capital value based
on the effective use of the capacity in the provision of the Mineral Terminal
Service
(e) At the end of each service year, the capital charge for that year is to be
determined by reference to actual product tonnes handled against projected
product tonnes handled for the Mineral Terminal Service and an adjustment is to
be made To the extent that the total actual product tonnes handled of the Initial
Capacity Users are less than the Initial Capacity then each shall pay a
proportionate share of the capital charge attached to the shortfall
3.4 Allocation of the capital charge
Services
The capital charge is to comprise of the following Mineral Terminal Services
(a) provision of matenals handling infrastructure measured in terms of product tonnes
handled. Materials handling includes in-loading circuit, out-loading circuit, berth
and loading platforms, dredged channel and dredge disposal, trestle jetty, berthing
/
I 228
nr
and moooog equipment. navigational aids and other associated capital and
sustaining capital expenditure.
(b) provision of marine service infrastructure measure m terms of annual time periods
Marine Service infrastructure includes manne offloadxig facility freight and
materials handling infrastructure, and other associated capital and sustaining
capital expenditure; and
(c) provision of any other service (to be determined) that is associated with use of an
asset that is not contemplated in Articles 3 4(a) or 3 4(b)
3.5 Determining the return of capital (depreciation)
(a) The assets which are to comprise the Mineral Terminal infrastructure are all long
lived assets
(b) In determining the depreciation rate consideration is given to the asset lives of
each major component of Mineral Terminal infrastructure. Generally the
deprecation rate is determined by the shorter of the economic life of the mine
served by the Mineral Terminal infrastructure, the technical life of the Mineral
Terminal infrastructure or the term of the Mineral Terminal Concess on. In
assessing the life of the Project served by the Mineral Terminal infrastructure
assets, consideration should also be paid to the term of the Mineral Terminal
Services Agreement entered into by the parties.
3.6 Return on and return of capital
(a) The capital charge for the Mineral Terminal Services is to be determined from the
following;
(i) the return on the capital value of the Mineral Terminal infrastructure at the
beginning of each penod and is to be calculated by applying a real rate of
return to the capital value of the Mineral Terminal infrastructure at the
beginning of each year; and
(li) the return of capital calculated as depreciation on the capital value of the
Mineral Terminal infrastructure
(b) At the beginning of the first year for which the capital charges for Mineral Terminal
Services are to be determined, the capital value of the Mineral Terminal
infrastructure is to be the total capital cost of developing the Mineral Terminal
infrastructure (including inloading circuit, outloadmg circuit, berth and loading
platforms, dredged channel and dredge disposal, trestle jetty, MOF harbour,
berthing and mooring equipment, navigational aids, camps, contractor indirects,
engineering and working capital costs such as capitalised interest.)
(c) At the beginning of each subsequent period the capital value of the Mineral
Terminal infrastructure is
C, = CM + Capex,., - DEP,.,
Where:
• C, is the capital value of the Mineral Terminal infrastructure at the beginning of
year t;
• C,., is the capital value of the Mineral Terminal infrastructure at the beginning
of the year t-1;
page I 229
• Capex,., is any new investment in Mineral Terminal infrastructure during the
year t-1; and
• DEPm is the depreciation in year t-1 on the capital value of the Mineral
Terminal infrastructure.
(d) Using this notion the return on capital in year t is to be the product of the real rate
of return and the capital value of the Mineral Terminal infrastructure at the
beginning of year t, such that:
RET, = C, x WACC,
Where
• RET, is the return on the capital for the Mineral Terminal infrastructure dunng
year t;
• C, Is the capital value of the Mineral Terminal infrastructure at the beginning of
the year t; and
• WACC, is the real rate of return applicable during the period of 25 years for
which the capital charges are determined. The real WACC is discussed in
Article 3.8.
(e) The return of capital, that is the depredation on the capital value of the Mineral
Terminal Infrastructure, is to be calculated on the following basis:
(i) over the asset’s useful life for those assets with useful lives of less than the
life of the Mineral Terminal Concession;
(ii) assets with useful lives longer than the remaining life of the Mineral
Terminal are to be depreciated using the units of production method to
ensure that all capital it depredated over the life of the mine, and
(iii) any sustaining capital incurred within 5 years of the end of the Mineral
Terminal is to be depreciated in accordance with the economic life of the
asset and any amount not depreciated at the end of the Mineral Terminal
Concession shall be paid to the Mineral Terminal Project Company by the
State
3.7 Determining the Capital Charge
(a) The capital charge for the Mineral Terminal Service is calculated as:
c = £r=1(/?£T».« + DEPtlX) x (1 + WACC)~t
* aiTV^Cl + HMCC)-*
Where:
• CC, is the capital charge (in real terms, at the commencement of the period)
for the Mineral Terminal Service s.
• RET,, is that part of the forecast return on the capital value of the Mineral
Terminal infrastructure allocated to the Mineral Terminal Service s at the
beginning of year t:
• DEP, is that part of the forecast depredation in year t on the capital value of
the Mineral Terminal infrastructure allocated to the Mineral Terminal Service
Page | 230
• T., is the nominated capacity in the Mineral Terminal infrastructure available
for provision of the Mineral Terminal Service s in year t where nominated
capacity is measured in product tonnes handled by the matenals handling
infrastructure and annual time period for the manne services
• a designates the Mineral Terminal Service; and
• t ■ 1. 2.....n designates a year during the period of 25 years for which the
capital charges for the Mineral Terminal Service are determined.
(b) The usage charge for the Mineral Terminal Services is to be calculated from the
cost of operating and maintaining the Mineral Terminal infrastructure.
3.8 Determining Usage Charges
(a) The usage charge is to comprise of the following Mineral Terminal Services
(i) provision of unloading, blending and loading of iron ore from the mine site at
the Mineral Terminal and general maintenance of the system; and
(ii) provision of freight unloading at the Mineral Terminal.
(b) The usage charges for the Mineral Terminal Services are to be calculated from the
cost of operating and maintaining the Mineral Terminal infrastructure
(c) The Mineral Terminal Project Company will recover any revenue shortfall (or repay
any over recovery) at the end of each year.
(d) The allocation is to be based on the projected product tonnes handled by the
Mineral Terminal infrastructure
(e) At the commencement of each year the usage charge (not including any end of
year recovery or repayment) for the Mineral Terminal Service is to be calculated
UC, * (EVC. ♦ EFC.) / Q. x (1* UCM)
Where
• UC* is the usage charge for Mineral Terminal Service s to apply dunng the
year.
• EVC, is that part of the estimated VanaWe Operating Cost of operating and
maintaining the Mineral Terminal infrastructure during the year which is
allocated to the Mineral Terminal Service s;
• Q, is the forecast total quantity measured in product tonnes handled in respect
of the Mineral Terminal Services is to be provided during the year;
• EFC, is that part of the estimated Fixed Operating Cost of operating and
maintaining the Mineral Terminal infrastructure during the year which it
allocated to Mineral Terminal Service s; and
• UCM is the operating margin of 12% to be applied to the usage charge to be
charged by the Mineral Terminal Project Company.
(f) The Fixed Operating Cost component of estimated costs for a tariff represents that
portion of the operating and maintenance costs (both direct and indirect) incurred
WI231
in providing the Mineral Terminal Services that do not vary, irrespective of the
users* utilisation of the Mineral Terminal Services, including a margin
(g) The Vanable Operating Cost component of operating costs for a tanff represents
that portion of the operating and maintenance costs (both direct and indirect)
incurred in providing the Mineral Terminal Service that vanes depending upon the
users’ utilisation of the Mineral Terminal Service, including a margin.
3.9 Annual Indexation
To accommodate increases in factor costs, capital Investment plans and operating model
changes, the charge should be adjusted periodically (preferably annually). The charges
should be adjusted annually based on the consumer price index applicable in the United
States of America unless otherwise agreed.
3.10 Determining the rate of roturn
(a) Cost of capital is the rate of return required by investors for financing a project
which is similar to the Project. For a project that is financed with a combination of
equity and debt, the cost of capital is the WACC required by equity holders and the
debt holders in the capital market, known as WACC.
E D
WACC = - xKe + - xKd
where:
E
-is the proportion of equity in the total financing of the project
Kc is the nominal cost of equity
D
--- is the proportion of debt In the total financing of the project
Kd is the nominal cost of debt
(b) The WACC can be expressed in either post-tax or pre-tax terms The nominal
post-tax WACC is:
WACCma0mdpmm = £ x Ke + £ x Kd x (1 - Tax)
(c) As the proposed pneing method uses real pre-tax WACC. the nominal post-tax
WACC would need to be converted to real pre-tax WACC using the forward
transformation method.
(d) First, the nominal pre-tax WACC is obtained by adjusting the tax impact:
E Cost of Equity D
WALL bbmpmm m y x (1 - Tax) + V x °f Debt
(e) Then, the nominal post-tax WACC is adjusted for expected Inflation, using the
Fisher equation, to provide a real pre-tax WACC:
(1 + WACC»0........
WACC'**** (1 + Expected Inflation)
(f) Determining the cost of equity (Ke): Capital Asset Pricing Model (CAPM) is the
most widely accepted method for estimating cost of equity. The rate of return
required by equity investors on a risk asset is the sum of the risk free rate of return
and a risk premium as the product of the excess return on a well-diversified market
portfolio of risky asset and the ‘beta* of the risky asset.
page | 232
Ke = Rr ♦ fi, x (Rm - *,)
Where:
• R. is the risk free rate of return
• (R_ - R.) is the market hsk premium; and
• 0, is the equity beta, a normalised measure of the covariance between the
return of the risky asset and the return on a well-diversified market portfolio of
risky assets
(g) Determining the cost of debt The cost of debt is the rate of return required by debt
holder for a risky asset
Kd = Rf + Debt Risk Premium + Debt Issuing Cost
(h) Theoretically, the debt risk premium can be calculated from the CAPM equation
with the debt "Beta* applied However, in practice, market practitioners commonly
use the observed yield of issued debt securities with same credit rating to estimate
the debt risk premium.
(I) Regulators also recognise the cost of issuing debt, therefore, a margin Is provided
to recover the cost of obtaining a credit rating, legal fees and underwriting
expenses
0) Parameters for WACC calculation;
(i) Risk free rate (R»): This parameter cannot be measured directly, therefore it
has to be theoretically constructed The Australian approach is to measure
the most recent 20 trading days’ average yield on Australian Government
bonds with 10 years to matunty An equivalent international proxy may be
the US bond market of similar maturity
(■) Market Risk Premium (R„) This parameter cannot be observed directly,
therefore it has to be estimated us mg econometnc methods
Cm) Capital Structure: The capital structure usually follows market practice as
evidence in decisions by regulators
Civ) Debt Margin and Debt Issuing Cost The parameter is calculated with
reference to the current debt margin observed in the market for the entities
with BBB» credit ratings The cost of raising capital is measured by debt
financing fees for the Project
(v) Expected Inflation: Expected inflation rates can be calculated with reference
to the difference between nominal and indexed US Government bond yields
using the Fisher equation.
(vi) Tax 25% corporate tax rate
4 Tariff payable by Access Holder for Expansion Stage
4.1 Accoss Holdor Tariff
The Tariff payable by the Access Holder is comprised of the following elements
page | 233
(a) a capital charge for forecast capacity on that portion of the Mineral Terminal which
is being used to provide the Access Holder with the Mineral Terminal Services,
which charge is to be calculated on the same pnncipals and capital costs as the
charge for the Initial Capacity Users:
(b) less a notional charge for the Access Holder s investment in the upgrade of the
Mineral Terminal in order to provide the Expansion Capacity but does not include
capital expended in order to maintain System Efficiency;
(c) a usage charge for actual use of the Mineral Terminal infrastructure to cover the
Fixed Operating Costs and Vanable Operating Costs, and
(d) a State Charge for granting the right to use the Mineral Terminal Services to the
Access Holder in the territory of the State.
4.2 Capital Charge
The capital charge for the Access Holder is the same capital charge for the Initial
Capacity as payable by the Initial Capacity Users for the Mineral Terminal Services being
used by the Access Holder.
4.3 Notional Charge
(a) The notional charge is designed to compensate the Access Holder's Expansion
Capital Costs in the common use Mineral Terminal infrastructure
(b) The notional charge is to be calculated such that it mirrors the same provisions as
the capital charge as set out in Article 3 above
(c) In calculating the notional charge the following applies:
(i) the WACC remains unchanged;
(ii) the capital value is the amount invested by the Access Holder;
(iii) the depreciation is based on the Access Holder's life of mine at the time of
its decision to provide the expansion capital;
(iv) the return on capital is based on the Expansion Capital Cost and the
WACC; and
(v) the Access Holder’s forecast capacity in the Mineral Terminal infrastructure.
4.4 Usage Charge
The usage charge for the Access Holder is the same as the usage charge as payable by
the Initial Capacity Users for the Mineral Terminal Services used by the Access Holder
4.5 Base Charge
(a) The base charge is to be included in the Tariff and is payable by the Access
Holder where the capital charge less the notional charge is a positive number. This
base charge is to shared [50%] Cam Iron (50%) the State.
(b) If after calculating the base charge the amount is negative i.e. it is greater than the
capital charge calculated in accordance with Article 4.1(a) then for the purposes of
the Tariff payable by the Access Holder, the base charge will be zero.
page | 234
4 6 State Charge
The State Charge repretents an amount being charged by the State, which amount shall
not be unreasonable in all the circumstances, having regard, amongst other things to the
development and operation of an internationally competitive iron ore industry in and
about the territory of the State and collected by the Mineral Terminal Project Company
for allowing the Mineral Terminal Project Company to provide Mineral Terminal loading
and unloading services to the Access Holder.
4.7 Tariff Payable
At the commencement of each period the Tariff for the Mineral Terminal Service will be
calculated as:
AHT, - (CC. x IA) - AHR, ♦ UC.+ SC.
Where
• AHT, is the Access Holder Tanff for the Mineral Terminal Service s to apply
dunng the year.
• CC, is the capital charge (in real terms) for Mineral Terminal Service s
• IA is the inflation adjustment factor applied to the capital charge (CC,) to
escalate the capital charge from the effective pnce level date to the revised
price level date consistent with the date that AHT, is being calculated
• AHR„ is the notional charge (in real terms) for the Mineral Terminal Service s.
• UC, is the usage charge for the Mineral Terminal Service s to apply dunng the
year; and
• SC, is the State Charge for the Mineral Terminal Service s to apply dunng the
year.
4.8 Efficiency Provisions
(a) Expansion Capital must provide the same or greater levels of operating efficiency
and latent capacity as the Initial Capacity Users realised in undertaking the initial
investment.
(b) Each Access Holder to the Mineral Terminal must
(i) ensure disruptions to existing operations are minimised throughout the
Construction Phase. Each successive Access Holder must communicate all
planned disruptions to the Initial Capacity Users and liquidated damages
may result in the event this does not occur or where the length of the actual
disruption is greater than the period of the planned disruption; and
(ii) hold harmless each Initial Capacity User and any preceding Access Holder
against any incurrence in either Fixed Operating Costs or Variable
Operating Costs arising as a consequence of that Access Holder being
provided with Mineral Terminal Services
5 Illustrative Worked Examples
5.1 Worked examplos of Tariff and Expansion Tariffs
(a) The following case studies illustrate the application of the various charges with
regard to an Access Holder’s access to the Mineral Terminal Services.
(b) The figures are for illustration purposes only and are not representative of actual
capital or operating cost estimates.
5.2 Worked Examplo 1 - Minoral Torminal Unloading Chargo
5.3 General Assumptions
(a) Mineral Terminal unloading capital costs are US$132m
(b) The asset life for all Mineral Terminal assets is 25 years
(c) WACC is 10% (Real. Pre-Tax)
(d) The dry tonnes stockpiled are 35Mtpa (excluding moisture)
(e) Moisture content is 7% resulting in total production of 37 5mtpa
(f) The Construction Phase is 3 years
(g) The Exploitation Phase is 25 years
(h) The total project life is 28 years
(i) Capitalised interest applies during the Construction Phase
(j) Capex is assumed to be fully depreciated over the Exploitation Phase
(k) No sustaining capital is assumed
(0 Capital charge is calculated in real terms
Using the formula as set out in Article 3.5(a) determine the capital charge for the
unloading and loading of the Mineral Terminal Service.
_ U.,(HKTU + PEP,.,) x (1 + WACC)'1
s Z?.i T,t X (1 + WACC)~l
The numerator can be separated into the return component and the depreciation
component as follows:
£?■!X (1 + WACC)-1 + Z?=lDEPSJ x (1 + WACC)'1
I%iTSJ x (1 + WACC)~l
The above formula can be simply restated as follows
page | 236
V
_ PV of Return On Capital + PV of Return Of Capital
CC'" PV of Capacity
Therefore. CC, is determined based on three components:
4 PV of return on capital (refer Step 2);
5. PV of return of capital (refer Step 3); and
6 PV of the capacity (refer Step 4).
Step 2. Calculate the Return On Capita!
The calculation of the return on capital requires the sub-component calculations of the
OBV during the Construction Phase and OBV during the Exploitation Phase before finally
calculating the PV of the return on capital.
Step 2a. Calculate the OBV
OBVs, is the opening balance value of the asset at period t
OBV calculation is different between the Construction Phase and the Exploitation Penod
OBV during the Construction Phase
• OBV It adjusted for new capital expenditure and capitalised interest (the return on
capital earned during the Construction Phase)
OBVg't = OBV,+ Capitalised lnterest,-x + New Capext_x
■ OHV.j+ OBVlt.x x WACC + New Capext_,
- OBV,j.x x (1 + WACC) ♦ New Capext.x
• Therefore, at the completion of the Construction Phase or the commencement of the
Exploitation Phase at year 4
r-s
OBVtA ■ Annual capex x (1 + WACC)n
f"1 = ($31.7 m x 1.1 + $42.6 m x 1.1* + $57.0 m x 1.1s)
= $142.2 m
• The total of S142 2m represents the $131 3m in capital expenditure and $10 9m of
capitalised interest
• Column 2 of Table 1 (below) illustrates the OBV over the penods 1 through 3 in the
Construction Phase
OBV during the Exploitation Phase
• OHVt , does not incur capitalised interest, however, it should be adjusted by any new
capital expenditure and depreciation:
OBVl t * + New Capext-X + Deprecation
• Column 2 of Table 1 illustrates the OBV over the periods 4 through to 28 of the
Exploitation Phase.
Step 2b. Calculate the PV of Return Qn Capital
page I 237
The interest during Construction Phase is capitalised into the OBVsi which is
recovered via return of capital during the Exploitation Phase. Therefore the PV of
return on capital will only include return on capital during Construction Phase
*•28
PV (Return on Capital) = RETtJ x (1 + WACC)"1
*■«
(-28
= xWACCxil + WACC)-*
r-4
= OBV,i4 x WACC x (1 + WACCy4 + I\Zl\OBVlit.x +
Capext.i - DEP,tt.x) x WACC x (1 + WACC)~1
= $142.2m x 10% x l.r4 + ($136.5 m + $0m - 55.7m) x 10%
x 1.1“* + - + ($11.4m + $0m - $5.7m) x 10%
x 1.1“”
■ $90.6 m
• Column 7 of Table 1 below illustrates the return on capital through the Construction
Phase and the Exploitation Phase.
Step_3, Calculate thePy of Return Of Capital
StepJa. CalculateJhe periodic depreciation
The annual depreciation DEPyt is calculated below:
DEp Ply,. 4
5,1 Operational life
__ $142.2m
25 years
= $5.7 m/annum
• OBVs 4 is the opening balance value of the asset at the commencement of the
Exploitation Phase.
Stepjb. Calculate the PV of
(■28
PV (Return of Capital) = ^ DEPSI x (1 + WACC)~l
= $5.7m x l.l"4 + $5.7m x 1.1~5 + - + 55.7m x 1.1”28 = $51.6m
• Column 8 of table 1 below illustrates the return of capital
Step 4. Calculate the PV of the Capacity
The capacity volume is measured in product tonnes handled and is represented by
PV (Product Tonnes Handled) = TsX x (1 + WACC)"1
t=i
34.2mr x 1.1‘4 + 37.45mr x l.l"s + -•+ 37.45mt x l.l"28 = 337.0mf
Colum 9 of Table 1 illustrates the capacity measured in product tonnes handled
figures during the Exploitation Phase
Step 5. Calculate the Capital Charge
The capital charge in real terms is represented by:
(PV of Return on Capital + PV of Return of Capital)
CC' PV of Product Tonnes Handled
Therefore, the capital charge measured over the life of the Project is:
CC, = ($90.6m + $51.6m) / 337.0mt
= S0.42A
On an annual basis this equates to:
CCt = $0.42/t x 37.4Smr
= S15.8m per annum or $ 0.45/dmt equivalent
Column 1 Column 2 Column 3 Column 6
C6P------d Return on
'nt«es, Deprecate C04.I
1 31.7 317
* 31 7 42 6 32 774
3 77 4 57.0 7.7 • 142 2
4 1422 . (3.7, 1365 14 2 5.7 342
s 136 5 (5.7) 1308 137 5.7 37 5
• 1308 . (5 7) 125 1 131 57 37 5
r 125.1 (5 7) 1195 12 5 57 37 5
a 1195 (5 7) 113.8 11.9 5.7 37 5
9 113 8 (57) 108.1 11.4 5.7 37 4
10 108,1 . (5 7) 102 4 10 8 5.7 374
11 102.4 (5 7) 967 102 57 37 5
« 967 (5 7) 91.0 97 5.7 37 5
13 91 0 (5 7) 853 91 57
14 853 (57) 796 85 5.7
18 79.6 (57) 73 9 80 5.7 375
16 73.9 (5 7) 68 3 7.4 5.7 37 5
17 683 (5 7) 62 6 68 5.7 37 5
11 62 6 (5 7) 569 63 57 37 5
19 569 (5 7) 512 57 57 37 5
20 512 (5 7) 45 5 5.1 5.7 37 5
21 455 . (5 7) 39 8 46 5.7 375
22 39 8 - (57) 34 1 40 5.7 375
23 34 1 • (57) 284 34 57 37 5
2« 284
29 228 . 17 1 23 5.7
26 17.1 - (57) 114 1 7 57 37 5
27 11.4 . (5.7) 57 1.1 5.7 37 5
2B 57 - (5 7) . 06 57 37 5
NPV 90.6 51.6 3170
TirttT ((/I) 042
Ndo 1 CBV e-crs to closing e a ance value CBV., • OBV.
page | 239
/T
5.4 Worked Example 2 - Marine Service Charge
5.5 General Assumptions
(a) Marine services capital costs are US$67m
(b) The asset life for all Mineral Terminal assets is 25 years
(c) WACC is 10% (Real. Pre-Tax)
(d) The Construction Phase is 3 years
(e) The Exploitation Phase is 25 years
(0 The total project life is 28 years
(g) Capitalised interest applies during the Construction Phase
(h) Capital expenditure is assumed to be fully depreciated over the Exploitation Phase
(i) No sustaining capital is assumed
(j) Capital charge is calculated in real terms
Step 1. Apply the Capita! Charge Methodology
Using the formula as set out in Article 3.5(a) determine the capital charge for marine
component of the Mineral Terminal Service.
= I$ml(RETs, + DEPsa) x (1 + WACC)-'
‘s Y.t=iTs,t x (1 + WACC)-'
The numerator can be separated into the return component and the depreciation
component as follows:
I.?=iRRTSitt x (1 + WACC)-1 + x (1 -I- WACCy1
x (1 + WACC)-'
The above formula can be simply restated as follows:
QC _ PVof Return On Capital + PV of Return Of Capital
* PV of project life
Therefore, CCs is determined based on three components:
1. PV of return on capital (refer Step 2);
2 PV of return of capital (refer Step 3): and
3. PV of project life (refer Step 4).
The calculation of the return on capital require* the sub-component calculations of the
OBV during the Construction Phase and OBV during the Exploitation Phase before finally
calculating the PV of the return on capital.
OBV,, is the opening balance value of the asset at penod t
OBV calculation it different between the Construction Phase and the Exploitation Phase
OBV during the Construction Phase
• OBV is adjusted for new capital expenditure and capitalised interest (the return on
capital earned during the Construction Phase)
OBVtx =* OBV,,., + Capitalised Interest,., + New Capex,.,
= OBVM>,., + OBVst_, x WACC + New Capex,.,
= OBV,,., x (1 + WACC) + New Capex,.,
• Therefore, at the completion of the Construction Phase or the commencement of the
Exploitation Phase at year 4:
r-«
OBVlA = Annual capex spending x (1 + WACC)n
" = ($16.6 m x 1.1 + $21.8 m x 1.1* + $28.5 m x 1.1*)
= $72.5m
• The total of $72 5m represents the $66 9m m capital expenditure and $4 6m of
capitalised interest
• Column 2 of Table 2(below) illustrates the OBV over periods 1 through 3 of the
Construction Phase
OBV during the Exploitation Phase
• OBVs r does not incur capitalised interest however, it should be adjusted by any new
capital expenditure and depreciation
OBV,x = OBV,,., + New Capex,., + Deprecation
• Column 2 of Table 2 illustrates the OBV over the periods 4 through to 28 of the
Exploitation Phase.
• The interest during the Construction Phase is capitalised into the OBVlA , which is
recovered via return of capital during the Exploitation Phase. Therefore, the PV of
return on capital will only include return on capital during the Construction Phase.
*■2*
PV (Return on Capital) * £ RETtX x (1 + WACC)-f
1-4
S £ OBV,jt x WACC X (1 + WACCT9
*•4
=* OBVia x WACC x (1 ♦ WACC)-* + I\Z?(OBVlX_x ♦
Caper,., - 0EP,,.,) x WACC x (1 + WACCY*
= $72.5 m x 10% x 1.1~* + ($69.2 m + $0 m - $2.9m) x 10%
x l.l-5 + - + ($5.8 m + $0 m - $2.9 m) x 10%
x 1.1"2*
a $46.2 m
• Column 7 of Table 2 below illustrates the return on capital through the Construction
Phase and the Exploitation Phase
Step 3. Calculate the PV
The annual deprecation DEP,, is calculated below
0BVsa
DEPt% = Operational life
S72.5 m
25 years
= $2.9 m/annum
0BVs 4 is the opening balance value of the asset at the commencement of the
Exploitation Phase
!■»
PV (Return of Capital) » £ DEPtJ x (1 ♦ WACCYr
= $2.9m x l.l-4 ♦ $2.9m x l.l'5 + ~ + S2.9m x l.l-2* = $26J m
• Column 8 of Table 2 below illustrates the return of capital
• The project kfe is measured in years
PV (Project Life) - £ TUx (1 + WACCY1
* l x l.l-4 + 1 x l.l’5 + ».+ l x l.l'2* = 9.1 years
• Colum 9 of Table 1 illustrates the capacity values during the Exploitation Phase
The capital charge in real terms is represented by:
CCt = (PV of Return on Capital + PV of Return of Capital) / PV of Project Life
Therefore, the capital charge measured over the life of the Project is:
CC, = ($46.2m + S26.3m) / 9.1 years
= $8.0m annually
page | 243
Table 2 - Calculation detail for worked example 2
Column 1 Column 2 Column 3 Cac'.aliseO Column 6 Relum on Column 8 Capacity
mteresi Depreciation Capital (Years)
1 166 16 6
2 16 6 21 8 17 40.1
3 40 1 28 5 40 72 5
4 725 <2 8) 69 6 7 3 2.9
5 69 6 (2 9) 66 7 70 29
6 66 7 (29) 63 8 67 2.9
7 63 B (29) 609 64 2.9 1.0
8 60 9 . (29) 580 6 1 2.9 1 0
9 580 (29) 55.1 58 2 9 1 0
10 55.1 (29) 522 5.5 2.9 1 0
11 62 2 (29) 49.3 5.2 29 1 0
12 49 3 (2.9) 46.4 4.9 2 9 1 0
13 46 4 - (2 9) 43.5 46 29 1 0
14 43 5 - (2 9) 406 4.4 29 1.0
15 406 . (2 9) 377 4.1 2.9 1.0
16 37.7 (2.9) 348 38 29 1 0
17 348 (2.9) 31 9 35 29 1 0
18 31 9 (29) 290 32 2.9 10
19 29 0 . (29) 26 1 29 2.9 10
20 26 1 . (2-9) 23 2 26 2.9 1.0
21 232 (29) 203 2.3 2.9 1 0
22 20 3 - (29) 17.4 2.0 2.9 1.0
23 17.4 (2.9) 14.5 1.7 29 1.0
24 14 5 (2-9) 11.6 1.5 29 1 0
25 11.6 (29) 87 1.2 29 1.0
26 87 (29) 58 09 2.9 1.0
27 58 (2.9) 29 06 2.9 1 0
28 2 9 (29) 0.3 29 1.0
NPV 46.2 26 3 9.1
Tariff (J/year) 8.0
5.6 Case Study 1 - New Entrant XYZ Co - Mineral Terminal Unloading Charge
(a) XYZ Co will spend $60m on the existing Mineral Terminal unloading facilities
(b) XYZ Co is a third party
(c) XYZ Co first production in 2019 and has a mine life of 20 years
(d) XYZ Co product tonnes handled is 37.5wmtpa
(e) WACC is 10% (Real. Pre-Tax)
(0 The Construction Phase is 2 years
(g) The Exploitation Phase is 20 years
(h) The total project life is 22 years
(i) Capitalised interest applies during the Construction Phase
(j) Capital expenditure is assumed to be fully depreciated over the Exploitation Phase
page 1244
(k) Operating costs are S2.50A
Capital Charge - Mineral Terminal Unloading Services:
The tariff charge for the materials handling component of the Mineral Terminal Services
Is represented as follows
AHT. ■ (CC, x IA) - AHR, ♦ UC,+ SC,
Where:
• AHT, is the Access Holder Tariff for the service s to apply during the year;
• CC, is the capital charge (in real terms) for the Mineral Termmal Service •;
• IA is the inflation adjustment factor applied to the capital charge (CCs) to
escalate the capital charge from the effective price level date to the revised
price level date consistent with the date that AHTs is being calculated:
• AHR, is the notional charge (in real terms) for the Mineral Terminal Service s;
• UC, is the usage charge for the Mineral Terminal Service s to apply during the
year; and
• SC, is the State charge for allowing the Mineral Terminal Project Company to
provide the Mineral Terminal Service s to apply dunng the year
Step 1, CflKMlatf {*1
The capacity is measured in product tonnes handed and based on the assumption above ft is
37 5wmtpa
Using the real capital charge of SO 42A this equates to a nominal charge of SO 53/t w) 2019
and is equivalent to a charge of S 19.9m on an annual nominal basis in 2019
CCt = 37.5t x $0.53/1 = $ 19.9m
Step 3. Calculate the notional Mineral
The offset is calculated by amoitising the 560m capital expenditure over XYZ Co s 20 mine
life with a 10% WACC.
Using the formula as set out in Article 3.5(a) determine the capital charge for the Mineral
Terminal unloading component of the Mineral Terminal Services
c = TXmilKET,, + Pfi/y,) x (1 + WACC)-
5 I?., 7*,, x (1 + WACC)'1
The numerator can be separated into the return component and the depreciation
component as follows
_ It.iKETtX x (1 + WACCY1 + I,".iOEPsX x (1 + WACC)-1
CCt = r;.,T,, x (i + wacc)-'
l/
page | 245
The above formula can be simply restated as follows:
, _ PV of Return On Capital + PV of Return Of Capital
s~ PV of Capacity
Therefore. CCS is determined based on three components
1. PV of return on capital;
2. PV of return of capital; and
3. PV of the capacity.
• This equates to a nominal notional charge of $0.20/t or $7.5m per annum.
Step 4. Calculate the nominal net Mineral Terminal unloading capital charge
• The nominal net Mineral Terminal unloading capital charge offset is:
■ (CC, x IA) - AHR*
=* $0.53/1 - $0.20/t
= $0.33/t or $7.6m or an nominal basis in 2019
• At the rate of 37.5Mtpa on a nominal annual basis in 2019, this equates to:
CC*= $19.9m - $7.6m
= $12.3m
The table below illustrates the nominal charge application over time
Capacity Capacity Net Capacity
Year Charge Charge Offset Charge Annual Charqe
Units SA SA SA Sm
2019 053 020 033 123
2020 054 0 21 0.34 126
2021 056 0 21 0.34 129
2022 057 022 035 132
2023 0.59 022 036 136
2024 060 023 0.37 139
2025 061 0 23 038 14 3
2026 0.63 0 24 0.39 14 6
2027 065 0 25 0 40 15 0
2028 066 0 25 041 15.4
2029 068 026 042 157
2030 0.70 027 0.43 16 1
2031 0.71 027 0.44 165
2032 073 0 28 0.45 170
2033 075 029 046 174
2034 077 0 29 0 48 178
2035 0.79 030 049 183
2036 0.81 0 31 0.50 18 7
2037 0.83 0 32 0.51 19.2
2038 0.85 032 0.52 19.7
Step 5 Usage Charge
• Operating costs will be passed through to XYZ Co on a cost plus 12% rate which forms
the usage charge.
• This results in a usage charge of S3.14A or $117.6m annually for XYZ Co.
StepJ. Calculate the Access Holder Tariff
• At the rate of 35Mtpa on an annual, nominal basis in 2019, this equates to
AHT,a S12.3m +$117.6m ♦ SCW
= $129.9 m + SC*
Or %3.71/dmt equivalent * SCW
1/
page I 247
Appendix 1
Additional Access Holders
(l) Where there are multiple Access Holders of the Expansion Capacity of the Mineral
Terminal, and those Access Holders gam access at differing times dunng the
Mineral Terminal Concession then any subsequent Access Holder to the first
Access Holder to the Expansion Capacity of the Mineral Terminal will pay an
Access Holder Tariff comprising
(i) the base charge referred to in Article 4 5;
(ii) less a notional capital charge for the cost of the first Access Holder having
to fund the Expansion Capital Costs. The calculation of the notional capital
charge is the sum of
(A) the Expansion Capital Cost incurred by the first Access Holder as
adjusted for WACC and depreciation; and
(B) multiplied by the proportion of the Expansion Capacity created by the
first Access Holder that is to be utilised by the subsequent Access
Holder.
and the product of paragraphs (a)(ii)(A) and (B) is to be multiplied by the
number of project tonnes of the subsequent Access Holder ore which at the
date of calculation is projected to be handled at the Mineral Terminal in
order to determine the per wet tonne charge;
(iii) a usage charge for actual use of the Mineral Terminal Services
infrastructure to cover the Fixed Operating Costs and Variable Operating
Costs; and
(iv) a State Charge for granting the Mineral Terminal Services to the Access
Holder in the territory of the State
(m) The first Access Holder is entitled to recover from the subsequent Access Holder
an upfront lump sum payment in the amount calculated by operation of paragraphs
(a)(ii)(A) and (B) in return for the subsequent Access Holder being entitled to
utilise all or part of the unused Expansion Capacity
(n) The lump sum amount referred to in paragraph (a)(ii) is to be calculated as follows
Amount ■ (Investment x (WACC uplift factor) - Depreciation) x
Usage/Capacity
(o) Where a subsequent Access Holder has an obligation to pay a notional capital
charge as referred to in paragraph (b) then it is a condition precedent to being
provided with a Mineral Terminal Service by the Mineral Terminal Project
Company that the subsequent Access Holder makes payment in full to the first
Access Holder.
248
The Republic of Cameroon Cam Iron SA
Minister of Mr. Giulio CASELLO, Chairman of the Board of
Directors, and Mr. Serge ASSO'O MENDOMO
General Manager
Excellency
Emmanuel
BONDE
page | 249
Annex IV
COLLECTIVE BARGAINING AGREEMENT
[signed separately]
page | 249
Annex V
TAX DEPRECIATION SCHEDULE
|To be inserted at a later date]
page | 250
to tfr
Annex VI
PROHIBITED IMPORTS
[to be inserted at a later date]
page | 251
Annex VII
FISCAL AND CUSTOMS REGIME
1. During the Construction Phase (both initial construction and beneficiation construction)
During the Construction Phase of the Project (both initial construction and Beneficiation
construction). Cam Iron and or the Project Companies and or their Shareholders. Subsidiaries, and or
Contractors, Subcontractors, shall be subject to the following taxes and customs duties and lc\ics for
their work on the Project Operations:
(b) Customs duties
Customs duties on imported goods and services - Exempted (0%);
- No obligation or requirement to pay any import related tax or duty including exemption
from SGS Inspection Tax subject to State's inspection rights: and
VAT on imported goods - Exempted.
(c) Taxes
Registration duties - Exempted (0%) except for residential leases outside the Exploitation
Area;
VAT on services - Exempted;
• VAT on local purchases - Exempted; and
Business license - Exempted.
2. During the Exploitation Phase
During the Exploitation Phase of the Project (excluding any Construction Phase therein). Cam Iron
and/or the Project Companies and/or their Shareholders. Subsidiaries, and or Contractors.
Subcontractors shall be subject to the following taxes and customs duties and levies w ith respect to
the Project Operations:
(a) Customs duties
- Exempt (0%) on fuel and capital and capital replacement equipment. 5% on imported
food and 2% on everything other item:
- No obligation or requirement to pay any import related tax or duty including exemption
from SGS Inspection Tax subject to State’s inspection rights; and
- VAT on imported goods and serv ices - Exempted;
(b) Taxes
- Corporate Income Tax - Exempted (0%) during the five (5) year period from the Project
Commissioning ("Corporate Tax Holiday”)
• No minimum company income tax which represents one point one percent (I. I %) of the
monthly turnover based on revenue (impot sur les societis el le minimum Je perception!
during the Corporate Tax Holiday:
- Following the Corporate Tax Holiday. Corporate Income Tax at 25% rate including
any additional council tax:
Following the Corporate Tax Holiday, the minimum company income tax w hich
represents one point one percent (1.1%) of the monthly turnover based on revenue (impot
sur les societis et le minimum de perception!, * hile Cam Iron and each Project
Company. Cam Iron and or the Project Companies will be entitled to compensate am
existing corporate income tax credit with minimum company income tax due.
Withholding tax on payments to non resident services providers Exempted (0%);
Withholding tax on dividends paid or deemed distributions - 5%;
- VAT on sales • Exempted;
VAT on purchases of goods and services - Exempted:
Registration duties - Exempted (0%) except for residential leases; and
- Business licence - Exempted.
3. Capital gains tax
Cam Iron, the Project Companies and their direct and indirect Shareholders shall be
exempt from capital gains tax and bonus payment on:
(i) any assignment, transfer, restructure or other dealing (•‘Transfer") directly or
indirectly in the shares of Cam Iron or a Project Company completed within three (3)
years of the Date of Entry Into Force; prov ided that if Cam Iron, the Project
Companies and their direct or indirect Shareholders w ish to complete such a Transfer
prior to the Date of Entry Into Force, the three (3) year period shall begin on the
earliest such transfer and continue for three (3) y ears from that date and Cam Iron
shall give notice of such Transfer; provided further that if Cam Iron directly or
indirectly holds less than fifty one percent (51%) of the equity interests of each of the
Project Companies respectively Cam Iron will obtain prior written consent of the
State for such Transfer and
(ii) any assignment, transfer, restructure or other dealing directly or indirectly in the
shares of Sundance or another parent company of Cam Iron not registered in
Cameroon. Except for the transactions exempted in the preceding sentence or
elsewhere in the Project Agreements, capital gains tax shall be payable.
4. Customs formalities
Cam Iron and/or the Project Companies and/or their Shareholders. Subsidiaries, and/or
Contractors. Subcontractors shall benefit from the following for their work on the Project
Operations:
- an exemption from all obligations imposed by the Slate's customs services in relation to
the presentation of a final invoice for and/or inspection;
1/ pago | 281
- the right to unload from any carrier any of the items in order to transport them to the
Project Site or to a neighbouring country, without earning those items to a custom
warehouse or completing the customs clearance’s formalities prior to the time of
unloading provided that such customs clearance formalities be completed within twenty
(20) Business Days following the date of unloading; and
- an exemption from all obligations imposed by customs or their representatives to obtain
insurance from Cameroonian insurers in relation to any of the items and from any
requirement to produce an insurance policy or certificate to show that such insurance has
been obtained.
5. Carry forward of Losses/Depreciation
Cam Iron and/or the Project Companies and/or their Shareholders. Subsidiaries, and/or
Contractors. Subcontractors shall benefit from the following for the Project Operations:
- The right to carry forward losses during a rolling five years period;
Losses incurred during the Exploration and Construction Phase will be capitalized and
depreciated;
Depreciation deferred at the time of a deficit shall be carried forward without limitation;
The right to elect to an accelerated tax depreciation at any time during the Project
Operations in accordance with an acceleration coefficient of 1.25.
6. l ax deductibility
Cam Iron and or the Project Companies and or their Shareholders. Subsidiaries, and or Contractors.
Subcontractors shall benefit from the following rights for their work on the Project Operations:
- The right to tax deductibility of any expenditures relating to the Project Operations
without any limitations to the threshold, subject to compliance with requirements
concerning justifications, documentation and Arm’s Length pricing: and
- The right to tax deductibility of all rehabilitation costs and provisions (including the costs
associated with am mine closure), knowing that any interests generated by the amount in
the Rehab Escrow Account, as well as any excess amount will be subject to the relevant
tax regime under this Convention
7. Other rights
Cam Iron and/or the Project Companies and/or their Shareholders. Subsidiaries, and/or Contractors.
Subcontractors shall benefit from the following rights for he Project Operations
Subject to the terms of the Quadripartite Agreement, the exemptions and rights under this Annex shall
apply during Project Operations to items which:
- are imported into or transported through the State for use in any CEMAC country in
connection with operations relating to iron ore);
- are exported from the State to CEMAC countries;
- pass along the Mainline. Railway the Spur Line or the Border Crossing;
- are maintained, used, consumed, stored, exhibited, repacked, assembled, distributed.
pag«|M2
sorted, graded, cleaned, processed, tested, labelled, repaired, mixed with foreign or
domestic merchandise, manipulated, manufactured, destroyed or otherwise dealt with
during such period as those items remain within the Mbalam Economic Area;
- are taken out of the Project Site for any period of time and for any purpose (including
repair, upgrade and maintenance) and brought back into the Project Site;
- are disposed of to the State; or
are donated to Cameroonians for charitable purposes.
8. Withholding tax on rental payments
Cam Iron and/or the Project Companies and/or their Shareholders. Subsidiaries, and/or
Contractors. Subcontractors shall be exempted from the withholding tax on rental payments in
respect of any area of land required for the Project or the area of any Project Lease that are
payable after commencement of Mining Operations (or. if land is not required until after
commencement of Mining Operations for specific purposes, after the commencement of those
specific purposes) for their work on the Project Operations.
9. Exchange Tax
The State agrees that exchange tax commission of zero point five percent (0.5%), excluding VAT.
which is levied on all transfers to countries that are not members of the CEMAC. shall not apply to
transfers by Cam Iron, the Project Companies Contractors or Subcontractors as all transactions
involving the Project shall be deemed to be either exempt transfers linked to import settlements
covered by import declarations by local banks or payments due on debt regularly contracted.
10. Benefits in kind
Food and housing provided to any employees (whether local or expatriate) working on the Project
Site by Cam Iron and/or the Project Companies and/or their Shareholders. Subsidiaries, and/or
Contractors. Subcontractors, shall be fully deductible for Corporate Income Tax purpose and not be
considered as benefits in kind for the purposes of the calculation of personal income tax. special
income tax and other taxes.
11. Expatriate Personnel
Expatriate personnel working on the Project shall benefit from the following:
- non-resident expatriate personnel of Cam Iron or Subsidiaries originating from a country'
that has no bilateral income tax convention with the State who are resident in the territory
of the State for a total of less than one hundred and eighty’ three (183) Days during a
given Calendar Year may elect to be taxed on a pro-rata temporis basis;
- The application of the terms of any bilateral income tax convention signed between
Cameroon and the country of which an expatriate personnel is a resident or a national;
- where expatriate personnel are located in the territory of the State they shall only be taxed
on their income derived in the State and not on their worldwide income;
- where a significant number of non-resident personnel are sourced from a particular
country, the territory of the State will, when requested by Cam Iron or a Project
Company, attempt to negotiate an appropriate double taxation agreement between the
State and that country when such an agreement does not otherwise exist; and
P*8* I 263
- expatriate employees residing in the territory of the State as a result of any professional
relationship with any Project Company, or any Contractor and Subcontractor shall be
entitled to import and/or export all their personal belongings free of any tax. import or
export duties. The State shall promptly grant all tax exemptions and other exit documents
necessary for the departure of said expatriate employees.
12. lenders and Borrowers
With respect to all loans, bonds or other form of credit or fund raising facilities between Cam Iron
and or the Project Companies and or their Shareholders. Subsidiaries and the Lenders for the purposes
of the Project the Lenders and borrowers arc entitled to an exemption from all taxes and registration
duties:
- on principal and interest as well as financing costs and guarantee and credit insurance
costs:
- on financing contracts and all security or guarantees related to these loans, bonds or credit
or fund raising facilities at the time of their creation, transfer, enforcement or termination;
- No Tax. duty or charge is applicable to any collateral assignments.
13. Exemption from fees relating to capital increases
Each of Cam Iron and the Project Companies shall be exempted from the payment of all fees relating
to capital increases.
14. Benefits granted during the Exploration
If. during the Term of the Project, the Mine Project Company undertakes exploration on the
Exploitation Permit then the Mine Project Company shall enjoy the tax advantages referred to in the
present Annex as well as any additional tax advantage contained in the Mining Legislation for
exploration expenditure incurred during the period prior to the grant of a mining permit.
15. Quadripartite Agreement
Subject to the Quadripartite Agreement, all Nabcba Goods that arc imported into the territory of the
State before being transported to the Republic of Congo shall be imported into the territory of the
State free of all customs duties, excise duties, taxes charges, taxation foreign exchange restrictions,
tolls, inspection costs and the like and will be treated in all respects as if the Nabeba Goods were
Goods for the purposes of the Convention.
16. Bonded Area
If for the purposes of customs administration, it is appropriate for all Goods and Nabeba Goods to be
imported in Cameroon through a bonded area at the Mineral Terminal then Cam Iron or an
appropriate Project Company, the State shall use its best efforts to facilitate the creation of a bonded
area in accordance with a protocol to be established between Cam Iron and/or the Project Companies.
Congo Iron and the State.
Cam Iron and/or the Project Companies w ill administer the bonded area.
17. Temporal Admissions
As at the Signature Date, the plant and equipment attached in this Annex is held under temporal
admission. All such plant and equipment shall be permitted to remain and may remain in the territory
of the State free of any customs duties, regardless of when any temporal admission may expire.
If this Convention terminates due to the Parties never achieving the Date of Entry into Force. Cam
Iron or the Mine Project Company may continue to hold such plant and the equipment in the territory
of the State for the remaining term of any applicable temporal admission, and where that temporal
admission may have expired then the relevant plant and equipment must be exported from the
territory of the State within sixty (60) Days of the date this Convention comes into end.
Cam Iron and Mine Project Company covenants not to sell any plant and equipment listed in the
territory of the State during the period prior to the Date of Entry into Force.
P»Q« | 265
No&-
DATE DATE
DECL D'ENR' QTE MARQUE Nature CHASSIS OBS
S111 I 1/02/07 1 CATERPILLAR ENGIN 5BF006110 equipments
S1224 14/07/2009 1 VOLVO LOW LOADER 16-80L00106 equipments
YV2NOA2E9KB701430
S1268 Compressor equipments
S1907 27/10/2009 1 DRILL RIG ENGIN UGMU897075/2 equipments
S1984 2/09/10 1 CHARIOT FORKLIFT ENGIN VNH014 equipments
S2301 14/10/2010 1 POMPE ENGIN PCUI454686/0 equipments
VOLUMETRIQUE
S2305 14/10/2010 1 ACCOMODATION UNIT ENGIN NONU208201/0 equipments
S2547 10/11/10 1 VAN VLIET TRUCK XLRAZ90HSOE348634 equipments
S482 9/03/11 1 TRACTEUR VOLVO ENGIN YV2NOA2E9KB701413 equipments
4 POMPE 3.5 KW
S63 11/01/11 DIESEL.YANMAR equipments
5 HEAVY DUTY PVC SUMCHEM
MIXER
S1217 14/07/2009 1 CRANE GROVE ENGIN RT745 S/N 74984 equipments
S182 9/03/11 1 VEHICULE VOLVO TRUCK 701413 equipments
Constructions
S1712 pr6fabriqu6es equipments
S1183 DRILL RIG equipments
S1387 30/05/2007 2 LAND CRUISER PICK UP JTEL871J007065960 vehicules
71J007065974
S1493 11/06/07 1 TOYOTA LAND PICK UP JTELB71J907065956 vehicules
CRUISER
S2129 20/08/2007 1 LAND CRUISER PICK UP JTER871J400040188 vehicules
S2161 12/10/11 1 LAND CRUISER JTERL71J007089417 vehicules
S2162 12/10/11 2 LAND CRUISER HARD TOP JTERB71J600060362 vehicules
JTERB71J600060345
| S2163 12/10/11 1 LAND CRUISER HARD TOP JTERB71J900059660 vehicules
S2279 10/09/07 1 MERCEDES BENZ TRUCK WDB65234615763362 vehicules
WDB65234
S2353 31/10/2008 1 LAND CRUISER PICK UP JTERB71J800043644 vehicules
S2431 1/11/10 1 LAND CRUISER VEHICLE JTEBH3FJ005005989 vehicules
S2435 01/11//2010 2 MITZUBISHI PAJERO VEHICLE MMBGNKH40BF001335 vehicules
MMBGNKH40BF001203
S2537 24/11/2008 1 LAND CRUISER PICK UP JTERB71J100044747 vehicules
S2628 22/10/2007 1 CAMION MAN TRUCK N“37121 vehicules
TOYOTA LAND JTMHV090J604000545
S3076 13/12/07 2 CRUISER PICK UP JTMHV090J704000585 vehicules
S3165 26/12/2007 1 LAND CRUISER PICK UP JTFLB71J478014915 vehicules
S336 28/02/2007 1 TOYOTA LAND PICK UP vehicules
CRUISER JTERB71J200041761
S36 6/01/11 1 VEHICULE MITSUBISHI VEHICLE MMBGNKH40BF000976 vehicules
S37 6/01/11 1 VEHICULE MITSUBISHI VEHICLE MMBGNKH40BF001295 vehicules
S370 4/03/10 1 TOYOTA LAND PICK UP JTERB71J200053750 vehicules
CRUISER
TOYOTA LAND 053753
S377 5/03/10 3 CRUISER 053792 vehicules
053747
S578 21/03/2007 1 TOYOTA LAND PICK UP JFELBHJ507059491 vehicules
CRUISER
S679 9/04/10 1 NISSAN P-UP MITCAM ADNJ980000E000410 vehicules
S703 ,1.3/04/2010 1 NISSAN P-UP MITCAM ADNJ980000E000395 vehicules
S857 18/04/07 1 TOYOTA LAND HZJ 120 JTEBY25J100054482 vehicules
CRUISER
S972 14/05/2010 1 TOYOTA LAND PICK UP JTELB71J7084957 vehicules
CRUISER
S973 14/05/2010 2 TOYOTA LAND PICK UP JTERB71J100053786 vehicules
CRUISER JTELB71J407084186
S975 14/05/2010 2 TOYOTA LAND PICK UP AHTEK22G003048058 vehicules
CRUISER AHTEK22G200047916
S977 14/05/2010 2 TOYOTA LAND PICK UP JTELB71JX07084354 vehicules
CRUISER JTELB71JX07084287
S2128 20/08/2007 1 LAND CRUISER VEHICLE JTECB01J701031282 vehicules
S2431 1/11/10 1 TOYOTA PRADO VX JTEBH3FJ005005989 vehicules
S2628 22/10/07 1 CAMION MAN 37121582158 vehicules
01
The Republic of Cameroon Cam Iron SA
BSBfgscnted b\:
manuel BONDE Mr. Giulio CASELLO. Chairman of the Board of
[^Technological C Directors, and Mr. Serge ASSO'O MENDOMO
General Manager
Excellency
Emmanuel
Mr. Serge ASSO'O
MENDOMO
page | 266
Annex VIII
MINE GATE VALUE DETERMINATION
Free on Board ultimate value (which for clarification includes any value created by blending
and other processing but excludes any marketing, logistics and financing costs under the
Marketing Agreement or other fees under the Marketing Agreement) less applicable costs of
the Railway and Mineral Terminal services provided to Mine Project Company in accordance
with Railway Haulage Agreement and Mineral Terminal Services Agreement as the case may
be.
The Republic of Cameroon Cam Iron SA
Represented by:
Mr. Giulio CASELLO. Chairman of the Board of
Directors, and Mr. Serge ASSO’O MENDOMO
General Manager
jwiMin
Excellency Mr. Giulio
Mr. Emmanuel CASELLO
BONDE
Mr. Serge ASSO'O
MENDOMO
pago | 269
Annex IX
CERTAIN SHAREHOLDER PROVISIONS
1. Definitions.
"Change in Control” means with respect to an entity (a) a transaction or series of related transactions
in which the equity holders immediately prior to such transaction or series of related transactions no
longer hold a majority of the of the outstanding economic interests or voting power of such entity or
the equity and control of such entity or (b) a sale of a majority of the assets of such entity.
"Equity Interests” means with respect to an entity (a) equity interests (whether now outstanding or
hereafter issued in any context), (b) equity interests issued or issuable upon conversion of other equity
interests and (c) equity interests issued or issuable upon exercise or conversion, as applicable, of stock
options, warrants or other convertible securities (including debt) of the such entity.
“Exempt Transfer” means a transaction in which the rights and amount of the Equity Interests held
by the State arc not adversely affected and:
(a) where the Equity Transfer contemplates transfer of the Equity Interests of
Cam Iron the transfer is to a subsidiary of Cam Iron organized under the
laws of Cameroon, the Equity Transfer docs not generate tax or other
adverse consequences for the State and the capitalization and
equity holders of Cam Iron before and after the Exempt Transfer remain
the same: and
(b) where the Equity Transfer contemplates transfer of the Equity Interests of
a Project Company the transfer is to a wholly owned subsidiary of Cam
Iron organized under the laws of Cameroon, the Equity Transfer does not
generate tax or other adverse consequences for the State, the State’s
equity rights and holdings are preserved and the capitalization and
cquityholdcrs of the Project Company before and after the Exempt
Transfer remain the same.
' Reorganization Transfer" means direct and indirect transfers of the Equity Interests of Cam Iron
and the Project Companies completed prior to the third anniversary of the Dale of Entry Info Force
that do not result in (a) a Change of Control; or (b) an adverse changes to the rights of the Equity
Interests held by the State.
2. Equity Issuances
The State shall have a right to participate pro rata in the direct and indirect issuances of Equity
Interests in the Project Companies.
3. Equity Transfers.
(a) Other than for a Reorganization Transfer, the State shall have the right of first refusal
on all but not less than all of the offered Equity Interests and to participate (tag-along)
pro rata in direct transfers of the Equity Interests of the Project Companies.
(b) If there is a direct transfer (which shall be deemed to include the transfer of the
Equity Interests of a company to w hich the assets of the Project Companies contribute
more than half of the fair market value of the assets of such company) of the Equity
Interests of a Project Company (“Equity Transfer"), other than an Exempt Transfer or
Reorganization Transfer (including through a transaction or series of related
transactions, equity sale, asset sale, merger or consolidation of a parent entity), the
State shall have the right to put a pro rata portion of its interests in the Project
Companies to the Project Companies in exchange for fair market value. If there is an
indirect transfer of the Equity Interests of a Project Company (including through a
transaction or scries of related transactions, equity sale, asset sale, merger or
consolidation of a parent entity) and if the transaction results in a Change of Control
of a Project Company, the State shall have the right to put up to all of its interests in
the Project Companies to the Project Companies in exchange for fair market value.
(c) Consent to Equity Transfers. No direct or indirect shareholder of Cam Iron or any
Project Company may directly or indirectly (including any assignment or transfer and
any other operation in connection with the share capital and/or voting rights of Cam
Iron or any of the Project Companies, as the case may be. mergers, divisions,
contributions or any similar operations) transfer the Equity Interests of a Project
Company in a transaction or scries of related transactions without having first
received or being deemed to have received the State's written consent except:
(i) an Exempt Transfer;
(ii) Reorganization Transfer;
(Hi) a transfer of the Equity Interests of a Project Company or
Cam Iron so long as Sundance retains directly or indirectly
51% of the Equity Interests of each Project Company; or
(iv) an Equity Transfer through the transfer of the Equity
Interests of the immediate parent company of Cam Iron
(Sundance) and its parent companies.
The Parties will provide the State notice of all transactions completed without consent pursuant to the
exemptions provided in this section.
(d) Review of Equity'Transfers.
(i) Requests for approval, which may be required by operation
of analysis referred to in this Annex, shall provide or
indicate:
(A) detailed and complete memorandum describing the
projected Equity Transfer, the direct and/or indirect changes
in the shareholding structure of all Project Companies, and
the resulting impact on the Project;
(B) for each proposed transferee (as the case may be), all
of the information specified in details of the financial and
technical capabilities of each proposed transferee as well as
details of their ultimate shareholders and directors;
(C) a finalized version signed by the transferors) and
transferee^) of all the documentation relative to the
projected Equity Transfer, agreed to subject to the prior
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approval of the State under the conditions set forth, as
appropriate, in this Annex; and
(D) the unconditional and written commitment by the
transferee to meet all of its obligations under the Mine
Project Company Shareholders' Agreement. Railway Project
Company Shareholders' Agreement, the Mineral Terminal
Project Company Shareholders* Agreement and Project
Agreement(s). as the case may be.
(ii) The State requires a modification or additional information
with respect to the request filed by the applicant seeking the
consent of the State, in the event that such information is
incomplete or addition information is required.
(iii) The State is to provide a response with respect to the planned
Equity Transfer within a period of sixty (60) Days as from
the date of receipt of the finalized and complete
documentation and. as the case may be. includes the reasons
for withholding its consent. Failing the receipt of a response
from the State within the aforementioned time frame, the
State shall be deemed to have consented to the proposed
Equity Transfer.
4. Right Not to Participate. The State shall have the right to retain its Equity Interests in the Project
Companies in any Equity Transfer (including a merger or consolidation).
5. Key Personnel. No Project Company will hire or end the employment or engagement of the person
or entity serving as the manager of the Project or the Project Companies, the top executive officer of a
Project Company, chief financial officer and chief human resources officer without previously
discussing the person’s candidacy with the Joint Committee.
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The Republic of Cameroon Cam Iron SA
.Rcprcscntedby:
Represented.by:
BONDE, Minister of Mr. Giulio CASELLO, Chairman of the Board of
Technological Development Directors, and Mr. Serge ASSO'O MENDOMO
General Manager
\
Excellency
Emmanuel
Mr. Serge ASSO'O
MENDOMO
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REPUBUQUE DU CAMEROON REPUBLIC OF CAMEROON
Pea - Travai - Paine Peece-Wvk-Fatheriand
SERVICES DU PREMIER MINISTRE PRIME MINISTER'S OFFICE
CABINET DU PREMIER MINISTRE PRIME MINISTER CABINET
jjL'CAB/PM 2 9 NOV 2012
Yaounde, le
Le Premier Ministre, Chef du Gouvernement
The Prime Minister. Heed of the Government.
A/to
Monsieur Emmanuel BONDE,
Ministre des Mines, de I’lndustrie et du
Developpement Technologique.
YAOUNDE-
OBJET: Signature de la Convention Mbalam.-
A la suite des negociations concluantes menees par le Comite de Pilotage et de
Suivi du Projet d Exploitation du Fer de Mbalam (COPIL) pour la valorisation du gisement
de fer de Mbalam. objet du permis de recherche EP 92.
J'ai Ihonneur de vous transmettre ci-joint le projet de Convention Miniere de
Mbalam qui consacrera les principaux termes-cles de I'accord auquel sont parvenus le
Gouvernement et la soci6t6 Cam Iron SA
J’ai bien not6 que la signature de la Convention Mim6re de Mbalam va constituer
une 6tape tr6s importante sur le chemin critique de realisation du Projet Mbalam qui, outre
la mine, comprendra une ligne de chemin de fer, un terminal portuaire et d’autres
infrastructures connexes Elle permettra d Sundance Ressources Ltd et a Camlron,
d'aprds ce qui m'a 6te rapporte. de remplir les conditionnalites de la China Development
Bank (CDB) pour liberer les fmancements n6cessaires d l acquisition du capital de la
societe Sundance Ressources Ltd par son partenaire strategique Hanlong (Africa) Mining
Investment Ltd
En relation avec le COPIL. vous voudrez bien veillez a ce que la transition
annonc6e, entre Sundance Resources Ltd et Hanlong (Africa) Mining Investment Ltd, pour
le contrdle du capital de Cam Iron, ne remette pas en cause les intents de notre pays.
d6jd n6goci6s dans la Convention Miniere de Mbalam
Compte tenu de ce qui pr6cede, je vous au nom du
Gouvernement, au plus tard le vendredi
: Proj«l de convention Mbalam -
Sflfll*: PR(ATCR)
CAM IRON SA
("COMPANY")
A public limited company managed by a board having a registered capital fixed at the sum of
CFAF 14,400,000, with Its registered office situated at 2eme *tage, immeuble Hibiscus, Avenue
Charles de Gaulle. Hippodrome, Yaounde and being entered in the Trade and Personal Property
Credit Register of the Republic of Cameroon under number RC/YAO/20O5/B/362.
MINUTES OF MEETING OF DIRECTORS OF THE COMPANY HELD ON 28 NOVEMBER 2012 AT 2EME
ETAGE, IMMEUBLE HIBISCUS, AVENUE CHARLES DE GAULLE, HIPPODROME, YAOUNDE
Meeting declared open: (11.00 AM)
Directors Present: Serge Asso'o Mendomo, Director and General Manager
Giulio Casello, Chair and Permanent Representative of Sundance
Resources Limited
Bruno Pennetier, Permanent Representative of Sundance Minerals Pty
Ltd
Dav>d Meehan. Permanent Representative of Sundance Exploration Pty
Ltd
Proxy: Bruno Pennetier. appointed proxy of Marc Montandon, permanent
representative of Sundance Mining Pty
Absent: Roger Bogne. Permanent Representative of Holdco
Chairman : Giulio Casello
Invited: Sylvain Martial Endougou, Ernst & Young
Page 1 of 4
RESOLUTION 1 - Notice Period
It was unanimously noted that an invitation to attend the Board meeting was sent to
each of the Directors on 23 November 2012 at short notice by reasons of the
requirements of the Government of Cameroon to execute the Mbalam project
convention to be entered into by the Company with the Republic of Cameroon (the
Mbalam Convention).
It was unanimously noted that such invitation at short notice is fully compliant with the
provisions of section 4S3 of the OHADA Uniform Act Related to Commercial Company
and article 37 of the article of association of the Company and that accordingly the Board
Meeting may be validly held in accordance with these provisions
It was also unanimously noted that, as a contractual matter between the shareholders of
the Company, clause 13.4 of the Shareholder's Deed dated 4 July 2007 between the
Company, Sundance Resources Limited and Holdco SARL, provides that directors must be
given 14 day notice of a Directors' meeting but that the Directors may waive such 14
days' notice requirement.
It was noted that, although it is the corporate benefit (intertt social) of the company,
considering ongoing negotiation and the agenda imposed by the Government of
Cameroon, to execute the Convention in accordance with the time table set by the
Government, the Directors were given the opportunity to require that the 14 day notice
period be adhered to but that no directors demanded that this 14 day notice period be
complied with.
Accordingly all the Directors unanimously noted that, as regards the contractual
relationship between the shareholders of the Company under the Shareholders Deed
Dated 4. July 2007, the 14 days' notice period is waived.
IT WAS UNANIMOUSLY RESOLVED that these proceedings have been properly convened
RESOLUTION 2 - Meeting. Chair and Secretary
It was unanimously noted the presence of 4 Directors and a proxy given to Bruno
Pennetier by Marc Montandon was tabled.
The Quorum is met and Board of Directors Meeting can be held
IT WAS UNANIMOUSLY RESOLVED to appoint Syhrain Martial Endougou as Secretary of
this meeting
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CAMIRON SA
RESOLUTION 3 - Shareholders meeting on the convention
The Chairman tabled a lener sent to the company by Hold Co Sari indicating that the
draft of the Convention should be circulated to the shareholders prior to execution
The Board considered the matter but determined that this issue is not a matter that falls
within the jurisdiction of Shareholders meetings as Articles 435. 436. 437 and 487 of the
OMADA uniform Act Related to Commercial Company, articles 33 and 40 of the article of
association give either the Board or the General Manager the widest powers to act in all
circumstances on behalf of the company.
The Board requested the Chairman to communicate this decision to Hold Co SARI
The Board also noted that it is to the corporate benefit (interit sociali of the company.
considering ongoing negotiation and the agenda negotiated by the Government of
Cameroon, to execute the Convention in accordance with that time table
IT WAS UNANIMOUSLY RESOlVEO to apply the above provisions of the OHADA Uniform
Act Related to Commercial Company
RESOLUTION 3 - Authority to Sign Mbalam Convention
Drafts of the Convention and one of »ts annexes, the related collective labour agreement
(Collective Labour Agreement) as they stood at the date of the meeting, were tabled
It was unanimously noted that Serge Asso'o Mendomo, Director and General Manager of
the Company has already the power under section 487 of the OHADA Uniform Act
Related to Commercial Company and article 40 of the article of association of the
Company to execute the Convention and the Collective Labour Agreement on behalf of
the Company.
However the Board, given that these documents will be executed in a solemn ceremony
organlied by the Government of Cameroon, also wishes to empower, pursuant to
section 437 of the OHADA Uniform Act Related to Commercial Company and article 33 of
the article of association of the Company, the Chairman of the Company Mr Giulio
Casello to execute the Convention and the Collective Labour Agreement
Page 3 of 4
CAMIRON SA
It was also noted that, as the negotiations are still ongoing, changes may be brought to
the documents tabled before they are signed.
ACCORDINGLY IT WAS UNANIMOUSLY RESOLVED that:
* Giulio Casello, Chairman
4 And, to the extent necessary given his existing powers as General Manager. Serge
Asso'o Mendomo. Director and General Manager.
are each individually entitled to negotiate and make any amendment to the Convention
and the Collective Labour Agreement as tabled and. individually or jointly, to sign these
documents on behalf of the Company.
As there was no further business, the meeting was closed at 14.00 pm
Signed as a true and accurate record of the meeting by:
Director
Page 4 of 4
C