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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


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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








page I 271


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.

































































pago I 272


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




























































































page | 273


 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











Page 2 of 4


 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