Halco, CBG and the Basic Agreement with the Government of Guinea
Summary
The relationship among the Government of the Republic of Guinea, Halco (Mining) Inc. ("Halco") and Compagnie des Bauxites de Guinée ("CBG") is primarily governed by the Agreement between the Republic of Guinea and Harvey Aluminum Co. of Delaware dated October 1, 1963 (the "Initial CBG Basic Agreement"). The Initial CBG Basic Agreement was amended by Amendment No. 1 to the Basic Agreement dated April 19, 2001 (the "First Amendment"). The Initial Basic Agreement, together with the First Amendment, is known as the "CBG Basic Agreement".
The CBG Basic Agreement is a comprehensive agreement dealing with numerous issues related to CBG's exclusive rights to bauxite resources and reserves, bauxite sales, organizational structure, applicable tax regimes, use of related infrastructure and other matters.
CBG's Exclusive Right to Bauxite
The CBG Basic Agreement sets forth CBG's exclusive rights to all bauxite resources and reserves within specified areas of the Republic of Guinea. In particular, Article 3 of the CBG Basic Agreement provides as follows:
Inside the perimeter shown on the attached Schedule A the Government shall deliver to (CBG) when and as (CBG) needs it, the mining titles and exploitation permits necessary to allow it an exploitation as extensive and as profitable as possible of the bauxite deposits of the Boké region.
CBG was initially granted exclusive mining titles and rights to all bauxite within an area designated as the "Initial Territory". The Initial Territory includes an area of approximately 1,300 square kilometers and has been mined continuously for more than 30 years. Article 3 of the CBG Basic Agreement also provides:
....it is agreed that (CBG) may explore, mine, transport, transform, sell and export the bauxite existing in the Territory, as well as acquire or construct any and all plants, installations, equipments and machinery relating to the above, and to operate the same and take such other action in respect thereto where otherwise it shall be necessary in the judgment of (CBG) to exploit the Territory and to valorize the bauxite resulting therefrom.
In addition to the bauxite resources located within the Initial Territory, the CBG Basic Agreement provides that CBG has the right to obtain additional mining titles for bauxite resources located outside of the Initial Territory, but within the larger Perimeter of Exploitation.
CBG was granted the Additional Mining Titles in 2006, and has, in accordance with the terms of the Basic Agreement, relinquished its rights to unclaimed areas within the Perimeter of Exploitation. These relinquished areas, given up by the company, include more than 85% of the land area and 75% of the known bauxite resources within the Perimeter of Exploitation.
Exclusive Supply of Bauxite to Third Parties
The CBG Basic Agreement provides that CBG will be the exclusive provider of bauxite from the Perimeter of Exploitation. In particular, Article 7 provides that:
The parties hereto mutually recognize that the most economically profitable exploitation and valorization is to concentrate the control of the bauxite deposits of the entire Boké region in the same hands in order to avoid duplication and unnecessary overhead.
In addition, Section 7 of the CBG Basic Agreement sets forth a framework for the sale of bauxite from the Territory. Importantly, it provides that:
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- .....(CBG) will honor all the metallurgical grade bauxite orders which it may receive, subject to reasonable deliveries and provided that the prices generate a satisfactory margin of profit and that the buyer furnishes reasonable evidence of solvency....
- .....in the event that (CBG) is unable to meet the needs on the basis as stated in subparagraph (a) above, then the Government reserves the right to grant mining titles and exploitation permits to the buyer referred to inside the part of perimeter of Schedule "A" which does not belong to the Territory; but it is agreed that in the event that the Board of Directors of (CBG) were to declare that it is able to meet the needs of the applicant, the latter's application could only be satisfied through (CBG).
- .....At any time, any application for a new concession in the (Perimeter of Exploitation) which might be lodged by a third party shall first be submitted to the prior study of the Board of Directors of (CBG), in order that the Board may indicate whether (CBG) is in a position to satisfy the needs of such third party.
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As of this date, CBG bauxite orders have been consistently honored and the Board of Directors of CBG has never refused the purchase requests of any third parties. Additionally, CBG and Halco continue to strongly support their agreement with the Government of the Republic of Guinea that CBG shall be the sole provider of Boké bauxite for export for consumption by refineries constructed in Guinee. In that regard, they continue to stand behind the agreement contained in Section III of the First Amendment, executed in April of 2001, in which it was agreed that CBG:
Reaffirms its commitment to be the supplier of bauxite on mutually agreed terms to any alumina production venture constructed in the region and to join with the Government in efforts to promote such a project.
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Halco and CBG: past, present and future in Guinea
 1963: Basic Agreement defines Perimeter of Exploitation
1973: First bauxite shipped from Initial Territory
Additional Titles as applied for by CBG in 2005
2006: CBG relinquishes unclaimed territory
The Basic Agreement with the Government of Guinea originally outlined a 35,000 sq km area for bauxite exploitation.
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The Initial Territory (red) is the mining area originally leased to CBG.
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Additional Mining Territory was finalized and granted in early 2006. CBG has relinquished the remainder.
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CBG has requested the Government of Guinea to lease additional territory (blue) for expansion
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At Kamsar, bauxite is processed and loaded for shipment to refineries worldwide.
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