business plan liberia

8/13/2019 Business Plan Liberia

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Table of content1. Summary

2. Overview of Business Environment3. Business Idea and Targets4. Overview of Activities5. Market Analysis6. SWOT and Strategy7. Sales Channels8. Human Resources9. Production Process10. Financial Analysis11. Risk Assessment

ESTMOR SERVICE TRANSIIT O Tstuse 48a-307, 10416 Tallinn, Estonia E-mail: [email protected] Phone: +372 645 2666 Fax: +372 610 2185 www.estmorgold.eu


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SummaryESTMOR SERVICE TRANSIIT O has been operating since 1999 and is experienced

in petroleum import-export intermediaries as well as ship trade and evaluation. Thecompany is also engaged in financial intermediation.

One of the business areas of the company is gold and rough diamond mining and itsexport. The ESTMOR SERVICE TRANSIIT is the sole owner of Estmorgold MiningCompany Inc. which operates the Bangorma mining zone located on the territory of theRepublic of Liberia in Ngorja Mendimassa Clan of Western Africa. This gold anddiamond mining zone is situated in Grand Cape Mount County, 125 km from the capitalof Liberia, Monrovia, next to the southern border with Sierra Leone by the River Mafa inthe mountainous region of Lofa.

The size of Bangorma miningzone is approximately 180hectars, but currently only 2hectars are developed.According to the specialists, the


very rich of gold - 1 m3 of soilcontains 4-10 grams of gold.Our target is to develop

Bangorma mining zone up to100 hectars by the end of2012. The total investmentneeded is $100 million.

The company enjoys a good partnership with the Ministry of Land, Mines and Energy ofthe Republic of Liberia. The company is also highly valued in the governmentdepartments responsible for the mining and export control of the mined raw stock.


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This Spring International Monetary Fund completed the review of Liberia, whichemphasized the importance of continued commitment to reform. Overall, both the toneand the detail of the review were highly positive, reflecting the extent to which thegovernment is developing and implementing policy in line with IMF best practice, withcontinued progress being likely to contribute to the rapid achievement of completionpoint in the heavily indebted poor countries (HIPC) debt-relief process, possibly beforethe end of the year.

The current economic policy is guided by the country's poverty reduction and growthfacility (PRGF), covering March 2008-March 2011. The PRGF focuses on managingpublic expenditure, fighting corruption, improving economic governance and banksupervision, restoring macroeconomic stability, and drastically reducing external debt.The government will also maintain its focus on rebuilding key infrastructure, particularlyrestoring the electricity and water supply to the capital, Monrovia, and repairing roads

and bridges, as well as upgrading the main port.EconomyThe Liberian economy has traditionally been based on subsistence agriculture, rubber,mining (mainly of iron ore, but also of gold and diamonds) and timber. Apart fromrubber, timber and palm-oil plantations, agriculture is almost entirely limited tosubsistence farming (a mixture of food and cash crops, including rice, coffee and


cocoa . n ng was a ma or econom c sec or e ore e war an s expec e o rega nits importance, once work to rehabilitate old mining infrastructure is completed.Liberias real GDP growth is forecast to fall to 6.8% in 2009 as the global economicdownturn hits investment, before rising to 7.2% in 2010 as the global picture improves.Inflation is expected to fall to an average of 6% in 2009 and 5% in 2010 in line withlower international oil and food prices. The Liberian dollar depreciated gradually during2008, reflecting attempts by the central bank to balance the foreign exchange availableagainst a sustained current-account deficit. The Economist Intelligence Unit estimatesthat the Liberian dollar will average L$68:US$1 in 2009 and L$72:US$1 in 2010.

Recently Liberia has attracted significant foreign direct investments. Russia's largeststeel producer, Severstal, paid US$37.5m for a 61.5% stake in African Iron Ore Group(AIOG), which owns the rights to an iron ore deposit in the Putu Range area. ChinaUnion received the right to extract the iron ore deposits at Bong, which were previouslyoperated by a German consortium, Bong Mines Company. The mine was abandoned inthe 1990s, following substantial damage to all its facilities during the early part of thewar. The Economist Intelligence Unit reports that the size and timing of the investment,which has gone ahead despite the negative impact on prices of the global recession, isseen as a sign of the continued confidence of investors in the country and itsresources.


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Business Idea and TargetsThe investment in amout $ 100 million to Bangorma mining zone enables us to produce

additionally 10 tons of gold and 144 thousands carats of diamonds. This productionallows earning additional gross profit of $ 228,6 million by the end of 2012.

Our target is to increase gold production, build up diamond production and increase thedeveloped mining area of Bangorma mining zone up to 100 hectars.

The three biggest investment areas:

Increase gold miningand production

Build up diamondmining andproduction

Develop additional98 ha in Bangorma

mining zone

Necessary new equipment (in2010 one 200 m3 /hour sluice box,in 2011 another 200 m3 /hoursluice box, diggers, loader, rockcrasher, separator)

Necessary new equipment(diamond drag)Maintenance of equipmentAdditional workers (10

Preparation and removal ofupper layer of soilDeepening of soilTransportation of subsoil

Maintenance of new andexicting equipmentAdditional workers (15

persons)Transportation and Logistics

(cargo carrier, freight cars,helicopter rental)

In total $ 60million




persons)Transportation and Logistics

(helicopter rental)

Drilling water wellsConducting of supplement

geological studies ofsubsurface resourcesConstruction of roads


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2010 2011 2012 2010-2012

Investment , millions $ 100 100

Production of additionalamount of gold, tons 2 4 4 10

Production of additionalamount of diamonds, 000carats

48 48 48 144

Gold: Gross Profit, millions $ 42 84 84 210

Diamonds: Gross Profit,millions $ 6,2 6,2 6,2 18,6

The forecast of additional gold and diamond production and gross profit :

,



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Overview of ActivitiesEstmorgold Mining Company Inc., owned 100% by Estmor Service Transiit O, has

made total investment of approximately $ 12 million into Bangorma mining zone.The company has:Fully developed 2 hectars of mining zoneOwning the following equipment: sluice box, digger, loader, rock crasher, separator,

cargo carrierPlaced water and drainage pipesInstalled cabel TV and internetSecured the territoryBuilt up the mining town for workersBuilt roads for product transportationSet up headoffice in the capital city of Liberia, Monrovia

Currently, our company has one production line, that is capable to process 25 m3 of soilper hour. From 25 m3 of soil is possible to get 1000 grams of gold per day (1 m3 soil =min 5 g of gold; 1 day = 8 working hours), that is approximately 312 kg per year (1week = 6 working days; 1 year = 52 weeks).

To date 40 workers are working in Bangorma mining zone.

Market AnalysisProduct: GoldGold has attracted investors throughout the centuries, protecting their wealth andproviding a 'safe haven' in troubled or uncertain times. This appeal remains compellingfor modern investors, although there are also a number of other reasons that underpinthe widespread renewal of investor interest in gold.

Safe haven In volatile and uncertain times, there is typically a 'flight to quality' as investors seek toprotect their capital by moving it into assets considered to be safer stores of value.Gold is among a handful of financial assets that do not rely on an issuer's promise topay, offering refuge from default risk. It provides insurance against extreme movementsthat often occur in the value of traditional asset classes in unsettled times.



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Portfolio diversification Most investment portfolios are invested primarily in traditional financial assets such asstocks and bonds. The reason for holding diverse investments is to protect the portfolioagainst fluctuations in the value of any single asset or group of assets that react in acommon fashion. Portfolios containing gold are generally more robust and less volatilethan those that do not.

Inflation hedge Market cycles may come and go, but - over the long term - gold keeps its purchasingpower. Its value, in terms of the real goods and services that it can buy, has remainedremarkably stable. In contrast, the purchasing power of many currencies has generallydeclined due to the impact of rising prices for goods and services. As a result, gold isoften bought to counter the effects of inflation and currency fluctuations.

Dollar hedge Gold is often used as an effective hedge against fluctuations in the US dollar, theworld's main trading currency. If the dollar appreciates, the dollar gold price falls, whilea fall in the dollar relative to the other main currencies produces a rise in the gold price.While this may also be true of other assets, gold has consistently proved among themost effective in protecting against dollar weakness.

Risk management On the whole, gold is significantly less volatile than most commodities and many equityindices. In this respect it tends to behave more like a currency. Including assets withlow volatility in a portfolio will help to reduce overall risk, with a beneficial effect onexpected returns. Risk factors that may affect the gold price are quite different in naturefrom those that affect other assets.

Demand and supply As is true of all asset prices, gold's price moves in response to the changing balancebetween supply and demand. Mine production is relatively inelastic due to the long leadtimes that exist in gold mining, which explains why the rally in the gold price since 2001has still not engendered an increase in production levels. Meanwhile, demand hasshown sustained growth, due at least in part to rising income levels in gold's keymarkets. This has created the foundation for the most positive outlook the preciousmetal has known for a quarter of a century.



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Product: DiamondDiamonds are a good investmentThe price of diamonds continues to increase even when other investments may godown. This is due in part to the steady demand for diamonds. Diamonds are theprecious stone used most often in engagement rings. While the cut and size may varythere is no indication that diamonds will lose their appeal as engagement rings anytimesoon.

Diamonds are more likely to increase in value even in times of deflation. While manysegments of the marketplace may start to lose money diamonds will typically retaintheir value and continue to increase in value. The bank does not regulate diamonds sothe investment is one that is protected from bank bankruptcy or changes in the market.Because diamonds are traded worldwide they are not dependent on one economy.Instead they hold a steady value around the world.

Diamond is a status symbol of the rich Celebrities continue to show off their expensive diamonds keeping them trendy.Wealthy people often purchase diamonds. Financial issues such as recession lessaffect these people. This allows them to choose several types of investments includingdiamonds. Not only are diamonds likely to increase in value but they can also be worn

.

Conflict diamonds Also known as "blood diamonds," are diamonds that originated in areas of violent

conflict and civil war. These diamonds are usually sold in a covert manner, in order topurchase weapons while covering the trail of the financing for the conflict. The Africannations most noted for blood diamonds are Sierre Leone, Angola, The DemocraticRepublic of Congo and Liberia. As diamonds represent compressed and easilytransported wealth, conflict diamonds, in the past, formed an easy means of income forwarlords to continue on their campaign of terror and exploitation.

In recent years the steady stream of conflict diamonds has been reduced to a trickle ofits former self. This is due to a concerted and unified effort by governmental and non-governmental groups. The diamond industry itself has done much to staunch the flow ofblood diamonds out of Africa by aiding in the instituting of the current stop-gapmeasures. This ongoing enterprise is known as the Kimberley Process.



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The Kimberley Process is so-named for the city of Kimberley in which the multi-nationalagreement was first discussed in May of 2000. The agreement was drawn up and putinto effect with the cooperation of the world's diamond producing nations and thediamond industry in November of 2002. The Kimberley Process requires that anycountry participating in the agreement provide a certificate that cites the origin of therough diamonds. In addition to this, in order to receive the certificate, the country oforigin affirms that the income from the diamonds does not go to warlords or to thefunding of conflict in any way. 98% of the world's rough diamonds now go through theKimberley Process prior to coming to market.

As Liberian government has shown its determination to put in place measures toensure that the proceeds of diamond sales go for the benefit of Liberia and its people,The United Nations has lifted its 2001 ban on Liberia's diamond exports in 2007.

Price: GoldGold continues its run up reaching the 962.50 level (22.05.2009), a few dollars short ofthe overall target of 966. While raising trailing stops to the 930 level, a break of 966could yield a move to the YTD high of 1006.


Source : Kitco Inc. Available at http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

e ncease s r ven y t e e av or o nvestors w o uy go as a means o e g ngagainst dollar weakness, rising inflationary pressures and heightened geopolitical andfinancial sector risks.


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Gold price London PM Fix-US $, cumulative average

Versus LastYear, %

CAGR** 2001-2009 YTD May

2000 279,11

2001 271,04 -3%2002 309,73 14%

2003 363,38 17%

2004 409,72 13%

2005 444,74 9%

2006 603,46 36%

2007 695,39 15%

2008 871,96 25%

2009 YTD* May 906,62 4%

2001-2009 14%*YTD Year To Date**CAGR Cross Annual Growth RateSource : Kitco Inc. Available at http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

Gold Price Outlook Investors will remain the principal driver of the expected next leg of the bull market to


, ,In the medium term, prices could retrace from current levels; the mid to low $800s are

a possible low over the rest of this year, with prices in that region most likely toeventually be pushed up by bargain hunting and stock replenishment

Supplys reaction to price rally limited so far: mine production expected to rise slightlyin 2009 while official sector sales should be weaker. Surging scrap expected tocontinue materially to affect prices during periods of strengthImbalances in the market suggest that sooner or later the gold price will have to

retreat. Nevertheless, this is most unlikely to occur until end-2009 and potentially notuntil well into 2010 given current economic conditions, which favor gold investment(Source: GFMS Ltd.)


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Estmorgold Mining Company Cost of Goods (COGS): $ 4/gramSelling price (w.o. export tax 3%, w.o. discount): $ 25/gramGross Margin: 84%, $ 21/gramCompetitors There is no data available of competitors COGS. Selling price is almost the same.

Price: DiamondThe price of diamonds vary. It is dependent upon the quality of the diamond,determined by the color, clarity and cut, and the carat weight of the diamond, whichdetermines how big the diamond is.

Estmorgold Mining Company Cost of Goods (COGS): $ 20/caratSelling price (w.o. export tax 3%, w.o. discount): $ 150/caratGross Margin: 87%, $ 130/carat

Competitors There is no data available of competitors COGS and selling price.


CompetitorsThere are following companies producing gold and diamonds in Liberia:

Liberia Gold CorporationLiberty Gold & Diamond Mining Inc.Magma Mineral Resources IncorporatedMano River Resources IncorporatedOusomar Mines & MineralsPrecious Minerals & Mining CoTarget Resources Inc.T-Rex Resources Inc.Universal Mining CorporationWestern Mineral Resources Corporation


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SWOT and Strategy

Strenghts - internal Weaknesses internal

Very high gold content - 1 m3 of soilcontains 4-10 grams of goldSelling product without using distributorGood relationships with local authoritiesCompany is highly valued in

government departments concerningmining and export control of the minedraw stockDeveloped infrastructure in mining

territoryEnvolved in Social Program -

financing local medical center and localschool

Lack of financial resources in order touse full production capacity

Opportunities - external Threats external

Capital infusionGrowth of gold demandPolitical and economic improvements in

Liberia

Increase in stock offeringsCentral banks - they need to finance

deficits and bailouts by selling goldwhich may lead to price decline in theworld markets


StrategyTo invest additionally $ 100 million to Bangorma mining zone in order to increaseproduction capacity 11 times and earn $ 228,6 million additional gross profit by the endof 2012.


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Sales ChannelsEstmorgold Mining Company is having product sales pre-agreements with the followingregions:SwitzerlandPakistanCentral AsiaIsrael

Human ResourcesAs the investment of $ 100 million will increase the production capacity 11 times, thenthere is necessity to hire extra 25 persons (gold mining and production 15 extrapersons, diamond mining and production 10 extra persons).

Additional costs for 25 extra workers total approximately $ 20 000 per month.

Production Process

Two biggest regions Estmorgold Mining Company ishaving already pre-agreements selling the product

There are two types of mines, Open Pit and Underground. Open pits are suitable forlarge tonnage near surface deposits. Typically the floor of the pit is lowered in about 30

foot benches. Blasthole drill holes are filled with explosive and blasted, preparing therock to be moved. Often rock from the drill holes are assayed and the bench's gradeand chemistry are tested. After blasting, the broken rock is marked by the geologists asbeing either ore or waste. Additionally if the mill blends different types of ore or if highergrade mill and lower grade heap, leach ore is produced.

Estmorgold Mining Company is using the most productive method in gold mining. It isan open pit mining method using the jigging apparatus.

The investment of $ 100 million implies that the capability to process soil will increaseup to 200 m3 per hour in 2010 and up to 400 m3 per hour in 2011 and 2012. Thisproduction capacity enables to produce 2 tons of gold in 2010 and 4 tons in 2011 and2012 (1 m3 soil = min 5 grams of gold; 1 day = 8 working hours; 1 week = 6 workingdays; 1 year = 52 weeks).

Additional costs total approximately $ 11 000 per month.



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Financial Analysis

2010-2012

Size of mining zone: 98 hectars$/3 years

ADDITIONAL GROSS PROFIT 228 600 000

Human Resources 720 000

Production 396 000

Transport and Logistics 171 000

Administration 255 078

ADDITIONAL COSTS 1 542 078


TAXES 227 057 922

ADDITIONAL TAXES (export tax 3%) 6 861 600

ADDITIONAL NET PROFIT 220 196 322


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Commercial risk is the risk of default by a foreign private buyer, i.e. the risk of a buyerbeing unable to meet its financial obligations or not honoring them without anylegitimate reason. Commercial risk not only depends on the situation of the buyer at itsmicro-level, but also on macroeconomic and systemic factors impacting on therepayment capacity of all the buyers in a country. Category A groups countries in whichsystemic commercial risk is the lowest, while category C groups countries with thehighest risk.

Commercial risk assessment consists primarily of case-by-case "micro-economic"assessments of the buyer and its sector of activity. This analysis conditions theacceptance of a risk on the buyer and the possible inclusion of special terms of cover.Some factors, however, have an influence on commercial risk at a country level,thereby affecting the repayment capacity of all buyers in a country. Examples of this arethe effects of a sharp devaluation, high real interest rates, a recession, a context of

widespread corruption, etc. It is precisely that "macro-economic" or systemic aspect ofcommercial risk that is part of country risks.

War risk encompasses both the risks of external conflict and the risks of domesticpolitical violence. Apart from the extreme case of civil war, domestic political violencealso covers risks of terrorism, civil unrest, social-economic conflicts and racial andethnic tensions.

The risk of expropriation and government action not only covers the risks ofexpropriation and breach of contract by the government, but also risks related to the(dys)functioning of the judiciary system and the risk of a possible negative change ofattitude towards foreign investors.Obviously, Estmor Service Transit is not able to control all risks associated with Liberia.However, the company has established a good partnership with the government,created jobs and made vital investments in the mining sector. In addition, our companycontributes to the development of social programs in Liberia. All of these activitiesmitigate significantly commercials risks as well as risks associated with the governmentaction and expropriation.

Furthermore, this ONDDs static assesment of current country risks of Liberia has tobee seen in the context of recent positive developments which point towards significantimprovements. Liberia is a country that suffered from years of instability and conflictfrom 1990 to 2003. A comprehensive peace accord ended the conflict in August 2003and a United Nations peacekeeping force (UNMIL) was deployed to facilitatedisarmament and demobilization, provide for security of the country.



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They are strengthened to deal with both internal and external security threats. The UNEnvoy Lj expressed confidence that with perseverance and determination, "the peaceand stability we have achieved over the years will be sustained, and Liberia can move

ahead in its recovery, rehabilitation and development drive.Liberian goverment has taken steps to reduce corruption, build support frominternational donors, and encourage private investment. Embargos on timber anddiamond exports have been lifted, opening new sources of revenue for the government.With the signing of the Peace Agreement in 2003 and with assistance from the UN andthe international donor community, 2004 saw the beginning of the long process ofrebuilding the Liberian economy, for which mining development is poised to play a largepart. Potential for developing the countrys diamond and gold resources hold thepromise for the creation of employment and foreign exchange export earnings. Theability of Liberia to reestablish self-governance following the October 2005 electionsand to create a stable and transparent investment climate will determine the rate atwhich the required direct foreign investment in mineral development will flow into thecountry. Our company is proud to be part of and will continue contributing to thesepositive developments.



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APPENDIXAPPENDIXAPPENDIX



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Appendix

Financial Analysis

2010 2010-2011 2010-2012

Size of miningzone: 98 hectars

$/1 year


$/2 years


$/3 yearsADDITIONAL GROSS

PROFIT48 200 000 138 400 000 228 600 000

Human Resources 240 000 480 000 720 000

Production 132 000 264 000 396 000

Transport and Logistics 57 000 114 000 171 000

Administration 85 026 170 052 255 078


ADDITIONAL COSTS 514 026 1 028 052 1 542 078

ADDITIONAL NETPROFIT BEFORETAXES

47 685 974 137 371 948 227 057 922

ADDITIONAL TAXES(export tax 3%) 1 447 200 4 154 400 6 861 600

ADDITIONAL NETPROFIT 46 238 774 133 217 548 220 196 322

business plan liberia

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