Business Plan Liberia

BUSINESS PLAN DEVELOPMENT OF BANGORMA MINING ZONE
ESTMOR SERVICE TRANSIIT O Tstuse 48a-307, 10416 Tallinn, Estonia E-mail: info@estmorgold.eu Phone: +372 645 2666 Fax: +372 610 2185 www.estmorgold.eu
Table of content
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Summary Overview of Business Environment Business Idea and Targets Overview of Activities Market Analysis SWOT and Strategy Sales Channels Human Resources Production Process Financial Analysis Risk Assessment
Summary
ESTMOR SERVICE TRANSIIT O has been operating since 1999 and is experienced in petroleum import-export intermediaries as well as ship trade and evaluation. The company is also engaged in financial intermediation. One of the business areas of the company is gold and rough diamond mining and its export. The ESTMOR SERVICE TRANSIIT is the sole owner of Estmorgold Mining Company Inc. which operates the Bangorma mining zone located on the territory of the Republic of Liberia in Ngorja Mendimassa Clan of Western Africa. This gold and diamond mining zone is situated in Grand Cape Mount County, 125 km from the capital of Liberia, Monrovia, next to the southern border with Sierra Leone by the River Mafa in the mountainous region of Lofa. The size of Bangorma mining zone is approximately 180 hectars, but currently only 2 hectars are developed. According to the specialists, the soil in Bangorma mining zone is very rich of gold - 1 m3 of soil contains 4-10 grams of gold. Our target is to develop Bangorma mining zone up to 100 hectars by the end of 2012. The total investment needed is $100 million.
The company enjoys a good partnership with the Ministry of Land, Mines and Energy of the Republic of Liberia. The company is also highly valued in the government departments responsible for the mining and export control of the mined raw stock.
Overview of Business Environment

History From 1989 to 2003 Liberia was devastated by two civil wars. The economy collapsed and most of the economic activity took place in the unrecorded informal sector. Under the presidency of Charles Taylor (1997-2003) smuggling was also rife, and this continued under the transitional government that followed his departure. However, efforts since the ending of the country's civil war in 2003 to restore the economy and provide stability have been successful. The 2005 elections were free and fair and led to the restoration of political stability on the basis of the 1986 Constitution. Nevertheless, the challenges are immense. For instance, decline in literacy during the war years has been tremendous: some reports suggest that the adult literacy rate fell from 61% in 1990 to 44% in 2002. Since the end of the war in 2003 aid agencies have been helping to rebuild schools and provide temporary facilities where classes can be held. Politics The Economist Intelligence Unit's 2008 democracy index ranks Liberia 98th out of 167 countries, in the category of hybrid regimes, indicating that the quality of democracy is compromised by a weak administrative capacity, corruption and inefficient judiciary. However, a political culture, which is supportive of democracy is emerging. Most importantly, the president, Ellen Johnson-Sirleaf, is firmly in control of the government and will continue to have a positive impact on prospects for political stability and economic recovery. Mrs Johnson-Sirleaf is a strong leader who has significant support from the international community for the rebuilding of post-civil war Liberia. In the near term, the government is taking steps to help to mitigate the negative impact of the global economic slowdown. In her State of the Nation address, the president, Ellen Johnson-Sirleaf, announced measures intended to support the business environment, including cuts in business and income taxes and trade tariffs. The next elections will take place in 2011. International donors have deemed progress so far to be satisfactory, and external funding, as well as external debt relief, is therefore expected to be substantial. Significant technical, financial and military support underlines the close relationship with the US, but Liberia also receives strong support from many other governments, including China, as well as from multilateral institutions.
This Spring International Monetary Fund completed the review of Liberia, which emphasized the importance of continued commitment to reform. Overall, both the tone and the detail of the review were highly positive, reflecting the extent to which the government is developing and implementing policy in line with IMF best practice, with continued progress being likely to contribute to the rapid achievement of completion point in the heavily indebted poor countries (HIPC) debt-relief process, possibly before the end of the year. The current economic policy is guided by the country's poverty reduction and growth facility (PRGF), covering March 2008-March 2011. The PRGF focuses on managing public expenditure, fighting corruption, improving economic governance and bank supervision, restoring macroeconomic stability, and drastically reducing external debt. The government will also maintain its focus on rebuilding key infrastructure, particularly restoring the electricity and water supply to the capital, Monrovia, and repairing roads and bridges, as well as upgrading the main port. Economy The Liberian economy has traditionally been based on subsistence agriculture, rubber, mining (mainly of iron ore, but also of gold and diamonds) and timber. Apart from rubber, timber and palm-oil plantations, agriculture is almost entirely limited to subsistence farming (a mixture of food and cash crops, including rice, coffee and cocoa). Mining was a major economic sector before the war and is expected to regain its 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 economic downturn 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 with lower international oil and food prices. The Liberian dollar depreciated gradually during 2008, reflecting attempts by the central bank to balance the foreign exchange available against a sustained current-account deficit. The Economist Intelligence Unit estimates that 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 largest steel 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. China Union received the right to extract the iron ore deposits at Bong, which were previously operated by a German consortium, Bong Mines Company. The mine was abandoned in the 1990s, following substantial damage to all its facilities during the early part of the war. 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, is seen as a sign of the continued confidence of investors in the country and its resources.
Business Idea and Targets

The 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 production allows 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 the developed mining area of Bangorma mining zone up to 100 hectars. The three biggest investment areas: Increase gold mining and production Build up diamond mining and production
Necessary new equipment (diamond drag) Maintenance of equipment Additional workers (10 persons) Transportation and Logistics (helicopter rental)
Develop additional 98 ha in Bangorma mining zone

Preparation and removal of upper layer of soil Deepening of soil Transportation of subsoil Drilling water wells Conducting of supplement geological studies of subsurface resources Construction of roads
Necessary new equipment (in 2010 one 200 m3/hour sluice box, in 2011 another 200 m3/hour sluice box, diggers, loader, rock crasher, separator) Maintenance of new and exicting equipment Additional workers (15 persons) Transportation and Logistics (cargo carrier, freight cars, helicopter rental)
In total $ 30 million
The forecast of additional gold and diamond production and gross profit : 2010 Investment , millions $ Production of additional amount of gold, tons Production of additional amount of diamonds, 000 carats Gold: Gross Profit, millions $ Diamonds: Gross Profit, millions $ Total Gross Profit, millions $ 100 2 48 4 48 4 48 2011 2012 2010-2012 100 10 144
42 6,2 48,2
84 6,2 90,2
84 6,2 90,2
210 18,6 228,6
Overview of Activities
Estmorgold 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 zone Owning the following equipment: sluice box, digger, loader, rock crasher, separator, cargo carrier Placed water and drainage pipes Installed cabel TV and internet Secured the territory Built up the mining town for workers Built roads for product transportation Set up headoffice in the capital city of Liberia, Monrovia Currently, our company has one production line, that is capable to process 25 m3 of soil per 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 (1 week = 6 working days; 1 year = 52 weeks). To date 40 workers are working in Bangorma mining zone.
Market Analysis
Product: Gold Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors, although there are also a number of other reasons that underpin the widespread renewal of investor interest in gold. Safe haven In volatile and uncertain times, there is typically a 'flight to quality' as investors seek to protect 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 to pay, offering refuge from default risk. It provides insurance against extreme movements that often occur in the value of traditional asset classes in unsettled times.
Portfolio diversification Most investment portfolios are invested primarily in traditional financial assets such as stocks and bonds. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset or group of assets that react in a common fashion. Portfolios containing gold are generally more robust and less volatile than those that do not. Inflation hedge Market cycles may come and go, but - over the long term - gold keeps its purchasing power. Its value, in terms of the real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined due to the impact of rising prices for goods and services. As a result, gold is often 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, the world's main trading currency. If the dollar appreciates, the dollar gold price falls, while a 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 the most effective in protecting against dollar weakness. Risk management On the whole, gold is significantly less volatile than most commodities and many equity indices. In this respect it tends to behave more like a currency. Including assets with low volatility in a portfolio will help to reduce overall risk, with a beneficial effect on expected returns. Risk factors that may affect the gold price are quite different in nature from those that affect other assets. Demand and supply As is true of all asset prices, gold's price moves in response to the changing balance between supply and demand. Mine production is relatively inelastic due to the long lead times that exist in gold mining, which explains why the rally in the gold price since 2001 has still not engendered an increase in production levels. Meanwhile, demand has shown sustained growth, due at least in part to rising income levels in gold's key markets. This has created the foundation for the most positive outlook the precious metal has known for a quarter of a century.
Product: Diamond Diamonds are a good investment The price of diamonds continues to increase even when other investments may go down. This is due in part to the steady demand for diamonds. Diamonds are the precious stone used most often in engagement rings. While the cut and size may vary there is no indication that diamonds will lose their appeal as engagement rings anytime soon. Diamonds are more likely to increase in value even in times of deflation. While many segments of the marketplace may start to lose money diamonds will typically retain their value and continue to increase in value. The bank does not regulate diamonds so the 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 less affect these people. This allows them to choose several types of investments including diamonds. Not only are diamonds likely to increase in value but they can also be worn as a fashion item. 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 to purchase weapons while covering the trail of the financing for the conflict. The African nations most noted for blood diamonds are Sierre Leone, Angola, The Democratic Republic of Congo and Liberia. As diamonds represent compressed and easily transported wealth, conflict diamonds, in the past, formed an easy means of income for warlords to continue on their campaign of terror and exploitation. In recent years the steady stream of conflict diamonds has been reduced to a trickle of its former self. This is due to a concerted and unified effort by governmental and nongovernmental groups. The diamond industry itself has done much to staunch the flow of blood diamonds out of Africa by aiding in the instituting of the current stop-gap measures. 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-national agreement was first discussed in May of 2000. The agreement was drawn up and put into effect with the cooperation of the world's diamond producing nations and the diamond industry in November of 2002. The Kimberley Process requires that any country participating in the agreement provide a certificate that cites the origin of the rough diamonds. In addition to this, in order to receive the certificate, the country of origin affirms that the income from the diamonds does not go to warlords or to the funding of conflict in any way. 98% of the world's rough diamonds now go through the Kimberley Process prior to coming to market. As Liberian government has shown its determination to put in place measures to ensure 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: Gold Gold continues its run up reaching the 962.50 level (22.05.2009), a few dollars short of the overall target of 966. While raising trailing stops to the 930 level, a break of 966 could yield a move to the YTD high of 1006. The incease is driven by the behavior of investors who buy gold as a means of hedging against dollar weakness, rising inflationary pressures and heightened geopolitical and financial sector risks.
Source: Kitco Inc. Available at http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx ESTMOR SERVICE TRANSIIT O Tstuse 48a-307, 10416 Tallinn, Estonia E-mail: info@estmorgold.eu Phone: +372 645 2666 Fax: +372 610 2185 www.estmorgold.eu
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Gold price London PM FixUS $, cumulative average 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD* May 2001-2009 279,11 271,04 309,73 363,38 409,72 444,74 603,46 695,39 871,96 906,62
Versus Last Year, %
CAGR** 20012009 YTD May
-3% 14% 17% 13% 9% 36% 15% 25% 4% 14%
*YTD Year To Date **CAGR Cross Annual Growth Rate Source: 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 a new high above the $1,000 mark with $1,100 a real possibility 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 to eventually be pushed up by bargain hunting and stock replenishment Supplys reaction to price rally limited so far: mine production expected to rise slightly in 2009 while official sector sales should be weaker. Surging scrap expected to continue materially to affect prices during periods of strength Imbalances 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 not until 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/gram Selling price (w.o. export tax 3%, w.o. discount): $ 25/gram Gross Margin: 84%, $ 21/gram Competitors There is no data available of competitors COGS. Selling price is almost the same. Price: Diamond The 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, which determines how big the diamond is. Estmorgold Mining Company Cost of Goods (COGS): $ 20/carat Selling price (w.o. export tax 3%, w.o. discount): $ 150/carat Gross Margin: 87%, $ 130/carat Competitors There is no data available of competitors COGS and selling price.
Competitors There are following companies producing gold and diamonds in Liberia: Liberia Gold Corporation Liberty Gold & Diamond Mining Inc. Magma Mineral Resources Incorporated Mano River Resources Incorporated Ousomar Mines & Minerals Precious Minerals & Mining Co Target Resources Inc. T-Rex Resources Inc. Universal Mining Corporation Western Mineral Resources Corporation
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SWOT and Strategy

Strenghts - internal Very high gold content - 1 m3 of soil contains 4-10 grams of gold Selling product without using distributor Good relationships with local authorities Company is highly valued in government departments concerning mining and export control of the mined raw stock Developed infrastructure in mining territory Envolved in Social Program financing local medical center and local school Opportunities - external Capital infusion Growth of gold demand Political and economic improvements in Liberia Weaknesses internal Lack of financial resources in order to use full production capacity
Threats external Increase in stock offerings Central banks - they need to finance deficits and bailouts by selling gold which may lead to price decline in the world markets
Strategy To invest additionally $ 100 million to Bangorma mining zone in order to increase production capacity 11 times and earn $ 228,6 million additional gross profit by the end of 2012.
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Sales Channels
Estmorgold Mining Company is having product sales pre-agreements with the following regions: Two biggest regions Estmorgold Mining Company is Switzerland having already pre-agreements selling the product Pakistan Central Asia Israel
Human Resources
As the investment of $ 100 million will increase the production capacity 11 times, then there is necessity to hire extra 25 persons (gold mining and production 15 extra persons, diamond mining and production 10 extra persons). Additional costs for 25 extra workers total approximately $ 20 000 per month.
Production Process
There are two types of mines, Open Pit and Underground. Open pits are suitable for large 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 the rock to be moved. Often rock from the drill holes are assayed and the bench's grade and chemistry are tested. After blasting, the broken rock is marked by the geologists as being either ore or waste. Additionally if the mill blends different types of ore or if higher grade mill and lower grade heap, leach ore is produced. Estmorgold Mining Company is using the most productive method in gold mining. It is an open pit mining method using the jigging apparatus. The investment of $ 100 million implies that the capability to process soil will increase up to 200 m3 per hour in 2010 and up to 400 m3 per hour in 2011 and 2012. This production capacity enables to produce 2 tons of gold in 2010 and 4 tons in 2011 and 2012 (1 m3 soil = min 5 grams of gold; 1 day = 8 working hours; 1 week = 6 working days; 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
Human Resources Production Transport and Logistics Administration
228 600 000

720 000 396 000 171 000 255 078
ADDITIONAL COSTS ADDITIONAL NET PROFIT BEFORE TAXES ADDITIONAL TAXES (export tax 3%) ADDITIONAL NET PROFIT
1 542 078 227 057 922 6 861 600 220 196 322
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Risk Assesment
transactions with a credit period of more than two years
mainly contracting works and projects with long realization periods, but payable on cash as the work progresses
Last update 08.05.2009 Source: ONDD The Belgian Export Credit Agency. Available at http://www.ondd.be/WebONDD/Website.nsf/AllWeb/Liberia?OpenDocument&Disp=1&Language=en
The Belgian Export Credit Agency ONDD assesses business risks in Liberia on the basis of following categories: Political risk encompasses all events occurring abroad and assuming a case of force majeure for the insured or the buyer (foreign exchange shortages, wars, revolutions, natural disasters and government actions).
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Commercial risk is the risk of default by a foreign private buyer, i.e. the risk of a buyer being unable to meet its financial obligations or not honoring them without any legitimate reason. Commercial risk not only depends on the situation of the buyer at its micro-level, but also on macroeconomic and systemic factors impacting on the repayment capacity of all the buyers in a country. Category A groups countries in which systemic commercial risk is the lowest, while category C groups countries with the highest risk. Commercial risk assessment consists primarily of case-by-case "micro-economic" assessments of the buyer and its sector of activity. This analysis conditions the acceptance 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 are the 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 of commercial risk that is part of country risks. War risk encompasses both the risks of external conflict and the risks of domestic political violence. Apart from the extreme case of civil war, domestic political violence also covers risks of terrorism, civil unrest, social-economic conflicts and racial and ethnic tensions. The risk of expropriation and government action not only covers the risks of expropriation 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 of attitude 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 company contributes to the development of social programs in Liberia. All of these activities mitigate significantly commercials risks as well as risks associated with the government action and expropriation. Furthermore, this ONDDs static assesment of current country risks of Liberia has to bee seen in the context of recent positive developments which point towards significant improvements. Liberia is a country that suffered from years of instability and conflict from 1990 to 2003. A comprehensive peace accord ended the conflict in August 2003 and a United Nations peacekeeping force (UNMIL) was deployed to facilitate disarmament 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 UN Envoy Lj expressed confidence that with perseverance and determination, "the peace and 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 from international donors, and encourage private investment. Embargos on timber and diamond 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 and the international donor community, 2004 saw the beginning of the long process of rebuilding the Liberian economy, for which mining development is poised to play a large part. Potential for developing the countrys diamond and gold resources hold the promise for the creation of employment and foreign exchange export earnings. The ability of Liberia to reestablish self-governance following the October 2005 elections and to create a stable and transparent investment climate will determine the rate at which the required direct foreign investment in mineral development will flow into the country. Our company is proud to be part of and will continue contributing to these positive developments.
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APPENDIX
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Appendix
Financial Analysis
2010 Size of mining zone: 98 hectars $/1 year ADDITIONAL GROSS PROFIT
Human Resources Production Transport and Logistics Administration
2010-2011 Size of mining zone: 98 hectars $/2 years 138 400 000
480 000 264 000 114 000 170 052
2010-2012 Size of mining zone: 98 hectars $/3 years 228 600 000
720 000 396 000 171 000 255 078
48 200 000
240 000 132 000 57 000 85 026
ADDITIONAL COSTS ADDITIONAL NET PROFIT BEFORE TAXES ADDITIONAL TAXES (export tax 3%) ADDITIONAL NET PROFIT
514 026
1 028 052
1 542 078
47 685 974
137 371 948
227 057 922
1 447 200
4 154 400
6 861 600
46 238 774
133 217 548
220 196 322
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Business Plan Liberia

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Business Plan Liberia

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BUSINESS PLAN DEVELOPMENT OF BANGORMA MINING ZONE

Overview of Business Environment

Business Idea and Targets

Develop additional 98 ha in Bangorma mining zone

210 18,6 228,6

Versus Last Year, %

CAGR** 20012009 YTD May

-3% 14% 17% 13% 9% 36% 15% 25% 4% 14%

SWOT and Strategy

228 600 000

transactions with a credit period of more than two years

137 371 948

227 057 922

133 217 548

220 196 322

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