Leveraging extractive industry investments for domestic infrastructure needs : Power June 2014

1. Leveraging extractive industry investments for domestic infrastructure needs:Power June 2014

2. Identifying Power-Mine Synergies is Win - Win • Benefit for country: • Develop the national power generation facilities and electricity transmission systems • Strengthen the utility • Increase access to electricity in remote areas. • Benefit for mine: • Effective coordination results in cost-savings • Maintain social licence to operate Cost savings Welfare gains

3. How to get there? • PURPOSE: Leveraging the mining industry’s power demand and its capital investments in power infrastructure for the development of the national power system

4. STEP 1: Assessing the current situation • What determines the mine’s power arrangement? Adequacy of National Supply • Depending on stage, commodity and type of operations, mines require a large amount of power Reliability of Supply • Power is crucial to mining operations - mines need reliable power access • Power intensity of mining operations means that profit margins are highly sensitive to power costs Cost of Grid Power • Transmission network must extend to mines or cost of extending network must be economical Extent of Transmission Infrastructure

5. STEP 1: Assessing the current situation • The extent to which there is an opportunity for finding mining – power synergies will depend on the commodity and level of processing • Power costs will often constitute between 10% and 25% of operating costs • The more power-intensive the operation, the more it will look for cheap power sources Source: Power of the Mine, VCC-WB report

6. STEP 2: Identifying Power-Mine Synergies Continuum of Power Sourcing Arrangements

7. a. Power self-supply is a loss for all Adequacy of National Supply Extent of Trans. Infrastructure Cost of Grid Power Reliability of Supply Mine self supply is a loss to all In Africa: Source: WB- VCC 7

8. b. Mine supplies power to communities RES - based Mini-Grid Off-Grid Solutions • Where the distance to the grid is too large to warrant investment in transmission infrastructure Example: Guinea Example: Sierra Leone • Rio Tinto and Infraco initiative near the Simandoumine: • 1 MW hydro power plant on the Cessouriver • 20 km 20kV transmission to Beyla • Upgrade of existing distribution system Sierra Rutile has installed solar street lights in the townships of Moriba and Mogbwemo near its mining site • Assists the government in meeting rural electrification goals • Helps the mining company’s social license to operate

9. c. Mine sells excess power to grid • Where mining companies generate their own power, extra power could be sold back into the grid. Example- Mozambique: • Low quality thermal coal in Moatize • High transportation costs to market • Domestic and regional power demand •  Commercial incentive for mines to build thermal coal power plants both for their own consumption and to sell excess power to grid • e.g. Vale’s Moatize plant: • Initial phase net 270MW plant capacity. Mine will consume 220MW, with the remainder to be sold to EDM, transmitted via the Northern Grid. Source: The Guardian

10. c. Mines sell excess power to grid: Coordination • Coordinated Thermal Plant • Average cost of power in Liberia by 2030 would fall to $0.08/kWh. • Saving to Mines: $1.4 billion over a 20 year period (or US$70 million annually) • Saving to LEC: $0.2 billion over a 20 year period (or US$10 million annually). • Individual Thermal Plants • Mines generate power through coal-fired plants • 700MW generated to serve the mines, and 160MW of excess supply to the grid • Average cost of power for the country = $0.12/kWh by 2030, compared to a base scenario without mine supply of $0.15/kWh • Economies of scale in coordinating investment among mines • World Bank analysis of Liberian power sector:

11. d. Mines serve as anchor for IPPs Anchor demand from increases bankability • Given their large power needs, mines can also be used as anchor customers for IPP generation investments. IPP Cheaper reliable source of power Additional supply for to meet national demand WIN - WIN Government Mining Company

12. d. Mines serve as anchor for IPP: Sierra Leone • Current plans for Joule Africa (IPP) to carry out expansion phase of Bumbuna Dam from 50 MW to 372MW. • Projected cost post-transmission to be between $0.08-0.14/kWh. • London Mining interested as a power off-taker. Current marginal cost of HFO power ($0.18/kWh) Source: Renewbl.com (Top) Renewable-Technology.com (Bottom)

13. d. Mines serve as anchor for IPPs • Depending on the situation, mines may choose to play a more active role in the IPP investment as part of a joint venture. Mining Company Power Developer Financiers Power Plant Project PPA • Example: Mauritania • PPP between government, utility, state-owned mining company (SNIM) and Kinross Gold Corp to develop 350MW gas power plant PPA Utility

14. e. Mines source power from grid

15. e. Mines source power from grid

16. STEP 2 Summary: Power-Mine Synergies

17. STEP 3: Verify the Preconditions • Sufficiently liberalised market with trusted legal framework and regulatory oversight • Public utility company as a credit-worthy partner • Comprehensive planning framework that incorporates mining power demand and investment Power-Mine Synergies

18. STEP 3: Pre-conditions for Power-Mine Synergies

19. STEP 4: Negotiating Points

20. Keep ICT sector in mind when discussing power project Service Arrangement Ownership model 1. Mine builds own infrastructure a) Telecom adds capacity. b) Mine adds telecommunication capacity and leases to Telecom. a) Companies building required infrastructure to mines (e.g. power, pipeline and railways) add telecommunication capacity at a lower cost. 2. Mine does not build own infrastructure b) Mine provides anchor demand for Telecom. c) Government, Telecom and mining companies coordinate efforts and investments.

21. Mines Build Infrastructure Win - Win • Example: Peru • MineraAntamina built fiber optic network along slurry pipeline which Telefonica del Peru uses to provide ICT services. • Mine maintains social license • a. Telecom adds capacity • Telecom expands coverage Source: Antamina • Example: Malaysia • Celcom and Petronas build fiber optic network along gas pipeline with spare capacity. • Mine maintains social license and adds revenue Source: Agilent • b. Mine adds telecommunication capacity and leases to Telecom • Example: Brazil • In 2001 Vale wanted to partner with railroad partners and install fiber optic along 10,000km of rail lines and lease to Telecoms. • Telecom expands coverage Source: Globo

22. Companies building required infrastructure to mines add telecommunication capacity at a lower cost • Objective: Leveraging economies of scope by sharing with other infrastructure industries (such as power utilities, water and sewage pipelines, railways) • Rationale: A large part of the costs is associated with costs of civil works. • Example: Canada • De Beers mine allowed power utility FNEI to use electricity grid infrastructure to build fiber optic cable. • FNEI with local municipalities then formed Western James Bay Telecommunications Network (WJBTN) to operate and provide telecommunications services. Source: Five Nations Energy • Example: Potential in Mozambique – Nacala Corridor: • Vale and Mozambique Ports and Railway (CFM) selected Siemens to install microwave-based telecommunications network for track-to-train data transmission. Source: InternationalRailway Journal

23. CCSI’s Framework for Shared – Use: http://ccsi.columbia.edu/work/projects/leveraging-infrastructure-investments-for-development/

24. Agree on the 5 key points that your colleagues which were not part of this breakout session should know about mining related power infrastructure