Voskhod Chromium

Location:

Kazakhstan

Project number:

46873

Business sector:

Natural resources

Notice type:

Private

Environmental category:

B

Target board date:

28 Jan 2015

Status:

Repaying

PSD disclosed:

13 Nov 2014

Original PSD

Please note: PSD updated 6 June 2018

Translated version of this PSD: Russian

Project Description

 
In 2015 the EBRD provided a loan of up to US$130 million as part of a US$260 million A/B facility in favour of Yildirim Group's subsidiaries in Kazakhstan. Through these subsidiaries Yildirim owns and operates the Voskhod mining complex, acquired in December 2013.
 
The Bank is commiting up to US$ 29 million in additional funds to the project to ensure achievement of the original operation objectives.

The Voskhod operation consists of an active underground chromium mine and associated beneficiation plant situated outside the town of Khromtau, an important mining district situated 90km east of Aktobe, in North-Western Kazakhstan.

Project Objectives

The Bank's finance is used:

(i) to restructure the balance sheets of subsidiaries and the parent group including through repayment of short term loans; and
(ii) to finance the capex programme for the years 2014-2016 which covered acquisition of certain equipment and other works.

Transition Impact

This is the Bank's first project in chromium ore mining. The project is a rare example of private crossborder transaction between two of EBRD countries of operations in the resources sector. The project will support the expansion of Yildirim Group, a Turkish mining group, in Kazakhstan. The entry of Yildirim Group could have an impact on the competitive landscape of the chromium sector in the region, a market which is pre-dominantly controlled by one local company.

Through the project there is scope for improvements in the managerial and business skills as well as environmental and operating standards to Voskhod's mine operation. For example, part of the capex includes implementation of a new chromium ore fines recovery circuit which will increase yields significantly and enable the reprocessing of waste tailings. This is a new processing technology being introduced for the first time in the mining sector in the country that has the potential to reduce the volumes of waste tailings substantially while enhancing product quality.

Concurrently, the Project will allow the Bank to secure meaningful engagement in the Kazakh mining sector and support policy dialogue with the newly established Ministry of Investments and Development and the Ministry of Energy responsible for mining, oil and gas and environmental protection in the development of the new Subsoil Use Code.

Client Information

VOSKHOD CHROME LLP

The Yildirim Group is a diversified Turkish conglomerate with interests in mining, sea transport, port management and chemicals. Yildirim Group is also one of world's largest chrome ore and ferrochrome producers, and one of the few suppliers of high-quality ferrochrome. The loan will be guaranteed by Yildirim Holding A.S. and by other key operating and trading entities of the Yildirim Group.

EBRD Finance Summary

USD 151,850,000.00

A/B loan structure.

Total Project Cost

USD 316,350,000.00

Environmental and Social Summary

Category B. Due diligence and repeated subsequent monitoring has confirmed that the environmental and social impacts relating to the expansion and upgrade of existing mine workings are site specific and can be mitigated and managed through the implementation of a targeted action plan. An Independent Environmental and Social Consultant (IESC) was engaged to carry out due diligence on the existing mine operations and the investment plans put in place by the Company. The IESC has subsequently been retained for a period of three years to date to carry out independent monitoring on the operations and review the implementation of the ESAP. In addition to this, at the time of due diligence, a separate IESC was engaged to carry out an OHS assessment of the corporate parent's chromium mining properties in Turkey to evaluate Yildirim's corporate capacity to manage this key issue and also in relation to the fact that the security package on this transaction involves a corporate guarantee from the parent. ESD completed site visits also, the first following the IESC due diligence site audit to both directly view operations, and to confirm the main findings of the IESC's assessment, and the second to accompany the first monitoring visit. Furthermore, during due diligence ESD carried out a series of searches on the parent operations to determine whether any potential reputational issues exist in relation to the corporate guarantee from the parent over and above the OHS issues addressed by the IESC. It can be confirmed that no significant issues were identified in this regard.

The IESC assessments determined that the site operations and Project implementation are being managed in a manner that largely follow Best Practice and that the management have the capability to operate the mine in line with the Bank's PRs. Due diligence did however identify a number of potential improvements that will require implementation to meet the PRs and these were included in an ESAP. The ESAP included, among other actions:

(i) Formalise accreditation of the Environmental and OHS Management Systems;
(ii) Integrate the various social investment and stakeholder engagement activities into a coherent policy and plan;
(iii) Implement an effective Contractor Management Plan;
(iv) Upgrade and maintain the processing plant's dust control systems to meet design specifications;
(v) Upgrade and maintain the site's wastewater treatment plant to enable compliant discharge and disposal of mine water;
(vi) Implement a more comprehensive environmental monitoring network for air, surface water and groundwater quality;
(vii) Upgrade storm water collection systems across the site;
(viii) Update the stakeholder identification associated with the Project which dates from 2007; and
(ix) Develop a closure and restoration plan in line with the Bank's requirements.

Many of the issues listed above had already been identified by the client as issues requiring action and budgets had already been set aside for action.

It should be noted that a fatal accident occurred at the site during the due diligence period. This incident occurred following an underground blasting operation. The Kazakh authorities immediately commenced an investigation into the accident which found no fault on behalf of Yildirim or Voskhod, but found a number of deficiencies and non-compliance issues in relation to the performance of the then mine operating contractor. It should be noted that Yildirim had decided to take over
direct operational control of the mine on Jan 1st 2015 prior to the accident occurring. Yildirim, in consultation with the Bank on the appropriate Terms of Reference, initiated their own internal investigation into the causes of the accident and the response to the incident. The Bank was provided with full incident reports and details of the corrective actions that the management implemented to address the findings of the reports. Review of these reports and action plans by ESD has found that the client has a robust evaluation process and that the corrective actions were appropriate given the findings of the assessment. It is worthwhile to note that, at the time of the due diligence evaluation, the IESC report found that, in terms of safety issues, the mine was being run in a manner '...comparable for such mines in South Africa or Australia'.

As indicated, the IESC has been retained to monitor the implementation of the ESAP since the Project was signed, and this monitoring has entailed two audits per year; one desktop survey and one site visit. All audits to date have shown that the Company is both implementing the ESAP in an efficient and timely manner and that operations at the mine site in general continue to meet both local regulations and the Bank's Performance Requirements.

Technical Cooperation

The project benefits from technical cooperation funds in the areas of policy dialogue.

Company Contact Information

Mr. Serdar Ates
serdar.ates@yildirimgroup.com
+90 212 290 30 80
Structured Finance Manager Yildirim Holding A.S., Meydan Sokak No:1, Beybi Giz Plaza Kat 3-4,
34398 Maslak, Istanbul

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