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TRANSITION AND CLOSURE PLAN

of mining operations

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On February 4, 2021, the Prodeco Group companies holding the mining contracts for the operation of the Calenturitas and La Jagua Mines, in exercise of their contractual and legal rights, presented their relinquishment of the mining contracts, thus initiating the process of returning the mining titles to the Republic of Colombia through the National Mining Agency - ANM.

1. Background

The Prodeco Group's decision to resign to the mining contracts originated in technical and economic reasons that affected the mining projects and made it unfeasible to continue them. Among the factors that led to this decision we can mention the fall in international coal prices and the uncertainty of its recovery in the long term, the high mining operation costs of La Jagua and Calenturitas mines, as well as the decision not to grant environmental permits due to administrative and judicial decisions, circumstances that substantially increased the financial needs of the projects for their resumption. 

In this context, it was not viable for the Prodeco Group to continue developing the Calenturitas mine and La Jagua mine mining projects, considering that a very substantial effort would be required in terms of investment and funding resources for the restart and development of the operation, which neither the Prodeco Group nor its shareholders would be able to assume.

On December 18, 2020, the ANM denied the appeal for reconsideration filed by the Prodeco Group companies against the decision of August 18, 2020 by which the ANM denied the request for temporary suspension of activities for technical and economic reasons, under the terms defined for this type of circumstances in Article 54 of the Mining Code.

As a consequence of this decision, during January 2021 the Prodeco Group carried out a new review of its long-term mining plans to identify possible alternatives to improve its operating costs and economic and financial conditions of the mining projects, within the context of the technical and economic circumstances that affected the continuity of the operation and its subsequent resumption of mining activities mentioned above. The conclusions of the review were no different from those obtained in the previous exercises, i.e., that the restart of mining operations was not economically viable.

The request for suspension of activities sought a pause in the execution of the mining contracts in order to be able to adjust their operating and cost structure, based on a recovery of coal prices and the obtaining of the environmental permits required to restart mining activities. 

To the extent that the suspension request was not approved and the financial conditions of the operation were unfeasible, the corporate decision was to relinquish the mining contracts, a possibility that had already been informed to the National Government since September 2020 as a last resort alternative in case the suspension request was not accepted by the National Mining Agency -ANM-, as in fact happened.
 

2. Transition and closure of mining operations

The mining contracts were terminated early as a result of the relinquishment by the Prodeco Group of the mining contracts at the Calenturitas and La Jagua mines. On this basis, the contractual obligation of the Prodeco Group in the development of the closure of its mining operations is to deliver to the National Mining Agency (ANM) the mining operation fronts in productive condition, as stated in the applicable clauses of the mining contracts.

In development of the above, the transition plan for the closure of the mining operations of the Prodeco Group involves the activities required for the ANM to receive the mining infrastructure (including the mining operation fronts in productive condition), in order to release the contractual area of the Calenturitas and La Jagua mines owned by the Prodeco Group and to proceed with the offer and awarding of such area to continue with the mining exploitation under the terms that the ANM decides for such purpose. 

From an environmental perspective, the transition process for the closure of mining operations is based on the consideration that the termination of the mining contracts is due to the relinquishment of the Prodeco Group to the mining contracts and not due to the exhaustion of resources, precisely because to date there are exploitable resources which exploitation fronts must be delivered in a productive condition. 

In this sense, it is not feasible to apply the provisions of the Environmental Management Plans related to the dismantling and abandonment stage (which imply the definitive closure of the mining deposit), but rather, the scheme for identifying environmental obligations must be defined jointly with the National Environmental Licensing Agency -ANLA- as well as with the Ministry of Environment and Sustainable Development - MADS- as appropriate, for their compliance in the transition for the closure of mining operations of the Prodeco Group.

The transition plan for the closure of the Prodeco Group's mining operations involves the activities required for (i) the delivery to the ANM of the mining infrastructure and the operating fronts in productive condition, (ii) the reversion of assets destined to the operation and, (iii) the subsequent definitive liquidation of the mining contracts.

During this transition and closure stage, the Calenturitas and La Jagua mines will remain in a state of care and maintenance until the formal process derived from the resignation of the mining contracts is completed. 

In relation to the continuity of the railroad and port operations that are part of the infrastructure denominated "coal chain", the Prodeco Group will maintain its 39.7% shareholding in the concession of Ferrocarriles del Norte de Colombia - Fenoco, and will continue to comply with the port concession contract in Sociedad Portuaria Puerto Nuevo S.A - PNSA - maintaining the public service infrastructure, to serve new users with requirements for mobilization of coal cargo for export through Puerto Nuevo.
 

1 Calenturitas Mine - Contract 044-89: "upon termination of the contract for reasons other than depletion of reserves, the CONTRACTOR shall leave in production the work fronts that on such date must be productive under the production conditions foreseen in the Work and Investment Programs approved by MINERCOL".

La Jagua Joint Operation 
Contract 285/95 "Upon termination of this contract for any reason, except for force majeure or due to the occurrence of the resolutory condition set forth in the second clause of this contract, THE CONTRACTOR shall leave in production the work fronts that on such date should be productive (...)". 

Contract 109/90 "Upon termination of the Contract, THE CONTRACTOR is obliged to leave in working order the mining equipment, facilities and works that by that time are in use or activity (...)"
 

3. Our socio-environmental commitments

After 30 years of operations in Colombia creating opportunities for Cesar, we are still present to fulfill our social and environmental commitments to the communities and territories in our area of influence in the transition and closure stage of our mining operation. 

The Prodeco Group has established four pillars of intervention to comply with the social and environmental commitments in the transition and closure phase, and thus give continuity to the projects aimed at the social and sustainable transformation of the territories in the face of post-mining. 

1. Income generation: economic reconversion and entrepreneurship projects.

2. Institutional strengthening: ensuring the participation of local government and communities. 

3. Environmental sustainability: continuity of forest rehabilitation and compensation projects.

4.    Human rights: compliance with commitments in the post-mining resettlement and sustainable social transition process. 


 

  1. TODO

    Nicolás Gómez, Sustainability Manager, answers some common questions about the transition and closure plan of mining operations.

A. Environmental commitments

Since February 5, 2021, Grupo Prodeco began a process with the ANLA to jointly advance in the closure plan for the Prodeco Group's mining operations, which will include the identification of (a) areas that will be subject to rehabilitation to the extent that they were already subject to mining operations and (b) areas or operation fronts that must be returned to the State in their current productive condition, to allow mining activities to continue.

In development of the above, the Prodeco Group and the ANLA will define their work teams to advance technical roundtables with working groups to review the following components: (i) Biotic, (ii) Abiotic, (iii) Biodiversity, (iv) Social/Resettlement, (v) Compensation and (vi) Legal.

In relation to the rehabilitation of mining areas that have already been exploited, the Prodeco Group began this process several years ago in preparation for the transition to post-mining once the mining deposits have been depleted. In this context, in the transition process for the closure of its mining operations, the Prodeco Group will continue with the rehabilitation processes of areas whose exploitation has ended and will carry out the required activities so that the exploitation of the productive fronts can continue under the terms defined by the ANM for this purpose, as mentioned above.

B. Social commitments

From the perspective of compliance with the Prodeco Group's social obligations in the context of its decision to relinquish the mining contracts in the Calenturitas and La Jagua mines, it is important to reiterate our commitment to comply with our obligations to resettle communities in the municipalities in our area of influence, under the terms defined by the National Government, as well as to carry out our social transition programs towards post-mining. 

In relation to this last issue, it is important to highlight that since 2015 we initiated a process with the support of the United Nations Development Program (UNDP) to identify economic alternatives for the region in order to avoid dependence on mining and support economic reconversion and diversification process for the territory. 

As a result of this work, carried out with the participation of communities and local authorities, we identified a series of high economic impact projects, mainly agro-industrial and tourism projects that will allow the social and economic transition required for the end of mining in the department. 

We have initiated several of these projects involving cashew, cocoa, coffee and fish farming and will continue to support them until they are consolidated. We believe in the great potential of the Cesar department and we are sure that in the coming years these initiatives that we have been supporting for so long will begin to show the economic, social and economic results that we are sure they will generate.  

C. Occupational transition plan

As a complement to the benefits of the Voluntary Redundancy Plan offered to employees of all Prodeco Group companies, an alternative to support employees during their period of occupational transition to other job opportunities was made available through the Center for Entrepreneurship and Employability - Cemprende-. 
 
Through this alternative, the beneficiaries have access to a counseling and professional support program to identify the occupational life project that best suits their needs and capabilities, either by starting a business or by preparing them to seek new job opportunities.

Cemprende has more than five years of trajectory in the region promoting, hand in hand with its various allies, a development model aimed at the productive reconversion of the municipalities where the Prodeco Group develops its operations, preparing the territory for the transition to post-mining.

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    Accompaniment strategy for occupational transition - VRP

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    Frequently asked questions about Cemprende in the framework of the Voluntary Retirement Plan

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