Drummond LTD expresses itself concerning the suspension of the loading of coal from barge to crane to the future loading of our coal by direct ship loaders.  We would like to clarify some statements by the press, government and others surrounding this situation and present the facts as we see them;

PORT HISTORY.  Drummond began feasibility studies for the mining and transportation of coal in Colombia in 1986.  Part of the transportation system is an ocean port capable of receiving coal via railroad, storage and blending capability and ship loading.  The initial site selected was in the Municipality of Santa Marta near the then existing PRODECO port.  The Colombian Government denied Drummond’s application for this site and subsequently designated areas in Santa Marta as a tourist zone and the area near Ciénaga as a zone for coal ports through a CONPES document. Also, the government passed Law 1 of 1991 regulating port activity in Colombia.

Drummond then applied for a port concession within the area of Cienaga, a zone for coal ports, which was granted for a period of 30 years, expiring in 2023.  The environmental permit was also issued for this area, and both the concession and the environmental permit approved the use of barges and cranes to load ships, as was being done elsewhere in Colombia including the existing ports located in the tourist zone.

NEW PORT LAWS.  Decree 3083 of 2007, which created the obligation of direct ship loading at coal ports, disregarded Drummond’s existing rights.  Drummond was forced to enter into a concession modification with increased tariff (2000% increase) and no allowance was given for the investment in the existing port that must be abandoned.  Drummond has accepted this and moved forward with construction of a new direct ship loading port facility.

Decree 3083 of 2007 imposed an obligation for all coal ports to be direct load by July 1, 2010.  Due to clarification required by all parties, the government issued Decree 4286 of November 4, 2009 and Decree 700 of March 5, 2010 to allow all ports an opportunity to proceed by submitting a chronograph to complete new port construction.  Finally, Law 1450 of 2011 established the date of January 1, 2014 as the final date that could be included on the projected chronograph for port completion.

PERMITTING ISSUES.  Drummond filed for an environmental license modification on March 26, 2009 and was denied by ANLA (then the Ministry of Environment) on May 11, 2009; re-filed on October 5, 2009, denied by ANLA on October 30, 2009.  On March 18, 2010 Drummond re-filed a new request denied on June 29, 2010 because there should only be one access channel and, in the meantime, it was licensed to PRODECO (Puerto Nuevo) despite Drummond’s request to co-dredge the channel.  The MAVDT issued Resolution 2765 on December 30, 2010 authorizing the modification of PRODECO’s (Puerto Nuevo) environmental license which allowed PRODECO to start physical construction 15 months before Drummond’s approval to start construction.

Drummond resubmitted its environmental permit modification on April 6, 2011.  ANLA approved this plan on November 18, 2011 but did not authorize dredging for the access channel. ANLA said they would only issue one permit with dredging for access channel and that would be issued to PRODECO.  After numerous meetings and discussions of the problem with ANLA and with the requirement, that Drummond must have a permit that included dredging of our berths and turning basin, Drummond resubmitted on March 20, 2012 for the dredging permit.  The environmental permit modification was finally granted after settlement of appeals by PRODECO and Puerto Nuevo, on March 21, 2013.  It took one year and one day to get governmental approval, due to slow response by ANLA and appeals by PRODECO and PUERTO NUEVO,  to dredge the turning basin which was an absolute requirement for Drummond’s new port to be viable.

DELAYS IN CONSTRUCTION.  The delay with environmental permit modification is described above.  A later delay revolves around a 53 day strike called by Sintramienergetica Union.  Drummond submitted its strike contingency plan to the Ministry of Labor with a request to include provisions to continue port construction activities.  Since Drummond acted as general contractor for the construction project, it was absolutely necessary for Drummond supervisors and engineers to manage the construction contractors.  Sintramienergetica absolutely denied this request on numerous occasions even after detailed presentations by Drummond on the absolute necessity to have supervision of the contractors.  Further, it was explained in detail to Sintramienergetica Union the impact that denial of Drummond supervision would have on the construction schedule of the port and the possible suspension of labor contracts if we did not meet the January 1, 2014 deadline.

Drummond further requested permission to work construction supervisors from the Ministry of Labor.  This request was made in at least four different meetings with the labor inspector at the port.  After no success at that level, Drummond sent a request to the Ministry of Labor on July 30, 2013 to allow Drummond construction supervisors to work during the strike.  Another communication was sent on August 8, 2013 directly to the Vice Minister requesting intervention to allow construction supervisors to work.  On August 22, 2013 the Ministry denied Drummond’s request.  Drummond filed an appeal to this ruling, but never received a response from the Ministry of Labor.  This intransigence by Sintramienergetica and refusal by the Ministry of Labor caused a delay of approximately two months on the construction of the port.

EXTENSION REQUEST.  There is a history of extensions in Colombia regarding similar situations.  An example is the PRODECO port in Santa Marta.  The original port authorization was granted in 1979 for a period of 20 years.  In 1997, the port concession was extended until March 2009.  Five extensions were granted extending to May 1, 2013.  During this time PRODECO port was operating using barges and cranes to load ships.  The 2009 extension says “it is necessary to adopt measures of a temporary nature in order to ensure continuity in coal exports which cannot extend beyond the term established for the construction of the port named “Puerto Nuevo.  That this transient and temporary measure, reflects the obligation that the State has to guarantee providers and users of port services, the development of their socio – economic activities in a continuous way to achieve sustainable and harmonious development of the productive sector, temporary measure that manages to avoid significant economic impact for the Region.”  There are other examples of extensions.

After the strike Drummond began a series of meetings, at least eight, starting on October 8, 2013 with the Colombian Government to search for a solution to avoid the detrimental effects of a shutdown on the Colombian economy, thousands of employees and their families and to Drummond.  Drummond provided legal opinions defining the authority the Colombian Government had through two different legal pathways for the government to grant a temporary extension.  In a phone call on December 20, 2013 the Minister of Environment informed Mr. Garry Drummond, CEO of Drummond Company that the government was working on a solution that would allow the port to continue to operate with barge loading until March 2014. That all changed on January 8^th, 2014 when the Director of ANLA visited the Drummond Port and issued an order to stop loading until the direct ship loader was operational.  With the precedence set of granting extensions in extenuating circumstances, why was Drummond denied?  We are investing $360 million USD to solve the problem of direct loading, which demonstrates our good faith commitment to the dictates of government.  We only needed 2 ½ months.  We have been falsely portrayed as a defiant company and demeaned in the press and by others.  We have been accused of “cheating” (slanderous and mean word) on royalties by the Minister of Mines and the Controller.  Not so.  Many people will be adversely affected and influenced by this suspension, including customers, the country of Colombia, damage to Drummond and the reputation of Colombia as being a stable, reliable supplier of coal to the world market, while our other competitors in Colombia and South Africa enjoy the windfall.

ENVIRONMENTAL STUDIES.  There have been numerous studies done on the environmental impact of coal loading on the beach and marine area near Drummond’s port.  INVEMAR has been sampling the beach area annually for at least 6 years.  This sampling shows that the “black specks” on the beach are primarily various forms of a black rock known as hornblende, amphiboles, biotite, and magnetite which are part of the sand matrix in this area coming from erosion of the granite rocks on the mountains behind the beaches of Santa Marta.  The coal content, which could also include other forms of carbon, varies from “no presence” increasing to 0.47% to 0.75% maximum as a percent by weight of samples taken.  If there is a requirement to clean the beach, other companies loading coal in the tourist area of the Bay of Santa Marta and Ciénaga should bear responsibility in addition to Drummond.  Also, a study should be made on the cause and effect of coal on the beach from other causes and sources.  Examples: coal from trucking from the highway, PRODECO AND CARBOSAN.

After the barge accident in early 2013 several detailed studies were completed including: INVEMAR, University Jorge Tadeo Lozano and Ecology and Environment, Inc (international consultants for environmental issues).  All of these studies have been submitted to the government and to the Colombian press.  Findings: coal is not a hazardous contaminant, there may have been some short term minor effects, after 30 days the ecosystem has returned to a “normal” state, there does not appear to be any long term lasting environmental impact, removing the coal from the bottom of the ocean is not necessary and would cause more harm than good, recommend ongoing monitoring as a precautionary measure.  Actually, coal has been used for many years as a filter medium for drinking water.  This said, our intention is to operate our marine operations in an environmentally friendly manner with no coal spills or pollution.

BARGE INCIDENT.  On January 13, 2013 one of Drummond’s barges took on water due to high wind and wave conditions.  This occurred at night and was not discovered until early the next morning.  Drummond onsite supervisors implemented rescue measures to avoid sinking of the barge which included using a crane to dip water out of the barge and dump it into the ocean to keep the barge from completely sinking.  Unfortunately, the water contained some coal and technical analysis estimates that approximately 200 tonnes were deposited into the ocean.  The incident was an industrial accident and Drummond truly regrets this occurrence.

The studies referred to herein are contained on Drummond Ltd’s website in Spanish

www.drummondltd.com

Drummond continues to work in a responsible way and remains committed to Colombia.

There have been similar occurrences in Colombia*:

*This information obtained from current public records.