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MEMORANDUM OF DETERMINATIONS 

Political Violence Claim of Nord Resources Corporation

Sierra Leone - Contract of Insurance No. A628 (as amended, the "Contract")

I. CLAIM

 By letter dated October 2,1995, Nord Resources Corporation ("Nord" or the "Investor") filed

a claim (as amended, modified and supplemented, the "Claim") under Coverage C of the Contract,

a standard form 234 KGT 12-70 (Revised), as amended, covering losses due to war, revolution,

insurrection, and civil strife ("War Coverage") for compensation in the amount of US $15,704,500.

This claim is for Damage sustained with respect to Nord's investment in Sierra Rutile Limited. To

assist Nord in completing the Claim, OPIC requested additional information required under the

Contract. Although the political instability in Sierra Leone, among other things, caused Nord

difficulty in obtaining the required information, the Investor provided amendments or supplements

to the Claim on December 26, 1995, March 20,1996, May 7, 1996, May 9, 1996 and July 3, 1996.

Finally, in amendments received on February 10, 1998, Nord thoroughly revised and restated the

Claim, providing substantially all of the information required by the Contract.1

 OPIC finds the Claim to be valid and the amount of compensation due to be $15,704,500 of

which $1,500,000 has been paid to Nord by OPIC as an advance. 

II. FACTUAL BACKGROUND

 A. History of the Investment

 In 1976, Bethlehem Steel Corporation, through a subsidiary ("Bethlehem"), and Nord

formed a joint venture company, Sierra Rutile Limited ("SRL" or, the "Foreign Enterprise"), to

develop a rutile project in Sierra Leone. At that time, OPIC wrote coverage for both investors.

Through a series of transactions, Bethlehem sold its interests, and Nord ultimately retained a fifty

percent interest in Sierra Rutile Holdings Limited, of which SRL is a wholly owned subsidiary. At

the time of the Damage, this investment was covered by the Contract. 

B. History of the Damage

 Sierra Leone has experienced various levels of political instability since gaining independence

from Britain in 1961. Most recently, this has included a civil war, which began in 1991. Rebel

activity was often intense and, over time, expanded to many regions of the country. In its first five

years, the civil war killed more than 10,000 people and drove almost half of Sierra Leone's

population from their homes.

 The conflict began during the reign of President Joseph Momoh, who headed a one-party

system that had been in place since 1978. The main armed rebel group, the Revolutionary United

Front ("RUF"), launched a revolt with the backing of a Liberian insurgent group, the National

Patriotic Front of Liberia ("NPFL") in March of 1991.

 After widespread political agitation, President Momoh consented to a national referendum

concerning return to a multi-party political system. In the referendum, which was conducted in

August 1991, the population voted overwhelmingly in favor of the change. On April 30, 1992,

after repeated delays in the promised transition to multi-party democracy, military officers, led by

Captain Valentine Melvin Strasser (a 27-year old army officer), staged a successful coup, taking

power after a brief confrontation with government officials and police. With Momoh in Guinea,

Captain Strasser set up the National Provisional Ruling Council ("NPRC"), whose stated priorities

were to end the war, restore multi-party democracy, and institute economic reforms.

 The war in Sierra Leone, which had been largely confined to the southeastern regions, spread

to other areas of the country in mid-1994. The presence of other smaller rebel movements and

bands of renegade soldiers who appeared to be collaborating with the RUF complicated the

situation, and may have precipitated the insurgency's spread. On January 1,1995, rebel forces

attacked an area near the town of Lunsar in northern Sierra Leone, only 124 km from the capital,

Freetown.

 On the evening of January 19,1995, fighting broke out between government troops and rebel

forces in the vicinity of SRL's minesite. The fighting soon spread to the area of SRL's operations.

On January 20,1995, at approximately 5:00 AM, SRL's rutile mine and processing facility came

under attack from rebel forces. SRL began evacuating personnel, and operations at the mine were

suspended. The attack was defended against by a local contingent of Sierra Leone government

("GOSL") troops. An attempt at negotiation failed and resulted in hostages being taken. All

hostages were later released unharmed, some after several months of captivity. The mine was

briefly retaken by government forces on February 1, 1995, but later again fell into the hands of

non-government forces. On April 24,1995, government troops once again took control of the

minesite. SRL subsequently regained possession and has continued to exercise some degree of

control, although the situation is far from secure.

C. Procedural History of the Claim

 By facsimile dated January 20, 1995, and later by letter on January 31, 1995, Nord (through

its insurance broker, Marsh & McLennan) notified OPIC, as required by the Contract, that certain
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actions had taken place on January 20, 1995, that caused Damage and might give rise to a claim

within the scope of Coverage C. As set forth above, Nord accumulated and organized information

necessary to complete its Claim from that time until February 10, 1998.

 Pursuant to a Provisional Payment and Indemnification Agreement dated September

30,1996, OPIC agreed to advance Nord a provisional payment of $2,000,000 with $500,000 of

that amount withheld pending Nord's fulfillment of certain conditions subsequent related to

mitigation efforts (the "Conditions Subsequent"). On September 30,1996, OPIC advanced a

provisional payment to Nord of $1,500,000 (the "Provisional Payment"). Nord did not fulfill the

Conditions Subsequent.

III. DETERMINATIONS UNDER THE CONTRACT

 OPIC hereby makes the following determinations under the Contract. 

 A. Section 1.07. Damage has occurred

 The threshold question presented by the Claim is whether the actions which occurred

constituted Damage. "Damage" is defined under Section 1.07 of the Contract as follows:

 Under Coverage C, the term Damage means (a) injury to, (b) disappearance of, or

(c) seizure and retention of Covered Property (any of which events, for the purposes

of this Section, shall be referred to as a 'Loss') directly caused by an act of (1) war

(whether or not formally declared), (2) revolution or insurrection, or (3) civil strife,

terrorism or sabotage. An act of revolution or insurrection is an act committed by an

organized group having as its principal objective either the violent overthrow of the

established political authorities or the ouster of such authorities from a specific

geographic area. An act of civil strife, terrorism or sabotage is a violent act undertaken

by an individual or group with the primary intent of achieving a political objective. For

purposes of this Section, a Loss caused by an individual or a group acting primarily to

achieve demands of labor or students shall be excluded from coverage.

 Three issues are presented by this provision of the Contract: (1) whether the acts causing

the injury were acts of war, revolution, insurrection, civil strife, terrorism or sabotage; (2) whether

such injury was the direct result of such action; and (3) whether the injury occurred to Covered

Property.

 1. The Acts Causing The Loss Were Acts Of War, Revolution,

Insurrection, Civil Strife, Terrorism Or Sabotage As Defined In The Contract.

 Based on published accounts of the conditions in Sierra Leone on the date the SRL minesite

was attacked by RUF rebels, and transcripts of eyewitness accounts provided to OPIC by Nord,

OPIC determines that acts causing the loss were acts of revolution or insurrection. RUF rebels

urged the overthrow of the government and conducted armed guerrilla campaigns throughout

Sierra Leone. RUF's actions against SRL appeared to be part of a military campaign directed at the

ouster of the established political regime. It is believed that RUF rebels overran the minesite

because rutile production is a major source of funding for the government, as earnings from rutile

made up about 40 percent of Sierra Leone's foreign exchange earnings. OPIC has determined that

these circumstances offer sufficient evidence to support a finding that the acts causing the Loss had

as their principal objective the violent overthrow of the established authorities.

 There is substantial evidence that much of the Damage was caused by the RUF incursion or

subsequent attacks by the GOSL troops and their allies.

 2. Political Violence Was the Direct Cause of the Loss.

 Section 1.07 of the Contract provides the principles that are to be used to determine whether

the Loss was directly caused by an event with respect to which OPIC coverage is provided:

[A]n act shall be considered to be the direct cause of a Loss if there is an unbroken

chain of causes and effects from the act to the Loss, without the intervention of any

force operating actively from an independent source, and the Loss would not have

occurred but for the act. An action taken to combat or defend against an actual or

anticipated act of war, revolution, insurrection, civil strife, terrorism or sabotage can

constitute an element in a chain of causes and effects.

 Therefore, two separate conditions must be met to establish causality. The first is that there

must be an unbroken chain of causes and effects from the event to the injury, without any

independent force intervening. The second, which must be established independently of the first, is

that the Loss would not have occurred but for the event insured against.

 As discussed above, substantial evidence indicates the Damage was caused either by the

initial RUF incursion or by the subsequent attempts of GOSL troops and their allies to dislodge

them. Both Nord and SRL have represented to OPIC, however, that as much as forty percent of the

Damage (particularly including looting) resulted from organized pillaging by GOSL army forces.

That this activity also falls within the chain of events is demonstrated by the fact that it has been

virtually eliminated since the political violence around the project has abated and the Foreign

Enterprise and its agents have retaken control of the mine-site.

 OPIC, therefore, finds that the direct causation test is satisfied by the chain of causes and

effects from the Political Violence to the injury to the project.
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 3. The Property Damaged Was Covered Property Under The Contract.

 "Covered Property" is defined in Section 1.05 of the Contract as "tangible property owned

by the Foreign Enterprise or of which the Foreign Enterprise bears the risk of loss and which is

used in connection with the Project and is located in the Project Country on the Date of Damage."

 The Investor has filed the instant Claim with respect to extensive Damage caused to diverse

categories of property. Both on-site assets and inventory were damaged. The categories of on-site

assets damaged are as follows:

(a) contract earth moving (CEM) equipment including heavy machinery, light vehicles,

tools, and miscellaneous equipment;

(b) mining and processing machinery and equipment;

(c) auxiliary mining machinery and equipment;

(d) the Nitti port area, including land-based equipment, barges, fuel oil tanks and the

generating plant;

(e) service facilities, including the power plant and its components and equipment and

the water and sewage treatment plants and their equipment and systems;

(f) buildings including plants, workshops, sheds, offices, laboratory, and warehouses;

(g) equipment used in the buildings, including laboratory and office equipment such as

computers, radios and telephones and workshop equipment;

(h) dams and earthworks;

(i) transportation equipment, including light and heavy vehicle fleets;

(j) plant, including earthmoving equipment not included in the CEM category, cranes

and other mobile equipment;

(k) housing and the necessary components;

(l) furniture; and

(m) construction in progress, consisting of a dredge, a powerhouse, construction and

associated civil works, including materials, tools, mobile equipment and generators.

The categories of inventory are as follows:

(a) plant materials, including supplies and equipment;

(b) CEM materials, including supplies and equipment;

(c) fuel; and

(d) foodstores.

 Nord has certified to OPIC that the above items were owned by SRL on the Date of Damage,

were located in the Project Country and were used in connection with the Project. In addition, Nord

has supplied video tapes of the minesite, including certain of those assets that were damaged but

not removed, and extensive records demonstrating that this property was owned by SRL,

including, in many instances, records which provide third party confirmation of this fact. On the

basis of this certification, a site visit and analysis of the backup provided, OPIC finds the damaged

property constitutes Covered Property.

B. Section 24.01. The amount of compensation to be paid

 The Contract provides that the amount of compensation for Damage is the lesser of the Net

Investment as of the Date of Damage or the Investor's Share of the amount of Damage, less any

Other Compensation received by the Investor for the same Damage and the Investor's Share of any

Other Compensation received by the Foreign Enterprise for the same Damage.

 Both the Net Investment as of the Date of Damage and the Investor's Share of the amount of

Damage exceed the amount of coverage.

1. The Amount of Net Investment.

 Based on an analysis of Nord's 1995 Form 10K filed with the Securities and Exchange

Commission, Nord's investment in SRL was at least $56,000,000. OPIC finds the amount of

Nord's Net Investment exceeded the amount of coverage available.

 2. The Amount of Damage to Covered Property.

 Section 25.01 of the Contract provides the formula by which the amount of Damage is
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determined for purposes of compensation:

The amount of Damage shall be the Actual Cash Value, immediately prior to the

Date(s) of Damage, of the Covered Property which has suffered Damage, but not

exceeding the lesser of (i) the reasonable cost of repairing or replacing such Covered

Property with property of like kind and quality within a reasonable time after such

Damage, or (ii) the amount by which the Damage reduced the fair market value in the

Project Country on the Date(s) of Damage of such Covered Property.

The term Actual Cash Value is defined under Section 1.02 of the contract as follows:

Under Coverage C, the term "Actual Cash Value" for any item of Covered Property

owned by the Foreign Enterprise means on any date the reasonable cost thereof to the

Foreign Enterprise (adjusted if necessary to reflect abnormal deterioration in the

physical condition of such item). For the purpose of this section, "reasonable cost"

means the basic cost of any item (not to exceed fair market value in the United States

of America at the time of acquisition) plus freight, insurance, import duties, cost of

installation and such other direct costs related to such item as have been, in accordance

with the principle of accounting referred to in Article 9, capitalized and charged to

such item on the books of account of the Foreign Enterprise. For any item of Covered

Property not owned by the Foreign Enterprise but as to which the Foreign Enterprise

does bear the risk of loss, the term "Actual Cash Value" means the amount of the

Foreign Enterprise's equity in such item plus any amounts which the Foreign

Enterprise is legally obligated to pay the owner thereof for Damage.

 In the Claim, the Investor claims losses in the amount of $20,817,967, which represents its

50 percent interest in what Nord asserts was SRL's total loss of $41,635,933. This figure is a

combination of $37,124,281 for damage to on-site property and $4,511,652 for preservation of

assets.

 As expenditures for preservation of assets are not covered by the Contract, this figure is not

included in OPIC's calculation of the Amount of Damage.

 Applying the first portion of the Contract’s tests, the Investor calculated the amount of

Damage by determining the lesser of Actual Cash Value or the cost of repairing or replacing

damaged property. With respect to the third leg of this test, however, the Investor has asserted that

"The amount by which the damage reduced the fair market value in Sierra Leone is not applicable

because the items damaged, destroyed or stolen were not commercially operable after the damage,

nor does a fair market exist in Sierra Leone for the property in question."2

 OPIC finds this argument untenable. Even if the property had no value after the Damage, the

provision still requires calculation of the fair market value before the Damage, as a limit on the

amount of compensation payable. Nord negotiated no revision to the Contract with respect to this

provision, much of the property was not specialized and Sierra Leone has a substantial mining

industry. A value may be derived, however, as envisioned in the Contract. Since the Investor has

not provided any information with respect to the fair market value, OPIC has sought to create a

reasonable proxy. To provide such an approximation, OPIC used the depreciated book value from

SRL's books. Under this analysis, the total amount of Damage is reduced by $4,338,089.

As set forth in greater detail at Tab A:

The Actual Cash Value of the on-site 

property

$210,398,913.

The Investor's loss valuation using 

the lesser of reasonable cost of

repairing or replacing the Damage

$37,063,694.

Reduction to account for fair market 

value

$4,338,089.

Total loss $32,725,605.

 Therefore, OPIC finds the Amount of Damage was $32,725,605.

 3. The Investor's Share of the Amount of Damage is US $16,362,803.

 Pursuant to Section 1.21 of the Contract, the Investor's Share is 50 percent. OPIC finds that

the Investor's Share of the Amount of Damage is $16,362,803.

 4. Nord has received no Other Compensation from any source for items

for which compensation from OPIC is requested.

 As required by Section 26.02 of the Contract, the Investor has certified that it has received

no Other Compensation, except the $1,500,000 Provisional Payment.
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 5. The Compensation Determined To Be Due Exceeded the Current

Insured Amount and the Maximum Insured Amount for Coverage C under

the Contract but Does Not Exceed the Net Investment.

 As discussed above, OPIC has determined that in accordance with Section 24.01 of the

Contract (a) the amount of Damage to Covered Property, $16,362,803, exceeds the Current

Insured Amount and the Maximum Insured Amount for Coverage C under the Contract, but (b )

does not exceed the Net Investment of the Investor in the Foreign Enterprise on the Date of

Damage.

 6. Nord has Retained Risk of Loss with Respect to More than Ten

Percent of its Total Contribution to SRL.

 In Section 2.05, the Contract requires Nord retain the risk of loss with respect to ten percent

of its total contribution to SRL. As Nord’s investment in SRL was in excess of $56,000,000, and

its insurance with respect to Coverage C was $15,704,500, it has satisfied this requirement.

C. Section 23.01. The Investor gave timely notice of acts within the scope of political

violence coverage and of its entitlement to compensation and has provided the

additional information required by OPIC to evaluate the claim.

 Section 23.01 requires the Investor to notify OPIC promptly of any action which the Investor

has reason to believe may cause or has caused Damage. Section 26.01 of the Contract requires the

Investor to provide OPIC with notice demonstrating the Investor's entitlement to compensation

within six months of the loss and to complete its claim for compensation within three years. The

Investor notified OPIC promptly in a facsimile dated January 20,1995 of the political violence

threat to the project and the possibility of a claim. By letter dated May 24,1995, Nord requested an

extension of the time limitation for filing a claim for compensation. By letter dated June 12, 1995,

OPIC extended the deadline to October 18, 1995. By letter dated October 2,1995, Nord submitted

a claim for compensation. OPIC finds Nord complied with its duty to provide notice and, within

the context of this project and the difficult situation in Sierra Leone, with its duty to provide

additional information.

D. Article 2. The Investor was, on the date of execution of the Contract and has

remained, a corporation created under the laws of a state of the United States and

substantially beneficially owned by United States citizens.

 The Investor represented in executing the Contract that it was, and in connection with the

Claim, has since certified that it remains, an eligible investor.

E. Section 23.02. Prior to the claim payment, the Investor will assign to OPIC any

claims, causes of action or rights which it may have for compensation from any other 

source based on the Damage.

 Prior to payment of the claim, Nord will assign, transfer and convey to OPIC any claims,

causes of action or rights which the Investor may have from any other source for Damage, and

execute all documents and take all necessary actions to complete such assignments, transfers and

conveyances.

IV. CONCLUSION

 Based on the foregoing determinations and subject to the assignments required in Section

23.02 of the Contract, OPIC hereby finds that the Claim is valid and that additional compensation

is payable to Nord Resources Corporation and its assignees in the amount of $14,204,500.

OVERSEAS PRIVATE INVESTMENT CORPORATION

_____________________

By: Kirk Robertson

Executive Vice President

May 14, 1998

____________________

1/ The determinations herein are based on the submissions collectively forming the Claim. To the

extent there is conflict among portions of the Claim, OPIC has assumed that later submissions

supercede earlier versions.

2/ Nord Submission of February 10, 1998, Narrative p. 7.

SIERRA RUTILE LIMITED

SUMMARY OF DETAIL DAMAGE REPORTS
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(As Calculated by Nord (1))

Schedule

Description Original

Cost

Loss

Valuation

Net Book

Value 

Adjustment 

(2)

Revised

Loss 

Valuation 

(3)

ON-SITE ASSETS

CEM EARTHMOVING $4,551,212 $1,945,616 ($147,884) $1,797,732

SO1 MINING & 

PROCESSING

61,945,468 7,921,468 (61,132) 7,860,__6

(unreadable)

SO2 AUXILIARY 

MINING

12,598,670 1,200,000 1,200,000

SO3 NITTI 6,601,756 845,848 (45,384) 800,46_

(unreadable)

SO4 SERVICES 7,244,531 1,071,465 1,071,465

SO5 BUILDINGS 3,748,471 1,171,595 (471,971) 699,624

SO6 EQUIPMENT 6,348,230 3,270,448 (908,484) 2,361,964

SO7 DAMS & 

EARTHWORKS

34,450,082 200,008 200,008

SO8 DREDGE MOVE 3,274,860 0 0

SO9 TRANSPORTATION 6,055,086 2,331,873 (755,193) 1,576,680

SO10 PLANT 2,432,349 849,301 (374,739) 474,562

SO11 HOUSING 10,544,553 6,323,058 (1,293,915) 5,029,143

SO12 FURNITURE 932,695 566,253 (279,387) 286,866

SO13 SUNDRY 1,856,647 0 0

SO14 CIP – OPTION 3 31,796,624 2,210,675 2,210,675

TOTAL ON SITE 

ASSETS

$194,381,234 $29,907,609 ($4,338,089) $25,569,520

INVENTORY

I-PLANT PLANT $11,890,568 $4,462,334

I-CEM CEM 2,869,009 1,821,383
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I-FUEL FUEL 593,214 317,755

I-FOOD FOODSTORES 664,888 615,200

TOTAL 

INVENTORY

$16,017,679 $7,216,672 $7,216,672

TOTAL ON-SITE 

PROPERTY

$210,398,913 $37,124,281 ($4,338,089) $32,786,192

Notes: (1) This is the calculation prepared by Nord before any adjustments.

(2) This adjustment limits the amount claimed for any asset to its net book value at 12/31/94

(3) This amount is the Nord loss valuation as reduced by the net book value adjustment