Westshore Terminals Investment : Annual Information Form

WESTSHORE TERMINALS

INVESTMENT CORPORATION

ANNUAL INFORMATION FORM

March 8, 2024

EXPLANATORY NOTES

Unless otherwise stated, the information in this Annual Information Form is stated as of December 31, 2023. All references to the "Corporation" are to Westshore Terminals Investment Corporation, together with its subsidiaries, as the context requires.

All amounts are presented in Canadian dollars unless otherwise noted.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This Annual Information Form contains forward-looking statements, which reflect the current expectations of the Corporation and Westshore (as defined below) with respect to future events and performance. Forward- looking statements are based on information available at the time they are made, assumptions by management, and management's good faith belief with respect to future events. They speak only as of the date of this Annual Information Form, and are subject to inherent risks and uncertainties, including those outlined in this Annual Information Form, that could cause actual performance or results to differ materially from those reflected in the forward-looking statements, historical results or current expectations.

Forward-looking information included in this document includes statements with respect to: demand for, or restrictions on handling, thermal coal and future opportunities for new coal supply; thermal coal representing a higher percentage of shipments at least until potash shipments reach higher levels expected in 2030 and beyond; statements regarding Westshore's potash project, including that the project will complete close to the original budget, coal operations will continue with undue disruption, construction activity will ramp up significantly in 2024, construction will complete and Westshore will commence handling potash in 2026, the anticipated receipt of formal notification from BHP (as defined below) to initiate Stage 2 construction requirements, BHP commencing additional production in 2029, and Berth 2 continuing to be available for loading coal; anticipated impact of the amended lease on the Corporation's financial statements; Westshore's obligations under the carbon tax regime; share repurchases, including the expected renewal of the Corporation's normal course issuer bid; expectations relating to the market price of the Common Shares (as defined below); and expectations relating to Westshore's operations, financial condition and business and those of Westshore's customers and service providers.

Forward looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. The Corporation assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, except as required by applicable securities laws. There is significant risk that estimates, predictions, forecasts, conclusions and projections will not prove to be accurate, that assumptions may not be correct and that actual results may differ materially from such estimates, predictions, forecasts, conclusions or projections. Readers of this Annual Information Form should not place undue reliance on forward-looking statements as a number of factors could cause actual results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Specific material risk factors include, among others: Westshore's dependence on coal shipments, which are in turn affected by global demand and competition in the supply of seaborne coal, the ability of customers to maintain or increase sales or deliver coal to the Terminal, and fluctuations in exchange rates, among other things; Westshore's ability to renegotiate key customer contracts in the future on favourable terms or at all; global changes in climate change initiatives and environmental regulations and policies; and risks related to the construction and operation of the potash project. See "Risk Factors".

CORPORATE STRUCTURE

The Corporation was incorporated under the Business Corporations Act (British Columbia) on September 28, 2010 and is domiciled in Canada. The registered and head office of the Corporation is located at Suite 1800, 1067 West Cordova Street, Vancouver, British Columbia, V6C 1C7. The Corporation owns all of the limited partnership units of Westshore Terminals Limited Partnership ("Westshore"), a partnership established under the laws of British Columbia.

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The Corporation derives its cash inflows from its investment in Westshore by way of distributions on Westshore's limited partnership units. Westshore operates a coal storage and unloading/loading terminal at Roberts Bank, British Columbia (the "Terminal"). Westshore's operating revenues are primarily derived from rates charged for handling coal which is loaded onto seagoing vessels. Westshore is currently undertaking significant infrastructure additions to the Terminal to allow it to handle potash for BHP Canada Inc., a subsidiary of BHP Group Limited ("BHP").

The following chart illustrates the Corporation's primary structural relationships. The Corporation holds all the limited partnership units of Westshore, a limited partnership registered under the Partnership Act (British Columbia), and all the common shares of Westshore Terminals Ltd. (the "General Partner"), a corporation incorporated under the Business Corporations Act (British Columbia). The General Partner is the general partner of Westshore. Westar Management Ltd. (the "Manager") is a subsidiary of Jim Pattison Ltd. and provides management services to Westshore under a management agreement between Westshore and the Manager (the "Management Agreement"). The Manager also provides administrative services to the Corporation pursuant to an administration agreement and appoints three of the eight directors of the General Partner pursuant to a governance agreement. Details of these arrangements will be included in the Information Circular for the Corporation's 2024 Annual Meeting.

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BUSINESS OF WESTSHORE

History

Westshore operates a coal handling facility which serves Canadian and U.S. shippers of metallurgical and thermal coal. The Terminal is located on land leased from the Vancouver Fraser Port Authority ("VFPA") on a man-made island at Roberts Bank, British Columbia. The Terminal is approximately 30 kilometres south of Vancouver and is the largest coal loading facility on the west coast of the Americas. The Terminal's unique location provides strategic advantages with rail access, storage capacity and vessel handling. The Terminal began operating in 1970, two years after construction commenced on the Roberts Bank superport and terminal facilities. Westshore has constructed and owns all the facilities and equipment at the Terminal.

Handling large volumes of bulk materials requires reliable equipment which needs to be well maintained and, as it nears the end of its useful life, replaced, which requires expenditure of significant capital. Between 2007 and 2012 Westshore expended over $110 million on additions and upgrading of major equipment components and its environmental systems. Between 2014 and 2019 another capital project was completed to replace four major pieces of equipment, which, together with related works, resulted in expenditures of $240 million. This project was completed on time and under budget, with the result that Westshore now has an updated terminal facility with modernized equipment.

Westshore is currently undertaking significant infrastructure additions to the Terminal to allow it to handle potash for BHP. These additions include a new potash dumper, storage building and associated conveying systems. Additionally, certain existing infrastructure at the Terminal will be modified to support handling potash. Westshore's agreement with BHP provides that the potash infrastructure will be available in 2026.

Operations

Coal is delivered to the Terminal in unit trains operated by Canadian Pacific Kansas City, Canadian National Railway and BNSF Railway. Coal is loaded onto vessels that are destined for approximately 14 countries worldwide, with the largest volumes being shipped to Japan and South Korea (see table below). Westshore provides service to its customers seven days a week, 24 hours a day. The Terminal's operations are periodically impacted by weather conditions, and are subject to rail and mine performance, which are outside Westshore's control.

Shipments of coal through the Terminal by destination for the past three years were as follows.

Shipments by Destination

(Expressed in thousands of metric tonnes)

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The throughput at the Terminal in any given year is influenced by the ability of Westshore's customers in that year to sell coal to their customers and to produce and deliver that coal to the Terminal. In 2023, shipments to Japan and South Korea accounted for approximately 74.62% of total throughput, representing 20.6 million tonnes. Shipments of coal through the Terminal in the last 10 calendar years are presented in the table below.

Coal Shipments (millions of tonnes)

Coal has been the only commodity shipped through the Terminal, other than small volumes of petroleum coke. Coal is used for the production of steel (steel-making or metallurgical coal) and the generation of electricity (thermal coal). In 2023, 36% of Westshore's volume was steel-making coal (31% in 2022), 64% was thermal coal (68% in 2022), and less than 1% was petroleum coke (1% in 2022). In 2023, 80% of the thermal coal loaded by Westshore was shipped to South Korea and Japan. Westshore expects that thermal coal will continue to represent a higher percentage of shipments at least until potash shipments reach higher levels expected in 2030 and beyond. The volume of coal handled by Westshore is dependent on the volume of sales achieved by Westshore's customers and the ability of Westshore's customers to deliver coal to the Terminal. The strength and profitability of Westshore's customers is linked to overall coal market conditions, as well as each customer's relative competitiveness in global markets.

Customers

In 2023, Westshore shipped product for seven customers that operate mines in British Columbia, Alberta and the United States. Westshore has contracts in place to ship product for seven customers in 2024.

Current contracts with Westshore's four largest customers accounted for 92% of Westshore's throughput in 2023. The remaining term of these contracts is between one and four years.

Our agreement with Teck Coal Limited ("Teck") runs to 2027 but will terminate once Teck has shipped 33 million tonnes that have been nominated under the agreement, unless Teck elects to extend.

In August 2021, the Corporation announced completion of an agreement (the "BHP Agreement") between Westshore and BHP to provide port services to BHP's Jansen Potash Mine in Saskatchewan (the "Jansen Mine"). Shipments of potash are expected to commence in 2026. Further information regarding the BHP Agreement is included below under the heading "Material Contracts".

Revenues

Westshore's revenues depend upon the volume of product shipped through the Terminal and the rates charged for handling such product. The rates per tonne charged by Westshore to its customers are established by contract and are unregulated. In order to remain profitable, Westshore must be able to sustain a volume of throughput and charge rates for such volume which in combination allow it to meet its operating and administrative costs, a significant portion of which is relatively fixed. The rates charged to Canadian customers are established in Canadian dollars and to U.S. customers in U.S. dollars. Westshore typically hedges a portion of anticipated U.S. dollar revenue in any year. Westshore does not take title to the coal it handles and has no direct market or commercial risk with respect to the sale of coal. Market conditions for coal affect the profitability

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and competitiveness of Westshore's customers and therefore may affect the volume of coal handled by Westshore.

Operating Costs

A significant portion of Westshore's operating costs are relatively fixed, including a significant portion of employee costs. Employee costs represent approximately 50% of Westshore's operating and administrative expenses. Other costs include VFPA Lease (as defined below) expense, depreciation, general and administration costs, outside services, materials and supplies, utilities, insurance and property taxes.

Facilities

VFPA Lease

To accommodate the expansion of Westshore's operations to include handling potash, modifications have been made to the lease agreement between Westshore and VFPA effective January 1, 2023 (as modified, the "Lease"). The initial term of the Lease will now run to December 31, 2051, and Westshore will have two renewal options which if exercised will extend the Lease to 2070. The Lease requires Westshore to pay all charges, taxes and assessments and keep all structures and installations at the Terminal in good repair. Upon expiry of the Lease, VFPA has the right to require Westshore to restore the Terminal site to a condition similar to that at the commencement of an earlier lease entered into in 1982, or to acquire for fair value the equipment and structures used in the operations, all of which have been constructed and paid for by Westshore.

The methodology for determining the annual rent under the Lease has been changed. Previously annual rent was comprised of a fixed base land and waterlot rent, a fixed minimum annual throughput ("MAT") charge and a further per tonne throughput charge which varied with the volume of coal shipped in excess of 17.6 million tonnes in the year. The fixed components and the per tonne throughput charge had not increased since 2002.

Under the revised methodology, annual rent is comprised of two fixed amounts, basic rent and ancillary rent. The basic rent was based on a land appraisal, is fixed until December 31, 2026, and may be revised by VFPA at that time and every three years thereafter. If VFPA increases the basic rent at any such time, Westshore has the right to seek a review of the revised amount. The ancillary rent, which replaces the previous fixed MAT charge and further variable throughput charge, is fixed regardless of annual throughput and will escalate annually.

The amended lease was executed in early 2024. As a result, the Corporation's audited consolidated financial statements for the years ended December 31, 2023 and 2022 reflect the financial terms of the prior lease. The financial effects of the Lease will be reflected prospectively in the Corporation's consolidated financial statements for the three months ending March 31, 2024 and it is expected that there will be a largely off-setting increase in each of the right-of-use asset and the lease obligation.

The Corporation has guaranteed Westshore's obligations under the Lease. The Lease provides that Westshore may not assign the Lease without VFPA's consent, and that neither Westshore nor the Corporation may enter into any transaction that would result in a change of control of Westshore without the consent of VFPA. That provision does not apply to a change in or termination of the Management Agreement between Westshore and the Manager.

The Terminal

Product arrives at the Terminal in unit trains. Coal cars are unloaded by one of two rotary double dumpers which invert the rail cars without uncoupling them. Both dumpers can unload cars at a rate of approximately 5,000 tonnes per hour. Westshore is utilizing the services of a local railway company which switches all trains arriving at the Terminal.

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On the Terminal site, there are over seven kilometres of conveyors that carry the coal from the dumpers to one of the four stacker/reclaimers or to either of the two berths for loading onto a ship. The stacker/reclaimers deposit, or "stack", the coal onto uncovered stockpiles. Stockpiled coal is segregated by customer and product type until it is loaded onto a vessel, at which time the coal is "reclaimed", or picked up, by a stacker/reclaimer and transported by the conveyor belt system to a shiploader.

The Terminal has two deep-sea berths for loading vessels. Berth 1 can handle vessels of up to 260,000 deadweight tonnes and is equipped with a traveling shiploader capable of loading up to 7,000 tonnes of coal per hour. Berth 2 is capable of handling vessels of up to 180,000 deadweight tonnes and loading up to 7,000 tonnes of coal per hour.

Potash Project

Pursuant to the BHP Agreement, Westshore is required to complete the necessary additions to the Terminal to allow it to handle potash. This includes designing and constructing a potash dumper, storage building and associated conveying systems. In addition, certain existing infrastructure at the Terminal will be modified to support handling potash. Once completed, potash will be loaded only at the Terminal's Berth 2, which will continue to be available for loading coal.

The ongoing work at the Terminal relating to the potash project is causing expected physical and operational disruptions, including restricting stockpile space and limiting access to equipment. Despite these challenges, in 2023 Westshore was able to handle 27.7 million tonnes of coal, which was all the coal our customers made available. Coal operations are expected to continue without undue disruption through the construction phase, which is required to be completed in 2026.

Westshore has obtained a permit from VFPA to proceed with the potash project and one of the two required operating permits. Westshore has submitted its application for the second required operating permit and the permitting process is well underway. During 2023, Westshore's work on the project focused on underground utilities, pre-loading for the potash storage building and significant seismic improvements around Berth 2. During 2024, Westshore expects that construction activity will ramp up significantly with commencement of the construction of the potash storage building, dumper and conveyor systems.

BHP is substantially funding the construction, with Westshore being responsible for construction costs in excess of the agreed budget. Westshore will also contribute up to an additional $33 million to costs related to specific infrastructure or unexpected permitting conditions that are encountered. Additionally, Westshore is responsible, at its expense, to maintain and replace the potash facilities during the life of the BHP Agreement. Despite challenges from the recent higher than expected inflation economy, we still expect the project to complete close to the original budget. The project remains on schedule, and we expect to commence handling potash sometime in 2026.

In 2023, BHP announced that it approved Jansen Stage 2, an additional investment in the Jansen Mine to increase its production capacity to approximately 8.5 million tonnes per annum, with first production of Jansen Stage 2 expected to commence in 2029. Westshore anticipates receiving formal notification from BHP to initiate Stage 2 construction requirements once certain milestones of the current project are met.

Labour

As at December 31, 2023, Westshore employed 423 non-union and unionized employees, including temporary employees, with the unionized group being represented by three separate locals of the International Longshore and Warehouse Union (the "ILWU"). The largest bargaining unit, ILWU Local 502, represents 173 regular employees, ILWU Local 514 represents 51 regular foremen and ILWU Local 517 represents 14 regular administrative employees. Collective bargaining agreements are in place with all three locals of the ILWU, each of which runs until January 31, 2028.

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Environmental

Westshore's business is handling coal that is mined, transported and used by other entities, which manage their own responsibilities and are subject to various forms of regulation in relation to the environment. Westshore is committed to meeting its responsibility to limit the impact of its own operations on the environment and its neighbours.

In order to minimize air quality impacts and dust emissions from Westshore's operations it engages in ongoing dust reduction activities including using spray towers and water trucks to add moisture to stockpiles, using anti-dust agents on roadways, and carefully monitoring weather conditions to ensure Westshore is prepared for adverse weather in advance. To monitor compliance with Westshore's air emissions permit issued by Metro Vancouver, Westshore operates both real-time electronic and passive sampling systems. The permit requires Westshore to collect samples from an offsite location near the site boundary and report the measured dust fall to Metro Vancouver. These samples have consistently met British Columbia air quality guidelines and the requirements of the permit.

Westshore's main operating equipment is powered by electricity, minimizing greenhouse gas ("GHG") emissions. Westshore's largest source of GHG emissions is diesel fuel used for bulldozing product stockpiles. As part of Westshore's capital improvement project between 2014 and 2019, Westshore replaced three of four stacker-reclaimers. The new stacker-reclaimers have a longer reach, allowing them to access more of the stockpile area resulting in reduced bulldozing. In 2023, Westshore's GHG emissions per tonne shipped are 39% lower than its 2012 emissions levels.

Westshore's water is sourced from the municipal water supply. Water is primarily used for the ground level and mast sprays in the stockyard for dust suppression. Westshore relies on operator inputs as well as control systems that monitor wind direction and speed to adjust operating intervals to effectively manage dust while minimising water usage. All rainwater, surface runoff and water used on site at Westshore is collected and is treated to remove coal particles and other solids. The surface water treatment plant monitors suspended solids in the discharge water and the discharge shuts off at the upper threshold limit. Westshore also operates a wastewater treatment plant to process sewage generated on site. The wastewater treatment plant is maintained by a registered third-party specialist who is required to test for and correct any deficiencies. Discharges from these plants are subject to discharge permits issued by the British Columbia Ministry of Environment and Climate Change Strategy. Discharge of treated water from both plants is permitted provided that the water meets quality standards established under the respective permits. Westshore regularly samples water discharged from both plants, which has consistently met the established standards.

Westshore is a participant in Green Marine, a voluntary environmental certification program for the North American marine industry. Green Marine requires that participants commit to continuously reducing their environmental footprint. Their certification program for terminals focuses on six areas, including emission of GHGs, materials handling performance, waste management and community impacts.

On an annual basis, Westshore prepares an ESG Report, a copy of which is available on Westshore's website. This report provides an expanded discussion of Westshore's environmental, social and governance risk management and performance.

Other Export Terminals

Other terminal facilities on the west coast of Canada that handle coal for export are Trigon Pacific Terminals Limited ("Trigon") and Neptune Bulk Terminals (Canada) Ltd. ("Neptune"). Trigon is a multi-user facility located in Prince Rupert that handles coal as well as other products. Neptune is located in Vancouver's inner harbour and handles metallurgical coal and potash. Neptune's coal capacity is used exclusively by Teck.

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Westshore's unique location provides competitive advantages with respect to rail access and vessel handling. The Terminal is relatively proximate to mines in the United States and BNSF has operational access directly to the Terminal. The Terminal's location also results in coal experiencing lower atmospheric moisture content compared to coal loaded in Northern British Columbia. Further, Westshore's deep-sea berthing capacity enables it to load larger vessels, compared to berths located in Vancouver's inner harbour.

RISK FACTORS

Any of the following risks could materially and adversely affect the Corporation's results of operations and financial condition and the business of Westshore. They could also materially and adversely affect the ability of the Corporation to pay dividends on or repurchase its common shares (the "Common Shares") and could affect the value of the Common Shares. In addition to the risk factors listed below, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing these risk factors investors should keep in mind other possible risks that could be important.

Dependence on Westshore

The Corporation is entirely dependent on the operations and assets of Westshore through the Corporation's ownership of all of the limited partnership units of Westshore. The Corporation's ability to pay dividends on and repurchase its Common Shares is dependent upon distributions paid by Westshore to the Corporation, less taxes and other expenses of the Corporation. The cash distributed by Westshore to the Corporation will depend on Westshore's profitability, which will depend upon numerous factors including the sustainability of throughput and loading rates, control of Westshore's expenses, capital expenditure requirements, and the risks to Westshore's business identified below.

Dependence on Coal Shipments

The biggest factors currently affecting Westshore's profitability are the volume of coal shipped by its customers through the Terminal and the associated handling rates paid by Westshore's customers. The competitiveness of Westshore's customers, demand for their products (metallurgical and thermal coal) and the volumes of coal they sell are affected by numerous factors beyond the control of Westshore or its customers, including the demand for different types of coal, the availability of cost competitive coal supplies, the prices for coal obtained by Westshore's customers, currency exchange rates, political and economic conditions including any restrictions on the transportation and use of coal, labour or other disruptions at mine sites or to rail carriage, and production and transportation costs in major coal producing regions. The volume of coal shipped by Westshore is also dependent upon the continuous operation of the Terminal, which may be impacted by outages as a result of operational breakdowns and other unplanned interruptions.

Loading Contracts

Westshore operates under term contracts with its customers. Contracts are usually renegotiated prior to expiry, but no assurance can be given that new contracts with acceptable terms will be negotiated, or that the volumes committed and loading charges under contracts which are renewed will not be at reduced levels.

Global Climate Change Initiatives and Environmental Regulations and Policies

Since 2021, more than half of the Terminal's annual throughput has been thermal coal. Various factors may affect and potentially reduce global demand for thermal coal, including transition to renewable and other energy sources for power generation, the imposition of more stringent environmental regulations and changes in laws and policies in Canada and the United States and in countries to which our customers ship their products. Further, legislation or regulations may be imposed that impact the volume of thermal coal that Westshore is able to handle in the future. In 2021 the Government of Canada stated that it would take steps to ban the export of thermal coal from Canada effective no later than 2030. To date the Government has not initiated any legislative action for that purpose.

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