Understanding Regulations in the Colombian Mining Industry Diego Casas- Tax Partner Ricardo Ruiz (LL.M)- Tax Manager

1. Understanding Regulations in the Colombian Mining IndustryDiego Casas- Tax PartnerRicardo Ruiz (LL.M)- Tax Manager 17 June 2010

2. Objectives Colombian regulations applicable to mining industry with regard to the following aspects: • Taxation at a glance • Structuring and financing Colombian operations • Legal Stability Agreements

3. 1. Taxation at a glance: Income tax

4. 1. Taxation at a glance: Other matters

5. 1. Taxation at a glance: Sales tax (VAT)

6. 2. Structuring and financingColombian Operations: Subsidiary vs. branch • Premise: Dividends are not taxed to the extent all profits are taxed at corporate level • Consequence on subsidiaries: Tax planning, exemptions or special deductions often generates NO real tax savings, just deferral. Exceptions: 30% capital allowance and exemptions under a tax Treaty • Consequence on branches: Tax planning always generate tax savings Foreign Investor Foreign Investor No tax Deferral Branch Subsidiary 33% 33%

7. 2. Structuring and financing Colombian Operations: Direct vs indirect acquisitions Canadian Investor Canadian Investor Canadian Investor Description: 1) Sale of shares will generate capital gain in Colombia at 33% Foreign Holding 1 1 2 3 Foreign Holding Sale of shares will not generate capital gain in Colombia at 33% Foreign Holding 2 2) Colombian Holding 3) Sale of shares will not generate taxable capital gain in Colombia or Canada Operating Company Operating Company Operating Company

8. 2. Structuring and financing Colombian Operations: Debt Funding Description: Funding allowed by Exchange Law. Applicable to subsidiaries and branches under general Exchange Law Regime If loan is devoted to mining activities no WHT on interest payments Deductibility of interest payments Foreign Investor Foreign Investor 1) 1 2 Foreign Bank Col Holding Funding not allowed by Exchange Law, except international Leasing In this structure local funding should be requested by the MOC to achieve deduction. If made by the Holding would be non deductible 2) 2 Mining Operating Company Mining Operating Company

9. 2. Structuring and financingColombian Operations: Dividend repatriation under treaties Beneficiario efectivo Taxable Exemption Tax Credit Exemption Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 33% WHT Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 33% WHT. Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 33% WHT. Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 15% WHT. Note: Once Canada-Colombia treaty in force, dividens paid out of active business income should not be subject to tax in Canada

10. 3. Legal Stability Agreements Other Stability Scope Applicants Assured Standard Premium • Transcription of standards or their linking interpretations • Demonstrate its relationship with decision to invest • 1% of investment value • 0.5% during unproductive period • Local or foreign investors, individuals or legal entities • Consortiums Investment Project Standards not covered Obligation to sign • New investments or increase of existing projects • (approx. US$ 1.8MM) • May cover the investor’s total activity or only the marginal cost • Social security Reg. • Taxes and mandatory investments in states of emergency • Indirect taxes • Financial sector regulations • Public service tariffs • Not mandatory to sign, if agreement terms are not satisfactory • No fines or other adverse consequences, if not signed Precedent Termination Activities not included • 48 contracts signed • 14 contracts approved • 20 years period has been granted • Many covers the entire activities of the companies • Nullity or unenforceability of standards or interpretations • Law 963 of 2005 • Market regulations • Rules issued by the Central Bank • Environmental standards

11. E&Y Contacts In Colombia Luz Jaramillo; Country Managing Partner, 57 1 4847230 luz.jaramillo@co.ey.com Gustavo Pardo, Tax Managing Partner, 57 1 4847130 gustavo.pardo@co.ey.com Diego Casas; Tax Partner, 57 1 4847050 diego.e.casas@co.ey.com Ricardo Ruiz; Tax Manager, 57 1 4847537 ricardo.ruiz@co.ey.com