Mining Investment Landscape in Peru: Opportunities and Legal Guidelines

1. GENERAL FRAMEWORK AND CURRENT LEGAL ISSUES FOR MINING INVESTMENTS IN PERU Rubén Eduardo Luján ruben_eduardo.lujan@macleoddixon.com Mine South America: Focus on Peru – October 5, 2011 Toronto, Canada

2. INVESTMENT PERCEPTION ON PERU • Peru is considered the 2nd most attractive country for foreign investment in the Latin America & Caribbean region. Source: Doing Business 2011 – The World Bank & International Finance Corporation (IFC) • Peru sovereign debt is recognized as investment grade by major credit risk agencies. Sources: Standard & Poor’s Ratings Services, Moody’s Investor Service & Fitch Ratings

3. INVESTMENT PERCEPTION ON MINING IN PERU • Peru is considered the 5th worldwide destination for mining exploration investments, below Canada, Australia, USA and Mexico, and along with Chile.

4. INVESTMENT PERCEPTION ON MINING IN PERU • Peru ranks as the 4th most attractive country in the Latin America region for mining exploration investments. Source: Survey of Mining Companies 2010 / 2011 – Fraser Institute

5. MINING PRODUCTION RANKINGS FOR PERU • Peru is the second world producer of silver and copper. Peru is also the first producer of gold, zinc, tin and lead, and the second producer of silver in the Latin America region. Sources: Ministry of Energy and Mines Peru (MINEM), based on several international and independent benchmark sources.

6. CURRENT MINING ACTIVITY AND POTENTIAL FOR FUTURE MINING ACTIVITIES IN PERU • Mining activity in Peru currently involves the production of gold, silver, lead, zinc, molybdenum, tin, iron, tungsten, phosphate and other minerals Sources: Ministry of Energy and Mines Peru (MINEM) & Mining and Metallurgical Geological Institute Peru (INGEMMET) • 11.52% of the land has been requested for mining concessions • 1.05% of the land is subject to mining exploration or production activities • 10% of the land has mining potential and still needs to be explored

7. ESTIMATED PORTFOLIO OF MINING PROJECTS IN PERU FOR 2011 • Peru has an estimated portfolio of mining projects for 2011, for an aggregate investment value of US$ 42.451 billion.

8. ESTIMATED PORTFOLIO OF MINING PROJECTS IN PERU FOR 2011 Source: Ministry of Energy and Mines Peru (MINEM)

9. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS 1. General • All mineral resources belong to the Peruvian State. Right of the State is not transferable or subject to a statute of limitations. • Both the Peruvian State and private entities or individuals, whether Peruvian nationals or foreign nationals, can exercise the rights to use, and benefit from, mineral resources. • Prospecting for, and domestic and international commercialization (marketing, sale and business development) of, mineral resources, are not subject to a prior mining title or granting instrument. • Exploration, production, processing, auxiliary services and unconventional continuous transportation, of mineral resources, are subject to the granting a prior mining title or granting instrument (concession).

10. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS 2. Key rights granted by “mining concessions”: • Exclusive right to explore and produce specific type of mineral resources, found to an unlimited depth, within the borders of the vertical lines corresponding to the sides of a square, rectangle or other closed polygon, the vertices of which are referred to UTM coordinates. • Separate and independent right from the right on the land where the concession is located. Does not grant any property right on the surface. • Irrevocable, provided that titleholder complies with the obligations set forth in the General Law on Mining for such concessions to be in force and effect.

11. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS 3. Key regulatory obligations associated to “mining concessions”: • Constitutional and legal requirement to invest for the production of minerals. • Titleholders must reach a minimum annual production per calendar year and per hectare, by the end of the 10th year of the life of the concession, from the calendar year after that on which the concession is granted.

12. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS • Failure to reach minimum annual production results in an annual penalty per hectare, imposed on the titleholder, from the 11th year of the life of the concession until the year on which production is met. • If failure to reach minimum annual production continues by the end of the 15th year of the life of the concession, from the calendar year after that on which the concession is granted, the concession is declared expired by the mining authority.

13. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS • The concession is not declared expired in such circumstances, for up to a non-extendable term of five years, if: - failure is due to acts of God or force mature, or an event not attributable to the titleholder, duly proved to and approved by the mining authority; or - the titleholder pays the annual penalty for those additional years and proves that it has made investments for an amount equal to at least 10 times the amount of the corresponding annual payment. • If failure to reach minimum annual production continues by the end of the 20th year of the life of the concession, from the calendar year after that on which the concession is granted, the concession is declared irrevocably and definitively expired.

14. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS • Titleholders must pay an annual good standing right, from the calendar year on which the request for a mining concession is filed with the mining authority and throughout the life of the concession, payable in US Dollars or in local currency. • Failure to timely pay the annual good standing right for two years, consecutive or not, results in the statutory expiration of the concession.

15. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS 4. Legal protection and guarantees for foreign investors: • Foreign investors and legal entities on which they invest have the same rights and obligations as local investors and legal entities. • There is no distinction, under the legal system, between foreign and local investors or legal entities, based of their foreign or local status. • Local and foreign investors have the same rights with respect to the acquisition or holding of land and/or mining concessions. • By way of exception, foreign investors cannot acquire or hold, directly or indirectly, land and/or mines within 50 Km. of the borders of Peru, unless expressly authorized, in case or public necessity, through a Supreme Decree approved by the Council of Ministers.

16. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS • Foreign investors have the right to freedom of commerce and industry, and to freedom of exports and imports. • Foreign investors have the right to transfer abroad, upon prior payment of applicable taxes, the full amount of the capital and of the dividends and net earnings originating from their registered investments, in freely convertible currency, without the need for prior authorization from a governmental authority or entity. • The transfer is eligible to be made at the most favorable exchange rate available at the time of the currency exchange transaction.

17. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS 5. Legal protection and guarantees for foreign investors in the mining sector: • Foreign investors are eligible to sign contracts with State entities, to have their mining investments benefit from legal and tax stability. • Legal stability agreements with PROINVERSION, which guarantee that laws and rules governing key matters remain unaffected or unchanged, for the benefit of the investor, for 10 years from the date of execution. • Agreements cannot be unilaterally amended or terminated by the State. Such actions can only be made by mutual agreement. • Requires commitment to make, within two years from the date of execution, cash contributions, through the local financial system, to the capital of a legal entity subject to Peruvian law or venture or risk investments with third parties, in either case for an amount of no less than US$10 million.

18. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS

19. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS • Legal stability contracts with MINEM, which guarantee to mining investors that laws and rules governing key matters remain unaffected or unchanged, for the benefit of the investor, for 10 or 15 years from the year on which it is proven that the relevant investment has been made. • For 10-year contracts, requires commencement of operations with a capacity greater than 350 metric tons per day and up to 5,000 metric tons per day or expansion of existing operations with a capacity within that range, or submission of investment programs with a value equal to US$ 2 million. • For 15-year contracts, requires commencement of operations with a capacity greater than 5,000 metric tons per day or expansion of existing operations with a capacity above that figure, and submission of investment programs with a value equal to no less than US$ 20 million for new projects and for a value of no less than US$ 50 million for existing projects.

20. KEY ASPECTS OF THE LEGAL FRAMEWORK FOR MINING CONCESSIONS

21. CURRENT LEGAL ISSUES FOR MINING INVESTMENTS IN PERU 1. Prior consultation with indigenous and native communities (Law No. 29785, published September 1, 2011, effective December 1, 2011) • Applies essentially to legislative or administrative measures of the State, directly affecting collective rights (physical existence, cultural identity, quality of life or development). • Mandatory on the State (not on the mining investors). • Purpose is to reach an “agreement or consent” between the State and the communities, through an intercultural exchange of ideas, guaranteeing their inclusion in the decision-making process of the State and adoption of measures respectful of their collective rights. • State entities must identify the legislative or administrative measures subject to prior consultation, and inform, through culturally appropriate means, about them to representative organizations of communities.

22. CURRENT LEGAL ISSUES FOR MINING INVESTMENTS IN PERU • Final decision on the approval of the legislative or administrative measures lies with the State entity. Right to veto such measures by indigenous communities? • Agreement between the State and the communities, resulting from the prior consultation mechanism, is binding and both and can be enforced before administrative authorities or courts. • No amendment or abrogation of legislative measures, and no change to administrative measures, adopted prior to effectiveness of this law. • Not legally, but politically, necessary? • Prior legislation (still in force) required: (a) “prior commitment” by titleholders to conduct activities under high environmental standards and respecting local culture and customs, and (b) prior consultation by the State to indigenous communities, before implementing a legislative or administrative measure (granting of mining concessions), based on project data provided by anyone requesting a concession.

23. CURRENT LEGAL ISSUES FOR MINING INVESTMENTS IN PERU 2. New Regime for Selected Taxes on Mining Activities • Amendment to Mining Royalty Regime (Law No. 29788, published September 28, 2011, effective October 1, 2011 / First Calendar Quarter of 2012). • Statutory consideration payable by anyone operating under a mining concession, to the State, on production of metallic or non-metallic mineral resources, calculated and payable on a quarterly basis. • Determined through a formula, which entails applying to the quarterly “operational profit” an effective rate, which is calculated in turn by applying to the quarterly “operational margin” a cumulative and escalating rate ranging from 1% to 12%. • Amount due and payable cannot be less than 1% of the income generated by sales conducted in the relevant quarter. • Small-scale miners and artisanal miners have a 0% mining royalty.

24. CURRENT LEGAL ISSUES FOR MINING INVESTMENTS IN PERU • Creation of Special Tax on Mining (Law No. 29789, published September 28, 2011, effective October 1, 2011 / First Calendar Quarter of 2012). • Levied on the “operational profit” obtained by anyone operating under a mining concession, originating from sales of metallic mineral resources and from self-consumption and unjustified withdrawal of those resources, calculated and payable on a quarterly basis. • Determined through a formula, which entails applying to the quarterly “operational profit” an effective rate, which is calculated in turn by applying to the quarterly “operational margin” a cumulative and escalating rate ranging from 2% to 8.4%. • Small-scale miners and artisanal miners have a 0% tax.

25. CURRENT LEGAL ISSUES FOR MINING INVESTMENTS IN PERU • Creation of Special Levy on Mining (Law No. 29790, published September 28, 2011, effective October 1, 2011 / First Calendar Quarter of 2012). • State source of funds, related to the production of metallic natural resources, and applicable to anyone operating under a mining concession, that has entered into a legal stability contract with MINEM, and voluntarily decides to be subject to the special levy, calculated and payable on a quarterly basis. • Determined through a formula, which entails applying to the quarterly “operational profit” an effective rate, which is calculated in turn by applying to the quarterly “operational margin” a cumulative and escalating rate ranging from 4% to 13.12%. • Applies upon execution of an agreement with MINEM, which is in force for the exact same duration as the legal stability contract. • Amounts paid for mining royalties are deductible from this levy.

26. THANK YOU Rubén Eduardo Luján ruben_eduardo.lujan@macleoddixon.com Mine South America: Focus on Peru – October 5, 2011 Toronto, Canada