Mining Leaders: Peru 2012 (preview)

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Mining Leaders

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politics & economy

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lead article

a delicate balance W

hen Ollanta Humala emerged victorious from the Peruvian presidential election of June 2011, some members of the business community held their breath. Others sold their stocks. The Lima Stock Exchange (BVL) suffered a 12% drop, the largest in its history. In 2000 the 50-yearold former lieutenant colonel had been sentenced to 25 years in prison for leading a coup against then-president Alberto Fujimori, the father of his opponent in the presidential runoff. Opponents pointed to Humala’s close ties with Venezuelan president Hugo Chávez and predicted that his election would be ruinous for foreign investment in the country.

One year on, the situation looks very different. Those investors who trusted Humala’s claims to be a Peruvian Lula, Brazil’s centerleft and pro-business former president, rather than an Andean Chávez, have seen their faith rewarded. By April 2012 the BVL General Index reached 24,000 points, its highest level in five years.

While it suffered a drop in May and June, most analysts attribute the fall to the worsening global situation rather than country risk.

Humala apparently understands the need to assuage the fears of the business community. His first state visit was to Washington to Mining Leaders

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lead article

$3.5 billion

unspent taxes largely from the mining sector in 2010

Social protests surrounding mining projects have become the key issue of the Humala administration

But his first 12 months in charge have not been plain sailing for the new president.

In December he undertook a major cabinet reshuffle that saw Prime Minister Salomón Lerner Ghitis, along with nine other cabinet members, replaced. Among those sacrificed were the left-leaning ministers of Culture, Justice, Women’s Affairs, and Energy and Mines. The new Minister of Mines, Jorge Merino Tafur, is considered a talented, pragmatic, nonideological technocrat and most mining and finance executives in the country have taken his appointment as a positive sign.

However, the circumstances surrounding the resignation of his predecessor, Carlos Herrera Descalzi, point to one of the major challenges facing the sector.

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While fears of political risk at the executive level have been alleviated

by Humala’s first year in charge, at the local level a number of major protests have caused serious delays to several projects and have posed important questions about the state’s ability to distribute the proceeds from mining projects. Herrera’s resignation came following the repression of protests targeting the Minas Conga project. The $4.8 billion investment from Yanacocha, a joint venture between the American company, Newmont Mining, and the Peruvian, Buenaventura, has become the symbol of the struggle between the supporters and opponents of mining. But it is just one of several projects facing waves of popular protest. In May the

The government blames left-wing agitators for the rise in the number and severity of the anti-mining protests.

Datum, a local polling firm, reported that 60% of Peruvians are in favor of developing the project with 29% against. But local opposition to projects remains strong, mainly because local governments in mining regions have proved incapable of administering the revenues from projects into the type of long term investments in infrastructure, health, and education that would compensate communities living near the mines. According to Reuters, over $3.5 billion in taxes, predominantly

Destinations of exploration investment in LAtin America

Sources: Metals Economics Group

meet Barack Obama. He has also shown a willingness to engage in dialogue with the country’s major mining firms and an ability to compromise. The design of the mining windfall tax, much feared before the election, was made following full consultation with the major companies producing generally satisfactory results for most firms. By imposing the tax on operating profits rather than revenues, the state can benefit from greater returns from high commodity prices without jeopardizing the economic feasibility of projects. The anticipated additional $1.1 billion in annual revenues is earmarked for social spending projects.

government enacted emergency measures to ban the right of free assembly following protests against Xstrata’s Tintaya mine. Southern Copper’s Tía María project in the south of the country was delayed for two years after it was forced to re-file its environmental and social impact studies.

lead article from the mining sector, remains unspent by local governments. At present half the taxes from mining firms are returned to the central government with the remainder, the “mining canon," directed to local governments for infrastructure spending. Given the inability of the local governments to spend the cash effectively, there is speculation that Humala may want to further centralize mining taxes, allowing the federal government to develop projects in the regions. However, such actions may lead to conflict between the Humala administration and local political chiefs.

This would be a political fight too far for the Peruvian leader. By taking a pragmatic line, aiming to increase spending on the poor without introducing anti-business policies, Humala has reconciled many former opponents but also alienated elements of his power base. In early June three members of Humala’s Peru Wins party resigned from Congress in protest at the government’s drift to the political center and its tough crackdown on mining protests. In the same month the

president’s approval ratings slipped to 45% and it was telling that his strongest support levels came from the highestearning sector of society.

But Humala’s volte face is not without precedent. In 1990, Alberto Fujimori

6.9% real gdp growth 2011

won the Peruvian presidential election having attacked the neoliberal platform of his opponent, the famous novelist Mario Vargas Llosa. Once in power he introduced a series of neoliberal reforms, the so-called Fujishock, that brought inflation to heel, cut public sector spending, and stimulated foreign investment.

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In a further twist, Humala’s current weakness in Congress could see him strike an alliance with the Fujimori party that would allow him to pass legislation. With mining accounting for such a large proportion of the economy, it would be economically ruinous for the country to enact legislation that would slow production growth or deter foreign investment.

A reminder of this came in the form of April’s trade balance figures. For the first time since December 2008, the country posted a trade deficit.

Falling commodity prices were one factor in the decreased import revenues, but production was also down in a number of key metals.

Gold production dropped almost 10% to the lowest levels in a decade.

Fortunately, the years of bumper trade surpluses have endowed the government with a $5 billion stabilization fund to counter such shocks. Nevertheless, Peru’s growth rates of over 5% in recent years were founded on the strength of its export

Destinations of exploration investment in LAtin America

The Trans-Pacific Partnership (TPP) is a multilateral free trade agreement being negotiated between nine nations. The agreement was first ratified in 2005 between Brunei, Chile, New Zealand, and Singapore. Besides the original countries, known as the P4, the list has subsequently grown to include: the United States, Australia, Malaysia, Vietnam, and of course Peru. Canada and Mexico formally acknowledged that they want to join negotiations in June 2012. With 40% of world trade occurring between these countries, the effects on trade will be magnified and may stimulate economic growth. Japan’s Prime Minister, Yoshihiko Noda, has publicly acknowledged an interest in officially entering negotiations. In May of 2012 the 12th round of negotiations took place in Dallas, where diplomats and the business community continued to fine tune the free trade agreement.

claiming that flow of goods, services, and know-how will greatly contribute to growth and development for all of the involved nations.

The TPP seeks to gradually reduce import tariffs to zero and remove barriers to trade goods and services beyond the existing World Trade Organization framework. Under the current timeframe, the goal is to achieve zero tariffs by 2015. For Peru, the impact of liberalization would weigh heavily across all industries. Peruvian fish, asparagus, and minerals, are already destined for Asian markets; the TPP will facilitate and encourage more exports. On the other side of the picture, Peruvians will benefit from being able to import mining technology from Australia and further financial and legal expertise from the United States. Heads of state are pitching the TPP by

Australia and Peru don’t have a free trade agreement so the TPP will serve to deepen the commercial relationship between the countries.

Daniel Sullivan, the Trade Commissioner of Austrade, comments, “The standards proposed for the TPP are very high, which means that participating countries will be seen favorably from a trade and investment perspective. That of course makes it more challenging to negotiate, but Peru has been a constructive and active partner in the negotiations. It will be helpful to our world-leading METS suppliers because they are currently at a disadvantage to companies from countries that do have an FTA with Peru.”

Mining Leaders

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lead article Pipeline. Though they were swiftly released, the events and the deaths of ten soldiers and police officers in the Path’s stronghold in the southeast of the country led to several high level resignations, including those of the Minister of Defense and the Interior Minister. In July the government announced the capture of a further 11 guerrillas and the release of ten children being put through military training by the group. Although a limited threat remains, few executives interviewed by Mining Leaders deemed guerrilla groups to be a significant threat to their operations.

Building warm relationshps with local communities is key to successful projects

In June 2012 there seemed a real possibility that the Minas Conga project could face cancellation and Newmont’s CEO, Richard O’Brien, had threatened to abandon the project and move his firm’s operations to another country in its project portfolio if the government’s demands turned out to be too onerous.

In July the firm agreed to construct a series of reservoirs to safeguard local water supplies in order for the project to receive approval. But continued clashes with protestors suggest the project is not in the clear yet and the eyes of the mining world will be focused on Conga as a bellwether for the anticipate $52

10

billion of foreign investment in the mining sector.

The government has also made impressive strides to tackle the persistent security concern in the country. Between 1980 and 2000 an estimated 70,000 Peruvians lost their lives in battles between the government and the Maoist insurgency, the Shining Path. In February 2012 the military captured Comrade Artemio, the leader of the residual guerilla forces, but Humala’s statement that this represented “mission accomplished” proved premature. In April the group staged its most significant raid in a decade, taking hostage 40 contractors working on the Trans Andean

ESTIMATED MINING INVESTMENT BY REGION 2012 - 2016 ($m)

Source: Ministry of Energy and Mines

economy and delays to the start-up of new projects are putting such growth in jeopardy. Tania Quispe, the head of Sunat, Peru’s tax agency, expressed her concerns in an interview: “It will affect revenue collection if projects are stalled. We at Sunat are dependent on the export sector, and mining is one of the most important.” Also worrying to the taxman is the tax evasion carried out by illegal miners throughout the country. Sunat has calculated the sum in lost revenues to be 500 million Nuevos Soles as a result of the illegal miners. The negative externalities associated with illegal mining go further, with large costs to society resulting from environmental damage and reduced workers’ life expectancy from dangerous conditions.

Of more concern are narcotraffickers, with Peru replacing Colombia as the world’s largest producer of cocaine in recent years. The major mining region of Cajamarca is the focal point of the industry and the town of Bambamarca has drawn unwelcome comparisons with the Medellín of the 1980s. The status of the coca leaf in Peruvian society— it has been chewed for centuries by the local populace—means that Peru cannot take the major fumigation programs that were commonplace in Colombia in the 2000s. Humala has vowed to “fight for respect of the coca leaf as a traditional crop” while simultaneously targeting cocaine producers and making it clear that he will not accept major foreign participation in the process.

American aid to fight the drugs business in Peru dropped to $40 million in 2010, down from $148 million in 2002.

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leader profile

the great transformation On 26 June 2012 Ollanta Humala celebrated his fiftieth birthday in Lima’s Plaza San Martin, just under a year since he took office. Addressing a crowd of cheering supporters he reasserted his commitment to his campaign manifesto. “We’ve made a promise to this country and we have to keep this promise,” he said.

“The grand transformation, yes, it is possible.” If the transformation needed reiterating it is because Humala’s first twelve months in power have been less radical than his opponents feared and many of his supporters had hoped for.

The trajectory of Humala’s career has inevitably drawn comparisons to those of the two most eminent South American statesmen of the early twentieth century, Venezuela’s Hugo Chávez and Luis Ignacío Lula de Silva, the former president of Brazil.

The similarities with the former are striking. Both men are former army officers steeped in indigenous politics who led unsuccessful military uprisings against unpopular presidents. In September 2000, in response to

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a wave of corruption scandals surrounding the Fujimori presidency, Humala—then a lieutenant colonel— fomented a rebellion in the south of the country, ostensibly to capture Vladimiro Montesinos, the former chief of intelligence at the centre of bribery scandals. Although the revolt was easily put down by the military, Humala was able to escape capture until Fujimori had been impeached and the rebel later earned a pardon from Congress. Like Chávez’s 1992

“We’ve made a promise to this country and we have to keep this promise.The grand transformation, yes, it is possible."

revolt against president Carlos Andres Perez, Humala's rebellion gained significant public sympathy for his actions and became a leading political figure. By 2006 he

had established himself as a leading presidential candidate, courting Chávez’s patronage and running as a left wing candidate under his own Peruvian Nationalist Party.

However, his defeat to Alan García in the presidential runoff led to an evolution in the future leader’s political stance. García's claims that Humala’s campaign had been funded and run out of Caracas were widely considered to have been a major factor in his defeat. His preparations for the 2011 election did not, therefore, include visits to Venezuela, and he instead remodeled himself as a Peruvian equivalent to Lula, a center-left leader focused on providing a fair deal to the country’s poor without upsetting the markets or alienating big business.

His campaign team even included a number of individuals who had been instrumental in Lula’s Worker’s Party (PT) in the 2002 Brazilian elections.

Given the scale of profits enjoyed by natural resources firms on the back of record commodity prices, Humala reasoned, a windfall tax on excess

humala

45%

Humala's June 2012 approval rating

profits could be used to finance social programs without making foreign investment unattractive or making mines uneconomical. Once again, some of the key social programs in question, such as Juntos, a conditional cash transfer for poor families that ensure their children’s attendance at school, were modeled on a Brazilian equivalent, Bolsa Família. Following a decade of record growth under Alan García, in which the poor failed to experience a significant "trickle-down" of wealth, Humala’s message of a more equitable development proving a winning formula at the polls.

But while Lula managed to gain the support and trust of big business during his first term while remaining wildly popular with poor Brazilians, Humala has found the "third way" a much harder line to walk. By June 2012 his approval rating had dropped to 45% and amazingly his highest level of support came from Peru’s most wealthy economic groups, the same ones that voted primarily for Keiko Fujimori in the 2010 elections. His lurch towards the center has earned him the sobriquet of the Andean Chameleon and has attracted vociferous criticism from his father and brother, both relatively influential figures in national politics. Despite, or maybe because of, the fact that Humala was considered the candidate most likely to support local protests against resource projects, his tough stance towards demonstrations has led to an escalation in their pitch and violence. Humala’s troubles in uniting a pro-business agenda with popular support highlight the fundamental differences between Peru’s situation and that of Brazil.

Unlike Lula’s PT, Humala’s new

While Humala´s immediate family remain close, his brother and father have vociferously criticized his drift to the political centre

Peru Wins party, established with the 2010 election in mind, has little influence outside of the capital.

Local political figures are far more influential in mining regions and natural resource projects have become a key political issue for local power struggles. Secondly, in comparison to Brazil, Peru’s much lower historical tax levels and inefficient bureaucracy have hampered the implementation of key social programs. Billions of dollars of taxes sits unused in regional treasuries. Polls show that on the national level, most Peruvians agree that the Minas Conga mine is worth pursuing for the jobs and revenues that it creates. But social conflicts at the local level continue to destabilize the government and cost lives.

Ollanta is an Incan name meaning “the warrior everyone looks to” and the key question remains how the former army officer will react to his

falling popularity and continued social unrest. A minority on the right persists in viewing the president as a wolf in sheep’s clothing, an inveterate Marxist whose flirtation with the center was simply an electoral ploy.

However, his actions since coming to power would appear to refute such claims. The relatively amicable recalibration of mining taxes through company consultation is a case in point. The government’s decision in June 2012 to allow the Minas Conga project to proceed with greater investment in water structure showed a willingness to find compromise.

However, the protests that followed the decision, and the lethal force once again employed by the police to suppress them, has forced Humala’s hand. In July, talks began between two priests appointed by the government and opponents to the project. Only time will tell if dialogue can help diffuse one of the most divisive issues in Peruvian politics.

Mining Leaders

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q&a

a new

Jorge Merino Tafur Minister of Mines

perspective

In December 2011, the resignation of Prime Minister Salomón Lerner after just five months in the job resulted in a wide cabinet reshuffle. The Minister of Mines, Carlos Herrera Descalzi, was replaced by Jorge Merino Tafur, an insider who spent most of his career at the Centromin, a formerly state-owned mining company.

In early 2012 important changes were made at the Ministry of Mines. How would you describe the political agenda of the new cabinet?

It is a very special and exciting moment. The policies of this government are distinct from those of previous governments. The priority is social development. That is going to be reflected in the types of investors we want to attract to the country and in particular those we want in the Peruvian mining sector. More specifically, we are looking for investors who respect and adhere to environmental standards and who practice sustainable development. There is a triangular commitment that must be maintained between government, investors, and communities, which will provide long-term stability for all and bring benefits to the country as a whole.

How will the new taxation system affect mining companies and what advantages will it generate for the country?

We want to respect contracts and we want to create a climate of investment. The change in the taxation regime was not a forced imposition but was rather introduced through consensus and collaboration with the mining companies themselves. In Peru there are regions where there is no mining. We want to make sure that royalties are evenly distributed and that the whole country feels the benefit. We need to make the population more aware of how the royalties can affect the quality of their lives.

We are not just talking about informing the populations in zones where the projects take place, but the whole of the country. 60% of Peru’s exports depend on mining. It is a huge factor in the development of the country and brings benefits through energy, infrastructure, and jobs.

A resident of Lima has to be aware of the contribution mining makes to his or her life, even if the sites are thousands of miles away.

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How will these new funds serve the “great transformation” set out by President Humala?

We have a plan of integrated development for transport, roads, rail, and telecommunications. It will be executed in conjunction with various ministries. The implementation of these new regimes will be governed by our most major concern—that of managing and maintaining the water supply. 95% of our water comes from the forests on the border with Brazil, but the majority of our people live on the coast, where as little as 5% of our water is sourced. The ministry of housing, whose role is to control water supply, will decide, in conjunction with the ministry of agriculture and the new ministry of social inclusion, the best means for implementation.

How do you intend to develop infrastructure across the country?

Traditionally, 70% of infrastructural investment has been private and just 30% public. This needs to change. Through the state body ProInversión, we are looking to increase the number of joint public-private investments. We want mining infrastructure and public infrastructure to complement each other. For example, in the south of the country, there are some large projects owned by Xstrata. A sum of $6 billion has been invested in the project. There are plans to build 1,500 kilometers of roads in this area, and with that will come electricity to the local areas. This is the kind of development we want to see. The development of ports will also remain a priority for us.

How can Peru leverage its mining history in order to compete with other mining countries in South America, particularly in the provision of mining technology and services (METS)?

These markets are important for Peru. The multitude of terrain and variety of minerals means that Peruvian METS companies have a lot of experience which can be applied to different countries. It is widely accepted that some of the most

q&a

The Minister has stated his priority is to attract investors with a greater focus on social development

practiced and skilled technicians and geologists come from Peru, you see them involved in nearly every major project in every mining jurisdiction around the world. Really, Peru is a school of mining. What we would like to see is more interchanging of skills and services between us and our South American neighbors.

Peru’s mining industry is dominated by majors. Will the government aim to increase the number of small- and medium-sized companies?

A good indicator of the companies present in Peru is the stock exchange in Lima. The Lima Stock Exchange has more junior companies listed than any of the other South American exchanges. We have more than 200 juniors exploring here. I think this is a clear sign that all types of companies are welcome in Peru. Of course there is a still a lot of land to be explored in Peru, plus we are a polymetallic country so we are open to all types of investment. There are many types of minerals waiting to be explored. Investors need to know that the state will be a friend to them. Peru is a country where everyone can and will benefit from the mining investment.

Gold resources in Peru are limited. What is the direction of Peruvian mining?

We play host to the four largest producers of copper in the world. We have some of the biggest projects in the world, which include Las Bambas, Antapaccay, Conga, Michiquillay, Quellaveco, Tía María, and Rio Blanco, all of which will be coming into production in the next few years. Our future is very exciting. We know that gold and copper go together. Northern Peru contains some large deposits of phosphate. Vale has a large phosphate project and is planning to increase their production to 6Mt annually from 4Mt now. The production of phosphate will also have benefits for the agricultural market of Peru.

What level of investment does the government anticipate in the mining sector in the coming years?

Peru will continue to grow. There should be more than $50 billion in investment over the next ten years coming from all over the world, including countries like China, India, Russia, and Canada. We need to modernize state companies.

PetroPerú, the state company dealing with petroleum, plans to put 20% of its shares on the Lima exchange.

Mining Leaders

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lead issue

the way of the

dragon comParátive tax rates (2010)

Richard Graeme Senior VP & General Manager Lumina Copper

China has courted nearly every resource rich nation in the world.

In Peru, Chinese companies have built a considerable portfolio of investments in mining and a number of other key industries.

In 2011, China overtook the United States as Peru’s main export destination. According to Capechi (Peru-China Chamber of Commerce), Peruvian exports to China rose by 71% to $12.3 billion in 2011. The large increase is due to the China-Peru Free Trade Agreement, which was signed in 2010, and has since encouraged bilateral trade.

Minerals play an important role in the trade between the two countries; capital flows eastward while freighters laden with ore sail in the opposite direction. The year 2011 saw mineral exports to China reaching $4.4 billion. Capechi’s goal is to promote and increase trade between the two countries. It does so by hosting events and distributing information to companies on both sides of the Pacific. In November, Capechi hosted the “V Chinese—Latin American Trading Session” that highlighted selected investment opportunities in both countries. Dr. José Tam, the president of Capechi, expects the mining sector to see a 30-40% increase in investment from China over the next decade. Trade has already skyrocketed, and will continue to grow, while new initiatives run by government agencies are aiming to improve collaboration on education, health programs, and agricultural research via a handful of bilateral cooperation agreements.

Despite a successful commercial relationship, some analysts worry that Peru will suffer from its dependence on exporting to China.

Given the possibility of a slowdown, Dr. Tam believes that “it is a good time to analyze new economic segments for investment aside from the mining sector. This initiative will allow Peruvian companies to reach sustainable growth. New segments could be industrials, electronics, and technology among others.”

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“To secure resources for industrial growth the Chinese government has become involved in production.

In 1993, the first Chinese company, Shougang Group, entered Peru. Unfortunately that project was handled with mixed results. We have had to overcome the stigma that that company created. We intend to do what Chinalco does—follow all of the correct international standards and act as responsible corporate citizens.”

Javier Bisso General Manager Sinomaq

“We sell front loaders, graders, excavators, backhoes, dump trucks and cargo trucks. Given the reputation of Chinese brands, we know that the most important thing is after-sales—guarantees for maintenance and operations. Large construction and mining companies are already operating our brand supported by our after-sales team that is reliable, safe and serious. We are starting to see a response and in 2012, we expect to grow by 50%.”

Erik Bethel Managing Partner SinoLatin Capital

“Latin America needs to sell resources in order to grow; China needs to buy resources in order to grow. It’s a good marriage. In China and Latin America you do business with your network of friends— with people you trust. When you don’t inherently trust in a contract you trust in a relationship, and that’s something that both cultures have. Fundamentally, building a relationship is the most crucial thing you can do.”

lead ISSUE Principal Chinese Projects in Peru

Rio Blanco

1

Zijin Mining Copper

piura

100% ownership (Private)

chachapoyas

El Galeno

2

Jiangxi Copper, China Minmetals

cajamarca

Copper, Gold 100% ownership (Public)

Toromocho Chinalco Copper, Zinc, Silver 100% ownership (Public)

Marcona Shougang Corporation Iron Ore

3

100% ownership (Public)

lima

Mina Justa CST Mining Group Copper, Silver 70% ownership (Private)

ica

Pampa de Pongo

5 4 6

Nanjinzhao Group Iron Ore 100% ownership (Private)

top 10 destinations for chinese mining investment, 2003-11

China Outbound FDI 1980–2009 (US$ billion) 21

peru 10%

18 15

india 9%

12

philippines 9%

9 6

Source: fDI Markers

afganistan 7% brazil 24%

indonesia 6%

australia 14%

liberia 6%

saudi arabia 11%

venezuela 4%

3 0 2005

2006

2007

2008

2009

2010

africa

asia

australia

europe

latin america

north america

Source: China Global Investment Tracker 2011, The Heritage Foundation

Mining Leaders

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q&a

Provisions

for the

Jorge León Benavides President Appromin

providers

The Peruvian Association of Mining Services Providers (Appromin) was founded in 2010 with the aim of providing the country's diverse service companies with an organized forum. Leveraging Peru's long mining history, Appromin promotes the country's domestic firms both nationally and internationally. Jorge León Benavides is the president of the association.

What was the motivation for Appromin’s creation in 2010?

Although Appromin was created just two years ago, Peru has a mining history that stretches back to the age of the Incas. In that sense, as Appromin, we want to take advantage of our experience and show that Peruvian mining technology and service companies (METS) can compete internationally. In the past we witnessed METS providers’ lack of training, particularly when representing themselves at international fairs and conferences. At these events, firms from other countries, such as Argentina and Chile, were more competitive in presenting an international image. The idea is to develop and support Peruvian businesses and to help Peruvian METS companies to position themselves in the international market.

What size is the Peruvian METS market?

There are some 10,000 METS providers in Peru. We represent almost 100 of those companies and we continue to grow every day.

We are focused on building a positive image of METS providers and improving the quality of their services. In 2011, the METS market in Peru represented $3 billon. We are currently investigating the exact employment figures in the mining sector. Meanwhile, we have calculated that approximately eight million Peruvians are employed, either directly or indirectly, in the mining sector.

How has mining developed in the last five years?

In the last five years the mining services sector has grown by roughly 60%. Approximately 10% of the service providers in Peru are foreign, many from countries such as China and the United States. These companies tend to focus on machinery and technology, as these areas have not been a traditional focus of Peruvian companies. In recent years, we have formed a strategic alliance with Appromin from Chile, as Chilean and Peruvian mining is similar, particularly in the type of terrain we are working with.

Do these international companies represent a challenge to Peruvian METS providers?

Currently the demand for Peruvian mining projects is huge. In the next ten years, for example the government expects to see $52 billion

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in investment, which means there will be a continued demand for Peruvian providers. Therefore, we are not worried about foreign competition. Our focus will remain on implementing international standards and best practices. The real difficulty is standardizing health and safety certificates. Large mining companies often want very specific certifications, but the small- and medium-sized companies are looking for one standard of health and safety that can be applied nationally. We also want our members to be aware of the unique health concerns at each site.

Is the government supportive of the METS sector?

We have worked with the government to analyze the best way to represent Peruvian METS providers at international fairs. The government’s catchphrase is “Peru – a mining country.” We are working to develop that phrase to include “Peru – an METS country.” We want to show the world that Peru is a country full of reliable and experienced providers. Mining will form the basis for the development of other sectors. The government is embracing the fact that mining is a positive step towards the elimination of poverty.

What is Appromin’s strategy for future development?

Since our creation we have been collecting feedback from mining companies about their needs regarding METS providers in order to improve the services of our members. It is vital for our members to understand the needs of their clients. Communication between the two parties is essential and we are working, and will continue to work, to facilitate it. Also, as I mentioned previously, Peruvian providers have to start looking towards international markets to globalize their services. One of the major obstacles for METS providers is the fact that nowadays it is very difficult to find an engineer or a geologist in Peru, because they are highly sought after abroad. That is why the METS sector needs to keep talented workers in the country by offering them better universal working conditions. All of the above mentioned constitutes our strategy for future development, which will help METS companies to position themselves in the national and international markets with a strong representation at fairs and conferences in order to become international leaders in this sector.

company focus

Ingemmet National Geological Service HQ: Lima 400 employees

Ingemmet

Peru has a rich mining history and though the national geological service, Ingemmet, doesn’t quite stretch back to the pre-Inca times, it does boast almost 200 years of operations. Ingemmet provides geological information, encourages investment, and oversees Peru’s mining concessions.

Peru’s abundant mineral wealth is no secret. The country is blessed with copper in the south, there is gold waiting to be uncovered in the north, and a variety of base metals are scattered across the landscape. Foreign companies looking to explore for minerals in Peru will become familiar with the Instituto Geológico Minero y Metalúrgico. Ingemmet is a state-run company with two main missions; first, to oversee mining concessions and Peru’s land registry; and second, to attract investment by conducting and distributing research to aid mining companies and the communities in which they work. Ingemmet’s predecessor, the Junta General de Ingenieros, dates back to 1852. Today the body is headquartered in Lima and employs about 400 people.

“We’ve had conversations with Canadians, Australians, Chinese, and many more international investors to encourage mutual cooperation and to exchange experiences.”

Susana Vilca President Ingemmet

President of Ingemmet, explains: “We’ve had conversations with Canadians, Australians, Chinese, and many more international investors to encourage mutual cooperation and to exchange experience; the goal is to increase the capacities of our staff. We are very ahead in geological research, thus we exchange information with other countries.”

Social issues, such as those surrounding Shougang’s Maracona project, could prove to be the largest

impediment to the development of the Peruvian mining sector. Nevertheless, Susana Vilca believes that the trajectory of investment is only going to grow further in the next five years as Australian, Canadian, and Chinese investment increases. Ingemmet plans to be there at every step by further improving its research to keep both Peruvians and foreigners informed on the realities and progress. On development in Peru, Susana Vilca adds, “We need to reach a point of cooperation between the state, the community, and the investors. This will come about by engaging in a technical dialogue, not an ideological or a political dialogue.” As a central pillar of the Peruvian economy, mining will continue to create employment, empower locals, and spread wealth across the country. Bullish analysts claim the trend will only continue.

Thanks largely to Ingemmet’s efforts, Peru has proved its mineral potential and reliability to foreign investors.

Ingemmet has been instrumental in transforming Peru into a leading producer of natural resources. Through its expertise, it has been largely successful in attracting foreign investment. Foreigners now look to Ingemmet for guidance. Susana Vilca, Mining Leaders

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q&a

trading Daniel Sullivan Trade Commisioner Austrade

experience

The establishment of the Australian Embassy in Lima in 2010 provided extra confidence to investors coming from the country. This has coincided with a dramatic increase in the entrance of Australian juniors, METS providers, and larger players. The Australian Trade Commission’s role is to encourage and facilitate this investment, which brings capital, expertise, technology, and a focus on sustainable mining.

How does Austrade promote trade between Peru and Australia?

The establishment of the embassy here in 2010 was of huge importance to the commercial relationship. Previous to that there was strong interest in Peru, but the embassy has given new investors just that extra bit of comfort. The commercial arm of the embassy, Austrade, promotes Peru to Australian industry. Australians are more aware of Asia than of Latin America and our role is to bridge that information gap.

Has Australian investor interest in Peruvian mining increased?

In the last eighteen months, we have had over 15 new investors in Peru, of which 95% are related to the extraction of natural resources.

But I feel we have only scratched the surface. For example, we count about 25 Australian METS providers with an office in the country.

In comparison, there are about 70 Australian METS suppliers with an office in Chile, which they see as more familiar. Historically, Australians have seen Santiago as their first entry point to the region. When large investors like BHP Billiton first arrived in Chile, they brought their supply chain to the market. Now that they’re comfortable and established they are looking to growth markets like Peru, Brazil, and Colombia.

Have you seen more interest from junior mining companies?

Many of the new Australian investors in Peru recently have been juniors. Still, they are far fewer than the Canadian-based juniors.

There are over 200 Australian juniors operating in Africa, so we expect to see a lot more in this region in the next few years. Latin America attracts the most mining exploration funding in the world and the most mining investment for production generally, so there is no reason why we shouldn’t be as strong here as we are in Africa.

For the past 11 years the Australian government has supported a conference called Africa DownUnder. For the first time, in May 2012, there will be a Latin America DownUnder conference. All the major Latin American mining ministers have been invited and the Peruvian minister, Chilean minister, and the Colombian vice-minister, among others, have confirmed so far. Hopefully this will become an important vehicle in the relationship.

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Has the Integrated Latin American Market (MILA) attracted more investment one year after its launch?

One of the reasons that Latin America hasn’t caught on like Africa is that there is a lack of understanding of the risk profile. The Australian investment community isn’t valuing Latin American projects as highly as an African project. As a result, Australian juniors with Latin American projects have been listing on other exchanges, such as the TSX, to get better valuations. Classic examples of this phenomenon include juniors such as Minera IRL and RioAlto, which have Australian executives leading them but have bypassed the Australian stock exchange for the TSX or the Peruvian stock exchange. The MILA tie up makes listing on the Peruvian stock exchange even more compelling and we are increasingly promoting the Peruvian stock exchange as an option to raise capital.

Can the Australian METS model be applied to Peru?

We worked with Chile in building its METS cluster. There is now, for example, a center for Mining Excellence in Chile, which is managed by our Commonwealth Research organisation, CSIRO. It is important for Peru’s economic development that they benefit from this current mining boom and benefit from the technology transfer. The ongoing competitiveness of our METS sector is based on the estimated $4 billion annual expenditure (public and private) and links with industry, academia, and government. This means that the intellectual property is spun out into new METS companies who are on the cutting edge of the industry.

Around $50 billion is expected to be invested in the coming years. How much of that will come from Australian investors?

It is very difficult to accurately calculate foreign direct investment figures these days but a significant part of the $50 billion includes Australian investors, and there are many more at less advanced stages not included in this figure. In addition to the BHP Billiton and Xstrata Coppers of this world, there are lesser known Australian companies out there, such as Latin Resources, Metminco, and Strike Resources, that have multi-billion dollar projects they are pushing forward.

company focus

Canada Peru Chamber of Commerce HQ: Lima 160 members

Canada-Peru Chamber

Peru shares more bilateral agreements with Canada than with any other country in the world. The pièce de résistance is the 2009 Free Trade deal. The double tax convention and the investment protection agreement have significantly aided the booming trade between the two countries. Besides helping countries navigate these agreements, the Chamber organizes events for members to discuss their investments in Peru. “Our aim is to promote the country, which is why our events are open to non-members,” says the former president of the Chamber, Luis Carlos Rodrigo Prado, “We have a mining and exploration committee, where not only Canadian companies gather, but also Australian, British, and American ones.”

Visitors at PDAC 2012 saw members of Peru’s delegation sporting red alpaca wool chalinas around their necks. The Chamber devoted a lot of effort to make sure visitors understood that “Peru is a

“Our aim is to offer a forum for companies to discuss their own specific concerns and share their views on the Peruvian mining sector.”

Luis Carlos Rodrigo Prado Ex-President Canada-Peru Chamber of Commerce

mining country….and much more.” The Chamber ensured that 220 Peruvians were registered, and set up a large booth, where visitors could learn more about Peru. Fitting with the slogan, the Chamber had a series of speakers, a reception, and a lunch prepared by chef Christian Bravo.

The mining community is familiar with the Chamber’s accomplishments.

Drawing on Canadian experience, the Chamber has ensured that technical

and legal advice arrived in Peru. Bankers used a model of the TSX.V to create the junior venture segment on the Lima Stock Exchange. “It is a technical collaboration; Canadians help on issues like mine closure and finance. The flow of knowledge has developed faster than expected,” explains Rodrigo. Having witnessed the evolution of the Chamber, Rodrigo believes that business is only beginning: “this bilateral network is already established. There are a lot of opportunities, not only in mining but in agriculture, metal mechanics, or textiles for example. I think the number can double again in the next five years.” Aside from direct trade, the Chamber is aiming to showcase opportunities for Canadian investors researching Peru. Peru has, for the most part, been stable over the last 20 years, attracting a lot of foreign capital.

The Chamber plans on maintaining a presence there and facilitating bilateral trade, but also attending international events in the future to promote the country from 360 degrees.

VALUE OF CANADIAN MINERAL TRADE BY COUNTRY, 2009 Country United States EU-27 China Japan Mexico Peru South Korea Norway Brazil India Chile Taiwan Australia Total Canada

Total Imports 30 305 780 4 662 912 5 025 196 979 956 2 059 995 2 438 537 571 482 90 154 1 024 027 437 267 943 895 669 441 10 032 048 59 240 690

Total Exports 36 615 452 12 862 149 3 913 254 2 910 054 599 335 18 863 1 884 972 1 473 526 500 051 827 500 165 221 423 280 4 814 043 67 007 700

Total 66 921 233 17 525 061 8 938 450 3 890 010 2 659 329 2 457 400 2 456 454 1 563 681 1 524 078 1 264 768 1 109 116 1 092 721 998 087 121 589 153

Balance of Trade 6 309 672 8 199 237 -1 111 942 1 930 098 -1 460 660 -2 419 674 1 313 490 1 383 372 -523 976 390 233 -778 674 -246 161 -5 218 005 7 767 010

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Sources: Natural Resources Canada; Statistics Canada

Canada and Peru have shared a diplomatic and economic relationship for many years; it is now stronger than ever thanks to the mining industry. In the last four years, trade has doubled to $5 billion, making Peru Canada’s largest trading partner in Latin America. One of the proponents supporting this growth has been the Canada Peru Chamber of Commerce. Miners, including Xstrata and Rio Tinto, make up the largest percentage of members.

q&a

Engineering

Rómulo Mucho Mamani President Institute of Peruvian Mining Engineers

a future

Recently elected as president of the Institute of Peruvian Mining Engineers (IIMP) Rómulo Mucho Mamani plans to relaunch the IIMP in order to provide greater support to the industry offering advice as well as technical support for companies and training for graduates. Mamani believes that more trust has to be created in order for the industry to prosper.

What is your vision for the organization?

We want to relaunch the IIMP as an organization to promote Peruvian mining. Social conflict means the industry is entering a complicated time. It is important to address the fact that few people understand how important mining is to the growth of the country. A second mission of the IIMP is not just to be business advisor but a technical advisor too. We want to aid in mine planning—understanding the pros and cons of a plan with the ultimate aim of reducing the impact a project could have. We have several agreements with various ministries, businesses, and NGOs, to help us accomplish this goal. In the future, we plan to offer courses on a variety of subjects like water treatment, mining technology, and really anything to do with the mining industry. The IIMP is a very credible organization thanks to the work of former directors and leaders. One area where we plan to dedicate a lot of effort is in scholarships for university students to study abroad in Australia and Canada. By sending more students abroad, we can move Peru into the big leagues.

What brought you into the IIMP? I’m a mining engineer with over 23 years of experience in underground mine operations. In 1999, I started my own business [Pevoex] and then entered politics. Since that time, I served as a congressman, as the president of the Institute of Geology and Metallurgy and finally as the Vice-Minister of Mines. In that time, I had to work a lot with social conflicts. In August of 2006, I left that position to dedicate myself to my business, to teaching at the University of San Marcos, and to consulting. After being a director for two years, I ran for president of the IIMP and won. It is very important to understand both the public and private perspectives.

What plans are in place to bring Peru’s technology to the same level as other major mining jurisdictions?

We need more knowledge and technology and every company is trying to send its workers for postgraduate studies abroad. In Peru, we have very good postgraduate studies in business administration and finance but we are behind in the sciences. Chile has lots of exchanges with professors from around the world and the results there are clear.

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What role does the government play in improving education relating to mining skills?

Right now no case for funding for teaching exchanges has been made despite the obvious demand and benefits for exchanges.

In Chile there is a fund that sends 7,000 students a year abroad to study sciences, technology, and engineering. This compares to about 100 Peruvian students every year, doing it out of their own pocket. The government should be doing more to promote exchanges of both students and faculty.

How does the IIMP spread information and encourage education in mining?

We distribute information through newsletters and magazines.

We also actively promote ourselves through mining courses at universities. Of course we are best known for our events like PeruMin. Right now our priority is to build up a fund for scholarships and create incentives for more research.

Knowledge is the greatest of riches; if Peruvians get more education, this place will change dramatically.

Should royalties be higher?

I think it is open for discussion. You have to think about the infrastructure and jobs created from a project—the overall benefits. It is debatable and freedom of information is important.

Royalties are tricky to fix because the prices of metals are constantly changing over the life of the mine. For example, prices could be sky high and the miner could decide on equally high royalties, but by production time the price could fall dramatically and leave the miner in an economically unviable position.

What is the most important factor for the future success of the mining sector?

Credibility and trust in Peru. No one trusts anyone in Peru, not the government, the miners, no one. Trust is the key word, and that’s what we need to recover. But how can this be achieved? It is simple—by telling the truth. My message is to stay confident in Peru.

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copper

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lead article

seeing

red C

opper is central to the Peruvian economy, regularly accounting for a quarter of all exports. In 2011 production totaled 1.23Mt, equivalent to 8% of the world’s total. The country remains the second largest producer of the red metal, after Chile which produces a third of global supply. However, recent years of bullish copper prices have disguised the fact that Peruvian copper production has remained relatively flat since 2008. Following years of strong growth in 2004 and 2007, copper production peaked at 1.28Mt in 2009. Nevertheless the sector could be on the cusp of the most exciting period in its history, with the Ministry of Energy and Mines forecasting a 75% increase in copper production between 2012 and 2015 that would see the country reach 2.15Mt. Some industry insiders believe that even more is to come. “By 2020, we will be competing with Chile to be the largest copper producer in the world,� says Miguel Cardozo, President and CEO of Alturas Minerals.

Peru shares similar geology to its southern neighbor, sitting alongside the same Atacama trench, 8000 meters below the surface of the Pacific Ocean, that has given rise to the enormous copper porphyry deposits in each country. According to figures from the US Geological Survey, Mining Leaders

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lead article

The Southern Peru Copper Belt, in the Arequipa region, is the focus of new exploration plays

Peru has 90Mt of copper reserves, the second highest in the world but still some way behind Chile’s 190Mt. But while Chile’s production is dominated by state-owned Codelco, Peru has a host of private companies vying to boost production from existing mines and bring new projects on-stream. In recent years Sociedad Minera Austria Duvaz has increased its copper production by 60% and Buenaventura by 30%.

Being behind Chile in terms of production is not a bad thing; marginal returns are higher in Peru and opportunities abound.

Mining veterans are prone to saying that Peru is much like Chile was 20 years ago.

Geologists with experience in Chile are now tacking to the north, where costs are lower and the wilderness less explored.

Patrick Burns, CEO of Condor Resources, is one such miner. Having played a central role in the discovery of Escondida in northern Chile, the world’s largest copper mine, Burns has turned his sights to Peru and has picked up a number of copper plays across the country. Even today Burns insists that it is still possible to “walk in the hills and stumble upon a discovery.”

Explorers are blessed with a number of known copper belts running across the country. The most productive region is Ancash, the department where almost a third of the nation’s copper was extracted in 2011. The Antamina mine—a four way venture between BHP Billiton, Xstrata,

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Teck, and Mitsubishi—produced a massive 347,100 tons of copper in 2011.

Behind Ancash is the Arequipa region where 304,400 tons were produced, largely thanks to the Cerro Verde mine owned by Freeport McMoRan. Tacna, the southernmost department of Peru, came in third place with 152,200 tons, mostly produced at Southern Copper Corporation’s Toquepala and Cuajone mines. These three departments alone account for more than 75% of all of Peru’s copper production in 2011.

28.65%

OF PERUVIAN COPPER IS EXTRACTED FROM the ANCASH department But exploration is taking place along the lesser known areas of the country.

In the north, the Cordillera del Condor region has explorers drilling for copper and gold near the border with Ecuador.

Meanwhile, in the south, exploration is occurring along both the Apurimac Belt, lying northwest from the Chilean border in a direct line towards Lima, and the parallel Southern Peru Copper Belt. The Apurimac belt, spanning the Cuzco and Apurimac departments, is regarded by

Photo: Darwin Resources

many as the up-and-coming area for Peruvian copper. In 2011, the belt’s total production of 95,300 tons originated almost exclusively from Xstrata’s Tintaya mine. However, Tintaya is in decline.

The final year of production at Tintaya will be 2012, with mine closure to begin following a decrease in production of about 53% to 11,500 tons compared to the year before, largely due to rainfall.

However, analysts estimate that copper production in the Apurimac belt will rise from the current level to upwards of 800,000t/y in five years. Xstrata has been working on its Antapaccay project, adjacent to Tintaya, where production is expected to begin towards the end of 2012 at an initial rate of 160,000t/ year. Xstrata has long seen the potential of the Apurimac belt and has been in the process of building Las Bambas, a large scale copper mine slated to begin production of around 400,000t/year in the second quarter of 2014. Besides Xstrata’s operations, other companies are trying to tap the riches of this geological trend.

Southern Copper Corporation’s Los Chancas property is entering feasibility in 2012, while a handful of other mines move ever closer towards production.

The new developments are driving important infrastructure projects across the country. In June 2012 the country had only one operating copper smelter, Southern Copper’s Ilo smelter,

lead article

90

million tons

Peru’s estimated copper reserves With 13 copper and gold properties in the south of the country, Panoro Minerals has been one of the star performers of the Lima Stock Exchange in 2012

Unsurprisingly, given the scale of Peru´s copper projects, these mines have been among the most affected by the recent upsurge in anti-mining protests. Two salient examples are the cancelation of Southern Copper Corporation’s Tía María project and the seemingly endless delay at Newmont’s Minas Conga project. Once again, defenders of the

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projects often cite comparisons with Chile. The Southern Cone country has the highest GDP per capita of any Latin American country, the leading score in a host of human development indices, and became the first nation in the region to join the OECD in 2010. Look at what a country founded on a mining economy can achieve, supporters may argue.

But in this case the comparison is unhelpful. For a start, Peru’s population of around 30 million is nearly double that of Chile. Secondly, Chile’s copper industry was developed in the middle of the twentieth century and its major mines were often in remote, uninhabited parts of the country. Peru, in contrast, has a significant rural population, with

World Copper Demand and average copper grades

Source: AQM Copper

located in the south of the country. In 2007 the company completed a $520 million upgrade of the 1.2Mt/year capacity plant. The country’s main polymetallic smelter, La Oroya, was shut down in 2009 for environmental reasons, although its owner, Doe Run, is undertaking a restructuring process in order to restart operations at the site. High Asian demand for copper concentrates has meant that the shortage of smelting capacity has had little effect on the economics of local mines, but in recent years the prospect of adding a new smelter to service growing production in the north of the country has been raised. Such a move would provide jobs and added value to Peruvian industry as well as offering more options to local producers.

However, this undertaking would likely involve a state subsidy and as yet no formal plans have been put in place.

Until such plans exist, companies will continue to focus on developing rail, road, and pipeline links to the coast for copper concentrates.

many indigenous communities having inhabited the highland regions for centuries. Companies will need to look to innovative solutions to ensure the support of local communities. Anthony Hodge, President of the International Council for Mining and Metals, told Mining Leaders, “Mining operates on the periphery, in extreme terrain and weather, amongst indigenous communities, and with some of the largest financial risk of any sector. This placement demands innovation that only some CEOs are able to embrace.”

In recent years the financial sector has come to pay increasing attention to the social acceptance of mining companies in the areas in which they operate. The rapid rise in anti-mining protests in Peru will only intensify that process and companies looking to enter the country would do well to develop their community relations strategy at the very outset of their activities.

leader insight Dr. Miguel Cardozo CEO & President Alturas Minerals

Alturas Minerals is a junior exploration company focused on copper, gold, and silver in Peru and Chile. It's CEO and President, Dr. Miguel Cardozo, has over 39 years of mining experience in South America and led the team who discovered Yanacocha, one of the world’s biggest gold mines. In 2004, Cardozo, Andre Gauthier, and Augusto Baertl convinced the Lima Stock Exchange to open the high risk segment in order to host exploration mining companies in need of financing. Cardozo affirms that one of the priorities of his company is the promotion of Peru as a mining jurisdiction.

explore for more scientific exercise, it is also a business and we have to treat it as such. I don’t agree with the market pushing junior companies all the way to feasibility studies. Exploration is the speciality of juniors. It was that thinking that led me to form Alturas Minerals in 2004. Our focus is on exploration and discovery. Being a Peruvian company, we know the geology of the Peru started with a gold boom, but now we are entering a copper boom. In country better than anyone. Once we the next three years, we are due to increase production from 1.2Mt to over have a resource, we sell it, normally 4Mt of fine copper. By 2020, we could keeping a percentage. This is a great “Peru started with a gold boom, but be competing with Chile for the title way of saving investors from dilution, of the largest copper producer in as well as maintaining a cash flow to now we are entering a copper boom. the world. The only issues which are advance other exploration projects.

In the next three years, we are due to likely to stall the progression of Peru’s For example, we signed an agreement increase production from 1.2Mt to mining industry are social conflicts and with Buenaventura on a gold project over 4.0Mt of fine copper. By 2020, bureaucracy surrounding environmental called Ccaccapaqui in early 2012. We we could be competing with Chile assessment. Much exploration has been also transferred Pampa Colorada, for the title of the largest copper delayed due to unnecessary paperwork. a copper gold iron project, to the producer in the world.”

Chinese firm Origin Minerals, who I am in complete agreement with the have a ten year timeframe in which monitoring of mining, but the current to exploit iron ore on site. Our flagship project is Utupara-Chapi system is not functioning as it should— Chapi, which is the combination of two projects. Alturas gets 80% of the especially at the exploration stage, when whole block and Minera IRL retains 20%. there is very little contamination anyway.

Someone who starts exploration without Alturas listed on the TSX-V in 2006, and raised money for two consecutive consulting the community first couldn’t years, but then, like everyone, was hit by the global financial crisis. From work in his concessions.

2004 to 2010, we advanced our projects to the drilling stage, but we lacked proper financial resources. The crisis taught us a huge lesson. We were Peru has had a mining culture since focused on the European Union, Toronto, and the United States for finance, pre-Inca times. We not only export but during the crisis, we realized the value of the Lima Stock Exchange—the metals, we export mining skills too— people know us, they know our professional careers, and most importantly, in the form of geologists, engineers, they know our different projects. Build trust and finance follows. We raised and technicians. But if Peru wants to $6.2 million between late 2010 and early 2011. That’s why one of Alturas’s remain dynamic we have to increase biggest aims is to promote the country. exploration. Exploration is not only a I was the leader of the team that discovered Yanacocha back in 1985. Newmont had previously conducted exploration but the results were negative. Being the senior geologist, I was sent to make a final independent evaluation and we returned with spectacular results. That was the start of the exploration boom in Peru. Newmont was the only major company exploring at that time, but today nearly every major mining company has operations here. In the 1980s and early 1990s, Peru was extremely unstable, but in 1992; with this big discovery, together with an increase in metal prices and a new economic policy in the country, Peru was suddenly the hot place to be.

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feature interview

red bull The year 2012 has been an exciting one for Panoro Minerals. The copper explorer’s stock has soared following waves of good news, and its flagship project, Cotabambas, already has a compliant resource of 90Mt of ore with copper/gold mineralization.

The exploration underway could double the resource. The company has a diverse portfolio of 14 projects in the Andahuaylas Yauri copper-gold belt in Apurimac.

“I didn’t choose Peru, Peru chose me,” says Luquman Shaheen, President and CEO of Panoro Minerals. The Pakistaniborn Canadian national was working as an engineering consultant in Canada when he was transferred to lead a new office in Lima. Since then he has learned Spanish, married, and has become a recognized expert on the Latin American mining sector. As head of one of the country's most successful juniors, he is bringing that experience to bear.

By June 2012 Panoro had posted an 82% year-to-date return for its shareholders.

Through its portfolio of 14 properties, acquired from Chile’s Antofagasta and Brazil’s Vale in 2007 for $13 million in cash and 6 million Panoro shares, the firm has become a force in the AndahuaylasYauri belt. Driving the stock’s strong performance have been the superb results from its flagship Cotabambas

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property. “What is driving confidence on the part of investors are the drilling results—ensuring that we’ll be able to

“Our business is to find copper. We see a growing base of intermediate sized producers who are aiming at becoming larger producers. That’s a new opportunity for exploration companies like us to do business with those intermediate sized producers.” achieve the objectives that we’ve set,” says Shaheen. “Our goal is to double the resource estimate.

Our geologists think the deposit has the potential to do so.” By June 2012 only a few meters of the planned 24,400 meter program remained to be drilled. By the end of the month Shaheen hopes to add a

resource of 3Blbs of copper and 2Moz of gold to Panoro’s books. This sum would bring Panoro’s total copper equivalent resource to 6Blbs.

But a doubling of the resource at Cotabambas is just the next step for a company with a portfolio of projects waiting to be unlocked. “Once the current program is finished, we hope to have identified where the next quantum growth will come from. There is more to drill. Our geophysics and mapping have revealed more interesting targets.” The majority of drilling at Cotabambas has focused on the Ccalla copper deposit. In April, Panoro announced 114.1 meters with a grading of 1.70% copper, 1.2g/t gold and 8g/t silver in one of its drill holes in Ccalla. The Ccalla deposit lies at the center of the property and is surrounded by a pyrite halo creating potential for lateral expansion. A planned 30,000 meter extended drilling program would explore the adjacent Azulccacca and Cochapata zones. This could boost the resource to over 200Mt. The decision to continue exploration drilling or to proceed to feasibility studies will be made in Q3 2012.

Luquman shaheen

$34

million Besides the Cotabambas and its other advanced stage property, Antilla, which is likely to move into feasibility within the next year, 12 other properties remain to be developed. Next in line is the Kusiorcco property; a site with potential for high grade copper, where 2,000 meters of drilling is planned. Then there is Cochasayhuas, an epithermal project focused on the San Fernando gold vein; and the Promesa copper project. Panoro is fully funded for its exploration, and financially strong. In early 2012, a handful of major investment banks began coverage of Panoro, bringing the firm closer to research teams and investors around the world. March 2012 saw the company secure $13.8 million in financing through a private placement, which brought the company’s total working capital to over $34 million.

Meanwhile the company’s possible exit options for the Cotabambas property look promising. The Andahuaylas-Yauri belt is located about 900 kilometers south-east of Lima in the region of Apurimac, and besides copper, it is endowed with gold and molybdenum. Home to major projects owned by the likes of Xstrata and Southern Copper, the region has also been a hive of activity for medium sized companies. In the last couple of years, a consolidation of the area has taken place, with juniors cashing in as a result. In October 2010, First Quantum Minerals acquired Antares Minerals for its Haquira project and later in March 2011, HudBay Minerals purchased Norsemont’s Constancia site. HudBay has, however, indicated that Panoro’s projects fit within its “strategic plan” and has become a major shareholder.

The evolution of the copper industry also creates opportunity for Panoro. In the last couple of years, many medium sized producing firms have emerged in Peru which could eventually look to acquire the Cotabambas project. “Our business is to find copper, and we think it is very strong,”

panoro's working capital june 2012

Panora has a 30,000m drill program at the Azulccacca and Cochapata zones

says Shaheen. “We do see a growing base of intermediate sized producers who are aiming at becoming larger producers.

That’s a new opportunity for exploration companies like us to do business with those intermediate sized producers.”

For Mr. Shaheen, Peru’s headwinds are external. In spite of the social problems, he remains confident and enthusiastic about growth. The uncertainty surrounding the election of President Humala has dissipated, and many have been surprised at how mining friendly the administration has become. The main external uncertainty now revolves around the Eurozone and its effect on economic growth and investment appetite. The price of copper has fallen from its peak of about $4.50/lb to $3.39/lb in June 2012. Mr. Shaheen is not worried.

“We’re still at or near record copper prices.

That’s the perspective on copper that has to be maintained. Whether copper is $2.75/ lb or $4.00/lb, these are great prices. The average cash cost for producing copper is $1.00; so a drop in copper prices is relative.”

This remains a short term issue for Mr. Shaheen. He has already set his sights on India, and the massive demand for copper that it will generate further down the line.

Mr. Shaheen believes that community relations are the biggest challenge. Having signed seven community agreements, he knows that they can be obtained and be mutually beneficial. He brings a unique perspective to the discussion by citing parallel issues occurring in British Columbia around the oil and gas pipelines..

For him, “the issue is not the cost of providing benefits that are asked for, the issue is time, how long it takes to get the agreements.” Delay has been especially evident this year following the headlines at Minas Conga and Tía María. Yet Panoro has a full project pipeline. The company has seized opportunities in the past, developing a strong position in the Peruvian market and a following among brokers around the world. There will be more opportunities in the future that complement the current projects in the pipeline.

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COMPANY FOCUS

Darwin Resources (TSX-V: DAR) 7 properties – 27,200ha Alto Quemado: Rock chip samples taken at the veins have averaged: 19.9g/t Au between 0.01-709 g/t Au and 2.0% Cu with ranges between 0.01 to 32.5% Cu

Darwin Resources In late April, Darwin Resources was spun out of Mawson Resources as a new company operating in Peru. To better focus on its flagship property in Finland, Mawson handed over its seven Peruvian properties into the hands of Darwin Resources’ experienced management team led by Graham Carman, the company’s CEO and President. The seven properties are all located in high potential gold and copper areas across Peru. Darwin’s new exploration team is made up of experienced geologists with a successful track record of discoveries in Peru. Work on Darwin’s two main properties, Alto Quemado and Rurimarac, is going very smoothly and advancing rapidly; the management expects drilling to begin in Q3 of 2012 with, hopefully, a large discovery of copper or gold.

Darwin’s flagship project is Alto Quemado, a 3,800ha property located in the Caylloma Province in Peru’s Southern Copper Belt, only 15 kilometers from AQM’s Zafranal mine. Alto Quemado has two copper targets; the first target is the Santa Maria porphyry deposit and adjacent to that are gold veins with extremely high mineralization. Carman is highly optimistic from what he has seen at the site so far: “There’s an outcropping with all the indications of mineralized porphyry, with all the things that geologists like to see, like copper bleeding out of the hill. If you go down to the

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“Our strength is in experienced people.

We’re well placed now with money in the bank and we’re looking for opportunities in advancing Alto Quemado and Rurimarac as fast as possible. That’s essentially the strategy.”

Graham Carman President & CEO Darwin Resources

creek, you see copper all over. It’s quite an exciting property.” Negotiations are pending with the Arequipa government but so far all signs point to the 2000 meter drilling program being underway

by August 2012. After Alto Quemado, Darwin’s next property is Rurimarc, a highly prospective gold site. Though less work has been done here to date, Darwin is aggressively working to make sure that “we could even be drilling at Rurimarac before Alto Quemado, by the same time.”

Financing the exploration, like most junior explorers, is a listing on the TSX.V; however, more interesting is that 50% of the company is owned by insiders and prominent institutional shareholders. The Sentient Group and Pinetree Capital hold together about 35% of the company with insiders holding about 10% more of the shares. These firms held a lot of shares before the spinoff but subsequently increased their holdings when given the opportunity afterwards.

The company 100% owns six other properties throughout Peru and, having sufficient working capital, it aims to continue evaluating them and moving them towards drilling. The properties have significant potential, but nonetheless the management has its eyes set on opportunities outside Peru and is scouting new projects across the continent. Mr. Carman adds, “We’re well supported, well funded, and there are some exciting opportunities ahead. Watch out!”

Capital structure (may 2012)

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