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Peru: A Leader in Mining

Exploration?Geological potential and other

factors

Miguel Cardozo ProExplo 2009

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Exploration investment per km 2 in the world ten top investment destinations

Worldwide Exploration Investment - 2008 = $12,600 (US$ million)

Country Investment Country Area % of Worldwide 2008 Investment Investment/km 2 RankingRanking millions of km2 Investment (US$ millions) (US$) US$/km2

Canada 1 7.7 19% 2,394 311 5 Australia 2 9.1 14% 1,764 194 6United States 3 9.2 7% 882 96 7Mexico 4 1.9 6% 756 398 3

Peru 5 1.3 5% 630 485 2Russia 6 17.0 5% 630 37 10Chile 7 0.8 4% 504 630 1Brazil 8 8.5 3% 378 44 8South Africa 9 1.2 3% 378 315 4China 10 9.3 3% 378 41 9

Fuentes:Areas territoriales: http://www.cia.gov/cia/publications/factbook/index.htmlInversin en Exploracin "World Exploration Trends", Special Report from the Metals Economics Group for the PDAC

2009 Internacional ConventionUranium excluded

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Gold

0

2

4

6

8

10

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

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P e r c e n t a g e

Production

Reserve Base

Calculated from USGS published figuresReserve base: Measured + Indicated resources

Copper

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2

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1 9 9 4

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P e r c e n

t a g e

Production

Reserve Base

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Peruvian Gold Production by Deposit Types

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1

2

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5

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7

8

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

M o z

Alluvial Gold Other IOCGSkarn Porphyry Mesothermal veinsLS Epithermal HS Epithermal

6.7 6.5

4.1

5.5

Actual Forecast

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Peruvian Copper Production by Deposit Types2001 - 2020

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500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

C o p p e r (

T M F )

Paleocene Copper-Moly Porphyry Belt Miocene Cu-Au Porphyry-Skarn BeltCentral Peru Polymetallic Replacement & Skarn Belt Eocene-Oligocene Copper Porph yry & Skarn BeltSouthern Coast IOCG & VMS Other

Actual Forecast

1.2Mt

3.5Mt
http://localhost/var/www/apps/conversion/tmp/scratch_6/ProExplo_2009_M_Cardozo_2.ppthttp://localhost/var/www/apps/conversion/tmp/scratch_6/ProExplo_2009_M_Cardozo_2.ppt

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Mining and Investment

Several Latin American economies depend andwill continue depending on mining

Development of the mining sector entirelydepends on private investment

An increasing number of new regions andcountries in the world are now opened tomining investment.

Mining companies have numerous investment

options but limited budgets Attracting mining investment becomes

essential, but mining has to contribute to localeconomic and social development

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Attracting Investment

Key factors to attract investment are determined byinvestors

Only some of these factors can be controlled or influenced by governments

Optimizing mining contribution to local sustainabledevelopment and at the same time maintaining countrycompetitiveness is a real challenge

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Exploration Investment

Geological potential Profitability of potential operations Tenure and permits reliability

Profit expatriation Consistency of mining policy Realistic currency exchange

control

Stable exploration rules Reliable environmental rules Reliable tax regulations Stability of tax regime

10 top decision factors

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Geological potential

Reliable tenure and exploration rules Attractive and stable financial and tax regimes Predictable mining and environmental policies

Exploration Investment

What do exploration companies need?

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Mining in Latin America

Unexplored terrains in general Current regional predominance of gold exploration Four Latin American countries in the 10 top investment destinations in

2008:

Mexico, Peru, Chile, Brazil After Canada, Australia and the USA

Variable quality of available geological information (significant room for improvement)

Lack of comprehensive public geological databases (local or regional)

No legislation to enforce public availability of geological informationgenerated by mining exploration companies

Private investment in the acquisition of geological information isequivalent to hundreds of times the annual budgets of the localgeological surveys

Geological Potential

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Geological information from the oil industry is available inseveral countries, but it has had very limited use in miningexploration

Geological surveys require far more support; some are in acritical situation

Geological education and research need urgent financialsupport and quality upgrade

Adopting of standard, regulated reporting rules for resource-reserve estimates and exploration results, and thecreation of a register for Qualified Persons is key for obtaining financing of exploration

Geological Potential

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Historically complex systems; frequently subject tocorruption practices

Peru showed the way in 1992 creating a simple,transparent, high-tech, efficient system. Somecountries are following the example

Still expensive tenure payments for early stageprojects

Turn around of exploration ground still far from ideal Staggered tenure fees to incentive prospecting and

early stage exploration are usual regulatory options

Tenure and exploration rules

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Stable and predictable regimes needed Frequent public discussions on tax related issues by

politicians generate negative impact on investors Mining has to contribute to the sustainable development

of the society as a whole, and companies require areasonable return on their investment: win-win situation

Tax reforms should not: consider individual taxes in isolation without evaluating their impact on the

competitiveness of the mining sector

reduce country competitiveness, make mineral deposits economically marginal reduce minable reserves by increasing cut-off grade of existing mines

Financial and tax regimes

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Tax incentives to high-risk exploration activities would helpto accelerate discoveries, like in Canada

The creation of a junior segments in the Peruvian Stockexchanges could be an important financing source for exploration juniors, considering the decline of theexploration budgets by most international companies. The

Lima Stock Exchange has given the example.

Financial and tax regimes

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Stable and predictable permitting rules, using internationalstandards are required

Environmental evaluation of projects must be technicallydriven, avoiding political interferences Social and community issues are not necessarily related to

environmental problems

Strong governmental support must be given to viableprojects, even against local political interests

Educational programs of the population must be a priority for

governments and companies Auto-regulation as a mechanism to ensure clean and safe

operations must be adopted by the industry. This will: reduce work load on the authorities that have to supervise mining operations improve the industry image and the public trust on mining companies in respect

to their management of safety and environmental issues

Mining and environmental policies

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Corporate developments Exploration budgets had considerably increased in recent

years, but the current economic and financial crisis hassignificantly reduced investment in projects. The consolidation of the mining industry will continue

negatively affecting exploration budgets. In the long term, metal prices will continue their cyclic

variation, affecting investment returns, accelerating or delaying the development of new projects and impacting onthe exploration investment

Other factor controlling mining

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Technological developments Improved mining methods and more intensive use of heavy

equipment in underground operations.

Biotechnological developments will allow for the treatment of low-grade copper sulfides.

Efficiency- and cost-conscious management will be reinforcedin new public companies as a result of corporate changes

High-tech exploration technologies will be more intensivelyused, while exploration maturity of the different terrainsincreases

Other factor controlling mining

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Summing up

Mining development in Latin America will continue as aneconomic need, but it will increasingly require socialacceptance, which will depend on: Mining contributing to sustainable development through clean and

safe operations and social commitment of the operating companies Sustained education efforts by governments and companies to get

people to understand the benefits of a modern mining industry thatsupports and promotes other long-term economic activities

Attracting mining investment by maintaining stable rulesand eliminating country-risk factors is an obligation of governments and local politicians

Strong support of governments to the mining industry willbe needed for a trouble-less development of viable andsustainable mining projects

Auto-regulation as a mechanism to ensure clean and

safe operations must be adopted by the industry.

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Summing up Tax incentives to exploration investment will help to increase

the discovery rate and improve the resource base requiredfor expanding the mining industry

Tenure and exploration regulations should provide low-costaccess to prospecting and early stage exploration ground,

and guarantee rapid turn around of exploration claims Financing of local and international exploration juniorsshould be organized and promoted through local stockexchanges

Standard reporting practices should be enforced, and QPstrained and registered

Geological surveys will need much stronger financial andscientific support to deliver quality geological information thatallows for the identification of new and less obvious

exploration targets

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Summing up

Public geological databases should be created to hostand distribute quality information from different sources,including exploration companies

Delivery of exploration information from privatecompanies to public files must be enforced by law Geoscientific education and research must be reinforced

through generous financing and international technicalcooperation

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PERU: A MINING COUNTRY

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