"Peru: Investment Opportunities in Mining and Energy"

Jorge Merino Tafur Ministry of Energy and Mines of Peru May 2013 Australia

Why invest in Peru?

2

The Peruvian government continues to facilitate the establishment and operation of businesses

SOURCE: Doing Business 2013

Peru ranks second in the region in the improvement of business regulations …

… and by 2050, it will be one of the fastest growing economies in the world

Fastest growing economies

Ranking Country

1 China

2 India

3 Philippines

4 Egypt

5 Malaysia

6 Peru

3

Peru offers a favorable legal framework to attract foreign investment

… supported by legal stability agreements Key economic policy guidelines … ▪ Non-discriminatory treatment: Foreign

investors receive the same treatment as local investors

▪ Free transfer of capital ▪ Free competition ▪ Guarantee for private property ▪ Freedom to purchase stocks from locals ▪ Freedom to access internal and external credit ▪ Freedom to pay royalties ▪ Network of investments agreements and

member of ICSID1 and MIGA2

▪ Participation in the Investment Committee of the Organization for Economic Cooperation and Development (OECD) – it promotes the implementation of the guidelines for multinational enterprises

Investors ▪ Stability of the regulations regarding non-

discriminatory treatment ▪ Stability of the income tax regime applicable

to dividends ▪ Stability to use freely the most favorable

exchange rate available in the market ▪ Stability of the free availability and remittance

of foreign currency, dividends and royalties regime

Receiving companies ▪ Stability of the recruitment regimes ▪ Stability of the regimes for the promotion

of exports ▪ Stability of the income tax regime

1 ICSID: “International Centre for Settlement of Investment Disputes” 2 MIGA: "Multinational Investment Guarantee Agency”

Overview of mining in Peru

5

The mining sector has been the fastest growing sector and is one of the top GDP contributors

SOURCE: Central Bank of Peru; INEI; IHS; Economy Ministry

1 Cumulative Annual Growth Rate 2 INEI 2007 input matrix (not published yet so no official trend data is available for it) shows that the mining share in the economy is 14,4% 3 Includes refining of non-ferrous metals 4 Estimated, 2012 official data in nominal prices has not yet been published

7%

2009

130

48%

13%

13%

10% 9% 7%

20072

107

47%

14%

13% 12%

9% 6%

2005

79

51%

14% 13%

10% 8% 5%

2003

72

60% 12%

11% 6% 7% 5%

2001

63

61% 12%

12% 5% 7% 4%

20124

7%

9%

12%

14%

13%

2011

181

46%

13%

13%

12%

9%

45%

197

GDP/capita Thousand USD

2.9 6.1 4.5 3.8

11.8

12.7

13.8

16.2

7.8

CAGR1, %

10.9

2.6 2.4

GDP nominal prices

Billions USD

20.8

Construction

Transp & Com.

Mining3

Commerce

Manufacturing

Other sectors

6.64

6

▪ ~30% of economic growth is due to large investments and increasing mining production

▪ Additional growth means that the economy will generate $ 57 billion GDP more, or in per capita terms, the mining sector will make the average Peruvian 10% richer by 20161

▪ One million direct and indirect jobs are expected to be created

Looking forward, mining will continue to be the growth engine of the economy

Economic growth

6.9

4.7

2016

2.2

2015

6.8

4.6

2.4

4.4

2.2

2014 2013

6.3 6.8

4.8

1.5

Explained by other sectors

Explained by mining sector

24 32 32

Share that mining represents

35

1 $7.800 instead of $7.100

Percentage

SOURCE: Central Bank of Peru; IMF; INEI; Interviews with financial institutions

7

Current mining portfolio investment has reached its maximum historical values, and represents an increase from its current production share

+35% CAGR

12,226

2007

24,693

54,610

2012 2011

53,761

2010

41,951

2009

35,471

2008

Peruvian mining portfolio/ Worldwide mining investment

1.7 +118%

3.7

Peruvian mining revenue/ Worldwide mining revenues

Forecast mining portfolio invesment

Evolution ($ Millions)

International share

2011; Percentage

SOURCE: MEM; MEG; Global Mining CapEx Model

35% growth per year

8

Metal production from Peru

Copper (tmf x 1000) Gold (Oz x 1000) Silver (Oz x 1000)

Promotion of private investment

New mining projects and expansions

9

… which will significantly increase Peru’s mining production

SOURCE: MINEM

Mineral Production 2016

Silver Thousand fine ounces 109,919 130,059

Zinc Thousand TMF 1,3 1,6

Lead Thousand TMF 230 285

Gold Thousand fine ounces 5,343 6,347

Production 2011

Copper 1,240 2,768 Thousand TMF

Growth 2011-16

18%

23%

24%

19%

123%

10

10

13

Rest

Iron ore

12

Gold

Copper

64

Copper, gold and iron ore capture 90% of the investment portfolio, with copper explaining 64%

$ Million

Copper

Gold

Iron ore

Phosphate

Silver

Zinc

Potassium

Polymetallic

34,937

7,302

6,780

1,044

1,026

290

125

3,176

54,680

SOURCE: MEM

Percentage of total

Investment portfolio by mineral

2012

11

6

7

10

1016

18

229 China

Suiza

Japon

Mexico 2 Peru

Otros

USA

Canada Australia

Perú recibe inversiones de diversos e importantes países

2012

$ Million China USA Canada Australia Suiza Japon Mexico Brazil Sudafrica Peru Reino Unido Otros

12,219 9,800 8,739 5,670 5,200 3,790 3,460 1,638 1,600 1,120

700 744

54,680 SOURCE: MEM

Percentage of total

Portafolio de inversiones por país

La cartera de poryectos esta diversificado entre varios países.

Peru mining competitiveness

13

Silver 3 2

Zinc 3 1 Tin 3 1 Lead 4 1 Gold 6 1

Mercury 4 2

Copper 3 2 Molybdenum 4 2

Selenium 9 2 Cadmium 10 2

Iron ore 17 5 Phosphate rock 13 2

Peru is a leader in metallic and non-metallic minerals

Mineral Production Ranking Latin America World

SOURCE: MEM; USGS

14

TOTAL MINING EXPLORATION INVESTMENTS

1 025 MINING EXPLORATIONS INVESTMENTS (US$ MILLION)

15

POTENCIAL MINERO

Reservas Mineras Probadas y Probables

Fuente: U.S.Geological Survey-USGS – Report 2012

Perú se ubica entre los países con mayores reservas de plata, cobre, zinc, plomo, estaño y oro a nivel mundial.

16

WE EVALUATED PERU AROUND FOUR KEY ELEMENTS OF COMPETITIVENESS

Social Framework • Reputation • Conflict levels • Community support

during operation and project stage

Quality of Resources • Availability and

existence in the country • Worldwide economic

attractiveness • Mineral Law

Institutional Framework • Clarity of regulations • Execution of the law • Permit securing time

Cost structure • Effective tax rate • Direct and indirect cost • Capex Intensity

17

By 2016, Peru will be the second global producer of copper significantly reducing the gap with Chile

SOURCE: Cochilco; MEM; Project Specific Information

2,8

+100%

0,8

+442%

2016

5,6

2014

5,5

1,6

2011

5,3

1,2

2008

5,3

1,3

2005

5,3

1,0

2002

4,6

Chile Peru

Annual copper production Million tons

18

Moreover the country is rich in economically attractive minerals

SOURCE: MEM; USGS; McKinsey Basic Materials Practice

1

1

4

6

8

9

13

23

Tin

Zinc

Lead

Copper

Silver

Phosphate

Iron ore

Gold

1

4

2

3

6

Peruvian Reserves Global share

Global ranking

Current (2012) Expected (2020-2025)

Copper

Gold

Met Coal

Iron ore

Nickel

Silver

Zinc

Uranio

Lead

Potassium

Phosphate

Lithium

Copper

Gold

Met Coal

Nickel

Silver

Zinc

Uranio

Lead

Potassium

Phosphate

Lithium

Iron Ore

Economic attractivenes

High

Medium

Low

Thermal Coal

Thermal Coal

8 Tin

Tin

9

13

19

Currently, more than 90% of copper operations in Peru are in the first two quartiles of the cost curve

SOURCE: Wood Mackenzie

1 Includes cost to concentrate or cathode, transport, Tc/Rc NOTE: Normal costing normalized by copper equivalent. Price used USD 362,7 c/lb in 2012

Copper cost curve 2012

600

700

Direct1, indirect cost and taxes c/lb

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Production kt

0

100

200

300

400

500

Peru

Rest of world

40 52 2 6

x Peruvian production per quartile

COPPER EXAMPLE

92% of Peruvian assets are in the first two quartiles of costs

20

300

200

100

0

Production kt

15,000 10,000 5,000 0

Direct1, indirect cost and taxes c/lb 700

600

500

400

100

200

0

300

400

500

600

700

Direct1, indirect cost and taxes c/lb

5,000 10,000 15,000 Production

kt

0

Moreover, by 2025 the country will continue to have a competitive position on the cost curve

… while Chile will face higher costs Peru will have 70% of its expected production in the first two quartiles of the cost curve …

Peru Rest of World

x Percentage of Peruvian production in each quartile

20 30 24 26

Chile Rest of World

1 Includes cost to concentrate or cathode, transport, Tc/Rc NOTE: Normal costing normalized by copper equivalent. Price used USD 300 c/lb in 2025

SOURCE: Wood Mackenzie

1 28 24 47

2025 2025

COPPER EXAMPLE

Chile will have the half

21

Specifically, in energy Peru will maintain its cost competitive advantage

SOURCE: Wood Mackenzie

ENERGY EXAMPLE

Energy cost

c/kWh

Ø 10

Zambia 6.4

EEUU 6.6

Peru 8.1

Canada 8.2

China 8.3

Mongolia 9.0

Argentina 10.4

Australia 12.7

Polonia 12.9

Chile 15.2

2012 2025

Ø 9

Zambia 5.4

Peru 7.2

EEUU 7.3

China 7.9

Argentina 8.3

Canada 8.3

Mongolia 9.4

Australia 9.9

Polonia 10.5

Chile 12.8

Social Impact

23

INVESTOR

COMMUNITY STATE MINING

SUSTAINABLE DEVELOPMENT

PROJECT Sustainable Development

The State accompanies the process from the begining

NEW MINING RELATIONSHIP POLICY

PRIORITY WATER

24

DESARROLLO DE UNA NUEVA AGENDA MINERA EN EL DESARROLLO DE LOS PUEBLOS

FACTOR INSTITUCIONAL • Ensure that the regulations of the laws are

promoting investment and community development

FACTOR SOCIO – AMBIENTAL • Promote the welfare of populations:

review of the distribution of Canon. • Promote development boards

POSICIONAMIENTO / COMUNICACIÓN • Educate the population about the significance of mining in the country`s development • Improve the perception of Mining • Establish an effective and periodic communities

MAINTAINING COMPETITIVENESS • Developing infrastructure and cost indicators • Have a proactive and preventive attitude for conflict management

DEVELOPMENT OF NEW MINING THAT PROMOTES SOCIAL INCLUSION

4

3

2 1

25

EACH OF THE INITIATIVES HAS BEEN DEFINED BY CLEAR OBJECTIVES

Initiatives

1A) Ensure regulations of operational framework of the laws.

1B) Review processes to decrease the permit approval time

2D) Motivate economic and human growth

2E) Associate mining with excellence in water management

3) Improve perception

of mining

4) Supervise mining competitiveness

Objectives

• Work on the regulations Law of Prior Consultation ensuring competitiveness and that social development structures are not weakened

• Ensure SENACE’s capacity in license management. • Include participation of the MEM, other ministries of productive sectors

and and the private sector in defining the ZEE´s

• Simplify exploration permits • Review regulation of cases that do not require EIA modifications • Reduce number of presentations / observations • Reduce number of entities to deal with.

• Improve use and management of mining royalties. • Promote development meetings to ensure access to basic services • Promote and notify stakeholders on development knowledge and best

practices

• Promote the development of an independent institution with excellence in water

• Ensure adequate communication on potential impacts • Improve mining perception and interaction with communities

through and effective short and long term communication and costs.

• Safeguard the competitive advantage of the country development cost structure indicators and preventing bottlenecks.

26

• TRUST • SOCIAL FUND • SOCIAL PEACE • WHILE OPERATING

PROFIT • INFRASTRUCTURE • EMPLOYMENT • TRAINING

COMMUNICATION AND CONTINUOUS PRESENCE IN THE AREA OF INFLUENCE OF PROJECTS

EXISTENCE AND INTEGRATION

INTO COMMUNITY Harmonious and balanced

Participating communities, local

governments and the State

COMMUNITY

STATE

Social responsibility strategy before mining exploitation

Awareness

Social climate for investment

DEVELOPMENT ROUNDTABLE

SUSTAINABLE DEVELOPMENT

Country development based on rational use of natural resources

28 Source: PROINVERSION

ECUADOR

COLOMBIA

BRAZIL

NORTHERN MACRO-REGION TERRITORY DEVELOPMENT

BAYOVAR PORT

Copper Projects Silver Projects Gold Projects Iron Projects Hydropower Station PACIFIC OCEAN

NORTHERN IIRSA

CAJAMARCA -PIURA TRAIN

C.H. RENTEMA 1525 MW

C.H. CUMBA 4 825 MW

C.H. MANSERICHE 7550 MW

C.H. CHADIN 2 600 MW

C.H. BALSAS 915 MW

Railroad Project

COPPER-GOLD PROJECTS FOR US$ 20 000 Millon

ALTO MAYO PROJECT 768 000 Ha

CAJAMARCA - CHACHAPOYAS- TARSPOTO TRAIN Study of Railroad

Estimated Annual Production ProjectCopper 1.018.000 tmfGold 867.000 OzPhosphates 5.800.000 tm

BAYOVAR PROJECT • FOSFATOS • DIATOMITAS • SALMUERAS • CALCAREOS

COPPER REFINERY PROJECT

29

CENTRAL MACRO-REGION TERRITORY DEVELOPMENT

Copper Projects Silver Projects Gold Projects Iron Projects

LIQUEFACTION PLANT

LA OROYA METALLURGICAL

COMPLEX

CENTRAL IIRSA

PERU- BRAZIL TRANSCONTINENTAL RAILROAD

BRAZIL

Source: PROINVERSION

CALLAO PORT

LA OROYA

Estimated Annual Production ProjectCopper 530.000 tmfGold 160.000 OzSilver 7.500.000 OzLead 16.000 tmfZinc 641.500 tmfCOBRIZA

MINE

TOROMOCHO PROJECT

(CHINALCO)

30 Source: PROINVERSION

Copper Projects

Silver Projects

Gold Projects

Iron Projects

SOUTHERN MACRO-REGION TERRITORY DEVELOPMENT

FRACTIONATION PLANT

BOLIVIA

CHILE

PACIFIC OCEAN

BRAZIL

INTER-OCEANIC HIGHWAY

CAMISEA

MATARANI PORT

MARCONA PORT

GAS PIPELINE

Gas pipeline Camisea Gas pipeline ENERGY NODE

2000 MW

Estimated Annual Production ProjectCopper 1.826.000 tmfGold 524.000 OzSilver 11.339.000 OzIron 3.500.000 tm** Iron concentrate expansion project Marcona Actual production: 6.500.000 tm

31

PIPELINE FROM CAMISEA - CUSCO TO SOUTHERN PERÚ

In Peru is developing a project to build a pipeline to transport natural gas from Camisea - Cuzco - to the cities of Arequipa, Moquegua and Tacna - located in southern Peru. Tenders will be made for the design and pipeline construction whose extension is estimated at 1,100 km. We have been preparing the groundwork for the design of the pipeline tender. Investment: US$ 2 431 Million Adjudication: IV Quarter of 2013

32

PETROCHEMICAL - PERÚ

ACTUALES

PISCO

LIMA (Lurín)

ICA

HUANCAVELICA

AYACUCHOAPURIMAC

AREQUIPA

MOQUEGUA

MADRE DE DIOS

TACNA

CUSCO

PUNO

QUILLABAMBA

CUSCO

PUNO

CHILE

BOLIVIA

LAGOTITICACA

SEGURIDAD ENERGÉTICA (Gasoducto)

AREQUIPA

MALVINAS

TACNA

TGP (SISTEMA ACTUAL + LOOP COSTA) Gasoducto / Poliducto

JULIACAMARCONA

ICA

CONTUGAS (SISTEMA ACTUAL)

LoopTGP

PERU LNG (GASODUCTO)

CHIQUINTIRCA

LoopTGP

PROYECTADOS

LOOP TGP (KM 88 – KM 127)

GASODUCTO SUR PERUANO (Gasoducto)

MATARANI

ILO

Km 127

Km 88

ANTA

ESPINAR

ZONA DE SEGURIDADENERGÉTICA

ZONA DE UBICACIÓN DEL POLO PETROQUÍMICO

SEGURIDAD ENERGÉTICA (Poliducto)

ABANCAY

ZONA DE UBICACIÓN DEL NODO ENERGÉTICO

In Peru, the natural gas is composed of 90% methane and 10% ethane. Potential reserves amounting to 50 TCF and has been developing the pipeline from Camisea to the southern coast of Peru. For this reason it has promoted the development of the petrochemical industry of Natural Gas in the South of the country, It requires building petrochemical plants of methane and ethane for obtain Ammonia and Ammonium Nitrate and Urea and ethylene and polyethylene is the raw material for plastic finished products.

Potential natural gas reserves of 50 TCF

Private investment opportunities in Energy

34

Latin America : the hydraulic resource is largely available

33%

69%

7%

75% 22%

70%

Percentage of Developed Hydraulic Resources (*)

The 67% of remaining resources would allow to produce 1,600 TWh/year

Peru 70,000

Argentina 44,500

Brazil 260,000

Chile 25,000

Colombia 93,000

Ecuador 24,000

Mexico 53,000

Venezuela 46,000

Total 640,000

Hydraulic potential (MW) (approx)

Source: IHA White Paper February 2003 and OLADE. Figures from 2002, except from South America+ Central America + The Caribbean which figures are from 2006 (*) About technically and economically feasible potential

ITEM NAMEPOWER (MW)

FLOW (m3/s)

FALL (m)

1 VIZCARRA 140 31 250 2 LLATA 01 210 36 325 3 LLATA 02 200 38 300 4 PUCHCA 140 57 130 5 YANAMAYO 160 75 160 6 PULPERA 220 82 150 7 RUPAC 300 98 175 8 SAN PABLO 390 118 185 9 PATAS 1 320 130 140

10 PATAS 2 240 136 100 11 CHISGON 240 148 90 12 BOLIVAR 290 190 85 13 BALSAS 350 198 100 14 SANTA ROSA 340 201 95 15 YANGAS 330 205 90 16 PION 350 222 100 17 CUMBA 410 231 100 18 RENTEMA 1,500 750 100 19 ESCUPREBRAGA 1,800 900 108 20 MANSERICHE 4,500 3,500 100

Hydropower development in the Marañon Basin

Evaluate the Marañon River Basin, specially in the lower basin projects for its international significance as: Manseriche and Rentema hidroelectric projects.

36

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