This document comprises a Prospectus relating to Hochschild Mining plc (the Company) and has been prepared in accordance

with the
Prospectus Rules of the Financial Services Authority made under section 73A of the Financial Services and Markets Act 2000 (as amended)
(FSMA), has been filed with the Financial Services Authority (FSA) and has been made available to the public as required by the
Prospectus Rules.
Application has been made to the FSA for all of the Ordinary Shares, issued and to be issued in connection with the Global Offer, to be
admitted to the Official List of the FSA (the Official List) and to the London Stock Exchange plc (the London Stock Exchange) for such
Ordinary Shares to be admitted to trading on the London Stock Exchanges main market for listed securities (together Admission).
Admission to trading on the London Stock Exchanges main market for listed securities constitutes admission to trading on a regulated
market. In the Global Offer, 77,250,000 Ordinary Shares are being offered by the Company. Conditional dealings in the Ordinary Shares are
expected to commence on the London Stock Exchange on 3 November 2006. It is expected that Admission will become effective, and that
unconditional dealings will commence in the Ordinary Shares on the London Stock Exchange, at 8.00 a.m. (London time) on 8 November
2006. All dealings in the Ordinary Shares prior to the commencement of unconditional dealings will be of no effect if Admission does not
take place and such dealings will be at the sole risk of the parties concerned.

PRA3 6.1

The Company and its Directors (whose names appear on page 11 of this document) accept responsibility for the information contained in this
document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that
such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect the
import of such information.

PRA1 1.1,
1.2
PRA3 1.1,
1.2

PRA3 4.1

For a discussion of certain risk and other factors that should be considered in connection with an investment in the Ordinary Shares, see
Risk Factors.

PRA1 5.1.1,
5.1.2

Hochschild Mining plc

(incorporated under the Companies Act 1985 and registered in England and Wales with registered number 5777693)

PRA3 4.4
PRA3 5.1.2
PRA3 5.3.1

Prospectus
Global Offer of 77,250,000 Ordinary Shares at a price
of 350p per Ordinary Share
Admission to the Official List and to trading on the
London Stock Exchange
Financial Adviser

JPMorgan Cazenove Limited

Joint Sponsors, Joint Global Co-ordinators and Joint Bookrunners

JPMorgan Cazenove Limited and Goldman Sachs International

Co-Lead Manager

Canaccord Adams Limited

Co-Manager

Nomura International plc

Expected share capital immediately following Admission

Authorised
Number
Amount
500,000,000

250,000,000

Ordinary Shares of 0.50 each

Issued and fully paid

Number
Amount
307,350,226

153,675,113

In connection with the Global Offer, JPMorgan Cazenove, as Stabilising Manager, or any of its agents, may (but will be under no obligation
to) over-allot Ordinary Shares or effect other stabilisation transactions with a view to supporting the market price of the Ordinary Shares at a
higher level than that which might otherwise prevail in the open market. Such stabilisation activities may be effected on any securities
market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the
date of the commencement of conditional trading and ending no later than 30 calendar days thereafter. However, there is no obligation on
the Stabilising Manager or any of its agents to effect stabilising transactions and there is no assurance that stabilising transactions will be
undertaken. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to
stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation above, the Stabilising
Manager does not intend to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the
Global Offer
In connection with the Global Offer, the Stabilising Manager may, for stabilisation purposes, over-allot Ordinary Shares up to a maximum of
15 per cent. of the total number of Ordinary Shares comprised in the Global Offer. For the purposes of allowing it to cover short positions
resulting from any such over-allotments and/or from sales of Ordinary Shares effected by it during the stabilising period, the Stabilising
Manager has entered into the Over-allotment Option with the Over-allotment Shareholders pursuant to which the Stabilising Manager may,
acting as principal, purchase or procure purchasers for additional Ordinary Shares up to a maximum of 15 per cent. of the total number of
Ordinary Shares comprised in the Offer (the Over-allotment Shares) at the Offer Price. The Over-allotment Option is exercisable in whole or
in part, upon notice by the Stabilising Manager, at any time on or before the 30th calendar day after the commencement of conditional
trading of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment
Option will rank pari passu in all respects with the Ordinary Shares, including for all dividends and other distributions declared, made or paid
on the Ordinary Shares, will be purchased on the same terms and conditions as the Ordinary Shares being sold in the Offer and will form a
single class for all purposes with the other Ordinary Shares.
JPMorgan Cazenove Limited and Goldman Sachs International have been appointed as Joint Sponsors, Joint Global Co-ordinators, Joint
Bookrunners and, in the case of JPMorgan Cazenove Limited only, Financial Adviser, and are advising the Company and no one else in
connection with the Global Offer and will not be responsible to anyone other than the Company for providing the protections afforded to their
respective clients or for providing any advice in relation to the Global Offer.

PRA3
5.2.5(a), (b),
(c), 6.5.1,
6.5.2. 6.5.3,
6.5.4

Recipients of this document in the United States are authorised to use it solely for the purpose of
considering the purchase of the Ordinary Shares and may not reproduce or distribute this
document, in whole or in part, and may not disclose any of the contents of this document or use
any information herein for any purpose other than considering an investment in the Ordinary
Shares. Such recipients of this document agree to the foregoing by accepting delivery of this
document.
The Ordinary Shares are subject to selling and transfer restrictions in certain jurisdictions.
Prospective purchasers should read the restrictions described under paragraph 7 Selling and
Transfer Restrictions in Part XII: Details of the Global Offer. Each purchaser of the Ordinary
Shares will be deemed to have made the relevant representations described therein.
The Ordinary Shares have not been and will not be registered under the US Securities Act of 1933,
as amended (the Securities Act) or under the applicable securities laws of any state of the
United States and, subject to certain exceptions, may not be offered or sold within the United
States. The Global Offer is being made in the United States to certain qualified institutional buyers
(each a QIB) as defined in Rule 144A under the Securities Act (Rule 144A) in reliance on
Rule 144A or another exemption from registration under the Securities Act and outside the
United States in reliance on Regulation S under the Securities Act. Each prospective purchaser in
the United States is hereby notified that the offer and sale of the Ordinary Shares to it may be
made in reliance on the exemption from the registration requirements of the Securities Act
provided by Rule 144A. In addition, until 40 days after the commencement of the Global Offer, an
offer or sale of any of the Ordinary Shares within the United States by any dealer (whether or not
participating in the Global Offer) may violate the registration requirements of the Securities Act if
the offer or sale is made otherwise than in accordance with Rule 144A or pursuant to another
applicable exemption from registration under the Securities Act.
THE ORDINARY SHARES OFFERED BY THIS DOCUMENT HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE US SECURITIES AND EXCHANGE COMMISSION, ANY OTHER FEDERAL OR
STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER US REGULATORY
AUTHORITY, NOR HAVE ANY SUCH AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF
THE GLOBAL OFFER OR CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED
STATES.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS
BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (RSA 421-B)
WITH THE STATE OF NEW HAMPSHIRE, NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE, CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT
NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE
TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

Table of Contents
Page

Summary information ***************************************************************

Risk factors*************************************************************************
Directors, secretary, registered and head office and advisers **************************
Global Offer statistics ***************************************************************
Expected timetable of principal events ***********************************************
Presentation of information *********************************************************
Part I:
Information on Hochschild Mining ****************************************
Overview ****************************************************************
History of the Hochschild Mining Group ***********************************
Key strengths ************************************************************
The Hochschild Mining Groups strategy ***********************************
Principal Group Mines, Facilities, Projects and Prospects*********************
Arcata*****************************************************************
Ares*******************************************************************
Selene*****************************************************************
San Jose ***************************************************************
Pallancata *************************************************************
Mina Moris ************************************************************
San Felipe *************************************************************
Sales, markets and customers *********************************************
Environmental and health and safety matters ******************************
Operational hazards and insurance ****************************************
Social and Community Programmes ***************************************
Employees and contractors************************************************
Employee relations *******************************************************
Dividend Policy **********************************************************
Part II:
Use of proceeds**********************************************************
Part III:
Management, corporate governance and the major shareholder ************
Part IV:
Information on Peru, Mexico and Argentina *******************************
Part V:
Market and industry overview ********************************************
Part VI:
Selected financial and operating information ******************************
Part VII:
Operating and financial review *******************************************
Part VIII: Capitalisation and indebtedness statement ********************************
Part IX:
IFRS historical financial information ***************************************
Section A: Accountants report on IFRS financial information****************
Section B: IFRS historical financial information *****************************
Part X:
Unaudited pro forma financial information ********************************
Section A: Unaudited pro forma balance sheet *****************************
Section B: Accountants report on unaudited pro forma financial information
Part XI:
Summary of differences between IFRS and US GAAP ***********************
Part XII:
Details of the Global Offer ***********************************************
Part XIII: Taxation *****************************************************************
Part XIV: Additional information ***************************************************
Part XV:
Technical report **********************************************************
Part XVI: Definitions **************************************************************
Part XVII: Glossary of technical terms ***********************************************

4
12
26
27
27
28
35
35
36
37
39
40
45
47
49
51
53
55
56
58
60
62
62
63
64
64
65
66
74
90
96
101
132
134
134
136
186
186
189
191
197
205
212
252
344
348

Summary information
This summary should be read as an introduction to this Prospectus only. Any decision to invest in
the Ordinary Shares should be based on the consideration of this Prospectus as a whole by the
investor and not just this summary. Under the Prospectus Directive (Directive 2003/71/EEC) in each
member state of the European Economic Area (EEA) civil liability attaches to those persons who
are responsible for the summary, including any translations of the summary, but only if the
summary is misleading, inaccurate or inconsistent when read together with other parts of this
prospectus. Where a claim relating to the information contained in this Prospectus is brought
before a court, the plaintiff investor might, under the national legislation of the EEA States, have
to bear the costs of translating the Prospectus before the legal proceedings are initiated.

Overview
The Hochschild Mining Group is a leading precious metals company with a primary focus on the
exploration, mining, processing and sale of silver and gold. The Group is the fourth largest
primary silver producer globally1 (having produced approximately 10.5 million ounces in 2005) and
produces a significant quantity of gold (approximately 233 thousand ounces in 2005).
The Hochschild Mining Group has over forty years of experience in the exploration, evaluation
and extraction of precious metal epithermal vein deposits. Currently, it has three underground,
epithermal vein mines located in Southern Peru which are supported by fully developed
infrastructure. The Group has two advanced stage development projects, one in Argentina and
one in Peru, as well as two early stage development projects, both of which are in Mexico. In
addition to its development projects, the Group has over twenty long-term prospects throughout
Latin America which are at various stages of development. A number of these projects and
prospects are structured as joint ventures or option arrangements with local or overseas mining
partners, whilst others are owned and operated exclusively by the Group. The Directors believe
the Groups mines, projects and prospects provide substantial potential for growth.
The Group has a high-grade reserve base and a proven track record of consistent reserves
replacement, sustaining the reserve and resource base at each of its current operating mines in
step with production over many years. The focus of this reserve development strategy has been to
maximise the cash flow from its operations rather than extend the lives of its operating mines,
although, going forward, the Group intends to invest in further extending mine life. The table
below sets out the reserves and resources at each of the operating mines and development
projects as at 30 June 2006, such information having been extracted without material adjustment
from the Technical Report in Part XV.
Reserves

Operating Mines
Arcata (Peru) ********************
Ares (Peru) **********************
Selene (Peru) ********************
Advanced Development Projects
San Jose (Argentina) *************
Pallancata (Peru) ****************
Early Stage Development Projects
Mina Moris (Mexico) *************
San Felipe (Mexico)(3) ************
Total****************************

Proved
and
probable

Silver
grade

(in tonnes)

Resources
Gold
grade

Measured
and
indicated

Silver
grade

Gold
grade

Inferred

Silver
grade

Gold
grade

(g/t)

(g/t)

(in tonnes)(1)

(g/t)

(g/t)

(in tonnes)(2)

(g/t)

(g/t)

929,999
834,820
799,331

462
327
377

1.26
12.24
2.56

915,465
826,582
808,567

561
291
398

1.55
13.78
1.96

1,088,550
46,838
453,749

580
227
279

1.93
5.54
1.25

641,697
643,267

418
263

7.90
1.09

579,007
614,418

473
289

9.32
1.20

253,059
981,673

374
376

8.22
1.44

3,354,439

3.96

1.31

4,563
3,150,000

2.2
70

1.37

3,849,114

7,098,478

5,978,432

1 Source: CRU Strategies

PRA1 6.1.1
PRA1 6.5

Notes:
(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution
(2) Inferred resources are stated exclusive of reserves and measured and indicated resources
(3) Resources also have a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper

The Hochschild Mining Group has a track record of sustained profitability underpinned by its low
cash costs of production. In 2005 its cash costs of production on a co-product basis were
US$2.65/oz for silver and US$169/oz for gold. This places the Hochschild Mining Group within the
first quartile of the cost curve for silver, according to CRU Strategies and for gold, according to
GFMS Limited. In 2005, the Hochschild Mining Group generated EBITDA (as defined below) of
US$70.8 million1 against revenues of US$151.3 million, a margin of 46.8 per cent.
The Groups headquarters are in Lima. As at 30 June 2006, the Hochschild Mining Group had a
total of 3,100 employees, of which 1,935 were contracted personnel.

Summary description of the principal mines, facilities, projects and prospects

Hochschild Mining operates an underground mine at each of its three operating units in Peru
Arcata, Ares and Selene. At each of the Arcata and Selene units, the Group operates a
concentrator for the production of silver-gold concentrate. The Ares unit operates a processing
plant for the production of silver-gold dore using the Merrill-Crowe leaching process. Since
October 2006, the Ares unit has also processed the concentrate from the Selene concentrator to

produce dore.

PRA1 6.1.1

The following table sets out certain production information for the three operating mines for the
years ended 31 December 2003, 2004 and 2005 and the 6 months ended 30 June 2006 (which have
been extracted without material adjustment from the Technical Report in Part XV):

2003(1)

2004

2005

6 months
ended
30 June
2006

Ore production (t) **************************************

Concentrate production (t) ******************************
Ore production (t) **************************************
Dore production (Koz) **********************************
Ore production (t) **************************************
Concentrate production (t) ******************************

236,108
8,999
276,653
2,793
44,061
488

290,603
11,525
272,986
2,943
253,605
2,892

282,199
10,787
281,095
3,151
288,919
3,559

135,526
5,214
141,529
1,493
178,044
1,947

Total silver produced (Koz)***********************************************

7,504

10,657

10,550

5,467

Year ended 31 December

Operating Mine

Product

Arcata
Ares
Selene

Total gold produced (Koz) ***********************************************

211

241

233

102

Total silver equivalent (Koz) *********************************************

20,217

25,121

24,543

11,640

Notes:
(1) The Selene unit commenced production in October 2003

The Group has two advanced development projects, both of which are structured as Hochschild
Mining Group controlled joint-ventures: San Jose in Argentina (in which the Group has a 51 per
cent. interest) and Pallancata in Peru (in which the Group has a 60 per cent. interest). Both of
these projects are scheduled to commence production in 2007. In addition, the Group has two
early stage development projects, which are also structured as Hochschild Mining controlled jointventures: Mina Moris and San Felipe, both of which are located in Mexico and in both of which
the Group has an option to acquire an interest of up to 70 per cent.. Mina Moris is currently
expected to commence production in 2007, whilst at San Felipe, the Group is currently engaged in
verification drilling on the site.
The Group also has over twenty long-term prospects of which San Luis del Cordero (Mexico), Sierra
de las Minas (Argentina) and San Martn (Peru) are the most advanced.
1 Source: Company (unaudited)

PRA1 6.1.2

Key strengths
The Directors believe that the key strengths of the Hochschild Mining Groups business are:
) its leading position as a precious metals producer, the fourth largest primary silver producer
globally and a significant producer of gold;
) its low cash costs and strong returns on invested capital;
) its proven track record of production growth and reserves replacement;
) its expertise in underground mining in Latin America;
) its attractive growth opportunities from both development projects and long-term prospects;
and
) its approach to and investment in its employees, the environment and local communities.

Strategy
The Hochschild Mining Groups strategy is to achieve growth as a low-cost, cash generative,
precious metals producer in Latin America, continuing its primary focus on silver and gold
production, and to enhance overall value for its shareholders, whilst maintaining a strong focus
on its social and environmental responsibilities. The Hochschild Mining Group intends to pursue
this strategy:
)

by continuing to maximise the potential of its existing operations through increased efficiency
and increased investment in exploration and facilities;

by delivery of its project pipeline and development of its portfolio of long-term prospects into
producing mines, with plans to further increase annual production to approximately 50 million
silver equivalent ounces (830,000 gold equivalent ounces) from both its existing operations and
its development projects by 2011; and

by seeking additional growth opportunities through exploration, acquisitions or joint

ventures, with a focus on mid-sized, high-grade, underground precious metal assets.

Summary of financial information

PRA1 3.1

The table below provides selected financial and operating information of the Hochschild Mining
Group as at and for the years ended 31 December 2003, 2004 and 2005 and the six months ended
30 June 2005 and 2006, in each case prepared in accordance with IFRS, except for the purposes of
presenting the financial information on a combined basis in respect of certain matters explained
in Section B of Part IX: IFRS Historical Financial Information. The selected financial and
operating information of the Hochschild Mining Group as at and for the years ended 31 December
2003, 2004 and 2005 and the six months ended 30 June 2006 has been audited whilst the selected
financial and operating information of the Hochschild Mining Group as at and for the six months
ended 30 June 2005 is unaudited. See Part IX: IFRS Historical Financial Information. This
information has been extracted without material adjustment from Part IX: IFRS Historical
Financial Information and has been prepared on the basis described in the footnotes to the
combined historical financial information of the Hochschild Mining Group in Part IX, except for
the EBITDA and cash costs information which have each been calculated as set forth in Part VI:
Selected Financing and Operating Information. Investors should read the whole of this
Prospectus and not rely solely on summarised information.

Six month period ended

30 June
Year ended 31 December
2003

2004

2005
(unaudited)

2005

2006

US$(000)

Income statement data:

Continuing operations
Revenue *************************************************
Cost of sales**********************************************

93,771
(41,514)

159,052
(82,292)

151,319
(73,592)

65,779
(30,805)

92,286
(33,705)

Gross profit ********************************************** 52,257

Administrative expenses*********************************** (16,472)
Exploration expenses************************************** (11,822)
Gain on sale of zinc project *******************************

Selling expenses ******************************************

(1,794)
Other income ********************************************
5,457
Other expenses *******************************************
(2,936)

76,760
(22,997)
(23,063)

(3,880)
7,081
(7,395)

77,727
(24,371)
(28,057)
14,558
(3,161)
13,016
(2,821)

34,974
(10,829)
(18,657)
14,558
(1,338)
3,199
(1,280)

58,581
(15,814)
(7,654)

(1,366)
10,495
(4,636)

Profit from continuing operations before net finance costs

and income tax*****************************************
Finance income *******************************************
Finance costs *********************************************
Foreign exchange gain/(loss)*******************************

24,690
326
(4,977)
579

26,506
1,296
(6,702)
299

46,891
4,144
(10,105)
(552)

20,627
1,555
(4,463)
1,085

39,606
2,843
(5,121)
(27)

Profit from continuing operations before income tax *******

Income tax expense ***************************************

20,618
(9,108)

21,399
(11,453)

40,378
(9,673)

18,804
(5,966)

37,301
(14,733)

Profit for the year/period from continuing operations ******

Discontinued operations
(Loss)/profit for the year/period from discontinued
operations *********************************************

11,510

9,946

30,705

12,838

22,568

12,179

9,395

Profit for the year/period *********************************

10,139

9,215

42,884

22,233

22,568

Attributable to:
Equity shareholders of the Company ***********************
Minority interest******************************************

11,900
(1,761)

13,500
(4,285)

46,737
(3,853)

27,744
(5,511)

24,198
(1,630)

10,139

9,215

42,884

22,233

22,568

0.06

0.20

0.12

0.11

(1,371)

Earnings per share for profit attributable to the equity

shareholders of the Company during the year (expressed
in US$ per share)(1)
Basic and diluted *****************************************
0.05
Cash flow data:
Net cash generated from operating activities ***************
7,830
Net cash (used in)/generated from investing activities ******* (29,866)
Cash flows generated from/(used in) financing activities ***** 21,278
Net (decrease)/increase in cash and cash equivalents during
the year/period *****************************************
(758)
Other financial and operating data:
(2)
EBITDA ************************************************* 46,518
Total cash costs(3) ***************************************** 33,576
Cash and cash equivalents *********************************
4,242

(731)

3,426
(13,423)
11,388

11,431
(6,139)
(8,458)

1,048
1,086
(5,385)

33,064
(12,175)
(17,313)

1,391

(3,166)

(3,251)

3,576

71,182
72,445
5,633

70,845
66,990
2,467

29,176
28,425
2,382

55,587
30,006
6,043

Year ended 31 December

2003

2004

Six month
period
ended
30 June

2005

2006

106,703
231,501
100,882
39,542
44,234
46,843

94,473
229,716
84,698
98,807
39,730
6,481

US$(000)

Non-current assets *******************************************************

Total assets**************************************************************
Borrowings (short- and long-term) ****************************************
Other current liabilities **************************************************
Other non-current liabilities **********************************************
Total equity *************************************************************

101,343
165,082
76,722
27,285
58,842
2,233

103,860
194,527
109,852
32,218
47,715
(1,968)

Notes:
(1) Based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission.
(2) EBITDA is calculated as profit from continuing operations before net finance costs and income tax plus depreciation
(included in both cost of sales and administrative expenses), increase in provision for mine closure, exploration costs other
than personnel and other, and non-recurring cash items included in other expenses, less gain on sale of zinc project and
non-recurring cash items included in other income. EBITDA is not a measure of financial performance under IFRS or US
GAAP. See Part VI: Selected Financing and Operating Information for a reconciliation of profit for the period to EBITDA.
(3) Total cash costs are calculated to include cost of sales, commercial deductions, and selling expenses less depreciation
included in cost of sales. Total cash costs and total cash costs per ounce are not measures of financial performance under
IFRS or US GAAP. See Part VI: Selected Financing and Operating Information for a reconciliation of cost of sales from
continuing operations to total cash costs.

Summary of the Global Offer

PRA3 5.1.2

The Global Offer comprises an issue of 77,250,000 Ordinary Shares and net proceeds of
approximately 249 million (approximately US$476 million) will be raised. In addition, 11,587,500
Ordinary Shares will be made available by the Over-allotment Shareholders pursuant to the Overallotment Option. All the Ordinary Shares will be purchased at the Offer Price.

PRA3 5.1.1
PRA3 5.2.3(g)

The Global Offer is to be fully underwritten by the Managers and is subject to satisfaction of the
conditions set out in the Underwriting Agreement. These conditions include Admission becoming
effective by no later than 8.00 a.m. on 8 November 2006 or such later time and/or date as the
Company and the Joint Global Coordinators (on behalf of the Managers) may agree.
In addition to the Global Offer, the Company is issuing 100,226 Ordinary Shares at the Offer Price
in a separate private placement to certain of its directors and employees of the Hochschild Mining
Group and of Cementos Pacasmayo in Peru, Mexico and Argentina. Sir Malcolm Field and Nigel
Moore have each subscribed 50,000 at the Offer Price and will each be issued 14,285 Ordinary
Shares. Eduardo Loret de Mola, Ricardo Arrarte and Gonzalo Freyre have subscribed
approximately 26,000, 31,000 and 16,000 at the Offer Price and will be issued 7,484 Ordinary
Shares, 8,980 Ordinary Shares and 4,490 Ordinary Shares respectively.
Admission is expected to take place and unconditional dealings in the Ordinary Shares are
expected to commence on the London Stock Exchange on 8 November 2006. Prior to that time, it
is expected that dealings in the Ordinary Shares will commence on a conditional basis on the
London Stock Exchange on 3 November 2006 and that the earliest date for settlement of such
dealings will be 8 November 2006. These times and dates may be changed.
The total expenses of the Global Offer are expected to be approximately US$40 million.

Use of proceeds
The Group intends to use the net proceeds of the Global Offer primarily in the following ways:
)

approximately US$140 million to maximise the potential of existing operations;

approximately US$250 million to achieve growth through delivery of its project pipeline;

approximately US$40 million to repay existing debt; and

the remainder of the net proceeds to exploit market and geographic niches to seek additional
growth opportunities, whether by way of further exploration, joint ventures or strategic
acquisitions.

PRA3 3.4

Pending their use as described above, the Group intends to invest the net proceeds in short term
investments with internationally recognised financial institutions.

Current trading and prospects

PRA1 12.1, 12.2

Since 30 June 2006, revenues are ahead of the first half as a result of a production volume increase
at Arcata and the impact of higher average prices of silver and gold over the period. With regard
to pricing, however, the prices of silver and gold have eased since the highs of May 2006.
Since the half year, operating costs have increased broadly in line with revenues. There has been
an increase in administrative expenses, principally as a result of expenses attributable to the
Global Offer, and an increase in exploration expenses mainly due to increased drilling activity at
Mina Moris, San Felipe and Selene. Costs remain under close scrutiny and the Directors expect the
Group to maintain its position as a low cash cost producer going forward. The Groups
development projects continue to progress in line with managements plans.
Despite the recent commodity price volatility, the Directors anticipate that revenues from the
Group for the remainder of the year will be in line with expectations. Silver volumes are expected
to be slightly ahead of financial year 2005 with gold volumes down, reflecting managements
decision to target lower grade ore at Ares. The operating mines, together with the potential
8

provided by the Groups project pipeline and its low cost base, enable the Directors to look ahead
with confidence.

Significant change

PRA1 20.9

There has been no significant change in the financial or trading position of the Hochschild Mining
Group since 30 June 2006, the date to which the financial information for the Hochschild Mining
Group in Section B of Part IX: IFRS Historical Financial Information was prepared.

Dividend policy

PRA1 20.7

The Directors intend to adopt a dividend policy which will take into account the profitability of
the business and underlying growth in earnings of the Group, as well as its capital requirements
and cash flows, while maintaining an appropriate level of dividend cover.
Following Admission, in the absence of unforeseen circumstances and assuming the Groups
performance continues in line with the Boards expectations, subject to there being available
reserves for the purpose, the Directors intend to declare a dividend of one third of profits after tax
for the financial year ending 31 December 2006 in respect of the period from Admission until
31 December 2006.
Thereafter, the Directors intend that interim and final dividends will be paid in the approximate
proportions of one-third and two-thirds of the total annual dividend, respectively.
Dividends will be declared by the Company in US dollars. Unless a Shareholder elects to receive
dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend being
converted into pound sterling at exchange rates prevailing at the time of payment.

Risk factors
The Groups results of operations and financial condition could be materially affected by:
Risks relating to the Hochschild Mining Groups operations:
) the risks and hazards involved in the business of mining metals, not all of which are fully
covered by insurance;
) the prices of silver and gold;
) the substantial capital expenditure required by the business;
) the Groups ability to realise its existing reserves base, convert resources into reserves and
mineralised potential into resources, and conduct successful exploration;
) an increase in production costs;
) inadequacy in or unavailability of the infrastructure on which its production, processing and
product delivery relies;
) delay or failure by the Group in completing its development projects;
) the Groups joint venture arrangements and options not being successful;
) failure to consummate or integrate acquisitions successfully;
) fluctuations in currencies;
) future changes in commodity prices;
) the fact that the Groups revenues are currently derived from production at only three facilities,
all in Peru;
) any reduction or discontinuance in the Groups refining arrangements;
) any reduction or discontinuance of purchases of concentrate by its main customer;
9

PRA1 4

) competition from other mining companies for the acquisition of new mineral assets;
) failure to retain or attract key personnel;
) failure to maintain good relations with its employees;
) termination of the Groups stability arrangements;
) cost of compliance with governmental regulations;
) costs associated with environmental hazards;
) termination of the Groups mining concessions;
) costs associated with the Peruvian Mine Closure Law;
) costs and delays associated with governmental permits to expand or commence operations;
Risks relating to operating in Peru, Mexico and Argentina:
) local economic and political conditions;
) localised violence in Mexico linked to drug-trafficking;
) potential local opposition to mining, leading to disruption in the Groups mines, development
projects and prospects; and
) failure to obtain proper redress in the courts of the jurisdictions in which the Group operates or
might operate in the future.
It should also be noted that:
Risks relating to the Hochschild Mining Groups structure:
) certain major shareholders will exercise significant control over the Group after the Global Offer
and, as a result, investors may not be able to influence the outcome of important decisions in
the future;
) as the Company is primarily a holding company, its ability to pay dividends depends upon the
ability of its subsidiaries to pay dividends and to advance funds;
Risks relating to the Ordinary Shares:

PRA3 2

) there has been no prior public trading market for the Ordinary Shares, and an active trading
market may not develop or be sustained in the future;
) the Group cannot assure investors that it will pay dividends in the future;
) future sales of Ordinary Shares could depress the market price of the Ordinary Shares; and
) holders of Ordinary Shares outside the United Kingdom may not be able to exercise their preemptive rights.
Working capital
The Company believes, taking account of the net proceeds of the Global Offer, the working
capital available to the Group is sufficient for the Groups present requirements, that is, for the
next 12 months following the date of this document.
10

PRA1 10.1
PRA3 3.1

Capitalisation and indebtedness

The Groups capitalisation as at 30 June 2006 was US$10.883 million1 and its net financial
indebtedness as at 31 August 2006 was US$86.772 million2.

PRA3 3.2

Directors and senior management details

Directors

Eduardo Hochschild

Roberto Danino
Alberto Beeck

Company Secretary
Senior Management

Sir Malcolm Field

Jorge Born Jr.
Nigel Moore
Dionisio Romero
Prism CoSec Limited
Miguel Aramburu
Jorge Benavides
Ignacio Rosado
Eduardo Loret de Mola
Ricardo Arrarte
Gonzalo Freyre

Executive Chairman
Deputy Chairman and Executive
Director
Executive Director, Strategy and
Corporate Development
Senior Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director

PRA1 14.1

Relationship with the major shareholder

The relationship between the Major Shareholder, Eduardo Hochschild, Alberto Beeck and the
Company will be governed by the Relationship Agreement, which ensures that the Company and
its subsidiaries are capable of carrying on their business independently of the Major Shareholder,
Mr. Hochschild and Mr. Beeck and of any of their respective associates, and that transactions and
relationships with the Major Shareholder, Mr. Hochschild or Mr. Beeck and their respective
associates are at arms length and on normal commercial terms.

Lock-ups
The Company, each of the Directors, the Senior Management and the Over-allotment
Shareholders have agreed to enter into lock-up arrangements. The Company has agreed, inter
alia, not to offer, issue, or sell any Ordinary Shares for a period of 12 months after Admission and
the Directors, the Senior Management and the Over-allotment Shareholders have agreed, inter
alia, not to sell Ordinary Shares for a period of 12 months after Admission, in each case subject to
certain exceptions.

Documents on display
Copies of this document, the Companys constitutional documents, service agreements of all of
the Executive Directors and letters of appointment of all of the Non-Executive Directors, the
reports prepared by Ernst & Young LLP, the technical report by IMC Group Consulting Limited and
the letters of consent referred to in paragraph 18 of Part XIV: Additional Information shall be
on display during normal business hours at the offices of Linklaters, One Silk Street, London
EC2Y 8HQ from the date of this document until 14 days following Admission.
1 Source: Section B of Part IX: IFRS Historical Financial Information.
2 Source: Company (unaudited)

11

PRA1 24

Risk factors
In addition to the other information contained in this Prospectus, prospective subscribers or
purchasers of the Ordinary Shares should consider carefully the specific risks set out below before
making a decision to invest in the Ordinary Shares. These risks and uncertainties may not be the
only ones facing the Hochschild Mining Group. Additional risks and uncertainties not presently
known to the Hochschild Mining Group or that the Hochschild Mining Group currently deems
immaterial may also impair the Hochschild Mining Groups business operations. The business,
financial condition or results of the operations of the Hochschild Mining Group could be
materially and adversely affected by any of these risks. The trading price of the Ordinary Shares
could decline due to any of these risks and investors could lose part or all of their investment.

Risks relating to the Hochschild Mining Groups operations

PRA1 4

The business of mining metals involves a number of risks and hazards, not all of which are
fully covered by insurance.
The mining business is subject to risks and hazards, many of which are outside the Hochschild
Mining Groups control. These risks include environmental hazards, industrial accidents, the
encountering of unusual or unexpected geological formations, cave-ins, flooding, earthquakes
and periodic interruptions due to inclement or hazardous weather conditions. These occurrences
could result in damage to, or destruction of, mineral properties or production facilities, personal
injury or death, environmental damage, reduced production and delays in mining, asset writedowns, monetary losses and possible legal liability. In particular, the Hochschild Mining Groups
Peruvian mines and projects are located in areas of high seismic risk. Although the facilities have
been designed to take account of such potential activity, a major earthquake could lead not only
to significant damage to the Hochschild Mining Groups facilities, but also to collapse of the
tailings dams which could result in significant environmental damage.
Although the Hochschild Mining Group maintains insurance in an amount that it considers to be
adequate, liabilities might exceed policy limits, in which event the Hochschild Mining Group could
incur significant costs that could materially and adversely affect its results of operations. Insurance
fully covering many environmental risks (including potential liability for pollution or other
hazards as a result of disposal of waste products occurring from exploration and production) is not
generally available to the Hochschild Mining Group or to other companies in the mining industry.
The realisation of any significant liabilities in connection with the Hochschild Mining Groups
mining activities as described above could have a material adverse effect on its results of
operations or financial condition.
The Hochschild Mining Groups financial performance is highly dependent upon the price of
silver and gold.
The Hochschild Mining Groups financial performance is highly dependent on the market price of
silver, which accounted for approximately 41 per cent. of its revenue in 2005, and the market price
of gold, which accounted for approximately 59 per cent. of its revenue in 2005. These prices have
historically been subject to wide fluctuations and are affected by numerous factors beyond the
Hochschild Mining Groups control, including international economic and political conditions,
levels of supply and demand, the availability and costs of substitutes, inventory levels maintained
by producers and others, and actions of participants in the commodities markets.
To a lesser extent, the market prices of silver and gold are also subject to the effects of inventory
carrying costs and currency exchange rates. In addition, the market prices of silver and gold have
occasionally been subject to rapid short-term changes. See Part V: Market and Industry
Overview. The market price of silver and gold on 30 June 2006 was $10.70 per ounce and $600.40
per ounce (a.m. price), respectively, according to the London Bullion Market Association,
compared with 2005s average prices for silver and gold of $7.31 per ounce and $444 per ounce
(a.m. price), respectively. The price of silver and gold may decline in the future. Factors that are
12

PRA1 8.2

generally understood to contribute to a decline in the price of silver and gold include sales by
private and government holders, and a general global economic slowdown. Future prolonged
reductions or declines in the world silver and gold prices could have a material adverse effect on
the Hochschild Mining Groups revenues, profitability and reserves.
The Hochschild Mining Groups business requires substantial capital expenditure.
The mining business is capital intensive and the development and exploitation of silver and gold
reserves and the acquisition of machinery and equipment require substantial capital expenditure.
The Hochschild Mining Group has a number of development projects and prospects, as well as
plans for its existing operations, which involve significant capital expenditure. In particular, the
Hochschild Mining Group must continue to invest significant capital to maintain or to increase the
amount of reserves that it exploits and the amount of metal that it produces. Some of the
Hochschild Mining Groups development projects and prospects may require greater investment
than currently planned. There can be no assurance that the Hochschild Mining Group will be able
to maintain its production levels and generate sufficient cash flow, or that the Hochschild Mining
Group will have access to sufficient investments, loans or other financing alternatives, to continue
its exploration, exploitation, development and processing activities at or above present levels.
The Hochschild Mining Groups future performance will be affected by its ability to realise its
existing reserves base, convert resources into reserves and mineralised potential into
resources, and conduct successful exploration.
As at 30 June 2006, the average life of mine of the Groups operating mines was 2.8 years and the
average projected mine life of its advanced development projects was 4.1 years. To extend the
lives of its mines and projects, ensure the continued operation of the business and realise its
growth strategy, it is essential that the Hochschild Mining Group continues to realise its existing
identified reserves, convert resources into reserves, develop its resource base through the
realisation of identified mineralised potential, and/or undertake successful exploration or acquire
new resources.
The Hochschild Mining Groups mineral reserves and resources described in this Prospectus
constitute estimates that comply with standard evaluation methods generally used in the
international mining industry and are stated in conformity with the JORC Code. In respect of these
estimates, no assurance can be given that the anticipated tonnages and grades will be achieved,
that the indicated level of recovery will be realised or that mineral reserves can be mined or
processed profitably. Actual reserves may not conform to geological, metallurgical or other
expectations, and the volume and grade of ore recovered may be below the estimated levels. In
addition, there can be no assurance that mineral recoveries in small scale laboratory tests will be
duplicated in larger-scale tests under on-site conditions or during production. Lower market
prices, increased production costs, reduced recovery rates and other factors may render the
Hochschild Mining Groups reserves uneconomic to exploit and may result in revision of its reserve
estimates from time to time. Reserve data are not indicative of future results of operations. If the
Hochschild Mining Groups actual mineral reserves and resources are less than current estimates
or, if the Group fails to develop its resource base through the realisation of identified mineralised
potential, the Hochschild Mining Groups results of operations or financial condition may be
materially and adversely affected.
Minerals exploration is highly speculative in nature, involves many risks and is frequently
unsuccessful. Once mineralisation is discovered, it may take a number of years to complete the
geological surveys to assess whether production is possible and, even if production is possible, the
economic feasibility of production may change during that time. Substantial capital expenditure is
required to identify and delineate ore reserves through geological surveying and trenching and
drilling, to determine metallurgical processes to extract the metals from the ore and, in the case of
new properties, to construct mining and processing facilities. In particular, the geological
characteristics of the Groups operating mines mean that it is difficult to prove up reserves
13

without significant investment in underground development. Consequently, the Groups strategy

to date has been to undertake a continuing exploration and development programme to ensure
the reserve and resource base is developed in step with production and planned expansion as well
as identifying mineralised potential to supplement the resource base going forward. The focus of
this reserve development strategy has been to maximise the cash flow from its operations rather
than extend the lives of its operating mines. Notwithstanding the Hochschild Mining Groups
consistent track record of replacing its reserves and the Hochschild Mining Groups expertise in
relation to mineral deposits of this nature, there can be no assurance that the Hochschild Mining
Group will be able to identify future reserves or continue to extend the mine life of its existing
operations. Any failure by the Hochschild Mining Group to identify and delineate ore reserves in
the future could have a material adverse effect on its results of operations or financial condition.
An increase in the Hochschild Mining Groups production costs could materially and adversely
affect its profitability.
Changes in the Hochschild Mining Groups production costs could have a major impact on its
profitability. Its main production expenses are contractor costs, materials, personnel costs and
energy. Changes in the costs of the Hochschild Mining Groups mining and processing operations
could occur as a result of unforeseen events, including international and local economic and
political events, and could result in changes in profitability or reserve estimates. Many of these
factors may be beyond the Hochschild Mining Groups control.
The Hochschild Mining Group relies on third party suppliers for a number of its raw materials,
including for the supply of cement, wood, cyanide and steel used in the construction and
continuing development of its mines and the processing of ore. Any material increase in the cost
of raw materials, or the inability by the Hochschild Mining Group to source third party suppliers
for the supply of its raw materials, could have a material adverse effect on the Hochschild Mining
Groups results of operations or financial condition.
The Hochschild Mining Groups current operations, projects and prospects are located in
remote areas and the Hochschild Mining Groups production, processing and product delivery
relies on the infrastructure being adequate and remaining available.
The Hochschild Mining Groups mining, processing, development and exploration activities
depend, to one degree or another, on adequate infrastructure. The regions where the Groups
current operations, projects and prospects are located are sparsely populated and difficult to
access. The Group requires reliable roads, bridges, power sources and water supplies to access and
conduct its operations and the availability and cost of this infrastructure affects capital and
operating costs and the Hochschild Mining Groups ability to maintain expected levels of
production and sales. Unusual weather or other natural phenomena, sabotage or government or
other interference in the maintenance or provision of such infrastructure could impact
development of a project, reduce mining volumes, increase mining or exploration costs or delay
the transportation of raw materials to the mines and projects or dore and concentrate to
customers. Any such issues arising in respect of the infrastructure supporting or on the Hochschild
Mining Groups sites could materially and adversely affect the Hochschild Mining Groups results
of operations or financial condition.
Furthermore, any failure or unavailability of the Hochschild Mining Groups operational
infrastructure (for example, through equipment failure at its concentrator or leaching facilities or
disruption to its transportation arrangements) could adversely affect the production output from
its mines or impact its exploration activities or development of a mine or project.
In particular, the Hochschild Mining Group sources the electricity supply for each of its operating
units from the Peruvian national grid via two separate supply lines. Whilst back-up power
generators are located at each of the operating units, in the event of a failure of both of these
supply lines from the national grid, there can be no assurance that these back-up generators will
be effective in preventing any interruption to the operations of the Hochschild Mining Group and,
14

at the Arcata unit, the back-up generators currently provide only around 33 per cent. of the
generation capacity required to maintain full operations at the unit. Any prolonged or persistent
failure of the power supply from the national grid could increase production costs, significantly
delay or halt operations and, consequently, have a material adverse effect on the Hochschild
Mining Groups results of operations or financial condition.
The Hochschild Mining Group depends upon trucking to deliver fuel, wood, cement, cyanide, steel
and other supplies to its operations and to deliver its commodities to its customers. These
transport services in some cases may not be adequate to support the Hochschild Mining Groups
existing operations or to support the Hochschild Mining Groups expanded operations.
Disruptions of these transport services because of weather-related problems, key equipment
failures, strikes, lock-outs or other events could temporarily impair the Hochschild Mining Groups
ability to supply its commodities to its customers which could materially and adversely affect the
Hochschild Mining Groups results of operations or financial condition.
The Hochschild Mining Group depends on a pumping system to extract water located
underground at the Arcata unit and to prevent the Arcata mine from flooding. Whilst the Group
has infrastructure in place for the extraction and storage of water, any prolonged or persistent
failure in the operation of the pumping system leading to a significant delay in extracting water
could lead to flooding of the Arcata mine which, in turn, could result in damage to, or destruction
of, a portion of the Hochschild Mining Groups production facilities or injury to the Hochschild
Mining Groups employees and contracted personnel. Any damage to or destruction of such
production facilities or injury to employees or contracted personnel could have a material adverse
effect on the Hochschild Mining Groups results of operations, financial condition or reputation.
Delay or failure by the Hochschild Mining Group in completing its development projects could
have a material adverse effect on the Hochschild Mining Groups growth prospects.
Successful completion of the Hochschild Mining Groups development projects is subject to various
factors, many of which are not within its control. These factors include the granting of consents
and permits from the relevant government departments, the availability, terms, conditions and
timing of acceptable arrangements for transportation, construction and refining and the
performance of engineering and construction contractors, mining contractors, suppliers and
consultants. The lack of availability of acceptable contractual terms, or a slower than anticipated
performance by any contractor, could delay or prevent the successful completion of any of the
Hochschild Mining Groups development projects. Completion or further expansion of the
Hochschild Mining Groups development projects may be compromised in the event of a
prolonged decline in price levels for silver and gold. There can be no guarantee as to when the
Hochschild Mining Groups development projects will be completed, whether the resulting
operations will achieve the anticipated production volumes or whether the costs in developing
these projects will be in line with those anticipated. The Hochschild Mining Groups inability to
complete its development projects as planned may have a material adverse effect on the results of
operations or financial condition of the Hochschild Mining Group.
The Hochschild Mining Groups joint venture arrangements and options may not be successful.
The Hochschild Mining Group has entered into joint venture arrangements and options for certain
of its development projects in order to gain access to mineral assets as part of its growth strategy.
Some of these joint ventures are fundamental to the Hochschild Mining Groups business plan to
achieve production growth. The Hochschild Mining Group is currently developing the San Jose
(Argentina) and Pallancata (Peru) projects, amongst others, under joint venture arrangements.
Although the Hochschild Mining Group has sought to protect its interests in these development
projects by ensuring it has management control and through the terms of the governing
agreements (for example, through the inclusion in a number of the relevant agreements of a call
option over its joint venture partners share of the project in the event of a breach by its joint
venture partner), joint ventures necessarily involve special risks associated with the possibility that
15

the joint venture partners may (i) have economic or business interests or goals that are
inconsistent with those of the Hochschild Mining Group, (ii) take action contrary to the Hochschild
Mining Groups policies or objectives with respect to its investments, for instance by veto of
proposals in respect of the joint venture operations or (iii) as a result of financial or other
difficulties, be unable or unwilling to fulfil their obligations under the joint venture or other
agreements. Any of the foregoing may have a material adverse effect on the results of operations,
financial condition or prospects of the Hochschild Mining Group through the delay or noncompletion of these development projects. In addition, the termination of certain of these joint
ventures, if not replaced on similar terms, could have a material adverse effect on the results of
operations, financial condition or prospects of the Hochschild Mining Group.
If the Hochschild Mining Group fails to consummate or integrate acquisitions successfully, the
Hochschild Mining Groups rate of expansion could slow and its results of operations or
financial condition could suffer.
The Hochschild Mining Group has expanded operations in Latin America through both
development and acquisition of new projects, and the Hochschild Mining Group expects to
continue to do so in the future. The Hochschild Mining Group intends to pursue a strategy of
identifying and acquiring early stage projects and/or existing businesses with a view to expanding
its operating businesses. There can be no assurance that the Hochschild Mining Group will
continue to identify suitable projects, acquisitions and strategic investment opportunities or that
any business acquired will prove to be profitable at all, or as profitable as its current operations. In
addition, acquisitions and investments involve a number of risks, including possible adverse effects
on the Hochschild Mining Groups operating results, diversion of managements attention, failure
to retain key personnel in the acquired businesses, risks associated with unanticipated events or
liabilities and difficulties in the integration of the operations.
Fluctuations in currencies may adversely affect the Hochschild Mining Groups results of
operations and financial condition.
The Hochschild Mining Groups revenues are almost entirely in US dollars, whilst a substantial
proportion of the Hochschild Mining Groups costs are incurred in Nuevos Soles. In addition, the
Hochschild Mining Group expects the proportion of the costs it incurs in other local currencies to
increase if its pipeline of Latin American development projects and prospects commences
production. The Hochschild Mining Group does not undertake any hedging activities in relation to
exchange rates. As a result, if the Nuevo Sol, or any of these other local currencies, were to
strengthen against the US dollar, this could have a material adverse effect on the Hochschild
Mining Groups financial condition and results of operations. Similarly, Peru and the other Latin
American countries where the Hochschild Mining Groups projects are located have experienced
periods of high inflation and substantial currency devaluation over recent decades. Although
inflation has been largely stable in recent years in these jurisdictions, if it were to increase without
a corresponding devaluation of the relevant local currency relative to the US dollar, the
Hochschild Mining Groups financial condition and results of operations could be materially and
adversely affected.
The Hochschild Mining Group only engages in limited hedging activities and, therefore, is
exposed to future changes in commodity prices.
The Hochschild Mining Group is exposed to the effect of changes in commodity prices (in
particular, to the price of silver and gold and to changes in interest rates). The Hochschild Mining
Group only engages in limited hedging activities in relation to prices of silver and gold, principally
in connection with the security arrangements for its long-term financing. Accordingly, the
Hochschild Mining Groups results of operations are exposed to changes in commodity prices.

16

The Hochschild Mining Groups revenues are currently derived from silver and gold production
at only three facilities, all in Peru.
The Hochschild Mining Groups current revenues are derived from silver and gold produced by the
Arcata, Ares and Selene mines, all of which are located in Peru. If mining or processing operations
in any one of these complexes were materially reduced, interrupted or curtailed, then the
Hochschild Mining Groups results of operations or financial condition could be materially and
adversely affected.
A reduction or discontinuance in the Hochschild Mining Groups refining arrangements could
have an adverse effect on the Groups cashflows, results of operations or financial condition.
There are a limited number of refineries available throughout the world for the refining of the
All of the dore produced by the Hochschild Mining Group is
Hochschild Mining Groups dore.
currently sent to Johnson Matthey for refining under a contract which expires on 31 December
2006. If Johnson Matthey were to reduce or discontinue the arrangements it has in place with the
Hochschild Mining Group or did not agree to a renewal of its contract, no assurance can be given
that an alternative refiner would be available on acceptable contractual terms, or that delays or
disruptions in sales would not be experienced that could result in an adverse effect on the
Hochschild Mining Groups cash flows, results of operations or financial condition.
The Hochschild Mining Groups sales of concentrate could be adversely affected if there were
to be a reduction or discontinuance of purchases by the Hochschild Mining Groups main
customer.
The Hochschild Mining Group currently sells its concentrate production from the Arcata unit

exclusively to Penoles
under a one-year contract. If Penoles
were unexpectedly to reduce or
discontinue its purchasing of the Hochschild Mining Groups concentrate or did not agree to a
renewal of its contract, no assurance can be given that delays or disruptions in sales would not be
experienced until such time as alternative customers could be found, or that arrangements with
alternative customers would be entered into on terms as favourable to the Hochschild Mining
Group. Any of the foregoing risks could result in an adverse effect on the Hochschild Mining
Groups cash flows, results of operations or financial condition.
The Hochschild Mining Group faces competition from other mining companies for the
acquisition of new properties.
Mines have finite lives and, as a result, the Hochschild Mining Group seeks to replace and expand
its reserves through the acquisition of new properties and by developing projects. There is a
limited supply of desirable properties with potential mineralisation available in the areas where
the Hochschild Mining Group would consider conducting exploration and/or production activities.
Because the Hochschild Mining Group faces competition for new properties from other mining
companies, some of which may have greater financial resources than the Hochschild Mining
Group, the Hochschild Mining Group may be unable to acquire attractive new mining properties
on terms that it considers acceptable. As a result, the Hochschild Mining Groups revenues from
the sale of silver and gold may decline over time, thereby materially and adversely affecting its
results of operations or financial condition.
The Hochschild Mining Group depends on its key personnel. If the Hochschild Mining Group is
unable to attract and retain key personnel, its business may be materially and adversely
affected.
The Hochschild Mining Groups business depends in significant part upon the contributions of a
number of the Hochschild Mining Groups key senior management and personnel, in particular its
highly skilled team of engineers and geologists. There can be no certainty that the services of its
key personnel will continue to be available to the Hochschild Mining Group. Factors critical to
retaining the Hochschild Mining Groups present staff and attracting additional highly qualified
17

personnel include the Hochschild Mining Groups ability to provide these individuals with
competitive compensation arrangements. If the Hochschild Mining Group is not successful in
retaining or attracting highly qualified individuals in key management positions and highly skilled
engineers and geologists, its business may be materially harmed. In some of the jurisdictions
where the Hochschild Mining Groups operations and development projects are located,
particularly Argentina, it may be difficult for the Hochschild Mining Group to find or hire qualified
people in the mining industry who are situated in those jurisdictions or to obtain all of the
necessary services or expertise locally or to conduct operations on its projects at reasonable rates.
If qualified people and services or expertise cannot be obtained in those jurisdictions, those
services will need to be obtained from people located elsewhere which will require work permits
and compliance with applicable laws and could result in delays and higher costs to develop its
projects.
The Hochschild Mining Groups business depends on good relations with its employees.
Although management believes its present labour relations are good, there can be no assurance
that a work slowdown, a work stoppage or strike will not occur at any of the Hochschild Mining
Groups operating units or development projects. In recent months, there have been a number of
instances of mining companies facing industrial action and work stoppages at their Latin
American operations which, in certain instances, have led to the operations being shut down.
Work slowdowns, stoppages or other labour-related developments or disputes could result in a
decrease in the Hochschild Mining Groups production levels and adverse publicity, which could
have a material adverse effect on the Hochschild Mining Groups results of operations or financial
condition.
Termination of the Hochschild Mining Groups stability arrangements could have a material
adverse effect on its financial condition or operating results.
The Hochschild Mining Group has entered into a mining stability agreement with the Peruvian
government in respect of its operations at the Ares operating unit. The stability agreement
freezes the mining regulatory regime applicable to the Group as at the date of the stability
agreement. Under the terms of the stability agreement, the Peruvian government has given
various guarantees to the Hochschild Mining Group, including that all taxes applicable to it (such
as income tax, municipal tax and customs duties) will not be increased (and the way such taxes are
determined will not be modified) throughout the period of the stability agreement. The stability
agreement also guarantees the Group free access to foreign currency with no exchange controls
and the ability to trade its products freely. As a result of the Groups stability agreement currently
in force, the Group pays income tax in Peru at a rate of 30 per cent. in respect of income
generated by the Ares operating unit, the rate in force at the date the stability agreement was
entered into.
On 24 June 2004, the Peruvian Congress approved Law 28258Mining Royalties Law, which
established a mining royalty to be paid by holders of mining concessions at rates of between 1 and
3 per cent. of revenues. The Directors believe that the stability agreement entered into by the
Ares operating unit exempts the Hochschild Mining Group from paying royalties with respect to
revenues generated at the Ares operating unit for so long as the stability agreement remains in
effect.
The Hochschild Mining Groups stability agreement is scheduled to terminate on 31 December
2008 and there can be no assurance that the Hochschild Mining Group will enter into a new
stability agreement or, if it does, on what terms that agreement will be entered into.
In addition, the Hochschild Mining Group has been granted stability certificates by the Ministry of
Mines in Argentina in respect of its advanced development project at San Jose whereby the
national and provincial tax regimes are frozen for a period of 30 years from 15 May 2006 and
20 June 2006, respectively.
18

The termination or renegotiation of the Hochschild Mining Groups stability agreement,

withdrawal of its stability certificates, or any successful challenge as to the validity of these
stability arrangements could result in an increase in the amount of tax or royalties the Hochschild
Mining Group might have to pay or the imposition of new duties or charges, including a claim for
previous non-payment of tax or governmental royalties covered by these arrangements, which in
turn could have a material adverse effect on the financial condition and operating results of the
Hochschild Mining Group. In particular, legislators in Peru have recently indicated their intention
to revive a bill enabling the Peruvian government to charge a royalty on all mining operators,
regardless of any previously agreed stability agreements. The bill, which was rejected by the
previous administration of President Alejandro Toledo, is currently being reviewed by the
Peruvian Committee of Energy and Mines and is scheduled to be debated by the Peruvian
Congress, although no timetable has been set for such debate. If the bill is approved by the
Peruvian Congress, there can be no assurance that the Groups current stability arrangements
protecting the Group against such payments in respect of revenues from the Ares operating unit
will be respected, which could result in new royalty payments being imposed on the Hochschild
Mining Group.
The Hochschild Mining Group is subject to significant laws and governmental regulations, and
their related costs may negatively affect the Hochschild Mining Groups business.
The Hochschild Mining Groups operations and exploration and development activities are subject
to extensive laws and regulations governing various matters. These include laws and regulations
relating to environmental protection, management and use of toxic substances and explosives,
management of natural resources, exploration, development of mines, production and postclosure reclamation, exports, price controls, repatriation of capital and exchange controls,
taxation, mining royalties, labour standards and occupational health and safety, including mine
safety, and historic and cultural preservation.
The costs associated with compliance with these laws and regulations are substantial and possible
future laws and regulations, changes to existing laws and regulations (including the imposition of
higher taxes and mining royalties) or more stringent enforcement or restrictive interpretation of
current laws and regulations by governmental authorities, could cause additional expense, capital
expenditures, restrictions on or suspensions of the Hochschild Mining Groups operations and
delays in the development of its properties. Moreover, these laws and regulations may allow
governmental authorities and private parties to bring lawsuits based upon damages to property
and injury to persons resulting from the environmental, health and safety impacts of the
Hochschild Mining Groups past and current operations, and could lead to the imposition of
substantial fines, penalties or other civil or criminal sanctions.
In Peru, whilst the new administration of Alan Garca has, to date, avoided any plans to impose
new taxes on mining operators, the government has outlined proposals for mining operators to
make a one-time voluntary payment calculated as a percentage of net profit for the purposes of
supporting social programmes aimed at reducing extreme poverty. The Hochschild Mining Group
has agreed to make such a payment in 2007 estimated at approximately US$850,000 in respect of
the financial year ending 31 December 2006, although the Company may agree to pay a portion
of this amount before 31 December 2006, such amount still to be negotiated and agreed. As the
details of the agreement negotiated by the Peruvian government and the mining industry in Peru
are still to be finalised, there can be no assurance that the estimated amount to be paid by the
Hochschild Mining Group will not increase materially or that the Peruvian government will not
impose further payments on mining operators in general or the Hochschild Mining Group in
particular. Any further payments or a material increase in the one-time payment to be made by
the Group could have a material adverse effect on the financial condition or operating results of
the Hochschild Mining Group.

19

The Hochschild Mining Groups activities are subject to environmental hazards as a result of
the processes and chemicals used in the Groups extraction and production methods, which
could have a material adverse effect on the Hochschild Mining Groups business, financial
condition or result of operations.
Mining activities are generally subject to environmental hazards as a result of the processes and
chemicals used in the extraction and production methods. In particular, the Hochschild Mining
Group employs cyanide in the production of its dore and high levels of naturally occurring arsenic
may be found in its concentrate production at the Arcata unit. As a result, environmental hazards
may exist on the Hochschild Mining Groups properties which are currently unknown to it or may
arise irrespective of whether the Hochschild Mining Group is in compliance with current
environmental regulations. In addition, the storage of tailings may present a risk to the
environment, property and persons. Whilst the design of the Hochschild Mining Groups tailings
dams is in accordance with Peruvian government guidance and the Hochschild Mining Group has
only previously experienced minor leakage from one of its dams at the Arcata unit, there remains
a risk of leakage from or failure of the Hochschild Mining Groups tailings dams. Furthermore,
whilst the Hochschild Mining Group treats the water discharged from its operating facilities in
accordance with Peruvian law and current international standards, the long term implications of
such discharge on the environment are difficult to predict.
The Hochschild Mining Group may be liable for losses associated with such hazards, or may be
forced to undertake extensive remedial clean-up action or to pay for governmental remedial
clean-up actions, even in cases where such hazards have been caused by previous or subsequent
owners or operators of the property, or by the past or present owners of adjacent properties or by
natural conditions. Although the Directors believe the Hochschild Mining Group is in substantial
compliance with applicable laws and regulations, they cannot guarantee that any such law,
regulation, enforcement or private claim will not have a material adverse effect on the Hochschild
Mining Groups business, financial condition or results of operations.
In addition, Peru, Argentina and Mexico are all signatories to, and have each ratified, the Kyoto
Protocol. The Kyoto Protocol is intended to limit or capture emissions of greenhouse gases such as
carbon dioxide and methane. Whilst the precise nature of the revised environmental regulations
and enforcement regime within these jurisdictions is yet to be finalised, compliance with new
environmental requirements that may be enacted to ensure compliance with the Kyoto Protocol
may require the Hochschild Mining Group to incur significant capital expenditure and failure to
comply with any new legislation could result in the Group incurring fines and other penalties.
The Hochschild Mining Groups mining concessions may be terminated in certain
circumstances.
Under the laws of the jurisdictions where the Hochschild Mining Groups operations, development
projects and prospects are located, mineral resources belong to the state and government
concessions are required to explore for and exploit mineral reserves. The Hochschild Mining Group
holds mining, exploration and other related concessions in each of the jurisdictions where it is
operating and where it is carrying on development projects and prospects. The concessions held
by the Hochschild Mining Group in respect of its operations, development projects and prospects
may be terminated under certain circumstances, including where minimum production levels are
not achieved by the Group (or a corresponding penalty is not paid), if certain fees are not paid or
if environmental and safety standards are not met. Termination of any one or more of the
Hochschild Mining Groups mining, exploration or other concessions could have a material adverse
effect on the Hochschild Mining Groups financial condition or results of operations.
Costs associated with the Peruvian Mine Closure Law could have a material adverse effect on
the Hochschild Mining Groups financial condition or results of operations.
Mine operators in Peru are subject to the Mine Closure Law which establishes provisions
relating to mine closure plans. The law provides that a mine operator must grant an
20

environmental warranty for the estimated costs associated with its mine closure plan. The law
does not establish when such warranties must be in place and does not specify the form of the
required warranty. However, the law indicates that a warranty may take the form of insurance,
cash collateral, a trust agreement or other form, as permitted by the Civil Code of Peru. Although
the Company has provisions for mine closures, as the implementing regulations of the Mine
Closure Law have yet to be finalised by the Peruvian government, there can be no assurance that
costs associated with the closure of the Hochschild Mining Groups operating mines would not
exceed such provisions, which could have a material adverse effect on its financial condition or
results of operations.
The Hochschild Mining Group is required to obtain governmental permits to expand
operations or commence new operations. The costs and delays associated with such approvals
could affect the Hochschild Mining Groups operations, reduce the Hochschild Mining Groups
revenues, and negatively affect the Hochschild Mining Groups business as a whole.
The Hochschild Mining Group is required to seek governmental permits for the expansion of
existing operations or for the commencement of new operations in each of the jurisdictions
where its operations, development projects and prospects are located. Obtaining the necessary
governmental permits is a complex and time-consuming process often involving public hearings
and costly undertakings. The duration and success of permitting efforts are contingent on many
factors that are outside the Hochschild Mining Groups control. The governmental approval
process may increase costs and cause delays, depending on the nature of the activity to be
permitted, and could cause the Hochschild Mining Group not to proceed with the development of
a mine.

Risks relating to operating in Peru, Mexico and Argentina

Local economic and political conditions may have a material adverse effect on the Hochschild
Mining Groups financial condition or results of operations.
All of the Hochschild Mining Groups operating mines are located in Peru, whilst certain of its
development projects and prospects are located in Peru, Mexico and Argentina. Accordingly, the
Hochschild Mining Groups business, financial condition or results of operations could be adversely
affected by changes in economic or other policies of the Peruvian, Mexican or Argentinian
governments or other political, regulatory or economic developments in these jurisdictions.
Latin America in general, and the jurisdictions where the Hochschild Mining Groups operations,
development projects and prospects are located in particular, have had a history of political
instability that has included a succession of regimes with differing policies and programmes. Past
governments in each of these jurisdictions have frequently intervened in the nations economy
and social structure. Among other actions, past governments have imposed controls on prices,
exchange rates and local and foreign investment as well as limitations on imports, have restricted
the ability of companies to dismiss employees, have expropriated private sector assets (including
mining companies) and have prohibited the remittance of profits to foreign investors.
Presidential elections have recently taken place in two of the jurisdictions where the Hochschild
Mining Groups operations and development projects are located. In June 2006, Alan Garca was
was declared the
elected as the new president of Peru and in September 2006 Felipe Calderon
new president of Mexico. Whilst the Directors believe in both cases that, relative to the defeated
candidate, the election results were favourable to the business environment within the relevant
country (and were so perceived by the financial community), the Directors cannot predict the
governments will pursue.
policies the Garca or Calderon
In Peru, the losing presidential candidate, Ollanta Humala, has indicated that he will not cooperate with the new administration and that he and his supporters will continue to oppose the
policies of Garcas government. Whilst it is not clear what form this opposition will take, any
protests against the government could lead to public strikes, mass demonstrations and civil
21

PRA1 4

disobedience, which could have a material adverse effect on the Peruvian economy and cause
material disruption to the Hochschild Mining Groups operations.
Manuel Lopez

In Mexico, the losing presidential candidate, Andres

Obrador, refused to accept the
election results, alleging fraud and called for a full recount of the votes cast in the elections. Since

the results were announced on 2 July 2006, Lopez

Obrador and his supporters have led a number
of mass demonstrations and street protests, and a recent protest in Mexicos Congress by left-wing
legislators forced the outgoing Mexican President, Vicente Fox, to abandon his final annual state
of the nation address. On 5 September 2006, the Mexican electoral court, in a decision that cannot
the
be appealed, unanimously ruled against annulling the 2 July elections and declared Calderon
president-elect.

Notwithstanding the Mexican electoral courts ruling, Lopez

Obrador has expressed his intention
to establish a parallel government and has publicly stated that he and his supporters will never
as President. Whilst it is not clear what form Lopez

recognise Calderon
Obradors and his
supporters opposition will take, any protests against the new government, or any attempt by

Lopez
Obrador to establish a parallel government, could lead to further public strikes, mass
demonstrations and civil disobedience, as well as increased political instability and uncertainty,
which could have a material adverse effect on the Mexican economy which, in turn, could cause
material disruption to the Hochschild Mining Groups Mexican projects and prospects.
Localised violence in Mexico linked to drug-trafficking could lead to disruption in the
Hochschild Mining Groups Mexican development projects and prospects which, in turn, could
have a material adverse effect on the Hochschild Mining Groups financial condition or results
of operations.
Certain areas in the north of Mexico have experienced outbreaks of localised violence linked to
drug-trafficking in the region. Whilst the Hochschild Mining Groups Mexican projects and
prospects have, to date, been unaffected by such outbreaks, any increase in the level of violence,
or a concentration of the violence in areas where the Groups Mexican projects and prospects are
located, could have a material adverse effect on the Groups financial condition or results of
operations.
Potential local opposition to mining could lead to disruption in the Hochschild Mining Groups
mine development projects and prospects which could have a material adverse effect on the
Hochschild Mining Groups financial condition or results of operations.
There is the potential for local opposition to mine development projects and prospects.
Opposition in each of the jurisdictions where the Hochschild Mining Groups operations,
development projects and prospects are located has arisen in the past. Whilst the Hochschild
Mining Group believes it maintains good relations with local communities, the Hochschild Mining
Group cannot rule out the possibility of local opposition arising in the future in respect of its
existing operations, development projects or prospects or in relation to obtaining concessions for
current or future projects. If the Hochschild Mining Group were to experience opposition in
connection with its existing operations or current or future projects, it could have a material
adverse effect on the Hochschild Mining Groups financial condition or results of operations.
The courts of the jurisdictions in which the Hochschild Mining Group operates or might
operate in the future may offer less certainty as to the judicial outcome or less effective forms
of redress or a more protracted judicial process than is the case in the United States and
western Europe which could result in risks for the Hochschild Mining Group.
The courts and legal systems in the jurisdictions in which the Hochschild Mining Group operates or
might operate in the future may offer less certainty as to judicial outcome and less effective forms
of redress than is the case in the United States or western Europe. Accordingly, the Hochschild
Mining Group could, inter alia, face risks from (i) a higher degree of discretion on the part of
governmental authorities; (ii) the lack of judicial or administrative guidance on interpreting
22

applicable rules and regulations; (iii) inconsistencies or conflicts between and with various laws,
regulations, decrees, orders and resolutions; (iv) relative inexperience of the judiciary and courts in
such matters; or (v) a more protracted judicial process resulting in delays in reaching a judicial
outcome. Similarly, there may be less certainty that government officials and agencies will abide
by legal requirements, licences, permits and negotiated agreements. There can be no assurance
that the foregoing would not have an adverse effect on the validity or enforceability of the joint
ventures, licences, permits or other legal arrangements entered into by the Hochschild Mining
Group or the application or enforcement of laws and regulations to which the Hochschild Mining
Group is subject.

Risks relating to the Hochschild Mining Groups structure

Certain major shareholders will exercise significant control over the Hochschild Mining Group
after the Global Offer and, as a result, investors may not be able to influence the outcome of
important decisions in the future.
Immediately following the Global Offer and Admission, the Major Shareholder, which is
controlled by Eduardo Hochschild and Alberto Beeck as described in paragraph 5 of Part XIV:
Additional Information, will beneficially own 73.7 per cent. of the issued Ordinary Shares in the
Company (assuming the Over-allotment Option is not exercised). As a result, this Major
Shareholder will be able to exercise significant influence over all matters requiring shareholder
approval, including the election of Directors and significant corporate transactions. The Company
has entered into a Relationship Agreement with the Major Shareholder, Mr. Hochschild and
Mr. Beeck to ensure that the Hochschild Mining Group is capable of carrying on its business
independently, and to ensure that transactions and relationships between the Hochschild Mining
Group, the Major Shareholder, Mr. Hochschild and Mr. Beeck are at arms length and on normal
commercial terms. See Relationship with the Major Shareholder in Part III: Management,
Corporate Governance and the Major Shareholder for further information about the
Relationship Agreement.
However, the concentration of ownership may have the effect of delaying or deterring a change
in control of the Hochschild Mining Group, could deprive shareholders of an opportunity to
receive a premium for their Ordinary Shares as part of a sale of the Hochschild Mining Group and
might affect the market price and liquidity of the Ordinary Shares. Furthermore, although the
Directors and the Over-allotment Shareholders have each agreed, not to dispose of any of their
holding of Ordinary Shares without the consent of the Joint Global Coordinators and subject to
certain exceptions, for a period of 12 months from the date of this Prospectus, the Directors and
the Over-allotment Shareholders may subsequently sell all or part of their holdings of Ordinary
Shares which may negatively affect the price of Ordinary Shares. See paragraph 11 of Part XIV:
Additional Information.
Because the Company is primarily a holding company, its ability to pay dividends depends
upon the ability of its subsidiaries to pay dividends and to advance funds.
The payment of dividends by the Company is subject to the Company having sufficient
distributable reserves for such purposes. The Company has commenced a process to create such
reserves through a court-approved reduction of the nominal value of the Companys Ordinary
Shares from 50 pence to 25 pence per Ordinary Share pursuant to Section 135 of the Companies
Act. The Company has passed a resolution to reduce its nominal capital as it will stand following
completion of the Global Offer, and has applied to the High Court of Justice in England and Wales
for an order confirming the reduction (see paragraph 2.2.6 of Part XIV: Additional Information).
As of the date of this Prospectus, the Company is not able to provide any assurance that such
application will be successful. If the application is not successful, the reduction of capital will not
become effective and the Company will initially have no distributable reserves. As a result, the
Company would be reliant upon receiving dividends from its subsidiaries in order to generate
distributable reserves, which may impact the Companys ability to pay dividends. Other
23

PRA1 4

contractual and legal restrictions applicable to the Companys subsidiaries could also limit its
ability to obtain cash from them, including under the terms of the Secured Loan Agreement,
details of which are set out in paragraph 12 of Part XIV: Additional Information. The Companys
rights to participate in any distribution of its subsidiaries assets upon their liquidation,
reorganisation or insolvency would generally be subject to prior claims of the subsidiaries
creditors, including any trade creditors.

Risks relating to the Ordinary Shares

There has been no prior public trading market for the Ordinary Shares, and an active trading
market may not develop or be sustained in the future.
Prior to the Global Offer, there has been no public trading market for the Ordinary Shares.
Although the Company has applied to the Financial Services Authority for admission to the
Official List and has applied to the London Stock Exchange for admission to trading on its market
for listed securities, the Company can give no assurance that an active trading market for the
Ordinary Shares will develop or, if developed, can be sustained following the closing of the Global
Offer. If an active trading market is not developed or maintained, the liquidity and trading price
of the Ordinary Shares could be adversely affected.
Publicly traded securities from time to time experience significant price and volume fluctuations
that may be unrelated to the operating performance of the companies that have issued them. In
addition, the market price of the Ordinary Shares may prove to be highly volatile. The market
price of the Ordinary Shares may fluctuate significantly in response to a number of factors, many
of which are beyond the Hochschild Mining Groups control, including: variations in operating
results in the Hochschild Mining Groups reporting periods; changes in financial estimates by
securities analysts; changes in market valuation of similar companies; announcements by the
Hochschild Mining Group of significant contracts, acquisitions, strategic alliances, joint ventures or
capital commitments; loss of a major customer; additions or departures of key personnel; any
shortfall in revenues or net income or any increase in losses from levels expected by securities
analysts; future issues or sales of Ordinary Shares; and stock market price and volume fluctuations.
Any of these events could result in a material decline in the price of the Ordinary Shares.
The Hochschild Mining Group cannot assure investors that it will make dividend payments in
the future.
The Directors may be unable to declare or pay any dividends. Future dividends will depend,
among other things, on the Hochschild Mining Groups future profits, financial position,
distributable reserves, holding capital requirements, general economic conditions and other
factors that the Directors deem significant from time to time.
Future sales of Ordinary Shares could depress the market price of the Ordinary Shares.
The Hochschild Mining Group is unable to predict whether substantial amounts of Ordinary Shares
will be sold in the open market following the termination of the lock-up restrictions put in place
in connection with the Global Offer. Further details of the lock-up restrictions are contained in
paragraph 6 of Part XII: Details of the Global Offer of this document. Any sales of substantial
amounts of Ordinary Shares in the public market, or the perception that such sales might occur,
could result in a material adverse effect on the market price of the Ordinary Shares.
Holders of Ordinary Shares outside the United Kingdom may not be able to exercise their preemptive rights.
In the case of an allotment of Ordinary Shares for cash, the Companys existing shareholders are
entitled to pre-emptive rights unless waived by a resolution of the shareholders at a general
meeting or in certain circumstances as stated in the Articles. If the Company allots Ordinary Shares
for cash in the future and pre-emptive rights are not waived, holders of the Ordinary Shares
24

PRA3 2

outside the United Kingdom may not be able to exercise their pre-emptive rights for Ordinary
Shares unless Hochschild Mining decides to comply with applicable local laws and regulations and,
in the case of holders in the United States, a registration statement under the Securities Act is
effective with respect to such rights, or an exemption from the registration statement under the
Securities Act is available. Hochschild Mining intends to evaluate at the time of any rights or
similar offering the costs and potential liabilities associated with any such registration statement
or an exemption from registration, as well as the indirect benefits of enabling holders of
Hochschild Minings Ordinary Shares in the United States to exercise any pre-emptive rights for
Ordinary Shares and any other factors considered appropriate at the time, and then to make a
decision as to how to proceed. Hochschild Mining cannot assure its US shareholders that steps will
be taken to enable them to exercise their pre-emptive rights, or to permit them to receive any
proceeds or other amounts relating to their pre-emptive rights.

25

Directors, secretary, registered

and head office
Directors ******************************** Eduardo Hochschild

Roberto Danino
Alberto Beeck
Sir Malcolm Field
Jorge Born Jr.
Nigel Moore
Dionisio Romero

PRA1 1.1
PRA3 1.1

Company Secretary ********************** Prism CoSec Limited

49 Grange Road
Dorridge
Solihull
West Midlands B93 8QS
United Kingdom

PRA1 5.1.4

Registered Office ************************ One Silk Street

London EC2Y 8HQ
United Kingdom
Head Office and Directors Business
Address ******************************* Pasaje El Carmen 180
Surco
Lima 33
Peru
PRA3 10.1

Advisers
Financial Adviser ************************ JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
Joint Sponsors, Joint Global Co-ordinators
and Joint Bookrunners ***************** JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom

Goldman Sachs International

Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom

PRA3 5.4.1
PRA3 5.4.3
PRA3 10.1

Co-Lead Manager************************ Canaccord Adams Limited

Brook House, 1st Floor
27 Upper Brook Street
London W1K 7QF
United Kingdom
Co-Manager***************************** Nomura International plc
Nomura House
1 St. Martins-Le-Grand
London EC1A 4NP
United Kingdom
Legal Adviser to Hochschild Mining as
to English law and US law ************* Linklaters
One Silk Street
London EC2Y 8HQ
United Kingdom
Legal Adviser to the Joint Sponsors, Joint
Global Co-ordinators, Joint Bookrunners
and Managers as to English law and US
law *********************************** Freshfields Bruckhaus Deringer
65 Fleet Street
London EC4Y 1HS
United Kingdom
Auditors and Reporting Accountants ******** Ernst & Young LLP
1 More London Place
London SE1 2AF
United Kingdom
Registered to carry out audit work by the
Institute of Chartered Accountants in
England & Wales
Technical Consultant ********************* IMC Group Consulting Ltd
Innovate Office Building
Lakeview Drive
Sherwood Park
Nottinghamshire
NG15 ODT
United Kingdom
Registrar and Paying Agent ************** Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 OLA

26

PRA3 10.1

PRA3 10.1

PRA1 2.1
PRA1 23.1
PRA3 10.1
PRA3 10.3

PRA3 4.3
PRA3 5.4.2
PRA1 23.1
PRA3 10.1
PRA3 10.3

Global Offer statistics

Offer Price (per Ordinary Share)***********************************************

350p

Number of Ordinary Shares being offered in the Global Offer(1) *****************

77,250,000

Number of Ordinary Shares to be admitted to the Official List of the Financial

Services Authority**********************************************************

307,350,226

Percentage of the enlarged issued Ordinary Share capital being offered in the
Global Offer(1) *************************************************************

25%

Maximum number of Ordinary Shares subject to the Over-allotment Option *****

11,587,500

Number of Ordinary Shares in issue following the Global Offer *****************

307,350,226

Market capitalisation of the Company*****************************************

1,076
million

Estimated net proceeds of the Global Offer receivable by the Company(2) ********

249
million

PRA3 5.3.1
PRA3 5.1.2
PRA3 5.2.5(a)

Notes:
(1) Assumes no exercise of the Over-allotment Option.
(2) Net proceeds receivable by the Company are stated after deduction of underwriting commissions and estimated
expenses of the Global Offer (including VAT) of approximately 21 million.

Expected timetable of principal events

Conditional dealings in Ordinary Shares expected to commence
on the London Stock Exchange ******************************
Admission and expected commencement of unconditional
dealings in Ordinary Shares on the London Stock Exchange ***

3 November 2006
8.00 a.m. (London time)
on 8 November 2006

Crediting of Ordinary Shares to CREST accounts ****************

8.30 a.m. (London time) on

8 November 2006

Despatch of definitive share certificates (where applicable)******

Week commencing
20 November 2006

Each of the times and dates in the above timetable is subject to change.

It should be noted that if Admission does not occur, all conditional dealings will be of no effect
and any such dealings will be at the sole risk of the parties concerned.

27

PRA3 8.1

PRA3 5.1.3
PRA3 5.1.9
PRA3 5.2.4

PRA3 5.3.2
PRA3 5.1.3
PRA3 5.1.8
PRA3 4.7

Presentation of information
Investors should rely only on the information in this document. No person has been authorised to
give any information or to make any representations other than those contained in this
document in connection with the Global Offer and, if given or made, such information or
representations must not be relied upon as having been authorised by or on behalf of the
Company, the Directors or the Managers. No representation or warranty, express or implied, is
made by any Manager or selling agent as to the accuracy or completeness of such information,
and nothing contained in this document is, or shall be relied upon as, a promise or representation
by any Manager or selling agent as to the past, present or future. Without prejudice to any
obligation of the Company to publish a supplementary prospectus pursuant to section 87G of the
FSMA and PR 3.4.1 of the Prospectus Rules, neither the delivery of this document nor any
subscription or sale made under this document shall, under any circumstances, create any
implication that there has been no change in the business or affairs of the Company or of the
Hochschild Mining Group taken as a whole since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
The contents of this document are not to be construed as legal, business or tax advice. Each
prospective investor should consult his or her own lawyer, financial adviser or tax adviser for legal,
financial or tax advice in relation to any purchase or proposed purchase of Ordinary Shares.
In connection with the Global Offer, the Managers and any of their affiliates, acting as investors for
their own accounts, may take up Ordinary Shares and in that capacity may retain, purchase, sell,
offer to sell or otherwise deal for their own accounts in such Ordinary Shares and other securities of
the Company or related investments in connection with the Global Offer or otherwise. Accordingly,
references in this document to the Ordinary Shares being issued, offered, subscribed, acquired,
placed or otherwise dealt in should be read as including any issue or offer to, or subscription,
acquisition, placing or dealing by the Managers and any of their affiliates acting as investors for
their own accounts. The Managers do not intend to disclose the extent of any such investment or
transactions otherwise than in accordance with any legal or regulatory obligations to do so.
None of the Company, the Directors or the Managers is making any representation to any offeree
or purchaser of the Ordinary Shares regarding the legality of an investment by such offeree or
purchaser.
Apart from the responsibilities and liabilities, if any, which may be imposed on Goldman Sachs
International, JPMorgan Cazenove Limited, J.P. Morgan Securities Limited, Canaccord Adams
Limited and Nomura International plc by the FSMA or the regulatory regime established
thereunder or any other applicable regulatory regime, each of Goldman Sachs International, JP
Morgan Cazenove Limited, J.P. Morgan Securities Limited, Canaccord Adams Limited and Nomura
International plc accepts no responsibility whatsoever for the contents of this document or for any
other statement made or purported to be made by it, or on its behalf, in connection with the
Company, the Shares or the Global Offer. Each of Goldman Sachs International, JPMorgan
Cazenove Limited, J.P. Morgan Securities Limited, Canaccord Adams Limited and Nomura
International plc accordingly disclaims all and any liability whether arising in tort, contract or
otherwise (save as referred to above) which it might otherwise have in respect of such document
or any such statement.
Prior to making any decision as to whether to purchase the Ordinary Shares, prospective investors
should read this document. In making an investment decision, prospective investors must rely
upon their own examination of the Company and the terms of this document, including the risks
involved.
Presentation of financial information
Unless otherwise indicated, financial information in this Prospectus has been prepared in
accordance with International Financial Reporting Standards (IFRS) , except, for the purposes of
28

presenting the financial information on a combined basis, in respect of certain matters explained
in Section B of Part IX: IFRS Historical Financial Information and in US dollars. IFRS differ in
certain significant respects from US GAAP. The underlying financial information stated in local
currency has been translated into US dollars on the basis set out in Currencies below. For a
discussion of the most significant differences between IFRS and US GAAP as they relate to the
Hochschild Mining Group, see Part XI: Summary of Differences between IFRS and US GAAP. All
unaudited financial information in this Prospectus has been extracted without material
adjustment from the Groups accounting records.
The Hochschild Mining Group has not in the past formed a separate legal group. The Company
was incorporated on 11 April 2006 and acquired its shareholding in the companies constituting
the Hochschild Mining Group pursuant to a share exchange agreement dated 2 November 2006
(see paragraph 2 of Part XIV: Additional Information). The combined historical financial
information contained in Part IX: IFRS Historical Financial Information has been prepared on a
basis that combines the results and assets and liabilities of the companies comprising the
Hochschild Mining Group. Internal transactions within the Hochschild Mining Group have been
eliminated on combination.
The financial information contained in Part IX: IFRS Historical Financial Information for the
financial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006
has been audited, whilst the financial information for the six months ended 30 June 2005 is
unaudited.
The Hochschild Mining Group calculates EBITDA as profit from continuing operations before net
finance costs and income tax plus depreciation (included in both cost of sales and administrative
expenses), increase in provision for mine closure, exploration costs other than personnel and
other, and non-recurring cash items included in other expenses, less gain on sale of zinc project
and non-recurring cash items included in other income. The Company presents EBITDA because it
believes that EBITDA is a useful measure for evaluating its ability to generate cash and its
operating performance. EBITDA is not a measure of financial performance under IFRS or US GAAP.
Investors should not consider EBITDA in isolation, as an alternative to profit from continuing
operations, as an indicator of operating performance, as an alternative to cash flows from
operating activities or as a measure of the Companys profitability or liquidity. EBITDA as
presented in this Prospectus may not be comparable to other similarly titled measures of
performance of other companies.
The Hochschild Mining Group calculates total cash costs to include cost of sales, commercial
deductions and selling expenses, less depreciation included in cost of sales. Commercial
deductions are the treatment charges for the processing of concentrate from Arcata and, while it
was producing concentrate, Selene and penalty charges related to levels of impurities in the
concentrate in excess of specified thresholds. These charges are deducted when the Hochschild
Mining Group calculates the price it invoices its customer for the sale of concentrate and therefore
the revenues received by the Hochschild Mining Group are shown net of these charges. See
Part VII: Operating and Financial ReviewRevenues. Total cash costs and total cash costs per
ounce are presented because the Company believes they provide a measure for comparing the
Hochschild Mining Groups operational performance against that of its peer group. In addition,
management uses these measurements to compare the performance of the Hochschild Mining
Groups operations period-to-period from a cash flow perspective, to monitor costs and to
evaluate operating efficiency. Total cash costs and total cash costs per ounce are not measures of
financial performance under IFRS or US GAAP. Investors should not consider total cash costs or
total cash costs per ounce in isolation, as an alternative to profit from continuing operations, as an
indicator of operating performance, as an alternative to cash flows from operating activities or as
a measure of the Hochschild Mining Groups profitability or liquidity. Total cash costs and total
cash costs per ounce as presented in this Prospectus may not be comparable to other similarly
titled measures of performance of other companies.
29

Return on invested capital is calculated by dividing the Groups profit from continuing operations
before net finance costs and income tax by the aggregate of the Groups total equity plus
borrowings less loans due from related parties.
Pro forma financial information
In this Prospectus, any reference to pro forma financial information is to information which has
been extracted without material adjustment from the unaudited pro forma financial information
contained in Part X: Unaudited pro forma Financial Information. The unaudited pro forma
balance sheet contained in Part X: Unaudited pro forma Financial Information is based on the
consolidated balance sheet of the Hochschild Mining Group as at 30 June 2006 extracted without
material adjustment from, Section B IFRS Historical Financial Information in Part IX: IFRS
Historical Financial Information. The unaudited pro forma balance sheet includes certain
adjustments in respect of the proposed Global Offer. However, the unaudited pro forma balance
sheet is not necessarily indicative of what the financial position of the Hochschild Mining Group
would have been had the Global Offer occurred on 30 June 2006. In the compilation of such
unaudited pro forma balance sheet, balance sheet information has been translated at the period
end rate as set out below.
The unaudited pro forma financial information is for illustrative purposes only. Because of its
nature, the pro forma financial information addresses a hypothetical situation and, therefore,
does not represent the Hochschild Mining Groups actual financial position.
Currencies
In this Prospectus, references to Nuevo Sol or PEN are to the lawful currency of Peru;
references to Mexican Peso or MXN are to the lawful currency of Mexico; references to
Argentinian Peso or ARS are to the lawful currency of Argentina; references to pounds
sterling, , pence or p are to the lawful currency of the United Kingdom; and references
to US dollars, dollars, $, US$, cents or c are to the lawful currency of the United
States of America.
The Offer Price will be stated in pounds sterling. On 2 November 2006 (being the latest
practicable date prior to the publication of this Prospectus), 1.00 = $1.9088, based on the Noon
Buying Rate in New York City, as certified by the New York Federal Reserve Bank.
Unless otherwise indicated, the financial information contained in this Prospectus has been
expressed in US dollars. The functional currency of the production companies of the Hochschild
Mining Groups operations is the US dollar. The functional currency of the exploration companies
of the Hochschild Mining Group is the local currency. On consolidation, income statements of
subsidiaries for which the US dollar is not the functional currency are translated into US dollars,
the presentation currency for the Hochschild Mining Group, at average rates of exchange. Balance
sheet items are translated into US dollars at period end exchange rates. These translations should
not be construed as representations that the relevant currency could be converted into US dollars
at the rate indicated or at any other rate.
Indicative exchange rates of the US dollar against the Nuevo Sol, Mexican Peso and Argentinian
Peso, comprising the average rate used for income statements and the period end rate used for
balance sheet information, are shown below:
Nuevo Sol
Period

Year ended 31 December 2003 *******************************************************

Year ended 31 December 2004 *******************************************************
Year ended 31 December 2005 *******************************************************
Six months ended 30 June 2005 ******************************************************
Six months ended 30 June 2006 ******************************************************

30

Average rate

Period end rate

3.48
3.40
3.29
3.26
3.32

3.46
3.28
3.43
3.25
3.26

Mexican Peso
Period

Year ended 31 December 2003 *******************************************************

Year ended 31 December 2004 *******************************************************
Year ended 31 December 2005 *******************************************************
Six months ended 30 June 2005 ******************************************************
Six months ended 30 June 2006 ******************************************************

Average rate

Period end rate

10.77
11.31
10.73
11.08
11.30

10.72
11.29
10.73
10.83
11.41

Average rate

Period end rate

2.96
2.99
3.02
2.91
3.07

2.93
2.93
3.03
2.89
3.09

Argentinian Peso
Period

Year ended 31 December 2003 *******************************************************

Year ended 31 December 2004 *******************************************************
Year ended 31 December 2005 *******************************************************
Six months ended 30 June 2005 ******************************************************
Six months ended 30 June 2006 ******************************************************

The basis of translation of foreign currency transactions and amounts in the financial information
set out in Part IX: IFRS Historical Financial Information is described in that Part IX.
Ore reserve and mineral resource reportingbasis of preparation
IMC Group Consulting Ltd (IMC) has reviewed the reserves and resources statements compiled
by the Company and has stated the reserves and resources as set out in Tables 2-5 and 2-6 of the
Technical Report in Part XV in compliance with the Prospectus Rules and the CESR
recommendations and in accordance with the criteria for internationally recognised reserve and
resource categories as included in the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (JORC Code). In this Prospectus, all reserve and resource
estimates initially prepared by the Hochschild Mining Group have been substantiated by evidence
obtained from IMCs site visits and observation and are supported by details of drilling results,
analyses and other evidence and take account of all relevant information supplied by the
Companys management and the Directors.
Mineral resources are based on mineral occurrences quantified on the basis of geological data and
an assumed cut-off grade, and are divided into measured, indicated and inferred categories
reflecting decreasing confidence in geological and/or grade continuity. No allowances are
included for dilution and losses during mining, but the reporting of resource estimates carries the
implication that there are reasonable prospects for eventual economic exploitation. Resources
may therefore be viewed as the estimation stage prior to the application of more stringent
economic criteria for reserve definition, such as a rigorously defined cut-off grade and mine
design outlines, along with allowances for dilution and losses during mining. It is common
practice, for example, for companies to include in the resources category material with a
reasonable expectation of being converted to reserves, but for which either the detailed mine
planning work has not been undertaken or for which an improvement in economic conditions or
exploitation efficiencies would be required to enable the company to exploit the resources
economically. An inferred resource is that part of a mineral resource for which tonnage, grade
and mineral content can be estimated with a low level of confidence. This categorisation is
inferred from geological evidence and assumed, but not verified, geological and/or grade
continuity. It is based on information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain
quality and reliability. Ore reserves (as defined by the JORC Code) are designated as proved and
probable, and are derived from the corresponding measured and indicated resource estimates by
including allowances for dilution and losses during mining. It is an explicitly stated further
requirement that other modifying economic, mining, metallurgical, marketing, legal,
environmental, social and governmental factors also be taken into account. The measured and
indicated mineral resources can be reported as either being inclusive of those mineral resources
modified to produce the ore reserves or additional to the ore reserves. In this Prospectus,
31

measured and indicated resources are stated inclusive of reserves but with no allowance for ore
loss or dilution. Inferred resources are stated on an exclusive basis.
Included in this Prospectus are various statements relating to mineralised potential at the
Companys exploration targets. IMC has reviewed the information supporting these statements
compiled by the Company and has stated the mineralised potential as set out in section 6 of the
Technical Report in Part XV in compliance with section 18 of the JORC Code. The disclosure of
mineralised potential follows specific guidance in section 18 of the JORC Code; specifically, that
the mineralised potential should be expressed as a range of quantity and grade, with an
explanation of the basis of the statement. The summary statement of potential for each target is
expressed explicitly on the basis that (i) the potential range of quantity and grade is conceptual in
nature, there has been insufficient exploration to define a mineral resource on the target and it is
uncertain if further exploration will result in the discovery of a mineral resource on the target;
and (ii) the mineralised potential constitutes a possible mineral deposit that is to be the target of
further exploration.
The geological characteristics of epithermal vein precious metal mineral deposits means that
surface drilling is seldom sufficient to define future prospects at a level greater than that of
inferred resources. Resource and reserve definition is primarily dependent on mine developments
planned specifically to upgrade the resource and reserve base, in conjunction with an extensive
programme of underground drilling. As a result the reserves are, excluding the discounts included
in the reserves for losses and dilution, nearly identical to the measured and indicated resources.
The reserve and resource estimates provided in this Prospectus comply with the reserve and
resource definitions of the JORC Code. The relevant definitions from the 2004 edition of the JORC
Code can be found in Part XVII: Glossary of Technical Terms. Information included in the main
body of this Prospectus relating to reserve and resource estimates has been extracted from or
derived from the Technical Report in Part XV and must be read in conjunction with this full
Technical Report.
Production reporting
Production figures in this Prospectus which are stated in silver equivalent ounces and gold
equivalent ounces have been calculated on a ratio of 60 ounces of silver : 1 ounce of gold.
Cost curves
This Prospectus contains references to cost curves. A cost curve is a graphic representation in
which the production volume of a given commodity across the relevant industry is arranged on
the basis of average unit costs of production from lowest to highest to permit comparisons of the
relative cost positions of particular production sites, individual producers or groups of producers
within a given country or region. Generally, a producers position on a cost curve is described in
terms of the particular quartile or tercile, the first quartile or tercile being the lowest cost and the
fourth quartile or the third tercile being the highest, in which the production of a given plant or
producer or group of producers appears.
The cost curves referred to in this Prospectus have been obtained by the Company from
independent industry analysts, CRU Strategies (in respect of silver) and GFMS Limited (in respect of
gold), with recognised experience in constructing cost curves for the relevant commodities. To
construct cost curves, the analyst compiles information from a variety of sources, including reports
made available by producers, site visits, personal contacts, trade publications and other analysts
reports. Although producers may thus participate to some extent in the process through which
cost curves are constructed, they are typically unwilling to validate cost analyses directly because
of commercial sensitivities. Inevitably, assumptions must be made by the analyst with respect to
data that such analyst is unable to obtain and judgment must be brought to bear in the case of
virtually all data, however obtained. In addition, the time required to produce cost curves means
that even the most recent available examples will be unable to take account of recent
32

developments; in some cases, the most recent available cost curve may be based on data that is
several years old. Costs data for specific producers may be based on costs incurred by the
producers over their respective accounting years; to the extent these differ, the direct
comparability of their costs may be limited. The cost curves referred to in this Prospectus reflect
direct cash costs of production and include non-cash and indirect costs (such as depreciation,
interest and unrelated overhead expenses) and costs relating specifically to marketing and export,
but exclude all centralised and greenfield exploration costs. Delivery costs reflect estimates for
each producer to accepted selling points, based on actual sales. They include estimates for all costs
involved in delivery, including freight, insurance, warehousing and financing costs as well as sales
commissions. Costs at operations producing more than one product are estimated on a pro-rata
basis (weighted according to each metals share of revenue), so treating the metals on
co-products. Moreover, all cost curves embody a number of significant assumptions with respect
to exchange rates and other variables. In summary, the manner in which cost curves are
constructed means that they have a number of significant inherent limitations.
In certain cases, cost curves produced by more than one reputable industry analyst may exist with
regard to a specific commodity. The methodologies employed and conclusions reached by such
analysts may differ. Moreover, the reliability of any given cost curve may be difficult to assess, as
the accuracy of the data, and the reasonableness of the assumptions on which it has been based,
usually cannot be tested directly. Particular producers are, however, in a position to validate the
accuracy of the presentation with respect to their own costs subject to adjustments to bring their
methodology in line with the methods of the others. This can provide a useful indication of the
reliability of a cost curve overall and, notwithstanding their shortcomings, independently
produced cost curves are widely used in the industries in which the Hochschild Mining Group
operates.
The cost curves to which this Prospectus refers are the most recent cost curves that have been
obtained by the Company from CRU Strategies (in respect of silver) and GFMS Limited (in respect
of gold). All such cost curves are based on 2005 data. The cost curves have been prepared using
cost data for the Hochschild Mining Groups and other producers operations. The Directors have
satisfied themselves that the Hochschild Mining Groups own production costs which were used in
the preparation of the cost curves are reasonably represented. See also Part VI: Selected Financial
and Operating InformationTotal Cash Costs for further details as to the cash costs of
production for the Hochschild Mining Group.
Forward-looking statements
This document includes statements that are, or may be deemed to be, forward-looking
statements. These forward-looking statements can be identified by the use of forward-looking
terminology, including the terms believes, estimates, plans, projects, anticipates,
expects, intends, may, will, or should or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future
events or intentions. These forward-looking statements include all matters that are not historical
facts. They appear in a number of places throughout this document and include, but are not
limited to, statements regarding the Hochschild Mining Groups intentions, beliefs or current
expectations concerning, amongst other things, the Hochschild Mining Groups results of
operations, financial position, liquidity, prospects, growth, strategies and the silver and gold
industries.
By their nature, forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances. Forward-looking statements are not guarantees of future
performance and the actual results of the Hochschild Mining Groups operations, financial
position and liquidity, and the development of the markets and the industry in which the
Hochschild Mining Group operates, may differ materially from those described in, or suggested
by, the forward-looking statements contained in this document. In addition, even if the results of
operations, financial position and liquidity, and the development of the markets and the industry
33

in which the Hochschild Mining Group operates are consistent with the forward-looking
statements contained in this document, those results or developments may not be indicative of
results or developments in subsequent periods. A number of factors could cause results and
developments to differ materially from those expressed or implied by the forward-looking
statements including, without limitation, general economic and business conditions, industry
trends, competition, commodity prices, changes in regulation, currency fluctuations (including the
US dollar and Nuevo Sol exchange rates), the Hochschild Mining Groups ability to recover its
reserves or develop new reserves, including its ability to convert its resources into reserves and its
mineral potential into resources or reserves, changes in its business strategy, political and
economic uncertainty and other factors discussed in the sections: Risk Factors, Part I:
Information on Hochschild Mining and Part VII: Operating and Financial Review.
Forward-looking statements may, and often do, differ materially from actual results. Any forwardlooking statements in this document reflect the Hochschild Mining Groups current view with
respect to future events and are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Hochschild Mining Groups operations, results of
operations, growth strategy and liquidity. Investors should specifically consider the factors
identified in this document which could cause actual results to differ before making an investment
decision. Subject to the requirements of the Prospectus Rules, the Disclosure Rules and the Listing
Rules, the Hochschild Mining Group undertakes no obligation publicly to release the result of any
revisions to any forward-looking statements in this document that may occur due to any change in
the Companys expectations or to reflect events or circumstances after the date of this document.

US Considerations
Available information
The Company has agreed that, for so long as any of the Ordinary Shares are restricted securities
within the meaning of Rule 144(a)(3) under the Securities Act, the Company will, during any
period in which it is neither subject to Section 13 or 15(d) of the US Securities Exchange Act of
1934, as amended (the Exchange Act), nor exempt from reporting under the Exchange Act
pursuant to Rule 12g3-2(b) thereunder, make available to any holder or beneficial owner of such
restricted securities or to any prospective purchaser of such restricted securities designated by such
holder or beneficial owner, upon the request of such holder, beneficial owner or prospective
purchaser, the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Enforceability of US judgments
The Company is a holding company organised as a public company incorporated under the laws of
England and Wales with business operations conducted through various subsidiaries. The majority
of the Companys directors and all of its officers reside outside the United States. In addition,
substantially all of the Companys assets and the majority of the assets of its directors and officers
are located outside of the United States. As a result, it may not be possible for US investors to
effect service of process within the United States upon the Company or its directors and officers
located outside the United States or to enforce in the US courts or outside the United States
judgments obtained against them in US courts or in courts outside the United States including
judgments predicated upon the civil liability provisions of the US federal securities laws or the
securities laws of any state or territory within the United States. There is also doubt as to the
enforceability in England and Wales, whether by original actions or by seeking to enforce
judgments of US courts, of claims based on the federal securities laws of the United States. In
addition, punitive damages in actions brought in the United States or elsewhere may be
unenforceable in England and Wales.

34

Part I:
Information on Hochschild Mining
Investors should read the whole of this Prospectus and not just rely upon summarised information
including the tables in this Part I. Where stated, information in this section has been extracted
without material adjustment from Section B IFRS Historical Financial Information in Part IX and
from the Technical Report in Part XV.

Overview
The Hochschild Mining Group is a leading precious metals company with a primary focus on the
exploration, mining, processing and sale of silver and gold. The Group is the fourth largest
primary silver producer globally1, (having produced approximately 10.5 million ounces in 2005)
and produces a significant quantity of gold (approximately 233 thousand ounces in 2005).
The Hochschild Mining Group has over forty years of experience in the exploration, evaluation
and extraction of precious metal epithermal vein deposits. Currently, it has three underground,
epithermal vein mines (Arcata, Ares and Selene) located in Southern Peru which are supported by
fully developed infrastructure. The Group also has two advanced development projects, San Jose
(Argentina) and Pallancata (Peru), which are both scheduled to commence production in 2007,
and two early stage development projects, Mina Moris and San Felipe, both of which are located
in Mexico. Mina Moris is scheduled to commence production in 2007, whilst at San Felipe, the
Group is currently engaged in verification drilling on the site. In addition to its development
projects, the Group has over twenty long-term prospects throughout Latin America which are at
various stages of development, the most advanced of which are San Luis del Cordero (Mexico),
Sierra de las Minas (Argentina) and San Martn (Peru). A number of these projects and prospects
are structured as joint ventures or option arrangements with local or overseas mining partners,
whilst others are owned and operated exclusively by the Group. The Directors believe the Groups
mines, projects and prospects provide substantial potential for growth.
The Group has a high-grade reserve base and a proven track record of consistent reserves
replacement, sustaining the reserve and resource base at each of its current operating mines in
step with productionin the case of Arcata, over many years and, in the case of Ares and Selene,
since production commenced in 1998 and 2003 respectively.

1 Source: CRU Strategies

35

PRA1 6.1.1
PRA1 6.5

Part I: Information on Hochschild Mining

The table below sets out the reserves and resources at each of the operating mines and
development projects as at 30 June 2006, such information having been extracted without
material adjustment from the Technical Report in Part XV.
Reserves

Operating Mines
Arcata (Peru) *************************
Ares (Peru) ***************************
Selene (Peru) *************************
Advanced Development Projects
San Jose (Argentina) ******************
Pallancata (Peru) *********************
Early Stage Development Projects
Mina Moris (Mexico) ******************
San Felipe (Mexico)(3) *****************
Total*********************************

Proved
and
probable

Silver
grade

(in tonnes)

(g/t)

Resources
Gold
grade

Measured
and
indicated

Silver
grade

Gold
grade

Inferred

Silver
grade

Gold
grade

(g/t)

(in tonnes)(1)

(g/t)

(g/t)

(in tonnes)(2)

(g/t)

(g/t)

929,999
834,820
799,331

462
1.26
327 12.24
377
2.56

915,465
826,582
808,567

561
1.55
291 13.78
398
1.96

1,088,550
46,838
453,749

580
227
279

1.93
5.54
1.25

641,697
643,267

418
263

7.90
1.09

579,007
614,418

473
289

9.32
1.20

253,059
981,673

374
376

8.22
1.44

3,354,439

3.96

1.31

4,563
3,150,000

2.2
70

1.37

3,849,114

7,098,478

5,978,432

Notes:
(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution
(2) Inferred resources are stated exclusive of reserves and measured and indicated resources
(3) Resources also contain a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper

As set out below, the Hochschild Mining Group has a track record of sustained profitability
underpinned by low cash costs of production (in 2005, the Groups cash costs of production on a
co-product basis were US$2.65/oz for silver and US$169/oz for gold, placing the Hochschild Mining
Group within the first quartile of the cost curve for silver, according to CRU strategies and for
gold, according to GFMS Limited. In 2005, the Hochschild Mining Group generated EBITDA of
US$70.8 million1 against revenues of US$151.3 million, a margin of 46.8 per cent.
The table below sets out the Hochschild Mining Groups production output, revenues and EBITDA,
for the financial periods ended 31 December 2003, 2004 and 2005 and the six months ended
30 June 2005 and 30 June 2006, which have been extracted without material adjustment from the
Technical Report in Part XV and from Part IX: IFRS Historical Financial Information
respectively, except for EBITDA which has been calculated as set forth in Part VI: Selected
Financial and Operating Information.

Year ended 31 December

6 months
ended
30 June

2003

2004

2005

2006

Silver production (Koz)*****************************************************

7,504
Gold production (Koz) *****************************************************
211
Total silver equivalent (Koz) ************************************************ 20,217
Revenue (US$000) ********************************************************* 93,771
EBITDA (US$000) ********************************************************** 46,518

10,657
241
25,121
159,052
71,182

10,550
232
24,543
151,319
70,845

5,467
102.88
11,640
92,286
55,587

The Groups headquarters are in Lima.

History of the Hochschild Mining Group

The Hochschild Mining Group is the group of companies which previously comprised the mining
division of the Hochschild Group. The Group traces its origins to the original Hochschild Group
founded in 1911 by Mauricio Hochschild. Following World War I, the Hochschild Group expanded
into Bolivia, where it developed significant interests in tin. The Hochschild Group commenced
1 Source: Company (unaudited)

36

PRA1 5.1.5

Part I: Information on Hochschild Mining

operations in Peru in 1925 and in 1945 Luis Hochschild joined the Hochschild Groups Peruvian
operations. During the first decades of its operations, the Hochschild Group focused on the
commercialisation of minerals, and it was not until the 1940s that it began operating its first
mines, although mineral commercialisation remained the Hochschild Groups main source of
revenue. During World War II, the Hochschild Group was a key supplier of tin and other metals to
the allied forces. In the 1960s the Hochschild Group developed the Arcata mine in Peru, which is
still in production today. The Hochschild Group expanded further into mining in the 1960s and
1970s, opening or expanding mines in Brazil, Peru and Chile, such as the Mantos Blancos copper
mine in Chile.
In November 1984, the South American mining operations of the Hochschild Group were sold to
Anglo American Corporation of South Africa who, in the same month, sold the Peruvian
operations of the Hochschild Group to a group of companies owned by Luis Hochschild.
In 1995, the Hochschild Mining Group launched an extensive exploration programme, uncovering
sites. By 2001,
and further developing several sites in Peru, including the Ares, Selene and Sipan
the Group had assembled an experienced professional management team which has taken
forward the Groups strategy of international expansion. As a result of this strategy, between
2001 and 2006, the Group opened exploration offices and identified a number of projects and
prospects in Argentina, Mexico and Chile, and entered into various joint venture agreements with
Pallancata, Mina Moris
local or overseas mining partners, notably those relating to the San Jose,
and San Felipe development projects.

PRA1 5.2.1

Eduardo Hochschild, Luis Hochschilds son, joined the Group in 1987 as Safety Assistant at the
Arcata operating unit and has been head of the Hochschild Mining Group since 1998. Eduardo
Hochschild is now the Executive Chairman of the Hochschild Mining Group, a position he has held
since 2006.

Key strengths
The Directors believe that the key strengths of the Hochschild Mining Groups business are:
) One of the leading precious metals producers globally
The Hochschild Mining Group is a leading precious metals producer and the fourth largest primary
silver producer globally1, producing approximately 10.5 million ounces of silver in 2005. The Group
is also a significant producer of gold, producing approximately 233 thousand ounces in 2005. The
Hochschild Mining Group is embarking upon an important growth phase in its business, with
plans to further increase production to approximately 50 million silver equivalent ounces (or
830,000 gold equivalent ounces annually) from both its existing mines and its development
projects and to double the number of its producing mines, in each case by 2011, with over fifty per
cent. of production derived from the Groups operations outside Peru. The Group has a policy of
limited hedging of its production and, therefore, has significant leverage and exposure to the
market prices of silver and gold.
) Low cash costs and strong returns on invested capital
According to CRU Strategies (in respect of silver) and GFMS Limited (in respect of gold), the
Hochschild Mining Group is positioned in the first quartile of the global cash cost curve (US$2.65
per ounce of silver and US$169 per ounce of gold on a co-product basis in the financial year ended
31 December 2005). The Group has a sustained track record of low cash costs and high cash flows
resulting from its strategy of acquiring and exploiting high-grade ore reserves and the efficiency
of its operations. The Groups operational performance and productivity are driven by its
1 Source: CRU Strategies.

37

PRA1 6.5

Part I: Information on Hochschild Mining

extensive experience in mining epithermal precious metal veins and its use of mechanisation
wherever practicable. The Group has a cultural focus on costs with its productivity underpinned by
a rigorous system of cost controls and an integrated reporting system which regularly provides
management with detailed information on the Groups financial and operational performance on
a mine by mine basis. The strength of the Groups operational performance is demonstrated by its
track record of generating strong returns on capital, achieving an average return on invested
capital in the financial years ended 31 December 2003, 2004 and 2005 of 31 per cent. on a post-tax
basis.
) Proven track record of production growth and reserves replacement
The Hochschild Mining Groups three operating mines have a history of stable or increased
production. Total production increased from 18.5 million silver equivalent ounces (or 308,000 gold
equivalent ounces) in 2002 to an estimated 24.7 million silver equivalent ounces (or 411,000 gold
equivalent ounces) in 2006.
The geological characteristics of the Groups operating mines mean that it is difficult to prove up
reserves without significant investment in underground development. Consequently, the Groups
strategy to date has been to undertake a continuing exploration and development programme to
ensure the reserve and resource base is developed in step with production and planned expansion
as well as identifying mineralised potential to supplement the resource base going forward. The
focus of this reserve development strategy has been to maximise the cash flow from its operations
rather than extend the lives of its operating mines, although, going forward, the Group intends to
invest in further extending mine life. The Group has a well-demonstrated track record of
consistent reserves replacement in step with production at each of its current operating mines, in
the case of Arcata, over many years and, in the case of Ares and Selene, since production
commenced in 1998 and 2003 respectively. The Group has, on average, replaced 37 per cent. of its
total reserve base with new reserves annually since 1990 at all of the Groups operating units.
) Expertise in underground mining in Latin America
The Hochschild Mining Group has over forty years of experience in the exploration, evaluation
and extraction of precious metal deposits. Its professional management team has a broad-based
experience ranging from greenfield exploration to developing and operating mines, joint
ventures and acquisitions. It also has particular expertise in mining narrow epithermal veins in
difficult geological conditions and in remote areas, focusing on mid-sized, high-grade
underground development projects and prospects (with a value in the range of US$50 million to
US$150 million). The Group also has significant experience in open pit mining. As well as the
Hochschild Mining Groups current operations in Peru, the Group has, for a number of years, had
exploration offices in Mexico, Argentina and Chile, enabling it to develop a network of contacts
throughout Latin America. The Group has gained valuable experience of the regions social,
cultural and political landscape and its professional management team combines experience and
expertise in conducting business in the region. Whilst a number of international mining
companies have operations in Latin America, the Directors believe that the Hochschild Mining
Groups history and the managements record as a local operator of mid-sized, underground,
complex, narrow vein mines gives Hochschild Mining a competitive advantage.
As a result of the combination of these strengths, Hochschild Mining considers itself to be a
partner of choice for mining companies aiming to develop mid-sized projects in Latin America
and who are seeking a partner with the local expertise to develop and operate such projects. This
is demonstrated by its joint venture arrangements for its development projects with the Exmin
Resources group, Minera Andes Inc. and International Minerals Corporation.
38

Part I: Information on Hochschild Mining

) Attractive Growth Opportunities from both Development Projects and Prospects

PRA1 5.2.1
PRA1 5.2.2

To strengthen and expand its existing operations, the Hochschild Mining Group has identified a
number of development projects and prospects in Peru and elsewhere in Latin America. The
Group has two advanced development projects, San Jose in Argentina and Pallancata in Peru,
both of which are scheduled to come into production in 2007. As at 30 June 2006, San Jose had
measured and indicated resources of 579,007 tonnes, at an average silver grade of 473 grams per
tonne and an average gold grade of 9.32 grams per tonne, and Pallancata had measured and
indicated resources of 614,418 tonnes, at an average silver grade of 289 grams per tonnes and an
average gold grade of 1.20 grams per tonne. The Group also has two early stage development
projects, Mina Moris and San Felipe, both of which are in Mexico. Mina Moris, an open pit mine, is
currently planned to come into production in 2007, whilst at San Felipe, the Group is currently
engaged in verification drilling on the site. As at 30 June 2006, Mina Moris had measured and
indicated resources of 3,354,439 tonnes at an average silver grade of 3.96 grams per tonne and an
average gold grade of 1.31 grams per tonne, and San Felipe had inferred resources of 3,150,000
tonnes at an average silver grade of 70 grams per tonne and a combined content of 9.6 per cent.
zinc, lead and copper sulphides, which is expected to translate into a significant production of
zinc. The Directors expect each of these projects to provide high margins and cash flows and
believe that they will be positioned in the first cost quartile of the global cost curve on a silvergold co-product basis.
In addition, the Hochschild Mining Group has over twenty long-term prospects throughout Latin
America, the most advanced of which are San Luis del Cordero (Mexico), Sierra de las Minas
(Argentina) and San Martn (Peru). The Directors are confident that, should these long-term
prospects come into production, they will provide high margin, low cost growth opportunities for
the Group in the medium term.
) Responsibility towards employees, the environment and local communities
The health and safety of the Hochschild Mining Groups employees, respect for the environment
and active engagement with local communities are fundamental to the Hochschild Mining
Groups business and are a deeply held personal conviction of the Groups current shareholders
and management. The Group strives to act as a responsible corporate citizen in all areas of its
operations. Consequently, the Group has made considerable investment in the operating controls
and processes at its facilities with the aim of ensuring that exacting health, safety and
environmental standards are met. The Group has also instituted several long-term community
projects aimed at making local communities self-sustaining over time and at raising the income of
these communities.
The Hochschild Mining Groups efforts in these respects have been recognised through its receipt
of the internationally recognised John T. Ryan safety award, as well as the award in 2005 for the
most environmentally friendly business in Peru, which the Directors believe enhances the Groups
reputation within the Latin American mining industry.

The Hochschild Mining Groups strategy

The Hochschild Mining Groups strategy is to achieve growth as a high-margin, cash generative,
precious metals producer in Latin America, continuing its primary focus on silver and gold
production, and to enhance overall value for its shareholders, whilst maintaining a strong focus

39

PRA1 5.2.3
PRA1 6.1.2

Part I: Information on Hochschild Mining

on operational excellence and on its social and environmental responsibilities. The Group intends
to pursue this strategy in the following ways:
Maximising the potential of existing operations
The Hochschild Mining Group will seek to maximise the potential of existing operations by
delivering further efficiency gains and maintaining its rigorous cost controls, whilst continuing to
invest in exploration and facilities in order to extend mine life and provide additional plant
capacity.
Growth through delivery of its project pipeline
The Group intends to drive growth and to diversify geographically by utilising its proven expertise
in underground mining in remote areas to bring its development projects into production on time
and within budget and to develop its extensive pipeline of existing prospects into producing
mines. The Group plans to further increase production to approximately 50 million silver
equivalent ounces (or 830,000 gold equivalent ounces annually) from both its existing operations
and its development projects by 2011.
Exploiting market and geographic niches to seek additional growth opportunities
The Group plans to leverage its operating expertise and Latin American experience to seek
additional growth opportunities. The Groups primary focus will be on mid-sized, high-grade,
value accretive underground precious metal assets in Latin America which are (or have the
potential to be) of a size and scale similar to its current operations, whilst offering high margins
and attractive growth potential. These opportunities may be sought through:
) further exploration;
) the acquisition of suitable operating mines, development projects or prospects or of companies
that own such assets; or
) joint ventures (generally Hochschild Mining controlled) with mining companies that lack the
capacity or capability to develop and operate a particular asset.

Principal group mines, facilities, projects and prospects

The Hochschild Mining Group has three distinct operating units: Arcata, Ares and Selene, each of
which has its own mine, plant and related facilities, which the Group holds through its wholly a Minera Ares S.A.C. (Compan
a Minera Ares). The Group controls
owned subsidiary, Compan
and plans operations at the Groups head office in Lima and has a core staff of management and
technical personnel at each operating unit. As at 30 June 2006, the Hochschild Mining Group had
a total of 3,100 employees, of which 1,935 were contracted personnel.

PRA1 6.1.1

In addition to its operating units, the Hochschild Mining Group has two advanced development
and one in Peru (Pallancata), and two early stage
projects: one in Argentina (San Jose)
development projects in Mexico (Mina Moris and San Felipe). The Group also has more than
twenty long-term prospects throughout Latin America, the most advanced of which are San Luis
del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru). A number of these
projects and prospects are structured as joint ventures or option arrangements with local or
overseas mining partners, whilst others are owned and operated exclusively by the Group.

PRA1 5.2.2

Mine, which ceased production in 2005 and,

The Group owns one further mine in Peru, the Sipan
in relation to which, the Group is implementing a closure programme (see Part VII: Operating
and Financial Review).
40

PRA1 5.2.3

Part I: Information on Hochschild Mining

The following map shows the location of Hochschild Minings current operations and most
advanced projects and prospects:

The Groups current operations and most advanced projects and prospects are located in three
countries in Latin America: Peru, Mexico and Argentina. The Hochschild Mining Group has focused
on these three key jurisdictions for the following main reasons:
) Peru: the Groups connections with Peru stretch back to the 1920s when the Hochschild Group
commenced commercialisation of minerals in Peru. In addition, the Directors believe that Peru
benefits from further mining potential and, as an established mining country, has the benefit of
local mining expertise, as well as an attractive legal and regulatory framework for mining
companies.
) Mexico: the Directors believe that Mexico similarly benefits from further mining potential and,
as an established mining country, has the benefit of local mining expertise and an attractive
legal and regulatory framework for mining companies.
) Argentina: the Directors believe that Argentina has further geological potential, a developing
mining industry and an attractive legal and regulatory framework for mining companies.
Further information on the legal and regulatory framework for mining companies in Peru, Mexico
and Argentina is set out in Part IV: Information on Peru, Mexico and Argentina. For risks
associated with operating in Peru, Mexico and Argentina, see Risk FactorsRisks relating to
operating in Peru, Mexico and Argentina.
41

Part I: Information on Hochschild Mining

Introduction
The Hochschild Mining Group operates one underground mine at each of its three operating units
in Peru. The principal mining method employed at each of these units is the cut and fill method,
consisting primarily of the cyclical drilling and blasting of ore which is then transported by truck to
a concentrator for processing into silver-gold concentrate, or to a processing plant for processing
The mining method is partially mechanised at all three operating units.
into dore.
The Hochschild Mining Group operates two concentrators, one at each of the Arcata and Selene
units, for the production of silver-gold concentrate using a crush, grind, mill and flotation process.
The Ares unit operates a processing plant for the production of silver-gold dore using a crush,
grind and Merrill-Crowe leaching process. In addition to the underground mine and concentrator
or processing plant, other principal facilities at each of the Hochschild Mining Groups operating
units include an electrical sub-station, maintenance facilities for all of the units operations and
accommodation for employees. A hospital is also located on-site at each of the operating units.
Electricity is supplied via the Peruvian national grid, although electrical generators are located at
each of the operating sites. Each site currently has standby generation capacity in the event of a
failure of the power supply. This generation capacity is adequate, in the case of Ares and Selene,
to allow full production but, in the case of Arcata, supports essential services but not production.
Assay laboratories have been constructed at each of the operating sites. The laboratory at the
e Gen
erale

Selene unit is operated under contract by the international specialists, Societ

de
Surveillance, whilst those at Arcata and Ares are operated directly by the Company. Fullydocumented quality assurance and quality control procedures apply at each laboratory with
respect to sample handling, analytical methods and quality assurance and control.
The health and safety of its employees and environmental concerns are high priorities for the
Hochschild Mining Group. Each of the Groups operating mines has achieved ISO14001 status and
the Group has implemented numerous safety and operating procedures which are continually
being updated with the aim of qualifying for OSHAS 18001 certification in 2007. The Group makes
significant investment in procedures and controls relating to health, safety and environmental
matters (US$3.8 million is planned to be spent in the financial year ending 31 December 2006) and
its efforts have been acknowledged through several internationally recognised awards. The Group
also takes precautions to protect its operating units and products with security at each of its sites
being provided by a professional security firm.
Processing
In 2005, the Hochschild Mining Group produced approximately 10.5 million ounces of silver and
233 thousand ounces of gold. Both the Arcata and Selene units produce concentrate, whilst dore
is produced at the Ares unit. The concentrating process consists of crushing and grinding the ore
removed from the mine and separating silver and gold ores from waste material by flotation,
resulting in a silver-gold concentrate. Dore is produced by first crushing, grinding and cyanideleaching the ore to form a solution containing dissolved gold and silver. The gold and silver are
then precipitated through a Merrill-Crowe process, with the dore finally being obtained through
the smelting of the precipitate. The concentrate produced at Selene is subsequently processed at
At Ares, smelting of the precipitate is only undertaken a limited
the Ares facility to produce dore.
number of times per month which both improves efficiency and aids security as dore production is
timed to coincide with the Groups selling arrangements with Johnson Matthey (see Sales,
Markets and Customers below for further information on the Groups arrangements with
Johnson Matthey).
For the three years ended 31 December 2003, 2004 and 2005, the Hochschild Mining Groups total
concentrate production was 12,264, 14,417 and 14,346 tonnes respectively and for the six months
ended 30 June 2006, it was 7,161 tonnes. For the three years ended 31 December 2003, 2004 and
42

PRA1 5.2.2
PRA1 5.2.3

Part I: Information on Hochschild Mining

2005, the Hochschild Mining Groups total dore production was 3,075, 3,226 and 3,151 tonnes
respectively and, for the six months ended 30 June 2006, it was 1,493 tonnes.
Tailings dams
Tailings dams are located at each of the Groups operating units. The dams are raised by the
downstream method using contractors, with extensive quality control testing undertaken. This has
enabled the designers to use steeper civil engineering slopes compared to more conventional
mining slopes. The dams are operated by the manager of the relevant concentrator or processing
plant, in each case with supervision of the monitoring equipment and routine inspections being
carried out by the Department of the Environment. Civil engineers from the Hochschild Mining
Groups head office in Lima also inspect the tailings dams at each of the operating units
approximately twice a year.
Cost curve
A cost curve produced by CRU Strategies Limited in August 2006 ranked the Hochschild Mining
Groups current operations on a co-product basis in the first quartile of world production of silver.
A cost curve produced by GFMS Limited in September 2006 ranked the Hochschild Mining Groups
current operations on a co-product basis in the first quartile of world production of gold. See
Presentation of Information.
Reserves and resources
The geological characteristics of the Groups operating mines mean that it is difficult to prove up
reserves without significant investment in underground development. Consequently, the Groups
strategy to date has been to undertake a continuing exploration and development programme to
ensure the reserve and resource base is developed in step with production and planned expansion
as well as identifying mineralised potential to supplement the resource base going forward. The
focus of this reserve development strategy has been to maximise the cash flow from its operations
rather than extend the lives of its operating mines, although, going forward, the Group intends to
invest in further extending mine life. The Group has a well-demonstrated track record of
consistent reserves replacement in step with production at each of its current operating mines, in
the case of Arcata, over many years and, in the case of Ares and Selene, since production
commenced in 1998 and 2003 respectively. The Group has, on average across the periods shown in
Table 1 below, replaced 37 per cent. of its total reserves base with new reserves annually at all of
the Groups operating units.

43

Part I: Information on Hochschild Mining

Table 1 below sets out the Hochschild Mining Groups silver and gold reserves at year end for each
period shown and production for the periods shown at each of its operating units. The reserves
and production figures have, in each case, been extracted without material adjustment from the
Technical Report in Part XV:
Table 1
Reserves

Production

Silver

ARCATA (Peru)
1990 ******************
1991 ******************
1992 ******************
1993 ******************
1994 ******************
1995 ******************
1996 ******************
1997 ******************
1998 ******************
1999 ******************
2000 ******************
2001 ******************
2002 ******************
2003 ******************
2004 ******************
2005 ******************
2006 (to 30 June) ******
ARES (Peru)
1998 ******************
1999 ******************
2000 ******************
2001 ******************
2002 ******************
2003 ******************
2004 ******************
2005 ******************
2006 (to 30 June) ******
SELENE (Peru)
2003 ******************
2004 ******************
2005 ******************
2006 (to 30 June) ******

Gold

LOM

Silver

Gold

g/t

koz

g/t

koz

g/t

koz

g/t

koz

1,503,780
1,252,030
1,159,150
1,211,600
1,312,210
1,477,500
1,340,830
1,028,190
817,030
546,000
681,550
447,851
539,474
315,166
440,402
768,716
929,999

576
563
569
522
541
552
560
553
567
423
429
398
531
715
492
545
462

27,865
22,649
21,212
20,331
22,819
26,211
24,148
18,281
14,903
7,431
9,405
5,732
9,218
7,245
6,968
13,482
13,796

1.50
1.85
1.87
1.64
1.81
1.88
2.00
2.10
2.14
1.26
1.30
1.35
1.45
1.432
1.21
1.54
1.26

72.52
74.47
69.69
63.88
76.36
89.31
86.22
69.42
56.21
22.12
28.49
19.44
25.21
14.43
17.11
37.96
37.77

310,709
262,415
260,020
259,036
326,304
356,734
357,212
373,984
375,448
380,468
371,098
358,859
236,292
236,108
290,603
282,199
135,526

564
617
638
581
622
646
676
687
679
671
518
488
432
506
615
539
542

5,637
5,209
5,331
4,836
6,522
7,406
7,760
8,257
8,190
8,212
6,179
5,627
3,280
3,841
5,746
4,890
2,362

2.03
2.36
2.34
1.99
2.35
2.86
2.70
2.68
2.85
3.21
2.57
2.54
2.26
1.29
1.14
1.19
1.35

20.28
19.91
19.56
16.57
24.65
32.80
31.01
32.22
34.40
39.27
30.66
29.31
17.17
9.79
10.65
10.80
5.88

4.8
4.8
4.5
4.7
4.0
4.1
3.8
2.7
2.2
1.4
1.8
1.2
2.3
1.3
1.5
2.7
3.4

1,098,042
655,743
838,290
831,333
960,765
1,031,540
761,619
828,399
834,820

207
214
264
324
302
318
301
307
327

7,308
4,512
7,115
8,660
9,340
10,548
7,363
8,182
8,777

24.19
23.21
24.47
22.71
21.52
22.32
19.92
14.43
12.24

853.98
489.33
659.51
606.99
664.62
740.26
487.81
384.20
328.52

129,216
240,866
272,668
282,176
271,489
276,653
272,986
281,095
141,529

228
355
310
261
287
336
346
352
332

947
2,751
2,716
2,369
2,506
2,989
3,037
3,181
1,511

22.99
26.21
24.60
20.69
22.70
21.78
22.98
22.80
19.01

95.51
202.97
215.66
187.70
198.14
193.72
201.69
206.05
86.50

8.5
2.7
3.1
2.9
3.6
3.8
2.6
2.9
2.9

722,633
903,837
829,681
799,331

384
398
408
377

8,926
11,566
10,877
9,689

4.35
3.53
3.07
2.56

101.03
102.72
81.92
65.79

44,061
253,605
288,919
178,044

348
385
399
379

493
3,137
3,707
2,169

3.78
3.78
3.43
2.93

5.35
30.82
31.86
16.77

14.8
3.3
2.6
2.1

Table 2 below sets out the Hochschild Mining Groups silver and gold reserves and resources as at
30 June 2006 at each of its operating units and development projects. The reserves and resources
figures have, in each case, been extracted without material adjustment from the Technical
Report in Part XV:
Table 2
Reserves
Operating Unit/
Development
Project(1)

Resources

Proved and
probable
(in tonnes)

Silver
grade
(g/t)

Gold
grade
(g/t)

Measured
and indicated
(in tonnes)(1)

Silver
grade
(g/t)

Gold
grade
(g/t)

Inferred
(in tonnes)(2)

Silver
grade
(g/t)

Gold
grade
(g/t)

929,999
834,820
799,331
641,697
643,267

462
327
377
418
263

1.26
12.24
2.56
7.90
1.09

915,465
826,582
808,567
579,007
614,418
3,354,439

561
291
398
473
289
3.96

1.55
13.78
1.96
9.32
1.20
1.31

1,088,550
46,838
453,749
253,059
981,673
4.563
3.150.000

580
227
279
374
376
2.2
70

1.93
5.54
1.25
8.22
1.44
1.37

Total************************ 3,849,114

7,098,478

5.978,432

Arcata (Peru) ****************

Ares (Peru) ******************
Selene (Peru) ****************
San Jose (Argentina) *********
Pallancata (Peru) ************
Mina Moris (Mexico) *********
San Felipe (Mexico)(3) ********

44

Part I: Information on Hochschild Mining

Notes:
(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution
(2) Inferred resources are stated exclusive of reserves and measured and indicated resources
(3) Resources also contain a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper

Mineral potential
The historical success and continuing capacity of the Group to maintain and expand the reserves
and resources base to assure continuing levels of production is dependent on the Groups
commitment to wide-ranging research, investigation and exploration of potential mineral
prospects. The Group has an extensive portfolio of exploration targets at different stages of
evaluation. The Group maintains an internal assessment of mineral potential within its
exploration targets as the basis for planning exploration priorities and long term development
options.
The table below sets out details of the Groups mineral potential at each of its operating units and
at certain of its projects and prospects. Further information on the Groups mineral potential is set
out below in this Part I. It should be noted that the ranges quoted are conceptual in nature, there
has been insufficient exploration to define a mineralised resource and it is uncertain whether
further exploration would result in the determination of a mineral resource. A detailed
explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical
ReportFurther Disclosure on Mineral Potential, and that section must be read in conjunction
with these ranges:
Operating Unit/Project/Prospect

Arcata (Peru) *****************

Ares (Peru) *******************
Selene (Peru) *****************
San Jose (Argentina) **********
Pallancata (Peru) **************
Mina Moris (Mexico) **********
San Felipe (Mexico) ***********
Sierra de las Minas (Argentina)

Quantity(1)
(millions of tonnes)

2.2 - 4.7
1.5 - 2.3
3.2 - 5.5
3.3 - 7.1
3.0 - 7.0
14.5 - 28.9
5.7 - 10.9
0.6 - 1.0

Grade(1)
(g/t)

350 - 700 silver and 0.6 - 3.6 gold

150 - 300 silver and 2.0 - 6.5 gold
200 - 400 silver and 0.4 - 0.5 gold
150 - 450 silver and 3.7 - 8.8 gold
250 - 300 silver and 1.0 - 2.0 gold
25 - 50 silver and 1.4 - 2.5 gold
40 - 70 silver and 5 - 8% zinc, 2 - 4% lead and 0.1 - 0.4% copper
8.0 - 15.0 gold

Note:
(1) The total mineralised potential by operating unit/project/prospect is calculated on the basis of weighted averages for
the low and high ranges of quantity and grades for individual prospects.

Arcata
Overview of operations and history
The Arcata unit is located in the district of Cayarani, department of Arequipa, on an
approximately 47,000 hectare site approximately 800 kilometres from Lima at an altitude of
approximately 4,600 metres above sea level. The nearest town is Arcata Viejo, located
approximately 15 minutes from the Arcata unit by road. The property is accessed by road from
Arequipa, approximately 300 kilometres away, travel time from which is approximately five to
six hours. The seaport of Matarani is approximately 700 kilometres away. There is also a landing
strip for small aircraft located at Orcopampa, approximately 25 kilometres from the Arcata unit.
The unit consists primarily of an underground mine and concentrator and produces silver
concentrate with gold content. The Group began developing and preparing the Arcata mine in
1961 and the first concentrate was produced in 1964. As at 30 June 2006, a total of
1041 individuals were employed at the Arcata unit, consisting of 254 Hochschild Mining Group
employees and 787 contracted personnel. Two 10.5 hour shifts are worked on site each day at
Arcata, with the unit conducting operations 365 days a year.
45

Part I: Information on Hochschild Mining

Geology and Reserves
The Arcata mine is conformed by vein systems where the epithermal vein deposits are of an
intermediate sulphidation type with predominant silver values and variable quantities of gold and
base metals. Recent production at Arcata has centred on the Tres Reyes vein system at the
southern margin of the Arcata mineralised area and sporadically on the Macarena vein system.
Most recently, exploration and development has centred on the Mariana vein system at the
northern margin of the mineralised area, which includes the majority of reserves and which
currently supports the greater part of production.
Arcata has increased its reserves substantially from 315,166 tonnes as at 31 December 2003 to
929,999 tonnes as at 30 June 2006.
Mineral potential
The Hochschild Mining Group has a number of exploration targets within the Arcata mining
concession. Set out below are ranges for the potential quantity and grade of the relevant targets.
It should be noted that the ranges quoted are conceptual in nature, there has been insufficient
exploration to define a mineralised resource and it is uncertain whether further exploration
would result in the determination of a mineral resource. A detailed explanation of the basis for
the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in
conjunction with these ranges:
Mariana Vein NE: the Group considers there to be mineralised potential of 480,000 to
1,360,000 tonnes at a grade of 450 to 550 grams per tonne of silver and 1.5 to 2.0 grams per tonne
of gold.
Mariana Vein SW: the Group considers there to be mineralised potential of 200,000 to
500,000 tonnes at a grade of 150 to 1,000 grams per tonne of silver and 1.5 to 14.0 grams per
tonne of gold.
Julia Vein: the Group considers there to be mineralised potential of 500,000 to 1,000,000 tonnes at
a grade of 500 to 1,000 grams per tonne of silver and 1.0 to 4.0 grams per tonne of gold.
Macarena 2 Vein: the Group considers there to be mineralised potential of 200,000 to
500,000 tonnes at a grade of 500 to 1,000 grams per tonne of silver and 0.3 to 0.5 grams per tonne
of gold.
Ramal Marion Vein: the Group considers there to be mineralised potential of 200,000 to
400,000 tonnes at a grade of 500 to 1,000 grams per tonne of silver and 0.5 to 3.0 grams per tonne
of gold.
Pullalu Structure: the Group considers there to be mineralised potential of 700,000 to
1,000,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 1.5 to 2.0 grams per tonne
of gold.
Mine and concentrate production
The Arcata mine was commissioned into production in 1964. It currently has an ore production
capacity of 353 kt per annum with the Group planning to increase capacity to 406 kt per annum
by 2007. The veins at Arcata are mined by conventional and mechanised (trackless) cut-and-fill
breast or overhand stoping methods utilising timber support. Currently, 30 stopes rotate in the
production cycle of drilling and blasting, mucking of ore and backfilling, but there is a planned
reduction in the number of operating stopes to approximately 15.
At Arcata, 30 per cent. of production comes from the Ramal 2 section, with a very small portion
coming from the Macarena section of the Arcata vein system. The balance of production is from
the Mariana section which was discovered in 2004 and which is being developed at a rate of over
46

Part I: Information on Hochschild Mining

1,500 metres per month on three levels as a replacement for Ramal 2. For further information see
the Technical Report in Part XV.
The Arcata concentrator commenced operations in 1964 with a processing capacity of 35 kt per
annum. The concentrator processes silver ore with associated gold, lead and zinc to produce a
silver-gold bulk concentrate by flotation. Plant capacity is currently 353 kt per annum and the
concentrator is currently operating at capacity, although the Group has plans to expand capacity
to 406 kt per annum by 2007.

All concentrate produced at Arcata is currently sold to Penoles

(a Mexico-listed mining, processing
and refining company). See Part I: Information on Hochschild MiningSales, markets and

customers for further detail on the Hochschild Mining Groups arrangements with Penoles.
The following table sets out the Hochschild Mining Groups silver-gold concentrate production
from the Arcata concentrator for the years ended 31 December 2003, 2004, 2005 and the
6 months ended 30 June 2006. The production figures have been extracted without material
adjustments from the Technical Report in Part XV:
Year ended 31 December
Product

6 months ended
30 June

2003

2004

2005

2006

Ore production (in tonnes) ******************************************* 236,108

Concentrate produced (in tonnes) ************************************
8,999
Silver grade in concentrate (kg/t) *************************************
11.94
Silver produced (Koz) ************************************************
3,453
Gold produced (Koz)*************************************************
7.15

290,603
11,525
13.51
5,004
5.17

282,199
10,787
12.31
4,271
7.19

135,526
5,214
12.49
2,094
4.96

Ares
Overview of operations and history
The Ares site is located in the district of Orcopampa, department of Arequipa, approximately
800 kilometres from Lima, on a site covering an area of approximately 22,700 hectares at an
altitude of approximately 4,900 metres above sea level. The nearest town is Tolconi, located
approximately 20 minutes from the Ares unit by road. The property is accessed by way of a
275 kilometre road from Arequipa, travel time from which is approximately five hours. The unit
consists primarily of an underground mine and a processing plant where a Merrill-Crowe leaching

process using a standard cyanidation technique is applied to produce dore.

The Ares site was discovered by the Hochschild Mining Group in 1988 with underground
exploration commencing in 1993. The mine was commissioned into production in 1998. As at
30 June 2006, a total of 811 individuals were employed at the Ares unit, consisting of
253 Hochschild Mining Group employees and 558 contracted personnel. Two 10.5 hour shifts are
worked on site each day at Ares, with the unit conducting operations 365 days a year.
Geology and reserves
The Ares mine is conformed by vein systems where the epithermal vein deposits represent gold
and silver mineralisation of intermediate and low sulphidation type. The mineralisation is
significantly different from Arcata and Selene, containing a higher abundance of gold, although
there are silver-rich veins in the Ares vein system which share some of the features of the
epithermal veins located at Arcata and Selene.
The Hochschild Mining Group has succeeded in maintaining stable reserves at Ares since
production commenced.
47

Part I: Information on Hochschild Mining

Mineral potential
The Hochschild Mining Group has a number of exploration targets within the Ares mining
concession. Set out below are ranges for the potential quantity and grade of the relevant targets.
It should be noted that the ranges quoted are conceptual in nature, there has been insufficient
exploration to define a mineralised resource and it is uncertain whether further exploration
would result in the determination of a mineral resource. A detailed explanation of the basis for
the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in
conjunction with these ranges:
Victoria Vein System: the Group considers there to be mineralised potential of 1,000,000 to
1,500,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 3.0 to 10.0 grams per
tonne of gold.
Paola Structure: the Group considers there to be mineralised potential of 500,000 to
800,000 tonnes at a grade of 200 to 400 grams per tonne of silver.
Mine and Dore production
The Ares site was discovered by the Hochschild Mining Group in 1988. Surface mapping,
geochemical sampling and surface drilling were completed between 1990 and 1992, defining the
outcrop of seven vein structures. Underground exploration commenced in 1993, leading to the
development of the Victoria vein system and, in conjunction with further surface exploration, the
proving of the Maruja vein system. Subsequent drilling in 1995 proved gold and silver values in
the Tania vein. The greater part of production has been obtained from the Victoria vein system.
Investigations into the Isabel and Paola veins as replacement ore for the Victoria vein system are
ongoing.
The Ares mine was commissioned into production in 1998 and has a current ore production
capacity of 282 kt per annum. At Ares, the veins are mined by conventional and mechanised
(trackless) cut-and-fill breast stoping methods utilising both rockbolts and timber as support.
Sixteen stopes rotate in the production cycle of drilling and blasting, mucking of ore and
backfilling.
The Hochschild Mining Group operates a processing plant at the Ares unit. The plant commenced
operation in 1998 and has a current operating capacity of 280 kt per annum which is planned to
be increased by upgrading the classification sections to 325 kt per annum over the next
three years. A separate additional plant has recently been installed at Ares for the processing of
concentrate from the Selene unit into dore (which commenced in October 2006). The additional
plant will treat 2.8 kt to 3.5 kt per annum of Selene concentrate in two Gekko In Line Reactors. As
from mid 2008, it is intended that concentrate produced at Selene from ore mined at the
Pallancata project will be processed at Ares into dore (see Advanced Development
ProjectsPallancata below).
All dore produced at Ares is currently transported from the unit by Johnson Matthey (a UK-listed
speciality chemicals company) to its refining facility in Salt Lake City, US. See Part I: Information
on Hochschild MiningSales, markets and customers for further detail on the Hochschild Mining
Groups arrangements with Johnson Matthey.
The following table sets out the Hochschild Mining Groups dore production levels at the Ares
processing plant for the years ended 31 December 2003, 2004 and 2005 and the 6 months ended

48

Part I: Information on Hochschild Mining

30 June 2006. The production figures have been extracted without material adjustments from the
Technical Report in Part XV:

2003

2004

2005

6 months
ended
30 June
2006

Ore production (t) ***************************************************** 276,653

Dore total (Koz) *******************************************************
2,793
Silver produced (Koz) **************************************************
2,600
Gold produced (Koz) **************************************************
184.74

272,986
2,943
2,742
193.20

281,095
3,151
2,944
198.55

141,529
1,493
1,406
83.35

Year ended 31 December

Product

Selene
Overview of operations and history
The Selene unit is located in the district of Cotaruse, department of Apurmac, approximately
650 kilometres from Lima in southern Peru and approximately 180 kilometres from the Ares unit,
at an altitude of approximately 4,600 metres above sea level covering an area of approximately
19,500 hectares. The nearest town is Izcahuaca, located approximately 40 minutes from the Selene
unit by road. The property is accessed by road from Cuzco, travel time from which is
approximately five to six hours. The unit consists primarily of an underground mine and
concentrator and, like the Arcata unit, produces silver concentrate with gold content.
Under the Hochschild Mining Groups ownership, development and preparation of the mine
commenced in 1998, with the first concentrate being produced in 2003. The land where the
Selene unit is located is owned by two local communities to whom the Hochschild Mining Group
made one-off payments in 1998 for the right to use the land for its mining operations for a period
of thirty years. In addition, the mining concession rights to the land where veins currently being
a Minera Kusama, S.A. (a Peruvian
exploited at Selene are located were originally held by Compan
private company) which assigned its rights to the mining concessions to the Hochschild Mining
Group in return for a one-off payment of US$160,000 and a monthly payment equal to two per
cent. of the net sales of concentrate produced at Selene. Since production at Selene commenced
in 2003, the Hochschild Mining Group has made payments totalling approximately US$2.1 million
a Minera Kusama, S.A. As at 30 June 2006, a total of 618 individuals were employed at
to Compan
the Selene unit, consisting of 170 Hochschild Mining Group employees and 448 contracted
personnel. Two 10.5 hour shifts are worked on site each day, with the unit conducting operations
365 days a year.
Geology
The Selene mine is conformed by two vein systems where the mineralisation represents a low
sulphidation, precious metal epithermal system.
Mineral potential
The Hochschild Mining Group has a number of exploration targets within the Selene mining
concession. Set out below are ranges for the potential quantity and grade of the relevant targets.
It should be noted that the ranges quoted are conceptual in nature, there has been insufficient
exploration to define a mineralised resource and it is uncertain whether further exploration
would result in the determination of a mineral resource. A detailed explanation of the basis for
the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in
conjunction with these ranges:
Explorador/Sophia Vein System: the Group considers there to be mineralised potential of
1,200,000 to 1,500,000 tonnes at a grade of 200 to 400 grams per tonne of silver and 1.0 to
2.0 grams per tonne of gold.
49

Part I: Information on Hochschild Mining

Huachuhuilca Breccia Structures: the Group considers there to be mineralised potential of
2,000,000 to 4,000,000 tonnes at a grade of 200 to 400 grams per tonne of silver.
Mine and concentrate production
The Selene mine was commissioned into production in 2003 and has a current ore production
capacity of 353 kt per annum. The Explorador vein system supports all current operations at
Selene and hosts all reserves and the majority of mineral resources. The veins within the system
are mined by conventional and mechanised (trackless) cut-and-fill overhand stoping methods.
Twelve stopes rotate in the production cycle of drilling and blasting, mucking of ore and
backfilling.
The Group operates one concentrator at the Selene unit, which commenced operations in 2003
with a processing capacity at that time of 177 kt per annum expanding to 265 kt per annum. The
concentrator processes silver ore with associated gold to produce a silver/gold bulk concentrate by
flotation. Additional equipment was installed in November 2005 to increase the operating
capacity to 353 kt per annum. Further improvements to the Selene concentrator were made to
increase plant capacity to 406 kt per annum in September 2006. The Selene concentrator is
currently operating at 353 kt per annum.
Ore from the Pallancata project is to be processed at the Selene concentrator when that project
begins production (see Advanced Development ProjectsPallancata below). The Hochschild
Mining Group plans to expand capacity and production at the Selene concentrator to 720 kt per
annum, in order to process the Pallancata ore, at an estimated cost of US$5 million. The basic
engineering work for the expansion has been completed and the detailed engineering work is
currently in progress. Site work and installation are scheduled to be completed during the second
quarter of 2007 for production to commence in the third quarter of 2007. All permits required for
the extension of the concentrator at Selene have been applied for. Following completion of the
planned expansion of the Selene concentrator, the Selene unit will have approximately 70 per
cent. standby generator capacity at the mine in the event of a failure of the power supply from
the national grid, as compared to its current 100 per cent. capacity.
The following table sets out the Hochschild Mining Groups silver-gold concentrate production
from the Selene concentrator for the years ended 31 December 2003, 2004 and 2005 and the
6 months ended 30 June 2006. The production figures have been extracted without material
adjustments from the Technical Report in Part XV:

2003(1)

2004

2005

6 months
ended
30 June
2006

Ore production (in tonnes) ********************************************** 44,061

Concentrate produced (in tonnes) ***************************************
488
Silver grade in concentrate (kg/t) ****************************************
27.47
Silver produced (Koz) ***************************************************
417
Gold produced (Koz)****************************************************
4.32

253,605
2,892
31.21
2,911
28.14

288,919
3,559
29.15
3,335
27.48

178,044
1,947
31.43
1,967
14.57

Year ended 31 December

Product

Note:
(1) Selene commenced production in November 2003

From October 2006, the silver-gold concentrate produced by the Selene concentrator has been
transported by unsurfaced road over a distance of 175 kilometres to the processing plant at the
Ares unit for processing into dore and then for refining by Johnson Matthey. Previously, the

Selene concentrate was sold directly to Penoles

in Mexico. Further details of the arrangements

between the Hochschild Mining Group and Johnson Matthey and Penoles
are set out in Part I:
Information on Hochschild MiningSales, markets and customers.
50

Part I: Information on Hochschild Mining

Projects and prospects
The Hochschild Mining Group has a number of projects and prospects in Peru and elsewhere in
Latin America which are at different stages of development. These projects are categorised by the
Hochschild Mining Group in three stages:

PRA1 5.2.2
PRA1 6.1.2

) advanced development projects where feasibility studies have been produced, mine plans
approved and considerable investment already made in developing the property and preparing
it for production;
) early stage development projects where initial drilling and sampling procedures have been
undertaken and measured, indicated or inferred resources calculated; and
) prospects where target exploration sites are identified, initial exploration work has been
undertaken, and the nature of the mineralised deposits suggests there is potential for mine
development.
Several of these projects and prospects are structured as joint ventures or option arrangements
with local or overseas mining partners, whilst others are owned and operated exclusively by the
Hochschild Mining Group. The projects and prospects include both new sites and continuations of
existing mines.

Advanced development projects

San Jose

PRA1 6.1.2

Property description and location

The San Jose silver-gold property is located in the Argentinian Province of Santa Cruz,
approximately 1,750 kilometres south-southwest of Buenos Aires and 230 kilometres southwest of
Comodoro Rivadavia. The nearest town is Perito Moreno, approximately 30 kilometres west of San
The property covers a total area of approximately 50,491 hectares and consists of
Jose.
46 contiguous mining concessions totalling approximately 40,499 hectares and one exploration
permit covering approximately 9,992 hectares.
The mineralisation at the San Jose property represents a low sulphidation type with quartzsulphide veins with economic silver and gold values and displays geological and mineralogical
characteristics very similar to those of the Peruvian deposits. The project is designed as an
underground cut and fill mine with the ore feeding a concentrator producing a silver concentrate
containing a significant quantity of gold. The Group intends to produce dore at the San Jose
property in the first year of operations following the installation of a Gekko plant for such
purposes.
Currently, over four kilometres of underground workings have been developed on two levels
through two inclined shafts at the Huevos Verdes vein. Construction of two underground ramps,
one for the Huevos Verdes vein and the other at the nearby Frea vein, is underway and base camp
facilities have been expanded to house 330 employees and contracted personnel. The Group also
proposes to install sufficient diesel generator capacity at the San Jose property for it to be selfsufficient. As the area where San Jose is located is subject to high winds, it is intended that the
tailings dams will be operated underwater to minimise dust.
Title to the San Jose property is held by Minera Santa Cruz S.A. (MSC), the holding and
operating company set up under the terms of an option and joint venture agreement dated
15 March 2001 between Minera Andes, S.A. (MASA) and Lorenzon Limited (Lorenzon), a
wholly-owned Hochschild Mining Group company. MASA beneficially owns 49 per cent. of the
shares in MSC with 51 per cent. being held by Lorenzon. In addition, MSC holds the surface rights
to an area covering 2,875 hectares, which covers the area required to construct the mine and
51

Part I: Information on Hochschild Mining

facilities and to operate the San Jose project. Further details of the joint venture arrangements
between MASA and MHC are set out in Part XIV: Additional Information.
All relevant mining permits in respect of the San Jose property have been obtained and are in the
name of MSC.
Although regional exploration programmes were conducted in the San Jose area in the 1970s and
1980s, it was not until 1997 that silver and gold deposits were detected by MASA. Following the
discovery of the two San Jose ore zones during various exploration programmes between 1997
and 2005, firstly by MASA and subsequently by MSC, extensive drilling programmes were
completed to delineate the mineralised resources.
Reserves and resources
The table below sets out the reserves and resources at the San Jose property, such information
having been extracted without material adjustment from the Technical Report in Part XV.
As at 30 June 2006
Proved and probable reserves
(in tonnes)

Measured and indicated resources(1)

(in tonnes)

Inferred resources(2)
(in tonnes)

641,697

597,007

253,059

Notes:
(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution
(2) Inferred resources are stated exclusive of reserves and measured and indicated resources

Mineral potential
The Hochschild Mining Group has a number of exploration targets within the San Jose property.
Set out below are ranges for the potential quantity and grade of the relevant targets. It should be
noted that the ranges quoted are conceptual in nature, there has been insufficient exploration to
define a mineralised resource and it is uncertain whether further exploration would result in the
determination of a mineral resource. A detailed explanation of the basis for the ranges is set out
below in Section 6 of Part XV: Technical Report and that section must be read in conjunction
with these ranges:
Kospi Vein Extension: the Group considers there to be mineralised potential of 1,100,000 to
1,400,000 tonnes at a grade of 200 to 400 grams per tonne of silver and 3.0 to 8.0 grams per tonne
of gold.
Frea Vein Extension: the Group considers there to be mineralised potential of 1,000,000 to
2,000,000 tonnes at a grade of 120 to 400 grams per tonne of silver and 4.0 to 9.0 grams per tonne
of gold.
Odin Vein System: the Group considers there to be mineralised potential of 700,000 to
1,700,000 tonnes at a grade of 150 to 500 grams per tonne of silver and 4.0 to 9.0 grams per tonne
of gold.
Ayelen Vein: the Group considers there to be mineralised potential of 500,000 to 2,000,000 with
150 to 500 grams per tonne of silver and 4.0 to 9.0 grams per tonne of gold.
Investment costs

PRA1 5.2.2

The total estimated capital costs to design and build the facilities at San Jose are US$77.1 million,
of which US$6.6 million is reserved for contingencies. As at 30 June 2006, US$11 million had been
spent and US$6.8 million was committed. This estimate covers the direct field costs of executing
the San Jose project, plus the indirect costs associated with design, procurement and construction
efforts, including contingency and working capital. The investment costs will be paid by MSC,
51 per cent. of which will be funded by the Hochschild Mining Group.
52

PRA1 5.2.3

Part I: Information on Hochschild Mining

Operations at San Jose are scheduled to commence in 2007 with a designed ore production
capacity of 273.7 kt per annum, although the Group intends to expand ore production capacity in
due course. The Group intends to mine both veins at the San Jose property by mechanised
(trackless) and manual (slusher) cut-and-fill breast stoping methods depending on the mined
width, both methods using rockbolts, timber or no support as stope conditions dictate. It is
envisaged that five stopes will rotate in the production cycle of drilling and blasting, mucking of
ore and backfilling. Investigations into the Kospi and Odin veins as replacement ore for the
Huevos Verdes and Frea ore bodies are ongoing.
Pallancata

PRA1 6.1.2

Property description and location

The Pallancata silver-gold property is located approximately 650 kilometres south-east of Lima in

the Coronel Castaneda

District, Parinacochas Province, Ayacucho Department, Peru. It is
approximately 180 kilometres south-west of Cuzco and 240 kilometres north-west of Arequipa
and currently consists of 7,330 hectares in 17 mineral concessions. The nearest operating mine to
Pallancata is Selene which is located approximately 17 kilometres to the north-east. The Pallancata
property is accessed by road from Cuzco, travel time from which is approximately six to seven
hours. The nearest sizeable population centre is the village of Izcahuaca, 40 kilometres to the
north-west, with a population of approximately 500.
a Minera Ares, International Minerals
A joint venture agreement was entered into by Compan
Corporation (International Minerals), Ludlow Corporation (a wholly-owned Hochschild Mining
Group company) (Ludlow) and Minera Oro Vega S.A.C. (Minorva) (a subsidiary of
International Minerals) on 30 June 2006. The parties to the joint venture agreement entered into
a Minera Coriorco S.A.C
an amendment and accession agreement on 10 July 2006 with Compan
(Coriorco), a wholly-owned Hochschild Mining Group company recently renamed Pallancata
Holding S.A.C., pursuant to which it was agreed that Coriorco would accede to the joint venture
agreement and assume all of Ludlows obligations under the joint venture agreement. Under the
terms of the Pallancata joint venture agreement, title to the Pallancata mining concessions is held
by Minera Suyamarca, a company newly incorporated in Peru, in which Coriorco holds 60 per cent.
of the shares, with the remaining 40 per cent. being held by Minorva. Under the joint venture
a Minera Ares has been designated as the operator of the Pallancata project.
agreement, Compan
Further details of the joint venture arrangements between the Hochschild Mining Group and
International Minerals are set out in Part XIV: Additional Information.
All relevant mining permits in respect of the Pallancata property have been applied for and, once
granted, will be in the name of Minera Suyamarca. Initial construction commenced at the
property in August 2006 with production scheduled to commence in 2007. The workforce will be
based at the Selene mine and will be transported to Pallancata to work.
Reserves and resources
The table below sets out the reserves and resources at the Pallancata property, such information
having been extracted without material adjustment from the Technical Report in Part XV.
As at 30 June 2006
Proved and probable reserves
(in tonnes)

Measured and indicated resources(1)

(in tonnes)

Inferred resources(2)
(in tonnes)

643,267

614,418

981,673

Note:
(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution
(2) Inferred resources are stated exclusive of reserves and measured and indicated resources

53

Part I: Information on Hochschild Mining

Mineral potential
The Hochschild Mining Group has a number of exploration targets within the Pallancata property.
Set out below are ranges for the potential quantity and grade of the relevant targets. It should be
noted that the ranges quoted are conceptual in nature, there has been insufficient exploration to
define a mineralised resource and it is uncertain whether further exploration would result in the
determination of a mineral resource. A detailed explanation of the basis for the ranges is set out
below in Section 6 of Part XV: Technical Report and that section must be read in conjunction
with these ranges.
West Breccia Extension NW: the Group considers there to be mineralised potential of 2,000,000 to
5,000,000 tonnes at a grade of 250 to 300 grams per tonne of silver and 1.0 to 2.0 grams per tonne
of gold.
Mercedes Vein System: the Group considers there to be mineralised potential of 1,000,000 to
2,000,000 tonnes at a grade of 250 to 300 grams per tonne of silver and 1.0 to 2.0 grams per tonne
of gold.
Investment costs

PRA1 5.2.2

Under the terms of the joint venture arrangements with International Minerals, Coriorco has
agreed to meet or contribute towards certain costs relating to the development of the reserves
and the mine at Pallancata. Coriorco has budgeted US$10.5 million for these purposes, none of
which is yet committed. The key areas of investment included in the US$10.5 million budgeted
expenditure are:
) all of the drilling and associated costs incurred in converting all or part of the presently known
resources to reserves during the period of twelve months from receipt of all relevant mining
permits (the Initial Construction Period);
) all of the capital required to develop, permit and construct a mining operation at Pallancata at
an initial production level of 500 tonnes per day within the Initial Construction Period;
) construction of a new 22 kilometre road to transport ore from Pallancata to the Selene
concentrator at an estimated cost of approximately US$2 million; and
) expansion of the concentrator at Selene.
In addition to the US$10.5 million budgeted expenditure, the parties to the Pallancata joint
venture agreement have agreed to invest an amount of up to US$2 million (or such additional
amount as may be agreed between International Minerals and Coriorco) in further exploration
and drilling of additional exploration targets identified by International Minerals at Pallancata,
such additional amount to be apportioned 60 per cent. Coriorco and 40 per cent. Minorva.
Operations at Pallancata are scheduled to commence in 2007. It is intended that all of the ore
a Minera
produced at Pallancata will be processed at the Selene concentrator, for which Compan
a Minera Ares will also charge
Ares will charge Minera Suyamarca a toll-processing fee. Compan
Minera Suyamarca a monthly management fee of 10 per cent. of the total operating cost at
a Minera Ares will fund all of the capital costs of the concentrator expansion
Pallancata. Compan
at Selene required to process the Pallancata ore and the toll-processing cost charged to Minera
Suyamarca will be adjusted to reflect the additional capital costs (expected to be US$5 million)
a Minera Ares. It is intended that Pallancata concentrate will be sold as
incurred by Compan
concentrate until 2009, from which time it will be transported to the Ares unit for processing into

dore.
The Group intends to mine the Pallancata veins by conventional and mechanised (trackless) cutand-fill overhand stoping methods. It is envisaged that three stopes will rotate in the production
cycle of drilling and blasting, mucking of ore and backfilling.
54

PRA1 5.2.3

Part I: Information on Hochschild Mining

Early stage development projects
Mina Moris
(i) Mina Moris concessions
Exmin, S.A. de C.V. (Exmin), a wholly-owned Mexican subsidiary of Exmin Resources Inc., holds
mining concessions relating to an area of approximately 9,889 hectares in the Moris district of
Chihuahua, Mexico, where the mineralisation represents low sulphidation quartz-sulphide
epithermal veins with gold and silver values. On 17 June 2006, Minera Hochschild Mexico, S.A. de
C.V. (MHM), a wholly-owned subsidiary of Hochschild Mining, entered into a contract with
Exmin, under which: (i) Exmin granted MHM the exclusive right to assess and explore the area
covered by Exmins Mina Moris concessions; (ii) the parties agreed, subject to the conditions of the
contract being satisfied, to incorporate a new Mexican company (Newco) (to be owned 30 per
cent. by Exmin and 70 per cent. by MHM) and to enter into a shareholders agreement; and
(iii) Exmin agreed to assign all its concessionary rights over the area to the Newco conditional
upon (A) MHM investing at least US$4,800,000 (over a maximum five-year period) in exploration
and (B) Port Chester Limited (a Hochschild Mining Group company) subscribing for US$850,000
worth of shares in Exmin Resources Inc. by 2010 pursuant to a separate subscription agreement
entered into between Exmin Resources Inc., Port Chester Limited and MHM on 10 July 2006. For
further information on the joint venture arrangements with Exmin, see Part XIV: Additional
Information.

PRA1 5.2.2
PRA1 5.2.3
PRA1 6.1.2

(ii) Mina Moris mine

On 30 June 2006, Exmin and MHM entered into an agreement with Minera Moris S.A. de C.V., to
acquire the Mina Moris open pit mine covering an area of approximately 7,838 hectares. This
acquisition is scheduled to complete on 30 December 2006. The mine, with an ore production
capacity of 1,095 kt per annum, was operated by Minera Manhattan S.A. de C.V. between 1996
and 1999 and is independent of the Mina Moris concessions owned by Exmin. MHM and Exmin
intend to recommission the Moris mine back into production in 2007. Some of the original permits
and licences for the Moris Mine have now lapsed and will need to be renewed prior to
recommission. For further information on the acquisition of the Moris mine, see Part XIV:
Additional Information.
The table below sets out the resources at the Mina Moris property, such information having been
extracted without material adjustment from the Technical Report in Part XV.
As at 30 June 2006
Measured and indicated resources(1)
(in tonnes)

Inferred resources(2)
(in tonnes)

3,354,439

4,563

Notes:
(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution
(2) Inferred resources are stated exclusive of reserves and measured and indicated resources

The Hochschild Mining Group has a number of exploration targets within the Mina Moris project.
Set out below are ranges for the potential quantity and grade of the relevant targets. It should be
noted that the ranges quoted are conceptual in nature, there has been insufficient exploration to
define a mineralised resource and it is uncertain whether further exploration would result in the
determination of a mineral resource. A detailed explanation of the basis for the ranges is set out
in Section 6 of Part XV: Technical Report and that section must be read in conjunction with
these ranges:
Tecolote Vein System (underground): the Group considers there to be mineralised potential of
2,000,000 to 4,000,000 tonnes at a grade of 6.0 to 15.0 grams per tonne of silver and 1.0 to
2.0 grams per tonne of gold.
55

PRA1 5.2.2
PRA1 5.2.3
PRA1 6.1.2

Part I: Information on Hochschild Mining

Mesa de las TunasEl Pilar: the Group considers there to be mineralised potential of 300,000 to
500,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 10.0 to 15.0 grams per
tonne of gold.
Finlandia: the Group considers there to be mineralised potential of 900,000 to 1,800,000 tonnes at
a grade of 100 to 200 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold.
La Cienega: the Group considers there to be mineralised potential of 300,000 to 600,000 tonnes at
a grade of 10.0 to 15.0 grams per tonne of gold.
Balleza: the Group considers there to be mineralised potential of 5,000,000 to 10,000,000 tonnes
at a grade of 30 to 60 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold.
El Pinito: the Group considers there to be mineralised potential of 1,000,000 to 2,000,000 tonnes
at a grade of 30 to 60 grams per tonne of silver and 1.0 to 1.5 grams per tonne of gold.
Prospect X: the Group considers there to be mineralised potential of 5,000,000 to 10,000,000
tonnes at a grade of 6 to 15 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold.
Of the US$5.65 million that Minera Hochschild Mexico plans to invest in the Mina Moris joint
venture, US$4.8 million has been budgeted for project development. The remaining US$850,000
will be used to acquire shares in Exmin Resources Inc. as annual cash payments over the five-year
term of the agreement.
San Felipe
in
The San Felipe project is located approximately six kilometres west of San Felipe de Jesus
northern Sonora, Mexico and consists of seven mining concessions covering a total of
approximately 548 hectares. It is an underground mine and comprises concessions currently
owned by Grupo Serrana, S.A. de C.V. (Grupo Serrana), a privately owned mining company
based in Hermosillo, Sonora, Mexico. The San Felipe mine was operated by Grupo Serrana
between 1974 and 1991 when the mine was closed down and is not currently in operation. The
Group entered into an agreement with Grupo Serrana on 15 May 2006 whereby the Group has an
option to acquire up to 70 per cent. of all mining rights and ownership of the San Felipe property
through a joint venture vehicle to be set up by the Group and Grupo Serrana. The Group must
invest US$33.3 million in the property within five years of the date of the agreement. The Group
has paid Grupo Serrana US$0.2 million with an obligation to pay a further US$6.5 million over
three years for the acquisition of 70 per cent. of Group Serranas mining rights. The Group is
currently engaged in verification drilling on the property and has identified inferred resources of
3,150,000 tonnes at an average silver grade of 70 grams per tonne with a combined content of 9.6
per cent. zinc, lead and copper sulphides as at 30 June 2006.
The Group also has a number of exploration targets within the San Felipe project. Set out below
are ranges for the potential quantity and grade of the relevant targets. It should be noted that
the ranges quoted are conceptual in nature, there has been insufficient exploration to define a
mineralised resource and it is uncertain whether further exploration would result in the
determination of a mineral resource. A detailed explanation of the basis for the ranges is set out
in Section 6 of Part XV: Technical Report and that section must be read in conjunction with
these ranges:
La Ventana: La Ventana contains two separate areas of exploration targets where the Group
considers there to be mineralised potential of 1,500,000 to 2,000,000 tonnes at a grade of 45 to
50 grams per tonne of silver, 1 to 2 per cent. lead, 4 to 7 per cent. zinc and 0.1 to 0.3 per cent.
copper, and of 300,000 to 500,000 tonnes with a range of 20 to 100 grams per tonne of silver, 1 to
15 per cent. lead, 4 to 13 per cent. zinc and 0.1 to 0.3 per cent. copper, respectively.
56

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PRA1 5.2.3
PRA1 6.1.2

Part I: Information on Hochschild Mining

Artemisia: the Group considers there to be mineralised potential of 2,500,000 to 5,000,000 tonnes
at a grade of 50 to 80 grams per tonne of silver, 3 to 5 per cent. lead, 7 to 10 per cent. zinc and 0.2
to 0.4 per cent. copper.
Las Lamas: the Group considers there to be mineralised potential of 200,000 to 400,000 tonnes at
a grade of 150 to 200 grams per tonne of silver, 0.1 to 0.4 per cent. lead, 8 to 13 per cent. zinc and
0.2 to 0.3 per cent. copper.
San Felipe: the Group considers there to be mineralised potential of 1,500,000 to 3,000,000 tonnes
at a grade of 20 to 40 grams per tonne of silver, 2 to 3 per cent. lead, 3 to 4 per cent. zinc and 0.1
to 0.3 per cent. copper.

Prospects
In addition to its development projects, the Group has over twenty long-term prospects, the most
advanced of which are:
San Luis del Cordero (Mexico)
Mining concessions over the San Luis del Cordero property are currently held by Exploraciones del
Altiplano S.A. de C.V., a privately owned mining company based in Colonia Roma, Mexico,
covering a potentially mineralised area of approximately 2,800 hectares. The Group entered into
an agreement on 12 May 2006 with Exploraciones del Altiplano to undertake exploration with an
option to acquire all of its rights and ownership over the San Luis del Cordero property. In
consideration for the option, the Group must invest US$2.7 million over four years in order to
maintain the enforceability of the contract. Under the terms of the agreement with Exploraciones
del Altiplano, the Group also has the right to call for the assignment to it of Exploraciones del
Altiplanos rights under its mining concessions in return for payments totalling US$500,000,
together with a royalty payment equal to 3 per cent. of net smelter return (which is net revenue
including all rebates and subsidies paid for the smelting service or refinery after deducting all
costs and expenses paid or incurred in relation to the products). For further information on the
agreement with Exploraciones del Altiplano, see Part XIV: Additional Information.
Sierra de las Minas (Argentina)
The property at Sierra de las Minas comprises approximately 65,500 hectares and includes
approximately 58,600 hectares of exploration claims wholly owned by the Group, approximately
6,800 hectares of exploration and discovery claims in joint venture with Golden Peaks Resources
Limited and 54 hectares of mine claims owned by a local property owner with which the Group
has entered into an agreement to purchase such mine claims. For further information on the joint
venture arrangements with Golden Peaks, see Part XIV: Additional Information.
The Hochschild Mining Group has a number of exploration targets within the Sierra de las Minas
property. The Group is currently undertaking a mapping, sampling and diamond drilling
programme on the property to determine the viability of delineating ore reserves. Set out below
are ranges for the potential quantity and grade of the relevant targets. It should be noted that
the ranges quoted are conceptual in nature, there has been insufficient exploration to define a
mineralised resource and it is uncertain whether further exploration would result in the
determination of a mineral resource. A detailed explanation of the basis for the ranges is set out
in Section 6 of Part XV: Technical Report and that section must be read in conjunction with
these ranges:
The Group considers there to be mineralised potential of 600,000 to 1,000,000 tonnes at a grade
of 8.0 to 15.0 grams per tonne of gold.
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Part I: Information on Hochschild Mining

San Martn (Peru)
The eight kilometre by five kilometre San Martn site is located approximately 20 kilometres
northwest of the Arcata unit. Extensive surface channel sampling was undertaken by the Group in
the 1980s, during which the Group excavated a number of small mine cross-cuts with Arcata. The
project is currently under exploration by the Group using two surface diamond drill rigs, and
mineralised veins and structures have been identified widely across the property.

Sales, markets and customers

Sales and customers
from the
The Hochschild Mining Group sells the silver and gold it produces in two forms: dore,
Ares and Selene mines and concentrate from the Arcata mine. In 2005, sales of silver and gold
recovered from the Groups dore production totalled approximately US$91 million1, whilst sales of
silver and gold recovered from the Groups concentrate production totalled approximately
US$60 million2.
Dore
The Hochschild Mining Group sells its dore production to Johnson Matthey under a contract that
runs until 31 December 2006. The contract is automatically extended on a year-by-year basis after
31 December 2006. Under the terms of the contract, either party may terminate by giving 45 days
written notice to the other party. The Group may also terminate in the event of one months
continued disruption to the transport arrangements for the dore between Johnson Matthey and
the appointed third party carrier. Under the contract, Johnson Matthey agrees to refine the dore
and, unless the Hochschild Mining Group elects to sell to a third party, to acquire the refined silver
and gold. If the Hochschild Mining Group does elect to sell the refined product to a third party,
Johnson Matthey will arrange for the sale to be recorded in the relevant third partys account
with Johnson Matthey or at the London Bullion Market Association. The Hochschild Mining Group
has had similar arrangements in place with Johnson Matthey since 1997.
Shipments under the contract must comprise at least 700kg of dore and are typically made twice a
month. Risk passes to Johnson Matthey as soon as the dore is collected from the Hochschild
Mining Groups unit at Ares. Title passes upon payment by Johnson Matthey. Transport and other
costs are deducted from the payments made by Johnson Matthey in circumstances where the
refined silver and gold are acquired by it, and otherwise are invoiced separately by Johnson
Matthey. The contract provides that the refined silver and gold should be available for pricing
(that is the content of silver and gold recovered from the dore bars must have been determined,
subject to the agreement of assays) within 20 working days of receipt of the shipment (the
availability date).
Sales to Johnson Matthey: Subject to Hochschild Minings right to elect for advance settlement
(as described below), the price payable by Johnson Matthey to Hochschild Mining for silver and
gold recovered from the dore is fixed on such date on or after the availability date as the
Hochschild Mining Group may decide. The price is determined by reference to the London Bullion
Market Association spot fixing price and any payments are made net of transport costs, refining
costs and deductions (if any) if certain impurity thresholds are exceeded (although no impurity
deductions have been incurred to date). Payment is made by Johnson Matthey within two
working days of pricing.
1 Source: Company (unaudited)
2 Source: Company (unaudited)

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Part I: Information on Hochschild Mining

The Hochschild Mining Group has the right to (and generally does) elect for advance settlement
on up to 95 per cent. of the estimated silver and gold content in the dore with the price being
fixed (at the Hochschild Mining Groups discretion) no earlier than the day of shipment from Peru.
Typically Hochschild Mining will specify a pricing date within a day or two of the shipment and the
price is based on the London Bullion Market Association spot fixing price. Johnson Matthey pays
the advance settlement amount on the later of two working days after the date chosen by
Hochschild Mining for pricing and the date of receipt of the shipment at its refinery in the US. Any
advance payment is effectively treated as a loan from Johnson Matthey to the Hochschild Mining
Group at a LIBOR based interest rate until final settlement. Payment for any outstanding amounts
(less treatment and refining costs and any notional interest) is made by Johnson Matthey on the
working day after the agreement of assays (based on the London Bullion Market Association spot
fixing price at that time), at which time title passes to Johnson Matthey.
Sales to third parties: The Hochschild Mining Group may instruct Johnson Matthey prior to the
availability date to record in a third partys account a specified amount of silver and/or gold. Such
amount will be recorded in the relevant third partys account on such date on or after the
availability date as the Group may specify. If Hochschild Mining exercises its right to sell to a third
party Johnson Matthey invoices the Company separately for its refining charges. The Johnson
Matthey contract also creates an advance sales mechanism similar to the advance settlement
mechanism described above. In essence, the Group has the right to instruct Johnson Matthey to
credit up to 95 per cent. of the estimated gold and silver contents of a shipment to a third partys
account on a date no earlier than the date on which the dore is received at the refinery. Again,
any balance may be transferred following agreement of assays. The prices for the silver and gold
so credited to third parties is fixed by agreement between Hochschild Mining and the relevant
third party.
Although the Hochschild Mining Group has flexibility under the Johnson Matthey contract to sell
to third parties, save for certain limited forward sale or option arrangements (the current
arrangements being described below under Hedging), the Hochschild Mining Group has, since
2002, sold all the silver and gold recovered from its dore to Johnson Matthey1.
Concentrate
In relation to sales of its concentrate, the Hochschild Mining Group has a one-year contract with

Penoles
in Mexico for the sale of its entire concentrate output from the Arcata mine. The Penoles
contract entitles the Hochschild Mining Group to sell the Arcata mine concentrate for treatment

at Penoles
refinery in Tampico, Mexico in four or five shipments during 2006. Shipments are made
by road from the Arcata mine to the port of Matarani in Peru and then by ship to Tampico. The
shipment time from the Arcata mine to Tampico is typically around three weeks. Risk passes when

the concentrate is unloaded at the port in Tampico. The Group has sold concentrate to Penoles
since 1997.

The price to be paid by Penoles

for the silver content of the concentrate is based on the average of
the London Spot US$equivalent silver price and of the COMEX List Position (as published in Metals
Week) in the month immediately following the month of delivery for the first 50 per cent. of each
shipment and the second month following delivery for the second 50 per cent. of each shipment.
The gold price is similarly calculated based on the London Gold PM Fix price (as published in
Metals Week). Deductions are made for treatment charges and if the arsenic or antimony levels in
the concentrate exceed specified thresholds. Payments are made in three tranches: (i) the first
tranche (of 45 per cent. of the estimated value of the shipment based on information on assays
and prices at that time) is paid five days after the shipment arrives in Tampico (at which point title
passes); (ii) the second tranche (the balance required to give an aggregate of 90 per cent. of the
1 Source: Company (unaudited)

59

Part I: Information on Hochschild Mining

estimated value of the shipment based on information on assays and prices at that time) is paid
30 days later; and (iii) the final instalment is made promptly after the weight, content and average
prices have been determined.

There is also a separate contract with Penoles

for the Selene concentrate output on broadly similar
terms to the Arcata contract. However as the Selene concentrate output is now processed into
dore at the Ares facility, the last shipment under this contract has now been made.
Forward sales contracts
Currently, the Hochschild Mining Group has a number of forward sales contracts with Standard
Bank and Citibank in relation to the gold refined from its dore which it has entered into as part of
the security package for the Hochschild Mining Groups US$70 million loan facility (see
paragraph 12 of Part XIV: Additional Information), the last of which will expire in June 2007.
The gold sold pursuant to these forward sales contracts is delivered to the customer in accordance
with terms agreed by the parties. The Hochschild Mining Group also has a limited number of other
forward sale and option arrangements in relation to the silver produced from its dore which are
due to expire in December 2006.
Going forward, the Hochschild Mining Group intends to minimise financing arrangements which
involve forward sales contracts beyond those it is required to enter into as part of any project
financing arrangements.
In 2006, the Group estimates that approximately 29 per cent. and 57 per cent. of the Groups silver
and gold production respectively will be sold under these forward sales arrangements. This is
expected to fall to approximately 38 per cent. for silver and 30 per cent. for gold in 2007,
depending on the form of financing used in relation to the San Jose project (excluding the San
Jose project, none of the Groups silver production and 23 per cent. of the Groups gold
production is expected to be sold under these forward sales arrangements in 2007).
Sales strategy
As the Hochschild Mining Group sells its silver and gold output in a form where further treatment
is required, there is a relatively limited pool of potential purchasers with the required facilities.
The Company seeks to simplify the sales process by having contracts in place with only two or
three purchasers at any one time. Contracts are generally for a one-year duration and Hochschild
Mining will seek a number of quotes at renewal time with a view to obtaining the most
competitive terms. With the commencement of production of dore from the production at Selene
in October 2006, the Hochschild Mining Group intends to explore options for new arrangements
for the refining and sale of its dore production.

Environmental and health and safety matters

The Directors believe that the health and safety of the Groups employees, respect for the
environment and active engagement with local communities are fundamental to the Groups
business. Peruvian law requires the Group to use an independent audit company designated by
the Peruvian Ministry of Energy and Mines to audit twice a year the Groups compliance with
all applicable mining health, safety and environmental regulations. In addition, the Group
uses the international certification firm, Deutsche Gesellschaft zur Zertifizierung von
Managementsystemen in Germany (DQS), to carry out regular audits of the Hochschild Mining
Groups environmental management system, and has found the Group to be in full compliance
with international standards.
The Hochschild Mining Group has in place a local safety and mining hygiene committee at each of
its operating units which meets once a month to review, promote and monitor the Hochschild
Mining Groups health and safety policies and environmental protection programmes, check that
60

Part I: Information on Hochschild Mining

recommendations from previous external audits are implemented, review the general process of
the mining inspections and implement any necessary steps to mitigate health and safety risks at
each of the operating units. Each local committee is made up of representatives of local
management. Compliance with relevant legislation is checked regularly by the Group and the
Group compiles and reviews statistics on permit compliance on a monthly basis.
Environmental
In common with other natural resources and mineral processing companies, the Hochschild
Mining Groups operations generate hazardous and non-hazardous waste, effluent and emissions
into the atmosphere, water and soil. There are numerous environmental laws in Peru, Mexico and
Argentina that apply to the Hochschild Mining Groups operations and development projects.
These laws address such matters as protection of the natural environment, air and water quality
and emissions standards and disposal of waste. For further details on the applicable mining and
environmental regulations in Peru, Mexico and Argentina, see Part IV: Information on Peru,
Mexico and Argentina. In addition, Peru, Mexico and Argentina, where the majority of the
Groups operating mines and development and exploration projects are located, are all
signatories to, and have each ratified, the Kyoto protocol, which is intended to limit or capture
emissions of greenhouse gases such as carbon dioxide and methane. Whilst the precise nature of
the revised environmental regulations and enforcement regime within these jurisdictions is yet to
be finalised, given the environmental legislation that is already in place in each of the
jurisdictions, the Directors do not believe that the implementation of the Kyoto protocol by the
Peruvian, Mexican or Argentinian governments will materially increase the Groups environmental
obligations.
Hochschild Mining has implemented an Environmental Management System in respect of its three
operating sites which is certified to ISO 14001:2004 standards. The Environmental Management
System is a management tool used to monitor all environmental aspects of the work undertaken
by the Hochschild Mining Group and specifies the environmental standards to which the
Hochschild Mining Group should operate. The Groups San Jose project also has a full
environmental management system in place, is managed in line with ISO and Group requirements
and is planned to be certified to ISO 14001 in 2007. Hochschild Minings current environmental
standards not only comply with local regulations in Peru, Mexico and Argentina but also exceed
the requirements laid down by the World Bank in its Environmental, Health and Safety Guidelines
for the Mining Industry. These standards are audited by DQS twice a year. An example of the
Hochschild Mining Groups ongoing efforts in environmental matters is its reforestation
programme at both Arcata and Selene where the Group has planted in excess of 20,000 and
15,000 indigenous plants respectively in 2004 and 2005, together with the substantial investment
being made by the Hochschild Mining Group in technology to reduce air emissions and control
waste disposal.
Health & safety
The Hochschild Mining Group is required to comply with a range of health and safety laws and
regulations, and it recognises that the health and safety of its employees is a major priority. The
Hochschild Mining Group is implementing a Health, Safety and Risk Management System for its
underground and surface mining operations based on the OSHAS 18001 international standards,
with the aim of qualifying for OSHAS 18001 certification in 2007.
The Hochschild Mining Groups investment in health and safety has been recognised through its
receipt of the internationally recognised John T. Ryan Safety Award in three of the past five years.
The Groups aim is to continue to be recognised as having the safest operations in those countries
where the Groups operating units, projects and prospects are located and to be one of the safest
61

Part I: Information on Hochschild Mining

operations worldwide. The Group has budgeted US$3.8 million for health, safety and
environmental issues for the financial year ended 31 December 2006.
In the financial years ending 31 December 2003, 2004 and 2005, the Hochschild Mining Group
experienced, in aggregate, one fatal employee accident. Since 31 December 2005, there have
been three employee fatalities: one of the fatalities was due to an accident caused by a landslide
at one of the Groups operating units, whilst the remaining two were due to an accident caused
by the premature explosion of obsolete detonators which were being disposed of.
Health, safety, environment and community relations committee
Additionally, the Company has recently established a Health, Safety, Environment and Community
Relations (HSE) committee. The HSE committee comprises three Directors, being chaired by

Roberto Danino,
with Eduardo Hochschild and Sir Malcolm Field also members. Where
appropriate, the committee has the power to engage specialists with relevant technical expertise
to be members of or advise this committee. The HSE committee will meet not less than twice a
year and will be responsible for formulating and recommending to the Board the Groups policy
for HSE issues as they affect the Groups operations. The committee will focus particularly on
compliance with national and international standards to ensure that an effective system of HSE
standards, procedures and practices is in place at each of the Groups operations. The committee
will also be responsible for reviewing managements investigation of incidents or accidents that
occur in order to assess whether policy improvements are required. The ultimate responsibility for
establishing HSE policy will remain with the Board.

Operational hazards and insurance

The Hochschild Mining Groups operations are subject to numerous operating risks, including
geological conditions, seismic activity, climactic conditions, interruptions to power supplies,
environmental hazards, technical failures and industrial and other accidents at a mine, processing
plant or related facility. These risks and hazards could result in fatalities, personal injury, damage
to production facilities, environmental damage, business interruption and possible legal liability.
See also Risk Factors.
The Hochschild Mining Group maintains insurance against many of the risks it faces in an amount
that the Directors consider to be adequate. There are, however, certain risks (for example,
potential liability for pollution or other hazards as a result of the Group disposing of waste
products) where insurance may not be generally available to the Hochschild Mining Group or
other companies in the mining industry. The Directors periodically review the Groups insurance
arrangements with the Groups insurance brokers to evaluate whether changes are required to
the nature and amount of the cover.

Social and community programmes

The Directors believe that active long-term engagement with local communities and other
stakeholders is fundamental to the Groups business and the Group devotes considerable time and
resources to such engagement. The Group is engaged in a number of different projects with the
local communities which inhabit the land at and around its three operating mines and, in 2003,
appointed a manager in Lima to oversee the management of community relations. The Directors
believe that the three fundamental requirements for improving the lives of local communities are:
(i) access to healthcare, (ii) a good education, and (iii) self-sustainability and, as a result, have
tailored the Hochschild Mining Groups social and community programmes accordingly.

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Part I: Information on Hochschild Mining

Healthcare
The Hochschild Mining Group invests in healthcare campaigns conducted every three months with
local communities with the assistance of healthcare professionals, giving local communities access
to healthcare facilities and medicines aimed at preventing or, where relevant, curing illnesses.
Education
The Hochschild Mining Group has sought to improve the level of general education in local
communities in a number of ways:
) Mining training programmethe Hochschild Mining Group provides technical training
programmes which may lead to jobs in the Groups mining operations, including roles such as
mine extraction technicians and industrial carpenters.
) Schools programmethe Hochschild Mining Group has constructed several schools and has
invested in computer equipment, furniture and other infrastructure for local schools.
Social and rural development
The Hochschild Mining Group is involved in several projects which are designed to develop
sustainable economic opportunities for local communities. These programmes include:
) Rehabilitation of agricultural lands allowing for increased cultivation of vegetables and
encouraging local farmers to produce food, fodder and wood on a commercial scale.
) Alpaca wool marketing and breeding programme aimed at improving the commercial value of
alpacas owned by local communities through selective breeding. The Hochschild Mining Groups
programme seeks to improve living standards within local communities by developing and
modernising alpaca breeding techniques in order to produce high-quality wool.
) Guinea pig farms for the breeding of guinea pigs within local communities. Through selective
breeding, and as a result of training in marketing techniques provided by money invested by
the Hochschild Mining Group, local communities are able to obtain higher sale prices for their
guinea pigs, which are a staple food in Peru.
) Commercial farming of trout within local communities aimed at significantly increasing the
commercial production of trout.

Other programmes
In addition to its programmes of engagement with local communities, in 1984 the Group founded
TECSUP, a non-profit, technical university which has provided young people with the opportunity
to study practical degree courses linked to the needs of industry. The university has two campuses,
one in Lima and the other in Arequipa. Considerable resources have been invested by the
Hochschild Mining Group in the development of this university which currently has a total of
approximately 1,600 students attending regular degree programmes and 18,000 participants
taking part in short training courses annually. Since being founded in 1984, TECSUP has awarded
approximately 4,200 degrees, with approximately 94 per cent. of its graduates on average
entering employment after graduating. In addition to its degree programme, TECSUP has
provided training to more than 113,000 engineers and specialised workers through its short
training courses.

Employees and contractors

As at 30 June 2006, the Hochschild Mining Group had a total of 3,100 employees at its operating
units, development projects and head office, of which 1,935 were contracted personnel.
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Part I: Information on Hochschild Mining

All mining activities at each of the Groups operating units are carried out by contracted
personnel, including all exploitation work carried out within each of the Groups operating mines.
The main mining contractors employed by the Group are Administradora de Minas Arequipa
(Ares), Zicsa Contratistas Generales S.A. (Arcata) and Servicios Generales del Sur S.R.L. (Selene),
who have each signed either one or two-year contracts with the Group. In addition to mining
contractors, the Group currently has arrangements in place with contracted personnel for the

provision of security (Orus), transportation (Transportes David y Romulo

S.R.L.) and catering
(Sodexho Peru S.A.C.) services at each of its operating units on similar terms and conditions as are
currently in place with its mining contractors. Payment under the contracts is usually made
monthly based on specific targets set out in the contract, such as per metre mined (in the case of
mining contractors), per hour employed (in the case of transportation contractors) and per meal
consumed (in the case of catering contractors). All expenses, including raw materials and
equipment, are initially paid for by the relevant contractors who are then reimbursed by the
Group under the terms of their contracts. All contracts which the Group has in place with its
contracted personnel may be terminated by the Group on 60 days written notice with no
termination fee.

Employee relations
Except in respect of Argentina, where employees of Minera Santa Cruz, S.A. are voluntarily
Obrera Minera Argentina (the Argentine Mineworkers Union), the
affiliated to the Asociacion
Group workforce is not represented by a works council and no unions have yet been formed,
either in respect of the employees or the contracted personnel. The Group maintains good
relations with its workforce and, for almost twenty years, has not experienced any interruptions in
production at any of its operating sites as a result of workplace disputes.

Dividend policy
The Directors intend to adopt a dividend policy which will take into account the profitability of
the business and underlying growth in earnings of the Group, as well as its capital requirements
and cash flows, while maintaining an appropriate level of dividend cover.
Following Admission, in the absence of unforeseen circumstances and assuming the Groups
performance continues in line with the Boards expectations, subject to there being available
reserves for the purpose, the Directors intend to declare a dividend of one third of profits after tax
for the financial year ending 31 December 2006 in respect of the period from Admission until
31 December 2006.
Thereafter, the Directors intend that interim and final dividends will be paid in the approximate
proportions of one-third and two-thirds of the total annual dividend, respectively.
Dividends will be declared by the Company in US dollars. Unless a Shareholder elects to receive
dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend being
converted into pound sterling at exchange rates prevailing at the time of payment. The Company
may only pay dividends if distributable reserves are available for this purpose. The Board is
intending to implement the Capital Reduction shortly after Admission. If this were not to proceed,
as a holding company, the ability of the Company to pay dividends will principally depend upon
dividends or interest paid by its subsidiaries. See also Risk Factors.

64

PRA1 20.7

Part II:
Use of proceeds
Based on the Offer Price, the Groups net proceeds from the Global Offer are estimated to be
249 million (approximately US$476 million), after deduction of the estimated fees and expenses
payable by the Group.
The Company intends to use the net proceeds of the Global Offer primarily in the following ways:
) to maximise the potential of its existing operations
The Group intends to allocate approximately US$140 million to the development of its existing
operations with a focus on:
) further developing existing vein systems;
) undertaking further exploration within existing concessions to identify new vein systems to
extend mine life; and
) expanding plant capacity at Arcata and Selene to cater for increased production at each of
these units.
) to achieve growth through delivery of its project pipeline
The Group intends to allocate approximately US$250 million to the construction and further
expansion of its San Jose and Pallancata projects, and to bring its San Felipe and Moris projects
into production.
) to repay existing debt
The Group intends to allocate approximately US$40 million to the repayment of existing debt.
) to exploit market and geographic niches to seek additional growth opportunities, whether
by way of further exploration, joint ventures or strategic acquisitions
The Group intends to allocate the remainder of the net proceeds from the Global Offer to seek
additional growth opportunities and to expand its project pipeline by gaining access to further
mid-sized, high-grade development projects and prospects. The Group intends to achieve this
through a combination of:
) bringing two of its existing prospects to feasibility stage;
) conducting further exploration activities in Latin America, carried out either individually or
through joint ventures with local or overseas mining partners; and
) strategic acquisitions where suitable opportunities arise within the sector.
Pending their use as described above, the Group intends to invest the net proceeds from the
Global Offer in short term investments with internationally recognised financial institutions.

65

PRA3 3.4

Part III:
Management, corporate governance
and the major shareholder
1 Directors and Senior Management
(a) Board of Directors
The Directors of the Company are as follows:
Name

Age

Position

Eduardo Hochschild **************************

Roberto Danino
*****************************
Alberto Beeck *******************************

42
55
50

Sir Malcolm Field ****************************

Jorge Born Jr. *******************************
Nigel Moore*********************************
Dionisio Romero *****************************

69
44
62
70

Executive Chairman
Deputy Chairman and Executive Director
Executive Director, Strategy and Corporate
Development
Senior Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director

Eduardo Hochschild, aged 42 (Executive Chairman)

Mr. Hochschild joined the Hochschild Mining Group in 1987 when he was appointed Safety
Assistant at the Arcata unit, becoming head of the Hochschild Mining Group in 1998 and
Chairman in 2006. Mr. Hochschild graduated from Tufts University, Boston with a Bachelor of
Science degree in physics and mechanical engineering. He holds numerous board appointments,

the Sociedad Nacional

including directorships with COMEX Peru, the Banco de Credito
del Peru,

de Minera y Petroleo,
the Asian Pacific Economic Council Business Advisory Committee, the
Conferencia Episcopal Peruana, Pacfico Peruano Suiza, TECSUP, the Universidad Nacional de
Ingeniera and the Universidad de Ciencias Aplicadas. Mr. Hochschild is also currently Vice
Chairman of Cementos Pacasmayo.

Roberto Danino,
aged 55 (Deputy Chairman and Executive Director)

Mr. Danino
joined the Hochschild Mining Group in 1995, where he remained until 2001 when he

joined the Peruvian government. From 2003 to 2006, Mr. Danino

was Senior Vice President and
General Counsel of the World Bank Group and Secretary General of the International Centre for
Settlement of Investment Disputes (ICSID). From 2001 to 2003, he served in the Peruvian
government, first as Prime Minister and then as Perus Ambassador to the United States. Prior to

joining the Peruvian government, Mr. Danino

had participated as an attorney in numerous
investment projects throughout Latin America. From 1993 to 2001, he was a partner in
Washington D.C. of two international law firms, firstly of Rogers & Wells (from 1993 to 1996) and
subsequently of Wilmer, Cutler & Pickering (from 1996 to 2001), and was Chairman of these firms
respective Latin American Practice Groups. He was also founding General Counsel of the Inter
American Investment Corporation in Washington D.C. Mr. Danino
was educated at Harvard Law

School and the Pontificia Universidad Catolica del Peru, from which he obtained degrees in law.
Alberto Beeck, aged 50 (Executive Director, Strategy and Corporate Development)
Mr. Beeck commenced working with the Hochschild Mining Group in 1998. Prior to this, Mr. Beeck
served from 1992 to 1997 as Managing Director and Head of Latin American Investment Banking
for Barings, Inc. in New York and Baring Brothers, in London. From 1988 to 1992, Mr. Beeck served
in the London Corporate Finance Group of Dillon, Read Ltd, as Vice President with responsibility
for Spain and Portugal. Mr. Beeck also served as Vice President of Lehman Brothers, New York,
from 1982 to 1988 in the International Corporate Finance and government advisory group.
Mr. Beeck received a BS in mechanical engineering from Purdue University in 1978, and an MBA in
finance and international business from Columbia University in 1982. Mr. Beeck is also currently
Chairman of Cementos Pacasmayo.
66

PRA1 1.1
PRA1 14.1(a)
PRA3 1.1

Part IIIManagement, corporate governance and the

major shareholder
Sir Malcolm Field, aged 69 (Senior Non-Executive Director)
Sir Malcolm Field is currently the Senior Non-Executive Director of Aricom plc and a non-executive
director of both Odgers Ray & Berndtson and Linden Homes. From 2002 to 2006, Sir Malcolm
served as Chairman of Tube Lines Limited, one of the London Underground consortia, and from
2001 to 2006, was an external policy adviser to the Department of Transport in the United
Kingdom. From 1982 to 1993, Sir Malcolm was group managing director of WH Smith plc and
from 1993 to 1996 he served as chief executive. From 1996 to 2001, Sir Malcolm was Chairman of
the Civil Aviation Authority and he has also held appointments as a non-executive director in a
number of companies, including Scottish and Newcastle plc, MEPC, The Stationery Office and
Evolution Beeson Gregory.
Jorge Born, Jr., aged 44 (Non-Executive Director)
Jorge Born Jr. joined Bomagra S.A. in 1997 as Chief Executive Officer, and since 2001 he has been
President and Chief Executive Officer of the same organisation. Mr. Born is also Deputy Chairman
of Caldenes S.A., a subsidiary of Bomagra S.A. Prior to joining Bomagra S.A. in 1997, Mr. Born
served as head of Bunge Limiteds European operations from 1992 to 1997 and head of Bunge
Limiteds UK operations from 1989 to 1992. He has been a director and deputy chairman of Bunge
Limited since 2001 and director of Mutual Investment Limited since 1997 and its deputy chairman
since 2001. Mr. Born has also been a director of Brasif (Brazil duty free) of Rio de Janeiro since
2006. Mr. Born received a BS in economics from the Wharton School of the University of
Pennsylvania in 1983.
Nigel Moore, aged 62 (Non-Executive Director)
Nigel Moore is a Chartered Accountant. Since 2003, Mr. Moore has been Chairman of TEG
Environmental plc. He is currently a non-executive director of The Vitec Group plc,
IntelligentComms Limited and Ascent Resources plc. From 1973 to 2003, Mr. Moore was a partner
at Ernst & Young. Mr. Moore was the Managing Partner of Ernst & Youngs London office from
1985 to 1987, was a senior partner attached to the Chairmans Office (Europe) from 1987 to 1989
and was the Regional Managing Partner for Eastern Europe and Russia from 1989 to 1996. From
1996 to 2003, he was a Client Service Partner for the oil and gas sector.
Dionisio Romero, aged 70 (Non-Executive Director)
Dionisio Romero is Chairman and Chief Executive Officer of the financial services holding

Banco de Credito

company, Credicorp Ltd. He is Chairman of Banco de Credito

del Peru,
de Bolivia
and Atlantic Security Bank, and Vice Chairman of Pacfico Peruano Suiza. Mr. Romero is also a
director of Cementos Pacasmayo. Mr. Romero graduated with a BA degree in economics from
Pomona College, California in 1957, and earned an MBA from Stanford University in 1959.
(b) Executive Committee
The Hochschild Mining Groups executive committee is chaired by Eduardo Hochschild. Its other

members are Roberto Danino,

Alberto Beeck, Miguel Aramburu, Jorge Benavides and Ignacio
Rosado. Details of the biographies of Messrs. Aramburu, Benavides and Rosado are set out in
paragraph 1(c) below.

67

Part IIIManagement, corporate governance and the

major shareholder
(c) Hochschild Mining senior management
The Hochschild Mining Groups senior management team, in addition to the Directors listed
above, is as follows:
Name

Age

Position

Miguel Aramburu****************************
Jorge Benavides *****************************
Ignacio Rosado ******************************
Eduardo Loret de Mola***********************
Ricardo Arrarte ******************************
Gonzalo Freyre ******************************

43
52
36
51
40
40

General Manager, Mining Division

General Manager, Exploration and Geology Division
Chief Financial Officer
Manager, International Operations
Manager, Peruvian Operations
Manager, Argentinian Operations

Miguel Aramburu, aged 43 (General Manager, Mining Division)

Mr. Aramburu joined the Hochschild Mining Group in 1995, when he was appointed CEO of
a Minera Pativilca. He was appointed Chief Financial Officer of the Hochschild Mining
Compan
Group in 2002 and General Manager, Mining Division in 2006. Mr. Aramburu graduated from the

Pontificia Universidad Catolica

del Peru in 1987 in industrial engineering and holds a MBA from
Stanford University, California.
Jorge Benavides, aged 52 (General Manager, Exploration and Geology Division)
Mr. Benavides has nearly thirty years of experience in the mining industry. He was exploration and
geology manager for the Hochschild Mining Group from 2001 until December 2005 and, since
then, has been General Manager, Exploration and Geology Division. Prior to joining the
Hochschild Mining Group, Mr. Benavides spent eight years working for the Phelps Dodge Mining
Company in South America and Mexico, including as Exploration Manager for the Andean Region
from 1998 to 2001. Mr. Benavides holds an MSc. in Ore Deposits and Exploration from Stanford
University, California and a BSc. in Geological Engineering from the Colorado School of Mines,
Colorado.
Ignacio Rosado, aged 36 (Chief Financial Officer)
Mr. Rosado has been the Chief Financial Officer of the Hochschild Mining Group since 2005. Prior
to joining the Hochschild Mining Group, he worked from 2000 to 2005 as Senior Engagement
Manager for Latin America for McKinsey & Company. Mr. Rosado began his career with Banco
Wiese Sudameris in Peru, where he spent two years as a corporate banker from 1992 to 1994. He

then joined Banco de Credito

del Peru as a Project Manager and spent two years as a Project
Development Manager for Backus & Johnston Corporation in Peru. Mr. Rosado holds a MBA from
the University of Michigan Business School and a BSc. in Economics from the Universidad del
Pacfico, Lima.
Eduardo Loret de Mola, aged 51 (Manager, International Operations)
Mr. Loret de Mola has twenty-five years of experience in the mining sector. He has been Head of
Operations of the Hochschild Mining Group since 2004. Prior to joining the Hochschild Mining
Group, Mr. Loret de Mola spent three years as an independent consultant at Nueva Condor S.A.,
Lima and three years as Operations Manager at Minas de Venturosa S.A., Lima. From 1983 to 1996
a Minera Acobamba S.A., Lima. Mr. Loret de
Mr. Loret de Mola was Managing Director at Compan
Mola holds a Masters in Mining Economy and a BSc. in Mining Engineering from the University of
Minnesota.
Ricardo Arrarte, aged 40 (Manager, Peruvian Operations)
Mr. Arrarte has over ten years of experience in the mining industry. He joined the Hochschild
Mining Group in 2004 as Deputy Operations Manager. Prior to joining the Hochschild Mining
a Minera Caudalosa between 1996
Group, Mr. Arrarte worked as general manager of Compan
68

PRA1 14.1(d)

Part IIIManagement, corporate governance and the

major shareholder
and 2004 and at EXSA where he was planning and development manager from 1994 to 1995 and
project manager from 1991 to 1992. Mr. Arrarte holds BScs in mining and mechanical engineering

from the Pontificia Universidad Catolica

del Peru and a MBA from George Washington University,
Washington D.C.
Gonzalo Freyre, aged 40 (Manager, Argentinian Operations)
Mr. Freyre has fifteen years of experience in the mining industry. He joined the Hochschild Mining
Group in 1991 and has been the Manager of the Hochschild Mining Groups Argentinian
operations since December 2004. Mr. Freyre worked as Operations Manager of the Groups Selene
unit between 2003 and 2004, and was Administration Manager of Mauricio Hochschild & Ca
S.A.C. from 2002 to 2003. Prior to this, Mr. Freyre worked as Executive Assistant to the General
Management of Cementos Norte Pacasmayo S.A.A. from 2001 to 2002 and General Manager of
a Minera Selene S.A.C. between 2000 and 2001. From 1997 until 2000, Mr. Freyre was
Compan
a Minera Huaron
S.A., and General Manager of Compan
a Minera
General Manager of Compan
Pativilca S.A. during 1996. Mr. Freyre holds a MBA from the Business Administration School for

Graduates (ESAM) and a BSc in Industrial Engineering from the Pontificia Universidad Catolica
del

Peru.
2 Corporate Governance
(a) Combined Code
The Directors support high standards of corporate governance. Following Admission, they intend
to comply fully with the Combined Code save as described in paragraph 2(b) below.
(b) The Board structure
Upon completion of the Global Offer, the Board will consist of the Executive Chairman, two
Executive Directors and four Non-Executive Directors. Sir Malcolm Field has been nominated as the
senior independent Non-Executive Director. The Company regards all of its Non-Executive
Directors as independent non-executive Directors within the meaning of independent as
defined in the Combined Code and free from any business or other relationship which could
materially interfere with the exercise of their independent judgment. With the Chairman being an
Executive Director and not independent, the Board composition is not fully Combined Code
compliant. However, with the Board including four independent Non-Executive Directors, the
Company regards this as an appropriate board structure following Admission.
Mr. Romero retains an interest in a company that provides security services to the Hochschild

the largest bank in Peru and a

Mining Group and is also Chairman of Banco de Credito
del Peru,
provider of finance to the Hochschild Mining Group. Mr. Romero is also a director of Cementos
Pacasmayo and TECSUP. Notwithstanding Mr. Romeros aforementioned interests and his position
on the boards of Cementos Pacasmayo and TECSUP, the Company regards Mr. Romero as
independent for the purposes of the Combined Code. Mr. Hochschild is also a director of Banco de

Credito
del Peru.
Since 2003, Mr. Born has received payments totalling approximately US$72,000 from the Group
for providing consultancy services to the Hochschild Mining Group. Notwithstanding these
payments made by the Group to Mr. Born, the Company regards Mr. Born as independent for the
purposes of the Combined Code.
The Board has established an audit committee, a remuneration committee, a nominations
committee and a health, safety and environment committee.
69

PRA1 16.4

Part IIIManagement, corporate governance and the

major shareholder
(c) Audit committee
The audit committee is chaired by Nigel Moore and its other members are Sir Malcolm Field and
Jorge Born Jr.. The audit committee will meet not less than three times a year and will have
responsibility for, amongst other things, monitoring the integrity of the Hochschild Mining
Groups financial statements and reviewing its summary financial statements. It will oversee the
Hochschild Mining Groups relationship with its external auditors and review the effectiveness of
the external audit process. The committee will give due consideration to laws and regulations, the
provisions of the Combined Code and the requirements of the Listing Rules. It will also have
responsibility for reviewing the effectiveness of the Hochschild Mining Groups system of internal
controls and risk management systems. The ultimate responsibility for reviewing and approving
the interim and annual financial statements remains with the Board. The Board considers that
Mr. Moore has recent and relevant financial experience. Further details are set out in Mr. Moores
biography in paragraph 1(a) above.

PRA1 16.3

(d) Remuneration committee

The remuneration committee is chaired by Jorge Born Jr. and its other members are Sir Malcolm
Field and Nigel Moore. The remuneration committee will meet not less than three times a year
and will have responsibility for making recommendations to the Board (i) on the Hochschild
Mining Groups policy on the remuneration of Senior Management, (ii) for the determination,
within agreed terms of reference, of the remuneration of the Chairman and of specific
remuneration packages for each of the Executive Directors and the members of Senior
Management, including pension rights and any compensation payments and (iii) for the
implementation of long term incentive plans (see paragraph 8 of Part XIV: Additional
Information). The Remuneration Committee will also ensure compliance with the Combined
Code in this respect.

PRA1 16.3

(e) Nominations committee

The nominations committee is chaired by Eduardo Hochschild and its other members are
Sir Malcolm Field and Dionisio Romero. The committee will meet not less than twice a year and
will, with effect from Admission, have responsibility for making recommendations to the Board on
the composition of the Board and its committees and on retirements and appointments of
additional and replacement Directors and ensuring compliance with the Combined Code.
(f) Health, safety, environment and community relations committee

The health, safety, environment and community relations committee is chaired by Roberto Danino
and its other members are Eduardo Hochschild and Sir Malcolm Field. The committee will meet
not less than twice a year and will be responsible for formulating and recommending to the Board
the Hochschild Mining Groups policy on health and safety, environmental or local community
issues as they affect the Hochschild Mining Groups operations. (See Part I: Information on
Hochschild MiningEnvironmental and health and safety matters).
3 Relationship with the Major Shareholder
Eduardo Hochschild and Alberto Beeck hold an indirect interest in the Company through a jointlyheld intermediate holding company (the shares in which are controlled 82.13 per cent. by
Mr. Hochschild and 17.87 per cent. by Mr. Beeck and the board of which is controlled by Mr.
Hochschild), which owns the entire issued share capital of Pelham Investment Corporation (the
Major Shareholder) which in turn owns shares in Hochschild Mining. At Admission, and
assuming no exercise of the Over-allotment Option, the Major Shareholder will own
approximately 73.7 per cent. of the Company. If the Over-allotment Option is exercised in full, the
70

PRA1 18.1
PRA3 3.3

Part IIIManagement, corporate governance and the

major shareholder

interest of the Major Shareholder will decrease to 69.9 per cent. Roberto Danino
will hold and
control 1.1 per cent. indirectly through an intermediate holding company. Eduardo Hochschild,

Alberto Beeck and Roberto Danino

are all Executive Directors of the Company and their service
contracts are summarised in paragraphs 7.2 to 7.4 of Part XIV: Additional Information.
The City Code
The City Code is issued and administered by the Takeover Panel. The Company is subject to the
City Code and therefore its shareholders are entitled to the protection afforded by the City Code.
Under Rule 9 of the City Code when (i) a person acquires an interest in shares which (taken
together with shares he and persons acting in concert with him are interested) carry 30 per cent.
or more of the voting rights of a company subject to the City Code, or (ii) an person who, together
with persons acting in concert with him, is interested in shares which in the aggregate carry not
less than 30 per cent. of the voting rights of a company, but does not hold shares carrying more
than 50 per cent. of the voting rights of the company subject to the City Code, and such person, or
any persons acting in concert with him, acquires an interest in any other shares which increases
the percentage of the shares carrying voting rights in which he is interested, then in either case,
that person together with the person acting in concert with him, is normally required to extend
offers in cash, at the highest price paid by him (or any persons acting in concert with him) for
shares in the company within the preceding 12 months, to the holders of any class of equity share
capital whether voting or on-voting and also to the holders of any other class or transferable
securities carrying voting rights.

Following Admission Eduardo Hochschild, Alberto Beeck and Roberto Danino

will together
indirectly hold 74.8 per cent. of the issued share capital of the Company, assuming no exercise of
the Over-allotment Option, and 71.1 per cent. assuming the Over-allotment Option is exercised in

full. For the purposes of the City Code, Eduardo Hochschild, Alberto Beeck and Roberto Danino
are deemed to be acting in concert. The concert party will, therefore, following Admission hold
more than 50 per cent. of the voting rights attaching to the issued share capital of the Company.
Accordingly, the concert party, for so long as its members continue to be treated as acting in
concert, may be able to increase its aggregate interest in the Ordinary Shares without incurring
any further obligation under Rule 9 of the City Code to make a general offer to all shareholders of
the Company to acquire their Ordinary Shares. However, individual members of the concert party
will not be able to increase their percentage interests in shares through or between a Rule 9
threshold without the consent of the Takeover Panel.
The Major Shareholder, Eduardo Hochschild, Alberto Beeck and the Company entered into the
Relationship Agreement on 20 October 2006. The Relationship Agreement will, conditional upon
Admission, regulate the ongoing relationship between the Company and the Major Shareholder,
Mr. Hochschild and Mr. Beeck (the Beneficial Owners). The principal purpose of the Relationship
Agreement is to ensure that the Company and its subsidiaries are capable of carrying on their
business independently of the Major Shareholder, the Beneficial Owners and of any of their
respective associates, and that transactions and relationships with the Major Shareholder, the
Beneficial Owners and their respective associates (including any transactions and relationships
between the Group and Cementos Pacasmayo) are at arms length and on normal commercial
terms. The Company and the Major Shareholder will agree in the Relationship Agreement that
they will comply with the applicable obligations under the Listing Rules. The Relationship
Agreement will continue for so long as the Ordinary Shares are listed on the Official List and
traded on the London Stock Exchange or until such time as the Beneficial Owners cease to own or
control in aggregate a minimum interest in the Company. A minimum interest in the Company is
defined as 15 per cent. or more of the issued share capital or voting rights of the Company.
71

Part IIIManagement, corporate governance and the

major shareholder
Under the Relationship Agreement the parties have agreed that, among other things:
(a) the Major Shareholder has the right to appoint up to two Non-Executive Directors
(Shareholder Directors) to the Board for so long as the Major Shareholder holds an
interest of 30 per cent. or more in the Company and the right to appoint up to one NonExecutive Director for so long as it has an interest of 15 per cent. or more in the Company,
and in each case to remove any such Director(s) previously appointed;
(b) the Major Shareholder and the Beneficial Owners agree, save to the extent required by law,
to exercise their powers so far as they are able to ensure the Company is managed in
accordance with the Combined Code (save to the extent set out in this Prospectus or as
otherwise agreed by a majority of the independent Non-Executive Directors;
(c) transactions and relationships between the Company and/or its subsidiaries (on the one
hand) and the Major Shareholder, the Beneficial Owners and their respective associates (on
the other) shall be conducted at arms length and on a normal commercial basis;
(d) the Major Shareholder and the Beneficial Owners shall not, and shall procure that their
respective associates shall not, take any action which precludes any member of the Group
from carrying on its business independently of the Major Shareholder or the Beneficial
Owners or any of their respective associates;
(e) the Board shall comprise the Executive Chairman, two Executive Directors and not less than
three independent Non-Executive Directors and the quorum for any meeting shall be three,
of which at least two must be independent Non-Executive Directors;
(f) the Remuneration Committee and Audit Committee shall at all times comprise only
independent Non-Executive Directors and the Nomination Committee and any committee
of the Board to which significant powers, authorities or discretions are delegated shall at all
times comprise a majority of independent Non-Executive Directors;
(g) the Major Shareholder and the Beneficial Owners shall not, and shall procure that their
respective associates shall not, take any action to prejudice the Companys status as a listed
company or its suitability for listing or its compliance with the Listing Rules and Disclosure
Rules;
(h) the Major Shareholder and the Beneficial Owners shall not, and shall procure that their
respective associates shall not, exercise voting rights attaching to its shares in the Company:
(i) to procure any amendment to the Articles which will be inconsistent with or breach any
of the provisions of the Relationship Agreement; or (ii) in respect of any resolution to
approve a transaction with a related party (as defined in the Listing Rules) where the Major
Shareholder, the Beneficial Owners or any of their respective associates is the related party;
(i)

if any matter which, in the opinion of the independent Non-Executive Directors, gives rise
to a conflict of interest (including any new agreement or arrangement (or any material
amendments to existing arrangements)) between any member of the Group and the Major
Shareholder or the Beneficial Owners or any of their respective associates (including any
arrangement between the Group and Cementos Pacasmayo or any of its subsidiaries) such
matter must be approved by a majority of the Board (excluding the Shareholder Director
and the relevant Beneficial Owner(s)); and

(j)

subject to certain exceptions, the Major Shareholder and Beneficial Owners undertake that
they shall not have an interest in or be involved with a competing Latin American precious
metals mining business.

The Directors believe that the terms of the Relationship Agreement as described above will enable
the Group to carry on its business independently of the Major Shareholder and the Beneficial
72

Part IIIManagement, corporate governance and the

major shareholder
Owners and ensure that all transactions and relationships between the Company and/or its
Subsidiaries (on the one hand) and the Major Shareholder and/or the Beneficial Owners and/or
their respective associates (on the other) are, and will be, at arms length and on a normal
commercial basis.
4 Employees
The table below sets out the number of people (full-time equivalents) employed by the Hochschild
Mining Group, including contracted personnel, at period end for each of the last three financial
years to 31 December 2005 and the six months to 30 June 2006:
Years ended

PRA1 17.1

Six months ended

31 December 2003

31 December 2004

31 December 2005

30 June 2006

Employees ***********************
Contracted Personnel *************

865
2,333

1,012
2,703

1,155
1,856

1,165
1,935

Total*****************************

3,198

3,715

3,011

3,100

5 Executive Long Term Incentive Plan

The Company has not yet adopted an executive long term incentive plan. It is intended, however,
that the Company will, following Admission, seek advice on the form of long term incentive plan
that is most suitable for the Company with a view to adopting a plan or plans, subject to
shareholder approval (if required).
Details of the statutory profit sharing arrangements which the Group has in place with its
employees in Peru are set out in Part VII: Operating and Financial Review.
6 Pension Schemes
The Hochschild Mining Group does not currently operate any pension schemes for the employees
of the Group for its employees and has no present intention of introducing such schemes. Details
of the Groups statutory contributions to pension accounts for its employees in Peru, Mexico and
Argentina are set out in Part VII: Operating and Financial Review.

73

PRA1 17.3

Part IV:
Information on Peru, Mexico and Argentina
The following information relating to Peru, Mexico and Argentina has been provided for
background purposes only. The information has been extracted from the sources specified at the
end of the relevant sections on Peru, Mexico and Argentina. The information has been accurately
reproduced and, as far as the Company is aware and is able to ascertain from information
published by such sources, no facts have been omitted which would render the reproduced
information inaccurate or misleading. The views represented and information contained in these
sources are not necessarily uniform in nature.

(A) PERU
1. Introduction
Peru, the third largest country in South America, borders Ecuador and Colombia to the North,
Brazil and Bolivia to the East, and Chile to the South. Its western border flanks the Pacific Ocean.
The country spans approximately 1.28 million square kilometres and is divided into three distinct
regions: the Andes mountain region, the western lowland coastal region and the rain forest
region. The western lowland coastal region is the most populated and prosperous of the three
regions and contains the countrys political and financial capital, Lima.
Peru has a population of approximately 28 million people. With an estimated population of
almost nine million people, Lima is significantly larger than Perus next largest city, Arequipa,
which has an estimated population of less than one million. Perus population is composed of
several ethnic groups: 45 per cent. indigenous peoples, 37 per cent. of mixed background,
15 per cent. European, and the remaining 3 per cent. African, Japanese, or Chinese. Although
Spanish is the principal national language, other indigenous languages are spoken and Quechua is
officially recognised. As at January 2006, approximately 54 per cent. of the population of Peru
were estimated to be living below the poverty line.
2. Perus Political and Economic Environment
Government and Government Policy
Peru is a constitutional republic where power is balanced between executive, legislative, and
judicial branches. The judicial branch comprises three tiers of lower courts which culminate in a
Supreme Court, and the legislative branch takes the form of a unicameral congress. The executive
branch is led by a president, two vice presidents, and a prime minister who oversees a council of
ministers. Ministers are appointed for specific sectors. At the local level, Peru is divided into
24 political sub-divisions known as departments. The citizens of each department elect a regional
president as well as local municipal authorities.
In the 2006 presidential election, Alan Garca, of the Partido Aprista Peruano, was elected
President. Whilst the new governments policies are yet to be fully developed, Mr Garca has
confirmed that he will not reverse the economic policies of the previous administration and has
confirmed that his government wishes to encourage foreign investment. The defeated
presidential candidate, Ollanta Humala, has signalled his determination to continue his opposition
to the new administration and has ruled out any form of political alliance with Mr. Garcas party.
Economy
Peru has experienced periods of very high inflation in the last few decades, the economy has now
largely stabilised. Since 1990, the official inflation rate has fallen from a high of over 7,400 per
cent. to 1.6 per cent. in 2005. In recent years, the economy has been growing strongly in real terms
with average GDP growth of 4 per cent. between 2001 and 2005, leading to an average per capita
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GDP in 2005 of US$2,800 and total national GDP in 2005 of US$78.4 billion. For 2006, the Peruvian
central bank is predicting national GDP growth of 5.5 per cent. for Peru.
Perus recent economic stability and low inflation rate have helped to promote foreign direct
investment in the country. In 2005, foreign direct investment amounted to over US$2.5 billion.
Peru is the largest silver producer in the world and, in terms of foreign trade, relies heavily on its
minerals. In 2005, Peru exported US$17.2 billion worth of goods (54.8 per cent. of which
comprised mineral exports) and imported US$12.5 billion. Its chief trading partner is the United
States, which in 2005 received 30 per cent. of Perus exports and supplied 17.7 per cent. of its
imports. Perus next most important trading partner is China, which in 2005 received 11 per cent.
of Perus exports and supplied 8.5 per cent. of its imports. On 12 April 2006, the United States and
Peru formally entered into a bilateral free trade agreement (the United States-Peru Trade
Promotion Agreement) designed to expand trade between the two countries, eliminate tariffs
and other barriers to goods and services and promote economic growth. The agreement was
ratified by the Peruvian Congress on 28 June 2006 and is currently awaiting ratification by the US
Congress.
Taxation and Exchange Controls
The corporate income tax rate in Peru is 30 per cent. Businesses in Peru are also subject to a valueadded tax of 19 per cent., and a 0.08 per cent. tax is generally imposed on debits and credits in
Peruvian bank accounts. Dividends paid to individuals or to companies not domiciled in Peru are
subject to a withholding tax of 4.1 per cent. There are no exchange control requirements in place.
Currency
In the past 50 years, the Peruvian currency has been changed three times. As a result of high
inflation, the Sol was replaced in 1985 with the Inti, which in turn was replaced in 1991 with the
Nuevo Sol. The Nuevo Sol has remained relatively stable since its introduction with inflation being
brought under control and between 2002 and 2005 the Nuevo Sol appreciated from an annual
average of 3.52 to an annual average of 3.30. The Nuevo Sol is freely convertible.
3. Summary of Perus Mining Legislation
The Legislation
The General Mining Law, as approved by Supreme Decree N 014-92-EM of 4 June 1992 (the
General Mining Law), is the key legislation governing mining activities in Peru. The exploration
for, and extraction of, mineral substances from the ground (with a few limited exceptions) is
governed by a number of laws and regulations, the most important of which include:
) the Regulations under Several Titles of the Mining Law (Supreme Decree N 003-94-EM (as
revised));
) the Regulations on Mining Procedures (Supreme Decree N 018-92-EM (as revised));
) the Regulations on Mining Safety and Hygiene (Supreme Decree N 046-2001-EM (as revised));
) the Regulations on Environmental Protection for MiningMetallurgical Activities (Supreme
Decree N 016-93-EM (as revised));
) the Environmental Regulations for Mining Exploration Activities (Supreme Decree N 038-98-EM
(as revised));
) the Regulations under Title Nine of the Mining Law relating to the Guarantees and Measures
for the Promotion of Investment and Mining (Supreme Decree N 024-93-EM (as revised));
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) the Mining Activities Fiscalization Law (N 27474) and Regulations thereunder (Supreme Decree
N 049-2001-EM (as revised));
) the Law regulating Mining Concessions in Urban and Urban Development Areas (Law N 27015)
and Regulations thereunder (Supreme Decree N 008-2002-EM (as revised));
) the Mining Royalties Law N 28258, and Regulations thereunder, approved by Supreme Decree
N 157-2004-EF (as revised); and
) the Mine Closure Law N 28090, and Regulations thereunder (Supreme Decree N 33-2005-EM
(as revised)).
The Concession System
Peruvian mineral resources are the property of the State and the private sector may only exploit
such resources in accordance with Perus concession system. In principle, Peruvian law allows any
investor to carry out mining in Peru provided they first obtain the proper concession. The General
Mining Law authorises the National Institute of Concessions and Mining Cadastre (the INACC), a
specialist agency within the mining sector which is independent from the Ministry of Energy and
Mines (the MEM), to grant mining concessions. All other concessions such as Processing, General
Services and Mining Transportation concessions (see below) are granted by the MEM. A concession
is required to carry out all mining activities in Peru, except for sampling, prospecting and trading
in mining products and minerals. Concessions are granted for indefinite periods, subject only to
termination as set out below.
Types of Concession
Under the General Mining Law, there are four types of concession which may be granted by the
MEM or by the INACC, as the case may be:
) Mining Concessionsthese grant holders the right to explore and exploit mineral resources
within the area covered by the concession;
) Processing Concessionsthese grant holders the right to process, purify, smelt or refine
minerals;
) General Service Concessionsthese grant holders the right to carry out ancillary services, such
as ventilation, sewerage, hoisting or underground access, at one or more mining concessions;
and
) Mining Transportation Concessionsthese grant holders the right to operate a transportation
system to transport mineral products between one or more mining units and a processing plant
or refinery, using conveyor belts, pipelines and/or track cables.
Of these concessions, only mining concessions have limits as to the area covered by the concession.
Mining concessions are granted in respect of areas consisting of a minimum of 100 hectares and a
maximum of 1,000 hectares (concessions located at sea may extend to an area of 10,000 hectares).
Concessions may be transferred, assigned or mortgaged. Any such transfer, assignment or
mortgage must be evidenced by public deed registered at the Registry of Mining Rights, part of
the National System of Public Registers, before it can be enforced against the State or third
parties.
A mining concession grants the holder an exclusive and irrevocable right to carry out those mining
activities set out in the concession within a specified area. The concession is registered in the
National Mining Cadastre at the INACC based on the UTM co-ordinates of the area covered by the
concession.
Mining concessions require a number of permits and licences to be obtained before exploitation
can commence. These permits include an operating mine permit and an operating plant and plant
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capacity authorisation and may include other permits, such as permits for water use, storage and
use of explosives, fuel use and storage, electrical generation and chemical use, depending on the
operation.
Requirements and obligations of concession holders
(A) Requirements
Concessions may only be granted to individuals domiciled in Peru, or companies incorporated in
Peru whose objects are to carry out mining activities (although such companies may be wholly
owned by foreign investors), or branches of foreign companies which are established in Peru for
the purposes of carrying out mining activities. The latter two categories are required by law to be
registered with a Peruvian Public Registry. Overseas companies and individuals (including
Peruvian-domiciled companies owned ultimately by overseas investors) may not hold concessions
over property located within 50 kilometres of any of Perus national borders, unless permission
from the Government has been obtained.
There is no limit to the number of concessions that may be held by a company or individual.
An application for a mining concession must be published in the official gazette and in a local
newspaper and the mining authority must wait at least 30 days from the date of publication
before granting a mining title. A third party may object to the granting of the mining title within
15 days of the publication of the application in the official gazette or local newspaper. After the
15 day period has elapsed, if a third party claims and proves that it has a pre-existing right to the
mining concession, the mining authority must grant the mining title to a newly incorporated
corporation of which each party holds 50 per cent. of the shares. This is rarely used in practice.
Holders of mining concessions are, however, required to monitor the applications published in the
official gazette to ensure no other third parties are applying for a mining concession over the
same area.
(B) Obligations
Holders of mining concessions or those applying for mining concessions are required to comply
with various obligations, including the annual validity feeor good standing paymentof
US$3.00 per year per hectare, both for mining concessions and mining concession applications.
Failure to pay the validity fee for two consecutive years may lead to the cancellation of the mining
concession or mining concession application.
Holders of mining concessions are also required to meet minimum annual production targets
prescribed by the General Mining Law. This target is currently US$100.00 per hectare per year.
Concession holders are entitled to aggregate multiple concessions for these purposes provided
certain conditions are met. If the concession holder has not met the minimum annual production
target within seven years of the concession having been granted, the holder is required to pay a
penalty equal to US$6.00 per year per hectare for the 8th to 11th year following the granting of
the concession. The penalty increases to US$20.00 per year per hectare if the minimum production
target is not met within 12 years of the concession having been granted. Failure to pay this
penalty for two consecutive years may lead to the cancellation of the mining concession, although
concession holders may be able to avoid paying the penalty if they can prove to the mining
authorities that they have invested an amount equivalent to at least ten times the amount of the
penalty in the local area.
Pursuant to the Ley de Regala Minera (Mining Royalty Law) (Law Number 28258) which came into
effect on 24 June 2004, concession holders are also obliged to pay to the Peruvian government an
annual royalty equal to 1 per cent. on concentrate or dore sales of up to US$60 million, 2 per cent.
on sales between US$60 million and US$120 million, and 3 per cent. on sales exceeding
US$120 million, unless the concession holder has entered into a stability agreement before this
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regime came into force (see Stability Agreements below). As a result of the stability agreement
entered into by the Group in 1998 in respect of the Ares Unit, the Hochschild Mining Group
currently pays royalties to the Peruvian government only in respect of its concentrate sales at
Arcata and Selene.
Termination of concessions
Concessions are generally irrevocable but may lapse or terminate in the following two
circumstances:
) failure by a concession holder to pay the mining validity fee for two consecutive years; or
) failure by a concession holder to pay the penalty for two consecutive years for not meeting the
minimum annual production target.
Environmental Legislation
The environmental aspects of mining activities are governed by the General Law of the
Environment (Law N 28611) (the GLE), the General Mining Law and miscellaneous mining
environmental regulations, as well as regulations governing corporate social responsibility. The
MEM is the competent authority for the regulation of all environmental matters in the mining
industry.
Under Article 24 of the GLE, the holders of new concessions must prepare an Environmental
Impact Assessment (EIA) illustrating the impact the particular mining activity is likely to have on
the environment and how this will be managed and mitigated. The EIA must be formally
approved by the MEM which will issue its approval in writing only following a public consultation
exercise. The EIA must be prepared by an environmental auditor registered with, and authorised
by, the MEM for these purposes. The EIA also requires approval from, among others, the National
Institute of Natural Resources and the Ministry of Health. Approval of the EIA is usually granted
between 18 and 24 months after the EIA is filed with the MEM.
Additional obligations are imposed on concession holders by Supreme Decree N 016-93-EM of 1
May 1993, including:
(a) anyone applying for a processing concession, as well as those who intend to expand their
production or the capacity of their processing plant by more than 50 per cent., must
prepare and file an EIA for approval by the MEM;
(b) mining concession holders with ongoing operations must file annually with the MEM
specific information attached to its consolidated annual report, indicating that their mining
activities comply with all applicable environmental regulations;
(c) mining concession holders must appoint a suitably qualified person within their operations
to monitor the companys environmental standards; and
(d) all concession holders must carry out regular tests to check whether the amounts and
concentration of their effluents are below the maximum permitted contamination levels.
Mine Closure Law
The law regulating the closure of mines (the Mine Closure Law) was approved in 2003. This law
obliges mining companies to file a mine closure plan and ensure that they have the necessary
resources to carry out the closure plan for the purposes of preventing, minimising and controlling
the risks and adverse impacts on the environment once a mining unit has ceased operations.
Under the Mine Closure Law, mining concession holders must also grant an environmental
warranty to the MEM for the estimated costs associated with its mine closure plan. The law
provides that this warranty may take the form of insurance, cash collateral, a trust agreement or
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other form, as permitted by the Civil Code of Peru. In accordance with the requirements of the
Mine Closure Law, the Group filed closure plans for Arcata, Ares and Selene in August 2006.
Stability Agreements
Holders of mining concessions may enter into stability agreements with the MEM. Stability
Agreements enable mining concession holders, amongst other things, to freeze the tax, royalties
and regulatory regime applicable to mining operators as at the date the stability agreement is
entered into. In order to take advantage of a stability agreement, mining concession holders must
submit either a Mining Investment Programme or a Feasibility Study to the MEM for approval.
Approval by the MEM of a Mining Investment Programme grants the concession holder 10 years
stability, whilst approval by the MEM of a Feasibility Study grants the concession holder 15 years
stability.
The Hochschild Mining Group has one stability agreement in place in respect of its operations at
the Ares unit. In addition, the Group has applied to the MEM for a stability agreement in respect
of each of its operations at Arcata and Selene.
Stability agreements grant the concession holder the following rights and benefits:
(a) The tax regime in force at the date the agreement is entered into is effectively frozen and
will continue to apply for the duration of the agreement. The mining regulatory and
royalty regime is frozen as at the date the Mining Investment Programme or Feasibility
Study, as the case may be, is approved.
(b) The stability period commences once the MEM has verified that the concession holder has
invested the amount proposed in its Mining Investment Programme or Feasibility Study, as
the case may be, although the concession holder may elect to postpone the start of the
stability period until its first year of operations.
(c) Smaller stability agreements (i.e. those agreements covering mines with output of between
350 and 5,000 tonnes per day, requiring a minimum investment of US$2 million) guarantee
stability for up to ten years while larger stability agreements (i.e. those agreements
covering mines with an output of not less than 5,000 tonnes per day, requiring a minimum
investment of not less than US$20 million if commencing operations or US$50 million if
expanding them) guarantee stability for up to fifteen years.
Stability agreements grant the concession holder further rights, including:
(a) Free marketing of the concession holders mineral products (both exports and domestic
sales).
(b) Free disposal in Peru and abroad of foreign currency generated by exports covered by the
stability agreement.
(c) Free convertibility of local currency into foreign currency generated by the sale in Peru of
the mining products covered by the stability agreement.
(d) In respect of larger stability agreements only, extension of the annual depreciation rate on
machinery, equipment and capital assets, up to a maximum annual rate of 20 per cent.
Mine development costs may be depreciated at a maximum annual rate of 5 per cent.

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Investment Guarantees
In order to encourage foreign investment in Peru, the Peruvian government allows foreign
investors to enter into investment guarantees. In return for a certain level of guaranteed
investment, investment guarantees may give investors rights such as free currency conversion and
repatriation of profits abroad, as well as certain rights relating to the tax treatment of exploration
and development expenses. The Hochschild Mining Group has not entered into any investment
guarantees.

Sources:
(a) US Department of State, Bureau of Western Hemisphere Affairs, June 2006: Profile on Peru
(b) The World Fact Book prepared by the C.I.A., September 2006: Profile on Peru
(c) British Broadcasting Corporation News articles entitled: Devil in the detail for Perus voters (30 May 2006); Garca
begins fresh term in Peru (29 July 2006); Humala to lead Perus opposition (07 June 2006)
(d) Bloomberg Newspaper article entitled: Perus Garca plans to Triple Foreign Investment (09 June 2006)
(e) The Economist website on Peru: Factsheet (24 March 2006)
(f) Americas SocietyCouncil of The Americas: Economic Outlook for Peru (June 2006)
(g) Latin Business ChroniclePeru: Economic and Political Overview (14 August 2006)
(h) Office of the US Trade Representative Press Release: United States and Peru Sign Trade Promotion Agreement
(12 April 2006)
(i) Peru Tax Desk Book (March 2006)
(j) Central Bank of Peru StatisticsPeruvian Exchange Rate as against the US Dollar

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(B) MEXICO
1. Introduction
Mexico is bordered to the north by the United States, and to the south by Guatemala and Belize in
Central America. Its coastal regions meet the Pacific Ocean and the Gulf of California on the west,
and the Caribbean and the Gulf of Mexico to the east. It is the northernmost and westernmost
country in Latin America, and the most populous Spanish-speaking country in the world. Mexico
covers an area of approximately 1.97 million square kilometres, and its landscape varies from the
mountain peaks and canyons of the Sierra Madre to the central high plateau area where Mexico

City lies to the lowland flat tropical peninsula of the Yucatan.

Mexico has a total population of approximately 107 million, of whom approximately 20 million
live in the capital, Mexico City. The population is, for the most part, of mixed ethnic origin. The
Mestizos (60 per cent. of the population) are of Spanish and Indian blood. The Indgenas, or native
Indians, make up 30 per cent. of the population and live mainly in rural areas. As at January 2006,
approximately 40 per cent. of the population of Mexico were estimated to be living below the
poverty line.
2. Mexicos Political and Economic Environment
Government and Government Policy
Mexico is a federal democratic republic with 31 states and one federal district. Each state has its
own constitution and its citizens elect a governor, as well as representatives, to their respective
state congresses. The President of Mexico is the head of the executive federal government.
Executive power is exercised by the President, whilst legislative power is vested in the two
chambers of the Congress of the Union. The three constitutional powers are the Judiciary, the
Executive and the Legislative, which are independent of each other.
was announced as the new president-elect of Mexico. The losing
On 2 July 2006, Felipe Calderon
Manuel Lopez

presidential candidate, Andres

Obrador, refused to accept the election results,
alleging fraud and calling for a full recount of the votes cast in the poll. On 5 September 2006, the
Mexican electoral court, in a decision that cannot be appealed, unanimously ruled against
the president-elect. Notwithstanding the
annulling the 2 July elections and declared Calderon

Mexican electoral courts ruling, Lopez

Obrador has expressed his intention to establish a parallel
as
government and has publicly stated that he and his supporters will never recognise Calderon
president.
Economy
Mexico is one of the largest silver producers in the world. The countrys silver is produced by
a combination of its primary silver mines, as well as secondary silver mines, where silver is a
by-product of base metal and gold operations. According to the World Bank, as at April 2006,
Mexico ranked 13th in the world in GDP and had the fourth largest per capita income in Latin
America after Argentina, Chile and Costa Rica.
Mexicos economy is based on its industry and agriculture sectors, and is increasingly dominated
by the private sector. This is reflected in the drop in number of state-owned enterprises in Mexico
which has fallen from more than 1,000 in 1982 to fewer than 100 in 2005. A strong export sector
helped to cushion the economys decline in 1995 and led the recovery between 1996 and 1999.
Trade between Mexico and the United States and Canada has tripled since the North American
Free Trade Agreement was implemented in 1994. Improved levels of employment, higher wages
and rising private consumption have combined to drive growth. Mexicos economy has become
more stable, with a 4.1 per cent. growth in GDP in 2004 and 3 per cent. growth in 2005. The Bank
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of Mexico reported a record low inflation of 3.3 per cent. in 2005, a year in which Mexico enjoyed
comparatively low interest rates and a lower external debt to GDP ratio of 8.9 per cent.
Taxation and Exchange Controls
The current rate of corporate income tax in Mexico is 29 per cent. Value added tax is broadly
15 per cent. and tax on assets is 1.8 per cent. In addition, there is a state payroll tax of
approximately 2 per cent. which applies in Mexico City and certain other states of the Mexican
Republic. For dividends paid, the income tax is calculated by multiplying the dividends by 1.4085
and thereafter the 29 per cent. income tax rate is applied. The income tax on dividends (when
applicable), must be withheld by the Mexican company declaring and paying the dividends. There
are no exchange control requirements in place.
Currency
The Mexican Peso is the unit of currency, which is divided into 100 centavos. In January 1993, the
nuevo peso was introduced, replacing the previous unit of currency at the rate of one for every
thousand in order to simplify the handling of domestic currency amounts. The adjective nuevo
was dropped from the units name in 1996.
3. Summary of Mexicos Mining Legislation
The Legislation
The Mining Law, published in the Official Daily of the Federation on 26 June 1992 (and amended
in 1996, 2005 and 2006), is the key legislation governing mining activities in Mexico.
Other relevant legislation which is applicable to mining operations in Mexico includes:
) the Regulations to the Mining Law (published in the Official Daily of the Federation on
2 February 1999);
) the Federal Water Law (published in the Official Daily of the Federation on 1 December 1992);
) the Federal Labour Law (published in the Official Daily of the Federation on 1 April 1970);
) the Federal Law of Fire Arms and Explosives (published in the Official Daily of the Federation on
11 January 1972);
) the General Law on Ecological Balance and Environmental Protection (published in the Official
Daily of the Federation on January 28, 1988), and relevant Regulations; and
) the Federal Law on Metrology and Standards (published in the Official Daily of the Federation
on 1 July 1992).
The Concession System
Under Mexican law, mineral resources belong to the Mexican nation and a mining concession,
granted by the Federal Executive, is required for the exploration, exploitation and processing of
resources by individuals or entities incorporated under Mexican law. Mining concessions grant
rights to mine as opposed to granting rights over the surface land where the concession is located.
Holders of mining concessions are required to negotiate access to the land over which the mining
concession is located with the respective surface land owner or holder (agrarian communities) or
file an application with the General Directorate of Mines to obtain an easement, temporary
occupancy or expropriation of the land, as the case may be.
A party wishing to apply for a concession must first verify that the concession is not located within
a preservation area, which is subject to special environmental authorisations. An application for a
concession must be filed with the Mining Agency or Mining Delegation located closest to the area
to which the mining application relates. Once an application for a mining concession has been
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filed, the applicant and its mining expert are authorised to enter the land where the concession is
located in order to carry out surveys and other exploratory work. These works must be filed with
the relevant mining authorities within 60 calendar days of the date of the application for the
mining concession.
Types of Concession
On 28 April 2005, the Mining Law was amended to simplify the regulation of mining concessions
by merging the exploration and exploitation regimes into one single regime. The amendment
came into full force and effect on 1 January 2006.
Mining concessions in Mexico have a term of fifty years from the date on which the relevant title
is recorded in the Public Registry of Mining. A mining concession allows the concession holder to
carry out the exploration, exploitation and processing of minerals.
Requirements and obligations of concession holders
(A) Requirements
Mining concessions may only be granted to Mexican individuals domiciled in Mexico, or
companies incorporated and validly existing under the laws of Mexico whose objects refer to the
exploration and exploitation of minerals. Such companies may be wholly owned by foreign
investors. Mexican-incorporated mining companies must also be registered with the Public
Registry of Commerce located where the company was incorporated and with the Public Registry
of Mining.
Mexican companies that have foreign shareholders must be registered with the National Registry
of Foreign Investments of the Ministry of Economy and must renew their registration annually.
(B) Obligations
Holders of mining concessions are required to comply with various obligations, including the
payment of certain mining duties calculated per concession, based on the number of hectares of
the concession in question and the number of years the concession has been in effect. Failure to
pay the mining duties may lead to cancellation of the relevant concession.
Holders of mining concessions are obliged to carry out and prove assessment works in accordance
with the terms and conditions set forth in the Mining Law and its Regulations. The Regulations to
the Mining Law establish minimum amounts that must be spent or invested on exploration and/or
exploitation activities. A report must be filed in May each year regarding the assessment works
carried out in the preceding year. The mining authorities may impose a fine on the mining
concession holder if one or more proof of assessment works reports are not filed on time.
Termination of concessions
Concessions may be terminated or cancelled in the following circumstances:
) expiry of the term of the concession;
) substitution for new concessions as a result of changes to the area covered by the mining
concessions;
) through a decision by a competent court; and
) through breach of any of the terms of Article 55 of the Mining Law, namely:
(i)

use of a mining concession to carry out the exploitation of minerals or substances in

breach of the Mining Law;
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(ii)

failure to perform and to prove the assessment works contemplated by the Mining Law
and its Regulations;

(iii)

failure to pay mining duties;

(iv)

failure to deliver to the Mexican Geological Service the biannual reports required under
the Mining Law; or

(v)

loss of the requisite legal capacity to be the holder of a mining concession.

Environmental Legislation
The Companys development projects and prospects in Mexico are subject to Mexican federal,
state and municipal environmental laws, and to regulations for the protection of the
environment. The principal environmental legislation applicable to mining projects in Mexico is

del Ambiente (the General Law of

the federal Ley General del Equilibrio Ecologico
y la Proteccion
Ecological Balance and Environmental Protection), which is enforced by the Procuradura Federal
del Ambiente (the Federal Bureau of Environmental Protection, or the
de la Proteccion
PROFEPA). The PROFEPA monitors compliance with environmental legislation and enforces
Mexican environmental laws, regulations and official standards. If warranted, the PROFEPA may
initiate administrative proceedings against companies that violate environmental laws which, in
the most extreme cases, may result in the temporary or permanent closure of non-complying
facilities, the revocation of operating licences and/or other sanctions or fines. According to the

Codigo
Penal Federal (Federal Criminal Code), the PROFEPA must inform the relevant
governmental authorities of any environmental crimes that are committed by a mining company
in Mexico.
Concession holders may agree to comply with the Mexican Official Norm: NOM-120-ECOL-1997,
which provides, amongst other things, that mining exploration activities to be carried out within
specific climates and flora must be conducted in accordance with the provisions set forth in
NOM-120-ECOL-1997. Otherwise concession holders are required to file a preventative report or
an environmental impact study prior to the commencement of the exploration, exploitation and
processing of minerals. However, if the exploration works are to be carried out in areas described
in NOM-120-ECOL-1997, the environmental impact study will not be required, but an application
must be filed by the concession holder with the environmental authorities confirming the
concession holders commitment to observe and comply with the NOM-120-ECOL-1997.
Mexican environmental regulations have become increasingly stringent over the last decade, and
this trend is likely to continue and may be influenced by the environmental agreement entered
into by Mexico, the United States and Canada in connection with the North American Free Trade
Agreement in February 1999.

Sources:
(a) Index Mundi website: Mexico population below the poverty line
winner (06 September 2006)
(b) The Washington Times Article: Court declares Calderon
(c) British Broadcasting Corporation News article entitled: Mexico court rejects fraud claim (29 August 2006)
(d) The Silver Institute: The Silver News (edition December 1998/January 1999)
(e) The World Fact Book prepared by the C.I.A., September 2006: Profile on Mexico
(f) US Department of State, Bureau of Western Hemisphere Affairs, December 2005: Profile on Mexico

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(C) ARGENTINA
1. Introduction
Argentina is the second largest country in South America and the eighth largest country in the
world. Covering an area of approximately 2.7 million square kilometres, Argentina is located in
the southern tip of South America and has a population of approximately 39 million. The country
is divided into three distinct parts: the fertile plains of the Pampas in the central part of the
country, the centre of Argentinas agricultural wealth; the plateau of Patagonia in the southern
half down to Tierra del Fuego; and the rugged Andes mountain range along the western border
with Chile.
As at January 2006, approximately 38.5 per cent. of the population of Argentina were estimated
to be living below the poverty line.
2. Argentinas Political and Economic Environment
Government and Government Policy
Argentina is a federal republic, in which the President is both head of state and head of
government, complemented by a pluriform multi-party system. There are 23 provinces, together
with the federal district of Buenos Aires, each of which has its own government. The Argentinian
Constitution of 1853, as revised in 1994, mandates a separation of powers into executive,
legislative, and judicial branches at both national and provincial level. Executive power resides in
the President and his cabinet. The President and Vice President are directly elected to four-year
terms, limited to two consecutive terms, and cabinet ministers are appointed by the President.
resigned amidst economic and social upheaval in
In December 2001, President Fernando de la Rua
the country. Several new presidents followed in quick succession, culminating in Eduardo Duhalde
being appointed interim President by the Legislative Assembly on 1 January 2002. After one year
in office, Duhalde had succeeded in bringing a degree of stability to the country and, in April
2003, he called for elections. Nestor Kirchner, of the Frente para la Victoria party, won the ensuing
uncontested presidential run-off vote in May 2003 after his rival, former president Carlos Menem,
withdrew from the race. He took office while Argentina was still suffering from the effects of the
economic collapse that took place in late 2001, with more than half the population estimated to
be living in poverty. Kirchners government has overseen a growing economy, repaid the countrys
debts to the IMF and restructured Argentinas debt.
Economy
Since the late 1970s, Argentina has, at various times, accumulated high levels of public debt and
has undergone periods of high inflation. In 1991, the government pegged the peso to the US
dollar and limited growth in the monetary base. The government then embarked on a path of
trade liberalisation, deregulation, and privatisation. Inflation dropped and gross domestic product
grew, but external economic factors and failures of the system diluted these benefits, leading to
the collapse of the economy in late 2001. By 2002, Argentina had defaulted on its debt, more than
25 per cent. of the population was unemployed, and the peso had depreciated 300 per cent. after
being devalued and floated.
2003 saw the start of Argentinas economic recovery. A lower inflation rate and expansive
economic measures helped to trigger a sharp increase in GDP, creating jobs and encouraging
internal consumption. Capital exports from Argentina decreased, and foreign investment started
to return to the country. Argentina has restructured its debt, offering creditors new bonds for the
defaulted ones, and has repaid its debt to the IMF. The Argentinian GDP grew by 8.7 per cent. in
2003 compared to 2002 when the economy shrank by 10.9 per cent. GDP growth continued in
2004 and 2005 at rates of approximately 8.0 per cent. and 8.7 per cent. respectively.
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Part IVInformation on Peru, Mexico and Argentina

In 2005, Argentina had the highest GDP per capita in Latin America.
Taxation and Exchange Controls
The Argentinian Mining Investments Law grants fiscal stability to mining companies for a period
of thirty years from the date when they file the relevant feasibility study. Fiscal stability freezes
the legal regime in force as of the date the feasibility study is filed.
In 2002, under its temporary emergency measures, Argentina introduced export duties on mineral
products, including silver. Such export duties are currently established as follows: 10 per cent. where
the mineral exports are comprised of concentrate, and 5 per cent. where the exports are comprised
The Hochschild Mining Groups exports of silver and gold from Argentina will be subject to
of dore.
the 10 per cent. export duty (on the assumption concentrate will be exported) until such time as the
legislation enacting the duty is repealed. The rate of corporate income tax in Argentina is currently
35 per cent. There is no withholding tax on dividends in Argentina. However, there is an
equalisation tax which applies when an Argentinian company pays dividends which exceed the
assessed income of the company, accumulated as of the year end immediately preceding the
payment or distribution date. If the equalisation tax becomes payable, the company is required to
withhold 35 per cent. of such excess as a one-off final payment. Exchange controls have been in
place in Argentina since 2001. Nevertheless, pursuant to Decree No. 753/2004, mining companies
may retain funds abroad provided such funds are generated from export transactions. Furthermore,
none of the restrictions relating to overseas financing will apply provided the company uses such
funds in the development of those projects in respect of which a feasibility study has been filed.
Currency
Since 1992, the currency in Argentina has been the peso which is divided into 100 centavos. This is
Argentinas fourth currency since 1983, with the Peso Ley, the Peso Argentino and the Austral all
having been replaced in turn. The Peso Convertible was introduced in 1991 at a rate of one to
10,000 Australes. Decree No. 2128/1991 also established the pesos international exchange rate at
one US dollar to one peso. However, after the economic crisis of 2001, the fixed exchange rate
system was abandoned in January 2002, and the peso was floated in February of the same year.
The exchange rate initially fell sharply but has since stabilised at around 2.9 pesos per US dollar.
The current administration has publicly acknowledged a strategy of keeping the exchange rate
between 2.90 to 3.10 pesos per US dollar, in order to maintain the competitiveness of exports and
encourage import substitution by local industries.
3. Summary of Argentinas Mining Legislation
The Legislation
Under the Argentinian National (Federal) Constitution, natural resourcesincluding mineral
resourcesare owned by the provinces where those resources are located. Argentina has
provincial mining procedural codes which apply on a provincial basis and core legislation, passed
by the National Congress, which is applicable throughout the country. The main such national
code is the Mining Code, which regulates the exploration and exploitation of mineral resources.
Other legislation relevant to the mining industry includes: (i) the environmental laws passed at
both national and provincial level; (ii) the Mining Investment Law (Law N 24,196); and (iii) the
provincial royalties laws.
The Concession System
Two types of permits may be granted under the Mining Code:
) exploration permits, or cateos, grant the holder the right to explore minerals within a certain
area for a limited period of time; and
) mining concessions, or minas, grant the holder the right to mine and process ore for an
unlimited period of time.
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Part IVInformation on Peru, Mexico and Argentina

Exploration Permits
Exploration permits grant the holder the exclusive right to explore a specified area. They are
granted over units of land of 500 hectares, called pertenencias or exploration units. An
exploration permit may cover a maximum of 20 such units (i.e. 10,000 hectares), and no individual
or entity may hold more than 20 permits, totalling 200,000 hectares, at any one time in any
province. Permits are granted for a limited period of time based on the number of units covered
by the permit. The exploration term is 150 days for the first 500 hectares (1 unit) (or fraction
thereof), and an additional 50 days for each additional unit within the exploration permit.
Exploration terms are deemed to commence 30 days after the permit has been granted, although
the mining authorities may, upon request, agree to delay commencement. The holder of an
exploration permit must apply for an exploitation right within the time limit of the exploration
permit. The system also envisages that once the exploration permit holder has gathered enough
information in order to delimit the area where the minerals are concentrated, certain portions of
the property comprising the exploration permit should be released. Exploration permit holders
must release a portion of the land covered by the permit 300 days after the term of the permit has
elapsed. The area of land to be released currently stands at 50 per cent. of the exploration area
over 2,000 hectares. The remaining area must be relinquished 700 days after the permit has
lapsed. The holder may determine which areas are to be released; however, if the holder does not,
the mining authority may do so.
Exploration permits grant the holder exclusive exploration rights. Discoveries made by third
parties in areas covered by exploration permits are the property of the permit holder rather than
the party making the discovery.
A request for an exploration permit is required to be published in a gazette or newspaper as
indicated by the relevant provincial mining authority. Third parties have the right to oppose the
granting of an exploration permit within a 20 day period from the publication of the request.
Once minerals are discovered, a statement of discovery must be filed with the provincial mining
authority and published three times during a period of 15 days in the gazette or newspaper as
indicated by the relevant provincial mining authority. Third parties have a period of 60 days from
the date of the publication of the statement of discovery to oppose the claim if they believe they
have a right over such discovery. Once 60 days have passed from the publication of the statement
of discovery, no further claim from a third party may be submitted. At the time that the statement
of discovery is filed with the provincial mining authority, an approved survey, environmental
impact assessment and environmental management plan will need to be submitted and the
statement of discovery is then consolidated into one unit comprising the mining concession.
of 400 pesos per 500 hectares (or fraction thereof) is
A one-off exploration permit fee, or canon,
payable to the provincial authorities upon application for the exploration concession.
Mining Concessions
Mining concessions may be granted for the mining and processing of any minerals (other than
uranium and thorium, which are governed by separate regulations) within the concession. The
existence of an exploration permit is not a condition to the granting of a mining concession, and
mining concessions can be granted to protect a discovery made within an exploration permit held
by the discoverer or on free land.
As with exploration permits, concessions are granted on the basis of pertenencias, which vary in
size and number depending on the type of mineral.
Mining concessions also grant the holder the right to request rights of way over the surface land
in question from the relevant mining authority, in order to enable the concession holder to
commence development of the project. Concession holders may also apply to the courts for a
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Part IVInformation on Peru, Mexico and Argentina

judgment requiring the owner of the surface land to sell the land covered by the concession to the
concession holder.
Under Argentinian Law, mining concessions are real property, which can be transferred freely and
can also be pledged.
Requirements and obligations of concession holders
(A) Requirements
Concession holders are not required to be domiciled in Argentina.
(B) Obligations
Concessions are granted for unlimited periods of time, subject to the following conditions: (a) the
of 80 pesos per unit, or pertenencia; and (b) the
payment twice a year of a mining fee or canon
filing of a minimum investment plan and compliance with a one-off minimum investment in the
over a five year period. Of the figure set out in
concession equal to 300 times the relevant canon
the minimum investment plan for investment over five years, 20 per cent. must be invested in the
first two years. Failure to comply with these conditions may result in the termination of the
concession.
There are no production target obligations on the holders of a mining concession.
Termination of concessions
A mining concession may only be terminated by the mining authority for:
) failure by the concession holder to pay the mining fee. If the mining fee is not paid within two
months of the end of the calendar year in which the mining fee is due, the mine to which the
concession relates may be declared vacant. However, a concession holder may redeem the
concession by paying the mining authority the outstanding mining fee plus an additional
20 per cent. within 45 days of receiving the notice declaring the mine vacant due to lack of
payment; or
) failure to comply with the minimum investment plan.
Environmental Legislation
The Mining Code specifies certain environmental obligations with which exploration permit and
mining concession holders must comply. In respect of each permit and each concession, the
Mining Code requires the holder to file, with the relevant provincial authorities, an environmental
report which must set out the environmental protection measures the holder will adopt at each
stage of development. No exploration or mining activity can be carried out without the approval
of the relevant provincial authority of the environmental impact report (the contents of which are
regulated by the Mining Code and relevant provincial legislation).
Mining activities are also governed by other national and provincial laws and regulations, the
most important of which are the General Environment Act N 25,675 and the Hazardous Wastes
Act N 24,051, which apply to all industrial activities and not only to mining activities. Both
statutes provide for a wide range of penalties for violation of their provisions, ranging from fines
to imprisonment.
The Mining Investment Regime
The Mining Investment Law N 24,196 came into force on 2 June 1993 and, as modified by Law
N 25,429, provides certain benefits of which mining companies may take advantage. This law
enables companies to benefit from, amongst other things, fiscal stability, whereby the tax regime
applicable to the company is effectively frozen for a certain period of time.
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Part IVInformation on Peru, Mexico and Argentina

Companies must file an acceptable feasibility study for a particular mining project with the
Investment and Regulations department of the National Mining Secretariat to be entitled to fiscal
stability. The feasibility study must be prepared in accordance with the guidelines of the Mining
Investment Act. The stability is granted at the date the feasibility study is filed.
The benefits of the Mining Investment Regime include exemption from payment of import duties
over capital assets, a maximum royalty fixed at 3 per cent. of pit-head value per year and a
guarantee of tax stability.
The guarantee of tax stability freezes the tax regime which applies to the relevant entity as at the
date of the guarantee for a period of 30 years. The tax regime includes the foreign exchange
regime, and is determined at the national, provincial and municipal levels, as appropriate.
From 11 December 2001 when Decree N 1638/2001 was issued, the general rule has been that
proceeds received from exports in foreign currencies must be sold to the Argentinian Central Bank
in exchange for local currency. However, National Executive Branch Decree N 753/2004 provides
that mining companies which have been granted the guarantee of tax stability are exempt from
these provisions.
The Hochschild Mining Group has been granted two tax stability certificates in relation to
provincial and national taxes each dated 21 November 2005 in respect of the San Jose
development project. The stability certificates each run for a 30 year period commencing on 20
June 2006 in respect of provincial taxes and 15 May 2006 in respect of national taxes.
Provincial Royalties Laws
As legal owners of the mineral resources, provinces are entitled to request royalties from mine
operators. Regulations vary from province to province. In Santa Cruz, where the San Jose project is
located, the royalty is fixed at a maximum of 3 per cent. of the pit-head value per year payable
monthly.

Sources:
(a) US Department of State, Bureau of Western Hemisphere Affairs, September 2006: Profile on Argentina
(b) British Broadcasting Corporation News article entitled: Argentine President Resigns (21 December 2001)
Country Profile: Argentina
(c) British Broadcasting Corporation News Profile: Fernando De La Rua;
(d) The World Fact Book prepared by the C.I.A., September 2006: Profile on Argentina
(e) Energy Information Administration (Official Energy Statistics from the US Government), January 2005: Country Analysis
Brief on Argentina

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Part V:

PRA1 6.2

Market and industry overview

The following information relating to the silver and gold markets and industry overview has been
provided for background purposes only. The information has been extracted from the sources
specified at the end of the respective silver and gold markets and industry overview sections. The
information has been accurately reproduced and, as far as the Company is aware and is able to
ascertain from information published by such sources, no facts have been omitted which would
render the reproduced information inaccurate or misleading.

(A) Silver Market and Industry Overview

1. Background
Silver is a precious metal and, as such, is widely used in the manufacture of jewellery and
decorative objects. The majority of the worlds silver supply is, however, used for a variety of
industrial purposes. The third principal source of demand for silver is where it is acquired as an
investment.
Demand in the jewellery and silverware sectors represented about one third of total silver
consumption in 2005. India is a key market in this respect as jewellery is viewed as a traditional
store of wealth with items being bought more for their intrinsic worth than as an adornment.
Much Indian jewellery could arguably therefore be counted as an investment holding.
Another historic use of silver is coinage, although this represented only 4 per cent. of silver
consumption in 2005.
Silvers sensitivity to light enables its use in photography. In recent years, digital technology has
rapidly gained market share from silver-halide technology in the taking of pictures, although
photography still represented 18 per cent. of silver demand in 2005.
Silvers electrical and thermal conductivities have made it widely used in electronic and electrical
applications where 20 per cent. of silver was consumed in 2005. It also has various other industrial
uses. Silver is used as a catalyst in the production of ethylene oxide (in the petrochemical industry)
and formaldehyde (for making plastics). Silver brazing alloys are used to join materials because of
silvers strength, and silver oxide is used in batteries, particularly in button cells, because of the
power-to-weight benefits. Its reflectivity makes it popular in mirrors and coatings to glass, and it is
used in dentistry and solar energy. These other industrial uses of silver accounted for the
remaining 25 per cent. of silver consumption in 2005.
There are also many emerging uses for silver, which in some cases have yet to be taken up on a
significant scale. For example, silver is now widely known for its anti-bacterial properties and its
role is also increasing in the manufacture of superconductors.
Silver production comes from two principal sources, mine supply and scrap supply.
Mine supply constituted approximately 78 per cent. of production in 2005. The following
dominate the worlds supply of mined silver: Peru, Mexico, Australia, China, CIS (mainly Russia),
Chile, the United States, the former Eastern Europe (mainly Poland) and Canada each produced
more than 1,000 tonnes (32.1 million ounces) of silver in 2005 and together accounted for
89 per cent. of total world mine supply. Silver is mainly mined as a by-product to zinc/lead, copper
or gold mining, with only approximately 30 per cent. of silver produced at mines where it was the
single most valuable element in 2005. This effectively means that the majority of the worlds silver
production is not directly geared to demand for, or the price of, silver.
Scrap silver constituted about 22 per cent. of silver production in 2005. The main source of silvercontaining scrap is ordinarily the photographic industry. Scrap flow arises when films are
processed. Almost all the silver contained in colour film and paper, and up to 80 per cent. in the
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PRA3 10.4

Part VMarket and industry overview

case of black and white film and paper is transferred to the fixing solution from which it can be
recovered. Re-melting of old jewellery, silverware items and coins is a further source of scrap
supply, although this source is more influenced by the silver price than photographic scrap supply.
A further source of silver supply is sales by central banks of silver stocks. These peaked in 2003 at
approximately 2,500 tonnes, but have since declined to around three-quarters of that amount in
2005.
2. Demand
Global silver demand peaked at 906 million ounces in 2000. That year had already seen the start of
the decline in silvers use in the photographic industry due to the rapid growth of digital
photography, but it also saw a sharp increase in demand from the electrical and electronics
sectors. The subsequent de-stocking in the photographic industry, coupled with the continued
erosion of silvers use in photography, were the primary factors for the reduction in demand to
836 million ounces by 2002. Demand from the electrical and electronics sectors began to pick up
significantly in 2004, but this was offset by a marked fall in jewellery demand. Despite the increase
in other industrial uses, the continued reduction in silvers use in photography meant that at
869 million ounces, total demand in 2005 was still 37 million ounces less than its peak in 2000.
3. Supply
Unlike demand, annual silver supplies (mine and scrap production) have increased by around
100 million ounces since 2000 to 862 million ounces in 2005. As scrap recycling only accounted for
6 million ounces of the increase over this period, the primary reason for the increase is the
expansion in mine supply. This increase has been concentrated in a small number of countries,
namely Peru, CIS and China (production in each of which increased by approximately 24 million
ounces over the period), Mexico (which increased production by 19 million ounces) and Australia
(which increased production by 15 million ounces). Against these increases, output in the United
States fell by 18 million ounces.
4. Pricing and costs
Silver is traded on the London Bullion Market, COMEX, the Chicago Board Of Trade, and the Tokyo
Commodity Exchange, which each establishes daily prices.
Companies that mine silver earn revenue from the silver contained in concentrates or dore that is
determined by the price of silver and the processing charges levied by smelters and/or refineries.
These charges vary depending on which base metal concentrate contains the silver. Silver in lead
concentrate is relatively easy to remove and so lead smelters will pay for a high percentage of the
contained silver, less the standard deduction for refining charges. Conversely, recovery from zinc
concentrates is much more difficult and the smelter will pay for a much lower percentage of the
contained silver. For this reason, smelters pay miners for a greater proportion of the value of the
silver content of a lead concentrate than for a zinc concentrate, and so the mining companies will,
where technically achievable, endeavour to recover silver with the lead. Silver in copper
concentrates is mainly smelted with the copper metal and is recovered from the refinery cellhouse
residues or slimes; efficiency of recovery is again better than from zinc concentrates.
5. Markets and outlook
The silver price averaged $10.99 per ounce in the first half of 2006 (London spot average fix),
compared with a low of $4.37 per ounce in 2001 in nominal terms. Silver prices started to increase
in 2003, which coincided with a significant increase in mine supply that pushed the market into a
much reduced physical deficit (i.e. excluding investment volumes) whereby demand has exceeded
supply in 2004 and 2005. Investment demand, however, continued to drive the increase in the
silver price.
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Investor interest has contributed to the rally in the silver price in 2006 which was also helped by
the surge in interest from investment funds in commodities in general. Much of the silver price
gain over the first four months of 2006 has been attributed to positioning in the market for the
launch of the first silver exchange traded fund (ETF) in the United States which was finally
launched at the end of April.
There was a sell-off of silver in the days prior to the ETF launch. However, the silver price
recovered these losses and went on to reach a 25 year high of just above $15 per ounce in
mid-May.
Looking forward, mine supply is forecast to increase over the next few years, with Latin America
being the primary source of growth. Scrap supply is similarly forecast to increase.
On the demand side, commercial demand is expected to show moderate growth driven principally
by the requirements of the electronics and electrical industries, off-set partially by declining
demand from the photographic industry. Overall, the silver market is expected to be in a physical
surplus over the next three years and the level of investment demand would, in these
circumstances, be a key determinant of the silver price.

Sources:
(a) The Silver Institute: article entitled Demand and Supply in 2005
(b) The Silver Institute: Silver News: Silver Market Shines in 2005Silver Fabrication and Investment Demand Sharply Up
(24 May 2006); Silver Price in 2005 Continues to Rise (21 November 2005)
(c) CRU International Limited Precious Metals Quarterly 2Q 2006 on Silver
(d) 321 Gold: article entitled Whats Next for Silver? (Doug Casey, 22 August 2006)
(e) World Silver Survey 2005
(f) World Silver Survey 2006: A Summary produced for The Silver Institute by GFMS Limited
(g) US Department of the Interior: US Geological Survey Circular 1196-N: Silver Recycling in the United States in 2000
(Henry E Hilliard, 2003)
(h) International Financial Services, LondonNewsletters: January 2005 Bullion Markets: City Business Series and July
2006 Commodities Trading: City Business Series
(i) London Bullion Market Association: 2006 London Silver Fixings price data (3 January 20063 August 2006); 2005
Monthly High, Low and Average statistics; 2006 Monthly Silver Averages; Silver Forecast for 2006 (Dr P Richardson,
Deutsche Bank AG, Melbourne); Good Delivery Rules for Gold and Silver Bars (April 2004); Facts about the London Bullion
Market: The London Gold & Silver Fixings
(j) American Metal Market: Silver recovery profitable (Christopher Munford, 19 December 1990)
(k) Mining MX: Silver Price Growth Hinges on Investment (Allan Seccombe, 17 August 2006)

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(B) Gold Market and Industry Overview
1. Background
The gold price was set at $35 per ounce on 31 January 1934 by US President Franklin Roosevelt, a
level at which the US Treasury stood ready to buy all gold offered and sell to approved central
banks. This price benchmark was defended until March 1968, when this gold pool-backed pricefixing system (gold pool central banksUnited States, UK, Belgium, France, Italy, the Netherlands,
Switzerland and Germany) finally collapsed. A short-lived two-tier market was maintained until
1971, when the US Federal Reserve closed its gold window, no longer standing ready to provide
gold to central banks at $35 per ounce. Since that time gold has been left to find an equilibrium
price level in market trading.
This, at times, has resulted in significant fluctuations in the gold price. From its former fixed $35
per ounce price levels, the price rose to a high of $851 per ounce on 21 January 1980. This price
still remains golds record price level (in nominal terms). This record price rise was the culmination
of a bull run on gold driven by such factors as the levels of inflation in developed economies and
the oil price shocks in the 1970s. Investors rushed to buy gold, reflecting its then perceived role as
a store of value in times of crisis.
Since its 1980 peak, the gold price gradually declined to mid-1999 lows below $260 per ounce,
losing more than two-thirds of its value in nominal terms. Underpinning this decline in price was
the development of more sophisticated investment market products (as an alternative to gold),
higher gold mine production and an increasing willingness of central banks to mobilise (lending
and selling) their gold holdings.
As a result of golds past monetary role, its market fundamentals do not play a large part in the
longer-term price direction. At the end of 2005, in excess of 30,000 tonnes of the metal were held
by central banks and other official institutions around the world. This represents around 10 years
worth of fabrication demand. The basic gold market balance (fabrication less mine supply) has
been in deficit for many years and has been brought into balance by disinvestment. This
disinvestment is from central banks and selling back of coins, bars and jewellery. Physical buying in
the gold market provides some demand, but it is investment demand that is key to the gold price.
Gold maintains a role as an alternative asset as it tends to be inversely correlated to the US dollar
providing portfolio diversification for investors. Historically when the US dollar is weak gold prices
are typically higher (as it makes gold cheaper to purchase in other currencies). The strong growth
in investment demand for gold in recent years has resulted in the relationship with the US dollar
breaking down at times. This was seen at the end of the 1990s with the speculation surrounding
central bank gold mobilisation.
The change in attitude to commodities in general has contributed to golds rising price. The
development of the gold ETF in the Australian, UK, South African and US markets has helped to
broaden the access to gold for the average retail investor as well as the high net worth individual,
neither of whom want to incur the storage and insurance costs associated with a physical gold
holding, but do want a gold asset in physical form which is easily bought and sold. So the ETF has
opened up a new avenue for gold investmentphysical investment traded on a stock exchange.
There has been some profit-taking selling, but generally holdings are showing a gradual increase
over time, an indication that investors in the product are not engaged merely in short term
speculation, but are looking for a longer-term investment.
2. Demand
Gold is fabricated for various markets such as jewellery, electronics, dentistry, industrial,
decorative applications, medals and coins /bars. Jewellery is by far the most important market,
taking around 87 per cent. of production in 2005. As for silver, gold jewellery has a dual purpose
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Part VMarket and industry overview

in many marketsthat of adornment but also as an investment. This makes assessing the level of
gold investment in the market a difficult task. Total gold fabrication fell to around 3,144 tonnes in
2005 from a high of 3,870 tonnes in 1997. India is currently the worlds largest consumer of gold
jewellery in volume terms (in 2005 comprising around 518 tonnes), whilst the United States was
the largest market in terms of value in 2005 (but only around 351 tonnes was consumed).
Industry and medical uses (particularly dentistry) are another important source of consumption,
accounting for around 420 tonnes in 2005, approximately 13 per cent. of demand. The electronics
industry, where gold is used due to its high thermal and electrical conductivity, and its resistance
to corrosion, consumed around 273 tonnes in 2005, approximately 9 per cent. of demand. Gold is
also used in gold plating, coatings and gold thread.
As mentioned above, investment demand is difficult to assess mainly due to the lack of
information regarding investment strategies of individuals, funds and institutions. The ETFs
quoted on stock exchanges around the world now provide some solid data on investment levels.
Holdings through ETFs were at 365 tonnes at the end of 2005, and grew by the end of June 2006
to reach 512 tonnes. Other forms of retail investment that can be tracked are coinsboth official
and medals /imitation coinsand bars. During 2005 approximately 600 tonnes was taken up in
identifiable investment products, a 26 per cent. increase on the 2004 levels.
3. Supply
Gold mine output is just one of the components of gold supplies to the market, but it is by far the
largest comprising 65 per cent. in 2005. Other sources are from central bank sales (17 per cent.),
scrap (22 per cent.), and producer hedging activity (4 per cent.).
Gold mine production fell below 2,500 tonnes for the first time in eight years in 2004. The fall in
production in 2004 was largely due to lower production in Indonesia and continuing falls in South
African, Canadian and US production. Production levels are expected to recover to 2,600 tonnes in
2006 and continue to show moderate growth in the short to medium term.
Old gold scrap supply is the second largest source of supply to the gold market. Recycling can take
on various routes, depending on the grade and the form of the scrap. The largest source of scrap
is carat jewellery, which can be reclaimed either by being sent to a refiner or by being used
directly in the production of new articles by fabricators. Other sources of scrap include electronic
scrap and coins. Scrap recovery fluctuates widely with conditions in the gold market. One of the
major factors that influence scrap supply is the local gold price, and recent price increases have
generated increased flows of scrap.
Central bank sales have become a necessary requirement for gold market liquidity in recent years.
Approximately 30,700 tonnes were held by central banks and other official institutions such as the
IMF (International Monetary Fund) and the BIS (Bank of International Settlements) during the first
half of 2006. In the 1990s, central banks took a more active approach to managing their gold
reserves, undertaking both sales and lending. For example, the Bank of England established
arrangements to sell off 400 tonnes via a series of bi-monthly auctions and the Swiss central bank
put in place plans to sell 1300 tonnes. The sales (or threat of sales) by central banks put downward
pressure on the gold price. These market conditions in part led to the Central Bank Gold
Agreement (CBGA) being signed in 1999 by 14 European central banks and the ECB. Under the
CBGA, the relevant central banks agreed that annual sales would be limited to 400 tonnes from
the end of September 1999 for 5 years, as well as limiting the gold lending to the market to no
more than the level at the time of the announcement. Over the five year term of the agreement,
the UK sold 348 tonnes, the Netherlands 235 tonnes, Austria 91 tonnes, Switzerland 1,166 tonnes,
Germany 35 tonnes, and Portugal 125 tonnes. The second CBGA was announced in March 2004
ahead of the end of the CBGA. The annual limit was increased to 500 tonnes for the five-year
period from end September 2004.
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Part VMarket and industry overview

Faced with the uncertain and declining outlook for the gold price, gold producers sold forward
gold at an escalating rate over the latter half of the 1990s. From 1997 to 1999 more than 1,000
tonnes of gold was added to the market through producer hedging activity. Increasing gold prices
left some producers facing a loss and diminished the need for producers to seek hedging
protection. Since 2000, producer hedging has declined and around 1,500 tonnes have been
bought back by producers.
4. Pricing and costs
London is the worlds largest gold trading market with trading conducted via an OTC-type format
in 400-ounce gold bars with a purity of 9950 or higher. The gold price is fixed twice daily in
London (at 10:30 and 15:00) by prices derived from the five fixing members of the London Bullion
Market, which together represent a comprehensive global sales network. The fixing membersall
of whom are market making members of the LBMAare the Bank of Nova
e
ScotiaScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA, NA and Societ
erale.

Gen
These price fixings are used as a key indicator for gold market participants around the
world. Leading futures markets are COMEX in New York, and TOCOM in Tokyo.
5. Markets and outlook
Gold traded to a 26-year high of $725 per ounce in mid-May 2006, before falling back to around
$560 per ounce influenced by institutions divesting commodities and since recovering to $599 as
of 29 September 2006. There are a number of factors which appear supportive of future gold
demand. These include investment demand for gold as a safe haven driven by the renewed
weakness in the US dollar relating to the US fiscal and current account deficits and concerns over
the rising oil prices fuelling inflation. On the supply side, scrap production, like mine production, is
forecast to increase moderately in the short to medium term with the market remaining in
physical surplus and with increases in mine production expected to come from Latin America,
Australia and the United States. In terms of supply from central bank sales, the largest holders are
covered by the specified limits in the second CBGA.

Sources:
(a) 321 Gold: Global WatchThe Gold Forecaster: The Indian Gold Market 2004/2005 (Julian DW Philips, 26 September
2005)
(b) London Bullion Market Association 2006 London Gold Fixings price data (3 January 200623 August 2006); Monthly
High, Low and Average statistics (2005); Good Delivery Rules for Gold and Silver Bars (April 2004); Facts about the London
Bullion Market: The London Gold & Silver Fixings
(c) World Gold Council: paper entitled Central Bank Gold ReservesA historical perspective since 1845 (Timothy Green,
November 1999); Research Study No. 32 Short-run and Long-run Determinants of the Price of Gold (E J Levin &
R E Wright, June 2006); articles entitled Gold and the International Monetary Systema Chronology, How to Buy Gold:
Exchange Traded Gold, Investment in Gold, Current Use of Gold, Recycled Gold, Central Banks and Official
Institutions, Official Agreements on Gold (13 April 2006); Gold Supply and Demand StatisticQ1 2006; News Release
Slow-down expected in short-term forward gold sales... long-term growth to continue (12 May 1998); Press Release
Record Demand for Gold in 2005 (22 February 2006); article entitled Factors Affecting Gold (N Head, 10 March 2005)
(d) HM Treasury: Review of the sale of part of the UK gold reserves (October 2002)
(e) AME InfoMiddle East Finance and Economy: article entitled Gold starts 2006 well, but this is not a 25-year high!
(14 January 2006)
(f) CRU International Limited Precious Metals Quarterly 2Q 2006 on Gold
(g) Paul van Eeden: article entitled Understanding the Gold Price
(h) US Department of the Interior: US Geological Survey Circular 1196-A: Gold Recycling in the United States in 1998
(Earle B Amey, 2001)
(i) Bank of England: The United Kingdoms Official Reserves of Foreign Currency and Gold
(j) Reuters: article entitled Gold Jumps 2.4 percent on weaker dollar, firm oil (21 August 2006)
(k) GFMS: Gold Survey 2006 (Philip Klapwijk, 12 April 2006)
(l) Au: Annual Average Gold Price (Earle B Amey)

95

Part VI:
Selected financial and operating information
PRA1 3.1

The tables below set out selected financial and operating information of the Hochschild Mining
Group as at and for the years ended 31 December 2003, 2004 and 2005 and the six months ended
30 June 2005 and 2006, in each case prepared in accordance with IFRS for the purposes of
presenting the financial information on a combined basis, in respect of certain matters explain in
Section B of Part IX: IFRS Historical Information. The selected financial and operating
information of the Hochschild Mining Group as at and for the years ended 31 December 2003,
2004 and 2005 and the six months ended 30 June 2006 has been audited whilst the selected
financial and operating information of the Hochschild Mining Group as at and for the months
ended 30 June 2005 is unaudited. See Part IX: IFRS Historical Financial Information. The
Hochschild Mining Group has not in the past formed a separate legal group. The Company was
incorporated on 11 April 2006 and acquired its shareholding in the companies constituting the
Hochschild Mining Group (other than the Company) pursuant to a share exchange arrangement
dated 2 November 2006. The combined historical financial information has been prepared on a
basis that combines the results and assets and liabilities of the companies comprising the
Hochschild Mining Group. Internal transactions within the Hochschild Mining Group have been
eliminated on combination.
Other than gold and silver produced, which has been extracted without material adjustment from
the Technical Report in Part XV, this information has been extracted without material
adjustment from Part IX: IFRS Historical Financial Information and has been prepared on the
basis described in the footnotes to the combined historical financial information of the Hochschild
Mining Group in Part IX, except for the EBITDA and cash costs information, which have each been
calculated as set forth in this Part VI. Investors should read the whole of this Prospectus and not
rely solely on summarised information.

96

PRA1 9.1

Part VISelected financial and operating information

Six-month period ended
30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

US$(000)

Income statement data:

Continuing operations
Revenue ************************************************
Cost of sales ********************************************

93,771
(41,514)

159,052
(82,292)

151,319
(73,592)

65,779
(30,805)

92,286
(33,705)

Gross profit *********************************************

Administrative expenses *********************************
Exploration expenses ************************************
Gain on sale of zinc project ******************************
Selling expenses *****************************************
Other income *******************************************
Other expenses******************************************

52,257
(16,472)
(11,822)

(1,794)
5,457
(2,936)

76,760
(22,997)
(23,063)

(3,880)
7,081
(7,395)

77,727
(24,371)
(28,057)
14,558
(3,161)
13,016
(2,821)

34,974
(10,829)
(18,657)
14,558
(1,338)
3,199
(1,280)

58,581
(15,814)
(7,654)

(1,366)
10,495
(4,636)

Profit from continuing operations before net finance costs

and income tax ***************************************
Finance income******************************************
Finance costs ********************************************
Foreign exchange gain/(loss) *****************************

24,690
326
(4,977)
579

26,506
1,296
(6,702)
299

46,891
4,144
(10,105)
(552)

20,627
1,555
(4,463)
1,085

39,606
2,843
(5,121)
(27)

Profit from continuing operations before income tax ******

Income tax expense**************************************

20,618
(9,108)

21,399
(11,453)

40,378
(9,673)

18,804
(5,966)

37,301
(14,733)

Profit for the year/period from continuing operations *****

Discontinued operations
(Loss)/profit for the year/period from discontinued
operations ********************************************

11,510

9,946

30,705

12,838

22,568

12,179

9,395

Profit for the year/period ********************************

10,139

9,215

42,884

22,233

22,568

Attributable to:
Equity shareholders of the Company**********************
Minority interest ****************************************

11,900
(1,761)

13,500
(4,285)

46,737
(3,853)

27,744
(5,511)

24,198
(1,630)

10,139

9,215

42,884

22,233

22,568

0.05

0.06

0.20

0.12

0.11

Earnings per share for profit attributable to the equity

shareholders of the Company during the year (expressed
in US$ per share)(1)
Basic and diluted ****************************************
Cash flow data:
Net cash generated from operating activities **************
Net cash (used in)/generated from investing activities ******
Cash flows generated from/(used in) financing activities****
Net (decrease)/increase in cash and cash equivalents during
the year/period****************************************
Other financial and operating data:
EBITDA *************************************************
Total cash costs******************************************
Cash and cash equivalents********************************

(1,371)

7,830
(29,866)
21,278
(758)
46,518
33,576
4,242

(731)

3,426
(13,423)
11,388

11,431
(6,139)
(8,458)

1,048
1,086
(5,385)

33,064
(12,175)
(17,313)

1,391

(3,166)

(3,251)

3,576

71,182
72,445
5,633

70,845
66,990
2,467

29,176
28,425
2,382

55,587
30,006
6,043

Year ended 31 December

2003

2004

2005

Six month
period ended
30 June 2006

US$(000)

Non-current assets ***************************************************

Total assets **********************************************************
Borrowings (short- and long-term) ************************************
Other current liabilities **********************************************
Other non-current liabilities ******************************************
Total equity *********************************************************

101,343
165,082
76,722
27,285
58,842
2,233

103,860
194,527
109,852
32,218
47,715
(1,968)

106,703
231,501
100,882
39,542
44,234
46,843

Note:
(1) Based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission.

97

94,473
229,716
84,698
98,807
39,730
6,481

Part VISelected financial and operating information

EBITDA
The Hochschild Mining Group calculates EBITDA as profit from continuing operations before net
finance costs and income tax plus depreciation (included in both cost of sales and administrative
expenses), increase in provision for mine closure, exploration costs other than personnel and
other, and non-recurring cash items included in other expenses, less gain on sale of zinc project
and non-recurring cash items included in other income. The Company presents EBITDA because it
believes that EBITDA is a useful measure for evaluating its ability to generate cash and its
operating performance. EBITDA is not a measure of financial performance under IFRS or US GAAP.
Investors should not consider EBITDA in isolation, as an alternative to profit from continuing
operations, as an indicator of operating performance, as an alternative to cash flows from
operating activities or as a measure of the Companys profitability or liquidity. EBITDA as
presented in this Prospectus may not be comparable to other similarly titled measures of
performance of other companies.
The following table reconciles the Companys profit for the period to EBITDA.
Six-month period
ended 30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

US$(000)

Profit from continuing operations before net finance costs and

income tax ************************************************ 24,690
Plus:
Depreciation ************************************************ 13,825
Increase in provision for mine closure *************************
1,199
Exploration expenses (other than personnel and other) ********
8,879
Non-recurring cash items included in other expenses
Allowance SEAL/Electroperu ********************************

Impairment of Sipan assets held for sale ********************

Loss on sale of fixed assets and assets classified as held for

sale*****************************************************
28
Loss on sale of other assets*********************************

Loss on sale of investments*********************************

Loss on sale of MHC (subsidiary) ****************************

Write off of fixed assets ***********************************

184
Minus:
Gain on sale of zinc project **********************************

Non-recurring cash items included in other income

Income from mine concession ******************************
2,148
Cancellation of service agreement **************************

Gain on sale of fixed assets ********************************

Gain on sale of other assets ********************************

139
Gain on sale of Corianta ***********************************

Gain on spin-off of Sipan **********************************

Decrease in provision for mine closure **********************

EBITDA *****************************************************

46,518

26,506

46,891

20,627

39,606

22,907
1,170
18,689

16,606

21,763

6,809

16,072

8,065

5,749

760
2,181

920

698

58

26

923

197
5

113

65
2,249
991

14,558

14,558

499

187

784
510

254

725

254

331

172

1,024

71,182

70,845

29,176

55,587

Total cash costs

The Hochschild Mining Group calculates total cash costs to include cost of sales, commercial
deductions and selling expenses, less depreciation included in cost of sales. Commercial
deductions are the treatment charges for the processing of concentrate from Arcata and, while it
was producing concentrate, Selene and penalty charges related to levels of impurities in the
concentrate in excess of specified thresholds. These charges are deducted when the Hochschild
Mining Group calculates the price it invoices its customer for the sale of concentrate and therefore
the revenues received by the Hochschild Mining Group are shown net of these charges. See
Part VII: Operating and Financial ReviewRevenues. Total cash costs and total cash costs per
ounce are presented because the Company believes they provide a measure for comparing the
98

Part VISelected financial and operating information

Hochschild Mining Groups operational performance against that of its peer group. In addition,
management uses these measurements to compare the performance of the Hochschild Mining
Groups operations period-to-period from a cash flow perspective, to monitor costs and to
evaluate operating efficiency. Total cash costs and total cash costs per ounce are not measures of
financial performance under IFRS or US GAAP. Investors should not consider total cash costs or
total cash costs per ounce in isolation, as an alternative to profit from continuing operations, as an
indicator of operating performance, as an alternative to cash flows from operating activities or as
a measure of the Hochschild Mining Groups profitability or liquidity. Total cash costs and total
cash costs per ounce as presented in this Prospectus may not be comparable to other similarly
titled measures of performance of other companies.
The Hochschild Mining Group views itself as a precious metals company and its principal products
are silver and gold. Accordingly, it calculates its cash costs per ounce on a by-product basis for
both silver and gold, whereby the revenues it receives from sales of the other metal are credited
against its total cash costs. It also calculates its cash costs per ounce on a co-product basis whereby
the costs are allocated between silver and gold production based on the proportionate share of
revenue generated by each metal.
Management periodically assesses the relationship between its gold and silver production to
ensure that its primary method of calculating total cash costs and cash costs per ounce remains
appropriate.
The following tables reconcile the Companys cost of sales from continuing operations to total
cash costs and presents total cash costs per ounce on both a co-product and a by-product basis.
Reconciliation of cost of sales to total cash costs
Six-month period ended
30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

US$(000)

Cost of sales from continuing operations *******************

Plus:
Commercial deductions ************************************
Selling expenses *******************************************
Less:
Depreciation included in cost of sales ***********************
Total cash costs********************************************

41,514

82,292

73,592

30,805

33,705

2,170
1,794

6,944
3,880

4,842
3,161

2,030
1,338

1,810
1,366

(11,902)

(20,671)

(14,605)

(5,748)

(6,875)

33,576

72,445

66,990

28,425

30,006

Total cash costs per ounceby-product basis

Six-month period ended
30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

28,425
4,363
6.5
41,013
9.4

30,006
4,543
6.6
49,614
10.9

US$(000)

Total cash costs (US$000) **********************************

Silver sold (000 oz) ****************************************
Total cash costs per ounce of silver (US$/oz) ****************
By-product credits (US$000) ********************************
By-product credit per silver ounce (US$/oz) ******************
Total cash costs per ounce of silver after by-product credit
(US$/oz) ************************************************

99

33,576
4,603
7.3
70,190
15.2
(8.0)

72,445
11,978
6.0
90,681
7.6
(1.5)

66,990
10,366
6.5
88,641
8.6
(2.1)

(2.9)

(4.3)

Part VISelected financial and operating information

Six-month period ended
30 June

Year ended 31 December

Unaudited
2005

2006

66,990
231
290
62,209
269

28,425
110
258
24,645
224

30,006
103
291
42,513
413

21

34

2003

2004

2005

33,576
200
168
19,969
100

72,445
246
294
66,445
270

68

24

US$(000)

Total cash costs (US$000) **********************************

Gold sold (000 oz) *****************************************
Total cash costs per ounce of gold (US$/oz) *****************
By-product credits (US$000) ********************************
By-product credit per gold ounce (US$/oz)*******************
Total cash costs per ounce of gold after by-product credit
(US$/oz) ************************************************

(121)

Total cash costs per ounceco-product basis

Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Total cash costs (US$000) ************************************

Credit from other minerals revenues **************************
Total cash costs net of other minerals credit (US$000) *********
Silver sold (000 oz) ******************************************
Gold sold (000 oz) *******************************************
Revenues from continuing operations (excluding services and
other minerals) from silver (%) *****************************
Revenues from continuing operations (excluding services and
other minerals) from gold (%)******************************
Total cash costs per ounce of silver (US$/oz) ******************
Total cash costs per ounce of gold (US$/oz) *******************

100

33,576

33,576
4,603
200

72,445
247
72,198
11,978
246

66,990
419
66,571
10,366
231

28,425
121
28,304
4,363
110

30,006
118
29,888
4,543
103

22.1

42.3

41.2

37.5

46.1

77.9
1.6
131

57.7
2.5
169

58.8
2.6
169

62.5
2.4
161

53.9
3.0
156

Part VII:
Operating and financial review
The following discussion of the financial condition and results of operations of the Hochschild
Mining Group should be read in conjunction with Part IX: IFRS Historical Financial Information
and with the information relating to the business of the Hochschild Mining Group included
elsewhere in this Prospectus. The discussion includes forward-looking statements that reflect the
current view of management and involve risks and uncertainties. The actual results of the
Hochschild Mining Group could differ materially from those contained in any forward-looking
statements as a result of factors discussed below and elsewhere in this document, particularly in
Risk Factors. Investors should read the whole of this document and not rely just on summarised
information.

Overview
General
The Hochschild Mining Group is a leading precious metals company with a primary focus on the
exploration, mining, processing and sale of silver and gold. The Group is the fourth largest
primary silver producer globally and produces a significant quantity of gold.
The Hochschild Mining Group produced approximately 10.5 million ounces of silver and
approximately 233 thousand ounces of gold in 2005 and approximately 5.5 million ounces of silver
and approximately 103 thousand ounces of gold in the first six months of 2006. The Hochschild
Mining Group had revenues from continuing operations of US$151.3 million and EBITDA of
US$70.8 million in 2005 and US$92.3 million and US$55.6 million in the first six months of 2006. As
of 30 June 2006 the Hochschild Mining Group reported total reserves of 3.9 million tonnes with an
average grade of 372 g/t of silver and 4.98 g/t of gold.
The Hochschild Mining Group has three operating mines (Ares, Arcata and Selene) located in
Southern Peru which are supported by fully developed infrastructure. The Hochschild Mining
Group also has a portfolio of projects located across Peru, Mexico and Argentina at various stages
of development, several of which are expected to start production in 2007.
The Hochschild Mining Group is the group of companies which previously comprised the mining
division of the Hochschild Group. The Company was formed on 11 April 2006 and acquired the
companies comprising the Hochschild Mining Group (other than the Company) pursuant to a
share exchange agreement dated 2 November 2006.
Factors affecting results of operations

PRA1 9.2.1,
9.2.3

Commodity prices
The Hochschild Mining Group generates its revenues from the sale of silver and gold. As a result,
its revenues are directly related to the prices of these metals. Historically, the prices of silver and
gold have fluctuated widely and they are affected by numerous factors over which producers do
not have control including international economic and political conditions, levels of supply and
demand, the availability and costs of substitutes, inventory levels maintained by producers and
others and actions of participants in the commodities markets. See Risk FactorsThe Hochschild
Mining Groups financial performance is highly dependent upon the price of silver and gold.
Price variations and market cycles have historically influenced the financial results of the
Hochschild Mining Group and the Directors expect they will continue to do so.
Currently, the Hochschild Mining Group has a number of forward sales contracts in relation to the
gold refined from its dore which it has entered into as part of the security package for a
syndicated loan, the last of which will expire in June 2007. The Hochschild Mining Group also has a
limited number of other forward sale and option arrangements in relation to the silver produced
from its dore which are due to expire in December 2006. Going forward, the Hochschild Mining
101

Part VIIOperating and financial review

Group does not intend to hedge its silver and gold production unless it is required to do so as part
of any project financing arrangements. It intends to equity finance its projects unless, in the
context of a joint venture, the joint venture partner requires project finance to be put in place.
See Disclosures About Market RiskCommodity Price risk.
The volatility of silver and gold prices is illustrated in the following graphs, which show the
London Bullion Market Association spot fixing price of silver and the London Bullion Market
Association PM spot fixing price of gold in US dollars for the past 10 calendar years and for the six
months ended 30 June 2006:
Price of Silver (US Cents /Ounce)
1,600

1,400

1,200

1,000

800

600

400

200
Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06 Jun-06

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06 Jun-06

Source: London Bullion Market Association

Price of Gold (US$/Troy OunceP.M. OFFICIAL)

800

700

600

500

400

300

200
Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Source: Datastream

On 18 October 2006, the London Bullion Market Association spot fixing price of silver was
US$11.76 per ounce and the London Bullion Market Association PM spot fixing price of gold was
US$594 per ounce. For a discussion of recent market conditions for the silver and gold market, see
Part V: Market and Industry Overview.
Production costs and efficiency
As the Hochschild Mining Group, in common with its competitors, is unable to influence market
commodity prices directly, its competitiveness and long-term profitability are, to a significant
102

Part VIIOperating and financial review

degree, dependent on its ability to maintain low-cost and efficient operations. The principal costs
associated with the Hochschild Mining Groups mining and metal production are contractor costs,
materials and salaries and related employment costs.
The largest portion of the Hochschild Mining Groups production costs is contractor costs. The
Hochschild Mining Group engages contractors to conduct its mining operations in Peru as well as
certain of its exploration and development activities in Peru and Mexico. The Hochschild Mining
Group uses contractors differently at its various operations and they may undertake a range of
tasks. For example, at Selene, a higher proportion of the mining is mechanised and at the various
operations the degree of mechanisation may vary across stopes depending on the geological
conditions. In addition, the payment arrangements can differ between different contractors
performing similar activities and different contractors may be responsible for supplying different
types or amounts of materials. Moreover, the arrangements with contractors can be subject to
renegotiation and adjustment, even during the term of a contract, to accommodate changes in
operating conditions or economic conditions. See Exchange Rates below. Accordingly, it can
be difficult to compare the cost of contractors across financial periods and across different
operations. For a description of the key terms of the Hochschild Mining Groups current
arrangements with its contractors, see Part I: Information on Hochschild MiningEmployees and
employee relations. The Hochschild Mining Group intends to use contractors to conduct
operations at San Jose as and when the project becomes operational.
Other significant costs include energy (principally electricity), reagents, timber and salaries and
related employment costs.
The Directors believe that the Hochschild Mining Group is among the lowest cost producers of
silver. The Hochschild Mining Groups total cash costs per ounce of silver, calculated on a coproduct basis, were US$2.6 in 2005 and US$3.0 in the first six months of 2006, which puts it in the
first quartile of the cost curve. Key factors driving this low cost base include the relatively high
grade of the ore at the Hochschild Mining Groups operations, the Hochschild Mining Groups
experience, developed over many years, with underground mining and challenging geology,
which management believes enables the Hochschild Mining Group to achieve high efficiency in
extracting and processing the ore, and generally lower labour costs in Peru than in many other
silver producing countries.
Replacement of reserves and resources
The geological characteristics of the Groups operating mines mean that it is difficult to establish
reserves without significant investment in underground development. Because surface drilling
seldom identifies mineralised material with sufficient definition to be characterised as resources
or reserves, the definition of resources and reserves is primarily dependent on mine developments
planned specifically to upgrade the resource and reserve base, in conjunction with an extensive
programme of underground drilling. This reliance on underground development to provide data
on vein continuity and grade at a level of confidence appropriate for reserve and resource
definition means that the resource and reserve base is limited by the extent to which
underground developments are prepared in advance of operations. Consequently, the Groups
strategy to date has been to maximise the cash flow from its operations rather than extend the
lives of its operating mines. Going forward, the Hochschild Mining Group intends to invest greater
amounts in defining reserves and resources further in advance of preparing for mining operations
than it has done historically.
The Hochschild Mining Group calculates depreciation and amortisation of its assets related to
mine production, including capitalised development costs, using the units of production method.
Similarly, the Hochschild Mining Group uses the expected lives of its mines based on its reported
reserves and resources when determining the time frame over which the discount rate is applied
in calculating the current value of its provision for mine closure. Because its current operations
103

Part VIIOperating and financial review

have comparatively small reserve and resource bases, and therefore shorter expected lives of
mine, the Hochschild Mining Group is currently able to depreciate and amortise these assets over a
shorter time frame than companies whose mines have longer expected lives. This approach results
in a relatively higher depreciation charge in early years, as capital costs are depreciated over an
initially short life. When the mine life is extended, the remaining capital costs will be depreciated
over the revised life, resulting in a reduced depreciation charge.
The Hochschild Mining Group characterises its exploration expenses based on where the
exploration occurs. In addition to its operating units, the Hochschild Mining Group has two
and one in Peru (Pallancata), and
advanced development projects: one in Argentina (San Jose)
two early stage development projects in Mexico (Mina Moris and San Felipe). The Group also has
more than 20 long-term prospects throughout Latin America, the most advanced of which are San
Luis del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru). Exploration
expenses incurred at the operating units are characterised as mine site exploration, those at the
development projects are characterised as prospects and those at the long-term prospects are
characterised as generative. Expenses that are not attributable to a specific exploration
location, such as expenses relating to personnel based at the Hochschild Mining Groups
headquarters in Lima, are separately presented as personnel and other.
The geological work done at some of the Hochschild Mining Groups principal development
projects indicates the grades of gold and silver may, on average, be lower than those the
Hochschild Mining Group is currently achieving at its operating mines. In addition, based on the
geological work done to date, the grades of silver and gold at Ares are expected to decrease over
time. Lower average grades of silver and gold, whether from its existing mines or new projects
that come into production, may adversely affect the Hochschild Mining Groups revenues or
margins. If the grade is lower, comparable amounts of ore mined and processed will produce
lower amounts of gold and silver, which will reduce revenues unless there are offsetting increases
in total amounts produced or in the prices for the metals, and will reduce margins absent
increases in the prices for the metals or decreases in cost of sales.
Exchange rates
The Hochschild Mining Group produces silver and gold, which are commodities typically priced by
reference to US dollars. The Hochschild Mining Groups biggest single expense is its payments to
its contractors. The agreements with its contractors provide for payments in US dollars. However,
because the contractors own costs are principally in Nuevos Soles, if there is significant
strengthening of the Nuevo Sol against the US dollar, the Hochschild Mining Group may agree to
modifications to the agreements with the aim of restoring the economic arrangements originally
agreed. In addition, a portion of the Hochschild Mining Groups other costs are incurred in Nuevos
Soles. In the six months ended 30 June 2006, approximately 63 per cent. of the Hochschild Mining
Groups total cash costs were in US dollars while approximately 37 per cent. were in Nuevos Soles.
In 2005 the numbers were approximately 70 per cent. and 30 per cent., respectively. In connection
with the development of the San Jose and Moris projects the Hochschild Mining Group also incurs
costs in Argentine Pesos and Mexican Pesos, respectively. Management expects that as and when
those projects become operational, an increasing proportion of the Hochschild Mining Groups
costs will be incurred in or otherwise exposed to those currencies. As a result, the Hochschild
Mining Group may be materially affected by exchange rate fluctuations between the US dollar
and the Nuevo Sol and, to a lesser extent, the Argentine Peso and Mexican Peso.
The functional currency of the Company and its current operating units is the US dollar as the
majority of their operating and financing activities are conducted in US dollars. The functional
currency of each of the Hochschild Mining Groups subsidiaries that is engaged primarily in
exploration activities and holds its development projects is the local currency of the jurisdiction
where the projects are located, although as and when a project becomes operational, the
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Part VIIOperating and financial review

functional currency of its holding company may change to US dollars. On consolidation, income
statements of subsidiaries for which the US dollar is not the functional currency are translated into
US dollars at average rates of exchange for the relevant periods. Balance sheet items are
translated into US dollars at period end exchange rates. See note 2(e) to the IFRS Historical
Financial Information of the Hochschild Mining Group in Part IX: IFRS Historical Financial
Information.
The tables below set forth the average and period end exchange rates per US$1.00 used for the
translation of Nuevo Sol amounts into US dollars for the purpose of inclusion in the financial
information set out in Part IX: IFRS Historical Financial Information as at and for the years ended
31 December 2003, 2004, and 2005 and as at and for the six months ended 30 June 2006.

Nuevo Sol *********************

Nuevo Sol *********************

2003

% change
from 2003

2004

3.46

(5.2)%

3.28

2003

% change
from 2003

2004

3.48

(2.3)%

3.40

Period end
% change
from 2004 2005

% change from
31 December 2005

30 June 2006

3.43

(5.0)%

3.26

Average
% change
from 2004 2005

% change from
31 December 2005

30 June 2006

0.9%

3.32

4.6%

(3.2)%

3.29

The nominal exchange rate has varied little since 1999, despite periods of political uncertainty. A
weak US dollar and record high levels of international reserves drove the strengthening of the
Nuevo Sol against the US dollar in 2004 and 2005, leading the Central Bank to intervene on
occasions to maintain export competitiveness. According to the Economist Intelligence Unit (the
EIU), the Central Bank is expected to manage the float of the Nuevo Sol in the 2006-2007
period, intervening when needed to smooth volatility, or to maintain the competitiveness of the
exchange rate, in order to assist export performance and accumulate reserves. The EIU forecasts
that upward pressure on the local currency is expected to continue in 2006-2007 in line with
growth in export earnings and improved terms of trade. The EIU has forecast that the exchange
rate will remain broadly stable in nominal terms at an average of approximately PEN3.27:US$1 in
the 2006-2007 period.
In Argentina, according to the EIU the ARS:US$ exchange rate averaged 2.90 in 2003, 2.92 in 2004,
2.90 in 2005 and 3.06 in the first six months of 2006. The Argentine Government maintains a policy
of intervening to maintain stability in the exchange rate against the US dollar. Were it not for
official intervention, the EIU believes that the Argentina Pesos nominal exchange rate would
strengthen against the US dollar given the countrys surplus on its external accounts. The EIU has
forecast that the nominal exchange rate will average ARS3.07:US$1 in 2006 and ARS3.15:US$1 in
2007.
In Mexico, according to the EIU the MXN:US$ exchange rate averaged 10.8 in 2003, 11.3 in 2004,
10.9 in 2005 and 11.0 in the first six months of 2006. Having weakened 11.3 per cent in 2003, the
Mexican Peso underwent moderate further depreciation of 4.6 per cent against the US dollar in
2004 and moderate appreciation of 3.5 per cent against the US dollar in 2005. Notwithstanding
high oil prices, strong inflows of workers remittances and direct investment, and the prefinancing
of public external obligations falling due during 2006, which are expected to continue to support
the Mexican Peso, the EIU expects the Mexican Peso to depreciate gradually in 2006 and 2007, as
some of the factors supporting it, such as strong portfolio flows and high oil prices, may begin to
reverse. By the end of 2007 the EIU forecasts an exchange rate of MXN11.43:US$1.
Timing of sales
The Hochschild Mining Group generally makes sales of its silver and gold concentrate production
four or five times per year and recognises revenue at the time of sale. See Combined Income
105

Part VIIOperating and financial review

StatementRevenues. In some years, although it builds up a significant amount of inventory by
the end of the year, especially at Arcata and Selene, while it was producing concentrate rather
it does not actually sell that inventory until the following year. Accordingly, the
than dore,
amount of the Hochschild Mining Groups revenue and cost of sales may vary from year to year as
a result of the timing of its sales. For example, during 2003 Arcata produced 9,024 tonnes of
concentrate, whilst only 5,595 tonnes were sold, and there was a final inventory at Arcata of 4,152
tonnes of concentrate as at 31 December 2003. In 2004, 14,770 tonnes of concentrate were sold
from Arcata, including 4,152 tonnes that had been produced in 2003.
As a result of the method used for establishing the price for the Hochschild Mining Groups
products, adjustments can be made to the amount of revenue recorded. See Consolidated
Income StatementRevenues. At times, a sale is made in one financial period but settled in
another, resulting in revenue being recognised in the former period, but any adjustments being
made in the latter.
Income taxes and royalties
The statutory income tax rate in Peru is 30 per cent., the same rate that was in effect during 2004
and 2005. For 2003, the statutory income tax rate was 27 per cent. The Groups weighted average
statutory income tax rate (calculated as the average of the statutory tax rates applicable in the
countries in which the Hochschild Mining Group operates, weighted by the profit/(loss) before tax
of the subsidiaries in the respective countries as included in the combined historical financial
statements) was 32.4 per cent. for 2003, 27.9 per cent. for 2004, 23.0 per cent. for 2005 and
21.5 per cent. and 29.4 per cent. for the six month periods ended 30 June 2005 and 2006,
respectively. See note 14 to the IFRS Historical Financial Information of the Hochschild Mining
Group in Part IX.
The Ares operating unit entered into a stability agreement with the Peruvian government for a
10-year period with effect from 1 January 1999 which fixes the tax rate for Ares throughout that
a
period at 30 per cent., the rate in effect at the time the agreement was entered into. Compan
Minera Ares, the holding company of the Hochschild Mining Groups current operating units, is
taxed on its consolidated taxable income, but in order to apply the tax stability agreement, the
taxable income for the Ares operating unit is calculated separately.
The Hochschild Mining Groups development projects in Peru, Argentina and Mexico do not
currently generate taxable income.
Starting in January 2005, and based on revenue generated starting in June 2004, owners of
mining concessions in Peru became liable to pay a royalty for the exploitation of metallic and nonmetallic resources. Royalties are calculated as a percentage of revenues from which certain
expenses (including selling expenses, transportation expenses and processing plant expenses) are
deducted. Royalties are calculated on the basis of one per cent. of adjusted revenues up to
US$60 million, two per cent. of adjusted revenues between US$60 million and US$120 million and
three per cent. of adjusted revenues greater than US$120 million. The Directors believe that the
stability agreement entered into by the Ares operating unit exempts the Hochschild Mining Group
from paying royalties with respect to revenues generated at the Ares operating unit for so long as
the stability agreement remains in effect. The Hochschild Mining Group paid royalties at the two
per cent. level on a portion of its adjusted revenues in 2005.
it will have to
As and when the Hochschild Mining Group commences production at San Jose,
make royalty payments to the government of Santa Cruz province in Argentina, where the project
is located. The exact amount of royalties payable will be subject to negotiation but under current
regulations the rate is fixed at a maximum of 3 per cent. of the Pit Head Value per year, payable
monthly. The Hochschild Mining Group has been granted two stability certificates in relation to
provincial and national taxes each dated 21 November 2005 in respect of the San Jose
development project. The stability certificates each run for a 30 year period commencing on
20 June 2006 in respect of provincial taxes and 15 May 2006 in respect of national taxes. See
106

Part VIIOperating and financial review

Part IV: Information on Peru, Mexico and ArgentinaArgentinaSummary of Argentinas
Mining LegislationThe Mining Investment Regime.
Employee profit sharing
Under Peruvian law, Peruvian companies are obliged to distribute a percentage of their taxable
income (as calculated for purposes of computing income tax payable) to their employees. The rate
a Minera Ares is
for this profit sharing for mining companies is currently 8 per cent. Compan
subject to this requirement.
Inflation
Inflation in Peru has declined significantly over the past decade, from 11.6 per cent. in 1996 to
1.6 per cent. in 2005 according to the International Monetary Fund. The Peruvian Central Bank has
successfully pursued a formal inflation-targeting regime since 2002, designed to keep inflation at
2.5 per cent. plus or minus 1.0 percentage point. The EIU expects that the Peruvian Central Bank
could raise interest rates if its inflation target for 2006-07 were to be threatened, and estimates
that inflation for the 2006-07 period is on target.
The EIU reports that in the first half of 2006 pricing pressure increased, in particular in food and
beverages, leading to increased inflation over the period. Despite this, inflation in Peru in the first
half of 2006 remained on target to stay within the Peruvian Central Banks target range of 2.5 per
cent., plus or minus 1.0 percentage point. The EIU forecasts inflation to be above 2.0 per cent in
2006.
In Argentina, inflation has fallen from 25.9 per cent. in 2002, following the Argentinian economic
crisis, to 9.6 per cent. in 2005 according to the International Monetary Fund. The orientation of
monetary policy to promote GDP growth and maintain a weak exchange rate has contributed to
inflation in recent years. Standard & Poors expects the inflation rate in 2006 to remain at a similar
level to that in 2005.
Inflationary pressures softened in the first half of 2006, owing to government agreements with
supermarkets and goods producers to halt price increases of staple goods, but price pressure is
expected to persist. The EIU expects inflation to remain relatively high in 2006, with prices rising
by an average of 11 per cent. for the year as a whole. The Argentinian Central Banks inflation
target is 8 to 11 per cent. for 2006.
In Mexico, inflation measured by reference to the consumer price index was 5.0 per cent. in 2002,
4.5 per cent. in 2003, 4.7 per cent. in 2004 and 4.0 per cent. in 2005 according to the International
Monetary Fund. Core inflation, excluding more volatile food and energy prices, is targeted by the
authorities to stay in its current range of 3.0 to 3.5 per cent. over the medium term.
Inflationary pressures eased in Mexico in the first half of 2006, according to the Mexican Central
Bank. Inflation in the first half of 2006 remained within the Mexican Central Banks target range
of 3.0 to 3.5 per cent for 2006.
Because a portion of the Hochschild Mining Groups costs are in Nuevos Soles or, in the case of the
agreements with contractors, can be affected by changes in Nuevo Sol costs, a period of
significant inflation in Peru could adversely affect the Hochschild Mining Groups results and
financial condition. However, since the Hochschild Mining Groups revenues from silver and gold
sales are in US dollars, the extent to which the Nuevo Sol devalues against the US dollar will offset
the impact of Peruvian inflation. The Hochschild Mining Group expects that the impact of
Argentine or Mexican inflation will be similar to that of Peru.
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Part VIIOperating and financial review

Economic and political environment
All of the Hochschild Mining Groups operating mines are located in Peru, and certain of its more
advanced development projects are located in Peru, Mexico and Argentina. As a result, the
Hochschild Mining Group is subject to various economic, fiscal, monetary and political policies and
factors that generally affect companies operating in those countries. See Risk FactorsRisks
relating to operating in Peru, Mexico and ArgentinaLocal economic and political conditions may
have a material adverse effect on the Hochschild Mining Groups financial condition and results of
operations.
Hedging
The Hochschild Mining Groups current policy is generally not to hedge its exposure to the risk of
fluctuations in the prices of silver and gold. However, commodity hedges may be undertaken if
required as part of the financing arrangements for specific projects. The Hochschild Mining Group
intends to equity finance its projects unless, in the context of a joint venture, the joint venture
partner requires project finance to be put in place. In addition, following periodic evaluation of its
exposures to other market risks, including interest rate and exchange rate risk, the Hochschild
Mining Group may from time to time enter into derivative financial instruments to manage some
of those exposures. See Disclosures About Market Risk. The Hochschild Mining Group does
not enter into derivative financial instruments for speculative purposes.
Currently, the Hochschild Mining Group has a number of forward sales contracts with Standard
Bank and Citibank in relation to the gold refined from its dore which it has entered into as part of
a Minera Ares US$70 million loan facility (see Liquidity and
the security package for Compan
Capital ResourcesDisclosures About Market RiskCommodity price risk), the last of which is
scheduled to expire in June 2007. The Hochschild Mining Group also has a limited number of other
forward sale and option arrangements in relation to the silver produced from its dore which are
due to expire in December 2006.
In 2006, it is estimated that approximately 29 per cent. and 57 per cent. of the Groups silver and
gold production respectively will be hedged. This is expected to fall to approximately 8 per cent.
for silver and 30 per cent. for gold in 2007, depending on the form of financing used in relation to
the San Jose project (excluding the San Jose project, none of the Groups silver production and 23
per cent. of the Groups gold production is expected to be hedged in 2007).
Factors affecting comparability
Key factors affecting comparability of the results of operations of the Hochschild Mining Group
include:
Selene
The Selene operating unit began generating revenue in October 2003, and reached full
production levels during 2004. The addition of Selene means the Hochschild Mining Groups
results for 2003 are not directly comparable with those for subsequent periods.
Sipan
The Sipan mine was an open pit mine that began production at the end of 1997. The mine
produced principally gold, with silver as a by-product. Ore production at Sipan slowed during 2000
and stopped completely during 2001, as the ore body was depleted. The processing method used
at Sipan was heap leaching, with the result that processing and sale of previously mined material
continued until 2004. Sipan produced 14.37 thousand and 14.56 thousand ounces of gold in 2003
and 2004, respectively. The Hochschild Mining Group is currently restoring the Sipan site after its
108

Part VIIOperating and financial review

closure. In 2005, the Hochschild Mining Group agreed a sale of the plant at Sipan. As a result that
asset was reclassified as held for sale in that year.
MHC
Mauricio Hochschild & Ca Ltda. S.A.C. (MHC) is an administrative services company. MHC was
sold in June 2006.
Combined income statement
The following discussion describes certain line items in the Hochschild Mining Groups combined
income statement.
Revenues

PRA1 6.2

The Hochschild Mining Group derives its revenues from the sale of silver and gold. In 2005
41.2 per cent. of its revenue (excluding services and other minerals) came from the sale of silver
and 58.8 per cent. of its revenue came from the sale of gold and in the six months ended 30 June
2006, 46.1 per cent. of its revenue (excluding services and other minerals) came from the sale of
silver and 53.9 per cent. of its revenue came from the sale of gold. The Hochschild Mining Group
sells its product in two forms, dore and concentrate. Production at Ares is in the form of dore
while production at Arcata is in the form of concentrate. Production at Selene has been in the
form of concentrate but the Company intends that starting in October 2006, the concentrate will

be transported to Ares to be processed into dore.

Under the Hochschild Mining Groups current arrangements with Johnson Matthey, which refines
the Hochschild Mining Group is able to sell the final product contained in the dore
the dore,
either to Johnson Matthey or to a third party. If it sells to Johnson Matthey, the price for the silver
and gold sold is set based on the full London Bullion Market Association spot fixing price in US
dollars for silver and the full London Bullion Market Association PM spot fixing price in US dollars
for gold, in each case on a date specified by the Hochschild Mining Group that is no earlier than
the date 20 working days after receipt by Johnson Matthey of the dore at its refinery, subject to
assay. If it sells to a third party, the basis for pricing is as agreed with the purchaser. In either case,
the Hochschild Mining Group recognises the proceeds of the sale as revenue on the date the dore
arrives at the refinery, based on the relevant spot fixing prices on that day or, if different, the
price agreed with the third party customer. The Hochschild Mining Group has the right to (and
generally does) elect to receive settlement of up to 95 per cent. of the estimated content of the
silver and gold contained in the dore in the form of physical silver and gold prior to the earliest
possible date for fixing the final price. When it does so, the pricing arrangements outlined above
apply only to the remaining five per cent. of the content of silver and gold. In connection with
third party sales, the Hochschild Mining Group typically delivers its dore bars to Johnson Matthey
and borrows from Johnson Matthey a quantity of refined metal to sell to the third party. The
Hochschild Mining Group records the revenue from the sale together with an obligation relating
to the borrowed metal on which it will pay interest. The interest expense is included in net finance
(expense) incomeothers. The obligation is settled using metal refined from the dore bars
delivered by the Hochschild Mining Group. For further discussion of the Hochschild Mining
Groups arrangements with Johnson Matthey, see Part I: Information on Hochschild

MiningSales, Markets and CustomersSales and CustomersDore.

With the expected
commencement of production of dore from the production at Selene in October 2006, the
Hochschild Mining Group intends to explore options for new arrangements for the refining and
sale of its dore production.
Between 2003 and 2005, the Hochschild Mining Group sold its concentrate to several customers,

although Penoles
was the largest single customer. Currently, the Hochschild Mining Group sells its

entire concentrate production to Penoles.

The terms on which it sells concentrate vary somewhat
109

Part VIIOperating and financial review

among different customers, but the terms of the arrangements with Penoles
are broadly

representative. Under the Hochschild Mining Groups current arrangements with Penoles,
the
price it receives for the silver content of the concentrate is based on the average of the London
Spot US dollar equivalent silver price and of the COMEX List Position (as published in Metals
Week) in the first month immediately following the month of delivery of the concentrate to the
port to which it is shipped for the first 50 per cent. of the metal content and in the second month
following delivery for the second 50 per cent. The gold price is similarly calculated based on the
London Gold PM Fix price (as published in Metals Week). Deductions are made for treatment
charges and if the levels of impurities in the concentrate, such as arsenic or antimony, exceed
specified thresholds. The Hochschild Mining Group recognises the proceeds of the sale as revenue

when risk passes to the customer, which under the arrangements with Penoles
is when the
concentrate is loaded onto the ship in Peru, using a provisional value of the contained metal. The
Hochschild Mining Groups current policy is to set the provisional value of the metal content using
the average price for the 15 days preceding the date of shipment. Payments are made in three
tranches. The first tranche, which represents 90 per cent. of the estimated value of the first 50 per
cent. of the metal content, is payable five days after the shipment arrives in the port. The second
tranche, which represents the balance necessary to bring the total payment to 90 per cent. of the
estimated value of the metal content, is payable 30 days later. The final instalment, which
represents the balance due, is payable promptly after the weight, metal content and average
prices have been determined. Any adjustments required from the provisional price due to
differences in the quality (e.g., because of high arsenic levels) or quantity of the metal are
recognised as an adjustment to revenues in the period when the sale is settled. The provisionally
priced sales contain an embedded derivative, representing the exposure to changes in the
commodity price after the sale has occurred. This embedded derivative is required to be separated
from the host contract for accounting purposes. The host contract is the receivable from the sale
of silver and gold at the provisional price at the time of the sale of the commodity. The embedded
derivative does not qualify for hedge accounting and is recorded as a derivative asset or derivative
liability in derivative financial instruments on the balance sheet and is adjusted to fair value
through other income or other expenses each period until the date of final settlement. For further

discussion of the Hochschild Mining Groups arrangements with Penoles,

see Part I: Information
on Hochschild MiningSales, Markets and CustomersSales and CustomersConcentrate.
At 30 June 2006, the Hochschild Mining Group had sold 5,062 thousand ounces of silver and
21.4 thousand ounces of gold in respect of which the sale had not been finally settled. The value
of these sales at that date (including the adjustment for the embedded derivative) was
US$51.0 million. At 31 December 2005, the Hochschild Mining Group had sold 2,993 thousand
ounces of silver and 13.8 thousand ounces of gold in respect of which the sale had not been finally
settled. The value of these sales at that date (including the adjustment for the embedded
derivative) was US$32.5 million.
Cost of sales
Cost of sales consists primarily of contractor costs, materials, depreciation and amortisation of
assets associated with production (including capitalised mine development costs), personnel
expenses for employees directly involved with production and energy costs. Materials include
reagents, spare parts, timber, balls for the mills and fuel and lubricants. Although one of the
biggest portions of the Hochschild Mining Groups cost of sales, contractor costs, is denominated
in US dollars, a portion of its cost of sales is incurred in Nuevos Soles. Accordingly, the Hochschild
Mining Groups cost of sales can be affected by exchange rate fluctuations between the US dollar
and the Nuevo Sol. Cost of sales from continuing operations amounted to 48.6 per cent. of
revenues from continuing operations in 2005 and 36.5 per cent. in the six months ended 30 June
2006.

110

Part VIIOperating and financial review

Cost of sales also include changes in work in progress and finished goods. This item reflects the
costs related to inventory that is produced in one financial period but sold in another.
Contractor costs, materials and depreciation are the key variable cost items. Contractor costs
amounted to 26.4 per cent. of the total cost of sales from continuing operations and 12.8 per cent.
of revenues from continuing operations in 2005 and 28.3 per cent. and 10.3 per cent, respectively
in the six months ended 30 June 2006. Materials amounted to 17.4 per cent. of the total cost of
sales from continuing operations and 8.5 per cent. of revenues from continuing operations in
2005 and 17.8 per cent. and 6.5 per cent, respectively in the six months ended 30 June 2006.
Depreciation amounted to 19.8 per cent. of the total cost of sales from continuing operations and
9.7 per cent. of revenues from continuing operations in 2005 and 20.4 per cent. and 7.4 per cent,
respectively in the six months ended 30 June 2006.
Personnel expenses are the primary fixed cost component of cost of sales. Personnel expenses
amounted to 11.0 per cent. of the total cost of sales from continuing operations and 5.4 per cent.
of revenues from continuing operations in 2005 and 12.8 per cent. and 4.7 per cent. in the six
months ended 30 June 2006.
At all its operations, the Hochschild Mining Group has the option of generating its own electricity
or purchasing electricity from the national grid. If it purchases electricity from the national grid,
the cost is reflected in the Energy line of cost of sales. If it generates its own electricity, the cost
of the fuel necessary to run the generators is reflected in the Materials line of cost of sales. In
general, it is more costly for the Hochschild Mining Group to generate its own electricity than to
buy it from the national grid.
The Hochschild Mining Group depreciates its mine related assets on a unit of production basis over
the estimated economically recoverable reserves and a percentage of resources to which they
relate. At the end of 2003, Arcata had a very short estimated life of mine. As a result, there was a
high rate of depreciation for 2004 at Arcata. By the end of 2004, the life of mine at Arcata had
been extended significantly. As a result, depreciation for 2005 was a smaller percentage of
depreciable assets. The smaller remaining value attributed to depreciable assets after the large
depreciation cost in 2004 further compounded the reduction in depreciation cost.
Production is scheduled to commence at the Pallancata property in 2007, at which point the
Hochschild Mining Group anticipates taking advantage of a tax regime in Peru that will allow it to
accelerate depreciation of a portion of the capitalised costs of constructing the Pallancata mine.
As a result, the Hochschild Mining Group anticipates that depreciation in 2007 will be higher than
it otherwise might have been.
Administrative expenses
Administrative expenses comprise expenses attributable to the administrative function at the
Hochschild Mining Groups headquarters in Lima, Peru. They include personnel expenses, the cost
of the Peruvian employee profit-sharing for headquarters personnel, depreciation of assets
attributable to the administrative function and other costs associated with the administrative
function. Prior to the reorganisation of the Hochschild Mining Group and the establishment of the
a
Company as the holding company for the Hochschild Mining Group, the directors of Compan
Minera Ares received remuneration calculated as a percentage of the profits of that company.
These amounts are included in personnel expenses. Going forward, the Directors will receive
remuneration in amounts determined from time to time by the Board. See Part XIV: Additional
InformationArticles of AssociationRemuneration of Directors.
Personnel expenses include an amount equal to an extra months salary each year for each
employee in Peru that the Hochschild Mining Group is obligated to contribute to a pension
account with an authorised public or private pension provider designated by the employee. This
amount is payable in respect of all employees, not just those accounted for under administrative
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Part VIIOperating and financial review

expenses and is the only payment the Hochschild Mining Group is obligated to make in respect of
retirement benefits for its employees in Peru. The Hochschild Mining Groups pension obligations
in Mexico are similar. In Argentina, employees receive a portion of their pension benefits from the
government and can elect whether to have the remainder paid by the government or contribute
to a private savings plan. The Hochschild Mining Group must pay an amount equal to 7 per cent.
of employees salaries to the Argentinian government to fund the governments portion of the
pension payments. A further 7 per cent. is deducted from each employees salary and paid either
to the government or to the private savings plan, depending on the employees election.
Exploration expenses
Exploration expenses include the costs of underground drilling and digging undertaken for
exploration at the Hochschild Mining Groups development projects and at its operating units,
diamond (surface) drilling, personnel costs for those employees engaged in exploration activities,
payments to government authorities and, where required, third party land or concession holders
for property and exploration rights and metallurgical analyses. When a project moves from the
exploration stage to the development stage (typically once a successful feasibility study has been
conducted in the case of development projects), the costs associated with further digging are
considered development costs and are capitalised. See note 2(f) to the IFRS Historical Financial
Information of the Hochschild Mining Group in Part IX.
Selling expenses
Selling expenses include the cost of transporting concentrate to the location agreed with the
customer, and transporting dore to the refiners refinery and the commissions paid to brokers
who negotiate sales on behalf of the Hochschild Mining Group. The costs of transporting the
Hochschild Mining Groups concentrate production vary based on the destination of the shipment
and when the shipment is made. Rates for similar routings can vary substantially depending on
when the shipment is made. There tends to be less variability in the transportation costs for the
Hochschild Mining Groups dore production, where weight and the number of shipments in the
relevant period are the key variables.
Other income
The principal recurring item in other income is gain on the embedded derivative on provisional
sales. See Combined Income StatementRevenues. In 2005 significant items in other income
included reversal of the provision for mine closure established in respect of San Jose in 2004 and a
decrease in the provision for mine closure. In 2004 they included rentals and in 2003 income from
the sale of a mining concession.
Other expenses
In 2005, significant items in other expenses included payments in connection with a dispute with
Electroperu and Sociedad Electrica del Sur Oeste S.A. (SEAL) (see note 33(b) to the IFRS Historical
Financial Information of the Hochschild Mining Group in Part IX), loss on the sale of fixed assets
In 2004 significant items in
and establishment of a new provision for mine closure for San Jose.
other expenses included the impairment of certain assets at Sipan classified as held for sale,

payments in connection with the Electroperu/SEAL

dispute and establishment of a provision for
In 2003, significant items in other expenses included an increase in the
mine closure for San Jose.
provision for mine closure.
Finance income
Finance income includes interest receivable on loans to related parties, dividends received and net
gain from changes in the value of derivative instruments.
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Part VIIOperating and financial review

Revaluations of the mine closure provision resulting from changes in the estimated lives of mine
and changes to the fair value of derivative instruments can lead to either finance income or
finance cost.
Finance costs
The most significant part of finance costs is interest expense on borrowings and loans from related
parties.
Foreign exchange gain/(loss)
Foreign exchange gain/(loss) includes gains and losses arising on the translation of foreign
currency monetary assets and liabilities.
Discontinued operations
The Caylloma mine was an underground mine located near Arcata which produced concentrate.
By the end of 2003, the Hochschild Mining Group had determined that the grade of the ore did
not justify continued mining and Caylloma was closed. Caylloma produced 1,034 thousand ounces
of silver and 1.3 thousand ounces of gold in 2003. The mine was sold in 2005.
The results from Caylloma have been presented as discontinued operations.
Minority interest
The Hochschild Mining Group owns 51 per cent. of Minera Santa Cruz S.A., which owns the San
Jose project. The remaining 49 per cent. is owned by Minera Andes S.A., the Hochschild Mining
Groups joint venture partner in that project. The loss attributable to minority interest in 2003,
2004 and 2005 and the six months ended 30 June 2005 and 2006 consists predominantly of that
portion of the development costs for the San Jose project attributable to Minera Andes S.A.
Results of operations
The following table sets out, for the periods indicated, the Hochschild Mining Groups combined
income statement expressed as a percentage of revenues from continuing operations.
Year ended 31 December

Six-month period
ended 30 June

2003

Unaudited
2005

2004

2005

2006

(%)

Continuing operations
Revenues *************************************************************
100
Cost of sales ********************************************************** (44.3)

100
(51.7)

100
(48.6)

100
(46.8)

100
(36.5)

Gross profit ***********************************************************

Administrative expenses ***********************************************
Exploration expenses **************************************************
Gain on sale of zinc project ********************************************
Selling expenses *******************************************************
Other income *********************************************************
Other expenses********************************************************

55.7
(17.6)
(12.6)

(1.9)
5.8
(3.1)

48.3
(14.5)
(14.5)

(2.4)
4.4
(4.6)

51.4
(16.1)
(18.5)
9.6
(2.1)
8.6
(1.9)

53.2
(16.5)
(28.4)
22.1
(2.0)
4.9
(1.9)

63.5
(17.1)
(8.3)

(1.5)
11.4
(5.0)

Profit from continuing operations before net finance costs and income
tax *****************************************************************
Finance income *******************************************************
Finance costs **********************************************************
Foreign exchange gain/(loss) *******************************************

26.3
0.4
(5.3)
0.6

16.7
0.8
(4.2)
0.2

31.0
2.7
(6.7)
(0.3)

31.4
2.4
(6.8)
1.6

43.0
3.1
(5.6)

Profit from continuing operations before income tax ********************

Income tax expense ***************************************************

22.0
(9.7)

13.5
(7.2)

26.7
(6.4)

28.6
(9.1)

40.5
(16.0)

Profit for the year/period from continuing operations(1) *****************

12.3

6.3

20.3

19.5

24.5

113

Part VIIOperating and financial review

Comparison of Six Months ended 30 June 2006 and Six Months ended 30 June 2005
Revenue from continuing operations
Revenue from continuing operations of the Hochschild Mining Group in the six-month period
ended 30 June 2006 increased by 40.3 per cent. from US$65.8 million in the six-month period
ended 30 June 2005 to US$92.3 million in the corresponding period in 2006. The average cash
settlement price of silver was US$5.49 per ounce in the six-month period ended 30 June 2005 and
US$9.36 per ounce in the six-month period ended 30 June 2006 and the average cash settlement
price of gold was US$381 per ounce in the six-month period ended 30 June 2005 and US$480 per
ounce in the six-month period ended 30 June 2006.
Silver. Revenue from the sale of silver increased by 72.8 per cent., from US$24.6 million in the
six-month period ended 30 June 2005 to US$42.5 million in the corresponding period in 2006. The
increase principally reflected a significant increase in the price of silver. Total sales of silver
increased from 4,363 thousand ounces in the corresponding period in 2005 to 4,543 thousand
ounces in the six-month period ended 30 June 2006 as a decrease in production at Arcata due to
the intentional targeting of lower grade ore was offset by increased production at Selene
resulting from a capacity increase.
Gold. Gold revenue increased by 21.0 per cent., from US$41.0 million in the six-month period
ended 30 June 2005 to US$49.6 million in the corresponding period in 2006. The increase in gold
revenues was principally driven by a strong increase in the price of gold, which more than offset a
small decrease in production resulting from the intentional targeting of lower grade ore at Ares.
Total sales of gold decreased from 110 thousand ounces in the six-month period ended 30 June
2005 to 103 thousand ounces in the six-month period ended 30 June 2006.
Cost of sales
The Groups cost of sales increased by 9.4 per cent., from US$30.8 million in the six-month period
ended 30 June 2005 to US$33.7 million in the corresponding period in 2006. This increase was
principally driven by increased workers profit sharing and mining royalties, reflecting the higher
levels revenues and taxable income, as well as higher levels of depreciation and personnel
expenses. These increases were offset in part by a decrease in the cost of materials. Cost of sales as
a percentage of revenues from continuing operations decreased from 46.8 per cent. in the first six
months of 2005 to 36.5 per cent. in the corresponding period in 2006.
Contractor costs were largely flat despite marginally higher production volumes in the six months
ended 30 June 2006 and the contractors being responsible for procuring explosives during the full
six months ended 30 June 2006 as compared to only during May and June of 2005. The Hochschild
Mining Group replaced two of its contractors with a single contractor, enabling it to save on fixed
contractor costs and benefit from the new contractors lower wage rates.
Materials costs decreased principally due to the contractors being responsible for procuring
explosives during the full six months ended 30 June 2006 as compared to only during May and
June of 2005.
Personnel expenses increased principally due to an increase in both headcount and wages.
Energy costs increased due to higher energy prices and a small increase in consumption.
Administrative expenses
The Groups administrative expenses increased by 46.3 per cent., from US$10.8 million in the
six-month period ended 30 June 2005 to US$15.8 million in the corresponding period in 2006. This
increase was largely driven by increased workers profit sharing. An increase in personnel costs
driven by a small increase in headcount, particularly at senior levels, as well as increased wages
and associated costs was largely offset by the absence of board remuneration payments during
114

PRA1 10.2

Part VIIOperating and financial review

the six month period ended 30 June 2006. As in cost of sales, the increased levels of taxable
income resulted in increased workers profit sharing.
Exploration expenses
Exploration expenses decreased by over half, from US$18.7 million in the six-month period ended
30 June 2005 to US$7.7 million in the corresponding period in 2006. This decrease was due
principally to the winding down of the exploration phase of the San Jose project and a lower level
of generative exploration in Mexico. Although overall operating exploration expenditure was
broadly comparable between the two periods, spending was higher at Ares and Arcata, and lower
at Selene, in the six months ended 30 June 2006 compared to the corresponding period in 2005 as
the Hochschild Mining Group shifted emphasis toward proving additional reserves at Ares and
Arcata.
Gain on sale of zinc project and sale of subsidiary
In April 2005, the Hochschild Mining Group sold its investment in a zinc project that it had
determined not to pursue, generating a gain of US$14.6 million.
Selling expenses
Selling expenses increased slightly from US$1.3 million in the six-month period ended 30 June
2005 to US$1.4 million in the corresponding period in 2006. There were broadly similar volumes
sold in the two periods.
Other income
The Hochschild Mining Group had other income of US$10.5 million in the six-month period ended
30 June 2006, compared to other income of US$3.2 million in the corresponding period in 2005.
In the six-month period ended 30 June 2006, there was a US$8.5 million gain attributable to the
provisional pricing arrangements, compared to a US$1.9 million gain in the corresponding period
in 2005. Other income in the six-month period ended 30 June 2006 also included US$1.0 million
attributable to a decrease in the provision for mine closure as compared to US$0.3 million in the
corresponding period in 2005.
Other expenses
The Hochschild Mining Group had other expenses of US$4.6 million in the six-month period ended
30 June 2006, compared to US$1.3 million in the corresponding period in 2005.
In the six-month period ended 30 June 2005, there was a payment to SEAL in connection with the
dispute involving the Hochschild Mining Group, SEAL and Electroperu of US$0.7 million as
compared to US$0.1 million in the corresponding period in 2006. Other expenses in the six-month
period ended 30 June 2006 also included a loss on the sale of investments of US$2.2 million and a
loss on the sale of MHC of US$1.0 million.
Finance income
The Hochschild Mining Group had finance income of US$2.8 million in the six-month period ended
30 June 2006, compared to US$1.6 million in the corresponding period in 2005. The increase was
principally attributable to an increase in gain from changes in the fair value of financial
instruments, being the various hedging contracts the Hochschild Mining Group has in place. See
Disclosures About Market RiskCommodity Price Risk.
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Part VIIOperating and financial review

Finance costs
Finance costs of the Hochschild Mining Group were US$5.1 million in the six-month period ended
30 June 2006, compared to US$4.5 million in the corresponding period in 2005. There was an
increase in interest on bank loans and long-term debt resulting from an increase in the amount of
borrowings during the six months ended 30 June 2006. An increase in loss from changes in the fair
value of financial instruments was largely offset by a decrease in interest on loans from related
parties.
Income tax expense
The Hochschild Mining Groups income tax expense more than doubled to US$14.7 million in the
six-month period ended 30 June 2006 from US$6.0 million in the corresponding period in 2005.
The increase was due principally to significantly higher profit from continuing operations before
income tax. The Hochschild Mining Groups weighted average statutory income tax rate was
21.5 per cent. and 29.4 per cent. for the six-month periods ended 30 June 2005 and 2006,
respectively. See note 14 to the IFRS Historical Financial Information of the Hochschild Mining
Group in Part IX.
The general corporate tax rate in Peru was 30 per cent. in each of 2005 and 2006.
Profit for the period from continuing operations
As a result of the factors discussed above, the Hochschild Mining Groups profit for the period
from continuing operations was US$22.6 million in the six-month period ended 30 June 2006
compared with US$12.8 million in the corresponding period in 2005.
Comparison of the Years Ended December 31, 2005, 2004 and 2003
Revenue from continuing operations
2005
Revenue from continuing operations of the Hochschild Mining Group in 2005 decreased by
4.9 per cent. from US$159.1 million in 2004 to US$151.3 million in 2005. The average cash
settlement price of silver was US$5.61 per ounce in 2004 and US$5.93 per ounce in 2005 and the
average cash settlement price of gold was US$366.3 per ounce in 2004 and US$387.2 per ounce
in 2005.
Silver. Revenue from the sale of silver decreased by 6.3 per cent., from US$66.4 million in 2004 to
US$62.2 million in 2005. This decrease principally reflects a decline in ounces sold from Arcata due
to historical timing differences in sales of Arcata production as a significant amount of inventory
built up during 2003 at Arcata was sold in the early part of 2004. There was no such timing
difference in 2005. This decrease was offset in part by a significant increase in ounces sold from
Selene, coupled with an increase in silver prices. Total sales of silver decreased from 11,987
thousand ounces in 2004 to 10,366 thousand ounces in 2005.
Gold. Gold revenue decreased by 2.3 per cent. in 2005, from US$90.7 million in 2004 to
US$88.6 million in 2005. The decrease in gold revenues was principally driven by a reduction in
production from Sipan and the effect of the Arcata timing difference. The decrease was offset in
part by the 5.7 per cent. increase in the average cash settlement price for gold received by the
Hochschild Mining Group. Total sales of gold decreased from 246 thousand ounces in 2004 to
231 thousand ounces in 2005.
2004
Revenue from continuing operations of the Hochschild Mining Group in 2004 increased by
69.8 per cent., from US$93.7 million in 2003 to US$159.1 million in 2004. This principally reflects
116

Part VIIOperating and financial review

the inclusion of a full year of production from Selene, which began producing in October 2003
and reached full production in December 2003. The average cash settlement price of silver was
US$4.34 per ounce in 2003 and US$5.61 per ounce in 2004 and the average cash settlement price
of gold was US$350.47 per ounce in 2003 and US$366.3 per ounce in 2004.
Silver. Revenue from the sale of silver more than tripled, from US$20.0 million in 2003 to
US$66.4 million in 2004. This increase principally reflects the addition of a full years production at
Selene, and the effect of the timing difference at Arcata, as well as the increase in the average
cash settlement price for silver. Total sales of silver increased from 4,603 thousand ounces in 2003
to 11,978 thousand ounces in 2004.
Gold. Gold revenue increased by 29.2 per cent. in 2004, from US$70.2 million in 2003 to
US$90.7 million in 2004. The increase in gold revenues was principally driven by the addition of a
full years production at Selene together with the 5.3 per cent. increase in the average cash
settlement price for gold received by the Hochschild Mining Group. Total sales of gold increased
from 200 thousand ounces in 2003 to 246 thousand ounces in 2004.
Cost of sales
2005
The Groups cost of sales decreased by 10.6 per cent., from US$82.3 million in 2004 to
US$73.6 million in 2005. This decrease was principally driven by a significant decrease in
depreciation at Arcata which resulted from the remaining life of mine increasing in 2005 to
6.0 years from 2.1 years in 2004, a smaller increase in change in work in progress and finished
goods and lower materials costs, offset in part by increases in contractor and personnel costs.
Contractor costs increased due to higher rates of payment at all the operations, higher levels of
production at Selene and a one-off payment to a contractor whose contract at Selene was
terminated. In addition, starting in May 2005, contractors became responsible for procuring
explosives themselves with the cost being passed through to the Hochschild Mining Group as part
of the contractor costs. During 2004 and the first several months of 2005, legal considerations
relating to the control of explosives meant that the Hochschild Mining Group bought explosives
for its mining operations directly and they were accounted for as Materials. These increases were
offset in part by lower production at Arcata and efficiency improvements at Selene as more of the
mining process was mechanised.
Materials costs decreased principally due to the closure of Sipan, lower explosives costs and lower
fuel costs at Selene due to lower levels of electricity generation, offset in part by an increase in
prices for balls for the mills, driven by increases in steel prices. As a result of the switch in
explosives procurement from the Hochschild Mining Group to the contractors starting in May
2005, explosives cost accounted for as Materials decreased.
Personnel expenses increased principally due to increases in salaries and related employment
costs.
Energy costs increased slightly due to increased costs at Arcata, resulting from the need for
increased pumping of water from the mine, and at Selene, due to the increased purchase of
electricity from the national grid, but were largely offset by decreases due to the closure of Sipan
and more efficient use of electricity at Ares.
Changes in work in progress and finished goods decreased significantly in 2005 as the 2004
amounts reflected the sale early in the year of a significant amount of inventory from Arcata that
had been produced in 2003. This effect was not repeated in 2005.
117

Part VIIOperating and financial review

2004
The Groups cost of sales almost doubled, from US$41.5 million in 2003 to US$82.3 million in 2004.
This increase was principally driven by the inclusion of a full years production at Selene, a
significant increase in depreciation at Arcata due to the life of the mine being revised down to
2.1 years in 2004 from 4.4 years in 2003, a significant increase in changes in products in progress
and finished goods resulting from the build-up of a significant amount of inventory at Arcata at
the end of 2003 and its sale in 2004 and higher materials costs. The increase was offset in part by
an increase in reallocation to administrative expenses and a small decrease in personnel costs.
Contractor costs increased principally due the inclusion of a full years production at Selene, offset
in part by the effect of the cost of explosives being incurred by the Hochschild Mining Group
directly.
Materials costs increased principally due to the inclusion of a full years production at Selene,
higher explosives costs due to direct purchases by the Hochschild Mining Group, higher costs for
mill balls due to higher steel prices and increased production at Arcata and higher timber costs
especially at Arcata where the orientation of the veins meant that more shoring was required.
During 2003, explosives were supplied by the mining contractors. At the beginning of 2004, the
Hochschild Mining Group began purchasing explosives directly.
Personnel expenses decreased principally reflecting the halting of operations at Caylloma and a
reduction in the number of employees at MHC.
Energy costs increased principally due to higher costs at Arcata, in line with increased production,
and the effect of the inclusion of Selene. In 2003, for the period it was operational, Selene
generated all its own electricity as it was not connected to the national grid and therefore
incurred no costs classified as Energy. In 2004, Selene operated for the full year and purchased
half its electricity needs from the national grid.
Administrative expenses
2005
The Groups administrative expenses increased by 6.1 per cent., from US$23.0 million in 2004 to
US$24.4 million in 2005. This increase was largely driven by an increase in Peruvian workers profit
a Minera Ares as calculated
sharing, which was calculated based on profits achieved at Compan
for Peruvian tax purposes, an increase in personnel expenses due to increases in wages, headcount
and associated costs as well as increased board members remuneration calculated based on
a Minera Ares, an increase in office rentals following the decision to
profits achieved at Compan
sell the Groups headquarters building and rent the space instead, and an increase in consulting
fees. The increase was offset in part by a decrease in termination benefits as compared to 2004
when a large number of workers left MHC and a decrease in donations to social and community
programmes. Starting in 2006 board members remuneration will no longer be based on profit
a Minera Ares. See Combined Income StatementAdministrative
achieved at Compan
Expenses.
2004
The Groups administrative expenses increased by 39.4 per cent., from US$16.5 million in 2003 to
US$23.0 million in 2004. This increase principally reflected the additional administrative expenses
incurred as a result of the commencement of full operations at Selene, including as a result of the
a Minera Ares due to the addition of Selene and an increase in
increased profits at Compan
personnel expenses due principally to increases in salaries, the number of employees at the
Hochschild Mining Groups headquarters in Lima and board members remuneration. In addition,
termination benefits increased as a consequence of a large number of employees transferring
a Minera Ares (which triggered the payments notwithstanding that
from MHC to Compan
118

Part VIIOperating and financial review

a Minera Ares is part of the Hochschild Mining Group) or leaving the Hochschild Mining
Compan
Group and depreciation increased as a result of the shorter estimated life of mine at Arcata.
Exploration expenses
2005
Exploration expenses increased by 21.6 per cent., from US$23.1 million in 2004 to US$28.1 million
in 2005. This increase was due principally to a significant increase in spending at the San Jose
project as well as an increase in generative exploration spending in Mexico, offset in part by a
reduction in spending on exploration at the existing operations due primarily to the absence of
spending on Caylloma in 2005 and a decision that the reserve and resource situation at the
existing operations justified lower exploration expenditure as well as a reduction in generative
exploration spending in Argentina and lower payments for mining rights due to a payment for
the rights to a zinc project in 2004 that was not repeated in 2005 as the project was sold.
2004
Exploration expenses almost doubled in 2004 to US$23.1 million from US$11.8 million in 2003. The
increase was due primarily to an increase in spending at the San Jose project as well as smaller
increases at Ares and Selene, where the Hochschild Mining Group was focusing on finding
additional reserves. There was also an increase at Caylloma where activities were focused on
determining if there was additional mineralised material that might justify retaining the
operation as well as significant increases in generative exploration in Argentina and Mexico.
Payments for mining rights increased principally due to a payment for the rights to a zinc project.
These increases were offset in part by a decrease in exploration spending at Arcata as a result of a
decision that the reserve and resource situation at the other existing operations justified lower
exploration expenditure.
Gain on sale of zinc project and sale of subsidiary
In April 2005, the Hochschild Mining Group sold its investment in a zinc project that it had
determined not to pursue, generating a gain of US$14.6 million.
Selling expenses
2005
Selling expenses decreased by 17.9 per cent., from US$3.9 million in 2004 to US$3.2 million in
2005. This decrease was due principally to a reduction in transportation costs at Arcata (reflecting
primarily smaller amounts of concentrate shipped as a result of the effect of the timing of sales in
2004) and lower unit costs for shipping, offset in part by an increase in transportation costs at
Selene, due principally to higher unit costs for shipping.
2004
Selling expenses more than doubled in 2004, from US$1.8 million in 2003 to US$3.9 million in
2004. This increase principally reflects the commencement of sales of silver and gold from Selene
and the effect of the timing of sales at Arcata as well as an increase in unit costs for shipping at
Arcata.
Other income
2005
The Hochschild Mining Group had other income of US$13.0 million in 2005, compared to other
income of US$7.1 million in 2004. In 2005, there was a US$9.9 million gain attributable to the
provisional pricing arrangements, compared to a US$2.6 million gain in 2004. Other income in
119

Part VIIOperating and financial review

2005 also included $0.7 million attributable to a decrease in the provision for mine closure. Other
income in 2004 also included US$1.3 million in rentals income, US$0.8 million on the sale of
certain assets and liabilities related to Sipan, US$0.5 million attributable to a decrease in the
provision for mine closure and US$0.5 million paid to the Hochschild Mining Group on the
cancellation of a contract with MHC by a third party.
2004
The Hochschild Mining Groups other income was US$7.1 million in 2004, compared to
US$5.5 million in 2003. In 2003, in addition to gain attributable to the provisional pricing
arrangements of US$1.6 million, there was also a gain in connection with the sale of a mining
concession of US$2.1 million.
Other expenses
2005
The Hochschild Mining Group had other expenses of US$2.8 million in 2005, compared to
US$7.4 million in 2004. There was a payment to SEAL in connection with the dispute involving the
Hochschild Mining Group, SEAL and Electroperu of US$0.9 million in 2005 compared to a payment
of US$0.8 million in 2004. Other expenses in 2005 also included a US$0.4 million loss on
maintenance of equipment services. Other expenses in 2004 also included an impairment of
certain assets of Sipan held for sale of US$2.2 million, a US$1.2 million increase in the provision for
mine closure and US$0.9 million of write-offs of fixed assets.
2004
The Hochschild Mining Groups other expenses were US$7.4 million in 2004, compared to
US$2.9 million in 2003. In 2003, the principal item was an increase in the provision for mine closure
cost of US$1.2 million.
Finance income
2005
The Hochschild Mining Group had finance income of US$4.1 million in 2005, compared to
US$1.3 million in 2004. The increase was principally attributable to an increase in interest received
on loans made to related parties as the amount of loans outstanding increased. There was also a
gain from changes in the fair value of financial instruments of US$1.0 million in 2005, compared
with a gain of US$0.6 million in 2004.
2004
The Hochschild Mining Group had finance income of US$1.3 million in 2004 compared to
US$0.3 million in 2003. The change was attributable principally to increases in interest received on
loans made to related parties and gain from changes in the fair value of financial instruments.
Finance costs
2005
Finance costs of the Hochschild Mining Group were US$10.1 million in 2005 compared to
US$6.7 million in 2004. The change principally reflected the effect of higher interest on bank loans
and long-term debt resulting from a full year of interest being due on the US$70 million
syndicated loan which was incurred in August 2004 and which replaced a US$40 million loan
which had been incurred in April 2003, although the effect was mitigated by the repayment
during 2005 of a total of US$25.2 million of principal on the syndicated loan. The replacement of
the syndicated loan resulted in the write-off of amortised borrowing costs of US$2.0 million in
120

Part VIIOperating and financial review

2004. See Liquidity and Capital ResourcesCredit Facilities. In addition, interest expense was
also higher due to an increase in the average amount of short-term pre-shipment, or working
capital, borrowings over the year.
2004
Finance costs of the Hochschild Mining Group were US$6.7 million in 2004 compared to
US$5.0 million in 2003. The increase principally reflected higher interest expense resulting from
the borrowing of the US$70 million syndicated loan and the write-off of amortised borrowing
costs when the syndicated loan was replaced in August 2004, offset in part by a decrease in the
unwind of discount on provision for mine disclosure.
Income tax expense
2005
The Hochschild Mining Groups income tax expense decreased by 15.7 per cent. to US$9.7 million
in 2005 from US$11.5 million in 2004. The decrease occurred despite significantly higher profit
from continuing operations before income tax as a result of the recognition at San Jose of a
significant deferred tax asset related to tax losses incurred during the development of the project.
The Hochschild Mining Groups weighted average statutory income tax rate was 23.0 per cent. in
2005 compared to 27.9 per cent. in 2004. See note 14 to the IFRS Historical Financial Information
of the Hochschild Mining Group in Part IX.
The general corporate tax rate in Peru was 30 per cent. in both 2005 and 2004.
2004
The Hochschild Mining Groups income tax expense increased by 26.4 per cent., to US$11.5 million
in 2004 from US$9.1 million in 2003. This was due principally to the effect of an increase in the tax
rate in Peru from 27 per cent. in 2003 to 30 per cent. in 2004, coupled with higher taxable profit.
The increase was offset in part by the sale of a deferred tax asset at Sipan, which led to the
derecognition of a deferred tax liability, and tax losses at Arcata. The weighted average statutory
income tax rate decreased to 27.9 per cent. in 2004, compared to 32.4 per cent. in 2003.
Profit for the year from continuing operations
As a result of the factors discussed above, the Hochschild Mining Groups profit for the year from
continuing operations was US$30.7 million in 2005 compared with US$9.9 million in 2004 and
US$11.5 million in 2003.

Liquidity and capital resources

PRA1 10.1,

Cash resources

10.2

The Hochschild Mining Groups primary source of liquidity for its operations is cash provided by its
operating activities, although the Hochschild Mining Group also partially funds its operations
from third-party debt.
Net cash generated from operating activities
Net cash generated from operating activities in the six months ended 30 June 2006 was
US$33.1 million, compared to US$1.0 million in the comparable period in 2005. In the six months
ended 30 June 2006, the Hochschild Mining Groups average realised silver price was US$9.36 per
ounce and its average realised gold price was US$480 per ounce compared to US$5.49 per ounce
and US$381 per ounce, respectively, in the comparable period in 2005. In addition, sales of silver in
the six months ended 30 June 2006 were 4,543 thousand ounces, an increase of 180 thousand
ounces compared to 4,363 thousand ounces in the six months ended 30 June 2005. Revenues from
121

Part VIIOperating and financial review

silver sales were US$42.5 million in the six months ended 30 June 2006 compared to
US$24.6 million in the comparable period in 2005. Sales of gold in the six months ended 30 June
2006 were 103 thousand ounces, which resulted in revenues from gold sales of US$49.6 million in
the six months ended 30 June 2006 as compared to sales of 110 thousand ounces and revenues of
US$41.0 million in the comparable period in 2005.
In the six months ended 30 June 2006 there was a significant loss on provisional pricing
adjustment as compared to a gain in the comparable period in 2005 as well as an increase in
income tax expense and the absence of the substantial effect of the gains from the sales of the
zinc project and Caylloma which were recognised in the six months ended 30 June 2005. These
changes were offset in part by a 5.6 per cent. increase in total cash costs from US$28.4 million in
the six months ended 30 June 2005 to US$30.0 million in the comparable period in 2006 as well as
a substantial decrease in cash flows from derivative financial instruments but the net effect of
these changes was a significant increase in cash generated from operations. This increase was
augmented by an increase in interest received and was offset in part by an increase in tax paid,
with the net result being a significant increase in net cash generated by operating activities in the
six months ended 30 June 2006 compared to the corresponding period in 2005.
Net cash generated from operating activities in 2005 was US$11.4 million compared to
US$3.4 million in 2004. In 2005, the Hochschild Mining Groups realised silver price increased to an
average of US$5.93 per ounce compared to US$5.61 per ounce in 2004 and its realised gold price
increased to an average of US$387.2 per ounce compared to US$366.03 per ounce in 2004. Sales of
silver in 2005 decreased by 1,612 thousand ounces, but the effect of the increase in the realised
price resulted in revenues from silver sales only decreasing by US$4.2 million from US$66.4 million
in 2004 to US$62.2 million in 2005. Sales of gold in 2005 decreased by 14 thousand ounces, but the
effect of the increase in the realised price resulted in revenues from gold sales decreasing by only
US$2.1 million from US$90.7 million in 2004 to US$88.6 million in 2005.
There was a 7.5 per cent. decrease in total cash costs, which decreased from US$72.4 million in
2004 to US$67.0 million in 2005 as well as a substantial reduction in decrease of cash flows from
operations due to changes in trade and other receivables. The net effect was a 47.8 per cent.
increase in cash generated by operations from US$25.3 million in 2004 to US$37.4 million in 2005.
This increase was offset in part by increases in interest paid and payment of provision for mine
closure, but still resulted in a significant increase in net cash generated from operating activities.
Net cash generated from operating activities in 2003 was US$7.8 million compared to
US$3.4 million in 2004. In 2004, the Hochschild Mining Groups realised silver price increased to an
average of US$5.61 per ounce compared to US$4.34 per ounce in 2003 and its realised gold price
increased to an average of US$366.3 per ounce compared to US$350.47 per ounce in 2003. In
addition, sales of silver in 2004 increased by 7,375 thousand ounces, which together with the
increase in the realised price, resulted in revenues from silver sales increasing by US$46.4 million
from US$20.0 million in 2003 to US$66.4 million in 2004 while sales of gold in 2004 increased by
46 thousand ounces, which together with the increase in the realised price, resulted in revenues
from gold sales increasing by US$20.5 million from US$70.2 million in 2003 to US$90.7 million in
2004.
In addition to the increased revenues, there were significant increases in cash flows from
operations due to changes in inventories and trade and other payables. These amounts were
offset by a 115.5 per cent. increase in total cash costs, which increased from US$33.6 million in
2003 to US$72.4 million in 2004, as well as a substantial decrease in cash flows from operations
due to changes in trade and other receivables. The net effect was cash generated by operations
remaining stable at US$25.3 million in both years. Increases in tax and interest paid resulted in a
56.2 per cent. decrease in net cash generated from operating activities.
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Part VIIOperating and financial review

Net cash (used in) generated from investing activities
Net cash used in investing activities was US$12.2 million in the six months ended 30 June 2006
compared to net cash generated from investing activities of US$1.1 million in the corresponding
period in 2005. In the six months ended 30 June 2006, net cash used in investing activities
principally reflected capital expenditures of US$16.7 million, primarily on construction of the San
Jose mine. In addition, the Hochschild Mining Group made US$1.1 million net of securities
acquisitions. These amounts were offset in part by the receipt of US$4.5 million from the sale of
Caylloma, and US$0.8 million from the sale of fixed assets of Sipan. In the six months ended 30
June 2005, net cash used in investing activities principally reflected capital expenditures of
US$8.1 million, primarily on development at Selene and Arcata and construction of the San Jose
mine. In addition the Hochschild Mining Group made US$7.3 million net of securities acquisitions.
These amounts were offset in part by the receipt of US$15.6 million from the sale of the zinc
project the Hochschild Mining Group decided not to pursue and US$0.8 million from the sale of
Minera Corianta S.A. (Corianta), the subsidiary that had held the zinc project.
Compania
Net cash used in investing activities was US$6.1 million in 2005 compared to US$13.4 million in
2004. In 2005, net cash used in investing activities principally reflected capital expenditures of
US$18.9 million principally on development at Selene and Arcata and construction of the San Jose
mine. In addition, the Hochschild Mining Group made US$7.1 million net of securities acquisitions.
These amounts were offset in part by the receipt of US$15.6 million from the sale of the zinc
project the Hochschild Mining Group had decided not to pursue, US$3.1 million on the sale of a
portion of Caylloma and US$0.8 million on the sale of Corianta. In 2004, net cash used in investing
activities was spent principally on development at Arcata and construction of the San Jose mine. In
addition, the Hochschild Mining Group made US$3.2 million net of securities acquisitions. These
amounts were offset in part by proceeds from the sale of property, plant and equipment of
US$2.0 million.
Net cash used in investing activities was US$29.9 million in 2003. This amount principally reflected
US$18.8 million in capital expenditure primarily for development at Arcata as well as construction
of the Selene plant. In addition, the Hochschild Mining Group made US$11.9 million net of
securities acquisitions.
Cash flows generated from (used in) financing activities
Cash flows used in financing activities were US$17.3 million in the six months ended 30 June 2006,
compared with US$5.4 million in the corresponding period in 2005. In the six months ended 30
June 2006, the Hochschild Mining Group had net repayments of borrowings of US$15.3 million
and paid dividends of US$1.4 million, which would have been less than US$0.01 per ordinary share
based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to
Admission. In the six months ended 30 June 2005, the Hochschild Mining Group had net
repayments of borrowings of US$6.0 million and purchased shares of a subsidiary for
US$1.9 million. These amounts were offset in part by a capital contribution from Minera Andes
S.A. (Minera Andes), the Hochschild Mining Groups joint venture partner in the San Jose
project, of US$2.5 million related to the acquisition of its interest in Minera Santa Cruz S.A.
(Minera Santa Cruz).
Cash flows used in financing activities were US$8.5 million in 2005 as compared to cash flows
generated from financing activities of US$11.4 million in 2004. In 2005, the Hochschild Mining
Group had net repayments of borrowings of US$9.0 million and purchased shares of a subsidiary
for US$2.7 million. These amounts were offset in part by a capital contribution from Minera Andes
of US$3.2 million related to the acquisition of its interest in Minera Santa Cruz S.A. In 2004, net
cash generated from financing activities consisted of net proceeds of borrowing of
US$33.1 million offset in part by dividends paid of US$20.7 million, which would have been
123

Part VIIOperating and financial review

US$0.09 per ordinary share based on the 230,000,000 ordinary shares expected to be outstanding
immediately prior to Admission, as well as US$1.1 million used to purchase shares of a subsidiary.
Cash flows generated from financing activities were US$21.3 million in 2003. This principally
reflected net proceeds of borrowing of US$28.6 million and a capital contribution from Minera
Andes of US$1.8 million related to the acquisition of its interest in Minera Santa Cruz. These
amounts were offset in part by the purchase of shares of a subsidiary for US$4.9 million and
dividend payments of US$4.2 million, which would have been US$0.02 per ordinary share based
on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission.
The Hochschild Mining Group holds its cash principally in US dollars and, to a lesser extent in
Nuevos Soles. Cash and cash equivalents consist of cash on hand and bank deposits. For a
discussion of the Hochschild Mining Groups policies as related to its management of market risk,
see Disclosures about Market Risk.
As of 30 June 2006, the Hochschild Mining Group had cash and cash equivalents of US$6.0 million
as compared to US$2.5 million as of 31 December 2005. On 16 October 2006, the Hochschild
Mining Group declared US$20.0 million in dividends. These dividends will not be paid prior to
Admission. In addition, the Hochschild Mining Group has ongoing capital expenditures. See
Capital Expenditure. Based on the latest unaudited management information available, the
Hochschild Mining Group had cash and cash equivalents of US$8.6 million as of 31 August 2006.
Credit facilities
As of 30 June 2006, the Hochschild Mining Groups non-current borrowings were US$30.3 million
and its current borrowings, including the current portion of long-term borrowings, were
US$54.4 million. As of 31 December 2005, the Hochschild Mining Groups non-current borrowings
were US$31.1 million and its current borrowings, including the current portion of long-term
borrowings, were US$69.8 million. Based on the latest unaudited management information
available, the Hochschild Mining Group had outstanding borrowings of US$53.9 million as of
31 August 2006.
a Minera Ares entered into a US$40 million syndicated loan with an
On 16 April 2003, Compan
original maturity date of 20 July 2006. This loan was prepaid with part of the proceeds of a
US$70 million secured syndicated term-loan with a maturity date of 31 August 2007 entered into
a Minera Ares with Banco de Credito

Citibank N.A. and Banco Internacional

by Compan
del Peru,
del Peru on 13 August 2004, which was amended with effect from 11 May 2006. The loan was
originally repayable in ten equal quarterly instalments starting in May 2005. Following the
amendment in May 2006, the loan is now repayable in five equal quarterly instalments of
US$8,960,682.76 each starting on 31 August 2006. It is denominated in US dollars and bears
interest at an annual rate of LIBOR plus 3.7 per cent. The loan is secured by pledges of or security
a Minera Ares granted by Ludlow Corporation, Ardsley Corporation,
over the shares in Compan
Gamson Corporation and Larchmont Corporation, wholly owned subsidiaries of the Company, the
a Minera Ares, the mining and
payment collections account in respect of product sales of Compan
a Minera Ares in respect of the Ares and Selene units, as
processing concessions held by Compan
well as over all buildings, facilities and other assets located at the Ares and Selene units. In
a Minera Ares ability, inter
connection with the agreement, there are also restrictions on Compan
alia, to dispose of assets, create security interests, incur long-term and short-term debt, and incur
expenditure for fixed or other non-current assets. In addition, under the terms of this agreement,
a Minera Ares must comply with certain financial covenants, including an interest
Compan
coverage ratio of no less than 6.0, a debt service coverage ratio of no less than 1.20, a net debt to
EBITDA ratio of no greater than 1.20 and a current ratio of no less than 1.0.
As at 31 August 2006, the principal amount outstanding on the syndicated loan was
US$33.6 million.
124

PRA1 10.3
PRA1 10.4

Part VIIOperating and financial review

a Minera Ares
At the time it entered into the original US$40 million syndicated loan, Compan
entered into an interest rate swap as a result of which it fixed the interest rate on the loan at
1.67 per cent. The Hochschild Mining Group did not change these arrangements when it replaced
the US$40 million loan with the US$70 million syndicated loan. The interest rate swap expired as
of 20 July 2006. The Hochschild Mining Group does not currently intend to hedge its interest rate
exposure on the remaining amount outstanding under the syndicated loan.
a Minera Arcata S.A. entered into a foreign currency credit
On 26 September 2005, Compan
facility with Banco Interamericano de Finanzas in an amount of US$2.4 million. The credit facility
is repayable in nine quarterly instalments at an interest rate of 8.75 per cent. See Part XIV:
Additional InformationMaterial ContractsFinancing DocumentsCredit Facility with Banco
Interamericano de Finanzas. As at 31 August 2006, the principal amount outstanding on the
foreign currency credit facility was US$1.4 million.
On 4 October 2006, Lorenzon Limited entered into a promissory note in connection with a loan

made by Banco de Credito

del Peru in an amount of US$20 million. The purpose of this loan is to
provide short-term finance for the development expenses of the San Jose project. The loan has a
maximum term of four months and interest is payable at a rate of 120 day LIBOR plus 2.5 per cent.
See Part XIV: Additional InformationMaterial ContractsFinancing DocumentsPromissory
Note.
The Hochschild Mining Groups current debt (excluding current portions of long-term loans)
consists of short-term credit borrowings pursuant to uncommitted credit facilities with a number
of both local and international banking institutions. The Hochschild Mining Group uses these
facilities to manage timing differences between production of concentrate and dore and the
receipt of proceeds from sales. Borrowings under these facilities typically have a duration of
90 days, but can be for shorter periods. As at 31 August 2006, the principal amount outstanding
under these arrangements was US$18.1 million and the average interest rate was 5.94 per cent.
For additional information about the Hochschild Mining Groups borrowings, see note 24 to IFRS
Historical Financial Information of the Hochschild Mining Group included in Part IX and
paragraph 12.2 of Part XIV: Additional InformationMaterial contractsFinancing Documents.
Contractual obligations and commitments
The following tables sets out the Hochschild Mining Groups material contractual obligations and
their maturity as at 30 June 2006. See Note 32 to the IFRS Historical Financial Information of the
Hochschild Mining Group included in Part IX for addition information about the Hochschild
Mining Groups contractual commitments.
Less than
one year

1-3 years

3-5 years

Over 5 years

Total

US$(000)

Borrowings *******************************************
Gold and silver futures contracts(1) **********************
Mining rights purchase options*************************
Capital expenditurecommitted ***********************
Pallancata project(2) ************************************
Exmin Project (Mina Moris mine)(3) **********************
San Felipe Project(4) ************************************
Operating lease ***************************************

54,383
87,517
11,112
6,777
3,000
4,200

877

30,315

5,222

6,667
1,076

15,522

13,300

84,698
87,517
45,156
6,777
3,000
4,200
6,667
1,953

Total *************************************************

167,866

43,280

15,522

13,300

239,968

Notes:
(1) Calculated using the number of ounces of gold or silver committed to be sold under the contracts, the London Bullion
Market Association spot fixing price for silver on 30 June 2006 of US$10.70 per ounce and the London Bullion Market
Association PM spot fixing price for gold on 30 June 2006 of US$613.50 per ounce. See Disclosures about market risk
Commodity price risk.

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Part VIIOperating and financial review

(2) Represents the obligation of Pallancata Holding S.A.C. (formerly known as Minera Coriorco S.A.C.), an indirect
subsidiary of the Company, to contribute capital to Suyamarca S.A.C., the entity formed to develop the Pallancata project.
See Part XIV: Additional InformationMaterial ContractsJoint Ventures and other agreementsPallancata.
(3) Represents the obligation of Minera Hochschild Mexico, S.A. de C.V. (MHM), an indirect subsidiary of the Company,
to pay a portion of the purchase price for the Mina Moris mine. See Part XIV: Additional informationMaterial
ContractsJoint Ventures and other agreementsContract for the Sale of Mina Moris Mine. This amount was paid on
16 July 2006.
(4) Represents the obligation of MHM to pay costs and make investments in exploration expenses in relation to the San
Felipe project. See Part XIV: Additional informationMaterial ContractsJoint Ventures and other agreementsSan
Felipe.

Off balance sheet items

The Hochschild Mining Group had no off balance sheet items at 31 December 2003, 2004 or 2005
or at 30 June 2006.
Capital expenditure

PRA1 10.5

In 2003, 2004 and 2005, the Hochschild Mining Groups capital expenditure was US$18.8 million,
US$12.3 million and US$18.9 million, respectively (including intangibles such as licenses and mine
development costs). The expenditure in 2003 primarily related to additional development at
Arcata and Selene. Expenditure in 2004 was principally for development at San Jose and Arcata. In
2005, capital expenditure was principally for development at Selene and Arcata. In the six months
to 30 June 2006, the Hochschild Mining Groups capital expenditure was US$16.7 million and

related primarily to the development of San Jose.

The Hochschild Mining Groups budgeted capital expenditure for the six months ending 31
December 2006 and for 2007 is US$52.7 million and US$79.1 million, respectively. These funds are
expected to come from operating cash flows and the proceeds of the Global Offer and are
expected to be used primarily to continue the development of San Jose and Pallancata. These
amounts differ from the budgeted capital expenditure set forth in Part XV: Technical Report
because the amounts in the Technical Report cover planned expenditure only at the existing mines
and not at the Hochschild Mining Groups development projects.
Disclosures about market risk
The following information should be read in conjunction with Part IX: IFRS Historical Financial
Information. The Hochschild Mining Group is exposed to change in commodity prices, foreign
exchange rates and interest rates through its commercial and financial operations. Additionally,
members of the Hochschild Mining Group are engaged in hedging activities.
Commodity price risk

PRA1 9.2.3

The Hochschild Mining Group is exposed to the effect of fluctuations in commodity prices. The
principal exposures are to the prices of silver and gold, which are the products produced by the
Group and which are quoted in US dollars on international markets. Price variations and market
cycles have historically influenced the financial results of the Hochschild Mining Group and the
Directors expect they will continue to do so. See Factors Affecting Results of
OperationsCommodity Prices above.
As of 30 September 2006, the Hochschild Mining Group had a number of forward sales contracts
with Standard Bank and Citibank in relation to the gold refined from its dore which it has entered
into as part of the security package for the Hochschild Mining Groups US$70 million loan facility
(see Liquidity and Capital ResourcesCredit Facilities), the last of which will expire in June
2007.
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Part VIIOperating and financial review

Outstanding
hedge (oz)

Contract

Exercise
Price

Start

End

Standard Bank ********************************************

Citibank **************************************************
Citibank **************************************************

11,720
33,500
36,600

Flat Fwd
Flat Fwd
Short Call

406.34
416.65
419.20

Jul-06
Aug-06
Jan-07

Dec-06
Jun-07
Jun-07

Total******************************************************

81,820

Citibank **************************************************

16,200

Put

332.00

Aug-06

Jun-07

Counterparty

As at 30 September 2006 the Hochschild Mining Group also had a limited number of other
forward sale and option arrangements in relation to the silver produced from its dore which are
due to expire in December 2006.
Exercise Plan

Outstanding
hedge (oz)

Contract

Min

Max

Start

End

International Assets **************************************

Standard Bank*******************************************

487,000
1,000,000

Min/Max
Min/Max

7.45
8.40

8.43
10.60

Jul-06
Jul-06

Dec-06
Dec-06

Total ****************************************************

1,487,000

Counterparty

Going forward, the Hochschild Mining Group does not intend to hedge its silver and gold
production unless it is required to do so as part of any project financing arrangements. It intends
to equity finance its projects unless, in the context of a joint venture, the joint venture partner
requires project finance to be put in place.
Foreign currency exchange rate risk

PRA1 9.2.3

The Hochschild Mining Groups products are commodities that typically are priced by reference to
prices in US dollars and the Company presents its results in US dollars. However, the Hochschild
Mining Group incurs a significant portion of its costs in Nuevos Soles and in the future anticipates
that it may also have significant costs denominated in Argentine Pesos and Mexican Pesos. The
Hochschild Mining Group typically borrows in US dollars. For accounting purposes, expenses
incurred in currencies other than the US dollar are converted into US dollars at the exchange rate
prevailing on the date of the transaction. Because a significant portion of the Hochschild Mining
Groups expenses are incurred in currencies other than the US dollar, the Hochschild Mining
Groups expenses may from time to time increase or decrease relative to its revenues as a result of
the fluctuations of the relevant exchange rates. This could affect the results of operations that the
Hochschild Mining Group reports in future periods. See Factors Affecting Results of
OperationsExchange Rates above. The Hochschild Mining Group does not hedge its exposure
to foreign currency risk.
Interest rate risk

PRA1 9.2.3

The Hochschild Mining Group is exposed to interest rate risk principally in relation to its
outstanding bank loans. In particular, it is exposed to changes in the LIBOR interest rate of US
dollar-denominated debt, as substantially all of its debt both (i) is denominated in US dollars and
(ii) has a variable LIBOR rate.
Critical accounting policies and estimates
The Hochschild Mining Groups significant accounting policies are more fully described in note 2
to the IFRS Historical Financial Information of the Hochschild Mining Group included in Part IX.
Some of the Hochschild Mining Groups accounting policies require the application of significant
judgment and estimates by management that can affect the amounts reported in the financial
statements. By their nature, these judgments are subject to a degree of uncertainty and are based
on the Hochschild Mining Groups historical experience, terms of existing contracts,
managements view on trends in the silver and gold mining industry, information from outside
sources and other assumptions that the Hochschild Mining Group considers to be reasonable
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Part VIIOperating and financial review

under the circumstances. Actual results could differ from these estimates under different
assumptions or conditions.
The Hochschild Mining Groups critical accounting policies that are subject to significant estimates
and assumptions are summarised below.
Revenue recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the
Hochschild Mining Group and the revenue can be reliably measured. Revenue associated with the
sale of goods is recognised in the income statement when all significant risks and rewards of
ownership are transferred to the customer, usually when title has passed to the customer.
For concentrate, revenue is recognised at the time it is loaded into the ship at the port of

Matarani in Peru. The agreement with Penoles

provides for CIF FO (Free Out). Thus, while the cost
of insurance is borne by the Hochschild Mining Group, the policy is endorsed (assigned) in favour

of Penoles
because risk is deemed to pass to Penoles
at the port of Matarani. Full title, however, is
not transferred until the concentrate arrives at the port of Tampico in Mexico.
For sales of concentrate, the Company often retains exposure to price fluctuations for an agreed
period of time after the sale has been recorded. In such instances, this price exposure is recorded
at fair value with reference to future commodity prices, and revalued each period, with changes in
the fair value recorded in Other income. If an exposure remains open across more than one
financial period, management must estimate the likely effect of price fluctuations for purposes of
recording the change in fair value.
Valuation of property, plant and equipment
For the purpose of the transition to IFRS, the Company commissioned Consultores & Assessores
2020 S.A.C. to carry out an independent appraisal of certain items of property, plant and
equipment as of 1 January 2003 to determine their deemed cost at that date. The deemed cost of
property, plant and equipment was determined primarily with reference to depreciated
replacement cost. Management believes that the deemed cost reflected the economic condition
of the Hochschild Mining Groups property, plant and equipment at that time. The revaluation
process carries a significant element of judgment; however, management believes that the use of
an appropriately qualified independent appraiser has resulted in a deemed cost of property, plant
and equipment that is suitable for inclusion in the Hochschild Mining Groups IFRS financial
information.
Depreciation
Mine related assets are depreciated on a unit of production basis over the estimated economically
recoverable reserves and a percentage of resources to which they relate. The Hochschild Mining
Group estimates its ore reserves and mineral resources based on information compiled by internal
geologists each year.
There are numerous uncertainties inherent in estimating ore reserves and the Hochschild Mining
Group must make a number of assumptions in making those estimations, including assumptions as
to the prices of commodities, exchange rates, production costs and recovery rates. Assumptions
that are valid at the time of estimation may change significantly when new information becomes
available. Changes in the forecast prices of commodities, exchange rates, production costs or
recovery rates may change the economic status of reserves and may, ultimately, result in the
reserves being restated.
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Part VIIOperating and financial review

Impairment of assets
The carrying amounts of fixed assets are reviewed for impairment if events or changes in
circumstances indicate the carrying value may not be recoverable. The Hochschild Mining Group
monitors indicators of impairment, including a significant decline in market value, technological
changes, changes in the legal environment, changes in interest rates or rates of return, market
capitalisation, evidence of obsolescence or physical damage, discontinuance plans, disposal plans,
restructuring plans and asset performance decline. If there are indicators of impairment, an
exercise is undertaken to determine whether the carrying values are in excess of their recoverable
amount. Such review is undertaken on an asset by asset basis, except where such assets do not
generate cash flows independent of other assets, and then the review is undertaken at the cash
generating unit level. If the carrying amount of the fixed assets exceeds the recoverable amount, a
provision is recorded to reflect the asset at the lower value. Impairment losses are recognised in
the income statement.
The calculation of the recoverable amount of an asset requires significant judgments, estimates
and assumptions, including about future demand, technological changes, exchange rates, interest
rates and others. The Hochschild Mining Group carries out reviews of fixed assets and intangible
assets when there are changes in events or circumstances that indicate that the carrying amount
of such assets might not be recoverable. Changes in events or circumstances, including economic
or market conditions. technological advances and competition, may affect previous assumptions
and estimates and could have an impact on the Hochschild Mining Groups results of operations or
financial position through impairment charges.
Provisions
Provisions are recognised when the Hochschild Mining Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources will be required
to settle the obligation and a reliable estimate can be made of the amount of the obligation. If
the effect of the time value of money is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability. Where discounting is
used, the increase in the provision due to the passage of time is recognised as a finance cost.
Environmental contingencies

PRA1 8.2

As a mining company, the Hochschild Mining Group is exposed to potential environmental

liabilities in the ordinary course of its business. Provisions for liabilities relating to environmental
matters, including site restoration, require complex evaluations of applicable environmental
regulations, clean-up and site restoration strategies, the environmental technologies available
and the costs of each.
The Hochschild Mining Group records provisions for environmental liabilities in the accounting
period in which the related environmental disturbance occurs. At the time of establishing the
provision, a corresponding asset is capitalised where it gives rise to a future benefit and
depreciated over future production from the mine to which it relates. The provision is discounted
where material and the unwinding of the discount is included in interest payable.
The provision is reviewed on an annual basis for changes in cost estimates, discount rates or life of
operations.
Taxation
The determination of the Hochschild Mining Groups obligations and expense for taxes requires
an interpretation of tax law. The Hochschild Mining Group seeks appropriate professional tax
advice before making judgments on tax matters. While it believes that its judgments are prudent
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Part VIIOperating and financial review

and appropriate, significant differences in actual experience may materially affect the Hochschild
Mining Groups future tax charges. The Hochschild Mining Group provides deferred taxes in full
on all timing differences that result at the balance sheet date in an obligation to pay more tax or a
right to pay less tax at a future date, subject to recoverability of the deferred tax assets. Deferred
tax assets and liabilities are not discounted.
Inventories
Inventories are stated at the lower of cost and net realisable value. In assessing the ultimate
realisation of inventories, the Hochschild Mining Group is required to make judgments as to
future demand requirements and compare that with the current or committed inventory levels.
Financial instruments
The fair value of financial instruments is based on their quoted market price at the balance sheet
date without any deduction for transaction costs. If a quoted market price is not available, the fair
value of the instrument is estimated using pricing models or discounted cash flow techniques.
Where discounted cash flow techniques are used, estimated future cash flows are based on
managements best estimates and the discount rate is a market related rate at the balance sheet
date for an instrument with similar terms and conditions.
The fair value of derivatives that are not exchange-traded is estimated at the amount that the
Hochschild Mining Group would receive or pay to terminate the contract at the balance sheet
date taking into account current market conditions and the creditworthiness of the
counterparties.
Functional currencies
The functional currency for each entity in the Hochschild Mining Group is determined by the
currency of the primary economic environment in which it operates. For the operating entities it is
US dollars and for the other entities it is the local currency of the country in which it operates. In
determining the appropriate functional currency for an entity, management must exercise its
judgment to determine which currency most faithfully represents the economic effects of the
entitys underlying transactions, events and conditions by taking into consideration, among other
things, the currency that mainly influences sales prices and cost of sales as well the currency of the
country whose competitive forces and regulations mainly determine the entitys sales prices.

Recent accounting pronouncements

In preparing the combined historical financial information, the Hochschild Mining Group has not
applied the following accounting standards, for which adoption is not currently mandatory:
IFRS 7Financial Instruments: Disclosures. This standard is effective for annual periods
beginning on or after 1 January 2007. It requires the disclosure of qualitative and quantitative
information about exposure to risks arising from financial instruments. The Hochschild Mining
Group has assessed the impact of IFRS 7 and has concluded that the main additional disclosure will
be a sensitivity analysis to market risk.
Amendment to IAS 1Presentation of Financial StatementsCapital Disclosures. The amendment
is effective for annual periods beginning on or after 1 January 2007. It requires disclosures about
the level of an entitys capital and how it manages capital. The Hochschild Mining Group has
assessed the impact of the amendment to IAS 1 and has concluded that the main additional
disclosure will be the capital disclosures required by the amendment.

Recent developments

On 10 July 2006, Compania

Minera Coriorco (a Hochschild Mining Group company recently
renamed Pallancata Holding S.A.C.) (Coriorco) succeeded to the rights of Ludlow Corporation in
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Part VIIOperating and financial review

respect of a joint venture agreement with Minera Oro Vega S.A.C. (Minorva) to construct a
mine on the Pallancata property. On 16 August 2006, Coriorco and Minorva established Minera
Suyamarca S.A.C. (Minera Suyamarca) to hold the title to the Pallancata mining concessions.
Coriorco owns 60 per cent. of Minera Suyamarca and Minorva holds 40 per cent. For details of the
terms of the joint venture agreement see Part XIV: Additional InformationMaterial
ContractsJoint Ventures and other agreementsPallancata.
On 11 July 2006, Minera Hochschild Mexico S.A. de C.V., a Hochschild Mining Group Company
(MHM), made payment of US$1,050,000 under an option agreement it and Exmin S.A. de C.V.
had entered into with Minera Moris S.A. de C.V. to acquire the Minera Moris mine. The Hochschild
Mining Groups total obligation under the option agreement is US$4,500,000. The remaining
payment is due on the earlier of (i) the date that is 15 days from the date on which MHM
concludes to its full satisfaction the studies and tests that form part of its due diligence process
and (ii) 31 December 2006. See Part XIV: Additional InformationMaterial ContractsJoint
Ventures and other agreementsContract for the Sale of Mina Moris Mine.
On 18 September 2006, the Hochschild Mining Group entered into a letter of intent with Mirasol
Resources Ltd. relating to an option and joint venture agreement to explore for, and develop,
minerals at two sites (Santa Rita and Claudia) in Argentina. Under the arrangements, the
Hochschild Mining Group will have the right to acquire a 51 per cent. interest in each project by
investing at least US$3.5 million in the Santa Rita project and at least US$6.0 million in the Claudia
project. The Hochschild Mining Group paid US$150,000 on signing the letter of intent.
On 4 October 2006, Lorenzon Limited entered into a promissory note in connection with a loan

made by Banco de Credito

del Peru for an amount of US$20 million. For more detail, see
Liquidity and Capital ResourcesCredit Facilities on page 124.
During October 2006, the Hochschild Mining Group net settled all of its related party balances,
with the exception of the amounts owing from Cementos Pacasmayo S.A.A., a US$1 million
receivable from Greystone Corporation and the dividend referred to in the following paragraph.
The net amount owing was settled primarily through the transfer of the entire amount of the
Groups Other financial assets at fair value through profit and loss, with the balance paid in
cash. See note 30 to the IFRS Historical Financial Information of the Hochschild Mining Group in
Part IX.
On 16 October 2006, the Hochschild Mining Group declared a dividend totalling US$20.0 million,
which was settled in part as a result of the net settlement process referred to in the preceding
paragraph. The balance of this dividend will not be paid prior to Admission.

Current trading and prospects

Since 30 June 2006, revenues are ahead of the first half as a result of a production volume increase
at Arcata and the impact of higher average prices of silver and gold over the period. With regard
to pricing, however, the prices of silver and gold have eased since the highs of May 2006.
Since the half year, operating costs have increased broadly in line with revenues. There has been
an increase in administrative expenses, principally as a result of expenses attributable to the
Global Offer, and an increase in exploration expenses mainly due to increased drilling activity at
Mina Moris, San Felipe and Selere. Costs remain under close scrutiny and the Directors expect the
Group to maintain its position as a low cash cost producer going forward. The Groups
development projects continue to progress in line with managements plans.
Despite the recent commodity price volatility, the Directors anticipate that revenues from the
Group for the remainder of the year will be in line with expectations. Silver volumes are expected
to be slightly ahead of financial year 2005 with gold volumes down, reflecting managements
decision to target lower grade ore at Ares. The operating mines, together with the potential
provided by the Groups project pipeline and its low cost base, enable the Directors to look ahead
with confidence.
131

PRA1 12.1,
12.2

Part VIII:
Capitalisation and indebtedness statement
Capitalisation and indebtedness statement

PRA3 3.2

The following table shows the indebtedness of the Hochschild Mining Group as at 31 August 2006
extracted without material adjustment from the unaudited management accounts of the
Company.
As at 31 August
2006 Unaudited
US$000

Current Debt
Secured(2)(3) **************************************************************************************
Unguaranteed/unsecured *************************************************************************

34,914
35,937

Total current debt ********************************************************************************

70,851

Non-current debt
Secured(2) ****************************************************************************************
Unguaranteed/unsecured *************************************************************************

869
23,676

Total non-current debt ***************************************************************************

24,545

*****************************************************************************

95,396

(1)

Total indebtedness

The following table shows the capitalisation of the Hochschild Mining Group as at 30 June 2006
extracted without material adjustment from the financial information set out in Section B: IFRS
Historical Financial Information of Part IX: IFRS Historical Financial Information.
As at
30 June 2006
US$000

Shareholders equity (excluding retained earnings)

Share capital ***************************************************************************************
Share premium *************************************************************************************
Other reserves**************************************************************************************

9,187

1,696

Total capitalisation(4) ********************************************************************************

10,883

Notes:
(1) The Hochschild Mining Group does not hold any external debt which is subject to guarantees provided by third parties.
(2) The Hochschild Mining Group on 13 August 2004 borrowed an aggregate principal amount of US$70 million from a
syndicate of various financial institutions. The interest payable on the unpaid principal amount of the loan is a rate per
annum equal to LIBOR + 3.7 per cent. The syndicated loan contains certain financial covenants. The syndicated loan is
secured by:

) An accounts pledge with Banco de Credito

del Peru as Administrative Agent, Collateral Agent and Cash Management
a Minera Ares with Banco de
Bank, under which security has been granted over the collection account held by Compan

Credito
del Peru.
) A hedge collateral agreement with Standard Bank London Limited and N. M. Rothschild & Sons Limited under which
a Minera Ares established a segregated cash account. The parties have agreed that such cash account will hold
Compan
an initial amount of US$5,000,000 plus any proceeds of any collateral property.

a Minera Ares mining

) A mining mortgage with Banco de Credito
del Peru (As Agent for the Lenders) over Compan
concessions, buildings, facilities and other fixed assets as security for full payment of $87,500,000.00 as capital plus
interest.

a Minera Ares processing

) A mining mortgage with Banco de Credito
del Peru (as Agent for the Lenders) over Compan
plant as security for full payment of $87,500,000 as capital plus interest.

) A global and floating pledge agreement with Banco de Credito

del Peru (as Agent for the Lenders) over all of the
a Minera Ares concessions as security for full payment of
minerals during the extraction or production stages at Compan
$87,500,000 as capital, plus interest.

a
) A share pledge agreement with Banco de Credito
del Peru (as Agent for the Lenders) over the shares in Compan
Minera Ares as security for full payment of $87,500,000 as capital plus interest.
a Minera Arcata S.A. entered into a foreign currency credit facility with Banco
(3) On 26 September 2005, Compan
Interamericano de Finanzas in an amount of US$2.4 million. The credit facility is repayable in nine quarterly instalments at
a Minera Arcata S.A. has granted Banco
an interest rate of 8.75 per cent. Under the terms of the Credit Facility, Compan
Interamericano de Finanzas a pledge over its assets to the value of US$3,388,585.11. See paragraph 12.2.3 of Part XIV:
Additional Information.
(4) There has been no material change in the capitalisation of the Company from 30 June 2006 to 2 November 2006 save
for the allotment and issue to Pelham Investment Corporation and Navajo Overseas Corporation of, in aggregate,

132

Part VIIICapitalisation and indebtedness statement

229,900,000 ordinary shares in the Company pursuant to the share exchange agreement in accordance with paragraph 2.5
of Part XIV: Additional Information.

The following table shows the net indebtedness in the short term and in the medium-long term of
the Hochschild Mining Group as at 31 August 2006 extracted without material adjustment from
the unaudited management accounts of the Company.
As at
31 August 2006
Unaudited
US$000

Cash ********************************************************************************************

8,624

Liquidity*****************************************************************************************

8,624

Current bank debt *******************************************************************************

Current portion of non-current debt **************************************************************
Other current financial debt **********************************************************************

34,914
35,937

Current Financial Indebtedness********************************************************************

70,851

Net Current Financial Indebtedness **************************************************************

62,227

Non-current bank loans **************************************************************************

Other non-current loans **************************************************************************

869
23,676

Non-Current Financial Indetedness ****************************************************************

24,545

Net Financial Indebtedness(2) **********************************************************************

86,772

(1)

Notes:
(1) Total current financial debt less liquidity.
(2) Total non-current financial indebtedness less excess of total liquidity over total current financial debt.

133

PRA1 3.1

Part IX:
IFRS historical financial information
Section A: Accountants report on IFRS financial information
The Directors,
Hochschild Mining plc
Pasaje El Carmen No. 180
Surco
Lima 33
Peru

3 November 2006

PRA1 20.1, 20.3,

20.4.1, 20.5.1

Dear Sirs
Hochschild Mining plc
We report on the audited financial information set out in Section B: IFRS Historical Financial
Information. We do not report on the 30 June 2005 unaudited financial information. This financial
information has been prepared for inclusion in the prospectus dated 3 November 2006 of
Hochschild Mining plc on the basis of the accounting policies set out in Note 2. This report is
required by Annex I item 20.1 of the PD Regulation and is given for the purpose of complying with
that paragraph and for no other purpose.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the
extent there provided, to the fullest extent permitted by law we do not assume any responsibility
and will not accept any liability to any other person for any loss suffered by any such other person
as a result of, arising out of, or in connection with this report or our statement, required by and
given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation,
consenting to its inclusion in the prospectus.
Responsibilities
The Directors of Hochschild Mining plc are responsible for preparing the financial information on
the basis of preparation set out in Note 2.
It is our responsibility to form an opinion as to whether the financial information gives a true and
fair view, for the purposes of the prospectus, and to report our opinion to you.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence
relevant to the amounts and disclosures in the financial information. It also included an
assessment of significant estimates and judgments made by those responsible for the preparation
of the financial information and whether the accounting policies are appropriate to the entitys
circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which
we considered necessary in order to provide us with sufficient evidence to give reasonable
assurance that the financial information is free from material misstatement whether caused by
fraud or other irregularity or error.
Our work has not been carried out in accordance with auditing standards generally accepted in
the United States of America and accordingly should not be relied upon as if it had been carried
out in accordance with those standards.
134

Part IXIFRS historical financial information

Opinion
In our opinion, the financial information gives, for the purposes of the prospectus dated
3 November 2006, a true and fair view of the state of affairs of Hochschild Mining plc as at the
dates stated and of its profits, cash flows and changes in equity for the periods then ended in
accordance with the basis of preparation set out in Note 2.
Declaration
For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the
Prospectus and declare that we have taken all reasonable care to ensure that the information
contained in this report is, to the best of our knowledge, in accordance with the facts and contains
no omission likely to affect its import. This declaration is included in the Prospectus in compliance
with item 1.2 of Annex I of the Prospectus Regulation.
Yours faithfully

Ernst & Young LLP

135

Part IXIFRS historical financial information

Section B: IFRS Historical financial information

PRA1 20.1,
20.3, 20.6.1,

COMBINED INCOME STATEMENT

20.6.2
Six-month period
ended 30 June
Year ended 31 December
Notes

2003

2004

2005

Unaudited
2005

2006

(in thousands of US dollars)

Continuing operations
Revenue ******************************************
Cost of sales **************************************

5
6

93,771
(41,514)

159,052
(82,292)

151,319
(73,592)

65,779
(30,805)

92,286
(33,705)

Gross profit ***************************************

Administrative expenses ***************************
Exploration expenses ******************************
Gain on sale of zinc project ************************
Selling expenses ***********************************
Other income *************************************
Other expenses************************************

7
8
9
10
12
12

52,257
(16,472)
(11,822)

(1,794)
5,457
(2,936)

76,760
(22,997)
(23,063)

(3,880)
7,081
(7,395)

77,727
(24,371)
(28,057)
14,558
(3,161)
13,016
(2,821)

34,974
(10,829)
(18,657)
14,558
(1,338)
3,199
(1,280)

58,581
(15,814)
(7,654)

(1,366)
10,495
(4,636)

24,690
326
(4,977)
579

26,506
1,296
(6,702)
299

46,891
4,144
(10,105)
(552)

20,627
1,555
(4,463)
1,085

39,606
2,843
(5,121)
(27)

20,618
(9,108)

21,399
(11,453)

40,378
(9,673)

18,804
(5,966)

37,301
(14,733)

11,510

9,946

30,705

12,838

22,568

12,179

9,395

Profit from continuing operations before net finance

costs and income tax ****************************
Finance income ***********************************
Finance costs **************************************
Foreign exchange gain/(loss) ***********************
Profit from continuing operations before income tax
Income tax expense *******************************
Profit for the year/period from continuing
operations **************************************
Discontinued operations
(Loss)/ profit for the year/period from discontinued
operations **************************************

13
13

14

29

(1,371)

(731)

Profit for the year/period **************************

10,139

9,215

42,884

22,233

22,568

Attributable to:
Equity shareholders of the Company****************
Minority interest **********************************

11,900
(1,761)

13,500
(4,285)

46,737
(3,853)

27,744
(5,511)

24,198
(1,630)

10,139

9,215

42,884

22,233

22,568

136

Part IXIFRS historical financial information

COMBINED BALANCE SHEET
As of 31 December
Notes

2003

2004

2005

As of
30 June
2006

(in thousands of US dollars)

ASSETS
Non-current assets
Property, plant and equipment*********************************
Intangible assets **********************************************
Available-for-sale financial assets *******************************
Deferred income tax assets ************************************
Trade and other receivables************************************
Derivative financial instruments ********************************

15
16
17
27
18
20

84,119
2,091
9,192
1,079
4,730
132

55,481
2,091
16,126
2,794
26,991
377

59,403
2,091
26,267
10,990
6,050
1,902

67,155
2,321
4,135
14,880
5,982

101,343

103,860

106,703

94,473

Current assets
Inventories****************************************************
Trade and other receivables************************************
Derivative financial instruments ********************************
Other financial assets at fair value through profit and loss *******
Cash and cash equivalents *************************************

19
18
20
21
22

18,558
28,142
885
11,912
4,242

11,514
49,956
1,487
15,072
5,633

10,499
81,106
7,047
19,835
2,467

14,002
81,347
11,524
19,324
6,043

Assets classified as held for sale ********************************

29

63,739

83,662
7,005

120,954
3,844

132,240
3,003

165,082

194,527

231,501

229,716

Total assets ***************************************************

EQUITY AND LIABILITIES
Capital and reserves attributable to Parent
Share capital**************************************************
Other reserves ************************************************
Retained earnings *********************************************

9,166
277
(9,692)

9,187
6,588
(15,910)

9,187
11,806
28,383

9,187
1,696
(561)

Minority interest **********************************************

(249)
2,482

(135)
(1,833)

49,376
(2,533)

10,322
(3,841)

Total equity***************************************************

26

2,233

(1,968)

46,843

6,481

Non-current liabilities
Trade and other payables **************************************
Derivative financial instruments ********************************
Borrowings ***************************************************
Provisions*****************************************************
Deferred income tax liabilities *********************************

23
20
24
25
27

2,065
49
36,304
50,219
6,509

3,135

56,899
41,426
3,154

3,161

31,089
36,939
4,134

3,450

30,315
33,183
3,097

95,146

104,614

75,323

70,045

27,076
40,418

209

31,048
52,953
1,170

34,567
69,793

4,975

91,032
54,383

7,775

67,703

85,171

109,335

153,190

6,710

Total liabilities ************************************************

162,849

196,495

184,658

223,235

Total equity and liabilities *************************************

165,082

194,527

231,501

229,716

Current liabilities
Trade and other payables **************************************
Borrowings ***************************************************
Provisions*****************************************************
Income tax payable *******************************************
Liabilities directly associated with assets classified as held for sale

137

23
24

29

Part IXIFRS historical financial information

COMBINED CASH FLOW STATEMENT
Six-month period
ended 30 June
Year ended 31 December
Notes

2003

2004

2005

Unaudited
2005

2006

(in thousands of US dollars)

Cash flows from operating activities

Cash generated from operations *******************
Interest received **********************************
Interest paid **************************************
Payment of mine closure costs *********************
Tax paid ******************************************

31

25,290
53
(3,131)
(1,063)
(13,319)

25,318
112
(5,322)
(1,804)
(14,878)

37,350
345
(8,434)
(5,228)
(12,602)

16,323

(2,375)
(4,393)
(8,507)

49,901
4,067
(3,210)
(2,518)
(15,176)

7,830

3,426

11,431

1,048

33,064

(18,820)

(12,253)

(18,896)

(8,112)

(16,652)

2,040
(392)

239
(3,107)

(3,490)

236
(1,300)
(14)

(39,017)

(6,652)

(21,537)

(15,232)

(5,867)

27,080

3,834

17,566
15,558
806
3,050

182

11,456
15,558
806
100

6,081

4,500
841

Net cash used in investing activities****************

(29,866)

(13,423)

(6,139)

1,086

(12,175)

Cash flow from financing activities

Proceeds of borrowings****************************
Repayment from borrowings***********************
Dividends paid ************************************
Capital contribution *******************************
Purchase of shares from minority shareholder *******
Capital contribution from minority shareholder *****
Repayment of capital******************************

77,750
(49,151)
(4,156)

(4,927)
1,762

127,875
(94,745)
(20,710)
21
(1,053)

118,103
(127,073)
(50)

(2,667)
3,229

53,376
(59,336)

(1,879)
2,454

61,997
(77,266)
(1,353)

(20)

(671)

21,278

11,388

(8,458)

(5,385)

(17,313)

1,391

(3,166)

(3,251)

3,576

Net cash generated from operating activities *******

Cash flows from investing activities
Purchase of property, plant and equipment *********
Proceeds from sale of property, plant and
equipment**************************************
Acquisitions of available-for-sale financial assets ****
Acquisition of shares from Colorada ****************
Purchase of other financial assets at fair value
through profit and loss **************************
Proceeds from other financial assets at fair value
through profit and loss **************************
Proceeds from sale of zinc project ******************
Proceeds from sale of Corianta *********************
Proceeds from sale of Caylloma ********************
Proceeds from sale of fixed assets of Sipan**********
Dividends received ********************************

9
9
29

26

Cash flows generated from (used in) financing

activities****************************************
Net (decrease)/increase in cash and cash equivalents
during the year/period **************************
Cash and cash equivalents at beginning of
year/period *************************************
Cash and cash equivalents at end of year/period****

891

(758)

22

138

5,000

4,242

5,633

5,633

2,467

4,242

5,633

2,467

2,382

6,043

Balance at 1 January 2003***********************************************

Fair value gains on available-for-sale financial assets **********************
Translation adjustment for the year **************************************
Net income recognised directly in equity *********************************
Profit for the year ******************************************************
Total recognised income for 2003 ****************************************
Purchase of shares from minority shareholders****************************
Capital contribution from minority interest *******************************
Minority interests share of contribution to Santa Cruz ********************
Dividends **************************************************************
Dividends expired*******************************************************
Balance at 31 December 2003 *******************************************
Fair value gains on available-for-sale financial assets **********************
Translation adjustment for the year **************************************
Net income recognised directly in equity *********************************
Profit for the year ******************************************************
Total recognised income for 2004 ****************************************
Purchase of shares from minority shareholders****************************
Capital contribution*****************************************************
Dividends paid**********************************************************
Balance at 31 December 2004 *******************************************
Fair value gains on available-for-sale financial assets **********************
Translation adjustment for the year **************************************
Net income recognised directly in equity *********************************
Profit for the year ******************************************************
Total recognised income for 2005 ****************************************
Purchase of shares from minority shareholders****************************
Capital contribution of minority interest *********************************

COMBINED STATEMENT OF CHANGES IN EQUITY

139
26

17

26

17

26

17

Note

9,166

9,166

21

9,187

Equity share
capital
(including
additional
capital)

(1,461)
1,692

1,692

1,692

231
6,542

6,542

6,542

6,773
4,492

4,492

4,492

Unrealised
gain/(loss) on
available-for-sale
financial assets
Total
Other
reserves

46
46

46

46

(231)
(231)

(231)

(185)

726
726

726

(1,461)
1,692
46
1,738

1,738

277
6,542
(231)
6,311

6,311

6,588
4,492
726
5,218

5,218

(in thousands of US dollars)

Cumulative
translation
adjustment

(14,308)

11,900
11,900
(3,106)

(4,200)
22
(9,692)

13,500
13,500
(996)

(18,722)
(15,910)

46,737
46,737
(2,444)

Retained
earnings

3,384

312
312
(1,761)
(1,449)
(1,821)
1,762
601

5
2,482

27
27
(4,285)
(4,258)
(57)

(1,833)

147
147
(3,853)
(3,706)
(223)
3,229

Minority
interest

(3,219)
1,692
358
2,050
10,139
12,189
(4,927)
1,762
601
(4,200)
27
2,233
6,542
(204)
6,338
9,215
15,553
(1,053)
21
(18,722)
(1,968)
4,492
873
5,365
42,884
48,249
(2,667)
3,229

Total
Equity

Part IXIFRS historical financial information

Balance at 31 December 2004 *******************************************

Fair value gains on available-for-sale financial assets (unaudited) **********
Translation adjustment for the period (unaudited) ************************
Net income recognised directly in equity (unaudited)**********************
Profit for the period (unaudited) ****************************************
Total recognised income for June 2005 (unaudited) ***********************
Purchase of shares from minority shareholders (unaudited) ****************
Capital contribution from minority interest (unaudited) *******************
Balance at 30 June 2005 (unaudited) *************************************

Balance at 31 December 2005 *******************************************

Fair value gains on available -for- sale financial assets *********************
Translation adjustment for the period ************************************
Net income recognised directly in equity *********************************
Profit for the period ****************************************************
Sale of available -for- sale financial assets ********************************
Total recognised income for the six-month period ended 30 June 2006 *****
Dividends paid**********************************************************
Capital contribution from minority interest *******************************
Repayment of capital ***************************************************
Balance at 30 June 2006*************************************************

COMBINED STATEMENT OF CHANGES IN EQUITY (continued)

17

Note

9,187

9,187

9,187

9,187

Equity share
capital
(including
additional
capital)

6,773
3,794

3,794

3,794

10,567

11,265
13,023

13,023

(22,844)
1,444

1,444

Unrealised
gain/(loss) on
available-for-sale
financial assets
Total
Other
reserves

(185)

(589)
(589)

(589)

(774)

541

(289)
(289)

(289)

252
6,588
3,794
(589)
3,205

3,205

9,793

11,806
13,023
(289)
12,734

(22,844)
(10,110)

1,696

(in thousands of US dollars)

Cumulative
translation
adjustment

(15,910)

27,744
27,744
(1,218)

10,616

28,383

24,198

24,198
(53,142)

(561)

Retained
earnings

(1,833)

(5,511)
(5,511)
(661)
2,454
(5,551)

(2,533)

376
376
(1,630)

(1,254)
(298)
915
(671)
(3,841)

Minority
interest

(1,968)
3,794
(589)
3,205
22,233
25,438
(1,879)
2,454
24,045

46,843
13,023
87
13,110
22,568
(22,844)
12,834
(53,440)
915
(671)
6,481

Total
Equity

Part IXIFRS historical financial information

140

Part IXIFRS historical financial information

NOTES TO THE COMBINED FINANCIAL INFORMATION
1 CORPORATE INFORMATION
Hochschild Mining plc (hereinafter the Company) is a public limited company incorporated on
11 April 2006 under the Companies Act 1985 and registered in England and Wales with registered
number 05777693. The Companys registered address is One Silk Street, London EC2Y 8HQ, United
Kingdom. As of 30 June 2006 Hochschild Mining plc was a company incorporated to serve as the
holding company for the purposes of listing on the London Stock Exchange. The Company
acquired its interest in the companies constituting the Hochschild Mining Group pursuant to a
share exchange agreement (Share Exchange Agreement) dated 2 November 2006.
The ultimate controlling party of the Company is Mr. Eduardo Hochschild whose beneficial
interest in the Company and its subsidiaries (together the Group or Hochschild Mining Group)
is held through Pelham Investment Corporation.
The Groups principal business is the mining, processing and sale of silver and gold. The Group has
three fully developed operating mines (Ares, Arcata and Selene) located in Southern Peru. The
Group also has a portfolio of projects located across Peru, Mexico and Argentina at various stages
of development.
The principal activities of the Companys subsidiaries are as follows:
Equity interest
at 31 December
Company

Principal activity

Country of
incorporation

2003

2004

at 30 June

2005

Unaudited
2005

2006

Lorenzon Limited *****

Larchmont
Corporation ********
Garrison Corporation
Ardsley Corporation **
Ludlow Corporation **
Port Chester Ltd. *****
San Jose International
Ltd. ***************
a Minera
Compan
S.A.C. ********
Sipan
a Minera Ares
Compan
S.A.C. **************
a Minera
Compan
Arcata S.A. ********
Mauricio Hochschild &
Ca. Ltda. S.A.C.
(MHC) *************
a Minera
Compan
Corianta S.A. *******
Minera Colorada
S.A.C. **************
Empresa de
Electrica

Transmision
Callalli S.A.C. *******
Sumac
Asociacion
Tarpuy (**) *********
a Minera
Compan
Coriorco S.A. *******
MH Argentina S.A. ***
Minera MH Chile
Ltda. **************
Minera Hochschild,
Mexico S.A. de C.V.

Holding company

Cayman Islands

100

100

100

100

100

Holding
Holding
Holding
Holding
Holding

Cayman
Cayman
Cayman
Cayman
Cayman

100
100
100
100
100

100
100
100
100
100

100
100
100
100
100

100
100
100
100
100

100
100
100
100
100

company
company
company
company
company

Islands
Islands
Islands
Islands
Islands

Dormant

Cayman Islands

Production of gold and silver

Peru

100

100

100

100

100

Production of gold and silver

Peru

100

100

100

100

100

Production of gold and silver

Peru

82.5

86.5

96.8

96.8

96.8

Services

Peru

100

100

100

100

Exploration office

Peru

100

100

Exploration office

Peru

(*)

(*)

30

Power transmission

Peru

Not-for-profit

Peru

Dormant (until June 2006)

Exploration Office

Peru
Argentina

Exploration Office

Chile

Exploration Office

Mexico

141

(*)

(*)
100
(*)
100
100
(*)
100

(*)

(*)
100
(*)

(*)

100
(*)

(*)

100
(*)

51

100

100
100

100
100

100
100

100
100

100

100

100

100

100

100

100

100

Part IXIFRS historical financial information

1 CORPORATE INFORMATION (continued)
Equity interest
at 31 December
Company

Principal activity

Country of
incorporation

2003

2004

at 30 June

2005

Unaudited
2005

2006

MH Nevada, Inc.
(renamed Hochschild
Mining (US) Inc.)****
Minera Santa Cruz
S.A. ***************

Exploration Office

USA

(*)

100

100

100

100

Production of gold and silver

in a development stage

Argentina

51

51

51

51

51

Note:
(*) Not incorporated
Minera Ares S.A.C., and donates this
(**) Sumac Tarpuy is an unincorporated entity which receives donations from Compania
Minera Ares S.A.C. As a result, the Group consolidates this entity.
money to charitable activities at the direction of Compania

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation
On 2 November 2006 Hochschild Mining plc entered into an agreement to acquire Lorenzon
Corporation, Larchmont Corporation, Garrison Corporation, Ardsley Corporation, Ludlow
Corporation and Port Chester Ltd. (together referred to as the Cayman Holding Companies).
Accordingly the financial information, which has been prepared specifically for the purpose of the
prospectus, is prepared on a basis that combines the results and assets and liabilities of the
Company, Cayman Holding Companies and the companies which they in aggregate control for
each of the three years to 31 December 2003, 2004, 2005 and six months to 30 June 2006 and as at
those dates. Comparative statements representing the six months to 30 June 2005 have also been
included, except that the comparative balance sheet is represented by the balance sheet at
31 December 2005. Internal transactions within the Group have been eliminated on combination.
The combined financial information is prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted for use in the European Union (EU) except in respect of the
following matters:
) The combined financial information does not comply with IAS 27 Consolidated and Separate
Financial Statements because, as explained above, prior to 2 November 2006 the Company
did not control the Cayman Holding Companies and consequently the Company is not
permitted by IAS 27 to present consolidated financial information. The financial information
has therefore been prepared on a combined basis by applying the principles underlying the
consolidation procedures of IAS 27;
) As the financial information has been prepared on a combined basis the Company is unable to
measure earnings per share. Accordingly, the requirement of IAS 33 Earnings per Share to
disclose earnings per share has not been complied with; and
) The combined financial information does not constitute a set of general purpose financial
statements under paragraph 3 of IAS 1 and consequently the Company does not make an
explicit and unreserved statement of compliance with IFRS as contemplated by paragraph 14 of
IAS 1. A company is only permitted to apply the first-time adoption rules of IFRS 1 in its first set
of financial statements where such an unreserved statement of compliance has been made.
Although such a statement has not been made here the combined financial information has
been prepared as if the date of transition to IFRS is 1 January 2003, the beginning of the first
period presented, and the requirements of IFRS 1 have been applied as of that date.
The basis of preparation and accounting policies used in preparing the combined financial
information for the years ended 31 December 2003, 2004 and 2005 and for the six-month periods
ended 30 June 2005 and 2006 are set out below. These accounting policies have been consistently
applied to all the periods presented unless otherwise stated.
142

Part IXIFRS historical financial information

2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(a) Basis of preparation (continued)
The combined financial information has been prepared on a historical cost basis, except for
certain classes of property, plant and equipment which have been re-valued at 1 January 2003 to
determine deemed cost as part of the First-Time Adoption of IFRS at that date, and derivatives and
available-for-sale financial instruments which have been measured at fair value. The combined
financial information is presented in US dollars ($) and all monetary amounts are rounded to the
nearest thousand ($000) except when otherwise indicated.
As explained above, the Groups deemed transition date to IFRS is 1 January 2003. The rules for
first-time adoption of IFRS are set out in IFRS 1, first-time adoption of International Financial
Reporting Standards. In preparing subsequent consolidated financial statements in accordance
with IFRS, the date of transition, as determined in accordance with IFRS 1, may not be 1 January
2003 and therefore the first-time adoption rules may be applied at a date other than 1 January
2003 with a consequential impact on the opening IFRS balance sheet.
IFRS 1 allows certain exemptions in the application of particular Standards to prior periods in
order to assist companies with the transition process. The Group has applied the following
exemptions: i) Certain classes of tangible assets have been re-valued at 1 January 2003 to
determine the opening balance; ii) The Group has deemed cumulative translation differences for
foreign operations to be zero at the date of transition; any gains and losses or subsequent
disposals of foreign operations will not therefore include translation differences arising prior to
the transition date; and iii) IFRS 3 is applied as from 1 January 2001 and not retrospectively to past
business combinations.
Early Adoption of Standards
Except as set out above, the financial information for all periods in this report has been prepared
in accordance with IFRS, interpretations and amendments that are effective at 30 June 2006. The
following have been early adopted for all periods:
(i)

IAS 1 Presentation of Financial Statements, effective as from 1 January 2005;

(ii)

IAS 10 Events after the balance sheet date, effective as from 1 January 2005;

(iii)

IAS 16 Property, Plant and Equipment, effective as from 1 January 2005;

(iv)

IAS 21 The effects of Changes in Foreign Exchange rates, effective as from 1 January 2005;

(v)

IAS 24 Related Party Disclosure, effective as from 1 January 2005;

(vi)

IAS 32 Financial Instruments: Disclosure and Presentation, effective as from 1 January 2005;

(vii) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, effective as from
1 January 2005;
(viii) IAS 39 Financial Instruments: Recognition and Measurement and IAS 32, Financial
Instruments: Disclosure and Presentation, effective as from 1 January 2006;
(ix)

IFRS 6 Exploration for and Evaluation of Mineral Resources, effective as from 1 January
2006;

(x)

Amendments to IAS 39 Financial Instruments: Recognition and Measurement, The Fair

Value Option, effective as from 1 January 2006;

(xi)

IFRIC 4 Determining whether an Arrangement contains a Lease, effective as from 1 January

2006;

(xii) IFRIC 9 Reassessment of Embedded Derivatives, effective as from 1 June 2006; and
(xiii) Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards
and IFRS 6 Exploration for and Evaluation of Mineral Resources, effective as from 1 January
2006.
143

Part IXIFRS historical financial information

2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Standards, interpretations and amendments to published standards that are not yet
effective
Certain new standards, amendments and interpretations to existing standards have been
published and are mandatory for the Groups accounting periods beginning on or after 1 July
2006 or later periods but which the Group has not early adopted. Those that are applicable to the
Group are as follows:
IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1,
Presentation of Financial StatementsCapital Disclosures (effective from 1 January 2007). IFRS 7
introduces new disclosures to improve the information about financial instruments. It replaces
disclosure requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The
amendment to IAS 1 introduces disclosures about the level of an entitys capital and how it
manages capital.
The Company will apply IFRS 7 and the amendment to IAS 1 for annual periods beginning
1 January 2007. The application of these standards will impact disclosures only.
(c) Judgments in applying accounting policies and key sources of estimation uncertainty
Many of the amounts included in the financial information involve the use of judgment and/or
estimation. These judgments and estimates are based on managements best knowledge of the
relevant facts and circumstances, having regard to prior experience, but actual results may differ
from the amounts included in the financial information. Information about such judgments and
estimation is contained in the accounting policies and/or the Notes to the financial information.
The key areas are summarised below.
Significant areas of estimation uncertainty and critical judgments made by management in
preparing the combined financial include:
Determination of functional currenciesnote 2(e);
Determination of useful lives of assets for depreciation and amortisation purposesnote 2(f);
Determination of ore reservesnote 2(g);
Review of asset carrying values and impairment chargesnote 2(j);
Estimation of the amount and timing of mine closure costsnote 2(m) and note 25;
Income taxnote 14 and note 27; and
Contingent liabilities regarding claims from tax authoritiesnote 33.
(d) Basis of combination
The combined financial information sets out the Groups financial position as of 31 December
2003, 2004 and 2005 and operations and cash flow for the three years then ended, and as of
30 June 2005 and 2006 and for the six-months period then ended.
Subsidiaries are those enterprises controlled by the Group regardless of the amount of shares
owned by the Group. Control exists when the Group has the power, directly or indirectly, to
govern the financial and operating policies of an enterprise so as to obtain benefits from its
activities. Subsidiaries are combined from the date on which control is transferred to the Group
and cease to be combined from the date on which control is transferred out of the Group. The
purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
On acquisition of a subsidiary, the purchase consideration is allocated to the assets and liabilities
on the basis of their fair value at the date of acquisition. The excess cost of acquisition over the
144

Part IXIFRS historical financial information

2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of combination (continued)
fair value of the Groups share of the identifiable net assets acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of net assets of the entity acquired, the difference
is recognised directly in the income statement.
The financial statements of subsidiaries are prepared for the same reporting periods as the
Company using consistent accounting policies. All intercompany balances and transactions,
including unrealised profits arising from intra-Group transactions, have been eliminated on
combination. Unrealised losses are eliminated in the same way as unrealised gains except that
they are only eliminated to the extent that there is no evidence of impairment.
a Minera
Minority shareholders primarily represent the interests in Minera Santa Cruz, Compan
Arcata and Minera Colorada not held by the Company. In the event of a purchase of minority
shareholders interest when the Group holds the majority of shares of a subsidiary, any excess over
the Groups share of net assets is recorded in Retained earnings in Equity.
(e) Currency translation
The functional currency for each entity in the Group is determined by the currency of the primary
economic environment in which it operates. For the operating entities it is US dollars and for the
other entities it is the local currency of the country in which it operates. The Groups financial
information is presented in US dollars, which is the Companys functional currency.
Transactions denominated in currencies other than the functional currency of the entity are
initially recorded in the functional currency using the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are remeasured at
the rate of exchange ruling at the balance sheet date. Exchange gains and losses on settlement of
foreign currency transactions which are translated at the rate prevailing at the date of the
transactions, or on the translation of monetary assets and liabilities which are translated at
period-end exchange rates, are taken to the income statement. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at historical cost are translated to the
functional currency at the foreign exchange rate prevailing at the date of the transaction.
Exchange differences arising from monetary items that are part of a net investment in a foreign
operation are recognised in equity and transferred to income on disposal of such net investment.
Subsidiary financial statements expressed in their corresponding functional currencies are
translated into US dollars by applying the exchange rate at period-end for assets and liabilities
and the average exchange rate for income statements items. The resulting difference on exchange
is included as cumulative translation adjustment in equity.
(f) Property, plant and equipment
Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and
impairment losses. Cost comprises its purchase price and any costs directly attributable to bringing
it into working condition for its intended use. The cost of self-constructed assets includes the cost
of materials, direct labour and an appropriate proportion of production overheads. The cost or
deemed cost of property, plant and equipment (hereafter referred to as cost) at 1 January 2003,
the date of the Group transition to IFRS, was determined by reference to its depreciated
replacement cost at that date in accordance with IFRS 1.
The cost less its residual value of each item of property, plant and equipment is depreciated over
its useful life. Each items estimated useful life has been assessed with regard to both its own
physical life limitations and the present assessment of economically recoverable reserves of the
mine property at which the item is located. Estimates of remaining useful lives are made on a
145

Part IXIFRS historical financial information

(f) Property, plant and equipment (continued)
regular basis for all mine buildings, machinery and equipment, with annual reassessments for
major items. Depreciation is charged to cost of production on a unit of production (UOP) basis for
mine buildings and installations, plant and equipment used in the mining production process or
charged directly to the income statement over the estimated useful life of the individual asset on
a straight-line basis when not related to the mining production process. Changes in estimates,
which mainly affect unit of production calculations, are accounted for prospectively. Depreciation
commences when assets are available for use. Land is not depreciated.
Non-current assets or disposal groups are classified as held for sale when it is expected that the
carrying amount of the asset will be recovered principally through sale rather than through
continuing use. Assets are not depreciated when classified as held for sale.
The expected useful lives are as follows:
Years

Buildings ***********************************************************************************************
Plant and equipment ************************************************************************************
Furniture, fixtures and fittings ***************************************************************************
Vehicles ************************************************************************************************

5
1
5
2

to
to
to
to

10
10
10
10

Borrowing costs are not capitalised and are expensed.

Mineral properties and mine development costs
Payments for mineral properties are expensed during the exploration phase of a project and
capitalised during their development phase when incurred. Costs associated with developments
are capitalised.
Mine development costs are, upon commencement of production, depreciated using the unit of
production method based on the estimated economically recoverable reserves and resources to
which they relate.
Construction in progress
Assets in the course of construction are capitalised as a separate component of property, plant
and equipment. On completion, the cost of construction is transferred to the appropriate
category. Construction in progress is not depreciated.
Subsequent expenditures
Expenditures incurred to replace a component of an item of property, plant and equipment is
capitalised separately with the carrying amount of the component being written-off. Other
subsequent expenditure is capitalised if future economic benefits will arise from the expenditure.
All other expenditure including repairs and maintenance expenditures are recognised in the
income statement as incurred.
(g) Determination of ore reserves
The Group estimates its ore reserves and mineral resources based on information compiled by
internal competent persons. Reports to support these estimates are prepared each year. For the
purposes of the Global Offer, an independent competent person has verified the reasonableness
of these reports as at 30 June 2006.
Reserves and resources are used in the units of production calculation for depreciation as well as
the determination of the timing of mine closure cost and impairment analysis.
146

Part IXIFRS historical financial information

(g) Determination of ore reserves (continued)
There are numerous uncertainties inherent in estimating ore reserves. Assumptions that are valid
at the time of estimation may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates
may change the economic status of reserves and may, ultimately, result in the reserves being
restated.
(h) Non-current assets held for sale
Non-current assets are classified as assets held for sale and stated at the lower of carrying amount
and fair value less cost to sell if their carrying amount is to be recovered principally through a sale
transaction rather than through a continuing use.
(i) Intangible assets
Goodwill is included in intangible assets and represents the excess of the cost of an acquisition
over the fair value of the Groups share of the net identifiable assets of the acquired entity at the
date of acquisition. Separately recognised goodwill is tested annually for impairment and carried
at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units that are expected to benefit from business
combination in which the goodwill arose.
(j) Impairment of non-financial assets
The carrying amounts of fixed assets are reviewed for impairment if events or changes in
circumstances indicate that the carrying value may not be recoverable. If there are indicators of
impairment, an exercise is undertaken to determine whether the carrying values are in excess of
their recoverable amount. Such review is undertaken on an asset by asset basis, except where such
assets do not generate cash flows independent of other assets, and then the review is undertaken
at the cash generating unit level.
If the carrying amount of an asset or its cash generating unit exceeds the recoverable amount, a
provision is recorded to reflect the asset at the lower amount. Impairment losses are recognised in
the income statement.
Calculation of recoverable amount
The recoverable amount of assets is the greater of their value in use and fair value less costs to sell.
Fair value is based on an estimate of the amount that the Group may obtain in a sale transaction
on arms length basis. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discounted rate that reflects current market assessments of the
time value of money and the risks specific to the asset. For an asset that does not generate cash
inflows largely independent of those from other assets, the recoverable amount is determined for
the cash generating unit to which the asset belongs. The Groups cash generating units are the
smallest identifiable groups of assets that generate cash inflows that are largely independent of
the cash inflows from other assets or groups of assets.
Reversal of impairment
An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the assets carrying
amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
147

Part IXIFRS historical financial information

(k) Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is determined using the
weighted average cost method. The cost of work in progress and finished goods (ore inventories)
is based on cost of production and excludes borrowing costs.
For this purpose, the costs of production include:
labour costs, materials and contractor expenses which are directly attributable to the
extraction and processing of ore;
the depreciation of property, plant and equipment used in the extraction and processing of
ore; and
related production overheads (based on normal operating capacity).
(l) Trade and other receivables
Current trade receivables are carried at the original invoice amount less provision made for
impairment of these receivables. Long-term receivables are stated at amortised cost. A provision
for impairment of trade receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms of the receivable which
in average do not exceed 30 days. The amount of the provision is the difference between the
carrying amount and the recoverable amount and this difference is recognised in the income
statement.
(m) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. If the effect of
the time value of money is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and, where appropriate, the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognised as a finance cost.
Mine closure cost
Provision for mine closure cost is made in respect of the estimated future costs of closure and
restoration and for environmental rehabilitation costs (which include the dismantling and
demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in
the accounting period when the related environmental disturbance occurs. The provision is
discounted and the unwinding of the discount is included in finance costs. At the time of
establishing the provision, a corresponding asset is capitalised where it gives rise to a future
benefit and depreciated over future production from the mine to which it relates. The provision is
reviewed on an annual basis for changes in cost estimates, discount rates or life of operations.
Workers profit sharing and other employee benefits
In accordance to Peruvian Legislation, Group companies in Peru must provide for workers profit
sharing equivalent to 8 per cent. of taxable income of each year. This amount is charged to the
Income statement and is considered deductible for income tax purposes. The Company has no
pension or retirement benefit schemes.
148

Part IXIFRS historical financial information

(m) Provisions (continued)
Other
Other provisions are accounted for when the Group has a legal or constructive obligation for
which it is probable there will be an outflow of resources for which the amount can be reliably
estimated.
(n) Contingencies
Contingent liabilities are recognised in the financial information and are disclosed in notes to the
financial information unless their occurrence is remote.
Contingent assets are not recognised in the financial information, but they are disclosed in notes
if they are deemed probable.
(o) Revenue recognition
The Group is involved in production and sales of dore bars and concentrates containing both gold
and silver. Concentrate is sold directly to customers. Dore bars are sent to a third party for further
refining into gold and silver which is then sold.
Revenue is recognised to the extent that it is probable that economic benefits will flow to the
Group and the revenue can be reliably measured.
Revenue associated with the sale of concentrate and dore bars is recognised in the income
statement when all significant risks and rewards of ownership are transferred to the customer,
usually when title has passed to customer. Revenue excludes any applicable sales taxes.
The revenue is subject to adjustment based on inspection of the product by the customer.
Revenue is initially recognised on a provisional basis using the Groups best estimate of contained
gold and silver. Any subsequent adjustments to the initial estimate of metal content are recorded
in revenue once they have been determined.
In addition, sales of concentrate are provisionally priced where the selling price is subject to
final adjustment at the end of a period normally ranging from 30 to 90 days after the start of the
delivery process to the customer, based on the market price at the relevant quotation point
stipulated in the contract. Revenue is initially recognised when the conditions set out above have
been met, using market prices at that date. The price exposure is considered to be an embedded
derivative and hence separated from the sales contract at each reporting date the provisionally
priced metal is revalued based on the forward selling price for the quotational period stipulated
in the contract until the quotational period ends. The selling price of gold and silver can be
measured reliably as these metals are actively traded on the international exchanges. The
revaluing of provisionally priced contracts is recorded as an adjustment to other expenses /income.
Income from services provided to related parties (note 30) is recognised in income when services
are provided.
(p) Exploration and evaluation expenditure
Exploration and evaluation expenditure for each area of interest is charged to the income
statement as incurred. Administrative and general expenses relating to exploration and
evaluation activities are also expensed as incurred.
(q) Finance income and costs
Financial income and expenses comprise interest expense on borrowings, the accumulation of
interest on provisions, interest income on funds invested, foreign exchange gains and losses, gains
149

Part IXIFRS historical financial information

(q) Finance income and costs(Continued)
and losses from the change in fair value of derivative instruments and gains and losses on the
disposal of available-for-sale investments.
Interest income is recognised as it accrues, taking into account the effective yield on the asset.
(r) Income tax
Income tax for the year comprises current and deferred tax. Income tax is recognised in the
income statement except to the extent that it relates to items charged or credited directly to
equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the taxable income for the year, using tax
rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is provided using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled based on the tax rates (and tax laws) that
have been enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits
will be available against which the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be realised.
Tax on dividend remittance, where applicable, is provided in the year in which distributable
income is generated.
(s) Financial instruments
(i) Recognition
The Company recognises financial assets and liabilities on its balance sheet when, and only when,
it becomes a party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when
there is a legally enforceable right to set off the recognised amounts and there is an intention to
settle on a net basis, or realise the asset and settle the liability simultaneously.
(ii) Measurement
Financial assets and liabilities are initially recognised at cost, which is the fair value of
consideration given or received, respectively, including, or net of, any transaction costs incurred.
In determining estimated fair value, investments in shares or portfolios of listed securities are
valued at quoted bid prices. When quoted prices on an active market are not available (and for
listed non-actively traded securities), fair value is determined using a valuation technique.
Valuation techniques include using recent arms length transactions, if available, reference to the
current fair value of another instrument that is substantially the same, discounted cash flow
analysis and option pricing models. If the range of reasonable fair value is significant and the
probabilities of the various estimates can not be reliably assessed, the investment is not
remeasured at fair value. Investments in warrants are recorded based on an assessment performed
by a third party expert using a Black-Scholes option pricing model.
150

Part IXIFRS historical financial information

(s) Financial instruments (continued)
The Group has classified its investments as available-for-sale assets or other financial assets at fair
value through profit and loss in accordance with the intent of management at the time of the
purchase.
Changes in fair value of investments classified as available-for-sale are recognised in equity, except
for impairment loss and foreign exchange gain and losses for monetary items which are
recognised directly in income statement, and are included in income when realised. Changes in
the fair value of financial assets at fair value through profit and loss are recognised directly in the
income statement.
Loans and receivables are loans and receivables created by the Group companies providing money
or goods to a debtor. Loans and receivables are initially recognised in accordance with the policy
stated above and subsequently remeasured at amortised cost using the effective interest method.
Financial liabilities are initially recognised in accordance with the policy stated above and
subsequently remeasured at amortised cost using the effective interest method.
Derivatives futures are initially recognised at fair value. Any gains and losses arising from changes
in fair value are recognised immediately in the income statement in the period in which they
occur.
Trading derivatives are classified as a current asset or liability. The full fair value of the derivatives
is classified as a non-current asset or liability if the remaining maturity of the hedged item is more
than 12 months and as a current asset or liability, if the maturity of the hedged item is less than
12 months. Changes in fair value of trading derivatives are included in the income statement.
(iii) Embedded derivatives
Embedded derivatives which are not clearly and closely related to the underlying assets, liability or
transaction are separated and accounted for as stand alone derivatives.
(iv) De-recognition
Financial instruments are de-recognised when the Group transfers all risks and rewards of
ownership.
(t) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the balance
sheet, cash and cash equivalents comprise cash on hand and deposits held with banks that are
readily convertible into known amounts of cash and which are subject to insignificant risk of
changes in value. For the purposes of the cash flow statement, cash and cash equivalents as
defined above are shown net of outstanding bank overdrafts.
3 SEGMENT REPORTING
The Groups activities are principally related to mining operations which involve the production
and sale of gold and silver. Products are subject to the same risks and returns and are sold through
the same distribution channels. The Group has a number of activities that exist solely to support
mining operations including power generation and services. As such, the Group has only one
business segment as its primary reporting segment. The Group operates in various countries
including Peru, Argentina, Mexico, Chile and the United States of America. Therefore the
geographical segment is the Groups secondary reporting format.
151

Part IXIFRS historical financial information

3 SEGMENT REPORTING (continued)
(a) Revenue
Revenue for the year/period is allocated based on the country in which the customer is located.
There are no inter-segment revenues.
Six-month period
ended 30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

30,485
18,162
12,577
4,541
14

27,724
39,007
25,163
351
41

65,779

92,286

US$(000)

United Kingdom********************************************** 80,561

Mexico******************************************************* 10,137
USA *********************************************************

Canada ******************************************************
8
Peru ********************************************************* 3,474
Japan ********************************************************
2
Germany *****************************************************
(411)
93,771

83,621
32,492
7,505
23,747
1,679
10,008

60,857
44,990
30,476
15,037
50
(91)

159,052

151,319

The negative figures result from adjustments to revenue as a consequence of differences between
the amount of gold and silver included in a final invoice and in the provisional invoice issued in
the previous year.
(b) Profit for the year
The Group has no inter-segment transactions. Profit for year/period is based on country of
operation as follows:
Six-month period
ended 30 June

Year ended 31 December

2003

2004

Unaudited
2005

2005

2006

US$(000)

Peru*********************************************************** 15,548
Cayman Islands ************************************************ (1,647)
Argentina ***************************************************** (2,832)
Mexico ********************************************************
(930)
Chile **********************************************************

USA ***********************************************************

10,139

21,781
(180)
(9,776)
(1,881)
(326)
(403)

57,852
321
(9,135)
(3,647)
(1,492)
(1,015)

38,362
(10)
(12,660)
(2,212)
(583)
(664)

31,170
(2,567)
(3,879)
(1,211)
(659)
(286)

9,215

42,884

22,233

22,568

(c) Total segment assets

Total segment assets, which exclude income tax assets, are allocated based on where the assets are
located:
As of 31 December
2003

2004

As of 30 June
2005

2006

US$(000)

Peru *************************************************************** 125,498

Cayman Islands ***************************************************** 30,013
Argentina **********************************************************
5,363
Mexico *************************************************************
374
Chile ***************************************************************

USA****************************************************************

144,619
36,399
6,710
175
116
57

164,120
38,341
15,794
590
59
98

104,518
80,390
26,028
2,209
243
221

Total segment assets ************************************************ 161,248

Deferred income tax assets ******************************************
1,079
Other income tax assets *********************************************
2,755

158,076
2,794
3,657

219,002
10,990
1,059

213,609
14,880
1,227

Total assets ********************************************************* 165,082

194,527

231,501

229,716

152

Part IXIFRS historical financial information

3 SEGMENT REPORTING (continued)
(d) Capital expenditure
Capital expenditure is allocated based on where the assets are located:
Six-month
period ended
30 June

Year ended 31 December

2003

2004

2005
US$(000)

2006

Peru******************************************************************* 18,572
Argentina *************************************************************
228
Mexico ****************************************************************
20
Chile ******************************************************************

USA *******************************************************************

10,842
1,389
12
7
3

16,960
5,474
52

46

7,373
9,905
62
3
1

18,820

12,253

22,532

17,344

(e) Total segment liabilities

Total segment liabilities, which exclude income tax liabilities, are allocated based on where the
liabilities are located:
As of 31 December
2003

2004

As of 30 June
2005

2006

US$(000)

Peru *************************************************************** 139,371

Cayman Islands ***************************************************** 15,542
Argentina **********************************************************
1,211
Mexico *************************************************************
7
Chile ***************************************************************

USA****************************************************************

160,100
25,239
7,982
14
6

135,254
21,919
18,239
49
84
4

109,595
77,899
24,603
141
96
29

Total segment liabilities ********************************************* 156,131

Deferred income tax liabilities ***************************************
6,509
Income tax payable *************************************************
209

193,341
3,154

175,549
4,134
4,975

212,363
3,097
7,775

Total liabilities ****************************************************** 162,849

196,495

184,658

223,235

(f) Depreciation
Depreciation is allocated based on where the assets are located:
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Peru ************************************************************ 13,968

Argentina *******************************************************
32
Mexico **********************************************************

Chile ************************************************************

USA*************************************************************

22,738
149
20

15,957
629
20

6,418
384
7

7,528
518
13
1
5

14,000

22,907

16,606

6,809

8,065

153

Part IXIFRS historical financial information

3 SEGMENT REPORTING (continued)
(g) Non-cash expenses
Non-cash expenses for the year/period based on country of operation were as follows:
Six month period
ended 30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

US$(000)

Peru ********************************************************

2,181

2,181

4 ACQUISITIONS
On 30 June 2006, the Group acquired a 30 per cent., controlling interest, in Minera Colorada S.A.C.
(Colorada), an exploration company, from Cementos Pacasmayo S.A.A. (Pacasmayo) (a
related party) for US$13,500 in cash, plus US$226,600 paid in July 2006. Colorada is an entity which
was incorporated in August 2005, to explore and develop the concessions of Pampa Colorada I
and Salaverry I to IV in Peru. After the Groups acquisition, the shareholding in Colorada was split
Minera
30 per cent./20 per cent./50 per cent. between the Group, Pacasmayo and Compania
Killacolqui.
Net assets of Colorada at the date of acquisition were as follows:
Book
value

Revaluation
adjustments
US$(000)

Other assets **************************************************************************

Exploration expenditure ***************************************************************

36
244

(244)(a)

Total net assets acquired **************************************************************

Minority interest **********************************************************************

280

(244)

Fair
value

36

36
(25)
11
229

Goodwill arising on acquisition ********************************************************

240
Discharged by:
Cash *********************************************************************************
Deferred consideration ****************************************************************

14
226
240

(a) The exploration expenditure has been assigned a fair value of nil, due to the early stage of exploration.

Colorada also owns an exploration licence. Due to the early stage of exploration, a reliable fair
value of this licence is unable to be estimated, and in accordance with IFRS 3 it has been assigned a
fair value of nil.
5 REVENUE
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Gold (from dore bars)***************************************** 67,941

Silver (from dore bars) **************************************** 12,048
Concentrate ************************************************** 10,170
Services ****************************************************** 3,612

76,608
14,519
66,246
1,679

74,923
16,368
59,978
50

35,737
7,465
22,577

41,000
11,887
39,358
41

93,771

159,052

151,319

65,779

92,286

154

Part IXIFRS historical financial information

5 REVENUE (Continued)
Concentrate is made up of:
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Gold ***********************************************************
Silver **********************************************************
Other minerals *************************************************

2,249
7,921

14,073
51,926
247

13,718
45,841
419

5,276
17,180
121

8,614
30,626
118

Total concentrate *********************************************** 10,170

66,246

59,978

22,577

39,358

246
11,978

231
10,366

110
4,363

103
4,543

The total volumes of gold and silver sold, are as follows:

Total in thousands of ounces:
Gold ***********************************************************
Silver **********************************************************

200
4,603

6 COST OF SALES
This item is made up as follows:
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Mining costs
Contractors ***************************************************** 10,702
Energy ********************************************************* 3,137
Transportation services ****************************************** 1,773
Maintenance**************************************************** 1,253
Rentals *********************************************************
780
Assays **********************************************************
114
Materials ******************************************************* 8,567
Depreciation **************************************************** 11,902
Personnel expenses********************************************** 6,485
Minerals treatment *********************************************
883
Insurance *******************************************************
330
Mining royalty (note 35) *****************************************

Workers profit sharing ******************************************

808
Personnel transportation ****************************************
330
Communications ************************************************
73
Freight *********************************************************
517
Meals and food at mine site *************************************
246
Security*********************************************************
340
Reallocation to administrative expenses***************************
(892)
Reallocation to property, plant and equipment *******************
(565)
Change in products in process and finished goods ***************** (8,243)
Provision for slow moving and obsolescence of supplies ***********
12
Other ********************************************************** 2,962
41,514

155

18,187
4,251
2,041
669
1,054
261
14,909
20,671
6,681
926
441
874
1,134
339
80
815
475
408
(2,203)
(806)
6,514
734
3,837

19,426
4,491
2,151
539
765
302
12,817
14,605
8,096
744
495
1,184
1,388
409
100
943
776
416
(1,141)
(2,015)
1,512
63
5,526

9,497
2,144
1,084
241
241
149
6,475
5,748
3,871
352
223
472
442
192
51
484
133
263
(610)
(937)
(2,736)

3,026

9,529
2,535
1,088
257
296
142
6,009
6,875
4,331
346
307
1,034
1,380
241

421
477
206
(347)
(1,192)
(2,958)

2,728

82,292

73,592

30,805

33,705

PRA1 1.1
PRA3 1.1

Part IXIFRS historical financial information

7 ADMINISTRATIVE EXPENSES
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Personnel expenses *********************************************

Workers profit sharing *****************************************
Sundry administrative services ***********************************
Consulting fees *************************************************
Depreciation ***************************************************
Supplies ********************************************************
Freight *********************************************************
Office rentals ***************************************************
Security ********************************************************
Energy *********************************************************
Termination benefits ********************************************
Indirect taxes ***************************************************
Technology and systems development ****************************
Donations ******************************************************
Other **********************************************************

7,129
1,885
1,357
491
1,923
85

53
279
47
908
84
599
130
1,502

9,304
2,645
1,006
893
2,236
139
252
397
292
45
1,596
495
449
820
2,428

11,147
3,238
1,577
1,464
2,001
163
226
1,114
180
15
406
986
54
101
1,699

4,914
1,032
424
287
1,061
52

498
91
17
357
179

204
1,713

5,193
3,221
865
308
1,190
204

528
114

403
736

477
2,575

16,472

22,997

24,371

10,829

15,814

8 EXPLORATION EXPENSES
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Mine site exploration(1)

Arcata **********************************************************
Ares ************************************************************
Selene **********************************************************
Caylloma ********************************************************
Prospects(2)
Peru ************************************************************
Argentina *******************************************************

4,051
1,310
604
566

2,369
2,222
1,532
1,574

1,335
1,587
1,066

592
768
737

1,100
1,118
77

6,531

7,697

3,988

2,097

2,295

547
191

1,317
4,391

1,391
9,964

526
9,195

134
440

738

5,708

11,355

9,721

574

Generative(3)
Peru ************************************************************
Argentina *******************************************************
Mexico **********************************************************
Chile ************************************************************
USA*************************************************************

224
264
368

264
1,540
1,460
317
50

268
633
3,078
1,164
344

92
320
2,497
419

432
393
930
341

Personnel and other(4) ********************************************

Mining rights(5) **************************************************

856
2,943
754

3,631
4,374
1,653

5,487
6,294
933

3,328
2,585
926

2,096
1,905
784

11,822

23,063

28,057

18,657

7,654

Notes:
(1) Mine site exploration is performed with the purpose of proving mineral reserves, establishing inferred and indicated
resources and identifying potential minerals within an existing mine site, with the goal of maintaining or extending the
mines life.
(2) Prospects expenses are related to detailed geological evaluations to characterise and interpret the three-dimensional
continuity of the geometry, quality and quantity of the ore within a prospect, with the goal of justifying further
evaluation. Geological evidence and interpretations can move the project into a more advanced phase of evaluation with
reserve estimation and economic pre-feasibility by the Project.
(3) Generative expenditure is very early stage exploration expenditure, incurred in connection with identifying and
developing exploration targets with an inferred resource or potential to develop a mining operation.
(4) Expenses relating to personnel involved with exploration including salaries, indirect taxes and travelling costs.

156

Part IXIFRS historical financial information

8 EXPLORATION EXPENSES (continued)
(5) Expenditure relating principally to payments for mining rights in accordance with relevant regulation.

The following table sets forth liabilities (generally payables) incurred in exploration activities of
the Group companies engaged only in exploration. Liabilities related to exploration activities
incurred by Group operating companies are not included since it is not possible to separate the
liabilities related to exploration activities of these companies from their operating liabilities.
Six-month
period ended
30 June

Year ended
31 December
2003

2004

2005

2006

US$(000)

Liabilities related to exploration activities ************************************* 184

2,349

92

142

Cash flows of exploration activities are as follow:

Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

13,692

2,750

US$(000)

Payments ********************************************************* 2,119

11,418

17,420

9 GAIN ON SALE OF ZINC PROJECT AND CORIANTA

In April 2005, the Group sold its Bongara zinc project, to Pacasmayo for US$15,558,000. This postfeasibility project was carried at US$1,000,000. Prior to the feasibility study, the Group had
incurred US$1,900,000 of mine property costs and other expenditures during the exploration
period that had been charged to the income statement as incurred.
a Minera
In connection with this transaction, the Group also disposed of its subsidiary, Compan
Corianta S.A. (Corianta) to Pacasmayo for US$806,000, realising a gain of US$254,000. The assets
held by Corianta, other than the Bongara zinc project, were tax losses and VAT credits.
10 SELLING EXPENSES
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Transportation of dore and concentrates and maritime freight ********* 1,250

Sales commissions ***************************************************
74
Personnel expenses**************************************************
32
Warehouse services**************************************************
28
Other ************************************************************** 410

2,767
346
70
113
584

2,233
276
78
98
476

982
87
39
32
198

893
209
30
55
179

1,794

3,880

3,161

1,338

1,366

157

Part IXIFRS historical financial information

11 PERSONNEL EXPENSES
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Salaries and wages********************************************** 11,417

Semi-annual salary compensation ******************************** 2,394
Other legal contributions**************************************** 1,794
Post-employment benefits ***************************************
915
Vacations ******************************************************
783
Other **********************************************************
169

13,958
1,649
1,446
829
848
423

16,439
3,401
2,429
1,043
1,054
581

7,318
1,483
981
553
565
237

7,299
2,459
1,334
563
632
191

17,472

19,153

24,947

11,137

12,478

Personnel expenses are distributed as follows:

Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Cost of sales****************************************************
Administrative expenses*****************************************
Exploration expenses********************************************
Selling expenses ************************************************
Discontinued operations ****************************************
Other **********************************************************
Average number of employees **********************************

158

6,485
7,129
2,288
32
924
614

6,681
9,304
2,795
70
106
197

8,096
11,147
5,381
78
33
212

3,871
4,914
2,313
39

4,331
5,193
1,783
30

1,141

17,472

19,153

24,947

11,137

12,478

860

1,010

1,155

1,103

1,164

Part IXIFRS historical financial information

12 OTHER INCOME AND OTHER EXPENSES
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Other income:
Income from mine concession(1) *************************************
Cancellation of service agreement(2) *********************************
Rentals************************************************************
Gain on provisional pricing adjustment(3) ****************************
Decrease in provision for mine closure(4) *****************************
Gain on sale of fixed assets*****************************************
Gain on sale of other assets ****************************************
Gain on sale of Corianta *******************************************
Gain on spin-off of Sipan(5) *****************************************
Gain on maintenance of equipment services *************************
Other *************************************************************
Other expenses:
Allowance SEAL/Electroperu (note 33 b) *****************************
Impairment of Sipan assets held for sale ****************************
Increase in provision for mine closure(4) *****************************
Loss on sale of fixed assets and assets classified as held for sale*******
Loss on sale of other assets*****************************************
Loss on sale of investments(6) ***************************************
Loss on sale of MHC (subsidiary)(7) **********************************
Loss on maintenance of equipment services *************************
Write-off of fixed assets********************************************
Other *************************************************************

2,148

412
1,624

139

1,134

499
1,278
2,579
510

187

784
182
1,062

77
9,916
725

254

2,044

30
1,920
331

254

664

36
8,527
1,024
172

736

5,457

7,081

13,016

3,199

10,495

(1,199)
(28)

(184)
(1,525)

(760)
(2,181)
(1,170)
(26)

(923)
(2,335)

(920)

(197)
(5)

(356)

(1,343)

(698)

(113)

(65)

(404)

(58)

(65)
(2,249)
(991)
(14)

(1,259)

(2,936)

(7,395)

(2,821)

(1,280)

(4,636)

Notes:
(1) On 6 March 2000 the Group sold Huaron, a mining company, to Pan American Silver. Part of the sales consideration
included a royalty stream to be paid to the Group on each metric ton of ore recovered from Huaron mine in excess of
4.3 million metric tons. During 2003, Pan American Silver paid the Group $2,148,000 as final settlement of any future
obligation arising as a result of this royalty agreement.
(2) Mauricio Hochschild & Cia Ltda (MHC) had an agreement with Cementos Pacasmayo, a related company, to provide
administrative services beginning in July 2003. This agreement was cancelled in 2004, resulting in Cementos Pacasmayo
paying MHC a cancellation fee of $499,000.
(3) Sales of concentrates are provisionally priced at the time the sale is recorded. The price is then adjusted after an
agreed period of time (usually linked to the length of time it takes the smelter to refine and sell the concentrate), with the
Group either paying or receiving the difference between the provisional price and the final price.
This price exposure is considered to be an embedded derivative in accordance with IAS 39 Financial Instruments:
Recognition and Measurement. This gain or loss that arises on the mark to market of this embedded derivative is recorded
in Other Income or Other Expenses.
(4) The increase in the provision for mine closure is recognised in Other Expenses where the corresponding mine closure
asset has been fully depreciated in prior years or where the mine has not yet reached the feasibility stage.
Decreases in mine closure provisions are recorded in Other Income where the disturbance is not expected to create a
future economic benefit (normally this will occur when the mine to which the provision relates has fully depleted its
resources, but the closure and rehabilitation costs are yet to be incurred, and there is a reduction in the estimate of the
total mine closure cost).
a Minera Sipan
S.A.C. (Sipan)

(5) On 2 November 2004, certain assets and liabilities of Compan

with a carrying value
were sold to Inmobiliaria CNP (Inmobiliaria) (a related party). As consideration, the Group received shares in Inmobiliaria
with a value of US$242,000, realising a gain of US$784,000.
The book value of the individual assets and liabilities disposed of are as follows:
US$000

Property, Plant and Equipment (net book value)************************************************************

Loans payable ********************************************************************************************
Deferred tax liability**************************************************************************************

5,136
(4,139)
(1,540)

Book value of net liabilities disposed **********************************************************************

(543)

(6) During the six months ended 30 June 2006 the Group disposed of 16,585,047 shares in Inversiones Pacasmayo (refer to
note 17) for US$6,350,000 to Greystone Corporation (a related party). These shares were carried at US$21,135,000

159

Part IXIFRS historical financial information

12 OTHER INCOME AND OTHER EXPENSES (continued)
including an unrealised fair value gain of US$12,534,000 which had been recorded in equity. The disposal of these shares,
after recycling the unrealised gain through the income statement, resulted in a loss of US$2,249,000.
(7) On 15 June 2006, the Groups wholly owned subsidiary, Mauricio Hochschild & Ca. Ltda. S.A.C. (MHC), was sold to
Greystone Corporation (a related party) for US$1,000,000, plus the benefit of a US$2,801,000 loan payable by MHC to
Ardsley Corporation (a subsidiary of the Group) which had previously been eliminated on combination, resulting in total
consideration of US$3,801,000. This disposal resulted in a loss to the Group of US$991,000.
The book value of the individual assets and liabilities disposed of are as follows:
US$000
(a)

Available for sale financial assets carried at fair value

****************************************************

Less: Unrealised fair value gain on assets recorded in equity************************************************

15,077
(10,310)

Other assets*********************************************************************************************

344

Other liabilities(b) ****************************************************************************************

(319)

Net book value of assets and liabilities disposed **********************************************************

4,792

(a) The Available for sale financial assets disposed of represented a portion of the Groups 13.9% investment in Inversiones
Pacasmayo (refer to note 17).
(b) Does not include the US$2,801,000 loan payable by MHC to Ardsley Corporation as this loan eliminated on
combination and therefore the disposal of this loan does not impact the liabilities of the combined balance sheet of the
Group.

13 FINANCE INCOME AND FINANCE COSTS

Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Finance income:
Interest on loans to related parties ********************************
Dividends received************************************************
Gain from changes in the fair value of financial instruments ********
Other ************************************************************
Finance costs:
Interest on bank loans and long-term debt *************************
Write-off of amortised borrowing costs upon refinancing of loan
facility *********************************************************
Interest on loans from related parties ******************************
Loss from changes in the fair value of financial instruments *********
Unwind of discount on provision for mine closure (note 25) *********
Other ************************************************************

167
159

328

587
381

2,418
182
959
585

1,094
182
11
268

1,250
326
979
288

326

1,296

4,144

1,555

2,843

(2,804)

(2,614)

(8,167)

(3,447)

(3,867)

(466)
(25)
(1,251)
(431)

(1,950)
(754)
(156)
(894)
(334)

(235)
(165)
(984)
(554)

(212)
(51)
(528)
(225)

(9)
(297)
(499)
(449)

(4,977)

(6,702)

(10,105)

(4,463)

(5,121)

14 INCOME TAX EXPENSE

Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Continuing operations:
Current***********************************************************
Deferred income tax relating to origination and reversal of timing
differences (note 27) ********************************************
Deferred income tax relating to change in tax rate (note 27) ********

9,441

13,758

18,873

9,539

17,976

(1,097)
40

(3,216)

(10,004)

(4,478)

(5,189)

Withholding taxes ************************************************

8,384
724

10,542
911

8,869
804

5,061
905

12,787
1,946

9,108

11,453

9,673

5,966

14,733

160

Part IXIFRS historical financial information

14 INCOME TAX EXPENSE (continued)
The weighted average statutory income tax rate was 32.4 per cent. for 2003, 27.9 per cent. for
2004, 23.0 per cent. for 2005 and 21.5 per cent. and 29.4 per cent. for the six month periods ended
30 June 2005 and 30 June 2006, respectively. This is calculated as the average of the statutory tax
rates applicable in the countries in which the Group operates, weighted by the profit/(loss) before
tax of the subsidiaries in the respective countries as included in the combined historical financial
information.
The changes in the weighted average statutory income tax rate are due to a change in the
weighting of profit/(loss) before tax in the various jurisdictions in which the Group operates.
The tax on the Companys profit before tax differs from the theoretical amount that would arise
using the weighted average tax rate applicable to profits of the combined companies as follows:
Year ended 31 December
2003

2004

Six-month period
ended 30 June
Unaudited
2005

2006

40,378

18,804

37,301

9,281
4,447
(1,477)
(5,101)
2,017
(1,568)
621
649

4,045
2,689
(1,065)

2,031
(1,317)
(78)
(1,244)

10,958
1,726
(75)
(312)
1,559
(755)
(508)
194

8,869

5,061

12,787

2005
US$(000)

Income before tax *********************************************** 20,618

Tax calculated at domestic tax rates applicable to profits in the
respective countries ********************************************
Expenses not deductible for tax purposes *************************
Non-taxable income *********************************************
Recognition of previously unrecognised deferred tax assets*********
Deferred tax assets generated in the period not recognised ********
Payments of mine closure expenses *******************************
Deferred tax on unremitted earnings *****************************
Other ***********************************************************

6,688
774
(50)
(441)
2,615
(319)
(108)
(775)

Tax charge ******************************************************

8,384

21,399
5,978
2,396
(535)
(948)
4,158
(541)
22
12
10,542

Santa Cruz is under a special investment regime that allows for a double deduction in calculating
its corporate income tax liability, in respect of all costs relating to prospecting, exploration and
metallurgical analysis, pilot plants and other expenses incurred for feasibility studies of projects. In
this regard, total investment for this regime amounts approximately to US$2,111,000,
US$7,595,000, US$23,866,000 as of 31 December 2003, 2004 and 2005, respectively and
US$17,386,000 and US$23,866,000 as of 30 June 2005 and 2006, respectively.
Only the tax benefit of a single deduction has been recognised in deferred taxation in the
combined historical financial statements. The benefit of the additional deduction will be realised
as and when claimed in future periods once production has commenced.

161

Part IXIFRS historical financial information

15 PROPERTY, PLANT AND EQUIPMENT
The changes of the cost and accumulated depreciation are shown as follows:
Mining
properties and
development
costs

Land
and
buildings

Plant and
equipment

Vehicles

Mine closure
asset

Construction
in progress
and capital
advances

Total

US$(000)

Year ended 31 December 2003

Cost
At 1 January 2003(1) *****************
Additions ***************************
Change in discount rate *************
Disposals****************************
Asset write-off **********************
Foreign exchange *******************
Transfers ****************************

19,178
7,220

294

19,121
175

(71)

3,862

34,325
2,001

(612)
(184)
72
6,322

1,730
72

(153)

40

39,454

1,540

At 31 December 2003 ****************

26,692

23,087

41,924

1,689

40,994

Accumulated depreciation
At 1 January 2003 *******************
Depreciation for the year ************
Disposals****************************
Foreign exchange *******************

4,263
4,727

473
2,286
(3)

1,893
5,936
(92)
3

213
255
(15)

30,434
796

37,276
14,000
(110)
3

At 31 December 2003 ****************

8,990

2,756

7,740

453

31,230

51,169

Net book amount at

31 December 2003 ****************

17,702

20,331

34,184

1,236

9,764

902

84,119

26,692
3,965

(156)

23,087
522

(5,375)
(1,145)

41,924
1,846

(1,288)
(923)
1

(978)

1,689
33

(895)

(33)

40,994

(663)

902 135,288
5,887
12,253

(663)
(921) (3,104)

(923)

(155)

(5,375)
(25) (2,181)

(1,911)
993

(5,310)
2,072

(96)
49

(5,941)

(13,258)
(3,114)

16,171

37,344

747

34,390

2,729 121,882

7,740
7,439
(811)
5

453
185
(378)

31,230
2,811

51,169
22,907
(1,189)
(132)

(379)

(2)

(5,476)

(6,115)
(239)

Year ended 31 December 2004

Cost
At 1 January 2004 *******************
Additions ***************************
Change in discount rate *************
Disposals****************************
Asset write-off **********************
Foreign exchange *******************
Assets disposed as a result of spin-off
Impairment of assets(2) ***************
Reclassified to assets classified as held
for sale ***************************
Transfers ****************************
At 31 December 2004 ****************
Accumulated depreciation
At 1 January 2004 *******************
Depreciation for the year ************
Disposals****************************
Foreign exchange *******************
Reclassified to assets classified as held
for sale ***************************
Assets disposed as a result of spin-off

30,501
8,990
9,865

(137)

2,756
2,607

(258)
(239)

1,967 115,775
9,352
18,820

1,540
(193) (1,029)

(184)

366
(10,224)

902 135,288

At 31 December 2004 ****************

18,718

4,866

13,994

258

28,565

66,401

Net book amount at

31 December 2004 ****************

11,783

11,305

23,350

489

5,825

2,729

55,481

162

Part IXIFRS historical financial information

15 PROPERTY, PLANT AND EQUIPMENT (continued)
Mining
properties and
development
costs

Land
and
buildings

Plant and
equipment

Vehicles

Mine closure
asset

Construction
in progress
and capital
advances

Total

US$(000)

Year ended 31 December 2005

Cost
At 1 January 2005 *******************
Additions ***************************
Change in discount rate *************
Disposals****************************
Foreign exchange *******************
Transfers and other movements ******

30,501
11,148

(1,000)
(11)

16,171
1

(6)

1,632

37,344
220

(568)
(34)
5,332

At 31 December 2005 ****************

40,638

17,798

42,294

Accumulated depreciation
At 1 January 2005 *******************
Depreciation for the year ************
Disposals****************************
Foreign exchange *******************

18,718
7,705

4,866
1,695
(1)

At 31 December 2005 ****************

26,423

Net book amount at

31 December 2005 ****************

34,390

(688)

2,729 121,882
11,132
22,532

(688)
(56) (1,630)

(45)
(7,201)

1,015

33,702

6,604 142,051

13,994
5,641
(357)
(1)

258
132

28,565
1,433

66,401
16,606
(358)
(1)

6,560

19,277

390

29,998

82,648

14,215

11,238

23,017

625

3,704

6,604

59,403

Six months ended 30 June 2006

Cost
At 1 January 2006 *******************
Additions ***************************
Change in discount rate *************
Disposals****************************
Transfers ****************************
Foreign exchange *******************

40,638
10,610

67

17,798
799

(176)
4,694
85

42,294
538

(232)
1,149
4

1,015

(99)
126
3

33,702

(713)

6,604 142,051
5,397
17,344

(713)
(645) (1,152)
(5,969)

(2)
159

At 30 June 2006 *********************

51,315

23,200

43,753

1,045

32,991

5,385 157,689

Accumulated depreciation
At 1 January 2006 *******************
Depreciation for the period **********
Disposals****************************
Foreign exchange *******************
At 30 June 2006 *********************

26,423
3,824

37
30,284

Net book amount at 30 June 2006****

21,031

6,560
1,141
(82)
33
7,652
15,548

747
31

237

19,277
2,513
(119)
(5)
21,666

390
68
(46)
1
413

29,998
519

2
30,519

22,087

632

2,472

5,385

82,648
8,065
(247)
68
90,534
67,155

As described in note 24, certain assets are pledged as part of the guarantee for the syndicated
loan.
Notes:
(1) For the purpose of the transition to IFRS, the Group appointed Consultores y Asesores 2020 S.A.C., a company
holding a licence to conduct valuation of assets, to carry out an independent appraisal of certain property, plant and
equipment as of 1 January 2003 to determine their deemed cost (including accumulated depreciation) at that date in
accordance with IFRS 1.
(2) Corresponds to the write down to the fair value of assets of Sipan classified in 2004 as held for sale in accordance with
IFRS 5.

16 INTANGIBLE ASSETS
Intangible assets represent goodwill arising on business combinations.
US$000

At 1 January 2003 **************************************************************************************

Minority interests share of capital contribution to Santa Cruz(2) ********************************************

1,490
601

Balance at 31 December 2003, 2004 and 2005 *************************************************************

Additions(3) **********************************************************************************************

2,091
230

Balance at 30 June 2006 *********************************************************************************

2,321

(1)

(1) The opening balance is attributable to goodwill that arose on the acquisition of Minera Santa Cruz S.A. (Santa Cruz),
the holding company for the San Jose project in 2001.

163

Part IXIFRS historical financial information

(2) In June 2003, the Group agreed with Minera Andes S.A. (Minera Andes) (the minority shareholder in Santa Cruz) to
contribute a further $1,227,000 into Santa Cruz. This was an agreed contribution to Santa Cruzs share premium, which is
shared by each shareholder in the proportion of their economic interest. Minera Andes share of this contribution of
$601,000 was recorded as goodwill, as it effectively represented a cost of the Group to maintain its existing 51% interest.
(3) This represents the goodwill arising on the acquisition of Colorada (refer to note 4).

17 AVAILABLE-FOR-SALE FINANCIAL ASSETS

Year ended 31 December

2003

2004

2005

Six-month
period ended
30 June
2006

US$(000)

Beginning balance*********************************************************
Additions *****************************************************************
Fair value change**********************************************************
Foreign exchange *********************************************************
Disposal ******************************************************************

7,500

1,576
116

9,192
392
5,813
729

16,126
5,649
5,657
(1,165)

26,267
1,300
12,239
784
(36,455)

Ending balance************************************************************

9,192

16,126

26,267

4,135

Available-for-sale financial assets include the following:

Year ended 31 December
2003

2004

2005

Six-month
period ended
30 June
2006

US$(000)

Equity securitieslisted South American companies************************** 9,192

Equity securitieslisted Canadian companies ********************************

15,861
265

22,871
3,396

4,135

Total**********************************************************************

16,126

26,267

4,135

9,192

The breakdown of the investments held is as follows:

Inversiones
Pacasmayo

Imobiliaria
CNP

Rio Fortuna
Exploration
Corp.

Fortuna
Silver Mine
Inc.

Number of shares held at 1 January 2003 and 2004 ***************

Additions *******************************************************

18,019,117

700,141

1,990,800

Number of shares held at 31 December 2004 *********************

Additions *******************************************************

18,019,117

700,141

1,990,800

2,475,355

700,141

(700,141)

1,990,800

(1,990,800)

2,475,355

2,475,355

Number of shares held at 31 December 2005 ********************* 18,019,117

Additions *******************************************************
2,225,071
Disposals ******************************************************* (20,244,188)
Number of shares held at 30 June 2006 **************************

Listed South American investments included non-actively traded investments in Inversiones

Pacasmayo (IPSA) which represent a 9.9 per cent interest in IPSA in 2003 and 2004 and 13.9 per
cent in 2005. 20,244,188 of these shares were sold in 2006 for US$6.4 million to Greystone
Corporation (a related party), with the balance being sold as part of the disposal of MHC (refer to
notes 12(6) and (7)).
In 2004, the amount of US$265,000 corresponds to 1,990,800 shares of Rio Fortuna Exploration
Corp.. In 2005, the Group received shares and warrants to purchase shares in Fortuna Silver Mine,
Minera Arcata) to
Inc. as part of the payment for the sale of Caylloma (a mining unit of Compania
Fortuna.

164

Part IXIFRS historical financial information

18 TRADE AND OTHER RECEIVABLES
At the date of the balance sheet, this item was made up as follows:
As of 31 December
2003
Noncurrent

2004

Current

Noncurrent

As of 30 June
2006

2005

Current

Noncurrent

Current

Noncurrent

Current

US$(000)

Trade receivables ***********************

Loans to related parties (note 31) *******
Receivables from SEAL/Electroperu ******
Prepaid expenses and VAT(1) *************
Advances to suppliers*******************
Loans to employees(2) *******************
Assigned funds(3) ***********************
Income tax refunds due(4) ***************
Other**********************************

2,535

1,490

241

464

1,294
18,630
1,063
3,712
1,440
11

1,046
1,336

19,776

1,685

240
4,098

1,192

11,597
27,784

5,736
2,808
591

1,106
725

3,547

52
1,699

752

13,134
54,383

3,718
6,949
464

1,058
1,740

475

4,709

165
610

23

8,926
59,571

2,153
4,641
575

1,227
4,594

Provision for impairment of receivables **

4,730

28,532
(390)

26,991

50,347
(391)

6,050

81,446
(340)

5,982

81,687
(340)

4,730

28,142

26,991

49,956

6,050

81,106

5,982

81,347

The fair values of trade and other receivables approximate to book value.
Notes:
(1) Value added tax (VAT)Included in prepaid expenses and VAT above, value added taxes paid in the development of
the San Jose Project that will be recovered through the future sales of Minera Santa Cruz, once it begins operation. VAT
has been classified as a long-term receivable and is measured at present value using a discount rate of 12 percent.
(2) The effective interest rates on non-current receivables were as follows:

As of 31 December
2003

2004

As of
30 June

2005

2006

7.5%

8.0%

Loans to employees *************************************************************

7.1%

6.6%

(3) Assigned funds are time deposits that guarantee short-term sales commitment to certain customers. The deposits are
held for greater than 12 months and are not accessible to the Group. The effective interest rates were between 1 percent
and 2 percent during 2003, 2004, 2005 and the six-months ended 30 June 2006.
Minera Sipan in 2000. Due to an ongoing dispute with the
(4) Corresponds to an over-payment of tax by Compania
authorities, this amount has not yet been refunded (refer to Note 33(c)). The Directors believe that this amount is
recoverable.

19 INVENTORIES
At the date of the balance sheet, this item comprised the following:
As of
30 June

As of 31 December
2003

2004

2005

2006

3,626
3,571
394
4,682

3,136
2,549
969
4,661

6,138
2,505
1,334
4,763

18,578
(20)

12,273
(759)

11,315
(816)

14,740
(738)

18,558

11,514

10,499

14,002

US$(000)

Finished goods ************************************************************* 10,647

Products in process *********************************************************
3,064
Raw materials**************************************************************
344
Supplies and spare parts ****************************************************
4,523
Provision for obsolescence **************************************************

As disclosed in note 24, certain inventories are pledged as part of the guarantee for the
syndicated loan.
165

Part IXIFRS historical financial information

19 INVENTORIES (continued)
Finished goods includes dore and concentrates. Dore is an alloy containing a variable mixture of
silver and gold and minor impurities delivered in bar form to refiners. The refined products are
then sold to customers. Concentrates is a product containing sulphides with variable content of
base and of precious metals and sold to smelters.
20 DERIVATIVE FINANCIAL INSTRUMENTS
As of
30 June

As of 31 December
2003

2004

2005

2006

US$(000)

Assets
Interest rate swap(1) ***********************************************************
Warrants on Fortuna Silver Mine Inc. shares(2) ***********************************
Warrants on Rio Fortuna Exploration Corp. shares(3)******************************
Purchased put option(4) ********************************************************
Embedded derivative(5) *********************************************************

132

885

331

46
1,487

163
1,901

1
6,884

34
2,920
43

8,527

Total**************************************************************************

1,017

1,864

8,949

11,524

Less non-current portion:

Interest rate swap(1) *********************************************************
Purchased put option(4) ******************************************************
Warrants on Fortuna Silver Mine Inc. shares(2) ***********************************

132

331
46

1
1,901

Non-current portion ***********************************************************

132

377

1,902

Current portion ***************************************************************

885

1,487

7,047

11,524

Liabilities
Interest rate swap(1) ***********************************************************

(49)

Total**************************************************************************

(49)

Less noncurrent portion:

Interest rate swap ***********************************************************

49

Current portion ***************************************************************

Notes:
(1) Interest rate swaps are classified as trading derivatives with fair value movements recognised in Finance costs /income.
The notional principal amounts of two the outstanding interest rate swap contracts at 31 December 2003, 2004, 2005 and
30 June 2006, were US$42.5 million, US$28 million, US$12 million, and US$4 million, respectively. The interest rate swaps
were entered into to hedge the floating interest rate exposure of long-term loans but did not meet the hedge accounting
criteria under IAS 39. These swap contracts expired on 15 March 2004 and 20 July 2006.
(2) At 30 June 2006, this item represented 2,475,355 (2005: 2,475,355; 2004 and 2003: NIL) warrants over the same number
of shares in Fortuna Silver Mine Inc., which are exercisable on 27 June 2007, at a price of CAN$0.345 per share.
(3) At 30 June 2006, this represented 331,800 (2005: 995,400; 2004 and 2003: NIL) warrants over the same number of shares
in Rio Fortuna Exploration Corp., which are exercisable on 4 August 2006, at a price of CAN$0.25 per share. The reduction
in the number of warrants during 2006 was the result of a 1 for 3 share consolidation by Rio Fortuna Exploration Corp. on
1 January 2006.
a Minera Ares purchased a put option contract with Citibank N.A. as from 29 August 2006 for 11 sale
(4) In 2005, Compan
transactions of 1,636 ounces of gold each for a price of US$332.00 per ounce. The Company paid a total premium
amounting to US$161,000 for this contract. This contracts expiration date is 27 June 2007.
(5) This amount represents the fair value of the embedded derivatives contained in concentrate sales (refer to Note 12(3)).

21 OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS

Year Ended 31 December
2005

As of
30 June 2006

2003

2004

Bonds and structured assets ********************************************

Equity securities *******************************************************

7,900
4,012

10,893
4,179

13,170
6,665

11,809
7,515

Total *****************************************************************

11,912

15,072

19,835

19,324

US$(000)

These financial assets are fair value at prevailing market price as at the end of each year/period.
166

Part IXIFRS historical financial information

22 CASH AND CASH EQUIVALENTS
As of 31 December
2003

2004

2005

As of
30 June
2006

US$(000)

Cash in hand ******************************************************************

Current demand deposit accounts(1) *********************************************
Time deposits(2) ****************************************************************

72
3,900
270

128
4,700
805

125
2,251
91

579
3,603
1,861

Cash and cash equivalents considered for the cash flow statement****************

4,242

5,633

2,467

6,043

Notes:
(1) Relates to bank accounts which are freely available and do not bear interest.
(2) The effective interest rates were 1.05 per cent, 2.4 per cent, 3.7 per cent and 4.4 per cent in 2003, 2004, 2005 and the six
months ended 30 June 2006. These deposits have an average maturity period of seven days.

23 TRADE AND OTHER PAYABLES

As of 31 December
2003
Non-current

2004
Current

Non-current

2005
Current

Non-current

As of 30 June 2006
Current

Non-current

Current

US$(000)

Trade payables ************

Taxes and contributions ****
Workers profit sharing and
payroll ******************
Accrued expenses**********
Interest payable ***********
Mine royalty **************
Dividends payable(a)********
Deferred consideration on
acquisition of Santa Cruz
Advanced from customers **
Other *********************

531

9,197
1,105

1,392

11,691
1,676

1,165

14,542
1,958

3,450

9,783
1,930

3,355
832
469

10,754

5,523
1,010
465
296
8,766

6,824
927
433
145
8,716

6,205
2,849
273
372
60,803

387

1,147

336

1,028

387

1,356

1,621

1,996

1,022

7,249
1,568

2,065

27,076

3,135

31,048

3,161

34,567

3,450

91,032

Trade payables are mainly for the acquisition of materials, supplies and contractors services. These
payables, do not accrue interest and no guarantees have been granted. The fair value of trade
and other payables approximate their book values.
(a) Dividends are payable to Dona Ltd., a related party (refer to Note 31).

24 BORROWINGS
As of 31 December
2003
Non-current

2004
Current

Non-current

2005
Current

Non-current

As of 30 June 2006
Current

Non-current

Current

US$(000)

Bank loans
Secured *******************
Unsecured ****************
Other loans
Secured *******************
Unsecured ****************
Amount due to Minority
shareholders ************
Amounts due to related
parties (Note 31) ********

33,010

15,126
13,251

48,531

21,458
8,500

17,971

29,510
18,800

9,749

36,532

33,010

28,377

48,531

29,958

17,971

48,310

9,749

36,532

1,038

1,347

1,038

1,347

4,007

13,108

20,566

2,256

10,694

4,361

22,995

10

21,483

17,851

36,304

40,418

56,899

52,953

31,089

69,793

30,315

54,383

167

Part IXIFRS historical financial information

24 BORROWINGS (continued)
(a) Unsecured bank loans
These obligations accrue an effective annual interest rate of LIBOR + 1.1 per cent and no
guarantees or security have been granted.
(b) Secured bank loans
a Minera Ares had a syndicated loan agreement for US$40,000,000. This
In 2003, Compan
agreement was replaced in 2004 with a new syndicated loan for US$70,000,000 with an effective
annual interest rate of LIBOR + 3.7 per cent.
In May 2006, the repayment profile was amended without change in maturity date.
a Minera Ares has granted the following guarantees for US$87.5 million on the Ares and
Compan
Selene mining units for purposes of securing the syndicated loan:
A Global and Floating Mining Pledge on the minerals extracted and that are on any stage of
extraction or production process.
A Mining Mortgage on the mining concessions, buildings, facilities and other fixed assets.
A Mining Mortgage on the benefit from concession, on concessions, buildings, facilities and
other fixed assets.
a Minera Ares have pledged all the shares of the
In addition, the shareholders of Compan
Company.
a Minera Ares must comply with
The main administrative and financial covenants that Compan
during the term of the syndicated loan are as follows:
a
Present to the banks the annual report of reserves each calendar year. Every 90 days Compan
Minera Ares must determine, that the proven and probable reserves represent, at least 125 per
cent. of the outstanding amount of the loan based on the calculations established in the
contract.
Maintain the following ratios beginning on the date of execution of the agreement and
during the term of effect of the loan, which must be computed according to the formula
established in the agreement:
) Interest coverage ratio must not be less than 6.0.
) Debt service coverage greater than a 1.20.
) Debt to EBITDA no greater than 1.20.
) Current ratio no less than 1.00.
(c) Compliance with the restrictive covenants described in the preceding paragraph is overseen by
a Minera Ares Management and the administrative agent. In the opinion of
Compan
a Minera Ares has either complied with or received the necessary
Management, Compan
waivers in relation to the commitments and financial covenants mentioned in the syndicated
loan agreement.
168

Part IXIFRS historical financial information

24 BORROWINGS (continued)
(d) The maturity of non-current borrowings is as follows:

2005

As of
30 June
2006

As of 31 December
2003

2004
US$(000)

Between 1 and 2 years *****************************************************

Between 2 and 5 years *****************************************************
Over 5 years ***************************************************************

20,771
14,958
575

36,258
20,641

30,794
295

30,315

36,304

56,899

31,089

30,315

(e) The carrying amount of short-term borrowings approximates their fair value. The carrying
amount and fair value of the non-current borrowings are as follows:
Carrying Amount
As of 31 December
2003

2004

2005

Fair Values
As of
30 June
2006

2003

2004

2005

As of
30 June
2006

As of 31 December

US$(000)

Bank loans
Secured (floating rates) ************ 33,010
Other loans
Secured (floating rates) ************
1,038
Amounts due to minority interest
and related parties (fixed rates) **
2,256
36,304

48,531

17,971

9,749

33,010

48,531

17,971

9,734

895

8,368

13,118

20,566

2,795

10,125

15,148

20,566

56,899

31,089

30,315

36,700

58,656

33,119

30,300

25 PROVISION FOR MINE CLOSURE COST

The provision represents the discounted values of the estimated cost to decommission and
rehabilitation the mines at the date of depletion of each of the deposits. The present value of the
provision has been calculated using an annual discount rate of 1.78 percent, 2.20 percent and
2.76 percent per year as of 31 December 2003, 2004 and 2005, respectively and 2.51 and
3.75 percent as of 30 June 2005 and 2006, respectively. Uncertainties in estimating these costs
include potential changes in regulatory requirements, decommissioning, dismantling, and
reclamation alternatives and the levels of discount and inflation rates.
As of 31 December
2003

Beginning balance ********************************************************

Increase to existing provision **********************************************
Accretion *****************************************************************
Change in discount rate ***************************************************
Reclassified to liabilities directly associated with assets classified as held for
sale ********************************************************************
Payments *****************************************************************

2004
2005
US$(000)

As of
30 June
2006

47,292

1,251
2,739

50,219

894
(1,173)

41,426
989
984
(1,232)

36,939

499
(1,737)

(1,063)

(6,710)
(1,804)

(5,228)

(2,518)

41,426

36,939

33,183

Ending balance *********************************************************** 50,219

26 EQUITY
(a) Equity share capital
At 31 December 2003, 2004, 2005 and 30 June 2006 equity share capital represents the sum of the
capital accounts of the Cayman Island entities rather than the share capital of the Company as the
Company has not yet been incorporated.

169

Part IXIFRS historical financial information

26 EQUITY (continued)
(b) Acquisition of shares from minority shareholders
a Minera Arcata from
During the periods reported the Group purchased shares of Compan
minority shareholders as follows:

2003

2004

2005

Six-month period
ended 30 June
2006

13,591,371
4,927

2,701,801
1,053

6,869,033
2,667

5,656
20

Year ended 31 December

Number of shares*****************************************
Amount paid US$(000) ************************************

27 DEFERRED INCOME TAX

The movement in the deferred income tax liabilities and assets are as follows:
As of 31 December
2003

2004
2005
US$(000)

Beginning of the year/period *********************************************** 6,487

Income statement credit**************************************************** (1,097)
Change in tax rate *********************************************************
40
Spin-off of Sipan (see Note 12(5)) *******************************************

Use of (gain)/loss from Caylloma (see Note 30) *******************************

Exchange difference *******************************************************

Other *********************************************************************

End of the year/period *****************************************************

5,430
(3,216)

(1,540)
(314)

5,430

360

As of
30 June
2006

360
(10,004)

2,788

(6,856)
(5,189)

236
26

(6,856)

(11,783)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income tax assets
and liabilities relate to the same fiscal authority.
The amounts after offset are as follows:
As of 31 December
2003

2004
2005
US$(000)

Deferred income tax assets ************************************************** 1,079

Deferred income tax liabilities *********************************************** (6,509)

2,794
(3,154)

(5,430)

(360)

As of
30 June
2006

10,990
(4,134)

14,880
(3,097)

6,856

11,783

The movement in deferred income tax assets and liabilities during the year considering the nature
of the temporary differences is as follows:
Differences
in cost of
PP&E

Differences in
depreciation
rates

Mine
development
and other

Other

Total

US$(000)

Deferred income tax liabilities:

At 1 January 2003 ***********************************
Income statement (credit) charge *********************
Change in tax rate **********************************

2,187
(61)

12,709
11
85

6,692
616

7,347
562
86

28,935
1,128
171

At 31 December 2003********************************
Income statement (credit) charge *********************
Spin-off of Sipan ************************************

2,126
(586)
(1,540)

12,805
729

7,308
5,309

7,995
242

30,234
5,694
(1,540)

At 31 December 2004********************************
Income statement (credit) charge *********************

68

13,534
(2,382)

12,617
(2,075)

8,237
1,889

34,388
(2,500)

At 31 December 2005********************************
Income statement (credit) charge *********************

68
(19)

11,152
(4,441)

10,542
2,546

10,126
135

31,888
(1,779)

At 30 June 2006 *************************************

49

6,711

13,088

10,261

30,109

170

Part IXIFRS historical financial information

27 DEFERRED INCOME TAX (continued)
Difference
in cost of
PP&E

Provision
for mine
closure

Mine
development
and other

Tax
losses

Other

Total

US$(000)

Deferred income tax assets:

At 1 January 2003*******************************
Income statement credit (charge) ****************
Change in tax rate ******************************

7,436
816
58

1,213
85

8,150
1,178
4

1,594
(820)

4,055
966
69

22,448
2,225
131

At 31 December 2003 ***************************

Income statement credit (charge) ****************
Gain from discontinued operations ***************

8,310
3,618

1,298
(13)

9,332
1,992

774
2,092
314

5,090
1,221

24,804
8,910
314

At 31 December 2004 ***************************

Income statement credit (charge) ****************
Use of loss carry forward ************************

11,928
(1,574)

1,285
617

11,324
5,078

3,180
1,781
(2,788)

6,311
1,602

34,028
7,504
(2,788)

At 31 December 2005 ***************************

Income statement credit (charge) ****************
Exchange difference*****************************

10,354
(3,806)
48

1,902
(2)
(193)

16,402
5,723
(19)

2,173
1,099
(18)

7,913
370
(54)

38,744
3,384
(236)

At 30 June 2006 ********************************

6,596

1,707

22,106

3,254

8,229

41,892

2005

As of
30 June
2006

Tax losses expire in the following years:

As of 31 December
2003

2004
US$(000)

Recognised:****************************************************************
Expire in one year**********************************************************
Expire in two years *********************************************************
Expire in three years *******************************************************
Expire in four years ********************************************************
Expire after four years******************************************************
Unrecognised: *************************************************************
Expire in one year**********************************************************
Expire in two years *********************************************************
Expire in three years *******************************************************
Expire in four years ********************************************************
Expire after four years******************************************************
Total tax losses (recognised and unrecognised)

2,581

3,931

6,669

6
54
502
5,654

6
54
453
5,654
3,130

2,581

10,600

6,216

9,297

1,333
2,426
3,816

882
6
1,224
7,523

882

1,170
7,625
9,216

882
427
7,625
5,114
9,164

7,575

9,635

18,893

23,212

10,156

20,235

25,109

32,509

Other unrecognised deferred income tax asset comprises:

As of 31 December
2003

2004

2005

As of
30 June
2006

US$(000)

Mine development and other ************************************************

Provision for mine closure ***************************************************
Impairment of assets ********************************************************

358
13,767

2,744
11,145
654

9,229

8,295

14,125

14,543

9,229

8,295

Unrecognised deferred tax on retained earnings

The Group has provided for a deferred tax liability in respect of taxes that will be payable when
the Groups distributable retained earnings are distributed as dividends. Retained earnings that
have arisen as a result of the adoption of IFRS are not considered to be distributable locally, and as
a result, the Group has not recognised deferred tax liabilities in respect of these amounts.

171

Part IXIFRS historical financial information

27 DEFERRED INCOME TAX (continued)
No deferred tax asset has been recognised for the gross temporary differences in respect of the
undistributed reserves of the Group, as the Group is able to control the timing of the reversal of
the temporary differences and it is probable that they will not reverse in the foreseeable future.
The gross temporary differences are as follows:
As of
30 June

As of 31 December
2003

2004

2005

2006

US$(000)

Unremitted earnings of the Group ****************************************

(16,083)

(25,451)

(29,683)

(10,440)

28 DIVIDENDS PAID AND PROPOSED

The dividends declared and paid during the years ended 31 December 2003, 2004 and 2005 and
for the period ended 30 June 2006 are as follows:
Amount
US$(000)

Year ended 31 December 2003

Total dividends paid or provided for during the year*****************************************************
Total dividends declared after year end and not provided for ********************************************

4,200

Year ended 31 December 2004

Total dividends paid or provided for during the year*****************************************************
Total dividends declared after year end and not provided for ********************************************

18,722

Year ended 31 December 2005

Total dividends paid or provided for during the year*****************************************************
Total dividends declared after year end and not provided for ********************************************

Period ended 30 June 2006

Total dividends paid or provided for during the period **************************************************
Total dividends declared after period end and not provided for ******************************************

53,142

29 DISCONTINUED OPERATIONS AND ASSETS CLASSIFIED AS HELD FOR SALE

Discontinued operations
a Minera Arcata) have
The assets and liabilities related to Caylloma mining unit (part of Compan
been presented as held for sale following the approval of the Companys management and
shareholders in 2004 to sell Caylloma. This unit was sold in 2005 to Fortuna Silver Mine Inc.
(Fortuna), realising a gain of US$15,739,000.
The consideration received was as follows:
US$000

Cash **************************************************************************************************
Deferred consideration*********************************************************************************
Derivative financial asset *******************************************************************************
Available for-sale-financial assets ***********************************************************************
Other *************************************************************************************************

3,050
4,450
1,720
2,541
39

Total consideration ************************************************************************************

11,800

The derivative financial assets and available for sale financial assets acquired represent
2,475,355 warrants over Fortuna shares, and 2,472,365 shares in Fortuna respectively.

172

Part IXIFRS historical financial information

29 DISCONTINUED OPERATIONS AND ASSETS CLASSIFIED AS HELD FOR SALE (continued)
An analysis of the result of discontinued operations, including the result recognised on the
remeasurement of assets or disposal group, is as follows:
Six-month period
ended 30 June
Year ended 31 December
2003

2004

Unaudited
2005

2005

PRA1
2006

US$(000)

Revenues *********************************************************
Expenses *********************************************************

4,881
(6,252)

(1,045)

(321)

(321)

Pre-tax loss *******************************************************

Tax expense ******************************************************
Gain on sale of assets and liabilities ********************************
Tax on gain on sale of assets and liabilities *************************

(1,371)

(1,045)
314

(321)
95
15,739
(3,334)

(321)
95
12,179
(2,558)

(Loss)/profit after tax from discontinued operations *****************

(1,371)

(731)

12,179

9,395

Six-month period
ended 30 June
Year ended 31 December
2003

2004

Unaudited
2005

2005

2006

US$(000)

Operating cash flows*********************************************** (1,030)

Investing cash flows************************************************
(155)
Financing cash flows ***********************************************

(926)
(15)

(321)
3,050

(321)
100

4,500

Total cash flows ***************************************************

(941)

2,729

(221)

4,500

(1,185)

Assets classified as held for sale

In addition to the Caylloma discontinued operations, the assets and liabilities of which were
a
classified as held for sale, in 2004 Management agreed to sell the remaining plant of Compan
Minera Sipan. This asset was reclassified as held for sale in 2004, and was carried at US$3,820,000
at 31 December 2004, US$3,844,000 at 31 December 2005, and US$3,003,000 at 30 June 2006. The
reduction in carrying value between 31 December 2005 and 30 June 2006 was due to the sale of
certain items at carrying value during the six months ended 30 June 2006. The Company expects
that these assets will be disposed within the next six to twelve months.
The analysis of amounts classified as held for sale, including the Caylloma mine and the assets of
Sipan are outlined below:

Year ended 31 December

Disposal group held for sale:

Property, plant and equipment *********************************************
Assets held for sale:
Property, plant and equipment *********************************************
Liabilities directly associated with disposal group held for sale
Provisions *****************************************************************

173

Six-month
period ended
30 June
2006

2003

2004

2005
US$(000)

3,185

3,820

3,844

3,003

7,005

3,844

3,003

6,710

6,710

20.7.1

Part IXIFRS historical financial information

30 RELATED-PARTY BALANCES AND TRANSACTIONS
(a) Related-party accounts receivable and payable
The Company had the following related-party balances and transactions during the years ended
31 December 2003, 2004, 2005 and the six-months ended on 30 June 2005 and 2006. The related
parties are companies owned or controlled by the main shareholder of the parent company.
Accounts Receivable
At 31 December
2003

2004

2005

Accounts Payable
At
30 June
2006

At 31 December
2003

2004

2005

At
30 June
2006

PRA1 19

US$(000)

Trade
Cementos Pacasmayo S.A.A. ******
Cementos Selva S.A. **************
Inmobiliaria CNP S.A.C. ***********
Others ***************************

30

27

1,495
42

69

98

74
8

27

57

267

30

27

1,606

180

84

273

131

97

259
468

525

2,873

300

31

6,802

9,960
87

375
2
8

203

343
2
10
581
491

90

26

228

1,259

3,204

16,849

588

1,517

33

10,784

8,766

8,716

60,803

10,754

8,766

8,716

60,803

8,115
9,960

8,112
9,960

8,110
9,960

7,408

1,136

898

12,812

898

12,804

898

13,761

898

2,695

137

28,202

33,102

32,333
200

2,781

4,148
1,986

928

1,660

650
5,107
1,986
3,278
928

6,586
160
928

2,686
230

20,907

46,274

51,172

42,722

10,756

25,659

21,376

17,575

Total ****************************

21,165

47,560

54,383

59,571

23,704

36,122

30,209

78,654

Comprised of:
Dividends payable to Dona********
Current related party balances ****
Non-current related party balances

18,630
2,535

27,784
19,776

54,383

59,571

10,754
10,694
2,256

8,766
22,995
4,361

8,716
21,483
10

60,803
17,851

Total

21,165

47,560

54,383

59,571

23,704

36,122

30,209

78,654

Other
Cementos Pacasmayo S.A.A. ******
Farragut Holding Inc. *************
Dona Ltd. ***********************
Inmobiliaria CNP S.A.C. ***********
a Minera Pativilca S.A.C. **
Compan
Inversiones Pacasmayo S.A. *******
Harrison Corporation *************
Others ***************************
Dividends payable
Dona Ltd. (Note 23) **************
Loans
Dona Ltd.(1) **********************
Harrison Corporation(1) ************
Greystone Corporation************

Empresa de Transmision
Guadalupe S.A. ****************
a Minera Pativilca S.A.C.
Compan
Farragut Holding Inc.(2) ***********
Cementos Pacasmayo S.A.A. ******
Transimex Inc. *******************
Mauricio Hochschild Cia. Ltda. ****
Other****************************

174

Part IXIFRS historical financial information

30 RELATED-PARTY BALANCES AND TRANSACTIONS (continued)
(a) Related-party accounts receivable and payable (continued)
Effective interest rates:
Accounts Receivable
At 31 December
2003

2004

2005

Accounts Payable

At
30 June
2006

At 31 December
2003

2004

2005

At
30 June
2006

US$(000)

Guadalupe S.A. ****************

Empresa de Transmision
a Minera Pativilca S.A.C. ***********************
Compan
Farragut Holding Inc.(c) *********************************
Cementos Pacasmayo S.A.A. ****************************

6.6%

8.5%

8.5%

8.5%

8.5%
8.5%

8.5%

8.5%

All other accounts are, or were, non-interest bearing.

No security has been granted or guarantees given by the Group in respect of these related party
balances.
Principal transactions between affiliates are as follows:
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Income
Interest on loans to Farragut Holding **********************************

Rent received *********************************************************

350
Services provided ***************************************************** 3,440
Proceeds from sale
Sale of shares of Inversiones Pacasmayo to Greystone Corporation *******

Sale of shares held in MHC to Greystone Corporation *******************

Sale of Inmobiliaria CNP shares to Cementos Pacasmayo *****************

Sale of zinc project (note 9) *******************************************

Sale of shares of Corianta to Cementos Pacasmayo (note 9) **************

Expenses
Interest expenses******************************************************
466
Acquisition cost
Purchase of Arcata shares from Invernor********************************

Purchase of Inversiones Pacasmayo shares from Invernor*****************

328
380
1,449

2,418

272

1,094

27

1,250

52

15,558
806

15,558
806

6,349
1,000
200

754

235

212

2,566
2,837

2,566
2,837

(1) Transaction with Harrison Corporation and Dona Limited

These loans do not bear interest and have no maturity date.
(2) Transaction with Farragut Holding Inc.
a Minera Ares to Farragut Holding Inc. with original
Corresponds to a loan provided by Compan
maturity in 2009 which is repayable in five instalments starting in 2005. This loan bore an annual
interest of LIBOR plus 4.0 per cent. up to June 2006, when the benefit was transferred from
a Minera Ares to Ludlow. This amount was repaid subsequent to the balance sheet date
Compan
(refer to Note 37(e)).

175

Part IXIFRS historical financial information

30 RELATED-PARTY BALANCES AND TRANSACTIONS (continued)
(b) Compensation of key management personnel of the Group
Key management personnel include the members of the management board and directors who
receive remuneration.
Six-month period
ended 30 June

Year ended 31 December

2003

2004

2005

Unaudited
2005

2006

US$(000)

Salaries and bonuses *************************************************** 2,360

2,809

4,172

1,575

1,784

Total compensation paid to key management personnel ****************** 2,360

2,809

4,172

1,575

1,784

(c) Sale of shares of Inversiones Pacasmayo S.A. (IPSA)

On June 15, 2006, the Group sold 16,585,047 shares of IPSA for US$6.4 million to a related party
generating a loss of US$14.7 million against the fair value of such investment. In addition in June
2006, the shares of IPSA held by subsidiary MHC were sold at book value through the sale of MHC
to a related party.
31 NOTES TO THE COMBINED CASH FLOW STATEMENT
Year ended 31 December
2003

2004

2005

Six-month period
ended 30 June
Unaudited
2005

2006

US$(000)

Reconciliation of profit for the year/period to net cash generated

from operating activities
Profit for the year/period**************************************** 10,139
Adjustments to reconcile group operating profit to net cash
inflows from operating activities:
Depreciation**************************************************** 14,000
(Gain)/loss on provisional pricing adjustment ********************* (1,624)
Gain on sale of zinc project *************************************

Loss/(gain) on sale/disposal of property, plant and equipment and

assets classified as held for sale ********************************
28
Write-off of property, plant and equipment **********************
184
Impairment of property, plant and equipment ********************

Loss on sale of available-for-sale financial assets ******************

(Gain)/Loss on sale of subsidiaries ********************************

(Gain)/Loss from other financial assets at fair value through profit

or loss *******************************************************
25
Deferred income tax ******************************************** (1,057)
Increase (decrease) in provision for mine closure ******************
1,199
Unwind from discount of provision for mine closure **************
1,251
Gain from sale of Caylloma**************************************

Interest expense ************************************************

3,270
Income tax expense *********************************************
9,553
Exchange difference from fixed assets ****************************
(363)
Others *********************************************************
358
Increase (decrease) of cash flows from operations due to changes
in assets and liabilities:
Trade and other receivables ************************************* (2,880)
Derivative financial instruments**********************************
1,799
Inventories ***************************************************** (8,406)
Trade and other payables *************************************** (2,186)
Cash generated from operations********************************* 25,290

176

9,215

42,884

22,233

22,568

22,907
(2,579)

16,606
(9,916)
(14,558)

6,809
(1,920)
(14,558)

8,065
8,527

197

(254)

113

(254)

(172)

2,249
991

(342)
(3,216)
660
894

5,318
13,513
23
(217)

(792)
(10,004)
(725)
984
(15,739)
8,402
22,465
44
851

51
(4,478)
(272)
528
(12,179)
2,207
12,995

248

297
(5,189)
(1,024)
499

3,867
18,427
(91)
496

(39,749)
1,683
7,044
7,034

(7,099)
2,831
1,015
158

(2,852)
2,236
(1,037)
6,453

(1,641)
(11,102)
(3,503)
6,637

25,318

37,350

16,323

49,901

26
923
2,181

Part IXIFRS historical financial information

31 NOTES TO THE COMBINED CASH FLOW STATEMENT (continued)
Transactions that did not affect cash flows
The main transactions that did not affect cash flows were the following:
Six-month period
ended 30 June

Year ended 31 December

2003

2004

Provision for mine closure - property, plant and equipment************** 1,540

Unpaid purchase of property, plant and equipment *********************

Unrealised gain on available-for-sale financial assets ******************** 1,692

Uncollected proceeds from sale of MHC ********************************

Uncollected proceeds from sale of available-for-sale financial assets ******

Realised gain from sale of available-for-sale financial assets**************

Uncollected proceeds from sale of Caylloma ****************************

Acquisition on available-for-sale financial assets *************************

Assets classified as held for sale ****************************************

Provision for mine closureliability ************************************ 1,540

Dividends expired *****************************************************
27
Unpaid dividends *****************************************************

Liabilities directly associated with assets classified as held for sale ********

Capitalisation of debt *************************************************

Non-cash contribution from minority interest ***************************

601

7,806

6,542

7,143
7,254

6,591

2005

Unaudited
2005

2006

US$(000)

688
3,636
4,492

8,831
2,542
465
688

465

380

4,663

10,408

465
380

2,520
465

996
692
13,023
1,000
6,550
22,844
4,500

996

915

32 COMMITMENTS
(a) Gold and silver futures contracts
A summary of the sales commitments with fixed prices open follows:
Gold
Quantity

2003

2004

2005

As of
30 June
2006

(ounces)

(ounces)

(ounces)

(ounces)

N.M. Rothschild **
N.M. Rothschild **
Standard Bank ***
N.M. Rothschild **
Standard Bank ***
Standard Bank ***
Standard Bank ***
Standard Bank ***
Standard Bank ***
Standard Bank ***
Citibank *********
Citibank *********

36,890
36,890
37,200
58,125
75,000
44,116

21,420
21,420
21,600
31,875
40,000
23,522
12,000
4,200
18,000
35,000
36,850
36,600

5,950
5,950
6,000
7,500
10,000
5,870

7,500
35,000
36,850
36,600

35,000
36,850
36,600

Total ************

288,221

302,487

157,220

108,450

As of 31 December
Organisation

Type of
contract

Period
Quotation

From

to

(US$/oz)

Min/Max
Min/Max
Min/Max
Flat Forward
Call
Call
Flat Forward
Flat Forward
Flat Forward
Flat Forward
Flat Forward
Flat Forward

177

330;385
335;385
340;385
346.13
311.00
300.00
387.00
393.75
401.55
411.75
416.65
419.20

January
January
January
April
April
September
July
July
July
July
August
January

2003
2003
2003
2003
2003
2003
2004
2004
2005
2006
2006
2007

June
June
June
July
April
April
June
June
June
December
June
June

2006
2006
2006
2006
2006
2006
2005
2005
2006
2006
2007
2007

Part IXIFRS historical financial information

32 COMMITMENTS (continued)
(a) Gold and silver futures contracts (continued)
Silver
Quantity
As of 31 December
Organisation

2003
(ounces)

Standard
Bank ******
229,333
Standard
Bank ******
204,000
Rothschild ***
192,312
Standard
Bank ****** 2,000,000
Rothschild *** 2,000,000
International

International

International

Standard
Bank ******

Total ******** 4,625,645

2004
(ounces)

2005
(ounces)

As of
30 June
2006

Type of
contract

(ounces)

Period
Quotation

From

to

(US$/oz)

Min/Max

4.60;5.29

January 2003

December 2003

Flat Forward
Flat Forward

4.80
4.82

June 2003
June 2003

June 2004
June 2004

1,360,000
916,671

240,000

750,000
750,000
500,000

180,500
280,500
500,000

Flat Forward
Flat Forward
Min/Max
Min/Max
Min/Max

5.00
5.00
7.20;8.40
7.00;8.20
7.45;8.43

Min/Max

8.40;10.60

1,000,000

2,276,671

2,240,000

1,961,000

January
January
January
January
July

2004
2004
2006
2006
2006

July 2006

December
December
June
June
December

2005
2005
2006
2006
2006

December 2006

The contracts and commitments mentioned above are not fair valued in the books as they were
entered into, and continue to be held for, the purpose of the delivery of a non-financial item in
accordance with the Groups expected sales requirements. In accordance with IAS 39, these
contracts are not required to be fair valued.
(b) Mining rights purchase options
During the ordinary course of business, the Group enters into agreements to carry out exploration
under concessions held by third parties. Under the terms of some of the agreements, the Group
has the option to acquire the concession or invest in the entity holding the concession. In order to
exercise the option the Group must satisfy certain financial and other obligations over the
agreement term. The options lapse in the event the Group does not meet the financial
requirements. At any point in time the Group may cancel the agreements without penalty.
The Group continually reviews its requirements under the agreements and determines on an
annual basis whether to proceed with the financial commitment. The commitments at the balance
sheet date are limited to the minimum financial requirements for the subsequent twelve months,
shown as follows:

2003

2004

2005

As of
30 June
2006

US$(000)

US$(000)

US$(000)

US$(000)

1,390

1,166

1,717

11,112
34,044

As of 31 December

Commitment for the subsequent twelve months ****************************

Later than one year*******************************************************

(c) Pallancata Project

a Minera Ares S.A.C., a subsidiary of Ludlow Corporation entered into
On 30 June 2006, Compan
an agreement with Minera Oro Vega S.A.C. (Minorva), a subsidiary indirectly owned by
International Minerals Corporations (IMC), to form an entity in order to develop the Pallancata
mining concession with Ludlow owning 60 per cent and Minorva 40 per cent. Ludlow committed
to contribute US$6 million and Minorva committed to contribute US$4 million for the
development of the project.
178

Part IXIFRS historical financial information

On 10 July 2006, Minera Coriorco S.A.C. (Coriorco) (now renamed Pallancata Holding S.A.C.)
received the rights of Ludlow and on 16 August 2006 signed an agreement with Minorva to
constitute Minera Suyamarca S.A.C. (Suyamarca), with capital stock of US$10 million. The initial
capital contribution amounted to US$3 million from Coriorco and US$1 million from Minorva. The
remaining capital contribution of Coriorco is to be made in the following 12 months. The
remaining capital contribution of Minorva was to be paid 30 days after the incorporation of
Suyamarca.
Suyamarca will purchase the mining concession rights from Minorva for US$4 million. Suyamarca
has committed to obtain all necessary licences to begin production. Once licences are obtained,
Suyamarca has to develop the mine with a 500 metric ton per day capacity during the first year
after obtaining such licenses and 750 metric tons per day as from the second year. Suyamarca will
be subject to an advance production payment in case of failure to comply with these
commitments. The advance production payment would be equal to 40% of quarterly net cash
flow that would have been generated.
(d) Exmin project
On 30 June 2006 Minera Hochschild Mexico S.A. de C.V. (MHM) and Exmin S.A. de C.V.
(Exmin) signed an option contract with Minera Moris S.A. de C.V. to purchase the Santa Mara
de Moris Mine (Mina Moris) for US$6 million. MHM agreed to pay US$4.5 million (70 per cent.
of participation) and Exmin agreed to pay US$1.5 million) (30 per cent. of participation). On
11 July 2006 the Group and Exmin paid the first instalment of such contract of US$1,500,000 as
follows: US$1,050,000 as a payment by the Group and US$450,000 as the payment by Exmin, the
latter of which has been paid with a loan from the Group. In accordance with the contract, the
final amount of US$4.5 million shall be paid up by 30 December 2006. Once all conditions of the
agreement are satisfied, the Group will be committed to this final amount.
The contract establishes that the right to mine Mina Moris will be transferred to MHM and Exmin
if: i) MHM and Exmin pay the final amount of US$4.5 million and ii) the owner cancels all the
encumbrances attached to Mina Moris and permit MHM and Exmin full access to the assets to be
transferred. In addition, if MHM and Exmin decide not to continue with the purchase of the mine,
the amount of US$1,500,000 paid in advance will not be recovered. This acquisition is expected to
complete on 30 December 2006 unless MHM and Exmin decide not to continue with the purchase
of the mine.
(e) San Felipe project
On 13 May 2006 MHM and Grupo Serrana S.A. de C.V. (Serrana) entered into an agreement to
explore the mining rights of the concessions owned by Serrana which include San Felipe. In this
regard, MHM has paid US$200,000 and will invest in exploration expenses in the next 3 years in an
aggregate amount of US$6.7 million. MHM is not committed to any minimum expenditure during
the first year. However after the first year, should MHM wish to continue to explore the mining
concessions, it will be committed to the remaining balance of the US$6.7 million. If MHM decides
not to continue to explore the mine, it will be subject to a penalty equivalent to the difference
between US$2,000,000 and 30 per cent. of any investment already made in the mining
concessions. Once the exploration expenses have been paid, MHM and Serrana agree to constitute
a new company to develop the mining concessions owned by Serrana including the San Felipe
project. The new company is to invest US$27 million on the mine before end of the fifth year.
(f) Colorada project
As outlined in Note 4, on 30 June 2006, the Group acquired a 30 per cent. controlling interest in
Minera Colorada S.A.C. (Colorada), an exploration company, from Cementos Pacasmayo S.A.A.
(Pacasmayo). Under the agreement, the Group and Pacasmayo have the option to increase their
179

Part IXIFRS historical financial information

Colorada Project (continued)
combined participation from 50 per cent. to 65 per cent. if the Group invest US$1 million in
exploration expenses in the project by August 2009. Additionally, Killacolqui have the option to
increase its participation from 50 per cent. to 80 per cent. if, in the exploration stage of the
project, the percentage of silver in the resource is above the 50% of the total mine and elects to
fund the feasibility study.
(g) Operating lease contract
The Group leases certain vehicles under an operating lease agreement with Mitsui.
In addition the company has an operating lease agreement to lease drilling equipment with
Sandvick which matures in August 2006.
The lease expenditure charge to the income statement during the years /period is disclosed in
Notes 6 and 7.
As of 31 December 2003, 2004 and 2005 and as of 30 June 2006 the future aggregate minimum
lease payments under the operating lease agreement are as follows:
For the six-months
period ended
30 June
2006

For the year ended

31 December
2003

2004

2005

US$(000)

Not later than one year *****************************************************

Later than one year and not later than five years*****************************

731
510

632
280

633
266

877
1,076

(h) Capital expenditure

A summary of capital expenditure commitment is as follows:
As of 31 December
2005

As of 30 June
2006

2003

2004

1,448

2,190
2,411

276

1,877
4,900

1,448

4,601

276

6,777

US$(000)

Peru *************************************************************************
Argentina ********************************************************************

33 CONTINGENCIES
As of 30 June 2006, the Group has the following contingencies:
(a) Tax assessment
Minera Arcata received a tax assessment of US$700,000 from the Peruvian Tax Authority relating
to VAT fiscal credit and exports for the period from January to December 2003 the authorities
consider such sales as local sales, instead of export sales, which are subject to VAT. This assessment
is currently under appeal.
Management, having consulted legal counsel, considers that there are grounds to believe that the
outcome of these proceedings will be favourable to Minera Arcata, that an export transaction has
occurred with overseas customer, as the goods left the country to be used or consumed abroad, as
established under the applicable laws and regulations for goods to be eligible to use the export
tax relief.
180

Part IXIFRS historical financial information

33 CONTINGENCIES (continued)
(b) Dispute with Electroperu
a Minera Ares has a dispute with Electroperu S.A. (Electroperu)
regarding the electric
Compan
power it used during November and December 2002 which was simultaneously billed by

a Minera Ares has filed a

Electroperu and Sociedad Electrica
del Sur Oeste S.A. (SEAL). Compan
claim with Osinerg (the Peruvian power regulator) claiming that the billing should only be for the
actual power consumed by the company and that Electroperu and SEAL should each have half the
billing.
Electroperu has filed an administrative court action against the resolution issued by Osinerg and
initiated an arbitration process seeking to additionally collect S/.832,135, plus interest. The
Arbitration Court issued a decision dated 19 August 2005, comprising a resolution dated
23 September 2005, stating that it has the competence to resolve the dispute and declaring in

favour of Electroperu.
a Minera Ares has requested the Civil Courtroom of the Supreme Court of Lima to declare
Compan
the Arbitration Court decision as null and void and has filed an appeal against the resolution of
the Arbitration Court on the grounds that it affects constitutional rights. In connection with the
a Minera Ares has obtained a resolution suspending the Arbitration Court
appeal, Compan
decision.
Management, having consulted legal counsel, considers that there is a reasonable possibility that
a Minera Ares.
the outcome of these proceedings will be favourable to Compan
(c) Income tax refund due
entered into a sale and leaseback arrangement in respect of a building with Credito
In 2000, Sipan
claimed a tax deduction for the
Leasing S.A. (Credileasing). Through this arrangement, Sipan
total costs of the building over the four month contract term as opposed to the useful life of the
building of 33 years.
The Peruvian Tax Authority is challenging the deductibility of the monthly contract payments,
associated interest costs on the loan from Credileasing to fund the finance lease payments and
various other expenses for Sipan. They have issued an assessment for 2000 for current income tax,
including interest, of approximately US$0.6 million and a fine of approximately US$2.1 million.
Sipan appealed against this assessment.
Based on the facts, management considers that the finance lease payments, interest and expenses
should be deductible for tax purposes. However, the Tax Court ruled that the finance leasing
contract was in fact a purchase of assets as the real intention of the company was not to enter into
a finance leasing contract but to acquire a building. The Tax Courts decision was made on the

basis that the building was previously owned by a related entity of Sipan,
(being Mauricio
Hochschild & Cia S.A.C.) which had transferred it to Credileasing in the same year, the leasing
obtained a loan for the same amount as
contract was only for a period of four months and Sipan
the finance lease payments from a bank economically related to Credileasing on the date the
finance leasing contract was signed.
appealed this decision but it was upheld by the Superior Court and so Sipan
has filed an
Sipan
appeal with the Supreme Court. This appeal is currently waiting to be heard.
Under the Peruvian Tax Code, the Tax Administration and Tax Court must consider the taxable
nature of a transaction based on the economic facts and should not adopt a different
has contested the rulings on this basis.
interpretation of those facts. Sipan
Notwithstanding the foregoing, given that the company has lost at the administrative stage, this
exposure is considered as possible.
181

Part IXIFRS historical financial information

(d) Taxation
Fiscal periods remain open to review by the tax authorities in respect of taxes for four years in
Peru, five years in Argentina and five years in Mexico, preceding the year of review during which
time the authorities have the right to raise additional tax assessments including penalties and
interest. Under certain circumstances reviews may cover longer periods.
The Directors have identified actual and possible tax claims (including those shown above) within
the various jurisdictions in which it operates totaling US$12 million as at 30 June 2006. In addition,
because a number of fiscal periods remain open to review by the tax authorities, coupled with the
complexity of the Group and the transactions they have undertaken, there remains a risk that
significant additional tax liabilities may arise. Notwithstanding this risk, the Directors believe that
managements interpretation of the relevant legislation and assessment of taxation is appropriate
and that it is probable that the Groups tax and customs positions will be sustained in the event of
a challenge by the tax authorities. Consequently, the Directors consider that they have made
adequate provision for any future outflow of resources and no additional provision is required in
respect of these claims or risks.
(e) Other
The Group has conducted its operations in the ordinary course of business in accordance with its
understanding and interpretation, and based on advice of legal counsel, of applicable legislation
in the countries where the Group has operations. In certain specific transactions. However, the
relevant authorities could have a different interpretation of those laws and regulations that could
lead to contingencies or additional liabilities for the Group. Having consulted legal counsel,
Management believes that it has reasonable grounds to support its position.
34 GUARANTEES AND INVESTMENT PROMOTION MEASURES CONTRACT
a Minera Ares
Compan
a Minera Ares started a mining investments programme approved by the
In 1995, Compan
General Mine Direction of the Energy and Mines Ministry through Directoral Resolution No330-95
EM/DG issued on 29 December 1995, for an amount of US$13,590,000 which was financed by
a Minera Ares and loans from third parties. With the approved program, Compan
a
Compan
Minera Ares subscribed a guarantees and investment promotion measures contract with the
Peruvian Government for a ten-year term that commenced on the date in which the final
investment was made. Likewise, through Directoral Resolution 080-97-EM/DGM dated 25 February
1997, an increase of the investments programme to US$24,760,000 was approved due to the
greater potential of the mining site.
The main works and labours contained in the investment plan are the following:
Access and mine preparation labour;
Plant buildings construction;
Plant equipment assembly;
Tailings dam constructions;
Power supply system construction;
Water supply system construction; and
Auxiliary services construction.
a Minera Ares in March 1998. The total
The investment programme was completed by Compan
amount invested by the company and demonstrated to the Ministry of Energy and Mines was
approximately US$33,274,000 at 31 December 1999. Through Directoral Resolution
182

Part IXIFRS historical financial information

34 GUARANTEES AND INVESTMENT PROMOTION MEASURES CONTRACT (continued)
a Minera Ares (continued)
Compan
189-99-EM/DGM dated 28 October 1999, the Ministry of Energy and Mines granted legal stability
a Minera Ares starting 1 January 1999 for a ten-year term.
to Compan
By virtue of the above-mentioned contract, the Peruvian Government is obliged to guarantee
legal stability to the Company based on the following terms:
(a) Free trade of its products, meaning that the Government cannot apply restrictions such as:
Limiting the companys ability to sell anywhere;
Suspending or postponing internal sales and/or exports;
Requiring sales to any market, local or foreign; or
Requiring payment for such products based on an exchange of goods or services or in a
currency not valid to make international payments.
(b) Banco Central de Reserva del Peru as representative of the Peruvian Government also granted
a Minera Ares, during the term of the contract:
the following rights in favour of Compan
Free access inside and outside of the country and to currencies generated by exports
subject to laws in force at the date of the contract.
Free exchange to foreign currency of local currency generated by internal mining
production.
No discrimination in relation to the exchange rate issued by Banco Central de Reserva del
Peru for similar transactions.
a Minera Ares will have the right to totally or partially decide to be governed,
Compan
when it considers pertinent, under new legal dispositions on exchange matters or
exchange norms issued during the term of the contract, including the dispositions and
the norms that have to do with exchange aspects not contemplated in the contract, as
long as they have a general character or are applicable to the mining activity. The
decision to be subject to the new dispositions or norms will not affect the term of the
stability arrangements, or the exercise of rights other than those contemplated in the
new dispositions or norms.
a Minera Ares decides to be governed under new legislation for a specific
If Compan
period, it has the rights to revert back to previous legislation and apply that legislation
for the same period. This decision does not generate new rights or obligations.
a Minera Ares will enjoy legal stability related to the Ares mining unit, without being
(c) Compan
affected by modifications or new norms. The legal stability guarantee provides, additionally,
that the following taxes will remain constant with those at the approval date:
Income tax, including the way it is determined and the rates applied;
The calculation of compensation and/or tax refunds;
The municipal taxes rates; and
The custom taxes rates.
(d) In the framework of administrative stability, the following is understood:
The vesting rights of the mining concessions with a rate of US$2.00 per hectare per year,
and in the case of profit concessions, the number of Tax Units (UIT), which corresponds.
183

Part IXIFRS historical financial information

35 MINING ROYALTY
On 24 June 2004, the Peruvian Congress approved Law 28258Mining Royalties Law. This law
established a mining royalty that owners of mining concessions must pay for the exploitation of
metallic and non-metallic resources. The mining royalties are calculated with rates ranging from
1 per cent. to 3 per cent. of the value of mineral concentrates or equivalent, according to the
quoted market price published by the Ministry of Energy and Mines. The corresponding
regulation was approved on 15 November 2004. Payment of royalties for the period 1 July 2004 to
31 December 2004 was due in January 2005 and thereafter royalties are payable monthly. As of
30 June 2006, the amount payable as mining royalties for the mining units of Selene and Arcata
amounted to approximately US$587,000 (US$145,000 and US$296,000 at 31 December 2005 and
2004), and was recorded in the caption Trade and other payables of the balance sheet.
Management, having consulted with legal counsel, is of the opinion that the Ares mining unit has
not been affected by this law and therefore need not make any royalty payments or provisions for
such payments due to the fact that it has the legal stability agreement.
36 FINANCIAL RISK MANAGEMENT
(a) Foreign currency risk
The Group principally produces silver and gold which are typically priced in US dollars. A
proportion of the Groups costs are incurred in Nuevo Sol. Accordingly, the Groups financial
results may be affected by exchange rate fluctuations between the US dollar and the Nuevo Sol.
The Group does not use derivative instruments to manage its foreign currency risks.
(b) Commodity price risk
Silver and gold prices have a material impact on the Groups results of operations. Prices are
significantly affected by changes in global economic conditions and related industry cycles.
Generally, producers of silver and gold are unable to influence prices directly; however, the Group
profitability is obtained through the control of its cost base and the efficiency of its operations. At
30 June 2006 the Hochschild Group has only a limited proportion of its output subject to hedging
arrangements. The Group manages its commodity price risk mainly with fixed price sales
commitments or with caps and floors built into sales contracts.
(c) Credit risk
Credit risk arises from debtors inability to make payment of their obligations to the Group as they
become due (without taking into account the fair value of any guarantee or pledged assets); and
by non-compliance by the counterparties in transactions in cash, which is limited, to balances
deposited in banks and accounts receivable at the balance sheets date. To manage this risk, the
Group deposits its surplus funds in highly-rated financial institutions, establishes conservative
credit policies and constantly evaluates the conditions of the market in which it conducts its
activities. Consequently, the Group does not expect to incur significant losses on account of credit
risk.
Credit risk concentrations exist when changes in economic, industrial or geographic factors take
place, affecting in the same manner the Groups counterparties whose added risk exposure is
significant to the Groups total credit exposure. The Groups portfolio of customers is
concentrated in three customers domiciled in foreign countries that represent 81 per cent of the
total net sales during the year 2005. Derivatives are executed with different counterparties to
avoid concentration of credit risk.
184

Part IXIFRS historical financial information

36 FINANCIAL RISK MANAGEMENT (continued)
(d) Liquidity risk
Liquidity risk arises from the Groups inability to obtain the funds it requires to comply with its
commitments under financial instruments including the inability to sell a financial asset quickly at
a price close to its fair value. Management believes that it will have access to adequate credit on
reasonable terms from highly-rated financial instruments.
(e) Interest rate risk
The Group has financial assets and liabilities which are exposed to interest rate risk. Changes in
interest rates impact primarily loans and borrowings by changing either their fair value (fixed rate
debt) or their future cash flows (variable rate debt). The Group does not have a formal policy of
determining how much of its exposure should be at fixed or at variable rates. However, at the
time of taking new loans or borrowings management uses its judgment to decide whether it
believes that a fixed or variable rate borrowing would be more favourable to the Group over the
expected period until maturity.
Interest on financial instruments classified as floating rate is re-priced at intervals of less than one
year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the
instrument. The other financial instruments of the Company are non-interest bearing and are
therefore not subject to interest rate risk.
37 SUBSEQUENT EVENTS
(a) On 4 August 2006 the term of the warrants to purchase 331,800 shares of Rio Fortuna
Exploration Group for Can$179,172 expired. The Group did not exercise this option (Note 17).
(b) As described in Note 32(c), on 10 July 2006, Minera Coriorco S.A.C. (Coriorco) received the rights
of Ludlow to the Pallancata project, and on 16 August 2006 signed an agreement with Minorva
to constitute Minera Suyamarca S.A.C. (Suyamarca). Suyamarca was incorporated with an initial
capital contribution of US$3 million from Coriorco, and US$1 million from Minorva.

(c) On 4 October 2006 the Group entered into a promissory note with Banco de Credito
del Peru
for US$20 million, that will go to Minera Santa Cruz (51 per cent.) and Minera Andes (49 per
cent.) as a bridge loan for the San Jose project until Minera Santa Cruz obtains finance from
the Group with part of the proceeds from the Global Offer.
(d) On 18 September 2006, the Hochschild Mining Group entered into a letter of intent with Mirasol
Resources Ltd. relating to an option and joint venture agreement to explore for, and develop
and mine, minerals at two sites (Santa Rita and Claudia) in Argentina. Under the arrangements,
the Hochschild Mining Group will have the right to acquire a 51 per cent. interest in each project
by investing at least US$3.5 million in the Santa Rita project and US$6.0 million in the Claudia
project as well as making four annual payments of US$200,000 each to Mirasol. The Hochschild
Mining Group paid US$150,000 on signing the letter of intent.
(e) During October 2006 the Group net settled all of their related party balances, including the
dividends payable to Dona, with the exception of the amounts owing from Cementos
Pacasmayo S.A.A., a US$1 million receivable from Greystone Corporation and a portion of the
dividend referred to in paragraph (f) below. The net amount owing was settled primarily
through the transfer of the entire amount of the Groups Other financial assets at fair value
through profit and loss, with the balance paid in cash.
(f) On 16 October 2006 the Group declared a dividend to its shareholder of US$20 million, which
was settled in part as a result of the net settlement process referred to in paragraph (e) above.
(g) On 2 November 2006 the Company entered into the Share Exchange Agreement described in
Note 1.
185

PART X:
Unaudited pro forma financial information
Section A: Unaudited pro forma balance sheet

PRA1 20.4.3

The following pro forma balance sheet of the Hochschild Mining Group as at 30 June 2006 is
prepared for illustrative purposes only and, because of its nature, addresses a hypothetical
situation and therefore does not represent the actual financial position or results of the
Hochschild Mining Group. It is prepared to illustrate the effect on the consolidated balance sheet
of the Hochschild Mining Group of the Global Offer, as if the Global Offer had taken place on
30 June 2006, and is based on the consolidated balance sheet of the Hochschild Mining Group at
30 June 2006 extracted without material adjustment from the financial information set out in
Section B: IFRS Historical Financial Information of Part IX: IFRS Historical Financial Information.
The unaudited proforma balance sheet includes certain adjustments to reflect the insertion of
Hochschild Mining plc as the holding company for the Hochschild Mining Group, the proposed
Global Offer and share capital reduction. However, adjustments have been made in accordance
with item 6 of Annex II of the Prospectus Regulation.
Adjustments

Hochschild Settlement of
Mining related party
Group
balances
(Note 1)
(Note 2)
ASSETS
Non-current assets
Property, plant and
equipment*********
Intangible assets *****
Available-for-sale
financial assets*****
Deferred income tax
assets *************
Trade and other
receivables*********

Current assets
Inventories **********
Trade and other
receivables*********
Derivative financial
instruments ********
Other financial assets
at fair value
through profit and
loss ***************
Cash and cash
equivalents ********

Insertion of
Additional Hochschild plc
share capital
as group
Hochschild
subscription by
holding Global Offer Reduction in
Mining
Hochschild plc
company adjustments share capital Dividend
Group
(Note 3)
(Note 4)
(Note 5)
(Note 6) (Note 7) Pro forma
US$(000)

67,155
2,321

67,155
2,321

4,135

4,135

14,880

14,880

5,982

5,982

94,473

94,473

14,002

14,002

95

21,871

11,524

241

81,347
11,524

19,324
6,043
132,240

Assets classified as
held for sale *******

3,003

Total assets **********

229,716

(59,571)

(19,083)

(78,654)

(78,654)

476,761

482,804

95

476,761

530,442

3,003

95

476,761

627,918

EQUITY AND
LIABILITIES
Equity share capital **
Share premium ******
Other reserves *******
Retained earnings****

9,187

1,696
(561)

95

Equity attributable to
the shareholders of
the parent*********
Minority shareholders

10,322
(3,841)

95

476,761

Total equity *********

6,481

95

476,761

186

210,230

(210,230)

73,824
402,937

(146,668)

146,668

(20,000)

146,668
402,937
(208,534)
126,107

(20,000)

467,178
(3,841)

(20,000)

463,337

PRA2 1

PRA2 2, 3, 5, 6

Part X: Unaudited pro forma financial information

Adjustments

Hochschild Settlement of
Mining related party
Group
balances
(Note 1)
(Note 2)
Non-current liabilities
Trade and other
payables***********
Borrowings **********
Provisions************
Deferred income tax
liabilities **********

Insertion of
Additional Hochschild plc
share capital
as group
Hochschild
subscription by
holding Global Offer Reduction in
Mining
Hochschild plc
company adjustments share capital Dividend
Group
(Note 3)
(Note 4)
(Note 5)
(Note 6) (Note 7) Pro forma
US$(000)

3,450
30,315
33,183

20,000

23,450
30,315
33,183

3,097

3,097

70,045

20,000

90,045

30,229
36,532

7,775

Current liabilities
Trade and other
payables***********
Borrowings **********
Provisions************
Income tax payable **

91,032
54,383

7,775
153,190

(78,654)

74,536

Total liabilities *******

223,235

(78,654)

20,000

164,581

Total equity and

liabilities **********

229,716

(78,654)

95

476,761

627,918

(60,803)
(17,851)

Notes:
1 The consolidated balance sheet of the Hochschild Mining Group as at 30 June 2006 has been extracted without material
adjustment from Section B: IFRS Historical Financial Information of Part IX: IFRS Historical Financial Information.
2 The payment to settle certain related party balances prior to Admission paid from other financial assets at fair value
through profit and loss.
(US$000)

Related party accounts receivable************************************************************************

Related party accounts payable**************************************************************************
Dividend previously declared and unpaid*****************************************************************

59,571
(17,851)
(60,803)

Outstanding related party balance paid ******************************************************************

(19,083)

3 The allotment and issue to Pelham Investments of 49,999 ordinary shares in the Company at a nominal value of 1 each
in accordance with paragraph 2.3 Part XIV: Additional Information (49,999 (US$95,438)) and the subsequent split of the
Companys 50,000 issued shares into 100,000 shares of nominal value of 0.50 each.
4 The allotment and issue in aggregate to Pelham Investment Corporation and Navajo Overseas Corporation of
229,900,000 ordinary shares in the Company at nominal value of 0.50 (114,950,000 (US$219,416,560)) pursuant to the
share exchange agreement in accordance with paragraph 2.5 Part XIV: Additional Information. The adjustment includes
a consolidating entry necessary to eliminate the share capital in relation to the combined companies under the pooling of
interest method accounting (US$9,187,000).
(US$000)

Allotment and issue of shares to Pelham Investment Corporation and Navajo Overseas Corporation *********
Elimination of share capital of combined companies ******************************************************

219,417
(9,187)
210,230

5 Net estimated proceeds of the Global Offer, non-executive director share subscription and employee offer.
(US$000)

Global Offer proceeds **********************************************************************************

Non-executive director share subscription and employee offer proceeds ************************************
Offer expenses *****************************************************************************************

516,092
669
(40,000)

Net estimated proceeds of the Global Offer, non-executive director share subscription and employee offer***

476,761

Global Offer gross proceeds of US$516 million are based on 77,250,000 Ordinary Shares being issued by the Company
under the Global Offer each at an offer price of 3.50 based on a nominal value of 0.50 (38,625,000 (US$73,727,400))
and premium of 3.00 (231,750,000 (US$442,364,400)) to its nominal value extracted without material adjustment from
paragraph 19.2 of Part XIV: Additional Information. Non-executive director share subscription and employee offer
proceeds of US$669,000 are based on 100,226 Ordinary Shares being issued by the Company under both the non-executive
director share subscription and employee offer each at an offer price of 3.50 based on a nominal value of 0.50 (50,100
(US$97,000)), and a premium of 3.00 (300,000 (US$572,000)) to its nominal value. Offer expenses are the estimated fees

187

PRA2 4

Part X: Unaudited pro forma financial information

and expenses incurred in connection with the Global Offer of US$40 million relating principally to investment banking,
underwriting, legal and accounting fees. Offer expenses have been extracted without material adjustment from paragraph
19.1 Part XIV: Additional Information. The exchange rate used was 1: US$1.9088.
6 Reduction in the nominal value of 307,350,226 shares in issue from 0.50p each to 0.25p each in accordance with
paragraph 2.2.6 Part XIV: Additional Information.
(US$000)

Nominal value of 307,350,226 shares in issue at 0.25p each (76,837,557) **********************************

Distributable reserves created from reduction in share capital (76,837,557) ********************************

146,668
146,668
293,336

7 Declaration of a US$20 million dividend as disclosed in note 37 of Part IX: IFRS Historical Financial Information. The
dividend is to be partially settled as part of the net settlement of outstanding related party balances referred to in
paragraph (e), note 37 of Part IX: IFRS Historical Financial Information with the balance to be paid after Admission.
These related party balances differ from those disclosed in note 2 above, which are stated as at 30 June 2006, owing to the
movement in such balances after 30 June 2006.
8 No account has been taken of any trading or other transactions since 30 June 2006.

Impact on earnings
The Directors believe that, had the Global Offer occurred at the beginning of the last financial
period, the combined income statement would have been impacted. Assuming that a portion of
the net offer proceeds are applied to reduce the borrowings of the Hochschild Mining Group, the
impact would be to reduce finance costs associated with bank loans. Additional finance income
would also be generated from interest earned on increased cash deposits arising from any
unutilised net offer proceeds. A reduction in finance costs and additional finance income would
result in an increased taxation charge. This statement should not be taken to mean that the
earnings per share of the Hochschild Mining Group will necessarily match or exceed the historical
reported earnings per share of the Hochschild Mining Group and no forecast is intended or
implied.

188

Part X: Unaudited pro forma financial information

Section B: Accountants report on unaudited pro forma financial information

PRA1 20.1,
20.2, 20.3,

The Directors
Hochschild Mining plc
Pasaje El Carmen No. 180
Surco
Lima 33
Peru

20.4.1,
20.5.1

3 November 2006

Dear Sirs
Hochschild Mining plc (the Company)
We report on the pro forma financial information (the Pro Forma Financial Information) set out
in Part X: Unaudited pro forma Financial Information of the Prospectus dated 3 November 2006,
which has been prepared on the basis described in the notes to the Proforma balance sheet, for
illustrative purposes only, to provide information about how the transaction might have affected
the financial information presented on the basis of the accounting policies to be adopted by the
Company in preparing the financial statements for the period ended 30 June 2006. This report is
required by Annex I item 20.2 of the Prospectus Regulation and is given for the purpose of
complying with that item and for no other purpose.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the
extent there provided, to the fullest extent permitted by law we do not assume any responsibility
and will not accept any liability to any other person for any loss suffered by any such other person
as a result of, arising out of, or in connection with this report or our statement, required by and
given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation),
consenting to its inclusion in the prospectus.
Responsibilities
It is the responsibility of the directors of the Company to prepare the Pro Forma Financial
Information in accordance with Annex I item 20.2 of the PD Regulation.
It is our responsibility to form an opinion, as required by Annex II item 7 of the Prospectus
Regulation, as to the proper compilation of the Pro Forma Financial Information and to report
that opinion to you.
In providing this opinion we are not updating or refreshing any reports or opinions previously
made by us on any financial information used in the compilation of the Pro Forma Financial
Information, nor do we accept responsibility for such reports or opinions beyond that owed to
those to whom those reports or opinions were addressed by us at the dates of their issue.
Basis of opinion
We conducted our work in accordance with the Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of
making this report, which involved no independent examination of any of the underlying
financial information, consisted primarily of comparing the unadjusted financial information with
the source documents, considering the evidence supporting the adjustments and discussing the
Pro Forma Financial Information with the directors of the Company.
We planned and performed our work so as to obtain the information and explanations we
considered necessary in order to provide us with reasonable assurance that the Pro Forma
189

Part X: Unaudited pro forma financial information

Financial Information has been properly compiled on the basis stated and that such basis is
consistent with the accounting policies of the Company.
Our work has not been carried out in accordance with auditing or other standards and practices
generally accepted in the United States of America or other jurisdictions and accordingly should
not be relied upon as if it had been carried out in accordance with those standards and practices.
Opinion
In our opinion:

PRA2 7

(a) the Pro Forma Financial Information has been properly compiled on the basis stated; and
(b) such basis is consistent with the accounting policies of the Company.
Declaration
For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the
Prospectus and declare that we have taken all reasonable care to ensure that the information
contained in this report is, to the best of our knowledge, in accordance with the facts and contains
no omission likely to affect its import. This declaration is included in the Prospectus in compliance
with item 1.2 of Annex I of the PD Regulation.
Yours faithfully

Ernst & Young LLP

190

Part XI:
Summary of differences between IFRS and US GAAP
The historical financial information in respect of the Hochschild Mining Group (the Group)
included in Part IX: IFRS Historical Financial Information has been prepared in accordance with
the International Financial Reporting Standards (IFRS) adopted by the European Union except
for the purposes of presenting the financial information on a combined basis, in respect of certain
matters explained in Section B of Part IX: IFRS Historical Financial Information.
Significant differences exist between IFRS and US GAAP which might be material to the profits
and shareholders equity shown in the financial information herein.
The principal relevant differences between IFRS and US GAAP that the Directors believe could be
material to the Groups profits and shareholders funds are described below. The Group has not
prepared its financial information in accordance with US GAAP and, accordingly, cannot offer any
assurance that the differences described below are complete or would in fact be the accounting
principles creating the greatest differences between financial information of the Group prepared
under IFRS and US GAAP. The following summary does not include all differences that exist
between IFRS and US GAAP and is not intended to provide a comprehensive listing of all such
differences specifically related to the Group or the industry in which it operates.
The differences described below reflect differences between the accounting policies applied in
preparation of the historical financial information of the Group and US GAAP. There has been no
attempt to identify future differences between IFRS and US GAAP as the result of prescribed
changes in accounting standards, transactions or events that may occur in the future. The
organisations that promulgate IFRS and US GAAP have significant ongoing projects that could
have a significant impact on future comparisons such as the ones between IFRS and US GAAP.
Future developments or changes in either IFRS or US GAAP may give rise to additional differences
between IFRS and US GAAP which could have a significant impact on the Group.
In making an investment decision, investors must rely on their own examination of the Hochschild
Mining Group, the terms of the Global Offer and the financial information included in this
document. Potential investors should consult their own professional advisers for an understanding
of the differences between IFRS and US GAAP and how these differences might affect the
financial information included in this document.
1 First time adoption of IFRS
To comply with European Union legislation, the Group has prepared the historical financial
information in accordance with IFRS, as adopted by the European Union with the exception of the
items on non-compliance outlined in Note 2 Basis of Preparation. The date of transition is 1
January 2003. Under IFRS 1 First time adoption of International Financial Reporting Standards,
IFRSs are applied retrospectively at the transition balance sheet date with all adjustments to assets
and liabilities as stated under the previous accounting principals applied by the companies within
the Group taken to retained earnings unless certain exemptions are applied. The primary
exemptions that have been applied by the Group are:
)

IFRS 3 Business Combinations, IAS 36 (revised) Impairment of assets and IAS 38 (revised)
Intangible assets are not retrospectively applied to business combinations occurring before
1 January 2003;

The cumulative translation differences for all foreign operations have been deemed to be zero
at the date of transition to IFRS; and

The Group has elected to measure certain items of property, plant and equipment at the date
of transition to IFRS at its fair value and use that fair value as its deemed cost at that date.
191

Part XI: Summary of differences between IFRS and

US GAAP
2 Revenue recognition
IFRS contain general principles for revenue recognition. In contrast to this, US GAAP is more
prescriptive and there are many individual pronouncements that cover particular categories of
transactions for particular industries. Under US GAAP, meeting a list of detailed criteria will often
decide whether revenue may be recognised or not. Consequently, where differences do arise
between IRFS and US GAAP, they will occur more as a result of more detailed US GAAP rules than
as a result of fundamental differences over when revenues should be recognised.
3 Property, plant and equipment
Under IFRS, the Group has determined the deemed cost of certain items of property, plant and
equipment at 1 January 2004, the date of transition to IFRS, by reference to their depreciated
replacement cost at that date. For certain other items, deemed cost has been determined by
reference to fair value, determined by a qualified valuer. Under US GAAP, all items of property,
plant and equipment would be recorded at depreciated historical cost less any impairments.
4 Acquisition accounting
Business combinations are accounted for using the purchase method of accounting under both
IFRS and US GAAP. Under the purchase method, assets, liabilities and contingent liabilities
(identifiable net assets) acquired are accounted for at fair value at the date of acquisition. The
excess of the purchase consideration over the fair value of the identifiable net assets acquired is
capitalised as goodwill and is tested for impairment annually or more frequently if events or
changes in circumstances indicate that it might be impaired.
Under IFRS, negative goodwill (referred to as the excess of acquirers interest in the net fair value
of acquirees identifiable assets, liabilities and contingent liabilities over cost) is released to the
income statement immediately, whereas US GAAP requires negative goodwill to be allocated to
reduce proportionately the values assigned to most of the acquired non-current and non-financial
assets with any remaining balance credited to income as an extraordinary gain.
Whilst the purchase method of accounting is used under both IFRS and US GAAP, the balance
sheet measurement of any minority interest in an acquired subsidiary differs between the two.
IFRS requires that any minority interest arising on acquisitions be stated at the minoritys
proportion of the fair values of the identifiable net assets of the acquired subsidiary. This
treatment is not permitted under US GAAP.
The US GAAP treatment would generally result in any minority interests being presented in the
consolidated balance sheet at an amount equal to the minoritys share of the pre-acquisition
carrying amount of the subsidiarys identifiable net assets. When consolidating the assets and
liabilities of an acquired subsidiary that is not wholly owned, the fair value adjustments are
limited to the amount attributable to the parent companys ownership percentage. As a result,
the assets and liabilities of the subsidiary are included on a mixed basis in the consolidated
financial statements.
This also has implications when accounting for the buy-out of minority interest holders. Under
IFRS no adjustment is made to the carrying amount of a subsidiarys net assets in the consolidated
balance sheet when a minority interest is purchased. Under US GAAP, the portion of identifiable
net assets acquired from minority interest holders is adjusted to fair value.
Calculating the purchase consideration for an acquisition may also differ between IFRS and
US GAAP. Specifically when the purchase consideration includes equity instruments that have
been issued by the acquirer IFRS requires that their value be calculated on the date of exchange.
US GAAP however specifies that their value be based on a reasonable period of time before and
192

Part XI: Summary of differences between IFRS and

US GAAP
after the date on which the terms of the acquisition are agreed and announced. Since there may
be an extended period of time between the announcement date and closing date, this can cause a
significant difference in the measurement of the purchase consideration.
Differences in purchase consideration can also arise where contingent consideration may be
payable on an acquisition. IFRS requires that contingent consideration be recorded at the date of
acquisition if it is probable that the conditions for the payment of contingent consideration will
be met and the amount can be reliably measured. Any subsequent adjustments to contingent
consideration will be reflected in the carrying amount of goodwill. Under US GAAP, however,
contingent consideration is usually recorded only when the contingency is resolved and
consideration is issued or becomes issuable.
5 Interest costs
Under IFRS, borrowing costs may either be expensed as incurred or capitalised and included in the
cost of acquiring, constructing or producing a qualifying asset. The Group expenses all borrowing
costs as incurred, using the effective interest method.
Under US GAAP, borrowing costs would be capitalised as part of the historical cost of acquiring or
constructing all qualifying assets.
6 Provision
Under IFRS, provision is made when an entity (1) has a present obligation (legal or constructive) as
a result of past events, (2) it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and (3) a reliable estimate can be made. Full
provision is made based on the net present value of the estimated cost of the obligation that has
arisen up to the balance sheet date. Annual increases in the provision relating to a change in the
net present value of the provision and inflationary increases are shown separately in the income
statement.
The recognition criteria for provisions under US GAAP are similar to those under IFRS but are more
prescriptive and there are many individual pronouncements that cover the recognition of
particular provisions for particular activities. Additionally, whilst IFRS require the time value of
money to be taken into account when making a provision, US GAAP only permits provisions to be
discounted where the timing and amounts of payments are fixed or reliably determinable, or
where the obligation is a fair value obligation. Since the very nature of provisions is such that the
timing of payments is uncertain, this means that it can be difficult to account for a provision on a
discounted basis under US GAAP.
7 Environmental protection, rehabilitation and closure costs
IFRS and US GAAP both require that liabilities be recognised in respect of obligations for
environmental protection, rehabilitation and closure costs.
Under IFRS, provision is made for close down, restoration and for environmental rehabilitation
costs (which include the dismantling and demolition of infrastructure, removal of residual
materials and remediation of disturbed areas) in the accounting period when the related
environmental disturbance occurs, based on the estimated future costs using information
available at the balance sheet date. The provision is discounted using a current market based pretax discount rate and the unwinding of the discount is included in interest expense.
At the time of establishing the provision, a corresponding asset is capitalised, where it gives rise to
a future benefit, and depreciated over future production from the mine to which it relates.
193

Part XI: Summary of differences between IFRS and

US GAAP
Whilst accounting for these liabilities under US GAAP is broadly consistent with IFRS, there are
differences in the way the provisions are calculated which may affect the amount of the liability
recorded.
US GAAP requires that the provision be based on the fair value to restore the area based on an
entitys legal obligations. The fair value is an estimate of the amount that a third party would
demand, in an arms length transaction, to assume the liability at the reporting date. This is
different to IFRS which requires management to estimate the future cost of restoring the area at
the time this is expected to occur for both legal and constructive obligations. The interest rates
used to discount these costs may also differ. IFRS requires the use of a pre-tax discount rate
whereas, US GAAP requires the use of credit adjusted-risk free interest rate.
There are also differences in the way that changes to original assumptions are accounted for in
periods after the initial recognition of the liability. Under IFRS provisions are reviewed and
adjusted on an annual basis for changes in both cash flow and discounting assumptions. Under US
GAAP no changes can be made to the interest rate used to discount the original provision except
in instances where expected future cash flows increase. In this case the incremental cash flows are
discounted at the credit-adjusted risk-free interest rate applicable at the date of the revision.
8 Impairment
Tangible non-current assets and amortised intangibles
Both IFRS and US GAAP require that non-current tangible assets and amortised identifiable
intangibles be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Impairment, however, may be
recognised at different times under IFRS and US GAAP.
Under IFRS, the impairment test for determining the recoverable amount of non-current assets is
the higher of net selling price and value in use, being the discounted future cash flows to be
generated by the asset. To the extent that the carrying amount exceeds the recoverable amount,
the fixed asset is written down to the recoverable amount.
Under US GAAP, assets are evaluated for impairment first on an undiscounted basis by comparing
the estimated sum of the undiscounted cash flows attributable to the asset with its carrying
amount. Only if the asset fails this recoverability test will the amount of the impairment be
calculated by comparing the assets carrying amount to its fair value.
Goodwill and unamortised intangibles
Under IFRS, goodwill and unamortised intangible assets are tested for impairment annually in the
way described under Acquisition accounting above. Goodwill is tested by allocating it to a cash
generating unit or group of cash generating units.
Under US GAAP goodwill is assigned to a reporting unit of the business on acquisition. Each
reporting unit that has been assigned goodwill must then be reviewed annually to indemnify
potential impairment. Initially, the fair value of a reporting unit should be compared with its
carrying amount. If the carrying amount of a reporting unit, including goodwill exceeds its fair
value then the goodwill should be tested to measure the amount of the impairment loss, if any.
This second test compares the implied fair value of the goodwill with the carrying amount of that
goodwill. The implied fair value is calculated by allocating the fair value of the reporting unit to
identifiable assets and liabilities and calculating goodwill in the same way as on original
acquisition.
US GAAP also requires an annual test to be carried out on a intangible assets other than goodwill
that are not amortised. Additional impairment tests are required when impairment indicators are
194

Part XI: Summary of differences between IFRS and

US GAAP
identified. The impairment test requires the assets carrying amount to be compared to its fair
value, which is defined as the amount at which it could be sold to a wiling party. There is no
intermediate comparison to associated undiscounted cashflows.
Reversal of impairment
IFRS requires an impairment charge to be reversed for an asset (other than goodwill) if there has
been a change in the estimates used to determine the assets recoverable amount since the last
impairment loss was recognised. US GAAP does not allow the reversal of impairment losses
previously recognised.
9 Deferred tax
The broad principle under both IFRS and US GAAP is that a deferred tax liability or asset should be
recognised for all temporary differences, with some exceptions. Differences mainly occur due to
other IFRS to US GAAP adjustments made to the income statement or balance sheet which have
consequential effects on the deferred tax liability or asset.
IFRS and US GAAP use a balance sheet concept of temporary differences between the carrying
amount of an asset or liability and its tax base. Temporary differences include not only timing
differences but other differences between the accounting and tax bases of assets and liabilities,
such as a revaluation of assets for which no equivalent adjustment is made for tax purposes.
Under IFRS deferred tax liabilities (assets) are measured based on tax laws and tax rates that are
expected to apply in the period they are settled (realised), which are exacted or substantively
exacted by the balance sheet date, under US GAAP, the deferred taxation is provided using
exacted tax rates at the reporting date; the effects of future changes in tax laws are not
anticipated.
10 Accounting for financial instruments
Whilst accounting for financial instruments is broadly consistent under IFRS and US GAAP, there
are subtle differences that may impact the accounting adopted in certain instances. For example,
differences include:
) The classification of financial assets differs between IFRS and US GAAP. These differences may
affect the accounting adopted for a particular financial asset. For example, under US GAAP
items are only accounted for as available-for-sale assets if they do not meet the definition of
any of the other categories, while under IFRS it is also possible to designate certain financial
assets as available-for-sale;
) The point of derecognising a financial asset may differ between IFRS and US GAAP. This is likely
to occur in situations where legal control is retained by the transferor whilst substantially all
risks and rewards have been transferred;
) Under IFRS all investments in equity securities, except investments in consolidated subsidiaries
and investments accounted for under the equity method, should be measured at fair value
unless the fair value cannot be reliably measured. This differs from US GAAP under which
investments in unlisted equity securities should be accounted for at historical cost; and
) Under IFRS it is possible for impairment losses to be reversed, however this is not possible under
US GAAP.
195

Part XI: Summary of differences between IFRS and

US GAAP
11 Start-up costs
Under IFRS, certain start-up losses during the commissioning period of a new installation qualify
for capitalisation and are amortised over the economic lives of the relevant assets.
US GAAP requires that the costs of start-up activities are expensed as incurred.

196

Part XII:
Details of the Global Offer
1 Summary of the Global Offer
Under the Global Offer, the Company will issue 77,250,000 Ordinary Shares, raising proceeds of
approximately 249 million, net of underwriting commissions and other estimated fees and
expenses. The Ordinary Shares to be issued under the Global Offer are expected to represent
approximately 25 per cent. of the expected issued Ordinary Share capital of the Company
immediately following Admission. In addition, an additional 11,587,500 Ordinary Shares, in
aggregate, are being made available by the Over-allotment Shareholders pursuant to the Overallotment Option described below to cover over-allotments (if any) made in connection with the
Global Offer and to cover short positions resulting from stabilisation transactions.

PRA3 5.1.2

The Global Offer is being made by way of an offering of Ordinary Shares to qualified investors in
certain member states of the EEA, including to institutional investors in the United Kingdom, and
certain other institutional investors outside the United States in reliance on Regulation S and to
QIBs in the United States in reliance on Rule 144A or another exemption from, or transaction not
subject to, the registration requirements of the Securities Act.

PRA3 5.2.1

PRA3 5.1.6

Certain restrictions that apply to the distribution of this document and the Ordinary Shares being
issued and sold under the Global Offer are described below.
The Global Offer is fully underwritten by the Underwriters and is subject to satisfaction of the
conditions set out in the Underwriting Agreement including Admission becoming effective by no
later than 8.00 a.m. on 8 November 2006 or such later time and/or date as the Company and the
Joint Global Coordinators (on behalf of the Managers) may agree.

PRA3 7.2

When admitted to trading on the London Stock Exchange, the Ordinary Shares will be registered
with ISIN number GB00B1FW5029 and SEDOL number B1FW502.

PRA3 4.1

Admission is expected to take place and unconditional dealings in the Ordinary Shares are
expected to commence on the London Stock Exchange on 8 November 2006. Prior to that time, it
is expected that dealings in the Ordinary Shares will commence on a conditional basis on the
London Stock Exchange on 3 November 2006 and that the earliest date for settlement of such
dealings will be 8 November 2006. These times and dates may be changed.

PRA3 5.1.9

The Ordinary Shares to be made available pursuant to the Global Offer will, following Admission,
rank pari passu in all respects with the other Ordinary Shares and will carry the right to receive all
dividends and other distributions declared, made or paid on or in respect of the Ordinary Shares
after Admission. The Ordinary Shares will, immediately following Admission, be freely
transferable under the Articles.
Immediately following Admission, it is expected that in excess of 25 per cent. of the Companys
issued Ordinary Share capital will be held in public hands (within the meaning of paragraph 6.1.19
of the Listing Rules) assuming that no Over-allotment Shares are issued (increasing to
approximately 29 per cent. if the maximum number of Over-allotment Shares are sold pursuant to
the Over-allotment Option).
In addition to the Global Offer, the Company will issue 100,226 Ordinary Shares at the Offer Price,
in a separate private placement to certain directors and employees of the Hochschild Mining
Group and of Cementos Pacasmayo in Peru, Mexico and Argentina. Sir Malcom Field and Nigel
Moore have each subscribed 50,000 at the Offer Price and will each be issued 14,285 Ordinary
Shares. Eduardo Loret de Mola, Ricardo Arrarte and Gonzalo Freyre have subscribed
approximately 26,000, 31,000 and 16,000 at the Offer Price and will be issued 7,484 Ordinary
Shares, 8,980 Ordinary Shares and 4,490 Ordinary Shares respectively.
197

Part XII: Details of the Global Offer

2 Stabilisation and over-allotment
In connection with the Global Offer, JPMorgan Cazenove Limited, as Stabilising Manager, or any
of its agents, may (but will be under no obligation to) over-allot Ordinary Shares up to a maximum
of 15 per cent. of the total number of Ordinary Shares comprised in the Global Offer or effect
other stabilisation transactions with a view to supporting the market price of the Ordinary Shares
at a higher level than that which might otherwise prevail in the open market. Such stabilisation
activities may be effected on any securities market, over-the-counter market, stock exchange or
otherwise and may be undertaken at any time during the period commencing on the date of the
commencement of conditional trading and ending no later than 30 calendar days thereafter.
However, there will be no obligation on the Stabilising Manager or any of its agents to effect
stabilising transactions and no assurance that stabilising transactions will be undertaken. Such
stabilising, if commenced, may be discontinued at any time without prior notice. In no event will
measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price.

PRA3 5.2.5
PRA3 6.5.1,
6.5.2, 6.5.3,
6.5.4

Save as required by law or regulation, the Stabilising Manager does not intend to disclose the
extent of any over-allotments made and/or stabilisation transactions conducted in relation to the
Global Offer.
For the purposes of allowing it to cover short positions resulting from any over-allotments and/or
from sales of Ordinary Shares effected by it during the stabilising period, the Stabilising Manager
has entered into the Over-allotment Option with the Over-allotment Shareholders pursuant to
which the Stabilising Manager may, acting as principal, purchase or procure purchasers for
additional Ordinary Shares up to a maximum of 15 per cent. of the total number of Ordinary
Shares comprised in the Offer (the Over-allotment Shares) at the Offer Price. The Overallotment Option is exercisable in whole or in part, upon notice by the Stabilising Manager, at any
time on or before the 30th calendar day after the commencement of conditional trading of the
Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares purchased pursuant to
the Over-allotment Option will rank pari passu in all respects with the Ordinary Shares, including
for all dividends and other distributions declared, made or paid on the Ordinary Shares, will be
purchased on the same terms and conditions as the Ordinary Shares being sold in the Global Offer
and will form a single class for all purposes with the other Ordinary Shares.
3 Underwriting agreement
The Company, the Directors and the Over-allotment Shareholders have entered into the
Underwriting Agreement with the Managers. Pursuant to the Underwriting Agreement, the
Managers (other than JPMSL) have agreed, subject to certain conditions, to procure subscribers for
or, failing which, the Underwriters have agreed to subscribe for themselves the Ordinary Shares to
be issued by the Company and, subject to the exercise by the Stabilising Manager of the Overallotment Option, sold by the Over-allotment Shareholders, in each case, pursuant to the Global
Offer. Further details of the terms of the Underwriting Agreement are set out in paragraph 11 of
Part XIV: Additional Information.

PRA3 5.4.3

4 Dealings and admission

It is expected that dealings in the Ordinary Shares will commence on a conditional basis on the
London Stock Exchange at 8:00 a.m. on 3 November 2006. All dealings between the
commencement of conditional dealings and the commencement of unconditional dealings will be
on a when issued basis and at the risk of the parties concerned. If the Global Offer does not
become unconditional, these dealings will be of no effect.

PRA3 5.1.9

Admission is expected to take place and unconditional dealings in the Ordinary Shares are
expected to commence on the London Stock Exchange at 8.00 a.m. on 8 November 2006 (GMT).

PRA3 5.1.4

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Part XII: Details of the Global Offer

It is expected that Ordinary Shares allocated to investors in the Global Offer will be delivered in
uncertificated form and settlement will take place through CREST on Admission. All Ordinary
Shares issued pursuant to the Global Offer will be issued payable in full at the Offer Price. It is
intended that, if applicable, definitive share certificates in respect of the Global Offer will be
distributed from 20 November 2006 or as soon thereafter as is practicable. No temporary
documents of title will be issued.

PRA3 5.2.4
PRA3 5.1.8

5 Crest
CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a
certificate and transferred otherwise than by a written instrument. Upon Admission, the Articles
will permit the holding of Ordinary Shares under the CREST system. The Company has applied for
the Ordinary Shares to be admitted to CREST with effect from Admission. Accordingly, settlement
of transactions in the Ordinary Shares following Admission may take place within the CREST
system if the relevant Shareholders so wish.

PRA3 5.1.8

CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share
certificates will be able to do so. Investors applying for Ordinary Shares in the Global Offer may,
however, elect to receive Ordinary Shares in uncertificated form, if that investor is a systemmember (as defined in the Regulations) in relation to CREST.
6 Lock-up arrangements
The Company, the Directors and the Over-allotment Shareholders have each agreed to certain
lock-up arrangements.
The Company has undertaken, subject to the exceptions in the Underwriting Agreement listed
below, not to directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect
of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Ordinary
Shares (or any interest therein or in respect thereof) or any other securities exchangeable for or
convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the
same economic effect as, or agree to do, any of the foregoing for a period of 12 months after
Admission, without first obtaining the consent of the Joint Global Coordinators. The lock-up
arrangements will not apply to:
(a) the issue of the Offer Shares;
(b) the payment of scrip dividends or capitalisation issues associated with dividends; or
(c) the grant of options under the ELTIP.
Each of the Directors, the Senior Management and the Over-allotment Shareholders have
undertaken, subject to the exceptions listed below, not to, and to procure that his associates do
not, directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect of, or
otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Ordinary
Shares (or any direct or indirect interest therein or in respect thereof) or any other securities
exchangeable for or convertible into, or substantially similar to, Ordinary Shares or enter into any
transaction with the same economic effect as, or agree to do, any of the foregoing for a period of
12 months after Admission, without first obtaining the consent of the Joint Global Coordinators.
The lock-up arrangements will not prohibit the Directors, the Senior Management or the Overallotment Shareholders (or their associates), as the case may be from:
(a) accepting a general offer made to all holders of Ordinary Shares made in accordance with
the City Code on terms which treat all such holders alike;
(b) executing and delivering an irrevocable commitment or undertaking to accept a general
offer as is referred to in (a) above;
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Part XII: Details of the Global Offer

(c) selling or otherwise disposing of Ordinary Shares pursuant to any offer by the Company to
purchase its own Ordinary Shares which is made on identical terms to all holders of
Ordinary Shares in the Company;
(d) transferring or disposing of Ordinary Shares pursuant to a compromise or arrangement
between the Company and its creditors or between the Company and its members which is
agreed to by the creditors or members and (where required) sanctioned by the court under
sections 425-427A of the Companies Act;
(e) taking up any rights granted in respect of a rights issue or other pre-emptive share offering
by the Company;
(f) transferring Ordinary Shares where required to do so by the final judgment of a court
governmental regulator having competent authority over the relevant person;
(g) transferring or disposing of Ordinary Shares to the personal representatives of the relevant
person; and
(h) (only in relation to the Over-allotment Shareholders) procuring the sale or other disposal of
the Over-allotment Shares, and certain related arrangements.
7 Selling and transfer restrictions
The distribution of this document and the offer of Ordinary Shares in certain jurisdictions may be
restricted by law and therefore persons into whose possession this document comes should inform
themselves about and observe any such restrictions, including those in the paragraphs that follow.
Any failure to comply with these restrictions may constitute a violation of the securities laws of
any such jurisdiction. No action has been taken or will be taken in any jurisdiction that would
permit a public offering or sale of the Ordinary Shares, or possession or distribution of this
document or any other offering or publicity material relating to Ordinary Shares, in any country or
jurisdiction where action for that purpose is required.
None of the Ordinary Shares may be offered for sale or purchase or be delivered, and this
document and any other offering material in relation to the Ordinary Shares may not be
circulated, in any jurisdiction where to do so would breach any securities laws or regulations of
any such jurisdiction or give rise to an obligation to obtain any consent, approval or permission, or
to make any application, filing or registration.
No Ordinary Shares have been marketed to, nor are available for purchase in whole or in part by,
the public in the United Kingdom or elsewhere in conjunction with the Global Offer. This
document does not constitute an offer or the solicitation of an offer in the United Kingdom to
subscribe for or buy any securities in the Company or any other entity.
7.1 US selling restrictions
The Ordinary Shares have not been, and will not be, registered under the Securities Act or under
any applicable state securities laws of the United States, and, subject to certain exceptions, may
not be offered or sold within the United States. Accordingly, the Managers may offer Ordinary
Shares (1) only through their US registered broker affiliates to persons reasonably believed to be
QIBs in reliance on the exemption from the registration requirements of the Securities Act
provided by Rule 144A or another exemption from, or a transaction not subject to, the
registration requirements of the Securities Act or (2) in compliance with Regulation S under the
Securities Act.
In addition, until 40 days after the commencement of the Global Offer, an offer or sale of
Ordinary Shares within the United States by a dealer (whether or not it is participating in the
Global Offer) may violate the registration requirements of the Securities Act.
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Due to the foregoing restrictions, purchasers of Ordinary Shares in the United States are advised
to consult legal counsel prior to making any offer for or any resale, pledge or other transfer of
the Ordinary Shares.
Rule 144A Ordinary Shares
Each purchaser in the United States of the Ordinary Shares offered hereby will be deemed to have
represented and agreed that it has received a copy of this document and such other information
as it deems necessary to make an investment decision and that:
(1) it is (i) a QIB, (ii) acquiring such Ordinary Shares for its own account or for the account of
one or more QIBs with respect to whom it has the authority to make, and does make, the
representations and warranties set forth in this paragraph, (iii) not acquiring the Ordinary
Shares with a view to further distribution of such Ordinary Shares, and (iv) aware, and each
beneficial owner of such Ordinary Shares has been advised, that the sale of Ordinary Shares
to it may be made in reliance on Rule 144A or another exemption from, or transaction not
subject to, the registration requirements of the Securities Act;
(2) it understands and agrees that the Ordinary Shares have not been and will not be
registered under the Securities Act or with any securities regulatory authority of any state,
territory or other jurisdiction of the United States and may not be offered, resold, pledged
or otherwise transferred except (A) (i) to a person whom the purchaser and any person
acting on its behalf reasonably believes is a QIB purchasing for its own account or for the
account of a QIB in a transaction meeting the requirements of Rule 144A, (ii) in an offshore
transaction complying with Rule 903 or Rule 904 of Regulation S, (iii) pursuant to an
exemption from the registration requirements of the Securities Act provided by Rule 144
thereunder (if available), or (iv) pursuant to an effective registration statement under the
Securities Act and (B) in accordance with all applicable securities laws of any state, territory
or other jurisdiction of the United States;
(3) it acknowledges that the Ordinary Shares (whether in physical, certificated form or in
uncertificated form held in CREST) are restricted securities within the meaning of Rule
144(a)(3) under the Securities Act, are being offered and sold in a transaction not involving
any public offering in the United States within the meaning of the Securities Act and that
no representation is made as to the availability of the exemption provided by Rule 144 for
resales of Ordinary Shares;
(4) it understands that any offer, sale, pledge or other transfer of the Ordinary Shares made
other than in compliance with the above-stated restrictions may not be recognised by the
Company;
(5) the Ordinary Shares (to the extent they are in certificated form), unless otherwise
determined by the Company in accordance with applicable law, will bear a legend
substantially to the following effect:
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN A
TRANSACTION IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT
THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER AS DEFINED IN RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (B) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT PROVIDED BY RULE 144 (IF AVAILABLE) OR (D) PURSUANT TO AN EFFECTIVE REGISTRATION
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Part XII: Details of the Global Offer

STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS
TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
FOR RESALES OF THIS SECURITY. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT
THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER AND EACH
PURCHASER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. EACH HOLDER,
BY ITS ACCEPTANCE OF THIS SECURITY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE
FOREGOING RESTRICTIONS;
(6) notwithstanding anything to the contrary in the foregoing, it understands that Ordinary
Shares may not be deposited into an unrestricted depository receipt facility in respect of
Ordinary Shares established or maintained by a depository bank unless and until such time
as such Ordinary Shares are no longer restricted securities within the meaning of Rule
144(a)(3) under the Securities Act;
(7) it acknowledges that the Company, the Managers and others will rely upon the truth and
accuracy of the foregoing acknowledgements, representations and agreements and agrees
that, if any of such acknowledgements, representations or agreements deemed to have
been made by virtue of its purchase of Ordinary Shares are no longer accurate, it will
promptly notify the Company, and if it is acquiring any Ordinary Shares as a fiduciary or
agent for one or more QIBs, it represents that it has sole investment discretion with respect
to each such account and that it has full power to make the foregoing acknowledgements,
representations and agreements on behalf of each such account; and
(8) it agrees that it will give to each person to whom it transfers Ordinary Shares notice of any
restrictions on transfer of such Ordinary Shares. Prospective purchasers are hereby notified
that the Company and the sellers of the Ordinary Shares may be relying on the exemption
from the provisions of Section 5 of the Securities Act provided for by Rule 144A or another
exception from the registration requirements of the Securities Act.
Regulation S Ordinary Shares
Each purchaser of Ordinary Shares offered outside the United States pursuant to Regulation S will
be deemed to have represented, agreed and acknowledged that it has received a copy of this
document, and such other information, as it deems necessary to make an investment decision and
that:
(1) it is authorised to consummate the purchase of the Ordinary Shares in compliance with all
applicable laws and regulations;
(2) it acknowledges (or if it is a broker-dealer acting on behalf of a customer, its customer has
confirmed to it that such customer acknowledges) that the Ordinary Shares have not been,
and will not be, registered under the Securities Act or with any securities regulatory
authority of any state or other jurisdiction of the United States;
(3) it is purchasing the Ordinary Shares in an offshore transaction meeting the requirements of
Regulations; and
(4) the Company, the Managers and others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations and agreements and agrees that, if any of
such acknowledgements, representations or agreements deemed to have been made by
virtue of its purchase of Ordinary Shares are no longer accurate, it will promptly notify the
Company, and if it is acquiring any Ordinary Shares as a fiduciary or agent for one or more
accounts, it represents that it has sole investment discretion with respect to each such
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account and that it has full power to make the foregoing acknowledgements,
representations and agreements on behalf of each such account.
7.2 European economic area
In relation to each member state of the EEA which has implemented the Prospectus Directive
(each, a relevant member state), with effect from and including the date on which the
Prospectus Directive is implemented in that member state (the Relevant Implementation Date),
the Ordinary Shares may not be offered to the public in that relevant member state, except that,
with effect from and including the Relevant Implementation Date, the Ordinary Shares may be
offered to the public in that relevant member state under the following exemptions under the
Prospectus Directive:
(1) at any time to legal entities which are authorised or regulated to operate in the financial
markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in
securities;
(2) at any time to any legal entity which has two or more of (1) an average of at least
250 employees during the last financial year, (2) a total balance sheet of more than
043 million, and (3) an annual net turnover of more than 050 million, as shown in its last
annual or consolidated accounts;
(3) to fewer than 100 natural or legal persons (other than qualified investors as defined in the
Prospectus Directive) subject to obtaining the prior consent of the Joint Global
Coordinators for any such offer; or
(4) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Ordinary Shares shall result in a requirement for the publication by
the Company or any Manager of a Prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of Ordinary Shares to the public in
relation to any Ordinary Shares in any relevant member state means the communication in any
form and by any means of sufficient information on the terms of the offer and the Ordinary
Shares to be offered so as to enable an investor to decide to purchase or subscribe for the
Ordinary Shares, as the same may be varied in that member state by any measure implementing
the Prospectus Directive in that member state and the expression Prospectus Directive means
Directive 2003/71/EC and includes any relevant implementing measure in each relevant member
state.
Each subscriber for or purchaser of Ordinary Shares in the Global Offer located within a member
state of the European Economic Area will be deemed to have represented, acknowledged and
agreed that it is a qualified investor within the meaning of Article 2(1)(e) of the Prospectus
Directive. The Company, the Managers and their affiliates, and others will rely upon the truth and
accuracy of the foregoing representation, acknowledgement, and agreement. Notwithstanding
the above, a person who is not a qualified investor and who has notified the Managers of such
fact in writing may, with the consent of the Managers, be permitted to subscribe for or purchase
Shares in the Global Offer.
7.3 Japan
The Ordinary Shares offered by this Prospectus have not been and will not be registered under the
Securities and Exchange Law of Japan (the Securities and Exchange Law). Accordingly, Ordinary
Shares may not be offered or sold directly or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (including Japanese corporations), or to others for reoffering or resale, directly
or indirectly, in Japan or to, or for the benefit of, any resident in Japan (including Japanese
corporations) except with the prior approval of the Joint Global Co-ordinators and pursuant to an
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exemption from the registration requirements of, and otherwise in compliance with, the
Securities and Exchange Law and relevant regulations of Japan.
7.4 Australia
This document does not constitute a disclosure document under Part 6D.2 of the Corporations
Act 2001 of the Commonwealth of Australia (the Corporations Act) and will not be lodged with
the Australian Securities and Investment Commission. The Ordinary Shares will be offered to
persons who receive offers in Australia only to the extent that such offers of shares for issue or
sale do not need disclosure to investors under Part 6D.2 of the Corporations Act. Any offer of
shares received in Australia is void to the extent that it needs disclosure to investors under the
Corporations Act. In particular, offers for the issue or sale of Ordinary Shares will only be made in
Australia in reliance on various exemptions from such disclosure to investors provided by section
708 of the Corporations Act. Any offer of shares received in Australia is void to the extent that it
needs disclosure to investors under the Corporations Act. Any person to whom Ordinary Shares
are issued or sold pursuant to an exemption provided by section 708 of the Corporations Act must
not within 12 months after the issue offer those Ordinary Shares for sale in Australia unless that
offer is itself made in reliance on an exemption from disclosure provided by that section.
7.5 Canada
The Ordinary Shares may not, directly or indirectly, be offered or sold within Canada, or offered or
sold to a resident of Canada, except with the prior approval of the Joint Global Co-ordinators on a
basis exempt from any requirement to prepare and file a prospectus with or to obtain clearances
from the relevant securities regulatory authorities of any province or territory in Canada.

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Part XIII:
Taxation
The statements set out below are intended only as a general guide to current UK and US tax law
and practice and apply only to certain categories of person. The summary does not purport to be a
complete analysis or listing of all the potential tax consequences of acquiring, holding or
disposing of Ordinary Shares. Prospective purchasers of Ordinary Shares are advised to consult
their own tax advisers concerning the consequences under UK law, US federal, state and local and
other laws of the acquisition, ownership and disposition of Ordinary Shares.
1 United Kingdom taxation
General
The statements below are based on current UK tax law and what is understood to be the current
published practice of Her Majestys Revenue & Customs, both of which are subject to change,
perhaps with retrospective effect. They are intended as a general guide only for holders of
Ordinary Shares who are resident or ordinarily resident in the UK for UK tax purposes (except
insofar as express reference is made to the treatment of non-UK residents) who hold their
Ordinary Shares as investments and not as trading stock and who are the beneficial owners of
those Ordinary Shares. This summary does not purport to be a complete analysis or listing of all
potential tax consequences of holding Ordinary Shares.
The statements are not applicable to all categories of holders of Ordinary Shares, and in particular
are not addressed to (i) holders who do not hold their Ordinary Shares as capital assets, (ii) special
classes of holders such as (but not limited to) dealers in securities, broker-dealers, insurance
companies and investment companies, (iii) holders who hold Ordinary Shares as part of hedging
or conversion transactions, (iv) investors who have (or are deemed to have) acquired their shares
by virtue of an office or employment, (v) holders who hold Ordinary Shares in connection with a
trade, profession or vocation carried on in the UK (whether through a branch or agency or, in the
case of a corporate holder, through a permanent establishment or otherwise), (vi) holders who
own (or are deemed to own) 10 per cent. or more of the voting power of the Company, and
(vii) individual shareholders who are less than 18 years old.
Prospective investors in Ordinary Shares who are in any doubt about their tax position, or who are
resident, or otherwise subject to taxation, in a jurisdiction outside the UK, should consult their
own professional advisers.
Taxation of dividends
Under current UK tax legislation, the Company will not be required to withhold tax at source from
dividend payments it makes.
An individual holder of Ordinary Shares who is resident in the UK (for tax purposes) and who
receives a dividend from the Company will generally be entitled to a tax credit which may be set
off against the holders total income tax liability on the dividend. The dividend will be taxed upon
the aggregate of the net dividend and the tax credit (the Gross Dividend). The value of the tax
credit is currently equal to one-ninth of the amount of the net dividend (or 10 per cent. of the
Gross Dividend). The Gross Dividend, together with certain other investment income, will be
regarded as the top slice of the holders income, and will be subject to UK income tax at special
rates, further details of which are set out below.
UK resident individual holders of Ordinary Shares who are not higher rate taxpayers will be liable
to tax on a dividend received at the rate of 10 per cent. of the Gross Dividend. This means that the
tax credit will satisfy in full the income tax liability of a UK resident individual holder of Ordinary
Shares who is not liable to pay income tax at the higher rate.
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PRA3 4.11

Part XIII: Taxation

In the case of a UK resident individual holder of Ordinary Shares who is liable to income tax at the
higher rate on dividends (currently 32.5 per cent.), the tax credit will be set against, but will not
fully match, their tax liability in respect of the Gross Dividend and, accordingly, they will be liable
to an additional tax of 22.5 per cent. of the Gross Dividend (equal to 25 per cent. of the net
dividend) to the extent that the Gross Dividend falls above the threshold for higher rate income
tax.
UK resident taxpayers who are not liable to United Kingdom tax on dividends, including pension
funds, charities and individuals holding shares through a personal equity plan or an individual
savings account, will not be entitled to claim repayment of the tax credit attaching to dividends
paid by the Company.
A UK resident corporate holder of Ordinary Shares will not normally be liable to UK corporation
tax in respect of any dividend received from the Company. Such corporate holders of Ordinary
Shares will not be able to claim repayment of tax credits attaching to such dividend.
Subject to the provisions of any double tax agreement between the UK and his /her country of
residence, a holder of Ordinary Shares who is not resident in the UK for UK tax purposes will not
generally be entitled to claim repayment from Her Majestys Revenue & Customs of the tax credit
attaching to any dividend paid by the Company. Persons who are not resident in the UK should
consult their own professional advisers as to whether they are entitled to claim any part of the tax
credit, the procedure for doing so and what relief or credit may be claimed in the jurisdiction in
which they are resident for tax purposes in respect of such tax credit. A holder of Ordinary Shares
resident (or otherwise subject to tax) outside the UK may also be subject to foreign taxation on
dividend income under local law.
Taxation of capital gains
For the purpose of UK tax on chargeable gains, the issue or transfer of any Ordinary Shares
pursuant to the Offer will be regarded as an acquisition of a new holding in the share capital of
the Company.
A disposal of Ordinary Shares by a holder who is resident or, in the case of individuals, ordinarily
resident in the UK for tax purposes or by an individual holder who ceases to be resident or
ordinarily resident in the UK for a period of less than five years of assessment, or by a holder who
is neither resident nor ordinarily resident in the UK for tax purposes, but who carries on a trade,
profession or vocation in the UK through a permanent establishment (where the holder is a
company) or through a branch or agency (where the holder is not a company) and has used, held
or acquired the Ordinary Shares for the purposes of such trade, profession or vocation or such
permanent establishment, branch or agency (as appropriate) may depending on the holders
individual circumstances (including the availability of exemptions, reliefs or allowable losses) give
rise to a chargeable gain or an allowable loss for the purposes of UK taxation on chargeable gains.
Stamp duty/stamp duty reserve tax (SDRT)
Stamp duty and SDRT treatment will be as follows:
(a) subject to (e) below, no stamp duty or SDRT will be payable on the issue of, or on the issue
of definitive share certificates in respect of, Ordinary Shares pursuant to the Global Offer;
(b) the transfer on sale of Ordinary Shares outside the CREST system will generally be liable to
ad valorem stamp duty on the instrument of transfer at the rate of 0.5 per cent. of the
amount or value of the consideration given (rounded up to the nearest multiple of 5). An
agreement to transfer Ordinary Shares will generally be subject to SDRT at 0.5 per cent. of
the agreed consideration. If, however, within the period of six years of the date of the
agreement or, in the case of a conditional agreement, the date on which it becomes
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Part XIII: Taxation

unconditional, an instrument of transfer is executed pursuant to the agreement which
transfers the shares to the purchaser under the agreement and stamp duty is paid on that
instrument, any liability to SDRT will be repaid, generally with interest, or cancelled. Higher
rates may apply in certain circumstances. Stamp duty and SDRT are normally the liability of
the purchaser or transferee;
(c) no stamp duty or SDRT will arise on a transfer of Ordinary Shares into CREST for conversion
into uncertificated form, unless such transfer is made for a consideration in money or
moneys worth, in which case a liability to stamp duty or SDRT will arise, usually at the rate
referred to in (b) above;
(d) a transfer of Ordinary Shares effected on a paperless basis within CREST will generally be
subject to SDRT, rather than stamp duty, at the rate of 0.5 per cent. of the amount or value
of the consideration. CREST is obliged to collect SDRT on relevant transactions settled
within the system; and
(e) where Ordinary Shares are issued or transferred (i) to, or to a nominee or agent for, a
person whose business is or includes the provision of clearance services, or (ii) to, or to a
nominee or agent for, a person whose business is or includes issuing depositary receipts,
stamp duty or SDRT may be payable at the higher rate of 1.5 per cent. (rounded up, if
necessary, in the case of stamp duty, to the nearest 5) of the amount or value of the
consideration payable or, in certain circumstances, the value of the Ordinary Shares or, in
the case of an issue to such persons, the issue price of the Ordinary Shares. This liability for
stamp duty or SDRT will strictly be accountable by the depositary or clearance service
operator or their nominee or agent, as the case may be, but will, in practice, generally be
payable by the participants in the clearance service or depositary receipt scheme. Clearance
services may opt, provided certain conditions are satisfied, for the normal rate of stamp
duty or SDRT (0.5 per cent. of the consideration paid, rounded up in the case of stamp duty
to the nearest 5) to apply to issues or transfers of Ordinary Shares into, and to transactions
within, such services instead of the higher rate of 1.5 per cent. generally applying to an
issue or transfer of Ordinary Shares into the clearance service and the exemption from
stamp duty and SDRT on the transfer of Ordinary Shares whilst in the service.
The above statements in this section are intended as a general guide to the current stamp duty
and SDRT position. Special rules apply to agreements made by, amongst others, intermediaries.
Certain categories of person may be liable to stamp duty or SDRT at higher rates.
Close company status
The Company is a close company and, following the Global Offer, may remain a close company, as
defined in the Income and Corporation Taxes Act 1988. In addition, the non-UK resident members
of the Hochschild Mining Group are companies that would, if they were UK resident, be close
companies. As a result, certain transactions entered into by the Company or other members of the
Hochschild Mining Group may have tax implications for shareholders in the Company. Holders of
Ordinary Shares should consult their own professional advisers on the potential impact of the
close company rules.
(1) Inheritance tax
One potential implication is that transfers of value by the Company, or any of the companies in
which it owns (directly, or indirectly) shares or certain other rights, may in certain circumstances
and subject to applicable exemptions, be attributed to and so give rise to inheritance tax for
individual holders of Ordinary Shares who are domiciled or deemed to be domiciled in the UK and
hold 5 per cent. or more of the Ordinary Shares, or for holders of Ordinary Shares whose estate is
increased by the transfer.
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Part XIII: Taxation

(2) Capital gains tax
Certain transfers at an undervalue by the Company or certain members of the Hochschild Mining
Group may result in a reduction in the chargeable gains tax base cost of the Ordinary Shares for
certain holders.
Any person who is in doubt as to his or her taxation position or who is liable to taxation in any
jurisdiction other than the UK should consult his or her own professional adviser.
2 United States Federal Income Taxation
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY
NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DOCUMENT IS NOT
INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR
THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE
INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE GROUP IN
CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230)
BY THE COMPANY OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS
SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT
TAX ADVISER.
General
The following is a summary of certain material US federal income tax consequences of the
acquisition, ownership and disposition of Ordinary Shares by a US Holder (as defined below). This
summary deals only with purchasers of Ordinary Shares that are US Holders and that will hold the
Ordinary Shares as capital assets. The discussion does not cover all aspects of US federal income
taxation that may be relevant to, or the actual tax effect that any of the matters described herein
will have on, the acquisition, ownership or disposition of Ordinary Shares by particular investors,
and does not address state, local, foreign or other tax laws. In particular, this summary does not
address tax considerations applicable to investors that own (directly or indirectly) 10 per cent. or
more of the voting stock of the Company, nor does this summary discuss all of the tax
considerations that may be relevant to certain types of investors subject to special treatment
under the US federal income tax laws (such as financial institutions, insurance companies,
investors liable for the alternative minimum tax, investors that have a permanent establishment in
the United Kingdom, individual retirement accounts and other tax-deferred accounts, tax-exempt
organisations, dealers in securities or currencies, traders that elect to mark to market, investors
that will hold the Ordinary Shares as part of straddles, hedging transactions or conversion
transactions for US federal income tax purposes, or investors whose functional currency is not the
US dollar).
As used herein, the term US Holder means a beneficial owner of Ordinary Shares that is, for US
federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a
corporation created or organised under the laws of the United States or any state thereof, (iii) an
estate the income of which is subject to US federal income tax without regard to its source, or
(iv) a trust if a court within the United States is able to exercise primary supervision over the
administration of the trust and one or more US persons have the authority to control all
substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for US
federal income tax purposes.
The US federal income tax treatment of a partner in a partnership that holds Ordinary Shares will
depend on the status of the partner and the activities of the partnership. Prospective purchasers
that are partnerships should consult their tax advisers concerning the US federal income tax
consequences to their partners of the acquisition, ownership and disposition of Ordinary Shares.
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Part XIII: Taxation

The Company believes that it currently is not and currently does not expect to become a passive
foreign investment company (a PFIC) for US federal income tax purposes, and this summary
assumes that to be the case. The Companys possible status as a PFIC must be determined annually
and therefore may be subject to change. If the Company were to be a PFIC in any year, materially
adverse consequences could result for US Holders. See Passive Foreign Investment Company
Considerations below.
The summary is based on the federal income tax laws of the United States, including the Internal
Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations
thereunder, published rulings, court decisions and the income tax treaty between the United
States and the United Kingdom (the Treaty), all as currently in effect and all subject to change
at any time, possibly with retroactive effect.
THE SUMMARY OF US FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL
INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE ORDINARY SHARES,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND POSSIBLE CHANGES IN TAX LAW.
Dividends
General
Distributions paid by the Company out of current or accumulated earnings and profits (as
determined for US federal income tax purposes) will generally be taxable to a US Holder as
foreign source dividend income, and will not be eligible for the dividends received deduction
generally allowed to US corporations. Distributions in excess of current and accumulated earnings
and profits generally will be treated as a non-taxable return of capital to the extent of the US
Holders basis in the Ordinary Shares and thereafter as capital gain. However, the Company does
not maintain calculations of its earnings and profits in accordance with US federal income tax
accounting principles. US Holders should therefore assume that any distribution by the Company
with respect to the Ordinary Shares will constitute ordinary dividend income. US Holders should
consult their own tax advisers with respect to the appropriate US federal income tax treatment of
any distribution received from the Company.
For taxable years that begin before 2011, dividends paid by the Company will be taxable to a noncorporate US Holder, as qualified dividend income at the special reduced rate normally
applicable to capital gains, provided the Company qualifies for the benefits of the Treaty, which
the Company believes to be the case. A US Holder will be eligible for this reduced rate only if it
has held the Ordinary Shares for more than 60 days during the 121 day period beginning 60 days
before the ex-dividend date. A US Holder will not be able to claim the reduced rate if the
Company is a PFIC in the year of payment or the immediately preceding year.
For the purposes of the foreign tax credit limitation, dividends paid by the Company generally will
constitute foreign sources income in the passive income basket. If a US Holder receives a
dividend from the Company that qualifies for the reduced rate described in the preceding
paragraph, the amount of the dividend taken into account in calculating the foreign tax credit
limitation will in general be limited to the gross amount of the dividend, multiplied by the
reduced rate dividend by the highest rate of tax normally applicable to dividends.
Prospective purchasers should consult their tax advisers concerning the applicability of the foreign
tax credit and source of income rules to dividends on the Ordinary Shares, and the foreign tax
credit implications of receiving a dividend that is eligible for the special reduced rate described
above.
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Part XIII: Taxation

Foreign currency dividends
Dividends paid in pounds sterling will be included in income in a US dollar amount calculated by
reference to the exchange rate in effect on the day the dividends are received by the US Holder,
regardless of whether the pounds sterling are converted into US dollars at that time. If dividends
received in pounds sterling are converted into US dollars on the day they are received, the US
Holder generally will not be required to recognise foreign currency gain or loss in respect of the
dividend income. Generally, gain or loss realised on a subsequent conversion of pounds sterling to
US dollars or other disposition will be treated as US source ordinary income or loss.
A US Holder who elects to receive dividends from the Company in US dollars will not recognize
any foreign currency gain or loss in respect of any such dividends.
Sale or other disposition
A US Holders tax basis in an Ordinary Share will generally be its US dollar cost. The US dollar cost
of an Ordinary Share purchased with foreign currency will generally be the US dollar value of the
purchase price on the date of purchase or, in the case of Ordinary Shares traded on an established
securities market, as defined in the applicable Treasury Regulations, that are purchased by a cash
basis US Holder (or an accrual basis US Holder that so elects) on the settlement date for the
purchase. Such an election by an accrual basis US Holder must be applied consistently from year to
year and cannot be revoked without the consent of the IRS.
Upon a sale or other disposition of Ordinary Shares, a US Holder generally will recognise capital
gain or loss equal to the difference, if any, between the amount realised on the sale or other
disposition and the US Holders adjusted tax basis in the Ordinary Shares. This capital gain or loss
will be a long term capital gain or loss if the US Holders holding period in the Ordinary Shares
exceeds one year. However, regardless of a US Holders actual holding period, any loss may be
long term capital loss to the extent the US Holder receives a dividend that qualifies for the
reduced rate described above under DividendsGeneral, and exceeds 10 per cent. of the US
Holders tax basis in its Ordinary Shares. Any gain or loss will generally be US source. Deductibility
of capital losses is subject to limitations.
The amount realised on a sale or other disposition of Ordinary Shares for an amount in foreign
currency will be the US dollar value of this amount on the date of sale or disposition. On the
settlement date, the US Holder will recognise US source foreign currency gain or loss (taxable as
ordinary income or loss) equal to the difference (if any) between the US dollar value of the
amount received based on the exchange rates in effect on the date of sale or other disposition
and the settlement date. However, in the case of Ordinary Shares traded on an established
securities market that are sold by a cash basis US Holder (or an accrual basis US Holder that so
elects), the amount realised will be determined using the exchange rate in effect on the
settlement date for the sale, and no exchange gain or loss will be recognised at that time.
Disposition of foreign currency
Foreign currency received on the sale or other disposition of an Ordinary Share will have a tax
basis equal to its US dollar value on the settlement date. Foreign currency that is purchased will
generally have a tax basis equal to the US dollar value of the foreign currency on the date of
purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency
(including its use to purchase Ordinary Shares or upon exchange for US dollars) will be US source
ordinary income or loss.
Passive foreign investment company considerations
A foreign corporation will be a PFIC in any taxable year in which, after taking into account the
income and assets of the corporation and certain subsidiaries pursuant to applicable look210

Part XIII: Taxation

through rules, either (i) at least 75 per cent. of its gross income is passive income or (ii) at least
50 per cent. of the average value of its assets is attributable to assets which produce passive
income or are held for the production of passive income. The Company currently believes that it is
not, and currently does not expect to become, a PFIC for US federal income tax purposes but the
Companys possible status as a PFIC must be determined annually and therefore may be subject to
change. This determination will depend in part on whether the Company continues to earn
substantial amounts of operating income, as well as on the market valuation of the Companys
assets and the Companys spending schedule for its cash balances and the proceeds of the Offer.
The principal products of the Group are commodities, but passive income does not include active
business gains or losses from the sale of commodities if substantially all of the Groups
commodities are inventory, depreciable property used in its trade or business or supplies used or
consumed by the Group in the ordinary course of business. At this time, the Group believes that it
qualifies for the active business exception, but it cannot assure a US Holder that the requirements
for this exception will be met in future years. If the Company were to be treated as a PFIC, US
Holders of Ordinary Shares would be required (i) to pay a special US addition to tax on certain
distributions and gains on sale and (ii) to pay tax on any gain from the sale of Ordinary Shares at
ordinary income (rather than capital gains) rates in addition to paying the special addition to tax
on this gain. Additionally, dividends paid by the Company would not be eligible for the special
reduced rate of tax described above under Dividends-General. If the Company were a PFIC, a US
Holder could avoid some of the rules with respect to PFIC distributions and dispositions described
above by making a valid mark-to-market election with respect to the Ordinary Shares. The
election would be available, however, only if the Ordinary Shares are traded in more than de
minimis quantities on the London Stock Exchange or another qualifying exchange. An electing US
Holder generally must recognise as ordinary income any amount by which the fair market value of
the Ordinary Shares exceeds its adjusted tax basis in its Ordinary Shares upon either the sale or
other disposition of any Ordinary Shares or the close of any taxable year. An electing holder may
deduct as an ordinary loss the amounts by which its adjusted basis exceeds the fair market value of
the Ordinary Shares, but only to the extent of the amount the holder previously recognised as a
result of the mark-to-market election. The election cannot be revoked without the consent of
the US Internal Revenue Service.
Most of the adverse US federal income tax consequences of holding shares of a PFIC could be
avoided if the US Holder made a qualified electing fund election (a QEF election). However, the
Company does not intend to provide US Holders with the information they would need to make a
QEF election. Prospective purchasers should consult their tax advisers regarding the potential
application of the PFIC regime.
Backup withholding and information reporting
Payments of dividends and other proceeds with respect to Ordinary Shares by a US paying agent
or other US intermediary will be reported to the IRS and to the US Holder unless the holder is a
corporation or otherwise establishes a basis for exemption. Backup withholding may apply to
reportable payments if the US Holder fails to provide an accurate taxpayer identification number
or certification of exempt status or fails to report all interest and dividends required to be shown
on its US federal income tax returns. Any backup withholding tax will be refunded or allowed as a
credit against the US Holders US Federal income tax liability if the US Holder gives the
appropriate information to the IRS. US Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for obtaining an
exemption.

211

Part XIV:
Additional information
1 Incorporation and activity
1.1 The Company was incorporated and registered in England and Wales on 11 April 2006 under
the Companies Act as a private company limited by shares with the name Hackremco (No. 2372)
Limited and with registered number 5777693. Pursuant to a special resolution dated 12 June 2006,
the name of the Company was changed to Hochschild Mining Limited, effective 13 June 2006. By a
written resolution passed on 16 October 2006, the Company resolved to re-register as a public
limited company and change its name to Hochschild Mining plc. On 17 October 2006 the reregistration and change of name became effective.

PRA1 5.1.1,

1.2 The registered office of the Company is One Silk Street, London EC2Y 8HQ, United Kingdom.
The principal place of business of the Company is Pasaje El Carmen 180, Surco, Lima 33, Peru. The
telephone number of the Companys principal place of business is +511 317 2000.

PRA1 5.1.4

1.3 The principal legislation under which the Company operates and under which the Ordinary
Shares have been created is the Companies Act and regulations made thereunder.

PRA3 4.2

1.4 The business of the Company, and its principal activity, is to act as the ultimate holding
company of the Hochschild Mining Group.

PRA1 5.1.4

5.1.2,
5.1.3,
5.1.4

1.5 By a resolution of the Directors dated 16 October 2006, Ernst & Young LLP whose address is 1
More London Place, London SE1 2AF, United Kingdom were appointed as the first auditors of the
Company.
2 Share capital
Hochschild Mining plc
2.1 The Company was incorporated with an authorised share capital of 100 divided into
100 Ordinary Shares of 1 each, one of which was issued to Hackwood Secretaries Limited, the
subscriber of the Memorandum of Association. On 28 June 2006, the subscriber share was
transferred to Pelham Investment Corporation.
2.2 By a series of ordinary and special resolutions duly passed by a written resolution of the
Company on 16 October 2006:
2.2.1 the authorised share capital of the Company was increased from 100 to 250,000,000 by
the creation of 249,999,900 Ordinary Shares of 1.00 each;
2.2.2 the Directors were generally and unconditionally authorised pursuant to Section 80 of the
Companies Act to allot relevant securities up to a nominal amount of 165,000,000 (being
an amount sufficient to permit the allotment of shares required in connection with the
steps described in paragraphs 2.3 and 2.5 below), such authority to expire on the date of
the Annual General Meeting in 2011 or on 16 October 2011, whichever is earlier (but the
Company would be able before such expiry to make an offer or agreement which would
or may require relevant securities to be allotted after such expiry);
2.2.3 the Directors were generally and unconditionally authorised pursuant to Section 95 of the
Companies Act to allot equity securities (within the meaning of Section 94 of the
Companies Act) for cash, pursuant to the authority conferred by paragraph 2.2.2 above, as
if sub-section (1) of Section 89 of the Companies Act did not apply to any such allotment,
provided that this power is limited to the allotment of equity securities up to an aggregate
nominal amount of 165,000,000 (being an amount sufficient to permit the Global Offer)
and provided that this authority expires on the date of the Annual General Meeting in
2011 or on 16 October 2011, whichever is earlier (but the Company would be able before
212

PRA3 4.6

Part XIV: Additional information

such expiry to make an offer or agreement which would or might require equity securities
to be allotted after such expiry);
2.2.4 it was resolved that each Ordinary Share of 1.00 each in the capital of the Company be
divided into two Ordinary Shares of 50 pence each;
2.2.5 it was resolved to re-register the Company as a public company;
2.2.6 it was resolved to reduce the share capital of the Company by 125,000,000 by reducing
the nominal amount of each Ordinary Share of 50 pence each in the capital of the
Company, whether issued or unissued, to 25 pence. The special resolution requires
confirmation by the Companies Court and registration with the Companies Registrar
before it can be effective. The petition and application for directions in respect of the
reduction of capital have been submitted to the Companies Court and a court hearing to
confirm the special resolution has been scheduled to take place following admission of the
Companys share capital to the Official List; and
2.2.7 it was resolved to adopt the Articles referred to in paragraph 4 of this Part XIV as the new
articles of association of the Company, conditional upon and with effect from Admission.
2.3 On 16 October 2006, 49,999 Ordinary Shares were allotted and issued to Pelham Investment
Corporation and 1 Ordinary Share was allotted and issued to Armonk Corporation (as trustee for
Pelham Investment Corporation), each of the Ordinary Shares being paid up as to their nominal
value.

PRA3 4.6

2.4 On 2 November 2006, Pelham Investment Corporation (a subsidiary of the then holding
company of the Hochschild Mining Group, an entity jointly held by Eduardo Hochschild and
Alberto Beeck (Former Topco)) acquired all of the issued and outstanding shares of each of
(1) Port Chester Limited, (2) Ludlow Corporation, (3) Ardsley Corporation, (4) Garrison
Corporation, (5) Lorenzon Limited and (6) Larchmont Corporation (together, the Cayman
Companies) from Former Topco in exchange for shares in Pelham Investment Corporation. On
2 November 2006, Pelham Investment Corporation transferred to Navajo Overseas Corporation (a

company controlled by Roberto Danino)

shares totalling 1.5 per cent. of the issued and
outstanding shares of each of the Cayman Companies.
2.5 On 2 November 2006, the Company entered into a share exchange agreement with each of
Pelham Investment Corporation and Navajo Overseas Corporation (the Share Exchange
Agreement). Under the terms of the Share Exchange Agreement, the Company acquired the
entire issued share capital of the Cayman Companies from Pelham Investment Corporation and
Navajo Overseas Corporation in exchange for the issue of 226,450,000 Ordinary Shares with a
nominal value of 50 pence to Pelham Investment Corporation and 3,450,000 Ordinary Shares with
a nominal value of 50 pence to Navajo Overseas Corporation.
2.6 Under the Articles:

PRA3 5.1.10

2.6.1 the Directors will be generally and unconditionally authorised pursuant to and in
accordance with Section 80 of the Act to exercise for each Allotment Period all the powers
of the Company to allot relevant securities up to an aggregate nominal amount equal to
the Section 80 Amount;
2.6.2 during each Allotment Period, the Directors will be empowered to allot equity securities
wholly for cash pursuant to and within the terms of the authority referred to in
paragraph 2.6.1 above:
(i)

in connection with a Rights Issue; and

(ii)

otherwise than in connection with a Rights Issue, up to an aggregate nominal

amount equal to the Section 89 Amount,
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PRA3 5.3.3

Part XIV: Additional information

as if Section 89(1) of the Act did not apply to any such allotment;
2.6.3 by such authority and power referred to in paragraphs 2.6.1 and 2.6.2 above, the Directors
may, during the Allotment Period, make offers or agreements which would or might
require securities to be allotted after the expiry of the Allotment Period; and
2.6.4 for the purposes of this paragraph:
(i)

Rights Issue means an offer of equity securities open for acceptance for a period
fixed by the Directors to: (i) holders on the register on a record date fixed by the
Directors of ordinary shares in proportion to their respective holdings (for which
purpose holdings in certificated and uncertificated form may be treated as separate
holdings); and (ii) other persons so entitled by virtue of the rights attaching to any
other equity securities held by them, but subject in both cases to such exclusions or
other arrangements as the Directors may deem necessary or expedient in relation to
fractional entitlements or legal or practical problems under the laws of, or the
requirements of any recognised regulatory body or any stock exchange in, any
territory;

(ii)

Allotment Period means the period ending on the earlier of the Companys first
annual general meeting and 31 December 2007, or any other period (not exceeding
five years on any occasion) for which the authority referred to in paragraph 2.6.1
above is renewed or extended by resolution of the Company in general meeting
stating the Section 80 Amount for such period;

(iii)

the Section 80 Amount shall, for the first Allotment Period be, unless and until the
Capital Reduction is effective, 51,000,000 and, upon the Capital Reduction
becoming effective, shall be 25,500,000 and for any other Allotment Period shall be
that stated in the relevant resolution renewing or extending the authority referred
to in paragraph 2.6.1 above for such period or, in either case, any increased amount
fixed by resolution of the Company in general meeting;

(iv)

the Section 89 Amount shall for the first Allotment Period be, unless and until the
Capital Reduction is effective, 7,650,000 and, upon the Capital Reduction becoming
effective, shall be 3,825,000 and for any other Allotment Period shall be that stated
in the relevant special resolution renewing or extending the power referred to in
paragraph 2.6.2 above for such period or, in either case, any increased amount fixed
by special resolution; and

(v)

the nominal amount of any securities shall be taken to be, in the case of rights to
subscribe for or to convert any securities into shares of the Company, the nominal
amount of such shares which may be allotted pursuant to such rights.

2.7 The authorised, issued and fully paid share capital of the Company as at 2 November 2006,
being the last practicable date prior to publication of this document, is as follows:
Authorised
Class of shares

PRA1 21.1.1

Issued

Number

Amount

Number

Amount

Ordinary Shares ********************************** 500,000,000

250,000,000

307,350,226

153,675,113

2.8 Save as disclosed in this paragraph 2:

2.8.1 there has been no change in the amount of the issued share or loan capital of the
Company and no material change in the amount of the issued share or loan capital of any
other member of the Hochschild Mining Group (other than intra-group issues by whollyowned subsidiaries) within three years of the date of this document; and
214

PRA1 21.1.7

Part XIV: Additional information

2.8.2 no share or loan capital of the Company or any other member of the Hochschild Mining
Group is under option or is, or will, immediately following Admission, be agreed,
conditionally or unconditionally, to be put under option.

PRA1 21.1.6

2.9 The Company has no convertible securities, exchangeable securities or securities with warrants
in issue.

PRA1 21.1.4

3 Memorandum of association
The Memorandum of Association of the Company provides that its objects include, among others,
to carry on the business of a holding company, and to carry on any trade or business which can, in
the opinion of the Board, be advantageously carried on in connection or conjunction with any of
the Companys businesses and to do all such other things as may be considered incidental or
conducive to the attainment of any of the Companys objects. The objects of the Company are set
out in full in Clause 3 of the Memorandum of Association, which is available for inspection at the
address specified in paragraph 20 of this Part XIV.

PRA1 21.2.1

4 Articles of association
The Articles, which were adopted by a special resolution of the Company passed on 16 October
2006 and which come into effect on Admission, include provisions to the following effect:
(a) Share rights

PRA1 21.2.3
PRA3 4.5

Subject to the provisions of the Companies Act, and without prejudice to any rights attached to
any existing shares or class of shares, any share may be issued with such rights or restrictions as the
Company may by ordinary resolution determine or, subject to and in default of such
determination, as the Board may determine.
Subject to the Articles and the provisions of the Companies Act, the Company may issue any shares
which are to be redeemed, or which at the option of the Company or the holder are liable to be
redeemed.
Subject to the Articles and the provisions of the Companies Act, the unissued shares of the
Company (whether forming part of the original or any increased capital) are at the disposal of the
Board.
(b) Voting rights

PRA1 21.2.3

Subject to the provisions of the Companies Act, to any special terms as to voting on which any
shares may have been issued or may for the time being be held and to any suspension or
abrogation of voting rights pursuant to the Articles, at any general meeting every member who is
present in person shall on a show of hands have one vote and every member present in person or
by proxy shall on a poll have one vote for each share of which he is the holder.

PRA3 4.5

Unless the Board otherwise determines, no member is entitled to vote at a general meeting or at a
separate meeting of the holders of any class of shares, either in person or by proxy, or to exercise
any other right or privilege as a member in respect of any share held by him unless and until all
calls or other sums presently due and payable by him in respect of that share whether alone or
jointly with any other person together with interest and expenses (if any) have been paid to the
Company or if he or any other person appearing to be interested in shares has been issued with a
notice pursuant to section 212 of the Companies Act (requiring disclosure of interest in shares)
and has failed in relation to any shares to give the Company the information thereby required
within 14 days from the service of the notice.
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Part XIV: Additional information

(c) Disclosure of interests in shares
Pursuant to section 198 of the Companies Act, any person acquiring an interest of 3 per cent. or
more of the issued Ordinary Shares of the Company must disclose such holding to the Company.

PRA1 21.2.7

As provided by section 199 of the Act, a person has a notifiable interest in the share capital of the
Company when (i) he has material interests with an aggregate nominal value equal to or greater
than 3 per cent. of the nominal value of the share capital or (ii) not having such an interest by
virtue of (i), the aggregate nominal value of the shares in which he has interests (whether or not
these are material interests) is equal to or more than 10 per cent. of that share capital.
If a member, or any other person appearing to be interested in shares held by that member, has
been issued with a notice pursuant to section 212 of the Act and has failed in relation to any
shares (the default shares, which expression includes any shares issued after the date of such
notice in respect of those shares) to give the Company the information thereby required within
14 days from the service of the notice, unless the Board otherwise determines:
(i)

the member shall not be entitled in respect of the default shares to be present or to vote
(either in person or by representative or proxy) at any general meeting or at any separate
meeting of the holders of any class of shares or on any poll or to exercise any other right
conferred by membership in relation to any such meeting or poll; and

(ii)

where the default shares represent at least 0.25 per cent. in nominal value of the issued
shares of their class, any dividend or other moneys payable in respect of the shares shall be
withheld by the Company and the member shall not be entitled to elect to receive shares
instead of that dividend and no transfer other than an excepted transfer of any shares held
by the member shall be registered unless the member is not himself in default as regards
supplying the information required and the member proves to the satisfaction of the Board
that no person in default as regards supplying such information is interested in any of the
shares the subject of the transfer.

Where the sanctions in (i) above apply in relation to any shares, they shall cease to have effect and
any dividends withheld under (ii) shall become payable if the shares are transferred by means of
an excepted transfer but only in respect of the shares transferred or at the end of the period of
seven days (or such shorter period as the Board may determine) following receipt by the Company
of the information required by the notice and the Board being fully satisfied that such
information is full and complete.
(d) Dividends
Subject to the provisions of the Companies Act and of the Articles, the Company may by ordinary
resolution declare dividends to be paid to members according to their respective rights and
interests in the profits of the Company. However, no dividend shall exceed the amount
recommended by the Board.
Subject to the provisions of the Companies Act, the Board may declare and pay such interim
dividends as appear to the Board to be justified by the profits of the Company available for
distribution. If at any time the share capital of the Company is divided into different classes, the
Board may pay such interim dividends on shares which rank after shares conferring preferential
rights with regard to dividend as well as on shares conferring preferential rights, unless at the
time of payment any preferential dividend is in arrears. Provided that the Board acts in good faith,
it shall not incur any liability to the holders of shares conferring preferential rights for any loss
that they may suffer by the lawful payment of any interim dividend on any shares ranking after
those with preferential rights.
Except as otherwise provided by the rights attached to shares, all dividends shall be declared and
paid according to the amounts paid up on the shares on which the dividend is paid but no amount
216

PRA3 4.5

Part XIV: Additional information

paid up on a share in advance of the date on which a call is payable shall be treated for the
purposes of this Article as paid up on the share. Subject as aforesaid, all dividends shall be
apportioned and paid proportionately to the amounts paid up on the shares during any portion
or portions of the period in respect of which the dividend is paid, but if any share is issued on
terms providing that it shall rank for dividend as from a particular date, it shall rank for dividend
accordingly.
The Board may deduct from any dividend or other money payable to any person on or in respect
of a share all such sums as may be due from him to the Company on account of calls or otherwise
in relation to the shares of the Company.
The Board may, with the authority of an ordinary resolution of the Company, direct that payment
of any dividend declared may be satisfied wholly or partly by the distribution of assets, and in
particular of paid up shares or debentures of any other company, or in any one or more of such
ways. Where any difficulty arises in regard to such distribution, the Board may settle it as it thinks
fit. In particular, the Board may:
(i)

issue fractional certificates (or ignore fractions);

(ii)

fix the value for distribution of such assets or any part thereof and determine that cash
payments may be made to any members on the footing of the value so fixed, in order to
adjust the rights of members; and

(iii)

vest any such assets in trustees on trust for the persons entitled to the dividend.

The Board may also, with the prior authority of an ordinary resolution of the Company and
subject to such conditions as the Board may determine, offer to holders of ordinary shares the
right to elect to receive ordinary shares, credited as fully paid, instead of the whole (or some part,
to be determined by the Board) of any dividend specified by the ordinary resolution.
Unless the Board otherwise determines, the payment of any dividend or other money that would
otherwise be payable in respect of shares will be withheld, and the Company shall have no
obligation to pay interest on it, if such shares represent at least 0.25 per cent. of the nominal value
of the issued share capital of their class and the holder, or any other person appearing to be
interested in those shares, has been issued with a notice under section 212 of the Act and has
failed to supply the information required by such notice within 14 days. Furthermore such a
holder shall not be entitled to elect to receive shares instead of a dividend.
All dividends, interest or other sum payable and unclaimed for 12 months after having become
payable may be invested or otherwise used by the Board for the benefit of the Company until
claimed and the Company shall not be constituted a trustee in respect thereof. All dividends
unclaimed for a period of 12 years after having been declared or become due for payment shall
(if the Board so resolves) be forfeited and shall cease to remain owing by the Company.
(e) Division of assets on a winding-up

PRA3 4.5

If the Company is wound up the liquidator may, with the sanction of a extraordinary resolution of
the Company and any other sanction required by law, divide among the members in specie the
whole or any part of the assets of the Company and may, for that purpose, value any assets and
determine how the division shall be carried out as between the members or different classes of
members. Any such division may be otherwise than in accordance with the existing rights of the
members, but if any division is resolved otherwise than in accordance with such rights, the
members shall have the same right of dissent and consequential rights as if such resolution were a
special resolution passed pursuant to section 110 of the Insolvency Act 1986. The liquidator may,
with the like sanction, vest the whole or any part of the assets in trustees on such trusts for the
benefit of the members as he with the like sanction shall determine, but no member shall be
compelled to accept any assets on which there is a liability.
217

Part XIV: Additional information

(f) Lien and forfeiture
The Company will have a first and paramount lien on every share (not being a fully paid share) for
all amounts payable to the Company (whether presently payable or not) in respect of that share.
The Company may sell, in such manner as the Board determines, any share on which the Company
has a lien if a sum in respect of which the lien exists is presently payable and is not paid within
14 days after notice has been sent to the holder of the share demanding payment and stating that
if the notice is not complied with the share may be sold.
The Board may from time to time make calls upon the members in respect of any amounts unpaid
on their shares. Each member shall, subject to receiving at least 14 days notice, pay to the
Company the amount called on his /her shares. In the event of non-payment, the Board may give
to the person from whom it is due a notice requiring payment of the amount unpaid together
with any interest which may have accrued and any expenses incurred by the Company by reason
of non-payment. The notice shall name a further day being not less than seven days from the date
of the service of the notice where payment is to be made and shall state that if the notice is not
complied with the shares in respect of which the call was made will be liable to be forfeited.
(g) Transfer of shares
Subject to any applicable restrictions, each member may transfer all or any of his shares by
instrument of transfer in writing in any usual form or in any form approved by the Board. Such
instrument shall be executed by or on behalf of the transferor and (in the case of a transfer of a
share which is not fully paid up) by or on behalf of the transferee. The transferor shall be deemed
to remain the holder of such share until the name of the transferee is entered in the Register in
respect of it.
The Board may, in its absolute discretion and without giving any reason, refuse to register any
transfer of a share (or renunciation of a renounceable letter of allotment) unless:
(i)

it is in respect of a share which is fully paid up;

(ii)

it is in respect of only one class of shares;

(iii)

it is in favour of a single transferee or not more than four joint transferees;

(iv)

it is duly stamped (if so required); and

(v)

it is delivered for registration to the registered office of the Company or such other place as
the Board may from time to time determine, accompanied (except in the case of a transfer
by a recognised person where a certificate has not been issued or in the case of a
renunciation) by the certificate for the shares to which it relates and such other evidence as
the Board may reasonably require to prove the title of the transferor or person renouncing
and the due execution of the transfer or renunciation by him or, if the transfer or
renunciation is executed by some other person on his behalf, the authority of that person to
do so provided that the Board shall not refuse to register any transfer or renunciation of
partly paid shares which are listed on the London Stock Exchange on the grounds that they
are partly paid shares in circumstances where such refusal would prevent dealings in such
shares from taking place on an open and proper basis.

Unless the Board otherwise determines, a transfer of shares will not be registered if the transferor
or any other person appearing to be interested in the transferors shares has been issued with a
notice under section 212 of the Act, has failed to supply the information required by such notice
within 14 days and the shares in respect of which such notice has been served represent at least
0.25 per cent. of their class, unless the member is not himself in default as regards supplying the
information required and proves to the satisfaction of the Board that no person in default as
regards supplying such information is interested in any of the shares the subject of the transfer, or
218

PRA3 4.8

Part XIV: Additional information

unless the transfer is an excepted transfer or after seven days (or such shorter period as the Board
may determine) following receipt by the Company of the information required by the notice and
the Board being fully satisfied that such information is full and complete.
(h) Variation of rights

PRA1 21.2.4

If at any time the share capital of the Company is divided into shares of different classes, any of
the rights for the time being attached to any share or class of shares in the Company (and
notwithstanding that the Company may be or be about to be in liquidation) may be varied or
abrogated in such manner (if any) as may be provided by such rights or, in the absence of any such
provision, either with the consent in writing of the holders of not less than three-quarters in
nominal value of the issued shares of the class or with the sanction of an extraordinary resolution
passed at a separate general meeting of the holders of shares of the class duly convened and held
as hereinafter provided (but not otherwise).
The provisions governing general meetings apply mutatis mutandis to every meeting of the
holders of any class of shares. The Board may convene a meeting of the holders of any class of
shares whenever it thinks fit and whether or not the business to be transacted involves a variation
or abrogation of class rights. The quorum at every such meeting shall be not less than two persons
holding or representing by proxy at least one-third of the nominal amount paid up on the issued
shares of the class. Every holder of shares of the class, present in person or by proxy, may demand
a poll. Each such holder shall on a poll be entitled to one vote for every share of the class held by
him. If at any adjourned meeting of such holders such quorum as aforesaid is not present, not less
than one person holding shares of the class who is present in person or by proxy shall be a
quorum.
Subject to the terms of issue of or rights attached to any shares, the rights or privileges attached
to any class of shares shall be deemed not to be varied or abrogated by the creation or issue of
any new shares ranking pari passu in all respects (save as to the date from which such new shares
shall rank for dividend) with or subsequent to those already issued or by the reduction of the
capital paid up on such shares or by the purchase or redemption by the Company of its own shares
in accordance with the provisions of the Companies Act 1985 and the Articles.
(i) Purchase of own shares
Subject to the Companies Act and without prejudice to any relevant special rights attached to any
class of shares, the Company may purchase any of its own shares (including any redeemable
preference shares).
(j) Borrowing powers
The Directors may exercise all the powers of the Company to borrow money, mortgage or charges
its assets, and issue debentures and other securities. The Directors shall, however, restrict the
borrowings of the Company and exercise all voting and other rights in relation to its subsidiary
undertakings so as to secure (so far, as regards subsidiary undertakings, as by such exercise they
can secure) that the aggregate amount for the time being remaining outstanding of all monies
borrowed by the Group and for the time being owing to persons outside the Group (as defined)
less the aggregate amount of Current Asset Investments (as defined) shall not at any time without
the previous sanction of an ordinary resolution of the Company exceed (i) before the publication
of the first audited consolidated accounts of the Company, the sum of US$750 million and
(ii) thereafter an amount equal to 3 times the Adjusted Capital and Reserves (as defined).

219

Part XIV: Additional information

(k) Alteration of share capital
The Company in general meeting may from time to time by ordinary resolution:
(i)

increase its share capital by such sum to be divided into shares of such amounts as the
resolution prescribes;

(ii)

consolidate and divide all or any of its share capital into shares of larger amounts than its
existing shares;

(iii)

cancel any shares which at the date of the passing of the resolution have not been taken or
agreed to be taken by any person, and diminish the amount of its share capital by the
amount of the shares so cancelled; and

(iv)

subject to the provisions of the Companies Act, sub-divide its shares or any of them into
shares of smaller amount, and may by such resolution determine that, as between the shares
resulting from such sub-division, one or more of the shares may, as compared with the
others, have any such preferred, deferred or other special rights or be subject to any such
restrictions as the Company has power to attach to unissued or new shares.

PRA1 21.2.3
PRA1 21.2.8

Subject to the provisions of the Companies Act and to any rights for the time being attached to
any shares, the Company may by special resolution reduce its share capital or any capital
redemption reserve or share premium account in any way.
(l) Allotment of shares
Subject to the provisions of the Companies Act and to any relevant authority of the Company in
general meeting required by the Companies Act, unissued shares at the date of adoption of the
Articles and any shares thereafter created shall be at the disposal of the Board, which may allot
(with or without conferring rights of renunciation), grant options over, offer or otherwise deal
with or dispose of them or rights to subscribe for or convert any security into shares to such
persons (including the Directors themselves), at such times and generally on such terms and
conditions as the Board may decide, provided that no share shall be issued at a discount.
Subject to the provisions of the Companies Act and to any special rights for the time being
attached to any existing shares, any share may be issued which is, or at the option of the Company
or of the holder of such share is liable, to be redeemed on such terms and in such manner as the
Articles may provide.
(m) Power to attach rights
Subject to the provisions of the Companies Act and to any special rights for the time being
attached to any existing shares, any shares may be allotted or issued with or have attached to
them such preferred, deferred or other special rights or restrictions whether in regard to
dividends, voting, transfer, returned capital or otherwise, as the Company may from time to time
by ordinary resolution determine or, if no such resolution has been passed or, so far as the
resolution does not make specific provision, as the Board shall determine.
(n) Remuneration of Directors
The Directors (other than alternate Directors) shall be entitled to receive by way of fees for their
services as Directors such sum as the Board may from time to time determine (not exceeding
3,000,000) per annum, or such other sum as the Company in general meeting by ordinary
resolution shall from time to time determine). Such sum (unless otherwise directed by the
resolution of the Company by which it is voted) shall be divided among the Directors in such
proportions and in such manner as the Board may determine or, in default of such determination,
equally (except that in such event any Director holding office for less than the whole of the
relevant period in respect of which the fees are paid shall only rank in such division in proportion
220

PRA1 21.2.2

Part XIV: Additional information

to the time during such period for which he holds office). Any fees payable pursuant to this Article
shall be distinct from any salary, remuneration or other amounts payable to a Director pursuant to
any other provisions of the Articles and shall accrue from day to day.
Each Director shall be entitled to be repaid all reasonable travelling, hotel and other expenses
properly incurred by him in or about the performance of his duties as Director, including any
expenses incurred in attending meetings of the Board or any committee of the Board or general
meetings or separate meetings of the holders of any class of shares or of debentures of the
Company.
If by arrangement with the Board any Director shall perform or render any special duties or
services outside his ordinary duties as a Director and not in his capacity as a holder of employment
or executive office, he may be paid such reasonable additional remuneration (whether by way of
salary, commission, participation in profits or otherwise) as the Board may from time to time
determine.
The salary or remuneration of any Director appointed to hold any employment or executive office
in accordance with the provisions of the Articles may be either a fixed sum of money, or may
altogether or in part be governed by business done or profits made or otherwise determined by
the Board, and may be in addition to or in lieu of any fee payable to him for his services as
Director pursuant to the Articles.
(o) Pensions and other benefits
The Board may exercise all the powers of the Company to provide pensions or other retirement or
superannuation benefits and to provide death or disability benefits or other allowances or
gratuities for persons who are or were directors of any company in the Hochschild Mining Group
and their relatives or dependents.
(p) Directors interests
Subject to the provisions of the Companies Act and provided that the Director makes the relevant
disclosures to the Board, a Director, notwithstanding his office:
(i)

may enter into or otherwise be interested in any contract, arrangement, transaction or

proposal with the Company or in which the Company is otherwise interested;

(ii)

may hold any other office or place of profit under the Company (except that of Auditor or of
auditor of a subsidiary of the Company) in conjunction with the office of Director and may
act by himself or through his firm in a professional capacity for the Company, and in any such
case on such terms as to remuneration and otherwise as the Board may arrange, either in
addition to or in lieu of any remuneration provided for by any other Article;

(iii)

may be a director or other officer of, or employed by, or a party to any transaction or
arrangement with or otherwise interested in, any company promoted by the Company or in
which the Company is otherwise interested or as regards which the Company has any powers
of appointment; and

(iv)

shall not be liable to account to the Company for any profit, remuneration or other benefit
realised by any such office, employment, contract, arrangement, transaction or proposal,

and no such office, employment, contract, arrangement, transaction or proposal shall be avoided
on the grounds of any such interest or benefit.
(q) Interested Director not to vote or count for quorum
Save as provided in this paragraph (q), a Director shall not vote on, or be counted in the quorum
in relation to, any resolution of the Board or of a committee of the Board concerning any
221

Part XIV: Additional information

contract, arrangement, transaction or any other proposal whatsoever to which the Company is or
is to be a party and in which he has an interest which (together with any interest of any person
connected with him within the meaning of section 346 of the Companies Act) is to his knowledge
a material interest otherwise than by virtue of his interests in shares or debentures or other
securities of or otherwise in or through the Company, unless the resolution concerns any of the
following matters:
(i)

the giving of any guarantee, security or indemnity in respect of money lent or obligations
incurred by him or any other person at the request of or for the benefit of the Company or
any of its subsidiary undertakings;

(ii)

the giving of any guarantee, security or indemnity in respect of a debt or obligation of the
Company or any of its subsidiary undertakings for which he himself has assumed
responsibility in whole or in part under a guarantee or indemnity or by the giving of security;

(iii)

any proposal concerning an offer of shares or debentures or other securities of or by the

Company or any of its subsidiary undertakings in which offer he is or may be entitled to
participate as a holder of securities or in the underwriting or sub-underwriting of which he is
to participate;

(iv)

any proposal concerning any other body corporate in which he (together with persons
connected with him within the meaning of section 346 of the Companies Act) does not to his
knowledge have an interest (as the term is used in Part VI of the Companies Act) in 1 per
cent. or more of the issued equity share capital of any class of such body corporate or of the
voting rights available to members of such body corporate;

(v)

any proposal relating to an arrangement for the benefit of the employees of the Company
or any of its subsidiary undertakings which does not award him any privilege or benefit not
generally awarded to the employees to whom such arrangement relates; or

(vi)

any proposal concerning insurance which the Company proposes to maintain or purchase for
the benefit of Directors or for the benefit of persons who include Directors.

A Director shall not vote or be counted in the quorum on any resolution of the Board or
committee of the Board concerning his own appointment (including fixing or varying the terms of
his appointment or its termination) as the holder of any office or place of profit with the
Company or any company in which the Company is interested. Where proposals are under
consideration concerning the appointment (including fixing or varying the terms of appointment
or its termination) of two or more Directors to offices or places of profit with the Company or any
company in which the Company is interested, such proposals may be divided and a separate
resolution considered in relation to each Director. In such case each of the Directors concerned (if
not otherwise debarred from voting under the Articles) shall be entitled to vote (and be counted
in the quorum) in respect of each resolution except that concerning his own appointment.
If any question arises at any meeting as to the materiality of a Directors interest (other than the
Chairmans interest) or as to the entitlement of any Director (other than the Chairman) to vote or
be counted in a quorum, and such question is not resolved by his voluntarily agreeing to abstain
from voting or being counted in the quorum, such question shall be referred to the Chairman of
the meeting. The Chairmans ruling in relation to the Director concerned shall be final and
conclusive except in a case where the nature or extent of the interest of the Director concerned
(so far as it is known to him) has not been fairly disclosed to the Board.
If any question arises at any meeting as to the materiality of the Chairmans interest or as to the
entitlement of the Chairman to vote or be counted in a quorum, and such question is not resolved
by his voluntarily agreeing to abstain from voting or being counted in the quorum, such question
shall be decided by resolution of the Directors or committee members present at the meeting
(excluding the Chairman), whose majority vote shall be final and conclusive.
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Part XIV: Additional information

(r) Age of Directors
The Articles do not require a Director to vacate his office on or by reason of his attaining or having
attained the age of 70 and, accordingly, no special notice is required by any resolution appointing
or approving the appointment of such a Director.
(s) Number of Directors
Unless and until otherwise determined by the Company by ordinary resolution, the number of
Directors (other than any alternate Directors) shall be not more than 12 or less than two.
(t) Directors appointment and retirement by rotation
Directors may be appointed by the Company by ordinary resolution or by the Board. If appointed
by the Board, a Director holds office only until the next annual general meeting and shall not be
taken into account in determining the number of Directors who are to retire by rotation (if
applicable) at such meeting. A Director shall not be required to hold any shares of the Company.
Each Director shall retire at the annual general meeting held in the third calendar year following
the year in which he was elected or last re-elected by the Company. A Director who retires at any
annual general meeting shall be eligible for re-election unless the Directors otherwise determine
not later than the date of the notice of such meeting.
(u) Untraced shareholders
Subject to the Articles, the Company may sell any shares in the Company registered in the name of
a member remaining untraced for 12 years who fails to communicate with the Company following
advertisement of an intention to make such a disposal. Until the Company can account to the
member, the net proceeds of sale may either be employed in the business of the Company or
invested in whatever investments as the Board sees fit, in either case at the discretion of the
Board. The proceeds will not carry interest.
(v) Non-United Kingdom shareholders
There are no limitations in the Articles on the rights of non-United Kingdom shareholders to hold,
or to exercise voting rights attached to, the ordinary shares. However, non-United Kingdom
shareholders are not entitled to receive notices of general meetings unless permitted by the Board
in its absolute discretion, or if they have given an address in the United Kingdom to which such
notices may be sent.
(w) Meetings

PRA1 21.2.5

An annual general meeting and an extraordinary general meeting convened for the passing of a
special resolution shall be convened by not less than 21 clear days notice in writing. All other
extraordinary general meetings shall be convened by not less than 14 clear days notice in writing,
but notwithstanding that it is convened by shorter notice, a general meeting shall be deemed to
have been duly convened if it is so agreed:
(i)

in the case of an annual general meeting, by all the members entitled to attend and vote at
the meeting; and

(ii)

in the case of any other meeting, by a majority in number of the members having a right to
attend and vote at the meeting, being a majority together holding not less than 95 per cent.
in nominal value of the shares giving that right.

The notice shall specify the day, time and place of the meeting and, in the case of general
business, the general nature of that business to be transacted and shall specify whether the
meeting is an annual general meeting or an extraordinary general meeting, if the meeting is
223

Part XIV: Additional information

convened to consider a special or extraordinary resolution, the intention to propose the resolution
as such, and the right of a member entitled to attend and vote to appoint one or more proxies.
The notice shall be given to the members (other than any who, under the provisions of the Articles
or of any restrictions imposed on any shares, are not entitled to receive notice from the Company),
to the Directors and to the Auditors. The accidental omission to give notice to, or the non-receipt
of notice by, any person entitled to receive the same shall not invalidate the proceedings at the
meeting.
No business shall be transacted at any general meeting unless a quorum is present. Two persons
(either members, duly authorised representatives or proxies) entitled to vote upon the business to
be transacted shall be a quorum. The Chairman of the Board shall preside as Chairman at every
general meeting of the Company. If there be no such Chairman or if at any meeting he shall not
be present within five minutes after the time appointed for holding the meeting, or shall be
unwilling to act as Chairman, the Deputy Chairman (if any) of the Board shall, if present and
willing to act, preside as Chairman at such meeting. If no Chairman or Deputy Chairman shall be
so present and willing to act, the Directors present shall choose one of their number to act or, if
there be only one Director present, he shall be Chairman if willing to act. If there be no Director
present and willing to act, the members present and entitled to vote shall choose one of their
number to be Chairman of the meeting. A Director (and any other person invited by the Chairman
to do so) shall, notwithstanding that he is not a member, be entitled to attend and speak at any
general meeting and at any separate meeting of the holders of any class of shares of the
Company.
The Chairman may, with the consent of a meeting at which a quorum is present, and shall, if so
directed by the meeting, adjourn any meeting from time to time (or indefinitely) and from place
to place as the meeting shall determine. Where a meeting is adjourned indefinitely, the Board
shall fix the time and place for the adjourned meeting. Whenever a meeting is adjourned for
14 days or more or indefinitely, seven clear days notice at the least, specifying the place, the day
and time of the adjourned meeting and the general nature of the business to be transacted, shall
be given in the same manner as in the case of an original meeting.
A resolution put to a vote of the meeting shall be decided on a show of hands, unless a poll is duly
demanded. Subject to the provisions of the Companies Act, a poll may be demanded by the
Chairman, at least five members having the right to vote at the meeting, a member or members
representing not less than one-tenth of the total voting rights of all the members having the right
to vote at the meeting or a member or members holding shares conferring a right to vote at the
meeting, being shares on which an aggregate sum has been paid up equal to not less than onetenth of the total sum paid up on all the shares conferring that right.
In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman shall be
entitled to a casting vote in addition to any other vote that he may have.
The right of a member to participate in the business of any general meeting shall include without
limitation the right to speak, vote on a show of hands, vote on a poll, be represented by a proxy
and have access to all documents which are required by the Act or the Articles to be made
available to the meeting.
The Board may, for the purpose of controlling the level of attendance and ensuring the safety of
those attending at any place specified for the holding of a general meeting, from time to time
make such arrangements as the Board shall in its absolute discretion consider to be appropriate
and may from time to time vary any such arrangements or make new arrangements in place
thereof. The entitlement of any member or proxy to attend a general meeting at such place shall
be subject to any such arrangements as may be for the time being approved by the Board. In the
case of any meeting to which such arrangements apply, the Board may, when specifying the place
of the meeting, direct that the meeting shall be held at a place specified in the notice at which the
224

Part XIV: Additional information

Chairman of the meeting shall preside and make arrangements for simultaneous attendance and
participation at other places by members otherwise entitled to attend the general meeting but
excluded therefrom under such arrangements or who wish to attend at any of such other places,
provided that persons attending at each place shall be able to see and hear, and be seen and
heard by, persons attending at each place, by any means. Such arrangements for simultaneous
attendance may include arrangements for controlling the level of attendance in any manner
aforesaid at any of such other places, provided that they shall operate so that any such excluded
members as aforesaid are able to attend at one of such other places.
The Board may direct that any person wishing to attend any meeting should provide such
evidence of identity and submit to such searches or other security arrangements or restrictions as
the Board shall consider appropriate in the circumstances and shall be entitled in its absolute
discretion to refuse entry to any meeting to any person who fails to provide such evidence of
identity or to submit to such searches or to otherwise comply with such security arrangements or
restrictions.
A Director (and any other person invited by the Chairman to do so) shall, notwithstanding that he
is not a member, be entitled to attend and speak at any general meeting and at any separate
meeting of the holders of any class of shares of the Company.
(x) Indemnity of officers
Subject to the provisions of the Companies Act, but without prejudice to any indemnity to which
he may otherwise be entitled, every Director, alternate Director, Secretary or other officer of the
Company (except the Auditors) shall be entitled to be indemnified out of the assets of the
Company against any liability incurred by him for negligence, default, breach of duty or breach of
trust in relation to the affairs of the Company, provided that this provision shall be deemed not to
provide for, or entitle any such person to, indemnification to the extent that it would cause this
provision, or any element of it, to be treated as void under the Companies Act.
5 Directors, senior managements and other interests
5.1 The Directors and members of Senior Management, their functions within the Company and
brief biographies are set out in Part III: Management, Corporate Governance and Major
Shareholder.

PRA1 14.1,

5.2 Each of the Directors can be contacted at the Companys principal place of business at Pasaje
El Carmen 180, Surco, Lima 33, Peru.

PRA1 5.1.4

5.3 The table below sets out certain interests of the Directors (and of persons connected with
them) in the share capital of the Company as they are expected to be immediately prior to, and
following, Admission. The interests of the Directors and of each of their immediate families and
related trusts, all of which are beneficial (unless otherwise stated), in the share capital of the
Company which are shown in the table below (i) have been notified to the Company pursuant to
Section 324 or 328 of the Companies Act, or (ii) are required to be entered in the register of
Directors interests (maintained under the provisions of Section 325 of the Companies Act), or
(iii) are interests of a person connected (within the meaning of Section 346 of the Companies Act)
with a Director which would, if the connected person were a Director, be required to be disclosed
under (i) or (ii) above, and the existence of which is known to or could with reasonable diligence
be ascertained by that Director.

PRA3 3.3,

225

14.2

7.1, 7.2, 9.1,

9.2

Part XIV: Additional information

Immediately
prior to Admission

Director

Eduardo Hochschild(2) ******************************

(3)

Roberto Danino
**********************************
Alberto Beeck(4) ************************************
Sir Malcolm Field **********************************
Jorge Born Jr. *************************************
Nigel Moore ***************************************
Dionisio Romero ***********************************

Immediately
following Admission(1)

Number of
Ordinary
Shares owned

As a
percentage of
issued ordinary
share capital

Number of
Ordinary
Shares owned

As a
percentage of
issued ordinary
share capital

226,550,000
3,450,000
0
0
0
0
0

98.5
1.5
0
0
0
0
0

226,550,000
3,450,000
0
14,285
0
14,285
0

73.7
1.1
0
0.005
0
0.005
0

Note:
(1) Assuming no exercise of the Over-allotment Option.
(2) Ordinary Shares held through Pelham Investment Corporation
(3) Ordinary Shares held through Navajo Overseas Corporation
(4) For details of Alberto Beecks interests in the Company, see paragraph 3 of Part III: Management, corporate
governance and the Major Shareholder

5.4 The table below sets out certain interests of Senior Management (and of persons connected
with them) in the share capital of the Company as they are expected to be immediately prior to,
and following, Admission:
Immediately
prior to Admission

Senior Management

Immediately
following Admission

Number of
Ordinary
Shares owned

As a
percentage of
issued ordinary
share capital

Number of
Ordinary
Shares owned

As a
percentage of
issued ordinary
share capital

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
7,484
8,980
4,490

0
0
0
0.002
0.003
0.001

Miguel Aramburu **********************************

Jorge Benavides ***********************************
Ignacio Rosado ************************************
Eduardo Loret de Mola*****************************
Ricardo Arrarte ************************************
Gonzalo Freyre ************************************

5.5 The interests of the Directors together represent 100 per cent. of the issued share capital of
the Company as at the date of this document and are expected to represent approximately
74.8 per cent. of the issued share capital of the Company immediately following Admission,
assuming no exercise of the Over-allotment Option.
5.6 Save as set out in this paragraph 5, and in Part IX: IFRS Historical Financial Information,
none of the Directors has any interests in the share or loan capital of the Company or any of its
subsidiaries.
5.7 Save as set out in Note 30 to the combined financial information contained in Section B of
Part IX: IFRS Historical Information no Director has or has had any interest in any transaction
which is or was unusual in its nature or conditions or is or was significant to the business of the
Hochschild Mining Group and which was effected by the Company in the current or immediately
preceding financial year or which was effected during an earlier financial year and remains in any
respect outstanding or unperformed.

PRA3 3.3

5.8 There are no outstanding loans granted by any member of the Hochschild Mining Group to
any Director, nor has any guarantee been provided by any member of the Hochschild Mining
Group for their benefit.

PRA1 15.1

226

Part XIV: Additional information

5.9 In addition to their directorships in the Company and certain subsidiaries of the Company, the
Directors and members of Senior Management hold, or have held within the past five years, the
following directorships:
Name

Current or former directorships/partnerships

Position still
held (Y/N)

Director
Eduardo Hochschild *****************

Cementos Pacasmayo S.A.A.

Inversiones Pacasmayo S.A.

Banco de Credito
del Peru
Pacifico Peruano Suiza Ca de Seguros y Reaseguros

Sociedad de Comercio Exterior del Peru (Comex Peru)

TECSUP

Sociedad Nacional de Minera y Petroleo

Asia Pacific Economic Cooperation Business Advisory Council-Peru

(Consejo Consultivo Empresarial del Foro de Cooperacion

Economica
Asia Pacfico- ABAC Peru)
El Patronato de la Plata del Peru

Consejo Empresarial de America

Latina
Pedro y Angelica

Fundacion
de Osma
Instituto Peruano de Economa
Cementos Selva S.A.
a Minera Corianta S.A.C.
Compan
Mauricio Hochschild & Ca Ltda. S.A.C.
Grupo Hochschild S.A.C.
Patronato de la UNI
Conferencia Ep`scopal Peruana
Universidad de Ciencias Aplicadas

Y
Y
Y
Y
Y
Y
Y

Roberto Danino
********************

Gold Fields Peru

Educational Testing Service
Open Society Institute
Youth Orchestra of the Americas
Harvard Alumni International Association
Cultural Filarmonia
Asociacion
International Lawyers for Africa
Wilmer Cutler & Pickering
International Center for Settlement of Investment Disputes
World Bank
Mountain Institute

Proinversion
Cementos Pacasmayo S.A.A.

Y
Y
Y
Y
Y
Y
Y
N
N
N
N
N
N

Alberto Beeck **********************

Cementos Pacasmayo S.A.A.

Georgetown University Latin American Board
Mauricio Hochschild & Ca Ltda. S.A.C.
Grupo Hochschild S.A.C.
BMI Insurance
YPO (Young Presidents Organization) Latin American Board
YPO North East Region

Y
Y
Y
Y
N
N
N

Sir Malcolm Field *******************

Aricom plc
Odgers Ray & Berndston
Linden Homes
Tubes Lines Limited
WH Smith plc
Civil Aviation Authority
Scottish and Newcastle plc
MEPC
Evolution Beeson Gregory
The Stationery office

Y
Y
Y
N
N
N
N
N
N
N

Jorge Born Jr. **********************

Bunge Limited
Mutual Investment Limited
Bomagra S.A.
Caldenes S.A.
Brasif (Brazil Duty Free)
Lauder Institute of the Wharton School, University of
Pennsylvania
Latin American Board of the Wharton School, University of
Pennsylvania

Y
Y
Y
Y
Y

227

Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y

Y
Y

PRA1 14.1

Part XIV: Additional information

Current or former directorships/partnerships

Position still
held (Y/N)

Latin American Board, Georgetown University, Washington D.C.

Born-Bunge Foundation for Brain Research, Antwerp
Dufry A.G.

Y
Y
N

Nigel Moore************************

TEG Environmental plc

The Vitec Group plc
Ascent Resources plc
IntelligentComms Limited
Ernst & Young
Vanco Energy Company

Y
Y
Y
Y
N
N

Dionisio Romero ********************

Credicorp Ltd.

Banco de Credito
del Peru

Banco de Credito
de Bolivia
Cementos Pacasmayo S.A.A.
TECSUP
Atlantic Security Bank
Pacfico Peruano Suiza Ca de Seguros y Reaseguros
Santa Patricia S.A.
Aero Transporte S.A.

Y
Y
Y
Y
Y
Y
Y
Y
Y

Miguel Aramburu*******************

Altavista S.A.C.

Jorge Benavides ********************

N/A

N/A

Ignacio Rosado *********************

N/A

N/A

Eduardo Loret de Mola**************

Grupo Minera Huampar

Ricardo Arrarte *********************

a Minera Caudalosa
Compan
a Minera Acobamba
Compan

Y
N

Gonzalo Freyre *********************

Minera Santa Cruz S.A.

a Minera Ares S.A.C.
Compan

Y
N

Name

Senior Management

5.10 Alberto Beeck and Eduardo Hochschild are Chairman and Vice Chairman, respectively, of
Cementos Pacasmayo S.A.A., and each has a directors service contract with this company.

PRA1 14.2

5.11 Save as set out above, none of the Directors, the Senior Management or the Company
Secretary has any business interests, or performs any activities, outside the Hochschild Mining
Group which are significant with respect to the Hochschild Mining Group.
5.12 At the date of this document, none of the Directors or Senior Management has at any time
within the last five years:
(i)

had any convictions in relation to fraudulent offences;

(ii)

been declared bankrupt or been the subject of any individual voluntary arrangement, or
been associated with any bankruptcy, receivership or liquidation in his capacity as director
or senior manager;

(iii)

been the subject of any official public incrimination and/or sanctions by statutory or
regulatory authorities (including designated professional bodies);

(iv)

been disqualified by a court from acting as a director or member of the administrative,

management or supervisory bodies of any company or from acting in the management or
conduct of the affairs of any company;

(v)

been a partner or senior manager in a partnership which, while he was a partner or within
12 months of his ceasing to be a partner, was put into compulsory liquidation or
administration or which entered into any partnership voluntary arrangement;

(vi)

owned any assets which have been subject to a receivership or been a partner in a
partnership subject to a receivership where he was a partner at a time or within the
12 months preceding such event; or
228

PRA1 14.1

Part XIV: Additional information

(vii) been an executive director or senior manager of a company which has been placed in
receivership, compulsory liquidation, creditors voluntary liquidation or administration or
which entered into any company voluntary arrangement or any composition or
arrangement with its creditors generally or any class of creditors, at any time during which
he was an executive director or senior manager of that company or within 12 months after
his ceasing to be an executive director or senior manager.

Mr. Romero, as a director of Banco de Credito

del Peru (BCP), as well as other members of BCPs
board and its managers and officers, are from time to time involved in litigation resulting from
claims filed by third parties, many of them debtors of the bank.
In addition, Mr. Romero has, from time to time, been, and is currently, the subject of various
criminal charges and allegations. In 2001, in the only case in which formal charges have ever been
brought, charges were filed against Mr. Romero in connection with his allegedly seeking to
influence the appointment of the administrators of a company of which BCP was a major creditor.
In 2006, the Peruvian Supreme Court ruled that Mr. Romeros actions did not constitute a crime
and dismissed the charges against him. Of the other allegations made against Mr. Romero, all but
one have been made by a former employee of BCP. To date none has led to charges being
brought against Mr. Romero. The Board has given due consideration to these matters and has
concluded that neither the former nor current charges or allegations against Mr. Romero are
relevant to the Group or to Mr. Romeros position as an independent Non-Executive Director of
the Company.
5.13 Save for their capacities as persons legally and beneficially interested in Ordinary Shares as
set out in paragraph 5.3 of this Part XIV: Additional Information, there are:
(i)

no potential conflicts of interest between any duties to the Company of the Directors and
members of Senior Management and their private interests and/or other duties;

(ii)

no arrangements or understandings with major shareholders, members, suppliers or

others pursuant to which any Director or member of the Senior Management was selected;
and

(iii)

no restrictions agreed by any Director or member of the Senior Management on the

disposal within a certain time of their holdings in the Companys securities.

PRA1 14.2

6 Interests of major shareholders

Other than the interests of the Directors and members of the Senior Management disclosed in
paragraph 5 (and assuming no exercise of the Over-allotment Option), in so far as the Directors
are aware, no persons will immediately prior to and following Admission be interested in 3 per
cent. or more of the Companys issued share capital.

PRA1 18.1

None of the Companys major shareholders have or will have different voting rights attached to
the shares they hold in the Company.

PRA1 18.2

7 Directors and Senior Managements Service Agreements, Remuneration and Other Matters

PRA1 15.1

7.1 The terms of the Directors service contracts are summarised below:

PRA1 16.1

Name

Executive Directors
Eduardo Hochschild ***************************************

Roberto Danino
******************************************
Alberto Beeck ********************************************

229

Date of
Contract

Notice Period

Aggregate
Current
Salary

16 October 2006
16 October 2006
16 October 2006

See below
See below
See below

$ 800,000
$ 800,000
$ 800,000

PRA1 18.3
PRA3 7.2

Part XIV: Additional information

Date of
Contract

Name

Non-Executive Directors
Sir Malcolm Field *****************************************

16 October 2006

Jorge Born Jr. ********************************************

16 October 2006

Nigel Moore**********************************************

16 October 2006

Dionisio Romero ******************************************

16 October 2006

Notice Period

3 months notice to be
given by Non-Executive
Director
3 months notice to be
given by Non-Executive
Director
3 months notice to be
given by Non-Executive
Director
3 months notice to be
given by Non-Executive
Director

Aggregate
Current
Salary

100,000

100,000

120,000

100,000

7.2 Service Agreement with Eduardo Hochschild

On 16 October 2006 the Company entered into a service agreement with Eduardo Hochschild. The
agreement provides for Mr. Hochschild to act as Executive Chairman at a salary of $160,000
(approximately 84,000) per annum. The agreement has no fixed term but can be terminated by
either party on 12 months notice in writing. The agreement also contains provisions for payment
of salary alone in lieu of notice. There are no other benefits payable under the agreement upon
termination of employment.
a Minera Ares on
Mr. Hochschild has also entered into a service agreement with Compan
16 October 2006. The agreement provides for Mr. Hochschild to act as Executive Chairman at a
salary of $640,000 (approximately 335,000) per annum together with a payment of $160,000
(approximately 84,000) per annum in lieu of pension (Pension Supplement). The agreement
has no fixed term. The agreement can be terminated by Mr. Hochschild on 12 months notice in
writing. The agreement contains provisions for payment of salary and Pension Supplement alone

in lieu of notice. If the agreement is terminated by Compania

Minera Ares without cause,
Mr. Hochschild is entitled, under Peruvian law, to a payment equivalent to one and a half times
Mr. Hochschilds monthly salary and Pension Supplement for each year of service (up to a
maximum of 12 months worth of salary and Pension Supplement).

7.3 Service Agreement with Roberto Danino

On 16 October 2006 the Company entered into a service agreement with Roberto Danino.
The

agreement provides for Mr. Danino

to act as Deputy Chairman and Executive Director at a salary
of $160,000 (approximately 84,000) per annum. The agreement has no fixed term but can be
terminated by either party on 12 months notice in writing. The agreement also contains
provisions for payment of salary alone in lieu of notice. There are no other benefits payable under
the agreement upon termination of employment.

a Minera Ares on 16 October

Mr. Danino
has also entered into a service agreement with Compan

2006. The agreement provides for Mr. Danino

to act as Deputy Chairman and Executive Director at
a salary of $640,000 (approximately 335,000) per annum together with a payment of $160,000
(approximately 84,000) per annum in lieu of pension (Pension Supplement). The agreement

has no fixed term. The agreement can be terminated by Mr. Danino

on 12 months notice in
writing. The agreement contains provisions for payment of salary and Pension Supplement alone

in lieu of notice. If the agreement is terminated by Compania

Minera Ares without cause,

Mr. Danino
is entitled, under Peruvian law to a payment equivalent to one and a half times

Mr. Daninos
monthly salary and Pension Supplement for each year of service (up to a maximum
of 12 months worth of salary and Pension Supplement).
230

PRA1 16.2

Part XIV: Additional information

7.4 Service Agreement with Alberto Beeck
On 16 October 2006 the Company entered into a service agreement with Alberto Beeck. The
agreement provides for Mr. Beeck to act as Executive Director of Strategy and Corporate
Development at a salary of $160,000 (approximately 84,000) per annum. The agreement has no
fixed term but can be terminated by either party on 12 months notice in writing. The agreement
also contains provisions for payment of salary alone in lieu of notice. There are no other benefits
payable under the service agreement upon termination of employment.
a Minera Ares on 16 October
Mr. Beeck has also entered into a service agreement with Compan
2006. The agreement provides for Mr. Beeck to act as Executive Director of Strategy and
Corporate Development at a salary of $640,000 (approximately 335,000) per annum together
with a payment of $160,000 (approximately 84,000) per annum in lieu of pension (Pension
Supplement). The agreement has no fixed term. The agreement can be terminated by Mr. Beeck
on 12 months notice in writing. The agreement contains provisions for payment of salary and
Minera
Pension Supplement alone in lieu of notice. If the agreement is terminated by Compania
Ares without cause, Mr. Beeck is entitled, under Peruvian law, to a payment equivalent to one and
a half times Mr. Beecks monthly salary and Pension Supplement for each year of service (up to a
maximum of 12 months worth of salary and Pension Supplement).
7.5 Letter of appointment of Sir Malcolm Field
Sir Malcolm Field is engaged by the Company as a Non-Executive Director on the terms of a letter
of appointment dated 16 October 2006. The appointment is for a fixed term of three years,
subject to satisfactory performance and re-election when appropriate by the Company in general
meeting, commencing on the date of appointment and ending on the third anniversary of the
date of appointment but is terminable immediately if the Board serves a notice in writing signed
by three-quarters of the Directors. Sir Malcolm may terminate upon giving three months notice.
Sir Malcolm will receive an annual fee of 100,000 and is subject to confidentiality undertakings.
7.6 Letter of appointment of Jorge Born Jr.
Jorge Born Jr. is engaged by the Company as a Non-Executive Director on the terms of a letter of
appointment dated 16 October 2006. The appointment is for a fixed term of three years, subject
to satisfactory performance and re-election when appropriate by the Company in general
meeting, commencing on the date of appointment and ending on the third anniversary of the
date of appointment but is terminable immediately if the Board serves a notice in writing signed
by three-quarters of the Directors. Mr. Born may terminate upon giving three months notice.
Mr. Born will receive an annual fee of 100,000 and is subject to confidentiality undertakings.
7.7 Letter of appointment of Nigel Moore
Nigel Moore is engaged by the Company as a Non-Executive Director on the terms of a letter of
appointment dated 16 October 2006. The appointment is for a fixed term of three years, subject
to satisfactory performance and re-election when appropriate by the Company in general
meeting, commencing on the date of appointment and ending on the third anniversary of the
date of appointment but is terminable immediately if the Board serves a notice in writing signed
by three-quarters of the Directors. Mr. Moore may terminate upon giving three months notice.
Mr. Moore will receive an annual fee of 120,000 and is subject to confidentiality undertakings.
7.8 Letter of appointment of Dionisio Romero
Dionisio Romero is engaged by the Company as a Non-Executive Director on the terms of a letter
of appointment dated 16 October 2006. The appointment is for a fixed term of three years,
subject to satisfactory performance and re-election when appropriate by the Company in general
meeting, commencing on the date of appointment and ending on the third anniversary of the
231

Part XIV: Additional information

date of appointment but is terminable immediately if the Board serves a notice in writing signed
by three-quarters of the Directors. Mr. Romero may terminate upon giving three months notice.
Mr. Romero will receive an annual fee of 100,000 and is subject to confidentiality undertakings.
7.9 The aggregate emoluments of the Directors and the Senior Management for the financial
year ended 31 December 2005 was approximately US$2.7 million. The figure includes salaries,
bonuses and profit sharing. The aggregate emoluments were paid to the following Directors and
Senior Management:
Name

Director/Senior Management

Emoluments(1)

Eduardo Hochschild *****************

Roberto Danino
********************
Alberto Beeck **********************
Miguel Aramburu*******************
Jorge Benavides ********************
Ignacio Rosado *********************
Eduardo Loret de Mola**************
Ricardo Arrarte *********************
Gonzalo Freyre *********************

Executive Director
Executive Director
Executive Director
General Manager, Mining Division
General Manager, Exploration and Geology Division
Chief Financial Officer
Manager, International Operations
Manager, Peruvian Operations
Manager, Argentinian Operator,

US$341,414
N/A
US$64,167
US$586,564
US$473,601
US$250,860
US$416,579
US$298,024
US$224,661

PRA1 15.1

Note:
a Minera Ares, which in 2005 included Miguel Aramburu, Ignacio Rosado, Eduardo Loret de
(1) The directors of Compan
Mola and Ricardo Arrarte, were allocated as part of their remuneration a directors fee calculated by reference to the
profits of that company. Although these directors fees are included in the remuneration of the relevant senior managers
a Minera Ares or its affiliates. This
listed above, the after-tax amounts were donated to persons connected to Compan
includes TECSUP, the non-profit, technical university founded by the Group in 1984 (see Part 1: Information on Hochschild
Mining Other Programmes).

8 Executive Long Term Incentive Plan

The Company has not yet adopted an executive long term incentive plan. It is intended, however,
that the Company will, following Admission, seek advice on the form of long term incentive plan
that is most suitable for the Company with a view to adopting a plan or plans, subject to
shareholder approval (if required).
9 Pensions
The Hochschild Mining Group does not currently operate any pension schemes for the employees
of the Group for its employees and has no present intention of introducing such schemes. Details
of the Groups statutory contributions to pension accounts for its employees in Peru, Mexico and
Argentina are set out in Part VII: Operating and Financial Review.
10 Working Capital

PRA3 3.1

In the opinion of the Company, taking account of the net proceeds of the Global Offer, the
working capital available to the Group is sufficient for the Groups present requirements, that is,
for the next 12 months following the date of this document.
11 Underwriting Agreement

PRA3 5.4.3,

On 3 November 2006, the Company and the Managers entered into the Underwriting Agreement
pursuant to which the Managers (other than JPMSL) have agreed to procure subscribers for, or
failing which the Underwriters will acquire themselves, at the Offer Price, the Ordinary Shares to
be made available under the Global Offer.

5.4.4

The Underwriting Agreement contains, amongst others, the following further provisions:
11.1 the Company has appointed JPMorgan Cazenove Limited and Goldman Sachs as Joint
Sponsors in connection with the Admission of the Ordinary Shares to the Official List. The
Company has appointed JPMorgan Cazenove Limited and Goldman Sachs as Joint Global
Co-ordinators in connection with the Global Offer and has appointed JPMorgan Cazenove
Limited and Goldman Sachs as Joint Bookrunners to the Global Offer;
11.2 the Over-allotment Shareholders have granted to JPMorgan Cazenove Limited, as
Stabilising Manager, the Over-allotment Option pursuant to which the Stabilising
232

Part XIV: Additional information

Manager may require the Over-allotment Shareholders to procure the sale by Pelham
Investment Corporation of Ordinary Shares (in an amount of up to approximately 15 per
cent. of the total number of Ordinary Shares to be issued or sold in the Global Offer before
any exercise of the Over-allotment Option) at the Offer Price to cover over-allotments, if
any, made in connection with the Global Offer and to cover any short positions resulting
from stabilisation transactions. The Over-allotment Option may be exercised from the date
of the commencement of conditional trading for a period of 30 calendar days thereafter,
provided that it may only be exercised to the extent that Ordinary Shares have been overallotted;
11.3 the obligations of the Managers (other than JPMSL) to procure subscribers for or, failing
which, the Underwriters to subscribe the Offer Shares pursuant to the Underwriting
Agreement, are subject to certain conditions including, amongst others, Admission
occurring by not later than 8.00 a.m. on 8 November 2006 (GMT) or such later time and/or
date as the Joint Sponsors (on behalf of the Managers) may agree with the Company. The
Managers may terminate the Underwriting Agreement in certain circumstances prior to
Admission, including the occurrence of certain material changes in the condition (financial
or otherwise) of the Hochschild Mining Group and certain changes in market and
economic conditions (as more fully set out in the Underwriting Agreement);
11.4 the Company has agreed that the Managers may deduct from the proceeds of the Global
Offer payable to the Company a commission of 3 per cent. of the amount equal to the
product of the Offer Price and the aggregate number of Ordinary Shares to be sold
pursuant to the Global Offer which the Managers (other than JPMSL) have agreed to
procure acquirers for, or failing which the Underwriters to subscribe, pursuant to the terms
of the Underwriting Agreement. In addition, the Over-allotment Shareholders have
agreed that the Stabilising Manager may deduct (on behalf of the Managers) a
commission of 3 per cent. of the amount equal to the Offer Price multiplied by the number
of Over-allotment Shares (if any) sold pursuant to the Over-allotment Option. In addition,
the Company may, at its absolute discretion, pay to the Managers an additional aggregate
amount of 1 per cent. of the product of the Offer Price and the number of the Offer Shares
as an incentive fee. In addition, the Over-allotment Shareholders may, in their absolute
discretion, pay to the Managers an aggregate amount of 1 per cent. of the product of the
Offer Price and the number of Over-allotment Shares as an incentive fee;
11.5 the Company has agreed to pay or cause to be paid (together with any related value
added tax) certain costs, charges, fees and expenses of or in connection with, or incidental
to, amongst other things, the Global Offer and/or Admission. The Company has agreed to
pay or cause to be paid (together with any related value added tax) certain costs, charges,
fees and expenses incurred by it in connection with, or incidental to, amongst other things
the Global Offer, the Ordinary Shares to be sold pursuant to the Global Offer and the
Over-allotment Option. In addition, the Company and the Over-allotment Shareholders
have, in certain circumstances, agreed to pay and/or reimburse the stamp duty or stamp
duty reserve tax arising out of or in connection with the arrangements that are the subject
of the Underwriting Agreement and/or the Over-allotment Option;
11.6 the Company has undertaken, subject to certain exceptions, in the Underwriting
Agreement, among other things, not to directly or indirectly, offer, issue, lend, sell or
contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or
announce an offering or issue of, any Ordinary Shares (or any interest therein or in respect
thereof) or any other securities exchangeable for or convertible into, or substantially
similar to, Ordinary Shares or enter into any transaction with the same economic effect as,
or agree to do, any of the foregoing for a period of 12 months after Admission, without
first obtaining the consent of the Joint Global Coordinators; and
233

Part XIV: Additional information

11.7 the Company and the Directors and the Over-allotment Shareholders have given certain
representations and warranties to the Managers and, in addition, the Company and the
Over-allotment Shareholders have given certain indemnities to the Managers. The
Companys liabilities are unlimited as to time and amount.
12 Material Contracts
The following are the only contracts (not being contracts entered into in the ordinary course of
business) which have been entered into by members of the Hochschild Mining Group within two
years immediately preceding the date of this document or which are expected to be entered into
prior to Admission and which are, or may be, material or which have been entered into at any
time by members of the Hochschild Mining Group and which contain any provision under which
any member of the Hochschild Mining Group has any obligation or entitlement which is, or may
be, material to the Hochschild Mining Group as at the date of this document:

PRA1 22

12.1 Underwriting Agreement

Please refer to the description in paragraph 11 above.
12.2 Financing Documents
12.2.1 Secured Loan Agreement
(a) Pursuant to a secured loan agreement dated 13 August 2004 (the Secured Loan Agreement)
(as amended by the First Amendment Agreement dated 11 May 2006), the Hochschild Mining
a Minera Ares) borrowed an aggregate principal amount of
Group (through Compan
US$70 million (the Loan) from a syndicate of various financial institutions (the Lenders).
(b) The proceeds of the Loan were to be used for the following purposes: (i) US$31 million for the
repayment of the existing secured loan of US$30,830,033 pursuant to an existing loan
a Minera Ares and Banco de Credito

agreement dated 16 April 2003 between Compan

del
(ii) approximately US$10 million for capital expenditures; and (iii) initially approximately
Peru;
US$29,000,000 for general corporate purposes, such amount increasing by ten per cent.
pursuant to a waiver letter dated 12 November 2004.
(c) The interest payable on the unpaid principal amount of the Loan is a rate per annum equal to
LIBOR + 3.7 per cent. The Loan was originally repayable in 10 quarterly instalments starting in
May 2005. However, from the date of the First Amendment Agreement, being 11 May 2006,
the balance of the Loan is to be repaid in five equal quarterly instalments of US$8,960,682.76
each starting in August 2006. Any amount of the Loan repaid may not be reborrowed.
(d) The Secured Loan Agreement contains certain mandatory prepayments including, inter alia,
on each payment date on which principal is due, if the amount that results from (i) dividing
a Minera Ares in processing plants (in metric
the amount of mineral ore treated by Compan
tons) during the applicable interest period by the Reserves Available (as defined in the
Secured Loan Agreement) as of the last day of such interest period, and (ii) multiplying the
result by the balance of the Loan that is outstanding on the date of the First Amendment
Agreement (11 May 2006), is greater than the principal instalment payable on such payment
a Minera Ares must prepay the principal
date (the Excess Production Amount), Compan
amount outstanding under the Loan by an amount equal to such Excess Production Amount.
The Secured Loan Agreement also contains certain optional prepayments provided such
prepayment is accompanied by the accrued interest and a prepayment fee as set out in the
agreement.
a Minera Ares has provided each Lender with
(e) Under the Secured Loan Agreement, Compan
either a promissory note governed by New York law or a pagare governed by Peruvian law
(as determined by each Lender). Each Note is valid and enforceable as to its principal amount
to the extent of the aggregate amount then outstanding under the Loan in respect of which
a Minera Ares is also obliged to maintain hedge contracts at all times
it was issued. Compan
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PRA1 10.3

Part XIV: Additional information

while any amount payable under the Loan is outstanding. The committed gold ounces under
the hedge contracts must be maintained at 65 per cent. of its production from the Ares unit in
each 12 month period following 19 August 2005 and the committed gold and silver ounces
a Minera Ares combined
under the hedge contracts must not exceed 65 per cent. of Compan
production from the Ares and Selene units during any one full year after 2004.
a Minera Ares to
(f) The Secured Loan Agreement includes covenants that require Compan
procure that certain financial ratios or financial tests are complied with, including that
a Minera Ares (i) may only incur permitted direct short-term financial indebtedness
Compan
of less than US$7 million (in aggregate), which amount was subsequently increased to an
amount up to US$15,000,000 pursuant to a waiver letter dated 30 June 2005, (ii) must not
incur expenditures or commitments for expenditures for fixed or other non-current assets
exceeding US$5,000,000 and (iii) must maintain an interest coverage ratio of no less than 6.0,
a debt service coverage ratio of no less than 1.20, a debt to EBITDA ratio of no greater than
1.20 and a current ratio of no less than 1.00. The capital expenditure amount was increased to
US$8,500,000 per annum after the financial year ending 31 December 2005 pursuant to a
waiver letter dated 30 June 2006. A further waiver was obtained in respect of financial year
a Minera Ares is also required to comply with a number
ending 31 December 2006. Compan
of reporting covenants, including furnishing consolidated financial statements each year and
furnishing officers certificates confirming that all representations and warranties made under
the Secured Loan Agreement continue to be true and correct and that the consolidated
financial statements are accurate and complete and that no default has occurred. The Secured
a Minera Ares ability, inter alia,
Loan Agreement also places certain restrictions on Compan
to sell, lease or otherwise dispose of or part with control of any property, or to pay any
a Minera Ares
dividend, distribution or payment on equity or any loan or advance. Compan
has also given undertakings under the Secured Loan Agreement, inter alia, to pay and
discharge all indebtedness as and when due, maintain insurance and all necessary licences,
permits, rights, authorisations, consents and approvals, and that it has complied, and is in
compliance, with all applicable environmental laws and environmental permits.
(g) The Loan is secured by:
(i)

a Minera Ares and Banco

An accounts pledge dated 19 August 2004 between Compan

de Credito del Peru as Administrative Agent, Collateral Agent and Cash Management
a Minera Ares granted security to the Collateral Agent on
Bank, under which Compan
behalf of the Lenders and the Hedge Counterparties, over the collection account held by
a Minera Ares with Banco de Credito

Compan
del Peru for the duration of the Secured

Loan Agreement. Compana Minera Ares has no right of withdrawal with respect to the
a Minera Ares has created a first priority security interest
collections account. Compan
and a general first lien in favour of the Collateral Agent over the collection account,
a Minera Ares to the indebtedness payment obligation
including all rights of Compan
and accounts receivable owed or to be owed by a buyer of export goods and any hedge
contract and all accounts and general intangibles relating to the export of goods sold;

(ii)

a Minera Ares,
A hedge collateral agreement dated 19 August 2004 between Compan
Standard Bank London Limited (the Hedge Collateral Agent) and N.M. Rothschild &
a Minera Ares
Sons Limited (the Original Hedge Counterparty) under which Compan
established a segregated cash account with the Hedge Collateral Agent under his sole
and exclusive control for the benefit of the Original Hedge Counterparties. The parties
have agreed that such cash account will hold an initial amount of US$5,000,000 plus any
proceeds of any collateral property. Any amount held in the hedge cash account will
either be held in Permitted Investments (as defined in the agreement) or be left
uninvested, in each case, according to the written instructions provided to the Hedge
a Minera Ares. The agreement terminates upon notice
Collateral Agent by Compan
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Part XIV: Additional information

being given by the Hedge Agent (as defined in the Secured Loan Agreement) to the
other parties that all secured obligations under the Secured Loan Agreement have been
discharged in full;
(iii)

A mining mortgage dated 16 August 2004 between Banco de Credito

del Peru (as Agent
a Minera Ares over Compan
a Minera Ares mining
for the Lenders) and Compan
concessions (as detailed in Annex 1), buildings, facilities and other fixed assets as security
for full payment of US$87,500,000.00 as capital, plus interest. The agreement terminates
upon notice being given by the Agent to the other parties that all secured obligations
under the Secured Loan Agreement have been discharged in full;

(iv)

A mining mortgage dated 16 August 2004 between Banco de Credito

del Peru (as Agent
a Minera Ares over Compan
a Minera Ares processing
for the Lenders) and Compan
plant as security for full payment of $87,500,000 as capital, plus interest. The agreement
terminates upon notice being given by the Agent to the other parties that all secured
obligations under the Secured Loan Agreement have been discharged in full;

(v)

A global and floating pledge agreement dated 16 August 2004 between Banco de

a Minera Ares over all of the

Credito
del Peru (as Agent for the Lenders) and Compan
a Minera Ares
minerals during the extraction or production stages at Compan
concessions described in the contract as security for full payment of US$87,500,000 as
capital, plus interest. The agreement terminates upon notice being given by the Agent
to the other parties that all secured obligations under the Secured Loan Agreement
have been discharged in full; and

(vi)

A share pledge agreement dated 16 August 2004 between Banco de Credito

del Peru (as
Agent for the Lenders), Mauricio Hochschild & Cia Ltda S.A.C. and Ludlow Corporation
a Minera Ares as security for full payment of US$87,500,000
over the shares in Compan
as capital, plus interest. The agreement terminates upon notice being given by the
Agent to the other parties that all secured obligations under the Secured Loan
Agreement have been discharged in full. This agreement was subsequently amended on
6 May 2005 and 30 July 2005 approving share capital increases and a share capital
a Minera Ares which resulted in the shares in Compan
a Minera
reduction of Compan
Ares being held by Ludlow Corporation, Ardsley Corporation, Garrison Corporation and
Larchmont Corporation (all of which are Hochschild Mining Group companies). Under
these documents, Ludlow Corporation, Ardsley Corporation, Garrison Corporation and
Larchmont Corporation acknowledge the existence of the share pledge as security for
the Secured Loan Agreement and agree that it will apply to their shares held in
a Minera Ares. On 15 June 2006, Garrison Corporation sold its interest in
Compan
a Minera Ares to Ludlow Corporation and Ludlow Corporation acknowledged
Compan
the existence of the share pledge as security for the Secured Loan Agreement and the
a Minera Ares.
fact that it will apply to its shares held in Compan

12.2.2 Promissory Note

(a) On 4 October 2006, the Hochschild Mining Group (through Lorenzon Limited) entered into a
promissory note (the Promissory Note) whereby the Hochschild Group has agreed to pay to

Banco de Credito
del Peru (the Bank) an amount of US$20 million in satisfaction of the loan
of the same amount made by the Bank to the Group.
(b) Interest on the amounts covered by the Promissory Note is 120 day LIBOR plus 2.5 per cent. If
the Hochschild Mining Group fails to pay the principal amount and interest on the maturity
date of the Promissory Note, the Group must pay a fee equal to two per cent. of the amount
of any payment due and unpaid.
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Part XIV: Additional information

(c) In the event of prepayment under the Promissory Note, the Group must pay a prepayment fee
equivalent to 0.5 per cent, of the amount to be pre-paid. The prepayment fee is not payable if
the Promissory Note is prepaid out of the proceeds of a share issue or syndicated loan.
(d) The Promissory Note is secured by an accounts pledge over the account held by Lorenzon
Limited with the Bank. The Promissory Note is also guaranteed jointly and severally by Ludlow
Corporation and Ardsley Corporation.
(e) On 4 October 2006, Lorenzon Limited also entered into a negative pledge agreement
whereby the Group has agreed that, for so long as any amount is outstanding under the
Promissory Note, Lorenzon will not create a lien over any of its shares except for liens arising
from any tax assessment or other governmental charge, or other liens arising by operation of
law.
12.2.3 Credit Facility with Banco Interamericano de Finanzas
a Minera Arcata S.A.)
(a) On 26 September 2005, the Hochschild Mining Group (through Compan
entered into a foreign currency credit facility (the Credit Facility) with Banco
Interamericano de Finanzas (the Bank) in an amount of US$2.4 million. The credit facility is
repayable in nine quarterly instalments at an interest rate of 8.75 per cent. The Group may
make early repayments under the Credit Facility although this attracts a penalty of 2 percent
of the amount repaid early.
(b) Under the terms of the Credit Facility, the Hochschild Mining Group has granted the Bank a
a Minera Arcata S.A. to the value of US$3,388,585.11.
pledge over the assets of Compan
a Minera Arcata S.A. must obtain the Banks prior written consent if it wishes to
(c) Compan
dispose of any of its assets, including on a reorganisation or merger, unless such disposal is to
a Minera Ares. If the Group breaches its obligations under the Credit Facility, all
Compan
outstanding sums owed under the Credit Facility become immediately repayable.
12.3 Joint Venture and other agreements
12.3.1 Pallancata
a Minera Ares (a Hochschild Mining Group company), International
(a) On 30 June 2006, Compan
Minerals Corporation (International Minerals), Ludlow Corporation (Ludlow) (a
Hochschild Mining Group company) and Minera Oro Vega S.A.C. (Minorva) entered into a
joint venture agreement whereby the parties agreed to jointly engage in the construction of
a mine on the Pallancata property capable of operating at a capacity of not less than 500 tons
of ore per day. On 10 July 2006, the parties to the joint venture agreement entered into an
a Minera Coriorco S.A.C. (Coriorco) (a
amendment and accession agreement with Compan
Hochschild Mining Group company, recently renamed Pallancata Holding S.A.C.), pursuant to
which it was agreed that Coriorco would accede to the joint venture agreement and assume
all of Ludlows obligations under the joint venture agreement. Ludlow has agreed to
guarantee the performance by Coriorco of all of its obligations under the joint venture
agreement (including, without limitation, all of its funding obligations).
(b) Under the terms of the Pallancata joint venture agreement, title to the Pallancata mining
concessions are held by the Hochschild Mining Group (through Minera Suyamarca S.A.C.
(Minera Suyamarca)), a company newly incorporated in Peru, in which Coriorco holds
60 per cent. of the shares, with the remaining 40 per cent. held by Minorva.
(c) Under the terms of the joint venture agreement, Coriorco has agreed to pay an initial capital
contribution of S/.9,675,000 and Minorva has agreed to pay an initial capital contribution of
S/.3,225,000. Each shareholder also agrees to contribute further capital of S/.9,675,000. Prior
to the formation of Minera Suyamarca, Minorva owned the rights to explore and develop the
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Part XIV: Additional information

15 concessions comprising the Pallancata project, as well as certain related rights under
option, option-to-purchase and other agreements with third parties, easements, rights-ofway, water and surface rights, permits and filings (Rights). Upon incorporation of Minera
Suyamarca, in accordance with the terms of the joint venture agreement and payment of the
initial capital contributions by Minorva and Coriorco, Minorva sold and transferred full
ownership of all of the Rights to Minera Suyamarca for a purchase price of S/.12,900,000,
satisfied by Minera Suyamarca transferring S/.3,225,000 to Minorva and crediting and
retaining S/.9,675,000 as full subscription and payment of Minorvas further capital
contribution.
(d) Following incorporation of Minera Suyamarca and the transfer of the Rights from Minorva,
Minera Suyamarca exercised the option with respect to the Rights pertaining to the
concessions at the Pallancata property. Under the terms of the joint venture agreement,
Coriorco and Minorva have agreed to fund the option price pro rata to their respective
shareholdings and Coriorco has agreed to reimburse Minorva for its portion of the option
price.
(e) Under the terms of the joint venture agreement, Minera Suyamarca is to construct the mine
on the Pallancata property and Coriorco is responsible for 100 per cent. of the funding
a Minera
necessary to plan, equip and construct the mine on the Pallancata property. Compan
Ares has been designated as the operator and is responsible for, inter alia, performing or
procuring the performance of the construction of the mine on the Pallancata Property, any
expansion of the mines operating capacity, all other mining work and processing necessary
for the continued commercial operation of the mine and any further exploration or
development as determined by the Minera Suyamarca board, as well as all necessary
supervisory management and administrative services.
(f) Except for the capital contribution provided by each shareholder to Minera Suyamarca or the
funds provided by Coriorco for the construction of the mine, Minera Suyamarca will be
required to finance its operations and activities from its revenues, or from further equity
investments by the shareholders or such other sources as the Minera Suyamarca board may
determine. If the board of Minera Suyamarca resolves to raise funds by issuing additional
shares, each shareholder shall have the pre-emptive right to subscribe and pay for its pro rata
share of such additional shares on the same terms and conditions as the other shareholder. If
the board of Minera Suyamarca proposes to borrow funds from a shareholder or affiliate of a
shareholder, Minera Suyamarca must, before accepting the loan, offer each other shareholder
the right to make a portion of such loan, pro rata its existing shareholding in Minera
Suyamarca.
(g) Each shareholder of Minera Suyamarca may transfer its shares in Minera Suyamarca to:
(i)

an affiliate, that is an entity controlled, controlling or under common control with one
of the parties, but at all times controlled directly or indirectly by Coriorco or
International Minerals (as the case may be); which affiliate must agree to be bound by
the terms and conditions of the joint venture agreement and must have its obligations
guaranteed by the transferor in a form acceptable to the other parties; or

(ii)

the other shareholders, provided the party transferring elects to transfer all of its shares
(or, with the consent of the other shareholders, some of its shares) and the transfer is
acceptable to the other shareholders.

(h) The joint venture agreement may be terminated by International Minerals and Minorva if the
mine completion is delayed for more than eighteen months after the target mine completion
date (which is 12 months from the date upon which all construction, environmental,
operating and other licences and permits for the construction of the mine have been
obtained). Upon written notice of termination by either International Minerals or Minorva,
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Part XIV: Additional information

Minorvas ownership interest in Minera Suyamarca will automatically be increased to one
hundred per cent. and the management services agreement between Minera Suyamarca and
a Minera Ares will terminate. The joint venture agreement may be terminated by
Compan
Coriorco at any time prior to mine completion provided that it has satisfied all of its funding
obligations. Upon written notice of termination by Coriorco, Minorvas ownership interest in
Minera Suyamarca shall be automatically increased to one hundred per cent. In the event of
a Minera Ares agrees to make
termination of the agreement by Coriorco or Minorva, Compan
a Minera Ares and located at the Selene Mine
the ore processing facility owned by Compan
available for a period of two years from termination on commercially reasonable terms to be
a Minera Ares and Minorva, acting in good faith.
agreed between Compan
12.3.2 Sierra de las Minas
(a) On 22 March 2006, Golden Peaks Resources Ltd, Golden Peaks Argentina S.A. and Golden
Peaks Minera S.A. (collectively Golden Peaks) and the Hochschild Mining Group (through
MH Argentina S.A. (MHA)) entered into a joint venture agreement whereby Golden Peaks
agreed to grant MHA an option to acquire an interest in the rights to explore and operate the
properties located in La Rioja Province of Argentina (the Properties) which Golden Peaks
owns or holds the right to explore and operate (Rights). Under the terms of the Sierra de las
Minas joint venture agreement, a newco (Sierra JV Company) is to be incorporated in
Argentina once MHA has incurred at least US$1,000,000 expenditure in mine development
costs. The shares in Sierra JV Company are to be held by Golden Peaks, except for a nominal
number of shares which must be held by MHA or an affiliate of MHA in accordance with
Argentinian law.
(b) Under the terms of the joint venture agreement, Golden Peaks has granted to MHA the sole
and exclusive right to explore and perform mining work on or in respect of the Property for a
period of four years commencing on the date of the joint venture agreement (the Option
Period). Golden Peaks has also granted MHA an exclusive and irrevocable option (the
Option) to acquire 51 per cent. of the issued share capital of Sierra JV Company. MHA may
exercise the Option after MHA has completed expenditure in mine development costs of
US$2,500,000. From the date that MHA provides written notice of exercise of the Option
(Notice of Exercise), MHA has 90 days to elect to do one of the following: (i) fund its
51 per cent. share; (ii) acquire 75 per cent. of the issued shares of Sierra JV Company by
agreeing to complete a feasibility study in respect of the mining operations on the property
which must be completed within five years of the Notice of Exercise; or (iii) acquire
80 per cent. of the issued share capital of Sierra JV Company by agreeing to place the Property
into commercial production within six years of the Notice of Exercise without completing a
feasibility study. If MHA fails to elect any of the above alternatives, it will be deemed to have
elected to fund its 51 per cent. share.
(c) The board of directors of Sierra JV Company will consist of two directors, one nominated by
MHA and the other nominated by Golden Peaks. All decisions made by the board of directors
during the Option Period must be unanimous. Following the exercise of the Option by MHA
the board will vote to change the number of directors from two to three, with the majority
shareholder in Sierra JV Company having two directors. The following items require
unanimous approval by the board of directors (i) the sale of all or substantially all of the
Rights and assets of Sierra JV Company, (ii) any amendment to the articles of incorporation of
Sierra JV Company that would have an adverse effect on the rights of any particular
shareholder, and (iii) entering into any new line of business not relating to the exploration,
development or mining of the Properties or the sale of minerals products from the Properties
and any merger or other corporate combination involving Sierra JV Company. In the event of
a disagreement, the majority shareholder shall have the right to buy out the minority
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Part XIV: Additional information

shareholder, such payment to be made in cash and to be made within 60 days of the board
meeting at which the disagreement occurred.
(d) During the Option Period, Sierra JV Company will appoint MHA as the manager and operator
of the company with responsibility to conduct all exploration operations in accordance with
sound mining practice, industry standards and applicable laws. MHA will remain as the
operator of the Sierra JV Company for so long as MHA or any of its affiliates own, in
aggregate, a majority of the shares in Sierra JV Company.
(e) Under the terms of the joint venture agreement, the parties agree to pro rate their
participation in the capital stock of Sierra JV Company, sharing all costs and expenses and
revenues relating to the Property. The financing of Sierra JV Company may be in the form of a
loan from a shareholder or capital advance according to the financial policy that the board of
directors of Sierra JV Company may determine.
(f) The Option and the joint venture agreement may be terminated by MHA by giving 30 days
written notice or by failing to give Notice of Exercise within sixty days following the fourth
anniversary of the joint venture agreement. Golden Peaks may terminate the joint venture
agreement if a receiver, liquidator or other insolvency official is appointed, a change of
control of MHA occurs, MHA fails to pay bills in respect of the joint venture when due, MHA
commences a voluntary winding up or entry is made against MHA of a judgment, decree or
order for relief affecting a substantial part of its assets by a competent court.
12.3.3 Mina Moris concessions
(a) On 17 June 2006, Exmin S.A. de C.V. (Exmin) and the Hochschild Mining Group (through
Minera Hochschild Mexico S.A. de C.V. (MHM)) entered into a contract under which:
(i) Exmin granted MHM the exclusive right to assess and explore Exmins mining concessions in
the Moris district; (ii) the parties agreed, subject to a number of conditions, to set up a newly
incorporated Mexican company to be held 30 per cent. by Exmin and 70 per cent. by MHM
(the Newco) and enter into a shareholders agreement; and (iii) Exmin undertook to assign
all its Moris district concessionary rights in favour of Newco.
(b) Under the contract for exploration, Exmin granted MHM an exclusive right to evaluate and
explore the area covered by the concessions and undertake all works necessary for the
identification and quantification of minerals in the mines in the municipality of Moris in
Chihuahua, Mexico.
As consideration, MHM is obliged to pay all costs and invest in the exploration over the course
of a five year period as follows: (a) US$400,000 in the first year, (b) US$600,000 in the second
year, (c) US$800,000 in the third year, (d) US$1,000,000 in the fourth year and
(e) US$2,000,000 in the fifth year. If MHM extracts minerals in quantities that indicate the
project is commercially viable, MHM will be permitted to use such materials as are required
for its tests and experiments (including tests for a pilot mine). However, the remainder of any
materials extracted will remain the property of Exmin until Exmins concession rights are
assigned to Newco.
(c) Under the contract for the assignment of rights, Exmin granted MHM an option to require
Exmin to assign (or procure the assignment of) all of its rights under the mining concessions to
a new Mexican mining company to be incorporated jointly by the parties, in which Exmin will
participate 30 per cent. and MHM 70 per cent. The option may be exercised by MHM at any
time during the term of the agreement by providing notice to Exmin that MHM has made
investments during the course of its exploration works amounting to US$4,800,000 and MHM
has, through Port Chester, subscribed for shares in Exmin Resources Inc. in an amount of
US$0.85 million pursuant to a subscription agreement entered into between Exmin Resources
Inc., Port Chester Limited and MHM on 10 July 2006. Upon receipt of notice by MHM, Exmin
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Part XIV: Additional information

will transfer title to the rights under the mining concessions and all other related rights to the
new company.
(d) Under the contract for the incorporation of a new company and the entering into of a
shareholders agreement, the parties agree, if MHM exercises its option (as outlined in
(c) above), to incorporate a new company, transfer their rights and benefits to the new
company and enter into a shareholders agreement governing their relationship in relation to
the new company.
12.3.4 Contract for the Sale of Mina Moris Mine
(a) On 30 June 2006, Minera Moris, S.A. de C.V. (Minera Moris), the Hochschild Mining Group
(through Minera Hochschild Mexico, S.A. de C.V. (MHM)) and Exmin, S.A. de C.V. (Exmin)
entered into a contract for the sale and purchase of the Santa Mara de Moris metallurgical
mine (Mina Moris) in Moris, Chihuahua, Mexico.
(b) Minera Moris, a company incorporated in Mexico, is currently the sole legal owner of Mina
Moris with all attaching rights and benefits which are to be sold to MHM and Exmin (the
Purchasers). The property comprises all concessions, machinery, installations, authorisations
and documentation necessary for the operation of the mine.
(c) In consideration, the Purchasers will pay a total purchase price of US$6,000,000. The first
instalment (US$1,500,000 plus VAT) was paid on 16 July 2006 and is non-refundable in the
event of non-performance of the contract for either of the following reasons:
(i)

the average mineral extraction level gauged during the tests conducted by the
Purchasers as part of their due diligence does not reach 65 per cent.; or

(ii)

if the cause of non-performance is attributable to the Purchasers.

(d) The second and final instalment (US$4,500,000 plus VAT) is payable on the first of the
following events: (i) the date on which the six month contractual term expires
(i.e. 31 December 2006); or (ii) 15 days from the date on which MHM concludes to its full
satisfaction the studies and tests which form part of its due diligence process.
(e) Both instalments are to be paid in the following proportions: MHM will pay 70 per cent. of
the price and Exmin will pay 30 per cent. The first instalment is to be paid by means of bank
transfers. The second instalment is to be paid in cash or equivalent monetary instrument by
MHM and in cash, monetary instrument equivalent or shares in Exmin Resources Inc. by
Exmin. Should either Purchaser not pay its share of the consideration within three days of the
due date, the other has the right to purchase all of the mine and corresponding rights.
(f) Once Minera Moris receives written notice (Purchase Notice) from the Purchasers that the
conditions precedent have all been met, it will transfer the assets to the Purchasers or to the
company designated by the Purchasers for such purpose (in which MHM and Exmin will
participate 70/30, respectively, or such other proportions as may be agreed between them).
Such transfer must be made within 15 days of the date on which the Purchase Notice is
received. The joint obligation to fulfil these terms of the contract will subsist even in the
event that only one Purchaser presents the Purchase Notice and the other presents a written
communication of its wish not to participate in the acquisition. However, should the
conditions precedent not be fulfilled within the required time, the Purchasers will be under
no obligation to acquire the assets. The conditions precedent include the following:
(i)

that Minera Moris has complied with the obligations and schedule set out in clause 4 of
the contract under which Minera Moris is to apply most of the first instalment
(amounting to US$1,500,000 plus VAT) that it receives from the Purchasers against its
debts;
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Part XIV: Additional information

(ii)

that Minera Moris, within 60 days of the notification of this contract, undertakes all
necessary actions to eliminate all charges and encumbrances over the assets being
transferred; and

(iii)

that Minera Moris permits the employees and representatives of the Purchasers to access
the assets to be transferred and all related information and documentation in order to
carry out due diligence to establish whether the average mineralisation of the material
extracted by the Purchasers is 65 per cent. or more.

If any of the above conditions are not met, the Purchasers will be under no obligation to
acquire the assets.
(g) The contract was signed and notarised on 30 June 2006 and the contract will remain valid for
six months from this date unless the parties agree in writing to extend this deadline.
12.3.5 San Jose
(a) On 15 March 2001, Mauricio Hochschild & Cia Ltda. (MHC), Minera Andes Inc. (MAI) and
Minera Andes S.A. (MASA) entered into a joint venture agreement whereby MAI, through
its wholly owned subsidiary MASA, agreed to transfer rights to explore, applications for
exploitation concessions, any resulting exploitation concessions, together with any relating
easements, rights of way, permits and filings, in relation to certain areas of interest
(the Rights) located in the Deseado Massif of the Province of Santa Cruz, Argentina
(the Property) held by MASA to a newly incorporated Argentinian company, Minera Santa
Cruz S.A. (Newco) in exchange for US$1 million. Lorenzon Limited (Lorenzon) (a
Hochschild Mining Group company) was joined as a party to the joint venture agreement and
was designated as the recipient of MHCs entitlement to shares in the Newco pursuant to the
Third Amendment (as defined below).
(b) Under the joint venture agreement, MHC was granted exclusive rights to explore and perform
mining exploration, development and mining in the Property for a period of three years from
the date of the agreement (the Option Period) together with an irrevocable right to
acquire 51 per cent. of the issued and outstanding share capital of Newco (the Option). The
Option was exercised by MHC on 6 May 2003 (the Vesting Date).
(c) MAI had an option within the 120 day period after the Vesting Date to elect to reduce its
ownership of the Newco from 49 per cent. to 35 per cent. and a further option to reduce its
ownership down to 15 per cent. This further option was removed pursuant to the Third
Amendment to the joint venture agreement (see (g) below).
(d) MAI has the right to receive from MHC US$200,000 on signing the joint venture agreement
and the same sum every six months thereafter, under the terms of the Third Amendment,
until the Newco has received a positive feasibility study concluding that a mine is technically
feasible and economically warranted and a decision has been made by the board of the
Newco to construct a mine on the Property. As of 23 September 2005, MHC had made seven
payments of US$200,000, totalling US$1,400,000, to MAI. The payment to MAI by MHC on
23 September 2005 was the last payment made as the board of directors of Newco decided at
a meeting on 27 December 2005 to proceed with the construction of the mine.
(e) The board of Newco is composed of three directors. MHC is entitled to appoint two directors
to the board of Newco whilst MAI may appoint one director. In the event of a disagreement
over a course of action requiring the unanimous consent of the board, MHC has the right to
buy out the minority shareholders stake.
(f) Shares in Newco may be transferred by either shareholder to any of their affiliates provided
that such affiliate provides a written undertaking to be bound by the terms of the joint
venture agreement. Either shareholder may also transfer all (or, with the prior consent of the
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Part XIV: Additional information

other shareholder, part) of its shares in Newco to any other party provided the shares are first
offered to the other shareholder.
(g) The joint venture agreement was amended on 14 May 2002 (the First Amendment) to
amend the areas of interest to which the Rights applied (the Areas of Interest). Pursuant to
the First Amendment, MHC also agreed to take responsibility for maintaining the Rights. On
27 August 2002 the Parties agreed a second amendment to the JV Agreement (the Second
Amendment) pursuant to which the parties agreed that they were able to operate outside
the Areas of Interest as they wished without disclosing to or obtaining the consent of the
other party. Pursuant to the Second Amendment, MHC also agreed not to acquire land within
the original joint venture area for a period of three years from the date of the First
Amendment, which renegotiated the areas covered by the joint venture agreement. On
10 September 2004, a third amendment was made to the joint venture agreement (the Third
Amendment), whereby Lorenzon was deemed to be a party to the joint venture agreement
and was designated as the recipient of MHCs entitlement to shares in the Newco. The Parties
and Lorenzon also agreed to amend the joint venture agreement in order to forego the
construction of a pilot plant, to remove MAIs right to reduce its ownership of the Newco to
15 per cent., and to amend the basis on which MHCs biannual payments to MAI would
terminate to the circumstances set out in (d) above.
12.3.6 San Luis del Cordero
(a) On 12 May 2006, the Hochschild Mining Group (through Minera Hochschild Mexico S.A. de
C.V. (MHM)) entered into an agreement with Exploraciones del Altiplano S.A. de C.V.
(Exploraciones) whereby, Exploraciones granted MHM the right to explore and assess the
mine sites at San Luis del Cordero for a period of four years.
(b) Under the agreement, MHM is permitted to undertake all works necessary to evaluate the
viability of establishing a new mining unit on the mine site, provided all such works are
permitted under local mining law. In the event that MHM extracts minerals in quantities that
are commercially viable, it will be permitted to take such amounts as required to carry out its
metallurgical tests. However, the remainder belongs to Exploraciones who may sell or use it as
it chooses.
(c) In order to maintain the enforceability of the contract, MHM is obliged to pay costs and to
make periodic investments over the course of the four years as follows: (i) year one,
US$350,000; (ii) year two, US$500,000; (iii) year three, US$850,000 and (iv) year four,
US$1,000,000. However, MHM may terminate the contract an any time without completing
these investments.
(d) The agreement also gives MHM the right to call for the assignment of Exploraciones rights
under its mining concessions to itself (or any other company MHM may elect). In
consideration for such assignment, MHM agrees to pay the amount of US$500,000 in a series
of instalments staggered over a period of 48 months, as follows: (i) US$25,000 on the date of
the agreement, (ii) US$25,000, six months after the agreement date (iii) US$50,000, 12 months
after the agreement date, (iv) US$100,000, 24 months after the agreement date,
(v) US$100,000 36 months after the agreement date, and (vi) US$200,000 48 months after the
agreement date. Should MHM elect to terminate the contract, it will not be obliged to make
any further payments under this schedule from the date on which it gives notice to terminate.
Should MHM exercise its right of assignment, it must also pay a 3 per cent. royalty on net
smelter returns (which is net revenue including all rebates and subsidies paid for the smelting
service or refinery after deducting all costs and expenses paid or incurred in relation to the
products).
243

Part XIV: Additional information

Under the terms of the agreement, if MHM makes the final payment of US$200,000 at
48 months after the date of the agreement, MHM will be deemed to have exercised the right
to acquire title and all rights over the mines and MHM will not be obliged to make the
investments mentioned above. Together, this payment of US$200,000 plus the 3 per cent.
royalty mentioned above constitutes the full consideration for the complete assignment of
rights over the mines in favour of MHM. If MHM elects to exercise the right to acquire the
units before the end of the 48 months, MHM must pay the outstanding amount of the total
sum of US$500,000 on the date of the assignment.
12.3.7 San Felipe
(a) On 13 May 2006, the Hochschild Mining Group (through Minera Hochschild Mexico S.A. de
C.V. (MHM)) entered into a contract for mining exploration, an undertaking to assign rights
and incorporate a new company and an undertaking to enter into a shareholders agreement
with Grupo Serrana S.A. de C.V. (Serrana). Pursuant to the contract for exploration, Serrana
granted MHM the exclusive right to evaluate and explore the mines located in San Felipe de
(233 hectares), El Gachi (100 hectares) and Moctezuma, (214 hectares) all in Sonora
Jesus,
Mexico for a period of three years from the date of the signing and ratification of the
agreement before a notary. Under the agreement, MHM is granted access rights and the right
to undertake all works necessary for the identification, quantification and localisation of
minerals in the mines in order to evaluate the viability of a project to establish a new mining
unit.
(b) Under the terms of the contract for mining exploration, MHM is obliged to pay all costs and
make investments in the exploration over a three year period. During the first year, MHM has
the sole discretion to determine the amount it invests. In subsequent years, MHM must make
such investments which, when added to the amount invested in year one, will total
US$6,666,666 by the end of the three year contractual term. In the event that MHM extracts
minerals in quantities that are commercially viable, it will be permitted to use such minerals
for its tests and experiments. However, the remainder remains the property of Serrana (or the
respective concession holders).
(c) Pursuant to the contract of undertaking for the assignment of rights, Serrana granted MHM
an option to require Serrana to assign all of its rights under the mining concessions relating to
the mines to a new Mexican mining company in which Serrana will participate 30 per cent.
and MHM 70 per cent. The option may be exercised by MHM at any time during the term of
the agreement by providing notice to Serrana that MHM considers the mining project viable.
Serrana agrees that it will transfer title to the mining concessions within 30 days upon receipt
of a notice from MHM that it considers the mining project viable.
If, by the date on which the new company is incorporated, MHM has not contributed
US$33,333,333 in investments and costs in the project, MHM must grant a pledge over its
shares in the new company in favour of Serrana as a guarantee that, during the next stages of
the project, MHM will invest this amount. If MHM does not make such investment within five
years of the date on which these contracts are ratified before the notary, it must pay Serrana
the difference between (i) 30% of the amount it has invested in the project, and
(ii) US$10,000,000, on payment of which, MHM will automatically be released from the
pledge over its shares.
Furthermore, once MHM has fulfilled its obligation to invest US$33,333,333, it undertakes to
obtain financing of up to US$30,000,000 to cover the costs of the new company in installing a
plant with a daily capacity of 2,000 tonnes.
(d) The contract for the incorporation of a new company sets out certain rules in relation to
management, constitution, corporate structure and operation of the new company which are
244

Part XIV: Additional information

to act as a Shareholders Agreement for the new company. Among these rules are included
the following:
(i)

Participation
The new company will have an initial share capital of 50,000 Mexican Pesos divided into
500 ordinary shares for which Serrana will subscribe 150 shares (30 per cent.) and MHM
350 shares (70 per cent.). Each party will have right of first refusal should the other party
choose to sell its shares or receive an offer from a third party. Within 15 days after the
incorporation of the new company, a capital increase will take place through the
following contributions in kind (which will be assessed at their market value):
(A) Serrana will contribute its San Felipe mining concessions; and (B) MHM will
contribute the permanent constructions, buildings and mining works that it has carried
out at the property.
The parties have agreed that their percentage shareholdings in the new company will
not be deemed to have been varied as a result of these contributions in kind.

(ii)

Administration
The new company will have a board composed of five members. Provided Serrana
maintains a15 per cent. holding, it will be entitled to nominate two board members and
MHM will be entitled to nominate three members, including the chairman. Should
either party reduce its participation to below 15 per cent., this party will not be entitled
to nominate board members and the other party will have the right to nominate the
entire board.

(iii)

Operation
As majority shareholders, MHM will have the right to nominate the site manager and be
responsible for the conduct of operations in the mining units, which will include
preparing programmes and budgets.

(e) MHM has a right to terminate the agreements at any time upon written notice to Serrana and
if MHM elects to terminate the contract within the second or third years, it will not be obliged
to pay more than the US$200,000 it paid on signing of the agreement plus a penalty equal to
the difference between 30 per cent. of the total investment paid out by MHM and
US$200,000.
12.4 Stability agreements
12.4.1 Ares
a Minera Ares) applied to
(a) On 4 October 1995, the Hochschild Mining Group (through Compan
enter into a contract with the Peruvian State which would guarantee it certain benefits
(principally tax benefits) for its investment in mining (a Contract of Guarantees for the
Promotion of Investment in Mining or Contract) for which purpose it presented an
investment programme estimating an investment of US$13,590,000. The purpose of the
a Minera Ares mine
investment plan was the development and exploitation of the Compan
located at the Ares unit, including the construction of a processing plant with a production
capacity of 500TM per day of silver and gold. On 29 December 1995, the investment
programme was approved. On 25 February 1997, the investment programme was modified so
that the investment was increased to US$24,760,000 and on 28 December 1999, the
investment was increased to US$33,274,075.
a Minera Ares entered into a Contract of
(b) On 23 April 1996, the Peruvian State and Compan
Guarantees and Measures for Promoting Investment in Mining. Pursuant to the Contract, and
a Minera Ares complied with its investment programme, Compan
a Minera
provided Compan
245

Part XIV: Additional information

Ares was granted tax stability for a period of ten years which included free marketing, export,
and internal sales of products and the enjoyment of tax stabilisation, for example, on
corporation tax, tax deductions, municipal tax and customs duties. The contract may be
terminated for breach of the terms of the Contract, non-fulfilment of the execution of the
investment programme (other than by force majeure) or breach of the tax regime guaranteed
under the contract.

(c) On 28 October 1999, the Resolucion

Directoral 189-99-EM/DGM was granted which
a Minera Ares had completed the execution of its investment
acknowledged that Compan
programme and the State of Peru has approved the investment of US$33,274,075. As a
a Minera Ares commenced on 1 January
consequence the stability agreement with Compan
1999.
12.4.2 Selene
a Minera Ares) applied to the
(a) On 5 May 2004, the Hochschild Mining Group (through Compan
Peruvian State to enter into a Contract of Guarantees for the Promotion of Investment in
Mining for which purpose it presented an investment programme estimating an investment
of US$9,454,813. The purpose of the investment plan was the exploration, development and
preparation of the Selene mine in order to expand the capacity of the plant from 700TM per
day to 1,000 TM per day of gold and silver. On 7 December 2004, the investment programme
was approved.
a Minera Ares entered into a Contract of
(b) On 29 March 2006, the Peruvian State and Compan
Guarantees and Measures for Promoting Investment (the Contract). Pursuant to the
a Minera Ares complied with its investment programme,
Contract and provided Compan
a Minera Ares was granted tax stability for a period of ten years which included free
Compan
marketing, export, and internal sales of products and the enjoyment of tax stabilisation, for
example, on corporation tax, tax deductions, municipal tax and customs duties. The Contract
may be terminated for breach of the terms of the Contract, non-fulfilment of the execution of
the investment programme (other than by force majeure) or breach of the tax regime
guaranteed under the Contract.
12.4.3 Arcata
a Minera Ares) applied to
On 22 March 2006, the Hochschild Mining Group (through Compan
enter into a Contract of Guarantees for the Promotion of Investment in Mining (the Contract)
with the Peruvian State which would guarantee it certain benefits (principally tax benefits) for its
investment in mining in relation to the Arcata unit. The Ministry of Mines requested further
a Minera Ares prior to entry into the Contract. On 16 June 2006 and
documents from Compan
a Minera Ares wrote to the Ministry of Mines stating that it had complied
21 July 2006, Compan
with all of its obligations and requesting that it be permitted to enter into the Contract. On
1 September 2006, the Ministry of Mines approved Arcatas investment programme, paving the
way for the Contract to be entered into.
12.5 Other material contracts

PRA1 22

12.5.1 Relationship agreement

The Relationship Agreement was entered into between the Company, the Major Shareholder,
Eduardo Hochschild and Alberto Beeck on 20 October 2006, taking effect on (and conditional
upon) Admission. The terms of the Relationship Agreement are summarised in Part III:
Management, Corporate Governance and the Major Shareholder.
246

Part XIV: Additional information

12.5.2 Caylloma stock purchase agreement
(a) Pursuant to a stock purchase agreement dated 15 March 2005 (the Stock Purchase
Agreement) (as amended on 7 April 2005 and amended and restated on 6 June 2005), the
a Minera Arcata S.A. and Compan
a Minera Ares
Hochschild Mining Group (through Compan
(the Sellers)) sold the assets comprising the Caylloma mine to Fortuna Ventures Inc. (now
Fortuna Silver Mines Inc.) (the Purchaser).
(b) Under the Stock Purchase Agreement, the assets comprising the Caylloma mine were
transferred to Minera Bateas S.A.C (Minera Bateas), a Peruvian company formed for the
purpose of the transaction. The Purchaser subsequently acquired from the Sellers all of the
issued and outstanding shares of Mineras Bateas. Liability for any environmental claims
relating to the Caylloma mine, together with the Sellers obligations under the lease and
option agreement relating to the leased mineral concessions forming part of the Caylloma
mine, were transferred as part of the sale.
(c) Under the terms of the Stock Purchase Agreement, consideration for the sale is payable as
follows: US$100,000 upon execution of the Stock Purchase Agreement; US$2.95 million within
six months of the closing date and a further US$4.5 million within one year of the closing
date.
(d) The Purchaser and the Sellers have indemnified each other for any loss arising out of a breach
of their respective representations and warranties in the Stock Purchase Agreement and for
any failure on their part to perform their respective undertakings under the Stock Purchase
Agreement.
12.5.3 Inversiones Pacasmayo stock purchase agreement
a Minera Ares) disposed of its
On 15 June 2006, the Hochschild Mining Group (through Compan
8.8 per cent. shareholding in Inversiones Pacasmayo S.A., a Peruvian listed company for
a Minera Ares shareholding comprised 6,379 A shares (the
20,656,497.51 Nuevos Soles. Compan
A Shares) and 16,578,668 B shares (the B Shares). The B Shares are publicly traded and were
a Minera Ares on the Lima Stock Exchange. The A Shares were sold on 15 June
sold by Compan
2006 pursuant to a private stock purchase agreement.
12.5.4 Transitional services agreement
a Minera Ares entered into a transitional services agreement with
On 20 October 2006, Compan
Cementos Pacasmayo (the Transitional Services Agreement) under which each party agreed to
provide certain transitional services to the other party for specified charges and for a certain
period of time following Admission.
a Minera Ares has agreed to provide
Under the Transitional Services Agreement, Compan
Cementos Pacasmayo with services including: shared access to a wide area network for voice and
data communications and shared access to the Internet. Cementos Pacasmayo has agreed to
a Minera Ares with services including shared access to the local area network and
provide Compan
certain fixed telephony services both in the head office in Lima. The parties have also agreed to
share the use of certain information technology services outsourced from third parties.
Furthermore, the parties have agreed to license to one another certain software applications
developed by them and to continue joint ownership of certain software applications that were
developed for both of them.
Under the terms of the Transitional Services Agreement, the recipient of the service may
terminate any (or all) of the services at any time upon giving 30 days written notice to the
supplier. Either party may terminate the agreement by written notice in the event of the other
partys insolvency or the other partys material breach of its obligations under the agreement.
247

Part XIV: Additional information

Under a side letter, Mauricio Hochschild & Ca S.A.C. (MHC) has agreed to continue to provide
a Minera Ares for a transitional period certain services in relation to IT and mobile
to Compan
telephony services.
12.5.5 IP Assignment and Cross Licence Agreement
a Minera Ares and Cementos Pacasmayo have jointly developed
In relation to SAP, Compan
certain modules and enhancements (271 in number) to the generic SAP software (the Joint SAP
Developments) which were jointly owned by each party.
a Minera Ares and Cementos Pacasmayo entered into an assignment
On 20 October 2006, Compan
and licence agreement whereby: each party acknowledges their respective initial ownership of
the Joint SAP Developments; the Joint SAP Developments are assigned such that 136 of the Joint
a Minera Ares and 135 are owned solely by
SAP Developments are owned solely by Compan
Cementos Pacasmayo (each, the respective Transferred SAP Developments); and each party
grants to the other a non-exclusive, royalty-free, perpetual, worldwide licence (including the right
to sublicense such rights and in some circumstances to transfer them) to use or exploit the
Transferred SAP Developments owned by the other party.
13 Related party agreements
Details of related party transactions entered into by members of the Group during the period
covered by the financial information and up to the date of this Prospectus are set out in Note 30
to the combined financial information contained in Section B of Part IX: IFRS Historical
Information.

PRA1 19

14 Litigation

PRA1 20.8

Except in respect of the dispute with Electroperu S.A., details of which are set out in Note 33(b)
Dispute with Electroperu S.A. to the combined financial information contained in Section B of
Part IX: IFRS Historical Financial Information, no member of the Hochschild Mining Group is or
has been involved in, nor, so far as the Hochschild Mining Group is aware, has, any pending or
threatened governmental, legal or arbitration proceedings, during a period covering at least the
previous 12 months which may have, or have had in the recent past, significant effects on the
financial position or profitability of the Company and/or the Hochschild Mining Group.
15 Subsidiaries
The Company is the holding company of the Hochschild Mining Group. The following table shows
details of the Companys significant subsidiaries. The issued share capital of each of these
Companies is fully paid and each will be included in the consolidated accounts of the Hochschild
Mining Group.
Name of Company Ownership

a Minera Ares S.A.C.*******************************************

Compan
a Minera Arcata S.A. ******************************************
Compan
Minera Suyamarca S.A.C. ***********************************************
Minera Hochschild Mexico S.A. de C.V. *********************************
MH Argentina S.A. ****************************************************
Minera Santa Cruz S.A. ************************************************
Minera MH Chile Ltda *************************************************

Country of
Incorporation

General Nature of
Business

Percentage
Ownership

Peru
Peru
Peru
Mexico
Argentina
Argentina
Chile

Mining
Mining
Mining
Mining
Mining
Mining
Mining

100
97
60
100
100
51
100

16 Property, plant and equipment

PRA1 7.1, 7.2, 25

PRA1 8.1

The Hochschild Mining Groups material existing tangible fixed assets, other than its mines, licence
and contract terms which are summarised in Tables 2-1 to 2-3 (inclusive) and Tables 2-13 to 2-26
(inclusive) of the Technical Report in Part XV are set out below.
248

Part XIV: Additional information

Country

Peru

Peru
Peru
Peru
Peru
Peru
Peru

Peru

Peru

Peru

Peru
Peru

Peru

Peru

Peru

Peru

Peru

Peru

Address

Carretera MataraniMollendo, km 0.10,

Zona Industrial, Islay,
Arequipa
Fundo Salto- Arcata
Mine
Fundo YurahuiArcata Mine
Fundo ChumilleArcata Mine
Fundo UmascochaArcata Mine
Fundo Saracocha
Huisca- Arcata Mine
Fundo Comunidad
Campesina
Orcopampa- Ares
Mine
Fundo Comunidad
Campesina PallancataPallancata Mine
Av. Parra N 247,
district, province and
department of
Arequipa
Pasaje el Carmen
N 180, Urb. El Vivero
de Monterrico,
Santiago de Surco,
province and
department of Lima.
Av. Parra No 226,
Arequipa
Fundo Comunidad
Campesina
Orcopampa- Ares
Mine
Fundo Comunidad
Campesina
Pampamarca- Selene
Mine
Fundo Comunidad
Campesina
Pampamarca- Selene
Mine
Fundo Comunidad
Campesina IscahuacaSelene Mine
Fundo Comunidad
Campesina IscahuacaSelene Mine
Fundo Comunidad
Campesina CollanaSan Martn Project

Fundo Comunidad
Campesina PallancataPallancata Mine

Freehold/
leasehold

Owner/Tenant

Expiry of Term

Current rent

Freehold

a Minera
Compan
Ares S.A.C

Freehold

a Minera
Compan
Ares S.A.C
a Minera
Compan
Ares S.A.C
a Minera
Compan
Ares S.A.C
a Minera
Compan
Ares S.A.C
a Minera
Compan
Ares S.A.C
a Minera Oro
Compan
Vega S.A.C

2 October 2024

Easement right for

which a total of
S/.80,000.000 was paid

Freehold
Freehold
Freehold
Freehold
Leasehold

Freehold

a Minera
Compan
Ares S.A.C

22 April 2005

Freehold

a Minera
Compan
Ares S.A.C

Leasehold

a Minera
Compan
Ares S.A.C

31 December 2008

US$62,500 per month

Freehold

a Minera
Compan
Ares
a Minera
Compan
Ares

2 October 2024

One-off payment
made of S/.80,000.00

Leasehold

Leasehold

a Minera
Compan
Ares

7 November 2025

One-off payment
made of S/.54,000.00

Leasehold

a Minera
Compan
Ares

2 July 2028

One-off payment
made of S/.55,000.00

Leasehold

a Minera
Compan
Ares

13 May 2028

One-off payment
made of S/.100,000.00

Leasehold

a Minera
Compan
Ares

20 December 2028

One-off payment
made of S/.27,375.00

Leasehold

a Minera
Compan
Ares

10 January 2008

Leasehold

a Minera
Compan
Ares

15 February 2026

One-off payment
made of S/.5,000.00
and S/.1,000 for each
additional drilling
during the term of
the contract
One-off payment
made of S/.159,189.00

249

Part XIV: Additional information

Country

Address

Argentina Rural Estate La

Carmencita,
Section 1, Colonia
Leandro N. Alem,
Province of Santa
Cruz
Argentina Rural Estate Estancia
VII
San Jose,
Department Lago
Buenos Aires, Colonia
Leandro N. Alem,
Province of Santa
Cruz
Argentina Avenida Sargento
Cabral No. 124, Barrio
13 de Diciembre, City
of Comodoro
Rivadavia, Province of
Chubut
Argentina Mariano Moreno 756,
Province of Santa
Cruz
Mexico
Surface land of 200
hectares of rural land
known as Hacienda
Santa Mara
Mexico
Surface land of 200
hectares of rural land
known as La
Cienguita

Freehold/
leasehold

Owner/Tenant

Expiry of Term

Current rent

Freehold

Minera Santa Cruz

S.A.

Freehold

Minera Santa Cruz

S.A.

Leasehold

a Minera
Compan
Ares

31 December 2011

3, 300 pesos per

month

Leasehold

a Minera
Compan
Ares

1 March 2007

1,000 pesos per

month

Leasehold

Minera Manhattan,
S.A. de C.V.

In the process of
being renewed

US$1,180 per month

Leasehold

Minera Moris S.A. de

C.V.

16 February 2015

US$2,000 per month

until 16 February
2007 to increase every
subsequent year
based on inflation in
the United States

17 Significant change
There has been no significant change in the financial or trading position of the Hochschild Mining
Group since 30 June 2006, the date to which the financial information for the Hochschild Mining
Group in Section B of Part IX: IFRS Historical Financial Information was prepared.

PRA1 20.9

18 Consents
18.1 Ernst & Young LLP has given and has not withdrawn its written consent to the inclusion in
this Prospectus of its reports and references to it in the form and context in which they appear and
has authorised the contents of its reports for the purposes of paragraph 5.5.3R(2)(f) of the
Prospectus Rules and item 23.1 of Annex I of the Commission Regulation (EC) 809/2004.

PRA1 2.1
PRA1 23.1
PRA3 10.3

18.2 IMC Group Consulting Limited has given and has not withdrawn its written consent to the
inclusion in this Prospectus of its report and references to it in the form and context in which they
appear and has authorised the contents of its reports for the purposes of paragraph 5.5.3R(2)(f) of
the Prospectus Rules and item 23.1 of Annex I of the Commission Regulation (EC) 809/2004.
19 Miscellaneous
19.1 The expenses of, and incidental to, the Global Offer and Admission payable by the Company,
including the London Stock Exchange fee, professional fees and the costs of preparation, printing
and distribution of this document, are estimated to amount to approximately 21 million
(approximately US$40 million) (including VAT).
19.2 Each Ordinary Share will be offered at a premium of 300 pence to its nominal value.
250

PRA3 8.1

Part XIV: Additional information

19.3 No Ordinary Shares have been marketed to, nor are available for purchase in whole or in
part by, the public in the United Kingdom or elsewhere in conjunction with the Global Offer. This
document does not constitute an offer or the solicitation of an offer to the public in the United
Kingdom to subscribe for or buy any securities in the Company or any other entity.
19.4 No application is currently intended to be made for the Ordinary Shares to be admitted to
listing or dealt with on any other exchange other than the London Stock Exchange.
19.5 There are no arrangements in existence under which future dividends are to be waived or
agreed to be waived.
20 Documents available for inspection
Copies of the following documents are available for inspection during usual business hours on any
weekday (Saturdays, Sundays and public holidays excepted) for a period of not less than 14 days
following Admission at the offices of Linklaters at One Silk Street, London EC2Y 8HQ:
(1) the memorandum and articles of association of the Company;
(2) the reports from Ernst & Young LLP which are set out in Section A of Part IX: IFRS Historical
Financial Information and Section B of Part X: Unaudited Pro forma Financial Information;
(3) service agreements of all of the Executive Directors and letters of appointment of all of the
Non-Executive Directors;
(5) the technical report by IMC Group Consulting Limited;
(6) the letters of consent referred to in paragraph 18 above; and
(7) this prospectus.
Dated: 3 November 2006

251

PRA1 24

PART XV:
Technical report
LETTER HEADING
The Directors
Hochschild Mining PLC
Pasaje El Carmen
Surco
Lima 33
Peru
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
J.P. Morgan Securities Ltd.
125 London Wall
London EC2Y 5AJ
United Kingdom
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom

Dear Sirs
3 November 2006

Mineral Experts Report for the silver, gold, zinc and lead assets held by Hochschild.
1 Introduction
1.1 Purpose of report
This report has been prepared by IMC Group Consulting Ltd (IMC) for inclusion in the
prospectus (the Prospectus) to be published by Hochschild (the Company) in connection with
a global offer of ordinary shares in the Company and the proposed admission of the ordinary
shares of the Company to the Official List maintained by the Financial Services Authority (FSA)
and the admission of such shares to trading on London Stock Exchange plcs market for listed
securities (the Global Offer).
IMC was instructed by the Directors of the Company to prepare a Mineral Experts Report
(MER) for the gold, silver copper, zinc and lead assets of the Company. This report, which
summarises the findings of IMCs review, has been prepared in order to satisfy the requirements of
a Mineral Experts Report as set out in the Prospectus Directive in conjunction with the
recommendations of the CESR and with the pre 1 July 2005 requirements of Chapter 19 of the
Listing Rules of the UKLA.
IMC has reviewed the practice and estimation methods undertaken by the Company and are of
the opinion that they are in compliance with the Prospectus Directive in conjunction with the
252

Part XV: Technical report

recommendations of the CESR and with the pre 1 July 2005 requirements of Chapter 19 of the
Listing Rules of the UKLA and in accordance with the criteria for internationally recognised
reserve and resource categories of the Australasian Code for Reporting Mineral Resources and
Ore Reserves (2004) published by the Joint Ore Reserves Committee (JORC) of the Australasian
Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council
of Australia (the JORC Code). In this report, all reserves and resources estimates, initially
prepared by the Company in accordance with the JORC Classification, have been substantiated by
evidence obtained from IMCs site visits and observation and are supported by details of drilling
results, analyses and other evidence and takes account of all relevant information supplied by the
management of the Company and its subsidiaries (the Hochschild Group).
In accordance with the Prospectus Directive in conjunction with the recommendations of the CESR
and with the pre 1 July 2005 requirements of Chapter 19 of the Listing Rules of the UKLA, only
Proved and Probable Reserves have been valued. Other assets of the Company, which include
extensive resources have not been included in the valuation.
1.2 Capability and independence
This report was prepared by IMC, the signatory to this letter. Details of the qualifications and
experience of the consultants who carried out the work are in Annex A to this report.
IMC operates as an independent technical consultant providing resource evaluation, mining
engineering and mine valuation services to clients. IMC has received, and will receive, professional
fees for its preparation of this report. However, neither IMC nor any of its directors, staff or
subconsultants who contributed to this report has any interest in:
the Company or Hochschild; or
the mining assets reviewed; or
the outcome of the Global Offer.
Drafts of this report were provided to the Hochschild Group, but only for the purpose of
confirming both the accuracy of factual material and the reasonableness of assumptions relied
upon in the report.
For the purposes of Prospectus Rule 5.5.3R(2)(f) IMC is responsible for this report as part of the
Prospectus and declares that it has taken all reasonable care to ensure that the information
contained in this report is, to the best of its knowledge, in accordance with the facts and contains
no omission likely to affect its import. This declaration is included in the Prospectus in compliance
with item 1.2 of Annex 1 of the PD Regulation.
1.3 Scope of work / materiality / limitations and exclusions
IMC reviewed the assets in accordance with the scope of work and exclusions and limitations and
on the basis of the materiality criteria set out in Annex B to this report.
IMC has independently assessed the silver, gold, zinc, copper, and lead assets of the Company by
reviewing pertinent data, including resources, reserves, manpower requirements, environmental
issues and the life-of-mine (LOM) plans relating to productivity, production, operating costs,
capital expenditures and revenues.
All opinions, findings and conclusions expressed in this report are those of IMC and its
subconsultants.
253

Part XV: Technical report

1.4 Inherent mining risk
Mining, and in particular underground metalliferous mining, is carried out in an environment
where not all events are predictable.
Whilst an effective management team can, firstly, identify the known risks, and secondly, take
measures to manage and mitigate these risks, there is still the possibility for unexpected and
unpredictable events to occur. It is therefore not totally possible to remove all risks or state with
certainty that an event that may have a material impact on the operation of a mine, will not
occur.
1.5 Glossary of terms
Defined and technical terms used in this report are set out in Part XVII of the Prospectus.

254

Table of contents
1
1.1
1.2
1.3
1.4
1.5
2
2.1
2.2
2.3
2.3.1
2.3.2
2.3.3
2.4
2.4.1
2.4.2
2.4.3
2.5
2.5.1
2.5.2
2.5.3
2.5.4
2.6
2.6.1
2.6.2
2.6.3
2.6.4
2.7
2.7.1
2.7.2
2.7.3
2.8
2.8.1
2.8.2
2.8.3
2.9
2.9.1
2.9.2
2.9.3
2.10
2.11
2.12
2.12.1
2.12.2
2.12.3
2.12.4
2.13
3
3.1
3.2
3.2.1
3.2.2
3.2.3
3.2.4
3.2.5
3.2.6
3.2.7
3.2.8
3.3
3.3.1
3.3.2

Introduction ***************************************************************
Purpose of report **********************************************************
Capability and independence ***********************************************
Scope of work / materiality / limitations and exclusions **********************
Inherent mining risk********************************************************
Glossary of terms **********************************************************
Overview ******************************************************************
General********************************************************************
Description of assets *******************************************************
Summary of geology *******************************************************
Peru***********************************************************************
Argentina *****************************************************************
Mexico ********************************************************************
Summary of reserves and resources *****************************************
Reserves and resources estimation methods *********************************
Reserve replacement strategy ***********************************************
Reserves and resources statement*******************************************
Mines and facilities*********************************************************
Facilities *******************************************************************
Management **************************************************************
Health and safety **********************************************************
Infrastructure **************************************************************
Projects********************************************************************
Short term projects*********************************************************
2.6.1.1 New sites ***********************************************************
Medium term projects. *****************************************************
Long term projects *********************************************************
Environmental issues and management**************************************
Legislation*****************************************************************
Status *********************************************************************
Provision for rehabilitation *************************************************
Statutory authorisations ****************************************************
Peru***********************************************************************
Argentina *****************************************************************
Mexico ********************************************************************
Costs **********************************************************************
Operating costs ************************************************************
Cash costs *****************************************************************
Capital costs ***************************************************************
Risks and synergies ********************************************************
Sales and marketing********************************************************
Valuation of reserves *******************************************************
Lives of mines in valuation *************************************************
Methodology and assumptions *********************************************
Valuation results ***********************************************************
Sensitivity analysis *********************************************************
Conclusions ****************************************************************
Peru***********************************************************************
Maps and plans ************************************************************
Arcata *********************************************************************
Geological characteristics ***************************************************
Reserves and resource statement********************************************
Losses and dilution*********************************************************
Cut-off grade **************************************************************
Verification ****************************************************************
Mines and projects *********************************************************
Process plant **************************************************************
Tailings disposal************************************************************
Ares ***********************************************************************
Geological characteristics ***************************************************
Reserves and resource statement********************************************
255

252
252
253
253
254
254
259
259
260
260
261
261
261
261
261
264
265
267
267
269
270
276
277
277
277
278
278
279
279
280
280
281
281
286
289
290
290
290
291
291
291
291
291
291
293
293
294
295
295
295
295
297
297
297
298
298
298
299
300
300
301

3.3.3
3.3.4
3.3.5
3.3.6
3.3.7
3.3.8
3.4
3.4.1
3.4.2
3.4.3
3.4.4
3.4.5
3.4.6
3.4.7
3.4.8
3.5
3.5.1
3.5.2
3.5.3
3.5.4
3.5.5
3.5.6
3.5.7
3.5.8
3.6
4
4.1
4.2
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
4.2.6
5
5.1
5.2
5.2.1
5.2.2
5.3
5.3.1
6
6.1
6.1.1
6.1.2
6.1.3
6.1.4
6.2
6.2.1
6.2.2
6.3
6.3.1
6.3.2
7
8

Losses and dilution*********************************************************

Cut-off grade **************************************************************
Verification ****************************************************************
Mines and projects *********************************************************
Process plant **************************************************************
Tailings disposal************************************************************
Selene*********************************************************************
Geological characteristics ***************************************************
Reserves and resource statement********************************************
Losses and dilution*********************************************************
Cut-off grade **************************************************************
Verification ****************************************************************
Mines and projects *********************************************************
Process plant **************************************************************
Tailings disposal************************************************************
Pallancata *****************************************************************
Geological characteristics ***************************************************
Reserves and resource statement********************************************
Losses and dilution*********************************************************
Cut-off grade **************************************************************
Verification ****************************************************************
Mines and projects *********************************************************
Process plant **************************************************************
Tailings disposal************************************************************
Long term prospects *******************************************************
Argentina *****************************************************************
Maps and plans ************************************************************
San Jose project************************************************************
Geological characteristics ***************************************************
Reserves and resource statement********************************************
Mines and projects *********************************************************
Process plant **************************************************************
Tailings disposal************************************************************
Long term prospects *******************************************************
Mexico ********************************************************************
Maps and plans ************************************************************
Medium term projects ******************************************************
Moris mine (Mina Maria) ***************************************************
San Felipe exploration project **********************************************
Long term prospects *******************************************************
San Luis del Cordero *******************************************************
Further Disclosure on Mineral Potential**************************************
Peru***********************************************************************
Arcata mining district ******************************************************
Ares mining district ********************************************************
Selene mining district ******************************************************
Pallancata *****************************************************************
Argentina *****************************************************************
San Jose *******************************************************************
Sierra de las Minas *********************************************************
Mexico ********************************************************************
Moris prospects ************************************************************
Mexico San Felipe **********************************************************
Special factors *************************************************************
Conclusions ****************************************************************

256

301
301
301
302
302
303
303
303
304
304
304
305
305
305
306
306
306
306
306
307
307
307
307
307
307
308
308
308
308
309
309
310
310
311
311
311
312
312
313
314
314
314
315
315
316
316
317
317
317
318
318
318
319
320
321

List of tables
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table

2-1
2-2
2-3
2-4
2-5
2-6
2-7
2-8
2-9
2-10
2-11
2-12
2-13
2-14
2-15
2-16
2-17
2-18
2-19
2-20
2-21
2-22
2-23
2-24
2-25
2-26
2-27
2-28

Table 2-29
Table 2-30
Table 2-31
Table 2-32

List of assetsPeru****************************************************
List of assetsArgentina **********************************************
List of assetsMexico *************************************************
ReservesHistorical replacement ***************************************
Metal Reserves at 30 June 2006 ****************************************
Metal Resources at 30 June 2006 ***************************************
Metal MiningHistoric Production *************************************
ConcentrateHistoric Production **************************************

Concentrate and DoreHistoric

Composition ***************************
MetalHistoric Production ********************************************
Lost Time Injury Frequency Rate****************************************
Causes of Incidents ****************************************************
Mineral Rights ConcessionsArcata, Peru*******************************
Licences or Permits to OperateArcata, Peru ***************************
Mineral Rights ConcessionsAres, Peru*********************************
Licences or Permits to OperateAres, Peru *****************************
Mineral Rights ConcessionsSelene, Peru*******************************
Licences or Permits to OperateSelene, Peru ***************************
Mineral Rights ConcessionsPallancata, Peru ***************************
Licences or Permits to OperatePallancata, Peru ************************
Mineral Rights ConcessionsSan Martin, Peru **************************
Licences or Permits to OperateSan Martin, Peru ***********************
Mineral Rights ConcessionsSan Jose **********************************
Licences or Permits to OperateSan Jose *******************************
Mineral Rights ConcessionsMoris (Mina Maria) ************************
Licences or Permits to OperateMoris (Mina Maria)*********************
Net Cash Cost per oz of Silver Equivalent *******************************
Summary of Valuation of Proved and Probable ReservesBased on
Operating Results *****************************************************
Summary of Valuation of ReservesBased on Operating Results *********
Summary of Valuation of Proved and Probable ReservesBased on Post
Tax Results ***********************************************************
Summary of Valuation of ReservesBased on Post Tax Results ***********
Sensitivity Analysis of Reserve Valuation ********************************

260
260
260
265
266
267
268
268
268
269
272
274
282
283
283
284
285
285
286
286
286
286
287
288
289
290
290
293
293
293
293
294

List of plates
Plate
Plate
Plate
Plate
Plate
Plate

1
2
3
4
5
6

Plate 7
Plate 8
Plate 9
Plate 10
Plate 11
Plate 12
Plate 13
Plate
Plate
Plate
Plate

14
15
16
17

Country Exploration Offices

Peru Exploration Projects
Argentina / Chile Exploration Projects
Mexico Exploration Projects
Arcata mine: Surface map with location of principal veins and prospects
Arcata mine: Longitudinal Profile of Mariana and Mariana Sigmoid veins and map of
principal geological features.
Ares mine: Surface map with location of veins and prospects and principal geological
features
Ares mine: Longitudinal Profile of the Victoria Vein System, including the main
Victoria Vein and sub-parallel branches- the Ramal Sur, Lula and Ramal Victoria veins
Selene mine: Surface map with principal geological features.
Selene mine: Longitudinal Profile of Explorador Vein and map of principal vein
outcrops.
Pallancata Project: Surface map with principal geological features.
Pallancata Project: Longitudinal Profile of Pallancata Vein and map of vein outcrops.
San Jose Project: Surface map with location of veins and prospects and principal
geological features
San Jose Project: Longitudinal Profile of the Huevos Verdes Vein
San Jose Project: Longitudinal Profile of the Frea Vein
Moris Project: Surface map with principal geological features.
Moris Project: Longitudinal Profile of the El Creston Vein and map at the 900m level.

257

Annexes
Annex A
Annex B
Annex C

Qualifications of Consultants
Scope of Work / Limitations and Exclusions / Materiality
Maps, Plans and Drawings

258

2 Overview
2.1 General
The Company holds interests in mining and mineral assets principally in Peru, Argentina and
Mexico and has a small exploration office in Chile. The main operating units comprise Arcata, Ares
and Selene mines. Pallancata, a joint venture (JV) in which the Company holds 60 per cent. and
management rights, is planned to commence production of ore in 2007 to augment and
subsequently replace the Selene production. The Company processes all the ore and has a tolling
agreement with the JV partner, International Mineral Corporation (IMC), a company listed on the
Toronto Stock Exchange, to treat their 40 per cent. of the ore. San Jose in Argentina, a JV under
construction in which the Company holds 51 per cent. and all management rights with Minera
Andes, a company listed on the Toronto Stock Exchange, is due to commence production of
concentrate in 2007. The Moris mine (Mina Maria) in Mexico, in which the Company holds 70 per
cent. and all management rights with Exmin of Mexico, is currently mothballed but the Company
is planning to restart operations in July 2007, subject to new mine plan approval. The Company
holds numerous exploration prospects and the more advanced are mentioned in this report.
The Companys Peruvian silver and gold reserves lie at between 4,600 m and 5,000 m above mean
sea level (amsl) in four discrete areas of epithermal vein mineralisation in the Puquio-Caylloma
Belt geological succession and are or will be exploited by the underground cut and fill method of
mining. The ores of Arcata and Selene feed on-site concentrators producing a saleable silver
concentrate containing a significant quantity of gold. Pallancata will feed the expanded Selene
concentrator in the short term and become the prime feed by 2009. Ares ore supplies an on-site
cyanide leaching plant feeding solution to a Merrill Crowe plant to produce a dore comprising
gold and silver. Selene concentrate is expected to be refined into dore at Ares from October 2006
onwards.
Access to the operations is by mixed surfaced and graded roads from Lima (approximately
800 km), the sea port of Matarani (approximately 700 km), Arequipa (approximately 300 km) or
Cuzco (approximately 400 km). Air services are available at Cuzco and Arequipa to Lima. Power is
supplied from the national grid and all of the operations have more than adequate generation
facilities on site to maintain essential services. All of the operations have access to ample water for

their purposes. Concentrate is exported through Matarani to Penoles

in Mexico and dore is sold to
Johnson Matthey at mine gate.
The Company holds rights in Peru to the San Martin prospect between Arcata and Selene as well
as a number of other targets either on the existing properties or as new targets in the Puquio mine which closed in 2004 and is currently restoring the
Caylloma Belt. The Company owns Sipan
site and has sold the Caylloma which was owned until 2005.
The San Jose silver and gold project in Argentina lies in epithermal vein mineralisation of the
Deseado Massif in Patagonia. The project is designed as an underground cut and fill mine with the
ore feeding a concentrator producing a saleable silver concentrate containing a significant
quantity of gold. Access is from Comodoro Rivadavia by 230 km of mixed surfaced and graded
road. Concentrate will be exported via the port of Comodoro Rivadavia. Air services are available
at Comodoro Rivadavia to Buenos Aires. Sufficient power generation is to be installed to run the
operation and permission has been obtained to draw sufficient water to produce at the proposed
levels of production.
The Company holds rights in Argentina to the Sierra de las Minas exploration prospect.
The Moris mine in Mexico has recently been purchased and the Company is in the process of
assembling a business plan and ensuring that any outstanding permissions are in place with a view
to re-opening the operation in July 2007, subject to new mine plan approval. The Company also
holds 70 per cent. of the rights to the exploration projects in the Moris Region in the vicinity of
the Moris Mine (Mina Maria) with Exmin of Mexico.
259

In Mexico the Company holds rights to earn in 70 per cent. of the San Felipe exploration prospect
previously drilled by Boliden and to the San Luis del Cordero exploration prospect.
2.2 Description of assets
IMC reviewed the assets listed in Table 2-1 to Table 2-3, all of which are wholly owned or partially
owned by the Company as identified in the Tables and located as shown by Plates 1 to 4 in
Annex C.

PRA1 8.1

Table 2-1 List of assetsPeru

Asset

Mining
Arcata *************************
Ares ***************************
Selene *************************
**************************
Sipan
Caylloma***********************
Processing
Arcata *************************

Status

Type

Operating
Operating
Operating
Closed 2004
Sold 2005

Underground
Underground
Underground
Open Pit
Underground

mine
mine
mine

Operating

Concentrator

Ares ***************************

Operating

Leach Process

Selene *************************

Operating

Concentrator

**************************
Sipan

Closed 2004

Leach Process

Caylloma***********************
Advanced Project
Pallancata**********************

Sold 2005

Concentrator

Advanced
Project

Underground mine

mine

Product/Output

Date of
Commencement of
Operation

Ownership

Silver, gold
Gold, silver
Silver, gold
Gold, silver
Silver, gold

1964
1998
2003

100%
100%
100%
100%

Silver/gold
concentrate
Gold/silver
dore
Silver/gold
concentrate
Silver/gold
dore
Silver, gold

1964

100%

1998

100%

2003

100%

100%

Silver, gold ore

to Selene

Planned 2007

60%

Table 2-2 List of assetsArgentina

Asset

Advanced Project
San Jose ************************
Processing
San Jose ************************

PRA1 8.1

Product/Output

Date of
Commencement of
Operation

Underground mine

Gold, silver

Planned 2007

51%

Concentrator

Gold/silver
concentrate

Planned 2007

51%

Status

Type

Under
construction
Under
construction

Ownership

Table 2-3 List of assetsMexico

Asset

Project
Moris (Mina Maria) *****************
Processing
Moris (Mina Maria) *****************

PRA1 8.1

Product/Output

Date of
Commencement of
Operation

Ownership

Status

Type

Project
(mothballed)

Surface mine

Gold, silver

2007*

70%

Project
(mothballed)

Heap Leach
Processing

Gold/silver dore

2007*

70%

N.B. * Subject to new mine plan approval

2.3 Summary of geology

The operations of the Company and its development prospects are focussed primarily on
epithermal vein deposits with precious metal mineralisation.
260

2.3.1 Peru
All of the current operations and development prospects in Peru are located in the jurisdiction of
Ayacucho, Apurimac and Arequipa in southern Peru in the Puquio-Caylloma Belt of Cenozoic
volcanic deposits and associated intrusions. The basement of this area comprises folded
sedimentary strata of Jurassic to Cretaceous age on which lies an unconformable sequence of
lower to mid-Tertiary age volcanic flows and volcano-clastic sediments. The target mineralisation
is hosted in the Tertiary volcanics although the surface manifestation of major veins and related
structures may be obscured by thick andesitic lavas and ignimbritic tuffs representing the most
recent volcanic episodes. A number of important epithermal vein deposits are known in this belt
bearing identifiable High (HS), Intermediate (IS) and Low (LS) sulphidation gold and silver
mineralisation. It has been suggested that there was an early phase of epithermal LS and IS
mineralisation followed by a much younger high sulphidation event. Characteristically the veins
are of widths in the range 0.80 m to 4.00 m and show evidence of successive phases of quartzsulphide mineralisation. The pattern and frequency of veins is interpreted as related to tensional
or strike-slip fault patterns and on the regional scale the orientation appears related to the
presence of rhyolitic dome intrusions. This relationship provides an interpretative model for
targeting new prospective areas. Mineralisation is normally clearly zoned both vertically and
laterally reflecting both that vein development and higher grades are developed preferentially in
competent host strata with dilational fractures and also that, typically of LS events, the mineral
composition displays zoning with respect to the crustal level. Mineralized zones with economic
values can be seen to be constrained within lateral and upper and lower level boundaries
providing an effective model for identifying economic potential laterally and in depth from less
mineralized points of intersection. The majority of veins currently under operation and within the
resource base can be considered silver-rich but silver: gold ratios may locally be very variable as
exhibited in the Victoria vein system of the Ares mine.
2.3.2 Argentina
The San Jose deposit in Argentina displays geological and mineralogical characteristics very similar
to that of the Peruvian deposits although the volcanic host sequence is of Jurassic age. The
mineralisation is of LS type with quartz-sulphide veins with economic gold and silver values. The
potential in the Sierra de las Minas Prospect is also hosted in quartz-sulphide veins but is
somewhat different in that the veins are hosted in the metamorphosed basement and the
mineralisation appears to have been of higher sulphidation with significant copper. An oxidized
profile has been proved and supergene enrichment controls high gold values with rather variable
copper content.
2.3.3 Mexico
The Mexican prospects under investigation also include LS quartz-sulphide epithermal veins with
gold and silver values in the Moris project (Mina Maria) where the surface mining has taken place
as well as other active prospects in the Moris region. The other active prospects in Mexico at San
Felipe and San Luis del Cordero contain polymetallic mineralisation primarily controlled in linear
vein structures with extensive silicification linked to major granitic intrusions. The San Felipe
Project hosts predominantly zinc/lead with minor copper mineralisation while San Luis del
Cordero is a predominantly silver and copper orebody with prospects for extensive carbonate
replacement polymetallic skarn deposits.
2.4 Summary of reserves and resources
2.4.1 Reserves and resources estimation methods
The Company has over 40 years experience in the exploration, evaluation and extraction of
precious metals epithermal vein deposits in Peru. This experience provides a solid skills base for
interpretation of the exploration data/potential in the Puquio-Caylloma volcanic belt which is
additionally regularly reviewed by international research programmes and in-house seminars by
261

internationally recognised geologists. This corporate experience is now being extended to

comparable mineralisation environments in Argentina and Mexico. The Company undertakes
exploration and development independently using its own resources and also has a policy of
participation and acquisition of interests with joint-venture partners.
Additional resource definition at the operations is by some surface and, particularly, underground
drilling programmes with down-hole logging allied to blocking out the resources with
underground development to upgrade to a reserve. IMC has observed drill rigs in operation and is
satisfied that these procedures are in accordance with accepted international practice. Standard
practice is that core is cut vertically using a circular saw, one half-core despatched for analysis and
the other retained in the core store. It is standard practice to obtain channel samples underground
using pneumatic picks in both developments and stopes for analysis. IMC is satisfied that these
procedures are in accordance with accepted international practice.
Assay laboratories are sited at each of the three operational mine units in Peru. The laboratory at
e Gen
erale

Selene mine is operated under contract by the international specialists Societ

de
Surveillance (SGS), while those at Arcata and Ares are operated directly by the Company staff.
Fully documented Quality Assurance and Quality Control (QA/QC) procedures apply at each
laboratory with respect to sample handling, analytical methods and quality assurance and control.
Two sample streams are received by the laboratories. One from the process plants consisting of
mill feed, tailings and concentrate samples. The other from the mine Geology Department,
comprising mine channel samples and core samples. The samples are prepared and analysed
according to set procedures in accordance with industry standard practice. Silver and gold analyses
are performed by fire assay unless otherwise specifically requested. All laboratories have an
Atomic Absorption spectophotometry facility calibrated for silver gold, arsenic, copper, iron, zinc
and lead with a sample turn around time of 4 hours. Formal procedures for quality control are in
place for re-sampling, duplicates, re-assays, blanks, standard reference samples and independent
laboratory checks. IMC has visited the mine-site laboratories and considers that the procedures
and their implementation are in accordance with recognised industry standards. Similar principles
are applied at exploration project sites for analyses of core samples.
Preparation and validation of the raw data for resource estimation are managed within a
Geographical Information System (GIS) system and comprise three main datasets: the drill core
and channel sampling databases, the topographic database and geological map information held
within ArcView. The Company uses MineSight (MedSystem) mine planning software to estimate
ore grades in each vein within a block model. The MineSight block models for each vein and mine
are updated on a monthly basis with new sample and topographic data acquired during the
month. Assay, survey, collar location, and vein geometry data files were examined by IMC for a
representative selection of veins from the various properties and data appeared clean in that no
gross errors were identified, and no statistical artifacts found that could be attributed to data
errors.
IMC considers that the current approach to the computation of the ore density is correct and
appropriate with respect to the variation recognised in the various mines. Through regular
reconciliation of reserves depletion and production and processing there is continual review of
density values, supported also by regular test-work.
The Companys general policy is to compute single composites over the vein thickness, so that
each drillhole intersection with a vein is represented by one composite. This results in composites
of varying length and, because the angles of intersection of drill holes and veins vary, there is no
simple relationship between composite length and vein thickness. This approach could bias the
kriging and IDP modelling but, with no simple relationship between vein thickness and metal
grade, IMC considers this approach appropriate and has not biased any results.
All of the silver and gold assays are subject to a grade cutting (or capping) procedure by which
very high values are reduced to a fixed maximum value before generation of composites. This is
standard practice in the industry and is commonly made because of the presence of isolated
262

rogue values or an extreme-value population of assays. Grade cutting rules are defined
individually for each vein in all of the Peru and Argentina properties and includes some very
aggressive grade cutting. There is little or no statistical justification for this arbitrary procedure
and, IMC believes, has the result of generating conservative reserve and resource estimates.
MineSight calculates composites and models not only grade values but also lithology, alteration
and vein width from the integrated dataset of drillhole core and mine channel samples. The
system performs a standard suite of check statistics to determine the characteristics of the
variation of metal grades as the basis for determining parameters for the subsequent stage of
estimating grade values within the block model. As a general rule the vein models comprise blocks
of 5 m x 5 m x 5 m but may be 10 m x 10 m x 5 m depending on the extension or width of the vein.
The preferred estimation method is by linear block kriging, which has been used for those major
veins on which there are sufficient intersections to carry out the necessary variography. Inverse
power of distance (IPD) weighted moving averages have been used for all other veins. Historically
an IPD 5th power estimation has been used for all of the minor veins on the Peru properties but
following an earlier consultancy review this has been revised to use IPD squared in the present
quoted resource estimates. IMC has reviewed the resource modelling procedure and has
performed check modelling, using a different software package, on a selected number of veins.
IMC is of the opinion that the procedure employed by the Company is appropriate and provides a
valid and reliable statement of the resource base.
The Company uses the resource block model as a fundamental planning tool to calculate a value
each month for the mineral content of each block in each model. The calculation of ore value is
based on the multiplication of the metal values in each block by the corresponding Point Value
(incorporating gold and silver prices, head grade, plant recovery and commercial recovery) defines
a value for the block. The Company also defines cut-off values applied to the values of each block
in each model every month. Both a break-even operating cut-off ore value (excluding fixed
corporate and financing costs) and a higher economic target cut-off value (including all fixed and
variable costs) are defined. Applying these cut-offs categorises each block as economic being of
value above the target economic cut-off, marginal if above the break-even cut-off or submarginal below the break-even cut-off. For the purposes of stating resources and reserves, the
break-even operating cut-off ore value at the date of stating the reserves and resources, is
considered appropriate as the basis for defining a cut-off value for commercially viable ore. The
corresponding quoted reference prices for silver and gold have been established as US$7.50/oz for
silver and US$450/oz for gold. On the basis of single metal equivalence values, the cut-off grades
established for Arcata and Selene mines are 167 g/t silver equivalent and 174 g/t silver equivalent
respectively. The cut-off grade for the Ares mine, a gold/silver producer, is expressed as 3.2 g/t
gold equivalent. IMC considers that the Company policy to establish cut-off grades is appropriate
and essentially conservative.
IMC has reviewed the process of reserve panel definition and checked areas of panels on each of
three veins (Selene Explorador vein; Arcata Mariana vein; Ares Victoria vein) against spreadsheets
of block categories and volume calculation. IMC considers this methodology appropriate for the
derivation and definition of reserves from the resource block model. The design of the reserves
panels assumes the potential total extraction of all mineral within the panel and reduces
assumptions related to losses in operations.
IMC completed an independent validation of the resource modelling by the Company. The
Company have used ordinary linear block kriging for those major veins on which there are
sufficient intersections to carry out the necessary variography, and an IPD weighted moving
averages for other veins. IPD 5th power estimation has been used for all of the minor veins on the
Peru properties: i.e. excluding Selene Explorador vein, Ares Victoria vein, and Arcata Ramal 2 and
Mariana veins. IMC believe this is a rational selection. Check modelling has been carried out by
IMC using the Datamine mining software system for Arcata (Mariana, Alta veins), Ares (Victoria,
Ramal Sur 096, and Lula veins), Selene (Explorador and Ramal Betty veins), Pallancata (Pallancata 2
vein) and San Jose (Huevos Verdes vein). This Datamine modelling has used the databases of drill
263

hole and channel sample composites and the wire-frame vein models representing the full (premining) geological resource in each case and the models obtained have been compared with
those supplied by the Company. A range of different modelling methods have been used
including IPD 5th and 2nd powers, and kriging with ranges of 60 m and 120 m. A comparison of
5th power IPD models for all veins with the models generated by the Company using the
Minesight software yields comparable results and validates the Companys modelling approach.
IMC confirms that all the Company resources and reserves are quoted and are consistent with the
Australasian JORC classification standard.
2.4.2 Reserve replacement strategy
The characteristics of epithermal vein deposits for precious metal mining dictate a three-tier
strategy for exploration and deposit evaluation. The relatively small resource base available in
individual veins requires an active strategy for 1. expansion of the resource base; 2. the
replenishment of the resource base and 3. the upgrading of this resource base to a reserves base.
This is reflected in a strategy for regional scale exploration and identification of new target areas
for resource definition. In parallel, a local scale strategy is directed to the location of new
resources available to existing mine infrastructure in conjunction with which mine development
and underground drilling are focused to upgrade existing resources to reserves.
The regional strategy currently comprises exploration and deposit evaluation at the San Martin
prospect located between the current Selene and Arcata mine operations and also at the
Pallancata prospect some 14 km from the Selene mine. These prospects have been the subject of
earlier investigation, including drilling and extensive surface channel sampling. Currently, contract
diamond core drilling rigs are deployed at each site under the management of the Companys
geological staff to complete deep drilling of inclined cored drillholes of lengths in the range
300 m to 600 m from surface. Other targets in Peru have been identified for the longer term.
The local strategy at each of the Peruvian mining operations has a policy to investigate new
prospects within the concession area of and adjacent to the mines and has currently deployed four
contracted diamond core drilling rigs for deep surface drilling at the mines. It should be noted
that the role of long surface drillholes is to determine future prospects at a level of definition
seldom greater than that of Inferred Resources.
The mine strategy of resource and reserve definition is correspondingly primarily dependent upon
mine developments planned specifically to upgrade the resource and reserve base, in conjunction
with an extensive programme of underground drilling. The reliance on underground
development to provide data on vein continuity and grade at a level of confidence appropriate
for reserves and resource definition dictates that the formal resource base and reserve base will be
limited by the extent to which underground developments are prepared in advance of operations.
It is a common feature of similar mining operations on precious metal epithermal vein deposits
that the resource and reserve base reflects only a limited number of years of future operation
although there may be extensive data on which to infer a long productive life of mine. IMC
recognises that for this type of mining operation a most important characteristic is the
demonstrable capacity and track record of the mining company to maintain consistent
replacement of reserves and resources in step with annual production and resource depletion.
The Company has a proven track-record and has sustained the resource and reserve base at each
of the current operating mines in step with production, in the case of Arcata over many years, and
in the case of the newer mines, since production commenced. Table 2-4 shows the historical
replacement of reserves by the Company. It must be noted that a Peruvian system of classification
of reserves was used until 1999 and JORC thereafter. This has resulted in differing statements of
reserves under the two systems. Arcata mines proved and probable reserve base at each year end
has varied between 1.2 years and 4.8 years of production since 1990. Ares mines reserve base at
each year end has been consistently between 2.5 years and 3.9 years of production since the first
year of full production in 1999. There has, on average, across the periods shown in Table 2-4, been
264

a replacement of 37 per cent. of the total reserves base by new reserves annually at all of the
Companys operations. It is the opinion of IMC that, through the maintenance of the current
reserves replacement strategy, this performance is sustainable in the long term.
Table 2-4 ReservesHistorical replacement
Reserves

Production

Silver
t

ARCATA
1990 ***************** 1,503,780
1991 ***************** 1,252,030
1992 ***************** 1,159,150
1993 ***************** 1,211,600
1994 ***************** 1,312,210
1995 ***************** 1,477,500
1996 ***************** 1,340,830
1997 ***************** 1,028,190
1998 *****************
817,030
1999 *****************
546,000
2000 *****************
681,550
2001 *****************
447,851
2002 *****************
539,474
2003 *****************
315,166
2004 *****************
440,402
2005 *****************
768,716
June 2006 ************
929,999
ARES
1998 ***************** 1,098,042
1999 *****************
655,743
2000 *****************
838,290
2001 *****************
831,333
2002 *****************
960,765
2003 ***************** 1,031,540
2004 *****************
761,619
2005 *****************
828,399
June 2006 ************
834,820
SELENE
2003 *****************
722,633
2004 *****************
903,837
2005 *****************
829,681
June 2006 ************
799,331

Gold

Silver

Gold

LOM

g/t

koz

g/t

koz

g/t

koz

g/t

koz

576
563
569
522
541
552
560
553
567
423
429
398
531
715
492
545
462

27,865
22,649
21,212
20,331
22,819
26,211
24,148
18,281
14,903
7,431
9,405
5,732
9,218
7,245
6,968
13,482
13,796

1.50
1.85
1.87
1.64
1.81
1.88
2.00
2.10
2.14
1.26
1.30
1.35
1.45
1.432
1.21
1.54
1.26

72.52
74.47
69.69
63.88
76.36
89.31
86.22
69.42
56.21
22.12
28.49
19.44
25.21
14.43
17.11
37.96
37.77

310,709
262,415
260,020
259,036
326,304
356,734
357,212
373,984
375,448
380,468
371,098
358,859
236,292
236,108
290,603
282,199
135,526

564
617
638
581
622
646
676
687
679
671
518
488
432
506
615
539
542

5,637
5,209
5,331
4,836
6,522
7,406
7,760
8,257
8,190
8,212
6,179
5,627
3,280
3,841
5,746
4,890
2,362

2.03
2.36
2.34
1.99
2.35
2.86
2.70
2.68
2.85
3.21
2.57
2.54
2.26
1.29
1.14
1.19
1.35

20.28
19.91
19.56
16.57
24.65
32.80
31.01
32.22
34.40
39.27
30.66
29.31
17.17
9.79
10.65
10.80
5.88

4.8
4.8
4.5
4.7
4.0
4.1
3.8
2.7
2.2
1.4
1.8
1.2
2.3
1.3
1.5
2.7
3.4

207
214
264
324
302
318
301
307
327

7,308
4,512
7,115
8,660
9,340
10,548
7,363
8,182
8,777

24.19
23.21
24.47
22.71
21.52
22.32
19.92
14.43
12.24

853.98
489.33
659.51
606.99
664.62
740.26
487.81
384.20
328.52

129,216
240,866
272,668
282,176
271,489
276,653
272,986
281,095
141,529

228
355
310
261
287
336
346
352
332

947
2,751
2,716
2,369
2,506
2,989
3,037
3,181
1,511

22.99
26.21
24.60
20.69
22.70
21.78
22.98
22.80
19.01

95.51
202.97
215.66
187.70
198.14
193.72
201.69
206.05
86.50

8.5
2.7
3.1
2.9
3.6
3.8
2.6
2.9
2.9

384
398
408
377

8,926
11,566
10,877
9,689

4.35
3.53
3.07
2.56

101.03
102.72
81.92
65.79

44,061
253,605
288,919
178,044

348
385
399
379

493
3,137
3,707
2,169

3.78
3.78
3.43
2.93

5.35
30.82
31.86
16.77

14.8
3.3
2.6
2.1

2.4.3 Reserves and Resources Statement

The Hochschild proved and probable reserves are and have been nearly identical to the measured
and indicated resources taking into account the discounts included in the reserves for losses and
dilution. This is a result of the need to block out the inferred resources with development
underground in order to convert to measured and indicated resources which, with modifying
factors, can be converted to reserves.
Table 2-5 and Table 2-6 show the reserves and resources of the Company as at 30 June 2006. The
figures quoted are those that are the property of the Company and do not include reserves or
resources on the same property owned by JV partners.

265

Table 2-5 Metal reserves at 30 June 2006

Operation

Arcata
100%
LOM = 3.4 years *********************************
Ares
100%
LOM = 2.9 years *********************************
Selene
100%
LOM = 2.1 years *********************************
Pallancata
60%
LOM = 3.3 years *********************************
San Jose
51%
LOM = 5 years***********************************
Total
Mines
and Projects*************************************
Stockpiles ***************************************
TOTAL ******************************************

Reserve
category

Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Probable
Total
Proved
Proved
Probable
Total

Proved

Probable

Proved
and
probable

(t)

(t)

(t)

646,659
283,340
929,999
642,109
192,711
834,820
762,808
36,523
799,331
0
643,267
643,267
102,812
538,885
641,697
2,154,388
1,694,725
3,849,114
64,872

64,872
2,219,261
1,694,725

3,913,986

Ag

Au

(average g/t)

416
565
462
371
182
327
376
387
377

263
263
602
383
418
397
345
374
246
393
345
372

1.19
1.43
1.26
14.60
4.35
12.24
2.59
1.83
2.56
0.00
1.09
1.09
8.43
7.80
7.90
6.03
3.67
4.99
4.62
5.99
3.67
4.98

N.B. includes discounts for ore loss and dilution. Reserves = Resources Ore Loss + Dilution. Where reserves are
attributable to JV partner, reserve figures reflect the Companys ownership only. LOM stated from 30 June 2006.

266

Table 2-6 Metal resources at 30 June 2006

Resource category

Measured

Indicated

Measured
and
indicated

Inferred

Ag

Au

(average g/t)

Arcata
Measured ***********************************
675,523
Indicated ***********************************
Total****************************************
Inferred*************************************
Ares
Measured ***********************************
667,143
Indicated ***********************************
Total****************************************
Inferred*************************************
Selene
Measured ***********************************
773,616
Indicated ***********************************
Total****************************************
Inferred*************************************
Pallancata
Measured ***********************************
0
Indicated ***********************************
Total****************************************
Inferred*************************************
San Jose
Measured ***********************************
93,113
Indicated ***********************************
Total****************************************
Inferred*************************************
Moris (Mina Maria)
Measured *********************************** 2,950,713
Indicated ***********************************
Total****************************************
Inferred*************************************
San Felipe **********************************
TOTAL
Measured *********************************** 5,160,108
Indicated ***********************************
Total****************************************
Inferred*************************************

1,088,550

510
704
561
580

1.46
1.79
1.55
1.93

46,838

319
170
291
227

15.80
5.34
13.78
5.54

453,749

397
406
398
279

2.95
2.07
1.96
1.25

981,673

0
289
289
376

0.00
1.20
1.20
1.44

253,059

675
434
473
374

9.45
8.83
9.32
8.22

4,563
3,150,000

4.0
3.7
3.96
2.2
70

1.32
1.24
1.31
1.37
*9.6%

5,978,432

182
310
217
243

3.60
3,55
3.59
1.08

239,942
915,465

159,439
826,582

34,951
808,567

614,418
614,418

485,894
579,007

403,726
3,354,439

1,938,370
7,098,478

N.B. *a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper which are not included in totals. Resources
include undiscounted reserves, where reserves are attributable to JV partner, reserve figures reflect the Companys
ownership only, no ore loss or dilution has been included, and stockpiled ore excluded.

2.5 Mines and facilities

2.5.1 Facilities
The Peru facilities comprise of three operating mines, Ares, Arcata and Selene. All are mined by a
cut and fill method. The ore from each operation feeds each individual mines processing plant to
produce a concentrate (Arcata and Selene crush, grind, mill and floatation) or dore (Ares
crush, grind and leach) shipped to customers. The Company have plans to increase the capacity of
the plant at Selene and process additional tonnage mined from Pallancata from July 2007 as well
as transporting additional concentrate from Selene to Ares for the production of additional dore
to the present capacity of the Area dore plant. The Company propose to process all of the Selene/
Pallancata concentrate to dore plant at a later date but this has not been included in the plans or
valuation considered in this document.
The Argentina facilities comprise the San Jose mine and treatment plant under construction and
scheduled to commence production in 2007 with the Company holding 51 per cent. ownership
and the management of the joint venture operation.

267

The Moris mine in Mexico is the subject of a joint venture agreement, dated 30 June 2006, with
the Company owning 70 per cent. The Company is completing Due Diligence drilling and check
sampling.
Historic production figures are given in Table 2-7 and Table 2-10. The Company increased silver
production by approximately 32 per cent. from 2002 (8,005 thousand ounces) to 2005 and plan to
increase its attributable silver production by approximately a further 42 per cent. between 2005
and 2008 from projects under construction or about to commence construction (Section 2.6.1.1).
IMC has reviewed the forecast production levels and found them to be reasonable and attainable.
Table 2-7 Metal miningHistoric production
Ore Mined
t

Arcata
Ares***
Selene

Sipan**
Caylloma

Silver
g/t

2003

2004

2005

6 months
ended
30 June
2006s

236,108
276,653
44,061
0
105,806

290,603
272,986
253,605
0
0

282,199
281,095
288,919
0
0

135,526
141,529
178,044
0
0

2003

2004

506
336
348
0
391

615
346
385
0
0

Gold
g/t

2005

6 months
ended
30 June
2006s

2003

2004

2005

6 months
ended
30 June
2006s

539
352
399
0
0

542
332
379
0
0

1.29
21.78
3.78
0
0.61

1.14
22.98
3.78
0
0

1.19
22.80
3.43
0
0

1.35
19.01
2.93
0
0

N.B. There are minimal stockpiles at the operations. Therefore the tonnage and grade of ore milled is identical to the
tonnage and grade of ore mined.

Table 2-8 ConcentrateHistoric production

Concentrate

Recovery %

2003

2004

Silver

2005

Arcata ************* 8,999 11,525 10,787

Selene *************
488
2,892
3,559
Caylloma ********** 2,777
0
0
Dore koz **********
Ares *************** 2,793
2,943
3,151
**************
Sipan
282
283
0

6 months
ended
30 June
2006

Gold

2005

6 months
ended
30 June
2006

5,214 89.89 87.07 87.41

1,947 83.25 92.81 89.97
0 77.78
0
0

88.66 72.99 48.63 66.75

90.76 79.72 91.41 86.37
0 63.67
0
0

84.26
86.81
0

1,493 86.75 90.37 91.70

0
N/A
0
0

93.05 95.34 95.65 96.32

0
N/A
0
0

96.35
0

2003

2004

2005

6 months
ended
30 June
2006

2003

2004

Production is from recovery of gold already in leach pad

N.B. Sipan

Table 2-9 Concentrate and DoreHistoric

composition
Concentrate
Grade Silver kg/t

Grade Gold g/t

2003

2004

2005

6 months
ended
30 June
2006

Arcata *********************************** 11.94

Selene *********************************** 27.47
Caylloma ********************************* 11.58
Ares ************************************* 93.11
************************************
Sipan

13.51
31.21
0
93.18

12.31
29.15
0
93.43

12.49
31.43
0
94.18

268

2003

2004

2005

6 months
ended
30 June
2006

24.71
275.24
14.91
6.62
51

13.96
302.61
0
6.56
48

20.53
232.82
0
6.33

29.58
239.22
0
5.58

Table 2-10 MetalHistoric production

Silver koz

Arcata ********************************
Selene ********************************
Caylloma******************************
Dore koz******************************
Ares **********************************
*********************************
Sipan
TOTAL ********************************
Silver Equivalent***********************

Gold koz

2003

2004

2005

6 months
ended
30 June
2006

2003

2004

2005

6 months
ended
30 June
2006

3,453
417
1,034

5,004
2,911
0

4,271
3,335
0

2,094
1,967
0

7.15
4.32
1.30

5.17
28.14
0

7.19
27.48
0

4.96
14.57
0

2,600
0
7,504
20,217

2,742
0
10,657
25,121

2,944
0
10,550
24,543

1,406
0
5,467
11,640

184.74
14.37
211.88

193.20
14.56
241.07

198.55
0
233.22

83.35
0
102.88

N.B. Silver Equivalent = 60 oz silver: 1 oz gold

2.5.2 Management
IMCs personnel were in regular contact and held numerous discussions with the Companys
management at all levels. IMC is satisfied that the Companys management is capable of
implementing the proposed production plans based on this contact and on direct observations of
operational management. The Companys policy of making business unit managers fully
accountable for their operations whilst maintaining corporate control has enabled the Company
to be profitable in the difficult epithermal mining environment.
The Company control and plan in the Lima central office and have a core staff of management
and technical personnel at site. These core personnel control the operational activities which are
all carried out by contractors. Contracts are renegotiated as required or on an annual basis.
The mine plans are evaluated monthly to ensure maximum metal recovery and profitability.
The Company has an extremely good track record of replacing reserves over the years both in the
operations and from local projects.
The Company employs a total of 3,100 personnel of which 1,936 were contractors as at 30 June
2006. Corporate staff in Lima and satellite offices in Argentina, Mexico, Chile and the United
States of America (Nevada) comprise 242. 2,858 of the total are site personnel of which 1,936 are
contractors. All of the operational personnel until recently worked on a rotational basis of 20 days
on and 10 days off site. The Company is currently implementing a 14 days on and 7 days off
rotational sequence due to a change in legislation. Two 10.5 hours shifts are worked per day and
the sites operate 24 hours per day, 365 days per year.
The Company devotes significant attention and resources to the management of community
relations. A manager was appointed in Lima for this function in 2003, and appropriate staffing has
been deployed at the operations. The principal objective is to ensure effective communication and
good relations between the company and the surrounding communities, and it would appear that
the Company has become a Peruvian role model in this regard. The budget for normal
community projects in 2006 amounts to USM$1.4. There are a number of special projects in
addition to this that are budgeted for separately.
Sufficient staff has been allocated to effectively administer the required functions at head office
and mine level and they enjoy the full support of senior company Management. The budget for
2006 for Safety, Health and Environment issues, at USM$3.8 excluding staff salaries, represents a
significant investment in effective Management.
In developing new prospects and projects the management has a diligent and cautious approach
to establishing the extent and viability of a potential resource. Once established, as Pallancata and
San Jose demonstrate, the speed and standard of development of their mines into production
units, in IMCs opinion, compares favourably with most other similar projects around the world.
269

The company has established a separate entity to manage the community projects. It has two
arms, one is Social Programmes and the other Production Programmes.
The Social Programmes include:
) Educational help which includes getting school rooms built, obtaining teachers (salaries,
transport, accommodation), establishing a hostel for the schoolchildren and training children in
the art of lama, alpaca and vicuna skills and agriculture.
) Social help includes warm clothing and blankets in cold times and Christmas presents. There is
also a programme to increase the skills levels of the children of the community in which the
mines operate.
) Medical help local residents can visit the mine doctor and he makes visits in the villages.
Transport is also given for emergency cases to larger towns such as Arequipa.
Projects are decided on in consultation with a community representative such as a mayor.
The Company has sponsored the following projects:
) Purchase of land at near Cuzco for the establishment of an alpaca breeding centre to enhance
genetic material.
) The establishment of a trout farm for the Pampamarca community.
) The establishment of a trout farm, school and slaughterhouse at Iscahuaca.
) The Selene mine has a technology centre and some 72 people from the local community have
been trained and are now working for the company.
) There is a woodworking and a literacy programme.
) The mine has helped with a trout breeding programme in the middle of Lake Huisca Huisca.
2.5.3 Health and safety
The Company adheres to the Peruvian National Requirement Article 50, Sub Chapter Three
Annual Mining Safety and Health Program of the Mining Safety and Health Regulations, under
Supreme Decree 046-2001 EM, dated July 26, 2001, to which Article 211 of the Law refers.
Additionally the Company adheres to the Mining Code of Argentina (24.498 and 24.585) and to
The Mining Law of 26 June 1992 with amendments of Mexico.
The Companys mission statement is:
) Vision

To be recognised as having the safest operations in any country

in which the Company has an asset and one of the safest
worldwide.
To maintain the Companys commitment for permanent
improvement in every aspect of operational activity.

) Target :

Zero accidents in all of the Companys assets. Increased

production with quality, safety and efficiency and the
environment. Qualification under OSHA 18001 standards.

) Mission :

To consider the human factor as the most important under our

management.
To preserve and maintain a harmonious relation with the
environment.

The Company is implementing a risk management system (ISTEC) at corporate level in line with
OSHA 18001. The procedures are being put in place to enable the Company to qualify for OSHA
18001 in 2007. Numerous safety and operating procedures are in place at the present time and are
270

continually being updated and augmented to enable the qualification. The details of all issues
relating to health and safety can be accessed and comment made on line on the Companys
internal web site.
Employee and contractor occupational health is assessed prior to employment and annually
thereafter. A total of eleven cases of impaired lung function (silicosis) were identified in
contractor personnel between 2002 and 2006. This appears to be an isolated group as there are no
records of additional silicosis cases developing subsequent to these eleven. Compensation for
silicosis is paid by the state and Company policy is to redeploy affected personnel to other
employment.
The operations have received a number of industry awards and are considered to be amongst if
not the best managed operations in Peru.
Arcata mine
) 1998 ISEM :

National Safety Award, Second prize, Underground Category.

) 1999 ISEM :

National Safety , Second prize, Underground Category.

) 2000 ISTEC

International Audit. Qualification: Third level Good.

) 2000 ISEM

National Safety Award, Second prize, Underground Category.

) 2002 ISEM

6th National Safety Award, Underground Category. Reduction

Safety Frequency Indexes in 2001 by 25 per cent. in comparison
with previous year.

) 2002 2003

JOHN T. RYAN Award, Underground Category.

) 2004

National Safety Award, Second prize, Underground Category.

) 2005

National Safety Award, Second prize, Underground Category.

) 2005

National Award for Eco-efficiency CONAM.

Ares
) 1999

Implementation of the management System for Health Safety

and Environment Audited by ISTEC, Excellent.

) 2001

International Audit, Category 4 (Very Good).

) 2003

National Prize for Safety in Underground Mining, First Place.

) 2004

National Prize for Safety in Underground Mining, Second Place,

and ISO 1401 Environment Certification (Version 96).

) 2005

ISO 14001 Environmental Certification (Version 2004) National

Prize for Cleanest Production and Eco Efficiency, CONAN 2005
Category 4 (Medium and Large Companies).

Selene
) 2003

National Prize for Safety in Underground Mining, Second Place.

) 2004

National Prize for Safety in Underground Mining, First Place, and

ISO 1401 Environment Certification (Version 96).

) 2005

National Prize for Safety in Underground Mining, Second Place,

and ISO 1401 Environment Certification (Version 2004) National
Prize for Cleanest Production and Eco Efficiency, CONAN 2005
Category Medium and Large Companies.
271

The Lost Time Injury Frequency Rate (LTIFR) is one of the parameters used to monitor safety
performance in any industry and is usually measured per 100,000 manshifts or one million
manhours. The Company has instituted such a programme measuring per million manhours in
accordance with the Law and the results are shown in Table 2-11. The increase in the LTIFR in the
early part of 2006 is attributed in part by the Company to a single contractor now dismissed for
poor working practices, and to increased levels of development or construction work associated
with expansion projects. The Company now audits contractor safety records as a part of the
selection of a contractor. Records of exploration sites are included in the nearest major operation
(e.g. Selene includes Pallancata) and no records of main and subsidiary management offices are
kept.
There has been one fine of US$20,000 in respect of the fatality that occurred at Arcata in 2004.
Subsequently the Companys safety management system has been modified.
The Company has, as of 2006, instituted more stringent auditing of accident and incident
reporting with the introduction of OSHA 18001 planned for 2007. This has also contributed to the
increase in the LTIFR as a result of more accurate reporting. Comparing similar underground or
surface mining safety data from major mining operations world wide the Company have a
marginally higher LTIFR at 6.75 than the 6.25 for the industry average. IMCs perception is that the
Company is firmly committed to health and safety and expect the Company to demonstrate a
sustained long term improvement.
Table 2-11 Lost time injury frequency rate

2003 ******************************************************

Arcata
Ares
Selene
San Jose (Not in
Operation)
Composite
2004 ****************************************************** Arcata
Ares
Selene
San Jose
Composite
2005 ****************************************************** Arcata
Ares
Selene
San Jose
Composite
30 June 2006 ********************************************** Arcata
Ares
Selene
San Jose
Composite

Fatals

LTI

LTIFR

Operatives

0
0
0

6
1
3

1.95
0.39
2.02

1,201
908
1,236

0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0

10
4
1
1
11
17
1
2
0
28
31
10
7
5
4
16

1.41
1.60
0.34
0.43
88.42
2.00
0.35
0.63

117.33
3.63
6.46
5.20
6.93
13.33
6.75

3,345
1,124
1,090
1,082
156
3,452
1,002
876
642
262
2,782
1,041
811
618
378
2,848

Note: LTIFR is calculated per million man hours

A record is kept of the frequency of the type of accidents and incidents (near misses) enabling the
Company to focus on trends and be pro-active in its management of safety as shown in Table 2-12.
This data is available to all employees on-line for a rolling period of 30 days (excerpt shown).

272

(This page intentionally left blank)

273

Table 2-12 Causes of incidents

TYPE

Ares, Arcata,
Selene and San Jose
Date

27-May-06 ***********
28-May-06 ***********
29-May-06 ***********
30-May-06 ***********
31-May-06 ***********
01-Jun-06 ************
02-Jun-06 ************
03-Jun-06 ************
04-Jun-06 ************
05-Jun-06 ************
06-Jun-06 ************
07-Jun-06 ************
08-Jun-06 ************
09-Jun-06 ************

Anxiety,
stress,
fear,
Reckless
personal, attitude,
alcoholism,
unsafe
Non- Education, Design, SuperFalling
drugs behaviour compliance
training planning vision materials
T01

T02

T03

1
1
1

1
1

T04

T05

T06

T07

Personnel
Lack of
falling,
Exposure
or failure tripping,
to toxic Explosives
of support stumbling substances substances
T08

T09

1
1
1
1

1
1
1

1
1

1
1

1
1

274

T10

T11

Table 2-12 Causes of incidents

TYPE
Transport,
Health,
handling,
Haulage,
Environmental
virus,
safety Operation
loading,
Communication Electrical
risks, spills,
Social Pneumatic
cafeteria, Maintenance,
Flammability,
devices
of static unloading
and
and
overflows
or
and/or sanitary or
calibration,
combustability, of mobile or mobile
of Transportation
information electrical
and political
electrical
housing
repair or
ignition
units machinery materials and handling
disemination
risks
leakages
risk
tools
risk
similar
T12

T13

T14

T15

T16

T17

T18

T19

1
1
1
1
1
1

1
1
1
1

275

T20

T21

T22

T23

2.5.4 Infrastructure
Arcata mine, Peru, is supplied with power from the National Grid and can provide approximately
33 per cent. of its power requirement from standby generation capacity at the mine when
required, which is adequate for essential services but not production. The purchase of additional
generation capacity is under consideration by the Company which would ensure not only that
essential services are maintained but also that the process plant operates with minimal
interruption to production if the National Grid failed. Less than 350 m3 of water is drawn daily for
potable and office/workshop use. The industrial and mine water is re-circulated and is sufficient
for all other purpose. Eleven compressors provide air to the workings with ample standby
capacity. Communications within the operation are good and a satellite link is available for
external communications. A local area network (LAN) system is being expanded at the operation
enabling access to the internet. The principal route for goods to Arcata (approximately 4,630 m
elevation) is by mixed tarmac and good dirt road through Arequipa (about 300 km). The main
incoming materials are diesel fuel, explosives, timber supports, spare parts and chemicals.
Arequipa has scheduled national air services to Lima, the capital of Peru, with international air
connections.
Ares mine, Peru, is supplied with power from the National Grid and has 100 per cent. standby
generation capacity at the mine to be self sufficient. Less than 300 m3 of water is drawn daily for
potable and office/workshop use. The industrial and mine water is re-circulated and is sufficient
for the purpose. Four compressors provide air to the workings with one on standby.
Communications within the operation are good and a satellite link is available for external
communications. A LAN system is being expanded at the operation enabling access to the
internet. The principal route for goods to Ares (approximately 5,000 m elevation) is by mixed
tarmac and good dirt road through Arequipa (about 285 km). There are good roads from
Arequipa to Lima (985 km) and the port of Matarani (390 km). The main incoming materials are
diesel fuel, zinc powder, sodium cyanide, hydrogen peroxide and other chemicals, cement, timber
supports, spare parts and explosives. Arequipa has scheduled national air services to Lima, the
capital of Peru, with international air connections.
Selene mine, Peru, is supplied with power from the National Grid and this capacity is being
increased to service the process plant expansion and to route power to Pallancata. Selene has 100
per cent. standby generation capacity at present at the mine and will have approximately 70 per
cent. with the planned expansions (Pallancata mine and increased throughput at Selene
processing plant). Approximately 500 m3 of water is drawn daily for potable and office/workshop
use. The industrial and mine water is re-circulated and is sufficient for all other purposes. Four
compressors provide air to the workings with ample standby capacity. Communications within the
operation are good and a satellite link is available for external communications. A LAN system is
being expanded at the operation enabling access to the internet. The principal route for most
goods to Selene (approximately 4,600 m elevation) is from Lima (80 per cent.), a distance of
763 km on good surfaced roads, and a short unsurfaced section of 45 km. The remaining 20 per
cent. of supplies come from Arequipa, which is 902 km from Selene, also on good quality surfaced
roads. Main incoming materials are plant and equipment, diesel fuel, explosives, wooden supports
and chemicals. Approximately 330 t of outgoing concentrate goes by road to the port of
Matarani, a distance of 970 km. Cuzco, 390 km distant, has scheduled national air services to Lima,
the capital of Peru, with international air connections. Concentrate will also be transported to
Ares via a serviceable unsurfaced road over a distance of 175km to be turned into dore and then
on to Johnson Matthey for refining.
Pallancata mine project, Peru, has only basic infrastructural development sufficient to sustain
exploration facilities at present. A capital budget has been prepared by the Company to install a
new 12.5 km long 33 kV overhead transmission line from Selene and a new terminal substation at
Pallancata to supply the needs of a mining operation at a cost of US$M 0.352. Adequate water is
available at the site for potable and mining purposes and a treatment plant and settling ponds
are planned for the effluent and silt removal before discharge. Compressed air, sufficient for the
276

purpose of mining, is planned at the site. Communications are solely by radio and satellite at
present and this will be upgraded. A new road is planned, at a cost of approximately $2 million,
which will reduce the distance to Selene by road to 22 km, and avoid some of the more difficult
terrain. The workforce will be based at the Selene mine and transported to Pallancata to work.
San Jose mine project, Argentina, proposes to install sufficient diesel generation capacity at the
mine to be self sufficient. It is permitted to draw 1,560 m3 of water daily for potable and industrial
use. The industrial and mine water is re-circulated and is sufficient for the purpose. Four
compressors will provide air to the workings with one on standby. Communications within the
operation are good and a satellite link is available. A LAN system is available at the operation
enabling access to the internet. The principal route for goods to San Jose is by good dirt (35km)
then tarmac road to the port of Comodoro Rivadavia (total 230 km). The nearest town is Perito
Moreno (about 30km) to the west. The main incoming materials are diesel fuel, chemicals,
cement, timber supports, spare parts and explosives which will extend to include zinc powder,
sodium cyanide and hydrogen peroxide once the process plant is commissioned. Concentrate will
be exported via the port of Comodoro Rivadavia. Comodoro Rivadavia has scheduled national air
services to Buenos Aires, the capital of Argentina, with international air connections.
Moris mine has adequate generation capacity at the mine to be self sufficient. Sufficient water is
available from boreholes for potable, and industrial use. The industrial process water is recirculated and is sufficient for the purpose. A mobile compressor provides air to the operations as
required. Communications within the operation are adequate with a land line telephone service
available. A LAN system was available at the mine when last in operation. The principal route for
goods to Moris (approximately 1,000 m elevation) is by good but arduous dirt road (about 60km)
then tarmac road to Chihuahua (total 260 km). There are good roads from Chihuahua to all parts
of Mexico via the state highway system. The main incoming materials are diesel fuel, sodium
cyanide, hydrochlorate acid, sodium hydroxide and other chemicals, cement, calcium carbonate,
spare parts and explosives. Dore ingots were exported via Chihuahua which has scheduled
international connections to the USA and national air services to Mexico City, the capital of
Mexico, with onward international air connections.
2.6 Projects
2.6.1 Short term projects
The Company produced 10,551 thousand ounces of silver and 233.22 thousand ounces of gold in
2005 and expects to produce at a rate of approximately 15,000 thousand ounces of attributable
silver and approximately 170 thousand ounces of attributable gold in 2008.
2.6.2 2.6.1.1 New sites
) Pallancata mine, Peru

reserves of 643 kt of ore containing 5,578 thousand ounces silver

and 23 thousand ounces gold. Total Capex is US$10.5 M none of
which is yet committed. Construction is due to commence in
August 2006 and planned for first production 2007 at
approximately 60,000 tpa containing 420 thousand ounces of
silver and 1.7 thousand ounces of gold in concentrate, rising to a
maximum in 2009 of approximately 590,000 tpa containing 4,500
thousand ounces of silver and 18 thousand ounces of gold in
concentrate.

) San Jose mine, Argentina

reserves of 642 kt of ore containing 9,043 thousand ounces silver

and 168 thousand ounces gold. Total Capex is US$77.1 M of
which US$6.6 M is reserved for contingencies. As at 30 June 2006,
US$11 million had been spent and US$6.8 million was
committed. Construction is in progress and planned for first
production in July 2007 at 273,750 tpa producing an average
277

3,934 thousand ounces silver and 51.80 thousand ounces gold in

concentrate each year.
2.6.3 Medium term projects.
)Moris mine (Mina Maria),
Mexico

resources of 3,354 kt of ore containing 4.0 g/silver and 1.31 g/t

gold. Subject to the approval of a new mine plan, first

production is planned for July 2007 producing dore.

)San Felipe, Mexico

Small operations exploited the polymetallic resources in the area

until closure in 1991. Bolidens exploration programme
reportedly defined inferred resources of 3,150 kt with a
combined content of zinc, lead and copper sulphides at 9.6 per
cent. and silver at 69.7 g/t. IMC are able to accept these figures as
an inferred resource.

2.6.4 Long term projects

)San Martin, Peru

The site is 20 km from Arcata and is being drilled by two drill rigs
that have cored 14 holes to date. Previous channel sampling,
minor underground exploration and the current surface
mapping have yielded a maximum grade at surface of 8,970 g/t
silver and 27 g/t gold with drill intersections of 2 g/t to 8 g/t to
date.

)Sierra de las Minas,

Argentina

The Company is undertaking mapping, channel sampling and

drilling programme to confirm the inferred resources over two
separate structures reported by Golden Peaks Resources Ltd of
approximately 150 kt with gold grades of 8.05 g/t and 10.66 g/t.
IMC have not confirmed these figures.

)San Luis del Cordero, Mexico

Small operations exploited the polymetallic resources in the area

from surface in the 1950s to 1960s reportedly producing at 2 per
cent. to 3 per cent. copper and 600 g/t to 700 g/t silver. Three
cored holes were drilled by a previous prospector into the Santa
Rosa vein in 2002 intersecting 0.37 m to 2.10 m of significant
silver, copper and zinc mineralisation.

278

2.7 Environmental issues and management

PRA1 8.2

2.7.1 Legislation
The Company adhere to the requirements of the Laws of the country in which they operate,
namely:
Peru:

Decreto Ley No. 17752

DS016-93-EM
DS-029-94-EM
RM011-96-EM/VMM
RM315-96-EM/VMM
DS038-98-EM
DS074-2001-PCM
DS-049-2001-EM
Ley 28090
Regulation Asociada Voluntaria Solo Unidad Ares
Ley 27314
DS042-2003-EM
DS046-01-EM
Annexo DS 020-2005-EM
Ley 28611

1969
01/05/1993
18/06/1994
13/01/1996
19/07/1996
30/09/1998
24/06/2001
06/09/2001
14/10/2003
01/01/2004
2004
2004
25/07/2001
2005
15/10/2005

In Peru the supreme decree (DS016-93-EM) details the legal requirements for mining and the
general environmental legal code. It requires that mines operating prior to 1993 need to compile
a Programa de Adecuacion y Manejo Ambiental or PAMA. Mines established after 1993 have to
compile an Environmental Impact Assessment (EIA). Thus a PAMA was compiled for Arcata and
EIAs for Ares and Selene. The government accredits consultants who are suitably qualified to
compile EIAs /PAMAs.
In order to establish a mine in Peru one needs to apply to the Ministry of Energy and Mines
(MEM) for a beneficiation plant title or a permit to construct a processing plant. For this title you
need to have done the following:
) Obtain a water use authorization from the Dept. of Agriculture (INRENA)
) Obtain a water abstraction authorization from the Health Ministry (DIGESA)
) Have an approved Community Development Plan (DS 042-2004) from MEM
) Have an approved Environmental Impact Assessment (EIA) from MEM who have to consult with
other departments particularly INRENA.
) Have a permit to use and store explosives from the Interior Ministry (DISCAMEC)
Argentina: National Environmental Mining Law 24.585
In order to establish a mine in Argentina one needs to apply to the regional authority, in the case
of San Jose the General Mining Department DPM, Rio Gallegos, Santa Cruz. At each stage of
development, exploration, Manifestation of Discovery and exploitation a separate EIA is
required. All the other statutory authorisations required are listed in Table 2-24.

al Ambiente (General law of Ecological

Mexico: Ley General de Equilibrio Ecologico
y Proteccion
Equilibrium and Environmental Protection) submitted to SEMARNAP (Secretary of the
Environment, Natural Resources and Fishing)
The environmental legal requirements for mining in Mexico are relatively simple. There is a
requirement for baseline study (EIA) to be submitted prior to commencement of work. In the case
of brownfield operations management of past liabilities are excluded from the new operators
responsibilities. The EIA for Moris mine has lapsed, and this will have to be reinstated prior to
commencing work. The only current permits at the San Felipe prospect are those associated with
drilling.
279

2.7.2 Status
The Peru operations, Selene, Arcata and Ares, all demonstrate very good environmental
mine was previously
management practices and are ISO 14001:2004 certified. The closed Sipan

certified to ISO 14001. The Argentine site, San Jose , is at an advanced state of development and is
due to start production in 2007. It has a full environmental management system, is managed in
line with ISO and Company requirements and is planned to be certified to ISO 14001 in 2007.
The Ares and Selene mines are relatively new and the infrastructure is modern and designed to
best international practice. The Arcata mine is older but the environmental aspects are well
controlled. Environmental assessments and reports are generated by external companies with
recognised international expertise and are of good quality.
The Peruvian and Argentinian operations are operating with the necessary environmental permits
and authorizations. Compliance with legislation is checked regularly and statistics on permit
compliance are compiled and reviewed monthly. The permits and necessary documentation for
the Pallancata deposit are well advanced and will be in the name of the joint venture
partners /lease holders of the property prior to commencement. The studies and permits for the
extensions required at Selene to accommodate Pallancata production are being actioned. An EIA
for the Moris mine will have to be resubmitted. The status of permitting for the San Felipe
prospect area is in order.
in Peru discharge water to the
All the underground mines and the closed open pit mine (Sipan)
natural environment. The qualities currently discharged meet Peruvian law and international
standards and this has been achieved by settling out the suspended solids (all mines) and by active

treatment to reduce acidity (Sipan).

The long term implications of the discharge of water from the
workings, from tailings and rock dump seepage, which could resulting acid rock drainage, needs
and is
to be better understood by the Company. Acid drainage is currently generated at Sipan
being treated in three active liming plants. Costs of water treatment and site management at
are of the order of USM$1 per annum and are budgeted. Other sites do not currently
Sipan
generate acid drainage but, with the exception of San Jose in Argentina, the Acid/Base status of
the operations rock strata is not well understood. The limited analyses performed so far indicates
that there is potential for future acid drainage and this continually assessed as it is the most
significant residual environmental liability. Costs for treatment, if necessary, are unlikely to exceed
US$M0.5 per site per annum.
There has, in the past, been minor leakage of tailings to the Huisca Huisca lake below the Arcata
operation. The quantity is minimal and the cost of closure is included in the Arcata closure plan.
There are reportedly no environmental fines outstanding nor have there been significant
environmental fines or legal disputes in the past. A single fine, of approximately US$10,000, was
imposed in 2003 for an excess of arsenic in water discharged from Arcata. The fine was rescinded
as it was proved that the levels of arsenic were as a result of natural intrinsic water values.
Safety management systems are being developed in accordance with the requirements of OSHAS
18001, and the intention is to obtain certification in 2007. Occupational health examinations are
conducted on all employees and contractors, prior to employment, and annually thereafter. A
total of 11 cases of impaired lung function (silicosis) have been identified over the last 4 years (all
contractors), and where necessary these persons have been reallocated to different work areas.
2.7.3 Provision for rehabilitation
The company uses the best international standards for their compilation of documents and
designs and is implementing their policy of closing facilities as the life of the mines progress in
order to reduce liabilities at the end of the mine life. Draft closure plans and estimates of closure
costs have been generated by recognised consultants. These plans are now being revised by a
single consultancy (Walsh) for formal submission to the Peruvian government on 15 August 2006
in order to comply with the new legislation requiring closure plans and the deposition of monies
280

on an annual basis to enable these closure plans to be enacted at the end of an operations life.
Evaluation of the existing drafts, and of the summarised budget allocations for closure, indicates
that for the most part, the work planned, and the financial allocations for closure are in line with
no cost allocation has been made for the
international best practice. However, apart from Sipan,
ongoing treatment of acid waters. In the absence of detailed acid /base analysis the possibility of
cannot be predicted. However the
acid generation in the future from sites other than Sipan
practical experience to date has been that none of the sites have generated acidity, and there are
no significant levels of heavy metals entering into solution, thus future acid generation risks are
considered to be low. The San Jose EIA contains a competent assessment of the ARD and proposes
satisfactory control measures for the management of the risk. Total current estimates of closure
costs for the Peruvian operations are a little over US$19 million, with additional amounts
budgeted for ongoing maintenance for 5 to 10 years per site. The Moris mine closure estimate by
the seller is US$900,000, by their calculations, Hochschild has allowed for US$1.35 M to
rehabilitate it to Mexican national standards
2.8 Statutory authorisations
IMC reviewed the statutory authorisations for the mines and operations and believes all contracts
and permits are in place with the exceptions noted. IMC has not completed a legal due diligence
of the titles.
2.8.1 Peru
The law of Peru grants the right to explore or exploit minerals by means of a mining concession
and mining licence. 100 hectares (ha) is the basic unit for newly claimed mineral concessions and
1,000 ha the maximum unit. The concession is irrevocable and indefinite as long as its holder fulfils
the obligations prescribed by law to maintain them. There is no limit to the number of concessions
that may be held by a company or individual. From year 2001, the concession holder must pay an
annual rent of US$3.00/ha by 30 June of each year (previously since 1991 it was of US$2.00/ha).
The concession holder must sustain a minimum level of annual commercial production of
US$100/ha in gross sales within six years of the granting of the concession. If the concession has
not been put into production within that period, then the concession holder must make an
additional penalty payment of US$6.00/ha for the 7th to 11th year following the granting of the
concession and of US$20.00/ha thereafter. The concession holder shall be exempted from the
Penalty if the investment made during the previous year was 10 times the Penalty (i.e. US$60/ha
per year for the 7th through to 11th year). The concession can be defended against possible claims
by third parties, transferred or sold, leased, mortgaged and may be inherited. The mining
concession requires a number of permits and licences before exploitation can commence. The
prime requirements are an approved Environmental Impact Assessment (EIA) and Environmental
Management Plan (EMP) without which no approvals will be given; the surface rights; an
operating mine permit and an operating plant and plant capacity authorisation. A number of
other permits for water use, storage and use of explosives, an administrative and a benefit
authorisation, fuel use and storage, electricity generation chemical use and the use of X-ray
equipment are also required depending on the operation. Many of these permits and licences are
granted on a permanent basis and other are renewable annually.
The Company either holds, in its name or that of a subsidiary, or leases from a third party the
mineral right concessions to Arcata, Ares and Selene operations and San Martin prospect as
summarised in Table 2-131 to Table 2-22. Additionally, the Company has title to the mineral rights
through its joint venture agreements to Pallancata. The Company owns the surface rights to
Arcata and easement contracts to the surface at Ares and Selene operations, the Pallancata
project and the San Martin prospect, and the Company also possess all of the necessary licences
and permits to operate, construct or explore as relevant. Application has been made for
1

subject to the payment of an annual fee

281

underground exploration development at Pallancata enabling this project to proceed whilst

operational permits are being prepared and these are expected prior to the expiry of the
exploration development. The EIA and EMP for Pallancata have been approved.
Table 2-13 Mineral rights concessionsArcata, Peru
Concession name

Arcata 5 ****************************************************
Arcata 2000 *************************************************
Calvario 1 ***************************************************
Calvario 2 ***************************************************
Calvario 7 ***************************************************
Calvario 11**************************************************
Calvario 14**************************************************
Calvario 20**************************************************
Calvario 21**************************************************
Calvario 22**************************************************
Calvario 23**************************************************
Calvario 24**************************************************
Calvario 110*************************************************
Calvario 4A *************************************************
Calvario 50**************************************************
La Marcarena ***********************************************
Marion 1****************************************************
Marion 2****************************************************
Marion 28 **************************************************
Marion 29 **************************************************
Marion 30 **************************************************
Marion 31 **************************************************
Marion 32 **************************************************
Marion 101 *************************************************
Marion 102 *************************************************
Marion 103 *************************************************
Marion 104 *************************************************
Marion 105 *************************************************
Marion 106 *************************************************
Marion 107 *************************************************
Marion 108 *************************************************
Marion 109 *************************************************
Marion 110 *************************************************
Marion 111 *************************************************
Marion 112 *************************************************
Marion 113 *************************************************
Marion 114 *************************************************
Marion 115 *************************************************
Marion 116 *************************************************
Marion 117 *************************************************
Marion 118 *************************************************
Marion 119 *************************************************
Marion 120 *************************************************
Marion 121 *************************************************
Marion 122 *************************************************
Marion 123 *************************************************
Marion 131 *************************************************
Marion 132 *************************************************
Marion 133 *************************************************
Marion 134 *************************************************
Marion 135 *************************************************
Marion 136 *************************************************
Marion 137 *************************************************
Marion 138 *************************************************
Marion 139 *************************************************
Marion 140 *************************************************
Marion 141 *************************************************
Marion T-1 **************************************************
Marion T-3 **************************************************
Marion T-4 **************************************************
Rema 1 *****************************************************

282

Concession code

Minerals

Date 1st
registration

Renewal

010249094
010199500
010082102
010082202
01001942X01
01002672X01
01002675X01
01002690X01
01002691X01
01002692X01
01002693X01
01002694X01
01004520X01
01001523X01
01002899X01
01000198X01
01004792X01
01004793X01
01004948X01
01004949X01
01004950X01
01004951X01
01004952X01
01005778X01
01005779X01
01005780X01
010214802
010214902
010215002
010215102
010215202
010215302
010215402
010215502
010215602
010215702
010215802
010215902
010216002
010216102
010216202
010216302
010216402
010216502
010216602
010216702
010217502
010010903
010011003
010011103
010011203
010011303
010011403
010011503
010011603
010011703
010011803
010033694
010033894
010050894
010607995

Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals

28-Apr-94
04-Oct-00
16-May-02
16-May-02
27-Mar-63
27-Feb-68
27-Feb-68
22-Mar-68
22-Mar-68
22-Mar-68
22-Mar-68
22-Mar-68
28-Aug-80
07-Mar-60
12-Sep-68
26-Apr-52
06-Apr-82
06-Apr-82
09-Sep-82
09-Sep-82
09-Feb-82
09-Sep-82
09-Sep-82
15-Apr-88
15-Apr-88
15-Apr-88
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
15-Nov-02
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
14-Jan-03
20-Jan-94
20-Jan-94
27-Jan-94
02-Jan-95

Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*

Concession name

Rema
Rema
Rema
Rema

Concession code

Minerals

Date 1st
registration

Renewal

010607695
010607495
010728595
010728695

Metals
Metals
Metals
Metals

02-Jan-95
02-Jan-95
28-Apr-95
28-Apr-95

Permanent*
Permanent*
Permanent*
Permanent*

3 *****************************************************
4 *****************************************************
5 *****************************************************
6 *****************************************************

* subject to the payment of an annual fee

Table 2-14 Licences or permits to operateArcata, Peru

Description

Number of license or permit

Administrative Economic Unit (Concessions agrupment) *******************

Benefit Concession *****************************************************
Plant Operating and Capacity Authorization *****************************
Surface Rights on Plant, Camps and other facilities ***********************

Operating Mine Certificate**********************************************

Environmental Management Program/Environmental Impact Study
Approval ************************************************************
Water Use Permit ******************************************************
Discharge Water Authorisation ******************************************
Explosive Use License ***************************************************
Magazine Explosives Storage License ************************************
Liquid Fuel Consumers Register******************************************
Chemical Products Use Certificate ***************************************
Generator of electric energy Authorisation*******************************
X Ray Use Authorisation ************************************************

RL 0513-2001-RPM
RD 678-65
RD 502-71EM/DGM/R.D.28/03/05
Land Owner Contract
(Asientos C3 de Partidas N
4000076 y 40000132)
COM 094-2006
PAMA RD 039-2003EM/DGM
RA 080/081/082/083/0842002-AG-DRAA-ATDR.CM
RD 1203-2005-DIGESA/SA
RD 001697/2006-IN-1703-2
R.D. N 01797-2005-IN1703-2
NR 002-CDFJ-04-2004
20192779333-DICIQ
RM 121-2001-EM/VME
N
Licencia de Instalacion
2526.B3

Renewal

Permanent
Permanent
Permanent
Permanent

03-Jan-07
Permanent
Permanent
09-Aug-07
31-Dec-06
19-Jul-10
Permanent
20-May-08
Permanent
23-Jun-07

Table 2-15 Mineral rights concessionsAres, Peru

Concession name

Claudia 9 ****************************************************
Claudia 10 ***************************************************
Claudia 15 ***************************************************
Claudia 19 ***************************************************
Laguna 11 ***************************************************
Laguna 12 ***************************************************
Laguna 13 ***************************************************
Laguna 14 ***************************************************
Laguna 15 ***************************************************
Laguna 16 ***************************************************
Laguna 17 ***************************************************
Laguna 18 ***************************************************
Laguna 19 ***************************************************
Rescate 2 ****************************************************
* subject to the payment of an annual fee

283

Concession code

Minerals

Date 1st
registration

Renewal

010058396
010058496
010063796
010389697
01005875X01
010011092
010011192
010011292
010011392
010011492
010011592
010011692
010011792
010012094

Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals

14-Feb-96
14-Feb-96
19-Feb-96
07-Nov-97
03-Nov-88
22-Sep-92
22-Sep-92
22-Sep-92
22-Sep-92
22-Sep-92
22-Sep-92
22-Sep-92
22-Sep-92
11-Jan-94

Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*

Table 2-16 Licences or permits to operateAres, Peru

Description

Number of license or permit

Administrative Economic Unit (Concessions agrupment)****************

RD 125-98-EM-DGM
Benefit Concession **************************************************
RD 049-96-EM-DGM
Plant Operating and Capacity Authorisation **************************
RD 049-96-EM-DGM
Surface Rights on Plant, Camps and other facilities ******************** Easement contract (Asiento B3 y
B4 de Partida N 4031351)
Operating Mine Certificate ******************************************
COM 072-2006
Environmental Impact Study Approval ********************************
EIA RD 277-2001-EM/DGAA
Water Use Permit* ************************************************** RA 50-2000-AG-DRAA-ATDR.CM
Discharge Water Authorisation* *************************************
R. 1679-2005/DIGESA/SA
Explosive Use License ************************************************
R.D. N 1815-2006-IN-1703-2
Magazine Explosives Storage License *********************************
R.D. N 1777-2002-IN-1703-2
Liquid Fuel Consumers Register **************************************
N 0017-CDFJ-04-2004
Chemical Products Use Certificate ************************************
20192779333-DICIQ
Generator of electric energy Authorisation ***************************
RM 333-98-EM/VME

X Ray Use Authorisation *********************************************

Licencia de Instalacion
N2527.B3

Renewal

Permanent
Permanent
Permanent
02-Oct-24
13-Dec-06
Permanent
Permanent
07-Nov-06
31-Dec-06
16-Feb-07
Permanent
20-May-08
Permanent
23-Jun-07

Note:
* Water use permits and discharge water authorization are permanent requiring the payment of annual fees provided
there is no change in the technical requirement or increase in usage.

284

Table 2-17 Mineral rights concessionsSelene, Peru

Concession name

Augusta Elena Tercera****************************************

Blanca 1 *****************************************************
Blanca 2 *****************************************************
Blanca 5 *****************************************************
Blanca 6 *****************************************************
Blanca 10****************************************************
Blanca 11****************************************************
Blanca 12****************************************************
Blanca 13****************************************************
Blanca 14****************************************************
Blanca 15****************************************************
Blanca 17****************************************************
Blanca 19****************************************************
Cruz Del Sur 2 ***********************************************
Marco 4 *****************************************************
Marco 3-A ***************************************************
Palca Dos ****************************************************
Palca Tres****************************************************
Palca Uno ***************************************************
Puca Corral 54 ***********************************************
Puca Corral 55 ***********************************************
Puca Corral 66 ***********************************************
Puca Corral 67 ***********************************************
Puca Corral A ************************************************
Tumiri *******************************************************
Tumiri Cuatro ************************************************
Tumiri Dos***************************************************
Tumiri Tres **************************************************

Concession code

Minerals

Date 1st
registration

Renewal

05003723X01
010007094
010007194
010007494
010007594
010286396
010286496
010286596
010286696
010286796
010286896
010081000
010063203
010213193
010044592
010044492A
05005813X01
05005814X01
05005812X01
05005851X01
05005852X01
05005863X01
05005864X01
010101199
05004166X01
05005809X01
05004167X01
05004168X01

Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals

23-Nov-70
11-Jan-94
11-Jan-94
11-Jan-94
11-Jan-94
17-Sep-96
17-Sep-96
17-Sep-96
17-Sep-96
17-Sep-96
17-Sep-96
02-May-00
03-Mar-03
30-Sep-93
04-Dec-92
04-Dec-92
20-Oct-83
20-Oct-83
20-Oct-83
07-Dec-83
07-Dec-83
07-Dec-83
07-Dec-83
05-Aug-99
16-Aug-76
04-Oct-83
16-Aug-76
16-Aug-76

Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*

Note:
* subject to the payment of an annual fee

Table 2-18 Licences or permits to operateSelene, Peru

Description

Number of license or permit

Administrative Economic Unit (Concessions agrupment) *******************

Benefit Concession *****************************************************
Plant Operating and Capacity Authorisation******************************
Surface Right on Plant, Camps and other facilities ************************

Operating Mine Certificate**********************************************

Environmental Impact Study Approval ***********************************
Water Use Permit ******************************************************
Discharge Water Authorisation ******************************************
Explosive Use License ***************************************************
Magazine Explosives Storage License ************************************
Liquid Fuel Consumers Register******************************************
Chemical Products Use Certificate ***************************************
Generator of electric energy Authorisation*******************************
X Ray Use Authorisation ************************************************

285

RJ 01243-2002-INACC/J
RD 103-2004-MEM/DGM
RD 103-2004-MEM/DGM/RD
159-2006-MEM/DGM
Easement contract (Asiento
D3, D4, D5 y D6 de Partidas
N 11009999 y 11009998)
COM 020-2006
EIA RD 010-2003-EM/DGAA/
R.D 059-2005-MEM/DGAAM
R 071-072-2002-DRAAP/ATDR-AP
RD 1633/2005/DIGESA/SA
RD 001589/2006-IN-1703-2
R.D. N 01394-2005-IN-17032
N N 0001-CDFJ-03-2006
20192779333-DICIQ
RM 337-2004-EM/DM

Licencia de Instalacion
N 2528.B3

Renewal

Permanent
Permanent
Permanent
07-Nov-25

28-Nov-06
Permanent
Permanent
10-Oct-07
31-Dec-06
08-Jun-10
Permanent
20-May-08
Permanent
23-Jun-07

Table 2-19 Mineral rights concessionsPallancata, Peru

Concession name

Au Dos Mil **************************************************

Don Nico Tres ************************************************

Iniko
Tres ****************************************************
Jelway*******************************************************
La Tranca 2003 ***********************************************
Orovega 500 *************************************************
Orovega 800 *************************************************
Pallancata 2002 **********************************************
Pallancata ***************************************************
Pallancata No. 1 *********************************************
Pallancata Sur************************************************
Tusca 2002***************************************************
Tyler Two ****************************************************
Virgen del Carmen 1 *****************************************

Concession code

Minerals

Date 1st
registration

Renewal

010164602
010209202
010010304
010082704
010042303
010041903
10212404
010195002
10009751X01
10000049Y02
010366005
010151702
010342903
10010594X01

Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals
Metals

02-Sep-02
16-Nov-02
07-Jan-04
05-Apr-04
03-Mar-03
03-Mar-03
08-Jun-04
01-Oct-02
14-Oct-80
14-Oct-80
11-Nov-05
02-Sep-02
28-Oct-03
01-Aug-83

Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*
Permanent*

Note:
* subject to the payment of an annual fee

Table 2-20 Licences or permits to operatePallancata, Peru

Description

Number of license or permit

Surface Right on Plant, Camps and other facilities ************************

Easement
contract/LandOwner
(Asientos D2 y A1 de
Partidas N 11014296 y
11016378)
R.D 361-2006-MEM/AAM

Environmental Impact Study Approval ***********************************

Renewal

15-Feb-26

28-Aug-07

Table 2-21 Mineral rights concessionsSan Martin, Peru

Concession name

Cayarani 13 **************************************************
Cayarani 15 **************************************************
Chulca 123***************************************************
Marco 7 *****************************************************
Marco 8 *****************************************************

Concession code

Minerals

Date 1st
registration

Renewal

010280796
010280996
010279796
010046092
010046192

Metals
Metals
Metals
Metals
Metals

16-Sep-96
16-Sep-96
16-Sep-96
15-Dec-92
15-Dec-92

Permanent*
Permanent*
Permanent*
Permanent*
Permanent*

Note:
* subject to the payment of an annual fee

Table 2-22 Licences or permits to operateSan Martin, Peru

Description

Number of license or permit

Surface Right on Plant, Camps and other facilities ************************

Environmental Impact Study Approval ***********************************

Easement contract
R.D 103-2006-MEM/AAM

Renewal

10-Jan-08
30-Jul-06*

Note:
* renewable on advancement of project

2.8.2 Argentina
Argentinian statute requires mineral exploration and exploitation to be licensed in three stages:
exploration; manifestation and exploitation. Exploration permits on a cateo grant the rights to
any mineral discoveries including those made by a third party within the boundaries. Cateos are
measured in 500 ha units, or fractions thereof. No single cateo may exceed 10,000 ha (20 units),
and no person may hold more than 200,000 ha (20 cateos) in a single province. The exploration
area within a cateo may be contiguous or separated. The holder of a cateo must assess the mineral
potential within his exploration boundary (and apply for an exploitation right) within a time
period based on the size of the cateo. The exploration term is 150 days for the first 500 ha (1 unit)
286

or fraction thereof, and an additional 50 days for each additional unit (or fraction thereof) within
the cateo. After 300 days, 50 per cent. of the exploration area over 2,000 ha (4 units) within the
cateo must be relinquished. At 700 days, 50 per cent. of the remaining area must be dropped.
Time extensions are regularly granted. The holder of a cateo must present to the mining authority
a minimum exploration work program and schedule. The cateo may be revoked if the
requirements of the work program and schedule are not met. A single-time fee of ARS $400 (400
Argentina Pesos) per 500 ha (1 unit) must be paid upon application for a cateo. A cateo is
developed into a Manifestation of Discovery if proved promising and an approved survey
submitted and an EIA/EMP should a mining permit for exploitation be requested. The
manifestations are then consolidated into one unit comprising the Mining Concession. The
operator is required to either purchase or lease surface rights to access and operate. Within a year
of the consolidation an investment plan must be submitted used by the authorities to determine
royalty payments during the production phase. Various other operating permits, licences and
registrations are required to operate.
San Jose permitting is summarised in Table 2-23 and Table 2-24.
Table 2-23

Mineral rights concessionsSan Jose

Concession name

Concession code

Minerals

Date 1st
registration

Status

Mine application

Cateo *********

403.089/MSC/01

All minerals

12-Dec-01

Exploration

Expected end Nov/Dec 06.

El Pluma 1 ****

410.411/MA/99

All minerals

16-Apr-99

Manifestation of
Discovery (MoD)

Expected end Nov/Dec 06.

El Pluma 2 ****

412.277/MA/99

All minerals

22-Nov-99

(MoD)

Expected end Nov/Dec 06.

El Pluma 3 ****

412.279/MA/99

All minerals

22-Nov-99

(MoD)

18-Aug-06*

El Pluma 4 ****

412.281/MA/99

All minerals

22-Nov-99

(MoD)

18-Aug-06*

El Pluma E1 ***

410.412/MA/99

All minerals

16-Apr-99

(MoD)

09-Aug-06*

El Pluma E2 ***

412.278/MA/99

All minerals

22-Nov-99

(MoD)

09-Aug-06*

El Pluma E3 ***

412.280/MA/99

All minerals

22-Nov-99

(MoD)

18-Aug-06*

Saav NE1******

400.625/MA/01

All minerals

21-Mar-01

(MoD)

Expected end Nov/Dec 06.

Saav NE2******

400.626/MA/01

All minerals

21-Mar-01

(MoD)

Expected end Nov/Dec 06.

Saav NE3******

400.627/MA/01

All minerals

24-Mar-01

(MoD)

Expected end Nov/Dec 06.

Saavedra 3 ****

410.096/MA/99

All minerals

10-Mar-99

(MoD)

Expected end Nov/Dec 06.

Saavedra 4 ****

410.095/MA/99

All minerals

10-Mar-99

(MoD)

Expected end Nov/Dec 06.

Saavedra 5 ****

410.089/MA/99

All minerals

10-Mar-99

(MoD)

Expected end Nov/Dec 06.

Saavedra 8 ****
Saavedra 9 ****
Saavedra 10 ***
Saavedra 11 ***
Saavedra 12 ***
Saavedra 13 ***
Saavedra 14 ***
Saavedra 1a ***
Saavedra 2a ***
Saavedra 6b***
Saavedra 7a ***
Tres A ********
Tres B*********
Tres C*********
Tres D ********
Tres E *********
Tres F *********
Tres Colores A
Tres Colores B
Tres Colores C
Tres Colores D
Tres Colores E
Tres Colores F
Tres Colores G

410.092/MA/99
413.396/MA/00
413.395/MA/00
401.874/MA/01
401.875/MA/01
401.876/MA/01
401.877/MA/01
410.093/MA/99
410.091/MA/99
410.094/MA/99
410.090/MA/99
411.333/MA/99
411.334/MA/99
414.264/MA/00
414.265/MA/00
414.266/MA/00
414.267/MA/00
411.332/MA/99
411.331/MA/99
414.642/MA/00
414.640/MA/00
414.643/MA/00
414.641/MA/00
414.639/MA/00

All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All
All

10-Mar-99
06-Apr-00
06-Apr-00
02-Aug-01
02-Aug-01
02-Aug-01
02-Aug-01
10-Mar-99
10-Mar-99
10-Mar-99
10-Mar-99
04-Aug-99
04-Aug-99
24-Jul-00
24-Jul-00
24-Jun-00
24-Jun-00
04-Aug-99
04-Aug-99
01-Sep-00
01-Sep-00
01-Sep-00
01-Sep-00
01-Sep-00

(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)

Expected end Nov/Dec

Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
09-Aug-06*
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec
Expected end Nov/Dec

minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals

287

06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.
06.

Concession name

Concession code

A ********
B ********
C ********
D ********
E ********
F*********
G ********
H ********
I *********

413.095/MA/00
413.096/MA/00
413.097/MA/00
400.765/MA/01
400.766/MA/01
400.764/MA/01
401.507/MA/01
401.508/MA/01
401.509/MA/01

Uno
Uno
Uno
Uno
Uno
Uno
Uno
Uno
Uno

Minerals

All
All
All
All
All
All
All
All
All

minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals
minerals

Date 1st
registration

Status

06-Mar-00
06-Mar-00
06-Mar-00
04-Apr-01
04-Apr-01
04-Apr-01
20-Jun-01
20-Jun-01
20-Jun-01

(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)
(MoD)

Mine application

Expected
Expected
Expected
Expected
Expected
Expected
Expected
Expected
Expected

end
end
end
end
end
end
end
end
end

Nov/Dec
Nov/Dec
Nov/Dec
Nov/Dec
Nov/Dec
Nov/Dec
Nov/Dec
Nov/Dec
Nov/Dec

06.
06.
06.
06.
06.
06.
06.
06.
06.

Note:
* concessions encompassing reserves /resources and facilities

Table 2-24 Licences or permits to operateSan Jose

Licence

Authority

Date/Comment

Mining Concessions*************************

General Mining Department

DPM, Rio Gallegos, Santa Cruz

Awaiting approval. Annual fees.

Consolidation of Concessions ****************

DPM, Rio Gallegos, Santa Cruz

Consolidation of mining titles into

one unit. Commences after
granting of individual titles.

National Law of Mining Investments (LIM) n

24.196 ***********************************

DPM, Rio Gallegos, Santa Cruz

Awaiting approval. Annual royalty

payments.

Environmental Impact Report ***************

DPM, Rio Gallegos, Santa Cruz

Exploration Phase approved.

Exploitation Phase approved
14-Mar-06.

Mineral Producers Certificate.

Register number: 403.305/02 **************

DPM, Rio Gallegos, Santa Cruz

Registered 29th January 2002.

Annual fee.

Mineral Treatment Plant Commercial licence

Public Registry of Industry and

Commerce. DPM, Rio Gallegos,
Santa Cruz

Registered to commence June

2006.

Mineral Transport Guides *******************

DPM, Rio Gallegos, Santa Cruz

Annual.

Environmental Department
(SMA), Rio Gallegos, Santa Cruz

Registered 2nd May 2006. Annual.

National Arms Registry (RENAR),

Buenos Aires

Registered 31st May 2006. Annual

Import/Export National
Administration (ADUANA),
Buenos Aires

28th January 2004.

Department of Water Resources

(RRHH), Rio Gallegos, Santa Cruz

Granted 2002.

Water Use *********************************

Department of Water Resources

(RRHH), Rio Gallegos, Santa Cruz

7th July 2006 for 5 years. Permit

to use average of 62 m3/h during
the first five years.

Radio Frequency Use ***********************

National Committee of
Communications (CNC), Buenos
Aires

Authorisation issued. Quarterly

fee.

National Secretary of Energy,

Buenos Aires

To be submitted on completion of
detailed

Transport Permits for Personnel and Goods **

Provincial department of
Transport (DPT), Rio Gallegos,
Santa Cruz

Contractor responsibility.

Independent generator of energy ***********

Secretary of Energy, Santa Cruz

To be submitted on completion of
detailed design.

Public Registry of Hazardous Waste Operators

and Generators. Resolution N 046-SMA/06,
of 2nd May 2006 *************************
Explosives Use and Storage. Registry N
980007082, of 31st May 2006. *************
Registry of Importers /Exporters**************

Drilling in Search of Water.

DPRH/CAP/No. 003/2002*******************

Hydrocarbon tank Certification and Storage

of Hydrocarbons *************************

288

Licence

Authority

Date/Comment

Registry of Mining Investors*****************

National Directorate of Mining

Investors, Buenos Aires

Registered. No 422 15-May-06

granted National Tax fiscal
stability.

Fiscal Stability Certificate (CEFC) *************

National Directorate of Mining

Investors

15-Jun-06 granted Provincial Tax

fiscal stability in progress

National Mining Secretary,

Buenos Aires

Annual affidavits submitted and

approved.

LIM Stipulations on investment and

environmental remediation ***************

2.8.3 Mexico
Mexican mining law is based on article 27 of the Mexican Constitution, which establishes that all
minerals found in Mexican territory are owned by the Mexican nation, and that private parties
may exploit such minerals (except oil and nuclear fuel minerals) through a concession granted by
the Federal Government. This system has been in place essentially since the Spanish colonization
of Mexico, when minerals were owned by the King of Spain. Article 27 is the Mining Law of 1992,
and its current enabling Regulations were issued by the President of Mexico in 1999.
Concessions are initially granted for exploration for a period of six years; an exploitation
concession for fifty years, renewable once for an equal term, may be requested at any time before
the end of the exploration concession. Exploration concessions are granted to whoever first
requests them and may only be granted to Mexican individuals and companies incorporated
pursuant to Mexican law, with no foreign ownership restrictions for such companies. However,
the Mining Law implies that foreigners must establish a wholly owned Mexican corporation for
that purpose, or enter into joint ventures with Mexican organisations.
All concessions must be registered on the Public Registry of Mining. While a mining concession
gives its holder the right to carry out mining work and take ownership of any minerals, it does not
automatically grant any surface access rights, which must be negotiated separately with the
owner of the surface land. If no agreement can be reached with the surface owner there is a right
in law to apply to the General Mining Bureau for the expropriation or temporary occupation of
the land, with a consideration, payable on a one time basis for expropriation and on a yearly basis
for temporary occupation. The mining concession also grants rights to any water obtained from
the mine. Any other water rights must be obtained separately.
The main obligations of a mining concession are the performance of assessment work, the
payment of mining taxes (duties) and the compliance with environmental laws. Regulations
establish minimum amounts that must be spent on exploration and/or exploitation activities. A
report must be filed in May of each year regarding the work done to allow the assessment of
Duties. Environmental laws require the filing and approval of an environmental impact statement
for all exploitation work, and for exploration work that does not fall within the threshold of a
standard issued by the Federal Government for mining exploration. Environmental permitting for
exploitation, where there is no local opposition, can be usually achieved in less than one year.
Moris permitting is summarised in Table 2-25 and Table 2-26.

289

Table 2-25 Mineral rights concessionsMoris (Mina Maria)

Title date
issue

Title date
(expiry)

Title no.

Type

San Luis ********************************************************* 19-Dec-91

Ampl.San Luis ***************************************************
6-Dec-89
Ampl. 2 a San Luis ***********************************************
16-Jul-93
Ampl. 3 a San Luis ***********************************************
3-Sept-93
Ampl. 4 a San Luis *********************************************** 30-Sept-93
Ampl. 5 a San Luis *********************************************** 23-Sept-93
Cerro Amarillo*************************************************** 19-Dec-91
Cerro Amarillo Dos*********************************************** 10-Oct-95
San Fransisco **************************************************** 19-Dec-91
Rosario********************************************************** 30-Sept-98
*********************************************************
El Cajon
16-Jul-93
Rome *********************************************************** 18-Dec-96

18-Dec-41
5-Dec-39
4-Jun-52
3-Dec-51
30-Aug-50
4-Mar-52
18-Dec-41
4-Nov-52
18-Dec-41
13-Dec-54
4-Mar-52
17-Feb-53

191640
184918
216945
214841
212103
215594
194008
218291
192781
223440
215593
219221

Exploitation
Exploitation
Exploration
Exploitation
Exploitation
Exploitation
Exploitation
Exploitation
Exploitation
Exploitation
Exploitation
Exploitation

Concession name

Table 2-26 Licences or permits to operateMoris (Mina Maria)

Description

Number of license or permit

Land Use *********************** SRN.38-97/2652

Function License **************** L.F.08-019-116-94

Renewal

Comment

Lapsed
28-Sept-00
Annual

New permit required after

acquisition.
Renewed by notice to the local
authorities.
Assignment required after
acquisition together with a
formal notice to the
environmental authorities.
Formal notice to the power
supplier required.
Assignment required after
acquisition.
New license or assignment
required after acquisition.
New permit required after
acquisition.

Operation Permit *************** Resolution 301 Environmental

Impact

05-Sept-08

Power************************** 28/AUT/95

Permanent

Water Rights ******************* 2CHI105434-09FMGE95

16-Jun-15

Health License ****************** 40774

Permanent

Blasting ************************ 2361-Chihuahua

Lapsed
31-Dec-00

Authorisation to Purchase
Explosive Material ************ 23352
Airstrip Authorisation *********** 101.202.1168 Provisional
Pilex Importation Programme**** PITEX/95-415

Altex Export Programme ******** 20/97

Lapsed
31-Dec-99
Lapsed
28-Feb-00
Lapsed 2Aug-00
Permanent

New authorisation required after

acquisition.
New permit required after
acquisition if put into use.
New permit required after
acquisition if embarking on
importation programme.
New permit required after
acquisition if embarking on
exportation programme.

IMC reviewed the mineral rights, access rights, statutory authorisations and joint venture
agreements for the mines and operations and believes that all rights, permits and contracts are in
place with the following exceptions. San Jose has made an application for the exploitation of the
reserves where approval has been granted and certification is expected in late July 2006. Most of
the permits and licenses for Moris mine (Mina Maria) have now lapsed and require renewal prior
to the resumption of production which, IMC understand, can be expedited within the required
timescale.
2.9 Costs
2.9.1 Operating costs
IMC examined the forecasts of operating costs for all operations as prepared by the management
of the Company. The forecasts were compared with actual costs in previous years and, where
considered appropriate, were modified following discussion with the Company. Operating costs
were incorporated into the cash flows prepared by IMC for the purposes of the valuation of the
Companys assets. IMC considers the production plans and budgets to be attainable.
290

2.9.2 Cash costs

The historic cash operating costs per ounce of silver produced is presented on two bases for the
years 2003 to 2005 and are summarised in Table 2.27. They are presented firstly with cash costs of
production pro rated on a co-product basis and secondly net of income credits for by-product sales
on a by-product basis.
Table 2-27 Net cash cost per oz of silver equivalent
2003

Net Cash Cost per oz of Silver Co-Product methodology *******************

Net Cash Cost per oz of Silver By-Product methodology********************

2004

2005

(US$ per oz)

(US$ per oz)

(US$ per oz)

0.89
(5.32)

2.53
(2.58)

2.34
(2.67)

N.B. the net cash cost per ounce quoted has been derived from the audited IFRS accounts set forth in Part IX

Income from the sales of by-products relates principally to gold.

2.9.3 Capital costs
Similarly, IMC examined the capital cost estimates prepared by management for the period of the
cash flows. Where considered appropriate, additions were made to the figures following
discussions with the companys management. The revised capital cost estimates were also
incorporated into the cash flows. IMC considers the production plans and budgets to be
attainable.
2.10 Risks and synergies
Section 7.0, Special Factors, refers to aspects of the business which may materially affect IMCs
valuation, i.e.
Risk
) The dependence on the use of mining contractors for mining operations. The Company does,
however employ a number of mining contracting companies and is not over reliant upon any
single Company.
Synergy
) The Company is based in a Spanish speaking country with experience of working in South and
Central American countries. It is, therefore, well placed to exploit opportunities in other Spanish
speaking countries within South and Central America.
2.11 Sales and marketing
Hochschild is a producer of silver and gold and associated by-products and has very detailed
market knowledge and expertise in these products.
IMC has viewed and confirm that all of the concentrate and dore is supplied to two customers. The

concentrate is supplied to the Penoles

smelter in Mexico and the dore to Johnson Matthey in Salt

after refining by Johnson

Lake City for refining. The concentrate is sold to Penoles
and the dore,
Matthey, is sold to Johnson Matthey and financial institutions. The Company has continued a
policy of supplying its product to only two customers as the agreements to date have been
equitable.
It is reported that Hochschild is currently the fourth largest primary silver producer globally
(having produced approximately 10.5 million ounces in 2005) and produces a significant quantity
of gold (approximately 233 thousand ounces in 2005).
291

2.12 Valuation of reserves

2.12.1 Lives of mines in valuation
The valuation of the mining assets of Hochschild has been based on lives of mines based on the
reserves, proven and probable, available to each of the mines as at the valuation date but
excluding any resources potentially available to each of the mines.
The normal operating strategy of Hochschild results in each of the mines only having available
reserves to support a mine life of between 2 to 4 years. The Company has a proven replacement
record.
2.12.2 Methodology and assumptions
The valuation of the Company has been performed using the discounted cash flow valuation
method on only the reserves owned by the Company. IMC performed the valuation based on the
operating costs, capital expenditures and revenues projected for Hochschild. The division of the
valuation to proved and probable reserves has been based on the amount of contained gold and
silver production attributable to either proved or probable reserves in any one year and the total
cash flow in that year pro-rated accordingly. IMC have assumed that proved reserves are worked
before probable reserves. Based on these results, depreciation, taxation and working capital
requirements were provided by the Company to IMC for inclusion in this valuation to prepare a
post-tax valuation with the allocation of the cash flow to proved and probable reserves as noted
previously. IMC has accepted the depreciation, taxation and working capital as provided and
accept no responsibility as to their accuracy.
The following key factors were considered in the valuation process.
Operating costs
The level of operating costs as scheduled in development of the Net Present Value
(NPV) calculations is sufficient to both maintain current production capacity and to promote
limited replacement production capacity where required and within the limit of the reserves
available to the mine. Operating costs which would have been incurred in support of prolonging
the mine life beyond that quoted above based purely on reserves is excluded from the valuation.
Costs such as depreciation have been recalculated by the Company as if the mine were to close
upon exhaustion of the reserves. This results in tax calculated on the basis of financial results
based on the mine closure dates described above. Similarly, closure costs are included from the
time of closure described in section 2.7.3.
Capital expenditure
The level of capital expenditure as scheduled in development of the Net Present Value
(NPV) calculations is sufficient to both maintain current production capacity and to promote new
production capacity where required and is within the mine life based purely on reserves. Capital
forecasts include expenditures for replacing major equipment on a periodic basis, as well as
development capital for opening new areas for mining and installing additional processing
facilities where required. Capital expenditure which would have been incurred in support of
prolonging the mine life beyond that quoted above based purely on reserves is excluded from the
valuation.
Plant and equipment
The cost of maintaining, repairing and, where necessary, replacing items or components, is
included in the cash cost estimates or in the capital expenditure schedules. Except in instances
where equipment is planned to be transferred to another operation, plant and equipment have
not been valued separately. As the plant and equipment is an integral component in the
292

generation of the cash flows used to estimate the value of the reserves, the value of the plant and
equipment is included in the reserve value.
Residual value of some elements of plant and equipment is considered to be material due to the
relatively short mine lives included in the valuation and has been included, where deemed
appropriate, based on estimates supplied by the Company.
Selling price
The main products of the Company, namely silver and gold, are international commodities and
are subject to both short term and cyclical variations. The valuation model is based on forecast
prices of the major commodities (silver and gold) prepared by CRU.
Other key parameters
Other key valuation parameters used in the valuation include the following:
) The valuation is as at 30th June 2006.
) Cash flows are expressed in real terms and have been discounted according to end of year
convention,
) Cash flows are forecasted the mine life based on available reserves, and
) The NPV was calculated using a real discount rate of 6.0 per cent..
2.12.3 Valuation results
Table 2-28 to Table 2-31 summarise the value of the reserves both at the operational level and at
the post-tax level.
Table 2-28 Summary of valuation of proved and probable reservesBased on operating results
Proved reserves

Probable reserves

Total reserves

(US$ millions)

(US$ millions)

(US$ millions)

245.6

25.4

271.0

Base case valuation ***********************************************

Table 2-29 Summary of valuation of reservesBased on operating results

Real discount rate %

NPV
(US$ million)

+2%************************************************************************************************
+1%************************************************************************************************
6% *************************************************************************************************
-1% ************************************************************************************************
-2% ************************************************************************************************

264.5
267.7
271.0
274.4
277.9

Table 2-30 Summary of valuation of proved and probable reservesBased on post tax results

Base case valuation *****************************************************

Base case valuation *****************************************************

293

Proved
reserves

Probable
reserves

Total reserves

(US$ millions)

(US$ millions)

(US$ millions)

173.6

37.2

210.8

Table 2-31 Summary of valuation of reservesBased on post tax results

Real discount rate %

NPV
(US$ million)

+2%************************************************************************************************
+1%************************************************************************************************
6% *************************************************************************************************
-1% ************************************************************************************************
-2% ************************************************************************************************

204.7
207.7
210.8
214.0
217.2

2.12.4 Sensitivity analysis

The business of mining and marketing metals and minerals contains variables that are not always
predictable. Potential variables include those directly associated with the mining and processing
operations, such as cost and production levels, as well as those that are external to the mining and
processing operations, such as market prices.
While IMC concludes that the NPV of the Hochschild operations, as presented above, is realistic
relative to the life of mine plans (based on reserves but not resources), a sensitivity analysis has
been prepared for the following variables.
Operating cost
This could vary as a result of changes in component costs, such as labour or supplies, or from
variances in productivity. IMC has calculated a sensitivity of plus 10 per cent. in operating cost.
Production
Production level can be affected by variances in productivity or market place demands. IMC has
calculated a sensitivity of minus 10 per cent. in production.
Capital cost
Variances in capital costs could result from quantity or market prices of capital items. IMC has
calculated a sensitivity of plus 10 per cent. in capital costs.
Silver and gold prices
IMC calculated the sensitivity impact of a minus 10 per cent. change in gold and silver prices.
A summary of the effect of sensitivity of the valuation of reserves to these variables is given in
Table 2-32.
Table 2-32 Sensitivity analysis of reserve valuation

NPV

Base case

Operating
cost
(+10%)

Production
(-10%)

Capital cost
(+10%)

Silver price
(-10%)

Gold price
(-10%)

271.0
210.8

248.6
192.4

249.5
199.0

264.1
204.2

243.0
189.1

245.5
190.9

(US$ million)

Based on operating results *******************

Based on post tax results ********************

2.13 Conclusions
IMC concludes from the independent technical review that:
) Managements geological and geotechnical knowledge and understanding is of a satisfactory
level to support short, medium and long term planning as appropriate and operations are well
managed;
) the mine plans appropriately consider geological and geotechnical factors to minimise mining
hazards;
294

) all statutory rights, permits and contracts are in place with the following exceptions. San Jose
has made an application for the exploitation of the reserves where approval has been granted
and certification is expected in late July 2006. Most of the permits and licenses for Moris mine
have now lapsed and require renewal prior to the resumption of production which, can be
expedited within the required timescale;
) the Companys mining equipment (either in place or planned in the capital forecasts) is suited to
its mine plans and is adequate, with minor adjustments, for the production plans;
) silver and gold ore processing plants and other infrastructure are capable of continuing to
supply appropriate quality products to the markets at the forecast production plans;
) the Companys policy of managing operations whilst engaging contractors to complete execute
the operations is a successful strategy providing flexibility. IMC believes that the Companys
relationship with the contractors is both good and effective;
) the Company has, as of 2006, instituted more stringent auditing of accident and incident
reporting with the introduction of OSHA 18001 planned for 2007. This has resulted in an
increase in the LTIFR as a result of more accurate reporting. The Company is firmly committed to
health and safety and is expected to demonstrate a sustained long term improvement.
) environmental issues are well managed and there are no issues that could materially impede
production nor are any prosecutions pending;
) the assumptions used in estimating both capital and operating costs are appropriate and
reasonable;
) capital and operating costs used in the financial models incorporating minor adjustments by
IMC reflect the mine plans, development and construction schedules and the forecast
production levels;
) special factors identified by IMC are well understood by management and appropriate action to
mitigate these risks is being taken. Further, the mine plans and cost forecasts appropriately
account for these risks; and
) management operates an excellent management accounting system and are able to monitor
and forecast production and cost parameters.
IMC has estimated the value of the Company silver and gold assets at an operating level as
US$271.0 million and at a post tax level as US$210.8 million assuming a real discount rate of 6.0
per cent., and product prices, capital and operating costs and production forecasts which are
soundly based.
3 Peru
IMC visited Arcata, Ares, Selene, Pallancata and San Martin between the 12th June and the
9th July 2006.

295

3.1 Maps and plans

Relevant maps and plans are included in Annex C as listed:
Plate 5 ************
Plate 6 ************
Plate 7 ************
Plate 8 ************

Plate 9 ************
Plate 10 ***********
Plate 11 ***********
Plate 12 ***********

Arcata mine: Surface map with location of principal veins and prospects.
Arcata mine: Longitudinal Profile of Mariana and Mariana Sigmoid veins
and map of principal geological features.
Ares mine: Surface map with location of veins and prospects and
principal geological features.
Ares mine: Longitudinal Profile of the Victoria Vein System, including
the main Victoria Vein and sub-parallel branches the Ramal Sur, Lula
and Ramal Victoria veins.
Selene mine: Surface map with principal geological features.
Selene mine: Longitudinal Profile of Explorador Vein and map of
principal vein outcrops.
Pallancata Project: Surface map with principal geological features.
Pallancata Project: Longitudinal Profile of Pallancata Vein and map of
vein outcrops.

3.2 Arcata
3.2.1 Geological characteristics
The Arcata mining unit exploits and is exploring further vein-hosted resources within a concession
area of 47,777 ha. This area occupies the north-eastern margin of a circular volcanic structure of
approximately 15 km diameter in which a rhyolite dome marks the centre. Vein orientations are
determined by the broadly arched fractures of the perimeter of this structure and the majority of
the principal veins occupy the line of sub-parallel normal faults of ENE-WSW, E-W and WNW-ESE
strike, with inclinations between 40 and 65. Vein widths vary from centimetre scale to over 10 m.
Vein texture shows several phases of mineralisation in which open voids show successively banded
fill and crystalline intergrowth. The mineralization corresponds to an IS epithermal deposit with
predominant silver values and variable quantities of gold and base metals. The Arcata veins show
a strong tendency to zoning, both vertically and horizontally. The top or outer zone of individual
veins is marked by chalcedony and fine quartz and associated argillic alteration with no metal
values of economic interest. With increasing depth the quartz is more coarsely crystalline and the
portion of the vein of economic interest is commonly marked by the presence of manganese
minerals (rhodonite and rhodochrosite) associated with strong banding of metallic sulphides. In
individual veins, such as the Mariana Vein, the top limit of economic mineralisation can be defined
but lower limits generally remain open.
The vein systems exploited in the earliest phase of working of the Arcata Mine are now
considered exhausted and include the Marion Vein System, comprising the Marion, Luisa, Ramal D
and Marciano veins, and the Baja-Alta Vein System. More recent production has centred on the
Tres Reyes Vein System at the southern margin of the Arcata mineralised area, and particularly in
the splay of veins at the south-east end of this system, and also sporadically on the Macarena Vein
System. Most recently exploration and development has centred on the Mariana Vein System at
the northern margin of the mineralised area, which includes the majority of reserves and which
currently supports the greater part of production.
The Mariana Vein System comprises the main ENE-WSW Mariana Vein and the related Alexia Vein
which is a steeply oblique spur, orientated NNE-SSW. These veins have only a weak and sporadic
expression at surface in comparison with their strong development at depth. At depth, at the
4,600 m level, the Mariana Vein is well-developed over a length of over 3 km with an average
width of around 0.80 m and locally up to 1.6 m. The dip of the vein is to the south. The vein
characteristically shows a brecciated structure which indicates a number of successive fault
movements, and which typically is reflected in a number of phases of mineralisation and higher
296

metal grades. The upper limit of economic mineralisation has been defined at a depth of around
150 m from the surface, but the mining potential remains open both laterally and in depth. The
Alexia Vein reflects oblique dilational strain between adjacent faults. It has been evaluated over a
length of 1,200 m and remains open at both extremes, although declining grades indicate that the
vein does not extend with economic value in depth. Vein width ranges up to over 2 m and this
vein shows similar brecciation and mineralisation to that in the Mariana Vein.
Successively south of the Mariana system, the Marion Vein System is currently abandoned, but
high gold values in the lower levels of working suggested a number of phases of mineralisation
which are still to be tested. The Macarena Vein System can be traced at outcrop as a broad
discontinuous arc over a distance of approximately 2 km but has only been sporadically worked in
the E-W trending central and western part of this trace and dips northwards. To the east, the trace
can be followed as a WNW-ESE structure which has not yet been evaluated and which is an
identified exploration target. A cluster of tensional fractures oblique to, and on the south side of,
the main vein are developed as the NNW-SSE veins M1, M2 and M3, with strike lengths of up to
500 m. These are currently in development and host significant reserves in vein widths of around
0.80 m.
Although the Baja-Alta Vein System has been worked extensively during the early phases of
operation of the mine, at its eastern end the Alta Vein, a sub-parallel branch to the system, known
over a strike of 1,600 m, contains currently developed reserves with an average width of 1.00 m.
Also, at the western extremity of the Baja-Alta Vein System, an unworked length of the Baja Vein
is known over an outcrop of 1 km with an indicative mineral assemblage suggesting significant
mineralisation at depth. This is identified as a priority exploration target and other sectors of the
system, including the central area are also considered to have the potential for significant
mineralisation in as yet unidentified ore-shoots in depth.
The Tres Reyes Vein was previously extensively worked in its western segment, but the central part
of the curved trace swings to a WNW-ESE strike and has only been sporadically accessed
underground. Strongly argillised alteration in this sector is known, and considered indicative of
significant potential for economic mineralisation at depth, and this is identified as a primary
exploration target. At its eastern end the system branches into a splay of NW-SE and WNW-ESE
veins comprising the group Ramal 1 through to Ramal 4. Ramal 2 is currently an important source
of production and in underground workings is known over a strike length of 1,100 m with vein
widths varying between 0.40 m to 3.00 m; it maintains economic values over a vertical extension in
excess of 500 m.
In addition to the main developed vein systems, the Arcata area includes a number of prospects
which are programmed for more detailed exploration. The Chumille Vein extends N-S from the
northern edge of the Marion Vein System across the line of the Mariana Vein System and has been
explored by underground core drilling from workings in the Mariana Vein System, which recorded
an intersection of 0.65 m wide with grades of 0.80 g/t of gold and 298 g/t of silver; the
mineralisation is similar to that of the Mariana Vein. The Pucara Vein is sub-parallel to the Mariana
Vein System at the eastern end of the latter and has been identified over a surface strike length of
1.5 km; one surface drillhole has indicated the potential for significant economic mineralisation at
depth. The Consuelo Vein is one of a number of structures with sporadic outcrop between the
Marion and Mariana vein systems, and one surface drillhole has intersected a narrow vein of
0.10 m with grades of 1.76 g/t gold and 1,056 g/t silver. The Looby Vein, at the eastern end of the
Marion Vein System, outcrops as a vein breccia over an E-W strike length of only 30 m, with a
width of 0.40 m to 1.00 m and surface core drilling has recorded an intersection of 0.70 m with
grades of 1.52 g/t of gold and 626 g/t of silver.
3.2.2 Reserves and resource statement
IMC has verified the reserves and resources presented by the Company on 30 June 2006 for
scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006.
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3.2.3 Losses and dilution

The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has
been applied to these figures.
Detailed survey methods are used in all the Peruvian operations to define the volume of the vein
material and the dimensions of extracted voids, defining a dilution factor derived from volume
differences. Dilution is also monitored by reconciliation of mined tonnage and grade with that
recorded at the process plant, allowing also for material in stocks and handling.
Dilution in the Arcata veins has generally been comparatively high reflecting less competent wall
rocks and vein widths commonly thinner and more variable than Ares and Selene. Careful
management of stope widths with respect to actual vein widths has resulted in a steady decrease
in dilution since March 2006. The following factors for individual veins have been established
based on survey management and monitoring: Ramal 2 at 25 per cent.; Ramal 4 at 31 per cent.;
Alta at 31 per cent.; Mariana at 30 per cent.; Alexia at 21 per cent.; Macarena 2 at 31 per cent.; and
Cimoide Mariana at 30 per cent.. The dilution factor is applied to resource blocks with the
assumption that the diluting material has zero content of gold or silver values. Losses of 5 per
cent. have been applied uniformly in the estimation of reserves in each of the veins with the
exception of Ramal 2 vein, a mature operation in which losses in extraction and handling are wellcontrolled and judged to be minimal. IMC considers the practice adopted for the assessment of
dilution and the application of the factors to be realistic and the application of a 5 per cent. loss
factor is considered to be an appropriate and conservative value to cover losses in extraction,
handling and transportation of material in the stope through to the processing plant.
3.2.4 Cut-off grade
The cut-off grade, as at 30 June 2006, used for resource estimation at the Arcata operation is
174 g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of
reference prices for gold of $450/oz and for silver of $7.50/oz.
IMC consider the process of determining the cut-off grade and the cut-off grades appropriate.
3.2.5 Verification
IMC has verified a portion of the reserves of each mine or project and concur with the figures in
Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major
veins on which there are sufficient intersections to carry out the necessary variography, and
inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power
estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Arcata
Ramal 2. IMC believe this is an appropriate and rational selection.
IMC carried out check modelling using the Datamine mining software system on a selection of
both major and more minor veins for Arcata mine, including the Mariana and Alta veins
comprising approximately 65 per cent. of the reserves.
3.2.6 Mines and projects
The Arcata mine (elevation approximately 4,630 m), with a current capacity of 353 ktpa and
planned to increase to 406 ktpa by January 2007, was commissioned in 1964. The veins in the
Mariana, Ramal 2 and Macarena vein systems have a minimum designed mining width of 0.8 m
and a maximum 3.0 m, averaging 1.6 m in thickness, and dips at between 70 to 80. The orebodies
are accessed by discrete inclined ramps and these connect underground in each orebody by spiral
ramps to a depth of about 400 m below surface. The veins are mined by conventional and
mechanised (trackless) cut-and-fill breast or overhand stoping methods utilising timber support.
30 stopes rotate in the production cycle of drilling and blasting, mucking of ore and backfilling.
This will reduce to 15 stopes as production from the Mariana vein increases. Very little of the
production is now from the old Macarena vein system. Thirty per cent. of the production comes
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from the older Ramal 2 section which exhausts in approximately 18 months. The balance of
production is from the Mariana section discovered in 2004 and which is being developed at a rate
of over 1,500 m per month on three levels as replacement for Ramal 2. A series of raise-bored (RB)
shafts are used primarily for ventilation purposes. Ore is loaded from the ore passes into 22 t
standard road haulage trucks carrying the material up the mine ramps to the process plant
primary crusher or to the waste dump on surface. Haulage distance from the operations to the
plant is approximately 4.9 km and 4.5 km. Backfill is with both hydraulic fill utilising
approximately 50 per cent. of the tailings produced and also waste rock depending on
underground support requirements.
IMC considers the proposed development and production plan of Arcata is achievable.
3.2.7 Process plant
The plant processes silver ores with associated gold, lead and zinc to produce a silver/gold bulk
concentrate by flotation. The plant commenced operation in 1964 at 35 ktpa. Plant capacity is
now 353 ktpa which was achieved by an expansion from 280 ktpa in 1980. It has been operating at
280 ktpa but the feed increased to the design throughput of 353 ktpa from July 2006.
Primary crushing is by jaw crusher preceded by a grizzly screen. Screen undersize and jaw crusher
product combine and feed an ore washer from where oversize feeds the secondary short head
crusher operating in open circuit. Tertiary crushing is in closed circuit using two short head
crushers working in parallel. The product is stored in four hoppers feeding the two primary ball
mill circuits. The fines from the ore washer feed a spiral classifier from where the sands (large
material) are classified and combined with the tertiary crusher product in the hoppers while the
classifier fines are combined with the product from the primary milling process feeding the
secondary milling circuit.
Milling is performed in two circuits. Circuit No. 1 feeds ball mill #1 and a Hardinge mill. The
product of ball mill #1 is classified by hydrocyclones working in closed circuit with ball mill #1 to
which the underflow returns. Hydrocyclone overflow and the Hardinge mill product are
transferred to a different bank of hydrocyclones. The overflow of these cyclones forms the
flotation feed with 70 per cent. minus 200 mesh. The hydrocyclone underflow goes to secondary
milling in ball mill #4 working in a closed circuit with this hydrocyclone.
Circuit No. 2 consists of ball mill #5 for primary milling operating in closed circuit with
hydrocyclones. The overflow together with the secondary mill product is fed to a bank of
hydrocyclones. The overflow from this hydrocyclone is the flotation feed with a 70 per cent. minus
200 mesh. The underflow goes to secondary milling in ball mill #2 and the Comesa mill.
Flotation is by conventional flotation cells in two parallel circuits. Each circuit consists of an 8-cell
rougher, a 6-cell scavenger and a four-phase cleaner. Currently only one cleaner bank is in use
with the other only required intermittently providing a small spare capacity.
The concentrate is fed to a thickener and then to a disk filter for dewatering. The concentrate is
bagged in 50 kg bags for transport off site.
Final tailings are classified by cyclone into coarse material used for hydraulic fill and fines fed into
a thickener. The thickener product is pumped to tailings area 6 some 2.5 km from the plant. Solids
are retained in the dam and decanted water is recovered back to the process by pumping.
IMC considers the proposed development and production plans of Arcata are achievable.
3.2.8 Tailings disposal
General observations applicable to all of the Peruvian operations dams are that they are raised by
the downstream method using contractors with extensive quality control testing. This has enabled
the designers to use steeper civil engineering slopes compared to the more typical mining slopes.
The dams are operated by the concentration plant managers with supervision of the monitoring
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equipment and routine inspections carried out by the Companys Environmental Department. Civil
Engineers from the Head Office inspect informally about twice per year. The basic design of the
dams is included in an EIA or a similar report known as a PAMA for pre-1993 dams. The EIA limits
the maximum height of the dam. To exceed the agreed height, a new EIA is required. Guides
issued by the Ministry of Energy and Mines recommend minimum factors of safety in static and
seismic conditions. The mines are all situated in areas of high seismic risk. The designs all take into
account the effects of acceleration, settlement and of liquefaction for a 1 in 475 year seismic
event. The effect of any large-scale failure would be to stop the concentrator.
New dams are built and operated to a high standard with good quality control used to design
steeper than normal slopes as is the practice in South America. Regular inspections and
monitoring of piezometers and settlement gauges are carried out by the Environment
Department. The engineering report for the starter dam at Selene included a full method of
operation now being used to draw up similar operation manuals for all of the dams.
Standardisation on the use of common factors of safety and seismic parameters based on the
Guides issued by the Ministry of Energy and Mines should be implemented to regularize the
operations.
Arcata mine includes four old dams which have been partially reclaimed, Dam No 5 which is being
buttressed and the active Dam No 6. Dam 6 is 23 m high and contains 1.4 Mm3 of tailings. The dam
can be lifted by a further 5 m giving a life of about 8 years. The inlet pipes are supported on high
wooden trestles at the toe of steep faces on the north side of the dam. These trestles will be
buried by tailings during this lift and will need to be moved. There is a channel diverting the
upstream water around the south of the dam to a small pond above the southern side. There is
some seepage under the concrete walls of this pond. The interceptor drains around the dam are
to be built after the completion of the dam. This means an increased freeboard needs to be
maintained. About 60 lpm of water seeped from the toe of Stage I of Dam 6. There was some
deterioration of the concrete liner but the water was thought to be flowing under the dam. This
flow was positively drained to the toe as part of the current lifting of the dam. This flow should
continue to be monitored and any change in flow reported to a Civil Engineer. Dam 5 is
approximately 30 m high contains about 1 Mm3 of tailings. It was closed in 2003 and now has a
minimum freeboard of only 300 mm. The slope is being buttressed by the Environment
Department to give a downstream slope of 1 in 2. It is important that the slope of the buttress is
cut back to 1 in 2 and that the surface drainage of this dam is maintained.
Any failure of Dam 6 would flow down the valley towards the base of Dam 5. Dam 5 is above the
Eduardo Ramp but from the configuration of the land below the dam, any failure is unlikely to
affect that ramp.
3.3 Ares
3.3.1 Geological characteristics
The Ares mining unit exploits and is exploring further vein-hosted resources within a concession
area of 22,700 ha. This area of epithermal gold-silver mineralisation was discovered by aerial
photographic interpretation in 1988. Surface mapping, geochemical sampling and surface drilling
were performed in the period 1990 to 1992, and defined the outcrop of seven vein structures.
Underground exploration commenced in 1993, leading to development of the Victoria Vein and,
in conjunction with further surface exploration, the proving of the Maruja Vein. Subsequent
drilling in 1995 proved gold and silver values in the Tania Vein. The greater part of production has
been obtained from the Victoria Vein System and its component splits and loops. This system
comprises the greater part of the current reserves and resources base and is known over a strike
length of over 1.5 km, although there is only a 20 m surface outcrop. The identification of new
resource areas is largely guided by underground development and exploration.
The strike of the vein systems is predominantly ENE-WSW, interpreted to reflect dextral strike-slip
faulting. Less persistent veins of NW-SE strike indicate closely related tensional dilation between
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the strike-slip fractures. The mineralisation is significantly different to Arcata and Selene in
containing a higher abundance of gold although silver rich veins show a relationship to Arcata
and Selene indicating a number of separate pulses of mineralisation. The veins show banding
successively of massive quartz and hyaline quartz and also exhibit a range of argillic alteration
minerals. The precious metal mineralisation includes electrum, native gold, native silver, argentite,
pyrargyrite and gold-silver tellurides (petzite-hessite). The vein sulphide minerals in the upper
(near surface) zone commonly comprise only pyrite and pyrargyrite while a much more varied
suite including minor amounts of chalcopyrite, galena, sphalerite, polybasite, stibnite-enargite,
proustite-pyrargyrite, tennantite, tetrahedrite and covellite occur in deeper zones. The gold rich
veins indicate LS mineralisation but the silver rich veins IS mineralisation. While the silver rich veins
correspond to an IS character similar to that at Arcata, one interpretative model is that the goldrich veins may be considered more typically a low sulphidation phase, in which well-defined rather
narrow vertical zoning may be expected. However, the local experience is that there is also a
strong lithological control by the host rock on vein development and the competent, massive
rhyolitic unit, or dome rocks, provide the most receptive environment for mineralisation within
the region.
The Victoria vein system comprises several related structures developed over 1,500 m of strike
length and 300 m of dip. extent (Figure 5.2). The structure strikes NE to SW and generally has a
sub-vertical dip of 65 to 80 generally to the northeast. There are a number of branches, loops,
sub-parallel veins and fans of vein splits. Resources and reserves are recognised a number of
branches, loops, sub-parallel veins and fans of veins splits in the main Victoria Vein, constituting
approximately 80 per cent. of the measured and indicated resource, and in the Ramal Victoria,
Cimoide, Split Victoria, Lula, Ramal Sur 096 and Veta 097. Vein widths range from 0.50 m up to 10
m. This system contributes over 80 per cent. of measured and indicated resources and displays
consistently high gold content averaging 15.5 g/t over the measured and indicated resources.
Values attenuate with depth but principal vein developments remains open laterally with
considerable potential to locate further sub-parallel vein developments within the overall
structure.
The Maruja vein system is sub-parallel to the Victoria Vein System some 300 m to the north. This
system is silver-rich with lesser gold values averaging 1.42 g/t in the measured and indicated
resources. Substantial mine development has taken place on this system over a strike length in
excess of 600 m with vein widths in the range of 0.30 m to 0.50 m. The vein currently contributes
only a small proportion of production. Further resource potential exists in the southeast lateral
extension.
Immediate exploration targets in the immediate vicinity of Ares include extensions to the Maruja
vein which remain undefined in comparison to the more attractive Victoria system; the Guadalupe
vein shown by underground workings to have vein widths of the order of 1.49 m assaying at 1.44
g/t gold and 122 g/t silver; and the Tania vein to the north of the Victoria and developed along
150 m underground showing 1.06 m width and 1.83 g/t gold and 36.2 g/t silver. A further
replacement programme has identified the Isabel vein approximately 800 m north of the Victoria
with 17 drill hole intersections with silver rich mineralisation over a strike of 450 m with vein
thickness reported as between 0.27 m to 4.61 m; the Paola vein 1.0 km north of the Isabel with

cored intersections of 2.00 m of silver rich mineralisation; the Poconopausa

structure 2km north of
Victoria with cored intersections showing a number of closely parallel veins of 0.57 m to 1.90 m
width with silver rich mineralisation; and the Claudia system 2 km to the south east of the Victoria
considered a future target.
3.3.2 Reserves and resource statement
IMC has verified the reserves and resources presented by the Company on 30 June 2006 for
scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006.

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3.3.3 Losses and dilution

The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has
been applied to these figures.
Dilution in the Ares veins has generally been low and uniform reflecting the competent wall-rock.
The survey-defined dilution factor has been consistent at close to or below 10 per cent. and is
conservative with respect to suggested values based on reconciliation. A 10 per cent. dilution
factor has been applied uniformly to each of the veins of the Ares mine. The dilution factor is
applied to resource blocks with the assumption that the diluting material has zero content of gold
or silver values. Losses of 5 per cent. have been applied uniformly in the estimation of reserves in
each of the veins. IMC considers the practice adopted for the assessment of dilution and the
application of the factors to be realistic and the application of a 5 per cent. loss factor is
considered to be an appropriate and conservative value to cover losses in extraction, handling and
transportation of material in the stope through to the processing plant.
3.3.4 Cut-off grade
The cut-off grade, as at 30 June 2006, used for resource estimation at the Ares operation is 3.2 g/t
gold equivalent. The equivalent cut-off grade has been calculated on the basis of reference prices
for gold of $450/oz and for silver of $7.50/oz.
IMC consider the process of determining the cut-off grade and the cut-off grades appropriate.
3.3.5 Verification
IMC has verified a portion of the reserves of each mine or project and concur with the figures in
Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major
veins on which there are sufficient intersections to carry out the necessary variography, and
inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power
estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Ares
Victoria. IMC believe this is an appropriate and rational selection.
IMC carried out check modelling using the Datamine mining software system on a selection of
both major and more minor veins for Ares mine including, the Victoria, Ramal Sur 096 and Lula
veins comprising approximately 64 per cent. of the reserves and resources.
3.3.6 Mines and projects
The Ares mine (elevation approximately 4,937 m), with a capacity of 282 ktpa, was commissioned
in 1998. The veins in the Victoria (including the Ramal Sur, Ramal Victoria and Lula) system have a
minimum designed mining width of 0.8 m and a maximum of 15 m, averaging 2.13 m in thickness,
and dip at an average 75 to 80. The workings are accessed by inclined ramps and these connect
underground by spiral ramps to a depth of about 275 m below surface. The veins are mined by
conventional and mechanised (trackless) cut-and-fill breast stoping methods utilising both
rockbolts and timber as support. 16 stopes rotate in the production cycle of drilling and blasting,
mucking of ore and backfilling. A series of raise-bored (RB) shafts are used for ore/waste removal.
Ore is loaded from these RB passes into 22 t standard road haulage trucks carrying the material up
the mine ramps to the process plant primary crusher or to the waste dump on surface. Haulage
distance from the workings is approximately 4.4 km. The backfill plant supplies four types of
cemented paste depending on underground support requirements. Investigations into the Isabel
and Paola veins as replacement ore for the Victoria vein system are ongoing.
3.3.7 Process plant
Gold is the primary target with recovery of silver for these leaching and precipitation plant
The minor quantity of mercury contained in the ore is also extracted.
processes producing a dore.
The plant commenced operation in August 1998 and has an operating capacity of 280 ktpa which
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is planned to be increased by upgrading the classification sections to 325 ktpa over the next three
years.
Homogenization takes place on a ground stockpile and the product is fed to a primary jaw crusher
preceded by a grizzly screen. Screen undersize and jaw crusher product combine and are fed to
another ground stockpile feeding the milling circuit.
The milling circuit consists of a primary SAG mill and a secondary ball mill. Pulp from the SAG mill
is screened and overflow returns to the mill. Screen undersize is fed to hydrocyclones in closed
circuit with the secondary mill. Hydrocyclone overflow feeds the leaching circuit.
The cyanide leaching circuit consists of 9 agitation tanks arranged in three banks of three. Oxygen
is added to assist the leaching process. The slurry is fed to a counter current decantation circuit
consisting of five units and the pregnant solution is decanted to the pre-clarifier of the Merrill
Crowe circuit and the solids pumped to the tailings.
Pregnant solution is fed to the Merrill Crowe circuit where the metals are precipitated onto zinc.
The precipitate is filtered and fed into a retort for drying and recovery of the gold/silver/zinc
precipitate and removal of the mercury by volatilisation (subsequently condensed and recovered).
Silver and gold are finally recovered by smelting. The dore bars weigh 16.5 kg. These bars are
packed into individual plastic bags and two bags are packed in each wooden case. Dore
containing about 6 per cent. gold and 94 per cent. silver is currently produced. There are also sales
of the minor quantities of condensed mercury.
Additional plant is being installed at Ares to allow the processing of concentrates of Selene ore.
Ground has been broken (July 5) for the new Gekko plant to treat Selene concentrate and
equipment is due to arrive on site during week of July 10th. The plant will treat 2.8 ktpa to 3.5
ktpa of Selene concentrate (total Selene output at 350 ktpa ore feed) in two Gekko In Line
Reactors from October 2006. Pregnant solution will be fed into the Merrill-Crowe section and the
leached solids will be fed into the leach circuit feed tank for further processing.
Introduction of Selene concentrate will have the effect of reducing the gold content of the dore
to about 3 per cent.. At present, the Company does not have a contract with a refiner for this
material but Johnson Matthey are aware of the lower grade that will be produced. The Company
state that they will also be asking for tenders from Johnson Matthey and others to refine this dore
in the near future.
Discharge from thickener 5 is pumped to the tailings area. Solids are retained in the dam and
decanted water is recovered back to the process by pumping.
IMC considers the proposed development and production plans of Ares are achievable.
3.3.8 Tailings disposal
The dam is approximately 20 m high and occupies about 30 ha. It is at its maximum height and has
a life of 3 years. Any processing after that period will require a new dam. Buttresses were
provided in two locations to improve the factor of safety during the last lifting. Ares mine is
currently working under the northern part of Ares dam and follows the standard procedure of the
mine manager and the civil engineer liaising to ensure the integrity of the dam and the mine
during the undermining. Some minor backsapping was noticed onto the buttress on the north
flank during the inspection for this report but this was felt to be as a result of rainwater and could
readily be resolved by an inverse filter drain at minimal cost. The adjacent piezometer should
continue to be monitored. Failure would affect the concentrator.
3.4 Selene
3.4.1 Geological characteristics
Selene, within a concession area of 19,540 ha, is defined by a prominent annular structure of 5 km
to 6 km diameter interpreted as a caldera with a collapsed central area partially filled by a
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complex volcanic edifice. This comprises a number of domes of flow-banded rhyo-dacitic lava
intrusions providing an important guide to locating prospective vein systems. The most important
flow-banded dome structure hosts the Explorador-Tumiri-Aycha vein system. The host rock is
extremely competent and the majority of veins identified in adjacent areas are also developed
within this lithology. A number of similar domes have been identified around the perimeter and
in the centre of the annular structure.
The younger sequences of lavas and volcano-clastic sediments host a markedly different style of
HS mineralisation. Four principal lineations affect the mineralised structures in the general area
around the Selene area: The ESE-WNW lineation controls the principal gold and silver mineralised
structures identified in the district and particularly the Huachuhuilca, Colcabamba and Pallancata
vein systems. The NE-SW lineation affects the rhyolitic flow-banded domes and reflects the strike
of the Explorador vein system. The E-W lineation controls the strike of the Tumiri and Aycha vein
systems and the Cuello Cuello prospect. The N-S lineation controls the strike in the Colcabamba
prospect and the Huachuhuilca Vein.
The Explorador Vein System supports all current operations in the Selene Operating Unit and hosts
all reserves and the majority of mineral resources. The vein system comprises a complex quartz
vein up to 200 m wide along a strike oriented N55E and length of 2,400 m. This complex includes
parallel and sub-parallel veins, splits, loops (cimoides) and branches (ramales) of which the
principal Explorador vein is currently mined over a strike of 1,500 m but the complex includes the
Monica,

Ramal Sur, Claudia, Ines,

Patty, Lola, Gaby, Marina and Rosa veins. The dip is sub-vertical
and averages 80 and comprises clearly visible banded quartz with diffuse layers of dark sulphides.
Subsequent phases of mineralisation are indicated by quartz with reticular texture and by massive
milky quartz usually in the centre of the vein. The sulphide mineralogy is characterised by ruby
silver with proustite (Ag3AsS3) more common than pirargyrite (Ag3SbS3) and also by
argentiferous varieties of tetrahedrite (e.g. freibergite). It is reported that gold occurs as
calaverite (AuTe2) and native gold has been reported as occurring in voids in the later phase
quartz. The continuity of the vein system is affected by a number of sinistral strike-slip faults of
ENE-WSW and E-W strike. The most important is the Sofia Fault. The continuity of the system has
been established and the mineralisation has been proved extending up to Tumiri Vein cutting
across the strike of the Explorador Vein and forms the NE limit to the vein system. Vein width in
the economically exploited panels of the Explorador Vein System averages 1.98 m, ranging from
0.80 m to 10.20 m although locally thinner vein widths occur due to faulting.
The Tumiri Vein System (veins Tumiri, Timida and Sofia) has been determined along a strike length
of approximately 2200 m. The vein strike direction is essentially E-W with sub-vertical dip. The
upper levels of the Tumiri Vein were worked between 1973 and 1990 and currently Inferred
Resources are identified below the worked area. The quartz mineralisation demonstrates
successive phases with locally intense brecciation and re-cementing of angular quartz fragments
by later phases at low temperatures of emplacement. Metallic minerals are primarily ruby silver,
pyrite and disseminated chalcopyrite. There is a close genetic relationship between the Explorador
and Tumiri vein systems.
Exploration is focused on extensions to depth and ore shoots in the north, central and south of
the Exporador vein with approximately 0.25 Mt of inferred resources grading approximately 320
g/t silver and 1.57 g/t gold as well as an intersection towards the Tumiri of 0.40 m at 735 g/t silver
and 3.19 g/t gold; the Tumiri vein with approximately 0.12 Mt of inferred resources at 238 g/t silver
and 0.47 g/t gold; the Sofia Fault vein some 500 m west of the Explorador vein with 2.0 m
intersections at 249 g/t silver and 0.33 g/t gold; the Intermediate vein traceable over 2.0 km and to
the north east of the Explorador vein with a single intersection of 0.35 m at 269 g/t silver and 7.05
g/t gold; the discontinuously outcropping Lola vein parallel and 1 km north of the Explorador with
an intersection of 0.35 m at 81.8 g/t silver and 24.2 g/t gold; the Pucanta vein 1.5 km north west of
Explorador with an intersection of 0.55 m at 805 g/t silver and 0.55 g/t gold; the Caylloma Breccia
Structure approximately 5 km north west of Selene with an intersection of 4.5 m at 188 g/t silver
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and 10.57 g/t gold; and the Cuello Cuello Structure located 8 km north east of Selene with
intersection ranging from 0.65 m to 2.00 m at 294 g/t silver and 1.28 g/t gold.
3.4.2 Reserves and resource statement
IMC has verified the reserves and resources presented by the Company on 30 June 2006 for
scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006.
3.4.3 Losses and dilution
The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has
been applied to these figures.
A dilution factor of 10 per cent. has been applied uniformly to each of the Selene veins. Whereas
estimates based on reconciliation have shown considerable variation, the survey defined dilution
factor has been consistent at close to 10 per cent. and is conservative with respect to suggested
values based on reconciliation. The dilution factor is applied to resource blocks with the
assumption that the diluting material has zero content of gold or silver values. Losses of 5 per
cent. have been applied uniformly in the estimation of reserves in each of the veins. IMC considers
the practice adopted for the assessment of dilution and the application of the factors to be
realistic and the application of a 5 per cent. loss factor is considered to be an appropriate and
conservative value to cover losses in extraction, handling and transportation of material in the
stope through to the processing plant.
3.4.4 Cut-off grade
The cut-off grade, as at 30 June 2006, used for resource estimation at the Selene operation is 167
g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of reference
prices for gold of $450/oz and for silver of $7.50/oz.
IMC consider the process of determining the cut-off grade and the cut-off grades appropriate.
3.4.5 Verification
IMC has verified a portion of the reserves of each mine or project and concur with the figures in
Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major
veins on which there are sufficient intersections to carry out the necessary variography, and
inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power
estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Selene
Explorador, IMC believe this is an appropriate and rational selection.
IMC carried out check modelling using the Datamine mining software system on a selection of
both major and more minor veins for Selene mine, including the Explorador and Ramal Betty veins
comprising approximately 91 per cent. of the reserves and resources.
3.4.6 Mines and projects
The Selene mine (elevation 4,600 m), with a current capacity of 353 ktpa, was commissioned into
production in 2003. The Explorador vein system has a minimum designed mining width of 0.8 m
and a maximum of approximately 5.0 m, averaging about 2.0 m in thickness, and dips at between
70 to 80. The workings are accessed by inclined ramps and these connect underground by spiral
ramps to a depth of 350 m below surface. The veins within the system are mined by conventional
and mechanised (trackless) cut-and-fill overhand stoping methods. 12 stopes rotate in the
production cycle of drilling and blasting, mucking of ore and backfilling. A series of raise-bored
shafts is used for ore/waste removal and for the supply of backfill material. Ore is loaded from the
base of these shafts into 22 t standard road haulage trucks carrying the material up the mine
ramps to the process plant primary crusher or to the waste dump on surface. Haulage distance
from the operation to the plant is approximately 1.3 km.
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3.4.7 Process plant

The plant commenced operations in November 2003 at 177 ktpa, expanding to 265 ktpa and
processes silver ores with associated gold to produce a silver/gold bulk concentrate by flotation.
Additional equipment was installed in November 2005 and the plant now has an operating
capacity of 353 ktpa. High frequency screens are being installed and are scheduled for production
in the last week of August 2006 to increase plant capacity to 406 ktpa by being more efficient
than the current hydrocyclones in sizing mill product and thus reducing the circulating load.
Primary crushing is by jaw crusher preceded by a grizzly screen. Screen undersize and jaw crusher
product combine and are screened. The undersize is fed to the mill bunker and the oversize is fed
to the two secondary short head crushers operating in closed circuit with screens.
The primary mill works in closed circuit with a hydrocyclone. Hydrocyclone overflow is fed to the
secondary milling circuit. The secondary milling circuit consists of two ball mills operating in
parallel in closed circuit with a bank of hydrocyclones. Hydrocyclone overflow is fed to the
flotation circuit.
Flotation is by conventional flotation cells. The circuit consists of a rougher, a scavenger and a
two-phase cleaner.
The concentrate is fed to a thickener and then to a disk filter for dewatering. The concentrate is
bagged in 50kg bags. Currently the concentrate is sold to a third party but as of October 2006,

concentrate will start to be sent to Ares for conversion to dore.

Ore from the Pallancanta project is to be processed at the Selene concentrator from 2007. The
concentrator will be expanded to 720 ktpa in order to process this ore. Testwork on core samples
has been completed and mineral processing and metallurgical testing on development ore
samples will start in October 2006. The basic engineering for the first stage has been completed
and the detailed engineering is currently in progress. Site work and installation are scheduled to
be completed by the end of March 2007 for production to commence in April 2007. The original
work for the 2003 plant took 8 months and the current extension construction schedule is
considered reasonable. Main equipment is readily available or on order.
Pallancata concentrate will be sold as concentrate under the current mine plan. The Companys
longer term intention to sell Pallancata as concentrate until 2008 at which time the concentrate
will be sent to Ares and processed at Ares as per the Selene concentrate. Ares will have the
capacity to treat all of the concentrate from Selene but will require a further expansion to treat all
of the maximum feed of 720 ktpa planned to the Selene plant.
Tailings are fed to a thickener from where the underflow is pumped to the tailings pond. Solids
are retained in the dam and decanted water is recovered back to the process by pumping.
IMC considers the proposed development and production plans of Selene are achievable.
3.4.8 Tailings disposal
The dam is about 50 m high and when full will contain 1.1 Mm3 of tailings. The mine proposes to
increase production and to dispose of 40 per cent. of the tailings underground. With these
changes, the life of the current dam is about 3 to 4 years. The dam can be lifted a further 5 m
within the EIA, giving a total life of 6 to 7 years. Consent will then either be sought to lift the dam
by further 5 m giving a further 3 to 4 years life or to build a new dam in the adjacent valley. A new
dam would cost about US$M 2.3 to build at current prices. If the current dam were to fail it would
only affect an unoccupied valley.
3.5 Pallancata
3.5.1 Geological characteristics
The Pallancata project, within a concession area of 7,330 ha, lies at approximately 17 km to the
south-west of the Selene vein system and is considered part of the same geological environment.
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Ancient Spanish colonial period workings are known on the vein system. The vein system extends
over a length in excess of 2 km along a WNW-ESE strike and forms a prominent surface feature of
silicified material up to 40 m wide. The dip is sub-vertical with branch veins and splay structures
typically of 0.50 m to 3.00 m thick. Higher grade zones have been identified where there is a
strong stockwork of quartz veins typically with a NE-SW strike intersecting the main vein structure
in the West Breccia. This reflects a wider structure of intersection of the persistent WNW-ESE veins
(Mercedes) by swarms of NE-SW veins (Mariana and San Javier structures). The mineralisation is
hosted in a sequence of Tertiary lavas and volcano-clastic rocks of Miocene age. The volcanic
sequence near the Pallancata vein includes a large porphyritic andesite intrusion and large areas
of the host volcanic sequence are masked at outcrop by a rhyolitic tuff. The low-sulphidation type
mineralisation of the Pallancata vein shows multiple phases of banded chalcedonic silica and
massive quartz with argentite, ruby silver (pyrargyrite / proustite), pyrite, marcasite, galena,
electrum and rarely, native gold. A noticeably higher gold content appears characteristic of the
stockwork in the West Breccia structure.
Initial surface sampling programmes on the local Mariana and San Javier structures, and some
underground sampling in old colonial-era workings indicate similar epithermal mineralisation
with high silver and gold values to the north of the Pallancata vein constituting future exploration
targets.
3.5.2 Reserves and resource statement
IMC has verified the reserves and resources presented by the Company on 30 June 2006 for
scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006.
3.5.3 Losses and dilution
The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has
been applied to these figures.
A dilution factor of 10 per cent. and losses of 5 per cent. have been applied uniformly to the
Pallancata veins based on the similarity of the deposit to Selene. IMC considers the application of
these factors to be appropriate.
3.5.4 Cut-off grade
The cut-off grade, as at 30 June 2006, used for resource estimation at the proposed Pallancata
operation is 167 g/t silver equivalent. The equivalent cut-off grade has been calculated on the
basis of reference prices for gold of $450/oz and for silver of $7.50/oz.
IMC consider the process of determining the cut-off grade and the cut-off grades appropriate.
3.5.5 Verification
IMC has verified a portion of the reserves of each mine or project and concur with the figures in
Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major
veins on which there are sufficient intersections to carry out the necessary variography, and
inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power
estimation has been used for all of the minor veins on the Peru properties. IMC believe this is an
appropriate and rational selection.
IMC carried out check modelling using the Datamine mining software system on a selection of
both major and more minor veins for Pallancata mine, including Pallancata 2 vein comprising 100
per cent. of the reserves and resources.
3.5.6 Mines and projects
The Pallancata project, in relation to which the Company signed a contract on 30 June 2006 with a
joint venture partner for 60 per cent. of the property and operational management, is located 17
307

km from Selene mine, in a straight line, and approximately 22 km by a proposed new road to haul
ore to the Selene processing plant. This project is designed to augment production to the Selene
process plant as the process plant expands. The orebody has a minimum designed mining width of
0.8 m and a maximum of approximately 25.0 m averaging about 5.0 m in thickness. The dip of the
orebody is 70 to 80. The planned operation access is by inclined ramps and these will connect
underground by spiral ramps. The orebody will be mined by conventional and mechanised
(trackless) cut-and-fill overhand stoping methods. 3 stopes are currently scheduled to rotate in the
production cycle of drilling and blasting, mucking of ore and backfilling at full production by mid
2007. A series of raise-bored shafts will be used for ore/waste removal and for the supply of waste
backfill material. Ore is loaded from the base of these shafts into 22 t standard road haulage
trucks carrying the material up the mine ramps to the process plant primary crusher at Selene or to
the waste dump on surface. The Company is finalising plans in-house with the commencement of
construction scheduled for August 2006 for the ramp providing access to the workings.
3.5.7 Process plant
Pallancata ore will be transported by road to the Selene process plant.
3.5.8 Tailings disposal
The tailings will be disposed in either the Selene workings or tailings dams.
3.6 Long term prospects
The 8 km by 5 km San Martin site is located approximately 20 km north west of the Arcata mine
and extensive surface channel sampling was undertaken in the 1980s during which Arcata mine
excavated a number of small mine cross-cuts. The project is currently under exploration by the
Company using two surface diamond drill rigs. IMC has visited the site and inspected the camp
facilities, core store and observed the evidence of extensive surface channel sampling and the ongoing drilling activity. 14 drillholes have been completed supported by surface mapping and
activity is on-going. Mineralised veins and structures have been identified widely across the area
and are hosted within a sequence of volcano-clastic rocks and andesite lavas into which an
extensive flow-banded dacite dome has intruded. The dome has an outcrop of approximately 40
ha and hosts the most prospective and highest grade veins. The maximum grade at surface within
the dome area is 8,970 g/t of silver and 27 g/t of gold. Veins also extend widely beyond the dome
and surface samples show a gold content in the range 2 g/t to 8 g/t. The current drilling
programme indicates discontinuous ore-shoots where most promising grades are found where
NW-trending veins intersect or veer to a WNW lineation. Mineralogical interpretation of results to
date is that a LS Arcata-style polymetallic gold/silver mineralisation target occurs at depth.
IMC is of the opinion that the San Martin is very a promising replacement prospect.
4 Argentina
IMC visited the San Jose project between the 12th and 23rd June 2006.
4.1 Maps and plans
The relevant maps and plans are included in Annex C as listed.
Plate 13 ***********
Plate 14 ***********
Plate 15 ***********

San Jose Project: Surface map with location of veins and prospects and
principal geological features
San Jose Project: Longitudinal Profile of the Huevos Verdes Vein
San Jose Project: Longitudinal Profile of the Frea Vein
308

4.2 San Jose project

4.2.1 Geological characteristics
Minera Santa
The San Jose project, within a concession area of 40,499 ha, is owned by Compania
Cruz S.A. (MSC). MSC is a joint venture between the Company (51 per cent.) and Minera Andes
S.A. (MASA) (49 per cent.). Significant geological anomalies of gold and silver were detected at
San Jose by MASA in 1997 resulting in exploration programmes between 1997 and 2005 leading to
the discovery of the two San Jose ore zones known as the Huevos Verdes and Frea vein systems
and a delineation of the mineralized resources. MSC drove two 45 inclined shafts to the North
and South zones of the Huevos Verdes Vein in 2003, and has recently completed an inclined shaft
to the Frea Vein.
The Deseado Massif, in Patagonia, Southern Argentina comprises Paleozoic metamorphic
basement rocks unconformably overlain by Middle to Upper Jurassic andesitic to rhyolitic volcanic
and volcano-clastic rocks, Cretaceous sedimentary rocks and is capped by Tertiary to Quaternary
basalts. The Jurassic volcanic rocks are the principal host for gold and silver mineralisation in which
veins are typically developed in competent andesite flows and less so in phyllitic altered volcanoclastic units. The Jurassic volcanic rocks and contained mineralisation have only limited outcrop in
erosional windows. The mineralisation displays typical epithermal characteristics with quartz
veining, breccia and stockwork systems occupying steeply inclined fractures ranging from normalsinistral faults striking NNW-SSE and conjugate dextral faults striking approximately WNW-ESE.
The LS mineralisation displays three main episodes of quartz deposition with the initial banded
quartz associated with massive sulphide veinlets and the second phase of massive milky quartz,
predominantly in the central portion of the vein, containing disseminated sulphides in the form of
argentite and pyrite together with minor amounts of sphalerite and galena.
The Huevos Verdes Vein System comprises an array of sub-parallel quartz veins striking
approximately NW-SE and dipping between 45 and 75 to the northeast. The vein system is
hosted in andesitic rocks close to the contact underlying volcano-clastic rocks and drilling has
traced a strike length of 2,000 m comprising the Huevos Verdes North (HVN), Huevos Verdes
Central (HVC) and Huevos Verdes South (HVS) discontinuous zones. The overall geometry of the
main vein zone is relatively continuous with width varying from less than 1 m to 15 m. Average
vein width with significant gold and silver mineralisation ranges between 0.30 m to 4.00 m.
The Frea Vein System is located approximately 1,700 m to the north-east of Huevos Verdes and
comprises one main quartz vein of strike NW-SE and a large stockwork of subordinate hanging
wall veins and breccia zones. The vein dips to the northeast at approximately 52. This vein system
does not outcrop and has been traced over a strike length of approximately 600 m. The main vein
structure varies in width between 0.50 m and 7.00 m, averaging around 4.25 m. Recent
investigation has identified the Kospi Vein approximately 400 m to the north-east of Huevos
Verdes and also developed on a NW-SE strike. This has been defined only by some 10 drillhole
intersections along a strike of approximately 600 m to date.
4.2.2 Reserves and resource statement
(a) General
IMC has verified the reserves and resources presented by the Company on 30 June 2006 for
scrutiny.
(b) Losses and dilution
The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has
been applied to these figures.
Reserves are quoted after the application of a modifying factor for dilution of 12 per cent. for the
Huevos Verdes vein, and for many of the reserve panels in the Frea vein. Higher values of 16 per
cent. and 17 per cent. have been applied to some specific panels in the Frea vein as a reflection of
309

wall rock conditions. Only minimal losses are anticipated, for the Huevos Verdes vein amounting
overall to 2 per cent. and for the Frea Vein amounting overall to 2.3 per cent.. IMC considers the
application of these factors to be appropriate.
(c) Cut-off grade
The cut-off grade, as at 30 June 2006, used for resource estimation at the San Jose operation is 250
g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of reference
prices for gold of $450/oz and for silver of $7.50/oz.
IMC consider the process of determining the cut-off grade and the cut-off grades appropriate.
(d) Verification
IMC has verified a portion of the reserves of each mine or project and concur with the figures in
Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major
veins on which there are sufficient intersections to carry out the necessary variography, and
inverse power of distance (IPD) weighted moving averages for other veins. IMC believe this is an
appropriate and rational selection.
IMC carried out check modelling using the Datamine mining software system on the Huevos
Verdes vein comprising approximately 54 per cent. of the reserves and resources.
4.2.3 Mines and projects
The San Jose Project, with a designed capacity of 273.7 ktpa, is due to be commissioned into
production in July 2007. The Huevos Verdes orebody, has a minimum width of 0.15 m and a
maximum 1.25 m averaging 0.6 m in thickness which averages 55 to 70 in dip. The Frea orebody,
has a minimum width of 1.3 m and a maximum 4.3m averaging 3.1 m in thickness which averages
55 in dip. Both orebodies are accessed by inclined ramps and these connect underground by spiral
ramps. It is proposed to mine both veins by mechanised (trackless) and manual (slusher) cut-andfill breast stoping methods depending on the mined width, both methods using rockbolts, timber
or no support as stope conditions dictate. 5 stopes will rotate in the production cycle of drilling
and blasting, mucking of ore and backfilling. A series of raise-bored (RB) shafts will be used for
ore/waste removal, ventilation and auxiliary services. Ore is loaded from these RB passes into 28 t
standard road haulage trucks carrying the material up the mine ramps to the process plant
primary crusher or to the waste dump on surface. Haulage distance from both the Huevos Verdes
and Frea workings is approximately 1.8 km. A backfill plant will supply various types of cemented
paste depending on underground support requirements. Investigations into the Kospi and Odin
veins as replacement ore for the Huevos Verdes and Frea orebodies are ongoing.
IMC considers the proposed development and production plans of San Jose are achievable.
4.2.4 Process plant
A feasibility study has been completed by AMEC during which metallurgical testwork has been
conducted to select and develop the preferred process flowsheet for the San Jose project. The
process flow sheet submitted by AMEC used conventional crushing, grinding, flotation and
concentrate cyanidation leach technology with cyanide recovery and destruction. Gold and silver
would be recovered by standard Merrill Crowe zinc precipitation and refined to produce dore
bars. The design milling rate is 265 ktpa.
Subsequently it was decided to investigate the use of a Gekko reactor. However, Hochschild have
decided to implement the project with processing as far as a saleable flotation concentrate as the
Geccko equipment is not yet proven as suitable for San Jose material and as the necessary permits
to allow the use of cyanide have not yet been obtained.
Detailed engineering design is scheduled to be complete by end July 2006. Long lead items have
been identified and will be purchased in the immediate future.
310

The crushing plant will be a two-stage closed circuit facility producing material of which 80 per
cent. is smaller than 9 mm (80 per cent. minus 9 mm material). Ore will be fed to a stationary
grizzly screen from where oversize passes through the primary crusher and then joins grizzly
undersize which together are conveyed to a screen in closed circuit with the secondary cone
crusher.
Crushed ore will be stored in two bins each of 500 t capacity from where it is fed to the ball mill.
The ore will be milled so that 80 per cent. of the product is smaller than 74 microns (80 per cent.
minus 74 microns) in a simple closed milling circuit using hydrocyclones for classification. A bleed
from the cyclone feed is taken to a centrifugal concentrator to produce a gravity concentrate
while the tailings return to the crushing circuit. Hydrocyclone underflow returns to the mill and
the cyclone overflow flows to the conditioning tank of the flotation circuit.
The flotation circuit will consist of a primary rougher bank of four cells of 5 m3 each. Rougher
concentrate reports to the three stage cleaning circuit of 24 cells of 1.42 m3 capacity. Rougher
tailings report to a scavenger circuit, a bank of four cells of 5 m3 each. Scavenger concentrate is
sent back to the roughers while the tailings report to the tailings thickener.
The flotation and gravimetry concentrate will be thickened and then dewatered using a vacuum
disc filter. After this the concentrate will be bagged in 50 kg sacks then stored prior to dispatch by
road.
The tailings will be thickened and pumped to the tailings dam.
IMC considers the proposed development and production plans of San Jose are achievable.
4.2.5 Tailings disposal
85 per cent. of the tailings will be flotation tailings and will be benign. These will be disposed of in
an unlined natural basin to the north east of the plant site with a capacity of 1.71 Mt or double
that required by the current reserves. The maximum depth will be 10 m and no formal dams are
needed.
15 per cent. of the total output will be concentrate tailings and will contain up to 50 ppm cyanide.
These will be disposed of in the eastern part of the same depression which will be lined with low
permeability soil and an HDPE liner. The two dams will be separated by a separating bank. This
bank should be designed for rapid draw down conditions.
The area is subject to high winds. To minimise dust, the tailings ponds will be operated under
water. In addition, cement or pfa will be added as required. In the later stages, 2 per cent. to 5 per
cent. of cement or pfa will be added to both tailings to provide a dust resistant cap.
Average rainfall is 144 mm pa and evapotranspiration 1,256 mm pa. The concentrate tailings will
therefore have a water deficit. Water will therefore be pumped from the flotation pond to the
concentrate pond with any excess being recycled.
4.2.6 Long term prospects
The Sierra de las Minas quartz-sulphide vein district produced gold on a small scale intermittently
in the first half of the twentieth century. The Company controls properties with a drill indicated
geological resource and has mapped over 15 kilometres of mainly northwest and northeast
striking quartz veins. The property package comprises 65,536 ha and includes 58,622 ha of wholly
owned exploration claims, 6,860 ha of exploration and discovery claims in Joint Venture with
Canadian junior Golden Peaks Resources Ltd and 54 ha of mine claims under an option to
purchase agreement with a local property owner. The Company is undertaking a mapping,
sampling and diamond drilling programme to confirm whether there exists an economically viable
target in the district.
The prospect is situated in the Pampeana metallogenic terrain comprising a metamorphosed
basement of Precambrian to early Palaeozoic migmatites and granitoid igneous intrusives. The
311

basement rocks, particularly a dioritic to granodioritic plutonic complex, host the gold-bearing
veins. The basement rocks are overlain by a Carboniferous sedimentary series and Tertiary and
Quaternary sediments. The mineralisation is quartz-sulphide containing gold and variably with
copper minerals. Free gold commonly occurs associated with common haematite and variably with
malachite and chrysocolla indicating an oxidised zone and secondary enrichment of gold. Drilling
has proved the oxidised, supergene enriched zone to extend in depth for at least 140 m. Remnant
sulphides and casts indicate the original mineralisation to have been pyrite-chalcopyrite with
sporadic presence of galena. Sericitic alteration occurs at the vein margins. Veins are NW-SE
trending and generally individual veins have not been traced for more than 1 km. The veins are
typically sub-vertical with average width of approximately 1 m. Geological resources have been
inferred from previous drilling by Golden Peaks Resource Limited on two vein structures: the JV-14
structure estimated to host inferred resources of 98,748 t at average width 1.26 m with an average
grade of 8.05 g/t gold and the Vallecito structure estimated to host inferred resources of 54,454 t
at an average grade of 10.66 g/t gold. The basis of these resource estimates has not been verified
by IMC.
5 Mexico
IMC visited the Moris project and the San Felipe prospect between the 12th and 23rd June 2006.
The Company have been completing Due Diligence diamond core drilling and sample analysis on
the site and completed the purchase of the project on 30 June 2006 with the relevant licences to
operate.
5.1 Maps and plans
The relevant maps and plans are included in Annex C.
Plate 16 ***********************************************
Plate 17 ***********************************************

Moris Project: Surface map with principal geological

features.
Moris Project: Longitudinal Profile of the El Creston Vein
and map at the 900m level.

5.2 Medium term projects

5.2.1 Moris mine (Mina Maria)
Hochschild signed a contract to purchase a 70 per cent. share of Minera Moris S.A. de C.V. (Moris
mine or Mina Maria) totalling 7,838 ha near the town of Moris in the State of Chihuahua on
30 June 2006 for an initial payment into a joint venture company of US$1.05 M (excluding taxes)
with Exmin as the other 30 per cent. owner. Hochschild will pay a further US$3.15 M (excluding
taxes) on completion of a satisfactory due diligence within 6 months. Additionally, Hochschild has
signed a separate contract on 17 June 2006 of Mining Exploration, Option for Assignment of
Rights, Option to Incorporate a New Company and Option to Execute a Shareholders Agreement
over approximately 9,889 ha in the surroundings of Moris mine. Hochschild also receives the right
to manage any operation. Hochschild is obliged to incur exploration expenses totalling US$4.8 M
over five years in annual tranches of US$0.4 M, US$0.6 M, US$0.8 M, US$1.0 M and US$2.0 M. plus
US$0.85 M in private placements into Exmin during this five year period. Hochschild has the
option to terminate the contract without penalty after the first year. This second contract is
designed to enable the Company to possibly increase its resource base to feed Moris mine in the
future.
The geological structure of the Moris region is underlain by a basement of moderately
metamorphosed Mesozoic sediments. A sequence of upper Cretaceous to lower Tertiary sediments
(volcanic tuffs, agglomerates and andesitic lavas) unconformably overlies the basement and dome
like intrusions of granitic stocks and flow-banded rhyolite occur. The stratigraphic sequence is
capped unconformably by an extensive layer of rhyolitic ignimbrite of middle Tertiary age which
forms prominent escarpments. The structure in the Moris region is dominated by normal faults of
N-S, NW-SE and NNE-SSW strike appearing to have controlled the local emplacement of flow312

banded rhyolite intrusions and the hydrothermal epithermal vein mineralisation. The LS has
undergone alteration at higher levels characterised by chalcedonic silica and the alteration is
phyllic and propylitic at deeper levels.
Three general areas of mineralisation are the Santa Maria-Tecolote area in the northern part of
the district, the El Pilar-Mesa de las Tunas area in the south eastern part of the district west of the
Moris township, and the La Cienega-Sahuayacan structural zone in the western part of the district.
Santa Maria vein system in the Santa Maria-Tecolote area was partly exploited by surface mining
at the Moris mine, vein outcrops have been identified as El Creston, San Luis and Eureka. The
system is exposed over a distance of about 1 km on the eastern margin of the Moris valley. The
host rocks are bedded conglomerate and volcanic flow breccia. The main vein system consists of a
west dipping zone of anastamosing milky quartz veins up to 10 m in width with typical epithermal
textures such as fine banding, tabular pseudomorphs and leached cavities. The Tecolote Vein
System is closely similar and exposed on the opposite, west side of the valley from the Moris mine.
Sampling has shown the presence of many gold-bearing veins and veinlets over an area of several
hundred meters width across strike and at least 2 km along strike with at least 500 m of vertical
extent.
Manhattan Minerals, the previous owner, calculated a mineable reserve of 4 Mt at a grade of
1.9 g/t gold and 8.75 g/t silver at a strip ratio of 1:1 (t:bcm). The mine closed in April 1999 having
produced about 50,000 oz of gold and 150,000 oz of silver from about 1.1 Mt of ore and
Manhattan Minerals published a formal estimate of remaining reserves comprising 3.1 Mt at a
grade of 1.9 g/t gold and 6.6 g/t silver.
The Moris mine, with a capacity of 1,095 ktpa, was operated by Minera Manhattan, S.A. de C.V.
between 1996 and 1999. The Company has recently acquired the mine and intend to recommission it back into production in 2007. The previously mined El Creston orebody, has a
minimum mining width of 2.0 m and a maximum 35 m averaging 13 m in thickness. The orebody
averages 45 to 50 in dip and outcrops along a 1,100 m strike length. The El Creston vein was
mined from 9.0 m benches using conventional blast, shovel and truck open pit methods. The
current planning envisages 5.0 m benches with the same method of mining at a strip ratio of
1:3.68 (t:t) ore to waste. Ore will be loaded from these benches into 33 t dump trucks carrying the
material down the haul road to the process plant primary crusher or to the waste dump. Haulage
distance from the pit is approximately 2.0 km and 1.5 km to the waste tip. Investigations into the
San Luis and Eureka veins as replacement ore for the El Creston orebody are ongoing.
IMC considers the proposed re-establishment of Moris mine achievable.
The Moris processing operation used crushing, agglomeration, leaching, carbon adsorption
desorption-recovery, electrowinning and smelting to produce dore.
The crushing plant capacity is now 1,095 ktpa after modification during Minera Manhattan
operational period, which is greater than the original design. IMC understand that the crushing
plant design and operation will be reviewed by Hochschild during recommissioning to achieve an
acceptable material size distribution for optimal leaching efficiency which, was not achieved in
the Minera Manhattan operational period. Mined ore was crushed in a three stage system,
agglomerated and then deposited onto the leach pads where the silver and gold was dissolved
into pregnant solution using sodium cyanide. The pregnant solution was pumped to activated
carbon columns adsorbing the silver and gold. The carbon was then transferred to the pressure
strip circuit using a cyanide and caustic soda solution to re-dissolve the metals. The strip solution
went into electrolytic cells where the gold and silver were precipitated onto steel wool. The steel

wool was then oxidized in a furnace to produce dore.

There are no fine tailings produced at Moris mine, the only waste is in the form of leached ore
deposited on the leach pads in accordance with a prescribed profile.
313

5.2.2 San Felipe exploration project

The San Felipe comprises of concessions totalling 548 ha located near the town of San Felipe de
Jesus and in the El Gachi y Moctezuma district and are currently owned by Grupo Serrana, S.A de
and Moctezuma, Mexico. The Company has a Contract of Mining
C.V. (GS) of San Felipe de Jesus
Exploration, Option to Acquire and of Promise to Incorporate a New Company, with Grupo
Serrana, S.A. de C.V. (GS), whereby the Company has an option to acquire up to 70 per cent. of all
the rights and ownership. Hochschild has paid US$0.2 M for the exploration rights with an
obligation to invest US$6.7 M in exploration, over 3 years. Hochschild will additionally invest
US$10.0 M for Gruppo Serrana and US$33.3 M in an incorporated New Company (exploitation),
for their 70 per cent. ownership. Hochschild have conceptual plans for the mine to be in
production by year 6 with a 730 ktpa process plant. The San Felipe mining concession was
operated by Grupo Serrana, S.A de C.V. (GS) from 1974 to 1991 operating a 100 tpd mill at San
Approximately 210,000 t was mined and milled from three local districts. It was
Felipe de Jesus.
estimated that the San Felipe district alone offered resources to support a viable mining operation
with an output in the range 1,000 tpd to 2,000 tpd. GS and Exmin de Mexico in association with
Boliden of Sweden commenced a detailed and systematic exploration of the district in 1997. The
Boliden exploration project commenced with geochemical and geophysical survey and geological
mapping focussing on a number of mineralized structures in the San Felipe concession area.
Subsequent diamond drilling revealed the La Ventana structure to be significant with lead-zinc
mineralisation including sporadic silver, copper and cadmium values. The programme reportedly
demonstrated an orebody of over 500 m length at an average thickness of 10 m and continuity in
depth of 300 m containing an Inferred Resource of 4.5 Mt with a combined content of 9.6 per
cent. zinc, lead and copper sulphides and silver content of 69.7 g/t over the western end of the
structure only comprising only two of the five structures identified. The Company is currently
engaged on verification drilling on the site and has thus far reported an Inferred Resource
essentially in line with that suggested by Boliden.
The mineralisation is hosted in rock units of Early Cretaceous age and appears controlled by the
contact between metamorphosed volcanics and clastic marine sediments and major Late
Cretaceous and Tertiary intrusives. The package of volcanics and associated sediments has been
folded and faulted to produce a general E-W strike. The La Ventana structure is expressed as a
very prominent wall of intensely oxide stained, massive silica and siliceous breccia striking roughly
east-west and can be traced for about 3 km making it the longest mineralized structure in the
district. The structure is sub-parallel to a contact between a package of mafic volcanics and fine
sediments, and a large area of quartz feldspar porphyry.
5.3 Long term prospects
5.3.1 San Luis del Cordero
Hochschild has entered into a contract to undertake exploration and evaluation with an option to
acquire all rights and ownership with the Mexican company Exploraciones del Altiplano S.A. de
C.V. (EA) holding title to a block of mining concessions to a potentially mineralised area totalling
2,825 ha. Hochschild has an obligation to pay up to US$0.5 M in fixed tranches of US$0.025 M, US$
on ratification of the contract, and thereafter US$0.25 M at the end of 6 months, US$0.05 at the
end of 12 months, US$0.1 M at the end of 24 and 36 months and US$0.2 M at the end of
48 months with proscribed exploration spends for each year, for a 100 per cent. option which may
be terminated at any time Should the agreement remain valid after 48 months from the date of
the agreement, Hochschild are obligated to execute the option. The consideration for the
execution of the option includes a 3 per cent. royalty on net smelter returns. Various shallow
mines have operated in the concession and district for polymetallic oxide ore during the 1950s and
1960s with the Santa Rosa mine reportedly producing a polymetallic ore grading 600 g/t to 700 g/t
silver and 2 per cent. to 3 per cent. copper. Three diamond core drillholes were drilled on the
Santa Rosa Vein in 2002 with intersections of a quartz sulphide vein of 0.37 m to 2.10 m width
with significant values of silver, zinc and copper and intersections of wallrock showing locally
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extensive replacement with zinc and copper sulphides. The principal structure is a recumbent
anticline affecting a sedimentary sequence of Jurassic to Cretaceous shales, sandstones and
limestones intruded by extensive stocks of granitic and dioritic composition. The sediments
around the intrusions show silicification and metamorphosis to hornfels with locally extensive
skarn alteration features. Remnant areas of Tertiary rhyolite volcanics display small intrusive
bodies and silicification, suggesting that the mineralisation event took place in the Tertiary
period.
The Santa Rosa vein shows marked zoning with the upper levels marked by jasperoids (amorphous
chalcedonic silica) and minor values of silver, antimony and copper zoning down to a copper-silver
orebody associated with coarse-grained crystalline quartz. The length and width of the Santa Rosa
vein oreshoot increases with depth and currently accessible old mine workings show this to be 2 m
wide and 150 m long. There are other extensive areas adjacent to the Santa Rosa mine which
exhibit abundant high-level jasperoids considered to be indicative of the potential for underlying
vein-hosted and carbonate replacement polymetallic mineralisation. The broader geological
environment is considered highly favourable for the generation of large scale replacement or
skarn deposits possibly supporting bulk mining extraction.
6 Further disclosure on mineral potential
The historical success and continuing capacity of the Company to maintain and expand the
reserves and resources base to assure continuing levels of production is dependent upon a
commitment to wide-ranging research, investigation and exploration of potential mineral
prospects. The company has an extensive portfolio of exploration targets at different stages of
evaluation. The Company necessarily maintains an internal assessment of mineral potential within
its exploration targets as the basis for planning exploration priorities and long term development
options. In the opinion of IMC this mineral potential is material in appreciating the reserve
replacement strategy and long term development prospects for the Company.
Information on the mineral potential in the exploration targets of the Company does not at
present meet internationally recognised criteria for expressing reserves and resources. However,
leading jurisdictions on mineral disclosure recognise that it is often appropriate that there is
disclosure of the mineral potential in exploration targets and the information supporting such
interpretation of potential, but always, without exception, that such disclosure cannot be
misconstrued or misrepresented as reserves or resources (JORC Code 2004, Section 18).
IMC has reviewed with the Company the various exploration targets summarised below. The
summary statement of potential for each target is expressed explicitly on the basis that) the potential range of quantity and grade is conceptual in nature, there has been insufficient
exploration to define a mineral resource on the target and it is uncertain if further exploration
will result in the discovery of a mineral resource on the target; and
) the mineral potential constitutes a possible mineral deposit that is to be the target of further
exploration.
The disclosure of mineral potential follows specific guidance in the JORC Code, Section 18 in
relation to mineral disclosure in exploration targets that the mineral potential should be
expressed as a range of quantity and grade, with explanation of the basis of the statement.
Internally, the Company takes a conservative approach to its assessment of mineral potential;
mineral potential is only recognised where supported by one or more intersections with grade
and width which meet current economic parameters, or where the lateral extent of mineralisation
is supported by physical sampling which indicates economic parameters will be met, or where the
lateral extent of mineralisation is known and its characteristics may be assessed on the basis of
immediately adjacent similar, economically delineated mineralisation.
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6.1 Peru
6.1.1 Arcata mining district
Mariana Vein NE: potential mineralisation is identified to the NE of existing operations in the
4,530 m level of the mine (average vein width 0.18 m, 3,355 g/t of silver and 11.3 g/t of gold), over
a length of 1,300 m to drillhole DDH-35 (intersection 1.35 m, 181 g/t of silver and 0.8 g/t of gold);
two intervening drillholes define continuity with a weighted average intersection of 0.64 m with
392 g/t of silver and 1.41 g/t gold. Known characteristics of the mineralisation in the mine indicate
a mineralized belt of 200 m to 250 m in height and an extractable width of 1.00 m to 1.50 m. The
mineralisation is open to the north-east. The range of mineralised potential is considered within
0.48 Mt to 1.36 Mt with 450 g/t to 550 g/t of silver and 1.5 g/t to 2.0 g/t of gold.
Mariana Vein SW: potential mineralisation is identified to the SW of existing operations in the
4,530 m level of the mine (average vein width 0.38 m, 6,354 g/t of silver and 29.6 g/t of gold) over
a length of 400 m to drillhole DDH-106 (intersection 0.15 m, 754 g/t of silver and 1.5 g/t of gold).
Known characteristics of the mineralisation in the mine indicate a mineralized belt of 220 m
height. The range of mineralised potential is considered within 0.2 Mt to 0.5 Mt with 150 g/t to
1,000 g/t of silver and 1.5 g/t to 14.0 g/t of gold.
Julia Vein: the potential mineralisation is in a vein sub-parallel with Mariana Vein System
identified through three drillhole intersections (DDH-117, DDH 119, DDH-80) with intersections
ranging 0.65 m to 1.63 m and grades ranging 592 g/t to 1,984 g/t of silver and 0.8 g/t to 4.4 g/t of
gold. Projected potential length of mineralisation is in excess of 750 m and the vertical extent of
mineralisation is anticipated to be 200 m, in line with experience with the adjacent veins. The
range of mineralised potential is considered within 0.5 Mt to 1.0 Mt with 500 g/t to 1,000 g/t of
silver and 1 g/t to 4 g/t of gold.
Macarena 2 Vein: the potential mineralisation is in one of a system of tensional veins oblique to
and on the south side of the main Macarena Vein. Experience of working the adjacent Macarena 1
Vein provides supporting data in addition to two drillholes in the Macarena 2 Vein (DDH-15-ME:
intersection of 0.40 m with 1,358 g/t of silver and 0.4 g/t of gold. DDH-20-E: intersection of 0.80 m
with 585 g/t of silver and 0.4 g/t of gold). A block of proven and probable reserves have formally
been reported and mineral potential is projected around this. Lateral extent of the potential
oreshoot is 400 m and vertical extent of mineralisation is expected to be 210 m. The range of
mineralised potential is considered within 0.2 Mt to 0.5 Mt with 500 g/t to 1,000 g/t of silver and
0.3 g/t to 0.5 g/t of gold.
Ramal Marion Vein: the potential mineralisation is in a transverse vein extending NNW-SSE
between the well-defined Marion and Mariana vein systems which are developed on a more
general E-W trend. The vein is defined by three drillhole intersections (DDH-22, DDH-115, DDH106) with intersections ranging 0.50 m to 1.40 m and grades ranging 549 g/t to 3,489 g/t of silver
and 0.5 g/t to 8.9 g/t of gold. The lateral extent of mineralisation is expected to be of 500 m
length, being limited between the major vein systems, and the vertical extent of mineralisation is
expected to be 220 m corresponding to the known mineralisation of the Marion Vein System. The
range of mineralised potential is considered within 0.2 Mt to 0.4 Mt with 500 g/t to 1,000 g/t of
silver and 0.5 g/t to 3.0 g/t of gold.
Pullallu Structure: mineral potential is in a structure of 3 km length located at the north-eastern
margin of the Arcata mining district at approximately 15 km from the centre of the main mining
field. Field mapping, trenches and geochemical sampling have identified a potential oreshoot of
750 m length; similar characteristics of mineralisation as in the main Arcata veins has been
assumed. The range of mineralised potential is considered within 0.7 Mt to 1.0 Mt with 100 g/t to
200 g/t of silver and 1.5 g/t to 2.0 g/t of gold.

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6.1.2 Ares mining district

Victoria Vein System: the mineral potential relates to the system of branches, splits and loops
which accompany the main vein and which have consistently contributed to new reserve tonnage
since commencement of exploitation. A significant component of the potential relates to the
projection of exploitable mineralisation beyond already evaluated resources in subsidiary veins
and loops of the Victoria Vein System. In general, the depth of the lower limit of mineralisation is
constrained but many oreshoots are open laterally. There is a current evaluation programme for
the halo of argillised alteration, up to 20 m wide, recognised at many points in cross-cuts
underground and drillholes, enclosing the vein system within the host environment of the
rhyolitic dome. In the 4,675 m level of the mine, composite widths of alteration ranging 1.30 m to
5.10 m have been determined with weighted average grades of 2 g/t to 360 g/t of silver and 2.6 g/t
to 20.8 g/t of gold over a strike length of 100 m. Economically significant potential in the argillised
alteration halo may extend as significant oreshoots at numerous points along each side of the
length of the vein system with a vertical extent of 150 m. A representative horizontal length of
500 m has been conjectured for projection of mineralised potential. The range of mineralised
potential is considered within 1.0 Mt to 1.5 Mt with 100 g/t to 200 g/t of silver and 3.0 g/t to
10.0 g/t of gold.
Paola Structure: the mineralised potential is in a vein structure identified 1.5 km to the north of
the Victoria Vein System. The structure does not outcrop and was discovered by diamond core
drilling. Based on two drillhole intersections (AS-0991: intersection of 1.35 m with 311 g/t of silver
and 0.23 g/t of gold. AS-1000: intersection of 0.94 m with 297 g/t of silver and 0.01 g/t of gold), an
oreshoot length of 800 m is projected with a vertical extent of mineralisation of 250 m. The range
of mineralised potential is considered within 0.5 Mt to 0.8 Mt with 200 g/t to 400 g/t of silver.
6.1.3 Selene mining district
Explorador/Sophia Vein System: the mineral potential relates to the system of branches, splits and
loops which accompany the main vein and which have consistently contributed to new reserve
tonnage since commencement of exploitation. Specific identified targets include the sub-parallel
Monica Vein, projected over a strike length of 1 km and indicated in three drillholes (DDH-MO 04,
DDH-MO 05, DDH 39S. Intersections of 0.55 m to 2.06 m with grades of 59 g/t to 276 g/t of silver
and 0.5 g/t to 0.9 g/t of gold) and also the Sofia Vein, projected along the Sofia Fault north of its
intersection with the main Explorador Vein for a distance of 1.5 km and indicated in 17 core
drillholes (intersections of 0.20 m to 2.75 m with grades of 2 g/t to 1,612 g/t of silver 0.3 to 11.6 g/t
of gold). Vertical extent of mineralisation in the Monica Vein is 265 m and in Sofia Vein 300 m. The
potential oreshoot in the Sofia Vein is projected as 600 m long with width of 1.75 m. The range of
mineralised potential is considered within 1.2 Mt to 1.5 Mt with 200 g/t to 400 g/t of silver and 1.0
g/t to 2.0 g/t of gold.
Huachuhuilca Breccia Structures: the mineral potential is a number of breccia structures identified
in an area approximately 7 km to the northwest of the Explorador Mine. The breccia structures
have been identified by surface mapping and geochemical sampling. Core drilling has commenced
on one of four identified breccia structures. Two drillholes have been completed on the first
structure (DDH-AO3: intersection of 13.3 m with 215 g/t of silver. DDH-AO8: intersection of 14.1 m
with 410 g/t of silver. Gold is present only as traces in both intersections). The lateral extent of the
structure established by mapping is over 200 m and indications are of mineralisation extending in
depth in excess of 150 m. The range of mineralised potential is based on expectation of economic
values in all of the four structures representing 2.0 Mt to 4.0 Mt with 200 g/t to 400 g/t of silver.
6.1.4 Pallancata
West Breccia Extension NW: the mineral potential is in the lateral extension to the northwest of
the main Pallancata system in the Huararani area. Drilling in the West Breccia area of the main
system demonstrates that the structure remains open to the northwest and the continuity has
been established by surface mapping. Lateral extent is taken as 500 m and based on the known
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West Breccia area, the width of mineralisation is taken as minimum 15 m and the vertical extent of
mineralisation as 250 m. Similar characteristics of mineralisation in the West Breccia Extension are
assumed. The range of mineralised potential is considered within 2.0 Mt to 5.0 Mt with 250 g/t to
300 g/t of silver and 1.0 g/t to 2.0 g/t of gold.
Mercedes Vein System: the mineral potential is in a vein complex located 1.5 km to the north of
the Pallancata system with general ENE-WSE strike converging on the Pallancata system. Surface
mapping has identified numerous outcrops of sub-parallel veins in this system over a strike length
of 1.3 km. The results of geochemical sampling confirm structural continuity. The projected
potential assumes similar characteristics of mineralisation to that known in the main Pallancata
system. The range of mineralised potential is considered within 1.0 Mt to 2.0 Mt with 250 g/t to
300 g/t of silver and 1.0 g/t to 2.0 g/t of gold.
6.2 Argentina
6.2.1 San Jose
Kospi Vein Extension: the mineral potential comprises a well-defined vein structure of length in
excess of 1.3 km, identified by drilling and geophysical survey. The structure remains open to
north and south and southwards continuation is strongly indicated. The vertical extent of
mineralisation is well-defined to a depth of 200 m with strong possibility of oreshoots with deeper
extent. The mineral potential is projected both to the north and south of the block of inferred
mineral resource which has been formally quoted. The potential is based on an area including 23
drillholes showing mineralised intersections of 0.53 m to 5.23 m with mineral content in the range
of 2 g/t to 4,567 g/t of silver and 1.9 g/t to 38.2 g/t of gold. The range of potential is considered to
fall within 1.1 Mt to 1.4 Mt with 200 g/t to 400 g/t of silver 3.0 g/t to 8.0 g/t of gold.
Frea Vein Extension: the mineral potential falls within a well-defined vein structure of length in
excess of 1 km, identified by drilling and geophysical survey. The structure remains open to north
and south. The vertical extent of mineralisation is well-defined to a depth of 220 m in the block of
probable reserves which has been formally quoted. Development work in the reserve block and
recent drilling confirms a vein structure with potentially productive splits, branches and loops. The
mineral potential is projected both to the north and the south of the block of probable reserves.
The projection to the north is supported by one drillhole (SJD-188: intersection of 2.51 m with 334
g/t of silver and 18.9 g/t of gold) 250 m north of the reserve block. The projection to the south is
supported by one drillhole (SJD-184: intersection of 1.83 m with 122 g/t of silver and 1.9 g/t of
gold) 110 m south-east of the reserve block. The range of potential is considered to fall within 1.0
Mt to 2.0 Mt with 120 g/t to 400 g/t of silver and 4.0 g/t to 9.0 g/t of gold.
Odin Vein System: the mineral potential falls within a well-defined vein structure of length in
excess of 1.6 km identified by drilling and geophysical survey. Two closely sub-parallel veins, Odin
A and Odin B, are identified diverging to the south-east. Odin A has been investigated by 8
drillholes of which three have intersections of economic significance (SJD-204: intersection of
12.31 m with 210 g/t of silver and 1.9 g/t of gold. SJD-199: intersection of 2.45 m with 45 g/t of
silver and 2.7 g/t of gold. SJD-210: intersection of 1.35 m with 188 g/t of silver and 8.6 g/t of gold).
These delineate a potential oreshoot of 800 m length with a vertical extent of 180 m. Odin B has
been investigated by 7 drillholes of which three have intersections of economic significance (SJD209: intersection of 2.53 m with 445 g/t of silver and 6.6 g/t of gold. SJD-205: intersection of 0.90 m
with 856 g/t of silver and 15.3 g/t of gold. SJD-201: intersection of 0.55 m with 91 g/t of silver and
8.7 g/t of gold) These delineate a potential oreshoot of 650 m length with a vertical extent of 60
m. The range of potential is considered to fall within 0.7 Mt to 1.7 Mt with 150 g/t to 500 g/t of
silver 4.0 g/t to 9.0 g/t of gold.
Ayelen Vein: the mineral potential is in a clearly defined vein identified over a length of 800 m by
geophysical survey and 5 drillholes. Two drillholes have intersected significant mineralisation (SJD200: 1.24 m with 152 g/t of silver and 1.4 g/t of gold. SJD-208: 12.26 m with 1,723 g/t of silver and
25.7 g/t of gold) which delineate a potential oreshoot of 600 m, open to the south-east with a
318

vertical extent of mineralisation 160 m to 200 m. The range of potential is considered to fall
within 0.5 Mt to 2.0 Mt with 150 g/t to 500 g/t of silver 4.0 g/t to 9.0 g/t of gold.
6.2.2 Sierra de las Minas
The prospect is currently under evaluation. An estimate of inferred resources of 144,000 t at two
targets with grades respectively of 8.1 g/t and 10.7 g/t gold was reported by earlier investigators
based on approximately 50 drillholes and surface geochemistry. This tonnage is incorporated in
the overall projection of mineral potential. The property includes numerous sub-parallel NWtrending veins for which a cumulative strike length of 15 km has been determined by mapping,
geochemical sampling and drillholes although economic mineralisation may be restricted to vein
flexures. Supergene enrichment appears locally to influence high grades near surface. At least six
separate targets for economic mineralisation have been identified, with considerable potential for
more as regional investigation progresses. Individual targets are assessed as each comprising
80,000 t to150,000 t conceptualised as each comprising a strike length of not less than 100 m with
mineralisation to 125 m depth and orebody width of 2.5 m. The range of potential is considered
to fall within 0.6 Mt to 1.0 Mt with 8.0 g/t to 15.0 g/t of gold.
6.3 Mexico
6.3.1 Moris prospects
Tecolote Vein System (underground): the mineral potential is within a vein system identified at
surface over a length of 2 km including old mine workings to shallow depth at a number of
points. The range in topographic height confirms the consistency of mineralisation within a
vertical interval in excess of 150 m. The structural control and mineralisation, comprising layered
silicification demonstrate close similarity to the parallel Santa Maria Vein System on the opposite
side of the Moris Valley which provides a model for assessing mineral potential. The width of
mineralised structure has been measured as 20 m and one surface channel sample has reported a
12 m section with 4 g/t gold. Mineralisation to shallow depth, no greater than 150 m is identified
for potential surface mine extraction. The range of potential is considered to fall within 2.0 Mt to
4.0 Mt with 6.0 g/t to 15.0 g/t of silver and 1.0 g/t to 2.0 g/t of gold. This vein system is considered
to host significant potential for ore-shoots at greater depth by analogy with the Ocampo mineral
district (8 km distant) which has closely similar structural control. However, quantification of this
potential will only be based on future drill intersections.
Mesa de las Tunas-El Pilar: the mineral potential is within a system of over 14 narrow veins, a
number of which hosted small mineral workings up to the 1950s. Identified cumulative continuity
of veins is over 500 m with vein widths of 0.28 m to 0.80 m with grades in the range of 137 g/t to
759 g/t of silver and traces to 30.4 g/t of gold. The range of potential is considered to fall within
0.3 Mt to 0.5 Mt with 100 g/t to 200 g/t of silver 10.0 g/t to 15.0 g/t of gold.
Finlandia: the mineral potential is within a structure comprising a narrow vein located within a
laterally continuous stockwork. The structure has been identified on the surface over 1 km within
which three exploration trenches have identified mineralisation over 400 m and sampled a
mineralised width ranging 6.0 m to 12.0 m. The three composite channel samples report grades of
166 g/t to 186 g/t of silver and 1.30 g/t to 1.79 g/t of gold. The range of potential is considered to
fall within 0.9 Mt to 1.8 Mt with 100 g/t to 200 g/t of silver and 1.0 g/t to 2.0 g/t of gold.
La Cienega: the area of mineral potential lies in the central part of the La Cienega structural zone
which extends for more than 7 km. The prospect comprises six veins, each of width ranging 0.50 m
to 1.00 m, identified in previous mine workings and for each of which a strike length of between
100 m to 300 m has been identified. Gold grades in the range 10.0 g/t to 15.0 g/t are reported but
have not been verified by formal sampling. The range of potential is considered to fall within 0.3
Mt to 0.6 Mt with 10.0 g/t to 15.0 g/t of gold.
Balleza: the area of mineral potential lies in the central part of the La Cienega structural zone
which extends for more than 7 km. The mineralisation comprises a wide silicified stockwork319

breccia zone at the contact with a rhyolite dyke. The width is interpreted to extend up to 50 m
and previous exploration has indicated a strike length up to 1 km. Limited rock chip and dump
sampling is reported to yield values of 25 g/t to 450 g/t of silver and 1.0 g/t to 3.5 g/t of gold.
Mineral potential is identified for bulk tonnage extraction for which the range of potential is
considered to fall within 5.0 Mt to 10.0 Mt with 30 g/t to 60 g/t of silver and 1.0 g/t to 2.0 g/t of
gold.
El Pinito: the area of mineral potential lies in a system of veins on the margin of the southern part
of the La Cienega structural trend. Artesanal underground working occurred until the 1990s in
narrow veins for high grade silver content plus significant gold. Later surface sampling and limited
drilling is reported to have identified a prospect for lower grade bulk tonnage mining
encompassing the narrow higher grade veins. Three exploration trenches report mineralised
zones ranging 3.0 m to 40.0 m with composite channel samples reporting grades of 16 g/t to 615
g/t of silver and 0.9 g/t to 5.4 g/t of gold. Mineral potential is identified for bulk tonnage
extraction for which the range of potential is considered to fall within 1.0 Mt to 2.0 Mt with 30 g/t
to 60 g/t of silver 1.0 g/t to 1.5 g/t of gold.
Prospect X: the area of mineral potential lies in the northern part of the La Cienega structural
zone consisting of volcanic hosted epithermal veins with gold mineralisation and subsidiary silver
in a well-defined structure of over 2 km length. This has been the site of medium-scale
underground mining from around 1900 to recent times working high grade veins in 7 levels and
for which resources of 12 Mt were reported with content of 26 g/t of silver and 2.4 g/t of gold. A
large area of silicification and veining occurs adjacent to the higher grade vein system. The
prospect offers potential for further investigation for vein-hosted mineralisation and for bulk
tonnage extraction of larger volumes of disseminated mineralisation. The range of potential is
considered to fall within 5.0 Mt to 10 Mt with 6 g/t to 15 g/t of silver and 1.0 g/t to 2.0 g/t of gold.
6.3.2 Mexico San Felipe
La Ventana: potential mineralisation has been identified through resampling and reinterpretation of the earlier Boliden drilling programme and by a recent and continuing
programme of four drillholes. The previous estimation of an inferred resource in the main La
Ventana structure has been confirmed as reported. The new drilling and interpretation process
indicates additional lateral continuous mineralised skarn structure sub-parallel to and below the
main La Ventana structure and also a previously unidentified mineralised silicified vein structure
sub-parallel to and above the main La Ventana structure. The lower skarn mineralisation has been
determined in two new drillholes, although full sample results have not yet been received. These
drillholes confirm the continuity of the mineralised structure determined and sampled in two of
the older Boliden drillholes (SF-98-01 and SF-99-09; intersections 8.00 m to 16.49 m; average values
of 49 g/t of silver, 1.46% lead, 6.21% zinc and 0.19% copper). Potential mineralisation of the skarn
structure is projected over a strike length of 200 m over a depth of 300 m and the range of
mineralised potential is considered within 1.5Mt to 2.0 Mt with 45 g/t to 50 g/t of silver, 1.0% to
2% lead, 4% to 7% zinc, 0.1% to 0.3% copper. The upper silicified mineralisation has been
determined in three older Boliden drillholes (SF-98-04, SF-99-09, SF-00-23), in one completed new
drillhole (HFLV-1) and in one new drillhole for which assay results are awaited. The potential
mineralisation is projected over a strike length of approximately 300 m within a mineralised belt
of 80 m vertical dimension and width of 1.6 m to 6.8 m and the range of mineralised potential is
considered within 0.3 Mt to 0.5 Mt with 20 g/t to 100 g/t of silver, 1% to 15% lead, 4% to 13%
zinc, 0.1% to 0.3% copper. The combined mineral potential of the La Ventana structure is
considered to be 1.5 Mt to 2.5 Mt within the indicated grade ranges.
Artemisia: the potentially mineralised vein structure is well identified and mapped on the surface
over a length of 1.5 km and was the site of localised surface mining and limited underground
extraction in the 1940s. Two drillholes in the Boliden programme (SF-00-16, SF-00-17) failed to
define the structure with certainty. The grade of mineralisation is known only from the reported
average values of the mine exploitation (70 g/t of silver, 10% lead, 15% zinc, 0.5% copper). The
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mineral potential is currently identified only to the east of the Boliden drillholes and between
points known from previous mining over a strike length of 300 m and assumes mineralisation over
a vertical interval of 200 m although future exploration will evaluate potential over the full length
of the structure which displays dimensions and mineralisation closely similar to the La Ventana
structure. The Company currently identifies mineralised potential of 2.5 Mt to 5.0 Mt with 50 g/t
to 80 g/t silver, 3% to 5% lead 7% to 10% zinc and 0.2% to 0.4% copper.
Las Lamas: the mineral potential comprises a silicified vein structure sub-parallel to the La
Ventana structure which has been identified by surface mapping over a strike length of 250 m. It
was the site of underground mining in the 1940s. Underground data covers a strike length of 100
m and indicates vein thickness of 1.2 m to 2.0 m and reported weighted average grades are 194
g/t of silver, 0.1% lead, 13% zinc and 0.2% copper. A single drillhole in the Boliden programme
(SF-00-21) intersected the structure at a depth of 50 m below the old workings with a cored length
of 2.35 m showing grades of 152 g/t of silver, 0.4% lead, 8% zinc and 0.2% copper. The range of
mineralised potential is considered within 0.2 Mt to 0.4 Mt with 150 g/t to 200 g/t of silver, 0.1%
to 0.4% lead, 8% to 13% zinc, 0.2% to 0.3% copper.
San Felipe: the potentially mineralised vein structure is well identified and mapped on the surface
over a length of 1.5 km and was the site of mining between the 1940s and 1980s, initially by
surface extraction and later through more extensive underground mining reaching a depth of 120
m and reported vein widths 5 m to 10 m. Two drillholes in the Boliden programme (SF-00-18, SF00-19) failed to define the structure with certainty and indicated local areas of reduced vein
width. The mineral potential is identified in the ore-shoots identified by mining to a depth of 230
m and with a composite strike length of 320 m and vein width 2.5 m to 10.0 m. However, the
structure is open over a strike length of 700 m to the east. The grade of mineralisation is known
only from the reported average values of the mine exploitation (84 g/t of silver, 3% lead, 9% zinc,
0.2% copper). The range of mineralised potential is considered within 1.5 Mt to 3.0 Mt with 20 g/t
to 40 g/t of silver, 2% to 3% lead, 3% to 4% zinc, 0.1% to 0.3% copper.
7 Special factors
Risks likely to impact on the Companys forecast production, capital and operating costs by less
than 10 per cent. are not considered significant. Any significant risks not adequately addressed in
the Companys production plans are considered to be material and are listed under Special
Factors following.
Risk
) The dependence on the use of mining contractors for mining operations. The Company does,
however employ a number of mining contracting companies and is not over reliant upon any
single Company.
) Any unforeseen political intervention such as the expropriation of all mineral assets and
operations.
Synergy
) The Company is based in a Spanish speaking country with experience of working in South and
Central American countries. It is, therefore, well placed to exploit opportunities in other Spanish
speaking countries within South and Central America.
8 Conclusions
IMC concludes from the independent technical review that:
) Managements geological and geotechnical knowledge and understanding is of a satisfactory
level to support short, medium and long term planning as appropriate and operations are well
managed;
321

) the mine plans appropriately consider geological and geotechnical factors to minimise mining
hazards;
) all statutory rights, permits and contracts are in place with the following exceptions. San Jose
has made an application for the exploitation of the reserves where approval has been granted
and certification is expected in late July 2006. Most of the permits and licenses for Moris mine
have now lapsed and require renewal prior to the resumption of production, which can be
expedited within the required timescale;
) the Companys mining equipment (either in place or planned in the capital forecasts) is suited to
its mine plans and is adequate, with minor adjustments, for the production plans;
) silver and gold ore processing plants and other infrastructure are capable of continuing to
supply appropriate quality products to the markets at the forecast production plans;
) the Companys policy of managing operations whilst engaging contractors to complete execute
the operations is a successful strategy providing flexibility. IMC believes that the Companys
relationship with the contractors is both good and effective;
) the Company has, as of 2006, instituted more stringent auditing of accident and incident
reporting with the introduction of OSHA 18001 planned for 2007. This has resulted in an
increase in the LTIFR as a result of more accurate reporting. The Company is firmly committed to
health and safety and is expect to demonstrate a sustained long term improvement.
) environmental issues are well managed and there are no issues that could materially impede
production nor are any prosecutions pending;
) the assumptions used in estimating both capital and operating costs are appropriate and
reasonable;
) capital and operating costs used in the financial models incorporating minor adjustments by
IMC reflect the mine plans, development and construction schedules and the forecast
production levels;
) special factors identified by IMC are well understood by management and appropriate action to
mitigate these risks is being taken. Further, the mine plans and cost forecasts appropriately
account for these risks; and
) management operates an excellent management accounting system and are able to monitor
and forecast production and cost parameters.
IMC has estimated the value of the Companys silver and gold assets at an operating level as
US$271.0 million and at a post tax level as US$210.8 million assuming a real discount rate of
6.0 per cent., and product prices, capital and operating costs and production forecasts which are
soundly based.
Yours Faithfully,
IMC Group Consulting Ltd
Innovate Office Building
Lake View Drive
Sherwood Park
Nottinghamshire NG15 0DT
United Kingdom
John S Warwick B Sc (Hons) FIMMM, C Eng, Eur Ing
Director
322

Distribution list
Competent Persons Report Hochschild Mining plc
Copy No.
Copies of this report have been distributed as shown below:
Copy No.

Type

CD

Recipient

Original

Yes

Hochschild

Original

Hochschild

Original

Hochschild

Original

Hochschild

Original

Hochschild

Copy

IMC Group Consulting Ltd, Nottingham

Copy

IMC Group Consulting Ltd, London

Project Personnel:
Key Words:

IMC, London; Silver; Gold; South America, Underground; Mexico

Signature

Name/Designation

Production:

N O Liddell
Project Manager

Verification:

C Wells
Contracts & Commercial Director

Approval:

J S Warwick

Date: 3 November 2006

Director Mining

323

Annex A
Qualifications of consultants
Annex AQualifications of consultants
*J S WarwickProject director
B Sc Electrical Engineering (Hons), Newcastle University (1973); B Sc Mining Engineering (Hons),
Nottingham University (1975); Mine Managers 1st Class Certificate; Fellow Institute of Materials,
Minerals and Mining; Chartered Engineer; European Engineer (Eur Ing). 28 years experience in the
coal, base metals and industrial minerals mining industry and 5 years of directing Competent
Persons Reports.
*N O LiddellProject manager and mining engineer
B Sc Mining Engineering, Leeds University (1974); S A mine Managers Certificate (Fiery Mines);
Member Institute of Materials, Minerals and Mining; Chartered Engineer. 30 years experience in
surface and underground metalliferous and coal mining and processing including 10 years in
precious and base metals and 12 in coal.
*Dr J A KnightGeologist
B Sc Geology, Aston University (1968); PhD Geology Sheffield University (1972); Fellow of the
Geological Society, London; Chartered Geologist; Member Society of Mining Engineers (US);
Member Institute of Directors. 32 years experience in metalliferous and coal geology including
7 years in precious and base metals.
Dr S HenleyGeologist
B Sc Geology (1st class Hons), Nottingham, 1967; Ph D Geology, Nottingham, 1970; Fellow
Geological Society of London; Deputy Chairman of Pan European Reserves Committee; Fellow
Institution of Materials, Mining and Minerals; Member of Applied Earth Sciences Board 2003
(IMMM); Charter Member International Association for Mathematical Geology. Chartered
Engineer. 36 years experience in the precious and base metals industry with particular expertise in
geological modelling being a founder of Datamine.
*Dr N HollowayMetallurgical process engineer
B Sc Joint Chemistry and Geology (Hons) Bristol University, (1971); M Sc Surface Chemistry and
Colloids (ThesisWettability of galena) Bristol University (1972); Ph D Minerals Engineering/
Chemical Engineering (ThesisSolid-liquid separation using polymer flocculants), Birmingham
University (1975); Fellow Institute of Materials, Minerals and Mining, Chartered Engineer. 30 years
experience in precious and base metals, industrial minerals and coal specifically in process
engineering.
*G TruslerEnvironmental engineer
B.Sc. (Chemical Engineering), M.Sc (Engineering) University of Natal, South Africa (1986, 1998).
B. Commerce 1993 University of South Africa. Registered Professional Engineer with the
Engineering Council of South Africa and the Institution of Engineers in Australia, Registered with
the South African Institute of Chemical Engineers, Member of the Water Institute of South Africa
and the American Society of Mining and Reclamation. 23 years of experience in the mining
industry in metallurgical production, research and environmental issues.
*denotes visited operations.

324

*Dr P TannerEnvironmental Engineer

B. Sc Agric Hons (London). University College of Rhodesia and Nyasaland, 1966; M. Phil. (soil
science). University of Rhodesia, 1976; PhD (Science). University of London, 1989. 16 years in the
agricultural soils industry followed by 26 years in the environmental, health and safety disciplines.
*D W GriffithsInfrastructure Engineer
B Sc Electrical Engineering (1st Class Hons) University of Cape Town, South Africa (1967); Member
Institution of Electrical Engineers; Member South African Institute of Electrical Engineers;
Chartered Engineer. 38 years experience in the infrastructure industry worldwide.
*Dr D T CarterTailings Dam Geotechnical Engineer
B Sc Civil Engineering, Leeds University (1965); Ph D Soil Mechanics, Leeds University (1968);
Chartered Engineer; Member Institution of Civil Engineers; Fellow Geological Society; Fellow
Institute of Materials, Minerals and Mining. 37 years in the design, operation and management of
major tailings dams.
P C RobinsonValuation Engineer
Associate, Chartered Institute of management Accountants 25 years experience in the mining,
minerals and consulting industry worldwide with specific experience of investment and mine
purchases including the first successful listing outside China of a Chinese coal mining company.

*denotes visited operations.

325

Annex B
Scope of work, limitations and exclusions, materiality
Scope of work
IMC carried out the following scope of work for the Mineral Experts Report (MER):
) Introductory meetings with Hochschilds directors and management to understand the business
plan;
) Site visits and collection of data. Consultants marked with an asterisk (*) in Annex A visited the
assets in Peru, Argentina and Mexico relevant to their disciplines and inspected:
) Geological maps, plans and sections;
) Mining operations and equipment;
) Silver and gold concentrating and leaching plants;
) Infrastructure including power, water, transport systems and maintenance facilities;
) Data and documentation was supplied to IMC personnel at each complex or site and financial
data at Hochschilds base in Lima. This included:
) Historical production and costs on an annual basis;
) Budgets and plans;
) Feasibility studies.
) A technical review was undertaken at each asset including the following elements:
) Data suitability;
) Geology and mining hazards;
) Resources and reserves;
) Silver and gold mining operations;

) Silver and gold ore processing to concentrates and dore;

) Environmental issues;
) Capital and operating costs;
) Review of budget forecasts;
) Valuation of reserves.
The CPR covers Hochschild Minings silver and gold operations that are materially relevant to the
valuation of the reserves estimated according to the JORC Estimation Methods for Reserves and
Resources, last revised in December 2004. IMC has reviewed the reserves and resources
statements of the individual units compiled by Hochschild Mining in compliance with Chapter 19
of the Listing Rules and in accordance with the criteria for internationally recognised reserve and
resource categories as included in the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (JORC code). IMC produced its report and valuation model
based on actual 2006 production data and Hochschild Minings 2006 to 2012 budget data.
326

Annex C
Maps, plans and drawings

327

328

329

330

331

332

333

334

335

336

337

338

339

340

341

342

343

Part XVI:
Definitions
The following definitions apply throughout this document unless the context requires otherwise:
Act or Companies Act ********

the Companies Act 1985 of England and Wales, as amended;

Admission *******************

admission of the Ordinary Shares to the Official List and to

trading on the London Stock Exchanges main market for listed
securities becoming effective in accordance with, respectively,
the Listing Rules and the Admission and Disclosure Standards;

Admission and Disclosure

Standards *****************

Articles *********************
Board, Board of Directors or
Directors ******************

the requirements contained in the publication Admission and

Disclosure Standards dated July 2005 containing, among other
things, the admission requirements to be observed by companies
seeking admission to trading on the London Stock Exchanges
market for listed securities;
the articles of association of the Company to be adopted,
conditional on Admission;
the directors of the Company, as set out in paragraph 1 of
Part III: Management, Corporate Governance and Major
Shareholders;

Capital Reduction************

the proposed reduction of capital to be undertaken by the

Company described in paragraph 2 of Part XIV: Additional
Information;

Cementos Pacasmayo ********

Cementos Pacasmayo S.A.A., a Peruvian listed company

controlled by Eduardo Hochschild and Alberto Beeck;

Combined Code *************

the Combined Code on Corporate Governance dated July 2003,

as amended;

COMEX *********************

the Commodity Exchange Division of the New York Mercantile

Exchange;

Company********************

Hochschild Mining plc, a company incorporated under the

Companies Act 1985 and registered in England and Wales with
registered number 5777693;

CREST***********************

the computerised settlement system operated by CRESTCo

Limited to facilitate the transfer of title to shares in
uncertificated form;

CRESTCo ********************

CRESTCo Limited, the operator of CREST;

CRU Strategies **************

CRU Strategies Limited;

Disclosure Rules *************

the rules relating to the disclosure of information made in

accordance with s.73A(3) of FSMA;

EBITDA *********************

has the meaning given to it in Presentation of Information

and in Part VII: Operating and Financial Review;

Exchange Act****************

the US Securities Exchange Act of 1934, as amended;

Executive Directors **********

the executive directors of the Company, Eduardo Hochschild,

Alberto Beeck and Roberto Danino;

344

Part XVI: Definitions

Financial Services Authority or
FSA ***********************

the Financial Services Authority of the United Kingdom in its

capacity as the competent authority for the purposes of Part VI
of FSMA and in the exercise of its functions in respect of the
admission to the Official List otherwise than in accordance with
Part VI of FSMA;

FSMA ***********************

the UK Financial Services and Markets Act 2000 (as amended);

GDP ************************

Gross Domestic Product;

Global Offer*****************

the offer of Ordinary Shares described in Part XII: Details of the

Global Offer;

GMT ************************

Greenwich Mean Time;

Goldman Sachs or Goldman

Sachs International ********
Group or the Hochschild
Mining Group, ************
Hochschild Group ************

Hochschild Mining or
Hochschild Mining plc******

Goldman Sachs International in its capacity as joint sponsor, joint

global co-ordinator and joint bookrunner;
the Company and its subsidiary undertakings;
the group of companies comprising minerals, cement and mining
divisions held by a Cayman Islands incorporated holding
company, which is, in turn, held by Eduardo Hochschild and
Alberto Beeck;
the Company or the Hochschild Mining Group, as the context
requires;

IFRS*************************

International Financial Reporting Standards, as adopted for use

in the European Union;

IMF *************************

International Monetary Fund;

IRS**************************

US Internal Revenue Service;

ISIN *************************

International Securities Identification Number;

ISO *************************

International Standards Organisation;

Johnson Matthey ************

Johnson Matthey plc;

Joint Sponsors, Joint Global

Co-ordinators or Joint
Bookrunners **************

JPMorgan Cazenove Limited and Goldman Sachs International;

JORC Code ******************

the Joint Ore Reserves Committee of the Australasian Institute of

Mining and Metallurgy, Australian Institute of Geoscientists and
the Minerals Council of Australia;

JPMSL***********************

J.P. Morgan Securities Limited;

JPMorgan Cazenove Limited**

JPMorgan Cazenove Limited in its capacity as financial adviser,

joint sponsor, joint global co-ordinator and joint bookrunner;

LIBOR ***********************

The London Interbank Offered Rate;

Listing Rules*****************

the rules relating to admission to the Official List made in

accordance with s.73A(2) of FSMA;
345

Part XVI: Definitions

London Stock Exchange ******

London Stock Exchange plc;

Major Shareholder ***********

Pelham Investment Corporation;

Managers *******************

JPMorgan Cazenove Limited, Goldman Sachs International, J.P.

Morgan Securities Limited, Canaccord Adams Limited and
Nomura International plc;

Member States **************

the member states of the European Union;

Noon Buying Rate ***********

the rate certified by the New York Federal Reserve Bank;

Non-Executive Directors ******

the non-executive directors of the Company, Sir Malcolm Field,

Jorge Born Jr., Nigel Moore and Dionisio Romero;.

Offer Price ******************

the price at which each Ordinary Share is to be issued under the

Global Offer;

Offer Shares*****************

the Shares proposed to be issued by the Company under the

Global Offer;

Official List ******************

the Official List of the Financial Services Authority;

Ordinary Shares *************

ordinary shares of 1 each in the capital of the Company;

OSHAS **********************

United States Occupational Safety & Health Administration

Standards;

Over-allotment Option *******

the over-allotment option granted by the Over-allotment

Shareholders to the Stabilising Manager under the Underwriting
Agreement;

Over-allotment
Shareholders **************

Eduardo Hochschild and Alberto Beeck;

Over-allotment Shares *******

the 11,587,500 Ordinary Shares which are the subject of the

Over-allotment Option;

Penoles
*********************

Industrias Penoles
S.A. de C.V.;

Prospectus ******************

this document relating to the Company and the Ordinary Shares

prepared in accordance with the Listing Rules and the Prospectus
Rules;

Prospectus Directive *********

European Union Directive 2003/71/EC;

Prospectus Rules *************

the rules made for the purposes of Part VI of the FSMA in

relation to offers of securities to the public and admission of
securities to trading on a regulated market;

Qualified Institutional Buyers

or QIBs *******************

has the meaning given by Rule 144A;

Registrar ********************

Capita IRG Plc;

Regulation S ****************

Regulation S under the Securities Act;

Regulations *****************

the Uncertificated Securities Regulations 2001 (as amended);

Relationship Agreement *****

the agreement summarised in Part III: Management, Corporate

Governance and the Major Shareholder;

RSA 421-B *******************

Chapter 421-B of New Hampshire Revised Statutes Annotated,

1955, as amended;
346

Part XVI: Definitions

Rule 144A *******************

Rule 144A under the Securities Act;

SDRT************************

Stamp Duty Reserve Tax;

Securities Act ****************

the US Securities Act of 1933, as amended;

Senior Management *********

those members of the Hochschild Mining Groups management

team, details of whom are set out in Part III: Management,
Corporate Governance and the Major Shareholder;

Shareholders ****************

holders of Ordinary Shares;

Stabilising Manager**********

JPMorgan Cazenove Limited;

Treasury Regulations *********

the regulations of the IRS, United States Department of the

Treasury;

Underwriters ****************

Canaccord Adams Limited, Goldman Sachs International,

J.P. Morgan Securities Limited and Nomura International plc;

Underwriting Agreement ****

the agreement entered into on 3 November 2006 between the

Company, the Directors and the Managers, details of which are
set out in paragraph 11 of Part XIV: Additional Information;

United Kingdom or UK*******

the United Kingdom of Great Britain and Northern Ireland;

United States or US **********

the United States of America, its territories and possessions, any

state of the United States of America and the District of
Columbia;

US GAAP ********************

generally accepted accounting principles in the US; and

UTM co-ordinates************

co-ordinates from the Universal Transverse Mercator coordinate

system, which provides co-ordinates on a worldwide flat grid for
easy computation.

347

Part XVII:
Glossary of technical terms
The following is a glossary of technical terms used in this document.
US$ *************************

United States Dollars.

Acidic ***********************

Referring to silica-rich igneous rocks in which quartz is an

essential constituent.

Agglomerate ****************

Fragmental volcanic rock comprising coarse accumulations of

angular large blocks enclosed by finer volcanic debris.

Air pollution ****************

The presence of contaminant or pollutant substances in the air

that do not disperse properly and interfere with human health
or welfare or produce other harmful environmental effects.

Andesite ********************

A fine-grained volcanic rock of intermediate composition

(between acidic and basic) comprised primarily of plagioclase
(sodium-calcium) feldspar and a range of mafic minerals; quartz
is generally absent.

Anomolies ******************

Geological variations.

Anticline ********************

A fold of strata that is convex upwards; the strata dip away from
the axial plane. Factor used to adjust estimates for construction.

Argentite *******************

Mineral- silver sulphide (Ag2S).

Argillic **********************

With reference to hydrothermal alteration of igneous rocks

around a mineralised orebody, where the original rock has been
more or less altered to a characteristic assemblage of clay
minerals, quartz and pyrite.

Assay ***********************

The analysis of the percentage of particular elements or

compounds in a given sample.

Atomic Absorption **********

An analytical technique, used to determine the elemental

composition and concentration of metals and other inorganic
elements.

Backfill**********************

Waste sand, rock and classified mill tailings used to fill voids in
mines after removal of ore from stopes or other underground
openings.

Backfilling*******************

The operation of depositing waste into a previously mined out

void.

Bank cubic metre, (bcm) *****

One cubic metre of in-situ undisturbed rock (ore or overburden).

Basalt ***********************

A fine-grained volcanic rock of basic composition composed

primarily of plagioclase (sodium-calcium) feldspar of
predominantly calcic type and pyroxene with a range of other
mafic minerals.

Basic ************************

Referring to silica-poor igneous rocks.

bcm ************************

Abbreviation for bank cubic meter being the volume of material

measured in-situ before excavation.

bcm/t ***********************

Abbreviation for bank cubic meter per tonne.

348

Part XVII: Glossary of technical terms

Bench***********************

A near horizontal working area in a mine at least one side of

which is defined by a significant vertical drop.

Best Practice ****************

Operating procedures that are recognised in the international

mining community which maximise productivity and return on
investment commensurate with stewardship of the assets.

Billion **********************

One thousand million.

Borehole ********************

A hole made with a drill, auger or other tool for exploring strata
in search of minerals.

Breccia, brecciation **********

Rock texture of coarse angular fragments in a finer matrix; the

act of breaking a rock into angular fragments due to explosive
forces (volcanic) or physical stress (faults, tectonic contacts).

Brownfields *****************

Previously used industrial sites suitable for redevelopment.

BS **************************

British Standards.

By-product ******************

Material, other than the principal product, that is generated as a

consequence of an industrial process.

Cadmium (Cd) ***************

A heavy metal element that accumulates in the environment.

Caldera *********************

A generally circular volcanic feature caused by collapse of a

volcano into itself, usually triggered by emptying of the
underlying magma chamber due to a volcanic eruption.

Capex***********************

Capital expenditure.

Cash Flow *******************

The net sum of cash generated and spent by a business, usually

computed on an annual basis.

CESR ************************

The Committee of European Securities Regulation.

Chalcedony******************

Mineral- a mixture of crystalline silica, SiO2, and amorphous

hydrated silica, SiO2.nH2O.

Chalcopyrite*****************

Mineral- sulphide of copper and iron, CuFeS2.

Chemical treatment **********

Any one of a variety of technologies that use chemicals or a

variety of chemical processes to treat waste.

Chrysocolla ******************

Mineral- a hydrated silicate of copper, CuSiO3.2H2O

Clastic **********************

Texture comprising a mass of discrete particles and grains

cemented together.

Clean-up ********************

Actions taken to deal with a release or threat of release of a

hazardous substance that could affect humans, the environment,
or both. The term is sometimes used interchangeably with the
terms remedial action, removal action, response action, or
corrective action.

COMEX *********************

Commodity Exchange Division of the New York Mercantile

Exchange.

Competent ******************

A qualitative term for a rock mass which is, unbroken, strong and
resistant to failure.

Concentrate *****************

Material that has been separated from an ore which has a higher
concentration of mineral values than the mineral values
349

Part XVII: Glossary of technical terms

originally contained in the ore. Concentrates are produced in a
plant called a concentrator.
Concentrator ****************

Equipment used in the reduction of ore.

Conglomerate ***************

A sedimentary rock consisting of rounded fragments of other

rocks.

Contaminant ****************

Any physical, chemical, biological, or radiological substance or

matter that has an adverse affect on air, water, or soil.

Core ************************

A cylindrical sample taken using a core barrel and usually a

diamond drill.

Covellite ********************

Mineral- copper sulphide, CuS.

Cross Section ****************

A diagram or drawing that shows features transected by a

vertical plane drawn at right angles to the longer axis of a
geologic feature.

Crush, Crushing, Crushed *****

A mechanical method of reducing the size of rock.

Crusher *********************

A machine for crushing rock.

Cu **************************

Copper metal.

Cut and Fill *****************

A method of stoping in which ore is removed in slices, and the

resulting excavation filled with waste material (backfill) which
supports the walls of the stope when the next cut is mined.

Cutoff Grade ****************

The lowest grade of mineralised material considered economic

to extract; used in the calculation of the ore reserves in a given
deposit, and in operations to segregate ore and waste.

Dacite **********************

A fine-grained volcanic rock of intermediate composition

(between acidic and basic) with a predominance of plagioclase
(sodium-calcium) feldspar over alkai (potassium-sodium)
feldspar; frequently quartz phenocrysts are present.

Decomposition **************

The breakdown of matter by bacteria and fungi; changes the

chemical makeup and physical appearance of materials.

Deposit *********************

An area of mineral resources or reserves identified by surface

mapping, drilling or development.

Development ****************

(i) The initial stages of opening up a new mine, and/or

(ii) The tunnelling to access, prove the location and value, and
allow the extraction of ore.

Diamond Drilling or Core

Drilling *******************

A drilling method, where the rock is cut with a diamond bit,

attached to hollow rods. It cuts a core of rock, recovered in
cylindrical sections for geological analysis.

Dilution *********************

Waste which is intermingled with ore in the mining process.

Diorite **********************

A coarse-grained igneous rock of intermediate composition

(between acidic and basic) with predominant plagioclase
(sodium-calcium) feldspars and mafic minerals in which
hornblende is most characteristic.
350

Part XVII: Glossary of technical terms

Dip(s)referring to reef or
geology *******************
Discount Rate ***************
Discounted Cash Flows
(DCF) *********************

The angle at which a reef, stratum, vein seam or bed is inclined

from the horizontal.
The interest rate at which the present value, if compounded, will
yield a cash flow in the future.
The present value of future cashflows.

Disposal*********************

Final placement or destruction of toxic, radioactive, or other

wastes; surplus or banned pesticides or other chemicals; polluted
soils; and drums containing hazardous materials from removal
actions or accidental releases.

Disseminated ****************

A mineral deposit in which minerals occur as scattered particles

in the rock.

Dissolved solids **************

Disintegrated organic and inorganic material contained in water.

Excessive amounts make water unfit for drinking or for use in
industrial processes.

Dore ************************

Dore bullion is an impure alloy of gold and silver and is generally

the final product of mining and processing; the dore bullion will
be transported to be refined to high purity metal.

Drillhole ********************

A circular hole made in rock, often in conjunction with a core

barrel in order to obtain a core sample.

Drivages ********************

Any development excavation.

Dump***********************

A site used to dispose of solid wastes without environmental

controls.

Dumper *********************

An off-highway, rear dump, haul truck which may be either rigid

framed or articulated.

Effluent *********************

Wastewatertreated or untreatedthat flows out of a

treatment plant, sewer, or industrial outfall; generally refers to
wastes discharged into surface waters.

Electrum ********************

mineral- a naturally occurring alloy of gold with silver.

Emission ********************

Pollution discharged into the atmosphere from smokestacks,

other vents, and surface areas of commercial or industrial
facilities, from residential chimneys; and from motor vehicle,
locomotive, or aircraft exhausts.

Emission standard ***********

The maximum amount of airpolluting discharge legally allowed

from a single source, mobile or stationary.

Enargite ********************

Sulfosalt mineral- sulphide of copper and arsenic, Cu3AsS4.

Environment ****************

The sum of all external conditions affecting the life,

development, and survival of an organism.

Environmental audit *********

1. An independent assessment of the current status of a partys

compliance with applicable environmental requirements.
2. An independent evaluation of a partys environmental
compliance policies, practices, and controls.
351

Part XVII: Glossary of technical terms

Environmental impact
assessment (EIA) ***********

A process whose breadth, depth, and type of analysis depend on

the proposed project. An EIA evaluates a projects potential
environmental risks and impacts in its area of influence and
identifies ways of improving project design and implementation
by preventing, minimizing, mitigating, or compensating for
adverse environmental impacts and by enhancing positive
impacts.

Epithermal ******************

Near-surface ore-forming processes from which the mineral

phases characteristically occur in veins.

Exploitation *****************

The process of extracting benefit from a resource.

Exploration******************

Prospecting, sampling, mapping, diamond drilling and other

work involved in the search for mineralisation.

Fault************************

A structural discontinuity in the earths crust formed by a break

and or movement between adjacent blocks resulting from
tectonic forces.

Feasibility Study *************

A comprehensive engineering estimate of all costs, revenues,

equipment requirements and production levels likely to be
achieved if a mine is developed. The study is used to define the
technical and economic viability of a project and to support the
search for project financing.

Feldspar porphyry ***********

A medium-grained igneous rock of intermediate composition

(between acidic and basic) in which feldspar crystals occur as
large inclusions (phenocrysts) within the finer grained
groundmass.

Float************************

The product of the flotation process.

Flotation ********************

A recovery process by which valuable minerals are separated

from waste to produce a concentrate. Selected minerals are
induced to become attached to air bubbles and float.

Footwall ********************

The underlying side of a fault, an orebody, or mine workings. An

assay footwall is the lower surface of an orebody which
separates ore- and waste-grade material.

Freibergite ******************

Sulfosalt mineral- a silver rich variety of tetrahedrite(Ag, Cu Fe)12(Sb. As)4S13.

Froth flotation **************

A system for separating metals from waste by attaching metal

particles to air bubbles that for a froth to be scraped off and
dewatered.

Galena **********************

Mineral- lead sulphide, PbS.

GEKKO**********************

A type of reactor vessel for processing concentrate into a metal

alloy.

Geological assurance *********

The state of sureness, confidence, or certainty of the existence of

a quantity of resources based on the distance from points where
ore is measured or sampled, and on the abundance and quality
of geological data as related to thickness of overburden, rank,
quality, thickness of ore, areal extent, structure, and the
correlation of ore bodies and their enclosing rocks. The degree
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Part XVII: Glossary of technical terms

of geological assurance increases as the nearness to points of
control, abundance, and quality of data increases.
Grade***********************

The relative quality or percentage of metal content.

Grade (ore) *****************

The classification or value of ore.

Grade Cutting ***************

The point at which ore is selected or rejected on the basis of its

grade.

Granite, granitic *************

A coarse-grained igneous rock of acid (silica-rich) composition

with predominant alkali (potassium-sodium) feldspars.

Granitoid *******************

A general term used to embrace a range of intrusive rocks of

generally granitic composition.

Granodiorite ****************

A coarse-grained plutonic rock between granite and diorite in

composition.

Grinding ********************

Size reduction of crushed rock into relatively fine particles.

Grizzly Screen ***************

Coarse screen usually located at a loading point.

Groundwater ****************

The supply of water found beneath the Earths surface (usually in

aquifers), which is often used for supplying wells and springs.

Haematite*******************

Mineral- iron oxide, Fe2O3.

Hangingwall ****************

The wall or rock on the upper side of the inclined orebody (the
roof).

Haul Truck ******************

A self propelled vehicle used to transport material.

Hazardous wastes ***********

By-products of society that can pose a substantial or potential

hazard to human health or the environment when improperly
managed. Substances classified as hazardous wastes possess at
least one of four characteristicsignitability, corrosivity,
reactivity, or toxicityor appear on special lists.

Heavy metals ****************

Metallic elements with atomic number greater than 20, such as

mercury and lead. They can damage living things at low
concentrations and tend to accumulate in the food chain.

Hornfels ********************

A rock type derived from high temperature metamorphism,

characteristically hard and brittle due to reconstitution of the
original rock into an equigranular mineral assemblage.

Hyaline *********************

A term meaning colourless and transparent; descriptive of glassy,

transparent quartz.

Hydrothermal ***************

Processes related to hot aqueous solutions, commonly related to

magmatic sources, which transport and concentrate ore-forming
minerals.

Igneous *********************

Rocks which have solidified from the molten state.

Ignimbrite, ignimbritic *******

A compact volcanic pyroclastic rock of rhyolitic composition;

deposition from a sheetflow of volcanic ash creating a welded
tuff with characteristic flattened pumice streaks referred to as
fiamme.

In Situ **********************

In place, i.e. within unbroken rock.

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Intrusive ********************

Rocks which are injected in a molten state into pre-existing rock.

IPD *************************

Inverse Power of Distance is a method of estimation of an

unknown value, for example at the centre of a block in a block
model, from neighbouring known sample values; the influence
of each of the adjacent known samples is weighted to reflect
relative proximity to the estimation point, by factoring the
known value by the inverse of the interpolation distance to a
specified power, commonly squared.

Jasperoid********************

Fine grained siliceous replacement of carbonate-bearing rocks;

by definition it comprises more than 95% replacement quartz.

Jaw crusher *****************

A crusher that crushes material between two oscillating plates.

km *************************

Kilometre.

koz *************************

Thousand troy ounces.

Kriging *********************

A geostatistical interpolation technique to produce the best

estimation of an unknown value, for example at the centre of a
block in a block model, from a distribution of sample values.

kt **************************

Thousand metric tonnes.

ktpa ************************

Thousand metric tonnes per annum.

kV **************************

kilo Voltthousand volts

Leach Process****************

To dissolve mineral or metals out of the ore using acids or other

solutions.

Leachate ********************

A liquid that results when water collects contaminants as it

trickles through wastes, agricultural pesticides, or fertilizers.

Leaching ********************

The process by which soluble constituents are dissolved and

carried down through the soil by a percolating fluid. Leaching
may occur in farming areas, feedlots, and landfills and may result
in hazardous substances entering surface water, groundwater, or
soil. See also Leachate.

Lease ***********************

Contract between two parties enabling one to search for and/or

produce minerals from the others property.

Lithology********************

The descriptive character of a sedimentary rock based on the

composition and mineralogy.

LME ************************

London Metal Exchange.

Load-out ********************

Clearing debris or mineral onto the transport system usually

after blasting.

LOM ************************

Life of Mine.

Losses Geological ************

Ore lost due to unpredictable geological phenomena.

LossesMining **************

Ore lost due to less than perfect mining operations.

LSE *************************

London Stock Exchange.

LTIFR************************

Lost Time Injury Frequency Rate, measured per one million

manhours.

m***************************

Metre.
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M **************************

Million.

Malachite *******************

Mineral- hydrated carbonate of copper, CuCO3.Cu(OH)2; bright

green mineral characteristic of the oxidation zone of copper
deposits.

Marcasite *******************

Mineral- variant of pyrite known as white iron pyrites, FeS2.

Measured Resources *********

Identified bodies of virgin ore reserves having a high degree of

geological assurance.

Mechanised Mining **********

Mining operations which are partly or fully conducted using

machines powered by electricity or diesel fuel.

Merrill-Crowe Plant **********

A type of processing plant which produces a metal alloy from a

mineralised solution.

Mesozoic********************

An era of geological time between the Palaeozoic and Cenozoic

eras, and comprising the Triassic, Jurassic and Cretaceous periods.

Metallurgical Recovery *******

Proportion of metal in plant feed which is recovered by a

metallurgical process or processes.

Metallurgy ******************

The practice of extracting metals or minerals from ores and

preparing them for sale.

Metamorphic,
metamorphosed ***********

Rock types transformed through the action of heat and pressure

from existing rocks.

Migmatite*******************

A metamorphic rock texture in which two or more rock types are

interlayered and one at least is an igneous rock; considered to be
a partially melted rock formed during regional metamorphism.

Mill Feed Grade *************

The grade of material feed to the mill, equivalent to received at

mill.

Milling/Mill******************

The comminution of the ore, although the term has come to

cover the broad range of machinery inside the treatment plant
where the minerals and or metals are separated from the ore.

Mineable********************

Capable of being mined under current mining technology and

environmental and legal restrictions, rules and regulations.

Mine Manager **************

Any person who is statutorily responsible for the safe operation

of the mine.

Mineral Deposit *************

A mineral occurrence of sufficient size and grade to have

potential or existing commercial value; sometimes referred to as
mineralisation.

Mineral Potential ************

A portion of a mineral occurrence which is not well known, and

for which tonnage and grade estimates may be unreliable.

Mineral Rights***************

The ownership of the minerals on or under a given surface with

the right to remove the said minerals.

Mineralisation ***************

Any mass of host rock in which minerals of potential commercial

value occur.

Mining Licence **************

Permission to mine minerals from a Mineral Rights area.

Mining Permit ***************

Permission to mine minerals from a Mineral Rights area.

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Mitigation ******************

Measures taken to reduce adverse impacts on the environment.

Monitoring******************

Periodic or continuous surveillance or testing to determine the

level of compliance with statutory requirements or pollutant
levels in various media or in humans, animals, and other living
things.

Moz ************************

Million troy ounces.

Mt**************************

Million metric tonnes.

Net present value, (NPV) *****

The present value of the net cashflow of the operation,

discounted at a rate, which reflects a combination of the cost of
capital of the company and the perceived risk attaching to the
project or operation.

No. *************************

Number.

Normal fault ****************

A linear fracture of crustal rocks attributed to a tensional

regime; the fault plane commonly dips at around 60 degrees and
the principal movement is essentially perpendicular to the strike,
the hanging-wall subsides relative to uplift of the foot-wall.

NPV ************************

Net present value.

Open Pit ********************

Surface mining in which the ore is extracted from a pit. The

geometry of the pit may vary with the characteristics of the
orebody.

Ore *************************

Material that contains one or more minerals, at least one of

which has commercial value and which can be recovered at a
profit.

Orebody ********************

A continuous well defined mass of material of sufficient mineral

content to make extraction economically feasible. The term
orebody is often used to denote locations of mineralised
deposits that may or may not be economic.

Oreshoot********************

A high grade concentration in a vein or other orebody.

Original resources ***********

The amount of ore in-situ before production. Where mining has

occurred, the total of original resources is the sum of the
identified resources, undiscovered resources, ore produced, and
ore lost in mining.

Ounce or oz*****************

A troy ounce.

Outcrop*********************

A manifestation of a deposit at the Earths surface.

Outfall **********************

The place where an effluent is discharged into receiving waters.

Overburden *****************

Sterile soil and rock material overlying the ore.

Pegmatoid Intrusion(s) *******

A very coarse grained pegmatic facies of igneous rock.

Permeability*****************

The rate at which liquids pass through soil or other materials in a

specified direction.

Permit **********************

An authorization, license, or equivalent control document issued

by an approved agency to implement the requirements of an
environmental regulation; e.g., a permit to operate a
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Part XVII: Glossary of technical terms

wastewater treatment plant or to operate a facility that may
generate harmful emissions.
pH**************************

Logarithm of the reciprocal of hydrogen concentration in

moles/litre, giving a measure of acidity or alkalinity.

Phyllic **********************

With reference to hydrothermal alteration of igneous rocks

around a mineralised orebody, where the original rock has been
more or less altered to a characteristic assemblage of sericite
(white mica), quartz and pyrite.

Pit Head Value **************

Value at the mine surface net of any transport costs.

Plant************************

Fixed or moveable equipment required in the process of winning

or processing the ore.

Plutonic *********************

Intrusive igneous rocks which solidify at depth in the earths

crust.

Pollutant ********************

Generally, the presence of matter or energy whose nature,

location, or quantity produces pollution.

Polybasite *******************

Sulfosalt mineral, sulphide of silver, antimony, copper and

arsenic- (Ag.Cu)16 (SbAs)2 S11.

Polymetallic *****************

Vein and replacement ore deposits which contain a range of

sulphide minerals and in particular iron, lead, zinc and copper
sulphides.

Porphyry; porphyritic ********

Igneous rock and rock texture in which larger crystals

(phenocrysts) are set in a fine-grained groundmass.

ppm/ppb ********************

Parts per million/parts per billion, a way of expressing tiny

concentrations of pollutants in air, water, soil, human tissue, and
food and or other products.

Probable Reserves ***********

Those reserves which are the economically mineable part of the

Indicated Reserves.

Propylitic********************

With reference to hydrothermal alteration of igneous rocks

around a mineralised orebody, where the original rock has been
more or less altered to a characteristic assemblage of chlorite,
epidote and magnetite.

Prospect ********************

A mineral deposit with insufficient data available on the

mineralisation to determine if it is economically recoverable, but
warranting further investigation.

Proustite ********************

Sulfosalt mineral also known as light ruby silver, sulphide of

silver and arsenic- Ag3AsS3.

Proven Reserves *************

Those reserves which are the economically mineable part of the

Measured Reserves.

Pseudomorph ***************

A crystal form in which a mineral assumes the crystal shape of

another mineral; commonly due to replacement of a previous
mineral by a later mineral which then occupies the previous
space.

Pyrargite ********************

Sulfosalt mineral also known as dark ruby silver, sulphide of

silver and antimony- Ag3SbS3.
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Part XVII: Glossary of technical terms

Pyrite ***********************

Mineral- iron sulphide, FeS2.

Pyroxenite ******************

A coarse grained, hollocrystalline igneous rock comprised chiefly

of pyroxenes.

Quaternary******************

A period of geological time conventionally defined as extending

from the Tertiary Period through to the present, extending from
1.8 My ago; recent international classifications have suppressed
this period which has been incorporated within the Neogene
system.

Recoverable *****************

When applied to reserves and resources, equivalent to run-ofmine basis, i.e. the grade and tonnage of material produced at
the pit rim or shaft collar stated on a dry basis.

Recoverable Reserves ********

The reserves that are or can be extracted during mining.

Recoverable Reserves are obtained by deducting anticipated
geological and mining losses, areas of inferior ore quality from
the Proven and Probable Reserves.

Recovery Factor *************

In mining, the ratio of recovered tonnage, grade, metal content

to in situ tonnage, grade, metal content.
In metallurgical operations the percentage of contained metal in
feed to a plant that is recovered to a valuable product.

Reef(s) **********************

A layer, vein or lode containing economic mineralisation.

Refinery*********************

An industrial installation where a substance is refined.

Rehabilitation ***************

Restoring land to its former condition.

Remaining resources *********

The resources in the ground in a mine or deposit after some

mining has taken place.

Reserve base ****************

Those parts of the identified resources that meet specified

minimum modifying factors (consideration of mining,
metallurgical, economic, marketing, legal, environmental, social
and governmental factors). The reserve base is the sum of the insitu demonstrated (measured plus indicated) resource from
which the reserves are estimated.

Reserve(s) *******************

Refer to Joint Ore Reserve Committee (JORC) Code.

Reserve(s)Probable *********

Refer to Joint Ore Reserve Committee (JORC) Code.

Reserve(s)Proved***********

Refer to Joint Ore Reserve Committee (JORC) Code.

Reserves ********************

Virgin and/or accessed parts of a ore reserve base, which could

be economically extracted or produced at the time of
determination, considering environmental, legal and
technological constraints. Reserves do not include ore losses due
to mining or geological factors and include dilution.

Residual*********************

Amount of a pollutant remaining in the environment after a

natural or technological process has taken place, e.g., the sludge
remaining after initial wastewater treatment, or particulates
remaining in air after the air passes through a scrubbing or other
pollutant removal process.

Resource(s) ******************

Refer to Joint Ore Reserve Committee (JORC) Code.

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Part XVII: Glossary of technical terms

Resource(s)Indicated *******

Refer to Joint Ore Reserve Committee (JORC) Code.

Resource(s)Inferred ********

Refer to Joint Ore Reserve Committee (JORC) Code.

Resource(s)Measured*******

Refer to Joint Ore Reserve Committee (JORC) Code.

Rhodochrosite ***************

Mineral- manganese carbonate, MnCO3.

Rhodonite*******************

Mineral- manganese silicate, MnSiO3.

Rhyo-dacitic *****************

Referring to fine-grained volcanic rock of essentially acid

composition intermediate between rhyolites and dacites.

Rhyolite*********************

A fine-grained volcanic rock of acid composition comprising

predominantly alkali (potassium-sodium) feldspar and
characteristically with free silica in the form of quartz crystals.

RightsSurface Rights *******

The ownership of the surface land under which minerals occur.

Royalty *********************

A share of the product or profit reserved by the owner for

permitting another to exploit the property.

Ruby silver ******************

A group name for two closely related sulfosalts of silver

characterised by their red colour: pyrargite and proustite.

Sampling********************

Taking small pieces of rock at intervals along exposed

mineralisation for assay (to determine the mineral content).

Screen **********************

A device for separating by size.

Sedimentation***************

Letting solids settle out of wastewater by gravity during

wastewater treatment.

Sediments *******************

Soil, sand, and minerals washed from land into water, usually
after rain. Sediments pile up in reservoirs, rivers, and harbours,
destroying fish-nesting areas and holes of water animals and
clouding the water so that needed sunlight may not reach
aquatic plants. Careless farming, mining, and building activities
will expose sediment materials, allowing them to be washed off
the land after rainfalls.

Sericite**********************

A variety of common mica (muscovite), a silicate of aluminium

and potassium with hydroxl and fluorine- KAl12(AlSi3)O10(OH.F)2;
sericite occurs as a secondary mica resulting from the alteration
of numerous rock-forming minerals.

Sericitic, seriticisation ********

With reference to hydrothermal alteration, the breakdown of

feldspars and other alumino-silicates and silicates and their
replacement by sericite (phyllic alteration).

Sewage *********************

The waste and wastewater produced by residential and

commercial establishments and discharged into sewers.

Shovel and truck mining *****

Excavating overburden, interburden and ore using stand-alone

excavators loading into dump trucks, dumpers and highway
trucks.

Silicification *****************

With reference to hydrothermal alteration of igneous rocks

around a mineralised orebody, where the original rock has been
more or less altered to an assemblage dominated by quartz with
generally some pyrite.
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Part XVII: Glossary of technical terms

Sinistral *********************

With reference to the direction of relative fault movement on a

strike-slip fault; when observed from one side of a fault line, the
relative movement on the opposite side is to the left.

Skarn ***********************

Areas of intense alteration comprising calcium, magnesium and

iron silicates derived from limestones and dolomites into which
large amounts of silica, aluminium, iron and magnesium have
been introduced, frequently near the contact with a plutonic
igneous intrusion.

Slurry ***********************

A suspension of waste in water.

Smelting ********************

Thermal processing whereby molten metal is liberated from

beneficiated ore or concentrate with impurities separating as
lighter slag. The plant where this is performed is called a smelter.

Solid wastes *****************

Non-liquid, non-soluble materials, ranging from municipal

garbage to industrial wastes, that contain complex, and
sometimes hazardous, substances. Solid wastes include sewage
sludge, agricultural refuse, demolition wastes, and mining
residues. Technically, solid wastes also refer to liquids and gases
in containers.

Specific Gravity (SG) *********

The ratio of the mass of a unit volume of ore or waste material

to the mass of an equal volume of water at 4 degrees Celsius.

Sphalerite *******************

mineral- zinc sulphide, ZnS.

Spot ************************

The purchase price of a commodity at the current price, normally

this is at a discount to the long term contract price.

Steel arches *****************

Arches made in sections of steel which can be bolted together to

form a roof supporting a deforming roof.

Stibnite *********************

Mineral- antimony trisulphide, Sb2S3.

Stockpile ********************

An accumulation of ore or mineral.

Stockwork*******************

Mode of occurrence of minerals disseminated in close-spaced,

interlacing networks of veinlets in the host rock.

Stope ***********************

The underground excavation from which ore is extracted.

Stoping *********************

The act of excavating ore, either above or below a set level, in a

series of steps in an underground mine.

Strike ***********************

The strike of a plane or surface in a rock mass is a horizontal line

on the surface of the plane, which is a unique, definitive feature
of any inclined surface; by definition the strike is perpendicular
to the direction of maximum dip.

Strike Length ****************

Length of a feature in the strike direction.

Strike-slip fault **************

A linear fracture of crustal rocks, in general aligned with the

strike direction, and on which movement has been
predominantly in a lateral sense.

Stripping ********************

Non economic material which must be removed to expose ore in

an open-pit mine or the process of removing such material to
expose ore.
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Stripping ratio, (SR) **********

The amount of overburden that must be removed to gain access

to a unit amount of ore. This is normally reported as bank cubic
metres (bcm) overburden per recoverable tonne of ore (bcm/t).

Sulfosalts********************

A class of minerals which are a compound of sulphur, a semimetal such as arsenic or antimony and one or more metals;
includes the silver-bearing minerals pyrargite (Ag3SbS3) and
proustite (Ag3AsS3).

Sulphidation ****************

Terminology applied to two types of fundamentally different

precious metal epithermal deposits: low sulphidation deposits
deposited from hydrothermal systems dominated by meteoric
water; high sulphidation systems formed from fluids dominated
by magmatic sources.

Sulphide ********************

A mineral characterised by the bonds of sulphur with a metal or

semi-metal, such as pyrite, FeS2 (iron sulphide). Also a zone in
which sulphide minerals occur.

Supergene ******************

A process in which surface waters percolate down through the

outcrop of an orebody and oxidise many ore minerals while
mobilising metallic elements which are transported down to the
reducing conditions of the water table where there is
precipitation of dissolved metals in an enriched zone; supergene
enrichment most commonly refers to sulphide orebodies but
similar processes affect oxide and carbonate ores and rocks.

Surface water ***************

All water naturally open to the atmosphere (rivers, lakes,

reservoirs, streams, impoundments, seas, estuaries, etc.); also
refers to springs, wells, or other collectors that are directly
influenced by surface water.

Suspended solids ************

Small particles of solid pollutants that float on the surface of or

are suspended in sewage or other liquids. They resist removal by
conventional means. See also Total suspended solids.

t****************************

Metric tonne = 1000 kg.

Tailing(s) ********************

The fluid slurry after treatment and extraction of the

economically extracted mineral.

Tailings Dam ****************

A dammed reservoir to which the slurry is transported, where

the solids settle and the supernatant liquid may be withdrawn.

Tectonic influence ***********

The influence of primary and secondary geological activity on an

area.

Tennantite ******************

Sulfosalt mineral- sulphide of copper and arsenic (Cu,Fe)12As4S13.

Tertiary *********************

A period of geological time conventionally defined between the

Cretaceous and Quaternary Periods, extending from 65 My to
1.8 My before the present; recent international classifications
have suppressed this period and the succeeding Quaternary and
replaced them with the Paleogene and Neogene systems.

Tetrahedrite *****************

Sulfosalt mineral(Cu,Fe)12Sb4S13.

Topographical ***************

The physical features of a district or region delineated on a map.

361

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Part XVII: Glossary of technical terms

Total suspended solids (TSS) **

A measure of the suspended solids in wastewater, effluent, or

water bodies. See also Suspended solids.

tpa *************************

Metric tonnes per annum.

tpd *************************

Metric tonnes per day.

Trackless ********************

Mining without the use of locomotives.

Trenches ********************

Lines excavated to a pre determined depth to establish the

geological structure of a deposit.

Tuff*************************

A deposit of volcanic ash-fall material.

V ***************************

Volts.

Ventilation ******************

Air coursed around a mine to provide a working environment to

both men and machines.

Volcano-clastic***************

Deposits of fragmentary material ejected from volcanoes (either

subaerially or subaqueously); include ash-fall deposits,
ignimbrites, mud-flows and fragmented basic lava due to
contact with water.

Wasterelated to mining ****

Rock or material of no commercial value.

Wastes **********************

1. Unwanted materials left over from a manufacturing process.

2. Refuse from places of human or animal habitation.

Wastewater *****************

Wastewater treatment
plant *********************

Spent or used water from individual homes, communities, farms,

or industries that contains dissolved or suspended matter.

A facility containing a series of tanks, screens, filters, and other

processes by which pollutants are removed from water.

Water makes ****************

The quantity of water flowing into an area or the mine.

Working Capital *************

Accounts receivable less accounts payable.

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