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Constancia Alliance
Target Adjustment Alignment Process

Target Adjustment Guidelines
Developed in alignment workshop on Friday 9 September 2011
Page 1 of 19
Constancia Alliance_Target Adjustment Guidelines_rA_10September
Constancia Alliance Target Adjustment Alignment Process
Revision A – Issued Monday 12 September 2011
Table of Contents
1. Background .............................................................................................................3
2. Context and use of Interim Generic Target Adjustment Guidelines...................4
3. Interim Generic Target Adjustment Guidelines ....................................................5
Appendix 1 – Adjustment Event Decision Tool ......................................................................... 17
Constancia Alliance_Target Adjustment Guidelines_rA_10September Page 2 of 19

1. Background
A group of key participants in the establishment of the Constancia Alliance conducted a “Target
Adjustment Alignment” workshop at the Westin Hotel; Lima to secure alignment on the
governing principles for what kind of circumstances would justify an adjustment to the Target
Outturn Cost (TOC) (for Phase 1 – Civil Works) Earned Cost Estimate (ECE) (for Phase 2 -
Mine Operations Works) (i.e. what will and will not be a “Target Adjustment Event”) under the
Alliance.
Prior to the workshop 48 scenarios, representing the sorts of things that could go wrong when
the Alliance commences the Civil Works or Mining Operations, were prepared by a small group
of people.
At a Target Adjustment Alignment workshop held on Friday 9 September 2011, a group of key
people identified below discussed each of the scenarios and reach alignment on whether
scenario, as described, would or would not give rise to an adjustment in the TOC or ECE if the
event were actually occur.
Questionnaire Respondents
W/S
First Name Last Name Initials Phone Mobile email Company Team Attendance
(Y/N)
Steve Dixon SPD 5114217099 51997515191 sdixon@stracon.net GyM-S ALT Y
Sean Spraggett SPS 436-0057 99168-1111 sspraggett@norsemont.com.pe HBM WPT Y
Alan Hair ATH 416-305-8420 alan.hair@hudbayminerals.com HBM Other Y
Hayden Halsted HJH 1421099 993519986 hhalsted@stracon.net GyM-S ALT Y
Audra Walsh ABW 1(716) 372-0020 1 (716) 307-3207 audra.walsh@hotmail.com HBM Other Y
Terry Linde TBL 5116122900 don't have tlinde@norsemont.com.pe HBM ALT Y
Other Workshop Participants

First Name Last Name Initials Phone Mobile email Company Team
Cashel Meagher cashel.meagher@hudbayminerals.com HBM ALT
Javier Del Rio javier.delrio@hudbayminerals.com HBM Other
Jose Luis Del Corral jdelcorral@gym.com.pe GyM Other
The aligned position, as agreed at workshop, is recorded in the Target Adjustment Guidelines
(the Guidelines) attached to this report.
The Guidelines should be considered to be a “live” document and should be reviewed by the
Alliance Leadership Team (ALT) periodically, and at prior to the TOC being agreed for the Civil
Works and annually for Mine Operations Works, to assess if they are still relevant and to make
any additions, deletions and adjustments that may be required.
Not all ALT members were able to be present at the alignment workshop. It is therefore
incumbent on the members of the ALT that did attend the entire workshop to bring the other
ALT members to the same level of understanding and for the ALT to then formally endorse the
Guidelines at a ALT meeting.
The workshop was facilitated by Mark Hill from PCI Alliance Services.

2. Context and use of Target Adjustment Guidelines

In the first instance the TOC (Civil Works) and the TCE (Mine Operations Works), and in
particular the provisions for risk (and opportunity) within the TOC and TCE, is to be developed
based on the risk profile reflected in the Guidelines.
Prior to finalising provisions for risk and opportunity within the TOC for the Civil Works the ALT
should revisit the Guidelines to make any necessary changes they have agreed and to reconcile
them with the risk assumptions upon which the agreed TOC is based.
Each Year, prior to finalising the provisions for risk and opportunity within the TCE, the ALT
should revisit the Guidelines to make any necessary changes they have agreed and to reconcile
them with the risk assumptions upon which the agreed TCE is based.
If the ALT decides to revise the Guidelines (at any time), the ALT should formally record (in the
minutes of ALT meeting) that the revised Guidelines supersede the existing Guidelines.
NOTE - the aim of the Target Adjustment alignment process is not to provide a definitive
categorised list of all the situations that might arise – that would be futile, as the actual
situations that arise in practice would never exactly match the hypothetical situations. Rather,
the process, by examining and aligning on a range of scenarios covering different types of
situations, is designed to secure alignment – particularly within the ALT and AMT, on the
overriding principles of what is and is not a Target Adjustment Event. The primary value of the
process is the meeting of minds in going through the process – not the written outputs
themselves. The Guidelines are available as a guide and reminder for the ALT / AMT, should
the need arise, of their intentions at the time they locked in on the TCE for a Year.
It is essential that all members of the ALT satisfy themselves that a proposed new member of
the ALT has developed the same understanding before being accepted as a member of the
ALT. Similarly, although not as critical, new members of the AMT need to be brought to the
same level of understanding as those who attended the alignment session.

Constancia Alliance Interim Target Adjustment Guidelines
Revision A – Issued Mon 12 Sep2011
3. Interim Target Adjustment Guidelines

© PCI 2008
Constancia Project 9-Sep-11
Adjust Target?
No Scenario including impact Comments
Depends
Yes
N/A
No
1 Rain in excess of what was allowed for in the Target Budget - 1 - - Alliance risk - the alliance can manage this risk.
slows trucks, damages roads and increases pumping needs
above capacity resulting in higher costs.
2 Dust suppression water insufficient/unsuitable water quality - 1 - - Alliance risk - the alliance should ensure there is sufficient water
and leads to dusty conditions that are unsafe and also dust
blows over public road - to public housing.
3 Major pit wall failure cuts access to pit and requires a cut- - - 1 - If the failure is the result of the overall design of the pit walls, then this is an Owner's Risk as
back which causes much reduced productivity, increasing the HBM is responsible for the macro mine design.
unit rates of the waste haulage.
If the failure is the result of the day-to-day management of the pit then this is an Alliance Risk.
4 There are a number of minor pit wall slips. No damage - 1 - - Alliance Risk - the day to day management of pit walls is an Alliance responsibility.
caused to equipment but the clearing up the slips results in
an increase in waste haulage costs (by <2%).

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
5 Poor mine design results in too many ramp switchbacks, - 1 - - Alliance Risk - because the Alliance is in charge of the short term and medium term plan,
ramp too narrow, ramp gradient >10% and pit base too tight. inadequate planning
The Unit Rates are underestimated and as a result actual
costs in a Year are much greater than allowed for in the
Target Budget.
6 Ex-pit haul roads poorly designed, resulting in frequent truck - 1 - - Alliance Risk - because the Alliance is in charge of the short term and medium term plan,
gear changes, too many intersections/stop signs, too many inadequate planning
speed restrictions, radius of curves too tight.
7 Insufficient suitable road building and road maintenance - 1 - - Alliance Risk - the alliance is responsible to ensure there are sufficient materials.
materials leads to excess maintenance and slower average
haul speeds.
8 The design of waste dump access ramps is inadequate - 1 - - Alliance Risk - because the Alliance is in charge of the short term and medium term plan,
leading to inefficient construction, too-frequent relocation and inadequate planning
longer than expected haulage times. Costs are higher as a
result.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
9 Major change (>20%) in ore:waste strip ratio leads to - - 1 - The Target Budget will be split between waste and ore and therefore takes into consideration
imbalance of load and haul fleet, affects excavator changes in minor strip ratio.
productivity and causes bottlenecks at the ROM.
If the change in strip ratio impacts on the unit rates so greatly then the ALT will consider an
adjustment to the Unit Rates
10 The Alliance decides to increase fragmentation to reduce the - 1 - - To the extent that this is an Alliance decision this is an Alliance Risk.
size of material delivered to the crusher. This results in a
tightening of the drill patterns and an increases in re-drills If the mill/HBM changes the specification for feed to the crusher then this will be an Target
resulting in a 20% increase in drilling above that allowed for Adjustment Event.
in the Target Budget. The use of explosives also increases.
11 Fragmentation poor, affecting excavator productivity and - 1 - - Alliance Risk - drill and blast is an Alliance responsibility.
truck factor (BCM or tonnes per load), increasing costs above
that allowed for in the Target Budget Could be due to trying If the D&B specification is changed to manage the ARD issue, then the ALT will consider if
to minimise ARD or other reason, such as poor quality this is a Target Adjustment.
explosives (low bulk strength, too much water, etc).
12 The loose density of waste and/or ore is a lot different - - 1 - If the difference in loose density is the result of inaccurate in-situ density information (supplied
(>20%) to expected and allowed for in the Target Budget by HBM) then this would be a Target Adjustment.
resulting in an extra pass for loader and lower average
payload for trucks and increased costs. If the in-situ density information is accurate and the Alliance has inaccurately estimated the
loose density then this is an Alliance Risk.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
13 Poor bench control, due to either poor drilling depth control, - 1 - - Alliance Risk
poor blasting, digging to wrong level or inadequate bench
maintenance. Affects on-bench haul times and tyre life, for
example.
14 A major fire on an excavator owned by GyM/STRACON - 1 - - On the basis that most fires are related to maintenance or design related matters then this is
destroys the machine beyond repair. A replacement machine an Alliance Risk
is hired from a third party until a new replacement machine
can be sourced. The hire cost of the hired machine is If the fire was caused by matters that are outside the management of the Alliance (e.g.
significantly more than the GyM/STRACON internal hire rate. Lightening or community sabotage etc.), then the ALT will consider a Target Adjustment.
The machine was covered by insurance, but the non-
deductible (excess) is US$250,000.
15 Poor training of operators results in a high level of equipment - 1 - - Alliance Risk - training is an Alliance responsibility
damage and lower tire costs, increasing costs.
16 Equipment specifications incorrect, such as loader bucket - 1 - - Alliance Risk

wrong size, truck body too small or too heavy, poor digger-
truck match, wrong size drill, cannot be single pass on 6m
bench plus sub-drill, support equipment (dozer, grader, water
truck) insufficient.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
17 Too much spillage from trucks, resulting in ore loss, excess - 1 - - Alliance Risk
clean up, tyre damage.
18 Significant change (>20%) in proportion of PAG waste rock 1 - - - To the extent the change is due to inaccurate data from the block model then this will be a
affecting dump scheduling and capacities. Target Adjustment to the Unit Rates.
19 Mine production schedule poor and results in varying - 1 - - Alliance Risk - mine scheduling is an Alliance responsibility
equipment requirements (esp. truck use) and lot variation in
strip ratio on daily or shift basis and targets not achieved for
ore or waste. Long term/annual budgeting process does not
account for the day-to-day scheduling complexities resulting
in lower equipment utilisation and productivities and therefore
higher costs.
20 Key equipment availabilities and/or reliabilities do not meet - 1 - - Alliance Risk
target, resulting in loss of production and/or reduced
efficiency and increased costs.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
21 Run out of a major consumable and affects production, such - 1 - - Alliance Risk
as fuel, explosives, tyres, GET, drill consumables.
22 Staff turnover higher than expected (>10% of target) and - 1 - - Alliance Risk - the Alliance is responsible for managing staffing and people issues.
attracting skilled staff a problem.
23 Community unrest due to unrealistic employment or other - - 1 - If the issue is within the management influence of the Alliance then this is an Alliance Risk.
expectations. Leads to work stoppages and maybe damage,
increasing costs. If the matter is outside the management influence of the Alliance then this is a HBM Risk.
24 Employee unrest and industrial action due problems with - - 1 - The ALT to decide later.
profit share or other issues leading to increased costs.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
25 Environmental incident as a result of Alliance Activities that - 1 - - Alliance Risk - the Alliance is responsible for managing the environmental impact of its work.
leads to cessation of part or whole of works. Could be fluid
spill, acid spill or waste dump slump into river, etc.
26 Grade control program falls behind or is giving strange - 1 - - Alliance Risk - grade control is an Alliance responsibility.
results. Lab results delayed resulting in unplanned
equipment moves, inefficiencies, increasing costs.
27 Major supplier to one of the Alliance Participants HBM or - 1 - - Alliance Risk - management of suppliers is an Alliance Responsibility
GyM STRACON) goes broke or otherwise cannot deliver,
resulting in long term problem with that supplier.
28 Problems with staff arriving at work drunk, too tired or chased - 1 - - Alliance Risk - staff are the responsibility of the Alliance
by woman's family!

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
29 Development work is stopped due to a land title dispute. 1 - - - Land is Owner issue.
Alternate mining areas are required to be developed out of
budget. This results in extra cost and reduced variety in ore
quality until the dispute is able to be resolved.
30 Changes in government regulations (at state/federal levels) 1 - - - HBM Risk - change in law
that affect the way the work has to be undertaken or the cost
of the work.
31 A disaster event that might typically be classified as "force - - 1 - ALT must assess on a case by case basis
majeure" events has occurred (acts of war, direct or indirect
effects of terrorism, flood, etc.) and has shut the mine for a
period of 48hrs as well as causes major disruption to
production once back on site. This would include a strike or
road block off site that cuts the supply line.
32 Errors >15% in the estimation of quantities of the material 1 - - - HBM Risk - HBM's designers are responsible for estimating civil design quantities. The
volumes in for the civil construction resulting in the Alliance will rely on the quantities provided by the designers.
construction costs being greater than allowed for in the
Target Budget.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
33 A slope failure occurs that disables a ramp prompting a - - 1 - If the failure is the result of the overall design of the pit walls, then this is an Owner's Risk as
change in cut back schedule (bringing a cut back forward). HBM is responsible for the macro mine design.
The change results in s short-term reduction in waste haul
cycle, reducing the unit rates to below that allowed for in the If the failure is the result of the day-to-day management of the pit then this is an Alliance Risk.
Target Budget.
34 Prolonged period of high storm frequency resulting in - 1 - - Alliance Risk.
prolonged period of low productivities. 2 months below
expectations.
35 A significant strengthening of the Soles against the USD 1 - - - Currency fluctuation is an HBM risk.
results in an increase in labour costs (in USD). This
increases the unit rates above that allowed for in the Target
Budget.
36 With respect to the civil construction, significant changes in 1 - - - HBM Risk.

the ground conditions between those specified in the
engineering design causes very high costs and delay in
progress. (In the old words a typical latent conditions claim.)

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
37 Significant change in the mine plan, directed by HBM results 1 - - - Exercise of HBM Reserved Power.
in the Alliance having too much equipment on site. This
equipment will be moved to another job as soon as possible
but until this can happen fixed costs ownership costs are
incurred.
38 The delivery date for critical equipment is not accomplished - 1 - - Alliance Risk - management of suppliers is an Alliance Responsibility
by our suppliers. Replacement machines are hired from third
parties in a temporary way until the purchased equipment
arrives. The hire cost is significantly more than de GyM-
Stracon internal hire rate.
39 The permits from government authorities are delayed for fuel 1 - - - To the extent that the acquisition of the permits are an HBM responsibility, this is an HBM
station. This forces us to purchase fuel from a third partie Risk.
with a higher cost than the one originally estimated and/or
increases the risk to have a shortage because third parties do
not have enough capacity to supply the fuel volumes
required by the project. A shortage will mean a stop in the
works and extra cost.
40 Local community put as condition to allow the project, to rent - - 1 - If HBM exercise a Reserved Power to direct the Alliance to utilise the community equipment
equipment supplied by them . Rental rates asked for this then this will be a HBM Risk
rented equipment are higher than the originally estimated by
the Alliance. This event could happen at the beginning of the If the decision to rent the community equipment is an Alliance decision, then this is an Alliance
project and also during itself. Risk.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
41 Labour shortages and training issues result in poor - 1 - - Alliance Risk - management of labour is an Alliance Risk
supervision and control of the operation. This results in
higher costs that allowed for in the Target Budget and is a
continued source of dissatisfaction from HBM.
42 GyM and Stracon have internal issues that impact Alliance, - - - 1 GyM-STRACON should not flow the costs associated with performance of the GyM-S JV
impacting on overall performance of the Alliance (e.g. through to the Alliance
equipment availability, productivity, costs etc). Potential for
serious setback with in the mining operations. The event
could happen at any time during the project
43 The Alliance cannot deliver the experienced operating team - 1 - - Alliance Risk
in time and production setback are realized. Cash flow
diminishes. Need to ensure that well before operations the
team is available.
44 Socio Political situation in the area changes and project is 1 - - - HBM Risk
forced to either stop activities or greatly reduce them. Impact
to the alliance group would be realized. The event could
occur any time during the office of Humala.

© PCI 2008
Adjust Target?
Depends
Yes
N/A
No
45 Qualified operators may be difficult to find which could - 1 - - Alliance Risk
potentially slow down the anticipated start-up. This will be
revealed as soon as the alliance initiates staffing the project.
46 Alliance agreement gets finalized as scheduled based on a 1 - - - Management of such community issues is a HBM responsibility
start-up date in 2013. However, due to community issues
this is deferred a year and operation are put on hold. How do
you secure the alliance group for when the actual start-up
commences and what are the indemnities. This could
happened by the end of the 2011 or early 2012.
47 Access road from Espinar to site is not completed and 1 - - - Access to Site is an HBM Risk.
equipment transportation to site is deferred. Who is
accountable for this and should the alliance team review site
access to avoid this risk. Risk is now.
48 The cost of diesel varies significantly (up to down) from that 1 - - - Diesel fuel price is an HBM Risk of Opportunity and will be an automatice Target Adjsutment.
used in the Target Cost Estimate

Constancia Alliance Target Adjustment Guidelines
Revision A – Issued Mon 12 Sept 2011
Appendix 1 – Adjustment Event Decision Tool
Risk/ Opportunity allocation process

The objective of the Target Adjustment alignment process is to decide what sorts of
risks/opportunities (events) are shared by the Alliance Participants, and therefore the Targets
are not adjusted if the event actually occurs, and what sorts of risks/opportunities are borne
solely by the Owner, and as such the Targets will be adjusted if the event actually occurs. The
mission of the participants at the Target Adjustment alignment workshop is to decide on an
appropriate balance between two contrasting approaches as follows:
Pro Con
Proposition 1 –All risks/ Creates very powerful Creates upward pressure
opportunities are shared basis for aligned on the target Cost Estimate
by the Alliance behaviour – “one team” (TCE) as provisions for risk
Participants regardless of response under all are included in the
source, cause or nature of circumstances. estimate.
the risk / opportunity. Preferred position from Not necessarily good value
the perspective of alliance for the Owner.
practitioners
Proposition 2 –Many Takes pressure off the Slippery slope back
risks/ opportunities are TCE. towards conventional us
assumed by the Owner and them contracting.
In an alliance there are only two options for the allocation of risk/opportunity:
 The risk/opportunity is either shared by the Alliance Participants; or
 The risk/opportunity is borne solely by the Owner.
There is no circumstance where a risk or opportunity is borne individually by a Non Owner

Participant (NOP) or collectively by the NOPs.

Task force
develops a list of
scanerios .
Is the Alliance in the best position to No

manage the consequence/impact of Possibly an Owner
risk/opportunity described in the Risk/ Opportunity
scenario?
Yes
Is the risk/opportunity described in the

scenario a low probability, high
consequence issue that:
1. the financial impact on the TCE will be Yes
difficult (or virtually impossible) to
assess; or Possibly an Owner
2. the financial impact on the TCE will so Risk/ Opportunity
great that the Owner chooses to assume
the risk/opportunity?
(e.g. a an event sometimes referred to as

a "Force Majeure Event")
No
Is the risk/opportunity described in the

scenario the result of the Owner Yes
exercising a Reserved Power (i.e. a Possibly an Owner
change to Production Requirements or a Risk/ Opportunity
change in scope of the Alliance
Activities)
No
Alliance Risk/ Opportunity
Note: the model depicted above is a simplistic model to assist Alliance Participants align on the sorts of
risks and opportunities that will be shared by the Alliance and those risks and opportunities that will be
borne solely by the Owner. In practice, the alignment process involves detailed conversations amongst
key Alliance personnel prior to reaching alignment on how certain risks and opportunities will be dealt
with.

Target Adjustment decision process

ALT notifiedof
potentialTarget
Adjustment Event
Was the event the same as or similar to No

an event identified in the Target No adjustment to
Adjustment Guidelines as an Owner risk Targets
or opportunity?
Yes
No
Does the ALT agree that the event is a No adjustment to
Target Adjustment Event? Targets
Yes
ALT determines the magnitude of the

proposed adjustment
Adjust the Target(s)
Note: the model depicted above is a tool to aid the ALT decide if an event is a Target Adjustment Event
and therefore the Target(s) should be adjusted or if the event is a shared risk / opportunity and therefore
the Target(s) should not be adjusted. The final decision should be made by the ALT after considering all
of the information relating to the event.

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Constancia Alliance

Target Adjustment Alignment Process

Revision A – Issued Monday 12 September 2011

Appendix 1 – Adjustment Event Decision Tool ......................................................................... 17

Constancia Alliance_Target Adjustment Guidelines_rA_10September Page 2 of 19

Revision A – Issued Monday 12 September 2011

Other Workshop Participants

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Revision A – Issued Monday 12 September 2011

2. Context and use of Target Adjustment Guidelines

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3. Interim Target Adjustment Guidelines

No Scenario including impact Comments

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No Scenario including impact Comments

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No Scenario including impact Comments

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No Scenario including impact Comments

16 Equipment specifications incorrect, such as loader bucket - 1 - - Alliance Risk

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No Scenario including impact Comments

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No Scenario including impact Comments

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No Scenario including impact Comments

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No Scenario including impact Comments

36 With respect to the civil construction, significant changes in 1 - - - HBM Risk.

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No Scenario including impact Comments

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No Scenario including impact Comments

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Revision A – Issued Mon 12 Sep2011

No Scenario including impact Comments

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Revision A – Issued Mon 12 Sept 2011

Appendix 1 – Adjustment Event Decision Tool

Risk/ Opportunity allocation process

There is no circumstance where a risk or opportunity is borne individually by a Non Owner

Constancia Alliance_Target Adjustment Guidelines_rA_10September Page 17 of 19

Revision A – Issued Mon 12 Sept 2011

Is the Alliance in the best position to No

Is the risk/opportunity described in the

(e.g. a an event sometimes referred to as

Is the risk/opportunity described in the

Alliance Risk/ Opportunity

Constancia Alliance_Target Adjustment Guidelines_rA_10September Page 18 of 19

Revision A – Issued Mon 12 Sept 2011