Peruvian Mining Fiscal System MineSouthAmerica Focus on Peru

1. Peruvian Mining Fiscal SystemMineSouthAmerica Focus on Peru Marcial García Toronto, Wednesday 5, October,2011

2. Peruvian Mining Fiscal System at a Glance

3. Peruvian Mining Fiscal System at a Glance • If the taxpayer has elected to enter into a Stabilization Agreement under the Mining Law, the rate is increased by 2%. • The reduced rate of 4.99% applies on certain interest payments to non-related parties. • Interest on loans from related parties in excess of a 3.1 debt-to-equity ratio is not deductible. • The Peru-Canada treaty rate is 15%.

4. Peruvian Mining Fiscal System at a Glance (cont.) • Is calculated based on area of mining concession and is deductible. • These rules are consistent with the OECD guidelines

5. Peruvian Mineral Sector Fiscal Reform

6. Tax climate – What are the hot issues today? Mineral Sector Fiscal Reform • June 5: Left-wing former army officer Ollanta Humala won Peru`s presidential election. One of Humala´s key election promises was to make mining companies pay more taxes at a time of high prices for Peru´s major mineral products (such as copper, silver and gold) in the international market. • August 25: Prime Minister, Salomon Lerner announced that the government had reached an agreement with mining companies to increase their contributions to the state by an extra US$ 1.1 billion.  • 14 September: President Humala´s administration submitted three different bills to the Peruvian Congress for approval.   • 19 September: Congress committees of (i) economy and (ii) energy and mines approved with minor changes proposed legislation.  • 22 September: The full assembly of Peru´s Congress approved mineral sector fiscal reform. • 29 September: Laws 29788, 29789 and 29790 approving the Modified Royalties, Special Mining Tax (SMT) and Special Mining Burden (SMB), respectively, were enacted and published in the official Gazette “El Peruano”. The regulations of the SMB were approved by Supreme Decree 173-2011 and also published. • 1 October: Laws 29788, 29789 and 29790 became in force.

7. New Mineral Sector Fiscal System • Operating Profit Margin Ratio = • Operating Income x 100 • Mining Operating Revenue • Where: • Mining Operating Revenue = revenues generated from the sale of mineral resources with certain adjustments (e.g. final settlement payment adjustments to account for final weights, final essays and final metal quotations).  • Operating Income = Mining Operating Revenue minus (i) cost of goods sold (“COGS”) and (ii) operating expenditures (including sales and administrative expenses) calculated under Peruvian GAAP, with the following exceptions: • Exploration expenditures must be allocated on a pro-rata basis over the life of the mine. • Interests are not deductible, regardless of whether they have been capitalized as part of COGS or treated as operating expenditures.   CONCEPT WITHOUT TAX STABILIZATION (*) With Tax Stabilization Royalties Special Mining Tax (SMT) Special Mining Burden (SMB) SYSTEM BASE RATES BASED ON OPERATING MARGIN MINIMUN PAYMENTS TREATMENT FOR INCOME TAX PURPOSES Substitutes Current Royalties New New Operating Income 1% to 12% 2% to 8.4% 4% to 13.12% 1% of sales N/A N/A Deductible (*) Tax Stabilization agreement under the Mining Law General

8. Without Tax Stabilization Agreement: RoyaltyRegime • Modified Royalties – The higher of a) or b) • ExistingProgressive Royalty • a) Scalebasedonoperatingincome • Scalebasedonvalue of sales Marginal Rates • Notover US$ 60 million: 1% • Over US$ 60 butnotoverUS$ 120 million 2% • OverUS$ 120 million 3% • (1) Rateconsidersupperlimit of thescale • Royalty of 1% of sales

9. Without tax Stabilization Agreement: Special Mining Tax (SMT) • The SMT will apply on operating profit derived from sales of metallic mineral resources, regardless of whether the mineral producer owns or leases the mining concession.   • The tax liability will arise and will be payable on a quarterly basis.   • It will be deductible for corporate income tax purposes.   • Not applicable to non-metallic mining. • Small miners are exempt. • (1) Rateconsidersupperlimit of thescale

10. Fiscal Regime with Tax Stabilization Agreement: Special Mining Burden (SMB) • It will apply to mines with Tax Stabilization Agreements entered into under the General Mining Law. • “Voluntary” payments are to be made on a quarterly basis according to individual agreements to be entered with the Peruvian government. • The SMB is not a tax as determined by general legal principles given that it is not a compulsory payment imposed under Peru´s authority to levy taxes. • Mining and contractual royalty payments, if applicable, are creditable against SMB payments. • (1) Rateconsidersupperlimit of thescale

11. With Tax Stabilization ETR Based on Profitability Withouth Tax Stabilization ETR Based on Profitabilty % of before tax income: % of before tax income: 45 60 55 43 50 41 45 39 40 37 Old System (Royalties) Old System 35 New Systems (SMT) Modified royalties New Systems (SMB) 30 35 10% 20% 30% 40% 50% 60% 70% 80% 90% 10% 20% 30% 40% 50% 60% 70% 80% 90% Operating margin (operating income / sales) 1) Assumes 70% of income is distributed as dividends 2) includes income tax, workers profit sharing, royalties SMT and W/T dividendds Source: Apoyo Consultoría Effective Tax Rate (ETR) Operating margin (operating income / sales) 1/ Assumes 70% of incomeisdistributed as dividends 2/ includesincome tax, workersprofitsharing, royalties SMB and W/T dividends Source: Apoyo Consultoría

12. Effect on Tax Revenues Estimated additional Tax Revenues per year (US$ million) Without considering the effect of their deduction for income tax purposes Source: MEF

13. Peruvian Mining Fiscal SystemMineSouthAmerica Focus on Peru Marcial García Toronto, Wednesday 5, October,2011