UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): November 29, 1994
MAGMA COPPER COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 1-10122 86-0219794
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
7400 North Oracle Road, Suite 200, Tucson, Arizona 85704
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(602) 575-5600
Not Applicable
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(Former name or former address, if changed since last report.)
<PAGE>
Item 7. Financial Statements and Exhibits
(a) 1. Financial Statements of Empresa Minera Especial Tintaya
S.A.
Report of Independent Accountants
Balance Sheet at December 31, 1993
Statement of Income for the year ended December 31, 1993
Statement of Changes in Stockholders' Equity for the year
ended December 31, 1993
Statement of Cash Flows for the year ended December 31, 1993
Notes to the Financial Statements
Statement of Income for the nine months ended September 30,
1993 (Unaudited)
Statement of Cash Flows for the nine months ended September
30, 1993 (Unaudited)
Balance Sheet at September 30, 1994 (Unaudited)
Statement of Income for the nine months ended September 30,
1994 (Unaudited)
Statement of Changes in Stockholders' Equity for nine months
ended September 30, 1994 (Unaudited)
Statement of Cash Flows for nine months ended September 30,
1994 (Unaudited)
Notes to Unaudited Financial Statements
Presentation of Significant Differences Between Peruvian and
United States Generally Accepted Accounting Principles, as of
and for the year ended December 31, 1993 and nine months ended
September 30, 1994 and Statement of Income for the nine months
ended September 30, 1993
(b) 1. Pro Forma Financial Statements for Magma Copper Company
and Subsidiaries
Pro Forma Consolidated Balance Sheet at September 30, 1994
(Unaudited)
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1993 (Unaudited)
Pro Forma Consolidated Statement of Income for the nine months
ended September 30, 1994 (Unaudited)
Notes to Unaudited Pro Forma Consolidated Financial Statements
<PAGE>
(c) 1. Exhibits.
10.1 Tax Stability Agreement
10.2 Judicial Stability Agreement With the Consortium
Magma Copper Company - Global Magma Ltd.
10.3 Judicial Stability Agreement With Empresa Minera
Especial Tintaya S.A.
<PAGE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
FINANCIAL STATEMENTS
DECEMBER 31, 1993
REPORT OF INDEPENDENT ACCOUNTANTS
April 5, 1994
To the Stockholders and Directors
Empresa Minera Especial Tintaya S.A.
1. We have examined the balance sheet of Empresa Minera
Especial Tintaya S.A. as of December 31, 1993, and the
related statements of income, of changes in
stockholders' equity and of cash flows for the year
then ended, as expressed in new Peruvian soles. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audit.
2. We conducted our audit in accordance with auditing
standards generally accepted in Peru, which are
substantially the same as those followed in the United
States of America. Those standards require that we
plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
3. The restatement of these financial statements to
reflect changes of the purchasing power of the new
Peruvian sol, as explained in Note 3, is generally
accepted in Peru. Although accounting principles
generally accepted in the United States of America do
not address financial reporting as a separate entity in
local currency financial statements of a company in a
highly inflationary country, under the severe and
prolonged inflationary conditions that prevailed in
Peru we regard the recording of these price-level
values as appropriate.
4. In our opinion, the financial statements audited by us
present fairly, in all material respects, the financial
position of Empresa Minera Especial Tintaya S.A. at
December 31, 1993 and the results of its operations and
its cash flows for the year then ended, in conformity
with accounting principles generally accepted in Peru.
5. As described in Note 2 to the financial Statements, the
Comision Especial de Privatization (CEPRI) of Empresa
Minera Especial Tintaya S.A. requested from the
Comision de Promocion de la Inversion Privada
(COPRI)an integral solution to the outstanding
receivables and debts and contingencies that the
Company maintains with Government entities and the Bank
Syndicate referred to in Note 10. As of the date of
this report the issue of the corresponding legal
disposition for the afore-mentioned solution is still
pending. In the event that the integral solution is
accepted as requested, the Government would capitalize
its outstanding debt, net of the other obligations and
the Company would give as definitive payment its cash
position as of the date of the agreement.
6. As presented in Note 9, the Company has incurred
significant pre-operating costs which, in accordance
with the estimates and projections of management, will
be recovered from future operations.
7. Accounting principles generally accepted in Peru vary
in certain significant aspects from principles
generally accepted in the United States. Application
of accounting principles generally accepted in the
United States would have affected the determination of
results of operations for the year ended December 31,
1993 and total stockholders' equity at December 31,
1993 to the extent summarized in Note 19 to the
financial statements.
8. The U.S. dollar amounts are presented solely for the
convenience of the reader and in our opinion have been
translated in accordance with the basis described in
Note 3-g. This translation should not be construed as
representing that the new Peruvian Sol amounts actually
represent or have been, or could be, converted into
U.S. dollars.
Price Waterhouse
<PAGE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
BALANCE SHEET (Notes 1, 2, 3, 4, and 19)
AT DECEMBER 31, 1993
ASSETS
CURRENT ASSETS S/. US$
Cash and banks (Note 5) 103,259,416 47,805,285
----------- ----------
Trade accounts receivable (Note 6) 12,708,108 5,883,383
Other accounts receivable:
Loans to personnel(Note 6) 267,075 123,646
Advances to suppliers 66,156 30,628
Third party loans 1,223,520 566,444
Miscellaneous (Note 6) 4,023,868 1,862,902
----------- -----------
18,288,727 8,467,003
----------- -----------
Inventories (Note 7) 47,948,333 22,198,302
----------- -----------
Prepaid expenses 5,061,270 2,343,181
----------- -----------
Total current assets 174,557,746 80,813,771
----------- -----------
INVESTMENTS 216,077 100,036
----------- -----------
PROPERTY, PLANT AND
EQUIPMENT (Note 8) 143,390,663 66,384,566
----------- -----------
INTANGIBLES (Note 9) 51,402,089 23,797,263
----------- -----------
369,566,575 171,095,636
=========== ===========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
S/. US$
--------- ---------
CURRENT LIABILITIES
Bank overdrafts 50,425 23,345
Trade accounts payable 7,999,180 3,703,324
Other accounts payable:
Taxes 4,727,569 2,188,689
Salaries and wages 2,396,958 1,109,703
Interest 3,670,173 1,699,154
Miscellaneous 8,808,442 4,077,982
Current portion of provision for
severance indemnities 188,224 87,141
Current portion of long-term debt
(Note 10) 28,829,635 13,347,053
Other provisions 1,029,183 476,474
----------- -----------
Total current liabilities 57,699,789 26,712,865
----------- -----------
LONG-TERM DEBT (Note 10) 192,197,565 88,980,354
----------- -----------
PROVISIONS FOR SEVERANCE INDEMNITIES 955,068 442,161
----------- -----------
STOCKHOLDERS' EQUITY (Notes 10,
11 and 12)
Capital 431,352,337 199,700,156
Capital surplus 2,220,401 1,027,963
Accumulated deficit (314,858,585) (145,767,863)
------------ ------------
118,714,153 54,960,256
------------ ------------
TAX SITUATION (Note 14)
CONTINGENCIES (Note 15)
STATISTICAL DATA (UNAUDITED)
(Note 16)
OTHER MATTERS (Note 17)
SUBSEQUENT EVENTS (Note 18) ------------ ------------
369,566,575 171,095,636
============ ============
<PAGE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
STATEMENT OF INCOME (Notes 1, 2, 3, 4, 14 and 19)
FOR THE YEAR ENDED DECEMBER 31, 1993
S/. US$
Net sales 151,403,358 70,094,147
Cost of sales (92,754,474) (42,941,886)
----------- ----------
58,648,884 27,152,261
----------- ----------
Selling expenses (13,497,555) (6,248,868)
Administrative expenses (14,262,314) (6,602,923)
Amortization of intangibles (20,235,910) (9,368,477)
----------- -----------
(47,995,779) (22,220,268)
----------- -----------
Operating income 10,653,105 4,931,993
----------- -----------
Other (expenses) income:
Financial expenses, net (4,365,023) (2,020,844)
Miscellaneous, net (239,501) (110,880)
Provision for loss in market value of
property, plant and equipment (3,727,199) (1,725,518)
Result of exposure to inflation
(Note 13) 5,168,622 2,392,880
----------- ----------
(3,163,021) (1,464,362)
----------- ----------
Net income for the year 7,490,084 3,467,631
=========== ===========
The accompanying notes are part of the financial statements.
<PAGE>
EMPRESA MINERAL ESPECIAL TINTAYA S.A.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Notes 10, 11, 12 and 19
FOR THE YEAR ENDED DECEMBER 31, 1993
Labor Capital
Capital Shares Surplus
------- ------ -------
S/. S./ S/.
Balances at
January 1, 1993 431,352,337 865,110 2,220,401
Other -- -- --
Transfer to
accounts payable -- (865,110) --
Net profit for
the year -- -- --
----------- -------- ---------
Balances at
December 31, 1993 431,352,337 -- 2,220,401
=========== ======== =========
Labor Capital
Capital Shares Surplus
------- ------ -------
US$ US$ US$
Balances at
January 1, 1993 199,700,156 400,514 1,027,963
Other -- -- --
Transfer to
accounts payable -- (400,514) --
Net profit for
the year -- -- --
----------- -------- ---------
Balances at
December 31, 1993 199,700,156 -- 1,027,963
=========== ======== =========
The accompanying notes are part of the financial statements.
EMPRESA MINERAL ESPECIAL TINTAYA S.A.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Notes 10, 11, 12 and 19
FOR THE YEAR ENDED DECEMBER 31, 1993
Accumulated
Deficit Total
------------ -----------
S/. S/.
Balances at
January 1, 1993 (322,308,273) 112,129,575
Other (40,396) (40,396)
Transfer to
accounts payable -- (865,110)
Net profit for
the year 7,490,084 7,490,084
------------ -----------
Balances at
December 31, 1993 (314,858,585) 118,714,153
============ ===========
Accumulated
Deficit Total
----------- -----
US$ US$
Balances at
January 1, 1993 (149,216,793) 51,911,840
Other (18,701) (18,701)
Transfer to
accounts payable -- (400,514)
Net profit for
the year 3,467,631 3,467,631
------------ -----------
Balances at
December 31, 1993 (145,767,863) 54,960,256
============ ===========
The accompanying notes are part of the financial statements.
EMPRESA MINERA ESPECIAL TINTAYA S.A.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
S/. US$
CASH FLOWS FROM OPERATING ACTIVITIES
Collection from clients 177,648,548 $82,244,698
Other collections related to operating
activities 9,472,571 4,385,450
Payments to vendors (71,068,899) (32,902,268)
Payments of taxes (15,669,859) (7,254,564)
Payments of salaries and wages (21,304,012) (9,862,969)
Other payments related to operating
activities (12,173,284) (5,635,780)
----------- ----------
Net cash provided by operating activities 66,905,065 30,974,567
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of plant and equipment 153,835 71,220
Payment for acquisition of plant and
equipment (1,718,387) (795,550)
Payment related to exploration costs (5,170,849) (2,393,911)
----------- ----------
Net cash used in investing activities (6,735,401) (3,118,241)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of bank overdrafts (36,976) (17,119)
Payment of long-term debt (9,898,263) (4,582,529)
----------- ----------
Net cash used in financing activities (9,935,239) (4,599,648)
----------- ----------
Increase in cash and cash equivalents 50,234,425 23,256,678
Balance of cash and cash equivalents
at the beginning of the year 53,024,991 24,548,607
----------- ----------
Balance of cash and cash equivalents at
the end of the year 103,259,416 47,805,285
----------- ----------
RECONCILIATION OF NET INCOME WITH CASH
PROVIDED BY OPERATING ACTIVITIES
Net income for the year 7,490,084 3,467,631
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 34,198,836 15,832,794
Amortization of intangibles 20,235,910 9,368,477
Provision for employees' severance
indemnities 761,944 352,752
Gain from sale of plant and equipment (49,802) (23,056)
Provision for loss in market value of
property, plant and equipment 3,727,119 1,725,518
Miscellaneous 543,675 251,701
Result for exposure to inflation of
cash and cash equivalents (3,901,522) (1,806,260)
Increase (decrease) in operating
resources by net changes in assets
and liabilities:
Accounts receivable 9,451,682 4,375,779
Inventories (1,991,921) (922,186)
Prepaid expenses 466,608 216,022
Trade accounts payable 5,128,086 2,374,114
Other accounts payable (9,155,634) (4,238,719)
----------- ----------
Net cash provided by operating activities 66,905,065 $30,974,567
=========== ==========
The accompanying notes are part of the financial information.
EMPRESA MINERA ESPECIAL TINTAYA S.A.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1993
1 OPERATIONS
Empresa Minera Especial Tintaya S.A., owned by three state-owned agencies,
was incorporated on May 2, 1980 as Empresa Minera Asociada Tintaya S.A.
(EMATINSA). In order to comply with Decree Law 109, General Mining Law, on
August 26, 1981 EMATINSA was transformed into Empresa Minera Especial Tintaya
S.A. through Supreme Decree 023-81-EM-VH.
The Company's operations are related to the exploration of ore deposits and
production of copper concentrates in deposits located in the province of
Espinar in Cusco.
The Company activities are regulated by the Government Business Activity Law,
its Organic law and the Mining and General Business laws in everything that
is not related to the Government Business Activity Law. The Company is
supervised by the Corporacion Nacional de Desarrollo - CONADE and the
Contraloria General de la Republica.
2 PRIVATIZATION PROCESS
On September 25, 1991, the Government issued Legislative Decree 674 "Ley de
Promocion de la Inversion Privada en las Empresas del Estado", which
regulates, inter-alia, the mechanism to promote investments and creates the
Comision de Promocion de la Inversion Privada (COPRI), which is in charge of
designing and managing the process.
On February 13, 1993 the Government included the Company under the
regulations of Decree Law 674, and appointed a special privatization
commission (CEPRI) for this purpose.
On December 28, 1993, CEPRI - TINTAYA requested from COPRI an agreement with
the Public sector for an integral solution of the liabilities, debts and
claims against TINTAYA, in order to facilitate the privatization process.
The support of the COPRI has been requested in order to:
- - Reconcile balances and define the contingencies pending between TINTAYA
and other Government entities (Note 15).
- - Obtain the acceptance by the Bank Syndicate of the assumption by the
Peruvian Government of the Company's outstanding debt (Notes 10 and 15).
- - Obtain the issuance of a Supreme Decree by which the Peruvian Government
will assume the Company's debt including the tax contingencies in
exchange for approximately US$62,000,000 which will comprise of cash and
other Government debt to be obtained at the date of issuance of the
above-mentioned Supreme Decree.
3 SIGNIFICANT ACCOUNTING POLICIES
The most significant accounting policies used in the preparation of the
financial statements are as follows:
a) Generally accepted accounting principles in Peru require the restatement
of the financial statements to reflect the changes in the purchasing
power of the Peruvian currency. The methodology for the restatement of
the financial statements corresponds substantially to that approved by
Resolutions 2 and 3 of the Consejo Normativo de Contabilidad, as
follows:
i) The adjusted balances correspond to the historical values that have
been restated to express them in currency of the year-end
purchasing power, by applying the coefficients obtained from the
Wholesale Price Index (index issued by the Instituto Nacional de
Estadistica e Informatica - INEI).
ii) Non-monetary items, such as inventories, property, plant and
equipment, intangibles and stockholders' equity, have been restated
applying the index from the date of origin of the component parts.
In all applicable cases, the lower of cost or market value criteria
has been maintained.
Profit and loss accounts, except for depreciation of property,
plant and equipment, amortization of intangibles and cost of sales,
which were determined on the adjusted value of the corresponding
assets, have been adjusted by applying to the monthly historical
balances the indexes corresponding to such months.
The January 1, 1993 balance of the Statement of Stockholders'
Equity have been restated in the currency of December 31, 1993 by
applying the corresponding inflation rate of the year as described
in note 3 a)ii). In the case of the capital account, the Company
has to issue shares in order to support this restatement.
iii) Monetary items have not been adjusted because their balances at
historical values correspond to the purchasing power of the
currency at the end of the year.
iv) Non-monetary items in foreign currency have been previously
translated into Peruvian currency at the year-end exchange rate.
b) Sales of minerals and their corresponding costs are included in income
when realized.
c) Depreciation is calculated consistently using the straight-line method
over the estimated useful lives (Note 8). Maintenance and repair
expenses are charged to production costs as incurred and improvements
and betterments are capitalized. The cost and related accumulated
depreciation of assets sold or retired are eliminated from the
respective accounts and the resulting gains or losses are included in
the year's income. The provision for loss in market value resulted from
the comparison, on an individual basis, of the restated cost of the
assets with values determined by the technical appraisals performed by
independent appraisers.
d) Intangibles (including concessions and mineral rights, exploration and
development cost, feasibility studies and, pre-operating cost) are
included in other assets when incurred and are amortized on a straight-
line basis over a ten year period from the time they begin to generate
benefits for the Company.
e) Employees' severance indemnities are accounted for on an accrual basis.
The amount accrued represents the amount owed to employees assuming
their termination is as of the date of the financial statements, net of
advances and deposits made, which are considered as definitive payments
to the employees. According to current legislation, these payments are
deposited in restricted savings accounts in financial institutions or
are maintained within the Company and will be available to the employees
at the date of their termination.
f) For the purpose of the preparation of the statement of cash flows,
deposits in banks and dollar bank certificates with maturity of three
months or less are considered as cash equivalents.
g) The financial statement amounts expressed in new Peruvian soles have
been translated into U.S. dollars for the convenience of the reader at
the year-end exchange rate of S/.2.16 per US$1.
4 BALANCES IN FOREIGN CURRENCY
The balances in foreign currency at December 31, 1993 comprise the following:
US$
Assets 56,397,067
Liabilities (107,322,980)
-----------
Net liabilities ( 50,925,913)
===========
5. CASH AND BANKS
The balance at December 31, 1993 includes US$230,506 of restricted bank
accounts in connection with letters of credit opened for importations. In
addition, this caption includes US$36,314,000 related to U.S. dollar bank
certificates.
6. PROVISION FOR DOUBTFUL ACCOUNTS
As of December 31, 1993 the balances of accounts receivable and other
accounts receivable are presented net of the following provisions for
doubtful accounts:
S/. US$
Trade accounts receivable 389,733 180,432
Loans to personnel 117,294 54,303
Miscellaneous 3,222,850 1,492,060
--------- ---------
3,729,877 1,726,795
========= =========
7. INVENTORIES
At December 31, 1993 comprise:
S/. US$
Copper concentrates 16,383,590 7,584,995
Copper sulphide 5,822,047 2,695,392
Supplies 17,569,913 8,134,219
In transit 8,121,668 3,760,031
Merchandise 51,115 23,665
---------- ----------
47,948,333 22,198,302
========== ==========
In accordance with an appraisal performed by independent appraisers in U.S.
dollars, the net realizable value of supplies is approximately US$28,000,000.
In accordance with a study performed by the Company as of December 31, 1993
there are slow-moving materials and supplies recorded in the aggregate amount
of S/.7,254,287 (equivalent to US$3,358,466). The market value in accordance
with an appraisal performed by independent appraisers is in excess of the
carrying amount of these items.
8. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1993 the balance comprises:
Accumulated
Cost depreciation Net value Net value
---- ---------- ---------- ----------
S/. S/. S/. US$
Land 653,004 - 653,004 302,317
Buildings and
other facilities 201,844,829 68,132,566 133,712,263 61,903,825
Machinery and
equipment 241,233,908 176,490,169 64,743,739 29,973,953
Vehicles 11,205,819 7,777,782 3,428,037 1,587,054
Furniture and
fixtures 7,501,617 3,444,837 4,056,780 1,878,139
Equipment 12,303,673 7,850,832 4,452,841 2,061,500
In transit 5,769,821 - 5,769,821 2,671,213
Work in
progress 1,210,338 - 1,210,338 560,342
----------- ---------- ----------- -----------
481,723,009 263,696,186 218,026,823 100,938,344
Provision for loss
in market value - 74,636,160 (74,636,160) (34,553,778)
----------- ----------- ----------- -----------
481,723,009 338,332,346 143,390,663 66,384,565
=========== =========== =========== ===========
According to an appraisal made by independent appraisers in U.S. dollars the
market value of fixed assets at December 31, 1992 was approximately
US$100,000,000. The provision for loss in market value referred to above
relates to building and other facilities (S/.70,667,236 and US$32,716,313)
and vehicles, furniture and equipment (S/.3,968,924 and US$1,837,465). In
addition, in the opinion of these appraisers the amount of current investment
required to build and furnish a plant of similar characteristics, maintaining
the current operating capacity, could be less than US$100,000,000.
The annual depreciation rates utilized by the Company are as follows:
buildings and other facilities 5%, machinery and equipment 7% and 10%,
vehicles 10%, furniture and fixtures 5% and 7% and equipment 7%.
9 INTANGIBLES
At December 31, 1993 this caption comprises:
Accumulated
Intangibles amortization Net value Net value
----------- ------------ --------- ---------
S/. S/. S/. US$
Concessions and
mineral rights 55,189,542 55,124,721 64,822 30,010
Exploration and
development costs 52,401,620 42,619,597 9,782,023 4,529,714
Feasibility studies 20,091,544 18,541,854 1,549,690 717,449
Pre-operating costs 590,583,374 550,577,819 40,005,555 18,521,090
Accounting software 233,133 233,133 - -
----------- ----------- ---------- ----------
718,499,213 667,097,124 51,402,089 23,797,263
=========== =========== ========== ==========
Currently, the Company is requesting the transfer of certain mining
concessions free of payment from Minero Peru. The transfer is expected to be
completed during 1994.
10 LONG-TERM DEBT
Outstanding balances, all denominated in U.S. dollars, as of December 31,
1993 are as follows:
S/. US$
Long-term debt 192,197,565 88,980,354
Current portion of
long-term debt 28,829,635 13,347,053
----------- -----------
221,027,200 102,327,407
=========== ===========
The debt relates to loans received from the Export Development Corporation of
Canada and a bank syndicate represented by the Toronto Dominion International
Bank, Ltd. and bears annual interest of 3%. Principal and interest are
payable in semi-annual installments of US$4,449,018 with maturity in the year
2004. This debt, incurred between 1980 and 1985, is guaranteed by the
Peruvian Government. As a result of the financial position of Peru and of
the Company, the Government, through Supreme Decree No.061-81-EF as of June,
1989, authorized the Ministry of Economy and Finance to sign a contract with
the Company under which outstanding debt of US$225,000,000 at December 15,
1988 was assumed by the State as follows: US$92,000,000 was
capitalized with the Company undertaking to re-acquire the shares over a term
of 7 years (Note 12-a) and the balance of approximately US$ 133,000,000 was
to be repaid in semi-annual installments with due dates until December 15,
2003 and bearing an annual interest of 3%.
On February 28, 1994 the Direccion General de Credito Publico, the
Corporacion Nacional de Desarrollo and TINTAYA agreed to modify the above
described contract.
Main modifications are:
- - Capitalized debt reduced from US$92 to US$82.4 million.
- - Rescheduled debt reduced from US$133.6 to US$129 million
- - The maturity date extended to December 15, 2004.
As from 1989 the Company has amortized US$31,302,018 of the re-financed debt,
expended US$9,575,350 for repurchase of shares as well as US$16,820,228 of
interest. Additionally, from 1987 to 1989 the Company made payments of
US$44,686,712 and US$7,735,491 corresponding to capital and interest,
respectively. These amounts have been deposited in a special account of the
Banco de la Nacion.
In order to facilitate an integral solution to the liabilities and debts of
TINTAYA with other Government entities, the Company's Board of Directors
agreed to suspend the payment of the second installment due on December 15,
1993.
11 MINING LAW
a) In October 1991 Legislative Decree No.677 was issued, establishing a
new basis to calculate the workers' participation as from 1992. The
most significant aspects of this legislation are as follows:
i) The workers' participation in the Company's earnings will
be 8% of taxable income. This participation is deductible
for income tax purposes.
ii) Workers will participate in the administration of the
Company through special committees aimed to increase
production and productivity. The workers will no longer
have a representation on the Board of Directors and the
mining communities can be voluntarily dissolved.
iii) In the event of a capital increase through a public stock
offering, the Company should offer to the workers a
preferential option to purchase at least 10% of the
capital increase.
b) In May 1993 the Government issued Supreme Decree 016-93-EM regulating
Article 15 of the General Mining Law in connection with environmental
protection as a consequence of mining activities. In accordance with
this legislation, mining companies should present to the Ministerio de
Energia y Minas an annual report that should include detailed
information about air pollution and spills of tailings. In addition,
mining companies should prepare an environmental management program -
PAMA in order to reduce the levels of environmental pollution. This
report should be signed by an environmental auditor. Management
considers that this program is in compliance with environmental
legislation.
12 STOCKHOLDERS' EQUITY
a) Capital
The authorized and subscribed capital stock at December 31, 1993 is
represented by 1,409,499 common shares of 250 intis each (one new Peruvian
sol equals one million intis).
As of December 31, 1993 the Company has not yet issued 1,724,000 shares
related to the capital restatements for the years 1990 to 1993 in new
Peruvian soles. (See note 3a)ii)). In accordance with current legislation,
the issuance of these shares is not considered as dividends and is exempt
from income taxes. The issuance of shares does not have an impact on
stockholders' equity or the Company's operations.
On June 30, 1989 the Company capitalized US$92,000,000 related to the
Company's debt assumed by the Peruvian Government (Note 10). In 1990 the
Company repurchased shares amounting to US$9,575,350, thus, according to the
modification included in the contract suscribed with the Peruvian Government
in 1994, the new capitalized debt amounts to US$82,424,650. No shares were
repurchased during 1993.
b) Capital surplus
In 1992 the Peruvian Government made capital contributions in accordance with
Supreme Decree 107-91-EF through the capitalization of 60% of selective sales
taxes related to the purchase of oil and gas. In 1993 this legal disposition
was revoked.
c) Accumulated deficit
i) In accordance with the Article 11 of the Legislative Decree 627
the difference between the restated accumulated losses at
December 31, 1991 and the corresponding retained earnings at
historical values may be off set with the adjustment resulting
from the restatement of common shares and labor shares.
ii) In accordance with clause 7 of the contract subscribed with the
Peruvian Government, dividends from shares related to the
capitalization of debt of US$92,000,000 should only be used in the
repurchase of stock. In addition, earnings related to the other
shares should be capitalized until the repurchase of shares is
completed (Note 10).
13 RESULT OF EXPOSURE TO INFLATION
At December 31, 1993, the monetary position comprised:
S/. US$
Monetary assets 126,609,413 58,615,469
Monetary liabilities 250,852,422 116,135,381
------------ -----------
Net position against inflation (124,243,009) (57,519,912)
============ ===========
The result of exposure to inflation arose from the net monetary position at
the beginning of the year and for the changes in such position for those
financial transactions which affect it, as follows:
S/. US$
Initial monetary position (180,796,399) (83,702,037)
------------ -----------
Items that generated a decrease in the
monetary position
Operations
Net income for the year, net of
result to exposure to inflation 2,321,462 1,074,751
Depreciation 34,198,836 15,832,794
Amortization of intangibles 20,235,910 9,368,477
Provision for loss in market value of
property, plant and equipment 3,727,119 1,725,518
------------ -----------
Total operations 60,483,327 28,001,540
Adquisition of machinery and
equipment, net (1,718,387) (795,549)
Increase of intangibles (5,170,849) (2,393,911)
Decrease of inventories (1,991,921) (922,186)
Others (217,402) (100,649)
------------ -----------
51,384,768 23,789,245
Result of exposure to inflation 5,168,622 2,392,880
------------ -----------
Ending monetary position (124,243,009) (57,519,912)
============ ===========
14 TAX SITUATION
a) On December 28, 1984 the Company subscribed to a tax stability contract
with the Peruvian Government which provides benefits in order to
encourage the recoverability of the investment in deposits of Tintaya.
The contract is effective from 1986 until the date the Company recovers
the amount of the investment (sub-clause 7.4).
In accordance with the terms of the contract a special tax regime for
the Company was established as follows:
i) Reduction in one-third of the amount of the annual income tax
payable. The contract provides the Company with an additional
period (sub-clause 8.6) after the date when the Company
recovers the amount invested.
ii) Exemption from equity taxes in accordance with Article 29 of
Law 24030.
iii) Continued application of the tax legislation and rates effective
as of December 28, 1984.
iv) Possibility to apply a global depreciation rate of 20% on
property, plant and equipment without prior approval from the
tax authorities.
v) No restrictions on sales abroad and on the corresponding foreign
currency obtained from such sales; however, the Company should
previously sell its production locally in order to satisfy local
demand.
vi) Possibility of maintaining accounting records in U.S. dollars
for tax purposes. At present, the Company maintains separate
accounting records in U.S. dollars and in new Peruvian soles.
b) The Company is not liable for income tax due to an accrued taxable loss
which was determined following the regulations established at December
28, 1984. Such loss amounts to US$1,822,680 and will be deductible
from net taxable income generated for the next four years as from 1993.
Because the Company does not have taxable income, it was not
obliged to pay participations to its workers.
c) The years 1990 to 1993 are open to examination by the tax authorities.
Management considers that no significant liabilities will arise from
these reviews. The years 1987 to 1989 have been reviewed by the tax
authorities. Possible final assessments in this respect are still
pending.
d) In 1992 the Company filed for the "Beneficio Especial de Regularizacion
Tributaria" (BERT) in order to regularize income tax payments for the
years 1989, 1990 and 1992.
15 CONTINGENCIES
a) In 1990 the Export Development Corporation of Canada, the Bank of Nova
Scotia and eighteen banks filed a claim for the non-payment of loans.
The claims are related to the payment of US$148,091,851 and
US$185,091,884, respectively, and the corresponding interest. In
accordance with the agreement signed with the Club of Paris, a group
comprising major creditors of Peru, on September 17, 1991, the
Peruvian Government renegotiated the debt with the Export
Development Corporation. Negotiations between the Peruvian Government
and the commercial banks are currently in process. Management
considers that no significant liabilities will arise as a consequence
of these lawsuits, because of the agreement with the Government as
explained in Note 10.
b) As of December 31, 1993 the Company received additional tax assessments
for approximately US$26,388,000 related to unpaid additional sales
taxes during 1987 and 1989. According to the tax stability contract
suscribed with the Peruvian Government mentioned in Note 13, the
Company is exempted from this additional tax, and the assessments are
considered invalid. Additionally, as explained in Note 2, these
contingencies will be included in the debt reconciliation process which
is being negotiated with the Peruvian Government.
16 STATISTICAL DATA (UNAUDITED)
a) Reserves
The Company's probable and proven reserves, in thousands of metric tons at
December 31, 1993 are as follows:
Reserve (MT) Mineral grade
----------- ------------
Open pit 13,830,465 2.04
Underground extension
of current open pit 2,894,458 1.75
Chabuca 3,445,050 1.97
Chabuca Norte 677,451 1.70
Chabuca Sur 9,540,270 1.82
These reserves will permit the exploitation of the reserves for eleven more
years as from 1993. Additionally, Chabuca Este has probable and proven
reserves of 24,567,555 MT, with 1.98% mineral grade and Coroccohuayco has
reserves of 25,924,380 MT, with 2.10% mineral grade.
b) Production
The mineral output and concentrate production, in thousands of metric tons,
for the year ended December 31, 1993 is as follows:
Production of MT Mineral grade
- -------------- ----- --------------
Sulphur 2,870 1.99
Copper concentrate 158 31.62
Fine copper 50 100.00
17. OTHER MATTERS
a) In accordance with clause 10.2 of the original Contract of Financial
Restructuring, TINTAYA is prevented from merging or consolidating with
another entity or selling, transfering or passing in whatever fashion
its properties. The CEPRI is taking steps to obtain the necessary
legal dispositions to remove this clause.
b) In December 1993, it was agreed to constitute the Empresa de Generacion
Electrica del Sur S.A. - EGESSA with the only shareholder being
TINTAYA in order to develop the generation of electricity. In
January 1994, the Thermoelectric Plant of TINTAYA was transferred to
EGESSA at its market value of US$13,550,000 which approximates to its
carrying amount.
18. SUBSEQUENT EVENTS
a) On February 4, 1994, the General Administration of Mining approved a
reinvestment program under which the Company could reinvest
US$7,220,000 to maximize its operations. In accordance with the
current tax stability contract, TINTAYA can appropriate 40% of income
before tax to such reinvestments which are tax deductible.
b) On March 18, 1994, Supreme Decree 016-94-PCM was issued authorizing
TINTAYA to carry out a downsizing program to terminate its personnel.
19. SIGNIFICANT DIFFERENCES BETWEEN PERUVIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements of the Company are presented on the basis of
accounting principles generally accepted in Peru (Peruvian GAAP) and have
been expressed into U.S. dollars in accordance with the basis described in
Note 3-g). Peruvian GAAP are in general terms similar to the accounting
principles generally accepted in the United States (US GAAP). However, there
are areas in which Peruvian accounting standards and practices differ from
the requirements of US GAAP and Magma Copper Company s accounting policies.
Significant differences between Peruvian GAAP and US GAAP are as follow:
a) Recognition of the effects of inflation on financial information
The reconciliation to US GAAP shown below does not include the reversal of
the adjustment to the financial statements for the effects of inflation
required under Peruvian GAAP, because the application of inflation accounting
represents a comprehensive measure of the effects of price level changes in
the hyperinflationary Peruvian economy and, as such is considered a more
meaningful presentation than historical cost-based financial reporting for
both Peruvian and US accounting purposes.
b) Mineral exploration costs
Following Peruvian GAAP, the Company exploration and development costs of new
deposits are capitalized and amortized over a ten year period as from the
date they begin to generate benefits to the Company. US GAAP require these
costs to be charged to expense when incurred unless feasibility is proven.
In addition, amortization under US GAAP is based on units of production.
c) Accounting for the lower of cost or market value of materials and
supplies inventory
In accordance with Peruvian GAAP the Company performed the comparison for the
lower of cost or market value of materials and supplies on an aggregate
basis. US GAAP requires that the rule of cost or market, whichever is lower,
should be applied directly to each item or to the total components of each
major category.
d) Maintenance and repair expenses
In accordance with Peruvian GAAP, significant maintenance and repair costs
are deferred in accordance with the estimated duration of the repair. In
accordance with US GAAP significant maintenance and repair expenses are
generally charged to expenses as incurred.
e) Metals inventory
Under Peruvian GAAP, all production costs incurred are included in inventory
costs. In accordance with US GAAP the measurement point for copper begins
only after initial processing of ore.
(f) Income tax
Under Peruvian GAAP, income tax is recognized on the basis of amounts due in
accordance with Peruvian tax regulation. US GAAP requires that deferred tax
liabilities and assets be recorded for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based
on the difference between the financial statements and tax bases of assets
and liabilities using current tax rates in effect for the year in which the
differences are expected to reverse.
(g) Summary of income statement and stockholders' equity differences
Following is a reconciliation of net income and stockholders' equity that
would have been required if the Company had applied US GAAP instead of
Peruvian GAAP.
S/. US$
Pretax income per Peruvian GAAP 7,490,084 3,467,631
Mineral exploration costs incurred
during the year (4,760,654) (2,204,006)
Reversal of deferred maintenance and
repair costs (1,104,689) (511,430)
Net change in ore stockpile inventory (142,467) (65,957)
----------- ----------
Pretax income per US GAAP 1,482,274 686,238
Deferred tax expense (3,194,640) (1,479,000)
----------- ----------
Net loss per US GAAP (1,712,366) (792,762)
=========== ==========
Stockholders' equity per Peruvian
GAAP 118,714,153 54,960,256
Net book value of mineral exploration
costs incurred prior to 1993 (6,571,057) (3,042,156)
Provision for obsolete and slow moving
materials and supplies (7,254,287) (3,358,466)
Reversal of deferred maintenance and
repair costs (668,723) (309,594)
Beginning balance of ore
stockpile inventory (5,679,580) (2,629,435)
Deferred income tax - initial set-up 9,430,560 4,366,000
Adjustments to net income (9,202,450) (4,260,393)
----------- ----------
Stockholders' equity per US GAAP 98,768,616 45,726,212
=========== ==========
(h) Income tax calculation
Under Peruvian GAAP, income tax is recognized on the basis of amounts due in
accordance with Peruvian tax regulation. For US GAAP purposes, the Company
has adopted the provisiones of FAS 109 "Accounting for Income Taxes".
FAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statements and tax bases of assets and liabilities, using current
tax rates in effect for the year in which the differences are expected to
reverse.
Deferred income tax has been calculated as follows:
S/. US$
Pretax financial income per
Peruvian GAAP 7,490,084 3,467,631
Temporary differences:
Exploration costs incurred (4,760,654) (2,204,006)
Deferred maintenance and repair costs (1,104,689) (511,430)
Net change in ore stockpile inventory (142,467) ( 65,957)
---------- ----------
Pretax financial income per US GAAP 1,482,274 686,238
Permanent differences 7,693,315 3,561,720
---------- ----------
Taxable income 9,175,589 4,247,958
========== ==========
Deferred tax expense 3,194,640 1,479,000
========== ==========
Deferred tax asset at December 31, 1992 amounts S/.6,235,920 (equivalent to
US$2,887,000).
i) Disclosure on fair value of financial instruments
As of December 31, 1993 the fair value of financial instruments are as
follows:
Carrying Fair Carrying Fair
amount value amount value
--------- ------ --------- ---------
S/. S/. US$ US$
Cash and bank
accounts 6,238,439 6,238,439 2,888,166 2,888,166
U.S. dollar bank
certificates 78,438,240 78,438,240 36,314,000 36,314,000
Time deposits 19,803,738 19,803,738 9,168,397 9,168,397
Current portion of
long-term debt (28,829,634) (21,731,779) (13,347,053) (10,061,009)
Long-term debt (192,197,565) (145,146,740) (88,980,354) (67,073,391)
Fair value of cash and bank accounts, U.S. dollar certificates and time
deposits has been determined by using their net realizable value. Fair value
of current portion of long-term debt and long-term debt has been determined
by using the quotation in the international market.
(j) Disclosure on environmental issues
Based on an environmental review by a third party the only immediate
environmental issue relates to small clean-up of fuel and chemical storage
facilities. It is estimated that the cost for this clean-up will be in the
range of US$150,000 to US$250,000. This amount does not address any
reclamation issues which Management considers not significant.
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Statement of Income for the Nine Months Ended September 30, 1993
(Unaudited)
(In Thousands)
<CAPTION>
S/. US $
--- ----
<S> <C> <C>
Net Sales 119,733 $55,432
Cost of sales (71,346) (33,031)
------- ------
GROSS MARGIN 48,387 22,401
Selling expenses (10,936) (5,063)
Administrative expenses (11,810) (5,468)
Amortization of intangibles (19,211) (8,894)
------- -------
OPERATING INCOME 6,430 2,976
Other income (expense):
Financial expense, net (3,749) (1,736)
Miscellaneous, net (1,117) (517)
Provision for decline
in market value of property,
plant and equipment (3,727) (1,725)
Result of exposure to inflation 5,168 2,393
------- ------
Income before income taxes 3,005 1,391
------- ------
Income tax provision -- --
------- ------
Net Income 3,005 $ 1,391
======= ======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA, S.A.
Statement of Cash Flows
For nine months ended September 30, 1993
(Unaudited)
(In thousands)
<CAPTION>
S/. US $
--- ----
<S> <C> <C>
Net income 3,005 $ 1,391
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 42,755 19,794
Other 9,209 4,263
Change in certain assets and liabilities:
(Increase)/decrease in:
Accounts receivable 7,089 3,282
Inventories (1,494) (692)
Prepaid expenses 350 163
(Increase)/decrease in:
Accounts payable and
accrued expenses (3,021) (1,399)
Accrued pension and other
liabilities 571 265
------- ------
Total adjustments 55,459 25,676
------- ------
Net cash provided by
operating activities 58,464 27,067
------- ------
Cashflows from investing activities:
Proceeds from sale of assets 115 53
Capital expenditures (5,167) (2,392)
------- ------
Net cash used by
investing activities (5,052) (2,339)
------- ------
Cashflows from financing activities
Payment of long-term debt (7,451) (3,450)
Net cash used by financing
activities (7,451) (3,450)
------- ------
Net increase in cash 45,961 21,278
Cash at the beginning of the period 53,024 24,548
------- ------
Cash at the end of the period 98,985 $45,826
======= ======
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Balance Sheet as of September 30, 1994
(Unaudited)
(In Thousands)
<CAPTION>
S/. US $
--- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 173,400 $ 77,411
Accounts receivable 34,458 15,382
Inventories:
Metals 20,792 9,282
Materials and supplies 17,312 7,729
Prepaid expenses 3,222 1,438
------- -------
Total current assets 249,184 111,242
------- -------
PROPERTY, PLANT AND
MINE DEVELOPMENT, net 180,886 80,753
OTHER ASSETS 237 106
------- -------
TOTAL ASSETS 430,307 $192,101
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable 6,248 $ 2,789
Accrued liabilities 18,383 8,207
Taxes payable 5,460 2,437
Current portion of long-term debt -- --
------- -------
Total current liabilities 30,091 13,433
------- -------
ACCRUED PENSION, RETIREMENT
AND OTHER LIABILITIES 206 92
LONG-TERM DEBT, net of current
portion 132,491 59,148
STOCKHOLDER'S EQUITY:
Capital 250,979 112,044
Capital surplus 216 96
Retained Earnings 16,324 7,288
------- -------
Total stockholder's equity 267,519 119,428
------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY 430,307 $192,101
======= =======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Statement of Income for the Nine Months Ended September 30, 1994
(Unaudited)
(In Thousands)
<CAPTION>
S/. US $
--- ----
<S> <C> <C>
Net Sales 155,228 $69,298
Cost of sales (76,067) (33,958)
------- ------
GROSS MARGIN 79,161 35,340
Selling expenses (10,200) (4,554)
Administrative expenses (11,516) (5,141)
Amortization of intangibles (18,044) (8,055)
------- ------
OPERATING INCOME 39,401 17,590
Other income (expense):
Financial expense, net 1,068 477
Miscellaneous, net 3,387 1,511
Reversal of provision for decline
in market value of property,
plant and equipment 3,724 1,663
Result of exposure to inflation 2,580 1,152
------- ------
Income before income taxes and
workers' participation 50,160 22,393
------- ------
Workers' participation (2,563) (1,144)
Income tax provision (7,221) (3,224)
------- ------
Net Income 40,376 $18,025
======= ======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA, S.A.
Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 1994
(Unaudited)
(In thousands)
<CAPTION>
Capital Retained
Capital Surplus Earnings Total
------- ------- -------- -----
<S> <C> <C> <C> <C>
In thousand of Soles
- --------------------
Balance at December 31, 1993 431,353 2,220 (314,859) 118,714
Inflation gain on net non-
monetary assets 47,439 216 (36,103) 11,552
Appropriation of accumulated
results through December 31,
1991 (324,690) (2,220) 326,910 --
Forgiveness of external debt 96,877 -- -- 96,877
Current period earnings -- -- 40,376 40,376
-------- ------ -------- -------
Total 250,979 216 16,324 267,519
======== ====== ======== =======
In thousand of U.S. Dollars
- ---------------------------
Balance at December 31, 1993 $199,700 $1,028 $(145,768) $ 54,960
Translation adjustment (7,132) (37) 5,206 (1,963)
Inflation gain on net non-
monetary assets 21,178 96 (16,117) 5,157
Appropriation of accumulated
results through December 31,
1991 (144,951) (991) 145,942 --
Forgiveness of external debt 43,249 -- -- 43,249
Current period earnings -- -- 18,025 18,025
------- ----- -------- -------
Total $112,044 $ 96 $ 7,288 $119,428
======= ===== ======== =======
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA, S.A.
Statement of Cash Flows
For nine months ended September 30, 1994
(Unaudited)
(In thousands)
<CAPTION>
S/. US $
--- ----
<S> <C> <C>
Net income 40,376 $18,025
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 37,820 16,884
Other 782 348
Change in certain assets and liabilities:
(Increase)/decrease in:
Accounts receivable (16,171) (7,219)
Inventories 9,844 4,395
Prepaid expenses 1,839 821
(Increase)/decrease in:
Accounts payable and
accrued expenses 490 219
Taxes payable 732 327
Accrued pension and other
liabilities (749) (334)
------- ------
Total adjustments 34,587 15,441
------- ------
Net cash provided by
operating activities 74,963 33,466
------- ------
Cashflows from investing activities:
Proceeds from sale of assets -- --
Capital expenditures (4,801) (2,144)
Other (21) (9)
------- ------
Net cash used by
investing activities (4,822) (2,153)
------- ------
Cashflows from financing activities
Payment of long term debt -- --
Net cash used by financing activities -- --
------- ------
Net increase in cash 70,141 31,313
Cash at the beginning of the period 103,259 46,098
------- ------
Cash at the end of the period 173,400 $77,411
======= ======
Supplemental schedule of non-cash
investing and financing transactions:
Forgiveness of external debt 96,877 $43,249
======= ======
</TABLE>
<PAGE>
EMPRESA MINERA ESPECIAL TINTAYA, S.A.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The financial statements include the accounts of Empresa
Minera Especial Tintaya, S.A. (Tintaya). In the opinion of
management, the accompanying unaudited financial statements
contain only normal recurring adjustments necessary to
present fairly Tintaya's financial position, results of
operations and cash flows for the periods presented in
accordance with Peruvian generally accepted accounting
principles.
These statements should be read in conjunction with the
financial statements and the related disclosures contained
in Tintaya's audited financial statements for the year ended
December 31, 1993 included in this Form 8-K/A-1.
The results of operations for the nine months ended
September 30, 1994 are not necessarily indicative of the
results to be expected for the full year.
Note 2. End of Period Exchange Rate
The financial statement expressed in new Peruvian soles has
been translated into U.S. dollars for the convenience of the
reader at the period end exchange rate of S/.2.24 per U.S.
$1.00.
<PAGE>
<TABLE>
Presentation of Significant Differences Between Peruvian and
United States Generally Accepted Accounting Principles, as and
for the year ended December 31, 1993.
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Balance Sheet
Conversion to US GAAP
As of December 31, 1993
(Unaudited)
(In thousands)
<CAPTION>
PERUVIAN US GAAP US GAAP
FIN Adj FIN
-------- ------- --------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 47,805 $ -- $ 47,805
Accounts receivable 8,467 -- 8,467
Inventories:
Metals 14,064 (2,696)d 11,368
Materials and supplies 8,134 (3,358)b 4,776
Prepaid expenses 2,343 (821)c 1,522
------- ------- -------
Total current assets 80,813 (6,875) 73,938
------- ------- -------
PROPERTY, PLANT AND
MINE DEVELOPMENT, net 90,182 (5,246)a 84,936
OTHER ASSETS 100 -- 100
------- ------- -------
TOTAL ASSETS $171,095 $(12,121) $158,974
======= ======= =======
CURRENT LIABILITIES
Accounts payable $ 3,727 $ -- $ 3,727
Accrued liabilities 7,450 -- 7,450
Taxes payable 2,189 -- 2,189
Current portion of
long-term debt 13,347 -- 13,347
------- ------- -------
Total current liabilities 26,713 -- 26,713
------- ------- -------
ACCRUED PENSION,RETIREMENT
AND OTHER LIABILITIES 442 -- 442
LONG-TERM DEBT, net of
current portion 88,980 -- 88,980
DEFERRED INCOME TAXES -- (2,887)e (2,887)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Capital 199,700 -- 199,700
Capital surplus 1,028 -- 1,028
Accumulated deficit,
retained earnings (145,768) (9,234)f (155,002)
------- ------- -------
Total stockholder's equity 54,960 (9,234) 45,726
------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $171,095 $(12,121) $158,974
======= ======= =======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Statement of Income
Conversion to US GAAP
For the Year Ended December 31, 1993
(Unaudited)
(In thousands)
<CAPTION>
PERUVIAN US GAAP US GAAP
FIN Adj FIN
-------- ------- -------
<S> <C> <C> <C>
Net sales $70,094 $ -- $70,094
Cost of sales:
Cost of products (42,942) 13,648 c,d,g (29,294)
Depreciation, depletion
and amortization (9,369) (14,226)g (23,595)
Selling, general and
administrative (12,851) -- (12,851)
Exploration, research
and development -- (2,204)a (2,204)
------ ------ ------
Income from operations 4,932 (2,782) 2,150
Other income (expense)
Interest expense, net (2,021) -- (2,021)
Adjustment for inflation 2,393 -- 2,393
Provision for decline in
market value of property,
plant and equipment (1,725) -- (1,725)
Other (111) -- (111)
------ ------ ------
Income before income
taxes 3,468 (2,782) 686
Income tax provision -- (1,479)e (1,479)
------ ------ ------
Net Income (Loss) $ 3,468 $(4,261) $ (793)
====== ====== ======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
Presentation of Significant Differences Between Peruvian and
United States Generally Accepted Accounting Principles, as and
for the nine months ended September 30, 1994
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Balance Sheet
Conversion to US GAAP
As of September 30, 1994
(Unaudited)
(In thousands)
<CAPTION>
PERUVIAN US GAAP US GAAP
FIN Adj FIN
-------- ------- --------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 77,411 $ -- $ 77,411
Accounts receivable 15,382 -- 15,382
Inventories:
Metals 9,282 (5,408)d 3,874
Materials and supplies 7,729 (3,238)b 4,491
Prepaid expenses 1,438 (894)c 544
------- ------- -------
Total current assets 111,242 (9,540) 101,702
------- ------- -------
PROPERTY, PLANT AND
MINE DEVELOPMENT, net 80,753 (5,741)a 75,012
OTHER ASSETS 106 -- 106
------- ------- -------
TOTAL ASSETS $192,101 $(15,281) $176,820
======= ======= =======
CURRENT LIABILITIES
Accounts payable $ 2,789 $ -- $ 2,789
Accrued liabilities 8,207 -- 8,207
Taxes payable 2,437 1,879 e 4,316
Current portion of
long-term debt -- -- --
------- ------- -------
Total current liabilities 13,433 1,879 15,312
------- ------- -------
ACCRUED PENSION,RETIREMENT
AND OTHER LIABILITIES 92 -- 92
LONG-TERM DEBT, net of
current portion 59,148 -- 59,148
DEFERRED INCOME TAXES -- 11,571 e 11,571
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Capital 112,044 -- 112,044
Capital surplus 96 -- 96
Accumulated deficit,
retained earnings 7,288 (28,731)f (21,443)
------- ------- -------
Total stockholder's equity 119,428 (28,731) 90,697
------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $192,101 $(15,281) $176,820
======= ======= =======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Statement of Income
Conversion to U.S. GAAP
For the nine months ended September 30, 1994
(Unaudited)
(In thousands)
<CAPTION>
PERUVIAN US GAAP US GAAP
FIN Adj FIN
-------- ------- -------
<S> <C> <C> <C>
Net sales $69,298 $ -- $69,298
Cost of sales:
Cost of products (33,958) 4,774c,d,g,h (29,184)
Depreciation, depletion
and amortization (8,055) (8,829)g (16,884)
Selling, general and
administrative (9,695) -- (9,695)
Exploration, research
and development -- (682)a (682)
------ ------ ------
Income from operations 17,590 (4,737) 12,853
Other income (expense
Interest expense, net 477 -- 477
Adjustment for inflation 1,152 -- 1,152
Reversal of provision
for decline in market
value of property,
plant and equipment 1,663 -- 1,663
Other 1,511 -- 1,511
------ ------ ------
Income before income
taxes, worker's
participation and
extraordinary item 22,393 (4,737) 17,656
Income tax provision (3,224) (1,097)e (4,321)
Workers' participation (1,144) 1,144 h --
------ ------ ------
Income before
extraordinary item 18,025 (4,690) 13,335
Extraordinary item:
Debt forgiveness, net of
tax of $15,137 -- 28,112 i 28,112
------ ------ ------
Net income $18,025 $23,422 $41,447
====== ====== ======
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Statement of Income
Conversion to U.S. GAAP
For the nine months ended September 30, 1993
(Unaudited)
(In thousands)
<CAPTION>
PERUVIAN US GAAP US GAAP
FIN Adj FIN
-------- ------- -------
<S> <C> <C> <C>
Net sales $55,432 $ -- $55,432
Cost of sales:
Cost of products (33,031) 10,236 c,d,g,h (22,795)
Depreciation, depletion
and amortization (8,894) (10,900)g (19,794)
Selling, general and
administrative (10,531) -- (10,531)
Exploration, research
and development -- (1,653)a (1,653)
------ ------ ------
Income from operations 2,976 (2,317) 659
Other income (expense):
Interest expense, net (1,736) -- (1,736)
Adjustment for inflation 2,393 -- 2,393
Provision for decline in
market value of property,
plant and equipment (1,725) -- (1,725)
Other, net (517) -- (517)
------ ------ ------
Income before income
taxes 1,391 (2,317) (926)
------ ------ ------
Income tax provision -- (1,109)e (1,109)
------ ------ ------
Net income $ 1,391 $(3,426) $(2,035)
====== ====== ======
(See accompanying notes)
</TABLE>
<PAGE>
Notes to Presentation of Significant Differences Between
Peruvian and United States Generally Accepted
Accounting Principles
a. Elimination of non-capitalizable exploration costs.
b. Provision for obsolete and slow moving materials and supplies.
c. Elimination of non-capitalizable maintenance and repair costs.
d. Adjustments for inventory recognition differences.
e. Implementation of SFAS 109, "Accounting for Income Taxes".
f. Adjustment to Tintaya equity for GAAP conversions.
g. Reclassification of depreciation and depletion expenses.
h. Reclassification of workers' participation.
i. Impact of forgiveness of debt.
<PAGE>
MAGMA COPPER COMPANY AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
The following unaudited Pro Forma Consolidated Balance Sheet gives
effect to the acquisition of Empresa Mineral Especial Tintaya S.A.
(Tintaya) as if the transaction had occurred on September 30,1994. The
following unaudited Pro Forma Consolidated Statements of Income for the
nine months ended September 30, 1994 and year ended December 31, 1993,
combined the historical results of operations of Magma Copper Company and
Subsidiaries (the Company) and Tintaya and assumed that the acquisition had
been effective as of the beginning of the period. The acquisition will be
accounted for as a purchase. The pro forma adjustments are based upon the
estimated fair value of the assets and liabilities of Tintaya as of
September 30, 1994, and are based on preliminary estimates, evaluations and
other data which are currently available and may change as a result of
further analysis.
The Pro Forma Statements of Income are not necessarily indicative of
the actual results which would have occurred had the acquisition been
consummated at the beginning of such period or of future consolidated
operations of the Company. The pro forma financial information has been
prepared by the Company and all calculations have been made by the Company
based upon assumptions deemed appropriate by the Company. Certain of these
assumptions are set forth under the Notes to the Unaudited Pro Forma
Consolidated Financial Statements. These statements should be read in
conjunction with the historical consolidated financial statements and the
notes thereto of the Company included in the Company's latest annual report
on Form 10-K, The Company's latest quarterly report on Form 10-Q and the
historical financial statements and the notes thereto of Tintaya filed with
this Form 8-K/A-1.
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 1994
(Unaudited)
(In thousands)
<CAPTION>
Pro Forma
Company Tintaya Adjustments Pro Forma
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and marketable
securities $ 318,133 $ 77,411 $ (323,568)a $ 71,976
Accounts receivable 65,450 15,382 (2,202)b 78,630
Inventories:
Metals 75,419 3,874 2,325 c 81,618
Materials & Supplies 25,640 4,491 30,131
Prepaid expenses 14,661 544 -- 15,205
--------- ------- --------- ---------
Total current assets 499,303 101,702 (323,445) 277,560
--------- ------- --------- ---------
PROPERTY, PLANT AND MINE
DEVELOPMENT, net 910,032 75,012 211,353 d,g 1,196,397
OTHER ASSETS 12,609 106 -- 12,715
--------- ------- --------- ---------
TOTAL ASSETS $1,421,944 $176,820 $ (112,092) $1,486,672
========= ======= ========= =========
CURRENT LIABILITIES:
Accounts payable $ 19,525 $ 2,789 $ -- $ 22,314
Accrued expenses:
Copper-bearing
materials 22,765 -- -- 22,765
Payroll & employee
benefits 23,314 2,262 -- 25,576
Interest 10,570 3,814 (3,814)e 10,570
Taxes 11,383 4,316 -- 15,699
Other 54,116 2,131 -- 56,247
Current Portion of
long-term debt 5,703 -- -- 5,703
--------- ------- --------- ---------
Total current
liabilities 147,376 15,312 (3,814) 158,874
--------- ------- --------- ---------
ACCRUED PENSION, RETIREMENT
& OTHER LIABILITIES 63,180 92 1,569 k 64,841
LONG-TERM DEBT, net of
current portion 387,840 59,148 (59,148)e 387,840
DEFERRED INCOME TAXES 97,899 11,571 39,998 g 149,468
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Capital 500 -- -- 500
Capital surplus 624,267 112,140 (112,140)f 624,267
Retained earnings 103,885 (21,443) 21,443 f 103,885
Unearned stock grant
compensation (3,003) -- -- (3,003)
---------- ------- --------- ---------
Total stockholder's
equity 725,649 90,697 (90,697) 725,649
--------- ------- --------- ---------
TOTAL LIABILITIES &
STOCKHOLDER'S EQUITY $1,421,944 $176,820 $ (112,092) $1,486,672
========= ======= ========= =========
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1993
(Unaudited)
(In thousands, except share information)
<CAPTION>
ProForma
Company Tintaya Adjustments Pro Forma
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Sales $792,399 $70,094 $ -- $862,493
Cost of sales:
Cost of Products (639,391) (29,294) (2,325)c (671,010)
Depreciation, depletion
and amortization (65,350) (23,595) 12,208 h,i (76,737)
Selling, general and
administrative
expenses (22,080) (12,851) -- (34,931)
Exploration, research
and development (9,352) (2,204) -- (11,556)
Restructure expense (2,030) -- -- (2,030)
------- ------ ------ -------
Income from operations 54,196 2,150 9,883 66,229
Other income (expense)
Interest expense (35,026) (2,021) -- (37,047)
Interest income 8,654 -- (8,184)1 470
Adjustment for inflation -- 2,393 -- 2,393
Provision for decline in
market value of property,
plant and equipment -- (1,725) -- (1,725)
Other 3,687 (111) -- 3,576
------- ------ ------ -------
Income before income
taxes 31,511 686 1,699 33,896
Income tax provision (8,710) (1,479) 395 j (9,794)
------- ------ ------- -------
Income (loss) from
continuing
operations (2) $ 22,801 $ (793) $ 2,094 $ 24,102
======= ====== ====== =======
Primary earnings from
continuing operations
per share (2)(3) $ .42 $ .45
======= =======
Weighted average shares
outstanding: 48,174,000
Earnings from continuing
operations per share
assuming full
dilution (2) $ .42(1) $ .45(1)
======= =======
Weighted average shares
outstanding: 52,189,000
(1) The Company's convertible preferred stock is not included in the fully
diluted calculations as its effects are antidilutive.
(2) Refer to the historical consolidated financial statements and the
notes thereto of the Company included in Magma's latest annual report
on Form 10-K for impact of extraordinary items and cumulative effect
of accounting change.
(3) Reflects preferred dividends deducted from income from continuing
operations.
(See accompanying notes)
</TABLE>
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For nine months ended September 30, 1994
(Unaudited)
(In thousands, except share information)
<CAPTION>
ProForma
Company Tintaya Adjustments Pro Forma
---------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Sales $ 622,140 $ 69,298 $ -- $ 691,438
Cost of sales:
Cost of Products (464,964) (29,184) (2,325)c (496,473)
Depreciation,
depletion &
amortization (53,859) (16,884) 8,274 h,i (62,469)
Selling, general
and administrative
expenses (16,353) (9,695) -- (26,048)
Exploration, research
and development (9,533) (682) -- (10,215)
------- ------ ------ -------
Income from operations 77,431 12,853 5,949 96,233
Other income (expense)
Interest expense (18,778) 477 -- (18,301)
Interest income 8,211 -- (3,908)1 4,303
Adjustment for inflation -- 1,152 -- 1,152
Reversal of provision for
decline in market value
of property, plant and
equipment -- 1,663 -- 1,663
Other 525 1,511 -- 2,036
-------- -------- ------ -------
Income before income
taxes and extraordinary
item 67,389 17,656 2,041 87,086
Income tax provision (16,847) (4,321) (2,876)j (24,044)
------- -------- ------ -------
Income from continuing
operations $ 50,542 $ 13,335 $ (835) $ 63,042
======= ======= ====== =======
Primary earnings from
continuing operations
per share (1) $ .85 $ 1.11
======= =======
Weighted average shares
outstanding: 49,095,000
Earnings from continuing
operations per share
assuming full dilution $ .80 $ .99
======= =======
Weighted average shares
outstanding: 63,444,000
(1) Reflects preferred dividends deducted from income from continuing
operations.
(See accompanying notes)
</TABLE>
<PAGE>
MAGMA COPPER COMPANY
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Reclassifications
Certain reclassifications have been made to Tintaya's historical
financial statements to conform to the Company's classifications.
Note 2. Pro Forma Adjustments
a. Adjusted to eliminate assets not purchased and to account for
cash of $243,157 paid to seller and estimated transaction costs.
b. Eliminate accounts receivable not purchased.
c. Write-up of concentrate inventory to adjust to market.
d. Allocation of purchase of mining concessions.
e. Adjusted to eliminate liabilities not assumed in purchase.
f. To adjust Tintaya equity for pro forma adjustments.
g. Adjustment to record deferred tax liability related to the net
book basis over net tax basis in acquired assets.
h. Adjustment to depreciation in accordance with Magma's historical
method.
i. To amortize the excess purchase price over the underlying value
of net assets acquired allocated to property, plant and mine
development.
j. To adjust income taxes for the pro forma adjustments.
k. Minority interest calculated at predecessor costs.
l. Adjust interest income for acquisition.
<PAGE>
EXHIBITS
10.1 Tax Stability Agreement
10.2 Judicial Stability Agreement With the Consortium
Magma Copper Company - Global Magma Ltd.
10.3 Judicial Stability Agreement With the Empresa Minera
Especial Tintaya S.A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGMA COPPER COMPANY
By \s\ Douglas J. Purdom
------------------------
Douglas J. Purdom
Vice President and
Chief Financial Officer
Date: February 6, 1995
<PAGE>
TINTAYA S.A.
TAX STABILITY
AGREEMENT
<PAGE>
Mr. Notary, kindly issue an Agreement of Benefits and Guarantees
in your Registry of Public Documents, signed by, on the one hand,
the Supreme Government (hereafter referred to as THE GOVERNMENT),
duly represented by the Deputy Secretary of Mining of the
Ministry of Energy and Mining and the Deputy Secretary of the
Treasury of the Ministry of Economy, Finance and Trade, Messrs.
Raul Musso Voulo and Guillermo Garrido Lorca Alvarez Calderon,
respectively, authorized under Supreme Decree No. 044-84-EM/OGAJ
dated December 28, 1984; and on the other hand by EMPRESA MINERA
ESPECIAL TINTAYA SOCIEDAD ANONIMA (hereafter referred to as THE
CORPORATION), Taxpayer I.D. No. 95A2551, a corporation extant and
constituted under the Laws of the Republic of Peru in conformance
with Supreme Decree No. 013-80-EM/DGM dated March 19, 1980 and
converted into its present corporate form by Supreme Decree No.
023-81-EM/VM dated August 26, 1981, recorded in Vol. 13, Page
489, No. 1 of the Book of Corporations of the Cusco Registry of
Trade and under Entry 1, Vol. 1, Page 23 of the Book of Special
Mining Firms of the Registry of Natural and Legal Persons in
Mining, said firm headquartered at Avenida Pardo 869 in the city
of Cusco and for effects of this Agreement domiciled at Trinidad
Moran Avenue 821, Lince, Lima, duly represented by its Executive
President, Engr. Hernando Labartha Correa, by virtue of the Power
of Attorney issued by the Board of the Corporation, which you,
Mr. Notary, are hereby requested to insert herein; and with the
participation of the Central Reserve Bank of Peru (hereafter
referred to as "CENTRAL BANK") as provided under Sub-Articles No.
9.2 and 9.3, duly represented by Mr. Hector Neyra Chavarri and/or
Mrs. Ann Maria Tenenbaum de Realegul and/or Mr. Ricardo Morzan
Leon based on documentary proof which you are also requested to
insert in this Document; in accordance with the following terms
and conditions:
<PAGE>
ARTICLE ONE: HISTORICAL BACKGROUND
1.1 Supreme Decree No. 014-71-EM/DGM dated September 27, 1971
created the Special Right of the State over the TINTAYA Economic
and Administrative Unit which comprises the field of expired
Mining Concessions, a list of which is attached as Enclosure I of
this Agreement, located in the District of Yauri, Espinar
Province, Department and Jurisdiction of the Regional Mining
Directorate at Cusco, at an average elevation of 4,100 meters and
at a distance of 250 km by road from the city of Cusco via Urcos,
Yanaoca and Yauri as shown in the enclosed plan which forms an
integral part of this Agreement as Enclosure II.
Under the same Supreme Decree, said Special Right of the State
was assigned to Empresa Minera del Peru (hereafter called MINERO
PERU), commissioning the latter in accordance with Article 2 of
its Constitution Decree Law No. 18436 repealed by Decree Law
No. 20035, the latter again repealed by Legislative Decree No.
42, Minero Peru's current Constitution to operate the
State-owned Mining Industry in its behalf. To permit [Minero
Peru] to exercise its mining activities, Article 3 of said
current Constitution, as did its earlier Constitutions, defers to
the General Mining Law, then known as Decree Law No. 18880 which,
as does the current General Mining Law approved by Legislative
Decree No. 109, empowers holders of the Special Right of the
State to make use of said right in the manner regulated therein,
thus allowing for the assignment of exploration and/or mining
rights on the basis of the Special Rights of the State under both
these laws.
1.2 Since its creation, Minero Peru has taken part in the
formation and administration of the Empresas Estatales Mineras
Asociadas and the Empresas Mineras Especiales, as a result of
which it was converted into the Empresa Estatal Minera Asociada
<PAGE>
Tintaya Sociedad Anonima EMATINSA , to which it assigned the
usufruct of the aforementioned Special Right of the State, i.e.
the right to perform exploration and mining operations, for the
duration of its existence and in partial payment of its share in
the corporate capital. This usufruct also included the actual
work performed and the data obtained therefrom, as well as
feasibility and basic engineering studies performed until then.
This contribution remained unchanged when, in accordance with
Temporary Provision Sixteen of the new General Mining Law,
Legislative Decree No. 109, EMATINSA became a Special Mining Firm
but continued to be a Sociedad Anonima.
The latter is the current corporate form of the Government in
accordance with Supreme Decree No. 023-81EM/VM dated August 26,
1981. By virtue of the aforementioned contribution in kind and
without prejudice to Minero Peru's ownership to same, the
Corporation holds title to the mining activities under the
Special Right of the State.
1.3 By Letter No. GF-0141 dated November 12, 1981 citing the
provisions of Article 52 of the current General Mining Law
supported by Articles 157 and 159 of the same body of law, the
Corporation petitioned the Ministry of Energy and Mining to grant
it a contract providing the benefits and guarantees contained in
the aforementioned Articles, to allow it to initiate mining
operations at the Tintaya Economic and Administrative Unit
(hereafter referred to as the TINTAYA PROJECT) under the Special
Right of the State.
1.4 Under Supreme Decree No. 027-84-EM/VM dated August 24, 1984,
the Regulation to the Articles referred to under 1.3, above, of
the General Mining Law was approved. In its Temporary Provision
Two, this Regulation sets forth that titleholders of Mining
Operations may apply for the benefits offered under the
<PAGE>
aforementioned Article 157 for any project for which a permit was
requested between the time Legislative Decree No. 109 took effect
and the publication date of the aforementioned Regulatory Supreme
Decree, and which was started during the aforementioned period,
as was the case with the Corporation. The said Regulation also
establishes that the work performed and/or the investments
effected during the said period shall be credited to the
computation of recoverable investments referred to in Article 159
of the Law, provided the activities funded by such investments
were approved in accordance with the abovementioned Regulation.
1.5 In view of the foregoing information and based on the
explanations provided in the following Article, the Government,
upon the signing of this Agreement and duly approved under
Supreme Decree No. 044-84-EM/OGAJ, grants [the Corporation] the
benefits and guarantees provided by Article 157 of Legislative
Decree No. 109 for the term indicated in Article 159 of the said
legal body.
ARTICLE TWO: BASIC ASPECTS OF THE AGREEMENT.
The reasons on the basis of which the Government grants and signs
this Agreement with the Corporation are the following:
2.1 The project is a new mining operation of justifiable
financial proportions;
2.2 The startup of the Tintaya Project is part of the National
Plan to Develop the Mine Production of the Country;
2.3 Within approximately fourteen years of operation at a
production rate of 8,000 metric tons per day of copper sulfide
ore, the Tintaya Project will produce a positive net influx of
foreign currency beneficial to the country's trade balance and
its balance of payments;
2.4 From the standpoint of its immediate impact, the startup of
the Tintaya Project signifies the reactivation of the civil
construction industry, the design and planning branch, and
engineering supervision activities, as well as the creation of
jobs in each of these industries and/or activities. From the
<PAGE>
standpoint of its impact on the region, it means the utilization
of the unskilled labor pool at Cusco, Punto, Arequipa and Espinar
Province which will contribute to the development of other
economic activity in the region.
2.5 From the standpoint of infrastructure, the Tintaya Project
will combine the development of its own infrastructure with the
existing one and/or that required for other projects;
2.6 The Corporation has met the requirements for the signing of
this Agreement set forth by law, and
2.7 The benefits and guarantees the General Mining Law will
provide will result in the complete amortization of the loans
obtained for the construction and startup of the Tintaya Project
within the agreed terms.
ARTICLE THREE: MINING RIGHTS.
As set forth in Article 1.3, the Tintaya Project is subject to
the Special Right of the State as established under Supreme
Decree No. 014-71-EM/DGMJ concerning the expired Mining
Concessions listed in Enclosure I, whose location is shown in
Enclosure II. For the purposes of this Agreement and in
accordance with Article 160 of the General Mining Law, this
Special Right of the State constitutes an Economic and
Administrative Unit.
The provisions of the preceding paragraph do not prevent the
Corporation from adding additional mining rights to the Tintaya
Project, in which case and in the event this addition increases
the reserves, these additional mining rights shall be added to
the existing reserves to permit the calculation of the minimum
production level required by the General Mining Law.
ARTICLE FOUR: INVESTMENT PLAN AND TIMEFRAME FOR EXECUTION.
4.1 The Investment Plan details all procurement and preparatory
and construction work required for the project's startup or to
initiate the production process at the Tintaya Project, and also
specifies the approximate minimum investment amount needed. This
<PAGE>
Investment Plan, which was duly authorized by the Government
prior to the signing of this Instrument, forms an integral part
of this Agreement as Enclosure III.
4.2 The total timeframe for the execution of the Investment Plan
covers 11 months and shall unfailingly expire on May 31, 1985,
inasmuch as the Corporation, in accordance with the provisions of
Article 1.4, began to implement it in January 1982, immediately
after it filed the required application for the signing of this
Agreement with the Ministry of Energy and Mining.
In terms of the construction and [other] work already completed,
this work is already included in the Investment Plan at the
amounts that were actually invested. However, should it prove
necessary to effect changes, they may be made both in terms of
work already executed and in regard to uncompleted work, provided
the final objectives of the Investment Plan remain unaffected,
and provided also that in both such cases, the Corporation has
previously filed an application with the Directorate General of
Mines to secure approval of such changes and/or expansions,
without prejudice to the express or tacit approval by the
aforementioned Directorate General so that any changes and/or
expansions effected may be revalidated and included in the
Investment Plan.
4.3 Among the principal efforts contained in the Investment Plan
are the following:
4.3.1 In terms of the road system, the installation of a
road network by upgrading the existing and building new roads to
permit the transport of materials and supplies to the Tintaya
Project site, including an airport.
4.3.2 Removal of approximately 20 million tons of barren
rock and other materials to permit the startup of mining
operations.
4.3.3 Construction of a metallurgical ore flotation
plant with a capacity to treat 8,000 metric tons per day.
<PAGE>
4.3.4 Construction and installation of a thermal power
plant with a generating capacity of 16.5 MW, sufficient to meet
the electric power needs of the mining operations as well as any
additional industrial facilities and residential quarters to
develop and operate the Tintaya Project.
4.3.5 Construction of urban centers necessary to house
the workers employed at the Tintaya Project. The buildings will
meet current standards of housing, education and medical care.
4.3.6 Opening an office of Industrial Relations to
permit the Corporation to comply with legal standards regarding
safety and hygiene and to train its workers by means of suitable
and efficient activites and services.
4.3.7 The installation and operation of private
telephone and/or radio-telephone services subject to applicable
legal provisions to provide communication services between the
Tintaya Project site and Arequipa, Mollendo-Matarani, Cusco and
Lima, as well as the installation of an automated microwave
station.
4.4 By implementing this Investment Plan, the Corporation hopes
to reach a production level of approximately 150,000 metric tons
per year of copper concentrates, with a 50,000 metric ton fine
copper content during the investment recovery period.
ARTICLE FIVE: AMOUNT TO BE INVESTED IN THE TINTAYA PROJECT AND
MANNER OF FINANCING.
5.1 The implementation of the Investment Plan, Enclosure III,
calls for a total investment of approximately US$ 333,500,000.00
(three hundred and thirty-three million five hundred thousand
U.S. dollars). This amount comprises the following:
US$ 31,500,000.00 (thirty-one million five hundred thousand U.S.
dollars), representing Minero Peru's non-financial contribution
to the corporate capital in the form of the assignation of
exploration and exploitation rights under the oft-mentioned
Special Right of the State, including the import of the work
already performed, as well as the previously obtained data and
<PAGE>
the feasibility and basic engineering studies up to the formation
of the Corporation, and which have since been in the latter's
possession.
US$ 33,000,000.00 (thirty-three million U.S. dollars) to cover
interest, financial, and legal charges generated by or deriving
from loans taken during the construction period; and
US$ 269,000,000.00 (two hundred and sixty-nine million U.S.
dollars) representing the working capital during the same period.
In accordance with the provisions in paragraph 3 of Article 159
of the General Mining Law and Articles 36 and 37 of Supreme
Decree No. 027-84-EM/VH, the final total investment shall be
established upon completion of the construction work.
5.2 The financing of the Investment Plan at this time is
complete, as shown in the following:
5.2.1 US$ 100,000,000.00 (one hundred million U.S. dollars)
from the Corporation's own capital previously paid in and still
being paid in by its shareholders in accordance with the
requirements of the Investment Plan and in conformance with the
provisions of Sub-Articles 5.3, 5.4 and 5.6 of Article Five of
the Public Document dated May 2, 1980 representing the
Corporation's Articles of Incorporation and its Bylaws, as
executed before Lima Notary Dr. Virgilio Alamora Valdez following
the approval by Supreme Decree No. 013-80-EM/DGM dated March 19,
1980 of said Articles of Incorporation and Bylaws; and in
accordance with Decision No. 79/84 adopted by the Corporate Board
during Board Session No. 17/84 of July 3, 1994.
5.2.2 US$ 215,000,000.00 (two hundred and fifteen million
U.S. dollars) from loans the Corporation has secured from the
Canadian Export Development Corporation (US$ 100,000,000.00) (one
hundred million U.S. dollars) and from the Toronto Dominion
International Bank Limited as agent of a Banking Syndicate (US$
115,000,000.00) (one hundred and fifteen million U.S. dollars).
These loans are guaranteed by the Government. The guarantee and
the loans were approved by Supreme Decree No. 280-81-EFC dated
December 7, 1981 following government approval of the terms by
<PAGE>
Legislative Decree No. 237 and by Decree Laws No. 22959, 23225
and 23117, of which the first two were amended and the latter was
repealed by Legislative Decree No. 237.
5.2.3 S/. 28,387,111,865 (twenty-eight billion three
hundred and eighty-seven million one hundred and eleven thousand
eight hundred and sixty-five Gold Soles) by way of capital
contribution and formation of reserves for future capitalization
compounded against the Import Tax and General Sales Tax payable
on the importation of capital equipment earmarked for the
development and operation of the Tintaya Project in accordance
with the provisions of Legislative Decree No. 159 dated June 12,
1981, Supreme Decree No. 276-81-EFC of November 27, 1981, as well
as the unanimous Shareholders Decision No. 08/83 adopted during
the Extraordinary General Shareholders' Meeting No. 06/83 held on
December 30, 1983.
ARTICLE SIX: PRODUCTION STARTUP.
6.1 The production startup date shall be the ninetieth day of
continuous operation of the Tintaya Project at 80% of the rate
projected in 4.4.
6.2 For the production startup date to be recorded as the
official date, the Corporation shall make written notification to
the General Mining Directorate by submitting a sworn statement
within 30 calendar days following said event.
6.3 It should be noted, however, that the production startup
date of the Tintaya Project does not constitute the beginning of
the investment recovery period, which will in fact begin upon the
conclusion of the Investment Plan following the fiscal year after
the one in which the total recoverable investment amount under
the Agreement is determined.
<PAGE>
ARTICLE SEVEN: TERMINATION OF INVESTMENT PLAN, AMOUNT OF
RECOVERABLE INVESTMENTS, AND START OF RECOVERY OF FUNDS INVESTED.
7.1 Within 90 days after the Investment Plan for the Tintaya
Project is completed, but no later than March 31, 1985, the
Corporation shall submit the following documentation to the
General Mining Directorate:
7.1.1 A Sworn Statement reporting the completion of the
Investment Plan and detailing the work and acquisitions that were
made, as well as the total amount financed from loans and the
Corporation's own capital.
7.1.2 Financial Statements as of the date the Project is
concluded, along with enclosures or comments showing the
investments and acquisitions, all of which shall be supported by
reports from independent auditors.
7.1.3 The Corporation shall also grant the General Mining
Directorate, at the location where it maintains its books, access
to any documentation that may be necessary to verify the accuracy
of the information contained in the Sworn Statement.
7.2 The General Mining Directorate may make comments pertaining
only to the inclusion of investments and expenditures not
contained in the Investment Plan or in its duly approved
amendments or pertaining to numerical errors, and must do so
within 90 days from receipt and access to the documentation
discussed in 7.1.1, 7.1.2 and 7.1.3. In addition, the
Directorate's comments must be substantiated, and the procedure
set forth in paragraph 2 of Article 100 of the General Mining
Law, Legislative Decree No. 109 shall apply. If the Directorate
raises no objections, the Sworn Statement and the Financial
Statements are considered automatically approved.
7.3 The total recoverable investment amount shall first be
determined at the closing of fiscal year 1985 on the basis of the
amounts originally invested, by express or tacit approval of the
work and acquisitions effected in implementing the Tintaya
Project.
<PAGE>
At the closing of subsequent fiscal years, the recoverable
investment shall be calculated by using the amount determined as
a recoverable investment as indicated in the preceding
paragraph and deducting depreciation and amortization, and by
additionally deducting the amount that has already been recovered
by following the procedure set forth in 8.2 of this Agreement.
7.4 The recovery of the investment subject to this Agreement
shall begin in fiscal year 1986, i.e. beginning with the fiscal
year following the year in which the total amount of recoverable
investments shall be determined in keeping with 7.3.
ARTICLE EIGHT: INVESTMENT RECOVERY PROGRAM AND DURATION OF
CONTRACTUAL BENEFITS AND GUARANTEES.
8.1 To facilitate the estimatation of the investment
recuperation period as of the fiscal year following that in
which, upon the conclusion of the Investment Plan, the total
recoverable investment is determined, an Investment Recuperation
Schedule is being attached as Enclosure IV and will form an
integral part of this Agreement. The Schedule shows, among
others, expenditures and/or assets and/or cash amounts designated
for the implementation of the Investment Plan, such as
infrastructure, studies, preliminary development of the mine,
exploration, procurement of mine and plant equipment, facilities,
buildings and other fixed assets necessary for day-to-day
operations, loan interest charges, working capital, and in
general all items considered investments under Article 37 of
Supreme Decree No. 027-81-EM/VM.
To this effect and in accordance with the aforementioned Article
37 and with paragraph 3 of Article 159 of the General Mining Law,
the word "investment" includes all amounts capitalized during the
period between the starting and completion dates of the work.
8.2 The investment recovery period is the timespan which begins
the fiscal year following that in which, upon the conclusion of
the Investment Plan, the total recoverable investment amount is
established, and ends on the day when the Corporation has
recovered the invested sums in the manner set forth in Article
159 (paragraph 1) of the General Mining Law, i.e. by deducting
<PAGE>
income tax, INGEMMET dues and the 7% net profit share due its
workers during the first seven years following production startup
from gross earnings; or, in the event these first seven (7) years
elapse without recovery of investment, by deducting the net
shares and the capital shares due the workers in fulfillment of
the Mining Compact.
To this effect, the corporate income tax to be deducted from
gross earnings shall be calculated in accordance with the
provisions of Article 133 of the General Mining Law, regulated by
Title I of Supreme Decree No. 027-81-EM/VM and Article 7.3 of
this Agreement.
Article 139 of the General Mining Law and paragraph 1 of Article
39 of Supreme Decree No. 027-84-EM/VM provide that "gross
earnings" are the difference between the net sale price (for
domestic sales) or between the FOB value (for foreign sales), and
the direct or indirect costs, without deducting applicable
depreciations and amortizations therefrom.
8.3 To determine the exact duration of this Agreement, the
Corporation shall keep a Special Auxiliary Book, in which the
investment currency, the total original recoverable investment
amount established in accordance with 7.2 and 7.3, as well as the
amount recovered with the earnings, shall be recorded from fiscal
year to fiscal year as provided in 8.2.
As indicated in the preceding paragraph, within the same
timeframe as that established for filing the sworn income tax
return, the Corporation shall submit a sworn statement to the
General Mining Directorate which shall contain information
pertaining to the recoverable investment as of the close of the
fiscal year, the amount from the gross profit that was applied
towards its recovery, a breakdown of how these amounts were
calculated, and the balance that remains to be recovered, if
applicable.
<PAGE>
The year in which the recoverable investment is completed, the
Corporation shall, within 180 days from the last day of the month
of such completion, submit to the General Mining Directorate and
the Directorate of Revenues a special Sworn Statement specifying
the date of the said recovery which shall be acknowledged by
Supreme Resolution following verification, and countersigned by
the Secretary of Energy and Mining and the Secretary of Economy,
Finance and Trade.
8.5 The Corporation shall also grant the General Mining
Directorate and the Directorate of Revenues, at the location
where it maintains its books, access to any data and records that
may be needed to verify its reports.
Without prejudice to the provision in this Agreement which
requires the recording of the recoverable investment and its
recovery in the Special Auxiliary Book, the Corporation's Balance
Sheet shall reflect the total amount of the original recoverable
investment under special memorandum accounts.
8.6 In terms of the recoverable investment and the granting of
contractual benefits and guarantees, including the lowered income
tax rate provided under Article 9.5, the term of this Agreement
shall begin as of the fiscal year following that in which the
Investment Plan is completed and the total investment amount is
approved in accordance with the provisions of Article 7, above.
It shall end when the recovery of the investment has been
accomplished, except for the benefit represented by the lower
income tax rate, which will continue for another five (5) fiscal
years following investment recovery.
8.7 Under Article 42 of Supreme Decree No. 027-84-EM/VM, the
provision in Article 8.6 applies regardless of the fact that the
benefits and guarantees referred to in Article 157 of the General
Mining Law are granted simultaneously with the signing of this
Agreement and in view of the legal provisions applicable at the
time the Agreement takes effect. These provisions remain
unchanged to the Agreement beneficiary, except that a more
<PAGE>
favorable tax rate may be offered in the future. The income tax
rate, however, will not be changed during the term, plus another
five years after the Agreement ends, as stipulated in Article
9.7.
ARTICLE NINE: CONTRACTUAL GUARANTEES.
In accordance with Article 157 of the General Mining Law and
Article 45 of Supreme Decree No. 027-84-EM/VM, the Government
hereby makes the Corporation the following guarantees for the
contractual term specified in Article 8.6 and without prejudice
to the tenor of Article 8.7:
9.1 That the marketing of the Corporation's products shall be
effected in accordance with the standards outlined on the subject
by Chapter I of Title III of the General Mining Law and Chapter V
of Supreme Decree No. 025-82-EM/VM the Regulation supporting
the aforementioned Law , i.e. that by virtue of this Agreement
the Government guarantees the Corporation a free hand in the sale
and export of its products from the Tintaya Project.
Specifically, the Government may apply no measure which might:
9.1.1 Restrict the Corporation's capacity to sell its
products anywhere, after the Nation's domestic consumer needs
have been met in accordance with the provisions referred to in
the foregoing text.
9.1.2 To halt or postpone such sales and/or exportation.
9.1.3 To require that the Corporation sell its products in
any market, whether domestic or foreign, at prices that are lower
than the prices it could obtain in the international marketplace
where it sells most of its exports. In this regard and in
accordance with domestic consumer statistics, the Corporation is
therefore authorized to export more than 80% of its total
production.
9.1.4 To require payment for such products on the basis of
barters or against currencies that are not valid for
international payments.
<PAGE>
9.2 In accordance with the provisions of Article 149 of the
National Constitution and Article 157 of the General Mining Law,
the Central Reserve Bank of Peru, in representation of the
Executive Branch, is a participant to this Agreement and grants
the mine producer the following guarantees over the term of the
Agreement:
a. To hold foreign currency from the sale of its products,
under foreign exchange regulations in effect at the time the
Agreement is signed;
b. To not be discriminated against in matters relating to
foreign exchange, and
c. In the event the foreign currency system is deregulated,
the mine producer shall be able to enjoy increased benefits over
the period of such deregulation, and these benefits shall be
equitably applied.
If these benefits are cut, the mine producer shall be able
to continue enjoying those in effect at the time this Agreement.
It should be noted that the currency exchange regulations
whose stability is guaranteed for the duration of this Agreement
are spelled out in Decree Law No. 21953 and its amendments, and
by the exchange resolutions issued by the Central Reserve Bank of
Peru in accordance with the aforementioned Decree Law No. 21953
in effect at the signing of this Agreement.
9.3 That it shall have the right to apply on its fixed assets an
overall annual write-off rate of up to 20%. The Corporation may
change this rate on an annual basis without requiring
authorization from the Directorate General of Revenues, provided
the overall annual 20% cap is not exceeded.
9.4 In accordance with the provisions of subsection 4 of Article
157 of the General Mining Law and Article 44, paragraph 2 of the
Supreme Regulatory Decree No. 027-84-EM/VM, the Corporation shall
be granted a one third reduction on the total amount of Income
Tax calculated by the Corporation. It should be noted that this
benefit applies to the Corporation during the term of the
Agreement plus an additional five (5) years [following its
expiration].
<PAGE>
9.5 That the Corporation shall keep its books in U.S. dollars in
view of the fact that, as noted in Article 9.1.3, it intends to
export at least 80% (eighty percent) of its production.
To obtain this benefit, the Corporation shall:
9.5.1 Change its account books to U.S. dollars beginning
with the fiscal year following that in which this Agreement takes
effect. The changeover to be conducted in keeping with
applicable international accounting procedures as established by
the International Commission for Accounting Standards, and
accompanied by an opinion from an independent accounting firm
previously approved by the General Mining Directorate at the
Corporation's suggestion , shall specify that the investment
amount is in historical United States dollars, without prejudice
to the provisions of Decree Law No. 19039.
9.5.2 At the closing of the fiscal year during which this
Agreement is signed, two balance sheets shall be prepared, one in
national currency and one in U.S. dollars. All liabilities for
said business year shall be shown on the balance sheet in Gold
Soles. The balance sheet in national currency must reflect the
revaluations of assets and the adjustments in the amount of
assets due to possible exchange rate fluctuations which may have
taken place.
9.5.3 If the term of this Agreement ends before one or more
five-year periods have elapsed in which the books were kept in
U.S. dollars, the Corporation shall change the accounts back to
national currency beginning with the next fiscal year, and in so
doing shall adhere to the same rules and authorizations referred
to under Article 9.6.1.
9.5.4 The accounting adjustments arising as a result of the
conversion to U.S. dollars and to Gold Soles after the contract
term, shall not be computable for Income Tax purposes.
<PAGE>
9.5.5 The Ministry of Economy, Finance and Trade shall issue
a Supreme Decree spelling out the regulations Corporation shall
observe in complying with its tax obligations. For tax payments
in Gold Soles, said Decree shall establish the exchange rate that
is the most favorable to the State.
9.5.6 It is expressly pointed out that during the period
the Corporation is subject to keeping its accounts in U.S
dollars, it shall be prohibited from revaluing its assets.
9.6 The Corporation shall enjoy Tax Stability, both in terms of
Tintaya Project and the product it may extract therefrom, and no
new or amended regulations passed after the effective date of
this Agreement shall affect it in any way. The Corporation shall
also enjoy, without limitation or restriction, any [new] benefits
granted under general or mining industry-specific laws, except
for Income Tax amendments whose effect on Tintaya Project is
determined under this Agreement and shall be unalterable over the
life of this Agreement plus the extra five years, including the
manner in which the taxable amount is figured.
This tax stability benefit or guarantee involves the following
procedures:
9.6.1 The mining royalties applicable to the Special Right
of the State on Tintaya Project are the rates set forth in
Article 138 of the General Mining Law, i.e. 0.04% for
exploration, and 0.1% for an UIT for ore removal. Also
applicable in this case are the mining royalty rates indicated in
paragraph 2 of Article 138 of the General Mining Law.
9.6.2 For the purposes of this Agreement and in accordance
with Article 9.5 and 9.7 (introductory paragraph), the Income Tax
and its rate scale as set forth by Legislative Decree No. 200
shall be applicable until the fifth fiscal year following the
year in which the investment recovery is completed, in accordance
<PAGE>
with Article 133 of Legislative Decree No. 109 and Article 62 of
Decree Law No. 200, as well as its regulations effective as of
December 31, 1984.
9.6.3 A rate of 8% for the General Sales Tax, as
established under Title I of the Sole Codified Text of
Legislative Decree No. 190, approved by Supreme Decree No.
439-84-EFC.
9.6.4 For the Special Tax established under Title III of
the Sole Codified Text of Legislative Decree No. 190, approved by
Supreme Decree No. 439-84-EFC, a rate of 2% as indicated in
Article 83 and Appendix VI of the legislative decree referred to.
9.6.5 A rate of 2.5%, payable at [the Corporation's] own
expense, for the Sole Tax on Payments for Personal Services. This
tax was established by Decree Law No. 19839 and its amending and
regulatory provisions and applied until 1982 under the tax
structure then in effect. It was restored by Legislative Decree
No. 298 as of Jan. 1, 1985.
9.6.6 The Import Surcharge created by Article 18 of Law No.
23337 and extended by Laws No. 23509 and 23724 is 10% of the CIF
amount, in accordance with the provisions of Supreme Decree No.
085-83-EFC dated March 18, 1983, and extended until December 31,
1984.
9.6.7 The contribution to the National Housing Fund,
FONAVI, Decree Law No. 22591, which as set forth in subsection
c) of Article 2, which agrees with Article 25 of the same
provision is applicable only to workers for whom the
Corporation is not required to furnish housing is 4%, in
accordance with the provisions of Supreme Decree No. 033-79-VC.
9.6.8 The following contributions: Social Security
Administration of Peru, Health Care Payments according to Decree
Law No. 22482, at a rate of 5%; National Pension Plan, Decree Law
No. 19990, at a rate of 5%; and Work Injuries and Job-Related
Illnesses, Decree Law No. 18846, at a rate of 3.6%.
<PAGE>
9.6.9 Duties and tariffs on importation of the tariff items
listed in the enclosure in accordance with Article 6 of Supreme
Decree No. 103-82-EFC, are taxable under the headings and
percentage rates in effect, as listed in the aforementioned
enclosure, until December 31, 1984; and the maritime shipping tax
[as] established under Decree Law No. 22202 and amended by Decree
Law No. 22448.
9.6.10 The Special Tax on the supply of electric power and
water established under Legislative Decree No. 163 is assessed in
accordance with the following rates, calculated on the total
amount paid: Electric power, 25%; Water, 10% (Article 6 of Law
No. 23509).
9.6.11 Claim registration fees at the same rate as a UIT
and, if applicable, according to the classifications shown in
Articles 81, 88 and 103 of the General Mining Law.
9.6.12 The dues for the Institute of Geology, Mining and
Metallurgy as provided in Decree Law No. 22631 and Decree Law No.
22401, Article 139 of Legislative Decree No. 109 and Article 107
of Law No. 23740 (Private Sector Budget Law for 1984), payable by
a 1.5% deduction off net earnings.
9.6.13 Under Article 29 of Law No. 24030, the 1985 Fiscal
Year Budget Funding Law, the Corporation is exempt from Business
Property Tax.
9.6.14 The non-agricultural water use rate established in
Decree Law No. 17752, General Water Law, and in accordance with
the provisions of Supreme Decree No. 062-83-AG.
9.6.15 The rate for the waste water discharge permit
established under Decree Law No. 17752, General Water Law, and in
accordance with the provisions of Article 207 of Supreme Decree
No. 41-70-A, later amended by Article 2 of Supreme Decree No.
007-83-SA, Supreme Resolution No. 008-78-SA, Ministerial
Resolution No. 0025-84-SA/DVM.
<PAGE>
9.6.16 Tax on Municipal Operating Permit for corporate
offices in urban areas, in accordance with Decree Law No. 22834,
amended by Decree Law No. 23030, at the square meter per-unit
rate expressed in Gold Soles, effective as of December 31, 1983.
9.6.17 The Regimen for Taxation and Promotional Provisions
established in Title VIII of Legislative Decree No. 109, General
Mining Law, duly regulated by Supreme Decree No. 025-82-EM/VM, is
being retained.
9.6.18 Similarly, all other taxes not listed here which are
applicable as of the effective date of this Agreement shall also
be applied, but always at the rates or in the proportions in
effect at the time.
ARTICLE TEN: THE REMAINING AND/OR NEWLY ADDED LEGAL PROVISIONS.
10.1 It is expressly pointed out that no extant or yet to be
created law or regulation shall be applied to the Corporation
which would directly or indirectly subvert the tax stability
benefit provided under Article 9.7 (in its entirety).
Not included herein are substitutionary taxes, in which case the
provisions of the second to the last paragraph of Article 155 of
Legislative Decree No. 109 shall apply.
10.2 Similarly, no legal standards which may be passed in the
future shall apply to the Corporation, which might call for the
title holders of mining operations to purchase bonds or any other
kind of securities, or to make advance tax or loan payments in
favor of the State.
ARTICLE ELEVEN: INVESTMENTS NOT SUBJECT TO RECOVERY.
11.1 Any investments made by the firm to acquire properties
other than mining claims or the offices and buildings the
Corporation may construct in implementing its Investment Plan,
shall not be considered investments subject to recovery, and
their amortization is subject to the laws in effect.
<PAGE>
Excluded from the preceding provision and consequently eligible
as a recoverable investment, are payments and/or compensation
incurred for damages or easement or use rights, and which are
indispensable to the construction of the industrial facilities
under this Agreement.
11.2 In accordance with Article 159 of the General Mining Law,
if the Corporation invests reinvestment reserves or investments
eligible for tax benefits in the Project covered by this
Agreement, the [corresponding] sums shall be deducted from the
total investment and will not be included in the total
recoverable investment over the term of this Agreement.
ARTICLE TWELVE: MINING COMMUNITY.
In accordance with Article 6.1, the Corporation shall establish
the required Mining Compact during the fiscal year following the
seventh fiscal year from the production startup date at the
Tintaya Project.
In accordance with the provisions of Article 51 of Supreme Decree
No. 027-84-EM/VM, which agrees with Supplemental Provision No. 3
of Decree Law No. 22333, the Corporation shall proceed as set
forth in the preceding paragraph, regardless of its offering its
workers a share in the firm during the first seven years, as the
aforementioned supplemental provision provides.
ARTICLE THIRTEEN: CONCESSIONS AND SUPPORT.
13.1 To permit this Contract to be duly executed, the
Government, in accordance with the legal provisions in effect,
grants the Company all concessions, authorizations, permits,
easements, expropriations, water rights, access rights,
rights-of-way, and other support measures, provided the Company
complies with the requirements set forth by Law. The Government
also grants the Company all of the rights provided in Article 79
of the General Mining Law, Legislative Decree No. 109.
<PAGE>
13.2 Upon prior authorization by the General Mining Directorate,
the Company or its authorized Contractors may build temporary
facilities to accommodate the various work areas for the Tintaya
Project, with the proviso that the Directorate receive advance
notification of the date these structures will be removed.
CLAUSE FOURTEEN: ACTS OF GOD OR FORCE MAJEURE
---------------------------------------------
In the event that compliance with the obligations hereunder
be hindered or delayed as a result of strikes, governmental acts,
public disorders, uprisings, floods, earthquakes, volcanic
eruptions, landslides, epidemics or other causes arising as a
consequence of Acts of God or force majeure, duly evidenced in
each case before the General Bureau of Mining, such hindrance or
delay shall not constitute a breach of this Agreement and the
term established herein for compliance with any of the
obligations hereunder shall be extended for such period or
periods during which the Company was unable to comply with or was
forced to delay compliance with its obligations hereunder, as a
result of the aforementioned causes.
CLAUSE FIFTEEN: APPLICABLE LAW
- -------------------------------
Any reference to Laws, Legislative Decrees, Decree Laws,
Supreme Decrees, Foreign Exchange Resolutions, and other legal
provisions contained herein, shall be made in accordance with the
legal texts in force at the time of execution of this Agreement;
however, this shall not interfere, limit or impair the rights of
the Company to enjoy all the benefits provided under the General
Mining Law, the law applicable to this Agreement and any future
provisions passed in favor of the Mining Sector, nor shall it
exempt the Company from fulfilling any of the obligations under
the General Mining Law, the effective law applicable hereto or
any future provisions, provided that these are not contrary to
any benefits or guaranties granted under the terms hereof.
CLAUSE SIXTEEN: INDIVISIBLE CONTRACT
------------------------------------
This Agreement shall not be amended by any means implicitly
accepted by the parties, by verbal agreements, or by written
notices. Any amendment hereof shall be made by public deed, once
the parties have agreed to such amendment and the corresponding
Supreme Decree has been passed.
CLAUSE SEVENTEEN: UNTRANSFERIBILITY
-----------------------------------
This Agreement may not be assigned, disposed of contributed,
or otherwise transferred, without the prior authorization of the
Government by means of a Supreme Decree.
CLAUSE EIGHTEEN: TERMINATION
----------------------------
In accordance with the provisions contained in the General
Mining Law, Legislative Decree 109, Article 159, Paragraph five,
this Agreement shall be terminated for any of the following
reasons:
18.1. Non compliance with the terms provided under Clauses
16 and 17.
18.2. If the construction works specified in the
Investment Plan included in Annex III hereof are not concluded by
the Company within the term agreed in Clause 4.2 above, except in
the event of force majeure, Acts of God and other duly justified
causes.
CLAUSE NINETEEN: DATE OF COMMENCEMENT
-------------------------------------
This Agreement shall be effective as of the date of
subscription by the parties hereto, without prejudice to
converting it into a Public Deed or registering it in the Mining
Registry.
CLAUSE TWENTY: ADDRESS
----------------------
For the purposes of this Agreement and any in or out of
court notice served hereunder, the Company shall have as its
address in Lima, that appearing at the introduction of this
document. Any change of address shall be made in such a way that
the new address is also located within the urban zone of the City
of Lima, so any notices and communications sent to the previous
address shall be considered validly delivered only when the
Company formally advises the General Bureau of Mining, the Tax
Administration and the Banco Central de Reserva of such change by
a notarial letter.
CLAUSE TWENTY-ONE: CAPTIONS
---------------------------
The captions or titles of the clauses hereof are not a part
of this Agreement and have been inserted only for the purpose of
order and convenience.
CLAUSE TWENTY-TWO: EXPENSES AND TAXES
-------------------------------------
The Company shall be solely responsible for any expenses,
charges and taxes applicable to this Agreement, including a
counterpart of the Official Transcript and Simple Copies thereof
for the General Bureau of Mining, the Tax Administration and the
Banco Central de Reserva, respectively.
Kindly add, Mr. Notary, the clauses required by law and
forward the notices thereof to the Mining Registry, for its
appropriate registration. Executed in Lima, on December 28, 1984.
NUMBER: TWO THOUSAND SIX / KARDEX: 4444
- ---------------
PARTIAL AMENDMENT TO THE BENEFIT AND GUARANTY AGREEMENT ENTERED
- ---------------------------------------------------------------
INTO BY AND BETWEEN THE GOVERNMENT OF PERU AND EMPRESA MINERA
- ---------------------------------------------------------------
ESPECIAL TINTAYA SOCIEDAD ANONIMA, WITH THE PARTICIPATION OF
- ----------------------------------------------------------------
BANCO CENTRAL DE RESERVA DEL PERU
- ---------------------------------
In the City of Lima, on December 9, 1986, before me, Carlos
Augusto SOTOMAYOR BERNOS, Attorney-Notary in and for Lima,
appeared:
Roger AREVALO RAMIREZ, a Peruvian citizen, married,
economist, identified by Military Card 22340945, Voter's
Registration Card 09083969, with residence for the purposes
hereof at the Ministry of Energy and Mines, in his capacity as
Vice Minister of Mines of the Ministry of Energy and Mines; and
Jorge Luis ORDONEZ ORTIZ, a Peruvian citizen, married, identified
by Military Card 22113747, Voter's Registration Card 08238908, a
voter in the last Municipal elections held in the country, with
residence for the purposes hereof at the Ministry of Economy and
Finance, said to be Vice Minister of Finance of the Ministry of
Economy and Finance, both of them acting for and on behalf of the
Government of Peru, according to the authorization granted to
them by means of Supreme Decree 034-85-EM/OGAJ dated November 28,
1985, which shall be inserted herein, and being also certified
that the Preliminary Deed which gives rise to the Public Deed
bears the signature of Leonel FIGUEROA RAMIREZ; Rolando SANCHEZ
VERDEGUER, a Peruvian citizen, divorced, engineer, identified by
Military Card 248385-47, Voter's Registration Card 08261780, a
voter in the last Municipal elections held in the country, with
residence for the purposes hereof at Jiron Trinidad Moran 821,
Lince, acting on behalf of "EMPRESA MINERA ESPECIAL TINTAYA
SOCIEDAD ANONIMA", with Taxpayer's Card 95A2551, registered under
Entry 1, Page 489, Volume 13, of the Register of Companies of
Cusco, and Entry 1, Page 25, Volume 1, of the Index of Special
Mining Corporations of the Mining Registry of Individuals and
Companies of the Mining Registry, with usual residence at Av.
Pardo 869, City of Cusco, and with residence for the purpose
hereof at Jiron Trinidad Moran 821, Lince, duly authorized by
Power of Attorney granted by the Board of Directors, which shall
be inserted herein.
Ricardo MORZAN LEON, a Peruvian citizen, married, official,
identified by Military Card Bb-53-00127, Voter's Registration
Card 06622384, a voter in the last Municipal elections held in
the country, with residence for the purposes hereof at Jiron
Antonio Miro Quesada 441, Lima; and Ana Maria TENEMBAUN DELGADO
DE REATEGUI, a Peruvian citizen, married, executive officer,
identified by Voter's Registration Card 07731154, a voter in the
last Municipal elections held in the country, with residence for
the purposes hereof at Jiron Antonio Miro Quesada 441, Lima; both
of them acting on behalf of BANCO CENTRAL DE RESERVA DEL PERU,
with Taxpayer's Card 9929835, with residence at Jiron Antonio
Miro Quesada 441, Lima, duly authorized by the corresponding
certificate which is inserted herein.
The individuals appearing before me are of legal age,
capable of entering into contracts and fluent in Spanish, and
have complied with the provisions contained in Articles 38 to 41
of the Notaries' Act, to which I attest, whereupon I was given a
signed Preliminary Deed to be converted into a Public Deed, which
I have filed in the respective docket under its serial number,
and which literally reads as follows:
PRELIMINARY DEED 1458
---------------------
MR. AUGUSTO SOTOMAYOR, ATTORNEY - NOTARY IN AND FOR LIMA
Kindly enter in your Register of Deeds one evidencing the
Partial Amendment to the Benefit and Guaranty Agreement entered
into by and between the GOVERNMENT OF PERU, acting by and through
Roger AREVALO RAMIREZ and Leonel FIGUEROA RAMIREZ, Vice Minister
of Mines of the Ministry of Energy and Mines and Vice Minister of
Finance of the Ministry of Economy and Finance, respectively,
duly authorized by Supreme Decree 044-84-EM/OGAJ dated December
28, 1984, as partially amended by Supreme Decree 018-85-EM/OGAJ
dated May 24, 1985, hereinafter referred to as the GOVERNMENT, as
party of the first part; and, as party of the second part,
EMPRESA MINERA ESPECIAL TINTAYA SOCIEDAD ANONIMA, with Taxpayer's
Card 95A2551, with usual residence at Av. Pardo 869, Cusco, and
with residence for the purpose hereof at Jiron Trinidad Moran
821, Lince, Lima, hereinafter referred to as the COMPANY, acting
by and through its President Rolando SANCHEZ VERDEGUER, duly
authorized by Power of Attorney granted by the Board of Directors
of the COMPANY, which you should kindly insert herein; and with
the participation of BANCO CENTRAL DE RESERVA DEL PERU, acting by
and through Hector NEYRA CHAVARRI and/or Ana Maria TENEMBAUM DE
REATEGUI and/or Ricardo MORZAN LEON, in accordance with a
certificate which should also be inserted herein, hereinafter
referred to as BANCO CENTRAL, under the following terms and
conditions:
ONE: By Decree Supreme 044-84-EM/OGAJ dated December 28,
1984, the Benefit and Guaranty Agreement comprising 22 Clauses
and 4 Annexes and entered into by and between the GOVERNMENT and
the COMPANY, was duly approved.
SECOND: According to Clause Four, point 4.2 of the
aforementioned Agreement, the total term for the execution of the
Investment Plan was established as forty one (41) months and
expired on May 31, 1985; moreover, under Clause Seven, point 7.1
of said Agreement, the COMPANY was responsible for submitting
relevant information and documentation to the General Bureau of
Mining, within ninety (90) days following the date of conclusion
of the execution of the TINTAYA PROJECT INVESTMENT PLAN, counted
as of May 31, 1985.
THIRD: As provided by Article 155 of the General Mining Law,
the parties hereto agree to amend Clause Four, point 4.2, first
paragraph and Clause Seven, point 7.1, first paragraph, to read
as follows:
4.2. The term for the execution of the INVESTMENT PLAN shall
be forty eight (48) months and shall irrevocably expire on
December 31, 1985, since the COMPANY, as provided in point 1.4,
commenced execution in January 1982, immediately after submitting
to the Ministry of Energy and Mines the application for
subscribing this Agreement.
7.1. Within ninety (90) days following the date of
completion of the TINTAYA PROJECT INVESTMENT PLAN, counted as
from no later than December 31, 1985, the COMPANY shall submit to
the General Bureau of Mining the following: (...)
FOURTH: All the other provisions of the Benefit and Guaranty
Agreement entered into by the parties as of December 28, 1984,
shall remain unchanged.
Kindly add, Mr. Sotomayor, the Clauses required by law and
forward the respective notices to the Mining Registry, for their
appropriate registration.
Lima, November 29, 1985.
Signed by: Rolando SANCHEZ V.; Roger AREVALO R.; Leonel
FIGUEROA R.; Ana Maria TENEMBAUM DE REATEGUI; Ricardo MORZAN
LEON.
This Preliminary Deed has been authorized by Luis F.
PANIZO URIARTE, Attorney, Bar Association of Ica 9101.
INSERT
SUPREME DECREE
Seal: " ERTIFIED COPY. Raul GAMARRA UGAZ, Secretary General of
the Ministry of Energy and Mines. One signature."
THE REPUBLIC OF PERU - SUPREME DECREE 044-84-EM/OGAJ
THE PRESIDENT OF THE REPUBLIC -
WHEREAS:
- Empresa Minera Especial Tintaya S.A. is developing the
Tintaya Ore Deposit located in the District of Yauri, Province of
Espinar, Department of Cusco;
- The Tintaya Project implies an investment of approximately
US$330 000 000 (Three Hundred and Thirty Million US Dollars), in
order to obtain a production of around 8 000 MT/DAY of Copper
Sulphide Ore for an approximate period of fourteen (14) years.
- In accordance with Legislative Decree 109, Article 157,
General Mining Law, and with the purpose of promoting the
investment and securing the financing of mining projects whose
minimum initial capacities are 5 000 MT/DAY, the Executive is
hereby authorized to enter into agreements aimed at securing the
Tax Benefits conferred under the aforementioned Law;
Therefore, considering the report prepared by the General
Bureau of Mining and as provided by Article 45 of Supreme Decree
027-84-EM/VM dated August 24, 1984, with the approval of the
Council of Ministers, DOES HEREBY DECREE:
ARTICLE 1: To approve the Benefit and Guaranty Agreement to
be entered into by and between the State and Empresa Minera
Especial Tintaya S.A., which comprises 22 Clauses and Annexes 1,
2, 3 and 4;
ARTICLE 2: To authorize the Vice Minister of Mining of the
Ministry of Energy and Mines and the Vice Minister of Economy of
the Ministry of Economy, Finance and Trade, to subscribe the
Benefit and Guaranty Agreement on behalf of the State.
ARTICLE 3: This Supreme Decree shall be countersigned by the
Ministry of Economy, Finance and Trade and the Ministry of Energy
and Mines.
Given in the House of Government, in Lima, on December 28,1984.
(signed) Fernando Belaunde Terry, President of the Republic
(signed) Jose Benavides Munoz, Minister of Economy, Finance and Trade
(signed) Juan Inchaustegui Vargas, Minister of Energy and Mines
CERTIFIED COPY.- (signed) Raul GAMARRA UGAZ, Secretary General of the
Ministry of Energy and Mines
Seal at the margin: "Luis PANIZO URIARTE, Attorney, Managing
Director of the Legal Advisory Department. One signature."
Seal: "MINISTRY OF ECONOMY, FINANCE AND TRADE. LEGAL ADVISORY DEPARTMENT."
INSERT
ADDITIONAL SUPREME DECREE
Seal: CERTIFIED COPY. (signed) Saturnino BERROSPI MENDEZ,
Secretary General of the Ministry of Energy and Mines.
THE REPUBLIC OF PERU - National Coat-of-Arms.
SUPREME DECREE 034-85-EM/OGAJ
WHEREAS:
- Under Supreme Decree 044-84-EM/OGAJ dated December 28,
1984, the Benefit and Guaranty Agreement to be entered into by
and between the State and Empresa Minera Especial Tintaya S.A.
was approved;
- Due to technical and financial reasons, the production
levels estimated for February 1985 have not been attained, it
being necessary therefore, to extend the term established in the
Investment Plan of the Agreement until December 31, 1985;
In accordance with Article 45 of Supreme Decree 027-84-EM/VM
dated August 24, 1984, with the approval of the Council of
Ministers, THE PRESIDENT OF THE REPUBLIC DOES HEREBY DECREE THAT:
ARTICLE 1: The amendment be approved to the Benefit and
Guaranty Agreement entered into by and between the State and
Empresa Minera Especial Tintaya S.A., on December 28, 1984, and
approved by Supreme Decree 044-84-EM/OGAJ dated December 28,
1984, under the terms of the agreement to be made by the parties
thereto and enclosed herewith, which comprises four (4) Clauses;
ARTICLE 2: The Vice Minister of Mining of the Ministry of
Energy and Mines and the Vice Minister of Finance of the Ministry
of Economy and Finance, be authorized to subscribe on behalf of
the State the Amendment to the Benefit and Guaranty Agreement as
referred to above.
ARTICLE 3: This Supreme Decree shall be countersigned by the
Minister of Economy and Finance and the Minister of Energy and
Mines.
Given in the House of Government, in Lima, on November 28,
1985. Three illegible signatures.
Illegible signature at the margin.- Seal: "Ministry of Energy and
Mines, Legal Advisory Department."
INSERT
SUPREME RESOLUTION
Seal: CERTIFIED COPY. (signed) Saturnino BERROSPI MENDEZ,
Secretary General of the Ministry of Energy and Mines.
THE REPUBLIC OF PERU - National Coat-of-Arms.
SUPREME RESOLUTION 248-85-EM
Lima, July 29, 1985 WHEREAS:
- It is necessary to appoint an officer to act in the
capacity of Vice Minister of Mines of the Ministry of Energy and
Mines;
THEREFORE, in accordance with Legislative Decree 217,
Article 2, paragraph (8), The Executive Act, IT IS HEREBY
RESOLVED:
SINGLE ARTICLE: To appoint Roger AREVALO RAMIREZ, as Vice
Minister of Mines of the Ministry of Energy and Mines, in force
as of this date.
LET IT BE SO REGISTERED AND PUBLISHED.
SIGNATURE OF THE PRESIDENT OF THE REPUBLIC.
(signed) Wilfredo HUAITA NUNEZ, Minister of Energy and Mines
INSERT
ANOTHER SUPREME RESOLUTION
Seal: CERTIFIED COPY. (signed) Victor Manuel LOPEZ ROSSI, Secretary General
of the Ministry of Economy and Finance.
THE REPUBLIC OF PERU - National Coat-of-Arms.
SUPREME SUPREME RESOLUTION 530-85-EF/43.40
Lima, December 15, 1985
WHEREAS:
- It is necessary to appoint an officer to act in the
capacity of Vice Minister of Finance;
THEREFORE, in accordance with Legislative Decree 217,
Article 2, paragraph (8), IT IS HEREBY RESOLVED:
To appoint Jorge ORDONEZ ORTIZ, as Vice Minister of Finance
of the Ministry of Economy and Finance, in force as of this date.
LET IT BE SO REGISTERED AND PUBLISHED.
SIGNATURE OF THE PRESIDENT OF THE REPUBLIC.
(signed) Luis ALVA CASTRO, Minister of Economy and Finance
INSERT
CERTIFIED COPY
I, Carlos Augusto SOTOMAYOR BERNOS, Attorney - Notary in and
for Lima, DO HEREBY CERTIFY THAT:
The "Minutes Book of the Board of Directors", of "EMPRESA
MINERA ESPECIAL TINTAYA S.A.", duly organized and existing under
the laws of the Republic of Peru has been produced before me, has
been properly certified before the Clerk of the Common Pleas
Court, Marco A. ESPINOZA RAMOS, and registered in the Court
records under entry 3697, on July 17, 1985; I FURTHER CERTIFY
that the Minutes of Meeting 04/86 are inserted therein from pages
097 to 113, its relevant parts being as follow:
EMPRESA MINERA ESPECIAL TINTAYA S.A.
Meeting : 04/86
Date : March 7, 1986
Opening Time : 12.00
Closing Time : 18.00
Place : Trinidad Moran 821, Lince
Quorum : As provided for in the bylaws.
ATTENDANTS:
Chairman : Rolando SANCHEZ VERDEGUER
Vice Chairman : Vicente OLCINA GARCIA
Directors : Mario MESIA PRIALE, Alejandro LOPEZ ASHTON,
Alberto ENCINAS FERNANDEZ
Official : Artemio DE LA VEGA MUNOZ, General Manager
Secretary : Monica BERAUN MCKINLAY
(...)
E. AGENDA
(...)
4. The authorization of Rolando SANCHEZ VERDEGUER.
WHEREAS:
- By Supreme Decree 044-84-EM/OGAJ dated December 28, 1984,
the Benefit and Guaranty Agreement entered into by and between
the State and Empresa Minera Especial Tintaya S.A. was approved;
- Said Agreement was properly converted into a Public Deed
on July 6, 1985, and written up before Notary Augusto
SOTOMAYOR, and was duly registered under Entry 19, Card 1025,
Index of Special Mining Corporations of the Mining Registry;
- In accordance with the Minutes of November 29, 1985, the
Benefit and Guaranty Agreement has been partially amended, in
Clause Four, point 4.2, first paragraph and in Clause Seven,
point 7.1, first paragraph.
- Such amendments must also be converted into a Public Deed,
it therefore being necessary to authorize Rolando SANCHEZ
VERDEGUER, Chairman of the Board of Directors of Tintaya S.A., to
sign the Public Deed of partial amendment to the aforementioned
Agreement.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RESOLVED:
RESOLUTION 010/86
1. To authorize Rolando SANCHEZ VERDEGUER so that in his
capacity of Chairman of the Board of Directors of Empresa Minera
Especial Tintaya S.A., he may sign the Public Deed of partial
amendment to the Benefit and Guaranty Agreement.
2. To exempt this Resolution from inclusion in the process
of reading and signing the Minutes.
THERE BEING NO FURTHER BUSINESS TO TRANSACT, THE MEETING WAS
ADJOURNED.
Six illegible signatures.
Thus and more appears in the original Minutes which have
been produced before me and to which reference can be made if
necessary. I attest.
Lima, December 9, 1986
- - (signed) Carlos Augusto Sotomayor, Notary in and for Lima
INSERT
CERTIFICATE
"I, Jorge Ramon ABASOLO ADRIANCEN, Secretary General of the
Banco Central de Reserva del Peru, in view of the power vested in
me by Article 118 of the Bank's Organic Law, DO HEREBY CERTIFY
THAT:
In Minutes 3214 of the meeting of the Board of Directors
held on Monday, September 1, 1986, with the attendance of
Directors Leonel FIGUEROA RAMIREZ (Chairman), Luis P. RODRIGUEZ
VILDOSOLA, Carlos CAPUNAN MINDELA, Jorge Luis ORDONEZ ORTIZ, Juan
CANDELA GOMEZ DE LA TORRE, and Luis GUILFO ZENDER, there appears
a resolution which reads as follow:
AMENDMENT TO THE BENEFIT AND GUARANTY AGREEMENT ENTERED INTO
WITH EMPRESA MINERA ESPECIAL TINTAYA S.A.
The Secretary General read document 0533-A regarding the
intervention of Banco Central de Reserva del Peru in the
Amendment to the Extended Benefit and Guaranty Agreement entered
into by and between the Government of Peru and Empresa Minera
Especial Tintaya S.A., and approved by Supreme Decree
034-85-EM/OGAJ dated November 25, 1985.
Upon analyzing the arguments contained in said document and
there being no lawful impediment thereto, the Board of Directors
resolved to approve the participation of Banco Central de Reserva
del Peru in the Partial Amendment to the Benefit and Guaranty
Agreement made with Empresa Minera Especial Tintaya S.A., in
accordance with the provisions of Clause 9, 9.2, which read as
follow:
9.2. Banco Central de Reserva del Peru shall participate
acting for and on behalf of the Executive, as provided by Article
149 of the Political Constitution of the State and Article 157 of
the General Mining Law, in order to grant the following
guaranties in favor of the mining producer during the term of the
Agreement:
a) To have foreign currency available from the proceeds
of the sale of its products, in accordance with the foreign
exchange regulations in force at the time of execution of the
Agreement;
b) To enjoy a non discriminatory treatment in foreign
exchange matters; and
c) In the event that the foreign currency system is
decontrolled and while these conditions are in force, the
mining producer may be entitled to greater benefits as long as
these benefits are also maintained for other parties. If such
benefits are eliminated, the miner producer shall maintain those
legally in force at the time of execution of the Agreement. It is
expressly understood that the foreign exchange regulations, the
validity of which is guaranteed during the term of the Agreement,
are those provided under Decree Law 21953, as amended, and the
Foreign Exchange Resolutions issued by the Banco Central de
Reserva del Peru, in accordance with the aforementioned Decree
Law 21953, in force at the time of execution of the Agreement."
The Board of Directors designated the Assistant General
Manager, Henry BARCLAY REY DE CASTRO, and Managers Ana Maria
TENEMBAUM DE REATEGUI and Ricardo MORZAN LEON, so that any two of
them may sign herein.
Moreover, the Board of Directors exempted this resolution
from inclusion in the process of reading and signing the Minutes.
- ---------------------
RM/JW-MCP/ / /271523K4.7
CONITE
COMISION NACIONAL DE INVERSIONES Y TECNOLOGIAS EXTRANJERAS
SECTOR ECONOMIA Y FINANZAS
JUDICIAL STABILITY AGREEMENT WITH THE CONSORTIUM
MAGMA COPPER CO. - GLOBAL MAGMA LTD.
This represents the Judicial Stability Agreement signed
between the party of the first part, the GOVERNMENT OF PERU
(hereinafter called the GOVERNMENT), duly represented by Mr.
Carlos Hererra Perret, Secretary General of the National
Commission on Foreign Investment and Technology (CONITE),
domiciled at Jr. Antonio Miro Quesada No. 320, 4th Fl., Lima,
and authorized to this effect by CONITE Directorial Resolution
No. 001-93-EF/35 dated February 1, 1993; and the party of the
second part, MAGMA COPPER COMPANY, a corporation organized and
existing under the laws of Delaware, United States of America,
domiciled at 7400 North Oracle Road, Suite 200, Tucson,
Arizona, and GLOBAL MAGMA LTD, a corporation organized and
existing under the laws of the Cayman Islands, domiciled at
Ugland House, South Church Street, Grand Cayman (both of who
are hereinafter referred to as MAGMA and GLOBAL), both of
these being members of the CONSORTIUM awarded the winning bid
in the International Public Auction for the Sale of the Shares
of Empresa Minera Especial Tintaya S.A., and both represented,
according to the power of attorney enclosed with this
Agreement, by their representative, Mr. Andrew Brodkey,
identified by United States Passport No. 051992853; such
Agreement comprising the following clauses:
FIRST. MAGMA and GLOBAL have requested the NATIONAL
COMMISSION ON FOREIGN INVESTMENTS AND TECHNOLOGIES (herafter
called CONITE) to sign a Judicial Stability Agreement under
the auspices of the provisions of Decree Law No. 25570,
Supreme Decree No. 101-94-PCM, Legislative Decrees No. 662 and
757, and the Regulation on Rules of Judicial Stability
(hereinafter called the REGULATION) approved by Supreme Decree
No. 162-92-EF of October 12, 1992, and in accordance with the
provisions of the Stock Purchase/Sales Agreement signed with
Empresa Minera del Peru, S.A., hereinafter called the
CONTRACT.
SECOND. MAGMA and GLOBAL avail themselves of the investment
terms described in Subsection e) of Article 16 of the
Regulation and agree as follows:
1. To make payment, by November 29, 1994, of US$
246,933,750.60 (two hundred and forty-six million nine
hundred and thirty-three thousand seven hundred and fifty
and 60/100 U.S. Dollars), the offered price for 98.43% of
the representative shares of the corporate capital of
Empresa Minera Especial Tintaya, S.A., currently in the
process of privatization and legally incorporated in
Lima, Peru, recorded on
<PAGE>
Card No. 01001 of the Book of Corporations of the Registry of
Mining Firms, in accordance with the following stipulations of
the Contract:
- Of the amount of US$ 246,933,750.60 (two hundred
and forty-six million nine hundred and
thirty-three thousand seven hundred and fifty
and 60/100 U.S. Dollars), MAGMA shall pay US$
62,715,625 (sixty-two million seven hundred and
fifteen thousand six hundred and twenty-five and
00/100 U.S. Dollars), while GLOBAL shall pay US$
184,218,125.60 (one hundred and eighty-four
million two hundred and eighteen thousand one
hundred and twenty-five and 60/100 U.S.
Dollars).
- As set forth in the Contract, a portion of the
price shall be paid in cash and the remainder in
eligible foreign debt debentures:
a) US$ 214,071,250.60 (two hundred and
fourteen million seventy-one thousand two
hundred and fifty and 60/100 U.S.
Dollars) shall be paid in cash,
proportionally by MAGMA and GLOBAL, to be
channeled through the National Finance
System and deposited into the account to
be indicated on a timely basis by the
seller, MINERO PERU S.A., this
transaction to be certified by the
Central Reserve Bank of Peru, the
National Bank, or if appropriate, the
local bank involved in the transaction.
b) US$ 55,000,000 (fifty-five million and
00/100 U.S. Dollars) shall be paid
proportionally by MAGMA and GLOBAL using
eligible debentures of the Peruvian
foreign debt under the provisions of Law
No. 26250 and its Regulation. This value
shall be adjusted using coefficient
0.5975, yielding an amount of US$
32,862,500.00 (thirty-two million eight
hundred and sixty-two thousand five
hundred and 00/100 U.S. Dollars).
- According to the guidelines of the International
Public Auction for the Sale of the Shares of
Empresa Minera Especial Tintaya, S.A., the price
quoted for the shares shall be adjusted
according to the report to be issued by the
price auditors designated by the parties based
on the criteria established in the Guidelines
and in the Contract.
In consideration of the above, five percent (5%)
of the price paid in cash by MAGMA and GLOBAL
shall be deposited with the Continental Bank
until the results of the audit of the balance
sheet are known.
2. To register their investment, valued in freely
convertible currency, with CONITE.
<PAGE>
THIRD. The Government, by virtue of this Agreement and while
said Agreement is in effect, agrees to guarantee Judicial
Stability for MAGMA and GLOBAL with regard to the investment
referred to in Clause Two, on the following terms:
1. Income Tax stability, in accordance with Subsection a) of
Article 10 of Legislative Decree No. 662 in effect on the
date of this Agreement, under which the dividends and any
other type of earnings distribution to MAGMA and GLOBAL
shall not be taxed in accordance with Subsection a) of
Article 25 of Legislative Decree No. 774, the Income Tax
Law. This law also does not tax transfers abroad of
monies MAGMA and GLOBAL may earn by virtue of any of the
concepts contemplated in this subsection.
2. Stability for unrestricted use of foreign currency in
accordance with Subsection b) of Article 10 of
Legislative Decree No. 662, meaning that both MAGMA and
GLOBAL may freely access foreign currency in the exchange
market at the most favorable exchange rate they can
obtain, and that regarding the investment referred to in
Clause Two, the Government may not apply any exchange
market rule or regulation which might limit or restrict
this right or signify a less favorable treatment for
MAGMA and GLOBAL than would be applied to any natural
person or legal entity carrying out any type of exchange
transaction.
3. Stability for unrestricted transfers of earnings and
capital in accordance with Subsection b) of Article 10 of
Legislative Decree No. 662, meaning that both MAGMA and
GLOBAL may make transfers abroad in freely convertible
currency, without need of prior authorization from any
entity of the Federal Government or Regional or Local
Governments, provided the corresponding investment has
been registered with the appropriate national agency and
applicable tax obligations have been met, and without any
Government restrictions or limitations on this right, of
the following:
a) All of the capital from foreign, including
capital from the sale of shares, partnerships or
rights to firms, capital reduction and partial
or total liquidation of firms, deriving from the
investment referred to in Clause Two.
b) All verified dividends or net earnings from the
investment referred to in Clause Two, as well as
earnings obtained in return for the use of, or
benefit from, assets physically located in Peru
which are designated for such investment; and
<PAGE>
c) All royalties and considerations for the use and
transfer of technology, trademarks and patents, and any
other elements of industrial property authorized by the
appropriate national agency.
4. Stability of the right to use the most favorable exchange
rate in accordance with Subsection b) of Article 10 of
Legislative Decree No. 662, which means that both MAGMA
and GLOBAL may access foreign currency in the exchange
market at the most favorable rate they can obtain, and
the Government may not make their exchange transactions
subject to any rule or regulation which would afford them
less favorable treatment than that applied to other
individuals or legal entities in such transactions, in
accordance with the following:
a) When converting foreign to domestic currency,
both MAGMA and GLOBAL may sell it to any
individual or legal entity at the most favorable
buying rate available in the exchange market at
the time; and
b) When converting domestic to foreign currency,
both MAGMA and GLOBAL may buy it from any
individual or legal entity at the most favorable
selling rate available in the exchange market at
the time.
5. Stability of the right to non-discrimination, in
accordance with Subsection c) of Article 10 of
Legislative Decree No. 662, which means that the
Government shall not, at any of its levels, be it
agencies or firms of the Central Government or regional
or local governments, apply to MAGMA and GLOBAL a
different treatment based on their nationality, the
sector or type of economic activity performed, the
geographic location of the firms in which they invest, or
any of the following:
a) Exchange-related, i.e. in terms of the
investment referred to in Clause Two, the
Government may not apply an exchange regulation
to MAGMA and GLOBAL which would represent a less
favorable treatment than that applied to other
individuals or legal entities in exchange
transactions;
b) Prices, tariffs or non-customs duties, i.e. in
terms of the investment referred to in Clause
Two, the Government may not apply different
amounts or rates for these items to MAGMA and
GLOBAL;
c) The corporate form, i.e. the Government may not
demand from MAGMA and GLOBAL that Empresa Minera
Especial Tintaya, S.A., in which the former will
invest, adopt a specific corporate form;
<PAGE>
d) Their status as a natural person or legal
entity, i.e., the Government may not apply to
MAGMA and GLOBAL a different treatment in this
regard; and
e) Any other measures with equivalent effects, such
as the application of discriminatory treatment
to MAGMA and GLOBAL based on any combina-tion of
the different sections of this paragraph.
This section applies irrespective of the limitations
established in Article 3 of the Regulation.
FOURTH. MAGMA and GLOBAL also agree, in accordance with the
provisions of Clause Two, to document that they have jointly
acquired 98.43% of the representative shares of the corporate
capital of Empresa Minera Especial Tintaya S.A., owned by
Minero Peru, S.A. and in the process of privatization, by
paying a total of US$ 246,933,750.60 (two hundred and
forty-six million nine hundred and thirty-three thousand seven
hundred and fifty and 60/100 U.S. Dollars), by submitting:
a. The respective entry in the Stock Registry and Transfer
Book and the Agreement signed with MINERO PERU, S.A.;
b. A certificate issued by the Central Reserve Bank of Peru,
the National Bank or the local bank involved in the
transaction, verifying that the funds, in the amount of US$
214,071,250.60 (two hundred and fourteen million
seventy-one thousand two hundred and fifty and 60/100 U.S.
Dollars), were channeled through the National Finance
System; and
c. A certificate issued by the Directorate General of Public
Credit of the Ministry of Economy and Finance documenting
the delivery of eligible foreign debt debentures in the
amount of US$ 55,000,000 (fifty-five million and 00/100
U.S. Dollars), whose adjusted value amounts to US$
32,862,500 (thirty-two million eight hundred and sixty-two
thousand five hundred and 00/100 U.S. Dollars).
The debentures referred to in the preceding paragraph shall be
verified within no more than 30 (thirty) calendar days from
the deadline for their fulfillment, as established in Clause
Two. Failure to comply with these provisions shall constitute
grounds for termination of the Agreement.
FIFTH. This Judicial Stability Agreement shall be in effect
for ten years from its effective date. Consequently, it shall
not be modified unilaterally by either party during this
<PAGE>
period, even in the event of a change in national legislation,
whether it be a beneficial or prejudicial modification for
either party to this Agreement.
SIXTH. MAGMA and GLOBAL shall have a once only right to
waive the Judicial Stability terms established in this
Agreement. Notification to CONITE to this effect shall be in
writing and shall take effect on the date notification is
received.
Should MAGMA and GLOBAL exercise their right to waive the
Stability Agreement, as stated in this Clause, they shall
automatically become subject to regular legislation.
SEVENTH. Both MAGMA and GLOBAL shall have the right to
assign their contractual status in this Agreement, provided
the obligations assumed under the CONTRACT with Minero Peru
S.A. are met. For the assignment of the contractual status to
be valid, MAGMA and GLOBAL shall previously obtain CONITE's
authorization which shall take the form of an Addendum to this
Agreement.
It is understood that the assignment of contractual status by
MAGMA and GLOBAL, between themselves or to another investor,
would not extend the term of the Agreement referred to in
Clause Five.
EIGHTH. This Judicial Stability Agreement may be amended by
mutual agreement of the parties, except for the effective term
established in Clause Five. Nor may the investment amount be
reduced to below the limit established in Subsection e) of
Article 16 of the Regulation, or in any other manner contrary
to the provisions of the Contract.
To this effect, MAGMA and GLOBAL shall submit a request to
CONITE, to be processed in the same manner as the signing of
this Agreement.
NINTH. It being the intention of the parties that any
problems which may arise regarding the fulfillment of this
Agreement be resolved as expeditiously as possible, it is
henceforth agreed that any litigation, controversy or claim
between the parties regarding the interpretation, execution or
validity of this Agreement shall be resolved by legal
arbitration.
The arbitration shall take place in Lima, through an
Arbitration Court comprised of three members. Each of the
parties shall appoint one member and the two members thus <PAGE>
<PAGE>
designated shall appoint the third. The arbitrators are
expressly empowered to rule on the controversy under
arbitration.
Should one party fail to appoint an arbitrator within fifteen
days of receipt of the request from the party calling for the
arbitration, or if within fifteen days after the last
arbitrator was appointed by the parties, the two arbitrators
fail to agree on the third, the Lima Chamber of Commerce shall
appoint him at the request of either party.
The arbitration process shall not exceed sixty working days
following the appointment of the last arbitrator, and shall be
subject to the General Arbitration Law approved by Decree Law
No. 25935 and/or the rules which may replace or amend said
Law.
The cost arising from the application of this clause shall be
borne equally by the contracting parties.
TENTH. The following shall be cause for fully justified
termination of this Judicial Stability Agreement without need
for prior communication:
1. Failure on the part of MAGMA or GLOBAL to make the
investment agreed in Clause Two.
2. Failure on the part of MAGMA or GLOBAL to document
compliance with the requirement stated in Clause Four.
3. Assignment of the contractual status by MAGMA or GLOBAL
without the corresponding prior authorization of CONITE,
in accordance with Clause Seven.
4. Failure on the part of MAGMA or GLOBAL to fulfill the
obligations stated in the CONTRACT.
Should MAGMA or GLOBAL incur in any of the aforementioned
causes for termination of this Agreement, and if due to the
Judicial Stability provided hereunder they made lower fiscal
payments than they would have paid without this Agreement,
MAGMA and GLOBAL shall be required to make reimbursement to
the Government of the updated tax amount for which they would
have been liable had they not signed this Agreement, plus any
corresponding surcharges as provided in the Tax Code.
It shall be understood that if, in the event referred to in
the previous paragraph, MAGMA or GLOBAL made higher tax
payments due to this Agreement, the Government shall be under
no obligation to make any kind of reimbursement.
<PAGE>
The parties having approved all of the terms of this
Agreement, they have signed it in two copies of equal content
at the city of Lima, on this 28th day of November 1994.
FOR MAGMA: [ Signature ]
Andrew Brodkey
Authorized Agent
FOR GLOBAL: [ Signature ]
Andrew Brodkey
Authorized Agent
FOR THE GOVERNMENT: [ Signature ]
Carlos Herrera Perret
[ STAMP ] Secretary General
CONITE CONITE
Secretariat General
Economy and Finance Section
[ STAMP ]
CONITE
Legal Department
National Commission on Foreign
Investment and Technology
[ Signature ]
JORGE NICHO MAURICIO
Reg. Attorney, Bar No. 7913
CONITE Secretariat General
CONITE
COMISION NACIONAL DE INVERSIONES Y TECNOLOGIAS EXTRANJERAS
SECTOR ECONOMIA Y FINANZAS
JUDICIAL STABILITY AGREEMENT WITH EMPRESA MINERA ESPECIAL
TINTAYA S.A.
This represents the Judicial Stability Agreement signed
between, on one hand, the PERUVIAN GOVERNMENT (hereinafter
called the GOVERNMENT), duly represented by Mr. Carlos Hererra
Perret, Secretary General of the National Commission on
Foreign Investment and Technology (CONITE), domiciled at Jr.
Antonio Miro Quesada No. 320, 4th Fl., Lima, and authorized to
this effect by CONITE Directorial Resolution No. 001-93-EF/35
dated February 1, 1993; and, on the other hand, EMPRESA MINERA
ESPECIAL TINTAYA S.A. (hereinafter called TINTAYA), legally
organized in Lima, Peru and registered on Card No. 01001 of
the Book of Special State-Owned Mining Firms of the Public
Mining Registry, duly represented by its agent, Engr. Lucio
Rios Quinteros, a Peruvian national, Voting I.D. No. 10490249,
as documented by power of attorney of which a single copy is
attached hereto; under the terms and conditions of the
following clauses:
FIRST. TINTAYA has requested the NATIONAL COMMISSION ON
FOREIGN INVESTMENTS AND TECHNOLOGIES (hereafter called CONITE)
to sign a Judicial Stability Agreement under the auspices of
the provisions of Legislative Decree No. 662, Title II and
Chapter I of Title V of Legislative Decree No. 757, and their
Regulations approved by Supreme Decree No. 162-92-EF dated
October 12, 1992, hereinafter called the REGULATION.
SECOND. TINTAYA, by virtue of this Agreement, agrees to
record shares in favor of the firms MAGMA COPPER COMPANY of
the United States of America and GLOBAL MAGMA LTD of Grand
Cayman, Cayman Islands (hereinafter called MAGMA and GLOBAL),
a consortium who won the International Public Bid for the sale
of state-owned shares and who signed a Judicial Stability
Agreement on November 28, 1994, in compliance with the
investment terms referred to in Subsection b) of Article 17 of
the Regulation. Consequently, TINTAYA agrees as follows:
<PAGE>
1. To register within no more than 2 (two) months from
November 29, 1994, a total of 52,251,642 (fifty-two
million two hundred and fifty-one thousand six hundred
and forty-two) representative shares of its corporate
capital in favor of MAGMA who acquired these shares
within TINTAYA's privatization process for the sum of US$
62,715,625 (sixty-two million seven hundred and fifteen
thousand six hundred and twenty-five and 00/00 U.S.
Dollars), representing the price offered for 25% of the
representative shares of TINTAYA's corporate capital.
2. To register within no more than 2 (two) months from
November 29, 1994, a total of 153,481,680 (one hundred
and fifty-three million four hundred and eighty-one
thousand six hundred and eighty) representative shares of
its corporate capital in favor of GLOBAL who acquired
these shares within TINTAYA's privatization process for
the sum of US$ 184,218,125.60 (one hundred and
eighty-four million <PAGE>
two hundred and eighteen thousand
one hundred and twenty-five and 60/100 U.S. Dollars),
representing the price offered for 73.43% of the representative
shares of TINTAYA's corporate capital.
3. Of the total amount of US$ 246,933,750.60 (two hundred
and forty-six million nine hundred and thirty-three
thousand seven hundred and fifty and 60/100 U.S.
Dollars), the amount of US$ 214,071,250.60 (two hundred
and fourteen million seventy-one thousand two hundred and
fifty and 60/100 U.S. Dollars) shall be channeled through
the National Finance System and deposited into the
account to be indicated on a timely basis by the seller,
MINERO PERU S.A. The deposit shall be documented by means
of a certificate to be issued by the Central Reserve Bank
of Peru, the National Bank or, if applicable, the bank
involved in the transaction. The balance is payable in
eligible debentures of the Peruvian foreign debt having
a face value of US$ 55,000,000 (fifty-five million and
00/100 U.S. Dollars), according to Law No. 26250 and its
Regulation. This value shall be adjusted using
coefficient 0.5975, yielding an adjusted value of US$
32,862,500 (thirty-two million eight hundred and
sixty-two thousand five hundred and 00/100 U.S. Dollars).
4. To certify that the acquisition involves the transfer of
98.43% of TINTAYA's shares.
<PAGE>
5. To register the investment, valued in freely convertible
currency, with CONITE.
THIRD. The Government, by virtue of this Agreement and while
said Agreement is in effect, agrees to guarantee Judicial
Stability for TINTAYA with regard to the investment referred
to in Clause Two, on the following terms:
1. Stability in hiring procedures for TINTAYA's workers
during the effective term of this Agreement, according to
the provisions of Subsection a) of Article 12 of
Legislative Decree No. 662, under the following terms:
<PAGE>
a) Temporary employment contracts governed by
Chapters II and V to VIII of Title III of
Legislative Decree No. 728, the Employment
Development Law, in effect on the date of this
Agreement;
b) Occasional employment contracts governed by
Chapters III and V to VIII of Title III of
Legislative Decree No. 728, the Employment
Development Law, in effect on the date of this
Agreement;
c) Work contracts for specific jobs or services
governed by Chapters IV to VIII of Title III of
Legislative Decree No. 728, Employment
Development Law, in effect on the date of this
Agreement.
2. Stability of export promotion procedures used by TINTAYA
under the provisions of Subsection b) of Article 12 of
Legislative Decree No. 662 contained in Chapter
<PAGE>
IX of Title I of Legislative Decree No. 775, in Extraordinary
Supreme Decree No. 013-93-PCM having the force and effect of
law, enacted by Law No. 26200 and amended by Legislative
Decree No. 778, as well as in any provisions in use on the
effective date of this Agreement.
FOURTH. In accordance with Clause Two, TINTAYA also agrees:
1. To certify that MAGMA and GLOBAL have made payment of US$
246,933,750.60 (two hundred and forty-six million nine
hundred and thirty-three thousand seven hundred and fifty
and 60/100 U.S. Dollars) by submitting:
a. Copies of the entry in the Stock Registry and
Transfer Book and of the Stock Purchase/Sales
Agreement, as well as a copy of the respective
certification issued by the Central Reserve
Bank of Peru, the National Bank or the local
bank involved in the transaction by channeling
the funds, in the amount of US$ 214,071,250.60
(two hundred and fourteen million seventy-one
thousand two hundred and fifty and 60/100 U.S.
Dollars), through the National Finance System;
b. A certificate issued by the Directorate
General of Public Credit of the Ministry of
Economy and Finance approving payment by means
of eligible foreign debt debentures in the
amount of US$ 55,000,000 (fifty-five million
and 00/100 U.S. Dollars) in accordance with
Law No. 26250 and its Regulation. The value of
the debentures, adjusted on the basis of a
coefficient of 0.5975, amounts to US$
32,862,500 (thirty-two million eight hundred
and sixty-two thousand five hundred and 00/100
U.S. Dollars).
2. To document, by means of a certificate issued by the
Commission of Promotion of Private Investment (COPRI),
that the transfer of 98.43% of TINTAYA's shares has
effectively been completed.
<PAGE>
Proof of compliance with the obligations indicated in the
preceding numerals shall be provided to CONITE within 30
calendar days of the deadline for compliance, in accordance
with Clause Two. Failure to comply with these requirements
shall constitute cause for termination of the Agreement.
FIFTH. This Judicial Stability Agreement shall be in effect
for ten years from its effective date. Consequently, it shall
not be modified unilaterally by either party during this
period, even in the event of a change in national legislation,
whether it be a beneficial or prejudicial modification for
either party to this Agreement.
<PAGE>
SIXTH. TINTAYA shall have a once only right to waive the
Judicial Stability terms established in this Agreement.
Notification to CONITE to this effect shall be in writing and
shall take effect on the date notification is received.
Should TINTAYA exercise its right to waive the Stability
Agreement, as stated in this Clause, it shall automatically
become subject to regular legislation.
SEVENTH. This Judicial Stability Agreement may be amended by
mutual agreement of the parties, except for the effective term
established in Clause Five. Nor may the amount of the capital
infusion or investments be reduced to below the limit
established in Subsection b) of Article 17 of the Regulation.
To this effect, TINTAYA shall submit a request to CONITE, to
be processed in the same manner as the signing of this
Agreement.
EIGHTH. It being the intention of the parties that any
problems which may arise regarding the fulfillment of this
Agreement be resolved as expeditiously as possible, it is
henceforth agreed that any litigation, controversy or claim
between the parties regarding the interpretation, execution or
validity of this Agreement shall be resolved by legal
arbitration.
The arbitration shall take place in Lima, through an
Arbitration Court comprised of three members. Each of the
parties shall appoint one member and the two members thus
designated shall appoint the third. The arbitrators are
expressly empowered to rule on the controversy being
arbitrated.
Should one party fail to appoint an arbitrator within fifteen
days of receipt of the request from the party calling for the
arbitration, or if within fifteen days after the last
arbitrator was appointed by the parties, the two arbitrators
fail to agree on the third, the Lima Chamber of Commerce shall
appoint him at the request of either party.
The arbitration process shall not exceed sixty working days
following the appointment of the last arbitrator, and shall be
<PAGE>
subject to the General Arbitration Law approved by Decree Law
No. 25935 and/or the rules which may replace or amend said
Law.
The cost arising from the application of this clause shall be
borne equally by the contracting parties.
NINTH. The following shall be cause for fully justified
termination of this Judicial Stability Agreement without need
for prior communication:
1. Failure on the part of TINTAYA to register the shares
which represent its corporate capital in the name of MAGMA and
GLOBAL, as agreed in Clause Two.
2. Failure on the part of TINTAYA to comply with the
requirement stated in Clause Four.
3. Assignment of the contractual status by TINTAYA.
4. Failure on the part of MAGMA or GLOBAL to fulfill the
obligations assumed under the Stock Purchase/Sales
Agreement with Empresa Minera del Peru S.A.
Should TINTAYA incur in any of the aforementioned causes for
termination of this Agreement, and if due to the Judicial
Stability provided hereunder they made lower fiscal payments
under export promotion rules than they would have paid without
this Agreement, it shall be required to reimburse the
Government for the updated tax amount for which they would
have been liable had they not signed this Agreement, plus any
corresponding surcharges as provided in the Tax Code.
It shall be understood that if, in the event referred to in
the previous paragraph, TINTAYA bore a higher tax burden under
export promotion rules by virtue of this Agreement, the
Government shall be under no obligation to make any kind of
reimbursement.
The parties having approved all of the terms of this
Agreement, they have signed it in two copies of equal content
at the city of Lima, on this 28th day of November 1994.
<PAGE>
FOR TINTAYA: [ Signature ]
Lucio Rios Quinteros
General Manager
FOR THE GOVERNMENT: [ Signature ]
Carlos Herrera Perret
[ STAMP ] Secretary General
CONITE CONITE
Secretariat General
Economy and Finance Section
[ STAMP ]
CONITE
Legal Department
National Commission on Foreign
Investment and Technology
[ Signature ]
JORGE NICHO MAURICIO
Reg. Attorney, Bar No. 7913
CONITE Secretariat General
