1999.00.00 - Libro Blanco Metaloroya Segundo...

WHITE PAPER - GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S. A.

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EXECUTIVE SUMMARY

BACKGROUND

The Empresa Minera del Centro del Peru S. A. - CENTROMIN PERU S.A. was created on 1 January 1974, based on the metallurgical and mining business expropriated from the Cerro de Pasco Corporation.

The main activities of CENTROMIN PERU S.A. are the extraction, concentration, electrolytic smelting and refining of a wide range of non-ferrous metals, as well as power generation. Until the start of the privatization, it included seven mining units, eight concentrators with an installed capacity of 8.5 million tons of ore, the La Oroya Metallurgical Complex, a hydroelectric system with an installed capacity of 183.4 MW, a railway system with a total of 279 km of lines, 24 mining prospects and deposits with port facilities in Callao.

On September 25 1991 the Legislative Decree N° 674, Ley de Promoción de Inversión en Empresas del Estado (Law to Promote Private Investment in State Owned Companies), which declared of general interest the promotion of investments in companies that conform the State's business activities. This disposition begins the privatization of State enterprises. A special committee of privatization is created for that purpose that, together with the Directory, is responsible for leading the process. The Committee convened a contest to select the company that would be responsible for the evaluation of Centromin Peru S.A., with the result that International Mining Consultants Ltd, participating jointly with TECPRO Mining and Metallurgy and with Empresa Gerencia de Proyectos, was selected for that purpose.

In accordance with the Legislative Decree N° 647, the Administration adopted various measures for corporate restructuring and reduction of costs, which included aspects of restructuring the organization, grouping of areas with similar or complementary functions and various measures of optimization and redesign of operations and streamlining of staff, which together with administrative and financial measures would improve the economic performance and submit to the company in better conditions for investors.

In February 1992, through the Supreme Resolution No. 102-92-PCM, Centromin Peru S.A. was included in the process of promotion of the Private Investment in State-owned enterprises, and the Special Committee of Centromin Peru S.A. CEPRI Centromin was created. Subsequently, in October of 1993, the inclusion of Centromin in the promotion process was ratified, through the enactment of the Supreme Resolution No. 482-93-PCM.

During 1993 and 1994 with the support of The Chase Manhattan Investment Bank, we undertook a wide promotion of privatization of Centromin as an integral corporation; but, notwithstanding the efforts that took place, there were no bidders at the auction held in May 1994.

The main problems perceived by potential investors, and that have frustrated their interest were:

The size of the company and the complexity of its mining operations.

The accumulated environmental liabilities

The low level of reserves in the mines.

Little interest in the La Oroya Smelter.

The obsolescence of the equipment.

The complex nature of the commitments in the social environment.

All the actions undertaken to achieve the integral transfer of Centromin to the private sector, since the process began in 1991 until 1994, are covered in the White Paper - First Phase Comprehensive Privatization.

This White Paper, that is a continuation of the above, presents the continuation of the process from December of 1994, same year in which the Supreme Resolution No. 536-94-PCM was issued, that designates a new CEPRI commissioned to continue with the process of promoting private investment in Centromin.

This White Paper describes both preparatory activities for the offer irrespective of its operating units as well as the execution of the same [activities] until December 1999.

SELECTION OF THE PROMOTING BANK

The CEPRI, at its meeting N° 01-95, that took place on January 09 1995 and by Resolution No. 02-95, authorized the selection of an entity that would provide advisory services related to the definition of the privatization alternatives, to identify the potential investors, to prepare the promotion plan, and the revaluation.

On April 19, 1995 it received the envelopes containing the technical and financial documentation of the invited bidders, and after evaluation and rating of the proposals, the final award went to the partnership CS First Boston/Macro Invest S.A.

The contract was signed on May 19 by the representatives of Centromin and the Consultant, as well as the Executive Director of COPRI.

PROMOTIONAL PLAN

The previous experience, market research and the analysis developed thereby showed that the privatization of the company as a whole was not viable, resulting in the determination to create a new promotional plan to consider an independent offer for its operating units, infrastructure and complementary facilities.

WHITE PAPER - GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S.A.

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CS First Boston/Macroinvest, the consultant, based on its own analysis of the economic and financial conditions of Centromin, the analysis of the market for potential participants and supported by the expert opinion of its mining advisor, Brook Hunt, in the aspects related to mineral reserves and the condition of the mining and metallurgical operations, prepared the report with the recommendations for the privatization strategy, submitting it on 22 November 1995.

The consultant proposed certain strategies presenting the mining units, the La Oroya metallurgical complex, the hydroelectric centrals and the projects, either as independent units or grouped strategically. It assumed as part of the strategy that it is necessary to ensure the continuity of the commercial contracts between some of the operations, so as to ensure electricity supply and concentrates.

The consultant recommended that the transfer process be carried out sequentially in five stages and in seven auctions, in the following order:

1. Antamina.

2, Toromocho.

3, Yauricocha.

4. Cerro de Pasco, San Cristobal, Andaychagua and Cobriza.

5. La Oroya.

6. Casapalca and Morococha.

7. The hydroelectric system.

The mode to be adopted for the transfer of the enterprises on the basis of their operating units was through the sale of shares, other modes were considered for projects, prospects and service units. It recognizes the right of their employees to purchase up to 10% of the shares of the newly privatized enterprises.

PRIVATIZATION STRATEGY

COPRI, by Resolution No. 320 of October 20, 1995 approved the plan considering the mode, the transfer mechanism for the promotion of private investment in Centromin, which is ratified by the Supreme Resolution No. 016-96-PCM of January 18, 1996.

Basically, it considers as definitive the segregation of its projects and its operating units, with the exception of San Cristobal and Andaychagua, which will be promoted as a single unit.

The CEPRI approves the transfer of the company by fractions, split as per the following scheme:


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Operational Units: The following operational units shall be considered independently for the transference:

O Mining units: Yauricocha, Casapalca, Morococha, Cobriza, Cerro de Pasco and San Cristobal-Andaychagua, all these units include their respective concentrators.

O The La Oroya metallurgical complex that includes copper and lead smelters, as well as copper, lead, zinc and silver refineries.

O Hydroelectric units: Yaupi, La Oroya, Malpaso and Pachachaca.

O Facilities for Import and Export in the Callao.

Assets: Sale of the fol lowing assets:

O Mining prospects

O Antamina, Yuncan and Toromocho projects.

Approval is granted to initiate the process with the promotion of investment in the Antamina project, followed by the Toromocho project and then the Yauricocha and Casapalca mining units.

CREATION OF SUBSIDIARIES

After approval by the Supreme Resolution No. 016-96-PCM, the Plan de Promoción de la Inversión Privada en Centromin (Plan to Promote Private Investment in Centromin Peru S.A), the CEPRI, under Resolution N° 04-96 authorized creating subsidiaries or affiliates to be created with the incorporation of:

Empresa Metalúrgica La Oroya S.A.

Empresa Minera Paragsha S.A.

Empresa Minera Yauliyacu S.A.

Empresa Minera Mahr Tunel S.A.

Empresa Minera Yauricocha S.A.

Empresa Minera Cobriza S.A.

Empresa de Electricidad de Los Andes

Empresa de Importación y Exportación Callao S.A.

METALOROYA S.A.

PARAGSHA S.A.

YAULIYACU S.A.

MAHR TUNEL S.A.

YAURICOCHA S.A.

COBRIZA S.A.

ELECTROANDES

S.A. IMEXCALLAO Empresa de Generación de Energía Eléctrica del Centro S.A. EGECEN S.A.

BUDGETARY ASPECTS

Following are the costs incurred during the period between 1995 and 1999

- Through project PER/92/17 the United Nations Development Program - UNDP has disbursed an amount of US$ 1,555,178.00 to recruit various advisors and consultants.


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- Centromin has spent a total amount of US$ 16,889,838.00 through various "Authorizations of Investment Expenses" to cover the costs incurred to implement the actions and adaptations for the privatization.

- Centromin, with the authorization of COPRI, has deducted from the funds received from the transfer of its operational units, a total of US$ 3,053,352 which is the part of the costs of the proceedings directly attributable to the process.

SUITABILITY OF THE COMPANY

After the enactment of the Legislative Decree N° 674 and of the Supreme Resolution No. 102-92-PCM, we initiated the adaptation of the Company to create a presentation attractive to the investors, with the fewest number of issues.

The actions taken were oriented to:

- Create autonomous operations of the production units, defining its relationship with the corporate activities.

- Improve operational efficiencies by updating processes and facilities.

- Decentralize the services.

- Streamline the organization.

- Rationalize the labor force.

- Transfer the services that are not part of the competence of the mining activity to the Local Governments and to Agencies of the Government.

- Compliance by CENTROMIN with the responsibilities of the PAMA (Program of the Program of Environmental Adaptation and Management) Environmental Adaptation and Management PAMA for which Centromin is responsible.

- Use of third party services.

We defined specific objectives directed at the maintenance, improvement, operational continuity and profitability of each of the mining operations related to exploration, mining and concentration activities.

In the La Oroya metallurgical complex we implemented a series of actions directed at increasing the installed capacity, ensure the profitability and operational continuity, adapting technologies adequate to the casting process with the objective of enhancing its installed capacity and improve its productivity.

ORGANIZATION

In September 1993, we adopted a new Organizational Structure and a new standard for the staff of all their units resulting from the rationalization of the staff including the transfer of non-competitive services to third parties.

The adoption of the new privatization plan by the business units generated some partial changes necessary and progressive for the organization.

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The following has taken place since 1995:

- Retirement packages with incentives to adjust the number of workers to the requirements of the privatization process.

- Adjusting the organization to the needs of the operations.

- Non-essential functions were transferred to a third party.

In 1997, substantial changes to the organization of the company took place by privatizing Casapalca, San Cristobal, Mahr Tunel, Andaychagua and La Oroya, since that represented almost 50 per cent of the company's activities.

In March 1998, the Board approved a new structure by considering the size of the company now without the transferred operations, and the need to comply with legal obligations in environmental affairs.

The transfer of Paragsha S.A. implies a new adjustment of the activities developed by the different areas of the company, which led to a new reorganization of the company.

LABOR FORCE

In 1990 Centromin Peru S.A. had 17,168 permanent employees and 405 contractors in the payroll. In addition, there were 1,443 construction workers and 704 provided by third parties, for a total workforce of 19,720 workers, without counting the workers providing educational services. The labor force was the result of government policies and labor employment standards in force at that date.

To privatize Centromin as an integrated unit, the company adopted an emergency plan that included rationalization and retraining of the labor force, including disengaging workers from the medical division and reducing excess personnel in various units.

As of 1995, and following the strategy of privatizing operational units independently, we issued policies to optimize the operations by rationalizing the labor force by carrying on with the retirement packages with incentives.

The company hired CELIDE to counsel workers as to how to obtain alternate employment, and, as well, the Centromin workers were included in the "Reconversion Project" chargeable to ESAN included in the Agreement with the Inter-American Development Bank. Services were contracted with companies established by former workers as well.

It was necessary to continue with the retirement packages with incentives for the staff during 1997 and 1998, considering the changes generated by the progress of the privatization process and the need to adjust the size of the company.

As of December 31, 1999, and as a result of the new retirement packages as well as the transfer of staff in its operational units, the company's workforce amounted to 1,343 workers.

REHABILITATION OF THE ENTERPRISE

A series of steps and procedures were undertaken for the legal rehabilitation of real estate assets, mining concessions, licenses for the use of water and railway facilities, with the purpose of duly registering the titles and updating the authorizations of the real estate assets and the mining concessions. We also undertook activities for the rehabilitation of the hydraulic easements, electrical and communications pipelines, and access ways to all operations.

Centromin ceded the La Oroya-Cerro de Pasco and Pachacayo-Chaucha railway lines to ENAFER in accordance with the Supreme Decree No. 006-97-PCM. The transfer that took place in1997 included the lines, patios and switches, stations, locomotives and rolling stock, equipment and other goods related to the normal operation of these railway lines. The railway yards and the workshop for La Oroya were not part of the transfer, since they remained property of Centromin for the subsequent transfer to the private sector together with the smelter and refineries of La Oroya.

The Board processed the Supreme Resolutions pertaining to the donations to State and Municipal agencies and institutions of various movable and immovable assets not required by the operational units and that did not affect the process of privatization,

The company sold its shares in some limited liability mining companies and, as required by the Legislative Decree N° 704, ceded the concessions that to the date of issue were under a Contract of Assignment to the assignees

FINANCIAL REHABILITATION

In 1996, as a result of the new plan of privatization, Centromin renegotiated the US$ 40 million Revolving Credit Agreement for Working Capital, subscribed in 1981 with a bank syndicate led by the Banco de Credito del Peru.

We renegotiated the allocation of the Centromin debt with the purpose of having some of the privatized companies assume the obligations.

The debt was assigned to the following companies:

Empresa Minera Paragsha S.A. for US$ 19.5 million.

ELECTROANDES S.A. for US$ 19.5 million.

Empresa Minera Mahr Tunel S.A. for US$ 1.0 million.


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In March 1995, and within the framework of Directive No. 02-95-CONADE, the company proposed the sale of various movable and immovable assets that were not necessary for the normal performance of their activities. In May of 1995 the Board, by Resolution No. 039-95 approves the supply of a preliminary list of real estate assets available for sale with an appraised value of US$ 4,2 million, of surplus movable assets from previous auctions with a value of US$ 0,44 million, according to the base price of the last auction and finally of movable assets written off recently.

The first public auction took place in November 1995, then in May and October of 1996, and later auctioned off the remainders of the previous auctions.

ENVIRONMENTAL REHABILITATION

As to the environment, in March of 1995, Centromin submitted to the Ministerio de Energía y Minas (Ministry of Energy and Mines, MEM) the results of the preliminary environmental assessment (EVAP) and emissions and/or dumping of mining and metallurgical waste from its production units.

In August 1996 Centromin Peru submitted to MEM the Program of Environmental Adaptation and Management - PAMA - that was approved, and the MEM issued a Directorial Resolution approving the PAMA of each of the operational units,

In 1997, the PAMA was modified to separate the Centromin obligations from those corresponding to the new owners of the transferred production units.

The environmental strategy clearly established that it is the responsibility of the new owner to implement management and environmental rehabilitation programs (PAMA) for emissions that originate from its activities as well as the future technical abandonment. The responsibility of Centromin as the seller is the remediation of the accumulated environmental problems in the past, as well as the claims of third parties in relation to environmental liabilities.

The company counted with the expert advice of the consulting firm Knight Piesold & Co., with whom it signed a contract for environmental assessment in order to determine exactly the responsibilities related to the environmental control between the Company and the future owners of the privatized units.

The environmental remediation projects for every Mining Unit and the La Oroya Metallurgical Unit are specifically discussed in the corresponding White Paper, which includes also the reprogramming that in its opportunity was the subject of resources submitted to the MEM.


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WHITE PAPER - GENERAL Page. 13 of 79 FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S. A.

SOCIAL ISSUES

One of the reasons for the failure of the auction as an integrated unit has to do with the social aspects resulting from:

The misinterpretation of the existing legal devices that created obligation to provide health and education services for workers and their families.

That derived from the closeness of urban habitation areas to the areas of operation to urban areas.

The measures implemented by the company to mitigate the social issues were the following: Transfer of hospitals and medical centers supported by the company in all the

units to the IPSS (today ESSALUD), excepting the Hospital of Chulec in La Oroya, the transfer includes the premises, medical equipment and furniture.

Transfer of the schools and educational services to the Ministerio de Educación, (Education Ministry), the school premises, furniture and equipment.

Transfer of the water supply system and sewage of La Oroya and Cerro de Pasco to EMSAPA La Oroya and EMAPA PASCO S.A., respectively.

The building of the Curipata urban project as a zone of urban expansion in La Oroya, allocating land for housing workers, basic services and trade.

In La Oroya, activities for the rehabilitation, reconstruction, rearrangement, deconcentration and unemployment and demolition of inadequate housing.

Urban improvement by building the Avenue of the Heroes and the museum of mining in La Oroya.

The completion of various works in Cerro de Pasco consisting of paving of the roads.

Urban remodeling jobs. Transfer of premises to the local municipality. Centromin transferred to COFOPRI for the legalization of the land occupied by the

human settlements. In addition, various goods were transferred as part of the social commitment of the Company with its environment. The delivery of premises for SENATI subsidiaries in La Oroya and Cerro de Pasco

(Villa Pasco), in support of the technical education of the population in the area. The transfer of the former Fundo Casaracra to the Universidad Nacional Alcides

Carrión of Cerro de Pasco and the Universidad Nacional del Centro of Huancayo.

The transfer of concentration plants to the Universidad Nacional Alcides Carrión of Cerro de Pasco and the Universidad Nacional del Centro of Huancayo.

The ceding of various movable and immovable assets no longer required by the company's operational units to various institutions and agencies of the State, as well as to municipalities, communities, and to charities.

PROMOTION AND ADVERTISING

The CEPRI and the consultant conducted a series of promotional activities to identify potential investors interested in the production units.

Officials of the CEPRI and their consultants conducted surveys of the market Road Show, and also participated in symposia and conferences.

They prepared the corresponding Information Memorandum for each of the units that were privatized as well as the corresponding implementation of the data halls.

AUCTION The operations that took place were:

- The Paucaray Prospect in April of 1996.

- In July of the same year, the Antamina project was awarded, with a commitment to invest US$ 2,520 million.

- The Casapalca, San Cristobal and Andaychagua mining units and the La Oroya metallurgical complex were transferred to the private sector in 1997.

- In 1998 the Unidad de Cobriza was transferred and the authority to transfer the Empresa Minera Paragsha S.A. (Unidad Minera de Cerro de Pasco) was awarded.

Up to the transfer of Paragsha S.A., the amount collected from the sales was US$ 349.2 million. The investment commitments already assured amount to US$ 3,378.80 million.

The specific issues of the privatization of the companies mentioned above appear in their corresponding White Paper, including the detailed activities during the process of promoting the private investment and the events and important facts of each process of the post-privatization.

The general aspects developed since 2000 will be presented in another annex of the Centromin White Paper, including also all the specific activities.

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PART II

1. BACKGROUND

1.1 DESCRIPTION DE CENTROMIN PERU S.A.

The Empresa Minera Del Centro Del Peru S.A. - CENTROMIN PERU S.A. was created on January 1. 1974 on the basis of the metallurgical and mining business expropriated, and subsequently transferred to the Peru branch of the Cerro de Pasco Corporation. Its main activities were the extraction, concentration, electrolytic smelting and refining of a wide range of non-ferrous metals.

In accordance with the Supreme Decree No. 019-82-EMNM of June 30, 1982, which approved its social charter, the company is defined as a state enterprise under private sector law, that is governed by the Ley de Actividad Empresarial del Estado (Law of the Management Activities of the State) (Legislative Decree No. 216), by its Ley Orgánica (Decree Law No. 21117) in all it does not oppose to the former, by the Ley General de Sociedades (General Law of Corporations) and by its Statute.

At the beginning of the privatization process, the firm operated mainly with:

Seven mining production units, in which the ore is mined using various methods of extraction, according to the characteristics of the deposits. Their nature is polymetallic, mainly containing zinc, lead and copper, high traces of silver and minor presences of gold, bismuth, cadmium, selenium, and tellurium. Cobriza is a copper deposit.

INSTALLED CAPACITY OF CONCENTRATORS AND MINE PRODUCTION

1994.

Production Units Installed capacity of the

concentrators Tms/a x 1 000

Mineproduction

Tms/a x 1 000

ANDAYCHAGUA 360 345

CASAPALCA 979 618

CERRO DE PASCO (*) 2,268 2,303

COBRIZA 3,276 2,130

MOROCOCHA (**) 522 482

SAN CRISTOBAL/MAHR TUNEL 666 647

YAURICOCHA 482 354

TOTAL 8,553 6,879 (*) Includes Concentradora San Expedito (**) includes the Toromocho production

Eight concentrators, with a total installed capacity of 8,5 million tons of ore, one in each mine, except in Cerro de Pasco where they operate two concentrators.

The metallurgical and mining complex of La Oroya, located at 3,750 meters above sea level, 185 Km to the east of Lima. In its facilities it processes ore and concentrates, both its own and those purchased from third parties, to obtain refined metals and sub products. The smelting and refining complex comprises three basic circuits; copper, lead and zinc, from where it obtains more than 23 final products and 12 sub products.

METAL PRODUCTION OF THE COMPLEJO METALURGICO DE LA OROYA (Metric tons per year)

PRODUCT METALS

INSTALLED CAPACITY (at the end of 1994)

1994

Refined copper 66 500 59 695

Refined Lead 91,000, 88,714 1Zinc rods 70, 000 67,243

Fine Silver 809 579

Gold bullion 2,3 1,74

Raw Antimony 530 411

Bismuth 1,000 887

Cadmium 215 146

Indium 4.0 4,05

Selenium 23,6 19,34

Tellurium 30,0 28,64

A hydroelectric system, consisting of four plants with 183.4 MW of installed power, whose sources of resources include three water basins with various works of capture and storage. The system also includes electric transmission lines, transformer substations and a computerized control center.

ELECTRICAL POWER GENERATION (In GWH)

CENTROMIN PRODUCTION 1994

Central Hidroeléctrica Yaupi

760,1

Central Hidroeléctrica Malpaso 277,4

Central Hidroeléctrica Pachachaca 61,8

Central Hidroeléctrica Oroya 48,7

TOTAL PRODUCED BY CMP S.A. 1 148,0


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Other properties:

• Two copper ore projects, Antamina and Toromocho.

• A rail system that operates and maintains two main lines, the La Oroya-Cerro de Pasco y Pachachaca — Chaucha (Yauricocha), with a total of 279 Km, locomotives and rolling stock.

• 24 Mining prospects

• A warehouse and port facilities in El Callao.

The Business indicators of Centromin corresponding to the period prior to the fractional privatization are as follows:

FINANCIAL INDICATORS (In US$ million) 1991 1992 1993 1994

Net Sales 395,5 404,9 389,1 448,3

Profits(Loss) Gross (9,5) 109,1 64,1 70,1

Profits (Loss) Operating (105,1) 54,7 23,3 35,3

Profits(Loss) Net (173.1) 19,3 15,1 4,7

Net Worth 137,2 154.5 153,6 394,7

Short-term liabilities 242,6 150,0 156,9 145,4

Long-term liabilities 336,8 341,9 326,2 92,9

Taxes/social contributions 80,2 70,1 74,8 79,03,

PRODUCTION (Metric tons)

Processed ore 6,968,010 6,155, 402 6 669, 000 6,879 599

Copper 51,,797 55,043 60 ,577 59 ,695

Lead 74 ,586 84,037 87 ,285 88 ,714 I

Zinc 62 ,038 63,197 66 ,535 67 ,243

Silver 584 609 539 579

Gold 1 1 2 1,7

Modification of the corporate object:

The Ordinary and Extraordinary General Shareholders meeting on June 6, 1997, adopted the amendment to its corporate purpose to perform, directly or through the incorporation or participation in other companies, the following activities:

Provide services and lease property in favor of companies whose purpose is power generation or the supply of services in general.

- Provide logistics, computing, accounting, telecommunications, customs, warehouses and other services.


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1.2 FIRST STAGE, INTEGRAL PRIVATIZATION

Since 1960 the governing criterion was that the best way to promote the economic growth and redistribute their benefits was through the state intervention that allocated resources according to the criteria set by centralized planning.

In contrast, in 1990, the implementation of a set of policies aimed at reducing the economic role of the State as well as to increase private sector activity assumes even greater importance.

From that time on, there was a significant change in the role of the State starting to create the necessary conditions to attract foreign investment and, in parallel, to design a privatization policy aimed at ensuring that the private sector is the dynamic agent of the economy.

Early privatizations:

The first activities in the privatization were the result of the implementation of the Supreme Decree No. 041-91-EF of March 1991, that within the framework of the downsizing and restructuring of the State's business, it provides for the transfer of shares and rights of Centromin in the following companies: Empresa Minera Buenaventura S.A., Refractarios Peruanos S.A., Reactivos Nacionales S.A. y Barrenos Sandvick Andina S.A., and, as well, to liquidate the following companies: Compañía de Electricidad Yuncán S.A., Promotora de Carbón S. A, and Consultores Minero Metalúrgicos S.A.

The enactment of the Legislative Decree No. 647 of July 12, 1991 that declared the promotion of private investment, foreign or domestic, in the national interest, initiates the process of privatization in the mining sector.

Initially the process is conducted by a Special Committee consisting of the Chairman of the Board of Centromin, as an ex officio member, two Directors and a General Coordinator of the Office of Privatization.

This team, created as instructed, convened a competition by invitation with the intention of selecting a consulting firm who would be awarded the evaluation of Centromin, and the winner was International Mining Consultants Ltd, which participated in partnership with TECPRO Mining and Metallurgy and with Empresa Gerencia de Proyectos.

On September 25, 1991, the Executive Branch enacts the Legislative Decree N° 674, Ley de Promoción de la Inversión Privada en las Empresas del Estado, which declares as of national interest the promotion of private investment in the field of companies that make up the State's business. In November of the same year, the government appoints 5 Sate Ministers as members of the Comisión de Promoción de la Inversión Privada (Commission for the Promotion of Private Investment) - COPRI, the maximum governing body responsible for designing and conducting the process of promotion of private investment in the companies that make up the State's business.


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WHITE PAPER – GENERAL 19 of 79 FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S.A.

The enactment of the Legislative Decree No. 668-91 of September 11, 1991 removed the exclusivity of MINPECO for the marketing of mining products and empowered Centromin to handle the marketing of its metals and concentrates. This allowed Centromin Peru S.A. to confront the serious financial situation it was facing, accessing to new lines of credit to refinance their debts with the suppliers and with the Banking System.

To escape from the economic crisis, the company also implemented measures of optimization and redesign of operations, which, combined with administrative and financial measures, helped to improve the economic performance and help Centromin present itself for the transfer under a better light.

Integral Privatization:

The R. S. No. 102-92-PCM of February 21 of 1992 ratified the Resolution adopted by the Comisión de Promoción de la Inversión Privada to include Centromin Peru S.A. in the process for promoting private investment referred to the Legislative Decree N° 674, and creates this Special Committee of Centromin Peru S.A., CEPRI, with the responsibility for driving the process as well as appointing its members.

This first Special Committee that promoted the integral transfer of Centromin to the private sector led the privatization process from February 1992 to December 1994.

As to the rehabilitation of the Company with a view to its privatization, the following activities were carried out, among others, productive and administrative rationalization and labor retraining.

The CEPRI set up a competition by invitation to select an entity to advise it in regard to the strategy for selling the Company, the market study and performance of promotional activities. The winner was Banco de Inversiones Chase Manhattan Investment Bank in partnership with Cooper & Lybrand.

The Consultants, taking as a basis for reference the conclusions of the revaluation reached by International Mining Consultants Ltd., as well as market research, proposed alternatives for the promotion of the private investment in Centromin, which was finally being selected as a strategy, the sale of all the shares as a single package, mainly due the following considerations:

That to sell the smelter, it was essential to guarantee an assured supply of concentrates and electrical power.

That better financial management was allowed by absorbing liabilities and the implementation of major investments by reason of the enhanced economic possibilities of the purchaser.

That it favored the use of common resources.


The promotion plan presented on that occasion by the CEPRI of Centromin was approved by the Supreme Resolution No. 482-93- PCM.

In August 1993, the CEPRI adopted the Bases for the International Public Auction for the Sale of the Shares of Centromin Peru S.A. and the Antamina concessions.

During 1993 and 1994, with the support of the Chase Manhattan Bank undertook a wide dissemination of the offer of the total package of the Centromin Peru S.A. shares in order to attract operators with technical and financial capacity to modernize and expand the operations of the production units.

Using the Emergency Decree No. 02-94 of February 8, 1994 and the Supreme Decree N° 33-94-EF April 9, 1994, the state authorized the Ministerio de Economía y Finanzas (Ministry of Economy and Finances) to assume the obligations of Centromin. Assuming these obligations by the Tesoro Público (Public Treasury) meant a significant contribution of public equity to Centromin, thereby improving its financial situation.

The Base Price in the public auction of the Centromin shares included a minimum cash component of at least US$ 280 million, plus a component in liabilities of the Peruvian Foreign Debt in the fixed amount of US$ 60 million. In addition a commitment was made of a minimum investment of US$ 240 million, to be executed within a maximum period of three years.

In spite of the interest shown until the last moment by some of the most important companies, there was no concrete proposal during the auction on May 10 1994, by the following considerations:

Scope and complexity of the operations.

Rejection by the interested parties to take charge of the accumulated environmental problems in the past, mainly in La Oroya and Cerro de Pasco, in addition to the risks of the tailing deposits in Casapalca.

Social problems in La Oroya and Cerro de Pasco, especially the Centromin obligations with regard to the provision of housing and educational services.

Given that the experience of the first stage showed the unfeasibility of the privatization of Centromin as a unit, the new CEPRI and its consultants confirmed the interest of various potential investors in production units and projects, which sparked a new privatization strategy.

WHITE PAPER - GENERAL Page 21 of 79 FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S.A.

It is within the scope of this document to present the activities which have led to the new strategy, as well as the general aspects applicable to each individual privatization. The specific aspects of the individual privatizations are in the White Paper which will be edited for each company or asset.

Annex 1


FRACTIONAL PRIVATIZATION

2. OPERATIONAL ASPECTS

APPOINTMENT OF THE SPECIAL COMMITTEE

The Special Committee on Privatization of Centromin Peru S.A. - CEPRI CENTROMIN, responsible to organize and develop a specific plan for privatization of the Company and to take the process to its conclusion, has been renovated several times since 1992, as noted below:

The first Special Committee on Privatization of Centromin Peru S.A. - CEPRI, was appointed by Supreme Resolution No. 102-92-PCM of February 21 1992, appointing the following persons as committee members:

Alberto Benavides de la Quintana (President)

Hernán Barreto Boggio

Ruben Palao Arana

Oscar Espinoza Bedoya

Enrique Ballast Berninzon

Victor Miró Quesada Gatjens

Emilio Flores Ruiz

Juan Assereto Duharte

The Supreme Resolution No. 536-94-PCM of December 27, 1994 designates a new CEPRI for Centromin. In the meeting N° 01-95 of the 09.01.95 the Supreme Resolution was submitted, whereby the resignation of the previous CEPRI was accepted and new members designated:

Juan Assereto Duharte (President) Luis Moran Gandarillas José León Barandiaran Hart Luis Hirota Tanaka

On 19 October 1995, the Supreme Resolution No. 328-95-PCM designates Juan Carlos Barcellos Milla as President of the CEPRI, and the following as its members:

Luis Moran Gandarillas

José León Barandiaran Hart

Luis Hirota Tanaka

On June 15, 1998, Supreme Resolution No. 334-98-PCM designates the new CEPRI, integrated as follows:

Jorge Humberto Merino Tafur (President)



Luis Hirota Tanaka

Juan Carlos Barcellos Mile

In consideration of the advance of the processes to promote private investment in Empresa Minera del Peru S.A. — MINERO PERÚ S.A. and Empresa Minera del Centro del Peru S.A. CENTROMIN PERÚ S.A,, the Supreme Resolution No. 065-98-TR of September 23, 1998, designates the members of the Ad Hoc Committee in charge of promoting private investment in Empresa Minera del Peru S.A. — MINERO PERU S.A y en la Empresa Minera del Centro del Peru S.A. CENTROMIN PERU S.A., integrated by:

Jorge Humberto Merino Tafur (President)



Juan Carlos Barcellos Mile

Jorge Kawamura Antich

SUPPORT TEAM:

With the financing of the Project PER/62/017 in its lines for Staffing Component of the Project and the Subcontracting Components, the support team to the CEPRI is created in this opportunity, with the following experts and consultants to provide specialized advice:

Ad-hoc Experts

Ulrich Rehwaldt 1997 to 2000

Wadia, Gadstby, Rehwadt 1992 to 1997

Consultants

M. Neumam/Luis Cohello 1994 and 1996

P. Velarde/L. Barchi 1995 to 2000

J. R. del Castillo 1995 to 1997

Other Contracts

Estudios Leon de Barandiaran 1992

DATUM 1992

Otoya & Asociados 1993 - 1994

Estudio Grau Abogados 1993 - 1994


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O R O


Baker & McKenzie 1994 - 1995

AMSA Consultores 1997 to 2000

INADUR 1995 - 1996

Knight Piesold 1996 - 1997

The support team of Centromin is led by the Office of Privatization Management of Centromin, in charge of Hugo Aragon F. since May of 1994, who has the task of drawing up plans, programs, reports and strategies for the promotion of private investment and submit them to the consideration of the CEPRI, and executes plans and policies approved by the CEPRI.

In addition the Office of Privatization Management, with the managers and office executives provided support to the CEPRI in financial, business, accounting, legal, personnel, and other issues, throughout the process of the privatization of Centromin.

The recruitment of external consultants to provide counseling services specifies, is discussed in the White Paper of the Subsidiary Companies,

Annex 2


3. PROMOTIONAL PLAN

3.1 SELECTION OF THE PROMOTIG BANK

With the purpose of expediting the process of promotion of private investment in Centromin, the CEPRI, at its meeting No. 01-95 that took place on January 9, 1995 and by Resolution No. 02-95, authorized the selection of an entity that will provide them with advisory services to define privatization strategies, to identify potential investors and in the development of the promotion plan.

With the above-mentioned Resolution, the Administration was entrusted with the development of the bases for recruitment of non-staff services, and coordination with COPRI with the purpose of obtaining financing to facilitate the recruitment.

In terms of the scope and selection of the companies, the CEPRI Resolution No. 05-95 of January 23, 1995 approved that it should take place by inviting the following specialized companies to participate in the competition:

First Boston Morgan Grenfell

S. G. Warburg

Merrill Lynch

Baring Security

N.M Rothschild & Sons

Due to the particular situation in Baring Security and which eventually led to its bankruptcy, they were not invited and were replaced by Kleinwort Benson Ltd.

The consulting service to the CEPRI involves the following steps or activities:

- Awareness of the existing information, including the studies and work prepared for the auction of Centromin as an integral entity.

- Strategy for the promotion of the investment,

- Evaluation of the properties in accordance with the recommended strategy, proposing the base price.

- Develop and propose a program of activities, market survey, promotion and negotiations with the potential bidders.

- Preparation of the Information Memorandum.

- Participate in the preparation of documents for the promotion.

- Identification and qualification of stakeholders.

- Support for the CEPRI in activities and road show of the promotion process.


> Tender by invitation

The Office of Privatization Management, as mandated by CEPRI in accordance with the Resolution No. 07-95 of January 23, 1995, prepared the terms of reference, bases, and model contract for the procurement of services for the Promotion of Investments in Centromin.

On February 14, 1995, the CEPRI by Resolution No. 09-95, approved the rules of the Tender by Invitation PRI-01-95 for the recruitment of the Consultant for the Promotion of Investment in Centromin Peru S. A. and the proforma Contract for Consulting Services for the Promotion, Negotiation, and Acquisition of Private Investment for the transfer of Centromin Peru S.A.

Via a letter COP-010-95 of February 15, both documents are submitted to COPRI requesting their approval, as well as the processing of the "No Objection" to these documents by the World Bank. Finally on February 28, 1995, COPR1 by Memorandum No. 451/95/DE/COPRI authorizes the Rules of the Tender, which include the model of the contract to be signed by the entity that obtains the Award, as well as the list of institutions that will be invited. The World Bank confirmed its "no objection" to the proposed terms and also to the short list.

> Guest List:

The Invitations to participate in the selection contest were sent on March 1995 to the entities included in the short list, enclosing the bases that describe the service required and the proceedings of the Tender. Because of the speed with which the service is required, they were asked to confirm their decision to participate before March 24. The companies invited were:

FIRST BOSTON USA

KLEINWORT BENSON Ltd. UNITED KINGDOM

MERRIL LYNCH USA

N.M ROTHSCHILD & SONS LTD USA S. G. WARBURG & Co. Inc. USA

J.P.MORGAN USA

> Queries and answers

To obtain an overview of the activities of Centromin Peru S.A. and further information for the formulation of its proposal, visits took place, both in the offices of Lima and in the different units of operation, by officials from the following companies:

f


FIRST BOSTON

KLEINWORT BENSON Ltd.

MERRIL LYNCH

J.P. MORGAN

Within the time limit specified in the Bases, we received consultations from the companies FIRST BOSTON, KLEINWORT BENSON Ltd. and MERRILL LYNCH. The answers to the same were approved by CEPRI under Resolution No. 017-95 and forwarded to all the entities invited by the letter COP-029-95 from 3 April, 1995.

On the other hand, implementing the option established in the Bases in regard to the empowerment of the companies invited to associate to participate in the Tender, CEPRI received several requests that were reviewed in its meeting No. 15-95 of April 17 and resulted in the Resolution N° 22-95 that approves the following partnerships:

COMPANY PARTNERSHIP

Merrill Lynch Prisma Inversiones y Finanzas

First Boston Macroinvest S.A. N M Rothschild & Sons Limited Hansen-Holm & Co/Apoyo S.A.

S. C. Warburg Interinvest S. A./Asset-Chile

> Receipt of Proposals

On April 19, 1995 the members of the Special Committee met with the purpose of receiving the proposals of the Investment Banks invited to the Tender PRI 01-95.

In the mentioned act, they received the proposals, submitted by the representatives of the following invited companies:

FIRST BOSTON

J. P. MORGAN

KLEINWORT BENSON Ltd.

MERRIL LYNCH

N.M. ROTHSCHILD & SONS

S. G. WARBURG & Co.Inc.

In accordance with the bases, they proceeded to open all the envelopes numbers 1 and 2, signing the Memorandum of Reception N° 01 and the envelopes number 3 with the financial proposal were entrusted to a Notary until April 27.

Annex 3


> Evaluation of proposals - Results

The proposals submitted by the Promoting Banks were evaluated by the members of the Commission on Evaluation of Proposals appointed with Resolution CEPRI NO. 018-95 of 10-04-95, which applying the Rules of the contest and the "Evaluation Procedure" approved on April 17 by the Resolution CEPRI NO. 21-95 of 17-04-95 initially worked on the technical proposal contained in the envelopes number 1 and 2.

The results of the technical assessment conducted by the Commission on evaluation of proposals are in the Minutes No. 1 of the Commission, which set forth the following result:

PROMOTER BANK SCORE

C. S. FIRST BOSTON 69,9

J. P. MORGAN 53,0

KLEINWORT BENSON Ltd. 64,2

MERRIL LYNCH 61,3

N M ROTHSCHILD & SONS 74,0

S. G. WARBURG & Co. Inc. 63,5

The previously mentioned Minutes N° 1 was adopted by the CEPRI by Resolution No. 23-95 of 26 April, 1995.

In a new public session that took place on April 27, 1995, they proceeded to open the envelopes No. 3 and read the financial offer.

The Commission on Evaluation of Proposals concluded with their entrusted duties and delivered its Minutes No. 2 which included the result of the qualification of the financial proposal and the global score of each of the participants.

PROMOTER BANK TOTAL SCORE

C. S. FIRST BOSTON 85,5

J. P. MORGAN withdrew its proposal

KLEINWORT BENSON Ltd 73.6

MERRIL LYNCH 72, 5

N.M. ROTHSCHILD & SONS 84, 2

S.G. WARBURG & Co. Inc. 73.7

As previously noted, the CEPRI approved the evaluation of the Technical Proposals of the Minutes No. 1 and in the meeting of April 28, 1995 acknowledges Minutes No. 2 of the Commission on Evaluation of Proposals and in Resolution N° 24-95 adopts the following:

- Approves the final rating of the tender by invitation PRI-01-95 for the recruitment of the Consultant for the Promotion of Investments in Centromin Peru S. A. and, as a result awards the contract to Association CS First Boston-Macro Invest S.A.

- Disqualifies the proposal of N.M.Rothschild & Sons Limited / Hansen-Holm Alonso & Co. / Apoyo S. A, because they wanted to consider the existing liabilities that would be borne by the buyer within the concept of "Amount paid for the transfer".

- Authorizes the Administration to begin negotiating with the winning partnership.

In its financial proposal, the association CS First Boston/Macro Invest S.A., requests the following financial compensation:

Fixed Fee: It is a payment of US$ 500,000, payable in the terms to be negotiated.

Fee for success that involves:

a). For the transfer

For the first US$ 150 million: 0.275 % For more than US$ 150 million and up to US$ 300 million: 0.55 % More than US$ 300 million: 0.825%

b). For the commitment to invest

For the first US$ 350 million: 0, 1375%

For more than US$ 150 million and up to US$ 600 million: 0.275 %

More than US$ 600 million: 0.4125 %

> Signing of the contract

After concluding the negotiations, the Consulting Contract was signed on May 19, by the representatives of Centromin CEPRI and the Consultant and, in the same date it was transferred to the Executive Director of COPRI with the letter COP-064-95, requesting his signature in the contract as the representative of the Agreement of Technical Assistance for the privatization process of Centromin (PNUD-PER-2-017-A-01-99). Dated June 26, the World Bank issued its "No objection" to the selection


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of CS First Boston and the contract.


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Explanatory Addendum

In order to give more transparency to the contract regarding the payment of taxes, the CEPRI (Resolution No. 40-95) approved the signing of an addendum and instructs the Board of Centromin to formalize the contract. The addendum establishes that the taxes payable by C.S. First Boston Corporation in accordance with the Peruvian law shall be borne by Centromin Peru S.A., in addition to the IGV corresponding to Macroinvest, in such a way that both will receive their honorarium net of charges.

On 20 May, 1995, with the letter CEPRI COP-114-95, the Explanatory Addendum for COPRI to sign, as a representative of the Convention of Technical Assistance to the Privatization Process of Centromin Peru S.A.

Addition to the Consulting Contract – The Quicay prospect

By Resolution CEPRI No. 06-96 dated February 6. 1996, it was requested that the Board approve the Extension of the Consulting Contract for the Promotion of Private Investment with the object of including the promotion of the Quicay prospect within the scope of the contract. The Board, in its meeting No. 05-96 of 14-03-96 approved this request by Resolution No. 016-96.

3.2 APPROVAL OF THE PROMOTIONAL PLAN

A review of the experiences learned during the promotion of the integral sale of the shares of Centromin, market research and the analysis developed showed that the privatization of the company as a whole was not viable, thus determining the need to formulate a new plan for the promotion of private investment, which should consider offering for sale the independent units that integrate it.

The plan to promote private investment in Centromin, approved by the CEPRI with Resolution No. 55B-95 in its meeting held on 17.10.95 , considers offering for sale their prospects, projects, operational units, facilities and complementary infrastructure, either independently or by establishing certain interrelationships, or forming groups.

It is therefore established that the privatization of the Company is to be carried out by sections under the following scheme:

>. Operational units, the corporate independence and sale of shares of the following operational units to take place:

Mining units: Yauricocha, Casapalca, Morococha, Cobriza, Cerro de Pasco y San Cristóbal-Andaychagua, all these units include their respective concentrators.

The La Oroya metallurgical complex that includes copper and lead smelters, as well as copper, lead, zinc and silver refineries.


Hydroelectric facilities: Yaupi, La Oroya, Malpaso and Pachachaca.

Facilities for Import and Export in the Callao.

>. Assets: Sale of the following assets:

Mining prospects

Antamina and Toromocho projects.

The transfer of the different components of the company is approved, depending on the mode, either by selling shares or assets, referred to in subparagraph (a) of Article 2 of Legislative Decree N° 674, giving their workers the right to exercise their option to acquire up to 10% of the shares of the companies being privatized, or choose to use their social benefits for that purpose..

Later, the Promotional Plan incorporates the increase of capital as a mode to advance the promotion of the Complejo Metalúrgico de la Oroya on the basis of the provisions in paragraph (b) of article 2 of the D. L. N° 674.

Wishing to improve the productivity and image of the company, it provided for the acceleration of the restructuring programs, rationalization and rehabilitation in such a way that will make it possible to achieve the goals of privatization.

COPRI, by Resolution No. 320-95 of 20.10.95 approved the mode, transfer mechanism and plan to promote private investment in Centromin, ratified by the Supreme Resolution No. 016-96-PCM of January 18, 1996, expediting the legal backing that allows offering the components of Centromin fractionally.

3.3 STRATEGY FOR THE PRIVATIZATION OF CENTROMIN

3.3.1. Recommendations of the consultant

In October 1995, the consultant CS First Boston / Macroinvest presented a preview of the proposal of its strategy for the privatization in which they propose the fractional sale, starting the process with the Antamina and Morococha projects, and on November 22 presented the Report with the Recommendations for the Strategy to privatize Centromin, developed on the basis of their own analysis of the economic and financial condition of the Company, the expert opinion of Brook Hunt (Mining Consultant chosen by First Boston) on the current status of the mineral reserves and of the mining and metallurgical operations, also bearing in mind the market analysis of potential participants.

In summary, the report considers the following parts:

Definitions of the Strategy.

Implementation of the strategy.

Comments on the observations of the CEPRI to the preliminary preview.

1. Definitions of the Strategy: In this first part of the report, the consultant introduces various alternatives evaluated and the strategy recommended. It deals with the following aspects:

a. Objectives of the privatization: They consider that the fundamental objectives of the privatization of Centromin are:

Attract specialized operators, with access to capital, to modernize and expand the operations.

Develop the economic potential of the assets and projects of CMP.

Ensure the continuity of La Oroya and of the main mining units.

b. Strategic options and evaluation criteria: The consultants analyze different options that include an integrated sale, a negotiated sale and different alternatives for fractioning.

c. Characteristics of the assets: The consultant submits his assessment of the mining units and the smelter and refinery of La Oroya, as well as the hydroelectric centrals and mining projects.

d. Internal economies: They perceive that there is no synergy that justifies the vertical integration of the mines and the La Oroya, with the exception of what can be considered a dependency between La Oroya and Cobriza. Likewise, they perceive that there is no synergy that justifies the vertical integration of the hydroelectric centrals and the mining and metallurgical operations.

In regard to the economy of scale that could be generated by horizontal integration of operations, they considered that it could only happen in the case of San Cristobal and Andaychagua.

In regard to the horizontal integration of the mining operations, they consider it can only apply to the operations of San Cristobal and Andaychagua because of the closeness of their operations.

The consultants believe that the secondary hydroelectric power plants and transmission lines represent a single economic unit and should stay integrated horizontally.

e. Market survey: They perceived that there is a greater degree of interest in the Antamina and Cerro de Pasco projects, followed by San Cristobal and, to a lesser extent, Toromocho.

They pointed out that there is no interest among the major international mining companies for Andaychagua, Casapalca or Morococha, due to the reduced size of the operations and the mineralization of the mining veins.

They also appreciated that the interest in Cobriza is quite limited, and Yauricocha is seen primarily as an exploration property.


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In regard to La Oroya, they found that the interest is limited, due primarily to the concern of the marketplace with the environmental problems.

The consultants estimate that the hydroelectric power plants will generate interest from major international operators and that the telecommunications system, the rail assets and facilities of the Callao are of little or no interest among the mine operators.

f. Evaluation of alternatives: The consultant submits strategic alternatives for different partnership approaches, which points out that the mining units, the La Oroya metallurgical complex, the hydroelectric centrals and the projects should be integrated or separated in different options, and finally the alternative in a completely independent status; evaluating each one of them.

9. Recommended Strategy: This consists in fractioning CMP in two mining projects and nine business units, with commercial contracts between some in such a way that will ensure the supply of electrical power and concentrates. They believe that this alternative offers the greatest chance of attaining the objectives of the privatization.

They recommend that the sale of the projects and production units should take place in the following order:

- Antamina Toromocho.

Yauricocha - Cerro de Pasco, San Cristobal, Andaychagua and Cobriza. La Oroya. Casapalca and Morococha

Hydroelectric Centrals

The mines at Cerro de Pasco, San Cristobal, Andaychagua and Cobriza could be offered independently, in simultaneous auctions, so that the bidders may bid on individual properties or on a set of them. Casapalca and Morococha should also be offered on an individual basis in simultaneous auctions.

Basically, they recommend the following interrelation modes:

The supply of concentrates to La Oroya, which would involve Cerro de Pasco, San Cristobal and Cobriza. These contracts would set the volumes to be provided while the prices would be determined periodically. For the zinc, the duration of the contracts would be three years and seven years for those related to the lead and copper concentrates.


Page 33 of 79

The supply of electricity, which would commit the hydroelectric centrals to supply power to the La Oroya and the mining units for a period of 10 years. In regard to price, they suggest that the mines regularly negotiate according to market conditions. Prices for La Oroya should remain fixed for the duration of the contract, at a level compatible with the long-term projections of SICN.

- They recommend that Cerro de Pasco, San Cristobal and Cobriza receive an option to purchase up to 10% of the shares of La Oroya.

- And La Oroya receive the option to purchase up to 20% of the shares of the hydroelectric centrals.

2. Implementation of the Strategy

In this part of the report, the consultants deal with the implementation of the recommended strategy, outlining a sequence of privatizations and recommends actions to take place immediately.

a. Sequence for the sale of the units:

The consultant recommended that the transfer process be carried out sequentially in five stages and in a total of seven auctions, in the following order:

Group Auction Assets

Projects 1 Antamina 2 Toromocho 3 Yauricocha

Mines 4 Cerro de Pasco

San Cristóbal Andaychagua Cobriza

Metallurgical Complex 5 La Oroya Mines 6 Casapalca

Morococha

Electrical 7 Hydroelectric centrals

They submit the considerations underlying the proposed strategic sequence.

b. Preconditions to privatization:

The market survey allowed the consultant to establish clearly the concern of the major stakeholders in Centromin Peru S.A. due the existence of problems arising from the environmental, labor and social liabilities and submitting the implementation of actions related to:

WHITE PAPER - GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S A

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Environmental Affairs

Create an environmental fund to finance the clean-up tasks and resolution of the problems identified in an Environmental Study. The fund would be created on the basis of a percentage of the resources that may be obtained through the privatization of assets, up to a limit determined by the study referred to above.

Have a recognized international consultant prepare an environmental study to identify the environmental liabilities of each unit, establishing the environmental status at a cut-off date for the purpose of determining the responsibilities of the seller and the buyer.

That prior to the transfer date designate the entity to take care of the claims of third parties for damages related to environmental practices before the transfer date. Also to establish the guidelines on the attention to the claims, verify its source and determination of compensation.

Request the establishment of statutory deadlines for the preparation and implementation of the PAMA.

Labor Affairs

Consider the possibility that the seller retain responsibility for the labor related lawsuits pending resolution.

That a part of the resources obtained from the privatization be used to make the deposits of CTS.

Social Affairs

Complete the transfer of the schools and water and sewage facilities. Propose alternative access routes to prevent the entry of heavy transport in Cerro de Pasco and in La Oroya.

Further suggestions:

- Resolution of the banking liabilities: Initiate discussions with the syndicate of banks led by the Banco de Credito, with the goal that, before the first auction, they reach an agreement that allows the amortization of the short-term debt.

Legal rehabilitation: The study of the titling and registration of their concessions, particularly the legal situation of the properties exchanged by San Cristobal and Volcán Compañía Minera S.A.


- Centromin would commission the auditing of its financial statements for 1995 to one of the "big six" accounting firms.

3. Comments on the observations, this part of the report include the comments of the consultants to the observations of the CEPRI after the preliminary presentation of the strategy, which took place on October 3, 1995.

3.3.2. Approval of the Strategy

CEPRI analyzed the strategic suggestions submitted by the consultant and issued documents that contain reassessments, and in December 1995, it submits the document "REVIEW BY CEPRI - CENTROMIN ABOUT THE STRATEGY RECOMMENDED BY CS FIRST BOSTON/-MACROINVEST”, where it outlines the position of the CEPRI of Centromin Peru S.A. on the strategy recommended by the consultant.

Basically, the strategy adopted consists of the sale as assets of two projects (Antamina and Toromocho) as well as the mining prospects, and the sale of its operating units, electricity generation and transmission and the complementary services as subsidiaries.

• Goals of Privatization

The fundamental objective of the promotion of investments in Centromin is modernization, expansion of the operations and development of the potential of the projects in order to maintain its continuity, especially of La Oroya.

The second objective is to maximize the value of the transfer of assets and units of Centromin that are privatized.

It is necessary to emphasize the importance of the fundamental objective over the second objective, both to establish possible integrations, as well as to define the sequence of the privatization process.

• Fractioning Centromin Perú S.A.

The following divisions can be assumed as defined:

The Antamina project.

The Toromocho project.

The Yauricocha mine and concentrator.

The Casapalca mine and concentrator.

The Morococha mine and concentrator,

The San Cristobal mine and concentrator and the Andaychagua mine and concentrator must be promoted as a single unit .


The Cerro de Pasco mine with the Paragsha and San Expedito concentrators.

With regard to the La Oroya, Cobriza and the hydroelectric centrals, it is believed that it is necessary to further research the market interest, to choose the option to treat them independently, or to create packages in different grouping alternatives.

All the possibilities must be exhausted to present La Oroya as a profitable operation and reserve the hydroelectric centrals to the end, leaving open the possibility of joining them with La Oroya.

Privatize the import and export areas of the Callao independently.

Privatize the rolling stock of the railway system, but the railways must remain a property of the State with the purpose of not interfering with the policy of the Government with regard to railway transport.

Interrelationships:

Commercial Contracts

For the supply of concentrates that commit Cerro de Pasco, San Cristobal and Cobriza to provide concentrated to La Oroya for a period up to three years for zinc and seven years for copper and lead.

For the supply of electrical power, that commits the Hydroelectric centrals to supply electricity to La Oroya for a period between five to seven years, and to the mining units as up to one year and then, by discretionary application.

Share holdings

The CEPRI believes that the new owners of the Cerro de Pasco, San Cristobal and Cobriza mines should not receive the option to purchase up to 10% of the shares of La Oroya because that would make the transfer very difficult.

Sequence of the fractional privatization

The CEPRI finds that it is desirable to start the process with the following sequence, which in practice was not implemented because of strategic considerations.

1. Antamina. 2. Toromocho. 3. Yauricocha

4. Casapalca


It excludes the possibility of auctioning simultaneously two or more units, proposed by the consultants, with the exception of the units of San Cristobal and Andaychagua and that will be promoted as a single unit.

Centromin Corporate

A working group was created, whose main purpose was to provide support to transfer the corporate functions of Centromin to its business units, preparing them for the transfer and facilitating the fractioning.

The goal was to complete the transfer of the corporate functions, as well as manage the compliance with legal and environmental obligations, agreements, contracts, and other pending matters.

The corporate offices were established initially in La Oroya taking into account the existing infrastructure that allowed optimizing resources and services.

The areas of La Oroya that were integrated as corporate support were Human Resources, Public Relations, Accounting, Legal, Rehabilitation Commission, Bureau of Mines, Raise Borer, Diamond drilling, Civil Construction Huaymanta, Corporate Warehouse.

The corporate activities were being reduced or disabled in accordance with the sale of units of the Company or when their corporate functions were no longer required.

Annex 3-A

3.4 CREATION OF SUBSIDIARIES

Having adopted the Plan to Promote Private Investment in Centromin Peru S.A by the Supreme Resolution No. 016-96-PCM, which provides for the fractional transfer of its business assets, and if necessary, to refine the privatization strategy designed, the CEPRI, by Resolution No. 04-to-96 authorized the creation of the following subsidiaries or affiliates:

CURRENT UNIT SUBSIDIARY CREATED

La Oroya Metallurgical Complex

Cerro de Pasco mine and concentrator

Casapalca mine and concentrator

San Cristobal and Andaychagua mines and their respective concentrators

Morococha mine and concentrator and the Toromocho project

Empresa Metalúrgica La Oroya S.A. (METALOROYA S.A.)

Empresa Minera Cerro S.A. (MINCERRO S.A.)

Empresa Minera Yauliyacu S.A. (YAULIYACU S.A.)

Empresa Minera San Cristobal S.A (SANCRISTOBAL

Empresa Minera Morococha S.A. (MOROCOCHA S.A.)


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Mina y Concentradora de Yauricocha

Mina y Concentradora de Cobriza

Sistema Hidroeléctrico

Importación y Exportación del Callao

Empresa Minera Yauricocha S.A. (YAURICOCHA S.A.)

Empresa Minera Cobriza S.A. (COBRIZA S.A.) Empresa de Electricidad de Los Andes S.A. (ELECTROANDES S.A. )

Empresa de Importación y Exportación Callao S.A. (IMEXCALLAO S,A,)

By Resolution No. 010-96 the CEPRI approves the establishment of the subsidiary: Proyecto Central Hidroeléctrica Yuncán — Empresa de Generación Eléctrica del Centro S.A. (EGECEN S.A.).

COPRI by Memorandum No. 921/96 of April 25, 1996 reported that at its meeting held on April 17. It authorized the establishment of companies on the basis of the operating units of Centromin Peru S.A.

The CEPRI by Resolution No. 026-96 instructed the Board for the purpose of creating companies

The Board, by Resolution No. 034-96 authorizes the Administration to proceed and gives it the right to sign all necessary documentation and it convenes the General Meeting of Shareholders.

The General Meeting of Shareholders of Centromin Peru S.A., by Resolution N° 03-96 empowers the Board to adopt the relevant Resolutions.

To implement the above mentioned Resolutions, Centromin Peru S.A. evaluated the legal, accounting and operating aspects, proceeding to create companies, and trying to avoid homonymy.

When it was required, Centromin Peru S.A. proceeded to designate directly the Presidents of the Boards of the corporations formed on the basis of its operating units, empowered by COPRI by Resolution of the meeting held on September 26, 1996 and transcribed with Memorandum No. 2252/96/DE/COPRI, the president and members of the board of directors of Centromin Peru S.A. can act as such in each of the corporations in the process of incorporation, until its transfer to the new owners,

The companies incorporated were:

>Empresa Metalúrgica La Oroya S.A., METALOROY S.A.

It was incorporated on the basis of Complejo Metalúrgico de la Oroya, by Public Charter of September 2, 1996 drawn up before the Notary Public of Lima Dr. Percy González Vigil and registered under the record No. 132405, insertion 01 of the Registro de Personas Jurídicas (Registry of Companies), on September 19, 1996, with a capital of S/ 10, 000.00,

The incorporation of METALOROYA S.A was recorded in the Registro Público de Minería, Libro de Sociedades Contractuales y Otras Personas Jurídicas (Public Mines Register, Registry of Contractual Corporations and Other Legal Persons), under the record No.040367, insertion 001, on September 20, 1996.

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> Empresa Minera Paragsha S.A.

It was incorporated on the basis of the Unidad de Producción de Cerro de Pasco, by Public Charter of December 27, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 136162, insertion A-1 of the Registro de Personas Jurídicas on January 23, 1997 with a capital of S/. 10,000.00.

The incorporation of PARAGSHA S.A was recorded in the Registro Público de Minería, Libro de Sociedades Contractuales y Otras Personas Jurídicas, under the record No.040436, insertion 001, on March 18, 1997.

> Empresa Minera YAULIYACU S.A.

It was incorporated on the basis of the Unidad de Producción Casapalca, by Public Charter of August 2, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 131513, insertion 01 of the Registro de Personas Jurídicas on August 22, 1996 with a capital of S/. 10,000.00.

The incorporation of YAULIYACU S.A was recorded in the Registro Público de Minería, Libro de Sociedades Contractuales y Otras Personas Jurídicas, under the record No.040354, insertion 001, on August 28, 1996.

> Empresa Minera MAHR TUNEL S.A.

It was incorporated on the basis of the Unidades de Producción San Cristobal y Andaychagua, by Public Charter of December 27, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 136169, insertion 01 of the Registro de Personas Jurídicas on January 22, 1997 with a capital of S/. 10,000.00.

The incorporation of MAR TUNEL S.A was recorded in the Registro Público de Minería, Libro de Sociedades Contractuales y Otras Personas Jurídicas, under the record No.040437, insertion 001, on March 18, 1997.

> Empresa Minera TOROMOCHO S.A.

It was incorporated on the basis of the Unidad de Producción Morococha and the Toromocho Project, by Public Charter of December 27, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 136109, insertion A-1 of the Registro de Personas Jurídicas on January 22, 1997 with a capital of S/. 10,000.00.

The incorporation of TOROMOCHO S.A was recorded in the Registro Público de Minería, Libro de Sociedades Contractuales y Otras Personas Jurídicas, under the record No.040435, insertion 001, on March 18, 1997.


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Considering the fact that the Administration has proposed that the sale of the Proyecto Toromocho and the Unidad de Producción Morococha be carried out jointly and that there is an interest on behalf of some potential investors to make an offer for the whole, the CEPRI approved, by Resolution No. 3096 that the Promotion of Private Investment of the Toromocho project includes the Morococha underground mine.

> Empresa Minera YAURICOCHA S.A.

It was incorporated on the basis of the Unidad de Producción Yauricocha. On May 9, 1996, by Resolution of the Board No. 034-96, the Administration was authorized to proceed with the creation of a corporation in accordance with the provisions of the Resolution No. 026-96 of the CEPRI-CENTROMIN.

On July 26, 1996, the Minutes of Constitution were converted to a Public Charter, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered in the Registro de Personas Jurídicas, under record no. 131587, insertion 1-A , on August 22, 1996 with a capital of S/. 10 000.00,

It was not possible to apply the mode adopted initially for the process to promote private investment in Yauricocha S. A., which means that this company remains available for other Centromin activities.

Having determined the need to create a Customs Brokerage Agency for the services provided by the Callao Unit, the CEPRI in a session held on October 21, 1997 adopted the Resolution No. 66-97 under which it instructs the Board to authorize the change of the social object of Yauricocha S. A. to allow it to engage in the customs brokerage business.

> Empresa Minera COBRIZA S.A.

It was incorporated on the basis of the Unidad de Producción Cobriza, by Public Charter of August 2, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 131512, insertion 01 of the Registro de Personas Jurídicas on August 22, 1996 with a capital of S/. 10,000.00.

The incorporation of COBRIZA S.A was recorded in the Registro Público de Minería, Libro de Sociedades Contractuales y Otras Personas Jurídicas, under the record No.040356, insertion 001, on August 28, 1996.

.

> >Empresa de Generación de Energía Eléctrica del Centro S.A. EGECEN S.A.

It was incorporated on the basis of the PAUCARTAMBO Project, by Public Charter of July 26, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 131639, insertion 1-A of the Registro de Personas Jurídicas on August 22, 1996 with a capital of S/. 10,000.00.

> Empresa de Electricidad de los Andes S.A., ELECTROANDES S.A.

It was incorporated on the basis of the Sistema de Generación Hidroeléctrica de CENTROMIN PERU S.A. by Public Charter of August 5, 1996, drawn up before the Notary Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 131922, insertion1-A of the Registro de Personas Jurídicas on September 6, 1996 with a capital of S/. 10,000.00.

.

> Empresa Minera de Importación y Exportación Callao S.A., IMEXCALLAO S.A.

It was incorporated on the basis of the port facilities and warehouse available in El Callao, by Public Charter of December 30, 1996, drawn up before the Notary y el Public of Lima Dr. Percy Gonzalez Vigil and registered under the record no. 7766 of the Registro Mercantil del Callao, on January 20, 1997 with a capital of S/. 10,000.00.

.

3.5 ACCESS TO THE INFORMATION AND PRE-QUALIFCATION

To access the information of the different units, the CEPRI, by Resolution No. 019-95 adopted at its meeting on April 10, 1995, revised the existing procedure in the first stage by adopting a basic procedure and the requirements for the investors to access the information. Also approved the procedure to obtain authorization to visit the Units

Subsequently, the CEPRI by Resolution N° 20-96 established the capital and technical requirements to pre-qualify them as commensurate with the size of the production units or infrastructure.

The Information Memorandum, considered as the initial promotional document, was provided to those companies, which in addition to signing the Confidentiality Agreement, should have mining and metallurgical experience, or represent investment banks or international consultants.

The pre-qualified companies up to 1994, kept their pre-qualification active to enable accessing the information or participating in competitions for the transfer of the corporations to be created on the basis of the operational units of Centromin.


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3.6 TAX STABILITY CONTRACT

With the purpose of qualifying for the benefits established in the Ley General de Minería, Centromin presented to the Dirección General de Minería an investment program that was adopted by resolution of the Board of Directors N° 144-EM/DGM.

On the basis of such an authorization, and on May 13, 1994, Centromin Peru S.A. signed with the State a Contract of Guarantee and Measures to Promote Investment, that establishes tax stability and certain administrative benefits and exchange rates, assuming a commitment to invest between May 1994 and December 1995, the amount of US$32.9 million in exploration and development in its operational units.

An amendment was adopted together with an extension of the deadline for the implementation until December of 1996 with an estimated amount of US$ 30.7 million, by Resolution of the Board of Directors No. 108-95-EM/DGM of March 1995.

COPRI having approved the constitution of companies on the basis of the operational units considered critical to ensure the best possible execution of the Process for the Promotion of Private Investment and taking in account the interest to enable the transfer of the Contract to the different companies that will be fractioned for their privatization, Centromin Peru S. A. requested authorization from the Dirección General de Minería to transfer this Contract, in the amount of the investment committed for each operating unit.

This request was approved by Vice-Ministerial Resolutions No. 050-96- EMNMM, No. 052-96-EMNMM, Ministerial Resolution No. 057-97-EM/SG, No. 137-97-EM/SG, No. 138-97-EM/SG, and No. 139-97-EM/SG issued for each of the incorporated companies, making it viable for each one of them to have

guaranteed tax stability with the current regime up to April 24 1994.

Annex 3-B


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4. BUDGETARY ASPECTS

Centromin has been financing various contracts for services of advisors and consultants with the support of PNUD through project PER/92/17, and with its own resources.

4.1 By FOPRI/PNUD:

In 1992 it signed with the United Nations Development Program - UNDP - the "Project PER/92/17 Promotion of Private Investment in the Empresa Minera del Centro del Perú S.A. — CENTROMIN", that between 1992 and 1994 funded a total of US$ 993 313 in connection with the integral sale of Centromin.

Later, and as a consequence of the new strategy, additional items were incorporated into the budget for the project, and reformulated the budget as well by periodic reviews, obtaining the following result of what took place between 1995 and 1999, expressed in US dollars:

1995 1996 1997 1998 1999

COMPONENTS OF THE STAFF FOR THE PROJECT

Experts 42,000 36, 000 31,500

30, 000

Missions (320)

Domestic consultants 73,900 130,175 103,500

103,000,

SUBCONTRACTED COMPONENTS

421,643 184,115 268,497 46,631 31,781

MISCELLANEOUS 1 913, 43,003 6,385 964 491

Sub Totals 539,136 393,293 409.882 47,595 165,272

TOTAL 1,555,178

The supporting documents are in COPRI.

4.2 By CENTROMIN PERU S.A.:

The expenses by Centromin to implement the new plan of privatization, are being considered as company expenses, on the basis of the authorization of COPRI contained in the memorandum No. 307/95/DE/COPRI, and the supporting documents are available in the Company files.

In addition to the current expenses, and included in the respective operating budgets of Centromin, the Board adopted the following "Authorizations of Investment Expenditures" necessary to cover the costs of implementing the actions and adaptations needed for the fractional privatization of Centromin:

" M b

0

M M .

AGI Description Amount spent in

US$

05 -96, Contingency fund for the privatization. Includes all the production units,

5,312,432

04 97 -1 Promotion of homeownership and industrial reordering for La Oroya.

1,346,827

04-97-2 Enabling Av. Horacio Zevallos La Oroya 1,049,724

04-97-3 Transfer of Company Sponsored Educational Services

3, 582, 030

68 -97, Enlargement of the Tajo Matagente Cerro de Pasco.

2,651,771

05 -98, Special rehabilitation project for the privatization 1,596,924

62 -98, Construction of urban roads Cerro de Pasco. 494,345,

01 -99, Improvement of the external infrastructure of the Cerro de Pasco camping grounds

184,913,

05 -99, Rehabilitation for the privatization of the Cerro de Pasco business unit.

506,180

10 -99, Social Support Cerro 118,956

14 -99, Rehabilitation of IMEXCALLAO S.A for the. Privatization.

45,736,

TOTAL 16,889,838

The expenses for the privatization process were funded by Centromin, and with the permission of COPRI, a total of US$3,053,352 was deducted from the total amount of the funds collected at the conclusion of the following privatizations:

Unit/Asset US$

Paucaray Prospect

14, 279

Antamina Project

74, 109

Yauliyacu S.A.

19, 250

Mahr Tunel S.A.

20, 447

Metaloroya S.A.

Cobriza S.A.

41, 707

Paragsha S.A. 2, 883, 560

Quicay Prospect

14, 7 9 0

TOTAL 3, 053, 352


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Annex 4


5 REHABILITATION OF CENTROMIN PERU S. A. 5.1

5.1 REHABILITATION OF THE COMPANY

The rehabilitation of the Company for presentation to potential stakeholders with the lowest number of contingencies started after the enactment of the Legislative Decree No. 674 and the Supreme Resolution No. 102-92-PCM.

The actions that took place from that time on were directed to the rehabilitation of all the properties and concessions, to the restructuring and rehabilitation, as well as oriented to specific programs of optimization and redesign of the operations of all its units. Also began the plan for the rationalization of the staff, restructuring of the levels of supervision and reduction of costs and expenses.

Once the new strategy was defined, and to ensure that it could be executed, in addition to providing continuity to the actions of the emergency plan, a set of measures were designed, among which one can highlight those oriented to:

- Designing the business units leading towards an autonomous operation with the possibility of generating their own profits by defining the limits of their corporate activities.

- Improving efficiencies by changing processes and facilities, with relatively low investments.

- Decentralizing services, simplifying the organization and streamlining the labor force.

- Adapting all social commitments with the surrounding towns to the context of privatization.

- Defining the environmental problem and initiating the rehabilitation of the environmental pollution problems that result from mining and the metallurgical activity.

- Use of third party services.

MINING UNITS:

Keeping in mind the autonomous operation of the mining units, and their capabilities for generating their own profits, the activities of exploration, mining and concentration of each of the mining units, were analyzed in detail, defining guidelines and specific objectives aimed at:

a The maintenance and improvement of the operational continuity of the Business Units:

Operational Improvements: such as setting the objectives and selecting the active areas for diggings, subject to the profitability criteria and increasing the reserves through an aggressive development plan.

A

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Improving the quality of concentrates and its recoveries: Implementing immediately the applicable recommendations resulting from the optimization study of the crushing and milling circuits and the classification system of concentrates and optimization of the "Blending".

Use of third party services: We implement the selection of third parties with the aim of increasing production and reducing fixed labor costs in all the mining units,

Optimization of resources: Various programs were implemented, such as:

To develop or revamp the preventive maintenance system and integrating it with the logistics system.

Increase the training programs in regard to new operational techniques, and security (with emphasis on third-party personnel).

Selective relocation of equipment and personnel to areas of higher productivity

- Replacement of obsolete equipment.

Optimization of the investment, with unfinished programs according to their profitability, the recovery period and the timetable for privatization.

b The fitness of the Business Units for the process of privatization

Administrative independence: Through a redesign in order to assume the operation and administration of each of the units of production by establishing its relationship with the corporate setup.

Increase reserves, with an ambitious exploration program to increase reserves and geological potential.

Solving existing problems by identifying any corrective actions that must be applied in the environmental, social, legal, and financial aspects in coordination with the corporate areas.

Support for the privatization process: We created a Committee to Support the Privatization, with the aim of promoting and improving the image in each of the units.

This Committee, by the General Management, memorandum GEGE-303-95 of 14-06-95, submitted to the Board a set of programs to be applied in the different mining production units, starting from the condition and the problems prevalent in each one of them.

The programs designed to achieve the goals in each of the units as well as the operational results obtained, are introduced in the different White Papers for each of the operational units.


SMELTING AND REFINERIES

In the framework of the restructuring of the mining and metallurgical operations for the process of privatization of Centromin Peru S.A., and since 1990, we implemented in the La Oroya metallurgical complex a series of actions aimed at increasing the installed capacity, ensuring the profitability and operational continuity and improving the processes and the control of the environment,

We adapted proprietary technologies in the smelting process for the copper circuit, with the goal of enhancing its installed capacity and reduce production costs. Productivity and the quality of refined copper were improved.

As for the lead circuit, the objectives focused on increasing the production of gross agglomerate and lead bullion, reducing environmental pollution.

As for the zinc circuit of Zinc the objective was to maintain the recovery achieved in 1984 as a result of the introduction of changes in the integral conception of zinc metallurgy.

The use of electrical power in refineries was increased and optimized.

The actions performed are detailed in the report of the Central Operations Management "Improvements in the Copper, Lead and Zinc circuits" of the Complejo Metalúrgico de la Oroya where we summarize and detail the most important improvements in the operations since 1990.

Annex 5

5.2. ORGANIZATIONAL RESTRUCTURING

Background:

In the period from 1990 to 1993 the organizational structure of the company was gradually adapted to the results of the implementation of rationalization, decentralization and the transfer of non-competitive services to third parties, as well as the adjustment to the privatization process of the Company.

Changes in the organizational structures

The organizational structure of Centromin Peru S.A. approved in September 1993, was totally in force during 1994, the year in which the first auction of the shares of the Company took place. The result of that auction forced the change in strategy to a fractional sale, a decision that would generate some necessary changes, partial and progressive in the organization.

Hierarchical levels were eliminated; functions of the areas were rationalized by keeping only the necessary ones and handing over non-essential functions to third parties in order to streamline the operations.


The following are the modifications carried out with the organizational structures:

1. Partial Modification of the Organizational Structure

In 1997 the biggest changes to the organization of the Company took place, when transferring the Casapalca, San Cristobal/Mahr Tunel/ Andaychagua and La Oroya units to the private sector.

This transfer reduced the payroll and contractors by more than 50%, as a result of the retirement of workers who benefited from incentive packages, plus the transfer of 5,787 workers together with the production units that were privatized.

The consequent elimination or reduction of functions, as well as the obligations on environmental issues determined the elimination of the Central Operations Administration, Administration of Metallurgical Operations, Commercial Administration and Administration of Projects and Technical Services, and the creation of the Administration of Environmental Affairs.

2. New Organizational Structure

By Resolution No. 022-98 of March 26, 1998, the Board approved a new organizational structure taking into account that it was necessary for the company to adjust its administrative structure to the condition of the process of promoting private investment.

The main changes were the elimination of the Central Administration of Finance and Accounting, replaced by Corporate Finance and Commercial Administration and the elimination of the Office of Planning.

3. Restructuring of the Organization of the Company and Labor Force

Some functional and workload changes, as well as the need to eliminate intermediate levels of supervision were considered.

In May of 2000 by Resolution No. 42-2000, the Company's Board approved the restructuring of the organization and the workforce of the Administrative Headquarters in Lima.

The new structure replaced the one approved by the Board in March 1998. The changes that deserve to be highlighted are the elimination of the Administration of Mining Operations and the reduction of the structure of the Corporate Finance and Commercial Administration.

The basic outline of the structure approved was the following:

1 4

1. Senior Administrative Entities

General Meeting of Shareholders

Board of Directors

Chair of the Board

General Administration

2. Monitoring Entity

Office of Internal Audit

3. Advisory Entity

Office of Communications and Public Relations

Privatization Administration

Legal Administration

4. Entities of Corporate Administration

Administration of Environmental Issues

Administration of Finance and Accounting Administration Management

Import and Export Offices Callao.

General Superintendence of Electricity

5.3. RATIONALIZATION OF THE STAFF

Background

In 1990, Centromin had an oversize payroll that was reflected in all the operational units, as a product of the legal norms in force at that time; a situation that was gradually being modified by the enactment and modernization of the labor provisions.

The labor force was made up of 19,720 workers of whom 17,168 were permanent employees and 405 contractors. In addition there were 1,443 civil construction workers and 704 provided by third parties.

As a result of the optimization studies of the operations, as well as improved systems and work methods, in the operational areas, and administrative services were developed different programs of rationalization and voluntary retirement of personnel, and they were carried out in complete labor harmony and without conflict.

The programs developed were the following:

1. Termination Program for the staff of the Medical Division

With the approval of the transfer of the hospital infrastructure of Centromin to IPSS, by D. S. E. No. 29-92 PCM, which did not include the staff, there was a process of termination that involved 184 employees.


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2. Excess Personnel Termination Program of (Dec 92-Jun 93)

In implementing the Directive No. 4-92 CONADE, the Board, by Resolution No. 65-92, approved a staff reduction program and processing it in accordance with the established legal procedure. Of the 1,051 workers initially considered as surplus in the files before the Autoridad Administrativa de Trabajo as a result of the restructuring of the company, 511 were relocated to other areas, 258 resigned voluntarily and 282 were dismissed.

3. Rationalization Program ( Jul .Oct. 93)

By Resolution of the Board N° 40-93 and authorized by D. S. N° 72-93 PCM , which approved the rationalization process of the staff, according to the new legal regulations provided for in the Decree Law 26120. The 143 workers considered as surplus in the program for organizational restructuring, was at the end 129, and 12 were relocated, 108 accepted the retirement package and 9 were approved for termination by the Labor Authority.

A program was created for the promotion of alternative development in 1993 called Social Support Program, geared for former workers and workers and their families, which managed to create 27 enterprises with legal status and 709 as natural persons.

4. Voluntary retirement program with incentives (May 95)

After the first auction for the total amount of shares of Centromin in 1994, we undertook various measures to adjust the company in accordance to the new strategy of privatization, which considered those related to the staff. On November 24, 1994, the Board approved by Resolution No. 61-94 a retirement package for 1,641 surplus or unproductive workers, a program that was ratified by the CEPRI in a meeting on the 19th of the same month, with letter CND-491-GG-GPEC-95 of CONADE and D. S. N° 32-95 of 14-5-95.

In its first phase, when the program was set up in the month of May, 1,040 workers participated and later in December, there were 21 more participants, making a total of 1,061.

5. Supplementary rationalization program (Mar-Apr 96)

The Board, by Resolution 7-96 of January of 1996, adopted a supplementary retirement program with incentives for a total of 600 workers, which was approved by the CEPRI-CENTROMIN by Resolution 3-96 of the 17th of the same month, and on February 13 CONADE approved the amount of incentives by letter CND 313-GG-GPEC 96.

At the end, 709 workers participated in the program during the period between March and April 15 1996.


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6. Rationalization Program - retraining of the labor force (May 96-Jan 97)

With the aim of helping to reduce costs and increase the productivity, the CEPRI, by Resolution No. 22-96 of 16 April 1996 and the Directory, by Resolution 31-96, adopted in April 25, 1996, a program of rationalization and retraining that included 496 workers.

The program was directed mainly to workers of the Yauricocha, Morococha and Lima production units, based on the Employment Promotion Act as it relates to incentives or assistance to encourage the establishment of new enterprises by workers.

We developed a policy of outsourcing, promoting the establishment of enterprises by ex-workers, signing temporary contracts with 21 companies of ex-workers to provide their services in the Lima facilities, and 23 companies with the workers of Yauricocha, La Oroya, Morococha and Cobriza.

A total of 510 workers participated in the program.

7. Voluntary retirement package with incentives (1997)

Considering the changes to the structure of the Company as modified by the progress of the privatization process, the Board, at its meeting on December 23, 1996 adopted Resolution 110-96 authorizing a program of progressive withdrawal of the staff comprising 500 workers.

On April 9, 1997, the CEPRI adopted Resolution No. 26-97 instructing the Board to increase to 570 employees the program of the continuing withdrawal of staff, whereby both programs included a total of 1,070 workers.

8. Expansion of the continuing rationalization (1998-1999)

In November of 1997, the Administration of the company proposed the expansion of the program for continuing retirement of the staff, considering the need for further restructuring of the production units for their privatization, and change the mode of hiring staff.

The CEPRI, by Resolution 70-97 of November 18 instructed the Board to expand the progressive rationalization program up to the conclusion of the privatization, to include 1,555 workers, and in turn, the Board, in a meeting on the 27th of the same month, by Resolution 101-97, authorized the Administration to expand the Continuing Rationalization Program, with a total of 648 workers participating up to December 31, 1999.

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9. Program of alternate employment and retraining of the labor force

In order to alleviate the social cost of the rationalization programs established in 1995 and 1996, in addition to payment of incentives, we performed the following actions to support the retired workers:

a) Counseling to create alternate employment through the CELIDE (Asociación Civil "Centro Líder de Investigación y Desarrollo Empresarial) to develop the program to create self-employment and a program oriented toward facilitating the reception of the social security retirement or disability benefits by the workers.

b) Counseling on job retraining through ESAN, with the "Project of retraining for workers displaced by the privatization process" that took place from November 1995, within the Agreement between the Inter-American Development Bank and COPRI.

c) Direct hiring of companies created by ex-workers up to a number not greater than 30% of the reduced staff. COPRI granted the authorization by memorandum 1129-95-COPRI of 06-06-95.

The Retraining Project developed by ESAN in response to the COPRI-IDB agreement continued to support the retired workers by extending its effective date until December 1998. At the conclusion of the Retraining Project, which provided technical and business management training, in addition to individualized advice, it had reached 2,282 workers, of whom 1,487 used the services, 756 attended training courses, 359 received advice and 372 received both services.

10. Transferring together with the companies

The delivery of the Andaychagua, San Cristobal, Mahr Tunel, Casapalca and La Oroya production units to its new owners as a result of the privatization process included the transfer of a payroll of 4,857 workers (68% of those employed to the end of 1996). In addition 98 construction worker, 11 hired by location services and 625 workers of cooperative and service companies, for a total of 5,782.

In April 1998, due to the privatization process, 71 workers in the payroll, 3 of location services and 834 provided by contractors were transferred to the subsidiary company Cobriza S.A, which then were assumed by the Doe Run company after being awarded the unit; and in September 1999, 1,760 workers in the payroll, in addition to 286 civil construction workers, 2 hired by location services and 628 provided by third party contracts, making a total of 2,676 workers that were transferred to Paragsha S.A., as a result of the privatization of the Cerro de Pasco production unit.

Annex 5-A

5.4. REHABILITATION OF THE COMPANY

5.4.1. Legal rehabilitation of the company assets

Entitled by the Supreme Decree 04-94-PCM, of 21.01.94 which establishes the legal rehabilitation of the real property, mining concessions, and licenses for the use of water and railway facilities of Centromin.

In accordance with the proceedings of the above mentioned Supreme Decree, files were processed to achieve the legal consolidation of the properties and mining concessions of the Company.

The following processes took place:

Regularization of the registration of immovable assets of the company in the Oficina de Registros Públicos Lima and Callao, and Oficinas Registrales Regionales.

Obtaining the approval of ministerial resolutions for the titles of the mining concessions of the mining units, projects, prospects, and its recording in the registries.

Regularization of licenses for the use of water intended for domestic and industrial consumption of its operating units, and the licenses for its use with the purpose of the generation of electric power with the Instituto Nacional de Recursos Naturales - INRENA.

Processing the recognition of the railways and other facilities of the railway network of the company by the Ministerio de Transporte

Processing with the Ministerio de Agricultura the amendment to the Ministerial Resolutions that approve and order the registration of the Plano Catastral de Comunidades Campesinas, within which Centromin owns areas duly registered in the Registro Público.

Normalizing the authorization for the operation of the concentrator plants and of the tailings deposit awarded by the Dirección General de Minería of the Ministerio de Energía y Minas.

They normalized the authorization of discharges before the Dirección General de Sanidad Ambiental (General Directorate of Environmental Sanitation) del Ministerio de Salud (Health Ministry).

Regarding the rehabilitation of the mineral rights of Centromin in the Morococha production unit, and considering that it is co-owner in varying percentages in the Concessions in Limited Partnerships., Condominiums and Incorporated Business, negotiated:

The purchase of shares by Centromin.

The sale of shares by Centromin.

Reciprocal transfer of concessions with companies in which they had mutually ceded or with third parties.


Page 54 of 79


The rehabilitation of the easements of electrical ducts necessary for the activities of generation and transmission of electrical power was carried out under the Supreme Decree N° 03-95-PCM entitled by the Supreme Decree No. 073-95-PCM, which incorporates Centromin in its scope.

COPRI, by Memorandum No. 1415/96 approved the rehabilitation program of legal easements required for Access Roads, Hydraulic Works (aqueducts, reservoirs, regulation structures, hydrants and other) and Telecommunications, to incorporate them within the scope of the D. S. 073-95-PCM.

The information related to the properties can be found in the Annex N° 5B.

The real estate and concessions assets corresponding to each of the units transferred are included in the individual White Papers.

Railways

The Ministerial Resolution No. 196-95-MYC/15.03 granted to Centromin Peru S.A., in process of regularization, recognizes the railway tracks of its property La Oroya-Cerro de Pasco and Pachacayo-Chaucha, as well as stations, easements and other facilities.

The initial approach after approving the new strategy of Promotion of Private Investment in Centromin was submitted to COPRI according to Resolution CEPR1 N° 50-95, which considered the retention of the property of the tracks by the State and granting the concession to the private company.

COPRI, by Memorandum No. 550/97 transcribes the resolution which approves the transfer to ENAFER. S.A. of the assets of the La Oroya-Cerro de Pasco y Pachacayo-Chaucha railroad link. The Supreme Decree No. 006-97-PCM of February 28, 1997 provides for the transfer to ENAFER S.A. of the assets that make up the railway lines operated by Centromin.

The railway yards and the workshop for La Oroya were excluded from the transfer, for the subsequent transfer to the private sector together with the smelter and refineries of La Oroya.

By letter COP-036-97, of March 24, 1997, the President of the CEPRI submitted to COPRI the Memorandum of Understanding between CEPRI-ENAFER and CEPRI-CENTROMIN, which included the mechanisms for the transfer and the limitations and scope of this transfer. That record was approved by COPRI with Memorandum No. 763/97.

The Board of Centromin, in its meeting NO. 15-97, adopted the Resolution N° 71-97 which calls for a General Meeting of Shareholders of Centromin Peru S. A. for the purpose of formalizing the transfer ordered by Supreme Decree No. 006-97-PCM.

5.4.2. Financial Rehabilitation

Because of the auction of the Centromin shares in an integrated manner, the State adopted various measures for the purpose of facilitating the transfer of Centromin. The provisions that relate to the financial rehabilitation of the Company are contained in the Emergency Decree N°-02-94 of February 8, 1992 that authorizes the Ministry of Economy and Finance to assume the medium- and long-term external debt of Centromin, and the Supreme Decree N° 33-94-EF of April 9, 1994 which authorizes the Ministry of Economy and Finance to assume the obligations incurred by Centromin with SUNAT.

Syndicated Loan US$ 40.0 million, Amendment No. 4

In 1981, Centromin signed a Revolving Credit Agreement of US$ 40 million with a bank syndicate led by the Banco de Credito del Peru as leading and managing institution, which Agreement was the subject of three amendments until 1994.

In view of the fact that the company was in the process of privatization, it requested the suspension of Clause 6.01 (i) of the Revolving Credit Agreement, which stated that if the borrower ceases to be a state entity, the immediate payment of the debt becomes due.

In response to the negotiations, the Banks agreed to the suspension of the clause 6.01 (i), and similarly agreed that after the sale, they would release the guarantee of the Republic, leaving the company as the sole responsible for the repayment of the loan.

In order to facilitate the privatization, the Banks agreed to suspend the application of the clause and transfer the responsibility for the payment to the companies created on the basis of the Operational Units of Centromin.

By Resolution No. 07-96, the CEPRI stipulates that the Syndicated Credit of which the Banco de Credito del Peru is the agent will be assigned to one of the subsidiaries of Centromin Peru S.A. By Resolution No. 11-96, the CEPRI recommends that the companies created on the basis of the Production Unit of Cerro de Pasco and the Hydroelectric Centrals provide equity backing for the credit line.

The Amendment No. 4 of the Revolving Credit Agreement contains the agreements that resulted from the discussions and negotiations with the group of


Page 56 of 79

Banks. The above-mentioned amendment contains the Agreement on the allocation of the debt to Empresa Minera Paragsha S.A for US$ 19,5 million, ELECTROANDES S.A. for US$ 19,5 million and, finally Empresa Minera San Cristóbal S.A. for US$ 1,0 million, and, as well, establishes the procedure for the transfer of such debt to the Business Units mentioned once they are privatized.

The CEPRI, by Resolution No. 1-97, instructs the Board of Centromin Peru S. A. to have the General Management sign the Amendment No. 4 of the Revolving Credit Agreement between Centromin and the Syndicate of the Banks.

With letter GEGE-682-96 of 7-10-96, the General Management of Centromin forwarded to the Ministry of Economy and Finance the addendum formalized with the group of banks.

Having transferred the Empresa Minera Mahr Tunel and Empresa Minera Paragsha, the debts assigned of US$ 1.0 million and 19.5 million respectively are the responsibility of the new owners of the

companies previously mentioned.

Annex 5-B

5.4.3. Environmental Rehabilitation

GENERAL PLAN - RECRUITMENT OF ENVIRONMENTAL CONSULTANT

To COPRI, the market research conducted by the consultant CS First Boston/Macroinvest showed that potential investors are not willing to accept the risks of accumulated past problems.

The CEPRI, through its communication COP-004-96 requested from COPRI the authorization to hire an environmental consultant, attaching the terms of reference, the bases and the Contract Draft, and COPRI approved this process with Memorandum No. 233/96 of January 26, 1996.

Both the Rules of the contest as well as the proposed list of consultants to be invited were reviewed by the World Bank, who reported its no-objection to Centromin.

The service requested from the consultant has the purpose of assessing and defining the following topics;

Determine the extent to which the activities of measurement, assessment and mitigation developed by Centromin, adapt to the environmental regulations in force in the country and to the environmental practices accepted by the international mining industry.

Define the environmental impact generated by the former and current operations of each of the mining units and the Complejo Metalúrgico de La Oroya and present the corresponding strategies for environmental remediation.

WHITE PAPER - GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S.A. Page 57 of 79


Propose the limitation of responsibilities and obligations related to the effects and control of environmental pollution between Centromin as seller and the future owners.

By circular letter COP-011-96/20.14.01 of February 7, 1996 the CEPRI issues the invitation to participate in the contest PRI-03-96 to the following consultants:

Knight Piesold & Co.

Dames & More.

Adi Environmental Management Inc.

ERM - Environmental Resources Management.

Hart Crowser Inc.

Rescan Environmental Services Ltd.

Klohn Crippen Consultants Ltd.

Jacobs Engineering.

The commission designated for that purpose evaluated the Economic Offer and calculated of the score for each bidder, which then submitted the following table in order of merit:

Bidder Total Score Order

KNIGHT PIESOLD LLC. 8.49 1st

RESCAN ENVIRONMENTAL SERVICES LTD 8.40 2nd

ADI ENVIRONMENTAL MANAGEMENT INC 7.84 3rd

ERM ENVIRONMENTAL RESOURCES MANAGEMENT 7.83 4th

The CEPRI, in a meeting held on April 2, 1996 acknowledged the outcome of the evaluation by the commission and by Resolution N° 19-96 instructs the formalization of the contract and by letter COP-037-96/20.14.01, the Chairman of the CEPRI requests COPRI to support the handling and approval of the budget to cover such costs.

On April 10, 1996, the World Bank faxes its approval for the assignment and the signing of the contract, and then proceeding to sign the Contract

The documents relating to the recruitment process of the environmental consultant can be found in Annex N° 5-C.

The reports submitted by the consultant, for each of the mining units and the La Oroya metallurgical complex, include:

The analysis and opinion with regard to the Evaluation and Environmental Control carried out by Centromin.

• Report for each of the mining operations of Centromin and its metallurgical complex, defining the cases of historical environmental pollution caused by past activities, and the current cases of flow of environmental pollution caused by present activities.

In the case of historical environmental pollution, it includes a recommendation of remediation strategies and levels of costs associated with the proposed solutions.

• Recommendation of criteria to define the environmental responsibilities and obligations between Centromin and the future owners.

Annex 5-C

PAMA (Program for Environmental Adjustment)

In March 1995 Centromin submitted to the Ministry of Mines and Energy the report on emissions and/or discharges of the mining and metallurgical industry of each of the Production Units (EVAP).

The General Directorate of Environmental Affairs of the MEM, by memorandum No. 137-95 of 28.06.95 requested that Centromin resolve the consultations arising from the analysis of the documents submitted.

By letter GEGE-387-95 of 31.07.95, from Centromin to the Director General of Environmental Affairs of the Ministry of Energy and Mines, submits the additional information and clarifications to the queries.

Based on the results of the EVAP, the structuring of the corresponding Programs of Environmental Adjustment and Management - PAMA was undertaken for each of the production units, these include the development of the engineering projects for the remediation and adjustment to the environmental regulations in force with the respective budgets. On August 29, 1996 they were submitted to the Ministerio de Energía y Minas.

Once that Centromin resolved in a satisfactory manner the comments of the Dirección General de Asuntos Ambientales of the Ministerio de Energía y Minas and dealt with and undertaken by Centromin, the corresponding Directorial Resolution approving the PAMA of each of the operational units of the Company was issued.

Such dispositions included the term for the physical implementation of the projects for controlling the environmental impact, allocating a term of five years for the mining units and ten years for the Complejo Metalúrgico de La Oroya.


The PAMA approved by the Ministerio de Energía y Minas was amended initially, in response to the request from Centromin included in the Requests No. 1151912 MEM of 16.09.97 and No. 1155365 MEM of 10.10.97, through which it requests splitting the investments of the Complejo Metalúrgico de La Oroya relating to Centromin and Metaloroya S.A, as well as including the investment justification for the developed projects in all the Production Units of Centromin after the EVAP.

The execution of the transfer of the production units established the environmental responsibilities between Centromin and the purchasers, and sets the following responsibilities:

1. SHARED RESPONSIBILITY BETWEEN CENTROMIN AND THE INVESTOR IN:

CASAPALCA Original PAMA 5, 742, 481 R:D: No. 006-97-IDGM

Reprogrammed 5, 768, 481

Division: R. D. 182-98-EM/DGMCENTROMIN 2, 150, 372

YURACMAYO 3, 618, 109

CERRO DE PASCO

LA OROYA

Original PAMA 129,125, 000 R:D: R. D. 017-97-

Reprogrammed 131,742, 000 R. D. 325-97-EM/DGM

Division R. D. 334-97-EM/DGM

CENTROMIN 24,167, 000

METALOROYA. 107,575, 000

2. SOLE RESPONSIBILITY OF THE PURCHASER IN:

ANDAYCHAGUA

Original PAMA 15, 339, 910 R:D: R. D. 006-97-



CENTROMIN 20,207,757 PARAGSHA S.A. 2,806, 094

Original PAMA 15, 339, 910 R:D: R. D. 006-97-



CENTROMIN 20,207,757 PARAGSHA S.A. 2,806, 094

2.

Original PAMA

Reprogrammed

Purchaser:

1,366,100 R:D: R. D. 084-97-EM/DGM 2,052,100 R:D: N° 314-97-EM/DGM

VOLCAN COMPAÑIA MINERA

• SAN CRISTOBAL

Original PAMA 4,804,500 R:D: No. 096-97-EM/DGM

Reprogrammed 5,008,500 R:D: No. 315-97-EM/DGM Purchaser: VOLCAN COMPAÑÍA MINERA

COBRIZA

PAMA original 4,898,040 R:D: No. 239-98-EM/DGM Reprogrammed 5,037,000

Purchaser: DOR RUN MINING S.R.L.

3. RESPONSIBILITY IN THE HANDS OF CENTROMIN FOR THE IMPLEMENTATION OF THE PAMA IN THE FOLLOWING UNITS:

MOROCOCHA

The environmental remediation projects are treated specifically in the relevant volumes of the White Paper for every Mining Unit and the La Oroya Metallurgical Unit.

ENVIRONMENTAL STRATEGY

The environmental strategy for the promotion of private investment in Centromin was adopted by the CEPRI by its Resolution N° 70-96 and submitted it to the COPRI COP-082-96 with a letter on September 2, 1996.

COPRI by Memorandum No. 2110/96, transcribed the Resolution undertaken at its meeting held on September 3, 1996, in which it approves the rehabilitation program of the environmental liability of the operational units of Centromin and authorizes the Special Committee of the Empresa Minera del Centro del Perú S.A to include in the next contract of purchase and sale of the shares of companies incorporated on the basis of the Operational Units, the clause that includes the sanitation environmental liability in accordance with the "Environmental Strategy".

WHITE PAPER - GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU

Page 61 of 79

Original PAMA 7, 916, 842 R:D: No. 452-97-EM- /DGMModified PAMA 13,812, 105, Appeal NO. 1236547 (30.12.99)

YAURICOCHA

Original PAMA 1, 801, 760 R:D: No. 331-97-EM/DGM

Modified PAMA 3, 521, 160 Appeal NO. 1265475 (30.12.99)

In essence, the strategy adopted determines that:

1. It is the responsibility of the new owner to implement programs for the management and environmental adaptation (PAMA) to comply with the environmental standards for emissions that originate from their activities, as well as the future technical abandonment.

2. It is the responsibility of Centromin, as the seller, to remediate the environmental problems accumulated in the past, as well as the claims of third parties in relation to environmental liabilities.

The treatment of the responsibilities in environmental affairs both by Centromin and the new owner is incorporated in the contracts of transfer

according to the projects contained in its PAMA.

Annex 5-D

5.5. SOCIAL ISSUES

The improper application of legal devices has caused a dependency and obligations to the workers, their families and the social environment.

The Company designed a strategy to resolve these problems and make the different production units more attractive to investors.

Various measures have been undertaken to overcome the interaction of the mining and metallurgical activity with the urban activity due to its closeness, manifesting itself in:

a. Transfer of hospitals and medical centers

The Special Supreme Decree N° 29-92 PCM, of April 1, 1992, approved the transfer of the Centromin hospital infrastructure to the IPSS as payment of contributions in arrears. This involved the transfer of 7 hospitals and 5 medical centers and the Centro Médico Externo of La Oroya. The only exception was the hospital of Chulec of La Oroya, which remained a property of the company and was subsequently transferred to the company that acquired the La Oroya metallurgical complex.

b. Transfer of educational services

By virtue of the agreement signed by Centromin with the Ministry of Education and its ratification by the Ministerial Resolution No. 62-97-ED, on February 18, 1997, the Centromin educational services were transferred to the State as of 1997.

Until 1996 CENTROMIN was responsible for a total of 30 educational centers with a student population of 12,000 students and 680 workers between teachers and administrative posts, representing an annual cost of 9 million new soles.


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c. Transfer of the water supply systems

• In La Oroya

Since its inception Centromin provided water for domestic use to La Oroya, which came from four sources that deliver a total of 3,764 GPM.

On June 30, 1994, Centromin signed an agreement that transfers the water supply systems as well as the domestic distribution networks of La Oroya to the Empresa de Agua Potable y Alcantarillado de La Oroya-EMSAPA La Oroya.

In addition, on 01-03-95, it transferred the water supply line that serves the Asentamiento Humano Juan Pablo II.

The CEPRI, by Resolution No. 43-97, of June 1997 instructs the Board to formalize the transfer of the services of domestic water, and the Board, by Resolution No. 54-97, authorizes the Administration to proceed with the transfer of the domestic water systems to the Municipality of Yauli, La Oroya.

• In Cerro de Pasco

Centromin has provided drinking water to the town of Cerro de Pasco.

The efforts of Centromin to transfer the secondary distribution systems to the municipality take on greater efficiency by the enactment of the organic law on Municipalities which sets forth the obligation of local governments to provide basic services to the population.

As a result of the negotiations with the Provincial Mayors and the Manager of EMAPA PASCO with the participation of representatives of the Ministry of the Presidency, an Agreement was drafted for the Transfer of the Domain of the Secondary Systems for the Supply of Drinking Water for domestic use of the Empresa Minera del Centro del Perú S.A. in favor of the Empresa Municipal de Agua Potable y Alcantarillado de Cerro de Pasco-EMAPA PASCO. For the purpose of signing the convention mentioned, the CEPRI by Resolution No. 13-96 instructs the Board to formalize it and the Board, by Resolution N° 17-96 authorizes the Administration to formalize the Agreement.

• In Morococha

In 1989, Centromin signed a gratuitous bailment contract for an indefinite time with the District Council of Morococha to use the primary network of water supply to the Laguna San Antonio that would be used only for home use for the benefit of the population of Morococha,


To comply with the provisions of the Ley General de Servicio de Saneamiento, that stipulates that it is the responsibility of the Provincial Municipality to administer and operate this system, it was proceeded to make this provision effective. However, this entity, by memorandum No, 170-MDM-94 of 9-8-94 makes known its decision to continue supplying drinking water to the servers of Centromin by virtue of the gratuitous bailment contract mentioned above, and this is because of the refusal of the workers of the company to pay for the supply.

In spite of this decision on the part of the Municipality of Morococha, Centromin Peru S.A. continued with the pertinent steps to realize the transfer, so with letter GST-0382-94 submits the Project of the Transfer Agreement to the Municipality, to which this entity responds with its Memorandum No. 047-95-AL-MDM attaching its counterproposal and asking for a hearing to discuss the matter. No agreement has been reached for the transfer; therefore the Municipality of Morococha maintains the facilities that were given according to the gratuitous bailment contract signed in 1989.

d. Urban housing Problems of La Oroya

The urban problems in La Oroya are visible in the disorder of streets and buildings, which, that over the years, has created a city of tenements, congested and in open interference with the operation and development of the industrial metallurgical complex.

In view of this situation, on November 21 1996, Centromin and the Instituto Nacional de Desarrollo Urban signed the agreement of execution of the project "Comprehensive urban study of La Oroya and technical advice for its deployment", approved by Resolution INADUR NO. 029-96-MTC-9700.

The overall objective of the project is to develop a study that locate progressively the population of the city of La Oroya in the habitable zones of The Oroya-Morococha axis, beyond 1 kilometer of the mining metallurgical facilities, as stipulated by the General Mining Law, mainly for reasons of safety and health.

Based on studies by INADUR, the company undertook a series of actions in several areas, including those outside its jurisdiction, eliminating the conditions that would limit the transfer of the La Oroya metallurgical complex to the private sector.

The actions to be implemented can be grouped into:

Progressive vacating and demolition of inappropriate homes.

Since the inception of the operations homes have been built near the industrial facilities to facilitate their access to the worker.

The company designed a plan to vacate inadequate and precarious housing, proceeding to demolish 1,130, starting with 460 houses in the Club Peruano sector, located at the entrance to the foundry.

Sale of housing to the workers

The company designed a plan for the sale of the family homes to its workers starting with a pilot scheme in Marcavalle which grouped 162 dwellings. Subsequently the other adequate housing was put on sale.

Enabling lots of land with basic services-Curipata Project

The Curipata urban project went ahead with the approval of the Board according to the Resolution No. 007-88 of December 29, 1988.

The project comprises the execution of an urbanization to proceed with the First Program of the Own Home directed to the workers of the Company, earmarking in addition lots for basic services and commercial lots.

The Municipal Ordinance No. 010-94 and the No. 005-96 PPYO adopted this urbanization located to the south west of the city of La Oroya, between kilometers 162 and 164 of the Central Highway.

It considered the enablement of 1,566 single-family lots that required an investment amounting to US$ 3,240,000. The work was scheduled in three stages, with its initial objective the development of the Program of the Own Home.

In 1996,and having approved the programs Promotion of the Own Home and the Rearrangement of the Industrial Zone of La Oroya, then activates the program by transferring lots to the workers interested in building their own home and move to an area of better housing conditions on the Morococha Oroya-Pachachaca road axis within a urban zoning.

Dated 24/07/97, Centromin delivered the Curipata Urbanization to the Provincial Municipality of Yauli-La La Oroya, which includes the communal lots of land, lots for recreational use with their basic services of a water and sewerage system, as well as the management of the urbanization. The areas for urban equipment works were transferred to the public agencies for health, education, recreation, religion and others.

As to the aspect of urban management and improvement of the road traffic, the activities were directed basically to the demolition of inappropriate houses and partially allocating the space to improve the road traffic of the Horacio Zevallos Avenue and to establish parks that embellish the city.


Page 65 of 79


Page 66 of 79

The resources for the implementation of the programs were considered within the budget of Centromin according to the authorizations of:

The CEPRI of Centromin, according to Resolution No. at 60-96 of August 6, 1996, in order to ensure the future of the La Oroya metallurgical complex, instructs the Board to proceed with the urban rearrangement of La Oroya and the habilitation of the homes of Centromin Peru S.A. , assigning to the Administration US$ 500, 000.

The Board of Centromin, by Resolution No. 66-96 of August 8, 1996, authorizes the Administration, and assigns US$ 500 000 for the urban rearrangement of La Oroya.

By Resolution N° 89-96, the CEPRI instructs the Board to authorize the expansion of the allocated budget for the promotion of homeownership and rearrangement of the industrial zone of La Oroya by an additional US$ 500,000, so that it can start the execution of the second stage of the program and give greater impetus to the urban development of Curipata.

Annex N° 5-E

e. Urban problems in Cerro de Pasco

The urban problems in Cerro de Pasco resulting from the lack of planning for the development of the city are shown by the disorder in the growth of the city, in part as a consequence of the establishment of human settlements in areas reserved for Centromin for the development of mining and that disrupted the progress of its mining operations.

With the purpose of updating the urban plan, Centromin and the Instituto Nacional de Desarrollo Urbano-INADUR signed, on February 21, 1995, an agreement for the execution of the "Project for updating the Urban Plan of the city of Cerro de Pasco"

In summary, the report submitted in October 1995 by INADUR, contemplates enabling of the area of urban expansion to the south of the city, area Villa Pasco-with the idea of strengthening this area as an urban center for the progressive relocation of the population in the long term. The rearrangement should include the construction of two avoidance roads that facilitates direct transit toward Cerro de Pasco and Huancayo.

The funding for the studio was included in the budget to support the privatization of Centromin Peru S.A. PER/ 92/017. Budget Line 21.22.


The study mentioned above was an essential preliminary step for the later completion of the Feasibility Study of the Integral System of Potable Water and Sewerage. The specialized company, AMSA Consultores, which is responsible for developing the project mentioned, was selected through a competition by invitation from a short list of companies previously approved by the COPRI and the World Bank.

The contract was signed with AMSA in October 1997 to develop the "Feasibility Study of the Expansion Plan for Minimum Cost Expansion of the Drinking Water and Sewerage Systems of the city of Cerro de Pasco", the following being the objectives of the study:

Develop the feasibility studies of the long term Expansion Plan for Minimum Cost, which is economically and socially acceptable for the development of the Drinking Water and Sewerage services.

Establishing on the basis of the Expansion Plan for Minimum Cost, the Plan for Implementation in Stages, the first of which must be developed at the level of final design.

In the areas that are the property of Centromin occupied by human settlements, after doing the relevant coordination to define the actions and entities with jurisdiction for the solution to the problem, it was decided to transfer the property to the Comisión de Formalización de la Propiedad Informal-COFOPRI, which made the technical decision about what properties should be legalized.

The Study of Urban and Social Impacts Generated by the Expansion of Mining in Cerro de Pasco performed by the Centro de Investigaciones Sociológicas, Económicas, Políticas y Antropológicas, of the Pontificia Universidad Católica, served as a basis for defining the strategy that could solve the social problems.

As a result of expanding operations, it was necessary to transfer of urban areas, with a resulting obligation to replace roads and common services. These were carried out under careful planning to contribute to the fluidity in road traffic.

Regarding the urban rearrangement, Centromin collaborated for the improvement of various educational centers, restoration of the Church of Chaupimarca, made donations to the University and carried out studies for landfilling of urban waste.

The development of the subjects is discussed in the White Paper of Paragsha and includes the relevant documentation.

f. The delivery of premises for subsidiaries of the SENATI

By Resolution CEPRI N° 38-97, the business sponsored educational centers Tupac Amaru y Victoria Bonifatti were transferred for the operation of a technical training center

A basic module for industrial education was built in Cerro de Pasco, in the area of Villa Pasco for the Pasco subsidiary of the SENATI.

g. Transfer of the former Casaracra fund to Universities

The Emergency Decree N° 11-96, on February 28, 1996 authorized the direct transfer of the former Casaracra fund to the Universidad Nacional Daniel Alcides Carrion of Cerro de Pasco and Universidad Nacional del Centro de Huancayo.

h. Transfer of movable and immovable property to institutions and State agencies, municipalities and charities

During the privatization process a series of movable and immovable property no longer required for the operational activities or that had become surplus or obsolete were transferred through donations to various institutions and state agencies, as well as to municipalities, communities and charities. These donations were made in accordance with the procedure laid down, with the corresponding authoritative supreme

resolutions.

Annex 5-G


Page 68 of 79


6. TECHNICAL STUDY - VALUATION OF THE COMPANY.

With the available economic data from each of the operational units in which Centromin was divided, the CS First Boston-Macro Invest S.A partnership developed its own analysis for submission to the CEPRI on occasion of the privatization of companies incorporated on the basis of their production and services units, which are presented in each White Paper for the Privatization of Companies incorporated on the basis of its operating units,

The CEPRI, with the recommendations of the consultant bank, presented its proposals for the corresponding approval of COPRI.

7. AUDIT

The balance sheets of the Empresa Minera del Centro del Perú S.A were reviewed by the auditors selected by the Contraloría General de la República, and its results are reflected in the Annual Report of Centromin.

The White Papers for each privatization show the reports of the companies that were hired for the verification of balance sheets in the transfer contracts.


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8. LEGAL CONSULTING

In the first attempt at privatization of Centromin, they availed themselves with the advice of the Estudio Grau and signed a contract for Legal Consulting on 28.06.93.

It was also felt at this stage there was a need of a legal consulting service that allows adjusting the process of promotion of private investment with foreign law; for this purpose, they selected the Law Offices of Baker & McKenzie Attorneys at Law in New York, and accordingly, a contract was signed.

As a result of the re-evaluation of the strategy for the promotion of investments in Centromin, the term of the contract was extended until 31.07.95. This topic is extensively treated in the White Paper First Stage Integral Privatization.

For the new strategy of fractional privatization, the CEPRI saw the need for permanent legal support for which it sought from COPRI to include in the line 17.03 of the budget of the project PER/92/017 Promotion of Private Investment Centromin Peru S.A., the recruitment of a Legal Consulting Service. The contract was signed in May 1995 and has remained in force in the line of Consultores Nacionales P. Velarde /L. Barchi.

The Legal Management of Centromin has provided support for the solution of the legal problems that involved the company, either as a plaintiff or as defendant; advises the different areas of the Company and is involved in management by representing our organization to the various institutions.

With the adoption of the new strategy of privatization, it was essential that the Legal Management streamline legal processes of legal rehabilitation of the assets and rights of the company, as well as participate in the reordering of the organization to structure it as a set of independent Business Units as a step prior to the conversion of

companies with management autonomy and responsibility for results.

Annex N° 8


9. PROMOTION AND ADVERTISING

Throughout the process, both the Consultant Bank and the CEPRI carried out a series of promotional activities that started with the identification of companies potentially interested in the fractional transfer of Centromin,

In the occasions that the market survey demanded it, members of the CEPRI jointly with the Consultant undertook Road Show trips to contact executives of the most important mining and metals companies having an interest in Centromin.

They also participated in a series of Forums and Conferences where they promoted the various operations and properties of the Company.

The Road Shows that took place during privatization are the following:

DATE PARTICIPANTS DESTINATION EVENT/COMPANIES

06-04-96 Juan Carlos Barcellos M. Mexico, USA, Market Survey/Promotion of Propertiesto José León Barandiaran H. Canada, UK, to promote private investment.

22-04-96 Antonio Tamawiecki Sweden, Switzerland 09-10-96 Luis Moran G. Canada Road Show promoting the Company

to Luis Hirota T. USA Metalúrgica La Oroya S.A. 16-10-96 Antonio Cornejo F. Mexico 25-11-96 Luis Moran G. Japan, Korea Road Show promoting the Company

to José León Barandiaran Sweden, Belgium Metalúrgica La Oroya S.A. 13-12-96 Antonio Cornejo F. Spain 01-11-97 Juan Carlos Barcellos M. Spain, Sweden, Road Show promoting the Company

to José León Barandiaran UK, Belgium, Metalúrgica La Oroya S.A. 22-01-97 Italy

08-03-97 Juan Carlos Barcellos M. Canada PDAC 1997 Annual International Convention&to Luis Moran G. USA Show

15-03-97 José León Barandiaran Mexico The Doe Run Resources Corporation Industrias Peñoles S.A. de C. V. 08_06_97 Juan Carlos Barcellos M. Mexico Industrias Peñoles S.A. de C. V.

to Luis Moran G. 12-06-97 Luis Hirota T.

Jose Leon Barandiaran H. 04-10-97 Juan Carlos Barcellos M. UK London Metal Exchange

to Angel Alvarez A. Ireland International Lead and Zinc Study Group19-10-97 08-03-98 Luis Moran G. Canada The Prospectors & Developers Association of

to 12-03-98 08-03-98 Juan Carlos Barcellos M. USA 1998 SME Annual Meeting & Exhibit

to 12-03-98 16-03-98 Juan Carlos Barcellos M. Mexico - USA - First stage of the Road Show

to José León Barandiaran Canada24-03-98

25-03-98 Juan Carlos Barcellos M. Switzerland - UK - Second stage of the Road Show to Jose Leon-Barandiaran H. Australia-USA

04-04-98 16-03-98- Jorge Merino Tafur United States London Metal Exchange

to Luis Moran G. UK25-10-98 08-12-98 Jorge Merino Tafur USA ' Mining & Metals Conference

to Luis Moran G.

12-12-98

WHITE PAPER – GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S.A.

73 of 79

28-02-99 to

07-03-99

Jorge Merino Tafur Luis F. Moran G.

USA Canada

Zinc Markets in the New Millennium Paragsha Promotion

03-28-99 Hugo Aragon F. USA Investing in the Americas 1999 to

31-03-99 27-09-99 Jorge Merino Tafur USA Evaluate the interest of IMC in Bayovar

to Luis Moran G. 30-09-99

06-10-99 Jorge Merino Tafur Paris/London/ International Group of Studies of Lead and Zincto José León Barandiaran New Delhi London Metal Exchange

16-10-99 Oswal Group in India

Visits of Stakeholders: On the other hand, during the period covered in this document, we registered the presence of officials from major mining and metals companies both in the Data Room seeking technical and financial information, as well as in production units. This participation is shown in Annex 9.

Annex N° 9


10. SALE OF SHARES TO THE WORKERS

Centromin, in accordance with the provisions of the Legislative Decree 674, gave its workers the option to exercise the right of first refusal to purchase up to 10% of the shares in any of the companies formed for its fractional privatization.

This option for each process was widely advertised, both in national media and directly in all the information media in the production units, in order to ensure that all the workers that were included in the payroll with three months of seniority as of December 2 1996, the date of the auction of the first Production Unit were aware of the fact.

Throughout the process no workers expresses any interest in exercising their preferential right jointly, opting instead to act individually. The participation of the workers is dealt with in the White Paper of each process.


11. AUCTION

The progress achieved in the privatization process up to 1999 and which is recorded in the respective White books is the following:

Mining prospects. The fractional privatization began with a public tender, in which a group of gold prospects were offered. On April 14, 1996, the Paucaray prospect is awarded to Inversiones Mineras del Sur - IMINSUR

On July 19, 1996 a transfer option of Quicay Prospect was awarded to Barrick Gold Corporation, and substituted, at their request to Minera Corribarrick, who did not exercise the option to transfer.

On January 14, 2000, through a competition by invitation, the transfer of ownership of the concessions was awarded to the Chancadora Centauro S.A.C.

Antamina project. The process of promoting private investment in this project was developed through an International Public Tender under the mode of the transfer of ownership of the concessions.

On 12 July 1996 the auction took place, and it was awarded to the Consorcio Inmet / Rio Algom Ltd, for a proposal to pay US$ 20 million to sign the contract and a commitment to invest US$ 2,520 million.

Empresa Minera YAULIYACU S.A.

Constituted on the basis of the Casapalca production unit, under the mode of transfer through the sale of 100% of the shares and the transfer of ownership of the nearby concessions Perro Ciego and La Carcajada.

On 26 February 1997 it was awarded to Cia. Minera Yuracmayo S. A., replacing Cia Minera Casapalca, at their request. The conditions of the operation were payment of US$ 9,084,937.50 for 99.81 % of the shares of Yauliyacu and ownership of the Perro Ciego and La Carcajada concessions, and the commitment of invest US$ 110,2 million in a period of five years.

The remaining 0.19 % of the shares was acquired by employees exercising their right of preference.

Empresa Metalúrgica de La Oroya, METALOROYA S.A.

The privatization mode used in this case was by capitalization, and consisted of the increase in social capital of the company, through a new cash contribution by the investor winner of the auction, that would allow him to obtain, as a minimum, the 51% of the shares.

On 10.7.97 it was awarded to the: Consorcio The Renco Group Inc / The Doe Ruin Resources, who assigned a value of US$ 121 million for 100% of the shareholding of METALOROYA S. A., and subsequently the consortium makes an equity contribution of US$ 126 million, equivalent to 51% of the equity, in addition to paying to the State US$ 121 million to purchase 49% of the shares outstanding. The investment commitment was US$ 120,0 million,


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Empresa Minera MAHR TUNEL S.A. constituted from the operational units of San Cristobal and Andaychagua with their respective concentrators. The winner in The International Public Tender convened for the transfer of 100% of the shares in Mahr Tunel S.A, was Volcán Compañía Minera S.A., offering US$ 127,78 million for 100% of the shares and a commitment to invest at least US$ 60 million in the next five years.

Empresa Minera COBRIZA S. A. In the International Public Tender for the privatization of the production unit Cobriza there was one bidder, The Doe Run Resources Corp, with an economic proposal of US$ 7,500,001 for 100% of the shares of Cobriza S. A. The mode was the transfer of the shares by paying 40% on the spot and the remaining 60% in three equal installments with annual due dates from the signing of the contract of transfer.

Empresa Minera PARAGSHA S. A. The mode used for privatization, was the transfer of 100% of the shares, minus the shares that Doe Run Peru might decide to acquire, in the event of exercising its preference option for the 30% of the shares, just as the 10% option for the workers.

On 24 May 1999, Volcán Compañía Minera S.A. submitted a bid and won the award, with an economic proposal of US$ 61,8 million for 100% of the shares of Paragsha S. A. and a commitment to invest not less than US$ 70.0 million to invest within a period of five years.

Doe Run Peru did not exercise its preferential right over 30% of the shares, so they were purchased by Volcán Compañía Minera S.A., with a deferred payment for a year plus the corresponding interest.

The outstanding privatizations are the properties in El Callao, the Toromocho project, ELECTROANDES S. A. and the Yauricocha concessions.


12. TRANSFER OF FUNDS

Everything associated with the funds collected by Centromin through its privatization process is treated the White Paper of each company incorporated on the basis of their production units, and in the white paper of their Projects and Prospects.


13. MINUTES OF THE SPECIAL COMMITTEE

The Promotion of Private Investment in companies that make up the State's commercial activities was developed, managed and implemented by the Comisión de Promoción de la Inversión Privada (COPRI), and by the Comités Especiales de Privatización (CEPRI)) of each company.

The CEPRI - CENTROMIN PERU S. A. has issued and adopted agreements during the privatization process of the different projects/prospects and companies created on the basis of the legal devices, which can be found in the White Papers: General; Antamina project and Companies

The agreements that are mentioned in the Minutes of the Special Committee (CEPRI), are attached as Annex No. 13, from 1995 until 1999

Annex N° 13

14. PRESS CLIPPINGS

The different comments and journalistic information published in the communication media such as El Comercio, Gestión, El Sol, Expreso, etc. are appended as

photocopies in Annex N° 14 of the present White Paper - General, from 1995 to 1999.

Annex N° 14

WHITE BOOK - GENERAL FRACTIONAL PRIVATIZATION OF CENTROMIN PERU S.A.

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