REPORT ON DOE RUN PERU’S PROPOSED LA OROYA...

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REPORT ON DOE RUN PERU’S PROPOSED LA OROYA BANKABLE FEASIBILITY STUDY FOR PAMA PROJECTS AND A MODERNIZATION PROGRAM Prepared by: AMEC International (Chile) S.A. 11 July, 2006 BNP PARIBAS PROJECT Nº 2102 LA OROYA BANKABLE FEASIBILITY STUDY PROJECT

Transcript of REPORT ON DOE RUN PERU’S PROPOSED LA OROYA...

REPORT ON DOE RUN PERU’S PROPOSED LA OROYA

BANKABLE FEASIBILITY STUDY FOR PAMA PROJECTS AND A MODERNIZATION PROGRAM

Prepared by:

AMEC International (Chile) S.A.

11 July, 2006

BNP PARIBAS

PROJECT Nº 2102

LA OROYA BANKABLE FEASIBILITY STUDY

PROJECT

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TABLE OF CONTENTS

1.0 INTRODUCTION.......................................................................................................................3

2.0 SUMMARY................................................................................................................................5

3.0 TECHNICAL REVIEW ............................................................................................................14

4.0 ENVIRONMENTAL.................................................................................................................25

4.1 INTRODUCTION.....................................................................................................................25

5.0 ZINC FERRITE RESERVE .....................................................................................................49

6.0 EXECUTION PLAN ................................................................................................................57

7.0 CAPITAL COST ESTIMATE ..................................................................................................64

8.0 PREPARATION OF THE BFS ...............................................................................................68

APPENDICES Appendix I – Typical Basis of Estimate Appendix II – BFS Table of Contents

This report was prepared exclusively for BNP Paribas Bank by AMEC International (Chile) S.A., a wholly owned subsidiary of AMEC Americas Limited. The quality of information, conclusions and estimates contained herein is consistent with the level of effort involved in AMEC services and based on: i) information available at the time of preparation, ii) data supplied by outside sources, and iii) the assumptions, conditions and qualifications set forth in this report. This report is intended to be used by BNP Paribas only, subject to the terms and conditions of its contract with AMEC. Any other use of, or reliance on, this report by any third party is at that party’s sole risk.

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1.0 INTRODUCTION

Doe Run Peru (DRP) has carried out conceptual studies for various environmental improvement and modernization projects at its La Oroya smelting and refining complex 180 km north east of Lima. The environmental improvement projects are part of DRP’s PAMA commitments. The modernization projects will provide increased copper zinc, lead, indium, precious metals and sulphuric acid production while also lowering operating costs. DRP is now embarking on a bankable feasibility study (BFS) to confirm the details of the above projects and provide a capital cost estimate with a precision of +/- 15% at the 85% confidence level. BNP Paribas (BNPP) is negotiating a loan with DRP to provide funds to carry out these projects. AMEC has been retained as an independent engineer by BNPP to provide the following services:

Phase I • Review DRP information

• Visit La Oroya to review the existing plant and discuss the projects with DRP staff

• Prepare a report which summarizes the findings of the information review and site visit and establishes the parameters for the preparation of the BFS.

Phase II • Carry out a technical review of the BFS including:

• Review of all process areas including flowsheets, equipment lists, general arrangement drawings, production schedules and operating costs.

• Review of the adequacy of all supporting infrastructure

• Carry out an environmental review including:

• Ability of the projects to meet PAMA commitments for fugitive emissions

• Effect of the projects on the occupational health of the workforce and the health of the local population.

• Commentary on DRP’s social programs and interaction with the community at local, regional and national levels

• Review of compliance with World Bank and Equator Principles.

• Review DRP’s calculations of tonnage and grades of the zinc ferrite stockpile

• Review the execution plan for the implementation of the projects

• Review the plan for the commissioning and ongoing operation of the new projects

• Review the capital cost estimate.

Phase III • Review the implementation phase of the projects including commentary on the

monthly reports and a visit to La Oroya every 3 months during the construction phase to review progress

• Review of DRP’s annual budget and production plans.

This report covers the work carried out in Phase I.

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On 26 May, 2006, AMEC set up an ftp site which provided access to BNPP, DRP and the AMEC team. DRP loaded information onto the site for review by AMEC.

The AMEC team visited La Oroya from 19-22 June, 2006. Team members were:

Tony Maycock - Project Manager

Carlos Torres - Construction Manager

Scott Ansell - Geologist

Angel Chiang - Copper smelting, refining and acid plant process specialist

Sean Thornton - Lead, zinc, indium and precious metals process specialist

Gonzalo Ríos - Environmental team leader

Stella Hartinger - Biologist and occupational health specialist

Boris Dávila - Sociologist.

The visit commenced in Lima with an executive level presentation by DRP to AMEC of the La Oroya complex and the proposed projects. This was followed at site by another presentation by DRP that focused specifically on the projects. The AMEC team members then held individual meetings with their specialist counterparts in the DRP organization. A team visit was made to all areas of the plant and the project areas. Other individual visits were made as required. The environmental team also visited the township and hospital. Prior to returning to Lima, AMEC made a verbal presentation of its initial findings to DRP’s La Oroya staff. This presentation was repeated, in Lima, to BNPP staff. A summary of the presentation was then made to DRP’s Lima based executive staff.

AMEC wishes to thank Dr. Juan Carlos Huyhua, President, Doe Run Perú, Mr. Pepe Reyes, La Oroya Operations Manager, and his staff; Mr. Michael Sankovitch, Vice President and Manager Technical, and his staff; and Mr. Doug Zunkel, Consultant, for the cordiality and cooperation shown during the site visit and for the provision of information for this report.

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2.0 SUMMARY

2.1 Overview

Doe Run Peru (DRP) is negotiating a loan with BNP Paribas (BNPP) to finance a series of projects at its La Oroya smelting and refining complex located 180 km NE of Lima, Peru. The projects are categorized as “PAMA Projects” and “Modernization Projects”. The projects comprise:

• Copper smelter modernization using Xstrata’s ISASMELT technology

• Copper smelter sulphuric acid plant (PAMA)

• Lead circuit acid plant (PAMA)

• Modernization of the tuyère controls of the exiting lead blast furnaces

• Modernization of the feed and combustion systems of the lead circuit drossing reverberatory furnace

• Installation of two pressure autoclaves to leach stockpiled zinc ferrites, plus indium circuit improvements

• Modernization of the anode residues treatment and precious metals plants

• Replacement of the copper and zinc refinery rectifiers.

The successful completion of the projects will enable DRP to comply with its PAMA (environmental) commitments in terms of reduction of fugitive emissions of lead and sulphur dioxide and also provide increased production of copper, lead, zinc, indium, precious metals and sulphuric acid while reducing operating costs. The approximate capital cost of the projects considered in this report is estimated by DRP at US$ 250 million.

DRP has carried out conceptual studies to define the technology and principle equipment to be used in the projects and to determine the costs and benefits. The next phase of the work will be the preparation of a Bankable Feasibility Study (BFS). This document is scheduled to be completed by the end of 2006 and will define the projects in process, engineering, social and financial terms. BNPP has contracted AMEC to review the overall project in three phases:

Phase I

• Review the conceptual studies and supporting information. Prepare a report commenting on the information, make recommendations and establish the parameters for preparation of the BFS.

Phase II

• Review the BFS.

Phase III

• Review the implementation phase of the project and comment on DRP’s annual plans.

This document constitutes the Phase I report.

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2.2 Technical Review

2.2.1 Copper Smelter DRP has selected Xstrata’s ISASMELT technology to replace the existing hearth roasters and oxy-fuel furnace. ISASMELT is a relatively new but proven technology. It does not require the concentrate fed to be bone dry and all the SO2 off gas can be captured to a sulphuric acid plant. The ISASMELT furnace will produce a 60% copper matte compared to the 30% matte from the oxy-fuel furnace. This matte will pass to a rotary holding furnace for slag cleaning and then to the converters for conversion to blister copper. The converter configuration requires further study, however, the converters will be fitted with new hoods to capture off gas and pass it to the sulphuric acid plant.

The blister copper will be taken to two new pyro-refining furnaces. In this section impurities and oxygen content will be reduced to enable casting of good quality anodes compared to the existing “blister” anodes. The new anodes will be thinner and will allow more anodes to be loaded into the electrolytic cells in the refinery. As a result of the above changes copper production will be increased from around 63,000 tpy to 72,000 tpy and it is expected that the refined copper will meet LME Grade A quality standard.

A large amount of process and engineering work will be required during the BFS, including:

• Production of detailed mass and energy balances

• Study of the deportment of impurities

• Study of the converter configuration

• Study of SO2 gas volumes and concentrations and coordination with the acid plant supplier

• Study of anode scrap, reverts and slag recycling.

DRP has contracted Coprim of Santiago, Chile to provide the converter hood design and smelter engineering services. Coprim has extensive copper smelter design experience. They provided the water cooled converter hoods and participated in the basic design of Southern Copper’s Ilo ISASMELT project.

2.2.2 Copper Smelter Sulphuric Acid Plant DRP will select either Monsanto or Kvaerner Chemetics to supply the process design, engineering and cost information for the BFS. Both are experienced and reputable contractors.

2.2.3 Lead Circuit Sulphuric Acid Plant DRP has selected Fleck to provide the process design, engineering and cost information for the BFS. Fleck is also an experienced, reputable contractor and is already working at La Oroya, carrying out an upgrade to the existing zinc circuit sulphuric acid plant.

2.2.4 Lead Blast Furnace Tuyère Control Upgrade DRP has already successfully upgraded the tuyère control system on the #1 blast furnace and will carry out the same upgrade for the #2 furnace.

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2.2.5 Lead Reverberatory Furnace Combustion and Feed System Modernization This project is almost identical to a project carried out by Doe Run at its Buick facility in the USA. The technology and experience are available within Doe Run to carry out this work.

2.2.6 Zinc Circuit Modernization DRP is planning a two phase modernization program. Phase I comprises the installation of two pressure leach autoclaves to treat the stockpiled zinc ferrites for the recovery of zinc and indium. Phase II comprises the installation of two more autoclaves to leach zinc concentrates and replace the existing fluid bed roaster. This will eliminate SO2 emissions from the zinc circuit. Only Phase I is considered in this report when zinc production will be increased from 43,000 tpd to 57,000 tpd.

DRP has contracted Dynatec to carry out process engineering and provide information for the capital and operating cost estimates for the BFS. Dynatec will carry out metallurgical testwork to provide process information for the design. This testwork has not yet started and will be critical to the successful design of the circuit. Dynatec is an experienced and reputable contractor.

2.2.7 Indium Circuit Expansion of the indium recovery circuit will be based on similar technology used at a zinc refinery in Japan. DRP will shortly commence laboratory and pilot scale testwork at La Oroya to confirm the basic process design criteria. This testwork is critical to the successful development of the circuit. Indium production will be increased from 7.4 tpy to 41.2 tpy.

2.2.8 Anode Residues Plant This plant treats anode residues from the copper and zinc refineries. The existing plant is old and the ventilation is inadequate to handle the fugitive emissions. The changes that will be introduced include:

• Replacing the existing furnaces with two new top blown rotary converters and two new bottom blown oxygen converters

• Increasing the capacity of the bismuth kettles

• Installation of a new bismuth casting wheel

• Improving the ventilation.

Standard technology for the industry will be used and DRP will complete the work with its own resources.

2.2.9 Precious Metals Plant The silver refinery is very old and labour intensive. The existing thumb cells will be replaced by Prior high efficiency electro-refining cells. This will allow the production of 99.99% silver without the need for the existing reverberatory furnace. The Prior cells are proven technology and DRP will carry out this work with its own resources.

2.2.10 Replacement of the Refinery Rectifiers The copper and lead refinery rectifiers will be replaced by larger units to enable increased production. DRP will complete this work with its own resources.

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2.2.11 Infrastructure It is recommended that DRP develop comprehensive process design criteria and flow sheets for all the projects. From these documents mass, water, energy, oxygen, compressed air and steam balances must be derived to identify any upgrades required to the existing systems, and to engineer and estimate the costs for these upgrades.

The transportation of 350,000 tpy of sulphuric acid also needs to be addressed. DRP is considering the construction of a new US$10 million storage and load out system. This is not included in the scope of the Modernization and PAMA Projects.

2.3 Environmental and Social The purpose of the Phase I review is to determine the level of compliance of DRP’s La Oroya complex with the Equator Principles, IFC safeguard policies, performance standards and World Bank Guidelines. The Equator Principles state that adopting banks “will only provide loans to projects” that meet the nine principles. These principles are intended to serve as a common baseline and framework for the implementation of internal environmental and social procedures and standards for project financing activities across all industry sectors globally. The evaluation was centred on the new Environmental Management and Adaptation Program (PAMA) and the operational upgrades considered in the Modernization Project for which DRP is requesting financing. DRP is making significant progress in its operations, improving efficiency, reducing emissions, and dramatically increasing industrial safety, while also undertaking sustainable development initiatives in the community.

The project was classified as Category B because the Modernization Project will reduce emissions within the time frame set in the PAMA, in compliance with Peruvian and World Bank standards. Also the DRP complex has been in operation since the early 1920’s. Instead of generating further environmental and social adverse effects the Modernization Projects and PAMA Projects will reduce them. Also, DRP is only partly responsible for the environmental liabilities generated in more than 80 years of operations.

DRP has not developed an environmental assessment (EA), however, it has prepared several documents and undertaken social and disclosure activities for the PAMA extension permitting process that could be considered an EA. Therefore, with respect to compliance with Principle 2, DRP in general meets this requirement, but further activities should be undertaken in the areas of public health and social assessment. For the other Principles (3 to 6), La Oroya deviates from them in several aspects. Most of them should be addressed by the Modernization and PAMA Projects, for example the liquid effluents that are currently discharged do not comply with Peruvian or World Bank standards, but when the industrial water treatment plant is completed and operating, the discharge should comply with standards. One issue that is not covered in the PAMA and Modernization Project is the supply of potable water that meets the World Health Organization guidelines. The tap water in the offices and the employee villages is not potable, and DRP should make an effort to correct this.

The other major issue is public health, and the effect that 80 years of lead emissions have had on the surrounding community. This is the most socially sensitive and one of the most difficult PAMA commitments to comply with. The PAMA states that by October 2009 children under 5 years of age should have on average a Blood Lead Level (BLL) of 15 µg/dL, and 100% of children under 6 years of age should have BLL below 10 µg/dL. The major commitment in terms of controlling lead emissions that DRP has made is the reduction of chimney and fugitive emissions. When this has

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been achieved the major source of contamination will be the dust and soil in the surrounding community, due to the accumulated concentrations over many years.

The Center for Disease Control and Prevention in the USA stated in their report that “studies conducted around the world have demonstrated that efforts focused solely on hygiene and behaviour change will not yield significant results until reduction of emission levels and remediation of historical contamination are prioritized ”.

Since the clean up of the soils is the responsibility of Centromin (the government company that owned La Oroya before DRP), the extent of contamination in the area and the magnitude of the impact on surface and groundwater quality, air quality, vegetation, agricultural and ecologic systems, and human health have not been fully assessed. The geographic distribution of lead and other contaminants of concern does not appear to be well understood. No efforts have been made to remediate historical contamination and more information is necessary to develop an effective plan for this remediation. It is recommended that DRP takes a proactive approach on the remediation of the soils in order to encourage Centromin to commit to a specific plan to conduct the remediation. This could be achieved through lobbying and investment in studies to determine the extent of contamination and to identify hot spots, together with investigating methods of remediation and clean up of the soils. If this is not done it will be very difficult for DRP to achieve the PAMA commitments concerning the BLL in children.

DRP has implemented several social management programs and through these has gained the support of the local community. There are some aspects that still need to be addressed. For example, DRP has not initiated a consultation process for the Modernization Project. This should be done once the decision has been taken to go ahead with the project. Also there is a need for a social base line for employees. This is required and is key for the Modernization Project. Another issue is that a campaign is recommended to improve DRP’s image at the regional and national level. This will assist DRP in its future dealings with regional and national agencies.

2.4 Zinc Ferrite Reserves The zinc ferrite stockpiles are surface material consisting of high grade values of zinc, silver, indium, lead and iron minerals originating from the zinc circuit at the DRP La Oroya metallurgical complex. The stockpiles were established at the start of the operation of the zinc refinery more than 50 years ago. Material has been dumped since that time and has been re-processed intermittently.

A total of five stockpiles were created over the years varying in size. The five stockpiles are:

P-1 P-2 P-3 P-4a, and P-4b.

Each of the stockpiles was visited by AMEC during the site visit. DRP provided data and reports to assist AMEC in the evaluation of the stockpiles.

Several estimates have been completed for reserves for the stockpiles (see the table below) including Centromin (1984), Fluor Daniel (1997), DRP (2000 and 2003), GeoMaster (2003) and BSI (2005). Most estimates do not state metal values.

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Table 2.1 Reported Stockpile Reserves

Since 1984, various consultants have reported the stockpile reserves. There was no, or limited, supporting data available for estimates and no description of the parameters used to estimate the tonnes and grade.

Following the drilling program in 2003, the stockpiles were estimated by GeoMaster (2003) who reported a reserve estimate for three stockpiles (P-3, P-4a and P-4b) of 1.294 Mt with no grade estimates for metals. The estimate was prepared using a cross-sectional volume from AutoCAD. The treatment of assay values was by calculating the mean metal value of each drill hole. An average bulk density value of 1.379 for P-3 and 1.574 for P-4a and P-4b was applied to the volumes to derive the tonnage.

In 2005, an independent consultant, BSI provided a reserve estimate of 1.051 Mt with an average grade of 0.083% In, 23.65% Zn, 5.17% Pb, 33.01% Fe, 369 g/t Ag and 0.35 g/t Au. Only drill data from 2005 was used for the estimate, the 2003 drill data was excluded. The estimate provided by BSI applied an irregular block size to each drill hole in all five stockpiles. The volume for each block was prepared from AutoCAD. Metal grades were determined for each block by statistical analysis of assays, as was done in 2003 (application of mean grade from each drill hole).

The BSI estimate is considerably less (>25%) in tonnes than the estimate presented by GeoMaster in 2003. The difference could be due to material being removed for reprocessing, however, no documentation providing the amount of tonnes removed from the stockpiles was available.

AMEC’s scope of work was to review the information available concerning the zinc ferrite stockpile areas and comment on the program of work and reported reserves for the material. This report is a review of the work previously completed and provides conclusions and recommendations based on that work and the proposed work program. Detailed descriptions of the recommended procedures (e.g. methodologies for SG determinations, volume calculations, grade estimation) are provided in this report.

Previous work includes Shellby drilling in 2003 (34 holes), 2005 (22 holes) and 2006 (10 holes) over portions of the stockpile areas. The 2006 data has not been included as part of this reserve estimate review.

Confidence in the in-situ bulk density and volume calculations should be improved in order to ensure reserves can be estimated within +/-15 relative percent at 90% confidence.

Year Group Tonnes (t) Comments

1984 Centromin 862,778 limited supporting data

1997 Fluor Daniel 1,270,534 no support data

2000 DRP 1,344,242 no support data

2003 DRP 1,341,133 limited supporting data

2003 GeoMaster 1,294,279 excludes P-1 and P-2, supporting data/report

2005 BSI 1,051,443 supporting data/report

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AMEC recommends the following:

• Compile all data in one dedicated database including tables, collar surveys and assays for drill holes and trenches, and surfaces.

• Create original ground surface and survey stockpile surfaces.

• Complete in-situ bulk density measurements (water displacement method using pits).

• Produce statistics for each stockpile; including, mean, standard deviation, coefficient of variation, max, min, histograms and probability plots.

• Prepare composites and check against stockpile boundaries and grade assignments.

• Interpret a three-dimensional (3D) solid using original topography and current topography or by sections to calculate volumes.

• Use geological modelling software for estimation, documenting the model parameters and procedures used during estimation.

• Produce a report to document procedures and to back up the model.

2.5 Execution Plan

2.5.1 Strategy The execution plan for the engineering, procurement and construction of the new facilities will be a key part of the BFS. It will state what work will be done, who will do it, how it will be done and when it will be done. The plan will also be used to calculate the project indirect costs.

DRP wants to maximise the use of its own resources to carry out the projects, in particular the Projects Department which comprises a group of 32 professionals. This group has successfully carried out several small to medium size projects over the last four years. AMEC considers that the Projects Department is well qualified to carry out the smaller PAMA and Modernization Projects, i.e. US$20 million or less. For the larger projects, DRP intends to work with the following contractors:

• Copper smelter – Xstrata and Coprim

• Copper circuit acid plant – Monsanto or Kvaerner Chemetics

• Lead circuit acid plant – Fleck

• Zinc circuit – Dynatec.

These are all experienced and reputable contractors. DRP will provide overall management, however, the coordination effort required must not be underestimated and an extensive review will be required to ensure that no scope items are missed.

2.5.2 Engineering

• Copper Smelter and Acid Plant

Xstrata typically does not provide detailed engineering within its technology package. This must be carefully reviewed by DRP. The engineering scope items not covered by Xstrata must be carried out by Coprim or another contractor. Also, coordination will be required with the acid plant contractor.

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• Lead Circuit Acid Plant

As noted for the copper circuit, Fleck’s scope of work must be reviewed and any missing items covered by another contractor.

• Zinc Circuit

Dynatec will provide a basic engineering package only. They will not provide any detailed engineering. Autoclave plants are very complex and it is recommended that an experienced contractor be retained for this work. There are only a limited number of North American companies with the necessary experience. The Dynatec work for the BFS will need to be supplemented using one of these companies

2.5.3 Procurement DRP does not have a project procurement department and intends to contract this service. AMEC recommends that DRP requests “Statement of Qualifications“ documents as soon as possible from potential bidders.

2.5.4 Cost Control DRP uses PeopleSoft software for reporting costs. This appears to be an accounting program rather than a cost control program. AMEC recommends that DRP review cost control procedures and programs to ensure that they are suitable for large projects.

2.5.5 Scheduling DRP uses MSProject for scheduling but does not have a planning and scheduling group. Additional resources will be required to support the PAMA and Modernization Projects.

2.5.6 Construction Management DRP intends to manage the smaller projects with its own resources but will contract a construction management company to assist with the larger projects. AMEC recommends that DRP requests “Statement of Qualifications“ documents as soon as possible from potential bidders.

AMEC visited the sites for the construction and anticipates that there should be no unusual problems during construction except for the lead circuit acid plant area where some existing conveyors may have to be relocated to provide access for construction equipment.

La Oroya has excellent existing facilities to support construction, including offices and laydown areas and well equipped workshops. AMEC recommends that the construction management plan contains detailed plans for project safety, health and environmental protection and for quality assurance and control.

2.5.7 Start-up and Commissioning A detailed start-up and commissioning plan will be required for each area. DRP has already considered operator training in other similar plants.

2.6 Capital Cost Estimate The BFS capital cost estimate will be prepared to a precision of +/-15% at the 85% confidence level. AMEC provided DRP with a typical basis of estimate document that indicates the methodology and level of planning and engineering detail required to achieve this precision. This

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document should be sent to all third party contractors participating in the project to ensure consistency.

DRP does not have an estimating department. It is recommended that DRP review existing resources and consider contracting additional staff or a third party contractor to assist.

2.7 Preparation of the BFS

2.7.1 Table of Contents (TOC) DRP has prepared a very comprehensive TOC. It includes a section on Risk Management. This process will identify any unacceptably high risks for which DRP must prepare mitigation plans.

2.7.2 BFS Schedule DRP’s goal is to complete the BFS by the end of 2006. Several process issues must be resolved rapidly to achieve this goal, including analysis of the deportment of impurities in the copper and lead circuits, analysis of the converter operations, Dynatec pressure leach testwork and development of the indium recovery flowsheet. A detailed schedule should be prepared to show that the goal is achievable.

2.7.3 Resources The resources required for each activity should be identified. In particular, Coprim should be requested to confirm that it can provide all engineering not provided by Xstrata for the copper smelter. Dynatec’s work will need to be supplemented by a company experienced in autoclave circuit design. Planning, scheduling and estimating resources should be reviewed and additional expertise contracted if required.

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3.0 TECHNICAL REVIEW

3.1 Introduction The general level of information available during the review at site was variable in the amount of detail. The information from the third party technology vendors (Xstrata Technologies, Dynatec Corporation) was generally high quality and consistent with what would be expected at a pre-feasibility level. However, the information beyond the battery limits of these major equipment/process packages was conceptual only.

A complete Scope of Facilities is recommended for each of the major projects to clearly indicate the exact scope of the PAMA and modernization projects.

Comprehensive Process Design Criteria are required for each of the major components of the PAMA and modernization projects. These process design criteria need to clearly state the principal objectives of each project and must include the key process design criteria and associated characteristics for each unit operation (retention times, pressures, temperatures, composition, solids/liquid separation characteristics, reagent addition requirements, utility requirements, etc).

Comprehensive Process Flowsheets need to be developed for each of the unit operations. The process flowsheets need to show all equipment, utilities and the key process flow characteristics. These flowsheets need to clearly demonstrate the battery limits with respect to the third party technology vendors.

In addition to the Scope of Facilities, Process Design Criteria and Process Flowsheets, it is expected that the BFS will include, as a minimum, the following deliverables:

• Discipline design criteria

• General arrangements and sections

• P&IDs

• Electrical single lines.

A comprehensive utility balance needs to be developed for the entire site. Utilities that must be considered include but are not limited to electrical power, compressed air, instrument air, process water, steam, fuels, boiler feed water, cooling water. The overall impact on effluents must also be determined.

Finally, the installation of the ISASMELT and Dynatec processes will change the overall mass and energy balance of the whole of the La Oroya operation. A comprehensive mass and energy balance for the entire facility is recommended.

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3.2 Copper Circuit and Acid Plant

3.2.1 Introduction This section is related to the copper circuit and mainly provides observations on the Modernization Project and related subjects.

The available studies are in various stages of progress and definition and correspond to a pre-feasibility level. The design for the smelter unit was updated in January 2006. Other studies, such as the one for the converters area, were based on a combination of a Teniente reactor and 10’ x 20’ Peirce-Smith Converters. These studies need to be updated, reflecting recommendations arising from the decision to select the ISASMELT as the primary smelting unit.

As a first step, it is necessary to confirm mass and energy balances, layout of main equipment, flowsheets and corresponding equipment sizing as well as utilities requirements. Also, a comprehensive document including project definition, design criteria, description of the project(s), scope of project and battery limits, milestones of master schedule, etc. is mandatory to provide a common basis for all parties involved. The copper circuit is closely related to other process areas, so all areas should be treated as a system rather than independent components. DRP, engineering consultants and suppliers should have a common understanding of the project to enable consistent project management.

An accurate estimate of utilities requirement will allow DRP to negotiate supplies on a firm basis and avoid commitments in excess of real needs. This is particularly valid for contracts based on a guaranteed minimum consumption.

Compliance with project objectives will require additional studies to confirm design to cover key issues such as recovery of copper and valuable minor elements, environmental improvements, copper quality (LME grade A) and operating cost reduction. Other details that should be covered during the next engineering phase leading to the completion of the BFS are described in the following paragraphs.

Apart from the general presentations, meetings with DRP management and staff and the visit to the plant, project document review and discussions were mainly held with Godofredo Oporto, Manager of Modernization and Costs, Ladislao Monico, Copper Metallurgist and Assistant to the Modernization Project and Marcos Caceres, Senior Analyst (Operating Costs).

Plant Visit. A general overview of plant was carried out the 20th June, 2006. The purpose of the visit was to verify plant conditions, understand the use of existing facilities, intended layout for the new equipment and compatibility of assigned areas. Also, some discussion on construction conditions, access, laydown areas and reasonableness of project definitions were discussed.

Overall conditions of the plant were found acceptable, considering its age (except for areas that will be dismantled or modified, such as concentrate bedding currently being repaired and enclosed to minimize dust emission). Other equipment will require normal repair/maintenance and/or replacement as already considered in the project. Details to be checked under the future conditions are indicated in the following paragraphs.

Documents and subjects reviewed. The main documents reviewed were the Modernization Program Feasibility Study, Draft – 4, dated April 2006, the Xstrata Report on Pre-feasibility Study for Modernization of La Oroya using the Copper ISASMELT, Rev 1, January 2006. Other documents referred to were the 2005 study on the El Teniente Reactor and Peirce Smith Converters and a presentation to the AMEC team on 19 June 19 2006 entitled La Oroya

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Metallurgical Complex, VP of Operations. Other documents were referred to but not handed over or shown to the team.

Detailed comments on the main issues are as follows:

3.2.2 Smelter Concentrate analysis. It is necessary to confirm and document the range of concentrate analyses used as assumptions by Xstrata in the ISASMELT study and possible variations in the long term. For example, it was mentioned that Cobriza concentrate will not be available after 2009.

ISASMELT Unit. The selection of this unit involves simple feed handling and relatively easy feed of crushed converter reverts. However, some aspects of the process should be carefully studied and assessed in order to obtain optimum results. Volatilization of some components will substantially increase with the ISASMELT unit. Dust carry over and moisture content (23 to 32%) will impact the design and sizing of downstream equipment, mainly the waste heat boiler, electrostatic precipitator and gas cleaning section of the sulphuric acid plant. It is recommended to verify conditions with free oxygen at 3.6 to 3.7% in the off gases. With this oxygen content, depending on temperature and moisture, SO3 formation will be enhanced and eventually weak acid corrosion would be present at cold spot areas (below dew point). Another important subject is the impurities distribution and their proper treatment. Approximately 30% of Pb, 10% of Zn, 15% of Sb and 75% of Bi contained in the feed will be carried in the off gas stream (Xstrata report). Dust handling and treatment will have a significant impact on recovery, products and by-products quality and project economics.

It should be noted that Xstrata indicated that the available rotary furnace enlarged to 12 m long, will be the minimum size required. This dimension and the resulting retention time will have a direct relation to final slag quality.

Peirce Smith Converters (PSC). In the study report for this area, the use of three small 10’ x 20’ PSCs was indicated. However, later it was concluded that 1.2 PSCs would be required. A further analysis indicated that one 13’ x 30’ PSC should be selected as the base unit and two 10’ x 20’ PSCs kept as back up. This arrangement also has to be analyzed in more detail, covering aspects such as converting cycles and matching with the operation of the rotary holding furnace (RHF). Control of the operation may be difficult. Also in-stack time and SO2 strength to the acid plant may vary considerably, leading to poor performance of the gas cleaning and contact sections.

The design of the converters hoods was not available. The target of air infiltration as low as 100% and high availability is not easy to achieve but it can be obtained with a suitable design, as installed in other smelters. The gas handling for the secondary (hygiene) hoods was not explained. Radiative off gas cooling requires careful consideration of several factors: effect of geometry, interaction with other ducts and variable wind impact on convective contribution.

The final selected PSC arrangement will also impact on the converter off gas draft control and consequently emissions.

The available blowing air pressure of 14.5 psig, may be a limiting factor in converter performance and availability. Modifications in ductwork due to project requirements may increase pressure drop. Oxygen enrichment may also necessitate other modifications. Air compressor capacity and discharge pressure should be checked.

DRP needs to evaluate anode scrap recirculation which is estimated at 15% for the new project (compared to the current 20 to 25%) which cannot be fed to the ISASMELT unit. Recycling to the converters involves the use of oxygen enrichment but is also limited by heat availability and cycle

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time. The mass and heat balances will confirm the feasibility of remelting this material or the need for additional processing.

Increasing the design matte grade from 30% to 60% Cu or higher, may have a potential impact on converter shell structural capacity, drive systems and ladle capacity due to the higher specific gravity. The potential impact should be checked on all components.

Pyrorefining furnaces. DRP will install two furnaces for pyrorefining of blister copper. An important study will be the proper assessment of impurities distribution and treatment. The need for a silica based slag to remove lead and zinc and a basic flux to partially remove antimony was discussed. However, a re-injection of arsenic will be probably required to obtain the proper ratio of As to Sb+Bi in the electrolytic refinery. This subject was also referred to in the Xstrata report. Another impact of this requirement will be the high brick wear and the impact on furnace campaign life.

The need to control black smoke and particulate emission during the reduction stage was discussed. DRP is considering after-burning which is an expensive operating option. A study of using reformed gas (gas-steam) which is highly efficient is recommended.

3.2.3 Electrolytic Refinery The new criteria for the tankhouse seem to have been well managed. Changes to the rectifiers are identified in the plan.

As noted in other paragraphs of this report, the key issue for the copper quality is the prior impurities handling and treatment. An exhaustive study and probably testing of the forecasted new equilibrium conditions will confirm the possibility of obtaining LME Grade A copper quality. Anode characteristics, electrolyte and current density are closely linked. Currently 240 Amp/m2 is applied, limited by the electrolyte analysis and the use of blister anodes. In the future, anode thickness will be reduced and additional anodes and cathodes will be inserted in the cells. Current density could be increased mainly due to the change from the blister to anode copper but impurities could limit current density (up to 280 Amp/m2 can be used with starter sheets).

3.2.4 Sulphuric Acid Plant Mass and energy balances within the expected range of operation are mandatory to correctly select a sulphuric acid plant. Also, the composition of the off gas and contained dust should be specified. Weak acid handling and treatment should be included in the BFS scope and design. Off gas handling and treatment will be a key factor in complying with sulphur capture from the copper circuit and overall sulphur fixation.

3.2.5 Utilities Oxygen. The flow rate and discharge pressure must be confirmed and all necessary equipment included. The pressure required by the ISASMELT is higher than that available at the current cryogenic plant of 312 tpd capacity.

Power. Power requirements must be confirmed and power contracts negotiated as required.

3.2.6 Operating Plan Training on the ISASMELT has been covered extensively in the Xstrata report. However, it is recommended that a complete plan be prepared to cover all areas of the new projects. The plan should include the optimization of operating and maintenance procedures. The effect of change on an ageing work force should not be under estimated.

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Another aspect not covered in the current planning is the learning curve. In spite of all the training and preparation for the new conditions, unexpected events will occur and the operators will have to learn to adapt. There will be an impact on production, operating costs and efficiency for a period of 3 to 6 months.

3.2.7 Capital Costs These are covered in Section 7.

3.2.8 Operating Costs Labour cost. The projected reduction in operating costs due to the shutdown of roasters and other ancillaries should be confirmed through a proper human resources analysis and demobilization plan. Labour reduction by attrition requires careful planning and may involve extra cost to minimize opposition by unions and other groups.

Power cost. The overall site demand should be confirmed and new supply contracts negotiated accordingly. DRP has a relatively low power cost that should be maintained or reduced if possible.

Oxygen cost. This should be confirmed taking into account the additional requirements for the Modernization Project as a whole. As previously mentioned, the contract for additional oxygen across the fence should be carefully assessed.

Fuel cost. The potential reduction should be confirmed after updating the mass and energy balances.

3.2.9 Project Schedule As part of early activities, a realistic project schedule should be prepared to reflect current conditions and confirm updated requirements. There are several process activities that require additional time to confirm design conditions and predict results. Risks arising from taking decisions in parallel for interrelated activities should be properly assessed and potential costs included.

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3.3 Lead Circuit and Acid Plant

3.3.1 Introduction The assessment of the proposed changes to the lead operations are based on experience combined with a review of the “Modernization Program Feasibility Study - Draft – 4”, a general discussion with Godofredo Oporto, Manager of Modernization and Costs, Juan Corcuera, Superintendent of Lead Operations, and technical staff and a review of a general process flowsheet of the lead operations. A summary level plant tour was also conducted.

3.3.2 Description of Existing Facilities Lead operations at La Oroya consist of a feed blending and agglomeration system, sinter plant, blast furnaces, reverberatory furnace, drossing plant and electro-refinery.

Agglomerated feeds and flux are fed to a conventional sinter machine. The gases from the sinter plant are processed through the central Cottrell baghouse and discharged to the atmosphere. There is currently no capture of SO2 from the sinter plant.

The sinter is processed through three blast furnaces. The lead is tapped from the blast furnaces and directed to the drossing plant where it is cooled to separate impurities in the form of a copper matte. The copper matte is sent to the copper circuit and the impure lead bullion is cast into anodes and sent to the lead refinery for final processing. The slag from the blast furnaces is permanently impounded.

Cold recycle materials are treated through an existing reverberatory furnace. The operations of the reverberatory furnace are controlled to produce a matte, speiss and lead bullion.

Note: High fugitive emissions from the existing lead drossing plant were witnessed during the plant tour. It is understood that a project to upgrade the ventilation system for this plant area is in progress and therefore this upgrade is not included within the PAMA and Modernization Program.

3.3.3 Description of Proposed Changes The proposed changes to the lead operations include:

• a new acid plant to capture the S02 from the sinter plant

• a new combustion and materials handling and feeding system for the reverberatory furnace

• upgrade the tuyere control system on #2 blast furnace

• install a separate blower system for each of #2 and #3 blast furnaces

• install new feed scale system for each of #2 and #3 blast furnaces

• install a separate blower system for each blast furnace and upgrade the scale system

• replace the rectifiers at the lead refinery.

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3.3.4 Comments on Proposed Changes DRP intends to use a third party acid plant technology vendor for the lead acid plant. The key design considerations for this acid plant will be the quality of the SO2 gas stream, specifically the particulate loading and the low SO2 concentration. The battery limits of the third party acid plant technology vendor must be clearly defined. The BFS study must consider all services, utilities, interconnections, etc. outside the scope of the battery limits. Constructability of this new acid plant must be carefully considered. Modifications to existing equipment must be considered to allow access to this site for construction. Construction, commissioning and start-up of the new lead acid plant can be achieved without major disruption to the plant operation.

The upgrades to the combustion and the materials handling and feeding systems on the reverberatory furnace are based on a similar installation at the Doe Run Company, Buick, Missouri, USA. The proposed system is expected to improve fuel efficiency, reduce fugitive emissions and also allow increased treatment of recycle materials. The upgrade of the reverberatory furnace feed system must be carefully planned and coordinated with regular plant shutdowns.

The upgrade to the blast furnaces (tuyere control, blower and scales) is based on work recently completed by La Oroya. These changes will improve the overall consistency and availability of the blast furnace operation. The blast furnace tuyere control system can be installed without impacting plant operation. La Oroya currently has three blast furnaces, however, normally only two are required for full scale production.

No technical issues are expected regarding the replacement of the existing lead refinery rectifiers.

3.4 Zinc Circuit

3.4.1 Introduction DRP is planning significant and fundamental changes to the zinc circuit to increase zinc and indium production, improve overall recovery and eliminate the production of S02 gas. Dynatec Corporation, Metallurgical Technologies Division had been retained to develop a new flowsheet to achieve these objectives.

General discussions were held with Godofredo Oporto, Manager of Modernization and Costs, the Zinc Plant Superintendent and technical support staff. A comprehensive tour of the zinc plant was also completed. The “Zinc Ferrite Development Project - Preliminary Engineering Study Update”, April 2005 developed by Dynatec was reviewed.

3.4.2 Description of Existing Facilities The current La Oroya zinc operation consists of a 35 m2 Lurgi fluid bed roaster, sulphuric acid plant, leach plant, ferrite flotation plant, Weltz kiln, indium plant, purification plant, cellhouse, melting and casting plant and zinc dust plant. The forecast production for 2006 is 43,300 t of zinc, 7.3 t of indium and 26,600 t of zinc/silver concentrate.

The roaster is a conventional fluid bed roaster and appears to be in good working condition. The SO2 gas from the roaster is processed through a conventional but old sulphuric acid plant. Some upgrades to the existing zinc acid plant are planned for the next year.

The leach plant currently includes only a single stage neutral leach and as a result, overall zinc recovery is poor relative to other zinc refineries. The ferrite residues produced in the leach plant are first treated through a flotation plant to produce a zinc/silver concentrate for sale. Approximately a third of the zinc ferrite residues from the flotation plant are processed through the

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Weltz kiln to produce an oxide feed for the indium plant. High quality indium is produced in a modern solvent extraction, electro-refining process. The remaining two thirds of the ferrite residues are sent to storage at Huanchan. It is currently estimated that there are approximately 1.4 million tonnes of stockpiled ferrite residues rich in zinc, indium and silver.

The purification plant consists of a single step, cold purification. The cold purification step operates partially batch, partially continuous and zinc dust consumption is relatively high because of the very fine zinc dust produced by the zinc dust distillation process.

The purified electrolyte is sent to a conventional zinc electrolysis plant. The cathode zinc is stripped from the aluminium sheets manually and sent to the zinc melting and casting plant where Special High Grade (SHG) slab bundles are produced.

3.4.3 Description of Proposed Changes The zinc plant will undergo major changes to be executed in two phases. The primary objectives of the zinc plant modernization are to:

• Recover the indium, silver and zinc from the ferrite stockpile,

• Improve overall zinc recovery to 95%

• Increase the production of refined zinc to 80,000 tpy

• Increase the production of Indium to 62 tpy

• Eliminate SO2 emissions from the zinc acid plant.

Phase I includes the installation of two pressure leach autoclaves for the recovery of the zinc ferrite residues. These autoclaves will operate in parallel with the existing fluid bed roaster and will increase refined zinc production from 43,300 to 57,000 tpy. Indium production will be increased from 7.4 tpy to 41 tpy. The existing Weltz kiln will be decommissioned.

Phase I requires significant changes to the leach plant, the introduction of a new indium recovery hydrometallurgical process, expansion of the existing indium SX-EW plant, and the addition of a hot purification step in the purification plant.

Phase II includes the installation of two zinc pressure leach autoclaves complete with elemental sulphur flotation and the decommissioning of the existing roaster and zinc acid plant. The elimination of the roaster requires additional significant changes in the leach plant but completely eliminates the SO2 emissions from the zinc acid plant.

3.4.4 Comments on Proposed Changes The modifications to the zinc operations and the indium recovery process will be the most technically challenging aspect of this modernization program. Although each of the unit operations may be in use elsewhere, the process flowsheet proposed by Dynatec Corporation is unique for La Oroya. As such, Dynatec has recommended a comprehensive testwork program including batch and pilot plant to confirm the process design criteria for commercial design. This testwork has not yet been completed. Also, La Oroya has indicated that it intends to complete testwork to confirm the revised indium recovery flowsheet. This testwork has not yet been initiated.

A hot purification process is typical for most zinc operations and as such, no technical issues are anticipated. However, the design for these changes is purely conceptual at this time. No process flowsheets, general arrangements, or cost estimates were available for review.

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The introduction of a hot purification process will significantly increase steam requirements at the same time that the steam production from the roaster is stopped. The overall steam balance must be reviewed in detail. Also, zinc dust consumption will increase significantly with the addition of hot purification. A detailed review of the zinc dust balance is required.

The installation of the zinc plant and indium recovery modernization can be constructed, commissioned and started without impacting existing operations. Tie-ins to the existing processes and decommissioning of obsolete processes must be carefully planned.

Finally, the zinc pressure leaching process produces elemental sulphur and La Oroya intends to impound this permanently. No provision for a sulphur blocking facility is considered in the information reviewed to date.

3.5 Anode Residue Plant and Silver Refinery

3.5.1 Introduction General discussions were held with Godofredo Oporto, Manager of Modernization and Costs, Juan Corcuera, Lead Plant Superintendent, and technical support staff regarding the changes to the anode residue plant and silver refinery. A plant tour of the anode residue plant and the silver refinery was also conducted.

The “Modernization Program Feasibility Study – Draft 4”, April 2006 and conceptual process flowsheets were also reviewed. Third party technology vendor proposals for the TBRC (top blown rotary converter) and BBOC (bottom blown oxygen converter) were briefly reviewed.

3.5.2 Description of Existing Operations Currently, anode residues from the copper and lead refineries are combined and processed through the anode residue plant. The residues are processed through a series of two reverberatory furnaces, four converters and three cupellation furnaces. Doré metal containing silver and gold is sent to the silver refinery. High quality refined bismuth is produced using a conventional chlorination process. Selenium and tellurium are also produced in the anode residue plant. The existing anode residue plant is old, also ventilation is not sufficient to handle the fugitive emissions.

The silver refinery consists of conventional thumb-cell technology. The silver crystals are treated through a reverberatory furnace to remove impurities prior to final silver casting. The silver refinery is also old and very labour intensive.

3.5.3 Description of Proposed Changes A major upgrade to both the anode residue plant and the silver refinery is proposed. In summary, the changes to the anode residue plant include:

• Replace the existing reverberatory furnaces, converters and cupellation furnaces with two new top blown rotary converters (TBRC) and two new bottom blown oxygen converters (BBOC).

• Increase the capacity of the bismuth kettles

• Install a new bismuth casting wheel

• Improve the overall ventilation system in the anode residue plant.

• Changes to the silver refinery include:

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• Replace the thumb cells with new Prior high efficiency silver electro-refining cells. The improved quality of silver crystals produced with this new technology will allow the production of 99.99% silver without the need for the silver reverberatory furnace.

3.5.4 Comments on Proposed Changes The use of TBRC and BBOC technology for an anode residue plant is well proven technology and in commercial use at other similar facilities. La Oroya intends to purchase both the TBRCs and the BBOCs from third party technology vendors. No technical issues are anticipated.

The capacity of the bismuth production will be increased by installing larger bismuth kettles and installing a new bismuth casting wheel. No change to the process flowsheet is planned.

The installation of the TBRC and BBOC converters combined with ventilation upgrades in the plant should significantly reduce fugitive emissions.

The replacement of the existing silver thumb cells with modern technology such as the Prior silver electro-refining process has been successfully demonstrated at other operations. The installation of this new technology should significantly improve productivity, reduce operating cost and improve product quality. However, no formal proposal from Prior was available for review.

3.6 Infrastructure Infrastructure items were reviewed by Tony Maycock and Carlos Torres in a meeting with Michael Sankovitch, Doug Zunkel and Angel Quispe.

Water. Fresh water is supplied to the plant from two local rivers. The only restriction in the supply is the capacity of the pumping stations. DRP stated that no additional water will be needed for the new projects, however, a detailed water balance has not yet been calculated. It was agreed that water balances would be compiled showing the current situation and the changes required for the new projects. This will include special water requirements e.g. boiler feed water. The water balances will be included in the BFS report. The costs for changes to the existing water distribution systems will be included in the relevant project areas. This also includes any required changes to the existing fire water distribution system.

Power. Power can be supplied to the La Oroya main sub-station from three different grid systems. The power supply is, therefore, considered to be reliable. DRP stated that a single line diagram exists for the whole site that shows the principal electrical equipment and power distribution. For the new projects, only minor changes will be required to the main substation. DPR agreed that a new single line diagram will be produced and included in the BFS report. The costs for new electrical equipment and changes to the electrical distribution system will be included in the individual projects.

Oxygen. La Oroya has two oxygen plants, one of 300 tpd capacity and another of 20 tpd capacity. The main consumer is the oxy-fuel furnace in the copper smelting circuit. This will be taken out of service. In the future, oxygen will be consumed in the ISASMELT furnace, the copper converters and the zinc circuit pressure leach autoclaves. DRP will produce an oxygen balance for the new circuits. If additional oxygen is required DRP intend to contract the supply from Praxair, the company that operates the existing plants. Oxygen is supplied on a price per kilogram basis.

It will be important to include Praxair in the project planning process if additional oxygen is required as the delivery time for a new oxygen plant may be considerable.

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Compressed Air. La Oroya has a central compressor station and some satellite individual compressors. There is a plant-wide compressed air distribution system. DRP will identify any additional requirements and include these in the BFS report.

Steam. There is an existing plant-wide steam distribution network supplied from waste heat boilers in the copper and zinc circuit gas handling systems. In the future, the ISASMELT furnace waste heat boiler will provide the steam. The zinc roaster will be shut down in Phase II of the zinc circuit modernization program.

DRP will analyze future steam requirements and include the analysis in the BFS report.

Product Transport. The existing transport systems (road and rail) are adequate for the transportation of metal products. The main bulk transportation requirement will be the movement of 350,000 tpy of sulphuric acid. DRP is planning the construction of on-site acid storage tanks for 30 days production plus a new load-out system capable of loading rail and road tankers. The estimated cost is US$10 million. This amount is not included in the PAMA or Modernization Project budgets.

DRP will hold discussions with the railway company to confirm transport capacity and pricing. Acid storage tanks will also be required at the port of Callao, however, it is likely that these will be provided by a third party e.g. acid exporter with no direct cost to DRP.

Process residue disposal. The existing disposal area will continue to be used. Expansions are covered as required by sustaining capital and this will continue to be the practice in the future.

3.7 Operating Costs

A review of the current and future operating costs of the La Oroya facility was conducted. This review was high level only and did not include a detailed review of the build up of operating costs.

The primary operating costs at La Oroya include labour, electricity, fuel, fluxes and oxygen and in summary the changes to these operating costs have been considered in the overall financial analysis.

Reductions in labour cost associated with the shutdown of the copper roasters and the improvement in silver refinery productivity have been considered. A detailed manpower analysis for each of the unit operations within the modernization program should be included within the feasibility study.

Increased zinc production requires an associated increase in electricity demand. The electrical demand increase and power price, including future escalation, is considered. There is no issue with the availability of power.

The installation of the ISASMELT furnace and the Dynatec pressure leach autoclaves will increase the demand for oxygen. La Oroya intends to purchase oxygen at their battery limits from a third party vendor. The price considered for the oxygen is provided by the third party vendor.

The overall reduction in fuel costs, primarily associated with the copper reverberatory furnace and the upgrade to the lead drossing plant reverberatory furnace has been considered but should be confirmed with an overall mass and energy balance.

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4.0 ENVIRONMENTAL

4.1 Introduction

The Doe Run Company acquired Metaloroya (now Doe Run Peru) in 1997 from the government-owned company, Centromin, which had operated it since 1974. DRP operates the metallurgical complex in La Oroya, located 112 miles northeast of Lima at an altitude of 3,800 masl.

The La Oroya complex has been smelting copper since 1922. Lead production began in 1928 and zinc production in 1952. The complex has recovered precious metals such as gold and silver since 1950. it now produces more than a dozen other by-products. Today, DRP is making significant progress in its operations by improving efficiency, reducing emissions, and dramatically increasing industrial safety while also undertaking sustainable development initiatives in the community. The purpose of the environmental section of this Phase I review is to determine the level of compliance of the DRP La Oroya Complex with the Equator Principles, with the respective IFC safeguard policies, performance standards and World Bank Guidelines. As of July 2005, Peru is considered a “Lower Middle Income” economy which is “Severely Indebted” by the World Bank, therefore the IFC safeguard policies are applicable.

4.2 Evaluation of Project Compliance with Equator Principles The Equator Principles state that adopting banks “will only provide loans to projects that meet the nine principles”. The La Oroya Complex compliance with the Principles is evaluated below. During the site visit the following people were interviewed: Jose Mongrovejo, Vice President Environmental Affairs, Luis Gonzalez Paredes, Environmental Affairs Engineer, Cristobal Pinche, Environmental Affairs Engineer, Jorge Miranda, Head of Environmental Planning, Juan Valladares, Head of Prevention and Emergency Response, E. Caso, Head of Safety and Christian Ulloa, Operations Supervisor, Sewage Treatment Facility.

4.2.1 Principle 1 – Categorization Principle 1 states that projects should be classified according to their impacts as described below:

“Category B: A Category B project has potential adverse environmental impacts on human populations or environmentally important areas - including wetlands, forests, grasslands, and other natural habitats - which are less adverse than those of Category A projects. These impacts are site-specific; few if any of them are irreversible; and in most cases mitigatory measures can be designed more readily than for Category A projects. The scope of the Environmental assessment (EA) for a Category B project may vary from project to project, but it is narrower than that of Category A assessment. Like Category A, a Category B EA examines the project’s potential negative and positive environmental impacts and recommends any measures needed to prevent, minimize, mitigate, or compensate for adverse impacts and improve environmental performance. The findings and results of EA for Category B projects are described in the project documentation (Project Appraisal Document and Project Information Document).”

From this definition, it is clear that the La Oroya should be classified as Category B, because of the effects on human health on the surrounding community. With the upgrades considered in the new PAMA, the emissions should be reduced and compliance with Peruvian and World Bank standards met. Also DRP should take steps to promote the clean-up of the soils impacted by lead emissions. With these steps the exposure of the population to lead contamination should be reduced considerably and health effects will be reversible.

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The original project did not develop an EA since the Peruvian law did not require it at that time, the law has only been in place since 1993, D.S.Nº 016-93-EM of April 28th, 1993 of the Peruvian Ministry of Energy and Mines. This law states that projects which were already in operation had to develop an Environmental Management and Adaptation Program (PAMA), this program had to address all non-compliance so that the operation could comply with permissible limits established by law. In 1996 CENTROMIN developed this PAMA and when DRP acquired the complex it included the environmental commitments in the PAMA with the exception of the environmental liabilities such as the clean-up of the contaminated soils. In 2004 DRP hired SNC-Lavalin, Santiago to carry out a pre-feasibility study for the management of dust and capture of sulphur. This study determined that there was a need to build not one big acid plant but 3 smaller plants. This meant that there was a need to ask for an extension of the PAMA. Within the process of approval DRP developed and presented what was practically an Environmental Impact Assessment which in general terms addresses the major topics established by the Equator Principals.

4.2.2 Principle 2 – Environmental Assessment (EA) As required by the Equator Principles, DRP has prepared an environmental, social and health impact assessment (ESHIA). This comprises three elements; an environmental impact assessment (EIA), a social impact assessment (SIA) and a health impact assessment (HIA).

Principle 2 further requires that the assessment:

“addresses to our satisfaction key environmental and social issues identified during the categorization process”.

In general DRP complies with this requirement. It falls short in some issues, mainly in the social and health assessments. For further analysis of these topics see Sections 4.5 and 4.6 which also include recommendations.

4.2.3 Principle 3 (i) – Content of Environmental Assessment Principle 3 gives a list of seventeen elements that an EIA is required to address. Addressing only the PAMA and Modernization Projects and not the original project or the current operation, the compliance assessment is given in Table 4.1. DRP developed several studies during the extension of the approval of the PAMA which can be evaluated in total as an EIA.

Table 4.1 Compliance with Equator Principles Requirements (Principle 3)

Compliance Requirement Yes No N/A Unk.

Comments

Assessment of the baseline environmental and social conditions

X Further work should be done in the social area at regional and national levels

Requirements under host country laws and regulations, applicable

X All host country laws are addressed.

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Compliance Requirement Yes No N/A Unk.

Comments

international treaties and agreements

Sustainable development and use of renewable natural resources

X This topic was not addressed in the reports.

Protection of human health, cultural properties, and biodiversity, including endangered species and sensitive ecosystems

X Human health is the major issue here and it is evaluated in further detail later in the report.

Use of dangerous substances

X The major issue is the storage and transportation of sulphuric acid, this is well defined and managed.

Major hazards X Impacts such as spills during transportation are well evaluated.

Occupational health and safety

X Safety and health issues within the plant are well defined, but a specific safety program should be drawn up and implemented for the construction process.

Fire prevention and life safety

X

Socio-economic impacts

X There have been studies done by DRP and by outside institutions.

Land acquisition and land use

X

Involuntary resettlement

X

Impacts on indigenous peoples and communities

X

Cumulative impacts of existing projects, the proposed project, and anticipated future

X The contamination by lead has been looked at as a whole, this is one of the major reasons for the PAMA and Modernization Projects.

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Compliance Requirement Yes No N/A Unk.

Comments

projects

Participation of affected parties in the design, review and implementation of the project

X The local community was informed of the reason for the PAMA extension, but not consulted at a technical level. Also the modernization measures have not been communicated to the population.

Consideration of feasible environmentally and socially preferable alternatives

X Technically the best alternative for the reduction of sulphur was chosen.

Efficient production, delivery and use of energy

X All energy is purchased from local generation companies.

Pollution prevention and waste minimization, pollution controls (liquid effluents and air emissions) and solid and chemical waste management

X Steps are being taken to reduce liquid waste, such as construction of treatment plants, reutilization of water, and minimization of discharge points. Further work should be done on the potential use of slag. Space for disposal sites is very limited because of the topography of the area, so the reduction of slag disposal should be a priority

The modernization project brings very little additional environmental impact, considering that the complex has been operating for more than 80 years. In fact it will reduce emissions and in turn minimize further environmental impacts and improve social and health issues within the population. The PAMA complies with Peruvian standards but is does not comply fully with the Equator Principles and World Bank requirements. The main reason for this is that the PAMA is not an EA and the main objective was to acquire an extension for the acid plant construction, not to do an environmental evaluation. The gaps in the evaluation can be resolved during the feasibility study stage.

4.2.4 Principle 3 (ii) – World Bank Pollution Prevention and Abatement Guidelines Principle 3 requires that:

“Reference will have been made to the minimum standards applicable under the World Bank and IFC Pollution Prevention and Abatement Guidelines… the EA will have addressed, to our satisfaction, the project’s overall compliance with (or justified deviations from) the … Guidelines”

The PAMA and its back-up reports do not list the Pollution Prevention and Abatement Handbook as one of the “typical international guidance that may be relevant”, therefore, it does not assess compliance with it, nor does it make reference to the standards it requires. The PAMA does not give projected emissions levels. It does state the norms and emission levels that DRP will comply

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with. These are referenced to Peruvian legislation. In order to comply with Equator Principle 3, DRP will have to explicitly evaluate compliance with World Bank and IFC Pollution Prevention and Abatement Guidelines.

The Handbook requires that:

“Emissions levels for the design and operation of each project must be established through the environmental assessment (EA) process on the basis of country legislation and the Pollution Prevention and Abatement Handbook, as applied to local conditions. The emissions levels selected must be justified in the EA.”

DRP does not justify its emissions levels, but simply states them, so fails to comply with this requirement.

4.2.5 Principle 3 (iii) – IFC Safeguard Policies Principle 3 requires that:

“For projects located in low and middle income countries as defined by the World Bank Development Indicators Database, the EA will have further taken into account the then applicable IFC Safeguard Policies … the EA will have addressed, to our satisfaction, the project’s overall compliance with (or justified deviations from) the … Safeguard Policies”

The World Bank categorizes Peru as a lower-middle income country, so the requirement of compliance with the Safeguard Policies applies to the modernization of the La Oroya complex. There are eight Performance Standards (PS) for Social and Environmental Sustainability;

• Performance Standard 1: Social and Environmental Assessment and Management Systems

• Performance Standard 2: Labor and Working Conditions

• Performance Standard 3: Pollution Prevention and Abatement

• Performance Standard 4: Community Health, Safety and Security

• Performance Standard 5: Land Acquisition and Involuntary Resettlement

• Performance Standard 6: Biodiversity Conservation and Sustainable Natural Resource Management

• Performance Standard 7: Indigenous Peoples

• Performance Standard 8: Cultural Heritage

PS 1 through 4 are applicable to this project.

PS1 has 8 requirements of which this project is in non-compliance with “training”, this requirement refers to “The client will train employees and contractors with direct responsibility for activities relevant to the project’s social and environmental performance so that they have the knowledge and skills necessary to perform their work, including current knowledge of the host country’s regulatory requirements and the applicable requirements of Performance Standards 1 through 8”.

Within the company’s training program there is no mention of a specific regulatory topic and since the PAMA did not consider the Equator Principles or World Bank Standards, the PSs are not included in the scope of the training program.

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PS1 “Community Engagement” requirement states; “Community engagement will be free of external manipulation, interference, or coercion, and intimidation, and conducted on the basis of timely, relevant, understandable and accessible information”.

This is not complied with since the Modernization Project has not been divulged to the community, the community presentations that took place only addressed the PAMA extension issues.

PS2 “Labor and Working Conditions” are fully complied with.

PS3 “Pollution Prevention and Abatement” has four requirements which the PAMA and Modernization Project address. The new acid plants, enclosures and baghouses should bring the operation to compliance.

PS4 “Community Health, Safety and Security” has six requirements of which the major issue is the “Hazardous Material Safety”, which states “The client will prevent or minimize the potential for community exposure to hazardous materials that may be released by the project. Where there is a potential for the community (including workers and their families) to be exposed to hazards, particularly those that may be life-threatening, the client will exercise special care to avoid or minimize their exposure by modifying, substituting or eliminating the condition or substance causing the hazards”.

The activities included in the PAMA and Modernization Project should bring the release of lead and SO2 into compliance.

4.2.6 Principle 4 – Environmental Management Plan Principle 4 requires that:

“For all Category A projects, and as considered appropriate for Category B projects, the borrower or third party expert has prepared an Environmental Management Plan (EMP) which draws on the conclusions of the EA. The EMP has addressed mitigation, action plans, monitoring, management of risk and schedules”.

The site has an Environmental Management Plan in place and additional requirements will be included in the plan. DRP also recently received certification for ISO 14001. This will improve their environmental performance and help them identify any other environmental issues that arise.

4.2.7 Principle 5 – Consultation Principle 5 requires that:

“The borrower or third party expert has consulted, in a structured and culturally appropriate way, with project affected groups, including indigenous peoples and local NGOs.”

Although ‘consultations’ have taken place during the development of the PAMA extension request because the Peruvian legislation required it, all the modernization project information was not included in the process. To fully comply with this principle DRP must perform a consultation process at least with the local community and authorities, see Section 4.6 for further details.

4.2.8 Principle 6 – Environmental Management Plan (EMP) and Decommissioning Principle 6 requires the borrower to “comply with an EMP in the construction and operation of the project, provide regular reports, prepared by in-house staff or third party experts, on compliance with the EMP and where applicable, decommission the facilities in accordance with an agreed Decommissioning Plan”.

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DRP has an EMP in place, but it does not have a comprehensive and specific plan for the construction and decommissioning of facilities for the modernization project. This plan should be developed during the feasibility study. The decommissioning plan for the old facilities should include a waste management plan with special attention paid to the identification of hazardous materials and their disposal.

4.3 Compliance with World Bank Environment, Health and Safety Guidelines Three guidelines are applicable to the PAMA and Modernization Project for the La Oroya poly-metallurgical complex. Compliance with these guidelines is evaluated below.

4.3.1 Copper Smelting and Lead and Zinc Smelting a) Liquid Effluents

According to data obtained during the site visit the effluent discharges for the complex are shown in Table 4.2

Table 4.2 Discharges and World Bank Standards

Parameter Monitoring Results

mg/l

WB Standard Lead &

Zinc Smelting

mg/l

WB Standard Copper

Smelting mg/l

Peruvian Standard Ministerial

Resolution N° 011-96-EM/VMM

(13.ene.1996) mg/l

pH 5.5-8.2 6–9 6–9 6-9

Total suspended solids

20-196 20 50 50

Arsenic 0.07-5.4 0.1 0.1 1.0

Cadmium 0.01-0.99 0.1 0.1 Not Regulated

Copper 0.07-5.91 0.5 0.5 1.0

Iron 0.40-4.11 3.5 3.5 2.0

Lead 0.26-4.79 0.1 0.1 0.4

Mercury (total)

NA 0.01 0.01 Not Regulated

Zinc 0.11-70.10 2.0 1.0 3.0

Total metals NA 5 10 Not Regulated Temperature increase

NA ≤ 3 ºC ≤ 3 ºC Not Regulated

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The results are ranges for five different discharge points for the month of May 2006. Except for pH none of the parameters comply. When the industrial water treatment plant is in operation it is expected that discharges will comply with the standards.

b) Ambient Air

DRP has identified the ambient air emissions, static source and fugitive sources, but not mobile sources such as trucks, and trains. The emissions are monitored using an in-line five station monitoring system. It is recommended that another monitoring station be added at the La Oroya Vieja in the high area. This will help better assess the impact on the town. The compliance with World Bank standards and Peruvian legislation is evaluated in Table 4.3

Table 4.3 Air Emission and World Bank Standards

Parameter Monitoring Results

Averages mg/Nm3

WB Standard

Lead & Zinc Smelting mg/Nm3

WB Standard Copper

Smelting mg/Nm3

Peruvian Standard Ministerial

Resolution N° 315-96-EM/VMM (19.jul.96)

mg/Nm3

Sulphur dioxide

803 t/d 400 1,000 175 t/d

Arsenic 16 0.1 0.5 25

Cadmium 1.0 0.05 0.05 Not Regulated

Copper 0.5 1 Not Regulated

Lead 31 0.5 0.2 25

Mercury NA 0.05 0.05 Not Regulated

Zinc NA 1.0 - Not Regulated

Particulates Smelter

90 20 20 100

The La Oroya complex does not comply with World Bank or Peruvian standards, but the planned measures should bring them into compliance. It is recommended that all the parameters be monitored from now on, so that the effect of the improvements can be better evaluated.

4.3.2 Occupational Health and Safety This guideline applies to places of work. The place of work may be a building, an installation or an outdoor area. The guidelines also apply to temporary places of work. IFC project sponsors should ensure that suppliers, service providers, contractors, and subcontractors are required to follow comparable practices.

The guideline covers general aspects of occupational health and safety only. It does not adequately cover high risk activities or sectors requiring advanced labour protection measures.

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43423834

5712

9883 10000

-1000

1000

3000

5000

7000

9000

11000

2001 2002 2003 2005 Meta:11/Nov /07

For projects involving especially hazardous situations it must be supplemented with appropriate international standards and guidelines or national standards of equal standing. Supplementary guidelines are thus needed for e.g. construction sites, sectors such as mining, oil & gas, petrochemicals, etc., and for work involving extensive handling of dangerous substances such as hazardous or toxic compounds, biological agents, radioactive materials, etc.

The La Oroya complex complies with every topic in the guide line except for “Drinking Water”. This topic states that “The employer shall ensure an ample supply of drinking water (Drinking water shall as minimum comply with physical chemical and bacteriological requirements of the World Health Organization (WHO) Guidelines for Drinking Water Quality, Geneva 1998) at all places of work. Water supplies shall be conveniently located especially for areas of elevated temperatures, high physical activity, and cold or dry environments. Drinking water supplies shall be clearly marked especially where non-drinking water is also available”.

The complex or employee villages do not have potable tap water. It is recommended that the company invest in a water treatment plant for the generation of potable water. The tap water currently does not divert substantially from World Health Organization potable water standards, therefore treatment should be mainly for suspended solids. If the company considers this recommendation, further analysis of the water quality should be made and conceptual engineering done before any decision is made. The possibility of building a plant large enough to supply water to La Oroya Vieja would be an added social benefit.

4.4 Safety DRP has an occupational health and safety loss control plan which addresses only the basics in terms of safety management. The overall safety performance has improved substantially since DRP took over the complex and there is a real effort to increase safety awareness (see Figure 4.1). The program is based on the value that “Safety is # 1”, and DRP’s safety manual states goals and specific responsibilities. The achievement of almost 10 million manhours worked in 2005 without a lost time accident is excellent performance in a smelter.

Figure 4.1 RECORD OF MAN HOURS WORKED WITHOUT LOST TIME ACCIDENTS (X 1000)

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ACCIDENTS MAN DAYS MAN HOURS RATE

YEARS RECORDABLES LOST TIME FATAL CHARGED WORKED FREC. SEV. OSHA LOST

1997 73 11 2 13 606 9 455 272 1,37 1439 1,82 0,27

1998 22 10 0 1 023 9 203 703 1,09 111 0,70 0,22

1999 23 10 0 1 398 9 068 731 1,10 154 0,73 0,22

2000 33 4 1 6 536 9 228 099 0,54 708 0,82 0,11

2001 16 6 0 774 8 295 080 0,72 93 0,53 0,14

2002 13 3 2 12 110 8 700 578 0,57 1392 0,41 0,11

2003 9 5 0 780 7 672 269 0,65 102 0,36 0,13

2004 6 1 0 39 6 975 683 0,14 6 0,20 0,03

2005 12 3 1 10 711 7 194 682 0,56 1489 0,44 0,11

2006 11 2 0 122 3 426 681 0,58 36 0,76 0,12

Their safety index for the past 10 years using 1,000,000 and 200,000 hours and severity index for the past 10 years using 200,000 hours and adding 1,000,000 days for every fatal accident are shown in Table 4.4.

Table 4.4 Safety Statistics 1997 to 2006

It is recommended that more emergency showers be installed. During the site visit only two showers were seen. Also there should be an effort to have all signs in Spanish, there were many signs in English or a mixture of the two languages. This does not help safety since all the operators speak Spanish.

4.5 Public Health

4.5.1 Introduction Contamination by lead at La Oroya is not a new problem in public environmental health. During the last few years several studies have been developed on the population of La Oroya to determine blood lead concentration levels, especially in children under 6 years of age. The effects of lead on human health are well known and vary from slight impairment in the learning process and behaviour to convulsions ending in a state of coma and even death. According to these studies children are most vulnerable to the harmful effects of lead, the main exposure route being the ingestion of earth and dust due to the hand-mouth behaviour of children. For adults the main absorption route is via the respiratory system.

Several important studies have been developed on the population of La Oroya. The Dirección General de Salud Ambiental (DIGESA) (General Environmental Health Department) carried out a study in 1999 which consisted of taking blood samples from 139 children between 3 and 10 years of age who lived in La Oroya Vieja, La Oroya Nueva, and Santa Rosa de Sacco. The same year, the Unión para el Consorcio de Desarrollo Sustentable (UNES) (Union for the Consortium of

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Sustainable Development) studied 30 children between 0 and 3 years of age. DRP (2000-2001) evaluated 252 children in age categories between newborn and 3 years of age in La Oroya Vieja, Buenos Aires/Huaymanta and Santa Rosa de Sacco. The University of Saint Louis, Missouri, performed an evaluation on children of La Oroya in 2005, however, the final results of this study have not been submitted yet. The Center of Disease Control and Prevention of the United States (CDC) integrated the results of these previous studies in 2005 attaching recommendations, and reported high blood lead levels in children under 6 years of age exceeding the CDC Standard, which is 10ug/dL.

The risk study developed by the consulting company, Integral Consulting Inc. (2005) determined that the main sources of environmental pollution are lead emissions originating from smelting operations (fugitive emissions), hence these are mainly responsible for the high lead contents in the blood of the population. A close relationship was established to the distance from the smelter facilities; the lead concentrations decrease as sample taking moves away from the smelter. In the same way it was determined that the high lead contents in the air, soil and dust are highly correlated among themselves, and that soil would become the main source of pollution if the fugitive emissions were controlled. Another potential source of pollution considered significant is the transmission of contaminant material from smelter workers to their families and relatives through their clothing and equipment (CDC, 2005).

DRP has developed several programs to heighten public awareness and change attitudes and actions in the city of La Oroya. These programs are focused on workers and also involve campaigns addressed to specific sectors of La Oroya population.

In accordance with the commitments outlined in the Application for Exceptional Extension of the PAMA approved by the government in May 2006, by the month of December 2006 the measures required for reducing emissions through smelter stacks and fugitive emissions should be completed, thus controlling the main method of exposure to lead through atmospheric emissions. This reduction will produce a decrease in the lead levels in the blood of the population, until it reaches a level where the soil (originating from historical emissions) would replace the air as the main source. Lead particles may be resuspended by wind and human activities, and according to their size they will generate different effects on health. Particles <10 µg, and especially those <2.5 µg, can cross the defences of the respiratory system and enter the lungs, becoming an important source of exposure in small children.

During the site visit which took place during the month of June 2006 an evaluation was made of the objectives that should be reached by DRP with respect to compliance with its PAMA. The sources of pollution identified in the studies referenced above were taken into account and health was approached in two components: (1) occupational health and (2) general public health.

4.5.2 Previous Data and Information a) Persons Interviewed and Sources of Information

The persons interviewed who provided information pertinent to the requirements of this study were Ms. Rosa Benel of the Community Relations Department, Dr. Jorge Calderón of the Occupational Medicine Area, engineer Emilio Caso, Head of the Safety Area, and Dr. Díaz, Director of the MINSA-DRP Agreement, on behalf of MINSA. The main sources of information used in this study include the information gathered at the site and the results and recommendations of the CDC (2005) and Integral Consulting Inc. (2005) studies.

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b) PAMA’s Objectives Related to This Report

The objectives of the Health Risks were defined by MINEN in the Application for an Exceptional Extension of the “Sulphuric Acid Plants” Project (Report No. 118-2006-MEM-AAM/AA/RC/FV/AL/HS/PR/AV/FQ/CC). This document indicates that DRP should broaden the scope of the objectives to cover the whole population of the city of La Oroya, including La Oroya Vieja, La Oroya Nueva, Santa Rosa de Sacco, Paccha, Huari, Marcavalle and Chucchis.

The following are the objectives defined in the above referenced document which will be evaluated from a feasibility standpoint:

“Upon completion of the project subject matter of the extension requested, 100% of the children under 6 years of age in La Oroya will have blood lead levels below 45 ug/dL.”

“Upon completion of the project subject matter of the extension requested, the average blood lead levels will be 15 ug/dL.”

“Three years after controlling the lead emissions and restoring the soils of La Oroya, 95% of the children under 6 years of age will have blood lead levels below 10 ug/dL.”

c) Occupational Health and Industrial Safety and Hygiene Programs

The Occupational Health Department (SSO) is responsible for the programs in this area and cooperates with the Safety, Human Resources and Operational Areas Department in the implementation of Health Prevention and Promotion and Medical Surveillance Programs for workers. According to the Occupational Safety and Health policy of DRP1, the SSO is responsible for the welfare of 3,146 workers directly employed by the company and other third parties. Since implementation of the aforementioned programs in 1998, DRP has made positive changes by implementing ongoing preventive measures within the company. DRP also identifies and controls the risk factors within the jobsite and promotes safety in each of its areas.

The following are some of the programs implemented:

1. Sanitary Surveillance: For workers exposed to lead, arsenic, cadmium, noise, lumbar stress and high temperatures, through periodic (semi-annual) medical examinations.

2. Comprehensive Medical Examinations: Pre-occupational, annual, retirement and special examinations due to medical leave or job changes.

1 Based on the Mining Safety and Hygiene Regulations (Statutory Decree No. 046-2001-EM): “health at the jobsite means the absence of any health conditions or illnesses, and include physical and/or mental elements directly related with the worker’s efficient performance.”

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3. Emergency Assistance: 24 hours a day.

4. Training: On subjects related to the prevention of occupational diseases, common illnesses, nutrition, hygiene, organization and cleanliness, first aid, and safety lectures. For the comprehensive development of the workers DRP has implemented a corporate program titled PROCAPAS (Self-Improvement Training Program.).

5. Inspections: Clothing, restrooms, and cafeterias are regularly inspected to detect any substandard conditions.

6. Internal Audits: Performed by a multi-disciplinary team consisting of representatives of the operations management, heads of the operating areas, physicians specialized in occupational health, safety engineers, corporate psychologist, and others.

7. “Change House” or Model Clothing and Industrial Laundry Pilot Plan: This program is addressed to 2,105 users and provides maintenance services for respirators and laundry services for the work clothing.

8. Personal Protection Equipment: This is a specific program addressed to each working area and working conditions. Performance of “Fist Test” respirator adjustment tests for guaranteeing workers’ respiratory protection.

As a result of the “Change House and Fist Test” pilot plan, DRP has achieved a reduction in its workers’ blood lead levels to an average of 51.1 ug/dL in 1997 and to 33.6 ug/dL in 2005.

Average blood lead levels of adult men occupationally exposed to lead is 40ug/dL. However, depending on the location of the working area within the plant, the blood lead levels vary from an average of 18.70 ug/dL in the industrial hygiene area to an average of 41.93 ug/dL in the mechanical maintenance plant of the smelter. By the end of this year it is expected to reduce the blood lead levels to an average of 25ug/dL.

Workers also undergo periodic medical examination to determine their blood arsenic and cadmium levels. The maximum permissible limits of arsenic and cadmium in urine are <350 ug/dL and 20 ug/dL, respectively. No cases exceeding the maximum permissible limits have been recorded; however, DRP aims at further reducing the concentration of these metals in its workers’ blood.

d) Public Health Programs

In collaboration with the Health Ministry (MINSA), DRP developed a series of programs and campaigns addressing the public health problems identified among the population of La Oroya. This joint work was developed thanks to an agreement subscribed by the parties in July 2003, and renewed for a period of 3 years in June 2006. This agreement contemplates the implementation of actions aimed at reducing the blood lead levels in children under 6 years of age. After the initial agreement was signed, the Ministry of Education and the Municipality of La Oroya agreed to follow the program. Under the new agreement, the scope of the program was broadened to cover the whole population and to include new environmental risks detrimental to human health, such as arsenic, cadmium, SO2 and other metals.

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The programs developed under the aforementioned agreement are:

1. Clean-up Program: This program is addressed to the clean-up of streets and dwellings, hygiene of pregnant women, and training on subjects of interest to teachers, mothers and children.

2. Clean Hands Campaign: This program was performed with health community agents and the participation of children.

3. Family and Dwellings Hygiene: This program emphasizes the importance of family and dwellings hygiene. During 2005, 1,365 houses were visited and 70 health workers were trained in the area of La Oroya Vieja.

4. Environment Surveillance: This program is addressed to the ongoing monitoring of the water resources, potable water, soils and air.

5. Blood Lead Doping: This program is addressed to the monitoring of the blood lead levels in children of La Oroya Vieja, Huari, Paccha and part of La Oroya Nueva. Monitoring includes a psychological and paediatric evaluation of the child population.

6. Casaracra Special Program: DRP implemented a personalized treatment program for 70 children living in Casaracra which is 10 km from La Oroya. Treatment includes provision of an adequate diet, an early stimulation and personal hygiene program, as well as comprehensive medical treatment.

e) Community Development Programs

DRP has provided development and training courses to the population of La Oroya through the Community Relations Office. Programs aimed at creating a hygiene and development culture among the population are:

1. Occupational Diseases Prevention Plan: Under this program meetings are held with workers’ wives to provide information on health, social welfare, self-esteem, hygiene, and dietary matters.

2. Health Workers: Since 1998, health workers have organized seminars for the children, pregnant women and mothers of La Oroya. These health workers also provide support for the MINSA programs.

3. Social and Neighbourhood Promotion Committees: This committee consists of 250 leader women in 23 local committees. The members organize activities focused on the promotion of social, cultural-educational, and recreational activities.

4. Human and Social Ecology Program: This program is focused on the nutrition and education of abandoned and under-nurtured children. Since 2000, DRP has provided care to 140 children under this program.

5. Smile in the Andes Program: This is a program developed by DRP and Rotaplast International USA under which surgical treatment is provided to children with leporine lip and palatine fissures.

Through these programs DRP has set the foundations for behavioural change and the creation of a culture of hygiene among the population of La Oroya Vieja. However, these

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campaigns will have little impact on the reduction of high blood lead levels if lead emissions and lead levels in soils are not reduced.

f) Health Risks Study

The following are some of the results and details of the comprehensive health risks study developed by Integral Consulting Inc. (2005). The main purpose of this study was to confirm that exposure to lead due to decades of operation constitutes the main health risk factor in La Oroya. The study was developed on the basis of the results of chemical analyses of samples obtained in the field which confirm the presence of metals in water, soils, dust in dwellings and outside areas, as well the presence of lead, iron, calcium and zinc in foods, and lead in the blood of the populations, especially in children, and on the air quality monitoring data from DRP stations.

According to the study, priority should be given to the reduction of fugitive emissions and the suspension or stoppage of certain operations during the morning, in order to mitigate the impact of SO2 on the population during thermal inversion periods.

The main conclusion was that, despite the reduction in lead emissions, by 2011 i.e. two years after expiration of the term granted in the PAMA, blood lead levels will still exceed the sanitary goals, mainly because the dust and soils in La Oroya will still contain high residual lead concentrations from historical emissions.

4.5.3 Conclusions

• The main sources of environmental pollution are the fugitive emissions from La Oroya metallurgical complex. The second significant source of environmental pollution for the population originates from lead in soils.

• Currently La Oroya does not have adequate potable water and sewerage systems. Only part of the population has adequate training on matters of hygiene and public cleanliness as well as information on public health and the adverse effects of lead.

• The impact of the transportation of materials associated with the smelter operations (truck, railroad, conveyor belt systems) on the health of the population has not been properly evaluated.

• The programs are limited to La Oroya Vieja. According to the new PAMA these programs should cover all areas of the city of La Oroya.

• The programs described have been positively received by the population of La Oroya Vieja. There is no information or estimations available on the future acceptance of these programs by the rest of La Oroya.

• A hygiene educational program is being implemented at La Oroya, although efforts have been focused on hand washing and the clean-up of dwellings as measures to reduce lead poisoning. Studies performed worldwide have demonstrated that efforts focused only on hygiene and changes of conduct will not produce significant results if they are not accompanied by emission level reduction programs and the remediation of historical sources of pollution.

• The children in La Oroya Vieja are evaluated when they enter school to determine any slowness in their growth, difficulties in speech and reading and cognitive development.

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• The dissemination of information on the effects of contamination on the population has been focused on the lead problem. It has not been possible to identify and establish a complete list of problems, issues and concerns associated with other contaminants that might be affecting the health of the population which are found in wastes or secondary products from the operation (arsenic, cadmium, particulate material, sulphur dioxide, and zinc).

• Currently there is no involvement of the populations of Lima and Huancayo, capital of the country and capital of the region respectively, in the situation at La Oroya with respect to the programs implemented and the progress made.

• There are no adequate channels for the dissemination of information, for environmental monitoring and biological data, or for the training and development programs being implemented by DRP.

• Once the fugitive emissions have been contained through the measures outlined in the application for extension, the main source of contamination for the population will be the historical contamination due to the lead concentrations accumulated in dust and soils.

• Taking into account the final blood lead levels stipulated in the PAMA for 2009 and the responsibilities established for DRP, it is probable that these objectives may not be met by controlling fugitive emissions.

• The emissions and effluents from DRP’s smelter are not adequately monitored by an independent government authority.

• Clean-up campaigns are being conducted in schools and recreational centres, however, the zones of highest impact (“hot spots”) or the geographical distribution of contaminants in La Oroya have not been determined yet in order to focus clean-up efforts.

4.5.4 Recommendations

• If DRP wishes to comply with its objectives of the PAMA, DRP should get involved in soil remediation, although this is not part of its current commitment with the PAMA.

• It is recommended that studies be developed within the monitoring program to determine critical zones and contaminant geographical distribution.

• DRP should continue its pilot program of remediation of lead contaminated soils by using phosphates.

• With respect to sulphur dioxide concentrations, it is recommended that the policy of reducing or suspending operations be continued when thermal inversions are forecast.

• It is recommended that the campaign of continuous clean-up of streets and sidewalks be continued to prevent and eliminate the redistribution of dust.

• It is recommended that a program to pave roads and sidewalks be continued.

• It is recommended that the clean-up campaigns in paved playgrounds, school playgrounds, squares and sport fields be reinforced, since this will help to reduce dust accumulation in areas where children may be in contact.

• It is recommended to continue and expand the epidemiologic surveillance program in La Oroya Nueva and other areas of the city, since through regular lead monitoring it will

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be possible to evaluate the effectiveness of emission reductions in the complex and of the remedial programs being implemented. Likewise, new cases of children with high blood lead levels can be identified and appropriate actions can be taken.

• If children under 6 years of age are identified with blood lead levels higher than 45 ug/dL in other locations they should be incorporated into the Casaracra program.

• It is recommended to continue encouraging providers of health services in La Oroya to focus on preventive rather than curative health measures.

• As a preventive measure, it is recommended to continue with personal hygiene and cleanliness programs, as well as with structural improvements in public sanitation facilities.

• DRP should determine whether the procedures currently used are culturally appropriate for evaluating children’s behaviour and the symptoms of lead poisoning.

• Providers of health services should be provided with tools appropriately designed for measuring chronic changes in behaviour associated with lead poisoning.

• Training seminars for the population, health workers and qualified health personnel should be provided focussing on La Oroya’s major issues.

• It is recommended that the dissemination of information be increased on La Oroya’s major issues, DRP’s commitment in regard to these issues, the campaigns being conducted and the parties involved.

4.6 Social A visit was made to the site during which information was gathered from interviews with DRP staff which was compared with other information furnished by the company.

The following officers of DRP were interviewed:

• Lic. Rosa Benel, of the Social Welfare Area

• Engineer Carlos Habich, of the Social Conscience and Maintenance Area

• Engineer Carlos Sologuren, of Logistics Management

• Engineer Edmundo Astuvilca, of Administration and Labour Relations Management

• Engineer Daniel Rojas, organizational analyst

4.6.1 World Bank Standards Social Evaluation and Management System The social evaluation and management system for an investment project constitutes a requirement of the World Bank for financing. This is one of the performance parameters used by this institution and the institutions that subscribe to the Equator Principles to evaluate the social sustainability of projects.

According to the World Bank, the social evaluation and management system of an investment project should comply with the following objectives:

• Permit the identification and evaluation of social impacts, whether negative or positive, of an investment project on its area of influence.

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• Prevent, minimize, mitigate or compensate for negative impacts on the workers and populations affected.

• Ensure that the affected populations are adequately involved in the discussion of aspects that may potentially affect them.

• Encourage a better performance of companies through an effective use of management systems.

The company proposing an investment project should develop and operate a social management system adequate for the nature and scale of the project in accordance with the levels of social impacts and risks associated with its execution.

The social evaluation and management system should include the following components:

a) Social Evaluation

b) Social Management Program

c) Organizational Capacity

d) Training

e) Civic Involvement

f) Monitoring and Supervision

g) Internal and External Reporting.

a) Social Evaluation

The company proposing an investment project should develop a social evaluation that will allow the social impacts and risks to be established. This evaluation will be based on an accurate project description and a social baseline.

At the same time, social impacts and risks should be identified and analyzed in the context of the project’s area of influence and according to the key stages of project cycle.

Likewise, as part of the evaluation the company proposing the project will identify the individuals and social groups that might be affected in a differentiated or disproportionate manner by the project, due to their handicaps or condition of vulnerability.

The social evaluation covers the process of analyzing, monitoring and handling foreseen and unforeseen social consequences, both positive and negative, of public and private projects with the purpose of encouraging a more sustainable and equitable human environment. Table 4.5 below summarizes the principles which orientate social evaluation professional practice:

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Table 4.5 Principles for Social Impact Assessment

Identify and describe interested and affected stakeholders and other parties

Principle 1: Achieve extensive understanding and regional settings to be affected by the action or policy

Develop baseline information (profiles) of local and regional communities

Identify the key social and cultural issues related to the action or policy from the community and stakeholders profiles

Principle 2: Focus on key elements of the human environment

Select social and cultural variables which measure and explain the issues identified

Research methods should be holistic in scope, i.e. they should describe all aspects of social impacts related to the action or policy

Research methods must describe cumulative social effects related to the action or policy

Ensure that methods and assumptions are transparent and replicable

Principle 3: Identify research methods, assumptions and significance

Select forms and levels of data collection analysis which are appropriate to the significance of the action or policy

Collect qualitative and quantitative social, economic and cultural data sufficient to usefully describe and analyze all reasonable alternatives to the action

Ensure that the data collection methods and forms of analysis are scientifically robust

Principle 4: Provide quality information for use in decision-making

Ensure integrity of collected data

Ensure that research methods, data, and analysis consider under-represented and vulnerable stakeholders and populations

Principle 5: Ensure that any environmental justice issues are fully described and analyzed Consider the distribution of all impacts (whether social,

economic, air quality, noise, or potential health effects) to different social groups (including ethnical/racial and income groups)

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Establish mechanism for evaluation and monitoring of the action, policy or program

Where mitigation of impacts may be required, provide a mechanism and plan for assuring effective mitigation takes place

Principle 6: Undertake evaluation/monitoring and mitigation

Identify data gaps and plan for filling these data needs

Source: Principles and Guidelines for Social Impact Assessment in USA, 2003

There are six basic components of an investment project social evaluation:

• Investment project description

• Preliminary project review and scope of evaluation

• Identification of stakeholders and social baseline

• Identification and analysis of social impacts

• Measures and actions of mitigation or management of social impacts

• Evaluation process documentation.

Investment project description

A brief description should be provided of the proposed investment project, the facilities and installations involved in its development, as well as its temporary, geographical, ecologic and social context. Likewise, the project description should include those facilities and activities of third parties necessary for a proper operation thereof.

Preliminary project review and scope of evaluation

A preliminary project review should be carried out according to national and international standards with the purpose of determining whether it may generate social risks or impacts that should be analyzed in depth through a social evaluation.

Likewise, the scope and depth of the social evaluation should be defined with the object of establishing the nature and scope of the social impacts, the affected populations, and the potential mitigation measures.

If through the preliminary review process it is concluded that an investment project will have minimum adverse impacts or no impact at all, the company proposing the project should document this examination process and the results thereof.

Identification of stakeholders and social baseline

The identification of stakeholders implies the determination of the different groups or persons which might have an interest on the project, or that might affect or be affected by the project.

The stakeholder identification process comprises the following aspects:

- Identification and profile of the persons, groups or local communities that might be affected, either positively or negatively, by the project.

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- Identification and profile of the persons, groups or local communities in a condition of handicap or vulnerability that might be affected, either positively or negatively, by the project.

- Identification and profile of the regional or national groups or organizations that might have an impact on the result of the project due to their social, political or economic influence.

- Identification and profile of leaders and authorities that might influence the result of the project.

The social baseline constitutes the crucial factor for the identification of the social impacts of the investment project, the analysis of such impacts and the definition of measures for negative impacts mitigation and positive impacts management. This is also a useful tool for reducing and adequately handling the social risks of a project by providing an adequate understanding of the project environment for its managers. The social baseline also constitutes a significant contribution for project design and the selection of alternatives. Finally, the social baseline is an essential tool for the monitoring and evaluation of the impacts of the project on the living conditions of the populations in its area of influence.

4.6.2 DRP’s Social and Labour Management a) Social Baseline DRP has contracted the development of several studies which constitute important elements for the preparation of a Social Baseline for the La Oroya Metallurgical Complex Modernization Project: • Socio-economic Diagnosis of La Oroya (Pontificia Universidad Católica del Perú)

• Supply Chain and Local Purchases Diagnosis (Pontificia Universidad Católica del Perú)

• Study of the Socio-economic Impact of La Oroya Metallurgical Complex (Aserconsult)

• Socio-economic Study (National Institute of Statistics and Information Technology/Ministry of Health), 2001.

The depth, accuracy, and scope of these studies should be reviewed with the purpose of identifying and using the information that will be helpful for the preparation of the Social Baseline for La Oroya Metallurgical Complex Modernization Project. Gaps in the existing social diagnosis information should be identified and resolved. It is also necessary to update the existing information based on the current situation in 2006 and include potential changes in the local, regional, and national social reality. Finally, a social baseline should be prepared for the employees and workers of the metallurgical complex. DRP has no specific social baseline for these stakeholders who are key to the modernization project.

b) Social Management Program

DRP implements a broad range of social conscience and social assistance projects to mitigate the social impacts of the La Oroya operation and promote local development. DRP is very disposed to promote a corporate policy of social conscience and to promote local development.

c) Social Conscience Program

The social conscience projects implemented by DRP are:

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• Health, Safety, and Hygiene Project, covering several infrastructure works in which the company is involved to improve the sanitary, safety and hygiene conditions of the population of La Oroya and the surrounding rural communities.

• Education and Culture Project, which covers several infrastructure works aimed at improving the quality of education in La Oroya and in the surrounding rural communities.

• Productive Chain Project intended to support infrastructure works to improve the storing and commercialization of local production.

• Occupational Health and Hygiene Project

• Donation of Construction Materials and Related Services Project

• Executed Works Maintenance Project

• Training in Technical Handling of Ovine Livestock Project

• Ovine Livestock Genetic Improvement Project

• Pasture Investigation Pilot Project

• Pilot Project for Investigation of the Rational Handling of South American Camelidae

• Pilot Project for Investigation of Minor Animals and Trout

• Value Added Products Project

• Project for Integration through Technical Events and Agriculture and Livestock Fairs

• Forestation at above 3,760 masl Project

• Andean Gardening Project

• Green and Forested Areas Monitoring and Maintenance Project

• Ecological Parks Project

• Ecological Awareness Project

• Tree Nursery Project

• Project for Dissemination of Information and Promotion of Tourist Circuits

• Project for Installation of Community and Family Vegetable Gardens

• Kenneth Buckley Ecological Recreational Centre

• Environmental Remediation Project through Revegetation.

d) Social Welfare Program

The social welfare program develops several activities to provide assistance and support to workers and to the population in general:

• Project for manual technical training for women of the community

• Project for development and assistance to small businesses

• Health workers project

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• Social and neighborhood promotion committees project

• Human and social ecology project

• Useful vacations project

• Project for encouraging children’s artistic talent

• “Cheering Children’s Hearts” project

• “A Smile in the Andes” project

• Donation of school materials project

• Food handling course

• Ocular health project

• Project for development of young craftsmen and gold/silversmiths.

e) Purchase of Local Services and Goods At a regional level, DRP’s annual purchases amount to approximately US$ 25,000,000. It is one of the main buyers of goods and services in the region and an important economic agent. DRP promotes the development of the local and regional markets by informing its annual demand for goods and services to the regional companies, as well as the contracting and qualification requirements to be met for quality, health, and safety standards.

f) Recommendations

It is recommended that a social management program be prepared that integrates and coordinates the various social conscience, social welfare, and local purchases initiatives.

Social conscience, social welfare and local purchases initiatives should be orientated under strategic objectives of sustainable development, for which the design, execution and impact should be evaluated.

An independent evaluation and audit of the social conscience, social welfare and local purchases initiatives is required in order to reliably determine their relevance, effectiveness, efficiency and impact. This is a key input for the development of the social management program of La Oroya metallurgical complex modernization project.

4.6.3 Organization DRP is now working on the creation of a social development management plan. Currently, the Maintenance and Service Department is in charge of outlining and executing social conscience projects, mainly in the rural area. The Social Welfare Department is in charge of the initiatives for social support to workers and the urban population of La Oroya. Logistics Management is responsible for promoting the purchase of local goods and services.

This organization may cause coordination and synergy problems. An integrated, unified organization is required to achieve the best performance in the management of the social aspects of the project.

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4.6.4 Monitoring and Supervision The Maintenance and Services, Social Welfare, and Logistics Management areas keep internal management balances based on coverage indicators. These annual management balances are prepared by officers responsible for project design and execution.

It is recommended that a monitoring and evaluation system be implemented for the social management program of La Oroya metallurgical complex modernization project. This monitoring and evaluation system should be based on periodic evaluations by qualified professional organizations. Evaluation criteria should include the relevance, effectiveness, efficiency, impact and sustainability of DRP’s social programs and projects.

4.6.5 Labour Aspects DRP has a good relationship with workers’ and employees’ unions as evidenced in the subscription to five-year collective agreements. This is supported by the characteristics of the metallurgical project which is a long-term project, intensive in semi-qualified and non-qualified labour. However, the labour force consists predominantly of older people near retirement age. Another subject of concern is the retirement conditions of the labour force.

Considering that a significant manpower reduction is foreseen as a result of the technological modernization of the metallurgical complex, DRP should prepare a program for mitigating the reduction of manpower at the La Oroya metallurgical complex. Additionally, an organizational design program and a labour training program should be developed in anticipation of the new organizational structure and manpower requirements required by the modernization. The purpose of the above is to prevent conflicts with and pressure from unions, identify new labour opportunities and promote employment of younger workers.

4.6.6 Civic Participation Currently DRP’s management has not disclosed any information to the local population about the technological modernization project. However, it has accumulated significant experience in civic consultation and participation processes as a result of the Environmental Management and Adaptation Program (PAMA).

DRP needs to develop a civic consultation and participation program as required by national legislation and the Equator Principles. The civic consultation and participation program should define the strategy and means to be used by DRP to promote civic acceptance of the modernization project.

4.6.7 Social Acceptance Currently the operation of La Oroya metallurgical complex enjoys the acceptance of the majority of the local population and local public and civic organizations. However, there is a general negative perception at the regional and national level. This is basically generated by the adverse impacts on public and occupational health attributed to the complex.

How to resolve the accumulated negative impacts on public health at La Oroya? The answer to this question is crucial to obtaining social acceptance at a regional and national level. The regional and national public expect a positive reply from the company. It is recommended that DRP strongly publicise at national and regional level the actions it is taking to improve public health in La Oroya. This should be a priority to guarantee a stable social and political environment for the project.

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5.0 ZINC FERRITE RESERVE

5.1 Introduction The zinc ferrite stockpiles are surface material consisting of high grade values of zinc, silver, indium, lead and iron minerals originating from the Zinc Circuit at the DRP-owned La Oroya metallurgical complex. The stockpiles were first established at the start of the operation of the zinc refinery more than 50 years ago. Material has been dumped since that time and has been re-processed intermittently.

A total of five stockpiles were created over the years varying in size. The five stockpiles are:

P-1 P-2 P-3 P-4a, and P-4b.

Each of the stockpiles was visited by AMEC during a site visit on June 20, 2006. Mr. Ramon Huanape, a mine engineer with DRP projects department, accompanied Scott Ansell of AMEC during the visit and provided data and reports to assist AMEC in the evaluation of the stockpiles.

Several estimates have been completed for reserves for the stockpiles (Table 5.1) including Centromin (1984), Fluor Daniel (1997), DRP (2000 and 2003), GeoMaster (2003) and BSI (2005). Most estimates do not state metal values.

Table 5.1 Reported Stockpile Reserves

Since 1984, various consultants have reported the stockpile reserves. There was no, or limited, supporting data available for estimates and no description of the parameters used to estimate the tonnes and grade.

Following the drilling program in 2003, the stockpiles were estimated by GeoMaster (2003) who reported a reserve estimate for three stockpiles (P-3, P-4a and P-4b) of 1.294 Mt with no grade estimates for metals. The estimate was prepared using a cross-sectional volume from AutoCAD. The treatment of assay values was by calculating the mean metal value of each drill hole. An average bulk density value of 1.379 for P-3 and 1.574 for P-4a and P-4b was applied to the volumes to derive the tonnage.

Year Group Tonnes (t) Comments

1984 Centromin 862,778 limited supporting data

1997 Fluor Daniel 1,270,534 no support data

2000 DRP 1,344,242 no support data

2003 DRP 1,341,133 limited supporting data

2003 GeoMaster 1,294,279 excludes P-1 and P-2, supporting data/report

2005 BSI 1,051,443 supporting data/report

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In 2005, an independent consultant, BSI provided a reserve estimate of 1.051 Mt with an average grade of 0.083% In, 23.65% Zn, 5.17% Pb, 33.01% Fe, 369 g/t Ag and 0.35 g/t Au. The estimate was completed after drilling in 2005. Only drill data from 2005 was used for the estimate, the 2003 drill data was excluded. The estimate provided by BSI applied an irregular block size to each drill hole in all five stockpiles. The volume for each block was prepared from AutoCAD. Metal grades were determined for each block by statistical analysis of assays, as was done in 2003 (application of mean grade from each drill hole).

The BSI estimate is considerably less (>25%) in tonnes than the estimate presented earlier by GeoMaster (2003). The difference could be due to material being removed for reprocessing, however, no documentation providing the amount of tonnes removed from the stockpiles was available.

AMEC’s scope of work was to review the information available concerning the zinc ferrite stockpile areas and comment on the program of work and reported reserves for the material. This report is a review of the work previously completed and provides conclusions and recommendations based on that work and the proposed work program. Detailed descriptions of the recommended procedures (e.g. methodologies for SG determinations, volume calculations, grade estimation) are provided in this report.

Previous work includes Shellby drilling in 2003 (34 holes), 2005 (22 holes) and 2006 (10 holes) over portions of the stockpile areas. The 2006 data has not been included as part of this reserve estimate review.

Confidence in the in-situ bulk density and volume calculations should be improved in order to ensure reserves can be estimated within +/-15 relative percent at 90% confidence.

AMEC recommends the following:

• Compile all data in one dedicated database including tables, collar surveys and assays for drill holes and trenches, and surfaces.

• Create original ground surface and survey stockpile surfaces.

• Complete in-situ bulk density measurements (water displacement method using pits).

• Produce statistics for each stockpile; including, mean, standard deviation, coefficient of variation, max, min, histograms and probability plots.

• Prepare composites and check against stockpile boundaries and grade assignments.

• Interpret a three-dimensional (3D) solid using original topography and current topography or by sections to calculate volumes.

• Use geological modelling software for estimation, documenting the model parameters and procedures used during estimation.

• Produce a report to document procedures and to back up the model.

5.2 Available Data The available data for the audit of the reserve estimate is composed of Shellby drill hole samples, trench data and topography. AMEC understands that the current reserve estimate utilizes only the 2005 drill hole samples completed under the supervision of BSI Inspectorate.

AMEC was provided the following digital data:

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• ACAD dwg files, planos y secciones de pozas, GeoMaster 2003

• Excel file, assay values from drill holes containing Zn, Ag and S, GeoMaster 2003

• Jpeg image, planos de pozas y bloques, BSI Inspectorate 2005

• Excel file, assay values from drill holes containing Zn, Ag, In, Pd and Au, BSI Inspectorate 2005

• Excel file, density determinations, BSI Inspectorate 2005

• Excel file, collar locations, samples, recovery data, BSI Inspectorate 2005

• Excel file, assay values from drill holes and trenches for Zn, Ag, In, Fe and S, GeoMaster 2006

• ACAD dwg files, planos de pozas, DRP2001 to 2006.

Hard copy data and reports received from DRP included:

• DRP January 26, 2001: Ferrite inventory sampling and diligence

• GeoMaster, Calculo del Volumen y Peso Total de Ferritas en las Pozas 01 y Poza 2, March 2003

• GeoMaster, Calculo del Volumen y Peso Total de Ferritas en las Pozas 03 y Poza 4, June 2003

• Menautt, Cubicación del deposito de Ferritas Huanchan, July 2003

• Memorandums - DRP August 11, 2003: Flotación de Los Residuos de Ferritas de Zinc de Las Pozas 3 y 4 de Huanchan

• Valorización Del Proyecto De Flotación de Ferritas de Zinc de Huanchan; SGV S.A.C. (BSI Inspectorate), November 2005

• Muestras de Nueva Planta de Flotación de Ferritas Huanchan (data spreadsheet), 2006.

In early 2003, DRP drilled 34 drill holes, totalling 307.7 m. The holes were collared on all five of the stockpiles (see Table 5.2) using irregular spacing. The program produced 316 samples from the 34 drill holes. The supervision of the drill program and collection of the data from the drilling was by GeoMaster Ingenieros Consultores S.A.C. (GeoMaster) in collaboration with the Projects Department at La Oroya. The holes were drilled using a Shellby drill with 4 inch and 3 ½ inch diameter bits.

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Table 5.2 2003 Summary of Drilling

Stockpile Number of Holes Length (m)

P1 3 25.9

P2 3 25.7

P3 16 141.5

P4a 9 86.9

P4b 3 27.7

Total 34 307.7

Sample handling was by GeoMaster (March 2003) and included the collection of the samples at one meter intervals, except at the end of hole where sample lengths are variable. Each sample was weighed and the weight recorded with the meterage and the sample interval assigned to the interval. Recovery was good, ranging between 73% and 84%, averaging 81% for all the stockpiles (GeoMaster, 2003).

After collection of the sample, the sample was split in two halves. One half was sent for analytical testing at the La Oroya metallurgical complex and the other half remained in the box. Samples were assayed for Zn, Ag and S.

No geological information from the drill holes was collected since the material by its nature has no geological characteristics, being a by-product from the zinc circuit of the metallurgical complex. Humidity in the samples was calculated but dedicated samples for density determinations were not collected.

AMEC viewed limited drill core and samples from the 2003 program.

In 2005, DRP drilled 22 drill holes, totalling 207 m. The holes were collared on all five of the stockpiles (see Table 5.3) using irregular spacing. The program produced 353 samples from the 22 drill holes. The operation of the drill program and collection of the data from the drilling was by GeoMaster under supervision from BSI Inspectorate S.A.C. (BSI) in collaboration with the projects department at La Oroya. The holes were drilled using a Shellby drill with 4 inch and 3 ½ inch diameter bits.

Table 5.3 2005 Summary of Drilling

Stockpile Number of Holes Length (m)

P1 3 22.6

P2 3 23.1

P3 8 78.1

P4a 1 10.2

P4b 7 72

Total 22 206

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Sample handling was by BSI (personal communication, R. Huanape) and included the collection of the samples, ranging from 0.08 to 1.0 meters, averaging about 0.6 meter in length. Recovery was good, ranging from 81% to 99%, with an average in the order of 96% for all the stockpiles.

After collection of the sample, it was split in two halves. One half was sent for analytical testing at the BSI laboratory in Lima and the other half remained in the box, stored in La Oroya. Samples were assayed for Zn, Ag, In, Pd and Au. AMEC viewed limited drill core and samples from the 2005 program.

No geological information from the drill holes was collected.

As part of the BSI work on the stockpiles, a series of 46 density measurements were completed over all five of the stockpiles. Sample size and determination technique are not discussed although, the data shows the densities were calculated as wet samples. The average of the samples for each stockpile was calculated. The percent humidity from each sample was determined and averaged for each stockpile. The average humidity value calculated for each stockpile with the average wet density value provided the overall average specific gravity value for each stockpile (Table 5.4). The method applied creates a highly smoothed value for each stockpile.

Table 5.4 Specific Gravity Values for Each Stockpile

Poza Contenido de

Humedad

Densidad Aparente

Humedad

Densidad Aparente

Seca

1 0.3203 1.971 1.493

2 0.3195 2.034 1.541

3 0.3164 2.043 1.552

4A 0.263 2.166 1.715

4B FERRITAS ANTIGUAS 33.07 2.056 1.545

4B FERRITAS NUEVAS 30.54 2.114 1.619

A limited drilling and trenching program was completed in early 2006. The supervision of the drill program and collection of the data from the drilling was by GeoMaster Ingenieros Consultores S.A.C. (GeoMaster) in collaboration with the Projects Department at La Oroya. There was no report describing the program. All data came from one Excel spreadsheet and personal communication with Mr. Ramon Huanape. DRP drilled 10 drill holes, totalling 80.9 m on stockpiles 1 and 2. A further 13 vertical trenches were completed on Stockpiles 1 to 3 testing the material from surface to original ground. The drill program produced 82 samples from the 10 drill holes. Sample handling was done by GeoMaster, including the collection of the sample in one meter intervals, except at the end of the hole where sample lengths are variable. Samples were assayed for Zn, Ag, In, Fe and S.

5.3 Conclusions and Recommendations Bankable or bankable-quality feasibility studies are detailed. In general, the geology of a deposit must be well understood; sufficient samples must have been taken to well define the resources present; the mining method must be defined and must be supported by geotechnical and hydro-geological data; and the metallurgical flowsheet must be supported by testwork from geologically

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representative samples. Because the zinc ferrite stockpile material is a by-product of the zinc refinery at the metallurgical complex in La Oroya the same methods and parameters are not applied as would be the case for an in-situ geological resource estimate. However, a rule of thumb is that reserves be known on an annual basis within +/-15 relative percent at 90% confidence. This means that for one year in 20, the tonnage, grade or contained metal will be less than 85% of the estimate, which is a reasonable business risk. For this level of confidence to be achieved, DRP must adopt guidelines for the preparation of reserves. These guidelines are recommendations applying best practices to standard estimation procedures for an updated reserve estimate.

The following additional conclusions and recommendations are made:

5.3.1 Database Data from each drill program is stored in independent MSExcel spreadsheets. Compilation of the data into a single dedicated database, whether MSExcel spreadsheet or MS Access has not been undertaken by DRP. The data is distributed between the DRP projects office, metallurgical testing laboratory and survey office. The result of not having a dedicated database is that the reserve estimates generated since 2003 have not incorporated earlier data in the updated estimates. An example is the 2005 estimate from BSI, that did not include the 2003 drill hole data. Excluding earlier data is understandable if the material was removed and new material was dumped between 2003 and 2005. However, if the material is original, the data from 2003 must be included in subsequent estimates.

5.3.2 Drill Hole Locations and Topography The drill hole locations were located by the survey department in the SAD56 UTM coordinate system using a total station instrument. After completion of the drilling no markers were left to identify the hole locations or the hole identity.

The stockpile topography is collected monthly providing the surface. A survey was completed prior to the DRP evaluation of resources in 2003 and 2005. However, original topography was not collected prior to creating the original stockpiles (P-1, P-2 and P-3). Drill holes and trenches have established the location of the contact between stockpile and the original surface. A new stockpile topography survey will be required as part of an updated reserve estimate.

5.3.3 Density Density is very often neglected or badly estimated. The most common error is to fail to account for voids. If samples are not sealed before the density is measured, results obtained using the most commonly used water-immersion method will be high to the extent water enters the pores during the immersion process. In general, the stockpile material does not present void space on large or small scale. However, the unconsolidated material results in difficulty in assessing density. The amount of sample used for density calculations for both the 2003 (GeoMaster) and 2005 (BSI) estimates is limited, resulting in high variability for material of this homogeneous type.

AMEC recommends that more density measurements should be made to provide a representative value for each stockpile being estimated. The best method for stockpile material is the in-situ density determination method carried out in appropriate locations using the volumetric method. The weight of material is divided by the volume of water. At the sampling location the surface is scalped and levelled by dozer and the compacted material at the surface is removed. A 1 m x 1 m x 0.6 m to 1 m deep square pit is dug by hand. The material is transported for weighing. After the sample is weighed a representative portion of the sample is collected and dried to find the approximate percent moisture for the whole sample (the large volume of sample makes it

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impractical to dry the whole sample). The volume of the pit is determined by lining it with a plastic sheet and filling it with a known volume of water. In this way, the bulk density is confidently established.

Good practice is to document samples and their locations. The number of determinations for each stockpile is dependent on the stockpile size, the larger the stockpile the more the determinations. AMEC recommends a minimum of three for P-1 and P-2 and a maximum of eight on P-3 and P-4b as shown in Table 5.5.

Table 5.5 Recommended SG Pit Determinations

5.3.4 Exploratory Data Analysis DRP and its consultants have only presented mean values for each metal value for each drill hole (GeoMaster, 2003 and BSI, 2005). As a minimum, each stockpile should produce the following:

• Statistics: mean, standard deviation, coefficient of variation, max, min.

• Histograms.

• Probability and log probability plots as applicable.

5.3.5 Compositing Commonly, most assays are composited before a resource model is built. In general, fixed length composites within the stockpiles are preferable to bench composites. A composite length of 3 m would be reasonable for all the stockpiles. The logic used to composite the assay intervals should be checked (e.g. do the composites respect bench/production heights, do they respect boundaries?). Coordinates and grade assignment should be checked. Composites should be plotted on sections and plans.

5.3.6 Stockpile Volume Good practice is to interpret a three-dimensional (3D) solid using the original topography and current topography. The two surfaces must create a closed volume, the 3D solid. The solid can also be prepared using sections and projected on plan to achieve a valid closed volume. Software such as AutoCAD and mine software packages can be used to produce the 3D solid and calculate the volume.

5.3.7 Grade Estimation Good practice is to compute the stockpile reserve using uniform block sizes. An appropriate block size for the stockpile is 5 x 5 x 3 m. Grade estimation will consist of the following steps:

Stockpile Determinations

P-1 3

P-2 3

P-3 8

P-4a 4

P-4b 8

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• Review the variography of the data if applicable. An omni-directional search should correspond with the stockpile uniform grade variability.

• Develop parameters used to build the reserve model (search radii, maximum and minimum numbers of composites, etc.)

• Interpolate the composites using the appropriate interpolation method. Inverse distance weighted (IDW) or Nearest-neighbor (NN) are reasonable methods for the stockpiles.

• Verify that all blocks in the model are filled following interpolation.

• Check that the tonnage and average grade reported within each stockpile is globally unbiased. Note that these are frequent sources of error in modeling resources and/or reserves.

• Report tonnage and grade and for each metal (Zn, Ag, In, Pd, Fe, S and Au). The material can be considered a reserve; therefore, the usual classification for resources can be excluded.

An independent geological consultant group can deliver a grade estimate for the stockpile in a relatively short time.

5.3.8 Model Documentation The model should be documented in the form of a report with appendices and back-up binders that will enable an auditor to quickly review each step. The model should be archived and copies should be stored in multiple locations.

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6.0 EXECUTION PLAN

6.1 Purpose The execution plan will be a key section in the BFS report. It should state:

• What has to be done (scope of work)

• Who will do the work (organization charts, selection of key staff, bidder’s lists for engineering and construction contractors)

• How will the work be done (detailed plans for engineering, procurement, contracts and construction for each area of the work)

• When will the work be done (detailed critical path matrix schedules for each area).

The detailed plan should be the key document for the calculation of the project indirect costs. Comments on details of the plan are provided in the following sections.

6.2 DRP Project Division DRP has a project division with a staff of 32 professionals. The division is headed by Michael Sankovitch, Vice President and Technical Manager. Reporting to him is Angel Quispe, Manager, a long term, very experienced DRP employee with extensive knowledge of the plant.

AMEC visited the following projects recently completed by the Project Division or still in construction:

• DRP township sewage treatment plant. The design and construction of the plant looked excellent and it seemed to be functioning well.

• Zinc ferrite re-pulping plant. The design of the plant had been contracted to Fima of Lima. Design errors at the front end of the plant required significant rework and start-up delays. The plant is now functioning.

• Zinc ferrite flotation plant. The design and construction of the plant looked reasonable and the plant appeared to be operating well.

• Industrial water treatment plant. The plant is scheduled for completion in November 2006. The quality of the construction looked excellent.

All projects were reported to have been completed on budget and schedule except for the zinc ferrite re-pulping project where the design error caused a reported overrun of US$1 million.

6.3 Approach to New Projects The PAMA and Modernization Projects can be grouped into four large projects and a series of smaller ones as summarized below. The indicated capital costs are DRP’s conceptual study estimates:

• Large projects:

a) Modernization of the copper smelter – US$57 million

b) New copper sulphuric acid plant – US$65 million

c) Zinc circuit, Dynatec phase I plus indium circuit improvements – US$56 million

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d) New lead circuit sulphuric acid plant – US$40 million.

• Smaller projects

a) New copper refinery rectifier – US$5 million

b) Lead blast furnace automatic tuyere control – US$3.5 million

c) Improvements to combustion and feed system of the lead plant reverberatory furnace – US$2.5 million

d) New lead refinery rectifier – US$2.2 million

e) Modernization of the anode residues plant and silver refinery – US$20 million.

AMEC considers that the DRP project group is well qualified to execute the smaller projects. These projects require in-depth knowledge of the existing plant and operations and the ability to coordinate closely with the operating staff. The DRP team has this knowledge and experience. DRP will contract the construction to local construction firms.

For the larger projects, DRP intends to provide overall management and contract work to third parties as discussed below:

Copper Smelter Modernization DRP intends to contract the ISASMELT design to Xstrata (the patent holder) of Brisbane, Australia. The balance of the smelter engineering and the design of the new converter hoods will be contracted to Coprim of Santiago, Chile. Coprim has extensive experience of copper smelters in Chile and also designed and supplied the converter hoods for Southern Peru Copper’s Ilo ISASMELT project.

The following comments have been provided by Joyce Maycock, based on a review of Xstrata’s pre-feasibility study report and her experience as Engineering Manager for Fluor on the above referenced Ilo project:

General Experience on previous projects with Xstrata has shown the need for very close coordination during basic and detail design. The effort involved in this should not be underestimated, also the difference in time zones means that there is virtually no overlap of working hours during normal working hours.

There needs to be close coordination between the building structural design, the waste heat boiler (WHB) supplier and Xstrata.

Firm contractual dates need to be agreed with Xstrata for delivery of their documents and drawings and DRP will have to be prompt with the provision of information and approvals.

It is noted that the contract allows for the delivery of only pdf versions of drawings and documents. This will make any as-built or future changes difficult to record.

Training and manuals will be in English. Spanish translations should be made.

Xstrata limits the control systems it will accept. DRP needs to verify that the two systems specified are acceptable, also hardware must be made available in Brisbane for programming and testing and there could be a significant cost involved.

It should be noted that Xstrata-supplied proprietary equipment is the largest single cost item and there is no breakdown. It may be less expensive, but not necessarily easier, to purchase some of this from other sources.

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Specifications The particle size for the coal and fluxes required for the furnace will be specified by Xstrata. It is possible that a crushing plant will be required. Xstrata should confirm the size distribution required.

Revert crushing will be required.

The recycling of anode rejects needs to be taken into account in the heat balances.

The settling efficiency in the rotary holding furnace needs to be verified but it is noted that Xstrata are guaranteeing final Cu in slag.

Xstrata normally uses Australian standards in design. This needs to be carefully checked. DRP will need to specify to Xstrata what standards, conventions and symbols it requires in order to be able to interconnect equipment and systems.

Xstrata duty specifications are usually very basic and a lot of additional material is required to prepare a good purchase specification.

The definition of the dimensions of the ISASMELT furnace opening to the offgas system is critical to the WHB manufacturer and should not be defined without some input from the WHB manufacturer who may not be selected at the early stage that Xstrata will want to define the dimensions.

Equipment Xstrata will not provide anything apart from the design for the ISASMELT furnace and the RHF. Foundations are excluded, also the building and the WHB. The seismic design of the ISASMELT and RHF furnaces will need to be checked by DRP, particularly the “sloshing” effect. The seismic analysis may affect the thickness of the shell and the hold down bolts.

The suitability of the existing furnace (modified) as an RHF under the expected conditions needs to be verified.

Slag granulation systems are notoriously difficult to maintain, this needs to be taken into account in the design of the system and in the capacity of the RHF.

Any equipment provided by Xstrata will probably be fabricated in Australia and will use Australian standard steel sections, piping, wiring, etc. (or there will be additional costs for compatibility).

AMEC strongly recommends that DRP defines, in detail, the scope of Xstrata’s engineering, equipment supply and field and start-up services. The detailed engineering within the ISASMELT battery units, not provided by Xstrata, must be provided by another engineering contractor. This contractor should be requested to provide detailed manpower plans, schedules and costs to demonstrate how it intends to carry out the work.

Copper Circuit Acid Plant DRP received pre-feasibility proposals from Monsanto and Chemetics. Negotiations are continuing with those firms. DRP’s preference is Lump Sum Turn-Key, however, Monsanto is likely to be the only firm prepared to bid on this basis.

Close coordination will be required between Xstrata, the engineering contractor and the acid plant supplier. DRP should not underestimate the management effort required.

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Lead Circuit Acid Plant DRP has selected Fleck to provide detailed engineering and installation support. Fleck should be requested to provide complete details of the scope and cost of its services. Any missing scope items must be provided by DRP or another firm.

Zinc Circuit Dynatec of Fort Saskatchewan, Canada, prepared the pre-feasibility study report which considered a two phase modernization of the zinc circuit, i.e., phase I, the installation of two acid pressure leach autoclaves to leach zinc ferrites containing indium and, phase II, the installation of two additional autoclaves to treat zinc concentrate and allow the decommissioning of the existing fluid bed roaster. The BFS will consider only the phase I work. DRP has contracted Dynatec to carry out laboratory testwork and provide design information for the BFS report. AMEC has reviewed the Dynatec pre-feasibility report in the context of experience gained on several similar pressure leach autoclave projects. It is very important that DRP carefully considers the scope of services offered by Dynatec in Section 13 of the pre-feasibility report. This scope of services is consistent with AMEC’s experience of Dynatec’s services in previous projects. Dynatec will provide flowsheets, equipment lists, P&IDs and basic specifications. The pre-feasibility study clearly states that a third party contractor should provide the balance of the engineering details and the capital cost estimate.

Pressure autoclave projects are technically complex, particularly in regard to the pressure vessel design, design of the heat recovery systems and the piping where exotic alloys are usually required. Dynatec will provide specifications and design review but not the actual design.

For the BFS, DRP must develop a plan to take the Dynatec information and expand it to the requirements of a +/-15% capital cost estimate. This will include the development of BFS level foundation designs, structural designs, a complete equipment list, single line electrical diagrams and electrical equipment list, instrument lists and piping design and take-offs. The expertise for this type of work resides in a limited number of firms in North America.

A detailed plan must be prepared and costed for the implementation phase of this project. While Dynatec will provide the design parameters, Section 13 of the pre-feasibility report makes it very clear that the detailed design must be carried out by another contractor. It is essential that this contractor has adequate experience. Piping is the most important element of pressure autoclave circuit design. Dynatec will specify the required materials, however, the design firm must provide the layout and piping details. It is recommended that the design be carried out in a 3D system with the capability to download directly to a fabrication shop spool design system. This will reduce design errors and minimize the amount of specialized welding work required in the field.

In summary, the services that Dynatec will provide for the BFS and the detailed design must be supplemented by design services from a firm experienced in pressure autoclave projects of a similar nature.

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6.4 Engineering For each project it is essential that:

• The scope of work is defined in detail

• A detailed list is prepared of the activities, documents and drawings required for the procurement and construction of the projects

• The specific engineering resources are identified

• The schedule and costs of the engineering services are determined.

In the cases of the copper smelter, zinc autoclave circuit and the acid plants, technology and equipment will be supplied as packages. The scope and detail of the engineering supplied with each package must be defined. As noted above, the technology suppliers do not normally provide complete engineering design, e.g., foundations, detailed piping. An engineering plan must be prepared to ensure that nothing is missed.

6.5 Procurement DRP does not have a project procurement group. To date, procurement services have been provided by DRP’s operations procurement department. This will not be satisfactory for the scale of work considered in these projects. Michael Sankovitch stated that the plan is to subcontract procurement services. It is recommended that DRP requests “Statement of Qualifications” documents as soon as possible from potential bidders. This will provide an early indication of the availability and quality of the services. 6.6 Quality Assurance / Quality Control (QA/QC) QA/QC was not discussed during the site visit, however, it must be addressed in the BFS. The technology providers, engineering companies, vendors and construction companies involved in the project should already have standard QA/QC programs. It is recommended that DRP appoint a coordinator to ensure compatibility with DRP’s requirements and compliance.

6.7 Cost Control Tony Maycock and Carlos Torres reviewed examples of cost reports from previous projects with Michael Sankovitch, Angel Quispe, Doug Zunkel and Jesús Gutiérrez, an economist with the DRP project group.

DRP uses the software PeopleSoft for cost reporting. Costs are collected monthly and reported in PeopleSoft. The reports showed expenditures by month, by account code and the accumulated totals. It was stated that the details were managed by the individual project managers using Excel spreadsheets.

AMEC did not review the capabilities of PeopleSoft, however, it appears to be an accounting program rather than one for cost control. DRP should evaluate the suitability of PeopleSoft for the management of the large projects. Modern specialist programs operate in real time and have the ability to accept downloads from the capital cost estimating system according to the project work breakdown structure.

A key aspect of cost control is a solid change management procedure. This enables changes to be detected early and action taken. The monthly cost reports should show as a minimum:

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• original budget

• approved changes

• current budget

• commitments

• expended

• forecast to complete.

6.8 Scheduling DRP uses MSProject for scheduling, however, AMEC did not meet any staff dedicated to this activity. Input will be received from many sources for the BFS and it will important that this information be reviewed by an experienced planning and scheduling engineer to produce a coherent project wide document.

6.9 Construction Management DRP stated that the construction of the smaller projects will be managed by the existing project group. The construction work will be contracted to qualified local firms well known to DRP. As stated above, this approach is logical given the specific plant knowledge and coordination required with operations.

For the larger projects, DRP recognizes that it will require assistance and is considering contracting services from professional construction management firms to work under the overall direction of the DRP project group. Organization charts must be developed to identify the staff that need to be contracted and scopes of work prepared for the required services. Similar to the contracting of procurement services, it is recommended that requests for “Statements of Qualifications and Experience” be sent to potential bidders in order to evaluate availability.

AMEC’s construction manager, accompanied by Angel Quispe, visited the project areas, areas for temporary facilities, existing workshops and the La Oroya township. His comments are provided below:

Project areas These do not present problems of topography or ground conditions for construction. Access is adequate except for the lead circuit acid plant area where relocation of some existing facilities will be required to enable the passage of large equipment and cranes.

Temporary facilities Suitable areas exist for temporary contractor facilities, warehouses and lay down areas.

Existing buildings and facilities Suitable office buildings exist for engineering, procurement, construction management and construction contractors. There are also excellent workshop facilities which could provide great support to the projects including structural steel fabrication, boilermaking, mechanical, pipe fabrication, electrical and instrumentation and painting. There is also an on-site clinic and a well equipped hospital in the DRP township.

Accommodation It is not planned to have a construction camp. It is estimated that the La Oroya township has sufficient lodging capacity to house the peak construction work force of approximately 1,000.

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6.10 Project Safety, Health and Environmental (SHE) As indicated in Section 4, DRP has made impressive improvements in the operation since 1997. It was reported that almost 10 million manhours had been worked without a lost time accident, remarkable for a smelter.

The challenge for the project will be to impose DRP’s SHE culture on the contracted work force. The BFS should include a plan for how this will be achieved. During detailed engineering, the plan should be fully detailed and implemented.

6.11 Start up, Commissioning and Handover DRP is well aware of the need to develop a comprehensive plan for this and has specifically selected technology suppliers who can provide operator training at other similar plants. The availability of trained operators will greatly help the start up, however, a detailed plan is required for the check out and dry testing of all equipment and systems, testing with air or water as appropriate and finally with load. An organization chart should be prepared for DRP and contractor staff required, together with a schedule. This will enable the costs to be calculated.

6.12 Operations and Maintenance As indicated above and in Section 3, new requirements must be identified, plans prepared and costs calculated.

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Pro

babi

lidad

Intervalo de Confianza

Area bajo la curva = 85%

Costo de Capital

P(92.5)P(7.5)

DE M

CTG

7.0 CAPITAL COST ESTIMATE

7.1 Introduction BNPP require that DRP prepare a “Bankable Feasibility Study” (BFS). “Bankable” has been defined between BNPP, DRP and AMEC to mean a study that contains sufficient process, engineering and execution planning definition to support a capital cost estimate with a precision of +/- 15% at the 85% confidence level. In statistical terms, this is shown in the figure below where probability is plotted against capital cost. The probability is determined by carrying out a cost range analysis on the main individual elements of the estimate and inputting these results into a Monte Carlo simulation program such as @Risk.

Figure 7.1 Estimate Probability Curve

Description: P(7.5): Percentile 7.5, in which the area under the curve towards the left is 7.5%.

P(92.5): Percentile 92.5, in which the area under the curve towards the left is 92.5%

Confidence level 85%: area between the percentiles P(7.5) y P(92.5)

E : Final value of cost estimate without contingency.

M : Average value of the statistical distribution, corresponds to P(50)

CTG: Contingency for a probability of occurrence of 50%

D : P(92.5) - M

Capital Cost = (E + CTG) +/- D,

if D/(E+CTG) < 15% the estimate meets the target precision.

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An estimate with the above precision corresponds to a Class III estimate as defined by the American Association of Cost Engineers (AACE). AACE provides an empirical guide to the type and level of detail of process, engineering and planning documents that should be prepared to comply with a Class III estimate. A typical list is shown in Table 7.1. The list is consistent with the comments and recommendations made in Section 6, Execution Plan.

Table 7.1 Project Deliverable Requirements for Estimate Accuracy

Project Deliverable CLASS III Requirement

Project Scope Description Defined

Plant Production/Facility Capacity Defined

Plant Location Specific

Soils & Hydrology Defined

Integrated Project Plan Defined

Project Master Schedule Defined

Escalation Strategy Defined

Work Breakdown Structure Defined

Project Code of Accounts Defined

Contracting Strategy Preliminary

Engineering Deliverables

Block Flow Diagrams C

Plot Plans P/C

Process Flow Diagrams (PFDs) P/C

Utility Flow Diagrams (UFDs) P/C

Piping and Instrument Diagrams (P&IDs) P/C

Heat & Material Balance P/C

Process Equipment List P/C

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Project Deliverable CLASS III Requirement

Utility Equipment List P/C

Electrical One-Line Drawings P/C

Specifications & Datasheets P/C

General Equipment Arrangement Drawings P/C

Spare Parts Listing S/P

Mechanical Discipline Drawings S

Electrical Discipline Drawings S

Instrumentation/Control System Discipline Drawings S

Civil/Structural/Site Discipline Drawings S

P=Preliminary, C=Complete, S=Started

Table 7.1 is taken from ANSI Standard Z94.2-1989. Industrial Engineering Terminology: Cost Engineering.

AACE International Recommended Practice No. 17R-97, Cost Estimate Classification System.

• Basis of Estimate

The “Basis of Estimate” is a document that states what will be estimated and how it will be done. AMEC provided DRP with a Typical basis of estimate as a guide, see Appendix I. DRP should produce a basis of estimate specific to the project based on this guide. All third party contractors that will be providing contributions to the estimate should be given the document as soon as possible to ensure consistency across al areas of the project.

• Estimate planning and preparation

A schedule should be prepared for the estimating work. Dates should be established for the completion of the following typical key activities:

• Basis of estimate document

• Equipment quotations

• Bulk material quotations

• Confirmation of construction labour rates and efficiencies

• Completion of material take-offs by engineering

• Calculation of indirect costs

• Completion of draft estimate

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• Review of estimate

• Calculation of contingency

• Completion of final estimate

The above activities should be incorporated into the overall schedule for preparation of the BFS.

• Estimating resources

DRP does not have an estimating department. To date, estimates have been prepared by the individual project administrators and the project cost control group. The preparation of this estimate will require careful planning and communication and coordination with third party technology providers, engineering companies, vendors and construction contractors. The input from these groups will have to be reviewed and checked for consistency with the basis of estimate. It is recommended that DRP review the resources required to carry out the above work and consider contracting outside estimating services to coordinate and/or lead the work.

• Estimate review

BNPP has contracted AMEC to review the BFS estimate, however, prior to this review, DRP should carry out internal reviews to detect errors and correct inconsistencies between the various participants.

AMEC’s review will commence with a check of the data bases that form the foundation of the estimating model and continue upwards through the calculation details and calculation of contingency.

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8.0 PREPARATION OF THE BFS

8.1 Table of Contents (TOC) AMEC reviewed DRP’s proposed TOC and presented a typical example from previous bankable studies. Doug Zunkel prepared a revised TOC which AMEC also reviewed (see Appendix 2). This table is very comprehensive and serves to illustrate the amount of work required to complete the BFS. An issue which arose from the review was Risk Management which had not been included in DRP’s original TOC. AMEC recommends that a risk analysis be carried out on the project to identify and quantify risks. Mitigation plans should be developed for any unacceptably high risk items. The most effective way to initiate the program would be to hire a risk management consultant to conduct risk analysis workshops for each area of the project. The consultant would assist DRP’s team in the identification of risks items and the assessment of probability, exposure and impact for each one. This will enable a relative risk rating to be produced; the highest rating would indicate a risk with a catastrophic impact; a low rating may indicate a risk that is acceptable. Mitigation plans would be developed for every risk within an unacceptably high rating.

8.2 BFS Schedule DRP’s goal is to complete the BFS by the end of December, 2006. Some of the key items that will affect the achievement of this goal are:

• Analysis of the deportment and treatment of impurities in the copper and lead circuits

• Analysis of the ISASMELT and converter operations with respect to SO2 gas flow and strength

• Completion of the Dynatec zinc pressure leach testwork

• Development and testing of an indium flowsheet.

It is recommended that DRP prepare a detailed BFS schedule to show the completion dates of the above activities and the downstream engineering, planning and estimating work that will flow from the results. This will demonstrate if the schedule goal is feasible.

8.3 Resources The responsible person and the required resources should be identified for each schedule activity. As indicated in Section 6, critical actions are:

• Ensure that Coprim or other engineering consultant will cover all scope items in the copper circuit that will not be covered by Xstrata. This includes coordination with the acid plant contractor.

• Contract experienced engineering resources to carry out the work in the zinc circuit that will not be carried out by Dynatec.

• Review available planning, scheduling and estimating resources and contract additional expertise if required.

APPENDIX I TYPICAL BASIS OF ESTIMATE

BASES DE ESTIMACIÓN DE COSTOS

Nº 2102-1XX-9-001

Preparado por:

AMEC International (Chile) S.A.

Aprobado por:

Gerente Control Proyectos Gerente de Ingeniería: Gerente de Proyecto: Cliente:

Rev Por Emitido para Fecha Fecha de Revisión. Aprobado

A MR Primera Revisión Interna B MR Incluye Comentarios Internos C Comentarios del Cliente:

BNP PARIBAS

PROYECTO Nº 2102

LA OROYA

INGENIERIA DE FACTIBILIDAD

2102-1-BE-9-001_0 Página 2 de 23

TABLA DE CONTENIDO 1.0 INTRODUCCION .................................................................................................................3 2.0 OBJETIVOS.........................................................................................................................3 3.0 PROGRAMA DE LA ESTIMACIÓN ....................................................................................3 4.0 ALCANCE DE LA ESTIMACIÓN........................................................................................3 5.0 ORGANIZACIÓN DE LA ESTIMACIÓN .............................................................................3 6.0 TIPO Y PRECISIÓN DE LA ESTIMACIÓN.........................................................................4 7.0 DOCUMENTOS DE REFERENCIA ....................................................................................5 8.0 MONEDA BASE Y TASAS DE CAMBIO ...........................................................................5 9.0 ESTIMACIÓN DE PARTIDAS DE OBRA ...........................................................................5 10.0 PRECIOS DE EQUIPOS Y MATERIALES .........................................................................8 11.0 HORAS HOMBRES UNITARIA (HHU) Y COSTO DE MANO DE OBRA .......................11 12.0 CRITERIOS DE FACTORIZACIÓN DE PARTIDAS MENORES.....................................13 13.0 COSTOS INDIRECTOS DEL PROYECTO.......................................................................15 14.0 IMPUESTOS ......................................................................................................................18 15.0 ESTIMACIÓN DE EFECTO DE VARIABLES EXOGENAS.............................................18 16.0 PROCESO DE REVISIÓN DEL ESTIMADO ....................................................................19 17.0 ANÁLISIS DE RIESGO Y CONTINGENCIA.....................................................................19 18.0 EXCLUSIONES..................................................................................................................20 19.0 INFORME DEL ESTIMADO DE COSTOS........................................................................21

ANEXO A: “WORK BREAKDOWN STRUCTURE” DEL PROYECTO ANEXO B: ESTIMACIÓN COSTOS DE MANO DE OBRA

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1.0 INTRODUCCIÓN AMEC desarrollará un Estimado de Costo de Capital con un nivel +/- 15% de incertidumbre y en un estándar aceptable para presentar a instituciones financieras. Para lograrlo AMEC desarrollará, dentro de los alcances que le corresponde, el nivel de información de ingeniería requerido por un Estudio “Detailed Feasibility” de acuerdo a la tabla 6.1 que detalla los requisitos para un estimado clase II según la AACE. El Proyecto consiste

2.0 OBJETIVOS Desarrollar el Estimado de Costo de Capital con un nivel de exactitud de ± 15% dentro de un intervalo de confianza del 85%, generando un documento bancable para ser presentado ante instituciones financieras. Emisión Requisiciones Presupuestarias Equipos Principales.

3.0 PROGRAMA DE LA ESTIMACIÓN Los hitos principales de la estimación son los siguientes:

1 Emisión Requisiciones Presupuestarias Equipos Principales

fechas

2 Listado de Equipos

3 Bases de Estimación

4 Cubicaciones de Obras

5 Cotizaciones Equipos Principales

6 Informe Estimación Preliminar

7 Informe Estimación Final

8 Informe Final

4.0 ALCANCE DE LA ESTIMACIÓN INSERTAR DESCRIPCIÖN DETALLADA DE TODAS AREAS DEL PROYECTO

5.0 ORGANIZACIÓN DE LA ESTIMACIÓN La estimación de costos esta organizada de acuerdo con el WBS (Work Breakdown Structure) del proyecto, el cual esta incluido en el anexo A.

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6.0 TIPO Y PRECISIÓN DE LA ESTIMACIÓN La estimación de costos tendrá una precisión de +/-15% en un rango de confianza del 85%, lo que corresponde a una estimación clase II según la AACE (American Asociation of Cost Engineer). Esta institución establece la documentación mínima en la cual estará basado el estimado (ver Tabla 6.1).

Tabla 6.1 Requisitos para estimado clase II según AACE Datos Generales del Proyecto: Requisito

Descripción del Alcance del Proyecto Definido Producción de la Planta / Capacidad de las Instalaciones Definido Ubicación de la Planta Especifico Suelos e Hidrología Definido Plan de Proyecto Integrado Definido Programa Maestro del Proyecto Definido Estrategia de Escalación Definido Estructura de Quiebre (WBS) Definido Códigos de Cuentas del Proyecto Definido Estrategia de Contratos Definido Documentos de Ingeniería : Diagramas de Flujo Completo Disposición General del Proyecto Completo P& ID´s Completo Balances de Masa y Agua Completo Listado de Equipos Mecánicos Completo Listado de Instalaciones Auxiliares Completo Planos Unilineales Eléctricos Completo Especificaciones y Hojas de Datos (Equipos Críticos) Completo Planos de Disposición General de Equipos Completo Lista de Repuestos Parcial Planos Mecánicos Parcial Planos Eléctricos Parcial Planos de Instrumentación / Sistemas de Control Parcial Planos Civiles / Estructurales Parcial

El nivel de detalle de los planos producidos en esta etapa será el suficiente para obtener las cantidades de obra necesaria para la preparación del estimado de costo. El análisis de riesgo, utilizando el software @Risk, el que está basado en el método de muestreo de Montecarlo o en un muestreo del tipo Latín hipercúbica.

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Para confirmar el rango de precisión solicitado se realizará un análisis de riesgo. En la eventualidad de que el rango obtenido sea mayor que el esperado, se deberá revisar las suposiciones originales y analizar la manera de mejorar las estimaciones en las partidas relevantes hasta que el resultado sea el solicitado. El proceso de optimización podría implicar desarrollar nuevos estudios de ingeniería.

7.0 DOCUMENTOS DE REFERENCIA La estimación de costos estará basada en la siguiente documentación. • Los documentos indicados en la Tabla 6.1. • Cotización presupuestaria para los equipos o sistemas de costo mayor a US$

50.000 • Cubicación de las partidas de obras civiles, hormigones, estructuras metálicas,

cañerías, materiales eléctricos e instrumentación. • Base de datos histórica de precios de equipos y materiales, para los ítems no

cotizados • Horas hombres unitarias estándar de construcción de acuerdo a registros históricos

de AMEC.

8.0 MONEDA BASE Y TASAS DE CAMBIO La moneda base para la preparación de la estimación de costo será el Dólar de Estados Unidos. Todos los costos serán expresados en esta moneda, por lo tanto, los costos locales (en Chile) y de productos importados de otros países cuya moneda no es el dólar de Estados Unidos, serán convertidos utilizando la relación de la tabla 8.1.

Tabla 8.1 Tasas de cambio respecto al Dólar de Estados Unidos al 31 Octubre 2005.

Moneda Tasa de Cambio por Dólar USA

Peso Chileno 535 Dólar Canadiense 1.22 Dólar Australiano 1.33 Euro 0.83 Yen 111.84 Valor UF de referencia 17.900

9.0 ESTIMACIÓN DE PARTIDAS DE OBRA La estimación de costos directos incluye la preparación de un listado de partidas que representen la obra diseñada. Un listado de referencia fue preparado al incio de la estimacion como una guia para el quiebre del proyecto y que finalmente constituye el reporte detallado representativo de estas partidas.

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La estimación de las cantidades de obra estará de acuerdo con el grado de detalle de los planos de ingeniería que se logre en esta etapa del Proyecto. Todas las cantidades serán estimadas desde los documentos y planos producidos en esta etapa del Proyecto, utilizando el sistema métrico de medida. Las cantidades de obras y materiales que no sea posible obtener de la documentación del Proyecto, serán estimadas siguiendo el procedimiento descrito en el capítulo 12. A continuación se detallan el alcance y procedimiento para cada disciplina de ingeniería.

9.1 Obras Civiles Alcance: Movimientos de suelos masivos para preparar la plataforma de emplazamiento de la planta, incluyendo las obras de saneamiento; es decir, demoliciones y reubicación de edificios e instalaciones existentes. Excavaciones de forma y rellenos compactados locales para fundaciones y elementos estructurales. Los movimientos de suelos para elementos menores, que no se muestren en los planos de diseño y que deban ser considerados dentro del alcance del estimado, serán factorizados siguiendo el procedimiento descrito en el capítulo 12.

Procedimiento: Las cantidades de obras de movimientos de suelos masivos serán estimadas por el Ingeniero Civil, utilizando planos generales de planta y elevaciones de movimiento de suelos desarrollados para el Proyecto, los planos de topografía existentes y la información de mecánica de suelos desarrollada para el proyecto. Para la discriminación de los niveles de separación de la roca y el terreno común se utilizarán los informes de mecánica de suelo. Movimientos de suelo menores que no sea posible estimarlos de los planos del Proyecto y que necesariamente se deban incluir en el costo, se factorizarán de acuerdo con el procedimiento indicado en el capítulo 12.

9.2 Hormigones Alcance: Se incluyen fundaciones de equipos, estanques, cajones, edificio, plataformas, parrones de cañerías, radieres, losas, muros de contención, banco de ductos, etc. Dentro de la especialidad se incluye la protección superficial de los hormigones. Procedimiento: Los planos y cubicaciones serán extraídos del modelo elaborado con el software PDMS, donde se modelarán en una numeración no excluyente, las fundaciones de equipos y edificios, losas, radieres. La estructuras de hormigón que no se muestren en planos (modelo) serán estimadas por el Ingeniero especialista. Las cantidades de hormigón misceláneo, (por ejemplo soportes menores, no modelados), serán factorizadas siguiendo el procedimiento indicado en el capítulo 12. El precio unitario de hormigón incluirá también el costo del suministro y colocación del moldaje y acero de refuerzo, por lo tanto el precio unitario del hormigón será el costo instalado de un cubo de hormigón.

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9.3 Estructura de Acero Alcance: Estructuras de acero del edificio, plataformas de operación, soporte de equipos, parrones de cañerías, estructura de cajones de distribución, soportes de cañerías y elementos eléctricos. Procedimiento: El cálculo de cantidades de estructuras metálicas, estará basado en la información entregada por el modelo PDMS, el que además generará los planos de este ítem. Estas cubicaciones incluyen los elementos ingresados al modelo y que se encuentran en las bases de datos, es decir perfiles nacionales y AISC, escaleras y parrillas de piso estándar. Los soportes de cañerías de diámetro mayor o igual a 6”, serán entregados por el modelo para diámetros menores se estimará por unidad de longitud de la línea. Los soportes eléctricos menores también serán factorizados.

9.4 Arquitectura Alcance: Incluye el recubrimiento del edificio de proceso y los edificios auxiliares que el proyecto defina. Procedimiento: Los materiales de recubrimiento del edificio se calcularán por unidad de superficie cubierta (m2), el precio unitario incluirá los traslapos, elementos de hojalatería de remate y fijaciones Los edificios auxiliares se estimarán por unidad de superficie de planta (m2), el precio unitario incluirá todos los materiales, mano de obra e indirectos necesarios para completarla.

9.5 Equipos Mecánicos Alcance: Incluye todos los equipos mecánicos de proceso y auxiliares de la planta. Procedimiento: Todos los equipos serán listados e incluidos en el documento. “Listado de Equipos”, lo cual constituirá la base para el desarrollo del costo en la disciplina mecánica.

9.6 Cañerías Alcance: Incluye todas las líneas de proceso y de servicio de la planta. Procedimiento: Como criterio de diseño se incluye la incorporación en el modelo PDMS de todas las cañerías principales de proceso hasta 6” inclusive, por lo tanto el modelo entregará las cubicaciones de todas estas líneas. Para cañerías secundarias (<6”) no incluidas en el modelo, se supondrá un posible ruteo, sobre el cual se calculará su longitud. Luego de definidos y aprobados los Diagramas de Flujo por parte de la disciplina de Procesos, se inicia la confección de P&ID del proyecto. Es requerida en esta etapa que las memorias de cálculo en lo referente a transportes hidráulico, impulsiones y gravitacionales - se encuentren en una etapa avanzada de su desarrollo, con el fin de incorporar a los P&ID y posteriormente al modelo, información definitiva, no sujeta a cambios importantes. Los P&ID serán desarrollados en base al software AUTOCAD P&ID, por lo que serán diagramas “inteligentes”, es decir estarán asociados a la base de datos del proyecto.

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Una vez concluida las labores mecánicas y civiles en un área en particular y con la información obtenida a partir de los P&ID, es posible incorporar al modelo los ruteos de todas las cañerías requeridas por el proceso y de redes de servicios, asociadas al diseño hasta 6” inclusive. Las válvulas principales serán listadas desde el modelo. Los fittings de líneas incluidas en el modelo serán listados desde el modelo, para cañerías menores se factorizará de acuerdo con plantas similares.

9.7 Electricidad Alcance: Incluye todos los equipos, instalaciones y materiales eléctricos de la planta, necesarios para la distribución y alimentación de energía desde las nuevas instalaciones hasta todos los centros de consumo. Procedimiento: para el caso de los equipos eléctricos se preparará un listado de equipos, del mismo modo que los equipos mecánicos.. Los materiales eléctricos tales como bandejas, conduits y cables principales serán obtenidos de los planos de trazados de líneas aéreas y disposiciones de canalizaciones principales, los materiales eléctricos menores serán factorizados.

9.8 Instrumentación Alcance: Incluye los sistemas de control, CCTV, telefonía y todos los instrumentos de control de la planta. Procedimiento: Los instrumentos se listarán de acuerdo con los P&ID´s, el aporte de la disciplina y el software AUTOCAD P&ID. La disciplina de Instrumentación tendrá la responsabilidad de apoyar la generación de los P&ID inteligentes en el software AUTOCAD P&ID, en lo referente a la incorporación de las señales y control asociado al proceso, lo cual debidamente coordinado con la disciplina de Piping.

9.9 Costos Indirectos La estimación de costos indirectos no tiene cálculo de materiales involucrados, en esta etapa. La mayoría de los costos serán calculados como un factor o estimados bajo los criterios que se indican en el capítulo 13.

10.0 PRECIOS DE EQUIPOS Y MATERIALES 10.1 Equipos Mecánicos y Eléctricos

Los equipos mecánicos y eléctricos se han dividido en dos grupos: • Equipos Principales: Estos se han definido como los equipos de proceso de un

costo mayor que 50.000 US$. Tales como, chancadores, molinos SAG, molinos verticales, molinos de bolas, correas transportadoras, puentes grúas, baterías de ciclones, bombas de gran tamaño, espesadores, estanques de gran tamaño, transformadores de poder, etc., todos ellos seguirán el procedimiento de cotización para presupuesto. Las ofertas se evaluaran técnica y económicamente por los

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ingenieros especialistas que emitirán una recomendación. En la estimación de costo se incluirá la oferta recomendada.

• Equipos Secundarios: Todos los equipos cuyo costo estimado sea inferior a US$

50.000, serán estimados de valores de proyectos recientes de la base de datos de AMEC.

El informe de estimaciones incluirá un cuadro con los equipos que fueron cotizados “para presupuesto” y los que fueron estimados a partir de la base de datos de proyectos similares recientes.

10.2 Materiales Civiles El proyecto no tiene materiales civiles de costos relevantes, los que se incluyan en el diseño serán estimados desde la base de datos de AMEC.

10.3 Materiales de Hormigón El costo unitario del hormigón se divide en dos grandes grupos: • Suministro del hormigón de planta: La estimación contempla cotizar con

empresas establecidas en la zona que proveen hormigón en camión mixer puesto en la obra.

• Armaduras y colocación de Hormigones: El contratista de obras civiles deberá colocar todos los materiales restantes para completar las obras de hormigón, es decir el moldaje, el acero de refuerzo, pernos de anclaje y cualquier otro elemento incorporado o no en el hormigón. La estimación de estos materiales se basará en consumos unitarios usuales en este tipo de faenas. El consumo unitario de estos materiales de hormigón es altamente dependiente de las formas del hormigón, es por este motivo que se clasificarán diferentes tipos de hormigón indicados en la tabla 10.3.1

Tabla 10.3.1 Tipos estándar de Hormigones

PRIME TIPOS DE HORMIGONES 201 Concreto Pobre (Emplantillado y Relleno)202 Radier sin Armaduras 203 Radier con Armaduras 204 Fundaciones Simples < 5 m3 205 Fundaciones Masivas > 5 m3 206 Zapata de Fundación 207 Pedestales de Fundación 208 Muros 209 Losas Elevadas 210 Vigas y Pilares 211 Cajones y Canaletas 299 Hormigones Misceláneos

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10.4 Precios de Estructura metálica AMEC tiene información reciente de precios de estructura metálica el cual se utilizará en la preparación del estimado de costos. Para lograr una mejor precisión se clasificarán las estructuras de acuerdo a su peso:

• Liviana: Peso Lineal < 30 Kg/m • Mediana: 30 < Peso Lineal < 60Kg /m • Pesada: Peso Lineal > 60 Kg/m • Barandas • Parrillas de Piso • Planchas Diamantadas. • Calderería y Estanques (Cotizaciones a contratistas)

10.5 Precios de Terminaciones y Edificios Auxiliares Para el recubrimiento de edificios industriales (si fuera así definido) se utilizará el precio de mercado al segundo semestre 2005. En el caso de los edificios auxiliares se utilizará un precio histórico por unidad de superficie de planta, el que incluye todos los materiales, mano de obra y costos indirectos asociados para completar la obra.

10.6 Cañerías Los precios de cañerías de gran diámetro (mayor o igual que 6”) serán cotizados para presupuesto, usando la especificación de materiales que el proyecto genere. Para las cañerías de menor diámetro se utilizarán precios recientes de la base de datos de AMEC. El fitting de diámetro mayor que 6”, será cotizado para presupuesto y para diámetros menores se utilizarán los precios de la base de dato de AMEC. Las válvulas mayores de 6”, serán cotizadas para presupuesto y las menores se usarán precios de la Base de Datos de AMEC. El sistema de alcantarillado, cubre la red de cañerías de alcantarillado y sus accesorios. Se evaluará en función de un prediseño elemental, incluyendo excavaciones, hormigones, cámaras, equipos, etc.

10.7 Materiales eléctricos Los materiales eléctricos de medio y alto voltaje serán cotizados para presupuesto y el material de bajo voltaje y misceláneos serán factorizados siguiendo las pautas indicadas en el capítulo 12. Dentro de las líneas de alimentación eléctrica, se incluye la línea eléctrica de alimentación desde las instalaciones existente de CLIENTE hasta la SSEE de entrada del proyecto. Basándose en un probable ruteo de la línea, se estimará la longitud, la cual tiene un costo estándar de acuerdo a la potencia y voltaje.

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10.8 Instrumentación Todos los instrumentos que aparezcan en el listado de instrumentos serán cotizados para presupuesto, materiales menores se factorizarán de acuerdo con el procedimiento indicado en el capítulo 12.

11.0 HORAS HOMBRES UNITARIA (HHU) Y COSTO DE MANO DE OBRA La estimación de costos de mano de obra directa estará basada en el concepto de horas hombres unitarias para cada actividad estándar en el rubro de la construcción y costos de mano de obra, cuyo detalle se presenta en el anexo B.

11.1 Horas Hombres Unitarias (HHU) En la industria de la construcción la medición del esfuerzo para ejecutar un determinado trabajo o actividad se realiza mediante las “Horas Hombres”. La experiencia de las empresas del ramo ha permitido elaborar una lista detalladas de actividades cuya cuantificación esta basada en Horas Hombres Unitarias para cada actividad. Por lo tanto, el estimado de costo estará basado en HHU usuales de los contratistas nacionales de construcción. Esta información se actualizará a partir de análisis de precios unitarios que realizarán empresas constructoras, a través de cotizaciones por montaje por las cantidades de obra estimadas en el estudio de prefactibilidad. Solo a modo de ejemplo se incluyen algunos valores típicos en la tabla 11.1.1.

Tabla 11.1.1. HHU para actividades típicas de construcción

Actividad Unidad HHU

Excavación Local en terreno común m3 0.25 - 0.50 Excavación Masiva en terreno común m3 0.05 - 0.20 Relleno Estructural m3 0.75 – 1.25 Colocación de Hormigón Fundación (Moldaje, Acero Refuerzo, vaciado, etc.)

m3 22 – 32

Montaje Estructura Liviana Ton 80 – 100 Montaje Estructura Mediana Ton 60 - 80 Montaje Estructura pesada Ton 40 – 60

Montaje Equipos pesados Ton 15 – 30

Montaje Piping Diam.”-m 0.9 – 1.1

Las HHU de este proyecto en particular serán las usuales en proyectos de esta envergadura y que corresponde al segmento medio alto de empresas constructoras del ámbito minero.

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11.2 Costo de Mano de Obra El costo unitario de la mano de obra, considera todos los costos relacionado con los sueldos y beneficios del personal sobre la base de un promedio del costo de una cuadrilla por especialidad, el detalle de la estimación se encuentra en el Anexo B de estas bases de estimación. Los costos se actualizarán a partir de las cotizaciones por montaje que se soliciten a empresas constructoras, considerando las cantidades de obra estimadas en el estudio de prefactibilidad. De esta manera, se obtendrán costos para las cantidades, ubicación y condiciones especificas del proyecto.

11.3 Costos Indirectos de los Contratistas La estrategia de ejecución del proyecto influye en el costo de inversión, especialmente en los costos indirectos de los Contratistas de Construcción y Montaje, por lo tanto el presupuesto se dividirá en la cantidad de contratos establecido en el plan de ejecución. Para cada contrato se establecerá su alcance identificando las partidas que se incluyen dentro del presupuesto y se estudiarán los costos indirectos para cada uno de ellos. Los costos indirectos se actualizarán a partir de las cotizaciones por montaje que se soliciten a empresas constructoras. Los ítems de costos indirectos que se incluirán son:

Personal • Administración • Oficina Técnica • Supervisión de Terreno • Prevención de Riesgos • Bodega • Cuadrilla Mantención y Aseo

Instalaciones Temporales • Instalación de Faena (Oficinas, Comedores, Casa de cambio, Bodegas, etc.) • Instalación agua • Instalación alcantarillado • Instalación Eléctrica • Instalaciones Voz y Datos

Mobiliario de las Instalaciones • Computadores, teléfonos, escritorios, etc

Consumos y Operación de las Instalaciones • Electricidad, agua potable, gas, combustibles, fungibles, etc.

Alojamiento y Alimentación • La estimación incluirá el alojamiento del personal de construcción en las

localidades cercanas a la mina para los trabajadores. Para el personal de administración considerará alojamiento en la ciudad de la Serena o Coquimbo. Se analizará que porcentaje del personal de construcción será de la zona.

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En cuanto a la alimentación se considera que todo el personal almorzará en la faena, para lo cual se consideran las instalaciones y servicios correspondientes. El resto de las comidas (desayuno y cena) serán en el lugar de habitación.

Transporte del Personal • Desde el lugar de origen al lugar de alojamiento, desde el lugar de alojamiento

hasta la mina y dentro de las instalaciones de la mina.

Equipos de Construcción • Equipo pesado, herramientas, andamios, etc. para el montaje

Elementos de Seguridad • Elementos de seguridad personal, cursos de inducción, protección en la faena,

letreros, etc.

Movilización y Desmovilización • Traslado, montaje, desarme y traslado fuera de las instalaciones de CLIENTE, de

todas los equipos e instalaciones temporales del Contratista

Indirectos de Subcontratistas • Subcontratistas si se requieren

Gastos Oficina Central • Cargos de la oficina central del contratista a la obra en particular

Utilidad y Contingencia • Porcentajes que habitualmente cobran las empresas constructoras

La incorporación de todos estos conceptos en el cálculo del costo de los Contratistas para cada contrato establecido en el plan de ejecución, permite simular el costo de cada contrato y de esta manera compararlo directamente con las propuesta de construcción en la etapa de ejecución del proyecto.

12.0 CRITERIOS DE FACTORIZACIÓN DE PARTIDAS MENORES Esta estimación considera partidas factorizadas para cubrir los detalles que, dado el nivel de desarrollo de la ingeniería (Estudio de factibilidad) no es posible cuantificar apropiadamente. Sin duda los ítems factorizados existen y se harán presente en la etapa de construcción, solo existe el inconveniente de cuantificarlos en una etapa de factibilidad del proyecto. Dos tipos de factorizaciones serán aplicados en el estimado: a) Explícitos: Son ítems específicos del estimado, como por ejemplo. “Cañerías de

diámetros menores”, “materiales eléctricos menores”, Misceláneos mecánicos, tales como lainas, bases, pernos, etc.

b) Implícitos: Factores aplicados a la mano de obra, a los materiales o cantidades de

obra, que no son visibles en el informe del estimado de costos.

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La tabla 12.1 muestra los factores que utilizaremos en el estimado de costos:

Tabla 12.1 Conceptos Factorizados Incluidos Explícitamente en el Estimado

Descripción Alcance Factor

Fundaciones menores Fundaciones de pequeños equipos, soportes de cañerías, apoyos de estructuras, no incluido en las cubicaciones.

10% del total de hormigones del área, excepto hormigones de fundaciones masivas.

Estructuras metálicas menores.

Escalas, plataformas, soportes pequeños, etc. no incluido en las cubicaciones.

10% del peso total de las estructuras metálicas.

Misceláneos de Arquitectura

Fijaciones, Molduras de terminación, etc 5% del costo total de la arquitectura

Misceláneos Mecánicos Elementos adicionales, soportes, lainas, pernos de anclaje, grouting, estructuras de montaje, etc.

5% del costo de los equipos

Cañerías menores a 6” de diámetro

Líneas que no se muestran en los P& ID´s y que deben considerarse. Generalmente para servicio de agua, aire, reactivos, etc.

15% del costo de las cañerías.

Fitting para cañerías interior planta

Codos, tee, flanches, uniones, pernos, empaquetaduras, etc.

40% del costo de la cañería

Fitting para cañerías exteriores (pipeline)

Codos, tee, flanches, uniones, pernos, empaquetaduras, etc.

10% del costo de la cañería

Misceláneos Equipos Eléctricos

Elementos adicionales, soportes, lainas, pernos de anclaje, grouting, estructuras de montaje, etc.

5% del costo del equipo

Misceláneos Materiales Eléctricos

Material menor de montaje 10% del costo de los materiales eléctricos definidos

Misceláneos de Instrumentación

Cables, conduits y materiales de montaje 10% del costo de los instrumentos

Tabla 12.2 Conceptos factorizados incluidos implícitamente en el Estimado.

Item Alcance % Aplicado sobre: Comentarios Cant. M de O Mat/Eq. Excavación – Masiva

Sobre excavación, refinamiento

5 % A

Relleno- Masivo

Sobre relleno, Refinamiento

5 % A

Excavación Local

Sobre excavación Refinamiento

15 % A

Relleno – Local Sobre relleno, Refinamiento

15 % A

Perdida de materiales de

Despuntes y perdidas normales de vaciado

10% A

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hormigón Estructuras misceláneas

Goussets, Planchas de uniones, pernos conex., arriostramientos y otros componentes no cubicados

20 % A

Detallamiento de Estructuras Metálicas

Perdidas de materiales al fabricar las estructuras metálicas

5% A

Recubrimiento Edificios

Traslapos – Detalles 12,5 % A

Cañerías Interior Planta

Perdidas, despuntes, etc. 15 % A

cañerías Exterior Planta (pipeline)

Perdidas, despuntes, etc. 10 % A

Materiales Eléctricos

Perdida de materiales, despuntes, etc...

15 % A Aplicados sobre la estimación de materiales

13.0 COSTOS INDIRECTOS DEL PROYECTO Los costos indirectos del proyecto serán estimados individualmente, teniendo en cuenta los siguientes conceptos: • Tamaño del proyecto. • Plan de ejecución • Nivel de desarrollo de la ingeniería. • Alcance de las instalaciones Los conceptos que se incorporan en la estimación de los costos indirectos están basados en la experiencia en proyectos similares de la industria minera. Las partidas consideradas dentro de los costos indirectos y el alcance que estos cubren son los siguientes:

Servicios EPCM: Incluye los costos de las ingenierías básica y de detalles, servicios de abastecimiento y administración de la construcción, los cuales se evaluarán de acuerdo a las tarifas por categoría profesional de mercado actualmente vigentes. Para la estimación de los servicios de abastecimiento y administración de la construcción se preparar una lista de posiciones las que se evaluarán de acuerdo a tarifas de mercado, además se incluirán todos los gastos asociados a estos servicios como viajes, alimentación, instalaciones temporales, consumo y mantención de las instalaciones, etc.

Instalaciones Temporales: Se entiende por instalaciones temporales a todas las obras de apoyo necesarias para la ejecución del proyecto, tales como, oficinas para contratista EPCM, bodegas del proyecto, casas de cambio, etc. Se incluye en esta partida la bodega y el área de almacenamiento de estructuras y equipos, para lo cual se estimará un galpón de

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dimensiones que permita guardar los equipos sensibles y un área cercada e iluminada para las estructuras y equipos que puedan permanecer a la intemperie.

Suministro de Agua Potable: Se considera que el agua potable utilizada en la construcción será suministrada por CLIENTE, en las cercanías del área del proyecto a un costo unitario de 0.66 US$/m3. El consumo será estimado en base a 150 litros/Hombre-dia y la cantidad de Hombres-dia calculado de las HH de la estimación. La distribución del agua potable desde el punto de entrega hasta los distintos centros de consumo será estimada en función de posibles puntos de conexión cercanos.

Suministro de Agua Industrial: Se considera que el agua industrial utilizada en la construcción será suministrada por CLIENTE, en las cercanías del área del proyecto a un costo unitario de 0.42 US$/m3. El consumo será estimado en base a 8% de humedad para los rellenos compactados, incluidos el riego de caminos.

Suministro de Energía Eléctrica: El consumo de energía eléctrica de los contratistas de construcción esta incluido en sus costos indirectos. El suministro de energía eléctrica en terreno para el contratista EPCM será aportado por CLIENTE en la subestación más cercana al área del proyecto, a un costo unitario 0,0605 US$/KWh. El consumo se estimará a razón de 0.25 kW/m2 de oficinas en terreno y 0.75 KW/m2 de talleres de construccion. Las instalaciones necesarias para la conexión entre el punto definido por CLIENTE y los diferentes centro de consumo serán estimadas como instalaciones provisorias

Campamento: Durante la construcción se considera que todo el personal alojará en las localidades cercanas a la mina, por lo tanto no se considera la construcción de un campamento.

Catering: La estimación considera que todo el personal tendra todas las comidas fuera de las instalaciones de la planta, solo se considera un comedor para la supervision.

Contratos por servicios: Incluye los siguientes contratos principales por servicios: • Limpieza y mantención de las instalaciones temporales • Operación del Policlínico (salvo que sea instalado por la Mutual) • Operación de la Bodega • Equipamiento de la Bodega • Colección y manejo de basura • Colección de residuos de alcantarillado • Seguridad Industrial • Comunicaciones

Subcontratos y Consultores: Se incluyen los siguientes contratos:

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• Consultores especialistas. • Agente de Aduanas • Geotécnica • Topografía • Pruebas y Ensayos específicos (Hormigones / suelos, soldaduras, etc.) • Inspecciones en fábrica (nacional o extranjera). • Servicios de activación (Expediting Nacional o extranjera)

Fletes: Se incluye el transporte de todas los equipos y materiales del proyecto desde el lugar de entrega de los fabricantes hasta las bodegas del proyecto. En el caso de los equipos y materiales importados se incluyen los seguros. Los factores que se emplearán serán los valores históricos empleados en proyectos similares: Equipos y Materiales Importados: • Flete y seguro desde Ex fabrica hasta el puerto de destino: 10% del costo de los

equipos y materiales importados. • Transporte de Puerto de destino hasta la bodega del proyecto en la mina: 2% del

costo de los equipos. • Transporte de equipos y materiales locales: 4% del costo de los equipos.

Impuestos de Importación: Los impuestos de importación de bienes estarán basados en las tasas aduaneras aplicables como derechos de internación de bienes y servicios que para los años 2005-2006 corresponden a un 6% del valor de los bienes como regla general. Sin embargo, para los países con TLC (Tratado de Libre Comercio) vigentes no se aplicarán impuestos. La tabla siguiente muestra algunos valores para países que comúnmente suministran equipos y materiales a los proyectos mineros.

País de Origen Porcentaje sobre Valor CIF América del Norte: Estados Unidos 0 % Canadá 0 % México 0 % Comunidad Europea 0 % Corea del Sur 0 % MERCOSUR: Brasil 6 % Argentina 6 % Cualquier Otro País 6 %

Como no se sabe la procedencia exacta de los equipos y materiales importados se asumirá que el 50% de los productos serán importados de países sin TLC, por lo tanto se asumirá 3% sobre todos los materiales importados.

Pre-comisionamiento:

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Incluye toda la mano de obra, supervisión, administración, ingeniería de terreno y materiales que no sean incluidos dentro de las ordenes de compra, necesarios para efectuar el precomisionamiento de los equipos y sistemas del proyecto. La valorización en costos estará formada por una estimación del costo del personal de acuerdo a un listado que se preparará teniendo en cuenta los sistemas del proyecto. Se incluye una provisión (Allowance) de los materiales y reparaciones de equipos que pudieran requerirse que están fuera del alcance de los seguros. No se incluye los costos preoperacionales que se requiera durante esta etapa, se consideran incluidos dentro de los costos del dueño.

Comisionamiento: En esta fase toma el control CLIENTE, por lo tanto se incluye dentro de los costos del dueño. Solo se ha considerado el personal de soporte del equipo EPCM que estará bajo el control de CLIENTE.

Asistencia del Fabricante: Todos los equipos que requieran de la asistencia especializada de los proveedores de equipos durante la construcción, comisionamiento y puesta en marcha, se estimarán los costos de los servicios y gastos de los especialistas, de acuerdo a una tarifa diaria y una estimación del periodo (días) que pudiera requerirse en terreno basado en proyectos similares.

Repuestos: Incluye los repuestos de equipos que se requieran para la puesta en marcha y para un año de operación. • Puesta en Marcha 2% del costo del equipo ex-fabrica. • Primer año de operación 6% del costo del equipo exfabrica.

Primer Llenado: Los insumos necesarios para la operación de la planta se consideran en esta partida, la que incluye lo siguiente: • Bolas para el primer recambio • Primer llenado de aceite de los transformadores y reductores de velocidad • Reactivos. Siempre y cuando estos no estén cotizados e incluidos en el valor de los equipos principales.

14.0 IMPUESTOS No se incluye ningún tipo de impuestos.

15.0 ESTIMACIÓN DE EFECTO DE VARIABLES EXOGENAS El estudio incluye un valor fijo de las tasa de cambio de moneda extranjara, variaciones futuras seran analizadas por CLIENTE. El sistema de estimaciones permite calcular las variaciones del presupuesto ante variaciones futuras de la tasa de cambio. No se incluye Efectos de inflacion local e internacional.

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16.0 PROCESO DE REVISIÓN DEL ESTIMADO La revisión del estimado de costos se llevará a cabo de acuerdo con el siguiente esquema: • Revisión de las cubicaciones: Para garantizar la correcta imputación de las

cantidades dentro del sistema de estimaciones, se entregará a cada jefe de disciplina una copia del estimado para que compare las cantidades incluidas en el sistema de estimaciones con las cantidades arrojadas por el modelo.

• Revisión del alcance: Se realizará una reunión preliminar con el personal de ingeniería y estimaciones para asegurar que el alcance del proyecto este cubierto en todos sus aspectos. El estimador preparará una lista de chequeo para utilizarla como guía en la reunión.

• Revisión detallada: Se organizará una reunión de revisión con los lideres de disciplina para revisar línea por línea el estimado en todos sus aspectos.

• Revisión general de cantidades: El sistema de estimaciones entregará un informe que incluirá el resumen de las cantidades significativas del proyecto (excavaciones, rellenos, hormigones, estructura metálica, cañerías, etc.), las cuales serán analizadas desde una perspectiva general comparándolas con cantidades de proyectos similares.

• Revisión de costos unitarios: El sistema de estimaciones entregará un informe con los costos unitarios promedios para partidas típicas como por ejemplo, excavaciones, rellenos, hormigones, estructura metálica, etc. los cuales serán analizados en conjunto con CLIENTE.

• Revisión por la División M&M de AMEC: Un profesional asignado por la Gerencia de AMEC M&M revisará la estimación para asegurar el cumplimiento con los estándares de la corporación.

• Revisión Por CLIENTE Personal de CLIENTE revisará el estimado de costos con el fin de que este cumpla con los estándares del cliente.

17.0 ANÁLISIS DE RIESGO Y CONTINGENCIA La contingencia será analizada utilizando el sistema @Risk. Este sistema esta basado en el método de Montecarlo, el cual simula la distribución de probabilidad del costo total estimado, teniendo en cuenta las posibles variaciones que pueden experimentar las variables que componen el costo. En una primera instancia se realizará una reunión con el personal involucrado en la estimación, para determinar el rango de variación de las diferentes partidas representativas del estimado de costos, con esta primera estimación se correrá el sistema @Risk, el resultado de esta prueba se compara con el rango deseado (+/-15%), si es aceptable se termina la iteración, si no lo es se analizan los aspectos críticos con el objeto de determinar las condiciones que se deben cumplir para mejorar el rango de variación de las partidas analizadas, con estos nuevos rangos se corre el sistema hasta lograr el rango deseado. Al término de la sesión se tendrá un listado de condiciones que se deben cumplir para que el estimado tenga la precisión deseada. Este proceso puede exigir un desarrollo mas detallado de algunos aspectos del diseño.

2102-1-BE-9-001_0 Página 20 de 23

El valor de la contingencia propuesto será el que resulte de la diferencia entre el valor estimado y el valor medio (Mean) de la distribución estadística que entregue la curva de probabilidades.

Pro

babi

lidad

Intervalo de Confianza

Area bajo la curva = 85%

Costo de Capital

P(92.5)P(7.5)

DE M

CTG

Descripción: P(7.5): Percentil 7.5, en que el área bajo la curva (probabilidad) hacia la izquierda es 7.5%. P(92.5): Percentil 92.5, en que el área bajo la curva hacia la izquierda es 92.5% Intervalo de confianza 85%: Área entre los percentiles P(7.5) y P(92.5) E : Valor final de la estimación de costos sin contingencia. M : Valor medio de la distribución estadística, corresponde a P(50) CTG: : Contingencia para una probabilidad de ocurrencia de 50% D : P(92.5) - M

Costo de Capital = (E + CTG) +/- D, Si D < 15% cumple el objetivo. Este procedimiento se aplicará tanto para la inversión sin los costos de los servicios EPCM y se aplicará a los servicios EPCM separadamente.

18.0 EXCLUSIONES 18.1 Exclusiones

Las siguientes actividades están excluidas de los alcances de AMEC. CLIENTE proporcionará la información que AMEC necesite, cuando el Estudio lo requiera: • Costos de propiedades y derechos de propiedades mineras.

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• Costos de Estudios de Impacto Ambiental y gestión de permisos ambientales ante las autoridades pertinentes.

• Costos de análisis de reservas de mineral. • Diseño del rajo. • Proyecto Ingeniería Mina. • Evaluación de costos de capital mina. • Evaluación de costos de compensación a la comunidad local. • Evaluación de costo de gerenciamiento del proyecto por personal de CLIENTE. • Evaluación de Costos de Reclutamiento y de Capacitación de personal de

CLIENTE • Traducción al inglés del informe final de las secciones preparadas por terceros. • Topografía • Impuestos • Seguros • Costos del Dueño (Organización, reoperación y gastos asociados) • Pago de Royalty. • Permisos de construcción e impacto ambiental • Consultor en estudios medio ambiente • Adquisición y o cualquier pago por el terreno de emplazamiento • Capital de trabajo • Premios por resultados (cumplimiento del programa, obtener costos de inversión

menores al presupuesto, cumplimiento de metas de seguridad) • Costos de financiamiento del proyecto. • Servicios y relaciones con la comunidad. • Suspensión o postergación de materialización de la inversión. Las siguientes partidas no se incluyen dentro del estimado de costos: • Costos previos a la fase EPCM (incluido los costos del dueño) • Costos por fuerza mayor o actos de la naturaleza no cubiertos por los seguros • Costos relacionados con el cierre del proyecto o reclamaciones posteriores.

19.0 INFORME DEL ESTIMADO DE COSTOS El estimado de costos será preparado en una planilla relacionada EXCEL, de la cual se pueden obtener tantos reportes como combinación de códigos sea posible. La estructura de codificación y quiebre del proyecto (WBS) será la mostrada en el anexo A.

El reporte base será un detalle agrupado por área, luego por disciplina. Los reportes de resumen serán por disciplina y por área, reportes especiales que entreguen las cantidades representativas y los costos unitarios promedios.

ANEXO A

Estructura de Quiebre del Proyecto (WBS)

ANEXO B

Estimación Costos de Mano de Obra

Tabla B.1

Análisis Costo Cuadrillas Típicas de Montaje

Tabla B.2 Análisis Costo Cuadrillas Típicas Obras Civiles

Tabla B.3

Composición Costo de Mano de Obra por Categoría

APPENDIX II BFS TABLE OF CONTENTS

(Preliminary and subject to change during BFS development)

Page 1 of 17

DOE RUN PERU MODERNIZATION PROGRAM BANKABLE FEASIBILITY STUDY OUTLINE 1 EXECUTIVE SUMMARY -- ZUNKEL 1,1 Overview 1,2 Doe Run Peru 1,3 Modernization Strategy 1,4 Modernization Program Description and Scope 1,5 Metallurgy, Process, and Technical Feasibility 1,6 Program Execution and Implementation 1,7 Operations 1,8 Infrastructure 1,9 Environmental Considerations 1,10 Health and Safety Considerations 1,11 Social considerations 1,12 Legal Considerations 1,13 Capital Costs 1,14 Operating Costs 1,15 Financial Evaluation Enhancement of Economics 1,16 Key Issues 2 DOE RUN COMPANY AND DOE RUN PERU -- HUYHUA/PAZ SOLDAN 2,1 1997 Privatization 2,2 Ownership Structure 2,3 Organizational Structure 2,4 Management Structure and Personnel 2,5 Debt and Asset Encumbrance 3 THE LA OROYA METALLURGICAL COMPLEX -- HUYHUA/REYES/QUISPE 3,1 Ownership and Ownership History 3.1.1 Cerro de Pasco 3.1.2 Centromin 3.1.3 Doe Run Peru 3,2 Technical Evolution and Uniqueness 3.2.1 Treats High Impurity, High PM Base Metals Concentrates 3.2.2 Serves Large and Small, Mostly Local, Miners 3.2.3. Unique Ability to Handle Arsenic, Antimony, and Bismuth 3.2.4 Large Stockpile of Indium-Rich Ferrites with Continuing Indium

Input 3.2.5 Peruvian Concentrate Suppliers 3,3 Place in Regional and Peruvian Economy 3,4 The La Oroya Metallurgical Complex 3.4.1 Current Plants 3.4.1.1 Copper 3.4.1.2 Lead 3.4.1.3 Zinc 3.4.1.4 Precious Metals 3.4.1.5 Indium 3.4.1.6 Minor Metals

Page 2 of 17

3.4.1.7 Closure Plans 3.4.2 Cobriza 3.4.2.1 Current Status 3.4.2.2 Future Plans 3.4.2.3 Impact on Modernization Program 3.4.2.4 Closure Plans 3.4.3 Recent Operational Performance 3.4.3.1 Production 3.4.3.2 Product Quality 3.4.3.3 Recoveries 3.4.4 Utilities and Infrastructure 3.4.4.1 Power 3.4.4.2 Water 3.4.4.3 Steam 3.4.4.4 Compressed Air 3.4.4.5 Oxygen 3.4.5 Transportation 3.4.5.1 Railroad 3.4.5.2 Road 3.4.5.3 Air 3.4.6 Slag, Tailings, and Waste Management 3.4.6.1 Facilities 3.4.6.2 Capacity 3.4.6.3 Future Expansion Plans 3.4.6.4 Closure Plans 3.4.7 Health and Safety 3.4.7.1 Health and Safety Rules and Regulations 3.4.7.2 Safety Record 3.4.7.3 Safety Program 3.4.7.4 Contractor Safety 3.4.7.5 Emergency Preparedness 3.4.8 Human Resources and Labor Management 3.4.8.1 Organizational Structure and Manning Table 3.4.8.2 Labor Regulations 3.4.8.3 Labor Laws 3.4.8.4 Union Relations and History 3.4.8.5 Training and Compensation 3.4.8.6 Human Resources Management System 3.4.9 Environment 3.4.9.1 Environmental Regulations 3.4.9.2 Current Environmental Compliance 3.4.9.3 Significant Environmental Issues 3.4.10 Closure Plan 3,5 Past Project Management and Execution 3.5.1 Project Implementation and Performance 3.5.1.1 Organization 3.5.1.2 Personnel 3.5.1.3 Systems 3.5.1.4 Use of Subcontractors and Consultants 3.5.1.5 Capabilities of Onsite Shops and Craftsmen

Page 3 of 17

3.5.1.6 Capabilities of Offsite Local Contractors 3.5.2 Recent Investment Programs 3.5.2.1 Environmental 3.5.2.2 Process Upgrades 3.5.2.3 New Processes 3.5.2.4 Infrastructure 4 MODERNIZATION STRATEGY -- LARROQUE 4,1 The Modernization Program 4.1.1 Background 4.1.2 Concept and How Projects Fit Together 4.1.3 Implementation 4.1.4 Timing and Schedule 4.1.5 Relationship to the PAMA 4,2 Strategic Rationale 4,3 Strategic Fit 4,4 Strategic Alternatives 4,5 Exit Strategy 4,6 Doe Run Peru After Modernization 4.6.1 Products 4.6.2 Processes 4.6.3 Environment 4.6.4 Social 4.6.4 Health and Safety 5 RAW MATERIAL SUPPLIES -- GRUBBS/HANSEN/ESCALANTE 5,1 Concentrates 5.1.1 Concentrate Requirements 5.1.1.1 Copper 5.1.1.2 Lead 5.1.1.3 Zinc-Indium 5.1.1.4 Other 5.1.2 Concentrate Specifications 5.1.2.1 Copper 5.1.2.2 Lead 5.1.2.3 Zinc-Indium 5.1.2.4 Other 5.1.3 Long Term Concentrate Availability 5.1.3.1 Copper 5.1.3.2 Lead 5.1.3.3 Zinc-Indium 5.1.3.4 Other 5.1.4 Future Concentrate Sources 5.4.1 Copper 5.4.2 Lead 5.4.3 Zinc-Indium 5.4.4 Other

Page 4 of 17

5.1.5 Concentrate Purchasing Strategy 5.1.6 TC/RC Forecasts 5.1.7 Concentrate Purchasing Contacts and Contracts 5.1.8 Concentrate Purchasing Resources and Organization 5.1.9 Concentrate Receipt and Storage 5.1.10 Future Concentrate Suppliers 5.1.11 Competitors 5,2 Ferrites 5.2.1 Size of Ferrite Stockpile 5.2.2 Composition of Ferrite Stockpile 5.2.3 Continuing Ferrite Supplies 5,3 Other Raw Materials 5.3.1 Lead-Acid Battery Scrap 5.3.2 Copper Scrap 5.3.3 Zinc Scrap 5.3.4 Other 6 PRODUCT MARKETING -- GRUBBS/HANSEN/ESCALANTE 6,1 Major Products 6.1.1 Copper 6.1.2 Lead 6.1.3 Zinc 6.1.4 Silver 6.1.5 Indium 6.1.6 Bismuth 6.1.7 Sulfuric Acid 6.1.8 Other Products-- Antimony, Selenium, Tellurium, Cadmium, Zinc Dust, Zinc Sulfate 6,2 Product Specifications 6,3 Demand Forecasts 6,4 Supply Forecasts 6,5 Marketing Strategy 6,6 Pricing Strategy 6,7 Customers 6,8 Marketing Contacts and Contracts 6,9 Revenue Forecasts 6,10 Marketing Resources and Organization 6,11 Product Shipping, Storage, and Distribution 6,12 Competitors 6,13 Range Analysis 6,14 Consequences for Peru's Mining Industry 7 COPPER SMELTER MODERNIZATION -- OPORTO/QUISPE 7,1 Process and Engineering 7.1.1 Metallurgical Processing 7.1.1.1 Feed Characteristics 7.1.1.2 Laboratory, Pilot, and Demonstration Plant Work 7.1.1.3 Process Selection and Basis 7.1.1.4 Scale-up 7.1.1.5 Consumption of Reagents and Consumables 7.1.1.6 Validation of Process Design Criteria 7.1.1.7 Acquisition of Technology

Page 5 of 17

7.1.1.8 Past History of Technology 7.1.1.9 Details of Testwork 7.1.1.10 Further Testwork Requirements 7.1.2 Process Facilities 7.1.2.1 7.1.2.1.1 Mass and Water Balances 7.1.2.1.2 Feed and Product Quality Specifications 7.1.2.1.3 Annual Feed and Product Capabilities 7.1.2.1.4 Major Mass Flows and Capacities 7.1.2.1.5 Process Design Basis 7.1.2.1.6 Process Equipment Design Criteria 7.1.2.1.7 Plant Availability 7.1.2.1.8 Operating and Maintenance Consumables 7.1.2.1.9 Utility Usage 7.1.2.1.10 Plant Operating Philosophy 7.1.2.1.11 Startup and Shutdown Criteria 7.1.2.1.12 Expandability and Expansion Options 7.1.2.2 Facility Operation Basis 7.1.2.2.1 Plant Operating Strategy 7.1.2.2.2 Plant Availability 7.1.2.2.3 Plant Production Schedule 7.1.2.2.4 Ramp Up Schedule 7.1.2.2.5 Maintenance of Production Strategy 7.1.2.2.6 Product Handling and Transport 7.1.2.2.7 Plant Residues/Effluent Disposal/Water

Management Plans 7.1.2.2.8 Plant Environmental Control Strategy and

Plans 7.1.2.2.9 Process Sampling and Accounting 7.1.2.2.10 Process Control Strategy 7,2 Project Execution 7.2.1 Objectives 7.2.2 Scope 7.2.3 Project Criteria 7.2.4 User Requirements 7.2.5 Work Breakdown Structure 7.2.6 Execution Methodology 7.2.7 Contracting Strategy 7.2.8 Contractor Coordination 7.2.9 Project Organization 7.2.10 Project Personnel 7.2.11 Planning and Scheduling 7.2.12 Cost Management 7.2.13 Reporting 7.2.14 Engineering 7.2.15 Procurement and Contracts 7.2.16 Quality Assurance 7.2.17 Construction 7.2.18 Pre-commissioning and Commissioning 7.2.19 Ramp-Up and Handover

Page 6 of 17

7.2.20 Operations and Maintenance 7.2.21 Financial Administration 7.2.22 Insurances 7.2.23 Environmental Management 7.2.23.1 Waste Management and Assaying Plan 7.2.24 Process Guarantees 7,3 Capital Costs Estimate 7.3.1 Accuracy of Estimate 7.3.2 Basis of Estimate 7.3.3 Work Breakdown Structure 7.3.4 Structure of Estimate 7.3.5 Estimate 7.3.6 Owner's Cost 7.3.7 Escalation and Foreign Exchange 7.3.8 Working and Sustaining Capital 7.3.9 Contingency 7.3.10 Inclusions 7.3.11 Exclusions 7.3.12 License Fees and Royalties 7.3.13 Source of Data 7,4 Operating Cost Estimate 7.4.1 Accuracy of Estimate 7.4.2 Basis of Estimate 7.4.3 Work Breakdown Structure 7.4.3.1 Fixed Operating Costs 7.4.3.2 Variable Operating Costs 7.4.4 Contingency 7.4.5 Estimate 7.4.6 Startup Costs 7.4.7 Escalation and Foreign Exchange 7.4.8 Source of Data 8 COPPER SMELTER SULFURIC ACID PLANT -- QUISPE 8,1 Process and Engineering 8.1.1 Metallurgical Processing 8.1.1.1 Feed Characteristics 8.1.1.2 Laboratory, Pilot, and Demonstration Plant Work 8.1.1.3 Process Selection and Basis 8.1.1.4 Scale-up 8.1.1.5 Consumption of Reagents and Consumables 8.1.1.6 Validation of Process Design Criteria 8.1.1.7 Acquisition of Technology 8.1.1.8 Past History of Technology 8.1.1.9 Details of Testwork 8.1.1.10 Further Testwork Requirements 8.1.2 Process Facilities 8.1.2.1 8.1.2.1.1 Mass and Water Balances 8.1.2.1.2 Feed and Product Quality Specifications 8.1.2.1.3 Annual Feed and Product Capabilities

Page 7 of 17

8.1.2.1.4 Major Mass Flows and Capacities 8.1.2.1.5 Process Design Basis 8.1.2.1.6 Process Equipment Design Criteria 8.1.2.1.7 Plant Availability 8.1.2.1.8 Operating and Maintenance Consumables 8.1.2.1.9 Utility Usage 8.1.2.1.10 Plant Operating Philosophy 8.1.2.1.11 Startup and Shutdown Criteria 8.1.2.1.12 Expandability and Expansion Options 8.1.2.2 Facility Operation Basis 8.1.2.2.1 Plant Operating Strategy 8.1.2.2.2 Plant Availability 8.1.2.2.3 Plant Production Schedule 8.1.2.2.4 Ramp Up Schedule 8.1.2.2.5 Maintenance of Production Strategy 8.1.2.2.6 Product Handling and Transport 8.1.2.2.7 Plant Residues/Effluent Disposal/Water

Management Plans 8.1.2.2.8 Plant Environmental Control Strategy and

Plans 8.1.2.2.9 Process Sampling and Accounting 8.1.2.2.10 Process Control Strategy 8,2 Project Execution 8.2.1 Objectives 8.2.2 Scope 8.2.3 Project Criteria 8.2.4 User Requirements 8.2.5 Work Breakdown Structure 8.2.6 Execution Methodology 8.2.7 Contracting Strategy 8.2.8 Contractor Coordination 8.2.9 Project Organization 8.2.10 Project Personnel 8.2.11 Planning and Scheduling 8.2.12 Cost Management 8.2.13 Reporting 8.2.14 Engineering 8.2.15 Procurement and Contracts 8.2.16 Quality Assurance 8.2.17 Construction 8.2.18 Pre-commissioning and Commissioning 8.2.19 Ramp-Up and Handover 8.2.20 Operations and Maintenance 8.2.21 Financial Administration 8.2.22 Insurances 8.2.22.1 Waste Management and Assaying Plan 8.2.23 Environmental Management 8.2.24 Process Guarantees 8,3 Capital Costs Estimate 8.3.1 Accuracy of Estimate 8.3.2 Basis of Estimate 8.3.3 Work Breakdown Structure 8.3.4 Structure of Estimate

Page 8 of 17

8.3.5 Estimate 8.3.6 Owner's Cost 8.3.7 Escalation and Foreign Exchange 8.3.8 Working and Sustaining Capital 8.3.9 Contingency 8.3.10 Inclusions 8.3.11 Exclusions 8.3.12 License Fees and Royalties 8.3.13 Source of Data 8,4 Operating Cost Estimate 8.4.1 Accuracy of Estimate 8.4.2 Basis of Estimate 8.4.3 Work Breakdown Structure 8.4.3.1 Fixed Operating Costs 8.4.3.2 Variable Operating Costs 8.4.4 Contingency 8.4.5 Estimate 8.4.6 Startup Costs 8.4.7 Escalation and Foreign Exchange 8.4.8 Source of Data 9 LEAD SMELTER SULFURIC ACID PLANT -- QUISPE 9,1 Process and Engineering 9.1.1 Metallurgical Processing 9.1.1.1 Feed Characteristics 9.1.1.2 Laboratory, Pilot, and Demonstration Plant Work 9.1.1.3 Process Selection and Basis 9.1.1.4 Scale-up 9.1.1.5 Consumption of Reagents and Consumables 9.1.1.6 Validation of Process Design Criteria 9.1.1.7 Acquisition of Technology 9.1.1.8 Past History of Technology 9.1.1.9 Details of Testwork 9.1.1.10 Further Testwork Requirements 9.1.2 Process Facilities 9.1.2.1 9.1.2.1.1 Mass and Water Balances 9.1.2.1.2 Feed and Product Quality Specifications 9.1.2.1.3 Annual Feed and Product Capabilities 9.1.2.1.4 Major Mass Flows and Capacities 9.1.2.1.5 Process Design Basis 9.1.2.1.6 Process Equipment Design Criteria 9.1.2.1.7 Plant Availability 9.1.2.1.8 Operating and Maintenance Consumables 9.1.2.1.9 Utility Usage 9.1.2.1.10 Plant Operating Philosophy 9.1.2.1.11 Startup and Shutdown Criteria 9.1.2.1.12 Expandability and Expansion Options 9.1.2.2 Facility Operation Basis 9.1.2.2.1 Plant Operating Strategy 9.1.2.2.2 Plant Availability

Page 9 of 17

9.1.2.2.3 Plant Production Schedule 9.1.2.2.4 Ramp Up Schedule 9.1.2.2.5 Maintenance of Production Strategy 9.1.2.2.6 Product Handling and Transport 9.1.2.2.7 Plant Residues/Effluent Disposal/Water Management Plans 9.1.2.2.8 Plant Environmental Control Strategy and Plans 9.1.2.2.9 Process Sampling and Accounting 9.1.2.2.10 Process Control Strategy 9,2 Project Execution 9.2.1 Objectives 9.2.2 Scope 9.2.3 Project Criteria 9.2.4 User Requirements 9.2.5 Work Breakdown Structure 9.2.6 Execution Methodology 9.2.7 Contracting Strategy 9.2.8 Contractor Coordination 9.2.9 Project Organization 9.2.10 Project Personnel 9.2.11 Planning and Scheduling 9.2.12 Cost Management 9.2.13 Reporting 9.2.14 Engineering 9.2.15 Procurement and Contracts 9.2.16 Quality Assurance 9.2.17 Construction 9.2.18 Pre-commissioning and Commissioning 9.2.19 Ramp-Up and Handover 9.2.20 Operations and Maintenance 9.2.21 Financial Administration 9.2.22 Insurances 9.2.23 Environmental Management 9.2.23.1 Waste Management and Assaying Plan 9.2.24 Process Guarantees 9,3 Capital Costs Estimate 9.3.1 Accuracy of Estimate 9.3.2 Basis of Estimate 9.3.3 Work Breakdown Structure 9.3.4 Structure of Estimate 9.3.5 Estimate 9.3.6 Owner's Cost 9.3.7 Escalation and Foreign Exchange 9.3.8 Working and Sustaining Capital 9.3.9 Contingency 9.3.10 Inclusions 9.3.11 Exclusions 9.3.12 License Fees and Royalties 9.3.13 Source of Data 9,4 Operating Cost Estimate

Page 10 of 17

9.4.1 Accuracy of Estimate 9.4.2 Basis of Estimate 9.4.2 Work Breakdown Structure 9.4.3.1 Fixed Operating Costs 9.4.3.2 Variable Operating Costs 9.4.4 Contingency 9.4.5 Estimate 9.4.6 Startup Costs 9.4.7 Escalation and Foreign Exchange 9.4.8 Source of Data 10 ZINC-INDIUM REFINERY MODERNIZATION -- QUISPE 10,1 Process and Engineering 10.1.1 Metallurgical Processing 10.1.1.1 Feed Characteristics 10.1.1.2 Laboratory, Pilot, and Demonstration Plant Work 10.1.1.3 Process Selection and Basis 10.1.1.4 Scale-up 10.1.1.5 Consumption of Reagents and Consumables 10.1.1.6 Validation of Process Design Criteria 10.1.1.7 Acquisition of Technology 10.1.1.8 Past History of Technology 10.1.1.9 Details of Testwork 10.1.1.10 Further Testwork Requirements 10.1.2 Process Facilities 10.1.2.1 10.1.2.1.1 Mass and Water Balances 10.1.2.1.2 Feed and Product Quality Specifications 10.1.2.1.3 Annual Feed and Product Capabilities 10.1.2.1.4 Major Mass Flows and Capacities 10.1.2.1.5 Process Design Basis 10.1.2.1.6 Process Equipment Design Criteria 10.1.2.1.7 Plant Availability 10.1.2.1.8 Operating and Maintenance Consumables 10.1.2.1.9 Utility Usage 10.1.2.1.10 Plant Operating Philosophy 10.1.2.1.11 Startup and Shutdown Criteria 10.1.2.1.12 Expandability and Expansion Options 10.1.2.2 Facility Operation Basis 10.1.2.2.1 Plant Operating Strategy 10.1.2.2.2 Plant Availability 10.1.2.2.3 Plant Production Schedule 10.1.2.2.4 Ramp Up Schedule 10.1.2.2.5 Maintenance of Production Strategy 10.1.2.2.6 Product Handling and Transport 10.1.2.2.7 Plant Residues/Effluent Disposal/Water

Management Plans 10.1.2.2.8 Plant Environmental Control Strategy and

Plans 10.1.2.2.9 Process Sampling and Accounting

Page 11 of 17

10.1.2.2.10 Process Control Strategy 10,2 Project Execution 10.2.1 Objectives 10.2.2 Scope 10.2.3 Project Criteria 10.2.4 User Requirements 10.2.5 Work Breakdown Structure 10.2.6 Execution Methodology 10.2.7 Contracting Strategy 10.2.8 Contractor Coordination 10.2.9 Project Organization 10.2.10 Project Personnel 10.2.11 Planning and Scheduling 10.2.12 Cost Management 10.2.13 Reporting 10.2.14 Engineering 10.2.15 Procurement and Contracts 10.2.16 Quality Assurance 10.2.17 Construction 10.2.18 Pre-commissioning and Commissioning 10.2.19 Ramp-Up and Handover 10.2.20 Operations and Maintenance 10.2.21 Financial Administration 10.2.22 Insurances 10.2.23 Environmental Management 10.2.23.1 Waste Management and Assaying Plan 10.2.24 Process Guarantees 10,3 Capital Costs Estimate 10.3.1 Accuracy of Estimate 10.3.2 Basis of Estimate 10.3.3 Work Breakdown Structure 10.3.4 Structure of Estimate 10.3.5 Estimate 10.3.6 Owner's Cost 10.3.7 Escalation and Foreign Exchange 10.3.8 Working and Sustaining Capital 10.3.9 Contingency 10.3.10 Inclusions 10.3.11 Exclusions 10.3.12 License Fees and Royalties 10.3.13 Source of Data 10,4 Operating Cost Estimate 10.4.1 Accuracy of Estimate 10.4.2 Basis of Estimate 10.4.3 Work Breakdown Structure 10.4.3.1 Fixed Operating Costs 10.4.3.2 Variable Operating Costs 10.4.4 Contingency 10.4.5 Estimate 10.4.6 Startup Costs 10.4.7 Escalation and Foreign Exchange 10.4.8 Source of Data

Page 12 of 17

11 PRECIOUS METALS REFINERY MODERNIZATION -- QUISPE 11,1 Process and Engineering 11.1.1 Metallurgical Processing 11.1.1.1 Feed Characteristics 11.1.1.2 Laboratory, Pilot, and Demonstration Plant Work 11.1.1.3 Process Selection and Basis 11.1.1.4 Scale-up 11.1.1.5 Consumption of Reagents and Consumables 11.1.1.6 Validation of Process Design Criteria 11.1.1.7 Acquisition of Technology 11.1.1.8 Past History of Technology 11.1.1.9 Details of Testwork 11.1.1.10 Further Testwork Requirements 11.1.2 Process Facilities 11.1.2.1 11.1.2.1.1 Mass and Water Balances 11.1.2.1.2 Feed and Product Quality Specifications 11.1.2.1.3 Annual Feed and Product Capabilities 11.1.2.1.4 Major Mass Flows and Capacities 11.1.2.1.5 Process Design Basis 11.1.2.1.6 Process Equipment Design Criteria 11.1.2.1.7 Plant Availability 11.1.2.1.8 Operating and Maintenance Consumables 11.1.2.1.9 Utility Usage 11.1.2.1.10 Plant Operating Philosophy 11.1.2.1.11 Startup and Shutdown Criteria 11.1.2.1.12 Expandability and Expansion Options 11.1.2.2 Facility Operation Basis 11.1.2.2.1 Plant Operating Strategy 11.1.2.2.2 Plant Availability 11.1.2.2.3 Plant Production Schedule 11.1.2.2.4 Ramp Up Schedule 11.1.2.2.5 Maintenance of Production Strategy 11.1.2.2.6 Product Handling and Transport 11.1.2.2.7 Plant Residues/Effluent Disposal/Water

Management Plans 11.1.2.2.8 Plant Environmental Control Strategy and

Plans 11.1.2.2.9 Process Sampling and Accounting 11.1.2.2.10 Process Control Strategy 11,2 Project Execution 11.2.1 Objectives 11.2.2 Scope 11.2.3 Project Criteria 11.2.4 User Requirements 11.2.5 Work Breakdown Structure 11.2.6 Execution Methodology

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11.2.7 Contracting Strategy 11.2.8 Contractor Coordination 11.2.9 Project Organization 11.2.10 Project Personnel 11.2.11 Planning and Scheduling 11.2.12 Cost Management 11.2.13 Reporting 11.2.14 Engineering 11.2.15 Procurement and Contracts 11.2.16 Quality Assurance 11.2.17 Construction 11.2.18 Pre-commissioning and Commissioning 11.2.19 Ramp-Up and Handover 11.2.20 Operations and Maintenance 11.2.21 Financial Administration 11.2.22 Insurances 11.2.23 Environmental Management 11.2.23.1 Waste Management and Assaying Plan 11.2.24 Process Guarantees 11,3 11.3.2 11.3.3 Accuracy of Estimate 11.3.4 Basis of Estimate 11.3.5 Work Breakdown Structure 11.3.6 Structure of Estimate 11.3.7 Estimate 11.3.8 Owner's Cost 11.3.9 Escalation and Foreign Exchange 11.3.10 Working and Sustaining Capital 11.3.11 Contingency 11.3.12 Inclusions 11.3.13 Exclusions 11.3.14 License Fees and Royalties 11.3.15 Source of Data 11,4 Operating Cost Estimate 11.4.1 Accuracy of Estimate 11.4.2 Basis of Estimate 11.4.3 Work Breakdown Structure 11.4.3.1 Fixed Operating Costs 11.4.3.2 Variable Operating Costs 11.4.4 Contingency 11.4.5 Estimate 11.4.6 Startup Costs 11.4.7 Escalation and Foreign Exchange 11.4.8 Source of Data 12 SMALL PROJECTS -- QUISPE 12,1 Dross Furnace Feed System 12.1.1 Process and Engineering 12.1.2 Project Execution 12.1.3 Capital Cost Estimate 12.1.4 Operating Cost Estimate 12,2 Lead Blast Furnace Tuyere Control

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12.2.1 Process and Engineering 12.2.2 Project Execution 12.2.3 Capital Cost Estimate 12.2.4 Operating Cost Estimate 12,3 Copper Refinery Rectifier 12.3.1 Process and Engineering 12.3.2 Project Execution 12.3.3 Capital Cost Estimate 12.3.4 Operating Cost Estimate 12,4 Lead Refinery Rectifier 12.4.1 Process and Engineering 12.4.2 Project Execution 12.4.3 Capital Cost Estimate 12.4.4 Operating Cost Estimate 12,5 Second Stage Zinc Purification 12.5.1 Process and Engineering 12.5.2 Project Execution 12.5.3 Capital Cost Estimate 12.5.4 Operating Cost Estimate 13 INFRASTRUCTURE -- QUISPE 13,1 Current Infrastructure 13.1.1 Utilities 13.1.1.1 Power 13.1.1.2 Water 13.1.1.3 Compressed Air 13.1.1.4 Oxygen 13.1.1.5 Steam 13.1.1.6 Potable Water 13.1.1.7 Instrument Air 13.1.2 Disposal and Drainage 13.1.3 Buildings and Facilities 13.1.4 Transportation 13.1.4.1 Railroad 13.1.4.2 Road 13.1.4.3 Air 13.1.5 Communications 13.1.6 Other 13,2 Required Infrastructure 13.2.1 Utilities 13.2.1.1 Power 13.2.1.2 Water 13.2.1.3 Compressed Air 13.2.1.4 Oxygen 13.2.1.5 Steam 13.2.1.6 Potable Water 13.2.1.7 Instrument Air 13.2.2 Disposal and Drainage 13.2.3 Buildings and Facilities 13.2.4 Transportation 13.2.4.1 Railroad

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13.2.4.2 Road 13.2.4.3 Air 13.2.5 Communications 13.2.6 Other 13,3 Infrastructure Upgrades Required 13.3.1 Utilities 13.3.1.1 Power 13.3.1.2 Water 13.3.1.3 Compressed Air 13.3.1.4 Oxygen 13.3.1.5 Steam 13.3.1.6 Potable Water 3.3.1.7 Instrument Air 13.3.2 Disposal and Drainage 13.3.3 Buildings and Facilities 13.3.4 Transportation 13.3.4.1 Railroad 13.3.4.2 Road 13.3.4.3 Air 13.3.5 Communications 13.3.6 Other 13,4 Location Study 13,5 Engineering Design Basis and Deliverables 14 ENGINEERING DEVELOPMENT -- QUISPE 14,1 Basis of Design 14,2 Location Study 14,3 Engineering Deliverables 14,4 Front End Loading 14,5 Value Improving Practices 14.5.1 Process Simplification 14.5.2 Design Capacity 14.5.3 Value Engineering 14.5.4 Constructability Review 14.5.5 Maintainability Review 14.5.6 Operability Review 14.5.7 Spares Selection 15 RISK ASSESSMENT -- QUISPE 15,1 Risk Assessment Methodology 15,2 Risk Assessment 15,3 Risk Management to Execution 15,4 Risk Register 15,5 Risk Control Action Plan 15,6 Risk Management Plan 16 HUMAN RESOURCES -- PAZ SOLDAN 16,1 Organizational Capability 16,2 Human Resources Impact 16,3 Organizational Model 16,4 Organizational Philosophy

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16,5 Cultural Fit 16,6 Employee Relations Strategy 16,7 Productivity 16,8 Recruitment and Training 16,9 Performance Management and Compensation 16,10 Statutory Obligations 16,11 Union and Union Relations 17 HEALTH AND SAFETY -- PAZ SOLDAN 17,1 Health Programs 17,2 Safety Programs 17,3 Health and Safety Risk Assessment 17,4 Health and Safety Management and Monitoring Plan 17,5 Construction Safety Program 18 COMMUNITY -- PAZ SOLDAN 18,1 Community and Social Responsibility Programs 18,2 Relations with Communities 18,3 Community Risk Assessment 18,4 Statutory Requirements 18,5 Social Impact Assessment 18,6 Social Impact Monitoring and Management Plan 19 PAMA AND ENVIRONMENT -- VORNBERG/MOGROVEJO 19,1 Original PAMA Agreement 19,2 PAMA Investments Since 1997 19.2.1 Requirements 19.2.2 Projects 19.2.3 Expenditures 19,3 2006 PAMA EXTENSION 19.3.1 New Deadline 19.3.2 New Requirements 19.3.3 New Expenditures 19,4 Environmental Risk Assessment 19,5 Environmental Monitoring and Management Plan 19,6 Outlook for Environmental Compliance 19.6.1 Current Compliance 19.6.2 Post Modernization Compliance 19,7 Centromin's Responsibilities 20 EXTERNAL RELATIONS -- HUYHUA 20,1 Stakeholders 20,2 External Relations Program 20,3 International Trade Considerations 21 OWNERSHIP, LEGAL, AND CONTRACTUAL -- PAZ SOLDAN 21,1 Ownership 21.1.1 Ferrites 21.1.2 Land

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21.1.3 Intellectual Property 21.1.4 Technology 21,2 Legal 21.2.1 Sovereign 21.2.2 State/Local 21.2.3 Landowners 21.2.4 Taxes 21.2.5 Reclamation and Rehabilitation 21,3 Contractual Arrangements 21.3.1 Marketing 21.3.2 Inputs -- Feeds and Reagents 21.3.3 Execution 21.3.4 Operations 21.3.5 Outputs -- Products and Services 22 FINANCIAL EVALUATION -- PEITZ/LARROQUE/BNP 22,1 Valuation Methodology 22,2 Investment Evaluation Practices 22,3 Strategic Choices and Investment Alternatives 22,4 Key Assumptions 22,5 Key Program Variables 22,6 Financial Model 22,7 Consolidation Input Data 22,8 Valuation Results 22.8.1 EBITDA 22.8.2 NPV 22.8.3 IRR 22.8.4 Cash Flow 22,9 Sensitivity Analysis Page 15 22,10 Competitive Position 22,11 Taxation 22,12 Financing 22,13 Accounting 22,14 Forward Work Plans 23 APPENDICES -- ROJAS