This document comprises a Prospectus relating to Hochschild Mining plc (the Company) and has been prepared in accordance

with the Prospectus Rules of the Financial Services Authority made under section 73A of the Financial Services and Markets Act 2000 (as amended) (FSMA), has been led with the Financial Services Authority (FSA) and has been made available to the public as required by the Prospectus Rules. Application has been made to the FSA for all of the Ordinary Shares, issued and to be issued in connection with the Global Offer, to be admitted to the Ofcial List of the FSA (the Ofcial List) and to the London Stock Exchange plc (the London Stock Exchange) for such Ordinary Shares to be admitted to trading on the London Stock Exchanges main market for listed securities (together Admission). Admission to trading on the London Stock Exchanges main market for listed securities constitutes admission to trading on a regulated market. In the Global Offer, 77,250,000 Ordinary Shares are being offered by the Company. Conditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange on 3 November 2006. It is expected that Admission will become effective, and that unconditional dealings will commence in the Ordinary Shares on the London Stock Exchange, at 8.00 a.m. (London time) on 8 November 2006. All dealings in the Ordinary Shares prior to the commencement of unconditional dealings will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned. The Company and its Directors (whose names appear on page 11 of this document) accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and contains no omission likely to affect the import of such information. For a discussion of certain risk and other factors that should be considered in connection with an investment in the Ordinary Shares, see Risk Factors.

PRA3 6.1 PRA3 4.1

PRA1 1.1, 1.2 PRA3 1.1, 1.2

PRA1 5.1.1, 5.1.2

Hochschild Mining plc

(incorporated under the Companies Act 1985 and registered in England and Wales with registered number 5777693)

PRA3 4.4 PRA3 5.1.2 PRA3 5.3.1

Prospectus
Global Offer of 77,250,000 Ordinary Shares at a price of 350p per Ordinary Share Admission to the Ofcial List and to trading on the London Stock Exchange Financial Adviser

JPMorgan Cazenove Limited

Joint Sponsors, Joint Global Co-ordinators and Joint Bookrunners

JPMorgan Cazenove Limited and Goldman Sachs International

Co-Lead Manager

Canaccord Adams Limited

Co-Manager

Nomura International plc

Expected share capital immediately following Admission

Authorised Number Amount 500,000,000 250,000,000

Ordinary Shares of 0.50 each

Issued and fully paid Number Amount 307,350,226 153,675,113

PRA3 5.2.5(a), (b), (c), 6.5.1, 6.5.2. 6.5.3, 6.5.4

In connection with the Global Offer, JPMorgan Cazenove, as Stabilising Manager, or any of its agents, may (but will be under no obligation to) over-allot Ordinary Shares or effect other stabilisation transactions with a view to supporting the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. Such stabilisation activities may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the commencement of conditional trading and ending no later than 30 calendar days thereafter. However, there is no obligation on the Stabilising Manager or any of its agents to effect stabilising transactions and there is no assurance that stabilising transactions will be undertaken. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation above, the Stabilising Manager does not intend to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Global Offer In connection with the Global Offer, the Stabilising Manager may, for stabilisation purposes, over-allot Ordinary Shares up to a maximum of 15 per cent. of the total number of Ordinary Shares comprised in the Global Offer. For the purposes of allowing it to cover short positions resulting from any such over-allotments and/or from sales of Ordinary Shares effected by it during the stabilising period, the Stabilising Manager has entered into the Over-allotment Option with the Over-allotment Shareholders pursuant to which the Stabilising Manager may, acting as principal, purchase or procure purchasers for additional Ordinary Shares up to a maximum of 15 per cent. of the total number of Ordinary Shares comprised in the Offer (the Over-allotment Shares) at the Offer Price. The Over-allotment Option is exercisable in whole or in part, upon notice by the Stabilising Manager, at any time on or before the 30th calendar day after the commencement of conditional trading of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will rank pari passu in all respects with the Ordinary Shares, including for all dividends and other distributions declared, made or paid on the Ordinary Shares, will be purchased on the same terms and conditions as the Ordinary Shares being sold in the Offer and will form a single class for all purposes with the other Ordinary Shares. JPMorgan Cazenove Limited and Goldman Sachs International have been appointed as Joint Sponsors, Joint Global Co-ordinators, Joint Bookrunners and, in the case of JPMorgan Cazenove Limited only, Financial Adviser, and are advising the Company and no one else in connection with the Global Offer and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing any advice in relation to the Global Offer.

Recipients of this document in the United States are authorised to use it solely for the purpose of considering the purchase of the Ordinary Shares and may not reproduce or distribute this document, in whole or in part, and may not disclose any of the contents of this document or use any information herein for any purpose other than considering an investment in the Ordinary Shares. Such recipients of this document agree to the foregoing by accepting delivery of this document. The Ordinary Shares are subject to selling and transfer restrictions in certain jurisdictions. Prospective purchasers should read the restrictions described under paragraph 7 Selling and Transfer Restrictions in Part XII: Details of the Global Offer. Each purchaser of the Ordinary Shares will be deemed to have made the relevant representations described therein. The Ordinary Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the Securities Act) or under the applicable securities laws of any state of the United States and, subject to certain exceptions, may not be offered or sold within the United States. The Global Offer is being made in the United States to certain qualied institutional buyers (each a QIB) as dened in Rule 144A under the Securities Act (Rule 144A) in reliance on Rule 144A or another exemption from registration under the Securities Act and outside the United States in reliance on Regulation S under the Securities Act. Each prospective purchaser in the United States is hereby notied that the offer and sale of the Ordinary Shares to it may be made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A. In addition, until 40 days after the commencement of the Global Offer, an offer or sale of any of the Ordinary Shares within the United States by any dealer (whether or not participating in the Global Offer) may violate the registration requirements of the Securities Act if the offer or sale is made otherwise than in accordance with Rule 144A or pursuant to another applicable exemption from registration under the Securities Act. THE ORDINARY SHARES OFFERED BY THIS DOCUMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE US SECURITIES AND EXCHANGE COMMISSION, ANY OTHER FEDERAL OR STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER US REGULATORY AUTHORITY, NOR HAVE ANY SUCH AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE GLOBAL OFFER OR CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (RSA 421-B) WITH THE STATE OF NEW HAMPSHIRE, NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE, CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

Table of Contents
Page

Summary information *************************************************************** Risk factors************************************************************************* Directors, secretary, registered and head ofce and advisers ************************** Global Offer statistics *************************************************************** Expected timetable of principal events *********************************************** Presentation of information ********************************************************* Part I: Information on Hochschild Mining **************************************** Overview **************************************************************** History of the Hochschild Mining Group *********************************** Key strengths ************************************************************ The Hochschild Mining Groups strategy *********************************** Principal Group Mines, Facilities, Projects and Prospects********************* Arcata***************************************************************** Ares******************************************************************* Selene***************************************************************** San Jose *************************************************************** Pallancata ************************************************************* Mina Moris ************************************************************ San Felipe ************************************************************* Sales, markets and customers ********************************************* Environmental and health and safety matters ****************************** Operational hazards and insurance **************************************** Social and Community Programmes *************************************** Employees and contractors************************************************ Employee relations ******************************************************* Dividend Policy ********************************************************** Part II: Use of proceeds********************************************************** Part III: Management, corporate governance and the major shareholder ************ Part IV: Information on Peru, Mexico and Argentina ******************************* Part V: Market and industry overview ******************************************** Part VI: Selected nancial and operating information ****************************** Part VII: Operating and nancial review ******************************************* Part VIII: Capitalisation and indebtedness statement ******************************** Part IX: IFRS historical nancial information *************************************** Section A: Accountants report on IFRS nancial information**************** Section B: IFRS historical nancial information ***************************** Part X: Unaudited pro forma nancial information ******************************** Section A: Unaudited pro forma balance sheet ***************************** Section B: Accountants report on unaudited pro forma nancial information Part XI: Summary of differences between IFRS and US GAAP *********************** Part XII: Details of the Global Offer *********************************************** Part XIII: Taxation ***************************************************************** Part XIV: Additional information *************************************************** Part XV: Technical report ********************************************************** Part XVI: Denitions ************************************************************** Part XVII: Glossary of technical terms ***********************************************

4 12 26 27 27 28 35 35 36 37 39 40 45 47 49 51 53 55 56 58 60 62 62 63 64 64 65 66 74 90 96 101 132 134 134 136 186 186 189 191 197 205 212 252 344 348

Summary information
This summary should be read as an introduction to this Prospectus only. Any decision to invest in the Ordinary Shares should be based on the consideration of this Prospectus as a whole by the investor and not just this summary. Under the Prospectus Directive (Directive 2003/71/EEC) in each member state of the European Economic Area (EEA) civil liability attaches to those persons who are responsible for the summary, including any translations of the summary, but only if the summary is misleading, inaccurate or inconsistent when read together with other parts of this prospectus. Where a claim relating to the information contained in this Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the EEA States, have to bear the costs of translating the Prospectus before the legal proceedings are initiated.

Overview
The Hochschild Mining Group is a leading precious metals company with a primary focus on the exploration, mining, processing and sale of silver and gold. The Group is the fourth largest primary silver producer globally1 (having produced approximately 10.5 million ounces in 2005) and produces a signicant quantity of gold (approximately 233 thousand ounces in 2005). The Hochschild Mining Group has over forty years of experience in the exploration, evaluation and extraction of precious metal epithermal vein deposits. Currently, it has three underground, epithermal vein mines located in Southern Peru which are supported by fully developed infrastructure. The Group has two advanced stage development projects, one in Argentina and one in Peru, as well as two early stage development projects, both of which are in Mexico. In addition to its development projects, the Group has over twenty long-term prospects throughout Latin America which are at various stages of development. A number of these projects and prospects are structured as joint ventures or option arrangements with local or overseas mining partners, whilst others are owned and operated exclusively by the Group. The Directors believe the Groups mines, projects and prospects provide substantial potential for growth. The Group has a high-grade reserve base and a proven track record of consistent reserves replacement, sustaining the reserve and resource base at each of its current operating mines in step with production over many years. The focus of this reserve development strategy has been to maximise the cash ow from its operations rather than extend the lives of its operating mines, although, going forward, the Group intends to invest in further extending mine life. The table below sets out the reserves and resources at each of the operating mines and development projects as at 30 June 2006, such information having been extracted without material adjustment from the Technical Report in Part XV.
Reserves Proved and probable (in tonnes) Silver grade (g/t) Gold grade (g/t) Measured and indicated (in tonnes)(1) Silver grade (g/t) Resources Gold grade (g/t) Silver grade (g/t) Gold grade (g/t)

PRA1 6.1.1 PRA1 6.5

Inferred (in tonnes)(2)

Operating Mines Arcata (Peru) ******************** Ares (Peru) ********************** Selene (Peru) ******************** Advanced Development Projects San Jose (Argentina) ************* Pallancata (Peru) **************** Early Stage Development Projects Mina Moris (Mexico) ************* San Felipe (Mexico)(3) ************ Total****************************

929,999 834,820 799,331 641,697 643,267 3,849,114

462 327 377 418 263

1.26 12.24 2.56 7.90 1.09

915,465 826,582 808,567 579,007 614,418 3,354,439 7,098,478

561 291 398 473 289 3.96

1.55 13.78 1.96 9.32 1.20 1.31

1,088,550 46,838 453,749 253,059 981,673 4,563 3,150,000 5,978,432

580 227 279 374 376 2.2 70

1.93 5.54 1.25 8.22 1.44 1.37

1 Source: CRU Strategies

Notes: (1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution (2) Inferred resources are stated exclusive of reserves and measured and indicated resources (3) Resources also have a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper

The Hochschild Mining Group has a track record of sustained protability underpinned by its low cash costs of production. In 2005 its cash costs of production on a co-product basis were US$2.65/oz for silver and US$169/oz for gold. This places the Hochschild Mining Group within the rst quartile of the cost curve for silver, according to CRU Strategies and for gold, according to GFMS Limited. In 2005, the Hochschild Mining Group generated EBITDA (as dened below) of US$70.8 million1 against revenues of US$151.3 million, a margin of 46.8 per cent. The Groups headquarters are in Lima. As at 30 June 2006, the Hochschild Mining Group had a total of 3,100 employees, of which 1,935 were contracted personnel.

Summary description of the principal mines, facilities, projects and prospects

Hochschild Mining operates an underground mine at each of its three operating units in Peru Arcata, Ares and Selene. At each of the Arcata and Selene units, the Group operates a concentrator for the production of silver-gold concentrate. The Ares unit operates a processing plant for the production of silver-gold dore using the Merrill-Crowe leaching process. Since October 2006, the Ares unit has also processed the concentrate from the Selene concentrator to produce dore. The following table sets out certain production information for the three operating mines for the years ended 31 December 2003, 2004 and 2005 and the 6 months ended 30 June 2006 (which have been extracted without material adjustment from the Technical Report in Part XV):
6 months ended 30 June 2006

PRA1 6.1.1

Year ended 31 December Operating Mine Product 2003(1) 2004 2005

Arcata Ares Selene

Ore production (t) ************************************** Concentrate production (t) ****************************** Ore production (t) ************************************** Dore production (Koz) ********************************** Ore production (t) ************************************** Concentrate production (t) ******************************

236,108 8,999 276,653 2,793 44,061 488 7,504 211 20,217

290,603 11,525 272,986 2,943 253,605 2,892 10,657 241 25,121

282,199 10,787 281,095 3,151 288,919 3,559 10,550 233 24,543

135,526 5,214 141,529 1,493 178,044 1,947 5,467 102 11,640

Total silver produced (Koz)*********************************************** Total gold produced (Koz) *********************************************** Total silver equivalent (Koz) ********************************************* Notes: (1) The Selene unit commenced production in October 2003

The Group has two advanced development projects, both of which are structured as Hochschild Mining Group controlled joint-ventures: San Jose in Argentina (in which the Group has a 51 per cent. interest) and Pallancata in Peru (in which the Group has a 60 per cent. interest). Both of these projects are scheduled to commence production in 2007. In addition, the Group has two early stage development projects, which are also structured as Hochschild Mining controlled jointventures: Mina Moris and San Felipe, both of which are located in Mexico and in both of which the Group has an option to acquire an interest of up to 70 per cent.. Mina Moris is currently expected to commence production in 2007, whilst at San Felipe, the Group is currently engaged in verication drilling on the site. The Group also has over twenty long-term prospects of which San Luis del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru) are the most advanced.
1 Source: Company (unaudited)

PRA1 6.1.2

Key strengths
The Directors believe that the key strengths of the Hochschild Mining Groups business are: ) its leading position as a precious metals producer, the fourth largest primary silver producer globally and a signicant producer of gold; ) its low cash costs and strong returns on invested capital; ) its proven track record of production growth and reserves replacement; ) its expertise in underground mining in Latin America; ) its attractive growth opportunities from both development projects and long-term prospects; and ) its approach to and investment in its employees, the environment and local communities.

Strategy
The Hochschild Mining Groups strategy is to achieve growth as a low-cost, cash generative, precious metals producer in Latin America, continuing its primary focus on silver and gold production, and to enhance overall value for its shareholders, whilst maintaining a strong focus on its social and environmental responsibilities. The Hochschild Mining Group intends to pursue this strategy: ) ) by continuing to maximise the potential of its existing operations through increased efciency and increased investment in exploration and facilities; by delivery of its project pipeline and development of its portfolio of long-term prospects into producing mines, with plans to further increase annual production to approximately 50 million silver equivalent ounces (830,000 gold equivalent ounces) from both its existing operations and its development projects by 2011; and by seeking additional growth opportunities through exploration, acquisitions or joint ventures, with a focus on mid-sized, high-grade, underground precious metal assets.
PRA1 3.1

Summary of nancial information

The table below provides selected nancial and operating information of the Hochschild Mining Group as at and for the years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2005 and 2006, in each case prepared in accordance with IFRS, except for the purposes of presenting the nancial information on a combined basis in respect of certain matters explained in Section B of Part IX: IFRS Historical Financial Information. The selected nancial and operating information of the Hochschild Mining Group as at and for the years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006 has been audited whilst the selected nancial and operating information of the Hochschild Mining Group as at and for the six months ended 30 June 2005 is unaudited. See Part IX: IFRS Historical Financial Information. This information has been extracted without material adjustment from Part IX: IFRS Historical Financial Information and has been prepared on the basis described in the footnotes to the combined historical nancial information of the Hochschild Mining Group in Part IX, except for the EBITDA and cash costs information which have each been calculated as set forth in Part VI: Selected Financing and Operating Information. Investors should read the whole of this Prospectus and not rely solely on summarised information.

Six month period ended 30 June Year ended 31 December 2003 2004 2005 US$(000) 2005 (unaudited) 2006

Income statement data: Continuing operations Revenue ************************************************* Cost of sales**********************************************

93,771 (41,514)

159,052 (82,292) 76,760 (22,997) (23,063) (3,880) 7,081 (7,395) 26,506 1,296 (6,702) 299 21,399 (11,453) 9,946 (731) 9,215 13,500 (4,285) 9,215

151,319 (73,592) 77,727 (24,371) (28,057) 14,558 (3,161) 13,016 (2,821) 46,891 4,144 (10,105) (552) 40,378 (9,673) 30,705 12,179 42,884 46,737 (3,853) 42,884

65,779 (30,805) 34,974 (10,829) (18,657) 14,558 (1,338) 3,199 (1,280) 20,627 1,555 (4,463) 1,085 18,804 (5,966) 12,838 9,395 22,233 27,744 (5,511) 22,233

92,286 (33,705) 58,581 (15,814) (7,654) (1,366) 10,495 (4,636) 39,606 2,843 (5,121) (27) 37,301 (14,733) 22,568 22,568 24,198 (1,630) 22,568

Gross prot ********************************************** 52,257 Administrative expenses*********************************** (16,472) Exploration expenses************************************** (11,822) Gain on sale of zinc project ******************************* Selling expenses ****************************************** (1,794) Other income ******************************************** 5,457 Other expenses ******************************************* (2,936) Prot from continuing operations before net nance costs and income tax***************************************** Finance income ******************************************* Finance costs ********************************************* Foreign exchange gain/(loss)******************************* Prot from continuing operations before income tax ******* Income tax expense *************************************** Prot for the year/period from continuing operations ****** Discontinued operations (Loss)/prot for the year/period from discontinued operations ********************************************* Prot for the year/period ********************************* Attributable to: Equity shareholders of the Company *********************** Minority interest****************************************** 24,690 326 (4,977) 579 20,618 (9,108) 11,510 (1,371) 10,139 11,900 (1,761) 10,139 Earnings per share for prot attributable to the equity shareholders of the Company during the year (expressed in US$ per share)(1) Basic and diluted ***************************************** 0.05 Cash ow data: Net cash generated from operating activities *************** 7,830 Net cash (used in)/generated from investing activities ******* (29,866) Cash ows generated from/(used in) nancing activities ***** 21,278 Net (decrease)/increase in cash and cash equivalents during the year/period ***************************************** (758) Other nancial and operating data: (2) EBITDA ************************************************* 46,518 Total cash costs(3) ***************************************** 33,576 Cash and cash equivalents ********************************* 4,242

0.06 3,426 (13,423) 11,388 1,391 71,182 72,445 5,633

0.20 11,431 (6,139) (8,458) (3,166) 70,845 66,990 2,467

0.12 1,048 1,086 (5,385) (3,251) 29,176 28,425 2,382

0.11 33,064 (12,175) (17,313) 3,576 55,587 30,006 6,043

Six month period ended 30 June 2006

Year ended 31 December 2003 2004 US$(000) 2005

Non-current assets ******************************************************* Total assets************************************************************** Borrowings (short- and long-term) **************************************** Other current liabilities ************************************************** Other non-current liabilities ********************************************** Total equity ************************************************************* Notes:

101,343 165,082 76,722 27,285 58,842 2,233

103,860 194,527 109,852 32,218 47,715 (1,968)

106,703 231,501 100,882 39,542 44,234 46,843

94,473 229,716 84,698 98,807 39,730 6,481

(1) Based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission. (2) EBITDA is calculated as prot from continuing operations before net nance costs and income tax plus depreciation (included in both cost of sales and administrative expenses), increase in provision for mine closure, exploration costs other than personnel and other, and non-recurring cash items included in other expenses, less gain on sale of zinc project and non-recurring cash items included in other income. EBITDA is not a measure of nancial performance under IFRS or US GAAP. See Part VI: Selected Financing and Operating Information for a reconciliation of prot for the period to EBITDA. (3) Total cash costs are calculated to include cost of sales, commercial deductions, and selling expenses less depreciation included in cost of sales. Total cash costs and total cash costs per ounce are not measures of nancial performance under IFRS or US GAAP. See Part VI: Selected Financing and Operating Information for a reconciliation of cost of sales from continuing operations to total cash costs.

Summary of the Global Offer

The Global Offer comprises an issue of 77,250,000 Ordinary Shares and net proceeds of approximately 249 million (approximately US$476 million) will be raised. In addition, 11,587,500 Ordinary Shares will be made available by the Over-allotment Shareholders pursuant to the Overallotment Option. All the Ordinary Shares will be purchased at the Offer Price. The Global Offer is to be fully underwritten by the Managers and is subject to satisfaction of the conditions set out in the Underwriting Agreement. These conditions include Admission becoming effective by no later than 8.00 a.m. on 8 November 2006 or such later time and/or date as the Company and the Joint Global Coordinators (on behalf of the Managers) may agree. In addition to the Global Offer, the Company is issuing 100,226 Ordinary Shares at the Offer Price in a separate private placement to certain of its directors and employees of the Hochschild Mining Group and of Cementos Pacasmayo in Peru, Mexico and Argentina. Sir Malcolm Field and Nigel Moore have each subscribed 50,000 at the Offer Price and will each be issued 14,285 Ordinary Shares. Eduardo Loret de Mola, Ricardo Arrarte and Gonzalo Freyre have subscribed approximately 26,000, 31,000 and 16,000 at the Offer Price and will be issued 7,484 Ordinary Shares, 8,980 Ordinary Shares and 4,490 Ordinary Shares respectively. Admission is expected to take place and unconditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange on 8 November 2006. Prior to that time, it is expected that dealings in the Ordinary Shares will commence on a conditional basis on the London Stock Exchange on 3 November 2006 and that the earliest date for settlement of such dealings will be 8 November 2006. These times and dates may be changed. The total expenses of the Global Offer are expected to be approximately US$40 million.

PRA3 5.1.2

PRA3 5.1.1 PRA3 5.2.3(g)

Use of proceeds
The Group intends to use the net proceeds of the Global Offer primarily in the following ways: ) ) ) ) approximately US$140 million to maximise the potential of existing operations; approximately US$250 million to achieve growth through delivery of its project pipeline; approximately US$40 million to repay existing debt; and the remainder of the net proceeds to exploit market and geographic niches to seek additional growth opportunities, whether by way of further exploration, joint ventures or strategic acquisitions.
PRA3 3.4

Pending their use as described above, the Group intends to invest the net proceeds in short term investments with internationally recognised nancial institutions.

Current trading and prospects

Since 30 June 2006, revenues are ahead of the rst half as a result of a production volume increase at Arcata and the impact of higher average prices of silver and gold over the period. With regard to pricing, however, the prices of silver and gold have eased since the highs of May 2006. Since the half year, operating costs have increased broadly in line with revenues. There has been an increase in administrative expenses, principally as a result of expenses attributable to the Global Offer, and an increase in exploration expenses mainly due to increased drilling activity at Mina Moris, San Felipe and Selene. Costs remain under close scrutiny and the Directors expect the Group to maintain its position as a low cash cost producer going forward. The Groups development projects continue to progress in line with managements plans. Despite the recent commodity price volatility, the Directors anticipate that revenues from the Group for the remainder of the year will be in line with expectations. Silver volumes are expected to be slightly ahead of nancial year 2005 with gold volumes down, reecting managements decision to target lower grade ore at Ares. The operating mines, together with the potential 8

PRA1 12.1, 12.2

provided by the Groups project pipeline and its low cost base, enable the Directors to look ahead with condence.

Signicant change
There has been no signicant change in the nancial or trading position of the Hochschild Mining Group since 30 June 2006, the date to which the nancial information for the Hochschild Mining Group in Section B of Part IX: IFRS Historical Financial Information was prepared.

PRA1 20.9

Dividend policy
The Directors intend to adopt a dividend policy which will take into account the protability of the business and underlying growth in earnings of the Group, as well as its capital requirements and cash ows, while maintaining an appropriate level of dividend cover. Following Admission, in the absence of unforeseen circumstances and assuming the Groups performance continues in line with the Boards expectations, subject to there being available reserves for the purpose, the Directors intend to declare a dividend of one third of prots after tax for the nancial year ending 31 December 2006 in respect of the period from Admission until 31 December 2006. Thereafter, the Directors intend that interim and nal dividends will be paid in the approximate proportions of one-third and two-thirds of the total annual dividend, respectively. Dividends will be declared by the Company in US dollars. Unless a Shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend being converted into pound sterling at exchange rates prevailing at the time of payment.

PRA1 20.7

Risk factors
The Groups results of operations and nancial condition could be materially affected by: Risks relating to the Hochschild Mining Groups operations: ) the risks and hazards involved in the business of mining metals, not all of which are fully covered by insurance; ) the prices of silver and gold; ) the substantial capital expenditure required by the business; ) the Groups ability to realise its existing reserves base, convert resources into reserves and mineralised potential into resources, and conduct successful exploration; ) an increase in production costs; ) inadequacy in or unavailability of the infrastructure on which its production, processing and product delivery relies; ) delay or failure by the Group in completing its development projects; ) the Groups joint venture arrangements and options not being successful; ) failure to consummate or integrate acquisitions successfully; ) uctuations in currencies; ) future changes in commodity prices; ) the fact that the Groups revenues are currently derived from production at only three facilities, all in Peru; ) any reduction or discontinuance in the Groups rening arrangements; ) any reduction or discontinuance of purchases of concentrate by its main customer; 9
PRA1 4

) competition from other mining companies for the acquisition of new mineral assets; ) failure to retain or attract key personnel; ) failure to maintain good relations with its employees; ) termination of the Groups stability arrangements; ) cost of compliance with governmental regulations; ) costs associated with environmental hazards; ) termination of the Groups mining concessions; ) costs associated with the Peruvian Mine Closure Law; ) costs and delays associated with governmental permits to expand or commence operations; Risks relating to operating in Peru, Mexico and Argentina: ) local economic and political conditions; ) localised violence in Mexico linked to drug-trafcking; ) potential local opposition to mining, leading to disruption in the Groups mines, development projects and prospects; and ) failure to obtain proper redress in the courts of the jurisdictions in which the Group operates or might operate in the future. It should also be noted that: Risks relating to the Hochschild Mining Groups structure: ) certain major shareholders will exercise signicant control over the Group after the Global Offer and, as a result, investors may not be able to inuence the outcome of important decisions in the future; ) as the Company is primarily a holding company, its ability to pay dividends depends upon the ability of its subsidiaries to pay dividends and to advance funds; Risks relating to the Ordinary Shares: ) there has been no prior public trading market for the Ordinary Shares, and an active trading market may not develop or be sustained in the future; ) the Group cannot assure investors that it will pay dividends in the future; ) future sales of Ordinary Shares could depress the market price of the Ordinary Shares; and ) holders of Ordinary Shares outside the United Kingdom may not be able to exercise their preemptive rights. Working capital The Company believes, taking account of the net proceeds of the Global Offer, the working capital available to the Group is sufcient for the Groups present requirements, that is, for the next 12 months following the date of this document. 10
PRA1 10.1 PRA3 3.1 PRA3 2

Capitalisation and indebtedness The Groups capitalisation as at 30 June 2006 was US$10.883 million1 and its net nancial indebtedness as at 31 August 2006 was US$86.772 million2.
PRA3 3.2

Directors and senior management details

Directors Eduardo Hochschild Roberto Danino Alberto Beeck Sir Malcolm Field Jorge Born Jr. Nigel Moore Dionisio Romero Prism CoSec Limited Miguel Aramburu Jorge Benavides Ignacio Rosado Eduardo Loret de Mola Ricardo Arrarte Gonzalo Freyre Executive Chairman Deputy Chairman and Executive Director Executive Director, Strategy and Corporate Development Senior Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director
PRA1 14.1

Company Secretary Senior Management

Relationship with the major shareholder

The relationship between the Major Shareholder, Eduardo Hochschild, Alberto Beeck and the Company will be governed by the Relationship Agreement, which ensures that the Company and its subsidiaries are capable of carrying on their business independently of the Major Shareholder, Mr. Hochschild and Mr. Beeck and of any of their respective associates, and that transactions and relationships with the Major Shareholder, Mr. Hochschild or Mr. Beeck and their respective associates are at arms length and on normal commercial terms.

Lock-ups
The Company, each of the Directors, the Senior Management and the Over-allotment Shareholders have agreed to enter into lock-up arrangements. The Company has agreed, inter alia, not to offer, issue, or sell any Ordinary Shares for a period of 12 months after Admission and the Directors, the Senior Management and the Over-allotment Shareholders have agreed, inter alia, not to sell Ordinary Shares for a period of 12 months after Admission, in each case subject to certain exceptions.

Documents on display
Copies of this document, the Companys constitutional documents, service agreements of all of the Executive Directors and letters of appointment of all of the Non-Executive Directors, the reports prepared by Ernst & Young LLP, the technical report by IMC Group Consulting Limited and the letters of consent referred to in paragraph 18 of Part XIV: Additional Information shall be on display during normal business hours at the ofces of Linklaters, One Silk Street, London EC2Y 8HQ from the date of this document until 14 days following Admission.
1 Source: Section B of Part IX: IFRS Historical Financial Information. 2 Source: Company (unaudited) PRA1 24

11

Risk factors
In addition to the other information contained in this Prospectus, prospective subscribers or purchasers of the Ordinary Shares should consider carefully the specic risks set out below before making a decision to invest in the Ordinary Shares. These risks and uncertainties may not be the only ones facing the Hochschild Mining Group. Additional risks and uncertainties not presently known to the Hochschild Mining Group or that the Hochschild Mining Group currently deems immaterial may also impair the Hochschild Mining Groups business operations. The business, nancial condition or results of the operations of the Hochschild Mining Group could be materially and adversely affected by any of these risks. The trading price of the Ordinary Shares could decline due to any of these risks and investors could lose part or all of their investment.

Risks relating to the Hochschild Mining Groups operations

The business of mining metals involves a number of risks and hazards, not all of which are fully covered by insurance. The mining business is subject to risks and hazards, many of which are outside the Hochschild Mining Groups control. These risks include environmental hazards, industrial accidents, the encountering of unusual or unexpected geological formations, cave-ins, ooding, earthquakes and periodic interruptions due to inclement or hazardous weather conditions. These occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, reduced production and delays in mining, asset writedowns, monetary losses and possible legal liability. In particular, the Hochschild Mining Groups Peruvian mines and projects are located in areas of high seismic risk. Although the facilities have been designed to take account of such potential activity, a major earthquake could lead not only to signicant damage to the Hochschild Mining Groups facilities, but also to collapse of the tailings dams which could result in signicant environmental damage. Although the Hochschild Mining Group maintains insurance in an amount that it considers to be adequate, liabilities might exceed policy limits, in which event the Hochschild Mining Group could incur signicant costs that could materially and adversely affect its results of operations. Insurance fully covering many environmental risks (including potential liability for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not generally available to the Hochschild Mining Group or to other companies in the mining industry. The realisation of any signicant liabilities in connection with the Hochschild Mining Groups mining activities as described above could have a material adverse effect on its results of operations or nancial condition. The Hochschild Mining Groups nancial performance is highly dependent upon the price of silver and gold. The Hochschild Mining Groups nancial performance is highly dependent on the market price of silver, which accounted for approximately 41 per cent. of its revenue in 2005, and the market price of gold, which accounted for approximately 59 per cent. of its revenue in 2005. These prices have historically been subject to wide uctuations and are affected by numerous factors beyond the Hochschild Mining Groups control, including international economic and political conditions, levels of supply and demand, the availability and costs of substitutes, inventory levels maintained by producers and others, and actions of participants in the commodities markets. To a lesser extent, the market prices of silver and gold are also subject to the effects of inventory carrying costs and currency exchange rates. In addition, the market prices of silver and gold have occasionally been subject to rapid short-term changes. See Part V: Market and Industry Overview. The market price of silver and gold on 30 June 2006 was $10.70 per ounce and $600.40 per ounce (a.m. price), respectively, according to the London Bullion Market Association, compared with 2005s average prices for silver and gold of $7.31 per ounce and $444 per ounce (a.m. price), respectively. The price of silver and gold may decline in the future. Factors that are 12

PRA1 4

PRA1 8.2

generally understood to contribute to a decline in the price of silver and gold include sales by private and government holders, and a general global economic slowdown. Future prolonged reductions or declines in the world silver and gold prices could have a material adverse effect on the Hochschild Mining Groups revenues, protability and reserves. The Hochschild Mining Groups business requires substantial capital expenditure. The mining business is capital intensive and the development and exploitation of silver and gold reserves and the acquisition of machinery and equipment require substantial capital expenditure. The Hochschild Mining Group has a number of development projects and prospects, as well as plans for its existing operations, which involve signicant capital expenditure. In particular, the Hochschild Mining Group must continue to invest signicant capital to maintain or to increase the amount of reserves that it exploits and the amount of metal that it produces. Some of the Hochschild Mining Groups development projects and prospects may require greater investment than currently planned. There can be no assurance that the Hochschild Mining Group will be able to maintain its production levels and generate sufcient cash ow, or that the Hochschild Mining Group will have access to sufcient investments, loans or other nancing alternatives, to continue its exploration, exploitation, development and processing activities at or above present levels. The Hochschild Mining Groups future performance will be affected by its ability to realise its existing reserves base, convert resources into reserves and mineralised potential into resources, and conduct successful exploration. As at 30 June 2006, the average life of mine of the Groups operating mines was 2.8 years and the average projected mine life of its advanced development projects was 4.1 years. To extend the lives of its mines and projects, ensure the continued operation of the business and realise its growth strategy, it is essential that the Hochschild Mining Group continues to realise its existing identied reserves, convert resources into reserves, develop its resource base through the realisation of identied mineralised potential, and/or undertake successful exploration or acquire new resources. The Hochschild Mining Groups mineral reserves and resources described in this Prospectus constitute estimates that comply with standard evaluation methods generally used in the international mining industry and are stated in conformity with the JORC Code. In respect of these estimates, no assurance can be given that the anticipated tonnages and grades will be achieved, that the indicated level of recovery will be realised or that mineral reserves can be mined or processed protably. Actual reserves may not conform to geological, metallurgical or other expectations, and the volume and grade of ore recovered may be below the estimated levels. In addition, there can be no assurance that mineral recoveries in small scale laboratory tests will be duplicated in larger-scale tests under on-site conditions or during production. Lower market prices, increased production costs, reduced recovery rates and other factors may render the Hochschild Mining Groups reserves uneconomic to exploit and may result in revision of its reserve estimates from time to time. Reserve data are not indicative of future results of operations. If the Hochschild Mining Groups actual mineral reserves and resources are less than current estimates or, if the Group fails to develop its resource base through the realisation of identied mineralised potential, the Hochschild Mining Groups results of operations or nancial condition may be materially and adversely affected. Minerals exploration is highly speculative in nature, involves many risks and is frequently unsuccessful. Once mineralisation is discovered, it may take a number of years to complete the geological surveys to assess whether production is possible and, even if production is possible, the economic feasibility of production may change during that time. Substantial capital expenditure is required to identify and delineate ore reserves through geological surveying and trenching and drilling, to determine metallurgical processes to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. In particular, the geological characteristics of the Groups operating mines mean that it is difcult to prove up reserves 13

without signicant investment in underground development. Consequently, the Groups strategy to date has been to undertake a continuing exploration and development programme to ensure the reserve and resource base is developed in step with production and planned expansion as well as identifying mineralised potential to supplement the resource base going forward. The focus of this reserve development strategy has been to maximise the cash ow from its operations rather than extend the lives of its operating mines. Notwithstanding the Hochschild Mining Groups consistent track record of replacing its reserves and the Hochschild Mining Groups expertise in relation to mineral deposits of this nature, there can be no assurance that the Hochschild Mining Group will be able to identify future reserves or continue to extend the mine life of its existing operations. Any failure by the Hochschild Mining Group to identify and delineate ore reserves in the future could have a material adverse effect on its results of operations or nancial condition. An increase in the Hochschild Mining Groups production costs could materially and adversely affect its protability. Changes in the Hochschild Mining Groups production costs could have a major impact on its protability. Its main production expenses are contractor costs, materials, personnel costs and energy. Changes in the costs of the Hochschild Mining Groups mining and processing operations could occur as a result of unforeseen events, including international and local economic and political events, and could result in changes in protability or reserve estimates. Many of these factors may be beyond the Hochschild Mining Groups control. The Hochschild Mining Group relies on third party suppliers for a number of its raw materials, including for the supply of cement, wood, cyanide and steel used in the construction and continuing development of its mines and the processing of ore. Any material increase in the cost of raw materials, or the inability by the Hochschild Mining Group to source third party suppliers for the supply of its raw materials, could have a material adverse effect on the Hochschild Mining Groups results of operations or nancial condition. The Hochschild Mining Groups current operations, projects and prospects are located in remote areas and the Hochschild Mining Groups production, processing and product delivery relies on the infrastructure being adequate and remaining available. The Hochschild Mining Groups mining, processing, development and exploration activities depend, to one degree or another, on adequate infrastructure. The regions where the Groups current operations, projects and prospects are located are sparsely populated and difcult to access. The Group requires reliable roads, bridges, power sources and water supplies to access and conduct its operations and the availability and cost of this infrastructure affects capital and operating costs and the Hochschild Mining Groups ability to maintain expected levels of production and sales. Unusual weather or other natural phenomena, sabotage or government or other interference in the maintenance or provision of such infrastructure could impact development of a project, reduce mining volumes, increase mining or exploration costs or delay the transportation of raw materials to the mines and projects or dore and concentrate to customers. Any such issues arising in respect of the infrastructure supporting or on the Hochschild Mining Groups sites could materially and adversely affect the Hochschild Mining Groups results of operations or nancial condition. Furthermore, any failure or unavailability of the Hochschild Mining Groups operational infrastructure (for example, through equipment failure at its concentrator or leaching facilities or disruption to its transportation arrangements) could adversely affect the production output from its mines or impact its exploration activities or development of a mine or project. In particular, the Hochschild Mining Group sources the electricity supply for each of its operating units from the Peruvian national grid via two separate supply lines. Whilst back-up power generators are located at each of the operating units, in the event of a failure of both of these supply lines from the national grid, there can be no assurance that these back-up generators will be effective in preventing any interruption to the operations of the Hochschild Mining Group and, 14

at the Arcata unit, the back-up generators currently provide only around 33 per cent. of the generation capacity required to maintain full operations at the unit. Any prolonged or persistent failure of the power supply from the national grid could increase production costs, signicantly delay or halt operations and, consequently, have a material adverse effect on the Hochschild Mining Groups results of operations or nancial condition. The Hochschild Mining Group depends upon trucking to deliver fuel, wood, cement, cyanide, steel and other supplies to its operations and to deliver its commodities to its customers. These transport services in some cases may not be adequate to support the Hochschild Mining Groups existing operations or to support the Hochschild Mining Groups expanded operations. Disruptions of these transport services because of weather-related problems, key equipment failures, strikes, lock-outs or other events could temporarily impair the Hochschild Mining Groups ability to supply its commodities to its customers which could materially and adversely affect the Hochschild Mining Groups results of operations or nancial condition. The Hochschild Mining Group depends on a pumping system to extract water located underground at the Arcata unit and to prevent the Arcata mine from ooding. Whilst the Group has infrastructure in place for the extraction and storage of water, any prolonged or persistent failure in the operation of the pumping system leading to a signicant delay in extracting water could lead to ooding of the Arcata mine which, in turn, could result in damage to, or destruction of, a portion of the Hochschild Mining Groups production facilities or injury to the Hochschild Mining Groups employees and contracted personnel. Any damage to or destruction of such production facilities or injury to employees or contracted personnel could have a material adverse effect on the Hochschild Mining Groups results of operations, nancial condition or reputation. Delay or failure by the Hochschild Mining Group in completing its development projects could have a material adverse effect on the Hochschild Mining Groups growth prospects. Successful completion of the Hochschild Mining Groups development projects is subject to various factors, many of which are not within its control. These factors include the granting of consents and permits from the relevant government departments, the availability, terms, conditions and timing of acceptable arrangements for transportation, construction and rening and the performance of engineering and construction contractors, mining contractors, suppliers and consultants. The lack of availability of acceptable contractual terms, or a slower than anticipated performance by any contractor, could delay or prevent the successful completion of any of the Hochschild Mining Groups development projects. Completion or further expansion of the Hochschild Mining Groups development projects may be compromised in the event of a prolonged decline in price levels for silver and gold. There can be no guarantee as to when the Hochschild Mining Groups development projects will be completed, whether the resulting operations will achieve the anticipated production volumes or whether the costs in developing these projects will be in line with those anticipated. The Hochschild Mining Groups inability to complete its development projects as planned may have a material adverse effect on the results of operations or nancial condition of the Hochschild Mining Group. The Hochschild Mining Groups joint venture arrangements and options may not be successful. The Hochschild Mining Group has entered into joint venture arrangements and options for certain of its development projects in order to gain access to mineral assets as part of its growth strategy. Some of these joint ventures are fundamental to the Hochschild Mining Groups business plan to achieve production growth. The Hochschild Mining Group is currently developing the San Jose (Argentina) and Pallancata (Peru) projects, amongst others, under joint venture arrangements. Although the Hochschild Mining Group has sought to protect its interests in these development projects by ensuring it has management control and through the terms of the governing agreements (for example, through the inclusion in a number of the relevant agreements of a call option over its joint venture partners share of the project in the event of a breach by its joint venture partner), joint ventures necessarily involve special risks associated with the possibility that 15

the joint venture partners may (i) have economic or business interests or goals that are inconsistent with those of the Hochschild Mining Group, (ii) take action contrary to the Hochschild Mining Groups policies or objectives with respect to its investments, for instance by veto of proposals in respect of the joint venture operations or (iii) as a result of nancial or other difculties, be unable or unwilling to full their obligations under the joint venture or other agreements. Any of the foregoing may have a material adverse effect on the results of operations, nancial condition or prospects of the Hochschild Mining Group through the delay or noncompletion of these development projects. In addition, the termination of certain of these joint ventures, if not replaced on similar terms, could have a material adverse effect on the results of operations, nancial condition or prospects of the Hochschild Mining Group. If the Hochschild Mining Group fails to consummate or integrate acquisitions successfully, the Hochschild Mining Groups rate of expansion could slow and its results of operations or nancial condition could suffer. The Hochschild Mining Group has expanded operations in Latin America through both development and acquisition of new projects, and the Hochschild Mining Group expects to continue to do so in the future. The Hochschild Mining Group intends to pursue a strategy of identifying and acquiring early stage projects and/or existing businesses with a view to expanding its operating businesses. There can be no assurance that the Hochschild Mining Group will continue to identify suitable projects, acquisitions and strategic investment opportunities or that any business acquired will prove to be protable at all, or as protable as its current operations. In addition, acquisitions and investments involve a number of risks, including possible adverse effects on the Hochschild Mining Groups operating results, diversion of managements attention, failure to retain key personnel in the acquired businesses, risks associated with unanticipated events or liabilities and difculties in the integration of the operations. Fluctuations in currencies may adversely affect the Hochschild Mining Groups results of operations and nancial condition. The Hochschild Mining Groups revenues are almost entirely in US dollars, whilst a substantial proportion of the Hochschild Mining Groups costs are incurred in Nuevos Soles. In addition, the Hochschild Mining Group expects the proportion of the costs it incurs in other local currencies to increase if its pipeline of Latin American development projects and prospects commences production. The Hochschild Mining Group does not undertake any hedging activities in relation to exchange rates. As a result, if the Nuevo Sol, or any of these other local currencies, were to strengthen against the US dollar, this could have a material adverse effect on the Hochschild Mining Groups nancial condition and results of operations. Similarly, Peru and the other Latin American countries where the Hochschild Mining Groups projects are located have experienced periods of high ination and substantial currency devaluation over recent decades. Although ination has been largely stable in recent years in these jurisdictions, if it were to increase without a corresponding devaluation of the relevant local currency relative to the US dollar, the Hochschild Mining Groups nancial condition and results of operations could be materially and adversely affected. The Hochschild Mining Group only engages in limited hedging activities and, therefore, is exposed to future changes in commodity prices. The Hochschild Mining Group is exposed to the effect of changes in commodity prices (in particular, to the price of silver and gold and to changes in interest rates). The Hochschild Mining Group only engages in limited hedging activities in relation to prices of silver and gold, principally in connection with the security arrangements for its long-term nancing. Accordingly, the Hochschild Mining Groups results of operations are exposed to changes in commodity prices.

16

The Hochschild Mining Groups revenues are currently derived from silver and gold production at only three facilities, all in Peru. The Hochschild Mining Groups current revenues are derived from silver and gold produced by the Arcata, Ares and Selene mines, all of which are located in Peru. If mining or processing operations in any one of these complexes were materially reduced, interrupted or curtailed, then the Hochschild Mining Groups results of operations or nancial condition could be materially and adversely affected. A reduction or discontinuance in the Hochschild Mining Groups rening arrangements could have an adverse effect on the Groups cashows, results of operations or nancial condition. There are a limited number of reneries available throughout the world for the rening of the Hochschild Mining Groups dore. All of the dore produced by the Hochschild Mining Group is currently sent to Johnson Matthey for rening under a contract which expires on 31 December 2006. If Johnson Matthey were to reduce or discontinue the arrangements it has in place with the Hochschild Mining Group or did not agree to a renewal of its contract, no assurance can be given that an alternative rener would be available on acceptable contractual terms, or that delays or disruptions in sales would not be experienced that could result in an adverse effect on the Hochschild Mining Groups cash ows, results of operations or nancial condition. The Hochschild Mining Groups sales of concentrate could be adversely affected if there were to be a reduction or discontinuance of purchases by the Hochschild Mining Groups main customer. The Hochschild Mining Group currently sells its concentrate production from the Arcata unit exclusively to Penoles under a one-year contract. If Penoles were unexpectedly to reduce or discontinue its purchasing of the Hochschild Mining Groups concentrate or did not agree to a renewal of its contract, no assurance can be given that delays or disruptions in sales would not be experienced until such time as alternative customers could be found, or that arrangements with alternative customers would be entered into on terms as favourable to the Hochschild Mining Group. Any of the foregoing risks could result in an adverse effect on the Hochschild Mining Groups cash ows, results of operations or nancial condition. The Hochschild Mining Group faces competition from other mining companies for the acquisition of new properties. Mines have nite lives and, as a result, the Hochschild Mining Group seeks to replace and expand its reserves through the acquisition of new properties and by developing projects. There is a limited supply of desirable properties with potential mineralisation available in the areas where the Hochschild Mining Group would consider conducting exploration and/or production activities. Because the Hochschild Mining Group faces competition for new properties from other mining companies, some of which may have greater nancial resources than the Hochschild Mining Group, the Hochschild Mining Group may be unable to acquire attractive new mining properties on terms that it considers acceptable. As a result, the Hochschild Mining Groups revenues from the sale of silver and gold may decline over time, thereby materially and adversely affecting its results of operations or nancial condition. The Hochschild Mining Group depends on its key personnel. If the Hochschild Mining Group is unable to attract and retain key personnel, its business may be materially and adversely affected. The Hochschild Mining Groups business depends in signicant part upon the contributions of a number of the Hochschild Mining Groups key senior management and personnel, in particular its highly skilled team of engineers and geologists. There can be no certainty that the services of its key personnel will continue to be available to the Hochschild Mining Group. Factors critical to retaining the Hochschild Mining Groups present staff and attracting additional highly qualied 17

personnel include the Hochschild Mining Groups ability to provide these individuals with competitive compensation arrangements. If the Hochschild Mining Group is not successful in retaining or attracting highly qualied individuals in key management positions and highly skilled engineers and geologists, its business may be materially harmed. In some of the jurisdictions where the Hochschild Mining Groups operations and development projects are located, particularly Argentina, it may be difcult for the Hochschild Mining Group to nd or hire qualied people in the mining industry who are situated in those jurisdictions or to obtain all of the necessary services or expertise locally or to conduct operations on its projects at reasonable rates. If qualied people and services or expertise cannot be obtained in those jurisdictions, those services will need to be obtained from people located elsewhere which will require work permits and compliance with applicable laws and could result in delays and higher costs to develop its projects. The Hochschild Mining Groups business depends on good relations with its employees. Although management believes its present labour relations are good, there can be no assurance that a work slowdown, a work stoppage or strike will not occur at any of the Hochschild Mining Groups operating units or development projects. In recent months, there have been a number of instances of mining companies facing industrial action and work stoppages at their Latin American operations which, in certain instances, have led to the operations being shut down. Work slowdowns, stoppages or other labour-related developments or disputes could result in a decrease in the Hochschild Mining Groups production levels and adverse publicity, which could have a material adverse effect on the Hochschild Mining Groups results of operations or nancial condition. Termination of the Hochschild Mining Groups stability arrangements could have a material adverse effect on its nancial condition or operating results. The Hochschild Mining Group has entered into a mining stability agreement with the Peruvian government in respect of its operations at the Ares operating unit. The stability agreement freezes the mining regulatory regime applicable to the Group as at the date of the stability agreement. Under the terms of the stability agreement, the Peruvian government has given various guarantees to the Hochschild Mining Group, including that all taxes applicable to it (such as income tax, municipal tax and customs duties) will not be increased (and the way such taxes are determined will not be modied) throughout the period of the stability agreement. The stability agreement also guarantees the Group free access to foreign currency with no exchange controls and the ability to trade its products freely. As a result of the Groups stability agreement currently in force, the Group pays income tax in Peru at a rate of 30 per cent. in respect of income generated by the Ares operating unit, the rate in force at the date the stability agreement was entered into. On 24 June 2004, the Peruvian Congress approved Law 28258Mining Royalties Law, which established a mining royalty to be paid by holders of mining concessions at rates of between 1 and 3 per cent. of revenues. The Directors believe that the stability agreement entered into by the Ares operating unit exempts the Hochschild Mining Group from paying royalties with respect to revenues generated at the Ares operating unit for so long as the stability agreement remains in effect. The Hochschild Mining Groups stability agreement is scheduled to terminate on 31 December 2008 and there can be no assurance that the Hochschild Mining Group will enter into a new stability agreement or, if it does, on what terms that agreement will be entered into. In addition, the Hochschild Mining Group has been granted stability certicates by the Ministry of Mines in Argentina in respect of its advanced development project at San Jose whereby the national and provincial tax regimes are frozen for a period of 30 years from 15 May 2006 and 20 June 2006, respectively. 18

The termination or renegotiation of the Hochschild Mining Groups stability agreement, withdrawal of its stability certicates, or any successful challenge as to the validity of these stability arrangements could result in an increase in the amount of tax or royalties the Hochschild Mining Group might have to pay or the imposition of new duties or charges, including a claim for previous non-payment of tax or governmental royalties covered by these arrangements, which in turn could have a material adverse effect on the nancial condition and operating results of the Hochschild Mining Group. In particular, legislators in Peru have recently indicated their intention to revive a bill enabling the Peruvian government to charge a royalty on all mining operators, regardless of any previously agreed stability agreements. The bill, which was rejected by the previous administration of President Alejandro Toledo, is currently being reviewed by the Peruvian Committee of Energy and Mines and is scheduled to be debated by the Peruvian Congress, although no timetable has been set for such debate. If the bill is approved by the Peruvian Congress, there can be no assurance that the Groups current stability arrangements protecting the Group against such payments in respect of revenues from the Ares operating unit will be respected, which could result in new royalty payments being imposed on the Hochschild Mining Group. The Hochschild Mining Group is subject to signicant laws and governmental regulations, and their related costs may negatively affect the Hochschild Mining Groups business. The Hochschild Mining Groups operations and exploration and development activities are subject to extensive laws and regulations governing various matters. These include laws and regulations relating to environmental protection, management and use of toxic substances and explosives, management of natural resources, exploration, development of mines, production and postclosure reclamation, exports, price controls, repatriation of capital and exchange controls, taxation, mining royalties, labour standards and occupational health and safety, including mine safety, and historic and cultural preservation. The costs associated with compliance with these laws and regulations are substantial and possible future laws and regulations, changes to existing laws and regulations (including the imposition of higher taxes and mining royalties) or more stringent enforcement or restrictive interpretation of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of the Hochschild Mining Groups operations and delays in the development of its properties. Moreover, these laws and regulations may allow governmental authorities and private parties to bring lawsuits based upon damages to property and injury to persons resulting from the environmental, health and safety impacts of the Hochschild Mining Groups past and current operations, and could lead to the imposition of substantial nes, penalties or other civil or criminal sanctions. In Peru, whilst the new administration of Alan Garca has, to date, avoided any plans to impose new taxes on mining operators, the government has outlined proposals for mining operators to make a one-time voluntary payment calculated as a percentage of net prot for the purposes of supporting social programmes aimed at reducing extreme poverty. The Hochschild Mining Group has agreed to make such a payment in 2007 estimated at approximately US$850,000 in respect of the nancial year ending 31 December 2006, although the Company may agree to pay a portion of this amount before 31 December 2006, such amount still to be negotiated and agreed. As the details of the agreement negotiated by the Peruvian government and the mining industry in Peru are still to be nalised, there can be no assurance that the estimated amount to be paid by the Hochschild Mining Group will not increase materially or that the Peruvian government will not impose further payments on mining operators in general or the Hochschild Mining Group in particular. Any further payments or a material increase in the one-time payment to be made by the Group could have a material adverse effect on the nancial condition or operating results of the Hochschild Mining Group.

19

The Hochschild Mining Groups activities are subject to environmental hazards as a result of the processes and chemicals used in the Groups extraction and production methods, which could have a material adverse effect on the Hochschild Mining Groups business, nancial condition or result of operations. Mining activities are generally subject to environmental hazards as a result of the processes and chemicals used in the extraction and production methods. In particular, the Hochschild Mining Group employs cyanide in the production of its dore and high levels of naturally occurring arsenic may be found in its concentrate production at the Arcata unit. As a result, environmental hazards may exist on the Hochschild Mining Groups properties which are currently unknown to it or may arise irrespective of whether the Hochschild Mining Group is in compliance with current environmental regulations. In addition, the storage of tailings may present a risk to the environment, property and persons. Whilst the design of the Hochschild Mining Groups tailings dams is in accordance with Peruvian government guidance and the Hochschild Mining Group has only previously experienced minor leakage from one of its dams at the Arcata unit, there remains a risk of leakage from or failure of the Hochschild Mining Groups tailings dams. Furthermore, whilst the Hochschild Mining Group treats the water discharged from its operating facilities in accordance with Peruvian law and current international standards, the long term implications of such discharge on the environment are difcult to predict. The Hochschild Mining Group may be liable for losses associated with such hazards, or may be forced to undertake extensive remedial clean-up action or to pay for governmental remedial clean-up actions, even in cases where such hazards have been caused by previous or subsequent owners or operators of the property, or by the past or present owners of adjacent properties or by natural conditions. Although the Directors believe the Hochschild Mining Group is in substantial compliance with applicable laws and regulations, they cannot guarantee that any such law, regulation, enforcement or private claim will not have a material adverse effect on the Hochschild Mining Groups business, nancial condition or results of operations. In addition, Peru, Argentina and Mexico are all signatories to, and have each ratied, the Kyoto Protocol. The Kyoto Protocol is intended to limit or capture emissions of greenhouse gases such as carbon dioxide and methane. Whilst the precise nature of the revised environmental regulations and enforcement regime within these jurisdictions is yet to be nalised, compliance with new environmental requirements that may be enacted to ensure compliance with the Kyoto Protocol may require the Hochschild Mining Group to incur signicant capital expenditure and failure to comply with any new legislation could result in the Group incurring nes and other penalties. The Hochschild Mining Groups mining concessions may be terminated in certain circumstances. Under the laws of the jurisdictions where the Hochschild Mining Groups operations, development projects and prospects are located, mineral resources belong to the state and government concessions are required to explore for and exploit mineral reserves. The Hochschild Mining Group holds mining, exploration and other related concessions in each of the jurisdictions where it is operating and where it is carrying on development projects and prospects. The concessions held by the Hochschild Mining Group in respect of its operations, development projects and prospects may be terminated under certain circumstances, including where minimum production levels are not achieved by the Group (or a corresponding penalty is not paid), if certain fees are not paid or if environmental and safety standards are not met. Termination of any one or more of the Hochschild Mining Groups mining, exploration or other concessions could have a material adverse effect on the Hochschild Mining Groups nancial condition or results of operations. Costs associated with the Peruvian Mine Closure Law could have a material adverse effect on the Hochschild Mining Groups nancial condition or results of operations. Mine operators in Peru are subject to the Mine Closure Law which establishes provisions relating to mine closure plans. The law provides that a mine operator must grant an 20

environmental warranty for the estimated costs associated with its mine closure plan. The law does not establish when such warranties must be in place and does not specify the form of the required warranty. However, the law indicates that a warranty may take the form of insurance, cash collateral, a trust agreement or other form, as permitted by the Civil Code of Peru. Although the Company has provisions for mine closures, as the implementing regulations of the Mine Closure Law have yet to be nalised by the Peruvian government, there can be no assurance that costs associated with the closure of the Hochschild Mining Groups operating mines would not exceed such provisions, which could have a material adverse effect on its nancial condition or results of operations. The Hochschild Mining Group is required to obtain governmental permits to expand operations or commence new operations. The costs and delays associated with such approvals could affect the Hochschild Mining Groups operations, reduce the Hochschild Mining Groups revenues, and negatively affect the Hochschild Mining Groups business as a whole. The Hochschild Mining Group is required to seek governmental permits for the expansion of existing operations or for the commencement of new operations in each of the jurisdictions where its operations, development projects and prospects are located. Obtaining the necessary governmental permits is a complex and time-consuming process often involving public hearings and costly undertakings. The duration and success of permitting efforts are contingent on many factors that are outside the Hochschild Mining Groups control. The governmental approval process may increase costs and cause delays, depending on the nature of the activity to be permitted, and could cause the Hochschild Mining Group not to proceed with the development of a mine.

Risks relating to operating in Peru, Mexico and Argentina

Local economic and political conditions may have a material adverse effect on the Hochschild Mining Groups nancial condition or results of operations. All of the Hochschild Mining Groups operating mines are located in Peru, whilst certain of its development projects and prospects are located in Peru, Mexico and Argentina. Accordingly, the Hochschild Mining Groups business, nancial condition or results of operations could be adversely affected by changes in economic or other policies of the Peruvian, Mexican or Argentinian governments or other political, regulatory or economic developments in these jurisdictions. Latin America in general, and the jurisdictions where the Hochschild Mining Groups operations, development projects and prospects are located in particular, have had a history of political instability that has included a succession of regimes with differing policies and programmes. Past governments in each of these jurisdictions have frequently intervened in the nations economy and social structure. Among other actions, past governments have imposed controls on prices, exchange rates and local and foreign investment as well as limitations on imports, have restricted the ability of companies to dismiss employees, have expropriated private sector assets (including mining companies) and have prohibited the remittance of prots to foreign investors. Presidential elections have recently taken place in two of the jurisdictions where the Hochschild Mining Groups operations and development projects are located. In June 2006, Alan Garca was elected as the new president of Peru and in September 2006 Felipe Calderon was declared the new president of Mexico. Whilst the Directors believe in both cases that, relative to the defeated candidate, the election results were favourable to the business environment within the relevant country (and were so perceived by the nancial community), the Directors cannot predict the policies the Garca or Calderon governments will pursue. In Peru, the losing presidential candidate, Ollanta Humala, has indicated that he will not cooperate with the new administration and that he and his supporters will continue to oppose the policies of Garcas government. Whilst it is not clear what form this opposition will take, any protests against the government could lead to public strikes, mass demonstrations and civil 21

PRA1 4

disobedience, which could have a material adverse effect on the Peruvian economy and cause material disruption to the Hochschild Mining Groups operations. In Mexico, the losing presidential candidate, Andres Manuel Lopez Obrador, refused to accept the election results, alleging fraud and called for a full recount of the votes cast in the elections. Since the results were announced on 2 July 2006, Lopez Obrador and his supporters have led a number of mass demonstrations and street protests, and a recent protest in Mexicos Congress by left-wing legislators forced the outgoing Mexican President, Vicente Fox, to abandon his nal annual state of the nation address. On 5 September 2006, the Mexican electoral court, in a decision that cannot be appealed, unanimously ruled against annulling the 2 July elections and declared Calderon the president-elect. Notwithstanding the Mexican electoral courts ruling, Lopez Obrador has expressed his intention to establish a parallel government and has publicly stated that he and his supporters will never recognise Calderon as President. Whilst it is not clear what form Lopez Obradors and his supporters opposition will take, any protests against the new government, or any attempt by Lopez Obrador to establish a parallel government, could lead to further public strikes, mass demonstrations and civil disobedience, as well as increased political instability and uncertainty, which could have a material adverse effect on the Mexican economy which, in turn, could cause material disruption to the Hochschild Mining Groups Mexican projects and prospects. Localised violence in Mexico linked to drug-trafcking could lead to disruption in the Hochschild Mining Groups Mexican development projects and prospects which, in turn, could have a material adverse effect on the Hochschild Mining Groups nancial condition or results of operations. Certain areas in the north of Mexico have experienced outbreaks of localised violence linked to drug-trafcking in the region. Whilst the Hochschild Mining Groups Mexican projects and prospects have, to date, been unaffected by such outbreaks, any increase in the level of violence, or a concentration of the violence in areas where the Groups Mexican projects and prospects are located, could have a material adverse effect on the Groups nancial condition or results of operations. Potential local opposition to mining could lead to disruption in the Hochschild Mining Groups mine development projects and prospects which could have a material adverse effect on the Hochschild Mining Groups nancial condition or results of operations. There is the potential for local opposition to mine development projects and prospects. Opposition in each of the jurisdictions where the Hochschild Mining Groups operations, development projects and prospects are located has arisen in the past. Whilst the Hochschild Mining Group believes it maintains good relations with local communities, the Hochschild Mining Group cannot rule out the possibility of local opposition arising in the future in respect of its existing operations, development projects or prospects or in relation to obtaining concessions for current or future projects. If the Hochschild Mining Group were to experience opposition in connection with its existing operations or current or future projects, it could have a material adverse effect on the Hochschild Mining Groups nancial condition or results of operations. The courts of the jurisdictions in which the Hochschild Mining Group operates or might operate in the future may offer less certainty as to the judicial outcome or less effective forms of redress or a more protracted judicial process than is the case in the United States and western Europe which could result in risks for the Hochschild Mining Group. The courts and legal systems in the jurisdictions in which the Hochschild Mining Group operates or might operate in the future may offer less certainty as to judicial outcome and less effective forms of redress than is the case in the United States or western Europe. Accordingly, the Hochschild Mining Group could, inter alia, face risks from (i) a higher degree of discretion on the part of governmental authorities; (ii) the lack of judicial or administrative guidance on interpreting 22

applicable rules and regulations; (iii) inconsistencies or conicts between and with various laws, regulations, decrees, orders and resolutions; (iv) relative inexperience of the judiciary and courts in such matters; or (v) a more protracted judicial process resulting in delays in reaching a judicial outcome. Similarly, there may be less certainty that government ofcials and agencies will abide by legal requirements, licences, permits and negotiated agreements. There can be no assurance that the foregoing would not have an adverse effect on the validity or enforceability of the joint ventures, licences, permits or other legal arrangements entered into by the Hochschild Mining Group or the application or enforcement of laws and regulations to which the Hochschild Mining Group is subject.

Risks relating to the Hochschild Mining Groups structure

Certain major shareholders will exercise signicant control over the Hochschild Mining Group after the Global Offer and, as a result, investors may not be able to inuence the outcome of important decisions in the future. Immediately following the Global Offer and Admission, the Major Shareholder, which is controlled by Eduardo Hochschild and Alberto Beeck as described in paragraph 5 of Part XIV: Additional Information, will benecially own 73.7 per cent. of the issued Ordinary Shares in the Company (assuming the Over-allotment Option is not exercised). As a result, this Major Shareholder will be able to exercise signicant inuence over all matters requiring shareholder approval, including the election of Directors and signicant corporate transactions. The Company has entered into a Relationship Agreement with the Major Shareholder, Mr. Hochschild and Mr. Beeck to ensure that the Hochschild Mining Group is capable of carrying on its business independently, and to ensure that transactions and relationships between the Hochschild Mining Group, the Major Shareholder, Mr. Hochschild and Mr. Beeck are at arms length and on normal commercial terms. See Relationship with the Major Shareholder in Part III: Management, Corporate Governance and the Major Shareholder for further information about the Relationship Agreement. However, the concentration of ownership may have the effect of delaying or deterring a change in control of the Hochschild Mining Group, could deprive shareholders of an opportunity to receive a premium for their Ordinary Shares as part of a sale of the Hochschild Mining Group and might affect the market price and liquidity of the Ordinary Shares. Furthermore, although the Directors and the Over-allotment Shareholders have each agreed, not to dispose of any of their holding of Ordinary Shares without the consent of the Joint Global Coordinators and subject to certain exceptions, for a period of 12 months from the date of this Prospectus, the Directors and the Over-allotment Shareholders may subsequently sell all or part of their holdings of Ordinary Shares which may negatively affect the price of Ordinary Shares. See paragraph 11 of Part XIV: Additional Information. Because the Company is primarily a holding company, its ability to pay dividends depends upon the ability of its subsidiaries to pay dividends and to advance funds. The payment of dividends by the Company is subject to the Company having sufcient distributable reserves for such purposes. The Company has commenced a process to create such reserves through a court-approved reduction of the nominal value of the Companys Ordinary Shares from 50 pence to 25 pence per Ordinary Share pursuant to Section 135 of the Companies Act. The Company has passed a resolution to reduce its nominal capital as it will stand following completion of the Global Offer, and has applied to the High Court of Justice in England and Wales for an order conrming the reduction (see paragraph 2.2.6 of Part XIV: Additional Information). As of the date of this Prospectus, the Company is not able to provide any assurance that such application will be successful. If the application is not successful, the reduction of capital will not become effective and the Company will initially have no distributable reserves. As a result, the Company would be reliant upon receiving dividends from its subsidiaries in order to generate distributable reserves, which may impact the Companys ability to pay dividends. Other 23

PRA1 4

contractual and legal restrictions applicable to the Companys subsidiaries could also limit its ability to obtain cash from them, including under the terms of the Secured Loan Agreement, details of which are set out in paragraph 12 of Part XIV: Additional Information. The Companys rights to participate in any distribution of its subsidiaries assets upon their liquidation, reorganisation or insolvency would generally be subject to prior claims of the subsidiaries creditors, including any trade creditors.

Risks relating to the Ordinary Shares

There has been no prior public trading market for the Ordinary Shares, and an active trading market may not develop or be sustained in the future. Prior to the Global Offer, there has been no public trading market for the Ordinary Shares. Although the Company has applied to the Financial Services Authority for admission to the Ofcial List and has applied to the London Stock Exchange for admission to trading on its market for listed securities, the Company can give no assurance that an active trading market for the Ordinary Shares will develop or, if developed, can be sustained following the closing of the Global Offer. If an active trading market is not developed or maintained, the liquidity and trading price of the Ordinary Shares could be adversely affected. Publicly traded securities from time to time experience signicant price and volume uctuations that may be unrelated to the operating performance of the companies that have issued them. In addition, the market price of the Ordinary Shares may prove to be highly volatile. The market price of the Ordinary Shares may uctuate signicantly in response to a number of factors, many of which are beyond the Hochschild Mining Groups control, including: variations in operating results in the Hochschild Mining Groups reporting periods; changes in nancial estimates by securities analysts; changes in market valuation of similar companies; announcements by the Hochschild Mining Group of signicant contracts, acquisitions, strategic alliances, joint ventures or capital commitments; loss of a major customer; additions or departures of key personnel; any shortfall in revenues or net income or any increase in losses from levels expected by securities analysts; future issues or sales of Ordinary Shares; and stock market price and volume uctuations. Any of these events could result in a material decline in the price of the Ordinary Shares. The Hochschild Mining Group cannot assure investors that it will make dividend payments in the future. The Directors may be unable to declare or pay any dividends. Future dividends will depend, among other things, on the Hochschild Mining Groups future prots, nancial position, distributable reserves, holding capital requirements, general economic conditions and other factors that the Directors deem signicant from time to time. Future sales of Ordinary Shares could depress the market price of the Ordinary Shares. The Hochschild Mining Group is unable to predict whether substantial amounts of Ordinary Shares will be sold in the open market following the termination of the lock-up restrictions put in place in connection with the Global Offer. Further details of the lock-up restrictions are contained in paragraph 6 of Part XII: Details of the Global Offer of this document. Any sales of substantial amounts of Ordinary Shares in the public market, or the perception that such sales might occur, could result in a material adverse effect on the market price of the Ordinary Shares. Holders of Ordinary Shares outside the United Kingdom may not be able to exercise their preemptive rights. In the case of an allotment of Ordinary Shares for cash, the Companys existing shareholders are entitled to pre-emptive rights unless waived by a resolution of the shareholders at a general meeting or in certain circumstances as stated in the Articles. If the Company allots Ordinary Shares for cash in the future and pre-emptive rights are not waived, holders of the Ordinary Shares 24
PRA3 2

outside the United Kingdom may not be able to exercise their pre-emptive rights for Ordinary Shares unless Hochschild Mining decides to comply with applicable local laws and regulations and, in the case of holders in the United States, a registration statement under the Securities Act is effective with respect to such rights, or an exemption from the registration statement under the Securities Act is available. Hochschild Mining intends to evaluate at the time of any rights or similar offering the costs and potential liabilities associated with any such registration statement or an exemption from registration, as well as the indirect benets of enabling holders of Hochschild Minings Ordinary Shares in the United States to exercise any pre-emptive rights for Ordinary Shares and any other factors considered appropriate at the time, and then to make a decision as to how to proceed. Hochschild Mining cannot assure its US shareholders that steps will be taken to enable them to exercise their pre-emptive rights, or to permit them to receive any proceeds or other amounts relating to their pre-emptive rights.

25

Directors, secretary, registered and head ofce

Directors ******************************** Eduardo Hochschild Roberto Danino Alberto Beeck Sir Malcolm Field Jorge Born Jr. Nigel Moore Dionisio Romero Company Secretary ********************** Prism CoSec Limited 49 Grange Road Dorridge Solihull West Midlands B93 8QS United Kingdom Registered Ofce ************************ One Silk Street London EC2Y 8HQ United Kingdom Head Ofce and Directors Business Address ******************************* Pasaje El Carmen 180 Surco Lima 33 Peru PRA3 10.1 PRA1 1.1 PRA3 1.1

PRA1 5.1.4

Advisers
Financial Adviser ************************ JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA United Kingdom Joint Sponsors, Joint Global Co-ordinators and Joint Bookrunners ***************** JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA United Kingdom Co-Lead Manager************************ Canaccord Adams Limited Brook House, 1st Floor 27 Upper Brook Street London W1K 7QF United Kingdom Co-Manager***************************** Nomura International plc Nomura House 1 St. Martins-Le-Grand London EC1A 4NP United Kingdom Legal Adviser to Hochschild Mining as to English law and US law ************* Linklaters One Silk Street London EC2Y 8HQ United Kingdom Legal Adviser to the Joint Sponsors, Joint Global Co-ordinators, Joint Bookrunners and Managers as to English law and US law *********************************** Freshelds Bruckhaus Deringer 65 Fleet Street London EC4Y 1HS United Kingdom Auditors and Reporting Accountants ******** Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom Registered to carry out audit work by the Institute of Chartered Accountants in England & Wales Technical Consultant ********************* IMC Group Consulting Ltd Innovate Ofce Building Lakeview Drive Sherwood Park Nottinghamshire NG15 ODT United Kingdom Registrar and Paying Agent ************** Capita Registrars Northern House Woodsome Park Fenay Bridge Hudderseld HD8 OLA PRA3 10.1 Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom PRA3 5.4.1 PRA3 5.4.3 PRA3 10.1

PRA3 10.1

PRA1 2.1 PRA1 23.1 PRA3 10.1 PRA3 10.3

PRA3 4.3 PRA3 5.4.2 PRA1 23.1 PRA3 10.1 PRA3 10.3

26

Global Offer statistics

Offer Price (per Ordinary Share)*********************************************** Number of Ordinary Shares being offered in the Global Offer(1) ***************** Number of Ordinary Shares to be admitted to the Ofcial List of the Financial Services Authority********************************************************** Percentage of the enlarged issued Ordinary Share capital being offered in the Global Offer(1) ************************************************************* Maximum number of Ordinary Shares subject to the Over-allotment Option ***** Number of Ordinary Shares in issue following the Global Offer ***************** Market capitalisation of the Company***************************************** Estimated net proceeds of the Global Offer receivable by the Company(2) ********
Notes: (1) Assumes no exercise of the Over-allotment Option. (2) Net proceeds receivable by the Company are stated after deduction of underwriting commissions and estimated expenses of the Global Offer (including VAT) of approximately 21 million. PRA3 8.1

350p 77,250,000 307,350,226 25% 11,587,500 307,350,226 1,076 million 249 million
PRA3 5.3.1 PRA3 5.1.2 PRA3 5.2.5(a)

Expected timetable of principal events

Conditional dealings in Ordinary Shares expected to commence on the London Stock Exchange ****************************** Admission and expected commencement of unconditional dealings in Ordinary Shares on the London Stock Exchange *** Crediting of Ordinary Shares to CREST accounts **************** Despatch of denitive share certicates (where applicable)******
Each of the times and dates in the above timetable is subject to change.

3 November 2006 8.00 a.m. (London time) on 8 November 2006 8.30 a.m. (London time) on 8 November 2006 Week commencing 20 November 2006

PRA3 5.1.3 PRA3 5.1.9 PRA3 5.2.4

PRA3 5.3.2 PRA3 5.1.3 PRA3 5.1.8 PRA3 4.7

It should be noted that if Admission does not occur, all conditional dealings will be of no effect and any such dealings will be at the sole risk of the parties concerned.

27

Presentation of information
Investors should rely only on the information in this document. No person has been authorised to give any information or to make any representations other than those contained in this document in connection with the Global Offer and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Company, the Directors or the Managers. No representation or warranty, express or implied, is made by any Manager or selling agent as to the accuracy or completeness of such information, and nothing contained in this document is, or shall be relied upon as, a promise or representation by any Manager or selling agent as to the past, present or future. Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of the FSMA and PR 3.4.1 of the Prospectus Rules, neither the delivery of this document nor any subscription or sale made under this document shall, under any circumstances, create any implication that there has been no change in the business or affairs of the Company or of the Hochschild Mining Group taken as a whole since the date hereof or that the information contained herein is correct as of any time subsequent to its date. The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor should consult his or her own lawyer, nancial adviser or tax adviser for legal, nancial or tax advice in relation to any purchase or proposed purchase of Ordinary Shares. In connection with the Global Offer, the Managers and any of their affiliates, acting as investors for their own accounts, may take up Ordinary Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such Ordinary Shares and other securities of the Company or related investments in connection with the Global Offer or otherwise. Accordingly, references in this document to the Ordinary Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by the Managers and any of their affiliates acting as investors for their own accounts. The Managers do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. None of the Company, the Directors or the Managers is making any representation to any offeree or purchaser of the Ordinary Shares regarding the legality of an investment by such offeree or purchaser. Apart from the responsibilities and liabilities, if any, which may be imposed on Goldman Sachs International, JPMorgan Cazenove Limited, J.P. Morgan Securities Limited, Canaccord Adams Limited and Nomura International plc by the FSMA or the regulatory regime established thereunder or any other applicable regulatory regime, each of Goldman Sachs International, JP Morgan Cazenove Limited, J.P. Morgan Securities Limited, Canaccord Adams Limited and Nomura International plc accepts no responsibility whatsoever for the contents of this document or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Shares or the Global Offer. Each of Goldman Sachs International, JPMorgan Cazenove Limited, J.P. Morgan Securities Limited, Canaccord Adams Limited and Nomura International plc accordingly disclaims all and any liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of such document or any such statement. Prior to making any decision as to whether to purchase the Ordinary Shares, prospective investors should read this document. In making an investment decision, prospective investors must rely upon their own examination of the Company and the terms of this document, including the risks involved. Presentation of nancial information Unless otherwise indicated, nancial information in this Prospectus has been prepared in accordance with International Financial Reporting Standards (IFRS) , except, for the purposes of 28

presenting the nancial information on a combined basis, in respect of certain matters explained in Section B of Part IX: IFRS Historical Financial Information and in US dollars. IFRS differ in certain signicant respects from US GAAP. The underlying nancial information stated in local currency has been translated into US dollars on the basis set out in Currencies below. For a discussion of the most signicant differences between IFRS and US GAAP as they relate to the Hochschild Mining Group, see Part XI: Summary of Differences between IFRS and US GAAP. All unaudited nancial information in this Prospectus has been extracted without material adjustment from the Groups accounting records. The Hochschild Mining Group has not in the past formed a separate legal group. The Company was incorporated on 11 April 2006 and acquired its shareholding in the companies constituting the Hochschild Mining Group pursuant to a share exchange agreement dated 2 November 2006 (see paragraph 2 of Part XIV: Additional Information). The combined historical nancial information contained in Part IX: IFRS Historical Financial Information has been prepared on a basis that combines the results and assets and liabilities of the companies comprising the Hochschild Mining Group. Internal transactions within the Hochschild Mining Group have been eliminated on combination. The nancial information contained in Part IX: IFRS Historical Financial Information for the nancial years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006 has been audited, whilst the nancial information for the six months ended 30 June 2005 is unaudited. The Hochschild Mining Group calculates EBITDA as prot from continuing operations before net nance costs and income tax plus depreciation (included in both cost of sales and administrative expenses), increase in provision for mine closure, exploration costs other than personnel and other, and non-recurring cash items included in other expenses, less gain on sale of zinc project and non-recurring cash items included in other income. The Company presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its operating performance. EBITDA is not a measure of nancial performance under IFRS or US GAAP. Investors should not consider EBITDA in isolation, as an alternative to prot from continuing operations, as an indicator of operating performance, as an alternative to cash ows from operating activities or as a measure of the Companys protability or liquidity. EBITDA as presented in this Prospectus may not be comparable to other similarly titled measures of performance of other companies. The Hochschild Mining Group calculates total cash costs to include cost of sales, commercial deductions and selling expenses, less depreciation included in cost of sales. Commercial deductions are the treatment charges for the processing of concentrate from Arcata and, while it was producing concentrate, Selene and penalty charges related to levels of impurities in the concentrate in excess of specied thresholds. These charges are deducted when the Hochschild Mining Group calculates the price it invoices its customer for the sale of concentrate and therefore the revenues received by the Hochschild Mining Group are shown net of these charges. See Part VII: Operating and Financial ReviewRevenues. Total cash costs and total cash costs per ounce are presented because the Company believes they provide a measure for comparing the Hochschild Mining Groups operational performance against that of its peer group. In addition, management uses these measurements to compare the performance of the Hochschild Mining Groups operations period-to-period from a cash ow perspective, to monitor costs and to evaluate operating efciency. Total cash costs and total cash costs per ounce are not measures of nancial performance under IFRS or US GAAP. Investors should not consider total cash costs or total cash costs per ounce in isolation, as an alternative to prot from continuing operations, as an indicator of operating performance, as an alternative to cash ows from operating activities or as a measure of the Hochschild Mining Groups protability or liquidity. Total cash costs and total cash costs per ounce as presented in this Prospectus may not be comparable to other similarly titled measures of performance of other companies. 29

Return on invested capital is calculated by dividing the Groups prot from continuing operations before net nance costs and income tax by the aggregate of the Groups total equity plus borrowings less loans due from related parties. Pro forma nancial information In this Prospectus, any reference to pro forma nancial information is to information which has been extracted without material adjustment from the unaudited pro forma nancial information contained in Part X: Unaudited pro forma Financial Information. The unaudited pro forma balance sheet contained in Part X: Unaudited pro forma Financial Information is based on the consolidated balance sheet of the Hochschild Mining Group as at 30 June 2006 extracted without material adjustment from, Section B IFRS Historical Financial Information in Part IX: IFRS Historical Financial Information. The unaudited pro forma balance sheet includes certain adjustments in respect of the proposed Global Offer. However, the unaudited pro forma balance sheet is not necessarily indicative of what the nancial position of the Hochschild Mining Group would have been had the Global Offer occurred on 30 June 2006. In the compilation of such unaudited pro forma balance sheet, balance sheet information has been translated at the period end rate as set out below. The unaudited pro forma nancial information is for illustrative purposes only. Because of its nature, the pro forma nancial information addresses a hypothetical situation and, therefore, does not represent the Hochschild Mining Groups actual nancial position. Currencies In this Prospectus, references to Nuevo Sol or PEN are to the lawful currency of Peru; references to Mexican Peso or MXN are to the lawful currency of Mexico; references to Argentinian Peso or ARS are to the lawful currency of Argentina; references to pounds sterling, , pence or p are to the lawful currency of the United Kingdom; and references to US dollars, dollars, $, US$, cents or c are to the lawful currency of the United States of America. The Offer Price will be stated in pounds sterling. On 2 November 2006 (being the latest practicable date prior to the publication of this Prospectus), 1.00 = $1.9088, based on the Noon Buying Rate in New York City, as certied by the New York Federal Reserve Bank. Unless otherwise indicated, the nancial information contained in this Prospectus has been expressed in US dollars. The functional currency of the production companies of the Hochschild Mining Groups operations is the US dollar. The functional currency of the exploration companies of the Hochschild Mining Group is the local currency. On consolidation, income statements of subsidiaries for which the US dollar is not the functional currency are translated into US dollars, the presentation currency for the Hochschild Mining Group, at average rates of exchange. Balance sheet items are translated into US dollars at period end exchange rates. These translations should not be construed as representations that the relevant currency could be converted into US dollars at the rate indicated or at any other rate. Indicative exchange rates of the US dollar against the Nuevo Sol, Mexican Peso and Argentinian Peso, comprising the average rate used for income statements and the period end rate used for balance sheet information, are shown below: Nuevo Sol
Period Average rate Period end rate

Year ended 31 December 2003 ******************************************************* Year ended 31 December 2004 ******************************************************* Year ended 31 December 2005 ******************************************************* Six months ended 30 June 2005 ****************************************************** Six months ended 30 June 2006 ******************************************************

3.48 3.40 3.29 3.26 3.32

3.46 3.28 3.43 3.25 3.26

30

Mexican Peso
Period Average rate Period end rate

Year ended 31 December 2003 ******************************************************* Year ended 31 December 2004 ******************************************************* Year ended 31 December 2005 ******************************************************* Six months ended 30 June 2005 ****************************************************** Six months ended 30 June 2006 ******************************************************

10.77 11.31 10.73 11.08 11.30

10.72 11.29 10.73 10.83 11.41

Argentinian Peso
Period Average rate Period end rate

Year ended 31 December 2003 ******************************************************* Year ended 31 December 2004 ******************************************************* Year ended 31 December 2005 ******************************************************* Six months ended 30 June 2005 ****************************************************** Six months ended 30 June 2006 ******************************************************

2.96 2.99 3.02 2.91 3.07

2.93 2.93 3.03 2.89 3.09

The basis of translation of foreign currency transactions and amounts in the nancial information set out in Part IX: IFRS Historical Financial Information is described in that Part IX. Ore reserve and mineral resource reportingbasis of preparation IMC Group Consulting Ltd (IMC) has reviewed the reserves and resources statements compiled by the Company and has stated the reserves and resources as set out in Tables 2-5 and 2-6 of the Technical Report in Part XV in compliance with the Prospectus Rules and the CESR recommendations and in accordance with the criteria for internationally recognised reserve and resource categories as included in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). In this Prospectus, all reserve and resource estimates initially prepared by the Hochschild Mining Group have been substantiated by evidence obtained from IMCs site visits and observation and are supported by details of drilling results, analyses and other evidence and take account of all relevant information supplied by the Companys management and the Directors. Mineral resources are based on mineral occurrences quantied on the basis of geological data and an assumed cut-off grade, and are divided into measured, indicated and inferred categories reecting decreasing condence in geological and/or grade continuity. No allowances are included for dilution and losses during mining, but the reporting of resource estimates carries the implication that there are reasonable prospects for eventual economic exploitation. Resources may therefore be viewed as the estimation stage prior to the application of more stringent economic criteria for reserve denition, such as a rigorously dened cut-off grade and mine design outlines, along with allowances for dilution and losses during mining. It is common practice, for example, for companies to include in the resources category material with a reasonable expectation of being converted to reserves, but for which either the detailed mine planning work has not been undertaken or for which an improvement in economic conditions or exploitation efciencies would be required to enable the company to exploit the resources economically. An inferred resource is that part of a mineral resource for which tonnage, grade and mineral content can be estimated with a low level of condence. This categorisation is inferred from geological evidence and assumed, but not veried, geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. Ore reserves (as dened by the JORC Code) are designated as proved and probable, and are derived from the corresponding measured and indicated resource estimates by including allowances for dilution and losses during mining. It is an explicitly stated further requirement that other modifying economic, mining, metallurgical, marketing, legal, environmental, social and governmental factors also be taken into account. The measured and indicated mineral resources can be reported as either being inclusive of those mineral resources modied to produce the ore reserves or additional to the ore reserves. In this Prospectus, 31

measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution. Inferred resources are stated on an exclusive basis. Included in this Prospectus are various statements relating to mineralised potential at the Companys exploration targets. IMC has reviewed the information supporting these statements compiled by the Company and has stated the mineralised potential as set out in section 6 of the Technical Report in Part XV in compliance with section 18 of the JORC Code. The disclosure of mineralised potential follows specic guidance in section 18 of the JORC Code; specically, that the mineralised potential should be expressed as a range of quantity and grade, with an explanation of the basis of the statement. The summary statement of potential for each target is expressed explicitly on the basis that (i) the potential range of quantity and grade is conceptual in nature, there has been insufcient exploration to dene a mineral resource on the target and it is uncertain if further exploration will result in the discovery of a mineral resource on the target; and (ii) the mineralised potential constitutes a possible mineral deposit that is to be the target of further exploration. The geological characteristics of epithermal vein precious metal mineral deposits means that surface drilling is seldom sufcient to dene future prospects at a level greater than that of inferred resources. Resource and reserve denition is primarily dependent on mine developments planned specically to upgrade the resource and reserve base, in conjunction with an extensive programme of underground drilling. As a result the reserves are, excluding the discounts included in the reserves for losses and dilution, nearly identical to the measured and indicated resources. The reserve and resource estimates provided in this Prospectus comply with the reserve and resource denitions of the JORC Code. The relevant denitions from the 2004 edition of the JORC Code can be found in Part XVII: Glossary of Technical Terms. Information included in the main body of this Prospectus relating to reserve and resource estimates has been extracted from or derived from the Technical Report in Part XV and must be read in conjunction with this full Technical Report. Production reporting Production gures in this Prospectus which are stated in silver equivalent ounces and gold equivalent ounces have been calculated on a ratio of 60 ounces of silver : 1 ounce of gold. Cost curves This Prospectus contains references to cost curves. A cost curve is a graphic representation in which the production volume of a given commodity across the relevant industry is arranged on the basis of average unit costs of production from lowest to highest to permit comparisons of the relative cost positions of particular production sites, individual producers or groups of producers within a given country or region. Generally, a producers position on a cost curve is described in terms of the particular quartile or tercile, the rst quartile or tercile being the lowest cost and the fourth quartile or the third tercile being the highest, in which the production of a given plant or producer or group of producers appears. The cost curves referred to in this Prospectus have been obtained by the Company from independent industry analysts, CRU Strategies (in respect of silver) and GFMS Limited (in respect of gold), with recognised experience in constructing cost curves for the relevant commodities. To construct cost curves, the analyst compiles information from a variety of sources, including reports made available by producers, site visits, personal contacts, trade publications and other analysts reports. Although producers may thus participate to some extent in the process through which cost curves are constructed, they are typically unwilling to validate cost analyses directly because of commercial sensitivities. Inevitably, assumptions must be made by the analyst with respect to data that such analyst is unable to obtain and judgment must be brought to bear in the case of virtually all data, however obtained. In addition, the time required to produce cost curves means that even the most recent available examples will be unable to take account of recent 32

developments; in some cases, the most recent available cost curve may be based on data that is several years old. Costs data for specic producers may be based on costs incurred by the producers over their respective accounting years; to the extent these differ, the direct comparability of their costs may be limited. The cost curves referred to in this Prospectus reect direct cash costs of production and include non-cash and indirect costs (such as depreciation, interest and unrelated overhead expenses) and costs relating specically to marketing and export, but exclude all centralised and greeneld exploration costs. Delivery costs reect estimates for each producer to accepted selling points, based on actual sales. They include estimates for all costs involved in delivery, including freight, insurance, warehousing and nancing costs as well as sales commissions. Costs at operations producing more than one product are estimated on a pro-rata basis (weighted according to each metals share of revenue), so treating the metals on co-products. Moreover, all cost curves embody a number of signicant assumptions with respect to exchange rates and other variables. In summary, the manner in which cost curves are constructed means that they have a number of signicant inherent limitations. In certain cases, cost curves produced by more than one reputable industry analyst may exist with regard to a specic commodity. The methodologies employed and conclusions reached by such analysts may differ. Moreover, the reliability of any given cost curve may be difcult to assess, as the accuracy of the data, and the reasonableness of the assumptions on which it has been based, usually cannot be tested directly. Particular producers are, however, in a position to validate the accuracy of the presentation with respect to their own costs subject to adjustments to bring their methodology in line with the methods of the others. This can provide a useful indication of the reliability of a cost curve overall and, notwithstanding their shortcomings, independently produced cost curves are widely used in the industries in which the Hochschild Mining Group operates. The cost curves to which this Prospectus refers are the most recent cost curves that have been obtained by the Company from CRU Strategies (in respect of silver) and GFMS Limited (in respect of gold). All such cost curves are based on 2005 data. The cost curves have been prepared using cost data for the Hochschild Mining Groups and other producers operations. The Directors have satised themselves that the Hochschild Mining Groups own production costs which were used in the preparation of the cost curves are reasonably represented. See also Part VI: Selected Financial and Operating InformationTotal Cash Costs for further details as to the cash costs of production for the Hochschild Mining Group. Forward-looking statements This document includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements can be identied by the use of forward-looking terminology, including the terms believes, estimates, plans, projects, anticipates, expects, intends, may, will, or should or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include, but are not limited to, statements regarding the Hochschild Mining Groups intentions, beliefs or current expectations concerning, amongst other things, the Hochschild Mining Groups results of operations, nancial position, liquidity, prospects, growth, strategies and the silver and gold industries. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Hochschild Mining Groups operations, nancial position and liquidity, and the development of the markets and the industry in which the Hochschild Mining Group operates, may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. In addition, even if the results of operations, nancial position and liquidity, and the development of the markets and the industry 33

in which the Hochschild Mining Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency uctuations (including the US dollar and Nuevo Sol exchange rates), the Hochschild Mining Groups ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, changes in its business strategy, political and economic uncertainty and other factors discussed in the sections: Risk Factors, Part I: Information on Hochschild Mining and Part VII: Operating and Financial Review. Forward-looking statements may, and often do, differ materially from actual results. Any forwardlooking statements in this document reect the Hochschild Mining Groups current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Hochschild Mining Groups operations, results of operations, growth strategy and liquidity. Investors should specically consider the factors identied in this document which could cause actual results to differ before making an investment decision. Subject to the requirements of the Prospectus Rules, the Disclosure Rules and the Listing Rules, the Hochschild Mining Group undertakes no obligation publicly to release the result of any revisions to any forward-looking statements in this document that may occur due to any change in the Companys expectations or to reect events or circumstances after the date of this document.

US Considerations
Available information The Company has agreed that, for so long as any of the Ordinary Shares are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the US Securities Exchange Act of 1934, as amended (the Exchange Act), nor exempt from reporting under the Exchange Act pursuant to Rule 12g3-2(b) thereunder, make available to any holder or benecial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or benecial owner, upon the request of such holder, benecial owner or prospective purchaser, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Enforceability of US judgments The Company is a holding company organised as a public company incorporated under the laws of England and Wales with business operations conducted through various subsidiaries. The majority of the Companys directors and all of its ofcers reside outside the United States. In addition, substantially all of the Companys assets and the majority of the assets of its directors and ofcers are located outside of the United States. As a result, it may not be possible for US investors to effect service of process within the United States upon the Company or its directors and ofcers located outside the United States or to enforce in the US courts or outside the United States judgments obtained against them in US courts or in courts outside the United States including judgments predicated upon the civil liability provisions of the US federal securities laws or the securities laws of any state or territory within the United States. There is also doubt as to the enforceability in England and Wales, whether by original actions or by seeking to enforce judgments of US courts, of claims based on the federal securities laws of the United States. In addition, punitive damages in actions brought in the United States or elsewhere may be unenforceable in England and Wales.

34

Part I: Information on Hochschild Mining

Investors should read the whole of this Prospectus and not just rely upon summarised information including the tables in this Part I. Where stated, information in this section has been extracted without material adjustment from Section B IFRS Historical Financial Information in Part IX and from the Technical Report in Part XV.

Overview
The Hochschild Mining Group is a leading precious metals company with a primary focus on the exploration, mining, processing and sale of silver and gold. The Group is the fourth largest primary silver producer globally1, (having produced approximately 10.5 million ounces in 2005) and produces a signicant quantity of gold (approximately 233 thousand ounces in 2005). The Hochschild Mining Group has over forty years of experience in the exploration, evaluation and extraction of precious metal epithermal vein deposits. Currently, it has three underground, epithermal vein mines (Arcata, Ares and Selene) located in Southern Peru which are supported by fully developed infrastructure. The Group also has two advanced development projects, San Jose (Argentina) and Pallancata (Peru), which are both scheduled to commence production in 2007, and two early stage development projects, Mina Moris and San Felipe, both of which are located in Mexico. Mina Moris is scheduled to commence production in 2007, whilst at San Felipe, the Group is currently engaged in verication drilling on the site. In addition to its development projects, the Group has over twenty long-term prospects throughout Latin America which are at various stages of development, the most advanced of which are San Luis del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru). A number of these projects and prospects are structured as joint ventures or option arrangements with local or overseas mining partners, whilst others are owned and operated exclusively by the Group. The Directors believe the Groups mines, projects and prospects provide substantial potential for growth. The Group has a high-grade reserve base and a proven track record of consistent reserves replacement, sustaining the reserve and resource base at each of its current operating mines in step with productionin the case of Arcata, over many years and, in the case of Ares and Selene, since production commenced in 1998 and 2003 respectively.
PRA1 6.1.1 PRA1 6.5

1 Source: CRU Strategies

35

Part I: Information on Hochschild Mining

The table below sets out the reserves and resources at each of the operating mines and development projects as at 30 June 2006, such information having been extracted without material adjustment from the Technical Report in Part XV.
Reserves Proved and probable (in tonnes) Silver grade (g/t) Gold grade (g/t) Measured and indicated (in tonnes)(1) Silver grade (g/t) Resources Gold grade (g/t) Silver grade (g/t) Gold grade (g/t)

Inferred (in tonnes)(2)

Operating Mines Arcata (Peru) ************************* Ares (Peru) *************************** Selene (Peru) ************************* Advanced Development Projects San Jose (Argentina) ****************** Pallancata (Peru) ********************* Early Stage Development Projects Mina Moris (Mexico) ****************** San Felipe (Mexico)(3) ***************** Total********************************* Notes:

929,999 834,820 799,331 641,697 643,267 3,849,114

462 1.26 327 12.24 377 2.56 418 263 7.90 1.09

915,465 826,582 808,567 579,007 614,418 3,354,439 7,098,478

561 1.55 291 13.78 398 1.96 473 289 3.96 9.32 1.20 1.31

1,088,550 46,838 453,749 253,059 981,673 4,563 3,150,000 5,978,432

580 227 279 374 376 2.2 70

1.93 5.54 1.25 8.22 1.44 1.37

(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution (2) Inferred resources are stated exclusive of reserves and measured and indicated resources (3) Resources also contain a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper

As set out below, the Hochschild Mining Group has a track record of sustained protability underpinned by low cash costs of production (in 2005, the Groups cash costs of production on a co-product basis were US$2.65/oz for silver and US$169/oz for gold, placing the Hochschild Mining Group within the rst quartile of the cost curve for silver, according to CRU strategies and for gold, according to GFMS Limited. In 2005, the Hochschild Mining Group generated EBITDA of US$70.8 million1 against revenues of US$151.3 million, a margin of 46.8 per cent. The table below sets out the Hochschild Mining Groups production output, revenues and EBITDA, for the nancial periods ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2005 and 30 June 2006, which have been extracted without material adjustment from the Technical Report in Part XV and from Part IX: IFRS Historical Financial Information respectively, except for EBITDA which has been calculated as set forth in Part VI: Selected Financial and Operating Information.
6 months ended 30 June 2006

Year ended 31 December 2003 2004 2005

Silver production (Koz)***************************************************** 7,504 Gold production (Koz) ***************************************************** 211 Total silver equivalent (Koz) ************************************************ 20,217 Revenue (US$000) ********************************************************* 93,771 EBITDA (US$000) ********************************************************** 46,518

10,657 241 25,121 159,052 71,182

10,550 232 24,543 151,319 70,845

5,467 102.88 11,640 92,286 55,587

The Groups headquarters are in Lima.

History of the Hochschild Mining Group

The Hochschild Mining Group is the group of companies which previously comprised the mining division of the Hochschild Group. The Group traces its origins to the original Hochschild Group founded in 1911 by Mauricio Hochschild. Following World War I, the Hochschild Group expanded into Bolivia, where it developed signicant interests in tin. The Hochschild Group commenced
1 Source: Company (unaudited) PRA1 5.1.5

36

Part I: Information on Hochschild Mining

operations in Peru in 1925 and in 1945 Luis Hochschild joined the Hochschild Groups Peruvian operations. During the rst decades of its operations, the Hochschild Group focused on the commercialisation of minerals, and it was not until the 1940s that it began operating its rst mines, although mineral commercialisation remained the Hochschild Groups main source of revenue. During World War II, the Hochschild Group was a key supplier of tin and other metals to the allied forces. In the 1960s the Hochschild Group developed the Arcata mine in Peru, which is still in production today. The Hochschild Group expanded further into mining in the 1960s and 1970s, opening or expanding mines in Brazil, Peru and Chile, such as the Mantos Blancos copper mine in Chile. In November 1984, the South American mining operations of the Hochschild Group were sold to Anglo American Corporation of South Africa who, in the same month, sold the Peruvian operations of the Hochschild Group to a group of companies owned by Luis Hochschild. In 1995, the Hochschild Mining Group launched an extensive exploration programme, uncovering and further developing several sites in Peru, including the Ares, Selene and Sipan sites. By 2001, the Group had assembled an experienced professional management team which has taken forward the Groups strategy of international expansion. As a result of this strategy, between 2001 and 2006, the Group opened exploration ofces and identied a number of projects and prospects in Argentina, Mexico and Chile, and entered into various joint venture agreements with local or overseas mining partners, notably those relating to the San Jose, Pallancata, Mina Moris and San Felipe development projects. Eduardo Hochschild, Luis Hochschilds son, joined the Group in 1987 as Safety Assistant at the Arcata operating unit and has been head of the Hochschild Mining Group since 1998. Eduardo Hochschild is now the Executive Chairman of the Hochschild Mining Group, a position he has held since 2006.
PRA1 5.2.1

Key strengths
The Directors believe that the key strengths of the Hochschild Mining Groups business are: ) One of the leading precious metals producers globally The Hochschild Mining Group is a leading precious metals producer and the fourth largest primary silver producer globally1, producing approximately 10.5 million ounces of silver in 2005. The Group is also a signicant producer of gold, producing approximately 233 thousand ounces in 2005. The Hochschild Mining Group is embarking upon an important growth phase in its business, with plans to further increase production to approximately 50 million silver equivalent ounces (or 830,000 gold equivalent ounces annually) from both its existing mines and its development projects and to double the number of its producing mines, in each case by 2011, with over fty per cent. of production derived from the Groups operations outside Peru. The Group has a policy of limited hedging of its production and, therefore, has signicant leverage and exposure to the market prices of silver and gold. ) Low cash costs and strong returns on invested capital According to CRU Strategies (in respect of silver) and GFMS Limited (in respect of gold), the Hochschild Mining Group is positioned in the rst quartile of the global cash cost curve (US$2.65 per ounce of silver and US$169 per ounce of gold on a co-product basis in the nancial year ended 31 December 2005). The Group has a sustained track record of low cash costs and high cash ows resulting from its strategy of acquiring and exploiting high-grade ore reserves and the efciency of its operations. The Groups operational performance and productivity are driven by its
1 Source: CRU Strategies. PRA1 6.5

37

Part I: Information on Hochschild Mining

extensive experience in mining epithermal precious metal veins and its use of mechanisation wherever practicable. The Group has a cultural focus on costs with its productivity underpinned by a rigorous system of cost controls and an integrated reporting system which regularly provides management with detailed information on the Groups nancial and operational performance on a mine by mine basis. The strength of the Groups operational performance is demonstrated by its track record of generating strong returns on capital, achieving an average return on invested capital in the nancial years ended 31 December 2003, 2004 and 2005 of 31 per cent. on a post-tax basis. ) Proven track record of production growth and reserves replacement The Hochschild Mining Groups three operating mines have a history of stable or increased production. Total production increased from 18.5 million silver equivalent ounces (or 308,000 gold equivalent ounces) in 2002 to an estimated 24.7 million silver equivalent ounces (or 411,000 gold equivalent ounces) in 2006. The geological characteristics of the Groups operating mines mean that it is difcult to prove up reserves without signicant investment in underground development. Consequently, the Groups strategy to date has been to undertake a continuing exploration and development programme to ensure the reserve and resource base is developed in step with production and planned expansion as well as identifying mineralised potential to supplement the resource base going forward. The focus of this reserve development strategy has been to maximise the cash ow from its operations rather than extend the lives of its operating mines, although, going forward, the Group intends to invest in further extending mine life. The Group has a well-demonstrated track record of consistent reserves replacement in step with production at each of its current operating mines, in the case of Arcata, over many years and, in the case of Ares and Selene, since production commenced in 1998 and 2003 respectively. The Group has, on average, replaced 37 per cent. of its total reserve base with new reserves annually since 1990 at all of the Groups operating units. ) Expertise in underground mining in Latin America The Hochschild Mining Group has over forty years of experience in the exploration, evaluation and extraction of precious metal deposits. Its professional management team has a broad-based experience ranging from greeneld exploration to developing and operating mines, joint ventures and acquisitions. It also has particular expertise in mining narrow epithermal veins in difcult geological conditions and in remote areas, focusing on mid-sized, high-grade underground development projects and prospects (with a value in the range of US$50 million to US$150 million). The Group also has signicant experience in open pit mining. As well as the Hochschild Mining Groups current operations in Peru, the Group has, for a number of years, had exploration ofces in Mexico, Argentina and Chile, enabling it to develop a network of contacts throughout Latin America. The Group has gained valuable experience of the regions social, cultural and political landscape and its professional management team combines experience and expertise in conducting business in the region. Whilst a number of international mining companies have operations in Latin America, the Directors believe that the Hochschild Mining Groups history and the managements record as a local operator of mid-sized, underground, complex, narrow vein mines gives Hochschild Mining a competitive advantage. As a result of the combination of these strengths, Hochschild Mining considers itself to be a partner of choice for mining companies aiming to develop mid-sized projects in Latin America and who are seeking a partner with the local expertise to develop and operate such projects. This is demonstrated by its joint venture arrangements for its development projects with the Exmin Resources group, Minera Andes Inc. and International Minerals Corporation. 38

Part I: Information on Hochschild Mining

) Attractive Growth Opportunities from both Development Projects and Prospects To strengthen and expand its existing operations, the Hochschild Mining Group has identied a number of development projects and prospects in Peru and elsewhere in Latin America. The Group has two advanced development projects, San Jose in Argentina and Pallancata in Peru, both of which are scheduled to come into production in 2007. As at 30 June 2006, San Jose had measured and indicated resources of 579,007 tonnes, at an average silver grade of 473 grams per tonne and an average gold grade of 9.32 grams per tonne, and Pallancata had measured and indicated resources of 614,418 tonnes, at an average silver grade of 289 grams per tonnes and an average gold grade of 1.20 grams per tonne. The Group also has two early stage development projects, Mina Moris and San Felipe, both of which are in Mexico. Mina Moris, an open pit mine, is currently planned to come into production in 2007, whilst at San Felipe, the Group is currently engaged in verication drilling on the site. As at 30 June 2006, Mina Moris had measured and indicated resources of 3,354,439 tonnes at an average silver grade of 3.96 grams per tonne and an average gold grade of 1.31 grams per tonne, and San Felipe had inferred resources of 3,150,000 tonnes at an average silver grade of 70 grams per tonne and a combined content of 9.6 per cent. zinc, lead and copper sulphides, which is expected to translate into a signicant production of zinc. The Directors expect each of these projects to provide high margins and cash ows and believe that they will be positioned in the rst cost quartile of the global cost curve on a silvergold co-product basis. In addition, the Hochschild Mining Group has over twenty long-term prospects throughout Latin America, the most advanced of which are San Luis del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru). The Directors are condent that, should these long-term prospects come into production, they will provide high margin, low cost growth opportunities for the Group in the medium term. ) Responsibility towards employees, the environment and local communities The health and safety of the Hochschild Mining Groups employees, respect for the environment and active engagement with local communities are fundamental to the Hochschild Mining Groups business and are a deeply held personal conviction of the Groups current shareholders and management. The Group strives to act as a responsible corporate citizen in all areas of its operations. Consequently, the Group has made considerable investment in the operating controls and processes at its facilities with the aim of ensuring that exacting health, safety and environmental standards are met. The Group has also instituted several long-term community projects aimed at making local communities self-sustaining over time and at raising the income of these communities. The Hochschild Mining Groups efforts in these respects have been recognised through its receipt of the internationally recognised John T. Ryan safety award, as well as the award in 2005 for the most environmentally friendly business in Peru, which the Directors believe enhances the Groups reputation within the Latin American mining industry.
PRA1 5.2.1 PRA1 5.2.2 PRA1 5.2.3 PRA1 6.1.2

The Hochschild Mining Groups strategy

The Hochschild Mining Groups strategy is to achieve growth as a high-margin, cash generative, precious metals producer in Latin America, continuing its primary focus on silver and gold production, and to enhance overall value for its shareholders, whilst maintaining a strong focus

39

Part I: Information on Hochschild Mining

on operational excellence and on its social and environmental responsibilities. The Group intends to pursue this strategy in the following ways: Maximising the potential of existing operations The Hochschild Mining Group will seek to maximise the potential of existing operations by delivering further efciency gains and maintaining its rigorous cost controls, whilst continuing to invest in exploration and facilities in order to extend mine life and provide additional plant capacity. Growth through delivery of its project pipeline The Group intends to drive growth and to diversify geographically by utilising its proven expertise in underground mining in remote areas to bring its development projects into production on time and within budget and to develop its extensive pipeline of existing prospects into producing mines. The Group plans to further increase production to approximately 50 million silver equivalent ounces (or 830,000 gold equivalent ounces annually) from both its existing operations and its development projects by 2011. Exploiting market and geographic niches to seek additional growth opportunities The Group plans to leverage its operating expertise and Latin American experience to seek additional growth opportunities. The Groups primary focus will be on mid-sized, high-grade, value accretive underground precious metal assets in Latin America which are (or have the potential to be) of a size and scale similar to its current operations, whilst offering high margins and attractive growth potential. These opportunities may be sought through: ) further exploration; ) the acquisition of suitable operating mines, development projects or prospects or of companies that own such assets; or ) joint ventures (generally Hochschild Mining controlled) with mining companies that lack the capacity or capability to develop and operate a particular asset.

Principal group mines, facilities, projects and prospects

The Hochschild Mining Group has three distinct operating units: Arcata, Ares and Selene, each of which has its own mine, plant and related facilities, which the Group holds through its wholly owned subsidiary, Compana Minera Ares S.A.C. (Compana Minera Ares). The Group controls and plans operations at the Groups head ofce in Lima and has a core staff of management and technical personnel at each operating unit. As at 30 June 2006, the Hochschild Mining Group had a total of 3,100 employees, of which 1,935 were contracted personnel. In addition to its operating units, the Hochschild Mining Group has two advanced development projects: one in Argentina (San Jose) and one in Peru (Pallancata), and two early stage development projects in Mexico (Mina Moris and San Felipe). The Group also has more than twenty long-term prospects throughout Latin America, the most advanced of which are San Luis del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru). A number of these projects and prospects are structured as joint ventures or option arrangements with local or overseas mining partners, whilst others are owned and operated exclusively by the Group. The Group owns one further mine in Peru, the Sipan Mine, which ceased production in 2005 and, in relation to which, the Group is implementing a closure programme (see Part VII: Operating and Financial Review). 40
PRA1 6.1.1

PRA1 5.2.2 PRA1 5.2.3

Part I: Information on Hochschild Mining

The following map shows the location of Hochschild Minings current operations and most advanced projects and prospects:

The Groups current operations and most advanced projects and prospects are located in three countries in Latin America: Peru, Mexico and Argentina. The Hochschild Mining Group has focused on these three key jurisdictions for the following main reasons: ) Peru: the Groups connections with Peru stretch back to the 1920s when the Hochschild Group commenced commercialisation of minerals in Peru. In addition, the Directors believe that Peru benets from further mining potential and, as an established mining country, has the benet of local mining expertise, as well as an attractive legal and regulatory framework for mining companies. ) Mexico: the Directors believe that Mexico similarly benets from further mining potential and, as an established mining country, has the benet of local mining expertise and an attractive legal and regulatory framework for mining companies. ) Argentina: the Directors believe that Argentina has further geological potential, a developing mining industry and an attractive legal and regulatory framework for mining companies. Further information on the legal and regulatory framework for mining companies in Peru, Mexico and Argentina is set out in Part IV: Information on Peru, Mexico and Argentina. For risks associated with operating in Peru, Mexico and Argentina, see Risk FactorsRisks relating to operating in Peru, Mexico and Argentina. 41

Part I: Information on Hochschild Mining

Introduction The Hochschild Mining Group operates one underground mine at each of its three operating units in Peru. The principal mining method employed at each of these units is the cut and ll method, consisting primarily of the cyclical drilling and blasting of ore which is then transported by truck to a concentrator for processing into silver-gold concentrate, or to a processing plant for processing into dore. The mining method is partially mechanised at all three operating units. The Hochschild Mining Group operates two concentrators, one at each of the Arcata and Selene units, for the production of silver-gold concentrate using a crush, grind, mill and otation process. The Ares unit operates a processing plant for the production of silver-gold dore using a crush, grind and Merrill-Crowe leaching process. In addition to the underground mine and concentrator or processing plant, other principal facilities at each of the Hochschild Mining Groups operating units include an electrical sub-station, maintenance facilities for all of the units operations and accommodation for employees. A hospital is also located on-site at each of the operating units. Electricity is supplied via the Peruvian national grid, although electrical generators are located at each of the operating sites. Each site currently has standby generation capacity in the event of a failure of the power supply. This generation capacity is adequate, in the case of Ares and Selene, to allow full production but, in the case of Arcata, supports essential services but not production. Assay laboratories have been constructed at each of the operating sites. The laboratory at the Selene unit is operated under contract by the international specialists, Societe Generale de Surveillance, whilst those at Arcata and Ares are operated directly by the Company. Fullydocumented quality assurance and quality control procedures apply at each laboratory with respect to sample handling, analytical methods and quality assurance and control. The health and safety of its employees and environmental concerns are high priorities for the Hochschild Mining Group. Each of the Groups operating mines has achieved ISO14001 status and the Group has implemented numerous safety and operating procedures which are continually being updated with the aim of qualifying for OSHAS 18001 certication in 2007. The Group makes signicant investment in procedures and controls relating to health, safety and environmental matters (US$3.8 million is planned to be spent in the nancial year ending 31 December 2006) and its efforts have been acknowledged through several internationally recognised awards. The Group also takes precautions to protect its operating units and products with security at each of its sites being provided by a professional security rm. Processing In 2005, the Hochschild Mining Group produced approximately 10.5 million ounces of silver and 233 thousand ounces of gold. Both the Arcata and Selene units produce concentrate, whilst dore is produced at the Ares unit. The concentrating process consists of crushing and grinding the ore removed from the mine and separating silver and gold ores from waste material by otation, resulting in a silver-gold concentrate. Dore is produced by rst crushing, grinding and cyanideleaching the ore to form a solution containing dissolved gold and silver. The gold and silver are then precipitated through a Merrill-Crowe process, with the dore nally being obtained through the smelting of the precipitate. The concentrate produced at Selene is subsequently processed at the Ares facility to produce dore. At Ares, smelting of the precipitate is only undertaken a limited number of times per month which both improves efciency and aids security as dore production is timed to coincide with the Groups selling arrangements with Johnson Matthey (see Sales, Markets and Customers below for further information on the Groups arrangements with Johnson Matthey). For the three years ended 31 December 2003, 2004 and 2005, the Hochschild Mining Groups total concentrate production was 12,264, 14,417 and 14,346 tonnes respectively and for the six months ended 30 June 2006, it was 7,161 tonnes. For the three years ended 31 December 2003, 2004 and 42

PRA1 5.2.2 PRA1 5.2.3

Part I: Information on Hochschild Mining

2005, the Hochschild Mining Groups total dore production was 3,075, 3,226 and 3,151 tonnes respectively and, for the six months ended 30 June 2006, it was 1,493 tonnes. Tailings dams Tailings dams are located at each of the Groups operating units. The dams are raised by the downstream method using contractors, with extensive quality control testing undertaken. This has enabled the designers to use steeper civil engineering slopes compared to more conventional mining slopes. The dams are operated by the manager of the relevant concentrator or processing plant, in each case with supervision of the monitoring equipment and routine inspections being carried out by the Department of the Environment. Civil engineers from the Hochschild Mining Groups head ofce in Lima also inspect the tailings dams at each of the operating units approximately twice a year. Cost curve A cost curve produced by CRU Strategies Limited in August 2006 ranked the Hochschild Mining Groups current operations on a co-product basis in the rst quartile of world production of silver. A cost curve produced by GFMS Limited in September 2006 ranked the Hochschild Mining Groups current operations on a co-product basis in the rst quartile of world production of gold. See Presentation of Information. Reserves and resources The geological characteristics of the Groups operating mines mean that it is difcult to prove up reserves without signicant investment in underground development. Consequently, the Groups strategy to date has been to undertake a continuing exploration and development programme to ensure the reserve and resource base is developed in step with production and planned expansion as well as identifying mineralised potential to supplement the resource base going forward. The focus of this reserve development strategy has been to maximise the cash ow from its operations rather than extend the lives of its operating mines, although, going forward, the Group intends to invest in further extending mine life. The Group has a well-demonstrated track record of consistent reserves replacement in step with production at each of its current operating mines, in the case of Arcata, over many years and, in the case of Ares and Selene, since production commenced in 1998 and 2003 respectively. The Group has, on average across the periods shown in Table 1 below, replaced 37 per cent. of its total reserves base with new reserves annually at all of the Groups operating units.

43

Part I: Information on Hochschild Mining

Table 1 below sets out the Hochschild Mining Groups silver and gold reserves at year end for each period shown and production for the periods shown at each of its operating units. The reserves and production gures have, in each case, been extracted without material adjustment from the Technical Report in Part XV: Table 1
Reserves Silver t g/t koz g/t Gold koz T g/t Production Silver koz g/t Gold koz LOM

ARCATA (Peru) 1990 ****************** 1991 ****************** 1992 ****************** 1993 ****************** 1994 ****************** 1995 ****************** 1996 ****************** 1997 ****************** 1998 ****************** 1999 ****************** 2000 ****************** 2001 ****************** 2002 ****************** 2003 ****************** 2004 ****************** 2005 ****************** 2006 (to 30 June) ****** ARES (Peru) 1998 ****************** 1999 ****************** 2000 ****************** 2001 ****************** 2002 ****************** 2003 ****************** 2004 ****************** 2005 ****************** 2006 (to 30 June) ****** SELENE (Peru) 2003 ****************** 2004 ****************** 2005 ****************** 2006 (to 30 June) ******

1,503,780 1,252,030 1,159,150 1,211,600 1,312,210 1,477,500 1,340,830 1,028,190 817,030 546,000 681,550 447,851 539,474 315,166 440,402 768,716 929,999 1,098,042 655,743 838,290 831,333 960,765 1,031,540 761,619 828,399 834,820 722,633 903,837 829,681 799,331

576 563 569 522 541 552 560 553 567 423 429 398 531 715 492 545 462 207 214 264 324 302 318 301 307 327 384 398 408 377

27,865 22,649 21,212 20,331 22,819 26,211 24,148 18,281 14,903 7,431 9,405 5,732 9,218 7,245 6,968 13,482 13,796 7,308 4,512 7,115 8,660 9,340 10,548 7,363 8,182 8,777 8,926 11,566 10,877 9,689

1.50 1.85 1.87 1.64 1.81 1.88 2.00 2.10 2.14 1.26 1.30 1.35 1.45 1.432 1.21 1.54 1.26 24.19 23.21 24.47 22.71 21.52 22.32 19.92 14.43 12.24 4.35 3.53 3.07 2.56

72.52 74.47 69.69 63.88 76.36 89.31 86.22 69.42 56.21 22.12 28.49 19.44 25.21 14.43 17.11 37.96 37.77 853.98 489.33 659.51 606.99 664.62 740.26 487.81 384.20 328.52 101.03 102.72 81.92 65.79

310,709 262,415 260,020 259,036 326,304 356,734 357,212 373,984 375,448 380,468 371,098 358,859 236,292 236,108 290,603 282,199 135,526 129,216 240,866 272,668 282,176 271,489 276,653 272,986 281,095 141,529 44,061 253,605 288,919 178,044

564 617 638 581 622 646 676 687 679 671 518 488 432 506 615 539 542 228 355 310 261 287 336 346 352 332 348 385 399 379

5,637 5,209 5,331 4,836 6,522 7,406 7,760 8,257 8,190 8,212 6,179 5,627 3,280 3,841 5,746 4,890 2,362 947 2,751 2,716 2,369 2,506 2,989 3,037 3,181 1,511 493 3,137 3,707 2,169

2.03 2.36 2.34 1.99 2.35 2.86 2.70 2.68 2.85 3.21 2.57 2.54 2.26 1.29 1.14 1.19 1.35 22.99 26.21 24.60 20.69 22.70 21.78 22.98 22.80 19.01 3.78 3.78 3.43 2.93

20.28 19.91 19.56 16.57 24.65 32.80 31.01 32.22 34.40 39.27 30.66 29.31 17.17 9.79 10.65 10.80 5.88 95.51 202.97 215.66 187.70 198.14 193.72 201.69 206.05 86.50 5.35 30.82 31.86 16.77

4.8 4.8 4.5 4.7 4.0 4.1 3.8 2.7 2.2 1.4 1.8 1.2 2.3 1.3 1.5 2.7 3.4 8.5 2.7 3.1 2.9 3.6 3.8 2.6 2.9 2.9 14.8 3.3 2.6 2.1

Table 2 below sets out the Hochschild Mining Groups silver and gold reserves and resources as at 30 June 2006 at each of its operating units and development projects. The reserves and resources gures have, in each case, been extracted without material adjustment from the Technical Report in Part XV: Table 2
Reserves Operating Unit/ Development Project(1) Proved and probable (in tonnes) Silver grade (g/t) Gold grade (g/t) Measured and indicated (in tonnes)(1) Silver grade (g/t) Resources Gold grade (g/t) Inferred (in tonnes)(2) Silver grade (g/t) Gold grade (g/t)

Arcata (Peru) **************** Ares (Peru) ****************** Selene (Peru) **************** San Jose (Argentina) ********* Pallancata (Peru) ************ Mina Moris (Mexico) ********* San Felipe (Mexico)(3) ********

929,999 834,820 799,331 641,697 643,267

462 327 377 418 263

1.26 12.24 2.56 7.90 1.09

915,465 826,582 808,567 579,007 614,418 3,354,439 7,098,478

561 291 398 473 289 3.96

1.55 13.78 1.96 9.32 1.20 1.31

1,088,550 46,838 453,749 253,059 981,673 4.563 3.150.000 5.978,432

580 227 279 374 376 2.2 70

1.93 5.54 1.25 8.22 1.44 1.37

Total************************ 3,849,114

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Part I: Information on Hochschild Mining

Notes: (1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution (2) Inferred resources are stated exclusive of reserves and measured and indicated resources (3) Resources also contain a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper

Mineral potential The historical success and continuing capacity of the Group to maintain and expand the reserves and resources base to assure continuing levels of production is dependent on the Groups commitment to wide-ranging research, investigation and exploration of potential mineral prospects. The Group has an extensive portfolio of exploration targets at different stages of evaluation. The Group maintains an internal assessment of mineral potential within its exploration targets as the basis for planning exploration priorities and long term development options. The table below sets out details of the Groups mineral potential at each of its operating units and at certain of its projects and prospects. Further information on the Groups mineral potential is set out below in this Part I. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical ReportFurther Disclosure on Mineral Potential, and that section must be read in conjunction with these ranges:
Operating Unit/Project/Prospect Quantity(1) (millions of tonnes) Grade(1) (g/t)

Arcata (Peru) ***************** Ares (Peru) ******************* Selene (Peru) ***************** San Jose (Argentina) ********** Pallancata (Peru) ************** Mina Moris (Mexico) ********** San Felipe (Mexico) *********** Sierra de las Minas (Argentina) Note:

2.2 - 4.7 1.5 - 2.3 3.2 - 5.5 3.3 - 7.1 3.0 - 7.0 14.5 - 28.9 5.7 - 10.9 0.6 - 1.0

350 - 700 silver and 0.6 - 3.6 gold 150 - 300 silver and 2.0 - 6.5 gold 200 - 400 silver and 0.4 - 0.5 gold 150 - 450 silver and 3.7 - 8.8 gold 250 - 300 silver and 1.0 - 2.0 gold 25 - 50 silver and 1.4 - 2.5 gold 40 - 70 silver and 5 - 8% zinc, 2 - 4% lead and 0.1 - 0.4% copper 8.0 - 15.0 gold

(1) The total mineralised potential by operating unit/project/prospect is calculated on the basis of weighted averages for the low and high ranges of quantity and grades for individual prospects.

Arcata Overview of operations and history The Arcata unit is located in the district of Cayarani, department of Arequipa, on an approximately 47,000 hectare site approximately 800 kilometres from Lima at an altitude of approximately 4,600 metres above sea level. The nearest town is Arcata Viejo, located approximately 15 minutes from the Arcata unit by road. The property is accessed by road from Arequipa, approximately 300 kilometres away, travel time from which is approximately ve to six hours. The seaport of Matarani is approximately 700 kilometres away. There is also a landing strip for small aircraft located at Orcopampa, approximately 25 kilometres from the Arcata unit. The unit consists primarily of an underground mine and concentrator and produces silver concentrate with gold content. The Group began developing and preparing the Arcata mine in 1961 and the rst concentrate was produced in 1964. As at 30 June 2006, a total of 1041 individuals were employed at the Arcata unit, consisting of 254 Hochschild Mining Group employees and 787 contracted personnel. Two 10.5 hour shifts are worked on site each day at Arcata, with the unit conducting operations 365 days a year. 45

Part I: Information on Hochschild Mining

Geology and Reserves The Arcata mine is conformed by vein systems where the epithermal vein deposits are of an intermediate sulphidation type with predominant silver values and variable quantities of gold and base metals. Recent production at Arcata has centred on the Tres Reyes vein system at the southern margin of the Arcata mineralised area and sporadically on the Macarena vein system. Most recently, exploration and development has centred on the Mariana vein system at the northern margin of the mineralised area, which includes the majority of reserves and which currently supports the greater part of production. Arcata has increased its reserves substantially from 315,166 tonnes as at 31 December 2003 to 929,999 tonnes as at 30 June 2006. Mineral potential The Hochschild Mining Group has a number of exploration targets within the Arcata mining concession. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: Mariana Vein NE: the Group considers there to be mineralised potential of 480,000 to 1,360,000 tonnes at a grade of 450 to 550 grams per tonne of silver and 1.5 to 2.0 grams per tonne of gold. Mariana Vein SW: the Group considers there to be mineralised potential of 200,000 to 500,000 tonnes at a grade of 150 to 1,000 grams per tonne of silver and 1.5 to 14.0 grams per tonne of gold. Julia Vein: the Group considers there to be mineralised potential of 500,000 to 1,000,000 tonnes at a grade of 500 to 1,000 grams per tonne of silver and 1.0 to 4.0 grams per tonne of gold. Macarena 2 Vein: the Group considers there to be mineralised potential of 200,000 to 500,000 tonnes at a grade of 500 to 1,000 grams per tonne of silver and 0.3 to 0.5 grams per tonne of gold. Ramal Marion Vein: the Group considers there to be mineralised potential of 200,000 to 400,000 tonnes at a grade of 500 to 1,000 grams per tonne of silver and 0.5 to 3.0 grams per tonne of gold. Pullalu Structure: the Group considers there to be mineralised potential of 700,000 to 1,000,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 1.5 to 2.0 grams per tonne of gold. Mine and concentrate production The Arcata mine was commissioned into production in 1964. It currently has an ore production capacity of 353 kt per annum with the Group planning to increase capacity to 406 kt per annum by 2007. The veins at Arcata are mined by conventional and mechanised (trackless) cut-and-ll breast or overhand stoping methods utilising timber support. Currently, 30 stopes rotate in the production cycle of drilling and blasting, mucking of ore and backlling, but there is a planned reduction in the number of operating stopes to approximately 15. At Arcata, 30 per cent. of production comes from the Ramal 2 section, with a very small portion coming from the Macarena section of the Arcata vein system. The balance of production is from the Mariana section which was discovered in 2004 and which is being developed at a rate of over 46

Part I: Information on Hochschild Mining

1,500 metres per month on three levels as a replacement for Ramal 2. For further information see the Technical Report in Part XV. The Arcata concentrator commenced operations in 1964 with a processing capacity of 35 kt per annum. The concentrator processes silver ore with associated gold, lead and zinc to produce a silver-gold bulk concentrate by otation. Plant capacity is currently 353 kt per annum and the concentrator is currently operating at capacity, although the Group has plans to expand capacity to 406 kt per annum by 2007. All concentrate produced at Arcata is currently sold to Penoles (a Mexico-listed mining, processing and rening company). See Part I: Information on Hochschild MiningSales, markets and customers for further detail on the Hochschild Mining Groups arrangements with Penoles. The following table sets out the Hochschild Mining Groups silver-gold concentrate production from the Arcata concentrator for the years ended 31 December 2003, 2004, 2005 and the 6 months ended 30 June 2006. The production gures have been extracted without material adjustments from the Technical Report in Part XV:
Year ended 31 December Product 2003 2004 2005 6 months ended 30 June 2006

Ore production (in tonnes) ******************************************* 236,108 Concentrate produced (in tonnes) ************************************ 8,999 Silver grade in concentrate (kg/t) ************************************* 11.94 Silver produced (Koz) ************************************************ 3,453 Gold produced (Koz)************************************************* 7.15

290,603 11,525 13.51 5,004 5.17

282,199 10,787 12.31 4,271 7.19

135,526 5,214 12.49 2,094 4.96

Ares Overview of operations and history The Ares site is located in the district of Orcopampa, department of Arequipa, approximately 800 kilometres from Lima, on a site covering an area of approximately 22,700 hectares at an altitude of approximately 4,900 metres above sea level. The nearest town is Tolconi, located approximately 20 minutes from the Ares unit by road. The property is accessed by way of a 275 kilometre road from Arequipa, travel time from which is approximately ve hours. The unit consists primarily of an underground mine and a processing plant where a Merrill-Crowe leaching process using a standard cyanidation technique is applied to produce dore. The Ares site was discovered by the Hochschild Mining Group in 1988 with underground exploration commencing in 1993. The mine was commissioned into production in 1998. As at 30 June 2006, a total of 811 individuals were employed at the Ares unit, consisting of 253 Hochschild Mining Group employees and 558 contracted personnel. Two 10.5 hour shifts are worked on site each day at Ares, with the unit conducting operations 365 days a year. Geology and reserves The Ares mine is conformed by vein systems where the epithermal vein deposits represent gold and silver mineralisation of intermediate and low sulphidation type. The mineralisation is signicantly different from Arcata and Selene, containing a higher abundance of gold, although there are silver-rich veins in the Ares vein system which share some of the features of the epithermal veins located at Arcata and Selene. The Hochschild Mining Group has succeeded in maintaining stable reserves at Ares since production commenced. 47

Part I: Information on Hochschild Mining

Mineral potential The Hochschild Mining Group has a number of exploration targets within the Ares mining concession. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: Victoria Vein System: the Group considers there to be mineralised potential of 1,000,000 to 1,500,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 3.0 to 10.0 grams per tonne of gold. Paola Structure: the Group considers there to be mineralised potential of 500,000 to 800,000 tonnes at a grade of 200 to 400 grams per tonne of silver. Mine and Dore production The Ares site was discovered by the Hochschild Mining Group in 1988. Surface mapping, geochemical sampling and surface drilling were completed between 1990 and 1992, dening the outcrop of seven vein structures. Underground exploration commenced in 1993, leading to the development of the Victoria vein system and, in conjunction with further surface exploration, the proving of the Maruja vein system. Subsequent drilling in 1995 proved gold and silver values in the Tania vein. The greater part of production has been obtained from the Victoria vein system. Investigations into the Isabel and Paola veins as replacement ore for the Victoria vein system are ongoing. The Ares mine was commissioned into production in 1998 and has a current ore production capacity of 282 kt per annum. At Ares, the veins are mined by conventional and mechanised (trackless) cut-and-ll breast stoping methods utilising both rockbolts and timber as support. Sixteen stopes rotate in the production cycle of drilling and blasting, mucking of ore and backlling. The Hochschild Mining Group operates a processing plant at the Ares unit. The plant commenced operation in 1998 and has a current operating capacity of 280 kt per annum which is planned to be increased by upgrading the classication sections to 325 kt per annum over the next three years. A separate additional plant has recently been installed at Ares for the processing of concentrate from the Selene unit into dore (which commenced in October 2006). The additional plant will treat 2.8 kt to 3.5 kt per annum of Selene concentrate in two Gekko In Line Reactors. As from mid 2008, it is intended that concentrate produced at Selene from ore mined at the Pallancata project will be processed at Ares into dore (see Advanced Development ProjectsPallancata below). All dore produced at Ares is currently transported from the unit by Johnson Matthey (a UK-listed speciality chemicals company) to its rening facility in Salt Lake City, US. See Part I: Information on Hochschild MiningSales, markets and customers for further detail on the Hochschild Mining Groups arrangements with Johnson Matthey. The following table sets out the Hochschild Mining Groups dore production levels at the Ares processing plant for the years ended 31 December 2003, 2004 and 2005 and the 6 months ended

48

Part I: Information on Hochschild Mining

30 June 2006. The production gures have been extracted without material adjustments from the Technical Report in Part XV:
6 months ended 30 June 2006

Year ended 31 December Product 2003 2004 2005

Ore production (t) ***************************************************** 276,653 Dore total (Koz) ******************************************************* 2,793 Silver produced (Koz) ************************************************** 2,600 Gold produced (Koz) ************************************************** 184.74

272,986 2,943 2,742 193.20

281,095 3,151 2,944 198.55

141,529 1,493 1,406 83.35

Selene Overview of operations and history The Selene unit is located in the district of Cotaruse, department of Apurmac, approximately 650 kilometres from Lima in southern Peru and approximately 180 kilometres from the Ares unit, at an altitude of approximately 4,600 metres above sea level covering an area of approximately 19,500 hectares. The nearest town is Izcahuaca, located approximately 40 minutes from the Selene unit by road. The property is accessed by road from Cuzco, travel time from which is approximately ve to six hours. The unit consists primarily of an underground mine and concentrator and, like the Arcata unit, produces silver concentrate with gold content. Under the Hochschild Mining Groups ownership, development and preparation of the mine commenced in 1998, with the rst concentrate being produced in 2003. The land where the Selene unit is located is owned by two local communities to whom the Hochschild Mining Group made one-off payments in 1998 for the right to use the land for its mining operations for a period of thirty years. In addition, the mining concession rights to the land where veins currently being exploited at Selene are located were originally held by Compana Minera Kusama, S.A. (a Peruvian private company) which assigned its rights to the mining concessions to the Hochschild Mining Group in return for a one-off payment of US$160,000 and a monthly payment equal to two per cent. of the net sales of concentrate produced at Selene. Since production at Selene commenced in 2003, the Hochschild Mining Group has made payments totalling approximately US$2.1 million to Compana Minera Kusama, S.A. As at 30 June 2006, a total of 618 individuals were employed at the Selene unit, consisting of 170 Hochschild Mining Group employees and 448 contracted personnel. Two 10.5 hour shifts are worked on site each day, with the unit conducting operations 365 days a year. Geology The Selene mine is conformed by two vein systems where the mineralisation represents a low sulphidation, precious metal epithermal system. Mineral potential The Hochschild Mining Group has a number of exploration targets within the Selene mining concession. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: Explorador/Sophia Vein System: the Group considers there to be mineralised potential of 1,200,000 to 1,500,000 tonnes at a grade of 200 to 400 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. 49

Part I: Information on Hochschild Mining

Huachuhuilca Breccia Structures: the Group considers there to be mineralised potential of 2,000,000 to 4,000,000 tonnes at a grade of 200 to 400 grams per tonne of silver. Mine and concentrate production The Selene mine was commissioned into production in 2003 and has a current ore production capacity of 353 kt per annum. The Explorador vein system supports all current operations at Selene and hosts all reserves and the majority of mineral resources. The veins within the system are mined by conventional and mechanised (trackless) cut-and-ll overhand stoping methods. Twelve stopes rotate in the production cycle of drilling and blasting, mucking of ore and backlling. The Group operates one concentrator at the Selene unit, which commenced operations in 2003 with a processing capacity at that time of 177 kt per annum expanding to 265 kt per annum. The concentrator processes silver ore with associated gold to produce a silver/gold bulk concentrate by otation. Additional equipment was installed in November 2005 to increase the operating capacity to 353 kt per annum. Further improvements to the Selene concentrator were made to increase plant capacity to 406 kt per annum in September 2006. The Selene concentrator is currently operating at 353 kt per annum. Ore from the Pallancata project is to be processed at the Selene concentrator when that project begins production (see Advanced Development ProjectsPallancata below). The Hochschild Mining Group plans to expand capacity and production at the Selene concentrator to 720 kt per annum, in order to process the Pallancata ore, at an estimated cost of US$5 million. The basic engineering work for the expansion has been completed and the detailed engineering work is currently in progress. Site work and installation are scheduled to be completed during the second quarter of 2007 for production to commence in the third quarter of 2007. All permits required for the extension of the concentrator at Selene have been applied for. Following completion of the planned expansion of the Selene concentrator, the Selene unit will have approximately 70 per cent. standby generator capacity at the mine in the event of a failure of the power supply from the national grid, as compared to its current 100 per cent. capacity. The following table sets out the Hochschild Mining Groups silver-gold concentrate production from the Selene concentrator for the years ended 31 December 2003, 2004 and 2005 and the 6 months ended 30 June 2006. The production gures have been extracted without material adjustments from the Technical Report in Part XV:
6 months ended 30 June 2006

Year ended 31 December Product 2003(1) 2004 2005

Ore production (in tonnes) ********************************************** 44,061 Concentrate produced (in tonnes) *************************************** 488 Silver grade in concentrate (kg/t) **************************************** 27.47 Silver produced (Koz) *************************************************** 417 Gold produced (Koz)**************************************************** 4.32 Note: (1) Selene commenced production in November 2003

253,605 2,892 31.21 2,911 28.14

288,919 3,559 29.15 3,335 27.48

178,044 1,947 31.43 1,967 14.57

From October 2006, the silver-gold concentrate produced by the Selene concentrator has been transported by unsurfaced road over a distance of 175 kilometres to the processing plant at the Ares unit for processing into dore and then for rening by Johnson Matthey. Previously, the Selene concentrate was sold directly to Penoles in Mexico. Further details of the arrangements between the Hochschild Mining Group and Johnson Matthey and Penoles are set out in Part I: Information on Hochschild MiningSales, markets and customers. 50

Part I: Information on Hochschild Mining

Projects and prospects
The Hochschild Mining Group has a number of projects and prospects in Peru and elsewhere in Latin America which are at different stages of development. These projects are categorised by the Hochschild Mining Group in three stages: ) advanced development projects where feasibility studies have been produced, mine plans approved and considerable investment already made in developing the property and preparing it for production; ) early stage development projects where initial drilling and sampling procedures have been undertaken and measured, indicated or inferred resources calculated; and ) prospects where target exploration sites are identied, initial exploration work has been undertaken, and the nature of the mineralised deposits suggests there is potential for mine development. Several of these projects and prospects are structured as joint ventures or option arrangements with local or overseas mining partners, whilst others are owned and operated exclusively by the Hochschild Mining Group. The projects and prospects include both new sites and continuations of existing mines.
PRA1 5.2.2 PRA1 6.1.2

Advanced development projects

San Jose Property description and location The San Jose silver-gold property is located in the Argentinian Province of Santa Cruz, approximately 1,750 kilometres south-southwest of Buenos Aires and 230 kilometres southwest of Comodoro Rivadavia. The nearest town is Perito Moreno, approximately 30 kilometres west of San Jose. The property covers a total area of approximately 50,491 hectares and consists of 46 contiguous mining concessions totalling approximately 40,499 hectares and one exploration permit covering approximately 9,992 hectares. The mineralisation at the San Jose property represents a low sulphidation type with quartzsulphide veins with economic silver and gold values and displays geological and mineralogical characteristics very similar to those of the Peruvian deposits. The project is designed as an underground cut and ll mine with the ore feeding a concentrator producing a silver concentrate containing a signicant quantity of gold. The Group intends to produce dore at the San Jose property in the rst year of operations following the installation of a Gekko plant for such purposes. Currently, over four kilometres of underground workings have been developed on two levels through two inclined shafts at the Huevos Verdes vein. Construction of two underground ramps, one for the Huevos Verdes vein and the other at the nearby Frea vein, is underway and base camp facilities have been expanded to house 330 employees and contracted personnel. The Group also proposes to install sufcient diesel generator capacity at the San Jose property for it to be self sufcient. As the area where San Jose is located is subject to high winds, it is intended that the tailings dams will be operated underwater to minimise dust. Title to the San Jose property is held by Minera Santa Cruz S.A. (MSC), the holding and operating company set up under the terms of an option and joint venture agreement dated 15 March 2001 between Minera Andes, S.A. (MASA) and Lorenzon Limited (Lorenzon), a wholly-owned Hochschild Mining Group company. MASA benecially owns 49 per cent. of the shares in MSC with 51 per cent. being held by Lorenzon. In addition, MSC holds the surface rights to an area covering 2,875 hectares, which covers the area required to construct the mine and 51
PRA1 6.1.2

Part I: Information on Hochschild Mining

facilities and to operate the San Jose project. Further details of the joint venture arrangements between MASA and MHC are set out in Part XIV: Additional Information. All relevant mining permits in respect of the San Jose property have been obtained and are in the name of MSC. Although regional exploration programmes were conducted in the San Jose area in the 1970s and 1980s, it was not until 1997 that silver and gold deposits were detected by MASA. Following the discovery of the two San Jose ore zones during various exploration programmes between 1997 and 2005, rstly by MASA and subsequently by MSC, extensive drilling programmes were completed to delineate the mineralised resources. Reserves and resources The table below sets out the reserves and resources at the San Jose property, such information having been extracted without material adjustment from the Technical Report in Part XV.
As at 30 June 2006 Proved and probable reserves (in tonnes) Measured and indicated resources(1) (in tonnes) Inferred resources(2) (in tonnes)

641,697 Notes:

597,007

253,059

(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution (2) Inferred resources are stated exclusive of reserves and measured and indicated resources

Mineral potential The Hochschild Mining Group has a number of exploration targets within the San Jose property. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out below in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: Kospi Vein Extension: the Group considers there to be mineralised potential of 1,100,000 to 1,400,000 tonnes at a grade of 200 to 400 grams per tonne of silver and 3.0 to 8.0 grams per tonne of gold. Frea Vein Extension: the Group considers there to be mineralised potential of 1,000,000 to 2,000,000 tonnes at a grade of 120 to 400 grams per tonne of silver and 4.0 to 9.0 grams per tonne of gold. Odin Vein System: the Group considers there to be mineralised potential of 700,000 to 1,700,000 tonnes at a grade of 150 to 500 grams per tonne of silver and 4.0 to 9.0 grams per tonne of gold. Ayelen Vein: the Group considers there to be mineralised potential of 500,000 to 2,000,000 with 150 to 500 grams per tonne of silver and 4.0 to 9.0 grams per tonne of gold. Investment costs The total estimated capital costs to design and build the facilities at San Jose are US$77.1 million, of which US$6.6 million is reserved for contingencies. As at 30 June 2006, US$11 million had been spent and US$6.8 million was committed. This estimate covers the direct eld costs of executing the San Jose project, plus the indirect costs associated with design, procurement and construction efforts, including contingency and working capital. The investment costs will be paid by MSC, 51 per cent. of which will be funded by the Hochschild Mining Group. 52
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Part I: Information on Hochschild Mining

Operations at San Jose are scheduled to commence in 2007 with a designed ore production capacity of 273.7 kt per annum, although the Group intends to expand ore production capacity in due course. The Group intends to mine both veins at the San Jose property by mechanised (trackless) and manual (slusher) cut-and-ll breast stoping methods depending on the mined width, both methods using rockbolts, timber or no support as stope conditions dictate. It is envisaged that ve stopes will rotate in the production cycle of drilling and blasting, mucking of ore and backlling. Investigations into the Kospi and Odin veins as replacement ore for the Huevos Verdes and Frea ore bodies are ongoing. Pallancata Property description and location The Pallancata silver-gold property is located approximately 650 kilometres south-east of Lima in the Coronel Castaneda District, Parinacochas Province, Ayacucho Department, Peru. It is approximately 180 kilometres south-west of Cuzco and 240 kilometres north-west of Arequipa and currently consists of 7,330 hectares in 17 mineral concessions. The nearest operating mine to Pallancata is Selene which is located approximately 17 kilometres to the north-east. The Pallancata property is accessed by road from Cuzco, travel time from which is approximately six to seven hours. The nearest sizeable population centre is the village of Izcahuaca, 40 kilometres to the north-west, with a population of approximately 500. A joint venture agreement was entered into by Compana Minera Ares, International Minerals Corporation (International Minerals), Ludlow Corporation (a wholly-owned Hochschild Mining Group company) (Ludlow) and Minera Oro Vega S.A.C. (Minorva) (a subsidiary of International Minerals) on 30 June 2006. The parties to the joint venture agreement entered into an amendment and accession agreement on 10 July 2006 with Compana Minera Coriorco S.A.C (Coriorco), a wholly-owned Hochschild Mining Group company recently renamed Pallancata Holding S.A.C., pursuant to which it was agreed that Coriorco would accede to the joint venture agreement and assume all of Ludlows obligations under the joint venture agreement. Under the terms of the Pallancata joint venture agreement, title to the Pallancata mining concessions is held by Minera Suyamarca, a company newly incorporated in Peru, in which Coriorco holds 60 per cent. of the shares, with the remaining 40 per cent. being held by Minorva. Under the joint venture agreement, Compana Minera Ares has been designated as the operator of the Pallancata project. Further details of the joint venture arrangements between the Hochschild Mining Group and International Minerals are set out in Part XIV: Additional Information. All relevant mining permits in respect of the Pallancata property have been applied for and, once granted, will be in the name of Minera Suyamarca. Initial construction commenced at the property in August 2006 with production scheduled to commence in 2007. The workforce will be based at the Selene mine and will be transported to Pallancata to work. Reserves and resources The table below sets out the reserves and resources at the Pallancata property, such information having been extracted without material adjustment from the Technical Report in Part XV.
As at 30 June 2006 Proved and probable reserves (in tonnes) Measured and indicated resources(1) (in tonnes) Inferred resources(2) (in tonnes)

PRA1 6.1.2

643,267 Note:

614,418

981,673

(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution (2) Inferred resources are stated exclusive of reserves and measured and indicated resources

53

Part I: Information on Hochschild Mining

Mineral potential The Hochschild Mining Group has a number of exploration targets within the Pallancata property. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out below in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges. West Breccia Extension NW: the Group considers there to be mineralised potential of 2,000,000 to 5,000,000 tonnes at a grade of 250 to 300 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. Mercedes Vein System: the Group considers there to be mineralised potential of 1,000,000 to 2,000,000 tonnes at a grade of 250 to 300 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. Investment costs Under the terms of the joint venture arrangements with International Minerals, Coriorco has agreed to meet or contribute towards certain costs relating to the development of the reserves and the mine at Pallancata. Coriorco has budgeted US$10.5 million for these purposes, none of which is yet committed. The key areas of investment included in the US$10.5 million budgeted expenditure are: ) all of the drilling and associated costs incurred in converting all or part of the presently known resources to reserves during the period of twelve months from receipt of all relevant mining permits (the Initial Construction Period); ) all of the capital required to develop, permit and construct a mining operation at Pallancata at an initial production level of 500 tonnes per day within the Initial Construction Period; ) construction of a new 22 kilometre road to transport ore from Pallancata to the Selene concentrator at an estimated cost of approximately US$2 million; and ) expansion of the concentrator at Selene. In addition to the US$10.5 million budgeted expenditure, the parties to the Pallancata joint venture agreement have agreed to invest an amount of up to US$2 million (or such additional amount as may be agreed between International Minerals and Coriorco) in further exploration and drilling of additional exploration targets identied by International Minerals at Pallancata, such additional amount to be apportioned 60 per cent. Coriorco and 40 per cent. Minorva. Operations at Pallancata are scheduled to commence in 2007. It is intended that all of the ore produced at Pallancata will be processed at the Selene concentrator, for which Compana Minera Ares will charge Minera Suyamarca a toll-processing fee. Compana Minera Ares will also charge Minera Suyamarca a monthly management fee of 10 per cent. of the total operating cost at Pallancata. Compana Minera Ares will fund all of the capital costs of the concentrator expansion at Selene required to process the Pallancata ore and the toll-processing cost charged to Minera Suyamarca will be adjusted to reect the additional capital costs (expected to be US$5 million) incurred by Compana Minera Ares. It is intended that Pallancata concentrate will be sold as concentrate until 2009, from which time it will be transported to the Ares unit for processing into dore. The Group intends to mine the Pallancata veins by conventional and mechanised (trackless) cutand-ll overhand stoping methods. It is envisaged that three stopes will rotate in the production cycle of drilling and blasting, mucking of ore and backlling. 54
PRA1 5.2.2 PRA1 5.2.3

Part I: Information on Hochschild Mining

Early stage development projects
Mina Moris (i) Mina Moris concessions Exmin, S.A. de C.V. (Exmin), a wholly-owned Mexican subsidiary of Exmin Resources Inc., holds mining concessions relating to an area of approximately 9,889 hectares in the Moris district of Chihuahua, Mexico, where the mineralisation represents low sulphidation quartz-sulphide epithermal veins with gold and silver values. On 17 June 2006, Minera Hochschild Mexico, S.A. de C.V. (MHM), a wholly-owned subsidiary of Hochschild Mining, entered into a contract with Exmin, under which: (i) Exmin granted MHM the exclusive right to assess and explore the area covered by Exmins Mina Moris concessions; (ii) the parties agreed, subject to the conditions of the contract being satised, to incorporate a new Mexican company (Newco) (to be owned 30 per cent. by Exmin and 70 per cent. by MHM) and to enter into a shareholders agreement; and (iii) Exmin agreed to assign all its concessionary rights over the area to the Newco conditional upon (A) MHM investing at least US$4,800,000 (over a maximum ve-year period) in exploration and (B) Port Chester Limited (a Hochschild Mining Group company) subscribing for US$850,000 worth of shares in Exmin Resources Inc. by 2010 pursuant to a separate subscription agreement entered into between Exmin Resources Inc., Port Chester Limited and MHM on 10 July 2006. For further information on the joint venture arrangements with Exmin, see Part XIV: Additional Information. (ii) Mina Moris mine On 30 June 2006, Exmin and MHM entered into an agreement with Minera Moris S.A. de C.V., to acquire the Mina Moris open pit mine covering an area of approximately 7,838 hectares. This acquisition is scheduled to complete on 30 December 2006. The mine, with an ore production capacity of 1,095 kt per annum, was operated by Minera Manhattan S.A. de C.V. between 1996 and 1999 and is independent of the Mina Moris concessions owned by Exmin. MHM and Exmin intend to recommission the Moris mine back into production in 2007. Some of the original permits and licences for the Moris Mine have now lapsed and will need to be renewed prior to recommission. For further information on the acquisition of the Moris mine, see Part XIV: Additional Information. The table below sets out the resources at the Mina Moris property, such information having been extracted without material adjustment from the Technical Report in Part XV.
As at 30 June 2006 Measured and indicated resources(1) (in tonnes) Inferred resources(2) (in tonnes)

PRA1 5.2.2 PRA1 5.2.3 PRA1 6.1.2

PRA1 5.2.2 PRA1 5.2.3 PRA1 6.1.2

3,354,439 Notes:

4,563

(1) Measured and indicated resources are stated inclusive of reserves but with no allowance for ore loss or dilution (2) Inferred resources are stated exclusive of reserves and measured and indicated resources

The Hochschild Mining Group has a number of exploration targets within the Mina Moris project. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: Tecolote Vein System (underground): the Group considers there to be mineralised potential of 2,000,000 to 4,000,000 tonnes at a grade of 6.0 to 15.0 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. 55

Part I: Information on Hochschild Mining

Mesa de las TunasEl Pilar: the Group considers there to be mineralised potential of 300,000 to 500,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 10.0 to 15.0 grams per tonne of gold. Finlandia: the Group considers there to be mineralised potential of 900,000 to 1,800,000 tonnes at a grade of 100 to 200 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. La Cienega: the Group considers there to be mineralised potential of 300,000 to 600,000 tonnes at a grade of 10.0 to 15.0 grams per tonne of gold. Balleza: the Group considers there to be mineralised potential of 5,000,000 to 10,000,000 tonnes at a grade of 30 to 60 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. El Pinito: the Group considers there to be mineralised potential of 1,000,000 to 2,000,000 tonnes at a grade of 30 to 60 grams per tonne of silver and 1.0 to 1.5 grams per tonne of gold. Prospect X: the Group considers there to be mineralised potential of 5,000,000 to 10,000,000 tonnes at a grade of 6 to 15 grams per tonne of silver and 1.0 to 2.0 grams per tonne of gold. Of the US$5.65 million that Minera Hochschild Mexico plans to invest in the Mina Moris joint venture, US$4.8 million has been budgeted for project development. The remaining US$850,000 will be used to acquire shares in Exmin Resources Inc. as annual cash payments over the ve-year term of the agreement. San Felipe The San Felipe project is located approximately six kilometres west of San Felipe de Jesus in northern Sonora, Mexico and consists of seven mining concessions covering a total of approximately 548 hectares. It is an underground mine and comprises concessions currently owned by Grupo Serrana, S.A. de C.V. (Grupo Serrana), a privately owned mining company based in Hermosillo, Sonora, Mexico. The San Felipe mine was operated by Grupo Serrana between 1974 and 1991 when the mine was closed down and is not currently in operation. The Group entered into an agreement with Grupo Serrana on 15 May 2006 whereby the Group has an option to acquire up to 70 per cent. of all mining rights and ownership of the San Felipe property through a joint venture vehicle to be set up by the Group and Grupo Serrana. The Group must invest US$33.3 million in the property within ve years of the date of the agreement. The Group has paid Grupo Serrana US$0.2 million with an obligation to pay a further US$6.5 million over three years for the acquisition of 70 per cent. of Group Serranas mining rights. The Group is currently engaged in verication drilling on the property and has identied inferred resources of 3,150,000 tonnes at an average silver grade of 70 grams per tonne with a combined content of 9.6 per cent. zinc, lead and copper sulphides as at 30 June 2006. The Group also has a number of exploration targets within the San Felipe project. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: La Ventana: La Ventana contains two separate areas of exploration targets where the Group considers there to be mineralised potential of 1,500,000 to 2,000,000 tonnes at a grade of 45 to 50 grams per tonne of silver, 1 to 2 per cent. lead, 4 to 7 per cent. zinc and 0.1 to 0.3 per cent. copper, and of 300,000 to 500,000 tonnes with a range of 20 to 100 grams per tonne of silver, 1 to 15 per cent. lead, 4 to 13 per cent. zinc and 0.1 to 0.3 per cent. copper, respectively. 56
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Part I: Information on Hochschild Mining

Artemisia: the Group considers there to be mineralised potential of 2,500,000 to 5,000,000 tonnes at a grade of 50 to 80 grams per tonne of silver, 3 to 5 per cent. lead, 7 to 10 per cent. zinc and 0.2 to 0.4 per cent. copper. Las Lamas: the Group considers there to be mineralised potential of 200,000 to 400,000 tonnes at a grade of 150 to 200 grams per tonne of silver, 0.1 to 0.4 per cent. lead, 8 to 13 per cent. zinc and 0.2 to 0.3 per cent. copper. San Felipe: the Group considers there to be mineralised potential of 1,500,000 to 3,000,000 tonnes at a grade of 20 to 40 grams per tonne of silver, 2 to 3 per cent. lead, 3 to 4 per cent. zinc and 0.1 to 0.3 per cent. copper.

Prospects
In addition to its development projects, the Group has over twenty long-term prospects, the most advanced of which are: San Luis del Cordero (Mexico) Mining concessions over the San Luis del Cordero property are currently held by Exploraciones del Altiplano S.A. de C.V., a privately owned mining company based in Colonia Roma, Mexico, covering a potentially mineralised area of approximately 2,800 hectares. The Group entered into an agreement on 12 May 2006 with Exploraciones del Altiplano to undertake exploration with an option to acquire all of its rights and ownership over the San Luis del Cordero property. In consideration for the option, the Group must invest US$2.7 million over four years in order to maintain the enforceability of the contract. Under the terms of the agreement with Exploraciones del Altiplano, the Group also has the right to call for the assignment to it of Exploraciones del Altiplanos rights under its mining concessions in return for payments totalling US$500,000, together with a royalty payment equal to 3 per cent. of net smelter return (which is net revenue including all rebates and subsidies paid for the smelting service or renery after deducting all costs and expenses paid or incurred in relation to the products). For further information on the agreement with Exploraciones del Altiplano, see Part XIV: Additional Information. Sierra de las Minas (Argentina) The property at Sierra de las Minas comprises approximately 65,500 hectares and includes approximately 58,600 hectares of exploration claims wholly owned by the Group, approximately 6,800 hectares of exploration and discovery claims in joint venture with Golden Peaks Resources Limited and 54 hectares of mine claims owned by a local property owner with which the Group has entered into an agreement to purchase such mine claims. For further information on the joint venture arrangements with Golden Peaks, see Part XIV: Additional Information. The Hochschild Mining Group has a number of exploration targets within the Sierra de las Minas property. The Group is currently undertaking a mapping, sampling and diamond drilling programme on the property to determine the viability of delineating ore reserves. Set out below are ranges for the potential quantity and grade of the relevant targets. It should be noted that the ranges quoted are conceptual in nature, there has been insufcient exploration to dene a mineralised resource and it is uncertain whether further exploration would result in the determination of a mineral resource. A detailed explanation of the basis for the ranges is set out in Section 6 of Part XV: Technical Report and that section must be read in conjunction with these ranges: The Group considers there to be mineralised potential of 600,000 to 1,000,000 tonnes at a grade of 8.0 to 15.0 grams per tonne of gold. 57

Part I: Information on Hochschild Mining

San Martn (Peru) The eight kilometre by ve kilometre San Martn site is located approximately 20 kilometres northwest of the Arcata unit. Extensive surface channel sampling was undertaken by the Group in the 1980s, during which the Group excavated a number of small mine cross-cuts with Arcata. The project is currently under exploration by the Group using two surface diamond drill rigs, and mineralised veins and structures have been identied widely across the property.

Sales, markets and customers

Sales and customers The Hochschild Mining Group sells the silver and gold it produces in two forms: dore, from the Ares and Selene mines and concentrate from the Arcata mine. In 2005, sales of silver and gold recovered from the Groups dore production totalled approximately US$91 million1, whilst sales of silver and gold recovered from the Groups concentrate production totalled approximately US$60 million2. Dore The Hochschild Mining Group sells its dore production to Johnson Matthey under a contract that runs until 31 December 2006. The contract is automatically extended on a year-by-year basis after 31 December 2006. Under the terms of the contract, either party may terminate by giving 45 days written notice to the other party. The Group may also terminate in the event of one months continued disruption to the transport arrangements for the dore between Johnson Matthey and the appointed third party carrier. Under the contract, Johnson Matthey agrees to rene the dore and, unless the Hochschild Mining Group elects to sell to a third party, to acquire the rened silver and gold. If the Hochschild Mining Group does elect to sell the rened product to a third party, Johnson Matthey will arrange for the sale to be recorded in the relevant third partys account with Johnson Matthey or at the London Bullion Market Association. The Hochschild Mining Group has had similar arrangements in place with Johnson Matthey since 1997. Shipments under the contract must comprise at least 700kg of dore and are typically made twice a month. Risk passes to Johnson Matthey as soon as the dore is collected from the Hochschild Mining Groups unit at Ares. Title passes upon payment by Johnson Matthey. Transport and other costs are deducted from the payments made by Johnson Matthey in circumstances where the rened silver and gold are acquired by it, and otherwise are invoiced separately by Johnson Matthey. The contract provides that the rened silver and gold should be available for pricing (that is the content of silver and gold recovered from the dore bars must have been determined, subject to the agreement of assays) within 20 working days of receipt of the shipment (the availability date). Sales to Johnson Matthey: Subject to Hochschild Minings right to elect for advance settlement (as described below), the price payable by Johnson Matthey to Hochschild Mining for silver and gold recovered from the dore is xed on such date on or after the availability date as the Hochschild Mining Group may decide. The price is determined by reference to the London Bullion Market Association spot xing price and any payments are made net of transport costs, rening costs and deductions (if any) if certain impurity thresholds are exceeded (although no impurity deductions have been incurred to date). Payment is made by Johnson Matthey within two working days of pricing.
1 Source: Company (unaudited) 2 Source: Company (unaudited)

58

Part I: Information on Hochschild Mining

The Hochschild Mining Group has the right to (and generally does) elect for advance settlement on up to 95 per cent. of the estimated silver and gold content in the dore with the price being xed (at the Hochschild Mining Groups discretion) no earlier than the day of shipment from Peru. Typically Hochschild Mining will specify a pricing date within a day or two of the shipment and the price is based on the London Bullion Market Association spot xing price. Johnson Matthey pays the advance settlement amount on the later of two working days after the date chosen by Hochschild Mining for pricing and the date of receipt of the shipment at its renery in the US. Any advance payment is effectively treated as a loan from Johnson Matthey to the Hochschild Mining Group at a LIBOR based interest rate until nal settlement. Payment for any outstanding amounts (less treatment and rening costs and any notional interest) is made by Johnson Matthey on the working day after the agreement of assays (based on the London Bullion Market Association spot xing price at that time), at which time title passes to Johnson Matthey. Sales to third parties: The Hochschild Mining Group may instruct Johnson Matthey prior to the availability date to record in a third partys account a specied amount of silver and/or gold. Such amount will be recorded in the relevant third partys account on such date on or after the availability date as the Group may specify. If Hochschild Mining exercises its right to sell to a third party Johnson Matthey invoices the Company separately for its rening charges. The Johnson Matthey contract also creates an advance sales mechanism similar to the advance settlement mechanism described above. In essence, the Group has the right to instruct Johnson Matthey to credit up to 95 per cent. of the estimated gold and silver contents of a shipment to a third partys account on a date no earlier than the date on which the dore is received at the renery. Again, any balance may be transferred following agreement of assays. The prices for the silver and gold so credited to third parties is xed by agreement between Hochschild Mining and the relevant third party. Although the Hochschild Mining Group has exibility under the Johnson Matthey contract to sell to third parties, save for certain limited forward sale or option arrangements (the current arrangements being described below under Hedging), the Hochschild Mining Group has, since 2002, sold all the silver and gold recovered from its dore to Johnson Matthey1. Concentrate In relation to sales of its concentrate, the Hochschild Mining Group has a one-year contract with Penoles in Mexico for the sale of its entire concentrate output from the Arcata mine. The Penoles contract entitles the Hochschild Mining Group to sell the Arcata mine concentrate for treatment at Penoles renery in Tampico, Mexico in four or ve shipments during 2006. Shipments are made by road from the Arcata mine to the port of Matarani in Peru and then by ship to Tampico. The shipment time from the Arcata mine to Tampico is typically around three weeks. Risk passes when the concentrate is unloaded at the port in Tampico. The Group has sold concentrate to Penoles since 1997. The price to be paid by Penoles for the silver content of the concentrate is based on the average of the London Spot US$equivalent silver price and of the COMEX List Position (as published in Metals Week) in the month immediately following the month of delivery for the rst 50 per cent. of each shipment and the second month following delivery for the second 50 per cent. of each shipment. The gold price is similarly calculated based on the London Gold PM Fix price (as published in Metals Week). Deductions are made for treatment charges and if the arsenic or antimony levels in the concentrate exceed specied thresholds. Payments are made in three tranches: (i) the rst tranche (of 45 per cent. of the estimated value of the shipment based on information on assays and prices at that time) is paid ve days after the shipment arrives in Tampico (at which point title passes); (ii) the second tranche (the balance required to give an aggregate of 90 per cent. of the
1 Source: Company (unaudited)

59

Part I: Information on Hochschild Mining

estimated value of the shipment based on information on assays and prices at that time) is paid 30 days later; and (iii) the nal instalment is made promptly after the weight, content and average prices have been determined. There is also a separate contract with Penoles for the Selene concentrate output on broadly similar terms to the Arcata contract. However as the Selene concentrate output is now processed into dore at the Ares facility, the last shipment under this contract has now been made. Forward sales contracts Currently, the Hochschild Mining Group has a number of forward sales contracts with Standard Bank and Citibank in relation to the gold rened from its dore which it has entered into as part of the security package for the Hochschild Mining Groups US$70 million loan facility (see paragraph 12 of Part XIV: Additional Information), the last of which will expire in June 2007. The gold sold pursuant to these forward sales contracts is delivered to the customer in accordance with terms agreed by the parties. The Hochschild Mining Group also has a limited number of other forward sale and option arrangements in relation to the silver produced from its dore which are due to expire in December 2006. Going forward, the Hochschild Mining Group intends to minimise nancing arrangements which involve forward sales contracts beyond those it is required to enter into as part of any project nancing arrangements. In 2006, the Group estimates that approximately 29 per cent. and 57 per cent. of the Groups silver and gold production respectively will be sold under these forward sales arrangements. This is expected to fall to approximately 38 per cent. for silver and 30 per cent. for gold in 2007, depending on the form of nancing used in relation to the San Jose project (excluding the San Jose project, none of the Groups silver production and 23 per cent. of the Groups gold production is expected to be sold under these forward sales arrangements in 2007). Sales strategy As the Hochschild Mining Group sells its silver and gold output in a form where further treatment is required, there is a relatively limited pool of potential purchasers with the required facilities. The Company seeks to simplify the sales process by having contracts in place with only two or three purchasers at any one time. Contracts are generally for a one-year duration and Hochschild Mining will seek a number of quotes at renewal time with a view to obtaining the most competitive terms. With the commencement of production of dore from the production at Selene in October 2006, the Hochschild Mining Group intends to explore options for new arrangements for the rening and sale of its dore production.

Environmental and health and safety matters

The Directors believe that the health and safety of the Groups employees, respect for the environment and active engagement with local communities are fundamental to the Groups business. Peruvian law requires the Group to use an independent audit company designated by the Peruvian Ministry of Energy and Mines to audit twice a year the Groups compliance with all applicable mining health, safety and environmental regulations. In addition, the Group uses the international certication rm, Deutsche Gesellschaft zur Zertizierung von Managementsystemen in Germany (DQS), to carry out regular audits of the Hochschild Mining Groups environmental management system, and has found the Group to be in full compliance with international standards. The Hochschild Mining Group has in place a local safety and mining hygiene committee at each of its operating units which meets once a month to review, promote and monitor the Hochschild Mining Groups health and safety policies and environmental protection programmes, check that 60

Part I: Information on Hochschild Mining

recommendations from previous external audits are implemented, review the general process of the mining inspections and implement any necessary steps to mitigate health and safety risks at each of the operating units. Each local committee is made up of representatives of local management. Compliance with relevant legislation is checked regularly by the Group and the Group compiles and reviews statistics on permit compliance on a monthly basis. Environmental In common with other natural resources and mineral processing companies, the Hochschild Mining Groups operations generate hazardous and non-hazardous waste, efuent and emissions into the atmosphere, water and soil. There are numerous environmental laws in Peru, Mexico and Argentina that apply to the Hochschild Mining Groups operations and development projects. These laws address such matters as protection of the natural environment, air and water quality and emissions standards and disposal of waste. For further details on the applicable mining and environmental regulations in Peru, Mexico and Argentina, see Part IV: Information on Peru, Mexico and Argentina. In addition, Peru, Mexico and Argentina, where the majority of the Groups operating mines and development and exploration projects are located, are all signatories to, and have each ratied, the Kyoto protocol, which is intended to limit or capture emissions of greenhouse gases such as carbon dioxide and methane. Whilst the precise nature of the revised environmental regulations and enforcement regime within these jurisdictions is yet to be nalised, given the environmental legislation that is already in place in each of the jurisdictions, the Directors do not believe that the implementation of the Kyoto protocol by the Peruvian, Mexican or Argentinian governments will materially increase the Groups environmental obligations. Hochschild Mining has implemented an Environmental Management System in respect of its three operating sites which is certied to ISO 14001:2004 standards. The Environmental Management System is a management tool used to monitor all environmental aspects of the work undertaken by the Hochschild Mining Group and species the environmental standards to which the Hochschild Mining Group should operate. The Groups San Jose project also has a full environmental management system in place, is managed in line with ISO and Group requirements and is planned to be certied to ISO 14001 in 2007. Hochschild Minings current environmental standards not only comply with local regulations in Peru, Mexico and Argentina but also exceed the requirements laid down by the World Bank in its Environmental, Health and Safety Guidelines for the Mining Industry. These standards are audited by DQS twice a year. An example of the Hochschild Mining Groups ongoing efforts in environmental matters is its reforestation programme at both Arcata and Selene where the Group has planted in excess of 20,000 and 15,000 indigenous plants respectively in 2004 and 2005, together with the substantial investment being made by the Hochschild Mining Group in technology to reduce air emissions and control waste disposal. Health & safety The Hochschild Mining Group is required to comply with a range of health and safety laws and regulations, and it recognises that the health and safety of its employees is a major priority. The Hochschild Mining Group is implementing a Health, Safety and Risk Management System for its underground and surface mining operations based on the OSHAS 18001 international standards, with the aim of qualifying for OSHAS 18001 certication in 2007. The Hochschild Mining Groups investment in health and safety has been recognised through its receipt of the internationally recognised John T. Ryan Safety Award in three of the past ve years. The Groups aim is to continue to be recognised as having the safest operations in those countries where the Groups operating units, projects and prospects are located and to be one of the safest 61

Part I: Information on Hochschild Mining

operations worldwide. The Group has budgeted US$3.8 million for health, safety and environmental issues for the nancial year ended 31 December 2006. In the nancial years ending 31 December 2003, 2004 and 2005, the Hochschild Mining Group experienced, in aggregate, one fatal employee accident. Since 31 December 2005, there have been three employee fatalities: one of the fatalities was due to an accident caused by a landslide at one of the Groups operating units, whilst the remaining two were due to an accident caused by the premature explosion of obsolete detonators which were being disposed of. Health, safety, environment and community relations committee Additionally, the Company has recently established a Health, Safety, Environment and Community Relations (HSE) committee. The HSE committee comprises three Directors, being chaired by Roberto Danino, with Eduardo Hochschild and Sir Malcolm Field also members. Where appropriate, the committee has the power to engage specialists with relevant technical expertise to be members of or advise this committee. The HSE committee will meet not less than twice a year and will be responsible for formulating and recommending to the Board the Groups policy for HSE issues as they affect the Groups operations. The committee will focus particularly on compliance with national and international standards to ensure that an effective system of HSE standards, procedures and practices is in place at each of the Groups operations. The committee will also be responsible for reviewing managements investigation of incidents or accidents that occur in order to assess whether policy improvements are required. The ultimate responsibility for establishing HSE policy will remain with the Board.

Operational hazards and insurance

The Hochschild Mining Groups operations are subject to numerous operating risks, including geological conditions, seismic activity, climactic conditions, interruptions to power supplies, environmental hazards, technical failures and industrial and other accidents at a mine, processing plant or related facility. These risks and hazards could result in fatalities, personal injury, damage to production facilities, environmental damage, business interruption and possible legal liability. See also Risk Factors. The Hochschild Mining Group maintains insurance against many of the risks it faces in an amount that the Directors consider to be adequate. There are, however, certain risks (for example, potential liability for pollution or other hazards as a result of the Group disposing of waste products) where insurance may not be generally available to the Hochschild Mining Group or other companies in the mining industry. The Directors periodically review the Groups insurance arrangements with the Groups insurance brokers to evaluate whether changes are required to the nature and amount of the cover.
PRA1 8.2

Social and community programmes

The Directors believe that active long-term engagement with local communities and other stakeholders is fundamental to the Groups business and the Group devotes considerable time and resources to such engagement. The Group is engaged in a number of different projects with the local communities which inhabit the land at and around its three operating mines and, in 2003, appointed a manager in Lima to oversee the management of community relations. The Directors believe that the three fundamental requirements for improving the lives of local communities are: (i) access to healthcare, (ii) a good education, and (iii) self-sustainability and, as a result, have tailored the Hochschild Mining Groups social and community programmes accordingly.

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Part I: Information on Hochschild Mining

Healthcare The Hochschild Mining Group invests in healthcare campaigns conducted every three months with local communities with the assistance of healthcare professionals, giving local communities access to healthcare facilities and medicines aimed at preventing or, where relevant, curing illnesses. Education The Hochschild Mining Group has sought to improve the level of general education in local communities in a number of ways: ) Mining training programmethe Hochschild Mining Group provides technical training programmes which may lead to jobs in the Groups mining operations, including roles such as mine extraction technicians and industrial carpenters. ) Schools programmethe Hochschild Mining Group has constructed several schools and has invested in computer equipment, furniture and other infrastructure for local schools. Social and rural development The Hochschild Mining Group is involved in several projects which are designed to develop sustainable economic opportunities for local communities. These programmes include: ) Rehabilitation of agricultural lands allowing for increased cultivation of vegetables and encouraging local farmers to produce food, fodder and wood on a commercial scale. ) Alpaca wool marketing and breeding programme aimed at improving the commercial value of alpacas owned by local communities through selective breeding. The Hochschild Mining Groups programme seeks to improve living standards within local communities by developing and modernising alpaca breeding techniques in order to produce high-quality wool. ) Guinea pig farms for the breeding of guinea pigs within local communities. Through selective breeding, and as a result of training in marketing techniques provided by money invested by the Hochschild Mining Group, local communities are able to obtain higher sale prices for their guinea pigs, which are a staple food in Peru. ) Commercial farming of trout within local communities aimed at signicantly increasing the commercial production of trout.

Other programmes
In addition to its programmes of engagement with local communities, in 1984 the Group founded TECSUP, a non-prot, technical university which has provided young people with the opportunity to study practical degree courses linked to the needs of industry. The university has two campuses, one in Lima and the other in Arequipa. Considerable resources have been invested by the Hochschild Mining Group in the development of this university which currently has a total of approximately 1,600 students attending regular degree programmes and 18,000 participants taking part in short training courses annually. Since being founded in 1984, TECSUP has awarded approximately 4,200 degrees, with approximately 94 per cent. of its graduates on average entering employment after graduating. In addition to its degree programme, TECSUP has provided training to more than 113,000 engineers and specialised workers through its short training courses.

Employees and contractors

As at 30 June 2006, the Hochschild Mining Group had a total of 3,100 employees at its operating units, development projects and head ofce, of which 1,935 were contracted personnel. 63

Part I: Information on Hochschild Mining

All mining activities at each of the Groups operating units are carried out by contracted personnel, including all exploitation work carried out within each of the Groups operating mines. The main mining contractors employed by the Group are Administradora de Minas Arequipa (Ares), Zicsa Contratistas Generales S.A. (Arcata) and Servicios Generales del Sur S.R.L. (Selene), who have each signed either one or two-year contracts with the Group. In addition to mining contractors, the Group currently has arrangements in place with contracted personnel for the provision of security (Orus), transportation (Transportes David y Romulo S.R.L.) and catering (Sodexho Peru S.A.C.) services at each of its operating units on similar terms and conditions as are currently in place with its mining contractors. Payment under the contracts is usually made monthly based on specic targets set out in the contract, such as per metre mined (in the case of mining contractors), per hour employed (in the case of transportation contractors) and per meal consumed (in the case of catering contractors). All expenses, including raw materials and equipment, are initially paid for by the relevant contractors who are then reimbursed by the Group under the terms of their contracts. All contracts which the Group has in place with its contracted personnel may be terminated by the Group on 60 days written notice with no termination fee.

Employee relations
Except in respect of Argentina, where employees of Minera Santa Cruz, S.A. are voluntarily afliated to the Asociacion Obrera Minera Argentina (the Argentine Mineworkers Union), the Group workforce is not represented by a works council and no unions have yet been formed, either in respect of the employees or the contracted personnel. The Group maintains good relations with its workforce and, for almost twenty years, has not experienced any interruptions in production at any of its operating sites as a result of workplace disputes.

Dividend policy
The Directors intend to adopt a dividend policy which will take into account the protability of the business and underlying growth in earnings of the Group, as well as its capital requirements and cash ows, while maintaining an appropriate level of dividend cover. Following Admission, in the absence of unforeseen circumstances and assuming the Groups performance continues in line with the Boards expectations, subject to there being available reserves for the purpose, the Directors intend to declare a dividend of one third of prots after tax for the nancial year ending 31 December 2006 in respect of the period from Admission until 31 December 2006. Thereafter, the Directors intend that interim and nal dividends will be paid in the approximate proportions of one-third and two-thirds of the total annual dividend, respectively. Dividends will be declared by the Company in US dollars. Unless a Shareholder elects to receive dividends in US dollars, they will be paid in pounds sterling with the US dollar dividend being converted into pound sterling at exchange rates prevailing at the time of payment. The Company may only pay dividends if distributable reserves are available for this purpose. The Board is intending to implement the Capital Reduction shortly after Admission. If this were not to proceed, as a holding company, the ability of the Company to pay dividends will principally depend upon dividends or interest paid by its subsidiaries. See also Risk Factors.
PRA1 20.7

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Part II: Use of proceeds

Based on the Offer Price, the Groups net proceeds from the Global Offer are estimated to be 249 million (approximately US$476 million), after deduction of the estimated fees and expenses payable by the Group. The Company intends to use the net proceeds of the Global Offer primarily in the following ways: ) to maximise the potential of its existing operations The Group intends to allocate approximately US$140 million to the development of its existing operations with a focus on: ) further developing existing vein systems; ) undertaking further exploration within existing concessions to identify new vein systems to extend mine life; and ) expanding plant capacity at Arcata and Selene to cater for increased production at each of these units. ) to achieve growth through delivery of its project pipeline The Group intends to allocate approximately US$250 million to the construction and further expansion of its San Jose and Pallancata projects, and to bring its San Felipe and Moris projects into production. ) to repay existing debt The Group intends to allocate approximately US$40 million to the repayment of existing debt. ) to exploit market and geographic niches to seek additional growth opportunities, whether by way of further exploration, joint ventures or strategic acquisitions The Group intends to allocate the remainder of the net proceeds from the Global Offer to seek additional growth opportunities and to expand its project pipeline by gaining access to further mid-sized, high-grade development projects and prospects. The Group intends to achieve this through a combination of: ) bringing two of its existing prospects to feasibility stage; ) conducting further exploration activities in Latin America, carried out either individually or through joint ventures with local or overseas mining partners; and ) strategic acquisitions where suitable opportunities arise within the sector. Pending their use as described above, the Group intends to invest the net proceeds from the Global Offer in short term investments with internationally recognised nancial institutions.
PRA3 3.4

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Part III: Management, corporate governance and the major shareholder

1 Directors and Senior Management (a) Board of Directors The Directors of the Company are as follows:
Name Age Position

Eduardo Hochschild ************************** Roberto Danino ***************************** Alberto Beeck ******************************* Sir Malcolm Field **************************** Jorge Born Jr. ******************************* Nigel Moore********************************* Dionisio Romero *****************************

42 55 50 69 44 62 70

Executive Chairman Deputy Chairman and Executive Director Executive Director, Strategy and Corporate Development Senior Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director

PRA1 1.1 PRA1 14.1(a) PRA3 1.1

Eduardo Hochschild, aged 42 (Executive Chairman) Mr. Hochschild joined the Hochschild Mining Group in 1987 when he was appointed Safety Assistant at the Arcata unit, becoming head of the Hochschild Mining Group in 1998 and Chairman in 2006. Mr. Hochschild graduated from Tufts University, Boston with a Bachelor of Science degree in physics and mechanical engineering. He holds numerous board appointments, including directorships with COMEX Peru, the Banco de Credito del Peru, the Sociedad Nacional de Minera y Petroleo, the Asian Pacic Economic Council Business Advisory Committee, the Conferencia Episcopal Peruana, Pacco Peruano Suiza, TECSUP, the Universidad Nacional de Ingeniera and the Universidad de Ciencias Aplicadas. Mr. Hochschild is also currently Vice Chairman of Cementos Pacasmayo. Roberto Danino, aged 55 (Deputy Chairman and Executive Director) Mr. Danino joined the Hochschild Mining Group in 1995, where he remained until 2001 when he joined the Peruvian government. From 2003 to 2006, Mr. Danino was Senior Vice President and General Counsel of the World Bank Group and Secretary General of the International Centre for Settlement of Investment Disputes (ICSID). From 2001 to 2003, he served in the Peruvian government, rst as Prime Minister and then as Perus Ambassador to the United States. Prior to joining the Peruvian government, Mr. Danino had participated as an attorney in numerous investment projects throughout Latin America. From 1993 to 2001, he was a partner in Washington D.C. of two international law rms, rstly of Rogers & Wells (from 1993 to 1996) and subsequently of Wilmer, Cutler & Pickering (from 1996 to 2001), and was Chairman of these rms respective Latin American Practice Groups. He was also founding General Counsel of the Inter American Investment Corporation in Washington D.C. Mr. Danino was educated at Harvard Law from which he obtained degrees in law. School and the Ponticia Universidad Catolica del Peru, Alberto Beeck, aged 50 (Executive Director, Strategy and Corporate Development) Mr. Beeck commenced working with the Hochschild Mining Group in 1998. Prior to this, Mr. Beeck served from 1992 to 1997 as Managing Director and Head of Latin American Investment Banking for Barings, Inc. in New York and Baring Brothers, in London. From 1988 to 1992, Mr. Beeck served in the London Corporate Finance Group of Dillon, Read Ltd, as Vice President with responsibility for Spain and Portugal. Mr. Beeck also served as Vice President of Lehman Brothers, New York, from 1982 to 1988 in the International Corporate Finance and government advisory group. Mr. Beeck received a BS in mechanical engineering from Purdue University in 1978, and an MBA in nance and international business from Columbia University in 1982. Mr. Beeck is also currently Chairman of Cementos Pacasmayo. 66

Part IIIManagement, corporate governance and the major shareholder

Sir Malcolm Field, aged 69 (Senior Non-Executive Director) Sir Malcolm Field is currently the Senior Non-Executive Director of Aricom plc and a non-executive director of both Odgers Ray & Berndtson and Linden Homes. From 2002 to 2006, Sir Malcolm served as Chairman of Tube Lines Limited, one of the London Underground consortia, and from 2001 to 2006, was an external policy adviser to the Department of Transport in the United Kingdom. From 1982 to 1993, Sir Malcolm was group managing director of WH Smith plc and from 1993 to 1996 he served as chief executive. From 1996 to 2001, Sir Malcolm was Chairman of the Civil Aviation Authority and he has also held appointments as a non-executive director in a number of companies, including Scottish and Newcastle plc, MEPC, The Stationery Ofce and Evolution Beeson Gregory. Jorge Born, Jr., aged 44 (Non-Executive Director) Jorge Born Jr. joined Bomagra S.A. in 1997 as Chief Executive Ofcer, and since 2001 he has been President and Chief Executive Ofcer of the same organisation. Mr. Born is also Deputy Chairman of Caldenes S.A., a subsidiary of Bomagra S.A. Prior to joining Bomagra S.A. in 1997, Mr. Born served as head of Bunge Limiteds European operations from 1992 to 1997 and head of Bunge Limiteds UK operations from 1989 to 1992. He has been a director and deputy chairman of Bunge Limited since 2001 and director of Mutual Investment Limited since 1997 and its deputy chairman since 2001. Mr. Born has also been a director of Brasif (Brazil duty free) of Rio de Janeiro since 2006. Mr. Born received a BS in economics from the Wharton School of the University of Pennsylvania in 1983. Nigel Moore, aged 62 (Non-Executive Director) Nigel Moore is a Chartered Accountant. Since 2003, Mr. Moore has been Chairman of TEG Environmental plc. He is currently a non-executive director of The Vitec Group plc, IntelligentComms Limited and Ascent Resources plc. From 1973 to 2003, Mr. Moore was a partner at Ernst & Young. Mr. Moore was the Managing Partner of Ernst & Youngs London ofce from 1985 to 1987, was a senior partner attached to the Chairmans Ofce (Europe) from 1987 to 1989 and was the Regional Managing Partner for Eastern Europe and Russia from 1989 to 1996. From 1996 to 2003, he was a Client Service Partner for the oil and gas sector. Dionisio Romero, aged 70 (Non-Executive Director) Dionisio Romero is Chairman and Chief Executive Ofcer of the nancial services holding company, Credicorp Ltd. He is Chairman of Banco de Credito del Peru, Banco de Credito de Bolivia and Atlantic Security Bank, and Vice Chairman of Pacco Peruano Suiza. Mr. Romero is also a director of Cementos Pacasmayo. Mr. Romero graduated with a BA degree in economics from Pomona College, California in 1957, and earned an MBA from Stanford University in 1959. (b) Executive Committee The Hochschild Mining Groups executive committee is chaired by Eduardo Hochschild. Its other members are Roberto Danino, Alberto Beeck, Miguel Aramburu, Jorge Benavides and Ignacio Rosado. Details of the biographies of Messrs. Aramburu, Benavides and Rosado are set out in paragraph 1(c) below.

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Part IIIManagement, corporate governance and the major shareholder

(c) Hochschild Mining senior management The Hochschild Mining Groups senior management team, in addition to the Directors listed above, is as follows:
Name Age Position

PRA1 14.1(d)

Miguel Aramburu**************************** Jorge Benavides ***************************** Ignacio Rosado ****************************** Eduardo Loret de Mola*********************** Ricardo Arrarte ****************************** Gonzalo Freyre ******************************

43 52 36 51 40 40

General Manager, Mining Division General Manager, Exploration and Geology Division Chief Financial Ofcer Manager, International Operations Manager, Peruvian Operations Manager, Argentinian Operations

Miguel Aramburu, aged 43 (General Manager, Mining Division) Mr. Aramburu joined the Hochschild Mining Group in 1995, when he was appointed CEO of Compana Minera Pativilca. He was appointed Chief Financial Ofcer of the Hochschild Mining Group in 2002 and General Manager, Mining Division in 2006. Mr. Aramburu graduated from the Ponticia Universidad Catolica del Peru in 1987 in industrial engineering and holds a MBA from Stanford University, California. Jorge Benavides, aged 52 (General Manager, Exploration and Geology Division) Mr. Benavides has nearly thirty years of experience in the mining industry. He was exploration and geology manager for the Hochschild Mining Group from 2001 until December 2005 and, since then, has been General Manager, Exploration and Geology Division. Prior to joining the Hochschild Mining Group, Mr. Benavides spent eight years working for the Phelps Dodge Mining Company in South America and Mexico, including as Exploration Manager for the Andean Region from 1998 to 2001. Mr. Benavides holds an MSc. in Ore Deposits and Exploration from Stanford University, California and a BSc. in Geological Engineering from the Colorado School of Mines, Colorado. Ignacio Rosado, aged 36 (Chief Financial Ofcer) Mr. Rosado has been the Chief Financial Ofcer of the Hochschild Mining Group since 2005. Prior to joining the Hochschild Mining Group, he worked from 2000 to 2005 as Senior Engagement Manager for Latin America for McKinsey & Company. Mr. Rosado began his career with Banco Wiese Sudameris in Peru, where he spent two years as a corporate banker from 1992 to 1994. He then joined Banco de Credito del Peru as a Project Manager and spent two years as a Project Development Manager for Backus & Johnston Corporation in Peru. Mr. Rosado holds a MBA from the University of Michigan Business School and a BSc. in Economics from the Universidad del Pacco, Lima. Eduardo Loret de Mola, aged 51 (Manager, International Operations) Mr. Loret de Mola has twenty-ve years of experience in the mining sector. He has been Head of Operations of the Hochschild Mining Group since 2004. Prior to joining the Hochschild Mining Group, Mr. Loret de Mola spent three years as an independent consultant at Nueva Condor S.A., Lima and three years as Operations Manager at Minas de Venturosa S.A., Lima. From 1983 to 1996 Mr. Loret de Mola was Managing Director at Compana Minera Acobamba S.A., Lima. Mr. Loret de Mola holds a Masters in Mining Economy and a BSc. in Mining Engineering from the University of Minnesota. Ricardo Arrarte, aged 40 (Manager, Peruvian Operations) Mr. Arrarte has over ten years of experience in the mining industry. He joined the Hochschild Mining Group in 2004 as Deputy Operations Manager. Prior to joining the Hochschild Mining Group, Mr. Arrarte worked as general manager of Compana Minera Caudalosa between 1996 68

Part IIIManagement, corporate governance and the major shareholder

and 2004 and at EXSA where he was planning and development manager from 1994 to 1995 and project manager from 1991 to 1992. Mr. Arrarte holds BScs in mining and mechanical engineering from the Ponticia Universidad Catolica del Peru and a MBA from George Washington University, Washington D.C. Gonzalo Freyre, aged 40 (Manager, Argentinian Operations) Mr. Freyre has fteen years of experience in the mining industry. He joined the Hochschild Mining Group in 1991 and has been the Manager of the Hochschild Mining Groups Argentinian operations since December 2004. Mr. Freyre worked as Operations Manager of the Groups Selene unit between 2003 and 2004, and was Administration Manager of Mauricio Hochschild & Ca S.A.C. from 2002 to 2003. Prior to this, Mr. Freyre worked as Executive Assistant to the General Management of Cementos Norte Pacasmayo S.A.A. from 2001 to 2002 and General Manager of Compana Minera Selene S.A.C. between 2000 and 2001. From 1997 until 2000, Mr. Freyre was General Manager of Compana Minera Huaron S.A., and General Manager of Compana Minera Pativilca S.A. during 1996. Mr. Freyre holds a MBA from the Business Administration School for Graduates (ESAM) and a BSc in Industrial Engineering from the Ponticia Universidad Catolica del Peru. 2 Corporate Governance (a) Combined Code The Directors support high standards of corporate governance. Following Admission, they intend to comply fully with the Combined Code save as described in paragraph 2(b) below. (b) The Board structure Upon completion of the Global Offer, the Board will consist of the Executive Chairman, two Executive Directors and four Non-Executive Directors. Sir Malcolm Field has been nominated as the senior independent Non-Executive Director. The Company regards all of its Non-Executive Directors as independent non-executive Directors within the meaning of independent as dened in the Combined Code and free from any business or other relationship which could materially interfere with the exercise of their independent judgment. With the Chairman being an Executive Director and not independent, the Board composition is not fully Combined Code compliant. However, with the Board including four independent Non-Executive Directors, the Company regards this as an appropriate board structure following Admission. Mr. Romero retains an interest in a company that provides security services to the Hochschild Mining Group and is also Chairman of Banco de Credito del Peru, the largest bank in Peru and a provider of nance to the Hochschild Mining Group. Mr. Romero is also a director of Cementos Pacasmayo and TECSUP. Notwithstanding Mr. Romeros aforementioned interests and his position on the boards of Cementos Pacasmayo and TECSUP, the Company regards Mr. Romero as independent for the purposes of the Combined Code. Mr. Hochschild is also a director of Banco de Credito del Peru. Since 2003, Mr. Born has received payments totalling approximately US$72,000 from the Group for providing consultancy services to the Hochschild Mining Group. Notwithstanding these payments made by the Group to Mr. Born, the Company regards Mr. Born as independent for the purposes of the Combined Code. The Board has established an audit committee, a remuneration committee, a nominations committee and a health, safety and environment committee. 69
PRA1 16.4

Part IIIManagement, corporate governance and the major shareholder

(c) Audit committee The audit committee is chaired by Nigel Moore and its other members are Sir Malcolm Field and Jorge Born Jr.. The audit committee will meet not less than three times a year and will have responsibility for, amongst other things, monitoring the integrity of the Hochschild Mining Groups nancial statements and reviewing its summary nancial statements. It will oversee the Hochschild Mining Groups relationship with its external auditors and review the effectiveness of the external audit process. The committee will give due consideration to laws and regulations, the provisions of the Combined Code and the requirements of the Listing Rules. It will also have responsibility for reviewing the effectiveness of the Hochschild Mining Groups system of internal controls and risk management systems. The ultimate responsibility for reviewing and approving the interim and annual nancial statements remains with the Board. The Board considers that Mr. Moore has recent and relevant nancial experience. Further details are set out in Mr. Moores biography in paragraph 1(a) above. (d) Remuneration committee The remuneration committee is chaired by Jorge Born Jr. and its other members are Sir Malcolm Field and Nigel Moore. The remuneration committee will meet not less than three times a year and will have responsibility for making recommendations to the Board (i) on the Hochschild Mining Groups policy on the remuneration of Senior Management, (ii) for the determination, within agreed terms of reference, of the remuneration of the Chairman and of specic remuneration packages for each of the Executive Directors and the members of Senior Management, including pension rights and any compensation payments and (iii) for the implementation of long term incentive plans (see paragraph 8 of Part XIV: Additional Information). The Remuneration Committee will also ensure compliance with the Combined Code in this respect. (e) Nominations committee The nominations committee is chaired by Eduardo Hochschild and its other members are Sir Malcolm Field and Dionisio Romero. The committee will meet not less than twice a year and will, with effect from Admission, have responsibility for making recommendations to the Board on the composition of the Board and its committees and on retirements and appointments of additional and replacement Directors and ensuring compliance with the Combined Code. (f) Health, safety, environment and community relations committee The health, safety, environment and community relations committee is chaired by Roberto Danino and its other members are Eduardo Hochschild and Sir Malcolm Field. The committee will meet not less than twice a year and will be responsible for formulating and recommending to the Board the Hochschild Mining Groups policy on health and safety, environmental or local community issues as they affect the Hochschild Mining Groups operations. (See Part I: Information on Hochschild MiningEnvironmental and health and safety matters). 3 Relationship with the Major Shareholder Eduardo Hochschild and Alberto Beeck hold an indirect interest in the Company through a jointlyheld intermediate holding company (the shares in which are controlled 82.13 per cent. by Mr. Hochschild and 17.87 per cent. by Mr. Beeck and the board of which is controlled by Mr. Hochschild), which owns the entire issued share capital of Pelham Investment Corporation (the Major Shareholder) which in turn owns shares in Hochschild Mining. At Admission, and assuming no exercise of the Over-allotment Option, the Major Shareholder will own approximately 73.7 per cent. of the Company. If the Over-allotment Option is exercised in full, the 70
PRA1 18.1 PRA3 3.3 PRA1 16.3 PRA1 16.3

Part IIIManagement, corporate governance and the major shareholder

interest of the Major Shareholder will decrease to 69.9 per cent. Roberto Danino will hold and control 1.1 per cent. indirectly through an intermediate holding company. Eduardo Hochschild, Alberto Beeck and Roberto Danino are all Executive Directors of the Company and their service contracts are summarised in paragraphs 7.2 to 7.4 of Part XIV: Additional Information. The City Code The City Code is issued and administered by the Takeover Panel. The Company is subject to the City Code and therefore its shareholders are entitled to the protection afforded by the City Code. Under Rule 9 of the City Code when (i) a person acquires an interest in shares which (taken together with shares he and persons acting in concert with him are interested) carry 30 per cent. or more of the voting rights of a company subject to the City Code, or (ii) an person who, together with persons acting in concert with him, is interested in shares which in the aggregate carry not less than 30 per cent. of the voting rights of a company, but does not hold shares carrying more than 50 per cent. of the voting rights of the company subject to the City Code, and such person, or any persons acting in concert with him, acquires an interest in any other shares which increases the percentage of the shares carrying voting rights in which he is interested, then in either case, that person together with the person acting in concert with him, is normally required to extend offers in cash, at the highest price paid by him (or any persons acting in concert with him) for shares in the company within the preceding 12 months, to the holders of any class of equity share capital whether voting or on-voting and also to the holders of any other class or transferable securities carrying voting rights. Following Admission Eduardo Hochschild, Alberto Beeck and Roberto Danino will together indirectly hold 74.8 per cent. of the issued share capital of the Company, assuming no exercise of the Over-allotment Option, and 71.1 per cent. assuming the Over-allotment Option is exercised in full. For the purposes of the City Code, Eduardo Hochschild, Alberto Beeck and Roberto Danino are deemed to be acting in concert. The concert party will, therefore, following Admission hold more than 50 per cent. of the voting rights attaching to the issued share capital of the Company. Accordingly, the concert party, for so long as its members continue to be treated as acting in concert, may be able to increase its aggregate interest in the Ordinary Shares without incurring any further obligation under Rule 9 of the City Code to make a general offer to all shareholders of the Company to acquire their Ordinary Shares. However, individual members of the concert party will not be able to increase their percentage interests in shares through or between a Rule 9 threshold without the consent of the Takeover Panel. The Major Shareholder, Eduardo Hochschild, Alberto Beeck and the Company entered into the Relationship Agreement on 20 October 2006. The Relationship Agreement will, conditional upon Admission, regulate the ongoing relationship between the Company and the Major Shareholder, Mr. Hochschild and Mr. Beeck (the Benecial Owners). The principal purpose of the Relationship Agreement is to ensure that the Company and its subsidiaries are capable of carrying on their business independently of the Major Shareholder, the Benecial Owners and of any of their respective associates, and that transactions and relationships with the Major Shareholder, the Benecial Owners and their respective associates (including any transactions and relationships between the Group and Cementos Pacasmayo) are at arms length and on normal commercial terms. The Company and the Major Shareholder will agree in the Relationship Agreement that they will comply with the applicable obligations under the Listing Rules. The Relationship Agreement will continue for so long as the Ordinary Shares are listed on the Ofcial List and traded on the London Stock Exchange or until such time as the Benecial Owners cease to own or control in aggregate a minimum interest in the Company. A minimum interest in the Company is dened as 15 per cent. or more of the issued share capital or voting rights of the Company. 71

Part IIIManagement, corporate governance and the major shareholder

Under the Relationship Agreement the parties have agreed that, among other things: (a) the Major Shareholder has the right to appoint up to two Non-Executive Directors (Shareholder Directors) to the Board for so long as the Major Shareholder holds an interest of 30 per cent. or more in the Company and the right to appoint up to one NonExecutive Director for so long as it has an interest of 15 per cent. or more in the Company, and in each case to remove any such Director(s) previously appointed; (b) the Major Shareholder and the Benecial Owners agree, save to the extent required by law, to exercise their powers so far as they are able to ensure the Company is managed in accordance with the Combined Code (save to the extent set out in this Prospectus or as otherwise agreed by a majority of the independent Non-Executive Directors; (c) transactions and relationships between the Company and/or its subsidiaries (on the one hand) and the Major Shareholder, the Benecial Owners and their respective associates (on the other) shall be conducted at arms length and on a normal commercial basis; (d) the Major Shareholder and the Benecial Owners shall not, and shall procure that their respective associates shall not, take any action which precludes any member of the Group from carrying on its business independently of the Major Shareholder or the Benecial Owners or any of their respective associates; (e) the Board shall comprise the Executive Chairman, two Executive Directors and not less than three independent Non-Executive Directors and the quorum for any meeting shall be three, of which at least two must be independent Non-Executive Directors; (f) the Remuneration Committee and Audit Committee shall at all times comprise only independent Non-Executive Directors and the Nomination Committee and any committee of the Board to which signicant powers, authorities or discretions are delegated shall at all times comprise a majority of independent Non-Executive Directors; (g) the Major Shareholder and the Benecial Owners shall not, and shall procure that their respective associates shall not, take any action to prejudice the Companys status as a listed company or its suitability for listing or its compliance with the Listing Rules and Disclosure Rules; (h) the Major Shareholder and the Benecial Owners shall not, and shall procure that their respective associates shall not, exercise voting rights attaching to its shares in the Company: (i) to procure any amendment to the Articles which will be inconsistent with or breach any of the provisions of the Relationship Agreement; or (ii) in respect of any resolution to approve a transaction with a related party (as dened in the Listing Rules) where the Major Shareholder, the Benecial Owners or any of their respective associates is the related party; (i) if any matter which, in the opinion of the independent Non-Executive Directors, gives rise to a conict of interest (including any new agreement or arrangement (or any material amendments to existing arrangements)) between any member of the Group and the Major Shareholder or the Benecial Owners or any of their respective associates (including any arrangement between the Group and Cementos Pacasmayo or any of its subsidiaries) such matter must be approved by a majority of the Board (excluding the Shareholder Director and the relevant Benecial Owner(s)); and subject to certain exceptions, the Major Shareholder and Benecial Owners undertake that they shall not have an interest in or be involved with a competing Latin American precious metals mining business.

(j)

The Directors believe that the terms of the Relationship Agreement as described above will enable the Group to carry on its business independently of the Major Shareholder and the Benecial 72

Part IIIManagement, corporate governance and the major shareholder

Owners and ensure that all transactions and relationships between the Company and/or its Subsidiaries (on the one hand) and the Major Shareholder and/or the Benecial Owners and/or their respective associates (on the other) are, and will be, at arms length and on a normal commercial basis. 4 Employees The table below sets out the number of people (full-time equivalents) employed by the Hochschild Mining Group, including contracted personnel, at period end for each of the last three nancial years to 31 December 2005 and the six months to 30 June 2006:
Years ended 31 December 2003 31 December 2004 31 December 2005 Six months ended 30 June 2006

PRA1 17.1

Employees *********************** Contracted Personnel ************* Total*****************************

865 2,333 3,198

1,012 2,703 3,715

1,155 1,856 3,011

1,165 1,935 3,100

5 Executive Long Term Incentive Plan The Company has not yet adopted an executive long term incentive plan. It is intended, however, that the Company will, following Admission, seek advice on the form of long term incentive plan that is most suitable for the Company with a view to adopting a plan or plans, subject to shareholder approval (if required). Details of the statutory prot sharing arrangements which the Group has in place with its employees in Peru are set out in Part VII: Operating and Financial Review. 6 Pension Schemes The Hochschild Mining Group does not currently operate any pension schemes for the employees of the Group for its employees and has no present intention of introducing such schemes. Details of the Groups statutory contributions to pension accounts for its employees in Peru, Mexico and Argentina are set out in Part VII: Operating and Financial Review.
PRA1 17.3

73

Part IV: Information on Peru, Mexico and Argentina

The following information relating to Peru, Mexico and Argentina has been provided for background purposes only. The information has been extracted from the sources specied at the end of the relevant sections on Peru, Mexico and Argentina. The information has been accurately reproduced and, as far as the Company is aware and is able to ascertain from information published by such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. The views represented and information contained in these sources are not necessarily uniform in nature.
PRA1 9.2.3

(A) PERU
1. Introduction Peru, the third largest country in South America, borders Ecuador and Colombia to the North, Brazil and Bolivia to the East, and Chile to the South. Its western border anks the Pacic Ocean. The country spans approximately 1.28 million square kilometres and is divided into three distinct regions: the Andes mountain region, the western lowland coastal region and the rain forest region. The western lowland coastal region is the most populated and prosperous of the three regions and contains the countrys political and nancial capital, Lima. Peru has a population of approximately 28 million people. With an estimated population of almost nine million people, Lima is signicantly larger than Perus next largest city, Arequipa, which has an estimated population of less than one million. Perus population is composed of several ethnic groups: 45 per cent. indigenous peoples, 37 per cent. of mixed background, 15 per cent. European, and the remaining 3 per cent. African, Japanese, or Chinese. Although Spanish is the principal national language, other indigenous languages are spoken and Quechua is ofcially recognised. As at January 2006, approximately 54 per cent. of the population of Peru were estimated to be living below the poverty line. 2. Perus Political and Economic Environment Government and Government Policy Peru is a constitutional republic where power is balanced between executive, legislative, and judicial branches. The judicial branch comprises three tiers of lower courts which culminate in a Supreme Court, and the legislative branch takes the form of a unicameral congress. The executive branch is led by a president, two vice presidents, and a prime minister who oversees a council of ministers. Ministers are appointed for specic sectors. At the local level, Peru is divided into 24 political sub-divisions known as departments. The citizens of each department elect a regional president as well as local municipal authorities. In the 2006 presidential election, Alan Garca, of the Partido Aprista Peruano, was elected President. Whilst the new governments policies are yet to be fully developed, Mr Garca has conrmed that he will not reverse the economic policies of the previous administration and has conrmed that his government wishes to encourage foreign investment. The defeated presidential candidate, Ollanta Humala, has signalled his determination to continue his opposition to the new administration and has ruled out any form of political alliance with Mr. Garcas party. Economy Peru has experienced periods of very high ination in the last few decades, the economy has now largely stabilised. Since 1990, the ofcial ination rate has fallen from a high of over 7,400 per cent. to 1.6 per cent. in 2005. In recent years, the economy has been growing strongly in real terms with average GDP growth of 4 per cent. between 2001 and 2005, leading to an average per capita 74

Part IVInformation on Peru, Mexico and Argentina

GDP in 2005 of US$2,800 and total national GDP in 2005 of US$78.4 billion. For 2006, the Peruvian central bank is predicting national GDP growth of 5.5 per cent. for Peru. Perus recent economic stability and low ination rate have helped to promote foreign direct investment in the country. In 2005, foreign direct investment amounted to over US$2.5 billion. Peru is the largest silver producer in the world and, in terms of foreign trade, relies heavily on its minerals. In 2005, Peru exported US$17.2 billion worth of goods (54.8 per cent. of which comprised mineral exports) and imported US$12.5 billion. Its chief trading partner is the United States, which in 2005 received 30 per cent. of Perus exports and supplied 17.7 per cent. of its imports. Perus next most important trading partner is China, which in 2005 received 11 per cent. of Perus exports and supplied 8.5 per cent. of its imports. On 12 April 2006, the United States and Peru formally entered into a bilateral free trade agreement (the United States-Peru Trade Promotion Agreement) designed to expand trade between the two countries, eliminate tariffs and other barriers to goods and services and promote economic growth. The agreement was ratied by the Peruvian Congress on 28 June 2006 and is currently awaiting ratication by the US Congress. Taxation and Exchange Controls The corporate income tax rate in Peru is 30 per cent. Businesses in Peru are also subject to a valueadded tax of 19 per cent., and a 0.08 per cent. tax is generally imposed on debits and credits in Peruvian bank accounts. Dividends paid to individuals or to companies not domiciled in Peru are subject to a withholding tax of 4.1 per cent. There are no exchange control requirements in place. Currency In the past 50 years, the Peruvian currency has been changed three times. As a result of high ination, the Sol was replaced in 1985 with the Inti, which in turn was replaced in 1991 with the Nuevo Sol. The Nuevo Sol has remained relatively stable since its introduction with ination being brought under control and between 2002 and 2005 the Nuevo Sol appreciated from an annual average of 3.52 to an annual average of 3.30. The Nuevo Sol is freely convertible. 3. Summary of Perus Mining Legislation The Legislation The General Mining Law, as approved by Supreme Decree N 014-92-EM of 4 June 1992 (the General Mining Law), is the key legislation governing mining activities in Peru. The exploration for, and extraction of, mineral substances from the ground (with a few limited exceptions) is governed by a number of laws and regulations, the most important of which include: ) the Regulations under Several Titles of the Mining Law (Supreme Decree N 003-94-EM (as revised)); ) the Regulations on Mining Procedures (Supreme Decree N 018-92-EM (as revised)); ) the Regulations on Mining Safety and Hygiene (Supreme Decree N 046-2001-EM (as revised)); ) the Regulations on Environmental Protection for MiningMetallurgical Activities (Supreme Decree N 016-93-EM (as revised)); ) the Environmental Regulations for Mining Exploration Activities (Supreme Decree N 038-98-EM (as revised)); ) the Regulations under Title Nine of the Mining Law relating to the Guarantees and Measures for the Promotion of Investment and Mining (Supreme Decree N 024-93-EM (as revised)); 75
PRA1 6.4

Part IVInformation on Peru, Mexico and Argentina

) the Mining Activities Fiscalization Law (N 27474) and Regulations thereunder (Supreme Decree N 049-2001-EM (as revised)); ) the Law regulating Mining Concessions in Urban and Urban Development Areas (Law N 27015) and Regulations thereunder (Supreme Decree N 008-2002-EM (as revised)); ) the Mining Royalties Law N 28258, and Regulations thereunder, approved by Supreme Decree N 157-2004-EF (as revised); and ) the Mine Closure Law N 28090, and Regulations thereunder (Supreme Decree N 33-2005-EM (as revised)). The Concession System Peruvian mineral resources are the property of the State and the private sector may only exploit such resources in accordance with Perus concession system. In principle, Peruvian law allows any investor to carry out mining in Peru provided they rst obtain the proper concession. The General Mining Law authorises the National Institute of Concessions and Mining Cadastre (the INACC), a specialist agency within the mining sector which is independent from the Ministry of Energy and Mines (the MEM), to grant mining concessions. All other concessions such as Processing, General Services and Mining Transportation concessions (see below) are granted by the MEM. A concession is required to carry out all mining activities in Peru, except for sampling, prospecting and trading in mining products and minerals. Concessions are granted for indenite periods, subject only to termination as set out below. Types of Concession Under the General Mining Law, there are four types of concession which may be granted by the MEM or by the INACC, as the case may be: ) Mining Concessionsthese grant holders the right to explore and exploit mineral resources within the area covered by the concession; ) Processing Concessionsthese grant holders the right to process, purify, smelt or rene minerals; ) General Service Concessionsthese grant holders the right to carry out ancillary services, such as ventilation, sewerage, hoisting or underground access, at one or more mining concessions; and ) Mining Transportation Concessionsthese grant holders the right to operate a transportation system to transport mineral products between one or more mining units and a processing plant or renery, using conveyor belts, pipelines and/or track cables. Of these concessions, only mining concessions have limits as to the area covered by the concession. Mining concessions are granted in respect of areas consisting of a minimum of 100 hectares and a maximum of 1,000 hectares (concessions located at sea may extend to an area of 10,000 hectares). Concessions may be transferred, assigned or mortgaged. Any such transfer, assignment or mortgage must be evidenced by public deed registered at the Registry of Mining Rights, part of the National System of Public Registers, before it can be enforced against the State or third parties. A mining concession grants the holder an exclusive and irrevocable right to carry out those mining activities set out in the concession within a specied area. The concession is registered in the National Mining Cadastre at the INACC based on the UTM co-ordinates of the area covered by the concession. Mining concessions require a number of permits and licences to be obtained before exploitation can commence. These permits include an operating mine permit and an operating plant and plant 76

Part IVInformation on Peru, Mexico and Argentina

capacity authorisation and may include other permits, such as permits for water use, storage and use of explosives, fuel use and storage, electrical generation and chemical use, depending on the operation. Requirements and obligations of concession holders (A) Requirements Concessions may only be granted to individuals domiciled in Peru, or companies incorporated in Peru whose objects are to carry out mining activities (although such companies may be wholly owned by foreign investors), or branches of foreign companies which are established in Peru for the purposes of carrying out mining activities. The latter two categories are required by law to be registered with a Peruvian Public Registry. Overseas companies and individuals (including Peruvian-domiciled companies owned ultimately by overseas investors) may not hold concessions over property located within 50 kilometres of any of Perus national borders, unless permission from the Government has been obtained. There is no limit to the number of concessions that may be held by a company or individual. An application for a mining concession must be published in the ofcial gazette and in a local newspaper and the mining authority must wait at least 30 days from the date of publication before granting a mining title. A third party may object to the granting of the mining title within 15 days of the publication of the application in the ofcial gazette or local newspaper. After the 15 day period has elapsed, if a third party claims and proves that it has a pre-existing right to the mining concession, the mining authority must grant the mining title to a newly incorporated corporation of which each party holds 50 per cent. of the shares. This is rarely used in practice. Holders of mining concessions are, however, required to monitor the applications published in the ofcial gazette to ensure no other third parties are applying for a mining concession over the same area. (B) Obligations Holders of mining concessions or those applying for mining concessions are required to comply with various obligations, including the annual validity feeor good standing paymentof US$3.00 per year per hectare, both for mining concessions and mining concession applications. Failure to pay the validity fee for two consecutive years may lead to the cancellation of the mining concession or mining concession application. Holders of mining concessions are also required to meet minimum annual production targets prescribed by the General Mining Law. This target is currently US$100.00 per hectare per year. Concession holders are entitled to aggregate multiple concessions for these purposes provided certain conditions are met. If the concession holder has not met the minimum annual production target within seven years of the concession having been granted, the holder is required to pay a penalty equal to US$6.00 per year per hectare for the 8th to 11th year following the granting of the concession. The penalty increases to US$20.00 per year per hectare if the minimum production target is not met within 12 years of the concession having been granted. Failure to pay this penalty for two consecutive years may lead to the cancellation of the mining concession, although concession holders may be able to avoid paying the penalty if they can prove to the mining authorities that they have invested an amount equivalent to at least ten times the amount of the penalty in the local area. Pursuant to the Ley de Regala Minera (Mining Royalty Law) (Law Number 28258) which came into effect on 24 June 2004, concession holders are also obliged to pay to the Peruvian government an annual royalty equal to 1 per cent. on concentrate or dore sales of up to US$60 million, 2 per cent. on sales between US$60 million and US$120 million, and 3 per cent. on sales exceeding US$120 million, unless the concession holder has entered into a stability agreement before this 77

Part IVInformation on Peru, Mexico and Argentina

regime came into force (see Stability Agreements below). As a result of the stability agreement entered into by the Group in 1998 in respect of the Ares Unit, the Hochschild Mining Group currently pays royalties to the Peruvian government only in respect of its concentrate sales at Arcata and Selene. Termination of concessions Concessions are generally irrevocable but may lapse or terminate in the following two circumstances: ) failure by a concession holder to pay the mining validity fee for two consecutive years; or ) failure by a concession holder to pay the penalty for two consecutive years for not meeting the minimum annual production target. Environmental Legislation The environmental aspects of mining activities are governed by the General Law of the Environment (Law N 28611) (the GLE), the General Mining Law and miscellaneous mining environmental regulations, as well as regulations governing corporate social responsibility. The MEM is the competent authority for the regulation of all environmental matters in the mining industry. Under Article 24 of the GLE, the holders of new concessions must prepare an Environmental Impact Assessment (EIA) illustrating the impact the particular mining activity is likely to have on the environment and how this will be managed and mitigated. The EIA must be formally approved by the MEM which will issue its approval in writing only following a public consultation exercise. The EIA must be prepared by an environmental auditor registered with, and authorised by, the MEM for these purposes. The EIA also requires approval from, among others, the National Institute of Natural Resources and the Ministry of Health. Approval of the EIA is usually granted between 18 and 24 months after the EIA is led with the MEM. Additional obligations are imposed on concession holders by Supreme Decree N 016-93-EM of 1 May 1993, including: (a) anyone applying for a processing concession, as well as those who intend to expand their production or the capacity of their processing plant by more than 50 per cent., must prepare and le an EIA for approval by the MEM; (b) mining concession holders with ongoing operations must le annually with the MEM specic information attached to its consolidated annual report, indicating that their mining activities comply with all applicable environmental regulations; (c) mining concession holders must appoint a suitably qualied person within their operations to monitor the companys environmental standards; and (d) all concession holders must carry out regular tests to check whether the amounts and concentration of their efuents are below the maximum permitted contamination levels. Mine Closure Law The law regulating the closure of mines (the Mine Closure Law) was approved in 2003. This law obliges mining companies to le a mine closure plan and ensure that they have the necessary resources to carry out the closure plan for the purposes of preventing, minimising and controlling the risks and adverse impacts on the environment once a mining unit has ceased operations. Under the Mine Closure Law, mining concession holders must also grant an environmental warranty to the MEM for the estimated costs associated with its mine closure plan. The law provides that this warranty may take the form of insurance, cash collateral, a trust agreement or 78

Part IVInformation on Peru, Mexico and Argentina

other form, as permitted by the Civil Code of Peru. In accordance with the requirements of the Mine Closure Law, the Group led closure plans for Arcata, Ares and Selene in August 2006. Stability Agreements Holders of mining concessions may enter into stability agreements with the MEM. Stability Agreements enable mining concession holders, amongst other things, to freeze the tax, royalties and regulatory regime applicable to mining operators as at the date the stability agreement is entered into. In order to take advantage of a stability agreement, mining concession holders must submit either a Mining Investment Programme or a Feasibility Study to the MEM for approval. Approval by the MEM of a Mining Investment Programme grants the concession holder 10 years stability, whilst approval by the MEM of a Feasibility Study grants the concession holder 15 years stability. The Hochschild Mining Group has one stability agreement in place in respect of its operations at the Ares unit. In addition, the Group has applied to the MEM for a stability agreement in respect of each of its operations at Arcata and Selene. Stability agreements grant the concession holder the following rights and benets: (a) The tax regime in force at the date the agreement is entered into is effectively frozen and will continue to apply for the duration of the agreement. The mining regulatory and royalty regime is frozen as at the date the Mining Investment Programme or Feasibility Study, as the case may be, is approved. (b) The stability period commences once the MEM has veried that the concession holder has invested the amount proposed in its Mining Investment Programme or Feasibility Study, as the case may be, although the concession holder may elect to postpone the start of the stability period until its rst year of operations. (c) Smaller stability agreements (i.e. those agreements covering mines with output of between 350 and 5,000 tonnes per day, requiring a minimum investment of US$2 million) guarantee stability for up to ten years while larger stability agreements (i.e. those agreements covering mines with an output of not less than 5,000 tonnes per day, requiring a minimum investment of not less than US$20 million if commencing operations or US$50 million if expanding them) guarantee stability for up to fteen years. Stability agreements grant the concession holder further rights, including: (a) Free marketing of the concession holders mineral products (both exports and domestic sales). (b) Free disposal in Peru and abroad of foreign currency generated by exports covered by the stability agreement. (c) Free convertibility of local currency into foreign currency generated by the sale in Peru of the mining products covered by the stability agreement. (d) In respect of larger stability agreements only, extension of the annual depreciation rate on machinery, equipment and capital assets, up to a maximum annual rate of 20 per cent. Mine development costs may be depreciated at a maximum annual rate of 5 per cent.

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Investment Guarantees In order to encourage foreign investment in Peru, the Peruvian government allows foreign investors to enter into investment guarantees. In return for a certain level of guaranteed investment, investment guarantees may give investors rights such as free currency conversion and repatriation of prots abroad, as well as certain rights relating to the tax treatment of exploration and development expenses. The Hochschild Mining Group has not entered into any investment guarantees.

Sources: (a) US Department of State, Bureau of Western Hemisphere Affairs, June 2006: Prole on Peru (b) The World Fact Book prepared by the C.I.A., September 2006: Prole on Peru (c) British Broadcasting Corporation News articles entitled: Devil in the detail for Perus voters (30 May 2006); Garca begins fresh term in Peru (29 July 2006); Humala to lead Perus opposition (07 June 2006) (d) Bloomberg Newspaper article entitled: Perus Garca plans to Triple Foreign Investment (09 June 2006) (e) The Economist website on Peru: Factsheet (24 March 2006) (f) Americas SocietyCouncil of The Americas: Economic Outlook for Peru (June 2006) (g) Latin Business ChroniclePeru: Economic and Political Overview (14 August 2006) (h) Ofce of the US Trade Representative Press Release: United States and Peru Sign Trade Promotion Agreement (12 April 2006) (i) Peru Tax Desk Book (March 2006) (j) Central Bank of Peru StatisticsPeruvian Exchange Rate as against the US Dollar

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Part IVInformation on Peru, Mexico and Argentina

(B) MEXICO
1. Introduction Mexico is bordered to the north by the United States, and to the south by Guatemala and Belize in Central America. Its coastal regions meet the Pacic Ocean and the Gulf of California on the west, and the Caribbean and the Gulf of Mexico to the east. It is the northernmost and westernmost country in Latin America, and the most populous Spanish-speaking country in the world. Mexico covers an area of approximately 1.97 million square kilometres, and its landscape varies from the mountain peaks and canyons of the Sierra Madre to the central high plateau area where Mexico City lies to the lowland at tropical peninsula of the Yucatan. Mexico has a total population of approximately 107 million, of whom approximately 20 million live in the capital, Mexico City. The population is, for the most part, of mixed ethnic origin. The Mestizos (60 per cent. of the population) are of Spanish and Indian blood. The Indgenas, or native Indians, make up 30 per cent. of the population and live mainly in rural areas. As at January 2006, approximately 40 per cent. of the population of Mexico were estimated to be living below the poverty line. 2. Mexicos Political and Economic Environment Government and Government Policy Mexico is a federal democratic republic with 31 states and one federal district. Each state has its own constitution and its citizens elect a governor, as well as representatives, to their respective state congresses. The President of Mexico is the head of the executive federal government. Executive power is exercised by the President, whilst legislative power is vested in the two chambers of the Congress of the Union. The three constitutional powers are the Judiciary, the Executive and the Legislative, which are independent of each other. On 2 July 2006, Felipe Calderon was announced as the new president-elect of Mexico. The losing presidential candidate, Andres Manuel Lopez Obrador, refused to accept the election results, alleging fraud and calling for a full recount of the votes cast in the poll. On 5 September 2006, the Mexican electoral court, in a decision that cannot be appealed, unanimously ruled against annulling the 2 July elections and declared Calderon the president-elect. Notwithstanding the Mexican electoral courts ruling, Lopez Obrador has expressed his intention to establish a parallel government and has publicly stated that he and his supporters will never recognise Calderon as president. Economy Mexico is one of the largest silver producers in the world. The countrys silver is produced by a combination of its primary silver mines, as well as secondary silver mines, where silver is a by-product of base metal and gold operations. According to the World Bank, as at April 2006, Mexico ranked 13th in the world in GDP and had the fourth largest per capita income in Latin America after Argentina, Chile and Costa Rica. Mexicos economy is based on its industry and agriculture sectors, and is increasingly dominated by the private sector. This is reected in the drop in number of state-owned enterprises in Mexico which has fallen from more than 1,000 in 1982 to fewer than 100 in 2005. A strong export sector helped to cushion the economys decline in 1995 and led the recovery between 1996 and 1999. Trade between Mexico and the United States and Canada has tripled since the North American Free Trade Agreement was implemented in 1994. Improved levels of employment, higher wages and rising private consumption have combined to drive growth. Mexicos economy has become more stable, with a 4.1 per cent. growth in GDP in 2004 and 3 per cent. growth in 2005. The Bank 81

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of Mexico reported a record low ination of 3.3 per cent. in 2005, a year in which Mexico enjoyed comparatively low interest rates and a lower external debt to GDP ratio of 8.9 per cent. Taxation and Exchange Controls The current rate of corporate income tax in Mexico is 29 per cent. Value added tax is broadly 15 per cent. and tax on assets is 1.8 per cent. In addition, there is a state payroll tax of approximately 2 per cent. which applies in Mexico City and certain other states of the Mexican Republic. For dividends paid, the income tax is calculated by multiplying the dividends by 1.4085 and thereafter the 29 per cent. income tax rate is applied. The income tax on dividends (when applicable), must be withheld by the Mexican company declaring and paying the dividends. There are no exchange control requirements in place. Currency The Mexican Peso is the unit of currency, which is divided into 100 centavos. In January 1993, the nuevo peso was introduced, replacing the previous unit of currency at the rate of one for every thousand in order to simplify the handling of domestic currency amounts. The adjective nuevo was dropped from the units name in 1996. 3. Summary of Mexicos Mining Legislation The Legislation The Mining Law, published in the Ofcial Daily of the Federation on 26 June 1992 (and amended in 1996, 2005 and 2006), is the key legislation governing mining activities in Mexico. Other relevant legislation which is applicable to mining operations in Mexico includes: ) the Regulations to the Mining Law (published in the Ofcial Daily of the Federation on 2 February 1999); ) the Federal Water Law (published in the Ofcial Daily of the Federation on 1 December 1992); ) the Federal Labour Law (published in the Ofcial Daily of the Federation on 1 April 1970); ) the Federal Law of Fire Arms and Explosives (published in the Ofcial Daily of the Federation on 11 January 1972); ) the General Law on Ecological Balance and Environmental Protection (published in the Ofcial Daily of the Federation on January 28, 1988), and relevant Regulations; and ) the Federal Law on Metrology and Standards (published in the Ofcial Daily of the Federation on 1 July 1992). The Concession System Under Mexican law, mineral resources belong to the Mexican nation and a mining concession, granted by the Federal Executive, is required for the exploration, exploitation and processing of resources by individuals or entities incorporated under Mexican law. Mining concessions grant rights to mine as opposed to granting rights over the surface land where the concession is located. Holders of mining concessions are required to negotiate access to the land over which the mining concession is located with the respective surface land owner or holder (agrarian communities) or le an application with the General Directorate of Mines to obtain an easement, temporary occupancy or expropriation of the land, as the case may be. A party wishing to apply for a concession must rst verify that the concession is not located within a preservation area, which is subject to special environmental authorisations. An application for a concession must be led with the Mining Agency or Mining Delegation located closest to the area to which the mining application relates. Once an application for a mining concession has been 82
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led, the applicant and its mining expert are authorised to enter the land where the concession is located in order to carry out surveys and other exploratory work. These works must be led with the relevant mining authorities within 60 calendar days of the date of the application for the mining concession. Types of Concession On 28 April 2005, the Mining Law was amended to simplify the regulation of mining concessions by merging the exploration and exploitation regimes into one single regime. The amendment came into full force and effect on 1 January 2006. Mining concessions in Mexico have a term of fty years from the date on which the relevant title is recorded in the Public Registry of Mining. A mining concession allows the concession holder to carry out the exploration, exploitation and processing of minerals. Requirements and obligations of concession holders (A) Requirements Mining concessions may only be granted to Mexican individuals domiciled in Mexico, or companies incorporated and validly existing under the laws of Mexico whose objects refer to the exploration and exploitation of minerals. Such companies may be wholly owned by foreign investors. Mexican-incorporated mining companies must also be registered with the Public Registry of Commerce located where the company was incorporated and with the Public Registry of Mining. Mexican companies that have foreign shareholders must be registered with the National Registry of Foreign Investments of the Ministry of Economy and must renew their registration annually. (B) Obligations Holders of mining concessions are required to comply with various obligations, including the payment of certain mining duties calculated per concession, based on the number of hectares of the concession in question and the number of years the concession has been in effect. Failure to pay the mining duties may lead to cancellation of the relevant concession. Holders of mining concessions are obliged to carry out and prove assessment works in accordance with the terms and conditions set forth in the Mining Law and its Regulations. The Regulations to the Mining Law establish minimum amounts that must be spent or invested on exploration and/or exploitation activities. A report must be led in May each year regarding the assessment works carried out in the preceding year. The mining authorities may impose a ne on the mining concession holder if one or more proof of assessment works reports are not led on time. Termination of concessions Concessions may be terminated or cancelled in the following circumstances: ) expiry of the term of the concession; ) substitution for new concessions as a result of changes to the area covered by the mining concessions; ) through a decision by a competent court; and ) through breach of any of the terms of Article 55 of the Mining Law, namely: (i) use of a mining concession to carry out the exploitation of minerals or substances in breach of the Mining Law; 83

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(ii) (iii) (iv) (v) failure to perform and to prove the assessment works contemplated by the Mining Law and its Regulations; failure to pay mining duties; failure to deliver to the Mexican Geological Service the biannual reports required under the Mining Law; or loss of the requisite legal capacity to be the holder of a mining concession.

Environmental Legislation The Companys development projects and prospects in Mexico are subject to Mexican federal, state and municipal environmental laws, and to regulations for the protection of the environment. The principal environmental legislation applicable to mining projects in Mexico is the federal Ley General del Equilibrio Ecologico y la Proteccion del Ambiente (the General Law of Ecological Balance and Environmental Protection), which is enforced by the Procuradura Federal de la Proteccion del Ambiente (the Federal Bureau of Environmental Protection, or the PROFEPA). The PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and ofcial standards. If warranted, the PROFEPA may initiate administrative proceedings against companies that violate environmental laws which, in the most extreme cases, may result in the temporary or permanent closure of non-complying facilities, the revocation of operating licences and/or other sanctions or nes. According to the Codigo Penal Federal (Federal Criminal Code), the PROFEPA must inform the relevant governmental authorities of any environmental crimes that are committed by a mining company in Mexico. Concession holders may agree to comply with the Mexican Ofcial Norm: NOM-120-ECOL-1997, which provides, amongst other things, that mining exploration activities to be carried out within specic climates and ora must be conducted in accordance with the provisions set forth in NOM-120-ECOL-1997. Otherwise concession holders are required to le a preventative report or an environmental impact study prior to the commencement of the exploration, exploitation and processing of minerals. However, if the exploration works are to be carried out in areas described in NOM-120-ECOL-1997, the environmental impact study will not be required, but an application must be led by the concession holder with the environmental authorities conrming the concession holders commitment to observe and comply with the NOM-120-ECOL-1997. Mexican environmental regulations have become increasingly stringent over the last decade, and this trend is likely to continue and may be inuenced by the environmental agreement entered into by Mexico, the United States and Canada in connection with the North American Free Trade Agreement in February 1999.

Sources: (a) Index Mundi website: Mexico population below the poverty line (b) The Washington Times Article: Court declares Calderon winner (06 September 2006) (c) British Broadcasting Corporation News article entitled: Mexico court rejects fraud claim (29 August 2006) (d) The Silver Institute: The Silver News (edition December 1998/January 1999) (e) The World Fact Book prepared by the C.I.A., September 2006: Prole on Mexico (f) US Department of State, Bureau of Western Hemisphere Affairs, December 2005: Prole on Mexico

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(C) ARGENTINA
1. Introduction Argentina is the second largest country in South America and the eighth largest country in the world. Covering an area of approximately 2.7 million square kilometres, Argentina is located in the southern tip of South America and has a population of approximately 39 million. The country is divided into three distinct parts: the fertile plains of the Pampas in the central part of the country, the centre of Argentinas agricultural wealth; the plateau of Patagonia in the southern half down to Tierra del Fuego; and the rugged Andes mountain range along the western border with Chile. As at January 2006, approximately 38.5 per cent. of the population of Argentina were estimated to be living below the poverty line. 2. Argentinas Political and Economic Environment Government and Government Policy Argentina is a federal republic, in which the President is both head of state and head of government, complemented by a pluriform multi-party system. There are 23 provinces, together with the federal district of Buenos Aires, each of which has its own government. The Argentinian Constitution of 1853, as revised in 1994, mandates a separation of powers into executive, legislative, and judicial branches at both national and provincial level. Executive power resides in the President and his cabinet. The President and Vice President are directly elected to four-year terms, limited to two consecutive terms, and cabinet ministers are appointed by the President. In December 2001, President Fernando de la Rua resigned amidst economic and social upheaval in the country. Several new presidents followed in quick succession, culminating in Eduardo Duhalde being appointed interim President by the Legislative Assembly on 1 January 2002. After one year in ofce, Duhalde had succeeded in bringing a degree of stability to the country and, in April 2003, he called for elections. Nestor Kirchner, of the Frente para la Victoria party, won the ensuing uncontested presidential run-off vote in May 2003 after his rival, former president Carlos Menem, withdrew from the race. He took ofce while Argentina was still suffering from the effects of the economic collapse that took place in late 2001, with more than half the population estimated to be living in poverty. Kirchners government has overseen a growing economy, repaid the countrys debts to the IMF and restructured Argentinas debt. Economy Since the late 1970s, Argentina has, at various times, accumulated high levels of public debt and has undergone periods of high ination. In 1991, the government pegged the peso to the US dollar and limited growth in the monetary base. The government then embarked on a path of trade liberalisation, deregulation, and privatisation. Ination dropped and gross domestic product grew, but external economic factors and failures of the system diluted these benets, leading to the collapse of the economy in late 2001. By 2002, Argentina had defaulted on its debt, more than 25 per cent. of the population was unemployed, and the peso had depreciated 300 per cent. after being devalued and oated. 2003 saw the start of Argentinas economic recovery. A lower ination rate and expansive economic measures helped to trigger a sharp increase in GDP, creating jobs and encouraging internal consumption. Capital exports from Argentina decreased, and foreign investment started to return to the country. Argentina has restructured its debt, offering creditors new bonds for the defaulted ones, and has repaid its debt to the IMF. The Argentinian GDP grew by 8.7 per cent. in 2003 compared to 2002 when the economy shrank by 10.9 per cent. GDP growth continued in 2004 and 2005 at rates of approximately 8.0 per cent. and 8.7 per cent. respectively. 85

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In 2005, Argentina had the highest GDP per capita in Latin America. Taxation and Exchange Controls The Argentinian Mining Investments Law grants scal stability to mining companies for a period of thirty years from the date when they le the relevant feasibility study. Fiscal stability freezes the legal regime in force as of the date the feasibility study is led. In 2002, under its temporary emergency measures, Argentina introduced export duties on mineral products, including silver. Such export duties are currently established as follows: 10 per cent. where the mineral exports are comprised of concentrate, and 5 per cent. where the exports are comprised of dore. The Hochschild Mining Groups exports of silver and gold from Argentina will be subject to the 10 per cent. export duty (on the assumption concentrate will be exported) until such time as the legislation enacting the duty is repealed. The rate of corporate income tax in Argentina is currently 35 per cent. There is no withholding tax on dividends in Argentina. However, there is an equalisation tax which applies when an Argentinian company pays dividends which exceed the assessed income of the company, accumulated as of the year end immediately preceding the payment or distribution date. If the equalisation tax becomes payable, the company is required to withhold 35 per cent. of such excess as a one-off final payment. Exchange controls have been in place in Argentina since 2001. Nevertheless, pursuant to Decree No. 753/2004, mining companies may retain funds abroad provided such funds are generated from export transactions. Furthermore, none of the restrictions relating to overseas financing will apply provided the company uses such funds in the development of those projects in respect of which a feasibility study has been filed. Currency Since 1992, the currency in Argentina has been the peso which is divided into 100 centavos. This is Argentinas fourth currency since 1983, with the Peso Ley, the Peso Argentino and the Austral all having been replaced in turn. The Peso Convertible was introduced in 1991 at a rate of one to 10,000 Australes. Decree No. 2128/1991 also established the pesos international exchange rate at one US dollar to one peso. However, after the economic crisis of 2001, the xed exchange rate system was abandoned in January 2002, and the peso was oated in February of the same year. The exchange rate initially fell sharply but has since stabilised at around 2.9 pesos per US dollar. The current administration has publicly acknowledged a strategy of keeping the exchange rate between 2.90 to 3.10 pesos per US dollar, in order to maintain the competitiveness of exports and encourage import substitution by local industries. 3. Summary of Argentinas Mining Legislation The Legislation Under the Argentinian National (Federal) Constitution, natural resourcesincluding mineral resourcesare owned by the provinces where those resources are located. Argentina has provincial mining procedural codes which apply on a provincial basis and core legislation, passed by the National Congress, which is applicable throughout the country. The main such national code is the Mining Code, which regulates the exploration and exploitation of mineral resources. Other legislation relevant to the mining industry includes: (i) the environmental laws passed at both national and provincial level; (ii) the Mining Investment Law (Law N 24,196); and (iii) the provincial royalties laws. The Concession System Two types of permits may be granted under the Mining Code: ) exploration permits, or cateos, grant the holder the right to explore minerals within a certain area for a limited period of time; and ) mining concessions, or minas, grant the holder the right to mine and process ore for an unlimited period of time. 86
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Exploration Permits Exploration permits grant the holder the exclusive right to explore a specied area. They are granted over units of land of 500 hectares, called pertenencias or exploration units. An exploration permit may cover a maximum of 20 such units (i.e. 10,000 hectares), and no individual or entity may hold more than 20 permits, totalling 200,000 hectares, at any one time in any province. Permits are granted for a limited period of time based on the number of units covered by the permit. The exploration term is 150 days for the rst 500 hectares (1 unit) (or fraction thereof), and an additional 50 days for each additional unit within the exploration permit. Exploration terms are deemed to commence 30 days after the permit has been granted, although the mining authorities may, upon request, agree to delay commencement. The holder of an exploration permit must apply for an exploitation right within the time limit of the exploration permit. The system also envisages that once the exploration permit holder has gathered enough information in order to delimit the area where the minerals are concentrated, certain portions of the property comprising the exploration permit should be released. Exploration permit holders must release a portion of the land covered by the permit 300 days after the term of the permit has elapsed. The area of land to be released currently stands at 50 per cent. of the exploration area over 2,000 hectares. The remaining area must be relinquished 700 days after the permit has lapsed. The holder may determine which areas are to be released; however, if the holder does not, the mining authority may do so. Exploration permits grant the holder exclusive exploration rights. Discoveries made by third parties in areas covered by exploration permits are the property of the permit holder rather than the party making the discovery. A request for an exploration permit is required to be published in a gazette or newspaper as indicated by the relevant provincial mining authority. Third parties have the right to oppose the granting of an exploration permit within a 20 day period from the publication of the request. Once minerals are discovered, a statement of discovery must be led with the provincial mining authority and published three times during a period of 15 days in the gazette or newspaper as indicated by the relevant provincial mining authority. Third parties have a period of 60 days from the date of the publication of the statement of discovery to oppose the claim if they believe they have a right over such discovery. Once 60 days have passed from the publication of the statement of discovery, no further claim from a third party may be submitted. At the time that the statement of discovery is led with the provincial mining authority, an approved survey, environmental impact assessment and environmental management plan will need to be submitted and the statement of discovery is then consolidated into one unit comprising the mining concession. A one-off exploration permit fee, or canon, of 400 pesos per 500 hectares (or fraction thereof) is payable to the provincial authorities upon application for the exploration concession. Mining Concessions Mining concessions may be granted for the mining and processing of any minerals (other than uranium and thorium, which are governed by separate regulations) within the concession. The existence of an exploration permit is not a condition to the granting of a mining concession, and mining concessions can be granted to protect a discovery made within an exploration permit held by the discoverer or on free land. As with exploration permits, concessions are granted on the basis of pertenencias, which vary in size and number depending on the type of mineral. Mining concessions also grant the holder the right to request rights of way over the surface land in question from the relevant mining authority, in order to enable the concession holder to commence development of the project. Concession holders may also apply to the courts for a 87

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judgment requiring the owner of the surface land to sell the land covered by the concession to the concession holder. Under Argentinian Law, mining concessions are real property, which can be transferred freely and can also be pledged. Requirements and obligations of concession holders (A) Requirements Concession holders are not required to be domiciled in Argentina. (B) Obligations Concessions are granted for unlimited periods of time, subject to the following conditions: (a) the payment twice a year of a mining fee or canon of 80 pesos per unit, or pertenencia; and (b) the ling of a minimum investment plan and compliance with a one-off minimum investment in the concession equal to 300 times the relevant canon over a ve year period. Of the gure set out in the minimum investment plan for investment over ve years, 20 per cent. must be invested in the rst two years. Failure to comply with these conditions may result in the termination of the concession. There are no production target obligations on the holders of a mining concession. Termination of concessions A mining concession may only be terminated by the mining authority for: ) failure by the concession holder to pay the mining fee. If the mining fee is not paid within two months of the end of the calendar year in which the mining fee is due, the mine to which the concession relates may be declared vacant. However, a concession holder may redeem the concession by paying the mining authority the outstanding mining fee plus an additional 20 per cent. within 45 days of receiving the notice declaring the mine vacant due to lack of payment; or ) failure to comply with the minimum investment plan. Environmental Legislation The Mining Code species certain environmental obligations with which exploration permit and mining concession holders must comply. In respect of each permit and each concession, the Mining Code requires the holder to le, with the relevant provincial authorities, an environmental report which must set out the environmental protection measures the holder will adopt at each stage of development. No exploration or mining activity can be carried out without the approval of the relevant provincial authority of the environmental impact report (the contents of which are regulated by the Mining Code and relevant provincial legislation). Mining activities are also governed by other national and provincial laws and regulations, the most important of which are the General Environment Act N 25,675 and the Hazardous Wastes Act N 24,051, which apply to all industrial activities and not only to mining activities. Both statutes provide for a wide range of penalties for violation of their provisions, ranging from nes to imprisonment. The Mining Investment Regime The Mining Investment Law N 24,196 came into force on 2 June 1993 and, as modied by Law N 25,429, provides certain benets of which mining companies may take advantage. This law enables companies to benet from, amongst other things, scal stability, whereby the tax regime applicable to the company is effectively frozen for a certain period of time. 88

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Companies must le an acceptable feasibility study for a particular mining project with the Investment and Regulations department of the National Mining Secretariat to be entitled to scal stability. The feasibility study must be prepared in accordance with the guidelines of the Mining Investment Act. The stability is granted at the date the feasibility study is led. The benets of the Mining Investment Regime include exemption from payment of import duties over capital assets, a maximum royalty xed at 3 per cent. of pit-head value per year and a guarantee of tax stability. The guarantee of tax stability freezes the tax regime which applies to the relevant entity as at the date of the guarantee for a period of 30 years. The tax regime includes the foreign exchange regime, and is determined at the national, provincial and municipal levels, as appropriate. From 11 December 2001 when Decree N 1638/2001 was issued, the general rule has been that proceeds received from exports in foreign currencies must be sold to the Argentinian Central Bank in exchange for local currency. However, National Executive Branch Decree N 753/2004 provides that mining companies which have been granted the guarantee of tax stability are exempt from these provisions. The Hochschild Mining Group has been granted two tax stability certicates in relation to provincial and national taxes each dated 21 November 2005 in respect of the San Jose development project. The stability certicates each run for a 30 year period commencing on 20 June 2006 in respect of provincial taxes and 15 May 2006 in respect of national taxes. Provincial Royalties Laws As legal owners of the mineral resources, provinces are entitled to request royalties from mine operators. Regulations vary from province to province. In Santa Cruz, where the San Jose project is located, the royalty is xed at a maximum of 3 per cent. of the pit-head value per year payable monthly.

Sources: (a) US Department of State, Bureau of Western Hemisphere Affairs, September 2006: Prole on Argentina (b) British Broadcasting Corporation News article entitled: Argentine President Resigns (21 December 2001) (c) British Broadcasting Corporation News Prole: Fernando De La Rua; Country Prole: Argentina (d) The World Fact Book prepared by the C.I.A., September 2006: Prole on Argentina (e) Energy Information Administration (Ofcial Energy Statistics from the US Government), January 2005: Country Analysis Brief on Argentina

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Part V: Market and industry overview

The following information relating to the silver and gold markets and industry overview has been provided for background purposes only. The information has been extracted from the sources specied at the end of the respective silver and gold markets and industry overview sections. The information has been accurately reproduced and, as far as the Company is aware and is able to ascertain from information published by such sources, no facts have been omitted which would render the reproduced information inaccurate or misleading.

PRA1 6.2

PRA1 23.2 PRA3 10.4

(A) Silver Market and Industry Overview

1. Background Silver is a precious metal and, as such, is widely used in the manufacture of jewellery and decorative objects. The majority of the worlds silver supply is, however, used for a variety of industrial purposes. The third principal source of demand for silver is where it is acquired as an investment. Demand in the jewellery and silverware sectors represented about one third of total silver consumption in 2005. India is a key market in this respect as jewellery is viewed as a traditional store of wealth with items being bought more for their intrinsic worth than as an adornment. Much Indian jewellery could arguably therefore be counted as an investment holding. Another historic use of silver is coinage, although this represented only 4 per cent. of silver consumption in 2005. Silvers sensitivity to light enables its use in photography. In recent years, digital technology has rapidly gained market share from silver-halide technology in the taking of pictures, although photography still represented 18 per cent. of silver demand in 2005. Silvers electrical and thermal conductivities have made it widely used in electronic and electrical applications where 20 per cent. of silver was consumed in 2005. It also has various other industrial uses. Silver is used as a catalyst in the production of ethylene oxide (in the petrochemical industry) and formaldehyde (for making plastics). Silver brazing alloys are used to join materials because of silvers strength, and silver oxide is used in batteries, particularly in button cells, because of the power-to-weight benets. Its reectivity makes it popular in mirrors and coatings to glass, and it is used in dentistry and solar energy. These other industrial uses of silver accounted for the remaining 25 per cent. of silver consumption in 2005. There are also many emerging uses for silver, which in some cases have yet to be taken up on a signicant scale. For example, silver is now widely known for its anti-bacterial properties and its role is also increasing in the manufacture of superconductors. Silver production comes from two principal sources, mine supply and scrap supply. Mine supply constituted approximately 78 per cent. of production in 2005. The following dominate the worlds supply of mined silver: Peru, Mexico, Australia, China, CIS (mainly Russia), Chile, the United States, the former Eastern Europe (mainly Poland) and Canada each produced more than 1,000 tonnes (32.1 million ounces) of silver in 2005 and together accounted for 89 per cent. of total world mine supply. Silver is mainly mined as a by-product to zinc/lead, copper or gold mining, with only approximately 30 per cent. of silver produced at mines where it was the single most valuable element in 2005. This effectively means that the majority of the worlds silver production is not directly geared to demand for, or the price of, silver. Scrap silver constituted about 22 per cent. of silver production in 2005. The main source of silvercontaining scrap is ordinarily the photographic industry. Scrap ow arises when lms are processed. Almost all the silver contained in colour lm and paper, and up to 80 per cent. in the 90

Part VMarket and industry overview

case of black and white lm and paper is transferred to the xing solution from which it can be recovered. Re-melting of old jewellery, silverware items and coins is a further source of scrap supply, although this source is more inuenced by the silver price than photographic scrap supply. A further source of silver supply is sales by central banks of silver stocks. These peaked in 2003 at approximately 2,500 tonnes, but have since declined to around three-quarters of that amount in 2005. 2. Demand Global silver demand peaked at 906 million ounces in 2000. That year had already seen the start of the decline in silvers use in the photographic industry due to the rapid growth of digital photography, but it also saw a sharp increase in demand from the electrical and electronics sectors. The subsequent de-stocking in the photographic industry, coupled with the continued erosion of silvers use in photography, were the primary factors for the reduction in demand to 836 million ounces by 2002. Demand from the electrical and electronics sectors began to pick up signicantly in 2004, but this was offset by a marked fall in jewellery demand. Despite the increase in other industrial uses, the continued reduction in silvers use in photography meant that at 869 million ounces, total demand in 2005 was still 37 million ounces less than its peak in 2000. 3. Supply Unlike demand, annual silver supplies (mine and scrap production) have increased by around 100 million ounces since 2000 to 862 million ounces in 2005. As scrap recycling only accounted for 6 million ounces of the increase over this period, the primary reason for the increase is the expansion in mine supply. This increase has been concentrated in a small number of countries, namely Peru, CIS and China (production in each of which increased by approximately 24 million ounces over the period), Mexico (which increased production by 19 million ounces) and Australia (which increased production by 15 million ounces). Against these increases, output in the United States fell by 18 million ounces. 4. Pricing and costs Silver is traded on the London Bullion Market, COMEX, the Chicago Board Of Trade, and the Tokyo Commodity Exchange, which each establishes daily prices. Companies that mine silver earn revenue from the silver contained in concentrates or dore that is determined by the price of silver and the processing charges levied by smelters and/or reneries. These charges vary depending on which base metal concentrate contains the silver. Silver in lead concentrate is relatively easy to remove and so lead smelters will pay for a high percentage of the contained silver, less the standard deduction for rening charges. Conversely, recovery from zinc concentrates is much more difcult and the smelter will pay for a much lower percentage of the contained silver. For this reason, smelters pay miners for a greater proportion of the value of the silver content of a lead concentrate than for a zinc concentrate, and so the mining companies will, where technically achievable, endeavour to recover silver with the lead. Silver in copper concentrates is mainly smelted with the copper metal and is recovered from the renery cellhouse residues or slimes; efciency of recovery is again better than from zinc concentrates. 5. Markets and outlook The silver price averaged $10.99 per ounce in the rst half of 2006 (London spot average x), compared with a low of $4.37 per ounce in 2001 in nominal terms. Silver prices started to increase in 2003, which coincided with a signicant increase in mine supply that pushed the market into a much reduced physical decit (i.e. excluding investment volumes) whereby demand has exceeded supply in 2004 and 2005. Investment demand, however, continued to drive the increase in the silver price. 91

Part VMarket and industry overview

Investor interest has contributed to the rally in the silver price in 2006 which was also helped by the surge in interest from investment funds in commodities in general. Much of the silver price gain over the rst four months of 2006 has been attributed to positioning in the market for the launch of the rst silver exchange traded fund (ETF) in the United States which was nally launched at the end of April. There was a sell-off of silver in the days prior to the ETF launch. However, the silver price recovered these losses and went on to reach a 25 year high of just above $15 per ounce in mid-May. Looking forward, mine supply is forecast to increase over the next few years, with Latin America being the primary source of growth. Scrap supply is similarly forecast to increase. On the demand side, commercial demand is expected to show moderate growth driven principally by the requirements of the electronics and electrical industries, off-set partially by declining demand from the photographic industry. Overall, the silver market is expected to be in a physical surplus over the next three years and the level of investment demand would, in these circumstances, be a key determinant of the silver price.

Sources: (a) The Silver Institute: article entitled Demand and Supply in 2005 (b) The Silver Institute: Silver News: Silver Market Shines in 2005Silver Fabrication and Investment Demand Sharply Up (24 May 2006); Silver Price in 2005 Continues to Rise (21 November 2005) (c) CRU International Limited Precious Metals Quarterly 2Q 2006 on Silver (d) 321 Gold: article entitled Whats Next for Silver? (Doug Casey, 22 August 2006) (e) World Silver Survey 2005 (f) World Silver Survey 2006: A Summary produced for The Silver Institute by GFMS Limited (g) US Department of the Interior: US Geological Survey Circular 1196-N: Silver Recycling in the United States in 2000 (Henry E Hilliard, 2003) (h) International Financial Services, LondonNewsletters: January 2005 Bullion Markets: City Business Series and July 2006 Commodities Trading: City Business Series (i) London Bullion Market Association: 2006 London Silver Fixings price data (3 January 20063 August 2006); 2005 Monthly High, Low and Average statistics; 2006 Monthly Silver Averages; Silver Forecast for 2006 (Dr P Richardson, Deutsche Bank AG, Melbourne); Good Delivery Rules for Gold and Silver Bars (April 2004); Facts about the London Bullion Market: The London Gold & Silver Fixings (j) American Metal Market: Silver recovery protable (Christopher Munford, 19 December 1990) (k) Mining MX: Silver Price Growth Hinges on Investment (Allan Seccombe, 17 August 2006)

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Part VMarket and industry overview

(B) Gold Market and Industry Overview
1. Background The gold price was set at $35 per ounce on 31 January 1934 by US President Franklin Roosevelt, a level at which the US Treasury stood ready to buy all gold offered and sell to approved central banks. This price benchmark was defended until March 1968, when this gold pool-backed pricexing system (gold pool central banksUnited States, UK, Belgium, France, Italy, the Netherlands, Switzerland and Germany) nally collapsed. A short-lived two-tier market was maintained until 1971, when the US Federal Reserve closed its gold window, no longer standing ready to provide gold to central banks at $35 per ounce. Since that time gold has been left to nd an equilibrium price level in market trading. This, at times, has resulted in signicant uctuations in the gold price. From its former xed $35 per ounce price levels, the price rose to a high of $851 per ounce on 21 January 1980. This price still remains golds record price level (in nominal terms). This record price rise was the culmination of a bull run on gold driven by such factors as the levels of ination in developed economies and the oil price shocks in the 1970s. Investors rushed to buy gold, reecting its then perceived role as a store of value in times of crisis. Since its 1980 peak, the gold price gradually declined to mid-1999 lows below $260 per ounce, losing more than two-thirds of its value in nominal terms. Underpinning this decline in price was the development of more sophisticated investment market products (as an alternative to gold), higher gold mine production and an increasing willingness of central banks to mobilise (lending and selling) their gold holdings. As a result of golds past monetary role, its market fundamentals do not play a large part in the longer-term price direction. At the end of 2005, in excess of 30,000 tonnes of the metal were held by central banks and other ofcial institutions around the world. This represents around 10 years worth of fabrication demand. The basic gold market balance (fabrication less mine supply) has been in decit for many years and has been brought into balance by disinvestment. This disinvestment is from central banks and selling back of coins, bars and jewellery. Physical buying in the gold market provides some demand, but it is investment demand that is key to the gold price. Gold maintains a role as an alternative asset as it tends to be inversely correlated to the US dollar providing portfolio diversication for investors. Historically when the US dollar is weak gold prices are typically higher (as it makes gold cheaper to purchase in other currencies). The strong growth in investment demand for gold in recent years has resulted in the relationship with the US dollar breaking down at times. This was seen at the end of the 1990s with the speculation surrounding central bank gold mobilisation. The change in attitude to commodities in general has contributed to golds rising price. The development of the gold ETF in the Australian, UK, South African and US markets has helped to broaden the access to gold for the average retail investor as well as the high net worth individual, neither of whom want to incur the storage and insurance costs associated with a physical gold holding, but do want a gold asset in physical form which is easily bought and sold. So the ETF has opened up a new avenue for gold investmentphysical investment traded on a stock exchange. There has been some prot-taking selling, but generally holdings are showing a gradual increase over time, an indication that investors in the product are not engaged merely in short term speculation, but are looking for a longer-term investment. 2. Demand Gold is fabricated for various markets such as jewellery, electronics, dentistry, industrial, decorative applications, medals and coins /bars. Jewellery is by far the most important market, taking around 87 per cent. of production in 2005. As for silver, gold jewellery has a dual purpose 93

Part VMarket and industry overview

in many marketsthat of adornment but also as an investment. This makes assessing the level of gold investment in the market a difcult task. Total gold fabrication fell to around 3,144 tonnes in 2005 from a high of 3,870 tonnes in 1997. India is currently the worlds largest consumer of gold jewellery in volume terms (in 2005 comprising around 518 tonnes), whilst the United States was the largest market in terms of value in 2005 (but only around 351 tonnes was consumed). Industry and medical uses (particularly dentistry) are another important source of consumption, accounting for around 420 tonnes in 2005, approximately 13 per cent. of demand. The electronics industry, where gold is used due to its high thermal and electrical conductivity, and its resistance to corrosion, consumed around 273 tonnes in 2005, approximately 9 per cent. of demand. Gold is also used in gold plating, coatings and gold thread. As mentioned above, investment demand is difcult to assess mainly due to the lack of information regarding investment strategies of individuals, funds and institutions. The ETFs quoted on stock exchanges around the world now provide some solid data on investment levels. Holdings through ETFs were at 365 tonnes at the end of 2005, and grew by the end of June 2006 to reach 512 tonnes. Other forms of retail investment that can be tracked are coinsboth ofcial and medals /imitation coinsand bars. During 2005 approximately 600 tonnes was taken up in identiable investment products, a 26 per cent. increase on the 2004 levels. 3. Supply Gold mine output is just one of the components of gold supplies to the market, but it is by far the largest comprising 65 per cent. in 2005. Other sources are from central bank sales (17 per cent.), scrap (22 per cent.), and producer hedging activity (4 per cent.). Gold mine production fell below 2,500 tonnes for the rst time in eight years in 2004. The fall in production in 2004 was largely due to lower production in Indonesia and continuing falls in South African, Canadian and US production. Production levels are expected to recover to 2,600 tonnes in 2006 and continue to show moderate growth in the short to medium term. Old gold scrap supply is the second largest source of supply to the gold market. Recycling can take on various routes, depending on the grade and the form of the scrap. The largest source of scrap is carat jewellery, which can be reclaimed either by being sent to a rener or by being used directly in the production of new articles by fabricators. Other sources of scrap include electronic scrap and coins. Scrap recovery uctuates widely with conditions in the gold market. One of the major factors that inuence scrap supply is the local gold price, and recent price increases have generated increased ows of scrap. Central bank sales have become a necessary requirement for gold market liquidity in recent years. Approximately 30,700 tonnes were held by central banks and other ofcial institutions such as the IMF (International Monetary Fund) and the BIS (Bank of International Settlements) during the rst half of 2006. In the 1990s, central banks took a more active approach to managing their gold reserves, undertaking both sales and lending. For example, the Bank of England established arrangements to sell off 400 tonnes via a series of bi-monthly auctions and the Swiss central bank put in place plans to sell 1300 tonnes. The sales (or threat of sales) by central banks put downward pressure on the gold price. These market conditions in part led to the Central Bank Gold Agreement (CBGA) being signed in 1999 by 14 European central banks and the ECB. Under the CBGA, the relevant central banks agreed that annual sales would be limited to 400 tonnes from the end of September 1999 for 5 years, as well as limiting the gold lending to the market to no more than the level at the time of the announcement. Over the ve year term of the agreement, the UK sold 348 tonnes, the Netherlands 235 tonnes, Austria 91 tonnes, Switzerland 1,166 tonnes, Germany 35 tonnes, and Portugal 125 tonnes. The second CBGA was announced in March 2004 ahead of the end of the CBGA. The annual limit was increased to 500 tonnes for the ve-year period from end September 2004. 94

Part VMarket and industry overview

Faced with the uncertain and declining outlook for the gold price, gold producers sold forward gold at an escalating rate over the latter half of the 1990s. From 1997 to 1999 more than 1,000 tonnes of gold was added to the market through producer hedging activity. Increasing gold prices left some producers facing a loss and diminished the need for producers to seek hedging protection. Since 2000, producer hedging has declined and around 1,500 tonnes have been bought back by producers. 4. Pricing and costs London is the worlds largest gold trading market with trading conducted via an OTC-type format in 400-ounce gold bars with a purity of 9950 or higher. The gold price is xed twice daily in London (at 10:30 and 15:00) by prices derived from the ve xing members of the London Bullion Market, which together represent a comprehensive global sales network. The xing membersall of whom are market making members of the LBMAare the Bank of Nova ScotiaScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA, NA and Societe Generale. These price xings are used as a key indicator for gold market participants around the world. Leading futures markets are COMEX in New York, and TOCOM in Tokyo. 5. Markets and outlook Gold traded to a 26-year high of $725 per ounce in mid-May 2006, before falling back to around $560 per ounce inuenced by institutions divesting commodities and since recovering to $599 as of 29 September 2006. There are a number of factors which appear supportive of future gold demand. These include investment demand for gold as a safe haven driven by the renewed weakness in the US dollar relating to the US scal and current account decits and concerns over the rising oil prices fuelling ination. On the supply side, scrap production, like mine production, is forecast to increase moderately in the short to medium term with the market remaining in physical surplus and with increases in mine production expected to come from Latin America, Australia and the United States. In terms of supply from central bank sales, the largest holders are covered by the specied limits in the second CBGA.

Sources: (a) 321 Gold: Global WatchThe Gold Forecaster: The Indian Gold Market 2004/2005 (Julian DW Philips, 26 September 2005) (b) London Bullion Market Association 2006 London Gold Fixings price data (3 January 200623 August 2006); Monthly High, Low and Average statistics (2005); Good Delivery Rules for Gold and Silver Bars (April 2004); Facts about the London Bullion Market: The London Gold & Silver Fixings (c) World Gold Council: paper entitled Central Bank Gold ReservesA historical perspective since 1845 (Timothy Green, November 1999); Research Study No. 32 Short-run and Long-run Determinants of the Price of Gold (E J Levin & R E Wright, June 2006); articles entitled Gold and the International Monetary Systema Chronology, How to Buy Gold: Exchange Traded Gold, Investment in Gold, Current Use of Gold, Recycled Gold, Central Banks and Ofcial Institutions, Ofcial Agreements on Gold (13 April 2006); Gold Supply and Demand StatisticQ1 2006; News Release Slow-down expected in short-term forward gold sales... long-term growth to continue (12 May 1998); Press Release Record Demand for Gold in 2005 (22 February 2006); article entitled Factors Affecting Gold (N Head, 10 March 2005) (d) HM Treasury: Review of the sale of part of the UK gold reserves (October 2002) (e) AME InfoMiddle East Finance and Economy: article entitled Gold starts 2006 well, but this is not a 25-year high! (14 January 2006) (f) CRU International Limited Precious Metals Quarterly 2Q 2006 on Gold (g) Paul van Eeden: article entitled Understanding the Gold Price (h) US Department of the Interior: US Geological Survey Circular 1196-A: Gold Recycling in the United States in 1998 (Earle B Amey, 2001) (i) Bank of England: The United Kingdoms Ofcial Reserves of Foreign Currency and Gold (j) Reuters: article entitled Gold Jumps 2.4 percent on weaker dollar, rm oil (21 August 2006) (k) GFMS: Gold Survey 2006 (Philip Klapwijk, 12 April 2006) (l) Au: Annual Average Gold Price (Earle B Amey)

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Part VI: Selected nancial and operating information

PRA1 3.1

The tables below set out selected nancial and operating information of the Hochschild Mining Group as at and for the years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2005 and 2006, in each case prepared in accordance with IFRS for the purposes of presenting the nancial information on a combined basis, in respect of certain matters explain in Section B of Part IX: IFRS Historical Information. The selected nancial and operating information of the Hochschild Mining Group as at and for the years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006 has been audited whilst the selected nancial and operating information of the Hochschild Mining Group as at and for the months ended 30 June 2005 is unaudited. See Part IX: IFRS Historical Financial Information. The Hochschild Mining Group has not in the past formed a separate legal group. The Company was incorporated on 11 April 2006 and acquired its shareholding in the companies constituting the Hochschild Mining Group (other than the Company) pursuant to a share exchange arrangement dated 2 November 2006. The combined historical nancial information has been prepared on a basis that combines the results and assets and liabilities of the companies comprising the Hochschild Mining Group. Internal transactions within the Hochschild Mining Group have been eliminated on combination. Other than gold and silver produced, which has been extracted without material adjustment from the Technical Report in Part XV, this information has been extracted without material adjustment from Part IX: IFRS Historical Financial Information and has been prepared on the basis described in the footnotes to the combined historical nancial information of the Hochschild Mining Group in Part IX, except for the EBITDA and cash costs information, which have each been calculated as set forth in this Part VI. Investors should read the whole of this Prospectus and not rely solely on summarised information.

PRA1 9.1

96

Part VISelected nancial and operating information

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Income statement data: Continuing operations Revenue ************************************************ Cost of sales ******************************************** Gross prot ********************************************* Administrative expenses ********************************* Exploration expenses ************************************ Gain on sale of zinc project ****************************** Selling expenses ***************************************** Other income ******************************************* Other expenses****************************************** Prot from continuing operations before net nance costs and income tax *************************************** Finance income****************************************** Finance costs ******************************************** Foreign exchange gain/(loss) ***************************** Prot from continuing operations before income tax ****** Income tax expense************************************** Prot for the year/period from continuing operations ***** Discontinued operations (Loss)/prot for the year/period from discontinued operations ******************************************** Prot for the year/period ******************************** Attributable to: Equity shareholders of the Company********************** Minority interest **************************************** Earnings per share for prot attributable to the equity shareholders of the Company during the year (expressed in US$ per share)(1) Basic and diluted **************************************** Cash ow data: Net cash generated from operating activities ************** Net cash (used in)/generated from investing activities ****** Cash ows generated from/(used in) nancing activities**** Net (decrease)/increase in cash and cash equivalents during the year/period**************************************** Other nancial and operating data: EBITDA ************************************************* Total cash costs****************************************** Cash and cash equivalents********************************

93,771 (41,514) 52,257 (16,472) (11,822) (1,794) 5,457 (2,936) 24,690 326 (4,977) 579 20,618 (9,108) 11,510

159,052 (82,292) 76,760 (22,997) (23,063) (3,880) 7,081 (7,395) 26,506 1,296 (6,702) 299 21,399 (11,453) 9,946

151,319 (73,592) 77,727 (24,371) (28,057) 14,558 (3,161) 13,016 (2,821) 46,891 4,144 (10,105) (552) 40,378 (9,673) 30,705

65,779 (30,805) 34,974 (10,829) (18,657) 14,558 (1,338) 3,199 (1,280) 20,627 1,555 (4,463) 1,085 18,804 (5,966) 12,838

92,286 (33,705) 58,581 (15,814) (7,654) (1,366) 10,495 (4,636) 39,606 2,843 (5,121) (27) 37,301 (14,733) 22,568

(1,371) 10,139 11,900 (1,761) 10,139

(731) 9,215 13,500 (4,285) 9,215

12,179 42,884 46,737 (3,853) 42,884

9,395 22,233 27,744 (5,511) 22,233

22,568 24,198 (1,630) 22,568

0.05 7,830 (29,866) 21,278 (758) 46,518 33,576 4,242

0.06 3,426 (13,423) 11,388 1,391 71,182 72,445 5,633

0.20 11,431 (6,139) (8,458) (3,166) 70,845 66,990 2,467

0.12 1,048 1,086 (5,385) (3,251) 29,176 28,425 2,382

0.11 33,064 (12,175) (17,313) 3,576 55,587 30,006 6,043

Year ended 31 December 2003 2004 2005 US$(000)

Six month period ended 30 June 2006

Non-current assets *************************************************** Total assets ********************************************************** Borrowings (short- and long-term) ************************************ Other current liabilities ********************************************** Other non-current liabilities ****************************************** Total equity ********************************************************* Note:

101,343 165,082 76,722 27,285 58,842 2,233

103,860 194,527 109,852 32,218 47,715 (1,968)

106,703 231,501 100,882 39,542 44,234 46,843

94,473 229,716 84,698 98,807 39,730 6,481

(1) Based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission.

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Part VISelected nancial and operating information

EBITDA
The Hochschild Mining Group calculates EBITDA as prot from continuing operations before net nance costs and income tax plus depreciation (included in both cost of sales and administrative expenses), increase in provision for mine closure, exploration costs other than personnel and other, and non-recurring cash items included in other expenses, less gain on sale of zinc project and non-recurring cash items included in other income. The Company presents EBITDA because it believes that EBITDA is a useful measure for evaluating its ability to generate cash and its operating performance. EBITDA is not a measure of nancial performance under IFRS or US GAAP. Investors should not consider EBITDA in isolation, as an alternative to prot from continuing operations, as an indicator of operating performance, as an alternative to cash ows from operating activities or as a measure of the Companys protability or liquidity. EBITDA as presented in this Prospectus may not be comparable to other similarly titled measures of performance of other companies. The following table reconciles the Companys prot for the period to EBITDA.
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Prot from continuing operations before net nance costs and income tax ************************************************ 24,690 Plus: Depreciation ************************************************ 13,825 Increase in provision for mine closure ************************* 1,199 Exploration expenses (other than personnel and other) ******** 8,879 Non-recurring cash items included in other expenses Allowance SEAL/Electroperu ******************************** Impairment of Sipan assets held for sale ******************** Loss on sale of xed assets and assets classied as held for sale***************************************************** 28 Loss on sale of other assets********************************* Loss on sale of investments********************************* Loss on sale of MHC (subsidiary) **************************** Write off of xed assets *********************************** 184 Minus: Gain on sale of zinc project ********************************** Non-recurring cash items included in other income Income from mine concession ****************************** 2,148 Cancellation of service agreement ************************** Gain on sale of xed assets ******************************** Gain on sale of other assets ******************************** 139 Gain on sale of Corianta *********************************** Gain on spin-off of Sipan ********************************** Decrease in provision for mine closure ********************** EBITDA ***************************************************** 46,518

26,506 22,907 1,170 18,689 760 2,181 26 923 499 187 784 510 71,182

46,891 16,606 21,763 920 197 5 14,558 254 725 70,845

20,627 6,809 16,072 698 113 14,558 254 331 29,176

39,606 8,065 5,749 58 65 2,249 991 172 1,024 55,587

Total cash costs The Hochschild Mining Group calculates total cash costs to include cost of sales, commercial deductions and selling expenses, less depreciation included in cost of sales. Commercial deductions are the treatment charges for the processing of concentrate from Arcata and, while it was producing concentrate, Selene and penalty charges related to levels of impurities in the concentrate in excess of specied thresholds. These charges are deducted when the Hochschild Mining Group calculates the price it invoices its customer for the sale of concentrate and therefore the revenues received by the Hochschild Mining Group are shown net of these charges. See Part VII: Operating and Financial ReviewRevenues. Total cash costs and total cash costs per ounce are presented because the Company believes they provide a measure for comparing the 98

Part VISelected nancial and operating information

Hochschild Mining Groups operational performance against that of its peer group. In addition, management uses these measurements to compare the performance of the Hochschild Mining Groups operations period-to-period from a cash ow perspective, to monitor costs and to evaluate operating efciency. Total cash costs and total cash costs per ounce are not measures of nancial performance under IFRS or US GAAP. Investors should not consider total cash costs or total cash costs per ounce in isolation, as an alternative to prot from continuing operations, as an indicator of operating performance, as an alternative to cash ows from operating activities or as a measure of the Hochschild Mining Groups protability or liquidity. Total cash costs and total cash costs per ounce as presented in this Prospectus may not be comparable to other similarly titled measures of performance of other companies. The Hochschild Mining Group views itself as a precious metals company and its principal products are silver and gold. Accordingly, it calculates its cash costs per ounce on a by-product basis for both silver and gold, whereby the revenues it receives from sales of the other metal are credited against its total cash costs. It also calculates its cash costs per ounce on a co-product basis whereby the costs are allocated between silver and gold production based on the proportionate share of revenue generated by each metal. Management periodically assesses the relationship between its gold and silver production to ensure that its primary method of calculating total cash costs and cash costs per ounce remains appropriate. The following tables reconcile the Companys cost of sales from continuing operations to total cash costs and presents total cash costs per ounce on both a co-product and a by-product basis. Reconciliation of cost of sales to total cash costs
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Cost of sales from continuing operations ******************* Plus: Commercial deductions ************************************ Selling expenses ******************************************* Less: Depreciation included in cost of sales *********************** Total cash costs********************************************

41,514 2,170 1,794 (11,902) 33,576

82,292 6,944 3,880 (20,671) 72,445

73,592 4,842 3,161 (14,605) 66,990

30,805 2,030 1,338 (5,748) 28,425

33,705 1,810 1,366 (6,875) 30,006

Total cash costs per ounceby-product basis

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Total cash costs (US$000) ********************************** Silver sold (000 oz) **************************************** Total cash costs per ounce of silver (US$/oz) **************** By-product credits (US$000) ******************************** By-product credit per silver ounce (US$/oz) ****************** Total cash costs per ounce of silver after by-product credit (US$/oz) ************************************************

33,576 4,603 7.3 70,190 15.2 (8.0)

72,445 11,978 6.0 90,681 7.6 (1.5)

66,990 10,366 6.5 88,641 8.6 (2.1)

28,425 4,363 6.5 41,013 9.4 (2.9)

30,006 4,543 6.6 49,614 10.9 (4.3)

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Part VISelected nancial and operating information

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Total cash costs (US$000) ********************************** Gold sold (000 oz) ***************************************** Total cash costs per ounce of gold (US$/oz) ***************** By-product credits (US$000) ******************************** By-product credit per gold ounce (US$/oz)******************* Total cash costs per ounce of gold after by-product credit (US$/oz) ************************************************

33,576 200 168 19,969 100 68

72,445 246 294 66,445 270 24

66,990 231 290 62,209 269 21

28,425 110 258 24,645 224 34

30,006 103 291 42,513 413 (121)

Total cash costs per ounceco-product basis

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Total cash costs (US$000) ************************************ Credit from other minerals revenues ************************** Total cash costs net of other minerals credit (US$000) ********* Silver sold (000 oz) ****************************************** Gold sold (000 oz) ******************************************* Revenues from continuing operations (excluding services and other minerals) from silver (%) ***************************** Revenues from continuing operations (excluding services and other minerals) from gold (%)****************************** Total cash costs per ounce of silver (US$/oz) ****************** Total cash costs per ounce of gold (US$/oz) *******************

33,576 33,576 4,603 200 22.1 77.9 1.6 131

72,445 247 72,198 11,978 246 42.3 57.7 2.5 169

66,990 419 66,571 10,366 231 41.2 58.8 2.6 169

28,425 121 28,304 4,363 110 37.5 62.5 2.4 161

30,006 118 29,888 4,543 103 46.1 53.9 3.0 156

100

Part VII: Operating and nancial review

The following discussion of the nancial condition and results of operations of the Hochschild Mining Group should be read in conjunction with Part IX: IFRS Historical Financial Information and with the information relating to the business of the Hochschild Mining Group included elsewhere in this Prospectus. The discussion includes forward-looking statements that reect the current view of management and involve risks and uncertainties. The actual results of the Hochschild Mining Group could differ materially from those contained in any forward-looking statements as a result of factors discussed below and elsewhere in this document, particularly in Risk Factors. Investors should read the whole of this document and not rely just on summarised information.

Overview
General The Hochschild Mining Group is a leading precious metals company with a primary focus on the exploration, mining, processing and sale of silver and gold. The Group is the fourth largest primary silver producer globally and produces a signicant quantity of gold. The Hochschild Mining Group produced approximately 10.5 million ounces of silver and approximately 233 thousand ounces of gold in 2005 and approximately 5.5 million ounces of silver and approximately 103 thousand ounces of gold in the rst six months of 2006. The Hochschild Mining Group had revenues from continuing operations of US$151.3 million and EBITDA of US$70.8 million in 2005 and US$92.3 million and US$55.6 million in the rst six months of 2006. As of 30 June 2006 the Hochschild Mining Group reported total reserves of 3.9 million tonnes with an average grade of 372 g/t of silver and 4.98 g/t of gold. The Hochschild Mining Group has three operating mines (Ares, Arcata and Selene) located in Southern Peru which are supported by fully developed infrastructure. The Hochschild Mining Group also has a portfolio of projects located across Peru, Mexico and Argentina at various stages of development, several of which are expected to start production in 2007. The Hochschild Mining Group is the group of companies which previously comprised the mining division of the Hochschild Group. The Company was formed on 11 April 2006 and acquired the companies comprising the Hochschild Mining Group (other than the Company) pursuant to a share exchange agreement dated 2 November 2006. Factors affecting results of operations Commodity prices The Hochschild Mining Group generates its revenues from the sale of silver and gold. As a result, its revenues are directly related to the prices of these metals. Historically, the prices of silver and gold have uctuated widely and they are affected by numerous factors over which producers do not have control including international economic and political conditions, levels of supply and demand, the availability and costs of substitutes, inventory levels maintained by producers and others and actions of participants in the commodities markets. See Risk FactorsThe Hochschild Mining Groups nancial performance is highly dependent upon the price of silver and gold. Price variations and market cycles have historically inuenced the nancial results of the Hochschild Mining Group and the Directors expect they will continue to do so. Currently, the Hochschild Mining Group has a number of forward sales contracts in relation to the gold rened from its dore which it has entered into as part of the security package for a syndicated loan, the last of which will expire in June 2007. The Hochschild Mining Group also has a limited number of other forward sale and option arrangements in relation to the silver produced from its dore which are due to expire in December 2006. Going forward, the Hochschild Mining 101
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Part VIIOperating and nancial review

Group does not intend to hedge its silver and gold production unless it is required to do so as part of any project nancing arrangements. It intends to equity nance its projects unless, in the context of a joint venture, the joint venture partner requires project nance to be put in place. See Disclosures About Market RiskCommodity Price risk. The volatility of silver and gold prices is illustrated in the following graphs, which show the London Bullion Market Association spot xing price of silver and the London Bullion Market Association PM spot xing price of gold in US dollars for the past 10 calendar years and for the six months ended 30 June 2006: Price of Silver (US Cents /Ounce)
1,600

1,400

1,200

1,000

800

600

400

200 Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06 Jun-06

Source: London Bullion Market Association

Price of Gold (US$/Troy OunceP.M. OFFICIAL)

800

700

600

500

400

300

200 Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06 Jun-06

Source: Datastream

On 18 October 2006, the London Bullion Market Association spot xing price of silver was US$11.76 per ounce and the London Bullion Market Association PM spot xing price of gold was US$594 per ounce. For a discussion of recent market conditions for the silver and gold market, see Part V: Market and Industry Overview. Production costs and efciency As the Hochschild Mining Group, in common with its competitors, is unable to inuence market commodity prices directly, its competitiveness and long-term protability are, to a signicant 102

Part VIIOperating and nancial review

degree, dependent on its ability to maintain low-cost and efcient operations. The principal costs associated with the Hochschild Mining Groups mining and metal production are contractor costs, materials and salaries and related employment costs. The largest portion of the Hochschild Mining Groups production costs is contractor costs. The Hochschild Mining Group engages contractors to conduct its mining operations in Peru as well as certain of its exploration and development activities in Peru and Mexico. The Hochschild Mining Group uses contractors differently at its various operations and they may undertake a range of tasks. For example, at Selene, a higher proportion of the mining is mechanised and at the various operations the degree of mechanisation may vary across stopes depending on the geological conditions. In addition, the payment arrangements can differ between different contractors performing similar activities and different contractors may be responsible for supplying different types or amounts of materials. Moreover, the arrangements with contractors can be subject to renegotiation and adjustment, even during the term of a contract, to accommodate changes in operating conditions or economic conditions. See Exchange Rates below. Accordingly, it can be difcult to compare the cost of contractors across nancial periods and across different operations. For a description of the key terms of the Hochschild Mining Groups current arrangements with its contractors, see Part I: Information on Hochschild MiningEmployees and employee relations. The Hochschild Mining Group intends to use contractors to conduct operations at San Jose as and when the project becomes operational. Other signicant costs include energy (principally electricity), reagents, timber and salaries and related employment costs. The Directors believe that the Hochschild Mining Group is among the lowest cost producers of silver. The Hochschild Mining Groups total cash costs per ounce of silver, calculated on a coproduct basis, were US$2.6 in 2005 and US$3.0 in the rst six months of 2006, which puts it in the rst quartile of the cost curve. Key factors driving this low cost base include the relatively high grade of the ore at the Hochschild Mining Groups operations, the Hochschild Mining Groups experience, developed over many years, with underground mining and challenging geology, which management believes enables the Hochschild Mining Group to achieve high efciency in extracting and processing the ore, and generally lower labour costs in Peru than in many other silver producing countries. Replacement of reserves and resources The geological characteristics of the Groups operating mines mean that it is difcult to establish reserves without signicant investment in underground development. Because surface drilling seldom identies mineralised material with sufcient denition to be characterised as resources or reserves, the denition of resources and reserves is primarily dependent on mine developments planned specically to upgrade the resource and reserve base, in conjunction with an extensive programme of underground drilling. This reliance on underground development to provide data on vein continuity and grade at a level of condence appropriate for reserve and resource denition means that the resource and reserve base is limited by the extent to which underground developments are prepared in advance of operations. Consequently, the Groups strategy to date has been to maximise the cash ow from its operations rather than extend the lives of its operating mines. Going forward, the Hochschild Mining Group intends to invest greater amounts in dening reserves and resources further in advance of preparing for mining operations than it has done historically. The Hochschild Mining Group calculates depreciation and amortisation of its assets related to mine production, including capitalised development costs, using the units of production method. Similarly, the Hochschild Mining Group uses the expected lives of its mines based on its reported reserves and resources when determining the time frame over which the discount rate is applied in calculating the current value of its provision for mine closure. Because its current operations 103

Part VIIOperating and nancial review

have comparatively small reserve and resource bases, and therefore shorter expected lives of mine, the Hochschild Mining Group is currently able to depreciate and amortise these assets over a shorter time frame than companies whose mines have longer expected lives. This approach results in a relatively higher depreciation charge in early years, as capital costs are depreciated over an initially short life. When the mine life is extended, the remaining capital costs will be depreciated over the revised life, resulting in a reduced depreciation charge. The Hochschild Mining Group characterises its exploration expenses based on where the exploration occurs. In addition to its operating units, the Hochschild Mining Group has two advanced development projects: one in Argentina (San Jose) and one in Peru (Pallancata), and two early stage development projects in Mexico (Mina Moris and San Felipe). The Group also has more than 20 long-term prospects throughout Latin America, the most advanced of which are San Luis del Cordero (Mexico), Sierra de las Minas (Argentina) and San Martn (Peru). Exploration expenses incurred at the operating units are characterised as mine site exploration, those at the development projects are characterised as prospects and those at the long-term prospects are characterised as generative. Expenses that are not attributable to a specic exploration location, such as expenses relating to personnel based at the Hochschild Mining Groups headquarters in Lima, are separately presented as personnel and other. The geological work done at some of the Hochschild Mining Groups principal development projects indicates the grades of gold and silver may, on average, be lower than those the Hochschild Mining Group is currently achieving at its operating mines. In addition, based on the geological work done to date, the grades of silver and gold at Ares are expected to decrease over time. Lower average grades of silver and gold, whether from its existing mines or new projects that come into production, may adversely affect the Hochschild Mining Groups revenues or margins. If the grade is lower, comparable amounts of ore mined and processed will produce lower amounts of gold and silver, which will reduce revenues unless there are offsetting increases in total amounts produced or in the prices for the metals, and will reduce margins absent increases in the prices for the metals or decreases in cost of sales. Exchange rates The Hochschild Mining Group produces silver and gold, which are commodities typically priced by reference to US dollars. The Hochschild Mining Groups biggest single expense is its payments to its contractors. The agreements with its contractors provide for payments in US dollars. However, because the contractors own costs are principally in Nuevos Soles, if there is signicant strengthening of the Nuevo Sol against the US dollar, the Hochschild Mining Group may agree to modications to the agreements with the aim of restoring the economic arrangements originally agreed. In addition, a portion of the Hochschild Mining Groups other costs are incurred in Nuevos Soles. In the six months ended 30 June 2006, approximately 63 per cent. of the Hochschild Mining Groups total cash costs were in US dollars while approximately 37 per cent. were in Nuevos Soles. In 2005 the numbers were approximately 70 per cent. and 30 per cent., respectively. In connection with the development of the San Jose and Moris projects the Hochschild Mining Group also incurs costs in Argentine Pesos and Mexican Pesos, respectively. Management expects that as and when those projects become operational, an increasing proportion of the Hochschild Mining Groups costs will be incurred in or otherwise exposed to those currencies. As a result, the Hochschild Mining Group may be materially affected by exchange rate uctuations between the US dollar and the Nuevo Sol and, to a lesser extent, the Argentine Peso and Mexican Peso. The functional currency of the Company and its current operating units is the US dollar as the majority of their operating and nancing activities are conducted in US dollars. The functional currency of each of the Hochschild Mining Groups subsidiaries that is engaged primarily in exploration activities and holds its development projects is the local currency of the jurisdiction where the projects are located, although as and when a project becomes operational, the 104

Part VIIOperating and nancial review

functional currency of its holding company may change to US dollars. On consolidation, income statements of subsidiaries for which the US dollar is not the functional currency are translated into US dollars at average rates of exchange for the relevant periods. Balance sheet items are translated into US dollars at period end exchange rates. See note 2(e) to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX: IFRS Historical Financial Information. The tables below set forth the average and period end exchange rates per US$1.00 used for the translation of Nuevo Sol amounts into US dollars for the purpose of inclusion in the nancial information set out in Part IX: IFRS Historical Financial Information as at and for the years ended 31 December 2003, 2004, and 2005 and as at and for the six months ended 30 June 2006.
% change from 2003 (5.2)% Period end % change from 2004 2005 4.6% 3.43 % change from 31 December 2005 (5.0)%

2003 Nuevo Sol ********************* 3.46

2004 3.28

30 June 2006 3.26

2003 Nuevo Sol ********************* 3.48

% change from 2003 (2.3)%

2004 3.40

Average % change from 2004 2005 (3.2)% 3.29

% change from 31 December 2005 0.9%

30 June 2006 3.32

The nominal exchange rate has varied little since 1999, despite periods of political uncertainty. A weak US dollar and record high levels of international reserves drove the strengthening of the Nuevo Sol against the US dollar in 2004 and 2005, leading the Central Bank to intervene on occasions to maintain export competitiveness. According to the Economist Intelligence Unit (the EIU), the Central Bank is expected to manage the oat of the Nuevo Sol in the 2006-2007 period, intervening when needed to smooth volatility, or to maintain the competitiveness of the exchange rate, in order to assist export performance and accumulate reserves. The EIU forecasts that upward pressure on the local currency is expected to continue in 2006-2007 in line with growth in export earnings and improved terms of trade. The EIU has forecast that the exchange rate will remain broadly stable in nominal terms at an average of approximately PEN3.27:US$1 in the 2006-2007 period. In Argentina, according to the EIU the ARS:US$ exchange rate averaged 2.90 in 2003, 2.92 in 2004, 2.90 in 2005 and 3.06 in the rst six months of 2006. The Argentine Government maintains a policy of intervening to maintain stability in the exchange rate against the US dollar. Were it not for ofcial intervention, the EIU believes that the Argentina Pesos nominal exchange rate would strengthen against the US dollar given the countrys surplus on its external accounts. The EIU has forecast that the nominal exchange rate will average ARS3.07:US$1 in 2006 and ARS3.15:US$1 in 2007. In Mexico, according to the EIU the MXN:US$ exchange rate averaged 10.8 in 2003, 11.3 in 2004, 10.9 in 2005 and 11.0 in the rst six months of 2006. Having weakened 11.3 per cent in 2003, the Mexican Peso underwent moderate further depreciation of 4.6 per cent against the US dollar in 2004 and moderate appreciation of 3.5 per cent against the US dollar in 2005. Notwithstanding high oil prices, strong inows of workers remittances and direct investment, and the prenancing of public external obligations falling due during 2006, which are expected to continue to support the Mexican Peso, the EIU expects the Mexican Peso to depreciate gradually in 2006 and 2007, as some of the factors supporting it, such as strong portfolio ows and high oil prices, may begin to reverse. By the end of 2007 the EIU forecasts an exchange rate of MXN11.43:US$1. Timing of sales The Hochschild Mining Group generally makes sales of its silver and gold concentrate production four or ve times per year and recognises revenue at the time of sale. See Combined Income 105

Part VIIOperating and nancial review

StatementRevenues. In some years, although it builds up a signicant amount of inventory by the end of the year, especially at Arcata and Selene, while it was producing concentrate rather than dore, it does not actually sell that inventory until the following year. Accordingly, the amount of the Hochschild Mining Groups revenue and cost of sales may vary from year to year as a result of the timing of its sales. For example, during 2003 Arcata produced 9,024 tonnes of concentrate, whilst only 5,595 tonnes were sold, and there was a nal inventory at Arcata of 4,152 tonnes of concentrate as at 31 December 2003. In 2004, 14,770 tonnes of concentrate were sold from Arcata, including 4,152 tonnes that had been produced in 2003. As a result of the method used for establishing the price for the Hochschild Mining Groups products, adjustments can be made to the amount of revenue recorded. See Consolidated Income StatementRevenues. At times, a sale is made in one nancial period but settled in another, resulting in revenue being recognised in the former period, but any adjustments being made in the latter. Income taxes and royalties The statutory income tax rate in Peru is 30 per cent., the same rate that was in effect during 2004 and 2005. For 2003, the statutory income tax rate was 27 per cent. The Groups weighted average statutory income tax rate (calculated as the average of the statutory tax rates applicable in the countries in which the Hochschild Mining Group operates, weighted by the prot/(loss) before tax of the subsidiaries in the respective countries as included in the combined historical nancial statements) was 32.4 per cent. for 2003, 27.9 per cent. for 2004, 23.0 per cent. for 2005 and 21.5 per cent. and 29.4 per cent. for the six month periods ended 30 June 2005 and 2006, respectively. See note 14 to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX. The Ares operating unit entered into a stability agreement with the Peruvian government for a 10-year period with effect from 1 January 1999 which xes the tax rate for Ares throughout that period at 30 per cent., the rate in effect at the time the agreement was entered into. Compana Minera Ares, the holding company of the Hochschild Mining Groups current operating units, is taxed on its consolidated taxable income, but in order to apply the tax stability agreement, the taxable income for the Ares operating unit is calculated separately. The Hochschild Mining Groups development projects in Peru, Argentina and Mexico do not currently generate taxable income. Starting in January 2005, and based on revenue generated starting in June 2004, owners of mining concessions in Peru became liable to pay a royalty for the exploitation of metallic and nonmetallic resources. Royalties are calculated as a percentage of revenues from which certain expenses (including selling expenses, transportation expenses and processing plant expenses) are deducted. Royalties are calculated on the basis of one per cent. of adjusted revenues up to US$60 million, two per cent. of adjusted revenues between US$60 million and US$120 million and three per cent. of adjusted revenues greater than US$120 million. The Directors believe that the stability agreement entered into by the Ares operating unit exempts the Hochschild Mining Group from paying royalties with respect to revenues generated at the Ares operating unit for so long as the stability agreement remains in effect. The Hochschild Mining Group paid royalties at the two per cent. level on a portion of its adjusted revenues in 2005. As and when the Hochschild Mining Group commences production at San Jose, it will have to make royalty payments to the government of Santa Cruz province in Argentina, where the project is located. The exact amount of royalties payable will be subject to negotiation but under current regulations the rate is xed at a maximum of 3 per cent. of the Pit Head Value per year, payable monthly. The Hochschild Mining Group has been granted two stability certicates in relation to provincial and national taxes each dated 21 November 2005 in respect of the San Jose development project. The stability certicates each run for a 30 year period commencing on 20 June 2006 in respect of provincial taxes and 15 May 2006 in respect of national taxes. See 106

Part VIIOperating and nancial review

Part IV: Information on Peru, Mexico and ArgentinaArgentinaSummary of Argentinas Mining LegislationThe Mining Investment Regime. Employee prot sharing Under Peruvian law, Peruvian companies are obliged to distribute a percentage of their taxable income (as calculated for purposes of computing income tax payable) to their employees. The rate for this prot sharing for mining companies is currently 8 per cent. Compana Minera Ares is subject to this requirement. Ination Ination in Peru has declined signicantly over the past decade, from 11.6 per cent. in 1996 to 1.6 per cent. in 2005 according to the International Monetary Fund. The Peruvian Central Bank has successfully pursued a formal ination-targeting regime since 2002, designed to keep ination at 2.5 per cent. plus or minus 1.0 percentage point. The EIU expects that the Peruvian Central Bank could raise interest rates if its ination target for 2006-07 were to be threatened, and estimates that ination for the 2006-07 period is on target. The EIU reports that in the rst half of 2006 pricing pressure increased, in particular in food and beverages, leading to increased ination over the period. Despite this, ination in Peru in the rst half of 2006 remained on target to stay within the Peruvian Central Banks target range of 2.5 per cent., plus or minus 1.0 percentage point. The EIU forecasts ination to be above 2.0 per cent in 2006. In Argentina, ination has fallen from 25.9 per cent. in 2002, following the Argentinian economic crisis, to 9.6 per cent. in 2005 according to the International Monetary Fund. The orientation of monetary policy to promote GDP growth and maintain a weak exchange rate has contributed to ination in recent years. Standard & Poors expects the ination rate in 2006 to remain at a similar level to that in 2005. Inationary pressures softened in the rst half of 2006, owing to government agreements with supermarkets and goods producers to halt price increases of staple goods, but price pressure is expected to persist. The EIU expects ination to remain relatively high in 2006, with prices rising by an average of 11 per cent. for the year as a whole. The Argentinian Central Banks ination target is 8 to 11 per cent. for 2006. In Mexico, ination measured by reference to the consumer price index was 5.0 per cent. in 2002, 4.5 per cent. in 2003, 4.7 per cent. in 2004 and 4.0 per cent. in 2005 according to the International Monetary Fund. Core ination, excluding more volatile food and energy prices, is targeted by the authorities to stay in its current range of 3.0 to 3.5 per cent. over the medium term. Inationary pressures eased in Mexico in the rst half of 2006, according to the Mexican Central Bank. Ination in the rst half of 2006 remained within the Mexican Central Banks target range of 3.0 to 3.5 per cent for 2006. Because a portion of the Hochschild Mining Groups costs are in Nuevos Soles or, in the case of the agreements with contractors, can be affected by changes in Nuevo Sol costs, a period of signicant ination in Peru could adversely affect the Hochschild Mining Groups results and nancial condition. However, since the Hochschild Mining Groups revenues from silver and gold sales are in US dollars, the extent to which the Nuevo Sol devalues against the US dollar will offset the impact of Peruvian ination. The Hochschild Mining Group expects that the impact of Argentine or Mexican ination will be similar to that of Peru. 107

Part VIIOperating and nancial review

Economic and political environment All of the Hochschild Mining Groups operating mines are located in Peru, and certain of its more advanced development projects are located in Peru, Mexico and Argentina. As a result, the Hochschild Mining Group is subject to various economic, scal, monetary and political policies and factors that generally affect companies operating in those countries. See Risk FactorsRisks relating to operating in Peru, Mexico and ArgentinaLocal economic and political conditions may have a material adverse effect on the Hochschild Mining Groups nancial condition and results of operations. Hedging The Hochschild Mining Groups current policy is generally not to hedge its exposure to the risk of uctuations in the prices of silver and gold. However, commodity hedges may be undertaken if required as part of the nancing arrangements for specic projects. The Hochschild Mining Group intends to equity nance its projects unless, in the context of a joint venture, the joint venture partner requires project nance to be put in place. In addition, following periodic evaluation of its exposures to other market risks, including interest rate and exchange rate risk, the Hochschild Mining Group may from time to time enter into derivative nancial instruments to manage some of those exposures. See Disclosures About Market Risk. The Hochschild Mining Group does not enter into derivative nancial instruments for speculative purposes. Currently, the Hochschild Mining Group has a number of forward sales contracts with Standard Bank and Citibank in relation to the gold rened from its dore which it has entered into as part of the security package for Compana Minera Ares US$70 million loan facility (see Liquidity and Capital ResourcesDisclosures About Market RiskCommodity price risk), the last of which is scheduled to expire in June 2007. The Hochschild Mining Group also has a limited number of other forward sale and option arrangements in relation to the silver produced from its dore which are due to expire in December 2006. In 2006, it is estimated that approximately 29 per cent. and 57 per cent. of the Groups silver and gold production respectively will be hedged. This is expected to fall to approximately 8 per cent. for silver and 30 per cent. for gold in 2007, depending on the form of nancing used in relation to the San Jose project (excluding the San Jose project, none of the Groups silver production and 23 per cent. of the Groups gold production is expected to be hedged in 2007). Factors affecting comparability Key factors affecting comparability of the results of operations of the Hochschild Mining Group include: Selene The Selene operating unit began generating revenue in October 2003, and reached full production levels during 2004. The addition of Selene means the Hochschild Mining Groups results for 2003 are not directly comparable with those for subsequent periods. Sipan The Sipan mine was an open pit mine that began production at the end of 1997. The mine produced principally gold, with silver as a by-product. Ore production at Sipan slowed during 2000 and stopped completely during 2001, as the ore body was depleted. The processing method used at Sipan was heap leaching, with the result that processing and sale of previously mined material continued until 2004. Sipan produced 14.37 thousand and 14.56 thousand ounces of gold in 2003 and 2004, respectively. The Hochschild Mining Group is currently restoring the Sipan site after its 108

Part VIIOperating and nancial review

closure. In 2005, the Hochschild Mining Group agreed a sale of the plant at Sipan. As a result that asset was reclassied as held for sale in that year. MHC Mauricio Hochschild & Ca Ltda. S.A.C. (MHC) is an administrative services company. MHC was sold in June 2006. Combined income statement The following discussion describes certain line items in the Hochschild Mining Groups combined income statement. Revenues The Hochschild Mining Group derives its revenues from the sale of silver and gold. In 2005 41.2 per cent. of its revenue (excluding services and other minerals) came from the sale of silver and 58.8 per cent. of its revenue came from the sale of gold and in the six months ended 30 June 2006, 46.1 per cent. of its revenue (excluding services and other minerals) came from the sale of silver and 53.9 per cent. of its revenue came from the sale of gold. The Hochschild Mining Group sells its product in two forms, dore and concentrate. Production at Ares is in the form of dore while production at Arcata is in the form of concentrate. Production at Selene has been in the form of concentrate but the Company intends that starting in October 2006, the concentrate will be transported to Ares to be processed into dore. Under the Hochschild Mining Groups current arrangements with Johnson Matthey, which renes the dore, the Hochschild Mining Group is able to sell the nal product contained in the dore either to Johnson Matthey or to a third party. If it sells to Johnson Matthey, the price for the silver and gold sold is set based on the full London Bullion Market Association spot xing price in US dollars for silver and the full London Bullion Market Association PM spot xing price in US dollars for gold, in each case on a date specied by the Hochschild Mining Group that is no earlier than the date 20 working days after receipt by Johnson Matthey of the dore at its renery, subject to assay. If it sells to a third party, the basis for pricing is as agreed with the purchaser. In either case, the Hochschild Mining Group recognises the proceeds of the sale as revenue on the date the dore arrives at the renery, based on the relevant spot xing prices on that day or, if different, the price agreed with the third party customer. The Hochschild Mining Group has the right to (and generally does) elect to receive settlement of up to 95 per cent. of the estimated content of the silver and gold contained in the dore in the form of physical silver and gold prior to the earliest possible date for xing the nal price. When it does so, the pricing arrangements outlined above apply only to the remaining ve per cent. of the content of silver and gold. In connection with third party sales, the Hochschild Mining Group typically delivers its dore bars to Johnson Matthey and borrows from Johnson Matthey a quantity of rened metal to sell to the third party. The Hochschild Mining Group records the revenue from the sale together with an obligation relating to the borrowed metal on which it will pay interest. The interest expense is included in net nance (expense) incomeothers. The obligation is settled using metal rened from the dore bars delivered by the Hochschild Mining Group. For further discussion of the Hochschild Mining Groups arrangements with Johnson Matthey, see Part I: Information on Hochschild MiningSales, Markets and CustomersSales and CustomersDore. With the expected commencement of production of dore from the production at Selene in October 2006, the Hochschild Mining Group intends to explore options for new arrangements for the rening and sale of its dore production. Between 2003 and 2005, the Hochschild Mining Group sold its concentrate to several customers, although Penoles was the largest single customer. Currently, the Hochschild Mining Group sells its entire concentrate production to Penoles. The terms on which it sells concentrate vary somewhat 109
PRA1 6.2

Part VIIOperating and nancial review

among different customers, but the terms of the arrangements with Penoles are broadly representative. Under the Hochschild Mining Groups current arrangements with Penoles, the price it receives for the silver content of the concentrate is based on the average of the London Spot US dollar equivalent silver price and of the COMEX List Position (as published in Metals Week) in the rst month immediately following the month of delivery of the concentrate to the port to which it is shipped for the rst 50 per cent. of the metal content and in the second month following delivery for the second 50 per cent. The gold price is similarly calculated based on the London Gold PM Fix price (as published in Metals Week). Deductions are made for treatment charges and if the levels of impurities in the concentrate, such as arsenic or antimony, exceed specied thresholds. The Hochschild Mining Group recognises the proceeds of the sale as revenue when risk passes to the customer, which under the arrangements with Penoles is when the concentrate is loaded onto the ship in Peru, using a provisional value of the contained metal. The Hochschild Mining Groups current policy is to set the provisional value of the metal content using the average price for the 15 days preceding the date of shipment. Payments are made in three tranches. The rst tranche, which represents 90 per cent. of the estimated value of the rst 50 per cent. of the metal content, is payable ve days after the shipment arrives in the port. The second tranche, which represents the balance necessary to bring the total payment to 90 per cent. of the estimated value of the metal content, is payable 30 days later. The nal instalment, which represents the balance due, is payable promptly after the weight, metal content and average prices have been determined. Any adjustments required from the provisional price due to differences in the quality (e.g., because of high arsenic levels) or quantity of the metal are recognised as an adjustment to revenues in the period when the sale is settled. The provisionally priced sales contain an embedded derivative, representing the exposure to changes in the commodity price after the sale has occurred. This embedded derivative is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of silver and gold at the provisional price at the time of the sale of the commodity. The embedded derivative does not qualify for hedge accounting and is recorded as a derivative asset or derivative liability in derivative nancial instruments on the balance sheet and is adjusted to fair value through other income or other expenses each period until the date of nal settlement. For further discussion of the Hochschild Mining Groups arrangements with Penoles, see Part I: Information on Hochschild MiningSales, Markets and CustomersSales and CustomersConcentrate. At 30 June 2006, the Hochschild Mining Group had sold 5,062 thousand ounces of silver and 21.4 thousand ounces of gold in respect of which the sale had not been nally settled. The value of these sales at that date (including the adjustment for the embedded derivative) was US$51.0 million. At 31 December 2005, the Hochschild Mining Group had sold 2,993 thousand ounces of silver and 13.8 thousand ounces of gold in respect of which the sale had not been nally settled. The value of these sales at that date (including the adjustment for the embedded derivative) was US$32.5 million. Cost of sales Cost of sales consists primarily of contractor costs, materials, depreciation and amortisation of assets associated with production (including capitalised mine development costs), personnel expenses for employees directly involved with production and energy costs. Materials include reagents, spare parts, timber, balls for the mills and fuel and lubricants. Although one of the biggest portions of the Hochschild Mining Groups cost of sales, contractor costs, is denominated in US dollars, a portion of its cost of sales is incurred in Nuevos Soles. Accordingly, the Hochschild Mining Groups cost of sales can be affected by exchange rate uctuations between the US dollar and the Nuevo Sol. Cost of sales from continuing operations amounted to 48.6 per cent. of revenues from continuing operations in 2005 and 36.5 per cent. in the six months ended 30 June 2006.

110

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Cost of sales also include changes in work in progress and nished goods. This item reects the costs related to inventory that is produced in one nancial period but sold in another. Contractor costs, materials and depreciation are the key variable cost items. Contractor costs amounted to 26.4 per cent. of the total cost of sales from continuing operations and 12.8 per cent. of revenues from continuing operations in 2005 and 28.3 per cent. and 10.3 per cent, respectively in the six months ended 30 June 2006. Materials amounted to 17.4 per cent. of the total cost of sales from continuing operations and 8.5 per cent. of revenues from continuing operations in 2005 and 17.8 per cent. and 6.5 per cent, respectively in the six months ended 30 June 2006. Depreciation amounted to 19.8 per cent. of the total cost of sales from continuing operations and 9.7 per cent. of revenues from continuing operations in 2005 and 20.4 per cent. and 7.4 per cent, respectively in the six months ended 30 June 2006. Personnel expenses are the primary xed cost component of cost of sales. Personnel expenses amounted to 11.0 per cent. of the total cost of sales from continuing operations and 5.4 per cent. of revenues from continuing operations in 2005 and 12.8 per cent. and 4.7 per cent. in the six months ended 30 June 2006. At all its operations, the Hochschild Mining Group has the option of generating its own electricity or purchasing electricity from the national grid. If it purchases electricity from the national grid, the cost is reected in the Energy line of cost of sales. If it generates its own electricity, the cost of the fuel necessary to run the generators is reected in the Materials line of cost of sales. In general, it is more costly for the Hochschild Mining Group to generate its own electricity than to buy it from the national grid. The Hochschild Mining Group depreciates its mine related assets on a unit of production basis over the estimated economically recoverable reserves and a percentage of resources to which they relate. At the end of 2003, Arcata had a very short estimated life of mine. As a result, there was a high rate of depreciation for 2004 at Arcata. By the end of 2004, the life of mine at Arcata had been extended signicantly. As a result, depreciation for 2005 was a smaller percentage of depreciable assets. The smaller remaining value attributed to depreciable assets after the large depreciation cost in 2004 further compounded the reduction in depreciation cost. Production is scheduled to commence at the Pallancata property in 2007, at which point the Hochschild Mining Group anticipates taking advantage of a tax regime in Peru that will allow it to accelerate depreciation of a portion of the capitalised costs of constructing the Pallancata mine. As a result, the Hochschild Mining Group anticipates that depreciation in 2007 will be higher than it otherwise might have been. Administrative expenses Administrative expenses comprise expenses attributable to the administrative function at the Hochschild Mining Groups headquarters in Lima, Peru. They include personnel expenses, the cost of the Peruvian employee prot-sharing for headquarters personnel, depreciation of assets attributable to the administrative function and other costs associated with the administrative function. Prior to the reorganisation of the Hochschild Mining Group and the establishment of the Company as the holding company for the Hochschild Mining Group, the directors of Compana Minera Ares received remuneration calculated as a percentage of the prots of that company. These amounts are included in personnel expenses. Going forward, the Directors will receive remuneration in amounts determined from time to time by the Board. See Part XIV: Additional InformationArticles of AssociationRemuneration of Directors. Personnel expenses include an amount equal to an extra months salary each year for each employee in Peru that the Hochschild Mining Group is obligated to contribute to a pension account with an authorised public or private pension provider designated by the employee. This amount is payable in respect of all employees, not just those accounted for under administrative 111

Part VIIOperating and nancial review

expenses and is the only payment the Hochschild Mining Group is obligated to make in respect of retirement benets for its employees in Peru. The Hochschild Mining Groups pension obligations in Mexico are similar. In Argentina, employees receive a portion of their pension benets from the government and can elect whether to have the remainder paid by the government or contribute to a private savings plan. The Hochschild Mining Group must pay an amount equal to 7 per cent. of employees salaries to the Argentinian government to fund the governments portion of the pension payments. A further 7 per cent. is deducted from each employees salary and paid either to the government or to the private savings plan, depending on the employees election. Exploration expenses Exploration expenses include the costs of underground drilling and digging undertaken for exploration at the Hochschild Mining Groups development projects and at its operating units, diamond (surface) drilling, personnel costs for those employees engaged in exploration activities, payments to government authorities and, where required, third party land or concession holders for property and exploration rights and metallurgical analyses. When a project moves from the exploration stage to the development stage (typically once a successful feasibility study has been conducted in the case of development projects), the costs associated with further digging are considered development costs and are capitalised. See note 2(f) to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX. Selling expenses Selling expenses include the cost of transporting concentrate to the location agreed with the customer, and transporting dore to the reners renery and the commissions paid to brokers who negotiate sales on behalf of the Hochschild Mining Group. The costs of transporting the Hochschild Mining Groups concentrate production vary based on the destination of the shipment and when the shipment is made. Rates for similar routings can vary substantially depending on when the shipment is made. There tends to be less variability in the transportation costs for the Hochschild Mining Groups dore production, where weight and the number of shipments in the relevant period are the key variables. Other income The principal recurring item in other income is gain on the embedded derivative on provisional sales. See Combined Income StatementRevenues. In 2005 signicant items in other income included reversal of the provision for mine closure established in respect of San Jose in 2004 and a decrease in the provision for mine closure. In 2004 they included rentals and in 2003 income from the sale of a mining concession. Other expenses In 2005, signicant items in other expenses included payments in connection with a dispute with Electroperu and Sociedad Electrica del Sur Oeste S.A. (SEAL) (see note 33(b) to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX), loss on the sale of xed assets and establishment of a new provision for mine closure for San Jose. In 2004 signicant items in other expenses included the impairment of certain assets at Sipan classied as held for sale, payments in connection with the Electroperu/SEAL dispute and establishment of a provision for mine closure for San Jose. In 2003, signicant items in other expenses included an increase in the provision for mine closure. Finance income Finance income includes interest receivable on loans to related parties, dividends received and net gain from changes in the value of derivative instruments. 112

Part VIIOperating and nancial review

Revaluations of the mine closure provision resulting from changes in the estimated lives of mine and changes to the fair value of derivative instruments can lead to either nance income or nance cost. Finance costs The most signicant part of nance costs is interest expense on borrowings and loans from related parties. Foreign exchange gain/(loss) Foreign exchange gain/(loss) includes gains and losses arising on the translation of foreign currency monetary assets and liabilities. Discontinued operations The Caylloma mine was an underground mine located near Arcata which produced concentrate. By the end of 2003, the Hochschild Mining Group had determined that the grade of the ore did not justify continued mining and Caylloma was closed. Caylloma produced 1,034 thousand ounces of silver and 1.3 thousand ounces of gold in 2003. The mine was sold in 2005. The results from Caylloma have been presented as discontinued operations. Minority interest The Hochschild Mining Group owns 51 per cent. of Minera Santa Cruz S.A., which owns the San Jose project. The remaining 49 per cent. is owned by Minera Andes S.A., the Hochschild Mining Groups joint venture partner in that project. The loss attributable to minority interest in 2003, 2004 and 2005 and the six months ended 30 June 2005 and 2006 consists predominantly of that portion of the development costs for the San Jose project attributable to Minera Andes S.A. Results of operations The following table sets out, for the periods indicated, the Hochschild Mining Groups combined income statement expressed as a percentage of revenues from continuing operations.
Year ended 31 December 2003 2004 2005 (%) Six-month period ended 30 June Unaudited 2005 2006

Continuing operations Revenues ************************************************************* 100 Cost of sales ********************************************************** (44.3) Gross prot *********************************************************** Administrative expenses *********************************************** Exploration expenses ************************************************** Gain on sale of zinc project ******************************************** Selling expenses ******************************************************* Other income ********************************************************* Other expenses******************************************************** Prot from continuing operations before net nance costs and income tax ***************************************************************** Finance income ******************************************************* Finance costs ********************************************************** Foreign exchange gain/(loss) ******************************************* Prot from continuing operations before income tax ******************** Income tax expense *************************************************** Prot for the year/period from continuing operations(1) ***************** 55.7 (17.6) (12.6) (1.9) 5.8 (3.1) 26.3 0.4 (5.3) 0.6 22.0 (9.7) 12.3

100 (51.7) 48.3 (14.5) (14.5) (2.4) 4.4 (4.6) 16.7 0.8 (4.2) 0.2 13.5 (7.2) 6.3

100 (48.6) 51.4 (16.1) (18.5) 9.6 (2.1) 8.6 (1.9) 31.0 2.7 (6.7) (0.3) 26.7 (6.4) 20.3

100 (46.8) 53.2 (16.5) (28.4) 22.1 (2.0) 4.9 (1.9) 31.4 2.4 (6.8) 1.6 28.6 (9.1) 19.5

100 (36.5) 63.5 (17.1) (8.3) (1.5) 11.4 (5.0) 43.0 3.1 (5.6) 40.5 (16.0) 24.5

113

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Comparison of Six Months ended 30 June 2006 and Six Months ended 30 June 2005 Revenue from continuing operations Revenue from continuing operations of the Hochschild Mining Group in the six-month period ended 30 June 2006 increased by 40.3 per cent. from US$65.8 million in the six-month period ended 30 June 2005 to US$92.3 million in the corresponding period in 2006. The average cash settlement price of silver was US$5.49 per ounce in the six-month period ended 30 June 2005 and US$9.36 per ounce in the six-month period ended 30 June 2006 and the average cash settlement price of gold was US$381 per ounce in the six-month period ended 30 June 2005 and US$480 per ounce in the six-month period ended 30 June 2006. Silver. Revenue from the sale of silver increased by 72.8 per cent., from US$24.6 million in the six-month period ended 30 June 2005 to US$42.5 million in the corresponding period in 2006. The increase principally reected a signicant increase in the price of silver. Total sales of silver increased from 4,363 thousand ounces in the corresponding period in 2005 to 4,543 thousand ounces in the six-month period ended 30 June 2006 as a decrease in production at Arcata due to the intentional targeting of lower grade ore was offset by increased production at Selene resulting from a capacity increase. Gold. Gold revenue increased by 21.0 per cent., from US$41.0 million in the six-month period ended 30 June 2005 to US$49.6 million in the corresponding period in 2006. The increase in gold revenues was principally driven by a strong increase in the price of gold, which more than offset a small decrease in production resulting from the intentional targeting of lower grade ore at Ares. Total sales of gold decreased from 110 thousand ounces in the six-month period ended 30 June 2005 to 103 thousand ounces in the six-month period ended 30 June 2006. Cost of sales The Groups cost of sales increased by 9.4 per cent., from US$30.8 million in the six-month period ended 30 June 2005 to US$33.7 million in the corresponding period in 2006. This increase was principally driven by increased workers prot sharing and mining royalties, reecting the higher levels revenues and taxable income, as well as higher levels of depreciation and personnel expenses. These increases were offset in part by a decrease in the cost of materials. Cost of sales as a percentage of revenues from continuing operations decreased from 46.8 per cent. in the rst six months of 2005 to 36.5 per cent. in the corresponding period in 2006. Contractor costs were largely at despite marginally higher production volumes in the six months ended 30 June 2006 and the contractors being responsible for procuring explosives during the full six months ended 30 June 2006 as compared to only during May and June of 2005. The Hochschild Mining Group replaced two of its contractors with a single contractor, enabling it to save on xed contractor costs and benet from the new contractors lower wage rates. Materials costs decreased principally due to the contractors being responsible for procuring explosives during the full six months ended 30 June 2006 as compared to only during May and June of 2005. Personnel expenses increased principally due to an increase in both headcount and wages. Energy costs increased due to higher energy prices and a small increase in consumption. Administrative expenses The Groups administrative expenses increased by 46.3 per cent., from US$10.8 million in the six-month period ended 30 June 2005 to US$15.8 million in the corresponding period in 2006. This increase was largely driven by increased workers prot sharing. An increase in personnel costs driven by a small increase in headcount, particularly at senior levels, as well as increased wages and associated costs was largely offset by the absence of board remuneration payments during 114
PRA1 10.2

Part VIIOperating and nancial review

the six month period ended 30 June 2006. As in cost of sales, the increased levels of taxable income resulted in increased workers prot sharing. Exploration expenses Exploration expenses decreased by over half, from US$18.7 million in the six-month period ended 30 June 2005 to US$7.7 million in the corresponding period in 2006. This decrease was due principally to the winding down of the exploration phase of the San Jose project and a lower level of generative exploration in Mexico. Although overall operating exploration expenditure was broadly comparable between the two periods, spending was higher at Ares and Arcata, and lower at Selene, in the six months ended 30 June 2006 compared to the corresponding period in 2005 as the Hochschild Mining Group shifted emphasis toward proving additional reserves at Ares and Arcata. Gain on sale of zinc project and sale of subsidiary In April 2005, the Hochschild Mining Group sold its investment in a zinc project that it had determined not to pursue, generating a gain of US$14.6 million. Selling expenses Selling expenses increased slightly from US$1.3 million in the six-month period ended 30 June 2005 to US$1.4 million in the corresponding period in 2006. There were broadly similar volumes sold in the two periods. Other income The Hochschild Mining Group had other income of US$10.5 million in the six-month period ended 30 June 2006, compared to other income of US$3.2 million in the corresponding period in 2005. In the six-month period ended 30 June 2006, there was a US$8.5 million gain attributable to the provisional pricing arrangements, compared to a US$1.9 million gain in the corresponding period in 2005. Other income in the six-month period ended 30 June 2006 also included US$1.0 million attributable to a decrease in the provision for mine closure as compared to US$0.3 million in the corresponding period in 2005. Other expenses The Hochschild Mining Group had other expenses of US$4.6 million in the six-month period ended 30 June 2006, compared to US$1.3 million in the corresponding period in 2005. In the six-month period ended 30 June 2005, there was a payment to SEAL in connection with the dispute involving the Hochschild Mining Group, SEAL and Electroperu of US$0.7 million as compared to US$0.1 million in the corresponding period in 2006. Other expenses in the six-month period ended 30 June 2006 also included a loss on the sale of investments of US$2.2 million and a loss on the sale of MHC of US$1.0 million. Finance income The Hochschild Mining Group had nance income of US$2.8 million in the six-month period ended 30 June 2006, compared to US$1.6 million in the corresponding period in 2005. The increase was principally attributable to an increase in gain from changes in the fair value of nancial instruments, being the various hedging contracts the Hochschild Mining Group has in place. See Disclosures About Market RiskCommodity Price Risk. 115

Part VIIOperating and nancial review

Finance costs Finance costs of the Hochschild Mining Group were US$5.1 million in the six-month period ended 30 June 2006, compared to US$4.5 million in the corresponding period in 2005. There was an increase in interest on bank loans and long-term debt resulting from an increase in the amount of borrowings during the six months ended 30 June 2006. An increase in loss from changes in the fair value of nancial instruments was largely offset by a decrease in interest on loans from related parties. Income tax expense The Hochschild Mining Groups income tax expense more than doubled to US$14.7 million in the six-month period ended 30 June 2006 from US$6.0 million in the corresponding period in 2005. The increase was due principally to signicantly higher prot from continuing operations before income tax. The Hochschild Mining Groups weighted average statutory income tax rate was 21.5 per cent. and 29.4 per cent. for the six-month periods ended 30 June 2005 and 2006, respectively. See note 14 to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX. The general corporate tax rate in Peru was 30 per cent. in each of 2005 and 2006. Prot for the period from continuing operations As a result of the factors discussed above, the Hochschild Mining Groups prot for the period from continuing operations was US$22.6 million in the six-month period ended 30 June 2006 compared with US$12.8 million in the corresponding period in 2005. Comparison of the Years Ended December 31, 2005, 2004 and 2003 Revenue from continuing operations 2005 Revenue from continuing operations of the Hochschild Mining Group in 2005 decreased by 4.9 per cent. from US$159.1 million in 2004 to US$151.3 million in 2005. The average cash settlement price of silver was US$5.61 per ounce in 2004 and US$5.93 per ounce in 2005 and the average cash settlement price of gold was US$366.3 per ounce in 2004 and US$387.2 per ounce in 2005. Silver. Revenue from the sale of silver decreased by 6.3 per cent., from US$66.4 million in 2004 to US$62.2 million in 2005. This decrease principally reects a decline in ounces sold from Arcata due to historical timing differences in sales of Arcata production as a signicant amount of inventory built up during 2003 at Arcata was sold in the early part of 2004. There was no such timing difference in 2005. This decrease was offset in part by a signicant increase in ounces sold from Selene, coupled with an increase in silver prices. Total sales of silver decreased from 11,987 thousand ounces in 2004 to 10,366 thousand ounces in 2005. Gold. Gold revenue decreased by 2.3 per cent. in 2005, from US$90.7 million in 2004 to US$88.6 million in 2005. The decrease in gold revenues was principally driven by a reduction in production from Sipan and the effect of the Arcata timing difference. The decrease was offset in part by the 5.7 per cent. increase in the average cash settlement price for gold received by the Hochschild Mining Group. Total sales of gold decreased from 246 thousand ounces in 2004 to 231 thousand ounces in 2005. 2004 Revenue from continuing operations of the Hochschild Mining Group in 2004 increased by 69.8 per cent., from US$93.7 million in 2003 to US$159.1 million in 2004. This principally reects 116

Part VIIOperating and nancial review

the inclusion of a full year of production from Selene, which began producing in October 2003 and reached full production in December 2003. The average cash settlement price of silver was US$4.34 per ounce in 2003 and US$5.61 per ounce in 2004 and the average cash settlement price of gold was US$350.47 per ounce in 2003 and US$366.3 per ounce in 2004. Silver. Revenue from the sale of silver more than tripled, from US$20.0 million in 2003 to US$66.4 million in 2004. This increase principally reects the addition of a full years production at Selene, and the effect of the timing difference at Arcata, as well as the increase in the average cash settlement price for silver. Total sales of silver increased from 4,603 thousand ounces in 2003 to 11,978 thousand ounces in 2004. Gold. Gold revenue increased by 29.2 per cent. in 2004, from US$70.2 million in 2003 to US$90.7 million in 2004. The increase in gold revenues was principally driven by the addition of a full years production at Selene together with the 5.3 per cent. increase in the average cash settlement price for gold received by the Hochschild Mining Group. Total sales of gold increased from 200 thousand ounces in 2003 to 246 thousand ounces in 2004. Cost of sales 2005 The Groups cost of sales decreased by 10.6 per cent., from US$82.3 million in 2004 to US$73.6 million in 2005. This decrease was principally driven by a signicant decrease in depreciation at Arcata which resulted from the remaining life of mine increasing in 2005 to 6.0 years from 2.1 years in 2004, a smaller increase in change in work in progress and nished goods and lower materials costs, offset in part by increases in contractor and personnel costs. Contractor costs increased due to higher rates of payment at all the operations, higher levels of production at Selene and a one-off payment to a contractor whose contract at Selene was terminated. In addition, starting in May 2005, contractors became responsible for procuring explosives themselves with the cost being passed through to the Hochschild Mining Group as part of the contractor costs. During 2004 and the rst several months of 2005, legal considerations relating to the control of explosives meant that the Hochschild Mining Group bought explosives for its mining operations directly and they were accounted for as Materials. These increases were offset in part by lower production at Arcata and efciency improvements at Selene as more of the mining process was mechanised. Materials costs decreased principally due to the closure of Sipan, lower explosives costs and lower fuel costs at Selene due to lower levels of electricity generation, offset in part by an increase in prices for balls for the mills, driven by increases in steel prices. As a result of the switch in explosives procurement from the Hochschild Mining Group to the contractors starting in May 2005, explosives cost accounted for as Materials decreased. Personnel expenses increased principally due to increases in salaries and related employment costs. Energy costs increased slightly due to increased costs at Arcata, resulting from the need for increased pumping of water from the mine, and at Selene, due to the increased purchase of electricity from the national grid, but were largely offset by decreases due to the closure of Sipan and more efcient use of electricity at Ares. Changes in work in progress and nished goods decreased signicantly in 2005 as the 2004 amounts reected the sale early in the year of a signicant amount of inventory from Arcata that had been produced in 2003. This effect was not repeated in 2005. 117

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2004 The Groups cost of sales almost doubled, from US$41.5 million in 2003 to US$82.3 million in 2004. This increase was principally driven by the inclusion of a full years production at Selene, a signicant increase in depreciation at Arcata due to the life of the mine being revised down to 2.1 years in 2004 from 4.4 years in 2003, a signicant increase in changes in products in progress and nished goods resulting from the build-up of a signicant amount of inventory at Arcata at the end of 2003 and its sale in 2004 and higher materials costs. The increase was offset in part by an increase in reallocation to administrative expenses and a small decrease in personnel costs. Contractor costs increased principally due the inclusion of a full years production at Selene, offset in part by the effect of the cost of explosives being incurred by the Hochschild Mining Group directly. Materials costs increased principally due to the inclusion of a full years production at Selene, higher explosives costs due to direct purchases by the Hochschild Mining Group, higher costs for mill balls due to higher steel prices and increased production at Arcata and higher timber costs especially at Arcata where the orientation of the veins meant that more shoring was required. During 2003, explosives were supplied by the mining contractors. At the beginning of 2004, the Hochschild Mining Group began purchasing explosives directly. Personnel expenses decreased principally reecting the halting of operations at Caylloma and a reduction in the number of employees at MHC. Energy costs increased principally due to higher costs at Arcata, in line with increased production, and the effect of the inclusion of Selene. In 2003, for the period it was operational, Selene generated all its own electricity as it was not connected to the national grid and therefore incurred no costs classied as Energy. In 2004, Selene operated for the full year and purchased half its electricity needs from the national grid. Administrative expenses 2005 The Groups administrative expenses increased by 6.1 per cent., from US$23.0 million in 2004 to US$24.4 million in 2005. This increase was largely driven by an increase in Peruvian workers prot sharing, which was calculated based on prots achieved at Compana Minera Ares as calculated for Peruvian tax purposes, an increase in personnel expenses due to increases in wages, headcount and associated costs as well as increased board members remuneration calculated based on prots achieved at Compana Minera Ares, an increase in ofce rentals following the decision to sell the Groups headquarters building and rent the space instead, and an increase in consulting fees. The increase was offset in part by a decrease in termination benets as compared to 2004 when a large number of workers left MHC and a decrease in donations to social and community programmes. Starting in 2006 board members remuneration will no longer be based on prot achieved at Compana Minera Ares. See Combined Income StatementAdministrative Expenses. 2004 The Groups administrative expenses increased by 39.4 per cent., from US$16.5 million in 2003 to US$23.0 million in 2004. This increase principally reected the additional administrative expenses incurred as a result of the commencement of full operations at Selene, including as a result of the increased prots at Compana Minera Ares due to the addition of Selene and an increase in personnel expenses due principally to increases in salaries, the number of employees at the Hochschild Mining Groups headquarters in Lima and board members remuneration. In addition, termination benets increased as a consequence of a large number of employees transferring from MHC to Compana Minera Ares (which triggered the payments notwithstanding that 118

Part VIIOperating and nancial review

Compana Minera Ares is part of the Hochschild Mining Group) or leaving the Hochschild Mining Group and depreciation increased as a result of the shorter estimated life of mine at Arcata. Exploration expenses 2005 Exploration expenses increased by 21.6 per cent., from US$23.1 million in 2004 to US$28.1 million in 2005. This increase was due principally to a signicant increase in spending at the San Jose project as well as an increase in generative exploration spending in Mexico, offset in part by a reduction in spending on exploration at the existing operations due primarily to the absence of spending on Caylloma in 2005 and a decision that the reserve and resource situation at the existing operations justied lower exploration expenditure as well as a reduction in generative exploration spending in Argentina and lower payments for mining rights due to a payment for the rights to a zinc project in 2004 that was not repeated in 2005 as the project was sold. 2004 Exploration expenses almost doubled in 2004 to US$23.1 million from US$11.8 million in 2003. The increase was due primarily to an increase in spending at the San Jose project as well as smaller increases at Ares and Selene, where the Hochschild Mining Group was focusing on nding additional reserves. There was also an increase at Caylloma where activities were focused on determining if there was additional mineralised material that might justify retaining the operation as well as signicant increases in generative exploration in Argentina and Mexico. Payments for mining rights increased principally due to a payment for the rights to a zinc project. These increases were offset in part by a decrease in exploration spending at Arcata as a result of a decision that the reserve and resource situation at the other existing operations justied lower exploration expenditure. Gain on sale of zinc project and sale of subsidiary In April 2005, the Hochschild Mining Group sold its investment in a zinc project that it had determined not to pursue, generating a gain of US$14.6 million. Selling expenses 2005 Selling expenses decreased by 17.9 per cent., from US$3.9 million in 2004 to US$3.2 million in 2005. This decrease was due principally to a reduction in transportation costs at Arcata (reecting primarily smaller amounts of concentrate shipped as a result of the effect of the timing of sales in 2004) and lower unit costs for shipping, offset in part by an increase in transportation costs at Selene, due principally to higher unit costs for shipping. 2004 Selling expenses more than doubled in 2004, from US$1.8 million in 2003 to US$3.9 million in 2004. This increase principally reects the commencement of sales of silver and gold from Selene and the effect of the timing of sales at Arcata as well as an increase in unit costs for shipping at Arcata. Other income 2005 The Hochschild Mining Group had other income of US$13.0 million in 2005, compared to other income of US$7.1 million in 2004. In 2005, there was a US$9.9 million gain attributable to the provisional pricing arrangements, compared to a US$2.6 million gain in 2004. Other income in 119

Part VIIOperating and nancial review

2005 also included $0.7 million attributable to a decrease in the provision for mine closure. Other income in 2004 also included US$1.3 million in rentals income, US$0.8 million on the sale of certain assets and liabilities related to Sipan, US$0.5 million attributable to a decrease in the provision for mine closure and US$0.5 million paid to the Hochschild Mining Group on the cancellation of a contract with MHC by a third party. 2004 The Hochschild Mining Groups other income was US$7.1 million in 2004, compared to US$5.5 million in 2003. In 2003, in addition to gain attributable to the provisional pricing arrangements of US$1.6 million, there was also a gain in connection with the sale of a mining concession of US$2.1 million. Other expenses 2005 The Hochschild Mining Group had other expenses of US$2.8 million in 2005, compared to US$7.4 million in 2004. There was a payment to SEAL in connection with the dispute involving the Hochschild Mining Group, SEAL and Electroperu of US$0.9 million in 2005 compared to a payment of US$0.8 million in 2004. Other expenses in 2005 also included a US$0.4 million loss on maintenance of equipment services. Other expenses in 2004 also included an impairment of certain assets of Sipan held for sale of US$2.2 million, a US$1.2 million increase in the provision for mine closure and US$0.9 million of write-offs of xed assets. 2004 The Hochschild Mining Groups other expenses were US$7.4 million in 2004, compared to US$2.9 million in 2003. In 2003, the principal item was an increase in the provision for mine closure cost of US$1.2 million. Finance income 2005 The Hochschild Mining Group had nance income of US$4.1 million in 2005, compared to US$1.3 million in 2004. The increase was principally attributable to an increase in interest received on loans made to related parties as the amount of loans outstanding increased. There was also a gain from changes in the fair value of nancial instruments of US$1.0 million in 2005, compared with a gain of US$0.6 million in 2004. 2004 The Hochschild Mining Group had nance income of US$1.3 million in 2004 compared to US$0.3 million in 2003. The change was attributable principally to increases in interest received on loans made to related parties and gain from changes in the fair value of nancial instruments. Finance costs 2005 Finance costs of the Hochschild Mining Group were US$10.1 million in 2005 compared to US$6.7 million in 2004. The change principally reected the effect of higher interest on bank loans and long-term debt resulting from a full year of interest being due on the US$70 million syndicated loan which was incurred in August 2004 and which replaced a US$40 million loan which had been incurred in April 2003, although the effect was mitigated by the repayment during 2005 of a total of US$25.2 million of principal on the syndicated loan. The replacement of the syndicated loan resulted in the write-off of amortised borrowing costs of US$2.0 million in 120

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2004. See Liquidity and Capital ResourcesCredit Facilities. In addition, interest expense was also higher due to an increase in the average amount of short-term pre-shipment, or working capital, borrowings over the year. 2004 Finance costs of the Hochschild Mining Group were US$6.7 million in 2004 compared to US$5.0 million in 2003. The increase principally reected higher interest expense resulting from the borrowing of the US$70 million syndicated loan and the write-off of amortised borrowing costs when the syndicated loan was replaced in August 2004, offset in part by a decrease in the unwind of discount on provision for mine disclosure. Income tax expense 2005 The Hochschild Mining Groups income tax expense decreased by 15.7 per cent. to US$9.7 million in 2005 from US$11.5 million in 2004. The decrease occurred despite signicantly higher prot from continuing operations before income tax as a result of the recognition at San Jose of a signicant deferred tax asset related to tax losses incurred during the development of the project. The Hochschild Mining Groups weighted average statutory income tax rate was 23.0 per cent. in 2005 compared to 27.9 per cent. in 2004. See note 14 to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX. The general corporate tax rate in Peru was 30 per cent. in both 2005 and 2004. 2004 The Hochschild Mining Groups income tax expense increased by 26.4 per cent., to US$11.5 million in 2004 from US$9.1 million in 2003. This was due principally to the effect of an increase in the tax rate in Peru from 27 per cent. in 2003 to 30 per cent. in 2004, coupled with higher taxable prot. The increase was offset in part by the sale of a deferred tax asset at Sipan, which led to the derecognition of a deferred tax liability, and tax losses at Arcata. The weighted average statutory income tax rate decreased to 27.9 per cent. in 2004, compared to 32.4 per cent. in 2003. Prot for the year from continuing operations As a result of the factors discussed above, the Hochschild Mining Groups prot for the year from continuing operations was US$30.7 million in 2005 compared with US$9.9 million in 2004 and US$11.5 million in 2003.

Liquidity and capital resources

Cash resources The Hochschild Mining Groups primary source of liquidity for its operations is cash provided by its operating activities, although the Hochschild Mining Group also partially funds its operations from third-party debt. Net cash generated from operating activities Net cash generated from operating activities in the six months ended 30 June 2006 was US$33.1 million, compared to US$1.0 million in the comparable period in 2005. In the six months ended 30 June 2006, the Hochschild Mining Groups average realised silver price was US$9.36 per ounce and its average realised gold price was US$480 per ounce compared to US$5.49 per ounce and US$381 per ounce, respectively, in the comparable period in 2005. In addition, sales of silver in the six months ended 30 June 2006 were 4,543 thousand ounces, an increase of 180 thousand ounces compared to 4,363 thousand ounces in the six months ended 30 June 2005. Revenues from 121

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silver sales were US$42.5 million in the six months ended 30 June 2006 compared to US$24.6 million in the comparable period in 2005. Sales of gold in the six months ended 30 June 2006 were 103 thousand ounces, which resulted in revenues from gold sales of US$49.6 million in the six months ended 30 June 2006 as compared to sales of 110 thousand ounces and revenues of US$41.0 million in the comparable period in 2005. In the six months ended 30 June 2006 there was a signicant loss on provisional pricing adjustment as compared to a gain in the comparable period in 2005 as well as an increase in income tax expense and the absence of the substantial effect of the gains from the sales of the zinc project and Caylloma which were recognised in the six months ended 30 June 2005. These changes were offset in part by a 5.6 per cent. increase in total cash costs from US$28.4 million in the six months ended 30 June 2005 to US$30.0 million in the comparable period in 2006 as well as a substantial decrease in cash ows from derivative nancial instruments but the net effect of these changes was a signicant increase in cash generated from operations. This increase was augmented by an increase in interest received and was offset in part by an increase in tax paid, with the net result being a signicant increase in net cash generated by operating activities in the six months ended 30 June 2006 compared to the corresponding period in 2005. Net cash generated from operating activities in 2005 was US$11.4 million compared to US$3.4 million in 2004. In 2005, the Hochschild Mining Groups realised silver price increased to an average of US$5.93 per ounce compared to US$5.61 per ounce in 2004 and its realised gold price increased to an average of US$387.2 per ounce compared to US$366.03 per ounce in 2004. Sales of silver in 2005 decreased by 1,612 thousand ounces, but the effect of the increase in the realised price resulted in revenues from silver sales only decreasing by US$4.2 million from US$66.4 million in 2004 to US$62.2 million in 2005. Sales of gold in 2005 decreased by 14 thousand ounces, but the effect of the increase in the realised price resulted in revenues from gold sales decreasing by only US$2.1 million from US$90.7 million in 2004 to US$88.6 million in 2005. There was a 7.5 per cent. decrease in total cash costs, which decreased from US$72.4 million in 2004 to US$67.0 million in 2005 as well as a substantial reduction in decrease of cash ows from operations due to changes in trade and other receivables. The net effect was a 47.8 per cent. increase in cash generated by operations from US$25.3 million in 2004 to US$37.4 million in 2005. This increase was offset in part by increases in interest paid and payment of provision for mine closure, but still resulted in a signicant increase in net cash generated from operating activities. Net cash generated from operating activities in 2003 was US$7.8 million compared to US$3.4 million in 2004. In 2004, the Hochschild Mining Groups realised silver price increased to an average of US$5.61 per ounce compared to US$4.34 per ounce in 2003 and its realised gold price increased to an average of US$366.3 per ounce compared to US$350.47 per ounce in 2003. In addition, sales of silver in 2004 increased by 7,375 thousand ounces, which together with the increase in the realised price, resulted in revenues from silver sales increasing by US$46.4 million from US$20.0 million in 2003 to US$66.4 million in 2004 while sales of gold in 2004 increased by 46 thousand ounces, which together with the increase in the realised price, resulted in revenues from gold sales increasing by US$20.5 million from US$70.2 million in 2003 to US$90.7 million in 2004. In addition to the increased revenues, there were signicant increases in cash ows from operations due to changes in inventories and trade and other payables. These amounts were offset by a 115.5 per cent. increase in total cash costs, which increased from US$33.6 million in 2003 to US$72.4 million in 2004, as well as a substantial decrease in cash ows from operations due to changes in trade and other receivables. The net effect was cash generated by operations remaining stable at US$25.3 million in both years. Increases in tax and interest paid resulted in a 56.2 per cent. decrease in net cash generated from operating activities. 122

Part VIIOperating and nancial review

Net cash (used in) generated from investing activities Net cash used in investing activities was US$12.2 million in the six months ended 30 June 2006 compared to net cash generated from investing activities of US$1.1 million in the corresponding period in 2005. In the six months ended 30 June 2006, net cash used in investing activities principally reected capital expenditures of US$16.7 million, primarily on construction of the San Jose mine. In addition, the Hochschild Mining Group made US$1.1 million net of securities acquisitions. These amounts were offset in part by the receipt of US$4.5 million from the sale of Caylloma, and US$0.8 million from the sale of xed assets of Sipan. In the six months ended 30 June 2005, net cash used in investing activities principally reected capital expenditures of US$8.1 million, primarily on development at Selene and Arcata and construction of the San Jose mine. In addition the Hochschild Mining Group made US$7.3 million net of securities acquisitions. These amounts were offset in part by the receipt of US$15.6 million from the sale of the zinc project the Hochschild Mining Group decided not to pursue and US$0.8 million from the sale of Compania Minera Corianta S.A. (Corianta), the subsidiary that had held the zinc project. Net cash used in investing activities was US$6.1 million in 2005 compared to US$13.4 million in 2004. In 2005, net cash used in investing activities principally reected capital expenditures of US$18.9 million principally on development at Selene and Arcata and construction of the San Jose mine. In addition, the Hochschild Mining Group made US$7.1 million net of securities acquisitions. These amounts were offset in part by the receipt of US$15.6 million from the sale of the zinc project the Hochschild Mining Group had decided not to pursue, US$3.1 million on the sale of a portion of Caylloma and US$0.8 million on the sale of Corianta. In 2004, net cash used in investing activities was spent principally on development at Arcata and construction of the San Jose mine. In addition, the Hochschild Mining Group made US$3.2 million net of securities acquisitions. These amounts were offset in part by proceeds from the sale of property, plant and equipment of US$2.0 million. Net cash used in investing activities was US$29.9 million in 2003. This amount principally reected US$18.8 million in capital expenditure primarily for development at Arcata as well as construction of the Selene plant. In addition, the Hochschild Mining Group made US$11.9 million net of securities acquisitions. Cash ows generated from (used in) nancing activities Cash ows used in nancing activities were US$17.3 million in the six months ended 30 June 2006, compared with US$5.4 million in the corresponding period in 2005. In the six months ended 30 June 2006, the Hochschild Mining Group had net repayments of borrowings of US$15.3 million and paid dividends of US$1.4 million, which would have been less than US$0.01 per ordinary share based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission. In the six months ended 30 June 2005, the Hochschild Mining Group had net repayments of borrowings of US$6.0 million and purchased shares of a subsidiary for US$1.9 million. These amounts were offset in part by a capital contribution from Minera Andes S.A. (Minera Andes), the Hochschild Mining Groups joint venture partner in the San Jose project, of US$2.5 million related to the acquisition of its interest in Minera Santa Cruz S.A. (Minera Santa Cruz). Cash ows used in nancing activities were US$8.5 million in 2005 as compared to cash ows generated from nancing activities of US$11.4 million in 2004. In 2005, the Hochschild Mining Group had net repayments of borrowings of US$9.0 million and purchased shares of a subsidiary for US$2.7 million. These amounts were offset in part by a capital contribution from Minera Andes of US$3.2 million related to the acquisition of its interest in Minera Santa Cruz S.A. In 2004, net cash generated from nancing activities consisted of net proceeds of borrowing of US$33.1 million offset in part by dividends paid of US$20.7 million, which would have been 123

Part VIIOperating and nancial review

US$0.09 per ordinary share based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission, as well as US$1.1 million used to purchase shares of a subsidiary. Cash ows generated from nancing activities were US$21.3 million in 2003. This principally reected net proceeds of borrowing of US$28.6 million and a capital contribution from Minera Andes of US$1.8 million related to the acquisition of its interest in Minera Santa Cruz. These amounts were offset in part by the purchase of shares of a subsidiary for US$4.9 million and dividend payments of US$4.2 million, which would have been US$0.02 per ordinary share based on the 230,000,000 ordinary shares expected to be outstanding immediately prior to Admission. The Hochschild Mining Group holds its cash principally in US dollars and, to a lesser extent in Nuevos Soles. Cash and cash equivalents consist of cash on hand and bank deposits. For a discussion of the Hochschild Mining Groups policies as related to its management of market risk, see Disclosures about Market Risk. As of 30 June 2006, the Hochschild Mining Group had cash and cash equivalents of US$6.0 million as compared to US$2.5 million as of 31 December 2005. On 16 October 2006, the Hochschild Mining Group declared US$20.0 million in dividends. These dividends will not be paid prior to Admission. In addition, the Hochschild Mining Group has ongoing capital expenditures. See Capital Expenditure. Based on the latest unaudited management information available, the Hochschild Mining Group had cash and cash equivalents of US$8.6 million as of 31 August 2006. Credit facilities As of 30 June 2006, the Hochschild Mining Groups non-current borrowings were US$30.3 million and its current borrowings, including the current portion of long-term borrowings, were US$54.4 million. As of 31 December 2005, the Hochschild Mining Groups non-current borrowings were US$31.1 million and its current borrowings, including the current portion of long-term borrowings, were US$69.8 million. Based on the latest unaudited management information available, the Hochschild Mining Group had outstanding borrowings of US$53.9 million as of 31 August 2006. On 16 April 2003, Compana Minera Ares entered into a US$40 million syndicated loan with an original maturity date of 20 July 2006. This loan was prepaid with part of the proceeds of a US$70 million secured syndicated term-loan with a maturity date of 31 August 2007 entered into by Compana Minera Ares with Banco de Credito del Peru, Citibank N.A. and Banco Internacional del Peru on 13 August 2004, which was amended with effect from 11 May 2006. The loan was originally repayable in ten equal quarterly instalments starting in May 2005. Following the amendment in May 2006, the loan is now repayable in ve equal quarterly instalments of US$8,960,682.76 each starting on 31 August 2006. It is denominated in US dollars and bears interest at an annual rate of LIBOR plus 3.7 per cent. The loan is secured by pledges of or security over the shares in Compana Minera Ares granted by Ludlow Corporation, Ardsley Corporation, Gamson Corporation and Larchmont Corporation, wholly owned subsidiaries of the Company, the payment collections account in respect of product sales of Compana Minera Ares, the mining and processing concessions held by Compana Minera Ares in respect of the Ares and Selene units, as well as over all buildings, facilities and other assets located at the Ares and Selene units. In connection with the agreement, there are also restrictions on Compana Minera Ares ability, inter alia, to dispose of assets, create security interests, incur long-term and short-term debt, and incur expenditure for xed or other non-current assets. In addition, under the terms of this agreement, Compana Minera Ares must comply with certain nancial covenants, including an interest coverage ratio of no less than 6.0, a debt service coverage ratio of no less than 1.20, a net debt to EBITDA ratio of no greater than 1.20 and a current ratio of no less than 1.0. As at 31 August 2006, the principal amount outstanding on the syndicated loan was US$33.6 million. 124
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At the time it entered into the original US$40 million syndicated loan, Compana Minera Ares entered into an interest rate swap as a result of which it xed the interest rate on the loan at 1.67 per cent. The Hochschild Mining Group did not change these arrangements when it replaced the US$40 million loan with the US$70 million syndicated loan. The interest rate swap expired as of 20 July 2006. The Hochschild Mining Group does not currently intend to hedge its interest rate exposure on the remaining amount outstanding under the syndicated loan. On 26 September 2005, Compana Minera Arcata S.A. entered into a foreign currency credit facility with Banco Interamericano de Finanzas in an amount of US$2.4 million. The credit facility is repayable in nine quarterly instalments at an interest rate of 8.75 per cent. See Part XIV: Additional InformationMaterial ContractsFinancing DocumentsCredit Facility with Banco Interamericano de Finanzas. As at 31 August 2006, the principal amount outstanding on the foreign currency credit facility was US$1.4 million. On 4 October 2006, Lorenzon Limited entered into a promissory note in connection with a loan made by Banco de Credito del Peru in an amount of US$20 million. The purpose of this loan is to provide short-term nance for the development expenses of the San Jose project. The loan has a maximum term of four months and interest is payable at a rate of 120 day LIBOR plus 2.5 per cent. See Part XIV: Additional InformationMaterial ContractsFinancing DocumentsPromissory Note. The Hochschild Mining Groups current debt (excluding current portions of long-term loans) consists of short-term credit borrowings pursuant to uncommitted credit facilities with a number of both local and international banking institutions. The Hochschild Mining Group uses these facilities to manage timing differences between production of concentrate and dore and the receipt of proceeds from sales. Borrowings under these facilities typically have a duration of 90 days, but can be for shorter periods. As at 31 August 2006, the principal amount outstanding under these arrangements was US$18.1 million and the average interest rate was 5.94 per cent. For additional information about the Hochschild Mining Groups borrowings, see note 24 to IFRS Historical Financial Information of the Hochschild Mining Group included in Part IX and paragraph 12.2 of Part XIV: Additional InformationMaterial contractsFinancing Documents. Contractual obligations and commitments The following tables sets out the Hochschild Mining Groups material contractual obligations and their maturity as at 30 June 2006. See Note 32 to the IFRS Historical Financial Information of the Hochschild Mining Group included in Part IX for addition information about the Hochschild Mining Groups contractual commitments.
Less than one year 1-3 years 3-5 years US$(000) Over 5 years Total

Borrowings ******************************************* Gold and silver futures contracts(1) ********************** Mining rights purchase options************************* Capital expenditurecommitted *********************** Pallancata project(2) ************************************ Exmin Project (Mina Moris mine)(3) ********************** San Felipe Project(4) ************************************ Operating lease *************************************** Total ************************************************* Notes:

54,383 87,517 11,112 6,777 3,000 4,200 877 167,866

30,315 5,222 6,667 1,076 43,280

15,522 15,522

13,300 13,300

84,698 87,517 45,156 6,777 3,000 4,200 6,667 1,953 239,968

(1) Calculated using the number of ounces of gold or silver committed to be sold under the contracts, the London Bullion Market Association spot xing price for silver on 30 June 2006 of US$10.70 per ounce and the London Bullion Market Association PM spot xing price for gold on 30 June 2006 of US$613.50 per ounce. See Disclosures about market risk Commodity price risk.

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(2) Represents the obligation of Pallancata Holding S.A.C. (formerly known as Minera Coriorco S.A.C.), an indirect subsidiary of the Company, to contribute capital to Suyamarca S.A.C., the entity formed to develop the Pallancata project. See Part XIV: Additional InformationMaterial ContractsJoint Ventures and other agreementsPallancata. (3) Represents the obligation of Minera Hochschild Mexico, S.A. de C.V. (MHM), an indirect subsidiary of the Company, to pay a portion of the purchase price for the Mina Moris mine. See Part XIV: Additional informationMaterial ContractsJoint Ventures and other agreementsContract for the Sale of Mina Moris Mine. This amount was paid on 16 July 2006. (4) Represents the obligation of MHM to pay costs and make investments in exploration expenses in relation to the San Felipe project. See Part XIV: Additional informationMaterial ContractsJoint Ventures and other agreementsSan Felipe.

Off balance sheet items The Hochschild Mining Group had no off balance sheet items at 31 December 2003, 2004 or 2005 or at 30 June 2006. Capital expenditure In 2003, 2004 and 2005, the Hochschild Mining Groups capital expenditure was US$18.8 million, US$12.3 million and US$18.9 million, respectively (including intangibles such as licenses and mine development costs). The expenditure in 2003 primarily related to additional development at Arcata and Selene. Expenditure in 2004 was principally for development at San Jose and Arcata. In 2005, capital expenditure was principally for development at Selene and Arcata. In the six months to 30 June 2006, the Hochschild Mining Groups capital expenditure was US$16.7 million and related primarily to the development of San Jose. The Hochschild Mining Groups budgeted capital expenditure for the six months ending 31 December 2006 and for 2007 is US$52.7 million and US$79.1 million, respectively. These funds are expected to come from operating cash ows and the proceeds of the Global Offer and are expected to be used primarily to continue the development of San Jose and Pallancata. These amounts differ from the budgeted capital expenditure set forth in Part XV: Technical Report because the amounts in the Technical Report cover planned expenditure only at the existing mines and not at the Hochschild Mining Groups development projects. Disclosures about market risk The following information should be read in conjunction with Part IX: IFRS Historical Financial Information. The Hochschild Mining Group is exposed to change in commodity prices, foreign exchange rates and interest rates through its commercial and nancial operations. Additionally, members of the Hochschild Mining Group are engaged in hedging activities. Commodity price risk The Hochschild Mining Group is exposed to the effect of uctuations in commodity prices. The principal exposures are to the prices of silver and gold, which are the products produced by the Group and which are quoted in US dollars on international markets. Price variations and market cycles have historically inuenced the nancial results of the Hochschild Mining Group and the Directors expect they will continue to do so. See Factors Affecting Results of OperationsCommodity Prices above. As of 30 September 2006, the Hochschild Mining Group had a number of forward sales contracts with Standard Bank and Citibank in relation to the gold rened from its dore which it has entered into as part of the security package for the Hochschild Mining Groups US$70 million loan facility (see Liquidity and Capital ResourcesCredit Facilities), the last of which will expire in June 2007. 126
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Counterparty Outstanding hedge (oz) Contract Exercise Price Start End

Standard Bank ******************************************** Citibank ************************************************** Citibank ************************************************** Total****************************************************** Citibank **************************************************

11,720 33,500 36,600 81,820 16,200

Flat Fwd Flat Fwd Short Call Put

406.34 416.65 419.20 332.00

Jul-06 Aug-06 Jan-07 Aug-06

Dec-06 Jun-07 Jun-07 Jun-07

As at 30 September 2006 the Hochschild Mining Group also had a limited number of other forward sale and option arrangements in relation to the silver produced from its dore which are due to expire in December 2006.
Counterparty Outstanding hedge (oz) Exercise Plan Contract Min Max Start End

International Assets ************************************** Standard Bank******************************************* Total ****************************************************

487,000 1,000,000 1,487,000

Min/Max Min/Max

7.45 8.40

8.43 10.60

Jul-06 Jul-06

Dec-06 Dec-06

Going forward, the Hochschild Mining Group does not intend to hedge its silver and gold production unless it is required to do so as part of any project nancing arrangements. It intends to equity nance its projects unless, in the context of a joint venture, the joint venture partner requires project nance to be put in place. Foreign currency exchange rate risk The Hochschild Mining Groups products are commodities that typically are priced by reference to prices in US dollars and the Company presents its results in US dollars. However, the Hochschild Mining Group incurs a signicant portion of its costs in Nuevos Soles and in the future anticipates that it may also have signicant costs denominated in Argentine Pesos and Mexican Pesos. The Hochschild Mining Group typically borrows in US dollars. For accounting purposes, expenses incurred in currencies other than the US dollar are converted into US dollars at the exchange rate prevailing on the date of the transaction. Because a signicant portion of the Hochschild Mining Groups expenses are incurred in currencies other than the US dollar, the Hochschild Mining Groups expenses may from time to time increase or decrease relative to its revenues as a result of the uctuations of the relevant exchange rates. This could affect the results of operations that the Hochschild Mining Group reports in future periods. See Factors Affecting Results of OperationsExchange Rates above. The Hochschild Mining Group does not hedge its exposure to foreign currency risk. Interest rate risk The Hochschild Mining Group is exposed to interest rate risk principally in relation to its outstanding bank loans. In particular, it is exposed to changes in the LIBOR interest rate of US dollar-denominated debt, as substantially all of its debt both (i) is denominated in US dollars and (ii) has a variable LIBOR rate. Critical accounting policies and estimates The Hochschild Mining Groups signicant accounting policies are more fully described in note 2 to the IFRS Historical Financial Information of the Hochschild Mining Group included in Part IX. Some of the Hochschild Mining Groups accounting policies require the application of signicant judgment and estimates by management that can affect the amounts reported in the nancial statements. By their nature, these judgments are subject to a degree of uncertainty and are based on the Hochschild Mining Groups historical experience, terms of existing contracts, managements view on trends in the silver and gold mining industry, information from outside sources and other assumptions that the Hochschild Mining Group considers to be reasonable 127
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under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. The Hochschild Mining Groups critical accounting policies that are subject to signicant estimates and assumptions are summarised below. Revenue recognition Revenue is recognised to the extent that it is probable that economic benets will ow to the Hochschild Mining Group and the revenue can be reliably measured. Revenue associated with the sale of goods is recognised in the income statement when all signicant risks and rewards of ownership are transferred to the customer, usually when title has passed to the customer. For concentrate, revenue is recognised at the time it is loaded into the ship at the port of Matarani in Peru. The agreement with Penoles provides for CIF FO (Free Out). Thus, while the cost of insurance is borne by the Hochschild Mining Group, the policy is endorsed (assigned) in favour of Penoles because risk is deemed to pass to Penoles at the port of Matarani. Full title, however, is not transferred until the concentrate arrives at the port of Tampico in Mexico. For sales of concentrate, the Company often retains exposure to price uctuations for an agreed period of time after the sale has been recorded. In such instances, this price exposure is recorded at fair value with reference to future commodity prices, and revalued each period, with changes in the fair value recorded in Other income. If an exposure remains open across more than one nancial period, management must estimate the likely effect of price uctuations for purposes of recording the change in fair value. Valuation of property, plant and equipment For the purpose of the transition to IFRS, the Company commissioned Consultores & Assessores 2020 S.A.C. to carry out an independent appraisal of certain items of property, plant and equipment as of 1 January 2003 to determine their deemed cost at that date. The deemed cost of property, plant and equipment was determined primarily with reference to depreciated replacement cost. Management believes that the deemed cost reected the economic condition of the Hochschild Mining Groups property, plant and equipment at that time. The revaluation process carries a signicant element of judgment; however, management believes that the use of an appropriately qualied independent appraiser has resulted in a deemed cost of property, plant and equipment that is suitable for inclusion in the Hochschild Mining Groups IFRS nancial information. Depreciation Mine related assets are depreciated on a unit of production basis over the estimated economically recoverable reserves and a percentage of resources to which they relate. The Hochschild Mining Group estimates its ore reserves and mineral resources based on information compiled by internal geologists each year. There are numerous uncertainties inherent in estimating ore reserves and the Hochschild Mining Group must make a number of assumptions in making those estimations, including assumptions as to the prices of commodities, exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change signicantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. 128

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Impairment of assets The carrying amounts of xed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The Hochschild Mining Group monitors indicators of impairment, including a signicant decline in market value, technological changes, changes in the legal environment, changes in interest rates or rates of return, market capitalisation, evidence of obsolescence or physical damage, discontinuance plans, disposal plans, restructuring plans and asset performance decline. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash ows independent of other assets, and then the review is undertaken at the cash generating unit level. If the carrying amount of the xed assets exceeds the recoverable amount, a provision is recorded to reect the asset at the lower value. Impairment losses are recognised in the income statement. The calculation of the recoverable amount of an asset requires signicant judgments, estimates and assumptions, including about future demand, technological changes, exchange rates, interest rates and others. The Hochschild Mining Group carries out reviews of xed assets and intangible assets when there are changes in events or circumstances that indicate that the carrying amount of such assets might not be recoverable. Changes in events or circumstances, including economic or market conditions. technological advances and competition, may affect previous assumptions and estimates and could have an impact on the Hochschild Mining Groups results of operations or nancial position through impairment charges. Provisions Provisions are recognised when the Hochschild Mining Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash ows at a pre-tax rate that reects current market assessments of the time value of money and, where appropriate, the risks specic to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a nance cost. Environmental contingencies As a mining company, the Hochschild Mining Group is exposed to potential environmental liabilities in the ordinary course of its business. Provisions for liabilities relating to environmental matters, including site restoration, require complex evaluations of applicable environmental regulations, clean-up and site restoration strategies, the environmental technologies available and the costs of each. The Hochschild Mining Group records provisions for environmental liabilities in the accounting period in which the related environmental disturbance occurs. At the time of establishing the provision, a corresponding asset is capitalised where it gives rise to a future benet and depreciated over future production from the mine to which it relates. The provision is discounted where material and the unwinding of the discount is included in interest payable. The provision is reviewed on an annual basis for changes in cost estimates, discount rates or life of operations. Taxation The determination of the Hochschild Mining Groups obligations and expense for taxes requires an interpretation of tax law. The Hochschild Mining Group seeks appropriate professional tax advice before making judgments on tax matters. While it believes that its judgments are prudent 129
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and appropriate, signicant differences in actual experience may materially affect the Hochschild Mining Groups future tax charges. The Hochschild Mining Group provides deferred taxes in full on all timing differences that result at the balance sheet date in an obligation to pay more tax or a right to pay less tax at a future date, subject to recoverability of the deferred tax assets. Deferred tax assets and liabilities are not discounted. Inventories Inventories are stated at the lower of cost and net realisable value. In assessing the ultimate realisation of inventories, the Hochschild Mining Group is required to make judgments as to future demand requirements and compare that with the current or committed inventory levels. Financial instruments The fair value of nancial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash ow techniques. Where discounted cash ow techniques are used, estimated future cash ows are based on managements best estimates and the discount rate is a market related rate at the balance sheet date for an instrument with similar terms and conditions. The fair value of derivatives that are not exchange-traded is estimated at the amount that the Hochschild Mining Group would receive or pay to terminate the contract at the balance sheet date taking into account current market conditions and the creditworthiness of the counterparties. Functional currencies The functional currency for each entity in the Hochschild Mining Group is determined by the currency of the primary economic environment in which it operates. For the operating entities it is US dollars and for the other entities it is the local currency of the country in which it operates. In determining the appropriate functional currency for an entity, management must exercise its judgment to determine which currency most faithfully represents the economic effects of the entitys underlying transactions, events and conditions by taking into consideration, among other things, the currency that mainly inuences sales prices and cost of sales as well the currency of the country whose competitive forces and regulations mainly determine the entitys sales prices.

Recent accounting pronouncements

In preparing the combined historical nancial information, the Hochschild Mining Group has not applied the following accounting standards, for which adoption is not currently mandatory: IFRS 7Financial Instruments: Disclosures. This standard is effective for annual periods beginning on or after 1 January 2007. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from nancial instruments. The Hochschild Mining Group has assessed the impact of IFRS 7 and has concluded that the main additional disclosure will be a sensitivity analysis to market risk. Amendment to IAS 1Presentation of Financial StatementsCapital Disclosures. The amendment is effective for annual periods beginning on or after 1 January 2007. It requires disclosures about the level of an entitys capital and how it manages capital. The Hochschild Mining Group has assessed the impact of the amendment to IAS 1 and has concluded that the main additional disclosure will be the capital disclosures required by the amendment.

Recent developments
On 10 July 2006, Compania Minera Coriorco (a Hochschild Mining Group company recently renamed Pallancata Holding S.A.C.) (Coriorco) succeeded to the rights of Ludlow Corporation in 130

Part VIIOperating and nancial review

respect of a joint venture agreement with Minera Oro Vega S.A.C. (Minorva) to construct a mine on the Pallancata property. On 16 August 2006, Coriorco and Minorva established Minera Suyamarca S.A.C. (Minera Suyamarca) to hold the title to the Pallancata mining concessions. Coriorco owns 60 per cent. of Minera Suyamarca and Minorva holds 40 per cent. For details of the terms of the joint venture agreement see Part XIV: Additional InformationMaterial ContractsJoint Ventures and other agreementsPallancata. On 11 July 2006, Minera Hochschild Mexico S.A. de C.V., a Hochschild Mining Group Company (MHM), made payment of US$1,050,000 under an option agreement it and Exmin S.A. de C.V. had entered into with Minera Moris S.A. de C.V. to acquire the Minera Moris mine. The Hochschild Mining Groups total obligation under the option agreement is US$4,500,000. The remaining payment is due on the earlier of (i) the date that is 15 days from the date on which MHM concludes to its full satisfaction the studies and tests that form part of its due diligence process and (ii) 31 December 2006. See Part XIV: Additional InformationMaterial ContractsJoint Ventures and other agreementsContract for the Sale of Mina Moris Mine. On 18 September 2006, the Hochschild Mining Group entered into a letter of intent with Mirasol Resources Ltd. relating to an option and joint venture agreement to explore for, and develop, minerals at two sites (Santa Rita and Claudia) in Argentina. Under the arrangements, the Hochschild Mining Group will have the right to acquire a 51 per cent. interest in each project by investing at least US$3.5 million in the Santa Rita project and at least US$6.0 million in the Claudia project. The Hochschild Mining Group paid US$150,000 on signing the letter of intent. On 4 October 2006, Lorenzon Limited entered into a promissory note in connection with a loan made by Banco de Credito del Peru for an amount of US$20 million. For more detail, see Liquidity and Capital ResourcesCredit Facilities on page 124. During October 2006, the Hochschild Mining Group net settled all of its related party balances, with the exception of the amounts owing from Cementos Pacasmayo S.A.A., a US$1 million receivable from Greystone Corporation and the dividend referred to in the following paragraph. The net amount owing was settled primarily through the transfer of the entire amount of the Groups Other nancial assets at fair value through prot and loss, with the balance paid in cash. See note 30 to the IFRS Historical Financial Information of the Hochschild Mining Group in Part IX. On 16 October 2006, the Hochschild Mining Group declared a dividend totalling US$20.0 million, which was settled in part as a result of the net settlement process referred to in the preceding paragraph. The balance of this dividend will not be paid prior to Admission.

Current trading and prospects

Since 30 June 2006, revenues are ahead of the rst half as a result of a production volume increase at Arcata and the impact of higher average prices of silver and gold over the period. With regard to pricing, however, the prices of silver and gold have eased since the highs of May 2006. Since the half year, operating costs have increased broadly in line with revenues. There has been an increase in administrative expenses, principally as a result of expenses attributable to the Global Offer, and an increase in exploration expenses mainly due to increased drilling activity at Mina Moris, San Felipe and Selere. Costs remain under close scrutiny and the Directors expect the Group to maintain its position as a low cash cost producer going forward. The Groups development projects continue to progress in line with managements plans. Despite the recent commodity price volatility, the Directors anticipate that revenues from the Group for the remainder of the year will be in line with expectations. Silver volumes are expected to be slightly ahead of nancial year 2005 with gold volumes down, reecting managements decision to target lower grade ore at Ares. The operating mines, together with the potential provided by the Groups project pipeline and its low cost base, enable the Directors to look ahead with condence. 131
PRA1 12.1, 12.2

Part VIII: Capitalisation and indebtedness statement

Capitalisation and indebtedness statement The following table shows the indebtedness of the Hochschild Mining Group as at 31 August 2006 extracted without material adjustment from the unaudited management accounts of the Company.
As at 31 August 2006 Unaudited US$000

PRA3 3.2

Current Debt Secured(2)(3) ************************************************************************************** Unguaranteed/unsecured ************************************************************************* Total current debt ******************************************************************************** Non-current debt Secured(2) **************************************************************************************** Unguaranteed/unsecured ************************************************************************* Total non-current debt *************************************************************************** Total indebtedness
(1)

34,914 35,937 70,851 869 23,676 24,545 95,396

*****************************************************************************

The following table shows the capitalisation of the Hochschild Mining Group as at 30 June 2006 extracted without material adjustment from the nancial information set out in Section B: IFRS Historical Financial Information of Part IX: IFRS Historical Financial Information.
As at 30 June 2006 US$000

Shareholders equity (excluding retained earnings) Share capital *************************************************************************************** Share premium ************************************************************************************* Other reserves************************************************************************************** Total capitalisation(4) ******************************************************************************** Notes:

9,187 1,696 10,883

(1) The Hochschild Mining Group does not hold any external debt which is subject to guarantees provided by third parties. (2) The Hochschild Mining Group on 13 August 2004 borrowed an aggregate principal amount of US$70 million from a syndicate of various nancial institutions. The interest payable on the unpaid principal amount of the loan is a rate per annum equal to LIBOR + 3.7 per cent. The syndicated loan contains certain nancial covenants. The syndicated loan is secured by: ) An accounts pledge with Banco de Credito del Peru as Administrative Agent, Collateral Agent and Cash Management Bank, under which security has been granted over the collection account held by Compana Minera Ares with Banco de Credito del Peru. ) A hedge collateral agreement with Standard Bank London Limited and N. M. Rothschild & Sons Limited under which Compana Minera Ares established a segregated cash account. The parties have agreed that such cash account will hold an initial amount of US$5,000,000 plus any proceeds of any collateral property. ) A mining mortgage with Banco de Credito del Peru (As Agent for the Lenders) over Compana Minera Ares mining concessions, buildings, facilities and other xed assets as security for full payment of $87,500,000.00 as capital plus interest. ) A mining mortgage with Banco de Credito del Peru (as Agent for the Lenders) over Compana Minera Ares processing plant as security for full payment of $87,500,000 as capital plus interest. ) A global and oating pledge agreement with Banco de Credito del Peru (as Agent for the Lenders) over all of the minerals during the extraction or production stages at Compana Minera Ares concessions as security for full payment of $87,500,000 as capital, plus interest. ) A share pledge agreement with Banco de Credito del Peru (as Agent for the Lenders) over the shares in Compana Minera Ares as security for full payment of $87,500,000 as capital plus interest. (3) On 26 September 2005, Compana Minera Arcata S.A. entered into a foreign currency credit facility with Banco Interamericano de Finanzas in an amount of US$2.4 million. The credit facility is repayable in nine quarterly instalments at an interest rate of 8.75 per cent. Under the terms of the Credit Facility, Compana Minera Arcata S.A. has granted Banco Interamericano de Finanzas a pledge over its assets to the value of US$3,388,585.11. See paragraph 12.2.3 of Part XIV: Additional Information. (4) There has been no material change in the capitalisation of the Company from 30 June 2006 to 2 November 2006 save for the allotment and issue to Pelham Investment Corporation and Navajo Overseas Corporation of, in aggregate,

132

Part VIIICapitalisation and indebtedness statement

229,900,000 ordinary shares in the Company pursuant to the share exchange agreement in accordance with paragraph 2.5 of Part XIV: Additional Information.

The following table shows the net indebtedness in the short term and in the medium-long term of the Hochschild Mining Group as at 31 August 2006 extracted without material adjustment from the unaudited management accounts of the Company.
As at 31 August 2006 Unaudited US$000

PRA1 3.1

Cash ******************************************************************************************** Liquidity***************************************************************************************** Current bank debt ******************************************************************************* Current portion of non-current debt ************************************************************** Other current nancial debt ********************************************************************** Current Financial Indebtedness******************************************************************** Net Current Financial Indebtedness **************************************************************
(1)

8,624 8,624 34,914 35,937 70,851 62,227 869 23,676 24,545 86,772

Non-current bank loans ************************************************************************** Other non-current loans ************************************************************************** Non-Current Financial Indetedness **************************************************************** Net Financial Indebtedness(2) ********************************************************************** Notes: (1) Total current nancial debt less liquidity. (2) Total non-current nancial indebtedness less excess of total liquidity over total current nancial debt.

133

Part IX: IFRS historical nancial information

Section A: Accountants report on IFRS nancial information
The Directors, Hochschild Mining plc Pasaje El Carmen No. 180 Surco Lima 33 Peru 3 November 2006
PRA1 20.1, 20.3, 20.4.1, 20.5.1

Dear Sirs Hochschild Mining plc We report on the audited nancial information set out in Section B: IFRS Historical Financial Information. We do not report on the 30 June 2005 unaudited nancial information. This nancial information has been prepared for inclusion in the prospectus dated 3 November 2006 of Hochschild Mining plc on the basis of the accounting policies set out in Note 2. This report is required by Annex I item 20.1 of the PD Regulation and is given for the purpose of complying with that paragraph and for no other purpose. Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the prospectus. Responsibilities The Directors of Hochschild Mining plc are responsible for preparing the nancial information on the basis of preparation set out in Note 2. It is our responsibility to form an opinion as to whether the nancial information gives a true and fair view, for the purposes of the prospectus, and to report our opinion to you. Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the nancial information. It also included an assessment of signicant estimates and judgments made by those responsible for the preparation of the nancial information and whether the accounting policies are appropriate to the entitys circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufcient evidence to give reasonable assurance that the nancial information is free from material misstatement whether caused by fraud or other irregularity or error. Our work has not been carried out in accordance with auditing standards generally accepted in the United States of America and accordingly should not be relied upon as if it had been carried out in accordance with those standards. 134

Part IXIFRS historical nancial information

Opinion In our opinion, the nancial information gives, for the purposes of the prospectus dated 3 November 2006, a true and fair view of the state of affairs of Hochschild Mining plc as at the dates stated and of its prots, cash ows and changes in equity for the periods then ended in accordance with the basis of preparation set out in Note 2. Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I of the Prospectus Regulation. Yours faithfully

Ernst & Young LLP

135

Part IXIFRS historical nancial information

Section B: IFRS Historical nancial information
COMBINED INCOME STATEMENT
Six-month period ended 30 June Year ended 31 December Notes 2003 2004 2005 Unaudited 2005 2006

PRA1 20.1, 20.3, 20.6.1, 20.6.2

(in thousands of US dollars)

Continuing operations Revenue ****************************************** Cost of sales ************************************** Gross prot *************************************** Administrative expenses *************************** Exploration expenses ****************************** Gain on sale of zinc project ************************ Selling expenses *********************************** Other income ************************************* Other expenses************************************ Prot from continuing operations before net nance costs and income tax **************************** Finance income *********************************** Finance costs ************************************** Foreign exchange gain/(loss) *********************** Prot from continuing operations before income tax Income tax expense ******************************* Prot for the year/period from continuing operations ************************************** Discontinued operations (Loss)/ prot for the year/period from discontinued operations ************************************** Prot for the year/period ************************** Attributable to: Equity shareholders of the Company**************** Minority interest **********************************

5 6 7 8 9 10 12 12

93,771 (41,514) 52,257 (16,472) (11,822) (1,794) 5,457 (2,936) 24,690 326 (4,977) 579 20,618 (9,108) 11,510

159,052 (82,292) 76,760 (22,997) (23,063) (3,880) 7,081 (7,395) 26,506 1,296 (6,702) 299 21,399 (11,453) 9,946

151,319 (73,592) 77,727 (24,371) (28,057) 14,558 (3,161) 13,016 (2,821) 46,891 4,144 (10,105) (552) 40,378 (9,673) 30,705

65,779 (30,805) 34,974 (10,829) (18,657) 14,558 (1,338) 3,199 (1,280) 20,627 1,555 (4,463) 1,085 18,804 (5,966) 12,838

92,286 (33,705) 58,581 (15,814) (7,654) (1,366) 10,495 (4,636) 39,606 2,843 (5,121) (27) 37,301 (14,733) 22,568

13 13

14

29

(1,371) 10,139 11,900 (1,761) 10,139

(731) 9,215 13,500 (4,285) 9,215

12,179 42,884 46,737 (3,853) 42,884

9,395 22,233 27,744 (5,511) 22,233

22,568 24,198 (1,630) 22,568

136

Part IXIFRS historical nancial information

COMBINED BALANCE SHEET
As of 31 December Notes 2003 2004 2005 (in thousands of US dollars) As of 30 June 2006

ASSETS Non-current assets Property, plant and equipment********************************* Intangible assets ********************************************** Available-for-sale nancial assets ******************************* Deferred income tax assets ************************************ Trade and other receivables************************************ Derivative nancial instruments ******************************** Current assets Inventories**************************************************** Trade and other receivables************************************ Derivative nancial instruments ******************************** Other nancial assets at fair value through prot and loss ******* Cash and cash equivalents ************************************* Assets classied as held for sale ******************************** Total assets *************************************************** EQUITY AND LIABILITIES Capital and reserves attributable to Parent Share capital************************************************** Other reserves ************************************************ Retained earnings ********************************************* Minority interest ********************************************** Total equity*************************************************** Non-current liabilities Trade and other payables ************************************** Derivative nancial instruments ******************************** Borrowings *************************************************** Provisions***************************************************** Deferred income tax liabilities ********************************* Current liabilities Trade and other payables ************************************** Borrowings *************************************************** Provisions***************************************************** Income tax payable ******************************************* Liabilities directly associated with assets classied as held for sale Total liabilities ************************************************ Total equity and liabilities *************************************

15 16 17 27 18 20

84,119 2,091 9,192 1,079 4,730 132 101,343

55,481 2,091 16,126 2,794 26,991 377 103,860 11,514 49,956 1,487 15,072 5,633 83,662 7,005 194,527

59,403 2,091 26,267 10,990 6,050 1,902 106,703 10,499 81,106 7,047 19,835 2,467 120,954 3,844 231,501

67,155 2,321 4,135 14,880 5,982 94,473 14,002 81,347 11,524 19,324 6,043 132,240 3,003 229,716

19 18 20 21 22 29

18,558 28,142 885 11,912 4,242 63,739 165,082

9,166 277 (9,692) (249) 2,482 26 23 20 24 25 27 2,233 2,065 49 36,304 50,219 6,509 95,146 23 24 27,076 40,418 209 67,703 29 162,849 165,082

9,187 6,588 (15,910) (135) (1,833) (1,968) 3,135 56,899 41,426 3,154 104,614 31,048 52,953 1,170 85,171 6,710 196,495 194,527

9,187 11,806 28,383 49,376 (2,533) 46,843 3,161 31,089 36,939 4,134 75,323 34,567 69,793 4,975 109,335 184,658 231,501

9,187 1,696 (561) 10,322 (3,841) 6,481 3,450 30,315 33,183 3,097 70,045 91,032 54,383 7,775 153,190 223,235 229,716

137

Part IXIFRS historical nancial information

COMBINED CASH FLOW STATEMENT
Six-month period ended 30 June Year ended 31 December Notes 2003 2004 2005 Unaudited 2005 2006

(in thousands of US dollars)

Cash ows from operating activities Cash generated from operations ******************* Interest received ********************************** Interest paid ************************************** Payment of mine closure costs ********************* Tax paid ****************************************** Net cash generated from operating activities ******* Cash ows from investing activities Purchase of property, plant and equipment ********* Proceeds from sale of property, plant and equipment************************************** Acquisitions of available-for-sale nancial assets **** Acquisition of shares from Colorada **************** Purchase of other nancial assets at fair value through prot and loss ************************** Proceeds from other nancial assets at fair value through prot and loss ************************** Proceeds from sale of zinc project ****************** Proceeds from sale of Corianta ********************* Proceeds from sale of Caylloma ******************** Proceeds from sale of xed assets of Sipan********** Dividends received ******************************** Net cash used in investing activities**************** Cash ow from nancing activities Proceeds of borrowings**************************** Repayment from borrowings*********************** Dividends paid ************************************ Capital contribution ******************************* Purchase of shares from minority shareholder ******* Capital contribution from minority shareholder ***** Repayment of capital****************************** Cash ows generated from (used in) nancing activities**************************************** Net (decrease)/increase in cash and cash equivalents during the year/period ************************** Cash and cash equivalents at beginning of year/period ************************************* Cash and cash equivalents at end of year/period****

31

25,290 53 (3,131) (1,063) (13,319) 7,830 (18,820) 891 (39,017) 27,080 (29,866) 77,750 (49,151) (4,156) (4,927) 1,762 21,278 (758) 5,000

25,318 112 (5,322) (1,804) (14,878) 3,426 (12,253) 2,040 (392) (6,652) 3,834 (13,423) 127,875 (94,745) (20,710) 21 (1,053) 11,388 1,391 4,242 5,633

37,350 345 (8,434) (5,228) (12,602) 11,431 (18,896) 239 (3,107) (21,537) 17,566 15,558 806 3,050 182 (6,139) 118,103 (127,073) (50) (2,667) 3,229 (8,458) (3,166) 5,633 2,467

16,323 (2,375) (4,393) (8,507) 1,048 (8,112) (3,490) (15,232) 11,456 15,558 806 100 1,086 53,376 (59,336) (1,879) 2,454 (5,385) (3,251) 5,633 2,382

49,901 4,067 (3,210) (2,518) (15,176) 33,064 (16,652) 236 (1,300) (14) (5,867) 6,081 4,500 841 (12,175) 61,997 (77,266) (1,353) (20) (671) (17,313) 3,576 2,467 6,043

9 9 29

26

22

4,242

138

COMBINED STATEMENT OF CHANGES IN EQUITY

Note (in thousands of US dollars)

Equity share capital (including additional capital) Unrealised gain/(loss) on available-for-sale nancial assets Cumulative translation adjustment Retained earnings Minority interest Total Other reserves

Total Equity

17

26

17

Part IXIFRS historical nancial information

139
26 17 26

Balance at 1 January 2003*********************************************** Fair value gains on available-for-sale nancial assets ********************** Translation adjustment for the year ************************************** Net income recognised directly in equity ********************************* Prot for the year ****************************************************** Total recognised income for 2003 **************************************** Purchase of shares from minority shareholders**************************** Capital contribution from minority interest ******************************* Minority interests share of contribution to Santa Cruz ******************** Dividends ************************************************************** Dividends expired******************************************************* Balance at 31 December 2003 ******************************************* Fair value gains on available-for-sale nancial assets ********************** Translation adjustment for the year ************************************** Net income recognised directly in equity ********************************* Prot for the year ****************************************************** Total recognised income for 2004 **************************************** Purchase of shares from minority shareholders**************************** Capital contribution***************************************************** Dividends paid********************************************************** Balance at 31 December 2004 ******************************************* Fair value gains on available-for-sale nancial assets ********************** Translation adjustment for the year ************************************** Net income recognised directly in equity ********************************* Prot for the year ****************************************************** Total recognised income for 2005 **************************************** Purchase of shares from minority shareholders**************************** Capital contribution of minority interest *********************************

9,166 9,166 21 9,187

(1,461) 1,692 1,692 1,692 231 6,542 6,542 6,542 6,773 4,492 4,492 4,492

46 46 46 46 (231) (231) (231) (185) 726 726 726

(1,461) 1,692 46 1,738 1,738 277 6,542 (231) 6,311 6,311 6,588 4,492 726 5,218 5,218

(14,308) 11,900 11,900 (3,106) (4,200) 22 (9,692) 13,500 13,500 (996) (18,722) (15,910) 46,737 46,737 (2,444)

3,384 312 312 (1,761) (1,449) (1,821) 1,762 601 5 2,482 27 27 (4,285) (4,258) (57) (1,833) 147 147 (3,853) (3,706) (223) 3,229

(3,219) 1,692 358 2,050 10,139 12,189 (4,927) 1,762 601 (4,200) 27 2,233 6,542 (204) 6,338 9,215 15,553 (1,053) 21 (18,722) (1,968) 4,492 873 5,365 42,884 48,249 (2,667) 3,229

COMBINED STATEMENT OF CHANGES IN EQUITY (continued)

Note (in thousands of US dollars)

Equity share capital (including additional capital) Unrealised gain/(loss) on available-for-sale nancial assets Cumulative translation adjustment Retained earnings Minority interest Total Other reserves

Total Equity

Balance at 31 December 2005 ******************************************* Fair value gains on available -for- sale nancial assets ********************* Translation adjustment for the period ************************************ Net income recognised directly in equity ********************************* Prot for the period **************************************************** Sale of available -for- sale nancial assets ******************************** Total recognised income for the six-month period ended 30 June 2006 ***** Dividends paid********************************************************** Capital contribution from minority interest ******************************* Repayment of capital *************************************************** Balance at 30 June 2006************************************************* 17 9,187 9,187 11,265 13,023 13,023 (22,844) 1,444 1,444 541 (289) (289) (289) 252 11,806 13,023 (289) 12,734 (22,844) (10,110) 1,696 28,383 24,198 24,198 (53,142) (561)

(2,533) 376 376 (1,630) (1,254) (298) 915 (671) (3,841)

46,843 13,023 87 13,110 22,568 (22,844) 12,834 (53,440) 915 (671) 6,481

Part IXIFRS historical nancial information

140

Balance at 31 December 2004 ******************************************* Fair value gains on available-for-sale nancial assets (unaudited) ********** Translation adjustment for the period (unaudited) ************************ Net income recognised directly in equity (unaudited)********************** Prot for the period (unaudited) **************************************** Total recognised income for June 2005 (unaudited) *********************** Purchase of shares from minority shareholders (unaudited) **************** Capital contribution from minority interest (unaudited) ******************* Balance at 30 June 2005 (unaudited) ************************************* 9,187 9,187 6,773 3,794 3,794 3,794 10,567

(185) (589) (589) (589) (774)

6,588 3,794 (589) 3,205 3,205 9,793

(15,910) 27,744 27,744 (1,218) 10,616

(1,833) (5,511) (5,511) (661) 2,454 (5,551)

(1,968) 3,794 (589) 3,205 22,233 25,438 (1,879) 2,454 24,045

Part IXIFRS historical nancial information

NOTES TO THE COMBINED FINANCIAL INFORMATION 1 CORPORATE INFORMATION Hochschild Mining plc (hereinafter the Company) is a public limited company incorporated on 11 April 2006 under the Companies Act 1985 and registered in England and Wales with registered number 05777693. The Companys registered address is One Silk Street, London EC2Y 8HQ, United Kingdom. As of 30 June 2006 Hochschild Mining plc was a company incorporated to serve as the holding company for the purposes of listing on the London Stock Exchange. The Company acquired its interest in the companies constituting the Hochschild Mining Group pursuant to a share exchange agreement (Share Exchange Agreement) dated 2 November 2006. The ultimate controlling party of the Company is Mr. Eduardo Hochschild whose benecial interest in the Company and its subsidiaries (together the Group or Hochschild Mining Group) is held through Pelham Investment Corporation. The Groups principal business is the mining, processing and sale of silver and gold. The Group has three fully developed operating mines (Ares, Arcata and Selene) located in Southern Peru. The Group also has a portfolio of projects located across Peru, Mexico and Argentina at various stages of development. The principal activities of the Companys subsidiaries are as follows:
Equity interest at 31 December Company Principal activity Country of incorporation 2003 2004 2005 % at 30 June Unaudited 2005 2006

Lorenzon Limited ***** Larchmont Corporation ******** Garrison Corporation Ardsley Corporation ** Ludlow Corporation ** Port Chester Ltd. ***** San Jose International Ltd. *************** Compana Minera Sipan S.A.C. ******** Compana Minera Ares S.A.C. ************** Compana Minera Arcata S.A. ******** Mauricio Hochschild & Ca. Ltda. S.A.C. (MHC) ************* Compana Minera Corianta S.A. ******* Minera Colorada S.A.C. ************** Empresa de Transmision Electrica Callalli S.A.C. ******* Asociacion Sumac Tarpuy (**) ********* Compana Minera Coriorco S.A. ******* MH Argentina S.A. *** Minera MH Chile Ltda. ************** Minera Hochschild, Mexico S.A. de C.V.

Holding company Holding Holding Holding Holding Holding company company company company company

Cayman Islands Cayman Cayman Cayman Cayman Cayman Islands Islands Islands Islands Islands

100 100 100 100 100 100 (*) 100 100 82.5 100 100 (*) 100 (*) 100 100 (*) 100

100 100 100 100 100 100 (*) 100 100 86.5 100 100 (*) 100 (*) 100 100 100 100

100 100 100 100 100 100 (*) 100 100 96.8 100 (*) 100 (*) 100 100 100 100

100 100 100 100 100 100 (*) 100 100 96.8 100 (*) 100 (*) 100 100 100 100

100 100 100 100 100 100 51 100 100 96.8 30 100 100 100 100 100

Dormant Production of gold and silver Production of gold and silver Production of gold and silver Services Exploration ofce Exploration ofce Power transmission Not-for-prot Dormant (until June 2006) Exploration Ofce Exploration Ofce Exploration Ofce

Cayman Islands Peru Peru Peru Peru Peru Peru Peru Peru Peru Argentina Chile Mexico

141

Part IXIFRS historical nancial information

1 CORPORATE INFORMATION (continued)
Equity interest at 31 December Company Principal activity Country of incorporation 2003 2004 2005 % at 30 June Unaudited 2005 2006

MH Nevada, Inc. (renamed Hochschild Mining (US) Inc.)**** Minera Santa Cruz S.A. *************** Note: (*) Not incorporated

Exploration Ofce Production of gold and silver in a development stage

USA Argentina

(*) 51

100 51

100 51

100 51

100 51

(**) Sumac Tarpuy is an unincorporated entity which receives donations from Compania Minera Ares S.A.C., and donates this money to charitable activities at the direction of Compania Minera Ares S.A.C. As a result, the Group consolidates this entity.

2 SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation On 2 November 2006 Hochschild Mining plc entered into an agreement to acquire Lorenzon Corporation, Larchmont Corporation, Garrison Corporation, Ardsley Corporation, Ludlow Corporation and Port Chester Ltd. (together referred to as the Cayman Holding Companies). Accordingly the nancial information, which has been prepared specically for the purpose of the prospectus, is prepared on a basis that combines the results and assets and liabilities of the Company, Cayman Holding Companies and the companies which they in aggregate control for each of the three years to 31 December 2003, 2004, 2005 and six months to 30 June 2006 and as at those dates. Comparative statements representing the six months to 30 June 2005 have also been included, except that the comparative balance sheet is represented by the balance sheet at 31 December 2005. Internal transactions within the Group have been eliminated on combination. The combined nancial information is prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union (EU) except in respect of the following matters: ) The combined nancial information does not comply with IAS 27 Consolidated and Separate Financial Statements because, as explained above, prior to 2 November 2006 the Company did not control the Cayman Holding Companies and consequently the Company is not permitted by IAS 27 to present consolidated nancial information. The nancial information has therefore been prepared on a combined basis by applying the principles underlying the consolidation procedures of IAS 27; ) As the nancial information has been prepared on a combined basis the Company is unable to measure earnings per share. Accordingly, the requirement of IAS 33 Earnings per Share to disclose earnings per share has not been complied with; and ) The combined nancial information does not constitute a set of general purpose nancial statements under paragraph 3 of IAS 1 and consequently the Company does not make an explicit and unreserved statement of compliance with IFRS as contemplated by paragraph 14 of IAS 1. A company is only permitted to apply the rst-time adoption rules of IFRS 1 in its rst set of nancial statements where such an unreserved statement of compliance has been made. Although such a statement has not been made here the combined nancial information has been prepared as if the date of transition to IFRS is 1 January 2003, the beginning of the rst period presented, and the requirements of IFRS 1 have been applied as of that date. The basis of preparation and accounting policies used in preparing the combined nancial information for the years ended 31 December 2003, 2004 and 2005 and for the six-month periods ended 30 June 2005 and 2006 are set out below. These accounting policies have been consistently applied to all the periods presented unless otherwise stated. 142

Part IXIFRS historical nancial information

2 SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) The combined nancial information has been prepared on a historical cost basis, except for certain classes of property, plant and equipment which have been re-valued at 1 January 2003 to determine deemed cost as part of the First-Time Adoption of IFRS at that date, and derivatives and available-for-sale nancial instruments which have been measured at fair value. The combined nancial information is presented in US dollars ($) and all monetary amounts are rounded to the nearest thousand ($000) except when otherwise indicated. As explained above, the Groups deemed transition date to IFRS is 1 January 2003. The rules for rst-time adoption of IFRS are set out in IFRS 1, rst-time adoption of International Financial Reporting Standards. In preparing subsequent consolidated nancial statements in accordance with IFRS, the date of transition, as determined in accordance with IFRS 1, may not be 1 January 2003 and therefore the rst-time adoption rules may be applied at a date other than 1 January 2003 with a consequential impact on the opening IFRS balance sheet. IFRS 1 allows certain exemptions in the application of particular Standards to prior periods in order to assist companies with the transition process. The Group has applied the following exemptions: i) Certain classes of tangible assets have been re-valued at 1 January 2003 to determine the opening balance; ii) The Group has deemed cumulative translation differences for foreign operations to be zero at the date of transition; any gains and losses or subsequent disposals of foreign operations will not therefore include translation differences arising prior to the transition date; and iii) IFRS 3 is applied as from 1 January 2001 and not retrospectively to past business combinations. Early Adoption of Standards Except as set out above, the nancial information for all periods in this report has been prepared in accordance with IFRS, interpretations and amendments that are effective at 30 June 2006. The following have been early adopted for all periods: (i) (ii) (iii) (iv) (v) (vi) IAS 1 Presentation of Financial Statements, effective as from 1 January 2005; IAS 10 Events after the balance sheet date, effective as from 1 January 2005; IAS 16 Property, Plant and Equipment, effective as from 1 January 2005; IAS 21 The effects of Changes in Foreign Exchange rates, effective as from 1 January 2005; IAS 24 Related Party Disclosure, effective as from 1 January 2005; IAS 32 Financial Instruments: Disclosure and Presentation, effective as from 1 January 2005;

(vii) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, effective as from 1 January 2005; (viii) IAS 39 Financial Instruments: Recognition and Measurement and IAS 32, Financial Instruments: Disclosure and Presentation, effective as from 1 January 2006; (ix) (x) (xi) IFRS 6 Exploration for and Evaluation of Mineral Resources, effective as from 1 January 2006; Amendments to IAS 39 Financial Instruments: Recognition and Measurement, The Fair Value Option, effective as from 1 January 2006; IFRIC 4 Determining whether an Arrangement contains a Lease, effective as from 1 January 2006;

(xii) IFRIC 9 Reassessment of Embedded Derivatives, effective as from 1 June 2006; and (xiii) Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IFRS 6 Exploration for and Evaluation of Mineral Resources, effective as from 1 January 2006. 143

Part IXIFRS historical nancial information

2 SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published and are mandatory for the Groups accounting periods beginning on or after 1 July 2006 or later periods but which the Group has not early adopted. Those that are applicable to the Group are as follows: IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial StatementsCapital Disclosures (effective from 1 January 2007). IFRS 7 introduces new disclosures to improve the information about nancial instruments. It replaces disclosure requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The amendment to IAS 1 introduces disclosures about the level of an entitys capital and how it manages capital. The Company will apply IFRS 7 and the amendment to IAS 1 for annual periods beginning 1 January 2007. The application of these standards will impact disclosures only. (c) Judgments in applying accounting policies and key sources of estimation uncertainty Many of the amounts included in the nancial information involve the use of judgment and/or estimation. These judgments and estimates are based on managements best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the nancial information. Information about such judgments and estimation is contained in the accounting policies and/or the Notes to the nancial information. The key areas are summarised below. Signicant areas of estimation uncertainty and critical judgments made by management in preparing the combined nancial include: Determination of functional currenciesnote 2(e); Determination of useful lives of assets for depreciation and amortisation purposesnote 2(f); Determination of ore reservesnote 2(g); Review of asset carrying values and impairment chargesnote 2(j); Estimation of the amount and timing of mine closure costsnote 2(m) and note 25; Income taxnote 14 and note 27; and Contingent liabilities regarding claims from tax authoritiesnote 33. (d) Basis of combination The combined nancial information sets out the Groups nancial position as of 31 December 2003, 2004 and 2005 and operations and cash ow for the three years then ended, and as of 30 June 2005 and 2006 and for the six-months period then ended. Subsidiaries are those enterprises controlled by the Group regardless of the amount of shares owned by the Group. Control exists when the Group has the power, directly or indirectly, to govern the nancial and operating policies of an enterprise so as to obtain benets from its activities. Subsidiaries are combined from the date on which control is transferred to the Group and cease to be combined from the date on which control is transferred out of the Group. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. On acquisition of a subsidiary, the purchase consideration is allocated to the assets and liabilities on the basis of their fair value at the date of acquisition. The excess cost of acquisition over the 144

Part IXIFRS historical nancial information

2 SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of combination (continued) fair value of the Groups share of the identiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of net assets of the entity acquired, the difference is recognised directly in the income statement. The nancial statements of subsidiaries are prepared for the same reporting periods as the Company using consistent accounting policies. All intercompany balances and transactions, including unrealised prots arising from intra-Group transactions, have been eliminated on combination. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment. Minority shareholders primarily represent the interests in Minera Santa Cruz, Compana Minera Arcata and Minera Colorada not held by the Company. In the event of a purchase of minority shareholders interest when the Group holds the majority of shares of a subsidiary, any excess over the Groups share of net assets is recorded in Retained earnings in Equity. (e) Currency translation The functional currency for each entity in the Group is determined by the currency of the primary economic environment in which it operates. For the operating entities it is US dollars and for the other entities it is the local currency of the country in which it operates. The Groups nancial information is presented in US dollars, which is the Companys functional currency. Transactions denominated in currencies other than the functional currency of the entity are initially recorded in the functional currency using the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are remeasured at the rate of exchange ruling at the balance sheet date. Exchange gains and losses on settlement of foreign currency transactions which are translated at the rate prevailing at the date of the transactions, or on the translation of monetary assets and liabilities which are translated at period-end exchange rates, are taken to the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to the functional currency at the foreign exchange rate prevailing at the date of the transaction. Exchange differences arising from monetary items that are part of a net investment in a foreign operation are recognised in equity and transferred to income on disposal of such net investment. Subsidiary nancial statements expressed in their corresponding functional currencies are translated into US dollars by applying the exchange rate at period-end for assets and liabilities and the average exchange rate for income statements items. The resulting difference on exchange is included as cumulative translation adjustment in equity. (f) Property, plant and equipment Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and impairment losses. Cost comprises its purchase price and any costs directly attributable to bringing it into working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. The cost or deemed cost of property, plant and equipment (hereafter referred to as cost) at 1 January 2003, the date of the Group transition to IFRS, was determined by reference to its depreciated replacement cost at that date in accordance with IFRS 1. The cost less its residual value of each item of property, plant and equipment is depreciated over its useful life. Each items estimated useful life has been assessed with regard to both its own physical life limitations and the present assessment of economically recoverable reserves of the mine property at which the item is located. Estimates of remaining useful lives are made on a 145

Part IXIFRS historical nancial information

(f) Property, plant and equipment (continued) regular basis for all mine buildings, machinery and equipment, with annual reassessments for major items. Depreciation is charged to cost of production on a unit of production (UOP) basis for mine buildings and installations, plant and equipment used in the mining production process or charged directly to the income statement over the estimated useful life of the individual asset on a straight-line basis when not related to the mining production process. Changes in estimates, which mainly affect unit of production calculations, are accounted for prospectively. Depreciation commences when assets are available for use. Land is not depreciated. Non-current assets or disposal groups are classied as held for sale when it is expected that the carrying amount of the asset will be recovered principally through sale rather than through continuing use. Assets are not depreciated when classied as held for sale. The expected useful lives are as follows:
Years

Buildings *********************************************************************************************** Plant and equipment ************************************************************************************ Furniture, xtures and ttings *************************************************************************** Vehicles ************************************************************************************************

5 1 5 2

to to to to

10 10 10 10

Borrowing costs are not capitalised and are expensed. Mineral properties and mine development costs Payments for mineral properties are expensed during the exploration phase of a project and capitalised during their development phase when incurred. Costs associated with developments are capitalised. Mine development costs are, upon commencement of production, depreciated using the unit of production method based on the estimated economically recoverable reserves and resources to which they relate. Construction in progress Assets in the course of construction are capitalised as a separate component of property, plant and equipment. On completion, the cost of construction is transferred to the appropriate category. Construction in progress is not depreciated. Subsequent expenditures Expenditures incurred to replace a component of an item of property, plant and equipment is capitalised separately with the carrying amount of the component being written-off. Other subsequent expenditure is capitalised if future economic benets will arise from the expenditure. All other expenditure including repairs and maintenance expenditures are recognised in the income statement as incurred. (g) Determination of ore reserves The Group estimates its ore reserves and mineral resources based on information compiled by internal competent persons. Reports to support these estimates are prepared each year. For the purposes of the Global Offer, an independent competent person has veried the reasonableness of these reports as at 30 June 2006. Reserves and resources are used in the units of production calculation for depreciation as well as the determination of the timing of mine closure cost and impairment analysis. 146

Part IXIFRS historical nancial information

(g) Determination of ore reserves (continued) There are numerous uncertainties inherent in estimating ore reserves. Assumptions that are valid at the time of estimation may change signicantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. (h) Non-current assets held for sale Non-current assets are classied as assets held for sale and stated at the lower of carrying amount and fair value less cost to sell if their carrying amount is to be recovered principally through a sale transaction rather than through a continuing use. (i) Intangible assets Goodwill is included in intangible assets and represents the excess of the cost of an acquisition over the fair value of the Groups share of the net identiable assets of the acquired entity at the date of acquisition. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benet from business combination in which the goodwill arose. (j) Impairment of non-nancial assets The carrying amounts of xed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash ows independent of other assets, and then the review is undertaken at the cash generating unit level. If the carrying amount of an asset or its cash generating unit exceeds the recoverable amount, a provision is recorded to reect the asset at the lower amount. Impairment losses are recognised in the income statement. Calculation of recoverable amount The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. Fair value is based on an estimate of the amount that the Group may obtain in a sale transaction on arms length basis. In assessing value in use, the estimated future cash ows are discounted to their present value using a pre-tax discounted rate that reects current market assessments of the time value of money and the risks specic to the asset. For an asset that does not generate cash inows largely independent of those from other assets, the recoverable amount is determined for the cash generating unit to which the asset belongs. The Groups cash generating units are the smallest identiable groups of assets that generate cash inows that are largely independent of the cash inows from other assets or groups of assets. Reversal of impairment An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 147

Part IXIFRS historical nancial information

(k) Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined using the weighted average cost method. The cost of work in progress and nished goods (ore inventories) is based on cost of production and excludes borrowing costs. For this purpose, the costs of production include: labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore; the depreciation of property, plant and equipment used in the extraction and processing of ore; and related production overheads (based on normal operating capacity). (l) Trade and other receivables Current trade receivables are carried at the original invoice amount less provision made for impairment of these receivables. Long-term receivables are stated at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable which in average do not exceed 30 days. The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is recognised in the income statement. (m) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash ows at a pre-tax rate that reects current market assessments of the time value of money and, where appropriate, the risks specic to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a nance cost. Mine closure cost Provision for mine closure cost is made in respect of the estimated future costs of closure and restoration and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs. The provision is discounted and the unwinding of the discount is included in nance costs. At the time of establishing the provision, a corresponding asset is capitalised where it gives rise to a future benet and depreciated over future production from the mine to which it relates. The provision is reviewed on an annual basis for changes in cost estimates, discount rates or life of operations. Workers prot sharing and other employee benets In accordance to Peruvian Legislation, Group companies in Peru must provide for workers prot sharing equivalent to 8 per cent. of taxable income of each year. This amount is charged to the Income statement and is considered deductible for income tax purposes. The Company has no pension or retirement benet schemes. 148

Part IXIFRS historical nancial information

(m) Provisions (continued) Other Other provisions are accounted for when the Group has a legal or constructive obligation for which it is probable there will be an outow of resources for which the amount can be reliably estimated. (n) Contingencies Contingent liabilities are recognised in the nancial information and are disclosed in notes to the nancial information unless their occurrence is remote. Contingent assets are not recognised in the nancial information, but they are disclosed in notes if they are deemed probable. (o) Revenue recognition The Group is involved in production and sales of dore bars and concentrates containing both gold and silver. Concentrate is sold directly to customers. Dore bars are sent to a third party for further rening into gold and silver which is then sold. Revenue is recognised to the extent that it is probable that economic benets will ow to the Group and the revenue can be reliably measured. Revenue associated with the sale of concentrate and dore bars is recognised in the income statement when all signicant risks and rewards of ownership are transferred to the customer, usually when title has passed to customer. Revenue excludes any applicable sales taxes. The revenue is subject to adjustment based on inspection of the product by the customer. Revenue is initially recognised on a provisional basis using the Groups best estimate of contained gold and silver. Any subsequent adjustments to the initial estimate of metal content are recorded in revenue once they have been determined. In addition, sales of concentrate are provisionally priced where the selling price is subject to nal adjustment at the end of a period normally ranging from 30 to 90 days after the start of the delivery process to the customer, based on the market price at the relevant quotation point stipulated in the contract. Revenue is initially recognised when the conditions set out above have been met, using market prices at that date. The price exposure is considered to be an embedded derivative and hence separated from the sales contract at each reporting date the provisionally priced metal is revalued based on the forward selling price for the quotational period stipulated in the contract until the quotational period ends. The selling price of gold and silver can be measured reliably as these metals are actively traded on the international exchanges. The revaluing of provisionally priced contracts is recorded as an adjustment to other expenses /income. Income from services provided to related parties (note 30) is recognised in income when services are provided. (p) Exploration and evaluation expenditure Exploration and evaluation expenditure for each area of interest is charged to the income statement as incurred. Administrative and general expenses relating to exploration and evaluation activities are also expensed as incurred. (q) Finance income and costs Financial income and expenses comprise interest expense on borrowings, the accumulation of interest on provisions, interest income on funds invested, foreign exchange gains and losses, gains 149

Part IXIFRS historical nancial information

(q) Finance income and costs(Continued) and losses from the change in fair value of derivative instruments and gains and losses on the disposal of available-for-sale investments. Interest income is recognised as it accrues, taking into account the effective yield on the asset. (r) Income tax Income tax for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for nancial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable prots will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benet will be realised. Tax on dividend remittance, where applicable, is provided in the year in which distributable income is generated. (s) Financial instruments (i) Recognition The Company recognises nancial assets and liabilities on its balance sheet when, and only when, it becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (ii) Measurement Financial assets and liabilities are initially recognised at cost, which is the fair value of consideration given or received, respectively, including, or net of, any transaction costs incurred. In determining estimated fair value, investments in shares or portfolios of listed securities are valued at quoted bid prices. When quoted prices on an active market are not available (and for listed non-actively traded securities), fair value is determined using a valuation technique. Valuation techniques include using recent arms length transactions, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash ow analysis and option pricing models. If the range of reasonable fair value is signicant and the probabilities of the various estimates can not be reliably assessed, the investment is not remeasured at fair value. Investments in warrants are recorded based on an assessment performed by a third party expert using a Black-Scholes option pricing model. 150

Part IXIFRS historical nancial information

(s) Financial instruments (continued) The Group has classied its investments as available-for-sale assets or other nancial assets at fair value through prot and loss in accordance with the intent of management at the time of the purchase. Changes in fair value of investments classied as available-for-sale are recognised in equity, except for impairment loss and foreign exchange gain and losses for monetary items which are recognised directly in income statement, and are included in income when realised. Changes in the fair value of nancial assets at fair value through prot and loss are recognised directly in the income statement. Loans and receivables are loans and receivables created by the Group companies providing money or goods to a debtor. Loans and receivables are initially recognised in accordance with the policy stated above and subsequently remeasured at amortised cost using the effective interest method. Financial liabilities are initially recognised in accordance with the policy stated above and subsequently remeasured at amortised cost using the effective interest method. Derivatives futures are initially recognised at fair value. Any gains and losses arising from changes in fair value are recognised immediately in the income statement in the period in which they occur. Trading derivatives are classied as a current asset or liability. The full fair value of the derivatives is classied as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability, if the maturity of the hedged item is less than 12 months. Changes in fair value of trading derivatives are included in the income statement. (iii) Embedded derivatives Embedded derivatives which are not clearly and closely related to the underlying assets, liability or transaction are separated and accounted for as stand alone derivatives. (iv) De-recognition Financial instruments are de-recognised when the Group transfers all risks and rewards of ownership. (t) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the balance sheet, cash and cash equivalents comprise cash on hand and deposits held with banks that are readily convertible into known amounts of cash and which are subject to insignicant risk of changes in value. For the purposes of the cash ow statement, cash and cash equivalents as dened above are shown net of outstanding bank overdrafts. 3 SEGMENT REPORTING The Groups activities are principally related to mining operations which involve the production and sale of gold and silver. Products are subject to the same risks and returns and are sold through the same distribution channels. The Group has a number of activities that exist solely to support mining operations including power generation and services. As such, the Group has only one business segment as its primary reporting segment. The Group operates in various countries including Peru, Argentina, Mexico, Chile and the United States of America. Therefore the geographical segment is the Groups secondary reporting format. 151

Part IXIFRS historical nancial information

3 SEGMENT REPORTING (continued) (a) Revenue Revenue for the year/period is allocated based on the country in which the customer is located. There are no inter-segment revenues.
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

United Kingdom********************************************** 80,561 Mexico******************************************************* 10,137 USA ********************************************************* Canada ****************************************************** 8 Peru ********************************************************* 3,474 Japan ******************************************************** 2 Germany ***************************************************** (411) 93,771

83,621 32,492 7,505 23,747 1,679 10,008 159,052

60,857 44,990 30,476 15,037 50 (91) 151,319

30,485 18,162 12,577 4,541 14 65,779

27,724 39,007 25,163 351 41 92,286

The negative gures result from adjustments to revenue as a consequence of differences between the amount of gold and silver included in a nal invoice and in the provisional invoice issued in the previous year. (b) Prot for the year The Group has no inter-segment transactions. Prot for year/period is based on country of operation as follows:
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Peru*********************************************************** 15,548 Cayman Islands ************************************************ (1,647) Argentina ***************************************************** (2,832) Mexico ******************************************************** (930) Chile ********************************************************** USA *********************************************************** 10,139

21,781 (180) (9,776) (1,881) (326) (403) 9,215

57,852 321 (9,135) (3,647) (1,492) (1,015) 42,884

38,362 (10) (12,660) (2,212) (583) (664) 22,233

31,170 (2,567) (3,879) (1,211) (659) (286) 22,568

(c) Total segment assets Total segment assets, which exclude income tax assets, are allocated based on where the assets are located:
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Peru *************************************************************** 125,498 Cayman Islands ***************************************************** 30,013 Argentina ********************************************************** 5,363 Mexico ************************************************************* 374 Chile *************************************************************** USA**************************************************************** Total segment assets ************************************************ 161,248 Deferred income tax assets ****************************************** 1,079 Other income tax assets ********************************************* 2,755 Total assets ********************************************************* 165,082

144,619 36,399 6,710 175 116 57 158,076 2,794 3,657 194,527

164,120 38,341 15,794 590 59 98 219,002 10,990 1,059 231,501

104,518 80,390 26,028 2,209 243 221 213,609 14,880 1,227 229,716

152

Part IXIFRS historical nancial information

3 SEGMENT REPORTING (continued) (d) Capital expenditure Capital expenditure is allocated based on where the assets are located:
Six-month period ended 30 June 2006

Year ended 31 December 2003 2004 2005 US$(000)

Peru******************************************************************* 18,572 Argentina ************************************************************* 228 Mexico **************************************************************** 20 Chile ****************************************************************** USA ******************************************************************* 18,820

10,842 1,389 12 7 3 12,253

16,960 5,474 52 46 22,532

7,373 9,905 62 3 1 17,344

(e) Total segment liabilities Total segment liabilities, which exclude income tax liabilities, are allocated based on where the liabilities are located:
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Peru *************************************************************** 139,371 Cayman Islands ***************************************************** 15,542 Argentina ********************************************************** 1,211 Mexico ************************************************************* 7 Chile *************************************************************** USA**************************************************************** Total segment liabilities ********************************************* 156,131 Deferred income tax liabilities *************************************** 6,509 Income tax payable ************************************************* 209 Total liabilities ****************************************************** 162,849

160,100 25,239 7,982 14 6 193,341 3,154 196,495

135,254 21,919 18,239 49 84 4 175,549 4,134 4,975 184,658

109,595 77,899 24,603 141 96 29 212,363 3,097 7,775 223,235

(f) Depreciation Depreciation is allocated based on where the assets are located:
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Peru ************************************************************ 13,968 Argentina ******************************************************* 32 Mexico ********************************************************** Chile ************************************************************ USA************************************************************* 14,000

22,738 149 20 22,907

15,957 629 20 16,606

6,418 384 7 6,809

7,528 518 13 1 5 8,065

153

Part IXIFRS historical nancial information

3 SEGMENT REPORTING (continued) (g) Non-cash expenses Non-cash expenses for the year/period based on country of operation were as follows:
Year ended 31 December 2003 2004 2005 US$(000) Six month period ended 30 June Unaudited 2005 2006

Peru ********************************************************

2,181 2,181

4 ACQUISITIONS On 30 June 2006, the Group acquired a 30 per cent., controlling interest, in Minera Colorada S.A.C. (Colorada), an exploration company, from Cementos Pacasmayo S.A.A. (Pacasmayo) (a related party) for US$13,500 in cash, plus US$226,600 paid in July 2006. Colorada is an entity which was incorporated in August 2005, to explore and develop the concessions of Pampa Colorada I and Salaverry I to IV in Peru. After the Groups acquisition, the shareholding in Colorada was split 30 per cent./20 per cent./50 per cent. between the Group, Pacasmayo and Compania Minera Killacolqui. Net assets of Colorada at the date of acquisition were as follows:
Book value Revaluation adjustments US$(000) Fair value

Other assets ************************************************************************** Exploration expenditure *************************************************************** Total net assets acquired ************************************************************** Minority interest ********************************************************************** Goodwill arising on acquisition ******************************************************** Discharged by: Cash ********************************************************************************* Deferred consideration ****************************************************************

36 244 280

(244)(a) (244)

36 36 (25) 11 229 240 14 226 240

(a) The exploration expenditure has been assigned a fair value of nil, due to the early stage of exploration.

Colorada also owns an exploration licence. Due to the early stage of exploration, a reliable fair value of this licence is unable to be estimated, and in accordance with IFRS 3 it has been assigned a fair value of nil. 5 REVENUE
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Gold (from dore bars)***************************************** 67,941 Silver (from dore bars) **************************************** 12,048 Concentrate ************************************************** 10,170 Services ****************************************************** 3,612 93,771

76,608 14,519 66,246 1,679 159,052

74,923 16,368 59,978 50 151,319

35,737 7,465 22,577 65,779

41,000 11,887 39,358 41 92,286

154

Part IXIFRS historical nancial information

5 REVENUE (Continued) Concentrate is made up of:
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Gold *********************************************************** Silver ********************************************************** Other minerals *************************************************

2,249 7,921

14,073 51,926 247 66,246

13,718 45,841 419 59,978

5,276 17,180 121 22,577

8,614 30,626 118 39,358

Total concentrate *********************************************** 10,170 The total volumes of gold and silver sold, are as follows: Total in thousands of ounces: Gold *********************************************************** Silver ********************************************************** 200 4,603

246 11,978

231 10,366

110 4,363

103 4,543

6 COST OF SALES This item is made up as follows:

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Mining costs Contractors ***************************************************** 10,702 Energy ********************************************************* 3,137 Transportation services ****************************************** 1,773 Maintenance**************************************************** 1,253 Rentals ********************************************************* 780 Assays ********************************************************** 114 Materials ******************************************************* 8,567 Depreciation **************************************************** 11,902 Personnel expenses********************************************** 6,485 Minerals treatment ********************************************* 883 Insurance ******************************************************* 330 Mining royalty (note 35) ***************************************** Workers prot sharing ****************************************** 808 Personnel transportation **************************************** 330 Communications ************************************************ 73 Freight ********************************************************* 517 Meals and food at mine site ************************************* 246 Security********************************************************* 340 Reallocation to administrative expenses*************************** (892) Reallocation to property, plant and equipment ******************* (565) Change in products in process and nished goods ***************** (8,243) Provision for slow moving and obsolescence of supplies *********** 12 Other ********************************************************** 2,962 41,514

18,187 4,251 2,041 669 1,054 261 14,909 20,671 6,681 926 441 874 1,134 339 80 815 475 408 (2,203) (806) 6,514 734 3,837 82,292

19,426 4,491 2,151 539 765 302 12,817 14,605 8,096 744 495 1,184 1,388 409 100 943 776 416 (1,141) (2,015) 1,512 63 5,526 73,592

9,497 2,144 1,084 241 241 149 6,475 5,748 3,871 352 223 472 442 192 51 484 133 263 (610) (937) (2,736) 3,026 30,805

9,529 2,535 1,088 257 296 142 6,009 6,875 4,331 346 307 1,034 1,380 241 421 477 206 (347) (1,192) (2,958) 2,728 33,705

PRA1 1.1 PRA3 1.1

155

Part IXIFRS historical nancial information

7 ADMINISTRATIVE EXPENSES
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Personnel expenses ********************************************* Workers prot sharing ***************************************** Sundry administrative services *********************************** Consulting fees ************************************************* Depreciation *************************************************** Supplies ******************************************************** Freight ********************************************************* Ofce rentals *************************************************** Security ******************************************************** Energy ********************************************************* Termination benets ******************************************** Indirect taxes *************************************************** Technology and systems development **************************** Donations ****************************************************** Other **********************************************************

7,129 1,885 1,357 491 1,923 85 53 279 47 908 84 599 130 1,502 16,472

9,304 2,645 1,006 893 2,236 139 252 397 292 45 1,596 495 449 820 2,428 22,997

11,147 3,238 1,577 1,464 2,001 163 226 1,114 180 15 406 986 54 101 1,699 24,371

4,914 1,032 424 287 1,061 52 498 91 17 357 179 204 1,713 10,829

5,193 3,221 865 308 1,190 204 528 114 403 736 477 2,575 15,814

8 EXPLORATION EXPENSES
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Mine site exploration(1) Arcata ********************************************************** Ares ************************************************************ Selene ********************************************************** Caylloma ******************************************************** Prospects(2) Peru ************************************************************ Argentina ******************************************************* Generative(3) Peru ************************************************************ Argentina ******************************************************* Mexico ********************************************************** Chile ************************************************************ USA************************************************************* Personnel and other(4) ******************************************** Mining rights(5) **************************************************

4,051 1,310 604 566 6,531 547 191 738 224 264 368 856 2,943 754 11,822

2,369 2,222 1,532 1,574 7,697 1,317 4,391 5,708 264 1,540 1,460 317 50 3,631 4,374 1,653 23,063

1,335 1,587 1,066 3,988 1,391 9,964 11,355 268 633 3,078 1,164 344 5,487 6,294 933 28,057

592 768 737 2,097 526 9,195 9,721 92 320 2,497 419 3,328 2,585 926 18,657

1,100 1,118 77 2,295 134 440 574 432 393 930 341 2,096 1,905 784 7,654

Notes: (1) Mine site exploration is performed with the purpose of proving mineral reserves, establishing inferred and indicated resources and identifying potential minerals within an existing mine site, with the goal of maintaining or extending the mines life. (2) Prospects expenses are related to detailed geological evaluations to characterise and interpret the three-dimensional continuity of the geometry, quality and quantity of the ore within a prospect, with the goal of justifying further evaluation. Geological evidence and interpretations can move the project into a more advanced phase of evaluation with reserve estimation and economic pre-feasibility by the Project. (3) Generative expenditure is very early stage exploration expenditure, incurred in connection with identifying and developing exploration targets with an inferred resource or potential to develop a mining operation. (4) Expenses relating to personnel involved with exploration including salaries, indirect taxes and travelling costs.

156

Part IXIFRS historical nancial information

8 EXPLORATION EXPENSES (continued)
(5) Expenditure relating principally to payments for mining rights in accordance with relevant regulation.

The following table sets forth liabilities (generally payables) incurred in exploration activities of the Group companies engaged only in exploration. Liabilities related to exploration activities incurred by Group operating companies are not included since it is not possible to separate the liabilities related to exploration activities of these companies from their operating liabilities.
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June 2006

Liabilities related to exploration activities ************************************* 184

2,349

92

142

Cash ows of exploration activities are as follow:

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Payments ********************************************************* 2,119

11,418

17,420

13,692

2,750

9 GAIN ON SALE OF ZINC PROJECT AND CORIANTA In April 2005, the Group sold its Bongara zinc project, to Pacasmayo for US$15,558,000. This postfeasibility project was carried at US$1,000,000. Prior to the feasibility study, the Group had incurred US$1,900,000 of mine property costs and other expenditures during the exploration period that had been charged to the income statement as incurred. In connection with this transaction, the Group also disposed of its subsidiary, Compana Minera Corianta S.A. (Corianta) to Pacasmayo for US$806,000, realising a gain of US$254,000. The assets held by Corianta, other than the Bongara zinc project, were tax losses and VAT credits. 10 SELLING EXPENSES
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Transportation of dore and concentrates and maritime freight ********* 1,250 Sales commissions *************************************************** 74 Personnel expenses************************************************** 32 Warehouse services************************************************** 28 Other ************************************************************** 410 1,794

2,767 346 70 113 584 3,880

2,233 276 78 98 476 3,161

982 87 39 32 198 1,338

893 209 30 55 179 1,366

157

Part IXIFRS historical nancial information

11 PERSONNEL EXPENSES
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Salaries and wages********************************************** 11,417 Semi-annual salary compensation ******************************** 2,394 Other legal contributions**************************************** 1,794 Post-employment benets *************************************** 915 Vacations ****************************************************** 783 Other ********************************************************** 169 17,472

13,958 1,649 1,446 829 848 423 19,153

16,439 3,401 2,429 1,043 1,054 581 24,947

7,318 1,483 981 553 565 237 11,137

7,299 2,459 1,334 563 632 191 12,478

Personnel expenses are distributed as follows:

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Cost of sales**************************************************** Administrative expenses***************************************** Exploration expenses******************************************** Selling expenses ************************************************ Discontinued operations **************************************** Other ********************************************************** Average number of employees **********************************

6,485 7,129 2,288 32 924 614 17,472 860

6,681 9,304 2,795 70 106 197 19,153 1,010

8,096 11,147 5,381 78 33 212 24,947 1,155

3,871 4,914 2,313 39 11,137 1,103

4,331 5,193 1,783 30 1,141 12,478 1,164

158

Part IXIFRS historical nancial information

12 OTHER INCOME AND OTHER EXPENSES
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Other income: Income from mine concession(1) ************************************* Cancellation of service agreement(2) ********************************* Rentals************************************************************ Gain on provisional pricing adjustment(3) **************************** Decrease in provision for mine closure(4) ***************************** Gain on sale of xed assets***************************************** Gain on sale of other assets **************************************** Gain on sale of Corianta ******************************************* Gain on spin-off of Sipan(5) ***************************************** Gain on maintenance of equipment services ************************* Other ************************************************************* Other expenses: Allowance SEAL/Electroperu (note 33 b) ***************************** Impairment of Sipan assets held for sale **************************** Increase in provision for mine closure(4) ***************************** Loss on sale of xed assets and assets classied as held for sale******* Loss on sale of other assets***************************************** Loss on sale of investments(6) *************************************** Loss on sale of MHC (subsidiary)(7) ********************************** Loss on maintenance of equipment services ************************* Write-off of xed assets******************************************** Other *************************************************************

2,148 412 1,624 139 1,134 5,457 (1,199) (28) (184) (1,525) (2,936)

499 1,278 2,579 510 187 784 182 1,062 7,081 (760) (2,181) (1,170) (26) (923) (2,335) (7,395)

77 9,916 725 254 2,044 13,016 (920) (197) (5) (356) (1,343) (2,821)

30 1,920 331 254 664 3,199 (698) (113) (65) (404) (1,280)

36 8,527 1,024 172 736 10,495 (58) (65) (2,249) (991) (14) (1,259) (4,636)

Notes: (1) On 6 March 2000 the Group sold Huaron, a mining company, to Pan American Silver. Part of the sales consideration included a royalty stream to be paid to the Group on each metric ton of ore recovered from Huaron mine in excess of 4.3 million metric tons. During 2003, Pan American Silver paid the Group $2,148,000 as nal settlement of any future obligation arising as a result of this royalty agreement. (2) Mauricio Hochschild & Cia Ltda (MHC) had an agreement with Cementos Pacasmayo, a related company, to provide administrative services beginning in July 2003. This agreement was cancelled in 2004, resulting in Cementos Pacasmayo paying MHC a cancellation fee of $499,000. (3) Sales of concentrates are provisionally priced at the time the sale is recorded. The price is then adjusted after an agreed period of time (usually linked to the length of time it takes the smelter to rene and sell the concentrate), with the Group either paying or receiving the difference between the provisional price and the nal price. This price exposure is considered to be an embedded derivative in accordance with IAS 39 Financial Instruments: Recognition and Measurement. This gain or loss that arises on the mark to market of this embedded derivative is recorded in Other Income or Other Expenses. (4) The increase in the provision for mine closure is recognised in Other Expenses where the corresponding mine closure asset has been fully depreciated in prior years or where the mine has not yet reached the feasibility stage. Decreases in mine closure provisions are recorded in Other Income where the disturbance is not expected to create a future economic benet (normally this will occur when the mine to which the provision relates has fully depleted its resources, but the closure and rehabilitation costs are yet to be incurred, and there is a reduction in the estimate of the total mine closure cost). (5) On 2 November 2004, certain assets and liabilities of Compana Minera Sipan S.A.C. (Sipan) with a carrying value were sold to Inmobiliaria CNP (Inmobiliaria) (a related party). As consideration, the Group received shares in Inmobiliaria with a value of US$242,000, realising a gain of US$784,000. The book value of the individual assets and liabilities disposed of are as follows:
US$000

Property, Plant and Equipment (net book value)************************************************************ Loans payable ******************************************************************************************** Deferred tax liability************************************************************************************** Book value of net liabilities disposed **********************************************************************

5,136 (4,139) (1,540) (543)

(6) During the six months ended 30 June 2006 the Group disposed of 16,585,047 shares in Inversiones Pacasmayo (refer to note 17) for US$6,350,000 to Greystone Corporation (a related party). These shares were carried at US$21,135,000

159

Part IXIFRS historical nancial information

12 OTHER INCOME AND OTHER EXPENSES (continued)
including an unrealised fair value gain of US$12,534,000 which had been recorded in equity. The disposal of these shares, after recycling the unrealised gain through the income statement, resulted in a loss of US$2,249,000. (7) On 15 June 2006, the Groups wholly owned subsidiary, Mauricio Hochschild & Ca. Ltda. S.A.C. (MHC), was sold to Greystone Corporation (a related party) for US$1,000,000, plus the benet of a US$2,801,000 loan payable by MHC to Ardsley Corporation (a subsidiary of the Group) which had previously been eliminated on combination, resulting in total consideration of US$3,801,000. This disposal resulted in a loss to the Group of US$991,000. The book value of the individual assets and liabilities disposed of are as follows:
US$000
(a)

Available for sale nancial assets carried at fair value

****************************************************

15,077 (10,310) 344 (319) 4,792

Less: Unrealised fair value gain on assets recorded in equity************************************************ Other assets********************************************************************************************* Other liabilities(b) **************************************************************************************** Net book value of assets and liabilities disposed **********************************************************

(a) The Available for sale nancial assets disposed of represented a portion of the Groups 13.9% investment in Inversiones Pacasmayo (refer to note 17). (b) Does not include the US$2,801,000 loan payable by MHC to Ardsley Corporation as this loan eliminated on combination and therefore the disposal of this loan does not impact the liabilities of the combined balance sheet of the Group.

13 FINANCE INCOME AND FINANCE COSTS

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Finance income: Interest on loans to related parties ******************************** Dividends received************************************************ Gain from changes in the fair value of nancial instruments ******** Other ************************************************************ Finance costs: Interest on bank loans and long-term debt ************************* Write-off of amortised borrowing costs upon renancing of loan facility ********************************************************* Interest on loans from related parties ****************************** Loss from changes in the fair value of nancial instruments ********* Unwind of discount on provision for mine closure (note 25) ********* Other ************************************************************

167 159 326 (2,804) (466) (25) (1,251) (431) (4,977)

328 587 381 1,296 (2,614) (1,950) (754) (156) (894) (334) (6,702)

2,418 182 959 585 4,144 (8,167) (235) (165) (984) (554) (10,105)

1,094 182 11 268 1,555 (3,447) (212) (51) (528) (225) (4,463)

1,250 326 979 288 2,843 (3,867) (9) (297) (499) (449) (5,121)

14 INCOME TAX EXPENSE

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Continuing operations: Current*********************************************************** Deferred income tax relating to origination and reversal of timing differences (note 27) ******************************************** Deferred income tax relating to change in tax rate (note 27) ******** Withholding taxes ************************************************

9,441 (1,097) 40 8,384 724 9,108

13,758 (3,216) 10,542 911 11,453

18,873 (10,004) 8,869 804 9,673

9,539 (4,478) 5,061 905 5,966

17,976 (5,189) 12,787 1,946 14,733

160

Part IXIFRS historical nancial information

14 INCOME TAX EXPENSE (continued) The weighted average statutory income tax rate was 32.4 per cent. for 2003, 27.9 per cent. for 2004, 23.0 per cent. for 2005 and 21.5 per cent. and 29.4 per cent. for the six month periods ended 30 June 2005 and 30 June 2006, respectively. This is calculated as the average of the statutory tax rates applicable in the countries in which the Group operates, weighted by the prot/(loss) before tax of the subsidiaries in the respective countries as included in the combined historical nancial information. The changes in the weighted average statutory income tax rate are due to a change in the weighting of prot/(loss) before tax in the various jurisdictions in which the Group operates. The tax on the Companys prot before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to prots of the combined companies as follows:
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Income before tax *********************************************** 20,618 Tax calculated at domestic tax rates applicable to prots in the respective countries ******************************************** Expenses not deductible for tax purposes ************************* Non-taxable income ********************************************* Recognition of previously unrecognised deferred tax assets********* Deferred tax assets generated in the period not recognised ******** Payments of mine closure expenses ******************************* Deferred tax on unremitted earnings ***************************** Other *********************************************************** Tax charge ****************************************************** 6,688 774 (50) (441) 2,615 (319) (108) (775) 8,384

21,399 5,978 2,396 (535) (948) 4,158 (541) 22 12 10,542

40,378 9,281 4,447 (1,477) (5,101) 2,017 (1,568) 621 649 8,869

18,804 4,045 2,689 (1,065) 2,031 (1,317) (78) (1,244) 5,061

37,301 10,958 1,726 (75) (312) 1,559 (755) (508) 194 12,787

Santa Cruz is under a special investment regime that allows for a double deduction in calculating its corporate income tax liability, in respect of all costs relating to prospecting, exploration and metallurgical analysis, pilot plants and other expenses incurred for feasibility studies of projects. In this regard, total investment for this regime amounts approximately to US$2,111,000, US$7,595,000, US$23,866,000 as of 31 December 2003, 2004 and 2005, respectively and US$17,386,000 and US$23,866,000 as of 30 June 2005 and 2006, respectively. Only the tax benet of a single deduction has been recognised in deferred taxation in the combined historical nancial statements. The benet of the additional deduction will be realised as and when claimed in future periods once production has commenced.

161

Part IXIFRS historical nancial information

15 PROPERTY, PLANT AND EQUIPMENT The changes of the cost and accumulated depreciation are shown as follows:
Mining properties and development costs Land and buildings Construction in progress and capital advances

Plant and equipment

Vehicles US$(000)

Mine closure asset

Total

Year ended 31 December 2003 Cost At 1 January 2003(1) ***************** Additions *************************** Change in discount rate ************* Disposals**************************** Asset write-off ********************** Foreign exchange ******************* Transfers **************************** At 31 December 2003 **************** Accumulated depreciation At 1 January 2003 ******************* Depreciation for the year ************ Disposals**************************** Foreign exchange ******************* At 31 December 2003 **************** Net book amount at 31 December 2003 **************** Year ended 31 December 2004 Cost At 1 January 2004 ******************* Additions *************************** Change in discount rate ************* Disposals**************************** Asset write-off ********************** Foreign exchange ******************* Assets disposed as a result of spin-off Impairment of assets(2) *************** Reclassied to assets classied as held for sale *************************** Transfers **************************** At 31 December 2004 **************** Accumulated depreciation At 1 January 2004 ******************* Depreciation for the year ************ Disposals**************************** Foreign exchange ******************* Reclassied to assets classied as held for sale *************************** Assets disposed as a result of spin-off At 31 December 2004 **************** Net book amount at 31 December 2004 ****************

19,178 7,220 294 26,692 4,263 4,727 8,990 17,702

19,121 175 (71) 3,862 23,087 473 2,286 (3) 2,756 20,331

34,325 2,001 (612) (184) 72 6,322 41,924 1,893 5,936 (92) 3 7,740 34,184

1,730 72 (153) 40 1,689 213 255 (15) 453 1,236

39,454 1,540 40,994 30,434 796 31,230 9,764

1,967 115,775 9,352 18,820 1,540 (193) (1,029) (184) 366 (10,224) 902 135,288 902 37,276 14,000 (110) 3 51,169 84,119

26,692 3,965 (156) 30,501 8,990 9,865 (137) 18,718 11,783

23,087 522 (5,375) (1,145) (1,911) 993 16,171 2,756 2,607 (258) (239) 4,866 11,305

41,924 1,846 (1,288) (923) 1 (978) (5,310) 2,072 37,344 7,740 7,439 (811) 5 (379) 13,994 23,350

1,689 33 (895) (33) (96) 49 747 453 185 (378) (2) 258 489

40,994 (663) (5,941) 34,390 31,230 2,811 (5,476) 28,565 5,825

902 135,288 5,887 12,253 (663) (921) (3,104) (923) (155) (5,375) (25) (2,181) (13,258) (3,114) 2,729 121,882 2,729 51,169 22,907 (1,189) (132) (6,115) (239) 66,401 55,481

162

Part IXIFRS historical nancial information

15 PROPERTY, PLANT AND EQUIPMENT (continued)
Mining properties and development costs Land and buildings Construction in progress and capital advances

Plant and equipment

Vehicles US$(000)

Mine closure asset

Total

Year ended 31 December 2005 Cost At 1 January 2005 ******************* Additions *************************** Change in discount rate ************* Disposals**************************** Foreign exchange ******************* Transfers and other movements ****** At 31 December 2005 **************** Accumulated depreciation At 1 January 2005 ******************* Depreciation for the year ************ Disposals**************************** Foreign exchange ******************* At 31 December 2005 **************** Net book amount at 31 December 2005 **************** Six months ended 30 June 2006 Cost At 1 January 2006 ******************* Additions *************************** Change in discount rate ************* Disposals**************************** Transfers **************************** Foreign exchange ******************* At 30 June 2006 ********************* Accumulated depreciation At 1 January 2006 ******************* Depreciation for the period ********** Disposals**************************** Foreign exchange ******************* At 30 June 2006 ********************* Net book amount at 30 June 2006****

30,501 11,148 (1,000) (11) 40,638 18,718 7,705 26,423 14,215

16,171 1 (6) 1,632 17,798 4,866 1,695 (1) 6,560 11,238

37,344 220 (568) (34) 5,332 42,294 13,994 5,641 (357) (1) 19,277 23,017

747 31 237 1,015 258 132 390 625

34,390 (688) 33,702 28,565 1,433 29,998 3,704

2,729 121,882 11,132 22,532 (688) (56) (1,630) (45) (7,201) 6,604 142,051 6,604 66,401 16,606 (358) (1) 82,648 59,403

40,638 10,610 67 51,315 26,423 3,824 37 30,284 21,031

17,798 799 (176) 4,694 85 23,200 6,560 1,141 (82) 33 7,652 15,548

42,294 538 (232) 1,149 4 43,753 19,277 2,513 (119) (5) 21,666 22,087

1,015 (99) 126 3 1,045 390 68 (46) 1 413 632

33,702 (713) 2 32,991 29,998 519 2 30,519 2,472

6,604 142,051 5,397 17,344 (713) (645) (1,152) (5,969) (2) 159 5,385 157,689 5,385 82,648 8,065 (247) 68 90,534 67,155

As described in note 24, certain assets are pledged as part of the guarantee for the syndicated loan.
Notes: (1) For the purpose of the transition to IFRS, the Group appointed Consultores y Asesores 2020 S.A.C., a company holding a licence to conduct valuation of assets, to carry out an independent appraisal of certain property, plant and equipment as of 1 January 2003 to determine their deemed cost (including accumulated depreciation) at that date in accordance with IFRS 1. (2) Corresponds to the write down to the fair value of assets of Sipan classied in 2004 as held for sale in accordance with IFRS 5.

16 INTANGIBLE ASSETS Intangible assets represent goodwill arising on business combinations.

US$000

At 1 January 2003 ************************************************************************************** Minority interests share of capital contribution to Santa Cruz(2) ********************************************
(1)

1,490 601 2,091 230 2,321

Balance at 31 December 2003, 2004 and 2005 ************************************************************* Additions(3) ********************************************************************************************** Balance at 30 June 2006 *********************************************************************************

(1) The opening balance is attributable to goodwill that arose on the acquisition of Minera Santa Cruz S.A. (Santa Cruz), the holding company for the San Jose project in 2001.

163

Part IXIFRS historical nancial information

(2) In June 2003, the Group agreed with Minera Andes S.A. (Minera Andes) (the minority shareholder in Santa Cruz) to contribute a further $1,227,000 into Santa Cruz. This was an agreed contribution to Santa Cruzs share premium, which is shared by each shareholder in the proportion of their economic interest. Minera Andes share of this contribution of $601,000 was recorded as goodwill, as it effectively represented a cost of the Group to maintain its existing 51% interest. (3) This represents the goodwill arising on the acquisition of Colorada (refer to note 4).

17 AVAILABLE-FOR-SALE FINANCIAL ASSETS

Six-month period ended 30 June 2006

Year ended 31 December 2003 2004 2005 US$(000)

Beginning balance********************************************************* Additions ***************************************************************** Fair value change********************************************************** Foreign exchange ********************************************************* Disposal ****************************************************************** Ending balance************************************************************

7,500 1,576 116 9,192

9,192 392 5,813 729 16,126

16,126 5,649 5,657 (1,165) 26,267

26,267 1,300 12,239 784 (36,455) 4,135

Available-for-sale nancial assets include the following:

Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June 2006

Equity securitieslisted South American companies************************** 9,192 Equity securitieslisted Canadian companies ******************************** Total********************************************************************** 9,192

15,861 265 16,126

22,871 3,396 26,267

4,135 4,135

The breakdown of the investments held is as follows:

Inversiones Pacasmayo Imobiliaria CNP Rio Fortuna Exploration Corp. Fortuna Silver Mine Inc.

Number of shares held at 1 January 2003 and 2004 *************** Additions ******************************************************* Number of shares held at 31 December 2004 ********************* Additions *******************************************************

18,019,117 18,019,117

700,141 700,141 700,141 (700,141)

1,990,800 1,990,800 1,990,800 (1,990,800)

2,475,355 2,475,355 2,475,355

Number of shares held at 31 December 2005 ********************* 18,019,117 Additions ******************************************************* 2,225,071 Disposals ******************************************************* (20,244,188) Number of shares held at 30 June 2006 **************************

Listed South American investments included non-actively traded investments in Inversiones Pacasmayo (IPSA) which represent a 9.9 per cent interest in IPSA in 2003 and 2004 and 13.9 per cent in 2005. 20,244,188 of these shares were sold in 2006 for US$6.4 million to Greystone Corporation (a related party), with the balance being sold as part of the disposal of MHC (refer to notes 12(6) and (7)). In 2004, the amount of US$265,000 corresponds to 1,990,800 shares of Rio Fortuna Exploration Corp.. In 2005, the Group received shares and warrants to purchase shares in Fortuna Silver Mine, Inc. as part of the payment for the sale of Caylloma (a mining unit of Compania Minera Arcata) to Fortuna.

164

Part IXIFRS historical nancial information

18 TRADE AND OTHER RECEIVABLES At the date of the balance sheet, this item was made up as follows:
As of 31 December 2003 Noncurrent Current 2004 Noncurrent Current 2005 Noncurrent Current As of 30 June 2006 Noncurrent Current

US$(000)

Trade receivables *********************** Loans to related parties (note 31) ******* Receivables from SEAL/Electroperu ****** Prepaid expenses and VAT(1) ************* Advances to suppliers******************* Loans to employees(2) ******************* Assigned funds(3) *********************** Income tax refunds due(4) *************** Other********************************** Provision for impairment of receivables **

2,535 1,490 241 464 4,730 4,730

1,294 18,630 1,063 3,712 1,440 11 1,046 1,336 28,532 (390) 28,142

19,776 1,685 240 4,098 1,192 26,991 26,991

11,597 27,784 5,736 2,808 591 1,106 725 50,347 (391) 49,956

3,547 52 1,699 752 6,050 6,050

13,134 54,383 3,718 6,949 464 1,058 1,740 81,446 (340) 81,106

475 4,709 165 610 23 5,982 5,982

8,926 59,571 2,153 4,641 575 1,227 4,594 81,687 (340) 81,347

The fair values of trade and other receivables approximate to book value.
Notes: (1) Value added tax (VAT)Included in prepaid expenses and VAT above, value added taxes paid in the development of the San Jose Project that will be recovered through the future sales of Minera Santa Cruz, once it begins operation. VAT has been classied as a long-term receivable and is measured at present value using a discount rate of 12 percent. (2) The effective interest rates on non-current receivables were as follows:
As of 30 June 2006

As of 31 December 2003 2004 % 2005

Loans to employees *************************************************************

7.1%

6.6%

7.5%

8.0%

(3) Assigned funds are time deposits that guarantee short-term sales commitment to certain customers. The deposits are held for greater than 12 months and are not accessible to the Group. The effective interest rates were between 1 percent and 2 percent during 2003, 2004, 2005 and the six-months ended 30 June 2006. (4) Corresponds to an over-payment of tax by Compania Minera Sipan in 2000. Due to an ongoing dispute with the authorities, this amount has not yet been refunded (refer to Note 33(c)). The Directors believe that this amount is recoverable.

19 INVENTORIES At the date of the balance sheet, this item comprised the following:
As of 31 December 2003 2004 US$(000) 2005 As of 30 June 2006

Finished goods ************************************************************* 10,647 Products in process ********************************************************* 3,064 Raw materials************************************************************** 344 Supplies and spare parts **************************************************** 4,523 Provision for obsolescence ************************************************** 18,578 (20) 18,558

3,626 3,571 394 4,682 12,273 (759) 11,514

3,136 2,549 969 4,661 11,315 (816) 10,499

6,138 2,505 1,334 4,763 14,740 (738) 14,002

As disclosed in note 24, certain inventories are pledged as part of the guarantee for the syndicated loan. 165

Part IXIFRS historical nancial information

19 INVENTORIES (continued) Finished goods includes dore and concentrates. Dore is an alloy containing a variable mixture of silver and gold and minor impurities delivered in bar form to reners. The rened products are then sold to customers. Concentrates is a product containing sulphides with variable content of base and of precious metals and sold to smelters. 20 DERIVATIVE FINANCIAL INSTRUMENTS
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Assets Interest rate swap(1) *********************************************************** Warrants on Fortuna Silver Mine Inc. shares(2) *********************************** Warrants on Rio Fortuna Exploration Corp. shares(3)****************************** Purchased put option(4) ******************************************************** Embedded derivative(5) ********************************************************* Total************************************************************************** Less non-current portion: Interest rate swap(1) ********************************************************* Purchased put option(4) ****************************************************** Warrants on Fortuna Silver Mine Inc. shares(2) *********************************** Non-current portion *********************************************************** Current portion *************************************************************** Liabilities Interest rate swap(1) *********************************************************** Total************************************************************************** Less noncurrent portion: Interest rate swap *********************************************************** Current portion *************************************************************** Notes:

132 885 1,017 132 132 885 (49) (49) 49

331 46 1,487 1,864 331 46 377 1,487

163 1,901 1 6,884 8,949 1 1,901 1,902 7,047

34 2,920 43 8,527 11,524 11,524

(1) Interest rate swaps are classied as trading derivatives with fair value movements recognised in Finance costs /income. The notional principal amounts of two the outstanding interest rate swap contracts at 31 December 2003, 2004, 2005 and 30 June 2006, were US$42.5 million, US$28 million, US$12 million, and US$4 million, respectively. The interest rate swaps were entered into to hedge the oating interest rate exposure of long-term loans but did not meet the hedge accounting criteria under IAS 39. These swap contracts expired on 15 March 2004 and 20 July 2006. (2) At 30 June 2006, this item represented 2,475,355 (2005: 2,475,355; 2004 and 2003: NIL) warrants over the same number of shares in Fortuna Silver Mine Inc., which are exercisable on 27 June 2007, at a price of CAN$0.345 per share. (3) At 30 June 2006, this represented 331,800 (2005: 995,400; 2004 and 2003: NIL) warrants over the same number of shares in Rio Fortuna Exploration Corp., which are exercisable on 4 August 2006, at a price of CAN$0.25 per share. The reduction in the number of warrants during 2006 was the result of a 1 for 3 share consolidation by Rio Fortuna Exploration Corp. on 1 January 2006. (4) In 2005, Compana Minera Ares purchased a put option contract with Citibank N.A. as from 29 August 2006 for 11 sale transactions of 1,636 ounces of gold each for a price of US$332.00 per ounce. The Company paid a total premium amounting to US$161,000 for this contract. This contracts expiration date is 27 June 2007. (5) This amount represents the fair value of the embedded derivatives contained in concentrate sales (refer to Note 12(3)).

21 OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS

Year Ended 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Bonds and structured assets ******************************************** Equity securities ******************************************************* Total *****************************************************************

7,900 4,012 11,912

10,893 4,179 15,072

13,170 6,665 19,835

11,809 7,515 19,324

These nancial assets are fair value at prevailing market price as at the end of each year/period. 166

Part IXIFRS historical nancial information

22 CASH AND CASH EQUIVALENTS
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Cash in hand ****************************************************************** Current demand deposit accounts(1) ********************************************* Time deposits(2) **************************************************************** Cash and cash equivalents considered for the cash ow statement**************** Notes: (1) Relates to bank accounts which are freely available and do not bear interest.

72 3,900 270 4,242

128 4,700 805 5,633

125 2,251 91 2,467

579 3,603 1,861 6,043

(2) The effective interest rates were 1.05 per cent, 2.4 per cent, 3.7 per cent and 4.4 per cent in 2003, 2004, 2005 and the six months ended 30 June 2006. These deposits have an average maturity period of seven days.

23 TRADE AND OTHER PAYABLES

As of 31 December 2003 Non-current Current 2004 Non-current Current US$(000) 2005 Non-current Current As of 30 June 2006 Non-current Current

Trade payables ************ Taxes and contributions **** Workers prot sharing and payroll ****************** Accrued expenses********** Interest payable *********** Mine royalty ************** Dividends payable(a)******** Deferred consideration on acquisition of Santa Cruz Advanced from customers ** Other *********************

531 387 1,147 2,065

9,197 1,105 3,355 832 469 10,754 336 1,028 27,076

1,392 387 1,356 3,135

11,691 1,676 5,523 1,010 465 296 8,766 1,621 31,048

1,165 1,996 3,161

14,542 1,958 6,824 927 433 145 8,716 1,022 34,567

3,450 3,450

9,783 1,930 6,205 2,849 273 372 60,803 7,249 1,568 91,032

Trade payables are mainly for the acquisition of materials, supplies and contractors services. These payables, do not accrue interest and no guarantees have been granted. The fair value of trade and other payables approximate their book values.
(a) Dividends are payable to Dona Ltd., a related party (refer to Note 31).

24 BORROWINGS
As of 31 December 2003 Non-current Current 2004 Non-current Current US$(000) 2005 Non-current Current As of 30 June 2006 Non-current Current

Bank loans Secured ******************* Unsecured **************** Other loans Secured ******************* Unsecured **************** Amount due to Minority shareholders ************ Amounts due to related parties (Note 31) ********

33,010 33,010 1,038 1,038 2,256 36,304

15,126 13,251 28,377 1,347 1,347 10,694 40,418

48,531 48,531 4,007 4,361 56,899

21,458 8,500 29,958 22,995 52,953

17,971 17,971 13,108 10 31,089

29,510 18,800 48,310 21,483 69,793

9,749 9,749 20,566 30,315

36,532 36,532 17,851 54,383

167

Part IXIFRS historical nancial information

24 BORROWINGS (continued) (a) Unsecured bank loans These obligations accrue an effective annual interest rate of LIBOR + 1.1 per cent and no guarantees or security have been granted. (b) Secured bank loans In 2003, Compana Minera Ares had a syndicated loan agreement for US$40,000,000. This agreement was replaced in 2004 with a new syndicated loan for US$70,000,000 with an effective annual interest rate of LIBOR + 3.7 per cent. In May 2006, the repayment prole was amended without change in maturity date. Compana Minera Ares has granted the following guarantees for US$87.5 million on the Ares and Selene mining units for purposes of securing the syndicated loan: A Global and Floating Mining Pledge on the minerals extracted and that are on any stage of extraction or production process. A Mining Mortgage on the mining concessions, buildings, facilities and other xed assets. A Mining Mortgage on the benet from concession, on concessions, buildings, facilities and other xed assets. In addition, the shareholders of Compana Minera Ares have pledged all the shares of the Company. The main administrative and nancial covenants that Compana Minera Ares must comply with during the term of the syndicated loan are as follows: Present to the banks the annual report of reserves each calendar year. Every 90 days Compana Minera Ares must determine, that the proven and probable reserves represent, at least 125 per cent. of the outstanding amount of the loan based on the calculations established in the contract. Maintain the following ratios beginning on the date of execution of the agreement and during the term of effect of the loan, which must be computed according to the formula established in the agreement: ) Interest coverage ratio must not be less than 6.0. ) Debt service coverage greater than a 1.20. ) Debt to EBITDA no greater than 1.20. ) Current ratio no less than 1.00. (c) Compliance with the restrictive covenants described in the preceding paragraph is overseen by Compana Minera Ares Management and the administrative agent. In the opinion of Management, Compana Minera Ares has either complied with or received the necessary waivers in relation to the commitments and nancial covenants mentioned in the syndicated loan agreement. 168

Part IXIFRS historical nancial information

24 BORROWINGS (continued) (d) The maturity of non-current borrowings is as follows:
As of 31 December 2003 2004 US$(000) 2005 As of 30 June 2006

Between 1 and 2 years ***************************************************** Between 2 and 5 years ***************************************************** Over 5 years ***************************************************************

20,771 14,958 575 36,304

36,258 20,641 56,899

30,794 295 31,089

30,315 30,315

(e) The carrying amount of short-term borrowings approximates their fair value. The carrying amount and fair value of the non-current borrowings are as follows:
Carrying Amount As of 31 December 2003 2004 2005 As of 30 June 2006 US$(000) Fair Values As of 31 December 2003 2004 2005 As of 30 June 2006

Bank loans Secured (oating rates) ************ 33,010 Other loans Secured (oating rates) ************ 1,038 Amounts due to minority interest and related parties (xed rates) ** 2,256 36,304

48,531 8,368 56,899

17,971 13,118 31,089

9,749 20,566 30,315

33,010 895 2,795 36,700

48,531 10,125 58,656

17,971 15,148 33,119

9,734 20,566 30,300

25 PROVISION FOR MINE CLOSURE COST The provision represents the discounted values of the estimated cost to decommission and rehabilitation the mines at the date of depletion of each of the deposits. The present value of the provision has been calculated using an annual discount rate of 1.78 percent, 2.20 percent and 2.76 percent per year as of 31 December 2003, 2004 and 2005, respectively and 2.51 and 3.75 percent as of 30 June 2005 and 2006, respectively. Uncertainties in estimating these costs include potential changes in regulatory requirements, decommissioning, dismantling, and reclamation alternatives and the levels of discount and ination rates.
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Beginning balance ******************************************************** Increase to existing provision ********************************************** Accretion ***************************************************************** Change in discount rate *************************************************** Reclassied to liabilities directly associated with assets classied as held for sale ******************************************************************** Payments *****************************************************************

47,292 1,251 2,739 (1,063)

50,219 894 (1,173) (6,710) (1,804) 41,426

41,426 989 984 (1,232) (5,228) 36,939

36,939 499 (1,737) (2,518) 33,183

Ending balance *********************************************************** 50,219

26 EQUITY (a) Equity share capital At 31 December 2003, 2004, 2005 and 30 June 2006 equity share capital represents the sum of the capital accounts of the Cayman Island entities rather than the share capital of the Company as the Company has not yet been incorporated.

169

Part IXIFRS historical nancial information

26 EQUITY (continued) (b) Acquisition of shares from minority shareholders During the periods reported the Group purchased shares of Compana Minera Arcata from minority shareholders as follows:
Year ended 31 December 2003 2004 2005 Six-month period ended 30 June 2006

Number of shares***************************************** Amount paid US$(000) ************************************

13,591,371 4,927

2,701,801 1,053

6,869,033 2,667

5,656 20

27 DEFERRED INCOME TAX The movement in the deferred income tax liabilities and assets are as follows:
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Beginning of the year/period *********************************************** 6,487 Income statement credit**************************************************** (1,097) Change in tax rate ********************************************************* 40 Spin-off of Sipan (see Note 12(5)) ******************************************* Use of (gain)/loss from Caylloma (see Note 30) ******************************* Exchange difference ******************************************************* Other ********************************************************************* End of the year/period ***************************************************** 5,430

5,430 (3,216) (1,540) (314) 360

360 (10,004) 2,788 (6,856)

(6,856) (5,189) 236 26 (11,783)

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to the same scal authority. The amounts after offset are as follows:
As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Deferred income tax assets ************************************************** 1,079 Deferred income tax liabilities *********************************************** (6,509) (5,430)

2,794 (3,154) (360)

10,990 (4,134) 6,856

14,880 (3,097) 11,783

The movement in deferred income tax assets and liabilities during the year considering the nature of the temporary differences is as follows:
Differences in cost of PP&E Differences in depreciation rates Mine development and other US$(000)

Other

Total

Deferred income tax liabilities: At 1 January 2003 *********************************** Income statement (credit) charge ********************* Change in tax rate ********************************** At 31 December 2003******************************** Income statement (credit) charge ********************* Spin-off of Sipan ************************************ At 31 December 2004******************************** Income statement (credit) charge ********************* At 31 December 2005******************************** Income statement (credit) charge ********************* At 30 June 2006 *************************************

2,187 (61) 2,126 (586) (1,540) 68 68 (19) 49

12,709 11 85 12,805 729 13,534 (2,382) 11,152 (4,441) 6,711

6,692 616 7,308 5,309 12,617 (2,075) 10,542 2,546 13,088

7,347 562 86 7,995 242 8,237 1,889 10,126 135 10,261

28,935 1,128 171 30,234 5,694 (1,540) 34,388 (2,500) 31,888 (1,779) 30,109

170

Part IXIFRS historical nancial information

27 DEFERRED INCOME TAX (continued)
Difference in cost of PP&E Provision for mine closure Mine development and other US$(000) Tax losses

Other

Total

Deferred income tax assets: At 1 January 2003******************************* Income statement credit (charge) **************** Change in tax rate ****************************** At 31 December 2003 *************************** Income statement credit (charge) **************** Gain from discontinued operations *************** At 31 December 2004 *************************** Income statement credit (charge) **************** Use of loss carry forward ************************ At 31 December 2005 *************************** Income statement credit (charge) **************** Exchange difference***************************** At 30 June 2006 ********************************

7,436 816 58 8,310 3,618 11,928 (1,574) 10,354 (3,806) 48 6,596

1,213 85 1,298 (13) 1,285 617 1,902 (2) (193) 1,707

8,150 1,178 4 9,332 1,992 11,324 5,078 16,402 5,723 (19) 22,106

1,594 (820) 774 2,092 314 3,180 1,781 (2,788) 2,173 1,099 (18) 3,254

4,055 966 69 5,090 1,221 6,311 1,602 7,913 370 (54) 8,229

22,448 2,225 131 24,804 8,910 314 34,028 7,504 (2,788) 38,744 3,384 (236) 41,892

Tax losses expire in the following years:

As of 31 December 2003 2004 US$(000) 2005 As of 30 June 2006

Recognised:**************************************************************** Expire in one year********************************************************** Expire in two years ********************************************************* Expire in three years ******************************************************* Expire in four years ******************************************************** Expire after four years****************************************************** Unrecognised: ************************************************************* Expire in one year********************************************************** Expire in two years ********************************************************* Expire in three years ******************************************************* Expire in four years ******************************************************** Expire after four years****************************************************** Total tax losses (recognised and unrecognised)

2,581 2,581 1,333 2,426 3,816 7,575 10,156

3,931 6,669 10,600 882 6 1,224 7,523 9,635 20,235

6 54 502 5,654 6,216 882 1,170 7,625 9,216 18,893 25,109

6 54 453 5,654 3,130 9,297 882 427 7,625 5,114 9,164 23,212 32,509

Other unrecognised deferred income tax asset comprises:

As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Mine development and other ************************************************ Provision for mine closure *************************************************** Impairment of assets ********************************************************

358 13,767 14,125

2,744 11,145 654 14,543

9,229 9,229

8,295 8,295

Unrecognised deferred tax on retained earnings The Group has provided for a deferred tax liability in respect of taxes that will be payable when the Groups distributable retained earnings are distributed as dividends. Retained earnings that have arisen as a result of the adoption of IFRS are not considered to be distributable locally, and as a result, the Group has not recognised deferred tax liabilities in respect of these amounts.

171

Part IXIFRS historical nancial information

27 DEFERRED INCOME TAX (continued) No deferred tax asset has been recognised for the gross temporary differences in respect of the undistributed reserves of the Group, as the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future. The gross temporary differences are as follows:
As of 31 December 2003 2004 US$(000) 2005 As of 30 June 2006

Unremitted earnings of the Group ****************************************

(16,083)

(25,451)

(29,683)

(10,440)

28 DIVIDENDS PAID AND PROPOSED The dividends declared and paid during the years ended 31 December 2003, 2004 and 2005 and for the period ended 30 June 2006 are as follows:
Amount US$(000)

Year ended 31 December 2003 Total dividends paid or provided for during the year***************************************************** Total dividends declared after year end and not provided for ******************************************** Year ended 31 December 2004 Total dividends paid or provided for during the year***************************************************** Total dividends declared after year end and not provided for ******************************************** Year ended 31 December 2005 Total dividends paid or provided for during the year***************************************************** Total dividends declared after year end and not provided for ******************************************** Period ended 30 June 2006 Total dividends paid or provided for during the period ************************************************** Total dividends declared after period end and not provided for ******************************************

4,200 18,722 53,142

29 DISCONTINUED OPERATIONS AND ASSETS CLASSIFIED AS HELD FOR SALE Discontinued operations The assets and liabilities related to Caylloma mining unit (part of Compana Minera Arcata) have been presented as held for sale following the approval of the Companys management and shareholders in 2004 to sell Caylloma. This unit was sold in 2005 to Fortuna Silver Mine Inc. (Fortuna), realising a gain of US$15,739,000. The consideration received was as follows:
US$000

Cash ************************************************************************************************** Deferred consideration********************************************************************************* Derivative nancial asset ******************************************************************************* Available for-sale-nancial assets *********************************************************************** Other ************************************************************************************************* Total consideration ************************************************************************************

3,050 4,450 1,720 2,541 39 11,800

The derivative nancial assets and available for sale nancial assets acquired represent 2,475,355 warrants over Fortuna shares, and 2,472,365 shares in Fortuna respectively.

172

Part IXIFRS historical nancial information

29 DISCONTINUED OPERATIONS AND ASSETS CLASSIFIED AS HELD FOR SALE (continued) An analysis of the result of discontinued operations, including the result recognised on the remeasurement of assets or disposal group, is as follows:
Six-month period ended 30 June Year ended 31 December 2003 2004 2005 US$(000) Unaudited 2005

PRA1
2006

20.7.1

Revenues ********************************************************* Expenses ********************************************************* Pre-tax loss ******************************************************* Tax expense ****************************************************** Gain on sale of assets and liabilities ******************************** Tax on gain on sale of assets and liabilities ************************* (Loss)/prot after tax from discontinued operations *****************

4,881 (6,252) (1,371) (1,371)

(1,045) (1,045) 314 (731)

(321) (321) 95 15,739 (3,334) 12,179

(321) (321) 95 12,179 (2,558) 9,395

Six-month period ended 30 June Year ended 31 December 2003 2004 2005 US$(000) Unaudited 2005 2006

Operating cash ows*********************************************** (1,030) Investing cash ows************************************************ (155) Financing cash ows *********************************************** Total cash ows *************************************************** (1,185)

(926) (15) (941)

(321) 3,050 2,729

(321) 100 (221)

4,500 4,500

Assets classied as held for sale In addition to the Caylloma discontinued operations, the assets and liabilities of which were classied as held for sale, in 2004 Management agreed to sell the remaining plant of Compana Minera Sipan. This asset was reclassied as held for sale in 2004, and was carried at US$3,820,000 at 31 December 2004, US$3,844,000 at 31 December 2005, and US$3,003,000 at 30 June 2006. The reduction in carrying value between 31 December 2005 and 30 June 2006 was due to the sale of certain items at carrying value during the six months ended 30 June 2006. The Company expects that these assets will be disposed within the next six to twelve months. The analysis of amounts classied as held for sale, including the Caylloma mine and the assets of Sipan are outlined below:
Six-month period ended 30 June 2006

Year ended 31 December 2003 2004 2005 US$(000)

Disposal group held for sale: Property, plant and equipment ********************************************* Assets held for sale: Property, plant and equipment ********************************************* Liabilities directly associated with disposal group held for sale Provisions *****************************************************************

3,185 3,820 7,005 6,710 6,710

3,844 3,844

3,003 3,003

173

Part IXIFRS historical nancial information

30 RELATED-PARTY BALANCES AND TRANSACTIONS (a) Related-party accounts receivable and payable The Company had the following related-party balances and transactions during the years ended 31 December 2003, 2004, 2005 and the six-months ended on 30 June 2005 and 2006. The related parties are companies owned or controlled by the main shareholder of the parent company.
Accounts Receivable At 31 December 2003 2004 2005 At 30 June 2006 US$(000) Accounts Payable At 31 December 2003 2004 2005 At 30 June 2006

PRA1 19 98 74 8 180 343 2 10 581 491 90 1,517 8,766 8,766 12,812 898 650 5,107 1,986 3,278 928 25,659 36,122 8,766 22,995 4,361 36,122 27 57 84 26 6 1 33 8,716 8,716 12,804 898 6,586 160 928 21,376 30,209 8,716 21,483 10 30,209 6 267 273 3 3 60,803 60,803 13,761 898 2,686 230 17,575 78,654 60,803 17,851 78,654

Trade Cementos Pacasmayo S.A.A. ****** Cementos Selva S.A. ************** Inmobiliaria CNP S.A.C. *********** Others *************************** Other Cementos Pacasmayo S.A.A. ****** Farragut Holding Inc. ************* Dona Ltd. *********************** Inmobiliaria CNP S.A.C. *********** Compana Minera Pativilca S.A.C. ** Inversiones Pacasmayo S.A. ******* Harrison Corporation ************* Others *************************** Dividends payable Dona Ltd. (Note 23) ************** Loans Dona Ltd.(1) ********************** Harrison Corporation(1) ************ Greystone Corporation************ Empresa de Transmision Guadalupe S.A. **************** Compana Minera Pativilca S.A.C. Farragut Holding Inc.(2) *********** Cementos Pacasmayo S.A.A. ****** Transimex Inc. ******************* Mauricio Hochschild Cia. Ltda. **** Other**************************** Total **************************** Comprised of: Dividends payable to Dona******** Current related party balances **** Non-current related party balances Total

30 30 131 97 228 8,115 9,960 2,695 137 20,907 21,165 18,630 2,535 21,165

27 27 259 468 525 7 1,259 8,112 9,960 28,202 46,274 47,560 27,784 19,776 47,560

7 7 2,873 300 31 3,204 8,110 9,960 33,102 51,172 54,383 54,383 54,383

6,802 9,960 87 16,849 7,408 32,333 200 2,781 42,722 59,571 59,571 59,571

1,495 42 69 1,606 375 2 8 203 588 10,784 10,754 1,136 898 4,148 1,986 928 1,660 10,756 23,704 10,754 10,694 2,256 23,704

174

Part IXIFRS historical nancial information

30 RELATED-PARTY BALANCES AND TRANSACTIONS (continued) (a) Related-party accounts receivable and payable (continued) Effective interest rates:
Accounts Receivable At 31 December 2003 2004 2005 At 30 June 2006 Accounts Payable At 31 December 2003 2004 2005 At 30 June 2006

US$(000)

Empresa de Transmision Guadalupe S.A. **************** Compana Minera Pativilca S.A.C. *********************** Farragut Holding Inc.(c) ********************************* Cementos Pacasmayo S.A.A. ****************************

6.6%

8.5%

8.5% 8.5%

8.5% 8.5% 8.5%

8.5%

All other accounts are, or were, non-interest bearing. No security has been granted or guarantees given by the Group in respect of these related party balances. Principal transactions between afliates are as follows:
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Income Interest on loans to Farragut Holding ********************************** Rent received ********************************************************* 350 Services provided ***************************************************** 3,440 Proceeds from sale Sale of shares of Inversiones Pacasmayo to Greystone Corporation ******* Sale of shares held in MHC to Greystone Corporation ******************* Sale of Inmobiliaria CNP shares to Cementos Pacasmayo ***************** Sale of zinc project (note 9) ******************************************* Sale of shares of Corianta to Cementos Pacasmayo (note 9) ************** Expenses Interest expenses****************************************************** 466 Acquisition cost Purchase of Arcata shares from Invernor******************************** Purchase of Inversiones Pacasmayo shares from Invernor*****************

328 380 1,449 754

2,418 272 15,558 806 235 2,566 2,837

1,094 27 15,558 806 212 2,566 2,837

1,250 52 6,349 1,000 200 9

(1) Transaction with Harrison Corporation and Dona Limited These loans do not bear interest and have no maturity date. (2) Transaction with Farragut Holding Inc. Corresponds to a loan provided by Compana Minera Ares to Farragut Holding Inc. with original maturity in 2009 which is repayable in ve instalments starting in 2005. This loan bore an annual interest of LIBOR plus 4.0 per cent. up to June 2006, when the benet was transferred from Compana Minera Ares to Ludlow. This amount was repaid subsequent to the balance sheet date (refer to Note 37(e)).

175

Part IXIFRS historical nancial information

30 RELATED-PARTY BALANCES AND TRANSACTIONS (continued) (b) Compensation of key management personnel of the Group Key management personnel include the members of the management board and directors who receive remuneration.
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Salaries and bonuses *************************************************** 2,360 Total compensation paid to key management personnel ****************** 2,360

2,809 2,809

4,172 4,172

1,575 1,575

1,784 1,784

(c) Sale of shares of Inversiones Pacasmayo S.A. (IPSA) On June 15, 2006, the Group sold 16,585,047 shares of IPSA for US$6.4 million to a related party generating a loss of US$14.7 million against the fair value of such investment. In addition in June 2006, the shares of IPSA held by subsidiary MHC were sold at book value through the sale of MHC to a related party. 31 NOTES TO THE COMBINED CASH FLOW STATEMENT
Year ended 31 December 2003 2004 2005 US$(000) Six-month period ended 30 June Unaudited 2005 2006

Reconciliation of prot for the year/period to net cash generated from operating activities Prot for the year/period**************************************** 10,139 Adjustments to reconcile group operating prot to net cash inows from operating activities: Depreciation**************************************************** 14,000 (Gain)/loss on provisional pricing adjustment ********************* (1,624) Gain on sale of zinc project ************************************* Loss/(gain) on sale/disposal of property, plant and equipment and assets classied as held for sale ******************************** 28 Write-off of property, plant and equipment ********************** 184 Impairment of property, plant and equipment ******************** Loss on sale of available-for-sale nancial assets ****************** (Gain)/Loss on sale of subsidiaries ******************************** (Gain)/Loss from other nancial assets at fair value through prot or loss ******************************************************* 25 Deferred income tax ******************************************** (1,057) Increase (decrease) in provision for mine closure ****************** 1,199 Unwind from discount of provision for mine closure ************** 1,251 Gain from sale of Caylloma************************************** Interest expense ************************************************ 3,270 Income tax expense ********************************************* 9,553 Exchange difference from xed assets **************************** (363) Others ********************************************************* 358 Increase (decrease) of cash ows from operations due to changes in assets and liabilities: Trade and other receivables ************************************* (2,880) Derivative nancial instruments********************************** 1,799 Inventories ***************************************************** (8,406) Trade and other payables *************************************** (2,186) Cash generated from operations********************************* 25,290

9,215

42,884

22,233

22,568

22,907 (2,579) 26 923 2,181 (342) (3,216) 660 894 5,318 13,513 23 (217)

16,606 (9,916) (14,558) 197 (254) (792) (10,004) (725) 984 (15,739) 8,402 22,465 44 851

6,809 (1,920) (14,558) 113 (254) 51 (4,478) (272) 528 (12,179) 2,207 12,995 248

8,065 8,527 (172) 2,249 991 297 (5,189) (1,024) 499 3,867 18,427 (91) 496

(39,749) 1,683 7,044 7,034 25,318

(7,099) 2,831 1,015 158 37,350

(2,852) 2,236 (1,037) 6,453 16,323

(1,641) (11,102) (3,503) 6,637 49,901

176

Part IXIFRS historical nancial information

31 NOTES TO THE COMBINED CASH FLOW STATEMENT (continued) Transactions that did not affect cash ows The main transactions that did not affect cash ows were the following:
Year ended 31 December 2003 2004 2005 Six-month period ended 30 June Unaudited 2005 2006

US$(000)

Provision for mine closure - property, plant and equipment************** 1,540 Unpaid purchase of property, plant and equipment ********************* Unrealised gain on available-for-sale nancial assets ******************** 1,692 Uncollected proceeds from sale of MHC ******************************** Uncollected proceeds from sale of available-for-sale nancial assets ****** Realised gain from sale of available-for-sale nancial assets************** Uncollected proceeds from sale of Caylloma **************************** Acquisition on available-for-sale nancial assets ************************* Assets classied as held for sale **************************************** Provision for mine closureliability ************************************ 1,540 Dividends expired ***************************************************** 27 Unpaid dividends ***************************************************** Liabilities directly associated with assets classied as held for sale ******** Capitalisation of debt ************************************************* Non-cash contribution from minority interest *************************** 601

7,806 6,542 7,143 7,254 6,591

688 3,636 4,492 8,831 2,542 465 688 465

380 4,663 10,408 465 380 2,520 465

996 692 13,023 1,000 6,550 22,844 4,500 996 915

32 COMMITMENTS (a) Gold and silver futures contracts A summary of the sales commitments with xed prices open follows: Gold
Quantity As of 31 December Organisation 2003 (ounces) 2004 (ounces) 2005 (ounces) As of 30 June 2006 (ounces) Type of contract Period Quotation (US$/oz) From to

N.M. Rothschild ** N.M. Rothschild ** Standard Bank *** N.M. Rothschild ** Standard Bank *** Standard Bank *** Standard Bank *** Standard Bank *** Standard Bank *** Standard Bank *** Citibank ********* Citibank ********* Total ************

36,890 36,890 37,200 58,125 75,000 44,116 288,221

21,420 21,420 21,600 31,875 40,000 23,522 12,000 4,200 18,000 35,000 36,850 36,600 302,487

5,950 5,950 6,000 7,500 10,000 5,870 7,500 35,000 36,850 36,600 157,220

35,000 36,850 36,600 108,450

Min/Max Min/Max Min/Max Flat Forward Call Call Flat Forward Flat Forward Flat Forward Flat Forward Flat Forward Flat Forward

330;385 335;385 340;385 346.13 311.00 300.00 387.00 393.75 401.55 411.75 416.65 419.20

January January January April April September July July July July August January

2003 2003 2003 2003 2003 2003 2004 2004 2005 2006 2006 2007

June June June July April April June June June December June June

2006 2006 2006 2006 2006 2006 2005 2005 2006 2006 2007 2007

177

Part IXIFRS historical nancial information

32 COMMITMENTS (continued) (a) Gold and silver futures contracts (continued) Silver
Quantity As of 31 December Organisation 2003 (ounces) 2004 (ounces) 2005 (ounces) As of 30 June 2006 (ounces) Type of contract Period Quotation (US$/oz) From to

Standard Bank ****** 229,333 Standard Bank ****** 204,000 Rothschild *** 192,312 Standard Bank ****** 2,000,000 Rothschild *** 2,000,000 International International International Standard Bank ****** Total ******** 4,625,645

1,360,000 916,671 2,276,671

240,000 750,000 750,000 500,000 2,240,000

180,500 280,500 500,000 1,000,000 1,961,000

Min/Max Flat Forward Flat Forward Flat Forward Flat Forward Min/Max Min/Max Min/Max Min/Max

4.60;5.29 4.80 4.82 5.00 5.00 7.20;8.40 7.00;8.20 7.45;8.43 8.40;10.60

January 2003 June 2003 June 2003 January January January January July 2004 2004 2006 2006 2006

December 2003 June 2004 June 2004 December December June June December 2005 2005 2006 2006 2006

July 2006

December 2006

The contracts and commitments mentioned above are not fair valued in the books as they were entered into, and continue to be held for, the purpose of the delivery of a non-nancial item in accordance with the Groups expected sales requirements. In accordance with IAS 39, these contracts are not required to be fair valued. (b) Mining rights purchase options During the ordinary course of business, the Group enters into agreements to carry out exploration under concessions held by third parties. Under the terms of some of the agreements, the Group has the option to acquire the concession or invest in the entity holding the concession. In order to exercise the option the Group must satisfy certain nancial and other obligations over the agreement term. The options lapse in the event the Group does not meet the nancial requirements. At any point in time the Group may cancel the agreements without penalty. The Group continually reviews its requirements under the agreements and determines on an annual basis whether to proceed with the nancial commitment. The commitments at the balance sheet date are limited to the minimum nancial requirements for the subsequent twelve months, shown as follows:
As of 31 December 2003 US$(000) 2004 US$(000) 2005 US$(000) As of 30 June 2006 US$(000)

Commitment for the subsequent twelve months **************************** Later than one year*******************************************************

1,390

1,166

1,717

11,112 34,044

(c) Pallancata Project On 30 June 2006, Compana Minera Ares S.A.C., a subsidiary of Ludlow Corporation entered into an agreement with Minera Oro Vega S.A.C. (Minorva), a subsidiary indirectly owned by International Minerals Corporations (IMC), to form an entity in order to develop the Pallancata mining concession with Ludlow owning 60 per cent and Minorva 40 per cent. Ludlow committed to contribute US$6 million and Minorva committed to contribute US$4 million for the development of the project. 178

Part IXIFRS historical nancial information

On 10 July 2006, Minera Coriorco S.A.C. (Coriorco) (now renamed Pallancata Holding S.A.C.) received the rights of Ludlow and on 16 August 2006 signed an agreement with Minorva to constitute Minera Suyamarca S.A.C. (Suyamarca), with capital stock of US$10 million. The initial capital contribution amounted to US$3 million from Coriorco and US$1 million from Minorva. The remaining capital contribution of Coriorco is to be made in the following 12 months. The remaining capital contribution of Minorva was to be paid 30 days after the incorporation of Suyamarca. Suyamarca will purchase the mining concession rights from Minorva for US$4 million. Suyamarca has committed to obtain all necessary licences to begin production. Once licences are obtained, Suyamarca has to develop the mine with a 500 metric ton per day capacity during the rst year after obtaining such licenses and 750 metric tons per day as from the second year. Suyamarca will be subject to an advance production payment in case of failure to comply with these commitments. The advance production payment would be equal to 40% of quarterly net cash ow that would have been generated. (d) Exmin project On 30 June 2006 Minera Hochschild Mexico S.A. de C.V. (MHM) and Exmin S.A. de C.V. (Exmin) signed an option contract with Minera Moris S.A. de C.V. to purchase the Santa Mara de Moris Mine (Mina Moris) for US$6 million. MHM agreed to pay US$4.5 million (70 per cent. of participation) and Exmin agreed to pay US$1.5 million) (30 per cent. of participation). On 11 July 2006 the Group and Exmin paid the rst instalment of such contract of US$1,500,000 as follows: US$1,050,000 as a payment by the Group and US$450,000 as the payment by Exmin, the latter of which has been paid with a loan from the Group. In accordance with the contract, the nal amount of US$4.5 million shall be paid up by 30 December 2006. Once all conditions of the agreement are satised, the Group will be committed to this nal amount. The contract establishes that the right to mine Mina Moris will be transferred to MHM and Exmin if: i) MHM and Exmin pay the nal amount of US$4.5 million and ii) the owner cancels all the encumbrances attached to Mina Moris and permit MHM and Exmin full access to the assets to be transferred. In addition, if MHM and Exmin decide not to continue with the purchase of the mine, the amount of US$1,500,000 paid in advance will not be recovered. This acquisition is expected to complete on 30 December 2006 unless MHM and Exmin decide not to continue with the purchase of the mine. (e) San Felipe project On 13 May 2006 MHM and Grupo Serrana S.A. de C.V. (Serrana) entered into an agreement to explore the mining rights of the concessions owned by Serrana which include San Felipe. In this regard, MHM has paid US$200,000 and will invest in exploration expenses in the next 3 years in an aggregate amount of US$6.7 million. MHM is not committed to any minimum expenditure during the rst year. However after the rst year, should MHM wish to continue to explore the mining concessions, it will be committed to the remaining balance of the US$6.7 million. If MHM decides not to continue to explore the mine, it will be subject to a penalty equivalent to the difference between US$2,000,000 and 30 per cent. of any investment already made in the mining concessions. Once the exploration expenses have been paid, MHM and Serrana agree to constitute a new company to develop the mining concessions owned by Serrana including the San Felipe project. The new company is to invest US$27 million on the mine before end of the fth year. (f) Colorada project As outlined in Note 4, on 30 June 2006, the Group acquired a 30 per cent. controlling interest in Minera Colorada S.A.C. (Colorada), an exploration company, from Cementos Pacasmayo S.A.A. (Pacasmayo). Under the agreement, the Group and Pacasmayo have the option to increase their 179

Part IXIFRS historical nancial information

Colorada Project (continued) combined participation from 50 per cent. to 65 per cent. if the Group invest US$1 million in exploration expenses in the project by August 2009. Additionally, Killacolqui have the option to increase its participation from 50 per cent. to 80 per cent. if, in the exploration stage of the project, the percentage of silver in the resource is above the 50% of the total mine and elects to fund the feasibility study. (g) Operating lease contract The Group leases certain vehicles under an operating lease agreement with Mitsui. In addition the company has an operating lease agreement to lease drilling equipment with Sandvick which matures in August 2006. The lease expenditure charge to the income statement during the years /period is disclosed in Notes 6 and 7. As of 31 December 2003, 2004 and 2005 and as of 30 June 2006 the future aggregate minimum lease payments under the operating lease agreement are as follows:
For the year ended 31 December 2003 2004 2005 For the six-months period ended 30 June 2006

US$(000)

Not later than one year ***************************************************** Later than one year and not later than ve years*****************************

731 510

632 280

633 266

877 1,076

(h) Capital expenditure A summary of capital expenditure commitment is as follows:

As of 31 December 2003 2004 2005 US$(000) As of 30 June 2006

Peru ************************************************************************* Argentina ********************************************************************

1,448 1,448

2,190 2,411 4,601

276 276

1,877 4,900 6,777

33 CONTINGENCIES As of 30 June 2006, the Group has the following contingencies: (a) Tax assessment Minera Arcata received a tax assessment of US$700,000 from the Peruvian Tax Authority relating to VAT scal credit and exports for the period from January to December 2003 the authorities consider such sales as local sales, instead of export sales, which are subject to VAT. This assessment is currently under appeal. Management, having consulted legal counsel, considers that there are grounds to believe that the outcome of these proceedings will be favourable to Minera Arcata, that an export transaction has occurred with overseas customer, as the goods left the country to be used or consumed abroad, as established under the applicable laws and regulations for goods to be eligible to use the export tax relief. 180

Part IXIFRS historical nancial information

33 CONTINGENCIES (continued) (b) Dispute with Electroperu Compana Minera Ares has a dispute with Electroperu S.A. (Electroperu) regarding the electric power it used during November and December 2002 which was simultaneously billed by Electroperu and Sociedad Electrica del Sur Oeste S.A. (SEAL). Compana Minera Ares has led a claim with Osinerg (the Peruvian power regulator) claiming that the billing should only be for the actual power consumed by the company and that Electroperu and SEAL should each have half the billing. Electroperu has led an administrative court action against the resolution issued by Osinerg and initiated an arbitration process seeking to additionally collect S/.832,135, plus interest. The Arbitration Court issued a decision dated 19 August 2005, comprising a resolution dated 23 September 2005, stating that it has the competence to resolve the dispute and declaring in favour of Electroperu. Compana Minera Ares has requested the Civil Courtroom of the Supreme Court of Lima to declare the Arbitration Court decision as null and void and has led an appeal against the resolution of the Arbitration Court on the grounds that it affects constitutional rights. In connection with the appeal, Compana Minera Ares has obtained a resolution suspending the Arbitration Court decision. Management, having consulted legal counsel, considers that there is a reasonable possibility that the outcome of these proceedings will be favourable to Compana Minera Ares. (c) Income tax refund due In 2000, Sipan entered into a sale and leaseback arrangement in respect of a building with Credito Leasing S.A. (Credileasing). Through this arrangement, Sipan claimed a tax deduction for the total costs of the building over the four month contract term as opposed to the useful life of the building of 33 years. The Peruvian Tax Authority is challenging the deductibility of the monthly contract payments, associated interest costs on the loan from Credileasing to fund the nance lease payments and various other expenses for Sipan. They have issued an assessment for 2000 for current income tax, including interest, of approximately US$0.6 million and a ne of approximately US$2.1 million. Sipan appealed against this assessment. Based on the facts, management considers that the nance lease payments, interest and expenses should be deductible for tax purposes. However, the Tax Court ruled that the nance leasing contract was in fact a purchase of assets as the real intention of the company was not to enter into a nance leasing contract but to acquire a building. The Tax Courts decision was made on the basis that the building was previously owned by a related entity of Sipan, (being Mauricio Hochschild & Cia S.A.C.) which had transferred it to Credileasing in the same year, the leasing contract was only for a period of four months and Sipan obtained a loan for the same amount as the nance lease payments from a bank economically related to Credileasing on the date the nance leasing contract was signed. Sipan appealed this decision but it was upheld by the Superior Court and so Sipan has led an appeal with the Supreme Court. This appeal is currently waiting to be heard. Under the Peruvian Tax Code, the Tax Administration and Tax Court must consider the taxable nature of a transaction based on the economic facts and should not adopt a different interpretation of those facts. Sipan has contested the rulings on this basis. Notwithstanding the foregoing, given that the company has lost at the administrative stage, this exposure is considered as possible. 181

Part IXIFRS historical nancial information

(d) Taxation Fiscal periods remain open to review by the tax authorities in respect of taxes for four years in Peru, ve years in Argentina and ve years in Mexico, preceding the year of review during which time the authorities have the right to raise additional tax assessments including penalties and interest. Under certain circumstances reviews may cover longer periods. The Directors have identied actual and possible tax claims (including those shown above) within the various jurisdictions in which it operates totaling US$12 million as at 30 June 2006. In addition, because a number of scal periods remain open to review by the tax authorities, coupled with the complexity of the Group and the transactions they have undertaken, there remains a risk that signicant additional tax liabilities may arise. Notwithstanding this risk, the Directors believe that managements interpretation of the relevant legislation and assessment of taxation is appropriate and that it is probable that the Groups tax and customs positions will be sustained in the event of a challenge by the tax authorities. Consequently, the Directors consider that they have made adequate provision for any future outow of resources and no additional provision is required in respect of these claims or risks. (e) Other The Group has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation, and based on advice of legal counsel, of applicable legislation in the countries where the Group has operations. In certain specic transactions. However, the relevant authorities could have a different interpretation of those laws and regulations that could lead to contingencies or additional liabilities for the Group. Having consulted legal counsel, Management believes that it has reasonable grounds to support its position. 34 GUARANTEES AND INVESTMENT PROMOTION MEASURES CONTRACT Compana Minera Ares In 1995, Compana Minera Ares started a mining investments programme approved by the General Mine Direction of the Energy and Mines Ministry through Directoral Resolution No330-95 EM/DG issued on 29 December 1995, for an amount of US$13,590,000 which was nanced by Compana Minera Ares and loans from third parties. With the approved program, Compana Minera Ares subscribed a guarantees and investment promotion measures contract with the Peruvian Government for a ten-year term that commenced on the date in which the nal investment was made. Likewise, through Directoral Resolution 080-97-EM/DGM dated 25 February 1997, an increase of the investments programme to US$24,760,000 was approved due to the greater potential of the mining site. The main works and labours contained in the investment plan are the following: Access and mine preparation labour; Plant buildings construction; Plant equipment assembly; Tailings dam constructions; Power supply system construction; Water supply system construction; and Auxiliary services construction. The investment programme was completed by Compana Minera Ares in March 1998. The total amount invested by the company and demonstrated to the Ministry of Energy and Mines was approximately US$33,274,000 at 31 December 1999. Through Directoral Resolution 182

Part IXIFRS historical nancial information

34 GUARANTEES AND INVESTMENT PROMOTION MEASURES CONTRACT (continued) Compana Minera Ares (continued) 189-99-EM/DGM dated 28 October 1999, the Ministry of Energy and Mines granted legal stability to Compana Minera Ares starting 1 January 1999 for a ten-year term. By virtue of the above-mentioned contract, the Peruvian Government is obliged to guarantee legal stability to the Company based on the following terms: (a) Free trade of its products, meaning that the Government cannot apply restrictions such as: Limiting the companys ability to sell anywhere; Suspending or postponing internal sales and/or exports; Requiring sales to any market, local or foreign; or Requiring payment for such products based on an exchange of goods or services or in a currency not valid to make international payments. (b) Banco Central de Reserva del Peru as representative of the Peruvian Government also granted the following rights in favour of Compana Minera Ares, during the term of the contract: Free access inside and outside of the country and to currencies generated by exports subject to laws in force at the date of the contract. Free exchange to foreign currency of local currency generated by internal mining production. No discrimination in relation to the exchange rate issued by Banco Central de Reserva del Peru for similar transactions. Compana Minera Ares will have the right to totally or partially decide to be governed, when it considers pertinent, under new legal dispositions on exchange matters or exchange norms issued during the term of the contract, including the dispositions and the norms that have to do with exchange aspects not contemplated in the contract, as long as they have a general character or are applicable to the mining activity. The decision to be subject to the new dispositions or norms will not affect the term of the stability arrangements, or the exercise of rights other than those contemplated in the new dispositions or norms. If Compana Minera Ares decides to be governed under new legislation for a specic period, it has the rights to revert back to previous legislation and apply that legislation for the same period. This decision does not generate new rights or obligations. (c) Compana Minera Ares will enjoy legal stability related to the Ares mining unit, without being affected by modications or new norms. The legal stability guarantee provides, additionally, that the following taxes will remain constant with those at the approval date: Income tax, including the way it is determined and the rates applied; The calculation of compensation and/or tax refunds; The municipal taxes rates; and The custom taxes rates. (d) In the framework of administrative stability, the following is understood: The vesting rights of the mining concessions with a rate of US$2.00 per hectare per year, and in the case of prot concessions, the number of Tax Units (UIT), which corresponds. 183

Part IXIFRS historical nancial information

35 MINING ROYALTY On 24 June 2004, the Peruvian Congress approved Law 28258Mining Royalties Law. This law established a mining royalty that owners of mining concessions must pay for the exploitation of metallic and non-metallic resources. The mining royalties are calculated with rates ranging from 1 per cent. to 3 per cent. of the value of mineral concentrates or equivalent, according to the quoted market price published by the Ministry of Energy and Mines. The corresponding regulation was approved on 15 November 2004. Payment of royalties for the period 1 July 2004 to 31 December 2004 was due in January 2005 and thereafter royalties are payable monthly. As of 30 June 2006, the amount payable as mining royalties for the mining units of Selene and Arcata amounted to approximately US$587,000 (US$145,000 and US$296,000 at 31 December 2005 and 2004), and was recorded in the caption Trade and other payables of the balance sheet. Management, having consulted with legal counsel, is of the opinion that the Ares mining unit has not been affected by this law and therefore need not make any royalty payments or provisions for such payments due to the fact that it has the legal stability agreement. 36 FINANCIAL RISK MANAGEMENT (a) Foreign currency risk The Group principally produces silver and gold which are typically priced in US dollars. A proportion of the Groups costs are incurred in Nuevo Sol. Accordingly, the Groups nancial results may be affected by exchange rate uctuations between the US dollar and the Nuevo Sol. The Group does not use derivative instruments to manage its foreign currency risks. (b) Commodity price risk Silver and gold prices have a material impact on the Groups results of operations. Prices are signicantly affected by changes in global economic conditions and related industry cycles. Generally, producers of silver and gold are unable to inuence prices directly; however, the Group protability is obtained through the control of its cost base and the efciency of its operations. At 30 June 2006 the Hochschild Group has only a limited proportion of its output subject to hedging arrangements. The Group manages its commodity price risk mainly with xed price sales commitments or with caps and oors built into sales contracts. (c) Credit risk Credit risk arises from debtors inability to make payment of their obligations to the Group as they become due (without taking into account the fair value of any guarantee or pledged assets); and by non-compliance by the counterparties in transactions in cash, which is limited, to balances deposited in banks and accounts receivable at the balance sheets date. To manage this risk, the Group deposits its surplus funds in highly-rated nancial institutions, establishes conservative credit policies and constantly evaluates the conditions of the market in which it conducts its activities. Consequently, the Group does not expect to incur signicant losses on account of credit risk. Credit risk concentrations exist when changes in economic, industrial or geographic factors take place, affecting in the same manner the Groups counterparties whose added risk exposure is signicant to the Groups total credit exposure. The Groups portfolio of customers is concentrated in three customers domiciled in foreign countries that represent 81 per cent of the total net sales during the year 2005. Derivatives are executed with different counterparties to avoid concentration of credit risk. 184

Part IXIFRS historical nancial information

36 FINANCIAL RISK MANAGEMENT (continued) (d) Liquidity risk Liquidity risk arises from the Groups inability to obtain the funds it requires to comply with its commitments under nancial instruments including the inability to sell a nancial asset quickly at a price close to its fair value. Management believes that it will have access to adequate credit on reasonable terms from highly-rated nancial instruments. (e) Interest rate risk The Group has nancial assets and liabilities which are exposed to interest rate risk. Changes in interest rates impact primarily loans and borrowings by changing either their fair value (xed rate debt) or their future cash ows (variable rate debt). The Group does not have a formal policy of determining how much of its exposure should be at xed or at variable rates. However, at the time of taking new loans or borrowings management uses its judgment to decide whether it believes that a xed or variable rate borrowing would be more favourable to the Group over the expected period until maturity. Interest on nancial instruments classied as oating rate is re-priced at intervals of less than one year. Interest on nancial instruments classied as xed rate is xed until the maturity of the instrument. The other nancial instruments of the Company are non-interest bearing and are therefore not subject to interest rate risk. 37 SUBSEQUENT EVENTS (a) On 4 August 2006 the term of the warrants to purchase 331,800 shares of Rio Fortuna Exploration Group for Can$179,172 expired. The Group did not exercise this option (Note 17). (b) As described in Note 32(c), on 10 July 2006, Minera Coriorco S.A.C. (Coriorco) received the rights of Ludlow to the Pallancata project, and on 16 August 2006 signed an agreement with Minorva to constitute Minera Suyamarca S.A.C. (Suyamarca). Suyamarca was incorporated with an initial capital contribution of US$3 million from Coriorco, and US$1 million from Minorva. (c) On 4 October 2006 the Group entered into a promissory note with Banco de Credito del Peru for US$20 million, that will go to Minera Santa Cruz (51 per cent.) and Minera Andes (49 per cent.) as a bridge loan for the San Jose project until Minera Santa Cruz obtains nance from the Group with part of the proceeds from the Global Offer. (d) On 18 September 2006, the Hochschild Mining Group entered into a letter of intent with Mirasol Resources Ltd. relating to an option and joint venture agreement to explore for, and develop and mine, minerals at two sites (Santa Rita and Claudia) in Argentina. Under the arrangements, the Hochschild Mining Group will have the right to acquire a 51 per cent. interest in each project by investing at least US$3.5 million in the Santa Rita project and US$6.0 million in the Claudia project as well as making four annual payments of US$200,000 each to Mirasol. The Hochschild Mining Group paid US$150,000 on signing the letter of intent. (e) During October 2006 the Group net settled all of their related party balances, including the dividends payable to Dona, with the exception of the amounts owing from Cementos Pacasmayo S.A.A., a US$1 million receivable from Greystone Corporation and a portion of the dividend referred to in paragraph (f) below. The net amount owing was settled primarily through the transfer of the entire amount of the Groups Other nancial assets at fair value through prot and loss, with the balance paid in cash. (f) On 16 October 2006 the Group declared a dividend to its shareholder of US$20 million, which was settled in part as a result of the net settlement process referred to in paragraph (e) above. (g) On 2 November 2006 the Company entered into the Share Exchange Agreement described in Note 1. 185

PART X: Unaudited pro forma nancial information

Section A: Unaudited pro forma balance sheet
The following pro forma balance sheet of the Hochschild Mining Group as at 30 June 2006 is prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and therefore does not represent the actual nancial position or results of the Hochschild Mining Group. It is prepared to illustrate the effect on the consolidated balance sheet of the Hochschild Mining Group of the Global Offer, as if the Global Offer had taken place on 30 June 2006, and is based on the consolidated balance sheet of the Hochschild Mining Group at 30 June 2006 extracted without material adjustment from the nancial information set out in Section B: IFRS Historical Financial Information of Part IX: IFRS Historical Financial Information. The unaudited proforma balance sheet includes certain adjustments to reect the insertion of Hochschild Mining plc as the holding company for the Hochschild Mining Group, the proposed Global Offer and share capital reduction. However, adjustments have been made in accordance with item 6 of Annex II of the Prospectus Regulation.
Adjustments Insertion of Additional Hochschild plc share capital as group Hochschild subscription by holding Global Offer Reduction in Mining Hochschild plc company adjustments share capital Dividend Group (Note 3) (Note 4) (Note 5) (Note 6) (Note 7) Pro forma US$(000)

PRA1 20.4.3 PRA2 1

PRA2 2, 3, 5, 6

Hochschild Settlement of Mining related party Group balances (Note 1) (Note 2) ASSETS Non-current assets Property, plant and equipment********* Intangible assets ***** Available-for-sale nancial assets***** Deferred income tax assets ************* Trade and other receivables*********

67,155 2,321 4,135 14,880 5,982 94,473

(59,571)

95

67,155 2,321 4,135 14,880 5,982 94,473 14,002 21,871 11,524

Current assets Inventories ********** Trade and other receivables********* Derivative nancial instruments ******** Other nancial assets at fair value through prot and loss *************** Cash and cash equivalents ******** Assets classied as held for sale ******* Total assets ********** EQUITY AND LIABILITIES Equity share capital ** Share premium ****** Other reserves ******* Retained earnings**** Equity attributable to the shareholders of the parent********* Minority shareholders Total equity *********

14,002 81,347 11,524

19,324 6,043 132,240 3,003 229,716

(19,083) (78,654) (78,654)

95 95

476,761 476,761 476,761

241 482,804 530,442 3,003 627,918

9,187 1,696 (561)

95

210,230 (210,230)

73,824 402,937

(146,668) 146,668

(20,000)

146,668 402,937 (208,534) 126,107

10,322 (3,841) 6,481

95 95

476,761 476,761

(20,000) (20,000)

467,178 (3,841) 463,337

186

Part X: Unaudited pro forma nancial information

Adjustments Insertion of Additional Hochschild plc share capital as group Hochschild subscription by holding Global Offer Reduction in Mining Hochschild plc company adjustments share capital Dividend Group (Note 3) (Note 4) (Note 5) (Note 6) (Note 7) Pro forma US$(000) Hochschild Settlement of Mining related party Group balances (Note 1) (Note 2) Non-current liabilities Trade and other payables*********** Borrowings ********** Provisions************ Deferred income tax liabilities ********** Current liabilities Trade and other payables*********** Borrowings ********** Provisions************ Income tax payable ** Total liabilities ******* Total equity and liabilities **********

3,450 30,315 33,183 3,097 70,045

20,000 20,000

23,450 30,315 33,183 3,097 90,045

91,032 54,383 7,775 153,190 223,235 229,716

(60,803) (17,851) (78,654) (78,654) (78,654)

95

476,761

20,000

30,229 36,532 7,775 74,536 164,581 627,918

Notes: 1 The consolidated balance sheet of the Hochschild Mining Group as at 30 June 2006 has been extracted without material adjustment from Section B: IFRS Historical Financial Information of Part IX: IFRS Historical Financial Information. 2 The payment to settle certain related party balances prior to Admission paid from other nancial assets at fair value through prot and loss.
(US$000)

PRA2 4

Related party accounts receivable************************************************************************ Related party accounts payable************************************************************************** Dividend previously declared and unpaid***************************************************************** Outstanding related party balance paid ******************************************************************

59,571 (17,851) (60,803) (19,083)

3 The allotment and issue to Pelham Investments of 49,999 ordinary shares in the Company at a nominal value of 1 each in accordance with paragraph 2.3 Part XIV: Additional Information (49,999 (US$95,438)) and the subsequent split of the Companys 50,000 issued shares into 100,000 shares of nominal value of 0.50 each. 4 The allotment and issue in aggregate to Pelham Investment Corporation and Navajo Overseas Corporation of 229,900,000 ordinary shares in the Company at nominal value of 0.50 (114,950,000 (US$219,416,560)) pursuant to the share exchange agreement in accordance with paragraph 2.5 Part XIV: Additional Information. The adjustment includes a consolidating entry necessary to eliminate the share capital in relation to the combined companies under the pooling of interest method accounting (US$9,187,000).
(US$000)

Allotment and issue of shares to Pelham Investment Corporation and Navajo Overseas Corporation ********* Elimination of share capital of combined companies ******************************************************

219,417 (9,187) 210,230

5 Net estimated proceeds of the Global Offer, non-executive director share subscription and employee offer.
(US$000)

Global Offer proceeds ********************************************************************************** Non-executive director share subscription and employee offer proceeds ************************************ Offer expenses ***************************************************************************************** Net estimated proceeds of the Global Offer, non-executive director share subscription and employee offer***

516,092 669 (40,000) 476,761

Global Offer gross proceeds of US$516 million are based on 77,250,000 Ordinary Shares being issued by the Company under the Global Offer each at an offer price of 3.50 based on a nominal value of 0.50 (38,625,000 (US$73,727,400)) and premium of 3.00 (231,750,000 (US$442,364,400)) to its nominal value extracted without material adjustment from paragraph 19.2 of Part XIV: Additional Information. Non-executive director share subscription and employee offer proceeds of US$669,000 are based on 100,226 Ordinary Shares being issued by the Company under both the non-executive director share subscription and employee offer each at an offer price of 3.50 based on a nominal value of 0.50 (50,100 (US$97,000)), and a premium of 3.00 (300,000 (US$572,000)) to its nominal value. Offer expenses are the estimated fees

187

Part X: Unaudited pro forma nancial information

and expenses incurred in connection with the Global Offer of US$40 million relating principally to investment banking, underwriting, legal and accounting fees. Offer expenses have been extracted without material adjustment from paragraph 19.1 Part XIV: Additional Information. The exchange rate used was 1: US$1.9088. 6 Reduction in the nominal value of 307,350,226 shares in issue from 0.50p each to 0.25p each in accordance with paragraph 2.2.6 Part XIV: Additional Information.
(US$000)

Nominal value of 307,350,226 shares in issue at 0.25p each (76,837,557) ********************************** Distributable reserves created from reduction in share capital (76,837,557) ********************************

146,668 146,668 293,336

7 Declaration of a US$20 million dividend as disclosed in note 37 of Part IX: IFRS Historical Financial Information. The dividend is to be partially settled as part of the net settlement of outstanding related party balances referred to in paragraph (e), note 37 of Part IX: IFRS Historical Financial Information with the balance to be paid after Admission. These related party balances differ from those disclosed in note 2 above, which are stated as at 30 June 2006, owing to the movement in such balances after 30 June 2006. 8 No account has been taken of any trading or other transactions since 30 June 2006.

Impact on earnings The Directors believe that, had the Global Offer occurred at the beginning of the last nancial period, the combined income statement would have been impacted. Assuming that a portion of the net offer proceeds are applied to reduce the borrowings of the Hochschild Mining Group, the impact would be to reduce nance costs associated with bank loans. Additional nance income would also be generated from interest earned on increased cash deposits arising from any unutilised net offer proceeds. A reduction in nance costs and additional nance income would result in an increased taxation charge. This statement should not be taken to mean that the earnings per share of the Hochschild Mining Group will necessarily match or exceed the historical reported earnings per share of the Hochschild Mining Group and no forecast is intended or implied.

188

Part X: Unaudited pro forma nancial information

Section B: Accountants report on unaudited pro forma nancial information
The Directors Hochschild Mining plc Pasaje El Carmen No. 180 Surco Lima 33 Peru 3 November 2006
PRA1 20.1, 20.2, 20.3, 20.4.1, 20.5.1

Dear Sirs Hochschild Mining plc (the Company) We report on the pro forma nancial information (the Pro Forma Financial Information) set out in Part X: Unaudited pro forma Financial Information of the Prospectus dated 3 November 2006, which has been prepared on the basis described in the notes to the Proforma balance sheet, for illustrative purposes only, to provide information about how the transaction might have affected the nancial information presented on the basis of the accounting policies to be adopted by the Company in preparing the nancial statements for the period ended 30 June 2006. This report is required by Annex I item 20.2 of the Prospectus Regulation and is given for the purpose of complying with that item and for no other purpose. Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation), consenting to its inclusion in the prospectus. Responsibilities It is the responsibility of the directors of the Company to prepare the Pro Forma Financial Information in accordance with Annex I item 20.2 of the PD Regulation. It is our responsibility to form an opinion, as required by Annex II item 7 of the Prospectus Regulation, as to the proper compilation of the Pro Forma Financial Information and to report that opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any nancial information used in the compilation of the Pro Forma Financial Information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying nancial information, consisted primarily of comparing the unadjusted nancial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the directors of the Company. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro Forma 189

Part X: Unaudited pro forma nancial information

Financial Information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company. Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. Opinion In our opinion: (a) the Pro Forma Financial Information has been properly compiled on the basis stated; and (b) such basis is consistent with the accounting policies of the Company. Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I of the PD Regulation. Yours faithfully
PRA2 7

Ernst & Young LLP

190

Part XI: Summary of differences between IFRS and US GAAP

The historical nancial information in respect of the Hochschild Mining Group (the Group) included in Part IX: IFRS Historical Financial Information has been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted by the European Union except for the purposes of presenting the nancial information on a combined basis, in respect of certain matters explained in Section B of Part IX: IFRS Historical Financial Information. Signicant differences exist between IFRS and US GAAP which might be material to the prots and shareholders equity shown in the nancial information herein. The principal relevant differences between IFRS and US GAAP that the Directors believe could be material to the Groups prots and shareholders funds are described below. The Group has not prepared its nancial information in accordance with US GAAP and, accordingly, cannot offer any assurance that the differences described below are complete or would in fact be the accounting principles creating the greatest differences between nancial information of the Group prepared under IFRS and US GAAP. The following summary does not include all differences that exist between IFRS and US GAAP and is not intended to provide a comprehensive listing of all such differences specically related to the Group or the industry in which it operates. The differences described below reect differences between the accounting policies applied in preparation of the historical nancial information of the Group and US GAAP. There has been no attempt to identify future differences between IFRS and US GAAP as the result of prescribed changes in accounting standards, transactions or events that may occur in the future. The organisations that promulgate IFRS and US GAAP have signicant ongoing projects that could have a signicant impact on future comparisons such as the ones between IFRS and US GAAP. Future developments or changes in either IFRS or US GAAP may give rise to additional differences between IFRS and US GAAP which could have a signicant impact on the Group. In making an investment decision, investors must rely on their own examination of the Hochschild Mining Group, the terms of the Global Offer and the nancial information included in this document. Potential investors should consult their own professional advisers for an understanding of the differences between IFRS and US GAAP and how these differences might affect the nancial information included in this document. 1 First time adoption of IFRS To comply with European Union legislation, the Group has prepared the historical nancial information in accordance with IFRS, as adopted by the European Union with the exception of the items on non-compliance outlined in Note 2 Basis of Preparation. The date of transition is 1 January 2003. Under IFRS 1 First time adoption of International Financial Reporting Standards, IFRSs are applied retrospectively at the transition balance sheet date with all adjustments to assets and liabilities as stated under the previous accounting principals applied by the companies within the Group taken to retained earnings unless certain exemptions are applied. The primary exemptions that have been applied by the Group are: ) IFRS 3 Business Combinations, IAS 36 (revised) Impairment of assets and IAS 38 (revised) Intangible assets are not retrospectively applied to business combinations occurring before 1 January 2003; The cumulative translation differences for all foreign operations have been deemed to be zero at the date of transition to IFRS; and The Group has elected to measure certain items of property, plant and equipment at the date of transition to IFRS at its fair value and use that fair value as its deemed cost at that date. 191

) )

Part XI: Summary of differences between IFRS and US GAAP

2 Revenue recognition IFRS contain general principles for revenue recognition. In contrast to this, US GAAP is more prescriptive and there are many individual pronouncements that cover particular categories of transactions for particular industries. Under US GAAP, meeting a list of detailed criteria will often decide whether revenue may be recognised or not. Consequently, where differences do arise between IRFS and US GAAP, they will occur more as a result of more detailed US GAAP rules than as a result of fundamental differences over when revenues should be recognised. 3 Property, plant and equipment Under IFRS, the Group has determined the deemed cost of certain items of property, plant and equipment at 1 January 2004, the date of transition to IFRS, by reference to their depreciated replacement cost at that date. For certain other items, deemed cost has been determined by reference to fair value, determined by a qualied valuer. Under US GAAP, all items of property, plant and equipment would be recorded at depreciated historical cost less any impairments. 4 Acquisition accounting Business combinations are accounted for using the purchase method of accounting under both IFRS and US GAAP. Under the purchase method, assets, liabilities and contingent liabilities (identiable net assets) acquired are accounted for at fair value at the date of acquisition. The excess of the purchase consideration over the fair value of the identiable net assets acquired is capitalised as goodwill and is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Under IFRS, negative goodwill (referred to as the excess of acquirers interest in the net fair value of acquirees identiable assets, liabilities and contingent liabilities over cost) is released to the income statement immediately, whereas US GAAP requires negative goodwill to be allocated to reduce proportionately the values assigned to most of the acquired non-current and non-nancial assets with any remaining balance credited to income as an extraordinary gain. Whilst the purchase method of accounting is used under both IFRS and US GAAP, the balance sheet measurement of any minority interest in an acquired subsidiary differs between the two. IFRS requires that any minority interest arising on acquisitions be stated at the minoritys proportion of the fair values of the identiable net assets of the acquired subsidiary. This treatment is not permitted under US GAAP. The US GAAP treatment would generally result in any minority interests being presented in the consolidated balance sheet at an amount equal to the minoritys share of the pre-acquisition carrying amount of the subsidiarys identiable net assets. When consolidating the assets and liabilities of an acquired subsidiary that is not wholly owned, the fair value adjustments are limited to the amount attributable to the parent companys ownership percentage. As a result, the assets and liabilities of the subsidiary are included on a mixed basis in the consolidated nancial statements. This also has implications when accounting for the buy-out of minority interest holders. Under IFRS no adjustment is made to the carrying amount of a subsidiarys net assets in the consolidated balance sheet when a minority interest is purchased. Under US GAAP, the portion of identiable net assets acquired from minority interest holders is adjusted to fair value. Calculating the purchase consideration for an acquisition may also differ between IFRS and US GAAP. Specically when the purchase consideration includes equity instruments that have been issued by the acquirer IFRS requires that their value be calculated on the date of exchange. US GAAP however species that their value be based on a reasonable period of time before and 192

Part XI: Summary of differences between IFRS and US GAAP

after the date on which the terms of the acquisition are agreed and announced. Since there may be an extended period of time between the announcement date and closing date, this can cause a signicant difference in the measurement of the purchase consideration. Differences in purchase consideration can also arise where contingent consideration may be payable on an acquisition. IFRS requires that contingent consideration be recorded at the date of acquisition if it is probable that the conditions for the payment of contingent consideration will be met and the amount can be reliably measured. Any subsequent adjustments to contingent consideration will be reected in the carrying amount of goodwill. Under US GAAP, however, contingent consideration is usually recorded only when the contingency is resolved and consideration is issued or becomes issuable. 5 Interest costs Under IFRS, borrowing costs may either be expensed as incurred or capitalised and included in the cost of acquiring, constructing or producing a qualifying asset. The Group expenses all borrowing costs as incurred, using the effective interest method. Under US GAAP, borrowing costs would be capitalised as part of the historical cost of acquiring or constructing all qualifying assets. 6 Provision Under IFRS, provision is made when an entity (1) has a present obligation (legal or constructive) as a result of past events, (2) it is probable that an outow of resources embodying economic benets will be required to settle the obligation and (3) a reliable estimate can be made. Full provision is made based on the net present value of the estimated cost of the obligation that has arisen up to the balance sheet date. Annual increases in the provision relating to a change in the net present value of the provision and inationary increases are shown separately in the income statement. The recognition criteria for provisions under US GAAP are similar to those under IFRS but are more prescriptive and there are many individual pronouncements that cover the recognition of particular provisions for particular activities. Additionally, whilst IFRS require the time value of money to be taken into account when making a provision, US GAAP only permits provisions to be discounted where the timing and amounts of payments are xed or reliably determinable, or where the obligation is a fair value obligation. Since the very nature of provisions is such that the timing of payments is uncertain, this means that it can be difcult to account for a provision on a discounted basis under US GAAP. 7 Environmental protection, rehabilitation and closure costs IFRS and US GAAP both require that liabilities be recognised in respect of obligations for environmental protection, rehabilitation and closure costs. Under IFRS, provision is made for close down, restoration and for environmental rehabilitation costs (which include the dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas) in the accounting period when the related environmental disturbance occurs, based on the estimated future costs using information available at the balance sheet date. The provision is discounted using a current market based pretax discount rate and the unwinding of the discount is included in interest expense. At the time of establishing the provision, a corresponding asset is capitalised, where it gives rise to a future benet, and depreciated over future production from the mine to which it relates. 193

Part XI: Summary of differences between IFRS and US GAAP

Whilst accounting for these liabilities under US GAAP is broadly consistent with IFRS, there are differences in the way the provisions are calculated which may affect the amount of the liability recorded. US GAAP requires that the provision be based on the fair value to restore the area based on an entitys legal obligations. The fair value is an estimate of the amount that a third party would demand, in an arms length transaction, to assume the liability at the reporting date. This is different to IFRS which requires management to estimate the future cost of restoring the area at the time this is expected to occur for both legal and constructive obligations. The interest rates used to discount these costs may also differ. IFRS requires the use of a pre-tax discount rate whereas, US GAAP requires the use of credit adjusted-risk free interest rate. There are also differences in the way that changes to original assumptions are accounted for in periods after the initial recognition of the liability. Under IFRS provisions are reviewed and adjusted on an annual basis for changes in both cash ow and discounting assumptions. Under US GAAP no changes can be made to the interest rate used to discount the original provision except in instances where expected future cash ows increase. In this case the incremental cash ows are discounted at the credit-adjusted risk-free interest rate applicable at the date of the revision. 8 Impairment Tangible non-current assets and amortised intangibles Both IFRS and US GAAP require that non-current tangible assets and amortised identiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment, however, may be recognised at different times under IFRS and US GAAP. Under IFRS, the impairment test for determining the recoverable amount of non-current assets is the higher of net selling price and value in use, being the discounted future cash ows to be generated by the asset. To the extent that the carrying amount exceeds the recoverable amount, the xed asset is written down to the recoverable amount. Under US GAAP, assets are evaluated for impairment rst on an undiscounted basis by comparing the estimated sum of the undiscounted cash ows attributable to the asset with its carrying amount. Only if the asset fails this recoverability test will the amount of the impairment be calculated by comparing the assets carrying amount to its fair value. Goodwill and unamortised intangibles Under IFRS, goodwill and unamortised intangible assets are tested for impairment annually in the way described under Acquisition accounting above. Goodwill is tested by allocating it to a cash generating unit or group of cash generating units. Under US GAAP goodwill is assigned to a reporting unit of the business on acquisition. Each reporting unit that has been assigned goodwill must then be reviewed annually to indemnify potential impairment. Initially, the fair value of a reporting unit should be compared with its carrying amount. If the carrying amount of a reporting unit, including goodwill exceeds its fair value then the goodwill should be tested to measure the amount of the impairment loss, if any. This second test compares the implied fair value of the goodwill with the carrying amount of that goodwill. The implied fair value is calculated by allocating the fair value of the reporting unit to identiable assets and liabilities and calculating goodwill in the same way as on original acquisition. US GAAP also requires an annual test to be carried out on a intangible assets other than goodwill that are not amortised. Additional impairment tests are required when impairment indicators are 194

Part XI: Summary of differences between IFRS and US GAAP

identied. The impairment test requires the assets carrying amount to be compared to its fair value, which is dened as the amount at which it could be sold to a wiling party. There is no intermediate comparison to associated undiscounted cashows. Reversal of impairment IFRS requires an impairment charge to be reversed for an asset (other than goodwill) if there has been a change in the estimates used to determine the assets recoverable amount since the last impairment loss was recognised. US GAAP does not allow the reversal of impairment losses previously recognised. 9 Deferred tax The broad principle under both IFRS and US GAAP is that a deferred tax liability or asset should be recognised for all temporary differences, with some exceptions. Differences mainly occur due to other IFRS to US GAAP adjustments made to the income statement or balance sheet which have consequential effects on the deferred tax liability or asset. IFRS and US GAAP use a balance sheet concept of temporary differences between the carrying amount of an asset or liability and its tax base. Temporary differences include not only timing differences but other differences between the accounting and tax bases of assets and liabilities, such as a revaluation of assets for which no equivalent adjustment is made for tax purposes. Under IFRS deferred tax liabilities (assets) are measured based on tax laws and tax rates that are expected to apply in the period they are settled (realised), which are exacted or substantively exacted by the balance sheet date, under US GAAP, the deferred taxation is provided using exacted tax rates at the reporting date; the effects of future changes in tax laws are not anticipated. 10 Accounting for financial instruments Whilst accounting for nancial instruments is broadly consistent under IFRS and US GAAP, there are subtle differences that may impact the accounting adopted in certain instances. For example, differences include: ) The classication of nancial assets differs between IFRS and US GAAP. These differences may affect the accounting adopted for a particular nancial asset. For example, under US GAAP items are only accounted for as available-for-sale assets if they do not meet the denition of any of the other categories, while under IFRS it is also possible to designate certain nancial assets as available-for-sale; ) The point of derecognising a nancial asset may differ between IFRS and US GAAP. This is likely to occur in situations where legal control is retained by the transferor whilst substantially all risks and rewards have been transferred; ) Under IFRS all investments in equity securities, except investments in consolidated subsidiaries and investments accounted for under the equity method, should be measured at fair value unless the fair value cannot be reliably measured. This differs from US GAAP under which investments in unlisted equity securities should be accounted for at historical cost; and ) Under IFRS it is possible for impairment losses to be reversed, however this is not possible under US GAAP. 195

Part XI: Summary of differences between IFRS and US GAAP

11 Start-up costs Under IFRS, certain start-up losses during the commissioning period of a new installation qualify for capitalisation and are amortised over the economic lives of the relevant assets. US GAAP requires that the costs of start-up activities are expensed as incurred.

196

Part XII: Details of the Global Offer

1 Summary of the Global Offer Under the Global Offer, the Company will issue 77,250,000 Ordinary Shares, raising proceeds of approximately 249 million, net of underwriting commissions and other estimated fees and expenses. The Ordinary Shares to be issued under the Global Offer are expected to represent approximately 25 per cent. of the expected issued Ordinary Share capital of the Company immediately following Admission. In addition, an additional 11,587,500 Ordinary Shares, in aggregate, are being made available by the Over-allotment Shareholders pursuant to the Overallotment Option described below to cover over-allotments (if any) made in connection with the Global Offer and to cover short positions resulting from stabilisation transactions. The Global Offer is being made by way of an offering of Ordinary Shares to qualied investors in certain member states of the EEA, including to institutional investors in the United Kingdom, and certain other institutional investors outside the United States in reliance on Regulation S and to QIBs in the United States in reliance on Rule 144A or another exemption from, or transaction not subject to, the registration requirements of the Securities Act. Certain restrictions that apply to the distribution of this document and the Ordinary Shares being issued and sold under the Global Offer are described below. The Global Offer is fully underwritten by the Underwriters and is subject to satisfaction of the conditions set out in the Underwriting Agreement including Admission becoming effective by no later than 8.00 a.m. on 8 November 2006 or such later time and/or date as the Company and the Joint Global Coordinators (on behalf of the Managers) may agree. When admitted to trading on the London Stock Exchange, the Ordinary Shares will be registered with ISIN number GB00B1FW5029 and SEDOL number B1FW502. Admission is expected to take place and unconditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange on 8 November 2006. Prior to that time, it is expected that dealings in the Ordinary Shares will commence on a conditional basis on the London Stock Exchange on 3 November 2006 and that the earliest date for settlement of such dealings will be 8 November 2006. These times and dates may be changed. The Ordinary Shares to be made available pursuant to the Global Offer will, following Admission, rank pari passu in all respects with the other Ordinary Shares and will carry the right to receive all dividends and other distributions declared, made or paid on or in respect of the Ordinary Shares after Admission. The Ordinary Shares will, immediately following Admission, be freely transferable under the Articles. Immediately following Admission, it is expected that in excess of 25 per cent. of the Companys issued Ordinary Share capital will be held in public hands (within the meaning of paragraph 6.1.19 of the Listing Rules) assuming that no Over-allotment Shares are issued (increasing to approximately 29 per cent. if the maximum number of Over-allotment Shares are sold pursuant to the Over-allotment Option). In addition to the Global Offer, the Company will issue 100,226 Ordinary Shares at the Offer Price, in a separate private placement to certain directors and employees of the Hochschild Mining Group and of Cementos Pacasmayo in Peru, Mexico and Argentina. Sir Malcom Field and Nigel Moore have each subscribed 50,000 at the Offer Price and will each be issued 14,285 Ordinary Shares. Eduardo Loret de Mola, Ricardo Arrarte and Gonzalo Freyre have subscribed approximately 26,000, 31,000 and 16,000 at the Offer Price and will be issued 7,484 Ordinary Shares, 8,980 Ordinary Shares and 4,490 Ordinary Shares respectively. 197
PRA3 7.2 PRA3 5.1.2

PRA3 5.1.6

PRA3 5.2.1

PRA3 4.1

PRA3 5.1.9

Part XII: Details of the Global Offer

2 Stabilisation and over-allotment In connection with the Global Offer, JPMorgan Cazenove Limited, as Stabilising Manager, or any of its agents, may (but will be under no obligation to) over-allot Ordinary Shares up to a maximum of 15 per cent. of the total number of Ordinary Shares comprised in the Global Offer or effect other stabilisation transactions with a view to supporting the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. Such stabilisation activities may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the commencement of conditional trading and ending no later than 30 calendar days thereafter. However, there will be no obligation on the Stabilising Manager or any of its agents to effect stabilising transactions and no assurance that stabilising transactions will be undertaken. Such stabilising, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Save as required by law or regulation, the Stabilising Manager does not intend to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Global Offer. For the purposes of allowing it to cover short positions resulting from any over-allotments and/or from sales of Ordinary Shares effected by it during the stabilising period, the Stabilising Manager has entered into the Over-allotment Option with the Over-allotment Shareholders pursuant to which the Stabilising Manager may, acting as principal, purchase or procure purchasers for additional Ordinary Shares up to a maximum of 15 per cent. of the total number of Ordinary Shares comprised in the Offer (the Over-allotment Shares) at the Offer Price. The Overallotment Option is exercisable in whole or in part, upon notice by the Stabilising Manager, at any time on or before the 30th calendar day after the commencement of conditional trading of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares purchased pursuant to the Over-allotment Option will rank pari passu in all respects with the Ordinary Shares, including for all dividends and other distributions declared, made or paid on the Ordinary Shares, will be purchased on the same terms and conditions as the Ordinary Shares being sold in the Global Offer and will form a single class for all purposes with the other Ordinary Shares. 3 Underwriting agreement The Company, the Directors and the Over-allotment Shareholders have entered into the Underwriting Agreement with the Managers. Pursuant to the Underwriting Agreement, the Managers (other than JPMSL) have agreed, subject to certain conditions, to procure subscribers for or, failing which, the Underwriters have agreed to subscribe for themselves the Ordinary Shares to be issued by the Company and, subject to the exercise by the Stabilising Manager of the Overallotment Option, sold by the Over-allotment Shareholders, in each case, pursuant to the Global Offer. Further details of the terms of the Underwriting Agreement are set out in paragraph 11 of Part XIV: Additional Information. 4 Dealings and admission It is expected that dealings in the Ordinary Shares will commence on a conditional basis on the London Stock Exchange at 8:00 a.m. on 3 November 2006. All dealings between the commencement of conditional dealings and the commencement of unconditional dealings will be on a when issued basis and at the risk of the parties concerned. If the Global Offer does not become unconditional, these dealings will be of no effect. Admission is expected to take place and unconditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange at 8.00 a.m. on 8 November 2006 (GMT). 198
PRA3 5.1.9 PRA3 6.1 PRA3 5.4.3 PRA3 5.2.5 PRA3 6.5.1, 6.5.2, 6.5.3, 6.5.4

PRA3 5.1.4 PRA3 5.2.3(g)

Part XII: Details of the Global Offer

It is expected that Ordinary Shares allocated to investors in the Global Offer will be delivered in uncerticated form and settlement will take place through CREST on Admission. All Ordinary Shares issued pursuant to the Global Offer will be issued payable in full at the Offer Price. It is intended that, if applicable, denitive share certicates in respect of the Global Offer will be distributed from 20 November 2006 or as soon thereafter as is practicable. No temporary documents of title will be issued. 5 Crest CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certicate and transferred otherwise than by a written instrument. Upon Admission, the Articles will permit the holding of Ordinary Shares under the CREST system. The Company has applied for the Ordinary Shares to be admitted to CREST with effect from Admission. Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within the CREST system if the relevant Shareholders so wish. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certicates will be able to do so. Investors applying for Ordinary Shares in the Global Offer may, however, elect to receive Ordinary Shares in uncerticated form, if that investor is a systemmember (as dened in the Regulations) in relation to CREST. 6 Lock-up arrangements The Company, the Directors and the Over-allotment Shareholders have each agreed to certain lock-up arrangements. The Company has undertaken, subject to the exceptions in the Underwriting Agreement listed below, not to directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Ordinary Shares (or any interest therein or in respect thereof) or any other securities exchangeable for or convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing for a period of 12 months after Admission, without rst obtaining the consent of the Joint Global Coordinators. The lock-up arrangements will not apply to: (a) the issue of the Offer Shares; (b) the payment of scrip dividends or capitalisation issues associated with dividends; or (c) the grant of options under the ELTIP. Each of the Directors, the Senior Management and the Over-allotment Shareholders have undertaken, subject to the exceptions listed below, not to, and to procure that his associates do not, directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Ordinary Shares (or any direct or indirect interest therein or in respect thereof) or any other securities exchangeable for or convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing for a period of 12 months after Admission, without rst obtaining the consent of the Joint Global Coordinators. The lock-up arrangements will not prohibit the Directors, the Senior Management or the Overallotment Shareholders (or their associates), as the case may be from: (a) accepting a general offer made to all holders of Ordinary Shares made in accordance with the City Code on terms which treat all such holders alike; (b) executing and delivering an irrevocable commitment or undertaking to accept a general offer as is referred to in (a) above; 199
PRA3 7.3 PRA3 5.1.8 PRA3 5.2.4 PRA3 5.1.8

Part XII: Details of the Global Offer

(c) selling or otherwise disposing of Ordinary Shares pursuant to any offer by the Company to purchase its own Ordinary Shares which is made on identical terms to all holders of Ordinary Shares in the Company; (d) transferring or disposing of Ordinary Shares pursuant to a compromise or arrangement between the Company and its creditors or between the Company and its members which is agreed to by the creditors or members and (where required) sanctioned by the court under sections 425-427A of the Companies Act; (e) taking up any rights granted in respect of a rights issue or other pre-emptive share offering by the Company; (f) transferring Ordinary Shares where required to do so by the nal judgment of a court governmental regulator having competent authority over the relevant person; (g) transferring or disposing of Ordinary Shares to the personal representatives of the relevant person; and (h) (only in relation to the Over-allotment Shareholders) procuring the sale or other disposal of the Over-allotment Shares, and certain related arrangements. 7 Selling and transfer restrictions The distribution of this document and the offer of Ordinary Shares in certain jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions, including those in the paragraphs that follow. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. No action has been taken or will be taken in any jurisdiction that would permit a public offering or sale of the Ordinary Shares, or possession or distribution of this document or any other offering or publicity material relating to Ordinary Shares, in any country or jurisdiction where action for that purpose is required. None of the Ordinary Shares may be offered for sale or purchase or be delivered, and this document and any other offering material in relation to the Ordinary Shares may not be circulated, in any jurisdiction where to do so would breach any securities laws or regulations of any such jurisdiction or give rise to an obligation to obtain any consent, approval or permission, or to make any application, ling or registration. No Ordinary Shares have been marketed to, nor are available for purchase in whole or in part by, the public in the United Kingdom or elsewhere in conjunction with the Global Offer. This document does not constitute an offer or the solicitation of an offer in the United Kingdom to subscribe for or buy any securities in the Company or any other entity. 7.1 US selling restrictions The Ordinary Shares have not been, and will not be, registered under the Securities Act or under any applicable state securities laws of the United States, and, subject to certain exceptions, may not be offered or sold within the United States. Accordingly, the Managers may offer Ordinary Shares (1) only through their US registered broker afliates to persons reasonably believed to be QIBs in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A or another exemption from, or a transaction not subject to, the registration requirements of the Securities Act or (2) in compliance with Regulation S under the Securities Act. In addition, until 40 days after the commencement of the Global Offer, an offer or sale of Ordinary Shares within the United States by a dealer (whether or not it is participating in the Global Offer) may violate the registration requirements of the Securities Act. 200

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Due to the foregoing restrictions, purchasers of Ordinary Shares in the United States are advised to consult legal counsel prior to making any offer for or any resale, pledge or other transfer of the Ordinary Shares. Rule 144A Ordinary Shares Each purchaser in the United States of the Ordinary Shares offered hereby will be deemed to have represented and agreed that it has received a copy of this document and such other information as it deems necessary to make an investment decision and that: (1) it is (i) a QIB, (ii) acquiring such Ordinary Shares for its own account or for the account of one or more QIBs with respect to whom it has the authority to make, and does make, the representations and warranties set forth in this paragraph, (iii) not acquiring the Ordinary Shares with a view to further distribution of such Ordinary Shares, and (iv) aware, and each benecial owner of such Ordinary Shares has been advised, that the sale of Ordinary Shares to it may be made in reliance on Rule 144A or another exemption from, or transaction not subject to, the registration requirements of the Securities Act; (2) it understands and agrees that the Ordinary Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state, territory or other jurisdiction of the United States and may not be offered, resold, pledged or otherwise transferred except (A) (i) to a person whom the purchaser and any person acting on its behalf reasonably believes is a QIB purchasing for its own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S, (iii) pursuant to an exemption from the registration requirements of the Securities Act provided by Rule 144 thereunder (if available), or (iv) pursuant to an effective registration statement under the Securities Act and (B) in accordance with all applicable securities laws of any state, territory or other jurisdiction of the United States; (3) it acknowledges that the Ordinary Shares (whether in physical, certicated form or in uncerticated form held in CREST) are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act, are being offered and sold in a transaction not involving any public offering in the United States within the meaning of the Securities Act and that no representation is made as to the availability of the exemption provided by Rule 144 for resales of Ordinary Shares; (4) it understands that any offer, sale, pledge or other transfer of the Ordinary Shares made other than in compliance with the above-stated restrictions may not be recognised by the Company; (5) the Ordinary Shares (to the extent they are in certicated form), unless otherwise determined by the Company in accordance with applicable law, will bear a legend substantially to the following effect: THE SECURITY EVIDENCED HEREBY HAS NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN A TRANSACTION IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (B) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE) OR (D) PURSUANT TO AN EFFECTIVE REGISTRATION 201

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STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS SECURITY. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER AND EACH PURCHASER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. EACH HOLDER, BY ITS ACCEPTANCE OF THIS SECURITY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS; (6) notwithstanding anything to the contrary in the foregoing, it understands that Ordinary Shares may not be deposited into an unrestricted depository receipt facility in respect of Ordinary Shares established or maintained by a depository bank unless and until such time as such Ordinary Shares are no longer restricted securities within the meaning of Rule 144(a)(3) under the Securities Act; (7) it acknowledges that the Company, the Managers and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of such acknowledgements, representations or agreements deemed to have been made by virtue of its purchase of Ordinary Shares are no longer accurate, it will promptly notify the Company, and if it is acquiring any Ordinary Shares as a duciary or agent for one or more QIBs, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account; and (8) it agrees that it will give to each person to whom it transfers Ordinary Shares notice of any restrictions on transfer of such Ordinary Shares. Prospective purchasers are hereby notied that the Company and the sellers of the Ordinary Shares may be relying on the exemption from the provisions of Section 5 of the Securities Act provided for by Rule 144A or another exception from the registration requirements of the Securities Act. Regulation S Ordinary Shares Each purchaser of Ordinary Shares offered outside the United States pursuant to Regulation S will be deemed to have represented, agreed and acknowledged that it has received a copy of this document, and such other information, as it deems necessary to make an investment decision and that: (1) it is authorised to consummate the purchase of the Ordinary Shares in compliance with all applicable laws and regulations; (2) it acknowledges (or if it is a broker-dealer acting on behalf of a customer, its customer has conrmed to it that such customer acknowledges) that the Ordinary Shares have not been, and will not be, registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States; (3) it is purchasing the Ordinary Shares in an offshore transaction meeting the requirements of Regulations; and (4) the Company, the Managers and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of such acknowledgements, representations or agreements deemed to have been made by virtue of its purchase of Ordinary Shares are no longer accurate, it will promptly notify the Company, and if it is acquiring any Ordinary Shares as a duciary or agent for one or more accounts, it represents that it has sole investment discretion with respect to each such 202

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account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account. 7.2 European economic area In relation to each member state of the EEA which has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that member state (the Relevant Implementation Date), the Ordinary Shares may not be offered to the public in that relevant member state, except that, with effect from and including the Relevant Implementation Date, the Ordinary Shares may be offered to the public in that relevant member state under the following exemptions under the Prospectus Directive: (1) at any time to legal entities which are authorised or regulated to operate in the nancial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (2) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last nancial year, (2) a total balance sheet of more than 043 million, and (3) an annual net turnover of more than 050 million, as shown in its last annual or consolidated accounts; (3) to fewer than 100 natural or legal persons (other than qualied investors as dened in the Prospectus Directive) subject to obtaining the prior consent of the Joint Global Coordinators for any such offer; or (4) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Ordinary Shares shall result in a requirement for the publication by the Company or any Manager of a Prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Ordinary Shares to the public in relation to any Ordinary Shares in any relevant member state means the communication in any form and by any means of sufcient information on the terms of the offer and the Ordinary Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Ordinary Shares, as the same may be varied in that member state by any measure implementing the Prospectus Directive in that member state and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state. Each subscriber for or purchaser of Ordinary Shares in the Global Offer located within a member state of the European Economic Area will be deemed to have represented, acknowledged and agreed that it is a qualied investor within the meaning of Article 2(1)(e) of the Prospectus Directive. The Company, the Managers and their afliates, and others will rely upon the truth and accuracy of the foregoing representation, acknowledgement, and agreement. Notwithstanding the above, a person who is not a qualied investor and who has notied the Managers of such fact in writing may, with the consent of the Managers, be permitted to subscribe for or purchase Shares in the Global Offer. 7.3 Japan The Ordinary Shares offered by this Prospectus have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law). Accordingly, Ordinary Shares may not be offered or sold directly or indirectly, in Japan or to, or for the benet of, any resident of Japan (including Japanese corporations), or to others for reoffering or resale, directly or indirectly, in Japan or to, or for the benet of, any resident in Japan (including Japanese corporations) except with the prior approval of the Joint Global Co-ordinators and pursuant to an 203

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exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and relevant regulations of Japan. 7.4 Australia This document does not constitute a disclosure document under Part 6D.2 of the Corporations Act 2001 of the Commonwealth of Australia (the Corporations Act) and will not be lodged with the Australian Securities and Investment Commission. The Ordinary Shares will be offered to persons who receive offers in Australia only to the extent that such offers of shares for issue or sale do not need disclosure to investors under Part 6D.2 of the Corporations Act. Any offer of shares received in Australia is void to the extent that it needs disclosure to investors under the Corporations Act. In particular, offers for the issue or sale of Ordinary Shares will only be made in Australia in reliance on various exemptions from such disclosure to investors provided by section 708 of the Corporations Act. Any offer of shares received in Australia is void to the extent that it needs disclosure to investors under the Corporations Act. Any person to whom Ordinary Shares are issued or sold pursuant to an exemption provided by section 708 of the Corporations Act must not within 12 months after the issue offer those Ordinary Shares for sale in Australia unless that offer is itself made in reliance on an exemption from disclosure provided by that section. 7.5 Canada The Ordinary Shares may not, directly or indirectly, be offered or sold within Canada, or offered or sold to a resident of Canada, except with the prior approval of the Joint Global Co-ordinators on a basis exempt from any requirement to prepare and le a prospectus with or to obtain clearances from the relevant securities regulatory authorities of any province or territory in Canada.

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The statements set out below are intended only as a general guide to current UK and US tax law and practice and apply only to certain categories of person. The summary does not purport to be a complete analysis or listing of all the potential tax consequences of acquiring, holding or disposing of Ordinary Shares. Prospective purchasers of Ordinary Shares are advised to consult their own tax advisers concerning the consequences under UK law, US federal, state and local and other laws of the acquisition, ownership and disposition of Ordinary Shares. 1 United Kingdom taxation General The statements below are based on current UK tax law and what is understood to be the current published practice of Her Majestys Revenue & Customs, both of which are subject to change, perhaps with retrospective effect. They are intended as a general guide only for holders of Ordinary Shares who are resident or ordinarily resident in the UK for UK tax purposes (except insofar as express reference is made to the treatment of non-UK residents) who hold their Ordinary Shares as investments and not as trading stock and who are the benecial owners of those Ordinary Shares. This summary does not purport to be a complete analysis or listing of all potential tax consequences of holding Ordinary Shares. The statements are not applicable to all categories of holders of Ordinary Shares, and in particular are not addressed to (i) holders who do not hold their Ordinary Shares as capital assets, (ii) special classes of holders such as (but not limited to) dealers in securities, broker-dealers, insurance companies and investment companies, (iii) holders who hold Ordinary Shares as part of hedging or conversion transactions, (iv) investors who have (or are deemed to have) acquired their shares by virtue of an ofce or employment, (v) holders who hold Ordinary Shares in connection with a trade, profession or vocation carried on in the UK (whether through a branch or agency or, in the case of a corporate holder, through a permanent establishment or otherwise), (vi) holders who own (or are deemed to own) 10 per cent. or more of the voting power of the Company, and (vii) individual shareholders who are less than 18 years old. Prospective investors in Ordinary Shares who are in any doubt about their tax position, or who are resident, or otherwise subject to taxation, in a jurisdiction outside the UK, should consult their own professional advisers. Taxation of dividends Under current UK tax legislation, the Company will not be required to withhold tax at source from dividend payments it makes. An individual holder of Ordinary Shares who is resident in the UK (for tax purposes) and who receives a dividend from the Company will generally be entitled to a tax credit which may be set off against the holders total income tax liability on the dividend. The dividend will be taxed upon the aggregate of the net dividend and the tax credit (the Gross Dividend). The value of the tax credit is currently equal to one-ninth of the amount of the net dividend (or 10 per cent. of the Gross Dividend). The Gross Dividend, together with certain other investment income, will be regarded as the top slice of the holders income, and will be subject to UK income tax at special rates, further details of which are set out below. UK resident individual holders of Ordinary Shares who are not higher rate taxpayers will be liable to tax on a dividend received at the rate of 10 per cent. of the Gross Dividend. This means that the tax credit will satisfy in full the income tax liability of a UK resident individual holder of Ordinary Shares who is not liable to pay income tax at the higher rate. 205
PRA3 4.11

Part XIII: Taxation

In the case of a UK resident individual holder of Ordinary Shares who is liable to income tax at the higher rate on dividends (currently 32.5 per cent.), the tax credit will be set against, but will not fully match, their tax liability in respect of the Gross Dividend and, accordingly, they will be liable to an additional tax of 22.5 per cent. of the Gross Dividend (equal to 25 per cent. of the net dividend) to the extent that the Gross Dividend falls above the threshold for higher rate income tax. UK resident taxpayers who are not liable to United Kingdom tax on dividends, including pension funds, charities and individuals holding shares through a personal equity plan or an individual savings account, will not be entitled to claim repayment of the tax credit attaching to dividends paid by the Company. A UK resident corporate holder of Ordinary Shares will not normally be liable to UK corporation tax in respect of any dividend received from the Company. Such corporate holders of Ordinary Shares will not be able to claim repayment of tax credits attaching to such dividend. Subject to the provisions of any double tax agreement between the UK and his /her country of residence, a holder of Ordinary Shares who is not resident in the UK for UK tax purposes will not generally be entitled to claim repayment from Her Majestys Revenue & Customs of the tax credit attaching to any dividend paid by the Company. Persons who are not resident in the UK should consult their own professional advisers as to whether they are entitled to claim any part of the tax credit, the procedure for doing so and what relief or credit may be claimed in the jurisdiction in which they are resident for tax purposes in respect of such tax credit. A holder of Ordinary Shares resident (or otherwise subject to tax) outside the UK may also be subject to foreign taxation on dividend income under local law. Taxation of capital gains For the purpose of UK tax on chargeable gains, the issue or transfer of any Ordinary Shares pursuant to the Offer will be regarded as an acquisition of a new holding in the share capital of the Company. A disposal of Ordinary Shares by a holder who is resident or, in the case of individuals, ordinarily resident in the UK for tax purposes or by an individual holder who ceases to be resident or ordinarily resident in the UK for a period of less than ve years of assessment, or by a holder who is neither resident nor ordinarily resident in the UK for tax purposes, but who carries on a trade, profession or vocation in the UK through a permanent establishment (where the holder is a company) or through a branch or agency (where the holder is not a company) and has used, held or acquired the Ordinary Shares for the purposes of such trade, profession or vocation or such permanent establishment, branch or agency (as appropriate) may depending on the holders individual circumstances (including the availability of exemptions, reliefs or allowable losses) give rise to a chargeable gain or an allowable loss for the purposes of UK taxation on chargeable gains. Stamp duty/stamp duty reserve tax (SDRT) Stamp duty and SDRT treatment will be as follows: (a) subject to (e) below, no stamp duty or SDRT will be payable on the issue of, or on the issue of denitive share certicates in respect of, Ordinary Shares pursuant to the Global Offer; (b) the transfer on sale of Ordinary Shares outside the CREST system will generally be liable to ad valorem stamp duty on the instrument of transfer at the rate of 0.5 per cent. of the amount or value of the consideration given (rounded up to the nearest multiple of 5). An agreement to transfer Ordinary Shares will generally be subject to SDRT at 0.5 per cent. of the agreed consideration. If, however, within the period of six years of the date of the agreement or, in the case of a conditional agreement, the date on which it becomes 206

Part XIII: Taxation

unconditional, an instrument of transfer is executed pursuant to the agreement which transfers the shares to the purchaser under the agreement and stamp duty is paid on that instrument, any liability to SDRT will be repaid, generally with interest, or cancelled. Higher rates may apply in certain circumstances. Stamp duty and SDRT are normally the liability of the purchaser or transferee; (c) no stamp duty or SDRT will arise on a transfer of Ordinary Shares into CREST for conversion into uncerticated form, unless such transfer is made for a consideration in money or moneys worth, in which case a liability to stamp duty or SDRT will arise, usually at the rate referred to in (b) above; (d) a transfer of Ordinary Shares effected on a paperless basis within CREST will generally be subject to SDRT, rather than stamp duty, at the rate of 0.5 per cent. of the amount or value of the consideration. CREST is obliged to collect SDRT on relevant transactions settled within the system; and (e) where Ordinary Shares are issued or transferred (i) to, or to a nominee or agent for, a person whose business is or includes the provision of clearance services, or (ii) to, or to a nominee or agent for, a person whose business is or includes issuing depositary receipts, stamp duty or SDRT may be payable at the higher rate of 1.5 per cent. (rounded up, if necessary, in the case of stamp duty, to the nearest 5) of the amount or value of the consideration payable or, in certain circumstances, the value of the Ordinary Shares or, in the case of an issue to such persons, the issue price of the Ordinary Shares. This liability for stamp duty or SDRT will strictly be accountable by the depositary or clearance service operator or their nominee or agent, as the case may be, but will, in practice, generally be payable by the participants in the clearance service or depositary receipt scheme. Clearance services may opt, provided certain conditions are satised, for the normal rate of stamp duty or SDRT (0.5 per cent. of the consideration paid, rounded up in the case of stamp duty to the nearest 5) to apply to issues or transfers of Ordinary Shares into, and to transactions within, such services instead of the higher rate of 1.5 per cent. generally applying to an issue or transfer of Ordinary Shares into the clearance service and the exemption from stamp duty and SDRT on the transfer of Ordinary Shares whilst in the service. The above statements in this section are intended as a general guide to the current stamp duty and SDRT position. Special rules apply to agreements made by, amongst others, intermediaries. Certain categories of person may be liable to stamp duty or SDRT at higher rates. Close company status The Company is a close company and, following the Global Offer, may remain a close company, as dened in the Income and Corporation Taxes Act 1988. In addition, the non-UK resident members of the Hochschild Mining Group are companies that would, if they were UK resident, be close companies. As a result, certain transactions entered into by the Company or other members of the Hochschild Mining Group may have tax implications for shareholders in the Company. Holders of Ordinary Shares should consult their own professional advisers on the potential impact of the close company rules. (1) Inheritance tax One potential implication is that transfers of value by the Company, or any of the companies in which it owns (directly, or indirectly) shares or certain other rights, may in certain circumstances and subject to applicable exemptions, be attributed to and so give rise to inheritance tax for individual holders of Ordinary Shares who are domiciled or deemed to be domiciled in the UK and hold 5 per cent. or more of the Ordinary Shares, or for holders of Ordinary Shares whose estate is increased by the transfer. 207

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(2) Capital gains tax Certain transfers at an undervalue by the Company or certain members of the Hochschild Mining Group may result in a reduction in the chargeable gains tax base cost of the Ordinary Shares for certain holders. Any person who is in doubt as to his or her taxation position or who is liable to taxation in any jurisdiction other than the UK should consult his or her own professional adviser. 2 United States Federal Income Taxation TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DOCUMENT IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE GROUP IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER. General The following is a summary of certain material US federal income tax consequences of the acquisition, ownership and disposition of Ordinary Shares by a US Holder (as dened below). This summary deals only with purchasers of Ordinary Shares that are US Holders and that will hold the Ordinary Shares as capital assets. The discussion does not cover all aspects of US federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Ordinary Shares by particular investors, and does not address state, local, foreign or other tax laws. In particular, this summary does not address tax considerations applicable to investors that own (directly or indirectly) 10 per cent. or more of the voting stock of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the US federal income tax laws (such as nancial institutions, insurance companies, investors liable for the alternative minimum tax, investors that have a permanent establishment in the United Kingdom, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, traders that elect to mark to market, investors that will hold the Ordinary Shares as part of straddles, hedging transactions or conversion transactions for US federal income tax purposes, or investors whose functional currency is not the US dollar). As used herein, the term US Holder means a benecial owner of Ordinary Shares that is, for US federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any state thereof, (iii) an estate the income of which is subject to US federal income tax without regard to its source, or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for US federal income tax purposes. The US federal income tax treatment of a partner in a partnership that holds Ordinary Shares will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult their tax advisers concerning the US federal income tax consequences to their partners of the acquisition, ownership and disposition of Ordinary Shares. 208

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The Company believes that it currently is not and currently does not expect to become a passive foreign investment company (a PFIC) for US federal income tax purposes, and this summary assumes that to be the case. The Companys possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for US Holders. See Passive Foreign Investment Company Considerations below. The summary is based on the federal income tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings, court decisions and the income tax treaty between the United States and the United Kingdom (the Treaty), all as currently in effect and all subject to change at any time, possibly with retroactive effect. THE SUMMARY OF US FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW. Dividends General Distributions paid by the Company out of current or accumulated earnings and prots (as determined for US federal income tax purposes) will generally be taxable to a US Holder as foreign source dividend income, and will not be eligible for the dividends received deduction generally allowed to US corporations. Distributions in excess of current and accumulated earnings and prots generally will be treated as a non-taxable return of capital to the extent of the US Holders basis in the Ordinary Shares and thereafter as capital gain. However, the Company does not maintain calculations of its earnings and prots in accordance with US federal income tax accounting principles. US Holders should therefore assume that any distribution by the Company with respect to the Ordinary Shares will constitute ordinary dividend income. US Holders should consult their own tax advisers with respect to the appropriate US federal income tax treatment of any distribution received from the Company. For taxable years that begin before 2011, dividends paid by the Company will be taxable to a noncorporate US Holder, as qualied dividend income at the special reduced rate normally applicable to capital gains, provided the Company qualies for the benets of the Treaty, which the Company believes to be the case. A US Holder will be eligible for this reduced rate only if it has held the Ordinary Shares for more than 60 days during the 121 day period beginning 60 days before the ex-dividend date. A US Holder will not be able to claim the reduced rate if the Company is a PFIC in the year of payment or the immediately preceding year. For the purposes of the foreign tax credit limitation, dividends paid by the Company generally will constitute foreign sources income in the passive income basket. If a US Holder receives a dividend from the Company that qualies for the reduced rate described in the preceding paragraph, the amount of the dividend taken into account in calculating the foreign tax credit limitation will in general be limited to the gross amount of the dividend, multiplied by the reduced rate dividend by the highest rate of tax normally applicable to dividends. Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax credit and source of income rules to dividends on the Ordinary Shares, and the foreign tax credit implications of receiving a dividend that is eligible for the special reduced rate described above. 209

Part XIII: Taxation

Foreign currency dividends Dividends paid in pounds sterling will be included in income in a US dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the US Holder, regardless of whether the pounds sterling are converted into US dollars at that time. If dividends received in pounds sterling are converted into US dollars on the day they are received, the US Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income. Generally, gain or loss realised on a subsequent conversion of pounds sterling to US dollars or other disposition will be treated as US source ordinary income or loss. A US Holder who elects to receive dividends from the Company in US dollars will not recognize any foreign currency gain or loss in respect of any such dividends. Sale or other disposition A US Holders tax basis in an Ordinary Share will generally be its US dollar cost. The US dollar cost of an Ordinary Share purchased with foreign currency will generally be the US dollar value of the purchase price on the date of purchase or, in the case of Ordinary Shares traded on an established securities market, as dened in the applicable Treasury Regulations, that are purchased by a cash basis US Holder (or an accrual basis US Holder that so elects) on the settlement date for the purchase. Such an election by an accrual basis US Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. Upon a sale or other disposition of Ordinary Shares, a US Holder generally will recognise capital gain or loss equal to the difference, if any, between the amount realised on the sale or other disposition and the US Holders adjusted tax basis in the Ordinary Shares. This capital gain or loss will be a long term capital gain or loss if the US Holders holding period in the Ordinary Shares exceeds one year. However, regardless of a US Holders actual holding period, any loss may be long term capital loss to the extent the US Holder receives a dividend that qualies for the reduced rate described above under DividendsGeneral, and exceeds 10 per cent. of the US Holders tax basis in its Ordinary Shares. Any gain or loss will generally be US source. Deductibility of capital losses is subject to limitations. The amount realised on a sale or other disposition of Ordinary Shares for an amount in foreign currency will be the US dollar value of this amount on the date of sale or disposition. On the settlement date, the US Holder will recognise US source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the US dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of Ordinary Shares traded on an established securities market that are sold by a cash basis US Holder (or an accrual basis US Holder that so elects), the amount realised will be determined using the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time. Disposition of foreign currency Foreign currency received on the sale or other disposition of an Ordinary Share will have a tax basis equal to its US dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal to the US dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase Ordinary Shares or upon exchange for US dollars) will be US source ordinary income or loss. Passive foreign investment company considerations A foreign corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable look210

Part XIII: Taxation

through rules, either (i) at least 75 per cent. of its gross income is passive income or (ii) at least 50 per cent. of the average value of its assets is attributable to assets which produce passive income or are held for the production of passive income. The Company currently believes that it is not, and currently does not expect to become, a PFIC for US federal income tax purposes but the Companys possible status as a PFIC must be determined annually and therefore may be subject to change. This determination will depend in part on whether the Company continues to earn substantial amounts of operating income, as well as on the market valuation of the Companys assets and the Companys spending schedule for its cash balances and the proceeds of the Offer. The principal products of the Group are commodities, but passive income does not include active business gains or losses from the sale of commodities if substantially all of the Groups commodities are inventory, depreciable property used in its trade or business or supplies used or consumed by the Group in the ordinary course of business. At this time, the Group believes that it qualies for the active business exception, but it cannot assure a US Holder that the requirements for this exception will be met in future years. If the Company were to be treated as a PFIC, US Holders of Ordinary Shares would be required (i) to pay a special US addition to tax on certain distributions and gains on sale and (ii) to pay tax on any gain from the sale of Ordinary Shares at ordinary income (rather than capital gains) rates in addition to paying the special addition to tax on this gain. Additionally, dividends paid by the Company would not be eligible for the special reduced rate of tax described above under Dividends-General. If the Company were a PFIC, a US Holder could avoid some of the rules with respect to PFIC distributions and dispositions described above by making a valid mark-to-market election with respect to the Ordinary Shares. The election would be available, however, only if the Ordinary Shares are traded in more than de minimis quantities on the London Stock Exchange or another qualifying exchange. An electing US Holder generally must recognise as ordinary income any amount by which the fair market value of the Ordinary Shares exceeds its adjusted tax basis in its Ordinary Shares upon either the sale or other disposition of any Ordinary Shares or the close of any taxable year. An electing holder may deduct as an ordinary loss the amounts by which its adjusted basis exceeds the fair market value of the Ordinary Shares, but only to the extent of the amount the holder previously recognised as a result of the mark-to-market election. The election cannot be revoked without the consent of the US Internal Revenue Service. Most of the adverse US federal income tax consequences of holding shares of a PFIC could be avoided if the US Holder made a qualied electing fund election (a QEF election). However, the Company does not intend to provide US Holders with the information they would need to make a QEF election. Prospective purchasers should consult their tax advisers regarding the potential application of the PFIC regime. Backup withholding and information reporting Payments of dividends and other proceeds with respect to Ordinary Shares by a US paying agent or other US intermediary will be reported to the IRS and to the US Holder unless the holder is a corporation or otherwise establishes a basis for exemption. Backup withholding may apply to reportable payments if the US Holder fails to provide an accurate taxpayer identication number or certication of exempt status or fails to report all interest and dividends required to be shown on its US federal income tax returns. Any backup withholding tax will be refunded or allowed as a credit against the US Holders US Federal income tax liability if the US Holder gives the appropriate information to the IRS. US Holders should consult their tax advisers as to their qualication for exemption from backup withholding and the procedure for obtaining an exemption.

211

Part XIV: Additional information

1 Incorporation and activity 1.1 The Company was incorporated and registered in England and Wales on 11 April 2006 under the Companies Act as a private company limited by shares with the name Hackremco (No. 2372) Limited and with registered number 5777693. Pursuant to a special resolution dated 12 June 2006, the name of the Company was changed to Hochschild Mining Limited, effective 13 June 2006. By a written resolution passed on 16 October 2006, the Company resolved to re-register as a public limited company and change its name to Hochschild Mining plc. On 17 October 2006 the reregistration and change of name became effective. 1.2 The registered ofce of the Company is One Silk Street, London EC2Y 8HQ, United Kingdom. The principal place of business of the Company is Pasaje El Carmen 180, Surco, Lima 33, Peru. The telephone number of the Companys principal place of business is +511 317 2000. 1.3 The principal legislation under which the Company operates and under which the Ordinary Shares have been created is the Companies Act and regulations made thereunder. 1.4 The business of the Company, and its principal activity, is to act as the ultimate holding company of the Hochschild Mining Group. 1.5 By a resolution of the Directors dated 16 October 2006, Ernst & Young LLP whose address is 1 More London Place, London SE1 2AF, United Kingdom were appointed as the rst auditors of the Company. 2 Share capital Hochschild Mining plc 2.1 The Company was incorporated with an authorised share capital of 100 divided into 100 Ordinary Shares of 1 each, one of which was issued to Hackwood Secretaries Limited, the subscriber of the Memorandum of Association. On 28 June 2006, the subscriber share was transferred to Pelham Investment Corporation. 2.2 By a series of ordinary and special resolutions duly passed by a written resolution of the Company on 16 October 2006: 2.2.1 the authorised share capital of the Company was increased from 100 to 250,000,000 by the creation of 249,999,900 Ordinary Shares of 1.00 each; 2.2.2 the Directors were generally and unconditionally authorised pursuant to Section 80 of the Companies Act to allot relevant securities up to a nominal amount of 165,000,000 (being an amount sufcient to permit the allotment of shares required in connection with the steps described in paragraphs 2.3 and 2.5 below), such authority to expire on the date of the Annual General Meeting in 2011 or on 16 October 2011, whichever is earlier (but the Company would be able before such expiry to make an offer or agreement which would or may require relevant securities to be allotted after such expiry); 2.2.3 the Directors were generally and unconditionally authorised pursuant to Section 95 of the Companies Act to allot equity securities (within the meaning of Section 94 of the Companies Act) for cash, pursuant to the authority conferred by paragraph 2.2.2 above, as if sub-section (1) of Section 89 of the Companies Act did not apply to any such allotment, provided that this power is limited to the allotment of equity securities up to an aggregate nominal amount of 165,000,000 (being an amount sufcient to permit the Global Offer) and provided that this authority expires on the date of the Annual General Meeting in 2011 or on 16 October 2011, whichever is earlier (but the Company would be able before 212
PRA3 4.6 PRA1 5.1.1, 5.1.2, 5.1.3, 5.1.4

PRA1 5.1.4

PRA3 4.2

PRA1 5.1.4

Part XIV: Additional information

such expiry to make an offer or agreement which would or might require equity securities to be allotted after such expiry); 2.2.4 it was resolved that each Ordinary Share of 1.00 each in the capital of the Company be divided into two Ordinary Shares of 50 pence each; 2.2.5 it was resolved to re-register the Company as a public company; 2.2.6 it was resolved to reduce the share capital of the Company by 125,000,000 by reducing the nominal amount of each Ordinary Share of 50 pence each in the capital of the Company, whether issued or unissued, to 25 pence. The special resolution requires conrmation by the Companies Court and registration with the Companies Registrar before it can be effective. The petition and application for directions in respect of the reduction of capital have been submitted to the Companies Court and a court hearing to conrm the special resolution has been scheduled to take place following admission of the Companys share capital to the Ofcial List; and 2.2.7 it was resolved to adopt the Articles referred to in paragraph 4 of this Part XIV as the new articles of association of the Company, conditional upon and with effect from Admission. 2.3 On 16 October 2006, 49,999 Ordinary Shares were allotted and issued to Pelham Investment Corporation and 1 Ordinary Share was allotted and issued to Armonk Corporation (as trustee for Pelham Investment Corporation), each of the Ordinary Shares being paid up as to their nominal value. 2.4 On 2 November 2006, Pelham Investment Corporation (a subsidiary of the then holding company of the Hochschild Mining Group, an entity jointly held by Eduardo Hochschild and Alberto Beeck (Former Topco)) acquired all of the issued and outstanding shares of each of (1) Port Chester Limited, (2) Ludlow Corporation, (3) Ardsley Corporation, (4) Garrison Corporation, (5) Lorenzon Limited and (6) Larchmont Corporation (together, the Cayman Companies) from Former Topco in exchange for shares in Pelham Investment Corporation. On 2 November 2006, Pelham Investment Corporation transferred to Navajo Overseas Corporation (a company controlled by Roberto Danino) shares totalling 1.5 per cent. of the issued and outstanding shares of each of the Cayman Companies. 2.5 On 2 November 2006, the Company entered into a share exchange agreement with each of Pelham Investment Corporation and Navajo Overseas Corporation (the Share Exchange Agreement). Under the terms of the Share Exchange Agreement, the Company acquired the entire issued share capital of the Cayman Companies from Pelham Investment Corporation and Navajo Overseas Corporation in exchange for the issue of 226,450,000 Ordinary Shares with a nominal value of 50 pence to Pelham Investment Corporation and 3,450,000 Ordinary Shares with a nominal value of 50 pence to Navajo Overseas Corporation. 2.6 Under the Articles: 2.6.1 the Directors will be generally and unconditionally authorised pursuant to and in accordance with Section 80 of the Act to exercise for each Allotment Period all the powers of the Company to allot relevant securities up to an aggregate nominal amount equal to the Section 80 Amount; 2.6.2 during each Allotment Period, the Directors will be empowered to allot equity securities wholly for cash pursuant to and within the terms of the authority referred to in paragraph 2.6.1 above: (i) (ii) in connection with a Rights Issue; and otherwise than in connection with a Rights Issue, up to an aggregate nominal amount equal to the Section 89 Amount, 213
PRA3 5.1.10 PRA3 5.3.3 PRA3 4.6

Part XIV: Additional information

as if Section 89(1) of the Act did not apply to any such allotment; 2.6.3 by such authority and power referred to in paragraphs 2.6.1 and 2.6.2 above, the Directors may, during the Allotment Period, make offers or agreements which would or might require securities to be allotted after the expiry of the Allotment Period; and 2.6.4 for the purposes of this paragraph: (i) Rights Issue means an offer of equity securities open for acceptance for a period xed by the Directors to: (i) holders on the register on a record date xed by the Directors of ordinary shares in proportion to their respective holdings (for which purpose holdings in certicated and uncerticated form may be treated as separate holdings); and (ii) other persons so entitled by virtue of the rights attaching to any other equity securities held by them, but subject in both cases to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory; Allotment Period means the period ending on the earlier of the Companys rst annual general meeting and 31 December 2007, or any other period (not exceeding ve years on any occasion) for which the authority referred to in paragraph 2.6.1 above is renewed or extended by resolution of the Company in general meeting stating the Section 80 Amount for such period; the Section 80 Amount shall, for the rst Allotment Period be, unless and until the Capital Reduction is effective, 51,000,000 and, upon the Capital Reduction becoming effective, shall be 25,500,000 and for any other Allotment Period shall be that stated in the relevant resolution renewing or extending the authority referred to in paragraph 2.6.1 above for such period or, in either case, any increased amount xed by resolution of the Company in general meeting; the Section 89 Amount shall for the rst Allotment Period be, unless and until the Capital Reduction is effective, 7,650,000 and, upon the Capital Reduction becoming effective, shall be 3,825,000 and for any other Allotment Period shall be that stated in the relevant special resolution renewing or extending the power referred to in paragraph 2.6.2 above for such period or, in either case, any increased amount xed by special resolution; and the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or to convert any securities into shares of the Company, the nominal amount of such shares which may be allotted pursuant to such rights.
PRA1 21.1.1

(ii)

(iii)

(iv)

(v)

2.7 The authorised, issued and fully paid share capital of the Company as at 2 November 2006, being the last practicable date prior to publication of this document, is as follows:
Authorised Class of shares Number Amount Number Issued Amount

Ordinary Shares ********************************** 500,000,000

250,000,000

307,350,226

153,675,113

2.8 Save as disclosed in this paragraph 2: 2.8.1 there has been no change in the amount of the issued share or loan capital of the Company and no material change in the amount of the issued share or loan capital of any other member of the Hochschild Mining Group (other than intra-group issues by whollyowned subsidiaries) within three years of the date of this document; and 214
PRA1 21.1.7

Part XIV: Additional information

2.8.2 no share or loan capital of the Company or any other member of the Hochschild Mining Group is under option or is, or will, immediately following Admission, be agreed, conditionally or unconditionally, to be put under option. 2.9 The Company has no convertible securities, exchangeable securities or securities with warrants in issue. 3 Memorandum of association The Memorandum of Association of the Company provides that its objects include, among others, to carry on the business of a holding company, and to carry on any trade or business which can, in the opinion of the Board, be advantageously carried on in connection or conjunction with any of the Companys businesses and to do all such other things as may be considered incidental or conducive to the attainment of any of the Companys objects. The objects of the Company are set out in full in Clause 3 of the Memorandum of Association, which is available for inspection at the address specied in paragraph 20 of this Part XIV. 4 Articles of association The Articles, which were adopted by a special resolution of the Company passed on 16 October 2006 and which come into effect on Admission, include provisions to the following effect: (a) Share rights Subject to the provisions of the Companies Act, and without prejudice to any rights attached to any existing shares or class of shares, any share may be issued with such rights or restrictions as the Company may by ordinary resolution determine or, subject to and in default of such determination, as the Board may determine. Subject to the Articles and the provisions of the Companies Act, the Company may issue any shares which are to be redeemed, or which at the option of the Company or the holder are liable to be redeemed. Subject to the Articles and the provisions of the Companies Act, the unissued shares of the Company (whether forming part of the original or any increased capital) are at the disposal of the Board. (b) Voting rights Subject to the provisions of the Companies Act, to any special terms as to voting on which any shares may have been issued or may for the time being be held and to any suspension or abrogation of voting rights pursuant to the Articles, at any general meeting every member who is present in person shall on a show of hands have one vote and every member present in person or by proxy shall on a poll have one vote for each share of which he is the holder. Unless the Board otherwise determines, no member is entitled to vote at a general meeting or at a separate meeting of the holders of any class of shares, either in person or by proxy, or to exercise any other right or privilege as a member in respect of any share held by him unless and until all calls or other sums presently due and payable by him in respect of that share whether alone or jointly with any other person together with interest and expenses (if any) have been paid to the Company or if he or any other person appearing to be interested in shares has been issued with a notice pursuant to section 212 of the Companies Act (requiring disclosure of interest in shares) and has failed in relation to any shares to give the Company the information thereby required within 14 days from the service of the notice. 215
PRA1 21.2.3 PRA3 4.5 PRA1 21.2.3 PRA3 4.5 PRA1 21.2.1 PRA1 21.1.6

PRA1 21.1.4

Part XIV: Additional information

(c) Disclosure of interests in shares Pursuant to section 198 of the Companies Act, any person acquiring an interest of 3 per cent. or more of the issued Ordinary Shares of the Company must disclose such holding to the Company. As provided by section 199 of the Act, a person has a notiable interest in the share capital of the Company when (i) he has material interests with an aggregate nominal value equal to or greater than 3 per cent. of the nominal value of the share capital or (ii) not having such an interest by virtue of (i), the aggregate nominal value of the shares in which he has interests (whether or not these are material interests) is equal to or more than 10 per cent. of that share capital. If a member, or any other person appearing to be interested in shares held by that member, has been issued with a notice pursuant to section 212 of the Act and has failed in relation to any shares (the default shares, which expression includes any shares issued after the date of such notice in respect of those shares) to give the Company the information thereby required within 14 days from the service of the notice, unless the Board otherwise determines: (i) the member shall not be entitled in respect of the default shares to be present or to vote (either in person or by representative or proxy) at any general meeting or at any separate meeting of the holders of any class of shares or on any poll or to exercise any other right conferred by membership in relation to any such meeting or poll; and where the default shares represent at least 0.25 per cent. in nominal value of the issued shares of their class, any dividend or other moneys payable in respect of the shares shall be withheld by the Company and the member shall not be entitled to elect to receive shares instead of that dividend and no transfer other than an excepted transfer of any shares held by the member shall be registered unless the member is not himself in default as regards supplying the information required and the member proves to the satisfaction of the Board that no person in default as regards supplying such information is interested in any of the shares the subject of the transfer.
PRA1 21.2.7

(ii)

Where the sanctions in (i) above apply in relation to any shares, they shall cease to have effect and any dividends withheld under (ii) shall become payable if the shares are transferred by means of an excepted transfer but only in respect of the shares transferred or at the end of the period of seven days (or such shorter period as the Board may determine) following receipt by the Company of the information required by the notice and the Board being fully satised that such information is full and complete. (d) Dividends Subject to the provisions of the Companies Act and of the Articles, the Company may by ordinary resolution declare dividends to be paid to members according to their respective rights and interests in the prots of the Company. However, no dividend shall exceed the amount recommended by the Board. Subject to the provisions of the Companies Act, the Board may declare and pay such interim dividends as appear to the Board to be justied by the prots of the Company available for distribution. If at any time the share capital of the Company is divided into different classes, the Board may pay such interim dividends on shares which rank after shares conferring preferential rights with regard to dividend as well as on shares conferring preferential rights, unless at the time of payment any preferential dividend is in arrears. Provided that the Board acts in good faith, it shall not incur any liability to the holders of shares conferring preferential rights for any loss that they may suffer by the lawful payment of any interim dividend on any shares ranking after those with preferential rights. Except as otherwise provided by the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid but no amount 216
PRA3 4.5

Part XIV: Additional information

paid up on a share in advance of the date on which a call is payable shall be treated for the purposes of this Article as paid up on the share. Subject as aforesaid, all dividends shall be apportioned and paid proportionately to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend as from a particular date, it shall rank for dividend accordingly. The Board may deduct from any dividend or other money payable to any person on or in respect of a share all such sums as may be due from him to the Company on account of calls or otherwise in relation to the shares of the Company. The Board may, with the authority of an ordinary resolution of the Company, direct that payment of any dividend declared may be satised wholly or partly by the distribution of assets, and in particular of paid up shares or debentures of any other company, or in any one or more of such ways. Where any difculty arises in regard to such distribution, the Board may settle it as it thinks t. In particular, the Board may: (i) (ii) issue fractional certicates (or ignore fractions); x the value for distribution of such assets or any part thereof and determine that cash payments may be made to any members on the footing of the value so xed, in order to adjust the rights of members; and vest any such assets in trustees on trust for the persons entitled to the dividend.

(iii)

The Board may also, with the prior authority of an ordinary resolution of the Company and subject to such conditions as the Board may determine, offer to holders of ordinary shares the right to elect to receive ordinary shares, credited as fully paid, instead of the whole (or some part, to be determined by the Board) of any dividend specied by the ordinary resolution. Unless the Board otherwise determines, the payment of any dividend or other money that would otherwise be payable in respect of shares will be withheld, and the Company shall have no obligation to pay interest on it, if such shares represent at least 0.25 per cent. of the nominal value of the issued share capital of their class and the holder, or any other person appearing to be interested in those shares, has been issued with a notice under section 212 of the Act and has failed to supply the information required by such notice within 14 days. Furthermore such a holder shall not be entitled to elect to receive shares instead of a dividend. All dividends, interest or other sum payable and unclaimed for 12 months after having become payable may be invested or otherwise used by the Board for the benet of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends unclaimed for a period of 12 years after having been declared or become due for payment shall (if the Board so resolves) be forfeited and shall cease to remain owing by the Company. (e) Division of assets on a winding-up If the Company is wound up the liquidator may, with the sanction of a extraordinary resolution of the Company and any other sanction required by law, divide among the members in specie the whole or any part of the assets of the Company and may, for that purpose, value any assets and determine how the division shall be carried out as between the members or different classes of members. Any such division may be otherwise than in accordance with the existing rights of the members, but if any division is resolved otherwise than in accordance with such rights, the members shall have the same right of dissent and consequential rights as if such resolution were a special resolution passed pursuant to section 110 of the Insolvency Act 1986. The liquidator may, with the like sanction, vest the whole or any part of the assets in trustees on such trusts for the benet of the members as he with the like sanction shall determine, but no member shall be compelled to accept any assets on which there is a liability. 217
PRA3 4.5

Part XIV: Additional information

(f) Lien and forfeiture The Company will have a rst and paramount lien on every share (not being a fully paid share) for all amounts payable to the Company (whether presently payable or not) in respect of that share. The Company may sell, in such manner as the Board determines, any share on which the Company has a lien if a sum in respect of which the lien exists is presently payable and is not paid within 14 days after notice has been sent to the holder of the share demanding payment and stating that if the notice is not complied with the share may be sold. The Board may from time to time make calls upon the members in respect of any amounts unpaid on their shares. Each member shall, subject to receiving at least 14 days notice, pay to the Company the amount called on his /her shares. In the event of non-payment, the Board may give to the person from whom it is due a notice requiring payment of the amount unpaid together with any interest which may have accrued and any expenses incurred by the Company by reason of non-payment. The notice shall name a further day being not less than seven days from the date of the service of the notice where payment is to be made and shall state that if the notice is not complied with the shares in respect of which the call was made will be liable to be forfeited. (g) Transfer of shares Subject to any applicable restrictions, each member may transfer all or any of his shares by instrument of transfer in writing in any usual form or in any form approved by the Board. Such instrument shall be executed by or on behalf of the transferor and (in the case of a transfer of a share which is not fully paid up) by or on behalf of the transferee. The transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in the Register in respect of it. The Board may, in its absolute discretion and without giving any reason, refuse to register any transfer of a share (or renunciation of a renounceable letter of allotment) unless: (i) (ii) (iii) (iv) (v) it is in respect of a share which is fully paid up; it is in respect of only one class of shares; it is in favour of a single transferee or not more than four joint transferees; it is duly stamped (if so required); and it is delivered for registration to the registered ofce of the Company or such other place as the Board may from time to time determine, accompanied (except in the case of a transfer by a recognised person where a certicate has not been issued or in the case of a renunciation) by the certicate for the shares to which it relates and such other evidence as the Board may reasonably require to prove the title of the transferor or person renouncing and the due execution of the transfer or renunciation by him or, if the transfer or renunciation is executed by some other person on his behalf, the authority of that person to do so provided that the Board shall not refuse to register any transfer or renunciation of partly paid shares which are listed on the London Stock Exchange on the grounds that they are partly paid shares in circumstances where such refusal would prevent dealings in such shares from taking place on an open and proper basis.
PRA3 4.8

Unless the Board otherwise determines, a transfer of shares will not be registered if the transferor or any other person appearing to be interested in the transferors shares has been issued with a notice under section 212 of the Act, has failed to supply the information required by such notice within 14 days and the shares in respect of which such notice has been served represent at least 0.25 per cent. of their class, unless the member is not himself in default as regards supplying the information required and proves to the satisfaction of the Board that no person in default as regards supplying such information is interested in any of the shares the subject of the transfer, or 218

Part XIV: Additional information

unless the transfer is an excepted transfer or after seven days (or such shorter period as the Board may determine) following receipt by the Company of the information required by the notice and the Board being fully satised that such information is full and complete. (h) Variation of rights If at any time the share capital of the Company is divided into shares of different classes, any of the rights for the time being attached to any share or class of shares in the Company (and notwithstanding that the Company may be or be about to be in liquidation) may be varied or abrogated in such manner (if any) as may be provided by such rights or, in the absence of any such provision, either with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of the class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of shares of the class duly convened and held as hereinafter provided (but not otherwise). The provisions governing general meetings apply mutatis mutandis to every meeting of the holders of any class of shares. The Board may convene a meeting of the holders of any class of shares whenever it thinks t and whether or not the business to be transacted involves a variation or abrogation of class rights. The quorum at every such meeting shall be not less than two persons holding or representing by proxy at least one-third of the nominal amount paid up on the issued shares of the class. Every holder of shares of the class, present in person or by proxy, may demand a poll. Each such holder shall on a poll be entitled to one vote for every share of the class held by him. If at any adjourned meeting of such holders such quorum as aforesaid is not present, not less than one person holding shares of the class who is present in person or by proxy shall be a quorum. Subject to the terms of issue of or rights attached to any shares, the rights or privileges attached to any class of shares shall be deemed not to be varied or abrogated by the creation or issue of any new shares ranking pari passu in all respects (save as to the date from which such new shares shall rank for dividend) with or subsequent to those already issued or by the reduction of the capital paid up on such shares or by the purchase or redemption by the Company of its own shares in accordance with the provisions of the Companies Act 1985 and the Articles. (i) Purchase of own shares Subject to the Companies Act and without prejudice to any relevant special rights attached to any class of shares, the Company may purchase any of its own shares (including any redeemable preference shares). (j) Borrowing powers The Directors may exercise all the powers of the Company to borrow money, mortgage or charges its assets, and issue debentures and other securities. The Directors shall, however, restrict the borrowings of the Company and exercise all voting and other rights in relation to its subsidiary undertakings so as to secure (so far, as regards subsidiary undertakings, as by such exercise they can secure) that the aggregate amount for the time being remaining outstanding of all monies borrowed by the Group and for the time being owing to persons outside the Group (as dened) less the aggregate amount of Current Asset Investments (as dened) shall not at any time without the previous sanction of an ordinary resolution of the Company exceed (i) before the publication of the rst audited consolidated accounts of the Company, the sum of US$750 million and (ii) thereafter an amount equal to 3 times the Adjusted Capital and Reserves (as dened).
PRA1 21.2.4

219

Part XIV: Additional information

(k) Alteration of share capital The Company in general meeting may from time to time by ordinary resolution: (i) (ii) (iii) increase its share capital by such sum to be divided into shares of such amounts as the resolution prescribes; consolidate and divide all or any of its share capital into shares of larger amounts than its existing shares; cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled; and subject to the provisions of the Companies Act, sub-divide its shares or any of them into shares of smaller amount, and may by such resolution determine that, as between the shares resulting from such sub-division, one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights or be subject to any such restrictions as the Company has power to attach to unissued or new shares.
PRA1 21.2.3 PRA1 21.2.8

(iv)

Subject to the provisions of the Companies Act and to any rights for the time being attached to any shares, the Company may by special resolution reduce its share capital or any capital redemption reserve or share premium account in any way. (l) Allotment of shares Subject to the provisions of the Companies Act and to any relevant authority of the Company in general meeting required by the Companies Act, unissued shares at the date of adoption of the Articles and any shares thereafter created shall be at the disposal of the Board, which may allot (with or without conferring rights of renunciation), grant options over, offer or otherwise deal with or dispose of them or rights to subscribe for or convert any security into shares to such persons (including the Directors themselves), at such times and generally on such terms and conditions as the Board may decide, provided that no share shall be issued at a discount. Subject to the provisions of the Companies Act and to any special rights for the time being attached to any existing shares, any share may be issued which is, or at the option of the Company or of the holder of such share is liable, to be redeemed on such terms and in such manner as the Articles may provide. (m) Power to attach rights Subject to the provisions of the Companies Act and to any special rights for the time being attached to any existing shares, any shares may be allotted or issued with or have attached to them such preferred, deferred or other special rights or restrictions whether in regard to dividends, voting, transfer, returned capital or otherwise, as the Company may from time to time by ordinary resolution determine or, if no such resolution has been passed or, so far as the resolution does not make specic provision, as the Board shall determine. (n) Remuneration of Directors The Directors (other than alternate Directors) shall be entitled to receive by way of fees for their services as Directors such sum as the Board may from time to time determine (not exceeding 3,000,000) per annum, or such other sum as the Company in general meeting by ordinary resolution shall from time to time determine). Such sum (unless otherwise directed by the resolution of the Company by which it is voted) shall be divided among the Directors in such proportions and in such manner as the Board may determine or, in default of such determination, equally (except that in such event any Director holding ofce for less than the whole of the relevant period in respect of which the fees are paid shall only rank in such division in proportion 220
PRA1 21.2.2

Part XIV: Additional information

to the time during such period for which he holds ofce). Any fees payable pursuant to this Article shall be distinct from any salary, remuneration or other amounts payable to a Director pursuant to any other provisions of the Articles and shall accrue from day to day. Each Director shall be entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by him in or about the performance of his duties as Director, including any expenses incurred in attending meetings of the Board or any committee of the Board or general meetings or separate meetings of the holders of any class of shares or of debentures of the Company. If by arrangement with the Board any Director shall perform or render any special duties or services outside his ordinary duties as a Director and not in his capacity as a holder of employment or executive ofce, he may be paid such reasonable additional remuneration (whether by way of salary, commission, participation in prots or otherwise) as the Board may from time to time determine. The salary or remuneration of any Director appointed to hold any employment or executive ofce in accordance with the provisions of the Articles may be either a xed sum of money, or may altogether or in part be governed by business done or prots made or otherwise determined by the Board, and may be in addition to or in lieu of any fee payable to him for his services as Director pursuant to the Articles. (o) Pensions and other benets The Board may exercise all the powers of the Company to provide pensions or other retirement or superannuation benets and to provide death or disability benets or other allowances or gratuities for persons who are or were directors of any company in the Hochschild Mining Group and their relatives or dependents. (p) Directors interests Subject to the provisions of the Companies Act and provided that the Director makes the relevant disclosures to the Board, a Director, notwithstanding his ofce: (i) (ii) may enter into or otherwise be interested in any contract, arrangement, transaction or proposal with the Company or in which the Company is otherwise interested; may hold any other ofce or place of prot under the Company (except that of Auditor or of auditor of a subsidiary of the Company) in conjunction with the ofce of Director and may act by himself or through his rm in a professional capacity for the Company, and in any such case on such terms as to remuneration and otherwise as the Board may arrange, either in addition to or in lieu of any remuneration provided for by any other Article; may be a director or other ofcer of, or employed by, or a party to any transaction or arrangement with or otherwise interested in, any company promoted by the Company or in which the Company is otherwise interested or as regards which the Company has any powers of appointment; and shall not be liable to account to the Company for any prot, remuneration or other benet realised by any such ofce, employment, contract, arrangement, transaction or proposal,

(iii)

(iv)

and no such ofce, employment, contract, arrangement, transaction or proposal shall be avoided on the grounds of any such interest or benet. (q) Interested Director not to vote or count for quorum Save as provided in this paragraph (q), a Director shall not vote on, or be counted in the quorum in relation to, any resolution of the Board or of a committee of the Board concerning any 221

Part XIV: Additional information

contract, arrangement, transaction or any other proposal whatsoever to which the Company is or is to be a party and in which he has an interest which (together with any interest of any person connected with him within the meaning of section 346 of the Companies Act) is to his knowledge a material interest otherwise than by virtue of his interests in shares or debentures or other securities of or otherwise in or through the Company, unless the resolution concerns any of the following matters: (i) the giving of any guarantee, security or indemnity in respect of money lent or obligations incurred by him or any other person at the request of or for the benet of the Company or any of its subsidiary undertakings; the giving of any guarantee, security or indemnity in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security; any proposal concerning an offer of shares or debentures or other securities of or by the Company or any of its subsidiary undertakings in which offer he is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which he is to participate; any proposal concerning any other body corporate in which he (together with persons connected with him within the meaning of section 346 of the Companies Act) does not to his knowledge have an interest (as the term is used in Part VI of the Companies Act) in 1 per cent. or more of the issued equity share capital of any class of such body corporate or of the voting rights available to members of such body corporate; any proposal relating to an arrangement for the benet of the employees of the Company or any of its subsidiary undertakings which does not award him any privilege or benet not generally awarded to the employees to whom such arrangement relates; or any proposal concerning insurance which the Company proposes to maintain or purchase for the benet of Directors or for the benet of persons who include Directors.

(ii)

(iii)

(iv)

(v)

(vi)

A Director shall not vote or be counted in the quorum on any resolution of the Board or committee of the Board concerning his own appointment (including xing or varying the terms of his appointment or its termination) as the holder of any ofce or place of prot with the Company or any company in which the Company is interested. Where proposals are under consideration concerning the appointment (including xing or varying the terms of appointment or its termination) of two or more Directors to ofces or places of prot with the Company or any company in which the Company is interested, such proposals may be divided and a separate resolution considered in relation to each Director. In such case each of the Directors concerned (if not otherwise debarred from voting under the Articles) shall be entitled to vote (and be counted in the quorum) in respect of each resolution except that concerning his own appointment. If any question arises at any meeting as to the materiality of a Directors interest (other than the Chairmans interest) or as to the entitlement of any Director (other than the Chairman) to vote or be counted in a quorum, and such question is not resolved by his voluntarily agreeing to abstain from voting or being counted in the quorum, such question shall be referred to the Chairman of the meeting. The Chairmans ruling in relation to the Director concerned shall be nal and conclusive except in a case where the nature or extent of the interest of the Director concerned (so far as it is known to him) has not been fairly disclosed to the Board. If any question arises at any meeting as to the materiality of the Chairmans interest or as to the entitlement of the Chairman to vote or be counted in a quorum, and such question is not resolved by his voluntarily agreeing to abstain from voting or being counted in the quorum, such question shall be decided by resolution of the Directors or committee members present at the meeting (excluding the Chairman), whose majority vote shall be nal and conclusive. 222

Part XIV: Additional information

(r) Age of Directors The Articles do not require a Director to vacate his ofce on or by reason of his attaining or having attained the age of 70 and, accordingly, no special notice is required by any resolution appointing or approving the appointment of such a Director. (s) Number of Directors Unless and until otherwise determined by the Company by ordinary resolution, the number of Directors (other than any alternate Directors) shall be not more than 12 or less than two. (t) Directors appointment and retirement by rotation Directors may be appointed by the Company by ordinary resolution or by the Board. If appointed by the Board, a Director holds ofce only until the next annual general meeting and shall not be taken into account in determining the number of Directors who are to retire by rotation (if applicable) at such meeting. A Director shall not be required to hold any shares of the Company. Each Director shall retire at the annual general meeting held in the third calendar year following the year in which he was elected or last re-elected by the Company. A Director who retires at any annual general meeting shall be eligible for re-election unless the Directors otherwise determine not later than the date of the notice of such meeting. (u) Untraced shareholders Subject to the Articles, the Company may sell any shares in the Company registered in the name of a member remaining untraced for 12 years who fails to communicate with the Company following advertisement of an intention to make such a disposal. Until the Company can account to the member, the net proceeds of sale may either be employed in the business of the Company or invested in whatever investments as the Board sees t, in either case at the discretion of the Board. The proceeds will not carry interest. (v) Non-United Kingdom shareholders There are no limitations in the Articles on the rights of non-United Kingdom shareholders to hold, or to exercise voting rights attached to, the ordinary shares. However, non-United Kingdom shareholders are not entitled to receive notices of general meetings unless permitted by the Board in its absolute discretion, or if they have given an address in the United Kingdom to which such notices may be sent. (w) Meetings An annual general meeting and an extraordinary general meeting convened for the passing of a special resolution shall be convened by not less than 21 clear days notice in writing. All other extraordinary general meetings shall be convened by not less than 14 clear days notice in writing, but notwithstanding that it is convened by shorter notice, a general meeting shall be deemed to have been duly convened if it is so agreed: (i) (ii) in the case of an annual general meeting, by all the members entitled to attend and vote at the meeting; and in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right.
PRA1 21.2.5

The notice shall specify the day, time and place of the meeting and, in the case of general business, the general nature of that business to be transacted and shall specify whether the meeting is an annual general meeting or an extraordinary general meeting, if the meeting is 223

Part XIV: Additional information

convened to consider a special or extraordinary resolution, the intention to propose the resolution as such, and the right of a member entitled to attend and vote to appoint one or more proxies. The notice shall be given to the members (other than any who, under the provisions of the Articles or of any restrictions imposed on any shares, are not entitled to receive notice from the Company), to the Directors and to the Auditors. The accidental omission to give notice to, or the non-receipt of notice by, any person entitled to receive the same shall not invalidate the proceedings at the meeting. No business shall be transacted at any general meeting unless a quorum is present. Two persons (either members, duly authorised representatives or proxies) entitled to vote upon the business to be transacted shall be a quorum. The Chairman of the Board shall preside as Chairman at every general meeting of the Company. If there be no such Chairman or if at any meeting he shall not be present within ve minutes after the time appointed for holding the meeting, or shall be unwilling to act as Chairman, the Deputy Chairman (if any) of the Board shall, if present and willing to act, preside as Chairman at such meeting. If no Chairman or Deputy Chairman shall be so present and willing to act, the Directors present shall choose one of their number to act or, if there be only one Director present, he shall be Chairman if willing to act. If there be no Director present and willing to act, the members present and entitled to vote shall choose one of their number to be Chairman of the meeting. A Director (and any other person invited by the Chairman to do so) shall, notwithstanding that he is not a member, be entitled to attend and speak at any general meeting and at any separate meeting of the holders of any class of shares of the Company. The Chairman may, with the consent of a meeting at which a quorum is present, and shall, if so directed by the meeting, adjourn any meeting from time to time (or indenitely) and from place to place as the meeting shall determine. Where a meeting is adjourned indenitely, the Board shall x the time and place for the adjourned meeting. Whenever a meeting is adjourned for 14 days or more or indenitely, seven clear days notice at the least, specifying the place, the day and time of the adjourned meeting and the general nature of the business to be transacted, shall be given in the same manner as in the case of an original meeting. A resolution put to a vote of the meeting shall be decided on a show of hands, unless a poll is duly demanded. Subject to the provisions of the Companies Act, a poll may be demanded by the Chairman, at least ve members having the right to vote at the meeting, a member or members representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting or a member or members holding shares conferring a right to vote at the meeting, being shares on which an aggregate sum has been paid up equal to not less than onetenth of the total sum paid up on all the shares conferring that right. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman shall be entitled to a casting vote in addition to any other vote that he may have. The right of a member to participate in the business of any general meeting shall include without limitation the right to speak, vote on a show of hands, vote on a poll, be represented by a proxy and have access to all documents which are required by the Act or the Articles to be made available to the meeting. The Board may, for the purpose of controlling the level of attendance and ensuring the safety of those attending at any place specied for the holding of a general meeting, from time to time make such arrangements as the Board shall in its absolute discretion consider to be appropriate and may from time to time vary any such arrangements or make new arrangements in place thereof. The entitlement of any member or proxy to attend a general meeting at such place shall be subject to any such arrangements as may be for the time being approved by the Board. In the case of any meeting to which such arrangements apply, the Board may, when specifying the place of the meeting, direct that the meeting shall be held at a place specied in the notice at which the 224

Part XIV: Additional information

Chairman of the meeting shall preside and make arrangements for simultaneous attendance and participation at other places by members otherwise entitled to attend the general meeting but excluded therefrom under such arrangements or who wish to attend at any of such other places, provided that persons attending at each place shall be able to see and hear, and be seen and heard by, persons attending at each place, by any means. Such arrangements for simultaneous attendance may include arrangements for controlling the level of attendance in any manner aforesaid at any of such other places, provided that they shall operate so that any such excluded members as aforesaid are able to attend at one of such other places. The Board may direct that any person wishing to attend any meeting should provide such evidence of identity and submit to such searches or other security arrangements or restrictions as the Board shall consider appropriate in the circumstances and shall be entitled in its absolute discretion to refuse entry to any meeting to any person who fails to provide such evidence of identity or to submit to such searches or to otherwise comply with such security arrangements or restrictions. A Director (and any other person invited by the Chairman to do so) shall, notwithstanding that he is not a member, be entitled to attend and speak at any general meeting and at any separate meeting of the holders of any class of shares of the Company. (x) Indemnity of ofcers Subject to the provisions of the Companies Act, but without prejudice to any indemnity to which he may otherwise be entitled, every Director, alternate Director, Secretary or other ofcer of the Company (except the Auditors) shall be entitled to be indemnied out of the assets of the Company against any liability incurred by him for negligence, default, breach of duty or breach of trust in relation to the affairs of the Company, provided that this provision shall be deemed not to provide for, or entitle any such person to, indemnication to the extent that it would cause this provision, or any element of it, to be treated as void under the Companies Act. 5 Directors, senior managements and other interests 5.1 The Directors and members of Senior Management, their functions within the Company and brief biographies are set out in Part III: Management, Corporate Governance and Major Shareholder. 5.2 Each of the Directors can be contacted at the Companys principal place of business at Pasaje El Carmen 180, Surco, Lima 33, Peru. 5.3 The table below sets out certain interests of the Directors (and of persons connected with them) in the share capital of the Company as they are expected to be immediately prior to, and following, Admission. The interests of the Directors and of each of their immediate families and related trusts, all of which are benecial (unless otherwise stated), in the share capital of the Company which are shown in the table below (i) have been notied to the Company pursuant to Section 324 or 328 of the Companies Act, or (ii) are required to be entered in the register of Directors interests (maintained under the provisions of Section 325 of the Companies Act), or (iii) are interests of a person connected (within the meaning of Section 346 of the Companies Act) with a Director which would, if the connected person were a Director, be required to be disclosed under (i) or (ii) above, and the existence of which is known to or could with reasonable diligence be ascertained by that Director.
PRA1 14.1, 14.2

PRA1 5.1.4

PRA3 3.3, 7.1, 7.2, 9.1, 9.2

225

Part XIV: Additional information

Immediately prior to Admission Number of Ordinary Shares owned As a percentage of issued ordinary share capital Immediately following Admission(1) Number of Ordinary Shares owned As a percentage of issued ordinary share capital

Director

Eduardo Hochschild(2) ****************************** Roberto Danino(3) ********************************** Alberto Beeck(4) ************************************ Sir Malcolm Field ********************************** Jorge Born Jr. ************************************* Nigel Moore *************************************** Dionisio Romero *********************************** Note: (1) Assuming no exercise of the Over-allotment Option.

226,550,000 3,450,000 0 0 0 0 0

98.5 1.5 0 0 0 0 0

226,550,000 3,450,000 0 14,285 0 14,285 0

73.7 1.1 0 0.005 0 0.005 0

(2) Ordinary Shares held through Pelham Investment Corporation (3) Ordinary Shares held through Navajo Overseas Corporation (4) For details of Alberto Beecks interests in the Company, see paragraph 3 of Part III: Management, corporate governance and the Major Shareholder

5.4 The table below sets out certain interests of Senior Management (and of persons connected with them) in the share capital of the Company as they are expected to be immediately prior to, and following, Admission:
Immediately prior to Admission Number of Ordinary Shares owned As a percentage of issued ordinary share capital Immediately following Admission Number of Ordinary Shares owned As a percentage of issued ordinary share capital

Senior Management

Miguel Aramburu ********************************** Jorge Benavides *********************************** Ignacio Rosado ************************************ Eduardo Loret de Mola***************************** Ricardo Arrarte ************************************ Gonzalo Freyre ************************************

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 7,484 8,980 4,490

0 0 0 0.002 0.003 0.001

5.5 The interests of the Directors together represent 100 per cent. of the issued share capital of the Company as at the date of this document and are expected to represent approximately 74.8 per cent. of the issued share capital of the Company immediately following Admission, assuming no exercise of the Over-allotment Option. 5.6 Save as set out in this paragraph 5, and in Part IX: IFRS Historical Financial Information, none of the Directors has any interests in the share or loan capital of the Company or any of its subsidiaries. 5.7 Save as set out in Note 30 to the combined nancial information contained in Section B of Part IX: IFRS Historical Information no Director has or has had any interest in any transaction which is or was unusual in its nature or conditions or is or was signicant to the business of the Hochschild Mining Group and which was effected by the Company in the current or immediately preceding nancial year or which was effected during an earlier nancial year and remains in any respect outstanding or unperformed. 5.8 There are no outstanding loans granted by any member of the Hochschild Mining Group to any Director, nor has any guarantee been provided by any member of the Hochschild Mining Group for their benet.
PRA3 3.3

PRA1 15.1

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Part XIV: Additional information

5.9 In addition to their directorships in the Company and certain subsidiaries of the Company, the Directors and members of Senior Management hold, or have held within the past ve years, the following directorships:
Name Current or former directorships/partnerships Position still held (Y/N)

PRA1 14.1

Director Eduardo Hochschild ***************** Cementos Pacasmayo S.A.A. Inversiones Pacasmayo S.A. Banco de Credito del Peru Pacico Peruano Suiza Ca de Seguros y Reaseguros Sociedad de Comercio Exterior del Peru (Comex Peru) TECSUP Sociedad Nacional de Minera y Petroleo Asia Pacic Economic Cooperation Business Advisory Council-Peru (Consejo Consultivo Empresarial del Foro de Cooperacion Economica Asia Pacco- ABAC Peru) El Patronato de la Plata del Peru Consejo Empresarial de America Latina Fundacion Pedro y Angelica de Osma Instituto Peruano de Economa Cementos Selva S.A. Compana Minera Corianta S.A.C. Mauricio Hochschild & Ca Ltda. S.A.C. Grupo Hochschild S.A.C. Patronato de la UNI Conferencia Ep`scopal Peruana Universidad de Ciencias Aplicadas Gold Fields Peru Educational Testing Service Open Society Institute Youth Orchestra of the Americas Harvard Alumni International Association Asociacion Cultural Filarmonia International Lawyers for Africa Wilmer Cutler & Pickering International Center for Settlement of Investment Disputes World Bank Mountain Institute Proinversion Cementos Pacasmayo S.A.A. Cementos Pacasmayo S.A.A. Georgetown University Latin American Board Mauricio Hochschild & Ca Ltda. S.A.C. Grupo Hochschild S.A.C. BMI Insurance YPO (Young Presidents Organization) Latin American Board YPO North East Region Aricom plc Odgers Ray & Berndston Linden Homes Tubes Lines Limited WH Smith plc Civil Aviation Authority Scottish and Newcastle plc MEPC Evolution Beeson Gregory The Stationery ofce Bunge Limited Mutual Investment Limited Bomagra S.A. Caldenes S.A. Brasif (Brazil Duty Free) Lauder Institute of the Wharton School, University of Pennsylvania Latin American Board of the Wharton School, University of Pennsylvania Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y N N N N N N Y Y Y Y N N N Y Y Y N N N N N N N Y Y Y Y Y Y Y

Roberto Danino ********************

Alberto Beeck **********************

Sir Malcolm Field *******************

Jorge Born Jr. **********************

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Part XIV: Additional information

Name Current or former directorships/partnerships Position still held (Y/N)

Latin American Board, Georgetown University, Washington D.C. Born-Bunge Foundation for Brain Research, Antwerp Dufry A.G. Nigel Moore************************ TEG Environmental plc The Vitec Group plc Ascent Resources plc IntelligentComms Limited Ernst & Young Vanco Energy Company Credicorp Ltd. Banco de Credito del Peru Banco de Credito de Bolivia Cementos Pacasmayo S.A.A. TECSUP Atlantic Security Bank Pacco Peruano Suiza Ca de Seguros y Reaseguros Santa Patricia S.A. Aero Transporte S.A.

Y Y N Y Y Y Y N N Y Y Y Y Y Y Y Y Y

Dionisio Romero ********************

Senior Management Miguel Aramburu******************* Jorge Benavides ******************** Ignacio Rosado ********************* Eduardo Loret de Mola************** Ricardo Arrarte ********************* Gonzalo Freyre ********************* Altavista S.A.C. N/A N/A Grupo Minera Huampar Compana Minera Caudalosa Compana Minera Acobamba Minera Santa Cruz S.A. Compana Minera Ares S.A.C. N N/A N/A N Y N Y N PRA1 14.2

5.10 Alberto Beeck and Eduardo Hochschild are Chairman and Vice Chairman, respectively, of Cementos Pacasmayo S.A.A., and each has a directors service contract with this company. 5.11 Save as set out above, none of the Directors, the Senior Management or the Company Secretary has any business interests, or performs any activities, outside the Hochschild Mining Group which are signicant with respect to the Hochschild Mining Group. 5.12 At the date of this document, none of the Directors or Senior Management has at any time within the last ve years: (i) (ii) had any convictions in relation to fraudulent offences; been declared bankrupt or been the subject of any individual voluntary arrangement, or been associated with any bankruptcy, receivership or liquidation in his capacity as director or senior manager; been the subject of any ofcial public incrimination and/or sanctions by statutory or regulatory authorities (including designated professional bodies); been disqualied by a court from acting as a director or member of the administrative, management or supervisory bodies of any company or from acting in the management or conduct of the affairs of any company; been a partner or senior manager in a partnership which, while he was a partner or within 12 months of his ceasing to be a partner, was put into compulsory liquidation or administration or which entered into any partnership voluntary arrangement; owned any assets which have been subject to a receivership or been a partner in a partnership subject to a receivership where he was a partner at a time or within the 12 months preceding such event; or 228

PRA1 14.1

(iii) (iv)

(v)

(vi)

Part XIV: Additional information

(vii) been an executive director or senior manager of a company which has been placed in receivership, compulsory liquidation, creditors voluntary liquidation or administration or which entered into any company voluntary arrangement or any composition or arrangement with its creditors generally or any class of creditors, at any time during which he was an executive director or senior manager of that company or within 12 months after his ceasing to be an executive director or senior manager. Mr. Romero, as a director of Banco de Credito del Peru (BCP), as well as other members of BCPs board and its managers and ofcers, are from time to time involved in litigation resulting from claims led by third parties, many of them debtors of the bank. In addition, Mr. Romero has, from time to time, been, and is currently, the subject of various criminal charges and allegations. In 2001, in the only case in which formal charges have ever been brought, charges were led against Mr. Romero in connection with his allegedly seeking to inuence the appointment of the administrators of a company of which BCP was a major creditor. In 2006, the Peruvian Supreme Court ruled that Mr. Romeros actions did not constitute a crime and dismissed the charges against him. Of the other allegations made against Mr. Romero, all but one have been made by a former employee of BCP. To date none has led to charges being brought against Mr. Romero. The Board has given due consideration to these matters and has concluded that neither the former nor current charges or allegations against Mr. Romero are relevant to the Group or to Mr. Romeros position as an independent Non-Executive Director of the Company. 5.13 Save for their capacities as persons legally and benecially interested in Ordinary Shares as set out in paragraph 5.3 of this Part XIV: Additional Information, there are: (i) no potential conicts of interest between any duties to the Company of the Directors and members of Senior Management and their private interests and/or other duties; no arrangements or understandings with major shareholders, members, suppliers or others pursuant to which any Director or member of the Senior Management was selected; and no restrictions agreed by any Director or member of the Senior Management on the disposal within a certain time of their holdings in the Companys securities.
PRA1 14.2

(ii)

(iii)

6 Interests of major shareholders Other than the interests of the Directors and members of the Senior Management disclosed in paragraph 5 (and assuming no exercise of the Over-allotment Option), in so far as the Directors are aware, no persons will immediately prior to and following Admission be interested in 3 per cent. or more of the Companys issued share capital. None of the Companys major shareholders have or will have different voting rights attached to the shares they hold in the Company. 7 Directors and Senior Managements Service Agreements, Remuneration and Other Matters 7.1 The terms of the Directors service contracts are summarised below:
Date of Contract Aggregate Current Salary

PRA1 18.1 PRA1 18.3 PRA3 7.2

PRA1 18.2

PRA1 15.1 PRA1 16.1

Name

Notice Period

Executive Directors Eduardo Hochschild *************************************** Roberto Danino ****************************************** Alberto Beeck ********************************************

16 October 2006 16 October 2006 16 October 2006

See below See below See below

$ 800,000 $ 800,000 $ 800,000

229

Part XIV: Additional information

Name Date of Contract Notice Period Aggregate Current Salary

Non-Executive Directors Sir Malcolm Field ***************************************** Jorge Born Jr. ********************************************

16 October 2006

16 October 2006

Nigel Moore**********************************************

16 October 2006

Dionisio Romero ******************************************

16 October 2006

3 months notice to be given by Non-Executive Director 3 months notice to be given by Non-Executive Director 3 months notice to be given by Non-Executive Director 3 months notice to be given by Non-Executive Director

100,000

100,000

120,000

100,000

7.2 Service Agreement with Eduardo Hochschild On 16 October 2006 the Company entered into a service agreement with Eduardo Hochschild. The agreement provides for Mr. Hochschild to act as Executive Chairman at a salary of $160,000 (approximately 84,000) per annum. The agreement has no xed term but can be terminated by either party on 12 months notice in writing. The agreement also contains provisions for payment of salary alone in lieu of notice. There are no other benets payable under the agreement upon termination of employment. Mr. Hochschild has also entered into a service agreement with Compana Minera Ares on 16 October 2006. The agreement provides for Mr. Hochschild to act as Executive Chairman at a salary of $640,000 (approximately 335,000) per annum together with a payment of $160,000 (approximately 84,000) per annum in lieu of pension (Pension Supplement). The agreement has no xed term. The agreement can be terminated by Mr. Hochschild on 12 months notice in writing. The agreement contains provisions for payment of salary and Pension Supplement alone in lieu of notice. If the agreement is terminated by Compania Minera Ares without cause, Mr. Hochschild is entitled, under Peruvian law, to a payment equivalent to one and a half times Mr. Hochschilds monthly salary and Pension Supplement for each year of service (up to a maximum of 12 months worth of salary and Pension Supplement). 7.3 Service Agreement with Roberto Danino On 16 October 2006 the Company entered into a service agreement with Roberto Danino. The agreement provides for Mr. Danino to act as Deputy Chairman and Executive Director at a salary of $160,000 (approximately 84,000) per annum. The agreement has no xed term but can be terminated by either party on 12 months notice in writing. The agreement also contains provisions for payment of salary alone in lieu of notice. There are no other benets payable under the agreement upon termination of employment. Mr. Danino has also entered into a service agreement with Compana Minera Ares on 16 October 2006. The agreement provides for Mr. Danino to act as Deputy Chairman and Executive Director at a salary of $640,000 (approximately 335,000) per annum together with a payment of $160,000 (approximately 84,000) per annum in lieu of pension (Pension Supplement). The agreement has no xed term. The agreement can be terminated by Mr. Danino on 12 months notice in writing. The agreement contains provisions for payment of salary and Pension Supplement alone in lieu of notice. If the agreement is terminated by Compania Minera Ares without cause, Mr. Danino is entitled, under Peruvian law to a payment equivalent to one and a half times Mr. Daninos monthly salary and Pension Supplement for each year of service (up to a maximum of 12 months worth of salary and Pension Supplement). 230

PRA1 16.2

Part XIV: Additional information

7.4 Service Agreement with Alberto Beeck On 16 October 2006 the Company entered into a service agreement with Alberto Beeck. The agreement provides for Mr. Beeck to act as Executive Director of Strategy and Corporate Development at a salary of $160,000 (approximately 84,000) per annum. The agreement has no xed term but can be terminated by either party on 12 months notice in writing. The agreement also contains provisions for payment of salary alone in lieu of notice. There are no other benets payable under the service agreement upon termination of employment. Mr. Beeck has also entered into a service agreement with Compana Minera Ares on 16 October 2006. The agreement provides for Mr. Beeck to act as Executive Director of Strategy and Corporate Development at a salary of $640,000 (approximately 335,000) per annum together with a payment of $160,000 (approximately 84,000) per annum in lieu of pension (Pension Supplement). The agreement has no xed term. The agreement can be terminated by Mr. Beeck on 12 months notice in writing. The agreement contains provisions for payment of salary and Pension Supplement alone in lieu of notice. If the agreement is terminated by Compania Minera Ares without cause, Mr. Beeck is entitled, under Peruvian law, to a payment equivalent to one and a half times Mr. Beecks monthly salary and Pension Supplement for each year of service (up to a maximum of 12 months worth of salary and Pension Supplement). 7.5 Letter of appointment of Sir Malcolm Field Sir Malcolm Field is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 16 October 2006. The appointment is for a xed term of three years, subject to satisfactory performance and re-election when appropriate by the Company in general meeting, commencing on the date of appointment and ending on the third anniversary of the date of appointment but is terminable immediately if the Board serves a notice in writing signed by three-quarters of the Directors. Sir Malcolm may terminate upon giving three months notice. Sir Malcolm will receive an annual fee of 100,000 and is subject to condentiality undertakings. 7.6 Letter of appointment of Jorge Born Jr. Jorge Born Jr. is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 16 October 2006. The appointment is for a xed term of three years, subject to satisfactory performance and re-election when appropriate by the Company in general meeting, commencing on the date of appointment and ending on the third anniversary of the date of appointment but is terminable immediately if the Board serves a notice in writing signed by three-quarters of the Directors. Mr. Born may terminate upon giving three months notice. Mr. Born will receive an annual fee of 100,000 and is subject to condentiality undertakings. 7.7 Letter of appointment of Nigel Moore Nigel Moore is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 16 October 2006. The appointment is for a xed term of three years, subject to satisfactory performance and re-election when appropriate by the Company in general meeting, commencing on the date of appointment and ending on the third anniversary of the date of appointment but is terminable immediately if the Board serves a notice in writing signed by three-quarters of the Directors. Mr. Moore may terminate upon giving three months notice. Mr. Moore will receive an annual fee of 120,000 and is subject to condentiality undertakings. 7.8 Letter of appointment of Dionisio Romero Dionisio Romero is engaged by the Company as a Non-Executive Director on the terms of a letter of appointment dated 16 October 2006. The appointment is for a xed term of three years, subject to satisfactory performance and re-election when appropriate by the Company in general meeting, commencing on the date of appointment and ending on the third anniversary of the 231

Part XIV: Additional information

date of appointment but is terminable immediately if the Board serves a notice in writing signed by three-quarters of the Directors. Mr. Romero may terminate upon giving three months notice. Mr. Romero will receive an annual fee of 100,000 and is subject to condentiality undertakings. 7.9 The aggregate emoluments of the Directors and the Senior Management for the nancial year ended 31 December 2005 was approximately US$2.7 million. The gure includes salaries, bonuses and prot sharing. The aggregate emoluments were paid to the following Directors and Senior Management:
Name Director/Senior Management Emoluments(1)

PRA1 15.1

Eduardo Hochschild ***************** Roberto Danino ******************** Alberto Beeck ********************** Miguel Aramburu******************* Jorge Benavides ******************** Ignacio Rosado ********************* Eduardo Loret de Mola************** Ricardo Arrarte ********************* Gonzalo Freyre ********************* Note:

Executive Director Executive Director Executive Director General Manager, Mining Division General Manager, Exploration and Geology Division Chief Financial Ofcer Manager, International Operations Manager, Peruvian Operations Manager, Argentinian Operator,

US$341,414 N/A US$64,167 US$586,564 US$473,601 US$250,860 US$416,579 US$298,024 US$224,661

(1) The directors of Compana Minera Ares, which in 2005 included Miguel Aramburu, Ignacio Rosado, Eduardo Loret de Mola and Ricardo Arrarte, were allocated as part of their remuneration a directors fee calculated by reference to the prots of that company. Although these directors fees are included in the remuneration of the relevant senior managers listed above, the after-tax amounts were donated to persons connected to Compana Minera Ares or its afliates. This includes TECSUP, the non-prot, technical university founded by the Group in 1984 (see Part 1: Information on Hochschild Mining Other Programmes).

8 Executive Long Term Incentive Plan The Company has not yet adopted an executive long term incentive plan. It is intended, however, that the Company will, following Admission, seek advice on the form of long term incentive plan that is most suitable for the Company with a view to adopting a plan or plans, subject to shareholder approval (if required). 9 Pensions The Hochschild Mining Group does not currently operate any pension schemes for the employees of the Group for its employees and has no present intention of introducing such schemes. Details of the Groups statutory contributions to pension accounts for its employees in Peru, Mexico and Argentina are set out in Part VII: Operating and Financial Review. 10 Working Capital In the opinion of the Company, taking account of the net proceeds of the Global Offer, the working capital available to the Group is sufcient for the Groups present requirements, that is, for the next 12 months following the date of this document. 11 Underwriting Agreement On 3 November 2006, the Company and the Managers entered into the Underwriting Agreement pursuant to which the Managers (other than JPMSL) have agreed to procure subscribers for, or failing which the Underwriters will acquire themselves, at the Offer Price, the Ordinary Shares to be made available under the Global Offer. The Underwriting Agreement contains, amongst others, the following further provisions: 11.1 the Company has appointed JPMorgan Cazenove Limited and Goldman Sachs as Joint Sponsors in connection with the Admission of the Ordinary Shares to the Ofcial List. The Company has appointed JPMorgan Cazenove Limited and Goldman Sachs as Joint Global Co-ordinators in connection with the Global Offer and has appointed JPMorgan Cazenove Limited and Goldman Sachs as Joint Bookrunners to the Global Offer; 11.2 the Over-allotment Shareholders have granted to JPMorgan Cazenove Limited, as Stabilising Manager, the Over-allotment Option pursuant to which the Stabilising 232
PRA3 5.4.3, 5.4.4 PRA3 3.1

Part XIV: Additional information

Manager may require the Over-allotment Shareholders to procure the sale by Pelham Investment Corporation of Ordinary Shares (in an amount of up to approximately 15 per cent. of the total number of Ordinary Shares to be issued or sold in the Global Offer before any exercise of the Over-allotment Option) at the Offer Price to cover over-allotments, if any, made in connection with the Global Offer and to cover any short positions resulting from stabilisation transactions. The Over-allotment Option may be exercised from the date of the commencement of conditional trading for a period of 30 calendar days thereafter, provided that it may only be exercised to the extent that Ordinary Shares have been overallotted; 11.3 the obligations of the Managers (other than JPMSL) to procure subscribers for or, failing which, the Underwriters to subscribe the Offer Shares pursuant to the Underwriting Agreement, are subject to certain conditions including, amongst others, Admission occurring by not later than 8.00 a.m. on 8 November 2006 (GMT) or such later time and/or date as the Joint Sponsors (on behalf of the Managers) may agree with the Company. The Managers may terminate the Underwriting Agreement in certain circumstances prior to Admission, including the occurrence of certain material changes in the condition (nancial or otherwise) of the Hochschild Mining Group and certain changes in market and economic conditions (as more fully set out in the Underwriting Agreement); 11.4 the Company has agreed that the Managers may deduct from the proceeds of the Global Offer payable to the Company a commission of 3 per cent. of the amount equal to the product of the Offer Price and the aggregate number of Ordinary Shares to be sold pursuant to the Global Offer which the Managers (other than JPMSL) have agreed to procure acquirers for, or failing which the Underwriters to subscribe, pursuant to the terms of the Underwriting Agreement. In addition, the Over-allotment Shareholders have agreed that the Stabilising Manager may deduct (on behalf of the Managers) a commission of 3 per cent. of the amount equal to the Offer Price multiplied by the number of Over-allotment Shares (if any) sold pursuant to the Over-allotment Option. In addition, the Company may, at its absolute discretion, pay to the Managers an additional aggregate amount of 1 per cent. of the product of the Offer Price and the number of the Offer Shares as an incentive fee. In addition, the Over-allotment Shareholders may, in their absolute discretion, pay to the Managers an aggregate amount of 1 per cent. of the product of the Offer Price and the number of Over-allotment Shares as an incentive fee; 11.5 the Company has agreed to pay or cause to be paid (together with any related value added tax) certain costs, charges, fees and expenses of or in connection with, or incidental to, amongst other things, the Global Offer and/or Admission. The Company has agreed to pay or cause to be paid (together with any related value added tax) certain costs, charges, fees and expenses incurred by it in connection with, or incidental to, amongst other things the Global Offer, the Ordinary Shares to be sold pursuant to the Global Offer and the Over-allotment Option. In addition, the Company and the Over-allotment Shareholders have, in certain circumstances, agreed to pay and/or reimburse the stamp duty or stamp duty reserve tax arising out of or in connection with the arrangements that are the subject of the Underwriting Agreement and/or the Over-allotment Option; 11.6 the Company has undertaken, subject to certain exceptions, in the Underwriting Agreement, among other things, not to directly or indirectly, offer, issue, lend, sell or contract to sell, issue options in respect of, or otherwise dispose of, directly or indirectly, or announce an offering or issue of, any Ordinary Shares (or any interest therein or in respect thereof) or any other securities exchangeable for or convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing for a period of 12 months after Admission, without rst obtaining the consent of the Joint Global Coordinators; and 233

Part XIV: Additional information

11.7 the Company and the Directors and the Over-allotment Shareholders have given certain representations and warranties to the Managers and, in addition, the Company and the Over-allotment Shareholders have given certain indemnities to the Managers. The Companys liabilities are unlimited as to time and amount. 12 Material Contracts The following are the only contracts (not being contracts entered into in the ordinary course of business) which have been entered into by members of the Hochschild Mining Group within two years immediately preceding the date of this document or which are expected to be entered into prior to Admission and which are, or may be, material or which have been entered into at any time by members of the Hochschild Mining Group and which contain any provision under which any member of the Hochschild Mining Group has any obligation or entitlement which is, or may be, material to the Hochschild Mining Group as at the date of this document: 12.1 Underwriting Agreement Please refer to the description in paragraph 11 above. 12.2 Financing Documents 12.2.1 Secured Loan Agreement (a) Pursuant to a secured loan agreement dated 13 August 2004 (the Secured Loan Agreement) (as amended by the First Amendment Agreement dated 11 May 2006), the Hochschild Mining Group (through Compana Minera Ares) borrowed an aggregate principal amount of US$70 million (the Loan) from a syndicate of various nancial institutions (the Lenders). (b) The proceeds of the Loan were to be used for the following purposes: (i) US$31 million for the repayment of the existing secured loan of US$30,830,033 pursuant to an existing loan agreement dated 16 April 2003 between Compana Minera Ares and Banco de Credito del Peru; (ii) approximately US$10 million for capital expenditures; and (iii) initially approximately US$29,000,000 for general corporate purposes, such amount increasing by ten per cent. pursuant to a waiver letter dated 12 November 2004. (c) The interest payable on the unpaid principal amount of the Loan is a rate per annum equal to LIBOR + 3.7 per cent. The Loan was originally repayable in 10 quarterly instalments starting in May 2005. However, from the date of the First Amendment Agreement, being 11 May 2006, the balance of the Loan is to be repaid in ve equal quarterly instalments of US$8,960,682.76 each starting in August 2006. Any amount of the Loan repaid may not be reborrowed. (d) The Secured Loan Agreement contains certain mandatory prepayments including, inter alia, on each payment date on which principal is due, if the amount that results from (i) dividing the amount of mineral ore treated by Compana Minera Ares in processing plants (in metric tons) during the applicable interest period by the Reserves Available (as dened in the Secured Loan Agreement) as of the last day of such interest period, and (ii) multiplying the result by the balance of the Loan that is outstanding on the date of the First Amendment Agreement (11 May 2006), is greater than the principal instalment payable on such payment date (the Excess Production Amount), Compana Minera Ares must prepay the principal amount outstanding under the Loan by an amount equal to such Excess Production Amount. The Secured Loan Agreement also contains certain optional prepayments provided such prepayment is accompanied by the accrued interest and a prepayment fee as set out in the agreement. (e) Under the Secured Loan Agreement, Compana Minera Ares has provided each Lender with either a promissory note governed by New York law or a pagare governed by Peruvian law (as determined by each Lender). Each Note is valid and enforceable as to its principal amount to the extent of the aggregate amount then outstanding under the Loan in respect of which it was issued. Compana Minera Ares is also obliged to maintain hedge contracts at all times 234
PRA1 10.3 PRA1 22

Part XIV: Additional information

while any amount payable under the Loan is outstanding. The committed gold ounces under the hedge contracts must be maintained at 65 per cent. of its production from the Ares unit in each 12 month period following 19 August 2005 and the committed gold and silver ounces under the hedge contracts must not exceed 65 per cent. of Compana Minera Ares combined production from the Ares and Selene units during any one full year after 2004. (f) The Secured Loan Agreement includes covenants that require Compana Minera Ares to procure that certain nancial ratios or nancial tests are complied with, including that Compana Minera Ares (i) may only incur permitted direct short-term nancial indebtedness of less than US$7 million (in aggregate), which amount was subsequently increased to an amount up to US$15,000,000 pursuant to a waiver letter dated 30 June 2005, (ii) must not incur expenditures or commitments for expenditures for xed or other non-current assets exceeding US$5,000,000 and (iii) must maintain an interest coverage ratio of no less than 6.0, a debt service coverage ratio of no less than 1.20, a debt to EBITDA ratio of no greater than 1.20 and a current ratio of no less than 1.00. The capital expenditure amount was increased to US$8,500,000 per annum after the nancial year ending 31 December 2005 pursuant to a waiver letter dated 30 June 2006. A further waiver was obtained in respect of nancial year ending 31 December 2006. Compana Minera Ares is also required to comply with a number of reporting covenants, including furnishing consolidated nancial statements each year and furnishing ofcers certicates conrming that all representations and warranties made under the Secured Loan Agreement continue to be true and correct and that the consolidated nancial statements are accurate and complete and that no default has occurred. The Secured Loan Agreement also places certain restrictions on Compana Minera Ares ability, inter alia, to sell, lease or otherwise dispose of or part with control of any property, or to pay any dividend, distribution or payment on equity or any loan or advance. Compana Minera Ares has also given undertakings under the Secured Loan Agreement, inter alia, to pay and discharge all indebtedness as and when due, maintain insurance and all necessary licences, permits, rights, authorisations, consents and approvals, and that it has complied, and is in compliance, with all applicable environmental laws and environmental permits. (g) The Loan is secured by: (i) An accounts pledge dated 19 August 2004 between Compana Minera Ares and Banco as Administrative Agent, Collateral Agent and Cash Management de Credito del Peru Bank, under which Compana Minera Ares granted security to the Collateral Agent on behalf of the Lenders and the Hedge Counterparties, over the collection account held by Compana Minera Ares with Banco de Credito del Peru for the duration of the Secured a Minera Ares has no right of withdrawal with respect to the Loan Agreement. Compan collections account. Compana Minera Ares has created a rst priority security interest and a general rst lien in favour of the Collateral Agent over the collection account, including all rights of Compana Minera Ares to the indebtedness payment obligation and accounts receivable owed or to be owed by a buyer of export goods and any hedge contract and all accounts and general intangibles relating to the export of goods sold; A hedge collateral agreement dated 19 August 2004 between Compana Minera Ares, Standard Bank London Limited (the Hedge Collateral Agent) and N.M. Rothschild & Sons Limited (the Original Hedge Counterparty) under which Compana Minera Ares established a segregated cash account with the Hedge Collateral Agent under his sole and exclusive control for the benet of the Original Hedge Counterparties. The parties have agreed that such cash account will hold an initial amount of US$5,000,000 plus any proceeds of any collateral property. Any amount held in the hedge cash account will either be held in Permitted Investments (as dened in the agreement) or be left uninvested, in each case, according to the written instructions provided to the Hedge Collateral Agent by Compana Minera Ares. The agreement terminates upon notice 235

(ii)

Part XIV: Additional information

being given by the Hedge Agent (as dened in the Secured Loan Agreement) to the other parties that all secured obligations under the Secured Loan Agreement have been discharged in full; (iii) A mining mortgage dated 16 August 2004 between Banco de Credito del Peru (as Agent for the Lenders) and Compana Minera Ares over Compana Minera Ares mining concessions (as detailed in Annex 1), buildings, facilities and other xed assets as security for full payment of US$87,500,000.00 as capital, plus interest. The agreement terminates upon notice being given by the Agent to the other parties that all secured obligations under the Secured Loan Agreement have been discharged in full; A mining mortgage dated 16 August 2004 between Banco de Credito del Peru (as Agent for the Lenders) and Compana Minera Ares over Compana Minera Ares processing plant as security for full payment of $87,500,000 as capital, plus interest. The agreement terminates upon notice being given by the Agent to the other parties that all secured obligations under the Secured Loan Agreement have been discharged in full; A global and oating pledge agreement dated 16 August 2004 between Banco de Credito del Peru (as Agent for the Lenders) and Compana Minera Ares over all of the minerals during the extraction or production stages at Compana Minera Ares concessions described in the contract as security for full payment of US$87,500,000 as capital, plus interest. The agreement terminates upon notice being given by the Agent to the other parties that all secured obligations under the Secured Loan Agreement have been discharged in full; and A share pledge agreement dated 16 August 2004 between Banco de Credito del Peru (as Agent for the Lenders), Mauricio Hochschild & Cia Ltda S.A.C. and Ludlow Corporation over the shares in Compana Minera Ares as security for full payment of US$87,500,000 as capital, plus interest. The agreement terminates upon notice being given by the Agent to the other parties that all secured obligations under the Secured Loan Agreement have been discharged in full. This agreement was subsequently amended on 6 May 2005 and 30 July 2005 approving share capital increases and a share capital reduction of Compana Minera Ares which resulted in the shares in Compana Minera Ares being held by Ludlow Corporation, Ardsley Corporation, Garrison Corporation and Larchmont Corporation (all of which are Hochschild Mining Group companies). Under these documents, Ludlow Corporation, Ardsley Corporation, Garrison Corporation and Larchmont Corporation acknowledge the existence of the share pledge as security for the Secured Loan Agreement and agree that it will apply to their shares held in Compana Minera Ares. On 15 June 2006, Garrison Corporation sold its interest in Compana Minera Ares to Ludlow Corporation and Ludlow Corporation acknowledged the existence of the share pledge as security for the Secured Loan Agreement and the fact that it will apply to its shares held in Compana Minera Ares.

(iv)

(v)

(vi)

12.2.2 Promissory Note (a) On 4 October 2006, the Hochschild Mining Group (through Lorenzon Limited) entered into a promissory note (the Promissory Note) whereby the Hochschild Group has agreed to pay to Banco de Credito del Peru (the Bank) an amount of US$20 million in satisfaction of the loan of the same amount made by the Bank to the Group. (b) Interest on the amounts covered by the Promissory Note is 120 day LIBOR plus 2.5 per cent. If the Hochschild Mining Group fails to pay the principal amount and interest on the maturity date of the Promissory Note, the Group must pay a fee equal to two per cent. of the amount of any payment due and unpaid. 236

Part XIV: Additional information

(c) In the event of prepayment under the Promissory Note, the Group must pay a prepayment fee equivalent to 0.5 per cent, of the amount to be pre-paid. The prepayment fee is not payable if the Promissory Note is prepaid out of the proceeds of a share issue or syndicated loan. (d) The Promissory Note is secured by an accounts pledge over the account held by Lorenzon Limited with the Bank. The Promissory Note is also guaranteed jointly and severally by Ludlow Corporation and Ardsley Corporation. (e) On 4 October 2006, Lorenzon Limited also entered into a negative pledge agreement whereby the Group has agreed that, for so long as any amount is outstanding under the Promissory Note, Lorenzon will not create a lien over any of its shares except for liens arising from any tax assessment or other governmental charge, or other liens arising by operation of law. 12.2.3 Credit Facility with Banco Interamericano de Finanzas (a) On 26 September 2005, the Hochschild Mining Group (through Compana Minera Arcata S.A.) entered into a foreign currency credit facility (the Credit Facility) with Banco Interamericano de Finanzas (the Bank) in an amount of US$2.4 million. The credit facility is repayable in nine quarterly instalments at an interest rate of 8.75 per cent. The Group may make early repayments under the Credit Facility although this attracts a penalty of 2 percent of the amount repaid early. (b) Under the terms of the Credit Facility, the Hochschild Mining Group has granted the Bank a pledge over the assets of Compana Minera Arcata S.A. to the value of US$3,388,585.11. (c) Compana Minera Arcata S.A. must obtain the Banks prior written consent if it wishes to dispose of any of its assets, including on a reorganisation or merger, unless such disposal is to Compana Minera Ares. If the Group breaches its obligations under the Credit Facility, all outstanding sums owed under the Credit Facility become immediately repayable. 12.3 Joint Venture and other agreements 12.3.1 Pallancata (a) On 30 June 2006, Compana Minera Ares (a Hochschild Mining Group company), International Minerals Corporation (International Minerals), Ludlow Corporation (Ludlow) (a Hochschild Mining Group company) and Minera Oro Vega S.A.C. (Minorva) entered into a joint venture agreement whereby the parties agreed to jointly engage in the construction of a mine on the Pallancata property capable of operating at a capacity of not less than 500 tons of ore per day. On 10 July 2006, the parties to the joint venture agreement entered into an amendment and accession agreement with Compana Minera Coriorco S.A.C. (Coriorco) (a Hochschild Mining Group company, recently renamed Pallancata Holding S.A.C.), pursuant to which it was agreed that Coriorco would accede to the joint venture agreement and assume all of Ludlows obligations under the joint venture agreement. Ludlow has agreed to guarantee the performance by Coriorco of all of its obligations under the joint venture agreement (including, without limitation, all of its funding obligations). (b) Under the terms of the Pallancata joint venture agreement, title to the Pallancata mining concessions are held by the Hochschild Mining Group (through Minera Suyamarca S.A.C. (Minera Suyamarca)), a company newly incorporated in Peru, in which Coriorco holds 60 per cent. of the shares, with the remaining 40 per cent. held by Minorva. (c) Under the terms of the joint venture agreement, Coriorco has agreed to pay an initial capital contribution of S/.9,675,000 and Minorva has agreed to pay an initial capital contribution of S/.3,225,000. Each shareholder also agrees to contribute further capital of S/.9,675,000. Prior to the formation of Minera Suyamarca, Minorva owned the rights to explore and develop the 237

Part XIV: Additional information

15 concessions comprising the Pallancata project, as well as certain related rights under option, option-to-purchase and other agreements with third parties, easements, rights-ofway, water and surface rights, permits and lings (Rights). Upon incorporation of Minera Suyamarca, in accordance with the terms of the joint venture agreement and payment of the initial capital contributions by Minorva and Coriorco, Minorva sold and transferred full ownership of all of the Rights to Minera Suyamarca for a purchase price of S/.12,900,000, satised by Minera Suyamarca transferring S/.3,225,000 to Minorva and crediting and retaining S/.9,675,000 as full subscription and payment of Minorvas further capital contribution. (d) Following incorporation of Minera Suyamarca and the transfer of the Rights from Minorva, Minera Suyamarca exercised the option with respect to the Rights pertaining to the concessions at the Pallancata property. Under the terms of the joint venture agreement, Coriorco and Minorva have agreed to fund the option price pro rata to their respective shareholdings and Coriorco has agreed to reimburse Minorva for its portion of the option price. (e) Under the terms of the joint venture agreement, Minera Suyamarca is to construct the mine on the Pallancata property and Coriorco is responsible for 100 per cent. of the funding necessary to plan, equip and construct the mine on the Pallancata property. Compana Minera Ares has been designated as the operator and is responsible for, inter alia, performing or procuring the performance of the construction of the mine on the Pallancata Property, any expansion of the mines operating capacity, all other mining work and processing necessary for the continued commercial operation of the mine and any further exploration or development as determined by the Minera Suyamarca board, as well as all necessary supervisory management and administrative services. (f) Except for the capital contribution provided by each shareholder to Minera Suyamarca or the funds provided by Coriorco for the construction of the mine, Minera Suyamarca will be required to nance its operations and activities from its revenues, or from further equity investments by the shareholders or such other sources as the Minera Suyamarca board may determine. If the board of Minera Suyamarca resolves to raise funds by issuing additional shares, each shareholder shall have the pre-emptive right to subscribe and pay for its pro rata share of such additional shares on the same terms and conditions as the other shareholder. If the board of Minera Suyamarca proposes to borrow funds from a shareholder or afliate of a shareholder, Minera Suyamarca must, before accepting the loan, offer each other shareholder the right to make a portion of such loan, pro rata its existing shareholding in Minera Suyamarca. (g) Each shareholder of Minera Suyamarca may transfer its shares in Minera Suyamarca to: (i) an afliate, that is an entity controlled, controlling or under common control with one of the parties, but at all times controlled directly or indirectly by Coriorco or International Minerals (as the case may be); which afliate must agree to be bound by the terms and conditions of the joint venture agreement and must have its obligations guaranteed by the transferor in a form acceptable to the other parties; or the other shareholders, provided the party transferring elects to transfer all of its shares (or, with the consent of the other shareholders, some of its shares) and the transfer is acceptable to the other shareholders.

(ii)

(h) The joint venture agreement may be terminated by International Minerals and Minorva if the mine completion is delayed for more than eighteen months after the target mine completion date (which is 12 months from the date upon which all construction, environmental, operating and other licences and permits for the construction of the mine have been obtained). Upon written notice of termination by either International Minerals or Minorva, 238

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Minorvas ownership interest in Minera Suyamarca will automatically be increased to one hundred per cent. and the management services agreement between Minera Suyamarca and Compana Minera Ares will terminate. The joint venture agreement may be terminated by Coriorco at any time prior to mine completion provided that it has satised all of its funding obligations. Upon written notice of termination by Coriorco, Minorvas ownership interest in Minera Suyamarca shall be automatically increased to one hundred per cent. In the event of termination of the agreement by Coriorco or Minorva, Compana Minera Ares agrees to make the ore processing facility owned by Compana Minera Ares and located at the Selene Mine available for a period of two years from termination on commercially reasonable terms to be agreed between Compana Minera Ares and Minorva, acting in good faith. 12.3.2 Sierra de las Minas (a) On 22 March 2006, Golden Peaks Resources Ltd, Golden Peaks Argentina S.A. and Golden Peaks Minera S.A. (collectively Golden Peaks) and the Hochschild Mining Group (through MH Argentina S.A. (MHA)) entered into a joint venture agreement whereby Golden Peaks agreed to grant MHA an option to acquire an interest in the rights to explore and operate the properties located in La Rioja Province of Argentina (the Properties) which Golden Peaks owns or holds the right to explore and operate (Rights). Under the terms of the Sierra de las Minas joint venture agreement, a newco (Sierra JV Company) is to be incorporated in Argentina once MHA has incurred at least US$1,000,000 expenditure in mine development costs. The shares in Sierra JV Company are to be held by Golden Peaks, except for a nominal number of shares which must be held by MHA or an afliate of MHA in accordance with Argentinian law. (b) Under the terms of the joint venture agreement, Golden Peaks has granted to MHA the sole and exclusive right to explore and perform mining work on or in respect of the Property for a period of four years commencing on the date of the joint venture agreement (the Option Period). Golden Peaks has also granted MHA an exclusive and irrevocable option (the Option) to acquire 51 per cent. of the issued share capital of Sierra JV Company. MHA may exercise the Option after MHA has completed expenditure in mine development costs of US$2,500,000. From the date that MHA provides written notice of exercise of the Option (Notice of Exercise), MHA has 90 days to elect to do one of the following: (i) fund its 51 per cent. share; (ii) acquire 75 per cent. of the issued shares of Sierra JV Company by agreeing to complete a feasibility study in respect of the mining operations on the property which must be completed within ve years of the Notice of Exercise; or (iii) acquire 80 per cent. of the issued share capital of Sierra JV Company by agreeing to place the Property into commercial production within six years of the Notice of Exercise without completing a feasibility study. If MHA fails to elect any of the above alternatives, it will be deemed to have elected to fund its 51 per cent. share. (c) The board of directors of Sierra JV Company will consist of two directors, one nominated by MHA and the other nominated by Golden Peaks. All decisions made by the board of directors during the Option Period must be unanimous. Following the exercise of the Option by MHA the board will vote to change the number of directors from two to three, with the majority shareholder in Sierra JV Company having two directors. The following items require unanimous approval by the board of directors (i) the sale of all or substantially all of the Rights and assets of Sierra JV Company, (ii) any amendment to the articles of incorporation of Sierra JV Company that would have an adverse effect on the rights of any particular shareholder, and (iii) entering into any new line of business not relating to the exploration, development or mining of the Properties or the sale of minerals products from the Properties and any merger or other corporate combination involving Sierra JV Company. In the event of a disagreement, the majority shareholder shall have the right to buy out the minority 239

Part XIV: Additional information

shareholder, such payment to be made in cash and to be made within 60 days of the board meeting at which the disagreement occurred. (d) During the Option Period, Sierra JV Company will appoint MHA as the manager and operator of the company with responsibility to conduct all exploration operations in accordance with sound mining practice, industry standards and applicable laws. MHA will remain as the operator of the Sierra JV Company for so long as MHA or any of its afliates own, in aggregate, a majority of the shares in Sierra JV Company. (e) Under the terms of the joint venture agreement, the parties agree to pro rate their participation in the capital stock of Sierra JV Company, sharing all costs and expenses and revenues relating to the Property. The nancing of Sierra JV Company may be in the form of a loan from a shareholder or capital advance according to the nancial policy that the board of directors of Sierra JV Company may determine. (f) The Option and the joint venture agreement may be terminated by MHA by giving 30 days written notice or by failing to give Notice of Exercise within sixty days following the fourth anniversary of the joint venture agreement. Golden Peaks may terminate the joint venture agreement if a receiver, liquidator or other insolvency ofcial is appointed, a change of control of MHA occurs, MHA fails to pay bills in respect of the joint venture when due, MHA commences a voluntary winding up or entry is made against MHA of a judgment, decree or order for relief affecting a substantial part of its assets by a competent court. 12.3.3 Mina Moris concessions (a) On 17 June 2006, Exmin S.A. de C.V. (Exmin) and the Hochschild Mining Group (through Minera Hochschild Mexico S.A. de C.V. (MHM)) entered into a contract under which: (i) Exmin granted MHM the exclusive right to assess and explore Exmins mining concessions in the Moris district; (ii) the parties agreed, subject to a number of conditions, to set up a newly incorporated Mexican company to be held 30 per cent. by Exmin and 70 per cent. by MHM (the Newco) and enter into a shareholders agreement; and (iii) Exmin undertook to assign all its Moris district concessionary rights in favour of Newco. (b) Under the contract for exploration, Exmin granted MHM an exclusive right to evaluate and explore the area covered by the concessions and undertake all works necessary for the identication and quantication of minerals in the mines in the municipality of Moris in Chihuahua, Mexico. As consideration, MHM is obliged to pay all costs and invest in the exploration over the course of a ve year period as follows: (a) US$400,000 in the rst year, (b) US$600,000 in the second year, (c) US$800,000 in the third year, (d) US$1,000,000 in the fourth year and (e) US$2,000,000 in the fth year. If MHM extracts minerals in quantities that indicate the project is commercially viable, MHM will be permitted to use such materials as are required for its tests and experiments (including tests for a pilot mine). However, the remainder of any materials extracted will remain the property of Exmin until Exmins concession rights are assigned to Newco. (c) Under the contract for the assignment of rights, Exmin granted MHM an option to require Exmin to assign (or procure the assignment of) all of its rights under the mining concessions to a new Mexican mining company to be incorporated jointly by the parties, in which Exmin will participate 30 per cent. and MHM 70 per cent. The option may be exercised by MHM at any time during the term of the agreement by providing notice to Exmin that MHM has made investments during the course of its exploration works amounting to US$4,800,000 and MHM has, through Port Chester, subscribed for shares in Exmin Resources Inc. in an amount of US$0.85 million pursuant to a subscription agreement entered into between Exmin Resources Inc., Port Chester Limited and MHM on 10 July 2006. Upon receipt of notice by MHM, Exmin 240

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will transfer title to the rights under the mining concessions and all other related rights to the new company. (d) Under the contract for the incorporation of a new company and the entering into of a shareholders agreement, the parties agree, if MHM exercises its option (as outlined in (c) above), to incorporate a new company, transfer their rights and benets to the new company and enter into a shareholders agreement governing their relationship in relation to the new company. 12.3.4 Contract for the Sale of Mina Moris Mine (a) On 30 June 2006, Minera Moris, S.A. de C.V. (Minera Moris), the Hochschild Mining Group (through Minera Hochschild Mexico, S.A. de C.V. (MHM)) and Exmin, S.A. de C.V. (Exmin) entered into a contract for the sale and purchase of the Santa Mara de Moris metallurgical mine (Mina Moris) in Moris, Chihuahua, Mexico. (b) Minera Moris, a company incorporated in Mexico, is currently the sole legal owner of Mina Moris with all attaching rights and benets which are to be sold to MHM and Exmin (the Purchasers). The property comprises all concessions, machinery, installations, authorisations and documentation necessary for the operation of the mine. (c) In consideration, the Purchasers will pay a total purchase price of US$6,000,000. The rst instalment (US$1,500,000 plus VAT) was paid on 16 July 2006 and is non-refundable in the event of non-performance of the contract for either of the following reasons: (i) (ii) the average mineral extraction level gauged during the tests conducted by the Purchasers as part of their due diligence does not reach 65 per cent.; or if the cause of non-performance is attributable to the Purchasers.

(d) The second and nal instalment (US$4,500,000 plus VAT) is payable on the rst of the following events: (i) the date on which the six month contractual term expires (i.e. 31 December 2006); or (ii) 15 days from the date on which MHM concludes to its full satisfaction the studies and tests which form part of its due diligence process. (e) Both instalments are to be paid in the following proportions: MHM will pay 70 per cent. of the price and Exmin will pay 30 per cent. The rst instalment is to be paid by means of bank transfers. The second instalment is to be paid in cash or equivalent monetary instrument by MHM and in cash, monetary instrument equivalent or shares in Exmin Resources Inc. by Exmin. Should either Purchaser not pay its share of the consideration within three days of the due date, the other has the right to purchase all of the mine and corresponding rights. (f) Once Minera Moris receives written notice (Purchase Notice) from the Purchasers that the conditions precedent have all been met, it will transfer the assets to the Purchasers or to the company designated by the Purchasers for such purpose (in which MHM and Exmin will participate 70/30, respectively, or such other proportions as may be agreed between them). Such transfer must be made within 15 days of the date on which the Purchase Notice is received. The joint obligation to full these terms of the contract will subsist even in the event that only one Purchaser presents the Purchase Notice and the other presents a written communication of its wish not to participate in the acquisition. However, should the conditions precedent not be fullled within the required time, the Purchasers will be under no obligation to acquire the assets. The conditions precedent include the following: (i) that Minera Moris has complied with the obligations and schedule set out in clause 4 of the contract under which Minera Moris is to apply most of the rst instalment (amounting to US$1,500,000 plus VAT) that it receives from the Purchasers against its debts; 241

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(ii) that Minera Moris, within 60 days of the notication of this contract, undertakes all necessary actions to eliminate all charges and encumbrances over the assets being transferred; and that Minera Moris permits the employees and representatives of the Purchasers to access the assets to be transferred and all related information and documentation in order to carry out due diligence to establish whether the average mineralisation of the material extracted by the Purchasers is 65 per cent. or more.

(iii)

If any of the above conditions are not met, the Purchasers will be under no obligation to acquire the assets. (g) The contract was signed and notarised on 30 June 2006 and the contract will remain valid for six months from this date unless the parties agree in writing to extend this deadline. 12.3.5 San Jose (a) On 15 March 2001, Mauricio Hochschild & Cia Ltda. (MHC), Minera Andes Inc. (MAI) and Minera Andes S.A. (MASA) entered into a joint venture agreement whereby MAI, through its wholly owned subsidiary MASA, agreed to transfer rights to explore, applications for exploitation concessions, any resulting exploitation concessions, together with any relating easements, rights of way, permits and lings, in relation to certain areas of interest (the Rights) located in the Deseado Massif of the Province of Santa Cruz, Argentina (the Property) held by MASA to a newly incorporated Argentinian company, Minera Santa Cruz S.A. (Newco) in exchange for US$1 million. Lorenzon Limited (Lorenzon) (a Hochschild Mining Group company) was joined as a party to the joint venture agreement and was designated as the recipient of MHCs entitlement to shares in the Newco pursuant to the Third Amendment (as dened below). (b) Under the joint venture agreement, MHC was granted exclusive rights to explore and perform mining exploration, development and mining in the Property for a period of three years from the date of the agreement (the Option Period) together with an irrevocable right to acquire 51 per cent. of the issued and outstanding share capital of Newco (the Option). The Option was exercised by MHC on 6 May 2003 (the Vesting Date). (c) MAI had an option within the 120 day period after the Vesting Date to elect to reduce its ownership of the Newco from 49 per cent. to 35 per cent. and a further option to reduce its ownership down to 15 per cent. This further option was removed pursuant to the Third Amendment to the joint venture agreement (see (g) below). (d) MAI has the right to receive from MHC US$200,000 on signing the joint venture agreement and the same sum every six months thereafter, under the terms of the Third Amendment, until the Newco has received a positive feasibility study concluding that a mine is technically feasible and economically warranted and a decision has been made by the board of the Newco to construct a mine on the Property. As of 23 September 2005, MHC had made seven payments of US$200,000, totalling US$1,400,000, to MAI. The payment to MAI by MHC on 23 September 2005 was the last payment made as the board of directors of Newco decided at a meeting on 27 December 2005 to proceed with the construction of the mine. (e) The board of Newco is composed of three directors. MHC is entitled to appoint two directors to the board of Newco whilst MAI may appoint one director. In the event of a disagreement over a course of action requiring the unanimous consent of the board, MHC has the right to buy out the minority shareholders stake. (f) Shares in Newco may be transferred by either shareholder to any of their afliates provided that such afliate provides a written undertaking to be bound by the terms of the joint venture agreement. Either shareholder may also transfer all (or, with the prior consent of the 242

Part XIV: Additional information

other shareholder, part) of its shares in Newco to any other party provided the shares are rst offered to the other shareholder. (g) The joint venture agreement was amended on 14 May 2002 (the First Amendment) to amend the areas of interest to which the Rights applied (the Areas of Interest). Pursuant to the First Amendment, MHC also agreed to take responsibility for maintaining the Rights. On 27 August 2002 the Parties agreed a second amendment to the JV Agreement (the Second Amendment) pursuant to which the parties agreed that they were able to operate outside the Areas of Interest as they wished without disclosing to or obtaining the consent of the other party. Pursuant to the Second Amendment, MHC also agreed not to acquire land within the original joint venture area for a period of three years from the date of the First Amendment, which renegotiated the areas covered by the joint venture agreement. On 10 September 2004, a third amendment was made to the joint venture agreement (the Third Amendment), whereby Lorenzon was deemed to be a party to the joint venture agreement and was designated as the recipient of MHCs entitlement to shares in the Newco. The Parties and Lorenzon also agreed to amend the joint venture agreement in order to forego the construction of a pilot plant, to remove MAIs right to reduce its ownership of the Newco to 15 per cent., and to amend the basis on which MHCs biannual payments to MAI would terminate to the circumstances set out in (d) above. 12.3.6 San Luis del Cordero (a) On 12 May 2006, the Hochschild Mining Group (through Minera Hochschild Mexico S.A. de C.V. (MHM)) entered into an agreement with Exploraciones del Altiplano S.A. de C.V. (Exploraciones) whereby, Exploraciones granted MHM the right to explore and assess the mine sites at San Luis del Cordero for a period of four years. (b) Under the agreement, MHM is permitted to undertake all works necessary to evaluate the viability of establishing a new mining unit on the mine site, provided all such works are permitted under local mining law. In the event that MHM extracts minerals in quantities that are commercially viable, it will be permitted to take such amounts as required to carry out its metallurgical tests. However, the remainder belongs to Exploraciones who may sell or use it as it chooses. (c) In order to maintain the enforceability of the contract, MHM is obliged to pay costs and to make periodic investments over the course of the four years as follows: (i) year one, US$350,000; (ii) year two, US$500,000; (iii) year three, US$850,000 and (iv) year four, US$1,000,000. However, MHM may terminate the contract an any time without completing these investments. (d) The agreement also gives MHM the right to call for the assignment of Exploraciones rights under its mining concessions to itself (or any other company MHM may elect). In consideration for such assignment, MHM agrees to pay the amount of US$500,000 in a series of instalments staggered over a period of 48 months, as follows: (i) US$25,000 on the date of the agreement, (ii) US$25,000, six months after the agreement date (iii) US$50,000, 12 months after the agreement date, (iv) US$100,000, 24 months after the agreement date, (v) US$100,000 36 months after the agreement date, and (vi) US$200,000 48 months after the agreement date. Should MHM elect to terminate the contract, it will not be obliged to make any further payments under this schedule from the date on which it gives notice to terminate. Should MHM exercise its right of assignment, it must also pay a 3 per cent. royalty on net smelter returns (which is net revenue including all rebates and subsidies paid for the smelting service or renery after deducting all costs and expenses paid or incurred in relation to the products). 243

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Under the terms of the agreement, if MHM makes the nal payment of US$200,000 at 48 months after the date of the agreement, MHM will be deemed to have exercised the right to acquire title and all rights over the mines and MHM will not be obliged to make the investments mentioned above. Together, this payment of US$200,000 plus the 3 per cent. royalty mentioned above constitutes the full consideration for the complete assignment of rights over the mines in favour of MHM. If MHM elects to exercise the right to acquire the units before the end of the 48 months, MHM must pay the outstanding amount of the total sum of US$500,000 on the date of the assignment. 12.3.7 San Felipe (a) On 13 May 2006, the Hochschild Mining Group (through Minera Hochschild Mexico S.A. de C.V. (MHM)) entered into a contract for mining exploration, an undertaking to assign rights and incorporate a new company and an undertaking to enter into a shareholders agreement with Grupo Serrana S.A. de C.V. (Serrana). Pursuant to the contract for exploration, Serrana granted MHM the exclusive right to evaluate and explore the mines located in San Felipe de Jesus, (233 hectares), El Gachi (100 hectares) and Moctezuma, (214 hectares) all in Sonora Mexico for a period of three years from the date of the signing and ratication of the agreement before a notary. Under the agreement, MHM is granted access rights and the right to undertake all works necessary for the identication, quantication and localisation of minerals in the mines in order to evaluate the viability of a project to establish a new mining unit. (b) Under the terms of the contract for mining exploration, MHM is obliged to pay all costs and make investments in the exploration over a three year period. During the rst year, MHM has the sole discretion to determine the amount it invests. In subsequent years, MHM must make such investments which, when added to the amount invested in year one, will total US$6,666,666 by the end of the three year contractual term. In the event that MHM extracts minerals in quantities that are commercially viable, it will be permitted to use such minerals for its tests and experiments. However, the remainder remains the property of Serrana (or the respective concession holders). (c) Pursuant to the contract of undertaking for the assignment of rights, Serrana granted MHM an option to require Serrana to assign all of its rights under the mining concessions relating to the mines to a new Mexican mining company in which Serrana will participate 30 per cent. and MHM 70 per cent. The option may be exercised by MHM at any time during the term of the agreement by providing notice to Serrana that MHM considers the mining project viable. Serrana agrees that it will transfer title to the mining concessions within 30 days upon receipt of a notice from MHM that it considers the mining project viable. If, by the date on which the new company is incorporated, MHM has not contributed US$33,333,333 in investments and costs in the project, MHM must grant a pledge over its shares in the new company in favour of Serrana as a guarantee that, during the next stages of the project, MHM will invest this amount. If MHM does not make such investment within ve years of the date on which these contracts are ratied before the notary, it must pay Serrana the difference between (i) 30% of the amount it has invested in the project, and (ii) US$10,000,000, on payment of which, MHM will automatically be released from the pledge over its shares. Furthermore, once MHM has fullled its obligation to invest US$33,333,333, it undertakes to obtain nancing of up to US$30,000,000 to cover the costs of the new company in installing a plant with a daily capacity of 2,000 tonnes. (d) The contract for the incorporation of a new company sets out certain rules in relation to management, constitution, corporate structure and operation of the new company which are 244

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to act as a Shareholders Agreement for the new company. Among these rules are included the following: (i) Participation The new company will have an initial share capital of 50,000 Mexican Pesos divided into 500 ordinary shares for which Serrana will subscribe 150 shares (30 per cent.) and MHM 350 shares (70 per cent.). Each party will have right of rst refusal should the other party choose to sell its shares or receive an offer from a third party. Within 15 days after the incorporation of the new company, a capital increase will take place through the following contributions in kind (which will be assessed at their market value): (A) Serrana will contribute its San Felipe mining concessions; and (B) MHM will contribute the permanent constructions, buildings and mining works that it has carried out at the property. The parties have agreed that their percentage shareholdings in the new company will not be deemed to have been varied as a result of these contributions in kind. (ii) Administration The new company will have a board composed of ve members. Provided Serrana maintains a15 per cent. holding, it will be entitled to nominate two board members and MHM will be entitled to nominate three members, including the chairman. Should either party reduce its participation to below 15 per cent., this party will not be entitled to nominate board members and the other party will have the right to nominate the entire board. (iii) Operation As majority shareholders, MHM will have the right to nominate the site manager and be responsible for the conduct of operations in the mining units, which will include preparing programmes and budgets. (e) MHM has a right to terminate the agreements at any time upon written notice to Serrana and if MHM elects to terminate the contract within the second or third years, it will not be obliged to pay more than the US$200,000 it paid on signing of the agreement plus a penalty equal to the difference between 30 per cent. of the total investment paid out by MHM and US$200,000. 12.4 Stability agreements 12.4.1 Ares (a) On 4 October 1995, the Hochschild Mining Group (through Compana Minera Ares) applied to enter into a contract with the Peruvian State which would guarantee it certain benets (principally tax benets) for its investment in mining (a Contract of Guarantees for the Promotion of Investment in Mining or Contract) for which purpose it presented an investment programme estimating an investment of US$13,590,000. The purpose of the investment plan was the development and exploitation of the Compana Minera Ares mine located at the Ares unit, including the construction of a processing plant with a production capacity of 500TM per day of silver and gold. On 29 December 1995, the investment programme was approved. On 25 February 1997, the investment programme was modied so that the investment was increased to US$24,760,000 and on 28 December 1999, the investment was increased to US$33,274,075. (b) On 23 April 1996, the Peruvian State and Compana Minera Ares entered into a Contract of Guarantees and Measures for Promoting Investment in Mining. Pursuant to the Contract, and provided Compana Minera Ares complied with its investment programme, Compana Minera 245

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Ares was granted tax stability for a period of ten years which included free marketing, export, and internal sales of products and the enjoyment of tax stabilisation, for example, on corporation tax, tax deductions, municipal tax and customs duties. The contract may be terminated for breach of the terms of the Contract, non-fullment of the execution of the investment programme (other than by force majeure) or breach of the tax regime guaranteed under the contract. (c) On 28 October 1999, the Resolucion Directoral 189-99-EM/DGM was granted which acknowledged that Compana Minera Ares had completed the execution of its investment programme and the State of Peru has approved the investment of US$33,274,075. As a consequence the stability agreement with Compana Minera Ares commenced on 1 January 1999. 12.4.2 Selene (a) On 5 May 2004, the Hochschild Mining Group (through Compana Minera Ares) applied to the Peruvian State to enter into a Contract of Guarantees for the Promotion of Investment in Mining for which purpose it presented an investment programme estimating an investment of US$9,454,813. The purpose of the investment plan was the exploration, development and preparation of the Selene mine in order to expand the capacity of the plant from 700TM per day to 1,000 TM per day of gold and silver. On 7 December 2004, the investment programme was approved. (b) On 29 March 2006, the Peruvian State and Compana Minera Ares entered into a Contract of Guarantees and Measures for Promoting Investment (the Contract). Pursuant to the Contract and provided Compana Minera Ares complied with its investment programme, Compana Minera Ares was granted tax stability for a period of ten years which included free marketing, export, and internal sales of products and the enjoyment of tax stabilisation, for example, on corporation tax, tax deductions, municipal tax and customs duties. The Contract may be terminated for breach of the terms of the Contract, non-fullment of the execution of the investment programme (other than by force majeure) or breach of the tax regime guaranteed under the Contract. 12.4.3 Arcata On 22 March 2006, the Hochschild Mining Group (through Compana Minera Ares) applied to enter into a Contract of Guarantees for the Promotion of Investment in Mining (the Contract) with the Peruvian State which would guarantee it certain benets (principally tax benets) for its investment in mining in relation to the Arcata unit. The Ministry of Mines requested further documents from Compana Minera Ares prior to entry into the Contract. On 16 June 2006 and 21 July 2006, Compana Minera Ares wrote to the Ministry of Mines stating that it had complied with all of its obligations and requesting that it be permitted to enter into the Contract. On 1 September 2006, the Ministry of Mines approved Arcatas investment programme, paving the way for the Contract to be entered into. 12.5 Other material contracts 12.5.1 Relationship agreement The Relationship Agreement was entered into between the Company, the Major Shareholder, Eduardo Hochschild and Alberto Beeck on 20 October 2006, taking effect on (and conditional upon) Admission. The terms of the Relationship Agreement are summarised in Part III: Management, Corporate Governance and the Major Shareholder. 246
PRA1 22

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12.5.2 Caylloma stock purchase agreement (a) Pursuant to a stock purchase agreement dated 15 March 2005 (the Stock Purchase Agreement) (as amended on 7 April 2005 and amended and restated on 6 June 2005), the Hochschild Mining Group (through Compana Minera Arcata S.A. and Compana Minera Ares (the Sellers)) sold the assets comprising the Caylloma mine to Fortuna Ventures Inc. (now Fortuna Silver Mines Inc.) (the Purchaser). (b) Under the Stock Purchase Agreement, the assets comprising the Caylloma mine were transferred to Minera Bateas S.A.C (Minera Bateas), a Peruvian company formed for the purpose of the transaction. The Purchaser subsequently acquired from the Sellers all of the issued and outstanding shares of Mineras Bateas. Liability for any environmental claims relating to the Caylloma mine, together with the Sellers obligations under the lease and option agreement relating to the leased mineral concessions forming part of the Caylloma mine, were transferred as part of the sale. (c) Under the terms of the Stock Purchase Agreement, consideration for the sale is payable as follows: US$100,000 upon execution of the Stock Purchase Agreement; US$2.95 million within six months of the closing date and a further US$4.5 million within one year of the closing date. (d) The Purchaser and the Sellers have indemnied each other for any loss arising out of a breach of their respective representations and warranties in the Stock Purchase Agreement and for any failure on their part to perform their respective undertakings under the Stock Purchase Agreement. 12.5.3 Inversiones Pacasmayo stock purchase agreement On 15 June 2006, the Hochschild Mining Group (through Compana Minera Ares) disposed of its 8.8 per cent. shareholding in Inversiones Pacasmayo S.A., a Peruvian listed company for 20,656,497.51 Nuevos Soles. Compana Minera Ares shareholding comprised 6,379 A shares (the A Shares) and 16,578,668 B shares (the B Shares). The B Shares are publicly traded and were sold by Compana Minera Ares on the Lima Stock Exchange. The A Shares were sold on 15 June 2006 pursuant to a private stock purchase agreement. 12.5.4 Transitional services agreement On 20 October 2006, Compana Minera Ares entered into a transitional services agreement with Cementos Pacasmayo (the Transitional Services Agreement) under which each party agreed to provide certain transitional services to the other party for specied charges and for a certain period of time following Admission. Under the Transitional Services Agreement, Compana Minera Ares has agreed to provide Cementos Pacasmayo with services including: shared access to a wide area network for voice and data communications and shared access to the Internet. Cementos Pacasmayo has agreed to provide Compana Minera Ares with services including shared access to the local area network and certain xed telephony services both in the head ofce in Lima. The parties have also agreed to share the use of certain information technology services outsourced from third parties. Furthermore, the parties have agreed to license to one another certain software applications developed by them and to continue joint ownership of certain software applications that were developed for both of them. Under the terms of the Transitional Services Agreement, the recipient of the service may terminate any (or all) of the services at any time upon giving 30 days written notice to the supplier. Either party may terminate the agreement by written notice in the event of the other partys insolvency or the other partys material breach of its obligations under the agreement. 247

Part XIV: Additional information

Under a side letter, Mauricio Hochschild & Ca S.A.C. (MHC) has agreed to continue to provide to Compana Minera Ares for a transitional period certain services in relation to IT and mobile telephony services. 12.5.5 IP Assignment and Cross Licence Agreement In relation to SAP, Compana Minera Ares and Cementos Pacasmayo have jointly developed certain modules and enhancements (271 in number) to the generic SAP software (the Joint SAP Developments) which were jointly owned by each party. On 20 October 2006, Compana Minera Ares and Cementos Pacasmayo entered into an assignment and licence agreement whereby: each party acknowledges their respective initial ownership of the Joint SAP Developments; the Joint SAP Developments are assigned such that 136 of the Joint SAP Developments are owned solely by Compana Minera Ares and 135 are owned solely by Cementos Pacasmayo (each, the respective Transferred SAP Developments); and each party grants to the other a non-exclusive, royalty-free, perpetual, worldwide licence (including the right to sublicense such rights and in some circumstances to transfer them) to use or exploit the Transferred SAP Developments owned by the other party. 13 Related party agreements Details of related party transactions entered into by members of the Group during the period covered by the nancial information and up to the date of this Prospectus are set out in Note 30 to the combined nancial information contained in Section B of Part IX: IFRS Historical Information. 14 Litigation Except in respect of the dispute with Electroperu S.A., details of which are set out in Note 33(b) Dispute with Electroperu S.A. to the combined nancial information contained in Section B of Part IX: IFRS Historical Financial Information, no member of the Hochschild Mining Group is or has been involved in, nor, so far as the Hochschild Mining Group is aware, has, any pending or threatened governmental, legal or arbitration proceedings, during a period covering at least the previous 12 months which may have, or have had in the recent past, signicant effects on the nancial position or protability of the Company and/or the Hochschild Mining Group. 15 Subsidiaries The Company is the holding company of the Hochschild Mining Group. The following table shows details of the Companys signicant subsidiaries. The issued share capital of each of these Companies is fully paid and each will be included in the consolidated accounts of the Hochschild Mining Group.
Name of Company Ownership Country of Incorporation General Nature of Business Percentage Ownership

PRA1 19

PRA1 20.8

PRA1 7.1, 7.2, 25

Compana Minera Ares S.A.C.******************************************* Compana Minera Arcata S.A. ****************************************** Minera Suyamarca S.A.C. *********************************************** Minera Hochschild Mexico S.A. de C.V. ********************************* MH Argentina S.A. **************************************************** Minera Santa Cruz S.A. ************************************************ Minera MH Chile Ltda *************************************************

Peru Peru Peru Mexico Argentina Argentina Chile

Mining Mining Mining Mining Mining Mining Mining

100 97 60 100 100 51 100 PRA1 8.1

16 Property, plant and equipment The Hochschild Mining Groups material existing tangible xed assets, other than its mines, licence and contract terms which are summarised in Tables 2-1 to 2-3 (inclusive) and Tables 2-13 to 2-26 (inclusive) of the Technical Report in Part XV are set out below. 248

Part XIV: Additional information

Country Address Freehold/ leasehold Owner/Tenant Expiry of Term Current rent

Peru

Peru Peru Peru Peru Peru Peru

Peru

Peru

Peru

Peru Peru

Peru

Peru

Peru

Peru

Peru

Carretera MataraniMollendo, km 0.10, Zona Industrial, Islay, Arequipa Fundo Salto- Arcata Mine Fundo YurahuiArcata Mine Fundo ChumilleArcata Mine Fundo UmascochaArcata Mine Fundo Saracocha Huisca- Arcata Mine Fundo Comunidad Campesina Orcopampa- Ares Mine Fundo Comunidad Campesina PallancataPallancata Mine Av. Parra N 247, district, province and department of Arequipa Pasaje el Carmen N 180, Urb. El Vivero de Monterrico, Santiago de Surco, province and department of Lima. Av. Parra No 226, Arequipa Fundo Comunidad Campesina Orcopampa- Ares Mine Fundo Comunidad Campesina Pampamarca- Selene Mine Fundo Comunidad Campesina Pampamarca- Selene Mine Fundo Comunidad Campesina IscahuacaSelene Mine Fundo Comunidad Campesina IscahuacaSelene Mine Fundo Comunidad Campesina CollanaSan Martn Project

Freehold

Compana Minera Ares S.A.C

Freehold Freehold Freehold Freehold Freehold Leasehold

Compana Minera Ares S.A.C Compana Minera Ares S.A.C Compana Minera Ares S.A.C Compana Minera Ares S.A.C Compana Minera Ares S.A.C Compana Minera Oro Vega S.A.C

2 October 2024

Easement right for which a total of S/.80,000.000 was paid

Freehold

Compana Minera Ares S.A.C Compana Minera Ares S.A.C

22 April 2005

Freehold

Leasehold

Compana Minera Ares S.A.C

31 December 2008

US$62,500 per month

Freehold Leasehold

Compana Minera Ares Compana Minera Ares

2 October 2024

One-off payment made of S/.80,000.00

Leasehold

Compana Minera Ares

7 November 2025

One-off payment made of S/.54,000.00

Leasehold

Compana Minera Ares

2 July 2028

One-off payment made of S/.55,000.00

Leasehold

Compana Minera Ares Compana Minera Ares Compana Minera Ares

13 May 2028

One-off payment made of S/.100,000.00 One-off payment made of S/.27,375.00 One-off payment made of S/.5,000.00 and S/.1,000 for each additional drilling during the term of the contract One-off payment made of S/.159,189.00

Leasehold

20 December 2028

Leasehold

10 January 2008

Peru

Fundo Comunidad Campesina PallancataPallancata Mine

Leasehold

Compana Minera Ares

15 February 2026

249

Part XIV: Additional information

Country Address Freehold/ leasehold Owner/Tenant Expiry of Term Current rent

Argentina Rural Estate La Carmencita, Section 1, Colonia Leandro N. Alem, Province of Santa Cruz Argentina Rural Estate Estancia San Jose, VII Department Lago Buenos Aires, Colonia Leandro N. Alem, Province of Santa Cruz Argentina Avenida Sargento Cabral No. 124, Barrio 13 de Diciembre, City of Comodoro Rivadavia, Province of Chubut Argentina Mariano Moreno 756, Province of Santa Cruz Mexico Surface land of 200 hectares of rural land known as Hacienda Santa Mara Mexico Surface land of 200 hectares of rural land known as La Cienguita

Freehold

Minera Santa Cruz S.A.

Freehold

Minera Santa Cruz S.A.

Leasehold

Compana Minera Ares

31 December 2011

3, 300 pesos per month

Leasehold

Compana Minera Ares Minera Manhattan, S.A. de C.V.

1 March 2007

1,000 pesos per month US$1,180 per month

Leasehold

In the process of being renewed

Leasehold

Minera Moris S.A. de C.V.

16 February 2015

US$2,000 per month until 16 February 2007 to increase every subsequent year based on ination in the United States

17 Signicant change There has been no signicant change in the nancial or trading position of the Hochschild Mining Group since 30 June 2006, the date to which the nancial information for the Hochschild Mining Group in Section B of Part IX: IFRS Historical Financial Information was prepared. 18 Consents 18.1 Ernst & Young LLP has given and has not withdrawn its written consent to the inclusion in this Prospectus of its reports and references to it in the form and context in which they appear and has authorised the contents of its reports for the purposes of paragraph 5.5.3R(2)(f) of the Prospectus Rules and item 23.1 of Annex I of the Commission Regulation (EC) 809/2004. 18.2 IMC Group Consulting Limited has given and has not withdrawn its written consent to the inclusion in this Prospectus of its report and references to it in the form and context in which they appear and has authorised the contents of its reports for the purposes of paragraph 5.5.3R(2)(f) of the Prospectus Rules and item 23.1 of Annex I of the Commission Regulation (EC) 809/2004. 19 Miscellaneous 19.1 The expenses of, and incidental to, the Global Offer and Admission payable by the Company, including the London Stock Exchange fee, professional fees and the costs of preparation, printing and distribution of this document, are estimated to amount to approximately 21 million (approximately US$40 million) (including VAT). 19.2 Each Ordinary Share will be offered at a premium of 300 pence to its nominal value. 250
PRA3 8.1 PRA1 2.1 PRA1 23.1 PRA3 10.3 PRA1 20.9

Part XIV: Additional information

19.3 No Ordinary Shares have been marketed to, nor are available for purchase in whole or in part by, the public in the United Kingdom or elsewhere in conjunction with the Global Offer. This document does not constitute an offer or the solicitation of an offer to the public in the United Kingdom to subscribe for or buy any securities in the Company or any other entity. 19.4 No application is currently intended to be made for the Ordinary Shares to be admitted to listing or dealt with on any other exchange other than the London Stock Exchange. 19.5 There are no arrangements in existence under which future dividends are to be waived or agreed to be waived. 20 Documents available for inspection Copies of the following documents are available for inspection during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period of not less than 14 days following Admission at the ofces of Linklaters at One Silk Street, London EC2Y 8HQ: (1) the memorandum and articles of association of the Company; (2) the reports from Ernst & Young LLP which are set out in Section A of Part IX: IFRS Historical Financial Information and Section B of Part X: Unaudited Pro forma Financial Information; (3) service agreements of all of the Executive Directors and letters of appointment of all of the Non-Executive Directors; (5) the technical report by IMC Group Consulting Limited; (6) the letters of consent referred to in paragraph 18 above; and (7) this prospectus. Dated: 3 November 2006
PRA1 24

251

PART XV: Technical report

LETTER HEADING The Directors Hochschild Mining PLC Pasaje El Carmen Surco Lima 33 Peru JPMorgan Cazenove Limited 20 Moorgate London EC2R 6DA United Kingdom J.P. Morgan Securities Ltd. 125 London Wall London EC2Y 5AJ United Kingdom Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom

Dear Sirs 3 November 2006

Mineral Experts Report for the silver, gold, zinc and lead assets held by Hochschild. 1 Introduction 1.1 Purpose of report This report has been prepared by IMC Group Consulting Ltd (IMC) for inclusion in the prospectus (the Prospectus) to be published by Hochschild (the Company) in connection with a global offer of ordinary shares in the Company and the proposed admission of the ordinary shares of the Company to the Ofcial List maintained by the Financial Services Authority (FSA) and the admission of such shares to trading on London Stock Exchange plcs market for listed securities (the Global Offer). IMC was instructed by the Directors of the Company to prepare a Mineral Experts Report (MER) for the gold, silver copper, zinc and lead assets of the Company. This report, which summarises the ndings of IMCs review, has been prepared in order to satisfy the requirements of a Mineral Experts Report as set out in the Prospectus Directive in conjunction with the recommendations of the CESR and with the pre 1 July 2005 requirements of Chapter 19 of the Listing Rules of the UKLA. IMC has reviewed the practice and estimation methods undertaken by the Company and are of the opinion that they are in compliance with the Prospectus Directive in conjunction with the 252

Part XV: Technical report

recommendations of the CESR and with the pre 1 July 2005 requirements of Chapter 19 of the Listing Rules of the UKLA and in accordance with the criteria for internationally recognised reserve and resource categories of the Australasian Code for Reporting Mineral Resources and Ore Reserves (2004) published by the Joint Ore Reserves Committee (JORC) of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia (the JORC Code). In this report, all reserves and resources estimates, initially prepared by the Company in accordance with the JORC Classication, have been substantiated by evidence obtained from IMCs site visits and observation and are supported by details of drilling results, analyses and other evidence and takes account of all relevant information supplied by the management of the Company and its subsidiaries (the Hochschild Group). In accordance with the Prospectus Directive in conjunction with the recommendations of the CESR and with the pre 1 July 2005 requirements of Chapter 19 of the Listing Rules of the UKLA, only Proved and Probable Reserves have been valued. Other assets of the Company, which include extensive resources have not been included in the valuation. 1.2 Capability and independence This report was prepared by IMC, the signatory to this letter. Details of the qualications and experience of the consultants who carried out the work are in Annex A to this report. IMC operates as an independent technical consultant providing resource evaluation, mining engineering and mine valuation services to clients. IMC has received, and will receive, professional fees for its preparation of this report. However, neither IMC nor any of its directors, staff or subconsultants who contributed to this report has any interest in: the Company or Hochschild; or the mining assets reviewed; or the outcome of the Global Offer. Drafts of this report were provided to the Hochschild Group, but only for the purpose of conrming both the accuracy of factual material and the reasonableness of assumptions relied upon in the report. For the purposes of Prospectus Rule 5.5.3R(2)(f) IMC is responsible for this report as part of the Prospectus and declares that it has taken all reasonable care to ensure that the information contained in this report is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex 1 of the PD Regulation. 1.3 Scope of work / materiality / limitations and exclusions IMC reviewed the assets in accordance with the scope of work and exclusions and limitations and on the basis of the materiality criteria set out in Annex B to this report. IMC has independently assessed the silver, gold, zinc, copper, and lead assets of the Company by reviewing pertinent data, including resources, reserves, manpower requirements, environmental issues and the life-of-mine (LOM) plans relating to productivity, production, operating costs, capital expenditures and revenues. All opinions, ndings and conclusions expressed in this report are those of IMC and its subconsultants. 253

Part XV: Technical report

1.4 Inherent mining risk Mining, and in particular underground metalliferous mining, is carried out in an environment where not all events are predictable. Whilst an effective management team can, rstly, identify the known risks, and secondly, take measures to manage and mitigate these risks, there is still the possibility for unexpected and unpredictable events to occur. It is therefore not totally possible to remove all risks or state with certainty that an event that may have a material impact on the operation of a mine, will not occur. 1.5 Glossary of terms Dened and technical terms used in this report are set out in Part XVII of the Prospectus.

254

Table of contents
1 1.1 1.2 1.3 1.4 1.5 2 2.1 2.2 2.3 2.3.1 2.3.2 2.3.3 2.4 2.4.1 2.4.2 2.4.3 2.5 2.5.1 2.5.2 2.5.3 2.5.4 2.6 2.6.1 2.6.2 2.6.3 2.6.4 2.7 2.7.1 2.7.2 2.7.3 2.8 2.8.1 2.8.2 2.8.3 2.9 2.9.1 2.9.2 2.9.3 2.10 2.11 2.12 2.12.1 2.12.2 2.12.3 2.12.4 2.13 3 3.1 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.2.5 3.2.6 3.2.7 3.2.8 3.3 3.3.1 3.3.2 Introduction *************************************************************** Purpose of report ********************************************************** Capability and independence *********************************************** Scope of work / materiality / limitations and exclusions ********************** Inherent mining risk******************************************************** Glossary of terms ********************************************************** Overview ****************************************************************** General******************************************************************** Description of assets ******************************************************* Summary of geology ******************************************************* Peru*********************************************************************** Argentina ***************************************************************** Mexico ******************************************************************** Summary of reserves and resources ***************************************** Reserves and resources estimation methods ********************************* Reserve replacement strategy *********************************************** Reserves and resources statement******************************************* Mines and facilities********************************************************* Facilities ******************************************************************* Management ************************************************************** Health and safety ********************************************************** Infrastructure ************************************************************** Projects******************************************************************** Short term projects********************************************************* 2.6.1.1 New sites *********************************************************** Medium term projects. ***************************************************** Long term projects ********************************************************* Environmental issues and management************************************** Legislation***************************************************************** Status ********************************************************************* Provision for rehabilitation ************************************************* Statutory authorisations **************************************************** Peru*********************************************************************** Argentina ***************************************************************** Mexico ******************************************************************** Costs ********************************************************************** Operating costs ************************************************************ Cash costs ***************************************************************** Capital costs *************************************************************** Risks and synergies ******************************************************** Sales and marketing******************************************************** Valuation of reserves ******************************************************* Lives of mines in valuation ************************************************* Methodology and assumptions ********************************************* Valuation results *********************************************************** Sensitivity analysis ********************************************************* Conclusions **************************************************************** Peru*********************************************************************** Maps and plans ************************************************************ Arcata ********************************************************************* Geological characteristics *************************************************** Reserves and resource statement******************************************** Losses and dilution********************************************************* Cut-off grade ************************************************************** Verication **************************************************************** Mines and projects ********************************************************* Process plant ************************************************************** Tailings disposal************************************************************ Ares *********************************************************************** Geological characteristics *************************************************** Reserves and resource statement******************************************** 255 252 252 253 253 254 254 259 259 260 260 261 261 261 261 261 264 265 267 267 269 270 276 277 277 277 278 278 279 279 280 280 281 281 286 289 290 290 290 291 291 291 291 291 291 293 293 294 295 295 295 295 297 297 297 298 298 298 299 300 300 301

3.3.3 3.3.4 3.3.5 3.3.6 3.3.7 3.3.8 3.4 3.4.1 3.4.2 3.4.3 3.4.4 3.4.5 3.4.6 3.4.7 3.4.8 3.5 3.5.1 3.5.2 3.5.3 3.5.4 3.5.5 3.5.6 3.5.7 3.5.8 3.6 4 4.1 4.2 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 5 5.1 5.2 5.2.1 5.2.2 5.3 5.3.1 6 6.1 6.1.1 6.1.2 6.1.3 6.1.4 6.2 6.2.1 6.2.2 6.3 6.3.1 6.3.2 7 8

Losses and dilution********************************************************* Cut-off grade ************************************************************** Verication **************************************************************** Mines and projects ********************************************************* Process plant ************************************************************** Tailings disposal************************************************************ Selene********************************************************************* Geological characteristics *************************************************** Reserves and resource statement******************************************** Losses and dilution********************************************************* Cut-off grade ************************************************************** Verication **************************************************************** Mines and projects ********************************************************* Process plant ************************************************************** Tailings disposal************************************************************ Pallancata ***************************************************************** Geological characteristics *************************************************** Reserves and resource statement******************************************** Losses and dilution********************************************************* Cut-off grade ************************************************************** Verication **************************************************************** Mines and projects ********************************************************* Process plant ************************************************************** Tailings disposal************************************************************ Long term prospects ******************************************************* Argentina ***************************************************************** Maps and plans ************************************************************ San Jose project************************************************************ Geological characteristics *************************************************** Reserves and resource statement******************************************** Mines and projects ********************************************************* Process plant ************************************************************** Tailings disposal************************************************************ Long term prospects ******************************************************* Mexico ******************************************************************** Maps and plans ************************************************************ Medium term projects ****************************************************** Moris mine (Mina Maria) *************************************************** San Felipe exploration project ********************************************** Long term prospects ******************************************************* San Luis del Cordero ******************************************************* Further Disclosure on Mineral Potential************************************** Peru*********************************************************************** Arcata mining district ****************************************************** Ares mining district ******************************************************** Selene mining district ****************************************************** Pallancata ***************************************************************** Argentina ***************************************************************** San Jose ******************************************************************* Sierra de las Minas ********************************************************* Mexico ******************************************************************** Moris prospects ************************************************************ Mexico San Felipe ********************************************************** Special factors ************************************************************* Conclusions ****************************************************************

301 301 301 302 302 303 303 303 304 304 304 305 305 305 306 306 306 306 306 307 307 307 307 307 307 308 308 308 308 309 309 310 310 311 311 311 312 312 313 314 314 314 315 315 316 316 317 317 317 318 318 318 319 320 321

256

List of tables
Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table Table 2-1 2-2 2-3 2-4 2-5 2-6 2-7 2-8 2-9 2-10 2-11 2-12 2-13 2-14 2-15 2-16 2-17 2-18 2-19 2-20 2-21 2-22 2-23 2-24 2-25 2-26 2-27 2-28 List of assetsPeru**************************************************** List of assetsArgentina ********************************************** List of assetsMexico ************************************************* ReservesHistorical replacement *************************************** Metal Reserves at 30 June 2006 **************************************** Metal Resources at 30 June 2006 *************************************** Metal MiningHistoric Production ************************************* ConcentrateHistoric Production ************************************** Concentrate and DoreHistoric Composition *************************** MetalHistoric Production ******************************************** Lost Time Injury Frequency Rate**************************************** Causes of Incidents **************************************************** Mineral Rights ConcessionsArcata, Peru******************************* Licences or Permits to OperateArcata, Peru *************************** Mineral Rights ConcessionsAres, Peru********************************* Licences or Permits to OperateAres, Peru ***************************** Mineral Rights ConcessionsSelene, Peru******************************* Licences or Permits to OperateSelene, Peru *************************** Mineral Rights ConcessionsPallancata, Peru *************************** Licences or Permits to OperatePallancata, Peru ************************ Mineral Rights ConcessionsSan Martin, Peru ************************** Licences or Permits to OperateSan Martin, Peru *********************** Mineral Rights ConcessionsSan Jose ********************************** Licences or Permits to OperateSan Jose ******************************* Mineral Rights ConcessionsMoris (Mina Maria) ************************ Licences or Permits to OperateMoris (Mina Maria)********************* Net Cash Cost per oz of Silver Equivalent ******************************* Summary of Valuation of Proved and Probable ReservesBased on Operating Results ***************************************************** Summary of Valuation of ReservesBased on Operating Results ********* Summary of Valuation of Proved and Probable ReservesBased on Post Tax Results *********************************************************** Summary of Valuation of ReservesBased on Post Tax Results *********** Sensitivity Analysis of Reserve Valuation ******************************** 260 260 260 265 266 267 268 268 268 269 272 274 282 283 283 284 285 285 286 286 286 286 287 288 289 290 290 293 293 293 293 294

Table 2-29 Table 2-30 Table 2-31 Table 2-32

List of plates
Plate Plate Plate Plate Plate Plate 1 2 3 4 5 6 Country Exploration Ofces Peru Exploration Projects Argentina / Chile Exploration Projects Mexico Exploration Projects Arcata mine: Surface map with location of principal veins and prospects Arcata mine: Longitudinal Prole of Mariana and Mariana Sigmoid veins and map of principal geological features. Ares mine: Surface map with location of veins and prospects and principal geological features Ares mine: Longitudinal Prole of the Victoria Vein System, including the main Victoria Vein and sub-parallel branches- the Ramal Sur, Lula and Ramal Victoria veins Selene mine: Surface map with principal geological features. Selene mine: Longitudinal Prole of Explorador Vein and map of principal vein outcrops. Pallancata Project: Surface map with principal geological features. Pallancata Project: Longitudinal Prole of Pallancata Vein and map of vein outcrops. San Jose Project: Surface map with location of veins and prospects and principal geological features San Jose Project: Longitudinal Prole of the Huevos Verdes Vein San Jose Project: Longitudinal Prole of the Frea Vein Moris Project: Surface map with principal geological features. Moris Project: Longitudinal Prole of the El Creston Vein and map at the 900m level.

Plate 7 Plate 8 Plate 9 Plate 10 Plate 11 Plate 12 Plate 13 Plate Plate Plate Plate 14 15 16 17

257

Annexes
Annex A Annex B Annex C Qualications of Consultants Scope of Work / Limitations and Exclusions / Materiality Maps, Plans and Drawings

258

2 Overview 2.1 General The Company holds interests in mining and mineral assets principally in Peru, Argentina and Mexico and has a small exploration ofce in Chile. The main operating units comprise Arcata, Ares and Selene mines. Pallancata, a joint venture (JV) in which the Company holds 60 per cent. and management rights, is planned to commence production of ore in 2007 to augment and subsequently replace the Selene production. The Company processes all the ore and has a tolling agreement with the JV partner, International Mineral Corporation (IMC), a company listed on the Toronto Stock Exchange, to treat their 40 per cent. of the ore. San Jose in Argentina, a JV under construction in which the Company holds 51 per cent. and all management rights with Minera Andes, a company listed on the Toronto Stock Exchange, is due to commence production of concentrate in 2007. The Moris mine (Mina Maria) in Mexico, in which the Company holds 70 per cent. and all management rights with Exmin of Mexico, is currently mothballed but the Company is planning to restart operations in July 2007, subject to new mine plan approval. The Company holds numerous exploration prospects and the more advanced are mentioned in this report. The Companys Peruvian silver and gold reserves lie at between 4,600 m and 5,000 m above mean sea level (amsl) in four discrete areas of epithermal vein mineralisation in the Puquio-Caylloma Belt geological succession and are or will be exploited by the underground cut and ll method of mining. The ores of Arcata and Selene feed on-site concentrators producing a saleable silver concentrate containing a signicant quantity of gold. Pallancata will feed the expanded Selene concentrator in the short term and become the prime feed by 2009. Ares ore supplies an on-site cyanide leaching plant feeding solution to a Merrill Crowe plant to produce a dore comprising gold and silver. Selene concentrate is expected to be rened into dore at Ares from October 2006 onwards. Access to the operations is by mixed surfaced and graded roads from Lima (approximately 800 km), the sea port of Matarani (approximately 700 km), Arequipa (approximately 300 km) or Cuzco (approximately 400 km). Air services are available at Cuzco and Arequipa to Lima. Power is supplied from the national grid and all of the operations have more than adequate generation facilities on site to maintain essential services. All of the operations have access to ample water for their purposes. Concentrate is exported through Matarani to Penoles in Mexico and dore is sold to Johnson Matthey at mine gate. The Company holds rights in Peru to the San Martin prospect between Arcata and Selene as well as a number of other targets either on the existing properties or as new targets in the Puquio Caylloma Belt. The Company owns Sipan mine which closed in 2004 and is currently restoring the site and has sold the Caylloma which was owned until 2005. The San Jose silver and gold project in Argentina lies in epithermal vein mineralisation of the Deseado Massif in Patagonia. The project is designed as an underground cut and ll mine with the ore feeding a concentrator producing a saleable silver concentrate containing a signicant quantity of gold. Access is from Comodoro Rivadavia by 230 km of mixed surfaced and graded road. Concentrate will be exported via the port of Comodoro Rivadavia. Air services are available at Comodoro Rivadavia to Buenos Aires. Sufcient power generation is to be installed to run the operation and permission has been obtained to draw sufcient water to produce at the proposed levels of production. The Company holds rights in Argentina to the Sierra de las Minas exploration prospect. The Moris mine in Mexico has recently been purchased and the Company is in the process of assembling a business plan and ensuring that any outstanding permissions are in place with a view to re-opening the operation in July 2007, subject to new mine plan approval. The Company also holds 70 per cent. of the rights to the exploration projects in the Moris Region in the vicinity of the Moris Mine (Mina Maria) with Exmin of Mexico. 259

In Mexico the Company holds rights to earn in 70 per cent. of the San Felipe exploration prospect previously drilled by Boliden and to the San Luis del Cordero exploration prospect. 2.2 Description of assets IMC reviewed the assets listed in Table 2-1 to Table 2-3, all of which are wholly owned or partially owned by the Company as identied in the Tables and located as shown by Plates 1 to 4 in Annex C. Table 2-1 List of assetsPeru
Date of Commencement of Operation

PRA1 8.1

Asset

Status

Type

Product/Output

Ownership

Mining Arcata ************************* Ares *************************** Selene ************************* Sipan ************************** Caylloma*********************** Processing Arcata ************************* Ares *************************** Selene ************************* Sipan ************************** Caylloma*********************** Advanced Project Pallancata**********************

Operating Operating Operating Closed 2004 Sold 2005 Operating Operating Operating Closed 2004 Sold 2005 Advanced Project

Underground Underground Underground Open Pit Underground Concentrator Leach Process Concentrator Leach Process Concentrator

mine mine mine mine

Silver, gold Gold, silver Silver, gold Gold, silver Silver, gold Silver/gold concentrate Gold/silver dore Silver/gold concentrate Silver/gold dore Silver, gold Silver, gold ore to Selene

1964 1998 2003 1964 1998 2003 Planned 2007

100% 100% 100% 100% 100% 100% 100% 100% 60%

Underground mine

Table 2-2 List of assetsArgentina

Date of Commencement of Operation

PRA1 8.1

Asset

Status

Type

Product/Output

Ownership

Advanced Project San Jose ************************ Processing San Jose ************************

Under construction Under construction

Underground mine

Gold, silver

Planned 2007

51%

Concentrator

Gold/silver concentrate

Planned 2007

51%

Table 2-3 List of assetsMexico

Date of Commencement of Operation

PRA1 8.1

Asset

Status

Type

Product/Output

Ownership

Project Moris (Mina Maria) ***************** Processing Moris (Mina Maria) *****************

Project (mothballed) Project (mothballed)

Surface mine

Gold, silver

2007*

70%

Heap Leach Processing

Gold/silver dore

2007*

70%

N.B. * Subject to new mine plan approval

2.3 Summary of geology The operations of the Company and its development prospects are focussed primarily on epithermal vein deposits with precious metal mineralisation. 260

2.3.1 Peru All of the current operations and development prospects in Peru are located in the jurisdiction of Ayacucho, Apurimac and Arequipa in southern Peru in the Puquio-Caylloma Belt of Cenozoic volcanic deposits and associated intrusions. The basement of this area comprises folded sedimentary strata of Jurassic to Cretaceous age on which lies an unconformable sequence of lower to mid-Tertiary age volcanic ows and volcano-clastic sediments. The target mineralisation is hosted in the Tertiary volcanics although the surface manifestation of major veins and related structures may be obscured by thick andesitic lavas and ignimbritic tuffs representing the most recent volcanic episodes. A number of important epithermal vein deposits are known in this belt bearing identiable High (HS), Intermediate (IS) and Low (LS) sulphidation gold and silver mineralisation. It has been suggested that there was an early phase of epithermal LS and IS mineralisation followed by a much younger high sulphidation event. Characteristically the veins are of widths in the range 0.80 m to 4.00 m and show evidence of successive phases of quartzsulphide mineralisation. The pattern and frequency of veins is interpreted as related to tensional or strike-slip fault patterns and on the regional scale the orientation appears related to the presence of rhyolitic dome intrusions. This relationship provides an interpretative model for targeting new prospective areas. Mineralisation is normally clearly zoned both vertically and laterally reecting both that vein development and higher grades are developed preferentially in competent host strata with dilational fractures and also that, typically of LS events, the mineral composition displays zoning with respect to the crustal level. Mineralized zones with economic values can be seen to be constrained within lateral and upper and lower level boundaries providing an effective model for identifying economic potential laterally and in depth from less mineralized points of intersection. The majority of veins currently under operation and within the resource base can be considered silver-rich but silver: gold ratios may locally be very variable as exhibited in the Victoria vein system of the Ares mine. 2.3.2 Argentina The San Jose deposit in Argentina displays geological and mineralogical characteristics very similar to that of the Peruvian deposits although the volcanic host sequence is of Jurassic age. The mineralisation is of LS type with quartz-sulphide veins with economic gold and silver values. The potential in the Sierra de las Minas Prospect is also hosted in quartz-sulphide veins but is somewhat different in that the veins are hosted in the metamorphosed basement and the mineralisation appears to have been of higher sulphidation with signicant copper. An oxidized prole has been proved and supergene enrichment controls high gold values with rather variable copper content. 2.3.3 Mexico The Mexican prospects under investigation also include LS quartz-sulphide epithermal veins with gold and silver values in the Moris project (Mina Maria) where the surface mining has taken place as well as other active prospects in the Moris region. The other active prospects in Mexico at San Felipe and San Luis del Cordero contain polymetallic mineralisation primarily controlled in linear vein structures with extensive silicication linked to major granitic intrusions. The San Felipe Project hosts predominantly zinc/lead with minor copper mineralisation while San Luis del Cordero is a predominantly silver and copper orebody with prospects for extensive carbonate replacement polymetallic skarn deposits. 2.4 Summary of reserves and resources 2.4.1 Reserves and resources estimation methods The Company has over 40 years experience in the exploration, evaluation and extraction of precious metals epithermal vein deposits in Peru. This experience provides a solid skills base for interpretation of the exploration data/potential in the Puquio-Caylloma volcanic belt which is additionally regularly reviewed by international research programmes and in-house seminars by 261

internationally recognised geologists. This corporate experience is now being extended to comparable mineralisation environments in Argentina and Mexico. The Company undertakes exploration and development independently using its own resources and also has a policy of participation and acquisition of interests with joint-venture partners. Additional resource denition at the operations is by some surface and, particularly, underground drilling programmes with down-hole logging allied to blocking out the resources with underground development to upgrade to a reserve. IMC has observed drill rigs in operation and is satised that these procedures are in accordance with accepted international practice. Standard practice is that core is cut vertically using a circular saw, one half-core despatched for analysis and the other retained in the core store. It is standard practice to obtain channel samples underground using pneumatic picks in both developments and stopes for analysis. IMC is satised that these procedures are in accordance with accepted international practice. Assay laboratories are sited at each of the three operational mine units in Peru. The laboratory at Selene mine is operated under contract by the international specialists Societe Generale de Surveillance (SGS), while those at Arcata and Ares are operated directly by the Company staff. Fully documented Quality Assurance and Quality Control (QA/QC) procedures apply at each laboratory with respect to sample handling, analytical methods and quality assurance and control. Two sample streams are received by the laboratories. One from the process plants consisting of mill feed, tailings and concentrate samples. The other from the mine Geology Department, comprising mine channel samples and core samples. The samples are prepared and analysed according to set procedures in accordance with industry standard practice. Silver and gold analyses are performed by re assay unless otherwise specically requested. All laboratories have an Atomic Absorption spectophotometry facility calibrated for silver gold, arsenic, copper, iron, zinc and lead with a sample turn around time of 4 hours. Formal procedures for quality control are in place for re-sampling, duplicates, re-assays, blanks, standard reference samples and independent laboratory checks. IMC has visited the mine-site laboratories and considers that the procedures and their implementation are in accordance with recognised industry standards. Similar principles are applied at exploration project sites for analyses of core samples. Preparation and validation of the raw data for resource estimation are managed within a Geographical Information System (GIS) system and comprise three main datasets: the drill core and channel sampling databases, the topographic database and geological map information held within ArcView. The Company uses MineSight (MedSystem) mine planning software to estimate ore grades in each vein within a block model. The MineSight block models for each vein and mine are updated on a monthly basis with new sample and topographic data acquired during the month. Assay, survey, collar location, and vein geometry data les were examined by IMC for a representative selection of veins from the various properties and data appeared clean in that no gross errors were identied, and no statistical artifacts found that could be attributed to data errors. IMC considers that the current approach to the computation of the ore density is correct and appropriate with respect to the variation recognised in the various mines. Through regular reconciliation of reserves depletion and production and processing there is continual review of density values, supported also by regular test-work. The Companys general policy is to compute single composites over the vein thickness, so that each drillhole intersection with a vein is represented by one composite. This results in composites of varying length and, because the angles of intersection of drill holes and veins vary, there is no simple relationship between composite length and vein thickness. This approach could bias the kriging and IDP modelling but, with no simple relationship between vein thickness and metal grade, IMC considers this approach appropriate and has not biased any results. All of the silver and gold assays are subject to a grade cutting (or capping) procedure by which very high values are reduced to a xed maximum value before generation of composites. This is standard practice in the industry and is commonly made because of the presence of isolated 262

rogue values or an extreme-value population of assays. Grade cutting rules are dened individually for each vein in all of the Peru and Argentina properties and includes some very aggressive grade cutting. There is little or no statistical justication for this arbitrary procedure and, IMC believes, has the result of generating conservative reserve and resource estimates. MineSight calculates composites and models not only grade values but also lithology, alteration and vein width from the integrated dataset of drillhole core and mine channel samples. The system performs a standard suite of check statistics to determine the characteristics of the variation of metal grades as the basis for determining parameters for the subsequent stage of estimating grade values within the block model. As a general rule the vein models comprise blocks of 5 m x 5 m x 5 m but may be 10 m x 10 m x 5 m depending on the extension or width of the vein. The preferred estimation method is by linear block kriging, which has been used for those major veins on which there are sufcient intersections to carry out the necessary variography. Inverse power of distance (IPD) weighted moving averages have been used for all other veins. Historically an IPD 5th power estimation has been used for all of the minor veins on the Peru properties but following an earlier consultancy review this has been revised to use IPD squared in the present quoted resource estimates. IMC has reviewed the resource modelling procedure and has performed check modelling, using a different software package, on a selected number of veins. IMC is of the opinion that the procedure employed by the Company is appropriate and provides a valid and reliable statement of the resource base. The Company uses the resource block model as a fundamental planning tool to calculate a value each month for the mineral content of each block in each model. The calculation of ore value is based on the multiplication of the metal values in each block by the corresponding Point Value (incorporating gold and silver prices, head grade, plant recovery and commercial recovery) denes a value for the block. The Company also denes cut-off values applied to the values of each block in each model every month. Both a break-even operating cut-off ore value (excluding xed corporate and nancing costs) and a higher economic target cut-off value (including all xed and variable costs) are dened. Applying these cut-offs categorises each block as economic being of value above the target economic cut-off, marginal if above the break-even cut-off or submarginal below the break-even cut-off. For the purposes of stating resources and reserves, the break-even operating cut-off ore value at the date of stating the reserves and resources, is considered appropriate as the basis for dening a cut-off value for commercially viable ore. The corresponding quoted reference prices for silver and gold have been established as US$7.50/oz for silver and US$450/oz for gold. On the basis of single metal equivalence values, the cut-off grades established for Arcata and Selene mines are 167 g/t silver equivalent and 174 g/t silver equivalent respectively. The cut-off grade for the Ares mine, a gold/silver producer, is expressed as 3.2 g/t gold equivalent. IMC considers that the Company policy to establish cut-off grades is appropriate and essentially conservative. IMC has reviewed the process of reserve panel denition and checked areas of panels on each of three veins (Selene Explorador vein; Arcata Mariana vein; Ares Victoria vein) against spreadsheets of block categories and volume calculation. IMC considers this methodology appropriate for the derivation and denition of reserves from the resource block model. The design of the reserves panels assumes the potential total extraction of all mineral within the panel and reduces assumptions related to losses in operations. IMC completed an independent validation of the resource modelling by the Company. The Company have used ordinary linear block kriging for those major veins on which there are sufcient intersections to carry out the necessary variography, and an IPD weighted moving averages for other veins. IPD 5th power estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Selene Explorador vein, Ares Victoria vein, and Arcata Ramal 2 and Mariana veins. IMC believe this is a rational selection. Check modelling has been carried out by IMC using the Datamine mining software system for Arcata (Mariana, Alta veins), Ares (Victoria, Ramal Sur 096, and Lula veins), Selene (Explorador and Ramal Betty veins), Pallancata (Pallancata 2 vein) and San Jose (Huevos Verdes vein). This Datamine modelling has used the databases of drill 263

hole and channel sample composites and the wire-frame vein models representing the full (premining) geological resource in each case and the models obtained have been compared with those supplied by the Company. A range of different modelling methods have been used including IPD 5th and 2nd powers, and kriging with ranges of 60 m and 120 m. A comparison of 5th power IPD models for all veins with the models generated by the Company using the Minesight software yields comparable results and validates the Companys modelling approach. IMC conrms that all the Company resources and reserves are quoted and are consistent with the Australasian JORC classication standard. 2.4.2 Reserve replacement strategy The characteristics of epithermal vein deposits for precious metal mining dictate a three-tier strategy for exploration and deposit evaluation. The relatively small resource base available in individual veins requires an active strategy for 1. expansion of the resource base; 2. the replenishment of the resource base and 3. the upgrading of this resource base to a reserves base. This is reected in a strategy for regional scale exploration and identication of new target areas for resource denition. In parallel, a local scale strategy is directed to the location of new resources available to existing mine infrastructure in conjunction with which mine development and underground drilling are focused to upgrade existing resources to reserves. The regional strategy currently comprises exploration and deposit evaluation at the San Martin prospect located between the current Selene and Arcata mine operations and also at the Pallancata prospect some 14 km from the Selene mine. These prospects have been the subject of earlier investigation, including drilling and extensive surface channel sampling. Currently, contract diamond core drilling rigs are deployed at each site under the management of the Companys geological staff to complete deep drilling of inclined cored drillholes of lengths in the range 300 m to 600 m from surface. Other targets in Peru have been identied for the longer term. The local strategy at each of the Peruvian mining operations has a policy to investigate new prospects within the concession area of and adjacent to the mines and has currently deployed four contracted diamond core drilling rigs for deep surface drilling at the mines. It should be noted that the role of long surface drillholes is to determine future prospects at a level of denition seldom greater than that of Inferred Resources. The mine strategy of resource and reserve denition is correspondingly primarily dependent upon mine developments planned specically to upgrade the resource and reserve base, in conjunction with an extensive programme of underground drilling. The reliance on underground development to provide data on vein continuity and grade at a level of condence appropriate for reserves and resource denition dictates that the formal resource base and reserve base will be limited by the extent to which underground developments are prepared in advance of operations. It is a common feature of similar mining operations on precious metal epithermal vein deposits that the resource and reserve base reects only a limited number of years of future operation although there may be extensive data on which to infer a long productive life of mine. IMC recognises that for this type of mining operation a most important characteristic is the demonstrable capacity and track record of the mining company to maintain consistent replacement of reserves and resources in step with annual production and resource depletion. The Company has a proven track-record and has sustained the resource and reserve base at each of the current operating mines in step with production, in the case of Arcata over many years, and in the case of the newer mines, since production commenced. Table 2-4 shows the historical replacement of reserves by the Company. It must be noted that a Peruvian system of classication of reserves was used until 1999 and JORC thereafter. This has resulted in differing statements of reserves under the two systems. Arcata mines proved and probable reserve base at each year end has varied between 1.2 years and 4.8 years of production since 1990. Ares mines reserve base at each year end has been consistently between 2.5 years and 3.9 years of production since the rst year of full production in 1999. There has, on average, across the periods shown in Table 2-4, been 264

a replacement of 37 per cent. of the total reserves base by new reserves annually at all of the Companys operations. It is the opinion of IMC that, through the maintenance of the current reserves replacement strategy, this performance is sustainable in the long term. Table 2-4 ReservesHistorical replacement
Reserves Silver t g/t koz g/t Gold koz t g/t Production Silver koz g/t Gold koz LOM

ARCATA 1990 ***************** 1,503,780 1991 ***************** 1,252,030 1992 ***************** 1,159,150 1993 ***************** 1,211,600 1994 ***************** 1,312,210 1995 ***************** 1,477,500 1996 ***************** 1,340,830 1997 ***************** 1,028,190 1998 ***************** 817,030 1999 ***************** 546,000 2000 ***************** 681,550 2001 ***************** 447,851 2002 ***************** 539,474 2003 ***************** 315,166 2004 ***************** 440,402 2005 ***************** 768,716 June 2006 ************ 929,999 ARES 1998 ***************** 1,098,042 1999 ***************** 655,743 2000 ***************** 838,290 2001 ***************** 831,333 2002 ***************** 960,765 2003 ***************** 1,031,540 2004 ***************** 761,619 2005 ***************** 828,399 June 2006 ************ 834,820 SELENE 2003 ***************** 722,633 2004 ***************** 903,837 2005 ***************** 829,681 June 2006 ************ 799,331

576 563 569 522 541 552 560 553 567 423 429 398 531 715 492 545 462 207 214 264 324 302 318 301 307 327 384 398 408 377

27,865 22,649 21,212 20,331 22,819 26,211 24,148 18,281 14,903 7,431 9,405 5,732 9,218 7,245 6,968 13,482 13,796 7,308 4,512 7,115 8,660 9,340 10,548 7,363 8,182 8,777 8,926 11,566 10,877 9,689

1.50 1.85 1.87 1.64 1.81 1.88 2.00 2.10 2.14 1.26 1.30 1.35 1.45 1.432 1.21 1.54 1.26 24.19 23.21 24.47 22.71 21.52 22.32 19.92 14.43 12.24 4.35 3.53 3.07 2.56

72.52 74.47 69.69 63.88 76.36 89.31 86.22 69.42 56.21 22.12 28.49 19.44 25.21 14.43 17.11 37.96 37.77 853.98 489.33 659.51 606.99 664.62 740.26 487.81 384.20 328.52 101.03 102.72 81.92 65.79

310,709 262,415 260,020 259,036 326,304 356,734 357,212 373,984 375,448 380,468 371,098 358,859 236,292 236,108 290,603 282,199 135,526 129,216 240,866 272,668 282,176 271,489 276,653 272,986 281,095 141,529 44,061 253,605 288,919 178,044

564 617 638 581 622 646 676 687 679 671 518 488 432 506 615 539 542 228 355 310 261 287 336 346 352 332 348 385 399 379

5,637 5,209 5,331 4,836 6,522 7,406 7,760 8,257 8,190 8,212 6,179 5,627 3,280 3,841 5,746 4,890 2,362 947 2,751 2,716 2,369 2,506 2,989 3,037 3,181 1,511 493 3,137 3,707 2,169

2.03 2.36 2.34 1.99 2.35 2.86 2.70 2.68 2.85 3.21 2.57 2.54 2.26 1.29 1.14 1.19 1.35 22.99 26.21 24.60 20.69 22.70 21.78 22.98 22.80 19.01 3.78 3.78 3.43 2.93

20.28 19.91 19.56 16.57 24.65 32.80 31.01 32.22 34.40 39.27 30.66 29.31 17.17 9.79 10.65 10.80 5.88 95.51 202.97 215.66 187.70 198.14 193.72 201.69 206.05 86.50 5.35 30.82 31.86 16.77

4.8 4.8 4.5 4.7 4.0 4.1 3.8 2.7 2.2 1.4 1.8 1.2 2.3 1.3 1.5 2.7 3.4 8.5 2.7 3.1 2.9 3.6 3.8 2.6 2.9 2.9 14.8 3.3 2.6 2.1

2.4.3 Reserves and Resources Statement The Hochschild proved and probable reserves are and have been nearly identical to the measured and indicated resources taking into account the discounts included in the reserves for losses and dilution. This is a result of the need to block out the inferred resources with development underground in order to convert to measured and indicated resources which, with modifying factors, can be converted to reserves. Table 2-5 and Table 2-6 show the reserves and resources of the Company as at 30 June 2006. The gures quoted are those that are the property of the Company and do not include reserves or resources on the same property owned by JV partners.

265

Table 2-5 Metal reserves at 30 June 2006

Reserve category Proved and probable (t)

Operation

Proved (t)

Probable (t)

Ag

Au

(average g/t)

Arcata 100% LOM = 3.4 years ********************************* Ares 100% LOM = 2.9 years ********************************* Selene 100% LOM = 2.1 years ********************************* Pallancata 60% LOM = 3.3 years ********************************* San Jose 51% LOM = 5 years*********************************** Total Mines and Projects************************************* Stockpiles *************************************** TOTAL ******************************************

Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Probable Total Proved Proved Probable Total

646,659 283,340 929,999 642,109 192,711 834,820 762,808 36,523 799,331 0 643,267 643,267 102,812 538,885 641,697 2,154,388 1,694,725 64,872 2,219,261 1,694,725 3,913,986 3,849,114 64,872

416 565 462 371 182 327 376 387 377 263 263 602 383 418 397 345 374 246 393 345 372

1.19 1.43 1.26 14.60 4.35 12.24 2.59 1.83 2.56 0.00 1.09 1.09 8.43 7.80 7.90 6.03 3.67 4.99 4.62 5.99 3.67 4.98

N.B. includes discounts for ore loss and dilution. Reserves = Resources Ore Loss + Dilution. Where reserves are attributable to JV partner, reserve gures reect the Companys ownership only. LOM stated from 30 June 2006.

266

Table 2-6 Metal resources at 30 June 2006

Measured and indicated

Resource category

Measured

Indicated

Inferred

Ag

Au

(average g/t)

Arcata Measured *********************************** 675,523 Indicated *********************************** Total**************************************** Inferred************************************* Ares Measured *********************************** 667,143 Indicated *********************************** Total**************************************** Inferred************************************* Selene Measured *********************************** 773,616 Indicated *********************************** Total**************************************** Inferred************************************* Pallancata Measured *********************************** 0 Indicated *********************************** Total**************************************** Inferred************************************* San Jose Measured *********************************** 93,113 Indicated *********************************** Total**************************************** Inferred************************************* Moris (Mina Maria) Measured *********************************** 2,950,713 Indicated *********************************** Total**************************************** Inferred************************************* San Felipe ********************************** TOTAL Measured *********************************** 5,160,108 Indicated *********************************** Total**************************************** Inferred*************************************

239,942 915,465 1,088,550

510 704 561 580 319 170 291 227 397 406 398 279 0 289 289 376 675 434 473 374 4.0 3.7 3.96 2.2 70 182 310 217 243

1.46 1.79 1.55 1.93 15.80 5.34 13.78 5.54 2.95 2.07 1.96 1.25 0.00 1.20 1.20 1.44 9.45 8.83 9.32 8.22 1.32 1.24 1.31 1.37 *9.6% 3.60 3,55 3.59 1.08

159,439 826,582 46,838

34,951 808,567 453,749

614,418 614,418 981,673

485,894 579,007 253,059

403,726 3,354,439 4,563 3,150,000

1,938,370 7,098,478 5,978,432

N.B. *a combined metal content of 6.5% zinc, 2.7% lead and 0.4% copper which are not included in totals. Resources include undiscounted reserves, where reserves are attributable to JV partner, reserve gures reect the Companys ownership only, no ore loss or dilution has been included, and stockpiled ore excluded.

2.5 Mines and facilities 2.5.1 Facilities The Peru facilities comprise of three operating mines, Ares, Arcata and Selene. All are mined by a cut and ll method. The ore from each operation feeds each individual mines processing plant to produce a concentrate (Arcata and Selene crush, grind, mill and oatation) or dore (Ares crush, grind and leach) shipped to customers. The Company have plans to increase the capacity of the plant at Selene and process additional tonnage mined from Pallancata from July 2007 as well as transporting additional concentrate from Selene to Ares for the production of additional dore to the present capacity of the Area dore plant. The Company propose to process all of the Selene/ Pallancata concentrate to dore plant at a later date but this has not been included in the plans or valuation considered in this document. The Argentina facilities comprise the San Jose mine and treatment plant under construction and scheduled to commence production in 2007 with the Company holding 51 per cent. ownership and the management of the joint venture operation.

267

The Moris mine in Mexico is the subject of a joint venture agreement, dated 30 June 2006, with the Company owning 70 per cent. The Company is completing Due Diligence drilling and check sampling. Historic production gures are given in Table 2-7 and Table 2-10. The Company increased silver production by approximately 32 per cent. from 2002 (8,005 thousand ounces) to 2005 and plan to increase its attributable silver production by approximately a further 42 per cent. between 2005 and 2008 from projects under construction or about to commence construction (Section 2.6.1.1). IMC has reviewed the forecast production levels and found them to be reasonable and attainable. Table 2-7 Metal miningHistoric production
Ore Mined t 6 months ended 30 June 2006s Silver g/t 6 months ended 30 June 2006s Gold g/t 6 months ended 30 June 2006s

2003

2004

2005

2003

2004

2005

2003

2004

2005

Arcata Ares*** Selene Sipan** Caylloma

236,108 276,653 44,061 0 105,806

290,603 272,986 253,605 0 0

282,199 281,095 288,919 0 0

135,526 141,529 178,044 0 0

506 336 348 0 391

615 346 385 0 0

539 352 399 0 0

542 332 379 0 0

1.29 21.78 3.78 0 0.61

1.14 22.98 3.78 0 0

1.19 22.80 3.43 0 0

1.35 19.01 2.93 0 0

N.B. There are minimal stockpiles at the operations. Therefore the tonnage and grade of ore milled is identical to the tonnage and grade of ore mined.

Table 2-8 ConcentrateHistoric production

Concentrate t 6 months ended 30 June 2006 Silver 6 months ended 30 June 2006 Recovery % Gold 6 months ended 30 June 2006

2003

2004

2005

2003

2004

2005

2003

2004

2005

Arcata ************* 8,999 11,525 10,787 Selene ************* 488 2,892 3,559 Caylloma ********** 2,777 0 0 Dore koz ********** Ares *************** 2,793 2,943 3,151 Sipan ************** 282 283 0

5,214 89.89 87.07 87.41 1,947 83.25 92.81 89.97 0 77.78 0 0 1,493 86.75 90.37 91.70 0 N/A 0 0

88.66 72.99 48.63 66.75 90.76 79.72 91.41 86.37 0 63.67 0 0 93.05 95.34 95.65 96.32 0 N/A 0 0

84.26 86.81 0 96.35 0

N.B. Sipan Production is from recovery of gold already in leach pad

Table 2-9 Concentrate and DoreHistoric composition

Concentrate Grade Silver kg/t 6 months ended 30 June 2006 Grade Gold g/t 6 months ended 30 June 2006

2003

2004

2005

2003

2004

2005

Arcata *********************************** 11.94 Selene *********************************** 27.47 Caylloma ********************************* 11.58 Ares ************************************* 93.11 Sipan ************************************

13.51 31.21 0 93.18

12.31 29.15 0 93.43

12.49 31.43 0 94.18

24.71 275.24 14.91 6.62 51

13.96 302.61 0 6.56 48

20.53 232.82 0 6.33

29.58 239.22 0 5.58

268

Table 2-10 MetalHistoric production

Silver koz 6 months ended 30 June 2006 Gold koz 6 months ended 30 June 2006

2003

2004

2005

2003

2004

2005

Arcata ******************************** Selene ******************************** Caylloma****************************** Dore koz****************************** Ares ********************************** Sipan ********************************* TOTAL ******************************** Silver Equivalent***********************

3,453 417 1,034 2,600 0 7,504 20,217

5,004 2,911 0 2,742 0 10,657 25,121

4,271 3,335 0 2,944 0 10,550 24,543

2,094 1,967 0 1,406 0 5,467 11,640

7.15 4.32 1.30 184.74 14.37 211.88

5.17 28.14 0 193.20 14.56 241.07

7.19 27.48 0 198.55 0 233.22

4.96 14.57 0 83.35 0 102.88

N.B. Silver Equivalent = 60 oz silver: 1 oz gold

2.5.2 Management IMCs personnel were in regular contact and held numerous discussions with the Companys management at all levels. IMC is satised that the Companys management is capable of implementing the proposed production plans based on this contact and on direct observations of operational management. The Companys policy of making business unit managers fully accountable for their operations whilst maintaining corporate control has enabled the Company to be protable in the difcult epithermal mining environment. The Company control and plan in the Lima central ofce and have a core staff of management and technical personnel at site. These core personnel control the operational activities which are all carried out by contractors. Contracts are renegotiated as required or on an annual basis. The mine plans are evaluated monthly to ensure maximum metal recovery and protability. The Company has an extremely good track record of replacing reserves over the years both in the operations and from local projects. The Company employs a total of 3,100 personnel of which 1,936 were contractors as at 30 June 2006. Corporate staff in Lima and satellite ofces in Argentina, Mexico, Chile and the United States of America (Nevada) comprise 242. 2,858 of the total are site personnel of which 1,936 are contractors. All of the operational personnel until recently worked on a rotational basis of 20 days on and 10 days off site. The Company is currently implementing a 14 days on and 7 days off rotational sequence due to a change in legislation. Two 10.5 hours shifts are worked per day and the sites operate 24 hours per day, 365 days per year. The Company devotes signicant attention and resources to the management of community relations. A manager was appointed in Lima for this function in 2003, and appropriate stafng has been deployed at the operations. The principal objective is to ensure effective communication and good relations between the company and the surrounding communities, and it would appear that the Company has become a Peruvian role model in this regard. The budget for normal community projects in 2006 amounts to USM$1.4. There are a number of special projects in addition to this that are budgeted for separately. Sufcient staff has been allocated to effectively administer the required functions at head ofce and mine level and they enjoy the full support of senior company Management. The budget for 2006 for Safety, Health and Environment issues, at USM$3.8 excluding staff salaries, represents a signicant investment in effective Management. In developing new prospects and projects the management has a diligent and cautious approach to establishing the extent and viability of a potential resource. Once established, as Pallancata and San Jose demonstrate, the speed and standard of development of their mines into production units, in IMCs opinion, compares favourably with most other similar projects around the world. 269

The company has established a separate entity to manage the community projects. It has two arms, one is Social Programmes and the other Production Programmes. The Social Programmes include: ) Educational help which includes getting school rooms built, obtaining teachers (salaries, transport, accommodation), establishing a hostel for the schoolchildren and training children in the art of lama, alpaca and vicuna skills and agriculture. ) Social help includes warm clothing and blankets in cold times and Christmas presents. There is also a programme to increase the skills levels of the children of the community in which the mines operate. ) Medical help local residents can visit the mine doctor and he makes visits in the villages. Transport is also given for emergency cases to larger towns such as Arequipa. Projects are decided on in consultation with a community representative such as a mayor. The Company has sponsored the following projects: ) Purchase of land at near Cuzco for the establishment of an alpaca breeding centre to enhance genetic material. ) The establishment of a trout farm for the Pampamarca community. ) The establishment of a trout farm, school and slaughterhouse at Iscahuaca. ) The Selene mine has a technology centre and some 72 people from the local community have been trained and are now working for the company. ) There is a woodworking and a literacy programme. ) The mine has helped with a trout breeding programme in the middle of Lake Huisca Huisca. 2.5.3 Health and safety The Company adheres to the Peruvian National Requirement Article 50, Sub Chapter Three Annual Mining Safety and Health Program of the Mining Safety and Health Regulations, under Supreme Decree 046-2001 EM, dated July 26, 2001, to which Article 211 of the Law refers. Additionally the Company adheres to the Mining Code of Argentina (24.498 and 24.585) and to The Mining Law of 26 June 1992 with amendments of Mexico. The Companys mission statement is: ) Vision To be recognised as having the safest operations in any country in which the Company has an asset and one of the safest worldwide. To maintain the Companys commitment for permanent improvement in every aspect of operational activity. ) Target : Zero accidents in all of the Companys assets. Increased production with quality, safety and efciency and the environment. Qualication under OSHA 18001 standards. To consider the human factor as the most important under our management. To preserve and maintain a harmonious relation with the environment. The Company is implementing a risk management system (ISTEC) at corporate level in line with OSHA 18001. The procedures are being put in place to enable the Company to qualify for OSHA 18001 in 2007. Numerous safety and operating procedures are in place at the present time and are 270

) Mission :

continually being updated and augmented to enable the qualication. The details of all issues relating to health and safety can be accessed and comment made on line on the Companys internal web site. Employee and contractor occupational health is assessed prior to employment and annually thereafter. A total of eleven cases of impaired lung function (silicosis) were identied in contractor personnel between 2002 and 2006. This appears to be an isolated group as there are no records of additional silicosis cases developing subsequent to these eleven. Compensation for silicosis is paid by the state and Company policy is to redeploy affected personnel to other employment. The operations have received a number of industry awards and are considered to be amongst if not the best managed operations in Peru. Arcata mine ) 1998 ISEM : ) 1999 ISEM : ) 2000 ISTEC ) 2000 ISEM ) 2002 ISEM National Safety Award, Second prize, Underground Category. National Safety , Second prize, Underground Category. International Audit. Qualication: Third level Good. National Safety Award, Second prize, Underground Category. 6th National Safety Award, Underground Category. Reduction Safety Frequency Indexes in 2001 by 25 per cent. in comparison with previous year. JOHN T. RYAN Award, Underground Category. National Safety Award, Second prize, Underground Category. National Safety Award, Second prize, Underground Category. National Award for Eco-efciency CONAM.

) 2002 2003 ) 2004 ) 2005 ) 2005 Ares ) 1999 ) 2001 ) 2003 ) 2004 ) 2005

Implementation of the management System for Health Safety and Environment Audited by ISTEC, Excellent. International Audit, Category 4 (Very Good). National Prize for Safety in Underground Mining, First Place. National Prize for Safety in Underground Mining, Second Place, and ISO 1401 Environment Certication (Version 96). ISO 14001 Environmental Certication (Version 2004) National Prize for Cleanest Production and Eco Efciency, CONAN 2005 Category 4 (Medium and Large Companies).

Selene ) 2003 ) 2004 ) 2005 National Prize for Safety in Underground Mining, Second Place. National Prize for Safety in Underground Mining, First Place, and ISO 1401 Environment Certication (Version 96). National Prize for Safety in Underground Mining, Second Place, and ISO 1401 Environment Certication (Version 2004) National Prize for Cleanest Production and Eco Efciency, CONAN 2005 Category Medium and Large Companies. 271

The Lost Time Injury Frequency Rate (LTIFR) is one of the parameters used to monitor safety performance in any industry and is usually measured per 100,000 manshifts or one million manhours. The Company has instituted such a programme measuring per million manhours in accordance with the Law and the results are shown in Table 2-11. The increase in the LTIFR in the early part of 2006 is attributed in part by the Company to a single contractor now dismissed for poor working practices, and to increased levels of development or construction work associated with expansion projects. The Company now audits contractor safety records as a part of the selection of a contractor. Records of exploration sites are included in the nearest major operation (e.g. Selene includes Pallancata) and no records of main and subsidiary management ofces are kept. There has been one ne of US$20,000 in respect of the fatality that occurred at Arcata in 2004. Subsequently the Companys safety management system has been modied. The Company has, as of 2006, instituted more stringent auditing of accident and incident reporting with the introduction of OSHA 18001 planned for 2007. This has also contributed to the increase in the LTIFR as a result of more accurate reporting. Comparing similar underground or surface mining safety data from major mining operations world wide the Company have a marginally higher LTIFR at 6.75 than the 6.25 for the industry average. IMCs perception is that the Company is rmly committed to health and safety and expect the Company to demonstrate a sustained long term improvement. Table 2-11 Lost time injury frequency rate
Fatals LTI LTIFR Operatives

Arcata Ares Selene San Jose (Not in Operation) Composite 2004 ****************************************************** Arcata Ares Selene San Jose Composite 2005 ****************************************************** Arcata Ares Selene San Jose Composite 30 June 2006 ********************************************** Arcata Ares Selene San Jose Composite Note: LTIFR is calculated per million man hours

2003 ******************************************************

0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0

6 1 3 10 4 1 1 11 17 1 2 0 28 31 10 7 5 4 16

1.95 0.39 2.02 1.41 1.60 0.34 0.43 88.42 2.00 0.35 0.63 117.33 3.63 6.46 5.20 6.93 13.33 6.75

1,201 908 1,236 3,345 1,124 1,090 1,082 156 3,452 1,002 876 642 262 2,782 1,041 811 618 378 2,848

A record is kept of the frequency of the type of accidents and incidents (near misses) enabling the Company to focus on trends and be pro-active in its management of safety as shown in Table 2-12. This data is available to all employees on-line for a rolling period of 30 days (excerpt shown).

272

(This page intentionally left blank)

273

Table 2-12 Causes of incidents TYPE

Anxiety, stress, fear, Reckless personal, attitude, alcoholism, unsafe Non- Education, Design, SuperFalling drugs behaviour compliance training planning vision materials T01 T02 T03 T04 T05 T06 T07 Personnel Lack of falling, Exposure or failure tripping, to toxic Explosives of support stumbling substances substances T08 T09 T10 T11

Ares, Arcata, Selene and San Jose Date

27-May-06 *********** 28-May-06 *********** 29-May-06 *********** 30-May-06 *********** 31-May-06 *********** 01-Jun-06 ************ 02-Jun-06 ************ 03-Jun-06 ************ 04-Jun-06 ************ 05-Jun-06 ************ 06-Jun-06 ************ 07-Jun-06 ************ 08-Jun-06 ************ 09-Jun-06 ************

1 1 1

1 1 1 1 1 1

1 1 1 1 1 1 1 1 1

274

Table 2-12 Causes of incidents TYPE

Transport, Health, handling, Haulage, Environmental virus, safety Operation loading, Communication Electrical risks, spills, Social Pneumatic cafeteria, Maintenance, Flammability, devices of static unloading and and overows or and/or sanitary or calibration, combustability, of mobile or mobile of Transportation information electrical and political electrical housing repair or ignition units machinery materials and handling disemination risks leakages risk tools risk similar T12 T13 T14 T15 T16 T17 T18 T19 T20 T21 T22 T23

1 1 1 1 1 1 1 1 1 1

275

2.5.4 Infrastructure Arcata mine, Peru, is supplied with power from the National Grid and can provide approximately 33 per cent. of its power requirement from standby generation capacity at the mine when required, which is adequate for essential services but not production. The purchase of additional generation capacity is under consideration by the Company which would ensure not only that essential services are maintained but also that the process plant operates with minimal interruption to production if the National Grid failed. Less than 350 m3 of water is drawn daily for potable and ofce/workshop use. The industrial and mine water is re-circulated and is sufcient for all other purpose. Eleven compressors provide air to the workings with ample standby capacity. Communications within the operation are good and a satellite link is available for external communications. A local area network (LAN) system is being expanded at the operation enabling access to the internet. The principal route for goods to Arcata (approximately 4,630 m elevation) is by mixed tarmac and good dirt road through Arequipa (about 300 km). The main incoming materials are diesel fuel, explosives, timber supports, spare parts and chemicals. Arequipa has scheduled national air services to Lima, the capital of Peru, with international air connections. Ares mine, Peru, is supplied with power from the National Grid and has 100 per cent. standby generation capacity at the mine to be self sufcient. Less than 300 m3 of water is drawn daily for potable and ofce/workshop use. The industrial and mine water is re-circulated and is sufcient for the purpose. Four compressors provide air to the workings with one on standby. Communications within the operation are good and a satellite link is available for external communications. A LAN system is being expanded at the operation enabling access to the internet. The principal route for goods to Ares (approximately 5,000 m elevation) is by mixed tarmac and good dirt road through Arequipa (about 285 km). There are good roads from Arequipa to Lima (985 km) and the port of Matarani (390 km). The main incoming materials are diesel fuel, zinc powder, sodium cyanide, hydrogen peroxide and other chemicals, cement, timber supports, spare parts and explosives. Arequipa has scheduled national air services to Lima, the capital of Peru, with international air connections. Selene mine, Peru, is supplied with power from the National Grid and this capacity is being increased to service the process plant expansion and to route power to Pallancata. Selene has 100 per cent. standby generation capacity at present at the mine and will have approximately 70 per cent. with the planned expansions (Pallancata mine and increased throughput at Selene processing plant). Approximately 500 m3 of water is drawn daily for potable and ofce/workshop use. The industrial and mine water is re-circulated and is sufcient for all other purposes. Four compressors provide air to the workings with ample standby capacity. Communications within the operation are good and a satellite link is available for external communications. A LAN system is being expanded at the operation enabling access to the internet. The principal route for most goods to Selene (approximately 4,600 m elevation) is from Lima (80 per cent.), a distance of 763 km on good surfaced roads, and a short unsurfaced section of 45 km. The remaining 20 per cent. of supplies come from Arequipa, which is 902 km from Selene, also on good quality surfaced roads. Main incoming materials are plant and equipment, diesel fuel, explosives, wooden supports and chemicals. Approximately 330 t of outgoing concentrate goes by road to the port of Matarani, a distance of 970 km. Cuzco, 390 km distant, has scheduled national air services to Lima, the capital of Peru, with international air connections. Concentrate will also be transported to Ares via a serviceable unsurfaced road over a distance of 175km to be turned into dore and then on to Johnson Matthey for rening. Pallancata mine project, Peru, has only basic infrastructural development sufcient to sustain exploration facilities at present. A capital budget has been prepared by the Company to install a new 12.5 km long 33 kV overhead transmission line from Selene and a new terminal substation at Pallancata to supply the needs of a mining operation at a cost of US$M 0.352. Adequate water is available at the site for potable and mining purposes and a treatment plant and settling ponds are planned for the efuent and silt removal before discharge. Compressed air, sufcient for the 276

purpose of mining, is planned at the site. Communications are solely by radio and satellite at present and this will be upgraded. A new road is planned, at a cost of approximately $2 million, which will reduce the distance to Selene by road to 22 km, and avoid some of the more difcult terrain. The workforce will be based at the Selene mine and transported to Pallancata to work. San Jose mine project, Argentina, proposes to install sufcient diesel generation capacity at the mine to be self sufcient. It is permitted to draw 1,560 m3 of water daily for potable and industrial use. The industrial and mine water is re-circulated and is sufcient for the purpose. Four compressors will provide air to the workings with one on standby. Communications within the operation are good and a satellite link is available. A LAN system is available at the operation enabling access to the internet. The principal route for goods to San Jose is by good dirt (35km) then tarmac road to the port of Comodoro Rivadavia (total 230 km). The nearest town is Perito Moreno (about 30km) to the west. The main incoming materials are diesel fuel, chemicals, cement, timber supports, spare parts and explosives which will extend to include zinc powder, sodium cyanide and hydrogen peroxide once the process plant is commissioned. Concentrate will be exported via the port of Comodoro Rivadavia. Comodoro Rivadavia has scheduled national air services to Buenos Aires, the capital of Argentina, with international air connections. Moris mine has adequate generation capacity at the mine to be self sufcient. Sufcient water is available from boreholes for potable, and industrial use. The industrial process water is recirculated and is sufcient for the purpose. A mobile compressor provides air to the operations as required. Communications within the operation are adequate with a land line telephone service available. A LAN system was available at the mine when last in operation. The principal route for goods to Moris (approximately 1,000 m elevation) is by good but arduous dirt road (about 60km) then tarmac road to Chihuahua (total 260 km). There are good roads from Chihuahua to all parts of Mexico via the state highway system. The main incoming materials are diesel fuel, sodium cyanide, hydrochlorate acid, sodium hydroxide and other chemicals, cement, calcium carbonate, spare parts and explosives. Dore ingots were exported via Chihuahua which has scheduled international connections to the USA and national air services to Mexico City, the capital of Mexico, with onward international air connections. 2.6 Projects 2.6.1 Short term projects The Company produced 10,551 thousand ounces of silver and 233.22 thousand ounces of gold in 2005 and expects to produce at a rate of approximately 15,000 thousand ounces of attributable silver and approximately 170 thousand ounces of attributable gold in 2008. 2.6.2 2.6.1.1 New sites ) Pallancata mine, Peru reserves of 643 kt of ore containing 5,578 thousand ounces silver and 23 thousand ounces gold. Total Capex is US$10.5 M none of which is yet committed. Construction is due to commence in August 2006 and planned for rst production 2007 at approximately 60,000 tpa containing 420 thousand ounces of silver and 1.7 thousand ounces of gold in concentrate, rising to a maximum in 2009 of approximately 590,000 tpa containing 4,500 thousand ounces of silver and 18 thousand ounces of gold in concentrate. reserves of 642 kt of ore containing 9,043 thousand ounces silver and 168 thousand ounces gold. Total Capex is US$77.1 M of which US$6.6 M is reserved for contingencies. As at 30 June 2006, US$11 million had been spent and US$6.8 million was committed. Construction is in progress and planned for rst production in July 2007 at 273,750 tpa producing an average 277

) San Jose mine, Argentina

3,934 thousand ounces silver and 51.80 thousand ounces gold in concentrate each year. 2.6.3 Medium term projects. )Moris mine (Mina Maria), Mexico )San Felipe, Mexico resources of 3,354 kt of ore containing 4.0 g/silver and 1.31 g/t gold. Subject to the approval of a new mine plan, rst production is planned for July 2007 producing dore. Small operations exploited the polymetallic resources in the area until closure in 1991. Bolidens exploration programme reportedly dened inferred resources of 3,150 kt with a combined content of zinc, lead and copper sulphides at 9.6 per cent. and silver at 69.7 g/t. IMC are able to accept these gures as an inferred resource.

2.6.4 Long term projects )San Martin, Peru The site is 20 km from Arcata and is being drilled by two drill rigs that have cored 14 holes to date. Previous channel sampling, minor underground exploration and the current surface mapping have yielded a maximum grade at surface of 8,970 g/t silver and 27 g/t gold with drill intersections of 2 g/t to 8 g/t to date. The Company is undertaking mapping, channel sampling and drilling programme to conrm the inferred resources over two separate structures reported by Golden Peaks Resources Ltd of approximately 150 kt with gold grades of 8.05 g/t and 10.66 g/t. IMC have not conrmed these gures. Small operations exploited the polymetallic resources in the area from surface in the 1950s to 1960s reportedly producing at 2 per cent. to 3 per cent. copper and 600 g/t to 700 g/t silver. Three cored holes were drilled by a previous prospector into the Santa Rosa vein in 2002 intersecting 0.37 m to 2.10 m of signicant silver, copper and zinc mineralisation.

)Sierra de las Minas, Argentina

)San Luis del Cordero, Mexico

278

2.7 Environmental issues and management 2.7.1 Legislation The Company adhere to the requirements of the Laws of the country in which they operate, namely: Peru: Decreto Ley No. 17752 DS016-93-EM DS-029-94-EM RM011-96-EM/VMM RM315-96-EM/VMM DS038-98-EM DS074-2001-PCM DS-049-2001-EM Ley 28090 Regulation Asociada Voluntaria Solo Unidad Ares Ley 27314 DS042-2003-EM DS046-01-EM Annexo DS 020-2005-EM Ley 28611 1969 01/05/1993 18/06/1994 13/01/1996 19/07/1996 30/09/1998 24/06/2001 06/09/2001 14/10/2003 01/01/2004 2004 2004 25/07/2001 2005 15/10/2005

PRA1 8.2

In Peru the supreme decree (DS016-93-EM) details the legal requirements for mining and the general environmental legal code. It requires that mines operating prior to 1993 need to compile a Programa de Adecuacion y Manejo Ambiental or PAMA. Mines established after 1993 have to compile an Environmental Impact Assessment (EIA). Thus a PAMA was compiled for Arcata and EIAs for Ares and Selene. The government accredits consultants who are suitably qualied to compile EIAs /PAMAs. In order to establish a mine in Peru one needs to apply to the Ministry of Energy and Mines (MEM) for a beneciation plant title or a permit to construct a processing plant. For this title you need to have done the following: ) Obtain a water use authorization from the Dept. of Agriculture (INRENA) ) Obtain a water abstraction authorization from the Health Ministry (DIGESA) ) Have an approved Community Development Plan (DS 042-2004) from MEM ) Have an approved Environmental Impact Assessment (EIA) from MEM who have to consult with other departments particularly INRENA. ) Have a permit to use and store explosives from the Interior Ministry (DISCAMEC) Argentina: National Environmental Mining Law 24.585 In order to establish a mine in Argentina one needs to apply to the regional authority, in the case of San Jose the General Mining Department DPM, Rio Gallegos, Santa Cruz. At each stage of development, exploration, Manifestation of Discovery and exploitation a separate EIA is required. All the other statutory authorisations required are listed in Table 2-24. Mexico: Ley General de Equilibrio Ecologico y Proteccion al Ambiente (General law of Ecological Equilibrium and Environmental Protection) submitted to SEMARNAP (Secretary of the Environment, Natural Resources and Fishing) The environmental legal requirements for mining in Mexico are relatively simple. There is a requirement for baseline study (EIA) to be submitted prior to commencement of work. In the case of browneld operations management of past liabilities are excluded from the new operators responsibilities. The EIA for Moris mine has lapsed, and this will have to be reinstated prior to commencing work. The only current permits at the San Felipe prospect are those associated with drilling. 279

2.7.2 Status The Peru operations, Selene, Arcata and Ares, all demonstrate very good environmental management practices and are ISO 14001:2004 certied. The closed Sipan mine was previously , is at an advanced state of development and is certied to ISO 14001. The Argentine site, San Jose due to start production in 2007. It has a full environmental management system, is managed in line with ISO and Company requirements and is planned to be certied to ISO 14001 in 2007. The Ares and Selene mines are relatively new and the infrastructure is modern and designed to best international practice. The Arcata mine is older but the environmental aspects are well controlled. Environmental assessments and reports are generated by external companies with recognised international expertise and are of good quality. The Peruvian and Argentinian operations are operating with the necessary environmental permits and authorizations. Compliance with legislation is checked regularly and statistics on permit compliance are compiled and reviewed monthly. The permits and necessary documentation for the Pallancata deposit are well advanced and will be in the name of the joint venture partners /lease holders of the property prior to commencement. The studies and permits for the extensions required at Selene to accommodate Pallancata production are being actioned. An EIA for the Moris mine will have to be resubmitted. The status of permitting for the San Felipe prospect area is in order. All the underground mines and the closed open pit mine (Sipan) in Peru discharge water to the natural environment. The qualities currently discharged meet Peruvian law and international standards and this has been achieved by settling out the suspended solids (all mines) and by active treatment to reduce acidity (Sipan). The long term implications of the discharge of water from the workings, from tailings and rock dump seepage, which could resulting acid rock drainage, needs to be better understood by the Company. Acid drainage is currently generated at Sipan and is being treated in three active liming plants. Costs of water treatment and site management at Sipan are of the order of USM$1 per annum and are budgeted. Other sites do not currently generate acid drainage but, with the exception of San Jose in Argentina, the Acid/Base status of the operations rock strata is not well understood. The limited analyses performed so far indicates that there is potential for future acid drainage and this continually assessed as it is the most signicant residual environmental liability. Costs for treatment, if necessary, are unlikely to exceed US$M0.5 per site per annum. There has, in the past, been minor leakage of tailings to the Huisca Huisca lake below the Arcata operation. The quantity is minimal and the cost of closure is included in the Arcata closure plan. There are reportedly no environmental nes outstanding nor have there been signicant environmental nes or legal disputes in the past. A single ne, of approximately US$10,000, was imposed in 2003 for an excess of arsenic in water discharged from Arcata. The ne was rescinded as it was proved that the levels of arsenic were as a result of natural intrinsic water values. Safety management systems are being developed in accordance with the requirements of OSHAS 18001, and the intention is to obtain certication in 2007. Occupational health examinations are conducted on all employees and contractors, prior to employment, and annually thereafter. A total of 11 cases of impaired lung function (silicosis) have been identied over the last 4 years (all contractors), and where necessary these persons have been reallocated to different work areas. 2.7.3 Provision for rehabilitation The company uses the best international standards for their compilation of documents and designs and is implementing their policy of closing facilities as the life of the mines progress in order to reduce liabilities at the end of the mine life. Draft closure plans and estimates of closure costs have been generated by recognised consultants. These plans are now being revised by a single consultancy (Walsh) for formal submission to the Peruvian government on 15 August 2006 in order to comply with the new legislation requiring closure plans and the deposition of monies 280

on an annual basis to enable these closure plans to be enacted at the end of an operations life. Evaluation of the existing drafts, and of the summarised budget allocations for closure, indicates that for the most part, the work planned, and the nancial allocations for closure are in line with international best practice. However, apart from Sipan, no cost allocation has been made for the ongoing treatment of acid waters. In the absence of detailed acid /base analysis the possibility of acid generation in the future from sites other than Sipan cannot be predicted. However the practical experience to date has been that none of the sites have generated acidity, and there are no signicant levels of heavy metals entering into solution, thus future acid generation risks are considered to be low. The San Jose EIA contains a competent assessment of the ARD and proposes satisfactory control measures for the management of the risk. Total current estimates of closure costs for the Peruvian operations are a little over US$19 million, with additional amounts budgeted for ongoing maintenance for 5 to 10 years per site. The Moris mine closure estimate by the seller is US$900,000, by their calculations, Hochschild has allowed for US$1.35 M to rehabilitate it to Mexican national standards 2.8 Statutory authorisations IMC reviewed the statutory authorisations for the mines and operations and believes all contracts and permits are in place with the exceptions noted. IMC has not completed a legal due diligence of the titles. 2.8.1 Peru The law of Peru grants the right to explore or exploit minerals by means of a mining concession and mining licence. 100 hectares (ha) is the basic unit for newly claimed mineral concessions and 1,000 ha the maximum unit. The concession is irrevocable and indenite as long as its holder fulls the obligations prescribed by law to maintain them. There is no limit to the number of concessions that may be held by a company or individual. From year 2001, the concession holder must pay an annual rent of US$3.00/ha by 30 June of each year (previously since 1991 it was of US$2.00/ha). The concession holder must sustain a minimum level of annual commercial production of US$100/ha in gross sales within six years of the granting of the concession. If the concession has not been put into production within that period, then the concession holder must make an additional penalty payment of US$6.00/ha for the 7th to 11th year following the granting of the concession and of US$20.00/ha thereafter. The concession holder shall be exempted from the Penalty if the investment made during the previous year was 10 times the Penalty (i.e. US$60/ha per year for the 7th through to 11th year). The concession can be defended against possible claims by third parties, transferred or sold, leased, mortgaged and may be inherited. The mining concession requires a number of permits and licences before exploitation can commence. The prime requirements are an approved Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP) without which no approvals will be given; the surface rights; an operating mine permit and an operating plant and plant capacity authorisation. A number of other permits for water use, storage and use of explosives, an administrative and a benet authorisation, fuel use and storage, electricity generation chemical use and the use of X-ray equipment are also required depending on the operation. Many of these permits and licences are granted on a permanent basis and other are renewable annually. The Company either holds, in its name or that of a subsidiary, or leases from a third party the mineral right concessions to Arcata, Ares and Selene operations and San Martin prospect as summarised in Table 2-131 to Table 2-22. Additionally, the Company has title to the mineral rights through its joint venture agreements to Pallancata. The Company owns the surface rights to Arcata and easement contracts to the surface at Ares and Selene operations, the Pallancata project and the San Martin prospect, and the Company also possess all of the necessary licences and permits to operate, construct or explore as relevant. Application has been made for
1

subject to the payment of an annual fee

281

underground exploration development at Pallancata enabling this project to proceed whilst operational permits are being prepared and these are expected prior to the expiry of the exploration development. The EIA and EMP for Pallancata have been approved. Table 2-13 Mineral rights concessionsArcata, Peru
Concession name Concession code Minerals Date 1st registration Renewal

Arcata 5 **************************************************** Arcata 2000 ************************************************* Calvario 1 *************************************************** Calvario 2 *************************************************** Calvario 7 *************************************************** Calvario 11************************************************** Calvario 14************************************************** Calvario 20************************************************** Calvario 21************************************************** Calvario 22************************************************** Calvario 23************************************************** Calvario 24************************************************** Calvario 110************************************************* Calvario 4A ************************************************* Calvario 50************************************************** La Marcarena *********************************************** Marion 1**************************************************** Marion 2**************************************************** Marion 28 ************************************************** Marion 29 ************************************************** Marion 30 ************************************************** Marion 31 ************************************************** Marion 32 ************************************************** Marion 101 ************************************************* Marion 102 ************************************************* Marion 103 ************************************************* Marion 104 ************************************************* Marion 105 ************************************************* Marion 106 ************************************************* Marion 107 ************************************************* Marion 108 ************************************************* Marion 109 ************************************************* Marion 110 ************************************************* Marion 111 ************************************************* Marion 112 ************************************************* Marion 113 ************************************************* Marion 114 ************************************************* Marion 115 ************************************************* Marion 116 ************************************************* Marion 117 ************************************************* Marion 118 ************************************************* Marion 119 ************************************************* Marion 120 ************************************************* Marion 121 ************************************************* Marion 122 ************************************************* Marion 123 ************************************************* Marion 131 ************************************************* Marion 132 ************************************************* Marion 133 ************************************************* Marion 134 ************************************************* Marion 135 ************************************************* Marion 136 ************************************************* Marion 137 ************************************************* Marion 138 ************************************************* Marion 139 ************************************************* Marion 140 ************************************************* Marion 141 ************************************************* Marion T-1 ************************************************** Marion T-3 ************************************************** Marion T-4 ************************************************** Rema 1 *****************************************************

010249094 010199500 010082102 010082202 01001942X01 01002672X01 01002675X01 01002690X01 01002691X01 01002692X01 01002693X01 01002694X01 01004520X01 01001523X01 01002899X01 01000198X01 01004792X01 01004793X01 01004948X01 01004949X01 01004950X01 01004951X01 01004952X01 01005778X01 01005779X01 01005780X01 010214802 010214902 010215002 010215102 010215202 010215302 010215402 010215502 010215602 010215702 010215802 010215902 010216002 010216102 010216202 010216302 010216402 010216502 010216602 010216702 010217502 010010903 010011003 010011103 010011203 010011303 010011403 010011503 010011603 010011703 010011803 010033694 010033894 010050894 010607995

Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals

28-Apr-94 04-Oct-00 16-May-02 16-May-02 27-Mar-63 27-Feb-68 27-Feb-68 22-Mar-68 22-Mar-68 22-Mar-68 22-Mar-68 22-Mar-68 28-Aug-80 07-Mar-60 12-Sep-68 26-Apr-52 06-Apr-82 06-Apr-82 09-Sep-82 09-Sep-82 09-Feb-82 09-Sep-82 09-Sep-82 15-Apr-88 15-Apr-88 15-Apr-88 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 15-Nov-02 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 14-Jan-03 20-Jan-94 20-Jan-94 27-Jan-94 02-Jan-95

Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent*

282

Concession name

Concession code

Minerals

Date 1st registration

Renewal

Rema Rema Rema Rema

3 ***************************************************** 4 ***************************************************** 5 ***************************************************** 6 *****************************************************

010607695 010607495 010728595 010728695

Metals Metals Metals Metals

02-Jan-95 02-Jan-95 28-Apr-95 28-Apr-95

Permanent* Permanent* Permanent* Permanent*

* subject to the payment of an annual fee

Table 2-14 Licences or permits to operateArcata, Peru

Description Number of license or permit Renewal

Administrative Economic Unit (Concessions agrupment) ******************* Benet Concession ***************************************************** Plant Operating and Capacity Authorization ***************************** Surface Rights on Plant, Camps and other facilities ***********************

Operating Mine Certicate********************************************** Environmental Management Program/Environmental Impact Study Approval ************************************************************ Water Use Permit ****************************************************** Discharge Water Authorisation ****************************************** Explosive Use License *************************************************** Magazine Explosives Storage License ************************************ Liquid Fuel Consumers Register****************************************** Chemical Products Use Certicate *************************************** Generator of electric energy Authorisation******************************* X Ray Use Authorisation ************************************************

RL 0513-2001-RPM RD 678-65 RD 502-71EM/DGM/R.D.28/03/05 Land Owner Contract (Asientos C3 de Partidas N 4000076 y 40000132) COM 094-2006 PAMA RD 039-2003EM/DGM RA 080/081/082/083/0842002-AG-DRAA-ATDR.CM RD 1203-2005-DIGESA/SA RD 001697/2006-IN-1703-2 R.D. N 01797-2005-IN1703-2 NR 002-CDFJ-04-2004 20192779333-DICIQ RM 121-2001-EM/VME Licencia de Instalacion N 2526.B3

Permanent Permanent Permanent Permanent

03-Jan-07 Permanent Permanent 09-Aug-07 31-Dec-06 19-Jul-10 Permanent 20-May-08 Permanent 23-Jun-07

Table 2-15 Mineral rights concessionsAres, Peru

Concession name Concession code Minerals Date 1st registration Renewal

Claudia 9 **************************************************** Claudia 10 *************************************************** Claudia 15 *************************************************** Claudia 19 *************************************************** Laguna 11 *************************************************** Laguna 12 *************************************************** Laguna 13 *************************************************** Laguna 14 *************************************************** Laguna 15 *************************************************** Laguna 16 *************************************************** Laguna 17 *************************************************** Laguna 18 *************************************************** Laguna 19 *************************************************** Rescate 2 **************************************************** * subject to the payment of an annual fee

010058396 010058496 010063796 010389697 01005875X01 010011092 010011192 010011292 010011392 010011492 010011592 010011692 010011792 010012094

Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals

14-Feb-96 14-Feb-96 19-Feb-96 07-Nov-97 03-Nov-88 22-Sep-92 22-Sep-92 22-Sep-92 22-Sep-92 22-Sep-92 22-Sep-92 22-Sep-92 22-Sep-92 11-Jan-94

Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent*

283

Table 2-16 Licences or permits to operateAres, Peru

Description Number of license or permit Renewal

Administrative Economic Unit (Concessions agrupment)**************** RD 125-98-EM-DGM Benet Concession ************************************************** RD 049-96-EM-DGM Plant Operating and Capacity Authorisation ************************** RD 049-96-EM-DGM Surface Rights on Plant, Camps and other facilities ******************** Easement contract (Asiento B3 y B4 de Partida N 4031351) Operating Mine Certicate ****************************************** COM 072-2006 Environmental Impact Study Approval ******************************** EIA RD 277-2001-EM/DGAA Water Use Permit* ************************************************** RA 50-2000-AG-DRAA-ATDR.CM Discharge Water Authorisation* ************************************* R. 1679-2005/DIGESA/SA Explosive Use License ************************************************ R.D. N 1815-2006-IN-1703-2 Magazine Explosives Storage License ********************************* R.D. N 1777-2002-IN-1703-2 Liquid Fuel Consumers Register ************************************** N 0017-CDFJ-04-2004 Chemical Products Use Certicate ************************************ 20192779333-DICIQ Generator of electric energy Authorisation *************************** RM 333-98-EM/VME X Ray Use Authorisation ********************************************* Licencia de Instalacion N 2527.B3

Permanent Permanent Permanent 02-Oct-24 13-Dec-06 Permanent Permanent 07-Nov-06 31-Dec-06 16-Feb-07 Permanent 20-May-08 Permanent 23-Jun-07

Note: * Water use permits and discharge water authorization are permanent requiring the payment of annual fees provided there is no change in the technical requirement or increase in usage.

284

Table 2-17 Mineral rights concessionsSelene, Peru

Concession name Concession code Minerals Date 1st registration Renewal

Augusta Elena Tercera**************************************** Blanca 1 ***************************************************** Blanca 2 ***************************************************** Blanca 5 ***************************************************** Blanca 6 ***************************************************** Blanca 10**************************************************** Blanca 11**************************************************** Blanca 12**************************************************** Blanca 13**************************************************** Blanca 14**************************************************** Blanca 15**************************************************** Blanca 17**************************************************** Blanca 19**************************************************** Cruz Del Sur 2 *********************************************** Marco 4 ***************************************************** Marco 3-A *************************************************** Palca Dos **************************************************** Palca Tres**************************************************** Palca Uno *************************************************** Puca Corral 54 *********************************************** Puca Corral 55 *********************************************** Puca Corral 66 *********************************************** Puca Corral 67 *********************************************** Puca Corral A ************************************************ Tumiri ******************************************************* Tumiri Cuatro ************************************************ Tumiri Dos*************************************************** Tumiri Tres ************************************************** Note: * subject to the payment of an annual fee

05003723X01 010007094 010007194 010007494 010007594 010286396 010286496 010286596 010286696 010286796 010286896 010081000 010063203 010213193 010044592 010044492A 05005813X01 05005814X01 05005812X01 05005851X01 05005852X01 05005863X01 05005864X01 010101199 05004166X01 05005809X01 05004167X01 05004168X01

Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals

23-Nov-70 11-Jan-94 11-Jan-94 11-Jan-94 11-Jan-94 17-Sep-96 17-Sep-96 17-Sep-96 17-Sep-96 17-Sep-96 17-Sep-96 02-May-00 03-Mar-03 30-Sep-93 04-Dec-92 04-Dec-92 20-Oct-83 20-Oct-83 20-Oct-83 07-Dec-83 07-Dec-83 07-Dec-83 07-Dec-83 05-Aug-99 16-Aug-76 04-Oct-83 16-Aug-76 16-Aug-76

Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent*

Table 2-18 Licences or permits to operateSelene, Peru

Description Number of license or permit Renewal

Administrative Economic Unit (Concessions agrupment) ******************* Benet Concession ***************************************************** Plant Operating and Capacity Authorisation****************************** Surface Right on Plant, Camps and other facilities ************************

Operating Mine Certicate********************************************** Environmental Impact Study Approval *********************************** Water Use Permit ****************************************************** Discharge Water Authorisation ****************************************** Explosive Use License *************************************************** Magazine Explosives Storage License ************************************ Liquid Fuel Consumers Register****************************************** Chemical Products Use Certicate *************************************** Generator of electric energy Authorisation******************************* X Ray Use Authorisation ************************************************

RJ 01243-2002-INACC/J RD 103-2004-MEM/DGM RD 103-2004-MEM/DGM/RD 159-2006-MEM/DGM Easement contract (Asiento D3, D4, D5 y D6 de Partidas N 11009999 y 11009998) COM 020-2006 EIA RD 010-2003-EM/DGAA/ R.D 059-2005-MEM/DGAAM R 071-072-2002-DRAAP/ATDR-AP RD 1633/2005/DIGESA/SA RD 001589/2006-IN-1703-2 R.D. N 01394-2005-IN-17032 N N 0001-CDFJ-03-2006 20192779333-DICIQ RM 337-2004-EM/DM Licencia de Instalacion N 2528.B3

Permanent Permanent Permanent 07-Nov-25

28-Nov-06 Permanent Permanent 10-Oct-07 31-Dec-06 08-Jun-10 Permanent 20-May-08 Permanent 23-Jun-07

285

Table 2-19 Mineral rights concessionsPallancata, Peru

Concession name Concession code Minerals Date 1st registration Renewal

Au Dos Mil ************************************************** Don Nico Tres ************************************************ Iniko Tres **************************************************** Jelway******************************************************* La Tranca 2003 *********************************************** Orovega 500 ************************************************* Orovega 800 ************************************************* Pallancata 2002 ********************************************** Pallancata *************************************************** Pallancata No. 1 ********************************************* Pallancata Sur************************************************ Tusca 2002*************************************************** Tyler Two **************************************************** Virgen del Carmen 1 ***************************************** Note: * subject to the payment of an annual fee

010164602 010209202 010010304 010082704 010042303 010041903 10212404 010195002 10009751X01 10000049Y02 010366005 010151702 010342903 10010594X01

Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals Metals

02-Sep-02 16-Nov-02 07-Jan-04 05-Apr-04 03-Mar-03 03-Mar-03 08-Jun-04 01-Oct-02 14-Oct-80 14-Oct-80 11-Nov-05 02-Sep-02 28-Oct-03 01-Aug-83

Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent* Permanent*

Table 2-20 Licences or permits to operatePallancata, Peru

Description Number of license or permit Renewal

Surface Right on Plant, Camps and other facilities ************************

Environmental Impact Study Approval ***********************************

Easement contract/LandOwner (Asientos D2 y A1 de Partidas N 11014296 y 11016378) R.D 361-2006-MEM/AAM

15-Feb-26

28-Aug-07

Table 2-21 Mineral rights concessionsSan Martin, Peru

Concession name Concession code Minerals Date 1st registration Renewal

Cayarani 13 ************************************************** Cayarani 15 ************************************************** Chulca 123*************************************************** Marco 7 ***************************************************** Marco 8 ***************************************************** Note: * subject to the payment of an annual fee

010280796 010280996 010279796 010046092 010046192

Metals Metals Metals Metals Metals

16-Sep-96 16-Sep-96 16-Sep-96 15-Dec-92 15-Dec-92

Permanent* Permanent* Permanent* Permanent* Permanent*

Table 2-22 Licences or permits to operateSan Martin, Peru

Description Number of license or permit Renewal

Surface Right on Plant, Camps and other facilities ************************ Environmental Impact Study Approval *********************************** Note: * renewable on advancement of project

Easement contract R.D 103-2006-MEM/AAM

10-Jan-08 30-Jul-06*

2.8.2 Argentina Argentinian statute requires mineral exploration and exploitation to be licensed in three stages: exploration; manifestation and exploitation. Exploration permits on a cateo grant the rights to any mineral discoveries including those made by a third party within the boundaries. Cateos are measured in 500 ha units, or fractions thereof. No single cateo may exceed 10,000 ha (20 units), and no person may hold more than 200,000 ha (20 cateos) in a single province. The exploration area within a cateo may be contiguous or separated. The holder of a cateo must assess the mineral potential within his exploration boundary (and apply for an exploitation right) within a time period based on the size of the cateo. The exploration term is 150 days for the rst 500 ha (1 unit) 286

or fraction thereof, and an additional 50 days for each additional unit (or fraction thereof) within the cateo. After 300 days, 50 per cent. of the exploration area over 2,000 ha (4 units) within the cateo must be relinquished. At 700 days, 50 per cent. of the remaining area must be dropped. Time extensions are regularly granted. The holder of a cateo must present to the mining authority a minimum exploration work program and schedule. The cateo may be revoked if the requirements of the work program and schedule are not met. A single-time fee of ARS $400 (400 Argentina Pesos) per 500 ha (1 unit) must be paid upon application for a cateo. A cateo is developed into a Manifestation of Discovery if proved promising and an approved survey submitted and an EIA/EMP should a mining permit for exploitation be requested. The manifestations are then consolidated into one unit comprising the Mining Concession. The operator is required to either purchase or lease surface rights to access and operate. Within a year of the consolidation an investment plan must be submitted used by the authorities to determine royalty payments during the production phase. Various other operating permits, licences and registrations are required to operate. San Jose permitting is summarised in Table 2-23 and Table 2-24. Table 2-23
Concession name

Mineral rights concessionsSan Jose

Concession code Minerals Date 1st registration Status Mine application

Cateo ********* El Pluma 1 **** El Pluma 2 **** El Pluma 3 **** El Pluma 4 **** El Pluma E1 *** El Pluma E2 *** El Pluma E3 *** Saav NE1****** Saav NE2****** Saav NE3****** Saavedra 3 **** Saavedra 4 **** Saavedra 5 **** Saavedra 8 **** Saavedra 9 **** Saavedra 10 *** Saavedra 11 *** Saavedra 12 *** Saavedra 13 *** Saavedra 14 *** Saavedra 1a *** Saavedra 2a *** Saavedra 6b*** Saavedra 7a *** Tres A ******** Tres B********* Tres C********* Tres D ******** Tres E ********* Tres F ********* Tres Colores A Tres Colores B Tres Colores C Tres Colores D Tres Colores E Tres Colores F Tres Colores G

403.089/MSC/01 410.411/MA/99 412.277/MA/99 412.279/MA/99 412.281/MA/99 410.412/MA/99 412.278/MA/99 412.280/MA/99 400.625/MA/01 400.626/MA/01 400.627/MA/01 410.096/MA/99 410.095/MA/99 410.089/MA/99 410.092/MA/99 413.396/MA/00 413.395/MA/00 401.874/MA/01 401.875/MA/01 401.876/MA/01 401.877/MA/01 410.093/MA/99 410.091/MA/99 410.094/MA/99 410.090/MA/99 411.333/MA/99 411.334/MA/99 414.264/MA/00 414.265/MA/00 414.266/MA/00 414.267/MA/00 411.332/MA/99 411.331/MA/99 414.642/MA/00 414.640/MA/00 414.643/MA/00 414.641/MA/00 414.639/MA/00

All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All minerals All All All All All All All All All All All All All All All All All All All All All All All All minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals minerals

12-Dec-01 16-Apr-99 22-Nov-99 22-Nov-99 22-Nov-99 16-Apr-99 22-Nov-99 22-Nov-99 21-Mar-01 21-Mar-01 24-Mar-01 10-Mar-99 10-Mar-99 10-Mar-99 10-Mar-99 06-Apr-00 06-Apr-00 02-Aug-01 02-Aug-01 02-Aug-01 02-Aug-01 10-Mar-99 10-Mar-99 10-Mar-99 10-Mar-99 04-Aug-99 04-Aug-99 24-Jul-00 24-Jul-00 24-Jun-00 24-Jun-00 04-Aug-99 04-Aug-99 01-Sep-00 01-Sep-00 01-Sep-00 01-Sep-00 01-Sep-00

Exploration Manifestation of Discovery (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD)

Expected end Nov/Dec 06. Expected end Nov/Dec 06. Expected end Nov/Dec 06. 18-Aug-06* 18-Aug-06* 09-Aug-06* 09-Aug-06* 18-Aug-06* Expected end Nov/Dec 06. Expected end Nov/Dec 06. Expected end Nov/Dec 06. Expected end Nov/Dec 06. Expected end Nov/Dec 06. Expected end Nov/Dec 06. Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec 09-Aug-06* Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec Expected end Nov/Dec 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06. 06.

287

Concession name

Concession code

Minerals

Date 1st registration

Status

Mine application

Uno Uno Uno Uno Uno Uno Uno Uno Uno

A ******** B ******** C ******** D ******** E ******** F********* G ******** H ******** I *********

413.095/MA/00 413.096/MA/00 413.097/MA/00 400.765/MA/01 400.766/MA/01 400.764/MA/01 401.507/MA/01 401.508/MA/01 401.509/MA/01

All All All All All All All All All

minerals minerals minerals minerals minerals minerals minerals minerals minerals

06-Mar-00 06-Mar-00 06-Mar-00 04-Apr-01 04-Apr-01 04-Apr-01 20-Jun-01 20-Jun-01 20-Jun-01

(MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD) (MoD)

Expected Expected Expected Expected Expected Expected Expected Expected Expected

end end end end end end end end end

Nov/Dec Nov/Dec Nov/Dec Nov/Dec Nov/Dec Nov/Dec Nov/Dec Nov/Dec Nov/Dec

06. 06. 06. 06. 06. 06. 06. 06. 06.

Note: * concessions encompassing reserves /resources and facilities

Table 2-24 Licences or permits to operateSan Jose

Licence Authority Date/Comment

Mining Concessions************************* Consolidation of Concessions ****************

General Mining Department DPM, Rio Gallegos, Santa Cruz DPM, Rio Gallegos, Santa Cruz

Awaiting approval. Annual fees. Consolidation of mining titles into one unit. Commences after granting of individual titles. Awaiting approval. Annual royalty payments. Exploration Phase approved. Exploitation Phase approved 14-Mar-06. Registered 29th January 2002. Annual fee. Registered to commence June 2006. Annual.

National Law of Mining Investments (LIM) n 24.196 *********************************** Environmental Impact Report ***************

DPM, Rio Gallegos, Santa Cruz DPM, Rio Gallegos, Santa Cruz

Mineral Producers Certicate. Register number: 403.305/02 ************** Mineral Treatment Plant Commercial licence

DPM, Rio Gallegos, Santa Cruz Public Registry of Industry and Commerce. DPM, Rio Gallegos, Santa Cruz DPM, Rio Gallegos, Santa Cruz

Mineral Transport Guides ******************* Public Registry of Hazardous Waste Operators and Generators. Resolution N 046-SMA/06, of 2nd May 2006 ************************* Explosives Use and Storage. Registry N 980007082, of 31st May 2006. ************* Registry of Importers /Exporters**************

Environmental Department (SMA), Rio Gallegos, Santa Cruz National Arms Registry (RENAR), Buenos Aires Import/Export National Administration (ADUANA), Buenos Aires Department of Water Resources (RRHH), Rio Gallegos, Santa Cruz Department of Water Resources (RRHH), Rio Gallegos, Santa Cruz National Committee of Communications (CNC), Buenos Aires National Secretary of Energy, Buenos Aires Provincial department of Transport (DPT), Rio Gallegos, Santa Cruz Secretary of Energy, Santa Cruz

Registered 2nd May 2006. Annual.

Registered 31st May 2006. Annual 28th January 2004.

Drilling in Search of Water. DPRH/CAP/No. 003/2002******************* Water Use *********************************

Granted 2002. 7th July 2006 for 5 years. Permit to use average of 62 m3/h during the rst ve years. Authorisation issued. Quarterly fee.

Radio Frequency Use ***********************

Hydrocarbon tank Certication and Storage of Hydrocarbons ************************* Transport Permits for Personnel and Goods **

To be submitted on completion of detailed Contractor responsibility.

Independent generator of energy ***********

To be submitted on completion of detailed design.

288

Licence

Authority

Date/Comment

Registry of Mining Investors*****************

National Directorate of Mining Investors, Buenos Aires National Directorate of Mining Investors National Mining Secretary, Buenos Aires

Registered. No 422 15-May-06 granted National Tax scal stability. 15-Jun-06 granted Provincial Tax scal stability in progress Annual afdavits submitted and approved.

Fiscal Stability Certicate (CEFC) ************* LIM Stipulations on investment and environmental remediation ***************

2.8.3 Mexico Mexican mining law is based on article 27 of the Mexican Constitution, which establishes that all minerals found in Mexican territory are owned by the Mexican nation, and that private parties may exploit such minerals (except oil and nuclear fuel minerals) through a concession granted by the Federal Government. This system has been in place essentially since the Spanish colonization of Mexico, when minerals were owned by the King of Spain. Article 27 is the Mining Law of 1992, and its current enabling Regulations were issued by the President of Mexico in 1999. Concessions are initially granted for exploration for a period of six years; an exploitation concession for fty years, renewable once for an equal term, may be requested at any time before the end of the exploration concession. Exploration concessions are granted to whoever rst requests them and may only be granted to Mexican individuals and companies incorporated pursuant to Mexican law, with no foreign ownership restrictions for such companies. However, the Mining Law implies that foreigners must establish a wholly owned Mexican corporation for that purpose, or enter into joint ventures with Mexican organisations. All concessions must be registered on the Public Registry of Mining. While a mining concession gives its holder the right to carry out mining work and take ownership of any minerals, it does not automatically grant any surface access rights, which must be negotiated separately with the owner of the surface land. If no agreement can be reached with the surface owner there is a right in law to apply to the General Mining Bureau for the expropriation or temporary occupation of the land, with a consideration, payable on a one time basis for expropriation and on a yearly basis for temporary occupation. The mining concession also grants rights to any water obtained from the mine. Any other water rights must be obtained separately. The main obligations of a mining concession are the performance of assessment work, the payment of mining taxes (duties) and the compliance with environmental laws. Regulations establish minimum amounts that must be spent on exploration and/or exploitation activities. A report must be led in May of each year regarding the work done to allow the assessment of Duties. Environmental laws require the ling and approval of an environmental impact statement for all exploitation work, and for exploration work that does not fall within the threshold of a standard issued by the Federal Government for mining exploration. Environmental permitting for exploitation, where there is no local opposition, can be usually achieved in less than one year. Moris permitting is summarised in Table 2-25 and Table 2-26.

289

Table 2-25 Mineral rights concessionsMoris (Mina Maria)

Concession name Title date issue Title date (expiry) Title no. Type

San Luis ********************************************************* 19-Dec-91 Ampl.San Luis *************************************************** 6-Dec-89 Ampl. 2 a San Luis *********************************************** 16-Jul-93 Ampl. 3 a San Luis *********************************************** 3-Sept-93 Ampl. 4 a San Luis *********************************************** 30-Sept-93 Ampl. 5 a San Luis *********************************************** 23-Sept-93 Cerro Amarillo*************************************************** 19-Dec-91 Cerro Amarillo Dos*********************************************** 10-Oct-95 San Fransisco **************************************************** 19-Dec-91 Rosario********************************************************** 30-Sept-98 El Cajon ********************************************************* 16-Jul-93 Rome *********************************************************** 18-Dec-96

18-Dec-41 5-Dec-39 4-Jun-52 3-Dec-51 30-Aug-50 4-Mar-52 18-Dec-41 4-Nov-52 18-Dec-41 13-Dec-54 4-Mar-52 17-Feb-53

191640 184918 216945 214841 212103 215594 194008 218291 192781 223440 215593 219221

Exploitation Exploitation Exploration Exploitation Exploitation Exploitation Exploitation Exploitation Exploitation Exploitation Exploitation Exploitation

Table 2-26 Licences or permits to operateMoris (Mina Maria)

Description Number of license or permit Renewal Comment

Land Use *********************** SRN.38-97/2652 Function License **************** L.F.08-019-116-94 Operation Permit *************** Resolution 301 Environmental Impact

Lapsed 28-Sept-00 Annual 05-Sept-08

Power************************** 28/AUT/95 Water Rights ******************* 2CHI105434-09FMGE95 Health License ****************** 40774 Blasting ************************ 2361-Chihuahua Authorisation to Purchase Explosive Material ************ 23352 Airstrip Authorisation *********** 101.202.1168 Provisional Pilex Importation Programme**** PITEX/95-415

Permanent 16-Jun-15 Permanent Lapsed 31-Dec-00 Lapsed 31-Dec-99 Lapsed 28-Feb-00 Lapsed 2Aug-00 Permanent

New permit required after acquisition. Renewed by notice to the local authorities. Assignment required after acquisition together with a formal notice to the environmental authorities. Formal notice to the power supplier required. Assignment required after acquisition. New license or assignment required after acquisition. New permit required after acquisition. New authorisation required after acquisition. New permit required after acquisition if put into use. New permit required after acquisition if embarking on importation programme. New permit required after acquisition if embarking on exportation programme.

Altex Export Programme ******** 20/97

IMC reviewed the mineral rights, access rights, statutory authorisations and joint venture agreements for the mines and operations and believes that all rights, permits and contracts are in place with the following exceptions. San Jose has made an application for the exploitation of the reserves where approval has been granted and certication is expected in late July 2006. Most of the permits and licenses for Moris mine (Mina Maria) have now lapsed and require renewal prior to the resumption of production which, IMC understand, can be expedited within the required timescale. 2.9 Costs 2.9.1 Operating costs IMC examined the forecasts of operating costs for all operations as prepared by the management of the Company. The forecasts were compared with actual costs in previous years and, where considered appropriate, were modied following discussion with the Company. Operating costs were incorporated into the cash ows prepared by IMC for the purposes of the valuation of the Companys assets. IMC considers the production plans and budgets to be attainable. 290

2.9.2 Cash costs The historic cash operating costs per ounce of silver produced is presented on two bases for the years 2003 to 2005 and are summarised in Table 2.27. They are presented rstly with cash costs of production pro rated on a co-product basis and secondly net of income credits for by-product sales on a by-product basis. Table 2-27 Net cash cost per oz of silver equivalent
2003 (US$ per oz) 2004 (US$ per oz) 2005 (US$ per oz)

Net Cash Cost per oz of Silver Co-Product methodology ******************* Net Cash Cost per oz of Silver By-Product methodology********************

0.89 (5.32)

2.53 (2.58)

2.34 (2.67)

N.B. the net cash cost per ounce quoted has been derived from the audited IFRS accounts set forth in Part IX

Income from the sales of by-products relates principally to gold. 2.9.3 Capital costs Similarly, IMC examined the capital cost estimates prepared by management for the period of the cash ows. Where considered appropriate, additions were made to the gures following discussions with the companys management. The revised capital cost estimates were also incorporated into the cash ows. IMC considers the production plans and budgets to be attainable. 2.10 Risks and synergies Section 7.0, Special Factors, refers to aspects of the business which may materially affect IMCs valuation, i.e. Risk ) The dependence on the use of mining contractors for mining operations. The Company does, however employ a number of mining contracting companies and is not over reliant upon any single Company. Synergy ) The Company is based in a Spanish speaking country with experience of working in South and Central American countries. It is, therefore, well placed to exploit opportunities in other Spanish speaking countries within South and Central America. 2.11 Sales and marketing Hochschild is a producer of silver and gold and associated by-products and has very detailed market knowledge and expertise in these products. IMC has viewed and conrm that all of the concentrate and dore is supplied to two customers. The concentrate is supplied to the Penoles smelter in Mexico and the dore to Johnson Matthey in Salt Lake City for rening. The concentrate is sold to Penoles and the dore, after rening by Johnson Matthey, is sold to Johnson Matthey and nancial institutions. The Company has continued a policy of supplying its product to only two customers as the agreements to date have been equitable. It is reported that Hochschild is currently the fourth largest primary silver producer globally (having produced approximately 10.5 million ounces in 2005) and produces a signicant quantity of gold (approximately 233 thousand ounces in 2005). 291

2.12 Valuation of reserves 2.12.1 Lives of mines in valuation The valuation of the mining assets of Hochschild has been based on lives of mines based on the reserves, proven and probable, available to each of the mines as at the valuation date but excluding any resources potentially available to each of the mines. The normal operating strategy of Hochschild results in each of the mines only having available reserves to support a mine life of between 2 to 4 years. The Company has a proven replacement record. 2.12.2 Methodology and assumptions The valuation of the Company has been performed using the discounted cash ow valuation method on only the reserves owned by the Company. IMC performed the valuation based on the operating costs, capital expenditures and revenues projected for Hochschild. The division of the valuation to proved and probable reserves has been based on the amount of contained gold and silver production attributable to either proved or probable reserves in any one year and the total cash ow in that year pro-rated accordingly. IMC have assumed that proved reserves are worked before probable reserves. Based on these results, depreciation, taxation and working capital requirements were provided by the Company to IMC for inclusion in this valuation to prepare a post-tax valuation with the allocation of the cash ow to proved and probable reserves as noted previously. IMC has accepted the depreciation, taxation and working capital as provided and accept no responsibility as to their accuracy. The following key factors were considered in the valuation process. Operating costs The level of operating costs as scheduled in development of the Net Present Value (NPV) calculations is sufcient to both maintain current production capacity and to promote limited replacement production capacity where required and within the limit of the reserves available to the mine. Operating costs which would have been incurred in support of prolonging the mine life beyond that quoted above based purely on reserves is excluded from the valuation. Costs such as depreciation have been recalculated by the Company as if the mine were to close upon exhaustion of the reserves. This results in tax calculated on the basis of nancial results based on the mine closure dates described above. Similarly, closure costs are included from the time of closure described in section 2.7.3. Capital expenditure The level of capital expenditure as scheduled in development of the Net Present Value (NPV) calculations is sufcient to both maintain current production capacity and to promote new production capacity where required and is within the mine life based purely on reserves. Capital forecasts include expenditures for replacing major equipment on a periodic basis, as well as development capital for opening new areas for mining and installing additional processing facilities where required. Capital expenditure which would have been incurred in support of prolonging the mine life beyond that quoted above based purely on reserves is excluded from the valuation. Plant and equipment The cost of maintaining, repairing and, where necessary, replacing items or components, is included in the cash cost estimates or in the capital expenditure schedules. Except in instances where equipment is planned to be transferred to another operation, plant and equipment have not been valued separately. As the plant and equipment is an integral component in the 292

generation of the cash ows used to estimate the value of the reserves, the value of the plant and equipment is included in the reserve value. Residual value of some elements of plant and equipment is considered to be material due to the relatively short mine lives included in the valuation and has been included, where deemed appropriate, based on estimates supplied by the Company. Selling price The main products of the Company, namely silver and gold, are international commodities and are subject to both short term and cyclical variations. The valuation model is based on forecast prices of the major commodities (silver and gold) prepared by CRU. Other key parameters Other key valuation parameters used in the valuation include the following: ) The valuation is as at 30th June 2006. ) Cash ows are expressed in real terms and have been discounted according to end of year convention, ) Cash ows are forecasted the mine life based on available reserves, and ) The NPV was calculated using a real discount rate of 6.0 per cent.. 2.12.3 Valuation results Table 2-28 to Table 2-31 summarise the value of the reserves both at the operational level and at the post-tax level. Table 2-28 Summary of valuation of proved and probable reservesBased on operating results
Proved reserves (US$ millions) Probable reserves (US$ millions) Total reserves (US$ millions)

Base case valuation ***********************************************

245.6

25.4

271.0

Table 2-29 Summary of valuation of reservesBased on operating results

Real discount rate % NPV (US$ million)

+2%************************************************************************************************ +1%************************************************************************************************ 6% ************************************************************************************************* -1% ************************************************************************************************ -2% ************************************************************************************************

264.5 267.7 271.0 274.4 277.9

Table 2-30 Summary of valuation of proved and probable reservesBased on post tax results
Proved reserves (US$ millions) Probable reserves (US$ millions)

Total reserves (US$ millions)

Base case valuation ***************************************************** Base case valuation *****************************************************

173.6

37.2

210.8

293

Table 2-31 Summary of valuation of reservesBased on post tax results

Real discount rate % NPV (US$ million)

+2%************************************************************************************************ +1%************************************************************************************************ 6% ************************************************************************************************* -1% ************************************************************************************************ -2% ************************************************************************************************

204.7 207.7 210.8 214.0 217.2

2.12.4 Sensitivity analysis The business of mining and marketing metals and minerals contains variables that are not always predictable. Potential variables include those directly associated with the mining and processing operations, such as cost and production levels, as well as those that are external to the mining and processing operations, such as market prices. While IMC concludes that the NPV of the Hochschild operations, as presented above, is realistic relative to the life of mine plans (based on reserves but not resources), a sensitivity analysis has been prepared for the following variables. Operating cost This could vary as a result of changes in component costs, such as labour or supplies, or from variances in productivity. IMC has calculated a sensitivity of plus 10 per cent. in operating cost. Production Production level can be affected by variances in productivity or market place demands. IMC has calculated a sensitivity of minus 10 per cent. in production. Capital cost Variances in capital costs could result from quantity or market prices of capital items. IMC has calculated a sensitivity of plus 10 per cent. in capital costs. Silver and gold prices IMC calculated the sensitivity impact of a minus 10 per cent. change in gold and silver prices. A summary of the effect of sensitivity of the valuation of reserves to these variables is given in Table 2-32. Table 2-32 Sensitivity analysis of reserve valuation
Operating cost (+10%) Production (-10%) Capital cost (+10%) Silver price (-10%) Gold price (-10%)

NPV (US$ million)

Base case

Based on operating results ******************* Based on post tax results ********************

271.0 210.8

248.6 192.4

249.5 199.0

264.1 204.2

243.0 189.1

245.5 190.9

2.13 Conclusions IMC concludes from the independent technical review that: ) Managements geological and geotechnical knowledge and understanding is of a satisfactory level to support short, medium and long term planning as appropriate and operations are well managed; ) the mine plans appropriately consider geological and geotechnical factors to minimise mining hazards; 294

 ) all statutory rights, permits and contracts are in place with the following exceptions. San Jose has made an application for the exploitation of the reserves where approval has been granted and certication is expected in late July 2006. Most of the permits and licenses for Moris mine have now lapsed and require renewal prior to the resumption of production which, can be expedited within the required timescale; ) the Companys mining equipment (either in place or planned in the capital forecasts) is suited to its mine plans and is adequate, with minor adjustments, for the production plans; ) silver and gold ore processing plants and other infrastructure are capable of continuing to supply appropriate quality products to the markets at the forecast production plans; ) the Companys policy of managing operations whilst engaging contractors to complete execute the operations is a successful strategy providing exibility. IMC believes that the Companys relationship with the contractors is both good and effective; ) the Company has, as of 2006, instituted more stringent auditing of accident and incident reporting with the introduction of OSHA 18001 planned for 2007. This has resulted in an increase in the LTIFR as a result of more accurate reporting. The Company is rmly committed to health and safety and is expected to demonstrate a sustained long term improvement. ) environmental issues are well managed and there are no issues that could materially impede production nor are any prosecutions pending; ) the assumptions used in estimating both capital and operating costs are appropriate and reasonable; ) capital and operating costs used in the nancial models incorporating minor adjustments by IMC reect the mine plans, development and construction schedules and the forecast production levels; ) special factors identied by IMC are well understood by management and appropriate action to mitigate these risks is being taken. Further, the mine plans and cost forecasts appropriately account for these risks; and ) management operates an excellent management accounting system and are able to monitor and forecast production and cost parameters. IMC has estimated the value of the Company silver and gold assets at an operating level as US$271.0 million and at a post tax level as US$210.8 million assuming a real discount rate of 6.0 per cent., and product prices, capital and operating costs and production forecasts which are soundly based. 3 Peru IMC visited Arcata, Ares, Selene, Pallancata and San Martin between the 12th June and the 9th July 2006.

295

3.1 Maps and plans Relevant maps and plans are included in Annex C as listed: Plate 5 ************ Plate 6 ************ Plate 7 ************ Plate 8 ************ Arcata mine: Surface map with location of principal veins and prospects. Arcata mine: Longitudinal Prole of Mariana and Mariana Sigmoid veins and map of principal geological features. Ares mine: Surface map with location of veins and prospects and principal geological features. Ares mine: Longitudinal Prole of the Victoria Vein System, including the main Victoria Vein and sub-parallel branches the Ramal Sur, Lula and Ramal Victoria veins. Selene mine: Surface map with principal geological features. Selene mine: Longitudinal Prole of Explorador Vein and map of principal vein outcrops. Pallancata Project: Surface map with principal geological features. Pallancata Project: Longitudinal Prole of Pallancata Vein and map of vein outcrops.

Plate 9 ************ Plate 10 *********** Plate 11 *********** Plate 12 ***********

3.2 Arcata 3.2.1 Geological characteristics The Arcata mining unit exploits and is exploring further vein-hosted resources within a concession area of 47,777 ha. This area occupies the north-eastern margin of a circular volcanic structure of approximately 15 km diameter in which a rhyolite dome marks the centre. Vein orientations are determined by the broadly arched fractures of the perimeter of this structure and the majority of the principal veins occupy the line of sub-parallel normal faults of ENE-WSW, E-W and WNW-ESE strike, with inclinations between 40 and 65 . Vein widths vary from centimetre scale to over 10 m. Vein texture shows several phases of mineralisation in which open voids show successively banded ll and crystalline intergrowth. The mineralization corresponds to an IS epithermal deposit with predominant silver values and variable quantities of gold and base metals. The Arcata veins show a strong tendency to zoning, both vertically and horizontally. The top or outer zone of individual veins is marked by chalcedony and ne quartz and associated argillic alteration with no metal values of economic interest. With increasing depth the quartz is more coarsely crystalline and the portion of the vein of economic interest is commonly marked by the presence of manganese minerals (rhodonite and rhodochrosite) associated with strong banding of metallic sulphides. In individual veins, such as the Mariana Vein, the top limit of economic mineralisation can be dened but lower limits generally remain open. The vein systems exploited in the earliest phase of working of the Arcata Mine are now considered exhausted and include the Marion Vein System, comprising the Marion, Luisa, Ramal D and Marciano veins, and the Baja-Alta Vein System. More recent production has centred on the Tres Reyes Vein System at the southern margin of the Arcata mineralised area, and particularly in the splay of veins at the south-east end of this system, and also sporadically on the Macarena Vein System. Most recently exploration and development has centred on the Mariana Vein System at the northern margin of the mineralised area, which includes the majority of reserves and which currently supports the greater part of production. The Mariana Vein System comprises the main ENE-WSW Mariana Vein and the related Alexia Vein which is a steeply oblique spur, orientated NNE-SSW. These veins have only a weak and sporadic expression at surface in comparison with their strong development at depth. At depth, at the 4,600 m level, the Mariana Vein is well-developed over a length of over 3 km with an average width of around 0.80 m and locally up to 1.6 m. The dip of the vein is to the south. The vein characteristically shows a brecciated structure which indicates a number of successive fault movements, and which typically is reected in a number of phases of mineralisation and higher 296

metal grades. The upper limit of economic mineralisation has been dened at a depth of around 150 m from the surface, but the mining potential remains open both laterally and in depth. The Alexia Vein reects oblique dilational strain between adjacent faults. It has been evaluated over a length of 1,200 m and remains open at both extremes, although declining grades indicate that the vein does not extend with economic value in depth. Vein width ranges up to over 2 m and this vein shows similar brecciation and mineralisation to that in the Mariana Vein. Successively south of the Mariana system, the Marion Vein System is currently abandoned, but high gold values in the lower levels of working suggested a number of phases of mineralisation which are still to be tested. The Macarena Vein System can be traced at outcrop as a broad discontinuous arc over a distance of approximately 2 km but has only been sporadically worked in the E-W trending central and western part of this trace and dips northwards. To the east, the trace can be followed as a WNW-ESE structure which has not yet been evaluated and which is an identied exploration target. A cluster of tensional fractures oblique to, and on the south side of, the main vein are developed as the NNW-SSE veins M1, M2 and M3, with strike lengths of up to 500 m. These are currently in development and host signicant reserves in vein widths of around 0.80 m. Although the Baja-Alta Vein System has been worked extensively during the early phases of operation of the mine, at its eastern end the Alta Vein, a sub-parallel branch to the system, known over a strike of 1,600 m, contains currently developed reserves with an average width of 1.00 m. Also, at the western extremity of the Baja-Alta Vein System, an unworked length of the Baja Vein is known over an outcrop of 1 km with an indicative mineral assemblage suggesting signicant mineralisation at depth. This is identied as a priority exploration target and other sectors of the system, including the central area are also considered to have the potential for signicant mineralisation in as yet unidentied ore-shoots in depth. The Tres Reyes Vein was previously extensively worked in its western segment, but the central part of the curved trace swings to a WNW-ESE strike and has only been sporadically accessed underground. Strongly argillised alteration in this sector is known, and considered indicative of signicant potential for economic mineralisation at depth, and this is identied as a primary exploration target. At its eastern end the system branches into a splay of NW-SE and WNW-ESE veins comprising the group Ramal 1 through to Ramal 4. Ramal 2 is currently an important source of production and in underground workings is known over a strike length of 1,100 m with vein widths varying between 0.40 m to 3.00 m; it maintains economic values over a vertical extension in excess of 500 m. In addition to the main developed vein systems, the Arcata area includes a number of prospects which are programmed for more detailed exploration. The Chumille Vein extends N-S from the northern edge of the Marion Vein System across the line of the Mariana Vein System and has been explored by underground core drilling from workings in the Mariana Vein System, which recorded an intersection of 0.65 m wide with grades of 0.80 g/t of gold and 298 g/t of silver; the mineralisation is similar to that of the Mariana Vein. The Pucara Vein is sub-parallel to the Mariana Vein System at the eastern end of the latter and has been identied over a surface strike length of 1.5 km; one surface drillhole has indicated the potential for signicant economic mineralisation at depth. The Consuelo Vein is one of a number of structures with sporadic outcrop between the Marion and Mariana vein systems, and one surface drillhole has intersected a narrow vein of 0.10 m with grades of 1.76 g/t gold and 1,056 g/t silver. The Looby Vein, at the eastern end of the Marion Vein System, outcrops as a vein breccia over an E-W strike length of only 30 m, with a width of 0.40 m to 1.00 m and surface core drilling has recorded an intersection of 0.70 m with grades of 1.52 g/t of gold and 626 g/t of silver. 3.2.2 Reserves and resource statement IMC has veried the reserves and resources presented by the Company on 30 June 2006 for scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006. 297

3.2.3 Losses and dilution The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has been applied to these gures. Detailed survey methods are used in all the Peruvian operations to dene the volume of the vein material and the dimensions of extracted voids, dening a dilution factor derived from volume differences. Dilution is also monitored by reconciliation of mined tonnage and grade with that recorded at the process plant, allowing also for material in stocks and handling. Dilution in the Arcata veins has generally been comparatively high reecting less competent wall rocks and vein widths commonly thinner and more variable than Ares and Selene. Careful management of stope widths with respect to actual vein widths has resulted in a steady decrease in dilution since March 2006. The following factors for individual veins have been established based on survey management and monitoring: Ramal 2 at 25 per cent.; Ramal 4 at 31 per cent.; Alta at 31 per cent.; Mariana at 30 per cent.; Alexia at 21 per cent.; Macarena 2 at 31 per cent.; and Cimoide Mariana at 30 per cent.. The dilution factor is applied to resource blocks with the assumption that the diluting material has zero content of gold or silver values. Losses of 5 per cent. have been applied uniformly in the estimation of reserves in each of the veins with the exception of Ramal 2 vein, a mature operation in which losses in extraction and handling are wellcontrolled and judged to be minimal. IMC considers the practice adopted for the assessment of dilution and the application of the factors to be realistic and the application of a 5 per cent. loss factor is considered to be an appropriate and conservative value to cover losses in extraction, handling and transportation of material in the stope through to the processing plant. 3.2.4 Cut-off grade The cut-off grade, as at 30 June 2006, used for resource estimation at the Arcata operation is 174 g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of reference prices for gold of $450/oz and for silver of $7.50/oz. IMC consider the process of determining the cut-off grade and the cut-off grades appropriate. 3.2.5 Verication IMC has veried a portion of the reserves of each mine or project and concur with the gures in Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major veins on which there are sufcient intersections to carry out the necessary variography, and inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Arcata Ramal 2. IMC believe this is an appropriate and rational selection. IMC carried out check modelling using the Datamine mining software system on a selection of both major and more minor veins for Arcata mine, including the Mariana and Alta veins comprising approximately 65 per cent. of the reserves. 3.2.6 Mines and projects The Arcata mine (elevation approximately 4,630 m), with a current capacity of 353 ktpa and planned to increase to 406 ktpa by January 2007, was commissioned in 1964. The veins in the Mariana, Ramal 2 and Macarena vein systems have a minimum designed mining width of 0.8 m and a maximum 3.0 m, averaging 1.6 m in thickness, and dips at between 70 to 80 . The orebodies are accessed by discrete inclined ramps and these connect underground in each orebody by spiral ramps to a depth of about 400 m below surface. The veins are mined by conventional and mechanised (trackless) cut-and-ll breast or overhand stoping methods utilising timber support. 30 stopes rotate in the production cycle of drilling and blasting, mucking of ore and backlling. This will reduce to 15 stopes as production from the Mariana vein increases. Very little of the production is now from the old Macarena vein system. Thirty per cent. of the production comes 298

from the older Ramal 2 section which exhausts in approximately 18 months. The balance of production is from the Mariana section discovered in 2004 and which is being developed at a rate of over 1,500 m per month on three levels as replacement for Ramal 2. A series of raise-bored (RB) shafts are used primarily for ventilation purposes. Ore is loaded from the ore passes into 22 t standard road haulage trucks carrying the material up the mine ramps to the process plant primary crusher or to the waste dump on surface. Haulage distance from the operations to the plant is approximately 4.9 km and 4.5 km. Backll is with both hydraulic ll utilising approximately 50 per cent. of the tailings produced and also waste rock depending on underground support requirements. IMC considers the proposed development and production plan of Arcata is achievable. 3.2.7 Process plant The plant processes silver ores with associated gold, lead and zinc to produce a silver/gold bulk concentrate by otation. The plant commenced operation in 1964 at 35 ktpa. Plant capacity is now 353 ktpa which was achieved by an expansion from 280 ktpa in 1980. It has been operating at 280 ktpa but the feed increased to the design throughput of 353 ktpa from July 2006. Primary crushing is by jaw crusher preceded by a grizzly screen. Screen undersize and jaw crusher product combine and feed an ore washer from where oversize feeds the secondary short head crusher operating in open circuit. Tertiary crushing is in closed circuit using two short head crushers working in parallel. The product is stored in four hoppers feeding the two primary ball mill circuits. The nes from the ore washer feed a spiral classier from where the sands (large material) are classied and combined with the tertiary crusher product in the hoppers while the classier nes are combined with the product from the primary milling process feeding the secondary milling circuit. Milling is performed in two circuits. Circuit No. 1 feeds ball mill #1 and a Hardinge mill. The product of ball mill #1 is classied by hydrocyclones working in closed circuit with ball mill #1 to which the underow returns. Hydrocyclone overow and the Hardinge mill product are transferred to a different bank of hydrocyclones. The overow of these cyclones forms the otation feed with 70 per cent. minus 200 mesh. The hydrocyclone underow goes to secondary milling in ball mill #4 working in a closed circuit with this hydrocyclone. Circuit No. 2 consists of ball mill #5 for primary milling operating in closed circuit with hydrocyclones. The overow together with the secondary mill product is fed to a bank of hydrocyclones. The overow from this hydrocyclone is the otation feed with a 70 per cent. minus 200 mesh. The underow goes to secondary milling in ball mill #2 and the Comesa mill. Flotation is by conventional otation cells in two parallel circuits. Each circuit consists of an 8-cell rougher, a 6-cell scavenger and a four-phase cleaner. Currently only one cleaner bank is in use with the other only required intermittently providing a small spare capacity. The concentrate is fed to a thickener and then to a disk lter for dewatering. The concentrate is bagged in 50 kg bags for transport off site. Final tailings are classied by cyclone into coarse material used for hydraulic ll and nes fed into a thickener. The thickener product is pumped to tailings area 6 some 2.5 km from the plant. Solids are retained in the dam and decanted water is recovered back to the process by pumping. IMC considers the proposed development and production plans of Arcata are achievable. 3.2.8 Tailings disposal General observations applicable to all of the Peruvian operations dams are that they are raised by the downstream method using contractors with extensive quality control testing. This has enabled the designers to use steeper civil engineering slopes compared to the more typical mining slopes. The dams are operated by the concentration plant managers with supervision of the monitoring 299

equipment and routine inspections carried out by the Companys Environmental Department. Civil Engineers from the Head Ofce inspect informally about twice per year. The basic design of the dams is included in an EIA or a similar report known as a PAMA for pre-1993 dams. The EIA limits the maximum height of the dam. To exceed the agreed height, a new EIA is required. Guides issued by the Ministry of Energy and Mines recommend minimum factors of safety in static and seismic conditions. The mines are all situated in areas of high seismic risk. The designs all take into account the effects of acceleration, settlement and of liquefaction for a 1 in 475 year seismic event. The effect of any large-scale failure would be to stop the concentrator. New dams are built and operated to a high standard with good quality control used to design steeper than normal slopes as is the practice in South America. Regular inspections and monitoring of piezometers and settlement gauges are carried out by the Environment Department. The engineering report for the starter dam at Selene included a full method of operation now being used to draw up similar operation manuals for all of the dams. Standardisation on the use of common factors of safety and seismic parameters based on the Guides issued by the Ministry of Energy and Mines should be implemented to regularize the operations. Arcata mine includes four old dams which have been partially reclaimed, Dam No 5 which is being buttressed and the active Dam No 6. Dam 6 is 23 m high and contains 1.4 Mm3 of tailings. The dam can be lifted by a further 5 m giving a life of about 8 years. The inlet pipes are supported on high wooden trestles at the toe of steep faces on the north side of the dam. These trestles will be buried by tailings during this lift and will need to be moved. There is a channel diverting the upstream water around the south of the dam to a small pond above the southern side. There is some seepage under the concrete walls of this pond. The interceptor drains around the dam are to be built after the completion of the dam. This means an increased freeboard needs to be maintained. About 60 lpm of water seeped from the toe of Stage I of Dam 6. There was some deterioration of the concrete liner but the water was thought to be owing under the dam. This ow was positively drained to the toe as part of the current lifting of the dam. This ow should continue to be monitored and any change in ow reported to a Civil Engineer. Dam 5 is approximately 30 m high contains about 1 Mm3 of tailings. It was closed in 2003 and now has a minimum freeboard of only 300 mm. The slope is being buttressed by the Environment Department to give a downstream slope of 1 in 2. It is important that the slope of the buttress is cut back to 1 in 2 and that the surface drainage of this dam is maintained. Any failure of Dam 6 would ow down the valley towards the base of Dam 5. Dam 5 is above the Eduardo Ramp but from the conguration of the land below the dam, any failure is unlikely to affect that ramp. 3.3 Ares 3.3.1 Geological characteristics The Ares mining unit exploits and is exploring further vein-hosted resources within a concession area of 22,700 ha. This area of epithermal gold-silver mineralisation was discovered by aerial photographic interpretation in 1988. Surface mapping, geochemical sampling and surface drilling were performed in the period 1990 to 1992, and dened the outcrop of seven vein structures. Underground exploration commenced in 1993, leading to development of the Victoria Vein and, in conjunction with further surface exploration, the proving of the Maruja Vein. Subsequent drilling in 1995 proved gold and silver values in the Tania Vein. The greater part of production has been obtained from the Victoria Vein System and its component splits and loops. This system comprises the greater part of the current reserves and resources base and is known over a strike length of over 1.5 km, although there is only a 20 m surface outcrop. The identication of new resource areas is largely guided by underground development and exploration. The strike of the vein systems is predominantly ENE-WSW, interpreted to reect dextral strike-slip faulting. Less persistent veins of NW-SE strike indicate closely related tensional dilation between 300

the strike-slip fractures. The mineralisation is signicantly different to Arcata and Selene in containing a higher abundance of gold although silver rich veins show a relationship to Arcata and Selene indicating a number of separate pulses of mineralisation. The veins show banding successively of massive quartz and hyaline quartz and also exhibit a range of argillic alteration minerals. The precious metal mineralisation includes electrum, native gold, native silver, argentite, pyrargyrite and gold-silver tellurides (petzite-hessite). The vein sulphide minerals in the upper (near surface) zone commonly comprise only pyrite and pyrargyrite while a much more varied suite including minor amounts of chalcopyrite, galena, sphalerite, polybasite, stibnite-enargite, proustite-pyrargyrite, tennantite, tetrahedrite and covellite occur in deeper zones. The gold rich veins indicate LS mineralisation but the silver rich veins IS mineralisation. While the silver rich veins correspond to an IS character similar to that at Arcata, one interpretative model is that the goldrich veins may be considered more typically a low sulphidation phase, in which well-dened rather narrow vertical zoning may be expected. However, the local experience is that there is also a strong lithological control by the host rock on vein development and the competent, massive rhyolitic unit, or dome rocks, provide the most receptive environment for mineralisation within the region. The Victoria vein system comprises several related structures developed over 1,500 m of strike length and 300 m of dip. extent (Figure 5.2). The structure strikes NE to SW and generally has a sub-vertical dip of 65 to 80 generally to the northeast. There are a number of branches, loops, sub-parallel veins and fans of vein splits. Resources and reserves are recognised a number of branches, loops, sub-parallel veins and fans of veins splits in the main Victoria Vein, constituting approximately 80 per cent. of the measured and indicated resource, and in the Ramal Victoria, Cimoide, Split Victoria, Lula, Ramal Sur 096 and Veta 097. Vein widths range from 0.50 m up to 10 m. This system contributes over 80 per cent. of measured and indicated resources and displays consistently high gold content averaging 15.5 g/t over the measured and indicated resources. Values attenuate with depth but principal vein developments remains open laterally with considerable potential to locate further sub-parallel vein developments within the overall structure. The Maruja vein system is sub-parallel to the Victoria Vein System some 300 m to the north. This system is silver-rich with lesser gold values averaging 1.42 g/t in the measured and indicated resources. Substantial mine development has taken place on this system over a strike length in excess of 600 m with vein widths in the range of 0.30 m to 0.50 m. The vein currently contributes only a small proportion of production. Further resource potential exists in the southeast lateral extension. Immediate exploration targets in the immediate vicinity of Ares include extensions to the Maruja vein which remain undened in comparison to the more attractive Victoria system; the Guadalupe vein shown by underground workings to have vein widths of the order of 1.49 m assaying at 1.44 g/t gold and 122 g/t silver; and the Tania vein to the north of the Victoria and developed along 150 m underground showing 1.06 m width and 1.83 g/t gold and 36.2 g/t silver. A further replacement programme has identied the Isabel vein approximately 800 m north of the Victoria with 17 drill hole intersections with silver rich mineralisation over a strike of 450 m with vein thickness reported as between 0.27 m to 4.61 m; the Paola vein 1.0 km north of the Isabel with cored intersections of 2.00 m of silver rich mineralisation; the Poconopausa structure 2km north of Victoria with cored intersections showing a number of closely parallel veins of 0.57 m to 1.90 m width with silver rich mineralisation; and the Claudia system 2 km to the south east of the Victoria considered a future target. 3.3.2 Reserves and resource statement IMC has veried the reserves and resources presented by the Company on 30 June 2006 for scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006.

301

3.3.3 Losses and dilution The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has been applied to these gures. Dilution in the Ares veins has generally been low and uniform reecting the competent wall-rock. The survey-dened dilution factor has been consistent at close to or below 10 per cent. and is conservative with respect to suggested values based on reconciliation. A 10 per cent. dilution factor has been applied uniformly to each of the veins of the Ares mine. The dilution factor is applied to resource blocks with the assumption that the diluting material has zero content of gold or silver values. Losses of 5 per cent. have been applied uniformly in the estimation of reserves in each of the veins. IMC considers the practice adopted for the assessment of dilution and the application of the factors to be realistic and the application of a 5 per cent. loss factor is considered to be an appropriate and conservative value to cover losses in extraction, handling and transportation of material in the stope through to the processing plant. 3.3.4 Cut-off grade The cut-off grade, as at 30 June 2006, used for resource estimation at the Ares operation is 3.2 g/t gold equivalent. The equivalent cut-off grade has been calculated on the basis of reference prices for gold of $450/oz and for silver of $7.50/oz. IMC consider the process of determining the cut-off grade and the cut-off grades appropriate. 3.3.5 Verication IMC has veried a portion of the reserves of each mine or project and concur with the gures in Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major veins on which there are sufcient intersections to carry out the necessary variography, and inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Ares Victoria. IMC believe this is an appropriate and rational selection. IMC carried out check modelling using the Datamine mining software system on a selection of both major and more minor veins for Ares mine including, the Victoria, Ramal Sur 096 and Lula veins comprising approximately 64 per cent. of the reserves and resources. 3.3.6 Mines and projects The Ares mine (elevation approximately 4,937 m), with a capacity of 282 ktpa, was commissioned in 1998. The veins in the Victoria (including the Ramal Sur, Ramal Victoria and Lula) system have a minimum designed mining width of 0.8 m and a maximum of 15 m, averaging 2.13 m in thickness, and dip at an average 75 to 80 . The workings are accessed by inclined ramps and these connect underground by spiral ramps to a depth of about 275 m below surface. The veins are mined by conventional and mechanised (trackless) cut-and-ll breast stoping methods utilising both rockbolts and timber as support. 16 stopes rotate in the production cycle of drilling and blasting, mucking of ore and backlling. A series of raise-bored (RB) shafts are used for ore/waste removal. Ore is loaded from these RB passes into 22 t standard road haulage trucks carrying the material up the mine ramps to the process plant primary crusher or to the waste dump on surface. Haulage distance from the workings is approximately 4.4 km. The backll plant supplies four types of cemented paste depending on underground support requirements. Investigations into the Isabel and Paola veins as replacement ore for the Victoria vein system are ongoing. 3.3.7 Process plant Gold is the primary target with recovery of silver for these leaching and precipitation plant processes producing a dore. The minor quantity of mercury contained in the ore is also extracted. The plant commenced operation in August 1998 and has an operating capacity of 280 ktpa which 302

is planned to be increased by upgrading the classication sections to 325 ktpa over the next three years. Homogenization takes place on a ground stockpile and the product is fed to a primary jaw crusher preceded by a grizzly screen. Screen undersize and jaw crusher product combine and are fed to another ground stockpile feeding the milling circuit. The milling circuit consists of a primary SAG mill and a secondary ball mill. Pulp from the SAG mill is screened and overow returns to the mill. Screen undersize is fed to hydrocyclones in closed circuit with the secondary mill. Hydrocyclone overow feeds the leaching circuit. The cyanide leaching circuit consists of 9 agitation tanks arranged in three banks of three. Oxygen is added to assist the leaching process. The slurry is fed to a counter current decantation circuit consisting of ve units and the pregnant solution is decanted to the pre-clarier of the Merrill Crowe circuit and the solids pumped to the tailings. Pregnant solution is fed to the Merrill Crowe circuit where the metals are precipitated onto zinc. The precipitate is ltered and fed into a retort for drying and recovery of the gold/silver/zinc precipitate and removal of the mercury by volatilisation (subsequently condensed and recovered). Silver and gold are nally recovered by smelting. The dore bars weigh 16.5 kg. These bars are packed into individual plastic bags and two bags are packed in each wooden case. Dore containing about 6 per cent. gold and 94 per cent. silver is currently produced. There are also sales of the minor quantities of condensed mercury. Additional plant is being installed at Ares to allow the processing of concentrates of Selene ore. Ground has been broken (July 5) for the new Gekko plant to treat Selene concentrate and equipment is due to arrive on site during week of July 10th. The plant will treat 2.8 ktpa to 3.5 ktpa of Selene concentrate (total Selene output at 350 ktpa ore feed) in two Gekko In Line Reactors from October 2006. Pregnant solution will be fed into the Merrill-Crowe section and the leached solids will be fed into the leach circuit feed tank for further processing. Introduction of Selene concentrate will have the effect of reducing the gold content of the dore to about 3 per cent.. At present, the Company does not have a contract with a rener for this material but Johnson Matthey are aware of the lower grade that will be produced. The Company state that they will also be asking for tenders from Johnson Matthey and others to rene this dore in the near future. Discharge from thickener 5 is pumped to the tailings area. Solids are retained in the dam and decanted water is recovered back to the process by pumping. IMC considers the proposed development and production plans of Ares are achievable. 3.3.8 Tailings disposal The dam is approximately 20 m high and occupies about 30 ha. It is at its maximum height and has a life of 3 years. Any processing after that period will require a new dam. Buttresses were provided in two locations to improve the factor of safety during the last lifting. Ares mine is currently working under the northern part of Ares dam and follows the standard procedure of the mine manager and the civil engineer liaising to ensure the integrity of the dam and the mine during the undermining. Some minor backsapping was noticed onto the buttress on the north ank during the inspection for this report but this was felt to be as a result of rainwater and could readily be resolved by an inverse lter drain at minimal cost. The adjacent piezometer should continue to be monitored. Failure would affect the concentrator. 3.4 Selene 3.4.1 Geological characteristics Selene, within a concession area of 19,540 ha, is dened by a prominent annular structure of 5 km to 6 km diameter interpreted as a caldera with a collapsed central area partially lled by a 303

complex volcanic edice. This comprises a number of domes of ow-banded rhyo-dacitic lava intrusions providing an important guide to locating prospective vein systems. The most important ow-banded dome structure hosts the Explorador-Tumiri-Aycha vein system. The host rock is extremely competent and the majority of veins identied in adjacent areas are also developed within this lithology. A number of similar domes have been identied around the perimeter and in the centre of the annular structure. The younger sequences of lavas and volcano-clastic sediments host a markedly different style of HS mineralisation. Four principal lineations affect the mineralised structures in the general area around the Selene area: The ESE-WNW lineation controls the principal gold and silver mineralised structures identied in the district and particularly the Huachuhuilca, Colcabamba and Pallancata vein systems. The NE-SW lineation affects the rhyolitic ow-banded domes and reects the strike of the Explorador vein system. The E-W lineation controls the strike of the Tumiri and Aycha vein systems and the Cuello Cuello prospect. The N-S lineation controls the strike in the Colcabamba prospect and the Huachuhuilca Vein. The Explorador Vein System supports all current operations in the Selene Operating Unit and hosts all reserves and the majority of mineral resources. The vein system comprises a complex quartz vein up to 200 m wide along a strike oriented N55 E and length of 2,400 m. This complex includes parallel and sub-parallel veins, splits, loops (cimoides) and branches (ramales) of which the principal Explorador vein is currently mined over a strike of 1,500 m but the complex includes the Ramal Sur, Claudia, Ines, Monica, Patty, Lola, Gaby, Marina and Rosa veins. The dip is sub-vertical and averages 80 and comprises clearly visible banded quartz with diffuse layers of dark sulphides. Subsequent phases of mineralisation are indicated by quartz with reticular texture and by massive milky quartz usually in the centre of the vein. The sulphide mineralogy is characterised by ruby silver with proustite (Ag3AsS3) more common than pirargyrite (Ag3SbS3) and also by argentiferous varieties of tetrahedrite (e.g. freibergite). It is reported that gold occurs as calaverite (AuTe2) and native gold has been reported as occurring in voids in the later phase quartz. The continuity of the vein system is affected by a number of sinistral strike-slip faults of ENE-WSW and E-W strike. The most important is the Soa Fault. The continuity of the system has been established and the mineralisation has been proved extending up to Tumiri Vein cutting across the strike of the Explorador Vein and forms the NE limit to the vein system. Vein width in the economically exploited panels of the Explorador Vein System averages 1.98 m, ranging from 0.80 m to 10.20 m although locally thinner vein widths occur due to faulting. The Tumiri Vein System (veins Tumiri, Timida and Soa) has been determined along a strike length of approximately 2200 m. The vein strike direction is essentially E-W with sub-vertical dip. The upper levels of the Tumiri Vein were worked between 1973 and 1990 and currently Inferred Resources are identied below the worked area. The quartz mineralisation demonstrates successive phases with locally intense brecciation and re-cementing of angular quartz fragments by later phases at low temperatures of emplacement. Metallic minerals are primarily ruby silver, pyrite and disseminated chalcopyrite. There is a close genetic relationship between the Explorador and Tumiri vein systems. Exploration is focused on extensions to depth and ore shoots in the north, central and south of the Exporador vein with approximately 0.25 Mt of inferred resources grading approximately 320 g/t silver and 1.57 g/t gold as well as an intersection towards the Tumiri of 0.40 m at 735 g/t silver and 3.19 g/t gold; the Tumiri vein with approximately 0.12 Mt of inferred resources at 238 g/t silver and 0.47 g/t gold; the Soa Fault vein some 500 m west of the Explorador vein with 2.0 m intersections at 249 g/t silver and 0.33 g/t gold; the Intermediate vein traceable over 2.0 km and to the north east of the Explorador vein with a single intersection of 0.35 m at 269 g/t silver and 7.05 g/t gold; the discontinuously outcropping Lola vein parallel and 1 km north of the Explorador with an intersection of 0.35 m at 81.8 g/t silver and 24.2 g/t gold; the Pucanta vein 1.5 km north west of Explorador with an intersection of 0.55 m at 805 g/t silver and 0.55 g/t gold; the Caylloma Breccia Structure approximately 5 km north west of Selene with an intersection of 4.5 m at 188 g/t silver 304

and 10.57 g/t gold; and the Cuello Cuello Structure located 8 km north east of Selene with intersection ranging from 0.65 m to 2.00 m at 294 g/t silver and 1.28 g/t gold. 3.4.2 Reserves and resource statement IMC has veried the reserves and resources presented by the Company on 30 June 2006 for scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006. 3.4.3 Losses and dilution The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has been applied to these gures. A dilution factor of 10 per cent. has been applied uniformly to each of the Selene veins. Whereas estimates based on reconciliation have shown considerable variation, the survey dened dilution factor has been consistent at close to 10 per cent. and is conservative with respect to suggested values based on reconciliation. The dilution factor is applied to resource blocks with the assumption that the diluting material has zero content of gold or silver values. Losses of 5 per cent. have been applied uniformly in the estimation of reserves in each of the veins. IMC considers the practice adopted for the assessment of dilution and the application of the factors to be realistic and the application of a 5 per cent. loss factor is considered to be an appropriate and conservative value to cover losses in extraction, handling and transportation of material in the stope through to the processing plant. 3.4.4 Cut-off grade The cut-off grade, as at 30 June 2006, used for resource estimation at the Selene operation is 167 g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of reference prices for gold of $450/oz and for silver of $7.50/oz. IMC consider the process of determining the cut-off grade and the cut-off grades appropriate. 3.4.5 Verication IMC has veried a portion of the reserves of each mine or project and concur with the gures in Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major veins on which there are sufcient intersections to carry out the necessary variography, and inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power estimation has been used for all of the minor veins on the Peru properties: i.e. excluding Selene Explorador, IMC believe this is an appropriate and rational selection. IMC carried out check modelling using the Datamine mining software system on a selection of both major and more minor veins for Selene mine, including the Explorador and Ramal Betty veins comprising approximately 91 per cent. of the reserves and resources. 3.4.6 Mines and projects The Selene mine (elevation 4,600 m), with a current capacity of 353 ktpa, was commissioned into production in 2003. The Explorador vein system has a minimum designed mining width of 0.8 m and a maximum of approximately 5.0 m, averaging about 2.0 m in thickness, and dips at between 70 to 80 . The workings are accessed by inclined ramps and these connect underground by spiral ramps to a depth of 350 m below surface. The veins within the system are mined by conventional and mechanised (trackless) cut-and-ll overhand stoping methods. 12 stopes rotate in the production cycle of drilling and blasting, mucking of ore and backlling. A series of raise-bored shafts is used for ore/waste removal and for the supply of backll material. Ore is loaded from the base of these shafts into 22 t standard road haulage trucks carrying the material up the mine ramps to the process plant primary crusher or to the waste dump on surface. Haulage distance from the operation to the plant is approximately 1.3 km. 305

3.4.7 Process plant The plant commenced operations in November 2003 at 177 ktpa, expanding to 265 ktpa and processes silver ores with associated gold to produce a silver/gold bulk concentrate by otation. Additional equipment was installed in November 2005 and the plant now has an operating capacity of 353 ktpa. High frequency screens are being installed and are scheduled for production in the last week of August 2006 to increase plant capacity to 406 ktpa by being more efcient than the current hydrocyclones in sizing mill product and thus reducing the circulating load. Primary crushing is by jaw crusher preceded by a grizzly screen. Screen undersize and jaw crusher product combine and are screened. The undersize is fed to the mill bunker and the oversize is fed to the two secondary short head crushers operating in closed circuit with screens. The primary mill works in closed circuit with a hydrocyclone. Hydrocyclone overow is fed to the secondary milling circuit. The secondary milling circuit consists of two ball mills operating in parallel in closed circuit with a bank of hydrocyclones. Hydrocyclone overow is fed to the otation circuit. Flotation is by conventional otation cells. The circuit consists of a rougher, a scavenger and a two-phase cleaner. The concentrate is fed to a thickener and then to a disk lter for dewatering. The concentrate is bagged in 50kg bags. Currently the concentrate is sold to a third party but as of October 2006, concentrate will start to be sent to Ares for conversion to dore. Ore from the Pallancanta project is to be processed at the Selene concentrator from 2007. The concentrator will be expanded to 720 ktpa in order to process this ore. Testwork on core samples has been completed and mineral processing and metallurgical testing on development ore samples will start in October 2006. The basic engineering for the rst stage has been completed and the detailed engineering is currently in progress. Site work and installation are scheduled to be completed by the end of March 2007 for production to commence in April 2007. The original work for the 2003 plant took 8 months and the current extension construction schedule is considered reasonable. Main equipment is readily available or on order. Pallancata concentrate will be sold as concentrate under the current mine plan. The Companys longer term intention to sell Pallancata as concentrate until 2008 at which time the concentrate will be sent to Ares and processed at Ares as per the Selene concentrate. Ares will have the capacity to treat all of the concentrate from Selene but will require a further expansion to treat all of the maximum feed of 720 ktpa planned to the Selene plant. Tailings are fed to a thickener from where the underow is pumped to the tailings pond. Solids are retained in the dam and decanted water is recovered back to the process by pumping. IMC considers the proposed development and production plans of Selene are achievable. 3.4.8 Tailings disposal The dam is about 50 m high and when full will contain 1.1 Mm3 of tailings. The mine proposes to increase production and to dispose of 40 per cent. of the tailings underground. With these changes, the life of the current dam is about 3 to 4 years. The dam can be lifted a further 5 m within the EIA, giving a total life of 6 to 7 years. Consent will then either be sought to lift the dam by further 5 m giving a further 3 to 4 years life or to build a new dam in the adjacent valley. A new dam would cost about US$M 2.3 to build at current prices. If the current dam were to fail it would only affect an unoccupied valley. 3.5 Pallancata 3.5.1 Geological characteristics The Pallancata project, within a concession area of 7,330 ha, lies at approximately 17 km to the south-west of the Selene vein system and is considered part of the same geological environment. 306

Ancient Spanish colonial period workings are known on the vein system. The vein system extends over a length in excess of 2 km along a WNW-ESE strike and forms a prominent surface feature of silicied material up to 40 m wide. The dip is sub-vertical with branch veins and splay structures typically of 0.50 m to 3.00 m thick. Higher grade zones have been identied where there is a strong stockwork of quartz veins typically with a NE-SW strike intersecting the main vein structure in the West Breccia. This reects a wider structure of intersection of the persistent WNW-ESE veins (Mercedes) by swarms of NE-SW veins (Mariana and San Javier structures). The mineralisation is hosted in a sequence of Tertiary lavas and volcano-clastic rocks of Miocene age. The volcanic sequence near the Pallancata vein includes a large porphyritic andesite intrusion and large areas of the host volcanic sequence are masked at outcrop by a rhyolitic tuff. The low-sulphidation type mineralisation of the Pallancata vein shows multiple phases of banded chalcedonic silica and massive quartz with argentite, ruby silver (pyrargyrite / proustite), pyrite, marcasite, galena, electrum and rarely, native gold. A noticeably higher gold content appears characteristic of the stockwork in the West Breccia structure. Initial surface sampling programmes on the local Mariana and San Javier structures, and some underground sampling in old colonial-era workings indicate similar epithermal mineralisation with high silver and gold values to the north of the Pallancata vein constituting future exploration targets. 3.5.2 Reserves and resource statement IMC has veried the reserves and resources presented by the Company on 30 June 2006 for scrutiny. The reserves and resources statements are, therefore, as at 30 June 2006. 3.5.3 Losses and dilution The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has been applied to these gures. A dilution factor of 10 per cent. and losses of 5 per cent. have been applied uniformly to the Pallancata veins based on the similarity of the deposit to Selene. IMC considers the application of these factors to be appropriate. 3.5.4 Cut-off grade The cut-off grade, as at 30 June 2006, used for resource estimation at the proposed Pallancata operation is 167 g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of reference prices for gold of $450/oz and for silver of $7.50/oz. IMC consider the process of determining the cut-off grade and the cut-off grades appropriate. 3.5.5 Verication IMC has veried a portion of the reserves of each mine or project and concur with the gures in Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major veins on which there are sufcient intersections to carry out the necessary variography, and inverse power of distance (IPD) weighted moving averages for other veins. IPD 5th power estimation has been used for all of the minor veins on the Peru properties. IMC believe this is an appropriate and rational selection. IMC carried out check modelling using the Datamine mining software system on a selection of both major and more minor veins for Pallancata mine, including Pallancata 2 vein comprising 100 per cent. of the reserves and resources. 3.5.6 Mines and projects The Pallancata project, in relation to which the Company signed a contract on 30 June 2006 with a joint venture partner for 60 per cent. of the property and operational management, is located 17 307

km from Selene mine, in a straight line, and approximately 22 km by a proposed new road to haul ore to the Selene processing plant. This project is designed to augment production to the Selene process plant as the process plant expands. The orebody has a minimum designed mining width of 0.8 m and a maximum of approximately 25.0 m averaging about 5.0 m in thickness. The dip of the orebody is 70 to 80 . The planned operation access is by inclined ramps and these will connect underground by spiral ramps. The orebody will be mined by conventional and mechanised (trackless) cut-and-ll overhand stoping methods. 3 stopes are currently scheduled to rotate in the production cycle of drilling and blasting, mucking of ore and backlling at full production by mid 2007. A series of raise-bored shafts will be used for ore/waste removal and for the supply of waste backll material. Ore is loaded from the base of these shafts into 22 t standard road haulage trucks carrying the material up the mine ramps to the process plant primary crusher at Selene or to the waste dump on surface. The Company is nalising plans in-house with the commencement of construction scheduled for August 2006 for the ramp providing access to the workings. 3.5.7 Process plant Pallancata ore will be transported by road to the Selene process plant. 3.5.8 Tailings disposal The tailings will be disposed in either the Selene workings or tailings dams. 3.6 Long term prospects The 8 km by 5 km San Martin site is located approximately 20 km north west of the Arcata mine and extensive surface channel sampling was undertaken in the 1980s during which Arcata mine excavated a number of small mine cross-cuts. The project is currently under exploration by the Company using two surface diamond drill rigs. IMC has visited the site and inspected the camp facilities, core store and observed the evidence of extensive surface channel sampling and the ongoing drilling activity. 14 drillholes have been completed supported by surface mapping and activity is on-going. Mineralised veins and structures have been identied widely across the area and are hosted within a sequence of volcano-clastic rocks and andesite lavas into which an extensive ow-banded dacite dome has intruded. The dome has an outcrop of approximately 40 ha and hosts the most prospective and highest grade veins. The maximum grade at surface within the dome area is 8,970 g/t of silver and 27 g/t of gold. Veins also extend widely beyond the dome and surface samples show a gold content in the range 2 g/t to 8 g/t. The current drilling programme indicates discontinuous ore-shoots where most promising grades are found where NW-trending veins intersect or veer to a WNW lineation. Mineralogical interpretation of results to date is that a LS Arcata-style polymetallic gold/silver mineralisation target occurs at depth. IMC is of the opinion that the San Martin is very a promising replacement prospect. 4 Argentina IMC visited the San Jose project between the 12th and 23rd June 2006. 4.1 Maps and plans The relevant maps and plans are included in Annex C as listed. Plate 13 *********** Plate 14 *********** Plate 15 *********** San Jose Project: Surface map with location of veins and prospects and principal geological features San Jose Project: Longitudinal Prole of the Huevos Verdes Vein San Jose Project: Longitudinal Prole of the Frea Vein 308

 4.2 San Jose project 4.2.1 Geological characteristics The San Jose project, within a concession area of 40,499 ha, is owned by Compania Minera Santa Cruz S.A. (MSC). MSC is a joint venture between the Company (51 per cent.) and Minera Andes S.A. (MASA) (49 per cent.). Signicant geological anomalies of gold and silver were detected at San Jose by MASA in 1997 resulting in exploration programmes between 1997 and 2005 leading to the discovery of the two San Jose ore zones known as the Huevos Verdes and Frea vein systems and a delineation of the mineralized resources. MSC drove two 45 inclined shafts to the North and South zones of the Huevos Verdes Vein in 2003, and has recently completed an inclined shaft to the Frea Vein. The Deseado Massif, in Patagonia, Southern Argentina comprises Paleozoic metamorphic basement rocks unconformably overlain by Middle to Upper Jurassic andesitic to rhyolitic volcanic and volcano-clastic rocks, Cretaceous sedimentary rocks and is capped by Tertiary to Quaternary basalts. The Jurassic volcanic rocks are the principal host for gold and silver mineralisation in which veins are typically developed in competent andesite ows and less so in phyllitic altered volcanoclastic units. The Jurassic volcanic rocks and contained mineralisation have only limited outcrop in erosional windows. The mineralisation displays typical epithermal characteristics with quartz veining, breccia and stockwork systems occupying steeply inclined fractures ranging from normalsinistral faults striking NNW-SSE and conjugate dextral faults striking approximately WNW-ESE. The LS mineralisation displays three main episodes of quartz deposition with the initial banded quartz associated with massive sulphide veinlets and the second phase of massive milky quartz, predominantly in the central portion of the vein, containing disseminated sulphides in the form of argentite and pyrite together with minor amounts of sphalerite and galena. The Huevos Verdes Vein System comprises an array of sub-parallel quartz veins striking approximately NW-SE and dipping between 45 and 75 to the northeast. The vein system is hosted in andesitic rocks close to the contact underlying volcano-clastic rocks and drilling has traced a strike length of 2,000 m comprising the Huevos Verdes North (HVN), Huevos Verdes Central (HVC) and Huevos Verdes South (HVS) discontinuous zones. The overall geometry of the main vein zone is relatively continuous with width varying from less than 1 m to 15 m. Average vein width with signicant gold and silver mineralisation ranges between 0.30 m to 4.00 m. The Frea Vein System is located approximately 1,700 m to the north-east of Huevos Verdes and comprises one main quartz vein of strike NW-SE and a large stockwork of subordinate hanging wall veins and breccia zones. The vein dips to the northeast at approximately 52 . This vein system does not outcrop and has been traced over a strike length of approximately 600 m. The main vein structure varies in width between 0.50 m and 7.00 m, averaging around 4.25 m. Recent investigation has identied the Kospi Vein approximately 400 m to the north-east of Huevos Verdes and also developed on a NW-SE strike. This has been dened only by some 10 drillhole intersections along a strike of approximately 600 m to date. 4.2.2 Reserves and resource statement (a) General IMC has veried the reserves and resources presented by the Company on 30 June 2006 for scrutiny. (b) Losses and dilution The resources as stated include undiscounted reserves; no adjustment for ore loss or dilution has been applied to these gures. Reserves are quoted after the application of a modifying factor for dilution of 12 per cent. for the Huevos Verdes vein, and for many of the reserve panels in the Frea vein. Higher values of 16 per cent. and 17 per cent. have been applied to some specic panels in the Frea vein as a reection of 309

wall rock conditions. Only minimal losses are anticipated, for the Huevos Verdes vein amounting overall to 2 per cent. and for the Frea Vein amounting overall to 2.3 per cent.. IMC considers the application of these factors to be appropriate. (c) Cut-off grade The cut-off grade, as at 30 June 2006, used for resource estimation at the San Jose operation is 250 g/t silver equivalent. The equivalent cut-off grade has been calculated on the basis of reference prices for gold of $450/oz and for silver of $7.50/oz. IMC consider the process of determining the cut-off grade and the cut-off grades appropriate. (d) Verication IMC has veried a portion of the reserves of each mine or project and concur with the gures in Table 2-5 and Table 2-6. The Company have used ordinary linear block kriging for those major veins on which there are sufcient intersections to carry out the necessary variography, and inverse power of distance (IPD) weighted moving averages for other veins. IMC believe this is an appropriate and rational selection. IMC carried out check modelling using the Datamine mining software system on the Huevos Verdes vein comprising approximately 54 per cent. of the reserves and resources. 4.2.3 Mines and projects The San Jose Project, with a designed capacity of 273.7 ktpa, is due to be commissioned into production in July 2007. The Huevos Verdes orebody, has a minimum width of 0.15 m and a maximum 1.25 m averaging 0.6 m in thickness which averages 55 to 70 in dip. The Frea orebody, has a minimum width of 1.3 m and a maximum 4.3m averaging 3.1 m in thickness which averages 55 in dip. Both orebodies are accessed by inclined ramps and these connect underground by spiral ramps. It is proposed to mine both veins by mechanised (trackless) and manual (slusher) cut-andll breast stoping methods depending on the mined width, both methods using rockbolts, timber or no support as stope conditions dictate. 5 stopes will rotate in the production cycle of drilling and blasting, mucking of ore and backlling. A series of raise-bored (RB) shafts will be used for ore/waste removal, ventilation and auxiliary services. Ore is loaded from these RB passes into 28 t standard road haulage trucks carrying the material up the mine ramps to the process plant primary crusher or to the waste dump on surface. Haulage distance from both the Huevos Verdes and Frea workings is approximately 1.8 km. A backll plant will supply various types of cemented paste depending on underground support requirements. Investigations into the Kospi and Odin veins as replacement ore for the Huevos Verdes and Frea orebodies are ongoing. IMC considers the proposed development and production plans of San Jose are achievable. 4.2.4 Process plant A feasibility study has been completed by AMEC during which metallurgical testwork has been conducted to select and develop the preferred process owsheet for the San Jose project. The process ow sheet submitted by AMEC used conventional crushing, grinding, otation and concentrate cyanidation leach technology with cyanide recovery and destruction. Gold and silver would be recovered by standard Merrill Crowe zinc precipitation and rened to produce dore bars. The design milling rate is 265 ktpa. Subsequently it was decided to investigate the use of a Gekko reactor. However, Hochschild have decided to implement the project with processing as far as a saleable otation concentrate as the Geccko equipment is not yet proven as suitable for San Jose material and as the necessary permits to allow the use of cyanide have not yet been obtained. Detailed engineering design is scheduled to be complete by end July 2006. Long lead items have been identied and will be purchased in the immediate future. 310

The crushing plant will be a two-stage closed circuit facility producing material of which 80 per cent. is smaller than 9 mm (80 per cent. minus 9 mm material). Ore will be fed to a stationary grizzly screen from where oversize passes through the primary crusher and then joins grizzly undersize which together are conveyed to a screen in closed circuit with the secondary cone crusher. Crushed ore will be stored in two bins each of 500 t capacity from where it is fed to the ball mill. The ore will be milled so that 80 per cent. of the product is smaller than 74 microns (80 per cent. minus 74 microns) in a simple closed milling circuit using hydrocyclones for classication. A bleed from the cyclone feed is taken to a centrifugal concentrator to produce a gravity concentrate while the tailings return to the crushing circuit. Hydrocyclone underow returns to the mill and the cyclone overow ows to the conditioning tank of the otation circuit. The otation circuit will consist of a primary rougher bank of four cells of 5 m3 each. Rougher concentrate reports to the three stage cleaning circuit of 24 cells of 1.42 m3 capacity. Rougher tailings report to a scavenger circuit, a bank of four cells of 5 m3 each. Scavenger concentrate is sent back to the roughers while the tailings report to the tailings thickener. The otation and gravimetry concentrate will be thickened and then dewatered using a vacuum disc lter. After this the concentrate will be bagged in 50 kg sacks then stored prior to dispatch by road. The tailings will be thickened and pumped to the tailings dam. IMC considers the proposed development and production plans of San Jose are achievable. 4.2.5 Tailings disposal 85 per cent. of the tailings will be otation tailings and will be benign. These will be disposed of in an unlined natural basin to the north east of the plant site with a capacity of 1.71 Mt or double that required by the current reserves. The maximum depth will be 10 m and no formal dams are needed. 15 per cent. of the total output will be concentrate tailings and will contain up to 50 ppm cyanide. These will be disposed of in the eastern part of the same depression which will be lined with low permeability soil and an HDPE liner. The two dams will be separated by a separating bank. This bank should be designed for rapid draw down conditions. The area is subject to high winds. To minimise dust, the tailings ponds will be operated under water. In addition, cement or pfa will be added as required. In the later stages, 2 per cent. to 5 per cent. of cement or pfa will be added to both tailings to provide a dust resistant cap. Average rainfall is 144 mm pa and evapotranspiration 1,256 mm pa. The concentrate tailings will therefore have a water decit. Water will therefore be pumped from the otation pond to the concentrate pond with any excess being recycled. 4.2.6 Long term prospects The Sierra de las Minas quartz-sulphide vein district produced gold on a small scale intermittently in the rst half of the twentieth century. The Company controls properties with a drill indicated geological resource and has mapped over 15 kilometres of mainly northwest and northeast striking quartz veins. The property package comprises 65,536 ha and includes 58,622 ha of wholly owned exploration claims, 6,860 ha of exploration and discovery claims in Joint Venture with Canadian junior Golden Peaks Resources Ltd and 54 ha of mine claims under an option to purchase agreement with a local property owner. The Company is undertaking a mapping, sampling and diamond drilling programme to conrm whether there exists an economically viable target in the district. The prospect is situated in the Pampeana metallogenic terrain comprising a metamorphosed basement of Precambrian to early Palaeozoic migmatites and granitoid igneous intrusives. The 311

basement rocks, particularly a dioritic to granodioritic plutonic complex, host the gold-bearing veins. The basement rocks are overlain by a Carboniferous sedimentary series and Tertiary and Quaternary sediments. The mineralisation is quartz-sulphide containing gold and variably with copper minerals. Free gold commonly occurs associated with common haematite and variably with malachite and chrysocolla indicating an oxidised zone and secondary enrichment of gold. Drilling has proved the oxidised, supergene enriched zone to extend in depth for at least 140 m. Remnant sulphides and casts indicate the original mineralisation to have been pyrite-chalcopyrite with sporadic presence of galena. Sericitic alteration occurs at the vein margins. Veins are NW-SE trending and generally individual veins have not been traced for more than 1 km. The veins are typically sub-vertical with average width of approximately 1 m. Geological resources have been inferred from previous drilling by Golden Peaks Resource Limited on two vein structures: the JV-14 structure estimated to host inferred resources of 98,748 t at average width 1.26 m with an average grade of 8.05 g/t gold and the Vallecito structure estimated to host inferred resources of 54,454 t at an average grade of 10.66 g/t gold. The basis of these resource estimates has not been veried by IMC. 5 Mexico IMC visited the Moris project and the San Felipe prospect between the 12th and 23rd June 2006. The Company have been completing Due Diligence diamond core drilling and sample analysis on the site and completed the purchase of the project on 30 June 2006 with the relevant licences to operate. 5.1 Maps and plans The relevant maps and plans are included in Annex C.
Plate 16 *********************************************** Plate 17 *********************************************** Moris Project: Surface map with principal geological features. Moris Project: Longitudinal Prole of the El Creston Vein and map at the 900m level.

5.2 Medium term projects 5.2.1 Moris mine (Mina Maria) Hochschild signed a contract to purchase a 70 per cent. share of Minera Moris S.A. de C.V. (Moris mine or Mina Maria) totalling 7,838 ha near the town of Moris in the State of Chihuahua on 30 June 2006 for an initial payment into a joint venture company of US$1.05 M (excluding taxes) with Exmin as the other 30 per cent. owner. Hochschild will pay a further US$3.15 M (excluding taxes) on completion of a satisfactory due diligence within 6 months. Additionally, Hochschild has signed a separate contract on 17 June 2006 of Mining Exploration, Option for Assignment of Rights, Option to Incorporate a New Company and Option to Execute a Shareholders Agreement over approximately 9,889 ha in the surroundings of Moris mine. Hochschild also receives the right to manage any operation. Hochschild is obliged to incur exploration expenses totalling US$4.8 M over ve years in annual tranches of US$0.4 M, US$0.6 M, US$0.8 M, US$1.0 M and US$2.0 M. plus US$0.85 M in private placements into Exmin during this ve year period. Hochschild has the option to terminate the contract without penalty after the rst year. This second contract is designed to enable the Company to possibly increase its resource base to feed Moris mine in the future. The geological structure of the Moris region is underlain by a basement of moderately metamorphosed Mesozoic sediments. A sequence of upper Cretaceous to lower Tertiary sediments (volcanic tuffs, agglomerates and andesitic lavas) unconformably overlies the basement and dome like intrusions of granitic stocks and ow-banded rhyolite occur. The stratigraphic sequence is capped unconformably by an extensive layer of rhyolitic ignimbrite of middle Tertiary age which forms prominent escarpments. The structure in the Moris region is dominated by normal faults of N-S, NW-SE and NNE-SSW strike appearing to have controlled the local emplacement of ow312

banded rhyolite intrusions and the hydrothermal epithermal vein mineralisation. The LS has undergone alteration at higher levels characterised by chalcedonic silica and the alteration is phyllic and propylitic at deeper levels. Three general areas of mineralisation are the Santa Maria-Tecolote area in the northern part of the district, the El Pilar-Mesa de las Tunas area in the south eastern part of the district west of the Moris township, and the La Cienega-Sahuayacan structural zone in the western part of the district. Santa Maria vein system in the Santa Maria-Tecolote area was partly exploited by surface mining at the Moris mine, vein outcrops have been identied as El Creston, San Luis and Eureka. The system is exposed over a distance of about 1 km on the eastern margin of the Moris valley. The host rocks are bedded conglomerate and volcanic ow breccia. The main vein system consists of a west dipping zone of anastamosing milky quartz veins up to 10 m in width with typical epithermal textures such as ne banding, tabular pseudomorphs and leached cavities. The Tecolote Vein System is closely similar and exposed on the opposite, west side of the valley from the Moris mine. Sampling has shown the presence of many gold-bearing veins and veinlets over an area of several hundred meters width across strike and at least 2 km along strike with at least 500 m of vertical extent. Manhattan Minerals, the previous owner, calculated a mineable reserve of 4 Mt at a grade of 1.9 g/t gold and 8.75 g/t silver at a strip ratio of 1:1 (t:bcm). The mine closed in April 1999 having produced about 50,000 oz of gold and 150,000 oz of silver from about 1.1 Mt of ore and Manhattan Minerals published a formal estimate of remaining reserves comprising 3.1 Mt at a grade of 1.9 g/t gold and 6.6 g/t silver. The Moris mine, with a capacity of 1,095 ktpa, was operated by Minera Manhattan, S.A. de C.V. between 1996 and 1999. The Company has recently acquired the mine and intend to recommission it back into production in 2007. The previously mined El Creston orebody, has a minimum mining width of 2.0 m and a maximum 35 m averaging 13 m in thickness. The orebody averages 45 to 50 in dip and outcrops along a 1,100 m strike length. The El Creston vein was mined from 9.0 m benches using conventional blast, shovel and truck open pit methods. The current planning envisages 5.0 m benches with the same method of mining at a strip ratio of 1:3.68 (t:t) ore to waste. Ore will be loaded from these benches into 33 t dump trucks carrying the material down the haul road to the process plant primary crusher or to the waste dump. Haulage distance from the pit is approximately 2.0 km and 1.5 km to the waste tip. Investigations into the San Luis and Eureka veins as replacement ore for the El Creston orebody are ongoing. IMC considers the proposed re-establishment of Moris mine achievable. The Moris processing operation used crushing, agglomeration, leaching, carbon adsorption desorption-recovery, electrowinning and smelting to produce dore. The crushing plant capacity is now 1,095 ktpa after modication during Minera Manhattan operational period, which is greater than the original design. IMC understand that the crushing plant design and operation will be reviewed by Hochschild during recommissioning to achieve an acceptable material size distribution for optimal leaching efciency which, was not achieved in the Minera Manhattan operational period. Mined ore was crushed in a three stage system, agglomerated and then deposited onto the leach pads where the silver and gold was dissolved into pregnant solution using sodium cyanide. The pregnant solution was pumped to activated carbon columns adsorbing the silver and gold. The carbon was then transferred to the pressure strip circuit using a cyanide and caustic soda solution to re-dissolve the metals. The strip solution went into electrolytic cells where the gold and silver were precipitated onto steel wool. The steel wool was then oxidized in a furnace to produce dore. There are no ne tailings produced at Moris mine, the only waste is in the form of leached ore deposited on the leach pads in accordance with a prescribed prole. 313

5.2.2 San Felipe exploration project The San Felipe comprises of concessions totalling 548 ha located near the town of San Felipe de Jesus and in the El Gachi y Moctezuma district and are currently owned by Grupo Serrana, S.A de C.V. (GS) of San Felipe de Jesus and Moctezuma, Mexico. The Company has a Contract of Mining Exploration, Option to Acquire and of Promise to Incorporate a New Company, with Grupo Serrana, S.A. de C.V. (GS), whereby the Company has an option to acquire up to 70 per cent. of all the rights and ownership. Hochschild has paid US$0.2 M for the exploration rights with an obligation to invest US$6.7 M in exploration, over 3 years. Hochschild will additionally invest US$10.0 M for Gruppo Serrana and US$33.3 M in an incorporated New Company (exploitation), for their 70 per cent. ownership. Hochschild have conceptual plans for the mine to be in production by year 6 with a 730 ktpa process plant. The San Felipe mining concession was operated by Grupo Serrana, S.A de C.V. (GS) from 1974 to 1991 operating a 100 tpd mill at San Felipe de Jesus. Approximately 210,000 t was mined and milled from three local districts. It was estimated that the San Felipe district alone offered resources to support a viable mining operation with an output in the range 1,000 tpd to 2,000 tpd. GS and Exmin de Mexico in association with Boliden of Sweden commenced a detailed and systematic exploration of the district in 1997. The Boliden exploration project commenced with geochemical and geophysical survey and geological mapping focussing on a number of mineralized structures in the San Felipe concession area. Subsequent diamond drilling revealed the La Ventana structure to be signicant with lead-zinc mineralisation including sporadic silver, copper and cadmium values. The programme reportedly demonstrated an orebody of over 500 m length at an average thickness of 10 m and continuity in depth of 300 m containing an Inferred Resource of 4.5 Mt with a combined content of 9.6 per cent. zinc, lead and copper sulphides and silver content of 69.7 g/t over the western end of the structure only comprising only two of the ve structures identied. The Company is currently engaged on verication drilling on the site and has thus far reported an Inferred Resource essentially in line with that suggested by Boliden. The mineralisation is hosted in rock units of Early Cretaceous age and appears controlled by the contact between metamorphosed volcanics and clastic marine sediments and major Late Cretaceous and Tertiary intrusives. The package of volcanics and associated sediments has been folded and faulted to produce a general E-W strike. The La Ventana structure is expressed as a very prominent wall of intensely oxide stained, massive silica and siliceous breccia striking roughly east-west and can be traced for about 3 km making it the longest mineralized structure in the district. The structure is sub-parallel to a contact between a package of mac volcanics and ne sediments, and a large area of quartz feldspar porphyry. 5.3 Long term prospects 5.3.1 San Luis del Cordero Hochschild has entered into a contract to undertake exploration and evaluation with an option to acquire all rights and ownership with the Mexican company Exploraciones del Altiplano S.A. de C.V. (EA) holding title to a block of mining concessions to a potentially mineralised area totalling 2,825 ha. Hochschild has an obligation to pay up to US$0.5 M in xed tranches of US$0.025 M, US$ on ratication of the contract, and thereafter US$0.25 M at the end of 6 months, US$0.05 at the end of 12 months, US$0.1 M at the end of 24 and 36 months and US$0.2 M at the end of 48 months with proscribed exploration spends for each year, for a 100 per cent. option which may be terminated at any time Should the agreement remain valid after 48 months from the date of the agreement, Hochschild are obligated to execute the option. The consideration for the execution of the option includes a 3 per cent. royalty on net smelter returns. Various shallow mines have operated in the concession and district for polymetallic oxide ore during the 1950s and 1960s with the Santa Rosa mine reportedly producing a polymetallic ore grading 600 g/t to 700 g/t silver and 2 per cent. to 3 per cent. copper. Three diamond core drillholes were drilled on the Santa Rosa Vein in 2002 with intersections of a quartz sulphide vein of 0.37 m to 2.10 m width with signicant values of silver, zinc and copper and intersections of wallrock showing locally 314

extensive replacement with zinc and copper sulphides. The principal structure is a recumbent anticline affecting a sedimentary sequence of Jurassic to Cretaceous shales, sandstones and limestones intruded by extensive stocks of granitic and dioritic composition. The sediments around the intrusions show silicication and metamorphosis to hornfels with locally extensive skarn alteration features. Remnant areas of Tertiary rhyolite volcanics display small intrusive bodies and silicication, suggesting that the mineralisation event took place in the Tertiary period. The Santa Rosa vein shows marked zoning with the upper levels marked by jasperoids (amorphous chalcedonic silica) and minor values of silver, antimony and copper zoning down to a copper-silver orebody associated with coarse-grained crystalline quartz. The length and width of the Santa Rosa vein oreshoot increases with depth and currently accessible old mine workings show this to be 2 m wide and 150 m long. There are other extensive areas adjacent to the Santa Rosa mine which exhibit abundant high-level jasperoids considered to be indicative of the potential for underlying vein-hosted and carbonate replacement polymetallic mineralisation. The broader geological environment is considered highly favourable for the generation of large scale replacement or skarn deposits possibly supporting bulk mining extraction. 6 Further disclosure on mineral potential The historical success and continuing capacity of the Company to maintain and expand the reserves and resources base to assure continuing levels of production is dependent upon a commitment to wide-ranging research, investigation and exploration of potential mineral prospects. The company has an extensive portfolio of exploration targets at different stages of evaluation. The Company necessarily maintains an internal assessment of mineral potential within its exploration targets as the basis for planning exploration priorities and long term development options. In the opinion of IMC this mineral potential is material in appreciating the reserve replacement strategy and long term development prospects for the Company. Information on the mineral potential in the exploration targets of the Company does not at present meet internationally recognised criteria for expressing reserves and resources. However, leading jurisdictions on mineral disclosure recognise that it is often appropriate that there is disclosure of the mineral potential in exploration targets and the information supporting such interpretation of potential, but always, without exception, that such disclosure cannot be misconstrued or misrepresented as reserves or resources (JORC Code 2004, Section 18). IMC has reviewed with the Company the various exploration targets summarised below. The summary statement of potential for each target is expressed explicitly on the basis that) the potential range of quantity and grade is conceptual in nature, there has been insufcient exploration to dene a mineral resource on the target and it is uncertain if further exploration will result in the discovery of a mineral resource on the target; and ) the mineral potential constitutes a possible mineral deposit that is to be the target of further exploration. The disclosure of mineral potential follows specic guidance in the JORC Code, Section 18 in relation to mineral disclosure in exploration targets that the mineral potential should be expressed as a range of quantity and grade, with explanation of the basis of the statement. Internally, the Company takes a conservative approach to its assessment of mineral potential; mineral potential is only recognised where supported by one or more intersections with grade and width which meet current economic parameters, or where the lateral extent of mineralisation is supported by physical sampling which indicates economic parameters will be met, or where the lateral extent of mineralisation is known and its characteristics may be assessed on the basis of immediately adjacent similar, economically delineated mineralisation. 315

6.1 Peru 6.1.1 Arcata mining district Mariana Vein NE: potential mineralisation is identied to the NE of existing operations in the 4,530 m level of the mine (average vein width 0.18 m, 3,355 g/t of silver and 11.3 g/t of gold), over a length of 1,300 m to drillhole DDH-35 (intersection 1.35 m, 181 g/t of silver and 0.8 g/t of gold); two intervening drillholes dene continuity with a weighted average intersection of 0.64 m with 392 g/t of silver and 1.41 g/t gold. Known characteristics of the mineralisation in the mine indicate a mineralized belt of 200 m to 250 m in height and an extractable width of 1.00 m to 1.50 m. The mineralisation is open to the north-east. The range of mineralised potential is considered within 0.48 Mt to 1.36 Mt with 450 g/t to 550 g/t of silver and 1.5 g/t to 2.0 g/t of gold. Mariana Vein SW: potential mineralisation is identied to the SW of existing operations in the 4,530 m level of the mine (average vein width 0.38 m, 6,354 g/t of silver and 29.6 g/t of gold) over a length of 400 m to drillhole DDH-106 (intersection 0.15 m, 754 g/t of silver and 1.5 g/t of gold). Known characteristics of the mineralisation in the mine indicate a mineralized belt of 220 m height. The range of mineralised potential is considered within 0.2 Mt to 0.5 Mt with 150 g/t to 1,000 g/t of silver and 1.5 g/t to 14.0 g/t of gold. Julia Vein: the potential mineralisation is in a vein sub-parallel with Mariana Vein System identied through three drillhole intersections (DDH-117, DDH 119, DDH-80) with intersections ranging 0.65 m to 1.63 m and grades ranging 592 g/t to 1,984 g/t of silver and 0.8 g/t to 4.4 g/t of gold. Projected potential length of mineralisation is in excess of 750 m and the vertical extent of mineralisation is anticipated to be 200 m, in line with experience with the adjacent veins. The range of mineralised potential is considered within 0.5 Mt to 1.0 Mt with 500 g/t to 1,000 g/t of silver and 1 g/t to 4 g/t of gold. Macarena 2 Vein: the potential mineralisation is in one of a system of tensional veins oblique to and on the south side of the main Macarena Vein. Experience of working the adjacent Macarena 1 Vein provides supporting data in addition to two drillholes in the Macarena 2 Vein (DDH-15-ME: intersection of 0.40 m with 1,358 g/t of silver and 0.4 g/t of gold. DDH-20-E: intersection of 0.80 m with 585 g/t of silver and 0.4 g/t of gold). A block of proven and probable reserves have formally been reported and mineral potential is projected around this. Lateral extent of the potential oreshoot is 400 m and vertical extent of mineralisation is expected to be 210 m. The range of mineralised potential is considered within 0.2 Mt to 0.5 Mt with 500 g/t to 1,000 g/t of silver and 0.3 g/t to 0.5 g/t of gold. Ramal Marion Vein: the potential mineralisation is in a transverse vein extending NNW-SSE between the well-dened Marion and Mariana vein systems which are developed on a more general E-W trend. The vein is dened by three drillhole intersections (DDH-22, DDH-115, DDH106) with intersections ranging 0.50 m to 1.40 m and grades ranging 549 g/t to 3,489 g/t of silver and 0.5 g/t to 8.9 g/t of gold. The lateral extent of mineralisation is expected to be of 500 m length, being limited between the major vein systems, and the vertical extent of mineralisation is expected to be 220 m corresponding to the known mineralisation of the Marion Vein System. The range of mineralised potential is considered within 0.2 Mt to 0.4 Mt with 500 g/t to 1,000 g/t of silver and 0.5 g/t to 3.0 g/t of gold. Pullallu Structure: mineral potential is in a structure of 3 km length located at the north-eastern margin of the Arcata mining district at approximately 15 km from the centre of the main mining eld. Field mapping, trenches and geochemical sampling have identied a potential oreshoot of 750 m length; similar characteristics of mineralisation as in the main Arcata veins has been assumed. The range of mineralised potential is considered within 0.7 Mt to 1.0 Mt with 100 g/t to 200 g/t of silver and 1.5 g/t to 2.0 g/t of gold.

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6.1.2 Ares mining district Victoria Vein System: the mineral potential relates to the system of branches, splits and loops which accompany the main vein and which have consistently contributed to new reserve tonnage since commencement of exploitation. A signicant component of the potential relates to the projection of exploitable mineralisation beyond already evaluated resources in subsidiary veins and loops of the Victoria Vein System. In general, the depth of the lower limit of mineralisation is constrained but many oreshoots are open laterally. There is a current evaluation programme for the halo of argillised alteration, up to 20 m wide, recognised at many points in cross-cuts underground and drillholes, enclosing the vein system within the host environment of the rhyolitic dome. In the 4,675 m level of the mine, composite widths of alteration ranging 1.30 m to 5.10 m have been determined with weighted average grades of 2 g/t to 360 g/t of silver and 2.6 g/t to 20.8 g/t of gold over a strike length of 100 m. Economically signicant potential in the argillised alteration halo may extend as signicant oreshoots at numerous points along each side of the length of the vein system with a vertical extent of 150 m. A representative horizontal length of 500 m has been conjectured for projection of mineralised potential. The range of mineralised potential is considered within 1.0 Mt to 1.5 Mt with 100 g/t to 200 g/t of silver and 3.0 g/t to 10.0 g/t of gold. Paola Structure: the mineralised potential is in a vein structure identied 1.5 km to the north of the Victoria Vein System. The structure does not outcrop and was discovered by diamond core drilling. Based on two drillhole intersections (AS-0991: intersection of 1.35 m with 311 g/t of silver and 0.23 g/t of gold. AS-1000: intersection of 0.94 m with 297 g/t of silver and 0.01 g/t of gold), an oreshoot length of 800 m is projected with a vertical extent of mineralisation of 250 m. The range of mineralised potential is considered within 0.5 Mt to 0.8 Mt with 200 g/t to 400 g/t of silver. 6.1.3 Selene mining district Explorador/Sophia Vein System: the mineral potential relates to the system of branches, splits and loops which accompany the main vein and which have consistently contributed to new reserve tonnage since commencement of exploitation. Specic identied targets include the sub-parallel Monica Vein, projected over a strike length of 1 km and indicated in three drillholes (DDH-MO 04, DDH-MO 05, DDH 39S. Intersections of 0.55 m to 2.06 m with grades of 59 g/t to 276 g/t of silver and 0.5 g/t to 0.9 g/t of gold) and also the Soa Vein, projected along the Soa Fault north of its intersection with the main Explorador Vein for a distance of 1.5 km and indicated in 17 core drillholes (intersections of 0.20 m to 2.75 m with grades of 2 g/t to 1,612 g/t of silver 0.3 to 11.6 g/t of gold). Vertical extent of mineralisation in the Monica Vein is 265 m and in Soa Vein 300 m. The potential oreshoot in the Soa Vein is projected as 600 m long with width of 1.75 m. The range of mineralised potential is considered within 1.2 Mt to 1.5 Mt with 200 g/t to 400 g/t of silver and 1.0 g/t to 2.0 g/t of gold. Huachuhuilca Breccia Structures: the mineral potential is a number of breccia structures identied in an area approximately 7 km to the northwest of the Explorador Mine. The breccia structures have been identied by surface mapping and geochemical sampling. Core drilling has commenced on one of four identied breccia structures. Two drillholes have been completed on the rst structure (DDH-AO3: intersection of 13.3 m with 215 g/t of silver. DDH-AO8: intersection of 14.1 m with 410 g/t of silver. Gold is present only as traces in both intersections). The lateral extent of the structure established by mapping is over 200 m and indications are of mineralisation extending in depth in excess of 150 m. The range of mineralised potential is based on expectation of economic values in all of the four structures representing 2.0 Mt to 4.0 Mt with 200 g/t to 400 g/t of silver. 6.1.4 Pallancata West Breccia Extension NW: the mineral potential is in the lateral extension to the northwest of the main Pallancata system in the Huararani area. Drilling in the West Breccia area of the main system demonstrates that the structure remains open to the northwest and the continuity has been established by surface mapping. Lateral extent is taken as 500 m and based on the known 317

West Breccia area, the width of mineralisation is taken as minimum 15 m and the vertical extent of mineralisation as 250 m. Similar characteristics of mineralisation in the West Breccia Extension are assumed. The range of mineralised potential is considered within 2.0 Mt to 5.0 Mt with 250 g/t to 300 g/t of silver and 1.0 g/t to 2.0 g/t of gold. Mercedes Vein System: the mineral potential is in a vein complex located 1.5 km to the north of the Pallancata system with general ENE-WSE strike converging on the Pallancata system. Surface mapping has identied numerous outcrops of sub-parallel veins in this system over a strike length of 1.3 km. The results of geochemical sampling conrm structural continuity. The projected potential assumes similar characteristics of mineralisation to that known in the main Pallancata system. The range of mineralised potential is considered within 1.0 Mt to 2.0 Mt with 250 g/t to 300 g/t of silver and 1.0 g/t to 2.0 g/t of gold. 6.2 Argentina 6.2.1 San Jose Kospi Vein Extension: the mineral potential comprises a well-dened vein structure of length in excess of 1.3 km, identied by drilling and geophysical survey. The structure remains open to north and south and southwards continuation is strongly indicated. The vertical extent of mineralisation is well-dened to a depth of 200 m with strong possibility of oreshoots with deeper extent. The mineral potential is projected both to the north and south of the block of inferred mineral resource which has been formally quoted. The potential is based on an area including 23 drillholes showing mineralised intersections of 0.53 m to 5.23 m with mineral content in the range of 2 g/t to 4,567 g/t of silver and 1.9 g/t to 38.2 g/t of gold. The range of potential is considered to fall within 1.1 Mt to 1.4 Mt with 200 g/t to 400 g/t of silver 3.0 g/t to 8.0 g/t of gold. Frea Vein Extension: the mineral potential falls within a well-dened vein structure of length in excess of 1 km, identied by drilling and geophysical survey. The structure remains open to north and south. The vertical extent of mineralisation is well-dened to a depth of 220 m in the block of probable reserves which has been formally quoted. Development work in the reserve block and recent drilling conrms a vein structure with potentially productive splits, branches and loops. The mineral potential is projected both to the north and the south of the block of probable reserves. The projection to the north is supported by one drillhole (SJD-188: intersection of 2.51 m with 334 g/t of silver and 18.9 g/t of gold) 250 m north of the reserve block. The projection to the south is supported by one drillhole (SJD-184: intersection of 1.83 m with 122 g/t of silver and 1.9 g/t of gold) 110 m south-east of the reserve block. The range of potential is considered to fall within 1.0 Mt to 2.0 Mt with 120 g/t to 400 g/t of silver and 4.0 g/t to 9.0 g/t of gold. Odin Vein System: the mineral potential falls within a well-dened vein structure of length in excess of 1.6 km identied by drilling and geophysical survey. Two closely sub-parallel veins, Odin A and Odin B, are identied diverging to the south-east. Odin A has been investigated by 8 drillholes of which three have intersections of economic signicance (SJD-204: intersection of 12.31 m with 210 g/t of silver and 1.9 g/t of gold. SJD-199: intersection of 2.45 m with 45 g/t of silver and 2.7 g/t of gold. SJD-210: intersection of 1.35 m with 188 g/t of silver and 8.6 g/t of gold). These delineate a potential oreshoot of 800 m length with a vertical extent of 180 m. Odin B has been investigated by 7 drillholes of which three have intersections of economic signicance (SJD209: intersection of 2.53 m with 445 g/t of silver and 6.6 g/t of gold. SJD-205: intersection of 0.90 m with 856 g/t of silver and 15.3 g/t of gold. SJD-201: intersection of 0.55 m with 91 g/t of silver and 8.7 g/t of gold) These delineate a potential oreshoot of 650 m length with a vertical extent of 60 m. The range of potential is considered to fall within 0.7 Mt to 1.7 Mt with 150 g/t to 500 g/t of silver 4.0 g/t to 9.0 g/t of gold. Ayelen Vein: the mineral potential is in a clearly dened vein identied over a length of 800 m by geophysical survey and 5 drillholes. Two drillholes have intersected signicant mineralisation (SJD200: 1.24 m with 152 g/t of silver and 1.4 g/t of gold. SJD-208: 12.26 m with 1,723 g/t of silver and 25.7 g/t of gold) which delineate a potential oreshoot of 600 m, open to the south-east with a 318

vertical extent of mineralisation 160 m to 200 m. The range of potential is considered to fall within 0.5 Mt to 2.0 Mt with 150 g/t to 500 g/t of silver 4.0 g/t to 9.0 g/t of gold. 6.2.2 Sierra de las Minas The prospect is currently under evaluation. An estimate of inferred resources of 144,000 t at two targets with grades respectively of 8.1 g/t and 10.7 g/t gold was reported by earlier investigators based on approximately 50 drillholes and surface geochemistry. This tonnage is incorporated in the overall projection of mineral potential. The property includes numerous sub-parallel NWtrending veins for which a cumulative strike length of 15 km has been determined by mapping, geochemical sampling and drillholes although economic mineralisation may be restricted to vein exures. Supergene enrichment appears locally to inuence high grades near surface. At least six separate targets for economic mineralisation have been identied, with considerable potential for more as regional investigation progresses. Individual targets are assessed as each comprising 80,000 t to150,000 t conceptualised as each comprising a strike length of not less than 100 m with mineralisation to 125 m depth and orebody width of 2.5 m. The range of potential is considered to fall within 0.6 Mt to 1.0 Mt with 8.0 g/t to 15.0 g/t of gold. 6.3 Mexico 6.3.1 Moris prospects Tecolote Vein System (underground): the mineral potential is within a vein system identied at surface over a length of 2 km including old mine workings to shallow depth at a number of points. The range in topographic height conrms the consistency of mineralisation within a vertical interval in excess of 150 m. The structural control and mineralisation, comprising layered silicication demonstrate close similarity to the parallel Santa Maria Vein System on the opposite side of the Moris Valley which provides a model for assessing mineral potential. The width of mineralised structure has been measured as 20 m and one surface channel sample has reported a 12 m section with 4 g/t gold. Mineralisation to shallow depth, no greater than 150 m is identied for potential surface mine extraction. The range of potential is considered to fall within 2.0 Mt to 4.0 Mt with 6.0 g/t to 15.0 g/t of silver and 1.0 g/t to 2.0 g/t of gold. This vein system is considered to host signicant potential for ore-shoots at greater depth by analogy with the Ocampo mineral district (8 km distant) which has closely similar structural control. However, quantication of this potential will only be based on future drill intersections. Mesa de las Tunas-El Pilar: the mineral potential is within a system of over 14 narrow veins, a number of which hosted small mineral workings up to the 1950s. Identied cumulative continuity of veins is over 500 m with vein widths of 0.28 m to 0.80 m with grades in the range of 137 g/t to 759 g/t of silver and traces to 30.4 g/t of gold. The range of potential is considered to fall within 0.3 Mt to 0.5 Mt with 100 g/t to 200 g/t of silver 10.0 g/t to 15.0 g/t of gold. Finlandia: the mineral potential is within a structure comprising a narrow vein located within a laterally continuous stockwork. The structure has been identied on the surface over 1 km within which three exploration trenches have identied mineralisation over 400 m and sampled a mineralised width ranging 6.0 m to 12.0 m. The three composite channel samples report grades of 166 g/t to 186 g/t of silver and 1.30 g/t to 1.79 g/t of gold. The range of potential is considered to fall within 0.9 Mt to 1.8 Mt with 100 g/t to 200 g/t of silver and 1.0 g/t to 2.0 g/t of gold. La Cienega: the area of mineral potential lies in the central part of the La Cienega structural zone which extends for more than 7 km. The prospect comprises six veins, each of width ranging 0.50 m to 1.00 m, identied in previous mine workings and for each of which a strike length of between 100 m to 300 m has been identied. Gold grades in the range 10.0 g/t to 15.0 g/t are reported but have not been veried by formal sampling. The range of potential is considered to fall within 0.3 Mt to 0.6 Mt with 10.0 g/t to 15.0 g/t of gold. Balleza: the area of mineral potential lies in the central part of the La Cienega structural zone which extends for more than 7 km. The mineralisation comprises a wide silicied stockwork319

breccia zone at the contact with a rhyolite dyke. The width is interpreted to extend up to 50 m and previous exploration has indicated a strike length up to 1 km. Limited rock chip and dump sampling is reported to yield values of 25 g/t to 450 g/t of silver and 1.0 g/t to 3.5 g/t of gold. Mineral potential is identied for bulk tonnage extraction for which the range of potential is considered to fall within 5.0 Mt to 10.0 Mt with 30 g/t to 60 g/t of silver and 1.0 g/t to 2.0 g/t of gold. El Pinito: the area of mineral potential lies in a system of veins on the margin of the southern part of the La Cienega structural trend. Artesanal underground working occurred until the 1990s in narrow veins for high grade silver content plus signicant gold. Later surface sampling and limited drilling is reported to have identied a prospect for lower grade bulk tonnage mining encompassing the narrow higher grade veins. Three exploration trenches report mineralised zones ranging 3.0 m to 40.0 m with composite channel samples reporting grades of 16 g/t to 615 g/t of silver and 0.9 g/t to 5.4 g/t of gold. Mineral potential is identied for bulk tonnage extraction for which the range of potential is considered to fall within 1.0 Mt to 2.0 Mt with 30 g/t to 60 g/t of silver 1.0 g/t to 1.5 g/t of gold. Prospect X: the area of mineral potential lies in the northern part of the La Cienega structural zone consisting of volcanic hosted epithermal veins with gold mineralisation and subsidiary silver in a well-dened structure of over 2 km length. This has been the site of medium-scale underground mining from around 1900 to recent times working high grade veins in 7 levels and for which resources of 12 Mt were reported with content of 26 g/t of silver and 2.4 g/t of gold. A large area of silicication and veining occurs adjacent to the higher grade vein system. The prospect offers potential for further investigation for vein-hosted mineralisation and for bulk tonnage extraction of larger volumes of disseminated mineralisation. The range of potential is considered to fall within 5.0 Mt to 10 Mt with 6 g/t to 15 g/t of silver and 1.0 g/t to 2.0 g/t of gold. 6.3.2 Mexico San Felipe La Ventana: potential mineralisation has been identied through resampling and reinterpretation of the earlier Boliden drilling programme and by a recent and continuing programme of four drillholes. The previous estimation of an inferred resource in the main La Ventana structure has been conrmed as reported. The new drilling and interpretation process indicates additional lateral continuous mineralised skarn structure sub-parallel to and below the main La Ventana structure and also a previously unidentied mineralised silicied vein structure sub-parallel to and above the main La Ventana structure. The lower skarn mineralisation has been determined in two new drillholes, although full sample results have not yet been received. These drillholes conrm the continuity of the mineralised structure determined and sampled in two of the older Boliden drillholes (SF-98-01 and SF-99-09; intersections 8.00 m to 16.49 m; average values of 49 g/t of silver, 1.46% lead, 6.21% zinc and 0.19% copper). Potential mineralisation of the skarn structure is projected over a strike length of 200 m over a depth of 300 m and the range of mineralised potential is considered within 1.5Mt to 2.0 Mt with 45 g/t to 50 g/t of silver, 1.0% to 2% lead, 4% to 7% zinc, 0.1% to 0.3% copper. The upper silicied mineralisation has been determined in three older Boliden drillholes (SF-98-04, SF-99-09, SF-00-23), in one completed new drillhole (HFLV-1) and in one new drillhole for which assay results are awaited. The potential mineralisation is projected over a strike length of approximately 300 m within a mineralised belt of 80 m vertical dimension and width of 1.6 m to 6.8 m and the range of mineralised potential is considered within 0.3 Mt to 0.5 Mt with 20 g/t to 100 g/t of silver, 1% to 15% lead, 4% to 13% zinc, 0.1% to 0.3% copper. The combined mineral potential of the La Ventana structure is considered to be 1.5 Mt to 2.5 Mt within the indicated grade ranges. Artemisia: the potentially mineralised vein structure is well identied and mapped on the surface over a length of 1.5 km and was the site of localised surface mining and limited underground extraction in the 1940s. Two drillholes in the Boliden programme (SF-00-16, SF-00-17) failed to dene the structure with certainty. The grade of mineralisation is known only from the reported average values of the mine exploitation (70 g/t of silver, 10% lead, 15% zinc, 0.5% copper). The 320

mineral potential is currently identied only to the east of the Boliden drillholes and between points known from previous mining over a strike length of 300 m and assumes mineralisation over a vertical interval of 200 m although future exploration will evaluate potential over the full length of the structure which displays dimensions and mineralisation closely similar to the La Ventana structure. The Company currently identies mineralised potential of 2.5 Mt to 5.0 Mt with 50 g/t to 80 g/t silver, 3% to 5% lead 7% to 10% zinc and 0.2% to 0.4% copper. Las Lamas: the mineral potential comprises a silicied vein structure sub-parallel to the La Ventana structure which has been identied by surface mapping over a strike length of 250 m. It was the site of underground mining in the 1940s. Underground data covers a strike length of 100 m and indicates vein thickness of 1.2 m to 2.0 m and reported weighted average grades are 194 g/t of silver, 0.1% lead, 13% zinc and 0.2% copper. A single drillhole in the Boliden programme (SF-00-21) intersected the structure at a depth of 50 m below the old workings with a cored length of 2.35 m showing grades of 152 g/t of silver, 0.4% lead, 8% zinc and 0.2% copper. The range of mineralised potential is considered within 0.2 Mt to 0.4 Mt with 150 g/t to 200 g/t of silver, 0.1% to 0.4% lead, 8% to 13% zinc, 0.2% to 0.3% copper. San Felipe: the potentially mineralised vein structure is well identied and mapped on the surface over a length of 1.5 km and was the site of mining between the 1940s and 1980s, initially by surface extraction and later through more extensive underground mining reaching a depth of 120 m and reported vein widths 5 m to 10 m. Two drillholes in the Boliden programme (SF-00-18, SF00-19) failed to dene the structure with certainty and indicated local areas of reduced vein width. The mineral potential is identied in the ore-shoots identied by mining to a depth of 230 m and with a composite strike length of 320 m and vein width 2.5 m to 10.0 m. However, the structure is open over a strike length of 700 m to the east. The grade of mineralisation is known only from the reported average values of the mine exploitation (84 g/t of silver, 3% lead, 9% zinc, 0.2% copper). The range of mineralised potential is considered within 1.5 Mt to 3.0 Mt with 20 g/t to 40 g/t of silver, 2% to 3% lead, 3% to 4% zinc, 0.1% to 0.3% copper. 7 Special factors Risks likely to impact on the Companys forecast production, capital and operating costs by less than 10 per cent. are not considered signicant. Any signicant risks not adequately addressed in the Companys production plans are considered to be material and are listed under Special Factors following. Risk ) The dependence on the use of mining contractors for mining operations. The Company does, however employ a number of mining contracting companies and is not over reliant upon any single Company. ) Any unforeseen political intervention such as the expropriation of all mineral assets and operations. Synergy ) The Company is based in a Spanish speaking country with experience of working in South and Central American countries. It is, therefore, well placed to exploit opportunities in other Spanish speaking countries within South and Central America. 8 Conclusions IMC concludes from the independent technical review that: ) Managements geological and geotechnical knowledge and understanding is of a satisfactory level to support short, medium and long term planning as appropriate and operations are well managed; 321

) the mine plans appropriately consider geological and geotechnical factors to minimise mining hazards; ) all statutory rights, permits and contracts are in place with the following exceptions. San Jose has made an application for the exploitation of the reserves where approval has been granted and certication is expected in late July 2006. Most of the permits and licenses for Moris mine have now lapsed and require renewal prior to the resumption of production, which can be expedited within the required timescale; ) the Companys mining equipment (either in place or planned in the capital forecasts) is suited to its mine plans and is adequate, with minor adjustments, for the production plans; ) silver and gold ore processing plants and other infrastructure are capable of continuing to supply appropriate quality products to the markets at the forecast production plans; ) the Companys policy of managing operations whilst engaging contractors to complete execute the operations is a successful strategy providing exibility. IMC believes that the Companys relationship with the contractors is both good and effective; ) the Company has, as of 2006, instituted more stringent auditing of accident and incident reporting with the introduction of OSHA 18001 planned for 2007. This has resulted in an increase in the LTIFR as a result of more accurate reporting. The Company is rmly committed to health and safety and is expect to demonstrate a sustained long term improvement. ) environmental issues are well managed and there are no issues that could materially impede production nor are any prosecutions pending; ) the assumptions used in estimating both capital and operating costs are appropriate and reasonable; ) capital and operating costs used in the nancial models incorporating minor adjustments by IMC reect the mine plans, development and construction schedules and the forecast production levels; ) special factors identied by IMC are well understood by management and appropriate action to mitigate these risks is being taken. Further, the mine plans and cost forecasts appropriately account for these risks; and ) management operates an excellent management accounting system and are able to monitor and forecast production and cost parameters. IMC has estimated the value of the Companys silver and gold assets at an operating level as US$271.0 million and at a post tax level as US$210.8 million assuming a real discount rate of 6.0 per cent., and product prices, capital and operating costs and production forecasts which are soundly based. Yours Faithfully, IMC Group Consulting Ltd Innovate Ofce Building Lake View Drive Sherwood Park Nottinghamshire NG15 0DT United Kingdom John S Warwick B Sc (Hons) FIMMM, C Eng, Eur Ing Director 322

Distribution list Competent Persons Report Hochschild Mining plc Copy No. Copies of this report have been distributed as shown below:
Copy No. Type CD Recipient

1 2 3 4 5 6 7

Original Original Original Original Original Copy Copy

Yes

Hochschild Hochschild Hochschild Hochschild Hochschild IMC Group Consulting Ltd, Nottingham IMC Group Consulting Ltd, London

Project Personnel: Key Words: IMC, London; Silver; Gold; South America, Underground; Mexico Signature Production: Name/Designation N O Liddell Project Manager Verication: C Wells Contracts & Commercial Director Approval: Date: 3 November 2006 J S Warwick Director Mining

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Annex A Qualications of consultants

Annex AQualications of consultants *J S WarwickProject director B Sc Electrical Engineering (Hons), Newcastle University (1973); B Sc Mining Engineering (Hons), Nottingham University (1975); Mine Managers 1st Class Certicate; Fellow Institute of Materials, Minerals and Mining; Chartered Engineer; European Engineer (Eur Ing). 28 years experience in the coal, base metals and industrial minerals mining industry and 5 years of directing Competent Persons Reports. *N O LiddellProject manager and mining engineer B Sc Mining Engineering, Leeds University (1974); S A mine Managers Certicate (Fiery Mines); Member Institute of Materials, Minerals and Mining; Chartered Engineer. 30 years experience in surface and underground metalliferous and coal mining and processing including 10 years in precious and base metals and 12 in coal. *Dr J A KnightGeologist B Sc Geology, Aston University (1968); PhD Geology Shefeld University (1972); Fellow of the Geological Society, London; Chartered Geologist; Member Society of Mining Engineers (US); Member Institute of Directors. 32 years experience in metalliferous and coal geology including 7 years in precious and base metals. Dr S HenleyGeologist B Sc Geology (1st class Hons), Nottingham, 1967; Ph D Geology, Nottingham, 1970; Fellow Geological Society of London; Deputy Chairman of Pan European Reserves Committee; Fellow Institution of Materials, Mining and Minerals; Member of Applied Earth Sciences Board 2003 (IMMM); Charter Member International Association for Mathematical Geology. Chartered Engineer. 36 years experience in the precious and base metals industry with particular expertise in geological modelling being a founder of Datamine. *Dr N HollowayMetallurgical process engineer B Sc Joint Chemistry and Geology (Hons) Bristol University, (1971); M Sc Surface Chemistry and Colloids (ThesisWettability of galena) Bristol University (1972); Ph D Minerals Engineering/ Chemical Engineering (ThesisSolid-liquid separation using polymer occulants), Birmingham University (1975); Fellow Institute of Materials, Minerals and Mining, Chartered Engineer. 30 years experience in precious and base metals, industrial minerals and coal specically in process engineering. *G TruslerEnvironmental engineer B.Sc. (Chemical Engineering), M.Sc (Engineering) University of Natal, South Africa (1986, 1998). B. Commerce 1993 University of South Africa. Registered Professional Engineer with the Engineering Council of South Africa and the Institution of Engineers in Australia, Registered with the South African Institute of Chemical Engineers, Member of the Water Institute of South Africa and the American Society of Mining and Reclamation. 23 years of experience in the mining industry in metallurgical production, research and environmental issues.
*denotes visited operations.

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*Dr P TannerEnvironmental Engineer B. Sc Agric Hons (London). University College of Rhodesia and Nyasaland, 1966; M. Phil. (soil science). University of Rhodesia, 1976; PhD (Science). University of London, 1989. 16 years in the agricultural soils industry followed by 26 years in the environmental, health and safety disciplines. *D W GrifthsInfrastructure Engineer B Sc Electrical Engineering (1st Class Hons) University of Cape Town, South Africa (1967); Member Institution of Electrical Engineers; Member South African Institute of Electrical Engineers; Chartered Engineer. 38 years experience in the infrastructure industry worldwide. *Dr D T CarterTailings Dam Geotechnical Engineer B Sc Civil Engineering, Leeds University (1965); Ph D Soil Mechanics, Leeds University (1968); Chartered Engineer; Member Institution of Civil Engineers; Fellow Geological Society; Fellow Institute of Materials, Minerals and Mining. 37 years in the design, operation and management of major tailings dams. P C RobinsonValuation Engineer Associate, Chartered Institute of management Accountants 25 years experience in the mining, minerals and consulting industry worldwide with specic experience of investment and mine purchases including the rst successful listing outside China of a Chinese coal mining company.

*denotes visited operations.

325

Annex B Scope of work, limitations and exclusions, materiality

Scope of work IMC carried out the following scope of work for the Mineral Experts Report (MER): ) Introductory meetings with Hochschilds directors and management to understand the business plan; ) Site visits and collection of data. Consultants marked with an asterisk (*) in Annex A visited the assets in Peru, Argentina and Mexico relevant to their disciplines and inspected: ) Geological maps, plans and sections; ) Mining operations and equipment; ) Silver and gold concentrating and leaching plants; ) Infrastructure including power, water, transport systems and maintenance facilities; ) Data and documentation was supplied to IMC personnel at each complex or site and nancial data at Hochschilds base in Lima. This included: ) Historical production and costs on an annual basis; ) Budgets and plans; ) Feasibility studies. ) A technical review was undertaken at each asset including the following elements: ) Data suitability; ) Geology and mining hazards; ) Resources and reserves; ) Silver and gold mining operations; ) Silver and gold ore processing to concentrates and dore; ) Environmental issues; ) Capital and operating costs; ) Review of budget forecasts; ) Valuation of reserves. The CPR covers Hochschild Minings silver and gold operations that are materially relevant to the valuation of the reserves estimated according to the JORC Estimation Methods for Reserves and Resources, last revised in December 2004. IMC has reviewed the reserves and resources statements of the individual units compiled by Hochschild Mining in compliance with Chapter 19 of the Listing Rules and in accordance with the criteria for internationally recognised reserve and resource categories as included in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC code). IMC produced its report and valuation model based on actual 2006 production data and Hochschild Minings 2006 to 2012 budget data. 326

Annex C Maps, plans and drawings

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Part XVI: Denitions

The following denitions apply throughout this document unless the context requires otherwise: Act or Companies Act ******** Admission ******************* the Companies Act 1985 of England and Wales, as amended; admission of the Ordinary Shares to the Ofcial List and to trading on the London Stock Exchanges main market for listed securities becoming effective in accordance with, respectively, the Listing Rules and the Admission and Disclosure Standards; the requirements contained in the publication Admission and Disclosure Standards dated July 2005 containing, among other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchanges market for listed securities; the articles of association of the Company to be adopted, conditional on Admission; the directors of the Company, as set out in paragraph 1 of Part III: Management, Corporate Governance and Major Shareholders; the proposed reduction of capital to be undertaken by the Company described in paragraph 2 of Part XIV: Additional Information; Cementos Pacasmayo S.A.A., a Peruvian listed company controlled by Eduardo Hochschild and Alberto Beeck; the Combined Code on Corporate Governance dated July 2003, as amended; the Commodity Exchange Division of the New York Mercantile Exchange; Hochschild Mining plc, a company incorporated under the Companies Act 1985 and registered in England and Wales with registered number 5777693; the computerised settlement system operated by CRESTCo Limited to facilitate the transfer of title to shares in uncerticated form; CRESTCo Limited, the operator of CREST; CRU Strategies Limited; the rules relating to the disclosure of information made in accordance with s.73A(3) of FSMA; has the meaning given to it in Presentation of Information and in Part VII: Operating and Financial Review; the US Securities Exchange Act of 1934, as amended; the executive directors of the Company, Eduardo Hochschild, Alberto Beeck and Roberto Danino; 344

Admission and Disclosure Standards *****************

Articles ********************* Board, Board of Directors or Directors ******************

Capital Reduction************

Cementos Pacasmayo ******** Combined Code ************* COMEX ********************* Company********************

CREST***********************

CRESTCo ******************** CRU Strategies ************** Disclosure Rules ************* EBITDA ********************* Exchange Act**************** Executive Directors **********

Part XVI: Denitions

Financial Services Authority or FSA *********************** the Financial Services Authority of the United Kingdom in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of the admission to the Ofcial List otherwise than in accordance with Part VI of FSMA; the UK Financial Services and Markets Act 2000 (as amended); Gross Domestic Product; the offer of Ordinary Shares described in Part XII: Details of the Global Offer; Greenwich Mean Time; Goldman Sachs International in its capacity as joint sponsor, joint global co-ordinator and joint bookrunner; the Company and its subsidiary undertakings; the group of companies comprising minerals, cement and mining divisions held by a Cayman Islands incorporated holding company, which is, in turn, held by Eduardo Hochschild and Alberto Beeck; the Company or the Hochschild Mining Group, as the context requires; International Financial Reporting Standards, as adopted for use in the European Union; International Monetary Fund; US Internal Revenue Service; International Securities Identication Number; International Standards Organisation; Johnson Matthey plc;

FSMA *********************** GDP ************************ Global Offer***************** GMT ************************ Goldman Sachs or Goldman Sachs International ******** Group or the Hochschild Mining Group, ************ Hochschild Group ************

Hochschild Mining or Hochschild Mining plc****** IFRS************************* IMF ************************* IRS************************** ISIN ************************* ISO ************************* Johnson Matthey ************ Joint Sponsors, Joint Global Co-ordinators or Joint Bookrunners ************** JORC Code ******************

JPMorgan Cazenove Limited and Goldman Sachs International; the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia; J.P. Morgan Securities Limited; JPMorgan Cazenove Limited in its capacity as nancial adviser, joint sponsor, joint global co-ordinator and joint bookrunner; The London Interbank Offered Rate; the rules relating to admission to the Ofcial List made in accordance with s.73A(2) of FSMA; 345

JPMSL*********************** JPMorgan Cazenove Limited** LIBOR *********************** Listing Rules*****************

Part XVI: Denitions

London Stock Exchange ****** Major Shareholder *********** Managers ******************* London Stock Exchange plc; Pelham Investment Corporation; JPMorgan Cazenove Limited, Goldman Sachs International, J.P. Morgan Securities Limited, Canaccord Adams Limited and Nomura International plc; the member states of the European Union; the rate certied by the New York Federal Reserve Bank; the non-executive directors of the Company, Sir Malcolm Field, Jorge Born Jr., Nigel Moore and Dionisio Romero;. the price at which each Ordinary Share is to be issued under the Global Offer; the Shares proposed to be issued by the Company under the Global Offer; the Ofcial List of the Financial Services Authority; ordinary shares of 1 each in the capital of the Company; United States Occupational Safety & Health Administration Standards; the over-allotment option granted by the Over-allotment Shareholders to the Stabilising Manager under the Underwriting Agreement; Eduardo Hochschild and Alberto Beeck; the 11,587,500 Ordinary Shares which are the subject of the Over-allotment Option; Industrias Penoles S.A. de C.V.; this document relating to the Company and the Ordinary Shares prepared in accordance with the Listing Rules and the Prospectus Rules; European Union Directive 2003/71/EC; the rules made for the purposes of Part VI of the FSMA in relation to offers of securities to the public and admission of securities to trading on a regulated market; has the meaning given by Rule 144A; Capita IRG Plc; Regulation S under the Securities Act; the Uncerticated Securities Regulations 2001 (as amended); the agreement summarised in Part III: Management, Corporate Governance and the Major Shareholder; Chapter 421-B of New Hampshire Revised Statutes Annotated, 1955, as amended; 346

Member States ************** Noon Buying Rate *********** Non-Executive Directors ****** Offer Price ****************** Offer Shares***************** Ofcial List ****************** Ordinary Shares ************* OSHAS ********************** Over-allotment Option *******

Over-allotment Shareholders ************** Over-allotment Shares ******* Penoles ********************* Prospectus ******************

Prospectus Directive ********* Prospectus Rules *************

Qualied Institutional Buyers or QIBs ******************* Registrar ******************** Regulation S **************** Regulations ***************** Relationship Agreement ***** RSA 421-B *******************

Part XVI: Denitions

Rule 144A ******************* SDRT************************ Securities Act **************** Senior Management ********* Rule 144A under the Securities Act; Stamp Duty Reserve Tax; the US Securities Act of 1933, as amended; those members of the Hochschild Mining Groups management team, details of whom are set out in Part III: Management, Corporate Governance and the Major Shareholder; holders of Ordinary Shares; JPMorgan Cazenove Limited; the regulations of the IRS, United States Department of the Treasury; Canaccord Adams Limited, Goldman Sachs International, J.P. Morgan Securities Limited and Nomura International plc; the agreement entered into on 3 November 2006 between the Company, the Directors and the Managers, details of which are set out in paragraph 11 of Part XIV: Additional Information; the United Kingdom of Great Britain and Northern Ireland; the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia; generally accepted accounting principles in the US; and co-ordinates from the Universal Transverse Mercator coordinate system, which provides co-ordinates on a worldwide at grid for easy computation.

Shareholders **************** Stabilising Manager********** Treasury Regulations ********* Underwriters **************** Underwriting Agreement ****

United Kingdom or UK******* United States or US **********

US GAAP ******************** UTM co-ordinates************

347

Part XVII: Glossary of technical terms

The following is a glossary of technical terms used in this document. US$ ************************* Acidic *********************** Agglomerate **************** Air pollution **************** United States Dollars. Referring to silica-rich igneous rocks in which quartz is an essential constituent. Fragmental volcanic rock comprising coarse accumulations of angular large blocks enclosed by ner volcanic debris. The presence of contaminant or pollutant substances in the air that do not disperse properly and interfere with human health or welfare or produce other harmful environmental effects. A ne-grained volcanic rock of intermediate composition (between acidic and basic) comprised primarily of plagioclase (sodium-calcium) feldspar and a range of mac minerals; quartz is generally absent. Geological variations. A fold of strata that is convex upwards; the strata dip away from the axial plane. Factor used to adjust estimates for construction. Mineral- silver sulphide (Ag2S). With reference to hydrothermal alteration of igneous rocks around a mineralised orebody, where the original rock has been more or less altered to a characteristic assemblage of clay minerals, quartz and pyrite. The analysis of the percentage of particular elements or compounds in a given sample. An analytical technique, used to determine the elemental composition and concentration of metals and other inorganic elements. Waste sand, rock and classied mill tailings used to ll voids in mines after removal of ore from stopes or other underground openings. The operation of depositing waste into a previously mined out void. One cubic metre of in-situ undisturbed rock (ore or overburden). A ne-grained volcanic rock of basic composition composed primarily of plagioclase (sodium-calcium) feldspar of predominantly calcic type and pyroxene with a range of other mac minerals. Referring to silica-poor igneous rocks. Abbreviation for bank cubic meter being the volume of material measured in-situ before excavation. Abbreviation for bank cubic meter per tonne. 348

Andesite ********************

Anomolies ****************** Anticline ******************** Argentite ******************* Argillic **********************

Assay *********************** Atomic Absorption **********

Backll**********************

Backlling******************* Bank cubic metre, (bcm) ***** Basalt ***********************

Basic ************************ bcm ************************ bcm/t ***********************

Part XVII: Glossary of technical terms

Bench*********************** Best Practice **************** A near horizontal working area in a mine at least one side of which is dened by a signicant vertical drop. Operating procedures that are recognised in the international mining community which maximise productivity and return on investment commensurate with stewardship of the assets. One thousand million. A hole made with a drill, auger or other tool for exploring strata in search of minerals. Rock texture of coarse angular fragments in a ner matrix; the act of breaking a rock into angular fragments due to explosive forces (volcanic) or physical stress (faults, tectonic contacts). Previously used industrial sites suitable for redevelopment. British Standards. Material, other than the principal product, that is generated as a consequence of an industrial process. A heavy metal element that accumulates in the environment. A generally circular volcanic feature caused by collapse of a volcano into itself, usually triggered by emptying of the underlying magma chamber due to a volcanic eruption. Capital expenditure. The net sum of cash generated and spent by a business, usually computed on an annual basis. The Committee of European Securities Regulation. Mineral- a mixture of crystalline silica, SiO2, and amorphous hydrated silica, SiO2.nH2O. Mineral- sulphide of copper and iron, CuFeS2. Any one of a variety of technologies that use chemicals or a variety of chemical processes to treat waste. Mineral- a hydrated silicate of copper, CuSiO3.2H2O Texture comprising a mass of discrete particles and grains cemented together. Actions taken to deal with a release or threat of release of a hazardous substance that could affect humans, the environment, or both. The term is sometimes used interchangeably with the terms remedial action, removal action, response action, or corrective action. Commodity Exchange Division of the New York Mercantile Exchange. A qualitative term for a rock mass which is, unbroken, strong and resistant to failure. Material that has been separated from an ore which has a higher concentration of mineral values than the mineral values 349

Billion ********************** Borehole ******************** Breccia, brecciation **********

Brownelds ***************** BS ************************** By-product ****************** Cadmium (Cd) *************** Caldera *********************

Capex*********************** Cash Flow ******************* CESR ************************ Chalcedony****************** Chalcopyrite***************** Chemical treatment ********** Chrysocolla ****************** Clastic ********************** Clean-up ********************

COMEX ********************* Competent ****************** Concentrate *****************

Part XVII: Glossary of technical terms

originally contained in the ore. Concentrates are produced in a plant called a concentrator. Concentrator **************** Conglomerate *************** Contaminant **************** Core ************************ Covellite ******************** Cross Section **************** Equipment used in the reduction of ore. A sedimentary rock consisting of rounded fragments of other rocks. Any physical, chemical, biological, or radiological substance or matter that has an adverse affect on air, water, or soil. A cylindrical sample taken using a core barrel and usually a diamond drill. Mineral- copper sulphide, CuS. A diagram or drawing that shows features transected by a vertical plane drawn at right angles to the longer axis of a geologic feature. A mechanical method of reducing the size of rock. A machine for crushing rock. Copper metal. A method of stoping in which ore is removed in slices, and the resulting excavation lled with waste material (backll) which supports the walls of the stope when the next cut is mined. The lowest grade of mineralised material considered economic to extract; used in the calculation of the ore reserves in a given deposit, and in operations to segregate ore and waste. A ne-grained volcanic rock of intermediate composition (between acidic and basic) with a predominance of plagioclase (sodium-calcium) feldspar over alkai (potassium-sodium) feldspar; frequently quartz phenocrysts are present. The breakdown of matter by bacteria and fungi; changes the chemical makeup and physical appearance of materials. An area of mineral resources or reserves identied by surface mapping, drilling or development. (i) The initial stages of opening up a new mine, and/or (ii) The tunnelling to access, prove the location and value, and allow the extraction of ore. Diamond Drilling or Core Drilling ******************* A drilling method, where the rock is cut with a diamond bit, attached to hollow rods. It cuts a core of rock, recovered in cylindrical sections for geological analysis. Waste which is intermingled with ore in the mining process. A coarse-grained igneous rock of intermediate composition (between acidic and basic) with predominant plagioclase (sodium-calcium) feldspars and mac minerals in which hornblende is most characteristic. 350

Crush, Crushing, Crushed ***** Crusher ********************* Cu ************************** Cut and Fill *****************

Cutoff Grade ****************

Dacite **********************

Decomposition ************** Deposit ********************* Development ****************

Dilution ********************* Diorite **********************

Part XVII: Glossary of technical terms

Dip(s)referring to reef or geology ******************* Discount Rate *************** Discounted Cash Flows (DCF) ********************* Disposal********************* The angle at which a reef, stratum, vein seam or bed is inclined from the horizontal. The interest rate at which the present value, if compounded, will yield a cash ow in the future. The present value of future cashows. Final placement or destruction of toxic, radioactive, or other wastes; surplus or banned pesticides or other chemicals; polluted soils; and drums containing hazardous materials from removal actions or accidental releases. A mineral deposit in which minerals occur as scattered particles in the rock. Disintegrated organic and inorganic material contained in water. Excessive amounts make water unt for drinking or for use in industrial processes. Dore bullion is an impure alloy of gold and silver and is generally the nal product of mining and processing; the dore bullion will be transported to be rened to high purity metal. A circular hole made in rock, often in conjunction with a core barrel in order to obtain a core sample. Any development excavation. A site used to dispose of solid wastes without environmental controls. An off-highway, rear dump, haul truck which may be either rigid framed or articulated. Wastewatertreated or untreatedthat ows out of a treatment plant, sewer, or industrial outfall; generally refers to wastes discharged into surface waters. mineral- a naturally occurring alloy of gold with silver. Pollution discharged into the atmosphere from smokestacks, other vents, and surface areas of commercial or industrial facilities, from residential chimneys; and from motor vehicle, locomotive, or aircraft exhausts. The maximum amount of airpolluting discharge legally allowed from a single source, mobile or stationary. Sulfosalt mineral- sulphide of copper and arsenic, Cu3AsS4. The sum of all external conditions affecting the life, development, and survival of an organism. 1. An independent assessment of the current status of a partys compliance with applicable environmental requirements. 2. An independent evaluation of a partys environmental compliance policies, practices, and controls. 351

Disseminated **************** Dissolved solids **************

Dore ************************

Drillhole ******************** Drivages ******************** Dump*********************** Dumper ********************* Efuent *********************

Electrum ******************** Emission ********************

Emission standard *********** Enargite ******************** Environment **************** Environmental audit *********

Part XVII: Glossary of technical terms

Environmental impact assessment (EIA) *********** A process whose breadth, depth, and type of analysis depend on the proposed project. An EIA evaluates a projects potential environmental risks and impacts in its area of inuence and identies ways of improving project design and implementation by preventing, minimizing, mitigating, or compensating for adverse environmental impacts and by enhancing positive impacts. Near-surface ore-forming processes from which the mineral phases characteristically occur in veins. The process of extracting benet from a resource. Prospecting, sampling, mapping, diamond drilling and other work involved in the search for mineralisation. A structural discontinuity in the earths crust formed by a break and or movement between adjacent blocks resulting from tectonic forces. A comprehensive engineering estimate of all costs, revenues, equipment requirements and production levels likely to be achieved if a mine is developed. The study is used to dene the technical and economic viability of a project and to support the search for project nancing. A medium-grained igneous rock of intermediate composition (between acidic and basic) in which feldspar crystals occur as large inclusions (phenocrysts) within the ner grained groundmass. The product of the otation process. A recovery process by which valuable minerals are separated from waste to produce a concentrate. Selected minerals are induced to become attached to air bubbles and oat. The underlying side of a fault, an orebody, or mine workings. An assay footwall is the lower surface of an orebody which separates ore- and waste-grade material. Sulfosalt mineral- a silver rich variety of tetrahedrite(Ag, Cu Fe)12(Sb. As)4S13. A system for separating metals from waste by attaching metal particles to air bubbles that for a froth to be scraped off and dewatered. Mineral- lead sulphide, PbS. A type of reactor vessel for processing concentrate into a metal alloy. The state of sureness, condence, or certainty of the existence of a quantity of resources based on the distance from points where ore is measured or sampled, and on the abundance and quality of geological data as related to thickness of overburden, rank, quality, thickness of ore, areal extent, structure, and the correlation of ore bodies and their enclosing rocks. The degree 352

Epithermal ****************** Exploitation ***************** Exploration****************** Fault************************

Feasibility Study *************

Feldspar porphyry ***********

Float************************ Flotation ********************

Footwall ********************

Freibergite ****************** Froth otation **************

Galena ********************** GEKKO********************** Geological assurance *********

Part XVII: Glossary of technical terms

of geological assurance increases as the nearness to points of control, abundance, and quality of data increases. Grade*********************** Grade (ore) ***************** Grade Cutting *************** Granite, granitic ************* Granitoid ******************* Granodiorite **************** Grinding ******************** Grizzly Screen *************** Groundwater **************** Haematite******************* Hangingwall **************** Haul Truck ****************** Hazardous wastes *********** The relative quality or percentage of metal content. The classication or value of ore. The point at which ore is selected or rejected on the basis of its grade. A coarse-grained igneous rock of acid (silica-rich) composition with predominant alkali (potassium-sodium) feldspars. A general term used to embrace a range of intrusive rocks of generally granitic composition. A coarse-grained plutonic rock between granite and diorite in composition. Size reduction of crushed rock into relatively ne particles. Coarse screen usually located at a loading point. The supply of water found beneath the Earths surface (usually in aquifers), which is often used for supplying wells and springs. Mineral- iron oxide, Fe2O3. The wall or rock on the upper side of the inclined orebody (the roof). A self propelled vehicle used to transport material. By-products of society that can pose a substantial or potential hazard to human health or the environment when improperly managed. Substances classied as hazardous wastes possess at least one of four characteristicsignitability, corrosivity, reactivity, or toxicityor appear on special lists. Metallic elements with atomic number greater than 20, such as mercury and lead. They can damage living things at low concentrations and tend to accumulate in the food chain. A rock type derived from high temperature metamorphism, characteristically hard and brittle due to reconstitution of the original rock into an equigranular mineral assemblage. A term meaning colourless and transparent; descriptive of glassy, transparent quartz. Processes related to hot aqueous solutions, commonly related to magmatic sources, which transport and concentrate ore-forming minerals. Rocks which have solidied from the molten state. A compact volcanic pyroclastic rock of rhyolitic composition; deposition from a sheetow of volcanic ash creating a welded tuff with characteristic attened pumice streaks referred to as amme. In place, i.e. within unbroken rock. 353

Heavy metals ****************

Hornfels ********************

Hyaline ********************* Hydrothermal ***************

Igneous ********************* Ignimbrite, ignimbritic *******

In Situ **********************

Part XVII: Glossary of technical terms

Intrusive ******************** IPD ************************* Rocks which are injected in a molten state into pre-existing rock. Inverse Power of Distance is a method of estimation of an unknown value, for example at the centre of a block in a block model, from neighbouring known sample values; the inuence of each of the adjacent known samples is weighted to reect relative proximity to the estimation point, by factoring the known value by the inverse of the interpolation distance to a specied power, commonly squared. Fine grained siliceous replacement of carbonate-bearing rocks; by denition it comprises more than 95% replacement quartz. A crusher that crushes material between two oscillating plates. Kilometre. Thousand troy ounces. A geostatistical interpolation technique to produce the best estimation of an unknown value, for example at the centre of a block in a block model, from a distribution of sample values. Thousand metric tonnes. Thousand metric tonnes per annum. kilo Voltthousand volts To dissolve mineral or metals out of the ore using acids or other solutions. A liquid that results when water collects contaminants as it trickles through wastes, agricultural pesticides, or fertilizers. The process by which soluble constituents are dissolved and carried down through the soil by a percolating uid. Leaching may occur in farming areas, feedlots, and landlls and may result in hazardous substances entering surface water, groundwater, or soil. See also Leachate. Contract between two parties enabling one to search for and/or produce minerals from the others property. The descriptive character of a sedimentary rock based on the composition and mineralogy. London Metal Exchange. Clearing debris or mineral onto the transport system usually after blasting. Life of Mine. Ore lost due to unpredictable geological phenomena. Ore lost due to less than perfect mining operations. London Stock Exchange. Lost Time Injury Frequency Rate, measured per one million manhours. Metre. 354

Jasperoid******************** Jaw crusher ***************** km ************************* koz ************************* Kriging *********************

kt ************************** ktpa ************************ kV ************************** Leach Process**************** Leachate ******************** Leaching ********************

Lease *********************** Lithology******************** LME ************************ Load-out ******************** LOM ************************ Losses Geological ************ LossesMining ************** LSE ************************* LTIFR************************ m***************************

Part XVII: Glossary of technical terms

M ************************** Malachite ******************* Million. Mineral- hydrated carbonate of copper, CuCO3.Cu(OH)2; bright green mineral characteristic of the oxidation zone of copper deposits. Mineral- variant of pyrite known as white iron pyrites, FeS2. Identied bodies of virgin ore reserves having a high degree of geological assurance. Mining operations which are partly or fully conducted using machines powered by electricity or diesel fuel. A type of processing plant which produces a metal alloy from a mineralised solution. An era of geological time between the Palaeozoic and Cenozoic eras, and comprising the Triassic, Jurassic and Cretaceous periods. Proportion of metal in plant feed which is recovered by a metallurgical process or processes. The practice of extracting metals or minerals from ores and preparing them for sale. Rock types transformed through the action of heat and pressure from existing rocks. A metamorphic rock texture in which two or more rock types are interlayered and one at least is an igneous rock; considered to be a partially melted rock formed during regional metamorphism. The grade of material feed to the mill, equivalent to received at mill. The comminution of the ore, although the term has come to cover the broad range of machinery inside the treatment plant where the minerals and or metals are separated from the ore. Capable of being mined under current mining technology and environmental and legal restrictions, rules and regulations. Any person who is statutorily responsible for the safe operation of the mine. A mineral occurrence of sufcient size and grade to have potential or existing commercial value; sometimes referred to as mineralisation. A portion of a mineral occurrence which is not well known, and for which tonnage and grade estimates may be unreliable. The ownership of the minerals on or under a given surface with the right to remove the said minerals. Any mass of host rock in which minerals of potential commercial value occur. Permission to mine minerals from a Mineral Rights area. Permission to mine minerals from a Mineral Rights area. 355

Marcasite ******************* Measured Resources ********* Mechanised Mining ********** Merrill-Crowe Plant ********** Mesozoic******************** Metallurgical Recovery ******* Metallurgy ****************** Metamorphic, metamorphosed *********** Migmatite*******************

Mill Feed Grade ************* Milling/Mill******************

Mineable******************** Mine Manager ************** Mineral Deposit *************

Mineral Potential ************ Mineral Rights*************** Mineralisation *************** Mining Licence ************** Mining Permit ***************

Part XVII: Glossary of technical terms

Mitigation ****************** Monitoring****************** Measures taken to reduce adverse impacts on the environment. Periodic or continuous surveillance or testing to determine the level of compliance with statutory requirements or pollutant levels in various media or in humans, animals, and other living things. Million troy ounces. Million metric tonnes. The present value of the net cashow of the operation, discounted at a rate, which reects a combination of the cost of capital of the company and the perceived risk attaching to the project or operation. Number. A linear fracture of crustal rocks attributed to a tensional regime; the fault plane commonly dips at around 60 degrees and the principal movement is essentially perpendicular to the strike, the hanging-wall subsides relative to uplift of the foot-wall. Net present value. Surface mining in which the ore is extracted from a pit. The geometry of the pit may vary with the characteristics of the orebody. Material that contains one or more minerals, at least one of which has commercial value and which can be recovered at a prot. A continuous well dened mass of material of sufcient mineral content to make extraction economically feasible. The term orebody is often used to denote locations of mineralised deposits that may or may not be economic. A high grade concentration in a vein or other orebody. The amount of ore in-situ before production. Where mining has occurred, the total of original resources is the sum of the identied resources, undiscovered resources, ore produced, and ore lost in mining. A troy ounce. A manifestation of a deposit at the Earths surface. The place where an efuent is discharged into receiving waters. Sterile soil and rock material overlying the ore. A very coarse grained pegmatic facies of igneous rock. The rate at which liquids pass through soil or other materials in a specied direction. An authorization, license, or equivalent control document issued by an approved agency to implement the requirements of an environmental regulation; e.g., a permit to operate a 356

Moz ************************ Mt************************** Net present value, (NPV) *****

No. ************************* Normal fault ****************

NPV ************************ Open Pit ********************

Ore *************************

Orebody ********************

Oreshoot******************** Original resources ***********

Ounce or oz***************** Outcrop********************* Outfall ********************** Overburden ***************** Pegmatoid Intrusion(s) ******* Permeability***************** Permit **********************

Part XVII: Glossary of technical terms

wastewater treatment plant or to operate a facility that may generate harmful emissions. pH************************** Phyllic ********************** Logarithm of the reciprocal of hydrogen concentration in moles/litre, giving a measure of acidity or alkalinity. With reference to hydrothermal alteration of igneous rocks around a mineralised orebody, where the original rock has been more or less altered to a characteristic assemblage of sericite (white mica), quartz and pyrite. Value at the mine surface net of any transport costs. Fixed or moveable equipment required in the process of winning or processing the ore. Intrusive igneous rocks which solidify at depth in the earths crust. Generally, the presence of matter or energy whose nature, location, or quantity produces pollution. Sulfosalt mineral, sulphide of silver, antimony, copper and arsenic- (Ag.Cu)16 (SbAs)2 S11. Vein and replacement ore deposits which contain a range of sulphide minerals and in particular iron, lead, zinc and copper sulphides. Igneous rock and rock texture in which larger crystals (phenocrysts) are set in a ne-grained groundmass. Parts per million/parts per billion, a way of expressing tiny concentrations of pollutants in air, water, soil, human tissue, and food and or other products. Those reserves which are the economically mineable part of the Indicated Reserves. With reference to hydrothermal alteration of igneous rocks around a mineralised orebody, where the original rock has been more or less altered to a characteristic assemblage of chlorite, epidote and magnetite. A mineral deposit with insufcient data available on the mineralisation to determine if it is economically recoverable, but warranting further investigation. Sulfosalt mineral also known as light ruby silver, sulphide of silver and arsenic- Ag3AsS3. Those reserves which are the economically mineable part of the Measured Reserves. A crystal form in which a mineral assumes the crystal shape of another mineral; commonly due to replacement of a previous mineral by a later mineral which then occupies the previous space. Sulfosalt mineral also known as dark ruby silver, sulphide of silver and antimony- Ag3SbS3. 357

Pit Head Value ************** Plant************************ Plutonic ********************* Pollutant ******************** Polybasite ******************* Polymetallic *****************

Porphyry; porphyritic ******** ppm/ppb ********************

Probable Reserves *********** Propylitic********************

Prospect ********************

Proustite ******************** Proven Reserves ************* Pseudomorph ***************

Pyrargite ********************

Part XVII: Glossary of technical terms

Pyrite *********************** Pyroxenite ****************** Quaternary****************** Mineral- iron sulphide, FeS2. A coarse grained, hollocrystalline igneous rock comprised chiey of pyroxenes. A period of geological time conventionally dened as extending from the Tertiary Period through to the present, extending from 1.8 My ago; recent international classications have suppressed this period which has been incorporated within the Neogene system. When applied to reserves and resources, equivalent to run-ofmine basis, i.e. the grade and tonnage of material produced at the pit rim or shaft collar stated on a dry basis. The reserves that are or can be extracted during mining. Recoverable Reserves are obtained by deducting anticipated geological and mining losses, areas of inferior ore quality from the Proven and Probable Reserves. In mining, the ratio of recovered tonnage, grade, metal content to in situ tonnage, grade, metal content. In metallurgical operations the percentage of contained metal in feed to a plant that is recovered to a valuable product. Reef(s) ********************** Renery********************* Rehabilitation *************** Remaining resources ********* Reserve base **************** A layer, vein or lode containing economic mineralisation. An industrial installation where a substance is rened. Restoring land to its former condition. The resources in the ground in a mine or deposit after some mining has taken place. Those parts of the identied resources that meet specied minimum modifying factors (consideration of mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors). The reserve base is the sum of the insitu demonstrated (measured plus indicated) resource from which the reserves are estimated. Refer to Joint Ore Reserve Committee (JORC) Code. Refer to Joint Ore Reserve Committee (JORC) Code. Refer to Joint Ore Reserve Committee (JORC) Code. Virgin and/or accessed parts of a ore reserve base, which could be economically extracted or produced at the time of determination, considering environmental, legal and technological constraints. Reserves do not include ore losses due to mining or geological factors and include dilution. Amount of a pollutant remaining in the environment after a natural or technological process has taken place, e.g., the sludge remaining after initial wastewater treatment, or particulates remaining in air after the air passes through a scrubbing or other pollutant removal process. Refer to Joint Ore Reserve Committee (JORC) Code. 358

Recoverable *****************

Recoverable Reserves ********

Recovery Factor *************

Reserve(s) ******************* Reserve(s)Probable ********* Reserve(s)Proved*********** Reserves ********************

Residual*********************

Resource(s) ******************

Part XVII: Glossary of technical terms

Resource(s)Indicated ******* Resource(s)Inferred ******** Resource(s)Measured******* Rhodochrosite *************** Rhodonite******************* Rhyo-dacitic ***************** Rhyolite********************* Refer to Joint Ore Reserve Committee (JORC) Code. Refer to Joint Ore Reserve Committee (JORC) Code. Refer to Joint Ore Reserve Committee (JORC) Code. Mineral- manganese carbonate, MnCO3. Mineral- manganese silicate, MnSiO3. Referring to ne-grained volcanic rock of essentially acid composition intermediate between rhyolites and dacites. A ne-grained volcanic rock of acid composition comprising predominantly alkali (potassium-sodium) feldspar and characteristically with free silica in the form of quartz crystals. The ownership of the surface land under which minerals occur. A share of the product or prot reserved by the owner for permitting another to exploit the property. A group name for two closely related sulfosalts of silver characterised by their red colour: pyrargite and proustite. Taking small pieces of rock at intervals along exposed mineralisation for assay (to determine the mineral content). A device for separating by size. Letting solids settle out of wastewater by gravity during wastewater treatment. Soil, sand, and minerals washed from land into water, usually after rain. Sediments pile up in reservoirs, rivers, and harbours, destroying sh-nesting areas and holes of water animals and clouding the water so that needed sunlight may not reach aquatic plants. Careless farming, mining, and building activities will expose sediment materials, allowing them to be washed off the land after rainfalls. A variety of common mica (muscovite), a silicate of aluminium and potassium with hydroxl and uorine- KAl12(AlSi3)O10(OH.F)2; sericite occurs as a secondary mica resulting from the alteration of numerous rock-forming minerals. With reference to hydrothermal alteration, the breakdown of feldspars and other alumino-silicates and silicates and their replacement by sericite (phyllic alteration). The waste and wastewater produced by residential and commercial establishments and discharged into sewers. Excavating overburden, interburden and ore using stand-alone excavators loading into dump trucks, dumpers and highway trucks. With reference to hydrothermal alteration of igneous rocks around a mineralised orebody, where the original rock has been more or less altered to an assemblage dominated by quartz with generally some pyrite. 359

RightsSurface Rights ******* Royalty ********************* Ruby silver ****************** Sampling******************** Screen ********************** Sedimentation*************** Sediments *******************

Sericite**********************

Sericitic, seriticisation ********

Sewage ********************* Shovel and truck mining *****

Silicication *****************

Part XVII: Glossary of technical terms

Sinistral ********************* With reference to the direction of relative fault movement on a strike-slip fault; when observed from one side of a fault line, the relative movement on the opposite side is to the left. Areas of intense alteration comprising calcium, magnesium and iron silicates derived from limestones and dolomites into which large amounts of silica, aluminium, iron and magnesium have been introduced, frequently near the contact with a plutonic igneous intrusion. A suspension of waste in water. Thermal processing whereby molten metal is liberated from beneciated ore or concentrate with impurities separating as lighter slag. The plant where this is performed is called a smelter. Non-liquid, non-soluble materials, ranging from municipal garbage to industrial wastes, that contain complex, and sometimes hazardous, substances. Solid wastes include sewage sludge, agricultural refuse, demolition wastes, and mining residues. Technically, solid wastes also refer to liquids and gases in containers. The ratio of the mass of a unit volume of ore or waste material to the mass of an equal volume of water at 4 degrees Celsius. mineral- zinc sulphide, ZnS. The purchase price of a commodity at the current price, normally this is at a discount to the long term contract price. Arches made in sections of steel which can be bolted together to form a roof supporting a deforming roof. Mineral- antimony trisulphide, Sb2S3. An accumulation of ore or mineral. Mode of occurrence of minerals disseminated in close-spaced, interlacing networks of veinlets in the host rock. The underground excavation from which ore is extracted. The act of excavating ore, either above or below a set level, in a series of steps in an underground mine. The strike of a plane or surface in a rock mass is a horizontal line on the surface of the plane, which is a unique, denitive feature of any inclined surface; by denition the strike is perpendicular to the direction of maximum dip. Length of a feature in the strike direction. A linear fracture of crustal rocks, in general aligned with the strike direction, and on which movement has been predominantly in a lateral sense. Non economic material which must be removed to expose ore in an open-pit mine or the process of removing such material to expose ore. 360

Skarn ***********************

Slurry *********************** Smelting ********************

Solid wastes *****************

Specic Gravity (SG) ********* Sphalerite ******************* Spot ************************ Steel arches ***************** Stibnite ********************* Stockpile ******************** Stockwork******************* Stope *********************** Stoping ********************* Strike ***********************

Strike Length **************** Strike-slip fault **************

Stripping ********************

Part XVII: Glossary of technical terms

Stripping ratio, (SR) ********** The amount of overburden that must be removed to gain access to a unit amount of ore. This is normally reported as bank cubic metres (bcm) overburden per recoverable tonne of ore (bcm/t). A class of minerals which are a compound of sulphur, a semimetal such as arsenic or antimony and one or more metals; includes the silver-bearing minerals pyrargite (Ag3SbS3) and proustite (Ag3AsS3). Terminology applied to two types of fundamentally different precious metal epithermal deposits: low sulphidation deposits deposited from hydrothermal systems dominated by meteoric water; high sulphidation systems formed from uids dominated by magmatic sources. A mineral characterised by the bonds of sulphur with a metal or semi-metal, such as pyrite, FeS2 (iron sulphide). Also a zone in which sulphide minerals occur. A process in which surface waters percolate down through the outcrop of an orebody and oxidise many ore minerals while mobilising metallic elements which are transported down to the reducing conditions of the water table where there is precipitation of dissolved metals in an enriched zone; supergene enrichment most commonly refers to sulphide orebodies but similar processes affect oxide and carbonate ores and rocks. All water naturally open to the atmosphere (rivers, lakes, reservoirs, streams, impoundments, seas, estuaries, etc.); also refers to springs, wells, or other collectors that are directly inuenced by surface water. Small particles of solid pollutants that oat on the surface of or are suspended in sewage or other liquids. They resist removal by conventional means. See also Total suspended solids. Metric tonne = 1000 kg. The uid slurry after treatment and extraction of the economically extracted mineral. A dammed reservoir to which the slurry is transported, where the solids settle and the supernatant liquid may be withdrawn. The inuence of primary and secondary geological activity on an area. Sulfosalt mineral- sulphide of copper and arsenic (Cu,Fe)12As4S13. A period of geological time conventionally dened between the Cretaceous and Quaternary Periods, extending from 65 My to 1.8 My before the present; recent international classications have suppressed this period and the succeeding Quaternary and replaced them with the Paleogene and Neogene systems. Sulfosalt mineral(Cu,Fe)12Sb4S13. sulphide of copper and antimony

Sulfosalts********************

Sulphidation ****************

Sulphide ********************

Supergene ******************

Surface water ***************

Suspended solids ************

t**************************** Tailing(s) ******************** Tailings Dam **************** Tectonic inuence *********** Tennantite ****************** Tertiary *********************

Tetrahedrite ***************** Topographical ***************

The physical features of a district or region delineated on a map. 361

Part XVII: Glossary of technical terms

Total suspended solids (TSS) ** tpa ************************* tpd ************************* Trackless ******************** Trenches ******************** A measure of the suspended solids in wastewater, efuent, or water bodies. See also Suspended solids. Metric tonnes per annum. Metric tonnes per day. Mining without the use of locomotives. Lines excavated to a pre determined depth to establish the geological structure of a deposit. A deposit of volcanic ash-fall material. Volts. Air coursed around a mine to provide a working environment to both men and machines. Deposits of fragmentary material ejected from volcanoes (either subaerially or subaqueously); include ash-fall deposits, ignimbrites, mud-ows and fragmented basic lava due to contact with water. Rock or material of no commercial value. 1. Unwanted materials left over from a manufacturing process. 2. Refuse from places of human or animal habitation. Wastewater ***************** Spent or used water from individual homes, communities, farms, or industries that contains dissolved or suspended matter.

Tuff************************* V *************************** Ventilation ******************

Volcano-clastic***************

Wasterelated to mining **** Wastes **********************

Wastewater treatment plant ********************* Water makes **************** Working Capital *************

A facility containing a series of tanks, screens, lters, and other processes by which pollutants are removed from water. The quantity of water owing into an area or the mine. Accounts receivable less accounts payable.

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