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| | |    We invite you to click on the following links to learn more about the Republic of Peru. Please note that the following is based on Bear Creek's current understanding of Peru and applicable Peruvian laws.
Geographical Location and Population Peru has a population of approximately 26.0 million and covers a geographic area of approximately 1,290,000 square kilometers on the western coast of South America. Lima is Peru's capital and principal city and has a population of approximately 8.0 million. Current Federal Government Peru currently is a democratic republic. Pursuant to a constitution that was initially approved by a national referendum held on October 31, 1993, Peru is governed by an elected government, which is headed by a president who serves a five-year term, and a one-chamber legislative body or congress. On November 4, 2000 the constitution was amended to prohibit the president from serving consecutive terms. Recent Political and Economic History Peru's history since the mid-1980s, on average, has been one of political and economic instability under both democratically elected and dictatorial governments. These governments have pursued various policies, including frequent intervention in the national economy and social structure. Past governments have also imposed controls on prices, exchange rates, local and foreign investment and international trade, thereby restricting the ability of companies to freely operate. From approximately 1985 to 1990, Peru suffered from significant inflation and a series of nationwide general labor strikes. Peru's economic and social difficulties were further exacerbated by the terrorism of the Sendero Luminoso (aka "the Shining Path"), a Maoist group intent on creating a socialist government. In 1992, the then leader of Sendero Luminoso and most of his top officials were captured by the Peruvian military. Subsequently, hundreds of Sendero Luminoso terrorists have surrendered or been captured, including the capture of Sendero Luminoso's subsequent leader in 1999. These arrests have resulted in a significant decrease in terrorist activities throughout Peru. Remaining terrorist activity now appears to be largely confined to several isolated pockets within Peru. Our policy is to avoid areas where terrorists are known to remain active. In November 1989, Alberto Fujimori was elected as President of Peru and began implementing various widespread reforms aimed at stabilizing the economy, restructuring the national government and reducing bureaucracy. These reforms included privatizing state owned companies, promoting private investment, and developing and strengthening basic services related to education, health, housing and infrastructure. In April 1992, President Fujimori declared a national state of emergency primarily due to recurring confrontations with the Congress over their unwillingness to support his proposed reforms and the impact that continuing terrorist threats were having on foreign investment in Peru. President Fujimori proceeded to decree the existing national constitution as null and void, and dissolved the then sitting democratically elected Congress. Thereafter, President Fujimori unilaterally governed Peru through various decrees. On November 22, 1992, democratic national elections were held and a new Congress was seated to deliberate and propose a new national constitution. In October 1993, a new constitution was formally enacted and ratified by means of a national referendum. The Congress remained in existence, effectively acting as the legislative branch of the federal government. In November 1995, a new Congress was again democratically elected and President Fujimori was re-elected for a second five-year term. In November 1999, President Fujimori was re-elected for a third five-year term. However, growing public discontent with corruption within President Fujimori's administration ultimately forced him to concede to widespread demands for a new presidential election. In May 2000, the presiding president of the Congress, Vaneltin Paniagua, became interim President of Peru pending new elections. In July 2001 Alejandro Toledo, a former World Bank official, was democratically elected. To date, President Toledo has continued the free market principles and the broad-based political, economic and social reforms implemented by his predecessor, while also following a slightly more populist agenda that advocates increased public participation, poverty reduction and decentralization. President Toledo has promoted, and currently continues to promote, increased foreign direct investment through the mechanisms of joint ventures, management agreements and concessions. However, despite the preceding, the overall popularity of President Toledo's administration currently is very low among Peru's citizens as a whole. This unpopularity, should it persist, may potentially subject our current and future business interests in Peru to increased political, economic and other risks. Currency Peru's official monetary unit is the Nuevo Sol (hereinafter, "S"). It currently is not subject to any exchange restrictions and has been freely floating since March 27, 1991. The most recent period during which the Nuevo Sol's exchange rate experienced significant volatility was from November 1992 to November 1993 when its exchange rate deteriorated from S1.61/$1.00 to S2.18/$1.00. The Nuevo Sol subsequently stabilized during 1994, narrowly trading between S2.18/$1.00 and S2.20/$1.00, although it has subsequently weakened, on average, against the US dollar. The following table provides a summarized chronological history of S/$ exchange rates since late 1995:
As of April 1, 2003, the exchange rate was 3.60. The source of this exchange rate information is the Peruvian National Bank, Banco de la Nacion Mining Industry Peru has a lengthy history of mining that predates the Spanish conquistadors. Although political unrest and instability slowed the development of some of Peru's ore bodies since 1995, mining continues to be an important contributor to the national economy and the flow of exploration funding by foreign entities has remained high due to the abundance of mineral targets. Presently, mining accounts for approximately one-twentieth of Peru's gross domestic product and approximately one-half of its total exports. The mining sector currently generates the highest amount of foreign currency from exports, approximately $3.2 billion per year. The most important mineral commodities produced are copper, gold, tin, lead, zinc, and silver. Previous to 1990, the mining industry was divided between the large state controlled mining companies, Empresa Minera del Peru ("Minera Peru"), Empresa Minera del Hierro del Peru ("Hierro Peru") and Empresa Minera del Centro del Peru ("Centromin") and the private mining sector. Under the Peruvian government that ended in 1990, investment and activity in the mining industry was depressed by exchange controls, inflation, the imposition of arbitrary exchange rates and terrorist activity. Private mining companies continued to produce during this period but suffered from a general lack of capital. However, in 1994, mining companies spent an estimated $100 million on mineral exploration, an indication that the investment climate in Peru had started to benefit from the subsequent government's reform programs. By 2000, annual mineral exploration expenditures had grown to over $139 million (Source: Metal Economics Group, 2002). Since 1990, the Peruvian government has also been actively seeking foreign investment in the mining sector and has privatized most of the state-owned mining companies, including Minero Peru and Centromin. In 1992, Hierro Peru, an iron ore deposit, was sold to Shougang Corporation, a Chinese State corporation, for $120 million. Cerro Verde, a copper mine previously owned by Minero Peru, was privatized and sold by the federal government in 1993 to Cyprus Amax Minerals Co. for $37 million, with their commitment to invest $485 million over the subsequent five years. In 1994, the Tintaya Project, an existing copper operation in southern Peru was privatized. Antamina, a copper-zinc-silver-molybdenum resource owned by Centromin, was privatized in 1996. This world-class deposit, which currently is jointly held by BHP Billiton, Noranda, Tech Cominco and Mitsubishi, produced its first copper and zinc metal in 2001, after a capital investment of $2.3 billion. The concomitant liberalization of mining titles and development of a market in mineral options has led to the development of a vibrant exploration sector and is leading to new discoveries, such as Barrick Gold Corporation's 2002 announcement of its Alto Chicama gold deposit. The Yanacocha and Pierina gold mines are good examples of liberalization leading to new investment. Regulatory reforms have also led to significant investment by senior mining companies in the previously discovered Yanacocha gold deposits, resulting in the formation of Minera Yanacocha (a joint venture company with interests held by Newmont Mining Inc., Minera Buenaventura and IFC), currently Latin America's largest gold producer. Intense exploration activity in Peru over the last ten years or so has further increased the general level of geological understanding, which we believe should lead to the discovery of more base and precious metal deposits in the future. Peru currently has extensive reserves of copper, zinc, gold and silver. In 2001, Peru ranked eighth in the world in the production of gold, second for silver, fifth for copper, and third for zinc and tin. Between 2000 and 2002, Peru's copper output increased by over thirty percent primarily due to the start-up of the Antamina mine. In 2001, Peru's output of gold was approximately 138 tons, primarily from the Yanacocha and Pierina mines. Economic Geology Peru has the potential for the discovery of a variety of mineral deposit types, including bulk disseminated gold deposits that are the current primary focus of Bear Creek's exploration programs. Peru is situated in the heart of the Andes mountain range. The cordillera of the Andes forms a northwest-trending belt that passes through Peru and is one of the two most important metallogenic provinces in South America. Within the Andes of Chile and Peru are a series of ore belts that have many similarities. In central and northern Chile, the rocks form bands, with the oldest paralleling the Pacific Coast and progressively younger bands occurring eastward, terminating with a line of later tertiary to recent volcanoes along the continental divide. The mineral deposits also form a series of parallel belts with ages of mineralization becoming progressively younger to the east. The coastal Mesozoic age copper belts contain veins, replacement deposits and some porphyry copper deposits such as La Candelaria. Also present are an alignment of iron deposits and gold, silver and copper deposits, principally veins. To the east is a belt of early tertiary gold, silver and copper deposits which is followed by the important north-south trending, mid-Tertiary porphyry copper belt which contains some of the world's largest copper deposits. Near the crest of the Andes are a series of sub-volcanic, epithermal-type gold and silver deposits. This same general pattern of mineral belts and banding in rocks is present in western Peru, but the strike is northwest, paralleling the coast. From the Pacific Coast eastward in Peru is a coastal belt of gold, copper and iron deposits similar to that present in Chile, progressing eastward to a projection of the Chilean mid-Tertiary age porphyry copper deposits. This belt hosts four of Peru's most important copper deposits: Toquepala, Cuajone, Cerro Verde and Quellaveco. There is a progressive increase in age of formation of these mid-Tertiary age porphyry deposits from south to north, and within the southern Peru porphyry copper belt the deposits range from 50 - 60 million years old. Further to the east is a belt of young late tertiary age, epithermal gold deposits analogous to the El Indio and Maricunga deposits in Chile. Further north in Peru is a cluster of zinc-lead-silver deposits that have no direct analog in Chile. This includes the Cerro de Pasco deposit. Near Peru's northern border is a reappearance of younger porphyry type copper-gold deposits represented by Michiquillay, Yanacocha and Cerro Corona. On the east slope of the Andes are a number of Mississippi Valley type zinc deposits and several significant gold veins and gold placer deposits. The southern and northern Peruvian porphyry copper districts are similar in that they both parallel the west margin of the South American continent and fall about the same distance inland from the coast, but the similarity largely ends there. The southern Peru copper belt contains copper-molybdenum, low gold early Tertiary and continental-type porphyry coppers. These fit as a northern extension of the Chilean porphyries, which become progressively older to the north. The northern Peru porphyries, on the other hand, have quite different characteristics: they are late Tertiary in age, higher level in the vertical zoning column, relatively high gold, low molybdenum, and more typical island arc type porphyry coppers. Mining Concessions Under Peruvian law, the right to explore for and exploit minerals is granted by way of concessions. A Peruvian mining concession is a property related right, distinct and independent from the ownership of land on which it is located, even when both belong to the same person. The rights granted by a mining concession are defensible against third parties, transferable, chargeable and, in general, may be the subject of any transaction or contract. The basic unit for newly claimed mining concessions is 100 hectares and existing concessions can be reduced to that amount. Otherwise, concessions can only be divided by percentage parts or shares. Buildings and other permanent structures used in a mining operation are considered real property accessory to the concession on which they are situated. The concession holder must pay an annual rental of $3.00 per hectare by June 30th of each year. The concession holder must sustain a minimum level of annual commercial production of $100 per hectare in gross sales within six years of the grant of the concession or, if the concession has not been put into production within that period, the annual rental increases to $9.00 per hectare for the seventh through eleventh years of the grant of the concession, and to $23.00 per hectare thereafter. The concession will terminate if annual rental duties are not paid for two consecutive years. The term of a concession is indefinite if it is properly maintained by payment of rental duties. Mineral rights in Peru are administered by the national government. Rights are acquired by applying for concessions that are somewhat analogous to mineral claims in most North American jurisdictions. The process of applying for a concession purely is one of filing documents, and as such, there is no requirement to demarcate the concession in the field. The concession boundaries are specified on the application by giving the geographic coordinates of the corners using the Universal Transverse Mercator grid system. The coordinates must be in even thousands of meters, and the claim boundaries must be north-south and east-west. Since the exact coordinates are specified in the application, the location of the concession is precisely defined without a need to survey it. | |
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