Cobre Panama Basic Engineering Summary Report

  • 961 views
Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
961
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
16
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Mina de Cobre Panama BASIC ENGINEERING SUMMARY REPORT May 2012
  • 2. PROJECT DESCRIPTIONProject Cobre Panama Status Shovel-ready, ESIA approved December 2011Project location Panama, Colón province Products Cu-Au and Mo concentratesSovereign rating Investment grade Features Botija, Colina, Valle Grande open pitsConcession area 13,000 ha Gyratory crushing, grinding, flotationLife of mine 31 years Owner port site, Panamax capableStart of Production 1Q16 Owner 300 MW coal-fired powerCapital Cost $US6.18b Concentrate pipelineTIER I CHARACTERISTICS AVG ANNUAL PROD. Y2-16 LOM TOTAL LOMAverage annual production (Y2-16) 298 ktonnes Cu Cu ktonnes 298 266 8,237Average annual production (LOM) 266 ktonnes Cu Au koz 106 87 2,705C1 cash costs (Y2-16) $US0.72/lb Cu Ag koz 1,572 1,545 47,899C1 cash costs (LOM) $US0.82/lb Cu Mo ktonnes 3.1 2.9 90.2Strip ratio 0.58Design mill throughput (Y1-9) 160 ktpdDesign mill throughput (Y10-31) 240 ktpdRESERVE & RESOURCE ktonnes Cu (%) Au (g/t) Ag (g/t) Moly (%) Cu ktonnes Au koz Ag koz Mo ktonnesProven 258,000 0.57 0.14 1.6 0.010 1,478 1,126 13,020 25Probable 2,061,000 0.38 0.06 1.4 0.007 7,781 4,041 91,008 145Total 2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169Measured 262,000 0.56 0.13 1.5 0.009 1,476 1,118 12,979 24Indicated 3,905,000 0.34 0.06 1.2 0.005 13,237 7,845 155,392 214Total 4,167,000 0.35 0.07 1.3 0.006 14,715 8,963 168,454 238Inferred 3,749,000 0.23 0.04 1.0 0.004 8,660 4,805 120,534 156(resources inclusive of reserves) PROJECT ECONOMICSCAPITAL COSTS $USm % AFTER TAX VALUATIONMining 760 12 LT Consensus FW Curve 3Y Trl. Avg.Process plant 1,184 19 Financed Case 1 14.3% 18.5% 19.2% IRRSite and services 550 9 Financed Case 2 16.7% 21.9% 22.5%Port site 543 9 Financed Case 1 $3.2b $4.8b $6.0b NPV8%Power plant 646 10 Financed Case 2 $3.5b $5.0b $6.3bTotal Direct 3,682 59 Financed Case 1 $2.4b $3.9b $4.9b NPV9%Construction indirects 844 14 Financed Case 2 $2.8b $4.2b $5.2bTotal field costs 4,526 73 Financed Case 1 $1.8b $3.2b $4.0b NPV10%EPCM 355 6 Financed Case 2 $2.2b $3.6b $4.4bOwner Costs 885 14Contingency 415 7Total project cost 6,181 100Sustaining capex 2,916POTENTIAL FOR UPSIDEExpand throughput beyond max planned 240ktpd Financed Case 1: $US1.6b in debt drawn over 3.5 yearsAccelerate increase to 240ktpdConversion of substantial resources beyond reserves Financed Case 2: $US1.6b in debt drawn over 3.5 years $US1.2b upfront payment for 86% of MPSA precious metals and on-going paid $400/oz Au and $6/oz Ag for PM streamPROJECT ADVANTAGESLow strip-ratio (one fifth of industry O/P Cu mine avg 2011 )Ammenable to large scale, efficient mining LT Consensus: Flat $2.75/lb Cu, $15/lb Mo, $1,250/oz Au, $20/oz AgPowered by owner-built, 300mW coal-fired plant FW Curve: Forward curve dropping to LT ConsensusProximity to tidewater, permitting inexpensive con transport (2016 start at $3.66/lb Cu, $1,785/oz gold and $31/oz Ag)Clean concentrate 3Y Trail. Avg: Flat $3.42/lb Cu, $14.68/lb Mo, $1,316/oz Au, $24.90/oz AgExtensively reviewed by 3rd parties (capex and opex) COBRE PANAMA FACT SHEET - PG 1
  • 3. PROJECT DETAILSCHEDULE UNIT COSTS ($US/t ORE MILLED) - LT CONSENSUSNotice to proceed 2Q12 Labour Material Power Other Total LOM Total Y2-16Mine/process construction start 2Q12 Mining 0.27 1.87 0.05 0.24 2.44 2.68Process earthworks complete 4Q13 Processing 0.24 2.13 0.91 0.01 3.29 3.28Plant to port road complete 4Q13 G&A 0.15 0.01 0.04 0.69 0.88 0.97Port complete 2Q14 Site Services 0.11 0.07 0.01 0.09 0.28 0.3Power line complete 3Q14 Total 0.77 4.08 1.01 1.03 6.88 7.23Tailings dam complete 3Q15Ore hits grinding lines 4Q15 UNIT COSTS ($US/t ORE MILLED) Total LOMPower plant complete 4Q15 LT Consensus FW Curve 3YR Trl. Avg.Start of production 4Q15 Mining 2.44 2.46 2.55Concentrate shipment 1Q16 Processing 3.29 3.36 3.60Commercial production 2Q16 G&A 0.88 0.88 0.89RESOURCE ADDITIONS SINCE 2010 Site Services 0.28 0.28 0.28(contained metal) Total 6.88 6.98 7.32M&I FEED Increase CurrentCu (m lb) 25,800 6,641 32,441 Power($US/kWh) Y1-9 1,2 0.027 0.033 0.034Au (k oz) 6,533 2,430 8,963 Power($US/kWh) Y10-31 2 0.05 0.05 0.055Ag (k oz) 133,300 35,154 168,454 C1 cash cost ($US/lb) Y2-16 - Fin Case 1 0.72 0.74 0.77Mo (m lb) 474 51 525 C1 cash cost ($US/lb) LOM - Fin Case 1 0.82 0.83 0.87 1-Power costs adjusted to reflect sales into grid 2-Power costs are quoted before D&A expense covering the $646m capitalINF FEED Increase Current NSR BY METALCu (m lb) 16,600 2,492 19,092 Avg. Annual Avg. AnnualAu (k oz) 4,003 802 4,805 Y2-16 ($USm) LOM ($USm)Ag (k oz) 103,100 17,434 120,534 Cu 1,557 1,389Mo (m lb) 236 18 344 Au 121 100(resources inclusive of reserves) Ag 28 27RESOURCE NOT IN MINE PLAN Cu ktonnes Cu mlbs Mo 93 86Measured and Indicated 5,457 12,031 Total 1,798 1,602Inferred 8,660 19,092 OTHER USEFUL INFORMATIONTAXATION VARIANCE FROM FEED CAPEXCorporate tax rate 25% Capital costs $USmAlternative minimum tax rate 1.17% FEED study estimate 4,320Base metal royalty 5% Power plant 646Precious metal royalty 4% Increased process plant estimate 403 Increased mining estimate 312AVG LOM RECOVERIES Increased port site estimate 285Copper 89.0% Other 215Molybdnemum 53.3% Basic Engineering Estimate 6,181Gold 52.4% Drivers:Silver 46.1% Process Changed scope to achieve higher productivity 2 year tailings starter dam (vs. 1 prev)CONCENTRATE ASSUMPTIONS Higher certainty of estimatesCopper TC $70/dmt Mining Fuel costs of $1.06/litre in capex (vs. $0.56 prev)Copper RC $0.07/lb Higher certainty of earthwork estimatesGold RC $5/oz Pre-strip costs moved from indirect to directSilver RC $0.50/oz BENEFITS TO PANAMAMolybdenum roast and freight $1.49/lb $110m regional development plan to maximize sustainable socio-economic benefitsFreight $41/t wet con Increased local access to healthcare, education, sanitation and clean drinking waterCopper Con Moisture 8% Generates $US20b purchases in national economy and $US3.6b in royalties and taxesLosses and Insurance charges 0.25% Prioritizes local hiring and job-training, total salaries $US2.2b (locals and expats): Peak total manpower during construction of 10,000 Average total manpower during operations of 2,100 COBRE PANAMA COBRE PANAMA FACT SHEET - PG 2
  • 4. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Cautionary statement regarding forward-looking statementsThis Basic Engineering Summary Report contains forward-looking statements with respect to the CobrePanama development project (―Cobre Panama‖ or the ―Project‖), including, without limitation, informationrelating to future financial or operating performance, plans, outlook, financing plans, growth in cash flowand operating margin; projections, targets and expectations as to reserves, resources, results ofexploration (including targets) and related expenses, mine development mine production costs, drillingactivity, sampling and other data; receipt of construction permits; estimated grade levels; future recoverylevels; future production levels, capital costs, costs savings, cash and total costs of operations, productionof copper and other minerals; expenditures for environmental matters; projected mine life; reclamation andother post-closure obligations and estimated future expenditures for those matters; future copper, andother mineral prices (including the long-term estimated prices used in calculating mineral reserves).All statements in this Basic Engineering Summary Report that address events or developments we expectto occur, are ―forward-looking statements.‖ Forward-looking statements are statements that are nothistorical facts and are generally, but not always, identified by the words ―expects,‖ ―plans,‖ ―anticipates,‖―believes,‖ ―intends,‖ ―estimates,‖ ―projects,‖ ―potential,‖ ―target,‖ ―plan,‖ ―scheduled,‖ ―forecast,‖ ―budget‖and similar expressions or their negative connotations, or that events or conditions ―will,‖ ―would,‖ ―may,‖―could,‖ ―should‖ or ―might‖ occur. All such forward-looking statements are based on our opinions andestimates as of the date such statements are made. Forward-looking statements are necessarily basedon estimates and assumptions that are inherently subject to known and unknown risks, uncertainties andother factors, many of which are beyond our ability to control, that may cause the Project’s actual results,level of activity, performance or achievements to be materially different from those expressed or implied bysuch forward-looking statements. Such factors include, without limitation: price levels and volatility in the spot and forward markets for metals and; access to the necessary capital to fund the development and construction of the Project; the ability to develop and construct the Project in accordance with the currently projected budget and timeline; the uncertainties inherent in current and future legal challenges we or the Project are or may become a party or subject to; changes in national and local government legislation or regulations; the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political pressure, corruption or other factors that are inconsistent with the rule of law; the speculative nature of mineral exploration and development, including the risks of obtaining and maintaining the validity and enforceability of the necessary licenses and permits and complying with permitting requirements; inherent hazards, risks and uncertainties associated with mining exploration, development and operations, including accidents; diminishing quantities or grades of reserves; discrepancies between actual and estimated production, between actual and estimated costs, between actual and estimated reserves and resources and between actual and estimated metallurgical recoveries; geotechnical issues; the possibility of temporary or permanent shutdown; the actual costs of reclamation; Page 4May 2012
  • 5. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT increased energy prices; dependency of cash flow and earnings growth upon the development of our current reserve base and converting our resource base to reserves and production; actual capital costs, operating costs and expenditures, production schedules and economic returns from the Project; fluctuations in the international currency markets and the rates of exchange between currencies; volatility of global financial conditions; taxation, including with respect to tax laws and regulations that are unclear or subject to ongoing varying interpretations; significant capital requirements and additional funding requirements; risks associated with joint ventures; dependence on transportation, electric and water facilities and infrastructure; fluctuation in the cost of significant inputs including fuel; delays or disruptions in supplies required for exploration, development, mining or processing, activities; disruptions arising from non-performance of off-take and other counterparties; changes in environmental laws and regulations; potential losses, liabilities and damages related to the Project’s business which are uninsured or uninsurable; regulation of greenhouse gas emissions and climate change issues; labour disputes; defective title to mineral claims or property or contests over claims to mineral properties; competition; and the loss of key employees and the ability to attract and retain qualified personnel.In addition, there are risks and hazards associated with the business of mineral exploration, developmentand mining, including environmental hazards, industrial accidents, unusual or unexpected formations,pressures, (and the risk of inadequate insurance or inability to obtain insurance to cover these risks) aswell as other risks, uncertainties and other factors.Forward-looking statements are not guarantees of future performance, and actual results and futureevents could materially differ from those anticipated in such statements. All of the forward-lookingstatements contained in this Basic Engineering Summary Report are qualified by these cautionarystatements.Although we have attempted to identify important factors that could cause actual results to differ materiallyfrom those contained in the forward-looking statements, there may be other factors that cause actualresults to differ materially from those which are anticipated, estimated or intended. There can be noassurance that such statements will prove to be accurate, as actual results and future events could differmaterially from those anticipated in such statements. You should not place undue reliance onforward-looking statements. We expressly disclaim any intention or obligation to update or revise anyforward-looking statements whether as a result of new information, events or otherwise. Page 5May 2012
  • 6. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Market, ranking, industry data and forecastsThis Basic Engineering Summary Report includes industry data and forecasts that we obtained fromindustry publications and surveys, public filings and internal company sources. Industry publications,surveys and forecasts generally state that the information contained therein has been obtained fromsources believed to be reliable, but there can be no assurance as to the accuracy or completeness ofincluded information. We have not independently verified any of the data from third-party sources, norhave we ascertained the underlying economic assumptions relied upon therein. We cannot guarantee theaccuracy or completeness of such information contained in this Basic Engineering Summary Report.Cautionary notice regarding reserve and resource estimatesThe disclosure in this Basic Engineering Summary Report uses mineral reserve and resourceclassification terms that comply with reporting standards in Canada, and certain mineral resourceestimates are made in accordance with Canadian National Instrument 43-101—Standards of Disclosurefor Mineral Projects (―NI 43-101‖). NI 43-101 is a rule developed by the Canadian SecuritiesAdministrators (the ―CSA‖) that establishes standards for all public disclosure an issuer makes of scientificand technical information concerning mineral projects. Unless otherwise indicated, all reserve andresource estimates contained in this Basic Engineering Summary Report have been prepared inaccordance with NI 43-101. These standards differ significantly from the mineral reserve disclosurerequirements of the Securities and Exchange Commission (―SEC‖) set out in Industry Guide 7.Consequently, reserve and resource information contained in this Basic Engineering Summary Report isnot comparable to similar information that would generally be disclosed by U.S. companies in accordancewith the rules of the SEC.In particular, the SEC’s Industry Guide 7 applies different standards in order to classify mineralization as areserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from thedefinitions in the SEC’s Industry Guide 7. Under SEC standards, mineralization may not be classified as a―reserve‖ unless the determination has been made that the mineralization could be economically andlegally produced or extracted at the time the reserve determination is made. Among other things, allnecessary permits would be required to be in hand or issuance imminent in order to classify mineralizedmaterial as reserves under the SEC standards. Accordingly, mineral reserve estimates contained in thisBasic Engineering Summary Report may not qualify as ―reserves‖ under SEC standards.In addition, this Basic Engineering Summary Report uses the terms ―mineral resources,‖ ―measuredmineral resources,‖ ―indicated mineral resources‖ and ―inferred mineral resources‖ to comply with thereporting standards in Canada. The SEC’s Industry Guide 7 does not recognize mineral resources andU.S. companies are generally not permitted to disclose resources in documents they file with the SEC.Readers are specifically cautioned not to assume that any part or all of the mineral deposits in thesecategories will ever be converted into SEC defined mineral reserves. Further, ―inferred mineral resources‖have a great amount of uncertainty as to their existence and as to whether they can be mined legally oreconomically. Therefore, readers are also cautioned not to assume that all or any part of an inferredresource exists. In accordance with Canadian rules, estimates of ―inferred mineral resources‖ cannot formthe basis of feasibility or pre-feasibility studies. It cannot be assumed that all or any part of ―mineralresources,‖ ―measured mineral resources,‖ ―indicated mineral resources‖ or ―inferred mineral resources‖will ever be upgraded to a higher category. Readers are cautioned not to assume that any part of thereported ―mineral resources,‖ ―measured mineral resources,‖ ―indicated mineral resources‖ or ―inferredmineral resources‖ in this Basic Engineering Summary Report has demonstrated economic viability or iseconomically or legally mineable. In addition, the definitions of ―proven mineral reserves‖ and ―probablemineral reserves‖ under reporting standards in Canada differ in certain respects from the standards of theSEC. For the above reasons, information contained in this Basic Engineering Summary Report thatdescribes the Project’s mineral reserve and resource estimates is not comparable to similar informationmade public by U.S. companies subject to the reporting and disclosure requirements of the SEC. Page 6May 2012
  • 7. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe Project’s proven and probable reserve estimates contained throughout this Basic EngineeringSummary Report are as of March 5, 2012, and are estimated based on information compiled by or underthe supervision of a ―qualified person‖ as defined under NI 43-101.Important NoticeThis report shall not constitute an offer to sell or a solicitation of an offer to purchase any securities ofInmet Mining Corporation in the United States or any other jurisdiction. Any securities of Inmet MiningCorporation have not and will not be registered under the U.S Securities Act of 1933, as amended (the―Securities Act‖), or the securities laws of any other jurisdiction and may only be offered and sold in theUnited States pursuant to an exemption from the registration requirements of the Securities Act andapplicable state securities laws. Page 7May 2012
  • 8. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Contents1 INTRODUCTION .........................................................................................................15 1.1 A Tier 1 Copper Asset ........................................................................................16 1.2 Concession, Permits and Socio-Environmental Commitments ......................19 1.3 Capital Costs ......................................................................................................19 1.4 Operating Costs..................................................................................................20 1.5 Project Economics .............................................................................................21 1.6 Third Party Reviews ...........................................................................................22 1.7 Risks and Opportunities ....................................................................................23 1.8 Project Execution ...............................................................................................25 1.9 Conclusions ........................................................................................................262 TECHNICAL SUMMARY ............................................................................................27 2.1 Project Description .............................................................................................27 2.1.1 Geology and Mineral Resources ................................................................29 2.1.2 Mine Plan and Mineral Reserves ................................................................33 2.1.3 Metallurgy.....................................................................................................39 2.1.4 Mine Waste Management ............................................................................43 2.1.5 Solid and Hazardous Waste Disposal ........................................................44 2.1.6 Tailings Management Facility .....................................................................44 2.1.7 Water Management ......................................................................................46 2.1.8 Power Plant ..................................................................................................47 2.1.9 Project Infrastructure / Ancillary Facilities ................................................49 2.1.10 Port ...............................................................................................................50 2.1.11 Pipelines .......................................................................................................51 2.1.12 Balance of Plant ...........................................................................................52 2.2 INDEPENDENT THIRD-PARTY REVIEWS ..........................................................52 2.2.1 Independent Tailings Review Board (ITRB) ...............................................52 2.2.2 URS Corporation Independent Review.......................................................533 PRIVILEGE TO OPERATE .........................................................................................54 3.1 Panama ...............................................................................................................54 3.1.1 Mining in Panama: Changes to the Mineral Code in 2012........................56 3.1.2 Contract Law 9 .............................................................................................57 3.1.3 MPSA’s Panamanian Society Participation ...............................................58 3.2 Inmet’s Approach To Corporate Responsibility ...............................................58 3.3 Cobre Panama: Inmet’s Commitment in Action ..............................................59 Page 8May 2012
  • 9. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT 3.3.1 Regulatory Context for Environmental and Social Impact Assessments 61 3.4 Socio-environmental Context of the Project.....................................................63 3.4.1 Environmental Baseline Conditions ...........................................................63 3.4.2 Social Baseline Conditions .........................................................................65 3.4.3 Community Relations and Community Development Activities...............67 3.4.4 Project Socio-environmental Actions and Benefits ..................................69 3.4.5 Partnerships.................................................................................................714 CAPITAL COST ESTIMATE .......................................................................................73 4.1 Basis of Estimate................................................................................................73 4.1.1 Site Investigation .........................................................................................74 4.2 Capital Cost (CAPEX $US) .................................................................................75 4.2.1 Contract budgetary incentives ...................................................................79 4.3 Sustaining Capital (SUSEX) ...............................................................................79 4.4 Independent Third Party Review – Capital Cost Estimate ...............................805 OPERATING COST ESTIMATE .................................................................................82 5.1 Basis of Estimate................................................................................................82 5.2 Operating Cost Estimate (OPEX) .......................................................................83 5.3 Brook Hunt C1 Cash Cost ..................................................................................86 5.4 Independent Third Party Reviews .....................................................................88 5.4.1 Process Plant Operating Cost Estimate .....................................................88 5.4.2 Benchmark of Mining Cost .........................................................................89 5.4.3 Power Plant Operating Cost Estimate ........................................................89 5.4.4 Power Plant Coal Supply Analysis .............................................................906 PROJECT ECONOMICS ............................................................................................91 6.1 Modelling Assumptions .....................................................................................91 6.2 Value and Returns ..............................................................................................93 6.3 Sensitivity Results ..............................................................................................95 6.4 Cash Costs..........................................................................................................96 6.5 Net Smelter Returns ...........................................................................................99 6.6 Project Cash Flows .......................................................................................... 101 6.6.1 Debt Case ................................................................................................... 101 6.6.2 Debt plus Stream Case .............................................................................. 102 6.7 Upside of Resource Value Not Reflected in Traditional Discounted Cash Flow Valuation ........................................................................................................... 1037 PROJECT FINANCING ............................................................................................. 104 Page 9May 2012
  • 10. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT8 RISKS AND OPPORTUNITIES ................................................................................. 107 8.1 Project Risk Management ................................................................................ 107 8.1.1 Special Considerations ............................................................................. 110 8.2 Opportunities .................................................................................................... 1139 PROJECT EXECUTION ............................................................................................ 116 9.1 Project Background.......................................................................................... 116 9.2 Project Organization......................................................................................... 116 9.3 Health and Safety ............................................................................................. 119 9.4 Environmental Management Plan.................................................................... 119 9.5 Labour Relations, Training and Hiring ............................................................ 121 9.6 Sequence of Construction ............................................................................... 122 9.6.1 EPCM Scope Under JVP ............................................................................ 122 9.6.2 EPC Scope Yet to be Awarded.................................................................. 123 9.6.3 EPC Scope Under SK E&C ........................................................................ 123 9.7 Materials Management and Logistics ............................................................. 123 9.7.1 Logistics Strategy...................................................................................... 123 9.8 Procurement ..................................................................................................... 124 9.9 Security ............................................................................................................. 124 9.10 Project Master Schedule and Key Milestones ................................................ 124 9.11 Independent Reviews ....................................................................................... 127 9.11.1 Independent Project Schedule Review .................................................... 127 9.11.2 Independent Project Readiness Assessment .......................................... 127 9.11.3 Independent Project Controls Health Check ........................................... 12710 OPERATIONAL READINESS................................................................................... 12911 MARKETING AND MARINE TRANSPORT OF CONCENTRATE ............................ 133 11.1 Scope and Summary ........................................................................................ 133 11.2 Composition of Revenue and Price Assumptions ......................................... 133 11.3 Copper Prices and Trends ............................................................................... 134 11.4 Concentrate Quality.......................................................................................... 135 11.5 Summary of Copper Concentrate and Freight Market Expectations ............ 136 11.6 Preliminary Copper Concentrate Sales Plan .................................................. 137 11.7 Summary of Molybdenum and Freight Market Expectations ........................ 138 Page 10May 2012
  • 11. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT List of TablesTable 1-1 Tier 1 Characteristics ...................................................................................15Table 1-2 Metal Production ..........................................................................................17Table 1-3 Cobre Panama Mineral Reserves ................................................................17Table 1-4 Cobre Panama Mineral Resources ..............................................................17Table 1-5 Basic Engineering Capital Cost by Major Area .............................................20Table 1-6 C1 Cash Costs($US/lb of Cu) at Copper Price Scenario of $US2.75/lb. .......20Table 1-7 Summary of Operating Costs by Component ($US/t of ore milled) ...............21Table 1-8 After-Tax Economics: Debt Case .................................................................22Table 1-9 After-Tax Economics: Debt plus Stream Case .............................................22Table 1-10 Third Party Reviews .....................................................................................23Table 1-11 Project Milestones........................................................................................26Table 2-1 Tier 1 Characteristics ...................................................................................27Table 2-2 Cobre Panama Mineral Resources ..............................................................31Table 2-3 Mine Production Schedule ...........................................................................35Table 2-4 Mining Schedule by Pit ................................................................................36Table 2-5 Cobre Panama Mineral Reserve ..................................................................39Table 2-6 Recovery Forecast Algorithms .....................................................................40Table 2-7 Mill Production Schedule..............................................................................42Table 3-1 Cobre Panama’s Progress in Implementing the IFC Performance Standards61Table 4-1 Basic Engineering Capital Cost by Major Area .............................................78Table 4-2 FEED Study to Basic Engineering Capital Cost Estimate Variances ............78Table 4-3 FEED Study to Basic Engineering Variance Description ..............................79Table 5-1 Total Operating Cost Summary ....................................................................83Table 5-2 Summary of Operating Costs per Year ($US/t of ore milled)* .......................83Table 5-3 Summary of Operating Costs by Component ($US/t of ore milled)* .............84Table 5-4 FEED Study vs. Basic Engineering Operating Costs ....................................85Table 5-5 Operating and Input Cost Estimates at Selected Copper Price Assumptions86Table 5-6 Years 2-16 C1 Cash Cost ($US/lb) ..............................................................87 Page 11May 2012
  • 12. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 5-7 Life of Mine C1 Cash Cost ($US/lb) .............................................................87Table 5-8 Power Costs at Selected Copper Price Assumptions ($US/kWh) .................89Table 6-1 Modelling Assumptions ($US) ......................................................................91Table 6-2 Pre-Financing Sponsor Funding Requirement ............................................92Table 6-3 Financing Assumptions ................................................................................93Table 6-4 Metal Price Assumptions ($US) ...................................................................94Table 6-5 After-Tax Economics: Debt Case .................................................................94Table 6-6 After-Tax Economics: Debt plus Stream Case .............................................95Table 6-7 Years 2-16 Cash Costs Based on Payable Copper ($US/lb) ........................96Table 6-8 Life of Mine Cash Costs Based on Payable Copper (US/lb) .........................96Table 6-9 Year 2-16 C3 Costs ($US/lb)........................................................................98Table 6-10 Life of Mine C3 Costs ($US/lb) .....................................................................98Table 6-11 Life of Mine Revenues and NSR (Consensus LT Prices) ........................... 100Table 6-12 Construction Period Funding Requirement – Debt Case ($US) .................. 101Table 6-13 Construction Period Funding Requirement – Debt plus Stream Case ($US) .................................................................................................................. 102Table 7-1 Independent Funding Breakdown .............................................................. 104Table 7-2 Inmet’s Funding Plan ................................................................................. 104Table 7-3 Total Project Funding ................................................................................. 105Table 8-1 Key Project Risks and Treatment Plans ..................................................... 112Table 8-2 Potential Reserves Should Indicated Resources at Balboa and Brazo be Converted to Reserves .............................................................................. 114Table 9-1 Project Milestones...................................................................................... 125Table 10-1 Elements of and Assurance of Operational Readiness .............................. 129Table 11-1 Forecast Copper Concentrate Commercial Terms ..................................... 138Table 11-2 Molybdenum Concentrate NSR Calculation* .............................................. 139 Page 12May 2012
  • 13. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT List of FiguresFigure 2-1 Site & Infrastructure Map .............................................................................28Figure 2-2 Mineral Deposits and Defined Resources Plan Map ....................................30Figure 2-3 Increase in Resources Since FEED Study ...................................................31Figure 2-4 Contained Copper Endowment (resource proxy) for Undeveloped Copper Deposits .......................................................................................................32Figure 2-5 Contained Copper Endowment (resource proxy) for Undeveloped Copper Deposits Not Controlled by >$10b Market Cap or Sovereigns......................32Figure 2-6 Summary of Mining Schedule ......................................................................34Figure 2-7 Mining Schedule Shown by Type of Material Moved and by Pit ...................34Figure 2-8 Inferred Resource In-Pit ...............................................................................37Figure 2-9 Plan View of Site Infrastructure and Design Pits ..........................................38Figure 2-10 Plan View of TMF Including Dams ...............................................................45Figure 3-1 IHS Comparative Historical Risk Showing Panama’s Risk Trending Down ..55Figure 3-2 Estimated Cobre Panama Job Additions ......................................................56Figure 3-3 Pro-Mining Demonstration of 2,500 People March 10, 2012 ........................67Figure 5-1 Breakdown of Operating Costs by Function and Input Cost .........................84Figure 5-2 Comparison of Cobre Panama’s C1 Cost on the 2020 Projected Brook Hunt Cost Curve ...................................................................................................88Figure 6-1 NPV Sensitivities..........................................................................................95Figure 6-2 Comparison of Project C1 Costs on the Projected 2020 Brook Hunt Cost Curve ...........................................................................................................97Figure 6-3 Comparison of Project C3 Costs on the Projected 2020 Brook Hunt Cost Curve ...........................................................................................................99Figure 6-4 Payable Cu Production and C1 Cash Cost by Year (Consensus LT Prices Debt Case)................................................................................................. 100Figure 6-5 Project Life After-Tax Cash Flows (Debt Case)* ........................................ 101Figure 6-6 Project Life After-Tax Cash Flows (Debt + Stream Case)* ........................ 102Figure 8-1 Plan of Distribution of Resources 2012 ...................................................... 113Figure 8-2 Plan of Distribution of Resources 2012 ...................................................... 115Figure 9-1 Project Schedule ........................................................................................ 126 Page 13May 2012
  • 14. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 11-1 Cobre Panama NSR by Metal Based on Long-term Consensus Prices...... 133Figure 11-2 Gap Between Base Case Mine Production and Demand that Needs to be Filled with Capacity Additions .................................................................... 134Figure 11-3 Forecast vs Actual Sources of Supply 2003-2010 ...................................... 135Figure 11-4 Historical Trends in Treatment and Refining Changes in Real 2011 Dollars137 GLOSSARY k thousand m million b billion oz troy ounces lb pounds kt thousand tonnes kTon thousand tons ktpd thousand tonnes per day mt million tonnes mt/a million tonnes per annum US$/t US dollars per tonne Cu Copper Au Gold Ag Silver Mo Molybdenum bbl barrel l litre mW megawatt kWh kilowatt hour dmt dry metric tonne wmt wet metric tonne LOM life of mine g/t grams per tonne Page 14May 2012
  • 15. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT1 INTRODUCTIONThe Mina de Cobre Panama Project (Cobre Panama; the Project) consists of a conventionalopen pit mine and the associated infrastructure to produce copper-gold and molybdenumconcentrates. The concession for the Project covers an area of 130 square kilometres (km2) andis located in the Donoso District, Colón Province in north central Panama.Cobre Panama’s projected significant annual production at first quartile cash costs, long minelife, extensive mineral reserves and resources, and high proportion of net revenues from copperall provide exceptional exposure to copper. With the Environmental and Social ImpactAssessment (ESIA) regulatory approval for the Project already received, a strong social licenseand Basic Engineering completed, the Project is construction-ready. It is essentially the onlyTier 1 copper asset not in the hands of a senior mining company.Table 1-1 Tier 1 Characteristics Tier 1 CharacteristicLife of Mine 31 yearsCapital Cost $US6.18bAnnual production (Yr 2-16) 298 ktAnnual production (LOM) 266 ktC1 cash costs (Yr 2-16) $US0.72/lb CuC1 cash costs (LOM) $US0.82/lb CuStrip Ratio 0.58Scale 160 ktpd to 240 ktpd throughput with further expansion capacity Consensus Long-Term Forward Curve 3YR Trailing Avg. (declining to (SEC case) consensus)IRR (debt financing) 14.3% 18.5% 19.2%NPV @ 8% ($m) 3,200 4,800 6,000IRR (debt plus stream financing) 16.7% 21.9% 22.5%NPV @ 8% ($m) 3,500 5,000 6,300Annual free cash flow $US0.90b(Yr 2-16, debt financing)Annual free cash flow $US0.81b(LOM, debt financing)Copper reserves* 9.3 mtCopper resources (M&I)* 14.7 mtCopper resources (Inferred)* 8.7 mtConcentrate Clean concentrate not expected to draw penaltiesLogistics Proximity to tidewater and Panama Canal*See Table 1-3 and Table 1-4 Page 15May 2012
  • 16. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTCobre Panama would be developed as a conventional truck and shovel open pit mine with aconcentrator that uses the direct application of proven technology (crushing, grinding, flotation)to produce copper-gold and molybdenum concentrates. A 300 mW coal-fired power plant andship loading port facilities are also part of the Project.Basic Engineering was conducted by Joint Venture Panama Inc. (JVP), a joint venture led bySNC-Lavalin Group Inc. (70%) with partners GyM S.A. (a member of Graña y Montero Group)(15%) and Techint International Construction Corp. (15%) between November 2010 and March2012. The purpose of Basic Engineering was to further develop the scope and execution planfor the Project, and to serve as the basis for detailed engineering, procurement and construction.This work builds on the March 2010 Front End Engineering Design Study (FEED) Study. BasicEngineering provides: • A capital cost estimate with an accuracy of +10%/-10% • A Project Execution Plan in readiness for the full Notice to Proceed • A detailed Level 3 Project Master Schedule • Detailed engineering for site capture and civil works and • Initial Work Packages and contracting strategy to support procurement activities.The total estimated capital cost to bring the Project into operation is $US6.2b (expressed in Q32011 dollars), over half of which is based on firm quotes. Sustaining capital is estimated to be$US2.9b required over the mine life. This includes an expansion in the form of adding a thirdcrushing and grinding line to the process plant to increase capacity from 160ktpd to 240ktpd,which would to be ready for production in Year 10. Operating costs are estimated to be$US6.88/t of ore milled, with mining costs benefitting from a life of mine strip ratio of 0.58 tonneswaste per tonne of ore. The power cost of $US1.01/t of ore milled is an endorsement of thedecision in 2011 to undertake the capital cost to build a coal-fired power plant. Assuming a fullNotice to Proceed in May 2012, first concentrate would be scheduled for early 2016.Reconciliations to the 2010 FEED Study can be found in Sections 4 (Capital Costs) and 5(Operating Costs).1.1 A Tier 1 Copper AssetThe Project has the key attributes of a Tier 1 copper asset with substantial exposure to copper,projected long life, low operating costs and significant expansion potential in a geopoliticallyfavourable jurisdiction.Cobre Panama’s projected average annual copper production of 298kt for Years 2-16 and 266ktover the life of operations are indicative of a world class asset. The expected 31 year life withthese levels of output would provide exceptional exposure to copper. Page 16May 2012
  • 17. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 1-2 Metal Production Annual Average Annual Average Total Years 2-16 Life of Operations Life of OperationsCopper (kt) 298 266 8,237Molybdenum (kt) 3.1 2.9 90.2Gold (koz) 106 87 2,705Silver (koz) 1,572 1,545 47,899Estimated C1 cash costs (see Section 5 for definition) of $US0.72/lb for Year 2-16 and$US0.82/lb for the life of the operation would put the Project in the very favourable position ofbeing in the first quartile of the projected industry cost curve.Table 1-3 Cobre Panama Mineral ReservesCategory Tonnes Cu Au Ag Mo Cu Au Ag Mo (x1000) (x1000) (x1000) (x1000) (x 1000) % g/t g/t % Tonnes ounces ounces tonnesProven 258,000 0.57 0.14 1.6 0.010 1,478 1,126 13,020 25Probable 2,061,000 0.38 0.06 1.4 0.007 7,781 4,041 91,008 145Total 2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169Table 1-4 Cobre Panama Mineral ResourcesCategory Tonnes Cu Au Ag Mo Cu Au Ag Mo (x1000) (x1000) (x1000) (x1000) (x 1000) % g/t g/t % Tonnes ounces ounces tonnesMeasured 262,000 0.56 0.13 1.5 0.009 1,476 1,118 12,979 24Indicated 3,905,000 0.34 0.06 1.2 0.005 13,237 7,845 155,392 214Total 4,167,000 0.35 0.07 1.3 0.006 14,715 8,963 168,454 238Inferred 3,749,000 0.23 0.04 1.0 0.004 8,660 4,805 120,534 156Notes to mineral reserves and resources tableMineral reserves and resources are shown on a 100 percent basis for each property. Except as stated, mineral resources areexclusive of mineral reserves.The mineral reserve and resource estimates are prepared in accordance with the CIM Definition Standards On Mineral Resourcesand Mineral Reserves, adopted by CIM Council on November 14, 2004, and the CIM Estimation of Mineral Resources and Mineral Page 17May 2012
  • 18. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTReserves Best Practice Guidelines, adopted by CIM Council on November 23, 2003, using geostatistical and/or classical methods,plus economic and mining parameters appropriate to each project. You will find the definitions and guidelines at www.cim.org.Estimates for all operations are prepared by or under the supervision of a qualified person as defined in National Instrument 43-101(usually an engineer or geologist).There are no known environmental, permitting, legal, taxation, political or other relevant issues that would materially affect theestimates of the mineral reserves.Mineral resources which do not form part of the mineral reserves do not have demonstrated economic viability.Mineral resources as at March 5, 2012, were estimated by Robert Sim, P. Geo., of SIM Geological Inc. Mineral reserves as atDecember 31, 2011 were estimated by William Rose, P.E., of WLR Consulting, Inc., a qualified person under National Instrument 43-101.Reserve estimates are based on the following assumptions:- copper price: $US2.25 per pound- gold price: $US1,000 per ounce- silver price: $US16 per ounce- molybdenum price: $US13.50 per pound- Mining costs : $US1.66 per tonne of ore mined, $US 1.96 per tonne of waste mined and- Milling and general and administration cost: $US 5.27 per tonne of ore milled, average life of mine metallurgical recoveries: 89percent for copper, 52 percent for gold, 46 percent for silver and 53 percent for molybdenum.Mineral resources include mineral reserves.Resource grades are estimated using ordinary kriging with a nominal block size of 25 metres by 25 metres by 15 metres. Resourcesare limited inside a pit shell defined by a copper price of $US2.60 per pound, $1.75 per tonne mining cost and $7.02 per tonne totalsite operating cost, and are tabulated at a cut-off grade of 0.15 percent copperMeasured and Indicated (M&I) resources have grown to approximately 32.4b lb of copper and9.0m oz of gold. This represents a 26% increase of 6.6b lb of copper and a 37% increase of2.4m oz of gold over the FEED Study. In addition, inferred mineral resources have grown to19.1billion lbs of copper and 4.8m oz of gold – an increase of 2.5b lb of copper (15 percent) andan increase of 0.8m oz gold (20 percent) over the FEED Study.Currently there are 12b lb of contained copper in M&I mineral resources and some 19b lb ofcopper in inferred mineral resources not exploited in the mine plan. While mineral resources donot have demonstrated economic viability, based on commonly used market precedent, theseadditional units of copper could potentially be valued at between $US0.03 and $US0.06/lb in theground, suggesting an option value on those copper units of between $US0.9b and $US1.8b.This is especially true once the infrastructure is in place and the mine is operating.If work progresses to allow us to move these resources into reserves, it would provideopportunities to: • extend mine life beyond the current 31 years; and/or • accelerate the addition of a third line to the process plant that would increase production in Years 3 to 9; and/or • justify expanding the planned operation beyond 240ktpd throughput.Cobre Panama would enjoy a number of other positive attributes. In an industry with a trend ofincreasing presence of deleterious elements in concentrates, the Project would have a cleanconcentrate. The port, located on tide water, would be only 30 km from the mine site, allowingfor ease of exporting concentrates as well as importing supplies. This would provide a unique Page 18May 2012
  • 19. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTopportunity to potentially enhance profitability through swaps to reduce transportation costs andto share the benefit of reduced penalties with swap counterparties.1.2 Concession, Permits and Socio-Environmental CommitmentsThe Project exploration and mining concession was granted under Law 9 of February 26, 1997,promulgated by the Legislative Assembly of Panama. This, in addition to an amended MineralResources Code in Panama, provides clarity on the fiscal framework for Cobre Panama. TheESIA approval was received in December 2011 and gives the Project the right to obtain thebalance of the permits required to commence operations. Several such construction permitshave already been obtained.MPSA has created an existing privilege to operate locally by building relationships with localcommunities, an intention to comply with the International Finance Corporation’s PerformanceStandards on Environmental and Social Sustainability and by meeting its responsibility to ensurethat the benefits of the Project are shared with the people of Panama.1.3 Capital CostsThe estimated capital cost of $US6.18b is based on a comprehensive estimate comprised ofover 9,000 lines and 800 pages as well as third party reviews of the process and outcome.Adding further to the confidence in the figures is the inclusion of lump sum turnkey contracts,firm price estimates and vendor quotes for well over ninety per cent of the capital cost. Page 19May 2012
  • 20. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 1-5 Basic Engineering Capital Cost by Major Area CAPEX Total Area % of Project ($US)Mining 760 12Process Plant 1,184 19Site & Services 550 9Port Site Facilities 543 9Power Plant 646 10Total Direct Costs 3,682 59Construction Indirects 844 14Total Field Costs 4,526 73EPCM Services 355 6Owner Costs 885 14Contingency* 415 7Project Total Costs 6,181 100Note: Totals may not add due to rounding*Contingency: The contingency table provided to the estimate reviewers had an overall Project contingency of 9.63% (as apercentage of Total Installed Cost (TIC)). When owner’s costs (mine preproduction, mine equipment and Owner’s ProjectManagement (PM)) and contingency on owner’s costs are removed, the remaining value is 11.18%. The percentage is in line withwhat might be expected of an Authority for Total Cost Management (AACE) Class 2 engineering estimate which is described inSection 4.4.1.4 Operating CostsC1 cash costs during Years 2-16 of operation are expected to average $US0.72/lb of copper andfor the life of operations average $US0.82/lb (see Section 5 for further details). These costsshould put Cobre Panama in the first quartile of the projected industry curve and support theeconomic robustness of the operation under most foreseeable market conditions.Table 1-6 C1 Cash Costs($US/lb of Cu) at Copper Price Scenario of $US2.75/lb.Cost Item Average Yr 2-16 Life of OperationsMine 0.30 0.32Plant 0.37 0.44G&A 0.11 0.12Site services 0.03 0.04Offsite costs 0.30 0.30By-product credits (0.40) (0.40)C1* 0.72 0.82Note: Totals may not add due to rounding Page 20May 2012
  • 21. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 1-7 Summary of Operating Costs by Component ($US/t of ore milled)Cost Centre Total Labour Material Power OtherMine 2.44 0.27 1.87 0.05 0.24Process Plant 3.29 0.24 2.13 0.91 0.01G&A 0.88 0.15 0.01 0.04 0.69Site Services 0.28 0.11 0.07 0.01 0.09Total 6.88 0.77 4.08 1.01 1.03A third party review of process plant operating costs concluded that the estimate of operatingcosts was realistic and consistent with other operating concentrators. A separate reviewerconcluded that the Project’s mining productivity ratios were at the average or slightlyconservative as compared to other similar open-pit mining operations.Analysis of costs for input commodities such as oil (diesel), freight, steel (grinding media),ammonia (explosives) and coal (power) has demonstrated a strong correlation to the historicalprice of copper. When prices of oil and other raw materials are relatively high, statisticallysignificant correlations demonstrate that it is reasonable to expect that the economicenvironment is robust and, likewise, so presumably would be the price of copper. The costassumptions for these commodities can therefore linked to price assumptions for copper overthe long term. The life of mine operating costs estimate of $US6.88/t of ore milled is based on along-term copper price assumption of $US2.75/lb. Table 5-5 shows the various input costs usedfor each metal price scenario – in the $US2.75/lb copper case oil is $US68.68/bbl, diesel is$US0.62/l, coal is $US82.54/t, steel grinding media is $US935.25/t, explosives are $US936.21/tand concentrate freight cost was $US41.21/t. In the $US3.42/lb copper case oil is$US80.53/bbl, diesel is $US0.72/l, coal is $US96.93/t, steel grinding media is $US1,143.62/t,explosives are $US1,011.18/t and concentrate freight cost was $US48.32/t.1.5 Project EconomicsThree metal price scenarios were used to evaluate the Project economics: Consensus Long-Term ($US2.75/lb), Forward Curve, and Three Year Trailing Average ($US3.42/lb). It is ourbelief that the Consensus Long-Term price is conservative and does not reflect anticipatedsupply-demand dynamics (see Section 11 ―Marketing‖ for additional discussion). Two financingstructures were considered in the Project economic analysis: 1. a levered case with third party and subordinate shareholder debt, and 2. a levered case with third party and subordinate shareholder debt, plus a gold and silver stream sale. Page 21May 2012
  • 22. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThese structures represent Inmet Mining Corporation’s (Inmet’s) financing assumptions appliedto 100% of the Project. All scenarios and cases appear to provide solid returns that range from14.3% to 22.5% after-tax IRR.Table 1-8 After-Tax Economics: Debt Case Metal Price Scenario Forward Curve 3-Year Trailing Average (SEC($USm) Consensus Long-Term (declining to case) consensus)IRR 14.3% 18.5% 19.2%NPV @ 8% 3,200 4,800 6,000NPV @ 9% 2,400 3,900 4,900NPV @ 10% 1,800 3,200 4,000Table 1-9 After-Tax Economics: Debt plus Stream Case Metal Price Scenario Forward Curve 3-Year Trailing Average (SEC($USm) Consensus Long-Term (dropping to case) consensus)IRR 16.7% 21.9% 22.5%NPV @ 8% 3,500 5,000 6,300NPV @ 9% 2,800 4,200 5,200NPV @ 10% 2,200 3,600 4,400However, readers should be aware that the static Discounted Cash Flow valuation methodologyemployed in the analysis does not capture the value of the optionality embedded in a long-lifeasset and additional mineral resources that may be incorporated into the mine plan.1.6 Third Party ReviewsMany recent projects in the mining industry have been impacted by unreliable capital estimates.To ensure the reliability of Cobre Panama’s capital estimate, third party reviews of key aspectsof the Project overall were undertaken to mitigate risks and improve the confidence of estimates. Page 22May 2012
  • 23. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 1-10 Third Party ReviewsScope Reviewer OutcomeOverall Project Chlumsky, Ambrust & Meyer Confirmative (CAM) – Independent EngineerCapex Legico-CHP ConfirmativeOpex AMEC ConfirmativePower Sunrise Americas & Wood Confirmative MackenzieTailings URS Corporation ConfirmativeTailings ITRB ConfirmativeProject Controls KPMG ConfirmativeProject Readiness IPA Confirmative1.7 Risks and OpportunitiesCobre Panama stakeholder risks and opportunities were identified and risk mitigants put in placeas part of Basic Engineering.Cost Escalation  Quotes to build the power plant and the process plant (together a significant component of Project capital expenditures) were and are being written on a ―Lump Sum‖ and ―Not to Exceed‖ basis in order to reduce the likelihood that these components will bring the Project over budget. These quotes will be received from audited vendors with the sophistication and balance sheet to manage costs and deliver on budget.  The advanced stage of engineering for the Project (currently 38% completed) in combination with the large portion of firm bids received to-date (58%) should further reduce the potential for unforeseen costs.  Panama’s use of the US currency is another positive characteristic of the Project that should reduce the potential for material cost escalation due to foreign exchange fluctuation.  The manner in which the ―Request for Quotation‖ process was conducted should reduce the potential for cost overruns. The Project’s Engineering, Procurement and Construction (EPC) and Engineering, Procurement, Construction and Management (EPCM) contracts are designed to incent contractors to stay on budget and on schedule.  We believe the quotes obtained are materially conservative – in some cases the labour multiplier (unit of work over unit of time) used for work on the Project is as high as three times what would normally be employed and some of the quotes for individual work packages have small overlaps in scope (which could potentially reduce costs).  By the end of 2012, 50% of the Project expenditures are expected to be committed against firm quotes currently in hand.  Overall Project contingency is 9.6% (as a percentage of TIC). When owner’s costs (mine preproduction, mine equipment and owner’s project management (PM)) and contingency Page 23May 2012
  • 24. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT on owner’s costs are removed, the remaining contingency level is 11.2%. This percentage is in line with what might be expected of an AACE Class 2 engineering estimate.  The Project is actively considering early group purchase of bulk commodities (to lock in some costs of steel, diesel, cement) for construction and passing out to suppliers.Low Cost Production from a Low Grade Mine  Cobre Panama is amenable to large scale, open pit mining methods that should result in the efficient handling of ore and waste.  Mining costs should benefit from a very low strip ratio, roughly one fifth of the average (0.58 vs 2.53 – Source: Brook Hunt) for all open pit copper mines in 2011.  The Project’s proximity to the coast and the low altitude of the Project should allow the mine and the port to be located close together, thus decreasing linear maintenance and allowing for integrated management of remote facilities.  The project would have access to low-cost, self-generated power that takes advantage of proximity to a coal source.Management Depth  Inmet has developed three mines within the tenure of the current management; the Las Cruces, Çayeli and Troilus mines.  For the Project, Inmet has recruited a strong owner’s team (detailed in Section 9) that has relevant experience in construction and operations. Further, reputable Engineering, Procurement and Construction contractors with a proven history of quality have been selected.Support for the Project  Approval of the ESIA is in our view indicative of governmental support for the Project.  Permits post-ESIA approval are being received.  Extensive engagement and cooperation at both the government and community levels.  At the community level, the current level of support in the Project area indicates that community engagement efforts are working and a recent study shows overwhelming support for the Project (Section 3.3.3).  Minera Panama, S.A. (MPSA) has received free prior and informed consent of the indigenous communities who will be physically and economically displaced by the Project.  MPSA has continuous engagement with the local communities and a broad range of stakeholders and is delivering employment to local residents.Mine Life  Current mineral resources are in excess of the Basic Engineering mine plan and point to the potential for mine life extension and expansions beyond the currently planned addition of a third crushing and grinding line to the process plant. Page 24May 2012
  • 25. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTAcceleration of Third Line  Moving the third line addition forward could enhance the mill throughput by approximately 50% in Years 3 to 9 and would make Cobre Panama one of the ten largest copper mines in the world in terms of annual production.Further Expansion under Extended Resource  There is a significant mineral resource under the Basic Engineering plan, exclusive of mineral reserves, that is largely near surface and proximal to the planned plant. This could potentially support future expansion.Exploration Potential  In late 2010 MPSA initiated a concession-wide exploration program via airborne geophysical survey. This survey identified known shallow mineralization and generated numerous targets. One of the first targets tested in early 2011 resulted in the discovery of the Balboa deposit. An extensive exploration program for 2012 is underway with 36 holes testing additional targets on the concession.1.8 Project ExecutionA project execution plan has been developed to move Cobre Panama from completion of BasicEngineering through design, construction and commissioning phases all the way to shipment ofthe first concentrate anticipated in the first quarter of 2016. The MPSA Project team would growfrom 50 today to 107 members at its peak in 2013.Milestones from the Project master schedule are presented below. Page 25May 2012
  • 26. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 1-11 Project MilestonesMilestone Date (Estimated)Notice to Proceed 2Q12Mine/Process Plant Construction Start 2Q12Port Site Construction Camp Complete 4Q12Process Plant Bulk Earthworks Complete 4Q13Coast Road Open (Plant to Port Site) 4Q13Port Dock Facility Construction Complete 2Q14230 kV Power Transmission Line Construction Complete 3Q14Tailings Starter Dam Construction Complete 3Q15Introduction of Ore to Grinding Line No. 1 4Q15Power Plant Complete – Unit No. 1 Operational 4Q15Introduction of Ore to Grinding Line No. 2 4Q15Power Plant Complete – Unit No. 2 Operational 4Q15Start of Production 4Q15Shipment of Concentrate 1Q16Commercial Production 2Q161.9 ConclusionsWith Basic Engineering completed, detailed engineering underway, key permits in process, andcontinued efforts to maintain and enhance its privilege to operate locally, Cobre Panama is aconstruction-ready Tier 1 project. With few such assets in a construction-ready position and notalready in the hands of a senior mining company, we believe the Project has potential valuebeyond what is estimated in the NPV analysis. Page 26May 2012
  • 27. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT2 TECHNICAL SUMMARY2.1 Project DescriptionCobre Panama would be a world-class Tier 1 asset based on projected mine life, annualproduction, cash costs, scalability and annual cash flow.Table 2-1 Tier 1 Characteristics Tier 1 CharacteristicLife of Mine 31 yearsAnnual production (Yr 2-16) 298 ktAnnual production (LOM) 266 ktC1 cash costs (Yr 2-16) $US0.72/lb CuC1 cash costs (LOM) $US0.82/lb CuStrip Ratio 0.58Scale 160 ktpd to 240 ktpd throughput with further expansion capacityAnnual free cash flow (Yr 2-16) at $US2.75/lb Cu, debt financing $US0.90bAnnual free cash flow (LOM) at $US2.75/lb Cu, debt financing $US0.81bCopper reserves* 9.3 mtCopper resources (M&I)* 14.7 mtCopper resources (Inferred)* 8.7 mtConcentrate Clean concentrate not expected to draw penaltiesLogistics Proximity to tidewater and Panama Canal*See Table 1-3 and 1-4Cobre Panama would be developed as a conventional truck and shovel open pit mine with aconcentrator employing proven technology (crushing, grinding, flotation) to produce copper-goldand molybdenum concentrate. A 300 mW coal-fired power plant and ship loading port facilitieswould also be part of the Project.The Project would be within an exploration and mining concession covering 130 km2 located inthe Donoso District, Colón Province in north-central Panama. The development would be closeto tidewater and would be advantaged by its proximity to the Panama Canal which providesincreased flexibility in sourcing supplies from both the Gulf of Mexico (North America) and SouthAmerica as well as providing convenient shipping of mine concentrates to global markets. Page 27May 2012
  • 28. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 2-1 Site & Infrastructure Map Page 28May 2012
  • 29. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe Project infrastructure, ancillary support facilities and systems would include:  Three open pits (the Botija, Colina and Valle Grande deposits) which would be progressively developed;  Ore crushing, conveying and stockpiling facilities, consisting of two gyratory crushers, belt conveyors and a pad for crushed ore stockpiling for the initial Botija pit;  Provisions for a second crusher and associated conveying and stockpiling facilities to handle ore from the Colina and Valle Grande pits  A 160 ktpd process plant consisting of two lines;  Provisions for an addition of a third line in the concentrator expanding its capacity to 240 ktpd throughput in Year 10 with negligible infrastructure modifications;  A slurry pipeline to transport concentrate to the port facility;  A port facility including concentrate loading and coal offloading facilities;  A 300 megawatt coal-fired power plant;  A coast access road, connecting the process plant with the port facility;  Plant and truck repair shop;  Warehouse and tank farm;  Camp and administrative offices;  Facilities and systems for environmental monitoring and management of effluents in compliance with Project commitments; and  Transmission line from the power plant at the port facility to the process plant and switchyard, continuing south to connect with the Panamanian grid at the Llano Sanchez substation.2.1.1 Geology and Mineral ResourcesCopper-gold-molybdenum porphyry-style mineralization was discovered in central Panamaduring a regional survey by the United Nations in 1968. Exploration has since outlined five largedeposits and several smaller ones on the concession. Drill programs have been conducted bythe United Nations Development Program (1968-1969), Panama Mineral ResourcesDevelopment Company (PMRD), a Japanese consortium (1970-1980), Inmet-Adrian Resources-Teck as MPSA (1990-1997), Petaquilla Copper (2006-2008), and Inmet and Teck and thenInmet as MPSA (2007-2009). A total of 1,275 diamond drill holes (230,555 m) have beencompleted.The relevant deposits are all porphyry copper deposits and include Botija, Colina, Medio, ValleGrande, Brazo and Balboa. All of the porphyry-style mineralization on the property is hosted ingranodiorite, feldspar-quartz-hornblende porphyry, and adjacent andesitic volcanic rocks. Thescope of the Basic Engineering, as well as the approved ESIA, only covers the development ofthe Botija, Colina, Medio and Valle Grande deposits. Page 29May 2012
  • 30. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 2-2 Mineral Deposits and Defined Resources Plan MapCobre Panama mineral resources (inclusive of reserves) were re-estimated in early 2012 toincorporate the 171 holes completed since the 2010 FEED Study (see Table 2-2). The increasein measured and indicated resources reflected conversion of inferred resources into indicatedresources on the Brazo deposit and the addition of the Balboa resource. Most of the increase ininferred resources came from Balboa. Page 30May 2012
  • 31. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 2-2 Cobre Panama Mineral Resources Contained Metal (x1000)Category Tonnes Cu Au Ag Mo Cu Au Ag Mo Tonnes ounces ounces tonnes (x 1000) % g/t g/t %Measured 262,000 0.56 0.13 1.5 0.009 1,476 1,118 12,979 24Indicated 3,905,000 0.34 0.06 1.2 0.005 13,237 7,845 155,392 214Total 4,167,000 0.35 0.07 1.3 0.006 14,715 8,963 168,454 238 Inferred 3,749,000 0.23 0.04 1.0 0.004 8,660 4,805 120,534 156Mineral resources which do not form part of the mineral reserves do not have demonstrated economic viability.Mineral resources as at March 5, 2012 were estimated by Robert Sim, P. Geo., of SIM Geological Inc.Mineral resources include mineral reserves.Resource grades are estimated using ordinary kriging with a nominal block size of 25 metres by 25 metres by 15 metres. Resourcesare limited inside a pit shell defined by a copper price of $USUS2.60 per pound, $US1.75/t mining cost and $US7.02/t total siteoperating cost, and are tabulated at a cut-off grade of 0.15 percent copper.Figure 2-3 Increase in Resources Since FEED StudyCobre Panama has one of the largest undeveloped resources in the Metals Economics Group(MEG) and Brook Hunt databases (see Figure 2-4). As a copper deposit not held by a major(>$US10b market cap or sovereign), Cobre Panama stands out even more (Figure 2-5). Page 31May 2012
  • 32. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 2-4 Contained Copper Endowment (resource proxy) for Undeveloped Copper Deposits Undeveloped Copper Deposits Pre-feasibility total endowment (resource proxy) (mt) 40 35 30 Cu Contained in 25 20 15 10 5 -Based on MEG, Brook Hunt and in the case of Cobre Panama, Inmet databases.Figure 2-5 Contained Copper Endowment (resource proxy) for Undeveloped Copper Deposits Not Controlled by >$10b Market Cap or Sovereigns Copper Deposits not controlled by >$10b Mkt Cap or Sovereigns 25 Pre-feasibility Feasibility Construction Ready total endowment (resource proxy) (mt) 20 Cu Contained in 15 10 5 0 KSM Galore Haquira Casino Schaft Red Chris Cobre Sentinel Creek Creek PanamaBased on MEG, Brook Hunt and in the case of Cobre Panama, Inmet databases. Page 32May 2012
  • 33. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT2.1.2 Mine Plan and Mineral ReservesThe mine production schedule has been developed to maximize early revenues and improve overallProject returns utilizing a conventional mining fleet. The economics of Cobre Panama would benefitfrom a low life of mine strip ratio of 0.58 tonnes of waste for every tonne of ore. Mine operationswould be scheduled for two 12-hour shifts per day, 365 days per year.A series of analyses were conducted for Basic Engineering to determine economic pit limits and themining phase development sequence for three mineral deposits in the concession area: Botija,Colina, and Valle Grande. The concentrator site would be centrally located within 2 km of all threedeposits as well as the stockpile (Figure 2-9). A fourth smaller deposit, Medio, is about 500 mnortheast of the Colina pit. The new block model incorporates a small Medio pit which was targetedby recent drilling and is part of the mine production schedule in Years 11-14.The economic pit limit evaluations, open pit development sequence plans, and reserve estimates arebased on metal prices of $US2.25/lb Cu, $US13.50/lb Mo, $US1,000/oz Au, and $US16.00/oz Ag.Over the life of the Project, forecast concentrator recoveries used are based on the revised BasicEngineering flow sheet forecasts and should average about 89% for Cu, 53% for Mo, 52% for Au,and 46% for Ag. Weighted average mining costs of $US1.77/t were used in the pit limit analyses,along with base ore processing and general/administration costs of $US3.83/t and $US1.44/t,respectively. The costs used to estimate mineral reserves are conservative compared to the BasicEngineering final operating cost summarized in Section 5.2.The ultimate pit plans and mining phase designs have not changed from the FEED Study of March2010, with the exception of the Medio pit extension. The open pit development sequence has beenadjusted to reflect slightly lower effective cut-off grades that have resulted from increased copperrecoveries and higher metal prices used to define ore in the Basic Engineering Study. These minorreserve changes resulted in an increase in ore tonnages of about 8%.2.1.2.1 Mine Production ScheduleA third grinding circuit is planned to be added to the concentrator, which would commence operationin Year 10, increasing the base ore processing rate capacity from 160ktpd to 240ktpd. Mineoperations would be scheduled for two 12-hour shifts per day, 365 days per year. Mining departmentmanning levels should vary between about 850 and 956 people during the operating years, includingboth salaried and hourly workers, expatriates, and nationals. Four rotating crews would providecontinuous operator and maintenance coverage in the mine. The concentrator is anticipated tooperate an estimated 31.1 years, including the processing of about 193 mt of stockpiled ore duringYears 28 to 31 (Figure 2-6 below and Table 2-3). Page 33May 2012
  • 34. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 2-6 Summary of Mining ScheduleFigure 2-7 Mining Schedule Shown by Type of Material Moved and by Pit Page 34May 2012
  • 35. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 2-3 Mine Production Schedule Time Period Ore to ROM To Saprock To Waste Total Strip Ratio Contractor Owner Cu-Au (Cu Stockpile Ore Low-Grade Rock Material (kt) (kt) 26%) or Mill Stockpile Ore & Saprolite (kt) Concentrate Production (kt) (kt) Stockpile (kt) (k dmt) (kt)Prior to M-15* 214 1,751 766 47,552 50,282 234.41 50,282 - -PP M-15 to M0 1,227 7,643 9,478 50,406 68,755 55.02 12,912 55,843 - Y1 50,241 5,382 14,006 47,089 118,718 1.27 7,351 111,367 789 Y2 58,062 2,108 23,897 31,762 115,829 0.99 376 115,452 1,077 Y3 58,400 739 23,592 21,099 103,831 0.78 6,476 97,355 1,114 Y4 58,654 4,331 18,520 22,135 103,640 0.77 5,614 98,026 1,137 Y5 58,400 9,519 14,424 21,493 103,837 0.78 8,680 95,157 1,122 Y6 57,950 4,843 4,844 37,793 105,429 0.82 9,806 95,623 1,161 Y7 58,400 11,391 4,167 32,884 106,842 0.83 13,019 93,823 1,185 Y8 58,400 4,167 2,489 45,337 110,392 0.89 10,138 100,254 1,111 Y9 57,360 7,085 1,961 62,567 128,973 1.25 3,119 125,854 933 Y10 85,407 1,378 - 49,906 136,691 0.60 586 136,106 1,344 Y11-Y15 437,152 1,291 - 247,902 686,345 0.57 38,422 647,923 5,830 Y16-Y20 438,001 5,571 - 251,978 695,550 0.59 44,565 650,985 5,858 Y21-Y25 411,876 8,216 - 128,054 548,147 0.33 28,895 519,252 4,702 Y26-Y31** 428,310 - - 55,953 484,263 0.13 - 484,263 4,318 Total 2,320,054 75,414 118,145 1,153,910 3,667,523 0.58 240,238 3,427,284 31,681*M denotes months e.g. M minus fifteen**Includes 147,957 kt of ore stockpile reclamation in Years 26 to 31 Page 35May 2012
  • 36. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 2-4 Mining Schedule by Pit Time Total Ore Milled or to ROM Ore Stockpile To Saprock Ore Stockpile To Lowgrade Ore Stockpile Waste Rock and Saprolite Total Period B C VG M B C VG M B C VG M B C VG M Ktonnes Prior to M-15 214 - - - 1,751 - - - 766 - - - 47,552 - - - 50,282PP M-15 to M-0 1,227 - - - 7,643 - - - 9,478 - - - 50,406 - - - 68,755 Y1 52,241 - - - 5,382 - - - 14,006 - - - 47,089 - - - 118,718 Y2 58,062 - - - 2,108 - - - 23,897 - - - 31,762 - - - 115,829 Y3 58,400 1 - - 49 691 - - 23,591 1 - - 9,520 11,579 - - 103,831 Y4 56,595 2,059 - - - 4,331 - - 16,818 1,702 - - 4,834 17,301 - - 103,640 Y5 46,412 11,988 - - - 9,519 - - 10,767 3,657 - - 1,507 19,986 - - 103,837 Y6 35,332 22,617 - - - 4,842 0 - 1,022 3,797 25 - 9,542 23,039 5,212 - 105,429 Y7 23,731 33,084 1,585 - - 9,814 1,577 - - 3,377 790 - 5,452 11,552 15,880 - 106,842 Y8 13,585 40,686 4,129 - 27 429 3,710 - 199 352 1,938 - 27,200 3,411 14,726 - 110,392 Y9 7,036 39,753 10,571 - 36 3,532 3,517 - 171 577 1,214 - 49,903 3,353 9,311 - 128,973 Y10 16,219 63,426 5,762 - - 690 689 - - - - - 41,006 4,050 4,850 - 136,691 Y11-Y15 164,073 164,432 91,316 17,331 49 339 903 - - - - - 147,894 74,758 5,359 19,891 686,345 Y16-Y20 272,047 164,402 1,552 - - 5,001 570 - - - - - 24,950 147,678 79,351 - 695,550 Y21-Y25 16,342 284,198 111,337 - - - 8,216 - - - - - 331 35,825 91,898 - 548,147 Y26-Y31 77,599 84,587 266,124 - - - - - - - - - - 2,023 53,930 - 484,264 Total 899,114 911,233 492,375 17,331 17,044 39,187 19,182 - 100,715 13,462 3,968 - 498,948 354,555 280,516 19,891 3,667,523B = Botija Pit, C = Colina Pit, VG = Valle Grande Pit, M = Medio Pit Page 36May 2012
  • 37. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe Cobre Panama pit design used for mineral reserve estimates is based only on M&Iresources. Inferred mineral resources, which amount to 321 Mt at 0.26% Cu within current pitdesign, are treated as waste. An increased confidence level on the inferred mineral resourcescould result in those being converted to mineral reserves and integrated into a revised mineplan, which would significantly improve Project economics by both lowering the strip ratio andbenefiting from increased tonnage. Figure 2-8 illustrates the inferred resources in the currentmine plan pits.Figure 2-8 Inferred Resource In-PitNote: Inferred mineral resources highlighted in pink. Page 37May 2012
  • 38. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 2-9 Plan View of Site Infrastructure and Design PitsTotal material within the designed ultimate pits is estimated to be 3.501bt. Contained metal fromproven and probable mineral reserves is projected to be approximately 20.4b lb of copper, 373mlb of molybdenum, 5.17m oz of gold, and 104m oz ounces of silver. Page 38May 2012
  • 39. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 2-5 Cobre Panama Mineral ReserveCategory Tonnes Cu Au Ag Mo Cu Au Ag Mo (x1000) (x1000) (x1000) (x1000) (x 1000) % g/t g/t % Tonnes ounces ounces tonnesProven 258,000 0.57 0.14 1.6 0.010 1,478 1,126 13,020 25Probable 2,061,000 0.38 0.06 1.4 0.007 7,781 4,041 91,008 145Total 2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169Mineral reserves as at December 31, 2011 were estimated by William Rose, P.E., of WLR Consulting, Inc., a qualifiedperson under National Instrument 43-101.Reserve estimates are based on the following assumptions: copper price: $US2.25 per pound gold price: $US1,000 per ounce silver price: $US16 per ounce molybdenum price: $US13.50 per pound Mining costs : $US1.66/t of ore mined, $US1.96/t of waste mined and Milling and general and administration cost: $US5.27/t of ore milled, average life of mine metallurgical recoveries: 89 percent for copper, 52 percent for gold, 46 percent for silver and 53 percent for molybdenum.2.1.3 MetallurgyExtensive metallurgical test work was carried out on the Botija and Colina deposits as part of afeasibility study completed in 1997. This work included mineralogical and geochemical orecharacterization, comminution, copper flotation, copper-molybdenum separation and dewateringstudies.As part of the 2010 FEED Study, an extensive sampling and test program was undertaken tobolster the knowledge from previous work and provide insight into the variability of thecomminution and flotation response. A total of 16 metallurgical holes for grinding and flotationtests were drilled in the Botija, Valle Grande, and Colina ore bodies. Sample preparation,flotation testing, and testing of flotation products were done primarily at G&T MetallurgicalServices, Kamloops, B.C.. Comminution work was conducted at SGS Mineral Services,Lakefield, Ontario, and at Philips Enterprises LLC, Golden, Colorado.During Basic Engineering, the process flowsheet was further optimized with the removal ofsodium cyanide as a pyrite depressant. Improvements to the cleaner circuits such as a reductionof a stage and the recycling of cleaner tails to the regrind mill have improved recovery. Test workto support these changes to the flow sheet was performed at SGS Mineral Services, Lakefield. Page 39May 2012
  • 40. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe final flotation protocol selected was:  Rougher grind size P80 = 180 microns;  Rougher pH of 10 – 10.5;  Addition of Cytec 3302 at 5 g/t in the primary grind and 5 g/t in the rougher flotation;  Stage addition of 25 g/t SIPX in the rougher and flotation time of 15 minutes;  Methyl Isobutyl Carbinol (MIBC) and frother as needed;  Concentrate regrind to P80 of 30-35 μm and lime addition to have pH ~11.0 at the start of the 1st Cleaner;  Cleaning via a 1st Cleaner (3 minutes), 1st Cleaner Scavenger (5.5 minutes) and 2nd Cleaner (2 minutes) with 0.5 g/t addition of SIPX in the first stages; and  Recycling of 1st Cleaner Scavenger Concentrate and 2nd Cleaner Tail to the regrind in locked cycle tests.The metallurgical recoveries used for the production forecasts in this Report are based on theresults from the 2010 FEED Study metallurgical program and were modified by the revised flowsheet test work completed during Basic Engineering.Table 2-6 Recovery Forecast Algorithms Recovery Formula NotesCu 5.8287*Ln(Cu%) + 95.775 Cap at 96%. 4% (absolute) deduction for Valle GrandeMo Fixed recovery 55.0% 3% (absolute) deduction for Valle GrandeAu 15.993*Ln(AuGPT) + 92.138Ag Fixed recovery 47.3%Process PlantThe Cobre Panama concentrator will be designed to use current proven technology to producecopper and molybdenum concentrates. The Project design is based on an initial ore feed rate of160 ktpd. The processing plant is designed with two grinding lines, each having nominal capacityof 80 ktpd. The design also includes a planned increase to 240 ktpd in Year 10 of operations.This expansion would include the addition of a second crusher station to crush Colina and ValleGrande ore and a third line in the concentrator. The expansion would also include the addition ofa third grinding line, additions to bulk rougher flotation, water and air systems.The process plant is designed to process ore at a nominal head grade of 0.5% Cu and 0.01%Mo and maximum head grades of 0.9% Cu and 0.015% Mo.Copper concentrate would be delivered by a 32 km slurry pipeline from the mine site to the filterplant located at the port in Punta Rincon. After pressure filtration, the dewatered concentratewould be stored and subsequently reclaimed and loaded onto bulk concentrate vessels fordelivery to international customers. Molybdenum concentrate would be produced from thecopper concentrate by differential flotation when the molybdenum head grade is sufficiently high Page 40May 2012
  • 41. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTto produce a marketable product. The molybdenum concentrate would be filtered, dried andbagged, and then containerized for shipping.Process Plant Design Changes in Basic EngineeringThe following design changes were made during Basic Engineering from the FEED Study toreflect current conditions and basis of design:  Changed the feed grade design criteria from 0.41% Cu nominal and 0.7% Cu design maximum to 0.5% Cu nominal and 0.9% Cu design maximum  Increased the SAG and Ball Mill sizes and motors to ensure design throughput rate is met over a range of ore hardness characteristics  Eliminated the use of cyanide in the flotation circuit by modifying the reagent suite  Revised the cleaner circuit configuration to remove the 3rd cleaner circuit  The middlings (scavenger concentrate and second cleaner tails) were rerouted to the regrind mills whilst previously they were routed to the 1st cleaner bank. This should liberate more minerals and improve recoveries  The SAG mill and ball mill discharge pumps were combined which should improve plant availability and lowering maintenance costs.  The mill maintenance workshop was relocated so as not to interfere with the installation of a third line.  Increased the size but reduced the number of units of regrind mills  Modified the molybdenum flotation circuit configuration by adding rougher feed conditioning tank, and increased number of 1st and 2nd cleaner cells  Eliminated the molybdenum regrind mill  Resized the concentrate thickeners to reflect changes in copper head grade design criteria  Increased the copper concentrate filter size  Increased throughput capacity from 150 to 160 ktpd using some of the design contingency in the crushing and grinding circuits  The initial Botija gyratory crushers have been be resized from 60‖ x 89‖ to 60‖ x 110‖ Page 41May 2012
  • 42. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 2-7 Mill Production Schedule Ore Milled Recoveries Contained Recoverable Time Au Ag Cu Rec Mo Rec Au Rec Ag Rec Cu lbs Mo lbs Au Troy Ag Troy Cu lbs Mo lbs Au Troy Ag Troy Period (kt) Cu % Mo % (g/t) (g/t) (%) (%) (%) (%) x1000 x1000 Oz Oz x1000 x1000 Oz Oz Y1 52,241 0.43 0.008 0.09 1.31 91.2 55.0 57.7 47.3 496,017 9,382 158,761 2,197,379 452,440 5,161 91,587 1,039,369 Y2 58,062 0.52 0.009 0.11 1.34 92.3 55.0 59.2 47.3 668,657 11,406 201,038 2,500,983 617,084 6,273 118,933 1,183,015 Y3 58,400 0.54 0.011 0.11 1.38 92.4 55.0 59.7 47.3 691,000 13,524 207,106 2,593,730 638,532 7,439 123,676 1,226,899 Y4 58,654 0.55 0.009 0.11 1.42 92.5 55.0 60.1 47.3 705,071 11,840 209,068 2,684,133 651,975 6,509 125,691 1,269,685 Y5 58,400 0.54 0.010 0.10 1.57 92.4 55.0 58.1 47.3 695,850 12,948 186,451 2,941,948 642,976 7,121 108,390 1,391,647 Y6 57,950 0.56 0.010 0.11 1.50 92.7 55.0 58.7 47.3 718,384 13,375 197,394 2,795,988 665,643 7,356 115,895 1,322,630 Y7 58,400 0.57 0.009 0.13 1.77 92.6 55.0 63.3 47.3 733,126 11,474 243,878 3,329,455 679,234 6,305 154,281 1,574,945 Y8 58,400 0.54 0.009 0.11 1.72 92.1 54.8 60.4 47.3 691,835 11,818 199,577 3,224,473 636,983 6,481 120,578 1,525,262 Y9 57,360 0.47 0.008 0.08 1.56 90.8 54.4 56.5 47.3 588,441 10,025 153,870 2,882,785 534,597 5,454 86,978 1,363,598 Y10 85,407 0.45 0.008 0.08 1.48 91.2 54.8 55.7 47.3 844,811 14,728 220,231 4,067,640 770,176 8,071 122,647 1,924,103 Y11-Y15 437,152 0.39 0.007 0.06 1.37 89.6 54.2 49.7 47.3 3,730,176 63,071 809,995 19,245,778 3,341,760 34,178 402,698 9,103,594 Y16-Y20 438,001 0.38 0.008 0.07 1.27 90.7 55.0 54.1 47.3 3,701,883 73,346 1,055,394 17,923,250 3,357,878 40,338 571,152 8,478,077 Y21-Y25 411,876 0.34 0.006 0.05 1.45 88.5 54.1 47.9 47.3 3,044,904 55,696 656,669 19,226,507 2,694,961 30,156 314,317 9,094,779 Y26-Y31 428,310 0.33 0.006 0.05 1.34 79.9 46.4 37.2 40.2 3,097,280 60,475 666,843 18,396,852 2,474,937 28,040 248,038 7,401,672 Total 2,318,613 0.40 0.007 0.07 1.40 89.0 53.3 52.4 46.1 20,407,435 373,108 5,166,274 104,010,901 18,159,176 198,883 2,704,862 47,899,276 Page 42May 2012
  • 43. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT2.1.4 Mine Waste ManagementThree forms of mine waste materials would be generated during the mine construction and mineoperation.They include:i) Pit Waste RockVarious facilities would be constructed to stockpile and store saprolite and waste rock: The Botija North Waste Rock Storage Facility would store the waste rock generated in the early years of mine construction and mine operation. The Botija North Saprolite Stockpile (BNSS), constructed within the footprint of the Tailings Management Facility (TMF) during the early phase of mine construction, would receive saprolite materials excavated from the Botija Pit development. The Botija South Waste Rock Storage Facility, as well as a low-grade ore stockpile in the Botija West area, would be constructed in the early years of mine development. Waste rock stockpiles to be constructed at a later phase in the mine operation, when required, would include the Botija West Waste Rock Storage Facility, the Colina North Waste Rock Storage Facility, and the Southwest Waste Rock Storage Facility. Page 43May 2012
  • 44. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTii) TailingsTailings generated before Year 22 would be stored in the TMF located north of the mine area.Tailings generated thereafter would be stored in the mined out pits under water cover. Detailsare provided in Section 2.1.5iii) Earthwork Construction WasteThis waste would be stored in the saprolite stockpile, waste rock dumps or the TMF asappropriate.Wastewater Treatment and DisposalSewage treatment plants would be provided at both the mine/plant site and the port site. Duringoperations, the mine site sewage treated effluent would be pumped to the TMF. The sewagesludge cake would be burned in the incinerator.2.1.5 Solid and Hazardous Waste DisposalSolid waste from both the mine/plant site and the port site would be disposed of usingincinerators, waste storage buildings, a solid waste sorting facility, and sanitary landfills.Hazardous waste would be stored in secure facilities prior to being shipped offsite to approveddisposal facilities.2.1.6 Tailings Management FacilityThe TMF would store tailings for the first 22 years of mine operation, after which tailings wouldbe discharged into the mined-out pits for the remainder of mine life. Water recycled from theTMF would also provide mill process water. Tailings would be transported from the plant sitethrough a pump and pipeline system. The TMF is designed to store a minimum of 1.54bt tailingsproduced over the first 22-year period; about 1.35bt of this will be placed in the impoundmentand the remainder used in cycloned sand embankment construction. A storage capacity ofapproximately 1.0b cubic metres would be created within the impoundment area. The millingoperation produces two separate tailings streams, each of which would be deposited separately:  90% rougher tailings (non-acid generating or NAG) – deposited on the beaches and cycloned for producing sand for dam construction; and  10% cleaner tailings (potentially acid generating material or PAG) – deposited and maintained under submerged condition. Cleaner tailings would be deposited into the TMF for the first 20 years and thereafter into pits. Page 44May 2012
  • 45. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT2.1.6.1 Site ConditionsThe TMF is located in a natural basin – a valley with relatively high ground on three sides. Overthe life of the TMF a number of dams would be required to supplement natural topography toprovide the planned TMF storage capacity. The TMF would be situated north of the plant siteand the open pits and would cover an area of approximately 20 km2 and would be about 4.5 kmwide (east to west) by 4.5 km long (north to south) (Figure 2-10).Figure 2-10 Plan View of TMF Including Dams2.1.6.2 Design and ConstructionThe TMF is designed to national and international accepted standards to provide a facility for thesafe and environmentally acceptable storage of the process tailings wastes. The operationaldesign takes into account the requirements for closure at the end of the mine life. The TMFwould be constructed in stages with the first stage starter dams constructed before operationsbegin to provide tailings storage and water management for the first two years of operation. Asdam raising would progress on the north and east side (or North Dam and East Dam), the WestDam would be required to hold tailings waste from Year 4 production onwards.The embankment would be raised in stages in a downstream manner as required to providetailings storage and water management to the end of the TMF operating period in Year 22. Afterthis time, tailings storage and water management would be provided in the mined-out open pits(Botija and Colina) to the end of the estimated 31 year mine life. The maximum dam heightwould be about 100 m at the end of the active TMF operations. Page 45May 2012
  • 46. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTSlope stability analyses have been carried out for the starter dam that indicate that stabilityberms are required to meet the safety criteria due to the saprolite foundation as well as cyclicsoftening under design earthquake loadings. Seepage analyses have been carried out for thetailings North Starter Dam and the ultimate Sand Dam to support the tailings dam and drainagedesign.Basic Engineering has introduced a number of modifications to the FEED Study design of theTMF, including: increasing the starter dam service life from one to two years; re-aligning the EastDam so as not to impact the adjacent Pifa River basin and an adjacent community of indigenouspeople; removing cyanide from the mill process circuit; relocating the supernatant pond andpump-barge from the north-east corner to north-west corner of the TMF; tightening designcriteria to reflect more stringent earthquake and hydrology safeguards; and changing thetemporary diversion from box culvert to sequential open channel diversion. These modificationshave been endorsed by an MPSA-commissioned Independent Tailings Review Board (ITRB).Flood routing and freeboard requirements for the TMF dams have been selected in accordancewith the Canadian Dam Association (CDA) Dam Safety Guidelines (CDA, 2007) for damclassification of very high consequence. A tailings water pond would be formed within the tailingsstorage basin.2.1.7 Water ManagementThe Project area receives between 4.5 and 5 m of rain annually, making water management animportant consideration. The water management system has been designed to minimize the useof freshwater and thereby reduce the water footprint of the Project. The principal watermanagement facilities incorporated into the Project design include:  Botija North Saprolite Stockpile sedimentation pond  Botija Pit sedimentation pond  Botija South Waste Rock Storage Facility collection ponds  Process Water Pond (PWP)  Botija West sedimentation pond  TMF pond and ancillary facilities (including seven seepage collection facilities at Year 5)  Fresh water ponds (one at the mine area and another at the port area)  Open pits (including Botija, Colina and Valle Grande)  Sedimentation ponds along access roads or for temporary worksThese water management facilities would:  Collect potentially contaminated surface runoff or seepage  Control total suspended solids level in discharge  Alleviate the impact of runoff due to extreme rainfall events  Provide water supply for mine operations  Facilitate the dam raise operation of the TMF Page 46May 2012
  • 47. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTIn Years 1 to 22, tailings generated would be deposited in the TMF and from Year 23 to Year 30,tailings would be deposited in the mined-out pits under water cover.After the mine is closed, inflows into the TMF would only be from direct precipitation, catchmentrunoff and runoff from the Botija North Saprolite Stockpile. TMF outflows would includeevaporation and passive discharge to the environment. Seepage and dam runoff to theenvironment would continue from the Tailings Dam. All the waste dumps and the low grade orestockpile would be closed. Non-contact water from the dumps would be allowed to flow to theenvironment and adjacent catchment; however, contact water would still be routed through thevarious collection ponds for dilution and treatment (if required) before discharging to theenvironment. All mine pits would be closed and once filled with tailings, the pits discharge wouldbe by gravity to the environment. Evaporation from the pit lake would continue during and afterthis mine phase. All modelling to-date indicates that water treatment would not be requiredduring construction. Adaptive management, coupled with on-going monitoring of site conditions,would be used to ensure that Cobre Panama complies with all requirements and does not havean adverse impact on the receiving environment during the operations phase.2.1.7.1 Water Supply, Treatment and DistributionAt the mine/plant site, raw water for potable and other uses would be obtained from a freshwater reservoir filled by surface water runoff and rainwater in a natural valley between theconstruction and operations camps east of the Botija pit. Potable water would be supplied from aPotable Water Treatment Plant. Fire protection water loops would be provided around all themain facilities to supply hydrants installed at minimum 90-meter spacing. Sprinkler systemswould be installed in the accommodation facilities, administration offices, assay lab, office areas,and warehouse areas of the equipment shops.Process water for the plant would come from three sources: overflow water from the copperconcentrate and bulk thickeners; pit dewatering water and collection ponds water; and reclaimwater pumped from the TMF. No fresh water would be needed to be supplied to the plant asreclaim water would be used for the higher-quality water demand.At the port site, raw water for potable and other uses would come from a reservoir to beconstructed by damming a small channel upstream of the port site. Water from this reservoirwould be pumped to a fresh/fire water gravity head tank located along the Coast Road. Waterfrom the head tank would be distributed to the port site area through two independent pipelinesburied along the Coast Road. Potable water would be produced by treating water from thefresh/fire water tank in a treatment plant.2.1.8 Power PlantThe power plant is scheduled for construction during 2013 to 2015, concurrent with overallproject construction. It is expected to produce electric power at an average life-of-mine cost of¢US4.43/kWh which should result in a significant cost savings compared to an approximateaverage cost of ¢US10/kWh in Panama. The power plant would consist of two pulverized coal- Page 47May 2012
  • 48. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTfired units and associated steam turbine generators, each unit rated at 150 mW. The power plantwould be a highly efficient and reliable utility scale generating station that incorporates modernequipment, software and features. It would operate primarily at base load and would supplyelectric power via a double circuit 230 kV transmission powerline, designed and installed to themine switchyard 22 km from the power plant. The transmission powerline would also beextended to connect to the Panamanian grid at Llano Sanchez, 94 km to the south of the minesite. During the first nine years operating at steady state, the power plant should be able tosupply 100% of the mine’s electricity requirements (currently estimated peak load range is about226 to 257 mW). Excess electricity generated by the power plant would be exported and soldinto the grid, subject to dispatch requirements. During periods of scheduled maintenance orforced outages of the power plant, the mine would purchase electricity from the grid.The power plant design incorporates two 150 mW conventional subcritical pulverized coal-firedboilers, air quality control systems utilizing seawater flue gas desulfurization (FGD), continuousemissions monitoring systems, steam turbine generators (STGs) with full condensing and reheatcapabilities, turbine water induction prevention, condenser cooling via once-through sea water,condensate systems and boiler feed water systems.Power Plant Capital CostThe 300 mW gross capacity power plant capital cost is estimated to be $US676m; including EPCcapital costs of $US646m and $US30m of owner’s contingency.Power CostDuring the first nine years of mine operation, the power plant would be able to sell excesselectricity to the grid. The average MPSA power cost during this period is estimated to be¢US2.65/kWh after sales credits. With the addition of a third mill to the processing circuit at themine, MPSA would need to buy a very small amount of additional electricity from the grid startingin Year 10. The average MPSA power cost during Years 10 to 30 of mine operation is estimatedto be ¢US4.96/kWh, including the cost of more electricity purchases from the grid. The powerplant has been designed and would be built with accommodation to further expand output shouldit be required.Power SourcesPanama’s primary source of power is hydroelectricity. The Bayano Hydro power plant 260 MWand Fortuna 300 MW, are two of the country’s major power providers. Thermo-electric powergeneration is the second major power source. The 280 wW Bahia Las Minas thermal powerplant in Colón Province refurbished its 120 MW Bunker fired unit that was converted intoPanama’s first coal-fired generator and has been in operation since 2011. Panama has aninstalled capacity of 2,145 mW including many run of river hydros, and a peak demand of 1,355mW. Approximately 14% of Panama’s population, primarily in the country’s rural areas, does nothave access to power. Potential to expand the grid is varied and includes new hydroelectricprojects, implementation of a natural gas power plant (the canal expansion will allow standard Page 48May 2012
  • 49. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTLNG ships to pass through) and a connection to the Colombian grid where there is an excess of3,000 mW. There is also the 1,800 km SIEPAC 230 kV transmission line with a 300 mWcapacity that interconnects Panama with Central America. The Cobre Panama power plantwould take advantage of the abundant low sulphur, high quality coal supply from nearbyColombia. Power plant maintenance activities would be done during the wet season when thereis an oversupply of energy on the grid.2.1.9 Project Infrastructure / Ancillary FacilitiesProject infrastructure includes:  Project Access, including roads;  Electrical power supply and distribution;  Water supply, treatment and distribution;  Wastewater treatment and disposal;  Waste disposal;  Mine/Plant site support facilities (e.g. maintenance shops, camps, offices, warehouses, etc.);  Port Site and related support facilities;  Communications systems;  Transport and logistics; and  Tailings management facility2.1.9.1 Project AccessThe site is located in Colón Province, approximately 20 km north of the Continental Divide thatbisects the northern and southern parts of Panama. The process plant site would be located atNorth 8°50’ and West 80°38’, approximately 205 km by road from Panama City. Theinternational airport in Panama City serves passengers as well as air freight. The ScarlettMartinez International Airport is also under construction some 30 km from Penonomé to handlechartered vacation flights servicing the beach resorts. Once the Project development iscompleted, the new port facility at Punta Rincon will provide principal access for import of majorconsumables and export of copper and molybdenum concentrates.Roads: From Panama City, the route to the mine would first follow 140 km along the four lanePan-American Highway to Penonomé. From Penonomé to the site, the Llano Grande Road iscurrently being upgraded by MPSA to improve longitudinal and transversal drainage,sedimentation control and to smoothen the longitudinal slope (the route will be partially paved).Other roads required are the Pioneer Road (up to Botija quarry), the Molejón by-pass, and theLa Pintada by-pass, all of which are currently under construction (there is already a useablePenonomé bypass). These roads would provide ready access to the site while bypassing local Page 49May 2012
  • 50. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTcommunities to minimize the impact of increased traffic flow. This improved infrastructure shouldprovide significant benefits to the population in the affected area.The road from the mine/plant site to the new Punta Rincon port site, designated as the CoastRoad, would be 30 km long. It will be designed for the transport of freight and equipmentrequired for construction and operation of the mine and process plant. Use of this road shoulddecrease the impact of freight transportation through the towns along the southern Llano Grandeaccess route.2.1.9.2 Electrical PowerConstruction and Emergency Power: This would consist of diesel-electric generating unitsthat would be provided during the construction phase of the mine/plant and port sites. During theoperation stage of the Project, they would serve as a back-up emergency source of power.Power Transmission: Preliminary design of the power plant assumes a base load operation,with purchase and sale of electricity from and to the Panamanian grid. Electricity would bedelivered via a 120 km double circuit 230 kV transmission line, with interconnections at the MineSwitchyard and Llano Sanchez Substation. Each circuit of the 230 kV transmission line would berated to transmit full power requirements of the plant, assuring higher reliability of the electricpower.The grid would allow for the sale of excess power to the national grid as it is available. It wouldalso supply back-up power requirements for the power plant, mine/plant site and port whenneeded. The transmission line interconnection has been authorized by ETESA, the government-owned transmission line operating company.Power Distribution: The 230 kV transmission lines from both the generating plant and the LlanoSánchez substation would be interconnected with utility-grade 230 kV air-insulated switchyardlocated 4.5 km from the mine/plant site. The switchyard includes a control house building forprotection, control and metering equipment as well as a 125 V DC battery system.The mine/plant site 230 kV substation would be located adjacent to the concentrator building.Secondary distribution for the process plant, mining area, TMF, and water reclaim system wouldbe at 34.5 kV. The 34.5 kV system would deliver power to area distribution unit substations thatwould step the voltage down to 4.16 kV or 480 volts as required for the service. Each of the pitswould be supplied with power from 34.5 kV overhead lines running from the main plant sitesubstation to portable substations around the pit rim. The portable substations would have 34.5kV/4.16 kV and 4.16 kV/0.48 kV transformers to provide power to the pit equipment.2.1.10 PortThe port site would be located at Punta Rincon, Panama approximately 30 km from the mine siteon the Caribbean Coast which is located at latitude of N9°02 and longitude W80°41. Onceconstruction is complete, it would become the main point of entry of supplies and equipment for Page 50May 2012
  • 51. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTthe entire Project site, including coal for the power plant, and it would act as the point of exportfor the copper concentrate. While for the most part only 50-60 kTon freight vessels areanticipated, the port, with its planned draft of 16-17 m, would be able to handle vessels up toPanamax in size (requiring a 12 m draft).Basic Engineering has been completed for the following port site facilities: a copper concentratefilter plant; a copper concentrate storage building; a deep sea platform with ship loading facilitiesfor copper concentrate export; facilities for receiving coal; barge and ship facilities for receivingfuel and operating supplies; temporary unloading facilities that are capable of receivingconstruction equipment and supplies; camp facilities which include necessary utilities andservices; a power plant for the generation of electricity, together with its coal handling andstorage facilities, ash disposal and water systems; and a fuel tank farm.2.1.11 PipelinesThree major pipelines would run between the mine/plant site and the port site: a copperconcentrate pipeline to move the concentrate slurry from the process plant to a filter plant at theport site; a return water pipeline to return the filtrate from the filter plant at the port site to thetailings management facility at the mine/plant site; and a diesel fuel pipeline to deliver fuelreceived at the port to the mine/plant site.The three pipelines would be buried in a common trench along the shoulder of the Coast Road,together with a polyethylene conduit to protect optical fibre cables that would also be runbetween the mine/plant sit and the port. All pipelines would be equipped with leak detectionsystems and a cathodic protection system would be installed to prevent external corrosion ofpipelines.Along the access road, culverts would be used for most stream crossings with the exception oflarger river crossings for which bridges would be built. Two rivers will be crossed: Uvero Riverand Del Medio River. The pipelines would be installed on supports attached to the beams of theroad bridges on the downstream side to provide greater protection. This configuration shouldsignificantly reduce the risk of damage by external means, in comparison with the commonmethod of burying the pipes below the riverbed. For additional protection, the pipes would besleeved at river crossings. Page 51May 2012
  • 52. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT2.1.12 Balance of PlantThe mine/plant site design includes buildings and structures for repair and maintenance of mineand plant equipment, and the nearby Eastern Infrastructure Area includes facilities for personnelaccommodations, administration, and security. Buildings and other facilities that make up part ofthe Project infrastructure at the mine/plant site would consist of:  Mine Truck Shop, Service Bays and Wash Station  Service Vehicle Shop  Fuel Oil Storage and Distribution  Mill Maintenance Shop  Blasting Agent Storage Facilities  Temporary Accommodations of 7,800 beds during construction  Permanent Accommodations of 2,400 beds for operation  Medical Clinic  Main Administration Building  Construction Administration and Operations Services Building  Training Facility  Guard House and Security Building  Panamanian Police Station  Microwave Communications System2.2 INDEPENDENT THIRD-PARTY REVIEWS2.2.1 Independent Tailings Review Board (ITRB)As part of its commitment to Corporate Responsibility and incorporation of best practice in itsoperations, MPSA established an ITRB in 2009 during the FEED phase of the Project. TheMPSA ITRB was established to provide on-going, independent confirmation to MPSA byinternationally-recognized experts that the design, construction, operation and closure of theCobre Panama TMF would conform to international best practice. The objective of establishingthe ITRB was to confirm that the TMF would ensure the operational sustainability of the miningoperation and would not pose a hazard to the environment and the local communities over thelong term. The ITRB’s mandate is to monitor the design and operating plans of the TMF toensure that Inmet’s Mine Waste Management Policy will be incorporated into the TMF at allstages of the mining life cycle. The ITRB is independent of the TMF designers and the ITRB’sscope includes reviewing, commenting, questioning and critiquing all aspects of the TMF,including, but not limited to: engineering design, including design criteria and factors of safetyunder both static and pseudo-static loads; construction practices; operation and maintenance;closure and post-closure; stability analyses; water management and treatment, including bothsurface and ground water; geochemical considerations; management systems; budget andstaffing; emergency preparedness and response planning; and community interaction. The ITRBconsiders the risks and possible impacts to health and safety, environmental protection andcommunities and will advise MPSA on designing and implementing mitigation strategies. Page 52May 2012
  • 53. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe ITRB will review management responses to questions it raises and will recommend practicaland achievable actions to MPSA to address identified issues. The ITRB will not have decision-making authority with regard to the Cobre Panama TMF.MPSA would be responsible for open and transparent communication with the ITRB, and forresponding in a responsible, considered and proactive manner to all recommendations resultingfrom the work of the ITRB. MPSA would also be responsible for covering the expenses of theITRB.On April 4, 2012, MPSA and JVP updated the ITRB on the Basic Engineering. Based on itsreview of the Basic Engineering, the ITRB was satisfied that all significant items previouslyidentified had been addressed by JVP, and that the designs presented at the meeting wereadequate for Basic Engineering.The proposed path forward for detailed engineering was presented by JVP and accepted asappropriate by the ITRB. The ITRB then identified several sensitivities and maderecommendations regarding these for the detailed engineering phase, and advised that otherrecommendations may come from it after reviewing other Basic Engineering addendums that areto follow.The ITRB has also noted the need for a policy statement on instrumentation (degrees ofautomation) to be declared early in the process, to guide the selection of appropriate instrumentsand layouts.The involvement of the ITRB will continue as the Project moves forward and into the operationsstage.2.2.2 URS Corporation Independent ReviewURS Corporation was mandated by MPSA to independently review the plans for the Projecttailings dam.The focus of attention of the URS report was on:  the geotechnical feasibility of the starter dam and initial diversions;  the ultimate dam base case concept; and  precedent and best practices in the construction of tailings dam in high rainfall conditions.The URS report concluded that the TMF design criteria is in compliance with international designstandards and CDA guidelines and constitutes a robust design. The report also noted the level ofcompetency of the ITRB and JVP engineering and construction team and confirmed theirunderstanding of the significant challenges involved in the execution of the tailings dam forCobre Panama. Page 53May 2012
  • 54. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT3 PRIVILEGE TO OPERATE3.1 PanamaHistory, Geography and Political MapPanama has ageographically privilegedposition, lying at thenarrowest part of theAmericas with a width ofonly 80 km. It is also thelowest point on theContinental Divide,making it the naturallocation for a canal acrossthe isthmus. In addition,Panama is not in thepathways of hurricanes, major earthquakes are rare and it has no active volcanoes. Thetemperature is warm year-round.Panama’s surface territory is approximately 75,000 km2 and is bordered by Costa Rica to thewest and Colombia to the south-east. The country has nine provinces with appointed Governorsand three ―Comarcas‖ or indigenous reservations: Ngäbe Buglé, Guna Yala and Embera-Wounaan, that are semi-autonomous, largely self-governed jurisdictions under a complexstructure of traditional indigenous and state-recognized authorities. The Concession lies entirelyin the Donoso district in the western part of the Colón Province and has no link with theComarcas. This is in contrast to the Cerro Colorado copper project, that is within the NgäbeBuglé Comarca and which has been the focus of ongoing conflict and controversy, and isdiscussed in this section as well as in Section 3.4.Panama is a multiparty constitutional democracy with a population of 3,510,045 (July 2012estimate) people. It has been a democracy for four successive transitions of power. The CambioDemocratico (CD, Democratic Change) party is currently in power with the next general nationalelection scheduled for 2014. Ricardo Martinelli is the President of the Republic.Panama Overview and EconomyPanama has been a commercial center since colonial times when the Spanish used the Caminode Cruces land route to transport precious metals from western South America across theisthmus. Today the country is an international banking center and logistics hub. Thiscommercial culture is deeply engrained in the Panamanian psyche and helps explain theeconomic vigour of the country. Page 54May 2012
  • 55. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTPanama has become one of the most robust economies in the world with growth of 10.6% during2011 (Panama National Institute of Statistics and Census, March 2012). The current Martinelligovernment has positioned Panama on the world stage by signing free trade agreements withCanada, United States, Taiwan, Singapore, El Salvador and Peru, and is currently exploring anagreement with Mexico. With 2011 gross domestic product (GDP) of $US23.3b (PanamaNational Institute of Statistics and Census, March 2012), Panama is a US dollar-based economy,a stable democratic system and has earned an investment grade rating from each of the majorrating agencies. It is second only to Chile in per capita GDP in Latin America and is the secondmost competitive Latin American country according to the World Economic Forum.IHS Global Insight’s Panama economic outlook states that ―In the medium term, Panama’seconomy should benefit from several factors. The countrys stable political environment, openeconomy, and somewhat low interest rates make it an ideal destination for foreign directinvestment.‖ Figure 3-1 illustrates that Panama’s overall risk (a combination of political, legal,economic, tax and operational risks) is trending downward despite an upward trend in LatinAmerica and the world overall.Figure 3-1 IHS Comparative Historical Risk Showing Panama’s Risk Trending DownHigher Risk 3.00 2.90 2.80 2.70 2.60 2.50 2.40 Lower Risk 2.30 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Overall Risk, World Overall Risk, Latin America and Caribbean Overall Risk, PanamaSource: Country Intelligence Report – Panama, Global Insight April 2012Recognizing Panama’s improving financial track record, particularly during the 2009 financialcrisis when Panama’s economy continued to grow, Standard & Poor’s upgraded Panama’s creditrating in 2011 from BB+ to BBB- status. Fitch had already upgraded the country in 2010.Cobre Panama would have a significant impact on the economy of Panama. 6,700 direct jobswould be created during construction and 2,100 jobs during operations. Including indirect jobs,these figures would climb to 17,900 and 6,300, respectively (Figure 3-2). It has been estimated Page 55May 2012
  • 56. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTthat over the life of the Project, it would generate purchases in the national economy of over$US22b (Source: Economic Impact Study, May 2011, Intracorp Estrategias Empresariales. Lifeof mine exports of over $US49b (based on total NSR) would contribute positively to the balanceof payments.Figure 3-2 Estimated Cobre Panama Job AdditionsJobs created by the Cobre Panama project, predominantly Panamanian(number of jobs per year) Construction Operation 11,200 4,200 17,900 6,280 6,700 2,080 Direct jobs Indirect jobs Annual labour over Direct jobs Indirect jobs Annual labour over construction operationThe Cobre Panama Project would bring with it the introduction of large scale mining to thecountry and the start of a new, major industry. The government executive has visited differentmining countries in the region and has had high level discussions with its peers. These meetingshave helped the government determine that a strong mining industry would help with the social,technological and economic development of the country.3.1.1 Mining in Panama: Changes to the Mineral Code in 2012Minera Panama was granted the mineral concession to explore and exploit the property underLaw 9. Law 9 has an initial twenty-year term ending in 2017 and provisions for two consecutivetwenty-year extensions.Under Law 9, Minera Panama has the rights to explore for, extract, exploit, beneficiate, process,refine, transport, sell and market the gold, copper and other mining deposits on the concession.It must pay a 2 percent royalty on all mineral product revenues to the Government of Panama.Law 9 also grants to Minera Panama rights of way on state owned lands and easements to usesurface lands on concessions adjacent to the Law 9 concession, and the right to build, maintainand use on such lands and easements for use to build, install, maintain and use facilities andinstallations that Minera Panama deems convenient for the development of the Cobre Panamaproject.The legal regime established by Law 9 for the development of the Cobre Panama concession issupplemented by the Mineral Resources Code of Panama (Code). In February 2011, Page 56May 2012
  • 57. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTamendments to modify the Code, including clarifications regarding the ability of foreign state-owned entities to own interests in mineral concessions were enacted. However, suchmodifications were subsequently repealed by the National Assembly of Panama and given legaleffect on March 18, 2011. The repeal recognized concerns from indigenous communities in theComarcas. As part of the repeal, the Government of Panama appointed a special commission toconsider and recommend to the National Assembly of Panama future modifications to the Codein consultation with affected parties.In April of 2012, after consultation and dialogue with indigenous representatives over the pastyear, the National Assembly reached a settlement that ceded authority to the Comarcas indetermining how and when mineral deposits in their Comarca could be developed and shortlythereafter, the Mineral Code of 2012 was passed without incident by the National Assembly,modernizing royalties and regulation governing mining, including clarifications regarding theability of foreign stock-owned entities to own interests in mineral concessions.3.1.2 Contract Law 9MPSA has been a registered Panamanian business since 1995. It was previously called MineraPetaquilla S.A. and was renamed in 2008.MPSA was granted the 13,600 hectare Petaquilla concession via Contract Law 9. Being acontract law, Law 9 requires the consent of both parties to effect any changes. Renewals arestandard and are awarded in the year of the renewal. Law 9 establishes the financial andjuridical stability arrangements with the government for the development of Cobre Panama.Some of the benefits that MPSA would enjoy are duty-free imports, no withholding tax on exportsand dividends, fewer restrictions on the use of foreign workers and professionals and automaticRights-of-Way through government lands.Two items in Law 9 will likely be changed to align with the new Code:  The current 2% royalty under Law 9 would be increased to 5% for base metals and 4% for precious metals. A significant part of the revised royalty, 2% of the 5%, would likely go to the local municipalities, which should help ensure strong local support for the Project.  A tax provision that currently states that no income tax would be payable for as long as any debt exists on the Project. Recent discussions with the government would most likely see this tax holiday eliminated. See Table 6-2 for modelled debt assumptions.Both these anticipated revisions to Law 9 have been reflected in the financial forecasts and theeconomic evaluations contained in this document.For the changes to Law 9 to be implemented, MPSA and the government would have to agreeand then these would have to be approved by the Legislative Assembly. Page 57May 2012
  • 58. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT3.1.3 MPSA’s Panamanian Society ParticipationMinera Panama Government RelationsMPSA maintains an active government relations function, with ongoing engagement with local,regional and national government representatives. Furthermore, MPSA has signed agreementswith different government agencies, establishing itself as an ally in the development of thecountry.Minera Panama - Media RelationsMPSA meets regularly with editorial boards of all major print and electronic media in Panama toprovide Project information and answer questions with transparency and accountability, andestablish good working relationships with all major media and journalists covering mining.Several Panamanian journalists have visited the Cobre Panama site and adjacent communities.MPSA has hosted media in press conferences to explain landmark issues such as the approvalof the ESIA. This openness has been well-received by journalists and editors, and several keymedia have already reflected a shift in their view and coverage as a result of receiving moreinformation.Minera Panama - Civil Society RelationsMPSA has established excellent relations and presence with the main civil society groups in thecountry. MPSA has members on the Boards of the American Chamber of Commerce, SectorialGroups of the Association of Panamanian Professionals, the Panamanian Society ofIndustrialists and an Executive Forum of Panamanian CEOs. MPSA is collaborating withdifferent environmental NGOs to comply with the ESIA requirements. Minera Panama has alsobeen a co-sponsor of some of the main conferences and expositions in the country. Theseactivities have rooted MPSA within the fabric of the business leaders of the country.MPSA has civil society opponents, both within Panama and internationally, as does any largeextractive project being developed today. Most of these groups object to the project on the basisof environmental concerns and fears about impacts to the biodiversity of the area. MPSA hasreached out to these groups, seeking to better understand their concerns and describe howCobre Panama will address environmental concerns and serve as a catalyst for the protection ofa large area of forest that is currently under threat. Many of the environmental concerns ignorethe fact that primary forest throughout Panama and in the project area is already disappearing atan alarming rate because of the inherent poverty of local populations, and that responsible andsustainable economic development is the only way out of this cycle of destruction.3.2 Inmet’s Approach To Corporate ResponsibilityInmet believes that corporate responsibility builds reputation and reputation drives value. Ourcommitment to meeting leading standards of health, safety and environmental management, tocontributing to the development of sustainable communities and to being open and transparent Page 58May 2012
  • 59. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTin our operations enhances our reputation. This in turn makes Inmet a company that people,communities and governments should want to do business with and that creates increased valuefor all of our stakeholders. Cobre Panama is the largest project to-date in Inmet’s history ofbuilding, owning and operating copper and base metals mines, and for that reason, CobrePanama would be a benchmark for Inmet’s values in action.Voluntary InitiativesInmet has adopted a number of voluntary codes and participates in external initiativesconsidered particularly relevant to our business. These initiatives are intended to add value toour operations and our business; many of these have been implemented for several years.Adoption of some of these were triggered by development of Cobre Panama:  Mining Association of Canada’s Towards Sustainable Mining Initiative;  UN Global Compact;  Carbon Disclosure Project;  Devonshire Initiative;  Fund for Peace Human Rights and Business Roundtable;  Business and Biodiversity Offsets Program;  International Finance Corporation Performance Standards on Environmental and Social Sustainability;  Voluntary Principles on Security and Human Rights;  Global Reporting Initiative Sustainability Guidelines (G3.1) A+ Reporting (2011); and  International Council on Mining and Metals (application pending).We believe this level of outreach and activity with organizations shaping the future of sustainableresource development is a necessity in our business. We also believe commitments to evolvinginternational best practice in Corporate Responsibility (CR) deliver clear business benefit to us.3.3 Cobre Panama: Inmet’s Commitment in ActionAt Cobre Panama, our goal – our responsibility – is to ensure that the benefits of our operationare shared with the people of Panama. We are committed to leveraging the positive and helpingreduce adverse impacts of the Project. We expect that Cobre Panama would to help improvethe economic conditions of nearby residents and lead to sustainable socioeconomicimprovements throughout Panama. As well, through a rigorous focus on environmentalmanagement, landscape-scale conservation and species-level conservation, we are confidentthat the rich biodiversity of the area surrounding our operation will be protected.An endorsement of this vision for Cobre Panama, and Inmet’s commitment to it, after severalyears of presence in the area was the approval of the ESIA in December 2011. In light of thechallenging context of the Project, the ESIA approvals highlight Minera Panama’s capability towork with local stakeholders and to develop and implement innovative approaches to deliver netpositive benefit. Page 59May 2012
  • 60. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTCobre Panama is located in an undeveloped and remote part of north-central Panama with acomplicated socio-environmental setting. The following challenging aspects of the Project havebeen the focus of our actions to incorporate evolving international best practice:  Within a tropical rainforest with high biodiversity value;  Presence of threatened and endangered species of concern, some of which are endemic to the Project footprint;  Endemic poverty of local communities;  Presence of indigenous people;  Resettlement of Latino and indigenous people;  Lack of infrastructure and access to healthcare, education, sanitation and clean drinking water;  A country with little experience of modern mining; and  Presence of artisanal mining.By implementing positive practices and delivering on a broad set of socio-environmental actions,we expect Cobre Panama to produce net positive benefit, establishing itself as a model projectand building reputation for Inmet.Minera Panama is committed to evolving national and international best practice forenvironmental protection, social development, quality and safety. In line with this commitment,Minera Panama will comply with the International Finance Corporation (IFC) PerformanceStandards on Social and Environmental Sustainability.To-date, Cobre Panama has delivered on the standards summarized in Table 3-1. Page 60May 2012
  • 61. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Table 3-1 Cobre Panama’s Progress in Implementing the IFC Performance StandardsINTERNATIONAL FINANCE CORPORATION OUR RESPONSE TO-DATE PAGE PERFORMANCE STANDARD1. Social and  Approval of ESIA which establishes the foundation on which we 63-67,Environmental are building a robust and leading corporate responsibility 112Assessment and management programManagement  Environmental Management Plan developed in consultation withSystems national authorities, international experts, local communities and NGOs.  Strategic Plan for Sustainable Community Development developed in consultation with national authorities, international experts, local communities and NGOs.2. Labour and  Application of Inmet’s Health & Safety Management System at 112,Working Conditions Cobre Panama for employees and contractors 119,  Introduction of skills training programs with a focus on health, 121 safety and environment3. Pollution  Mine and plant site, port site, power plant and supporting 44,Prevention and infrastructure designed to have the least overall Project impact to 112Abatement deliver net positive environmental, social, technical and economic benefits.4. Community Health,  Civic safety programs introduced for local communities. Social 60Safety and Security Development Action Plan includes commitments to community health  Membership in and implementation of the Voluntary Principles on Security and Human Rights5. Land Acquisition  Resettlement Action Plan signed by all six Resettlement 68and Involuntary Negotiation Committees, overseen by the Government ofResettlement Panama ombudsman6. Biodiversity  Reforestation program off-site that will reforest two hectares for 63,Conservation and every hectare of original forest lost. 112Sustainable Natural  Support the management of two existing national parks andResource establishment of a new multiple-use protected areaManagement encompassing more than 290,000 hectares of primary forest.  Commitment to net positive benefit in biodiversity.7. Indigenous  Participation of the Ngäbe Buglé community members in 71Peoples preparation of the draft Indigenous People’s Development Plan8. Cultural Heritage  Initial recovery of all cultural heritage artefacts confirmed by 63 Panamanian National Institute of Culture. 3.3.1 Regulatory Context for Environmental and Social Impact Assessments Panama’s constitution states that it is the responsibility of the State to ensure the proper use of natural resources and the protection of the environment for the benefit of society. Law No. 41 of July 1, 1998 identifies the Autoridad Nacional del Ambiente (ANAM), the Panamanian environmental regulator, as having primary responsibility for the administration of the ESIA Page 61 May 2012
  • 62. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTprocess associated with the development of mining projects. Article No. 23 of Law No. 41establishes that any project that may generate environmental risks or impacts is subject to anESIA. Law No. 41 of July 1, 1998 is directly related to two regulations that pertain to ESIAs, thefirst one passed as Executive Decree No. 59 in 1998, and the second passed as ExecutiveDecree No. 209 in 2006.Executive Decree No. 209 contained the regulations that were applicable, and defined theprocess for conducting ESIAs in Panama. Executive Decree No. 123 of 2009 now regulatesChapter II of Title IV of Law No. 41 of July 1, 1998 (General Law of the Environment of Panama)and repeals Executive Decree No. 209 of 2006. Article 8 of Executive Decree No. 123 of 2009establishes that ANAM is responsible for administration of the ESIA process in accordance withLaw No. 41 of July 1, 1998.There are three categories of projects defined in the regulation, Categories I, II and III, eachsuccessive category representing projects with increasing scope and potential for environmentaland social impact. Mining projects are defined as Category III projects under the regulation.The Cobre Panama Category III ESIA was submitted to ANAM in September, 2010. ANAMapproved the Cobre Panama ESIA on December 28, 2011 following a 15 month review processinvolving public consultation and external review by consultants with considerable experienceevaluating large mining projects.Once the Cobre Panama ESIA was approved, MPSA began the process of applying for the 40sectorial permits required to start all of the earthmoving activities. Eleven of these have beenreceived to-date and the remaining 29 are on track to be acquired by mid-year. These permitsare for water use, water crossings, construction, seabed concession, mining plan, electrical,sanitary and a variety of other permits typical of an industrial installation. During the process ofbringing the engineering and project planning to its current state, most of these types of permitswere received for prior, smaller-scale MPSA projects and therefore no significant issues inobtaining the larger scale permits are expected.MPSA requires the acquisition of a significant quantity of land for the Project area and linearfacilities. The land has diverse uses, owners and occupants. This includes Latino ruralcommunities, international investors as well as indigenous groups that settled in the Project areaover the last 10-15 years. In most instances the people occupy the land and do not have title.MPSA recognizes their right to occupy land and will compensate them according to evolvinginternational best practice. In a process of free, prior and informed consent, all of the groups whowill by physically or economically displaced by the development of Cobre Panama signed aResettlement Action Plan (RAP) which describes the resettlement process and compensationeither in kind or in cash. The RAP and aforementioned compensation for resettlement are partof MPSA’s commitments under the ESIA.To-date MPSA’s land acquisition is very advanced with the necessary purchases of land forresettlement largely complete and some rights-of-ways still pending contractual agreement. Page 62May 2012
  • 63. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT3.4 Socio-environmental Context of the ProjectMPSA conducted socio-environmental studies of the Project area to characterize baselineconditions and to provide the basis for the ESIA. The ESIA was prepared to comply with bothPanamanian regulatory requirements and with international evolving best practice (asrepresented primarily by the IFC Performance Standards on Social and EnvironmentalSustainability) in a single document.The Project ESIA work represents one of the most comprehensive studies ever undertaken ofthe socio-economic environment of the Atlantic slope of Panama. Golder Associates spent morethan 40,000 person-hours of effort from June 2007 to April 2010 studying all socio-environmentalaspects of the region across the different seasons. Golder also reviewed scoping and baselinestudies from the late 1990s, studies by other researchers that identified rare, threatened andendangered plant and animal species (species of concern) outside of the Project area that couldbe affected by the Project and studies completed for ESIAs for the Petaquilla Gold Moléjon Mineand for the Panama Canal expansion. Golder also established socio-economic and communitybaselines using community surveys and fieldwork as primary sources.3.4.1 Environmental Baseline ConditionsThe Project area is located in an area of steep,rolling hills and valleys, with elevations rising upto 400 m. Towards the coast, the topography ismore subdued. Climate is warm and humid year-round with approximately 4,500 mm of annualrainfall at the proposed mine site and 5,000 mmof annual rainfall at the Punta Rincon port site onthe Caribbean coast. (See section 2.1.6 for watermanagement plan.Temperatures and relative humidity in the Projectarea are high, and do not vary much during theyear. The temperature typically ranges from 20 to32 degrees Celsius and relative humidity is generally around 80 percent. For most of the year,the winds in Panama are generally from the north-northeast, except for in the Autumn when thewinds shift to the southwest. The average wind speeds range from about 5 kilometres per hour(km/h) at the Colina camp to about 10 km/h at the Río Caimito River mouth. Although theProject area has high humidity and rainfall, evaporation during the day can increase the potentialfor airborne dust. Page 63May 2012
  • 64. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe proposed mine site is located within the upper catchment area of three river systems whichall eventually drain north to the Caribbean Sea. The three catchments are:  The Petaquilla River basin, which drains northwest from the west side of the mine site to the Caribbean coast;  The Caimito River basin, which has six sub-basins: Rinconcito River (Uvero), Uvero River (del Medio), Del Medio River (Pifá), Hoja River (Caimitón) Upper Caimito River and Lower Caimito River, which mostly drain northward to the Caribbean coast; and  The San Juan River basin, which has four sub-basins, including the Upper San Juan, Turbe, Limón and Botija rivers. The San Juan River basin drains eastward joining the Cocle del Norte River basin, which drains north to the Caribbean coast, and combines runoff from the Coclesito, Cascajal, Toabré and Cuatro Calles river basins, in addition to that of the San Juan River basin. The Project area features the rich biodiversity of the Mesoamerican Biological Corridor (MBC). The MBC is a land-use planning concept incorporating sustainable development and biodiversity protection that stretches from Mexico to Colombia. Governments throughout Latin America have recognized the concept of the MBC and several have taken steps to make it a reality through the creation of a network of multiple-use protected areas. Panama has established a hierarchical protected areas system with six categories of protected status. National Parksare at the top of the system. The system recognizes multiple-use protected areas that canincorporate both conservation areas and use of areas for sustainable business use.Approximately 34 percent of Panama’s land area has been set aside as protected within the sixcategories of protected areas. Despite thiscommitment to protecting Panama’s biodiversity,the capacity to enforce protection of the areas isgenerally lacking. Moreover, as an existingbackground condition, it is estimated thatbetween 10,000 and 40,000 ha of primary forestis lost in Panama every year, principally as aresult of slash and burn agricultural practices bypoor and landless families. There are twonational parks in the vicinity of Cobre Panama;Omar Torrijos and Santa Fe. Both of these parksshow evidence of human impact within their Page 64May 2012
  • 65. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTborders.During the baseline studies for the ESIA, we identified 45fauna species of concern and 211 flora species of concern(SOC). Sixty-four flora species were identified as possiblybeing new to science and additional studies wereundertaken to determine the classification. Since the time ofthe original field work we have been working to identifyspecies of concern in protected areas off-site andcollaborating with world-recognized flora experts to confirmhow many of the 64 new species of plants are actually newto science. The work was comprehensive and involved thereview of the SOC status based on International Union forConservation of Nature (IUCN) criteria for all of the SOCflora and fauna species identified in the ESIA. This workhas narrowed our list of species of concern down to 25species of fauna and 86 species of flora.3.4.2 Social Baseline Conditions The majority of the Project is within the District of Donoso, one of the poorest rural districts in the Province of Colón and in Panama as a whole. The Llano Grande substation, powerline and some of the road access, and the bypasses around the towns of Penonomé and La Pintada are within the Coclé Province. Part of the mine area is largely inaccessible except by foot or horseback along a system of trails, or by boat from the coast up-river into watersheds that have their headwaters in the Project vicinity. There are 22 local communities that are considered affected for the purposes of the Project. The total combined population of these 22 communities is approximately 2,500; most of these have populations of 200-300 persons. Scattered Latino communities are primarily located along the access road that extends north to the Project area fromPenonomé and La Pintada. Most of the people who live and work in these communities arecampesinos — they speak Spanish and are generally fully integrated into Panamanian society.The coast community of Rio Caimito is located near the proposed Punta Rincon port site.There are also three communities of indigenous Ngäbe Buglé people located close to the Projectfootprint. The Government of Panama and the international community recognize the NgäbeBuglé as a distinct indigenous group. These people have migrated into the Project area over the Page 65May 2012
  • 66. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTpast 10 to 15 years from the Ngäbe BugléComarca located approximately 150 km west ofthe Project area. However, Cobre Panama is notlocated on or close to a Comarca. Regardless,we have recognized the customary use of landby these indigenous residents in our resettlementprocess and have ensured that their rights asindigenous peoples are respected.Panama has a long history of difficult indigenousrights issues and indigenous peoples in Panamaare a vulnerable population. The Ngäbe BugléComarca is characterized by conditions of endemic poverty caused by lack of economicopportunities, unproductive land and overcrowding. The Cerro Colorado copper deposit, locatedon a Comarca, has long been a source of conflict concerning indigenous rights and miningdevelopment. Ngäbe people in the Project area migrated from the Comarca in search of landand economic opportunity. These family groupings practice subsistence slash and burnagriculture. The Project area is characterized by a lack of basic infrastructure. Healthcare and educational services are poor and our baseline studies demonstrate that local Latino and indigenous communities do not have access to clean drinking water. Artisanal mining activities are conducted primarily by indigenous people along the Petaquilla River northwest of the Project footprint. These mining activities are mainly performed using portable pumps and sluices; no evidence has been foundindicating the use of mercury.The social dynamic in the Cobre Panama Project area is tranquil compared to the large andviolent indigenous rights- and mining-related demonstrations over the past year in the NgäbeBuglé Comarca. Those demonstrations were precipitated by two instances of the Governmentof Panama introducing changes to the Mineral Resources Code that were perceived as green-lighting the development of Cerro Colorado without consulting indigenous people and ensuringthat their rights to self-determination were being respected. The Government of Panama hasrecently resolved this situation through dialogue and legislative changes enshrining the rights ofindigenous people on the Comarca to self-determination. Page 66May 2012
  • 67. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThere have been two instances of local demonstrations around Coclesito over the past year,both of which were small and organized by anti-mining activists from Panama City. These short-lived demonstrations took the form of non-violent roadblocks involving 10 to 20 people, many ofwhom do not, we believe, reside in the immediate Project area. In contrast, a pro-miningdemonstration recently organized by local residents in Penonomé on March 10, 2012 involvedroughly 2,500 people.Figure 3-3 Pro-Mining Demonstration of 2,500 People March 10, 2012A video of the pro-mining rally can be viewed at:http://www.youtube.com/watch?v=OidCvbM8Vnw3.4.3 Community Relations and Community Development ActivitiesBuilding Strong Privilege to OperateAs part of its commitment to building relationships with local communities and a broad range ofstakeholders to ensure strong privilege to operate, MPSA began an intensive and continuousprogram of community engagement in mid-2007 to inform local residents about the Project andto listen to and incorporate their concerns into the project planning. During engagement weheard that local communities were primarily concerned with local employment and environmentalprotection. We now have approximately 18 community liaison officers active in the localcommunities and have implemented a leading practice community feedback mechanism,incorporating guidance from the United Nations Special Representative on Business and Human Page 67May 2012
  • 68. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTRights and that is overseen by a dedicated Grievance Officer. Our dialogue extends toorganizations throughout Panamanian society, with groups that are supportive of our plans andwith those that are not.We began resettlement-related dialogue with those who would be physically and economicallydisplaced by the Project in 2008. We retained recognized resettlement experts and began atrust-building process. This culminated in 2011 with the signing of the Resettlement Action Planby the six Resettlement Negotiations Committees that were established by local communitymembers to represent them in resettlementdiscussions. We have now secured title to thereplacement land for the two indigenouscommunities and are moving forward with thedesign of replacement homes. Our resettlementprocess complies with international best practicefor Free, Prior and Informed Consent (FPIC) andMPSA is conferring rights on local indigenouspeople (for instance in terms of FPIC and landtitle) that the national government has yet to fullyrecognize. The national Directorate ofIndigenous Affairs has been a keen observerand supporter of our resettlement activities.To build trust within the local communities over the veracity of our community developmentcommitments, we initiated a series of phase-appropriate community development projectsstarting in 2008. These projects began with school food, agricultural extension and scholarshipprograms and have since expanded to include infant stimulation and nutrition, sanitation, andmicro-credit programs. Most of these programs are delivered in conjunction with non-government organization (NGO) partners. Moreover, we have been engaging government inpartnerships to deliver improved access to healthcare and education in local communities. Weare developing a Strategic Plan for Sustainable Community Development that focuses on theestablishment of public-private partnerships. This initiative reflects our belief that sustainabledevelopment will be best achieved through the participation of all stakeholders. We havecatalyzed creation of a regional development plan for the area involving local residents andgovernments to define their vision for the region going forward. This should help ensuremeasured and planned growth and help ensure that Cobre Panama will be able to meet itsregional biodiversity conservation goals.All of our community relations and community development work over the past five years hasbuilt trusting relationships and a strong privilege to operate locally. Our actions have also begunto be recognized throughout Panama as we make steady progress in countering negative biasagainst mining in the Panamanian press. Page 68May 2012
  • 69. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTEfforts seem to be paying off and relations with the communities are, we believe, excellent. Afterthe ESIA for the Project was approved, MPSA held a workshop with community leaders. Aquestionnaire was given regarding the leaders’ attitude towards the Project which was veryfavourable. A summary of the results are shown below.There is no doubt that the local communities expect us to deliver action and they will hold us tothe high standard that we have set for Cobre Panama.3.4.4 Project Socio-environmental Actions and BenefitsFrom the outset, MPSA has recognized that strong publicactions to demonstrate compliance with evolving bestinternational corporate responsibility practice would benecessary to build support for the Project within localcommunities, throughout Panama and internationally.Moreover, we strongly believe that the socio-environmentalchallenges posed by the Project presented a uniqueopportunity to marry economic development, socialdevelopment and biodiversity protection to deliver compellingnet positive benefit to the local region and to Panama as awhole.We are committed to meeting the requirements of the IFCPerformance Standards (PS) for Social and EnvironmentalSustainability and the Equator Principles, regardless of thetype of financing required for the Project. Inmet is also a Page 69May 2012
  • 70. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTsignatory to the Voluntary Principles on Security and Human Rights.Cobre Panama has undergone review and scrutiny by an independent engineer (IE) todetermine whether the Project complies with the requirements of the IFC PS (2006 version).Export Development Canada has been providing strong oversight as the social andenvironmental agent. Cobre Panama touches all eight PSs and a Phase II opinion from the IEindicates that the Project is on track to demonstrate compliance with each of them. Our actions to achieve net positive benefit are described in our Environmental Management Plan (EMP) and Social Development Plan (SDP). The EMP actions primarily revolve around management of water quality and quantity and our biodiversity action plan (BAP). Our BAP is built around two primary actions; flora and fauna rescue and landscape-scale conservation (LSC). We will rescue and relocate species of concern from the Project footprint prior to forest clearing and reintroduce them back into protected areas off-site to ensure species survival. LSC is designed to ensure the protection of more than 290,000 ha of primary forest that is under threat of impact from slash and burn agricultural practices through establishment of a new multiple-use protected area in Donoso, conducting research into our mitigation actions and building capacity to enforcethe protection of the Omar Torrijos and Santa Fe National Parks.A multiple-use protected area was established by the previous government in 2009. MPSA andother parties sought an injunction against the creation of the area because the requiredconsultation with them was not performed. In late 2011, the Supreme Court upheld the creationof the area while acknowledging MPSA’s right to develop Cobre Panama. MPSA has sincesought clarification of that ruling. MPSA fully supports the establishment of a multiple use areain Donoso and is working with ANAM to co-develop a management plan for the area. Such amultiple-use protected area is one of the foundations of our LCS conservation approach.Our SDP outlines our immediate and future actions to communicate, protect and potentiallyimprove the social well-being of stakeholders. A main focus is to build local capacity bysupporting community development in several areas, including education and training, healthand wellness and civic safety. It also calls for the creation of an independent CommunityDevelopment Foundation that will invest in development opportunities with indigenous peopleand affected communities. Our vision is that the foundation, with a steady income stream fromthe Project during operations, will be able to catalyze sustainable economic and communitydevelopment over the mine’s estimated 30-year life, and, if managed responsibly, for manyyears after the mine is closed. Page 70May 2012
  • 71. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTWe are also incorporating actions to prevent in-migration into the area and to manage the socialissues that often accrue from the development of large projects. We are developing anIndigenous Peoples Development Plan (IPDP) that, coupled with the actions contained in theResettlement Action Plan (RAP), will help transition indigenous people to the sustainablelivelihoods that they seek.The actions and outcomes of the EMP, SDP, IPDP and RAP will be monitored by MPSA toensure that the planned outcomes are achieved. We will adapt our actions should monitoringidentify suboptimal outcomes.3.4.5 PartnershipsMany of the actions that MPSA is undertaking now and would undertake in the future to deliver anet positive benefit require expertise that is not central to our experience. MPSA hasincorporated partnerships with NGOs and educational institutions to bring the required expertiseto bear, build public confidence in our actions and to deliver on our actions. Partnerships willinvolve both the environmental (biodiversity) and social (community development) elements andwe have already been active in establishing such relationships.In summary, despite the challenging context, Inmet’s and MPSA’s best and next practiceapproach has resulted in a clear privilege to operate. Indicators for this are summarized below. Page 71May 2012
  • 72. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Indicators Positive proof MPSA Community Relations monitoring Peaceful conditions in the Project area and local communities Media report, MPSA Community Relations monitoring Lack of take-up of indigenous protests taking place on the Comarca Media reports March 10, 2012 demonstration supporting mining in Penonomé MPSA Grievance Officer data Grievance system functioning well, and complaints being addressed Government of Panama decree ESIA approval December 28, 2011 Permit documents in-hand Permits being issued post-ESIA Minister of Industry and Commerce (MICI) Quijano’s Government support for the Project statements supporting the mining industry after passing of the mineral resources code April 3, 2012. Government officials present (including Minister of Government, MICI Vice Minister) at the MPSA launch of the Donoso regional development plan April 27. Bilateral agreements between MPSA and various government institutions including health and agriculture ministries and training and human development agency. CAM Phase II Independent Engineer’s Report On track to demonstrate compliance with the IFC Performance Standards on Social and Environmental Sustainability Signed RAPs Signing of the Resettlement Action Plan by all six Resettlement Negotiation Committees, overseen by the Government of Panama ombudsman MPSA Community Relations documentation on Free, Prior and Informed Consent of the resettlement process and signed RAPs Ngäbe Buglé communities to resettlement and proceeding with the Project Completion of draft Regional Development Plan Participation of local communities and governments in the regional development planning process Completion of draft Indigenous People’s Development Participation of Ngäbe Buglé community Plan members in preparation of the draft Indigenous People’s Development Plan MPSA Community development monitoring Participation of local community members in MPSA Community Development programs MPSA Human Resources and Community Relations Number of local residents working for monitoring MPSA, including members of the Ngäbe Buglé community Page 72May 2012
  • 73. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT4 CAPITAL COST ESTIMATE4.1 Basis of EstimateThe Basic Engineering capital cost estimate for the Cobre Panama Project is based on an initialore feed rate of 160 ktpd to the grinding plant. The total estimated capital cost to bring theProject into operation is $US6.18b.Sustaining capital, that includes a third line expansion to 240ktpd, is estimated to be $US2.92bover the projected 31-year life of operations. All dollars in this section are third quarter 2011United States dollars, with no allowance for escalation.Engineering, procurement and construction scope of work for the Basic Engineering estimatewas completed to a level consistent with an Association for the Advancement of CostEngineering (AACE) Class 2 estimate (the Estimate) with an intended accuracy level of +/-10%,as determined by a team of independent third party reviewers who assessed the quality of theestimate, including quantities and productivities (see Section 4.4 for more details, including adefinition of an AACE Class 2 estimate).The comprehensive estimate is comprised of over 9,000 lines over 800 pages. No majoromissions were identified by independent third party reviewers, and the majority ofinconsistencies identified were found to have a conservative effect. The review also producedseveral recommendations, which were subsequently implemented to enhance the quality of theestimate.The engineering to-date is significantly advanced and has been focused on high over-run risk onlarge capital spending items. An extensive amount of engineering has gone intoinstallation/construction planning and detail engineering for the initial activities of the execution,ie site capture, site services and earthworks. The graphic below shows the engineering progressby area. Page 73May 2012
  • 74. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTAs well, the cost estimation process includes firm price estimates for over half of the $US6.18b totalcapital cost. The graphic below details the proportion of capital based on the level of pricing workcompleted: JVP Estimates $US0.57b 19 Packages Budget $US2.00b 74 Packages Firm $US3.61b 70 PackagesThe capital estimate is not subject to significant foreign exchange fluctuations as the estimate isbased on information and quotations that were obtained mainly in US dollars (93%) andCanadian dollars (6%). The remainder was mostly in euros, Korean won and a small degree ofSwiss francs.Estimates regarding mining equipment, a portion of the mine stripping and owner’s costs wereprovided by MPSA.4.1.1 Site InvestigationExtensive additional site investigation activities were completed, both onshore and offshore,during the course of Basic Engineering that lend greater certainty to the capital cost estimate.This additional information added to previous site investigation campaigns conducted as part ofthe FEED Study and previous feasibility studies.The areas that were further investigated included: - TMF starter dam and borrow areas - Waste Rock Storage Facilities - Collection, Sedimentation and Fresh water pond dams - Plant site - Onshore and offshore portion of the port site - Eastern Infrastructure Facilities - Coast and Eastern Access roads with associated bridgesThe program included drilling, test pits and was supported by geophysical surveys that consistedof seismic refraction surveys which were completed at select transects located along the accessroad alignment, TMF starter dam and borrow areas, camp site facilities and the crusher location. Page 74May 2012
  • 75. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe offshore geotechnical drilling program took place between April 2011 and June 2011 at thesite of the future marine facilities at Punta Rincon. It covered both port facilities and the powerplant cooling intake and outfall pipeline locations. Seafloor sediments and bulk sampling ofbeach sands in the vicinity of the proposed marine and onshore structures was also carried out.An updated Earthquake Ground Motion Hazard Assessment established seismic parametersthat were incorporated into facilities design for the Project.4.2 Capital Cost (CAPEX $US)The graphics below show the total estimated capital cost by major area including allowances (whereapplicable) and contingencies. $US265m, 8% Site Capture & Infrastructure = $US3,316m $US26m, 1% $US355, 11% Direct Costs Growth - Direct Indirect Costs $US844m, 25% $US1,748m, 53% Growth - Indirect EPCM Contingency $US79m, 2% Page 75May 2012
  • 76. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT $US105m, 8% $US97m, 8% Process Plant = $US1,281m $US52m, 4% Direct Costs Growth - Direct EPC $US1,027m, Contingency 80% $US17m $US30m Power Plant = $US676m EPC - Less Camp Black Start Option Contingency $US629m Page 76May 2012
  • 77. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT $US29m, 3% $US23m, 3% Owner = $US908m $US103m, 11% Mine Equipment $US347m, Yard Equipment 38% Operations Project Team MPSA Capex $US386m, 43% Contingency $US20m, 2% Total Capital Cost = $US6.18b Process Plant, Power Plant, $US1,132m , 18% $US646m , 10% Allowances, Owner, $US885m $US157m , 3% , 14% Other, $US572m , 10% Contingency, Mine, Port, & $US415m, 7% Infrastructure, $US2,946m , 48% Mine, Port, & Infrastructure Process Plant Power Plant Owner Contingency Allowances Note: Allowance of $US157m includes $52m for Process Plant growth and $105m for Mine, Port & Infrastructure growth. Page 77May 2012
  • 78. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 4-1 Basic Engineering Capital Cost by Major Area CAPEX Total Area % of Project ($USm) Mining 760 12 Process Plant 1,184 19 Site & Services 550 9 Port Site Facilities 543 9 Power Plant 646 10 Total Direct Costs 3682 59 Construction Indirects 844 14 Total Field Costs 4526 73 EPCM Services 355 6 Owner Costs 885 14 Contingency* 415 7 Project Total Costs 6,181 100Note: Totals may not add due to rounding*Contingency: The contingency table provided to the estimate reviewers had an overall Project contingency of 9.63% (as apercentage of Total Installed Cost (TIC)). When owner’s costs (mine preproduction, mine equipment and owner’s ProjectManagement (PM)) and contingency on owner’s costs are removed, the remaining value is 11.18%. The percentage is in line withwhat might be expected of an AACE Class 2 engineering estimate which is described in Section 4.4.The above capital cost estimate has increased from the previously announced FEED Study estimateof $US4.3b. A third of the change is due to the inclusion of the power plant which has a positiveinternal rate of return (IRR) on the Project. The bulk of the remainder of the increase is due toescalation in estimates from the FEED Study which was prepared during the 2009 economic crisisand completed in March 2010 compared to the current estimate that has been prepared in light ofhigher forecast commodity prices. A reconciliation of the major changes are listed in Table 4-2below:Table 4-2 FEED Study to Basic Engineering Capital Cost Estimate Variances CAPEX Total ($USm) FEED Study capital costs 4,320 Power plant 646 Increased process plant capital cost estimate 403 Increased mining capital cost estimate 312 Increased port site capital cost estimate 285 Other 215 Basic Engineering Capital Cost Estimate 6,181 Page 78May 2012
  • 79. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTVariances from the FEED are explained in greater detail below:Table 4-3 FEED Study to Basic Engineering Variance DescriptionVariance ExplanationProcess Plant  Higher production factors than FEED  Tailings dam increased from 1 year starter dam to 2 year starter dam  Better pricing of equipment with firm price quotesMining  Fuel cost in FEED Study was $US0.56/l, current estimate uses $US1.06/l  Unit rates for earthworks higher based on firm price quotes  Indirect costs were allocated to direct such as camp and catering4.2.1 Contract budgetary incentivesThe power plant has been contracted at a fixed price under a lump sum engineering,procurement and construction EPC contract with liquidated damages tied to Project completiondate. The process plant is currently in the bidding process also under a fixed price EPC contract.The balance of the Project, under an EPCM contract with JVP, includes both penalties andincentives tied to the Project budget, schedule and performance.4.3 Sustaining Capital (SUSEX)A sustaining capital cost estimate was prepared, indicating sustaining capital and including athird line expansion, estimated at $US2.92b being over the 31-year life of operations. Thisestimate allows for increasing the plant grinding capacity of 160 ktpd to 240 ktpd. The plantexpansion would be developed in two phases, with the Colina primary crushers and overlandconveyor completed by Year 5 and the third grinding line completed and ready for production inYear 10. This expansion would significantly lower capital intensity given that the associatedinfrastructure would already be in place, allowing for the expansion that should be veryeconomical.Estimates are included for replacement and additional mining equipment. Other plant and portmobile equipment is included in sustaining capital based on the replacement time cycle for eachpiece of equipment.Sustaining capital also includes costs for the continued development of the TMF, includingadditional tailings pumps, tailings and reclaim pipelines. Continued development of pitdewatering systems is also included. Additional costs are also included for expansion of thetruck shop by four bays. Page 79May 2012
  • 80. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT4.4 Independent Third Party Review – Capital Cost EstimateLegico-CHP Consultants were asked to conduct an independent estimate review on behalf ofMPSA. A team of estimators and planners from Samuel Engineering of Denver and HillInternational of Las Vegas assessed the feasibility of the Project Budget Price Estimate(consistent with AACE Class 2 estimate) (+/- 10% referred to as the ―Estimate‖) andConstruction Management Level 3 Project Schedule (referred to as the ―Schedule‖).The review examined in detail:  Basic Project scope;  The methodology used;  Fundamental calculation errors;  Allowances for growth and contingency;  Possible duplication;  Quantities and pricing;  Basis and assumptions for estimate components;  Areas where estimate might not meet the classification criteria;  Estimate and execution plan congruence; and  Errors, omissions and any other factors that could have affected the precision and quality of final pricing and quantities included in the original estimate.Under to the contract with JVP, the Estimate that is submitted to MPSA for final contractapproval prior to a full Notice to Proceed must be a Class 2 estimate as defined by the AACE. Atan overall design completion of 37.6% (as calculated by JVP), Legico-CHP concluded that thedesign is in the upper design threshold as a class 3 and the lower threshold for being a class 2.An AACE Class 2 estimate describes a level of project definition required in the 30% to 70%range. Legico concluded that most of the design documents listed as a minimum by the AACEhave been produced to the required level of completion.Due to the large volume of earthwork for the Project, the estimate accuracy is dependent uponthe extent of civil design work completed and the contractor quotations for that work.When dealing with unknowns (soil conditions, backfill requirements, haulage distances, erosioncontrol measures, electrical installations, support services, freight, etc.) Legico-CHP found thatJVP had estimated conservatively and no major omissions were identified by it.As such, Legico-CHP found the final estimate to be within the expected accuracy of an AACEClass 2 estimate and meets the plus/minus 10% accuracy.Contingency: The contingency table had an overall Project contingency of 9.63% (as apercentage of Total Installed Cost (TIC). When owner’s costs (mine preproduction, mineequipment and owner’s PM and contingency on owner’s costs are removed, the remaining valueincreases to 11.18%. The percentage is in line with what might be expected of an AACE Class 2estimate. Page 80May 2012
  • 81. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTRisk Assessment: A risk analysis was performed using the risk modeling software package@Risk, to calculate the Project’s contingency and used as a check against the contingencyvalue described above. The risk analysis value used as the contingency comparison figure wastaken from the P80 value. The risk analysis therefore generated a probability of 80% overall ofnot exceeding a number carried in the Estimate.Procurement: Legico-CHP examined seven major equipment ―P‖ packages and nine majorconstruction ―C‖ packages. They found that overall, the budget pricing obtained through theprocess will be improved once a more complete and formal procurement process results incompetitive bids in the next stage of the Project.Estimate Components: The review examined the following components of the Estimate indetail: mechanical equipment, installation hours, built-up labour rates; mine development; sitecivil work; concrete; structural steel; electrical; instrumentation; construction equipment; spareparts; initial fills; vendor representatives; and freight.In general, estimates were found to be conservative. The review identified a few potential areasof cost savings and passed these recommendations along to MPSA.The review concluded that the Project Estimate dated March 16, 2012 is acceptable and meetsthe level of accuracy required for an AACE Class 2 estimate. Page 81May 2012
  • 82. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT5 OPERATING COST ESTIMATEIn this section, the forecast operating costs for Cobre Panama are outlined in further detail. Setout below is a summary of operating costs both on a per tonne basis and a cash cost net of by-products basis. In total there are two phases of the mine’s operation for which the operatingcosts have been broken down. Additionally, contained within this section is a broad discussionof the components (Mine, Plant, G&A and Site Services) that contribute most materially to theforecast costs as well as the what inputs that contribute most materially (Material, Power,Labour).5.1 Basis of EstimateThe operating costs represent the estimated cash cost required during the Project’s operationphase to process a nominal 160 ktpd (58.4 mt/a) of ore, increasing to a nominal throughput of240 ktpd (87.6 mt/a) from Year 10 onwards. The operating cost estimate is based on a 31-yearlife of mine operation. The first quarter of Year 1 is part of the ramp-up period and is thereforeexcluded from the estimate.The operating cost estimate presented herein is expressed in constant fourth quarter 2011 USdollars with no allowances for escalation or fluctuation in exchange rates. Costs incurred beforeplant start-up and during ramp-up periods are treated as capital expenditures and are included inthe capital cost estimate presented in Section 4.Benchmarking of costs for input commodities such as oil (diesel), freight, steel (grinding media),ammonia (explosives) and coal (power) demonstrated a strong correlation to the historical priceof copper. All of these commodities are directly related to the overall health of the globaleconomy. When prices of oil and other raw materials are relatively high, statistically significantcorrelations demonstrate that it is reasonable to expect that the economic environment is robustand likewise the price of copper. The cost assumptions for these commodities are thereforelinked to the price assumptions for copper over the long term, and were applied throughout BasicEngineering to ensure internal validity and consistency of sensitivity analyses.The operating costs were estimated on an annual basis for the 31 year life of mine. The costsare reported in the following cost centres:  Mine operating cost;  Process plant operating cost;  General and administrative (G&A) cost; and  Site services operating cost.By cost centers, the process plant represents almost 50% of the estimated operating costs. Page 82May 2012
  • 83. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT5.2 Operating Cost Estimate (OPEX)The total operating cost is estimated at $US15,897m over the LOM for a mill feed of 2,310 mt(excluding the 9.1 mt of feed during the ramp-up period in the first quarter of Year 1). Theoverall unit operating cost would be $US6.88/t of ore milled.The total cost for each cost centre was estimated for the LOM (Table 5-1). Average costs ofoperation and the LOM weighted average are presented in Table 5-2. Table 5-3 presents theestimated operating cost by component.The process plant and mine operations costs would account for 83% of the total operating cost,while G&A and site services account for the remaining 17% (Figure 5-1). Materials, whichinclude items such as diesel fuel, maintenance parts and supplies and explosives, etc.,represent 59% of total operating costs while power and labour represent 15% and 11% of totaloperating costs, respectively.The peak operating cost of about $US609m would occur on Year 17. The annual averageoperating cost cash flow would be about $US513m.Table 5-1 Total Operating Cost SummaryCost Centre $USm $US/tMine 5,626 2.44Process Plant 7,600 3.29G&A 2,035 0.88Site Services 636 0.28Total Operating Costs* 15,897 6.88*Based on $US2.75/lb consensus long-term copper priceTable 5-2 Summary of Operating Costs per Year ($US/t of ore milled)*Cost Centre Years 2-16 LOMMine 2.68 2.44Process Plant 3.28 3.29G&A 0.97 0.88Site Services 0.30 0.28Total 7.23 6.88*Based on $US2.75/lb Consensus Long-Term copper price Page 83May 2012
  • 84. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 5-3 Summary of Operating Costs by Component ($US/t of ore milled)*Cost Centre Total Labour Material Power OtherMine 2.44 0.27 1.87 0.05 0.24Process Plant 3.29 0.24 2.13 0.91 0.01G&A 0.88 0.15 0.01 0.04 0.69Site Services 0.28 0.11 0.07 0.01 0.09Total 6.88 0.77 4.08 1.01 1.03*Based on $US2.75/lb Consensus Long-Term copper priceFigure 5-1 Breakdown of Operating Costs by Function and Input Cost Page 84May 2012
  • 85. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 5-4 compares the operating cost estimates in the FEED Study with those of Basic Engineering:Table 5-4 FEED Study vs. Basic Engineering Operating Costs FEED Basic Study* Change Area Engineering** ($US/t (%) ($US/t milled) milled) Mine 2.14 2.44 +14% Process 3.72 3.29 -12% Plant G&A 0.73 0.88 +21% Site 0.64 0.28 -56% Services Total 7.23 6.88 -5%*Based on $US2.10/lb long-term copper price; **Based on $US2.75/lb Consensus Long-Term copper priceOverall, the difference in operating costs between FEED Study and Basic Engineering is areduction of approximately 5%. The difference can be largely attributed to higher inputcommodity costs as a result of a higher base copper price assumption ($US2.10/lb in FEEDStudy and $US2.75/lb in Basic Engineering) offset by power cost savings as a result of an on-site power generating facility. The decline in Site Services cost is partially due to the removal ofa site Technical Services department from the FEED Study estimate and the subsequentallocation of those costs to the mine and process plant. Table 5-5 illustrates the changes in unitdiesel, coal, steel grinding media, explosives and concentrate freight costs with changes in thecopper price assumption (see Table 5-5 and Table 6-3 for details of the selected metal pricescenarios). Page 85May 2012
  • 86. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 5-5 Operating and Input Cost Estimates at Selected Copper Price Assumptions Copper Price Assumption Forward Curve 3-Year Trailing AverageLife of Mine Operating Costs Consensus Long-Term (declining to (SEC case -($US/tonne milled) ($US2.75/lb) consensus) $US3.42/lb) Mine 2.44 2.46 2.55 Plant 3.29 3.36 3.60 G&A 0.88 0.88 0.89 Site services 0.28 0.28 0.28Total 6.88 6.98 7.32 Estimated Input Unit Costs 1,2 Oil ($US/bbl) 68.68 71.01 80.53 1 Diesel ($US/l) 0.62 0.64 0.72 1,2 Coal ($US/t) 82.54 85.37 96.93 1 Steel grinding ($US/t) 935.25 976.27 1,143.62 1 Explosives ($US/t) 936.21 950.97 1,011.18 Concentrate freight ($US/t) 41.21 43.17 48.321 - Total cost delivered to site;2 - 3-Year trailing average of WTI Cushing Crude ~$US83.20/bbl and Columbia thermal coal price ~ $US84.40/t5.3 Brook Hunt C1 Cash CostBrook Hunt’s C1 cash cost is a commonly used operating cost measure in the base metalsindustry. It is defined by Brook Hunt as the net direct cash cost, representing the cash costincurred at each processing stage, from mining through to recoverable metal delivered tomarket, less any net by-product credits. Tables 5-6 and 5-7 summarize Cobre Panama’s C1cash cost at three metal price scenarios (see Table 5-5 and Table 6-3 for details of the selectedmetal price scenarios). Page 86May 2012
  • 87. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 5-6 Years 2-16 C1 Cash Cost ($US/lb) Metal Price Scenario Forward Curve 3-Year Trailing Consensus Long-Cost Item (declining to Average (SEC case - Term ($US2.75/lb) consensus) $US3.42/lb)Mine 0.30 0.31 0.32Plant 0.37 0.39 0.41G&A 0.11 0.11 0.11Site services 0.03 0.03 0.03Offsite costs 0.30 0.31 0.32By-product credits (0.40) (0.41) (0.42)C1* 0.72 0.74 0.77*Totals may not add due to roundingTable 5-7 Life of Mine C1 Cash Cost ($US/lb) Metal Price Scenario Forward Curve 3-Year Trailing Consensus Long-Cost Item (declining to Average (SEC case - Term ($US2.75/lb) consensus) $US3.42/lb)Mine 0.32 0.33 0.34Plant 0.44 0.45 0.48G&A 0.12 0.12 0.12Site services 0.04 0.04 0.04Offsite costs 0.30 0.31 0.32By-product credits (0.40) (0.40) (0.42)C1* 0.82 0.83 0.87*Totals may not add due to roundingCobre Panama’s C1 cost compares favourably against other copper mines expected to be inoperation by 2020. At a C1 cost of $US0.72/lb, Cobre Panama ranks in the 19th percentileduring Years 2 to 16 of production. Figure 5-2 illustrates Cobre Panama’s position on BrookHunt’s projected 2020 C1 cost curve. Page 87May 2012
  • 88. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 5-2 Comparison of Cobre Panama’s C1 Cost on the 2020 Projected Brook Hunt Cost Curve(1) 2020 Copper Cost League by Brook Hunt with Brook Hunt’s 2012 Q1 assumptions adjusted for metal prices and derived input costs under the Consensus Long-Term Price Scenario5.4 Independent Third Party Reviews5.4.1 Process Plant Operating Cost EstimateAn independent third party review of the process plant operating cost estimate was performed.Two approaches were used for the review:  Costs were verified for consistency against the design criteria and industry standards; and  Costs were benchmarked against industry data, using a number of similar operations in Chile and Peru.The review concluded that the operating cost estimate for the process plant is realistic, andconsistent with other concentrator projects. Page 88May 2012
  • 89. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT5.4.2 Benchmark of Mining CostAMEC plc was retained to benchmark the mining costs included in the Basic Engineeringoperating cost estimate. The review utilized a database of more than 20 South American open-pit mines that operate truck fleets with similar operating parameters to those that would be usedat Cobre Panama.Rather than using a cost-based approach that may be biased due to cost escalation, theanalysis was focused on Cobre Panama’s projected productivity ratios (i.e. output per unit ofinput consumable) as compared to those of the selected South American mines. The productivityratios covered major components of mining costs such as diesel, power, labour, maintenanceparts, tires, and explosives.The report concluded that, in general, Cobre Panama’s mining productivity ratios are average orslightly conservative as compared to other similar open-pit mining operations.5.4.3 Power Plant Operating Cost EstimateIn November 2011, MPSA mandated Sunrise Americas, LLC to conduct an analysis of MPSA’spower plant economic model and power price estimates. Sunrise’s findings were updated inFebruary 2012 to reflect a revised coal price forecast based on regression analysis modeling thecorrelation between copper price and coal price, a revised schedule for mine commercialproduction, and updated foreign exchange rates. Overall, the power plant economic model andpower price estimates were deemed reasonable.Coal prices comprise approximately 80% of the power cost. By performing a regression analysisusing historical price data, MPSA has developed an algorithm to predict coal prices in relation tocopper prices (Table 5-8). See Table 5-5 and Table 6-3 for details of the selected metal pricescenarios. Over the first 9 years of operation, MPSA will obtain a power credit for the excesspower sold.Table 5-8 Power Costs at Selected Copper Price Assumptions ($US/kWh) Copper Price Assumption Consensus Long-Term Forward Curve (declining 3-Year Trailing Average ($US2.75/lb) to consensus) (SEC case - $US3.42/lb)Years 1-9 0.027 0.033 0.034Years 10-LOM 0.050 0.050 0.055 Page 89May 2012
  • 90. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT5.4.4 Power Plant Coal Supply AnalysisAn analysis performed for MPSA by Wood Mackenzie in November 2011 determined thatstructural changes in the US coal market have created more low-cost coal supply in the regionthat should be available to the Project.While high-growth economies in Asia, namely China and India, should continue to drive globaldemand growth and shift trade flows in their direction, global thermal coal prices should retractand stay flat, in real terms, over the short to medium term before resuming growth in the longerterm.With a weak domestic market, United States suppliers of thermal coal should be looking forexport markets and represent a very attractive supply option to MPSA due to its delivered priceand relative proximity. Colombia, a fixture in the seaborne market, typically commands higherprices and should compete very closely with US coal for MPSA business. Venezuela has similardelivered costs to the US and Colombia, but is a much higher risk because of the politicalsituation and a lack of infrastructure. Page 90May 2012
  • 91. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT6 PROJECT ECONOMICSIn this section a number of standard valuation metrics are presented over multiple scenarios.Included are project assessments based on varying metal price assumptions (and by correlation,input costs) as well as varying project financing assumptions. Details of the different metal priceassumptions, input cost assumptions and financing scenarios are all contained in this section.The operating cost discussion in Section 5 is expanded upon and the impact of a financingscenario which includes a precious metals stream sale is evaluated in terms of how it wouldimpact cash costs after by-products. This section concludes with an analysis of the Project’sforecasted annual and cumulative cash flows.6.1 Modelling AssumptionsSet out below are the assumptions used to generate the financial projections for the Project.Table 6-1 Modelling Assumptions ($US)Item AssumptionValuation Date March 31, 2012Start of development 2012Start of production First concentrate shipped in 2016Cost inflation Capital costs in real 2011Q3 terms; operating costs and metal prices are assumed to be in real terms as at the Valuation DateTechnical input JVP Basic Engineering ReportRealization costs Copper treatment charges $US70.00/t dry concentrate Copper refining charges $US0.07/lb Gold refining charges $US5.00/oz Silver refining charges $US0.50/oz Molybdenum roasting & freight charges $US1.49/lb Freight charges $US41/t wet concentrate Losses & insurance charges 0.25% NSRTaxation Corporate tax rate 25% Royalty 5% NSR for Cu and Mo, 4% NSR for Au and Ag Alternative minimum tax 1.17% of NSR Depletion allowance Depletion deduction in any given year cannot exceed 50% of earnings before interest, taxes, depreciation and amortization (―EBITDA‖) Page 91May 2012
  • 92. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Withholding tax on exports and dividends None Duty on imports NoneDevelopment capital expenditures $US6.18b (refer to Section 4)Sustaining capital expenditures $US2.92b (refer to Section 4)Copper concentrate moisture 8%Mine schedule Refer to Section 2Recovery rates Refer to Section 2Concentrate grades Refer to Section 2Operating costs Refer to Section 5Total pre-financing sponsor funding requirement during the construction period (up to andincluding Q1 2016) is summarized in Table 6-2. Refer to Section 6.6 for sponsor fundingrequirement after considering Inmet’s financing assumptions.Table 6-2 Pre-Financing Sponsor Funding RequirementItem Amount ($USb)Development capital expenditures* $6.2Working capital** $0.1Total $6.3*Includes $US35m in first fills and capital spares**Includes power plant working capital items of $32mTwo financing structures are considered in the Project economic analysis (Table 6-3):1. A levered case with third party and subordinate shareholder debt; and2. A levered case with third party and subordinate shareholder debt, plus a gold and silver streamsale.These structures represent Inmet’s financing assumptions applied to 100% of the Project. Page 92May 2012
  • 93. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 6-3 Financing AssumptionsCase Assumptions  $US1.6b of senior debt drawn over three and a half yearsCase 1: Debt only proportionate to equity contribution with a 10-year tenor and(“Debt Case”) bullet repayment  2% one-time fees and 7.25% coupon (nominal)  Incorporates use of subordinated shareholder loans  100% Project ownership  Debt Case described above, plusCase 2: Debt plus Precious  Sale of 86% of MPSA’s gold and silver for an upfrontMetal Stream Sale payment of $US1.2b drawn proportionate to equity contribution after $US1.25b has been contributed(“Debt plus Stream Case”)  In addition to the upfront payment, MPSA would receive $US400/oz of payable gold and $US6.00/oz of payable silver with customary inflation adjustment when delivered6.2 Value and ReturnsThree metal price scenarios are used in evaluating the Project economics:  Consensus Long-Term Prices - As determined by a broad sampling of industry forecasters. This scenario represents a conservative view of the future metal prices.  Forward Curve Prices - The forward curve represents the future prices at which the market is willing to transact based on the market’s current expectation of supply and demand conditions in the short and medium terms. In theory, these future prices can be ―locked in‖ through forward sale contracts.  Three-year Trailing Average Prices- Given base metals’ tendencies to revert to historical means, the three-year trailing average prices are also considered in our analysis. This price scenario is also accepted by the United States Securities Exchange Commission for regulatory filings.Refer to Section 11 for our analysis on the copper and molybdenum market outlook. Table 6-4sets out the metal prices used in each of the three price scenarios discussed. Page 93May 2012
  • 94. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 6-4 Metal Price Assumptions ($US)Metal Price Scenario Assumptions  $US2.75/lb copper, $US15/lb molybdenum,$US1,250/oz gold and $US20/oz silverConsensus Long-Term  2016 - $US3.66/lb copper, $US1,758/oz gold and $US31/oz silver  2017 - $US3.61/lb copper, $US1,805/oz gold and $US20/oz silver  2018 - $US3.57/lb copper, $US1,250/oz gold and $US20/oz silver  2019 - $US3.53/lb copper, $US1,250/oz gold and $US20/oz silver  2020 - $US3.49/lb copper, $US1,250/oz gold and $US20/oz silverForward Curve  2021 - $US3.45/lb copper, $US1,250/oz gold and $US20/oz silver  2022 - $US3.41/lb copper, $US1,250/oz gold and $US20/oz silver  Molybdenum prices are set at $US15/lb as no forward market exists  The Consensus Long-Term prices are used for years beyond the end of the forward curve for each metal  $US3.42/lb copper, $US14.68/lb molybdenum,$US1,316 /oz gold and $US24.90/oz silverThree-Year Trailing AverageTables 6-5 and 6-6 summarize the economics of the Project, showing the estimated internal rates ofreturn and the net present values for a range of price assumptions and discount rates.Table 6-5 After-Tax Economics: Debt Case Metal Price Scenario Forward Curve 3-Year Trailing Average (SEC($USm) Consensus Long-Term (declining to case) consensus)IRR 14.3% 18.5% 19.2%NPV @ 8% 3,200 4,800 6,000NPV @ 9% 2,400 3,900 4,900NPV @ 10% 1,800 3,200 4,000 Page 94May 2012
  • 95. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 6-6 After-Tax Economics: Debt plus Stream Case Metal Price Scenario Forward Curve 3-Year Trailing Average (SEC($USm) Consensus Long-Term (declining to case) consensus)IRR 16.7% 21.9% 22.5%NPV @ 8% 3,500 5,000 6,300NPV @ 9% 2,800 4,200 5,200NPV @ 10% 2,200 3,600 4,4006.3 Sensitivity ResultsAs could be expected, the Project is most sensitive to changes in copper price, followed bycapital costs and operating costs. The Project’s returns should not be significantly impacted bychanges in the gold price given that gold represents only 6% of total net smelter returns.Furthermore, changes in each of the input commodity costs of oil, steel, power and explosivesshould have insignificant impacts on the overall Project returns (see Figure 6-1).Figure 6-1 NPV Sensitivities Debt Case NPV Sensitivity Chart Debt plus Stream Case NPV Sensitivity Chart Page 95May 2012
  • 96. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT6.4 Cash CostsThe Project has projected operating costs in the first quartile of the industry cost curve. Asdescribed in Section 5, the operating cost model developed during Basic Engineering treats theprice of input commodities such as diesel as a function of the copper price assumption. A highercopper price in the financial model would therefore drive higher estimated operating expenses.Tables 6-7 and 6-8 illustrate the sensitivity of C1 cash costs to changes in copper price underboth the Debt case and the Debt plus Stream case financing structures.Table 6-7 Years 2-16 Cash Costs Based on Payable Copper ($US/lb) Metal Price Scenario Forward Curve 3-Year Trailing Consensus Long- (declining to Average (SEC Term consensus) case) *Debt Case C1 0.72 0.74 0.77Stream sale by-product credit adjustment 0.14 0.15 0.16Debt plus Stream Case adjusted C1 0.86 0.89 0.93*As defined by Brook HuntTable 6-8 Life of Mine Cash Costs Based on Payable Copper (US/lb) Metal Price Scenario Forward Curve 3-Year Trailing Consensus Long- (declining to Average (SEC Term consensus) case) *C1 0.82 0.83 0.87Stream sale by-product credit adjustment 0.13 0.13 0.14Debt plus Stream Case adjusted C1 0.95 0.96 1.01*As defined by Brook HuntWith a gold and silver stream sale, the Project’s C1 cash cost during Years 2-16 increases from$US0.72/lb to a stream-adjusted C1 of $US0.86/lb under the Consensus Long-Term price scenario.As illustrated by Figure 6-2, Cobre Panama’s stream adjusted C1 still ranks favourably in the 23rdpercentile of Brook Hunt’s projected 2020 C1 cost curve. Page 96May 2012
  • 97. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 6-2 Comparison of Project C1 Costs on the Projected 2020 Brook Hunt Cost Curve(1) 2020 Copper Cost League by Brook Hunt with Brook Hunt’s 2012 Q1 assumptions adjusted for metal prices and derived input costs under the Consensus Long-Term Price ScenarioA project’s C3 cost, defined by Brook Hunt as the C1 cash cost plus depreciation expense,closure costs, royalties, frontend taxes, interest and other indirect expenses, gives an indicationof the cost to finance, build and operate a production stream. Cobre Panama’s estimated C3operating cost during Years 2-16 of $US1.41/lb under the Debt Case would rank in the 26thpercentile on Brook Hunt’s projected 2020 C3 cost curve, and would be attractive compared tothe consensus long-term copper price of $US2.75/lb. With a gold and silver stream sale, theProject’s estimated C3 operating cost would increase to $US1.48/lb but would still be well belowthe consensus long-term copper price of $US2.75/lb and would rank in the first half of theprojected 2020 C3 cost curve (28th percentile). Page 97May 2012
  • 98. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 6-9 Year 2-16 C3 Costs ($US/lb) Metal Price Scenario Forward Curve 3-Year Trailing Consensus Long-Cost Item (declining to Average (SEC Term consensus) case)C1 0.72 0.74 0.77Depreciation and closure 0.50 0.60 0.62Royalty and frontend taxes 0.14 0.16 0.18Interest cost (third-party debt only) 0.04 0.04 0.04C3: Debt Case 1.41 1.54 1.61Metal stream sale adjustment* 0.13 0.15 0.16Amortization of stream upfront payment** -0.07 -0.07 -0.07C3: Debt plus Stream Case 1.48 1.62 1.70*Includes stream sale by-product credit adjustment and difference in the timing of depreciation expense incurred on capital assets**Upfront payment is amortized on a unit-of-production basis on precious metals productionTable 6-10 Life of Mine C3 Costs ($US/lb) Metal Price Scenario Forward Curve 3-Year Trailing Consensus Long-Cost Item (declining to Average (SEC Term consensus) case)C1 0.82 0.83 0.87Depreciation and closure 0.48 0.48 0.48Royalty and frontend taxes 0.14 0.15 0.18Interest cost (third-party debt only) 0.03 0.03 0.03C3: Debt Case 1.47 1.49 1.56Metal stream sale adjustment* 0.13 0.13 0.14Amortization of stream upfront payment ** -0.07 -0.07 -0.07C3: Debt plus Stream Case 1.52 1.55 1.63* Life of mine stream sale by-product credit adjustment** Upfront payment is amortized on a unit-of-production basis on precious metals production Page 98May 2012
  • 99. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 6-3 Comparison of Project C3 Costs on the Projected 2020 Brook Hunt Cost Curve (1) 2020 Copper Cost League by Brook Hunt with Brook Hunt’s 2012 Q1 assumptions adjusted for metal prices and derived input costs under the Consensus Long-Term Price Scenario6.5 Net Smelter ReturnsCobre Panama’s net revenues would be highly leveraged to copper prices, with copper providing87% of net smelter returns (NSR). Current reserves yield payable metals of 17.5b lb copper,199m lb of molybdenum, 2.5m oz of gold and 43m oz of silver. As illustrated in Table 6-11,precious metals represent only a small portion (8%) of the Project’s estimated total NSR. Figure6-4 summarizes Cobre Panama’s estimated annual payable copper production and C1 cash costover the projected life of the Project. Page 99May 2012
  • 100. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 6-11 Life of Mine Revenues and NSR (Consensus LT Prices) LOM Payable Gross Realization Metal Revenue Costs NSR ($USm) Production ($USm) ($USm)Copper 17.461b lb 48,017 (4,970) 43,047Molybdenum 199m lb 2,983 (303) 2,680Gold 2.488m oz 3,111 (20) 3,090Silver 43.109m oz 862 (24) 839Total 54,973 (5,317) 49,656Figure 6-4 Payable Cu Production and C1 Cash Cost by Year (Consensus LT Prices Debt Case) Page 100May 2012
  • 101. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT6.6 Project Cash Flows6.6.1 Debt CaseFigure 6-5 depicts the Project’s cash flow profile under the Debt Case. As outlined in Table 6-12,net sponsor funding during the construction period (up to and including 2016 Q1) isapproximately $US5.0b. The Project is projected to generate a total undiscounted cumulativecash flow of approximately $US20b.Figure 6-5 Project Life After-Tax Cash Flows (Debt Case)* 1,500 20 1,000 10 500 - - (500) (10) (1,000) (20) (1,500) (30) (2,000) (2,500) (40) 2012 2017 2022 2027 2032 2037 2042 Debt Case free cash flow to Inmet ($USm, LHS) Cumulative cash flow ($USb, RHS)*Based on Consensus Long-Term PricesTable 6-12 Construction Period Funding Requirement – Debt Case ($US)Item Amount ($USb)Development capital expenditures* $6.2Working capital** $0.1Third party debt interest and fees $0.3Third-party debt draw down ($1.6)Total $US5.0b*Includes $US35m in first fills and capital spares**Includes power plant working capital items of $32m Page 101May 2012
  • 102. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT6.6.2 Debt plus Stream CaseThe cash flow profile of the Debt plus Stream Case is shown in Figure 6-6. Net constructionperiod sponsor funding is approximately $US3.8b (see Table 6-13), and the Project would beexpected to generate a total undiscounted cumulative cash flow of approximately $US19b.Figure 6-6 Project Life After-Tax Cash Flows (Debt + Stream Case)* 1,500 20 1,000 10 500 - - (500) (10) (1,000) (20) (1,500) (30) (2,000) (2,500) (40) 2012 2017 2022 2027 2032 2037 2042 Debt + Stream Case free cash flow to Inmet ($USm, LHS) Cumulative cash flow ($USb, RHS)*Based on Consensus Long-Term PricesTable 6-13 Construction Period Funding Requirement – Debt plus Stream Case ($US)Item Amount ($USb)Development capital expenditures* $6.2Working capital** $0.1Third party debt interest and fees $0.3Third-party debt draw down ($1.6)Stream sale upfront payment ($1.2)Total $US3.8b*Includes $US35m in first fills and capital spares**Includes power plant working capital items of $32m Page 102May 2012
  • 103. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT6.7 Upside of Resource Value Not Reflected in Traditional Discounted Cash FlowValuationThe static Discounted Cash Flow (DCF) valuation methodology employed in the analysis doesnot fully capture the value of the optionality embedded in a long-life asset and any mineralresources that may be incorporated into the mine plan in the future (see Section 1.7). As such,the true, intrinsic value of Cobre Panama could be greater than the values indicated by the DCFanalyses presented herein.One methodology to evaluate project resources is to apply a price per in-situ pound of copperequivalent based on precedent market transactions. Employing this methodology to theresources not included in the current mine plan results in potential resource value of $US0.9b to$US1.8b. See Section 8 for more detail. Page 103May 2012
  • 104. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT7 PROJECT FINANCINGCobre Panama is owned 80% by Inmet and 20% by Korea Panama Mining Company (KPMC).Each owner will fund its pro-rata share of the estimated $6.2b Project capital cost, as detailed inTable 7-1.Table 7-1 Independent Funding Breakdown $USbKPMC investment catch-up $0.2KMPC 20% of capital $1.2Inmet 80% of capital less KPMC investment catch-up $4.8Total $6.2KPMC is wholly owned by LS-Nikko Copper Inc. (LS-Nikko) and Korea Resources Corporation(KORES). LS-Nikko owns and operates, among other business interests, the world’s secondlargest smelter producing over 500 kt of blister copper annually. KORES is wholly-owned andsupported by the South Korean government and focuses on securing a long-term supply of basiccommodities for the South Korean economy.Inmet is a Canadian based global mining company with three low cost operating mines ingeopolitically stable jurisdictions. It is listed on the Toronto Stock Exchange and has a marketcapitalization of about $4b. Inmet’s funding plan is outlined in Table 7-2.Table 7-2 Inmet’s Funding Plan $USbCash on hand $1.7Senior Unsecured Notes $1.0Precious metals stream $1.0Expected cash flow 2012-2015* $1.5Total $5.2*Includes fees and debt servicing costs for the senior unsecured notes Page 104May 2012
  • 105. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTInmet expects to authorize full Notice to Proceed for the Project upon receipt of proceeds fromthe senior unsecured notes (the ―Senior Unsecured Notes‖). Inmet is conducting an offering of$US1b principal amount of Senior Unsecured Notes.Inmet has also commenced a process to consider a precious metals stream transaction. We arecurrently engaged in discussions with interested parties to sell a portion of future gold and silverproduction attributable to our 80% interest in Cobre Panama. If we are successful in completingsuch precious metals stream transaction on acceptable terms, the stream transaction wouldprovide an additional approximately $US1 billion for our share of the capital cost of the project.Additional funding of $US1.0b could be raised from a number of potential sources at the Inmet orMPSA level:  Additional Senior Unsecured Notes  Bank debt such as a line of credit or revolving credit facility at the Inmet level  Equipment financing  The sale of an additional minority interest in MPSA to an off-take or strategic partnerThe total Project funding plan along with the approximate proportion of funding in place isoutlined in Table 7-3 below.Table 7-3 Total Project Funding % Financed $USb (cumulative)Capital estimate $6.2Funding sources:KPMC $1.4 23%Inmet cash on hand $1.7 50%Inmet Senior Unsecured Notes $1.0 66%Inmet precious metals stream $1.0 82%Inmet cash flow from operating mines 2012 - 2015 $1.5 106%Other $1.0 123%Total funding sources $7.6 123%As can be seen, in short duration the Project would be approximately 82% funded or 106%considering Inmet’s future operating cash flow. Through the balance of 2012, rather than rely oncash flow from its operating mines, Inmet would continue to work on creating additional financing Page 105May 2012
  • 106. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTflexibility and assess opportunities to optimize its ultimate ownership in the Project, balancingfinancing, operational and development risk with exposure to this development asset. Page 106May 2012
  • 107. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT8 RISKS AND OPPORTUNITIES8.1 Project Risk ManagementResponsible risk management is a key foundation of Inmet’s corporate strategy to growresponsibly as a base metals mining company, providing superior returns to shareholders. Toeffectively and proactively manage the potential risks inherent in the execution of the CobrePanama Project, we have developed and implemented a Project-specific risk managementapproach utilizing standardized processes, systems and tools across the entire Project. Throughregular interaction and input from the owner’s team and all major EPC/EPCM contractors, ourintegrated risk management approach ensures that risks are continuously and consistentlyidentified, assessed, treated and monitored.Risk Management Process and ToolsEffective risk management on the Cobre Panama Project is achieved through the consistentapplication of a well-defined risk management process supported by a fully integrated web-based Risk Register, which has been developed specifically for this Project using a MicrosoftDynamics database. The Risk Management process includes four stages: Page 107May 2012
  • 108. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTCobre Panama Project Risk RegisterThe Cobre Panama Risk Register integrates risk information from Inmet, MPSA and all majorEPC/EPCM contractors including:  Infrastructure EPCM Contractor: JVP  Power Plant EPC Contractor: SK  Process Plant EPC Contractor: (To Be Determined)Risk IdentificationRisk Identification is achieved using a systematic approach including a number of different toolsand techniques such as Risk Workshops and HAZPOS, to identify both technical and non-technical risks. A three-tiered approach is used during the identification process including:describing the potential risk (i.e. potential failure mode); identifying the risk’s potential initiatingevent(s); and finally, identifying the risk’s potential resulting effect(s).Risk AssessmentDuring the Risk Assessment stage, the likelihood and consequence of each identified risk isassessed using the Project’s predetermined scales, as defined by the Project’s standardizedLikelihood and Consequence Table. Consequences are assessed in terms of economic andnon-economic criteria that have been developed and approved specifically for the CobrePanama Project in the areas of: Safety and Health; Environmental; Community; Security; HumanRights; Reputation; Loss/Damage; Financial; Production/Schedule; and Business/Project Impact.Once the Likelihood and Consequence scores have been agreed upon, the risk’s ranking is thendetermined using the Project’s 5x5 Risk Ranking matrix. Page 108May 2012
  • 109. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFor each risk, threeseparate risk rankings aredetermined and tracked.The Initial Risk Rankingdefines the inherent riskthat exists prior to any risktreatment actions beingundertaken. The ActualRisk Ranking representsthe current risk level thatexists taking into accountany existing controls thathave been implemented or risk treatment actions that have been completed to-date. Finally, theResidual Risk Ranking represents the risk level that is anticipated to exist once all of the risktreatment actions defined in the Risk Treatment Plan have been completed.Risk TreatmentTo effectively minimize the Project’s risk exposure to an acceptable level, a Risk Treatment Planis developed and implemented for each risk, reflecting the control strategy requirementscorresponding to the risk’s Actual Risk Ranking. As part of the Risk Treatment Plan approvalprocess, the implementation cost of each plan is evaluated in comparison to its expected results.Each Risk Treatment Plan is made up of distinct measurable action items, each with a clearlydefined action owner, start date and finish date.Risk Monitoring and ControlOnce the Risk Treatment Plans have been developed, approved and implemented, theirprogress is then monitored and compared against documented milestones and targets. In thecase that a Risk Treatment Plan is not achieving its intended result, it is reviewed and revised toimprove its effectiveness. All Risk Treatment Plan information and progress details are recordedand tracked in the Risk Register.As the Project progresses, all risk and Risk Treatment Plan information would be regularlyreviewed and updated to reflect the inevitable changes that have occurred on a monthly basis. Page 109May 2012
  • 110. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTAs Risk Treatment Plans are implemented the Actual Risk Ranking of each risk would be closelymonitored and updated accordingly. Through this continuous review and update process, ourteam would have access to detailed real-time information on all currently known Project risks,which would be accessed through an internet based Project Controls Dashboard tool.8.1.1 Special ConsiderationsCobre Panama stakeholder risks and opportunities were identified and risk mitigants put in placeas part of Basic Engineering.Cost Escalation  Quotes to build the power plant and the process plant (together a significant component of Project capital expenditures) were and are being written on a ―Lump Sum‖ and ―Not to Exceed‖ basis in order to reduce the likelihood that these components will bring the Project over budget. These quotes will be received from audited vendors with the sophistication and balance sheet to manage costs and deliver on budget.  The advanced stage of engineering for the Project (currently 38% completed) in combination with the large portion of firm bids received to-date (58%) should further reduce the potential for unforeseen costs.  Panama’s use of the US currency is another positive characteristic of the Project that should reduce the potential for material cost escalation due to foreign exchange fluctuation.  The manner in which the ―Request for Quotation‖ process was conducted should reduce the potential for cost overruns. The Project’s EPC and EPCM contracts are designed to incent contractors to stay on budget and on schedule.  We believe the quotes obtained are materially conservative – in some cases the labour multiplier (unit of work over unit of time) used for work on the Project is as high as three times what would normally be employed and some of the quotes for individual work packages have small overlaps in scope (which could potentially reduce costs).  By the end of 2012, 50% of the Project expenditures are expected to be committed against firm quotes currently in hand.  Overall Project contingency is 9.6% (as a percentage of TIC). When owner’s costs (mine preproduction, mine equipment and owner’s project management (PM)) and contingency on owner’s costs are removed, the remaining contingency level is 11.2%. This percentage is in line with what might be expected of an AACE Class 2 engineering estimate.  The Project is actively considering early group purchase of bulk commodities (to lock in some costs of steel, diesel, cement) for construction and passing out to suppliers. Page 110May 2012
  • 111. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTLow Cost Production from a Low Grade Mine  Cobre Panama is amenable to large scale, open pit mining methods that should result in the efficient handling of ore and waste.  Mining costs should benefit from a very low strip ratio, roughly one fifth of the average (0.58 vs 2.53 – Source: Brook Hunt) for all open pit copper mines in 2011.  The Project’s proximity to the coast and the low altitude of the Project would allow the mine and the port to be located close together, thus decreasing linear maintenance and allowing for integrated management of remote facilities.  The Project would have access to low-cost, self-generated power that takes advantage of proximity to a coal source.Management Depth  Inmet has developed three mines within the tenure of the current management; the Las Cruces, Çayeli and Troilus mines.  For this Project, Inmet has recruited a strong owner’s team (detailed in Section 9) that has relevant experience in construction and operations. Further, reputable Engineering, Procurement and Construction contractors with a proven history of quality have been selected.Potential for Government/Social dissatisfaction  Approval of the ESIA is in our view indicative of governmental support for the project.  Permits post-ESIA approval are being received.  Extensive engagement and cooperation at both the government and community levels provide the best degree of control possible.  At the community level, the current level of support in the Project area indicates that community engagement efforts are working and a recent study shows overwhelming support for the Project (Section 3.3.3).  MPSA has received free prior and informed consent of the indigenous communities who will be physically and economically displaced by the Project.  MPSA has continuous engagement with the local communities and a broad range of stakeholders and is delivering employment to local residents. Page 111May 2012
  • 112. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 8-1 Key Project Risks and Treatment Plans Key Risks Risk Treatment Plan - SummaryUnplanned prolonged construction interruption due to Sufficient slack has been built into the schedule to account for severe weather. Based on detailedsevere weather resulting in project delays. constructability reviews, work methodologies have been developed to maximize work progress through periods of heavy rain.Sediment levels (TSS, TDS) down stream of project exceed Robust sediment and erosion control procedures and processes have been developed andallowable limits during construction. implemented in conjunction with industry experts, using significant field tests including settling rates, turbidity to TSS relationships, TSS runoff loading, toxicology analysis and geomorphologic studies. The effectiveness of existing procedures and processes are carefully monitored using stations set up at key locations both on and off the project footprint.Loss of biodiversity in project footprint. Flora and fauna rescue and relocation programs have been developed and implemented in conjunction with biodiversity experts, ensuring that all endangered and threatened species are conserved . Contractors flora and fauna conservation performance is carefully monitored through regular inspections during rescue activities.Inadequate health, emergency services, sanitation and Analysis of existing local infrastructure has been conducted to identify any improvements andeducation infrastructure in local communities is expansions required to support the expected increase in local population. The development ofoverwhelmed by increased local population resulting from required upgrades is being coordinated with government agencies and supported through theproject induced in migration. provision of technical assistance to authorities.Inability to hire sufficient front-line workforce from Local training program has been developed and implemented in conjunction with the EPCMimmediate local communities (i.e. 22 local communities) to contractor. Training has also been initiated with INADEH focused on construction and welding.meet project commitments. Local labour requirements and quantities have been clearly defined in subcontractor contracts.Late arrival of materials/ equipment due to late delivery by Effective expediting organizations within MPSA and EPC/EPCM contractors as well as first classvendors, transportation and logistic issues, and/or custom customs brokers, are utilized to execute the projects procurement strategy including the proactiveclearance delays. expediting and monitoring of vendors based on the criticality of material/ equipment. Dedicated EPC/EPCM procurement employees will manage custom clearance at port of Colon.Lack of safety culture and behaviour by contractors due to Comprehensive Safety Management plans and policies have been developed based on industrylack of qualified contractor supervision. best practices and implemented through extensive safety training including leadership and supervisor training. Project safety goals and targets are clearly defined and safety performance is carefully monitored across the entire project including all contractors working on site. Ratios of qualified supervisors to workers has been predetermined and mandated for all project activities. Page 112May 2012
  • 113. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT8.2 OpportunitiesExtended Mine Life and Expansion OpportunityMineral resources that have already been established on the Cobre Panama concession couldprovide significant option value to the Project once it is built and operating. Currently there are12b lb of contained copper in the measured and indicated mineral resource and some 19b lb ofcopper in the inferred mineral resource that have not been exploited in the mine plan. Althoughmineral resources do not have demonstrated economic viability, based on commonly usedmarket precedent, the value of these additional units of copper could be between $US0.03 and$US0.06/lb in the ground. This would suggest an option value of those copper units of between$US0.9b to $US1.8b.If work progresses to move these resources into mineral reserves, they could provideopportunities to:  extend mine life beyond the current 31 years; and/or  accelerate the third line, increasing production in Years 3 to 9; and/or  justify expanding the current operation beyond 240 ktpd throughput.Figure 8-1 Plan of Distribution of Resources 2012The installation and commissioning of a third line in Year 10 is part of the current Cobre Panamadesign. The current preproduction capital provides for all of the civil work necessary for this third Page 113May 2012
  • 114. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTline. The original logic for bringing on the third line in Year 10 was to coincide with the decreasein grade in the mine plan. Moving the third line forward could enhance the mill throughput byapproximately 50% in Years 3 to 9 of production and would make Cobre Panama one of the tenlargest copper mines in the world in terms of production. Disposal of tailings beyond the currentplan could potentially take advantage of what would be already exhausted pits. Furtherengineering work to detail the plan to advance the third line is in progress.There is an established mineral resource, exclusive of mineral reserves, that is largely nearsurface and proximal to the planned plant. MPSA is currently pursuing additional technicalstudies that could lead to the conversion of indicated resources at the Balboa and Brazo depositinto reserves.Table 8-2 Potential Reserves Should Indicated Resources at Balboa and Brazo be Converted to ReservesCategory Tonnes Cu Au Ag Mo Cu Au Ag Mo (x1000) (x1000) (x1000) (x1000) (x 1000) % g/t g/t % tonnes ounces ounces tonnesProven and 2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169ProbableReservesIndicated 845,000 0.36 0.10 1.2 0.002 3,041 2,586 33,261 21Resources atBalboa and BrazoTotal 3,164,000 0.39 0.08 1.3 0.006 12,299 7,753 137,289 190With a substantial and growing resource base, the operation could justify working towardsexpanding beyond the current design capacity. Much of the infrastructure such as the port,power plant, roads and camp could be leveraged by expansions so these could be veryeconomic capacity additions.Exploration Activities in the ConcessionIn late 2010, MPSA initiated its first modern, concession-wide exploration program by flying arecently developed airborne geophysical survey. This survey identified the known shallowmineralization and generated numerous additional similar targets. One of the first targets testedin early 2011 was immediately west of Colina. This drilling resulted in the discovery of the Balboadeposit. Within a year, this discovery had established an indicated resource of 602 mt at 0.36%copper and 0.10 g/t Au and additional inferred resource of 301 mt at 0.31% Cu and 0.08 g/t Au.On Balboa, two intersections drilled at the most north-westerly extent of Balboa returned some ofthe best grades over good widths. Hole 11-116 returned 0.85% Cu, 0.26 g/t Au over 241 Page 114May 2012
  • 115. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTmetres and hole 11-095 returned 0.78% Cu, 0.31 g/t Au over 237 metres. The deposit remainsopen to expansion in this direction (see Inmet press release dated March 5, 2012).Figure 8-2 Plan of Distribution of Resources 2012An extensive exploration program for 2012 is underway with some 36 holes testing additionaltargets on the concession. Page 115May 2012
  • 116. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT9 PROJECT EXECUTION9.1 Project BackgroundThe Project execution plan describes the assumptions, challenges, keys to success, andsequence of events over the Project development period from completion of the BasicEngineering report through design to shipment of the first concentrate.There would be several distinct and separate construction areas:  mine site, including the process plant site;  port site;  300 mW power plant;  TMF and associated infrastructure;  Botija pit;  230 kV overhead power line and upgrades from Llano Grande; and  Coast Road and pipelines.The methodology applied during the Project quotation phase, which included the receipt of alarge portion of firm quotes, a significant degree of completion of overall engineering and thecontractual encouragement of EPC and EPCM contractors to meet budget and schedule, hasafforded the Project a relative degree of control over schedule and scope change.9.2 Project OrganizationThe organization of the MPSA Project team is based on a matrix approach, commonly used inthe industry for development of major projects. The organization provides a single pointresponsibility through MPSA’s Project Director to the Inmet Project Sponsor. To facilitatemanagement, coordination and control, the Project is broken down into three major areas: Mine,Port and Infrastructure; Power Plant; and Process Plant.Each area is managed by a Project Manager who is accountable to the Project Director for theplanning and coordination of all work required to deliver their respective areas on schedule, onbudget and with the required level of quality, while ensuring that safety, environmental and otherorganizational objectives are met.In performing their responsibilities, the Project Managers interface across all functional Projectgroups, including health and safety, engineering, construction, procurement, environment andProject controls. These groups are led by function managers, who also report to the ProjectDirector. These function managers have the responsibility to ensure that Project standards areapplied uniformly throughout the Project, and to allocate the necessary resources to deliver thework required to meet Project objectives. The members of the Project team report to theirrespective function managers, while assuming accountabilities to the Project Managers.Inmet’s project sponsor is Fernando Martinez-Caro. Mr. Martinez-Caro brings 22 years ofexperience in the engineering and construction industry primarily working in the contractor’s side Page 116May 2012
  • 117. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTbefore joining Inmet four years ago. His experience includes large EPC projects in Canada, US,UK and Spain working with Grupo Ferrovial.MPSA has put together a world-class owner’s team that will provide leadership, oversight andintegration to the work delivered by the EPCMs. The team is comprised of 50 members andwould grow to include 107 at its peak in 2013. It is led by Cesar Inostroza (MPSA ProjectDirector), who brings to the project more than 23 years of experience in the mining, aluminumand process industries and has worked both on the contractor and owner sides for companiessuch as Rio Tinto, DuPont and SNC-Lavalin in locations around the world, including the MiddleEast, North America and Western Africa.Other key members of the MPSA team include:  Fernando Prochelle, Construction Director: Mr. Prochelle has 35 years of experience in the construction industry working for Bechtel, Transfield, Minproc, BHP and Goldcorp in Australia, Eastern Africa and South America.  Michel Germain. Project Controls Manager. Mr Germain has 35 years of experience in project management and controls with Owners and EPC contractors working for Alstom, KSH, Westinghouse and SNC-Lavalin in North America and the Middle East  David Madsen, Project Controls Manager Power Plant: Mr. Madsen has worked for 31 years in project control roles with such companies as Weyerhaeuser, Phelps Dodge, Freeport McMoRan and Kinross in South and North America.  John Cederberg, Procurement and Logistics Manager: Mr. Cederberg has 22 years of experience in field logistics and procurement working for Minproc, Drummond, Barrick, Sumitomo and Washington Group, primarily in Latin America.  Leo Flanigan, Senior Engineering Manager: Mr. Flanigan’s engineering expertise has been built over the past 31 years in positions with MIM Holdings, Minera Alumbrera, and OK Tedi Mining in Latin America, Australia and Papua New Guinea.  Peter Erceg, Engineering Manager: Mr. Erceg’s experience includes 22 years in engineering roles at Morrison Hershfield, URS and AECOM in Australia and North America.  Pierre Beland. Health and Safety Manager: Mr. Beland brings 28 years of HSE experience on large capital projects and operation management in Canada, US, Mexico and New Caledonia working for companies like Vale, Inco and Alcoa Page 117May 2012
  • 118. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT Page 118May 2012
  • 119. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTJVP, as prime EPCM in the Cobre Panama Project, has mobilized an equally qualified team of154 members that would peak at 361 in October 2013. The team is led by SNC-Lavalin’s PierreDubuc, a seasoned executive who brings 35 years of experience in delivering major mining andmetallurgy (M&M) and aluminum projects such as Goro Nickel in New Caledonia, MozalAluminum Smelter in Mozambique, and several iron ore projects for Iron Ore Company ofCanada .Other key members of the JVP EPCM team include:  John Whitaker, Construction Director: Mr. Whitaker brings to JVP 25 years of experience in lead construction roles at Ambatovy Nickel in Madagascar, Goro Nickel in New Caledonia, Mozal Aluminum in Mozambique and Tanjung Bin Power in Malaysia, to name a few.  Elie Rizk, Engineering and Controls Director: Mr. Rizk has built his experience in project management and design over 24 years in the pulp & paper and metals industries on projects such as the Qatalum Smelter in Qatar and Alcan-Kitimat and Alcan- Shawinigan smelters in Canada.9.3 Health and SafetyMPSA’s goal is Zero Harm and it aspires to ensure that every employee and contractor goeshome healthy and safe every day. To achieve a zero harm workplace, MPSA is working toestablish a culture and an environment where incident-free work is the norm. It does thisthrough implementation of occupational health and safety standards, safe work procedures, andincident reporting processes and tools.In 2011, Inmet’s operations, projects, and exploration achieved the lowest lost time injuryfrequency (LTIF) in the company’s recorded history. There was also a significant improvementin the quantity of leading indicators related to safety performance through the focus on fieldleadership activities and planning work with risk assessment methodologies.At MPSA, all work from engineering and design to on-the-ground work practices will align withthe Inmet approach. During detailed engineering and construction, each contractor will developits project-specific occupational health and safety program and management plans. These willincorporate Inmet and MPSA’s occupational health and safety standards and procedures, ESIAcommitments and ensure compliance with relevant Panamanian legislation.9.4 Environmental Management PlanWe are committed to the highest standard of environmental and social responsibility for CobrePanama. It is a complex project in a sensitive environment. Integrating our work withcommunities and the environment is an absolute necessity, and we are working with severalgroups to develop innovative ways to unite the goals of conservation and sustainabledevelopment, so that all stakeholders benefit. MPSA’s vision for Cobre Panama is to create a Page 119May 2012
  • 120. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTmodel mining project that incorporates evolving international best practices and standards forecological protection, community relations, consultation and development.The Environmental Management Plan calls for the establishment of an EnvironmentalManagement System, or EMS, that will comply with ANAM (National Environment Authority ofPanama) requirements, the International Finance Corporation Performance Standards on Socialand Environmental Sustainability (IFC PS), and Inmet’s Corporate Responsibility (CR)standards; with the design of respecting the Mesoamerican Development Corridor (MBC)objectives; and to helping Panama achieve its Millennium Development Goals through therealization of this Project.The ESIA identified project-related effects and mitigation strategies that serve as the initial basisfor social and environmental management planning. The EMS focuses on the processes andplans necessary to ensure that social, health and safety, and environmental commitments andmitigations are implemented and re-evaluated throughout the Project life. It comprises severaldetailed plans, including:  Environmental Education and Training Plan  Vegetation Disposal Plan  Waste Management Plan  Water Management Plan  Construction Environmental Mitigation and Control Procedures  Air Quality and Noise Control Plan  Port Management Plan  Environmental Monitoring Plan  Environmental Recovery and Abandonment Plan  Archaeological Resources Management Plan  Biodiversity Action Plan  Reforestation Plan  Flora and Fauna Rescue and Relocation Plan  Aquatic Life Management Plan  Offsets Management Plan  Hazardous Materials Management Plan  Spill Prevention and Control PlanKey considerations among these plans include the following:Environmental ChallengesThe Project would have a large footprint in the MBC, cleared over time, and we have madecommitments to landscape-scale conservation to enhance its biodiversity and deliver net positivebenefit. Page 120May 2012
  • 121. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTWaste and Water ManagementThe Project area has up to five metres of rainfall annually, so responsible water management iscritical to ensure that our activities do not harm the environment.Erosion and Sediment ControlThe Erosion and Sediment Control Plan will address the control and mitigation of water runoffduring the construction activities to ensure that discharge to the environment is within acceptablelimits.9.5 Labour Relations, Training and HiringLabour RelationsJVP has signed Project Labour Agreements (PLAs) with the three main Panamanianconstruction unions that will provide workers for the Project: SUNTRACS, SINTRAICO andSINTICOPP. The PLAs set an industrial relations framework across the Project and establishhomogeneous labour conditions for all contractors and subcontractors working in the CobrePanama Project.Training and HiringMPSA is committed to maximizing the economicand social benefit of Cobre Panama to the localcommunities and to Panama as a whole. Assuch, it has an obligation to prioritize the hiring ofworkers from the immediate Project area andthen prioritize workers from concentric localesaround the Project. To comply with thiscommitment, JVP has launched the Programa deDesarrollo y Capacitacion Local (PDCL).The first stage of the program would focusexclusively on locals from the 22 targetcommunities immediately adjacent to the Project,and would be introduced to contractors as ―Nuestros Vecinos Primero‖ (Our Neighbours First).PDCL would work closely with contractors to identify and train low-skilled workers.MPSA has been working with the Panamanian Ministry of Labour to open an immigration officein Penonomé dedicated exclusively to the Project for issuance of work visas. A recommendationof how to set up this Visa Coordination Centre is currently being put forward to MPSA and isunder discussion. Page 121May 2012
  • 122. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT9.6 Sequence of Construction9.6.1 EPCM Scope Under JVPEarly Works: Specific early works activities that have commenced in advance of full Notice toProceed include: • Llano Grande Road Upgrade; • Pioneer Road; • Molejon By-pass Road; and • La Pintada By-pass Road.These activities will enhance the access to the Project from the existing road network south ofthe mine site.Site Capture: Flora and fauna rescue and relocation programs to ensure species-levelconservation would precede stripping and clearing of vegetation to allow for the start ofearthworks activities.A detailed erosion, sedimentation and drainage plan would be deployed to ensure that theProject construction meets its commitment to protect water resources.At the port, site capture would start with the installation of a temporary landing system formed byjacked-up barges that will facilitate access for equipment, materials and personnel shipped tosite from the port of Colón. Once the beach head is established, portable tent camps wouldensure proper accommodation in the early days.Earthworks: Five work-fronts are planned for optimal distribution across the area:  Work-Front 1 – Port Site Mass Earthworks & Coastal Road  Work-Front 2 - Coastal Road  Work-Front 3 – Plant Site Mass Earthworks  Work-Front 4 – Tailings Management Facility  Work-Front 5 – Pre-stripping of Mine SitePort Site facilities: These include port materials handling facilities (concentrate receiving andthe coal unloading facility), the filtration plant, a storage shed, conveying systems to berth andshiploader, permanent port site facilities andmarine works (offshore).Utility Corridor: As the Coastal Road becomes available, the utility corridor would be built andwould include three pipes: concentrate, diesel and filtered water return.Transmission Line: Comprises two segments:  Llano Sanchez substation to Process Plant 230 kV switchyard and temporary power 230 kV/34 kV substation, and Page 122May 2012
  • 123. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT  Process Plant switchyard to the Punta Rincon Power Plant switchyard built parallel to the Coast Road over the forest canopy.9.6.2 EPC Scope Yet to be AwardedProcess Plant: Built under a separate EPC Contract managed by MPSA, this contractor wouldonly mobilize on site once bulk earthworks have been completed by JVP.9.6.3 EPC Scope Under SK E&CPower Plant: In July 2011, MPSA signed an Engineer Procure Construct (EPC) Agreement withSK Engineering & Construction (SK) of Korea, making SK responsible for the design of thepower plant facility, that would include 2 x 150 mW conventional subcritical pulverized coal-firedboilers, under a lump sum turnkey arrangement. SK’s scope of supply includes engineeringdesign, procurement, construction and installation of facilities, and commissioning of the units.SK performed Basic Engineering services during the period prior to full Notice to Proceed withthe construction of the mine and its power plant.The SK Project Management Team (PMT) would manage and oversee the work performed by itssubcontractors. Sargent and Lundy (S&L) have been subcontracted to provide completeengineering services for the Project.As defined in the EPC Agreement, the power plant is scheduled to be completed in 41 months(first unit) and 44 months (second unit) from a full Notice to Proceed. Joint Venture Panama(JVP) would provide rough grade platforms for the power plant facilities. The coal would beimported through the marine facilities designed by JVP for delivery to the power plant.9.7 Materials Management and LogisticsThe logistics execution strategy has been designed to support construction activities for majorwork on multiple fronts, many of which will be constructed concurrently.As EPCM contractor, the scope of JVP’s seven person Logistics and Materials Managementteam includes the procurement and management of equipment and materials required to supportconstruction at 12 project sites.A third-party logistics provider of both off-shore and on-shore services would work under thedirection of JVP to provide all professional and technical services, equipment, personnel andsupervision required to safely execute logistics operations from several worldwide origins to theProject site.9.7.1 Logistics StrategyMaterials and equipment procured off-shore is estimated at 477,000 freight tons distributed over1,500 shipments to take place over an estimated period of 54 months, starting in the Q2 2012. Itis estimated that 75% of the cargo would enter Panama via the Port of Colón, with the rest Page 123May 2012
  • 124. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTentering via the Port of Balboa (with the exception of cargoes originating in Panama). Cargowould reach the site either by truck through Coclecito, or by barge via Punta Rincón.9.8 ProcurementDuring Basic Engineering, approximately 175 packages were developed. Sixty percent of thesehave received firm proposals from subcontractors. The rest have received budget (indicative)bids or were estimated in-house.Firm contracts have been signed for the fabrication and delivery of the mills and motors(currently in production), power plant under a Lump Sum Turnkey EPC Contract, design andconstruction of the Transmission Line, site telecommunication, marine barges and temporaryand construction camps.Site capture, earthworks, logistics support has been finalized and procurement contracts for theintial phase of the Project will be placed shortly after full Notice to Proceed.9.9 SecurityThe development of security plans, procedures and the operational structure will be based onand aligned with:  Threat and Risk Assessments;  Vulnerability Security Assessments;  Security industry best practices;  Performance standards established by MPSA;  Applicable MPSA site and security plans/policies;  An integrated approach to security related aspects with all entities (Client security, contractors, etc.); and  Incorporation of the Voluntary Principles on Human Rights into security planning and training.9.10 Project Master Schedule and Key MilestonesA Project Master Schedule has been developed that takes into account the status of BasicEngineering completion and all aspects of the Project scope, including the power plantexecution. The schedule also considers the process plant that is to be delivered under an EPCcontract.The Project schedule activity work breakdown structure (WBS) is paired with the WBS set out inthe capital cost estimate as are the activity resources. The Project site weather has been takeninto consideration in preparation of the schedule based on input from earthworks contractors andtheir submitted production rates established during the pricing of the earthworks in the BasicEngineering phase. The lead times of major plant equipment have been ascertained from thenumerous quotations that were obtained during Basic Engineering. Page 124May 2012
  • 125. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTThe engineering and procurement sections of the schedule have been developed in support ofthe construction schedule. The intent, wherever possible, is to allow construction to dictate whenengineering and procurement are required.To ensure the quality and viability of the Project schedule, a number of allowances have beenmade for certain variables. For example:  The Project site weather conditions are a source of concern, with daily rain expected and an extreme rainy season in the region from October to January, resulting in poor soil conditions. To take these conditions into consideration in the schedule, one lost day per week is assumed during the construction phase.  It is assumed that the local work force will be supplemented by importation of skilled construction trades to meet the demands of the schedule.  The lead times of major plant equipment has been ascertained and built into the Project schedule.Project milestones are provided in Table 9-1 and Figure 9-1Table 9-1 Project MilestonesMilestone Date (Estimated)Notice to Proceed 2Q12Mine/Process Plant Construction Start 2Q12Port Site Construction Camp Complete 4Q12Process Plant Bulk Earthworks Complete 4Q13Coast Road Open (Plant to Port Site) 4Q13Port Dock Facility Construction Complete 2Q14230 kV Power Transmission Line Construction Complete 3Q14Tailings Starter Dam Construction Complete 3Q15Introduction of Ore to Grinding Line No. 1 4Q15Power Plant Complete – Unit No. 1 Operational 4Q15Introduction of Ore to Grinding Line No. 2 4Q15Power Plant Complete – Unit No. 2 Operational 4Q15Start of Production 4Q15Shipment of Concentrate 1Q16Commercial Production 2Q16 Page 125May 2012
  • 126. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 9-1 Project Schedule Page 126May 2012
  • 127. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT9.11 Independent Reviews9.11.1 Independent Project Schedule ReviewLegico-CHP Consultants were asked to conduct an independent review on behalf of MPSA ofthe Project master schedule. More specifically, the review targeted the following items: - methodology applied - possible duplication of quantities and manhours - basis and assumptions for schedule components - areas where schedule might not have achieved Level 3 (deliverables required to achieve the scope of work determined), and - errors and omissions and any other factors that could have affected the precision and quality of the final schedule.The report concluded that: - the logic and sequencing of activities are acceptable, - weather has been considered in the construction duration and conservative productivities seem adequate, - the 2,991 activities in the schedule are representative of a Level 3 schedule, - long duration of certain activities will require appropriate packaging, - main activities have been levelled out and S curves for earthworks and concrete seem appropriate, and - the overall completion times for power and process plant are comparable to other similar facilities that the reviewers have benchmarked.9.11.2 Independent Project Readiness AssessmentIndependent Project Analysis (IPA) conducted a study in March 2012 to evaluate teamfunctionality and the state of completeness and robustness of key project lead indicators, projectcosts and schedule outcomes. The report concluded that the overall schedules for the processand power plants are conservative, process plant capital costs are industry average, the frontend loading index is good and aligned with industry average (though lagging Best PracticalRange) and that the Project Controls strategy for execution is well developed. The reporthighlights the immediate need to focus on team alignment, integration and further developmentof owner and contractor teams, as the Project ramps up for execution phase activities.9.11.3 Independent Project Controls Health CheckKPMG LLP (KPMG) was engaged by Inmet to conduct an independent assessment of theProject governance, controls and management processes (the Healthcheck) for the Project. Theassessment analyzed select aspects of the Project strategy, organization and administration;cost and financial management; procurement management; Project controls and riskmanagement; and schedule management.During the course of the Healthcheck and the follow-up in 2012, KPMG conducted selectinterviews with current Inmet, MPSA, and JVP employees; assessed organizational roles andresponsibilities, process flow diagrams, key controls and other information provided by Cobre Page 127May 2012
  • 128. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTPanama staff; reviewed and assessed current key Project policies, procedures anddocumentation from each of Inmet, MPSA, and JVP; proposed monitoring approaches to helpInmet ensure that these Project governance and management policies, procedures and controlsystems operate as planned; assessed current fraud risk management controls; reviewedplanned compliance processes related to Law 9; and reviewed specific contracts and/or contractwork package template to identify any key risks.The conclusion of the Healthcheck was that the design of the governance and project internalcontrol framework for the Cobre Panama Project would be sufficient to support full Notice toProceed. Page 128May 2012
  • 129. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT10 OPERATIONAL READINESSOperational readiness is an important factor to ensure that the business does not incur valueleakage in the critical period of ramp-up and stabilizing the operation. This is a potential risk tothe Cobre Panama Project because large-scale mining operations are new to the country, theenvironment is environmentally and socially challenging and the Project includes a variety ofdisciplines over a significant geographic footprint.Table 10-1 Elements of and Assurance of Operational Readiness Element Plan Additonal Info Inmets safety standards, procedures, and incident reporting processes will beSafety implemented 9.3 Contractor will develop project-specific safety programs ESIA commitments and will ensure compliance with legislationPeople readiness Detailed LOM manpower model completed 9.5 Large operational and support team will be built up during construction, ready for commisioning By the time of commisioning operation people should be very familiar with system designLegislative ESIA approval completed 9.4Compliance Compliance register currently monitoring 12 EIS and various requirements of Law 9 Legal team will be comprised of existing team and permitting/land group to ensure intimate familiarity Current permitting and land group will be incorporated into the legal team.License to Operate Community relations and community development programs will continue seamlessly into 3.3 operations.System readiness ERP (SAP) system already operational with development of additonal modules on-going. 9.7 Fixed Asset Managemet, HR and Payroll systems at MPSA already using SAP. Plant Maintenance, Warehousing and reporting modules will be rolled out in preparation for the operations. Metallurgical accounting software to provide real-time tracking of metal production and variance analysisServices and Microwave link between the mine and Penonome capable of delivering up to 300 Mbps of 2.1Infrastructure bandwidth in placereadiness Connection from Penonome to corporate headquarters provided by a third-party carrier through a fibre-optic cable MPSA planning to lay fibre optic cable between Port, Mine and Penonome during the construction, this link will become the primary means of communication for the operations phase - microwave link will remain in place as a backup MPSA has already implemented live connected, on-stream water quality monitors and air monitors will be implemented as part of the project.Procurement and Warehouse designed and will start out with a years worth of supplies 10supply chain readiness Will use a SAP system to track inventories and signal low levels Critical capital spares identified and will be stored offsiteEquipment readiness Will develop a commisioning schedule for each area 10 Will test contractual requirments and PLC Interlocks Safety margins applied to esnure production targets met and verified by third party reportsExperience has shown that project teams have come to understand the capital projectassurance imperative, usually applying rigorous focus to the technical design and build aspectsof the project. A similar focus on operational readiness is often neglected from the outset, Page 129May 2012
  • 130. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTpotentially leading to challenges in achieving the anticipated return on investment. The followingsection describes the key measures MPSA has put into place to achieve operational readinessin the Cobre Panama Project.People ReadinessRecruitment and training programs for future Panamanian supervisors and operating personnelhave been active for some time, deploying best and next practice talent identification anddevelopment methods.During operations, the CEO and President of MPSA will have the following direct reports;Operations Director, CFO, External Relations, Human Resources, Environment and Security.With most of the team having already done similar work prior to joining MPSA and with theiryears of tenure with MPSA prior to start-up, the team can be considered an ―operationally ready‖cohesive unit.The three phases of the start-up are; mine, power plant and process plant. Mining operationswith owner equipment would commence fifteen months prior to the start of production with ownerpre-stripping and the creation of an ore stockpile. With the start of the mine, a large operationalteam and support would be in place to ensure that the support systems from Human Resourcesand Accounting are in place to work out the kinks prior to commercial production.Members of the operations team would have also participated in the Basic Engineering design ofthe plant, tailings dam and infrastructure and would manage the development of the mine plan.Operational personnel would participate in the Distributed Control System (DCS) programmingto ensure familiarity and compatibility with operational requirements. Furthermore, theseemployees would be Panamanian and therefore should be long-term employees. This wouldensure familiarity and understanding of the design prior to hand-over after commissioning. It isalso anticipated that a portion of the Project team and possibly EPC and EPCM contractors willcarry over to the operational team. At the hourly worker level, they will be transferred prior to thetermination of the Project.Labour ForceCobre Panama would quickly ramp up personnel as required to ensure construction is notdelayed. A large component of the construction and operational staff would be drawn fromPanama’s large and diverse workforce. As of 2011, Panama’s workforce was estimated to be1.5 million people (Source: Instituto Nacional de Estadistica y Censo Panama) and its currentpopulation is estimated to be 3.5 million as of July 2012. Roughly 64% of Panama’s populationis of working age and 62% have at least some high school education. The country’s literacy rateis 92%.It is widely accepted that there is an oversupply of unskilled labour and an undersupply of skilledlabour. The Project’s training strategy would take advantage of the young labour pool by training Page 130May 2012
  • 131. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTthem to ensure maximize the employment Panamanian labour. Specialized labour would bebrought into the country within the immigration framework.Training for operations would include but will not be limited to:  Pre-screening system to understand potential employees’ skills, attitudes and tolerance for risk before training.  Classroom, Classroom Based Training (CBT) and high fidelity Simulator training for heavy equipment operations including dozers, graders, shovels and haul trucks.  Engineering Development Program (EDP) and Graduate Development Program (GDP) students are obtaining North American engineering degrees and getting practical experience at places like Metso Process Technology, Hazen Metallurgical Research and Call & Nicholas Geotechnical before re-joining MPSA in middle management roles.  Panamanian Engineering Universities would be supplying the majority of the supervisor level of management and these staff will undergo extensive leadership training prior to start-up of the mine and concentrator.  A program completed by Chilean Centro Entrenamiento Industrial Minero (Industrial Mining Training Centre or CEIM) for teaching mining skills to people without experience will be introduced. This system was implemented in Chile as the industry does not have enough workers available to address the expansion of the industry.  Approximately 4% of the operational workforce will be in continuous training programs. This will give the mine the ability to train workers for different functions and have a ready ―spare‖ person in case of absenteeism. Page 131May 2012
  • 132. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTEquipment ReadinessThe Project would implement a commissioning schedule for the different areas, in which therewill be an electrical and mechanical completion commissioning and then a wet circuitcommissioning. Commissioning will test all performance criteria against contractualrequirements and test the DCS and Programmable Logic Controller (PLC) interlock systems.All areas would start with a maintenance management system already in place. This is to ensuresustainable operation from day one of operations.Equipment has been designed with a safety margin to meet budget production targets. This hasbeen verified by independent third party reviews.A detailed haul truck and shovel benchmarking study has been conducted and the conclusionsmade offer the lowest Net Present Cost (NPC) for the LOM equipment asset.The plant would start with a year’s supply of equipment spares and sufficient working capital ofthree months for the plant consumables.Warehouses would be designed to keep spares in good condition so there is no wastage ordamage which could affect operability when the equipment is installed. Page 132May 2012
  • 133. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT11 MARKETING AND MARINE TRANSPORT OF CONCENTRATE11.1 Scope and SummaryCobre Panama would produce a high demand clean concentrate accessible to both the Atlanticand Pacific markets from a concentrate export-friendly country. The Project is expected to comeon line in a robust copper price environment.This section provides an overview of net revenue by metal (Net Smelter Return or NSR), Inmet’sperspective on the copper market and presents the marketing plan for Cobre Panama with anemphasis on copper and the copper concentrate.Assumptions are based on updated metallurgical data; ongoing discussions and negotiations forlong-term off-take copper concentrate contracts with potential customers; reports commissionedfrom Base Metals Marketing Services Ltd and market studies from Wood Mackenzie and CRU.11.2 Composition of Revenue and Price AssumptionsThe NSR of Cobre Panama should be primarily driven by copper (87% of NSR). The gold (6%)and silver (2%) are recovered from the copper concentrate (95% of NSR). Therefore the coppermarket fundamentals and copper concentrate realization cost will be the emphasis of thissection.Figure 11-1 Cobre Panama NSR by Metal Based on Long-term Consensus Prices 6% 2% % NSR by Metal 5% Copper Molybdenum Gold Silver 87% Page 133May 2012
  • 134. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT11.3 Copper Prices and TrendsThe Project’s economic value was studied under three metal price scenarios. Further detail onthese scenarios can be found in Table 5-5 and Table 6-3 but they are, in summary:  Analyst consensus long-term prices;  Forward curves (for as long as they available and then long-term consensus); and  3-year trailing average metal price (as per SEC guidelines for regulatory filings).These scenarios were chosen because they are transparent, objective and customary.However, we believe copper prices should be more robust during the early years of CobrePanama’s operations as a result of a forecasted need for new capacity additions.A decline in production at existing mines combined with a modest demand growth of 3.4% (the60 year trend) should lead to a significant shortfall of copper supply without significant capacityaddition (Figure 11-2).Figure 11-2 Gap Between Base Case Mine Production and Demand that Needs to be Filled with Capacity AdditionsThe history of capacity additions from 2003-2010 suggests that although in 2003 forecastersbelieved 3.5 mt of capacity would come on line from new, probable mines by 2010, only 2.0 mtactually did come on line. Projects then, like today were challenged by permitting, financing andproject execution issues. The supply plug that stopped a massive deficit during that time was Page 134May 2012
  • 135. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTunexpected sources of supply such as mine re-starts, tailings processing projects and possibleprojects (Figure 11-3). Following a prolonged period of high copper prices and significantavailability of capital for copper projects, there is likely to be fewer unexpected sources of supplygoing forward than there was in 2003 which was at the end of a period of really low copperprices. There is debate amongst many forecasters about whether the copper market will be indeficit or balance between now and 2020. However, most agree that even a balanced market willbe dependent on new capacity to stay balanced. Even a balanced market dependent on newcapacity to stay balanced should have robust prices.Figure 11-3 Forecast vs Actual Sources of Supply 2003-2010In the Project’s estimated remaining 25+ years of operations prices could also be robust asgrade declines that have caused the high end (price support region) of the cost curve to inflateon a real basis relative to the average producer are expected to continue. Producing mineswould continue to deplete and so long as there is some demand growth, there could be aperiodic need to incent new capacity. Since incentive prices have seen significant escalation andnew projects are even more removed from infrastructure, this should help long-term prices.11.4 Concentrate QualityThe copper concentrates from Cobre Panama should be of good quality with no significantdeleterious constituents. The anticipated quality of the copper and molybdenum concentrates tobe produced is based on extensive metallurgical testing carried out by Lakefield Research forthe 1998 feasibility study and by G&T Metallurgical Services for this study, and is discussed inSection 2.1.3 Metallurgy of this report. Page 135May 2012
  • 136. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT11.5 Summary of Copper Concentrate and Freight Market ExpectationsSmelting Market ContextOver the 10-year period from 2002 to 2011, global mine production grew at a compound annualgrowth rate of 1.67%. Smelter capacity, on the other hand, grew on average by 2.6 % per annumbetween 2002 and 2011, with 96% of net growth occurring in China and India. The rapidindustrialization of China has played a key role in smelter capacity expanding faster than globalmine capacity. As a result of this dislocation, smelter capacity utilization dropped from 91% in2002 to 86% by 2011 – there were simply too many smelters competing for too little mineproduction. Smelter capacity is forecast to expand further between 2012 and 2025 by around3.2% per annum. Approximately 82% of this growth is again expected to be in China and India.Any significant delays in mine project realization combined with the potential excess in smeltercapacity could lead to further reductions in smelter utilization rates, or even smelter closures.Were these to occur, they would likely be in the industrialized countries, which have higher coststructures and weaker demand expectations than developing nations.Treatment and Refining Charges (TCRCs)The key determinants for future treatment and refining charges are the supply/demand balancefor copper concentrates, smelter economics, and spot market activity. In recent years the marketstructure has favoured concentrate producers. In the medium term, unless there is a significantreduction in smelter capacity, there appears to be no fundamental reason for material increasesin TCRCs or changes in TCRC market dynamics. It is our view that future mine developmentswill continue to be delayed and that rationalization in the smelting industry will take longer toachieve because of the continuous addition of capacity in China and India.The overall trend toward lower charges in real dollars is evident in Figure 11-6. Since 2000,treatment and refining charges, excluding price participation, have averaged ¢US18.1 perpayable pound of copper for a 26% grading copper concentrate, (corresponding to a treatmentcharge of $US64/t and a refining charge of ¢US6.4 per pound). In real dollar terms, the ¢US18.1becomes ¢US16.0. The 13-year average including price participation amounted to ¢US17.9 inreal terms. This includes 2006 when price participation peaked at ¢US19.3 on the back of arapid rise in copper prices. After 2006, price participation was successfully negotiated out ofcontracts. Page 136May 2012
  • 137. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTFigure 11-4 Historical Trends in Treatment and Refining Changes in Real 2011 DollarsSome forecasts for new projects now contain price participation but with caps on the order of¢US6.0/lb to avoid an extreme situation. Adjusting 2006 for a price participation cap of¢US6.0/lb changes the last 13-year average, including price participation, to ¢US16.9 for a 26%copper concentrate. Based on the historical TCRC analysis as well as our analysis of the futuresupply and demand balance, the average TCRC, to be used for copper concentrates from theCobre Panama Project should be $US70/dmt and ¢US7.0/lb of payable copper (combined¢US19.7/lb of payable copper for 26% copper concentrate) with no price participation.Copper Concentrate Freight RatesConcentrate bulk freight rates have been received for routes from Colón, Panama, to variousworldwide destinations. As with other costs in this report, these rates have been adjusted to theprices of oil and copper.Based on a forecast breakdown of shipping destinations and the $US2.75/lb copper pricescenario, we forecast average concentrate shipping rates to be $US41/t.11.6 Preliminary Copper Concentrate Sales PlanBased on discussions with potential partners and customers and with export credit agencies, aswell as an analysis of freight cost advantages, we estimate that the Cobre Panama concentrate Page 137May 2012
  • 138. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTwould be sold to smelters in Europe (35%) and Asia (65%) on substantially the terms shown inTable 11-1. The concentrate production schedule should mirror the mill plan shown in Table 2-3.Based on current market consensus long-term pricing, gold and silver prices of $US1250/oz. and$US20/oz., respectively, have been used to calculate the by-product credits.Table 11-1 Forecast Copper Concentrate Commercial TermsItem Sales termsPayable Copper 96.65 %, min deduction of 1 unit (10 kg)Treatment Charge $US70/dmtRefining Charges ¢US7/lb Copper Gold $US5/oz Silver $US0.5/ozPayable Gold 92%Payable Silver 90%, if Ag>30 gramsPayment Terms: Provisional 90% 3 days after the arrival Final 10% 5 months after DepartureOcean Freight Real $ Adjusted $US41/wmtNote: All in $US11.7 Summary of Molybdenum and Freight Market ExpectationsMolybdenum price scenariosWe have used the Long-Term analyst consensus price of $US15.00/lb for Moly in price cases 1& 2. In case 3 we used the 3 year trailing average price of $US14.68/lb. These price scenariosare transparent, objective and customary. At this time we do not offer an Inmet perspective on―Moly‖ price trends or forces at work.Molybdenum NSR / price realization assumptionsTable 11-2 outlines the assumptions we have used in calculating the ―Moly‖ Net SmelterReturns. They are based on a market study performed by a concentrate marketing consultant. Page 138May 2012
  • 139. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORTTable 11-2 Molybdenum Concentrate NSR Calculation*Item $US/dmt $US/lb MoMetal value 17,196 15.00Process Deductions:Leaching Fee for Copper (344) (0.30)Processing Fee -6.5% (1,118) (0.98)Metallurgical Loss -1% (172) (0.15)Total Process Deductions for Conversion to Oxide (1,634) (1.43)CIF Value 15,562 13.57Ocean Freight (74) (0.06)FOB Value 15,489 13.51*Assumptions: Mo Content = 52%, Cu Content = 1.8%, Mo price: $US15/lbMolybdenum Concentrate Sales PlanCobre Panama will produce a molybdenum concentrate, as opposed to any downstreamchemical products, and expects that the concentrates would be sold outright to roasters, asopposed to being toll-roasted. It is anticipated that agreements for the entire production would benegotiated with one or two roasting companies that have facilities to leach the high coppercontent in the concentrates and to recover rhenium. Any potential, Rhenium credits have not yetbeen included in our economics. Page 139May 2012
  • 140. Minera Panama, S.A. Mina de Cobre Panama Project BASIC ENGINEERING SUMMARY REPORT For questions or inquiries please contact Inmet at: Inmet Mining Corporation 330 Bay Street Suite 1000 Toronto, Ontario, Canada M5H 2S8 Telephone: (416) 361-6400 Investor Relations investor@inmetmining.com Page 140May 2012