UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014
2016

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

OR

OR
¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number 001-14370

COMPAÑÍA DE MINAS BUENAVENTURA S.A.A.
(Exact name of Registrant as specified in its charter)

BUENAVENTURA MINING COMPANY INC.
(Translation of Registrant’s name into English)

REPUBLIC OF PERU
(Jurisdiction of incorporation or organization)

LAS BEGONIAS 415 FLOOR 19,
SAN ISIDRO, LIMA 27, PERU
(Address of principal executive offices)

Carlos E. Gálvez, Vice President and Chief Financial Officer
Telephone: (511) 419-2540
Facsimile: (511) 419-2502
Address: LAS BEGONIAS 415 FLOOR 19,
SAN ISIDRO, LIMA 27, PERU

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common shares, nominal (par) value of ten Peruvian
Nuevos Soles per share (Common Shares)(“Common Shares”)		 

New York Stock Exchange Inc.*


Lima Stock Exchange

   
American Depositary Shares (ADSs)(“ADSs”) representing one Common Share each New York Stock Exchange Inc.٭

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Common Shares nominal (par) value of S/.10.00 per share274,889,924*274,889,924
  
Investment sharesShares nominal (par) value of S/.10.00 per share744,640

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yesx No¨

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes¨ Nox

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yesx No¨

*Not for trading but only in connection with the registration of ADSs pursuant to the requirements of the Securities and Exchange Commission.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes¨ No¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerx Accelerated filer¨ Non-accelerated filer¨ Emerging growth company¨

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP¨International Financial Reporting Standards as issued by   Other¨

the International Accounting Standards Boardx

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17¨ Item 18¨

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes¨ Nox

 

 

*Not for trading but only in connection with the registration of ADSs pursuant to the requirements of the Securities and Exchange Commission.

 

 

TABLE OF CONTENTS

 

  Page
   
INTRODUCTION13
  
PART I24
   
ITEM 1.Identity of Directors, Senior Management and Advisers24
   
ITEM 2.Offer Statistics and Expected Timetable24
   
ITEM 3.Key Information34
   
ITEM 4.Information on the Company1921
   
ITEM 4A.Unresolved Staff Comments6759
   
ITEM 5.Operating and Financial Review and Prospects6760
   
ITEM 6.Directors, Senior Management and Employees116111
   
ITEM 7.Major Shareholders and Related Party Transactions124117
   
ITEM 8.Financial Information125118
   
ITEM 9.The Offer and Listing128121
   
ITEM 10.Additional Information129122
   
ITEM 11.Quantitative and Qualitative Disclosures About Market Risk138132
   
ITEM 12.Description of Securities Other Than Equity Securities139133
   
PART II 140135
   
ITEM 13.Defaults, Dividend Arrearages and Delinquencies140135
   
ITEM 14.Material Modifications to the Rights of Security Holders and Use of Proceeds140135
   
ITEM 15.Controls and Procedures141135
   
ITEM 16A.Audit Committee Financial Expert142137
   
ITEM 16B.Code of Ethics142137
   
ITEM 16C.Principal Accountant Fees and Services142137
   
ITEM 16D.Exemptions from the Listing Standards for Audit Committees143138
  
ITEM 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers143138
   
ITEM 16F.Change in Registrant’s Certifying Accountant143138
   
ITEM 16G.Corporate Governance143138
   
ITEM 16H.Mine Safety Disclosure144138
   
PART III145139
   
ITEM 17.Financial Statements145139
   
ITEM 18.Financial Statements145139
   
ITEM 19.Exhibits145139

 

i
 

 

INTRODUCTION

 

Presentation of Financial Information

 

As used in this Annual Report on Form 20-F, or Annual“Annual Report,” unless the context otherwise requires, references to “we,” “us,” “our,” “Company,” “BVN” and “Buenaventura” mean Compañía de Minas Buenaventura S.A.A. and its consolidated subsidiaries. Unless otherwise specified or the context otherwise requires, references to “$,” “US$,” “Dollars” and “U.S. Dollars” are to United States Dollars and references to “S/.,” “Nuevo Sol”“Sol” or “Nuevos Soles”“Soles” are to Peruvian Nuevos Soles, the legal currency of the Republic of Peru, or Peru.“Peru.”

 

Unless otherwise specified, references to a value denominated in “t” or “tons” refers to metric tons; references to a value denominated in “DT” refer to dry metric tons; references to a value denominated “DST” refers to dry short tons; the terms “g” or “gr” refer to metric grams; the terms “oz.” or “ounces” refer to troy ounces of a fineness of 999.9 parts per 1,000, equal to 31.1035 grams.

 

Until December 31, 2010, we presented our consolidated financial statements, which we refer to as our Financial Statements, in conformity with accounting principles generally accepted in Peru, or Peruvian“Peruvian GAAP.” Effective January 1, 2011, we changed the accounting principles governing the presentation ofbegan presenting our consolidated financial statements from Peruvian GAAP toin accordance with International Financial Reporting Standards or IFRS,(“IFRS”), as issued by the International Accounting Standards Board or the IASB.(the “IASB”).

 

Pursuant to the rules of the United States Securities and Exchange Commission, or the SEC, this Annual Report includes certain separate financial statements and other financial information of Minera Yanacocha S.R.L., or Yanacocha,“Yanacocha,” and Sociedad Minera Cerro Verde S.A.A., or Cerro“Cerro Verde.” Yanacocha and Cerro Verde maintain their financial books and records in U.S. Dollars and present their financial statements in accordance with IFRS as issued by the IASB.

 

We record our investments in Yanacocha and Cerro Verde in accordance with the equity method as described in “Item 5. Operating and Financial Review and Prospects—Buenaventura—A. Operating Results—General” and Note 2.4(f) to the Financial Statements. Our partnership interest in Yanacocha was calculated at 43.65 percent43.65% for the years ended December 31, 2012, 20132014, 2015 and 2014.2016. As of December 31, 2012, 20132014, 2015 and 2014,2016, our equity interest in Cerro Verde was 19.58 percent.19.58%.

 

Forward-Looking Statements

 

Certain statements contained in thisThis Annual Report arecontains “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provided for under these sections. Our forward-looking statements are based on management’s assumptions and beliefs in light of the information currently available to it and may include, without limitation:

 

·our, Yanacocha’s and Cerro Verde’s costs and expenses;

 

·estimates of future costs applicable to sales;

 

·estimates of future exploration and production results;

 

·plans for capital expenditures;

 

·expected commencement dates of mining or metal production operations; and

 

·estimates regarding potential cost savings and operating performance.

The words “anticipate,” “may,” “can,” “plan,” “believe,” “estimate,” “expect,” “project,” “intend,” “likely,” “will,” “should,” “to be” and any similar expressions are intended to identify those assertions as forward-looking statements. In making any forward-looking statements, we believe that the expectations are based on reasonable assumptions. We caution readers that those statements are not guarantees of future performance and our actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include:

3 

 

·our, Yanacocha’s and Cerro Verde’s results of exploration;

 

·the results of our joint ventures and our share of the production of, and the income received from, such joint ventures;

 

·commodity prices;

 

·production rates;

 

·geological and metallurgical assumptions;

 

·industry risks;

 

·timing of receipt of necessary governmental permits or approvals;

 

·regulatory changes;

 

·political risks;

 

·inaccurate estimates of reserves or Mineralized Material Not in Reserve;

 

·anti-mining protests or other potential issues with local community relationships;

 

·labor relations;

 

·environmental risks; and

 

·other factors described in more detail under “Item 3. Key Information — Information—D. Risk Factors.”

 

Many of the assumptions on which our forward-looking statements are based are likely to change after our forward-looking statements are made, including, for example, commodity prices, which we cannot control, and our, Yanacocha’s and Cerro Verde’s production volumes and costs, some aspects of which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. We do not intend to update our forward-looking statements, notwithstanding any changes in our assumptions, changes in our business plans, our actual experience or other changes, and we undertake no obligation to update any forward-looking statements more frequently than required by applicable securities laws.

 

PART I

 

ITEM 1.Identity of Directors, Senior Management and Advisers

ITEM 1. Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

ITEM 2.Offer Statistics and Expected Timetable

ITEM 2. Offer Statistics and Expected Timetable

 

Not applicable.

ITEM 3. Key Information

 

2
4  

 

ITEM 3.Key Information

 

A.Selected Financial Data

 

Selected Financial Information and Operating Data

 

The followingThis selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, the Financial Statements, including the notes thereto appearing elsewhere in this Annual Report. The selected financial information as of December 31, 20132015 and 20142016 and for the years ended December 31, 2012, 20132014, 2015 and 2014,2016, is derived from the consolidated statementstatements of financial position, consolidated statements of profit or loss and statementconsolidated statements of other comprehensive income, respectively, included in the Financial Statements appearing elsewhere in this Annual Report. The selected financial information as of December 31, 2010, 20112012, 2013 and 2012,2014 and for the years ended December 31, 20102012 and 20112013 has been derived from a consolidated statement of financial position, consolidated statements of profit or loss and statementconsolidated statements of other comprehensive income, respectively, which are not included in this Annual Report. The report of Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L. (a member firm of Ernst & YoungEY Global) on our 2012, 2013Financial Statements as of December 31, 2015 and 2016 and for the years ended December 31, 2014, Financial Statements2015 and 2016 appears elsewhere in this Annual Report. Our 2012, 2013 and 2014The Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP. For periods up to and including the year ended December 31, 2010, we prepared our financial statements in accordance with Peruvian GAAP. Our consolidated financial statements for the year ended December 31, 2011 were the first that we prepared in accordance with IFRS as issued by the IASB. The operating data presented below areis derived from our records and has not been subject to audit. The financial information and operating data presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects—Buenaventura,” the Financial Statements and the related notes thereto and other financial information included in this Annual Report.

 

 As of and for the year ended December 31,  As of and for the year ended December 31, 
 

2014

  

2013

  

2012(6)

  

2011(6)

  

2010

  2016  2015  2014  

2013(6)

  

2012(6)

 
 (In thousands of US$)(1)  (US$ in thousands)(1) 
Statements of profit or loss data:                                        
Continuing operations:                                        
                    
Net sales  1,138,913   1,215,421   1,422,843   1,356,093   903,810 
                    
Operating income:                     

Net sales of goods

  1,015,670   846,269   959,286   1,015,966   1,376,179 
Net sales of services  28,782   50,839   71,159   79,585   46,664 
Royalty income  36,867   44,185   67,178   62,742   55,883   24,339   32,414   36,867   44,185   67,178 
                    
Total operating income  1,175,780   1,259,606   1,490,021   1,418,835   959,693   1,068,791   929,522   1,067,312   1,139,736   1,490,021 
                                        
Operating costs:                                        
                    
Cost of sales, excluding depreciation and amortization  (614,539)  (627,285)  (571,243)  (381,423)  (279,190)
                    
Cost of sales of goods, excluding depreciation and amortization  (497,812)  (513,490)  (498,714)  (463,631)  (540,504)
Cost of services, excluding depreciation and amortization  (10,754)  (59,612)  (77,927)  (114,120)  (30,739)
Exploration in operating units  (97,852)  (101,913)  (103,215)  (77,994)  (50,770)  (96,149)  (89,699)  (97,357)  (98,939)  (102,907)
                    
Depreciation and amortization  (208,698)  (159,140)  (111,025)  (71,392)  (56,042)  (192,647)  (232,583)  (172,999)  (133,639)  (111,025)
                    
Mining royalties  (28,440)  (30,402)  (37,496)  (58,546)  (49,988)  (27,611)  (27,188)  (27,428)  (29,434)  (37,496)
                    
Total operating costs  (949,529)  (918,740)  (822,979)  (589,355)  (435,990)  (824,973)  (922,572)  (874,425)  (839,763)  (822,671)
                    
Gross profit  226,251   340,866   667,042   829,480   523,703   243,818   6,950   192,887   299,973   667,350 
                                        
Operating income (expenses):                    
Operating expenses:                    
Administrative expenses  (81,692)  (84,372)  (93,753)  (67,990)  (94,118)
Exploration in non-operating areas  (26,589)  (30,610)  (50,007)  (32,805)  (89,920)
Selling expenses  (21,733)  (19,365)  (16,212)  (14,842)  (15,491)
Excess of workers’ profit sharing  -   -   -   (704)  (2,164)
Impairment loss of long-lived assets  -   (3,803)  -   -   - 
Other, net  18,392   (5,735)  3,169   (1,996)  19,367 
Total operating expenses  (111,622)  (143,885)  (156,803)  (118,337)  (182,326)
Operating profit (loss)  132,196   (136,935)  36,084   181,636   485,024 
                                        
Administrative expenses  (101,102)  (75,118)  (94,118)  (68,874)  (97,137)
Other income (expenses), net:                    
Share in the results of associates under equity method  (365,321)  (173,375)  (74,600)  (114,145)  478,987 
Finance costs  (31,580)  (27,572)  (11,276)  (9,734)  (8,290)
Net gain (loss) from currency exchange difference  2,638   (13,693)  (8,457)  (7,128)  1,799 
                               
Exploration in non-operating areas  (50,007)  (32,805)  (95,491)  (49,568)  (36,036)
Gain on business combination  -   -   59,852   -   - 
Finance income  6,830   11,026   8,408   6,621   9,486 
Total other income (expenses), net  (387,433)  (203,614)  (26,073)  (124,386)  482,038 
                                        
Selling expenses  (16,605)  (14,842)  (15,491)  (8,214)  (6,404)
Profit (loss) before income tax  (255,237)  (340,549)  10,011   57,250   967,006 
Current income tax  (39,444)  (14,222)  (18,815)  (56,799)  (130,507)
Deferred income tax  (14,060)  (541)  (47,006)  (29,154)  (12,451)
Profit (loss) from continuing operations  (308,741)  (355,312)  (55,810)  (28,703)  824,048 
Discontinued operations:                    
Profit (loss) from discontinued operations(7)  (19,073)  (20,233)  (5,830)  (51,033)  (63,528)
Net profit (loss)  (327,814)  (375,545)  (61,640)  (79,736)  760,520 
Attributable to equity owners of the parent  (323,492)  (317,210)  (76,065)  (107,257)  701,100 
Attributable to non-controlling interest  (4,322)  (58,335)  14,425   27,521   59,420 
Net profit (loss)  (327,814)  (375,545)  (61,640)  (79,736)  760,520 
Basic and diluted profit (loss) per share attributable to equity holders of the parent(2)(3)  (1.27)  (1.25)  (0.30)  (0.42)  2.76 
Basic and diluted profit (loss) per ADS attributable to equity holders of the parent (2)(3)  (1.27)  (1.25)  (0.30)  (0.42)  2.76 
Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations  (1.20)  (1.17)  (0.28)  (0.09)  2.98 
Dividends per share  0.03   -   0.03   0.31   0.60 
Average number of common and investment shares outstanding  254,111,250   254,186,867   254,186,867   254,186,867   254,232,571 
Statement of financial position data:                    
                                        
Excess of workers’ profit sharing  -   (704)  (2,164)  (6,221)  - 
Other, net  3,059   (2,154)  19,172   4,523   23,595 
Total assets  4,266,415   4,547,181   4,672,274   4,552,267   4,622,447 
Financial obligations  592,342   353,710   383,305   234,397   179,304 
Capital stock  750,497   750,497   750,497   750,497   750,540 
Total shareholders’ equity  3,047,213   3,389,236   3,762,125   3,824,421   4,011,879 
                    
Operating data (unaudited):                    
                    
Production(4)                    
Gold (oz.)  357,570   356,367   438,426   462,856   447,472 
Silver (oz.)  23,035,110   24,648,761   20,119,162   19,193,075   18,884,824 
Proven and probable reserves(5)                    
Gold (oz.)  1,416,000   1,185,000   1,119,000   1,036,000   1,385,000 
Silver (oz.)  160,082,090   134,391,000   139,699,000   136,464,000   154,606,000 

 

  As of and for the year ended December 31, 
  

2014

  

2013

  

2012(6)

  

2011(6)

  

2010

 
  (In thousands of US$)(1) 
Total operating expenses  (164,655)  (125,623)  (188,092)  (128,354)  (115,982)
                     
Operating profit  61,596   215,243   478,950   701,126   407,721 
                     
Other income (expenses), net:                    
                     
Share in the results of associates under equity method  (74,600)  (114,145)  478,987   496,769   428,885 
                     
Finance costs  (11,318)  (9,896)  (8,290)  (11,823)  (12,230)
                     
Net gain (loss) from currency exchange difference  (8,452)  (7,192)  1,855   (614)  (752)
                     
Gain on business combination  59,852   -   -   -   - 
                     
Finance income  8,408   6,621   9,486   11,827   8,168 
                     
Total other income (expenses), net  (26,110)  (124,612)  482,038   496,159   424,071 
                     
Profit before income tax  35,486   90,631   960,988   1,197,285   831,792 
                     
Current income tax  (19,006)  (57,328)  (130,507)  (168,191)  (88,582)
                     
Deferred income tax  (47,006)  (29,154)  (12,451)  (42,369)  (34,865)
                     
Profit (loss) from continued operations  (30,526)  4,149   818,030   986,725   708,345 
                     
Discontinued operations:                    
                     
Profit (loss) from discontinued operations(7)  (31,114)  (83,885)  (57,510)  2,159   16,544 
                     
Net profit (loss)  (61,640)  (79,736)  760,520   988,884   724,889 
                     
Attributable to equity holders of the parent  (76,065)  (107,257)  701,100   887,333   660,821 

5 

 

  As of and for the year ended December 31, 
  

2014

  

2013

  

2012(6)

  

2011(6)

  

2010

 
  (In thousands of US$)(1) 
                     
Attributable to non-controlling interest  14,425   27,521   59,420   101,551   64,068 
                     
Net profit (loss)  (61,640)  (79,736)  760,520   988,884   724,889 
                     
Basic and diluted profit (loss) per share attributable to equity holders of the parent(2)(3)  (0.30)  (0.42)  2.76   3.49   2.60 
                     
Basic and diluted profit (loss) per ADS attributable to equity holders of the parent (2)(3)  (0.30)  (0.42)  2.76   3.49   2.60 
                     
Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations  (0.18)  (0.09)  2.98   3.48   2.53 
                     
Dividends per share  0.03   0.31   0.60   0.56   0.46 
                     
Average number of shares outstanding  254,186,867   254,186,867   254,232,571   254,442,328   254,442,328 
                     
Statement of financial position data:                    
                     
                     
Total assets  4,672,274   4,552,267   4,622,447   3,969,613   3,267,004 
                     
Financial obligations  383,305   234,397   179,304   106,114   57,152 
                     
Capital stock  750,497   750,497   750,540   750,540   750,540 
                     
Shareholders’ equity  3,762,125   3,824,421   4,011,879   3,470,242   2,832,995 
                     
                     
Operating data (unaudited):                    
                     
Production(4)                    
                     
Gold (oz.)  438,426   462,856   447,472   524,101   481,768 
                     
Silver (oz.)  20,119,162   19,193,075   18,884,824   16,724,717   14,840,678 

 

  As of and for the year ended December 31, 
  

2014

  

2013

  

2012(6)

  

2011(6)

  

2010

 
  (In thousands of US$)(1) 
Proven and probable reserves(5)                    
                     
Gold (oz.)  1,119,000   1,036,000   1,385,000   1,485,000   1,772,000 
                     
Silver (oz.)  139,699,000   136,464,000   154,606,000   155,437,000   152,161,000 

_______________________________________

 

(1)

(1) Except per share, per ADS, outstanding shares and operating data.

(2)Profit (loss) per share has been calculated for each year as net profit (loss) divided by average number of shares outstanding during the year. As of December 31, 20132015 and 2014,2016, we had 274,889,924 Common Shares outstanding, including 21,174,734 treasury shares as of December 31, 20132015 and 2014.2016. As of December 31, 2012, 2013, 2014, 2015 and 2014,2016, we had 744,640 of Investment Shares outstanding, including 271,733 treasury shares as of December 31, 2012, 272,963 treasury shares as of December 31, 2013, 2014 and 2014.2015, and 472,963 treasury shares as of December 31, 2016.

(3)We have no outstanding options, warrants or convertible securities that would have a dilutive effect on earnings per share. As a result, there is no difference between basic and diluted earnings per share or ADS.

(4)The amounts in this table reflect the total production of all of our consolidated subsidiaries, including Sociedad Minera El Brocal S.A.A., or El“El Brocal,” in which we owned a 54.07%61.32% controlling equity interest as of December 31, 2016 (54.07% controlling equity interest as of December 31, 2015) and Minera La Zanja S.R.L., or La“La Zanja,” in which we owned a 53.06% controlling equity interest, in each case as of December 31, 2014.2016. The production data in this table reflect 100% of El Brocal’s and La Zanja’s production. For the years ended December 31, 20112013 to 2014,2016, El Brocal produced 2.9 million, 3.1 million, 2.0 million, 2.5 million, 3.7 million and 2.52.6 million ounces of silver, respectively, of which our equity share was 1.6 million, 1.7 million, 1.1 million, 1.4 million, 2.0 million and 1.41.5 million ounces of silver and La Zanja produced 134,190, 112,387, 137,395, 143,573, 141,071 and 143,573139,724 ounces of gold, respectively, of which our equity share was 71,201, 59,633, 72,902, 76,180, 74,852 and 76,18074,137 ounces of gold, and 363,927, 387,877, 391,832, 422,395, 331,080 and 422,395217,292 ounces of silver, respectively, of which our equity share was 193,100, 205,808, 207,906, 224,123, 175,671 and 224,123115,295 ounces of silver. Amounts for 2015 and 2016 exclude production coming from the operating mines classified as discontinued operations.

6 

(5)The amounts in this table reflect the reserves of all of our consolidated subsidiaries, including Sociedad Minera El Brocal S.A.A., or El Brocal, in which we owned a 54.07% controlling equity interest, and Minera La Zanja, S.R.L., or La Zanja, in which we owned a 53.06% controlling equity interest, in each case as of December 31, 2014.2016. The conceptual framework used to estimate proven and probable reserves for our wholly-owned mines (i) as of December 31, 2011, 2012 and 2013, werewas reviewed by an independent consultant Algon Investment S.R.L. and Geomineria SAC(ii) as of December 31, 2014.2014 and 2015 was reviewed by independent consultant Geominería S.A.C. For 2016, Geominería S.A.C. audited the process used to estimate proven and probable ore reserves for Orcopampa, Uchucchacua, Julcani and Mallay. Hatch Asociados S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for Tambomayo as of December 31, 2016. The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2011, 2012, 2013, 2014 and 2013 were2015 was reviewed by an independent consultant, which is also in the process of reviewing theconsultant. The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2014.2016 was reviewed by consultant Buenaventura Ingenieros S.A.

(6)IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” became effective January 1, 2013. Our results for the year 2012 includeincludes adjustments in connection with the application of IFRIC 20 “Stripping costCosts in the production phase”.Production Phase of a Surface Mine.”

(7)In 2014, we publicly announced our decision to selldispose of our four paralyzednon-operational mining units (Poracota, Recuperada, Antapite and Shila-Paula); as a consequence,because of this decision, they arewere presented as mining units held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”. See note 1(e)Operations.” During 2016, we decided to change the consolidated financial statements.classification of three mining units (Poracota, Recuperada and Shila-Paula) from mining units held for sale and began finalizing the mine closures. In December 2016, we sold the Antapite mining unit. In 2016, we started the final closing process of our Breapampa mining unit; as a result, the related income, costs and expenses were classified as discontinued operations for the years 2016, 2015 and 2014. On January 2017, the Breapampa mining unit was sold. For comparative purposes, we modified figures for 2010, 2011, 2012, 2013, 2014 and 20132015 to give effect to the discontinuance of the Breapampa mining unit, which were previously reported as continued operations in 2013 20-F report.our Forms 20-F. See Note 1(e) to the Financial Statements for further information.

 

Yanacocha Selected Financial Information and Operating Data

 

The following table presents selected financial information and operating data for Yanacocha at the dates and for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, Yanacocha’s audited consolidated financial statements as of December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015 and 2016, or the Yanacocha Consolidated Financial Statements. The report of Paredes, Burga & Asociados S. Civil de R.L. (a member firm of EY Global) on the Yanacocha Consolidated Financial Statements as of and for the years ended December 31, 2016 and 2015 appears elsewhere in this Annual Report. The selected financial information for Yanacocha as of December 31, 2012, 2013 and 2014, and for the years ended December 31, 2012 and 2013 has been derived from consolidated statements of financial position, consolidated statements of profit or loss and consolidated statements of other comprehensive income, respectively, which are not included in this Annual Report. Yanacocha’s audited consolidated financial statements as of December 31, 2012, 2013 and 2014 and for the years ended December 31, 2012, 2013 and 2014 or the Yanacocha Financial Statements. The report ofwere audited by Gaveglio, Aparicio y Asociados on theSociedad Civil de Responsabilidad Limitada, a member firm of PricewaterhouseCoopers Limited. The Yanacocha Financial Statements appears elsewhere in this Annual Report.. The selected financial information as of December 31, 2010 and 2011 and for the year ended December 31, 2010 has been derived from balance sheets and statements of income, respectively, which are not included in this Annual Report. The YanacochaConsolidated Financial Statements are prepared and presented in accordance with IFRS.IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP, as indicated in Note 23 and 24 to the Yanacocha Consolidated Financial Statements. The operating data presented below, which are based on 100 percent100% of Yanacocha’s production and reserves, are derived from Yanacocha’s records and have not been subject to audit. The financial information presented below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects –Yanacocha,Prospects—Yanacocha,” the Yanacocha Consolidated Financial Statements and the related notes thereto and other financial information included in this Annual Report.

 

  

As of and for the year ended December 31,

 
  

2014

  

2013

  

2012

 
  (In thousands of US$)(1) 
Profit or loss and comprehensive income statement data:            
IFRS            
Revenue from sales  1,165,299   1,406,825   2,146,641 
       Other operating income  20,705   29,181   22,861 
   1,186,004   1,436,006   2,169,502 
             
Costs applicable to sales  (910,705)  (983,238)  (832,116)
Other operating costs  (22,422)  (28,672)  (22,069)
Total operating costs  (933,127)  (1,011,910)  (854,185)
Gross profit  252,877   424,096   1,315,317 
             
Operative expenses:            
Selling expenses  (4,458)  (3,740)  (4,498)
Administrative expenses  (38,262)  (67,064)  (70,916)
Impairment loss  (541,141)  (1,038,5648)  - 
       Other operating expenses, net  (77,781)  (77,534)  (192,869)
Operative profit  (408,765)  (762,790)  1,047,034 
             
Other income (expense), net:            
Financial income (expenses), net  298   720   1,019 
Impairment loss  (23,504)  (18,745)  (13,135)
Other (expenses), net  1,142   2,065   (1,216)
   (22,064)  (15,960)  (13,332)
             
Results before income tax  (430,829)  (778,750)  1,033,702 
Income tax  30,491   203,471   (385,827)
(Loss) profit for the year  (400,338)  (575,279)  647,875 
             
Other comprehensive income (loss)  65   (226)  1,129 
Comprehensive income  (400,273)  (575,505)  649,004 
             
             
             
U.S. GAAP            
Operating income  1,210,457   1,457,646   2,201,815 
       Net income  (31,914)  140,997   626,540 

 

Statement of cash flows data:

            
IFRS            
Net cash provided from operations  415,840   362,044   858,730 
Net cash used in investment activities  (216,181)  (393,130)  (1,038,670)
Net cash used in financing activities  ―   ―   ― 

 

Statement of financial position:

            
IFRS            
Cash and cash equivalents  786,624   586,965   618,051 
Total assets  3,483,169   3,754,692   4,512,803 
Total debt  ―   ―   ― 
Total partners’ equity  2,679,777   3,080,050   3,655,555 
             
U.S. GAAP            
Total assets  4,569,497   4,511,964   4,541,535 
Total partners’ equity  3,679,612   3,711,461   3,570,690 
             
Operating data (unaudited)            
Gold produced (oz.)  969,944   1,017,259   1,345,992 
Gold proven and probable reserves (thousands of oz.)  17,436   18,345   18,500 
7 

  As of and for the year ended December 31, 
  2016  2015  2014  2013  2012 
  (US$ in thousands)(1) 
Statement of comprehensive income:                    
Operating income:                    
Revenue from sales  (2)  761,193   1,031,174   1,165,299   1,406,825   2,146,641 
Other operating income  17,713   10,625   30,300   37,207   22,861 
Total gross income  778,906   1,041,799   1,195,599   1,444,032   2,169,502 
                     
Costs applicable to sales  (776,394)  (751,736)  (920,300)  (991,264)  (832,116)
Other operating costs  (2,951)  (2,524)  (22,422)  (28,672)  (22,069)
Total operating costs  (779,345)  (754,260)  (942,722)  (1,019,936)  (854,185)
Gross profit (loss)  (439)  287,539   252,877   424,096   1,315,317 
                     
Operating expenses:                    
Operating expenses, net  (71,496)  (82,846)  (77,781)  (77,534)  (192,869)
Administrative expenses  (8,780)  (26,325)  (38,262)  (67,064)  (70,916)
Selling Expenses  (3,695)  (3,534)  (4,458)  (3,740)  (4,498)
Impairment loss  (889,499)  

―

   (541,141)  (1,038,548)   ―  
Operating profit (loss)  (973,909)  174,834   (408,765)  (762,790)  1,047,034 
                     
Other expenses, net:                    
Finance income  2,132   673   298   720   1,019 
Finance costs  (15,107)  (22,734)  (23,504)  (18,745)  (13,135)
Net gain (loss) from currency exchange difference  (13,741)  (251)  1,142   2,065   (1,216)
Total other expenses, net  (26,716)  (22,312)  (22,064)  (15,960)  (13,332)
                     
Income (loss) before income tax  (1,000,625)  152,522   (430,829)  (778,750)  1,033,702 
Income tax benefit (expense)  (43,127)  (602,717)  30,491   203,471   (385,827)
Income (loss) for the year  (1,043,752)  (450,195)  (400,338)  (575,279)  647,875 
                     
Comprehensive income (loss):                    
Income (loss) for the year  (1,043,752)  (450,195)  (400,338)  (575,279)  647,875 
Other comprehensive income (loss) to be reclassified as profit or loss in subsequent periods                    
Changes in the fair value of available-for-sale financial asset, net of tax effect  651   (757)  (65)  (226)  1,129 
                     
Statement of financial position:                    
                     
Total assets  2,045,885   2,965,430   3,483,169   3,754,692   4,512,803 
Capital stock  398,216   398,216   398,216   398,216   398,216 
Total partners’ equity  885,724   2,228,825   2,679,777   3,080,050   3,655,555 
                     
U.S. GAAP                    
                     
Net income (loss)  (1,191,319)  (252,159)  (31,914)  140,997   626,540 
Total equity  1,928,321   3,418,989   3,671,148   3,711,461   3,570,690 
                     
Operating data (unaudited)                    
Gold produced (oz.)  654,934   917,691   969,944   1,017,259   1,345,992 
Gold proven and probable reserves (thousands of oz.)  4,358   5,057   17,436   18,345   18,500 


________________________

(1)Except operating data.data
(2)Royalties netted to sales

 

Cerro Verde Selected Financial Information and Operating Data

 

The following table presents selected financial information and operating data for Cerro Verde as of the end of and for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, Cerro Verde’s audited financial statements as of December 31, 20132015 and 20142016 and for the years ended December 31, 2012, 20132014, 2015 and 2014,2016, or the Cerro Verde Financial Statements. The selected financial information as of December 31, 2010, 2011, and 20122014 and for the years ended December 31, 20102012 and 2011 has2013 have been derived from a statement ofCerro Verde’s financial position which isstatements that are not included in this Annual Report. The report of Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L. (a member firm of EY Global) on Cerro Verde’s financial statements appears elsewhere in this Annual Report. The Cerro Verde Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP, as indicated in Note 2723 and Note 24 to the Cerro Verde Financial Statements. For periods up to and including the year ended December 31, 2010, Cerro Verde prepared its financial statements in accordance with U.S.GAAP. Cerro Verde financial statements for the year ended December 31, 2011 were the first that Cerro Verde prepared in accordance with IFRS as issued by the IASB. The operating data presented below, which are based on 100 percent100% of Cerro Verde’s production and reserves, are derived from Cerro Verde’s records and have not been subject to audit. The financial information presented below should be read in conjunction with “Item 5.For periods up to and including the year ended December 31, 2010, Cerro Verde prepared its financial statements in accordance with U.S.GAAP. Cerro Verde financial statements for the year ended December 31, 2011 were the first that Cerro Verde prepared in accordance with IFRS as issued by the IASB.5. Operating and Financial Review and Prospects—Cerro Verde,” the Cerro Verde Financial Statements and the related notes thereto and other financial information included in this Annual Report.

 

  

As of and for the year ended December 31,

 
  

2014

  

2013(2)

  

2012(2)

  

2011(2)

  

2010(2)

 
  (In thousands of US$)(1)    
Statement of comprehensive income:                    
                     
Sales of goods  1,467,097   1,811,488   2,127,023   2,520,050   2,368,988 
Costs of sales of goods  (797,481)  (795,064)  (765,789)  (824,700)  (645,959)
Gross margin  669,616   1,016,424   1,361,234   1,695,350   1,723,029 
Operating expenses                    
Selling expenses  (54,210)  (68,448)  (78,674)  (83,612)  (76,638)
Excess of workers’ profit sharing  -   -   -   (21,923)  (34,427)
Expense related to water plant  -   -   (19,606)  (13,670)  (4,300)
Voluntary contribution  -   -   -   -   (41,081)
Other operating income (expenses), net  (3,629)  147   (9,898)  (16,865)  (10,749)
   (57,839)  (68,301)  (108,178)  (136,070)  (167,195)
Operating profit  611,777   948,123   1,253,056   1,559,280   1,555,834 
Other income (expenses)                    
Finance costs  (369)  (1,843)  (6,951)  (165)  (101)
Finance income  2,443   2,178   1,886   1,078   1,261 
Net gain (loss) from exchange differences  2,284   (1,858)  3,149   1,924   669 
   4,358   (1,523)  (1,916)  2,837   1,829 
                     
Profit before income tax  616,135   946,600   1,251,140   1,562,117   1,557,663 
                     
Income tax expense  (238,529)  (333,338)  (454,556)  (483,718)  (483,270)
Profit for the year  377,606   613,262   796,584   1,078,399   1,074,393 
                     
Basic and diluted earnings per share  1.078   1.752   2.276   3.081   3.069 
Dividends per share  –   –   –   –   - 
                     
Weighted average number of shares outstanding  350,056,012   350,056,012   350,056,012   350,056,012   350,056,012 
                     
Statement of financial position data:                    
                     
Total assets  5,771,984   4,828,201   4,078,553   3,196,597   2,294,078 
Total financial obligations  452,849   5,903   –   –   – 
Issued capital  990,659   990,659   990,659   990,659   990,659 
Total equity  4,465,090   4,087,484   3,474,222   2,677,638   1,599,239 
                     
Operating data (unaudited):                    
Production:                    
Copper (in thousands of recoverable pounds)  500,242   557,239   594,474   647,234   538,995 
Proven and probable reserves:                    
Copper Ore (in thousands of tons)  3,953,234   4,047,372   4,194,537   3,977,211   3,571,531 
8 

 

  As of and for the year ended December 31, 
  2016  2015  2014  

2013(2)

  

2012(2)

 
  (US$ in thousands)(1) 
Statement of comprehensive income:                    
                     
Sales of goods  2,384,154   1,115,617   1,467,097   1,811,488   2,127,023 
Costs of sales of goods  (1,553,040)  (862,004)  (797,481)  (795,064)  (765,789)
Gross profit  831,114   253,613   669,616   1,016,424   1,361,234 
Operating expenses                    
Selling expenses  (131,391)  (56,215)  (54,210)  (68,448)  (78,674)
Expense related to water plant  -   -   -   -   (19,606)
Other operating (expenses), income net  (24,107)  (26,600)  (3,629)  147   (9,898)
   (155,498)  (82,815)  (57,839)  (68,301)  (108,178)
Operating profit  675,616   170,798   611,777   948,123   1,253,056 
Other income (expenses)                    
Financial income  954   512   2,443   2,178   1,886 
Financial expenses  (80,438)  (16,010)  (369)  (1,843)  (6,951)
Exchange differences, net  7,857   (75,770)  2,284   (1,858)  3,149 
   (71,627)  (91,268)  4,358   (1,523)  (1,916)
                     
Profit before income tax  603,989   79,530   616,135   946,600   1,251,140 
                     
Income tax expense  (263,082)  (46,246)  (238,529)  (333,338)  (454,556)
Profit for the year  340,907   33,284   377,606   613,262   796,584 
                     
Basic and diluted earnings per share  0.974   0.095   1.078   1.752   2.276 
Dividends per share  –   –   –   –   – 
                     
Weighted average number of shares outstanding  350,056,012   350,056,012   350,056,012   350,056,012   350,056,012 
                     
Statement of financial position data:                    
                     
Total assets  7,635,623   7,852,692   5,771,984   4,828,201   4,078,553 
Total financial obligations  1,996,004   2,425,164   452,849   5,903   – 
Capital Stock  990,659   990,659   990,659   990,659   990,659 
Total shareholder’s equity, net  4,839,281   4,498,374   4,465,090   4,087,484   3,474,222 
                     
U.S. GAAP                    
                     
Profit for the year  345,461   4,097   341,617   599,371   1,012,070 
Total shareholder’s equity, net  4,742,139   4,396,678   4,392,581   4,050,964   3,451,593 
                     
Operating data (unaudited):                    
Production:                    
Copper (in thousands of recoverable pounds)  1,107,810   544,482   500,242   557,239   594,474 
Proven and probable reserves:                    
Copper Ore (in thousands of tons)  3,673,229   3,855,939   3,953,234   4,047,372   4,194,537 

_________________________

(1)Except per share and operating datadata.
(2)IFRIC 20 became effective January 1, 2013. Our results for the year 2012 include adjustments in connection with the application of IFRIC 20 “Stripping Cost in the Production Phase.” See Note 2.32(i) to the Cerro Verde Financial Statements.

9 

Exchange Rates

 

The following table sets forth the high and low month-end rates and the average and end-of-period offered rates for the sale of Nuevos Soles in U.S. Dollars for the periods indicated, as published by theSuperintendencia de Banca y Seguros (Superintendent of Bank and Insurance, or the SBS).indicated. The Federal Reserve Bank of New York does not report a noon buying rate for Nuevos Soles.

 

Exchange Rates
(Nuevos Soles per US$)(1)
 
Year 

High(2)

  

Low(2)

  

Average(3)

  

Period end(4)

 
2012  2.710   2.551   2.640   2.551 
2013  2.820   2.541   2.702   2.796 
2014  2.994   2.765   2.839   2.980 
Exchange Rates
(Soles per US$)(1)
Year 

High(2)

  

Low(2)

  

Average(3)

  

Period end(4)

 
2014  2.990   2.761   2.840   2.989 
2015  3.413   2.983   3.187   3.408 
2016  3.532   3.244   3.376   3.357 
                 
2016  

High(5)

   

Low(5)

   

Average(6)

   

Period end(7)

 
October  3.409   3.353   3.386   3.364 
November  3.438   3.356   3.404   3.414 
December  3.419   3.357   3.395   3.357 
                 
2017                
January  3.395   3.274   3.340   3.274 
February  3.305   3.247   3.266   3.274 
March  3.302   3.244   3.269   3.254 

2014 

High(5)

  

Low(5)

  

Average(6)

  

Period end(7)

 
October  2.922   2.893   2.908   2.922 
November  2.934   2.911   2.925   2.923 
December  2.994   2.933   2.964   2.980 
                 
2015                
January  3.059   2.975   3.006   3.059 
February  3.094   3.056   3.079   3.094 
March  3.104   3.073   3.092   3.097 

________________________

(1)Expressed in nominal (not inflation adjusted) Nuevos Soles.
(2)Highest and lowest of the twelve month-end exchange rates for each year based on the offered rate.
(3)Average of month-end exchange rates based on the offered rate.
(4)End of periodEnd-of-period exchange rates based on the offered rate.
(5)Highest and lowest of the exchange rates based on the offered rate on the last day of each month.
(6)Average of the exchange rates based on the offered rate on the last date of each day in the relevant month.
(7)The exchange rate based on the offered rate on the last day of each relevant month.

Source: SBSBloomberg

 

On April 28, 2015,27, 2017, the offered rate for Dollars as published by the SBS was S/.3.127.3.247 per US$1.00.

 

B.Capitalization and Indebtedness

 

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.Risk Factors

 

Factors Relating to the Company

 

Our financial performance is highly dependent on the performance of our partners under our mining exploration and operating agreements.

 

Our participation in joint venture mining exploration projects and mining operations with other experienced mining companies is an integral part of our business strategy. Our partners, co-venturers and other shareholders in these projects generally contribute capital to cover the expenses of the joint venture or provide critical technological, management and organizational expertise. The results of these projects can be highly dependent upon the efforts of our joint venture partners and we rely on them to fulfill their obligations under our agreements. For example, our Yanacocha joint venture with Newmont Mining Corporation, a Delaware corporation, or Newmont“Newmont Mining, is dependent upon” depends on Newmont Peru Limited, Peruvian Branch, or Newmont“Newmont Peru,” to provide management and other expertise to the Yanacocha project. If our counterparts do not carry out their obligations to us or to third parties, or any disputes arise with respect to the parties’ respective rights and obligations, the value of our investment in the applicable project could be adversely affected and we could incur significant expense in enforcing our rights or pursuing remedies. There can be no assuranceWe cannot assure you that our current or future partners will fulfill their obligations under our agreements. In addition, we may be unable to exert control over strategic decisions made in respect of such properties. For example, we currently depend on Newmont Peru to conduct operations at Yanacocha and the Conga project, and should Yanacocha be unable to continue with the current development plan at the Conga project, our mining partners in this project may reprioritize and reallocate capital to development alternatives. See “Item 4. Information on the Company – Company—Yanacocha” and “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview – Overview—Exploration.”

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Our financial performance is highly dependent on the prices of gold, silver, copper and other metals.

 

The results of our operations are significantly affected by the market price of specific metals, which are cyclical and subject to substantial price fluctuations. Our revenues are derived primarily from the sale of ore concentrates containing gold and silver; the revenues of Yanacocha, in which we have a material equity investment, are derived primarily from the sale of gold and silver;silver and the revenues of Cerro Verde, in which we have a material equity investment, are derived primarily from copper sales. The prices that we, Yanacocha and Cerro Verde obtain for gold, silver, copper and ore concentrates containing such metals, as applicable, are directly related to world market prices for such metals. Such prices have historically fluctuated widely and are affected by numerous factors beyond our control, including (i) the overall demand for and worldwide supply of gold, silver, copper and other metals,metals; (ii) levels of supply and demand for a broad range of industrial products; (iii) the availability and price of competing commodities,commodities; (iv) international economic trends,and political trends; (v) currency exchange fluctuations (specifically, the U.S. Dollar relative to other currencies); (vi) expectations with respect to the rate of inflation,inflation; (vii) interest rates; (viii) actions of commodity markets participants, consumptionparticipants; and demand patterns and(ix) global or regional political events in major producing countries. or economic crises.

We have in the past engaged in hedging activities, such as forward sales and option contracts, to minimize our exposure to fluctuations in the prices of gold, silver and other metals; however, we and our wholly-owned subsidiaries no longer hedge the price at which our gold and silver will be sold. In the case of El Brocal, we use derivative instruments to manage its exposure to changes in the base metal prices. In addition, neither Yanacocha nor Cerro Verde engages in hedging activities. As a result, the prices at which we, Yanacocha and Cerro Verde sell gold, silver, copper and ore concentrates, as applicable, are fully exposed to the effects of changes in prevailing market prices. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” and Note 3133 to the Financial Statements. For information on gold and silver prices for each of the years in the five-year period ended December 31, 2014,2016, see “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview –SalesOverview—Sales of Metal Concentrates.”

 

On December 31, 201430, 2016 and March 31, 2015,2017, the morning fixing price for gold on the London Bullion Market was US$1,199.251,159.10 per ounce and US$1,179.251,241.70 per ounce, respectively.  On December 31, 201429, 2016 and March 31, 2015,2017, the afternoon fixing spot price of silver on the London market, or London“London Spot,” was US$ 15.971,145.90 per ounce and US$16.601,244.85 per ounce, respectively.  On December 31, 201430, 2016 and March 31, 2015,2017, the London Metal Exchange Settlement pricePrice for copper was US$6,359,5,523 per metric ton and US$6,050.5,5,816, per metric ton, respectively.

 

The world market prices of gold, silver and copper have historically fluctuated widely and there is no assurance that the prices for these metals will continue to maintain their current high historical levels.widely. We cannot predict whether metal prices will rise or fall in the future. A continued decline in the market price of one or more of these metals could adversely impact our revenues, net income and cash flows and adversely affect our ability to meet our financial obligations.

In addition, sustained low If prices of gold, silver and/or copper pricesshould decline below our cash costs of production and remain at such levels for any sustained period, we could determine that it is not economically feasible to continue production at any or all of our mines. We may also curtail or suspend some or all of our exploration activities, with the result that our depleted reserves are not replaced. This could further reduce revenues further through production declines due to cessation of the mining of deposits,by reducing or portions of deposits, that have become uneconomic at the then-prevailing market price; reduce or eliminateeliminating the profit that we currently expect from reserves; halt or delay the development of new projects; reduce funds available for exploration; and reduce existing reserves by removing ores from reserves that can no longer be economically processed at prevailing prices.reserves. Such declines in price and/or reductions in operations could also cause significant volatility in our financial performance and adversely affect the trading prices of our Common Shares and ADSs.

 

Economic, mining and other regulatory policies of the Peruvian government, as well as political, regulatory and economic developments in Peru, may have an adverse impact on our, Yanacocha’s and Cerro Verde’s businesses.

 

Our, Yanacocha’s and Cerro Verde’s activities in Peru require us to obtain mining concessions or provisional permits for exploration and processing concessions for the treatment of mining ores from the Peruvian Ministry of Energy and Mines or MEM.(the “MEM”). Under Peru’s current legal and regulatory regime, these mining and processing rights are maintained by meeting a minimum annual level of production or investment and by the annual payment of a concession fee. A fine is payable for the years in which minimum production or investment requirements are not met. Although we are, and Yanacocha and Cerro Verde have informed us that they are, current in the payment of all amounts due in respect of mining and processing concessions, failure to pay such concession fees, processing fees or related fines for two consecutive years could result in the loss of one or more mining rights and processing concessions, as the case may be.

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Mining companies are also required to pay the Peruvian government mining royalties and/or mining taxes. See “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview – Overview—Regulatory Framework – Framework—Mining Royalties and Taxes.” There can be no assuranceWe cannot assure you that the Peruvian government will not impose additional mining royalties or taxes in the future or that such mining royalties or taxes will not have an adverse effect on our, Yanacocha’s or Cerro Verde’s results of operations or financial condition. Future regulatory changes, changes in the interpretation of existing regulations or stricter enforcement of such regulations, including changes to our concession agreements, may increase our compliance costs and could potentially require us to alter our operations. We cannot assure you that future regulatory changes will not adversely affect our business, financial condition or results of operations.

 

Environmental and other laws and regulations may increase our costs of doing business, restrict our operations or result in operational delays.

 

Our, Yanacocha’s and Cerro Verde’s exploration, mining and milling activities, as well our and Yanacocha’s smelting and refining activities, are subject to a number of Peruvian laws and regulations, including environmental laws and regulations.

 

Additional matters subject to regulation include, but are not limited to, concession fees, transportation, production, water use and discharges, power use and generation, use and storage of explosives, surface rights, housing and other facilities for workers, reclamation, taxation, labor standards, mine safety and occupational health.

 

We anticipate additional laws and regulations will be enacted over time with respect to environmental matters. The development of more stringent environmental protection programs in Peru could impose constraints and additional costs on our, Yanacocha’s and Cerro Verde’s operations and require us, Yanacocha and Cerro Verde to make significant capital expenditures in the future. Although we believe that we are substantially in compliance, and Yanacocha and Cerro Verde have advised us that they are substantially in compliance, with all applicable environmental regulations, there can be no assurancewe cannot assure you that future legislative or regulatory developments will not have an adverse effect on our, Yanacocha’s or Cerro Verde’s business or results of operations. See “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview – Overview—Regulatory Framework – Framework—Environmental Matters” and “—Permits” and “Item 4. Information on the Company – Yanacocha – Company—Yanacocha—B. Business Overview – Overview—Regulation, Permit and Environmental Matters.”

 

Our and Yanacocha’s ability to successfully obtain key permits and approvals to explore for, develop and successfully operate mines will likely depend on our and Yanacocha’s ability to do so in a manner that is consistent with the creation of social and economic benefits in the surrounding communities. Our and Yanacocha’s ability to obtain permits and approvals and to successfully operate in particular communities or to obtain financing may be adversely impacted by real or perceived detrimental events associated with our and Yanacocha’s activities or those of other mining companies affecting the environment, human health and safety or the surrounding communities. Delays in obtaining or failure to obtain government permits and approvals may adversely affect our and Yanacocha’s operations, including our and Yanacocha’s ability to explore or develop properties, commence production or continue operations.

 

Our metals exploration efforts are highly speculative in nature and may not be successful.

 

Precious metals exploration, particularly gold exploration, is highly speculative in nature, involves many risks and frequently is unsuccessful. There can be no assuranceWe cannot assure you that our, Yanacocha’s or Cerro Verde’s metals exploration efforts will be successful. Once mineralization is discovered, it may take a number of years from the initial phases of drilling before production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable ore reserves through drilling, to determine metallurgical processes to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. As a result of these uncertainties, no assurance can be givenwe cannot assure you that our or Yanacocha’s exploration programs will result in the expansion or replacement of current production with new proven and probable ore reserves.

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We base our estimates of proven and probable ore reserves and estimates of future cash operating costs largely on the interpretation of geologic data obtained from drill holes and other sampling techniques and feasibility studies. Advanced exploration projects have no operating history upon which to base estimates of proven and probable ore reserves and estimates of future cash operating costs. Such estimates are, to a large extent, based upon the interpretation of geologic data obtained from drill holes and other sampling techniques, and feasibility studies which derive estimates of cash operating costs based upon anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of the mineral from the ore, comparable facility and equipment operating costs, anticipated climatic conditions and other factors. As a result, it is possible that actual cash operating costs and economic returns based upon proven and probable ore reserves may differ significantly from those originally estimated. Moreover, significant decreases in actual over expected prices may mean reserves, once found, will be uneconomical to produce. It is not unusual in new mining operations to experience unexpected problems during the start-up phase. See “Item 4. Information on the Company – Buenaventura – D.Company—Yanacocha—C. Property, Plants and Equipment – Equipment—Our Properties – Properties—Reserves,” “– Yanacocha – D.“—Yanacocha—C. Property, Plants and Equipment – Equipment—Yanacocha’s Properties – Properties—Reserves” and “Item 5. Operating and Financial Review and Prospects – Prospects—Cerro Verde – Verde—A. Operating Results” for the price per ounce used by us, Yanacocha and Cerro Verde, respectively, to calculate our respective proven and probable reserves.

 

Increased operating costs could affect our profitability.

 

Costs at any particular mining location frequently are subject to variation due to a number of factors, such as changing ore grade, changing metallurgy and revisions to mine plans in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities, such as fuel and electricity, as well as by the price of labor. Commodity costs are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. Reported costs may be affected by changes in accounting standards. A material increase in costs at any significant location could have a significant effect on our profitability.

 

Our business is capital-intensive and we may not be able to finance necessary capital expenditures required to execute our business plans.

 

Precious metals exploration requires substantial capital expenditures for the exploration, extraction, production and processing stages and for machinery, equipment and experienced personnel. Our estimates of the capital required for our projects may be preliminary or based on assumptions we have made about the mineral deposits, equipment, labor, permits and other factors required to complete our projects. If any of these estimates or assumptions change, the actual timing and amount of capital required may vary significantly from our current anticipated costs. In addition, we may require additional funds in the event of unforeseen delays, cost overruns, design changes or other unanticipated expenses. We may also incur debt in future periods or reduce our holdings of cash and cash equivalents in connection with funding future acquisitions, existing operations, capital expenditures or in pursuing other business opportunities. Our ability to meet our payment obligations will depend on our future financial performance, which will be affected by financial, business, economic and other factors, many of which we are unable to control. There can be no assurance that we or Yanacocha will generate sufficient cash flow and/or that we will have access to sufficient external sources of funds in the form of outside investment or loans to continue exploration activities at the same or higher levels than in the past or that we will be able to obtain additional financing, if necessary, on a timely basis and on commercially acceptable terms.

Estimates of proven and probable reserves are subject to uncertainties and the volume and grade of ore actually recovered may vary from our estimates.

 

The proven and probable ore reserve figures presented in this Annual Report are our, Yanacocha’s and Cerro Verde’s estimates, and there can be no assurance that the estimated levels of recovery of gold, silver, copper and certain other metals will be realized. Such estimates depend on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be materially inaccurate. Actual mineralization or formations may be different from those predicted. As a result, reserve estimates may require revision based on further exploration, development activity or actual production experience, which could materially and adversely affect such estimates. No assurance can be given that our, Yanacocha’s or Cerro Verde’s mineral resources constitute or will be converted into reserves. Market price fluctuations of gold, silver and other metals, as well as increased production costs or reduced recovery rates, may render proven and probable ore reserves containing relatively lower grades of mineralization uneconomic to exploit and may ultimately result in a restatement of proven and probable ore reserves. Moreover, short-term operating factors relating to the reserves, such as the processing of different types of ore or ore grades, could adversely affect our or Yanacocha’s profitability in any particular accounting period. See “Item 4. Information on the Company – Buenaventura – D.Company—Yanacocha—C. Property, Plants and Equipment – Equipment—Our Properties—Reserves” and “Item 4. Information on the Company – D.Company—Yanacocha—C. Property, Plants and Equipment – Yanacocha – Equipment—Yanacocha’s Properties – Properties—Reserves.”

 

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We and Yanacocha may be unable to replace reserves as they become depleted by production.

 

As we and Yanacocha produce gold, silver, zinc and other metals, we and Yanacocha deplete our respective ore reserves for such metals. To maintain production levels, we and Yanacocha must replace depleted reserves by exploiting known ore bodies and locating new deposits. Exploration for gold, silver and the other metals produced is highly speculative in nature. Our and Yanacocha’s exploration projects involve significant risks and are often unsuccessful. Once a site is discovered with mineralization, we and Yanacocha may require several years between initial drilling and mineral production, and the economic feasibility of production may change during such period. Substantial expenditures are required to establish proven and probable reserves and to construct mining and processing facilities. There can be no assurance that current or future exploration projects will be successful and there is a risk that our depletion of reserves will not be offset by new discoveries. See “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview—Exploration,” “– Yanacocha – “—Yanacocha—B. Business Overview – Overview—Exploration,” “– D.“—Yanacocha—C. Property, Plants and Equipment – Reserves,Equipment—Our Properties,” “– “—Yanacocha—C. Property, Plants and Equipment—Yanacocha’s Properties, – Reserves”” “—Yanacocha—C. Property, Plants and Equipment—Reserves,” and “Item 5. Operating and Financial Review and Prospects – Prospects—Cerro Verde – Verde—A. Operating Results” for a summary of our, Yanacocha’s and Cerro Verde’s estimated proven and probable reserves as of December 31, 2014.2016.

 

Our operations are subject to risks, many of which are not insurable.

 

The business of mining, smelting and refining gold, silver, copper and other metals is generally subject to a number of risks and hazards, including industrial accidents, labor disputes, unavailability of materials and equipment, unusual or unexpected geological conditions, changes in the regulatory environment, environmental hazards and weather and other natural phenomena such as earthquakes, most of which are beyond our control. Such occurrences could result in damage to, or destruction of, mining properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. We, Yanacocha and Cerro Verde each maintain insurance against risks that are typical in the mining industry in Peru and in amounts that we, Yanacocha and Cerro Verde believe to be adequate but which may not provide adequate coverage in certain circumstances. No assurance can be given that such insurance will continue to be available at economically feasible premiums or at all. Insurance against certain risks (including certain liabilities for environmental pollution or other hazards as a result of exploration and production) is not generally available to us or to other companies within the industry.

 

Increases in equipment costs, energy costs and other production costs, disruptions in energy supply and shortages in equipment and skilled labor may adversely affect our results of operations.

 

In recent years, there has been a significant increase in mining activity worldwide in response to increased demand and significant increases in the prices of natural resources. The opening of new mines and the expansion of existing ones hashave led to increased demand for, and increased costs and shortages of, equipment, supplies and experienced personnel. These cost increases have significantly increased overall operating and capital budgets of companies like ours, and continuing shortages could affect the timing and feasibility of expansion projects.

Energy represents a significant portion of our production costs. Our principal energy sources are electricity, purchased petroleum products and natural gas and coal.gas. An inability to procure sufficient energy at reasonable prices or disruptions in energy supply could adversely affect our profits, cash flow and growth opportunities. Our production costs are also affected by the prices of commodities we consume or use in our operations, such as sulfuric acid, grinding media, steel, reagents, liners, explosives and diluents. The prices of such commodities are influenced by supply and demand trends affecting the mining industry in general and other factors outside our control and such prices are at times subject to volatile movements. Increases in the cost of these commodities or disruptions in energy supply could make our operations less profitable, even in an environment of relatively high copper, gold or silver prices. Increases in the costs of commodities that we consume or use may also significantly affect the capital costs of new projects.

 

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We may be adversely affected by labor disputes.

 

Our ability to achieve our goals and objectives is dependent, in part, on maintaining good relations with our employees. A prolonged labor disruption at any of our material properties could have a material adverse impact on our results of operations. We, Compañía Minera Coimolache S.A., or “Coimolache,” Yanacocha and Cerro Verde have all experienced strikes or other labor-related work stoppages in the past. During 2014, we experienced strikes in three of our mines. Between January and March, we had three strikes at the Uchucchacua mine, two of which were carried out demanding the reinstatement of a union representative and lasted a total of nine days, and one related to the death of an employee of one of our contractors and which lasted two days. In April and May of 2014, El Brocal experienced a four day work stoppage at the Colquijirca mine in connection with the negotiation of salary and the collective bargaining agreement. Finally, in July, 2014 we experienced a strike at the Orcopampa mine that lasted for three days and was staged by workers’ and contractors’ unions claiming unsuitable working conditions. The Peruvian Ministry of Labor declared the Uchucchacua and Orcopampa work stoppages to be illegal.

 

As of December 31, 2014,2016, unions represented approximately 46 percent35% of the employees of our mining companies3. on a consolidated basis. Although we consider our relationsrelationship with our employees to be positive, there can be no assurance that we will not experience strikes or other labor-related work stoppages that could have a material adverse effect on our operations and/or operating results in the future.

Our, Yanacocha and Cerro Verde’s operations are subject to political and social risks.

 

Our, Yanacocha and Cerro Verde´sVerde’s exploration and production activities are potentially subject to political and social risks. Over the past several years, we and Yanacocha have been the target of local political protests. In recent years, certain areas in the south and northern highlands of Peru with significant mining developments have experienced strikes and protests related to the environmental impact of mining activities. Such strikes and protests have resulted in commercial disruptions and a climate of uncertainty with respect to future mining projects. There can be no assuranceAs a result of local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian Central Government’s Environmental Impact Assessment (“EIA”) independent review were reported on April 20, 2012. The review indicated the project’s EIA met Peruvian and international standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced the decision to advance the project on a “water-first” basis on June 22, 2012. In the first half of 2014, a Conga Restart Study was completed to identify and test alternatives to advancing development of the project. Following this assessment, a new plan was developed to reduce spending to focus only on the most critical work (protecting people and assets, engaging with communities and maintaining existing project infrastructure), while maintaining optionality. Newmont Mining will not proceed with the full development of the Conga project without social acceptance, solid project economics and, potentially, another partner to help defray costs and risk. It is difficult to predict when or whether such events may occur. Under the current social and political environment, we do not anticipate being able to develop the Conga project in the foreseeable future. The continued delay and evaluation of other alternatives may result in a potential accounting impairment or further reclassification of mineralized material.

We cannot assure you that these types of incidents will not continue or that similar incidents will not occur in areas in which we and Yanacocha operate, or that the continuation or intensification of community protests will not adversely affect our or Yanacocha’s exploration and production activities or our or Yanacocha’s results of operations or financial condition.

 

In addition, during 2011, Peru enacted Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo). Implementing regulations thereunder were approved by Supreme Decree No. 001-2012-MC, which became effective on April 2, 2012. This law establishes a prior consultation procedure that the Peruvian government must undertake in concert with any local indigenous communities whose collective rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions. The implementing regulations specify the form and circumstances of the required consultation and the manner in which agreements will be formalized, and cap the consultation process at 120 calendar days. Under the law, the Peruvian governmental body responsible for issuing or approving the administrative measure or decree in question, rather than the affected local indigenous community, retains the right to approve or reject the relevant legislative or administrative matter following such consultation. However, to the extent that any future projects operated by us, Yanacocha or Cerro Verde require legislative or administrative measures that impact local indigenous communities, the required prior consultation procedure may result in delays, additional expenses or failure to obtain approval for such new project.

 

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3 Includes workers of all of our consolidated mining subsidiaries.

We could face geotechnical challenges, which could adversely impact our production and profitability.

 

No assurances can be given that unanticipated adverse geotechnical and hydrological conditions, such as landslides and pit wall failures, will not occur in the future or that such events will be detected in advance. Geotechnical instabilities can be difficult to predict and are often affected by risks and hazards outside of our control, such as severe weather and considerable rainfall, which may lead to periodic floods, mudslides, wall instability and seismic activity, which may result in slippage of material.

 

Geotechnical failures could result in limited or restricted access to mine sites, suspension of operations, government investigations, increased monitoring costs, remediation costs, loss of ore and other impacts, which could cause one or more of our projects to be less profitable than currently anticipated and could result in a material adverse effect on our results of operations and financial position.

 

We rely on contractors to conduct a significant portion of our operations and mine development projects.

 

A significant portion of our operations and mine development projects are currently conducted by contractors. As a result, our operations are subject to a number of risks, some of which are outside our control, including:

 

·failure of a contractor to perform under its agreement;

 

·interruption of operations or increased costs in the event thatif a contractor ceases its business due to insolvency or other unforeseen events;

 

·failure of a contractor to comply with applicable legal and regulatory requirements, to the extent it is responsible for such compliance; and

 

·problems of a contractor with managing its workforce, labor unrest or other employment issues.

 

In addition, we may incur liability to third parties as a result of the actions of our contractors. The occurrence of one or more of these risks could adversely affect our results of operations and financial position.

 

We are not, and do not intend to become, regulated as an investment company under the U.S. Investment Company Act of 1940, as amended (the Investment“Investment Company Act)Act”), and if we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to operate as contemplated.

 

As of December 31, 2014,2016, we owned a 43.65 percent43.65% partnership interest in Yanacocha and a 19.58 percent19.58% equity interest in Cerro Verde. These interests may constitute “investment securities” for purposes of the Investment Company Act.

 

Under the Investment Company Act, an investment company is defined in relevant part to include (i) any company that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities and (ii) any company that owns or proposes to acquire investment securities having a value exceeding 40 percent40% of such company’s total assets (exclusive of certain items) on an unconsolidated basis. Issuers that are investment companies within the meaning of the Investment Company Act, and which do not qualify for an exemption from the provisions of such act, are required to register with the SECSecurities and Exchange Commission (the “SEC”) and are subject to substantial regulations with respect to capital structure, operations, transactions with affiliates and other matters. If we were deemed to be an investment company and did not qualify for an exemption from the provisions of the Investment Company Act, we would be required to register with the SEC and would be subject to such regulations, which would be unduly burdensome and costly for us and possibly adversely impact us.

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We received an order from the SEC on April 19, 1996 declaring us to be primarily engaged in a business other than that of an investment company and, therefore, not an investment company within the meaning of the Investment Company Act. We intend to conduct our operations and maintain our investments in a manner, and will take appropriate actions as necessary, to ensure we will not be deemed to be an investment company in the future. The SEC, however, upon its motion or upon application, may find that the circumstances that gave rise to the issuance of the order no longer exist, and as a result may revoke such order. There can be no assurance that such order will not be revoked.

Our or Yanacocha’s inability to maintain positive relationships with the communities in which we operate may affect our or Yanacocha’s reputation and financial condition.

 

Our and Yanacocha’s relationships with the communities in which we operate are critical to ensuring the future success of our existing operations and the construction and development of our projects. Adverse publicity generated by non-governmental organizations or local communities related to extractive industries generally, or our or Yanacocha’s operations specifically, could have an adverse effect on our reputations or financial condition and may impact our relationships with the communities in which we operate. In addition, following the enactment of Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities in 2011, the Peruvian government must undertake a prior consultation procedure in concert with local indigenous communities whose collective rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions. Implementing regulations under Law No. 29785 were approved by Supreme Decree No. 001-2012-MC, which became effective on April 2, 2012. The implementing regulations specify the form and circumstances of the required consultation and the manner in which agreements will be formalized, and cap the consultation process at 120 calendar days. Our and Yanacocha’s national reputation for maintaining positive relationships with the communities in which we operate may affect the outcome of any such prior consultation process involving approvals that we or Yanacocha seek for new projects. While we and Yanacocha are committed to operating in a socially responsible manner, there is no guarantee that our efforts in this regard will mitigate this potential risk. We and Yanacocha have implemented extensive community relations and security and safety initiatives to anticipate and manage social issues that may arise at our operations. See “Item 4. Information on the Company – Yanacocha – Company—Yanacocha—B. Business Overview – Overview—Social Development.”

 

The Conga project is located within close proximity of existing operations at Yanacocha. Due to local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian central government-initiated Environmental Impact Study, or EIS,EIA, independent review, announced on April 20, 2012, confirmed that Yanacocha’s initial EISEIA met Peruvian and international standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced its decision to move the project forward on a “water first” basis on June 22, 2012, which consists of building the originally planned community water reservoirs prior tobefore resuming any mine development. As a result, during 2013 the project was focused on building water reservoirs, completing the remaining engineering activities, and accepting delivery of the main equipment purchases. In 2013, the Chailhuagon reservoir was completed. There were no major improvements carried out in 2014.There can be no assurance that Yanacocha will be able to continue to develop the Conga project. Should Yanacocha be unable to continue with the current development plan at the Conga project, we or our mining partners in this project may reprioritize and reallocate capital to development alternatives, which may result in a potential accounting impairment. See “Item 4. Information on the Company – Yanacocha – Company—Yanacocha—B. Business Overview – Overview—Exploration.

Deterioration in our financial position or a downgrade of our ratings by a credit rating agency could increase our borrowing costs and our business relationships could be adversely affected.

Credit rating agencies could downgrade our ratings either due to factors specific to Buenaventura, a prolonged cyclical downturn in the precious metals mining industries, macroeconomic trends (such as global or regional recessions) or trends in credit and capital markets more generally. For instance, on March 22, 2016, Moody’s downgraded our unsecured corporate rating from “Ba1” to “Ba2” due to the deterioration of the commodities markets and a downturn in the precious metals mining sector, as well as concerns about our liquidity. Currently, our unsecured rating from Fitch is “BBB-.”

 

A deterioration of our financial position or a further downgrade of any of our credit ratings for any reason could increase our borrowing costs and have an adverse effect on our business relationships with customers and suppliers. A subsequent downgrade could adversely affect our existing financings, limit access to the capital or credit markets, or otherwise adversely affect the availability of other new financing on favorable terms, if at all, result in more restrictive covenants in agreements governing the terms of any future indebtedness that we incur, increase our borrowing costs, or otherwise impair our business, financial condition and operating results.

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Factors Relating to Peru

 

Peruvian political conditions may have an adverse impact on our, Yanacocha’s and Cerro Verde’s business.

 

All of our, Yanacocha’s and Cerro Verde’s operations are conducted in Peru. Accordingly, our, Yanacocha’s and Cerro Verde’s business, financial condition or results of operations could be affected by changes in economic or other policies of the Peruvian government or other political, regulatory or economic developments in Peru.

 

During the past several decades, Peru has had a history of political instability that has included military coups and a succession of regimes with differing policies and programs. Past governments have frequently played an interventionist role in the nation’s economy and social structure. Among other things, past governments have imposed controls on prices, exchange rates and local and foreign investment as well as limitations on imports, restricted the ability of companies to dismiss employees, expropriated private sector assets (including mining companies) and prohibited the remittance of profits to foreign investors.

In the second quarter of 2011, Presidential and Congressional elections resulted in a change in government in Peru. During the third quarter of 2011, the new government enacted four new tax laws. During 2012, the new

The administration under President Ollanta Humala largely supported mining as a driver for the continued growth and future development of Peru. However, we are unablePeru held its elections for President in April 2016 in which President Ollanta Humala was ineligible to run due to constitutional term limits. With no candidate receiving a 50% majority of the vote, a run-off election was held in June 2016. Pedro Pablo Kuczynski ultimately defeated opponent Keiko Fujimori by less than half of a percentage point and was sworn in as president on July 28, 2016. We cannot predict whether the centralfuture government positions on mining concessions, land tenure, environmental regulation or taxation or assure you that future governments will continue to take similar positions in the future.maintain a generally favorable business climate and economic policies. Furthermore, the regional governor in Cajamarca, who was re-elected in October 2014, actively opposed the Conga project in 2012 and continues to reject the viability of its development. We cannot predict the future positions of either the central government or regional governments on foreign investment, mining concessions, land tenure or other regulation. Any change in government positions or laws on these issues could adversely affect the assets and operations of us, Yanacocha or the Conga project, which could have a material adverse effect on our business, results of operations and financial position. Regulatory changes may include increased labor regulations, environmental and other regulatory requirements and additional taxes and royalties, and we may experience future protests, community demands and road blockages. Additionally, any inability to continue to develop the Conga project or operate at Yanacocha could have a material adverse impact on our business, results of operations and financial position if Yanacocha is not able to replace its expected production.

 

Inflation, reduced economic growth and fluctuations in the Nuevo Sol exchange rate may adversely affect our financial condition and results of operations.

 

Over the past several decades,Prior to 1994, Peru hasperiodically experienced periods of high inflation, slow or negative economic growth and substantial currency devaluation. The inflation rate in Peru, as measured by theIndice de Precios al Consumidor, or IPC, and published byInstituto Nacional de Estadística e Informática, or INEI, has fallen from a high of 7,649.7 percent7,649.7% in 1990 to 2.943 percent3.35% in 2014. The Peruvian currency has been devalued numerous times during the last 20 years.2016. Our revenues and operating expenses are primarily denominated in U.S. Dollars. If inflation in Peru were to increase without a corresponding devaluation of the Nuevo Sol relative to the U.S. Dollar, our financial position and results of operations, and the market price of our Common Shares and ADSs, could be affected. Although the Peruvian government’s stabilization plan has significantly reduced inflation since 1999, and the Peruvian economy has experienced strong growth in recent years, there can be no assurance that inflation will not increase from its current level or that such growth will continue in the future at similar rates or at all.

 

Among the economic circumstances that could lead to a devaluation would be the decline of Peruvian foreign reserves to inadequate levels. Peru’s foreign reserves at December 31, 20142016 were US$62.3billion61.69billion as compared to US$65.7 billion61.48billion at December 31, 2013.Although2015.Although actual foreign reserves must be maintained at levels that will allow the succeeding government the ability to manage the Peruvian economy and to assure monetary stability in the near future, there can be no assurance that Peru will be able to maintain adequate foreign reserves to meet its foreign currency denominated obligations, or that Peru will not devalue its currency should its foreign reserves decline. See “Item 3. Key Information – Information—A. Selected Financial Data – Data—Exchange Rates.”

18 

 

Peru’s current account deficit is being funded partially by foreign direct investment. There can be no assurance that foreign direct investment will continue at current levels, particularly if adverse political or economic developments in Peru arise, a development that may also contribute to devaluation pressure.

 

Deterioration in economic and market conditions in Latin America, Peru and other emerging market countries could affect the prices of our Common Shares and American Depositary Receipts.

The market for securities issued by Peruvian companies is influenced by economic and market conditions in Peru and, to varying degrees, market conditions in other Latin American and emerging market countries. Within Peru, news of Ollanta Humala’s June 5, 2011 victory in the presidential election was followed by a 12 percent decline in both the Lima stock exchange (Bolsa de Valores de Lima, or BVL) and BVL’s mining sub-index the following day. The price of our American Depositary Receipts or ADRs, fell 15 percent. A number of banking analysts lowered their recommendations on Peruvian mining companies following the election as a result of concerns of higher taxes and delays in mining projects.(“ADRs”).

 

Although economic conditions are different in each country, the reaction of investors to developments in one country is likely to cause the capital markets in other countries to fluctuate. For example, political and economic events, such as the crises in Venezuela, Ecuador, Bolivia, Brazil and Argentina, have influenced investors’ perceptions of risk with regard to Peru. The negative investor reaction to developments in Latin America, particularly in our neighboring countries, may adversely affect the market for securities issued by countries in the region, cause foreign investors to decrease the flow of capital into Latin America and introduce uncertainty about plans for further integration of regional economies.

Peruvian exchange and investment control policies could affect dividends paid to holders of Common Shares and ADRs.

 

Peruvian law currently imposes no restrictions on the ability of companies operating in Peru to transfer foreign currency from Peru to other countries, to convert Peruvian currency into foreign currency or foreign currency into Peruvian currency or to remit dividends abroad, or on the ability of foreign investors to liquidate their investment and repatriate their capital. Prior toBefore 1991, Peru had restrictive exchange controls and exchange rates. During the latter part of the 1980s, exchange restrictions prevented payment of dividends to our shareholders in the United States (the “U.S.”) in U.S. Dollars. Accordingly, should such or similar controls be instituted, dividends paid to holders of Common Shares and, consequently, holders of ADRs, could be affected. There can be no assurance that the Peruvian government will continue to permit such transfers, remittances or conversion without restriction. See “Item 10. Additional Information – Information—D. Exchange Controls.”

 

U.S. securities laws do not require us to disclose as much information to investors as a U.S. issuer is required to disclose, and you may receive less information about us than you might otherwise receive from a comparable U.S. company.

 

The corporate disclosure requirements applicable to us may not be equivalent to the requirements applicable to a U.S. company and, as a result, you may receive less information about us than you might otherwise receive in connection with a comparable U.S. company. We are subject to the periodic reporting requirements of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, that apply to “foreign private issuers.” The periodic disclosure required of foreign private issuers under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers.

 

Holders of our securities may find it difficult to enforce judgments against us outside of Peru.

 

We are organized under the laws of Peru. A significant majority of our directors and officers reside outside the United StatesU.S. (principally in Peru). All or a substantial portion of our assets or the assets of such persons are located outside the United States.U.S. As a result, it may not be possible for investors to effect service of process within the United StatesU.S. upon us or upon such persons or to enforce against them in federal or state courts in the United StatesU.S. judgments predicated upon the civil liability provisions of the federal securities laws of the United States.U.S. We have been advised by our Peruvian counsel that there is uncertainty as to the enforceability, in original actions in Peruvian courts, of liabilities predicated solely under the United StatesU.S. federal securities laws and as to the enforceability in Peruvian courts of judgments of United StatesU.S. courts obtained in actions predicated upon the civil liability provisions of the United StatesU.S. federal securities laws.

 

Factors Relating to the Common Shares and ADSs

 

The concentration of our capital stock ownership with the Benavides Family will limit our stockholders’ ability to influence corporate matters.

 

19 

As of March 31, 2015,2017, the Benavides family, referring to certain members, and their spouses, of the immediate and extended family of Elsa Ganoza Benavides, spouse of the late Alberto Benavides de la Quintana, our founder and former Chairman (collectively, the “Benavides family”Family”), held 27.22 percent27.24% (including outstanding Common Shares and Investment Shares) of Buenaventura’s outstanding share capital. Because of the significant ownership interest the Benavides Family holds in Common Shares, the Benavides Family has the power to elect a significant number of the outstanding directors and has significant influence over the outcome of substantially all matters to be decided by a vote of shareholders.

 

In addition, under the terms of the Amended and Restated Deposit Agreement dated May 3, 2002, as further amended and restated as of November 12, 2003, among us, The Bank of New York Mellon (formerly The Bank of New York), as depositary, or the Depositary,“Depositary”, and the owners and beneficial owners of ADSs, or the Amended and Restated Deposit Agreement, relating to our ADSs, if holders of ADSs do not provide the Depositary with timely instructions for the voting of Common Shares represented by such ADRs, the Depositary will be deemed to be instructed to give a person designated by us, which will likely be a member of the Benavides Family, a discretionary proxy to vote such shares, unless we inform the Depositary that we do not wish such proxy to be given.

Shareholders’ rights under Peruvian law may be fewer and less well-defined than shareholders’ rights in other countries, including the United States.U.S.

 

Our shareholders have fewer and less well-defined rights under applicable Peruvian law than they might have as shareholders of a corporation incorporated in a jurisdiction of the United StatesU.S. or certain other countries. For example, Peruvian law does not provide for proceedings by which non-controlling shareholders may file class action lawsuits or shareholder derivative actions against controlling shareholders or officers and directors, and the procedural requirements to file shareholder actions in Peru differ from those of the United States.U.S. As a result, holders of our shares may face difficulty enforcing their rights.

 

A sale of a substantial number of shares by the Benavides Family could have an adverse impact on the price of our Common Shares and ADSs.

 

The sale of a substantial number of our shares by members of the Benavides Family, or a market perception of the intention of members of the Benavides Family to sell a substantial number of shares, could materially and adversely affect prevailing market prices for the Common Shares and ADSs. There is no contractual restriction on the disposition of shares of our share capital by our shareholders, including the Benavides Family. Furthermore, under theLey General de Sociedades PeruanaPeruanas, or Peruvian“Peruvian Companies Law,” any restriction on the free sale of shares in asociedad anónima abierta (open stock company) such as we are, is null and void.

 

Holders of ADSs may be unable to exercise preemptive rights and accretion rights available to the Common Shares underlying the ADSs.

 

Holders of the ADSs are, under Peruvian law, entitled to exercise preemptive rights and accretion rights on the Common Shares underlying the ADSs in the event of any future capital increase by us unless (x) the increase is approved, expressly stating that the shareholders have no preemptive rights to subscribe and pay for the Shares to be issued in such increase, by holders of Common Shares holding at least 40 percent40% of the Common Shares at a properly called meeting with a proper quorum and (y) the increase is not designed to improve directly or indirectly the shareholding of any shareholder. However, United StatesU.S. holders of ADSs may not be able to exercise through the Depositary for the ADSs the preemptive rights and accretion rights for Common Shares underlying their ADSs unless a registration statement under the Securities Act of 1933, as amended, or the Securities“Securities Act,” is effective with respect to such rights or an exemption from the registration requirement thereunder is available. Any such rights offering would have a dilutive effect upon shareholders who are unable or unwilling to exercise their rights. We intend to evaluate, at the time of any rights offering, the costs and potential liabilities associated with any registration statement as well as the associated benefits of enabling the holders of ADSs to exercise such rights and will then make a decision as to whether to file such a registration statement. Therefore, no assurance can be given that we will file any such registration statement. To the extent that holders of ADSs are unable to exercise such rights because a registration statement has not been filed and no exemption from such registration statement under the Securities Act is available, the Depositary will, to the extent practicable, sell such holders’ preemptive rights or accretion rights and distribute the net proceeds thereof, if any, to the holders of ADSs, and such holders’ equity interest in us will be diluted proportionately. The Depositary has discretion to make rights available to holders of ADSs or to dispose of such rights and to make any net proceeds available to such holders. If, by the terms of any rights offering or for any other reason, the Depositary is not able to make such rights or such net proceeds available to any holder of ADSs, the Depositary may allow the rights to lapse.

 

ITEM 4.20 Information on the Company

ITEM 4. Information on the Company

 

In this Item 4, we present information first with respect to Buenaventura, followed by information with respect to Yanacocha, in which we have a 43.65 percent43.65% partnership interest.

BUENAVENTURA

 

A.History and Development

 

Overview

 

We are Peru’s largest publicly traded precious metals company and are engaged in the exploration, mining and processing of gold, silver and, to a lesser extent, other metals in Peru. We currently operate the Orcopampa, Uchucchacua, Julcani Mallay and BreapampaMallay mines and have controlling interests in three other mining companies which operate the Colquijirca-Marcapunta, Tantahuatay and La Zanja mines. We also own an electric power transmission company, a hydroelectric plant, a processing plant and an engineering services consulting company and non-controlling interests in several other mining companies, including a significant ownership interest in Yanacocha, a Peruvian partnership that operates the largest gold mine in South America, and Cerro Verde, a Peruvian company that operates a copper mine located in the south of Peru. For the year ended December 31, 2014,2016, our consolidated net sales were US$1,139 million1,069million and our consolidated net loss was US$76.1328 million.

Discontinued operations. In 2014, the Companywe publicly announced itsour decision to sell four of itsour mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, these mining units arewere presented in the Financial Statements as mining units held for sale.  According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations,” the related assets and liabilities are presented in the consolidated statement of financial position at the lower of cost and fair value less cost to sale. The dispositionDuring 2016, we decided to change the classification of these discontinuedthree mining units is expected(Poracota, Recuperada and Shila-Paula) from mining units held for sale and begin finalizing the mine closures.  In December 2016, we sold the Antapite mining unit. In 2016, we started the final closing process of the Breapampa mining unit. As a result, income, costs and expenses related to be completed by December 31,this mining unit were classified as discontinued operations for the years 2016, 2015 through sales to third parties.and 2014. On January 2017, the Breapampa mining unit was sold. See NotesNote 1(e) and 2.4(v)Note 2.4(w) to the Financial Statements.

 

The table below summarizes the total production and our equity share of production for the Julcani, Orcopampa, Uchucchacua, Mallay, Breapampa, Colquijirca, La Zanja, Tantahuatay, Yanacocha and Cerro Verde mines as well as certain small assets for divestment, for the year ended December 31, 2014:2016:

 

  Total Production  Buenaventura’s Equity Share of Production 
UNIT Buenaventura’s
Equity
Ownership		  Silver
(oz.)		  Gold
(oz.)		  Lead
(t)		  Zinc
(t)		  Copper
(t)		  Silver
(oz.)		  Gold
(oz.)		  Lead
(t)		  Zinc
(t)		  Copper
(t)		 
Orcopampa  100%  430,494   203,226   -   -   -   430,494   203,226   -   -   - 
Uchucchacua  100%  12,055,570   -   7,605   6,349       12,055,570   -   7,605   6,349   - 
Julcani  100%  3,084,347   414   2,619   -   275   3,084,347   414   2,619   -   275 
Mallay  100%  1,216,034   -   7,513   9,893   -   1,216,034   -   7,513   9,893     
Breapampa  100%  369,032   74,807   -   -   -   369,032   74,807   -   -   - 
Small assets for divestment  100%  39,451   2,272   185   302   -   39,451   2,272   185   302   - 
Colquijirca  54.07%  2,501,839   14,134   4,263   10,162   43,282   1,352,744   7,642   2,305   5,494   23,403 
La Zanja  53.06%  422,395   143,573   -   -   -   224,123   76,180   -   -   - 
Tantahuatay  40.10%  754,357   143,643   -   -   -   302,459   57,594   -   -   - 
Yanacocha  43.65%  574,110   969,944   -   -   -   250,599   423,381   -   -   - 
Cerro Verde  19.58%  1,710,767   -   -   -   226,906   334,968   -   -   -   44,428 
Small assets for divestment  100%  39,451   2,272   185   302   -   39,451   2,272   185   302   - 
Total Production  -   23,158,396   1,552,012   22,185   26,706   270,463   19,659,822   845,515   20,227   22,038   68,106 

  Total Production  Buenaventura’s Equity Share of Production 
UNIT Buenaventura’s
 Equity
Ownership		  Silver
(oz.)		  Gold
(oz.)		  Lead
(t)		  Zinc
(t)		  Copper
(t)		  Silver
(oz.)		  Gold
(oz.)		  Lead
(t)		  Zinc
(t)		  Copper
(t)		 
Orcopampa  100%  692,318   191,102   -   -   -   692,318   191,102   -   -   - 
Uchucchacua  100%  16,212,746   -   10,724   7,227   -   16,212,746   -   10,724   7,227   - 
Julcani  100%  3,264,420   246   2,883   -   291   3,264,420   246   2,883   -   291 
Mallay  100%  1,627,246   1,784   7,383   10,463   -   1,627,246   1,784   7,383   10,463   - 
El Brocal  61.32%  2,634,739   23,511   12,860   57,385   49,170   1,536,807   13,817   7,541   33,775   28,904 
La Zanja  53.06%  217,292   139,724   -   -   -   115,295   74,137   -   -   - 
Tantahuatay  40.10%  711,337   150,816   -   -   -   285,211   60,470   -   -   - 
Yanacocha  43.65%  457,246   654,934   -   -   -   199,588   285,879   -   -   - 
Cerro Verde  19.58%  3,773,955   -   -   -   502,495   738,940   -   -   -   98,388 
Total Production  100%  29,591,299   1,162,117   33,850   75,075   551,955   24,672,571   627,434   28,531   51,465   127,584 

 

Compañía de Minas Buenaventura S.A.A., asociedad anónima abierta (open stock company) under the laws of Peru, was originally established in 1953 as asociedad anónima (stock company) under the laws of Peru, and currently operates under the laws of Peru. Our registered office is located at Las Begonias 415 – Floor 19, Lima 27, Peru, telephone no. 511-419-2500. Our website may be found at http://www.buenaventura.com. The information on our website is not a part of, and is not incorporated into, this document.

 

21 

History

 

During the first several decades of our operations, we focused on the exploration and development of silver mines in Peru, including our Julcani, Orcopampa and Uchucchacua mines. Beginning in the early 1980s, we began to explore for gold and other metals in Peru to diversify our business and reduce our dependence on silver. We expanded our mineral reserves through property acquisition and intensive exploration programs designed to increase reserves and production of gold. We also conducted exploration leading to the discovery of gold mineralization and subsequent production of gold at our Orcopampa, La Zanja, Breapampa and BreapampaTambomayo mines. In addition, we made significant equity investments in Yanacocha, which operates South America’s largestan open-pit gold mine in Peru, Cerro Verde, which operates an open-pit copper mine in Peru, and Coimolache, which owns the Tantahuatay gold mine that we operate. As a result of these initiatives, the majority of our revenues are now derived from the production of gold.

In 2014, we acquired 51% of Canteras del Hallazgo SAC, owner of the Chucapaca project, from Minera Gold Fields Peru SA. The Chucapaca Project involved a group of mining rights originally owned by Minera Gold Fields Perú S.A. (MGFPSA). In 2008, Compañía de Minas Buenaventura S.A.A. entered into a contract of Mineral lease, Option of Transfer, Option to Operate a Project and Option to Acquire a Stake, with MGFPSA regarding these mineral rights.

Pursuant to this contract, Buenaventura would be the project’s operator and would retain the option to acquire 100% of the mineral rights through a payment of US$ 2MM. Likewise, MGFPSA would also have the option to operate a Project that, during explorations conducted by Buenaventura, is identified as a project whose main mineral content is gold (a “Gold Project”), in which case a new legal entity would be created to own the mineral rights to the project. Additionally, for this new legal entity, MGFPSA is awarded the right to purchase 51% of its shares as long as it fulfills its obligation to invest in explorations a sum equivalent to three times that which Buenaventura invested during the period it was the operator.

After Buenaventura discovered the ore deposit and it was identified as a “Gold Project”, Canteras Del Hallazgo SAC (CDH) was created as owner to the project’s mineral rights; at which point MGFPSA, in charge of explorations in 2009, exercised its option to purchase 51% of CDH’s shares.

In August of 2014, Buenaventura purchased the totality of MGFPSA’s shares in CDH for a sale price of US$ 81 million and additional payments consisting of a NSR Royalty (Net Smelter Return Royalty) of 1.5% in favor of MGFPSA for mining rights constituting the Chucapaca Project. Afterwards Buenaventura merged by absorption with CDH and registered the royalties in favor of MGFPSA in the title sheet of each one of the mining rights involved.

Business Strategy

 

Our strategy is to sustain our position as Peru’s largest, publicly-traded gold and silver mining company by expanding our reserves and production. We are currently engaged in an active exploration and mine development program and participate in several mining exploration projects with Newmont Mining, Southern Copper Corporation, CorporacionCorporación Aceros Arequipa S.A. and Compañiaía de Minas Caudalosa S.A.C. In addition, we seek to increase the efficiency and capacity of our mining operations. We are aware of our social and environmental responsibilities and aim to excel in the prevention, mitigation and rehabilitation of mining-related disturbances.

 

Maintaining an Active Exploration Program

 

During 2014,2016, we spent US$50.026.6 million on “exploration in non-operating areas” and US$97.996.1 million on “exploration in units in operations”.operations.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Tambomayo, Alejandra, Marcapunta, Tambomayo, Candelaria–ChancasPisacalla and Trapiche. Our “exploration in units in operations” investments were mainly focused in the Uchucchacua, Orcopampa Uchucchacua and MallayJulcani mining units. In 2014, we financed our exploration program with internal funds.

 

In 2015,2017, we intend to invest approximately US$70100 to US$80120 million in exploration in units in operations (mainly Tambomayo, Orcopampa and Uchucchacua) and US$3520 to US$4030 million mainly in the following explorations in non-operating areas: Trapiche, San Gabriel Marcapunta, Colquemayo, Pisacalla, and Livitaca,Daniela, among others.

 

Participation in Mining Exploration Agreements

 

In addition to managing and operating precious metals mines, we participate in mining exploration agreements with mining partners to reduce risks, gain exposure to new technologies and diversify revenues to include other base metals, such as copper and zinc. See “B. Business Overview – Exploration”.Overview—Exploration.” We believe that maintaining our focus on mining operations complements our partnership strategy because the engineering and geological expertise gained from such operations enhances our ability to participate in and contribute to those projects.

Capital Expenditures

 

Our capital expenditures during the past three years have related principally to the acquisition of new mining properties, construction of new facilities and renewal of plant and equipment. Capital expenditures relating to exploration are not included in the table below and are discussed separately in “B. Business Overview – Exploration”.Overview— Exploration.” Set forth below is information concerning capital expenditures incurred by us in respect of each of our principal operating mines (not including capital expenditures for administrative purposes or other non-mining or non-energy subsidiaries) and by category of expenditure:

 

  

Year Ended December 31,

 
  

2012

  

2013

  

2014

 
  (US$ in thousands) 
Julcani  3,549   8,927   683 
Uchucchacua  18,379   16,038   12,668 
Orcopampa(a)  19,047   11,023   8,963 
Ishihuinca  139   31   - 
Colquijirca and Marcapunta(a)  86,384   216,477   105,477 
Conenhua  5,760   9,700   670 
Mallay  18,687   16,643   963 
Breapampa  37,004   16,233   2,394 
La Zanja  75,742   84,858   29,113 
Huanza  66,378   37,973   16,373 
Río Seco  62,163   32,863   10,064 
Molle Verde  1,506   24,166   15,641 
Total  394,738   474,931   203,009 
  Year Ended December 31, 
  2014  2015  2016 
  (US$ in thousands) 
Julcani  691   1,323   759 
Uchucchacua  12,668   20,245   28,899 
Orcopampa  8,963   8,198   3,451 
Colquijirca and Marcapunta  41,045   37,571   51,289 
Conenhua  670   5,003   3,779 
Mallay  963   2,259   2,729 

 

  

Year Ended December 31,

 
  

2012

  

2013

  

2014

 
  (US$ in thousands) 
Machinery and equipment  3,462   15,742   11,741 
Infrastructure  311,864   352,115   122,563 
Mining  27,849   91,407   61,062 
Milling  3,751   6,338   4,014 
Transportation  316   1,749   368 
Communications  562   704   85 
Environmental  1,496   339   1,251 
Other  45,438   6,538   1,925 
Total  394,738   474,932   203,009 
22 

  Year Ended December 31, 
  2014  2015  2016 
  (US$ in thousands) 
Breapampa  2,394   -   - 
La Zanja  29,113   27,741   14,995 
Tambomayo  55,248   77,093   230,223 
San Gabriel  21,035   22,657   23,476 
Huanza  16,373   1,156   457 
Río Seco  10,064   2,140   3,719 
Molle Verde  15,641   4,049   1,861 
Others  12,696   1,851   1,197 
Total  227,564   211,286   366,834 

  Year Ended December 31, 
  2014  2015  2016 
  (US$ in thousands) 
Fixed assets  69,318   49,398   55,423 
Work in progress  54,517   81,333   210,915 
Development costs  102,666   80,555   100,496 
Total  227,564   211,286   366,834 

 ______________

 

We mainly financed our capital expenditures in 2013 and 2014 with internally-generated funds. We partially funded the El Brocal Expansion and the construction of the Huanza hydroelectric power plant with leasing facilities of US$364.2 million (US$165.0 and US$199.2 million, respectively).facilities. See “Item 5. Operating and Financial Review and Prospects – Buenaventura – Prospects—Buenaventura—B. Liquidity and Capital Resources – Resources—Long-Term Debt”Debt.”

 

We have budgeted approximately US$280145 to US$320175 million for capital expenditures for 2015.2017. We continuously evaluate opportunities to expand our business within Peru, as well as in other countries as opportunities arise, and expect to continue to do so in the future. We may in the future decide to acquire part or all of the equity of, or undertake other transactions with, other companies involved in the same business as us or in other related businesses. However, there can be no assurance that we will decide to pursue any such new activity or transaction.

B.Business Overview

 

Production

We principallymainly produce refined gold and silver, either as concentrates or doré bars, and other metals such as lead, zinc and copper as concentrates that we distribute and sell locally and internationally. The following table sets forth the production of the Orcopampa, Uchucchacua, Julcani, Mallay, Breapampa, Recuperada, Antapite, Shila-Paula, Poracota, La Zanja and Colquijirca - MarcapuntaColquijirca-Marcapunta mines4 by type of product for the last three years, calculated in each case on the basis of 100 percent100% of the applicable mine’s production. Production from Cerro Verde, Yanacocha and Tantahuatay are not included in these production figures.

 

 

Year Ended December 31,(1)

  

Year Ended December 31,(1)(2)

 
 

2012

 

2013

 

2014

  2014  2015  2016 
Gold (oz.)  447,364   462,857   438,426   438,426   356,367   357,570 
Silver (oz.)  18,884,824   19,193,075   20,119,162   19,728,191   24,648,761   23,035,110 
Zinc (t)  55,300   46,178   26,706   26,706   68,184   75,075 
Lead (t)  31,046   29,757   22,185   22,185   37,072   33,850 
Copper (t)  24,622   27,845   43,557   43,557   32,400   49,460 

_______________________

(1)The amounts in this table reflect the total production of all of our consolidated subsidiaries, including El Brocal and La Zanja.
(2)Amounts for 2015 and 2016 exclude production from the operating mines that are classified as discontinued operations.

 

Exploration

 

We view exploration as our primary means of generating value for our shareholders maintainingand we maintain a portfolio of active exploration projects at various stages of exploration for mineral resources in Peru. During 2014,2016, we spent US$50.026.6 million inon “exploration in non-operating areas” mainly focused in the Tambomayo, Alejandra, Marcapunta, Tambomayo, Candelaria–ChancasPisacalla and Trapiche exploration projects, and US$97.996.1 million on “exploration in units in operations” mainly focused in the Orcopampa, Uchucchacua and MallayJulcani mining units. During 2015,2017, we expect to invest approximately US$70120 to US$80150 million respectively in these exploration activities.

23 

 

Our exploration department develops programs and budgets for individual projects each year and we allocate, subject to board approval, the proper amount to fund each particular exploration program. In lightBecause of the nature of mining exploration and in order to maintain flexibility to take advantage of opportunities, we allocate budgeted amounts by property or project only in the case of high probability of success. We also allocate non-budgeted amounts over the course of the year to new projects that our technical team considers highly prospective.

 

We have active joint venture exploration agreements with other mining companies, including Newmont Peru S.R.L., Southern Copper Corporation, CorporacionCorporación Aceros Arequipa S.A. and Compañiaía de Minas Caudalosa S.A.C. In this way we have access to financing for exploration of our own mining properties as well as third-party properties without the costs and risks of outright acquisition, increased exposure to new exploration technologies and expansion of knowledge and sharing of experiences of management, geologists and engineers. In these mining exploration agreements, we may be the operator, an equity participant, the manager or a combination of these and other functions.

 

4 Antapite, Poracota, Recuperada and Shila Paula are non-operating mines being held for sale.

The following table lists our principal exploration projects in non-operationalnon-operating areas, our effective participation in each project, our partners with respect to each project, the total number of hectares in each project, observed mineralization of each project and the exploration expenditures for each project during 20132015 and 2014.2016.

 

Exploration
Projects(1)(2)

 

Buenaventura’s
Effective
Participation

  

Principal
Partners

 

Property
Hectares

  

Observed
Mineralization

 

Total Exploration
Expenditures During
2013

  

Total Exploration
Expenditures During
2014

 

at March 31, 2015

 

Total
(Buenaventura
and Partners)

  

Buenaventura

  

Total
(Buenaventura
and Partners)

  

Buenaventura

 
            (US$ in millions)     (US$ in millions)    
Buenaventura’s Projects:
                            
Alejandra – La Zanja  53.06% Newmont  2,500  Gold and silver  1.24   0.66   16.00   8.47 
                             
Tambomayo  100.00% None  2,907  Gold, silver, lead and zinc  0.08   0.08   11.51   11.51 
                             
Surichata  100.00% None  400  Silver  1.66   1.66   0.17   0.17 
                             
Colquemayo  100.00% None  6,300  Copper and Zinc  0.62   0.62   0.60   0.60 
                             
Trapiche  100.00% None  30,591  Copper and Molybdenum  2.59   2.59   1.14   1.14 
                             
Pisacalla  100.00% None  11,331  Gold  0.00   0.00   0.51   0.51 
                             
Livitaca  100.00% None  9,095  Gold and Cooper  0.00   0.00   0.64   0.64 
                             
                             
Palla Palla  100.00% None  6,894  Gold and Silver  0.00   0.00   0.42   0.42 
                             
San Gabriel (Chucapaca)  100.00% None  35,000  Gold, Silver and Copper  0.00   0.00   0.00   0.00 
                             
San Gregorio  54.07% Brocal minority shareholders  1,264  Zinc  0.98   0.53   0.00   0.00 

Exploration
Projects(1)(2)

 Buenaventura’s
Effective
Participation		  Principal
Partners		Property
Hectares		  Observed
Mineralization		 Total Exploration
Expenditures During		 
at March 31, 2017 2015  2016 
           (US$ in millions) 
Tambomayo  100%   37,502  Gold, Silver, Lead and Zinc  11.19   7.52 
San Gabriel  100%   56,900  Gold, Silver and Copper  1.33   7.40 
Palla Palla  100%   8,216  Gold and Silver  0.42   0.85 
Daniela  100%   20,600  Copper and Gold  -   0.51 
Ccelloccasa  100%   9,826  Gold and Silver  0.19   0.24 
Trapiche  100%   36,798  Copper and Molybdenum  0.64   0.62 
San Gregorio  61.32%   4,382  Zinc  0.03   0.03 
Brownfield exploration             2.24   4.62 
Other minor projects             16.04   4.80 
Total exploration in non-operating areas             30.61   26.59 

________________

(1)In addition to these projects, we continue to conduct exploration at all of our operating mines and our subsidiaries.
(2)Only includes explorations conducted by Buenaventura.

 

The following table lists the mines in which we directed our principal explorations efforts, mineralization of each mine and the exploration expenditures for 20132015 and 2014.2016.

 

Operating
Units		 Observed
Mineralization		 Total Exploration
Expenditures During
2015		  Total Exploration
Expenditures During
2016		 
    Total  Buenaventura  Total  Buenaventura 
    (US$ in millions)  (US$ in millions) 
Buenaventura’s Units:                  
Orcopampa Silver and Gold  41.71   41.71   31.41   31.41 
Uchucchacua Silver, Lead and Zinc  27.78   27.78   45.11   45.11 
Julcani Silver  12.70   12.70   11.07   11.07 
Mallay Zinc, Lead and Silver  7.54   7.54   7.96   7.96 
Breapampa Gold  1.82   1.82   -   - 
La Zanja Gold  0.04   0.04   0.60   0.60 
Marcapunta Copper and Gold  0.00   0.00   -   - 

Operating
Units		 Observed
Mineralization		 Total Exploration
Expenditures During
2013		  Total Exploration
Expenditures During
2014		 
    Total  Buenaventura  Total  Buenaventura 
    (US$in millions)     (US$in millions)    
Buenaventura’s Units:                  
                   
Uchucchacua Silver, lead and zinc  25.31   25.31   26.63   26.63 
           ��       
Mallay Zinc, lead and silver  9.34   9.34   7.81   7.81 
                   
Recuperada Zinc, lead and silver  6.59   6.59   1.91   1.91 
                   
Orcopampa Silver and Gold  53.50   53.50   51.82   51.82 
                   
Marcapunta Copper & Gold  1.70   0.92   4.2   2.27 
24 

The following is a brief summary of current exploration activities conducted by Buenaventura directly and through joint exploration agreements, which we believe represent the best prospects for discovering new reserves. There can be no assurance, however, that any of our current exploration projects will result in viable mineral production or that any of the mineralization identified to date will ultimately result in an increase in our ore reserves. Set forth below is a map of our principal exploration projects in Peru as of December 31, 2014.2016.

 

 

 

25 

Exploration Projects in Non-Operating Areas

The Alejandra- La Zanja. During 2014, we invested US$16.0 million in creating underground access from the San Pedro Sur open pit via a ramp. This ramp has helped develop the oxide mineralization of the Alejandra project in two levels, 3,400mosl and 3,450mosl and the infrastructure needed to develop the sulfides below the 3,400 level. This infrastructure will also be used for underground exploration and for diamond drilling. As of December 31, 2014, we had an estimated NRM of 0.30 million tons, with 20.16 grams per ton of gold and 124.10 grams per ton of silver. In 2015, we expect to invest US$10.0 million to continue the exploration in the Alejandra project.

25

Tambomayo. The Tambomayo project is located 20 kilometers east of the Paula mine and includes a total of 2,907 hectares of mining properties. This project is believed to be a low sulfidation epithermal deposit with significant gold and silver mineralization in veins. As of December 31, 2014, we had an estimated NRM of 1.7 million tons, with 10.9 grams per ton of gold, 286.1 grams per ton of silver, 2.1 percent lead and 3.5 percent zinc. In 2015 we will focus our exploration efforts in the Blanquita and Mayra veins. We plan to invest US$2.4 million to conduct a 3,000-meter diamond drilling program in Blanquita and geological mapping and sampling at Mayra. The project is currently in its development phase, and the construction of the mine is well advanced with seven levels already completed and with encouraging drill intercepts at lower levels. During the first quarter 2015, the Tambomayo was approved following the completion of an environmental impact study. Construction of the mine will begin in 2015 once the necessary permits have been obtained.

Surichata. The Surichata project is located in the Puno region of southern Peru and consists of 400 hectares of mining concessions. The Surichata project shows evidence of epithermal silver enriched polymetallic veins. In 2014, we invested US$0.17 million in environmental remediation and social agreements relating to this project, and have ceased all work at this project..

Colquemayo. The Colquemayo project encompasses 6,300 hectares of mining concessions located in the Moquegua region in southern Peru, 70 kilometers southwest of the San Gabriel project. The project is located in tertiary volcanic rocks covered by younger volcanic events. The high sulfidation alteration system covers an area of 40 square kilometers. During 2014, we invested US$0.60 million to conduct diamond drilling, environmental remediation and social agreements at this project.

 

Trapiche. The Trapiche project consists of 30,59136,798 hectares, of mining concessions, with porphyry copper and skarn mineralization in the Apurimac region, Antabamba province and Juan Espinoza Medrano district. The Apurimac region is part of a mineralized belt known as the Abancay Batholith where several iron, copper and gold deposits have been identified.In 2014,identified. During 2017, we invested US$1.14 millionwill focus on reaching an agreement with the Mollebamba community in order to conduct diamond drilling, including exploration, metallurgicalimprove the economic benefits to the community, which we anticipate will allow us to restart field activities and hydrogeological drilling,complete a prefeasibility study of this project.

San Gabriel. San Gabriel is located in the region of Moquegua and a scoping studyis wholly-owned by Buenaventura. This deposit is an intermediate sulfidation deposit hosted by diatreme breccia body at this project. As of December 31, 2014, we estimated NRM for the Trapiche project to be 925 million tons, with an average grade of 0.39 percent of copper, 0.01 percent of molybdenum and 3.2 grams per ton of silver into the Trapiche porphyry and Millocucho skarn.sediment-intrusive contact. In 2015,2017, we plan to invest US$4.80.47 million to conduct additional metallurgical tests. In addition,a follow-up survey on stream sediment anomalies outlined during 2015, we expect to have a positive scoping study for a leach only alternative. There are 251million tons with an average gradethe second half of 0.54% Cu of NRM of leachable material.2016.

 

Pisaccalla.Daniela. The Pisaccalla-Accocruz-CcelloccasaDaniela project consistsis located in the Arequipa region within the highly prospective coastal Iron Oxide Copper Gold deposit/Porphyry belt of 11,331southern Peru, consisting of 18,400 hectares of mining concessions, of which we own 11,700 hectares and lease 6,700 hectares from Union Mines S.A.C. In 2017, we plan to invest US$1.39 million to conduct a drilling campaign of 2,500 meters.

Ccelloccasa. The Ccelloccasa project is an epithermal vein deposit located in the Ayacucho region in southern Peru. This project is located 35 kilometers northwest of our Breapampa gold mine and 5 kilometers northwest of the Apumayo gold mine. In 2015, we plan to invest US$1.36 million to diamond drill 2,300 meters at the Pisaccalla-Accocruz and to conduct geological mapping and sampling at Ccelloccasa.

Livitaca. The Livitaca project is located in the Cusco region in southern Peru, 8 kilometers north of the Constancia copper project owned by Hudbay. The project consists of 9,0958,717 hectares of mining concessions ownedwholly-owned by Corporación Aceros Arequipa S.A who has leased those hectares to Cía. de Minas Cerro Hablador S.A.C, our newly formed wholly-owned subsidiary. The project is an iron skarn with surrounding gold and copper mineralization. In 2015,Buenaventura. During 2017, we plan to complete a geophysical survey and obtain the necessary environmental and social and environmental permits forin order to conduct a drilling campaign in 2016.2018.

 

Palla Palla.Palla Palla is located in the Ayacucho region, 25 kilometers north of our Breapampa gold mine.region. The property consists in 6,894 hectares of mining concessions owned by Cia. de Minas Caudalosa S.A whoS.A., which has leased those hectares to Minera Azola S.A.C., our wholly-owned subsidiary. In 2014,2016, we invested US$ 0.420.85 million in geological mapping, outcrop sampling and a geophysical survey. In 2015, we plan to invest US$2.1 million in order to diamond drill 5,200 meters at this project.

26

San Gabriel (Chucapaca). We now own 100% of the San Gabriel project, which located in the Moquegua region. We paid US$81 million in cash payment to acquire Goldfield’s 51% interest and right to operate Canteras del Hallazgo SAC, which following this acquisition is now fully absorbed into Buenaventura. As of December 31, 2014, we estimated NRM for the San Gabriel project to be 12.3 million tons, with 6.5 grams per ton of gold. During 2015, we expect to obtain permits for the exploration and development of a 7,000 meter diamond drilling and to conduct geological mapping1,441 meters of diamond drilling. The results were not encouraging and sampling. We also plan to begin engineering studies atwe discontinued the project.

 

San Gregorio.San Gregorio The drilling program at this project continues is located in the Cerro Pasco region. During 2016, we invested in outreach efforts to be suspended due to the opposition ofengage with the Vicco community. We have resumed discussionscommunity in order to regain the community’s confidence and cooperation, with the community and, due to the active participationaim of the Conflict resolution Office in such discussions, an entity operating under the auspices of the PCM (Presidencia del Consejo de Ministros), we expect to resumere-activating the drilling program at this project.in 2017.

Exploration in Operating Areas

 

Uchucchacua.Uchucchacua. We are currently focusing our exploration efforts on the Yumpag project, which is located four kilometers northeast of the Uchucchacua mine. The project is an epithermal silver deposit, structurally influenced by the Cachipampa fault. This fault also influences significant areas of silver mineralization at the Uchucchacua mine. During 2014,2016, we invested US$2.32 million and completed 266 meters of exploration tunnels, conducted 6,2368,885 meters of diamond drilling and conducted metallurgical tests at this project. These exploration efforts are being complemented by the construction of a ramp from the Uchucchacua project, which will be usedwith encouraging results. In 2017, we expect to explore the Gina-Socorro veins alignment that will eventually integrate Uchucchacua with Yumpag.

Mallay. Our exploration effortsinvest US$3.41 million in Mallay were focused in the Chanca project, which is located in the province of Oyon, in the Lima region, about 15 kilometers northwest of the Mallay mine. This project was sold(?) in July 2014.

Recuperada.During 2014, we completed 5,757order to conduct 10,000 meters of diamond drilling in the Patara project. We do not plan to conduct any further work in this project and all exploratory surface work has been remediated. We are currently in the process of sellingat this project.

 

Orcopampa.Orcopampa The main projects. In 2016, we focused our exploration efforts on the Anquicha project, which is an epithermal deposit with gold mineralization in sandstone-hosted oxidized fractures and breccias. We completed geological mapping, sampling and column leach tests with encouraging results. However, the Orcopampa district are Parihuanas, Aseruta-Mulañproject will be kept on hold until an and Pucay.

The Parihuanasagreement is reached with the local community. We also explored the Apuñe project, a joint venture with Minera Ares, is located 243 kilometers northeastalong the south western trend of the Chipmo mine. During 2014, we constructed drifts for exploration and diamond drilling at this project. In September 2014, we ceased all exploration activity at Parihuanas and are currently in the process of selling this property.

The Aseruta-Mulañan project is located eight kilometers southeast of the Chipmo mine. It consists of a system of epithermalprecious metals veins with mainly silver content. During 2014, we completed a second diamond drilling campaign at this project. No work at this project is planned for 2015.

Pucay. The Pucay project is located 3.5 kilometers southwest of the Chipmo mine. In 2014,Apuñe, we focused our attention to the Anquicha prospectidentified and conducted geological mapping, samplingsampled a linear trend of float blocks of quartz veins and geophysical surveyshydrothermal breccias extending over approximately 2 kilometers with encouraging results. We are workingA geophysical survey shows a big structure to which the float blocks of quartz could be related. In 2017, we plan to invest US$1.03 million in brownfields exploration in Orcopampa.

Tambomayo. During 2016, we invested US$1.19 million to conduct geological mapping and sampling with encouraging results at the Gaby and Mayra projects. In 2017, we plan to conduct 2,600 meters of diamond drilling at the Asuncion project. In addition, we will continue the geological mapping and sampling at the Gaby Norte project. Finally, in Mayra, we expect to obtain the environmental permits necessary permits to conduct diamonda drilling campaign in the second half of 2015.2018.

26 

 

Competition

 

We believe that competition in the metals market is based primarily upon cost. We also compete with other mining companies and private individuals for the acquisition of mining concessions and leases in Peru and for the recruitment and retention of qualified employees.

Sales of Metal Concentrates

 

All of our metal production is sold to smelters traders and banks,traders, either in concentrate or metal form, such as gold-silver concentrate, silver-lead concentrate, zinc concentrate, lead-gold-copper concentrate, gold-copper concentrate and gold and silver bullion. Our concentrates sales are made under one- to three-year, U.S. Dollar-denominated contracts, pursuant to which the selling price is based on world metal prices as follows: generally, in the case of gold and silver-based concentrates, the London Spot settlement prices for gold, less certain allowances, and the London Spot or the United StatesU.S. Commodities Exchange settlement price for silver, less certain allowances; and, in the case of base-metal concentrates, such as zinc, lead and copper, the London Metals Exchange or LME,(“LME”) settlement prices for the specific metal, less certain allowances. Sales prices vary according to formulas that take into account agreed contractual average prices for a quotational period, generally being the month of, the month prior to,before, or the month following the scheduled month of shipment or delivery according to the terms of the contracts.

 

The historical average annual prices for gold and silver per ounce and our average annual gold and silver prices per ounce for each of the last fivetwo years and through March 31, 2017 are set forth below:

 

  Gold Silver
  Average Annual
Market Price		 

Our Average
Annual Price(1)

 Average Annual
Market Price		 

Our Average
Annual Price(1)

  US$/oz.(2) US$/oz. US$/oz.(3) US$/oz.
2013 1,411.23 1,392.18 23.79 22.33
2014 1,266.40 1,263.53 19.08 18.65
2015 (through March 31, 2015) 1,218.45 1,220.87 16.71 15.35
  Gold  Silver 
  Average Annual
Market Price		  

Our Average
Annual Price(1)

  Average Annual
Market Price		  

Our Average
Annual Price(1)

 
  US$/oz.(2)  US$/oz.  US$/oz.(3)  US$/oz. 
2015  1,218.45   1,151.44   16.71   15.06 
2016  1,250.74   1,244.02   17.14   17.65 
2017 (through March 31, 2017)  1,219.50   1,230.72   17.42   16.65 

__________________

(1)Our average annual price includes only the consolidated average annual price from our mines.
(2)Average annual gold prices are based on the London PM fix as provided byMetals Week.
(3)Average annual silver prices are based on London Spot prices.

 

Most of the sales contracts we enter into with our customers state a specific amount of metal or concentrate the customer will purchase. We have sales commitments from various parties for nearly all of our estimated 20152017 production; however, concentrates not sold under any of our contracts may be sold on a spot sale basis to merchants and consumers.

 

Sales and Markets

 

The following table sets forth our total revenues from the sale of gold, silver, lead, zinc and copper in the past two fiscal years:

 

 

Year ended December 31,(1)

 

Year ended December 31,(1)

 

Product

 2013 2014 2015  2016 
 (US$ in thousands)  (US$ in thousands) 
Gold  637,032   554,805   419,541   440,603 
Silver  362,805   356,021   313,418   385,989 
Lead  55,951   39,658   55,445   58,690 
Zinc  71,187   47,653   102,110   142,425 
Copper  182,399   271,282   131,356   224,649 

_________________

(1)Does not include refinery charges and penalties incurred in 20142016 of US$185.1244.4 million and in 20132015 of US$147.9 million, respectively.196.2 million.

Approximately 68 percent62.86% and 60 percent60.48% of our concentrate and gold bullion sales in 20132015 and 2014, respectively,2016 (without considering adjustments to prior periods, embedded derivatives from sale of concentrate or hedge operations), were sold outside Peru. Set forth below is a table that shows the percentage of sales of concentrate and gold bullion from our mines and gold bullion that werewas sold to our various customers from 20132015 to 2014.2016.

 

  Percentage of Concentrates and Gold Bullion Sales
  2013 2014
Export Sales:        
Johnson Matthey Limited  54.04   49.31 
N.V. Umicore SA  3.02   3.89 
Werco Trade AG  2.35   3.34 
Sumitomo Corporation of America  1.76   0.00 
MK Metal Trading GMBH  2.97   0.00 
Lois Dreyfus Commodities Metal Suisse SA  0.26   0.00 
MCC non Ferrous Trading Inc.  2.68   2.61 
Others  0.64   0.97 
Total Export Sales  67.72%  60.12%
         
Domestic Sales:        
Andina Trade S.A.C.  0.00   0.93 
Glencore Peru S.A.C.  15.07   15.27 
Consorcio Minero SA  8.94   4.11 
Trafigura Peru S.A.C.  0.00   4.59 
Sudamericana Trading SRL  3.04   2.65 
Lois Dreyfus Commodities Peru S.R.L.  4.24   10.21 
Optamine S.A.C.  0.00   1.26 
Others  0.99   0.86 
Total Domestic Sales  32.28%  39.88%
Total Sales  100%  100%
27 

  Percent of Concentrates and Gold Bullion Sales 
  2015  2016 
Export Sales:      
Asahi Refining Canada Ltd and Asahi Refining USA Inc.  50.58   38.53 
Lois Dreyfus Commodities Metal Suisse SA  2.06   3.43 
Mercuria Energy Trading SA  1.43   3.40 
Metalor Technologies  -   2.76 
N.V. Umicore SA  3.75   2.38 
MRI Trading AG  0.99   1.46 
Werco Trade AG  2.07   - 
Others  1.98   8.52 
Total Export Sales  62.86%  60.48%
         
Domestic Sales:        
Andina Trade S.A.C  0.36   0.67 
Glencore Peru S.A.C  23.43   20.74 
Trafigura Peru S.A.C  6.73   7.58 
Sudamericana Trading SRL  2.85   2.14 
Lois Dreyfus Commodities Peru S.R.L  2.45   3.23 
Optamine S.A.C  0.17   - 
Others  1.15   5.16 
Total Domestic Sales  37.14%  39.52%
Total Sales  100%  100%

The following table shows our committed sales volumes of silver-lead, gold-silver and zinc concentrates from 20152017 to 2017:2019:

 

 

Wet tons

 

Wet tons

 

Wet tons

 Wet tons  Wet tons  Wet tons 

Concentrate

 

2015

 

2016

 

2017

 2017  2018  2019 
Uchucchacua’s Silver-Lead  50,300   36,800   27,800   80,000   33,000   0 
Uchucchacua’s Zinc  27,800   23,800   15,300   24,500   24,500   6,400 
Julcani’s Silver-Lead  6,700   3,200   3,200   6,400   5,600   0 
Mallay’s Silver-Lead  14,900   14,700   10,700   17,800   0   0 
Mallay’s Zinc  22,500   15,700   10,700   21,600   5,000   0 
Tambomayo’s Silver-Lead  6,000   3,000   0 
Tambomayo’s Zinc  6,000   3,000   0 
El Brocal’s Copper  225,000   232,000   179,000 
El Brocal’s Lead-Silver  51,000   63,000   30,000 
El Brocal’s Zinc  152,000   167,000   55,000 

________________

Note: The price of the concentrate supplied under the contract is based on specified market quotations minus deductions.

 

We also sell refined gold, which is derived from our operations at Orcopampa, Breapampa, Coimoloache and La Zanja and processed at a local smelter in Lima, to Johnson Matthey Public Limited Company,Asahi Refining, or Johnson Matthey,“Asahi,” which further refines the gold. During 2014,2016, the price of the gold supplied was determined based on, for the gold content, the quotation for gold at the London Gold Market PM fixing in U.S. Dollars, and for the silver content, the quotation for silver at the London Silver Market spot fixing in U.S. Dollars or at spot prices, minus, in each case, certain minimum charges, as well as charges for customs clearance and treatment of the gold (which varies depending on its gold and silver content). We may elect to have our material toll refined at Johnson Matthey’s Brampton, CanadaAsahi’s works and returned to our account for sale to third parties. Pursuant to our agreement, we are responsible for delivering the gold to Johnson Matthey’sAsahi’s designated flight at the Lima airport.

 

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Hedging/Normal Sales Contracts

 

We and our wholly-owned subsidiaries are completely unhedged as to the prices at which our gold and silver will be sold. See “Item 3. Key Information—D. Risk Factors—Factors Relating to the Company—Our financial performance is highly dependent on the prices of gold, silver, copper and other metals.”

 

El Brocal uses derivative instruments to manage its exposure to changes in the price of metals. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

 

From January to December 2015, El Brocal has outstanding hedging commitments amounting to 4,800 metric tons of copper at an average fixed price of US$7,042 per ton.

El Brocal’s hedge is classified as a cash flow hedge. The effective portion of gain or loss on the hedging instrument is initially recognized in the consolidated statements of changes in equity, under the caption other equity reserves, while the ineffective portion is recognized immediately in the consolidated statements of profit or loss in the interest expensefinance costs caption. Yanacocha and Cerro Verde have not engaged in, and are currently not engaged in, gold or copper price hedging activities, such as forward sales or option contracts, to minimize their respective exposures to fluctuations in the price of gold and copper.

 

From January to December 2017, El Brocal had outstanding hedging commitments amounting to 16,107 metric tons of copper at an average fixed price of US$5,395 per ton.

Regulatory Framework

 

Mining and Processing Concessions

 

In Peru, as in many other countries, while surface land is owned by private landowners, while the government retains ownership of all subsurface land and mineral resources. Our right to explore, exploit, extract, process and/or produce silver, gold and other metals is granted by the Peruvian government in the form of mining and processing concessions. The rights and obligations of holders of mining and/or concessions, provisional permits and processing concessions and other similar matters are currently set forth in the General Mining Law (Single Unified Text approved by Supreme Decree 014-92-EM), which is administered by the Ministry of Mines, or MEM.

 

Pursuant to the General Mining Law, filers of mining claims must obtain a mining concession before they may explore the areas claimed.start any mining activity. Applications for mining concessions must be filed with the regional mining directors of each regional government where the mining concession is located and withInstituto Geológico Minero y Metalúrgico the Geological, Mining and Metallurgical Institute of Peru, or INGEMMET.Peru.

Mining concessions are irrevocable, provided the holder of a mining concession complies with the obligations set forth in the General Mining Law. Such concessions have an indefinite term, subject to payment of an annual concession fee per hectare claimed and achievement of minimum annual production for each hectare. Failure to achieve annual production targets will result in a fine. Failure to pay concession fees or fines for two consecutive years could result in the loss of one or more of the mining rights.concessions. Failure to satisfy minimum annual production thresholds for a specified period of time (currently thirty years beginning the year after the mining concessions were granted for mining concessions granted after October 10, 2008, and thirty years beginning on January 1, 2019 for mining concessions granted before October 10, 2008) could result in cancellation of the mining concessions.

 

Our and Yanacocha’s processing concessions enjoy the same duration and tenure as our mining rights,concessions, subject to payment of a fee based on nominal capacity forof the applicable processing plant. Failure to pay processing fees or fines for two consecutive years could result in the loss of the processing concessions.

 

Our mining rights and processing concessions are in full force and effect under applicable Peruvian laws. We believe that we are in compliance with all material terms and requirements applicable to the mining rights and processing concessions and that we are not subject to any condition, occurrence or event that would cause the revocation, cancellation, lapse, expiration or termination thereof, except that we may, from time to time, allow to lapse, revoke, cancel or terminate mining rights and processing concessions that are not material to the conduct of our business.

 

29 

In addition to obtaining mining rights from the Peruvian government, applicable Peruvian regulations require us to obtain easements or other rights from private landowners that own the surface land above the mineral resources that we intend to explore or mine. Supreme Decree 020-2008-EM requires us to obtain such easements or other rights prior tobefore commencing exploration activities. We have been actively seeking to acquire land surface rights, easements tofor land containing prospective geological exploration target sites, deposits that can be exploited in the future and areas suitable for plants or facility sites. Regarding processing concessions, Article 35 of Supreme Decree Nº 018-92-EM, as amended (“Article 35”), requires holders of such concessions to own the land underlying the concession or to have the authorization of the owner of the land, deposits that can be exploited in the future and areas suitable as plant or facility sites. In the case of processing concessions, articleArticle 35 of Supreme Decree Nº 018-92-EM, as amended, requires holders of such concessions to own the land underlying the concession or to have the authorization of the owner of the land.

 

The possibility of developing mining activities in an urban area or urban expansion area is directly linked to the compatibility of such areas and the mining activity. The Law Regulating Mining Concessions in Urban Areas and Urban Expansion Areas and related regulations set forth procedures for the granting of mining rights in urban and urban expansion areas. In order toTo grant a mining concession in an urban area and an urban expansion area, the MEM is required to receive the approval of the council of the applicable provincial municipality. The council has sixty days to issue its decision. Mining concessions in urban expansion areas are granted for 10-year terms, which may be renewed by the MEM subject to the approval of municipal authorities, but cannot exceed 100 hectares.

 

Law No. 28964, which became effective on January 25, 2007, created theOrganismo Supervisor de la Inversión en Energía y Minería(OSINERGMIN(“OSINERGMIN”) as the government agency in charge of regulating and auditing the electricity, hydrocarbon and mining activities of companies. Law No. 28964 provides that the overview and audit of activities related to the environment, mining safety and health regulations may be performed by companies duly certified and approved by OSINERGMIN. However, pursuant to Supreme Decree 001-2010-MINAM, OSINERGMIN has transferred its environmental supervisory functions to the Environmental Evaluation and Oversight Agency or OEFA.(“OEFA”). Beginning July 22, 2010, OEFA assumed the authority to carry out unexpected audits and levy fines on companies if they fail to comply with prescribedenforceable environmental standards. Contributions thatregulations and approved environmental assessments. According to Supreme Decree No. 128-2013-PCM, mining companies are required to make monetary contributions to OSINERGMIN were approved byand, according to Supreme Decree No. 128-2013-PCM and130-2013-PCM, monetary contributions are also required to be made to OEFA by Supreme Decree No. 130-2013-PCM.OEFA.

 

With respect to employee safety and employer liability, Law No. 28964 has been replaced by Law No. 29783. Such employee safety and employer liability and related matters are now audited by theMinisterio de Trabajo y Promoción del Empleo. Law No. 29783, as amended by Law No. 30222, establishes the minimum rules designed to prevent employee safety risks and allocate liabilities in relation to such risks. The main principle of this law is that the employer assumes the economic, legal and any other type of liability arising from accidents or diseases suffered by the employee while working and guarantees the employee’s health and safety in connection with the employee’s work. This legislation entitles labor inspectors to inspect commercial facilities and, under certain circumstances, suspend operations. By Supreme Decree N° 009-2012—TR, theMinisterio de Trabajo y Promoción del Empleo transferred its security supervisory, audit and sanctioning functions to theNational Labor Audit Entity – SUNAFIL. Such law amended the relevant provision of the criminal code, which currently establishes that a person who intentionally breaches the safety and health provisions, and who after being required by the relevant authority, does not adopt the measures contemplated in such provisions, is deemed to jeopardize the life, health or physical integrity of such person’s employees and may be held criminally liable for such behavior.

Environmental Matters

 

In 2005, Peru enacted the General Environmental Law (Law No. 28611), which establishes the main environmental guidelines and principles applicable in Peru. Pursuant to the General Environmental Law, the Ministry of the Environment (MINAM) issued national environmental standards,regulations, which have gradually replaced prior guidelines governing governmental agencies environmental competencies. OEFA, as the environmental enforcement agency, has the authority to inspect mining operations and fine companies that fail to comply with prescribed environmental standards.regulations and their approved environmental assessments.

 

The MinistryEach mining company that began operations before May 1993 was required to file a Preliminary Environmental Assessment (“EVAP”), for each of Energyits mining units to disclose any negative environmental impacts of its operations and, Mines (MINEM)thereafter, to submit a follow-up Programa de Adecuación y Manejo Ambiental (“PAMA”) aimed at implementing measures to solve problems identified in the EVAP. Companies must correct those negative environmental impacts relating to their mining activities within five years, while smelters must take corrective measures within ten years. These companies must allocate funds in an amount corresponding to no less than 1% of their annual sales to redress the problems identified in their EVAPs and contemplated in their PAMAs.

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In addition, the MEM has issued regulations that establish maximum permissible levels (“LMP”) of (i) emissions of liquid effluents and (ii) elements and compounds present in gaseous emissions resulting from the mining activities. Generally, mining rights holders and processing plants that were in operation prior tobefore May 1993 were required to comply with maximum permissible levelsLMP within 10 years. In the meantime, mining operators are required to prepare Environmental Adaptation and Management Programs, or PAMAs, that set forth plans to ensure compliance with more stringent maximum permissible levels. In 2009, all Peruvian mining companies were required to submitupdated environmental management plans to the MEM that complied with water quality standards and new maximum permissible levels for liquid effluents. The deadline was August 31, 2012. Buenaventura and its associated companies submitted their plans. We expect that we will be required to implement these plans and be in compliance with the new maximum permissible levels for liquid effluents and water quality standards by 2015, but such date is subject to modification.

In addition, each mining company that began operations prior to May 1993 was required to file a Preliminary Environmental Evaluation, or EVAP, for each of its mining units to disclose any pollution problems in its operations and, thereafter, to submit a follow-up PAMA aimed at implementing measures in order to solve problems identified in the EVAP. Companies must correct the pollution problems relating to their mining activities within five years, while smelters must take corrective measures within ten years. These companies must allocate no less than 1 percent of their annual sales to redress the problems identified in their EVAPs and contemplated in their PAMAs.

On March 26, 2013, Supreme Decree No. 002-2014-MINAM became effective. It approves the Environmental Quality Standards (Estándares de Calidad Ambiental: ECA) for Soils, or Standards, which are applicable to any project or activity that may generate an environmental risk. Projects existing at that time had twelve months to adapt to the Standards. Supplementary provisions for the application of the Standards have been approved through Supreme Decree No. 002-2014-MINAM effective since March 25, 2014.

Since May 1993, new mining and processing activities have been required to file and obtain approval for an EISd before being authorized to commence operations. New mining and plant processing activities are required to comply with the maximum permissible levels (LMP) for liquid effluents from the initiation of their operations.

EISd for capacity expansion at the Orcopampa, Uchucchacua and Antapite mines were approved in 2004, 2006 and 2008, respectively.

MINEM approved the EISd for the Huancarama-Chipmo-Poracota and La Zanja transmission lines and their substations in 2006 and 2008, respectively. This connection to the national grid should result in lower energy costs.LMP.

 

In May 2008, the Environmental Ministry of PeruMINAM was established by legislative decree. The principalLegislative Decree N° 1013. MINAM’s main functions of the Environmental Ministry include formulating and implementing policies and regulations relating to environmental matters and controlling pollution, including regulating air and water quality standards, through supervision and education.

In 2008 and 2010, MINAM enacted new water quality standards and new LMP for liquid effluents.  In 2009, MINEMall Peruvian mining companies were required to submit updated environmental management plans to the MEM that complied with water quality standards and new LMP for liquid effluents. At the end of 2015, Supreme Decree No. 015-2015 - MINAM (the “2015 Decree”) was published, which modified the water quality standards and established supplementary provisions related to compliance.

Under the 2015 Decree, mining companies must incorporate new water quality standards into affected Environmental Management Plans by (1) where the MEM has already approved such plan, submitting an updated plan or (2) where the MEM is currently evaluating a plan, submitting a modified plan.  The Company plans to submit updated and modified plans to the MEM as required by the 2015 Decree.

Regarding soil quality, on March 26, 2013, Supreme Decree No. 002-2014-MINAM became effective. It approves the Environmental Quality Standards (Estándares de Calidad Ambiental) (“ECA”) for soils, or “Standards,” which are applicable to any project or activity that may generate an environmental impact. Subsequently, on March 25, 2014, supplementary provisions for the application of the Standards were approved through Supreme Decree No. 002-2014-MINAM. Projects operating at the time those regulations came into force were required to submit the first phase of soil characterization within twelve months of the passage of the decree. Buenaventura and its associated companies submitted this information within the required time.

Since May 1993, new mining and processing activities have been required to file and obtain approval for a Semi-detailed Environmental Assessment (Estudio de Impacto Ambiental) (“EIAsd”) before being authorized to commence operations. New mining and plant processing activities are required to comply with the LMP from the initiation of their operations. In 2009, MEM approved the EISdEIAsd for the La Zanja, Mallay, Tantahuatay and Esperanza projects. In 2010, MINEMMEM approved the EISdEIAsd for the Angélica Rublo Chico project. In 2011, the MEM approved the EISdEIAsd for our Orcopampa and Breampampa projects. MINEMMEM approved the modified EISdEIAsd for the Mallay mine and the second modified EISdEIAsd for the Shila cyanidation circuit in 2012.

We and our subsidiaries are subject to ongoing administrative and judicial proceedings relating to environmental matters for which we have reserved contingencies In 2014, MEM approved the modified EIAsd of up to US$6.7 million. See Note 15 toUchucchacua. In 2015, the Financial Statements.EIAsd of Tambomayo was approved.

 

In 2012, Peru enacted Supreme Decree No. 020-2012-EM, which added Chapter XVII to the Mining Proceedings Regulations approved by Supreme Decree N°No. 018-92-EM. The new provisions require the approval of the General Mining Directorate of the Ministry of Energy and MinesMEM or of the relevant Regional Governmentregional government before proceeding to start and re-start exploration, development, preparation and exploitation. With regardThe authorizations to water regulation, all Peruvianstart and re-start mining companies were requiredactivities may need to submit their updated environmental management plans to comply with water quality standards andbe pre-approved by MEM if the new maximum permissible levels for liquid effluents by August 31, 2012. Buenaventura and its associated companies submitted their plans. We expect that we will be required to implement these plans and be in compliance with the new maximum permissible levels for liquid effluents and water quality standards by the dates set by MINAM.mining activities affect indigenous or native people.

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Regulations governing mining explorations. In May 2008, the Peruvian government enacted DSSupreme Decree 020-2008-EM, which governs mining exploration activities and related matters. Under DSSupreme Decree 020-2008-EM, exploration activities fall into 2two categories: Category I and Category II. Category I exploration activities are those involving no more than 20 drilling platforms or affecting a surrounding area that measures less than 10 hectares in size, while Category II exploration activities are those involving more than 20 drilling platforms and affecting an area larger than 10 hectares. For Category I exploration activities, an Environmental Impact Declaration (Declaración de Impacto Ambiental), or EID, (“DIA”) is required. For Category II exploration activities, a Semi-detailed Environmental Impact StudyEIA (Estudio de Impacto Ambiental), or EISsd which is required which (“EIAsd”) that incorporates technical, environmental and social matters.matters is required. Exploration activities must start within twelve months following the date that an EIDa DIA or EISsdEIAsd is approved. Both the EIDDIA and the EISsdEIAsd must be approved before exploration activities begin. Any commitments assumed by mining companies in an EIDa DIA or EISsdEIAsd are mandatory and, if they are not fulfilled, OEFA has the authority to fine non-compliant mining companies. The regulation also provides that during exploration programs the holder of mining concessions will perform specified closure and post closure activities.activities during exploration programs. In addition, fines can be imposed if exploration programs begin before the EIDDIA and the EISsdEIAsd are approved, and the approval of environmental studiesassessments for exploration activities performed within protected natural areas requires the approval of the applicable watercompetent authority. Exploration in Prehispanic Archeological Sites (referred to in DSSupreme Decree N° 004-2000-ED) is forbidden unless expressly authorized by the National InstituteMinistry of Culture.

 

Also in May 2008, MINEMMEM enacted DSSupreme Decree 028-2008, which regulatedregulates the citizen participation process within the framework of environmental permit approval. The EIDDIA and EISsdEIAsd provide local communities with an opportunity to actively engage in this process.

 

The following EIDsDIAs and EISsdEIAsd were approved in 2014:2016

 

Buenaventura

Mine/Project

 

Type of Study

 

Approving Resolution

 

Date of Approval

UchucchacuaOrcopampa Modificación de EIAModification R. D. N° 637-2014-MEM/DGAAM041-2016-MEM-DGAAM Dic. 2014
UchucchacuaModificación de EIA – Plan de Adecuación a los LMPs y ECAs, para agua.R. D. N° 113-2014-MEM/DGAAMMar. 2014
PisaccallaDIAC.A.A. N° 024-2014-MEM-DGAAMJul. 2014
BlanquitaDIAC.A.A. N° 050-2014-MEM-DGAAMDic. 2014
TeresaDIAC.A.A. N° 043-2014-MEM-DGAAMOct. 201404.02.2016
       

La Zanja SRL

Mine/Project

 

Type of Study

 

Approving Resolution

 

Date of Approval

La Zanja4th Modification268-2016-MEM/DGAAM09.09.2016
       
None

Coimolache

Mine/Project

 

Type of Study

 

Approving Resolution

 

Date of Approval

Minera Azola S.A.C.
Mine/ProjectTantahuatay Type of Study2nd Modification Approving Resolution311-2016-MEM/DGAAM Date of Approval
Palla PallaDIAC.A.A. N° 047-2014-MEM-DGAAMNov. 201426.10.2016

Investment Promotion Regulations.Supreme Decree 054-2013-PCM was passed in order to promote investment projects. It allows companies to submit a supporting technical report, ITS (Informe Técnico Sustentatorio), to modify ancillary components, capacity expansions, or introduce technological improvements. MINEMSENACE (EISd) and MEM (EID and EISsd) will then issue a compliance waiver within no more than 15 working days from the date of submission.

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Regulations governing mine closures. In 2003, Law No. 28090,Ley que Regula el Cierre de Minas (Law that Regulates the Closing of Mines), established the obligations and procedures that mining companies must follow to prepare, submit and execute plans for the closing of mines, or Closure“Closure Plans,” and the granting of financial environmental guarantees to secure compliance with Closure Plans. We are required to submit a Closure Plan for new projects to MINEMMEM within one year following approval of an EISEIA or PAMA; and inform MINEMMEM semi-annually of any progress on the conditions established in the Closure Plan;Plan. We are also required to perform the Closure Plan consistent with the schedule approved by MINEMMEM during the life of the project; and set up ana financial environmental guarantee that covers the estimated amount of the Closure Plan.

 

In addition, Supreme Decree No. 020-2008-EM requires mining companies that perform exploration activities to conduct certain closing activities in accordance with the applicableapproved environmental study approved by the relevant authority,assessment, subject to deferral under certain circumstances, and contemplates a Closure Plan to be submitted by the mining company following the terms and conditions of Supreme Decree Nº 033-2005-EM.

 

We have presentedOur Closure Plans to MINEMwere approved by MEM for all of our mines and advanced explorations. To date, MINEMMEM has approved our Closure Plans for Julcani, Recuperada, Uchucchacua, Orcopampa, Poracota, Antapite, Caravelí, Shila, Paula, Esperanza, Pozo Rico, Mallay, Trapiche, Breapampa, Angélica Rublo Chico, Anamaray-Jancapata, La Zanja, Tantahuatay and Tambomayo.

 

The follow Mine Closure Plan Updatesfollowing mine closure plan modifications were approved in 2014:2016:

 

Buenaventura

Mine/Project

 

Type of Study

 

Approving Resolution

 

Date of Approval

NoneJulcani 4th Modification PdC 103-2016-MEM-DGAAM 08.04.2016
Mallay3rd Modification PdC099-2016-MEM-DGAAM04.04.2016
TambomayoPdC138-2016-MEM-DGAAM04.05.2016
BreapampaModification PdC185-2016-MEM-DGAAM10.06.2016
EsperanzaActualization PdC217-2016-MEM-DGAAM14.07.2016
Orcopampa5th Modification PdC313-2016-MEM-DGAAM28.10.2016
La Zanja SRL
Mine/ProjectType of StudyApproving ResolutionDate of Approval
La Zanja2nd Modification PdC078-2016-MEM-DGAAM16.03.2016
       

Compañía Minera Coimolache S.R.L.

Mine/Project

32 		 

Type of Study

Approving Resolution

Date of Approval

CoimolacheModificación de Plan de CierreR.D. N° 481-2014-DGAAM-DNAM-DGAM/PCMarz. 2014

On November 9, 2009 Supreme Decree No. 078-2009-EM became effective, creating additional environmental obligations for mining concessions holders. Under this provision, mining concessions holders that performed mining activities, including mining exploration, production and processing activities or related activities, without having an Environmental Certification will beare required to prepare and perform an Environmental Remediation Plan to address the environmental impact in the areas in which such activities have been conducted. Environmental Remediation Plans couldcan only be filed once mining activities have ceased. Environmental Remediation Plans would contain a detailed description of all the mining facilities and activities performed without the correspondent Environmental Certification, including maps and related information, a detailed description of the environmental impacts created by such activities, a detailed description of the remediation actions, a detailed description of the compensation that is proposed to be made, a budget and schedule of the remediation activities, including their costs, and a bond in favor of MINEMMinisterio de Energía y Minas (MINEM) for the cost of the execution of the measures contained in the Environmental Remediation Plan. Once the Environmental Remediation Plan is completed, mining concessions holders are required to inform the auditing entity so it can verify that the actions were carried out as approved. The auditing entity is required to send the respective report to the relevant authority so that the bond may be returned.

 

Law No. 28271, Law that Regulates the Environmental Liabilities of Mining Activities (Ley que Regula los Pasivos Ambientales de la Actividad Minera), came into force on July 7, 2004 and serves to regulate the identification of environmental liabilities and financial responsibility for remediation in mining activities, in each case to mitigate any negative impact mining may have with respect to the health of the population, environment and property. Pursuant to Law No. 28271, as amended by Law No. 28526 and Legislative Decree No. 1042, theMEM’s technical branch of MINEM will identify environmental liabilities, mining companies responsible for abandoned mining facilities, mining works and residue deposits that may be linked to such environmental liabilities and holders of inactive mining concessions with mining liabilities. Holders of inactive mining concessions with environmental mining liabilities will be required to submit a Closure Plan and enter into environmental remediation agreements with MINEMMEM to perform any studies and work necessary to control and mitigate the risk and effects of any contamination. Regulations under Law No. 28271, Regulations of Environmental Liabilities of Mining Activities(Reglamento de Pasivos Ambientales de la Actividad Minera), were approved by Supreme Decree No. 059-2005-EM.

 

We have presented Closure Plans to the MINEMMEM for all our mining concessions with environmental mining liabilities. To date, the Hualchocopa, Lircay, Bella Unión-Paucaray and Chaquelle mining units have all been closed and post-closure activities at each of these units are currently underway.

 

On November 12, 2014, a new regulation for the Environmental Protection and Management by-law was enacted, which covers mining production, processing, common labor, transport and storage, andwhich sets forth a new set of requirements for these activities. Going forward, social and technical teams from MINEMMEM will accompany the collection of baseline information. Early involvement of the statutory authority throughout the environmental studiesassessments process is expected to bring about shorter approval times.

 

MINEM’s specialized body,On December 28, 2015, the General Directorate for Mining Environmental Affairs, has traditionally evaluated mining environmental studies. A new organization, the National Environmental Certification Service (ServicioServicio Nacional de Certificación Ambiental: SENACE)Ambiental(“SENACE”), which operates under the auspices of MINAM, is expected to take ontook responsibility for the assessment and approval of detailed EIS,EIA submitted by private, public, or mixed-capital organizations in the second half of 2015.organizations. This development is consistent with the expansion of MINAM’s technical and regulatory capacities.

 

We anticipate additional laws and regulations relating to environmental matters will be enacted over time. The development of more stringent environmental regulations in Peru could impose additional constraints and additional costs on our operations, and wethat would be requiredrequire us to make significant additional capital expenditures in the future. Although we believe that we are substantially in compliance with all applicable environmental regulations of which we are now aware, there is no assurance that future legislation or regulatory developments will not have an adverse effect on our business or results of operations.

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In connection withto the approval of environmental studies,assessments, the Peruvian government has issued several decrees intended to simplify the issuance of permits, including Supreme Decree No. 054-2013-PCM (effective since June 2, 2013), Supreme Decree No. 060-2013-PCM (effective since May 26, 2013) and Ministerial Resolution No. 092-2014-MEM/DM (effective since May 27, 2014). We believe these provisions should facilitate the approval of environmental studiesassessments for our new exploration projects and simplify the issuance of certificates of non-existence of archeological remains (CIRA) required for mining projects.

 

Prior Consultation with Local Indigenous Communities

 

In 2011, Peru enacted Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios Reconocido en el Convenio–ILO 169 de la Organización Internacional del Trabajo)Convention). This law establishes a prior consultation procedure that the Peruvian government must undertake in concert with local indigenous communities whose collective rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions.measures. Under this law, the Peruvian governmental agency responsible for issuing or approving the administrative measure or decree in question, rather than the affected local indigenous community, retains the right to approve or reject the relevant legislative or administrative matter following such consultation. However, to the extent that any of our future projects require the promulgation of legislative or administrative measures that impact collective rights of local indigenous communities, the required prior consultation procedure may result in delays, additional expenses or failure to obtain approval for such new project.

 

Regulations under Law No. 29785 were approved by Supreme Decree No. 001-2012-MC, which became effective on April 2, 2012. These regulations specify the form and circumstances of the required consultation and the manner in which agreements will be formalized, and provide for a consultation process that lasts no more than 120 calendar days.

 

Permits

 

We believe that our mines and facilities have all necessary material permits to operate. All future exploration projects will require a variety of permits. Although we believe the permits for these projects can be obtained in a timely fashion, permitting procedures are complex, time-consuming and subject to potential regulatory delay. We cannot predict whether we will be able to renew our existing permits or whether material changes in existing permitting conditions will be imposed. Non-renewal of existing permits or the imposition of additional permitting conditions could have a material adverse effect on our financial condition or results of operations.

 

Insurance

 

We maintain a comprehensive insurance program designed to address specific risks associated with our operations, in addition to covering the insured risks common to major mining companies. Our insurance program is provided through the local Peruvian insurance market and includes employers’ liability, comprehensive third partythird-party general liability and comprehensive automobile liability, all risk property on a replacement basis, including transit risks, as well as business interruption insurance and mining equipment insurance.

 

Mining Royalties and Taxes

 

Under Peruvian law, holders of mining concessions are required to pay the Peruvian government a mining royalty (regalia minera) for the exploitation of metallic and non-metallic resources. In accordance with Law No. 28258, as amended by Law No. 29788, mining royalties are payable either as a specified percentage of operating profit or one percent1% of revenues, whichever is higher. If the mining royalty is calculated as a percentage of operating profit, marginal rates ranging from one percent1% to 12 percent, increasing12% that increase progressively for companies with higher operating margins will apply.

 

Mining companies that are a party to mining stabilization agreements will not be required to pay a mining royalty during the tenure of their stabilization agreements. Although we are not party to any stabilization agreements, Yanacocha currently has effective stabilization agreements for the Yanacocha, La Quinua and Maqui Maqui mines.

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In addition to mining royalties, pursuant to Law No. 29789, effective from October 1, 2011, mining operations in Peru are subject to a newan extraordinary mining tax. Mining companies that do not have taxation stability agreements with the Peruvian government, such as Buenaventura, will pay the “Special Mining Tax” (Impuesto Especial a la Minería). The Special Mining Tax is calculated each quarter as a percentage of operating profit. Marginal rates rangeranging from two percent2% to 8.4 percent, increasing8.4% that increase progressively for companies with higher operating margins.margins will apply. Mining companies that have stability agreements with the Peruvian government will pay the “Special Mining Duty” (Gravamen Especial a la Minería). The Special Mining Duty is calculated as a percentage of operating profit, with marginal rates ranging from four percent4% to 13.12 percent, increasing13.12% that increase progressively for companies with higher operating margins.

 

Safety

 

The safety and health of our employees is our highest priority. During 2014, our Corporate Safety and Health Management System, or SHMS, was recertified by Bureau Veritas. The core components of our SHMS are risk assessment, training, hazard identification and task observations.

During 2014,2016, we experienced 8667 reportable injuries, which were comprised of 8164 lost-time injuries and 5three fatal injuries, as compared to 14870 total reportable injuries during 2013,2015, which were comprised of 142 lost-time injuries and 6three fatal injuries. Under Peruvian legislation, reportable injuries include: accidental injuries resulting in lost-time, fatal accidents, accidents that require medical treatment or result in a loss of consciousness, an inability to perform all job duties on any workday after the injury or the temporary assignment or transfer to another job.  Injuries involving first-aid only are not reportable as they are considered minor accidents.

 

We have implemented several measures in order to prevent fatal accidents, including the appointment of a Safety Director who reports to the Chairman of the Board, a one-day shutdown in every mine site, reinforced participation of all management, full housekeeping at every site, renewed training programs, extensive reporting of substandard conditions, the launch of the “Look-think-plan-do” campaign, management safety tours, making vice presidents responsible for the investigation of fatal accidents in their areas and safety presentations regarding leadership and commitment.

C.Organizational Structure

 

As of March 31, 2015,2017, we conducted our mining operations, explorations projects and other activities directly and through various majority-owned subsidiaries, controlled companies and other associate companies as described in the following organizational chart.chart:

 

 

 

†All entities in this chart, with the exception of Minera Julcani S.A. de C.V. (which is organized in Mexico), Compañía de Minas Buenaventura Chile Ltda. (which is organized in Chile) and BISA Argentina S.A. (which is organized in Argentina), are incorporated in Peru.
*Compañía Minera Condesa S.A. holds 21,160,260 common shares of Compañía de Minas Buenaventura S.A.A., or approximately 7.70 percent7.70% of our total common shares.

 

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Intermediate Holding Companies, Subsidiaries and Equity Participations

 

Compañía Minera Condesa S.A.

 

Compañía Minera Condesa which isS.A., or “Condesa,” our wholly-owned subsidiary, is a mining and facilities holding company with both direct and indirect ownership participation in Yanacocha. As a partner in Yanacocha, Condesa shares responsibility for the investments made in the Yanacocha mine. In addition, Condesa holds an equity interest in Chaupiloma, and, as a result, receives a portion of the royalty revenues paid by Yanacocha to Chaupiloma in an amount equal to its ownership interest. Condesa also holds a 7.70 percent7.70% interest in us.Buenaventura.

 

S.M.R.L. Chaupiloma Dos de Cajamarca

 

S.M.R.L. Chaupiloma Dos de Cajamarca, or Chaupiloma,“Chaupiloma,” is a Peruvian limited liability company that holds all of the mining rights for the areas mined by Yanacocha. Chaupiloma receives a royalty that is calculated as a percentage of the total revenues of Yanacocha. We own, directly and indirectly, through our interest in Condesa, a 60 percent60% interest in Chaupiloma. Newmont Peru owns the remaining 40 percent40% equity interest.

 

Consorcio Energético Huancavelica S.A. / Empresa de Generación Huanza S.A.

 

Consorcio Energético Huancavelica S.A., or Conenhua,“Conenhua,” is an electrical transmission company that provides a significant portion of our electrical needs through its transmission facilities. We own 100 percent100% of Conenhua and manage its operations. Conenhua obtained its concession for power transmission in the Huancavelica area in 1983 and subsequently obtained concessions in the Cajamarca and Arequipa regions, which enabled us to transmit electric power to certain of our mining units and affiliates, as well as to other mining companies and municipalities in the area, through our own facilities.

 

In order toTo secure a reliable energy supply from a clean and renewable source for our direct operations and projects at competitive prices, Conenhua, through its subsidiary Empresa de Generación Huanza S.A., or Huanza,“Huanza,” was commissioned to construct a 90.6 megawatt or MW,(“MW”), capacity hydroelectric power plant in the valley of Santa Eulalia. This hydroelectrical plant began operating at full capacity in June 2014.

 

Buenaventura Ingenieros S.A.

 

Buenaventura Ingenieros S.A., or BISA,“BISA,” one of our wholly-owned subsidiaries, has provided geological, engineering, design and construction consulting services to the mining sector for over 30 years. During this time, BISA has consulted in Peru, Chile, Argentina, Mexico and Ecuador on a range of projects, operations and expansions.

Contacto Corredores de Seguros S.A.

During 2015, Buenaventura paid US$8.8 million to BISA owns a 99.99 percent interest in order to obtain 99.98% ownership of Contacto Corredores de Seguros S.A., an insurance brokerage company that provides insurance brokerage and related services to us and our affiliates.affiliates

 

Minera Julcani S.A. de C.V.

 

Minera Julcani S.A. de C.V., or Minera Julcani, is one of our wholly-owned subsidiaries and was created for the purpose of conducting mining activities in Mexico. Currently, we are conductingMinera Julcani S.A. de C.V. has had no exploration activities pursuant to ansince 2014, when the exploration agreement with Surutato Mining, S.A. de C.V., or Surutato. Under this agreement, Surutato granted us the exclusive right to conduct exploration activities within its property located in Sinaloa, Mexico.Mexico, was terminated.

 

Inversiones Colquijirca S.A. / Sociedad Minera El Brocal S.A.A.

 

Sociedad Minera El Brocal S.A.A., or El Brocal owns the Colquijirca and Marcapunta Norte mines and the San Gregorio exploration project. El Brocal was formed in 1956 and is engaged in the extraction, concentration and sale of concentrates of polymetallic minerals, mainly copper, zinc, lead and silver. Currently, we own 54.07 percent61.32% of El Brocal through both direct and indirect ownership interests.

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Minera La Zanja S.R.L.

 

Minera La Zanja S.R.L. is located 35 kilometers northwest of the city of Cajamarca. La Zanja, which is currently 53.06 percent53.06% owned by us, began operations in September 2010 as an open-pit mine producing gold and silver.

 

Compañía Minera Coimolache S.A.

 

Compañía Minera Coimolache S.A., or Coimolache is a mining company that owns the Tantahuatay mine which is located in the province and district of Hualgayoc in the Cajamarca region, which is 35 kilometers northwest of the Yanacocha mine. We hold a 40.10 percent40.10% interest and operate this mine, which commenced operations in mid-2011.mid-2011 as an open-pit mine producing gold and silver.

 

Ferrovías Central Andino S.A.

 

We hold 10 percent10% of Ferrovías Central Andino S.A. (“Ferrovías”), or Ferrovías, a railroad company, pursuant to a concession granted to a consortium of several companies in April 2000. Ferrovías provides transportation for concentrates from El Brocal’s mining operations.

 

Apu Coropuna S.R.L.

 

Buenaventura currently owns 70% of Apu Coropuna S.R.L., is currently 70 percent owned by us and 30 percentwith the other 30% owned by Southern Peru Copper Corporation. Apu Coropuna S.A. was created for the purpose of conducting exploration within properties situated in Castilla, Arequipa.

 

Compañía de Minas Cerro Hablador S.A.C.

 

Compañía de Minas Cerro Hablador S.A.C., is our wholly-owned subsidiary created for the purpose of conducting exploration activities pursuant to our agreement with Corporación Aceros Arequipa S.A. Under this agreement, Corporación Aceros Arequipa S.A. granted us the exclusive right to conduct exploration activities within its properties situated in Livitaca, Cusco.

 

Procesadora Industrial Rio Seco S.A.

 

Procesadora Industrial Rio Seco S.A. is our wholly-owned subsidiary that owns and operates a monohydrate manganese sulphate crystallization plant situated in Huaral, Lima. This processing plant will allow mining from areas with high silver and manganese content within the Uchucchacua mine, which will improve silver recovery.

 

El Molle Verde S.A.C.

 

El Molle Verde S.A.C. is our wholly-owned subsidiary that develops the Trapiche project, located in the Apurimac region. See “Item 4– “—B. Business Overview–Overview—Exploration Projects in Non-Operating Areas” above for further information ofabout this project.

 

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YANACOCHA

 

A. History and Development of the Company

 

Founded in Peru in 1992, Yanacocha is one of the largest gold producers in South America, having produced 969,944654,934 ounces of gold in 2014.2016. Yanacocha’s operations are located in the Andes Mountains in Northern Peru in the region of Cajamarca, located approximately 600 kilometers north of Lima and north of the city of Cajamarca at an altitude of 4,000 meters above sea level. The Yanacocha property consists of the following open-pit mines: Chaquicocha, Maqui Maqui, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado, andEl Tapado Oeste), Cerro Negro Este, Western Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte and Marleny)Norte) and Carachugo Alto.

Mining activities in Maqui Maqui, Marleny and Cerro Negro Este ceased during 2016. Yanacocha also owns the Conga project, which is located approximately 24 kilometers northeast of the Yanacocha operating mine in the provinces of Celendin, Cajamarca and Hualgayoc. The Conga project consists of two gold-copper porphyry deposits that are currently estimated to more than double Yanacocha’s proven and probable reserves.  Since mid-2012, following strong community opposition to the development of Conga, this project has been on hold and Yanacocha is actively working on strategies to regain social support for the project. One such strategy has been based on a “water first” approach, which consists of building the originally planned community water reservoirs prior to resuming any mine development. In 2013, the first of these reservoirs in San Nicolás and associated roads was constructed. In 2014, limited site work continued with the construction of the main access road using local contractors and a local labor force. Permitting for a second reservoir also continued. Work to ensure the economic viability as well as the social acceptance of the project continues in parallel with water reservoir construction activities.

 

As of December 31, 2014,2016, Yanacocha’s proven and probable reserves (excluding the Conga project’s proven and probable reserves)project, for which reserves were reclassified as resources or non-reserve mineralization (“NRM”) as of December 31, 2015) were estimated to be 4.94.4 million ounces of gold, representing a 14 percent14% decrease over Yanacocha’s proven and probable reserves as of December 31, 2013,2015, which were estimated to be 5.75.1 million ounces of gold. As of December 31, 2014, the Conga project’s proven and probable reserves were estimated to be 12.6 million ounces of gold and 3.3 billion pounds of copper, which were unchanged from the estimated gold and copper reserves as of December 31, 2013. As of December 31, 2014, Yanacocha’s total proven and probable reserves (including the Conga project) were estimated to be 17.5 million ounces of gold, representing a 5 percent decrease over Yanacocha’s total proven and probable reserves as of December 31, 2013, which were estimated to be 18.3 million ounces of gold. Yanacocha’s total proven and probable reserves of copper were 3.3 billion pounds as of December 31, 2014.

 

Proven and probable reserves are based on extensive drilling, sampling, mine modeling and metallurgical testing from which economic feasibility is determined. Under the Management Contract (as defined below), Newmont Mining, in conjunction with Yanacocha, calculates Yanacocha’s reserves by methods generally applied within the mining industry and in accordance with SEC Industry Guide 7. Reserves represent estimated quantities of proven and probable ore that, under present and anticipated conditions, may be economically mined and processed.

 

In 2014,2016, Yanacocha produced 969,944654,934 ounces of gold, compared to 1,017,259917,691 ounces of gold produced in 2013.2015. This decrease in gold production in 20142016 as compared to 20132015 was mainly attributable to (i) lower leach production from fewer initial ounces on leach pads at the beginning, (ii) lower gold mill due to lower ore grade fed to the mill from Tapado Oeste in 2014 as compared with 2013, and (iii) lower recovery due to processing of blending with deep transitional ore.to:

 

·Lower production at the Yanacocha Gold Mill, due to lower recovery (75.6% in 2016, compared to 80.2% in 2015), lower throughput (5,868,912 dst in 2016, compared to 6,683,162 dst in 2015) and lower head grade (2.65 grams per ton in 2016, compared to 3.27 grams per ton in 2015); and

 

·Lower leach pad production as a result of not mining the Tapado Oeste, Maqui Maqui and Chaquicocha pits and decreased mining at Cerro Negro and La Quinua Sur.

Silver production was 363,274447,376 ounces in 20132015 and 574,110457,246 ounces in 2014. The2016. This increase in silver production in 20142016 as compared to 20132015 was mainly attributabledue to beginning the deep transitional process withore processed at the Yanacocha Gold Mill, which had higher grade silver in gold mill..recovery by more retention time and higher sodium cyanide at the leach circuit.

 

Newmont Mining owns 51.35 percent51.35% of Yanacocha through its wholly-owned subsidiary Newmont Second. We own 43.65 percent43.65% of Yanacocha through our wholly-owned subsidiary Condesa and the remaining 5 percent5% is owned by IFC. Yanacocha is managed by Newmont Peru. See “ – “B. Business Overview—Management of Yanacocha – Yanacocha—General Manager/Management Agreement.” Although Yanacocha has no fixed dividend policy, there is an understanding among the partners that the net income not required for sustaining capital expenditures or future development projects should be distributed following approval by the two major shareholders of Yanacocha Newmont(Newmont Mining and us.Buenaventura).

Capital Expenditures

 

Yanacocha’s capital expenditures from its formation in 1992 through 20142016 have related principally to:

 

·the construction of the Carachugo, Chaquicocha, Maqui Maqui, San José, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado and Tapado Oeste), Cerro Negro Este, Western Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte and Marleny) and Carachugo Alto mining operations;

 

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·the construction of two plants at Carachugo and Yanacocha, each of which includes a leach solution processing facility and a smelter;

·the construction of the Yanacocha Gold Mill;

 

·the construction of four carbon column plants at Cerro Yanacocha and La Quinua;

 

·the acquisition of both new and used mining equipment;

 

·the construction of two dams;

 

·the construction of one agglomeration plant at La Quinua;

 

·the expansion of storage at La Quinua Tailings;

·the initial construction of the Yanacocha Gold Mill;a water treatment plant at La Quinua Tailings;

 

·the construction of gold mill tailing pipeline and equipment components;components

·the expansion of the tailings facilities for the Yanacocha 6 and 7 stockpiles; and

 

·several expansions of the leach pads located at the Carachugo, Maqui Maqui, Cerro Yanacocha and La Quinua mining operations.

 

Yanacocha’s capital expenditures from its formation through December 31, 2014 totaledfor the last three years amounted to approximately US$5,821296 million, including capital expenditures of US$1,148 million in 2012, US$311 million in 2013 and US$117 million in 2014.2014, US$96 million in 2015 and US$83 million in 2016.

 

In 2014,2016, Yanacocha’s principal capital expenditures included:included the construction of water treatment facilities, a tailings facility expansion, capitalized component purchases and infrastructure improvements.

·US$37.2 million associated with the Conga Project (water first approach);

·US$27.5 million for equipment components;

·US$16.2 million for mine development at El Tapado Oeste and the Western Oxides deposits;

·US$10 million for the residual water treatment project;

·US$9.3 million for gold mill tailings improvements;

·US$4 million for gold mill plant improvements; and

·US$13 million for other minor projects.

 

Yanacocha anticipates that its capital expenditures for 20152017 will be approximately US$160.349 million, of which it plans to use approximately US$55.6 million in connection with improvements in residual water treatment plant, US$41.5 million for Yanacocha laybacks and US$17.821 million for equipment components. The remaining capital expenditure budget has been allocatedcomponents, US$11 million for investment in current operationsexpansion of tailings facilities, US$10 million for laybacks, US$5 million for a water treatment project and development of future operations. No capital will be employed at the Conga Project in 2015.US$2 million for other minor projects.

 

Yanacocha expects that it will meet its working capital, capital expenditure and exploration requirements for the next several years from internally-generated funds, cash on hand and financing from banks and financial institutions, if required.  There can be no assurance that sufficient funding will be available to Yanacocha from internal or external sources to finance future working capital, capital expenditures and exploration and construction requirements, or that external funding will be available for such purposes on terms or at prices favorable to Yanacocha.  A further decline in the price of gold would be reasonably likely to affect the availability of such sources of liquidity.  See “Item 5. Operating and Financial Review and Prospects—Yanacocha—B. Liquidity and Capital Resources—Exploration Costs;Resources” and “—Yanacocha—C. Capital Expenditures.”

 

B. Business Overview

B.Business Overview

 

Description of Yanacocha’s Operations

 

The Yanacocha property began production in 1993 and consists of the following open-pit mines:, Chaquicocha, Maqui Maqui, Cerro Yanacocha, the La Quinua Complex, (La Quinua, El Tapado, Tapado Oeste), Cerro Negro Este, Western Oxide pits (La Quinua SurYanacocha, the Carachugo Complex and Cerro Negro Oeste), Eastern Oxide pits (Quecher NorteMaqui Maqui. In addition, Yanacocha has four leach pads, three processing facilities and Marleny) and Carachugo Alto.one mill.

 

Leach pads are located at Carachugo (410 million ton capacity), Maqui Maqui (70La Quinua (581 million ton capacity), Cerro Yanacocha (470(426 million ton capacity), Carachugo (372 million ton capacity) and La Quinua (640Maqui Maqui (64 million ton capacity, including the Western Oxides)capacity). Each of these leach pads includes at least two leach solution storage ponds and storm water ponds located down gradient from each leach pad. The Cerro Yanacocha site has two additional solution ponds for the segregation of solution generated from the treatment of transition ores. A raw water pond is used both for storm containment and to store excess solution during the wet season.

 

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Yanacocha has four

Yanacocha’s processing facilities: Pampafacilities (Pampa Larga, Yanacocha Norte and La Quinua and the Yanacocha Gold Mill. The processing facilities can be used to process gold-bearing solutions from any of the leach pads through a network of solution pumping facilitiesQuinua) are located adjacent to the solution storage ponds or, in the caseand are used to process gold-bearing solutions from Yanacocha’s leach pads through a network of thesolution-pumping facilities. The Yanacocha Gold Mill to processprocesses high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant. The Yanacocha Gold Mill commenced operations in March 2008 and its total annual production isit processes between 5.5 and 6.0 million dry metric tons or DMT. Productionper year.

Yanacocha’s mining activities encompass 260,212 acres (105,304 hectares) that are covered by 182 mining concessions. Yanacocha (51.35% owned by Newmont Peru) holds the mining rights related to 95,719 acres (38,736 hectares), covered by 71 concessions. Chaupiloma holds the mining rights to the remaining acres and concessions and has assigned these mining concessions to Yanacocha. Each concession has an initial term of 17 to 20 years, which are renewable at Yanacocha’s request for additional 17 to 20 year terms. Yanacocha has three processing concessions from the Ministry of Energy and Mines for its processing plants: Cerro Yanacocha (Yanacocha Gold Mill, is expected to significantly impact Yanacocha’s future production capabilities, with total production measured in life-of-mine ounces at theCerro Negro, La Quinua and Yanacocha), Yanacocha Gold Mill representing 38 percent of the total ounces produced by Yanacocha. In order to balance mining production(Carachugo and Yanacocha Gold Mill total production capacity, Yanacocha has established ore stockpiles in which it deposits most of the ore from the pits,Pampa Larga) and feeds a small portion directlyChina Linda (a limestone processing facility). The processing concessions have indefinite terms, subject to the plant. The Yanacocha Gold Mill sources mill ore frompayment of an annual fee based on nominal capacity for the Yanacocha, Chaquicocha, El Tapado and Tapado Oeste pits.processing plant.

 

Mining consists of a sequence of drilling, blasting, loading and hauling. Ore containing gold is transported from each mine to the nearest active leach pad while waste is taken to specially designed storage facilities. Ore is then leached by introducing diluted solutions of cyanide through an irrigation system placed on top of the ore. This solution percolates through the ore, dissolving gold and silver as AuCN and AgCN complexes, respectively, and results in a “pregnant” solution whichthat drains to solution storage ponds to be transferred to the nearest recovery facility. The end product is doré bars comprisedcomposed of approximately 65-66% gold and approximately 29% silver. The doré bars are transported from the processing plant by an outside security firm to be refined outside of Peru. See “—Transportation and Refining.” The solution from which the gold is removed (barren solution) is recycled to the leach pads for further heap-leaching after having been reconstituted with cyanide. The leaching process is generally a closed system. However, during periods of high rainfall, excess water must be treated at the facilities located at Yanacocha Norte and Pampa Larga, which have been designed to meet or exceed standards for drinking water and for agriculture and livestock as set out by the Peruvian Ministry of Health, the U.S. Environmental Protection Agency, the State of Nevada Regulations and World Bank guidelines. See “Regulation, Permit and Environmental Matters.”

 

Since 1997, the energy and power supply for Minera Yanacocha has been obtained from the Peruvian national electricity system (SEIN) through a 220 kilowattkilovolt (“kW”kV”) transmission line from the Trujillo-Norte substation in Trujillo to the Cajamarca-Norte substation in Cajamarca. This transmission line is owned by Consorcio Energético Huancavelica–CONEHUA,CONENHUA, and has a design capacity of approximately 150MW.

In August 2011, a new 220kW220kV called Interandina line was brought online from Carhuamayo-Paracsha–Conococha-Kiman Ayllu (Huallanca) and connected to the Cajamarca-Norte substation. This line belongs to Abengoa and provides Minera Yanacocha with energy and power, leaving the old transmission line with the energy flow to Trujillo.

 

MineraCurrently, Yanacocha also has a 60kW double triadcontract to supply energy and power with generator Engie Energia Perú S.A, which is valid until December 2020.

Yanacocha is powered from the Cajamarca-Norte substation through a 60 kV transmission line and a 220kW simple triad line. Both are connected to Cajamarca-Norte Substation for the direct supply of its process plants.

220 kV transmission line, both owned by Conenhua. Alternatively, in case of emergency, reduced supply or other event affecting the national electrical system, Minera Yanacocha has its own power generators with a capacity of approximately 27MW. This system allows the Company to maintain the sustainability of its operation system and reduce its operational risks.

 

In connection with a bidding process carried out during 2014, the supply of energy and power for the period from 2015 to 2018 was awarded to Duke Energy (Egenor), which is expected to achieve reductions in energy prices and result in savings of over US$25 million during the four-year term of the contract.

In 2014, Minera2016, Yanacocha’s power consumption was approximately 454445 Giga Watt Hours at a cost of US$30.327.8 million. The maximum demand was 63MW61.1 MW in JanuaryMarch 2016. Compared to the consumption in 2015, this was a reduction of 22 Giga Watt Hours, which represents a decrease of US$0.5 million. Approximately 85% of Yanacocha’s energy consumption is required by its processing plants, 13% by its mining facilities and May.See “Item 5. Operating and Financial Review and Prospects.”2% by the Yanacocha Verde plant.

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Water for Yanacocha’s operations is collected from rainfall and wells. All excess water used by Yanacocha undergoes treatment at the facilities described above.

 

Set forth below are certain unaudited operating data for the years shown for each of Yanacocha’s mining operations that were then in operation:

 

  2012  2013  2014 
Mining Operations:            
Ore mined (DST):            
             
Cerro Yanacocha  1,244,162   1,477,391   883,573 
Carachugo  26,270,839   13,590,412   7,721,830 
Maqui Maqui  1,590,491   2,467,205   619,755 
La Quinua  9,988,448   21,098,589   27,414,341 
San José  692,086   -   - 
Cerro Negro  2,872,609   4,733,308   3,644,896 
Total ore mined (DST)  42,658,634   43,366,905   40,281,395 
Average gold grade of ore mined (oz./DST):            
Cerro Yanacocha  0.052   0.016   0.019 
Carachugo  0.032   0.035   0.031 
Maqui Maqui  0.016   0.020   0.025 
San José  0.017   -   - 
La Quinua  0.052   0.031   0.043 
Cerro Negro  0.012   0.015   0.024 
Total average gold grade of ore mined (oz./DST)  0.035   0.029   0.038 
             
Gold production (oz.):            
Cerro Yanacocha  141,038   16,393   30,713 
Carachugo  690,503   437,095   286,062 
Maqui Maqui  5,810   5,856   5,669 
San José  8,117   -   - 
La Quinua  488,320   530,437   595,751 
Cerro Negro  12,204   27,478   51,749 
Total gold (oz.)  1,345,992   1,017,259   969,944 

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  2014  2015  2016 
Mining Operations:            
Ore mined (DST):            
Cerro Yanacocha  883,573   6,379,952   15,641,667 
Carachugo  7,721,830   2,775,440   1,448,536 
Maqui Maqui  619,755   1,490,496   44,297 
La Quinua  27,414,341   17,312,927   8,745,953 
Cerro Negro  3,644,896   12,875,105   6,017,662 
Total ore mined (DST)  40,281,395   40,833,920   31,898,114 
Average gold grade of ore mined (oz./DST):            
Cerro Yanacocha  0.019   0.010   0.011 
Carachugo  0.031   0.031   0.011 
Maqui Maqui  0.025   0.066   0.074 
La Quinua  0.043   0.037   0.023 
Cerro Negro  0.024   0.018   0.014 
Total average gold grade of ore mined (oz./DST)  0.038   0.027   0.015 
             
Gold production (oz.):            
Cerro Yanacocha  30,713   54,677   176,263 
Carachugo  286,062   87,146   124,886 
Maqui Maqui  5,669   67,195   28,105 
La Quinua  595,751   596,638   188,095 
Cerro Negro  51,749   112,033   137,584 
Total gold (oz.)  969,944   917,690   654,934 

 

Exploration

Yanacocha’s mining activities encompass 233,974 hectares covered by 351 mining concessions. Of these 233,974 hectares, SMRL Chaupiloma Dos de Cajamarca holds the mining rights related to 106,624 hectares, covered by 145 mining concessions. Minera Yanacocha SRL holds the mining rights related to 127,350 hectares underlying 206 concessions.

Chaupiloma has assigned these mining concessions to Yanacocha pursuant to several assignments of mining rights, several of which with an initial term of 20 years and one of which with an initial term of 17 years, which are renewable at Yanacocha’s request for an additional 20- or 17-year term, as the case may be.  

Yanacocha has four processing concessions from the MEM for its processing plants: Cerro Yanacocha (Yanacocha Gold Mill, Cerro Negro, La Quinua and Yanacocha), Yanacocha (Carachugo and Pampa Larga) and China Linda (non-metallic). The processing concessions have indefinite terms, subject to the payment of an annual fee based on nominal capacity for the processing plant. These four processing concessions include the Conga Project, which is in process of being granted.

 

Advanced exploration and early-stage development expenditures for the Yanacocha District during 20142016 totaled $19.9 million as compared to $20.0 million in 2013.$7.6 million. Expenditures focused on oxide development and advanced exploration projects which included: (i) Resourceincluding reserve conversion drilling at Carachugo and Reserve infillinventory drilling on the Quecher Main deposit; (ii) Reserve conversion infill drilling on the Los Pinos laybackat Cerro Negro, complementary geologic modeling work at Yanacocha Sur; (iii) Resource conversionVerde, underground drilling at Maqui Maqui oxideChaquicocha and transition; and (iv) advanceddeveloping exploration at the Marleny target. Expenditures focused on sulfide exploration and advanced exploration projects included: (i) Inventory conversion at the Maqui Maqui gold-copper deposit; (ii) metallurgical drilling and testing on the Chaquicocha Underground project; (iii) development support and metallurgical drilling on the Verde Bioleach Demonstration Facility; and (iv) exploration and development drilling on theof Antonio deposit.sulfides.

 

In 2015, efforts will focus on continuing exploration activitiesAt Carachugo, reserve drilling led to conversion of 0.15 million ounces as of December 31, 2016. At Yanacocha Norte, an initial inventory of oxides-transitional near surface was assessed, yielding an initial 0.10 million ounces. The economic evaluation continues in 2017.

At Chaquicocha, underground results are yielding gold grades higher than expected and some intervals with less tonnage, overall the Yanacocha districtresource estimated of 2.2 million ounces remains same. Exploration of Antonio sulfides confirmed areas 20 meters to 40 meters thick with grades averaging 7 Au g/t. Resource estimates remain unchanged and conducting an exploration program in the Yanacocha concession block outside of the operation district.more drilling is required to delineate this deposit.

 

Yanacocha’s exploration expenditures include all of the costs associated with exploration activities such as drilling, andassaying, geological and metallurgical testing. In addition, exploration costs cover engineeringtesting, roads and project development costs on advanced stage projects.access restoration, etc. Yanacocha prepares a budget annuallyfor each year and allocates an amount for exploration activities based on specific projects or regions.

 

Yanacocha intends to continue developing other oxide and sulfide projects, as well as the Conga gold-copper deposit project over the next several years, while continuing to explore the remainder of the Yanacocha district along with the adjacent Minas Conga and Solitario mineral holdings. The Conga project currently consists of two gold-copper porphyry deposits that are estimated to more than double Yanacocha’s proven and probable reserves. The Conga projecttotal budget for 2017 is located approximately 24 kilometers northeast of Yanacocha’s operating mine in the provinces of Celendin, Cajamarca and Hualgayoc. This project, incorporated into reserves beginning in 2004 and 2005, reported 12.6 million ounces of gold reserves and 3.3 billion pounds of copper reserves as of December 31, 2014.

Due to local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian central government-initiated EIA independent review were announced on April 20, 2012 and confirmed that Yanacocha’s initial EIA met Peruvian and international standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced its decision to move the project forward on a “water first” approach on June 22, 2012. Construction of Conga and the implementation of the independent EIA review recommendations will continue provided they can be accomplished in a safe manner with risk-adjusted returns that justify future investment. Should Yanacocha be unable to continue with the development plan at Conga in the coming years, mining activities may be reprioritized and capital reallocated to development alternatives which may result in potential accounting impairments.

For 2015, Yanacocha estimatesUS$12.7 million. It includes expenditures of $8.56US$2.4 million for exploration, US$5.9 million to delineate Chaquicocha underground and an additionalAntonio sulfides and US$2.6321.2 million related to reserve delineation, characterization and sterilization activities for ore bodies that are currently classified as reserves. Both expenditure estimates are exclusive of significant development engineering charges. This budgeted amount will be expended mainly on oxide reservereserves conversion extension drilling of known near-surface oxide inventories, sulfide exploration and early stage development within the Yanacocha district.at Carachugo-Quecher connection, among other projects.

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As of December 31, 2014, the Yanacocha district’s proven and probable reserves (excluding the Conga project’s proven and probable reserves) were estimated to be 4.9 million ounces of gold, a 14 percent decrease from the Yanacocha district’s proven and probable reserves as of December 31, 2013, which were estimated to be 5.7 million ounces of gold.  The decrease in reserves of gold was mainly due to mine depletion, revised pit designs, conversion from resources to reserves, updated block models and leach and stockpile inventory changes. As of December 31, 2014,2016, proven and probable gold reserves were calculated using a gold price assumption of $ 1,300US$1,200 per ounce.

 

As of December 31, 2014, the Conga project’s proven and probable reserves were estimated to be 12.6 million ounces of gold and 3.3 billion pounds of copper, which were unchanged from the 2013 gold and copper reserves.

Transportation and Refining

 

The doré bars produced by Yanacocha are transported to refineries outside of Peru and, as a result, Yanacocha has entered into pre-established transportation contracts. Yanacocha has engaged Hermes Transportes Blindados S.A., or Hermes,“Hermes,” to service its local transportation requirements. Under the terms of Yanacocha’s agreement with Hermes, the risk of loss with respect to the doré bars is assumed in its entirety by Hermes during the transportation of the doré bars from the mines to Jorge Chávez Airport in Lima. Thereafter, the responsibility for the doré bars shifts to the refiner, which has entered into a contract with an outside security firm to provide offshore transportation. The doré bars are melted, weighed and sampled in refineries abroad, which store the doré bars in strong-room vaults and assume responsibility there for the doré bars. Yanacocha pays a predetermined fee for the refining service. The final output from refineries, known as London Good Delivery gold and silver, is credited to Yanacocha’s London bullion accounts until transferred to purchasers.

 

Sales of Gold

 

Yanacocha’s gold sales are made through a monthly open-bidding process in which Yanacocha auctions its production corresponding to the next four to five weeks. This bidding process is set up by Yanacocha with approximately 10 financial institutions and trading firms prior tobefore each month. Yanacocha collects bids and confirms sales. The gold is typically sold on the date of departure from Jorge Chávez Airport in Lima. If a portion of gold remains unsold, it is sold on the spot market within a few days. Silver is sold on the spot market approximately once a month to financial institutions or trading firms. The cash from such sales is received into a collection account in London against orders to the London bullion bank for deliveries of the gold and silver to the purchasers.

 

Delivery is made once a week and payments are collected on the day of confirmation. The payment price for the gold consists of either (i) the market price at the confirmation of the sale, or (ii) the average London PM Fixingfixing price over the tendered period plus a small premium established pursuant to the bidding process. Since 1994, Yanacocha has consistently sold to five or six financial institutions and trading firms at each auction. Such buyers are market makers and active participants in precious metal markets.

 

Employees

As of December 31, 2014,2016, Yanacocha had 2,0431,599 employees. The compensation granted by Yanacocha to its employees includes a base salary and other non-cash benefits such as a health program and life insurance. Additionally, according to the profit sharing plan required by Peruvian labor laws, Yanacocha employees have the right to receive 8% of Yanacocha’s annual profits before taxes. Fifty percent of these profits must be distributed in proportion to the number of days each employee worked during the previous year, and the remaining 50% of such profits must be distributed according to each employee’s total annual salary.

Yanacocha has agreements with independent contractors that are responsible for the security services and staffing for the execution of the Company’s projects in compliance with applicable legal regulations. As of December 31, 2014,2016, independent contractors had hired 4,6833,578 persons who were working in the Company’s operations, including the Conga Project.project.

 

In 2004, Yanacocha entered intosigned its first collective bargaining agreement with a union representing certainsome of its employees, which was created on December 9, 2003. In 2012, a new union was established. During 2013,2016, a direct collective bargaining agreements wereagreement was signed with both unionsthis union for a threethree-year period (2016-2019). In the case of the older union, the collective negotiation ended in an arbitral tribunal that issued an arbitral award for a one-year period (2016-2017) based on Yanacocha’s proposal. Because the arbitral award is valid for just one year, period (2013-2016). during 2017 Yanacocha will start a new negotiation process with one of the existing unions.

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The Labor Relations Department meets with union leaders on a monthly basis to address various subjects and concerns in order to promote the creation of a productive and harmonious work environment. The parties resolve their differences through open and transparent talks.

 

As partYanacocha offers employees opportunities to collaborate, innovate and succeed in their careers. The employee performance assessment system is associated with Yanacocha’s core values and measures our employee’s performance from a social responsibility, relationship management and leadership point of view. The work culture encompasses diversity, interacts with employees, encourages the strengthening of relationsenvironmental and communication with its employees, Yanacocha’s upper management held around 20 face-to-face meetings with important Yanacocha stake-holders, where they had the opportunity to listen to the business planssocial responsibility, rewards outstanding performance and operating results of Yanacocha, as well as to raise any concerns or suggestions.develops great leaders at all levels.

 

During 2014, key development programs have been implemented in order to increase technical, leadership and management skills at all levels of Yanacocha’s employee population. The total number of training hours in 2014 was 221,131. The training programs included the LEADERS Program for 988 individual collaborators and first line supervisors. 176 employees participated in “Yanacocha University”, 103 participants in the Developmental Program for Front-Line Supervisors and 35 managers and superintendents attended the “Leading for Results Program”.

Social Development

 

Since its creation,From the start, Yanacocha has focusedcentered its attention on its relationship with the community and activelyon participating in itsthe community’s development. Since 1993, Yanacocha has invested US$434449 million in social development programs includingin the areas of education, health, social infrastructure (schools and medical posts)dispensaries), projects for productive infrastructure projects,and irrigation, rural electrification,electricity, roads, businessprograms for the promotion programs,of entrepreneurship, local tourism programs and agricultural assistance programs..

 

Despite significantall of this important social investment, in recent years, Yanacocha has experienced severalmany conflicts. In some instances, these conflicts that in some cases have affected the normal course of its operations. As a result of these conflicts,In response to this discord, Yanacocha has increased its effortsmade a greater effort to listen to and to address the concernsexpectations and expectationsworries of the local population.

 

To thisthat end, in 2014 Yanacocha began implementing thecontinues to implement its legitimacy approach in its community engagement with athe community, putting special emphasis on the following aspects: areas:respect for the city of Cajamarca, transparency and credibility, responsibility for waterthe care of the environment and environmental carewater and being a partner for development. Yanacocha believes that this new engagementlegitimacy approach has been recognizedis acknowledged by the community asand that this is a sign of a positive change in Yanacocha.

 

During 2014,2016, Yanacocha invested a total of US$8.664.47 million on social matters, US$6.354.08 million of which (includingwas invested mainly on agricultural activities (this includes the Conga Projectproject and the Association Los Andes of Cajamarca -Association – ALAC) were invested mainly in farming activities,, the promotion of communitythe development of capabilities educationin the community, and public and educational infrastructure. Additionally,In addition, Yanacocha invested US$2.310.39 million in the mitigation of mining’s social impacts in its areas of operation and implementedoperations, agricultural and livestockcattle raising projects, irrigation infrastructure, social development projects and the fulfillment of pending commitments with the surrounding communities.

 

In addition, in 20142016, Yanacocha also invested US$4.830.82 million in contributions for social investment through the Solidaridad Cajamarca Mining Solidarity Fund. Also, Yanacocha has invested US$1.15 million on maintenance of the Kuntur Wasi road.mining fund.

 

During 20152017, Yanacocha will be focusedcontinue to focus on further improving its relationshipperception and acceptance of the Company, actively participating in pro-development efforts with local communitiesthe civil society of Cajamarca, and maximizingstrengthening the valueinstitutional and recognition of its social investment in ordergovernment relations to ensure the viability and legitimacy of its activities.activities and maximize Company value.

Security

 

Yanacocha has 32nine security employees on its payroll including fiveand two employees responsible for the security of the region as a whole.whole (50% paid by Yanacocha). In addition, Yanacocha has a contracted security force of over 207258 persons assigned to rotating shifts at its mines and the city of Cajamarca. At its Lima offices, the city of Cajamarca, checkpoints along the road to the coast of Peru and residential areas in Cajamarca.there are 11 security employees. The Conga project has a total of 5983 contracted security personnel responsible for patrolling and providing security to the project in rotating shifts.

 

None of Yanacocha’s employees, properties or headquarters was the target of terrorist incidents during 2014.

Mining and Processing Concessions

 

Yanacocha believes that the mining concessions assigned to it are in full force and effect under applicable Peruvian laws and that it is in compliance with all material terms and requirements applicable to these mining concessions. To the best of its knowledge, Yanacocha is not subject to any condition, occurrence or event that would cause the revocation, cancellation, lapse, expiration or termination of any of its concessions, except that Yanacocha and Chaupiloma may, from time to time, remake, cancel, terminate or allow to lapse mining concessions assigned to Yanacocha that are not material to the conduct of Yanacocha’s business.

 

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Yanacocha has been actively pursuing the acquisition of the land surface rights or obtaining easements relating to land positions containing prospective geological exploration target sites, deposits that can be developed in the future or areas that would be considered for plant or facility sites. To date, Yanacocha has acquired all the surface rights with respect to 24,685.3224,685 hectares of the surface land covering its Carachugo, Chaquicocha, Maqui Maqui, Haussing, Laboratorio, Línea de Alta Tensión, Presas, Sorpresa Mishacocha, San José, Cerro Yanacocha, Las Lagunas, the Conga project, China Linda, Amaro, Chasu, Solitario, La Carpa, Canjes and La Quinua (which includes the Cerro Negro deposit) mining operations, and a majority of the Cerro Quilish deposit and of Calera China Linda.

In addition, as of December 31, 2014, Yanacocha had acquired  24,685.32  hectares, including  5,800.88  hectares of surface rights with respect to the Conga deposit, 3,588.25  hectares for Carachugo/San José/Chaquicocha, 2,153.84  hectares for Yanacocha and  1,649.94  hectares for Quilish. See “Yanacocha – “—A. History and Development of the Company.”Company” above. 

Regulation, Permit and Environmental Matters

 

Yanacocha is subject to a full range of governmental regulation and supervision generally applicable to companies engaged in business in Peru, including mining laws, labor laws, social security laws, public health, consumer protection laws, environmental laws, securities laws and antitrust laws. See “– Buenaventura – “—Buenaventura—B. Business Overview – Regulatory Framework – —Regulatory Framework—Mining and Processing Concessions” and “– Buenaventura – “—Buenaventura—B. Business Overview – Overview—Regulatory Framework – Framework—Environmental Matters” for a general description of Peruvian regulations of mining companies and environmental obligations. See “—Mining and Processing Concessions” above for a discussion of Peruvian regulations relating to the mining and processing concessions utilized by Yanacocha in its mining operations.

 

Yanacocha is requiredMining operations must meet a series of requirements to submit technical documentation with respectobtain the legal authorization for new activities and planned operational changes. These authorizations have to its miningbe reviewed and operations plans forapproved by the review and approvalcorresponding authorities of variousthe Peruvian government entities,Government, including the MEM,Ministry of Energy and Mines (MEM), the Ministry of Agriculture, (DIGAM)National Water Authority, Ministry of the Environment (MINAM), the National and the Local Water Authorities (ANA and ALA/AAA, respectively),Ministry of Culture, Ministry of Internal Affairs and the Ministry of Health (DIGESA). Yanacocha is requiredHealth. Modifications to file and obtain approvalthe existing permits are necessary when the expected rates of an EIS with a Benefit Concessionand MiningPermit for eachproduction, disturbed areas or other attributes of its mining operations before beingthe project exceed those authorized to operate. The EIS for the Carachugo, Maqui Maqui, San José, Cerro Yanacocha, La Quinua (including Cerro Negro) mining operations and China Linda lime plant have been reviewed and approved. Pursuant to current Peruvian regulations, Yanacocha also submits supplemental EISs each time a project’s production rate or disturbed area used is expanded. In 2006, Yanacocha filed an EIS modification to expand its operations at Yanacocha with the Supplemental Environmental Impact Assessment East (SYE) and in the vicinity of La Quinua with the Supplemental Environmental Impact Assessment West (SYO). Since 2006, two additional modifications have been submitted and approved for the original supplemental SYE EIS and one additional modification has been submitted and approved for the original supplemental SYO EIS.previous permits.

The improved permit application processing times by most of the regulatory authorities observed since the third quarter of 2013 continued into 2014.

A total of 2431 different permits of different types were approved at Yanacocha. for Yanacocha and only one for the Conga project (currently suspended) in 2016.

The approvalsmost significant approval for Yanacocha during 2016 was the Fifth Modification of greatest significance in 2014 were the EIS modifications forEIA “Suplementario Yanacocha Este” (SYE5) that mainly includes the expansion of the Chaquicocha Pit (Layback, Quecher Main, Quecher Norte and oxide underground mine), stage 2 of the Maqui Maqui pit and waste rockstage 14 of the Carachugo Pad. Three minor modifications of existing EIAs were also approved with an ITS (Informe Técnico Minero) for the Cerro Negro pit and water management in the Eastern and Western areas. Beneficiation Concession permit approvals included the construction of stage 10B of the Carachugo pad, operation of the raise to the south tailing storage facility, continued operation of the Bioleaching Plant of Copper and operation of the newly constructed La Quinua excess water treatment plant.

The National Water Authority also approved two discharge permits for the Eastern and Western zones and the Local Water Authority for the Marañón basin renewed the dewatering permits for the pits of Chaquicocha, La Quinua, Yanacocha and Maqui Maqui. Additionally during 2016, preparation started on the eastern sideEIA modification explaining how Yanacocha will comply with the new 2015 Water Quality Standards (ECA) that becomes effective in the next three years.

Relative to exploration, the Second Modification of the mining operations (SYE IV)semi-detailed EIA for Maqui Maqui was extended for five years. This allows for continued underground exploration at Chaquicocha and the Yanacocha and Tapado Oeste laybackscontinuance of exploration on the west side (SYO III). Approval of the exploration EIS-d permit for the Colorado area was obtained in 2014.surface.

 

Yanacocha’s corporateAt the Conga project, the only permit approved was the extension of water use from the Chailhuagon Sediment pond for dust control.

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Yanacocha has a policy is to operate inthat requires compliance with all applicable laws, regulations, permits, licenses and regulations and adopt and adhere to standardsother authorizations for operation. The procedures that are protective ofprotect both human health and the environment at the facilities it builds and operates.

Yanacocha has informed us that its management believes that its operations are conducted in accordance with applicable laws and regulations. Audits and corrective action plans are used to assure compliance. Future exploration, expansion and new projects will require a variety of permits.

As a result of the Environmental Quality Standards promulgated in 2008, Yanacocha will be required to substantially expand its existing water treatment capabilities. Efforts to identify appropriate technologies have been on-going since 2010developed and implemented in order to complyconnection with the newoperations. International standards withinsuch as the legal timeframe. The EIS forones from the water treatment project was approved in July 2014, but no time extension was provided at that time by MEM. Yanacocha continues working with the Sociedad Nacional de Minería, Petróleo y Energía (SNMPE), MEM, MINAM, and others to extend the deadline beyond December 2015 and adopt more reasonable standards that are still protective of human healthInternational Finance Corporation (“IFC”) and the environment.associated environmental guidelines are also used as guidance when applicable in an effort to implement best practices for environmental protection during project implementation and operations.

 

During 2005, Yanacocha became a signatory to the International Cyanide Management Code, which providesestablishes specific and strict standards on how to properly manage cyanide. The required audit process was completedcyanide from production through closure. Yanacocha has been audited and re-certified in September 20072008, 2011 and certification2015. During 2016, Yanacocha also re-certified its Environmental Management System under the International Cyanide Management Code occurred during April 2008. In 2011,ISO 14001 standard.

The environmental laboratory of Yanacocha commissionedwas accredited under standard ISO 17025 for environmental analytical laboratories in 2006. The importance of the accreditation is the recognition of the technical competence of the on-site laboratory to ensure reliable and successfully completed recertification audits to maintain International Cyanide Code Certification. Another Cyanide Code recertificationaccurate results of the analysis of the water samples. Yanacocha has consistently maintained this certification and the last follow-up audit was conducted in 2014 and it is anticipated that Yanacocha will be determined to again be in full complianceNovember 2016 when the audit is published bylab successfully obtained re-accreditation for the International Cyanide Management Institute in 2015. The Yanacocha environmental laboratory was recertified under ISO 17025 in 2014. period 2017 to 2018.

 

The Government Agency for Evaluation and Environmental Supervision (Organismo de Evaluación y Fiscalización Ambiental - OEFA) carried out a total of three compliance supervisions within the operations areas of Yanacocha has informed us that its management believes that it isand China Linda during 2016. A single inspection was conducted of the currently suspended Conga project. There were no fines or monetary penalties imposed by OEFA during 2016.

During 2016, support continued for the drinking water supply system improvement projects for the city of Cajamarca as part of the public-private partnership between the Provincial Municipality of Cajamarca, the Local Water Supply Company for Sanitation (SEDACAJ), Yanacocha and Asociación Los Andes de Cajamarca (ALAC-Spanish initials). These projects have been underway since March 2012 with a total of approximately $10.7 million contributed.

The accomplishments made in compliance with all applicable regulations and international standards concerning safety. For the year ended December 31, 2014, Yanacocha experienced five lost time injuries, the same number of lost time injuries it experienced in 2013. 2016 are:

·Completion of the project Urban Sanitary Education, which included 2,500 students from nine educational institutions and 60 leaders from the southern zone of the city that took actions for water care and improving health conditions.

·Completion of the technical profile for the improvement of the Potable Water Plants of Santa Apolonia and El Milagro.

Insurance

 

Yanacocha maintains a comprehensive insurance program designed to address the specific risks associated with its operations, in addition to covering the normal insured risks encountered by major mining companies.

 

Yanacocha’s insurance program consists of a “Primary Program” and an “Umbrella/Excess Program.” Coverage under the Primary Program is provided through the local Peruvian insurance market and includes employers’ liability, comprehensive third partythird-party general liability, comprehensive automobile liability and all risk property on a replacement basis, including transit risks, business interruption insurance and mining equipment. Coverage under the Umbrella/Excess Program is provided through Newmont Mining’s master worldwide insurance program and addresses claims that the Primary Program cannot, or will not, cover.

 

By-Laws of Yanacocha

 

Yanacocha is governed by the Peruvian Companies Law and theestatutos (the combined articles of incorporation and by-laws) of Yanacocha, or the Yanacocha“Yanacocha By-Laws.”

 

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Control Over Major Corporate Events

 

Pursuant to the Peruvian Companies Law and the Yanacocha By-Laws (including applicable quorum requirements), without the affirmative vote of the partners of Yanacocha representing at least 51 percent51% of the voting shares, none of the following may occur: (i) an increase or decrease in Yanacocha’s capital, (ii) the issuance of any debentures, (iii) any sale of an asset whose book value is at least 50 percent of the paid-in capital relating to such asset, (iv) any amendment to the Yanacocha By-Laws in order to change its business form, (v) the merger, consolidation, dissolution or liquidation of Yanacocha or (vi) any other amendment of the Yanacocha By-Laws.

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·an increase or decrease in Yanacocha’s capital;

·the issuance of any debentures;

·any sale of an asset whose book value is at least 50% of the paid-in capital relating to such asset;

·any amendment to the Yanacocha By-Laws to change its business form;

·the merger, consolidation, dissolution or liquidation of Yanacocha; or

·any other amendment of the Yanacocha By-Laws.

 

Pursuant to the Shareholders Agreementshareholders agreement among Newmont Second, Condesa,Compagnie Miniére Internationale Or S.A. and IFC, dated as of August 16, 1993, as amended by a General Amendment Letter, dated August 17, 1994, any member of the Executive Committee of Yanacocha who wishes to propose that Yanacocha’s Executive Committee authorize Yanacocha to take a Significant Action (as defined below) must (i) give written notice to each partner of such proposal prior tobefore consideration thereof at a meeting of the Executive Committee and (ii) refrain from voting to approve such Significant Action until (x) the Executive Committee has received the consent of 80 percent80% of the partners of Yanacocha (a partner is deemed to have consented if no objection is received from such partner within 30 days after being notified) or (y) the Executive Committee has received the consent of at least 51 percent51% of the partners of Yanacocha and 45 days have elapsed since the member of the Executive Committee who proposed the Significant Action has responded in writing to objections received from objecting partners. “Significant Action” means (i) a disposal or sale of more than 20 percent by value of Yanacocha’s fixed assets, (ii) any planned shutdown or cessation of Yanacocha’s mining activities that is planned to last for more than one year, (iii) any capital expenditure by Yanacocha exceeding US$20 million, (iv) any disposal or sale by Yanacocha of the mining rights covered by certain concessions or (v) the approval of the construction of a project in the area owned by Yanacocha (other than the Carachugo mine and processing facilities).means:

·a disposal or sale of more than 20% by value of Yanacocha’s fixed assets;

·any planned shutdown or cessation of Yanacocha’s mining activities that is planned to last for more than one year;

·any capital expenditure by Yanacocha exceeding US$20 million;

·any disposal or sale by Yanacocha of the mining rights covered by certain concessions; or

·the approval of the construction of a project in the area owned by Yanacocha (other than the Carachugo mine and processing facilities).

Preemptive Rights

 

The Peruvian Companies Law and the Yanacocha By-Laws provide preemptive rights to all partners of Yanacocha. In the event of a capital increase, any partner has a preemptive right to pay its pro rata share of such increase in order to maintain such partner’s existing participation in Yanacocha.

 

In the event of a proposed transfer, exchange or sale, either voluntary or involuntary, of participation, collectively referred to as the Offered“Offered Participation,” of one or more partners, any partner has a right to acquire the Offered Participation in proportion to its holdings of partners’ capital. InIf the event that not all of the partners wishentire partnership fails to exercise this right or some partners indicate their decision to acquire a smaller share than that to which they are entitled, the other partners will be entitled toreceive an increase, and consequently, the remaining participation will be distributed among them in proportion to such partners’ capital participation and within the maximum limit of the participation they have stated their intention to acquire. Finally, any Offered Participation remaining unsubscribed by the partners must first be offered to Yanacocha before they may be offered to third parties.

 

In addition, in the event of the occurrence of a change of control (as defined) with respect to a significant partner, or the parent of a significant partner, in Yanacocha, the other significant partner will have the right to acquire the first partner’s participation interest in Yanacocha. No change of control will occur with respect to a significant partner so long as the parent of such partner is publicly traded or if such partner’s parent is acquired, the acquiring company is publicly traded.

 

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Legal Proceedings

 

For a discussion of legal proceedings, see Note 2420 to the Consolidated Yanacocha Financial Statements.

 

Other than the legal proceedings described in the Consolidated Yanacocha Financial Statements, Yanacocha is also involved in certain legal proceedings arising in the normal course of its business, none of which individually or in the aggregate is material to Yanacocha or its operations.

Management of Yanacocha

 

Executive Committee

 

Pursuant to the Yanacocha By-Laws, Yanacocha’s Executive Committee consists of six members, all of whom are appointed by the partners of Yanacocha. Gary J. Goldberg, President and Chief Executive Officer of Newmont Mining Corporation, has been appointed Chairman of Yanacocha’s Executive Committee and Roque Benavides, our President and Chief Executive Officer,Chairman of the Board, serves as the Vice Chairman of Yanacocha’s Executive Committee.Committee. The Vice Chairman has the power to preside over the meetings of Yanacocha’s Executive Committee in the Chairman’s absence. The members of the Executive Committee are elected for a three-year term but may continue in their positions until the next election takes place and the newly elected members accept their positions. Alternate members are elected in the same manner as members and can act in place of and with all the authority of members when a member is unavailable, except that an alternate member may not preside over the meetings of Yanacocha’s Executive Committee. The Chairman has the right to cast the deciding vote in the event of a deadlock among Yanacocha’s Executive Committee.

General Manager/Management Agreement

 

The Yanacocha By-Laws provide that the Yanacocha Partners’ Meeting has the power to appoint and remove the Manager of Yanacocha; the Executive Committee has the power to appoint and remove other officers of Yanacocha, determine their duties and compensation and grant and revoke powers of attorney. Newmont Peru was named as Yanacocha’s Manager according to a publicly filed deed, and it continues to hold that position. Newmont Peru’s duties as Manager are defined in the Management Contract dated February 28, 1992, as amended, between Yanacocha and Newmont Peru.Peru (the “Management Contract”). Pursuant to the Management Contract, Newmont Peru is responsible for managing, conducting and controlling the day-to-day operations of Yanacocha and keeping Yanacocha’s Executive Committee informed of all operations through the delivery of various written reports. The Management Contract was amended as of December 19, 2000. The amendment extends the term of the Management Contract for a period of 20 years starting at the date of amendment and provides that it may be extended for additional terms of 20 years upon request by Newmont Peru. Newmont Peru, however, may cancel the Management Contract by giving six months’ prior notice to Yanacocha. The Management Contract will be deemed terminated if, due to reasons attributable to the bad management of Yanacocha, except for reasons beyond its control, Newmont Peru is unable to substantially complete the agreed work programs. In exchange for its services as Manager, Newmont Peru receives remuneration of US$2 per ounce of gold production and its equivalent for copper production paid on a quarterly basis, which amount is expected to cover the overhead and administrative expenses for the management of the operations. Also, Newmont Peru may charge Yanacocha for the salaries of employees of Newmont Peru or its affiliates who are directly involved in the operation of Yanacocha. In 2014,2016, Yanacocha accrued fees of US$35.99 million owed to Newmont Peru and its affiliates under the Management Contract.

 

Control Over Major Corporate Events

 

See “—By-Laws of Yanacocha” above for a description of certain provisions of Peruvian law and of the Yanacocha By-Laws relating to control over major corporate events.

Preemptive Rights and Rights of First Refusal

 

See “—By-Laws of Yanacocha” above for a description of certain provisions of Peruvian law and of the Yanacocha By-Laws relating to preemptive rights and rights of first refusal.

D. Property, Plants and Equipment

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C.Property, Plants and Equipment

Our Properties

 

Introduction

 

We currently have fivefour wholly-owned operating mines (Orcopampa, Uchucchacua, Julcani Mallay and Breapampa)Mallay) and controlling interests in two mining companies which operate the Colquijirca-Marcapunta and La Zanja mines. We also own an electric power transmission company, an energy generation company, a chemical processing company, an engineering services consulting company and an insurance brokerage company. We also have non-controlling interests in Yanacocha, Cerro Verde and Tantahuatay mines.See “—Buenaventura— “Buenaventura—C. Organizational Structure” and “Intermediate Holding Companies, Subsidiaries and Equity Participations.” Set forth below is a map of our principal mining operations.

 

  

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Directly Operated Properties

 

Orcopampa

 

The Orcopampa mine is wholly-owned and operated by us.Buenaventura. We lease the rights to the mining concessions of Orcopampa from a group of private investors. This lease, which expires in 2043, requires a payment from us equal to 10 percentpay 10% of production value, subject to certain conditions. Operations started inbegan at the Orcopampa mine in 1965. In 2014,2016, we made lease payments of US$21.7million.We19.8 million.We operated Orcopampa as a silver mine until the late 1990s, when we also began to mine gold-bearing veins.

 

The Orcopampa mine is located in the province of Castilla, department of Arequipa, approximately 1,350 kilometers southeast of the city of Lima, at an altitude of between 3,800 and 4,500 meters above sea level.

 

The Orcopampa mine consists of an epithermal gold telluride deposit, hosted into lava flows and domes of Sarpane complex (calc-alkaline to high potassium), of early Miocene to Holocene, which forms part of the tertiary metallogenic belt of Southern Peru (Au-Ag).

 

Mining at Orcopampa is conducted underground using the mechanized cut-and-fill method. Mine ore is processed by the Carbon in Leach method in a plant located in Orcopampa, which was also outfitted for the treatment of old tailings. Electric power is primarily obtained from the Peruvian national electricity grid. Water for operations at Orcopampa is obtained from a lake and rivers.

 

In 2014,2016, geological exploration activities were focused on the Pucará Sur, Pucarina, Nazareno, Lucía – a–Julissa veins system, in theEsperanza and Prometida mine and on the Nazareno veins system, which includes Nazareno Este and Pukará Sur.Ramal 1.

 

As of December 31, 2014,2016, proven and probable ore reserves were 631,097763,885 tons, with 54.3147.28 grams per ton of silver and 15.8214.70 grams per ton of gold. We have estimated NRM of 197,592 tons, with 185.16 grams per ton silver and 15.72 grams per ton gold.

 

Set forth below are certain unaudited operating data for the periods shown for Orcopampa, calculated on the basis of 100 percent100% of the mine’s production.

 

 

Year Ended December 31,(1)

  

Year Ended December 31,(1)

 
 

2013

 

2014

  2015  2016 
Mining Operations:                
Ore mined (t)  443,537   454,694   458,222   464,366 
Average gold grade (g/t)  15.04   14.15   14.32   12.66 
Average silver grade (g/t)  25.66   56.26   69.86   59.72 
Production:                
Gold (oz)  224,671   203,226 
Silver (oz)  519,728   430,494 
Gold (oz.)  204,629   191,102 
Silver (oz.)  562,795   692,318 
Recovery rate (gold) (%)  96.8   97.72   95.30   96.33 
Recovery rate (silver) (%)  52.6   51.44   53.64   73.39 
Cost applicable to sales per oz. of gold(2) US$799  US$768  US$678  US$704 
Cost applicable to sales per oz. of silver(2) US$12.97  US$11.17  US$8.82  US$9.62 

 

 

(1)Incorporates losses for mining dilution and recovery.
(2)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, respectively, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

Uchucchacua

 

The Uchucchacua mine is wholly-owned and operated by us.Buenaventura. Operations began in 1975 and Uchucchacua is currently our largest producer of silver.wholly-owned silver producing mine. Uchucchacua is located in the province of Oyón, department of Lima, approximately 265 kilometers northeast of the city of Lima at an altitude of between 4,000 and 5,000 meters above sea level.

49 

 

Uchucchacua’s mineral structures are hosted by Mesozoic limestone of the Jumasha Formation and are classified as a mesothermal polymetallic deposit of silver-lead-zinc with important contents of manganese. The main mineralized structures are veins and ore bodies with high-grade silver mineralization.content.

 

Mining at Uchucchacua is conducted underground utilizingand utilizes cut-and-fill stopping, shrinkage stopping and sublevel stopping methods. Ore is processed at a mill located at Uchucchacua. The mill has a rated capacity of 3,8003,860 tons per day and utilizes differential flotation to obtain a lead-silver concentrate and a zinc concentrate. Electric power is obtained from the Peruvian national electricity grid, a hydroelectric plant and a diesel generator. We utilize a power line connecting Uchucchacua to the Peruvian national electricity grid and have electrical distribution facilities within the Uchucchacua mine. Water for operations at Uchucchacua is obtained from three lakes.

 

In December 2013, we completed construction ofDuring 2016, the manganese sulfate plant of Rio Seco located 102 kilometers northtreated 24,424 tons of Lima. In January 2014, operations began with the treatment of manganese – silver concentrates from the Uchucchacua mine.During 2014, 25,398 tons were treated,mine, with 197.3142.3 ounces per ton of silver, 13.17 percent7.0% lead 19.28 percent manganese, and following25.7% manganese. Following treatment, 17,57418,848 tons were obtained, with 289.4213.5 ounces per ton of silver, 16.9 percent10.5% lead and 3.23 percent3.6% manganese. This process also allowed for the production of 10,97016,651 tons of sulfuric acid of 98.0 percent98.0% purity and 3,40417,056 tons of commercial grade manganese sulfate monohydrate.monohydrated.

 

In 2014, explorationsDuring 2016, the main exploration efforts were focused on the Socorro mine, earning the largest volume of mineral reserves. In Huantajalla, the Carmen and Huantajalla mines. The Casualidad and Carmen mines were also explored in 2014. In 2015, we plan to increase exploration in these four mines.with relative success finding narrow structures, but high silver contents.

 

At December 31, 2014,2016, proven and probable ore reserves were 4,171,6054,652,675 tons, with 493.83442.35 grams per ton of silver, 1.17 percent1.42% lead and 1.59 percent zinc. Total NRM was 3,492,555 tons, with 490.54 grams per ton of silver, 1.47 percent lead and 1.83 percent1.87% zinc.

 

Set forth below are certain unaudited operating data for the periods shown for Uchucchacua, calculated on the basis of 100 percent100% of the mine’s production.

 

 

Year Ended December 31,(1)

  

Year Ended December 31,(1)

 
 

2013

 

2014

  2015  2016 
Mining Operations:                
Ore mined (t)  1,001,102   1,013,633   1,121,474   1,267,752 
Average silver grade (g/t)  441.40   452.87   460.33   473.71 
Average zinc grade (%)  1.24   1.04   1.05   1.17 
Average lead grade (%)  0.92   0.81   0.82   0.93 
Production:                
Silver (oz)  11,444,751   12,055,570 
Silver (oz.)  13,919,922   16,212,746 
Zinc (t)  8,146   6,349   5,693   7,227 
Lead (t)  8,363   7,605   7,947   10,724 
Recovery rate (silver) (%)  80.62   81.67   83.87   83.95 
Cost applicable to sales per oz. of silver(2) US$16.48  US$16.22  US$13.93  US$11.03 
Cost applicable to sales per ton of zinc(2) US$1,418  US$2,464  US$2,426  US$2,223 
Cost applicable to sales per ton of lead(2) US$1,586  US$1,830  US$1,548  US$1,214 

 

 

(1)Incorporates losses for mining dilution and recovery.
(2)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of silver, ton of zinc or ton of lead consists of cost applicable to sales for silver, zinc or lead sold, respectively, divided by the volume of silver, zinc or lead produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

50 

Julcani

 

Julcani is an underground mine that is wholly-owned and operated by us. We acquired Julcani in 1953 as our first operating mine. Julcani is located in the province of Angaraes, department of Huancavelica, approximately 500 kilometers southeast of Lima at an altitude of between 4,200 and 5,000 meters above sea level.

 

Julcani is a large polymetallic deposit in Central Peru, which principally produces silver, that occurs mainly in tetrahedrite and sulfosalts in a multitude of mineralogically complex veins hosted byin dacite domes, surge depositstuffs, breccias and other tertiary volcanic rocks.

 

Ore is processed by bulk flotation in order to obtain a concentrate of silver-lead-copper-gold. The plant has a rated capacity of 450550 tons per day.

 

Electric power is generated by three hydroelectric plants, Huapa, Tucsipampa and El Ingenio. We are also connected to the Peruvian national electricity grid. Water for operations in Julcani is obtained from mine drainage, a stream and a small lagoon.

 

During 2014,2016, we focused our exploration activities on the main mineralized structures of the Acchilla and Estela mines. In 2014, we plan to continue exploration activities at the main veins of the Acchilla and Estela mines, wherebymine we expect to explore approximately about 60 meters belowhave continued the current levelexploration of deeper levels that confirm the deepening of silver mineralization in each mine.all main veins. We have also begun the exploration of underground work, searching for silver mineralization in an interesting new area called Taype-Galindo.

 

At December 31, 2014,2016, total proven and probable ore reserves were 310,095294,852 tons, with 631.42652.08 grams per ton of silver, 0.480.288 grams per ton of gold, 2.17 percent2.30% lead and 0.52 percent copper. Total estimated NRM was 223,317 tons, with 641.87 grams per ton of silver, 0.26 grams per ton of gold, 2.01 percent lead and 0.37 percent0.49% copper.

 

Set forth below are certain unaudited operating data for the periods shown for Julcani, calculated on the basis of 100 percent100% of the mine’s production.

 

 Year Ended December 31,(1)  

Year Ended December 31,(1)

 
 

2013(2)(3)

 

2014(2)(3)

  

2015(2)(3)

  

2016(2)(3)

 
Mining Operations:                
Ore mined (t)  148,683   167,750   177,948   173,865 
Average gold grade (g/t)  0.58   0.25   0.22   0.12 
Average silver grade (g/t)  604.11   600.97   597.66   606.83 
Average lead grade (%)  1.72   1.69   1.55   1.76 
Average copper grade (%)  0.27   0.18   0.21   0.18 
Production:                
Gold (oz)  1,032   414 
Silver (oz)  2,711,996   3,084,347 
Gold (oz.)  607   246 
Silver (oz.)  3,266,453   3,264,420 
Lead (t)  2,314   2,619   2,592   2,883 
Copper (t)  375   275   339   291 
Recovery rate (silver) (%)  93.90   95.16   95.52   96.25 
Cost applicable to sales per oz. of gold(4) US$804  US$603  US$955  US$825 
Cost applicable to sales per oz. of silver(4) US$12.70  US$14.14  US$12.30  US$11.62 
Cost applicable to sales per ton of lead(4) US$1,220  US$1,603  US$1,425  US$1,241 
Cost applicable to sales per ton of copper(4) US$4,103  US$5,195  US$4,416  US$2,837 

 

 

(1)IncorporatesIncludes losses fordue to mining dilution and recovery.
(2)IncorporatesIncludes total Acchilla and Estela mine production.
(3)Reflects total recovery percentage of Acchilla and Estela ore.

(4)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold, ounce of silver, ton of lead or ton of copper consists of cost applicable to sales for gold, silver, lead or copper sold, respectively, divided by the volume of gold, silver, lead or copper produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

51 

 

Mallay

 

The Mallay mine is wholly-owned and operated by us and is located 21 kilometers southwest of the Uchucchacua mine in the district of Mallay, province of Oyón, department of Lima. Mallay is considered an epithermal deposit of silver, lead, zinc and gold. We have recognized the following main ore structures: Isguiz body-vein (silver, lead, zinc), Pierina (gold vein), María (silver vein) and Fortuna (skarn type lead, zinc, silver).

 

During 2014,2016, we have continued geological exploration with tunnels and diamond drilling and tunnels, mainly focused on the Isguiz body-vein and the María-Danaa-Dana-Pierina and Nicole system silver veins and Jasmin in the Jumasha limestone zone.veins. In 2015,2017, we plan to construct exploration tunnels and conductexplore deeper levels in accordance with the diamond drilling on the same mineralized structures, but reachingcampaign’s 2016 results.

District explorations have identified a new levelstarget area 5 kilometers west of Isguiz with indications of gold and increasing exploration activities on the Jumasha limestone.silver mineralization in Cretaceous sandstones and quartzites that will be explored with diamond drilling during 2017.

 

As of December 31, 2014,2016, proven and probable ore reserves were 121,838162,125 tons, with 419.17286.17 grams per ton of silver, 1.090.47 grams per ton of gold, 6.95 percent4.65% lead and 7.68 percent zinc. NRM were 104,640 tons, with 402.79 grams per ton of silver, 1.74 grams per ton of gold, 6.01 percent lead and 6.91 percent7.69% zinc.

 

Set forth below are certain unaudited operating data for the Mallay mine, calculated on the basis of 100 percent100% of the mine’s production.

 

 

Year Ended December 31,(1)(2)

  

Year Ended December 31,(1)(2)

 
 

2013

 

2014

  2015  2016 
Mining Operations:                
Ore mined (t)  161,567   148,058   158,124   204,035 
Average silver grade (g/t)  268.69   272.77   269.48   264.07 
Average lead grade (%)  5.09   5.80   5.05   3.98 
Average zinc grade (%)  6.68   7.79   6.60   5.79 
Production:                
Silver (oz)  1,279,972   1,216,064 
Silver (oz.)  1,285,361   1,627,246 
Lead (t)  6,979   7,513   7,193   7,383 
Zinc (t)  8,973   9,893   9,173   10,463 
Recovery rate (silver) (%)  91.74   93.68   93.82   93.92 
Cost applicable to sales per oz. of silver(3) US$17.78  US$13.76  US$13.90  US$12.78 
Cost applicable to sales per ton of lead(3) US$1,707  US$1,547  US$1,544  US$1,406 
Cost applicable to sales per ton of zinc(3) US$1,527  US$1,855  US$1,794  US$1,869 

 

 

(1)Incorporates losses for mining dilution and recovery.
(2)Data reflect mining operations at Mallay minemine.
(3)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of silver, ton of lead or ton of zinc consists of cost applicable to sales for silver, lead or zinc sold, respectively, divided by the volume of silver, lead or zinc produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

Breapampa

La Zanja

 

The BreapampaLa Zanja mine is wholly-owned and operated by us. It is located in the district of Chumpi,Pulan, province Parinacochas,of Santa Cruz, department of Ayacucho.Cajamarca in northern Peru. La Zanja is located 48 kilometers northwest of the Yanacocha gold mine, at an average altitude of 3,500 meters above sea level. We hold a 53.06% interest in La Zanja and Newmont Holdings ULC holds a 46.94% interest.

52 

La Zanja is located within a large area of hydrothermal alteration, mainly related to epithermal gold deposits in high sulfidation environments, in addition to some vein systems of intermediate to low sulfidation. We have recognized two ore deposits: San Pedro Sur and Cerro Pampa Verde.

Mining operations are conducted through the open-pit method, the plant utilizes a carbon-in-column circuit as well as a Merrill Crowe circuit to recover gold from heap leach operations. The ore deposit consists of gold and silver mineralization in an epithermal system high-sulfidation, emplacedladen carbon is then transported to Yanacocha to be processed into breccias of tertiary volcanic rocks. We located higher concentrations of gold-silver in oxides in the following geological prospects: Cerro Parccaorcco, Senccata, Pucagallo, Andrea, Ccaccapaqui, Sancos and Grace. In July 2012, we began the production phase at Cerro Parccaorcco, where gold is contained within silica-oxides.doré bars.

 

During the productive period of Breacampa in 2014,2016, we performedcontinued diamond drilling to update ore distribution at Parccaorccofor increased resources in San Pedro Sur and define the gold ore within the colluvial deposit close to the Parccaorcco open pit, where we recognized disseminated gold that is part of current reserves.Pampa Verde. We have also continued exploring with diamond drilling in other areas around San Pedro Sur, Pampa Verde such as Casa Blanca and El Buitre.

 

We halted mining at Breacampa in November, 2014. However, we will continue recovering gold from the leach pads during 2015 and 2016, which generate annual revenues. Moreover, we will continue exploring in this mine.

ProvenTotal proven and probable ore reserves at December 31, 20142016 were 519,53915,116,370 tons, with 0.448.55 grams per ton of goldsilver and 17.160.52 grams per ton of silver. Additionally, Breapampa has 11,374 ounces of gold and 89,815 ounces of silver of stock in the leaching PADS. Total NRM in oxides were 2,184,069 tons, with 0.56 grams per ton of gold and 4.35 grams per ton of silver.gold.

 

Set forth below are certain unaudited operating data for the Breapampa mine,La Zanja, calculated on the basis of 100 percent100% of the mine’s production.

 

  

Year Ended December 31,(1)

 
  

2013

  

2014(2)

 
Mining Operations:        
Ore mined (t)  2,101,031   2,264,111 
Average gold grade (g/t)  1.19   1.54 
Average silver grade (g/t)  34.64   35.02 
Production:        
Gold (oz)  81,882   74,807 
Silver (oz)  356,775   369,032 
Cost applicable to sales per oz. of silver(3) US$10.00  US$6.56 
Cost applicable to sales per oz. of gold(3) US$616  US$452 
  Year Ended December 31, 
  2015  2016 
Mining Operations:        
Ore treated (t)  8,576,614   9,317,652 
Average gold grade (g/t)  0.70   0.75 
Average silver grade (g/t)  5.97   3.95 
Production:        
Gold (oz.)  141,071   139,724 
Silver (oz.)  331,080   217,292 
Cost applicable to sales per oz. of gold(1) US$753  US$607 
Cost applicable to sales per oz. of silver(1) US$10.08  US$8.01 

 

 

(1)Incorporates losses for mining dilution and recovery and reflects operations through November 2014.
(2)Data reflect mining operations at Parccaorcco and its Colluvial deposit.
(3)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, respectively, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

 

La ZanjaTantahuatay

 

The La ZanjaTantahuatay is a gold-copper mine is located in the district of Pulan,and province of Santa Cruz,Hualgayoc, department of Cajamarca, in northern Peru. La Zanja is located 48 kilometers northwest of the Yanacocha gold mine,Peru, at an average altitude of 3,5003,900 meters above sea level. WeThe Tantahuatay mine is operated by Buenaventura and wholly-owned by Coimolache, in which we hold a 53.06 percent interest40.10% equity interest.

Geologically, the Tantahuatay deposits are located at diatremes or volcanic necks in La Zanjaa sequence volcano-magmatic hydrothermal predominant linked to the regional mineralized sector north of Peru.

Tantahuatay consists of five areas of Au-Ag mineralization, contained in material of supergenic oxidation (Mirador Norte, Mirador Sur, Cienaga Norte, Cienaga Sur and Newmont holds a 46.94 percent interest.

La Zanja is located within a large area of hydrothermal alteration, mainly related to epithermal gold deposits in high sulfidation environments, in addition to some vein systems of intermediate to low sulfidation.Tantahuatay). We have recognized two ore deposits: San Pedro Sur and Cerro Pampa Verde.

Mining operations are conducted throughalso discovered that below the open-pit method, the plant utilizes a carbon-in-column circuit as well as a Merrill Crowe circuit to recover gold from heap leach operations. The gold laden carbon is then transported to Yanacocha to continue processing into doré bars.

In 2013, we completed the constructionoxides level of the road to Pampa Verde,Cerro Tantahuatay area, there is a significant resource of Cu-Au-Ag in pyrite-enargite ore (sulphides), which allowed us to begin open pit mining in February 2014, coincidingis present as disseminations and fracture fillings associated with the launching of the Merrill Crowe plant.advanced argillic alteration and multiphase breccia bodies.

 

During 2014,2016, we began tunneling andcontinued diamond drilling exploration onto update the 3,400 levelblock model for reserves of the Alejandra underground project. We also have continued exploring with diamond drillingopen pits Tantahuatay 2 and Ciénaga Norte and to convert resources to reserves in other areas around San Pedrothe Mirador Sur, Pampa VerdeMirador Norte and Alejandra, such as Cocán, Emperatriz, Campana, Totora and Diablo Rojo.Ciénaga Norte projects.

53 

 

Total proven and probable ore reserves at December 31, 20142016 were 9,917,39181,267,346 tons, with 0.72 grams per ton of gold and 4.26 grams per ton of silver. Total NRM of La Zanja was 13,148,842 tons, with 1.11 grams per ton of gold and 6.988.07 grams per ton of silver included San Pedro Sur, Pampa Verde and Alejandra. TotalNRM for Alejandra were 295,483 tons, with 20.150.39 grams per ton of gold and 124.10 grams per ton of silver.gold.

 

Set forth below are certain unaudited operating data for La Zanja,the Tantahuatay mine, calculated on the basis of 100 percent100% of the mine’s production.production

 

 

Year Ended December 31,

  

Year Ended December 31,(1)(2)

 
 

2013

 

2014

  2015  2016 
Mining Operations:                
Ore treated (t)  9,038,561   7,501,654   12,185,425   10,624,498 
Average gold grade (g/t)  0.73   0.84   0.50   0.56 
Average silver grade (g/t)  12.69   8.71   13.00   12.25 
Production:                
Gold (oz)  137,396   143,573 
Silver (oz)  391,832   422,395 
Gold (oz.)  144,782   150,816 
Silver (oz.)  879,832   711,337 
Cost applicable to sales per oz. of gold(1)(3) US$647  US$574  US$489  US$492 
Cost applicable to sales per oz. of silver(1)(3) US$10.51  US$8.43  US$6.59  US$6.71 

 

 

(1)Incorporates losses for mining dilution and recovery.

(2)Data reflect mining operations at the Tantahuatay 2 deposit only.

(3)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, respectively, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.amortization

 

Tantahuatay

Tantahuatay is a gold-copper mine located in the district and province of Hualgayoc, department of Cajamarca, in northern Peru, at an average altitude of 3,900 meters above sea level. The Tantahuatay mine is operated by us and wholly-owned by Cia Minera Coimolache S.A., in which we hold a 40.10 percent equity interest.

Geologically, the Tantahuatay deposits are located at diatremes, or volcanic necks, in a sequence volcano-magmatic hydrothermal predominant, linked to the regional mineralized sector north of Peru.

Tantahuatay consists of five areas of Au-Ag mineralization, contained in material of supergenic oxidation (Mirador Norte, Mirador Sur, Cienaga Norte, Cienaga Sur and Tantahuatay). We have also discovered that below the oxides level of the Cerro Tantahuatay area, there is a significant source of Cu-Au-Ag in pyrite-enargite ore (sulphides), which is present as disseminations and fracture fillings associated with advanced argillic alteration and multiphase breccia bodies.

During 2014, we performed diamond drilling to update the geology block model for reserves values of the Tantahuatay and Ciénaga Norte open pits, and to explore the ore deposits of Mirador Sur, Mirador Norte, and Ciénaga Norte in order to increase mineral resources.

Total proven and probable ore reserves at December 31, 2014 were 57,330,452 tons, with 0.46 grams per ton of gold and 10.58 grams per ton of silver. Total oxide NRM were 58,433,075 tons, with 0.36 grams per ton of gold and 2.87 grams per ton of silver. Total NRM in sulfides were 149,727,000 tons, with 0.28 grams per ton of gold, 4.35 grams per ton of silver and 0.72 percent copper.

Set forth below are certain unaudited operating data for the Tantahuatay mine, calculated on the basis of 100 percent of the mine’s production.

  

Year Ended December 31,(1)(2)

 
  

2013

  

2014

 
Mining Operations:        
Ore treated (t)  6,949,742   9,854,334 
Average gold grade (g/t)  0.75   0.57 
Average silver grade (g/t)  14.49   11.08 
Production:        
Gold (oz)  142,667   143,643 
Silver (oz)  684,022   754,357 
Cost applicable to sales per oz. of gold(3)   US$543   US$455 
Cost applicable to sales per oz. of  silver(3)   US$9.18  US$6.71 

(1)Incorporates losses for mining dilution and recovery.
(2)Data reflect mining operations at the Tantahuatay 2 deposit only.

(3)Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ounce of gold or ounce of silver consists of cost applicable to sales for gold or silver sold, respectively, divided by the volume of gold or silver produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

Colquijirca and Marcapunta Norte

 

The Colquijirca (also known as Tajo Norte) and Marcapunta Norte mines are wholly-owned by El Brocal. El Brocal was founded in 1956 and is engaged in the extraction, concentration and sale of concentrates of polymetallic minerals—minerals – mainly zinc, copper, lead and silver. Our aggregate direct and indirect equity interest in El Brocal was 54.07 percent61.32% at December 31, 2014.2016.

 

The Colquijirca and Marcapunta Norte mines are adjacent and are located 285 kilometers east of the city of Lima and 10 kilometers south of the city of Cerro de Pasco. El Brocal produces zinc, lead and lead/silver concentrates from the Colquijirca mine and copper concentrates from the Marcapunta Norte mine. The Colquijirca mine consists of three important polymetallic deposits: (1) Tajo Norte,Norte–Smelter, which contains zinc, silver and lead ore; (2) Marcapunta, which contains an auriferous mineralization in breccia oxides and an arsenic copper enargite mineralization as a continuation of the mineralized mantles of the Marcapunta Norte mine; and (3) San Gregorio, which contains zinc.

Mining at Colquijirca is conducted through the open-pit method from which zinc and lead concentrates are produced. El Brocal’s zinc concentrate typically contains 50 percent50% zinc, while its lead concentrate typically contains 50 percentapproximately 50% lead. Mining at Marcapunta Norte is conducted through the sublevel stopping method, from which copper concentrates are produced. El Brocal’s copper concentrates typically contains 25 percentcontain approximately 27% copper, 4 percent4% silver and 8 percent8% arsenic.

 

The Huaraucaca concentrator plant processes ore from both mines. In 2014,2016, average treated ore at the plant reached up to 9,440was 16,700 tons per day.day, with amounts in the third and fourth quarter of 2016 reaching 18,200 and 18,700 tons per day, respectively. The Colquijirca mineand Marcapunta mines primarily relies on a power line connected to the Peruvian national electricity grid.

 

54 

El Brocal has conducted an exploration program at the Marcapunta deposit to confirm mineralization and find possible extensions, as well as to increase reserves at the Colquijirca and Marcapunta Norte mines. This program was discontinued in 2014. At the end of 2014, El Brocal obtained approval for its EIS relating to a diamond drilling program at the Marcapunta deposit.

 

In 2014,2016, we invested US$64.024.7 million to expandprimarily in the overland conveyor belt infrastructure and system logic change, new secondary crushers, drilling and social investment for a smelter project and have investedthe initial investment in a total of US$526.0 million since 2008. The construction of the expansion project operations finished during the third quarter of 2014 and, as a result, we expect production to increase from 10,000 tpd to 18,000 tpd by the middle of 2015. In 2014,water treatment plant expansion.In 2016, exploration was halted in prospective areas such as San Gregorio, Marcapunta Oeste and other areas in order to focus efforts on ramping upmaintaining the crushing, milling and flotation processes as well as constructionto the expected capacity of the Huachuacaja tailings facility, which were finished during the third quarter of 2014.18,000 tons daily in a sustainable manner.

 

Total proven and probable reserves of Colquijirca as of December 31, 20142016 were 43,621,94625,040,000 tons, with 27.9934.21 grams of silver per ton, 2.53 percent2.59% of zinc and 0.86 percent0.96% of lead.lead, plus 48,881,000 tons in smelter expansion, with 1.41% of copper and 16.48 grams of silver per ton. Total proven and probable reserves of Marcapunta Norte as of December 31, 20142016 were 21,990,60315,911 tons with 17.0013.68 grams of silver per ton, 0.390.37 grams of gold per ton and 2.26 percent copper. Total NRM as of December 31, 2014 for Colquijirca was 26,563,360 tons, with 0.45 ounces per ton of silver, 1.65 percent zinc and 0.47 percent lead. Total NRM for Marcapunta Norte was 33,200,443 tons, with 19.00 grams per ton of silver, 0.43 grams per ton of gold and 1.56 percent1.88% copper.

 

Set forth below are certain unaudited operating data for the Colquijirca mine, calculated on the basis of 100 percent100% of the mine’s production.

 

 

Year Ended December 31,(1)

  

Year Ended December 31,(1)

 
 

2013

 

2014

  2015  2016 
Mining Operations:                
Ore mined (t)  1,268,781   481,589   3,101,851   3,513,959 
Average silver grade (oz./t)  1.41   1.92   1.34   0.88 
Average zinc grade (%)  2.96   3.12   2.77   2.67 
Average lead grade (%)  1.22   1.20   1.03   0.77 
Production:                
Silver (oz.)  1,186,022   603,342   2,811,391   1,835,242 
Zinc (t)  24,219   10,126   53,319   57,385 
Lead (t)  9,036   3,459   18,854   12,860 
Recovery rate (silver) (%)  66.00   64.30   67.52   59.55 
Recovery rate (zinc) (%)  64.19   67.06   61.96   61.13 
Recovery rate (lead) (%)  58.23   56.42   58.73   47.61 
Cost applicable to sales per ton of mine(2) US$1,415  US$1,369   1,601   1,808 
        

 

 

(1)Incorporates losses for mining dilution and recovery.
(2)Represents cost applicable to sales per ton of zinc for El Brocal. Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ton of zinc consists of cost applicable to sales for zinc divided by the volume of zinc produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

Set forth below are certain unaudited operating data for the Marcapunta Norte mine, calculated on the basis of 100 percent100% of the mine’s production.

 

 

Year Ended December 31,(1)

  

Year Ended December 31,(1)

 
 

2013

 

2014(2)

  2015  2016 
Mining Operations:                
Ore mined (t)  1,880,690   2,773,738   1,962,627   2,597,926 
Average silver grade (oz./t)  0.54   0.84   0.75   0.59 
Average gold grade (gr/t)  0.35   0.31   0.31   0.53 
Average copper grade (%)  1.68   1.71   1.92   2.07 
Production:                
Silver (oz.)  603,108   1,463,872   858,109   799,497 
Gold (oz)  9,207   14,134 
Gold (oz.)  11,263   23,511 
Copper (t)  27,469   43,282   32,061   49,170 
Recovery rate (silver) in copper (%)  59.79   62.36   58.40   62.24 
Recovery rate (gold) in copper (%)  44.02   56.50   50.93   58.91 
Recovery rate copper (%)  86.09   86.23   85.22   90.36 
Cost applicable to sales per ton of mine(2) US$5,490  US$5,096   5,322   4,651 

55 

 

 

(1)Incorporates losses for mining dilution and recovery.
(2)In addition to the production indicated in this table, El Brocal produced 434,625 ounces of silver and 5,804 tons of copper derived from Type II minerals in 2014.
(3)Represents cost applicable to sales per ton of copper for El Brocal. Cost applicable to sales per unit of mineral sold is not a measure of financial performance under IFRS and may not be comparable to similarly titled measures of other companies. Cost applicable to sales per ton of copper consists of cost applicable to sales for copper divided by the volume of copper produced in the specified period. The cost applicable to sales per unit of mineral sold figures disclosed herein are calculated without adjusting for by-product revenue amounts. We consider cost applicable to sales per unit of mineral to be a key measure in managing and evaluating our operating performance. We believe this measure is widely reported in the precious metals industry as a benchmark for performance, but does not have standardized meanings. You should not consider cost applicable to sales per unit of mineral sold as an alternative to cost of sales determined in accordance with IFRS as an indicator of our operating performance. See “Item 5. Operating and Financial Review Prospects–and Prospects—Buenaventura—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

 

Reserves

 

We calculate our ore reserves by methods generally applied within the mining industry and in accordance with SEC Industry Guide 7. All mineral reserves are estimates of proven and probable ore quantities that under present conditions may be economically mined and processed.

 

The proven and probable ore reserve figures presented in this Annual Report are estimates, and no assurance can be given that the level of recovery of gold, silver and certain other metals will be realized. See “Item 3. Key Information—D. Risk Factors—Factors Relating to the Company—Estimates of proven and probable reserves are subject to uncertainties and the volume and grade of ore actually recovered may vary from our estimates.”

 

The term “reserves” refers to mineral deposits that could be economically and legally extracted or produced at the time of reserve determination. The term “proven reserves” means ore reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes, and grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. The term “probable reserves” means ore reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

As of December 31, 2014,2016, our total proven and probable reserves, including our equity share in the proven and probable reserves of El Brocal (54.07%(61.32%), La Zanja (53.06%), Coimolache (40.10%) and Yanacocha (43.65%), were estimated to be 8.853.54 million ounces of gold representing a 2.5%0.03% decrease compared to our total proven and probable reserves as of December 31, 2013,2015, which were estimated to be 9.083.537 million ounces of gold.

 

As of December 31, 2014,2016, our total proven and probable reserves, including our equity share in El Brocal (54.07%(61.32%), La Zanja (53.06%), Coimolache (Tantahuatay) (40.10%) and Yanacocha (43.65%), were estimated to be 168.10209.65 million ounces of silver, representing a 1.3%14.54% increase over our total proven and probable reserves as of December 31, 2013,2015, which were estimated to be 166.02183.03 million ounces of silver.silver

 

The following table lists the proven and probable ore reserves, as of December 31, 2014,2016, for each of our consolidated mining operations and the Tantahuatay mine, in which we have a 40.10 percent40.10% equity interest, the La Zanja mine, in which we have a 53.06 percent53.06% equity interest, and the Colquijirca &and Marcapunta mines (El Brocal), in which we have a 54.07 percent61.32% equity interest. The reserves shown in the table below are the total reserves for each mine and do not reflect our equity share of reserves in non-wholly-owned mines.

 

6256 

 

Proven Ore Reserves at December 31, 20142016(1) (2) (3)

 

Orcopampa(3)

 

Uchucchacua(4)

 

Julcani(5)

 

Mallay(6)

 

Tambomayo(7)

 

La Zanja(8)

 

Tantahuatay(9)

 

Colquijirca(10)(11)

 

Marcapunta(10)(12)

 Total/
Average		 
 Orcopampa(4) Uchucchacua(5) Julcani(6) Mallay(7) Tambomayo(8) Breapampa(9) La Zanja(10) Tantahuatay(11) Colquijirca(12)(13) Marcapunta(12)(14) Total/
Average		                      
Ore Reserves (t)  416,950   2,370,705   207,568   76,962   625,855   519,539   2,898,541   57,330,452   43,621,946   5,919,948   113,988,466   514,434   2,712,540   190,476   99,399   642,765   9,588,337   72,118,232   52,499,000   9,413,000   147,778,183 
Grade:                                                                                    
Gold (g/t)  15.55   –   0.50   1.187   8.37   0.45   0.73   0.46   –   0.41   0.38   14.64   -   0.31   0.46   6.04   0.52   0.40   -   0.50   0.34 
Silver (g/t)  38.17   485.50   624.03   425.37   359.28   17.18   4.39   10.58   27.99   18.35   30.81   45.82   418.32   650.53   293.37   419.39   9.78   8.07   25.34   18.69   25.46 
Copper (%)  –   –   0.53   –   –   –   –   –   –   2.37   0.12   -   -   0.52   -   -   -   -   0.82   2.04   0.42 
Zinc (%)  –   1.50   –   7.35   2.37   –   –   –   2.53   –   1.02   -   1.98   -   7.17   1.41   -   -   1.26   -   0.49 
Lead (%)  –   1.10   2.19   7.40   1.59   –   –   –   0.86   –   0.37   -   1.46   2.29   4.58   0.93   -   -   0.50   -   0.21 
                                        
Content:                                                                                    
Gold (oz)  208,509   –   3,346   2,938   168,459   7,515   67,768   840,365   –   78,036   1,376,935 
Silver (oz)  511,692   37,005,056   4,164,439   1,052,526   7,229,321   286,981   408,898   19,504,755   39,259,751   3,492,769   112,916,187 
Gold (oz.)  242,047   -   1,905   1,471   124,731   159,767   931,153   -   151,317   1,612,391 
Silver (oz.)  757,846   36,481,810   3,983,806   937,529   8,666,923   3,015,471   18,717,041   42,766,810   5,647,800   120,975,036 
Copper (t)  –   –   1,096   –   –   –   –   –   –   140,303   421,037   -   -   990   -   -   -   -   428,810   192,025   621,825 
Zinc (t)  –   35,561   –   5,660   14,841   –   –   –   1,103,635   –   1,159,696   -   53,803   -   7,129   9,034   -   -   659,255   -   729,221 
Lead (t)  –   25,704   4,535   5,695   9,954   –   –   –   375,149   –   141,398   -   39,541   4,365   4,551   6,004   -   -   261,493   -   315,953 

 

Probable Ore Reserves at December 31, 20142016(1) (2)  (3)

 

  Orcopampa(4)  Uchucchacua(5)  Julcani(6)  Mallay(7)  Tambomayo(8)  Breapampa(9)  La Zanja(10)  Tantahuatay(11)  Colquijirca(12)(13)  Marcapunta(12)(14)  Total/
Average		 
Ore Reserves (t)  214,147   1,800,900   102,527   44,876   251,283   00   7,018,849   00   00   16,070,655   25,503,237 
Grade:                                            
Gold (g/t)  16.34   –   0.44   0.918   10.18   0.00   0.69   0.00       0.39   0.68 
Silver (g/t)  85.71   504.48   646.37   408.55   269.05   0.00   4.20   0.00   0.00   18.97   55.42 
Copper (%)  –   –   0.51   –   –   –   –   –   –   2.22   1.40 
Zinc (%)  –   1.51   –   8.24   2.68   –   –   –   0.00   –   0.15 
Lead (%)  –   1.15   2.14   6.18   2.01   –   –   –   0.00   –   0.12 
Content:                                            
Gold (oz)  112,508   –   1,447   1,324   82,245   00   155,588   00   –   200,990   554,102 
Silver (oz)  590,136   29,209,488   2,130,634   589,454   2,173,598   00   948,368   00   00   9,803,100   45,444,779 
Copper (t)  –   –   518       –   –   –   –   –   356,769   357,286 
Zinc (t)  –   27,260   –   3,697   6,737   –   –   –   00   –   37,694 
Lead (t)  –   20,620   2,189   2,773   5,046   –   –   –   00   –   30,628 

  

Orcopampa(3)

  

Uchucchacua(4)

  

Julcani(5)

  

Mallay(6)

  

Tambomayo(7)

  

La Zanja(8)

  

Tantahuatay(9)

  

Colquijirca(10)(11)

  

Marcapunta(10)(12)

  Total/
Average		 
                               
Ore Reserves (t)  249,452   1,940,135   104,376   62,726   1,485,006   5,528,033   9,149,114   21,422,000   6,498,000   46,438,842 
                                         
Grade:  14.82   -   0.31   0.49   9.89   0.53   0.31   –   0.18   0.34 
Gold (g/t)  49.85   475.95   654.73   274.77   248.67   6.42   8.03   15.16   6,22   40.16 
Silver (g/t)  -   -   0.44   -   -   -   -   1.34   1.65   0.85 
Copper (%)  -   1.71   -   8.52   2.85   -   -   0.20   –   0.27 
Zinc (%)  -   1.37   2.33   4.77   1.32   -   -   0.12   –   0.17 
Lead (%)                                        
                                         
Content:  399,787   29,687,966   2,197,115   554,126   11,872,459   1,140,902   2,360,696   10,441,404   1,299,600   59,954,054 
Gold (oz.)  -   -   459   -   -   -   -   286,339   107,217   394,015 
Silver (oz.)  -   33,147   -   5,344   42,343   -   -   43,459   –   124,293 
Copper (t)  -   26,537   2,434   2,991   19,542   -   -   25,685   –   77,189 
Zinc (t)  249,452   1,940,135   104,376   62,726   1,485,006   5,528,033   9,149,114   21,422,000   6,498,000   46,438,842 
Lead (t)                                        

 

(1)Geominería S.A.C., an independent consultant company, auditsaudited the process used to estimate proven and probable ore reserves in our wholly-owned mines,for Orcopampa, Uchucchacua, Julcani and Mallay as of December 31, 2014. MINTEC Inc., an independent consultant, audits2016. El Brocal engaged the process used for reviewingconsulting firm BISA to update the conceptual framework used to estimate proven and probable reserves for El Brocalresources model as of December 31, 2014.
(2)Geominería S.A.C.,2016. HATCH, an independent consultant, company, auditsaudited the process used to estimate proven and probable ore reserves in our wholly-owned mines, atfor Tambomayo, La Zanja and Tantahuatay as of December 31, 2014. MINTEC Inc., an independent consultant, is auditor in the process used for reviewing the conceptual framework used to estimate proven and probable reserves for El Brocal at December 31, 2014.2016.
(3)(2)For the year ended December 31, 2014,2016, reserves for our wholly-owned and operated mines, by us (which include all of the mines listed above other than Tantahuatay and La Zanja) were calculated using the following prices: US$1,250 per ounce of gold, US$2019 per ounce of silver, US$2,2002,100 per metric ton of zinc, US$2,1001,800 per metric ton of lead and US$6,6305,000 per metric ton of copper.
(4)(3)The metallurgical recovery factors that impacted the calculated reserves for Orcopampa atas of December 31, 20142016 were water quality (recycled water contains impurities that can interfere with the chemical reaction of the reagents) and ore grade being lower than estimated or expected.
(5)(4)The metallurgical recovery factors that impacted the calculated reserves for Uchucchacua atas of December 31, 20142016 were the complexity of the ore, the variation of head ore grades and the high manganese content.
(6)(5)The metallurgical recovery factors that impacted the calculated reserves for Julcani atas of December 31, 20142016 were whetherwhen the ore contained iron sulfide (Pyrite) higher than 8% and the quality of water.water used in the processing plant.
(7)(6)The metallurgical recovery factors that impacted the calculated reserves for Mallay atas of December 31, 20142016 were the high variation in ore grade and the variation in the hardness of the host rocks.
(8)(7)The metallurgical recovery factors that impacted the calculated reserves for Tambomayo atas of December 31, 20142016 were the complex process to treat polymetallic ore and the variation in the hardness of the host rocks.
(9)The metallurgical recovery factors that impacted the calculated reserves for Breapampa at December 31, 2013 were the clay content in ore higher than 10% and the iron sulfide (Pyrite) content in ore higher than 3%.
(10)(8)The reserves shown for La Zanja, in which we owned a 53.06% of equity interest atas of December 31, 2014,2016, are the total reserves of the mine and do not indicate our equity share. They were calculated using the following metal prices: US$1,250 per ounce of gold and US$2019 per ounce of silver. The metallurgical recovery factors that impacted the calculated reserves were when the clay content in ore being higher than 10% and the copper presence in the ore.
(11)(9)The reserves shown for Tantahuatay, in which we own a 40.10% of equity interest atas of December 31, 2014,2016, are the total reserves for the mine and do not indicate our equity share. They were calculated using the following prices: US$1,250 per ounce of gold and US$2019 per ounce of silver. The metallurgical recovery factors that impacted the calculated reserves were when the clay content in ore being higher than 10% and the iron sulfide (Pyrite) content in ore being higher than 3%.
(12)(10)El Brocal, in which we own 54.07%a 61.32% controlling equity interest atas of December 31, 2014,2016, owns the Colquijirca and Marcapunta mines. The reserves shown for Colquijirca and Marcapunta are the total reserves of the mines and do not indicate our shareholdings.
(13)(11)The metallurgical recovery factors that impacted the calculated reserves for Colquijirca atas of December 31, 20142016 were the high content of clay and soluble salts in the ore.
(14)(12)The metallurgical recovery factors that impacted the calculated reserves for Marcapunta atas of December 31, 20142015 were the high content of arsenic in the ore and the hardness of the host rocks.

 

64
57  

Yanacocha’s Properties

Operating Properties

 

For operating data (including ore mined, average gold grade of ore mined and gold production) for each of Yanacocha’s operating properties and a description of how ore is processed and the source of electricity and water for each of Yanacocha’s operating properties, see “—Yanacocha— B. Business Overview” and “—Overview—Description of Yanacocha’s Operations.”

 

Carachugo – Chaquicocha

Chaquicocha Sur is an 85-hectare gold deposit (ultimate pit) which lies in the east-central part of the Yanacocha district, approximately one kilometer southeast of the mined out Carachugo deposit and 300 meters south of the Chaquicocha Norte pit. Mining at this deposit is expected to be completed by late 2015.

Carachugo is a 90-hectare gold deposit with a leach pad that covers approximately 306 hectares.  Carachugo, Yanacocha’s first mine, commenced operations in August 1993.  Mining was conducted by the open-pit method.  The Carachugo open-pit mine ceased mining operations in 2004, although one ore processing facility remains in operation.

Maqui Maqui

 

Maqui Maqui is a 75-hectare gold deposit with a leach pad covering 67 hectares, located five kilometers northeast of the Carachugo pit.  Mining operations at Maqui Maqui began in October 1994 and used the open-pit mining method.  Although mining operations at Maqui Maqui ceased in September 2000, gold recovery from the leach pad continues.  The Maqui Maqui East expansion commenced operations in 2010 and will continue until the end of 2015.

San José

San José is a 100-hectare goldmining at this deposit located 1.5 kilometers southwest of the Carachugo pit, that shares the leach pad located at Carachugo.  Mining operations at San José beganwas completed in January 1996 using the open-pit mining method.  Mining operations at San José temporarily ceased during the fourth quarter of 2002 and reopened in 2005 to complete San José East.  San José West started operations in early 2010 and ceased operations in November 2012.July 2016.

 

Cerro Yanacocha

 

Cerro Yanacocha is a 247-hectare gold deposit (ultimate pit) with a leach pad covering approximately 310 hectares.  The Cerro Yanacocha pit is located two kilometers northwest of the Carachugo pit.  Operations began in the fourth quarter of 1997 using the open-pit mining method.  Cerro Yanacocha includes a carbon column gold recovery plant and a Merrill-Crowe-type ore processing facility.  Cerro Yanacocha temporarily ceased operations in October 2010 and expectsrestarted operations in 2015 with mining in the layback area and the deep transitional stockpiles located inside the current open pit.  Mining activities are scheduled to reopen in 2016.cease by 2019.

 

La Quinua

 

La Quinua is a 450-hectare gold deposit (ultimate pit) with a leach pad covering 426 hectares.  The La Quinua, El Tapado and El Tapado Oeste pitsOestepits are located three kilometers southwest of the Cerro Yanacocha pit.  Operations began in the fourth quarter of 2001 using the open-pit mining method.  All solution processing occurs at the Cerro Yanacocha plant following treatment at the La Quinua leach pad and carbon column facility. The La Quinua pit ceased operations at the end of 2010 and the El Tapado pit ceased operations in July 2012.

 

The La Quinua mining operation included Cerro Negro Este, a 15-hectare gold deposit (ultimate pit) which is located six kilometers southwest of the La Quinua pit.  Cerro Negro Este utilized the La Quinua leach pad.  Operations began in April 2004 using the open-pit mining method and all solution processing occurred at the Cerro Yanacocha plant following treatment at the La Quinua leach pad and carbon column facility.  Mining operations at Cerro Negro Este ceased in March 2005.

Mining operations in Tapado Oeste is expected to bewere completed byat the end of 2015, while the construction of the Tapado Oeste layback was approved in early 2015. The Tapado Oeste layback is expected to beginbegan mining operations in the second quarter ofon January 2015. Mining activities are scheduled to cease by 2019.

Western Oxides

The Western Oxides are comprisedcomposed of the Cerro Negro Oeste and La Quinua Sur open-pit mines.  Cerro Negro Oeste, a 40-hectare gold deposit, is located 6.5 kilometers southwest of the La Quinua pit.  This pit utilizes the La Quinua leach pad as its ore facility. La Quinua Sur, a 110-hectare gold deposit, is located south of the Tapado Oeste pit and is completely covered by La Quinua gravel.  Mining activities started in Cerro Negro West in 2010August 2011 and will be finished bymining at this deposit was completed in August 2016.  La Quinua Sur commenced mining activities in MayJuly 2014 and is scheduled to cease operations in 2018.2019.  The ore mined from this pit will be processed at the La Quinua leach pad.pad expansion.

 

Eastern Oxides

The Eastern Oxides consist of the Marleny open-pit mine.  The Marleny pit, an 8-hectare deposit, is located to the west of the Carachugo backfill.  Marleny started mining operations in May 2013 and ceased operations in April 2014. Mining was restarted to deepen the current pit in February 2016 and was completed in June 2016.

 

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Carachugo Alto

The Carachugo Alto pit, a 9-hectare deposit, is located to the east of the Carachugo backfill.  Carachugo Alto commenced mining operations in July 2010, and its second phase was completed in October 2013.

 

China Linda

Yanacocha owns and operates the China Linda lime plant, which is located in Cajamarca, 12 kilometers to the northeast of the Yanacocha installations.  Access to the plant from Yanacocha is by a ten-kilometer private, unpaved road.  Lime is used in the gold and silver mining process to regulate the alkalinity of the cyanide solutions in the leaching process and for pH control in water treatment applications.  Currently, the plant has a production capacity of 78,000 tons of lime per year.

 

Reserves

 

Proven and probable reserves are based on extensive drilling, sampling, mine modeling and metallurgical testing from which economic feasibility is determined. Under the Management Contract, Newmont Mining, in conjunction with Yanacocha, calculates Yanacocha’s reserves by methods generally applied within the mining industry and in accordance with SEC Industry Guide 7. Reserves represent estimated quantities of proven and probable ore that under present and anticipated conditions may be economically mined and processed.

 

The following table lists proven and probable reserves and the average grade of ore as of December 31, 20142016 for Yanacocha and the Conga project.Yanacocha. Calculations with respect to the estimates of proven and probable reserves are based on a gold price of US$1,3001,200 per ounce and a coppersilver price of US$3.0017 per pound as of December 31, 2014.2016. The proven and probable reserves presented below represent the total quantity of ore to be extracted from the deposits, allowing for mining efficiencies and ore dilution. Ounces of gold and pounds of copper in the districts of Yanacocha’s and the Conga project’s proven and probable reserves are calculated prior tobefore any losses during metallurgical treatment.

  

Proven and Probable Reserves at December 31, 2014ǂ

 
  

Tonnage
(thousands of DST)

  

Average Gold Grade
(oz./DST)

  

Ounces Contained
(thousands of ounces)

 
Maqui Maqui  1,853   0.039   72.9 
Chaquicocha  2,502   0.028   68.9 
Yanacocha  2,587   0.058   150.5 
Yanacocha Layback  49,231   0.012   567.3 
La Quinua Sur  58,718   0.013   775.9 
Tapado Oeste (Corimayo)  10,215   0.047   475.8 
Tapado Oeste Layback  27,699   0.034   953.4 
Cerro Negro  17,908   0.016   289.9 
Transition Stockpile  5,295   0.027   144.7 
Deep Transitional Stockpile  9,034   0.064   580.9 
Gold Mill Stockpile  2,613   0.096   251.8 
Maqui Maqui Leach Pad  624   0.045   28.0 
Carachugo Leach Pad  2,548   0.018   44.6 
La Quinua Leach Pad  21,829   0.021   449.0 
Subtotal Yanacocha  212,656   0.023   4,853.8 
Conga*  590,855   0.021   12,582 
Total  803,511   0.022   17,435.8 

 

*The Conga project´s proven and probable reserves as of December 31, 2014 include 0.6 billion DMT of 0.28 percent grade copper.
  Proven and Probable Reserves at December 31, 2016ǂ 
  Tonnage
(thousands of DST)		  Average Gold Grade
(oz./DST)		  Ounces Contained
(thousands of ounces)		 
Quecher Main  98,872   0.02   1,513 
Marleny  2,976   0.02   70 
Yanacocha  11,829   0.01   146 
Yanacocha Layback  2,016   0.07   135 
La Quinua Sur  22,882   0.01   316 
Tapado Oeste Layback  31,659   0.01   460 
Cerro Negro  23,064   0.04   886 
Transition Stockpile  5,231   0.03   143 
Deep Transitional Stockpile  5,441   0.06   325 
Gold Mill Stockpile  636   0.05   34 
Maqui Maqui Leach Pad  184   0.04   8 
Carachugo Leach Pad  168   0.02   4 
Yanacocha Leach Pad  231   0.03   6 
La Quinua Leach Pad  16,137   0.02   312 
Total  221,326   0.02   4,358 

ǂProven and probable reserves, as of December 31, 2014,2016, were calculated using a gold price assumption of $1,300US$1,200 per ounce.

 

As of December 31, 2014,2016, Yanacocha’s total proven and probable reserves (excluding the Conga project’s proven and probable reserves)project, the reserves for which were reclassified as resources or NRM as of December 31, 2015) were estimated to be 4.9 million ounces of gold, a 17 percent decrease from Yanacocha’s proven and probable reserves as of December 31, 2013, which were estimated to be 5.7 million ounces of gold.  The decrease in reserves of gold was mainly due to mine depletion, revised pit designs, conversion from resources to reserves, updated block models and leaches and stockpile inventory changes.

As of December 31, 2014, the Conga project’s proven and probable reserves were estimated to be 12.6 million ounces of gold and 3.3 billion pounds of copper, unchanged from the gold and copper reserves as of December 31, 2013.

As of December 31, 2014, Yanacocha’s total proven and probable reserves (including the Conga project) were estimated to be 17.54.4 million ounces of gold, representing a 5 percent14% decrease over Yanacocha’s total proven and probable reserves as of December 31, 2013,2015, which were estimated to be 18.35.06 million ounces of gold. Yanacocha’s total proven and probable reserves of copper were 3.3 billion pounds as of December 31, 2014 the same as reported as of December 31, 2013.

 

Based on the current recovery rate and estimated gold production levels in 2014,2016, most of Yanacocha’s proven and probable reserves as of December 31, 20142016 will be depleted by 20202025 unless Yanacocha continues adding reserves to add to its reserves.the production plan. Yanacocha’s management believes that its prospective land positions and mining concessions provide it with potential for future exploration and additions to its reserves.

 

ITEM 4A.Unresolved Staff Comments

 

None.

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ITEM 5.Operating and Financial Review and Prospects

 

In this Item 5, we present information first with respect to Buenaventura, followed by information with respect to Yanacocha, in which we have a 43.65 percent43.65% partnership interest, followed by information with respect to Cerro Verde, in which we have a 19.58 percent19.58% equity interest.

BUENAVENTURA

 

Introduction

 

The following discussion should be read in conjunction with the Financial Statements as of December 31, 20132015 and 20142016 and for the years ended December 31, 2012, 20132014, 2015 and 20142016 and the related notes thereto included elsewhere in this Annual Report. The Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB. We present our financial statements in U.S. Dollars.

 

A.Operating Results

 

General

 

Overview. We were established in 1953 and are one of Peru’s leading producers of gold, silver and other metals. Our consolidated financial statements comprise all of our accounts and those of our subsidiaries, which include: (i) the Julcani, Mallay, Breapampa, Uchucchacua, Orcopampa, mining units; (ii) the Colquijirca, Marcapunta, and La Zanja mines, which are owned through consolidated subsidiaries; (iii) Chaupiloma, which receives a royalty payment from Yanacocha; (iv) Condesa, which is mainly a holding company for investments in us, Yanacocha and other affiliated mining companies; (v) Conenhua, which is mainly engaged in the transmission of electric power to Yanacocha and other mining companies, (vi) other minor subsidiaries; and (vii) discontinued operations.

·the Julcani, Mallay, Uchucchacua and Orcopampa mining units;

·the Colquijirca, Marcapunta and La Zanja mines, which are owned by our non-wholly-owned consolidated subsidiaries;

·Chaupiloma, which receives a royalty payment from Yanacocha;

·Condesa, which is mainly a holding company for internal investments and investments in Yanacocha and other affiliated mining companies;

·Conenhua, which is mainly engaged in the transmission of electric power to Yanacocha and other mining companies;

·other minor subsidiaries; and

·discontinued operations.

We also have material equity investments in (i) Yanacocha, which is an equity investee engaged in the exploitation and commercialization of gold, (ii) Cerro Verde, which is an equity investee engaged in the exploitation and commercialization of copper and (iii) Coimolache, which is an equity investee engaged in the exploitation and commercialization of gold and silver. We account for these investments under the equity method.

 

Yanacocha. AHistorically, a substantial part of our net incomeloss before income tax was derived from our equity interest in Yanacocha. We have a 43.65 percent43.65% equity participation in Yanacocha, which is held through our wholly-owned subsidiary, Condesa. Our partnership interest in Yanacocha is accounted for under the equity method and is included under the caption “Investment in associates” on our consolidated statements of financial position balance sheets.position. Although Yanacocha has no fixed dividend policy, there is an understanding among the partners that the net income not required for sustaining capital expenditures or future development projects should be distributed after agreement between the two major shareholders, Newmont Mining and us.Buenaventura.

 

Cerro Verde.As of December 31, 2014,2016, we had a 19.58 percent19.58% equity participation in Cerro Verde, which allows us to exercise significant influence over this company. As a result, we account for our investment in Cerro Verde using the equity method. Although Cerro Verde has no fixed dividend policy, there is an understanding that earnings not required for capital expenditures or future development projects are expected to be distributed.

 

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Results of operations. The primary factors affecting our results of operations are (i) the amount of gold, silver, zinc and copper produced and sold by us; (ii) prevailing world market prices for gold, silver, zinc and copper; (iii) commercial terms with respect to the sale of ore concentrates; and (iv) our operating expenses.are:

·the amount of gold, silver, zinc and copper produced and sold;

·prevailing world market prices for gold, silver, zinc and copper;

·commercial terms with respect to the sale of ore concentrates; and

·our operating expenses.

 

Gold and silver price hedging. Our revenues and earnings are strongly influenced by world market prices for gold, silver, zinc and copper that fluctuate widely and over which we have no control. Depending upon the metal markets and other conditions, we may from time to time hedge our gold and silver sales in order to decrease our exposure to fluctuations in the prices of these metals. We and our wholly-owned subsidiaries are currently completely unhedged as to the price at which our gold and silver will be sold. As a result, we are fully exposed to the effects of changes in prevailing market prices of gold and silver.

In the case of El Brocal, it had outstanding hedging commitments amounting to 16,107 metric tons of copper at an average fixed price of US$5,395 per ton from January to December 2017.

 

Operating costs and expenses. Operating costs and expenses consist of (i) operating costs, which are direct production costs, the major component of operating expenses; (ii) exploration costs in operational mining sites; (iii) depreciation and amortization expenses; (iv) exploration costs in non-operational mining areas; (v) administrative expenses, which principally consist of personnel expenses; (vi) royalties, which consist of payments to third parties and the Peruvian government to operate leased mining rights; and (vii) selling expenses, which principally consist of freight expenses.of:

68·operating costs, which are direct production costs, the major component of operating expenses;

·exploration costs in operational mining sites;

·depreciation and amortization expenses;

·exploration costs in non-operational mining areas;

·administrative expenses, which principally consist of personnel expenses;

·royalties, which consist of payments to third parties and the Peruvian government to operate leased mining rights; and

·selling expenses, which principally consist of freight expenses.

 

Reserves. We utilize geological mapping, projection of ore-bearing structures, diamond drilling, core logging and chemical assaying, in addition to drifting along previously indicated mineralization, to replace and grow reserves. In addition, we use metallurgical test-work of core and bulk samples as a follow-up activity to prove the amenability of any previously indicated mineralization to certain extraction methods available on site. We continuously analyze this information with respect to tonnage, precious-metals average grades, metallurgical recoveries and economic value and allocate funds preferentially to those projects that have the best potential to sustain or enhance profitable mine production in the near-term. Our mining operations are primarily conducted underground and consist of deposits that are difficult to explore and measure in advance of mining and in which the value or prospects for ore based on geologic evidence exceeds the value based on proved reserves throughout most of the life of mines supported by them, or extramensurate deposits.

 

In addition, underground mine infrastructure, such as declines, shafts and/or dewatering/ore haulage crosscuts, that facilitate access to ore reserves are constructed and categorized as mine development. We consider such underground mine infrastructure vital to assure sustainable mine production and reserve production. The design, construction and implementation of our underground mine infrastructure are presented and supervised by our Operations Manager with the Board of Directors’ (the “Board”) approval. We capitalize mine development and mineral land costs incurred after we have identified proven and probable reserves. Upon commencement of production, we amortize these costs over the expected life of the mining area, based on proven and probable reserves and other factors.

 

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Our other mining operations are smaller and have variable fluctuations in production and reserves due to complexities of the ore located in certain mining operations (such as the Colquijirca mine); the sale of certain mining operations (such as the Huallanca mine);operations; partial and temporary closures of mining operations (such as the Shila-Paula and Recuperada mines);operations; and the production of silver only as by-product of gold (such as the Orcopampa Antapite and Shila-Paula mines)mine).

 

Net income and net distributable income. Under Peruvian law, each company is required to establish a legal reserve equal to at least 20 percent20% of its paid-in capital on an unconsolidated basis. An annual contribution of at least 10 percent10% of net income must be made until such legal reserve equals 20 percent20% of paid-in capital. The legal reserve may offset losses or be capitalized. However, following any instance in which the reserve is used, Peruvian law calls for mandatory replenishment of the reserve.

 

Royalties. Royalty expenses consist mainly of payments made by us pursuant to lease agreements relating to mining rights for the Orcopampa and Ishihuinca mines.mine. Specifically, we pay the applicable lessor a royalty of 10 percent10% of the value of the concentrates produced in the Orcopampa mine and 7 percent of the value of the concentrates produced in the Ishihuinca mine.produced. We are also required to pay the Peruvian government mining royalties and taxes. In addition to mining royalties, pursuant to Law No. 29789, effective October 1, 2011, mining operations in Peru are subject to a newan extraordinary mining tax. See “Item 4. Information on the Company—Buenaventura—B. Business Overview—Regulatory Framework—Mining Royalties and Taxes.”

 

Environmental protection laws and related regulations. Our business is subject to Peruvian laws and regulations relating to the exploration and mining of mineral properties, as well as the possible effects of such activities on the environment. We conduct our operations substantially in accordance with such laws and regulations.

Discontinued operations. In 2014, the Companywe publicly announced itsour decision to sell four of itsour mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, these mining units are presented in the Financial Statements as mining units held for sale.  According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations,” the related assets and liabilities arewere presented in the consolidated statement of financial position at the lower of cost and fair value less cost to sale. The dispositionDuring 2016, we decided to change the classification of these discontinuedthree mining units is expected(Poracota, Recuperada and Shila-Paula) from mining units held for sale and began the final closing process for these mines.  In December 2016, we sold the Antapite mining unit. In 2016, we started the final closing process for the Breapampa mining unit. As a result, income, costs and expenses related to be completed by December 31,this mining unit were classified as discontinued operations for the years 2016, 2015 through sales to third parties.and 2014. In January 2017, the Breapampa mining unit was sold. See NotesNote 1(e) and 2.4(v)Note 2.4(w) to the Financial Statements.

Critical Accounting Policies and Estimates

 

The following is a discussion of our application of critical accounting policies that require our management, or Management, to make certain assumptions about matters that are highly uncertain at the time the accounting estimate is made, and where different estimates that Management reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements. Management has identified the following accounting estimates and policies as critical:

 

·mineral reserves and resources;

 

·unit-of-production depreciation;

 

·mine rehabilitation provision;

 

·inventories;

 

·impairment of non-financial assets;

 

·taxes;

 

·fair value of contingent consideration; and

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·segment reporting.

 

Other significant accounting policies include:

 

·contingenciescontingencies;

 

·development start datedate;

 

·production start datedate; and

·useful life of property, plant and equipment.

 

We also have certain accounting policies that we consider to be important, such as our policies for investments carried at fair value, revenue recognition and exploration costs, that do not meet the definition of critical accounting estimates as they do not require Management to make estimates or judgments that are subjective or highly uncertain.

 

Management has discussed the development and selection of our critical accounting estimates with the Audit Committee of the Board of Directors.Board.

 

Mineral reserves and resources

 

Recoverable proven and probable reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The determination of reserves involves numerous uncertainties with respect to the ultimate geology of the ore bodies, including quantities, grades and recovery rates. Estimating the quantity and grade of reserves requires us to determine the size, shape and depth of our ore bodies by analyzing geological data, such as samplings of drill holes, tunnels and other underground workings. In addition to the geology of our mines, assumptions are required to determine the economic feasibility of mining these reserves, including estimates of future commodity prices and demand, the mining methods we use and the related costs incurred to develop and mine our reserves. The conceptual framework used to estimate proven and probable reserves for our wholly-owned mines as of December 31, 20122014 and 2013 were2015 was reviewed by an independent consultant Algon Investment S.R.L. Algon Investment S.R.L. is inGeomineria S.A.C. For 2016, Geominería S.A.C. audited the process of reviewing the framework used to estimate proven and probable ore reserves for our wholly-owned minesOrcopampa, Uchucchacua, Julcani and Mallay, and Hatch Asociados S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for Tambomayo as of December 31, 2014.2016. The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 20122014 and 2013 were2015 was reviewed by independent consultant MINTEC Inc., which is in the process of reviewing the The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2014.2016 was reviewed by consultant Buenaventura Ingenieros S.A.

 

Changes in estimated reserves could affect mainly the depreciation of fixed assets related directly to mining activity, the provision for mine closure, the assessment of the deferred asset’s recoverability and the amortization period for development costs.

 

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Unit-of-production depreciation

 

Reserves and resources are used in determining the depreciation and amortization of mine-specific assets. This results in a depreciation or amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each mine’s life is assessed annually to evaluate: (i) physical life limitations and (ii) present assessments of economically recoverable reserves of the mine property. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes are recorded prospectively.

 

Depreciation andThis results in a depreciation or amortization charge proportional to the depletion of assets whose useful life is longer than the anticipated remaining life-of-mine production. The life of the mine are calculatedeach item, which is assessed at least annually, is determined based on a unit-of-production basis over theboth its physical life limitations and present assessments of economically recoverable reserves of the mine. Depreciationmine property where the asset is located. These calculations require the use of estimates and amortizationassumptions, including the amount of assets whose useful life is shorter than the life of the minerecoverable reserves. Changes in estimates are calculated using the straight-line method.accounted for prospectively.

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The units of production are measured in recoverable tons of concentrate. The unit-of-production rate for depreciation and amortization takes into account expenditures incurred to date.

 

Mine rehabilitation provision

 

We record a provision for mine closure when a legally enforceable obligation arises, which is independent of the full depletion of the mine reserves. Once such an obligation has been appropriately measured, it is recorded by creating a liability equal to the amount of the obligation and recording a corresponding increase to the carrying amount of the related long-lived asset (mine development cost and property, plant and equipment). Over time, the amount of the obligation changes, impacting recording and accretion expenses. Additionally, the capitalized cost is depreciated and/or amortized based on the useful lives of the related assets.

 

Any difference in the settlement of the liability will be recorded in the results of the period in which such settlement occurs. The changes in the fair value of an obligation or the useful life of the related assets that occur from the revision of the initial estimates should be recorded as an increase or decrease in the book value of each of the obligation and related asset.

 

Following our accounting treatment, as of December 31, 2014,2016, we have recorded an accrual for mine closure costs of US$103.0206.46 million in order to comply with governmental requirements for environmental remediation for Buenaventura and its mining subsidiaries. Please see Note 15(b)16(a) to the Consolidated Financial Statement.Statements.

 

We assess our provision for closure of mining units annually. This assessment entails significant estimates and assumptions because there are a number of factors that will affect the ultimate liability for this obligation. These factors include estimating the scope and costs of closing activities, technological changes, regulatory changes, increases in costs compared to inflation rates and changes in the discount rates. Such estimates or assumptions may result in actual expenses in the future that differ from the amounts provisioned at the time the provisions were established. The provision at the date of this report presentsrepresents our best estimate of the present value of future costs for the closure of mining units.

 

Inventories

 

Inventories are classified as short-term or long-term depending on the length of time that management estimates will be needed to reach the production state of concentrate extraction for each mining unit.

 

Net realizable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices at the reporting date, less estimated costs to complete production and bring the product to sale. Additionally, management also considers the time value of money in calculating the net realizable value of our long-term inventories.

 

Classified minerals, which are materials with metal content that were removed from the pit of the Colquijirca mining unit for treatment at the expansion operation plant, contain lower grade ore than the average of treated minerals and are available to continue in the process of recovery of mineral and concentrates. Because it is generally impracticable to determine the mineral contained in the classified mineral located in the deposit field near Tajo Norte by physical count, reasonable estimation methods are employed. The quantity of minerals delivered to classified mineral is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blasthole cuttings determine the estimated copper, lead and zinc grades of material delivered to classified minerals.

For minerals outside leach platform inventories, finished and in-progress goods are measured by estimating the number of tons added and removed. The number of contained gold ounces is based on assay data, and the estimated recovery percentage is based on the expected processing method. Tonnages and ounces of mineral are verified by periodic surveys.

 

For minerals inside leach platform inventories, reasonable estimation methods are employed because it is generally impracticable to determine the mineral contained in leach platforms by physical count. The quantity of material delivered to leach platforms are based on surveyed volumes of mined material and daily production records. Sampling and assaying of blasthole cuttings determine the estimated ore grades of material delivered to leach platforms.

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Impairment of non-financial assets

 

We determine whether the operations of each mining unit are cash generating units, considering each mining unit operation independently. We assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, we estimate the asset’s recoverable amount. An asset’s recoverable amount is the higher of the asset’s fair value less costs to sell and its use value and is determined for an individual asset (cash-generating unit) unless the asset does not generate cash inflows that are clearly independent of those from other assets or groups of assets. These assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, operating costs and others.

 

A cash-generating unit is the smallest identifiable group of assets that generates cash inflows from continuing use that are independent of the cash inflow generated by other assets or groups of assets.

 

In assessing use value, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

 

During the fourth quarter of 2011,At each reporting date, we updated our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” and identified no impairment indication in our long-lived assets.

During the fourth quarter of 2012, we updatedupdate our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” for all of our mining unitsunits. As a result, we recorded impairment losses during 2014, 2015 and as a result2016.

In 2014, we recorded an impairment loss for threeone of our mining units (Recuperada, Poracota and Antapite), which resulted in the recognition(Shila-Paula) of asset impairment amounted to US$3.60.8 million (recognized as operating expense).

In 2015, we recorded impairment losses for two of our mining units (La Zanja and Breapampa) of US$11.2 million (recognized as an operating expense).

In 2016, we recorded an impairment loss for one of our mining units (Shila-Paula) of US$2.0 million (recognized as an operating expense).

These impairment charges had no impact on our operating cash flows. Cash flows used to assess recoverability of our long-lived assets and measure the carrying value of our mining operations were derived from current business plans using near-term price forecasts reflectivereflecting of the current environment and Management’s projections for long-term average metal prices and operating costs.

 

During the fourth quarter of 2013, we updated our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” for all of our mining units and as a result we recorded an impairment loss for three of our mining units (Recuperada, Poracota and Antapite), which resulted in the recognition of asset impairment amounted to US$6.6 million (recognized as operating expense). These impairment charges had no impact on our operating cash flows. Cash flows used to assess recoverability of our long-lived assets and measure the carrying value of our mining operations were derived from current business plans using near-term price forecasts reflective of the current environment and Management’s projections for long-term average metal prices and operating costs.

During 2014, we updated our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 – “Impairment of Assets” for all of our mining units and as a result we recorded an impairment loss for one of our mining units (Shila-Paula), which resulted in the recognition of asset impairment amounted to US$0.8 million (recognized as operating expense). This impairment charge had no impact on our operating cash flows. Cash flows used to assess recoverability of our long-lived assets and measure the carrying value of our mining operations were derived from current business plans using near-term price forecasts reflective of the current environment and Management’s projections for long-term average metal prices and operating costs. As noted above, as of December 31, 2014 and as of the date of this Form 20-F, four of our mining units (Recuperada, Poracota, Shila-Paula and Antapite) were and are held for sale.

Our asset impairment evaluations required us to make several assumptions in the discounted cash flow valuation of (i) our individual mining operations, including near and long-term metal price assumptions, production volumes, estimates of commodity-based and other input costs and (ii) proven and probable reserve estimates, including any costs to develop the reserves and the timing of producing the reserves, as well as the appropriate discount rate. Our December 31, 2012, 20132014, 2015 and 20142016, impairment evaluation was based on price assumptions reflecting prevailing metals prices for the following years.

 

We believe events that could result in additional impairment of our long-lived assets include, but are not limited to, (i) decreases in future metal prices, (ii) decreases in estimated recoverable proven and probable reserves and (iii) any event that might otherwise have a material effect on mine site production levels or costs.costs

Deferred income tax asset and recoverability

 

In preparing our annual consolidated financial statements, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the tax and book bases of assets and liabilities. Deferred income tax assets and liabilities are measured using tax rates applicable to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates and laws is recognized in income in the period in which such changes are enacted.

 

All deductible temporary differences and loss carry-forwards generate the recognition of deferred assets to the extent that it is probable that they can be used in calculating taxable income in future years. Deferred income tax liability is recognized for all deductible temporary differences and tax loss carry-forwards, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilized. The carrying amount of the deferred income tax asset is reviewed at each consolidated statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred asset to be utilized. Unrecognized deferred assets are reassessed at each consolidated statement of financial position date.

 

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Deferred assets and liabilities are offset if there is a legal right to set them off and the taxes deferred relate to the same entity and the same tax authority.

 

Deferred tax assets, including those resulting from unused tax losses, require that we assess the likelihood that we would generate taxable earnings in future periods to apply the deferred tax assets. Estimated future taxable income is based on projections of cash flow from operations and application of the tax law existing in each jurisdiction. To the extent to which actual future cash flows and taxable income differ significantly from those estimated, our ability to realize the deferred tax assets posted as of the reporting date may be affected.

 

In addition, future changes in the tax law in jurisdictions where we operate could limit our ability to obtain tax deductions in future periods.

 

As of December 31, 2014, 20132015 and 2012,2016, our valuation allowance related to the provision for closure of mining units, net totaled US$4.2 million, US$6.418.2 million and US$5.3 million,37.0, respectively.

 

Fair Value of contingent consideration

 

The contingent consideration arising from a business combination is measured at fair value at the date of acquisition, as part of the business combination. If the contingent consideration is eligible to be recognized as a financial liability the fair value is subsequently re-measured at each date of the consolidated financial statements. Determining the fair value of the contingent consideration is based on a model of discounted future cash flows. The key assumptions take into account the likelihood of achieving each goal of financial performance as well as the discount factor.

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Segment Reporting

 

Management has determined its operating segments based on reports that the Company’s Chief Operating Decision Maker (the “CODM”) uses for making decisions. The Company’s operations are organized into business units based on its products and services, activities and geographic locations. The broad categories of the Company’s business units are:

 

·Production and sale of minerals;

 

·Exploration and development activities;

 

·Construction and engineering services;

 

·Energy generation and transmission services;

 

·Insurance brokerage;

 

·Rental of mining concessions;

 

·Holding of investment in shares (mainly in our associate company Minera Yanacocha S.R.L. and our subsidiary S.M.R.L. Chaupiloma Dos de Cajamarca)Yanacocha); and

 

·Industrial activities.

 

The CODM monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Company’s consolidated financial statements. Also, the Company’s financing and income taxes are managed at the corporate level and are not allocated to the operating segments, except for those entities which are managed independently. See Note 2931 to the Financial Statements.

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Contingencies

 

Contingent liabilities, when identified, are assessed as either remote, possible or probable. Contingent liabilities are recorded in the consolidated financial statements when it is probable that future events will confirm them and when their amount can be reasonably estimated. Contingent liabilities deemed as possible are only disclosed, together with a possible debit range, when determinable, in notes to the Financial Statements.

 

Contingent assets are not recognized in the financial statements; however, they may be disclosed in notes to the financial statements if it is probable that such contingent assets will be realized. See Note 27(h)29(f) and (g) to the Financial Statements.

 

Determining contingencies inherently involves the exercise of judgment and calculation of the estimated outcomes of future events.

Development start date

 

We assess the status of each exploration project of our mining units to determine when the development phase begins. One of the criteria used to evaluate the development start date is when we determine that the property can be economically developed.

Production start date

 

We assess the stage of each mine under development to determine when a mine moves into the production stage. The criteria used to assess the start date are determined based on the nature of each mining project, the complexity of a plant and its location. We consider various relevant criteria for assessing when the mine is substantially complete and ready for its planned use. Some of these criteria are the level of capital expenditure compared to development cost estimates, a reasonable testing period for the mine’s plant and equipment and the ability to produce ongoing production of metal.

 

When a mine development project moves into the production stage, the capitalization of certain costs ceases, and they are considered as inventory or expenses, except for costs that qualify for capitalization relating to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation or amortization commences.

 

Useful life of property, plant and equipment

 

Straight-line method

 

Depreciation is calculated under the straight-line method of accounting considering the lower of estimated useful lives of the asset or estimated reserves of the mining unit. The useful lives are the following:

 

Property, Plant and Equipment

 

Estimated Years of Useful Life

Buildings, constructions and other Between 6 and 20
Machinery and equipment Between 5 and 10
Transportation units 5
Furniture and fixtures 10
Computer equipment 4

 

An item of property, plant and equipment is de-recognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from de-recognizing an asset (calculated as the difference between the proceeds from the sale and the book value of the asset) is included in the consolidated statement of profit or loss in the year the asset is de-recognized.

The asset’s residualRevenues

According to our accounting policies, revenue is recognized to the extent that it is probable that the economic benefits will flow to us. Revenue is measured at the fair value useful livesof the consideration received, excluding discounts and methodsother sales taxes or duty.

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Revenues from sales of depreciationconcentrates, gold and silver are reviewed,recognized when the significant risks and adjusted if appropriate,rewards of ownership have been transferred, which is considered to occur when title passes to the customer. This generally occurs when the product is physically transferred to the buyer.

Revenues for engineering services rendered by BISA are recognized based on the progress of the current service contracts.

Revenues for construction services rendered by BISA Construction S.A. until 2015 were recognized when the outcome of a contract can be estimated reliably. Contract revenue associated with a construction contract were recognized by reference to the stage of completion of the contract activity at each financial year-end.the end of the reporting period.

 

Fair value of embedded derivative for concentrate sales

 

Substantially all of our concentrate sales contracts provide final pricing in a specified period (generally one to four months from the shipment date) based on quoted LME prices. We ultimately receive market prices based on prices in the specified future period, however, the accounting rules applied to these sales result in changes recorded as revenue until the specified future period. We record revenues and invoice customers at the time of shipment based on current LME prices, which result in an embedded derivative on our provisional priced concentrate sales that are adjusted to fair value through earnings of each period until the date of final pricing. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded in each reporting period until the date of final pricing. See Notes 20(a)Note 21(a) and 30(b)Note 32(b) to the Financial Statements.

Revenues

According to our accounting policies, revenue is recognized to the extent that it is probable that the economic benefits will flow to us. Revenue is measured at the fair value of the consideration received, excluding discounts and other sales taxes or duty.

Revenues from sales of concentrates, gold and silver are recognized when the significant risks and rewards of ownership have been transferred, which is considered to occur when title passes to the customer. This generally occurs when the product is physically transferred to the buyer.

Revenues for engineering services rendered by Buenaventura Ingenieros S.A. are recognized based on the progress of the current service contracts.

Revenues for construction services rendered by BISA Construction S.A. are recognized when the outcome of a contract can be estimated reliably. Contract revenue associated with a construction contract is recognized by reference to the stage of completion of the contract activity at the end of the reporting period.

 

Results of Operations for the Years Ended December 31, 20142016 and 20132015

Net sales.sales of goods. Net sales of goods increased by 20%, mainly due to the increase in sales of metal, as set forth in the chart below:

Sales by metal Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Gold (a)…  419,541   440,603   21,062   5.02%
Silver (b).  313,418   385,989   72,571   23.15%
Lead (c).  55,445   58,690   3,245   5.85%
Zinc (d).  102,110   142,425   40,315   39.48%
Copper (e).  131,356   224,649   93,293   71.02%
Manganese sulfate  3,649   5,982   2,333   63.94%
   1,025,519   1,258,338   232,819   22.70%
Commercial deductions (f)  (196,145)  (244,414)  48,269   24.61%
Adjustments to prior period liquidations  7,467   4,611   (2,856)  (38.25)%
Embedded derivatives from sale of concentrate  (388)  880   1,268   n.a. 
Hedge operations  9,816   (3,745)  (13,561)  n.a. 
Total sales by metal  846,269   1,015,670   169,401   20.02%

(a)Gold sales. The increase in gold sales is mainly due to the net effect of an increase in average realized sales prices for gold, partially offset by a decrease in gold sales volume due to a decrease in gold production at the Orcopampa mining unit.

(b)Silver sales. The increase in silver sales is mainly due to an increase in the average realized sales prices for silver and an increase in silver production at our Uchucchacua, Mallay and Julcani mining units.

(c)Lead sales. The increase in lead sales is mainly due to the net effect of an increase in the average realized sales prices, partially offset by a decrease in lead sales volume, mainly due to decreased lead production in our Colqujirca mining unit.

(d)Zinc sales.The increase in zinc sales is mainly due to an increase of average realized sales prices for zinc and an increase in zinc sales volume, mainly due to increased zinc production at our Colquijirca mining unit.

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(e)Copper sales.The increase in copper sales is mainly due to an increase in average realized sales prices for copper and an increase in copper sales volume, mainly due to increased copper production at our Colquijirca mining unit.

(f)         Commercial deductions. Net sales of goods figures are obtained by six percent, fromdeducting the refinery charges and penalties incurred (a total of US$1,215.4244.4 million of refinery charges and penalties were incurred in 20132016, compared to US$1,138.9196.2 million incurred in 2014. 2015) and revenues from discontinued operations (a total of US$1.1 million revenues provided from mining units held for sales in 2016, compared to US$22.7 million provided in 2015) from the gross sales of all metals sold. See Note 21(a) and Note 1(e) to the Financial Statements.

The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 20132015 and 2014,2016, as well as the variation in such average realized prices and volumes recorded for the year ended December 31, 20142016 as compared to the year ended December 31, 2013:2015:

 

Average Realized Price 

Year ended December 31,

  Year ended December 31, 
 2015  2016  Variation 
 

2013

  

2014

  

Variation*

    
Gold (US$/oz.)  1,392.18   1,263.32   (9.26)%  1,151.44   1,244.24   8.20%
Silver (US$/oz.)  22.33   18.65   (16.48)%  15.06   17.65   17.20%
Lead (US$/t)  2,104.63   2,106.87   0.11%  1,711.87   1,977.53   15.52%
Zinc (US$/t)  1,869.22   2,243.76   20.04%  1,838.86   2,266.85   23.27%
Copper (US$/t)  7,179.50   6,737.78   (6.15)%  4,514.93   4,918.52   8.94%

 

Volume Sold 

Year ended December 31,

  Year ended December 31, 
 

2013

  

2014

  

Variation*

  2015  2016  Variation* 
Gold (oz.)  458,499   439,093   (4.23)%  364,831   354,116   (2.94)%
Silver (oz.)  16,329,314   19,088,923   16.90%  20,811,046   21,863,019   (0.05)%
Lead (t)  26,584   18,820   (29.21)%  32,389   29,678   (8.37)%
Zinc (t)  38,084   21,231   (44.25)%  55,529   62,829   13.15%
Copper (t)  25,406   40,263   58.48%  29,094   45,674   56.99%

 

(a)    Gold sales.Net sales of services. Average realized sales prices for goldSales of services decreased by 43.3%, from US$1,392.18 per ounce50.8 million in 20132015 to US$1,263.32 per ounce28.8 million in 2014. Gold sales volume decreased from 458,499 ounces in 2013 to 439,093 ounces in 2014,2016, mainly due to a decreased gold production at our Orcopampa and Breapampa mining units. The combined effect of these changes resulted in a US$82.2 million decrease in income from sales of goldservices in 2014our construction segment as compared to 2013.a result of Bisa Construccion S.A. ceasing operations.

(b)    Silver sales. Average realized sales prices for silver decreased from US$22.33 per ounce in 2013 to US$18.65 per ounce in 2014. Silver sales volume increased from 16,329,314 ounces in 2013 to 19,088,923 ounces in 2014, mainly due to increased silver production at our Uchucchacua, Colquijirca and Julcani mining units. The combined effect of these changes resulted in a US$6.8 million decrease in income from sales of silver in 2014 as compared to 2013.

(c)    Lead sales. Average realized sales prices for lead increased from US$2,104.63 per ton in 2013 to US$2,106.87 per metric ton in 2014. Lead sales volume decreased from 26,584 tons in 2013 to 18,820 tons in 2014, mainly due to decreased lead production at our Colquijirca and Uchucchacua mining units. The combined effect of these changes resulted in a US$16.3 million decrease in income from sales of lead in 2014 as compared to 2013.

(d)    Zinc sales. Average realized sales prices for zinc increased from US$1,869.22 per ton in 2013 to US$2,243.76 per ton in 2014. Zinc sales volume decreased from 38,084 tons in 2013 to 21,231 tons in 2014, mainly due to decreased zinc production at our Colquijirca and Uchucchacua mining units. The combined effect of these changes resulted in a US$23.5 million decrease in income from sales of zinc in 2014 as compared to 2013.

(e)    Copper sales. Average realized sales prices for copper decreased from US$7,179.50 per metric ton in 2013 to US$6,737.78 per metric ton in 2014. Copper sales volume increased from 25,406 tons in 2013 to 40,263 tons in 2014, mainly due to increased copper production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$88.9 million increase in income from sales of copper in 2014 as compared to 2013.

Net sales figures are obtained by deducting the refinery charges and penalties incurred (a total of US$185.1 million of refinery charges and penalties were incurred in 2014, compared with US$127.1 million incurred in 2013) and revenues from mining units held for sale (a total of US$5.1 million revenues provided from mining units held for sales in 2014, compared with US$25.8 million provided in 2013) from the gross sales of all metals sold. See Note 20(a) to the Financial Statements.

Royalty income. In 2014,2016, royalty income received by our subsidiary Chaupiloma amounted to US$36.924.3 million, representing a 17 percent25% decrease from the US$44.232.4 million in royalty income received in 2013.2015. This decrease was due to a decrease in the average realized price of gold and a decrease in production at Yanacocha. We hold a 60% interest in Chaupiloma, to which Yanacocha pays a royalty that corresponds to 3% of its net sales.

Total operating costs. Total operating costs decreased by 10.6% due to changes in the following components:

Operating Costs Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)   
Cost of sales of goods, excluding depreciation and amortization  513,490   497,812   (15,678)  (3.05)%
Cost of services, excluding depreciation and amortization (a)  59,612   10,754   (48,858)  (81.96)%
Exploration in operating units (b)  89,699   96,149   6,450   7.19%
Depreciation and amortization (c)  232,583   192,647   (39,936)  (17.17)%
Mining royalties  27,188   27,611   423   1.56%
Total operating costs  922,572   824,973   (97,599)  (10.58)%

(a)The decrease in cost of services was mainly due to reduced costs from our construction segment as a result of Bisa Construccion S.A. ceasing operations in the fourth quarter of 2015.

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(b)The increase in exploration in operating units was primarily due to an increase of US$3.6 million in the Uchucchacua mining unit and an increase of US$3.4 million in the Orcopampa mining unit from looking for additional mining reserves. See Note 23 to the Consolidated Financial Statements.

(c)The decrease in depreciation and amortization costs was mainly due to:

·lower depreciation and amortization expense incurred in the La Zanja mining unit of US$37.5 million, which decreased from US$105.0 million in 2015 to US$67.5 million in 2016 as a result of the decrease in the reserves during 2015 which caused higher depreciation and amortization expenses during 2015 and, therefore, fewer net assets to be depreciated during 2016;

·higher depreciation and amortization expenses incurred in the Colquijirca mining unit of US$7.9 million, which increased from US$45.7 million in 2015 to US$53.6 million in 2016 as a result of higher assets base due to the expansion project for increasing production; and

·lower depreciation and amortization expenses in the Orcopampa, Julcani and Mallay mining units of US$5.9 million, US$4.6 million and US$4.1 million, respectively, as a result of an increase in the reserves that extended the life of mine of the depreciation and amortization period during 2016.

Total operating expenses. Operating expenses decreased by 22.42% due to changes in the following components:

Operating Expenses (Income) Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands) 
Administrative expenses (a)  84,372   81,692   (2,680)  (3.18)%
Exploration in non-operating areas (b)  30,610   26,589   (4,021)  (13.14)%
Selling expenses  19,365   21,733   2,368   12.23%
Impairment loss of long-lived assets (c)  3,803   -   (3,803)  (100.00)%
Other, net (d)  5,735   (18,392)  (24,127)  N.A. 
Total operating expenses (income)  143,885   111,622   (32,263)  (22.42)%

(a)The decrease in administrative expenses was mainly due to a decrease of US$7.4 million in the Colquijirca mining unit due to a reduction of costs, partially offset by an increase of US$1.6 million in payments to communities surrounding the Julcani mining unit and an increase of US$2.2 million related to a provision of doubtful accounts in Colquirrumi related to accounts receivable for sales of assets.

(b)The decrease in exploration in non-operating areas is mainly due to decreased expenditures in exploration activities, primarily in the Alejandra project. During 2016, our main exploration efforts were focused on the San Gabriel project, the Tambomayo project and Marcapunta Norte. See Note 26 to the Financial Statements.

(c)During 2016, no impairment loss was recorded.

(d)The variation in other expenses was mainly due to the reversal of contingences in La Zanja, sale of assets in the energy segment and reversal of provision for impairment of inventories during 2016.

Other income (expense), net. Other income (expense), net increased by 90% from US$203.6 million in 2015 to US$387.4 million in 2016, mainly explained by:

(a)Share in the results of associates under equity method. Loss from equity investments in associates increased by 111%, from US$173.4 million in 2015 to US$365.3 million in 2016, primarily due to an increase in net loss from our equity investment in our associate company, Yanacocha, partially offset by an increase in net income from our equity investment in Cerro Verde.

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Net loss from our interest in Yanacocha increased by 132%, from US$196.5 million in 2015 to US$455.6 million in 2016. Net income from our interest in Cerro Verde increased by 928%, from US$6.5 million in 2015 to US$66.8 million in 2016. Finally, net income from our interest in Coimolache increased by 41%, from US$16.6 million in 2015 to US$23.5 million in 2016.

See “Item 5. Operating and Financial Review and Prospects—Yanacocha” and “Item 5. Operating and Financial Review and Prospects—Cerro Verde” for more information.

(b)Finance costs.Finance costs increased by 15%, from US$27.6 million in 2015 to US$31.6 million in 2016, primarily due to an increase of US$3.7 million in the fair value of the contingent consideration liability due to higher projected revenues. See Note 5 to the Consolidated Financial Statements.

(c)Finance income.Finance income decreased by 38%, from US$11.0 million in 2015 to US$6.8 million in 2016 due to a decrease of US$6.0 million in the changes in the fair value of the contingent consideration liability, which resulted in a higher provision during 2016 and therefore a higher finance cost (lower provision during 2015).

(d)Gain (loss) from currency exchange difference.During 2016, the currency exchange difference changed from a loss of US$13.7 million to an income of US$2.6 million as a result of the variations detailed in “Item 3.—Key Information—A. Selected Financial Data—Exchange Rates.”

Income tax. Provision for income tax increased by 262%, from US$14.8 million in 2015 to US$53.5 million in 2016, primarily due to an increase in the provision for income tax at the La Zanja and at the Buenaventura mining units of US$24.0 million and US$19.6 million, respectively, due to those segments showing net losses during 2015.

Non-controlling interest income (loss). Non-controlling interest income changed from a loss of US$58.3 million in 2015 to a loss of US$4.3 million in 2016, primarily due to an increase in the contribution of profits from the La Zanja and El Brocal units of US$34.8 million and US$21.6 million, respectively. See Note 19(a) to the Financial Statements.

Net loss. As a result of the foregoing, net loss decreased from US$375.5 million in 2015 to US$327.8 million in 2016. Net loss was 40.4% of revenues in 2015 and 30.7% of revenues in 2016.

Results of Operations for the Years Ended December 31, 2016 and 2015 by Segment

We present the operating results for each of our operating segments for the years ended December 31, 2015 and 2016 in more detail in Note 31 to the Financial Statements.

Sales of goods – Mining Segments

The following tables set forth the volumes of gold, silver, lead, zinc and copper sold at each of our principal mining segments during the years ended December 31, 2016 and 2015, as well as the variation in such volumes sold for the year ended December 31, 2016 as compared to the year ended December 31, 2015:

Mining Segment Volume Sold for the year ended December 31, 2016 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  32   3,090,967   2,679   -   54 
Mallay  1,041   1,426,986   6,775   8,728   - 
Orcopampa  188,511   680,708   -   -   48 
Uchucchacua  279   14,739,128   8,349   5,295   - 
La Zanja  151,189   229,055   -   -   - 
Colquijirca  13,062   1,696,175   11,874   48,806   45,572 

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Mining Segment Volume Sold for the year ended December 31, 2015 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  94   3,493,166   2,478   -   103 
Mallay  396   1,134,528   6,612   7,482   - 
Orcopampa  214,821   555,314   -   -   - 
Uchucchacua  38   12,666,673   6,560   4,750   - 
La Zanja  142,300   324,151   -   -   - 
Colquijirca  7,181   2,637,215   16,739   43,297   28,991 

Mining Segment 2016 vs 2015 Change ()% 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  (66)%  (12)%  8%  -   (48)%
Mallay  163%  26%  2%  17%  - 
Orcopampa  (12)%  23%  -   -   (100)%
Uchucchacua  634%  16%  27%  11%  - 
La Zanja  6%  (29)%  -   -   - 
Colquijirca  82%  (36)%  (29)%  13%  57%

The change in sales of goods for the year ended December 31, 2016 as compared to the year ended December 31, 2015 is mainly explained by the changes in volume sold, as presented in the following chart:

Sales of goods – Mining Segments Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Julcani  50,254   54,666   4,412   8.78%
Mallay (a)  32,018   46,741   14,723   45.98%
Orcopampa  254,118   244,745   (9,373)  (3.69)%
Ucchuchacua (b)  166,055   240,470   74,415   44.81%
La Zanja  161,007   178,922   17,915   11.13%
Colquijirca (c)  171,294   230,611   59,317   34.63%

(a)Mallay. Net sales of goods increased by US$14.7 million in 2016 as compared to 2015 due to increases in the average realized price and amount of silver sold at that unit.

(b)Uchucchacua. Net sales of goods increased by US$74.4 million in 2016 as compared to 2015 due to a 16% increase in the amount of silver sold and an increase in the average realized silver price.

(c)Colquijirca. Net sales of goods increased by US$59.3 million in 2016 as compared to 2015 due to a 57% increase in the amount of copper sold and an increase in the average realized copper price.

Sales of services – Other Segments

Sales of services - construction and engineering segment.Net sales for the construction and engineering segment decreased by US$36.1 million in 2016 as compared to 2015 due to a decrease of US$22.0 million from the stoppage of BISA Construcción S.A. operations.

Sales of services - insurance brokerage segment.Net sales for the insurance brokerage segment increased by US$0.7 million in 2016 as compared to 2015 due to an increase in the number of clients in the insurance portfolio due to our strategic associations with smaller brokers.

Sales of services - energy generation and transmission segment. Net sales for the energy and transmission segment increased by US$9.0 million in 2016 as compared to 2015 due to the increase in the demand for energy from our other operating segments.

Total operating expenses – Mining Segments. The change in operating expenses for the year ended December 31, 2016 as compared to the year ended December 31, 2015 is mainly explained by:

72 

Operating Expenses – Mining Segments Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Julcani  4,803   5,983   1,180   24.57%
Mallay  3,571   4,580   1,009   28.26%
Orcopampa (a)  18,731   14,121   (4,610)  (24.61)%
Ucchuchacua (b)  12,455   15,632   3,177   25.51%
La Zanja (c)  16,902   3,300   (13,602)  (80.48)%
Colquijirca (d)  33,260   24,115   (9,145)  (27.50)%

(a)Orcopampa. The decrease in total operating expenses was mainly due to a decrease in administrative expenses of US$2.9 million.

(b)Uchucchacua.The increase in total operating expenses was mainly due to an increase in administrative expenses of US$2.5 million.

(c)La Zanja.The decrease in total operating expenses was mainly due to a decrease in exploration in non-operating areas of US$4.3 million, which were partially offset by a decrease in impairment losses of US$3.8 million due to no impairment loss in 2016.

(d)Colquijirca.The decrease in total operating expenses was mainly due to a decrease in administrative expenses of US$7.4 million and a decrease in other expenses (income) net of US$2.4 million.

Total operating expenses - Other Segments

Operating expenses – Other Segments Year ended December 31, 
  2015  2016  Variation  Variation 
Construction and engineering segment  (442)  (2,580)  (2,138)  483.71%
Insurance brokerage segment  (11,300)  (12,245)  (945)  8.36%
Energy generation and transmission segment (a)  (4,533)  6,953   11,486   N.A. 

(a) During 2016, the energy segment recorded an income of US$17.0 million related to sales of assets to third parties of US$3 million and intercompany of US$14.0 million.

Results of Operations for the Years Ended December 31, 2015 and 2014

Net sales of goods. Net sales of goods decreased by 11.78%, mainly due to the decrease in sales of metal, as explained by the chart below:

Sales by metal Year ended December 31, 
  2014  2015  Variation  Variation 
  (US$ in thousands)    
Gold (a)  449,404   419,541   (29,863)  (6.65)%
Silver (b)  348,171   313,418   (34,753)  (9.98)%
Lead (c)  39,185   55,445   16,260   41.50%
Zinc (d)  46,903   102,110   55,207   117.7%
Copper (e)  271,282   131,356   (139,926)  (51.58)%
Manganese sulfate  483   3,649   3,166   655.49%
   1,155,428   1,025,519   (129,909)  (11.24)%
Commercial deductions (f)  (184,385)  (196,145)  (11,760)  6.38%
Adjustments to prior period liquidations  (6,073)  7,467   13,540   n.a 
Embedded derivatives from sale of concentrate  (9,570)  (388)  9,182   (95.95)%
Hedge operations  3,886   9,816   5,930   152.60 
Total sales by metal  959,286   846,269   (113,017)  (11.78)%

(a)Gold sales. The decrease in gold sales was mainly due to a decrease in average realized sales prices for gold and a decrease in gold sales volume mainly due to decreased gold production at our Orcopampa mining unit.

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(b)Silver sales. The decrease in silver sales was mainly due to the combined effect of a decrease in the average realized sales prices for silver and an increase in silver sales volume, mainly due to increased silver production at our Uchucchacua, Colquijirca and Julcani mining units.

(c)Lead sales. The increase in lead sales was mainly due to the combined effect of a decrease in the average realized sales prices for lead and an increase in lead sales volume, mainly due to increased lead production at our Colquijirca mining unit.

(d)Zinc sales. The increase in zinc sales was mainly due to the combined effect of a decrease in average realized sales prices for zinc and an increase in zinc sales volume, mainly due to increased zinc production at our Colquijirca mining unit.

(e)Copper sales.The decrease in copper sales was mainly due to decreased average realized sales prices for copper and a decreased copper sales volume, mainly due to decreased copper production at our Colquijirca mining unit.

(f)Commercial deductions.Net sales of goods figures are obtained by deducting the refinery charges and penalties incurred (a total of US$196.2 million of refinery charges and penalties were incurred in 2015, compared with US$184.4 million incurred in 2014) and revenues from discontinued operations (a total of US$22.7 million revenues provided from mining units held for sales in 2015, compared to US$113.6 million provided in 2014) from the gross sales of all metals sold. See Note 21(a) and 1(e) to the Financial Statements.

The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 2014 and 2015, as well as the variation in such average realized prices and volumes recorded for the year ended December 31, 2015 as compared to the year ended December 31, 2014:

Average Realized Price Year ended December 31, 
  2014  2015  Variation* 
    
Gold (US$/oz.)  1,262.73   1,149.96   (8.93)%
Silver (US$/oz.)  18.66   15.06   (19.29)%
Lead (US$/t)  2,106.87   1,711.87   (18.75)%
Zinc (US$/t)  2,243.76   1,838.86   (18.05)%
Copper (US$/t)  6,737.78   4,514.93   (32.99)%

Volume Sold Year ended December 31, 
  2014  2015  Variation* 
Gold (oz.)  355,899   364,831   2.51%
Silver (oz.)  18,661,277   20,811,046   11.52%
Lead (t)  18,599   32,389   74.14%
Zinc (t)  20,904   55,529   165.64%
Copper (t)  40,263   29,094   (27.74)%

Sales of services.Sales of services decreased by 28.65%, from US$71.2 million in 2014 to US$50.8 million in 2015, mainly due to a US$18.1 million decrease in sales of services in our construction and engineering segments, a result of a reduction in the number of contracts related to the development and construction of mining projects in 2015.

Royalty income. In 2015, royalty income received by our subsidiary Chaupiloma amounted to US$32.4 million, representing a 12.1% decrease from the US$36.9 million in royalty income received in 2014. This decrease was due to a decrease in 2015 in the net sales of Yanacocha, which was primarily due to a decrease in the average realized price of gold and a decrease in production at Yanacocha. We hold a 60 percent60% interest in Chaupiloma, to which Yanacocha pays a royalty that corresponds to three percent3% of its net sales.

Total operating costs. Total operating costs increased by three percent,5.5%, from US$918.7 million in 2013 to US$949.5874.4 million in 2014 to US$922.6 million in 2015, due to changes in the following components:

 

(a)74 Cost of sales, excluding depreciation and amortization, decreased by two percent,

(a)           Cost of sales of goods, excluding depreciation and amortization, increased by 3.0%, from US$498.7 million in 2014 to US$513.5 million in 2015.

(b)           Cost of services, excluding depreciation and amortization, decreased by 23.5% from US$77.9 million in 2014 to US$59.6 million in 2015, which was mainly due to costs from US$627.3 million in 2013 to US$614.5 million in 2014, due to: (i) a US$22.8 million decrease in our construction and engineering unit decreasing by US$20.4 million as a result of lower net sales and a lower headcount.

(c)           Exploration in operating units decreased by 7.9%, from US$97.4 million in 2014 to US$89.7 million in 2015. This decrease was primarily due to a decrease of US$10.1 million in diamond drilling activities at the Orcopampa mining unit, which was partially offset by an increase of US$1.7 million and US$1.3 million at the Julcani mining units, respectively, due to increased exploration efforts. See Note 23 to the Consolidated Financial Statements.

(d)           Depreciation and amortization costs increased by 34.45%, from US$173.0 million in 2014 to US$232.6 million in 2015, mainly due to:

·higher depreciation and amortization costs incurred in La Zanja mining unit of US$32.2 million, which increased from US$72.8 million in 2014 to US$105.0 million in 2015 as a result of lower net sales and a lower headcount; (ii) a decrease of US$14.7 million in our Orcopampa mining unit due to fewer services provided by third parties and athe decrease in the consumption of materials and supplies; (iii) a decrease at the Julcani mining unit of US$8.8 million due to higher silver concentrate inventories, which was partially offset by (iv) a US$35.6 million increase in the Ucchuchacua mining unit due to more services provided by third parties; and (v) a decrease of US$6.2 million in the energy generation and transmission segment due to the decline in energy purchases resulting from the Huanza hydroelectric plant beginning operations in 2014.reserves during 2015.

 

(b)·The cost of exploration of operating units in operation decreased by four percent, from US$101.9 million in 2013 to US$97.9 million in 2014. This decrease was primarily due to a decrease of US$6.1 million and US$2.5 million in diamond drilling activities at the Orcopampa and Breapampa mining units, respectively, which was partially offset by an increase of US$3.9 million at the Julcani mining unit due to increased exploration efforts at Acchilla. See Note 22 to the Financial Statements.

(c)Depreciation and amortization costs increased by 31 percent, from US$159.1 million in 2013 to US$208.7 million in 2014, due to: (i) higher depreciation and amortization costs incurred in the La ZanjaColquijirca mining unit of US$18.7 million, which increased from US$27.927.0 million in 20132014 to US$72.845.7 million in 20142015 as a result of increased mine development costs and amortization and fixed assets purchases; (ii) higherthe capitalization of the expansion project at the beginning of 2015.

·lower depreciation and amortization costs incurred in the JulcaniOrcopampa and Mallay mining units of US$13.2 million and US$9.3 million, respectively, which increaseddecreased from US$24.9 million in 2013 to US$36.555.3 million in 2014 to US$32.7 million in 2015 as a result of work-in-progress put into operation; (iii) higher depreciation costs incurredchanges in the Breapampa mining unit, which increased from US$25.5 million in 2013 to US$35.7 million in 2014 due to the start of operations in new pad stages; (iv) depreciation costs incurred by our corporate unit, which increased by US$7.2 million in 2014 due to the start of operations at the Rio Seco subsidiary, which was partially offset by a decrease in depreciation costs incurred in the Colqujirca mine from US$35.6 million in 2013 to US$26.9 million in 2014 due to the full depreciation of the R-7 tailing dam in 2013.reserves during 2015.

 

(d)Mining royalties expenses paid to third parties and the Peruvian government decreased by six percent, from US$30.4 million in 2013 to US$28.4 million in 2014. Royalties paid to third parties by Orcopampa amounted to US$23.8 million and US$21.7 million in 2013 and 2014, respectively. Royalties paid to the Peruvian government amounted to US$6.3 million and US$6.8 million in 2013 and 2014, respectively. The decrease in royalties paid to third parties and the Peruvian government was primarily due to a ten percent decrease in gold production at the Orcopampa mining unit from 224,671 ounces produced in 2013 to 203,226 ounces produced in 2014, and the decrease in the price of gold in 2014, compared with 2013.

(e)           Mining royalties decreased by 0.9%, from US$27.4 million in 2014 to US$27.2 million in 2015. Royalties paid to third parties by Orcopampa amounted to US$21.7 million and US$21.9 million in 2014 and 2015, respectively. Royalties paid to the Peruvian government amounted to US$5.7 million and US$5.3 million in 2014 and 2015, respectively. The increase in royalties paid to third parties are explained by the higher production in Orcopampa, partially offset by the decrease in the price of gold in 2015. The decrease in royalties paid to Peruvian government was primarily due to the decrease in the price of gold in 2015, compared with 2014.

Total operating expenses. Operating expenses increaseddecreased by 23 percent,8.23%, from US$125.6156.8 million in 20132014 to US$164.7143.9 million in 2014,2015, due to changes in the following components:

 

(a)           Administrative expenses decreased by 10.0%, from US$93.7 million in 2014 to US$84.4 million in 2015, mainly due to:

(a)·Administrative expenses increased by 35 percent, from US$75.1 million in 2013 to US$101.1 million in 2014, due to an increase of administrative expenses at the corporate unita decrease of US$21.2 million from the reversal of expenses by US$20.2 million recorded in 2013 for long-term officers’ compensation (stock appreciation rights), and an increase of US$7.98.3 million in the construction and engineering unit due to increased labor costs, which was partially offset by a decrease in the contracts during 2015;

·a decrease of US$4.33.7 million in the OrcopampaLa Zanja mining unit due to a decreaseprovision for environmental contingencies for US$4.3 million recorded in labor expenses. See Note 24 to the Financial Statements.

(b)Expenses from the exploration of non-operating areas increased by 52 percent, from US$32.8 million in 2013 to US$50.0 million in 2014, due to increased expenditures in exploration activities beginning in 2014, primarily in the Alejandra2014; and Tambomayo projects. See Note 25 to the Financial Statements.

 

(b)           Exploration in non-operating areas decreased by 38.8%, from US$50.0 million in 2014 to US$30.6 million in 2015 due to decreased expenditures in exploration activities beginning in 2014, primarily in the Tambomayo and Alejandra projects. See Note 26 to the Financial Statements.

(c)           Impairment loss of long-lived assets increased by US$3.8 million as a result of our assessment of the recoverability of the book value of our long-term assets under the procedures established by IAS 36 for two of our mining units (La Zanja).

Operating expensesprofit (loss). As a result of the foregoing, we generated an operating expenses decreased by 79 percent fromprofit of US$124.636.1 million in 20132014 compared to an operating loss of US$136.9 million in 2015.

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Other income (expense), net. Other income (expenses), net increased by 680.9% from US$26.1 million in 2014.2014 to US$203.6 million in 2015, mainly explained by:

 

(a)           Net shareShare in the results of associate companies accounted forassociates under equity method. Loss from equity investments in associates decreasedincreased by 35 percent,132.4%, from US$114.1 million in 2013 to US$74.6 million in 2014 to US$173.4 million in 2015, primarily due to a decreasean increase in net loss from our equity investment in our associate company, Yanacocha, which was partially offset byand a decrease in net income from our equity investment in Cerro Verde.

Net loss from our interest in Yanacocha decreasedincreased by 30 percent,12.5%, from US$251.1 million in 2013 to US$174.7 million in 2014.2014 to US$196.5 million in 2015. Net income from our interest in Cerro Verde decreased by 33 percent,91.6%, from US$116.2 million in 2013 to US$77.9 million in 2014.2014 to US$6.5 million in 2015. Finally, net income from our interest in Coimolache increaseddecreased by seven percent,25.3%, from US$20.8 million in 2013 to US$22.3 million in 2014.2014 to US$16.6 million in 2015.

 

(b)           Gain on business combination. In 2014, we recognized a gain of US$59.9 million in connection with our acquisition of the controlling interest in Canteras del Hallazgo S.A.C. from Minera Gold Fields PeruPerú S.A. due to the revaluation of the previously held equity interest at fair value as of the acquisition date.

 

(c)           Finance costs. Finance costs increased by 14 percent,144.5%, from US$9.9 million in 2013 to US$11.3 million in 2014 to US$27.6 million in 2015, primarily due to an increase in the cost of the financial leasing facility related to the construction of the Huanza hydroelectric plant.to:

 

·an increase of the interests of financial obligations of US$9.9 million and an increase of the interests of bank loans of US$4.8 million; and

·an increase of US$1.6 million in the financial cost related to closing mining units, due to the higher provision recorded in 2015.

Income tax. Provision for income tax decreased by 24 percent,77.6%, from US$86.5 million in 2013 to US$66.065.8 million in 2014 to US$14.8 million in 2015, primarily due to a decrease in the provision for income tax at the El Brocal and La Zanja mining units, and at the corporate unit of US$25.7 million, US$18.1 million caused by a decrease in taxable income of that unit, a decrease in the provision for income tax at the La Zanja mining unit ofand US$16.811.3 million, and a decrease in other units of US$1.1 million, which was partially offset by an increase of US$16.6 million at the Colquijirca mining unitrespectively, due to higher sales.those segments showing net losses during 2015.

Non-controlling interest income (loss). Non-controlling interest changed from an income decreased by 48 percent, from US$27.5 million in 2013 toof US$14.4 million in 2014 to a loss of US$58.3 million in 2015, primarily due to a decrease in contribution of profits from the La Zanja and ChaupilomaEl Brocal units by US$18.033.2 million and US$2.138.4 million, respectively. See Note 18(a)19(a) to the Financial Statements.

Net loss. As a result of the foregoing, net loss decreased by 23 percent,increased from US$79.7 million in 2013 to US$61.6 million in 2014.2014 to US$375.5 million in 2015. Net loss was 7 percent5.8% of salesrevenues in 20132014 and 5 percent40.4% of salesoperating income in 2014.2015.

 

Results of Operations for the Years Ended December 31, 20142015 and 20132014 by Segment

 

We discusspresent the operating results for each of our operating segments for the years ended December 31, 20132014 and 20142015 in more detail in Note 2931 to the Financial Statements.

 

Net Sales-MiningSales of goods -Mining Segments

 

The following tables set forth the volumes of gold, silver, lead, zinc and copper sold at each of our principal mining segments during the years ended December 31, 20142015 and 2013,2014, as well as the variation in such volumes sold for the year ended December 31, 20142015 as compared to the year ended December 31, 2013:2014:

 

Mining Segment 

Volume Sold for the year ended December 31, 2014

 
   

Gold (oz.)

   

Silver (oz.)

   

Lead (mt)

   

Zinc (mt)

   

Copper (mt)

 
Julcani  12   2,851,318   2,057   -   64 
Mallay  -   1,121,202   7,253   8,609   - 
Breapampa  80,358   383,733   -   -   - 
Orcopampa  204,862   401,782   -   -   - 
Uchucchacua  -   11,940,167   6,530   4,288   - 
La Zanja  143,151   418,565   -   -   - 
Colquijirca  7,874   1,928,243   2,759   8,007   40,198 

Mining Segment 

Volume Sold for the year ended December 31, 2013

  Volume Sold for the year ended December 31, 2015 
  

Gold (oz.)

   

Silver (oz.)

   

Lead (mt)

   

Zinc (mt)

   

Copper (mt)

  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  378   2,227,960   1,713   -   140   94   3,493,166   2,478   -   103 
Mallay  -   1,146,442   6,570   7,614   -   396   1,134,528   6,612   7,482   - 
Breapampa  80,178   311,634   -   -   - 
Orcopampa  221,322   516,033   -   -   -   214,821   555,314   -   -   - 
Uchucchacua  -   9,748,206   6,977   6,340   -   38   12,666,673   6,560   4,750   - 
La Zanja  132,992   381,091   -   -   -   142,300   324,151   -   -   - 
Colquijirca  4,619   1,460,681   8,392   20,011   25,266   7,181   2,637,215   16,739   43,297   28,991 

 

Mining Segment 

2014 vs 2013 Change (%)

 
   

Gold (oz.)

   

Silver (oz.)

   

Lead (mt)

   

Zinc (mt)

   

Copper (mt)

 
Julcani  (97)%  28%  20%  -   (54)%
Mallay  -   (2)%  10%  13%  - 
Breapampa  0%  23%  -   -   - 
Orcopampa  (7)%  (22)%  -   -   - 
Uchucchacua  -   22%  (6)%  (32)%  - 
La Zanja  8%  10%  -   -   - 
Colquijirca  70%  32%  (67)%  (60)%  59%
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Mining Segment Volume Sold for the year ended December 31, 2014 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  12   2,851,318   2,057   -   64 
Mallay  -   1,121,202   7,253   8,609   - 
Orcopampa  204,862   401,782   -   -   - 
Uchucchacua  -   11,940,167   6,530   4,288   - 
La Zanja  143,151   418,565   -   -   - 
Colquijirca  7,874   1,928,243   2,759   8,007   40,198 

Mining Segment 2015 vs 2014 Change ()% 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  683%  23%  20%  -   61%
Mallay  100%  1%  (9)%  (13)%  - 
Orcopampa  5%  38%  -   -   - 
Uchucchacua  100%  6%  -   11%  - 
La Zanja  (1)%  (23)%  -   -   - 
Colquijirca  (9)%  37%  507%  441%  (28)%

The change in sales of goods for the year ended December 31, 2016 as compared to the year ended December 31, 2015 is mainly due to the changes in volume sold, as described by the chart below:

Sales of goods – Mining Segments Year ended December 31, 
  2014  2015  Variation  Variation 
  (US$ in thousands)    
Julcani  49,767   50,254   487   0.98%
Mallay (a)  42,974   32,018   (10,956)  (25.49)%
Orcopampa  264,049   254,118   (9,931)  (3.76)%
Ucchuchacua (b)  202,543   166,055   (36,488)  (18.01)%
La Zanja (c)  185,286   161,007   (24,279)  (13.10)%
Colquijirca (d)  210,002   171,294   (38,708)  (18.43)%

(a)Mallay. Net sales of goods decreased by US$11.0 million in 2015 as compared to 2014 due to a decline in the average realized price of silver, partially offset by an increase in the amount of silver sold at that unit.
(b)Uchucchacua. Net sales of goods decreased by US$36.5 million in 2015 as compared to 2014 due to a decline in the average realized prices of lead and silver, partially offset by an increase in the amount of lead and silver sold at that unit.
(c)La Zanja. Net sales of goods decreased by US$24.3 million in 2015 as compared to 2014 due to a decline in gold and silver prices, and a decrease in the volume of silver sold from 418,565 ounces sold in 2014 to 324,151 ounces sold in 2015 and gold sold from 143,151 ounces sold in 2014 to 142,300 ounces sold in 2015.
(d)Colquijirca.Net sales of goods decreased by US$38.7 million in 2015 as compared to 2014 due to a decline in mineral prices, partially offset by an increase in tons of lead and zinc and ounces of silver sold during 2015.

Sales of services – Other Segments

 

Julcani. Net sales increased by US$3.8 million in 2014 as compared to 2013 due to increases in the volumeSales of silver and lead sold at that unit.

Mallay. Net sales decreased by US$1.9 million in 2014 as compared to 2013 due to a decrease in the amount of silver sold at that unit and a decline in the average realized price of silver.

Breapampa.Net sales decreased by US$11.4 million in 2014 as compared to 2013 due to a decline in gold and silver prices.

Orcopampa. Net sales decreased by US$60.3 million in 2014 as compared to 2013 due to a seven percent decline in gold sold at that unit, from 221,322 ounces sold in 2013 to 204,862 ounces sold in 2014, and a decline in the average realized prices of gold and silver.

Uchucchacua. Net sales decreased by US$2.7 million in 2014 as compared to 2013 due to decreases in the amount of lead and zinc sold at that unit.

La Zanja. Net sales decreased by US$8 million in 2014 as compared to 2013 due to a decline in gold and silver prices, which was partially offset by an eight percent increase in the volume of gold sold from 132,992 Au oz. in 2013 to 143,151 Au oz. in 2014.

Colquijirca. Net sales increased by US$22.2 million in 2014 as compared to 2013 due to a 59 percent increase in the volume of copper sold from 25,266 mt. sold in 2013 to 40,198 mt. sold in 2014.

Net salesservices - construction and engineering segment.Net sales for the construction and engineering segment decreased by US$29.718.1 million in 20142015 as compared to 20132014 due to a reduction in the development and construction of mining projects.

Net salesSales of services - insurance brokeragesegment.Net sales for the insurance brokerage segment increased by US$2.21.3 million in 20142015 as compared to 20132014 due to an increase in the number of clients in the insurance portfolio due to our strategic associations with smaller brokers.

77 

 

Net salesSales of services - energy generation and transmission segment. Net sales for the energy and transmission segment increased by US$5.19.4 million in 20142015 as compared to 20132014 due to the increase in the demand of energy from our other operating segments, in particular the Colquijirca mining unit.segments.

 

Total operating expenses-expenses – Mining Segments

.Orcopampa.During 2014, totalThe change in operating expenses decreased by US$2.2 million due to a decrease in administrative expensesas a result of a decrease in labor expenses, which was partially offset by an increase in selling expenses, eachfor the year ended December 31, 2015 as compared to 2013.the year ended December 31, 2014 is explained by the chart below:

 

Operating Expenses – Mining Segments Year ended December 31, 
  2014  2015  Variation  Variation 
  (US$ in thousands)    
Julcani (a)  9,017   4,803   (4,214)  (46.73)%
Mallay  3,553   3,571   18   0.51%
Orcopampa (b)  16,375   18,731   2,356   14.39%
Ucchuchacua (c)  14,429   12,455   (1,974)  (13.68)%
La Zanja (d)  10,194   16,902   6,708   65.80%
Colquijirca (e)  29,596   33,260   3,664   12.38%

Julcani.During 2014, total

(a)Julcani.The decrease in operating expenses was due to a decrease in other expenses of US$4.6 million compared to 2014.

(b)Orcopampa. The increase in operating expenses was due to an increase in other income as a result of higher sales to third parties.

(c)Uchucchacua.The decrease in operating expenses was due to a decrease in administrative expenses as compared to 2014, as a result of a cost reduction plan adopted in 2014.

(d)La Zanja.The increase in operating expenses was due to an increase in exploration in non-operating areas of US$8.9 million which were partially offset by an increase an impairment loss by US$3.8 million, each as compared to 2014.

(e)Colquijirca.The increase in operating expenses was due to increases in administrative expenses and selling expenses, which were partially offset by an increase in other expenses-net, each as compared to 2014.

Total operating expenses increased by US$6.5 million due to increases in administrative expenses and selling expenses, each as compared to 2013.

- Other Segments

Breapampa.During 2014, total operating expenses increased by US$0.57 million due to increases in administrative expenses and selling expenses, each as compared to 2013.

Colquijirca.During 2014, total operating expenses decreased by US$0.68 million due to decreases in administrative expenses and selling expenses, which were partially offset by an increase in other expenses-net, each as compared to 2013.

La Zanja.During 2014, total operating expenses increased by US$0.61 million due to increases in administrative expenses and other expenses-net, which were partially offset by a decrease in selling expenses, each as compared to 2013.

Uchucchacua. During 2014, total operating expenses increased by US$1.9 million due to increases in administrative expenses and selling expenses, each as compared to 2013.

Mallay. During 2014, total operating expenses decreased by US$0.37 million due to an increase in other expenses-net, which was partially offset by increases in administrative expenses and selling expenses, each as compared to 2013.

Total operating expenses—construction and engineering segment.During 2014,2015, total operating expenses for the construction and engineering segment increaseddecreased by US$0.217.6 million for the year ended December 31, 20142015 as compared to 20132014 due to an increasedecrease in administrative expensesdue to increased labor costs.expenses.

Total operating expenses—insurance brokeragesegment.During 2014,2015, total operating expenses for the insurance brokerage segment increased by US$1.12.5 million as compared to 20132014 due to an increase in administrative expenses.

Total operating expenses—energy generation and transmission segmentsegment.. During 2014,2015, total operating expenses for the energy and transmission segment decreased by US$5.67.6 million as compared to 20132014 due to a decrease of US$7.78.0 million in other expenses-net, which was partially offset by increases in administrative expenses, and selling expenses.

Results of Operations for the Years Ended December 31, 2013 and 2012

Net sales. Net sales decreased by 15 percent, from US$1,422.8 million in 2012 to US$1,215.4 million in 2013. The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 2012 and 2013:

Average Realized Price 

Year ended December 31,

 
  

2012

  

2013

  

Variation

 
Gold (US$/oz.)  1,677.96   1,392.18   (17.03)%
Silver (US$/oz.)  31.07   22.33   (28.13)%
Lead (US$/t)  2,075.82   2,104.63   1.39%
Zinc (US$/t)  1,918.98   1,869.22   (2.59)%
Copper (US$/t)  7,938.49   7,179.50   (9.56)%

Volume Sold 

Year ended December 31,

 
  

2012

  

2013

  

Variation

 
Gold (oz.)  439,630   458,499   4.29%
Silver (oz.)  17,483,490   16,329,314   (6.60)%
Lead (t)  25,587   26,584   3.90%
Zinc (t)  43,149   38,084   (11.74)%
Copper (t)  22,348   25,406   13.68%

(a)    Gold sales. Average realized sales price for gold decreased from US$1,677.96 per ounce in 2012 to US$1,392.18 per ounce in 2013. Gold sales volume increased from 439,630 ounces in 2012 to 458,499 ounces in 2013, mainly due to increased gold production at our Breapampa and La Zanja mining units. The combined effect of these changes resulted in a US$101.4 million decrease in income from sales of gold in 2013 as compared to 2012.

(b)    Silver sales. Average realized sales price for silver decreased from US$31.07 per ounce in 2012 to US$22.33 per ounce in 2013. Silver sales volume decreased from 17,483,490 ounces in 2012 to 16,329,314 ounces in 2013, mainly due to decreased silver production at our Colquijirca mine. The combined effect of these changes resulted in a US$182.1 million decrease in income from sales of silver in 2013 as compared to 2012.

(c)    Lead sales. Average realized sales price for lead increased from US$2,075.82 per ton in 2012 to US$2,104.63 per metric ton in 2013. Lead sales volume increased from 25,587 tons in 2012 to 26,584 tons in 2013, mainly due to increased lead production at our Julcani and Mallay mining units. The combined effect of these changes resulted in a US$3.1 million increase in income from sales of lead in 2013 as compared to 2012.

(d)    Zinc sales. Average realized sales price for zinc decreased from US$1,918.98 per ton in 2012 to US$1,869.22 per ton in 2013. Zinc sales volume decreased from 43,149 tons in 2012 to 38,084 tons in 2013, mainly due to decreased zinc production at our Colquijirca mine. The combined effect of these changes resulted in a US$11.7 million decrease in income from sales of zinc in 2013 as compared to 2012.

(e)    Copper sales. Average realized sales price for copper decreased from US$7,938.49 per metric ton in 2012 to US$7,179.50 per metric ton in 2013. Copper sales volume increased from 22,348 tons in 2012 to 25,406 tons in 2013, mainly due to increased copper production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$4.8 million increase in income from sales of copper in 2013 as compared to 2012.

The revenues from gold, silver, lead, zinc and copper mentioned above do not include refinery charges and penalties incurred, which amounted to US$127.1 million in 2013 as compared to US$143.7 million in 2012. See Note 20(a) to the Financial Statements.

Net sales figures are obtained by deducting the refinery charges and penalties incurred (a total of US$185.1 million of refinery charges and penalties were incurred in 2014, compared with US$127.1 million incurred in 2013) and revenues from mining units held for sale (a total of US$5.1 million revenues provided from mining units held for sales in 2014, compared with US$25.8 million provided in 2013) from the gross sales of all metals sold. See Note 20(a) to the Financial Statements.

Royalty income. In 2013, royalty income received by our subsidiary, Chaupiloma, amounted to US$44.2 million, representing a 34 percent decrease from the US$67.2 million in royalty income received in 2012. This decrease is due to a decrease in sales at Yanacocha in 2013, which were primarily due to a decrease in the average realized price of gold and a decrease in Yanacocha’s production. We hold a 60% interest in Chaupiloma, to which Yanacocha pays a royalty equal to 3% of its net sales.

Total operating costs. Total operating costs increased by 12 percent, from US$823.0 million in 2012 to US$918.7 million in 2013, due to changes in the following components:

(a)     Cost of sales, excluding depreciation and amortization, increased by 10 percent, from US$571.2 million in 2012 to US$627.3 million in 2013, primarily due to a US$41.5 million increase in services provided by third parties, a US$22.5 million increase in personnel costs and a US$15.2 million increase in operating leases, which were partially offset by a US$18.7 million decrease in the cost of concentrate purchased from third parties and a US$10.0 million decrease in the consumption of spare parts and supplies. The increases in services provided by third parties, personnel costs and operating leases were primarily due to: (i) new production costs incurred by operations at our Mallay and Breapampa mining units, which commenced in April and November 2012, respectively; (ii) an increase in exploration activities and diamond drilling works during 2013 compared to 2012 in order to maintain our ore reserves level; and, (iii) an increase in the volume of mineral treated in 2013 compared to 2012, especially in the Marcapunta Norte and Tajo Norte mining units.

(b)     The cost of exploration in operating units decreased by one percent, from US$103.2 million in 2012 to US$101.9 million in 2013. These decreased costs were primarily due to a decrease in exploration projects at the Shila-Paula and Ucchucachua mining units of US$9.0 million and US$4.0 million, respectively, which was offset by an increase of US$8.8 million and US$2.7 million at our Orcopampa and Breapampa mining units, respectively. See Note 22 to the Financial Statements.

(c)     Depreciation and amortization costs increased by 43 percent, from US$111.0 million in 2012 to US$159.1 million in 2013, due to (i) higher depreciation and amortization costs incurred in the Breapampa and Mallay mining units from, US$8.0 million in 2012 to US$45.8 million in 2013, due to the start of operations at these mining units in November and April 2012, respectively; and (ii) depreciation and amortization costs incurred by the Colqujirca mine increased by US$9.5 million in 2013 due to the full depreciation of the R-7 tailing dam that year.

(d)     Mining royalties expenses paid to third parties and the Peruvian government decreased by 19 percent, from US$37.5 million in 2012 to US$30.4 million in 2013. Royalties paid to third parties amounted to US$35.2 million and US$24.3 million in 2012 and 2013, respectively. Royalties paid to the Peruvian government amounted to US$2.5 million and US$6.3 million in 2012 and 2013, respectively. The decrease in royalties paid to third parties and Peruvian government was primarily due to a 14 percent decrease in gold production at the Orcopampa mining unit, from 260,378 ounces produced in 2012 to 224,671 ounces produced in 2013, and a decrease in the price of gold in 2013 compared to 2012.

Total operating expenses. Operating expenses decreased by 33 percent, from US$188.1 million in 2012 to US$125.6 million in 2013, due to changes in the following areas:net.

 

(a)Administrative expenses decreased by 20 percent, from US$94.1 million in 2012 to US$75.1 million in 2013, due to a decrease at the corporate unit of US$21.4 million in administrative expenses due to a reversal of expenses by US$20.2 million recorded in 2013 for long-term officers’ compensation (stock appreciation rights), a decrease of US$3.7 million in the Colquijirca mining unit due to lower professional fees and sundry expenses, which was partially offset by an increase of US$7.1 million in the Breapampa mining unit due to the start of unit operations in November 2012. See Note 24 to the Financial Statements.

(b)Expenses from the exploration of non-operating areas decreased by 66 percent, from US$95.5 million in 2012 to US$32.8 million in 2013, due to decreased expenditures in exploration areas, primarily in the Tambomayo, Trapiche, San Gregorio, Breapampa, Focus and Consolidada de Hualgayoc projects. See Note 25 to the Financial Statements.

Operating income. As a result of the foregoing, operating income decreased by 55 percent, from US$478.9 million in 2012 to US$215.2 million in 2013.

Net share in results of associate companies accounted for under equity method. Income from equity investments in associate companies decreased by 124 percent, from an income of US$479.0 million in 2012 to a loss of US$114.1 million in 2013, primarily due to decreases in income from our equity investments in Yanacocha, Cerro Verde and Coimolache. Income from our interest in Yanacocha decreased by 189 percent, from an income of US$282.8 million in 2012 to a loss of US$251.1 million in 2013. Income from our interest in Cerro Verde decreased by 26 percent, from US$156.0 million in 2012 to US$116.2 million in 2013. Income from our interest in Coimolache decreased by 48 percent, from US$40.2 million in 2012 to US$20.8 million in 2013, primarily due to a decrease in the prices of gold and silver and decreased silver production at the Tantahuatay mine.

Finance costs. Finance costs increased by 19 percent, from US$8.3 million in 2012 to US$9.9 million in 2013, primarily due to an increase in the energy generation and transmission unit of US$1.9 million due to interests on finance leases.

Finance Income. Finance income decreased by 30 percent, from US$9.5 million in 2012 to US$6.6 million in 2013, primarily due to a decrease in the finance income at the corporate unit of US$3.6 million due to lower interest income from time deposits.

Income tax. Provision for income tax decreased by 40 percent, from US$143.0 million in 2012 to US$86.5 million in 2013, due to a decrease in provisions for income tax at the corporate segment and the rental of mining concessions of US$43.3 million and US$7.5 million, respectively, all related to a decrease in taxable income.

Non-controlling interest income. Non-controlling interest income decreased by 54 percent, from US$59.4 million in 2012 to US$27.5 million in 2013, primarily due to a decrease in profit contribution from the Colquijirca, Chaupiloma and La Zanja units by US$20.4 million, US$6.6 million and US$4.9 million, respectively. See Note 18(a) to the Financial Statements.

Net profit (loss). As a result of the foregoing, net profit decreased by 111 percent, from a net profit of US$760.5 million in 2012 to a net loss of US$79.7 million in 2013. Net loss was seven percent of net sales in 2013 and net profit was 53 percent of net sales in 2012.

Results of Operations for the Years Ended December 31, 2013 and 2012 by Segment

We discuss the operating results for each of our operating segments for the years ended December 31, 2012 and 2013 in more detail in Note 29 to the Financial Statements.

Net Sales-Mining Segments

The following tables set forth the volumes of gold, silver, lead, zinc and copper sold at each of our principal mining segments during the years ended December 31, 2013 and 2012, as well as the variation in such volumes sold for the year ended December 31, 2013 as compared to the year ended December 31, 2012:

Mining Segment 

Volume Sold for the year ended December 31, 2013

 
   

Gold (oz.)

   

Silver (oz.)

   

Lead (mt)

   

Zinc (mt)

   

Copper (mt)

 
Julcani  378   2,227,960   1,713       140 
Mallay  -   1,146,442   6,570   7,614   - 
Breapampa  80,178   311,634   -   -   - 
Orcopampa  221,322   516,033   -   -   - 
Uchucchacua      9,748,206   6,977   6,340   - 
La Zanja  132,992   381,091   -   -   - 
Colquijirca  4,619   1,460,681   8,392   20,011   25,266 

Mining Segment 

Volume Sold for the year ended December 31, 2012

 
   

Gold (oz.)

   

Silver (oz.)

   

Lead (mt)

   

Zinc (mt)

   

Copper (mt)

 
Julcani  925   2,420,785   2,120   -   69 
Mallay  -   544,509   3,883   4,438   - 
Breapampa  -   -   -   -   - 
Orcopampa  263,695   598,511   -   -   - 
Uchucchacua  -   10,646,579   5,841   7,253   - 
La Zanja  115,571   363,162   -   -   - 
Colquijirca  7,764   2,654,243   10,686   27,734   22,279 

Mining Segment 

2013 vs 2012 Change (%)

 
   

Gold (oz.)

   

Silver (oz.)

   

Lead (mt)

   

Zinc (mt)

   

Copper (mt)

 
Julcani  (59)%  (8)%  (19)%  -   103%
Mallay  -   111%  69%  72%  - 
Breapampa  -   -   -   -   - 
Orcopampa  (16)%  (14)%  -   -   - 
Uchucchacua  -   (8)%  20%  (13)%  - 
La Zanja  15%  5%  -   -   - 
Colquijirca  (40)%  (45)%  (21)%  (28)%  (13)%

Julcani. Net sales decreased by US$ 27.4 million during 2013 as compared to 2012 due to an eight percent decrease in silver sold at the unit, from 2.4 million ounces sold in 2012 to 2.2 million ounces sold in 2013, and realized silver price.

Mallay. Net sales increased by US$16.7 million during 2013 as compared to 2012 due to increases in the amounts of silver (111%), lead (69%) and zinc (72%) sold.

Breapampa. Net sales increased by US$119.9 million during 2013 as compared to 2012 due to a higher volume of gold sold given that Breapampa began operations in December 2012.

Orcopampa. Net sales decreased by US$133.8 million during 2013 as compared to 2012 due to a 16 percent decrease in gold sold at the unit, from 263,645 ounces sold in 2012 to 221,322 ounces sold in 2013, and realized gold price.

Uchucchacua. Net sales decreased by US$101.1 million during 2013 as compared to 2012 due to a decrease of 8 percent in the volume of silver sold at the unit, which decreased from10.6 million ounces sold in 2012 to 9.7 million ounces sold in 2013, and a decrease in the realized price for silver.

La Zanja. Net sales decreased by US$23.5 million during 2013 as compared to 2012 due to a decline in gold and silver realized prices.

Colquijirca. Net sales decreased by US$80.7 million during 2013 as compared to 2012 due to a decrease in silver (45%), lead (21%) and zinc (28%) sold.

Net sales - construction and engineering segment.Increased by US$28.8 million due to additional construction activities provided to third parties.

Net sales - insurance brokerage segment.Net sales increased by US$0.80 million during 2013 as compared to 2012 due to due to an increase in the number of clients in the insurance portfolio due to our strategic associations with smaller brokers.

Net sales - energy generation and transmission segment.Net sales decreased by US$1.4 million during 2013 as compared to 2012 due to lower services provided to the La Zanja mine.

Total operating expenses- Mining Segments

Orcopampa.During 2013, total operating expenses decreased by US$1.3 million as compared to 2012 due to decreases in administrative expensesand selling expenses.

Julcani.During 2013, total operating expenses decreased by US$1.9 million as compared to 2012 due to decreases in administrative expenses and other expenses-net.

Breapampa.During 2013, total operating expenses increased by US$1.5 million mainly due to an increase of US$7.1 million in administrative expenses due to the start of unit operations in November 2012, which was partially offset by a decrease of US$5.6 million in exploration in non-operating areas.

Colquijirca.During 2013, total operating expenses decreased by US$16.8 million as compared to 2012 due to a US$3.7 million decrease in administrative expenses resulting from decreases in professional fees and sundry expenses.

La Zanja.During 2013, total operating expenses increased by US$2.5 million as compared to 2012 due to increases in exploration in non-operating areas, which was only partially offset by a decrease in administrative expenses.

Uchucchacua.During 2013, total operating expenses decreased by US$2.6 million as compared to 2012 due to a decrease in selling expenses, which was only partially offset by an increase in administrative expenses.

Mallay. During 2013, total operating expenses decreased by US$1.7 million as compared to 2012 due to decreases in administrative expenses and selling expenses.

Total operating expenses—construction and engineering segment.During 2013, total operating expenses for the construction and engineering segment decreased by US$2.2 million as compared to 2012 due to decreases in administrative expensesand other expenses-net.

Total operating expenses—insurance brokeragesegment.During 2013, total operating expenses for the insurance brokerage segment increased by US$1.8 million due to an increase in administrative expenses.

Total operating expenses—energy generation and transmission segment. During 2013, total operating expenses for the energy and transmission segment increased by US$6.4 million as compared to 2012 due to an increase of US$7.6 million in other expenses-net.

A.B.Liquidity and Capital Resources

 

As of December 31, 2014,2016 and 2015, we had cash and cash equivalents of US$80.5 million and of US$78.5 million, compared with US$51.3 million as of December 31, 2013.respectively.

 

Cash provided by operating activities for the years ended December 31, 20142016 and 2013.2015. Net cash and cash equivalents provided by operating activities wereincreased by US$162.5264.1 million, in 2014, compared with US$408.7 million in 2013. The decrease in net cash flow provided by operating activities was primarily due to: (i) a decrease in proceeds from sales, from US$1,351.4 million in 2013 to US$1,144.4  million in 2014; (ii) a decrease in value-added tax recovered, from US$66.9 million in 2013 to US$39.7 million in 2014; and, (iii) a decrease in royalties received from Yanacocha, from US$50.6 million in 2013 to US$31.3  million in 2014. These changes were partially offset by: (i) an increase in payments to suppliers and third parties, from US$752.8 million in 2013 to US$805.4 million in 2014; (ii) a decrease in income tax paid, from US$66.4 million in 2013 to US$33.2 million in 2014; (iii) a decrease in payments to workers, from US$216.8 million in 2013 to US$203.5 million in 2014; (iv) a decrease in royalty payments made, from US$30.6 million in 2013 to US$22.6 million in 2014, primarily due to fewer royalty payments made to third parties; (v) an increasethe changes shown in dividends received from Coimolache, from US$9.8 million in 2013 to US$12.9 million in 2014; and, (vi) a decrease in interest payments made, from US$11.5 million in 2013 to US$9.4 million in 2014.the chart below:

78 

Operating activities cash flows Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Proceeds from sales  965,273   1,003,422   38,149   3.95%
Dividends received (a)  6,691   142,340   135,649   2,027.34%
Value-added tax recovered  81,692   117,661   35,969   44.03%
Royalty received  38,983   25,961   (13,022)  (33.40)%
Interest received  3,650   2,140   (1,510)  (41.37)%
Payments to suppliers and third parties (b)  (727,017)  (672,419)  54,598   (7.51)%
Payments to employees (b)  (175,329)  (138,113)  37,216   (21.23)%
Interest paid  (21,518)  (34,138)  (12,620)  58.65%
Payments of mining royalties  (22,836)  (20,052)  2,784   (12.19)%
Income tax paid  (22,330)  (35,401)  (13,071)  58.54%
Net cash and cash equivalents provided by operating activities  127,259   391,401   264,142   207.56%

(a)The increase in dividends received was mainly due to a distribution to the partners, in proportion to their equity interests, of US$300 million, which correspond to the portion of the retained earnings as of December 31, 2014, that originated in 2011. As a result, we received dividends of US$130.9 million in 2016.

(b)As part of the cost reduction and optimization program, we had lower costs related to suppliers, third parties and employees in 2016.

 

Cash provided by operating activities for the years ended December 31, 20132015 and 2012.2014. Net cash and cash equivalents provided by operating activities weredecreased by US$408.735.2 million, in 2013, compared with US$361.2 million in 2012. This increase in net cash flow provided by operating activities was primarily due to: (i) an increase in value-added tax recovered, from US$40.9 million in 2012 to US$66.9 million in 2013; (ii) a decrease in payments to third parties, from US$812.7 million in 2012 to US$752.8 million in 2013; (iii) a decrease in income tax paid, from US$136.3 million in 2012 to US$66.4 million in 2013; and, (iv) a decrease in royalty payments made, from US$39.0 million in 2012 to US$30.6 million in 2013, primarily due to a decreasethe changes shown in royalty payments made to third parties. These changes were partially offset by: (i) an increase in payments to workers, from US$201.5 million in 2012 to US$216.8 million in 2013; (ii) an increase in interest payments made, from US$1.5 million in 2012 to US$11.5 million in 2013; (iii) a decrease in proceeds received from sales, from US$1,410.1 million in 2012 to US$1,351.4 million in 2013; (iv) a decrease royalty payments received from Yanacocha, from US$76.1 million in 2012 to US$50.6 million in 2013; and, (v) a decrease in dividends received from Coimolache, from US$16.5 million in 2012 to US$9.8 million in 2013.the chart below:

Operating activities cash flows Year ended December 31, 
  2014  2015  Variation  Variation
%		 
  (US$ in thousands)    
Proceeds from sales  1,144,394   965,273   (179,121)  (15.65)%
Dividends received  12,938   6,691   (6,247)  (48.28)%
Value added tax recovered  39,685   81,692   42,007   105.85%
Royalty received  31,252   38,983   7,731   24.74%
Interest received  8,333   3,650   (4,683)  (56.20)%
Payments to suppliers and third parties  (805,413)  (727,017)  78,396   (9.73)%
Payments to employees  (203,496)  (175,329)  28,167   (13.84)%
Interest paid  (9,405)  (21,518)  (12,113)  128.79%
Payments of mining royalties  (22,631)  (22,836)  (205)  0.91%
Income tax paid  (33,161)  (22,330)  10,831   (32.66)%
Net cash and cash equivalents provided by operating activities  162,496   127,259   (35,237)  (21.68)%

Cash used in investing activities for the years ended December 31, 20142016 and 2013.2015. Net cash and cash equivalents used in investing activities wereincreased by US$292.723.2 million in 2014, compared with US$428.1 million in 2013. The decrease in net cash flow used in investing activities was primarily due to: (i) a decreaseto the changes shown in mining concessions, development costs, and property, plant and equipment acquisitions, from US$503.6 million in 2013 to US$227.6 million in 2014; and (ii) a decrease in cash contributions granted to associates, from US$7.0 million in 2013 to US$2.0 million in 2014. These changes were partially offset by: (i) the payment, net of cash acquired, of US$80.3 million for the acquisition of a controlling interest in Canteras del Hallazgo S.A.C.; (ii) the inflow of US$52.9 million in 2013 as a result of the settlement of financial assets at fair value through profit or loss; (iii) a decrease in loan collection from Coimolache, from US$24.5 million in 2013 to US$15.6 million in 2014; and (iv) a decrease in income from the sale of mining concessions, development costs, property, plants and equipment, from US$5.0 million in 2013 to US$1.7 million in 2014.chart below:

Investing activities cash flows Year ended December 31, 
  2015  2016  Variation  Variation
%		 
  (US$ in thousands)    
Proceeds from sale of mining concessions, development costs, property, plant and equipment  5,481   7,180   1,699   31.00%
Additions to mining concessions, development costs, property, plant and equipment (a)  (211,286)  (366,834)  (155,548)  73.62%
Loans to associates  (124,800)  -   124,800   (100.00)%
Loans to third parties  (829)  -   829   (100.00)%
Payments for acquisition of other assets  (10,238)  (5,222)  5,016   (48.99)%
Net cash and cash equivalents used in investing activities  (341,672)  (364,876)  (23,204)  6.79%

86(a)The increase in additions to mining concessions, development costs, property, plant and equipment was mainly due to the construction of the Tambomayo mining unit. During 2016, the Company invested US$230.2 million in Tambomayo’s assets as compared to US$77.1 million during 2015. See “Item 4: Information on the Company—Buenaventura—A. History and Development—Capital Expenditures.”

 79 

Cash used in investing activities for the years ended December 31, 20132015 and 2012.2014. Net cash and cash equivalents used in investing activities wereincreased by US$428.149.0 million in 2013, compared with US$513.0 million in 2012. The decrease in net cash flow used in investing activities was primarily due to: (i) an inflow of US$52.9 million in 2013 due to the settlement of financial assets at fair value through profit or loss; (ii) US$24.5 million received from Coimolachechanges shown in 2013 in loan collections; and, (iii) a decrease in cash contributions granted to associates, from US$58.6 million in 2012 to US$7.0 million in 2013. These changes were partially offset by (i) an increase in mining concessions, development costs and property, plant and equipment acquisitions, from US$468.5 million in 2012 to US$503.6 million in 2013, in connection with the expansion of the capacity of the refining plant at our subsidiary, El Brocal; (ii) hydroelectric construction at our subsidiary, Huanza; and, (iii) processing plant construction at our subsidiary, Rio Seco.chart below:

Investing activities cash flows Year ended December 31, 
  2014  2015  Variation  Variation
%		 
  (US$ in thousands)    
Proceeds from collection of loan to an associate  15,553   -   (15,553)  (100.00)%
Proceeds from sale of mining concessions, development costs, property, plant and equipment  1,681   5,481   3,800   226.06%
Additions to mining concessions, development costs, property, plant and equipment  (227,564)  (211,286)  16,278   (7.15)%
Loans to associates  -   (124,800)  (124,800)  100.00%
Loans to third parties  -   (829)  (829)  100.00%
Payments for acquisition of other assets  -   (10,238)  (10,238)  100.00%
Payments for acquisition of shares in associate, net of cash acquired  (80,316)  -   80,316   (100.00)%
Contributions in associates  (2,012)  -   2,012   (100.00)%
Net cash and cash equivalents used in investing activities  (292,658)  (341,672)  (49,014)  (16.75)%

Cash used inprovided by financing activities for the years ended December 31, 20142016 and 2013.2015. Net cash and cash equivalents used in financing activities decreased by US$238.90 million, primarily due to the changes shown in the chart below:

Financing activities cash flows Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Proceeds from financial obligations  296   275,210   274,914   92,876.35%
Proceeds from bank loans  344,503   200,500   (144,003)  (41.80)%
Payments of bank loans  (90,000)  (442,957)  (352,957)  392.17%
Payments of financial obligations  (29,891)  (33,476)  (3,585)  11.99%
Dividends paid to controlling shareholders  -   (7,621)  (7,621)  100.00%
Dividends paid to non-controlling shareholders  (10,488)  (7,400)  3,088   (29.44)%
Acquisition of non-controlling interest  -   (5,459)  (5,459)  100.00%
Increase of restricted bank accounts  -   (2,087)  (2,087)  100.00%
Purchase of treasury shares  -   (1,210)  (1,210)  100.00%
Net cash and cash equivalents used in financing activities  214,420   (24,500)  (238,920)  (111.43)%

Cash provided by financing activities for the years ended December 31, 2015 and 2014. Net cash and cash equivalents provided by financing activities wereincreased by US$157.357.0 million in 2014, compared with US$116.1 million in net cash and cash equivalents used in financing activities in 2013. The increase in net cash flow provided by financing activities was primarily due to: (i) a decreaseto the changes shown in the payment of financial obligations, from US$260.2 million in 2013 to US$42.2 million in 2014; (ii) a decrease in the payment of dividends to shareholders, from US$78.8 million in 2013 to US$8.6 million in 2014; (iii) a bank loan received in 2014 for US$40.0 million; (iv) a decrease in the payment of dividends to non-controlling shareholders, from US$13.5 million in 2013 to US$8.9 million in 2014; and, (v) a decrease in financial obligations, from US$237.0 million in 2013 to US$177.1 million in 2014.

Cash used in financing activities for the years ended December 31, 2013 and 2012. Net cash and cash equivalents used in financing activities were US$116.1 million in 2013, compared with US$132.3 million in 2012. The decrease in net cash flow used in financing activities was primarily due to: (i) an increase in financial obligations, from US$74.3 million in 2012 to US$237.0 million in 2013; (ii) a decrease in the payment of dividends to shareholders, from US$152.7 million in 2012 to US$78.8 million in 2013; and, (iii) a decrease in the payment of dividends to non-controlling shareholders, from US$44.9 million in 2012 to US$13.5 million in 2013. These changes were partially offset by an increase in the payment of financial obligations, from US$1.1 million in 2012 to US$260.2 million in 2013.chart below:

 

Financing activities cash flows Year ended December 31, 
  2014  2015  Variation  Variation 
  (US$ in thousands)    
Proceeds from financial obligations  177,125   296   (176,829)  (99.83)%
Proceeds from bank loans  40,000   344,503   304,503   761.26%
Payments of bank loans  -   (90,000)  (90,000)  100%
Payments of financial obligations  (42,205)  (29,891)  12,314   (29.18)%
Dividends paid to controlling shareholders  (8,642)  -   8,642   (100.00)%
Dividends paid to non-controlling shareholders  (8,880)  (10,488)  (1,608)  18.11%
Net cash and cash equivalents used in financing activities  157,398   214,420   57,022   36.23%

80 

Short-Term Debt

We borrow from time to time short-term unsecured loans from local Peruvian banks to supplement our working capital needs at favorable short-term interest rates. As of December 31, 2016 and 2015, the amount outstanding under such short-term loans was US$55.0 million and US$285.3 million, respectively. In 2016, we used the proceeds of such short-term loans for general working capital purposes.

Long-Term Debt

 

On December 2, 2009 Banco de CreditoCrédito del PeruPerú executed a financial lease agreement with Conenhua, Huanza and us in the amount of US$119.0 million for construction of a hydroelectric power station. The lease was executed in favor of Huanza as lessee, and commits us to act as joint surety of Huanza to guarantee Huanza’s payment obligations.lessee. The term of the lease is six years from August 2014 and the interest rate is three-month LIBOR plus 4.00 percent. As of December 31, 2014 and 2013, the amount outstanding under this lease was US$114.2 million and US$119.0 million, respectively.

4.60%. On June 30, 2014, Banco de CreditoCrédito del PeruPerú extended this financial lease agreement with Conenhua, Huanza and us in the amount of US$108.8103.4 million. The term of the lease is six years from August 2014 and the interest rate is three-month LIBOR plus 4.20 percent.4.70%. As of December 31, 2014,2016 and 2015, the amount outstanding under this lease was US$85.0 million.176.1 million and US$188.1 million, respectively.

 

On August 22, 2012, El Brocal entered into a medium-term loan contract with Banco de Credito del Peru in the amount of US$120.0 million. This loan was variable rate (three-month LIBOR plus 3.00 percent) and had a term of four years. The loan was guaranteed by a pledge of one contract for the sale of copper concentrate and one contract for the sale of lead concentrate. The first disbursement of US$60.0 million was received in November 2012 and the second disbursement of US$60.0 million was received in May 2013. During the fourth quarter of 2013, this loan was fully repaid using the proceeds provided by the leaseback contract described below and from shareholders’ contributions.

On September 25,In 2013, El Brocal began the process of enteringentered into a financing arrangement with Banco de Crédito del Perú in an aggregate amount of US$180.0 million in the form of a series of sale and leaseback agreements relating to certain specified El Brocal assets, including equipment, machinery and production plants located in the Colquijirca mining unit. The first disbursement of US$116.5 million was received in November 2013, which was used to repay El Brocal’s medium term loan with Banco de CreditoCrédito del PeruPerú during the fourth quarter of 2013. The second disbursement of US$63.5 million was received in January 2014. The renewable arrangement hashad a term of five years that commenced on the first lease payment date in March 2014. During the term of the arrangement, El Brocal has the right to repurchase the assets. On June 9, 2015, the board of directors of El Brocal approved the modification of the sale and finance leaseback contract in an aggregate amount of US$166.5 million. The new arrangement has a term of five years that commenced on the payment date in June 2015. The quarterly lease payments have an embedded interest rate of three-monthnine-month LIBOR plus 5.00 percent.4.75%. The agreements contain certain covenants, including several financial covenants such as a limitation on the payment of dividends by El Brocal. El Brocal’s obligations under the agreements are supported by trust contracts, which, among other things, relate to collection rights, sales contracts and cash flows granting Banco de CreditoCrédito del PeruPerú the right to receive all cash flows before any funds are made available to El Brocal. The obligations of El Brocal under these agreements are not recourse to, or guaranteed by, Buenaventura or any of its other subsidiaries. The compliance with the financial ratios described above is monitored by El Brocal’s management. In 2016, Management obtained a waiver for any possible breach of the financial ratios that occur until December 31, 2017.

 

87

On March 28, 2014, Banco de Crédito del Perú executed a financial lease agreement with BISA in the amount of US$14.9 million for the construction of a building with administrative offices. The term of the lease is five years and four months starting April 2014 and the interest rate is 4.60%.

On June 27, 2016, in order to repay short-term contracts held as of December 31, 2015, we entered into a long-term finance contract, referred to as the Syndicated Term Loan, in the amount of US$275 million among us, as borrower, Condesa, Inversiones Colquijirca S.A. and Conenhua as guarantors, Banco de Credito del Peru, as administrative agent, and the lenders party thereto. Borrowings under the Syndicated Term Loan bear interest at a rate per annum equal to LIBOR plus 2.00%. Interest and installments of principal equal to 1/7th of the aggregate principal amount borrowed are payable every six months until maturity in June 2021 (on which date all amounts outstanding shall be payable). Obligations under the Syndicated Term Loan are guaranteed by Condesa and Conenhua, our wholly-owned subsidiaries, and Inversiones Colquijirca S.A., for which we own 100%. The term loan agreement governing the Syndicated Term Loan contains certain customary covenants, including certain financial maintenance covenants, and events of default. See Exhibit 2.1.

 

Exploration Costs and Capital Expenditures

 

We have budgeted approximately US$280145 to US$320175 million for capital expenditures for 2015.These2017. These budgeted capital expenditures mainly include the following projects: start the constructionmaintenance capital expenditures of the Tambomayo project and continue with the development of the San Gabriel project.US$120 to US$140 million.

 

During 2014,2016, we spent US$50.026.6 million on “exploration in non-operating areas” and US$97.996.1 million on “exploration in units in operations” exploration-related investments in Peru.operations.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Tambomayo, Alejandra, Marcapunta, Tambomayo, Candelaria–ChancasPisacalla and Trapiche.Trapiche projects. Our “exploration in units in operations” investments were mainly focused in the Uchucchacua, Orcopampa, UchucchacuaJulcani and Mallay mining units. In 2014, we financed our exploration program with internal funds.

81 

 

In 2015,2017, we intend to invest approximately US$70100 to US$80120 million in exploration in units in operations (mainly Tambomayo, Orcopampa and Uchucchacua) and US$3520 to US$4030 million mainly in the following explorations in non-operating areas: Trapiche, San Gabriel Marcapunta, Colquemayo, Pisacalla, and Livitaca,Daniela, among others.

 

We expect that we will meet our working capital, capital expenditure and exploration expense requirements for the next several years from internally generated funds, cash on hand and dividends received from our investments in non-consolidated mining operations, including Yanacocha. Additional financing, if necessary for the construction of any project, is expected to be obtained from borrowings under bank loans and the issuance of debt securities. There can be no assurance, however, that sufficient funding will be available to us from the internal or external sources to finance any future capital expenditure program, or that external funding will be available to us for such purpose on terms or at prices favorable to us. A very significant decline in the prices of gold and silver would be reasonably likely to affect the availability of such sources of liquidity. In addition, if we fund future capital expenditures from internal cash flow, there may be fewer funds available for the payment of dividends.

 

Recent Accounting Pronouncements

 

IFRS

 

We prepare and present the Financial Statements in accordance with IFRS as issued by the IASB. For periods up to and including the year ended December 31, 2010, we prepared our financial statements in accordance with Peruvian GAAP. Our consolidated financial statements for the year ended December 31, 2011 were the first that we prepared in accordance with IFRS. We applied IFRS 1 “First-Time Adoption of International Financial Reporting Standards” to the opening balance as of January 1, 2010, the date of our transition to IFRS. The IFRS 1 application implies that all the standards are applied retrospectively at the transition date, including certain mandatory exceptions and voluntary exemptions defined in the standard. In addition, as a foreign private issuer in the United States, we are subject to less intensive reporting requirements and information regarding us may not be as readily disseminated into the market.

 

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of our Financial Statements are disclosed below. We intend to adopt these standards, if applicable, when they become effective:

IFRS 9, “Financial Instruments: Classification and Measurement”Measurement.” In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirementsIFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. RetrospectiveExcept for hedge accounting, retrospective application is required, but the provision of comparative information is not compulsory. Early applicationFor hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. We are evaluating the impact of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 would have not significant effect on the classification and measurement of the Company’s financial assets and liabilities.this standard.

“IFRS Annual improvements – 2010-2012 Cycle” These improvements are effective from 1 July 2014 and are not expected to have a material impact on the Company. They are related to IFRS 2 “Share-Based Payment” (clarifies various issues relating to the definition of performance and service conditions which are vesting conditions), IFRS 3 “Business Combinations” (clarifies classification of liabilities arising from business combinations and subsequent measurement at fair value), NIIF 8 “Operating Segments” (requires more disclosure about the aggregation criteria of operating segments), and IAS 24 “Related Party Disclosures” (requires more disclosure and clarifies that a management entity is a related party subject to the related party disclosures).

“IFRS Annual improvements – 2011-2013 Cycle” These improvements are effective from 1 July 2014 and are not expected to have a material impact on the Company. They are related to IFRS 3 “Business Combinations” (clarifies that joint arrangements are outside the scope of IFRS 3) and IAS 40 “Investment Property” (clarifies that IFRS 3 and not the ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or business combination).

IFRS 15, “Revenues from Contracts with Customers”Customers.” We expect to adopt this new standard on the date it enters into force. For this purpose, our Management has prepared a detailed plan of adoption that contemplates diverse tasks (systems review, internal control and policies and procedures), deadlines and responsibilities, which will begin in May 2017 and will end during the fourth quarter of 2017.

More than 90% of our revenues in 2016 came from the sales of metals and polymetallic concentrates, all of which are formalized through contracts. Based on a preliminary analysis, the Company’s Management does not expect to identify significant situations that may require a different accounting treatment under IFRS 15. To date, it is not possible to effect a quantitative disclosure as a result of the subsequent adoption of this standard.

If any material effects arise, we plan to use the modified retroactive method in the process of adopting IFRS 15, was issuedaccording to which the cumulative effect resulting from applying this new standard will be presented by adjusting the initial balance of retained earnings (January 1, 2018).

In addition, IFRS 15 establishes filing and disclosure requirements that represent a significant change in May 2014current practice and establishessignificantly increases the volume of disclosures required in our financial statements, many of which will be completely new.

IFRS 16 “Leases.”IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees: leases of “low-value” assets and short-term leases. It is effective for annual periods beginning on or after January 1, 2019, with early application permitted. We are currently evaluating the impact of IFRS 16 in its consolidated financial statements and expects to adopt this new five-step modelstandard on the required effective date.

82 

IAS 7 “Disclosure Initiative – Amendments to IAS 7.” The amendments to IAS 7, Statement of Cash Flows, are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that will applyenable users of financial statements to revenueevaluate changes in liabilities arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflectsfinancing activities, including both changes arising from cash flows and non-cash changes. On initial application of the considerationamendment, entities are not required to which an entity expects to be entitled in exchangeprovide comparative information for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is requiredpreceding periods. These amendments are effective for annual periods beginning on or after January 1, 2017, with early adoptionapplication permitted. Application of the amendments will result in our providing additional disclosure.

IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses – Amendments to IAS 12.”The Group is currently assessingamendments clarify that an entity needs to consider whether tax law restricts the impactsources of IFRS 15 and plans to adopt the new standardtaxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in the opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective date.for annual periods beginning on or after January 1, 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on us.

 

B.C.Research and Development

 

Not applicable.

 

C.D.Trend Information

 

Other than as disclosed in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to be not necessarily indicative of future operating results or financial condition.

 

For our exploration activities, there is no production, sales or inventory in a conventional sense. Our financial success is dependent upon the extent to which we are capable of discovering mineralization and the economic viability of exploration properties. The construction and operation of such properties may take years to complete and the resulting income, if any, cannot be determined with certainty. Further, the sales value of mineralization discovered by us is largely dependent upon factors beyond our control, including the market value at any given time of the metals produced.

 

D.E.Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

89
83  

E.F.Tabular Disclosure of Contractual Obligations

 

The following table shows our contractual obligations as of December 31, 2014:2016:

 

 

Payments due by Period (US$in millions)

  Payments due by Period (US$ in millions) 
 

Total

 

Less than
1 year

 

1-2
years

 

2-5
years

 

More than
5 years

  Total  Less than
1 year		  1-2
years		  2-5
years		  More than
5 years		 
Long-Term Debt (principal and interest)  –   –   –   –   – 
Capital Lease Obligations (*)  472.9   79.0   71.2   185.3   137.4 
Long-Term Debt (principal and interest)(*)  309.8   13.0   48.1   248.7   – 
Capital Lease Obligations (**)  376.7   57.4   65.0   254.3   – 
Open Purchase Orders  –   –   –   –   –   –   –   –   –   – 
Other Long-Term Obligations  –   –   –   –   –   238.4   37.8   22.4   79.7   98.5 
Total Contractual Cash Obligations  472.9   79.0   71.2   185.3   137.4   924.9   108.2   135.5   582.7   98.5 

_________________

(*) Long-Term Debt includes US$310.8 million (including US$272.1 million in principal and US$38.7 million interest payments), which relates to long-term debt of Buenaventura.

 

(*)Capital lease obligations include: (i) US$251.3 million (including US$199.2 million in principal and US$52.1 million interest payments), which relates to a financial lease between Banco de Credito del Peru and Conenhua, Huanza and us for construction of a hydroelectric power station; (ii) US$201.1 million (including US$165.0 million in principal and US$36.1 million interest payments), which relates to a sale and leaseback arrangement between Banco de Credito del Peru and El Brocal; (iii) US$15.4 million (including US$14.0 million in principal and US$1.4 million interest payments), which relates to a financial lease between Banco de Credito del Peru and BISA for construction of administrative offices; and, (iv) US$5.1 million other minors.

(**) Capital lease obligations include:

(i) US$209.3 million (including US$176.1 million in principal and US$33.2 million in interest payments), which relates to a financial lease between Banco de Crédito del Perú and Conenhua, Huanza and us for construction of a hydroelectric power station;

(ii) US$158.4 million (including US$136.8 million in principal and US$21.6 million in interest payments), which relates to a sale and leaseback arrangement between Banco de Crédito del Perú and El Brocal; and

(iii) US$8.0 million (including US$7.4 million in principal and US$0.6 million in interest payments), which relates to a financial lease between Banco de Crédito del Perú and BISA for construction of administrative offices.

 

As of December 31, 2014,2016, we had no other commercial commitments.

 

F.G.Reconciliation of Costs Applicable to Sales and Cost Applicable to Sales per Unit Sold

 

Cost applicable to sales and Cost applicable to sales per unit of mineral sold are not measures of financial performance under IFRS, and may not be comparable to similarly titled measures of other companies. We consider Cost applicable to sales and Cost applicable to sales per unit of mineral sold to be key measures in managing and evaluating our operating performance. These measures are widely reported in the precious metals industry as a benchmark for performance, but do not have standardized meanings. You should not consider Cost applicable to sales or Cost applicable to sales per unit of mineral sold as alternatives to cost of sales determined in accordance with IFRS, as indicators of our operating performance. Cost applicable to sales and Cost applicable to sales per unit of mineral sold are calculated without adjusting for by-product revenue amounts.

 

In calculating these figures, we utilize financial records maintained with respect to the various mining units and subsidiaries, each on a standalone basis. Within the stand-alone accounts for each mining unit or subsidiary, we then allocate cost of sales (excluding depreciation and amortization), exploration in units in operation and selling expenses in the proportion to each mineral’s commercial value (realized price multiplied by volume sold).

 

The tables below set forth (i) a reconciliation of consolidated Cost of sales, excluding depreciation and amortization to consolidated Cost applicable to sales, (ii) reconciliations of the components of Cost applicable to sales (by mine and mineral) to the corresponding consolidated line items set forth on our consolidated statements of profit or loss for the years ended December 31, 20132015 and 2014,2016 and (iii) reconciliations of Cost of sales, excluding depreciation and amortization to Cost applicable to sales for each of our mining units.  The amounts set forth in Cost applicable to sales and Cost applicable to sales per unit sold for each mine and mineral indicated in the tables below can be reconciled to the amounts set forth on our consolidated statements of profit or loss for the years ended December 31, 20132015 and 20142016 by reference to the reconciliations of Cost of sales, excluding depreciation and amortization (by mine and mineral), Selling Expenses (by mine and metal) expenses and Exploration in units in operations (by mine and mineral) to consolidated Cost of sales, excluding depreciation and amortization, consolidated Selling Expenses and consolidatedConsolidated Exploration in units in operations expenses, respectively, set forth below.

84 

Set forth below is a reconciliation of consolidated Cost of sales, excluding depreciation and amortization, to consolidated Cost applicable to sales:

 

  For the year ended December 31, 
  2013  2014 
  (in thousands of US$) 
Consolidated Cost of sales excluding depreciation and amortization  627,285   614,539 
Add:        
Consolidated Exploration in units in operation  101,913   97,852 
Commercial Deductions  137,811   184,483 
Consolidated Selling expenses  14,482   16,605 
Consolidated Cost applicable to sales  881,852   913,479 

  For the year ended December 31, 
  2015  2016 
  (in thousands of US$) 
Consolidated Cost of sales excluding depreciation and amortization  573,102   508,566 
Add:        
Consolidated Exploration in units in operation  89,699   96,149 
Commercial Deductions  196,145   244,413 
Consolidated Selling Expenses  19,365   21,733 
Consolidated Cost applicable to sales  878,311   870,861 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization (by mine and mineral) to consolidated cost of sales Cost of sales, excluding depreciation and amortization:

 

 

For the year ended December 31,

  For the year ended December 31, 
 

2013

 

2014

  2015  2016 

Cost of sales by mine and mineral

 (US$ in thousands)  (US$ in thousands) 
Julcani, Gold  167   3   49   15 
Julcani, Silver  15,565   23,114   23,134   20,032 
Julcani, Lead  1,150   1,891   1,906   1,855 
Julcani, Copper  316   190   242   83 
Mallay, Gold  201   512 
Mallay, Silver  11,336   8,135   8,014   9,461 
Mallay, Lead  6,237   5,959   5,190   4,943 
Mallay, Zinc  6,468   7,497   6,256   7,371 
Breapampa, Gold  46,541   35,389 
Breapampa, Silver  2,944   2,459 
Orcopampa, Gold  121,665   105,828   104,204   88,213 
Orcopampa, Silver  4,617   3,021   3,512   4,271 
Orcopampa, Copper  0   92 
Uchucchacua, Gold  25   123 
Uchucchacua, Silver  100,290   130,688   110,351   92,188 
Uchucchacua, Lead  6,805   8,028   6,356   5,763 
Uchucchacua, Zinc  5,527   5,557   4,825   4,262 
La Zanja, Gold  84,213   80,495   105,795   89,816 
La Zanja, Silver  3,927   3,460   3,213   1,787 
El Brocal, Gold  2,745   3,491   4,258   6,773 
El Brocal, Silver  13,980   12,331   21,024   12,161 
El Brocal, Lead  7,581   2,051   15,244   9,878 
El Brocal, Zinc  16,030   6,478   42,157   45,506 
El Brocal, Copper  78,503��  96,934   68,711   92,224 
Non Mining Units  90,679   71,540   38,435   11,237 
Consolidated Cost of sales, excluding depreciation and amortization  627,285   614,539   573,102   508,566 

85 

 

Set forth below is a reconciliation of Exploration in units in operation expenses (by mine and mineral) to consolidated Exploration in units in operation expenses:

 

  For the year ended December 31, 
 2013  2014 
Exploration in units in operation by mine and mineral (US$ in thousands) 
Julcani, Gold  67   2 
Julcani, Silver  6,269   10,072 
Julcani, Lead  463   824 
Julcani, Copper  127   83 
Mallay, Silver  4,325   2,942 
Mallay, Lead  2,380   2,155 
  For the year ended December 31, 
 2013  2014 
 (US$ in thousands) 
Mallay, Zinc  2,468   2,711 
Breapampa, Gold  2,747   463 
Breapampa, Silver  174   32 
Orcopampa, Gold  54,748   50,378 
Orcopampa, Silver  2,077   1,438 
Uchucchacua, Silver  22,133   24,125 
Uchucchacua, Lead  1,502   1,482 
Uchucchacua, Zinc  1,220   1,026 
La Zanja, Gold  1,159   115 
La Zanja, Silver  54   5 
El Brocal, Gold  -   - 
El Brocal, Silver  -   - 
El Brocal, Lead  -   - 
El Brocal, Zinc  -   - 
El Brocal, Copper  -   - 
Non Mining Units  -   - 
Consolidated Exploration in units in operation  101,913   97,852 
  For the year ended December 31, 
Exploration in units in operation by mine and mineral 2015  2016 
  (US$ in thousands) 
Julcani, Gold  25   8 
Julcani, Silver  11,597   10,086 
Julcani, Lead  956   934 
Julcani, Copper  121   42 
Mallay, Gold  77   183 
Mallay, Silver  3,073   3,379 
Mallay, Lead  1,990   1,765 
Mallay, Zinc  2,399   2,633 
Orcopampa, Gold  40,344   42,985 
Orcopampa, Silver  1,360   2,081 
Orcopampa, Copper  0   45 
Uchucchacua, Gold  6   38 
Uchucchacua, Silver  25,160   28,292 
Uchucchacua, Lead  1,449   1,769 
Uchucchacua, Zinc  1,100   1,308 
La Zanja, Gold  41   591 
La Zanja, Silver  1   12 
El Brocal, Gold  0   0 
El Brocal, Silver  0   0 
El Brocal, Lead  0   0 
El Brocal, Zinc  0   0 
El Brocal, Copper  0   0 
Non Mining Units  0   0 
Consolidated Exploration in units in operation  89,690   96,149 

86 

 

Set forth below is a reconciliation of Commercial deductionsDeductions (by mine and mineral) to consolidated Commercial deductionsDeductions in operation expenses:

 

 For the year ended December 31, 
 2013  2014  For the year ended December 31, 
Commercial Deductions in units in operation by mine and mineral (US$ in thousands)  2015  2016 
 (US$ in thousands) 
Julcani, Gold  62   2   14   3 
Julcani, Silver  5,782   6,148   7,258   5,021 
Julcani, Lead  427   502   591   465 
Julcani, Copper  117   53   81   25 
Mallay, Gold  89   192 
Mallay, Silver  4,048   3,687   4,098   4,745 
Mallay, Lead  2,227   2,620   2,655   2,471 
Mallay, Zinc  2,310   5,153   4,313   5,796 
Breapampa, Gold  104   99 
Breapampa, Silver  -   - 
Orcopampa, Gold  325   288   255   496 
Orcopampa, Silver  -   1   0   149 
Orcopampa, Copper  0   21 
Uchucchacua, Gold  7   46 
Uchucchacua, Silver  35,240   35,786   37,753   37,877 
Uchucchacua, Lead  2,559   2,248   2,161   2,348 
Uchucchacua, Zinc  2,078   3,850   5,457   6,006 
La Zanja, Gold  172   240   194   293 
La Zanja, Silver  -   4   18   15 
El Brocal, Gold  1,903   3,777   4,847   9,028 
El Brocal, Silver  9,689   12,345   13,583   9,971 
El Brocal, Lead  5,254   1,317   6,669   5,490 
El Brocal, Zinc  11,110   4,105   24,622   39,944 
El Brocal, Copper  54,406   102,258   81,479   114,012 
Non Mining Units  -   -   0   0 
Consolidated Commercial Deductions in units in operation  137,813   184,483   196,145   244,413 

87 

Set forth below is a reconciliation of Sellingselling expenses (by mine and mineral) to consolidated Sellingselling expenses:

 

 For the year ended December 31, 
 2013  2014  For the year ended December 31, 
Selling expenses by mine and mineral (US$ in thousands)  2015  2016 
 (US$ in thousands) 
Julcani, Gold  7   0   2   1 
Julcani, Silver  684   979   963   770 
Julcani, Lead  51   80   79   71 
Julcani, Copper  14   8   10   3 
Mallay, Gold  15   36 
Mallay, Silver  671   661   580   658 
Mallay, Lead  369   484   376   344 
Mallay, Zinc  383   609   453   512 
Breapampa, Gold  0   367 
Breapampa, Silver  0   26 
Orcopampa, Gold  3   929   823   1,024 
Orcopampa, Silver  0   27   28   50 
Orcopampa, Copper  0   1 
Uchucchacua, Gold  1   6 
Uchucchacua, Silver  3,000   3,094   3,225   4,173 
Uchucchacua, Lead  204   190   186   261 
Uchucchacua, Zinc  165   132   141   193 
La Zanja, Gold  505   1,382   1,171   1,032 
La Zanja, Silver  24   59   36   21 
El Brocal, Gold  202   204   255   419 
El Brocal, Silver  1,031   722   1,258   752 
El Brocal, Lead  559   120   912   611 
El Brocal, Zinc  1,182   379   2,522   2,815 
El Brocal, Copper  5,789   5,677   4,110   5,704 
Non Mining Units  0   475   2,220   2,278 
Consolidated Selling expenses  16,605   14,842   19,365   21,733 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to Cost applicable to sales and Cost applicable to sales per unit of mineral for the Julcani mine:

 

  JULCANI 
  COPPER (t)  GOLD (oz.)  LEAD (t)  SILVER (oz.) 
  For the year ended December
31,		  For the year ended December 31,  For the year ended December
31,		  For the year ended December 31, 
  2013  2014  2013  2014  2013  2014  2013  2014 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  316   190   167   3   1,150   1,891   15,565   23,114 
Add:                                
Exploration in units in operation  127   83   67   2   463   824   6,269   10,072 
Commercial Deductions  117   53   62   2   427   502   5,782   6,148 
Selling expenses  14   8   7   0   51   80   684   979 
Cost applicable to sales  575   335   304   7   2,091   3,297   28,299   40,314 
Divide:                                
Volume Sold  140   64   378   12   1,713   2,057   2,227,960   2,851,318 
,  4,103   5,195   804   603   1,220   1,603   12.70   14.14 

  JULCANI 
  COPPER (t)  GOLD (oz.)  LEAD (t)  SILVER (oz.) 
  For the year ended December 31,  For the year ended December 31,  For the year ended December 31,  For the year ended December 31, 
  2015  2016  2015  2016  2015  2016  2015  2016 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  242   83   49   15   1,906   1,855   23,134   20,032 
Add:                                
Exploration in units in operation  121   42   25   8   956   934   11,597   10,086 
Commercial Deductions  81   25   14   3   591   465   7,258   5,021 
Selling expenses  10   3   2   1   79   71   963   770 
Cost applicable to sales  454   153   90   27   3,533   3,325   42,953   35,908 
Divide:                                
Volume Sold  103   54   94   32   2,478   2,679   3,493,166   3,090,967 
Cost applicable to sales per unit of mineral sold (US$)  4,416   2,837   955   825   1,425   1,241   12.30   11.62 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Mallay mine:

 

  MALLAY 
  LEAD (t)  SILVER (oz.)  ZINC (t) 
  For the year ended December 31,  For the year ended December 31,  For the year ended December 31, 
  

2013

  

2014

  

2013

  

2014

  

2013

  

2014

 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  6,237   5,959   11,336   8,135   6,468   7,497 
Add:                        
Exploration in units in operation  2,380   2,155   4,325   2,942   2,468   2,711 
Commercial Deductions  2,227   2,620   4,048   3,687   2,310   5,153 
Selling expenses  369   484   671   661   383   609 
Cost applicable to sales  11,213   11,217   20,380   15,425   11,628   15,970 
Divide:                        
Volume Sold  6,570   7,253   1,146,442   1,121,202   7,614   8,609 
Cost applicable to sales per unit of mineral sold (US$)  1,707   1,547   17.78   13.76   1,527   1,855 
88 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Breapampa mine:

  MALLAY 
  LEAD (t)  SILVER (oz.)  ZINC (t) 
  For the year ended December 31,  For the year ended December 31,  For the year ended December 31, 
  2015  2016  2015  2016  2015  2016 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  5,190   4,943   8,014   9,461   6,256   7,371 
Add:                        
Exploration in units in operation  1,990   1,765   3,073   3,379   2,399   2,633 
Commercial Deductions  2,655   2,471   4,098   4,745   4,313   5,796 
Selling expenses  376   344   580   658   453   512 
Cost applicable to sales  10,211   9,523   15,766   18,242   13,421   16,312 
Divide:                        
Volume Sold  6,612   6,775   1,134,528   1,426,986   7,482   8,728 
Cost applicable to sales per unit of mineral sold (US$)  1,544   1,406   13.90   12.78   1,794   1,869 

  BREAPAMPA 
  GOLD (oz.)  SILVER (oz.) 
  For the year ended December 31,  For the year ended December 31, 
  

2013

  

2014

  

2013

  

2014

 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  46,541   35,389   2,944   2,459 
Add:                
Exploration in units in operation  2,747   463   174   32 
Commercial Deductions  104   99   0   0 
Selling expenses  0   367   0   26 
Cost applicable to sales  49,392   36,318   3,117   2,516 
Divide:                
Volume Sold  80,178   80,358   311,634   383,733 
Cost applicable to sales per unit of mineral sold (US$)  616   452   10.00   6.56 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Orcopampa mine:

 

 ORCOPAMPA  ORCOPAMPA 
 GOLD (oz.)  SILVER (oz.)  GOLD (oz.)  SILVER (oz.) 
 For the year ended December 31, For the year ended December 31,  For the year ended December 31, For the year ended December 31, 
 

2013

 

2014

 

2013

 

2014

  2015  2016  2015  2016 
 (US$ in thousands except operating and per unit data)  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  121,665   105,828   4,617   3,021   104,204   88,213   3,512   4,271 
Add:                                
Exploration in units in operation  54,748   50,378   2,077   1,438   40,344   42,985   1,360   2,081 
Commercial Deductions  325   288   0   1   255   496   0   149 
Selling expenses  3   929   0   27   823   1,024   28   50 
Cost applicable to sales  176,741   157,422   6,694   4,487   145,626   132,718   4,900   6,552 
Divide:                                
Volume Sold  221,322   204,862   516,033   401,782   214,821   188,511   555,314   680,708 
Cost applicable to sales per unit of mineral sold (US$)  799   768   12.97   11.17   678   704   8.82   9.62 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the Uchucchacua mine:

  UCHUCCHACUA 
  LEAD (t)  SILVER (oz.)  ZINC (t) 
  For the year ended December 31,  For the year ended December 31,  For the year ended December 31, 
  

2013

  

2014

  

2013

  

2014

  

2013

  

2014

 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  6,805   8,028   100,290   130,688   5,527   5,557 
Add:                        
Exploration in units in operation  1,502   1,482   22,133   24,125   1,220   1,026 
Commercial Deductions  2,559   2,248   35,240   35,786   2,078   3,850 
Selling expenses  204   190   3,000   3,094   165   132 
Cost applicable to sales  11,069   11,947   160,663   193,694   8,990   10,565 
Divide:                        
Volume Sold  6,977   6,530   9,748,206   11,940,167   6,340   4,288 
Cost applicable to sales per unit of mineral sold (US$)  1,586   1,830   16.48   16.22   1,418   2,464 

  UCHUCCHACUA 
  LEAD (t)  SILVER (oz.)  ZINC (t) 
  For the year ended December 31,  For the year ended December 31,  For the year ended December 31, 
  2015  2016  2015  2016  2015  2016 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  6,356   5,763   110,351   92,188   4,825   4,262 
Add:                        
Exploration in units in operation  1,449   1,769   25,160   28,292   1,100   1,308 
Commercial Deductions  2,161   2,348   37,753   37,877   5,457   6,006 
Selling expenses  186   261   3,228   4,173   141   193 
Cost applicable to sales  10,152   10,140   176,490   162,529   11,523   11,770 
Divide:                        
Volume Sold  6,560   8,350   12,666,673   14,739,128   4,750   5,295 
Cost applicable to sales per unit of mineral sold (US$)  1,548   1,214   13.93   11.03   2,426   2,223 

89 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the La Zanja mine:

 

 LA ZANJA  LA ZANJA 
 GOLD (oz.)  SILVER (oz.)  GOLD (oz.)  SILVER (oz.) 
 For the year ended December 31, For the year ended December 31,  For the year ended December 31, For the year ended December 31, 
 

2013

 

2014

 

2013

 

2014

  2015  2016  2015  2016 
 (US$ in thousands except operating and per unit data)  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  84,213   80,495   3,927   3,460   105,795   89,816   3,213   1,787 
Add:                                
Exploration in units in operation  1,159   115   54   5   41   591   1   12 
Commercial Deductions  172   240   0   4   194   293   18   15 
Selling expenses  505   1,382   24   59   1,171   1,032   36   21 
Cost applicable to sales  86,049   82,231   4,004   3,528   107,201   91,732   3,268   1,835 
Divide:                                
Volume Sold  132,992   143,151   381,091   418,565   142,299   151,189   324,151   229,055 
Cost applicable to sales per unit of mineral sold (US$)  647   574   10.51   8.43   753   607   10.08   8.01 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for the El Brocal mine:

 

 EL BROCAL  EL BROCAL 
 COPPER (t)  GOLD (oz.)  LEAD (t)  SILVER (oz.)  ZINC (t)  COPPER (t)  GOLD (oz.)  LEAD (t)  SILVER (oz.)  ZINC (t) 
 For the year ended
December 31,		 For the year ended
December 31,		 For the year ended
December 31,		 For the year ended December
31,		 For the year ended
December 31,		  For the year ended
December 31,		 For the year ended
December 31,		 For the year ended
December 31,		 For the year ended December 31, For the year ended
December 31,		 
 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

  2015  2016  2015  2016  2015  2016  2015  2016  2015  2016 
 (US$ in thousands except operating and per unit data)  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  78,503   96,934   2,745   3,491   7,581   2,051   13,980   12,331   16,030   6,478   68,711   92,224   4,258   6,773   15,244   9,878   21,024   12,161   42,157   45,506 
Add:                                                                                
Exploration in units in operation  0   0   0   0   0   0   0   0   0   0   -   -   -   -   -   -   -   -   -   - 
Commercial Deductions  54,406   102,258   1,903   3,777   5,254   1,317   9,689   12,345   11,110   4,105   81,479   114,012   4,847   9,028   6,669   5,490   13,583   9,971   24,622   39,944 
Selling expenses  5,789   5,677   202   204   559   120   1,031   722   1,182   379   4,110   5,704   255   419   912   611   1,258   752   2,522   2,815 
Cost applicable to sales  138,698   204,869   4,850   7,472   13,393   3,488   24,699   25,398   28,322   10,962   154,300   211,940   9,359   16,220   22,826   15,979   35,865   22,884   69,301   88,265 
Divide:                                                                                
Volume Sold  25,266   40,198   4,619   7,874   8,392   2,759   1,460,681   1,928,243   20,011   8,007   28,991   45,572   7,181   13,062   16,739   11,874   2,637,215   1,696,176   43,297   48,806 
Cost applicable to sales per unit of mineral sold (US$)  5,490   5,096   1,050   949   1,596   1,264   16.91   13.17   1,415   1,369   5,322   4,651   1,303   1,242   1,364   1,346   13.60   13.49   1,364   1,808 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization, to cost applicable to sales and Cost applicable to sales per unit of mineral for non-mining units:units

 

 NON MINING UNITS  NON-MINING UNITS 
 TOTAL  TOTAL 
 For the year ended December 31,  For the year ended December 31, 
 2013 2014  2015 2016 
 (US$ in thousands)  (US$ in thousands) 
Cost of Sales, excluding depreciation and amortization  90,679   71,540   38,435   11,237 
Add:                
Exploration in units in operation  0   0   0   0 
Commercial Deductions  0   0   0   0 
Selling expenses  0   475   2,220   2,278 
Total Cost applicable to sales  90,679   72,015   40,655   13,515 

 

9690 

 

YANACOCHA

 

Introduction

 

The following discussion should be read in conjunction with the Yanacocha Consolidated Financial Statements as of December 31, 20132015 and 20142016 and for the years ended December 31, 2012, 20132014, 2015 and 20142016 and the related Notes thereto included elsewhere in this Annual Report. The Yanacocha Consolidated Financial Statements are prepared and presented in accordance with IFRS and in U.S. Dollars.

 

A.Operating Results

 

Overview

 

Yanacocha, the largest gold producer in South America, was established in Peru in January 1992 and commenced production activities in August 1993. Yanacocha’s operations are located in the Andes mountainsMountains in Northern Peru, in the area of Cajamarca which is located approximately 600 kilometers north of Lima and north of the city of Cajamarca, at an altitude of 4,000 meters above sea level. Yanacocha is 51.35 percent51.35% owned by Newmont Mining through its wholly-owned subsidiary Newmont Second, 43.65 percent43.65% owned by usBuenaventura through our wholly-owned subsidiary Condesa and 5 percent5% owned by IFC.IFC Yanacocha is managed by Newmont Peru S.R.L. See “Item 4. Information on the Company—Yanacocha—B. Business Overview—Management of Yanacocha—General Manager/Management Agreement”.Agreement.”

 

The table below highlights Yanacocha’s key financial and operating results:

 

Summary of Financial and Operating Performance

 

  Year Ended December 31, 
  2014  2013  2012 
Gold sales (in thousands of US$)  1,210,457   1,458,145   2,218,921 
Gold sold (oz.)(*)  967,970   1,023,173   1,335,065 
Average gold price received (US$/oz.)  1,250   1,425   1,662 
Costs applicable to sales (US$/oz.)  941   961   623 
Other expenses, net (in thousands of US$)  77,781   77,534   192,869 
Net income (loss) (in thousands of US$)  (400,338)  (575,279)  647,875 

(*) Ounces sold included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.

The Verde Bioleach Demonstration Facility relates to a development project, which production pertains to Yanacocha pad and has the following production and sales ounces:

·2,250 ounces as of December 31, 2014. See composition as follows:

  Q1 Q2 Q3 Q4 YTD
Ounces - 2,191 47 12 2,250
  Year Ended December 31, 
  2016  2015  2014 
Gold sales (in thousands of US$)  791,766   1,070,021   1,210,457 
Gold sold (oz.)(*)  636,931   924,175   967,970 
Average gold price received (US$/oz.)  1,243   1,159   1,250 
Costs applicable to sales (US$/oz.)  1,219   819   949 
Other operating expenses, net (in thousands of US$)  71,496   82,846   77,781 
Loss for the year (in thousands of US$)  (1,043,752)  (450,195)  (400,338)

 

Gold sales. Gold sales decreased by 17 percent,26%, or US$248278 million, from 20132015 to 2014,2016, due to a decrease in the number oflower ounces sold andas a decreased averageresult of lower production, partially offset by the increased realized price of gold. Lower ounces sold were proportionate to lowergold production.price. Gold ounces produced decreased 5 percent31% due primarily to lower mill throughput, recovery and grade, and lower leach grade materialtons placed on the leach pads containing fewer ounces (330,167 oz vs. actual-prior year of 356,088 oz caused also by lower recovery rates mainly in La Quinua 8A) and higher inventory stored in 2014 vs 2013 (327KOz 2014 vs 235Koz 2013), compared to the prior year as well as lower mill grade recovery. Yanacocha has not engaged in gold pricehedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold.

Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8 percent of pre-tax profits based on Peruvian labor legislation, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 7 percent or US$72.5 million from 2013 to 2014. Ounces sold decreased 5.4 percent from 2013 to 2014. Costs applicable to sales per ounce of gold decreased by 2 percent, from US$961 in 2013 to US$941 in 2014.

Other expense (net). Other expense (net) increased 0.3 percent or US$0.2 million from 2013 to 2014, primarily due to higher losses associated with asset sales incurred in 2014 compared to 2013.

Income tax. Yanacocha’s financial and operating results included income and mining tax of US$(30.5) million in 2014 compared to US$(203,471) million in 2013. The difference was primarily due to Yanacocha’s increased profitability as the result of lower expenses compared to the prior year.

Dividends. During the years ended December 31, 2013 and 2014, Yanacocha did not pay dividends to its partners and did not reserve any money related to reinvestment programs.

Critical Accounting Policies

Yanacocha has furnished us with a discussion of its critical accounting policies or methods used in the preparation of its financial statements. Critical accounting policies are those that are reflective of significant judgments and uncertainties and could potentially impact results under different assumptions and conditions. See Note 2 to the Yanacocha Financial Statements for a more complete listing Yanacocha’s accounting policies.

Currency

The Yancocha Financial Statements are stated in U.S. dollars, Yanacocha’s functional currency, as most of its transactions are traded, collected and paid in such currency. Transactions in other currencies are recorded in U.S. dollars based on exchange rates prevailing at the time of such transactions. Monetary assets and liabilities denominated in other currencies are translated into the U.S. dollar at exchange rates prevailing at the balance sheet dates, and any resulting gains or losses are reflected in current earnings.

Stockpiles, Ore on Leach Pads and Inventories

Costs that are incurred in or benefit the productive process are accumulated as stockpiles, ore on leach pads and inventories. Stockpiles, ore on leach pads and inventories are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, ore on leach pads and inventories to net realizable value are reported as a component ofCosts applicable to sales. The current portion of stockpiles, ore on leach pads and inventories is determined based on the expected amounts to be processed within the next twelve months. Stockpiles, ore on leach pads and inventories not expected to be processed within the next twelve months are classified as long-term. The major classifications are as follows:

Stockpile.Stockpiles represent ore that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit.

Ore on Leach Pad.The recovery of gold from certain gold oxide ores is achieved through the heap leaching process. Under this method, ore is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the ore. The resulting gold-bearing solution is further processed in a plant where the gold is recovered. Costs are added to ore on leach pads based on current mining costs, including applicable overhead and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per recoverable ounce of gold on the leach pad.

The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover approximately 50% to 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is complete.

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Historically, Yanacocha’s operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.

In-process Inventory.In-process inventories represent materials that are currently in the process of being converted to a saleable product. Yanacocha’s conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.

Precious Metals Inventory.Precious metals include gold dore and/or gold bullion. Precious metals that result from Yanacocha’s mining, processing and refining activities are valued at the average cost of the respective in-process inventories incurred prior to the refining process, plus applicable refining costs.

Mine Development.Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified asExploration orAdvanced projects expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; the activities are directed at obtaining additional information on the ore body or converting mineralized material to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component ofCosts applicable to sales.

The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs”. Pre-stripping costs are capitalized during the development of an open pit mine. Where multiple open pits exist at a mining complex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal and production of de minimis saleable materials may occur during development and are recorded asOther income, net of incremental mining and processing costs.

The production phase of an open pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized inCosts applicable to sales in the same period as the revenue from the sale of inventory. Yanacocha’s definition of a mine and the mine’s production phase may differ from that of other companies in the mining industry resulting in incomparable allocations of stripping costs to deferred mine development and production costs. Other mining companies may expense pre-stripping costs associated with subsequent pits within a mining complex. Other mining companies may capitalize stripping costs incurred in connection with the production phase.

Mine development costs are amortized using the units-of production (“UOP”) method based on estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block or area.

Stripping activity asset.Stripping costs are incurred during the production phase of surface mining in accordance with IFRIC 20 “Stripping costs in the production phase of as surface mine”, whereby a stripping asset is recognized only if all of the following criteria are met:

●It is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity;

●The entity can identify the component of the ore body for which access has been improved; and

●The costs relating to the stripping activity associated with that component can be measured reliably.

The primary components of the ore body on a pit by pit basis, as well as within major pits are identified. Based on these components, stripping activities are analyzed and costs are assigned based on whether they pertained to current inventory production or improved access to future ore bodies (or components of an ore body).

Based on this analysis, Yanacocha allocates the costs associated with improved access to production stripping assets. This allocation is based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body.

Costs allocated to the production stripping activity asset basis in the “waste-to-ore ratio” are subsequently depreciated using the method over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping costs. This depreciation is a production cost and included in the adjustments in inventories.

Mineral Interests.Mineral interests include acquired interests in production, development and exploration stage properties. The mineral interests are capitalized at their fair value at the acquisition date, either as an individual asset purchase or as part of a business combination.

The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves. Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material consisting of (i) mineralized material such as inferred material within pits; measured, indicated and inferred material with insufficient drill spacing to qualify as proven and probable reserves; and inferred material in close proximity to proven and probable reserves; (ii) around-mine exploration potential such as inferred material not immediately adjacent to existing reserves and mineralization, but located within the immediate mine area; (iii) other mine-related exploration potential that is not part of measured, indicated or inferred material and is comprised mainly of material outside of the immediate mine area; (iv) greenfield exploration potential that is not associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit. Yanacocha’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. Yanacocha has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.

Asset Impairment.Yanacocha reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows. Future cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold or other commodities that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from such exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. Yanacocha’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties.

Income and Mining Taxes and Profit Sharing

Yanacocha accounts for income and mining taxes and legally required profit sharing using the liability method, recognizing certain temporary differences between the financial reporting basis of Yanacocha’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates a net deferred income tax liability and profit sharing liability or net deferred income tax asset and profit sharing asset for Yanacocha, as measured by the statutory tax and profit sharing rates in effect as enacted. Yanacocha derives its deferred income tax charge or benefit and profit sharing charge or benefit by recording the change in the net deferred income tax liability and profit sharing liability or net deferred income tax asset and profit sharing asset balance for the year, based on Peruvian income and mining tax and profit sharing rates.

Yanacocha’s deferred income tax assets include certain future tax benefits. Yanacocha records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Reclamation and Remediation Costs

Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The estimated retirement obligation is based on when spending for an existing environmental disturbance is expected to occur. Yanacocha reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site.

Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.

Recently Adopted Accounting Pronouncements

Reporting of Amounts reclassified out of Accumulated Other Comprehensive Income

In February 2013, ASC guidance was issued related to items reclassified from Accumulated Other Comprehensive Income (Loss). The new standard requires the disclosure, either in a single note or parenthetically on the face of the financial statements, of:(i) the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and (ii) the income statement line items affected by the reclassification. Adoption of the new guidance, effective for Yanacocha’s fiscal year beginning January 1, 2013, had no impact on the consolidated financial position, results of operations or cash flows.

Disclosures about Offsetting Assets and Liabilities

In November 2011, ASC guidance was issued related to disclosures about offsetting assets and liabilities. The new standard requires disclosures to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. In January 2013, an update was issued to further clarify that the disclosure requirements are limited to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (i) offset in the financial statements or (ii) subject to an enforceable master netting arrangement or similar agreement.

Adoption of the new guidance, effective for the fiscal year beginning January 1, 2013, had no impact on the consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

Presentation of an Unrecognized Tax Benefit

In July 2013, ASC guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carry forward, a similar tax loss or a tax credit carry forward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carry forward, a similar tax loss, or tax credit carry forwards. A gross presentation will be required only if such carry forwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. The update is effective prospectively for the Yanacocha’s fiscal year beginning January 1, 2014. Yanacocha is still evaluating the impact of the updated guidance on the consolidated financial position, results of operations or cash flows.

Results of Operations for the Years Ended December 31, 2014 and 2013

Sales

Gold sales. Gold sales decreased by 17 percent, or US$247 million, from 2013 to 2014, due to a decrease in the number of ounces sold and a decreased average realized price of gold. Lower ounces sold were proportionate to lower gold production. Gold ounces produced decreased 5 percent due to a decrease in the amount of leach grade material placed on the leach pads compared to prior year as well as lower mill grade and recovery. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold. Production by mine was as follows:

Mine(1) 2014  2013 
  (ounces) 
Cerro Yanacocha  30,713   16,393 
Carachugo  286,062   437,095 
Maqui Maqui  5,669   5,858 
La Quinua  647,500   557,914 
Total  969,944   1,017,259 
(1)Ounces produced included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.

The production obtained from Cerro Negro Pit and El Tapado Oeste Pit since January 2013 is included as part of La Quinua pad production, and the production obtained in Marleny Pit is included as part of Carachugo pad production.

Costs related to sales

Costs related to sales for the year ending December 31, 2014 and 2013 comprise:

  2014  2013 
  U.S. dollars in thousands 
Beginning balance of inventories $522,597  $545,183 
Acquisition of supplies  300,810   335,967 
Personnel expenses  106,693   134,667 
Other services  189,522   214,279 
Maintenance  47,090   58,624 
Power  30,485   32,549 
Insurance and leases  5,415   5,301 
Depreciation and amortization  360,334   349,760 
Sale of by-product  (9,595)  (8,026)
Workers’ profit participation  35,055   49,259 
Stripping costs capitalized  (104,487)  (65,677)
Remediation expenses related to Yanacocha        
leach pad  20,314   - 
Net realizable value adjustment  (95,859)  (146,051)
Ending balance of inventories  (497,669)  (522,597)
Costs related to sales $910,705  $983,238 

grade.

 

Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8 percent8% of pre-tax profits based on Peruvian labor legislation, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 7 percentincreased by 3% or US$72.525 million from 20132015 to 2014.2016. Ounces sold decreased 5.4%by 31% from 20132015 to 2014.2016. Costs applicable to sales per ounce of gold increased by 2 percent,49%, from US$961819 in 20132015 to US$9411,219 in 2014.2016.

Operating costs decreased by 13 percent from US$776.1 million in 2013 to US$674.6 million in 2014. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs. These costs decreased in 2014 primarily as a result of lower expenses in supplies, (including a decline in diesel prices beginning in the third quarter of 2014 and minor usage of CAT 785 for advance works in Marleny Pit Mining) and lower personnel expenses due to lower headcount. The volume of commercial tons mined decreased from 161.8 million DST in 2013 to US$118.8 million DST for the year ended December 31, 2014.

Workers’ profit participation decreased by 29 percent, from US$49 million in 2013 to US$35 million in 2014. This decrease is directly related to the decrease in Yanacocha’s taxable income from 2013 to 2014. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislation

The portion of leach pad inventory write-downs associated with costs applicable to sales decreased from US$146 million in 2013 to US$95.8 million in 2014 due to lower costs of inventory compared to the prior year.

Inventory variation decreased by 43 percent, from US$123.5 million in 2013 to US$70.9 million in 2014, due to lower stock of ounces at the beginning of year and lower costs per ounce compared to the prior year.

Depreciation, depletion and amortization increased by 3 percent from US$349.7 million in 2013 to US$ 360 million in 2014. This increase was attributable principally to leach pad inventory write-downs combined higher depreciation associated with assets retirement costs and deferred mine development

 

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Administrative expenses

Administrative expenses for the year ended December 31, 2014 and 2013 where comprised of:

  2014  2013 
  U.S. $ in thousands 
Management expenses $19,938  $17,480 
Community development expenses and        
external affairs  15,653   46,482 
Mining royalties to the government  8,291   7,135 
Exploration and advance project  58,880   64,510 
Other  2,671   3,102 
Total $38,262  $67,064 

Other operating expense (net)expenses, net.

Other operating expenses, net for the years ended December 31 were as follows:

  2014  2013 
  U.S. $ in thousands 
Exploration and advanced projects $58,880  $64,510 
Severance program  16,438   19,323 
Disposal of fixed assets  13,530   6,592 
Other income  (6,149)  (8,924)
Others, net  (4,918)  (3,966)
  $77,781  $77,534 

Exploration costs decreased by 23 percent,14% or US$11 million from US$20.0 million in 20132015 to US$15.4 million in 2014. This decrease was attributable principally to lower drilling works in 2014 for Chaquicocha Underground and other minor exploration activities.

Advanced projects costs also decreased from US$44.5 million in 2013 to US$43.5 million in 2014. This decline was2016, primarily due to lower activities in YTD 2014 than YTD 2013 for projects as Geotechnical Investigation Projectexploration and Verde Stage 2 Study project.

Impairment.

The 2014 financial results included an impairment loss of US$541million related exclusively to the Conga project. The discount interest rate used in the impairment calculations under the fair value less costs of sale methodology was 8.04% after taxes, which was based on a peer group of mining companies adjusted for Peru country risk. The rate is a “real” versus “nominal” rate as the cash flow models were not escalated for inflation. This discount rate was used for both segments Yanacocha and Conga.advanced project expenses.

 

Income tax provision.benefit (expense).

Yanacocha’s financial and operating results included an income and mining tax expense of US$30.543.1 million in 20142016 compared to an expense of US$203.5602.7 million in 2013.2015. The difference was primarily due to Yanacocha’s increased profitability as the resultwrite off of lower expenses compared to the prior year.a deferred tax asset during 2015.

 

Net income.Dividends

As a consequence. On February 15, 2016, Yanacocha’s board of the foregoing, net income increased in US$184 million, from US$(575) million in 2013directors unanimously agreed to US$(400) million in 2014.

Results of Operations for the Years Ended December 31, 2013 and 2012

Sales

Gold sales. Gold sales decreased by 34 percent, or US$744 million, from 2012 to 2013, due to a decrease in the number of ounces sold and a decreased average realized price of gold. Lower ounces sold were proportionate to lower gold production. Gold ounces produced decreased 24% due to a decreasedistribute dividends in the amount of leach grade material placed on the leach pads comparedUS$300 million, in proportion to prior year as well as lower mill grade and recovery. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts,each shareholder’s equity interest, which corresponds to minimize its exposure to fluctuations in the price of gold. Production by mine was as follows:

Mine 2013  2012 
  (ounces) 
Cerro Yanacocha  16,393   141,038 
Carachugo  437,095   698,602 
Maqui Maqui  5,856   5,810 
La Quinua  557,915   500,524 
         
Total  1,017,259   1,345,992 

Costs applicable to sales

Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatmenta portion of the ore,accumulated results as of December 31, 2014, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8 percent of pre-tax profits based on Peruvian labor legislation, (iii) credit from by-product sales, mainlywere generated in connection with silver sales, (iv) third party royalties, (v) write downs of ore on leach pads to net realizable value expense and (vi) other costs. Costs applicable to sales increased 2% or US$13.5 million from 2012 to 2013 despite a 23 percent decline in ounces sold. Offsetting the decline in ounces sold were higher mining costs due to the completion of major development projects in late 2012, leach pad write-downs and lower by-product credits; partially offset by reductions in workers’ profit participation and labor costs. Costs applicable to sales per ounce of gold increased by 34 percent, from US$517 in 2012 to US$692 in 2013.

Operating costs increased by 15 percent from US$549.9 million in 2012 to US$ 634.7 million in 2013. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs. These costs increased in 2013 primarily as a result of the completion of major mine development projects in late 2012 under which certain mining costs were capitalized. The volume of commercial tons mined increased from 51.3 million DST in 2012 to 156.5 million DST for2011. During the year ended December 31, 2013. This increase was also associated with the completion of the mine development projects in late 2012.2015 Yanacocha did not pay dividends to its partners and did not reserve any money related to reinvestment programs.

 

Royalty expense was US$44.2 million in 2013 as compared to US$66.6 million in 2012. The decrease in the royalty expense paid to Chaupiloma, which equals 3 percent of Yanacocha’s net sales, was directly related to the decrease in Yanacocha’s sales revenues.

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Workers’ profit participation decreased by 72 percent, from US$74.0 million in 2012 to US$20.8 million in 2013. This decrease is directly related to the decrease in Yanacocha’s taxable income from 2012 to 2013. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislation.

The portion of leach pad inventory write-downs associated with costs applicable to sales increased from US$6.5 million in 2012 to US$106.6 million in 2013 due to the decline in the price of gold during the year. As a result of the significant price declines, certain ore on leach pad inventory carrying costs exceeding their net realizable value resulting in a charge to costs applicable to sales.

 

Depreciation, depletion and amortization

Depreciation, depletion and amortization increased by 32 percent from US$252.9 million in 2012 to US$333.0 million in 2013. This increase was attributable principally to leach pad inventory write-downs combined higher depreciation associated with assets retirements costs and deferred mine development.

Exploration and Advanced project expenses

Exploration costs decreased by 50 percent, from US$40.0 million in 2012 to US$20.0 million in 2013. This decrease was attributable principally to lower exploration regarding the Yanacocha Verde project combined with an overall reduction in district exploration activities.

Advanced projects costs also decreased from US$81.7 million in 2012 to US$44.5 million in 2013. This decline was primarily due to reduced activities associated with the Conga project.

Other expense (net).

Other expense (net) decreased 29 percent or US$32.9 million from 2012 to 2013 primarily due to lower employee severance program costs incurred in 2013 associated with a program to align Yanaocoha’s organization with future business needs. In addition, lower losses associated with asset sales were incurred during 2013 compared to 2012.

Income tax provision.

Yanacocha’s financial and operating results included income and mining tax expense of US$107.6 million in 2013 compared to US$361.9 million in 2012. The difference was primarily due to Yanacocha’s decreased profitability as the result of lower ounces sold and lower average realized average gold prices received.

Net income.

As a consequence of the foregoing, net income decreased by 77.5 percent, or US$485.5 million, from US$626.5 million in 2012 to US$141.0 million in 2013. As a percentage of sales, net income decreased from 29 percent in 2012 to 10 percent in 2013.

B. Liquidity and Capital Resources

As of December 31, 2014, Yanacocha had cash and cash equivalents of US$787.0 million, substantially all of which were held in U.S. Dollars, as compared to US$587.0 million as of December 31, 2013.

Cash provided by operating activities

Yanacocha’s operations generated a net cash flow from operations of US$415.8 million in 2014 and US$362 million in 2013. The net cash flow from operations in 2014 was 15% or US$53.8 million higher than in 2013. The increase was primarily driven by lower sales revenues offset by higher prices per ounce of gold, and an increase in reclamation liabilities and depreciation, accretion and amortization.

Cash used in investing activities

Net cash used in investing activities was US$216.1 million in 2014 and US$393.1 billion in 2013. In 2014, Yanacocha’s capital expenditures from its formation in 1992 through 2014 have related principally to:

·The construction of the Carachugo, Chaquicocha, Maqui Maqui, San José, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado and Tapado Oeste), Cerro Negro Este, Western Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte and Marleny) and Carachugo Alto mining operations;

·The construction of two plants at Carachugo and Yanacocha, each of which includes a leach solution processing facility and a smelter;

·The construction of four carbon column plants at Cerro Yanacocha and La Quinua;

·The acquisition of both new and used mining equipment;

·The construction of two dams, the construction of one agglomeration plant at La Quinua, the construction of the Yanacocha Gold Mill, and several expansions of the leach pads located at the Carachugo, Maqui Maqui, Cerro Yanacocha, La Quinua mining operations;
·The construction of Gold Mill Tailing Pipeline and equipment components. Yanacocha’s capital expenditures from its formation through December 31, 2014 totaled approximately US$5,821 million, including capital expenditures of US$1,148 million in 2012, US$311 million in 2013 and US$117 million in 2014.

In 2014, Yanacocha’s principal capital expenditures included US$37.2 million associated with the Conga Project (water first approach), US$27.5 million for equipment components, US$16.2 million for mine development at El Tapado Oeste and the Western Oxides deposits, US$10 million for the residual water treatment project, US$9.3 million for gold mill tailings improvements, US$4 million for gold mill plant improvements and US$13 million for other minor projects.

Cash used in financing activities

Net cash used in financing activities was US$0 million in both 2014 and 2013. In 2014 and 2013, Yanacocha carried no debt and accordingly had no financing costs.

C. Research and Development

Yanacocha is a mining exploration and production company and does not engage in research and development activities.

D. Trend Information

Other than as disclosed in this Annual Report and the Yancocha Financial Statements (included elsewhere in this Annual Report), Yanacocha has informed us that it is not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon Yanacocha’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.

E. Off-Balance Sheet Arrangements

Yanacocha has informed us that there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on Yanacocha’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

F. Tabular Disclosure of Contractual Obligations

The following table shows Yanacocha’s contractual obligations as of December 31, 2014:

     Payments due by Period (US$ in millions) 
     Less than  1-3  3-5  More than 
  Total  1 year  years  years  5 years 
Long-Term Debt  -   -   -   -   - 
Capital Lease Obligations  -   -   -   -   - 
Reclamation and Remediation Liability  557.4   15.1   60.5   77.7   404.1 
Open Purchase Orders receipt  12.9   12.9   -   -   - 
Other Long-Term Obligations(*)  28.7   3.0   18.2   7.5   - 
Total Contractual Cash Obligations  599.0   31.0   78.7   85.2   404.1 

(*)Other Long-Term Obligations includes obligations relating to social development projects and commitments.

CERRO VERDE

Introduction

The following discussion should be read in conjunction with the Cerro Verde Financial Statements as of December 31, 2013 and 2014 and for the years ended December 31, 2012, 2013, and 2014 and the related notes thereto included elsewhere in this Annual Report. The Cerro Verde Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB.

A. Operating Results

Overview

We hold a 19.58 percent interest in Cerro Verde, which operates an open-pit copper and molybdenum mining complex located 20 miles southwest of Arequipa, Peru. The site is accessible by paved highway. The Cerro Verde mine has been in operation since 1976, and was previously owned by the Peruvian government prior to its privatization in 1993. Freeport-McMoRan Inc. holds a majority interest in Cerro Verde.

The Cerro Verde mine is a porphyry copper deposit that has leachable oxide and secondary sulfide mineralization, and millable primary sulfide mineralization. The predominant oxide copper minerals are brochantite, chrysocolla, malachite and copper “pitch.” Chalcocite and covellite are the most important secondary copper sulfide minerals. Chalcopyrite and molybdenite are the dominant primary sulfides.

Cerro Verde’s current operations consist of an open-pit copper mine, a 120,000 metric ton-per-day concentrator and leaching facilities. Leach-copper production is derived from a 39,000 metric ton-per-day crushed leach facility and a leach system. This leaching operation has a capacity of approximately 200 million pounds of copper per year.

Cerro Verde has sufficient equipment to move an average of 308,000 tons of material per day using a fleet of haul trucks. Copper cathodes and concentrate production are transported approximately 70 miles by truck and rail to the Pacific Port of Matarani for shipment to international markets.

Cerro Verde receives electrical power under long-term contracts with electric utility companies. Water for Cerro Verde’s processing operations comes from renewable sources through a series of storage reservoirs, which Cerro Verde believes will be sufficient to support its currently planned operations.

Presented in the table below are certain summary financial and operating data regarding Cerro Verde for the years ended December 31, 2012, 2013, and 2014:

  

As of and for the year ended December 31,

 
  

2012

  

2013

  

2014

 
Income statement data(1)            
Total revenues (US$ in thousands)  2,127,023   1,811,488   1,467,097 
Net income (US$ in thousands)  796,584   613,262   377,606 
             
Proven and Probable Reserves(2)            
Proven:            
Leachable ore reserves (tons in thousands)  64,462   52,676   46,426 
Millable ore reserves (tons in thousands)  995,134   1,123,205   881,338 
Probable:            
Leachable ore reserves (tons in thousands)  137,691   114,990   121,954 
Millable ore reserves (tons in thousands)  2,997,250   2,756,501   2,903,516 
Average copper grade of leachable ore reserves (%)  0.34   0.33   0.37 
  

As of and for the year ended December 31,

 
  

2012

  

2013

  

2014

 
          
Average copper grade of millable ore reserves (%)  0.38   0.37   0.38 
             
Production(3)            
Cathodes (in thousands of recoverable pounds)  118,703   104,314   124,804 
Concentrates (in thousands of recoverable pounds)  475,771   452,925   375,438 
Average realized price of copper sold (US$ per pound payable)  3.61   3.24   2.93 

____________________

(1)Derived from Cerro Verde’s financial statements filed with theSuperintendencia del Mercado de Valores, or the SMV. See the Cerro Verde Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.
(2)Reserve calculations are derived from the audited financial statements filed by Cerro Verde with the SMV. Cerro Verde used US$2.00 per pound of copper to determine copper reserves as of December 31, 2014. See the Cerro Verde Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report. The calculation or estimation of proven and probable ore reserves for Cerro Verde may differ in some respects from the calculations of proven and probable reserves for us and Yanacocha located elsewhere in this Annual Report. According to Cerro Verde, ore estimates for Cerro Verde are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. Cerro Verde’s ore estimates include assessments of the resource, mining and metallurgy, as well as consideration of economic, marketing, legal, environmental, social and governmental factors, including projected long-term prices for copper and molybdenum and Cerro Verde’s estimate of future cost trends.
(3)Derived from Cerro Verde’s financial statements filed with the SMV. See the Cerro Verde Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.

Cerro Verde Mining Royalties

SUNAT, the Peruvian national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2007 and the years 2008 and 2009. In July 2013, the Peruvian Tax Tribunal issued two decisions affirming SUNAT's assessments for the period December 2006 through December 2008. Decisions by the Tax Tribunal end the administrative stage of the appeal procedures for the assessments. In September 2013, Cerro Verde filed judiciary appeals related to the assessments because it continues to believe that its 1998 stability agreement exempts all minerals extracted from its mining concession from royalties, irrespective of the method used for processing those minerals.With respect to the judiciary appeal related to the assessment for the year 2008, on December 17, 2014, the Eighteenth Contentious Administrative Court rendered its decision upholding the Company’s position and nullifying SUNAT’s assessment and the Tax Tribunal´s resolution (S/ 106.4 million Nuevos Soles). On December 31, 2014, SUNAT and the Tax Court appealed this decision. The court’s position also invalidates all penalties and interest assessed by SUNAT for that period (S/ 139.7 million Nuevos Soles). The only aspect that the court denied was the refund of all payments made under protest; however, once the Company presents the court with sufficient evidence, the Company believes the court will render a decision that these payments be refunded.

If Cerro Verde is ultimately found responsible for these assessments, it may also be liable for penalties and interest, which accrues at rates that range from approximately 7 percent to 18 percent based on the year accrued and the currency in which the amounts would be payable.

On October 1, 2013, SUNAT served Cerro Verde with a demand for payment totaling 492 million Peruvian nuevos soles (US$165 million based on exchange rates as of December 31, 2014, including interest and penalties of US$97 million) based on the Peruvian Tax Tribunal’s July 2013 decisions for the period December 2006 through December 2008. As permitted by law, Cerro Verde requested and was granted an installment payment program that defers payment for six months and thereafter satisfies the amount via sixty-six equal monthly payments.As of December 31, 2014, the Company has made payments totaling 113 million Nuevo Soles (US$39.7 million) under the installment program which are presented as Other accounts receivable –Long Term in the statement of financial position.In July 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by the Tax Tribunal for that year. As of December 31, 2014, the aggregate amount of the assessments, including interest and penalties, for the year 2009 was 226 million Peruvian Nuevo soles (US$76 million based on exchange rates as of December 31, 2014. SUNAT may make additional assessments for mining royalties and associated penalties and interest for the years 2010 through 2013, which Cerro Verde will contest, No amounts were accrued for these assessments or the installment payment program as of December 31, 2014, because Cerro Verde believes its 1998 stability agreement exempts it from these royalties and believes any payments will be recoverable.

Critical Accounting Policies

Yanacocha has furnished us with a discussion of its critical accounting policies or methods used in the preparation of its financial statements. Critical accounting policies are those that are reflective of significant judgments and uncertainties and could potentially impact results under different assumptions and conditions. See Note 2 to the Yanacocha Consolidated Financial Statements for a more complete listing Yanacocha’s accounting policies.

Currency

The Yanacocha Consolidated Financial Statements are presented in U.S. Dollars, which is also Yanacocha’s functional currency. Transactions in foreign currency (a currency other than functional currency) are initially recorded by Yanacocha at the exchange rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in other currencies are translated into the U.S. Dollar at exchange rates prevailing at the statements of financial position dates. Gains or losses from exchange differences arising from the settlement or translation of monetary assets and liabilities are recognized in the consolidated statements of comprehensive income. Non-monetary assets and liabilities recognized in terms of historical cost are translated using the exchange rates prevailing at the dates of the initial transactions.

Stockpiles, Ore on Leach Pads and Inventories

Costs that are incurred in or benefit the productive process are accumulated as stockpiles, ore on leach pads and inventories. Stockpiles, ore on leach pads and inventories are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, ore on leach pads and inventories to net realizable value are reported as a component of costs applicable to sales. The current portion of stockpiles, ore on leach pads and inventories is determined based on the expected amounts to be processed within the next twelve months. Stockpiles, ore on leach pads and inventories not expected to be processed within the next twelve months are classified as non-current. The major classifications are as follows:

Stockpile. Stockpiles represent ore that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead and depreciation and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit as material is processed.

Ore on Leach Pad.The recovery of gold from certain gold oxide ores is achieved through the heap leaching process. Under this method, oxide ore is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the ore. The resulting gold-bearing solution is later processed in a plant where the gold is recovered. Costs are added to ore on leach pads based on current mining costs, including applicable overhead and depreciation and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per estimated recoverable ounce of gold on the leach pad.

The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover between 50% and 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is complete.

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Historically, Yanacocha’s operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.

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In-process Inventory. In-process inventories represent materials that are currently in the process of being converted to a saleable product. Conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.

Precious Metals Inventory.Precious metals include gold doré and/or gold bullion. Precious metals that result from Yanacocha’s mining and processing activities are valued at the average cost of the respective in-process inventories incurred prior to the refining process, plus applicable refining costs.

Mine Development

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified asExploration orAdvanced projects expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; the activities are directed at obtaining additional information on the ore body or converting mineralized material to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component ofCosts applicable to sales.

The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. Where multiple open pits exist at a mining complex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal and production of de minimis saleable materials may occur during development and are recorded asOther income, net of incremental mining and processing costs.

The production phase of an open-pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in Costs applicable to sales in the same period as the revenue from the sale of inventory. Yanacocha’s definition of a mine and the mine’s production phase may differ from that of other companies in the mining industry resulting in incomparable allocations of stripping costs to deferred mine development and production costs.

Mine development costs are amortized using the units-of-production (“UOP”) method based on estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block or area.

Stripping costs are incurred during the production phase of a surface mining in accordance with IFRIC 20 “Stripping costs in the production phase of as surface mine” whereby a stripping asset is recognized if, and only if, all of the following are met:

·It is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity;

·The entity can identify the component of the ore body for which access has been improved; and

·The costs relating to the stripping activity associated with that component can be measured reliably.

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The primary components of the ore body on a pit by pit basis as well as within major pits are identified. Based on these components, stripping activities are analyzed and costs are assigned based on whether they pertained to current inventory production or improved access to future ore bodies (or components of an ore body).

Based on this analysis, Yanacocha allocates the costs associated with improved access as a “stripping activity asset”. This allocation is based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body.

Costs allocated to the production stripping activity asset are subsequently depreciated. Depreciation of the production stripping asset was calculated on a systematic basis method over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping costs. This depreciation is a production cost.

Mineral Interests

Mineral interests include acquired interests in production, development and exploration stage properties. The mineral interests are capitalized at their fair value at the acquisition date.

The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves. Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material consisting of (i) mineralized material such as inferred material within pits; mineralized material with insufficient drill spacing to qualify as proven and probable reserves; and mineralized material in close proximity to proven and probable reserves; (ii) around-mine exploration potential not immediately adjacent to existing reserves and mineralization, but located within the immediate mine area; (iii) other mine-related exploration potential that is not part of current mineralized material and is composed mainly of material outside of the immediate mine area; (iv) greenfield exploration potential that is not associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit. Yanacocha’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. Yanacocha has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.

Impairment of non-financial assets

The carrying amounts of non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying value may not be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying values are in excess of the recoverable amount. The recoverable amount is determined as the higher of an asset’s fair value, less costs of disposal, and its value in use. Such review is undertaken on an asset-by-asset basis, except where such assets do not generate cash flows independently from other assets, in which case the review is undertaken at the cash generating unit level. Yanacocha identified two separate cash generating units according to its segments: Yanacocha and the Conga project.

Future cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans and the appropriate discount rate. These estimates, used in the determination of future cash flows, are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels, costs and capital and interest rates are each subject to significant risks and uncertainties.

If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the statement of comprehensive income to reflect the asset at the lower amount. In assessing the recoverable amount for assets, the relevant future cash flows expected to arise from the fair value less costs of disposal have been discounted to their present value.

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An impairment loss is reversed in the statement of comprehensive income if there is a change in estimate used to determine recoverable amount since the prior impairment loss was recognized.

The carrying amount of an asset is increased to the recoverable amount but not beyond the carrying amount net of depreciation or amortization which would have arisen if the prior impairment loss had not been recognized. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in Peru. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Yanacocha’s management periodically evaluates positions taken in the tax returns with respect to situations where applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax

Yanacocha accounts for income and mining taxes using the liability method, recognizing certain temporary differences between the financial reporting basis of Yanacocha’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates a net deferred income tax liability or net deferred income tax asset for Yanacocha, as measured by the statutory tax rates in effect as enacted. Yanacocha derives its deferred income tax charge or benefit by recording the change in the net deferred income tax liability or net deferred income tax asset balance for the year, based on Peruvian income and mining tax laws. Royalty taxes are calculated based on operating profit, as such are shown as income tax. Yanacocha’s deferred income tax assets include certain future tax benefits. Yanacocha determines a valuation allowance to any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized. See Note 14 to the Yanacocha Consolidated Financial Statements.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Sales tax

Expenses and assets are recognized net of the amount of sales tax, except:

·When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable;

·When receivables and payables are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position.

Reclamation and Remediation Costs

Reclamation obligations are recognized when incurred and recorded as liabilities at fair value. The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost (“ARC”) is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The estimated retirement obligation is based on when spending for an existing environmental disturbance is expected to occur. Yanacocha reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site.

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Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.

Recently Adopted Accounting Pronouncements

Certain standards and amendments are effective for annual periods beginning on or after January 1, 2016. However, they do not impact the annual consolidated financial statements of Yanacocha and, hence, have not been disclosed. Yanacocha has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

Recently Issued Accounting Pronouncements

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required, but the provision of comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

IFRS 15 Revenue from Contracts with Customers

In May 2014, IFRS 15 was issued related to revenue from contracts with customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. The effective date of IFRS is for annual periods, beginning on or after January 1, 2018. Early adoption is permitted.

Yanacocha is currently performing an assessment of the revised standards and impacts on Yanacocha’s Consolidated Financial Statements and disclosures. Its management is still in the process of completing its assessment of the impacts; however, based on a preliminary analysis, Yanacocha anticipates the standard having a potential impact to the timing of revenue recognition due to a potential change in the timing of when control is transferred to the customer. Yanacocha continues to evaluate the potential impacts due to timing of revenue recognition, but does not expect it to have a material impact on the Consolidated Financial Statements. Additionally, Yanacocha continues to assess the potential impacts on insurance payments, variable consideration on concentrate sales, and refining fee classification under the new standard. Based on preliminary findings, Yanacocha does not expect these areas to have a significant impact on revenue recognition. Yanacocha expects to have an update to the impacts of the standard in second quarter of 2017.

Yanacocha anticipates adopting the new standard effective January 1, 2018. The guidance may be applied retrospectively for all periods presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. Yanacocha currently anticipates adopting the standard retrospectively with the cumulative effect of initially applying the amended guidance recognized at January 1, 2018.

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IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted, but not before an entity applies IFRS 15. In 2017, Yanacocha plans to assess the potential effect of IFRS 16 on its consolidated financial statements.

Results of Operations for the Years Ended December 31, 2016 and 2015

Sales

Gold sales. Gold sales decreased by 26%, or US$278 million, from 2015 to 2016, due to lower ounces sold as a result of lower production, partially offset by the increased realized price. Gold ounces produced decreased 29% due primarily to lower mill throughput, recovery and grade, and lower leach tons placed at a lower grade. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold. Production by mine was as follows:

Mine(1) 2016  2015 
  (ounces) 
Cerro Yanacocha  176,263   54,677 
Carachugo  124,886   87,146 
Maqui Maqui  28,105   67,195 
La Quinua  188,095   596,638 
Cerro Negro  137,584   112,035 
Total  654,934   917,690 

Costs applicable to sales

Costs applicable to sales for the year ending December 31, 2016 and 2015 comprised:

  2016  2015 
  (US$ in thousands) 
Beginning balance of finished goods and in-process  544,325   660,763 
Beginning balance of provision for net realizable value  (90,298)  (163,094)
Consumption of supplies  228,376   210,384 
Personnel expenses  87,258   102,867 
Other services  73,779   76,490 
Maintenance  36,213   38,646 
Power  27,270   27,713 
Depreciation and amortization  140,712   223,142 
Workers’ profit participation  12,394   28,852 
Reclamation expenses related to leach pad  78,494   - 
Ending balance of provisions for net realizable value  84,374   90,298 
Ending balance of finished goods and in-process  (446,503)  (544,325)
   776,394   751,736 

Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8% of pre-tax profits based on Peruvian labor legislation, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales increased by 3% or US$25 million from 2015 to 2016. Costs applicable to sales per ounce of gold increased by 49% from US$819 in 2015 to US$1,219 in 2016.

Operating costs decreased by 1% from US$456 million in 2015 to US$453 million in 2016. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs.

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Reclamation expenses related to leach pads of US$78 million is due to a non-cash charge to reclamation expenses for the quarter ended December 31, 2016, related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation liability is primarily due to higher estimated long-term water management costs, heap leach earthworks and related support activities.

Workers’ profit participation decreased by 57%, from US$29 million in 2015 to US$12 million in 2016. This decrease was directly related to the decrease in Yanacocha’s taxable income from 2015 to 2016. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislation.

The portion of leach pad inventory write-downs associated with costs applicable to sales decreased from US$72,8 million to US$5.9 million due to the lower mineral in stock.

Inventory variation decreased by 16% from US$116.4 million in 2015 to US$97.8 million in 2016, which increased costs applicable to sales, due to lower consumption of ounces in stock offset by higher costs per ounce in stock compared to the prior year.

Depreciation, depletion and amortization decreased by 37% from US$223 million in 2015 to US$141 million in 2016. This decrease was attributable principally to lower depreciation associated with asset retirement costs and deferred mine development.

Administrative expenses

Administrative expenses for the years ended December 31, 2016 and 2015 were composed of:

  2016  2015 
Management expenses $7,191  $18,108 
Community development expenses and        
external affairs  -   6,297 
Other  1,589   1,920 
  $8,780  $26,325 

Other operating expenses, net

Other operating expenses, net for the years ended December 31, 2016 and 2015 were as follows:

  2016  2015 
       
Exploration and advance project $49,580  $64,230 
Severance program  9,659   14,904 
Write-off of fixed assets  14,036   2,411 
Others, net  (1,779)  1,301 
  $71,496  $82,846 

Exploration and advanced project costs decreased from US$64 million in 2015 to US$50 million in 2016. This decrease was primarily due to less drilling activity in 2016, reduction in the number of drill machines (from ten in 2015 to three in 2016) and lower headcount expenses in 2016 than 2015.

Impairment of long-lived assets

As a result of the recoverable amount analysis performed during the year, Yanacocha recorded an impairment loss related to the Yanacocha mine of US$889.5 million (US$872.2 million and US$17.3 million related to property, plant and equipment and intangible assets, respectively). In 2015, Yanacocha did not recognize an impairment loss. In 2014, Yanacocha recorded an impairment loss amounting to US$541.1 million related to the Conga project, and no loss was recorded for the Yanacocha mine.

Key assumptions used for the impairment testing as of December 31, 2016 included:

Production volumes: Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines agreed by management as part of planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

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As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines are computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with the reserves and resource volumes approved as part of Yanacocha’s process for the estimation of proved and probable reserves and resource estimates.

Commodity prices: Forecasted commodity prices are based on management’s estimates and are derived from forward price curves and long-term views of global supply and demand, building on past experience of the industry and consistent with external sources. These prices were adjusted to arrive at appropriate consistent price assumptions for the different qualities and type of commodities, or, where appropriate, contracted prices were applied. These prices are reviewed at least annually.

Estimated prices for the current and long-term periods that have been used to estimate future revenues are as follows:

  Current  Long-term 
  US$  US$ 
         
Gold (per ounce)  1,221   1,300 

Discount rate: In calculating the value in use, a pre-tax discount rate of 7.1% was applied to the pre-tax cash flows. This discount rate is derived from Yanacocha’s post-tax weighted average cost of capital, with appropriate adjustments made to reflect the risks specific to the cash generating unit.

Income tax provision.

Yanacocha’s financial and operating results included income and mining tax expense of US$43 million in 2016 compared to US$602.7 million in 2015. This decrease was directly related to the decrease in Yanacocha’s income from 2016 to 2015.

Net loss

Net loss increased by US$593.6 million, from net loss of US$450.2 million in 2015 to net loss of US$1,043.7 million in 2016, mainly explained by an impairment adjustment of US$889.5 million, partially offset by the write-off of the deferred income tax asset recorded in 2015 of US$483.0 million.

Results of Operations for the Years Ended December 31, 2015 and 2014

Sales

Gold sales. Gold sales decreased by 12%, or US$140 million, from 2014 to 2015, due to a decrease in the number of ounces sold and a decreased average realized price of gold. The decline in ounces sold was proportionate to lower gold production. Gold ounces produced decreased 5.4% due to a decrease in the amount of leach grade material placed on the leach pads compared to prior year as well as lower mill grade and recovery. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the price of gold. Production by mine was as follows:

Mine (1) 2015  2014 
  (ounces) 
Cerro Yanacocha  54,677   30,713 
Carachugo  87,146   286,062 
Maqui Maqui  67,195   5,669 
La Quinua  596,638   595,751 
Cerro Negro  112,035   51,749 
Total  917,690   969,944 

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(1)Ounces produced included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.

Costs applicable to sales

Costs applicable to sales for the year ending December 31, 2015 and 2014 comprised:

  2015  2014 
  (US$ in thousands) 
Beginning balance of finished goods and in-process  660,763   669,938 
Beginning balance of provision for net realizable value  (163,094)  (147,342)
Consumption of supplies  210,384   246,106 
Other services  76,490   82,805 
Maintenance  38,646   38,526 
Power  27,713   24,942 
Depreciation and amortization  223,142   360,334 
Workers’ profit participation  28,852   35,055 
Reclamation expenses related to leach pad  -   20,315 
Ending balance of provision for net realizable value  90,298   163,094 
Ending balance of inventories  (544,325)  (660,763)
         
   751,736   920,300 

Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8% of pre-tax profits based on Peruvian labor legislation, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 18% or US$169 million from 2014 to 2015. Ounces sold decreased 4.5% from 2014 to 2015. Costs applicable to sales per ounce of gold decreased by 14%, from US$949 in 2014 to US$819 in 2015.

Operating costs decreased by 9% from US$499.9 million in 2014 to US$456.0 million in 2015. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs. These costs decreased in 2015 primarily as a result of lower expenses relating to surface mining costs (lower diesel price and lower repairs and maintenance) and lower heap leaching costs, partially offset by higher milling costs (related to cyanide and lime consumption).

Workers’ profit participation decreased by 18%, from US$35 million in 2014 to US$29 million in 2015. This decrease was directly related to the decrease in Yanacocha’s taxable income from 2014 to 2015. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislation.

The portion of leach pad inventory write-downs associated with costs applicable to sales decreased from US$15.7 million in 2014 to US$72.8 million (reversal) in 2015 due to higher consumption ounces in stock compared to the prior year.

Inventory variation increased from US$9.2 million in 2014 to US$116.4 million in 2015, which decreased costs applicable to sales, due to higher consumption of ounces in stock offset by the lower costs per ounce in stock compared to the prior year.

Depreciation, depletion and amortization decreased by 38% from US$360 million in 2014 to US$223 million in 2015. This decrease was attributable principally to lower depreciation associated with assets retirement costs and deferred mine development.

Administrative expenses

Administrative expenses for the years ended December 31, 2015 and 2014 were composed of:

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  2015  2014 
Management expenses $18,108  $19,938 
Community development expenses and        
external affairs  6,297   15,653 
Other  1,920   2,671 
  $26,325  $38,262 

Other operating expense (net)

Other expenses, net for the years ended December 31, 2015 and 2014 were as follows:

  2015  2014 
       
Exploration and advance project $64,223  $58,880 
Severance program  14,904   16,438 
Disposal of fixed assets  (135)  13,530 
Other expenses  (671)  (6,149)
Others, net  4,525   (4,918)
  $82,846  $77,781 

Exploration and advanced projects costs also increased from US$58.8 million in 2014 to US$64 million in 2015. This increase was primarily due to higher activities in 2014 than 2015 for projects such as the Chaquicocha tunnel and Quecher main.

Income tax provision.

Yanacocha’s financial and operating results included income and mining tax expense of US$(602.7) million in 2015 compared to US$30.5 million in 2014. The difference was primarily due to the write-off of the deferred income tax asset of US$510 million.

Net income.

Net income decreased by US$49.9 million, from US$(400.3) million in 2014 to US$(450.2) million in 2015, mainly explained by higher expenses in income tax provision due to a the write-off of the deferred income tax asset and lower revenues from sales due to lower production, offset by reduction in operating costs and the lack of asset impairments during 2015.

B. Liquidity and Capital Resources

As of December 31, 2016, Yanacocha had cash and cash equivalents of US$667 million, substantially all of which were held in U.S. Dollars, as compared to US$944 million as of December 31, 2015.

Cash provided by operating activities

Yanacocha generated net cash flow from operations of US$140 million in 2016 and US$274 million in 2015. The net cash flow from operations in 2016 was 49% or US$134 million lower than in 2015. The decrease was primarily driven by lower gold sales.

Yanacocha generated net cash flow from operations of US$274 million in 2015 and US$375 million in 2014. The net cash flow from operations in 2015 was 27% or US$101 million lower than in 2014. The decrease was primarily driven by a lower gold sales and higher expenses for explorations and advanced projects.

Cash used in investing activities

Net cash used in investing activities was US$106 million in 2016 compared to US$117 million in 2015. The decrease in cash used in investing activities was mainly due to lower costs associated with the construction of the water treatment plant located in Quinua (in 2015 the purchase of older equipment was made) and lower investment in assets componentization due to equipment condition monitoring, offsetting higher expenses in 2016 related to the Yanacocha Laybacks Project for the construction of the northern tailing.

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Net cash used in investing activities was US$117 million in 2015 and US$176 million in 2014. The decrease in cash used in investing activities was due primarily to decreased capital expenditures.

Cash used in financing activities

Net cash used in financing activities was US$300 million in 2016, (US$0 million in 2015 and 2014). On February 15, 2016, Yanacocha’s board of directors unanimously agreed to distribute dividends in the amount of US$300 million, in proportion to each shareholder’s equity interest, which corresponds to a portion of the accumulated results as of December 31, 2014, that were generated in 2011.

C. Capital Expenditures

Yanacocha’s capital expenditures from its formation in 1992 through 2016 totaled approximately US$296 million, including capital expenditures of US$117 million in 2014, US$96.2 million in 2015 and US$83 million in 2016.

In 2016, Yanacocha’s principal capital expenditures included the construction of water treatment facilities, a tailings facility expansion, capitalized component purchases and infrastructure improvements.

D. Research and Development

Yanacocha is a mining exploration and production company and does not engage in research and development activities.

E. Trend Information

Other than as disclosed in this Annual Report and the Yanacocha Consolidated Financial Statements (included elsewhere in this Annual Report), Yanacocha has informed us that it is not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon Yanacocha’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.

F. Off-Balance Sheet Arrangements

Yanacocha has informed us that there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on Yanacocha’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

G. Tabular Disclosure of Contractual Obligations

The following table shows Yanacocha’s contractual obligations as of December 31, 2016:

  Payments due by Period (US$ in millions) 
  Total  Less than1 year  1-3 years  3-5 years  More than
5 years		 
Long-Term Debt  -   -   -   -   - 
Capital Lease Obligations  -   -   -   -   - 
Reclamation and Remediation Liability  1,013   16   67   90   840 
Open Purchase Orders receipt  -   -   -   -   - 
Other Long-Term Obligations(*)  24   -   24   -   - 
Total Contractual Cash Obligations  1,037   16   91   90   840 

(*)Other Long-Term Obligations includes obligations relating to social development projects and commitments.

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CERRO VERDE

Introduction

The following discussion should be read in conjunction with the Cerro Verde Financial Statements as of December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015, and 2016 and the related notes thereto included elsewhere in this Annual Report. The Cerro Verde Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB.

A. Operating Results

Overview

We hold a 19.58% interest in Cerro Verde, which operates an open-pit copper and molybdenum mining complex located 20 miles southwest of Arequipa, Peru. The site is accessible by paved highway. The Cerro Verde mine has been in operation since 1976, and was previously owned by the Peruvian government before its privatization in 1993. Freeport-McMoRan Inc. holds a majority interest in Cerro Verde.

The Cerro Verde mine is a porphyry copper deposit that has leachable oxide and secondary sulfide mineralization, and millable primary sulfide mineralization. The predominant oxide copper minerals are brochantite, chrysocolla, malachite and copper “pitch.” Chalcocite and covellite are the most important secondary copper sulfide minerals. Chalcopyrite and molybdenite are the dominant primary sulfides.

In September 2015, Cerro Verde’s expansion project commenced operations. The project achieved full capacity operating rates during the first quarter of 2016. The project, with a cost of US$5.3 billion, expanded the processing capacity from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day.

Cerro Verde’s current operations consist of an open-pit copper mine, a 360,000 ton-per-day concentrator and leaching facilities. Leach-copper production is derived from a 39,000 ton-per-day crushed leach facility and a leach system. This leaching operation has a capacity of approximately 200 million pounds of copper per year.

Cerro Verde has sufficient equipment to move an average of 308,000 tons of material per day using a fleet of haul trucks. Copper cathodes and concentrate production are transported approximately 70 miles by truck and rail to the Pacific Port of Matarani for shipment to international markets.

Cerro Verde receives electrical power under long-term contracts with electric utility companies. Water for Cerro Verde’s processing operations comes from renewable sources through a series of storage reservoirs, which Cerro Verde believes will be sufficient to support its currently planned operations.

Presented in the table below are certain summary financial and operating data regarding Cerro Verde for the years ended December 31, 2014, 2015 and 2016:

  As of and for the year ended December 31, 
  2014  2015  2016 
Income statement data(1)            
Sales of goods (US$ in thousands)  1,467,097   1,115,617   2,384,154 
Profit for the year (US$ in thousands)  377,606   33,284   340,907 
             
Proven and Probable Reserves(2)            
Proven:            
Leachable ore reserves (tons in thousands)  46,426   47,603   43,000 
Millable ore reserves (tons in thousands)  881,338   925,365   854,000 
Probable:            
Leachable ore reserves (tons in thousands)  121,954   104,963   78,000 
Millable ore reserves (tons in thousands)  2,903,516   2,778,009   2,698,000 
Average copper grade of leachable ore reserves (%)  0.37   0.35   0.32 
Average copper grade of millable ore reserves (%)  0.38   0.38   0.37 
             
Production(3)            
Cathodes (in thousands of recoverable pounds)  124,804   105,077   107,960 
Concentrates (in thousands of recoverable pounds)  375,438   439,405   999,850 
Average realized price of copper sold (US$ per ton payable)  6,452   4,518   4,759 

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(1)Derived from Cerro Verde’s financial statements. See the Cerro Verde Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.
(2)Reserve calculations are derived from “Item 3. Key Information – A. Selected Financial Data”. Cerro Verde used US$2.00 per pound of copper to determine copper as of December 31, 2016. The calculation or estimation of proven and probable ore reserves for Cerro Verde may differ in some respects from the calculations of proven and probable reserves for us and Yanacocha located elsewhere in this Annual Report. According to Cerro Verde, ore estimates for Cerro Verde are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. Cerro Verde’s ore estimates include assessments of the resource, mining and metallurgy, as well as consideration of economic, marketing, legal, environmental, social and governmental factors, including projected long-term prices for copper and molybdenum and Cerro Verde’s estimate of future cost trends.
(3)Derived from “Item 3. Key Information – A. Selected Financial Data”.

Cerro Verde Mining Royalties

On June 23, 2004, Law N° 28528 was approved, which requires the holder of a mineral concession to pay a royalty in return for the exploitation of metallic and non-metallic minerals. The royalty is calculated using rates ranging from 1% to 3% of the value of concentrate or its equivalent according to the international price of the commodity published by the Ministry of Energy and Mines. As described in Note 13(a) to the Cerro Verde Financial Statements prior to January 1, 2014, these royalties were not applicable to Cerro Verde because Cerro Verde operated under the 1998 Stability Agreement with the Peruvian government. However, beginning January 1, 2014, Cerro Verde began paying royalties and a new special mining tax for its entire production base under its current 15-year stability agreement. See Note 13(b) to the Cerro Verde Financial Statements for a summary of amounts recognized by Cerro Verde for special mining tax and mining royalties for the years ended December 31, 2016, 2015 and 2014.

Superintendencia Nacional de Administración Tributaria (“SUNAT”), has assessed mining royalties on materials processed by Cerro Verde’s concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2007 and the years 2008 to September 2011.

SUNAT issued resolutions denying the claims made by Cerro Verde from December 2006 through December 2009. Cerro Verde appealed this decision to tax court. In July 2013, the Peruvian Tax Tribunal issued two decisions reaffirming assessments for the period December 2006 through December 2008. Decisions by the tax court ended the administrative stage of the appeal procedures for these assessments.

On September 18, 2013, Cerro Verde filed two administrative demands in the court system. In connection with demands for the periods 2006 to 2007, the Eighteenth Contentious Administrative Court dismissed this claim. On May 2, 2016, Cerro Verde appealed this decision.

With respect to the judiciary appeal related to the assessment for the year 2008, on December 17, 2014, the Eighteenth Contentious Administrative Court rendered its decision upholding Cerro Verde’s position and nullifying SUNAT’s assessment and the Peruvian Tax Tribunal’s resolution (S/106.4 million). The Court’s position also invalidates all penalties and interest assessed by SUNAT for that period (S/139.7 million). In December 2014, SUNAT and the tax court appealed this decision. On January 29, 2016, the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. On February 23, 2016, Cerro Verde appealed the decision to the Supreme Court.

In September 2013, Cerro Verde filed a constitutional claim in the court system related to the assessments. Cerro Verde believes that its 1998 Stability Agreement exempted all minerals extracted from its mining concessions from royalties, irrespective of the method used for processing those minerals. On September 15, 2016, the Judiciary court dismissed the constitutional claim and on October 25, 2016, Cerro Verde appealed this decision.

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On October 1, 2013, SUNAT served Cerro Verde a demand for payment totaling S/492 million (approximately US$146 million based on the December 31, 2016 exchange rate, including interest and penalties of US$86 million) based on the Peruvian Tax Tribunal’s decisions for the period December 2006 to December 2008. As permitted by law, Cerro Verde requested, and was granted, an installment payment program that deferred payment for six months and thereafter satisfies the amount via 66 equal monthly payments. As of December 31, 2016, Cerro Verde has made payments totaling S/323 million (US$104 million based on the date of payment and US$96 million based on December 31, 2016 exchange rates) under the installment program, which are presented in the non-current portion of other non-financial assets in the statements of financial position (see Note 7 to the Cerro Verde Financial Statements). Based on the results rendered by the Eighteenth Contentious Administrative Court as is described above, Cerro Verde requested an injunction that was accepted by the Judiciary and implied a modification of the installment program excluding the 2008 portion through SUNAT’s resolution notified to Cerro Verde on October 29, 2015. On August 18, 2016, the Sixth Superior Justice Court nullified the injunction described above and on September 28, 2016, SUNAT modified the Installment payment program to include the 2008 portion. 

In July 2013, a hearing on SUNAT’s assessment for 2009 was held, but no decision has been issued by the Peruvian Tax Tribunal for that year. As of December 31, 2016, the amount of the assessment, including interest and penalties, for the year 2009 was S/268 million (approximately US$80 million based on the December 31, 2016 exchange rate).

In April 2016, Cerro Verde received assessments from SUNAT for the year 2010 and for January to September 2011. On May 11, 2016, Cerro Verde appealed these assessments. At December 31, 2016, the amount of assessments from SUNAT including interest and penalties for the years 2010 and January to September 2011 is S/543 million (approximately US$162 million based on the December 31, 2016 exchange rate).

As of December 31, 2016, Cerro Verde estimates that the total exposure associated with mining royalties for the period from December 2006 to December 2013, including interest and penalties, totals US$544 million (based on the December 31, 2016 exchange rate).

As of December 31, 2016, no provisions were recorded for these assessments or for the amounts paid under the installment payment program because management and its external legal advisors believe Cerro Verde’s 1998 Stability Agreement exempted it from these royalties and believe that the resolution will be favorable to Cerro Verde and any payments should be recoverable.

Critical Accounting Policies

 

Cerro Verde has furnished us with a discussion of its critical accounting policies and methods used in the preparation of its financial statements. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and could potentially impact results under different assumptions and conditions. Note 2 to the Cerro Verde Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the Cerro Verde Financial Statements. The following is a brief discussion of the identified critical accounting policies and the estimates and judgments made by Cerro Verde.

 

Estimates of Ore Reserves and Resources

 

OreMineral reserves are estimatesthe parts of themineral deposit ore quantity that can be economically and legally extracted from the mine properties.concessions. Cerro Verde estimates its oremineral reserves based on information compiled by individuals qualified in reference to geological data about the size, depth and form of the ore body, whichand requires complexgeological judgments in order to interpret the data.

 

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The estimation of recoverable reserves is based on factors such as estimated exchange rates,involves numerous uncertainties with respect to the ultimate geology of the ore body, including quantities, grades and recovery rates. Estimating the quantity and grade of mineral reserves requires Cerro Verde to determine the size, shape and depth of the ore body by analyzing geological data. In addition to the geology, assumptions are required to determine the economic feasibility of mining the reserves, including estimates of future commodity prices and demand, future requirements of capital and production costs together with geological hypotheses and judgments made when estimating the size and quality of ore.estimated exchange rates. Revisions in reserve or resource estimates may have an impact on the value of mining properties, property, plant and equipment, provisions for cost of mine closure, recognition of assets for deferred taxes and depreciation and amortization of assets.

 

Units of Production (“UOP”)UOP Depreciation

 

Estimates of recoverableEstimated mineral reserves are used in determining the depreciation andand/or amortization of minemine-specific assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of mine production. Each item’s life,each item, which is assessed at least annually, takes into accountis impacted by both its physical life limitations and the present assessments of economically recoverable reserves.reserves of the mine property where the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves that may be recovered.reserves.

 

Inventories

 

Net realizable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices, less estimated costs to complete production and bring the inventory to sale. Additionally, in calculating the net realizable value of Cerro Verde’s long-term stockpiles, Cerro Verde’s management also considers the time value of money.

 

Mill and leach stockpiles generally contain lower grade ores that have been extracted from the ore body and are available for copper recovery. For millMill stockpiles contain sulfide ores and recovery of metal is through milling and concentrating. For leachLeach stockpiles contain oxide ores and certain secondary sulfide ores and recovery of metal is through exposure to acidic solutions that dissolve contained copper and deliver it in solution form to extraction processing facilities.

 

Because it is generally impracticable to determine copper contained in mill and leach stockpiles by physical count, a reasonable estimation methods aremethod is employed. The quantity of material delivered to mill and leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blastholeblast holes cuttings determine the estimated copper grades of material delivered to mill and leach stockpiles.

Expected copper recovery rates for mill stockpiles are determined by metallurgical sampling.testing. The recoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate almost immediately.

 

Estimated Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, historical trends and other factors. Ultimatefactors, including mineralogy of the ore and rock type. Total copper recovery of copper contained in leach stockpiles can vary significantly depending on several variables, including the type of copper recovery, mineralogy and particlethe size of the rock. For newly placed material of active stockpiles, as much as 80% of total copper recovery may be extracted during the first year, and the remaining copper may be recovered over many years. Processes and recovery rates are monitored continuously, and recovery ratesrate estimates are adjusted periodically as additional information becomes available and as related technology changes.

 

Mine Closure Provision

 

Cerro Verde assesses its provision for remediation and mine closure provision annually.quarterly. It is necessary to make estimates and assumptions in determining this provision, including cost estimates of activities that are necessary for the rehabilitation of the site, technological and regulatory changes, and interest rates and inflation rates. As discussed in Note 2.2(h)2(k) to the Cerro Verde Financial Statements, estimated changes in the fair value of the provision for remediation and mine closure provision or the useful life of the related assets are recognized as an increase or decrease in the book value of the provision and related asset retirement cost (ARC) in accordance with IAS 16, “Property, Plant and Equipment.”

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According to Cerro Verde’s accounting policies, the provision for remediation and mine closure represents the present value of the costs that are expected to be incurred in the closure period of the operating activities of Cerro Verde. Closure budgets are reviewed regularly to take into account any significant change in the studies conducted. Nevertheless, the closure costs of mining units will depend on the market prices for the closure work required, which would reflect future economic conditions. Also, the timing of disbursements depends on the useful life of the mine, which is based on estimates of future commodity prices.

If any change in the estimate results in an increase to the provision for remediation and mine closure provision and related ARC, Cerro Verde willshall consider whether or not this is an indicator of impairment of the assets and will apply impairment tests in accordance with IAS 36, “Impairments of Assets.”

 

Impairment of Long-lived Assets

 

Cerro Verde has determined that its operation consistsoperations consist of one cash generating unit, which is the operation as a whole.unit. Therefore, the Cerro Verde operation isVerde’s operations are evaluated at least annually in order to determine if there are any impairment indicators. If any such indication exists, Cerro Verde makes an estimate of the recoverable amount, which is the greater of the fair value less costs to sell and the value in use. These assessments require the use of estimates and assumptions, such as long-term commodity prices, discount rates, operating costs and others.

 

Fair value is defined as the amount that would be obtained from the sale of the asset in an arm’s-length transaction between willing and knowledgeable parties. The fair value of assets is generally determined as the current value of future cash flows derived from the continuous use of the asset, which includes estimates, such as the cost of future expansion plans and eventual disposal, while applying assumptions that an independent market participant may take into account. The cash flows are discounted by applying a discount rate that reflects the current market, the time value of money and the risks specific to the asset. See Note 2.2(g) to the Cerro Verde Financial Statements for further discussion.

 

Contingencies

 

By their nature, contingencies will only be resolved only when one or more uncertain future events dooccur or do notfail to occur. DeterminingThe assessment of the existence and potential amount of contingencies inherently involves the exercise of significant judgment and calculationthe use of estimates regarding the estimated resultsoutcome of future events.

 

Stripping cost

 

Cerro Verde incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalized as a stripping activity asset, where certain criteria are met.

Once Cerro Verde has identified its production stripping costs for each surface mining operation, it identifies the separate components of the ore bodies for each of its mining operations. An identifiable component is athe specific volume of the ore body that is made more accessible by the stripping activity. Significant judgment is required to identify and define these components, and also to determine the expected volumes (e.g., in tons) of waste to be stripped and ore to be mined in each of these components.

 

Results of Operations for the Years Ended December 31, 20142016 and 20132015

Net sales. Net sales, including and mark-to-market adjustments for pounds of copper pending settlement, increased by 114%, from US$1,115.6 million in 2015 to US$2,384.1 million in 2016, principally due to higher copper concentrate volume sold as a result of achieving full production in the new concentrator. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 2015 and 2016:

  Year ended December 31,    
  2015  2016  Variation 
Average price            
Copper (US$ per ton)  4,518   4,759   5%
             
Volume sold            
Copper (in tons)  246,913   501,000   103%

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Average realized copper prices per ton increased from US$4,518 in 2015 to US$4,759 in 2016. The volume of copper sold increased from 246,913 tons in 2015 to 501,000 tons in 2016, due to increased production from the new concentrator, which reached maximum operating rates in the first quarter of 2016. The combined effect of these changes resulted in a US$1,268.5 million increase in income from sales of copper in 2016 compared to 2015.

Total costs of sales of goods. Total costs of sales of goods increased from US$862.0 million in 2015 to US$1,533.0 million in 2016, due mainly to the net effect of the following:

(a)   Material and supplies consumption cost increased by 36%, from US$364.2 million in 2015 to US$496.9 million in 2016, mainly due to supplies needed for Cerro Verde’s new concentrator;

(b)   Labor costs, including workers’ profit sharing, increased by 47%, from US$146.4 million in 2015 to US$215.8 million in 2016, mainly due to an increased number of employees needed to staff the new concentrator and expanded mining operations and profit sharing expenses;

(c)   The variation of in process inventories decreased from US$118.3 million in 2015 to US$3.8 million in 2016 as a result of less lower concentrate grade material placed in 2016;

(d)   Depreciation and amortization costs increased by 93%, from US$244.5 million in 2015 to US$473.0 million in 2016, mainly due to higher depreciation associated with the plant and equipment related to the new concentrator;

(e)   Repair and maintenance services increased by 6%, from US$95.1 million in 2015 to US$100.9 million in 2016; and

(f)   Energy costs increased by 94%, from US$118.0 million in 2015 to US$229.0 million in 2016, mainly due to increased electricity used by the new concentrator.

Total operating expenses. Operating expenses increased by 88%, from US$82.8 million in 2015 to US$155.5 million in 2016, due mainly to the following:

(a)   Selling expenses increased by 134%, from US$56.2 million in 2015 to US$131.4 million in 2016, mainly due to a greater volume sold during 2016; and

(b)   Other expenses decreased by US$2.6 million in 2016.

Income tax. Income tax expense, including current and deferred expense, increased by 469%, from an expense of US$46.2 million in 2015 to an expense of US$263.1 million in 2016. Net current income tax expense (including mining taxes) increased by US$167.3 million due to higher profits in 2016.

Net income.As a result of the foregoing, net income increased by 924%, from US$33.3 million in 2015 to US$340.9 million in 2016. As a percentage of net sales, net income was 14% in 2016, compared with 3% in 2015.

Results of Operations for the Years Ended December 31, 2015 and 2014

 

Net sales. Net sales, including and mark-to-market adjustments for pounds of copper pending settlement, decreased by 19 percent,24%, from US$1,811.5 million in 2013 to US$1,467.1 million in 2014 to US$1,115.6 million in 2015, principally due to a decrease in average realized copper prices during 2014 and lowerpartially offset by higher volume of copper sold. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 20132014 and 2014:2015:

  

Year ended December 31,

   
  

2013

  

2014

  

Variation

Average price          
Copper (US$/MT) US$7,137  US$6,452  (10)%
           
Volume sold          
Copper (MT)  253,828   227,402  (10)%

  Year ended December 31,    
  2014  2015  Variation 
Average price            
Copper (US$ per ton) $6,452   4,518   -30%
             
Volume sold            
Copper (in tons)  227,402   246,913   9%

108 

 

Average realized copper prices per metric ton decreased from US$7,137 in 2013 to US$6,452 in 2014.2014 to US$4,518 in 2015. The volume of copper sold decreasedincreased from 253,828 tons in 2013 to 227,402 tons in 2014 to 246,913 tons in 2015, due to a decreasean increase in the volume of copper concentrates sold.sold associated with Cerro Verde’s new concentrator plant that commenced operation in September 2015. The combined effect of these changes resulted in a US$344.4351.5 million decrease in income from sales of copper in 20142015 compared to 2013.2014.

 

Total costs of sales of goods. Total costs of sales of goods increased from US$795.1 million in 2013 to US$797.5 million in 2014 to US$862.0 million in 2015, due mainly to the net effect of the following:

 

(a)Material and supplies consumption cost increased by 3 percent, from US$324.9 million in 2013 to US$333.5 million in 2014, mainly due to increased consumption of supplies in the mine area (associated with haulage and mining equipment);

(a)   Material and supplies consumption cost increased by 9%, from US$333.5 million in 2014 to US$364.2 million in 2015, mainly due to increased consumption of supplies for Cerro Verde’s new concentrator plant.

 

(b)Labor costs, including workers’ profit sharing, decreased by 20 percent, from US$215.4 million in 2013 to US$171.6 million in 2014, mainly due to a charge of US$35.2 million related to bonuses paid to employees in connection with the newly signed Union Workers collective labor agreement in 2013, and lower profit sharing in 2014 as compared to 2013 due to lower profits;

(b)   Labor costs, including workers’ profit sharing, decreased by 15%, from US$171.6 million in 2014 to US$146.4 million in 2015, mainly due to lower profit sharing in 2015 as compared to 2014 as a result of lower profits;

 

(c)The variation of in process inventories increased from US$57.9 million in 2013 to US$70.5 million in 2014 as a result of the current mining plan of processing high grade concentrates first and then low grade concentrates;

(c)   The variation of in process inventories increased from US$70.5 million in 2014 to US$118.3 million in 2015 as a result of higher material due to the new concentrator plant and the current mining plan of processing high grade concentrates first and then low grade concentrates;

 

(d)Depreciation and amortization costs increased by 52 percent, from US$109.3 million in 2013 to US$166.6 million in 2014, mainly due to amortization of deferred stripping assets by US$ 44.9 million;

(d)   Depreciation and amortization costs increased by 48%, from US$165.0 million in 2014 to US$244.5 million in 2015, mainly due to depreciation associated with Cerro Verde’s new concentrator plant;

 

(e)Repair and maintenance services decreased by 5 percent, from US$91.9 million in 2013 to US$87.5 million in 2014; and

(e)   Repair and maintenance services increased by 9%, from US$87.5 million in 2014 to US$95.1 million in 2015; and

 

(f)Energy costs increased by 22 percent, from US$73.9 million in 2013 to US$90.2 million in 2014, mainly due to an increase in the unit cost per kilowatt during 2014 as compared to 2013.

(f)   Energy costs increased by 29%, from US$91.8 million in 2014 to US$118.0 million in 2015, mainly due to Cerro Verde’s new concentrator plant.

 

Total operating expenses. Operating expenses decreasedincreased by 15 percent,43%, from US$68.3 million in 2013 to US$57.8 million in 2014 to US$82.8 million in 2015, due mainly to changes in the following components:

 

(a)Selling expenses decreased by 21 percent, from US$68.4 million in 2013 to US$54.2 million in 2014, due mainly to lower copper sales during 2014; and

(a)   Selling expenses increased by 4%, from US$54.2 million in 2014 to US$56.2 million in 2015, mainly due to higher copper concentrate sales during 2015; and

 

(b)Other expenses increased by US$ 3.7 in 2014 mainly due to disposal losses associated with fixed assets.

(b)   Other expenses increased by US$23.0 million in 2015 mainly due tocosts associated with commencing operations at Cerro Verde’s new concentrator plant.

 

Income tax. Income tax expense, including current and deferred expense, decreased by 28 percent,81%, from an expense of US$333.3 million in 2013 to an expense of US$238.5 million in 2014.2014 to an expense of US$46.2 million in 2015. Net current income tax expense (including mining taxes) decreased by US$50.9262.1 million due to lower taxable income.income and loweran increase in deferred tax expense by 43.969.8 million (mainly related to a temporary tax difference associated with the depreciation of fixed assets).

 

Net income. As a result of the foregoing, net income decreased by 38 percent,9%, from US$613.3 million in 2013 to US$377.6 million in 2014.2014 to US$33.3 million in 2015. As a percentage of net sales, net income was 26 percent3% in 2014,2015, compared with 34 percent26% in 2013.

113

Results of Operations for the Years Ended December 31, 2013 and 2012

Net sales. Net sales, including mark-to-market adjustments for pounds of copper pending settlement, decreased by 15 percent, from US$2,127.0 million in 2012 to US$1,811.5 million in 2013, principally due to a decrease in average realized copper price during 2013 and lower volume of copper sold. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 2012 and 2013:

  

Year ended December 31,

    
  

2012

  

2013

  

Variation

 
Average price            
Copper (US$/MT) US$7,965  US$7,137   (10)%
             
Volume sold            
Copper (MT)  267,040   253,828   (5)%

Average realized copper prices per metric ton decreased from US$7,965 in 2012 to US$7,137 in 2013. The volume of copper sold decreased from 267,040 tons in 2012 to 253,828 tons in 2013, due to a decrease in the volume of copper concentrates and copper cathodes sold. The combined effect of these changes resulted in a US$315.6 million decrease in income from sales of copper in 2013 compared to 2012.

Total costs of sales. Total costs of sales increased by 4 percent, from US$765.8 million in 2012 to US$795.1 million in 2013, due mainly to the net effect of the following:

(a)Material and supplies consumption costs decreased by 1 percent, from US$327.3 million in 2012 to US$324.9 million in 2013, mainly due to the decrease in certain materials consumption used in the concentrator process;

(b)Labor costs, including workers’ profit sharing, increased by 21 percent, from US$177.7 million in 2012 to US$215.4 million in 2013, due mainly to a charge of US$35.2 million related to bonuses paid to employees in connection with the newly signed Union Workers collective labor agreement;

(c)The variation of in process inventories decreased from US$32.5 million in 2012 to US$57.9 million in 2013 as a result of the current mining plan of processing high grade concentrates first and then low grade concentrates;

(d)Depreciation and amortization costs increased by 14 percent, from US$95.9 million in 2012 to US$109.3 million in 2013, due mainly to depreciation charges as the level of fixed assets increased (machinery and equipment);

(e)Repair and maintenance services increased by 8 percent, from US$85.4 million in 2012 to US$91.9 million in 2013; and

(f)Energy costs increased by 1 percent, from US$73.1 million in 2012 to US$73.9 million in 2013, mainly due to an increase in the unit cost per kilowatt during 2013.

Total operating expenses. Operating expenses decreased by 37 percent, from US$108.2 million in 2012 to US$68.3 million in 2013, due mainly to changes in the following components:

(a)Selling expenses decreased by 13 percent, from US$78.7 million in 2012 to US$68.4 million in 2013, due mainly to lower copper sales during 2013; and

(b)In 2012 Cerro Verde incurred a charge of US$19.6 million related to expenses associated with the construction of the water treatment plant. No charges were recorded in 2013.

114

Operating income. As a result of the foregoing, operating income decreased by 24 percent, from US$1,253.0 million in 2012 to US$948.1 million in 2013.

Income tax. Income tax expense, including current and deferred expense, decreased by 27 percent, from an expense of US$454.6 million in 2012 to an expense of US$333.3 million in 2013. Net current income tax expense (including mining taxes) decreased by US$50.9 million due to lower taxable income, and lower deferred taxes decreased by 70.34 million (mainly related to higher deferred expense in 2012 related to the construction of the water treatment plant and mark-to-market adjustments).

Net income. As a result of the foregoing, net income decreased by 23 percent, from US$796.6 million in 2012 to US$613.3 million in 2013. As a percentage of net sales, net income was 34percent in 2013, compared with 37 percent in 2012.2014.

 

B. Liquidity and Capital Resources

 

As of December 31, 2014,2016, Cerro Verde had cash and cash equivalents of US$19.630.0 million, compared to US$854.66.0 million at December 31, 2013.2015.

109 

Cash provided by (used in) operating activities for the years ended December 31, 2016 and 2015.Net cash and cash equivalents provided by operating activities were US$946 million in 2016, compared to net cash used in operating activities of US$194.4 million in 2015. This change in net cash flow provided by operating activities in 2016 compared with 2015 was mainly attributable to the following factors:

·an increase in proceeds from sales from US$1,120 million in 2015 to US$2,158 million in 2016;

·an increase in value-added tax (VAT) refunds from SUNAT from US$3 million in 2015 to US$360 million in 2016;

·a decrease in payments of income tax from US$121 million in 2015 to US$69 million in 2016; and

·an increase in payments to the supplier and other operational expenses from US$1,196 million in 2015 to US$1,503 million in 2016.

 

Cash provided by operating activities for the years ended December 31, 20142015 and 2013.2014.Net cash and cash equivalents used in operating activities were US$194.4 million in 2015, compared to net cash provided by operating activities wereof US$318.1186.6 million in 2014 and US$768.3 million in 2013.2014. This decreasechange in net cash flow provided by (used in) operating activities in 20142015 compared with 20132014 was mainly attributable to the following factors: (i) a decrease in proceeds from sales from US$1,691 million in 2013 to US$1,976 million in 2014; (ii) an increase in payment of income tax from US$275 million in 2013 to US$315 million in 2014 , and (iv) an increase in payments under protest related to tax assessments from SUNAT from US$ 44 million in 2013 to US$ 166 million in 2014.

·a decrease in proceeds from sales from US$1,691 million in 2014 to US$1,120 million in 2015;

·a decrease in payment of income tax from US$315 million in 2014 to US$121 million in 2015; and

·a decrease in payments under protest related to tax assessments from SUNAT from US$166 million in 2014 to US$35 million in 2015; partially offset by:

·an increase of payments to supplier and operational expenses from US$1,023 million in 2014 to US$1,158 million in 2015.

 

Cash provided by operatingused in investing activities for the years ended December 31,, 2013 2016 and 2012.2015.Net cash and cash equivalents provided by operatingused in investing activities weredecreased from US$768.31,784.7 million in 2013 and2015 to US$697.3478.8 million in 2012. The increase in net cash flow provided by operating activities in 2013 compared with 2012 was2016, mainly attributabledue to lower payments related to the following factors: (i) an increase in proceeds from sales frompurchase of property, plant and equipment of US$1,9611,242 million, in 2012primarily related to US$1,976 million in 2013; (ii) an increase in payments to suppliersthe Cerro Verde Unit Expansion Project during 2016, and salaries from US$805 million in 2012 to US$1,137 million in 2013 and (iii) a decrease in paymentstripping asset activity of income tax from US$41351 million in 2012 to US$275 million in 2013.2016.

 

Cash used in investing activities for the years ended December 31, 20142015 and 2013.2014. Net cash used in investing activities increased from US$1,340.5 million in 2013 to US$1,600.91,469.4 million in 2014 to US$1,784.7 million in 2015, mainly due to: an increase in purchases of property, plant and equipment mainly related to the expansion of production at Cerro Verde from US$1,066 million in 2013 to US$1,772 million in 2014, which was partially offset by the cancellationreturn in 2014 of a time deposit in the amount of US$225 million inat a local bank in order to endorse a guarantee letter as an injunction to SUNAT, in 2013.

Cash used in investing activities for the years ended December 31, 2013 and 2012. Net cash used in investing activities increased from US$653.4 million in 2012 to US$1,340.5 million in 2013, mainly due to: (i) an increase in purchasesstripping asset activity of property, plant and equipment for the expansion of production at Cerro Verde from US$60162.7 million in 2012 to US$1,066 million in 2013 and (ii) the establishment of a time deposit in the amount of US$225 million in a local bank to endorse a guarantee letter as an injunction to SUNAT in 2013.2015.

 

Cash used in financing activities for the years ended December 31, 20142016 and 20132015. Net cash and cash equivalents used in financing activities was US$447.8443.2 million in 2014, mainly associated with withdrawals2016, compared to net cash provided in the amountfinancing activities of US$4251,965.5 million from the US$1.8 billion under a syndicated credit facility that we entered into in March 2014. Net2015. The decrease in net cash used in financing activities was primarily due to a decrease in proceeds from loans under all Cerro Verde credit facilities, including partners, of US$0.82,146 million, and an increase in 2013.repayment of loans of US$265 million.

 

Cash used in financing activities for the years ended December 31, 20132015 and 20122014. Net cash and cash equivalents used in financing activities was US$0.81,965.5 million in 20132015, mainly associated with aggregate drawings of US$1,375 million from the US$1.8 billion available under a syndicated credit facility that Cerro Verde entered into in March 2014 and US$0600 million borrowed under a shareholder loan. Net cash used in 2012.financing activities was US$447.8 million in 2014.

115

 

Long-term Debt

 

As of December 31, 2014,2016, Cerro Verde had total long termlong-term debt of US$4251.4 million in connection with amounts drawn from a five year US$1.8 billion unsecured credit facility and financial lease contract liability amounting to US$0.5 million (US0.2 million as current portion and US$0.3 million as non-current portion)(excluding loans with shareholders).

110 

 

C. Research and Development

 

Not applicable.

 

D. Trend Information

Expansion of operations

During 2010, Cerro Verde completed its concentrator plant expansion to increase the treatment of copper concentrate from 108,000 to 120,000 tons per day. During the second half of 2011, Cerro Verde completed the feasibility study for a major expansion of its concentrator and leaching facilities. The approximately US$4.6 billion project which are expected to expand the concentrator facilities from 120,000 tons per day of ore to 360,000 tons per day, targeting incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. Cerro Verde submitted the EIS to the Peruvian authorities for review and approval in December 2011 and received approval from the MEM in December 2012. In 2012, Cerro Verde continued with the execution of its unit of production expansion by undertaking detailed engineering studies and procuring long-lead items. As of December 31,2014, the physical progress in the execution of the expansion project is 51.7% and the company has invested a total of US$ 3.1 billion.

 

Other than as disclosed in this Annual Report, Cerro Verde has informed us that it is not aware of any trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon Cerro Verde’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.condition

 

E. Off-Balance Sheet Arrangements

 

Cerro Verde has informed us that there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on Cerro Verde’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

F. Tabular Disclosure of Contractual Obligations

 

The following table shows Cerro Verde’s contractual obligations as of December 31, 2014:2016:

 

 Payments due by Period (US$ in millions)  Payments due by Period (US$ in millions) 
 

Total

 

Less than
1 year

 

1-5
years

 

More than
5 years

  Total  Less than 1
year		  1-5
years		  More than 5
years		 
Provision for Remediation and Mine Closure  120   -   -   120   153   -   5   148 
Other Current and Long-Term Contractual Obligations  874   471   403   -   2,174   168   2,006   - 
Total Contractual Cash Obligations  994   471   403   120   2,327   168   2,011   148 

 

ITEM 6.             Directors, Senior Management and Employees

ITEM 6.Directors, Senior Management and Employees

 

A. Board of Directors and Senior Management

 

Our Board of Directors is responsible for policy decisions and our overall direction and other corporate matters in accordance with our By-laws and the Peruvian Companies Law. Our executive officers oversee our business and are responsible for the execution of the policy decisions of the Board of Directors.Board. The Board, of Directors, which must be comprisedcomposed of seven members, is elected at the annual obligatory meeting of shareholders, or the Annual“Annual Obligatory Meeting,” for a three-year term. The last election took place in March 2014,2017, and the next election is scheduled for March 2017. See “Item2020. See“Item 10. Additional Information—B. Memorandum and Articles of Association.”

Our current directors and executive officers are as follows:

 

Name Age Position Date First
Appointed		 Current Term
Ends		 Age  Position Date First
Appointed		  Current Term
Ends
Directors                    
Roque Benavides(1) 60 Chairman of the Board 1980 March 2017  62  Chairman of the Board  1980  March 2020
Jose Miguel Morales(1) 69 Director 2012 March 2017  71  Director  2012  March 2020
Igor Gonzales 60 Director 2014 March 2017  62  Director  2014  March 2020
Felipe Ortiz-de-Zevallos 67 Director 2003 March 2017  69  Director  2003  March 2020
Carlos del Solar 74 Director 2011 March 2017
Germán Suárez 73 Director 2005 March 2017  76  Director  2005  March 2020
        
Executive Officers        
Roque Benavides(1) 60 President and Chief Executive Officer 2001  
Carlos E. Gálvez 61 Vice President and Chief Financial Officer 2001  
Raúl Benavides(1) 59 Vice President Business Development 2014  
Alejandro Hermoza  53 Vice President Community Relations 2008  
Igor Gonzales 63 Vice President Operations 2014  
Gulnara la Rosa 50 General Counsel 2012  
Leandro Garcia 46 General Comptroller and Compliance Officer 2011  
William Champion  63  Director  2016  March 2020
Diego de la Torre  54  Director  2017  March 2020

________________________

111 

Executive Officers            
Victor Gobitz  52  President and Chief Executive Officer  2017  
Carlos E. Gálvez  64  Vice President and Chief Financial Officer  2001   
Raúl Benavides(1)  61  Vice President Business Development  2014   
Alejandro Hermoza  55  Vice President Community Relations  2008   
Igor Gonzales  62  Vice President Operations  2014   
Gulnara la Rosa  52  General Counsel  2012   
Leandro Garcia  49  General Comptroller and Compliance Officer  2011   

(1)Roque Benavides is the brother of Raúl Benavides, and José Miguel Morales is the brother-in-law of Roque Benavides and Raúl Benavides.

 

Set forth below is biographical information concerning members of our management.

 

Roque Benavides,,Chairman of the Board, President and Chief Executive Officer and member of the Nominating CommitteeCommittee.. Mr. Benavides has been a director since July 2004 and was our Chief Financial Officer from 1985 to February 2001, when he was appointed President and Chief Executive Officer. Prior to that time, he served as Assistant to our Chairman of the Board from 1980 to 1985 and as a Project Engineer from 1977 to 1979. Mr. Benavides also has been an alternate member of the Executive Committee of Yanacocha since 1992. In addition, he is an alternate board member of Cerro Verde and was the General Manager of Recuperada S.A., formerly one of our majority-owned subsidiaries that has since merged into us, from 1981 to 1996. He currently is serving as an executive officer and as a director of several of our related companies. He also has served as a director of theSociedad Nacional de Minería, Petróleo y Energía (National Association of Minerals, Petroleum and Energy) since 1988, serving as Chairman of the Board from 1993 to 1995. Mr. Benavides served as chairman of theConfederación Nacional de Instituciones Empresariales Privadas (National Confederation of Private Companies, or CONFIEP) from 1999 to March 2001. In 2001, Mr. Benavides was appointed Vice Chairman of the World Gold Council and Vice Chairman of the Silver Institute in 2007. Mr. Benavides received a B.S. in Engineering fromPontificia Universidad Católica del Perú (Pontifical Catholic University of Peru) in Lima, Peru in 1977 and an M.B.A. from Henley, The Management College of Brunnel University in 1980 and completed the Program for Management Development at the Harvard Business School in 1985 and the Advanced Management Program at Templeton College of Oxford University in 1997. He is a board member of Banco de Crédito and UNACEM, both Peruvian companies. He currently is serving as an executive officer and as a member of the board of several of our related companies. Mr. Benavides was previously President of Sociedad Nacional de Minería, Petróleo y Energía and Confederación Nacional de Instituciones Empresariales Privadas (National Confederation of Private Companies, or CONFIEP).

Timothy SniderJosé Miguel Morales,,Director and member of the Nominating/Nominating and Corporate Governance CommitteeCommittees.. Mr. Snider was appointed a directorMorales received his law degree from Pontificia Universidad Católica del Perú in March 2011. He serves as Chairman of Cupric Canyon Capital, LLC., a private equity company seeking investments in copper mining. In addition, he is a director of Compass Minerals International, Inc.,1968 and is Chairman ofcompleted the Institute for Mineral Resources, a research organization sponsored by the University of Arizona. Mr. Snider is also a board member of the Northern Arizona University Foundation. Mr. Snider’s career in the copper business spans 41 years, the vast majority of which were with Phelps Dodge Corporation (now Freeport-McMoRan Copper and Gold). He began his career in 1970 as an underground mine laborer in the Copper Queen operation in Bisbee, Arizona, and held numerous operational, technical, and exploration positions at several of Phelps Dodge’s operations in the United States and Chile. He led Phelps Dodge in the application of hydrometallurgical processing during the 1980s and 1990s. In 1998, Mr. Snider was appointed President of Phelps Dodge Mining Company and in 2003 was promoted to President and Chief Operating Officer of Phelps Dodge Corporation. In these roles, he led the operational and technical integration of Phelps Dodge’s Cyprus-AMAX acquisition, led several greenfield and brownfield expansion projects, and helped to establish Phelps Dodge as one of the industry leaders in technology development and operational excellence. In early 2007, he assumed the role of President and Chief Operating Officer of Freeport-McMoRan Copper and Gold, Inc. upon Freeport’s acquisition of Phelps Dodge, a position he held until the end of the first quarter of 2008. Mr. Snider holds a B.S. in Geology and Chemistry from Northern Arizona University and is a graduate of the Wharton Advanced ManagementSloan Program at the UniversityStanford University’s Graduate School of Pennsylvania.

117

José Miguel Morales, Director and member of the Nominating/Corporate Governance Committee.Business in 1976. Mr. Morales was our General Counsel from 1973 to 2012 and was appointed a member of the Board in 2012. From 1992 to 1995, Mr. Morales served as an alternate member of the Executive Committee of Yanacocha. Mr. Morales has also served as a member of the Executive Committee of Yanacocha since 1995. Mr. Morales currently serves as a director of seven of our nineteen mining and mining-related subsidiaries or affiliates. In addition, he has served as a director of theInstituto Nacional de Derecho de Minería y Petróleo (National Institute of Mining and Petroleum Law), serving as its President from 1989 to 1990 and as a director of theSociedad de Minería y Petróleo del Perú (Mining and Petroleum Society of Peru) since 1998, serving as its vice chairman since 2000. He has been a director of the following non-mining related companies:Almacenera del Perú S.A. from 1992, Inversiones Cosepa S.A. from 1979, Hotel Costa del Pacífico S.A. from 1994 and El Pacífico—Peruana Suiza Compañía de Seguros from 1979. Since 1973, he also has been a partner of Estudio Aurelio García Sayán Abogados, a Lima law firm. In February 2003, Mr. Morales was elected president offirm, and has been theSociedad Nacional de Minería, Petróleo y Energía (National Association of Minerals, Petroleum and Energy). Senior Partner since 2007. On January 31, 2005, Mr. Morales ended his tenure as President ofSociedad Nacional de Minería,, Petróleo y Energía and was elected on March 16, 2005served as President ofConfederación Nacional de Instituciones Empresariales Privadas (National Confederation of Private Companies, or CONFIEP) CONFIEP until 2007. Mr. Morales received his law degree fromPontificia Universidad Católica del PerúHe promoted the incorporation of Empresarios por la Educación, a non-profit organization to improve education in 1968 and completed the Sloan Program at Stanford University’s Graduate School of Business in 1976.Peru, serving as its President since 2007.

 

Igor Gonzales,,Director, Vice President Operations and member of the Nominating/Corporate Governance Committee.Mr. Gonzales is a Chemical Engineer from Universidad Nacional San Antonio Abad University,del Cusco, Peru, with 35 years of experience. He is currently a Managing PartnerMr. Gonzales received an M.S. in Extractive Metallurgy from New Mexico Institute of Mining and Technology – Socorro, N.M U.S.A. in 1983 and completed the Advance Management Programme at Magris Resources. He has been a director since February 27, 2014.Henley Management College-England in 2007. He was VicePresident and General Manager of Pierina Mine Peru, President of Barrick South America, Chief Operating Officer of Barrick Gold Corporation and worked for Southern Peru Copper Corporation Toquepala –Perú from 1980 to 1997.. He has been a directorboard member of Hudbay Minerals Incorporated, Sierra Metals and Minera Corona. Mr. Gonzales received an M.S. in Extractive Metallurgy from New Mexico InstituteHe has been a member of Mining and Technology – Socrro, N.M U.S.A. in 1983 and completed the Advance Management Programme at Henley Management College-England in 2007.Board since February 27, 2014.

Felipe Ortiz-de-Zevallos, Director and member of the Audit Committee, Compensation Committee and Nominating/Corporate Governance CommitteeCommittee.. Mr. Ortiz-de-Zevallos has been a directormember of the Board since August 2003. He was President of theUniversidad del Pacífico, de Lima, from 2004 to 2006 and is the founder and chairman of the Board of the Think Tank Grupo APOYO since 1977. Mr. Ortiz-de-Zevallos received a degree in Industrial Engineering from The National University of Engineering in 1968, received an M.S. in Administration and System Analysis from the University of Rochester in 1970 and completed the Owner/President Management program at Harvard Business School in 1996. He was the Peruvian ambassador to the United States of AmericaU.S. from 2006 to March 2009. He has also acted as counselor to the Peruvian President, an ad honorem designation as member of the Advisory Committee to the Office of the President.

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Carlos del Solar,Director, member of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee.Mr. del Solar was appointed a director in March 2011. He graduated with degrees in Geology and Geological Engineering from the National University of San Marcos, earned a Master of Science degree from Stanford University, California and completed the Advanced Executive Management Program at the University of Piura. He started his professional career as an exploration geologist for Mobil Oil in Peru and Central America. Between 1977 and 1998 he worked for Occidental Petroleum in Peru as Exploration Vice President, California as Regional Exploration Manager for Latin America and the Caribbean. Then as Exploration Vice President in Malaysia, Regional Operations Manager for Latin America and later, President and General Manager of the Business Unit in Venezuela. Between 1998 and 2001, Mr. del Solar served as President and General Manager of ARCO for Brazil, Colombia, Peru and Trinidad. In April 2001, he joined Hunt Oil in Peru as President and General Manager and participated in the development of the Camisea gas project and the LNG export project. From January 2005 through January 2007, he served as President of the National Society of Mining, Petroleum and Energy and as First Vice President of the Peruvian Confederation of Private Business Associations (CONFIEP)CONFIEP from March 2007 through March 2009. From March 2010 to March 2012 Mr. del Solar has served as Second Vice President of the Peruvian Exporters Committee (COMEXPERU)(“COMEXPERU”). He is currently a director and member of the Executive Committees of the National Society of Mining, Petroleum and Energy and of COMEXPERU. Mr. del Solar also serves as President of the Advisory Council of the Graduate School of the Peruvian University of Applied Sciences (UPC)Universidad de Ciencias Aplicadas (“UPC”).

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German Suárez,Director and Chairman of the Audit Committee, and Compensation Committee. Mr. Suárez graduated from the National University of San Marcos with a B.S. in Economics in 1965 and Nominating/Corporate Governance Committee.received an M.A. in Economics from Columbia University in 1969. Mr. Suárez has been a directormember of the Board since March 2005. Mr. Suárez is an economist who was employed by the Central Bank from 1964 to 1990. From 1979 to 1980, he worked at the International Monetary Fund or IMF,(the “IMF”), representing Peru,Perú, and from 1981 to 1990 he was in charge of different posts at the Ministry of Economy and Finance. Mr. SuárezSúarez served as Chairman ofBanco de la Nación from 1990 to 1992 and Chairman of the Central Bank of PeruPerú from 1992 to 2001. He was a member of the board of directors at Bladex, Extebandes and Arlabank, Latin American Reserves Fund, Credicorp Ltd. and Banco de Créditodel Peru.dito del Perú. From 1993 to 2001, Mr. Suárez served as Governor of the IMF and Alternate Governor of the Inter-American Development. For the period from 2000 to 2001, Mr. Suárez was elected Chairman of the G-24 (IMF-World Bank). Mr. Suárez graduated from UNMSM with a B.S. in Economics in 1965 and received an M.A. in Economics from Columbia University in 1969.

 

Diego de la Torre. Mr. de la Torre holds a degree in Administration from Universidad del Pacifico (Lima, Peru) and a Master of Business Administration from London Business School (England).  He is chairman of the board of several Peruvian industrial companies and a board member of Peruvian Precious Metals Corp. (PPX).  He is president of the United Nations Global Compact for Peru and a member of the advisory board of the David Rockefeller Center for Latin American Studies at Harvard University.  In 2007, he was president of CADE, the most relevant annual business event in Peru.

William Champion, Director. Mr. Champion has been a member of the Board since January 2016. Mr. Champion received Bachelor of Science degrees in Chemical Engineering and Biological Sciences from the University of Arizona. He serves currently as a Principal with Gladiator Mining Group, LLC, a company formed to pursue global investment opportunities within the mining sector. Mr. Champion has worked for over 40 years in the mining industry, and he has extensive executive, management and operations experience across a wide range of mining commodities and global mining jurisdictions. From 2002 to 2014, Mr. Champion worked for Rio Tinto PLC in various senior executive management roles that included Managing Director of Rio Tinto Coal Australia, Managing Director of Rio Tinto Diamonds and President and CEO of Kennecott Utah Copper. Prior to that, Mr. Champion held the position of Executive Vice President for Cyprus Climax Metals from 1995 to 2000, with worldwide responsibilities for copper and molybdenum operations. Additionally, he worked for Phelps Dodge Mining Company in various positions from 1984 to 1995 where, among other duties, he was President of Phelps Dodge Chile.

Victor Gobitz, President and Chief Executive Officer. Mr. Gobitz has served as Chief Executive Officer since January 2017. During his twenty five-year career in the mining industry, Mr. Gobitz has held senior leadership positions with industry-leading mining companies in Peru, Chile, Brazil and Canada. He was Chief Operating Officer of Sociedad Minera El Brocal, as well as Chief Executive Officer of Compañía Minera Milpo and other mining companies. Mr. Gobitz has a degree in Mining Engineering by the Pontificia Universidad Catolica del Peru, received an MBA from the Escuela de Administracion de Negocios (Universidad ESAN) and received executive education from the Wharton and Kellogg business schools.

Carlos E. Gálvez,Vice President and Chief Financial Officer.  Mr. Gálvez was the Deputy Manager, Finance and Information Systems, from 1985 to February 2001, when he was appointed Vice President and Chief Financial Officer.  He served as Deputy Manager of our Treasury from 1980 to 1985, and as Treasurer from 1978 to 1980.  Mr. Gálvez has also served as director of Colquirrumi, our subsidiary, and was appointed director and General Manager of Conenhua in 2000, Directordirector and General Manager of Empresa de Generacion Huanza in 2007, director ofCompañiaía Minera Condesa in 2010, director of El Brocal in 2002, director of Contacto S.A. in 2005 and other three related companies.  He has served as an alternate member of the Executive Committee of Yanacocha since 2005, Minera La Zanja since 2012 and an alternate board member of Cerro Verde since 2005.  He also has served as directorwas named President of theSociedad Nacional de Minería, Petróleo y Energía del Perú (Mining, Petroleum and Energy Society of Peru) in 2015 and has served as director of the same since 2000.  Prior toBefore joining us, Mr. Gálvez served as Managerial Adjunct for Finance and Credit from 1971 to 1978 atBanco Minero del Perú (Mining Bank of Peru).  He has also served as a board member of the Comité de Operación Económica del Sistema Eléctrico Nacional (Committee of Economic Operation of the National Electric System).  Mr. Gálvez received his B.A. in Economics from theUniversidad Nacional Federico Villarreal in 1976, his M.B.A. from theUniversidad del Pacifico de Lima in 1980 and completed the Program for Management Development, in 1997, and the Advanced Management Program, in 2005, at The Harvard Business School.

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Raúl Benavides Ganoza,Vice President Explorations.of Business Development.Mr. Benavides has been Vice President of Explorations since 2014. Prior to serving in his role as Vice President of Explorations, he was Vice President of Business Development since 1992. He is also a member of the Executive Committee of Yanacocha and board member of Cerro Verde and several of our related companies.  From 1984 to 1996 he was General Manager (CEO) of Compañía de Minas Orcopampa.  Prior toBefore that time, Mr. Benavides was Manager of Operations from 1983 to 1984 and Mine Manager from 1980 to 1983 at Colquirrumi.  Since 1995, he has been a professor of mining administration atPontificia Universidad Católica del Perú.  Mr. Benavides also has served as President of theInstituto de Ingenieros de Minas (Institute of Mining Engineering), was also the Founder and President of theInstituto de Seguridad Minera del Perú (Mining Safety Institute of Peru) from 1996 to 2000.  Mr. Benavides received a B.S. in Mining Engineering from the University of Missouri-Rolla in 1980, an M.S. in Mineral Engineering-Management from Pennsylvania State University in 1984 and completed the Advanced Management Program at The Harvard Business School in 2001. Since 2014, Mr. Benavides has assumed the management of the Explorations Department.

 

Alejandro Hermoza Maraví, Vice President Community RelationsSocial and Environmental Affairs. A Mechanical Engineer graduated from the University of Maryland, Mr. Hermoza also holds an MSc in Engineering from the same University and an MBA from theUniversidad de Ciencia Aplicadas(UPC).UPC. He worked as Development Manager for theConfederación Nacional de Instituciones Empresariales Privadas (CONFIEP),CONFIEP, and later joined us in 2003, where he began as Deputy Manager for Administration and Human Resources. In 2011, Mr. Hermoza completed the Advance Management Program at Harvard Business School.

 

119

Leandro Garcia,General Comptroller and Compliance Officer. Mr. Garcia received his Bachelor inof Business Administration and Bachelor inof Accounting from Universidad del Pacifico and his M.B.A. from the University of Miami, Florida. Mr. Garcia worked at Buenaventura from 1990 to 1997, where he served as Head of Treasury. He performed as CFO inSociedad Minera El Brocal until 2000. He was also General Manager of BTL Drugstores until 2005 and General Manager ofInkafarma Drugstores until June 2011. He rejoined Buenaventura as General Comptroller in July 2011.

 

Gulnara La Rosa,General Counsel. Ms. La Rosa has worked at Buenaventura since 1990. She was the Legal Director from 2006 to June 2012 and was appointed as Legal Manager and General Counsel in July 2012. Ms. La Rosa served as Head of the Legal Department from 1997 to 2006 and as a lawyer from 1991 to 1997. Ms. La Rosa received her law degree fromPontificia Universidad Católica del Perú in 1992. She also completed the Corporate Law Specialization Program atUniversidad de Navarra, Spain, in 1991 and the High Specialization Program of Finance and Corporate Law at ESAN Graduate School of Business, Perú, in 2001. In addition, Ms. La Rosa attended the Management Program for Lawyers at Yale School of Management in 2005 and the Corporate Governance and Performance Program at Yale School of Management in 2012.

 

B. Compensation

 

During the year ended December 31, 2014,2016, the aggregate amount of compensation that we paid to all directors and executive officers was approximately US$11.41.1 million, including director’s fees accrued in 20132015 and paid in 2014.2016. We do not disclose to our shareholders or otherwise make public information with respect to the compensation of our individual directors or executive officers.

We have a long-term stock appreciation program, with a term of ten years once initiated, that allows certain executives Please refer to receive a cash remuneration equivalent to any excess of the market value at a future date over a stated price of a stated number of our ADSs. This program is in effect as long as the executives are employed by us at the settlement date of the program. See Note 15(c)30(e) to the Financial Statements.Statements for further information.

 

C. Board Practices

 

Audit Committee

 

The Audit Committee, which is composed entirely of independent directors as defined in Section 303A.02 of the New York Stock Exchange’s Listed Company Manual, is responsible for assisting the Board of Directors in the appointment of independent auditors, upon delegation of such responsibility by the shareholders at the general meeting of shareholders, or the General“General Meeting,” and reviewing the scope of internal and external audits. The Audit Committee also reviews compliance with internal control systems, reviews our annual and quarterly financial statements, reviews financial statements before their presentation to theSuperintendencia del Mercado de Valores, or the SMV (formerly known as theComisión Nacional Supervisora de Empresas y Valores (National Supervisory Commission of Business and Securities), or CONASEV) (“CONASEV”)), theBolsa de Valores de Lima (Lima Stock Exchange) and the SEC and maintains the integrity of the preparation of audits. The members of the Audit Committee are currentlyfor 2016 were Messrs. Suárez, Ortiz-de-Zevallos and del Solar.

 

114 

Compensation Committee

 

The Compensation Committee is responsible for evaluating executive performance and approving executive compensation, including compensation of the chief executive officer and any stock option compensation plans. The members of the Compensation Committee are currentlyfor 2016 were Messrs. del Solar, Ortiz-de-Zevallos and Suárez.

 

Nominating/Corporate GovernanceNominating Committee

 

The Nominating/Corporate GovernanceNominating Committee is responsible for preparing the proposals for the general meetings in respect of the composition of the Board of Directors along with the director remuneration to be approved by the shareholders,shareholders. During 2016 all the members of the Board were also members of this committee.

Corporate Governance Committee

The Corporate Governance Committee is responsible for monitoring issues and practices related to corporate governance and proposing necessary actions in respect thereof. TheDuring 2016 all the members of the Nominating/Corporate Governance Committee are currently Messrs. Benavides-Ganoza, Suárez, Morales, del Solar, Gonzales, Ortiz-de-Zevallos and Snider.Board were also members of this committee.

120

 

D. Employees

 

As of December 31, 2014,2016 we, including our subsidiaries and Coimolache, had 3,2923,722 employees (including 32 employees from our mining trainee program)program and teachers at the schools in our mines). In addition, we have entered into arrangements with independent contractors whichthat employed 12,456 persons who worked14,652 workers at our operations.operations as of December 31, 2016. We have sought to strengthen our workforce by implementing a qualifications-based hiring policy and, with respect to employees working in the mines, reducing the average age of the workforce. As of December 31, 2014,2016, the average tenure of Buenaventura’s permanent laborers was approximately 11eight years.

 

Of the 2,7402,982 permanent employees employed by Buenaventura and its subsidiaries directly, approximately 46 percent35% are members of 11 different labor unions (including four unions for clerical workers, sixseven unions for laborers), which represent all clerical workers and laborers in collective bargaining negotiations with us. There are also five unions for workers employed by independent contractors that were formed over the last fivesix years in our mines at Uchucchacua, Orcopampa-Poracota,Orcopampa, La Zanja, Julcani and El Brocal.

 

Each of the labor unions is a company-based union with an affiliation to a national union. Administrative personnel are not represented by unions. Labor relations for unionized and non-unionized employees in our production facilities, including compensation and benefits, are governed by collective bargaining agreements, the terms and length of which are negotiated throughout the year as the various collective bargaining agreements come up for renewal. These collective bargaining agreements are typically one year in length and set wages for the applicable period, including increases as negotiated and certain other employee benefits, such as overtime, bonuses and family benefits.

 

During 2014,2016, we experienceddid not experience any strikes in three ofat our mines. Between January and March, we had three strikes at Uchucchacua mine; two claiming the rehearingWe did experience six days of a syndicate leader (9 days) and the last one related to the death of a contractor´s employee (2 days). In April and May of 2014, El Brocal experienced a four day work stoppage at our Uchucchacua mine, but it was related to affairs with the Colquijirca mine in connectionneighboring community of Oyón rather than to conflicts with salary negotiations and the collective bargaining agreement. Finally, in July, 2014 we experienced a strike at the Orcopampa mine that lasted for three days and was staged by workers’ and contractors’ unions claiming unsuitable working conditions. The Peruvian Ministry of Labor declared Uchucchacua´s and Orcopampa´s work stoppages illegal.our labor unions.

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Compensation received by our employees includes salary, other cash payments (such as overtime, vacation pay and bonuses including, but not limited to, high altitude and underground mining bonuses) and non-cash benefits. Non-cash benefits include medical insurance, life insurance and training programs for workers and administrative staff. For mine and processing plant workers, benefits also include transportation services, meals or food allowances, education for children of our employees and housing, hospitals and a full range of social services for our permanent employees and their families at town sites near our mines in compliance with mining regulations. We voluntarily provide power, water and sewage services for the camp and houses of the workers as well as for certain towns nearby. In addition, pursuant to a profit-sharing plan mandated by Peruvian labor legislation, employees of mining companies in Peru are entitled to receive the Employee Profit Sharing Amount equivalent to 8 percent8% of the annual pre-tax profits of their employer, 50 percent50% of such profits to be distributed based on the number of days each employee worked during the preceding year and the remaining 50 percent50% of such profits to be distributed based on the aggregate annual salary of each employee. Effective January 1, 1997, the annual payment to each employee under the profit sharing plan cannot exceed 18 times such employee’s monthly salary, and any difference between the Employee Profit Sharing Amount and the aggregate amount paid to employees must be contributed by us to the FONDO-EMPLEO,FONDOEMPLEO, a fund established to promote employment and employee training.

Under Peruvian law, we may dismiss workers for cause by following certain formal procedures. We may dismiss a worker without cause, provided that we pay such worker a layoff indemnification in an amount equal to one and a half month’s salary for each full year worked plus the pro rata portion for any uncompleted year, not to exceed in the aggregate 12 months’ salary. Several decisions adopted by the Peruvian Constitutional Court, holding that an employee is entitled for reinstatement if no cause for dismissal is expressed by the employer or for failure to present evidence supporting the employer’s grounds, have limited our ability to dismiss a worker without cause. However, all employees are entitled to a severance payment upon termination of their employment, regardless of the reason for such termination, equal to approximately one month’s salary for each full year worked plus the pro rata portion for any uncompleted year. Pursuant to the Peruvian labor laws enacted in 1992, we deposit funds for severance payments in a bank account selected by each employee and for the benefit of such employee, in both May and November of each year.

 

Our permanent employees receive the benefit of one of two types of pension arrangements. All workers can choose to enroll in the ONP (aa public pension fund managed by the state)state (the “ONP” system) or in an AFP (privatea private pension funds)fund (the “AFP” system). We are required to withhold from each of the salaries of the employees enrolled in the ONP system 13 percent13% of such employee’s salary, and pay such amount to the ONP system and withhold from the salary of each employee enrolled in the AFP system approximately 12.5 percent12.5% of such employee’s salary, and pay such amounts to the respective AFP (exact amount varies from one AFP to another). Additionally, for workers involved in mining and metallurgical processes, an additional 2 percent2% is withheld from their salaries, and we contribute an additional 2 percent2% to increase their pension funds. We have no liability for the performance of these pension plans. In addition, our independent contractors are responsible for covering severance and pension payments with respect to their employees.

 

In addition, we pay ESSALUD 9 percent9% of our total payroll for general health services for all permanent employees. Further, Law No. 26790 also requires us to provide private insurance representing an average payment equal to 1.30 percent1.30% of the payroll of covered employees for employment-related incapacity and death for blue collar employees and other employees exposed to mining-related hazards.

 

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E. Share Ownership

 

As of March 31, 2015,2017, our directors and executive officers, as a group, owned 41,588,44841,602,976 Common Shares, representing 16.36 percent16.38% of all the 254,186,867253,986,867 Common and Investment Shares outstanding. Our directors and executive officers do not own any Investment Shares.

 

The share ownership of the Company’s directors and executive officers on an individual basis as of March 31, 20152017 is set forth below:

 

Shareholder

 

Number of
Common
Shares

 

Percentage
Beneficial
Ownership of
Common
Shares

 

Number of
Investment
Shares

 

Percentage
Beneficial
Ownership of
Investment
Shares

 

Number of
Common
Shares and
Investment
Shares

 

Percentage
Beneficial
Ownership of
Common
Shares and
Investment
Shares

  Number of
Common Shares		  Percentage
Beneficial
Ownership of
Common Shares		  Number of
Investment Shares		  Percentage
Beneficial
Ownership of
Investment Shares		  Number of
Common Shares
and Investment
Shares		  Percentage
Beneficial
Ownership of
Common Shares
and Investment
Shares		 
                          
Roque Benavides †  13,912,006   5.48           13,912,006   5.47   13,912,006   5.48           13,912,006   5.48 
Timothy Snider  —   —   —   —   —   — 
William Champion  —   —   —   —   —   — 
José Miguel Morales †  13,813,836   5.44           13,813,836   5.43   13,813,836   5.44           13,813,836   5.44 
Igor Gonzalez  —   —   —   —   —   —   —   —   —   —   —   — 
Felipe Ortiz-de-Zevallos  —   —   —   —   —   —   —   —   —   —   —   — 
Carlos del Solar  —   —   —   —   —   —   —   —   —   —   —   — 
Germán Suárez  —   —   —   —   —   —   —   —   —   —   —   — 
Raúl Benavides †  13,813,836   5.44       —   13,813,836   5.43   13,813,836   5.44   —   —   13,813,836   5.44 
Diego de la Torre  14,528   0.01   —   —   14,528   0.01 
Carlos E. Gálvez.  48,770   0.02   —   —   48,770   0.02   48,770   0.02   —   —   48,770   0.02 
Alejandro Hermoza  —   —   —   —   —   —   —   —   —   —   —   — 
Gulnara la Rosa  —   —   —   —   —   —   —   —   —   —   —   — 
Leandro Garcia  —   —   —   —   —   —   —   —   —   —   —   — 
Directors and Executive Officers as a Group †  41,588,448   16.39           41,588,448   16.36   41,602,976   16.40   —   —   41,602,976   16.40 

__________________________

†Includes Common Shares owned by the applicable Benavides family member and his or her spouse.

 

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116  

 

ITEM 7.            Major Shareholders and Related Party Transactions

ITEM 7.Major Shareholders and Related Party Transactions

 

A. Major Shareholders

 

As of March 31, 2015,2017, we had 274,889,924 Common Shares outstanding, including 21,144,734 treasury shares, and 744,640 Investment Shares, including 272,963472,733 treasury shares. The Common Shares are voting securities. The table below sets forth certain information concerning ownership of (i) the Common Shares and Investment Shares and (ii) the aggregate Common Shares and Investment Shares, as of March 31, 2015,2017, with respect to each shareholder known to us to own more than 2.5 percent2.5% of the outstanding Common Shares and with respect to all directors and executive officers as a group.

 

Shareholder

 

Number of 
Common
Shares

  

Percentage
Beneficial
Ownership of
Common
Shares (1)(2)

  

Number of
Investment
Shares

  

Percentage
Beneficial
Ownership of
Investment
Shares (1)(3)

  

Number of
Common
Shares and
Investment
Shares

  

Percentage
Beneficial
Ownership of
Common
Shares and
Investment
Shares (1)(4)

 
                   
Benavides Family(5)  69,187,744   27.27   —   —   69,187,744   27.22 
Market Vectors ETF Trust Gold Miners ETF  19,784,969   7.79           19,784,969   7.78 
Van Eck Associates Corp  16,720,870   6.59   —   —   16,720,870   6.57 
Templenton Asset Managament Ltd. Hong Kong  12,532,458   4.94   —   —   12,532,458   4.93 
T. Rowe Price Associates In.  7,974,078   3.14   —   —   7,974,078   3.13 
BlackRock Fund Advisors  7,029,000   2.77   —   —   7,029,000     
BlackRock Investment Managament (UK) Ltd.  6,802,157   2.68   —   —   6,802,157   2.76 
Shareholder Number of
Common Shares		  

Percentage Beneficial
Ownership of
Common Shares(1)(2)

  Number of
Investment Shares		  

Percentage Beneficial
Ownership of
Investment Shares
(1)(3)

  Number of Common
Shares and
Investment Shares		  

Percentage Beneficial
Ownership of
Common Shares and
Investment Shares
(1)(4)

 
                   
Benavides Family(5)  69,187,744   27.27   —   —   69,187,744   27.2 
Market Vectors ETF Trust
Gold Miners ETF		  17,588,012   6.93   —   —   17,588,012   6.92 
Templeton Asset Management Ltd. Hong Kong  16,440,875   6.48   —   —   16,440,875   6.47 
BlackRock Investment Management (UK) Ltd.  7,663,049   3.02   —   —   7,663,049   3.02 

______________

 

(1)The table above excludes treasury shares. As of March 31, 20152017 Buenaventura held 14,474 common shares and 1,230 Investment Shares and our wholly-owned subsidiary, Condesa, held 21,160,260 Common Shares and 271,733471,733 Investment Shares.
(2)Percentage calculated on the basis of 253,715,190 Common Shares outstanding, which excludes 21,174,734 treasury shares.
(3)Percentage calculated on the basis of 417,677271,677 Investment Shares outstanding, which excludes 272,963472,963 treasury shares.
(4)Percentage calculated on the basis of 254,186,867253,986,867 Common Shares and Investment Shares outstanding, which excludes 21,447,69721,647,697 treasury shares.
(5)These Common Shares are owned by certain members, and their spouses, of the immediate and extended family of Elsa Ganoza Benavides (spouse of the late Alberto Benavides de la Quintana, our founder and former Chairman).

 

As of March 31, 2015,2017, we estimate that 185,756,736 ADSs190,620,961 were held in the United States,U.S., which represented approximately 73.21 percent75.13% of Common Shares outstanding. The number of institutional record holders of our Common Shares (or of ADSs representing our Common Shares) in the United StatesU.S. was 6966 institutions.

 

B. Related Party Transactions

 

Except as otherwise disclosed herein, no director, senior officer, principal shareholder or any associate or affiliate thereof had any material interest, direct or indirect, in any transaction since the beginning of our last financial year that has materially affected us, or in any proposed transaction that would materially affect us. Except as otherwise disclosed herein, we have entered into no transactions with parties that are not “related parties” but who would otherwise be able to negotiate terms not available on an arm’s-length basis. From time to time in the ordinary course of business, we enter into management, exploration, mine construction, engineering and employment contracts with joint venture companies in which one or more of our direct or indirect subsidiaries holds equity or partnership interests.

The compensation of our key executives (including the related income taxes we assumed in connection therewith) totaled US$4.74.8 million in 20132015 and US$2.8million9.9 million in 2014.2016. Please refer to Note 30(e) to the Financial Statements for further information.

 

Chaupiloma is the legal owner of the mineral rights operated by Yanacocha and receives a 3 percent3% royalty based on quarterly sales, after deducting refinery and transportation costs. Royalties amounted to US$67.236.9 million, US$44.232.4 million and US$36.924.3 million in 2012, 20132014, 2015 and 2014, respectively,2016, and are presented as royalty income in our consolidated statements of income.

 

117 

During 2016, Yanacocha’s board of directors unanimously agreed to distribute to the partners, in proportion to their equity interests, US$300 million, which corresponds to the portion of the retained earnings as of December 31, 2014 that originated in 2011.

Condesa did not receive a cash dividend from Yanacocha in 2012, 20132014 or 2014.2015.

 

We did not receive a cash dividend from Cerro Verde in 2012, 20132014, 2015 or 2014.2016.

 

We received cash dividends from Coimolache of approximately US$9.8 million in 2013 and US$12.9 million in 2014.2014, US$6.7 million in 2015 and US$11.4 million in 2016.

 

In March 2002, Buenaventura Ingenieros S.A.BISA signed a technical service agreement with Yanacocha to perform a number of specialized activities and services. Pursuant to the agreement, the services performed relate to the construction of mining projects and include completion of analysis and studies, work plan design, and functions related to planning, monitoring and administrating the infrastructure projects required by Yanacocha in its operations.

 

In November 2000, Conenhua signed an agreement with Yanacocha for the construction and operation of a 220 kW transmission line between Trujillo and Cajamarca, a 60 kW transmission line between Cajamarca and La Pajuela, and the Cajamarca Norte substation; this agreement also encompassed activities necessary to enlarge the Trujillo substation. Pursuant to this contract, the construction work was completed in October 2001. Concurrently, we and Yanacocha signed a 10-year agreement covering electric energy transmission and infrastructure operation beginning in November 2001. In exchange for us operating and managing the transmission project, Yanacocha pays an annuala fee of US$3.7 million.million with annual maturities. The annual revenues for these services amounted to approximately US$1.7 million in 2012, US$0.9 million in 2013,each of 2014, 2015 and US$0.9 million in 2014.2016.

 

C. Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.             Financial Information

ITEM 8.Financial Information

 

A. Consolidated Statements and Other Financial Information

 

Consolidated Financial Statements

 

See “Item 19. Exhibits” for a list of financial statements filed under Item 18.

 

Other Financial Information

 

Export Sales

 

See “Item 4. Information on the Company—Buenaventura—B. Business Overview—Sales of Metal Concentrates—Sales and Markets” for information on export sales.

 

Legal Proceedings

 

Other than the legal proceedings relating to Yanacocha described in “Item 4. Information on the Company—Yanacocha—B. Business Overview — Overview—Legal Proceedings,” we and Yanacocha are each parties to certain other legal proceedings arising in the normal course of business, none of which, individually or in the aggregate, is material.

125

 

Dividends and Dividend Policy

 

We can distribute three kinds of dividends: (i) cash dividends, which are paid out of our net distributable income for each year, (ii) stock dividends that are akin to stock splits rather than distributions of earnings, which are issued for the purpose of adjusting the book value per share of our stock and (iii) stock dividends for the purpose of capitalizing profits, in each case as described in more detail below. All shares outstanding and fully paid are entitled to share equally in any dividend declared based on the portion of our capital represented by such share. Shares of capital stock whichthat are only partially paid participate in a dividend or distribution in the same proportion that such shares have been paid at the time of the dividend or distribution. No cash dividend may be declared in respect of a given year unless we have earned net distributable income in respect of such year. However, we may declare dividends during the year. We may make interim provisional payments to shareholders in respect of net distributable income for the current fiscal year, which are referred to as “provisional dividends,” as explained below.

 

118 

The Board, of Directors, following the end of each fiscal year, makes a recommendation at the annual obligatory shareholders’ meeting regarding the amount and timing of payments, if any, to be made as dividends on our Common Shares and Investment Shares.

 

The dividend policy establishes that Buenaventura will distribute an annual cash dividend of at least 20% of net income generated by majority-owned operations and subsidiaries. In the case of Buenaventura’s Associates (Coimolache, Cerro Verde and Yanacocha), 20% of attributable to Buenaventura’s net income will be included if they distribute cash dividends to Buenaventura. In principle there are two kinds of dividend payments: interim dividends, which are approved by the Board and are generally paid during the fourth quarter of the year, and the final dividend payment, which will be paid in accordance with the general shareholders’ meeting resolutions. However, the amount and timing of such payments is subject to the final approval at such annual obligatory shareholders’ meeting and Board meeting, as well as to the availability of earnings to distribute. According to the Peruvian Companies Law, holders of at least 20 percent20% of the total Common Shares outstanding can request a dividend of 50 percent50% or less of the previous year’s after-tax profits, net of amounts allocated to the legal reserve.

 

Available earnings are subject to the following priorities. First, the mandatory employee profit sharing of 8 percent8% of pre-tax profits (which may differ from pre-tax profits determined under IFRS due to different depreciation treatment and different adjustments of non-taxable income and/or non-deductible expenses) is paid.

Next, remaining earnings are taxed at the standard corporate income tax rate, which has been 30 percent since January 1, 2004. Such rate has been reduced towas 28% for 2015 and 2016, to 27% for2016. For 2017 and 2018 andthereafter the tax rate will increase to 26% for 2019 and thereon.29.50%. Not less than 10 percent10% of such after-tax net profits must then be allocated to a legal reserve, which is not available thereafter except to cover future losses or for use in future capitalizations. Amounts reserved are nevertheless included in taxable income. The obligation to fund this reserve continues until the reserve constitutes 20 percent20% of the paid-in share capital. In addition, the holders of Common Shares can agree to allocate any portion of the net profits to any special reserve. The remainder of the net profits is available for distribution to shareholders. Any dividend approved by a shareholders’ meeting after December 31, 2002 has been

Dividends are subject until 2014 to an additional withholding tax at the rate of 4.1 percent of the total amount of dividends distributed tofor shareholders whothat are either (i) individuals, whether domiciled or non-domiciled in Peru, or (ii) non-domiciled companies or entities. For dividends paid out fromof our accumulated net profits, after December 31, 2014, suchthe withholding tax rate has been increased towas 6.8% for 2015 and 2016, to 8.0% for2016. From January 1, 2017 and 2018 and tothereafter, the tax rate will be 5% until 2019, when it will become 9.3% for 2019 and thereon. thereafter. Dividends paid to domiciled companies or entities are not subject to such withholding tax. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.

Dividends paid to domiciled companies or entities are not subject to such withholding tax. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.

 

Dividends on issued and outstanding Common Shares and Investment Shares are distributed in accordance with the proportion of the total capital represented by such respective shares. Dividends are distributed pro rata in accordance with the number of Common Shares or Investment Shares. Accordingly, any dividend declared would be apportioned 99.73 percent99.73% to the holders of Common Shares and 0.27 percent0.27% to the holders of Investment Shares. This proportion will not change in the future except and to the extent holders of Common Shares and Investment Shares exercise their preemptive rights disproportionately in any future issuance of Common Shares and Investment Shares, or we issue Common Shares without preemptive rights in accordance with Article 259 of the Peruvian Companies Law.

Holders of Common Shares and Investment Shares are not entitled to interest on dividend payments.

119 

 

Holders of ADRs are entitled to receive dividends with respect to the Common Shares underlying the ADSs evidenced by such ADRs, subject to the terms of the related Amended and Restated Deposit Agreement, to the same extent as owners of Common Shares.

 

To the extent that we declare and pay dividends on the Common Shares, owners of the ADSs on the relevant record date are entitled to receive the dividends payable in respect of the Common Shares underlying the ADSs, subject to the terms of the Amended and Restated Deposit Agreement. Cash dividends are paid to the Depositary in Nuevos Soles and, except as otherwise described under the Amended and Restated Deposit Agreement, are converted by the Depositary into U.S. Dollars and paid to owners of ADRs net of currency conversion expenses. Under the Amended and Restated Deposit Agreement, the Depositary may, and will if we so request, distribute stock dividends in the form of additional ADRs evidencing whole ADSs resulting from a dividend or free distribution of Common Shares by us received by the Depositary. Cash dividends paid with respect to the Common Shares and amounts distributed with respect to ADSs have beenwere subject until 2014 to a Peruvian withholding income tax of 4.1 percent. Such6.8% in 2016. The withholding tax rate has been increasedwill decrease to 5% for dividends paid out fromof our accumulated net profits after December 31, 2014 to 6.8% for 2015 and 2016, to 8.0% for 2017 and 2018 and to 9.3% for 2019 and thereon.2016. See “Item 10. Additional Information – Information—E. Taxation – Taxation—Peruvian Tax Considerations.”

 

We issue stock dividends for value per share of our stock. The book value of our share capital is based on the nominal (par) value of each share but is adjusted to account for inflation; thus, in inflationary periods, our book value will increase while the nominal value will remain constant. In order toTo adjust the book value of each share to equal or approximate the nominal value, we periodically issue new shares that are distributed as stock dividends to each existing shareholder in proportion to such shareholder’s existing holdings, unless it increases the nominal value of the existing shares. These stock dividends (which under the Peruvian income tax law are not considered dividends) do not change a stockholder’s percentage of interest in us. In addition, we may from time to time capitalize profits and, in such case, we have to distribute stock dividends representing the profits capitalized.

 

Dividends not collected within ten10 years will be retained by us, increasing our legal reserve, and the right to collect such dividends will expire.

 

Under Peruvian law, each company may make formal cash distributions only out of net distributable income (calculated on an individual, unconsolidated basis and demonstrated by a statement of financial position at any given time). We, however, may pay provisional dividends. Payment of provisional dividends will be approved on the basis of financial statements which show the existence of net distributable income obtained during the current fiscal year. In the event that,If, following such an interim provisional payment, we suffer a loss or if we finish the fiscal year with a net income that is lower than the amount of provisional dividends paid during such fiscal year, we could legally require all shareholders (including holders of ADRs) to return such payment to us with interest. However, it has been and continues to be our policy not to require shareholders to return such payment of provisional dividends, but rather to cover such contingency through a “dividends paid in advance” account to be offset by future net distributable income.

 

The following table sets forth the amounts of interim and final cash dividends and the aggregate of cash dividends paid with respect to the years 20112013 to 2014.2016. Dividends with respect to the years 20112013 to 20142016 were paid per Common Share and ADS.

 

Year ended
December 31, (1)		 Per
Common Share		  Per
ADSs		  Per
Investment Share		 
  Interim  Final  Total  Interim  Final  Total  Interim  Final  Total 
2011  0.230   0.400   0.630   0.230   0.400   0.630   0.230   0.400   0.630 
2012  0.200   0.300   0.500   0.200   0.300   0.500   0.200   0.300   0.500 
2013  0.010   0.011   0.021   0.010   0.011   0.021   0.010   0.011   0.021 
2014  0.023   0.000   0.023   0.023   0.000   0.023   0.023   0.000   0.023 

Year ended December 31,(1)

 Per
Common Share		  Per
ADSs		  Per
Investment Share		 
  Interim  Final  Total  Interim  Final  Total  Interim  Final  Total 
2013  0.010   0.011   0.021   0.010   0.011   0.021   0.010   0.011   0.021 
2014  0.023   0.000   0.023   0.023   0.000   0.023   0.023   0.000   0.023 
2015  0.000   0.000   0.000   0.000   0.000   0.000   0.000   0.000   0.000 
2016  0.030   0.057   0.087   0.030   0.057   0.087   0.030   0.057   0.087 

_______________________

(1)Interim and final dividend amounts are expressed in U.S. Dollars.

120 

Non-controlling Shareholders

 

Law No. 28370, published on October 30, 2004, included in the Peruvian Companies Law certain provisions for the protection of non-controlling shareholders that were formerly contained in Law No. 26985, which had been abrogated. Legislative Decree No. 1061, effective since June 29, 2008, Law No. 29782, effective since July 29, 2011, and most recently Law No. 30050, effective since June 27, 2013, have abrogated or amended certain of these provisions. Pursuant to Article 262-A of the Peruvian Companies Law, we will furnish on our website and on the SMV’s website, upon the earlier to occur of (1) sixty days after the Annual Obligatory Shareholders’ Meeting, or (2) the expiration of the three-month period after the end of the prior fiscal year in which such Annual Obligatory Shareholders’ Meeting is required to be held, the information regarding total number and value of any shares not claimed by shareholders, the name of such shareholders, the share quote in the securities market for such shares, the total amount of uncollected dividends and where shares and dividends pending claim are available for the non-controlling shareholders. Article 262-B describes the procedure to request share certificates and/or dividends and that the holder of the shares can instruct us to deposit the dividends in a specific bank account. Article 262-F describes the procedure for handling any claim that the non-controlling shareholders may file, such claims to be resolved by the SMV.

 

B. Significant Changes

 

No significant change in our financial affairs has occurred since the date of the annual financial statements included in this Annual Report.

 

ITEM 9. The Offer and Listing

 

A. Offer and Listing Details

 

Trading Information

 

The table below sets forth the trading volume and the high and low closing prices of the Common Shares and Investment Shares in Nuevos Soles. The table also includes the trading volume and the high and low closing prices of the ADSs representing the Common Shares in U.S. Dollars for the same periods.

 

 

Common Shares(1)

 

ADSs(2)

 

Investment Shares(1)

  

Common Shares(1)

  

ADSs(2)

  

Investment Shares(1)

 
 Trading
Volume		 High Low Trading
Volume		 High Low Trading
Volume		 High Low  Trading
Volume		  High  Low  Trading
Volume		  High  Low  Trading
Volume		  High  Low 
 (in millions) (in nominal S/. per share) (in millions) (in US$per ADS) (in millions) (in nominal S/. per share)  (in millions)  (in nominal S/. per share)  (in millions)  (in US$ per ADS)  (in millions)  (in nominal S/. per share) 
Annual highs and lows                                                                        
                                                                        
2011  2.50   136.00   98.72   323.19   49.53   35.33   0.02   110.00   98.00 
2012  2.14   117.00   82.55   236.34   43.90   30.86   0.22   109.30   75.00 
2013  2.06   90.99   29.70   472.08   36.58   10.54   0.00   30.00   30.00   2.06   90.99   29.70   472.08   36.58   10.54   0.00   30.00   30.00 
2014  0.44   39.80   28.11   467.73   14.82   8.64   0.001   26.00   26.00   0.44   39.80   28.11   467.73   14.82   8.64   0.001   26.00   26.00 
2014  1.31   38.8   14.35   409.75   12.37   3.88   -   -   - 
2015  1.31   38.00   14.00   410.23   12.51   3.80   -   -   - 
                                                                        
Quarterly highs and lows                                                                        
                                                                        
2013                                    
2015                                    
1st quarter  0.60   90.09   63.80   82.42   36.58   24.00   0.00   -   -   0.25   35.51   31.00   106.07   11.74   9.67   -   -   - 
2nd quarter  0.90   65.05   37.00   106.66   26.11   13.38   0.00   -   -   0.46   38.80   32.55   83.37   12.37   10.38   -   -   - 
3rd quarter  0.34   42.50   31.20   143.18   15.64   11.20   0.001   30.00   30.00   0.41   32.10   18.50   107.61   10.15   5.80   -   -   - 
4th quarter  0.22   40.81   29.70   139.98   14.99   10.54   0.00   -   -   0.20   25.46   14.00   112.68   8.22   3.88   -   -   - 
                                                                        
2014                                    
2016                                    
1st quarter  0.22   39.00   31.45   136.12   14.12   11.08   0.001   26.00   26.00   0.11   24.66   12.05   136.31   7.50   3.30   -   -   - 
2nd quarter  0.04   38.00   28.11   111.12   13.88   9.75   -   -   -   0.54   34.55   24.60   162.14   12.00   7.02   -   -   - 
3rd quarter  0.15   39.80   29.40   93.37   14.82   10.71   -   -   -   0.16   53.00   33.65   95.04   16.45   11.72   0.20   25   20 
4th quarter  0.02   34.00   29.40   127.130   12.28   8.64   -   -   -   0.19   48.50   34.37   109.72   14.21   9.87   -   -   - 
                                                                        
Monthly highs and lows                                                                        
                                                                        
2014                                    
2016                                    
October  0.007   34.00   33.40   41.01   12.28   9.04   -   -   -   0.00   44.10   42.00   28.31   14.21   11.91   -   -   - 
November  0           39.80   10.35   8.64   -   -   -   0.02   43.00   36.90   45.37   13.99   10.30   -   -   - 
December  0.008   31.55   29.40   46.31   10.91   8.90   -   -   -   0.17   40.00   34.37 �� 36.04   12.30   9.87   -   -   - 
2015                                    
2017                                    
January  0.056   34.60   31.55   11.88   11.88   9.30   -   -   -   0.10   45.50   38.10   21.69   13.79   11.45   -   24.50   24.50 
February  0.095   35.51   32.30   11.60   11.60   10.21   -   -   -   0.02   45.99   40.00   28.37   14.59   12.11   -   -   - 
March  0.097   35.44   31.00   11.76   11.76   9.80   -   -   -   0.02   40.50   38.05   32.12   12.96   11.29   -   24.00   23.99 

____________________

(1)Source: Lima Stock Exchange
(2)Source: Bloomberg; Yahoo Finance

121 

As of March 31, 2015,2017, the share capital with respect to the Common Shares was S/.2,748,899,240 represented by 274,889,924 shares and the share capital with respect to the Investment Shares was S/.7,446,400 represented by 744,640 shares. The Common Shares represent 100 percent100% of our outstanding share capital. The Investment Shares have no voting rights and are not, under Peruvian law and accounting rules, characterized as share capital. As of March 31, 2015,2017, there were 1,1911,089 owners of record of the Common Shares and 902903 owners of record of the Investment Shares.

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

The Common Shares and ADSs representing the Common Shares (each ADS representing one Common Share) have been listed and traded on the New York Stock Exchange under the symbol “BVN.” In addition, the Common Shares and Investment Shares are listed and traded on the Lima Stock Exchange.

 

D. Selling Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

ITEM 10.       Additional Information

ITEM 10.Additional Information

 

A. Share Capital

 

Not applicable.

 

B. Memorandum and Articles of Association

 

Organization and Register

 

We were formed on September 7, 1953 by public deed as a Peruviansociedad anónima. However, in May of 1998, our By-laws were changed to conform with the new Peruvian Companies Law. The term of existence is indefinite and our principal place of business is Lima, Peru. We are registered under file number 02136988 at the Companies Registry of Lima.

 

We are managed by the General Meeting, the Board of Directors and the management.

 

129

Objectives and Purposes

 

Our legal purpose, as set forth in our Articles of Association and By-laws, is to engage in mining operations and related activities either directly or through majority-owned subsidiaries and controlled companies. Likewise, we may hold shares of companies performing mining operations.

 

Directors

 

The Board, of Directors, which must be comprisedcomposed of seven members, is elected at the Annual Obligatory Meeting. Any changes in the Board of Directors require the approval of the shareholders. The removal of the Board of Directors must be approved at a shareholders’ meeting, attended by holders of 75 percent75% of the Common Shares in the first summons and 70 percent70% of the Common Shares in the second summons, by resolution approved by at least two thirds of the total number of Common Shares outstanding. In the case of resignation of Directors,directors, the Board of Directors may appoint substitute Directorsdirectors who will serve until the next shareholders’ meeting.

 

122 

Directors

Members of the Board (“Directors”) are elected as a group for a term of three years and may be reelected indefinitely. Pursuant to Article 29 of our By-laws, Directors are not required to be shareholders. The Board, of Directors, in its first meeting after the Annual Obligatory Meeting during which elections are held, must choose from among its members a Chairman and a Vice Chairman. The Peruvian Companies Law requires that all companies (sociedades anónimas) provide for the representation of non-controlling shareholders on their Boards of Directors. To that effect, each of our Common Shares gives the holder the right to as many votes as there are directors to be elected. Each holder may pool his votes in favor of one person or distribute them among various persons. Those candidates for the Board who receive the most votes are elected directors.

 

The Board of Directors meets when called by the Chairman of the Board, who is appointed by the Board. The Board of Directors is validly convened when all Directors are present and unanimously agree to carry out the meeting for the purpose of transacting the business that has been proposed. Pursuant to Article 177 of the Peruvian Companies Law, Directors may be jointly and severally liable to us, the shareholders and third parties for their actions if they act with willful misconduct, gross negligence or abuse their powers. In addition, Article 3 of Law No. 29720, which has been in force since June 26, 2011, as amended by Law No. 30050 in force since June 27, 2013, provides that directors and managers are liable for economic damages or any other kind of damages caused to us by any transaction we may enter into with them.they have approved that favors such director’s, or a related party’s, interest instead of the company’s, when: (i) one of the parties involved in the transaction is a company whose shares are listed in the local stock exchange, as in our case; (ii) the shareholder controlling such listed company also controls the other party involved in the transaction; and (iii) the transaction is not made under arm’s-length conditions and represents at least 10% of such company’s assets.

 

Our By-laws do not contain any provisions related to a director’s power to vote on matters in which the director is materially interested. However, Article 180 of the Peruvian Companies Law requires a director with an interest that conflicts with an interest of ours on a specific matter to disclose such interest to us and abstain from participating in the deliberation and decision of the said matter. A director that contravenes such requirement is liable for the damages suffered by us and can be removed by the Board of Directors or a shareholders’ meeting upon the request of any shareholder or any member of the Board.

 

Our By-laws also do not contain any provisions with respect to the power of the Directorsdirectors to vote upon matters relating to their own compensation. Nevertheless, Article 30 of the By-laws requires that the Board of Directors receive compensation of no more than 4 percent4% of the profits of each fiscal year after making deductions for workers’ profit sharing, taxes, reinvestment of profits for tax benefits and legal reserves. This amount will be submitted for ratification by the General Meeting during the annual obligatory meeting, at which time it approves the statement of financial position, taxes, reinvestment of profits for tax benefits and legal reserves.

 

Our By-laws contain no provision relating to the directors’ power to borrow from us. However, Article 179 of the Peruvian Companies Law provides that directors of a company may enter into an agreement with such company only in the event thatif the agreement relates to operations the company performs in the regular course of business and in an arms-length transaction. Furthermore, a company may provide a loan to a director or grant securities in his favor only in connection with operations that the company usually performs with third parties. Agreements, credits, loans or guarantees that do not meet the requirements set forth above require prior approval from at least two thirds of the members of the company’s Board of Directors.Board. Directors are jointly liable to the company and the company’s creditors for contracts, credit, loans or securities executed or granted without complying with Article 179 of the Peruvian Companies Law. In addition, as mentioned above, Article 3 of Law No. 29720, as amended, provides that directors and managers are liable for economic or other damages that they may cause because of the approval of resolutions that favor such director’s, or a related party’s, interest instead of the company’s, when: (i) one of the parties involved in the transaction is a company whose shares are listed in the local stock exchange, as in our case; (ii) the shareholder controlling such listed company also controls the other party involved in the transaction; and (iii) the transaction is not made under arm’s lengtharm’s-length conditions and represents at least 10% of such Company’s assets.

Neither our By-laws nor the Peruvian Companies Law contain age limit requirements for the retirement or non-retirement of directors.

123 

 

Shares and Voting Rights

 

We have two classes of shares, the Common Shares and the Investment Shares. The Common Shares represent 100 percent100% of our outstanding share capital. The Investment Shares have no voting rights and are not, under Peruvian law and accounting rules, characterized as share capital. The Common Shares and the Investment Shares may be either physical share certificates in registered form or book-entry securities in the CAVALI ICLV S.A. book-entry settlement system, also in registered form.

 

Holders of Common Shares are entitled to one vote per share, with the exception of the election of the Board, of Directors, where each such holder is entitled to one vote per share per nominee. Each holder’s votes may be cast all for a single nominee or distributed among the nominees at the holder’s discretion. Holders of Common Shares may attend and vote at shareholders’ meetings either in person or through a proxy. Additionally, holders of Common Shares have the right to participate in the distribution of dividends and shareholder equity resulting from liquidation. Our By-laws do not establish a maximum time limit for the payment of the dividends. However, according to Article 232 of the Peruvian Companies Law, the right to collect past-due dividends in the case of public companies that aresociedades anónimas abiertas, as we are, expires at 10 years from the date on which the payment was due in accordance with the dividend declaration.

 

Our share capital may be increased by holders of Common Shares at a shareholders’ meeting. Capital reductions may be voluntary or mandatory and must be approved by holders of Common Shares at a shareholders’ meeting. Capital reductions are mandatory when accumulated losses exceed 50 percent50% of capital to the extent such accumulated losses are not offset by accumulated earnings and capital increases within the following fiscal year. Capital increases and reductions must be communicated to the SMV, the Lima Stock Exchange and theSuperintendencia Nacional de Administración Tributaria (SUNAT) SUNAT and published in the official gazette El Peruano and in a widely circulated newspaper in the city in which we are located.

 

The Investment Shares do not represent our stock obligations. Holders of Investment Shares are neither entitled to exercise voting rights nor to participate in shareholders’ meetings. However, Investment Shares confer upon the holders thereof the right to participate in the dividends distributed according to their nominal value, in the same manner as Common Shares.

 

Changes in the Rights of Shareholders

 

Our By-laws do not contain special provisions relating to actions necessary to change the rights of holders of the classes of shares. However, Article 88 of the Peruvian Companies Law establishes that all shares of a same class must have the same rights and obligations, and that in the event thatif we decide to establish different rights and obligations we must create a different class of shares, which creation will be agreed upon by the General Meeting in accordance with the requirements for modification of the By-laws. The Common Shares are the only class of shares representing 100 percent100% of our share capital, and, therefore, each Common Share has the same rights and obligations of each other Common Share. These requirements are described under “—Shares and Voting Rights” above.

 

The rights of any class of shares may not be reduced except in accordance with the Peruvian Companies Law.

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Shareholders’ Meetings

 

Pursuant to Peruvian law and our By-laws, the Annual Obligatory Meeting must be held during the three-month period after the end of each fiscal year. Additional General Meetings may be held during the year. Because we are asociedad anónima abierta, we are subject to the special control of the SMV, as provided in Article 253 of the Peruvian Companies Law. Shareholders’ meetings are convened by the Board of Directors when deemed convenient for us or when it is requested by the holders of at least 5 percent5% of the Common Shares, provided that such Common Shares do not have their voting rights suspended. If, at the request of holders of at least 5 percent5% of the Common Shares, the shareholders’ meeting is not convened by the Board of Directors within 15 business days of the receipt of such request, such holders of at least 5 percent5% of the Common Shares may request a notary public or a judge to convene the meeting. The Board is deemed to have implicitly refused to convene the meeting if the Board (a) does not convene a shareholders’ meeting within 15 business days of receipt of the request, (b) suspends or amends the terms of the agenda or in any other way amend the terms of the summons already made upon the request of at least 5 percent5% of the Common Shares or (c) schedules the shareholders’ meeting more than 40 days after the date on which the summons is published. The notary public or the judge of the domicile of the company shall call for the shareholders meeting. Resolución CONASEV No. 111-2003-EF-94.10, as amended by Resolución CONASEV No. 078-2010-EF/94.01.1, approved provisions related to the right of the non-controlling shareholders to obtain information regarding asociedad anónima abierta such as ourselves. Notwithstanding the notice requirements as described in the preceding two sentences, any shareholders’ meeting will be deemed called and legally commenced, provided that the shareholders representing all of the voting shares are present, and provided that every present shareholder, whether or not such shareholder has paid the full price of such shareholder’s shares, agrees to hold the shareholders’ meeting and accepts the business to be discussed therein. Holders of Investment Shares have no right to request the Board to convene shareholders’ meetings.

 

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Since we are asociedad anónima abierta, notice of shareholders’ meetings must be given by publication of a notice, with the publication occurring at least 25 days prior tobefore any shareholders’ meeting, in El Peruano and in a widely circulated newspaper in the city in which we are located. The notice requirement may be waived at the shareholders’ meeting by holders of 100 percent100% of the outstanding Common Shares. According to Article 25 of our By-laws and Article 257 of the Peruvian Companies Law, shareholders’ meetings called for the purpose of considering a capital increase or decrease, the issuance of obligations, a change in our By-laws, the sale in a single act of assets with an accounting value that exceeds 50 percent50% of our capital stock, a merger, division, reorganization, transformation or dissolution, are subject to a first, second and third quorum call, each of the second and third quorum to occur upon the failure of the preceding one. A quorum for the first call requires the presence of shareholders holding 50 percent50% of our total voting shares. For the second call, the presence of shareholders holding at least 25 percent25% of our total voting shares constitutes a quorum, and for the third call there is no quorum requirement. These decisions require the approval of the majority of the voting shares represented at the shareholders’ meeting. General Meetings convened to consider all other matters are subject to a first and second quorum call, the second quorum call to occur upon the failure of the first quorum.

 

In the case of shareholders’ meetings called for the purpose of considering the removal of members of the Board, of Directors, at least 75 percent75% and 70 percent70% of the total number of Common Shares outstanding are required to be represented at the shareholders’ meeting on the first quorum call and second quorum call respectively.call. Provided such quorum is attained, the affirmative vote of no less than two thirds of the total number of Common Shares outstanding is required to effect the removal of members of the Board of Directors.Board. The special quorum and voting requirements described above cannot be modified at a shareholders’ meeting called for the purpose of considering the removal of members of the Board of Directors.Board.

 

Under our By-laws, the following actions are to be taken at the annual obligatory shareholders’ meetings: approval of our statements of financial position, profit and loss statements and annual reports; the approval of management performance; the allocation of profits; the election of external auditors; the election of the members of the Board of Directors;Board; and any other matters submitted by the Board of Directors.Board. The following actions are to be taken at the same annual shareholders’ meetings if the quorum and majority requirements are met or at any other shareholders’ meeting: any amendment of our By-laws; any decision to increase or reduce capital; any decision to issue debt; initiating investigations or requesting auditor’s reports; liquidating, spinning-off, merging, consolidating, dissolving, or changing our business form or structure.

 

In accordance with Article 21 of the By-laws, only those holders of Common Shares whose names are inscribed in the Share Register not less than 10 days in advance of a meeting will be entitled to attend shareholders’ meetings and to exercise their rights.

 

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Limitations on the Rights of Nonresident or Foreign Shareholders

 

There are no limitations in our By-laws or the Peruvian Companies Law on the rights of nonresident or foreign shareholders to own securities or exercise voting rights on our securities.

 

Change in Control

 

There are no provisions in our By-laws that would have the effect of delaying, deferring or preventing a change in control.

 

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Disclosure of Share Holdings

 

There are no provisions in our By-laws governing the ownership threshold above which share ownership must be disclosed. However, according to Regulation No. 009-2006-EF.94.10 of the SMV, which became effective on May 3, 2006, as amended by Regulation No. 020-2006-EF.94.10 and Regulation No. 05-2009-EF-94.01.1 of the SMV, when an individual or financial group acquires, in one act or various successive acts, a significant percentage (more than 25 percent)25%) of the voting shares of a company, as well as upon any person or group increasing its ownership above the 50 percent50% and 60 percent60% thresholds, a procedure known asOferta Pública de Adquisición, or Takeovera “Takeover Bid,” must be followed. This has the effect of alerting other shareholders and the market that an individual or financial group has acquired a significant percentage of a company’s voting shares, and gives other shareholders the opportunity to sell their shares at the price offered by the purchaser. The purchaser is obliged to launch a Takeover Bid unless it is exempt pursuant to Regulation No. 009-2006-EF.94.10 of the SMV, as amended. The purchase of ADRs is exempted from the Takeover Bid unless the holders: (i) exercises the voting rights of the Common Shares underlying the ADSs evidenced by such ADRs, or (ii) requests the delivery of such underlying Common Shares. In addition, the SMV and the Lima Stock Exchange must be notified of any transfer of more than 5 percent5% of our paid-in capital.

 

Changes in Capital

 

Our By-laws do not establish special conditions for increases or reductions of capital that are more stringent than is required by the Peruvian Companies Law. Furthermore, the Peruvian Companies Law forbidssociedades anónimas abiertas, such as us, from including in their By-laws stipulations limiting the transfer of their shares or restraining their trading in other ways. We cannot recognize a shareholders’ agreement that contemplates limitations, restrictions or preferential rights on the transfer of shares, even if such agreement is recorded in our Share Register (matrícula de acciones) or in CAVALI ICLV S.A.

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Economic Group

On January 1, 2017 new Regulations on Indirect Property, Relation and Economic Groups (Reglamento de Propiedad Indirecta, Vinculación y Grupos Económicos) (the “Regulations”) approved by Regulation No. 019-2015-SMV-01 became effective, replacing the prior Regulations that were in effect since 2006. The new Regulations define more precisely who are considered independent directors, increase the standards of information we are required to provide, require us to identify the individuals that control our economic group, require us to report related individuals and entities; reduce the number of shareholders required to determine that there exists a “representative participation” from 10% of the total capital stock to 4% of voting shares and extend the definition of control. The “representative participation” definition is mainly used by listed companies such as us to determine the existence of indirect property.Regulation No. 083-2016-SMV-01 approved the new forms to be used to provide the SMV all the information about our Economic Group.

Criminal liability of companies

On April 2016, Law N° 30424 was enacted to establish the administrative liability of legal entities such as us in connection to different types of bribery, transnational active bribery-asset laundering, illegal mining and organized crime. The law has been amended by Legislative Decree N° 1352 published on January 7, 2017 and will become effective on January 1, 2018. Regulations to this law are pending. The law provides rules to be followed in case of a merger or spin-off and states that the legal entities are administratively liable for the above crimes when they have been committed in their name or for their benefit by their shareholders, directors or managers. Several sanctions can be imposed on a company as result of such crimes, including fines, prohibitions on performing certain activities, cancellation of permits and even dissolution. The company will be exempted from any liability for such crimes if it adopts within its organization, and before the crime is committed, a so-called prevention model consistent with the company’s nature, risks, necessities and characteristics, consisting in control, monitoring and surveillance measures suitable to prevent such crimes. Such model includes the appointment by the Board of a person in charge of prevention that must perform autonomously. In order to file a criminal accusation against the company, a technical report from the SMV that analyzes the prevention model is required. During this year we will prepare, in addition to all other compliance measures and policies, the prevention model required under Law N° 30424, as amended.

 

C. Material Contracts

 

Not Applicable.

 

D. Exchange Controls

 

Since August 1990, there have been no exchange controls in Peru and all foreign exchange transactions are based on free market exchange rates. Prior toBefore August 1990, the Peruvian foreign exchange market consisted of several alternative exchange rates. Additionally, during the 1990s, the Peruvian currency has experienced a significant number of large devaluations, and Peru has consequently adopted, and operated under, various exchange rate control practices and exchange rate determination policies, ranging from strict control over exchange rates to market determination of rates. Current Peruvian regulations on foreign investment allow the foreign holders of equity shares of Peruvian companies to receive and repatriate 100 percent100% of the cash dividends distributed by such companies. Such investors are allowed to purchase foreign exchange at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction.

 

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E. Taxation

 

The following summarizes the material Peruvian and United StatesU.S. tax consequences under present law of the purchase, ownership and disposition of ADSs or Common Shares. The discussion is not a full description of all tax considerations that may be relevant to a decision to purchase ADSs or Common Shares. In particular, this discussion deals only with holders that hold ADSs or Common Shares as capital assets and that have the U.S. Dollar as their functional currency. The summary does not address the tax treatment of certain investors that may be subject to special tax rules, such as banks, securities dealers, insurance companies, tax-exempt entities, persons that will hold ADSs or Common Shares as a position in a “straddle” or “conversion transaction” for tax purposes and holders of 10 percent10% or more of our voting shares. This discussion does not address any U.S. state or local taxes, the U.S. federal alternative minimum tax or the U.S. Medicare tax on net investment income. There is no tax treaty currently in effect between Peru and the United States,U.S., except for a treaty to exchange tax information. The information to be exchanged is defined in such treaty as any data or declaration that may be relevant or essential to the administration and application of taxes. Accordingly, the discussions below of Peruvian and U.S. tax considerations are based on the domestic law of each of Peru and the United StatesU.S. which are subject to change and possibly with retroactive effect.

 

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As used herein, “Peruvian holder” means an owner of ADSs or Common Shares that is (i) an individual domiciled in Peru, (ii) a business entity created under the laws of Peru, or (iii) a Peruvian branch, agency or permanent establishment of a non-Peruvian individual or entity. “U.S.

“U.S. Holder” means a beneficial owner of ADSs or Common Shares that is (i) a United StatesU.S. citizen or resident, (ii) a domestic corporation or partnership, (iii) a trust subject to the control of a U.S. fiduciary and the primary supervision of a U.S. court or (iv) estate the income of which is subject to United States FederalU.S. federal income taxation regardless of its source.

 

Peruvian Tax Considerations

 

Cash Dividends and Other Distributions

 

Cash dividends paid with respect to Common Shares and amounts distributed with respect to ADSs are currently subject to a Peruvian withholding Income Tax,income tax, at a rate of 4.1 percent over5% for dividends paid or to be paid beginning January 1, 2017, when the dividend paid (as long as suchoriginated from profits earned on or after January 1, 2017. If the dividend is paid outoriginated from our accumulated net profits earned as of December 31, 2014), when2014, the withholding income tax rate for dividends is 4.1%. If the dividend originated from profits earned between January 1, 2015 and December 31, 2016, the withholding income tax rate for the dividend is 6.8%. This regime is applicable on dividends that are paid to shareholders that are: (i) individuals, whether resident or nonresident in Peru or (ii) nonresident entities. As a general rule, the distribution of additional Common Shares representing profits, distribution of shares which differ from the distribution of earnings or profits, as well as the distribution of preemptive rights with respect to Common Shares, which are carried out as part of a pro rata distribution to all shareholders, will not be subject to Peruvian Income Tax or withholding taxes. If the dividend distribution is paid out from our net profits after December 31, 2014, the Peruvian withholding Income Tax rate will increase to 6.8 percent, if the distribution is approved during 2015 and 2016, to 8 percent if it is approved during 2017 and 2018, and to 9.3 percent if it is approved in 2019 or later.

Law No. 30296, enacted on December 31, 2014, established certain amendments to the Peruvian Income Tax Law, or the ITL, effective from January 1, 2015. The most significant changes are the following: (i) a gradual increase of Peruvian withholding income tax over dividends paid from 4.1 percent to 6.8 percent in 2015 and 2016, to 8.0 percent in 2017 and 2018, and to 9.3 percent in 2019 and beyond. These tax rates will apply to profit distribution adopted or made available in cash or in kind, whichever occurs first, since January 1, 2015; and (ii) Peruvian withholding income tax of 4.1 percent will be applied to retained earnings or other items subject to generate taxable dividends, obtained up to December 31, 2014, and forming part of dividends distribution or any other profit distribution.

 

Capital Gains

 

Pursuant to Article 6 of the Peruvian Income Tax Law or the ITL,(the “ITL”), individuals and entities resident in Peru are subject to Peruvian Income Tax on their worldwide income while non-resident individuals or entities are subject to Peruvian Income Tax on their Peruvian source income only.

 

Furthermore, the ITL states that income deriving from the disposal of securities issued by Peruvian entities is considered Peruvian source income subject to the Income Tax.

 

With respect to this matter, Article 2 of the ITL, as amended by Legislative Decree 945, defines: (i) capital gains as any revenue deriving from the disposal of capital goods; and (ii) capital goods as those whose purpose is not to be traded in the regular course of a business. Moreover, Article 2 of the ITL states that income deriving from the disposal of shares and similar securities is considered a capital gain.

Accordingly, capital gains deriving from the disposal of securities issued by legal entities incorporated in Peru are considered Peruvian source income subject to Peruvian Income Tax.

 

Currently, regardless of whether or not the transferor is domiciled in Peru, the ITL establishes that taxable income resulting from the disposal of securities is determined by the difference between the sale price of the securities and its tax basis. However, prior tobefore December 31, 2009, capital gains resulting from the disposal of ADSs or Common Shares issued by legal entities incorporated in Peru were exempt from Peruvian Income Tax if: (i) in the case of non-regular individuals (i.e., individuals who do not frequently trade securities), the transaction was carried out prior tobefore December 31, 2009; and (ii) in the case of shareholders other than individuals, the transaction was carried out on the Lima Stock Exchange (floor session) prior tobefore December 31, 2009.

 

Effective January 1, 2010, the exemption was repealed and, as such, capital gains resulting from the disposal of ADSs or Common Shares issued by legal entities incorporated in Peru became subject to Peruvian Income Tax, or the “Income Tax.” For non-resident entities or individuals, capital gains will be subject to an Income Tax rate of either 5 percent5% or 30 percent,30%, depending where the transaction takes place. If the transaction is consummated within Peru, the Income Tax rate is 5 percent;5%; if the transaction is consummated outside of Peru, capital gains are taxed at a rate of 30 percent.30%.

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The ITL Regulations have defined transactions consummated within Peru to mean that the securities at issue are transferred through the Lima Stock Exchange. In contrast, the transaction is considered to have been consummated abroad when (i) the securities at issue are not registered on the Lima Stock Exchange or (ii) registered securities are not transferred through the Lima Stock Exchange.

 

Prior toBefore December 31, 2012, for nonresident individuals, the first five Tax Units (approximately US$6,800) of capital gains deriving from the transfer of securities were exempted from the Income Tax. Effective January 1, 2013, this exemption was repealed. If the transferor is a resident entity, capital gains deriving from the disposal of securities will be treated as any other taxable income subject to the 30 percent Corporate30% corporate Income Tax rate.

 

Furthermore, prior tobefore December 31, 2012, if the transferor was a resident individual, the first five Tax Units (approximately US$6,800) of capital gains deriving from the transfer of securities were exempted from the Income Tax. Effective January 1, 2013, such exemption was repealed. Any capital gain earned by a resident individual is subject to the five percent5% annual Income Tax rate regardless of whether or not the transaction is carried out on the Lima Stock Exchange and regardless of how many transactions are carried out by such individual. In this case, the five percent5% Income Tax rate will be applicable over the annual net capital gain, which is calculated by deducting from the annual gross capital gain of the annual losses resulting from the disposal of shares during the same fiscal year.

 

Moreover, if the transferor, either a resident or nonresident individual or entity, acquired the ADSs or Common Shares that were exempt from the Income Tax before January 1, 2010, pursuant to a special provision of the ITL, the tax basis is the higher of: (i) the acquisition cost; (ii) the face or nominal value of the sharesshares; or (iii) the stock market value at closing on December 31, 2009.

 

If the transferor, whether resident or nonresident in Peru, acquires the ADSs or Common Shares on or after January 1, 2010, the tax basis is: (i) for shares purchased by the transferor, the acquisition price paid for the shares; (ii) for shares received by the transferor as a result of a capital stock increase because of a capitalization of net profits, the face or nominal value of such shares; (iii) for other shares received free of any payment, the stock market value of such shares if listed on the Lima Stock Exchange or, if not, the face or nominal value of such sharesshares; and (iv) for shares of the same type acquired at different opportunities and at different values, the tax basis will be the weighted average cost.

 

The aforementioned rules are also applicable to ADSs or Common Shares acquired before January 1, 2010 that were not exempt from the Income Tax as of December 31, 2009.

On December 31, 2010, Law No. 29645 was promulgated and took effect from January 1, 2011. This law states that in any transaction of Peruvian securities through the Lima Stock Exchange, CAVALI ICLV S.A. (the Peruvian clearing house) will act as withholding agent. As a result of this amendment, the nonresident will no longer have to self-assess and pay its Income Tax liability directly to the Peruvian Tax Administration.

 

Law No. 29645 has technically been in force since January 1, 2011. Implementing regulations were enacted in July 2011, and CAVALI ICLV S.A. began acting as a withholding agent on November 1, 2011. As a result, with regard to securities transferred through the Lima Stock Exchange by a nonresident transferor subsequent toafter November 1, 2011, such nonresident transferor is no longer obliged to self-assess and pay its Income Tax liability directly to Peruvian tax authorities within the first 12 working days following the month in which Peruvian source income was earned.

 

If the purchaser is resident in Peru and the sale is not performed through the Lima Stock Exchange, the purchaser will act as withholding agent, except in cases in which the transferor is a resident individual.

 

However, if the transferor is a resident entity, such transferor is solely responsible for its Peruvian Income Tax on capital gains resulting from the disposal of ADSs or Common Shares, regardless of whether such securities are listed on the Lima Stock Exchange or elsewhere.

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On September 12, 2015 Law No. 30341 was published. This law entered into effect on January 1, 2016 and states that capital gains from the disposal of ADSs or Common Shares through December 31, 2018 issued by legal entities incorporated in Peru, executed through the Lima Stock Exchange, are exempt from Peruvian Income Tax if: (i) within a period of twelve (12) months the holder and its related parties do not transfer 10% or more of the issued shares of the legal entity in one or more transactions; and (ii) the Common Shares issued by such legal entity shall have been continuously traded in the stock market (the rules to determine if such shares are continuously traded are set forth in Law N° 30341, as amended).Law No. 30341 was amended by Legislative Decree No. 1262, published on December 10, 2016 and effective since January 1, 2017, which introduced minor amendments related to capital gains deriving from the disposal of ADSs and Common Shares and extended this income tax exemption through December 31, 2019.

 

Other Considerations

 

No Peruvian estate or gift taxes are imposed on the gratuitous transfer of ADSs or Common Shares. No stamp, transfer or similar tax applies to any transfer of Common Shares, except for commissions payable by seller and buyer to the Lima Stock Exchange (0.15 percent(0.15% of value sold), fees payable to the SMV (0.05 percent(0.05% of value sold), brokers’ fees (about 0.05 percent0.05% to 1 percent1% of value sold) and Value Added TaxVAT (at the rate of 18 percent)18%) on commissions and fees. Any investor who sells its Common Shares on the Lima Stock Exchange will incur these fees and taxes upon purchase and sale of the Common Shares.

 

United StatesU.S. Federal Income Tax Considerations

 

Assuming the obligations contemplated by the Amended and Restated Deposit Agreement are being performed in accordance with its terms, holders of ADSs (or ADRs evidencing ADSs) generally will be treated for United StatesU.S. federal income tax purposes as the owners of the Common Shares represented by those ADSs.

 

Cash Dividends and Other Distributions

 

Cash dividends paid with respect to Common Shares or Common Shares represented by ADSs generally are includible in the gross income of a U.S. Holder as ordinary income. Dividends generally are treated as foreign source income. Dividends paid to a U.S. Holder that is a corporation are not eligible for the dividends received deduction available to corporations. Under current law, a maximum 20 percent20% U.S. tax rate is imposed on the dividend income of an individual U.S. holderHolder with respect to dividends paid by a domestic corporation or “qualified foreign corporation” if certain holding period requirements are met. A qualified foreign corporation generally includes a foreign corporation if (i) its shares are readily tradable on an established securities market in the U.S. or (ii) it is eligible for benefits under a comprehensive U.S. income tax treaty. Clause (i) will apply with respect to ADSs if such ADSs are readily tradable on an established securities market in the U.S. The ADSs are traded on the New York Stock Exchange. As a result, we believe that we should be treated as a qualified foreign corporation and, therefore, dividends paid to an individual U.S. holderHolder with respect to ADSs for which the minimum holding period requirement is met should be taxed at a maximum rate of 20 percent.20%. Dividends paid in Nuevos Soles are includible in a United StatesU.S. dollar amount based on the exchange rate in effect on the date of receipt (which, in the case of ADSs, will be the date of receipt by the Depositary) whether or not the payment is converted into U.S. Dollars at that time. Any gain or loss recognized upon a subsequent sale or conversion of the Nuevos Soles for a different amount of U.S. Dollars will be United StatesU.S. source ordinary income or loss. Distributions to U.S. Holders of additional Common Shares or preemptive rights with respect to Common Shares that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to United StatesU.S. federal income tax but in other circumstances may constitute a taxable dividend.

A U.S. Holder will be entitled to a foreign tax credit for Peruvian taxes imposed by withholding or otherwise, subject to generally applicable limitations and restrictions. In the case of U.S. individuals for whom the reduced rate of tax on dividends applies, such limitations and restrictions will appropriately take into account the rate differential under rules similar to section 904(b)(2)(B) of the Internal Revenue Code. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisors regarding their application to the particular circumstances of such holder.

 

A non-U.S. Holder generally is not subject to United States FederalU.S. federal income or withholding tax on dividends paid with respect to Common Shares or Common Shares represented by ADSs, unless such income is effectively connected with the conduct by the non-U.S. Holder of a trade or business within the United States.U.S.

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Capital Gains

 

U.S. Holders will recognize capital gain or loss on the sale or other disposition of ADSs or Common Shares (or preemptive rights with respect to such shares) held by the U.S. Holder or by the Depositary. U.S. Holders will not recognize gain or loss on deposits or withdrawals of Common Shares in exchange for ADSs or on the exercise of preemptive rights. Any gain recognized by a U.S. Holder generally will be treated as United StatesU.S. source income. Consequently, in the case of a disposition of Common Shares or ADSs in a transaction subject to Peruvian tax, the U.S. Holder may not be able to claim the foreign tax credit for any Peruvian tax imposed on the gain unless it has sufficient foreign source income from other sources against which it can apply the credit. Generally, gain or loss will be a long-term capital gain or loss if the U.S. Holder’s holding period for such Common Shares or ADSs exceeds one year. Long-term capital gain for an individual U.S. Holder is generally subject to a reduced rate of tax.

 

A non-U.S. Holder of ADSs or Common Shares will not be subject to United StatesU.S. income or withholding tax on gain from the sale or other disposition of ADSs or Common Shares unless (i) such gain is effectively connected with the conduct of a trade or business within the United StatesU.S. or (ii) the non-U.S. Holder is an individual who is present in the United StatesU.S. for at least 183 days during the taxable year of the disposition and certain other conditions are met.

 

Passive Foreign Investment Company

 

We believe that we are not and will not become a passive foreign investment company for United States FederalU.S. federal income tax purposes. A foreign corporation is a passive foreign investment company or PFIC,(“PFIC”) in any taxable year in which, after taking into account the income and assets of certain subsidiaries pursuant to the applicable look-through rules, either (i) at least 75 percent75% of its gross income is passive income or (ii) at least 50 percent50% of the average value of its assets is attributable to assets that produce passive income or are held for the production of passive income.

 

If we were a PFIC in any year during which a U.S. Holder owned ADSs or Common Shares, we would not be treated as a “qualified foreign corporation” for purposes of qualifying dividends paid to a U.S. Holder for the preferential 20 percent20% maximum U.S. tax rate noted above and the U.S. Holder would be subject to additional taxes on any excess distributions received from us and any gain realized from the sale or other disposition of ADSs or Common Shares (regardless of whether we continued to be a PFIC). A U.S. Holder has an excess distribution to the extent that distributions on ADSs or Common Shares during a taxable year exceed 125 percent125% of the average amount received during the three preceding taxable years (or, if shorter, the U.S. Holder���sHolder’s holding period for the ADSs or Common Shares). To compute the tax on an excess distribution or any gain, (i) the excess distribution or the gain is allocated ratably over the U.S. Holder’s holding period for the ADSs or Common Shares, (ii) the amount allocated to the current taxable year is taxed as ordinary income and (iii) the amount allocated to other taxable years is taxed at the highest applicable marginal rate in effect for each year and an interest charge is imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year.

 

If we were a PFIC, U.S. holdersHolders of interests in a holder of ADSs or Common Shares may be treated as indirect holders of their proportionate share of the ADSs or Common Shares and may be taxed on their proportionate share of any excess distribution or gain attributable to the ADSs or Common Shares. An indirect holder also must treat an appropriate portion of its gain on the sale or disposition of its interest in the actual holder as gain on the sale of the ADSs or Common Shares.

 

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Information Reporting and Backup Withholding

 

Dividends in respect of the ADSs or Common Shares and the proceeds from the sale, exchange, or redemption of the ADSs or Common Shares may be reported to the United StatesU.S. Internal Revenue Service and a backup withholding tax may apply to such amounts unless the holder (i) is a domestic corporation (which may be required to establish its exemption by carrying its status on U.S. Internal Revenue Service Form W-9), (ii) in the case of a U.S. Holder other than a corporation, provides an accurate taxpayer identification number in the manner required by applicable law, (iii) in the case of a non-U.S. Holder, provides a properly executed U.S. Internal Revenue Service Form W-8BEN, or other successor Form, or (iv) otherwise establishes a basis for exemption. The amount of any backup withholding from a payment to a U.S. Holder generally will be allowed as a credit against the U.S. Holder’s United States FederalU.S. federal income tax liability.

131 

 

F. Dividends and Paying Agents

 

Not applicable.

 

G. Statement by Experts

 

Not applicable.

 

H. Documents on Display

 

We are subject to the informational requirements of Exchange Act. In accordance with these requirements, we file annual reports and other information to the SEC. These materials, including this Annual Report on Form 20-F and the exhibits hereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604, and 3 World Financial Center, Suite 400, New York, New York 10281-1022. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC in the United StatesU.S. at 1-800-SEC-0330. The SEC also maintains a web site athttp://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Form 20-F reports and some of the other information submitted by us to the SEC may be accessed through this web site.

 

I. Subsidiary Information

 

Not applicable.

 

ITEM 11.        Quantitative and Qualitative Disclosures About Market Risk

ITEM 11.Quantitative and Qualitative Disclosures About Market Risk

 

The following discussion contains forward-looking statements that are subject to risks and uncertainties, many of which are outside of our control. Our primary market risks are related to fluctuations in the prices of gold, silver, zinc and lead. To a lesser extent, we are subject to market risk related to fluctuations in US$/Nuevo Sol exchange rates and to market risk related to interest rate fluctuation on our cash balances.

 

Commodity Contracts

 

Gold, silver, lead and copper hedging and sensitivity to market price

 

Our revenues and earnings are to a great extent influenced by world market prices for gold, copper, silver, zinc and lead that fluctuate widely and over which we have no control. We and our wholly-owned subsidiaries are completely unhedged as to the price at which our gold and silver will be sold. See “Item 3. Key Information—D. Risk Factors—Factors Relating to the Company—Our financial performance is highly dependent on the prices of gold, silver, copper and other metals.”

 

As of March 31, 2015, we had no fixed price commitments for the sale of our metals. As of March 31, 2015,2017, we had no silver derivative contracts or gold convertible put option contracts in place.

Between January 2017 and December 2017, El Brocal had outstanding hedging commitments amounting to 16,107 metric tons of copper at an average fixed price of US$5,395 per ton.

Yanacocha and Cerro Verde have informed us that they have generally not engaged in, and are currently not engaged in, gold or copper price hedging activities, such as forward sales or option contracts, to minimize their exposure to fluctuations in the prices of gold or copper.

 

Normal Sales

 

We had no normal sales contracts with fixed or capped prices outstanding as of March 31, 2015.2017.

132 

 

Foreign currency risk

 

We buy and sell our products and obtain capital facilities and investment in U.S. Dollars. The assets and liabilities in different currencies from the U.S. Dollar (Nuevos Soles)(Soles) are not significant. We estimate that the future exchange rate fluctuations of Peruvian currency versus the U.S. Dollar will not significantly affect the results of our future operations.

 

Interest Rate Sensitivity

 

We reduce our exposure to the risks due to variations in interest rates by engaging in financial obligations and capital leasing with fixed interest rates. See Note 3133 to the Financial Statements. Consequently, we do not use derivative instruments to manage this risk and we do not expect to incur significant losses based on interest risks.

 

ITEM 12.          Description of Securities Other Than Equity Securities

ITEM 12.Description of Securities Other Than Equity Securities

 

A. Debt Securities

 

Not applicable.

 

B. Warrants and Rights

 

Not applicable.

 

C. Other Securities

 

Not applicable.

 

D. American Depositary Shares

 

The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deductions from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. The following table summarizes the fees and expenses payable by holders of ADSs:

 

Persons depositing or withdrawing shares must pay: For:
   
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) •Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
    
  •Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
    
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs •Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
Registration or transfer fees •Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares
    
Expenses of the Depositary •Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
    
  •Converting foreign currency to U.S. Dollars

 133  

Taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes •As necessary
    
Any charges incurred by the Depositary or its agents for servicing the deposited securities •As necessary

 

Fees Incurred in Past Annual Period

 

From January 1, 20142017 to April 30, 2015,2017, we received no fees from the Depositary related to our ADR facility, including continuing annual stock exchange listing fees, standard out-of-pocket maintenance costs for the ADRs (consisting of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federalfederal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADR facility, underwriting fees and legal fees.

 

Fees to be Paid in the Future

 

The Depositary has agreed to reimburse us for expenses we incur that are related to establishment and maintenance expenses of the ADS program. The Depositary has agreed to reimburse us for our continuing annual stock exchange listing fees. The Depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federalfederal tax information, mailing required tax forms, stationery, postage, facsimile and telephone calls. It has also agreed to reimburse us annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the Depositary has agreed to provide additional payments to us based on any applicable performance indicators relating to the ADR facility. There are limits on the amount of expenses for which the Depositary will reimburse us, but the amount of reimbursement available to us is not necessarily tied to the amount of fees the Depositary collects from investors.

 

The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

 

134 

PART II

 

ITEM 13.          Defaults, Dividend Arrearages and Delinquencies

ITEM 13.Defaults, Dividend Arrearages and Delinquencies

 

Not applicable.

 

ITEM 14.          Material Modifications to the Rights of Security Holders and Use of Proceeds

ITEM 14.Material Modifications to the Rights of Security Holders and Use of Proceeds

 

Not applicable.

 

140ITEM 15.Controls and Procedures

ITEM 15.          Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of December 31, 2014,2016, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2014.2016. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 framework) inInternal Control—Integrated Framework(1992).Framework. Our management concluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2014.2016.

 

Our independent registered public accounting firm Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L., has issued an attestation report on our internal control over financial reporting, which is included below.

 

Attestation Report of the Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

We have audited Compañía de Minas Buenaventura S.A.A.’s and Subsidiaries’ internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(1992(2013 framework)” - the (the COSO criteria.criteria). Compañía de Minas Buenaventura S.A.A.’s and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual reportReport on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

135 

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, Compañía de Minas Buenaventura S.A.A. and subsidiariesSubsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on the COSO criteria.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Compañía de Minas Buenaventura S.A.A. and subsidiariesSubsidiaries as of December 31, 20142016 and 2013,2015 and the related consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 20142016 of Compañía de Minas Buenaventura S.A.A. and subsidiariesSubsidiaries and our report dated April 29, 2015,February 28, 2017 expressed an unqualified opinion thereon.

 

Lima, Peru

April 29, 2015February 28, 2017

 

/s/ Paredes, Zaldívar, Burga Asociados & S.Civil de R.L.
Countersigned by:

 

Paredes, Burga & Asociados S. Civil de R.L.

/s/ Victor Burga

Victor Burga

C.P.C.C. Register No.14859

136  
Victor Burga
C.P.C.A. Register No. 14859

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting during 20142016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.]

 

ITEM 16A.          Audit Committee Financial Expert

ITEM 16A.Audit Committee Financial Expert

 

The Board of Directors has determined that Mr. German Suárez is the Audit Committee financial expert as defined in Item 16A of Form 20-F. The Board of Directors has also determined that Mr. Suárez and each of the other members of the Audit Committee are “independent directors” as defined in Section 303A.02 of the New York Stock Exchange’s, or NYSE,(“NYSE”), Listed Company Manual.

 

ITEM 16B.          Code of Ethics

ITEM 16B.Code of Ethics

 

We have adopted a written code of business conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, as well as all other employees. Our code of business conduct and ethics is posted on, and within five days following the date of any amendment or waiver we intend to disclose any amendments to or waivers from our code of business conduct and ethics on, our website, which is located athttp://www.buenaventura.com. The information on our website is not a part of, nor incorporated into, this document.

 

ITEM 16C.          Principal Accountant Fees and Services

ITEM 16C.Principal Accountant Fees and Services

 

The Audit Committee proposed at the General Meeting that Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L., a member firm of Ernst & YoungEY Global, be elected as the independent auditor for 2014.2016. Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L. has served as our independent public accountant for each of the fiscal years in the two-year period ended December 31, 20132015 and 2014,2016, for which audited financial statements appear in this annual report on Form 20-F.

The following table presents the aggregate fees for professional services and other services rendered by Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L. for 20132015 and 2014.2016.

 

  Year ended December 31, 
  2013  2014 
Audit Fees US$1,248,382  US$564,513 
Tax Fees US$175,586  US$123,208 
All other fees US$28,658  US$62,547 
Total US$1,452,626  US$750,268 

  Year ended December 31, 
  2015  2016 
Audit Fees US$1,314,910  US$1,081,358 
Tax Fees US$292,589  US$262,183 
All other fees US$21,845  US$4,272 
Total US$1,629,344  US$1,347,813 

 

Audit Fees. Audit fees in the above table are the aggregate fees billed by Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L. in connection with the audit of our annual financial statements, the review of our quarterly financial statements and statutory and regulatory audits. In addition, the amounts in the above table includes fees that were incurred in connection with the audit of internal control over financial reporting in 20132015 and 2014.2016.

 

Tax Fees. Tax fees in the above table are fees billed by Paredes, Zaldívar, Burga & Asociados S.CivilS. Civil de R.L. in connection with review of income tax filings, transfer pricing studies and tax consultations.

 

Audit Committee Pre-approval Policies and Procedures

 

Our Audit Committee is responsible for the oversight of the independent auditor. The Audit Committee has adopted a policy regarding pre-approval of audit services provided by our independent auditors, or the Policy.“Policy.” In accordance with the Policy, the Audit Committee must pre-approve the provision of services by our independent auditor for all audit and non-audit services prior tobefore commencement of the specified service. The requests for pre-approval are submitted to the Audit Committee by the Chief Financial Officer and following approval by audit committee members an engagement letter is executed. The Audit Committee approved all audit and tax fees in 20132015 and 2014.2016.

 

137 

ITEM 16D.       Exemptions from the Listing Standards for Audit Committees

ITEM 16D.Exemptions from the Listing Standards for Audit Committees

 

Not applicable.

 

ITEM 16E.       Purchases of Equity Securities by the Issuer and Affiliated Purchasers

ITEM 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

For the year ended December 31, 2014,2016, neither we nor any person acting on our behalf made any purchase of our Common Shares.

 

ITEM 16F.       Change in Registrant’s Certifying Accountant

ITEM 16F.Change in Registrant’s Certifying Accountant

 

None.

 

ITEM 16G.       Corporate Governance

ITEM 16G.Corporate Governance

 

There are significant differences in the corporate governance practices followed by us as compared to those followed by United StatesU.S. domestic companies under the NYSE, listing standards. The NYSE listing standards provide that the board of directors of a United StatesU.S. domestic listed company must consist of a majority of independent directors and that certain committees must consist solely of independent directors. Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of the members of the board of directors be independent.

The listing standards for the NYSE also require that United StatesU.S. domestic companies have an audit committee, a nominating/corporate governance committee and a compensation committee. Each of these committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Peruvian corporate governance practices permit the Boardboard of Directorsdirectors of a Peruvian company to form special governance bodies in accordance with the needs of such company and do not require that these special governance bodies be composed partially or entirely of independent directors. We maintain three committees, which include the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee. Our Board of Directors has determined that our Audit Committee is composed entirely of independent directors, as defined in the NYSE’s Listed Company Manual.

 

The NYSE’s listing standards also require United StatesU.S. domestic companies to adopt and disclose corporate governance guidelines. In July 2002, the SMV and a committee comprisedcomposed of regulatory agencies and associations prepared and published a list of suggested corporate governance guidelines called “Principles of Good Governance for Peruvian Companies.” These principles are disclosed on the SMV’s website athttp://www.smv.gob.pe. Our code of business conduct and ethics establishes our principles of good corporate governance and, as indicated in “Item 16B. Code of Ethics,” is posted on our website.

 

ITEM 16H.       Mine Safety Disclosure

ITEM 16H.Mine Safety Disclosure

 

Not applicable.

 

144138 

 

PART III

 

ITEM 17.       Financial Statements

ITEM 17.Financial Statements

 

Not applicable.

 

ITEM 18.       Financial Statements

ITEM 18.Financial Statements

 

Please refer to Item 19.

 

ITEM 19.       Exhibits

ITEM 19.Exhibits

 

(a)Index to Financial Statements and Schedules

 

 Page
COMPAÑÍA DE MINAS BUENAVENTURA S.A.A. AND SUBSIDIARIESF-2F-1
  
MINERA YANACOCHA S.R.L.F-96F-102
  
SOCIEDAD MINERA CERRO VERDE S.A.A.F-138F-157

 

(b)Index to Exhibits

 

1.1By-laws (Estatutos) of Compañía de Minas Buenaventura S.A.A., as amended April 30, 2002 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).

 

1.2By-laws (Estatutos) of Minera Yanacocha S.R.L., as amended October 18, 1999 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).

 

2.1Credit and Guaranty Agreement, dated as of June 27, 2016 among Compañía de Minas Buenaventura S.A.A., as Borrower, Banco de Crédito del Perú, as Administrative Agent, Compañía Minera Condesa S.A., Inversiones Colquijirca S.A. and Consorcio Energético de Huancavelica S.A., as Guarantors, and BBVA Banco Continental, Banco de Crédito del Perú, Corpbanca New York Branch, Banco Internacional del Perú S.A.A. – Interbank, Industrial and Commercial Bank of China, Dubai (DIFC) Branch, Banco Latinoamericano de Comercio Exterior, S.A. and Banco de Sabadell, Miami Branch, as Lenders.†

4.1Shareholders Agreement among SMM Cerro Verde Netherlands B.V., Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Summit Global Management B.V., Compañía de Minas Buenaventura S.A.A., Cyprus Climax Metals Company, Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A., dated June 1, 2005 (incorporated by reference from Compañ íaía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2005, filed on June 6, 2006).

 

11Code of Conduct and Ethics (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2013, filed on April 30, 2014).

 

12.1Certification of Chief Executive Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†

 

12.2Certification of Chief Financial Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†

 

13.1Certification of Chief Executive Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

 

139 

13.2Certification of Chief Financial Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

___________________

† Filed herewith.

140 

SIGNATURE

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

 COMPAÑÍA DE MINAS BUENAVENTURA S.A.A.
   
 By:/s/Carlos E. Gálvez Pinillos
  Carlos E. Gálvez Pinillos
  Chief Financial Officer
Dated:  April 28, 2017

 

141 

Dated: April 30, 2015

Exhibit Index

Exhibit No. Document Description
   
1.1 By-laws (Estatutos) of Compañía de Minas Buenaventura S.A.A., as amended April 30, 2002 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).
   
1.2 By-laws (Estatutos) of Minera Yanacocha S.R.L., as amended October 18, 1999 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).
2.1Credit and Guaranty Agreement, dated as of June 27, 2016 among Compañía de Minas Buenaventura S.A.A., as Borrower, Banco de Crédito del Perú, as Administrative Agent, Compañía Minera Condesa S.A., Inversiones Colquijirca S.A. and Consorcio Energético de Huancavelica S.A., as Guarantors, and BBVA Banco Continental, Banco de Crédito del Perú, Corpbanca New York Branch, Banco Internacional del Perú S.A.A. – Interbank, Industrial and Commercial Bank of China, Dubai (DIFC) Branch, Banco Latinoamericano de Comercio Exterior, S.A. and Banco de Sabadell, Miami Branch, as Lenders.†
   
4.1 Shareholders Agreement among SMM Cerro Verde Netherlands B.V., Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Summit Global Management B.V., Compañía de Minas Buenaventura S.A.A., Cyprus Climax Metals Company, Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A. dated June 1, 2005 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2005, filed on June 6, 2006).
   
11 Code of Conduct and Ethics.  (incorporated by reference from CompaniaCompañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 203, field2013, filed on April 30, 2014).
   
12.1 Certification of Chief Executive Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
   
12.2 Certification of Chief Financial Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
   
13.1 Certification of Chief Executive Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†
   
13.2 Certification of Chief Financial Officer of Compañía de Minas Buenaventura S.A.A. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

____________________

† Filed herewith.

Index to the Financial Statements

Exhibits

 Page
 
Compañía de Minas Buenaventura S.A.A. and subsidiaries
Report of Independent Registered and Certified Public Accounting FirmF-4
Consolidated statements of financial position As of December 31, 2014 and 2013F-6
Consolidated statements of profit or loss For the years ended December 31, 2014, 2013 and 2012F-7
Consolidated statements of other comprehensive income For the years ended December 31, 2014, 2013 and 2012F-8
Consolidated statements of changes in equity For the years ended December 31, 2014, 2013 and 2012F-9
Consolidated statements of cash flows For the years ended December 31, 2014, 2013 and 2012F-10
Notes to the Consolidated Financial StatementsF-11
Minera Yanacocha S.R.L.
Report of the Independent Registered and Certified Public Accounting FirmF-98
Consolidated Statements of Income and Comprehensive IncomeF-99
Consolidated Statements of Cash FlowsF-100
Consolidated Balance SheetsF-101
Consolidated Statements of Changes in Partners’ EquityF-102
Notes to the Consolidated Financial StatementsF-103
Sociedad Minera Cerro Verde S.A.A.
Report of Independent Registered Public Accounting FirmF-140
Statement of Financial PositionF-141
Statements of Comprehensive IncomeF-142
Statements of Changes in EquityF-143
Statements of Cash FlowsF-144
Notes to the Financial StatementsF-146

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated Financial Statements for the years 2014, 2013 and 2012, together with the Report of Independent Registered Public Accounting Firm

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated Financial Statements for the years 2016, 2015 and 2014, 2013together with the Report of Independent Registered Public Accounting Firm

F-1

Report of Independent Registered Public Accounting Firm

Compañía de Minas Buenaventura S.A.A. and 2012,Subsidiaries

Consolidated Financial Statements for the years 2016, 2015 and 2014, together with the Report of Independent Registered Public Accounting Firm.

 

Content

Content
Report of Independent Registered Public Accounting FirmF-4F-3
  
Consolidated Financial Statements 
  
Consolidated statements of financial positionF-6F-5
Consolidated statements of profit or lossF-7F-6
Consolidated statements of other comprehensive incomeF-8F-7
Consolidated statements of changes in equityF-9F-8
Consolidated statements of cash flowsF-10F-9
Notes to the consolidated financial statementsF-11F-10

 

F-3F-2

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Compañía de Minas Buenaventura S.A.A.and Subsidiaries.

 

We have audited the accompanying consolidated financial statements of Compañía de Minas Buenaventura S.A.A. (a Peruvian public corporation) and subsidiariesSubsidiaries (together the “Group”), which comprise the consolidated statements of financial position as of December 31, 20142016 and 2013,2015, and the related consolidated statements of profit or loss, statements of other comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2014, 2013 and 2012.2016. These consolidated financial statements are the responsibility of the Group's Management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Minera Yanacocha S.R.L (an associate in which the Company has a 43.65% interest through its subsidiary, Compañía Minera Condesa S.A.). In the consolidated statements of financial position, the Group’s investment in Minera Yanacocha S.R.L. , is stated at US$1,186 million and US$1,361 million as of December 31, 2014 and 2013, respectively; andfor the year then ended. In the consolidated statement of profit or loss for 2014, the Group’s equity in the results of Minera Yanacocha S.R.L. is stated at a loss of US$175 million and US$251 million for the years ended December 31, 2014 and 2013, respectively and a profitmillion. The financial statements of US$283 million for the year ended December 31, 2012. Those statementsMinera Yanacocha S.R.L. were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Minera Yanacocha S.R.L., is based solely on the report of the other auditors.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management,management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

F-3

Report of Independent Registered Public Accounting Firm(continue)

 

In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Compañía de Minas Buenaventura S.A.A. and SubsidiariesSubsidiaries´ as of December 31, 20142016 and 2013,2015, and theirthe consolidated results of operations and their cash flows for each of the three years in the period ended on December 31, 2014, 2013 and 2012,2016, in accordanceconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).

Report of Independent Registered Public Accounting Firm (continued)

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Compañía de Minas Buenaventura S.A.A.´s and Subsidiaries´ internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(1992(2013 framework)” and our report dated April 29, 2015February 28, 2017 expressed an unqualified opinion thereon.

 

Lima, Peru,

April 29, 2015February 28, 2017

Countersigned by:

Paredes, Burga & Asociados S. Civil de R.L.

 

Countersigned by:
/s/ Victor Burga 
Victor Burga
C.P.C.A.

Victor Burga

C.P.C.C. Register No. 14859

F-4 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of financial position

As of December 31, 20142016 and 20132015

 

 Note 2014 2013  Note 2016 2015 
   US$(000) US$(000)    US$(000) US$(000) 
     Note 2.1 
Assets          
Current assets          
Asset          
Current asset          
Cash and cash equivalents 7  78,512   51,276  7  80,544   78,519 
Trade and other receivables, net 8(a)  281,604   263,583  8(a)  269,089   219,862 
Inventories, net 9(a)  150,284   175,719  9(a)  120,947   101,473 
Income tax credit    53,746   37,370     19,956   45,919 
Prepaid expenses    16,954   14,597  10  11,392   8,231 
Embedded derivative for sale of concentrates, net 30(b)  -   1,857 
Derivative financial instruments 30(a)  3,688   - 
    584,788   544,402     501,928   454,004 
Assets held for sale 1(e)  18,683   -  1(e)  -   15,592 
    603,471   544,402     501,928   469,596 
Non-current assets          
Non-current asset          
Trade and other receivables, net 8(a)  26,651   28,079  8(a)  166,048   162,567 
Long-term inventories 9(a)  34,088   23,366 
Inventories, net 9(a)  14,027   26,029 
Income tax credit    3,660   - 
Investments in associates 10(a)  2,224,381   2,350,302  11(a)  1,536,607   2,043,983 
Mining concessions, development costs, property, plant and equipment, net 11  1,715,452   1,515,460  12  1,960,025   1,747,624 
Investment properties, net 12  11,200   -  13  10,089   10,719 
Deferred income tax asset, net 26(a)  47,675   83,525  28(b)  25,881   41,574 
Intangibles, net    4,592   490 
Prepaid expenses 10  30,431   29,235 
Other assets    4,764   6,643     17,719   15,854 
    4,068,803   4,007,865     3,764,487   4,077,585 
Total assets    4,672,274   4,552,267     4,266,415   4,547,181 
Liabilities and shareholders’ equity, net                    
Current liabilities                  
Bank loans 13  40,000   -  14  55,000   285,302 
Trade and other payables 14(a)  254,000   301,811  15(a)  273,440   247,114 
Current provisions 15(a)  67,895   69,800 
Provisions 16(a)  62,502   49,829 
Income tax payable    3,556   2,140     8,686   2,444 
Embedded derivatives for sale of concentrate, net 30(b)  9,072   -  32(b)  1,524   1,694 
Financial obligations 16(a)  69,950   11,370  17(a)  40,110   33,394 
Derivative financial instruments 30(a)  -   1,093 
Hedge derivative financial instruments 32(a)  3,863   10,643 
    444,473   386,214     445,125   630,420 
Liabilities directly associated with the assets held for sale 1(e)  28,890   -  1(e)  -   20,611 
    473,363   386,214     445,125   651,031 
Non-current liabilities                    
Trade and other payables 14(a)  15,240   12,229  15(a)  15,982   15,057 
Other non-current provisions 15(a)  63,571   106,376 
Provisions 16(a)  174,190   141,885 
Financial obligations 16(a)  313,355   223,027  17(a)  552,232   320,316 
Contingent consideration liability 5  23,026   -  5  19,343   16,994 
Deferred income tax liabilities, net 26(a)  21,594   -  28(b)  12,330   12,662 
    436,786   341,632     774,077   506,914 
Total liabilities    910,149   727,846     1,219,202   1,157,945 
Shareholders ‘equity, net 17         18        
Capital stock    750,497   750,497     750,497   750,497 
Investment shares    1,396   1,396     791   1,396 
Additional paid-in capital    219,055   219,055     218,450   219,055 
Legal reserve    162,710   162,663     162,744   162,714 
Other reserves    269   269     269   269 
Retained earnings    2,328,423   2,413,130     1,690,123   2,024,895 
Other reserves of equity    1,755   104     (1,783)  2,240 
Shareholders ‘equity, net attributable to owners of the parent    3,464,105   3,547,114     2,821,091   3,161,066 
Non-controlling interest 18(a)  298,020   277,307  19(a)  226,122   228,170 
Total shareholders’ equity, net    3,762,125   3,824,421     3,047,213   3,389,236 
Total liabilities and shareholders’ equity, net    4,672,274   4,552,267     4,266,415   4,547,181 

F-5

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of profit or loss

For the years ended December 31, 2014, 20132016, 2015 and 20122014

 

 Note 2014 2013 2012  Note 2016 2015 2014 
   US$(000) US$(000) US$(000)    US$(000) US$(000) US$(000) 
     Note 2.1 Note 2.1          
Continuing operations                            
Operating income                            
Net sales 20(a)  1,138,913   1,215,421   1,422,843 
Net sales of goods 21(a)  1,015,670   846,269   959,286 
Net sales of services 21(a)  28,782   50,839   71,159 
Royalty income 28(a)  36,867   44,185   67,178  30(a)  24,339   32,414   36,867 
Total operating income    1,175,780   1,259,606   1,490,021     1,068,791   929,522   1,067,312 
Operating costs                            
Cost of sales, excluding depreciation and amortization 21  (614,539)  (627,285)  (571,243)
Cost of sales of goods, excluding depreciation and amortization 22(a)  (497,812)  (513,490)  (498,714)
Cost of services, excluding depreciation and amortization 22(b)  (10,754)  (59,612)  (77,927)
Exploration in operating units 22  (97,852)  (101,913)  (103,215) 23  (96,149)  (89,699)  (97,357)
Depreciation and amortization    (208,698)  (159,140)  (111,025)    (192,647)  (232,583)  (172,999)
Mining royalties 23  (28,440)  (30,402)  (37,496) 24  (27,611)  (27,188)  (27,428)
Total operating costs    (949,529)  (918,740)  (822,979)    (824,973)  (922,572)  (874,425)
Gross profit    226,251   340,866   667,042     243,818   6,950   192,887 
Operating expenses              
Operating expenses, net              
Administrative expenses 24  (101,102)  (75,118)  (94,118) 25  (81,692)  (84,372)  (93,753)
Exploring in non-operating areas 25  (50,007)  (32,805)  (95,491)
Exploration in non-operating areas 26  (26,589)  (30,610)  (50,007)
Selling expenses    (16,605)  (14,842)  (15,491)    (21,733)  (19,365)  (16,212)
Excess of workers’ profit sharing    -   (704)  (2,164)
Impairment loss of long-lived assets 12(b)  -   (3,803)  - 
Other, net    3,059   (2,154)  19,172     18,392   (5,735)  3,169 
Total operating expenses, net    (164,655)  (125,623)  (188,092)    (111,622)  (143,885)  (156,803)
Operating profit    61,596   215,243   478,950 
Operating profit (loss)  132,196   (136,935)  36,084 
Other income (expense), net                            
Share in the results of associates under equity method 10(b)  (74,600)  (114,145)  478,987  11(b)  (365,321)  (173,375)  (74,600)
Finance costs    (11,318)  (9,896)  (8,290) 27  (31,580)  (27,572)  (11,276)
Net gain (loss) from currency exchange difference    (8,452)  (7,192)  1,855     2,638   (13,693)  (8,457)
Gain on business combination 5  59,852   -   -  5  -   -   59,852 
Finance income    8,408   6,621   9,486  27  6,830   11,026   8,408 
Total other income (expenses), net    (26,110)  (124,612)  482,038     (387,433)  (203,614)  (26,073)
Profit before income tax    35,486   90,631   960,988 
              
Current income tax 26(c)  (19,006)  (57,328)  (130,507)
Deferred income tax 26(c)  (47,006)  (29,154)  (12,451)
Net profit (loss) from continuing operations    (30,526)  4,149   818,030 
Profit (loss) before income tax    (255,237)  (340,549)  10,011 
Income tax            
Current 28(c)  (39,444)  (14,222)  (18,815)
Deferred 28(c)  (14,060)  (541)  (47,006)
Loss from continuing operations  (308,741)  (355,312)  (55,810)
                            
Discontinued operations                          
Loss from discontinued operations 1(e)  (31,114)  (83,885)  (57,510) 1(e)  (19,073)  (20,233)  (5,830)
Profit (loss) for the year    (61,640)  (79,736)  760,520 
Loss for the year  (327,814)  (375,545)  (61,640)
Attributable to:                          
Owners of the parent    (76,065)  (107,257)  701,100     (323,492)  (317,210)  (76,065)
Non-controlling interest 18(a)  14,425   27,521   59,420  19(a)  (4,322)  (58,335)  14,425 
    (61,640)  (79,736)  760,520     (327,814)  (375,545)  (61,640)
Basic and diluted profit (loss) per share attributable to equity holders of the parent, stated in U.S. dollars 17(f)  (0.30)  (0.42)  2.76 
Profit (loss) for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars 17(f)  (0.18)  (0.09)  2.98 
Basic and diluted loss per share attributable to equity holders of the parent, stated in U.S. dollars 18(e)  (1.27)  (1.25)  (0.30)
Loss for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars 18(e)  (1.20)  (1.17)  (0.28)

F-6

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of other comprehensive income

For the years ended December 31, 2016, 2015 and 2014 2013 and 2012

 

 Note 2014 2013 2012  2016 2015 2014 
   US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
     Note 2.1 Note 2.1        
Net profit (loss)   (61,640)  (79,736)  760,520 
Net loss  (327,814)  (375,545)  (61,640)
                          
Other comprehensive profit (loss)              
Other comprehensive profit (loss):            
Other comprehensive income to be reclassified to profit or loss in subsequent periods                          
Net change in unrealized gain (loss) on cash flow hedges of a subsidiary    4,781   (1,093)  (1,283)
Loss on available-for-sale investments    (80)  (434)  (715)
Net change in unrealized gain (loss) on cash flow hedges  (4,368)  (3,368)  4,781 
Reclassification in other investments  279   (546)  (80)
Income tax effect    (1,581)  378   439   (1,301)  3,372   (1,581)
                          
   3,120   (1,149)  (1,559)  (5,390)  (542)  3,120 
Total other comprehensive income (loss)    (58,520)  (80,885)  (758,961)
Total other comprehensive loss  (333,204)  (376,087)  (58,520)
                          
Attributable to:                          
Equity holders of the parent    (74,414)  (108,078)  699,957   (327,515)  (316,725)  (74,414)
Non-controlling interests    15,894   27,193   59,004   (5,689)  (59,362)  15,894 
                        
    (58,520)  (80,885)  758,961   (333,204)  (376,087)  (58,520)

F-7

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of changes in equity

For the years ended December 31, 2014, 20132016, 2015 and 20122014

 

  Attributable to equity holders of the parent 
  

Capital stock, net of

treasury shares

                            
  Number of shares
outstanding		  

Common

shares

  Investment shares  Additional paid-in
capital		  

Legal

reserve

  

Other

reserves

  Retained earnings  Other reserves of
equity		  Total  Non-controlling
interest		  

Total

equity

 
     US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                                  
As of January 1, 2012  253,729,664   750,540   2,019   225,978   162,639   269   2,050,832   2,068   3,194,345   262,198   3,456,543 
Net profit  -   -   -   -   -   -   701,100   -   701,100   59,420   760,520 
Other comprehensive loss  -   -   -   -   -   -   -   (1,143)  (1,143)  (416)  (1,559)
Total other comprehensive income  -   -   -   -   -   -   701,100   (1,143)  699,957   59,004   758,961 
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (152,666)  -   (152,666)  (44,881)  (197,547)
Capital reduction in Minera La Zanja S.R.L., note 17(e)  -   -   -   -   -   -   -   -   -   (12,674)  (12,674)
Treasury shares purchase  -   -   (620)  (6,507)  -   -   -   -   (7,127)  -   (7,127)
Expired dividends  -   -   -   -   24   -   -   -   24   -   24 
As of December 31, 2012, note 2.1  253,729,664   750,540   1,399   219,471   162,663   269   2,599,266   925   3,734,533   263,647   3,998,180 
                                             
Net loss, note 2.1  -   -   -   -   -   -   (107,257)  -   (107,257)  27,521   (79,736)
Other comprehensive loss  -   -   -   -   -   -   -   (821)  (821)  (328)  (1,149)
Total other comprehensive income  -   -   -   -   -   -   (107,257)  (821)  (108,078)  27,193   (80,885)
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (78,879)  -   (78,879)  (13,533)  (92,412)
Treasury shares purchase  (14,474)  (43)  (3)  (416)  -   -   -   -   (462)  -   (462)
As of December 31, 2013, note 2.1  253,715,190   750,497   1,396   219,055   162,663   269   2,413,130   104   3,547,114   277,307   3,824,421 
Net profit (loss)  -   -   -   -   -   -   (76,065)  -   (76,065)  14,425   (61,640)
Other comprehensive profit  -   -   -   -   -   -   -   1,651   1,651   1,469   3,120 
Total other comprehensive profit (loss)  -   -   -   -   -   -   (76,065)  1,651   (74,414)  15,894   (58,520)
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (8,642)  -   (8,642)  (8,880)  (17,522)
Expired dividends  -   -   -   -   47   -   -   -   47   -   47 
Increases in non-controlling interest  -   -   -   -   -   -   -   -   -   13,699   13,699 
                                             
As of December 31, 2014  253,715,190   750,497   1,396   219,055   162,710   269   2,328,423   1,755   3,464,105   298,020   3,762,125 
  Attributable to equity holders of the parent    
  Capital stock, net of
treasury shares		                            
  Number of
shares
outstanding		  Common
shares		  Investment
shares		  Additional
paid-in
capital		  Legal
reserve		  Other
reserves		  Retained
earnings		  Other
reserves
of equity		  Total  Non-
controlling
interest		  Total
equity		 
       US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000)   US$(000) 
                                             
As of January 1, 2014  253,715,190   750,497   1,396   219,055   162,663   269   2,413,130   104   3,547,114   277,307   3,824,421 
                                             
Net profit (loss)  -   -   -   -   -   -   (76,065)  -   (76,065)  14,425   (61,640)
Other comprehensive profit  -   -   -   -   -   -   -   1,651   1,651   1,469   3,120 
Total other comprehensive profit (loss)  -   -   -   -   -   -   (76,065)  1,651   (74,414)  15,894   (58,520)
                                             
Dividends declared and paid, notes 18(d) and 19(d)  -   -   -   -   -   -   (8,642)  -   (8,642)  (8,880)  (17,522)
Expired dividends  -   -   -   -   47   -   -   -   47   -   47 
Increases in non-controlling interest  -   -   -   -   -   -   -   -   -   13,699   13,699 
As of December 31, 2014  253,715,190   750,497   1,396   219,055   162,710   269   2,328,423   1,755   3,464,105   298,020   3,762,125 
                                             
Net loss  -   -   -   -   -   -   (317,210)  -   (317,210)  (58,335)  (375,545)
Other comprehensive profit (loss)  -   -   -   -   -   -   -   485   485   (1,027)  (542)
Total other comprehensive profit (loss)  -   -   -   -   -   -   (317,210)  485   (316,725)  (59,362)  (376,087)
                                             
Dividends declared and paid, note 18(d)  -   -   -   -   -   -   -   -   -   (10,488)  (10,488)
Expired dividends  -   -   -   -   4   -   -   -   4   -   4 
Other items  -   -   -   -   -   -   13,682   -   13,682   -   13,682 
As of December 31, 2015  253,715,190   750,497   1,396   219,055   162,714   269   2,024,895   2,240   3,161,066   228,170   3,389,236 
                                             
Net loss  -   -   -   -   -   -   (323,492)  -   (323,492)  (4,322)  (327,814)
Other comprehensive loss  -   -   -   -   -   -   -   (4,023)  (4,023)  (1,367)  (5,390)
Total other comprehensive loss  -   -   -   -   -   -   (323,492)  (4,023)  (327,515)  (5,689)  (333,204)
                                             
Change in non-controlling interest, note 19(a)  -   -   -   -   -   -   (3,659)  -   (3,659)  11,041   7,382 
Expired dividends  -   -   -   -   30   -   -   -   30   -   30 
Treasury shares, note 18(b)  -   -   (605)  (605)  -   -   -   -   (1,210)  -   (1,210)
Dividends declared and paid, note 18(d)  -   -   -   -   -   -   (7,621)  -   (7,621)  (7,400)  (15,021)
As of December 31, 2016  253,715,190   750,497   791   218,450   162,744   269   1,690,123   (1,783)  2,821,091   226,122   3,047,213 

F-8

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of cash flows

For the years ended December 31, 2014, 20132016, 2015 and 20122014

 

 2014 2013 2012  Note 2016 2015 2014 
 US$(000) US$(000) US$(000)    US$(000) US$(000) US$(000) 
    Note 2.1 Note 2.1          
Operating activities                          
Proceeds from sales  1,144,394   1,351,359   1,410,120     1,003,422   965,273   1,144,394 
Dividends received 30  142,340   6,691   12,938 
Value added tax recovered  39,685   66,921   40,940     117,661   81,692   39,685 
Royalty received  31,252   50,562   76,106     25,961   38,983   31,252 
Dividends received  12,938   9,803   16,467 
Interest received  8,333   8,235   8,606     2,140   3,650   8,333 
Payments to suppliers and third parties  (805,413)  (752,813)  (812,721)    (672,419)  (727,017)  (805,413)
Payments to employees  (203,496)  (216,799)  (201,494)    (138,113)  (175,329)  (203,496)
Interest paid    (34,138)  (21,518)  (9,405)
Payments of mining royalties  (22,631)  (30,623)  (38,985)    (20,052)  (22,836)  (22,631)
Income tax paid  (33,161)  (66,427)  (136,336)    (35,401)  (22,330)  (33,161)
Interest paid  (9,405)  (11,494)  (1,485)
Net cash and cash equivalents provided by operating activities  162,496   408,724   361,218     391,401   127,259   162,496 
Investing activities                          
Proceeds from settlement of financial assets at fair value through profit or loss  -   52,944   - 
Proceeds from collection of loan to an associate  15,553   24,537   -  30  -   -   15,553 
Proceeds from sale of mining concessions, development costs, property, plant and equipment  1,681   5,010   255     7,180   5,481   1,681 
Additions to mining concessions, development costs, property, plant and equipment  (227,564)  (503,576)  (468,456) 12  (366,834)  (211,286)  (227,564)
Loans to associates 30(d)  -   (124,800)  - 
Loans to third parties 8  -   (829)    
Payments for acquisition of other assets    (5,222)  (10,238)  - 
Payments for acquisition of shares in associate, net of cash acquired  (80,316)  -   -     -   -   (80,316)
Contributions in associates  (2,912)  (6,988)  (58,594)    -   -   (2,012)
Decrease in time deposits  -   -   10,121 
Proceeds from sale of shares  -   -   3,658 
Net cash and cash equivalents used in investing activities  (292,658)  (428,073)  (513,016)    (364,876)  (341,672)  (292,658)
Financing activities                          
Proceeds from financial obligations  177,125   236,975   74,258  17  275,210   296   177,125 
Proceeds from bank loans  40,000   -   -  14  200,500   344,503   40,000 
Payments of bank loans 14  (442,957)  (90,000)  - 
Payments of financial obligations  (42,205)  (260,231)  (1,068) 17  (33,476)  (29,891)  (42,205)
Dividends paid to controlling shareholders  (8,642)  (78,836)  (152,666) 18(d)  (7,621)  -   (8,642)
Dividends paid to non-controlling shareholders  (8,880)  (13,533)  (44,881) 19(a)  (7,400)  (10,488)  (8,880)
Acquisition of non-controlling interest 19(a)  (5,459)  -   - 
Increase of restricted bank accounts 8(e)  (2,087)  -   - 
Purchase of treasury shares  -   (462)  -  18(b)  (1,210)  -   - 
Capital stock reduction paid to non-controlling interest  -   -   (7,980)
Net cash and cash equivalents provided by (used in) financing activities  157,398   (116,087)  (132,337)    (24,500)  214,420   157,398 
Increase (decrease) in cash and cash equivalents for the year, net  27,236   (135,436)  (284,135)    2,025   7   27,236 
Cash and cash equivalents at beginning of year  51,276   186,712   470,847     78,519   78,512   51,276 
                          
Cash and cash equivalents at year-end  78,512   51,276   186,712     80,544   78,519   78,512 
Financing and investing activities not affecting cash flows:              
Changes in mine closures plans    34,532   74,907   398 
Contingent consideration liability    2,349   -   23,026 
Accounts receivable from sale of assets    5,204   -   - 

F-9

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Notes to the consolidated financial statements

For the years 2014, 20132016, 2015 and 20122014

 

1.Identification and business activity of the Group

(a)Identification -

Compañía de Minas Buenaventura S.A.A. (hereafter “the Company” or “Buenaventura”) is a publicly traded corporation incorporated in 1953. The Company stock is traded on the Lima and New York Stock Exchanges through American Depositary Receipts (ADRs), which represent the Company’s shares deposited in the Bank of New York. The Company’s legal domicile is at Las Begonias Street N°415, San Isidro, Lima, Peru.

 

(b)Business activity -

The Company and its subsidiaries (hereinafter “the Group") are principally engaged in the exploration, mining, concentration, smelting and marketing of polymetallic ores and metals.

 

The Group operates directly fivefour operating mining units in Peru (Uchucchacua, Orcopampa, Julcani Mallayand Mallay), four discontinued mining units (Poracota, Recuperada, Shila-Paula and Breapampa), four mining units held for sale (Poracota, Recuperada, Antapite and Shila-Paula), and two mining units under development stage (Tambomayo and San Gabriel, the latter was recently acquired from Gold Fields, see Note 5)Gabriel). In addition, the Group has a controlling interest in Sociedad Minera El Brocal S.A.A. (hereinafter “El Brocal”), which operates the Colquijirca mining unit; Minera La Zanja S.R.L. (hereinafter “La Zanja”), which operates La Zanja mining unit; El Molle Verde S.A.S.A.C. (hereinafter “Molle Verde”) which operates Trapiche, a mining unit at the development stage; and other entities dedicated to energy generation and transmission services, construction and engineering services and other activities. All these activities are developed in Peru.

During December 2016, the Company successfully completed the commissioning of the processing plant of the Tambomayo project located in the district of Tapay, province of Caylloma (Arequipa) obtaining the first doré bar on December 30.

The construction of the new Tambomayo mining unit took 36 months and required an investment of approximately US$362 million. In January 2017 the ramp-up started and it is estimated that the commercial operation at full capacity will begin between March and April of 2017.

 

(c)Approval of consolidated financial statements -

The consolidated financial statements as of December 31, 20142016 were approved by the Company’s ManagementBoard of Directors on April 29, 2015February 28, 2017 and, in its opinion, will be approved without modifications in the Board of Directors and Shareholders’ MeetingsMeeting to be held within the termsterm established by Law.

 

The consolidated financial statements as of December 31, 2013 and 20122015 were approved by the Board of Directors on February 24, 2014 and February 28, 2013, respectively.25, 2016.

F-10

Notes to the consolidated financial statements(continued)

 

(d)The consolidated financial statements include the financial statements of the following subsidiaries:

 

  Ownership    Ownership 
Holding of investment in shares, rental of mining Country of
incorporation  
and business		 December 31, 2014  December 31, 2013 
concessions, exploration and development projects and   Direct Indirect Direct Indirect 
production and sale of minerals   % % % % 
 Country of
incorporation
and business		 December 31, 2016  December 31, 2015 
   Direct Indirect Direct Indirect 
   % % % % 
Mining activities:                
Compañía Minera Condesa S.A. Peru  100.00   -   100.00   -  Peru  100.00   -   100.00   - 
Compañía Minera Colquirrumi S.A. Peru  100.00   -   100.00   -  Peru  100.00   -   100.00   - 
Sociedad Minera El Brocal S.A.A. (*) Peru  2.71   51.36   2.71   51.36  Peru  3.08   58.24   2.71   51.36 
Inversiones Colquijirca S.A. (*) Peru  99.99   -   99.99   -  Peru  89.76   10.24   89.76   10.24 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  20.00   40.00   20.00   40.00  Peru  20.00   40.00   20.00   40.00 
Minera La Zanja S.R.L. Peru  53.06   -   53.06   -  Peru  53.06   -   53.06   - 
Minera Julcani S.A. de C.V. México  100.00   -   100.00   -  Mexico  99.80   0.20   99.80   0.20 
Compañía de Minas Buenaventura Chile Ltda. Chile  90.00   10.00   90.00   10.00  Chile  90.00   10.00   90.00   10.00 
El Molle Verde S.A.C. Peru  99.98   0.02   99.98   0.02  Peru  99.98   0.02   99.98   0.02 
Apu Coropuna S.R.L. Peru  70.00   -   70.00   -  Peru  70.00   -   70.00   - 
Metalúrgica Los Volcanes S.A. Peru  100.00   -   100.00   - 
Compañía de Minas Cerro Hablador S.A.C. Peru  99.00   1.00   99.00   1.00 
Metalúrgica Los Volcanes S.A. (**) Peru  -   -   99.99   - 
Cerro Hablador S.A.C. Peru  99.00   1.00   99.00   1.00 
Minera Azola S.A.C. Peru  99.00   1.00   -   -  Peru  99.00   1.00   99.00   1.00 
Compañía Minera Nueva Italia S.A. Peru  -   93.08   -   93.08  Peru  -   93.36   -   93.36 
                                    
Energy generation and transmission services                  
Energy generation and transmission services:                  
Consorcio Energético de Huancavelica S.A. Peru  100.00   -   100.00   -  Peru  100.00   -   100.00   - 
Empresa de Generación Huanza S.A. Peru  -   100.00   -   100.00  Peru  -   100.00   -   100.00 
Empresa de Generación Huaura S.A.C. Peru  0.01   99.99   0.01   99.99 
Empresa de Generación Huaura S.A.C. (***) Peru  -   -   0.01   99.99 
                                    
Construction, engineering services and insurance brokerage                  
Construction, engineering services and insurance brokerage:                  
Buenaventura Ingenieros S.A. Peru  99.99   0.01   99.99   0.01  Peru  100.00   -   100.00   - 
BISA Construcción S.A. Peru  -   100.00   -   100.00 
Contacto Corredores de Seguros S.A. Peru  0.02   99.98   0.02   99.98  Peru  99.98   0.02   99.98   0.02 
Bisa Argentina S.A. (before Minera San Francisco) Argentina  56.42   43.58   56.42   43.58 
BISA Argentina S.A. (before Minera San Francisco S.A.) Argentina  56.42   43.58   56.42   43.58 
Contacto Risk Consulting S.A. Peru  -   98.00   -   98.00 
                                    
Industrial activities                  
Procesadora Industrial Rio Seco S.A. Peru  100.00   -   100.00   - 
                
Industrial activities:                  
Procesadora Industrial Río Seco S.A. Peru  100.00   -   100.00   - 

 

(*)As of December 31, 20142016 and 2013,2015, the participation of the Company in the voting rights of El Brocal is 53.72 percent.61.32 and 54.07 percent, respectively. Inversiones Colquijirca S.A. (hereafter “Colquijirca”), a Group’s subsidiary (99.99 percent as of December 31, 20142015 and 2013)2014), has a 51.06 percentan interest in El Brocal´ sBrocal’s capital stock, through which the CompanyGroup holds an indirect participation in El Brocal of 58.25 and 51.36 percent as of December 31, 20142016 and 2013.2015, respectively.

F-11

Notes to the consolidated financial statements(continued)

(**)On November 2016, the Board of Directors’ and Shareholders’ Meetings of Metalúrgica Los Volcanes S.A., approved its liquidation.

(***)On December 29, 2016, the Board of Directors’ and Shareholders’ Meetings of Consorcio Energético de Huancavelica S.A. and Empresa de Generación Huaura S.A.C. approved the merger between these subsidiaries whereby Consorcio Energético de Huancavelica S.A. absorbed Empresa de Generación Huaura S.A.C. This merger had not effects in the consolidated financial statements.

 

(e)Discontinued operations

In 2014,As of December 31, 2015, the Group publicly announced its decision to sell itsheld four paralyzed mining units mentioned in note 1(b);classified as a consequence, they are presenteddiscontinued operations (Recuperada, Poracota, Antapite and Shila-Paula). During 2016, the Company decided to cease the classification of three mining units as mining units held for sale. sale (Poracota, Recuperada and Shila-Paula), starting their final closing.

According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, the relatedCompany made the following as a result of the cease of the classification of mining units previously held for sale (Recuperada, Poracota and Shila-Paula): (i) recorded in 2016 the total unrecorded depreciation since the beginning of the classification as units held for sale, which is presented in the “Discontinued operations” caption; and (ii) reclassified in 2016 the assets and liabilities are presentedheld for sale as of December 31, 2015 into their respective captions, which will be held until the final closing.

On December 2016, the Company sold the mining unit of Antapite for US$1,003,000, resulting in a loss of US$3,014,000 in the consolidated statement of financial position atprofit or loss.

Since 2016, the lowerCompany´s Management decided to initiate the closing of costthe Breapampa mining unit. As a result, revenues and fair value less costexpenses related to sale. The salethis mining unit were reclassified to the discontinued operations caption for the years 2015 and 2014. On January 2017, the mining unit of these discontinued mining units is expected to be completed as of December 31, 2015 through sale to third parties.Breapampa was sold.

F-12

Notes to the consolidated financial statements(continued)

 

The major classes of assets and liabilities of these fourthe mining units held for sale as of December 31, 20142016 and 20132015 are presented below:

 

  2016  2015 
  US$(000)  US$(000) 
Asset        
Cash  -   4 
Trade and other receivables, net  -   172 
Inventories, net  -   1,940 
Prepaid expenses  -   170 
Mining concessions, development costs, property, plant and equipment, net  -   13,306 
Assets classified as held for sale  -   15,592 
         
Liabilities        
Trade and other payables  -   (2,862)
Provisions  -   (17,749)
Liabilities directly associated with the assets held for sale  -   (20,611)

 2014F-13 
US$(000)
Asset
Cash18
Trade and other receivables, net849
Inventory, net2,581
Prepaid expenses197
Mining concessions, development costs, property, plant and equipment, net15,038
Assets classified as held for sale18,683
Liabilities
Trade and other payables(5,224)
Provisions(23,666)
Liabilities directly associated with the assets held for sale(28,890)

Notes to the consolidated financial statements(continued)

 

The results of the fourdiscontinued operations mining units held for sale for the years 2014, 20132016, 2015 and 20122014 are presented below:

 

 2014 2013 2012  2016 2015 2014 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
Operating income                        
Net sales  5,117   25,835   73,506   1,149   22,740   113,585 
Total income  5,117   25,835   73,506   1,149   22,740   113,585 
Operating costs                        
Cost of sales, excluding depreciation and amortization  (28,566)  (26,094)  (53,321)  (4,842)  (19,540)  (66,464)
Exploration  (2,853)  (65,230)  (49,803)  (3,777)  (1,847)  (3,349)
Depreciation and amortization  (823)  (6,337)  (12,018)  (5,049)  (9,882)  (36,522)
Mining royalties  (47)  (221)  (171)  (11)  (223)  (1,044)
Total operating costs  (32,289)  (97,882)  (115,313)  (13,679)  (31,492)  (107,379)
Gross loss  (27,172)  (72,047)  (41,807)
Gross profit (loss)  (12,530)  (8,752)  6,206 
Operating expenses, net                        
Changes in the asset for closure of mining units, note 16(b)  (3,365)  (45)  (840)
Loss for sale of mining unit, note 1(e)  (3,014)  -   - 
Impairment loss of long–lived assets, note 12(b)  (2,043)  (7,452)  (794)
Impairment loss of inventories, note 9(b)  (706)  (1,474)  1,522 
Administrative expenses  (523)  (2,358)  (5,177)  (111)  (2,234)  (7,872)
Selling expenses  (201)  (1,193)  (2,599)  (31)  (119)  (594)
Impairment loss  (794)  (6,594)  (3,617)
Income from sale of assets  3,200   -   - 
Reversal (provision) for contingencies  901   (381)  - 
Other, net  (1,763)  (669)  (2,892)  (350)  988   (2,555)
Total operating expenses  (3,281)  (10,814)  (14,285)
Total operating expenses, net  (5,519)  (10,717)  (11,133)
Operating loss  (30,453)  (82,861)  (56,092)  (18,049)  (19,469)  (4,927)
Other expenses, net            
Other income (expense), net            
Finance income  1   2   -   -   -   1 
Finance costs  (799)  (1,074)  -   (970)  (890)  (842)
Net gain (loss) from currency exchange difference  145   180   (140)  (50)  129   150 
Total other expenses, net  (653)  (892)  (140)  (1,020)  (761)  (691)
Loss before income tax  (31,106)  (83,753)  (56,232)  (19,069)  (20,230)  (5,618)
Income tax  (8)  (132)  (1,278)  (4)  (3)  (212)
Loss from discontinued operations  (19,073)  (20,233)  (5,830)
                        
Loss associated with the mining units classified as held for sale  (31,114)  (83,885)  (57,510)
Loss from the discontinued operations, per basic and diluted share, express in U. S. dollars  (0.07)  (0.08)  (0.02)

 

The net cash flows used by the four mining units held for sale for the years 2014, 2013 and 2012 are presented below:

F-14

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Operating activities  261   5,195   5,395 
Investing activities  (296)  (5,325)  (5,674)
Financing activities  -   -   - 
Net cash (outflow)  (35)  (130)  (279)

Notes to the consolidated financial statements(continued)

 

Basic and diluted earnings per shareThe net cash flows used by the mining units with discontinued operations for the years 2016, 2015 and 2014, 2013 and 2012, resulting from the discontinued operations are as follow:presented below:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Basic and diluted loss per share  (0.12)  (0.33)  (0.23)
  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Operating activities  (7)  (8)  2,663 
Investing activities  -   (6)  (2,698)
Financing activities  -   -   - 
Net decrease in cash and cash equivalents during the year  (7)  (14)  (35)

 

2.Basis for preparation, consolidation and accounting policies
2.1.Basis of preparation -

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

 

The consolidated financial statements have been prepared on a historical cost basis, based on the records of the Company, except for financial assets and liabilities at fair value through profit or loss, which include the derivative financial instruments that have been measured at fair value.

 

The consolidated financial statements are presented in U.S. dollars and all values are rounded to the nearest thousands, except when otherwise indicated.

 

The preparation of consolidated financial statements require that Management use judgments, estimates and assumptions, as detailed on the following note 3.

 

These consolidated financial statements provide comparative information in respect of prior periods.

 

In 2014, the Company modified the 2013 consolidated financial statements to give effect to: (i) discontinued operations as described in note 1(e), (ii ) the correction of the investment and equity income of the associate company Minera Yanacocha S.R.L. which resulted in a reduction of US$8,108,000 in the “Investments in associates” caption and a reduction of US$5,602,000 and US$2,446,000 in the  “Share in the results of associates under equity method” caption of the 2013 and 2012 years, respectively and (iii) reclassification of US$10,622,000 from cash to tax deposits, which are bank deposits only available to pay taxes. 

2.2.Basis of consolidation -

The consolidated financial statements comprise the financial statements of the companyCompany and its subsidiaries to the date of the statements of financial position.

 

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

 

-Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).
-Exposure, or rights, to variable returns from its involvement with the investee.
-The ability to use its power over the investee to affect its returns.

 

F-15

Notes to the consolidated financial statements(continued)

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

-The contractual arrangement with the other vote holders of the investee.
-Rights arising from other contractual arrangements.
-The Group’s voting rights and potential voting rights or a combination of rights.

Notes to the consolidated financial statements(continued)

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

 

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

 

2.3.Changes in accounting policies and disclosures -

The GroupCertain standards and amendments applied for the first time certain standardsin 2016; however, they did not have material impact on the annual consolidated financial statements of the Group and amendments which are effective for annual periods beginning ontherefore, have not been disclosed.The Group has not early adopted any other standard, interpretation or after January 1, 2014. Certain standards and amendments were related to an exception to the consolidation requirement for investment entities, offsetting of financial assets and liabilities, novation of derivatives and amendments to the IFRS 13 “Fair value measurement”. These new and amended standards had no impact in the Group.amendment that has been issued but is not yet effective.

 

2.4.Summary of significant accounting policies –-

(a)Foreign currencies-

The consolidated financial statements are presented in US dollars, which is also the Company’sGroup’s functional currency.

 

For each entity, the Group determines the functional currency and the items included in the financial statements of each entity are measured using that functional currency.

Transactions and balances

Transactions in foreign currency (a currency other than the functional currency) are initially recorded by the Group at the exchange rates prevailing at the dates of the transactions, published by the Superintendence of Banking and Insurance and Pension Fund Administrators (AFP for its acronym in Spanish).

 

F-16

Notes to the consolidated financial statements(continued)

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.

Gains or losses from exchange differences arising from the settlement or translation of monetary assets and liabilities are recognized in the consolidated statements of profit or loss.

 

Non-monetary assets and liabilities recognized in terms of historical cost are translated using the exchange rates prevailing at the dates of the initial transactions.

Notes to the consolidated financial statements(continued)

(b)Financial instruments - Initial recognition and subsequent measurement-

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

(i)Financial assets -

Initial recognition and measurement - 

Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

 

Subsequent measurement -

 

For purposes of subsequent measurement, financial assets are classified in four categories:

 

-Financial assets at fair value through profit or loss.
-Loans and receivables.
-Held-to-maturity investments.
-Available-for-sale financial investments.

Financial assets at fair value through profit or loss - -

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.

 

Financial assets at fair value through profit or loss are carried in the consolidated statements of financial position at fair value with net changes in fair value presented as finance costs (negative changes) or finance revenue (positive changes) in the consolidated statements of profit or loss.

F-17

Notes to the consolidated financial statements(continued)

 

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value, with changes in fair value recognized in profit or loss.

Loans and receivables --

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.Aftermarket. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. The losses arising from impairment are recognized in the consolidated statements of profit or loss.

 

This category generally applies to trade and other receivables, net.

Held-to-maturity investments -

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Group has the positive intention and ability to hold them to maturity. The Group did not have any held-to-maturity investment as of December 31, 20142016 and 2013.2015.

Available-for-sale financial assets -

The available-for-sale financial assets include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions. The Group doesdid not have these financial assets as of December 31, 20142016 and 2013.

Derecognition-2015.

 

Derecognition -

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:

 

-The rights to receive cash flows from the asset have expired.
-The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset or, (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

F-18

Notes to the consolidated financial statements(continued)

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent, it has retained the risk and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group´s continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Notes to the consolidated

Impairment of financial statements(continued)

Impairment of financial assets -

assets -

The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred "loss event"), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

 

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in economic conditions that correlate with defaults.

 

For financial assets carried at amortized cost, the Group first assesses whether impairment exists for financial assets that are individually significant, or collectively for financial assets that are individually insignificant.

 

The amount of any impairment loss in the impairment identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discount at the financial asset’s original effective interest rate.

 

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in the consolidated statements of profit or loss. Interest income (recorded as revenue in the statements of profit or loss) continues to be accrued on the reduced carrying amount and is accrued using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of a future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statements of profit or loss.

 

F-19

Notes to the consolidated financial statements(continued)

(ii)Financial liabilities –-

Initial recognition and measurement-

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, accounts payable, financial obligations, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

All financial liabilities are recognized initially at fair value and, in the case of interest-bearing loans and borrowings and payables, net of directly attributable transaction costs.

 

The Group’s financial liabilities include trade and other payables, financial obligations, derivatives financial instruments and embedded derivatives.

F-19

Notes to the consolidated financial statements(continued)

Subsequent measurement -

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss --

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

 

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

 

Gains or losses on liabilities held for trading are recognized in the consolidated statements of profit or loss.

 

Except for the embedded derivative for concentrate sales, the Group has not designated any financial liability in this category.

 

Loans and borrowings --

After initial recognition, interest-bearing loans and borrowing are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated statements of profit and cost when the liabilities are derecognized as well as through the amortization process.

 

Amortized cost is calculated taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortization under the effective interest rate method is included as financial costs in the consolidated statements of profit or loss.

F-20

 

Notes to the consolidated financial statements(continued)

Derecognition --

A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.

 

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of profit or loss.

 

(iii)Offsetting of financial instruments -

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statements of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

Notes to the consolidated financial statements(continued)

 

(c)Cash and cash equivalents -

Cash and cash equivalents in the consolidated statements of financial position comprise cash at banks and on hand.

 

For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and short term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

 

(d)Inventories -

Materials and supplies are valued at the lower of cost or net realizable value.

 

Cost is determined using the average method. In the case of finished goods and work in progress, cost includes the cost of materials and direct labor and a portion of indirect manufacturing expenses, excluding borrowing costs.

The current portion of the inventories is determined based on the expected amounts to be processed within the next twelve months. Inventories not expected to be processed within the next twelve months are classified as long-term.

 

Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs to make the sale.

 

Provision (reversal) for losses on the net realizable value are calculated based on a specific analysis conducted annually by the Management and is charged to income in the period in which it determines the need for the provision (reversal).

F-21
 F-21

 

Notes to the consolidated financial statements(continued)

 

(e)Business combinations and goodwill -

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

 

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

 

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.

 

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Classification and Measurement, is measured at fair value, with changes in fair value recognized in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

 

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interests held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified again all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit of loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, this difference is allocate to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities, of the acquireacquiree, are assigned to those units.

F-22

Notes to the consolidated financial statements(continued)

 

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

Notes to the consolidated financial statements(continued)

 

(f)Investments in associates -

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control over those policies. The Group's investments in associates are accounted for using the equity method. Under this method, the investment in an associate is initially recognized at cost.

 

The carrying amount of the investment is adjusted to recognize changes in the Group's share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment individually.

 

The consolidated statementsstatement of profit or loss reflects the Group’s share of the results of operations of the associate.

 

Any change in other comprehensive income of those investees is presented as part of the Group’s other comprehensive income. In addition, when there has been a change recognized directly in the equity of the associate, the Group recognizes its share of any changes, when applicable, in the consolidated statements of changes in shareholders’ equity. Unrealized gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

 

The aggregate of the Group´s share of profit or loss of an associate is shown on the face of the consolidated statements of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associates.

 

The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

 

After the application of the equity method, the Group determines whether it is necessary to recognize an impairment loss of its investment in associates. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognizes the loss in the consolidated statements of profit or loss.

 

F-23

Notes to the consolidated financial statements(continued)

Upon loss of significant influence over the associate, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in consolidated statements of profit or loss.

 

(g)Prepaid expenses -

Non-monetary assets which represent an entity’s right to receive goods or services are presented as prepaid expenses. The asset is subsequently derecognized when the goods are received and the services are rendered.

(h)Property, plant and equipment -

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.

 

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the initial estimate of the obligation for mine closing and for qualifying assets, borrowing costs. The capitalized value of a finance lease is also included in this caption.

Notes to the consolidated financial statements(continued)

 

When significant parts of property, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Also, when a major inspection is performed, its cost is recognized in the carrying amount of plant and equipment as a replacement if the recognition criteria are satisfied. All other maintenance and repair costs are recognized in the consolidated statement of profit or loss as incurred.

Depreciation -

Unit-of-production method:

DepreciationIn mining units with a long-term useful life, depreciation of assets directly related to the operation of the mine, whose useful life is greater than the life of the mining unit, is calculated using the units-of-production method, which is based on economically recoverable reserves of the mining unit. Other assets related to these mining units are depreciated using the straight-line method with the lives detailed in the next paragraph.

 

Straight-line method:

Depreciation of assets whosein mining units with short useful life is shorter than the life of the mining unitlives or used for administrative purposes, is calculated using the straight-line method of accounting. The useful lives are the following:

 

 Years
  
Buildings, construction and otherBetween 6 and 20
Machinery and equipmentBetween 5 and 10
Transportation units5
Furniture and fixtures10
Computer equipment4

F-24

Notes to the consolidated financial statements(continued)

 

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end, and adjusted prospectively, if appropriate.

 

F-24

Notes to the consolidated financial statements(continued)

Disposal of assets -

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of profit or loss when the asset is derecognized.

 

(h)(i)Leases -

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Group as a lessee -

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risk and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the consolidated statements of profit or loss.

 

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

 

Operating lease payments are recognized as operating expenses in the statements of profit or loss on a straight-line basis over the lease term.

 

Group as a lessor –-

Leases in which the Group does not transfer substantially all the risk and rewards of ownership of an asset are classified as operating leases.

 

Initial direct cost incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

F-25

Notes to the consolidated financial statements(continued)

 

(i)(j)Mining concessions -

Mining concessions represent ownership of the right of exploration and exploitation to the Group on mining properties contains ore reserves acquired. Mining concessions are stated at cost and are amortized on units of production method, using as the basis of proven and probable reserves. If the Group leaves these concessions, the costs associated are written off in the consolidated statements of profit or loss.

 

Cost includes the fair value attributable to mineral reserves and the portion of mineral resources considered to be probable of economic extraction at the time of an acquisition.

 

At end of each year, the Group evaluates if there is any indicator. If any impairment indicator exists, the Group estimates the asset’s recoverable amount.

 

Mining concessions are presented in the caption of mining concessions, development costs, property, plant and equipment, net.

 

(j)(k)Exploration and mine development costs –

Exploration expenditure –

-

Exploration costs are expensed as incurred. These costs primarily include materials and fuels used, surveying costs, drilling costs and payments made to the contractors.

 

Exploration and evaluation activity includes:

 

-Researching and analyzing historical exploration data.
-Gathering exploration data through geophysical studies.
-Exploratory drilling and sampling.
-Determining and examining the volume and grade of the resource.
-Surveying transportation and infrastructure requirements.
-Conducting market and finance studies.

 

Development costs - –

When the Group’s Management approves the feasibility of the conceptual study of a project, the costs incurred to develop such property, including additional costs to delineate the ore body and remove impurities it contains, are capitalized as development costs under the caption mining concessions, development costs and property, plant and equipment, net. These costs are amortized when production begins, on the units-of-production basis over the proven and probable reserves.

 

The development costs include:

 

-Metallurgical and engineering studies.
-Drilling and other costs necessary to delineate ore body.
-Removal of the initial clearing related to an ore body.

 

F-26

Notes to the consolidated financial statements(continued)

Development costs necessary to maintain production are expensed as incurred.

Notes to the consolidated financial statements(continued)

 

(k)(l)Stripping (waste removal) costs -

As part of its mining operations, the Group incurs waste removal costs (stripping costs) during the development and production phases of its mining operations. Stripping costs incurred in the development phase of a mine, before the production phase commences (development stripping), are capitalized as part of the cost of constructing the mine and subsequently amortized over its useful life using units of production method. The capitalization of development stripping costs ceases when the mine starts production.

 

Stripping costs incurred during the production phase (production stripping costs) are generally considered to create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realized in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where the benefits are realized in the form of improved access to ore to be mined in the future, the costs are recognized as a non-current asset, referred to as a stripping activity asset, if the following criteria are met:

 

-Future economic benefits are probable.
-The component of the ore body for which access will be improved can be accurately identified.
-The costs associated with the improved access can be reliably measured.

 

To identify components of deposit, the Group works closely with the operating personnel to analyze the mine plans. Mostly, an ore body can have several components. The mine plans, and therefore, the identification of components, will vary among mines for a number of reasons.

 

The stripping activity asset is initially measured at cost, which surges from an accumulation of costs directly incurred during the stripping activity. The production stripping cost related to access to new resources is presented within mining concessions, development costs, property, plant and equipment, net in the consolidated statements of financial position.

 

The production stripping cost is subsequently depreciated using the units of production method over the expected useful life of the component identified of the ore body that has been made more accessible by the activity. This cost is stated at cost less accumulated depreciation and accumulated impairment losses, if any.

 

(l)(m)Investment properties –-

Investment properties are measured at cost, net of accumulated depreciation and impairment loss, if any.

 

Depreciation of the investment properties is determined using the straight-line method with an useful life of 20 years.

F-27

Notes to the consolidated financial statements(continued)

 

Investment properties are derecognized either when they have been disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition.

Transfers are made to (or from) investment property only when there is a change in use.

Notes to the consolidated financial statements(continued)

 

For a transfer from investment property to an item of property, plant and equipment, the deemed cost for subsequent accounting is the fair value at the date of change in use. If an item of property, plant and equipment becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

 

(m)(n)Impairment of non-financial assets -

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit' (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

 

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less cost of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.

 

Impairment losses of continuing operations, including impairment of inventories, are recognized in the consolidated statements of profit or loss in expense categories consistent with the function of the impaired asset.

 

For assets in general, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses may no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’sasset or CGU’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statements of profit or loss.

F-28

Notes to the consolidated financial statements(continued)

(n)Share-based payments -

Senior executives of the Group receive remuneration in the form of share appreciation rights, which can only be settled in cash. For these transactions, the amount of the liability is estimated at each reporting date until settlement.

The cost of share-based payments program is measured initially at fair value at the grant date using a binomial model. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is re-measured to fair value at each reporting date up to, and including the settlement date, with changes in fair value recognized in its consolidated statements of profit or loss.

 

(o)Provisions -

General-

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Provision for closure of mining units -

When the liability is initially recognized, the present value of the estimated costs is capitalized by increasing the carrying amount of the related mining assets (property, plant and equipment). Over time, the discounted liability is increased for the change in present value based on discounted rates that reflects current market assessments and the risks specify to the liability, in addition, the capitalized cost is depreciated and/or amortized based on the useful life of the asset. Any gain or loss resulting from the settlement of the obligation is recorded in the current results.

 

Changes in the estimated timing of rehabilitation or changes to the estimated future costs are dealt with prospectively by recognizing an adjustment to the rehabilitation liability and a corresponding adjustment to the related asset. Any reduction in the rehabilitation liability and, therefore, any deduction from the asset to which it relates, may not exceed the carrying amount of the asset. If it does, any excess over the carrying amount is taken immediately to the consolidated statements of profit or loss.

 

If the change in estimate results in an increase in the rehabilitation liability and, therefore, an addition to the carrying value of the asset, the Group considers whether this is an indication of impairment of the asset as a whole, and if so, tests for impairment, in accordance with IAS 36 "Impairment of Assets".

 

For closed mines, changes to estimated costs are recognized immediately in the consolidated statements of profit or loss.

 

(p)Treasury shares -

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized as additional capital in equity. The voting rights related to treasury shares are cancelled for the Group and no dividends on such shares are allocated.

F-29

Notes to the consolidated financial statements(continued)

 

(q)Revenue recognition -

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliablymeasured,, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below must also be met before revenue is recognized:

Sales of concentrates and metals -

Revenue from sale of concentrates and metals is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods.

 

Contract terms for the Company’s sale of metal in concentrate to customers allow for a price adjustment based on final assay results of the metal in concentrate by the customer to determine the final content. These are referred to as provisional pricing arrangements and are such that the selling price for metal in concentrate is based on prevailing spot prices on a specified future date after shipment to the customer (the quotation period). Adjustments to the sales price occurs based on movements in quoted market prices up to the date of final settlement. The period between provisional invoicing and final settlement can be between one and six months.

 

Sales contracts for metal in concentrate that have provisional pricing features are considered to contain an embedded derivative, which is required to be separated from the host contract for accounting purposes. The host contract is the sale of metals in concentrate, and the embedded derivative is the forward contract for which the provisional sale is subsequently adjusted with final liquidations. The embedded derivative is originated by the metals prices since the date of issuance of issuance of the provisional liquidation until the date of issuance of the final liquidation.

 

The embedded derivative, which does not qualify for hedge accounting, is initially recognized at fair value with subsequent changes in the fair value recognized in the consolidated statements of profit or loss until final settlement, and presented as part of net sales. Changes in fair value over the quotation period and up until final settlement are estimated by reference to forward market prices.

F-30

Notes to the consolidated financial statements(continued)

 

Interest income-

For all financial instruments measured at amortized cost, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the consolidated statements of profit or loss.

F-30

Notes to the consolidated financial statements(continued)

Royalty income-

The royalty income is recognized in accordance with the accrual method considering the substance of the relevant agreements.

 

Dividends-

Revenue is recognized when the Group's right to receive the payment is established, which is generally when shareholders approve the dividend.

Revenue from engineering and construction services --

Revenue is recognized based on the stage of completion of contracts for existing services. The stage of completion is measured by reference to costs incurredservices performed to date as a percentage of total costsservices to be incurredperformed by each contract.

 

Rental income -

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term and is included in revenue in the consolidated statement of profit or loss due to its operating nature.

 

(r)Benefits to employees -

Salaries and wages, bonuses, post-employment benefits and vacations are calculated in accordance with IAS 19, "Employee Benefits" and are calculated in accordance with current Peruvian legislation based on the accrual basis.

Workers’ profit sharing

The Group recognizes workers’ profit sharing in accordance with IAS 19, “Employees Benefits". Workers' profit sharing is calculated in accordance with the Peruvian law (Legislative Decree No. 892), and the applicable rate is 8% over the taxable net base of current year. According to Peruvian law, the limit in the workers' profit sharing that an employee can receive is equivalent to 18 months of wages, and any excess above such limit has be transferred to the Regional Government and “National Fund for Employment’s Promotion and Training” (“FONDOEMPLEO”).

(s)Borrowing costs -

Costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as finance part of the cost of an asset. A qualifying asset is one whose value is greater than US$5 million and requires a longer period to 12 months to get ready for its intended use. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.

 

F-31

Notes to the consolidated financial statements(continued)

(s)(t)Taxes –-

Current income tax -

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid or the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting period.

 

Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

F-31

Notes to the consolidated financial statements(continued)

 

Deferred income tax -

Deferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

 

Deferred income tax liabilities are recognized for all taxable temporary differences, except for taxable temporary differences associated with investments in associates, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

 

Deferred income tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

 

Deferred tax items are recognized in correlation to the underlying transaction either in profit or loss, other comprehensive income or directly in equity.

 

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to compensate current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

F-32

Notes to the consolidated financial statements(continued)

Peruvian mining royalties and special mining tax -

Mining royalties and special mining tax are accounted for in accordance with IAS 12 “Income Tax” because they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is based on taxable income-rather than physical quantities produced or as a percentage of revenue-after adjustment for temporary differences. Legal rules and rates used to calculate the amounts payable are those in effect on the date of the consolidated statements of financial position.

 

Therefore, obligations arising from Mining Royalties and Special Mining Tax are recognized as income taxundertax under the scope of IAS 12. Both, Mining Royalties and Special Mining Tax generated deferred assets and liabilities which must be measured using the average rates expected to apply to operating profit in the quarter in which the Group expects to reverse temporary differences.

Sales tax –

-

Expenses and assets are recognized net of the amount of sales tax, except:

F-32

Notes to the consolidated financial statements(continued)

 

(i)When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable;
(ii)When receivables and payables are stated with the amount of sales tax included.

 

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position.

 

(t)(u)Fair value measurement

The Group measures its financial instruments, such as, derivatives and embedded derivatives, at fair value at the date of the consolidated statements of financial position.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

-In the principal market for the asset or liability, or

-In the absence of a principal market, in the most advantageous market for the asset or liability.

 

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

F-33

Notes to the consolidated financial statements(continued)

 

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

-Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

-Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

-Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

The Group's Management determines the policies and procedures for both recurring fair value measurement and non-recurring measurement. At each reporting date, the Group's Management analyzes the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group’s accounting policies.

Notes to the consolidated financial statements(continued)

 

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

 

(u)(v)Derivative financial instruments and hedge accounting -

Initial recognition and subsequent measurement–

-

The Group uses derivative instruments (forward commodity contracts) to hedge its commodity price risk.risk (forward commodity contracts) and its foreign exchange risk (forward exchange rate contracts). Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

 

At the inception of the hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge.

 

The documentation includes identification of the hedging instrument, the hedge item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

 

F-34

Notes to the consolidated financial statements(continued)

The Group’s hedge is classified as cash flow hedge. The effective portion of gain or loss on the hedging instrument is initially recognized in the consolidated statements of changes in equity, under the caption other equity reserves,Other Comprehensive Income, while the ineffective portion is recognized immediately in the consolidated statements of profit or loss in the interest expensefinance costs caption.

 

(v)(w)Discontinued operations –-

The Group classifies disposal groups as held for sale if their carrying amounts will be recovered principally through sale rather than through continuing use. Such disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

The criteria for held for sale classification is regarded as met only when the sale is highly probable and the disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the plan will be made or that the sale will be withdrawn. Management must be committed to the sale expected within one year from the date of the classification.

An extension of the period required to complete a sale does not preclude an asset (or disposal group) from being classified as held for sale if the delay is caused by events or circumstances beyond the entity’s control and there is sufficient evidence that the entity remains committed to its plan to sell the asset.

Property, plant and equipment are not depreciated or amortized once classified as held for sale.

 

Assets and liabilities classified as held for sale are presented separately as current items in the consolidated statement of financial position.

 

A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

-Represents a separate major line of business or geographical area of operations

Notes to the consolidated financial statements(continued)

 

-IsIt is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or

-IsIt is a subsidiary acquired exclusively with a view to resale.re sale.

 

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of profit or loss.

 

Additional disclosures are provided in note 1(e). All other notes to the consolidated financial statements include amounts for continuing operations, unless otherwise mentioned.

 

(w)F-35Participation in joint operations-

 

The Group has interests in joint ventures which are jointly controlled entities where participants maintain a contractual arrangement establishes joint control over the economic activities of the entity. The contract requires unanimity in making financial and operating decisions by members of the joint operation. The Company recognized in relation to its interest in a joint operation its:

-Assets, including its share of any assets held jointly,
-Liabilities, including its share of any liabilities incurred jointly,
-Revenue from the sale of its share of the output arising from the joint operation,
-Share of the revenue from the sale of the output by the joint operation, and
-Expenses, including its share of any expenses incurred jointly.

The financial statements of the joint venture are prepared for the same reporting period as the Group. If necessary, adjustments in order to align the accounting policies of the joint operation with the Group are performed.

 

Notes to the consolidated financial statements(continued)

 

3.Significant judgments, estimates and assumptions

The preparation of the Group’s consolidated financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. The estimates and assumptions are continuously evaluated and based on Management´s experience and other facts, including the expectations about future events which are reasonable under current situation. Uncertainty about these estimates and assumptions could result in outcomes that require material adjustment to the carrying amount of assets and liabilities affected in future periods. Further information on each of these areas and how they impact the various accounting policies are described below and also in the relevant notes to the consolidated financial statements.

 

3.1.Judgments

In the process of applying the Group’s accounting policies, Management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements:

 

(a)Contingencies -

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

 

(b)Development start date -

The Group assesses the status of each exploration project of its mining units to determine when the development phase begins. One of the criteria used to evaluate the development start date is when the Group determines that the property can be economically developed.

 

(c)Production start date -

The Group assesses the stage of each mine under development to determine when a mine moves into the production phase. The criteria used to assess the start date are determined based on the unique nature of each mining project, such as the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. Some of the criteria used to identify the production start date include, but are not limited to:

 

Notes to the consolidated financial statements(continued)

-Level of capital expenditure incurred compared to the original construction cost estimates.

-Completion of a reasonable period of testing of the mine plant and equipment.

-Ability to produce metal in saleable form (within specifications).

-Ability to sustain ongoing production of metal.

 

When a mine development /construction project moves into the production phase, the capitalization of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalization relating to mining asset additions or improvements. It is also at this point that depreciation or amortization commences.

 

F-36

Notes to the consolidated financial statements(continued)

3.2.Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

 

(a)Determination of mineral reserves and resources -

The Group calculates its reserves using methods generally applied by mining and industry according to international guidelines. All estimated reserves represent estimated quantities of mineral proven and probable that under current conditions can be economically and legally processed.

 

The process of estimating quantities of reserves is complex and requires making subjective decisions when evaluating all geological, geophysical, engineering and economic information available choices. Reviews could occur on reserve estimates due to, among others, revisions to the data or geological assumptions, changes in prices, production costs and results of exploration activities. Changes in estimated reserves could mainly affect the carrying value of mining concessions, development costs and property, plant and equipment,equipment; the charges in result for depreciation and amortization,amortization; and the carrying amount of the provision for closure of mining units.

 

(b)Units of production depreciation -

Estimated economically recoverable reserves are used in determining the depreciation and/or amortization of mine-specific assets.

 

This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes in estimates are accounted for prospectively.

 

Notes to the consolidated financial statements(continued)

(c)Mine rehabilitation provision -

The Group assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at reporting date represents Management’s best estimate of the present value of the future rehabilitation costs required.

 

F-37

Notes to the consolidated financial statements(continued)

(d)Inventories, net -

Inventories are classified in short and long term in accordance with the time that Management estimates will start the production of the concentrate extracted from the mining unit.

 

Net realizable value tests are performed at each reporting date and represent the estimated future sales price of the product the entity expects to realize when the product is processed and sold, less estimated costs to complete production and bring the product to sale.

 

(e)Impairment of non-financial assets -

The Group assesses each asset or cash generating unit in each reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs of disposal and value in use. The assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates, operating costs, among others. These estimates and assumptions are subject to risk and uncertainty.

 

The fair value of mining assets is generally calculated by the present value of future cash flows arising from the continued use of the asset, which include some estimates, such as the cost of future expansion plans, using assumptions that a third party might consider. The future cash flows are discounted to their present value using a discount rate that reflects current market assessment of the value of money over time, as well as specific risks of the asset or cash-generating unit under evaluation.

The Group has determined the operations of each mining unit as a single cash generating unit.

 

(f)Taxes -

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant Management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant Management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. 

 

(g)Fair value of contingent consideration-consideration -

 

The contingent consideration arising from a business combination is measured at fair value at the date of acquisition, as part of the business combination. If the contingent consideration is eligible to be recognized as a financial liability the fair value is subsequently re-measured at each date of the consolidated financial statements. Determining the fair value of the contingent consideration is based on a model of discounted future cash flows. The key assumptions take into account the likelihood of achieving each goal of financial performance as well as the discount factor.

 

F-38
 

 

Notes to the consolidated financial statements(continued)

 

4.Standards issued but not effective

The relevant standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirementsIFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. RetrospectiveExcept for hedge accounting, retrospective application is required, but the provision of comparative information is not compulsory. Early applicationFor hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Group is evaluating the impact of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 would have not significant effect on the classification and measurement of the Group’s financial assets and liabilities.this standard.

IFRS annual improvements 2010-2012 Cycle

These improvements are effective from 1 July 2014 and are not expected to have a material impact on the Group. They are related to IFRS 2 “Share-Based Payment” (clarifies various issues relating to the definition of performance and service conditions which are vesting conditions), IFRS 3 “Business Combinations” (clarifies classification of liabilities arising from business combinations and subsequent measurement at fair value), NIIF 8 “Operating Segments” (requires more disclosure about the aggregation criteria of operating segments), and IAS 24 “Related Party Disclosures” (requires more disclosure and clarifies that a Management entity is a related party subject to the related party disclosures).

IFRS annual improvements 2011-2013 Cycle

These improvements are effective from 1 July 2014 and are not expected to have a material impact on the Group. They are related to IFRS 3 “Business Combinations” (clarifies that joint arrangements are outside the scope of IFRS 3) and IAS 40 “Investment Property” (clarifies that IFRS 3 and not the ancillary services in IAS 40, is used to determine if the transaction is the purchase of an asset or business combination).

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted.

The Company expects to adopt this new standard on the required date of its entry into force. For this purpose, the Management has prepared a detailed plan of adoption that contemplates diverse tasks (systems review, internal control and policies and procedures), deadlines and responsible, which will begin in May 2017 and will end during the fourth quarter of 2017.

More than 90 percent of the Company's revenues came from the sales of metals and polymetallic concentrates, all of which are formalized through contracts. Based on a preliminary analysis, the Company's Management does not expect to identify significant situations that may require a different accounting treatment under IFRS 15. To date, it is not possible to effect a quantitative disclosure as a result of the subsequent adoption of this standard.

If any material effect arise, the Company plans to use the modified retrospective method in the process of adopting IFRS 15, according to which the cumulative effect resulting from applying this new standard will be presented by adjusting the initial balance of retained earnings (January 1, 2018).

In addition, IFRS 15 establishes presentation and disclosure requirements that represent a significant change in current practice and significantly increases the volume of disclosures required in the Group's financial statements, many of which will be completely new.

F-39

Notes to the consolidated financial statements(continued)

IFRS 16 “Leases”

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees: leases of ’low-value’ assets and short-term leases.It is effective for annual periods beginning on or after January 1, 2019, with early adoptionapplication permitted. The Group is currently assessingevaluating the impact of the IFRS 1516 in its consolidated financial statements and plansexpects to adopt thethis new standard at the date required by the effective date.

IAS 7 Disclosure Initiative – Amendments to IAS 7

The amendments to IAS 7, Statement of Cash Flows, are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of the amendments will result in additional disclosures provided by the Group.

IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses - Amendments to IAS 12

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in the opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective date.for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Group.

 

5.Business combination

Acquisition of controlling interest in Canteras del Hallazgo S.A.C.

Acquisition of controlling interest in Canteras del Hallazgo S.A.C. -

On August 18, 2014, Buenaventura acquired from Minera Gold Fields Peru S.A. (“Gold Fields”) 51 percent of the voting shares of Canteras del Hallazgo S.A.C., which represent the whole interest of Gold Fields in the equity of such entity.

 

Canteras del Hallazgo is a privately-held entity incorporated in 2009 and owner of the Chucapaca project, which is located in the Ichuña district, in the General Sanchez Cerro province, in the Moquegua department, Peru. According to previously performed studies, there is evidence of the existence of gold, silver, copper and antimony in the area, specifically in the Canahuire deposit.

 

F-40

Notes to the consolidated financial statements(continued)

 

The purchase consideration amounted to:

 

  US$(000)
 
Cash paid  81,000 
Contingent consideration liability  23,026 
     
As of December 31, 2014  104,026 

 

Moreover, the Group has recognized a gain of US$59,852,000 in the 2014 consolidated statementsstatement of profit or loss as a result of re-measuring the previously held equity interest (US$40,094,000) at its acquisition date fair value (US$99,946,000) in accordance with IFRS 3.

Assets acquired and liabilities assumed -

The fair values of the identifiable assets and liabilities assumed of Canteras del Hallazgo S.A.C. as at the date of acquisition were:

 

  US$(000) 
Assets    
Cash and cash equivalents  684 
Income tax credit  29 
Value added tax credit  10,599 
Mining concessions, property, plant and equipment, net  202,658 
   
213,970
 
Liabilities    
Deferred income tax liabilities, net  9,235 
Trade and other payables and provisions  724 
   
9,959 
     
Total identifiable net assets at fair value  204,011 

 

At December 31, 2014, the Group Management has determined a deferred income tax liability of US$9,235,000, based on the preliminary value of the tax base of the mining concessions, property, plant and equipment, net.

Contingent consideration –-

The purchase and sale agreement considersconsidered a contingent consideration of US$23,026,000, which corresponds to the present value of the future royalty payments equivalent to 1.5 percent over the future sales of the minerals arising from the mining properties acquired. The fair value has been determined using the income approach. Significant unobservable valuation inputs are provided below:

Annual average of future sales of mineral (US$000)231,217
Useful life of mining properties12
Discount rate (%)10

Notes to the consolidated financial statements(continued)

 

Significant increase (decrease) in the future sales of mineral would result in higher (lower) fair value of the contingent consideration liability, while significant increase (decrease) in the discount rate and own non-performance risk would result in lower (higher) fair value of the liability. Changes in the fair value of this contingent consideration have been recognized through profit or loss in the consolidated income statement.statement of profit or loss.

 

As of December 31, 2014,2016, it is highly probable that the Group reaches the projected future sales. The fair value of the contingent consideration determined as of December 31, 20142016 reflects this assumption.assumption and changes in metal prices.

F-41

 Notes to the consolidated financial statements(continued)

A reconciliation of fair value measurement of the contingent consideration liability is provided below:

US$(000)
As of January 1, 201523,026
Unrealized fair value changes recognized in profit or loss, note 27(6,032)
As of December 31, 201516,994
Unrealized fair value changes recognized in profit or loss, note 272,349
As of December 31, 201619,343

Significant unobservable valuation inputs are provided below:

  2016  2015 
       
Annual average of future sales of mineral (US$000)  233,278   208,574 
Useful life of mining properties  13   12 
Discount rate (%)  10   10 

 

The Group has the preferential right of acquisition of the royalty in case Gold Fields decides to sell it.

 

Merger –-

On September 22, 2014, the General Shareholders’ meeting of the CompanyGroup approved the merger betweenof the Company (absorbing entity) and its subsidiary Canteras del Hallazgo S.A.C. (absorbed entity). effective December 3, 2014.

 

StatementsThe statement of profit or loss of Canteras del Hallazgo S.A.C. for the eleven-month period ended December 3, 2014 was as follows:

 

  US$(000)
 
Administrative expenses  (2,344)
Net gain (loss)loss from currency exchange difference  (2,319)
Net loss  (4,663)

 

6.Transactions in Nuevos Soles

Transactions in Nuevos Soles are completed using exchange rates published by the Superintendent of Banks, Insurance and AFP. As of December 31, 2014,2016, the exchange rates for U.S. dollars published by this Institution were US$0.33550.2983 for buying and US$0.33460.2976 for selling (US$0.35790.2934 for buying and US$0.35770.2930 for selling as of December 31, 2013)2015), and have been applied by the Group for the assets and liabilities accounts, respectively.

 

F-42

Notes to the consolidated financial statements(continued)

 

As of December 31, 20142016 and 2013,2015, the Group had the following assets and liabilities denominated in Nuevos Soles:

 

 2016 2015 
 2014 2013  S/(000) S/(000) 
 S/.(000) S/.(000)      
Asset                
Cash and cash equivalents  30,431   48,866   21,212   53,218 
Trade and other receivables  399,914   450,655   498,839   474,442 
Income tax credit  160,647   104,487   83,623   155,014 
Prepaid expenses  68,883   30,159   309   36,984 
  659,875   634,167   603,983   719,658 
Liabilities                
Trade and other payables  (386,036)  (947,354)  (438,087)  (414,385)
Income tax payable  (24,329)  - 
Provisions  (78,215)  (116,600)  (37,528)  (71,264)
Bank loans  -   (769,360)
  (464,251)  (1,063,954)  (499,944)  (1,255,009)
                
Net asset (liability) position  195,624   (429,787)  104,039   (535,351)

 

7.Cash and cash equivalents
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Cash  290   417 
Bank accounts (b)  48,754   38,102 
Time deposits (c)  31,500   40,000 
         
   80,544   78,519 

(b)Bank accounts earn interest at floating rates based on market rates.

(c)As of December 31, 2016 and 2015, time deposits were kept in prime financial institutions, which generated interest at annual market rates and had original maturities of less than 90 days, according to the immediate cash needs of the Group.

F-43

 

This caption is made up as follows:

 

  2014  2013 
  US$(000)  US$(000) 
Cash  1,371   753 
Bank accounts  33,115   50,523 
Time deposits  44,026   - 
         
   78,512   51,276 

Bank accounts earn interest at floating rates based on market rates.

As of December 31, 2014, time deposits were kept in prime financial institutions, which generated interest at annual rates ranging from 0.10 to 4.00 percent and had original maturities of six to seven days, according to the immediate cash needs of the Group.

Notes to the consolidated financial statements(continued)

 

8.Trade and other receivables, net

(a)This caption is made up as follows:

 

  2014  2013 
  US$(000)  US$(000) 
Trade receivables, net (b)        
Domestic clients  107,638   108,836 
Foreign clients  59,377   55,926 
Related entities, note 28(b)  15,081   9,421 
   182,096   174,183 
Allowance for doubtful accounts  (21,741)  (21,741)
   160,355   152,442 
Other receivables        
Value added tax credit  76,532   72,668 
Refund application of value added tax (c)  30,529   13,727 
Tax deposits (d)  13,843   10,622 
Receivables from third parties  13,853   16,669 
Claims to third parties  3,764   14 
Advances to suppliers  720   3,630 
Loans to personal  1,588   1,427 
Related entities, note 28(b)  334   15,890 
Other  6,737   4,573 
   147,900   139,220 
Total trade and other receivables, net  308,255   291,662 
         
Classification by maturity:        
Current portion  281,604   263,583 
Non-current portion  26,651   28,079 
Total trade and other receivables, net  308,255   291,662 

Notes to the consolidated financial statements(continued)

  2016  2015 
  US$(000)  US$(000) 
       
Trade receivables, net (b)        
Domestic clients  89,811   76,078 
Foreign clients  77,254   45,162 
Related entities, note 30(b)  7,760   9,426 
   174,825   130,666 
Allowance for doubtful accounts (f)  (22,644)  (21,741)
         
   152,181   108,925 
Other receivables        
Related entities, note 30(b)  126,669   125,487 
Value added tax credit  96,204   73,145 
Claims to third parties  26,705   15,649 
Refund application of value added tax (c)  17,037   40,421 
Tax deposits (d)  13,479   12,055 
Restricted bank accounts (e)  2,087   - 
Other minors  9,738   11,526 
         
   291,919   278,283 
Allowance for doubtful accounts (f)  (8,963)  (4,779)
         
Total trade and other receivables, net  435,137   382,429 
Classification by maturity:        
Current portion  269,089   219,862 
Non-current portion  166,048   162,567 
         
Total trade and other receivables, net  435,137   382,429 
         
Classification by nature:        
Financial receivables  319,454   268,863 
Non-financial receivables  115,683   113,566 
         
Total trade and other receivables, net  435,137   382,429 

 

(b)The ageing analysis of trade receivables is as follows:Trade accounts receivable are denominated in U.S. dollars, are neither due nor impaired, do not yield interest and have no specific guarantees.

        Past due but not impaired 
  Total  Neither past due
nor impaired		  From 1 to 120
days		  More than 120
days		 
  US$(000)  US$(000)  US$(000)  US$(000) 
                 
2014  160,355   153,652   5,089   1,614 
2013  152,442   152,095   -      347 

 

(c)This item mainly corresponds to value added tax pending to be refunded as of December 31, 2014 and 2013.2016. In November 2013, and January 2015, Buenaventura filed claims procedures by S/.19,500,00019,500,000 (equivalent to US$6,541,000) and by S/.71,100,000 (equivalent to US$23,851,000)5,817,000), respectively, in connection with undue offsets made by the tax authoritiesTax Authorities against tax debts of prior years. In September 2014,As of December 31, 2016, the Group filed anresolution of the appeal against aprocess related to the S/19,500,000 claim which was declared unfounded by the tax authorities in August 2014.is pending for Buenaventura.

F-44

 Notes to the consolidated financial statements(continued)

 

In the opinion of the Group´sManagement and Group’s legal advisors, the adjustmentstax offset made by the tax authoritiesTax Authorities have no legal support, so there are enough arguments to obtain a favorable outcome.outcome in the claim process initiated by Buenaventura.

 

(d)Corresponds to deposits held in the Banco de la NacionPeruvian State bank which only can be used to offset tax obligations.obligations that companies have with the Tax Authorities.

 

(e)TheThese balances correspond to restricted bank accounts for payment of financial obligations held by the subsidiary Empresa de Generación Huanza S.A. (hereafter “Huanza”), according to the finance lease signed with Banco de Crédito del Perú in 2009.

(f)During the year 2016, the Group recorded US$4.9 million for provision forof the doubtful accounts has shown no movement during the years 2014, 2013 and 2012.accounts. In the opinion of the Group´sGroup’s Management, the balance of the provision for doubtful accounts is sufficient to cover adequately the risks of failure to date of the consolidated statement of financial position. The trade receivables past due but not impaired are within normal ranges in the industry, and are mainly related to pending final settlement provisional settlements.

F-44

Notes to the consolidated financial statements(continued)

 

9.Inventory, net

(a)This caption is made up as follows:

 

 2016 2015 
 2014 2013  US$(000) US$(000) 
 US$(000) US$(000)      
Finished goods  32,375   45,617   12,763   12,787 
Products in process  119,239   112,287   66,651   87,275 
Spare parts and supplies  40,493   47,828   63,946   47,912 
  192,107   205,732   143,360   147,974 
Provision for impairment of value of inventory (b)  (7,735)  (6,647)  (8,386)  (20,472)
                
  184,372   199,085   134,974   127,502 
                
Classification by use:                
Current portion  150,284   175,719   120,947   101,473 
Non-current portion  34,088   23,366   14,027   26,029 
                
  184,372   199,085   134,974   127,502 

 

F-45Products in process include mineral deposits located in the Tajo Norte mining unit. The detail of this mineral as of December 31, 2014 and 2013 is presented below:

 

  2014  2013 
  US$(000)  TMS  US$(000)  TMS 
             
Type I and II (copper)  1,261   68,782   2,883   369,564 
Type III  (lead/zinc)  45,963   2,746,634   39,978   2,369,576 
                 
   47,224   2,815,416   42,861   2,739,140 
                 
Classification by use:                
Current portion  13,136       19,495     
Non-current portion  34,088       23,366     
                 
   47,224       42,861     

 Notes to the consolidated financial statements(continued)

Products in process include mineral deposits located in the Tajo Norte mining unit (El Brocal). The detail of this mineral as of December 31, 2016 and 2015 is presented below:

  2016  2015 
  US$(000)  DMT  US$(000)  DMT 
             
Type III (lead/zinc)  18,041   1,159,956   31,004   1,848,414 
Mining Minerals  203   24,629   -   - 
Type I and II (copper)  -   -   73   6,923 
   18,244   1,184,585   31,077   1,855,337 
Provision for impairment of value in mineral classified in process  (123)  -   (2,563)  - 
                 
   18,121   1,184,585   28,514   1,855,337 
                 
Classification by use:                
Current portion  5,586       2,485     
Non-current portion  12,535       26,029     
                 
   18,121       28,514     

 

As part of the preparation of the mining unit to extract and process ore at a volume of 18,000 DMT/ day, Management of El Brocal decided to accumulate mineral with metal content in the proximity of the Tajo Norte mine, which will behas been treated fromsince the first quarter of 2015.

Notes to the consolidated financial statements(continued)

 

(b)The provision for impairment of value of inventory had the following movement during the years 2014, 20132016, 2015 and 2012:2014:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Beginning balance  6,647   3,244   3,053 
             
Provision for impairment of finished goods  3,722   3,403   212 
Provision for impairment of spare parts and supplies  1,663   1,265   268 
Reversal of provision for impairment of spare parts and supplies  (708)  (1,265)  (289)
Transfer to assets classified as held for sale  (1,559)  -   - 
Write-offs of products in process  (2,030)  -   - 
             
Final balance  7,735   6,647   3,244 
  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  20,472   7,735   6,647 
             
Transfer from available for sale units  1,448   -   - 
Changes in provision for impairment of finished goods,
note 22(a)		  (7,581)  13,096   3,262 
Changes in provision for impairment of finished goods (discontinued operations), note 1(e)  (706)  (1,474)  1,522 
Changes in provision for impairment of spare parts and supplies  (110)  1,115   (3,696)
Reversal in provision for impairment of inventories  (5,137)  -   - 
             
Final balance  8,386   20,472   7,735 

 

In the opinion of Group’s Management, the provision for impairment of value of inventory adequately covers this risk as of the date of the consolidated statements of financial position.

 

F-46

 Notes to the consolidated financial statements(continued)

10.Investments in associatesPrepaid expenses

(a)This caption is made up as follows:

 

  Share in equity As of December 31,
  2014 % 2013 % 2014 2013
      US$(000) US$(000)
             
Minera Yanacocha S.R.L.  43.65   43.65   1,185,971   1,360,689 
Sociedad Minera Cerro Verde S.A.A.  19.584   19.584   982,206   904,315 
Compañía Minera Coimolache S.A.  40.095   40.095   52,685   43,367 
Canteras del Hallazgo S.A.C.  -   49.00   -   39,231 
Other minor investments          3,519   2,700 
                 
           2,224,381   2,350,302 
  2016  2015 
  US$(000)  US$(000) 
       
Prepaid rentals (b)  29,879   29,235 
Prepaid insurances  6,055   3,471 
Deferred royalties and rentals of mining concessions  2,377   463 
Deferred costs of works for taxes  1,801   1,801 
Other prepaid expenses  1,711   2,496 
         
   41,823   37,466 
         
Classification by maturity:        
Current portion  11,392   8,231 
Non-current portion  30,431   29,235 
         
   41,823   37,466 

(b)This item corresponds to the balance of an original prepayment of US$31 million for the lease of hydraulic installations by the subsidiary Empresa de Generacion Huanza S.A. This prepayment is being charged to results during the life of the underlying assets (35 years).

11.Investments in associates
(a)This caption is made up as follows:

  Share in equity    
  2016 - 2015  2016  2015 
  %  US$(000)  US$(000) 
          
Sociedad Minera Cerro Verde S.A.A.  19.584   1,055,488   988,725 
Minera Yanacocha S.R.L.  43.65   402,866   989,130 
Compañía Minera Coimolache S.A.  40.095   74,734   62,609 
Other minor investments      3,519   3,519 
             
       1,536,607   2,043,983 

 

(b)The table below presents the net share in profit (loss) of associates:

 

 2014 2013 2012 2016 2015 2014 
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
              
Sociedad Minera Cerro Verde S.A.A.  66,763   6,518   77,891 
Compañía Minera Coimolache S.A.  23,514   16,617   22,256 
Minera Yanacocha S.R.L.  (174,747)  (251,109)  282,797   (455,598)  (196,510)  (174,747)
Sociedad Minera Cerro Verde S.A.A.  77,891   116,160   156,003 
Compañía Minera Coimolache S.A.C.  22,256   20,804   40,187 
                        
  (74,600)  (114,145)  478,987   (365,321)  (173,375)  (74,600)

F-47

 

Notes to the consolidated financial statements(continued)

 

Investments held by the Group in its associates Minera Yanacocha S.R.L. (through its subsidiary Compañía Minera Condesa S.A.) and Sociedad Minera Cerro Verde S.A.A., represent the most significant investments of the Group. Its operations are strategic to the Group's activities and participation in their results has been important in relation to profits (losses) of the Group in the years 2014, 20132016, 2015 and 2012.2014. The following relevant information on these investments is as follows:

 

InvestmentsInvestment in Minera Yanacocha– S.R.L.-

The Company, through its subsidiary Compañía Minera Condesa S.A., has an interest of 43.65 percent of Yanacocha.Minera Yanacocha S.R.L. (hereinafter “Yanacocha”). Yanacocha is engaged in gold production and exploration and development of gold and copper in their own concessions or owned by S.R.M.L. Chaupiloma Dos de Cajamarca (subsidiary of the Group), with which signed a contract of use of mineral rights.

 

During the last several years, Yanacocha ishas been developing the Conga project, which consists in two deposits of gold and porphyry of copper located at northeast of the Yanacocha operating area in the provinces of Celendín, Cajamarca and Hualgayoc (Peru).

 

Because of local communities and political protests for potential water impacts of the project development activities and construction the projects are suspended since November 2011. To date, Yanacocha´sYanacocha’s management has been making only water support activities recommended by independent experts, mainly the construction of water reservoirs, before carrying out any development project.

 

The table below presents key financial data from the financial statements of Minera Yanacocha S.R.L. under IFRS:

 

 2014 2013  2016 2015 
 US$(000) US$(000)  US$(000) US$(000) 
Statements of financial position        
     
Statements of financial position as of December 31:        
Current assets  1,275,288   940,998   1,107,893   1,345,682 
Non-current assets  2,207,908   2,813,694   937,992   1,619,748 
Current liabilities  (229,838)  (226,147)  (135,136)  (132,557)
Non-current liabilities  (573,581)  (448,495)  (1,025,025)  (604,048)
Shareholders’ equity, reported  2,679,777   3,080,050   885,724   2,228,825 
                
Groups’ interest (43.65%)  1,169,723   1,344,441   386,618   972,882 
Goodwill  16,248   16,248   16,248   16,248 
  1,185,971   1,360,689         
  402,866   989,130 

F-48

 

Notes to the consolidated financial statements(continued)

 

 2014 2013 2012 2016 2015 2014 
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
Statements of profit or loss            
       
Statements of profit or loss as of December 31,            
Net sales  1,210,457   1,458,145   2,218,921   761,193   1,031,174   1,165,299 
Other operating income  17,713   10,625   30,300 
Costs of sales  (890,390)  (983,238)  (832,116)  (776,394)  (751,736)  (920,300)
Other operating income  20,705   29,181   22,861 
Cost of other operating income  (2,951)  (2,524)  (22,422)
Operating expenses  (22,422)  (28,672)  (22,069)  (71,496)  (82,846)  (77,781)
Administrative expenses  (128,347)  (156,822)  (210,309)  (8,780)  (26,325)  (38,262)
Selling expenses  (41,325)  (47,925)  (71,676)  (3,695)  (3,534)  (4,458)
Impairment loss of long-lived assets  (889,499)  -   (541,141)
Finance income (costs)  850   2,153   (764)  (12,975)  (22,061)  (23,206)
Impairment loss  (541,142)  (1,038,548)  - 
Other expenses, net  (39,215)  (13,024)  (71,146)
Profit before income tax  (430,829)  (778,750)  1,033,702 
Gain (loss) from currency exchange difference  (13,741)  (251)  1,142 
Income (loss) before income tax  (1,000,625)  152,522   (430,829)
Income tax  30,556   203,471   (385,827)  (43,127)  (602,717)  30,491 
Net profit  (400,273)  (575,279)  647,875 
            
Net loss reported  (1,043,752)  (450,195)  (400,338)
Group’s interest (43.65%)  (174,747)  (251,109)  282,797   (455,598)  (196,510)  (174,748)

 

During the years 2014 and 2013,year 2016, Yanacocha recordedidentified impairment chargesindicators as a result of the increase in the asset retirement obligations of US$352 million as a result of the update of its long-livedrelated obligation. Due to this, Yanacocha evaluated the recoverability of long lived assets and determine an impairment loss, net of tax,taxes, of US$378,799,000 and US$726,984,000, respectively,889.5 million, which reduced Yanacocha´s net equity and therefore, the equity participation of the Group in this associate in 2016. During 2015, there was no impairment losses, but in 2014 Yanacocha recorded impairment charges of its long-lived assets, net of tax, of US$378.8 million.

In December 2015, Yanacocha recorded charges for deferred income tax recoverability by US$510 million since Management considers that is not probable that taxable profit will be available to compensate against the past two years. This impairment loss resulted fromdeductible temporary differences.

During 2016, Yanacocha agreed unanimously the postponementdistribution to the partners, in proportion to its social share, of US$300 million, which correspond to the portion of the development activities due to the serious difficulties to get the social license to operate the Conga project. It is not expected to record additional significant impairment losses to this projectretained earnings as of December 31, 2014, originated in the future.2011.

 

Investment in Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) –-

Sociedad Minera Cerro Verde SAA (hereinafter “Cero Verde") is engaged in the extraction, production and marketing of cathodes and copper concentrate from its mining unit that is located in Uchumayo, Arequipa, Peru.

 

F-49

 Notes to the consolidated financial statements(continued)

The table below presents the key financial data from the financial statements of Cerro Verde under IFRS:

  2014 2013
  US$(000) US$(000)
Statements of financial position as of December 31:        
Current assets  677,652   1,453,386 
Non-current assets  5,094,332   3,374,815 
Current liabilities  (552,572)  (427,314)
Non-current liabilities  (754,322)  (313,403)
Shareholders’ equity, reported  4,465,090   4,087,484 
         
Adjustments to conform to the accounting policies of the Group  -   (20,124)
         
Shareholders’ equity, adjusted  4,465,090   4,067,360 
         
Group’s interest (19.584%)  874,443   796,552 
Goodwill  107,763   107,763 
         
   982,206   904,315 

  2016  2015 
  US$(000)  US$(000) 
       
Statements of financial position as of December 31:        
Current assets  1,218,508   1,056,525 
Non-current assets  6,417,115   6,796,167 
Current liabilities  (293,631)  (548,517)
Non-current liabilities  (2,502,711)  (2,805,801)
         
Shareholders’ equity, reported  4,839,281   4,498,374 
         
Group’s interest (19.584%)  947,725   880,962 
Goodwill  107,763   107,763 
         
   1,055,488   988,725 

 

Notes to the consolidated financial statements(continued)

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
Revenue  2,384,154   1,115,617   1,467,097 
Cost of sales  (1,553,040)  (862,004)  (797,481)
Sales expenses  (131,391)  (56,215)  (54,210)
Other operating income (expenses)  (24,107)  (26,600)  (3,629)
Finance costs  (80,438)  (16,010)  (369)
Finance income  954   512   2,443 
Net gain (loss) of exchange difference  7,857   (75,770)  2,284 
             
Profit before income taxes  603,989   79,530   616,135 
Income tax  (263,082)  (46,246)  (238,529)
             
Net profit, reported  340,907   33,284   377,606 
Adjustments to conform to the accounting policies of the Group  -   -   20,124 
             
Net profit, adjusted  340,907   33,284   397,730 
             
Group’s interest (19.584%)  66,763   6,518   77,891 

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Statements of profit or loss for the years ended December 31:            
Revenue  1,467,097   1,811,488   2,127,023 
Cost of sales  (797,481)  (795,064)  (765,789)
Sales expenses  (54,210)  (68,448)  (78,674)
Costs related to water plant  -   -   (19,606)
Other operating income (expenses)  (3,629)  147   (9,898)
Finance costs  (369)  (1,843)  (6,951)
Finance income  2,443   2,178   1,886 
Exchange difference  2,284   (1,858)  3,149 
Profit before income taxes  616,135   946,600   1,251,140 
Income tax  (238,529)  (333,338)  (454,556)
Net profit, reported  377,606   613,262   796,584 
             
Adjustments to conform to the accounting policies of the Group  20,124   (20,124)  - 
             
Net profit, adjusted  397,730   593,138   796,584 
             
Group’s interest (19.584)  77,891   116,160   156,003 

Market capitalization:

As of December 31, 20142016 and 2013,2015, total market capitalization of 68,554,969 shares maintained by the Group in Cerro Verde was US$1,645,319,0001,311.3 million and US$1,679,597,000,994.0 million, respectively (market capitalization value by each share of US$24.0019.11 and US$24.50 per unit,14.50, respectively).

F-50

Notes to the consolidated financial statements(continued)

 

Investment in Compañía Minera Coimolache S.A. (Coimolache) -

 

Coimolache is involved in the production and the sales of gold and silver from its open-pit mining unit located in Cajamarca, Peru.

F-49

Notes to the consolidated financial statements(continued)

 

The table below presents the key financial data from the financial statements of Coimolache under IFRS:

 

 2014 2013  2016 2015 
 US$(000) US$(000)  US$(000) US$(000) 
Statements of financial position as of December 31:                
Current assets  69,640   74,867   73,480   62,727 
Non-current assets  139,421   128,882   261,075   185,665 
Current liabilities  (37,115)  (55,685)  (28,532)  (26,775)
Non-current liabilities  (18,607)  (13,857)  (102,519)  (46,562)
        
Shareholders’ equity, reported  153,339   134,207   203,504   175,055 
        
Adjustments to conform to the accounting policies of the Group  (21,939)  (26,047)  (17,111)  (18,900)
                
Shareholders’ equity, adjusted  131,400   108,160   186,393   156,155 
                
Group’s interest (40.095%)  52,685   43,367   74,734   62,610 

 

 2014 2013 2012  2016 2015 2014 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
Statements of profit or loss for the years ended December 31:                        
Revenue  192,369   209,636   262,597   198,873   177,347   192,369 
Costs of sales  (100,649)  (124,325)  (113,866)
Cost of sales  (107,913)  (104,549)  (100,649)
Administrative expenses  (2,073)  (1,843)  (2,344)  (4,144)  (2,185)  (2,073)
Sales expenses  (1,077)  (522)  (701)  (1,128)  (1,111)  (1,077)
Other operating income, net  929   779   361 
Other operating income (expenses)  755   765   929 
Finance income  47   335   353   38   23   47 
Finance costs  (583)  (2,385)  (5,463)  (1,614)  (723)  (583)
Gain (loss) from exchange difference  (1,465)  (524)  1,305 
Exchange difference  (117)  (1,300)  (1,465)
            
Profit before income taxes  87,498   81,151   142,242   84,750   68,267   87,498 
Income taxes  (36,090)  (34,156)  (50,995)
Income tax  (27,894)  (29,861)  (36,090)
            
Net profit, reported  51,408   46,995   91,247   56,856   38,406   51,408 
            
Adjustments to conform to the accounting policies of the Group  4,099   4,892   8,983   1,790   3,039   4,099 
                        
Net profit, adjusted  55,507   51,887   100,230   58,646   41,445   55,507 
                        
Group’s interest (40.095%)  22,256   20,804   40,187   23,514   16,617   22,256 

 

F-50
F-51 

 

Notes to the consolidated financial statements(continued)

 

11.12.Mining concessions, development costs, property, plant and equipment, net

(a)Below is presented the movement in cost:

 

 Balance as of
January 1, 2013		 Additions Retirements Sales Transfers Balance as of
December 31, 2013		 Additions Retirements Sales Transfers Merger with
Canteras
del Hallazgo		 Transfer to assets
held for sale		 Balance as of
December 31, 2014		  Balance as of
January 1, 2015		 Additions Disposals Sales Transfers Balance as of
December 31,
2015		 Additions Disposals Sales Reclassifications
of assets
available for sale		 Reclassifications
and transfers		 Balance as of
December 31,  
2016		 
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000)  US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
                                                    
Cost                                                                                                    
Lands  6,029   6,044   -   (4)  -   12,069   10,590   (357)  -   129   130   (560)  22,001   22,001   2,293   (1,892)  -   52   22,454   162   -   (6)  78   270   22,958 
Mining lands  7,215   -   -   -   -   7,215   -   -   -   -   -   -   7,215 
Mining concessions  137,309   -   -   -   -   137,309   67   (6,061)  -   -   74,005   (14,526)  190,794   198,009   -   -   -   -   198,009   -   -   -   -   -   198,009 
Development costs  272,906   81,603   -   -   -   354,509   138,527   (2,586)  -   2,575   127,809   (89,377)  531,457   531,457   62,765   -   -   (52,459)  541,763   82,865   -   -   31,192   (3,428)  652,392 
Buildings, constructions and other  505,749   4,864   (151)  (798)  6,340   516,004   3,467   (2,222)  (1,536)  521,960   688   (40,170)  998,191   998,191   1,715   (1,690)  (168)  20,908   1,018,956   581   -   (20)  10,458   79,192   1,109,167 
Machinery and equipment  459,921   93,810   (2,566)  (11,572)  28,285   567,878   6,716   (6,893)  (20)  214,808   840   (33,246)  750,083   750,083   29,550   (887)  (3,799)  52,278   827,225   46,152   (6,569)  (2,844)  9,425   112,643   986,032 
Transportation units  11,967   1,295   (26)  (680)  680   13,236   484   (1,230)  (658)  78   -   (960)  10,950   10,950   491   (245)  (990)  443   10,649   174   (341)  (396)  357   (27)  10,416 
Furniture and fixtures  12,256   720   (26)  (140)  799   13,609   1,587   (79)  (5)  1,208   5   (3,300)  13,025   13,025   137   (25)  (84)  376   13,429   89   (61)  (88)  359   319   14,047 
Units in transit  43,672   8,292   (1,371)  -   (14,119)  36,474   3,233   (19,450)  -   (8,421)  -   -   11,836   11,836   15,212   (113)  -   (644)  26,291   15,797   -   -   -   (12,037)  30,051 
Work in progress  431,836   297,852   (288)  -   (21,985)  707,415   114,151   (30,272)  -   (732,337)  -   (1,037)  57,920   57,920   81,333   -   -   (71,130)  68,123   210,915   (352)  -   1,037   (173,935)  105,788 
Stripping activity asset  44,623   35,029   -   -   -   79,652   6,069   -   -   -   -   -   85,721   85,721   17,790   -   -   3,327   106,838   17,631   -   -   -   (2)  124,467 
Mine closure costs  56,218   38,117   (4,804)  -   -   89,531   1,031   (11,464)  -   -   -   (15,012)  64,086   64,086   76,799   (2,414)  -   49,132   187,603   34,532   -   -   25,754   -   247,889 
  1,989,701   567,626   (9,232)  (13,194)  -   2,534,901   285,922   (80,614)  (2,219)  -   203,477   (198,188)  2,743,279   2,743,279   288,085   (7,266)  (5,041)  2,283   3,021,340   408,898   (7,323)  (3,354)  78,660   2,995   3,501,216 
Accumulated depreciation and amortization                                                    
                                                
Accumulated depreciation and amortization:                                                
Mining lands  3,202   -   -   -   -   3,202   -   (3,202)  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Mining concessions  74,283   9,776   -   -   -   84,059   5,058   -   -   -   -   (11,721)  77,396   77,396   54   -   -   -   77,450   16   -   -   -   -   77,466 
Development costs  201,017   30,667   -   -   -   231,684   35,480   (2,492)  -   -   -   (80,394)  184,278   184,278   49,771   -   -   (34,838)  199,211   18,225   -   -   25,596   (1,396)  241,636 
Buildings, construction and other  216,797   72,151   (151)  (677)  (6,719)  281,401   65,962   (932)  -   -   246   (32,632)  314,045   314,045   69,353   (1,915)  (81)  39   381,441   65,050   -   (9)  8,598   598   455,678 
Machinery and equipment  280,819   62,233   (693)  (6,103)  6,719   342,975   87,215   (5,058)  (8)  -   571   (25,934)  399,761   399,761   77,546   (277)  (1,941)  852   475,941   81,753   (5,378)  (827)  6,640   (68)  558,061 
Transportation units  7,771   1,312   (26)  (652)  -   8,405   842   (684)  (562)  -   -   (725)  7,276   7,276   1,385   (221)  (916)  408   7,932   1,103   (250)  (365)  358   14   8,792 
Furniture and fixtures  7,055   1,086   (25)  (137)  -   7,979   1,253   (143)  -   -   2   (2,770)  6,321   6,321   1,252   (87)  (66)  157   7,577   1,156   (60)  (22)  319   202   9,172 
Stripping activity asset  2,285   854   -   -   -   3,139   3,343   -   -   -   -   -   6,482   6,482   6,434   -   -   -   12,916   5,813   -   -   -   -   18,729 
Mine closure costs  24,250   13,336   -   -   -   37,586   4,216   (365)  -   -   -   (9,169)  32,268   32,268   33,381   (491)  -   34,835   99,993   22,417   -   -   19,335   (470)  141,275 
  817,479   191,415   (895)  (7,569)  -   1,000,430   203,369   (12,876)  (570)  -   819   (163,345)  1,027,827   1,027,827   239,176   (2,991)  (3,004)  1,453   1,262,461   195,533   (5,688)  (1,223)  60,846   (1,120)  1,510,809 
                                                
Provision for impairment of long-lived assets                                                                                                    
Mining concessions  2,805   -   -   -   -   2,805   -   -   -   -   -   (2,805)  -   -   3,345   -   -   -   3,345   -   -   -   -   -   3,345 
Property, plant and equipment  4,735   -   -   -   -   4,735   794   -   -   -   -   (5,529)  -   -   27   -   -   -   27   -   -   -   6,533   -   6,560 
Development costs  4,877   3,912   -   -   -   8,789   -   -   -   -   -   (8,789)  -   -   3,803   -   -   -   3,803   -   -   -   5,684   -   9,487 
Mine closure costs  -   1,668   -   -   -   1,668   -   -   -   -   -   (1,668)  -   -   4,080   -   -   -   4,080   -   -   -   6,910   -   10,990 
Work in progress  -   1,014   -   -   -   1,014   -   -   -   -   -   (1,014)  - 
  12,417   6,594   -   -   -   19,011   794��  -   -   -   -   (19,805)  -   -   11,255   -   -   -   11,255   -   -   -   19,127   -   30,382 
                                                                                                    
Net cost  1,159,805                   1,515,460                           1,715,452   1,715,452                   1,747,624                       1,960,025 

F-52

Notes to the consolidated financial statements(continued)

 

(b)During the year 2014, the Group recognized impairment lossesImpairment of certainlong-lived assets by US$794,000, as a result of the decrease in the level and quality of reserves of the mining units Poracota, Recuperada, Shila-Paula and Antapite (US$6,594,000 in 2013 and US$3,617,000 in 2012). The recoverable amounts were determined based on their values in use and were calculated at each mining unit.

In accordance with its accounting policies and processes, each asset or CGU is evaluated annually at year end, to determine whether there are any indications of impairment. If any such indications of impairment exist, a formal estimate of the recoverable amount is performed.

In assessing whether impairment is required, the carrying value of the asset or CGU is compared with its recoverable amount. The recoverable amount is the higher of the CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). Given the nature of the Group’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers or similar transactions are taking place. Consequently, the recoverable amount for each CGU is estimated based on discounted future estimated cash flows expected to be generated from the continued use of the CGUs using market based commodity price and exchange assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements, and its eventual disposal, based on the latest life of mine (LOM) plans. These cash flows were discounted using a real pre-tax discount rate that reflected current market assessments of the time value of money and the risks specific to the CGU.

The estimates of quantities of recoverable minerals, production levels, operating costs and capital requirements are obtained from the planning process, including the LOM plans, one-year budgets and CGU-specific studies.

As a result of the recoverable amount analysis performed as of December 31, 2015, the Group recognized impairment losses related to mine properties for the mining operating unit ofLa Zanja for US$3,803,000 and Breapampa for US$7,452,000 (US$794,000 as of December 31, 2014). During 2016, the Group recorded an impairment loss related to Shila-Paula mining unit for US$2,043,000.

Key assumptions

The determination of value in use is most sensitive to the following key assumptions:

-Production volumes
-Commodity prices
-Discount rate used, before taxes, was 11.37 percent. Management believes that there will not be significant changes in the discount rate that may increase the impairment loss.

 

InProduction volumes: Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the opinionmines agreed by management as part of planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the Group´s Management, the balancedevelopment of the provisioninfrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

F-53

Notes to the consolidated financial statements(continued)

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines are computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with the reserves and resource volumes approved as part of the Group’s process for impairmentthe estimation of long-lived assetsproved and probable reserves and resource estimates.

Commodity prices: Forecast commodity prices are based on management’s estimates and are derived from forward price curves and long-term views of global supply and demand, building on past experience of the industry and consistent with external sources. These prices were adjusted to arrive at appropriate consistent price assumptions for the different qualities and type of commodities, or, where appropriate, contracted prices were applied. These prices are reviewed at least annually.

Estimates prices for the current and long-term periods that have been used to estimate future revenues are as follows:

  2017  2018  2019  2020 
  US$  US$  US$  US$ 
             
Gold  1,288.00/Oz  1,313.00/Oz  1,291.00/Oz  1,291.00/Oz
Silver  18.50/Oz  19.50/Oz  19.40/Oz  19.40/Oz
Copper  5,200.00/MT  5,633.00/MT  6,000.00/MT  6,000.00/MT
Lead  2,000.00/MT  2,134.00/MT  2,150.00/MT  2,150.00/MT
Zinc  2,360.00/MT  2,500.00/MT  2,444.00/MT  2,444.00/MT

Discount rate: In calculating the value in use, a pre-tax discount rate of 8.3% was applied to the pre-tax cash flows. This discount rate is sufficientderived from the Group’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to cover adequatelyreflect the risks specific to the CGU. The WACC takes into account both debt and equity. The cost of impairmentequity is derived from the expected return on investment by the Group’s investors. The cost of long-lived assets ofdebt is based on its interest bearing borrowings the Group at the date of the consolidated statement of financial position.is obliged to service. The beta factors are evaluated annually based on publicly available market data.

 

(c)The book value of assets held under finance leases amounted to US$233,826,000 at218,558,000 as of December 31, 20142016 (US$234,397,000 at226,429,000 as of December 31, 2013) 2015)and is presented in various items of property, plant and equipment. AdditionsNo additions occurred during the year include US$142,315,0002016 (US$115,397,000 in 2013) of plant and equipment under finance lease. 262,000 during 2015).Leased assets are pledged as security for the related finance lease liabilities.

 

(d)The amount of capitalized finance costs during the year 2014 2016wasUS$20,079,0007,531,000 (US$16,570,000 1,307,000during 2013) the year2015)and areis presented under investing activities in the consolidated statements of cash flows.. flows.The average rate used to determine the financial cost to be capitalized was 4.255 3.52percent during 2014 (4.246 percent during 2013).the year2016.

F-54

Notes to the consolidated financial statements(continued)

 

12.13.Investment properties, net

The Group's investment properties consist of administrative offices in seven floors (6,252 meters square), 154 parking spaces and 20 tanks, all in the Capital The Derby building, located in the district of Surco, Lima, Peru.

The movement of cost and accumulated depreciation for the year 2014years 2016 and 2015 is presented below:

 

  Cost  Accumulated
depreciation		  Net
cost		 
  US$(000)  US$(000)  US$(000) 
          
Balance as of January 1, 2014  -   -   - 
Additions  12,103   (903)  11,200 
             
Balance as of December 31, 2014  12,103   (903)  11,200 
  Balance as of
January 1,
2015		  Addition
(reversal)		  Balance as of
December 31,
2015		  Addition
(reversal)		  Balance as of
December 31,
2016		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
Cost:                    
Administrative offices  12,103   -   12,103   (92)  12,011 
Accumulated depreciation:                    
                     
Administrative offices  (903)  (481)  (1,384)  (538)  (1,922)
                     
Net cost  11,200       10,719       10,089 

 

The Group does not have restrictions in the realization of its investment properties.

 

During 2014,2016 and 2015, the rental income from thesefair value of the investment propertiesproperty amounted to S/76,495,466 and S/102,330,233, respectively (approximately US$1,542,000.22.8 million and US$30.4 million, respectively).

 

14.Bank loans

As of December 31, 2016, the Group maintains bank loans amounting to US$55 million which were obtained for working capital purposes, have current maturity and accrue interest at market annual rates ranging from 1.92% to 4.14%.

As of December 31, 2015, the Group maintains bank loans amounting to US$285.3 million, which accrue interest at market annual rates ranging from 1.32% to 5.61%. A portion of the loans held as of December 31, 2015 were repaid with the financial obligations detailed in note 17(b).

 

F-52
F-55 

 

Notes to the consolidated financial statements(continued)

 

13.Bank loans

This caption mainly includes a bank loan in U.S. dollars granted by Banco de Credito for an amount of US$40,000,000. This loan accrues interests at an annual rate of 1.5 percent, has a term of 365 days and matures in August 2015. This loan is guaranteed with cash deposits held by the Company in such bank.

14.15.Trade and other payables

(a)This caption is made up as follows:

 

 2016 2015 
 2014 2013  US$(000) US$(000) 
 US$(000) US$(000)      
Trade payables (b)                
Domestic suppliers  206,844   219,730   232,745   209,107 
Related entities, note 28(b)  1,794   1,427 
Related entities, note 30(b)  1,372   1,175 
                
  208,638   221,157   234,117   210,282 
                
Other payables                
Taxes payable  16,708   9,320 
Accounts payable to non-controlling interests  15,181   11,772   15,661   15,403 
Taxes payable  13,409   11,602 
Remuneration and similar benefits payable  12,879   18,797   9,796   10,409 
Royalties payable to the Peruvian State  2,654   2,455   3,670   2,103 
Dividends payable  1,117   1,115   1,018   1,044 
Related entities, note 30(b)  3   - 
Other liabilities  15,362   47,142   8,449   13,610 
  60,602   92,883   55,305   51,889 
                
  269,240   314,040   289,422   262,171 
                
Classification by maturity:                
Current portion  254,000   301,811   273,440   247,114 
Non-current portion  15,240   72,229   15,982   15,057 
                
Total trade and other payables  269,240   314,040   289,422   262,171 
        
Classification by nature:        
Financial payables  269,044   250,748 
Non-financial payables  20,378   11,423 
        
Total trade and other payables  289,422   262,171 

 

(b)(a)Trade payables arise mainly from the acquisition of material, supplies and spare parts and services provided by third parties. These obligations are mostly denominated in U.S. dollars, have current maturities, accrue no interest and are not secured.

 

F-53
F-56 

 

Notes to the consolidated financial statements(continued)

 

15.16.Provisions

(a)This caption is made up as follows:

 

 2016 2015 
 2014 2013  US$(000) US$(000) 
 US$(000) US$(000)      
Provision for closure of mining units and exploration projects (b)  103,010   136,357   206,462   166,403 
Provision for environmental obligations  6,708   9,224 
Workers’ profit sharing payable  8,398   894 
Provision for environmental liabilities  7,324   8,373 
Provision for obligations with communities  4,710   2,883 
Provision for labor contingencies  3,395   3,611 
Provision for safety contingencies  6,475   1,679   2,807   6,346 
Provision for labor contingencies  4,729   6,021 
Workers’ profit sharing payable (c)  3,916   7,206 
Provision for obligations with the local communities  2,851   6,974 
Board of Directors’ participation  1,385   1,604   1,140   993 
Provision for environmental liabilities  1,092   4,031 
Stock appreciation rights (c)  449   1,885 
Provision for environmental contingencies  753   1,259 
Stock appreciation rights  588   330 
Other provisions  851   1,195   1,115   622 
                
  131,466   176,176   236,692   191,714 
Classification by maturity:                
Current portion  67,895   69,800   62,502   49,829 
Non-current portion  63,571   106,376   174,190   141,885 
                
  131,466   176,176   236,692   191,714 

 

(b)Provision for closure of mining units and exploration projects -

 

The table below presents the movement of the provision for closure of mining units and exploration projects:

 

 2016 2015 
 2014 2013  US$(000) US$(000) 
 US$(000) US$(000)      
Beginning balance  140,452   99,438   166,403   103,010 
Changes in estimates (property, plant and equipment and development costs)  226   40,992 
Accretion expense  2,494   6,402 
New mine closure plans  623   16,665 
Transfer from available for sale units  15,851   - 
Changes and additions in estimates (discontinued operations), note 1(e)  3,365   - 
Accretion expense (discontinued operations), note 1(e)  970   45 
Changes and additions in estimates (continued operations), note 12(a)  34,532   74,907 
Accretion expense (continued operations), note 27  4,116   3,298 
Disbursements  (19,427)  (27,140)  (18,775)  (14,857)
Reclassifications to liabilities directly associated with the assets held for sale  (21,358)  - 
        
Final balance  103,010   136,357   206,462   166,403 
                
Classification by maturity:                
Current portion  44,936   39,577   37,405   31,196 
Non-current portion  58,074   96,780   169,057   135,207 
  103,010   136,357         
  206,462   166,403 

F-57

Notes to the consolidated financial statements(continued)

 

The provision for closure of mining units and exploration projects represents the present value of the closure costs that are expected to be incurred between the years 20152017 and 2040.2039. These estimates are based on studies prepared by independent advisers that meet the environmental regulations in effect.

Notes to the consolidated financial statements(continued)

 

The provision for closure of mining units and exploration projects corresponds mostly to activities that must be carried out for restoring the mining units and areas affected by operation and production activities. The principal works to be performed correspond to earthworks, re-vegetation efforts and dismantling of the plants. Closure budgets are reviewed regularly to take into account any significant change in the studies conducted. Nevertheless, the closure costs of mining units will depend on the market prices for the closure works required, which would reflect future economic conditions. Also, the time when the disbursements will be made depends on the useful life of the mine, which will be based on future metals prices.

 

As of December 31, 2014, 2016,the future value of the provision for closure of mining units and exploration projects wasUS$149,793,000, 220.0 million,which has been discounted using annual risk-free rates ranging from 0.66 0.40to 3.95 4.83percent in periods of 1 to 30 23years,resulting in an updated liability ofUS$103,010,000185,163,000 (US$136,357,000 166,403,000as of December 31, 2013)2015).The Group believes that this liability is sufficient to meet the current environmental protection laws approved by the Ministry of Energy and Mines.

 

As of December 31,2014 The31, 2016, the Group has constituted letters of credit in favor of the Ministry of Energy and Mines for US$76,808,000117,664,000 (US$66,185,000 110,403,000as of December 31, 2013) 2015)to secure current mine closure plans of its mining units.units and exploration projects up to date.

 

(c)F-58Stock appreciation rights -

 

Senior executives of the Group are granted share appreciation rights, which can only be settled in cash, if the executive is working for the Group at each program’s settlement date. These programs are mainly structured in a 10-year term, allocated in several programs with progressive maturities. The settlement of each program is determined based on the variation of the market prices at the maturity date as compared to the price at the date of the grant, over the corresponding number of shares.

The table below presents the main assumptions used by the Group to estimate the fair value:

  2014  2013 
       
Historical volatility of the shares  48.15%  47.69%
Risk-free interest rate for the remaining period until vesting  0.00%  0.00%
Dividend yield  1.21%  1.29%
Period covered by the program  10 years   10 years 
Market value of the shares at closing US$9.56  US$11.22 

The expected useful life of the award is based on historical data and current expectations and do not necessarily represent patterns that indicate the executions of awards that could occur in the future. The expected volatility reflects the assumption that the historical volatility for a similar period of life of the options indicates the trend in the future, which might not necessarily be the actual outcome.

The valuation model has been used by the Company as of December 31, 2013 and 2014 was the Turnbull & Wakeman.

Notes to the consolidated financial statements(continued)

The movement of shares subject to compensation programs is as follows:

  Number of shares 
  2014  2013 
       
Beginning balance  4,234,779   3,969,664 
Granted  145,000   790,000 
Retired  (386,431)  (70,199)
Expired  (570,634)  (454,686)
         
Final balance  3,422,714   4,234,779 

Awards maturities per year are as follows: 574,499 shares during 2015; 603,915 shares during 2016; 576,000 shares during 2017; and 1,668,300 shares from 2018 onwards.

The movement in the provision for compensation functionaries occurs as follow:

  2014  2013 
  US$(000)  US$(000) 
Beginning balance  1,885   26,872 
Valuation (reverse)  of the year  77   (19,143)
Payments  (1,513)  (5,844)
         
Final balance  449   1,885 
         
Classification by maturity:        
Current portion  -   1,513 
Non-current portion  449   372 
         
   449   1,885 

F-56

Notes to the consolidated financial statements(continued)

 

16.17.Financial obligations

(a)This caption is made up as follow:

 

 2014 2013  2016 2015 
 US$(000) US$(000)  US$(000) US$(000) 
     
Compañía de Minas Buenaventura S.A.A. (b)        
BBVA Banco Continental S.A.  61,667   - 
Banco de Crédito del Perú  61,667   - 
CorpBanca New York Branch  61,666   - 
Banco Internacional del Perú  30,000   - 
ICBC Perú Bank  25,000   - 
Banco Latinoamericano de Comercio Exterior S.A.  20,000   - 
Banco de Sabadell, Miami Branch  15,000   - 
  275,000   - 
Debt issuance costs  (3,119)  - 
  271,881   - 
Empresa de Generación Huanza S.A.                
Banco de Crédito del Perú – Finance lease (b)  199,170   119,000 
Banco de Crédito del Perú – Finance lease (c)  176,062   188,138 
                
Sociedad Minera El Brocal S.A.A.                
Banco de Crédito del Perú – Leaseback (c)  165,039   115,397 
Banco de Crédito del Perú – Finance leaseback (d)  136,812   156,328 
Other obligations  5,000   -   173   - 
                
Buenaventura Ingenieros S.A.                
Banco de Crédito del Perú – Finance lease (d)  13,988   - 
Banco de Crédito del Perú – Finance lease (e)  7,361   9,082 
Other obligations  -   69 
                
Others  108   - 
Contacto Corredores de Seguros S.A.        
BBVA Banco Continental S.A. – Finance lease  53   93 
                
Total financial obligations  383,305   234,397   592,342   353,710 
                
Classification by maturity:                
Current portion  69,950   11,370   40,110   33,394 
Non-current portion  313,355   223,027 
Non-current portion (f)  552,232   320,316 
                
Total financial obligations  383,305   234,397   592,342   353,710 

F-59

Notes to the consolidated financial statements(continued)

 

(b)On June 27, 2016, Buenaventura entered into a long-term finance contract with seven Peruvian and foreign banks, with the following terms and conditions:

-Principal: US$275,000,000.
-Annual interest rate: Three-month Libor plus 3%.
-Term: 5 years since June 30, 2016, with final maturity in June 30, 2021.
-Grace Period: Two years.
-Amortization: 6 semiannual installments of US$39,285,714 since July 2018 and a final payment of US$39,285,716 in June 2021.
-Guarantee: None. The subsidiaries Compañía Minera Condesa S.A., Inversiones Colquijirca S.A. and Consorcio Energético de Huancavelica S.A. are the guarantors.

As part of the commitments, the Group must meet certain consolidated financial ratios. The main ratios are the following:

(i)Debt service coverage ratio: Higher than 4.
(ii)Leverage ratio: Less than 4 times since June 30, 2016 until June 30, 2017 and less than 3 times since that date.
(iii)Net consolidated equity value: Higher than US$2,711,388,800.

For the calculation of (i) and (ii), the financial obligations and EBITDA of Empresa de Generación Huanza S.A. are excluded.

Additionally, there is a requirement related to the distribution of dividends (until December 31, 2018: up to 20% of the available net income for the previous period; since January 1, 2019: up to the total of net income for the previous period), according to the execution of the dividend policy of the Company.

The compliance of the terms described above is overseen by the Company´s Management. As of December 31, 2016, the Company complies with the above financial ratios.

(c)On December 2, 2010,2009, Empresa de Generación Huanza S.A. entered into a finance lease contract with Banco de Crédito del Perú, with the following terms and conditions:

 

-Principal: US$119,000,000.
-Annual interest rate: Three-month Libor plus 4.60 percent (three-month Libor plus 4.00 percent.percent as of December 31, 2015).
-Term: 6 years since August 2014, with final maturity in November 2020.
-Guarantee: Leased equipments.equipment.
-Amortization: Through 26 quarterly variable installments and a final installmentpayment of US$44,191,000.

F-60

Notes to the consolidated financial statements(continued)

 

On June 30, 2014, Banco de Credito del PeruPerú extended the finance lease contract above mentioned, through the addition of a new tranche with the following terms and conditions:

 

-Principal: US$108,780,000.103,373,000.
-Annual interest rate: Three-month Libor plus 4.70 percent (Three-month Libor plus 4.20 percent.percent as of December 31, 2015)
-Term: 6 years since August 2014, with final maturity in November 2020.
-Guarantee: Leased equipments.equipment.
-Amortization: Through an initial installment of US$23,780,000, 26 quarterly variable installments and a final installment of US$68,905,000.

Notes to the consolidated financial statements(continued)

 

(c)(d)On September 25, 2013,June 9, 2015, the General Shareholders MeetingBoard of Directors of El Brocal approved to enter into athe modification of the debt and new payment schedule of the leaseback through sale and finance leaseback contractcontracts through the sale of assets bywith the same value consisting on includingequipment, machinery and production plantsprocessing plant located in the Colquijirca mining unit, withunit. The contracts have the following terms and conditions:

 

-Principal: US$180,000,000.166,500,000.
-Annual interest rate: Three-monthNine-month Libor plus 5.004.75 percent.
-Term: 55.5 years since March 20, 2014,September 23, 2015, with final maturity in year 2019.2020.
-Amortization: Through 2022 quarterly variable installments.

The financing is secured by a trust agreement on receivables, sales contracts and cash inflows on commercial contracts; and other related to the administration, use, disposal and claim of the assets specified in the contract.

 

In connection with the above financing, El Brocal complied with the following financial ratios as of December 31, 2014:ratios:

 

(i)Debt service coverage ratio: Higher than 1.3 from January 1, 2014.
(ii)Leverage ratio: Less than 1.0. 1.0 times.
(iii)Debt ratio:

a.Less than 3.02.50times as of December 31, 2014;2016;
b.Less than 2.52.50times from January 1, 2015 2017to December 31, 2015; and,September 30,2017;
c.Less than2.25times as of December 31,2017;
d.Less than2.0times from January 1, 2016 and thereafter.2018.

 

These sales agreements with a subsequent financial ratioslease are calculated based onguaranteed by a trust agreement related to collection rights, sales contracts, cash flows for sales contracts and one related to the financial statements of El Brocal as of each quarter ending March, June, September and December.assets indicated in the contract.

 

The compliance with the financial ratios described above is monitored by El Brocal’s management.Management. El Brocal’s Management obtained a waiver from the bank for any possible breach of the financial ratios for one year.

F-61

Notes to the consolidated financial statements(continued)

 

(d)(e)On March 28, 2014, Buenaventura Ingenieros S.A. (hereinafter “BISA”), entered into a finance lease contract with Banco de Credito del Peru,Perú, for the construction of administrative offices, with the following terms and conditions:

 

-Principal: US$14,944,000.
-Annual interest rate: 4.60 percent.
-Term: 5 years and 4 months since April 2014, with final maturity in July 2019.
-Guarantee: Leased property.
-Amortization: Through 64 monthly installments of US$208,000 each.

Notes

The loan is subject to compliance with certain financial ratios. During the years 2016 and 2015, the BISA´s Management obtained from Banco de Crédito a waiver for the compliance of the financial ratios stipulated in the contract, which covers the period of one year. As a consequence, as of December 31, 2016 and 2015, the classification of the debt has been made according to the consolidated financial statements(continued)payment schedule originally agreed with the bank.

 

(e)(f)The long-term portion of the financial obligations held by the Group mature as follows:

 

Year As of December 31,
2014		  As of December 31,
2013		 
  US$(000)  US$(000) 
       
2015  12,117   39,968 
2016  49,245   40,041 
2017  59,966   45,955 
2018 and thereafter  192,027   97,063 
         
   313,355   223,027 
Year 2016  2015 
  US$(000)  US$(000) 
       
Less than 1 year  -   40,104 
Between 1 and 2 years 81,057  41,708 
Between 2 and 5 years  474,294   238,504 
   555,351   320,316 
Debt issuance costs  (3,119)  - 
   552,232   320,316 

 

17.18.Shareholders’ equity, net

(a)Capital stock -

 

The Group’s share capital is stated in Nuevos Soles (S/.) and consists of common shares with voting rights, with a nominal amount of S/.10.0010.00 per share. The table below presents the composition of the capital stock as of December 31, 20142016 and 2013:2015:

 

 Number of shares Capital stock Capital stock  Number of
shares		 Capital 
stock		 Capital 
stock		 
    S/.(000)  US$(000)     S/(000)  US$(000) 
                  
Common shares  274,889,924   2,748,899   813,162  274,889,924  2,748,899  813,162 
Treasury shares  (21,174,734)  (211,747)  (62,665)  (21,174,734)  (211,747)  (62,665)
                        
  253,715,190   2,537,152   750,497   253,715,190   2,537,152   750,497 

F-62

Notes to the consolidated financial statements(continued)

 

The market value of the common shares amounted to US$10.58S/34.37 per share as of December 31, 2014 (US$10.742016 (S/14.35 per share as of December 31, 2013)2015). These shares presented apresent trading frequencyfrequencies of 10010 and 15 percent in the year 2014 (95 percent in the year 2013).years 2016 and 2015, respectively.

 

(b)Investment shares -

Investment shares have a nominal value of S/.10.0010.00 per share. Holders of investment shares are neither entitled neither to exercise voting rights nor to participate in shareholders’ meetings. However,meetings; however, they confer upon the holders thereof the right to participate in the dividends distribution in the same manner as common shares. The table below presents the composition of the investment shares as of December 31, 20142016 and 2013:2015:

 

 As of December 31, 2016 
 Number of shares Investment shares Investment shares  Number of
shares		 Investment
shares		 Investment
shares		 
   S/.(000) US$(000)     S/(000)  US$(000) 
                
Investment shares  744,640   7,447   2,161   744,640   7,447   2,161 
Treasury investment shares  (272,963)  (2,730)  (765) (472,963) (4,730) (1,370)
                        
  471,677   4,717   1,396   271,677   2,717   791 

Notes to the consolidated financial statements(continued)

  As of December 31, 2015 
  Number of
shares		  Investment
shares		  Investment
shares		 
     S/(000)  US$(000) 
          
Investment shares  744,640   7,447   2,161 
Treasury investment shares  (272,963)  (2,730)  (765)
             
  471,677  4,717  1,396 

 

The market value of the investment shares amounted to US$8.72S/25.00 per share as of December 31, 2014 (US$10.732015 (S/14.14 per share as of December 31, 2013)2015). These shares did not present a trading frequency in 2014 (10.00 percent2016 and 2015.

During 2016, the Group purchased 200,000 treasury shares at a market value of US$1,210,000, recording a purchase loss of US$605,000, presented as part of December 31, 2013).the additional capital.

 

(c)Legal reserve -

The Peruvian Corporations Law (Ley General de Sociedades) requires that a minimum of ten10 percent of the distributable earnings for each period, after deducting the income tax, be transferred to a legal reserve until the latter is equal to 20 percent of the capital stock. This legal reserve can be used to offset losses or may be capitalized, with the obligation, in both cases, to replenish it.

 

Although, the balance of the legal reserve exceeded the limit mentioned above, at December 31, 2014, 2013 and 2012, the CompanyGroup increased its legal reserve by US$47,00030,000 in 2014 and US$24,0002016 (US$4,000 in 2012.2015).

 

(d)F-63Dividends declared and paid -

 

The table below presents the dividends declared and paid in 2014, 2013 and 2012:

 

Meetings Date Dividends declared
and paid		  Dividend per share 
    US$(000)  US$ 
         
2014 Dividends          
Mandatory Annual Shareholders’ Meeting March 27  3,032   0.01 
Board of Directors’ Meeting October 30  6,339   0.02 
Less – Dividends of treasury shares    (729)    
           
     8,642     
           
2013 Dividends          
Mandatory Annual Shareholders’ Meeting March 26  82,690   0.30 
Board of Directors’ Meeting October 30  2,757   0.01 
Less – Dividends of treasury shares    (6,568)    
           
     78,879     
           
2012 Dividends          
Mandatory Annual Shareholders’ Meeting March 26  110,254   0.40 
Board of Directors’ Meeting October 30  55,126   0.20 
Less – Dividends of treasury shares    (12,714)    
           
     152,666     

Notes to the consolidated financial statements(continued)

 

(e)(d)Reduction of capital stock in Minera La Zanja S.R.L. (La Zanja)Dividends declared and paid -

During 2015, no dividends have been declared or paid. The table below presents the dividends declared and paid in 2016 and 2014:

The General Partners’ Meeting of La Zanja held on January 26, 2012, agreed to reduce the share capital of La Zanja by US$27,000,000, by returning cash contributions. This agreement was registered before the public records on March 30, 2012. The outstanding amount of refund

Meetings Date Dividends 
paid		  Dividend 
per share		 
    US$(000)  US$ 
         
2016 Dividends          
Board of Directors’ Meeting October 27  8,269   0.03 
Less - Dividends of treasury shares    (648)    
           
     7,621     
2014 Dividends          
Mandatory Annual Shareholders’ Meeting March 27  3,032   0.01 
Board of Directors’ Meeting October 30  6,339   0.02 
Less - Dividends of treasury shares    (729)    
           
     8,642     

According to the current Law, there are no restrictions for the remittance of dividends or repatriation of capital by foreign investors.

Dividends declared by S.M.R.L. Chaupiloma Dos de Cajamarca corresponding to non-controlling interest amounted towere US$15,057,000.7,400,000, US$10,488,000 and US$8,880,000 for the years 2016, 2015 and 2014, respectively.

 

(f)(e)Basic and diluted profit (loss)loss per share –-

Profit (loss)Loss per share is calculated by dividing net profit for the period by the weighted average number of shares outstanding during the year.

 

The calculation of the basic and diluted profit (loss) per share for the year 2014, 2013 and 2012 is presented below:

  Number of shares 
(denominator in calculating earnings per share, net of treasury
shares)		 
  Common  Investment  Total 
          
Balance as of January 1, 2013  253,759,664   472,907   254,232,571 
Treasury shares acquired during 2013  (44,474)  (1,230)  (45,704)
Balance as of December 31, 2013 and 2014  253,715,190   471,677   254,186,867 

The calculation of earnings (loss)loss per share attributable to the equity holders of the parent is presented below:

 

  2014  2013  2012 
          
Profit (loss) net (numerator) – US$  (76,065,000)  (107,257,000)  701,100,000 
Total common and investment shares (denominator)  254,186,867   254,186,867   254,232,571 
Profit (loss) net per basic share and diluted – US$  (0.30)  (0.42)  2.76 
  2016  2015  2014 
          
Loss net (numerator) - US$  (323,492,000)  (317,210,000)  (76,065,000)
Total common and investment shares (denominator)  254,111,250   254,186,867   254,186,867 
             
Loss net per basic share and diluted - US$ (1.27) (1.25) (0.30)

 

The calculation of loss per share from continuing operations attributable to the equity holders of the parentParent is presented below:

 

  2014  2013  2012 
          
Profit (loss) net (numerator) – US$  (44,951,000)  (23,372,000)  758,610,000 
Total common and investment shares (denominator)  254,186,867   254,186,867   254,232,571 
Profit (loss) net per basic share and diluted – US$  (0.18)  (0.09)  2.98 
  2016  2015  2014 
          
Loss net (numerator) - US$  (304,419,000)  (296,977,000)  (70,235,000)
Total common and investment shares (denominator)  254,111,250   254,186,867   254,186,867 
             
Loss net per basic share and diluted - US$ (1.20) (1.17) (0.28)

 

Profit (loss) per basic and diluted share is the same in both cases, because there are no diluting effects on profit (loss) for the years 2014, 2013 and 2012.

F-64

 

There have been no transactions involving ordinary shares or investment between December 31, 2014 and the date of issuance of these consolidated financial statements.

Notes to the consolidated financial statements(continued)

 

The common and investment shares outstanding at the close of 2016, 2015 and 2014 were 253,986,867, 254,186,867 and 254,186,867, respectively.

18.19.Subsidiaries with material non-controlling interest

(a)Financial information of subsidiaries that have material non-controlling interest are provided below:

 

 Country of
incorporation and
operation		 2014 2013 2012  Country of
incorporation
and operation		 2016 2015 2014 
   % % %    % % % 
Proportion of equity interest held by non-controlling interests:              
         
Equity interest held by non-controlling interests:              
Sociedad Minera El Brocal S.A.A. Peru  45.93   45.93   49.28  Peru  40.95   45.93   45.93 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  40.00   40.00   40.00  Peru  40.00   40.00   40.00 
Minera La Zanja S.R.L. Peru  46.94   46.94   46.94  Peru  46.94   46.94   46.94 

 

   2014 2013 2012    2016 2015 2014 
   US$(000) US$(000) US$(000)    US$(000) US$(000) US$(000) 
Accumulated balances of material non-controlling interest:                            
Sociedad Minera El Brocal S.A.A. Peru  208,664   190,050   176,390  Peru  167,986   172,542   208,664 
Minera La Zanja S.R.L. Peru  55,613   53,271   85,756 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  1,906   2,357   3,600 
Apu Coropuna S.R.L. Peru  678   -   - 
Other minor Chile  (61)  -   - 
            
   226,122  228,170  298,020 
              
Profit (loss) allocated to material non-controlling interest:              
Sociedad Minera El Brocal S.A.A. Peru  (13,426)  (34,991)  3,450 
Apu Coropuna S.R.L. Peru  (157)  (102)  - 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  3,600   2,228   2,228  Peru  6,950   9,244   10,250 
Minera La Zanja S.R.L. Peru  85,756   85,029   85,029  Peru  2,342   (32,486)  725 
Other minor Chile  (31)  -   - 
                          
    298,020   277,307   263,647   (4,322)  (58,335)  14,425 

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Profit (loss) allocated to material non-controlling interest:            
Sociedad Minera El Brocal S.A.A.  3,450   (3,541)  16,822 
S.M.R.L. Chaupiloma Dos de Cajamarca  10,250   12,302   18,904 
Minera La Zanja S.R.L.  725   18,760   23,694 
             
   14,425   27,521   59,420 

During 2016, the Group, through the Lima Stock Exchange, made capital contributions to its subsidiary Sociedad Minera El Brocal S.A.A., for S/63.9 million (equivalent to US$18.6 million) and US$45.2 million which resulted in an increase in its shares and a dilution of non-controlling shareholders of 7.26%.

F-65

Notes to the consolidated financial statements(continued)

 

(b)The summarized financial information of these subsidiaries, before inter-company eliminations, is presented below:

 

Statements of financial position as of December 31, 2014:2016:

 

 Sociedad Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos de
Cajamarca		 Minera La Zanja
S.R.L.		  Sociedad
Minera El
Brocal
S.A.A.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Minera 
La Zanja 
S.R.L.		 Apu
Coropuna
S.R.L.		 Other
 minor		 Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
                    
Current assets  110,244   14,657   119,591   120,291   7,439   155,659   2,301   81   285,771 
Non-current assets  654,819   70   159,245   642,790   -   90,447   88   500   733,825 
Current liabilities  (152,721)  (5,727)  (42,405)  (184,324)  (2,684)  (40,411)  (129)  -   (227,548)
Non-current liabilities  (157,996)  -   (53,742)  (168,589)  -   (89,278)  -   (2)  (257,869)
                                    
Total shareholders’ equity, net  454,346   9,000   182,689  410,168  4,755  116,417  2,260  579  534,179 
            
Attributable to:                                    
Shareholders of the parent  245,682   5,400   96,933   242,182   2,849   60,804   1,582   640   308,057 
Non-controlling interests  208,664   3,600   85,756   167,986   1,906   55,613   678   (61)  226,122 
                                    
  454,346   9,000   182,689   410,168   4,755   116,417   2,260   579   534,179 

 

Statements of financial position as of December 31, 2013:2015:

 

 Sociedad Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos de
Cajamarca		 Minera La Zanja
S.R.L.		  Sociedad
Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Minera La Zanja S.R.L. Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) 
                
Current assets  111,110   8,864   61,166   87,676   9,381   103,540   200,597 
Non-current assets  575,826   144   209,745   652,197   16   116,792   769,005 
Current liabilities  (114,214)  (3,439)  (45,878)  (166,424)  (3,508)  (37,030)  (206,962)
Non-current liabilities  (129,090)  -   (43,890)  (197,763)  -   (69,816)  (267,579)
                            
Total shareholders’ equity, net  443,632   5,569   181,143   375,686   5,889   113,486   495,061 
            
Attributable to:                            
Shareholders of the parent  253,582   3,341   96,114   203,144   3,532   60,215   266,891 
Non-controlling interests  190,050   2,228   85,029  172,542  2,357  53,271  228,170 
                            
  443,632   5,569   181,143   375,686   5,889   113,486   495,061 

F-66

Notes to the consolidated financial statements(continued)

 

Statements of profit or loss for the year ended December 31, 2014:2016:

 

 Sociedad Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos de
Cajamarca		 Minera La Zanja
S.R.L.		  Sociedad
Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos
de Cajamarca		 Minera
La Zanja
S.R.L.		 Apu
Coropuna
S.R.L.		 Other
minor		 Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
                    
Revenues  210,002   36,867   185,286   230,611   24,339   178,922   -   -   433,872 
Cost of sales  (149,969)  (74)  (137,659)  (234,594)  (16)  (150,039)  -   -   (384,649)
Administrative expenses  (17,617)  (113)  (5,920)  (11,802)  (112)  (1,980)  (4)  -   (13,898)
Sales expenses  (7,103)  -   (1,441)  (10,650)  -   (938)  -   -   (11,588)
Exploration in non-operating areas  (5,085)  -   (19,689)  (1,939)  -   (4,619)  (524)  -   (7,082)
Other operating expense, net  (50)  (1)  (3,389)
Impairment loss of long-lived assets  309   11   4,237   -   (410)  4,147 
Finance income  -   -   1   256   -   87   -   -   343 
Finance costs  (4)  (3)  (1,728)  (12,554)  (2)  (2,614)  -   -   (15,170)
Net loss for exchange difference  (1,039)  (50)  (1,525)
            
Profit before income tax  29,135   36,626   13,936 
Net gain (loss) for exchange difference  (270)  (93)  65   5   -   (293)
Profit (loss) before income tax  (40,633)  24,127   23,121   (523)  (410)  5,682 
Income tax  (21,621)  (10,996)  (12,388)  7,851   (6,761)  (18,256)  -   -   (17,166)
                                    
Net profit  7,514   25,630   1,548 
Net profit (loss)  (32,782)  17,366   4,865   (523)  (410)  (11,484)
                                    
Attributable to non-controlling interests  3,450   10,250   725  (13,426) 6,950  2,342  (157) (31) (4,322)
                        
Dividends paid to non-controlling interests  -   8,880   -   -   7,400   -   -   -   7,400 

 

Statements of profit or loss for the year ended December 31, 2013:

F-67

 

  Sociedad Minera El
Brocal S.A.A.		  S.M.R.L.
Chaupiloma Dos de
Cajamarca		  Minera La Zanja
S.R.L.		 
  US$(000)  US$(000)  US$(000) 
          
Revenues  187,769   44,185   193,298 
Cost of sales  (155,613)  (112)  (115,577)
Administrative expenses  (15,620)  (96)  (2,475)
Sales expenses  (8,763)  -   (528)
Exploration in non-operating areas  (5,220)  -   (3,446)
Other operating expense, net  (656)  (3)  (55)
Finance income  136   3   37 
Finance costs  (1,912)  (5)  (1,301)
Net loss for exchange difference  (2,827)  (66)  (777)
             
Profit (loss) before income tax  (2,706)  43,906   69,176 
Income tax  (5,003)  (13,151)  (29,211)
             
Net profit (loss)  (7,709)  30,755   39,965 
             
Attributable to non-controlling interests  (3,541)  12,302   18,760 
Dividends paid to non-controlling interests  2,713   10,820   - 

Notes to the consolidated financial statements(continued)

 

Statements of profit or loss for the year ended December 31, 2012:2015:

 

 Sociedad Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos de
Cajamarca		 Minera La Zanja
S.R.L.		  Sociedad
Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Minera 
La Zanja 
S.R.L.		 Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) 
                
Revenues  268,480   67,178   196,728   171,294   32,414   161,007   364,715 
Cost of sales  (179,795)  -   (109,431)  (204,556)  (54)  (213,372)  (417,982)
Administrative expenses  (19,348)  (87)  (2,109)  (19,168)  (106)  (2,251)  (21,525)
Sales expenses  (8,243)  -   (447)  (9,056)  -   (1,207)  (10,263)
Exploration in non-operating areas  (18,396)  -   (2,477)  (2,366)  -   (8,954)  (11,320)
Impairment loss of long-lived assets  -   -   (3,803)  (3,803)
Other operating expense, net  (1,091)  (112)  (2,401)  (2,657)  -   (687)  (3,344)
Finance income  249   -   323   154   -   16   170 
Finance costs  (1,667)  (7)  (1,466)  (10,096)  (4)  (3,684)  (13,784)
Net gain for exchange difference  576   848   288 
            
Profit before income tax  40,765   67,820   79,008 
Net gain (loss) for exchange difference  (3,847)  45   (1,973)  (5,775)
Profit (loss) before income tax  (80,298)  32,295   (74,908)  (122,911)
Income tax  (13,632)  (20,560)  (28,530)  4,109   (9,186)  5,702   625 
            
Net profit  27,133   47,260   50,478 
Net profit (loss) (76,189) 23,109  (69,206) (122,286)
                            
Attributable to non-controlling interests  16,822   18,904   23,694   (34,991)  9,244   (32,486)  (58,335)
Dividends paid to non-controlling interests  19,266   14,820   10,795   -   10,488   -   10,488 

 

Statements of cash flowprofit or loss for the year ended December 31, 2014:

 

  Sociedad Minera El
Brocal S.A.A.		  S.M.R.L.
Chaupiloma Dos de
 Cajamarca		  Minera La Zanja
S.R.L.		 
  US$(000)  US$(000)  US$(000) 
          
Operating activities  71,682   22,375   17,075 
Investing activities  (131,045)  -   (20,452)
Financing activities  54,642   (22,200)  7,000 
             
Increase (decrease) in cash and cash equivalents in the year  (4,721)  175   3,623 
  Sociedad
Minera El
Brocal S.A.A.		  S.M.R.L.
Chaupiloma
Dos de
Cajamarca		  Minera La
Zanja S.R.L.		  Total 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
Revenues  210,002   36,867   185,286   432,155 
Cost of sales  (149,969)  (74)  (137,659)  (287,702)
Administrative expenses  (17,617)  (113)  (5,920)  (23,650)
Sales expenses  (7,103)  -   (1,441)  (8,544)
Exploration in non-operating areas  (5,085)  -   (19,689)  (24,774)
Other operating income (expense), net  (50)  (1)  (3,389)  (3,440)
Finance income  -   -   1   1 
Finance costs  (4)  (3)  (1,728)  (1,735)
Net loss for exchange difference  (1,039)  (50)  (1,525)  (2,614)
Profit before income tax  29,135   36,626   13,936   79,697 
Income tax  (21,621)  (10,996)  (12,388)  (45,005)
Net profit  7,514   25,630   1,548   34,692 
Attributable to non-controlling interests 3,450  10,250  725  14,425 
Dividends paid to non-controlling interests  -   8,880   -   8,880 

F-68

Notes to the consolidated financial statements(continued)

 

Statements of cash flow for the year ended December 31, 2013:2016:

 

 Sociedad Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos de
Cajamarca		 Minera La Zanja
S.R.L.		  Sociedad
Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Minera La
Zanja S.R.L.		 Apu
Coropuna
S.R.L.		 Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) 
                  
Operating activities  80,197   34,864   71,621   (9,151)  18,178   11,839   (1,895)  18,971 
Investing activities  (215,758)  7   15,079   (37,935)  -   (14,994)  -   (52,929)
Financing activities  121,202   (34,450)  (90,100) 48,021  (18,500) -  2,717  32,238 
            
Increase (decrease) in cash and cash equivalents in the year  (14,359)  421   (3,400)  935   (322)  (3,155)  822   (1,720)

 

Statements of cash flow for the year ended December 31, 2012:2015:

 

 Sociedad Minera El
Brocal S.A.A.		 S.M.R.L.
Chaupiloma Dos de
Cajamarca		 Minera La Zanja
S.R.L.		  Sociedad
Minera
 El Brocal
S.A.A.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Minera La
Zanja S.R.L.		 Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) 
                
Operating activities  52,252   51,567   62,508   (1,523)  26,474   30,743   55,694 
Investing activities  (137,686)  -   (74,828)  (28,375)  -   (26,761)  (55,136)
Financing activities  28,326   (51,450)  (40,000) 31,867  (26,220) -  5,647 
            
Increase (decrease) in cash and cash equivalents in the year  (57,108)  117   (52,320)  1,969   254   3,982   6,205 

 

Statements of cash flow for the year ended December 31, 2014:

  Sociedad
Minera El
Brocal S.A.A.		  S.M.R.L.
Chaupiloma
Dos de
Cajamarca		  Minera La
Zanja S.R.L.		  Total 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
Operating activities  71,682   22,375   17,075   111,132 
Investing activities  (131,045)  -   (20,452)  (151,497)
Financing activities  54,642   (22,200)  7,000   39,442 
Increase (decrease) in cash and cash equivalents in the year (4,721) 175  3,623  (923)

F-69

Notes to the consolidated financial statements(continued)

19.20.Tax situation

(a)Current tax regime -

The Company and its Peruvian subsidiaries are subject to the Peruvian tax regime. As of December 31, 2014, the income tax rate was 30 percent on taxable income. Legal entities and individuals not domiciled in Peru are subject to an additional tax of 4.1 percent on the dividends received.

 

By means of Law N°N° 30296 enacted on December 31, 2014, the Peruvian government introduced certain amendments to the Income Tax Law, effective January 1, 2015. The most relevant are listed below:

 

-There will be a gradual reduction of the corporate income tax from 30 percent30% to 28 percent28% in 2015 and 2016; to 27percent27% in 2017 and 2018; and to 26 percent26% in 2019 and thereafter.

 

-There will be a gradual increase of the withholding income tax to dividends from 4.1percent4.1% to 6.8 percent6.8% in 2015 and 2016; to 8.0 percent8.0% in 2017 and 2018; and to 9.3 percent9.3% in 2019 and thereafter. These rates will be applicable to the distributed or approved dividends, whichever first occurs, effective January 1, 2015.

 

-The retained earnings or other items subject tothat can generate taxable dividends, obtained until December 31, 2014, will be subject to a rate of 4.1 percent.

Notes

By means of Law N° 1261 enacted on December 10, 2016, the Peruvian government introduced certain amendments to the consolidated financial statements(continued)Income Tax Law, effective January 1, 2017. The most relevant are listed below:

-A corporate income tax rate of 29.5% is set.

-A tax of 5% of the income tax is established to the dividends or any other form of distribution of profits.

-The rate applicable to dividends will be considered taking into account the year in which the results or profits that form part of the distribution have been obtained, according to the following: 4.1% with respect to the results obtained until December 31, 2014; 6.8% with respect to the results obtained during the years 2015 and 2016; And 5% with respect to the results obtained from January 1, 2017.

-It has been established that the distribution of dividends to be made corresponds to the oldest retained earnings.

 

(b)Years open to tax review -

During the four years following the year of filing the tax return, the tax authorities have the power to review and, as applicable, correct the income tax computed by the Group. The Income Tax and Value Added Tax returns for the following years are open to review by the Tax Authorities:

 

F-70

Notes to the consolidated financial statements(continued)

EntityYears open to review bandby the Tax Authorities
  
Compañía de Minas Buenaventura S.A.A.2009, 2010, 2011 , 2012, 2013 and 20142012-2016
Bisa Construcción S.A. (absorbed by Buenaventura Ingenieros S.A. in December 2015)2011, 2012, 2013 and 20142014-2015
Buenaventura Ingenieros S.A.2011, 2012, 2013 and 20142013-2016
Compañía de Exploraciones, Desarrollo e Inversiones
Mineras S.A.C. –  CEDIMIN (merged with the Company(absorbed by Buenaventura in May 2013)		2010, 2011, 2012 and 20132012-2013
Compañía Minera Condesa S.A.2010, 2011 , 2012, 2013 and 20142012-2016
Compañía Minera Colquirrumi S.A.2010, 2011 , 2012, 2013 and 20142012-2016
Consorcio Energético de Huancavelica S.A.2009, 2011, 2012, 2013 and 20142012-2016
Contacto Corredores de Seguros S.A.2010, 2011, 2012, 2013 and 20142014-2016
El Molle Verde S.A.C.2011, 2012, 2013 and 20142012-2016
Empresa de Generación Huanza S.A.2010, 2011 , 2012, 2013, and 20142015, 2016
Inversiones Colquijirca S.A.2010, 2011 , 2012, 2013 and 20142012-2016
Minera La Zanja S.R.L. (*)2010, 2013 and 20142013-2016
Sociedad Minera El Brocal S.A.A. (**)2010, 2011, 2012, 2013 and 20142013-2016
S.M.R.L. Chaupiloma Dos de Cajamarca2010, 2011 , 2012, 2013 and 20142012-2016
Procesadora Industrial Río Seco S. A.2010, 2011, 2012, 2013 and 2014, 2015, 2016
Apu Coropuna S.R.L.2013 and 20142013-2016
Cerro Hablador S. A. C.2013 and 20142013-2016
Minera Azola S. R. L.20142014-2016

(*) The value added tax is subject to review for the period from 2012 to 2016.

As of the date of issuance of this report, Compañía de Minas Buenaventura S.A.A. has been notified by the Tax Administration for the start of the audit of the 2014 income tax return.

 

Due to the possible interpretations that the Tax Authorities may give to legislation in effect, it is not possible to determine whether or not any of the tax audits will result in increased liabilities for the Group. For that reason, any tax or surcharge that could arise from future tax audits would be applied to the income of the period in which it is determined. In management's opinion and its legal advisors, any possible additional payment of taxes in the entities mentioned before would not have a material effect on the consolidated financial statements as of December 31, 20142016 and 2013.2015.

 

The open tax process of the Group and its associates are presented in Note 27note 29 (g).

(c)Tax-loss carryforwards -

The tax-loss carryforward determined by the Group amounts to approximately S/1,345,802,000 and S/1,271,245,000, respectively (equivalent to US$400,536,000 and US$201,634,000 respectively). As permitted by the Income Tax Law, the Group has chosen a system that permits to offset these losses with an annual cap equivalent to 50 percent of net future taxable income.

The Group has decided to recognizea deferred income tax assetrelated to the tax-loss carryforward,due to there it is more likely than not that the tax-loss carryforward can be used to compensate future taxable net income.

F-71

Notes to the consolidated financial statements(continued)

 

(c)Tax-loss carryforwards –

As of December 31, 2014 and 2013, the tax-loss carryforward determined by Buenaventura amounts to approximately S/.127,794,000 and S/.176,262,000, respectively (equivalent to US$42,755,000 and US$60,659,000, respectively). In November 2010, the Company filed an amended income tax return of 2009 which increased the tax-loss carryforward. As permitted by the Income Tax Law, Buenaventura has chosen a system that permits to offset this loss with an annual cap equivalent to 50 percent of net future taxable income.

The Company´s Management has decided to recognize the asset accounting for deferred income taxes related to tax loss carryforward, because there is reasonable certainty that is sufficient to compensate this tax loss carryforward with future net revenues.

(d)Transfer pricing –-

For purposes of determining the Income Tax, the transfer prices for transactions with related companies and companies domiciled in territories with little or no taxation must be supported with documentation and information on the valuation methods used and the criteria considered for their determination. Tax Administration can request this information based on analysis of the Group's operations. The Group’s Management and its legal advisers believe that, as a result of the application of these standards, no material contingencies will arise for the Group as of December 31, 20142016 and 2013.2015.

 

20.21.Net sales

(a)The Group’s revenues are mostly from sales of gold and precious metals in the form of concentrates, including silver-lead, silver-gold, zinc and lead-gold-copper concentrates and ounces of gold. The table below presents the net sales to customers by geographic region and product type:

 

 2016 2015 2014 
 2014 2013 2012  US$(000) US$(000) US$(000) 
 US$(000) US$(000) US$(000)        
Sales and services by geographic region:                        
Metal and concentrates sales                        
America  531,460   690,224   722,323   410,154   419,359   430,869 
Peru  434,958   306,693   502,681   401,372   345,146   427,564 
Europe  46,585   70,020   98,085   109,788   60,549   46,585 
Asia  54,268   67,978   53,090  94,356  21,215  54,268 
Africa  -   921   - 
            
  1,067,271   1,135,836   1,376,179             
              1,015,670   846,269   959,286 
Services rendered                        
Peru  71,642   79,344   46,656   28,782   50,839   71,159 
Asia  -   241   - 
America  -   -   8 
  71,642   79,585   46,664   1,044,452   897,108   1,030,445 
                        
  1,138,913   1,215,421   1,422,843 
            
Sales by product:            
Sale by metal:Sale by metal:
Gold  554,805   637,032   738,477   440,603   419,541   449,404 
Silver  356,021   362,805   544,947   385,989   313,418   348,171 
Copper  271,282   182,399   177,573   224,649   131,356   271,282 
Zinc  142,425   102,110   46,903 
Lead  58,690   55,445   39,185 
Manganese sulfate  5,982   3,649   483 
  1,258,338   1,025,519   1,155,428 
            
Commercial deductions  (244,414)  (196,145)  (184,385)
Adjustments to prior period liquidations  4,611   7,467   (6,073)
Embedded derivatives from sale of concentrate  880   (388)  (9,570)
Hedge operations  (3,745)  9,816   3,886 
  1,015,670   846,269   959,286 
Services rendered  28,782   50,839   71,159 
            
  1,044,452   897,108   1,030,445 

F-72

Notes to the consolidated financial statements(continued)

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Zinc  47,653   71,187   82,873 
Lead  39,658   55,951   52,834 
   1,269,419   1,309,374   1,596,704 
             
Commercial deductions  (185,061)  (127,053)  (143,717)
Adjustments to prior period liquidations  (5,994)  (1,437)  14,816 
Embedded derivatives from sale of concentrate  (9,862)  6,140   1,776 
Hedge operations  3,886   662   (72)
Net sales of units held for sale  (5,117)  (25,835)  (73,506)
   1,067,271   1,161,851   1,396,001 
             
Services sales  71,642   53,570   26,842 
             
   1,138,913   1,215,421   1,422,843 

 

(b)Concentration of sales -

In 2014,2016, the twothree customers with sales of more than 10 percent of total net sales represented 28, 22 and 22 percent from the total net sales of the Group (two customers in 66 and 22 percent during the year 2015 and; two customers in 62 percent and 17 percent (65 percent and 13 percent in 2013; 54 percent and 15 percent in 2012)during 2014). As of December 31, 2014, 852016, 46 percent of the accounts receivable is relatedcorrespond to these customers (80(85 percent as of December 31, 2013)2015). These clientscustomers are related to the mining business.

 

The Group's sales of gold and concentrates are delivered to investment banks and national and international well-known companies. Some of these clients have sales contracts that guarantee supplying them the production from the Group’s mines at prices that are based on market quotations.

 

F-6922.Cost of sales, without considering depreciation and amortization
(a)The cost of sales of goods is made up as follows:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance of finished goods and products in process, net of depreciation and amortization  69,932   105,944   105,640 
Cost of production            
Services provided by third parties  211,325   230,148   252,967 
Consumption of materials and supplies  100,401   100,241   95,503 
Direct labor  72,344   66,745   75,007 
Electricity and water  41,989   34,972   32,802 
Maintenance and repair  17,792   7,401   6,195 
Transport  10,880   9,502   12,148 
Rentals  10,852   5,783   3,948 
Insurances  4,347   5,247   6,400 
Cost of concentrate purchased to associates 2,958  -  - 
Provision for impairment of finished goods and product in progress, note 9(b)  (7,581)  13,096   3,262 
Other production expenses  9,789   7,078   10,786 
Total cost of production of the period  475,096   480,213   499,018 
Final balance of products in process and finished goods, net of depreciation and amortization  (47,216)  (72,667)  (105,944)
Cost of sales of goods, without considering depreciation and amortization  497,812   513,490   498,714 

 F-73

 

Notes to the consolidated financial statements(continued)

 

21.(b)CostThe cost of sales, without considering depreciation and amortizationservices is made up as follows:

 

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Direct labor  5,983   18,314   33,461 
Services provided by third parties  1,689   16,247   13,881 
Consumption of materials and supplies  868   7,865   8,017 
Electricity and water  633   7,134   5,853 
Maintenance and repair  217   637   406 
Rentals  480   2,544   6,285 
Insurances  212   1,233   1,058 
Transport  213   3,868   6,196 
Other 459  1,770  2,770 
Cost of sales of services, without considering depreciation and amortization  10,754   59,612   77,927 

23.Exploration in operating units

This caption is made up as follows

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Services provided by third parties  78,996   72,613   79,952 
Consumption of materials and supplies  12,779   10,298   10,074 
Direct labor  1,989   2,287   2,720 
Rentals  1,603   859   797 
Transport  321   238   1,194 
Insurance  116   135   157 
Other minor expenses 345  3,269  2,463 
   96,149   89,699   97,357 

24.Mining royalties

This caption is made up as follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Beginning balance of finished goods and products in process  122,786   129,699   141,400 
             
Cost of production            
Services provided by third parties  285,365   270,245   228,705 
Consumption of materials and supplies  109,584   114,808   124,833 
Direct labor  117,856   115,725   93,241 
Electricity and water  30,595   28,465   25,940 
Rentals  12,924   25,404   10,243 
Transport  22,584   15,416   11,295 
Insurances  7,099   9,269   11,239 
Maintenance and repair  7,075   6,931   5,591 
Cost of concentrate purchased  -   (175)  18,563 
Provision for impairment of finished goods  3,040   313   125 
Other production expenses  16,338   33,313   33,291 
Total cost of production  612,460   619,714   563,066 
             
Final balance of products in process and finished goods  (120,707)  (122,128)  (133,223)
Cost of sales, without considering depreciation and amortization  614,539   627,285   571,243 
  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Sindicato Minero de Orcopampa S.A., note 29(b)  19,824   21,942   21,688 
Royalties paid to the Peruvian State  7,787   5,246   5,725 
Others  -   -   15 
             
  27,611  27,188  27,428 

 

F-70F-74

 

Notes to the consolidated financial statements(continued)

22.25.Exploration in operating unitsAdministrative expenses

This caption is made up as follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Services provided by third parties  81,692   116,829   119,571 
Consumption of materials and supplies  10,849   22,816   22,258 
Direct labor  3,449   14,370   5,779 
Transport  767   4,388   1,351 
Rentals  1,042   2,348   886 
Insurance  20   944   333 
Maintenance and repair  29   596   174 
Other minor expenses  2,857   4,852   2,666 
Total exploration in operating units  100,705   167,143   153,018 
Exploration in discontinued operations  (2,853)  (65,230)  (49,803)
             
   97,852   101,913   103,215 
  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Personnel expenses  29,617   33,036   32,647 
Sundry charges  17,454   21,248   23,375 
Professional fees  11,696   10,364   13,956 
Rentals  4,870   4,009   5,185 
Donations  4,280   3,336   5,034 
Insurance  3,023   5,105   3,726 
Allowance for doubtful accounts  3,164   903   - 
Communications  1,557   1,281   1,276 
Canons and tributes.  1,460   824   1,207 
Maintenance and repairs  1,076   973   2,720 
Board of Directors’ participation  1,140   1,055   1,163 
Travel and mobility  914   787   908 
Subscriptions and quotes  697   540   779 
Consumption of materials and supplies  416   1,032   1,688 
Valuation (reversal) of stock appreciation’s rights 328  (121) 89 
             
   81,692   84,372   93,753 

 

23.26.Mining royaltiesExploration in non-operating areas

This caption is made up as follows:follows

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Sindicato Minero de Orcopampa S.A., note 27(b)  21,688   23,843   34,863 
Royalties paid to the Peruvian State  6,784   6,278   2,489 
Others  15   502   315 
             
Total mining royalties  28,487   30,623   37,667 
Mining royalties for discontinued operations  (47)  (221)  (171)
             
   28,440   30,402   37,496 
  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Services provided by third parties  13,629   18,852   34,582 
Personnel expenses  3,908   4,713   6,053 
Rights  3,457   -   - 
Lands  1,691   -   - 
Consumption of materials and supplies  768   1,436   3,213 
Rentals  578   376   1,142 
Maintenance and repairs  72   87   139 
Insurance  49   84   75 
Transport  26   20   168 
Other expenses 2,411  5,042  4,635 
             
   26,589   30,610   50,007 

 

F-71F-75

 

Notes to the consolidated financial statements(continued)

24.27.Administrative expensesFinance costs and finance revenues

This caption isThese captions are made up as follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Personnel expenses  37,983   40,133   40,665 
Sundry expenses  27,758   20,932   28,717 
Travel and mobility  908   7,890   1,846 
Professional fees  13,956   7,109   12,307 
Insurance  3,726   5,443   2,901 
Donations  5,034   2,884   2,181 
Consumption of materials and supplies  1,688   1,701   1,669 
Rentals  3,217   1,635   2,058 
Communications  1,276   1,618   989 
Board of Directors’ participation  1,163   1,575   2,522 
Other mining taxes  1,207   1,532   377 
Subscriptions  779   802   768 
Maintenance and repairs  2,720   473   457 
Valuation (reversal) of stock appreciation’s rights  89   (20,207)  1,799 
Amortization of other assets  121   3,956   39 
Total administrative expenses  101,625   77,476   99,295 
Administrative expenses for discontinued operations  (523)  (2,358)  (5,177)
             
   101,102   75,118   94,118 
  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Finance revenues:            
Interests on loans to associates, note 30(a)  4,164   2,286   2,887 
Income from financial instruments  743   -   - 
Dividends income  589   500   2 
Interests on third parties loans  489   492   5,380 
Interests on tax claims  487   1,297   - 
Interest on time deposits  358   419   139 
             
  6,830  4,994  8,408 
Unrealized variation of the fair value related to contingent consideration liability, note 5  -   6,032   - 
             
Total finance revenues  6,830   11,026   8,408 
             
Finance costs:            
Interest on borrowings  18,668   17,875   7,979 
Interest on loans  4,643   5,565   729 
Interest on commercial obligations  496   120   - 
Banking expenses  319   366   673 
Tax on financial transaction  159   312   148 
Other finance costs  830   41   94 
   25,115   24,279   9,623 
Unrealized variation of the fair value related to contingent consideration liability, note 5  2,349   -   - 
Accrual of the present value for mine and exploration project closure, note 16(b)  4,116   3,293   1,653 
             
Total finance costs  31,580   27,572   11,276 

 

25.F-76Exploration in non-operating areas

 

This caption is made up as follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Services provided by third parties  34,582   17,801   62,321 
Personnel expenses  6,053   6,359   8,667 
Consumption of materials and supplies  3,213   2,490   7,981 
Rentals  1,142   707   3,195 
Transport  168   162   989 
Maintenance and repairs  139   122   275 
Insurance  75   60   177 
Other expenses  4,635   5,104   11,886 
             
   50,007   32,805   95,491 

Notes to the consolidated financial statements(continued)

26.28.Deferred income tax

(a)The Group recognizes the effects of timing differences between the accounting and tax basis. This caption is made up as follows:

 

 As of January 1,
2015		 Credit (debit)  to the
Consolidated  
statement of
profit  or loss		 Credit (debit)  to
consolidated  
 statements of other
comprehensive
income		 As of
December 31,
2015		 Credit (debit)
to the
Consolidated  
statement of
profit or loss		 Credit (debit)  to
consolidated
 statements of
other
comprehensive
income		 As of
December 31,
 2016		 
 As of
January 1,
 2013		 Credit (debit)
 to the
consolidated
 statement of
profit or loss		 Credit (debit)
 to
consolidated
 changes in
shareholders’
 equity		 As of
December 31,
 2013		 Credit (debit)
 to the
consolidated
 statement of
profit
 or loss		 Credit (debit)
 to
consolidated
 changes in
shareholders’
equity		 Debit to 
mining
 concessions
resulting from
 the merger
with 
Canteras del 
Hallazgo S.A.C.		 As of 
December 31,
 2014		  US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000)                
Deferred asset for income tax included in results                                                            
Tax - loss carryforward  32,486   45,923   -   78,409   14,641   -   93,050 
Difference in depreciation and amortization rates  40,211   17,434   -   57,645   816   -   -   58,461   58,461   (6,084)  -   52,377   8,506   -   60,883 
Tax – loss carryforward  32,788   (8,513)  -   24,275   8,211   -   -   32,486 
Provision for closure of mining units, net  15,375   4,709   -   20,084   (288)  -   -   19,796   19,796   12,848   -   32,644   6,894   -   39,538 
Effect of translation into U.S. dollars  16,806   (14,568)  141   2,379   (2,379)  -   -   - 
Environmental liability for Santa Barbara mine  1,621   (192)  -   1,429   (190)  -   -   1,239   1,239   317   -   1,556   13   -   1,569 
Stock appreciation rights  8,453   (7,862)  -   591   (462)  -   -   129 
Other minor  16,933   (233)  603   17,303   312   -   -   17,615   17,744   2,307   -   20,051   622   -   20,673 
  132,187   (9,225)  744   123,706   6,020   -   -   129,726   129,726   55,311   -   185,037   30,676   -   215,713 
Less – Allowance for deferred asset  (5,317)  (1,087)  -   (6,404)  2,167   -   -   (4,237)
  126,870   (10,312)  744   117,302   8,187   -   -   125,489                             
Less - Allowance for deferred asset  (4,237)  (13,929)  -   (18,166)  (18,846)  -   (37,012)
                                  125,489   41,382   -   166,871   11,830   -   178,701 
                                                            
Deferred asset included in retained earnings                                                            
Derivative financial instruments  -   -   328   328   2,212   -   -   2,540   2,540   (2,664)  2,565   2,441   -   (1,301)  1,140 
  128,029   38,718   2,565   169,312   11,830   (1,301)  179,841 
  126,870   (10,312)  1,072   117,630   10,399   -   -   128,029                             
Deferred assets for mining royalties and special mining tax included in results                                                            
Exploration expenses  3,476   (1,519)  -   1,957   (1,509)  -   -   448   448   (774)  -   (326)  364   -   38 
Other minors  215   (85)  50   180   186   -   -   366   366   (181)  -   185   (180)  -   5 
  3,691   (1,604)  50   2,137   (1,323)  -   -   814   814   (955)  -   (141)  184   -   43 
Total deferred asset  130,561   (11,916)  1,122   119,767   9,076   -   -   128,843   128,843   37,763   2,565   169,171   12,014   (1,301)  179,884 
                                                            
                            
Deferred liability for income tax included in results                                                            
Effect of translation into U.S. dollars (31,493) (42,044) -  (73,537) 3,012  -  (70,525)
Differences in amortization rates for development costs  (13,093)  (5,267)  (144)  (18,504)  (19,345)  -   -   (37,849)  (37,849)  5,545       (32,304)  (19,484)  -   (51,788)
Effect of translation into U.S. dollars  -   (8,076)  -   (8,076)  (23,417)  -   -   (31,493)
Deemed cost of property, plant and equipment  (3,927)  511   -   (3,416)  824   -   -   (2,592)
Unrealized loss on financial instruments  -   -   -   -   -   (1,033)  -   (1,033)
Estimate of the fair value of the embedded derivative from the sale of concentrates and final adjustments to open provisional liquidations  (29)  (658)  -   (687)  687   -   -   - 
Other minors  (1,376)  (3,798)  -   (5,174)  (15,397)  -   (9,235)  (29,806)  (33,431)  (1,958)  807   (34,582)  (9,403)  -   (43,985)
  (102,773)  (38,457)  807   (140,423)  (25,875)  -   (166,298)
  (18,425)  (17,288)  (144)  (35,857)  (56,648)  (1,033)  (9,235)  (102,773)                            
Deferred liability for mining royalties and special mining tax                                                            
Deemed cost of property, plant and equipment  (284)  81   -   (203)  38   -   -   (165)  (165)  153   -   (12)  12   -   - 
Other minors  (151)  (31)  -   (182)  528   (170)  -   176   176   -   -   176   (211)  -   (35)
  (435)  50   -   (385)  566   (170)  -   11   11   153   -   164   (199)  -   (35)
Total deferred liability  (18,860)  (17,238)  (144)  (36,242)  (56,082)  (1,203)  (9,235)  (102,762)  (102,762)  (38,304)  807   (140,259)  (26,074)  -   (166,333)
                                                            
Deferred income tax asset, net  111,701           83,525               26,081   26,081   (541)  3,372   28,912   (14,060)  (1,301)  13,551 

F-77

Notes to the consolidated financial statements(continued)

 

(b)The deferred tax asset is presented in the consolidated statement of financial position:

 

 2016 2015 
 2014 2013  US$(000) US$(000) 
 US$(000) US$(000)      
Deferred income tax asset, net  47,675   83,525   25,881   41,574 
Deferred income tax liability, net  21,594   -  (12,330) (12,662)
                
  26,081   83,525   13,551   28,912 

 

(c)The following is the composition of the provision for income taxes shown in the consolidated statement of income for the years 2014, 20132016, 2015 and 2012:2014:

 

 2014 2013 2012  2016 2015 2014 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
Income tax                        
Current  (19,006)  (57,328)  (130,507)  (39,444)  (14,222)  (18,815)
Deferred  (47,006)  (29,154)  (12,451)  (14,060)  (541)  (47,006)
                        
  (66,012)  (86,482)  (142,958) (53,504) (14,763) (65,821)

 

(d)Below is a reconciliation of tax expense and the accounting profit multiplied by the statutory tax rate for the years 2014, 20132016, 2015 and 2012:2014:

 

 2014 2013 2012  2016 2015 2014 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
Profit before income tax  35,486   90,631   960,988 
       
Loss before income tax  (255,237)  (340,549)  10,011 
Loss before income tax for discontinued operations  (31,114)  (83,885)  (57,510)  (19,073)  (20,230)  (5,618)
Profit before income tax  4,372   6,746   903,478 
Theoretical income tax  1,312   2,024   271,043 
Loss before income tax  (274,310)  (360,779)  4,393 
Theoretical gain for income tax  (76,807)  (101,018)  1,318 
            
Permanent items and others:                        
Share in the results of associates  22,380   34,244   (143,696)  102,290   48,545   22,380 
Effect of translation into U.S. dollars  30,520   22,644   (11,716)  (3,012)  42,044   30,520 
Effect of exchange difference on tax loss carry-forward  1,038   2,337   (3,794)
Impairment of deferred tax asset  18,846   13,929   - 
Effect of change in income tax rate net  327   -   -   (1,431)  2,347   327 
Mining royalties and special mining tax  413   (1,650)  (5,876) 247  663  418 
Permanent items and other minor  2,786   16,208   12,459 
Permanent items  6,577   4,447   3,824 
Income tax expense  58,776   75,807   118,420   46,710   10,957   58,787 
Mining Royalties and Special Mining Tax  7,236   10,675   24,538   6,794   3,806   7,034 
            
Total income tax  66,012   86,482   142,958   53,504   14,763   65,821 

F-78

Notes to the consolidated financial statements(continued)

 

(e)TheRelated to the investment in associates, the Group has not recognized a deferred income tax asset by US$213,838,000 on257.5 million as of December 31, 2016 originated by the unremitted earningdifference between the financial and taxable basis of its associates.these investments (US$94.5 million as of December 31, 2015). Management believes that the timing differences will be reversed by means of dividends to be received in the future that, are not subject to the income tax.without taxable effects. There is no legal or contractual obligation that would require the Company’s Management to sell its investment in its associates (which event would result in a taxable capital gain based on current tax law).

 

27.29.Commitments and contingencies

Commitments

(a)Environmental –-

The Group’s exploration and exploitation activities are subject to environmental protection standards.

 

Law No. 28090 regulates the obligations and procedures that must be met by the holders of mining activities for the preparation, filing and implementation of Mine Closure Plans, as well as the establishment of the corresponding environmental guarantees to secure fulfillment of the investments, subject to the principles of protection, preservation and recovery of the environment.

 

Law No. 28271 regulates environmental liabilities in mining activities. This Law has the objective of ruling the identification of mining activity’s environmental liabilities and financing the remediation of the affected areas. According to this law, environmental liabilities refer to the impact caused to the environment by abandoned or inactive mining operations.

 

The Group considers that the recorded liability is sufficient to meet the current regulatory environment in Peru.

 

(b)Leased concessions -

The Group pays 10 percent on the valued production of mineral obtained from the concessions leased by Sindicato Minero Orcopampa S.A. This concession is in force until the year 2043. See note 23.24.

 

(c)Finance leases –Letter of guarantee granted by Buenaventura -

Letter of guarantee - Huanza

 

On December 2, 2009, Banco de Credito del PeruPerú signed a finance lease contract for US$119,000,000119 million with Consorcio Energético de Huancavelica S.A., Empresa de Generación Huanza S.A. and Buenaventura. This financing is in favor of Empresa de Generación Huanza S.A., and is guaranteed by Buenaventura. On February 8, 2016, the bank released the guarantee granted by Buenaventura.

F-79

 

Letter of guarantee for mine closure of Coimolache

On January 12, 2014, Buenaventura signed a letter of guarantee with Scotiabank for the mine closure plan of the Tantahuatay Project by US$14,659,000.

Notes to the consolidated financial statements(continued)

(d)Operating lease commitments (the Group as a lessee) –-

The Group has entered into operating leases on its administrative offices in Lima located in Las Begonias Street N°415, San Isidro, Lima, Peru, with a lease term of 10 years. The Group has the option to lease the assets for two additional term of 5 years each.

The Group has entered into operating leases on its administrative offices in Lima located in Las Begonias Street N°415, San Isidro, Lima, Peru, with a lease term of 10 years. The Group has the option to lease the assets for an additional term of 5 years.

 

Future minimum rentals payable as of December 31, 2014 and 2013 are the following:

Future minimum rentals payable as of December 31, 2016 and 2015 are the following:

 

 2016 2015 
 2014 2013  US$(000) US$(000) 
 US$(000) US$(000)      
Within one year  1,543   1,543   1,543   1,543 
After one year but not more than five years  6,173   6,173   6,173   6,173 
More than five years  5,787   7,330  2,701  4,244 
                
  13,503   15,046   10,417   11,960 

 

(e)Operating lease commitments (the Group as a lessor) –-

The Group leases for several of its assets. These leases have purchase options. Below is a table showing future minimum lease payments and the present value of these payments:

 

 2014  2013  2016  2015 
 Minimum
payments		 Present value of
payments		 Minimum
payments		 Present value of
payments		  Minimum
payments		 Present 
value of
payments		 Minimum
payments		 Present 
value of
payments		 
 US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) 
                  
Within a year  68,194   52,576   16,284   10,519   57,592   40,428   47,957   31,956 
After one year but not more than five years  372,524   325,621   240,985   223,878   318,643   281,192   366,637   321,685 
                
Total minimum lease payments  440,718   378,197   257,269   234,397   376,235   321,620   414,594   353,641 
                                
Less - amounts representing finance charges  (62,521)  -   (22,872)  -  (54,615) -  (60,953) - 
                
Present value of minimum lease payments  378,197   378,197   234,397   234,397   321,620   321,620   353,641   353,641 

 

Contingencies

(f)OptioncontractsLegal procedures

During theordinary course of business, the Companyenters into contractsfor the purpose ofcarrying outexploration work onmining claimsof third parties.Generally, underthe terms of theseagreements, the Companyhasthe option to acquirethe grantor investingin it,in order toobtaina stakein the company owning.Toexercise these options,the Company mustcomply with certainobligations during theterm of thecontract. Usuallygrounds for terminationofthese contracts are thebreach bythe Companyof its obligations underthem.

The Company may resolve these contracts at any time during its term, usually after completing at least the minimum obligations.

Notes to the consolidated financial statements(continued)

(g)Participation in joint operations -

At December 31, 2014, the Group, through its subsidiary Bisa Construction SA (hereinafter "Bico") has signed a joint venture with Constructora Hermanos Malaga S.A. (hereinafter "Malaga") in order to provide construction services to Cerro Verde. The main residence of the joint agreement and the country in which operates is Peru. The percentage of the Group is 50 percent. The project budget is US$35 million and will be implemented between July 2014 and July 2015. The Company recognized in relation to its interest in a joint operation its:

-Assets, including its share of any assets held jointly,
-Liabilities, including its share of any liabilities incurred jointly,
-Revenue from the sale of its share of the output arising from the joint operation,
-Share of the revenue from the sale of the output by the joint operation, and
-Expenses, including its share of any expenses incurred jointly.

Contingencies

(h)Legal procedures -

Buenaventura -

Buenaventura is a party in legal procedures that have arisen in the normal course of its activities. Nevertheless, in the opinion of Buenaventura’s Management, none of these procedures, individually or as a whole, could result in material contingencies for the consolidated financial statements.

The possible contingencies that are classified as possible amount toUS$1,573,0009.9 million and US$466,0002.0 million as of December 31, 20142016 and 2013, respectively. Out of this total, US$135,000 corresponds2015,respectively.

F-80

Notes to the mining units held for sale as of December 31, 2014.consolidated financial statements(continued)

 

Yanacocha -

Mercury spill in Choropampa

In June 2000, a carrier hired bytransport contractor of Yanacocha spilled approximately 151 kilograms of elemental mercury in the vicinity ofnear the town of Choropampa, Peru, which is located 85 kilometers (53 miles) southeast53 miles (85 kilometers) southwest of the Yanacocha mine. To date,Elemental mercury is not used in Yanacocha’s operations but is a by-product of gold mining and was sold to a Lima firm for use in medical instruments and industrial applications. A comprehensive health and environmental remediation program was undertaken by Yanacocha in response to the incident.

In August 2000, Yanacocha paid under protest a fine of S/1,740,000 (approximately US$0.5 million) to the Peruvian government. Yanacocha has held court settlementsentered into settlement agreements with people affecteda number of individuals impacted by the incident. At December 31, 2014,As compensation for the disruption and inconvenience caused by the incident, Yanacocha entered into agreements with and provided a variety of public works in the three communities impacted by this incident. Yanacocha cannot predict the likelihood of additional expenditures related to this matter.

Additional lawsuits relating to the Choropampa incident were filed against Yanacocha in the local courts of Cajamarca, Peru, in May 2002 by over 900 Peruvian citizens. A significant number of the plaintiffs in these lawsuits entered into settlement agreements with Yanacocha prior to filing such claims. In April 2008, the Peruvian Supreme Court upheld the validity of these settlement agreements, which Yanacocha expects to result in the dismissal of all claims brought by previously settled plaintiffs. Yanacocha has also entered into settlement agreements with approximately 350 additional plaintiffs. The claims asserted by approximately 200 plaintiffs remain.

In 2011, Yanacocha was served with 23 complaints alleging grounds to nullify the settlements entered into between Yanacocha and the plaintiffs. Yanacocha has answered the complaints and the court has dismissed several of the matters and the plaintiffs have filed appeals. All appeals were referred to the Civil Court of Cajamarca, which affirmed the decisions of the lower court judge. The plaintiffs have filed appeals of such orders before the Supreme Court. Some of these appeals were dismissed by the Supreme Court in favor of Yanacocha and others are pending resolution. Yanacocha will continue to vigorously defend its position. Yanacocha cannot reasonably estimate the ultimate loss relating to such claims.

Conga Project Constitutional Claim

On October 18, 2012, Marco Antonio Arana Zegarra (“Marco Arana”) filed a constitutional claim against the Ministry of Energy and Mines and Yanacocha requesting the Court to order the suspension of the Conga project as well as to declare not applicable the October 27, 2010 Directorial Resolution No.351-2010-MEM/AM approving the Conga project Environmental Impact Assessment (“EIA”).

F-81

Notes to the consolidated financial statements(continued)

On October 23, 2012, a Cajamarca judge dismissed the claims based on formal grounds finding that: (i) plaintiffs had not exhausted previous administrative proceedings; (ii) the Directorial Resolution approving the Conga EIA is valid, and was not challenged when issued in the administrative proceedings; (iii) there are 6 applicantswas inadequate evidence to conclude that the Conga project is a threat to the constitutional right of living in an adequate environment and; (iv) the Directorial resolution approving the Conga project EIA does not guarantee that the Conga project will proceed, so there was no imminent threat to be addressed by the Court. The plaintiffs appealed the dismissal of the case. The Civil Court of the Superior Court of Cajamarca confirmed the above mentioned Resolution and the plaintiff presented an appeal.

On March 13, 2015, the Constitutional Court published its ruling stating that the case should be sent back to the first court with pending process.an order to formally admit the case and start the judicial process in order to review the claim and the proofs presented by the plaintiff. Yanacocha has answered the claim. Yanacocha cannot reasonably predict the outcome of any of these claims; however, it is estimated that the maximum additional expense related to these demands will be US$1.5 million.this litigation.

 

ActionEnvironmental contingencies

The Peruvian government agency responsible for Constitutional Relief againstenvironmental evaluation and inspection, Organismo Evaluacion y Fiscalizacion Ambiental (“OEFA”), conducts periodic reviews of the Yanacocha site. In 2011, 2012, 2013, the first quarter of 2015, second, third and fourth quarters of 2016 and January 2017, OEFA issued notices of alleged violations of OEFA standards to Yanacocha and Conga Project Exploitation
On October 19, 2012, Marco Antonio Arana Zegarra ("Marco Arana") initiated an action for constitutional relief againstrelating to past inspections. OEFA has resolved some alleged violations with minimal or no findings. In the Minesfirst quarter of 2015 and Energy Ministrythe fourth quarter of 2016, the water authority of Cajamarca issued notices of alleged regulatory violations, and Yanacocha requestingresolved some allegations in early 2017 with no findings. The experience with OEFA and the water authority is that in the Court orders to cease any threatscase of a finding of violation, remedial action is often the outcome rather than a significant fine.

The alleged OEFA violations currently range from zero to life in an adequate101,730 units and balanced environment; so that Court declare the suspensionwater authority alleged violations range from zero to 40,000 units, with each unit having a potential fine equivalent to approximately US$1,200 based on current exchange rates. Yanacocha and Conga are responding to all notices of alleged violations, but cannot reasonably predict the outcome of the exploitation of the Conga Project and avoid Directorial Resolution No.351-2010-MEM/AM dated on October 27, 2010 that approved the Conga Environmental Impact Assessment.agency allegations.

 

(g)Open tax procedures-

By Court resolution No.1 dated October 23, 2012, the action was dismissed. On November 5, 2012, resolution No.1 was appealed by plaintiff and the hearing at Superior Court was held on March 4, 2013. The Cajamarca Superior Court confirmed the ruling of the judge that dismissed the claim.Buenaventura -

-During 2012 and 2014, the tax authority (SUNAT) reviewed the income tax for 2007 and 2008. As a result, SUNAT do not recognize tax declared deductions by S/1,056,310,000 (equivalent to US$314,375,000) in 2007 and S/1,530,985,000 (equivalent to US$455,650,000) in 2008. The main unrecognized deduction is the payment made for the removal of the price component of its commercial contracts of gold. In the opinion of management and its legal counsel, the objections are unfounded so Buenaventura should get a favorable result in the initiated claim process.

 

F-82

On May 23, 2013, Marco Arana filed for a Constitutional remedy against the Cajamarca Superior Court decision and on June 3, 2013, the Cajamarca Superior Court accepted the Constitutional remedy filed by Marco Arana and the file has been sent to the Constitutional Court. On September 25, 2013, the Constitutional Court heard oral arguments from the parties and we are waiting their decision. To date the case maintains the same status.

 

Notes to the consolidated financial statements(continued)

 

(i)-OpenDuring 2015, SUNAT reviewed the income tax procedures –of 2009 and 2010. As a result, they did not recognize Buenaventura declared tax deductions by S/76,023,000 (equivalent to US$22,626,000). The main unrecognized deductions by Buenaventura are: the non-deductibility of bonuses paid to contractors, a provision of doubtful accounts not accepted as an expense and income unduly deducted. The possible contingencies for the years 2009 and 2010 amount toS/567,794,000(equivalent toUS$168,986,000) as of December 31, 2016. In the opinion of Management and its legal counsel, Buenaventura should get a favorable result in the initiated claim process.

 

BuenaventuraSubsidiaries -

-During 2015, the tax authorities reviewed the income tax of the subsidiary Buenaventura Ingenieros S.A (BISA) for the fiscal years 2011 and 2012. The main unrecognized deductions are related to the deduction of bonuses paid to staff for S/12,611,000 (equivalent to US$3,753,000) as well as the omission of income from transfer of fuel to suppliers, amounting to S/8,323,000 (equivalent to US$2,477,000). In addition, SUNAT requires the payment of the value added tax related to allegedly omitted revenues in the transfer of fuel to suppliers for S/8,323,000 (equivalent to US$2,477,000). BISA initiated claim process for the above assessments.

-During 2016 Tax Authorities have resolved the claim process, maintaining the assessment related to the omission of income from transfer of fuel to suppliers.

From 2012 to 2014, the tax authorities audited theThe possible contingencies for income tax of 2007for the years 2011 and 2008. As a result, they did not recognize Buenaventura declared tax deductions by2012 amount to S/. 1,056,000,0005,230,000 (equivalent to US$353,295,000) in 20071,556,000) and by S/1,530,985,000 (equivalent to US$512,206,000) in 2008. The main unrecognized deduction by Buenaventura is the payment made for the removalvalue added tax amount to S/3,455,000 (US$1,028,000) as of the price component of its commercial contracts of gold.December 31, 2016. In the opinion of Management of this subsidiary and its legal counsel, the objections are unfounded so Buenaventuraadvisors, BISA should get a favorable result in the initiated claim process.process initiated in 2016.

 

Also in the yearOn May 30, 2014, the Tax Administration has begunAuthority issued tax and fines assessments for the audit of income tax for tax years 2009 and 2010.

Moreover, the Tax Administration has determined that Buenaventura (previously Canteras del Hallazgo S.A.C) has obtained a final return of the Value Added Tax (IVA) by S/. 1,397,351 (equivalent to US$467,968) for December 2010 and January to May 2011. The Tax Administration considers that this amount should not be returned to Buenaventura because it would not be directly linked to its mining exploration. In the opinion of Management and its legal counsel, Buenaventura should get a favorable result in the initiated claim process.

Subsidiaries –

CEDIMIN

The2011 income tax of Cediminthe subsidiary Sociedad Minera El Brocal S.A.A. (El Brocal). Within the terms of 2002 was auditedlaw, El Brocal filed an appeal that is pending resolution to date. It should be noted that on June 18, 2014, El Brocal decided to pay under protest the income tax assessment by S/8,333,000 (equivalent to US$2,480,000) so it can have access to a discount benefit of the tax authorities. As a result, they do not recognize to Cedimin the declared tax loss carryforward. The main controversy consists on making deductible the loss on the sale of shares in Minera Huallanca S.A.C. and Minera Yanaquihua S.A. for S/.22,041,000 (US$65,881,000). In Management's and its legal counsel’s opinion, that interpretation has no support so Cedimin should get a favorable outcome in the appeal initiated against the tax authorities.

El Brocal

At the date of this report, the Tax Administrationfine. This payment is reviewing the Income Tax return of 2011.

Associates -

Cerro Verderecorded as an account receivable.

 

-On June 23, 2004, Law No.28258 - Mining Royalty Law was approved, and requiresJanuary 8, 2015, the holderTax Administration notified to the subsidiary El Brocal a resolution of determination as a mining concession to pay a royalty in returnresult of the inspection for the exploitation2012 income tax. SUNAT claimed and resolved the nullity of metallicit; In addition, SUNAT notified the resolution and non-metallic minerals,fines for payments on account from January to December 2012, which amount to S/3,996,000 (equivalent to US$1,189,000). El Brocal has filed an appeal to the Tax Court, which is calculated using rates from one to three percent of the value of concentrate or its equivalent according to the international price of the commodity published by the Ministry of Energy and Mines.pending resolution.

 

Based onEl Brocal's legal advisors believe that the stability agreement signed in 1998, paymentoutcome of mining royalties wasthese proceedings will be favorable and, therefore, it is not applicablenecessary to Cerro Verde, because that contribution was created after signing the stability contract with the Peruvian government. However under the terms of his new contract stability, Cerro Verde mining began paying royalties and Special Mining Taxrecognize a provision for all the production based on Law No. 29788 as of January 1, 2014. At December 31 2014 has been a Special Mining Tax and Mining royalties of $ 24,927,000 and $ 27,189,000, respectively and is presented as an expense for income tax.these contingencies.

F-83

 

Notes to the consolidated financial statements(continued)

 

-During 2015 the tax authority audited the 2014 income tax of the subsidiary Empresa de Generación Huanza S.A. As a consequence, a portion of the depreciation of its fixed assets is not recognized for S/27,532,000 (equivalent to US$8,194,000). In the opinion of the Management and its legal advisors, this interpretation has no basis and therefore, Huanza would obtain a favorable result in the appeal process that has begun.
-In addition, the Tax Authority has issued tax assessments as a result of the audit of income taxes of other subsidiaries of the Company for S/8,922,000 (equivalent to US$2,655,000). In the opinion of the Management and its legal advisors, the assessments are of possible occurrence; however, the subsidiaries expect to obtain a favorable outcome in the appeal processes initiated.

Associates -

Cerro Verde -

Mining Royalties

SUNAT, the Peruvian national tax authority, has assessed mining royalties on orematerials processed by the Cerro VerdeVerde´s concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2007, and the years 2008 and 2009.September 2011.SUNAT issued resolutions declaring the claims of Cerro Verde unfounded for the periods 2006 to 2009.Cerro Verde appealed those decisions to the Tax Court. In July 23, 2013, the Peruvian Tax Tribunal issued two decisions affirming SUNAT's assessments for the period December 2006 through December 2008. Decisions by the Tax Tribunal ended the administrative stage of the appeal procedures for these assessments.

 

In September 18, 2013, Cerro Verde filed two administrative contentious claims before the Judiciary against the decisions of the Tax Court that dismiss the appeals presented. In relation to the periods 2006 and 2007, the 20th Administrative Court Specialized in Tax matters dismissed the claim filed. On May 2, 2016, Cerro Verde filed an appeal with the 7th Administrative Court.

In September 2013, Cerro Verde filed judiciary appeals related to the assessmentsJudicial Branch (Civil Court of the Superior Court of Justice of Arequipa), suing SUNAT, the Ministry of Energy and Mines and the Tax Court for requiring Cerro Verde to pay mining royalties during the 2006 through 2008 periods because it continues to believeperiod of Stability Contract in effect until December 31, 2013. Cerro Verde believes that itssaid Stability Contract entered into with the Peruvian State in 1998 stability agreement exempts(which was effective as of January 1, 1999 and expires on December 31, 2013), guarantees that all the minerals extracted from its mining concession from royalties, irrespectiveproduction unit are included in the stabilized tax and administrative regime, which does not include the payment obligation of the method used for processing those minerals. mining royalties. On September 15, 2016, Judiciary court dismissed the constitutional claim and on October 25, 2016, Cerro Verde appealed this decision.

With respect to the judiciary appeal related to assessmentsthe assessment for the year 2008, on December 17, 2014, Peru'sthe Eighteenth Contentious Administrative Court rendered its decision upholding Cerro Verde'sthe Company’s position and nullifying SUNAT’s assessment and the Tax Tribunal'sTribunal´s resolution and SUNAT's assessment. On(S/106.4 million). In December 31, 2014, SUNAT and the Tax TribunalCourt appealed this decision.

As of February 20, 2015, no decision had been rendered with respect to Cerro Verde's judicial appeal of assessments for the 2006 and 2007 periods. In July 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by the Tax Tribunal for that year. Although Cerro Verde’s Management believes its interpretation of the stability agreement is correct, if Cerro Verde is ultimately found responsible for these assessments, it may The Court’s position also be liable for invalidates all penalties and interest which accrues at ratesassessed by SUNAT for that range from approximately 7%period, amounting to 18% based onS/139.7 million. On January 29, 2016, the year accrued andSixth Superior Justice Court nullified the currency in whichdecision of the amounts would be payable. InEighteenth Contentious Administrative Court. On February 23, 2016, Cerro Verde appealed the decision to the Supreme Court.

F-84

Notes to the consolidated financial statements(continued)

On October 1, 2013, SUNAT served Cerro Verde with a demand for payment totaling S/492 million Peruvian Nuevos Soles (US$165(approximately US$146 million based on the exchange rate at December 31, 2014,2016 exchange rate, including interest and penalties of US$9786 million) based on the Peruvian Tax Tribunal’s decisions for the period December 2006 throughto December 2008.

As permitted by law, Cerro Verde requested, and was granted, an installment payment program that deferred payment for six months and thereafter satisfies the amount via 66 equal monthly payments. As of December 31, 2014,2016, Cerro Verde has made payments totaling 113S/323 million Peruvian Nuevos Soles (US$40104 million based on exchange rates at the date of payment)payment and US$96 million based on December 31, 2016 exchange rates) under the installment program, which are includedpresented in the non-current portion of other non-financial assets in the statements of financial position. Based on the results rendered on December 17, 2014 by the Eighteenth Contentious Administrative Court as is described in the previous paragraph, Cerro Verde’s balance sheet.Verde requested an injunction that was accepted by the Judiciary and implied a modification of the installment program excluding the 2008 portion through SUNAT´s resolution notified to Cerro Verde on October 29, 2015. On August 18, 2016, the SixthSuperior Justice Court nullified the injunction described above and on September 28, 2016, SUNAT modified the Installment payment program to include the 2008 portion.

-In July 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by the Tax Tribunal for that year. As of December 31, 2016, the amount of the assessment, including interest and penalties, for the year 2009 was S/268 million (approximately US$80 million based on the December 31, 2016 exchange rate).

-On April 13, 2016, Cerro Verde received assessments from SUNAT for the year 2010 and for January to September 2011. On May 11, 2016, Cerro Verde appealed these assessments. At December 31, 2016, the amount of assessments from SUNAT including interest and penalties for the years 2010 and January to September 2011 is S/543 million (approximately US$162 million based on the December 31, 2016 exchange rate).

As of December 31, 2016, Cerro Verde estimates that the total exposure associated with mining royalties for the period from December 2006 to December 2013, including interest and penalties, totals US$544 million (based on the December 31, 2016 exchange rate).

 

As of December 31, 2014,2016, no provisions were recorded for these assessments or for the aggregate amount ofamounts paid under the installment payment program because management and its external legal advisors believe Cerro Verde’s Stability Agreement exempted it from these royalties and believes that the resolution will be favorable to Cerro Verde and any payments should be recoverable.

F-85

Notes to the consolidated financial statements(continued)

Other taxes

Cerro Verde has also received assessments from SUNAT for additional taxes (other than the mining royalty), including penalties and interest. Cerro Verde has filed or will file objections to the assessments including interestbecause it believes it has properly determined and penalties, for the year 2009 was 226 million Peruvian Nuevos Soles (US$76 million based on the exchange rate atpaid its taxes. A summary of these assessments follows:

Year Taxes  Penalty and
interest		  Total 
  US$(000)  US$(000)  US$(000) 
          
2002 – 2005  15,909   51,495   67,404 
2006  6,545   49,491   56,036 
2007  12,376   17,809   30,185 
2008  20,797   12,968   33,765 
2009  56,198   47,719   103,917 
2010  65,997   98,284   164,281 
2011  6,332   2,648   8,980 
2014 - 2016  15,909   -   15,909 
             
   200,063   280,414   480,477 

As of December 31, 2014). SUNAT may make additional assessments for mining royalties and associated penalties and interest for the years 2010 through 2013, which2016, Cerro Verde will contest; Cerro Verde’s Managementhas paid US$180.7 million for these disputed tax assessments, which it believes any such assessments for the years 2010 through 2013, if made, would in the aggregate be similar to the aggregate assessments received for the periods December 2006 through December 2009.

is collectible. No amounts have been accrued for these assessments orassessments.

Yanacocha -

-SUNAT challenged the withholding tax rate applied on the technical assistance services provided by non-resident supplier. The services were executed in Peru and also abroad; however, Yanacocha was not able to prove it during the tax audit. Based on that, SUNAT considers that the services were wholly executed in Peru; hence, the withholding tax rate must be 30% instead of 12%. The amount of the contingency involved is S/12.7 million (US$ 3.8 million).

-SUNAT considers that the bonus for closing the collective agreement and the collateral benefits granted to the unionized and non-unionized employees qualify as remunerative concepts; hence, taxed with the contribution to ESSALUD. The contingency amounts to S/10.6 million (US$3.2 million).

In Management's and its legal counsel’s opinion, that interpretation has no support so Yanacocha should get a favorable outcome in the installment payment program as of December 31, 2014, because Cerro Verde believes its 1998 stability agreement exempts it from these royalties and believes any payments will be recoverable.appeal initiated.

F-86

 

Notes to the consolidated financial statements(continued)

 

28.30.Transactions with associates companies

(a)The Group has carried out the following transactions with its associates in the years 2014, 20132016, 2015 and 2012:
2014:
  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Royalties collected to Minera Yanacocha S.R.L.:            
S.M.R.L. Chaupiloma Dos de Cajamarca  36,867   44,185   67,178 
             
Services provided to Minera Yanacocha S.R.L. by:            
Buenaventura Ingenieros S.A (Implementation of specific work orders)  699   699   4,440 
Consorcio Energético de Huancavelica S.A. (electric power transmission)  915   915   1,681 
             
Dividends received by:            
Compañía Minera Coimolache S.A.  12,938   9,803   16,467 
             
Contributions and investments made to:            
Canteras del Hallazgo S.A.C.  2,012   6,988   26,410 
Sociedad Minera Cerro Verde S.A.A.  -   -   30,727 
Others  900   -   1,457 

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Royalties collected to Minera Yanacocha S.R.L.:            
S.M.R.L. Chaupiloma Dos de Cajamarca (c)  24,339   32,414   36,867 
             
Services provided to Minera Yanacocha S.R.L. by:            
Consorcio Energético de Huancavelica S.A. (electric power transmission)  915   1,694   915 
Buenaventura Ingenieros S.A (execution of specific work orders)  177   845   699 
             
Dividends received by:            
Minera Yanacocha S.R.L.  130,950   -   - 
Compañía Minera Coimolache S.A.  11,390   6,691   12,938 
             
Loans granted to:            
Sociedad Minera Cerro Verde S.A.A.  -   124,800   - 
             
Sales of supplies to Compañía Minera Coimolache S.A. by:            
Compañía de Minas Buenaventura S.A.A.  1   56   913 
Minera La Zanja S.R.L.  -   74   10 
             
Sales of mineral to Minera Yanacocha S.R.L. by:            
Compañía de Minas Buenaventura S.A.A.  1,271   2,114   3,258 
             
Interest income over loans granted by Compañía Minera Coimolache S.A. to:            
Consorcio Energético de Huancavelica S.A.A.  3   19   35 
             
Supplies purchase to Compañía Minera Coimolache S.A. by:            
Minera La Zanja S.R.L.  12   6   24 
Compañía de Minas Buenaventura S.A.A.  1   29   6 
Consorcio Energético de Huancavelica S.A.A.  10   1   - 
             
Contributions and investments made to:            
Canteras del Hallazgo S.A.C.  -   -   2,012 

 

F-80F-87

 

Notes to the consolidated financial statements(continued)

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Interest income over loans granted by associates  4,164   2,286   2,887 
             
Services provided to Compañía Minera Coimolache S.A. by:            
Empresa de Generación Huanza S.A. (sale of energy)  1,679   1,676   233 
Consorcio Energético de Huancavelica S.A. (construction services)  1,152   346   - 
Buenaventura Ingenieros S.A (execution of specific work orders)  824   471   589 
Consorcio Energético de Huancavelica S.A. (electric power transmission)  332   559   542 

 

(b)As a result of the transactions indicated in the paragraph (a), the Group had the following accounts receivable and payable from/to associates:

 

 2014 2013  2016 2015 
 US$(000) US$(000)  US$(000) US$(000) 
Trade receivables -        
     
Trade and other receivables, note 8(a) -        
Trade receivables        
Minera Yanacocha S.R.L. (c)  7,079   8,760 
Compañía Minera Coimolache S.A.  681   666 
  7,760   9,426 
Other receivables        
Sociedad Minera Cerro Verde S.A.A. (d)  126,050   124,988 
Minera Yanacocha S.R.L.  14,566   9,220   379   - 
Compañía Minera Coimolache S.A.  515   201   240   499 
  15,081   9,421   126,669   125,487 
Other receivables        
Compañía Minera Coimolache S.A. (c)  334   15,890 
                
Total trade and other receivables  15,415   25,311   134,429   134,913 
                
Classification by maturity:                
Current portion  15,415   23,068   8,379   9,925 
Non-current portion  -   2,243   126,050   124,988 
                
Total trade and other receivables  15,415   25,311   134,429   134,913 
        
Trade payables        
Minera Yanacocha S.R.L.  410   783 
Compañía Minera Coimolache S.A.  1,384   614 
Canteras del Hallazgo S.A.C.  -   30 
        
Total trade and other payables  1,794   1,427 
        
Classification by maturity:        
Current portion  1,611   970 
Non-current portion  183   457 
Total trade and other payables  1,794   1,427 

 

Terms and conditions of transactions with related parties

F-88

 

Purchase transactions and services with related parties are made at market prices. Outstanding balances at year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended December 31, 2014 and 2013, the Group has not recorded any impairment of receivables related to owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which it operates.

(c)Compañía Minera Coimolache S.A. (“Coimolache”) -

On October 18, 2010, the Shareholders’ Meeting of Compañía Minera Coimolache S.A. approved the development program and financial support of Tantahuatay Project; the total budget of the project was estimated in US$110,000,000 and the project financing structure should be: 30 percent shareholders’ equity and 70 percent loans from shareholders. On August 8, 2014, Coimolache fully repaid the loan.

 

Notes to the consolidated financial statements(continued)

 

  2016  2015 
  US$(000)  US$(000) 
       
Trade and other payables, note 15(a)  -        
Trade payables        
Compañía Minera Coimolache S.A.  25   892 
Minera Yanacocha S.R.L.  1,347   283 
         
   1,372   1,175 
Other payables        
Compañía Minera Coimolache S.A.  3   - 
Total trade and other payables  1,375   1,175 

(c)S.M.R.L. Chaupiloma Dos de Cajamarca -

In accordance with mining lease, amended and effective on January 1, 1994, Minera Yanacocha S.R.L. pays the Group a 3% royalty based on quarterly production sold at current market prices, after deducting refinery and transportation costs. The royalty agreement expires in 2032.

(d)As of December 31, 2014 and 2013, directors,Sociedad Minera Cerro Verde S.A. -

In December 2014, Cerro Verde entered into shareholder loan agreements with, or affiliates of, Freeport Minerals Corporation, Compañía de Minas Buenaventura S.A.A. and SMM Cerro Verde Netherlands B.V., for up to US$800 million. As of December 31, 2016, Cerro Verde had borrowed US$606 million under these loan agreements (US$800 million under these loan agreements as of December 31,2015), US$125 million with Buenaventura as of December 31, 2016. Interest rate is variable (currently 3.08%). The loans mature on December 22, 2019, unless at that time there is senior financing associated with the expansion project that is senior to the loans, in which case the loans mature two years following the maturity of the senior financing.

(e)Key officers and employees of the Group have been involved, directly and indirectly, in financial transactions with certain subsidiaries. As of December 31, 2014 and 2013, loans to employees, directors and key personnel amounts to US$27,000 and US$443,000, respectively, are paid monthly and earn interest at market rates.-

As of December 31, 2016 and 2015, directors, officers and employees of the Group have been involved, directly and indirectly, in financial transactions with certain subsidiaries. As of December 2016 and 2015, loans to employees, directors and key personnel amounts to US$91,000 and US$61,000, respectively, are paid monthly and earn interest at market rates.

 

There are no loans to the Group’s directors and key personnel guaranteed with Buenaventura or any of its Subsidiaries’ shares.

 

(e)F-89The Group’s key executives’ compensation (including the related income taxes assumed by the Group) as of December 31, 2014 and 2013 are presented below:

 

  2014  2013 
  US$(000)  US$(000) 
Accounts payable:        
Share-based compensation plans  461   1,971 
Directors’ compensations  1,090   1,459 
Salaries  1,225   1,239 
Total  2,776   4,669 
         
Disbursements:        
Share-based compensation plans  1,599   6,080 
Salaries  8,423   8,089 
Total  10,022   14,169 

Notes to the consolidated financial statements(continued)

The Group’s key executives’ compensation (including the related income taxes assumed by the Group) as of December 31, 2016, and 2015 are presented below:

  2016  2015 
  US$(000)  US$(000) 
Accounts payable:        
Salaries  1,034   3,381 
Directors’ compensations  1,016   1,047 
Share-based compensation plans  598   330 
         
Total  2,648   4,758 
Disbursements:        
Salaries  9,922   7,864 
         
Total  9,922   7,864 

 

29.31.Disclosure of information on segments

Management has determined its operating segments based on reports that the Group’s Chief Operating Decision Maker (CODM) uses for making decisions. The Group is organized into business units based on its products and services, activities and geographic locations. The broad categories of the Group’s business units are:

 

-Production and sale of minerals
-Exploration and development activities
-Construction and engineering services
-Energy generation and transmission services
-Insurance brokerage
-Rental of mining concessions
-Holding of investment in shares (mainly in the associate company Minera Yanacocha S.R.L. and the Group’s subsidiary S.M.R.L. Chaupiloma Dos de Cajamarca)
-Industrial activities.

 

Notes to the consolidated financial statements(continued)

The CODM monitors the operating results of the business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Group’s consolidated financial statements. Also, the Group’s financing and income taxes are managed at the corporate level and are not allocated to the operating segments, except for those entities which are managed independently.

 

Until December 31, 2013, the Group had aggregated all its mining operating segments into one reportable segment based on similarities on long term financial performance, nature of products, production processes, type of customers and legal environment. The Group had also determined that the energy generation and transmission services segment, construction and engineering services and other complementary business activities were not significant in order to evaluate the entire business performance.

In 2014, taking into account the changing economic environment (increased fluctuations of minerals prices, changing technology and increasing costs), the Group decided to present its operating segments separately to provide more transparent information to the interested parties and to facilitate their understanding about the nature and financial effects of its business activities and its economic environment. Comparative information for years 2013 and 2012 has also been provided.

Corporate information mainly includes the following:

In segment information of profit and loss -

-Sales to third parties of gold purchased by the Parent company from La Zanja mining unit and the corresponding cost of sale as well as other intercompany sales.
-Administrative expenses, other income (expenses), exchange gain (loss), finance costs and income and income tax that cannot be directly allocated to the operational mining units owned by the Parent company (Uchucchacua, Orcopampa, Julcani, Mallay and Breapampa)Mallay).

F-90

Notes to the consolidated financial statements(continued)

-Exploration activities in non-operating areas, carried out directly by the Parent company and not by the consolidated separate legal entities.
-Participation in subsidiaries and associate companies of the Parent company, which are accounted for using the equity method.
-Gain on business combination occurred in 2014, see note 5 to the consolidated financial statements.

In the segment information of assets and liabilities -–

-Investments in Sociedad Minera Cerro Verde S.A.A. and Compañía Minera Coimolache S.A., associate companies which are directly owned by the Parent company and are accounted for using the equity method; see note 1011 to the consolidated financial statements.
-Assets and liabilities of the operational mining units owned directly by the Parent company since this is the way the CODM analyzes the business. Assets and liabilities of other operating segments are allocated based on the assets and liabilities of the legal entities included in those segments.

Notes to the consolidated financial statements(continued)

 

Adjustments and eliminations mainly include the following:

In segment information of consolidated statements of profit and loss -–

-The elimination of any profit or loss of investments accounted for under the equity method and not consolidated by the Group corresponding to the associate companies: Minera Yanacocha S.R.L., Sociedad Minera Cerro Verde S.A.A. and Compañía Minera Coimolache S.A.
-The elimination of intercompany sales.
-The elimination of intercompanysales and cost of sales.
-The elimination of any equity pickup profit or loss of the subsidiaries of the Parent company.

 

In the segment information of assets and liabilities –

-The elimination of the assets and liabilities of the investments accounted for under the equity method and not consolidated, corresponding to the associate companies: Minera Yanacocha S.R.L., Sociedad Minera Cerro Verde S.A.A. and Compañía Minera Coimolache S.A.
-The elimination of any equity pickup investments of the subsidiaries of the Parent company.
-The elimination of intercompany receivables and payables.

 

Refer to Note 20 (a)21(a) to the consolidated financial statements where the Group reports revenues from external customers for each product and service, and revenues from external customers attributed to Peru and foreign countries. The revenue information is based on the locations of customers.

 

Refer to Note 20 (b)21(b) to the consolidated financial statements for information about major customers (clients representing more than 1072 percent of the Group’s revenues).

 

All non-current assets are located in Peru.

 

F-91

Notes to the consolidated financial statements(continued)

 

                                            Equity accounted investees          
  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Colquijirca
(Operation)		  La Zanja
(Operation)		  Exploration
and
development
mining
projects		  Construction
and
engineering		  Energy
generation
and
transmission		  Insurance
brokerage		  Rental of
mining
concessions		  Holding of
investment in
shares		  Industrial
activities		  Corporate  Minera
Yanacocha
S.R.L.		  Sociedad
Minera Cerro
Verde S.A.A		  Compañía
Minera
Coimolache
S.A.		  Total
operating
segments		  Adjustments and
eliminations		  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                                                             
Year 2016                                                                                
Results:                                                                                
Continuing operations                                                                                
Operating income                                                                                
Net sale of goods  240,470   244,745   54,666   46,741   230,611   178,922   -   -   -   -   -   -   5,982   191,075   761,193   2,384,154   198,873   4,537,432   (3,521,762)  1,015,670 
Net sale of services  -   -   -   -   -   -   -   12,633   57,312   12,675   -   615   19,507   -   17,713   -   -   120,455   (91,673)  28,782 
Royalty income  -   -   -   -   -   -   -   -   -   -   24,339   -   -   -   -   -   -   24,339   -   24,339 
Total operating income  240,470   244,745   54,666   46,741   230,611   178,922       12,633   57,312   12,675   24,339   615   25,489   191,075   778,906   2,384,154   198,873   4,682,226   (3,613,435)  1,068,791 
Operating costs                                                                                
Cost of sales of goods  (118,561)  (97,325)  (23,633)  (23,392)  (178,231)  (80,873)  -   -   -   -   -   -   (2,962)  (190,041)  (725,740)  (1,553,040)  (107,913)  (3,101,711)  2,603,899   (497,812)
Cost of services  -   -   -   -   -   -   -   (9,732)  (25,250)  -   -   -   (8,723)  -   (2,951)  -   -   (46,656)  35,902   (10,754)
Exploration in operating units  (31,406)  (45,111)  (11,069)  (7,960)  -   (603)  -   -   -   -   -   -   -   -   -   -   -   (96,149)  -   (96,149)
Depreciation and amortization  (18,541)  (11,403)  (6,756)  (11,393)  (53,637)  (67,542)  (27)  (253)  (10,904)  -   (16)  (221)  (10,968)  (986)  -   -   -   (192,647)  -   (192,647)
Mining royalties  (1,687)  (21,482)  (381)  (314)  (2,726)  (1,021)  -   -   -   -   -   -   -   -   -   -   -   (27,611)  -   (27,611)
                                                                                 
Total operating costs  (170,195)  (175,321)  (41,839)  (43,059)  (234,594)  (150,039)  (27)  (9,985)  (36,154)  -   (16)  (221)  (22,653)  (191,027)  (728,691)  (1,553,040)  (107,913)  (3,464,774)  2,639,801   (824,973)
                                                                                 
Gross profit (loss)  70,275   69,424   12,827   3,682   (3,983)  28,883   (27)  2,648   21,158   12,675   24,323   394   2,836   48   50,215   831,114   90,960   1,217,452   (973,634)  243,818 
                                                                                 
Operating expenses, net                                                                                
Administrative expenses  (13,265)  (13,810)  (4,582)  (2,708)  (11,802)  (1,980)  (7,024)  (4,492)  (2,450)  (12,245)  (112)  (227)  (635)  (12,083)  (8,780)  -   (4,144)  (100,339)  18,647   (81,692)
Exploration in non-operating areas  -   -   -   -   (1,939)  (4,619)  (17,102)  -   -   -   -   -   -   (4,129)  -   -   -   (27,789)  1,200   (26,589)
Selling expenses  (4,632)  (1,075)  (845)  (1,549)  (10,650)  (938)  -   -   (1,124)  -   -   -   (1,154)  (115)  (3,695)  (131,391)  (1,128)  (158,296)  136,563   (21,733)
Impairment loss of long-lived assets  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (889,499)  -   -   (889,499)  889,499   - 
Other, net  2,265   764   (556)  (323)  276   4,237   1,271   1,912   10,527   -   11   (16)  546   9,169   (122,151)  (24,107)  755   (115,420)  133,812   18,392 
                                                                                 
Total operating expenses, net  (15,632)  (14,121)  (5,983)  (4,580)  (24,115)  (3,300)  (22,855)  (2,580)  6,953   (12,245)  (101)  (243)  (1,243)  (7,158)  (1,024,125)  (155,498)  (4,517)  (1,291,343)  1,179,721   (111,622)
                                                                                 
Operating profit (loss)  54,643   55,303   6,844   (898)  (28,098)  25,583   (22,882)  68   28,111   430   24,222   151   1,593   (7,110)  (973,910)  675,616   86,443   (73,891)  206,087   132,196 
Other income (expense),net                                                                                
Share in the results of associates under equity method  -   -   -   -   -   -   -   -   4,579   (9)  -   (448,017)  -   (370,381)  -   -   -   (813,828)  448,507   (365,321)
Finance costs  (379)  (197)  (87)  (41)  (12,554)  (2,614)  (300)  (545)  (10,564)  (10)  (2)  (14)  (962)  (5,156)  (15,107)  (80,438)  (1,614)  (130,584)  99,004   (31,580)
Net gain (loss) from currency exchange difference  (203)  (59)  (61)  (46)  (270)  65   562   5   (138)  426   (93)  5   222   2,223   (13,741)  7,857   (117)  (3,363)  6,001   2,638 
Finance income  3   3   1   -   256   87   -   8   820   12   -   4   1   7,480   2,132   954   38   11,799   (4,969)  6,830 
                                                                                 
Total other income (expense), net  (579)  (253)  (147)  (87)  (12,568)  (2,462)  262   (532)  (5,303)  419   (95)  (448,022)  (739)  (365,834)  (26,716)  (71,627)  (1,693)  (935,976)  548,543   (387,433)
                                                                                 
Profit (loss) before income tax  54,064   55,050   6,697   (985)  (40,666)  23,121   (22,620)  (464)  22,808   849   24,127   (447,871)  854   (372,944)  (1,000,626)  603,989   84,750   (1,009,867)  754,630   (255,237)
Income tax  (1,814)  (1,895)  (424)  (365)  7,851   (18,256)  (245)  (178)  (9,224)  (245)  (6,761)  -   461   (22,409)  (43,126)  (263,082)  (27,894)  (387,606)  334,102   (53,504)
                                                                                 
Profit (loss) from continued operations  52,250   53,155   6,273   (1,350)  (32,815)  4,865   (22,865)  (642)  13,584   604   17,366   (447,871)  1,315   (395,353)  (1,043,752)  340,907   56,856   (1,397,473)  1,088,732   (308,741)
                                                                                 
Loss from discontinued operations, see note 1(e)                                                                              (19,073)
                                                                                 
Net loss                                                                              (327,814)
                                                                                 
Total assets  105,950   46,085   25,118   16,958   763,092   246,106   745,510   22,481   379,964   6,226   7,439   427,439   120,038   2,593,838   2,045,825   7,635,623   334,555   15,522,247   (11,255,832)  4,266,415 
Total liability  35,148   26,536   19,733   7,302   353,184   129,689   15,413   11,647   222,324   3,102   2,684   148   29,751   556,172   1,160,102   2,796,342   131,051   5,500,328   (4,281,126)  1,219,202 
                                                                                 
Other segment information                                                                                
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   1,536,607   -   -   -   1,536,607   -   1,536,607 
Additions to mining concessions, development  costs, property, plant and equipment  28,899   3,452   759   2,729   51,289   14,995   255,673   27   4,236   39   -   -   3,719   1,017   -   -   -   366,834   -   366,834 

                                               Equity accounted investees          
  Ucchuchacua
(Operational mining
unit)		  Orcopampa
(Operational mining
unit)		  Julcani
(Operational mining
unit)		  Mallay
(Operational mining
unit)		  Breapampa
(Operational mining
unit)		  Colquijirca
(Operational mining
unit)		  La Zanja
(Operational mining
unit)		  Exploration and
development mining
projects		  Construction and
engineering		  Energy generation and
transmission		  Insurance brokerage  Rental of Mining
concessions		  Holding of
investment in
shares		  Industrial
activities		  Corporate  Minera Yanacocha
S.R.L.		  Sociedad Minera
Cerro Verde S.A.A.		  Compañía Minera
Coimolache S.A.		  Total operating
segments		  Adjustments and
eliminations		  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Year 2014                                                                                    
Results:                                                                                    
Continuing operations                                                                                    
Operating income:                                                                                    
Net sales  202,543   264,049   49,767   42,974   108,468   210,002   185,286   -   66,853   38,906   10,608   -   -   13,976   187,503   1,165,299   1,467,097   192,369   4,205,700   (3,066,787)  1,138,913 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   36,867   -   -   -   -   -   -   36,867   -   36,867 
Other operating income  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   20,705   -   -   20,705   (20,705)  - 
Total operating income  202,543   264,049   49,767   42,974   108,468   210,002   185,286   -   66,853   38,906   10,608   36,867   -   13,976   187,503   1,186,004   1,467,097   192,369   4,263,272   (3,087,492)  1,175,780 
Operating costs                                                                                    
Cost of sales, excluding depreciation and amortization  (149,251)  (113,467)  (26,364)  (22,583)  (37,897)  (122,995)  (84,381)  -   (68,964)  (19,252)  -   -   -   (12,703)  (186,650)  (910,705)  (797,481)  (100,649)  (2,653,342)  2,038,803   (614,539)
Exploration in operating units  (26,633)  (51,814)  (10,981)  (7,807)  (495)  -   (120)  -   -   -   -   -   -   -   (2)  -   -   -   (97,852)  -   (97,852)
Depreciation and amortization  (15,293)  (30,560)  (11,769)  (24,742)  (35,699)  (26,974)  (72,847)  -   (717)  (8,683)  -   (74)  (231)  (7,224)  (868)  -   -   -   (235,681)  26,983   (208,698)
Mining royalties  (1,893)  (24,113)  (466)  (401)  (1,012)  -   (555)  -   -   -   -   -   -   -   -   -   -   -   (28,440)  -   (28,440)
Other operating costs  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   (22,422)  -   -   (22,422)  22,422   - 
Total operating costs  (193,070)  (219,954)  (49,580)  (55,533)  (75,103)  (149,969)  (157,903)  -   (69,681)  (27,935)  -   (74)  (231)  (19,927)  (187,520)  (933,127)  (797,481)  (100,649)  (3,037,737)  2,088,208   (949,529)
Gross profit (loss)  9,473   44,095   187   (12,559)  33,365   60,033   27,383   -   (2,828)  10,971   10,608   36,793   (231)  (5,951)  (17)  252,877   669,616   91,720   1,225,535   (999,284)  226,251 
Operating expenses                                                                                    
Administrative expenses  (12,351)  (16,077)  (3,289)  (2,719)  (7,349)  (17,634)  (5,920)  (3,184)  (16,135)  (4,354)  (8,901)  (113)  (208)  (376)  (7,828)  (38,262)  -   (2,073)  (146,773)  45,671   (101,102)
Exploration in non-operating areas  -   -   -   -   -   (5,085)  -   (14,399)  -   -   -   -   -   -   (3,540)  -   -   -   (23,024)  (26,983)  (50,007)
Selling expenses  (3,416)  (955)  (1,067)  (1,755)  (393)  (7,103)  (1,441)  -   -   (323)  -   -   -   (147)  (5)  (4,458)  (54,210)  (1,078)  (76,351)  59,746   (16,605)
Other, net  1,338   657   (4,661)  921   (110)  226   (2,833)  569   8,070   7,718   109   (1)  651   (77)  3,930   (77,781)  (3,629)  929   (63,974)  67,033   3,059 
Impairment loss  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   (541,141)  -   -   (541,141)  541,141   - 
Total operating expenses, net  (14,429)  (16,375)  (9,017)  (3,553)  (7,852)  (29,596)  (10,194)  (17,014)  (8,065)  3,041   (8,792)  (114)  443   (600)  (7,443)  (661,642)  (57,839)  (2,222)  (851,263)  686,608   (164,655)
Operating profit (loss)  (4,956)  27,720   (8,830)  (16,112)  25,513   30,437   17,189   (17,014)  (10,893)  14,012   1,816   36,679   212   (6,551)  (7,460)  (408,765)  611,777   89,498   374,272   (312,676)  61,596 
Other income (expense), net                                                                                    
Share in the results of associates under equity method, see note 10  -   -   -   -   -   -   -   -   (6,987)  (2,186)  -   -   (160,379)  -   (91,962)  -   -   -   (261,514)  186,914   (74,600)
Finance costs  (294)  (170)  (153)  (67)  (43)  (4)  (1,728)  (140)  (1,223)  (8,838)  (15)  (3)  (2)  (722)  (760)  (23,504)  (369)  (583)  (38,618)  27,300   (11,318)
Net gain (loss) from currency exchange difference  354   332   124   66   5   (1,031)  (1,525)  (446)  (757)  (1,021)  8   (50)  (4)  (1,107)  (3,400)  1,142   2,284   (1,465)  (6,491)  (1,961)  (8,452)
Gain on business combination  -   -   -   -   -   -   -   -   -   -   -   -   -   -   59,852   -   -   -   59,852   -   59,852 
Finance income  10   13   4       -   (278)  -   -   -   -   8   -   -   -   3,951   298   2,443   47   6,496   1,912   8,408 
Total other income (expense), net  70   175   (25)  (1)  (38)  (1,313)  (3,253)  (586)  (8,967)  (12,045)  1   (53)  (160,385)  (1,829)  (32,319)  (22,064)  4,358   (2,001)  (240,275)  214,165   (26,110)
Profit (loss) before income tax  (4,886)  27,895   (8,855)  (16,113)  25,475   29,124   13,936   (17,600)  (19,860)  1,967   1,817   36,626   (160,173)  (8,380)  (39,779)  (430,829)  616,135   87,497   133,997   (98,511)  35,486 
Income tax  -   -   -   -   -   (21,621)  (12,388)  -   567   (4,835)  (368)  (10,996)  (48)  978   (17,301)  30,491   (238,529)  (36,089)  (310,139)  244,127   (66,012)
Profit (loss) from continued operations  (4,886)  27,895   (8,855)  (16,113)  25,475   7,503   1,548   (17,600)  (19,293)  (2,868)  1,449   25,630   (160,221)  (7,402)  (57,080)  (400,338)  377,606   51,408   (176,142)  145,616   (30,526)
                                                                                     
Discontinued operations                                                                                    
Loss fromdiscontinued  operations, see note 1(e)                                                                                  (31,114)
Net loss                                                                                  (61,640)
                                                                                     
Total assets  -   -   -   -   -   765,143   278,836   50,370   87,546   403,660   6,265   14,727   1,208,772   130,803   3,778,132   3,483,169   5,771,984   205,059   16,184,466   (11,512,192)  4,672,274 
Total liability  -   -   -   -   -   311,001   96,147   5,726   95,466   225,409   3,109   5,727   166   29,472   294,027   803,392   1,306,894   51,720   3,228,256   (2,318,107)  910,149 
                                                                                     
Other segment information                                                                                    
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   -   3,519   1,185,971   982,206   52,685   2,224,381   -   2,224,381 
Additions to mining concessions, development costs, property, plant and equipment  12,668   8,963   699   963   3,544   105,477   29,113   83,723   7,516   17,948   227   -   -   -   15,081   -   -   -   285,922   -   285,922 
F-92

 

Notes to the consolidated financial statements(continued)

 

 Ucchuchacua
(Operational
mining unit)		 Orcopampa
(Operational mining
unit)		 Julcani
(Operational mining
unit)		 Mallay
(Operational mining
unit)		 Breapampa
(Operational mining
unit)		 Colquijirca
(Operational mining
unit)		 La Zanja
(Operational mining
unit)		 Exploration and
development mining
projects		 Construction and
engineering		 Energy generation and
transmission		 Insurance brokerage Rental of mining
concessions		 Holding of investment
in shares		 Corporate Minera Yanacocha
S.R.L.		 Sociedad Minera
Cerro Verde S.A.A.		 Compañía Minera
Coimolache S.A.		 Total operating
segments		 Adjustments and
eliminations		 Total                                            Equity accounted investees          
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000)  Ucchuchacua
(Operation)		 Orcopampa
(Operation)		 Julcani
(Operation)		 Mallay
(Operation)		 Colquijirca
(Operation)		 La Zanja
(Operation)		 Exploration
and
development
mining
projects		 Construction
and
engineering		 Energy
generation
and
transmission		 Insurance
brokerage		 Rental of
mining
concessions		 Holding of
investment in
shares		 Industrial
activities		 Corporate Minera
Yanacocha
S.R.L.		 Sociedad
Minera Cerro
Verde S.A.A		 Compañía
Minera
Coimolache
S.A.		 Total
operating
segments		 Adjustments and
eliminations		 Total 
Year 2013                                                                                
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
                                         
Year 2015                                                                                
Results:                                                                                                                                                                
Continuing operations                                                                                                                                                                
Operating income:                                                                                
Net sales  205,218   324,343   45,995   44,896   119,871   187,769   193,298   1,504   96,523   33,809   8,455   -   -   206,240   1,406,825   1,811,488   209,636   4,895,870   (3,680,449)  1,215,421 
Operating income                                                                                
Net sale of goods  166,055   254,118   50,254   32,018   171,294   161,007   -   -   -   -   -   -   3,649   168,667   1,031,174   1,115,617   177,347   3,331,200   (2,484,931)  846,269 
Net sale of services  -   -   -   -   -   -   -   48,758   48,339   11,929   -   -   13,399   -   10,625   -   -   133,050   (82,211)  50,839 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   44,185   -   -   -   -   -   44,185       44,185   -   -   -   -   -   -   -   -   -   -   32,414   -   -   -   -   -   -   32,414   -   32,414 
Other operating income  -   -   -   -   -   -   -   -   -   -   -   -   -   -   29,181   -   -   29,181   (29,181)  - 
                                                                                
Total operating income  205,218   324,343   45,995   44,896   119,871   187,769   193,298   1,504   96,523   33,809   8,455   44,185   -   206,240   1,436,006   1,811,488   209,636   4,969,236   (3,709,630)  1,259,606   166,055   254,118   50,254   32,018   171,294   161,007   -   48,758   48,339   11,929   32,414   -   17,048   168,667   1,041,799   1,115,617   177,347   3,496,664   (2,567,142)  929,522 
Operating costs                                                                                                                                                                
Cost of sales, excluding depreciation and amortization  (113,631)  (128,184)  (17,585)  (24,282)  (49,535)  (119,969)  (85,980)  (555)  (91,804)  (25,412)  -   -   -   (208,968)  (983,238)  (795,064)  (124,325)  (2,768,532)  2,141,247   (627,285)
Cost of sales of goods  (126,728)  (112,707)  (26,725)  (20,709)  (158,804)  (106,750)  -   -   -   -   -   -   -   (169,236)  (751,736)  (862,004)  (104,549)  (2,439,948)  1,926,458   (513,490)
Cost of services  -   -   -   -   -   -   -   (48,544)  (20,767)  -   -   -   (16,820)  -   (2,524)  -   -   (88,655)  29,043   (59,612)
Exploration in operating units  (25,311)  (57,871)  (7,054)  (9,342)  (2,974)  -   (1,236)  (2,441)  -   -   -   -   -   -   -   -   -   (106,229)  4,316   (101,913)  (27,784)  (41,705)  (12,699)  (7,539)  -   (41)  -   -   -   -   -   -   -   -   -   -   -   (89,768)  69   (89,699)
Depreciation and amortization  (10,844)  (28,964)  (4,586)  (20,348)  (25,501)  (35,644)  (27,930)  (9)  (264)  (1,751)  -   (112)  (1,434)  (524)  -   -   -   (157,911)  (1,229)  (159,140)  (15,767)  (17,313)  (11,349)  (15,439)  (45,752)  (104,984)  (17)  (850)  (10,260)  -   (54)  (226)  (9,545)  (1,027)  -   -   -   (232,583)  -   (232,583)
Mining royalties  (1,675)  (26,448)  (405)  (365)  (968)  -   (431)  (110)  -   -   -   -   -   -   -   -   -   (30,402)  -   (30,402)  (1,142)  (23,877)  (337)  (234)  -   (1,597)  -   -   -   -   -   -   -   (1)  -   -   -   (27,188)  -   (27,188)
Other operating costs  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (28,672)  -   -   (28,672)  28,672   - 
                                                                                
Total operating costs  (151,461)  (241,467)  (29,630)  (54,337)  (78,978)  (155,613)  (115,577)  (3,115)  (92,068)  (27,163)  -   (112)  (1,434)  (209,492)  (1,011,910)  (795,064)  (124,325)  (3,091,746)  2,173,006   (918,740)  (171,421)  (195,602)  (51,110)  (43,921)  (204,556)  (213,372)  (17)  (49,394)  (31,027)  -   (54)  (226)  (26,365)  (170,264)  (754,260)  (862,004)  (104,549)  (2,878,142)  1,955,570   (922,572)
                                                                                
Gross profit (loss)  53,757   82,876   16,365   (9,441)  40,893   32,156   77,721   (1,611)  4,455   6,646   8,455   44,073   (1,434)  (3,252)  424,096   1,016,424   85,311   1,877,490   (1,536,624)  340,866   (5,366)  58,516   (856)  (11,903)  (33,262)  (52,365)  (17)  (636)  17,312   11,929   32,360   (226)  (9,317)  (1,597)  287,539   253,613   72,798   618,522   (611,572)  6,950 
Operating expenses                                                                                
                                                                                
Operating expenses, net                                                                                
Administrative expenses  (11,818)  (20,381)  (1,949)  (2,607)  (7,128)  (15,637)  (2,475)  (2,330)  (8,282)  (2,571)  (7,801)  (96)  (5,916)  13,342   (67,064)  -   (1,843)  (144,556)  69,438   (75,118)  (10,739)  (16,698)  (3,623)  (2,080)  (19,181)  (2,251)  (1,444)  (7,859)  (3,422)  (11,296)  (106)  (209)  (654)  (11,370)  (26,325)  -   (2,185)  (119,442)  35,070   (84,372)
Exploration in non-operating areas  -   -   -   -   -   (5,220)  (6,563)  (2,444)  -   -   -   -   -   (21,928)  -   -   -   (36,155)  3,350   (32,805)  -   -   -   -   (2,366)  (8,954)  (15,892)  -   -   -   -   -   -   (5,685)  -   -   -   (32,897)  2,287   (30,610)
Selling expenses  (3,346)  (3)  (755)  (1,423)  -   (8,763)  (528)  (10)  -   -   -   -   -   (13)  (3,740)  (68,448)  (522)  (87,551)  72,709   (14,842)  (3,552)  (851)  (1,055)  (1,424)  (9,056)  (1,207)  -   -   (806)  -   -   -   (1,411)  (3)  (3,534)  (56,215)  (1,111)  (80,225)  60,860   (19,365)
Excess of workers’ profit sharing  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   (704)  (704)
Impairment loss of long-lived assets  -   -   -   -   -   (3,803)  -   -   -   -   -   -   -   -   -   -   (672)  (4,475)  672   (3,803)
Other, net  2,592   1,822   209   108   (158)  (656)  (18)  1,910   422   50   94   (3)  657   (9,674)  (77,534)  147   779   (79,253)  77,099   (2,154)  1,836   (1,182)  (125)  (67)  (2,657)  (687)  (1,095)  7,417   (305)  (4)  -   793   98   6,329   (82,846)  (26,600)  765   (98,330)  92,595   (5,735)
Impairment loss  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (1,038,548)  -   -   (1,038,548)  1,038,548   - 
                                                                                
Total operating expenses, net  (12,572)  (18,562)  (2,495)  (3,922)  (7,286)  (30,276)  (9,584)  (2,874)  (7,860)  (2,521)  (7,707)  (99)  (5,259)  (18,273)  (1,186,886)  (68,301)  (1,586)  (1,386,063)  1,260,440   (125,623)  (12,455)  (18,731)  (4,803)  (3,571)  (33,260)  (16,902)  (18,431)  (442)  (4,533)  (11,300)  (106)  584   (1,967)  (10,729)  (112,705)  (82,815)  (3,203)  (335,369)  191,484   (143,885)
                                                                                
Operating profit (loss)  41,185   64,314   13,870   (13,363)  33,607   1,880   68,137   (4,485)  (3,405)  4,125   748   43,974   (6,693)  (21,525)  (762,790)  948,123   83,725   491,427   (276,184)  215,243   (17,821)  39,785   (5,659)  (15,474)  (66,522)  (69,267)  (18,448)  (1,078)  12,779   629   32,254   358   (11,284)  (12,326)  174,834   170,798   69,595   283,153   (420,088)  (136,935)
Other income (expense), net                                                                                
Share in the results of associates under equity method , see note 10  -   -   -   -   -   -   -   -   (1,511)  (3,140)  -   -   (238,810)  (104,219)  -   -   -   (347,680)  233,535   (114,145)
Other income (expense),net                                                                                
Share in the results of associates under equity method  -   -   -   -   -   -   -   6,561   478   2   -   (187,269)  -   (268,463)  -   -   -   (448,691)  275,316   (173,375)
Finance costs  (561)  (832)  (477)  (544)  (163)  (47)  (1,301)  (344)  (232)  (1,992)  (96)  (5)  (3)  (3,731)  (18,745)  (1,843)  (2,385)  (33,301)  23,405   (9,896)  (195)  (235)  (152)  (108)  (10,096)  (3,684)  (215)  (1,413)  (8,817)  (21)  (4)  (1)  (842)  (4,043)  -22,734   (16,010)  (51)  (68,621)  41,049   (27,572)
Net gain (loss) from currency exchange difference  325   92   63   64   (64)  (4,544)  (777)  81   (111)  (1,355)  119   (66)  (17)  (985)  2,065   (1,858)  (524)  (7,492)  300   (7,192)  539   461   378   75   (3,832)  (1,973)  (1,797)  (1,393)  (1,586)  (165)  45   4   (2,162)  (2,287)  (251)  (75,770)  (1,300)  (91,014)  77,321   (13,693)
Finance income  18   29   -   -   -   -   -   1   6   -   7   3   -   4,693   720   2,178   335   7,990   (1,369)  6,621   5   5   2   -   154   16   -   182   23   13   -   -   -   10,785   673   512   23   12,393   (1,367)  11,026 
                                                                                
Total other income (expense), net  (218)  (711)  (414)  (480)  (227)  (4,591)  (2,078)  (262)  (1,848)  (6,487)  30   (68)  (238,830)  (104,242)  (15,960)  (1,523)  (2,574)  (380,483)  255,871   (124,612)  349   231   228   (33)  (13,774)  (5,641)  (2,012)  3,937   (9,902)  (171)  41   (187,266)  (3,004)  (264,008)  (22,312)  (91,268)  (1,328)  (595,933)  392,319   (203,614)
                                                                                
Profit (loss) before income tax  40,967   63,603   13,456   (13,843)  33,380   (2,711)  66,059   (4,747)  (5,253)  (2,362)  778   43,906   (245,523)  (125,767)  (778,750)  946,600   81,151   110,944   (20,313)  90,631   (17,472)  40,016   (5,431)  (15,507)  (80,296)  (74,908)  (20,460)  2,859   2,877   458   32,295   (186,908)  (14,288)  (276,334)  152,522   79,530   68,267   (312,780)  (27,769)  (340,549)
Income tax  -   -   -   -   -   (5,003)  (29,211)  (17)  (72)  (3,228)  (269)  (13,151)  (67)  (35,464)  203,471   (333,338)  (34,156)  (250,505)  164,023   (86,482)  (518)  (602)  (140)  (78)  4,109   5,702   -   (4,386)  (3,887)  (299)  (9,186)  (87)  584   (5,975)  (602,717)  (46,246)  (29,861)  (693,587)  678,824   (14,763)
                                                                                
Profit (loss) from continued operations  40,967   63,603   13,456   (13,843)  33,380   (7,714)  36,848   (4,764)  (5,325)  (5,590)  509   30,755   (245,590)  (161,231)  (575,279)  613,262   46,995   (139,561)  143,710   4,149   (17,990)  39,414   (5,571)  (15,585)  (76,187)  (69,206)  (20,460)  (1,527)  (1,010)  159   23,109   (186,995)  (13,704)  (282,309)  (450,195)  33,284   38,406   (1,006,367)  651,055   (355,312)
                                                                                                                                                                
Discontinued operations                                                                                
Loss from discontinued operations, see note 1(e)                                                                              (83,885)                                                                              (20,233)
                                                                                
Net loss                                                                              (79,736)                                                                              (375,545)
                                                                                                                                                                
Total assets  -   -   -   -   -   687,187   270,911   37,366   54,372   430,588   5,801   9,008   1,387,667   3,603,191   3,754,692   4,828,201   203,749   15,272,733   (10,720,466)  4,552,267   -   -   -   -   739,941   220,331   53,214   31,463   393,318   5,979   9,397   997,835   118,012   3,677,307   2,965,430   7,852,692   238,175   17,303,094   (12,755,913)  4,547,181 
Total liability  -   -   -   -   -   243,749   89,767   9,174   39,744   269,466   2,774   3,439   137   272,832   674,642   740,717   69,542   2,415,983   (1,688,137)  727,846   -   -   -   -   364,455   106,846   3,514   29,599   235,695   3,457   3,508   2,831   31,479   516,241   736,605   3,354,318   63,119   5,451,667   (4,293,722)  1,157,945 
                                                                                                                                                                
Other segment information                                                                                                                                                                
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   41,931   1,360,689   904,315   43,367   2,350,302   -   2,350,302   -   -   -   -   -   -   -   -   -   -   -   -   -   3,519   989,130   988,725   62,609   2,043,983   -   2,043,983 
Additions to mining concessions, development costs, property, plant and equipment  16,038   11,023   8,927   16,643   16,233   216,477   89,308   89,313   12,307   48,532   126   -   -   42,699   -   -   -   567,626   -   567,626   22,669   3,151   4,795   3,234   55,073   62,968   57,173   527   6,159   85   -   1,205   2,140   66,918   -   -   -   286,097   -   286,097 

F-93

 

Notes to the consolidated financial statements(continued)

 

                                              Equity accountedinvestees                                                     Equity accounted investees          
 Uchucchacua
(Operational mining
unit)		 Orcopampa
(Operational mining
unit)		 Julcani
(Operational mining
unit)		 Mallay
(Operational mining
unit)		 Breapampa
(Operational mining
unit)		 Colquijirca
(Operational mining
unit)		 Cedimin
(Operational mining
unit)		 La Zanja
(Operational mining
unit)		 Exploration and
development mining
projects		 Construction and
engineering		 Energy generation
and transmission		 Insurance brokerage Rental of mining
concessions		 Holding of
investment in shares		 Corporate Minera Yanacocha
S.R.L.		 Sociedad Minera
Cerro Verde S.A.A.		 Compañía Minera
Coimolache S.A.		 Total operating
segments		 Adjustments and
eliminations		 Total  Ucchuchacua
(Operation)		 Orcopampa
(Operation)		 Julcani
(Operation)		 Mallay
(Operation)		 Colquijirca
(Operation)		 La Zanja
(Operation)		 Exploration
and
development
mining
projects		 Construction
and
engineering		 Energy
generation
and
transmission		 Insurance
brokerage		 Rental of
mining
concessions		 Holding of
investment in
shares		 Industrial
activities		 Corporate Minera
Yanacocha
S.R.L.		 
 Sociedad
Minera Cerro
Verde S.A.A		 Compañía
Minera
Coimolache
S.A.		 Total
operating
segments		 Ucchuchacua
(Operation)		 Orcopampa
(Operation)		 
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) US$(000) 
Year 2012                                                                                    
                                         
Year 2014                                                                                
Results:                                                                                                                                                                    
Continuing operations                                                                                                                                                                    
Operating income                                                                                                                                                                    
Net sales  306,351   458,164   73,357   28,176   -   268,480   31,751   216,765   4,501   67,745   35,193   7,658   -   -   237,150   2,146,641   2,127,023   262,597   6,271,552   (4,848,709)  1,422,843 
Net sale of goods  202,543   264,049   49,767   42,974   210,002   185,286   -   -   -   -   -   -   483   187,503   1,165,299   1,467,097   192,369   3,967,372   (3,008,086)  959,286 
Net sale of services  -   -   -   -   -   -   -   66,853   38,906   10,608   -   -   13,493   -   20,705   -   -   150,565   (79,406)  71,159 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   -   67,178   -   -   -   -   -   67,178   -   67,178   -   -   -   -   -   -   -   -   -   -   36,867   -   -   -   -   -   -   36,867   -   36,867 
Other operating income  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   22,861   -   -   22,861   (22,861)  - 
                                                                                
Total operating income  306,351   458,164   73,357   28,176   -   268,480   31,751   216,765   4,501   67,745   35,193   7,658   67,178   -   237,150   2,169,502   2,127,023   262,597   6,361,591   (4,871,570)  1,490,021   202,543   264,049   49,767   42,974   210,002   185,286   -   66,853   38,906   10,608   36,867   -   13,976   187,503   1,186,004   1,467,097   192,369   4,154,804   (3,087,492)  1,067,312 
                                                                                
Operating costs                                                                                                                                                                    
Cost of sales, excluding depreciation and amortization  (120,125)  (115,124)  (23,857)  (21,238)  -   (158,006)  (17,617)  (93,327)  (1,675)  (54,191)  (26,050)  -   -   -   (237,410)  (832,116)  (765,789)  (113,866)  (2,580,391)  2,009,148   (571,243)
Cost of sales of goods  (149,251)  (113,467)  (26,364)  (22,583)  (122,995)  (84,381)  -   -   -   -   -   -   (2,769)  (186,650)  (910,705)  (797,481)  (100,649)  (2,517,295)  2,018,581   (498,714)
Cost of services  -   -   -   -   -   -   -   (68,964)  (19,252)  -   -   -   (9,934)  -   (22,422)  -   -   (120,572)  42,645   (77,927)
Exploration in operating units  (29,306)  (49,079)  (7,328)  (8,019)  (308)  -   (9,015)  (2,517)  (236)  -   -   -   -   -   (51)  -   -   -   (105,859)  2,644   (103,215)  (26,633)  (51,814)  (10,981)  (7,807)  -   (120)  -   -   -   -   -   -   -   (2)  -   -   -   (97,357)  -   (97,357)
Depreciation and amortization  (16,274)  (25,241)  (1,689)  (7,957)  -   (26,100)  (2,088)  (26,139)  (83)  (268)  (2,108)  -   (112)  (230)  (814)  -   -   -   (109,103)  (1,922)  (111,025)  (15,293)  (30,560)  (11,769)  (24,742)  (26,974)  (72,847)  -   (717)  (8,683)  -   (74)  (231)  (7,224)  (868)  -   -   -   (199,982)  26,983   (172,999)
Mining royalties  (726)  (35,963)  (173)  (79)  -   -   (308)  (133)  (329)  -   -   -   -   -       -   -   -   (37,711)  215   (37,496)  (1,893)  (24,113)  (466)  (401)  -   (555)  -   -   -   -   -   -   -   -   -   -   -   (27,428)  -   (27,428)
Other operating costs  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   (22,069)  -   -   (22,069)  22,069   - 
                                                                                
Total operating costs  (166,431)  (225,407)  (33,047)  (37,293)  (308)  (184,106)  (29,028)  (122,116)  (2,323)  (54,459)  (28,158)  -   (112)  (230)  (238,275)  (854,185)  (765,789)  (113,866)  (2,855,133)  2,032,154   (822,979)  (193,070)  (219,954)  (49,580)  (55,533)  (149,969)  (157,903)  -   (69,681)  (27,935)  -   (74)  (231)  (19,927)  (187,520)  (933,127)  (797,481)  (100,649)  (2,962,634)  2,088,209   (874,425)
                                                                                
Gross profit (loss)  139,920   232,757   40,310   (9,117)  (308)  84,374   2,723   94,649   2,178   13,286   7,035   7,658   67,066   (230)  (1,125)  1,315,317   1,361,234   148,731   3,506,458   (2,839,416)  667,042   9,473   44,095   187   (12,559)  60,033   27,383   -   (2,828)  10,971   10,608   36,793   (231)  (5,951)  (17)  252,877   669,616   91,720   1,192,170   (999,283)  192,887 
                                                                                                                                                                    
Operating expenses                                                                                    
Operating expenses, net                                                                                
Administrative expenses  (11,483)  (22,585)  (3,172)  (2,818)  -   (19,356)  (1,327)  (3,387)  (1,569)  (9,717)  (3,790)  (6,013)  (87)  (1,473)  (8,032)  (70,916)  -   (2,344)  (168,069)  73,951   (94,118)  (12,351)  (16,077)  (3,289)  (2,719)  (17,634)  (5,920)  (3,184)  (16,135)  (4,354)  (8,901)  (113)  (208)  (376)  (7,828)  (38,262)  -   (2,073)  (139,424)  45,671   (93,753)
Exploration in non-operating areas  -   -   -   (1,959)  (5,571)  -   (16,191)  (2,477)  (26,729)  -   -   -   -   -   (44,090)  -   -   -   (97,017)  1,526   (95,491)  -   -   -   -   (5,085)  -   (14,399)  -   -   -   -   -   -   (3,540)  -   -   -   (23,024)  (26,983)  (50,007)
Selling expenses  (5,029)  (17)  (637)  (932)  -   (8,243)  (73)  (447)  (29)  -   -   -   -   -   (84)  (4,498)  (78,674)  (701)  (99,364)  83,873   (15,491)  (3,416)  (955)  (1,067)  (1,755)  (7,103)  (1,441)  -   -   (323)  -   -   -   (147)  (5)  (4,458)  (54,210)  (1,078)  (75,958)  59,746   (16,212)
Excess of workers’ profit sharing  -   -   -   -   -   -   (43)  -   -   -   -   -   -   -   43   -   -   -   -   (2,164)  (2,164)
Impairment loss of long-lived assets  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (541,141)  -   -   (541,141)  541,141   - 
Other, net  1,383   2,790   (552)  50   (195)  (19,487)  599   (799)  2,912   (365)  7,699   71   -   600   19,965   (192,869)  (29,504)  361   (207,341)  226,513   19,172   1,338   657   (4,661)  921   226   (2,833)  569   8,070   7,718   109   (1)  651   (77)  3,930   (77,781)  (3,629)  929   (63,864)  67,033   3,169 
                                                                                
Total operating expenses, net  (15,129)  (19,812)  (4,361)  (5,659)  (5,766)  (47,086)  (17,035)  (7,110)  (25,415)  (10,082)  3,909   (5,942)  (87)  (873)  (32,198)  (268,283)  (108,178)  (2,684)  (571,791)  383,699   (188,092)  (14,429)  (16,375)  (9,017)  (3,553)  (29,596)  (10,194)  (17,014)  (8,065)  3,041   (8,792)  (114)  443   (600)  (7,443)  (661,642)  (57,839)  (2,222)  (843,411)  686,608   (156,803)
                                                                                
Operating profit (loss)  124,791   212,945   35,949   (14,776)  (6,074)  37,288   (14,312)  87,539   (23,237)  3,204   10,944   1,716   66,979   (1,103)  (33,323)  1,047,034   1,253,056   146,047   2,934,667   (2,455,717)  478,950   (4,956)  27,720   (8,830)  (16,112)  30,437   17,189   (17,014)  (10,893)  14,012   1,816   36,679   212   (6,551)  (7,460)  (408,765)  611,777   89,498   348,759   (312,675)  36,084 
                                                                                
Other income (expense), net                                                                                                                                                                    

Share in the results of associatesunder equity method, see note 10

  -   -   -   -   -   -   -   -   -   1,218   3,345   -   -   299,240   514,670   -   -   -   818,473   (339,486)  478,987 
Share in the results of associates under equity method  -   -   -   -   -   -   -   (6,987)  (2,186)  -   -   (160,379)  -   (91,962)  -   -   -   (261,514)  186,914   (74,600)
Finance costs  -   -   -   -   -   (1,667)  (285)  (1,464)  (47)  (104)  (210)  (8)  (7)  (6)  (4,636)  (13,135)  (6,951)  (5,463)  (33,983)  25,693   (8,290)  (294)  (170)  (153)  (67)  (4)  (1,728)  (140)  (1,223)  (8,838)  (15)  (3)  (2)  (722)  (760)  (23,504)  (369)  (583)  (38,575)  27,299   (11,276)
Net gain (loss) from currency exchange difference  (265)  (153)  (72)  (61)  56   569   (88)  288   73   (464)  433   (75)  848   125   641   (1,216)  3,149   1,305   5,093   (3,238)  1,855   354   332   124   66   (1,031)  (1,525)  (446)  (757)  (1,021)  8   (50)  (4)  (1,107)  (3,400)  1,142   2,284   (1,465)  (6,496)  (1,961)  (8,457)
Gain on business combination  -   -   -   -   -   -   -   -   -   -   -   -   -   59,852   -   -   -   59,852   -   59,852 
Finance income  -   -   -   -   -   249   -   -   -   -   -   31   -   51   8,305   1,019   1,886   353   11,894   (2,408)  9,486   10   13   4       (278)  -   -   -   -   8   -   -   -   3,951   298   2,443   47   6,496   1,912   8,408 
                                                                                
Total other income (expense), net  (265)  (153)  (72)  (61)  56   (849)  (373)  (1,176)  26   650   3,568   (52)  841   299,410   518,980   (13,332)  (1,916)  (3,805)  801,477   (319,439)  482,038   70   175   (25)  (1)  (1,313)  (3,253)  (586)  (8,967)  (12,045)  1   (53)  (160,385)  (1,829)  (32,319)  (22,064)  4,358   (2,001)  (240,237)  214,164   (26,073)
                                                                                
Profit (loss) before income tax  124,526   212,792   35,877   (14,837)  (6,018)  36,439   (14,685)  86,363   (23,211)  3,854   14,512   1,664   67,820   298,307   485,657   1,033,702   1,251,140   142,242   3,736,144   (2,775,156)  960,988                                                                                 
Income tax current  (4,886)  27,895   (8,855)  (16,113)  29,124   13,936   (17,600)  (19,860)  1,967   1,817   36,626   (160,173)  (8,380)  (39,779)  (430,829)  616,135   87,497   108,522   (98,511)  10,011 
Income tax deferred  -   -   -   -   (21,621)  (12,388)  -   567   (4,835)  (368)  (10,996)  (48)  978   (17,301)  30,491   (238,529)  (36,089)  (310,139)  244,318   (65,821)
                                                                                                                                                                    
Income tax  -   -   -   -   -   (11,990)  279   (28,530)  (71)  (1,052)  (20)  (470)  (20,560)  (27)  (78,875)  (385,827)  (454,556)  (50,995)  (1,032,694)  889,736   (142,958)
Profit (loss) from continued operations  124,526   212,792   35,877   (14,837)  (6,018)  24,449   (14,406)  57,833   (23,282)  2,802   14,492   1,194   47,260   298,280   406,782   647,875   796,584   91,247   2,703,450   (1,885,420)  818,030   (4,886)  27,895   (8,855)  (16,113)  7,503   1,548   (17,600)  (19,293)  (2,868)  1,449   25,630   (160,221)  (7,402)  (57,080)  (400,338)  377,606   51,408   (201,617)  145,807   (55,810)
                                                                                                                                                                    
Discontinued operations                                                                                                                                                                    
Loss from discontinued operations, see note 1(e)                                                                                  (57,510)                                                                              (5,830)
Net profit                                                                                  760,520 
                                                                                
Net loss                                                                              (61,640)
                                                                                                                                                                    
Total assets  -   -   -   -   -   561,267   23,548   218,145   7,523   34,678   353,650   6,235   15,343   1,599,615   4,034,424   4,512,803   4,078,553   251,427   15,697,211   (11,074,764)  4,622,447   -   -   -   -   765,143   278,836   50,370   87,546   403,660   6,265   14,727   1,208,772   130,803   3,778,132   3,483,169   5,771,984   205,059   16,184,466   (11,512,192)  4,672,274 
Total liability  -   -   -   -   -   178,199   35,777   69,610   12,533   14,423   134,135   3,682   6,078   150   294,962   857,248   604,331   139,766   2,350,894   (1,726,627)  624,267   -   -   -   -   311,001   96,147   5,726   95,466   225,409   3,109   5,727   166   29,472   294,027   803,392   1,306,894   51,720   3,228,256   (2,318,107)  910,149 
                                                                                
Other segment information                                                                                                                                                                    
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   -   35,109   1,614,244   788,170   32,365   2,469,888   -   2,469,888   -   -   -   -   -   -   -   -   -   -   -   -   -   3,519   1,185,971   982,206   52,685   2,224,381   -   2,224,381 
Additions to mining concessions, development costs, property, plant and equipment  18,379   19,047   3,549   18,687   37,004   148,759   3,012   75,742   6,976   483   74,283   538   -   -   83,776   -   -   -   490,235   -   490,235   12,668   8,963   699   963   105,477   29,113   83,723   7,516   17,948   227   -   -   -   15,081   -   -   -   282,378   -   282,378 
                                                                                    

F-94

 

Notes to the consolidated financial statements(continued)

 

Reconciliation of segment profit (loss)

The reconciliation of segment profit (loss) to the consolidated profit (loss) from continued operations follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Segments profit (loss)  (176,142)  (139,561)  2,703,450 
Elimination of profit of equity accounted investees, not consolidated (owned by third parties)  (108,861)  (195,573)  (1,060,320)
Elimination of intercompany sales  (242,022)  (252,500)  (312,448)
Elimination of intercompany cost of sales  229,968   238,620   297,377 
Elimination of equity pick up loss of the subsidiaries and associates of the Parent  company  261,514   347,680   (818,473)
Others  (5,017)  5,483   8,444 
Consolidated profit (loss) from continued operations  (30,526)  4,149   818,030 

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Segments loss  (1,397,473)  (1,006,367)  (201,617)
Elimination of profit of equity accounted investees, not consolidated (owned by third parties)  645,989   203,912   (108,861)
Elimination of intercompany sales  (251,502)  (232,380)  (242,022)
Elimination of intercompany cost of sales  250,157   228,914   229,968 
Elimination of share in the results of subsidiaries and associates  448,507   448,691   261,514 
Others  (4,419)  1,918   5,208 
             
Consolidated profit (loss) from continued operations  (308,741)  (355,312)  (55,810)

 

Reconciliation of segment assets

The reconciliation of segment assets to the consolidated assets follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Segments assets  16,184,466   15,272,733   15,697,211 
Elimination of assets of equity accounted investees, notconsolidated  (owned by third parties)  (6,727,205)  (6,108,111)  (5,973,391)
Elimination of equity pick up investments of the subsidiaries and associates of the Parent  company  (4,615,191)  (4,398,677)  (5,004,322)
Elimination of intercompany receivables  (156,456)  (203,236)  (125,282)
Others  (13,340)  (10,442)  28,231 
Consolidated assets  (4,672,274)  4,552,267   4,622,447 

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Segments assets  15,522,247   17,303,094   16,184,466 
Elimination of assets of equity accounted investees, not consolidated  (owned by third parties)  (10,016,003)  (8,128,519)  (6,727,205)
Elimination of equity pick up investments of the subsidiaries and associates of the Parent  company  (1,047,758)  (4,486,717)  (4,615,191)
Elimination of intercompany receivables  (192,958)  (138,703)  (156,456)
Others  887   (1,974)  (13,340)
             
Consolidated assets  4,266,415   4,547,181   4,672,274 

 

Reconciliation of segment liabilities

The reconciliation of segment liabilities to the consolidated liabilities follows:

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Segments liabilities  3,228,256   2,415,983   2,350,894 
Liabilities of equity accounted investees, not consolidated  (2,162,006)  (1,484,901)  (1,601,345)
Elimination of intercompany payables  (156,456)  (203,236)  (125,282)
Others  355   -   - 
Consolidated liabilities  910,149   727,846   624,267 

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Segments liabilities  5,500,328   5,451,667   3,228,256 
Elimination of liabilities of equity accounted investees, not consolidated  (4,087,495)  (4,154,042)  (2,162,006)
Elimination of intercompany payables  (192,958)  (138,703)  (156,456)
Others  (673)  (977)  355 
             
Consolidated liabilities  1,219,202   1,157,945   910,149 

 

F-88

 F-95

 

Notes to the consolidated financial statements(continued)

 

30.32.Derivative financial instruments

(a)The volatility of copper prices during the last two year has caused the management of the subsidiary El Brocal to enter into future contracts. These contracts, which have been negotiated since August 8, 2013,Hedge derivative financial instruments -

The volatility of copper prices during the last years has caused the management of the subsidiary El Brocal to enter into future contracts which are recorded under cash flow hedge accounting, see note 2.4(v).These contracts managed during the third quarter of 2016 are intended to reduce the volatility of the cash flows attributable to the fluctuations in the cooper price, according to the risk strategy approved by the Board of Directors of this subsidiary.

The contracts seek to eliminate the volatility of the coppercash flows attributable to the fluctuations in the cooper price, from September 2013 to December 2014, according to the risk strategy approved by the Board of Directors of this subsidiary. These contracts are intended to reduce the volatility of the cash flows attributable to the fluctuations in the cooper price from October 2016 to March 2017, in accordance with existing copper concentrate sales commitments, of cooper concentrate, which are related to 2550 percent of the annual production of such metal (50 percent from 2014).copper.

 

As of December 31, 2014,2016, the fair value of futuresopen forward contracts amountedamounts to an asset of US$3,688,000 (aa liability of US$1,093,000 as3,863,000. As of December 31, 2013). The balancing entry, net2015, the fair value of the deferred income tax, amountedopen forward contracts amounts to a positive balanceliability of US$2,485,00010,643,000 and is presented as other reservesthe effectiveness of equity in the consolidated statementsthese contracts has not been observed since no significant element of changes in equity.ineffectiveness has appeared.

 

(b)Embedded derivative for the change in prices in the interim trade settlementsof commercial contracts -

The Group’s sales of concentrates are based on commercial contracts, under which a provisional sales value is determined based on future quotations (forward). The adjustment to sales is considered an embedded derivative, which is required to be separated from the host contract. Commercial contracts are linked to market prices (London Metal Exchange) at the dates of the expected settlements of the open positions as of December 31, 20142016 and 2013.2015. The embedded derivative does not qualify for hedge accounting; therefore, changes in the fair value are recorded as an adjustment to net sales.

 

Embedded derivatives held by Buenaventura and El Brocalthe Group as of December 31, 20142016 are:

 

      Quotations   
Metal Quantity Period of quotations
2015		 Provisional Future Fair value, net 
      US$ US$ US$(000) 
             
Gold 7 SMT January 1,200.43 1,206.70  - 
Silver 2,361,515 OZ January – April 15.62 – 19.03 16.35 – 16.38  (631)
Lead 6,975 DMT January – April 1,869.30 – 2,178.60 1,840.00 – 1,851.88  (628)
Zinc 13,521 DMT January – March 2,171.71 – 2,380.00 2,122.50 – 2,129.25  (296)
Copper 67,815 DMT January – June 6,408.10 – 6,907.73 6,118.00 – 6,186.00  (7,558)
  36,442 OZ January – February 1,194.00 – 1,227.00 1,201.84 – 1,216.45  41 
Total liability, net          (9,072)
Quotations
MetalQuantityPeriod of
quotations 2017		ProvisionalFutureMetal
US$US$US$(000)
Copper29,121 DMTJanuary – April2,985.28 -5,824.005,535.76 – 5,642.25397
Gold15,370 DMTJanuary – February1,139.75 – 1,145.901,151.00 – 1,179.40481
Silver17,124 OzJanuary – April16.32 – 19.3516.42 – 16.66(1,825)
Lead23,636 DMTJanuary – April1,871.58 – 2,380.602,017.00 – 2,080.00(801)
Zinc29,407 DMTJanuary – March2,291.08 – 2,732.102,578.00 – 2,612.50(172)
Other15,082 Oz396
Total liability, net(1,524)

F-96

Notes to the consolidated financial statements(continued)

 

      Quotations   
Metal Quantity Period of quotations
2014		 Provisional Future Fair value, net 
      US$ US$ US$(000) 
            
Gold 27,897 OZ January 1,211.03 – 1,231.75 1,276.16  861 
Silver 2,223.443 OZ January – September 19.40 – 22.61 20.23 – 22.56  (354)
Gold 10 DMT January 1,227.00 – 1,345.99 1,240.50  (1)
Copper 26,651 DMT January – July 7,051 – 7,229 7,229.00 – 7,371.00  1,075 
Zinc 1,351 DMT March – April 1,905.30 – 1,968.34 2,037.00 – 2,040.63  125 
Lead 2,561 OZ January – September 2,053.65 – 2,135.33 2,088.40 – 2,178.32  151 
Total asset, net          1,857 

Embedded derivatives held by the Group as of December 31, 2015 are:

 

Quotations
MetalQuantityPeriod of
quotations 2016		ProvisionalFutureFair value,
net
US$US$US$(000)
Copper41,359 DMTJanuary - April4,629.00 – 5,223.054,525.50 - 4,796.00(1,549)
Gold16,145 OZJanuary961.79 – 1,070.101,086.65 – 1,109.09(633)
Silver3,215,862 OZJanuary - March12.66 – 15.7114.30 – 14.31(244)
Lead16,990 DMTJanuary – April1,641.40 – 1,732.131,658.00 – 1,789.00408
Zinc12,329 DMTJanuary – March1,510.41 – 1,672.501,495.75 – 1,609.00316
Gold342 OZJanuary - April1,066.26 – 1,124.531,109.05 – 1,109.278
Total asset, net(1,694)

31.33.Financial –- risk management objectives and policies

The Group’s principal financial liabilities, other than derivatives, comprise of trade accounts and other payables, and financial obligations. The main purpose of these financial instruments is to finance the Group’s operations. The Group’s principal financial assets include cash and cash equivalents and trade and other receivables that derive directly from its operations.

 

The Group is exposed to market risk, credit risk and liquidity risk. The Group’s Management oversees the management of these risks. It is supported by a committee that advises on financial risks. This committee provides assurance to management that the Group's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives. All derivative activities for risk management purpose are carried out by internal specialists that have the appropriate skills, experience and supervision.

 

There were no changes in the objectives, policies or processes during the years ended December 31, 20142016, 2015 and 2013.2014.

 

The Board of Directors reviews and agrees policies for managing each of these risks, which are described below:

 

(a)Market risk -

Market risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate because of changes in market prices. Market risks that apply to the Group comprise three types of risk: exchange rate risk, commodity risk and interest rate risk. Financial instruments affected by market risks include time deposits, financial obligations, embedded derivatives and derivative financial instruments.

 

The sensitivity analyses in this section relate to the positions as of December 31, 2014, 20132016, 2015 and 2012,2014, and have been prepared considering that the proportion of financial instruments in foreign currency are constant.

 

F-97

Notes to the consolidated financial statements (continued)

(a.1)Exchange rate risk

The exchange rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange relates primarily to the Group´s operating activities in Nuevos Soles. The Group mitigates the effect of exposure to exchange-rate risk by carrying out almost all of its transactions in its functional currency.

On the other hand, the Group has contracted hedges exchange rate to mitigate this risk on their loans obtained in soles. Excluding loans in soles, Management hasmaintains smaller amounts in Nuevos Soles in order to cover its needs (taxes and compensation) in this currency.

Notes to the consolidated financial statements(continued)currency (primarily taxes).

 

A table showing the effect on results of a reasonable change in foreign-currency exchange rates is presented below, with all other variables kept constant:

 

 Exchange-rate
increase/decrease		 Effect on
loss before income tax		  Exchange-rate
increase/decrease		 Effect on loss before
income tax		 
   US$(000)    US$(000) 
2016        
Exchange rate  +10%  (924)
Exchange rate  -10%  926 
        
2015        
Exchange rate  +10%  6,233 
Exchange rate  -10%  (7,618)
             
2014                
Exchange rate  +10%  5,950   +10%  5,950 
Exchange rate  -10%  (7,271)  -10%  (7,271)
        
2013        
Exchange rate  +10%  20,989 
Exchange rate  -10%  (25,225)
        
2012        
Exchange rate  +10%  8,854 
Exchange rate  -10%  (10,563)

 

(a.2)Commodity price risk

The Group is affected by the price volatility of the commodities. The price of mineral sold by the Group has fluctuated historically and is affected by numerous factors beyond its control. The Group manages its commodity price risk primarily through the use of sales commitments in customer contracts and hedge contracts for the metals sold by the subsidiary El Brocal.

 

The subsidiary El Brocal entered into derivative contracts that qualified as cash flow hedges, with the intention of covering the risk resulting from the fall in the prices of the metals. These derivative contracts are recorded as assets or liabilities in the statements of financial position and are stated at fair value. To the extent that these hedges were effective in offsetting future cash flows from the sale of the related production, changes in fair value are deferred in an equity account. The deferred amounts were reclassified to the appropriate sales when production was sold.

 

(a.3)Interest rate risk -

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes’ in market interest rates relates to the Groups’ long-term financial obligations with floating interest rates.

 

F-98

Notes to the consolidated financial statements (continued)

A table showing the effect in profit or loss of the variations of interest rates:

 

  Increase / decrease of
Libor rate		  Effect on
results		 
  (percentage rates)  US$(000) 
       
2014        
Interest rates  +10   110 
Interest rates  -10   (110)
         
2013        
Interest rates  +10   58 
Interest rates  -10   (58)
         
2012        
Interest rates  +10   57 
Interest rates  -10   (57)

Notes to the consolidated financial statements(continued)

  Increase/decrease
of Libor rate		  Effect on results 
  (percentage rates)  US$(000) 
2016        
Interest rate  +10   333 
Interest rate  -10   (333)
         
2015        
Interest rate  +10   294 
Interest rate  -10   (294)
         
2014        
Interest rate  +10   110 
Interest rate  -10   (110)

 

(b)Credit risk-risk -

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivable) and from its financing activities, including deposits with banks and other financial instruments.

 

The Group invests the excess cash in financial leading institutions, sets conservative credit policies and constantly evaluates the market conditions in which it operates.

 

Trade accounts receivable are denominated in U.S. dollars. The Group’s sales are made to domestic and foreign customers. See concentration of spot sales in note 20(b)21(b). An impairment analysis is performed on an individual basis.

 

Credit risk is limited to the carrying amount of the financial assets to the date of consolidated statements of financial position which is composed by cash and cash equivalents, trade and other receivables and derivative financial instruments.

 

(c)Liquidity risk -

Prudent management of liquidity risk implies maintaining sufficient cash and cash equivalents and the possibility of committing or having financing committed through an adequate number of credit sources. The Group maintains suitable levels of cash and cash equivalents and has sufficient credit capacity to get access to lines of credit in leading financial entities.

 

The Group continually monitors its liquidity risk based on cash flow projections.

F-99

Notes to the consolidated financial statements (continued)

An analysis of the Group’s financial liabilities classified according to their aging is presented below, based on undiscounted contractual payments:

 

  Less than 1
year		  Between 1 and
2 years		  Between 2 and
5 years		  More than 5
years		  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
As of December 31, 2014                    
Trade and other payables  253,177   -   -   -   253,177 
Financial obligation (principal and interest)  21,251   21,781   71,652   24,297   138,981 
                     
   274,428   21,781   71,652   24,297   392,158 
                     
As of December 31, 2013                    
Trade and other payables  283,704   -   -   -   283,704 
Financial obligation (principal and interest)  16,284   45,968   141,844   53,173   257,269 
                     
Total  299,988   45,968   141,844   53,173   540,973 
  Less than
1 year		  Between 1
and 2 years		  Between 2
and 5 years		  More than 5
years		  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
As of December 31,2016 -                    
Bank loans  55,000   -   -   -   55,000 
Trade and other payables  253,062   -   -   15,982   269,044 
Derivative financial instruments  3,863   -   -   -   3,863 
Embedded derivative for sale of concentrates  1,524   -   -   -   1,524 
Financial obligation  70,420 �� 113,070   503,029   -   686,519 
Contingent consideration liability  -   3,305   6,603   32,840   42,748 
                     
Total  383,869   116,375   509,632   48,822   1,058,698 
                     
As of December 31, 2015 -                    
Bank loans  298,984   -   -   -   298,984 
Trade and other payables  235,691   -   -   15,057   250,748 
Derivative financial instruments  10,643   -   -   -   10,643 
Embedded derivative for sale of concentrates  1,694   -   -   -   1,694 
Financial obligation  62,560   92,571   238,504   -   393,635 
Contingent consideration liability  -   -   8,050   29,118   37,168 
                     
Total  609,572   92,571   246,554   44,175   992,872 

 

(d)Capital management -

For purposes of the Group's capital management, capital is based on all equity accounts. The objective of capital management is to maximize shareholder value.

 

The Group manages its capital structure and makes adjustments to meet the changing economic market conditions. The Group's policy is to fund all projects of short and long term with their own operating resources. To maintain or adjust the capital structure, the Group may change the policy of paying dividends to shareholders, return capital to shareholders or issue new shares.

 

F-93F-100

 

Notes to the consolidated financial statements(continued)

 

32.34.Fair value measurement

QuantitativeFair value disclosure fair value measurement hierarchy forof assets and liabilities:liabilities according to its hierarchy -

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities:

 

     Fair value measurement using 
  Total  Quoted prices in
active markets
(Level 1)		  Significant
observable inputs
(Level 2)		  Significant
non-observable
inputs
(Level 3)		 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
As of December 31, 2014                
Assets measured at fair value:                
Derivative financial assets:  3,688   -   3,688   - 
                 
Liabilities measured at fair value:                
Derivative financial liabilities:                
- Embedded derivatives for concentrates sales, net  9,072   -   9,072   - 
-  Contingent consideration liability  23,026   -   -   23,026 
                 
As of December 31, 2013                
Assets measured at fair value:                
Derivative financial assets                
-  Embedded derivatives for concentrates sales, net  1,856   -   1,856   - 
                 
Liabilities measured at fair value:                
Derivative financial liabilities                
-  Hedge derivative financial instruments  1,093   -   1,093   - 
     Fair value measurement using 
  Total  Quoted prices
in active
markets
(Level 1)		  Significant
observable
inputs
(Level 2)		  Significant
non-observable
inputs
(Level 3)		 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
As of December 31,  2016                
Liabilities measured at fair value:                
-  Embedded derivatives for concentrates sales, net  1,524   -   1,524   - 
- Contingent consideration liability  19,343   -   -   19,343 
-  Hedge instruments  3,863   -   3,863   - 
                 
As of December 31, 2015                
Liabilities measured at fair value:                
-  Embedded derivatives for concentrates sales, net  1,694   -   1,694   - 
- Contingent consideration liability  16,994   -   -   16,994 
-  Hedge instruments  10,282   -   10,282   - 

 

Financial instruments whose fair value is similar to their book value – –

For financial assets and liabilities such as cash and cash equivalents, trade and other receivables, trade and other payables that are liquid or have short-term maturities (less than three months), it is estimated that their book value is similar to their fair value. The derivatives are also recorded at the fair value so that differences do not need to be reported.

 

The fair value of embedded derivatives is determined using valuation techniques with information directly observable in the market (future metal quotations).

 

F-94

Notes to the consolidated financial statements(continued)

Financial instruments at fixed and variable rates –

-

The fair value of financial assets and liabilities at fixed and variableratesvariable rates at amortized cost is determined by comparing the market interest rates at the time of their initial recognition to the current market rates with regard to similar financial instruments. The estimated fair value of deposits that accrue interest is determined by means of cash flows discounted using the prevailing market interest rates in the currency with similar maturities and credit risks.

 

Based on the foregoing, there are no important existing difference between the value in books and the reasonable value of the assets and financial liabilities as of December 31, 20142016 and 2013.

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013 AND FOR EACH OF THE

THREE YEARS IN THE PERIOD ENDING DECEMBER 31, 2014

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013 AND FOR EACH OF THE

THREE YEARS IN THE PERIOD ENDING DECEMBER 31, 2014

CONTENTSPages
Report of the independent auditorsF-98
Consolidated statement of financial positionF-99
Consolidated statement of comprehensive incomeF-100
Consolidated statement of changes in partners’ equityF-101
Consolidated statement of cash flowsF-102
Notes to the consolidated financial statementsF-103 - 137

$ = United States dollar

S/. = New Peruvian sol2015.

 

F-97
F-101 

 

REPORT OF INDEPENDENT AUDITORS

To the Partners and the Executive Committee of

Minera Yanacocha S.R.L.

March 30, 2015

In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of income and comprehensive income, changes in partners’ equity and cash flows, present fairly, in all material respects, the financial position ofMinera Yanacocha S.R.L. and subsidiaryat December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with International Financial Reporting Standards (IFRS). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.Subsidiary

 

Countersigned by

/s/ Luis W. Montero (partner)

Luis W. Montero

Peruvian Certified Public Accountant

Registration No.01-17729

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(IN THOUSANDS OF U.S. DOLLARS)

ASSETS

     As of  As of 
     December 31,  December 31, 
   Note  2014  2013 
Current assets            
Cash and cash equivalents  5  $786,624  $586,965 
Trade accounts receivable      5,352   20 
Due from related parties  8   36,017   25,539 
Inventories  9   64,903   68,876 
Stockpiles and ore on leach pads  10   270,511   183,988 
Other current assets  11   111,881   75,610 
Total current assets      1,275,288   940,998 
             
Non-current assets            
Available-for-sale financial assets  12   16,884   16,791 
Stockpiles and ore on leach pads  10   215,809   329,363 
Property, machinery and equipment  13   1,098,514   1,565,299 
Intangible assets  14   393,195   587,523 
Deferred income tax asset  15   483,479   314,718 
Total non-current assets      2,207,881   2,813,694 
             
             
             
             
Total assets     $3,483,169  $3,754,692 
             

LIABILITIES AND PARTNERS’ EQUITY

     As of  As of 
     December 31,  December 31, 
   Note  2014  2013 
Current liabilities            
Trade accounts payable     $69,788  $75,673 
Due to related parties  8   51,071   34,275 
Income tax payable      35,436   6,172 
Workers’ profit sharing  16   31,053   32,213 
Other current liabilities  17   42,491   77,814 
Total current liabilities      229,839   226,147 
             
Non-current liabilities            
Reclamation and remediation liabilities  18   542,345   425,279 
Other long-term liabilities      31,208   23,216 
Total non-current liabilities      573,553   448,495 
Total liabilities      803,392   674,642 
             
Partners’ equity  19         
Partners’ contributions      398,216   398,216 
Additional contributions      226   226 
Retained earnings      2,281,335   2,681,608 
Total partners’ equity      2,679,777   3,080,050 
             
Total liabilities and partners’ equity     $3,483,169  $3,754,692 

The accompanying notes from page 6 to 41 are an integral part of these consolidated financial statements.

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(IN THOUSANDS OF U.S. DOLLARS)

     For the year ended 
     December 31, 
   Note  2014  2013  2012 
Operating income:                
Revenue from sales     $1,165,299  $1,406,825  $2,146,641 
Other operating income      20,705   29,181   22,861 
Total gross income      1,186,004   1,436,006   2,169,502 
                 
Costs applicable to sales  20   (910,705)  (983,238)  (832,116)
Other operating costs      (22,422)  (28,672)  (22,069)
Total operating costs      (933,127)  (1,011,910)  (854,185)
Gross profit      252,877   424,096   1,315,317 
                 
Operative expenses:                
Selling expenses      (4,458)  (3,740)  (4,498)
Administrative expenses  21   (38,262)  (67,064)  (70,916)
Impairment loss  13 and 14   (541,141)  (1,038,548)  - 
Other operating expenses,net  22   (77,781)  (77,534)  (192,869)
Operative profit      (408,765)  (762,790)  1,047,034 
                 
Other income (expenses), net:                
Financial income      298   720   1,019 
Financial expenses  23   (23,504)  (18,745)  (13,135)
Exchange difference      1,142   2,065   (1,216)
Results before income tax      (430,829)  (778,750)  1,033,702 
Income tax  15   30,491   203,471   (385,827)
(Loss) profit for the year     $(400,338) $(575,279) $647,875 
                 
Comprehensive (loss) income                
(Loss) profit for the year     $(400,338) $(575,279) $647,875 
Other comprehensive income:                
Item that may be subsequently reclassified                
to profit or loss:                
Fluctuation in the fair value of available-for-sale                
financial asset, net of tax effect      65   (226)  1,129 
Total comprehensive (loss) income for the year     $(400,273) $(575,505) $649,004 
                 

The accompanying notes from page 6 to 41 are an integral part of these consolidated financial statements.

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 AND 2012

(IN THOUSANDS OF U.S. DOLLARS)

  Partners’  Additional  Retained    
  contributions  contributions  earnings  Total 
                 
Balances at January 1, 2012 $398,216  $226  $2,608,109  $3,006,551 
Profit for the year  -   -   647,875   647,875 
Other comprehensive income for the year          1,129   1,129 
Balances at December 31, 2012 $398,216  $226  $3,257,113  $3,655,555 
Loss for the year  -   -   (575,279)  (575,279)
Other comprehensive loss for the year          (226)  (226)
Balances at December 31, 2013 $398,216  $226  $2,681,608  $3,080,050 
Loss for the year  -   -   (400,338)  (400,338)
Other comprehensive income for the year          65   65 
Balances at December 31, 2014 $398,216  $226  $2,281,335  $2,679,777 

The accompanying notes from page 6 to 41 are an integral part of these consolidated financial statements.

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

  For the year ended 
  December 31, 
  2014  2013  2012 
          
CASH FLOWS FROM OPERATING ACTIVITIES            
(Loss) profit for the year $(400,338) $(575,279) $647,875 
Reconciliation of net profit with net cash provided            
by operating activities:            
Impairment loss on assets  541,141   1,038,548   - 
Depreciation and amortization  360,334   349,760   277,924 
Deferred income tax  (168,761)  (430,624)  29,102 
Unwinding of discount of the provision            
for reclamation and remediation  43,229   18,113   12,568 
Write-off of fixed assets  42,937   23,831   16,904 
Write-down of ore on leach pads to realizable value  95,859   146,052   5,375 
Other operative adjustments  (2,626)  109   (496)
(Increase) decrease in operating assets:            
Inventories, stockpiles and ore on leach pads  (64,855)  (121,868)  (62,765)
Accounts receivables trade and other accounts receivable  (41,603)  48,216   (27,353)
Intercompany accounts receivable  (10,478)  (8,334)  (15,980)
Accounts payable and other accrued liabilities  (14,640)  (64,137)  53,294 
Intercompany accounts payable  16,796   (15,124)  14,084 
Reclamation liabilities paid  (10,419)  (4,387)  (7,661)
Other operating adjustment  29,264   (42,832)  (84,141)
Net cash provided by operating activities  415,840   362,044   858,730 
             
CASH FLOWS FROM INVESTING ACTIVITIES            
Purchase of property, machinery and equipment  (111,694)  (327,453)  (769,897)
Purchase and development of intangible assets  (104,487)  (65,677)  (268,773)
Net cash applied to investing activities  (216,181)  (393,130)  (1,038,670)
             
Net (decrease) increase in cash and cash equivalents  199,659   (31,086)  (179,940)
Cash and cash equivalents at beginning of year  586,965   618,051   797,991 
Cash and cash equivalents at end of year $786,624  $586,965  $618,051 
             
Transactions that do not represent cash flows            
 - Addition of asset retirement and mine closure (Note 14)  64,520   44,604   163,050 

The accompanying notes from page 6 to 41 are an integral part of these consolidated financial statements.

MINERA YANACOCHA S.R.L. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013 AND FOR EACH OF THE

THREE YEARS IN THE PERIOD ENDING DECEMBER 31, 2014

1.GENERAL INFORMATION AND BUSINESS ACTIVITIES

a)General Information -

Minera Yanacocha S.R.L. (the “Company”), formerly Minera Yanacocha S.A., was incorporated in Peru on January 14, 1992 and commenced operations in 1993. The Company is engaged in the production of gold and exploration and development of gold and copper under the mining concessions it owns or that are owned by S.M.R.L. Chaupiloma Dos de Cajamarca (“Chaupiloma”).

The Company is owned 51.35% by Newmont Second Capital Corporation, a 100% indirectly owned subsidiary of Newmont Mining Corporation (“Newmont”, the ultimate parent company), 43.65% owned by Compañía Minera Condesa S.A., which is 100% owned by Compañía de Minas Buenaventura S.A.A. (“Buenaventura”) and 5% owned by the International Finance Corporation.

The majority Partners of the Company (or their affiliates) also own the majority interest in Chaupiloma. In accordance with a mining lease, amended and effective on January 1, 1994, the Company pays Chaupiloma a 3% royalty based on quarterly production sold at current market prices, after deducting refinery and transportation costs. The royalty agreement expires in 2032.

b)Business activities -

The Company’s operations are located near Cajamarca, province of Peru and currently include the following open pit mines: Cerro Yanacocha, La Quinua, La Quinua Sur, El Tapado Oeste, Chaquicocha, Maqui Maqui, Marleny and Cerro Negro. The Company has four leach pads, three processing facilities, and one mill. Gold-bearing ores are transported to one of four leach pads for gold recovery using conventional heap-leaching or milling, followed by Merrill - Crowe zinc precipitation and smelting where a final doré product is poured. The doré is then shipped offsite for refining and is sold on the worldwide gold markets.

Gold mining requires the use of specialized facilities and technology. The Company relies heavily on such facilities and technology to maintain production levels. Also, the cash flows and profitability of the Company’s operations are significantly affected by the market price of gold. Gold prices can fluctuate widely and are affected by numerous factors beyond the Company’s control. During 2014, 2013 and 2012, the Company produced 0.97 million, 1.02 million and 1.35 million ounces of gold, respectively.

The Conga project consists of two gold-copper porphyry deposits located northeast of the Yanacocha operating area in the provinces of Celendin, Cajamarca and Hualgayoc. The project has proven and probable reserves of 12.6 million ounces (unaudited) of contained gold and 3.3 billion pounds (unaudited) of contained copper at December 31, 2014.

Due to local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The result of the Peruvian Central Government initiated Environmental Impact Assessment (“EIA”) independent review were announced on April 20, 2012 and confirmed that our initial EIA met Peruvian and International standards. The review made recommendations to provide additional water capacity and social funds, which we have largely accepted. We announced our decision to move the project forward on a “water first” approach on June 22, 2012. In the first half of 2014, a Conga Restart Study was completed to identify and test alternatives to advancing development of the project. Following this assessment, a new plan was developed to reduce spending to focus on only the most critical work – protecting people and assets, engaging with communities, and maintaining existing project infrastructure – while maintaining optionality. The Company will not proceed with the full development of Conga without social acceptance, solid project economics and potentially another partner to help defray costs and risk.

Construction of Conga and the implementation of the independent EIA review recommendations will continue provided it can be done in a safe manner with risk-adjusted returns that justify future investment. However, development of Conga is contingent upon generating acceptable project returns and getting local community and governmental support. Should the Company be unable to continue with the current development plan at Conga, the Company may in the future reprioritize and reallocate capital to other alternatives, which may result in a potential impairment of the Conga project.

In the second quarter of 2011, Presidential and Congressional elections resulted in a change in government in Peru. The new administration supported mining as a driver for continued growth and future development of Peru. However, we are unable to predict whether the Central government will continue to take similar positions in the future. The regional government actively opposed the Conga project in 2012 and continues to reject the viability of its development. We are unable to predict the positions that will be taken in the future and whether such positions or changes in law will affect Yanacocha or Conga. Such changes may include increased labor regulations, environmental and other regulatory requirements, and additional taxes and royalties, as well as future protests, community demands and road blockages. For example, during the third quarter of 2011, the new government enacted four new tax laws. The Company cannot predict future positions of either the Central or regional government on foreign investment, mining concessions, land tenure or other regulation. Any change in government positions or laws on these issues could adversely affect the assets and operations of Yanacocha or Conga, which could have a material adverse effect on our results of operations and financial position. Additionally, any inability to continue to develop the Conga project or operate at Yanacocha could have an adverse impact on our growth if we are not able to replace its expected production. To help insure the viability of the Company’s mining activities, Yanacocha has an active community relations program focus on Cajamarca water projects and education. In addition, Conga is building reservoirs under its water/first approach in effort the gain social acceptance.

Total proven and probable reserves (unaudited) contained in active open pits, other pits to be developed, stockpiles, ore in process on leach pads and the Conga project are approximately 18.3 million ounces of contained gold, 3.3 billion pounds of contained copper and 104.7 million ounces of contained silver at December 31, 2014.

The Company’s financial statements for the year ended December 31, 2014, have been issued with the approval of the Partners’ Meeting held on March 26, 2015.

2.SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1Basis of preparation

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretation Committee (IFRS IC) interpretations applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets which are measured at their fair value. The financial statements are expressed in thousands of United States Dollars, unless otherwise stated.

The information contained in these consolidated financial statements is the responsibility of the Executive Committee of the Company, which expressly states that in preparing them it has applied the principles and criteria required by the IFRS issued by the International Accounting Standard Board (IASB).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are described in note 4.

2.1.1Changes in accounting policies and disclosures

a)New standards, amendments and interpretation adopted by the Company -

The following standards have been adopted by the Company for the first time for the financial year beginning on January 1, 2014 and did not have a material impact on the Company or do not apply to its operations:

·Amendment to IAS 32, ‘Financial instruments: Presentation” on offsetting financial assets and financial liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment did not have a significant effect on the Company’s financial statements.

·Amendments to IAS 36, “Impairment of assets”, on the recoverable amount disclosures for non-financial assets. The amendment removed certain disclosure of the recoverable amount of cash-generating units which had been included in IAS 36 by the issue of IFRS 13.

·Amendment to IAS 39, “Financial instruments: Recognition and measurement” on the novation of derivatives and the continuation of hedge accounting. This amendment considers legislative change to “over-the-counter” derivatives and the establishment of central counterparties. Under IAS 39 novation of derivatives to central counterparties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. This standard does not apply to the Company’s operations.

·IFRIC 21, “Levies”, sets out the accounting for an obligation to pay a levy if that liability is within the scope of IAS 37 “Provisions”. The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liability should be recognized. The adoption of this new standard had no impact on the Company’s financial statements.

Other standards amendments and interpretations which are effective for the financial year beginning on January 1, 2014 are not applicable to the Company.

b)New standards, amendments and interpretations not yet adopted -

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2014, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Company, except the following set out below:

·IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in July 2014. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized costs, fair value through other comprehensive income (“OCI”) and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirement for hedge effectiveness by replacing the bright line hedge effectiveness test. It requires an economic relationship between the hedged item and hedging instrument and for the “hedge ratio” to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Company has yet to assess IFRS 9´s full impact.
·IFRS 15, “Revenue from contracts with customers” deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainly of revenue and cash flow arising from an entity´s contracts with customer. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 “Revenue” and IAS 11 “Construction contracts” and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2017 and earlier application is permitted. The Company is assessing the impact of IFRS 15.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company.

2.2Principles of consolidation

The consolidated financial statements include the accounts of Minera Yanacocha S.R.L and those of the San José Reservoir Trust (“Trust”). In November 2008, the Company funded the Trust to ensure continuous operation of the San José Reservoir after 2018. The Company transferred $13,000 to the Trust in 2008. No withdrawals are allowed until 2018 and the Company is committed to accumulate a $23,000 fund as of such date. This Trust is irrevocable and is a separate legal entity. The grantor is the Company, the trustee is FiduPerú S.A. Sociedad Fiduciaria and the beneficiary is the Company.

2.3Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee that makes strategic decisions.

2.4Functional currency and foreign currency transactions

The consolidated financial statements are stated in U.S. dollars, the Company’s functional currency. Transactions in other currencies are recorded in U.S. dollars based on exchange rates prevailing at the time of such transactions. Monetary assets and liabilities denominated in other currencies are translated into the U.S. dollar at exchange rates prevailing at the balance sheet dates, and any resulting gains or losses are reflected in current earnings.

2.5Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. Restricted cash is excluded from cash and cash equivalents and is included in other current assets or long-term assets depending on restrictions.

2.6Trade and other receivables

Trade receivables are amounts due from customers for goods sold in the ordinary course of business. If collection is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently are measured at the fixed forward price if such a commitment exists. If no commitment exists, trade accounts receivables are measured at the forward price for the relevant quoted period at the end of the month in which the sale is recorded, or if no such forward price exists, at the month end cash settlement price. The Company’s net trade receivable from provisionalsilver, gold, carbon fines and copper concentrate sales is valued using quoted market prices based on the forward price of the COMEX Silver Index, the London Bullion Market Association P.M. fix (“London P.M. fix”) (gold), and the London Metal Exchange (“LME”) (copper).

Other accounts receivable are recognized initially at fair value and subsequently are measured at amortized cost using the effective interest method. A provision is made where the estimated recoverable amount is lower than the carrying amount.

2.7Financial assets

2.7.1Classification

The Company classifies its financial assets in the following categories: loans and receivables and available-for-sale financial assets. Classification depends on the purpose for which the financial asset is acquired for. Management determines the classification of the financial assets at the date of its initial recognition.

a)Loans and receivables -

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company’s loans and receivables comprise cash and cash equivalents, trade and other receivables in the statement of financial position (notes 6 to 8).

b)Available-for-sale financial assets -

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

2.7.2Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date the date on which the Company commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value. Financial assets carried at fair value are initially recognized at fair value and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Changes in fair value of available-for-sale financial assets are recognized in other comprehensive income.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustment recognized in other comprehensive income are included in the statement of comprehensive income as “gain and losses from investment securities.”

Interest on available for sale securities calculated using the effective interest method is recognized in the statement of comprehensive income as part of other income.

F-107

2.7.3Impairment of financial assets

The Company assesses at each statement of financial position date whether a financial asset is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

a)Financial assets carried at amortized cost -

If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (ie: the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of comprehensive income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment loss is recognized in the statement of comprehensive income.

b)Available-for-sale financial assets -

If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from other comprehensive income to the statement of income. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit. Impairment losses on debt instruments are reversed through profit or loss; if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.

2.8Off-setting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

2.9De-recognition of financial assets and liabilities

2.9.1Financial assets

A financial asset is derecognized when:

The rights to receive cash flows from the asset have expired;

The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or the Company has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, it continues to recognize the financial asset to the extent of its continuing involvement in the asset.

2.9.2Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Gains on de-recognition are recognized within finance income and losses within finance costs.

2.10Derivative financial instruments and hedging activities

During 2014 and 2013 the Company has not engaged itself in any contract involving derivative financial instruments.

2.11Stockpiles, ore on leach pads and inventories

Costs that are incurred in or benefit the productive process are accumulated as stockpiles, ore on leach pads and inventories. Stockpiles, ore on leach pads and inventories are carried at the lower of average cost or net realizable value. Net realizable value represents the estimated future sales price of the product based on current and long-term metals prices, less the estimated costs to complete production and bring the product to sale. Write-downs of stockpiles, ore on leach pads and inventories to net realizable value are reported as a component of costs applicable to sales. The current portion of stockpiles, ore on leach pads and inventories is determined based on the expected amounts to be processed within the next twelve months. Stockpiles, ore on leach pads and inventories not expected to be processed within the next twelve months are classified as long - term. The major classifications are as follows:

a)Stockpiles -

Stockpiles represent ore that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit.

b)Ore on leach pads -

The recovery of gold from certain gold oxide ores is achieved through the heap leaching process. Under this method, ore is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the ore. The resulting gold-bearing solution is further processed in a plant where the gold is recovered. Costs are added to ore on leach pads based on current mining costs, including applicable overhead and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per estimated recoverable ounce of gold on the leach pad.

The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover approximately 50% to 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is complete.

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Historically, the Company’s operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.

c)In-process inventory -

In-process inventories represent materials that are currently in the process of being converted to a saleable product. The conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in-process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.

d)Precious metals inventory -

Precious metals include gold Dore and/or gold bullion. Precious metals that result from the Company’s mining, processing and refining activities are valued at the average cost of the respective in-process inventories incurred prior to the refining process, plus applicable refining costs.

e)Materials and supplies -

Materials and supplies are valued at the lower of average cost or replacement value. Cost includes applicable taxes and freight.

2.12Property, machinery and equipment

The cost of an element of property, machinery and equipment comprises the acquisition price or manufacturing cost, including non-reimbursable customs and taxes and any cost necessary to place the asset in operating condition, as anticipated by Management, the initial estimate of the rehabilitation obligation and, in the case of qualified assets, the financing costs. The purchase price or construction cost corresponds to the total amount paid and fair value of any other consideration provided to acquire the asset.

Subsequent costs attributable to property, machinery and equipment are capitalized only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably, otherwise the cost is charged to production or expense.

Maintenance and repair expenses are charged to the production cost or expense, as necessary, in the period when incurred.

Expenses incurred to replace a component of an item or element of property; machinery and equipment are capitalized separately, writing-off the carrying amount of the component being replaced. In the event the component replaced has not been considered as a separate component of the asset item, the replacement value of the new component is used to estimate the carrying amount of the assets being replaced.

Assets in the construction stage are capitalized as separate components. At their completion, the cost is transferred to the appropriate category. Work in progress is not depreciated.

Property, machinery and equipment items are written-off at the date they are sold or when no economic benefits are expected from their further use or sale. Gains and losses on disposals of assets are determined by comparing the proceeds with their carrying amounts. These gains or losses are included in the comprehensive income statement.

The assets’ useful lives and residual values are reviewed, and adjusted if appropriate, at each balance sheet date. Any changes in these estimates are prospectively adjusted.

Depreciation -

Land is not depreciated. Depreciation of other items of property, machinery and equipment is calculated using the straight-line method to allocate their cost less their residual value over their estimated useful lives and in the case of assets assigned to the production process of Yanacocha, under the lower of that determined under the units of production method or the useful life of the mine, as follows:

Years
Land improvements25 years
BuildingsBetween 5 and 25 years
Plant and equipmentBetween 3 and 15 years
VehiclesBetween 3 and 5 years
Furniture and fittingsBetween 3 and 10 years
Other equipmentBetween 3 and 10 years
Computer equipmentBetween 3 and 8 years
Remediation assetsUseful life of the mine and/or process facilities

2.13Intangible assets

a)Mineral Interests -

Mineral interests include acquired interests in production, development and exploration stage properties. The mineral interests are capitalized at their fair value at the acquisition date.

The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves. Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material consisting of (i) mineralized material such as inferred material within pits; measured, indicated and inferred material with insufficient drill spacing to qualify as proven and probable reserves; and inferred material in close proximity to proven and probable reserves; (ii) around-mine exploration potential such as inferred material not immediately adjacent to existing reserves and mineralization, but located within the immediate mine area; (iii) other mine-related exploration potential that is not part of measured, indicated or inferred material and is comprised mainly of material outside of the immediate mine area; (iv) greenfield exploration potential that is not associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit.

The Company’s mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.

b)Mine development -

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as Exploration or Advanced projects expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; the activities are directed at obtaining additional information on the ore body or converting mineralized material mineralization to proven and probable reserves. All other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of Costs applicable to sales.

The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs”. Pre-stripping costs are capitalized during the development of an open pit mine. Where multiple open pits exist at a mining complex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal and production of de minims saleable materials may occur during development and are recorded as other income, net of incremental mining and processing costs.

The production phase of an open pit mine commences when saleable minerals, beyond a de minims amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in costs applicable to sales in the same period as the revenue from the sale of inventory. The Company’s definition of a mine and the mine’s production phase may differ from that of other companies in the mining industry resulting in incomparable allocations of stripping costs to deferred mine development and production costs.

Mine development costs are amortized using the units-of production (“UOP”) method based on estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block or area.

c)Stripping activity asset -

The Company accounts for stripping costs incurred during the production phase of a surface mining in accordance with IFRIC 20 “Stripping costs in the production phase of as surface mine” whereby a stripping asset is recognized if, and only if, all of the following are met:

i)It is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity;
ii)The entity can identify the component of the ore body for which access has been improved; and
iii)The costs relating to the stripping activity associated with that component can be measured reliably.

The primary components of the ore body on a pit by pit basis as well as within major pits are identified. Based on these components, stripping activities are analysed and costs are assigned based on whether they pertained to current inventory production or improved access to future ore bodies (or components of an ore body).

Based on this analysis, the Company allocated the costs associated with improved access a production stripping asset. This allocation is based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body.

Costs allocated to the production stripping activity asset are subsequently depreciated. Depreciation of the production stripping asset was calculated on a systematic basis - “waste-to-ore ratio” tons method over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping costs. This depreciation is a production cost and included in the adjustments in inventories.

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2.14Impairment of non-financial assets

The carrying amounts of non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, a review is undertaken to determine whether the carrying values are in excess of their recoverable amounts. The recoverable amount is determined as the higher of an asset's fair value less costs of disposal and its value in use. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independently from other assets, in which case the review is undertaken at the cash generating unit level. The Company identified two separate cash-generating units according to its segments Yanacocha and Conga.

Future cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans and the appropriate discount rate. These estimates used in the determination of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels, costs and capital and interest rates are each subject to significant risks and uncertainties.

If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the statement of comprehensive income to reflect the asset at the lower amount. In assessing recoverable amount for assets, the relevant future cash flows expected to arise from the fair value less costs of disposal have been discounted to their present value.

An impairment loss is reversed in the statement of comprehensive income if there is a change in estimates used to determine recoverable amount since the prior impairment loss was recognized. The carrying amount is increased to the recoverable amount but not beyond the carrying amount net of depreciation or amortization which would have arisen if the prior impairment loss had not been recognized. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

2.15Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers, recognized initially at fair value. The amount of credit purchases that deviate from usual credit conditions is not significant, and therefore, the financial component has been identified in purchase of goods and services. Payables are classified as current liabilities if payment is due within one year or less. If not, they are shown as non-current liabilities.

2.16Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. If the time value of money is significant, provisions are discounted using pre-tax rates, which reflect, when appropriate, the liabilities’ specific risks. The reversal of the discount due to the passage of time originates the increase of the obligation which is recognized with a charge to the statement of comprehensive income as a financial expense.

Provisions are reviewed periodically and are adjusted to reflect the best estimate available as of the date of the consolidation statement of financial position. The expense related to other provision is presented in the consolidated statement of comprehensive income.

Disclosure of contingent obligations is provided when their existence will only be confirmed by future events or their amount cannot be reliably measured. Contingent assets are not recognized and are disclosed only if it is probable that the Company will generate future economic benefits.

2.17Reclamation and remediation costs

Reclamation obligations are recognized when incurred and recorded as liabilities at the best estimate of the expenditure required to settle the obligation.The liability is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. The estimated retirement obligation is based on when spending for an existing environmental disturbance is expected to occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site.

Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised.

2.18Revenue recognition

Revenue is recognized, when persuasive evidence of an arrangement exists, the price is determinable, the product has been delivered, the title has been transferred to the customer and collection of the sales price is reasonably assured. Revenues from silver and copper sales are credited to costs applicable to sales as a by-product credit. Royalties paid based on revenue are charged to revenue.

2.19Income and mining taxes and profit sharing

The Company accounts for income and mining taxes and legally required profit sharing using the liability method, recognizing certain temporary differences between the financial reporting basis of the Company’s liabilities and assets and the related income tax basis for such liabilities and assets. This method generates a net deferred income tax liability or net deferred income tax asset for the Company, as measured by the statutory tax rates in effect as enacted. The Company derives its deferred income tax charge or benefit by recording the change in the net deferred income tax liability and profit sharing liability or net deferred income tax asset and profit sharing asset balance for the year, based on Peruvian income and mining tax. Royalty taxes are calculated based on operating profit, as such are shown as income tax.

The Company’s deferred income tax assets include certain future tax benefits. The Company write-off any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.19Comprehensive income

In addition to net income (loss), comprehensive income (loss) includes all changes in equity during a period, such as foreign currency, translation adjustments, cumulative changes in fair value of marketable securities available-for-sale or other investments, except those resulting from investments by and distributions to owners.

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2.20Employee benefits

a)Workers’ profit sharing -

The Company recognizes a liability and an expense for statutory workers’ profit sharing. Workers’ profit sharing is equivalent to 8% of the entity’s taxable income, which is determined in accordance with current income tax laws and regulations.

The Company recognizes the workers’ profit sharing paid directly to them according IAS 19 “Employee Benefits” approach, which considers them are a form of consideration given by the entity in exchange of services rendered by employees. As a consequence, the Company recognizes the workers’ profit sharing as cost or expenses, according to their duties or functions.

b)Bonuses -

The Company recognizes an expense for statutory bonuses and the related liability based on applicable laws and regulations effective in Peru. Bonuses are paid in July and December of each year for an amount equivalent to one month salary of the employees at the payment date.

c)Employees’ severance indemnities and termination benefits -

Employees’ severance indemnities, for the personnel hired in Peru, comprise their indemnification rights, calculated in accordance with the regulations in force; they have to be credited to the bank accounts designated by workers, in April and November each year. The amount of the employees’ severance indemnities is equivalent to half salary of the employee at the date of the deposit. The Company is not required to make additional payments once the annual deposits are made of the funds to which the worker is entitled.

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits

d)Employees’ vacation leave -

Personnel's annual vacations and other remunerated absences are recognized on the accrual basis. The provision for the estimated obligation for annual vacations and other remunerated employee absences is recognized at the balance sheet date.

3FINANCIAL RISK MANAGEMENT

3.1Financial risk factors -

The Company’s operations limited expose it to certain financial risks: some market risks (foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company´s financial performance. The most important aspects in risk management are the following:

a)Market risks -

i) Foreign exchange risk -

Foreign exchange risk exposure arises from exchange rate fluctuations of balances denominated in different currencies than the U.S. dollar. Since transactions and balances denominated in foreign currency are not significant, the current exchange rate risk exposure is limited. Management has decided to assume the exchange risk exposure with the results of the Company’s operations; therefore it has not engaged in hedging activities.

ii)Interest rate risk -

The Company does not maintain significant interest-bearing assets or liabilities; therefore, operating income and cash flows of the Company are substantially independent from the changes in market interest rates. At December 31, 2014, except for the deposits in two financial institutions, the Company recognized interest income for approximately $499 ($489 in 2013),

iii) Price risk –

The Company’s financial instruments exposed price risk are limited to its trade accounts receivable (exposed to gold price) and its available-for-sale financial assets, none of which show an important balance at the end of the year, therefore no important impact on the financial statements has arisen due to changes in their price that would need to be disclosed.

b)Credit risk -

Financial instruments exposed to credit risk are cash and cash equivalents; trade accounts receivable and other accounts receivable.For banks and financial institutions, only independently rated parties with a minimum “A” rating are accepted.Regarding sales of gold, when shipping merchandise, according to the practice in the latest years, collections have generally been carried out to their entirety. Therefore, the Company does not foresee any significant losses that may arise from this risk.

c)Liquidity risk -

Management administrates its exposure to liquidity risk through financing from internal operations, Company’s partners and maintaining good relationships with local and foreign banks in order to maintain adequate levels of credit available. Other than the indirect credits associated with environmental bonds (note 24), the Company currently has no existing bank lines of credit.

The following table represents the analysis of the Company's financial liabilities including estimated projected interests relating to financial obligations classified according to maturity, considering the remaining period to reach such maturity as of the statement of financial position date:

  2014  2013 
  Less than  Less than 
  1 year  1 year 
Trade accounts payable $69,787  $75,673 
Accounts payable to related parties  51,071   34,275 
Other accounts payable  24,416   40,145 
  $145,274  $150,093 

d)Capital risk management -

The Company’s objectives for managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide expected returns for partners and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to its partners. No formal dividend policy exists.

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e)Fair value estimation -

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assets that are measured at fair value on a recurring basis (at least annually) correspond to the San José Reservoir Trust assets and provisional priced metal sales contracts.

The Company’s San José Reservoir Trust assets are made up of marketable equity and debt securities that are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

The Company’s impairment loss is valued using market information that is accessible, as such is classified within Level 1 of the fair value hierarchy. The Company uses valuation techniques to determine the WACC rate. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates as such is classified within Level 2. Also, the Company made projections to determine the expected cash flows of the projects and estimation of operating cost and capital expenditure, as such is classified within Level 3 of the fair value hierarchy (note 4-e).

4CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of-production amortization calculations; environmental, reclamation and mine-closure obligations; estimates of recoverable gold and other minerals in stockpile and leach pad inventories; asset impairments; write-downs of inventory to net realizable value; employee benefit liabilities; provisions for deferred tax assets and liabilities; workers’ profit participation; reserves for contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.

In management´s opinion, these estimates were made on the basis of their best knowledge of the relevant facts and circumstances at the date of preparation of consolidated financial statements; however the actual outcomes can differ from these estimates.

Company’s management considers the following estimates to prepare the consolidated financial statements:

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a)Provision for closure mine units -

The Company assesses its provision for closure of mining units annually. Significant estimates and assumptions are made in determining this provision, as there are numerous factors that will affect the ultimate liability payable. These factors include estimates of the extent and cost of rehabilitation activities, technological changes, regulation changes, cost increases compared to the inflation rates and changes in the discounts rates. These uncertainties may result in future actual expenditures differing from the amounts currently provided. The provision at the reporting date represents management’s best estimate of the present value of future rehabilitation costs required.

The discount rate used was the risk free rate adjusted for the appropriate Peru country risk. For the year ended December 31 the Company used 3.96% (4.98% for the years ended December 31, 2013 and 2012)

The following table shows the sensitivity of the outstanding balance of the reclamation liability in the statement of financial position at the date of the financial statements if the discount rate had weakened/strengthened by 5%:

  Increase/decrease  Effect in the statement 
  in discount rate  of financial position 
2014  +5% $547,333 
   -5% $567,911 
         
2013  +5% $449,993 
   -5% $470,665 

b)Determination of mineral reserves and resources -

The Company computes its reserves using methods generally applied by the mining industry in accordance with international guidelines. All reserves computed represent the estimated amounts of proved and probable ore that can be processed economically under the present conditions.

The process of estimating the amount of reserves is complex and requires making subjective decisions at the time of evaluating all the geologic, geophysical engineering and economic information that is available. Revisions could occur in estimates reserves due to, among other things, revisions of the geologic data or assumptions, changes in assumed prices, production cost and the results of exploration activities.

Changes in estimated reserves could affect mainly the depreciation of fixed assets related directly to mining activity, provision for mine closure, assessment of the recoverability, amortization period for development costs and impairment computations.

c)Unit of production depreciation -

Reserves are used in determining the depreciation and amortization of mine specific assets. This results in a depreciation or amortization charge proportional to the depletion of the anticipated remaining life of mine production. Each item’s life, which is assessed annually, has evaluated based on: i) physical life limitation, and ii) present assessment of economically recoverable reserves of the mine property. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes are recorded prospectively.

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d)Exploration and mine development costs -

The application of the Company’s accounting policy for exploration and mine development costs requires judgment in determining whether it is likely that future economic benefits are likely from future exploitation. The determination of reserves and minerals reserves is a complex estimation that requires varying degrees of uncertainty depending on sub classification. These estimates directly impact the point of deferral of exploration and mine development costs and its amortization method for development cost. The deferral policy requires Management to make certain estimates and assumptions about future events or circumstances, in particular whether an economically viable extraction, operation and sale of mineral can be established.

e)Long-lived assets impairment -

The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable, in accordance with the accounting policy stated in note 2.14.The recoverable amounts of cash generating units, Yanacocha and Conga, have been determined based on fair value less costs of disposal calculations. In 2013, the market price of gold, copper and silver dropped significantly. Accordingly, impairment assessments were required for the assets of Yanacocha and Conga as of the December 31, 2013 reporting date. As a result, the Company revised in 2013 its long-term price outlook for gold from $1,500 per ounce at the beginning of the year to $1,300 per ounce at December 31, 2013. Likewise, the price of copper was decreased from $3.50 per pound to $3.00 per pound and silver from $30.00 per ounce to $20.00 per ounce as of December 31, 2013, respectively. The decline of prices in 2013 was deemed a triggering event to test for impairment for Yanacocha and Conga assets. In 2014, the triggering event was a three year delay of the development of the Conga Project, which effectively lowered the discounted cash flows.

The discount interest rate used in 2013 in the impairment calculations under the fair value less costs of sale methodology was 7.1% after tax which was based on a peer group of mining companies adjusted for Peru country risk. The rate is a “real” versus “nominal” rate as the cash flow models were not escalated for inflation. This discount rate was used for both segments Yanacocha and Conga. As a result of the impairment assessments, the Company recorded impairment losses amounting to $1,038,000 ($453,000 related to Yanacocha and $585,000 related to Conga).

The discount interest rate used in 2014 in the impairment calculations under the fair value less costs of sale methodology was up-dated to 8.04% after tax. As a result of the impairment assessments, the Company recorded additional impairment losses amounting to $541 million related exclusively to Conga.

If the discount interest rate used under the fair value less costs of sale calculation had been 5% higher the Company would have recognize a further impairment of the Conga assets by approximately $90 million; and, if the operating cost used had been 5% higher the Company would have recognized approximately $129 million lower impairment for Conga´s assets.

If as of December 31, 2014 market price of gold, silver and copper had been $1.573 per ounce, $20.00 per ounce and $3.63 per pound, respectively, the Company would not have to recognize any additional impairment loss for Conga.

f)Contingencies -

By their nature, contingencies will only be resolved when one or more future events do or do not occur. Determining contingencies involves the exercise of judgments and estimates of the outcome of future events. In the event that the Company would have to settle all its contingencies opened as of December 31, 2014, the total disbursements would approximately amount to $1 million.

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g)Recovery of deferred tax assets -

An assessment is required to determine whether deferred tax assets should be recognized in the consolidation statement. Deferred tax assets, including those resulting from unused tax losses, require management to assess the estimation that the Company would generate taxable earnings in future periods to apply the deferred tax assets. Estimated future taxable income is based on projections of cash flows from operations and applications of the tax law. To the extent to which future cash flows and taxable income differ significantly from those estimated; they could have an impact on the Company’s ability to realize the deferred tax assets posted as of the reporting date. Future changes in tax law in Peru could limit the Company´s ability to obtain tax deductions in future periods. As of December 31, 2014, Company’s management estimates indicate that the Company will generate sufficient taxable income in the next ten years (that includes new projects that would generate earnings in future periods) to compensate the outstanding balance of the deferred income tax asset amounting to $483 million.

5CASH AND CASH EQUIVALENTS

This item comprises:

  As of December 31, 
  2014  2013 
Petty cash $53  $61 
Bank accounts  287,762   98,196 
Term deposits  498,809   488,708 
  $786,624  $586,965 

The average interest rates for bank accounts and term deposits are 0.02% and 0.18% as of December 31, 2014 and 2013, respectively. For the year ended December 31, 2014, these accounts accrued $0.3 million of interest which is shown as financial income in the consolidated statement of comprehensive income ($0.7 million and $1 million in 2013 and 2012, respectively).

Because of the short maturity of these balances, the carrying amounts approximate their fair value.

6FINANCIAL INSTRUMENTS BY CATEGORY

The classification of financial instruments by category is as follows:

a) As of December 31, 2014

  Financial assets 
  Loans and  Available-    
  accounts  for-    
  receivable  sale  Total 
Cash and cash equivalents $786,624  $-  $786,624 
Trade accounts receivable  5,352   -   5,352 
Other accounts receivable  11,982   -   11,982 
Due from related parties  36,017   -   36,017 
Available-for-sale financial assets  -   16,884   16,884 
  $839,975  $16,884  $856,859 

  Financial 
  liabilities 
  Other financial 
  liabilities 
Trade accounts payable $69,787 
Due to related parties  51,071 
Other accounts payable  24,416 
  $145,274 

b) As of December 31, 2013

  Financial assets 
  Loans and  Available-    
  accounts  for-    
  receivable  sale  Total 
Cash and cash equivalents $586,965  $-  $586,965 
Trade accounts receivable  20   -   20 
Other accounts receivable  16,061   -   16,061 
Due from related parties  51,071   -   51,071 
Available-for-sale financial assets  -   16,791   16,791 
  $654,117  $16,791  $670,908 

  Financial 
  Liabilities 
  Other financial 
  Liabilities 
Trade accounts payable $75,673 
Due to related parties  34,275 
Other accounts payable  40,145 
  $150,093 

7CREDIT QUALITY OF FINANCIAL ASSETS

Management evaluates the credit quality of its financial assets (not impaired) by reference to external credit ratings, if available, or based on historical information about counterparty default rates. Accordingly, management has classified its portfolio of financial assets with no external credit ratings in the following categories:

Group1: New customers or related parties with whom transactions have taken place for periods of less than six months.

Group2: Existing customers or related parties with whom transactions have taken place for periods of more than six months with no history of default.

Group3:Existing customers or related parties with whom transactions have taken place for periods of more than six months with certain history of default in the past. All default cases were recovered.

Financial assets with no external credit ratings are limited to accounts receivable from related parties which are classified as Group 2 (note 8). The Company does not have any account receivable that is neither past due nor impaired.

Credit quality of financial assets that have external credit ratings are financial institutions in which are deposited Company’s cash and cash equivalents. Their ratings are as follows:

  As of December 31, 
  2014  2013 
Cash and cash equivalents (*)        
Banco de Crédito del Perú (A+) $75,250  $38,130 
Banco Scotiabank Perú (A+)  7,264   16,500 
Citibank International plc. (A)  523,249   351,571 
HSBC Global Management Global (AA+)  180,808   180,703 
  $786,571  $586,904 

(*) The difference between the balance shown in this table and that shown in the table in note 5 represents petty cash.

The credit quality of the available-for-sale financial assets (note12) is (AAA) for those of fixed return and (A+) for those of variable return.

8RELATED PARTIES

a)The balances payable and receivable to /from related parties are as follows:

  At December 31, 
  2014  2013 
Balance receivable from related parties -        
Newmont USA Limited $27,397  $16,997 
Newmont Technologies Limited  3,653   2,819 
Newmont International Service Limited  3,503   3,136 
Newmont Mining Services Pty Ltd  612   1,434 
Battle Mountain Gold Company  347   183 
Newmont Global Employ Limited  235   223 
Newmont Midas Operations Inc.  91   1 
Newmont Peru S.R.L.  70   162 
Newmont Santa Fe Pacific Chile  32   26 
Suriname Gold  16   545 
Newmont (Other)  61   13 
  $36,017  $25,539 
         
Balance payable for related parties-        
Newmont USA Limited $28,840  $17,219 
S.M.R.L. Chaupiloma Dos de Cajamarca  11,911   7,152 
Newmont Technologies Limited  4,013   3,539 
Newmont International Service Limited  3,485   3,253 
Newmont Peru S.R.L.  1,696   1,589 
Newmont Mining Services Pty Ltd  589   1,403 
Newmont Ghana Gold Limited  122   - 
Newmont Midas Operations Inc.  91   1 
Newmont Santa Fe Pacific Chile  27   28 
Newmont (Other)  297   91 
  $51,071  $34,275 

All the balances above are of current maturity, have no specific guarantees and are not interest-bearing.

b)Major transactions between the Company and its related parties were as follows for the years ended December 31:

  2014  2013  2012 
Royalties (note 1) $36,867  $44,167  $66,586 
Management services $35,974  $52,994  $88,476 

F-122

9INVENTORIES

This item comprises:

  As of December 31, 
  2014  2013 
Precious metals $3,265  $4,385 
Leach in-circuit  7,269   2,012 
Mill in-circuit  815   2,848 
Materials and supplies  58,386   65,199 
   69,735   74,444 
Allowance for obsolescence of materials and supplies  (4,832)  (5,568)
  $64,903  $68,876 

10STOCKPILES AND ORE ON LEACH PADS

This item comprises:

  As of December 31, 
  2014  2013 
Short term -        
Stockpiles $137,852  $71,629 
Ore on leach pads  241,051   177,198 
Impairment adjustment  (108,392)  (64,839)
  $270,511  $183,988 
Long term -        
Stockpiles $92,217  $212,997 
Ore on leach pads  262,485   202,953 
Impairment adjustment  (138,893)  (86,587)
  $215,809  $329,363 

During 2014, the Company recorded an impairment adjustment to net realizable value of the ore on leach pads amounting to $95.9 million ($146.1 million and 5.4 million in 2013 and 2012, respectively).

In the opinion of Company’s Management, the write-off to the net realizable value of the ore on leach pads adequately covers their impairment loss as of the date of the consolidated statement of financial position.

11OTHER CURRENT ASSETS

This item comprises:

  As of December 31, 
  2014  2013 
VAT fiscal credit $84,342  $47,736 
Prepaid expenses  14,880   10,786 
Insurance paid in advance  677   1,027 
Other employee benefits  266   947 
Other  11,716   15,114 
  $111,881  $75,610 

The balance of VAT fiscal credit that arises from purchases of goods and services increased in 2014 with respect to 2013 because the amount used for the application of advance payment of the income tax and the special mining tax was lower than prior year due to lower taxable income in 2014.

F-123

12AVAILABLE-FOR-SALE FINANCIAL ASSETS

In November 2008, the Company funded the San Jose Reservoir Trust for $13 million to ensure the continuity of the Company's operations in the San Jose Reservoir after 2018. Such trust is irrevocable and is a separate legal entity of the Company. The grantor is the Company, the trustee is the Banco de Crédito del Perú and the beneficiary is the Company; therefore, the Company consolidates the trust in its consolidated financial statements. As of December 31, 2014, trust total balance of $16.8 million has been placed in other financial investments for $11.4 million and equity investments of $5.4 million.

During 2014, these investments, denominated in United States dollars, accrued income net of taxes of $65 (loss of $226 and income of $1,129, in 2013 and 2012, respectively) which are included in other comprehensive income.

13PROPERTY, MACHINERY AND EQUIPMENT

Changes in the property, machinery and equipment accounts and in their corresponding accumulated depreciation as of December 31, 2014 and 2013 are as follows:

              Transfer /    
  Opening           Other  Final 
  balance  Additions  Disposals  Impairment  changes  balances 
Year 2014 -                        
Cost -                        
Land  21,142   -   (243)  (5,563)  -   15,336 
Land improvements  30,977   -   -   (8,247)  -   22,730 
Building and constructions  670,767   -   (1,250)  (225,977)  179,388   622,928 
Machinery and equipment  493,703   -   (80,982)  (116,971)  26,691   322,441 
Leach pads  691,535   -   -   (207,279)  87,132   571,388 
Vehicles  13,651   -   (1,011)  (3,362)  -   9,278 
Furniture and fixtures  2,741   -   -   (711)  -   2,030 
Other equipment  87,557   96   (434)  (23,262)  179   64,136 
Work in progress  985,759   111,598   -   (215,449)  (288,002)  593,906 
   2,997,832   111,694   (83,920)  (806,821)  5,388   2,224,173 
                         
Accumulated depreciation -                        
Land improvements  19,080   (5,737)  2,469   15,812         
Building and constructions  348,455   70,578   (629)  (112,786)  5,288   310,906 
Machinery and equipment  302,722   28,117   (39,137)  (77,558)  (349)  213,795 
Leach pads  674,162   32,691   -   (188,326)  615   519,142 
Vehicles  10,708   432   (987)  (2,930)  863   8,086 
Furniture and fixtures  2,675   11   -   (697)  2   1,990 
Other equipment  74,731   687   (230)  (20,285)  1,025   55,928 
   1,432,533   132,516   (40,983)  (408,319)  9,913   1,125,659 
Net cost  1,565,299                   1,098,514 
                         
Year 2013 -                        
Cost -                        
Land  32,690   -   (760)  640   (11,428)  21,142 
Land improvements  43,707   -   -   -   (12730)  30,977 
Building and constructions  829,699   -   (815)  118,506   276,623   670,767 
Machinery and equipment  558,921   -   (39,276)  183,500   (209,442)  493,703 
Leach pads  972,797   -   -   3,004   (284,266)  691,535 
Vehicles  23,228   -   (3,966)  402   (6013)  13,651 
Furniture and fixtures  2,719   -   -   1,179   (1,157)  2,741 
Other equipment  50,632   -   (413)  73,357   (36,019)  87,557 
Work in progress  1,526,315   327,453   -   (335,028)  (532,981)  985,759 
   4,040,708   327,453   (45,230)  45,560   (1,370,659)  2,997,832 
Accumulated depreciation -                        
Land improvements  22,609   4,311   -   -   (7840)  19,080 
Building and constructions  416,229   75,360   (343)  553   (143344)  348,455 
Machinery and equipment  389,226   62,718   (16,816)  (6,691)  (125,715)  302,722 
Leach pads  932,223   20,567   -   (1,504)  (277,124)  674,162 
Vehicles  16,777   2,311   (3,870)  -   (4510)  10,708 
Furniture and fixtures  2,608   17   -   1,179   (1,129)  2,675 
Other equipment  39,440   4,593   (370)  61,793   (30,725)  74,731 
   1,819,112   169,877   (21,399)  55,330   (590,387)  1,432,533 
Net cost  2,221,596                   1,565,299 

Additions to work in progress in 2014 are basically related to the development of leach pads, water treatment plant, Verde Bioleach project and the engineering of the Conga reservoir and procurement activities.

The depreciation expense for the years ending December 31, 2014, 2013 and 2012 was recorded as cost applicable to sales in the statement of comprehensive income.

14INTANGIBLE ASSETS

Changes on intangible assets and their corresponding accumulated amortization, as of December 31, 2014 and 2013, are as follows:

  Opening           Other  Final 
  balance  Additions  Disposals  Impairment  changes  balances 
Year 2014 -                        
Cost -                        
Software  38,831   -   -   (10,337)  -   28,494 
Mining rights  46,061   -   -   (12,261)  -   33,800 
Asset retirement and mine closure  270,589   64,520   -   (89,206)  -   245,903 
Stripping activity asset  110,349   104,487   -   (57,187)  -   157,649 
Other intangibles  45,585   -   -   (12,135)  -   33,450 
Mine development  644,904   -   -   (172,476)  3,013)  475,441 
Carried forward:  1,156,319   169,007   -   (353,602)  3,013   974,737 
                         
Accumulated amortization -                        
Software  16,686   3,704   -   (5,415)  -   14,926 
Mining rights  6,208   -   -   (7,162)  20,698)  19,744 
Asset retirement and mine closure  126,291   39,214   -   (43,932)  -   121,102 
Stripping activity asset  66,029   96,785   -   (50,124)  26,028)  138,178 
Other intangibles  10,856   2,581   -   (3,859)  -   10,638 
Mine development  342,726   85,534   -   (100,471)  (50,835)  276,954 
   568,796   227.818   -   (210,963)  (4,109)  581,542 
Net cost  587,523                   393,195 
                         
Year 2013 -                        
Cost -                        
Software  25,150   -   -   29,638)  (15,957)  38,831 
Mining rights  69,779   -   -   (2,842)  (20,876)  46,061 
Asset retirement and mine closure  333768   44,604   -   3528)  (111,311)  270,589 
Stripping activity asset  90,024   65,677   -   -   (45,352)  110,349 
Other intangibles  64,810   -   -   3,527)  (22,752)  45,585 
Mine development  930,709   -   -   (9,451)  (276,354)  644,904 
   1,514,240   110,281   -   24,400   (492,602)  1,156,319 
                         
Accumulated amortization -                        
Software  17,602   5,941   -   -   (6857)  16,686 
Mining rights  8,934   -   -   (174)  (2552)  6,208 
Asset retirement and mine closure  122,595   48,014   -   7586   (51904)  126,291 
Stripping activity asset  61,350   31,816   -   -   (27137)  66,029 
Other intangibles  10,261   5,612   -   -   (5017)  10,856 
Mine development  386,091   98,782   -   (1,288)  (140,859)  342,726 
   606,833   190,165   -   6,124   (234,326)  568,796 
Net cost  907,407                   587,523 

The amortization expense for the years ending December 31, 2014, 2013 and 2012 was recorded as cost applicable to sales in the statement of comprehensive income.

14TAX SITUATION

a)Tax stabilization agreements

The Company has entered into the following tax stability agreements, each with a term of 15 years:

Date of theTax Regimes
MineEffectiveTax Agreementin Force
Cerro YanacochaJanuary 1, 2000September 16, 1998May 22, 1997
La QuinuaJanuary 1, 2004August 25, 2003August 25, 2003

These agreements guarantee the Company’s use of the tax regimes shown in the table above and permit maintenance of its accounting records in U.S. dollars.

The Cerro Yanacocha tax stabilization agreement expired on January 1, 2015 and is no longer in effect.

The Company determines the taxable income based on its understanding and that of its legal advisors, of applicable tax legislation. Taxable income differs from pre-tax income disclosed within these financial statements by those items that the applicable tax legislation deems to be non-taxable or non-deductible.

For the years ended December 31, 2014, 2013 and 2012 the income tax rate was 30% except for the La Quinua mine for which a 29% income tax rate applied.

On December 31, 2014 the Peruvian Government enacted modifications to Income Tax regulations applicable beginning in 2015. Among the modifications, a progressive income tax rate reduction was approved, as follows: 28%, for fiscal years 2015 and 2016, 27% for fiscal years 2017 and 2018; and 26% from 2019, onward. The effect on the 2014 financial statements of these changes was the reduction of the deferred income tax asset by $65,020 (see d below).

b)Other mining taxes

i)Law N° 29788, Mining Royalties

On 28 September 2011, the Peruvian Government enacted new legislation to comprise a new mining tax payable to the Peruvian Government for extracting metallic and non-metallic mineral resources from its mining concessions.

Pursuant to this legislation, the mining royalty is payable quarterly based on sales and operating profit determined in accordance with IFRS (Peruvian GAAP through 2012). The royalty amount due is 1% of revenue. An additional mining tax due is calculated based on the level of operating profit up to a maximum applicable rate of 12%. This component of the new mining tax only applies to those projects that are not covered by a tax stabilization agreement. In 2014, 2013 and 2012 $8,291, $7,135 and $5,102 respectively, were charged toRevenue from salesbased on 1% of revenue and $1,019, $6,132 and $2,359 were included inIncome and mining tax expensebased on an average of 0.56%, 1.81%,3.46% of operating profit, respectively.

ii)Law N° 29789, Special Mining Tax

The Special Mining Tax (“IEM”) applies to mines not covered by a tax stabilization agreement. The IEM is payable on a quarterly basis with rates ranging from 2% to 8.4% of operating profit determined, in accordance with Peruvian generally accepted accounting principles.

The rate varies depending on the level of operating profit. During 2014, 2013 and 2012; $5,479 $11,693 and $6,900, respectively, were included in Income and mining tax expensedue to the IEM based on average of 0.83%, 3.45% and 3.13% of operating profit, respectively.

iii)Law N° 29790, Special Mining Charge

The Special Mining Charge (“GEM”) applies to mines covered by a tax stabilization agreement. The GEM is payable on a quarterly basis with rates ranging from 4% to 13.12% of operating profit, determined in accordance with Peruvian GAAP. The rate varies depending on the level of operating profit margin. The GEM applied to operations at Cerro Yanacocha and La Quinua in 2014, 2013 and 2012. This resulted in $7,156, $12,547 and $68,644, respectively, of additional Income and mining tax expensebased on average of 3.01%, 3.23% and 6.55% of operating profit, respectively.

iv)Law N° 29471, Supplementary Fund

The Supplementary Fund for retirement of mining applies to metallurgical and steel workers, affiliated to the National Pension System (SNP) and the Private Pension System (PPS); and is applicable since May 11, 2012. This Fund is formed by contributions of employees and employer which are distributed according to the following detail:

-Employers will contribute 0.5% of the annual income before taxes.
-Employees will contribute 0.5% of their monthly gross salary.
-The employer's contributions are paid before tax; therefore these amounts are deductible expenses for the year.

The new pension fund tax is calculated based on annual income determined in accordance with Peruvian generally accepted accounting principles and is payable quarterly. During 2014 and 2013 these amounts included in Income and mining tax expense amounted to $2,288 and $1,061, respectively.

c)Peruvian income tax and workers’ profit participation

The current income tax and workers’ profit participation expense (note 16) was determined as follows:

  Years ended December 31 
  2014  2013  2012 
Loss before workers’ profit participation and            
income tax (in accordance with Peruvian GAAP            
through 2012 and IFRS in 2013 and 2014) $(430,829) $(778,750) $1,074,530 
             
Plus:            
Non-deductible expenses  53,612   46,123   27,503 
Amortization ARC  83,448   20,564   13,820 
Unwinding of discount of the provision for            
remediation and mine closure  22,914   18,113   20,090 
Pre-operating expenses in advanced projects  42,543   36,374   49,904 
Provision for government mining royalties  8,799   3,123   12,552 
Depreciation of capitalized interest  1,018   1,018   4,357 
Provision for contingencies and commitments  1,389   27,596   909 
Amortization of right to use of road  2,849   2,849   2,849 
Lease benefit  -   79   7,534 
Provision for obsolescence and impairment            
of inventories  8,471   145,615   6,901 
Non-deductible expenses attributable to Conga  7,929   5,476   45,413 
IFRS first adoption adjustments to inventories  51,151   113,676   - 
Amortization of production stripping activity asset  155,362   24,023   - 
Impairment loss  541,141   1,038,548   - 
Depreciation differences due to application of            
tax depreciation rates in force  96,564   57,581   - 
Other  13,572   2,771   10,914 
Carried forward:  1,090,762   1,519,506   202,746 
             
Less:            
Amortization and mineral interests  79,515   47,325   (148,995)
Tax amortization rate adjustment  -   -   (19,332)
Remediation paid  (10,418)  (4,387)  (7,661)
Other mining taxes  (23,149)  (43,796)  (91,935)
Acquisition of intangible assets in cash  -   (12,573)  - 
Depreciation and amortization of impaired assets  (147,314)  -   - 
Stripping cost expensed for tax purposes  (104,487)  (41,654)  - 
Other  -   -   - 
   (205,853)  (55,085)  (267,923)
Base of the workers’ profit participation  454,080   685,671   1,009,353 
Workers’ profit participation (8%)  (36,326)  (54,854)  (80,748)
2013 workers’ profit participation paid in 2014            
(2012 paid in 2013)  (3,936)  (40,264)  - 
Taxable income $413,818  $590,553  $928,605 
             
Income tax (30%) $124,145  $177,166  $278,581 
Adjustment due to income tax rate applicable to La Quinua  (1,138)  (1,624)  (1,149)
Current income tax $123,007  $175,542  $277,432 

The Company’s income tax provision consisted of the following:

  Years ended December 31 
  2014  2013  2012 
Current Peruvian tax returns $123,007  $175,542   277,432 
Royalties and mining taxes  14,349   40,673   79,383 
Other taxes  943   591   1,157 
Income tax prior year adjustments  -   10,348   (763)
Current income tax  138,299   227,154   357,209 
Deferred income tax  (168,790)  (430,625)  28,618 
Income tax (gain) expense ($30,491) ($230,471) $385,827 

Although the Company reported financial losses it still has reported taxable income in each of the three years presented.

d)Reconciliation from Peru tax return to income tax expense and tax balance sheets

Income tax expense differs from the amount computed by applying the statutory Peruvian corporate income tax rate of 30% to pre-tax income as a result of the following:

  Years ended December 31, 
  2014  2013 
Loss before workers’ profit participation and income tax $430,829) $(778,750)
Peruvian statutory tax rate  30%  30%
Income tax  (129,249)  (233,625)
Adjustment due to income tax rate applicable to La Quinua  (1,138)  (1,624)
Non-deductible expenses  20,321   8,115 
Penalties and interest  179   35 
Worker’s profit participation  (10,898)  (16,456)
Other mining taxes  10,044   40,672 
Tax basis update  9,462   - 
Tax rate update  65,020   - 
Other  5,768   (588)
Total income tax gain $(30,491) $(203,471)

Components of deferred income tax assets (liabilities) are as follows:

  As of December 31, 
  2014  2013 
Deferred income tax assets:        
Reclamation and remediation $90,573  $91,289 
Accounts payable and accrued expenses  46,873   43,904 
Inventories  15,903   18,983 
Property, machinery and mine development  326,496   157,024 
Other  3,662   3,912 
   483,507   315,112 
Deferred income tax liabilities:        
Other  (28)  (394)
   (28)  (394)
Net deferred income tax assets $483,479  $314,718 
         
Short term deferred income tax assets $4,349  $4,349 
Long-term deferred income tax asset  479,130   310,369 
Net deferred income tax asset $483,479  $314,718 

Additionally, the Company's tax files are subject to review by the Peruvian tax authorities. The Company’s tax records are subject to review by Peruvian tax authorities for fiscal periods after fiscal year 2008.

16WORKERS’ PROFIT SHARING

In accordance with Peruvian legislation, the Company maintains an employee profit sharing plan equal to 8% of annual taxable income. Distributions to employees under the plan are based 50% on the number of days that each employee worked during the preceding year and 50% on proportionate annual salary levels.

In 2014, 2013 and 2012, the current expense portion of workers’ profit participation amounted to $36,326, $52,966 and $80,748, respectively, of which $35,055, 49,259 and $72,673 was included inCosts applicable to salesand the difference was allocated to the Conga project.

Peruvian law limits payments of annual profit sharing per employee to eighteen months salary but continues to base total profit sharing on 8% of taxable income, notwithstanding the per employee limitation. Supreme Decree N°009-98-TR, published on August 6, 1998, provides that the excess of total profit sharing for the year over aggregate profit sharing payable to all employees be paid to the Fondo Nacional de Capacitación Laboral y de Promoción del Empleo (“FONDOEMPLEO”). Law 28464 published in January 2005, which modified article 3 of Law Decree 892, provides that the excess of total profit sharing for the year over aggregate profit sharing payable to all employees be applied to training of employees and construction of public facilities. Supreme Decree N° 002-2005-TR, published in May 6, 2005, establishes a limit of 2,200 UIT (inflation measurement unit, of S/.3,800 new Peruvian sol per unit at December 31, 2014) in the contributions to FONDOEMPLEO indicating that the difference goes to the Regional Government.

17OTHER CURRENT LIABILITIES

This item comprises:

  As of December 31, 
  2014  2013 
Provision for remediation and mine closure (note 18) $15,112  $34,848 
Payroll and other benefits  11,239   8,828 
Accrual of operating costs  10,895   23,015 
Withholding income tax  2,151   1,613 
Accrual of capital projects  2,112   4,754 
Other taxes  812   887 
Deferred revenues  -   321 
Other  170   3,548 
  $42,491  $77,814 

18PROVISION FOR REMEDIATION AND MINE CLOSURE

The Company’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the amount of such future expenditures. Estimated future remediation costs are based principally on legal and regulatory requirements.

The liability for remediation or the ARO comprises activities carried out by the Company in the restoration of mines and adjacent areas in the completion stage of the gold extraction process. Such activities include the restoration of mining locations, water treatment plant operations, as well as reforestation and land treatments.

The movement of the ARO for 2014, 2013 and 2012 is broken down as follows:

  2014  2013  2012 
Opening balance $460,127  $392,217  $264,608 
Additional provisions  84,835   54,184   122,702 
Payments made  (10,419)  (4,387)  (7,661)
Unwinding of discount (note 22)  22,914   18,113   12,568 
Final balance $557,457  $460,127  $392,217 

The current portion of the remediation liability, which amounts to $15,112 and $34,848 at December 31, 2014 and 2013, respectively, is included inother current liabilities(note 17).

The increase in the asset retirement obligation in 2014 relates to additional remediation and reclamation requirements caused by the impact of mining activities during 2014, additional costs for waste rock reclamation and new Peruvian regulatory requirements that extended the water treatment and monitoring requirements more than 20 years.

19PARTNERS’ EQUITY

Partners’ contributions

Partners’ contributions comprise 1,278,451,304 common partnership interests at a par value of one Peruvian Nuevo sol each, fully subscribed and paid-in. Such partnership interest includes 720,407,310 shares that are owned by foreign investors.

Under current Peruvian regulations, there is no restriction on the remittance of dividends or repatriation of foreign investment, except as discussed in sections below.

The legal structure of the Company is that of a Peruvian limited liability partnership. Major features of such legal structure are: (i) the number of Partners cannot exceed 20, (ii) capital comprises the partnership interests, and (iii) there is no obligation to create a legal reserve.

Retained earnings

Effective January 1, 2003, distribution of earnings to Partners other than legal entities domiciled in Peru is subject to a withholding tax of 4.1% for income tax charged to the partners.

On December 31, 2014 the Peruvian Government enacted modifications regarding dividends and other forms of revenue distributions. For individuals and non-resident legal entities, the tax rate applicable increased from 4.1% to 6.8%, for dividend distributions in cash or non-monetary assets for fiscal years 2015 and 2016; whereas during fiscal years 2017 and 2018 the applicable rate will be of 8.8%; and 9.3% from 2019, onward.

F-130

20COSTS RELATED TO SALES

Costs related to sales for the years ended December 31 were as follows:

  2014  2013  2012 
Beginning balance of inventories $522,597  $545,183  $504,597 
Acquisition of supplies  300,810   335,967   278,697 
Personnel expenses  106,693   134,667   111,711 
Other services  189,522   214,279   61,973 
Maintenance  47,090   58,624   59,425 
Power  30,485   32,549   35,768 
Insurance and leases  5,415   5,301   7,350 
Depreciation and amortization  360,334   349,760   277,924 
Sale of by-product  (9,595)  (8,026)  (17,119)
Workers’ profit participation  35,055   49,259   72,673 
Stripping costs capitalized  (104,487)  (65,677)  (10,325)
Remediation expenses related to Yanacocha            
leach pad  20,314   -   - 
Net realizable value adjustment  (95,859)  (146,051)  (5,375)
Ending balance of inventories  (497,669)  (522,597)  (545,183)
Costs related to sales $910,705  $983,238  $832,116 

21ADMINISTRATIVE EXPENSES

Administrative expenses for the years ended December 31 were as follows:

  2014  2013  2012 
Management expenses $19,938  $17,480  $35,026 
Community development expenses and            
external affairs  15,653   46,482   30,078 
Other  2,671   3,102   5,812 
  $38,262  $67,064  $70,916 

22OTHER OPERATING EXPENSES, NET

Other expenses, net for the years ended December 31 were as follows:

  2014  2013  2012 
Exploration and advanced projects $58,880  $64,510  $121,723 
Severance program  16,438   19,323   40,946 
Disposal of fixed assets  13,530   6,592   23,368| 
Other income  (6,149)  (8,924)  - 
Others, net  (4,918)  (3,966)  6,831 
  $77,781  $77,534  $192,869 

23FINANCIAL EXPENSES

Financial expenses for the years ended December 31, 2014, 2013 and 2012 mainly are related to the unwinding of the discount of the remediation and mine closure liability (note 18) $22,914, $18,113 and $12,568, respectively.

24COMMITMENTS AND CONTINGENCIES

Unitization of properties

In December 2000, as a result of the unitization plan carried out by the Partners, the Company signed several asset transfer and mining lease agreements with related entities. The main conditions are:

·The Company must pay to Chaupiloma, 3% of the quarterly net sales, according to the lease agreement. The mining rights subject to this 3% royalty are those identified in the lease agreement as part of the “Area of Influence of Chaupiloma”. Some of these mining rights are in exploitation and the rest of them in exploration.

·The Company must pay to S.M.R.L. Coshuro (“Coshuro”) and Buenaventura, 3% of the quarterly net sales, according to the transfer agreement. The mining rights subject to this 3% royalty are those identified in the transfer agreement, and are located out of the “Area of Influence of Chaupiloma” and within the “Area of Influence of the Joint Venture”. These mining rights are currently under exploration.

·The Company must pay to Los Tapados S.A., 3% of the quarterly net sales proceeds of mineral extracted from the transferred and leased concessions of Los Tapados S.A. The transferred and leased concessions of Los Tapados S.A. are also subject to a previously existing royalty on the minerals. These mining rights are currently under exploration.

Legal proceedings

Choropampa (mercury spill)

In June 2000, a transport contractor of Yanacocha spilled approximately 151 kilograms of elemental mercury near the town of Choropampa, Peru, which is located 53 miles (85 kilometers) southwest of the Yanacocha mine. Elemental mercury is not used in Yanacocha’s operations but is a by-product of gold mining and was sold to a Lima firm for use in medical instruments and industrial applications. A comprehensive health and environmental remediation program was undertaken by Yanacocha in response to the incident. In August 2000, Yanacocha paid under protest a fine of 1,740,000 Peruvian soles (approximately $500) to the Peruvian government. Yanacocha has entered into settlement agreements with a number of individuals impacted by the incident. As compensation for the disruption and inconvenience caused by the incident, Yanacocha entered into agreements with and provided a variety of public works in the three communities impacted by this incident. Yanacocha cannot predict the likelihood of additional expenditures related to this matter.

Additional lawsuits relating to the Choropampa incident were filed against Yanacocha in the local courts of Cajamarca, Peru, in May 2002 by over 900 Peruvian citizens. A significant number of the plaintiffs in these lawsuits entered into settlement agreements with Yanacocha prior to filing such claims. In April 2008, the Peruvian Supreme Court upheld the validity of these settlement agreements, which the Company expects to result in the dismissal of all claims brought by previously settled plaintiffs. Yanacocha has also entered into settlement agreements with approximately 350 additional plaintiffs. The claims asserted by approximately 200 plaintiffs remain. In 2011, Yanacocha was served with 23 complaints alleging grounds to nullify the settlements entered between Yanacocha and the plaintiffs. Yanacocha has answered the complaints and will continue to vigorously defend its position. The Company cannot reasonably estimate the ultimate loss relating to such claims.

Since December 2010 to date, 23 new claims involving 29 plaintiffs were received by Yanacocha. In these claim, plaintiffs are requesting the Judge to (i) declare void the compensation agreement signed with Yanacocha and to (ii) award them with new compensation amounts. Two of these new claims involving two plaintiffs were dismissed as they did not comply with formal requirements.

In 19 of these cases, the initial presiding judge admitted a motion to dismiss based on prescription of the actions and dismissing the claims. Plaintiffs appealed this decision, and Superior Court confirmed it in 18 cases. In 8 of these cases, plaintiffs have challenged this decision in front of the Supreme Court, but to date one of them has already been dismissed. In one of the claims, a different presiding judge accepted the Company’s motion to dismiss the claim regarding a new award but the Supreme Court has dismissed the matters and confirmed statute of limitations declared by Cajamarca Superior Court. To date most of the cases from 2010 were dismissed in final court decisions. Only 6 complaints are currently pending resolution.

Baños del Inca

In September 2006, the Municipality of Baños del Inca issued a declaration designating an area that includes the Carachugo Expansion and San José Projects as reserved and protected areas. Based on previous experience and actions taken by the Constitutional Tribunal (Peru Court of Last instance for Constitutional issues) in respect of Cerro Quilish in which it was ruled that such declaration did not affect the Company’s mining rights, the Company believes that Baños del Inca’s declaration, should not impact the Company’s legal rights to exploit these concessions.

In March 2008, the company filed an Action for Constitutional Relief (Amparo) against the Municipality of Baños del Inca seeking that the referred ordinance be declared inapplicable. The Court of first instance of Lima rejected the claim lodged by the Municipality of Baños del Inca regarding the jurisdiction of such court to hear this case. On March 14, 2011 the Court of first instance of Lima served the ruling it had issued declaring the complaint inadmissible. The judgment was appealed by Yanacocha. By a resolution served on August 15, 2011, the first Civil Courtroom of the Superior Court of Lima declared void the judgment of first instance, ordering the Judge to issue a new ruling. On September 7, 2012 Yanacocha requested the Civil Courtroom to issue a judgment due to its constitutional rights being seriously threatened by the Municipality of Baños del Inca. The action is pending a new judgment to be issued by the Court of first instance with no judgment issued to-date.

San Pablo

In February 2007 the Municipality of San Pablo issued an Ordinance declaring Las Lagunas and Pozo Seco, where the company holds concession rights, as reserved and protected areas. According to past experience and actions taken by the Constitutional Court with regard to Cerro Quilish, where it was ruled that such declaration did not affect the company's mining rights, the Company believes that in this case, the declaration issued by the Municipality of San Pablo should not impact the legal rights it has to exploit these concessions. The company filed an Action for Constitutional Relief (Amparo) challenging the Ordinance on the grounds that, under Peruvian law, local governments are not empowered to create such areas, denying the rights granted by the Peruvian mining concessions. The Court of first instance rejected the complaint on grounds of form; then, the corresponding appeal was lodged.

On November 19, 2008 the second Civil Courtroom of the Superior Court of Lima confirmed the first instance ruling rejecting the action for relief, which led to the filing of an extraordinary appeal with the Constitutional Court. By a ruling dated December 10, 2010 the Constitutional Court revoked the resolution issued by the second Civil Courtroom of the Superior Court of Lima and ordered that the complaint be admitted for processing.

By resolution served on March 25, 2011, the Court of First Instance admitted the complaint for processing and that it is served to the Provincial Municipality of San Pablo. The Municipality of San Pablo answered the complaint asserting the expiration of the statute of limitations of the action for relief. Yanacocha has requested the rejection of the expiration of the statute of limitations asserted on the grounds that the complaint for constitutional relief was timely filed.

On October 31, 2012 the defendant presented new evidence. By resolution served on December 10, 2012, the Courts resolved to confirm the Resolution N°26 which declared unfunded the exception of prescription of the case. The Court ruling on the statute of limitations is pending until March 2014. To date this case is pending of resolution.

Action for Constitutional Relief against Conga Project Exploitation

On October 19, 2012, Marco Antonio Arana Zegarra (“Marco Arana”) initiated an action for constitutional relief against the Mines and Energy Ministry and Yanacocha requesting that the Court orders to cease any threats of violation to life in an adequate and balanced environment; so that Court declare the suspension of the exploitation of the Conga Project and avoid Directorial Resolution No.351-2010-MEM/AM dated on October 27, 2010 that approved the Conga Environmental Impact Assessment.

By Court resolution No. 1 dated on October 23, 2012 the action was dismissed. On November 5, 2012, resolution No. 1 was appealed by plaintiff and the hearing at Superior Court was held on March 4, 2013. The Cajamarca Superior Court confirmed the ruling of the judge that dismissed the claim.

On May 23, 2013, Marco Arana filed for a Constitutional remedy against the Cajamarca Superior Court decision and on June 3, 2013 the Cajamarca Superior Court accepted the Constitutional remedy filed by Marco Arana and the file has been sent to the Constitutional Court. On September 25, 2013, the Constitutional Court heard oral arguments from the parties and we are waiting their decision. To date the case maintains the same status.

Clínica International, Adecco, SGC Security

Employees belonging to three contractors (Clinica International, Adecco, SCG Seguridad) have filed legal actions during 2008 claiming to be included in Minera Yanacocha's payroll. These workers claim that for all practical effects they are employees of the Company and therefore are entitled to all the rights attached thereto, arguing that they receive direct orders from Yanacocha and that most of the infrastructure and equipment used in the performance of their duties is also provided by the Company. These proceedings involve a total of 97 workers. The cases are detailed as follows:

Regarding the Adecco employees, the complaint includes 77 plaintiffs. This complaint was declared groundless in the first instance and confirmed by the Civil Courtroom. Thus, the plaintiffs filed an appeal for reversal. As of February 2013, the records were forwarded to the Standing Constitutional and Social Courtroom of the Supreme Court of Justice of the Republic, but the complaint was not accepted. Also during this time, some of the plaintiffs desisted from the claim. As of the date of the filing, this complaint is finished, as no plaintiffs are remaining in the process.

Regarding the Clinica International employees, the complaint includes 14 plaintiffs. On January 2014, three cases were dismissed by first instance. The remaining 11 are in process until March 2014. On January 2015, Cajamarca Superior Court dismissed the last two cases. Plaintiffs have challenged this decision in front of the Supreme Court.

In the case of SGC Security workers, the complaint includes 6 plaintiffs. The issuance of judgment in the first instance is pending, since the previous judgment was declared null by the Civil Courtroom. On January 31, 2014, the claim was dismissed by the court. Currently, Yanacocha has only one case regarding SGC Security. In this case, first judge dismissed the case. Plaintiff appealed decision.

Letters of Guarantee

The Company has signed Letters of Guarantee with various financial institutions in accordance with the Mine Closure Regulation approved by Supreme Decree No.033-2005 of The Ministry of Energy and Mines. The table below sets out the outstanding signed commitments at year end by financial institution. In general, these letters of guarantee are renewed annually.

  As of December 31, 
  2014  2013 
Banco de Crédito del Peru $150,000  $105,000 
BBVA Continental  100,000   71,000 
Interbank  15,300   30,000 
Scotiabank  19,000   - 
  $284,300  $206,000 

These four letters of guarantee shall come into force if the Company fails to execute in whole or in part the Mine Closure Plan.

25SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Company´s financial statements have been prepared in accordance with International Financial Reporting Standards which differs in certain respects from U.S. GAAP. The effects of these differences are reflected in note 26 and are principally related to the items discussed in the following paragraphs:

a)Property, machinery and equipment –

Under IFRS, the fixed assets under $10 was capitalized, for US GAAP, this asset is recorded as Company expenses.

b)Product inventories –

Under IFRS the cost inventory includes: (i) the depreciation and amortization expense, (ii) the amortization of production-stripping costs and (iii) workers’ participation expense is capitalized (labour cost); therefore the portion related to operations was included in inventories. Under US GAAP the cost inventory excludes these items.

Net realizable values tests on IFRS inventories balances were prepared on each financial reporting dates; based on pricing guidance provided by Newmont (consistent with U.S. GAAP). A net realizable value inventory write-down was booked as of December 31, 2014 amounting to $95 million and was booked to cost applicable to sales ($146 million as of December 31, 2013).

c)Asset retirement cost for mine closure and reclamation and remediation liabilities –

Under IFRS, the liability was measured in accordance with IAS 37, the discount rate used was the risk free rate adjusted for the appropriate Peru country risk. For the year ended December 31 the Company used 3.96% (4.98% for the years ended December 31, 2013 and 2012).

Under US GAAP, the liability was measured in accordance with SFAS 143 and the discount rate use was the risks free US.

d)Stripping costs –

Under IFRS, the stripping costs in the production phase of a surface mine shall be accounted for according to IFRIC 20.

The Company identified the primary components of the ore body on a pit by pit basis as well as within major pits. The stripping activities conducted during 2012, 2013 and 2014 were analysed and stripping costs were assigned based on whether they pertained to current inventory production or improved access to future ore bodies (or components of an ore body). Based on this analysis, the Company allocated the costs associated with improved access incurred during 2012, 2013 and 2014 to a production stripping asset; based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body. With regard to the 2011 activity, the offset of the asset creation, net of depreciation, was to the beginning IFRS balance sheet retained earnings. Costs allocated to production stripping assets in 2013 and 2014 were established with the offsetting credit going to cost applicable to sales and inventories. The depreciation of the production stripping asset was calculated on a systematic basis - “waste-to-ore-ratio” tons method. This depreciation is a production cost and included in the adjustments in inventories.

Under U.S. GAAP, the costs of clearing removal (stripping cost of production) incurred during the production stage are recorded as part of the production cost of inventories.

e)Impairment –

The decline of prices was deemed to be indicators of potential impairment of Yanacocha and Conga assets. Accordingly, impairment assessments were required as of the December 31, 2013 reporting date. In 2014 the triggering event was a three year delay of the development of the Conga Project, which effectively lowered the discounted cash flows.

The discount interest rate used in the impairment calculations under the fair value less costs of sale methodology was 8.04% after tax which was based on a peer group of mining companies adjusted for Peru country risk (7.1% for the impairment calculation for the year ended December 31, 2013. The rate is a “real” versus “nominal” rate as the cash flow models were not escalated for inflation. This discount rate was used for both segments Yanacocha and Conga.

As a result of the impairment assessments, the Company recorded impairment losses amounting to $541million related to Conga, the Company no recorded impairment losses for Yanacocha ($1,038 million for the year ended December 31, 2013, $453 million related to Yanacocha and $585 million related to Conga).

Under US GAPP, the Company performed the impairment calculation and no impairment losses were determined for Yanacocha and Conga cash-generating units.|

f)Deferred income tax -

i.The differences between US and IFRS are re-measurements lead to different temporary differences. According to the accounting policies in Note 2.19, the Company has to account for such differences. Under USGAAP, calculation is performed under FAS 109.

ii.Under US a deferred workers’ participation is recognized following the same criteria of the deferred income tax calculation. Under IFRS, this benefit is ruled by IAS 19, Employee benefits and therefore is not an income tax for which IAS 12 Income taxes should be applied.

26RECONCILIATION BETWEEN NET INCOME AND SHAREHOLDER’S EQUITY DETERMINED UNDER IFRS AND U.S. GAAP

The following is a summary of the main adjustment to net income for the years ended December 31, 2014, 2013 and 2012 and to shareholders’ equity as of December 31, 2014, 2013 and 2012 that would be required if U.S. GAAP had been applied instead of IFRS in the financial statements:

  Years Ended December 31, 
  2014  2013  2012 
(Loss) income under U.S. GAAP $(31,914) $140,997  $626,540 
Items increasing (decreasing) reported net profit            
 - Impairment (note 25.e)  (541,142)  (1,038,548)  - 
 - Stripping activity asset (note 25.d)  103,021   33,861   (18,420)
 - Deferred workers' participation (note 25.f.ii)  (29,003)  (28,443)  1,347 
 - Property, machinery and equipment (note 25.a)  (10,447)  7,283   2,381 
 - Remediation and mine closure (note 25.c)  (427)  10,690   7,522 
 - Deferred income tax asset (note 25.f.i)  92,634   309,233   (23,917)
 - Inventories (note 25.b)  17,428   (12,042)  51,868 
 - Others  (488)  1,690   608 
(Loss) income under IFRS $(400,338) $(575,279) $647,875 

  As of December 31, 
  2014  2013  2012 
Shareholders’ equity under U.S. GAAP $3,679,612  $3,711,461  $3,570,690 
Items increasing (decreasing) reported            
Shareholders’ equity            
 - Impairment  (541,142)  (1,038,548)  - 
 - Stripping activity asset  45   62,535   28,674 
 - Deferred workers' participation  (38,145)  (9,133)  18,327 
 - Property, machinery and equipment  (886,157)  11,509   1,841 
 - Asset retirement cost  6,963   (61,347)  (76,235)
 - Remediation and mine closure  80,090   132,938   137,136 
 - Deferred income tax asset  353,782   262,990   (46,243)
 - Inventories  26,690   9,533   21,365 
 - Others  (1,961)  (1,888)  - 
Shareholders’ equity under IFRS $2,679,777  $3,080,050  $3,655,555 

Sociedad Minera Cerro Verde S.A.A.

Consolidated Financial Statements for the years 2016, 2015 and 2014, 2013 and 2012
together with the Report of Independent Registered Public Accounting Firm

Sociedad

F-102

Minera Cerro Verde S.A.A.Yanacocha S.R.L. and Subsidiary

 

Consolidated Financial Statements for the years 2016, 2015 and 2014, 2013 and 2012

together with the Report of Independent Registered Public

Accounting Firm

 

Content

ContentReport of Independent Registered Public Accounting FirmF-104
  
Report of Independent Registered Public Accounting FirmConsolidated Financial StatementsF-140
 
Financial Statements
StatementConsolidated statements of financial positionF-141F-106
StatementsConsolidated statements of comprehensive incomeF-142F-107
StatementsConsolidated statements of changes in equityF-143F-108
StatementsConsolidated statements of cash flowsF-144F-109
Notes to the consolidated financial statementsF-146-F-188F-110

F-103

Report of Independent Registered Public Accounting Firm

 

To the BoardPartners of DirectorsMinera Yanacocha S.R.L. and Shareholders of Sociedad Minera Cerro Verde S.A.A.Subsidiary

 

We have audited the accompanying consolidated financial statements of Sociedad Minera Cerro Verde S.A.A.Yanacocha S.R.L. (a Peruvian company, subsidiary of Freeport-McMoRan Copper & Gold Inc.),Company) and Subsidiary, which comprise the consolidated statements of financial position as of December 31, 20142016 and 2013,2015, and the related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for the years ended December 31, 2014, 20132016 and 2012.2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company´s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company´s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management as well asand evaluating the overall financial statementstatements presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sociedad Minera Cerro Verde S.A.A.Yanacocha S.R.L and Subsidiary as of December 31, 20142016 and 2013,2015, and the results of their operations and itstheir cash flows for each of the three years then ended, December 31, 2014, 2013 and 2012, in conformityaccordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (“IASB”) which differ in certain respects from the accounting principles generally accepted in the United States of America (see note 28notes 23 and 24 to the financial statements).

 

Lima, Peru,

February 28, 2017

Countersigned by:

Paredes, Burga & Asociados S. Civil de R. L.

Lima, Peru,/s/ Victor Burga 

Victor Burga

C.P.C.C. Register No. 14859  

 
April 30, 2015F-104 

Report of Independent Registered Public Accounting Firm (continued)

March 30, 2015

To the Partners of

Minera Yanacocha S.R.L.

In our opinion, the accompanying consolidated statements of comprehensive income, changes in equity and cash flows for the year ended December 31, 2014, present fairly, in all material respects, the results of operations and cash flows of Minera Yanacocha S.R.L. and Subsidiary for the year ended December 31, 2014 in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

Countersigned by

Countersigned by:Gaveglio, Aparicio y Asociados S. Civil de R.L. 
  
/s/ Victor BurgaFrancisco Patino (partner) 
Víctor BurgaPeruvian Certified Public Accountant 
C.P.C.C. Register No.14859Registration No. 01-25611
Lima, Peru 

Sociedad Minera Cerro Verde S.A.A.

 

Statement

F-105

Minera Yanacocha S.R.L. and Subsidiary

Consolidated statements of financial position

As of December 31, 20142016 and 20132015

 

  Note 2014  2013 
    US$(000)  US$(000) 
Assets          
Current assets          
Cash and cash equivalents 5(a)  19,574   854,570 
Trade accounts receivable 6  2,374   7,604 
Trade accounts receivable from related parties 21(f)  187,940   308,486 
Embedded derivative 23  -   16,023 
Other accounts receivable 7(a)  235,222   49,703 
Inventories, net 8(a)  232,542   217,000 
     677,652   1,453,386 
Non - current assets          
Other long – term accounts receivable 7(a)  253,184   322,791 
Long - term inventories 8(a)  287,714   216,797 
Property, plant and equipment, net 9(a)  4,544,406   2,831,779 
Intangible assets, net    9,028   3,448 
     5,094,332   3,374,815 
Total assets    5,771,984   4,828,201 
Liabilities and equity, net          
Current liabilities          
Trade accounts payable 10  398,070   268,508 
Accounts payable to related parties 21(f)  11,910   8,293 
Embedded derivative 23  26,782   - 
Income tax payable    15,492   52,740 
Workers’ profit sharing payable 11  33,274   47,447 
Financial obligations 12(a)  50,163   4,577 
Other accounts payable and provisions 13  16,881   45,749 
     552,572   427,314 
Non - current liabilities          
Non - current portion of financial obligations 12(a)  402,686   1,326 
Non - current portion of accounts payable to related parties 21(f)  5,643   3,980 
Non - current portion of other accounts payable and provisions 13  5,317   1,559 
Provision for remediation and mine closure 20(a)  119,948   48,479 
Deferred income tax liability, net 14(a)  220,728   258,059 
     754,322   313,403 
Total liability    1,306,894   740,717 
Equity, net 15        
Issued capital    990,659   990,659 
Legal reserve    198,132   198,132 
Retained earnings    3,276,299   2,898,693 
Total equity, net    4,465,090   4,087,484 
Total liabilities and equity, net    5,771,984   4,828,201 
  Note  2016  2015 
     US$(000)  US$(000) 
          
Current assets            
Cash and cash equivalents  5   677,524   943,761 
Trade and other receivables, net  6   40,975   26,389 
Prepaid income tax      18,175   - 
Value added tax credit      73,227   80,641 
Inventories, net  7   71,298   56,764 
Stockpiles and ore on leach pads, net  8   226,357   237,610 
Prepaid expenses      337   517 
Total current assets      1,107,893   1,345,682 
Non-current assets            
Available-for-sale financial assets  9   16,454   15,803 
Stockpiles and ore on leach pads, net  8   111,889   208,483 
Property, plant and equipment, net  10   799,131   1,364,610 
Intangible assets, net      10,518   30,852 
Total non-current assets      937,992   1,619,748 
Total assets      2,045,885   2,965,430 
Current liabilities            
Trade and other payables  11   66,474   78,430 
Income tax payable      -   12,346 
Current provisions  12   68,662   41,781 
Total current liabilities      135,136   132,557 
Non-current provisions  12   1,025,025   604,048 
Total liabilities      1,160,161   736,605 
Partners' equity, net            
Partners' contributions  13   398,216   398,216 
Additional paid-in-capital      226   226 
Retained earnings      487,282   1,830,383 
Total equity      885,724   2,228,825 
Total liabilities and partners’ equity, net      2,045,885   2,965,430 

F-106

 

The accompanying notes are an integral part of this financial statement.

Sociedad Minera Cerro Verde S.A.A.Yanacocha S.R.L. and Subsidiary

 

StatementsConsolidated statements of comprehensive income

For the years ended December 31, 2014, 20132016, 2015 and 2012.2014

 

  Note 2014  2013  2012 
    US$(000)  US$(000)  US$(000) 
Sales of goods 17(a)  1,467,097   1,811,488   2,127,023 
Cost of sales of goods 18  (797,481)  (795,064)  (765,789)
Gross profit    669,616   1,016,424   1,361,234 
               
Operating expenses              
Selling expenses 19  (54,210)  (68,448)  (78,674)
Other operating  income (expenses), net    (3,629)  147   (9,898)
Expense related to water plant    -   -   (19,606)
     (57,839)  (68,301)  (108,178)
Operating profit    611,777   948,123   1,253,056 
               
Other income (expenses)              
Finance income    2,443   2,178   1,886 
Finance costs    (369)  (1,843)  (6,951)
Net gain (loss) from exchange differences    2,284   (1,858)  3,149 
     4,358   (1,523)  (1,916)
               
Profit before income tax    616,135   946,600   1,251,140 
Income tax expense 14(b,c)  (238,529)  (333,338)  (454,556)
               
Profit for the year    377,606   613,262   796,584 
               
Basic and diluted earnings per share (stated in US dollars) 22  1.08   1.75   2.28 
Weighted average number of shares outstanding 22  350,056,012   350,056,012   350,056,012 
  Note  2016  2015  2014 
     US$(000)  US$(000)  US$(000) 
             
Operating income                
Revenue from sales  15   761,193   1,031,174   1,165,299 
Other operating income      17,713   10,625   30,300 
Total gross income      778,906   1,041,799   1,195,599 
Operating costs                
Costs applicable to sales  16   (776,394)  (751,736)  (920,300)
Other operating costs      (2,951)  (2,524)  (22,422)
Total operating costs      (779,345)  (754,260)  (942,722)
Gross (loss) profit      (439)  287,539   252,877 
Operating expenses                
Operating expenses, net  17   (71,496)  (82,846)  (77,781)
Administrative expenses  18   (8,780)  (26,325)  (38,262)
Selling expenses      (3,695)  (3,534)  (4,458)
Impairment loss  10(b)  (889,499)  -   (541,141)
Total operating expenses      (973,470)  (112,705)  (661,642)
Operating (loss) profit      (973,909)  174,834   (408,765)
Other expenses, net                
Finance income      2,132   673   298 
Finance costs  19   (15,107)  (22,734)  (23,504)
Net (loss) gain from currency exchange difference      (13,741)  (251)  1,142 
Total other expenses, net      (26,716)  (22,312)  (22,064)
(Loss) income before income tax      (1,000,625)  152,522   (430,829)
Income tax (expense) benefit  14(c)  (43,127)  (602,717)  30,491 
Loss for the year      (1,043,752)  (450,195)  (400,338)
Comprehensive loss:                
Loss for the year      (1,043,752)  (450,195)  (400,338)
Other comprehensive income (loss) to be reclassified as profit or loss in subsequent periods:                
Changes in the fair value of available-for-sale financial asset, net of tax effect  9   651   (757)  65 
Total comprehensive loss for the year      (1,043,101)  (450,952)  (400,273)

F-107

 

The accompanying notes are an integral part of this financial statement.

Sociedad Minera Cerro Verde S.A.A.Yanacocha S.R.L. and Subsidiary

 

StatementsConsolidated statements of changes in equity

For the years ended December 31, 20142016, 2015 and 20132014

 

  Issued
capital		  Legal
reserve		  Retained
earnings		  Total 
  US$(000)  US$(000)  US$(000)  US$(000) 
Balance as of January 1 , 2012  990,659   198,132   1,488,847   2,677,638 
                 
Profit for the year  -   -   796,584   796,584 
Balance as of December 31, 2012  990,659   198,132   2,285,431   3,474,222 
                 
Profit for the year  -   -   613,262   613,262 
Balance as of December 31, 2013  990,659   198,132   2,898,693   4,087,484 
                 
Profit for the year  -   -   377,606   377,606 
                 
Balance as of December 31, 2014  990,659   198,132   3,276,299   4,465,090 
  Capital
stock		  Adicional Paid-
in-capital		  Retanied
earnings		  Total 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
As of January 1, 2014  398,216   226   2,681,608   3,080,050 
Loss for the year  -   -   (400,338)  (400,338)
Other comprehensive income for the year  -   -   65   65 
Total comprehensive loss  -   -   (400,273)  (400,273)
                 
As of December 31, 2014  398,216   226   2,281,335   2,679,777 
Loss for the year  -   -   (450,195)  (450,195)
Other comprehensive loss for the year  -   -   (757)  (757)
Total comprehensive loss  -   -   (450,952)  (450,952)
                 
As of December 31,2015  398,216   226   1,830,383   2,228,825 
Loss for the year  -   -   (1,043,752)  (1,043,752)
Other comprehensive income for the year  -   -   651   651 
Total comprehensive loss  -   -   (1,043,101)  (1,043,101)
Dividends declared and paid, note 13(c)  -   -   (300,000)  (300,000)
As of December 31, 2016  398,216   226   487,282   885,724 

F-108

 

The accompanying notes are an integral part of this financial statement.

Sociedad Minera Cerro Verde S.A.A.Yanacocha S.R.L. and Subsidiary

 

StatementsConsolidated statement of cash flows

For the years ended December 31, 2014, 20132016, 2015 and 20122014

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Operating activities            
Profit before income tax  616,135   946,600   1,251,140 
Adjustments to reconcile profit before income tax to net cash flows from operating activities:            
Depreciation of property, plant and equipment  164,985   107,620   94,242 
Amortization of intangible assets  1,630   1,630   1,630 
Unwinding of discount on remediation and mine closure  2,537   4,609   239 
Provision  for inventory obsolescence  1,765   1,207   778 
Net gain from disposal/sale of property, plant and equipment  (144)  (541)  (238)
Net gain from disposal/sale of supplies  (30)  (49)  - 
Exchange difference  (2,284)  1,858   (3,149)
             
Working capital adjustments:            
Net decrease (increase) in operating assets:            
Trade accounts receivable  5,230   (3,550)  39,999 
Trade accounts receivable from related parties  120,546   8,218   (116,082)
Embedded derivative  -   (4,454)  (11,569)
Other accounts receivable  (200,500)  (6,314)  (2,449)
Inventories  (17,277)  (26,957)  (16,191)
Other long - term accounts receivable  (140,412)  (48,808)  (11,595)
Long - term inventories  (70,917)  (40,985)  (35,141)
Net increase (decrease) in operating liabilities:            
Trade accounts payable  129,562   122,154   90,404 
Accounts payable to related parties  5,280   3,897   4,666 
Embedded derivative  42,805   -   (75,257)
Workers’ profit sharing payable  (14,173)  (28,544)  (43,720)
Other accounts payable  (15,024)  15,456   (3,820)
Non-current portion of other accounts payable  3,758   1,314   (758)
Income tax paid  (315,369)  (286,036)  (465,819)
             
Net cash and cash equivalents provided by operating activities  318,103   768,325   697,310 

Statements of cash flows(continued)

For the years ended December 31, 2014, 2013 and 2012

  Note  2016  2015  2014 
     US$(000)  US$(000)  US$(000) 
Cash flow from operating activities                
Loss for the year      (1,043,752)  (450,195)  (400,338)
Adjustments to reconcile profit after income tax to net cash flows from operating activities:                
Impairment loss  10   889,499   -   541,141 
Depreciation and amortization      140,712   223,142   360,334 
Deferred income tax      -   483,804   (168,761)
Unwinding of discount of the provision for reclamation  12(b)  14,104   22,075   22,914 
Write-off of fixed assets  17   14,036   2,411   3,520 
Loss (gain) for fixed asset sales      (311)  508   (1,226)
Write-down of ore on leach pads to realizable value  8(b)  100,179   64,497   95,859 
Reversal of the write-down of ore on leach pads to realizable value  8(b)  (106,103)  (137,293)  (80,107)
Allowance for obsolescence of materials and supplies  7(b)  (609)  1,049   (736)
Working capital adjustments:                
Net (increase) decrease in operating assets:                
Trade and other receivables      (14,586)  41,842   28,382 
Prepaid Income Tax      (18,175)  -   - 
Value added tax credit      7,414   3,701   36,606 
Inventories and Stockpiles and ore on leach pads      99,237   120,113   15,252 
Prepaid expenses      180   160   1,650 
Available for sale financial assets  9   (651)  1,081   (93)
Net (increase) decrease in operating liabilities:                
Trade and other payables      (10,654)  (60,569)  6,910 
Income tax payable      (12,346)  (23,090)  (29,264)
Provisions      92,493   (7,779)  (46,435)
Reclamation liabilities paid  12(b)  (10,467)  (11,007)  (10,419)
Net cash and cash equivalents provided by operating activities      140,200   274,450   375,189 
Cash flow from investing activities                
Purchase of property, plant and equipment      (106,908)  (118,429)  (216,181)
Proceeds from sale of property, plant and equipment      471   1,116   40,651 
Net cash and cash equivalents used in investing activities      (106,437)  (117,313)  (175,530)
Cash flow from financing activities                
Dividends declared and paid  13(c)  (300,000)  -   - 
Net cash and cash equivalents used in financing activities      (300,000)  -   - 
Net (decrease) increase in cash and cash equivalents      (266,237)  157,137   199,659 
Cash and cash equivalents at beginning of year      943,761   786,624   586,965 
Cash and cash equivalents at end of year      677,524   943,761   786,624 
Transactions with no effects in cash flows:                
Addition of asset retirement and mine closure      351,798   10,434   64,520 

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Investing activities            
Proceeds from sale of property, plant and equipment  356   694   262 
Withdraw of (investment in) time deposit  226,772   (225,000)  - 
Purchase of property, plant and equipment  (1,771,715)  (1,066,267)  (600,872)
Stripping activity asset  (49,122)  (49,938)  (52,619)
Purchase of intangibles  (7,209)  -   (189)
Net cash and cash equivalents used in investing activities  (1,600,918)  (1,340,511)  (653,418)
             
Financing activities            
Proceeds from loans  475,000   -   - 
Debt issuance costs  (27,024)  -   - 
Payment of finance lease  (157)  (772)  - 
Net cash and cash equivalents provided by (used in) financing activities  447,819   (772)  - 
             
Net decrease in cash and cash equivalents in the year  (834,996)  (572,958)  43,892 
             
Cash and cash equivalents at beginning of year  854,570   1,427,528   1,383,636 
             
Cash and cash equivalents at end of year  19,574   854,570   1,427,528 
             
Transactions with no effects in cash flows :            
Provision for remediation and mine closure  68,840   (36,445)  72,512 
Purchase of property, plant and equipment under finance lease  -   6,961   - 
F-109

 

The accompanying notes are an integral part of this financial statement

Sociedad Minera Cerro Verde S.A.A.Yanacocha S.R.L. and Subsidiary

 

Notes to the consolidated financial statements

As of December 31,For the years 2016, 2015 and 2014 2013 and 2012

 

1.Identification and business activityactivities of the Company

(a)Identification -

Minera Yanacocha S.R.L. hereinafter “the Company”, was incorporated in Peru on January 14, 1992 and commenced operations in 1993. The Company is engaged in the production of gold and exploration and development of gold and copper under the mining concessions it owns or that are owned by S.M.R.L. Chaupiloma Dos de Cajamarca ("Chaupiloma").

Sociedad Minera Cerro Verde S.A.A. (here in after “the Company”) was incorporated in Peru on August 20, 1993, as a result of the privatization process of certain mining units carried out by the Peruvian State in that year. The Company has listed its shares on the Lima Stock Exchange since November 14, 2000.

 

Through its subsidiary Cyprus Climax MetalsThe Company Freeport-McMoRanis 51.35% owned by Newmont Second Capital Corporation, (“FMC”), a wholly100% indirectly owned subsidiary of Freeport-McMoRan Inc. (“Freeport”)Newmont Mining Corporation ("Newmont", owns 53.56% of the voting shares of the Company. Additionally, SMM Cerro Verde Netherlands B.V. (a subsidiary of Sumitomo Metal Mining Company Ltd.) owns 21% of the voting share of the Company,ultimate Parent company), 43.65% owned by Compañíaia Minera Condesa S.A., which is 100% owned by Compañia de Minas Buenaventura S.A.A. owns 19.58%,(“Buenaventura”) and 5% owned by the minority stakeholdersInternational Finance Corporation.

The majority Partners ofthe Company (or their affiliates) also own the remaining 5.86%.majority interest in Chaupiloma. In accordance with a mining lease, amended and effective on January 1, 1994, the Company pays Chaupiloma a 3% royalty based on quarterly production soId at current market prices, after deducting refinery and transportation costs. The royalty agreement expires in 2032.

The Company’s legal address is Jacinto Ibañez Street N°315, Parque Industrial, Arequipa City and the ore deposits are located southwest of that city (Asiento Minero Cerro Verde S/N Uchumayo – Arequipa).

 

(b)Business activity -activities-

The Company’sCompany's operations are located near Cajamarca, province ofPeru and currently include the following open pit mines: Chaquicocha, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado, El Tapado Oeste), Wester Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte) and Carachugo Alto. Mining activities are regulated by the Peruvian General Mining Lawin Maqui Maqui, Marleny and comprise the extraction, production and sale of copper cathodes and concentrates.

Expansion of operations

Cerro Negro Este ceased during 2016. The Company has four leach pads, three processing facilities, and one mill. Gold-bearing ores are transported to one of four leach pads for gold recovery using conventional heap-leaching or milling, followed by Merrill - Crowe zinc precipitation and smelting where a final doré product is carrying out construction activities associated to a large-scale expansion of Cerro Verde´s production plant which includespoured. The dore is then shipped offsite for refining and is sold on the concentrate and lixiviation process, as well as the expansion of its mining process and improvement of its current facilities. The project, with an estimated cost of US$4.6 billion, will expand the processing capacity of mineral from 120,000 metric tons per day to 360,000 metric tons per day, targeting incremental annual production of approximately 600 million pounds of copper and 15 million of molybdenum beginning in 2016.The Company obtained approval of the Environmental and Social Impact Study and a permit for the expansion of Cerro Verde´s production unit by the Peruvian Ministry of Energy and Mines.worldwide gold markets.

 

In MarchGold mining requires the use ofspecialized facilities and technology. The Company relies heavily on such facilities and technology to maintain production levels. Also, the cash flows and profitability ofthe Company's operations are significantly affected by the market price ofgold. Gold prices can fluctuate widely and are affected by numerous factors beyond the Company's control. During 2016, 2015 and 2014, the Company entered into a five-year US$1.8 billion senior unsecured loan to fund a portionproduced 0.66 million, 0.92 million and 0.97 million ounces ofgold, respectively.

Conga project

The Conga Project consists of two gold-copper porphyry deposits located northeast of the expansion project. Additional amounts are expectedYanacocha operating area in the provinces of Celendin, Cajamarca and Hualgayoc. There is no exploration and/or development of new reserves as development of the project's development and reserve balances reported for Conga in 2014 were reclassified to be drawn over time as required to fund the project. As of December 31, 2014, US$425 million was drawn under this credit facility (see Note 12).mineral resources in 2015.

F-110

Notes to the consolidated financial statements(continued)

As a result of local political and community protests, construction and development activities at the Conga project were largely suspended in November 2011. The results of the Peruvian Central Government’s initiated Environmental Impact Assessment (“EIA”) independent review were reported on April 20, 2012. The review indicated the project’s EIA met Peruvian and International Standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced the decision to move the project forward on a “water-first” approach on June 22, 2012. In the first half of 2014, a Conga Restart Study was completed to identify and test alternatives to advancing development of the project. Following this assessment, a new plan was developed to reduce spending to focus on only the most critical work – protecting people and assets, engaging with communities, and maintaining existing project infrastructure – while maintaining optionality. Newmont will not proceed with the full development of Conga without social acceptance, solid project economics and potentially another partner to help defray costs and risk; it is currently difficult to predict when or whether such events may occur. Under the current social and political environment, the Company does not anticipate being able to develop Conga for at least the next five years. Should the Company be unable to develop the Conga Project, the Company may have to consider other alternatives for the project which may result in an impairment. The total assets at Conga as of December 31, 2016 and 2015 were US$502.8 million and US$501.4 million, respectively.

 

(c)Financial statements approval -

TheApproval of consolidated financial statements for the year ended December 31, 2014 were approved by Company´s Management on April 30, 2015 and, in Management’s opinion, they will be approved without changes by the Board of Directors and Shareholders’ Meetings to be held in the first quarter of 2015.- 

The consolidated financial statements as of December 31, 2016 were approved by the Company’s Management on February 28, 2017 and, in its opinion, will be approved without changes at the Partners’ Meeting to be held within the terms established by Law.

The consolidated financial statements as of December 31, 2015 and 2014 were issued with the approval of the Partners’ Meeting held on March 31, 2016 and March 26, 2015, respectively.

 

2.SignificantBasis for preparation, consolidation and accounting principles and policies

2.12.1.Basis of preparation -

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”), issued by the International Accounting StandardsStandard Board (“IASB”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC”)., in effect at December 31, 2016.

The consolidated financial statements have been prepared based on aunder the historical cost basis, except for accounts receivable and/or payable related to embedded derivatives that have beenavailable-for-sale financial assets which are measured at their fair value.

The consolidated financial statements are presented in United StatesU.S. dollars (US$) and include the years ended December 31, 2014, 2013 and 2012. Unless otherwise indicated, all values have beenare rounded to the nearest thousand.thousands, except when otherwise indicated.

The preparation of consolidated financial statements requires that Management use judgments, estimates and assumptions, as detailed in note 3.

These consolidated financial statements provide comparative information in respect of prior periods.

 

2.2.Basis of consolidation -

The consolidated financial statements comprise the financial statements of the Company and its subsidiary (San Jose Reservoir Trust, a separate legal entity created to ensure the continuity of the Company’s operations in the San Jose Reservoir after 2018).

F-111

Notes to the consolidated financial statements (continued)

Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if, and only if, the Company has:

-Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).
-Exposure, or rights, to variable returns from its involvement with the investee.
-The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

-The contractual arrangement with the other vote holders of the investee.
-Rights arising from other contractual arrangements.
-The Company’s voting rights and potential voting rights or a combination of rights.

The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.

When necessary, adjustments are made to the financial statements of the subsidiary to bring its accounting policies into line with the Company’s accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

F-112

Notes to the consolidated financial statements (continued)

2.3.Changes in accounting policies and disclosures -

Certain standards and amendments are effective for annual periods beginning on or after January 1, 2016. However, they do not impact the annual consolidated financial statements of the Company and, hence, have not been disclosed. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

2.4.Summary of significant accounting policies and practices -

(a)CurrencyForeign currencies -

The consolidated financial statements are presented in USU.S. dollars, which is also the Company’sCompany's functional currency.

 

ForeignTransactions and balance

Transactions in foreign currency transactions are those carried out in a(a currency other than the functional currency. Foreign currency transactionscurrency) are initially recorded inby the functional currencyCompany at the rate of exchange rulingrates prevailing at the datetime of the transaction. transactions.

Monetary assets and liabilities denominated in foreignother currencies are translated tointo the spot rate of exchange ruling at the reporting date.

Gains and losses as a result of the difference in the exchange rate when currency items are liquidated or when converting currency itemsU.S. dollar at exchange rates that are differentprevailing at the statements of financial position dates. Gains or losses from those used for their initial recognitionexchange differences arising from the settlement or translation of monetary assets and liabilities are recognized in the consolidated statements of comprehensive income forincome. Non-monetary assets and liabilities recognized in terms of historical cost are translated using the year.

The Company uses exchange rates published byprevailing at the Superintendentdates of Banks, Insurance and Pension Fund Administrator. As of December 31, 2014, the published exchange rates were S/.2.981 for US$1 for buying and S/.2.989 for US$1 for selling (S/.2.794 for US$1 for buying and S/.2.796 for US$1, as of December 31, 2013, respectively). These rates have been applied to the appropriate asset and liability accounts. As of December 31, 2014 and 2013, the Company did not maintain significant assets or liabilities in foreign currency.initial transactions.

 

(b)Financial instruments:instruments - Initial recognition and subsequent measurement -

A financial instrument is any agreement which originatescontract that gives rise to a financial asset of theone entity and a financial liability or equity instrumentsinstrument of otheranother entity.

 

(i)Financial assets -

Initial recognition and measurement

The Company determines the classification of its

Financial assets are classified, at initial recognition, as financial assets at initial recognitionfair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives designated as hedging instruments in accordance with IAS 39, “Financial Instruments: Recognition and Measurement”.

an effective hedge, as appropriate. All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. The Company’s

Financial assets of the Company comprise cash and cash equivalents, trade and other receivables, net and available-for-sale financial assets include accounts receivable and embedded derivatives.assets.

F-113

Notes to the consolidated financial statements(continued)

 

ReceivablesSubsequent measurement -

For purposes of subsequent measurement, financial assets are classified in four categories:

The Company’s accounts receivables

-Financial assets at fair value through profit or loss.
-Loans and receivables.
-Held-to-maturity investments.
-Available-for-sale financial investments.

Financial assets at fair value through profit or loss-

Financial assets at fair value through profit or loss include trade accounts receivables to related partiesfinancial assets held for trading and third parties and other accounts receivable.financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.

 

AccountsFinancial assets at fair value through profit or loss are carried in the consolidated statements of financial position at fair value with net changes in fair value presented as finance costs (negative changes) or finance revenue (positive changes) in the consolidated statements of comprehensive income.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value, with changes in fair value recognized in profit or loss.

Loans and receivables-

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, the accounts receivablessuch financial assets are subsequently carriedmeasured at amortized cost using the effective interest rate method, less impairment. The losses arising from impairment are recognized in the consolidated statements of profit or loss.

This category generally applies to trade and other receivables, net. See note 6 for more information on accounts receivable.

Held-to-maturity investments -

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Company has the positive intention and ability to hold them to maturity. The Company did not have any provisionheld-to-maturity investments as of December 31, 2016 and 2015.

F-114

Notes to the consolidated financial statements (continued)

Available-for-sale (AFS) financial assets -

The available-for-sale financial assets include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for impairment (i.e. allowancetrading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for doubtful accounts)an indefinite period of time and may be sold in response to needs for liquidity, or in response to changes in the market conditions (Note 9).

After initial measurement, AFS financial investments are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income and credited in the unrealized gain on available-for-sale investments until investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the consolidated statement of profit or loss in finance costs. Interest earned whilst holding AFS financial investments is reported as interest income using the effective interest rate method.

Derecognition -

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:

-The rights to receive cash flows from the asset have expired.
-The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset or, (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent, it has retained the risk and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company´s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Impairment of financial assets -

The Company assesses, whether, as of theat each reporting date, of the financial statements,whether there is objective evidence that a financial asset or group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred "loss event") has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the valueestimated future cash flows, such as changes in economic conditions that correlate with defaults.

F-115

Notes to the consolidated financial statements (continued)

Financial assets carried at amortized cost

For financial assets carried at amortized cost, the Company first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the receivable. Any resultingasset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the bookassets’ carrying amount and the present value of the receivable and theestimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at anthe financial asset’s original effective interest rate. If a loan has a variable interest rate, or one applicable to a similar transaction. the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the receivableasset is reduced by meansthrough the use of an allowance account and the amount of the loss is recognized in the statementsconsolidated statement of comprehensive income.

Embedded derivatives -profit or loss. Interest income (recorded as finance income in the consolidated statement of profit or loss) continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any amount that would have been decommissioned and is subsequently recovered is recovery is credited less finance costs in the consolidated statement of profit or loss.

 

The Company’s copper sales are provisionally priced at the time of shipment. The provisional prices are finalized in a specified future month based on quoted London Metal Exchange (LME) monthly average prices. The Company receives market prices based on prices in the specified future month, which results in price fluctuations recorded through revenues until the date of settlement. The Company records revenues and commercial invoices at the time of shipment based on the current LME prices, which result in an embedded derivative that is required to be separated from the host contract.

F-116

 

The Company’s embedded derivatives from sales are measured at fair value (based on LME spot copper prices) with subsequent changes recognized in the statements of comprehensive income until the month of maturity.

Notes to the consolidated financial statements(continued)

Available-for-sale (AFS) financial investments

For AFS financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of profit or loss is removed from other comprehensive income and recognized in the consolidated statement of profit or loss. Impairment losses on equity investment are not reversed through profit or loss; increases in their fair value after impairment are recognized in other comprehensive income.

 

(ii)Financial liability -liabilities –

Initial recognition and measurement -

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, accounts payable, financial obligations, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

All financial liabilities are recognized initially at fair value and, in the case of accounts payableinterest-bearing loans and financial obligations,borrowings and payables, net of directly attributable transaction costs.

The Company´sCompany’s financial liabilities include trade and other payables, financial obligations and embedded derivatives.

derivatives related to mineral sales.

Loans-

Loans are initially recognized atSubsequent measurement -

The measurement of financial liabilities depends on their fair value, net of directly attributable transaction costs. After initial recognition, loansclassification. Trade and other payables are subsequently measured at amortized cost usingcost.

Derecognition-

A financial liability is derecognized when the effective interest rate method. Gainsobligation under the liability is discharged, cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and losses arethe recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of profitcomprehensive income.

F-117

Notes to the consolidated financial statements (continued)

(iii)Offsetting of financial instruments -

Financial assets and cost whenfinancial liabilities are offset and the net amount is reported in the consolidated statements of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities are derecognized as well as through the amortization process.

Amortized cost is calculated taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortization under the effective interest rate method is included as financial costs in the statement of comprehensive income.simultaneously.

 

(c)Inventories –Cash and cash equivalents -

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Restricted cash is excluded from cash and cash equivalents and is included in other current assets or long-term assets depending on restrictions.

Inventories

(d)Stockpiles, ore on leach pads and inventories -

Costs that are statedincurred in or benefit the productive process are accumulated as stockpiles, ore on leach pads and inventories. Stockpiles, ore on leach pads and inventories are carried at the lower of average cost or the net realizable value. Inventory of materials and supplies, as well as in progress and finished products are determined using the weighted-average cost method. The cost of finished goods and in - process inventory (i.e., stockpiles) includes labor and benefits, supplies, energy and other costs related to mining and processing of minerals. Net realizable value isrepresents the estimated future sales price of the product based on forward metalcurrent and long-term metals prices, (atless the year that are expected to be processed), less estimated costs to complete production and bring the inventoryproduct to sale.

Provision for obsolescence -

Obsolescence allowances Write-downs of stockpiles, ore on leach pads and inventories to net realizable value are establishedreported as a component of costs applicable to sales. The current portion of stockpiles, ore on leach pads and inventories is determined based on an item-by-item analysis made by Management. Any amount of obsolescence is chargedthe expected amounts to be processed within the statements of comprehensive income innext twelve months. Stockpiles, ore on leach pads and inventories not expected to be processed within the year of occurrence.next twelve months are classified as
non-current. The major classifications are as follows:

 

(d)(i)Stockpiles -

Stockpiles represent ore that has been extracted from the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead and depreciation and amortization relating to mining operations, and removed at each stockpile's average cost per recoverable unit as material is processed.

(ii)Ore on leach pads -

The recovery of gold from certain gold oxide ores is achieved through the heap leaching process. Under this method, oxide ore is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the ore. The resulting gold-bearing solution is later processed in a plant where the gold is recovered. Costs are added to ore on leach pads based on current mining costs, including applicable overhead and depreciation and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per estimated recoverable ounce of gold on the leach pad.

The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover between 50% and 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is complete.

F-118

Notes to the consolidated financial statements (continued)

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Historically, the Company's operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.

(iii)In-processinventory -

In-process inventories represent materials that are currently in the process of being converted to a saleable product. Conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in- process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.

(iv)Precious metals inventory -

Precious metals include gold Dore and/or gold bullion. Precious metals that result from the Company's mining, processing activities are valued at the average cost of the respective in-process inventories incurred prior to the refining process, plus applicable refining costs.

(v)Materials and supplies -

Materials and supplies are valued at the lower of average cost or replacement value. Cost includes applicable taxes and freight.

F-119

Notes to the consolidated financial statements (continued)

(e)Property, plant and equipment -

The cost of an element of property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The initial cost of an asset comprises its purchasethe following: the acquisition price or constructionmanufacturing cost, including non-reimbursable customs duties and non-reimbursable taxes as well asand any costs directly attributablecost necessary to bringingplace the asset into operation,in operating condition, as anticipated by Management; the initial estimate of the rehabilitation obligation and,and; in the case of qualifyingqualified assets, the financing costs.

The purchase price or construction cost of borrowing. The capitalizedcorresponds to the total amount paid and fair value of a finance lease is also included in this caption.

Notesany other consideration provided to acquire the financial statements(continued)

Land is not depreciated. Depreciation of assets directly relatedasset. Subsequent costs attributable to the useful life of the mine is calculated using the UOP method based on the mine’s proven and probable reserves. Other assets are depreciated using the straight-line method based on the following estimated useful lives:

Years
Buildings and other constructionsBetween 10 and 30
Machinery and equipmentBetween 3 and 25
Transportation units7
Furniture and fixtures7
Other equipmentBetween 3 and 25

An item of property, plant and equipment is derecognized upon disposal orare capitalized only when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statements of comprehensive income when the asset is derecognized.

The asset’s residual values, useful lives and methods of depreciation are reviewed, at each reporting period and adjusted prospectively, if appropriate.

Major maintenance and repairs -

Expenditure on major maintenance refits or repairs comprises the cost of replacement assets or parts of assets and overhaul costs. Where an asset that was separately depreciated and is now written off is replaced, and it is probable that the future economic benefits associated with the item will flow to the Company through an extended life,and the expenditurecost of the item can be measured reliably, otherwise the cost is capitalized. All other day-to-day maintenancecharged to production or expense.

Maintenance and repairs costsrepair expenses are expensedcharged to the production cost or expense, as necessary, in the period when incurred.

 

Where partExpenses incurred to replace a component of an item or element of property, plant and equipment are capitalized separately, writing-off the carrying amount of the component being replaced. In the event the component replaced has not been considered as a separate component of the asset was not separately considered as a component and therefore not depreciated separately,item, the replacement value of the new component is used to estimate the carrying amount of the replaced assets whichbeing replaced.

Assets in the construction stage are capitalized as separate components. At their completion, the cost is immediately written off.transferred to the appropriate category. Work in progress is not depreciated.

Depreciation

Land is not depreciated. Other than land, depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost less their residual value over their estimated useful lives and in the case of assets assigned to the production process of Yanacocha, under the lower of that determined under the units of production method or the useful life of the mine, as follows:

 

Land improvements(e)25 years
BuildingsExplorationBetween 5 and development costs –25 years
Plant and equipmentBetween 3 and 15 years
VehiclesBetween 3 and 5 years
Furniture and fittingsBetween 3 and 10 years
Other equipmentBetween 3 and 10 years
Computer equipmentBetween 3 and 8 years
Assets retirement costUseful life of the mine and/or process facilities

 

Exploration costs -

F-120

 

Mineral exploration costs, as well as drilling and other costs incurred for the purpose of obtain proven and probable reserves, or identifying new mineral resources at development or production stage properties, are charged to the statements of comprehensive income as incurred.

Development costs -

Development costs are capitalized based on the Management´s judgment, when the economic and technological feasibility of the project is confirmed, which is generally when the development or expansion project has reached a milestone in accordance with a model established by the Company.

Notes to the consolidated financial statements(continued)

The assets' useful lives and residual values are reviewed, and adjusted if appropriate, at each date of the consolidated statement of financial position. Any changes in these estimates are prospectively adjusted.

Disposal of assets

Property, plant and equipment items are written-off at the date they are sold or when no economic benefits are expected from their further use or sale. Gains and losses on disposals of assets are determined by comparing the proceeds with their carrying amounts. These gains or losses are included in the consolidated statements of comprehensive income.

 

(f)Stripping costsMineral Interests -

Mineral interests include acquired interests in production, development and exploration stage properties. The mineral interests are capitalized at their fair value at the acquisition date.

As

The value of such assets is primarily driven by the nature and amount of mineralized material believed to be contained in such properties. Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves.

Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material consisting of (i) mineralized material such as inferred material within pits; mineralized material with insufficient drill spacing to qualify as proven and probable reserves; and mineralized material in close proximity to proven and probable reserves; (ii) around-mine exploration potential not immediately adjacent to existing reserves and mineralization, but located within the immediate mine area; (iii) other mine-related exploration potential that is not part of current mineralized material and is comprised mainly of material outside of the immediate mine area; (iv) greenfield exploration potential that is not associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit.

Exploration costs are capitalized when reserves at the location are declared in the Reserves and Resource information published annually by Newmont in its form 10-K. At this point, exploration costs are capitalized as mine development or as a component of property, plant and equipment, as appropriate.

The Company's mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.

F-121

Notes to the consolidated financial statements (continued)

Mineral interests are presented in the caption of property, plant and equipment, net.

(g)Mine development -

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as Exploration or Advanced projects, research and development expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; and the activities are directed at obtaining additional information on the ore body or converting mineralized material to proven and probable reserves. AII other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of Costs applicable to sales.

The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase are referred to as "pre-stripping costs." Pre-stripping costs are capitalized during the development of an open-pit mine. Where multiple open pits exist at a mining operations, the Company incurs in stripping costcomplex utilizing common processing facilities, pre-stripping costs are capitalized at each pit. The removal and production of de minimis saleable materials may occur during development and production phasesare recorded as Other income, net of its operations. Stripping costs incurred in the developmentincremental mining and processing costs. See (h) below.

The production phase of an open-pit mine commences when saleable minerals, beyond a mine, before production commences (development stripping)de minimis amount, are capitalized as development costs and subsequently amortized using the UOP method over the life of the mine. The capitalization of stripping cost stops when the mine production commences.

produced. Stripping costs incurred during the production phase of a mine are generally consideredvariable production costs that are included as a component of inventory to create two benefits, being eitherbe recognized in Costs applicable to sales in the same period as the revenue from the sale of inventory. The Company's definition of a mine and the mine's production phase may differ from that of other companies in the mining industry resulting in incomparable allocations of stripping costs to deferred mine development and production costs.

Mine development costs are amortized using the units-of production ("UOP") method based on estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block or area.

Mine development costs are presented in the caption of Property, plant and equipment, net.

F-122

Notes to the consolidated financial statements (continued)

(h)Stripping activity asset -

The Company accounts for stripping costs incurred during the production phase of inventory or improved access to the ore to be mineda surface mining in accordance with IFRIC 20 "Stripping costs in the future. Where the benefits are realized in the formproduction phase of inventory produced in the period, the productionas surface mine" whereby a stripping costs are accounted for as partasset is recognized if, and only if, all of the cost of producing those inventories. Where the benefits are realized in the form of improved access to ore to be mined in the future, the costs are recognized as a non-current asset, referred to as a stripping activity asset, if the following criteria are met:

 

-It is probable that the future economic benefit;benefit (improved access to the ore body) associated with the stripping activity will flow to the entity;
-The Companyentity can identify the component of the ore body for which access has been improved; and
-The costs relatedrelating to the stripping activity associated with that component can be measured reliably.

 

To identifyThe primary components inof the ore body on a mine site,pit by pit basis as well as within major pits are identified. Based on these components, stripping activities are analyzed and costs are assigned based on whether they pertained to current inventory production or improved access to future ore bodies (or components of an ore body).

Based on this analysis, the Company worksallocated the costs associated with improved access as a “stripping activity asset”. This allocation is based on the volume of waste and ore extracted in coordination with the mine planning area.period compared to expected volume life-of-mine per component of ore body.

 

TheCosts allocated to the production stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity and is disclose as partare subsequently depreciated. Depreciation of the property, plant and equipment.

Theproduction stripping activity asset is subsequently depreciated using the units of productionwas calculated on a systematic basis ("waste-to-ore tons ratio") method over the expected useful life of the identified component of the ore body that becamebecomes more accessible as a result of the stripping activity. The stripping activity assetcosts. This depreciation is then carried at cost less depreciation and any impairment losses.a production cost.

 

(g)(i)Impairment of non – financialnon-financial assets -

At each reporting date,The carrying amounts of non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate the Company evaluates ifcarrying value may not be recoverable. If there are indicators of impairment, a review is any indication that an asset may be impaired. If any indication exists,undertaken to determine whether the Company estimatescarrying values are in excess of the recoverable amount of the asset.amount. The recoverable amount of an asset is determined as the higher of itsan asset's fair value, less costs of disposal, and its value in use anduse. Such review is determined for theundertaken on an asset by asset basis, except where such assets of the mine as a whole, since there are no assets thatdo not generate cash revenues independently.

Notes toflows independently from other assets, in which case the financial statements(continued)review is undertaken at the cash generating unit level. The Company identified two separate cash generating units: Yanacocha and Conga.

 

WhenFuture cash flows are estimated based on quantities of recoverable minerals, expected gold and other commodity prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans and the appropriate discount rate. These estimates, used in the determination of future cash flows, are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, gold and other commodity prices, production levels, costs and capital and interest rates are each subject to significant risks and uncertainties.

If the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recorded in the statement of comprehensive income to reflect the asset is considered impaired and is written down to its recoverableat the lower amount. In assessing value in use, the estimatedrecoverable amount for assets, the relevant future cash flows areexpected to arise from the fair value less costs of disposal have been discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specificvalue.

F-123

Notes to the asset.consolidated financial statements (continued)

 

Impairment losses are recognized in the statements of comprehensive income under the categories of expenses consistent with the function of the impaired asset. A previously recognizedAn impairment loss is reversed onlyin the statement of comprehensive income if there has beenis a change in the assumptionsestimate used to determine the asset’s recoverable amount since the lastprior impairment loss was recognized.

The reversalcarrying amount of an asset is limited so thatincreased to the recoverable amount but not beyond the carrying amount of the asset does not exceed if recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation had noor amortization which would have arisen if the prior impairment loss had not been recognized forrecognized. After such a reversal the assetdepreciation charge is adjusted in prior years. Such reversal is recognized infuture periods to allocate the statements of comprehensive income.asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

 

(h)(j)Provisions -

General -

Provisions are recognized when the Company has a present obligation (legallegal or constructive)constructive obligation as a result of a past event,events, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The expense relating to a provision is presented in the statements of comprehensive income, net of any reimbursement.

has been reliably estimated. If the effect of the time value of money is material,significant, provisions are discounted using a
rate that reflects,pre-tax rates, which reflect, when applicable,appropriate, the risksliabilities' specific torisks. The reversal of the liability. When discounting is used, the increase in the provisiondiscount due to the passage of time originates the increase of the obligation which is recognized as finance costs inwith a charge to the statementsstatement of comprehensive income.

Mine closure provision -income as a finance cost.

 

The Company records a mine closure provision when a contractually or legally enforceable obligation arises. The Company estimatesProvisions are reviewed periodically and are adjusted to reflect the present value of its future obligation for mine closure and increases the carrying amountbest estimate available as of the date of the consolidation statement of financial position. The expenses related “Asset Retirement Cost” - ARC, which is included in property, plant and equipment. Subsequently, the mine closure provision is accreted to full value over time and recognized as an interest cost consideredother provisions are presented in the initial fair value estimate. The related ARC is depreciated using the units-of-production method during the economic life of the mine.

The Company evaluates its mine closure provision annually and makes adjustments to estimates and assumptions, including future costs and discount rates, as applicable. Changes in the fair value of the mine closure provision or the useful life of the related asset are recognized as an increase or decrease in the book value of the provision and the related ARC in accordance with IAS 16. Any decrease in the mine closure provision and related ARC may not exceed the carrying amount of the asset. If it does, any excess over the carrying value is taken immediately to the statementsconsolidated statement of comprehensive income.

 

(i)Revenue recognition -

The Company primarily sells copper cathodes and concentrates in accordance with sales contracts entered into with its customers. Revenues comprise the fair valueDisclosure of the sale of goods, net of related sales taxes. The Company recognizes revenuecontingent obligations is provided when thetheir existence will only be confirmed by future events or their amount cancannot be reliably measured,measured. Contingent assets are not recognized and are disclosed only if it is probable that economic benefits will flow to the Company and all significant risks (including title and insurance risk) and rewards of ownership have transferred to the customer. Revenue is not considered reliably measured until all contingencies relating to the sale have been resolved.will generate future economic benefits.

Notes to the financial statements(continued)

Asset Retirement Obligation -

Sales of copper cathodes and concentrates –

Domestic sales of copper cathodes and concentratesReclamation obligations are recognized when the Company has delivered the goods to the shipping company designated by the customer. Revenue associated with foreign sales of copper cathodesincurred and copper concentrates is recognized when all significant risks and rewards of ownership have transferred to the customer, which is typically when the inventory has passed over the vessel’s railrecorded as liabilities at the port of loading.

As described in note 2.2(b), the Company’s copper sales are provisionally priced at the time of shipment. The provisional prices are finalized in a specified future month in accordance with the terms specified in the related sales contract and based on quoted LME monthly average prices. The Company receives market prices in the specified future month, and the effectbest estimate of the changes in such market prices are recorded as revenues untilexpenditure required to settle the specified future month.obligation. The Company records revenues and commercial invoices atliability is accreted over time through periodic charges to earnings. In addition, the time of shipment based on the current LME prices, which result in an embedded derivative thatasset retirement cost is bifurcated from the host contract.

Since year 2014, the Company’s revenues are subject to royalties for two governmental entities. These funds will be used for these entitiescapitalized as part of their operational budgets for the supervisionasset's carrying value and amortized over the life of energythe related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and mining investment and the environment. The calculation for the OSINERGMIN contribution is 0.21% of invoiced sales for year 2014 (0.19% for 2015 and 0.16% for 2016) and the calculation for the OEFA contribution is 0.15% of invoiced sales for year 2014 (0.15% for 2015 and 0.13% for 2016). These royalties are presented as reduction of revenues (see note 17).

(j)Borrowingcost-

Costs directly attributablerevisions to the acquisition, constructionestimates of either the timing or production of a qualifying asset are capitalized as finance partamount of the cost ofreclamation costs. The estimated reclamation obligation is based on when spending for an asset. A qualifying assetexisting disturbance is one whose value is greater than US$1 million and requires a longer periodexpected to 12 months to get ready for its intended use. All other borrowing costs are expensed inoccur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the period in which they occur. Borrowing costs consist of interest and other costs that the Company incurs in connection with the borrowing of funds.

Notes to the financial statements(continued)reclamation obligation at each mine site.

 

(k)Income taxes, deferred taxes and other taxesRevenue recognition -

Revenue from the sale of gold is recognized net of treatment and refining charges, when persuasive evidence of an arrangement exists, the price is determinable, the product has been delivered, risk and title has been transferred to the customer and collection of the sales price is reasonably assured.

Sales contracts for copper, silver and carbon incorporate provisional pricing at the date of delivery of the mineral ore. The final price is an average market price for a particular future period. Revenue from provisionally priced sales of copper, silver and carbon fine is recognized when risks and rewards of ownership are transferred to the customer, generally at the date of delivery, and revenue can be measured reliably. At this date, the amount of revenue to be recognized will be estimated based on the forward market price of the commodity being sold.

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Notes to the consolidated financial statements (continued)

Revenues from silver and copper sales are credited to Costs applicable to sales as a by-product credit. Royalties paid based on revenue are charged to revenue.

(l)Taxes -

Current income tax - -

Current income tax assets and liabilities for the current and prior periods are measured at the amountsamount expected to be recovered from, or paid orto, the tax authority.taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantiallysubstantively enacted at the reporting period. The Company calculates the provision for currentdate in Peru.

Current income tax based onrelating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax stability agreement described in Note 16(a).returns with respect to situations where applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax -

DeferredThe Company accounts for income tax is providedand mining taxes using the liability method, onrecognizing certain temporary differences between the financial reporting basis of the Company's liabilities and assets and the related income tax basis of assets andfor such liabilities and their carrying amountsassets. This method generates a net deferred income tax liability or net deferred income tax asset for financial reporting purposes at their reporting date. Deferredthe Company, as measured by the statutory tax liabilitiesrates in effect as enacted.

The Company derives its deferred income tax charge or benefit by recording the change in the net deferred income tax liability or net deferred income tax asset balance for the year, based on Peruvian income and mining tax laws. Royalty taxes are recognized forcalculated based on operating profit, as such are shown as income tax.

The Company's deferred income tax assets include certain future tax benefits. The Company determines valuation allowance to any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all taxable temporary differences. of the deferred income tax asset will not be realized (Note 14).

Deferred income tax assets are recognized for all deductible temporary differences,only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized.

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the yearoffset when the assetthere is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to set offoffset current tax assets against current income tax liabilities and when the deferred taxesincome tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity andor different taxable entities where there is an intention to settle the same taxation authority.

balances on a net basis.

Peruvian mining royalties and special mining

Sales tax -

Expenses and assets are recognized net of the amount of sales tax, except:

On September 29, 2011, Law No. 29788 (which amended Law No. 28528) was enacted creating a new mining tax and royalty regime in Peru.

-(i)Stability agreement effective until December 31, 2013When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable;
(ii)When receivables and payables are stated with the amount of sales tax included.

Under the new regime, companies that do not have stability agreements will be subject to a revised royalty and a special mining tax. The Company operated under a stability agreement and therefore was not subject to the revised royalty and special mining tax until its stability agreement expired on December 31, 2013. The Peruvian government also created a special mining burden that companies with tax stability agreements could elect to pay. The Company elected to pay this special mining burden during the remaining term of its stability agreement. See Note 16 (d).

F-125

 

Notes to the consolidated financial statements(continued)

-Stability agreement effective since January 1,, 2014

Beginning January 1, 2014, underThe net amount of sales tax recoverable from, or payable to, the termstaxation authority is included as part of the new stability agreement, the Company will pay mining royalties and special mining tax for all its production based on Law No. 29788.

Mining Royalties and Special Mining Tax arereceivables or payables in the scope of IAS 12 “Income Tax” and are considered income tax.

Supplementary Retirement Fund–

Law No. 29741, enacted on July 9, 2011, created a Mining and Metallurgical Retirement Fund, which is applicable to the Company starting 2014. The base of calculation of this contribution is 0.5% of pre-tax income. These funds will be used for the jubilee of the mining and metallurgical workers. The contribution is presented as income tax due to the same basis of calculation.

(l)Workers' profit sharing -

The Company recognizes workers’ profit sharing in accordance with IAS 19, “Employees Benefits". Workers' profit sharing is calculated in accordance with the Peruvian law (Legislative Decree No. 892), and the applicable rate is 8% over the taxable net base of current year. According to Peruvian law, the limit in the workers' profit sharing that an employee can receive is equivalent to 18 months of wages, and any excess above such limit has be transferred to the Regional Government and “National Fund for Employment’s Promotion and Training” (“FONDOEMPLEO”). The Company’s workers’ profit sharing is recognized as a liability in the statementconsolidated statements of financial position and as an operating expense in the statements of comprehensive income.position.

 

(m)Basic and dilutedearnings per share -

Basic and diluted earnings per share have been calculated based on the weighted average number of common shares held during the period. When the number of shares is modified as a result of capitalization of retained earnings, the net income per basic and diluted share is adjusted retroactively for all of the periods reported. For the years ended as of December 31, 2014 and 2013, the Company did not have any financial instrument with dilutive effects; as a result, the basic and diluted shares are the same in all years presented.

(n)Fair value measurement -

The Company measures its financial instruments, such as, derivatives and embedded derivatives, at fair value at each statementas of the date of the consolidated statements of financial position.

 

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

Notes to the financial statements(continued)

-In the principal market for the asset or liability, or
-In the absence of a principal market, in the most advantageous market for the asset or liability.

 

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

 

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

-Level 1 —- Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesliabilities.
-Level 2 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly observable
-Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservabledirectly or indirectly observable.
-Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated statements of financial position on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The Company's Management determines the policies and procedures for both recurring fair value measurement and non-recurring measurement. At each reporting date, the Company's Management analyzes the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company’s accounting policies.

 

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

 

3.AccountingSignificant judgments, estimates judgments and assumptions –

The preparation of the Company’s consolidated financial statements according to IFRS requires Management to make judgments, estimates and assumptions to determine the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities to the date of financial statements, and forthat affect the reported amounts of revenues, expenses, assets and expenses forliabilities, and the years finished asaccompanying disclosures, and the disclosure of December 31, 2014 and 2013.

Estimatescontingent liabilities. The estimates and assumptions are continuously evaluated and are based on theManagement’s experience of Management and other factors,facts, including the expectations ofabout future events thatwhich are reasonable under the current circumstances; however, actual resultssituation. Uncertainty about these estimates and assumptions could differ fromresult in outcomes that require material adjustment to the carrying amount of assets and liabilities affected in future periods. Further information on each of these estimates.areas and how they impact the various accounting policies are described below and also in the relevant notes to the consolidated financial statements.

 

F-126

Information about estimations and judgments taken into account by Management in

Notes to the preparation of theconsolidated financial statements follows: (continued)

 

3.13.1.Judgments -

In the process of applying the Company’s accounting policies, Management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements:

 

(a)Contingencies -

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

(b)Development start date -

The Company assesses the status of each exploration project to determine when the development phase begins. One of the criteria used to evaluate the development start date is when the Company determines that the property can be economically developed.

(c)Production start date -

The Company assesses the stage of each mine under development to determine when a mine moves into the production phase. The determination of the start date is based on the unique nature of each mining project; such as the complexity of the project and its location. The Company considers various relevant criteria to assess when the production phase is considered to have commenced. Some of the criteria used to identify the production start date include, but are not limited to:

-Level of capital expenditure incurred compared to the original construction cost estimates.
-Completion of a reasonable period of testing of the mine plant and equipment.
-Ability to produce metal in saleable form (within specifications).
-Ability to sustain ongoing production of metal.

When a mine development /construction project moves into the production phase, the capitalization of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalization relating to mining asset additions or improvements. It is also at this point that depreciation or amortization commences.

3.2.Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market change or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

F-127

Notes to the consolidated financial statements (continued)

(a)Determination of mineral reserves and resources -

The Company calculates its reserves using methods generally applied by mining and industry according to international guidelines. All estimated reserves represent estimated quantities of mineral proven and probable that under current conditions can be economically and legally processed.

The process of estimating quantities of reserves is complex and requires making subjective decisions when evaluating all geological, geophysical, engineering and economic information available. Reviews could occur on reserve estimates due to, among others, revisions to the data or geological assumptions, changes in prices, production costs and results of exploration activities. Changes in estimated reserves could affect the carrying value of mining concessions, development costs and property, plant and equipment, the charges in result for depreciation and amortization, and the carrying amount of the provision for closure of mining units.

(b)Units of production depreciation -

Estimated economically recoverable reserves are used in determining the depreciation and/or amortization of mine-specific assets.

This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes in estimates are accounted for prospectively.

(c)Mine rehabilitation provision -

The Company assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at reporting date represents Management’s best estimate of the present value of the future rehabilitation costs required.

(d)Inventories, net -

Net realizable value tests are performed at each reporting date and represent the estimated future sales price of the product the entity expects to realize when the product is processed and sold, less estimated costs to complete production and bring the product to sale.

F-128

Notes to the consolidated financial statements(continued)

Stockpiles and ore on leach pads are measured by estimating the number of tons added and removed from the stockpile and leach pads, the number of contained gold ounces, assay data, and the estimated recovery percentage based on the expected processing method. Stockpile and ore on leach pad tonnages are verified by periodic surveys.

(e)Impairment of non-financial assets -

The Company assesses each asset or cash generating unit in each reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs of disposal and value in use. The assessments require the use of estimates and assumptions such as long-term commodity prices, discount rates and operating costs, among others. These estimates and assumptions are subject to risk and uncertainty.

The fair value of mining assets is calculated by the present value of future cash flows arising from the continued use of the asset, which include some estimates, such as the cost of future expansion plans, using assumptions that a third party might consider. The future cash flows are discounted to their present value using a discount rate that reflects current market assessment of the value of money over time, as well as specific risks of the asset or cash-generating unit under evaluation.

The Company has determined the operations of Yanacocha and Conga as the cash generating units.

4.Standards issued but not effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements that the Company reasonably expects will have an impact on its disclosures, financial position or performance when applied at a future date are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. Of the other standards and interpretations that are issued, but not yet effective, as these are not expected to impact the Company, they have not listed.

IFRS 9 Financial Instruments -

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required, but the provision of comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

F-129

Notes to the consolidated financial statements(continued)

IFRS 15 Revenue from Contracts with Customers -

In May 2014, IFRS 15 was issued related to revenue from contracts with customers. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. The effective date of IFRS is for annual periods, beginning on or after January 1, 2018. Early adoption is permitted.

The Company is currently performing an assessment of the revised standards and impacts on the Company’s Consolidated Financial Statements and disclosures. Management is still in the process of completing their assessment of the impacts; however, based on a preliminary analysis, the Company does not expect it to have a material impact on the Consolidated Financial Statements. Additionally, the Company continues to assess the potential impacts on insurance payments, variable consideration on concentrate sales, and refining fee classification under the new standard. Based on preliminary findings, the Company does not expect these areas to have a significant impact on revenue recognition. The Company expects to have an update to the impacts of the standard in second quarter of 2017.

The Company anticipates adopting the new standard effective January 1, 2018. Either a full retrospective application or a modified retrospective application, with the cumulative effect of initially applying the guidance recognized at the date of initial application, is required. The Company currently anticipates adopting the standard using the modified retrospective approach with the cumulative effect of initially applying the amended guidance recognized at January 1, 2018.

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15.

In 2017, the Company plans to assess the potential effect of IFRS 16 on its consolidated financial statements.

F-130

Notes to the consolidated financial statements(continued)

5.Cash and cash equivalents
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Petty cash  45   51 
Bank accounts  118,853   142,725 
Term deposits (b)  558,626   800,985 
   677,524   943,761 

The term deposits balance is made as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Citi Bank  150,564   620,025 
JP Morgan  408,062   180,960 
   558,626   800,985 

(b)The bank accounts and term deposits yield interest at market rates. Because of the short maturity of these balances, less than 90 days, the carrying amounts approximate their fair value.

6.Trade and other receivables, net
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Trade receivables, net        
Foreign clients  9,965   5,181 
         
Other receivables        
Advances to suppliers  18,024   13,052 
Tax claims  6,955   5,273 
Other minors  6,623   4,079 
Related entities, note 21(b)  815   248 
   32,417   22,652 
Allowance for doubtful accounts (b)  (1,407)  (1,444)
   31,010   21,208 
Total trade and other receivables, net  40,975   26,389 

The trade and other receivables have current maturities.

F-131

Notes to the consolidated financial statements(continued)

There are no trade receivables that are due at December 31, 2016 and 2015.

(b)The allowance for doubtful accounts had the following movement during the years 2016, 2015 and 2014:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  1,444   1,788   5,934 
Additions  -   88   812 
Deductions  (37)  (432)  (4,958)
Ending balance  1,407   1,444   1,788 

In Company’s Management opinion, the allowance for doubtful accounts balance is sufficient to adequately cover the risks of failure as of the date of the consolidated statement of financial position.

7.Inventories, net
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Precious metals  15,012   404 
Leach in-circuit  6,378   5,950 
Mill in-circuit  2,493   1,580 
Materials and supplies  52,687   54,711 
   76,570   62,645 
         
Allowance for obsolescence of materials and supplies (b)  (5,272)  (5,881)
   71,298   56,764 

(b)The allowance for obsolescence of material and supplies had the following movement during the years 2016, 2015 and 2014:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  5,881   4,832   5,568 
             
Provision for impairment of materials and supplies  3,104   5,060   2,849 
             
Reversal of provision for impairment of materials and supplies  (3,713)  (4,011)  (3,585)
             
Ending balance  5,272   5,881   4,832 

F-132

Notes to the consolidated financial statements(continued)

8.Stockpiles and ore on leach pads, net
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Current portion -        
Stockpiles  92,309   91,920 
Ore on leach pads  209,471   210,517 
Provision for net realizable value adjustment (b)  (75,423)  (64,827)
   226,357   237,610 
         
Non-current portion -        
Stockpiles  41,997   95,484 
Ore on leach pads  78,843   138,470 
Provision for net realizable value adjustment (b)  (8,951)  (25,471)
   111,889   208,483 

(b)The provision for net realizable value adjustment had the following movement during the years 2016, 2015 and 2014:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  90,298   163,094   147,342 
Provision, note 16  100,179   64,497   95,859 
Reversal of provision  (106,103)  (137,293)  (80,107)
Ending balance  84,374   90,298   163,094 

9.Available-for-sale financial assets

In November 2008, the Company funded the San Jose Reservoir Trust for US$13 million to ensure the continuity of the Company's operations in the San Jose Reservoir after 2018. Such trust is irrevocable and is a separate legal entity of the Company. The grantor is the Company, the trustee is the Banco de Credito del Peru and the beneficiary is the Company; therefore, the Company consolidates the trust. As of December 31, 2016, the trust total balance is US$16,454,000 and is presented as Available-for-sale financial assets (trust total balance of US$15,803,000 as of December 31, 2015).

During 2016, these investments, denominated in U.S. dollars, accrued profits net of taxes of US$651,000 (losses of US$757,000 and profits of US$65,000 in 2015 and 2014, respectively) which are included in other comprehensive income (loss).

F-133

Notes to the consolidated financial statements(continued)

10.Property, plant and equipment, net
(a)Below is presented the movement in cost:

  Opening
balance		  Additions  Sales and disposals  Transfer/Other
changes		  Impairment
loss		  Final
balances		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Year 2016                        
Cost-                        
Land  15,296   -   -   201   (12,257)  3,240 
Land improvements  22,730   -   -   -   (17,978)  4,752 
Building and constructions  674,480   -   (26,410)  26,396   (153,555)  520,911 
Machinery and equipment  322,690   -   (122,618)  21,360   (45,468)  175,964 
Leach pads  571,388   -   -   16,781   (106,747)  481,422 
Vehicles  8,124   -   (6,402)  -   (6)  1,716 
Furniture and fixtures  2,031   -   -   -   -   2,031 
Other equipment  68,983   353   -   217   (3,631)  65,922 
Work in progress  600,355   78,609   -   (70,282)  -   608,682 
Mining rights  33,800   -   (3,313)  -   (10,985)  19,502 
Asset retirement and mine closure  256,337   351,798   -   -   (370,550)  237,585 
Stripping activity asset  176,517   26,148   -   -   (32,631)  170,034 
Mine development  485,932   -   -   5,079   (118,421)  372,590 
   3,238,663   456,908   (158,743)  (248)  (872,229)  2,664,351 
                         
Accumulated depreciation and amortization                        
Land improvements  10,478   -   -   (511)  -   9,967 
Building and constructions  383,710   61,530   (22,705)  -   -   422,535 
Machinery and equipment  213,062   22,694   (112,175)  -   -   123,581 
Leach pads  545,921   12,501   -   -   -   558,422 
Vehicles  7,775   2,735   (6,352)  -   -   4,158 
Furniture and fixtures  2,002   9   -   -   -   2,011 
Other equipment  57,470   1,425   -   -   -   58,895 
Mining rights  19,744   -   -   -   -   19,744 
Asset retirement and mine closure  169,237   18,768   -   -   -   188,005 
Stripping activity asset  138,178   3,992   -   -   -   142,170 
Mine development  326,476   8,745   -   511   -   335,732 
   1,874,053   132,399   (141,232)  -   -   1,865,220 
Net cost  1,364,610                   799,131 

F-134

Notes to the consolidated financial statements(continued)

  Opening
balance		  Additions  Sales and disposals  Transfer/Other
changes		  Final
balances		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
Year 2015                    
Cost-                    
Land  15,335   -   (272)  233   15,296 
Land improvements  22,730   -   -   -   22,730 
Building and constructions  622,928   -   (304)  51,856   674,480 
Machinery and equipment  322,441   -   (25,211)  25,460   322,690 
Leach pads  571,388   -   -   -   571,388 
Vehicles  9,278   -   (1,186)  32   8,124 
Furniture and fixtures  2,031   -   -   -   2,031 
Other equipment  64,137   225   (58)  4,679   68,983 
Work in progress  593,906   99,336   -   (92,887)  600,355 
Mining rights  33,800   -   -   -   33,800 
Asset retirement and mine closure  245,903   10,434   -   -   256,337 
Stripping activity asset  157,649   18,868   -   -   176,517 
Mine development  475,441   -   -   10,491   485,932 
   3,136,967   128,863   (27,031)  (136)  3,238,663 
                     
Accumulated depreciation and amortization                    
Land improvements  15,812   -   -   (5,334)  10,478 
Building and constructions  310,906   72,899   (95)  -   383,710 
Machinery and equipment  213,795   20,999   (21,732)  -   213,062 
Leach pads  519,142   26,779   -   -   545,921 
Vehicles  8,086   800   (1,111)  -   7,775 
Furniture and fixtures  1,991   11   -   -   2,002 
Other equipment  55,928   1,600   (58)  -   57,470 
Mining rights  19,744   -   -   -   19,744 
Asset retirement and mine closure  121,102   48,135   -   -   169,237 
Stripping activity asset  138,178   -   -   -   138,178 
Mine development  276,954   44,188   -   5,334   326,476 
   1,681,638   215,411   (22,996)  -   1,874,053 
Net cost  1,455,329               1,364,610 

Additions to work in progress in 2016 are primarily related to the Water treatment project and Yanacocha Laybacks Checkpoint 2A and Asset Componetization project.

The depreciation and amortization expense for the year ended December 31, 2016 was recorded as Cost applicable to sales in the statement of comprehensive income.

F-135

Notes to the consolidated financial statements(continued)

 

(b)Impairment of long-lived assets

In accordance with its accounting policies and processes, each asset or Cash Generating Unit “CGU” is evaluated annually at year end, to determine whether there are any indications of impairment. If any such indications of impairment exist, a formal estimate of the recoverable amount is performed. The Company has two CGU: Yanacocha mine and Conga project.

In assessing whether impairment is required, the carrying value of the asset or CGU is compared with its recoverable amount. The recoverable amount is the higher of the CGU’s fair value less costs of disposal (FVLCD) and value in use (VIU). Given the nature of the Company’s activities, information on the fair value of an asset is usually difficult to obtain unless negotiations with potential purchasers or similar transactions are taking place. Consequently, the recoverable amount for each CGU is estimated based on estimated discounted future estimated cash flows expected to be generated from the continued use of the CGUs using market based commodity price and exchange assumptions, estimated quantities of recoverable minerals, production levels, operating costs and capital requirements, and its eventual disposal, based on the latest life of mine (LOM) plans. These cash flows are discounted using a real pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU.

Estimates include quantities of recoverable minerals, production levels, operating costs and capital requirements and sourced from out planning process, including the LOM plans, one-year budgets and CGU-specific studies.

As a result of the recoverable amount analysis performed during the year, the Company recorded an impairment loss related to Yanacocha mine of US$889.5 million (US$872.2 million and US$17.3 million related to property, plant and equipment and intangible assets, respectively). In 2015, Company did not recognize impairment loss.In 2014, the Company recorded an impairment loss amounting to US$541.1 million related to Conga project, and no loss was recorded for Yanacocha mine.

Key assumptions used for the impairment testing as of December 31, 2016:

The determination of value in use is most sensitive to the following key assumptions:

-Production volumes
-Commodity prices
-Discount rate

Production volumes: Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines agreed by management as part of planning process. Production volumes are dependent on a number of variables, such as: the recoverable quantities; the production profile; the cost of the development of the infrastructure necessary to extract the reserves; the production costs; the contractual duration of mining rights; and the selling price of the commodities extracted.

F-136

Notes to the consolidated financial statements(continued)

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines are computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with the reserves and resource volumes approved as part of the Company’s process for the estimation of proved and probable reserves and resource estimates.

Commodity prices: Forecasted commodity prices are based on management’s estimates and are derived from forward price curves and long-term views of global supply and demand, building on past experience of the industry and consistent with external sources. These prices were adjusted to arrive at appropriate consistent price assumptions for the different qualities and type of commodities, or, where appropriate, contracted prices were applied. These prices are reviewed at least annually.

Estimated prices for the current and long-term periods that have been used to estimate future revenues are as follows:

  Current  Long-term 
  US$  US$ 
       
Gold (per ounce)  1,221   1,300 

Discount rate: In calculating the value in use, a pre-tax discount rate of 7.1% was applied to the pre-tax cash flows. This discount rate is derived from the Company’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU.

11.Trade and other payables
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Trade payables (b)        
Domestic suppliers  44,634   56,447 
Related entities, note 21(b)  9,052   10,972 
   53,686   67,419 
         
Other payables        
Remuneration and similar benefits payable  8,516   8,981 
Royalties payable to the Peruvian State  1,098   1,541 
Taxes payable  3,174   489 
   12,788   11,011 
   66,474   78,430 

F-137

Notes to the consolidated financial statements(continued)

(b)Trade payables arise mainly from the acquisition of materials, supplies and spare parts and services provided by third parties. These obligations, have current maturities, accrue no interest, are not secured and are mostly denominated in U.S. dollars.

12.Provisions
(a)This caption is made up as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Provision for closure of mining units and exploration projects (b)  1,012,888   578,959 
Provision of social responsability  24,335   29,083 
Workers’ profit sharing payable (c)  13,005   19,526 
Accrual of operating costs  19,650   13,319 
Other provisions  23,809   4,942 
   1,093,687   645,829 
         
Classification by maturity:        
Current portion  68,662   41,781 
Non-current portion  1,025,025   604,048 
   1,093,687   645,829 

(b)Provision for closure of mining units and explorations projects

The Company's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements.

The liability for reclamation or the Asset retirement obligation (“ARO”) comprises activities carried out by the Company in the restoration of mines and adjacent areas in the completion stage of the gold extraction process. Such activities include the restoration of mining locations, water treatment plant operations, as well as reforestation and land treatments.

F-138

Notes to the consolidated financial statements(continued)

The movement of the ARO for 2016, 2015 and 2014 is broken down as follows:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  578,959   557,457   460,127 
Additional provisions  430,292   10,434   84,835 
Payments  (10,467)  (11,007)  (10,419)
Unwinding of discount, note 19  14,104   22,075   22,914 
Final balance  1,012,888   578,959   557,457 
             
             
Classification by maturity            
Current portion  15,636   6,698   15,112 
Non-current portion  997,252   572,261   542,345 
   1,012,888   578,959   557,457 

The Company is conducting a comprehensive study of the current Yanacocha long-term mining and closure plans as part of the requirement to submit an updated closure plan to Peruvian regulators every five years. The revised closure plan will be submitted to Peruvian regulators in the second half of 2017. The revised closure plan may require the Company to provide additional reclamation bonding for Yanacocha.

On December 7, 2016, the Company presented its current assessment of the Yanacocha closure plan to the Board of Directors after completing its review of preliminary changes to Yanacocha closure plan based on revised long-term mining plans, the study work completed to date and in connection with the Company’s annual process to evaluate and update all asset retirement obligations. As a result, the Company recorded an increase to the reclamation obligation at Yanacocha of US$430 million. The increase to the reclamation obligation resulted in an increase to the recorded asset retirement cost asset of US$352 million related to the producing portions of the mine (note 10) and a non-cash charge to reclamation expense for the year ended December 31, 2016 of US$78 million related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation obligation is primarily due to higher estimated long-term water management costs, heap leach earthworks and related support activities.

The Company determined that an impairment indicator existed as a result of the updated long-term mining and closure plans and the related increases in estimated future closure costs that resulted in the increase to the asset retirement cost asset. As much, Yanacocha’s long-lived assets were tested for recoverability and an assessment of impairment was performed, which resulted in a non-cash impairment charge of US$889 million. See note 10 for further information regarding the impairment of long-lived assets recorded for Yanacocha as of December 31, 2016.

F-139

Notes to the consolidated financial statements(continued)

(c)Workers' profit sharing

In accordance with Peruvian legislation, the Company maintains an employee profit sharing plan equal to 8% of annual taxable income. Distributions to employees under the plan are based 50% on the number of days that each employee worked during the preceding year and 50% on proportionate annual salary levels.

13.Partners’ equity, net
(a)Partners’ contributions -

Partners’ contributions comprise1,278,451,304 common partnership interests at par value of one Peruvian Sol each, fully subscribed and paid-in. Such partnership interest includes 720,407,310 shares that are owned by foreign investors.

Under current Peruvian regulations, there is no restriction on the remittance of dividends or repatriation of foreign investment, except as discussed in sections below.

The legal structure of the Company is that of a Peruvian limited liability partnership. Major features of such legal structure are: (i) the number of Partners cannot exceed 20, (ii) capital comprises the partnership interests, and (iii) there is no obligation to create a legal reserve.

(b)Retained earnings -

Distribution of earnings to Partners other than legal entities domiciled in Peru is subject to a withholding income tax charged to the partners.

Until December 31, 2016, by Law N° 30296 published on December 31, 2014, for individuals and non-resident legal entities, the applicable tax rate was 6.8% for dividend distributions in cash or non-monetary assets for fiscal year 2016. Pursuant to Legislative Decree N° 1261, published on December 10, 2016 and effective as of January 1, 2017, the applicable tax rate to the distribution of cash dividends and non-monetary assets for the year 2017 onwards will be 5%.

(c)Dividends declared and paid -

On February 15, 2016, the board of Directors unanimously agreed to distribute dividends in the amount of US$300 million, in proportion to its shareholding, which corresponds to a portion of the accumulated results as of December 31, 2014, which have been generated in 2011.

14.Tax Situation
(a)Tax stabilization agreements

The Company has entered into the following tax stability agreements, each with a term of 15 years:

MineEffectiveDate of the Tax
Agreement		Tax Regimes in Force
Cerro YanacochaJanuary 1, 2000September 16, 1998May 22, 1997
La QuinuaJanuary 1, 2004August 25, 2003August 25, 2003

F-140

Notes to the consolidated financial statements(continued)

The Cerro Yanacocha tax stabilization agreement expired on January 1, 2015 and is no longer in effect.

The agreement for La Quinua guarantees the Company's use of the tax regime shown in the table above and permits maintenance of its accounting records in U.S. dollars for tax purposes.

The Company determines taxable income based on its understanding and that of its legal advisors, of applicable tax legislation. Taxable income differs from pre-tax income disclosed within these financial statements by those items that the applicable tax legislation deems to be non-taxable or non-deductible.

The income tax rate at December 31, 2016 and 2015 is 28% on taxable income, after deducting the employee's share that is calculated at a rate of 8 percent on taxable income, except for the rate applied in La Quinua which was 29%.

On December 31, 2014, the Peruvian Government enacted modifications to Income Tax regulations, applicable beginning in 2015. Among the modifications, a progressive income tax rate reduction was approved as follows: 28% for fiscal years 2015 and 2016; 27% for fiscal years 2017 and 2018; and 26% from 2019, onward.

Pursuant to Legislative Decree N° 1261, published on December 10, 2016 and effective as of January 1, 2017, the applicable tax rate on the taxable income will be 29.5 percent.

(b)Other mining taxes
(i)Law N°29788, Mining Royalties

On 28 September 2011, the Peruvian Government enacted new legislation to comprise a new mining tax payable to the Peruvian Government for extracting metallic and non-metallic mineral resources from its mining concessions.

Pursuant to this legislation, the mining royalty is payable quarterly based on sales and operating profit determined in accordance with IFRS. The royalty amount due is 1% of revenue. An additional mining tax due is calculated based on the level of operating profit up to a maximum applicable rate of 12%. This component of the new mining tax only applies to those projects that are not covered by a tax stabilization agreement. During 2016, 2015 and 2014, the amounts included in cost of production related to mining royalties were US$3,742,000, US$8,291,000 and US$7,247,000, respectively and during 2016 and 2015 there were no amounts included in mining tax expense, in 2014 the amount included in mining tax expense was US$1,714,000.

(ii)Law N°29789, Special Mining Tax

The Special Mining Tax ("IEM") applies to mines not covered by a tax stabilization agreement. The IEM is payable on a quarterly basis with rates ranging from 2% to 8.4% of operating profit determined, in accordance with IFRS.

F-141

Notes to the consolidated financial statements(continued)

The rate varies depending on the level of operating profit. During 2016, 2015 and 2014 the amounts included in income and mining tax expense were US$3,259,000, US$1,838,000 and US$5,479,000, respectively.

(iii)Law N°29790, Special Mining Burden

The Special Mining Burden ("GEM") applies to mines covered by a tax stabilization agreement. The GEM is payable on a quarterly basis with rates ranging from 4% to 13.12% of operating profit, determined in accordance with IFRS. The rate varies depending on the level of operating profit margin. The GEM applied to operations at Cerro Yanacocha and La Quinua in 2016, 2015 and 2014. This resulted in US$6,945,000, US$19,883,000 and US$7,156,000, respectively, of additional Income and mining tax expense.

(iv)Law N°29471, Supplementary Fund

The Supplementary Fund for retirement of mining applies to metallurgical and steel workers, affiliated to the National Pension System (“SNP”) and the Private Pension System (“PPS”); and is applicable since May 11, 2012. This Fund is formed by employee and employer contributions which are distributed according to the following detail:

-Employers will contribute 0.5% of the annual income before taxes.
-Employees will contribute 0.5% of their monthly gross salary.
-The employer's contributions are paid before tax; therefore these amounts are deductible expenses for the year.

The new pension fund tax is calculated based on annual income and is payable quarterly. During 2016 and 2015, the amounts included in Income and mining tax expense amounted to US$141,870 and US$459,000, respectively.

(c)Peruvian income tax

The Company's income tax provision consisted of the following:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Current Peruvian tax returns  41,105   98,319   123,007 
Royalties and mining taxes  10,249   21,721   14,349 
Other taxes  323   639   914 
Income tax prior year adjustments  (2,092)  (1,766)  - 
Income tax prior years refunds  (6,458)  -   - 
Current income tax expense  43,127   118,913   138,270 
Deferred income tax expense (benefit)  -   483,804   (168,761)
Income tax expense (benefit)  43,127   602,717   (30,491)

F-142

Notes to the consolidated financial statements(continued)

(d)Deferred income tax asset

Components of deferred income tax assets (liabilities) are as follows:

  2016  2015 
  US$(000)  US$(000) 
       
Deferred income tax assets, net        
Property, plant and mine development  608,783   303,385 
Reclamation  160,261   110,633 
Accounts payable and accrued expenses  64,703   66,261 
Inventories  60,018   24,887 
Other  3,077   4,838 
   896,842   510,004 
Allowance of deferred income tax asset  (896,842)  (510,004)
Net deferred income tax asset  -   - 

In December 2016, the Company recorded a valuation allowance on its deferred income tax asset of US$386 million (US$510 million during 2015) to the extent that it is not probable that taxable profit will be available against which the deductible temporary differences can be utilized.

(e)Reconciliation of income tax expense (benefit) –

Below is a reconciliation of tax expense and the accounts profit multiplied by the statutory tax rate for the years 2016, 2015 and 2014:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Income (loss) before income tax  (1,000,625)  152,522   (430,829)
Peruvian statutory tax rate  28%  28%  30%
Income tax expense (income)  (280,175)  42,706   (129,249)
Valuation allowance on deferred tax asset  403,763   510,004   - 
Effect of change in income tax rate  (83,667)  16,576   65,020 
Mining taxes  7,392   15,639   10,044 
Non-deductible expenses  3,296   15,288   24,832 
Adjustment due to income tax rate applicable to la Quinua  (1,024)  2,504   (1,138)
Income tax prior years refunds  (6,458)  -   - 
Total income tax expense (benefit)  43,127   602,717   (30,491)

F-143

Notes to the consolidated financial statements(continued)

15.Revenue from sales

The Company’s revenues are mainly from sales of gold ounces. The table below presents the net sales to customers by geographic region:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Sales and services by geographic region:            
Metal sales            
Suiza  558,723   754,335   851,577 
America  233,043   315,686   358,880 
   791,766   1,070,021   1,210,457 
             
Royalties, note 1(a) and 21  (24,339)  (32,414)  (36,867)
Mining royalties to the government  (6,234)  (6,433)  (8,291)
   761,193   1,031,174   1,165,299 

16.Costs applicable to sales

This caption is made up as follows:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance of finished goods and in-process  544,325   660,763   669,938 
Beginning balance of provision for net realizable value, note 8(b)  (90,298)  (163,094)  (147,342)
Consumption of supplies  228,376   210,384   246,106 
Personnel expenses  87,258   102,867   87,290 
Other services  73,779   76,490   82,805 
Maintenance  36,213   38,646   38,526 
Power  27,270   27,713   24,942 
Depreciation and amortization  140,712   223,142   360,334 
Workers' profit participation  12,394   28,852   35,055 
Reclamation expenses related to leach pads, note 12(b)  78,494   -   20,315 
Ending balance of provision for net realizable value, note 8(b)  84,374   90,298   163,094 
Ending balance of finished goods and in-process  (446,503)  (544,325)  (660,763)
   776,394   751,736   920,300 

F-144

Notes to the consolidated financial statements(continued)

17.Operating expenses, net

This caption is made up as follows:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Exploration and advanced projects  49,580   64,230   58,880 
Severance program  9,659   14,904   16,438 
Write-off of fixed assets  14,036   2,411   3,520 
Cost of fixed assets sold  160   1,624   39,425 
Income from fixed asset sales  (471)  (1,116)  (40,651)
Others, net  (1,468)  793   169 
   71,496   82,846   77,781 

18.Administrative expenses

This caption is made up as follows: 

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Management expenses  7,191   18,108   19,938 
Community development expenses and external affairs  -   6,297   15,653 
Other  1,589   1,920   2,671 
   8,780   26,325   38,262 

19.Finance costs

Financial costs for the years ended December 31, 2016, 2015 and 2014 are mainly related to the unwinding of the discount of the reclamation and mine closure liability amounting to US$14,104,000, US$22,075,000 and US$22,914,000, respectively. See note 12(b).

20.Commitments and contingencies

Unitization of properties -

In December 2000, as a result of the unitization plan carried out by the Partners, the Company signed several asset transfer and mining lease agreements with related entities. The main conditions are:

-The Company must pay to Chaupiloma, 3% of the quarterly net sales, according to the lease agreement. The mining rights subject to this 3% royalty are those identified in the lease agreement as part of the “Area of Influence of Chaupiloma”. Some of these mining rights are in exploitation and the rest of them in exploration.

-The Company must pay to S.M.R.L. Coshuro (“Coshuro”) and Buenaventura, 3% of the quarterly net sales, according to the transfer agreement. The mining rights subject to this 3% royalty are those identified in the transfer agreement, and are located out of the “Area of Influence of Chaupiloma” and within the “Area of Influence of the Joint Venture”. These mining rights are currently under exploration.

F-145

Notes to the consolidated financial statements(continued)

-The Company must pay to Los Tapados S.A., 3% of the quarterly net sales proceeds of mineral extracted from the transferred and leased concessions of Los Tapados S.A. The transferred and leased concessions of Los Tapados S.A. are also subject to a previously existing royalty on the minerals. These mining rights are currently under exploration.

Legal proceedings -

Mercury spill in Choropampa -

In June 2000, a transport contractor of Yanacocha spilled approximately 151 kilograms of elemental mercury near the town of Choropampa, Peru, which is located 53 miles (85 kilometers) southwest of the Yanacocha mine. Elemental mercury is not used in Yanacocha’s operations but is a by-product of gold mining and was sold to a Lima firm for use in medical instruments and industrial applications. A comprehensive health and environmental remediation program was undertaken by Yanacocha in response to the incident. In August 2000, Yanacocha paid under protest a fine of 1,740,000 Peruvian soles (approximately US$0.5 million) to Peruvian government. Yanacocha has entered into settlement agreements with a number of individuals impacted by incident. As compensation for the disruption and inconvenience caused by the incident, Yanacocha entered into agreements with and provided a variety of public works in the three communities impacted by this incident. Yanacocha cannot predict the likelihood of additional expenditures related to this matter.

Additional lawsuits relating to the Choropampa incident were filed against Yanacocha in the local courts of Cajamarca, Peru, in May 2002 by over 900 Peruvian citizens. A significant number of the plaintiffs in these lawsuits entered into settlement agreements with Yanacocha prior to filing such claims. In April 2008, the Peruvian Supreme Court upheld the validity of these settlement agreements, which the Company expects to result in the dismissal of all claims brought by previously settled plaintiffs. Yanacocha also entered into settlement agreements with approximately 350 additional plaintiffs. The claims asserted by approximately 200 plaintiffs remain. In 2011, Yanacocha was served with 23 complaints alleging grounds to nullify the settlements entered into between Yanacocha and the plaintiffs. Yanacocha has answered the complaints and the court has dismissed several of the matters and the plaintiffs have filled appeals. All appeals were referred to the Civil Court of Cajamarca, which affirmed the decisions of the lower court judge. The plaintiffs have filed appeals of such orders before the Supreme Court. Some of these appeals were dismissed by the Supreme Court in favor of Yanacocha and others are pending resolution. Yanacocha will continue to vigorously defend its position. Yanacocha can not reasonably estimate the ultimate loss relating to such claims.

Action for Constitutional Relief against Conga Project Exploitation -

On October 18, 2012, Marco Antonio Arana Zegarra ("Marco Arana") filed a constitutional claim against the Ministry of Energy and Mines and Yanacocha requesting the Court to order to cease any threats of violation to life in an adequate and balanced environment; so that Court declared the suspension of the exploitation of the Conga Project and avoid Directorial Resolution No.351-2010-MEM/AM dated on October 27, 2010 that approved the Conga Environmental Impact Assessment.

F-146

Notes to the consolidated financial statements(continued)

By Court resolution No.1 dated October 23, 2012, the action was dismissed. On November 5, 2012, resolution No.1 was appealed by plaintiff and the hearing at Superior Court was held on March 4, 2013. The Cajamarca Superior Court confirmed the ruling of the judge that dismissed the claim.

On May 23, 2013, Marco Arana filed for a Constitutional remedy against the Cajamarca Superior Court decision and on June 3, 2013, the Cajamarca Superior Court accepted the Constitutional remedy filed by Marco Arana and the file has been sent to the Constitutional Court. On September 25, 2013, the Constitutional Court heard oral arguments from the parties and we are waiting their decision. To date the case maintains the same status.

On March 13th, 2015, the Constitutional Court issued a resolution declaring the nullity of all judicial proceedings carried out after the first resolution issued in this case by the first instance judge. The Constitutional Court determined that the claim should be admitted, which means that the validity of the EIA should be reviewed in the judicial process by the first instance judge. Yanacocha was notified of the claim and answered the claim and presented motions to dismiss the claim on November 2015. We are waiting for the first instance judge to declare if he accepts the motions to dismiss or continues with the court case.

A similar claim has been filed against the Conga EIA by Mr. Carlos Raul Rodriguez Ramirez. Its status is the same as the claim filed by Marco Arana.

Environmental -

The Peruvian government agency responsibility agency responsible for environmental evaluation and inspection, Organismo Evaluacion y Fiscalizacion Ambiental (“OEFA”), conducts periodic reviews of the Yanacocha site. In 2011, 2012, 2013, 2015, 2016 and January 2017, OEFA issued notices of alleged violations of OEFA standards to Yanacocha relating to past inspections. OEFA has resolved with minimal or no findings. In 2015 and 2016, the water authority of Cajamarca issued notices of alleged regulatory violations, and resolved some allegations in early 2017 with no findings. The experience with OEFA and the water authority is that in the case of a finding of violation, remedial action is often the outcome rather than a significant fine. The alleged OEFA violations currently range from zero to 101,730 tax units and the water authority alleged violations range from zero to 40,000 tax units, being each tax unit equivalent to approximately US$1,200 based on current exchange rates. Yanacocha is responding to all notices of alleged violations, but cannot reasonably predict the outcome of the agency allegations.

F-147

Notes to the consolidated financial statements(continued)

Letters of Guarantee -

The Company has signed Letters of Guarantee with various financial institutions in accordance with the Mine Closure Regulation approved by Supreme Decree No.033-2005 of the Ministry of Energy and Mines. The table below sets out the outstanding signed commitments at year ends by financial institution. In general, these letters of guarantee are renewed annually.

  2016  2015 
  US$(000)  US$(000) 
       
Banco de Credito del Peru (a)  188,000   156,000 
BBVA Continental  120,000   100,000 
Scotiabank  120,000   100,000 
   428,000   356,000 

(a)Letters of guarantee of Banco de Credito del Peru include US$7,626,000 and US$6,222,000 related to San Jose Reservoir Trust in 2016 and 2015, respectively.

These three letters of guarantee shall come into force if the Company fails to execute in whole or in part the mine closure plan.

Open tax procedures -

The Tax Authority has the right to examine, and, if necessary, amend the Company’s income tax provision for the last four years. The Company’s income tax filings for the years 2012 through 2016 are open to examination by the tax authorities. For value added tax, the periods open for examination are the years 2013 through 2016. To date, the Tax Authority has concluded its review of the Company’s tax exams through the year 2011. For years 2002 through 2009, the Company is in the claim and appeal process. The tax authority is auditing the value added tax from July 2015 to June 2016.

In Management’s and legal advisors’ opinion, there are sound legal grounds to sustain the Company’s tax positions; as a result, Management expects to obtain favorable results on these processes and any additional tax assessment would not be significant to the consolidated financial statements.

For the periods pending of examination, due to the many possible interpretations of current legislation, it is not possible to determine whether or not future reviews will result in tax liabilities for the Company. In the event that additional taxes are payable, including interest and surcharges, as a result of the Tax Authority reviews, they will be charged to expense in the period assessed. However, in Management’s and legal advisors’ opinion, any additional tax assessment would not be significant to the consolidated financial statements.

F-148

Notes to the consolidated financial statements(continued)

Tax contingencies -

Withholding income tax for fiscal years 2002 and 2003 -

The Tax Administration challenged the withholding tax rate applied on the technical assistance services provided by a non-resident supplier. The services were executed in Peru and also abroad; however, the Company was not able to prove that during the tax audit. Based on that, the Tax Administration considers that the services were wholly executed in Peru; therefore, the withholding tax rate should be 30% instead of 12%. The amount of the contingency involved is S/16.6 million (US$4.9 million). In Management's and its legal counsel’s opinion, that consideration has no support and the Company should obtain a favorable outcome in the appeal initiated against the tax authorities.

Health Contributions - ESSALUD -

The Tax Administration considers that the bonus for closing the collective agreement and the collateral benefits granted to the unionized and non-unionized employees qualify as remunerative concepts; hence, taxed with the contribution to ESSALUD. The contingency amounts to S/10.6 million (US$3.2 million) for 2011 and 2012.In Management's and its legal counsel’s opinion, that interpretation has no support and the Company should obtain a favorable outcome in the appeal initiated against the tax authorities.

21.Transactions with related parties
(a)The main transactions carried out by the Company with its related parties in the years 2016, 2015 and 2014 were:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Royalties paid:            
S.M.R.L. Chaupiloma Dos de Cajamarca, note 15 and 1(a)  24,339   32,414   36,867 
             
Services rendered by:            
Newmont Peru S.R.L. (management services)  10,420   24,644   35,974 
Newmont USA Limited  6,438   9,076   6,192 

(b)As a result of the transactions indicated in the paragraph (a), the Company had the following accounts receivable and payable from/to associates:

  2016  2015 
  US$(000)  US$(000) 
       
Balance receivable from related parties, note 6        
Newmont USA Limited  389   80 
Suriname Gold Company LLC.  281   - 
Newmont Technologies Limited  120   23 
Newmont Peru S.R.L.  15   68 
Newmont Mining Services Pty Ltd.  -   77 
Others  10   - 
   815   248 
Balance payable for related parties, note 11        
S.M.R Chaupiloma Dos de Cajamarca  5,846   7,214 
Newmont USA Limited  1,403   1,769 
Newmont Technologies Limited  1,007   715 
Newmont Peru S.R.L.  742   1,183 
Newmont International Service Limited  26   77 
Others  28   14 
   9,052   10,972 

F-149

Notes to the consolidated financial statements(continued)

AII the balances above are of current maturity, have no specific guarantees and are not interest bearing.

22.Financial - risk management objectives and policies

The Company's operations are exposed to certain financial risks: some market risks (foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The most important aspects in risk management are the following:

(a)Market risks -
(i)Foreign exchange risk -

Foreign exchange risk exposure arises from exchange rate fluctuations of balances denominated in different currencies than the U.S. dollar. Since transactions and balances denominated in foreign currency are not significant, the current exchange rate risk exposure is limited. Management has decided to assume the exchange risk exposure with the results of the Company's operations; therefore it has not engaged in hedging activities.

(ii)Interest rate risk -

The Company does not maintain significant interest-bearing assets or liabilities; therefore, net income (loss) and cash flows of the Company are substantially independent from the changes in market interest rates.

(iii)Price risk-

The Company's financial instruments exposed to price risk are limited to its trade accounts receivable (exposed to gold price) and its available-for-sale financial assets, none of which show a material balance at the end of year, therefore no significant impact on the consolidated financial statements has arisen due to changes in their price that would need to be disclosed.

F-150

Notes to the consolidated financial statements(continued)

(b)Credit risk-

Credit risk is managed on a group basis by Newmont according to its policies. Financial instruments exposed to credit risk are cash and cash equivalents, investments in debt and equity instruments, trade accounts receivable and other accounts receivable. For banks and financial institutions, only independently rated parties with a minimum "A" rating are accepted. Regarding trade accounts receivable, according to the practice in the latest years, collections have generally been at full. A credit review of the portfolio is performed quarterly to determine any deterioration in credit quality. The Company does not foresee any significant losses that may arise from this risk.

(c)Liquidity risk-

Management administrates its exposure to liquidity risk through financing from internal operations, Company's partners and maintaining good relationships with local and foreign banks in order to maintain adequate levels of credit available. The Company currently has no existing bank lines of credit.

The following table represents the analysis of the Company's financial liabilities, considering the remaining period to reach such maturity as of the consolidated statement of financial position date (see note 11):

  2016  2015 
  Less than 1 year  Less than 1 year 
  US$(000)  US$(000) 
       
Trade accounts payable  44,634   56,447 
Accounts payable to related parties  9,052   10,972 
Remuneration and similar benefits payable  8,516   8,981 
   62,202   76,400 

(d)Capital risk management -

The Company's objectives for managing capital are to safeguard the Company's ability to continue as a going concern in order to provide expected returns for partners and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to its partners. No formal dividend policy exists.

(e)Fair value estimation -

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assets that are measured at fair value on a recurring basis (at least annually) correspond to the San José Reservoir Trust assets.

The Company's San José Reservoir Trust assets are made up of marketable equity and debt securities that are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

F-151

Notes to the consolidated financial statements(continued)

The Company's impairment loss is valued using valuation techniques to determine the WACC rate. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates as such is classified within Level 2 of the fair value hierarchy.

23.Summary of significant differences between accounting principlesfollowed by the Company and U.S. Generally Accepted Accounting Principles

The Company's financial statements have been prepared in accordance with International Financial Reporting Standards which differs in certain respects from U.S. GAAP. The effects of these differences are reflected in note 24 and are principally related to the items discussed in the following paragraphs:

(a)Impairment -

Under IFRS, the Company estimates the recoverable amount of an asset whenever there is an indication that the asset may be impaired. The recoverable amount is the higher of the fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.

In 2016, the Company recognize an impairment loss related to Yanacocha of US$889 million. In 2015, the Company did not recognize impairment loss. In 2014, the Company recorded impairment losses amounting to US$541 million related to Conga, and no amount for Yanacocha.

Under US GAAP, the Company uses undiscounted cash flows to perform an impairment evaluation (step 1) an if there is an indicator uses discounted cash flows to determinate the impairment loss (step 2). In 2016, the Company recognized an impairment loss related to Yanacocha of US$933 million. No impairment losses were determined for Yanacocha and Conga cash-generating units in 2015.

For reconciling the net income/loss and net equity from US GAAP to IFRS, the Company eliminates the higher depreciation recorded under US GAAP corresponding to the impaired assets under IFRS.

(b)Deferred workers’ profit participation

Under IFRS, the workers’ profit participation is recorded as an employee benefit that is recorded as cost of production or administrative expense, depending of the function of the workers.

Under US GAAP, the workers’ profit sharing is treated in a similar way as income tax since both are calculated based on the Company’s taxable income. Therefore, the Company calculates a deferred workers’ profit participation resulting from the taxable and deductible temporary differences.

For reconciling the net income/loss and net equity from US GAAP to IFRS, the Company eliminates the deferred workers’ profit participation and its corresponding valuation allowance recorded in the current year.

(c)Stripping activity asset -

Under IFRS, the stripping costs in the production phase of a surface mine are accounted for according to the accounting principles disclosed in note 2.

F-152

Notes to the consolidated financial statements(continued)

Under U.S. GAAP, the costs of clearing removal (stripping cost of production) incurred during the production stage are recorded as part of the production cost of inventories.

(d)Reclamation and mine closure –

Under IFRS, the liability was measured in accordance with IAS 37 and IFRIC 1. Upward and downward revisions in the amount of undiscounted estimated cash flows are discounted using the current market-based discount rate (this includes changes in the time value of money and the risks specific to the liability), see note 2.4 (j).

Under US GAAP, upward revisions in the amount of undiscounted estimated cash flows are discounted using the current credit-adjusted risk-free rate. Downward revisions in the amount of undiscounted estimated cash flows are discounted using the credit-adjusted risk-free rate that existed when the original liability was recognized.

(e)Inventories -

Under IFRS, the cost of inventory mainly includes less depreciation as a result of the reduced base of property, plant and equipment due to the impairment recorded in prior years.

Under US GAAP, the cost of inventory considers a higher depreciation since the items of property, plant and equipment have not been impaired.

(f)Deferred income tax –

The differences between US GAAP and IFRS are re-measurements that lead to different temporary differences. According to the accounting policies in Note 2.4 (l), the Company has to account for such differences.

During 2015, the Company recorded a valuation allowance of the deferred income tax asset recorded under IFRS which was higher by US$321.6 million compared to the valuation allowance recorded under US GAAP, mainly as a result of the impairment losses of prior years recorded under IFRS.

F-153

Notes to the consolidated financial statements(continued)

24.Reconciliation between net income and Partners' Equity determined under IFRS and U.S. GAAP

The following is a summary of the adjustment to net income for the years ended December 31, 2016, 2015 and 2014 and to partners' equity as of December 31, 2016 and 2015 that would be required if U.S. GAAP had been applied instead of IFRS in the consolidated financial statements:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Loss under IFRS  (1,043,752)  (450,195)  (400,338)
Items increasing (decreasing) reported net profit:            
Impairment loss, note 23(a) and 10(b)  889,499   -   541,141 
Reversal of depreciation of assets impaired under IFRS, note 23(a)  (101,855)  (125,943)  (79,809)
Elimination of impairment loss recorded under U.S. GAAP, note 23(a)  (933,200)  -   - 
Elimination of the valuation allowance of the deferred workers’ profit participation, note 23(b)  -   (41,909)  - 
Stripping activity asset, note 23(c)  (22,156)  (18,868)  (23,212)
Reclamation and mine closure, note 23(d)  (22,278)  (12,049)  427 
Inventories, note 23(e)  36,076   20,903   (17,428)
Deferred workers' profit participation, note 23(b)  -   2,790   29,003 
Valuation allowance of deferred income tax, note 23(f)  -   321,622   - 
Deferred income tax of reconciliation items, note 23(f)  -   43,441   (93,062)
Others  6,347   8,049   11,364 
Loss under U.S. GAAP  (1,191,319)  (252,159)  (31,914)

  2016  2015 
  US$(000)  US$(000) 
       
Partners' equity under IFRS  885,724   2,228,825 
Items increasing (decreasing) reported Partners' equity:        
Impairment loss, note 23(a)  2,469,188   1,579,689 
Reversal of depreciation of assets impaired under IFRS, note 23(a)  (379,806)  (277,951)
Elimination of impairment loss recorded under U.S. GAAP, note 23(a)  (933,200)  - 
Elimination of the valuation allowance of the deferred workers’ profit participation, note 23(b)  -   (41,909)
Stripping activity asset, note 23(c)  (41,069)  (18,913)
Reclamation and mine closure, note 23(d)  (74,402)  (52,124)
Inventories, note 23(e)  30,289   (5,787)
Deferred workers' profit participation, note 23(b)  -   40,935 
Valuation allowance of deferred income tax, note 23(f)  -   321,622 
Deferred income tax related to reconciliation items, note 23(f)  -   (310,341)
Others  (28,403)  (45,057)
Partners' equity under U.S. GAAP  1,928,321   3,418,989 

F-154

Notes to the consolidated financial statements(continued)

25.New U.S. GAAP Accounting Pronouncements

Recently Issued Accounting Pronouncements -

Restricted Cash -

In November 2016, ASU No. 2016-18 was issued related to the inclusion of restricted cash in the statements of cash flows. This new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The adoption of this guidance will result in the inclusion of the restricted cash balance within the overall cash balance and removal of the changes in restricted cash activity.

Intra-Entity Transfer –

In October 2016, ASU No. 2016-16 was issued related to the intra-entity transfer of assets other than inventory. This new guidance requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017 an early adoption is permitted. The Company is currently evaluating this guidance and the corresponding impact.

Statements of Cash Flows –

In August 2016, ASU No. 2016-15 was issued related to the statement of cash flows. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating this guidance and the corresponding impact.

Leases –

In February 2016, ASU No. 2016-02 was issued related to leases. This new guidance modifies the classification criteria and requires leases to recognize the assets and liabilities arising from most leases on the balance sheet. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating this guidance and the corresponding impact.

Inventory –

In July 2015, ASU No. 2015-11 was issued related to inventory, simplifying the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. The update is effective in fiscal years, including interim periods, beginning after December 15, 2016 and early adoption is permitted. The Company does not expect the updated guidance to have a material impact.

F-155

Notes to the consolidated financial statements(continued)

Revenue recognition –

In May 2014, ASU No. 2014-09 was issued related to revenue from contracts with customers. This ASU was further amended in August 2015, March 2016, April 2016, May 2016 and December 2016 by ASU No. 2016-08, No. 2016-10, No. 2016-12 and No. 2016-20, respectively. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the effective date was deferred to reporting periods, including interim periods, beginning after December 15, 2017 and will be applied retrospectively. Early adoption is not permitted.

The Company is currently performing an assessment of the revised standards and impacts on the Company’s Consolidated Financial Statements and disclosures. Management is still in the process of completing their assessment of the impacts; however, based on a preliminary analysis, anticipates the standard having a potential impact to the timing of revenue recognition due to a potential change in timing of when control is transferred to the customer. The Company continues to evaluate the potential impacts due to timing of revenue recognition, but does not expect it to have a material impact on the Consolidated Financial Statements. Additionally, the Company continues to assess the potential impacts on insurance payments, variable consideration on concentrate sales, and refining fee classification under the new standard. Based on preliminary findings, the Company does not expect these areas to have a significant impact on revenue recognition. The Company expects to have an update to the impacts of the standard in second quarter of 2017.

The Company anticipates adopting the new standard effective January 1, 2018. The guidance may be applied retrospectively for all periods presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. The Company currently anticipates adopting the standard retrospectively with the cumulative effect of initially applying the amended guidance recognized at January 1, 2018.

F-156

Sociedad Minera Cerro Verde S.A.A.

Financial Statements for the years 2016, 2015 and 2014
together with the Report of Independent Registered Public Accounting Firm

F-157

Sociedad Minera Cerro Verde S.A.A.

Financial Statements for the years 2016, 2015 and 2014
together with the Report of Independent Registered Public Accounting Firm

Content

Report of Independent Registered Public Accounting FirmF-159
Financial Statements
Statements of financial positionF-160
Statements of comprehensive incomeF-161
Statements of changes in equityF-162
Statements of cash flowsF-163
Notes to the financial statementsF-165

F-158

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Sociedad Minera Cerro Verde S.A.A.

We have audited the accompanying financial statements of Sociedad Minera Cerro Verde S.A.A. (a Peruvian company, subsidiary of Freeport - McMoRan Inc.), which comprise the statements of financial position as of December 31, 2016 and 2015, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years ended December 31, 2016, 2015 and 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company´s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company´s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sociedad Minera Cerro Verde S.A.A. as of December 31, 2016 and 2015, and the results of operations and its cash flows for the years ended December 31, 2016, 2015 and 2014, in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (“IASB”) which differ in certain respects from the accounting principles generally accepted in the United States of America (see note 24 to the financial statements).

Lima, Peru,

February 28, 2017

Countersigned by:

Paredes, Burga & Asociados S. Civil de R.L.

/s/ Victor Burga

Víctor Burga

C.P.C.C. Register No.14859  

F-159

Sociedad Minera Cerro Verde S.A.A.

Statements of financial position

As of December 31, 2016 and 2015

  Note 2016  2015 
    US$(000)  US$(000) 
Assets          
Current assets          
Cash and cash equivalents 2(d), 3  29,951   5,952 
Trade accounts receivable (net)    1,162   13,948 
Other accounts receivable (net) 2(d), 5  70,043   2,771 
Trade accounts receivable - Related parties 2(d), 4  375,306   199,368 
Prepayments    5,473   7,320 
Inventories 2(g), 6  425,566   394,867 
Other non-financial assets 7  311,007   432,299 
     1,218,508   1,056,525 
Non - current assets          
Prepayments    39   - 
Property, plant and equipment, net 2(h), 8  5,807,740   6,077,289 
Intangible assets    12,198   16,905 
Other non-financial assets 7  597,138   701,973 
     6,417,115   6,796,167 
           
Total assets    7,635,623   7,852,692 
           
Liabilities and equity, net          
Current liabilities          
Other financial liabilities 2(e), 10  161   43,169 
Accounts payable 2(e), 9  168,357   432,418 
Other accounts payable    3,619   2,112 
Accounts payable - Related parties 2(e), 4  27,134   12,042 
Provision related to benefits to employees    48,039   20,536 
Provisions, short term 2(k), 11  24,458   33,509 
Income tax payable    21,863   4,731 
Total current liabilities    293,631   548,517 
Non - current liabilities          
Other financial liabilities 2(e), 10  1,995,843   2,381,995 
Accounts payable - Related parties 2(e), 4  7,132   6,850 
Long –term provisions 2(k), 11  164,622   163,803 
Deferred income tax liability, net 2(m),13(g)  335,114   253,153 
     2,502,711   2,805,801 
Total liability    2,796,342   3,354,318 
           
Shareholder´s Equity 12        
Capital Stock    990,659   990,659 
Other capital reserves    198,132   198,132 
Retained earnings    3,650,490   3,309,583 
           
Total Shareholder´s equity    4,839,281   4,498,374 
           
Total liabilities and Shareholder´s equity    7,635,623   7,852,692 

The accompanying notes are an integral part of this financial statement.

F-160

Sociedad Minera Cerro Verde S.A.A.

Statements of comprehensive income

For the years ended December 31, 2016, 2015 and 2014

  Note 2016  2015  2014 
    US$(000)  US$(000)  US$(000) 
            
Sales of goods 14  2,384,154   1,115,617   1,467,097 
Cost of sales 15  (1,553,040)  (862,004)  (797,481)
Gross profit    831,114   253,613   669,616 
               
Operating expenses              
Selling expenses 16  (131,391)  (56,215)  (54,210)
Other operating expenses 17  (24,107)  (26,739)  (5,873)
Other operating income    -   139   2,244 
     (155,498)  (82,815)  (57,839)
Operating profit    675,616   170,798   611,777 
               
Other income (expenses)              
Financial income    954   512   2,443 
Financial expenses 18  (80,438)  (16,010)  (369)
Exchange differences, net    7,857   (75,770)  2,284 
     (71,627)  (91,268)  4,358 
               
Profit before income tax    603,989   79,530   616,135 
Income tax expense 13(g)  (263,082)  (46,246)  (238,529)
               
Profit for the year    340,907   33,284   377,606 
               
Basic and diluted earnings per share 19  0.974   0.095   1.08 

The accompanying notes are an integral part of this financial statement.

F-161

Sociedad Minera Cerro Verde S.A.A.

Statements of changes in equity

For the years ended December 31, 2016, 2015 and 2014

  Note Capital
stock		  Other capital
reserves		  Retained
earnings		  Total 
    US$(000)  US$(000)  US$(000)  US$(000) 
               
Balance as of January 1, 2014 12  990,659   198,132   2,898,693   4,087,484 
                   
Profit for the year    -   -   377,606   377,606 
                   
Balance as of December 31, 2014 12  990,659   198,132   3,276,299   4,465,090 
                   
Profit for the year    -   -   33,284   33,284 
                   
Balance as of December 31, 2015 12  990,659   198,132   3,309,583   4,498,374 
                   
Profit for the year    -   -   340,907   340,907 
                   
Balance as of December 31, 2016 12  990,659   198,132   3,650,490   4,839,281 

The accompanying notes are an integral part of this financial statement.

F-162

Sociedad Minera Cerro Verde S.A.A.

Statements of cash flows

For the years ended December 31, 2016, 2015, and 2014

  Note 2016  2015  2014 
    US$(000)  US$(000)  US$(000) 
            
Operating activities              
Profit for the year    340,907   33,284   377,606 
               
Adjustments to reconcile with the profit for the period with the cash provided from operating activities for:              
Income tax expense 13(g)  263,082   46,246   238,529 
Nonmonetary adjustments              
Depreciation, Amortization and Depletion 15  472,997   244,477   164,985 
Unwinding of discount for remediation and mine closure provision 11(b)  4,391   3,985   2,537 
               
Net loss on sale of Property, Plant and Equipment    982   661   4,722 
Impairment of property, plant and equipment    -   -   781 
               
Net changes in assets and liabilities              
     ��         
Trade accounts receivable and other accounts receivable    (159,110)  (23,111)  121,435 
Inventories    (30,699)  (162,325)  (15,542)
Other non-financial assets    132,713   (271,852)  (409,159)
               
Trade accounts payable and other accounts payable    85,939   106,685   4,430 
Provisions related to benefits to employees    27,503   (23,876)  (13,717)
Other provisions    (59,851)  8,640   35,808 
               
Interest paid (not included in the financing Activities)    (64,325)  (36,233)  (10,402)
Income tax    (68,557)  (121,027)  (315,369)
               
Net cash and cash equivalents provided by (used in) operating activities    945,972   (194,446)  186,644 

F-163

Statements of cash flows(continued)

  Note 2016  2015  2014 
    US$(000)  US$(000)  US$(000) 
            
Investing activities              
Sales of property, plant and equipment    235   409   356 
Withdraw of time deposits    -   -   226,772 
Purchase of property, plant and equipment 8  (421,610)  (1,663,738)  (1,640,287)
Stripping activity asset 8  (61,261)  (111,819)  (49,122)
Purchase of intangibles    -   (9,509)  (7,178)
Other cash payments related to investing activities    3,832   -   - 
               
Net cash and cash equivalents used in investing activities    (478,804)  (1,784,657)  (1,469,459)
               
Financing activities              
Proceeds from loans 10  350,000   1,896,000   475,000 
Proceeds from shareholders loans 10(b)  -   600,000   - 
Payments of loans 10  (793,000)  (528,000)  - 
Debt issuance costs    -   (2,356)  (27,024)
Amortization of leasing    (169)  (163)  (157)
               
Net cash and cash equivalents provided by (used in) financing activities    (443,169)  1,965,481   447,819 
               
Net increase (net decrease) in cash and cash equivalents    23,999   (13,622)  (834,996)
Cash and cash equivalents at beginning of year    5,952   19,574   854,570 
               
Cash and cash equivalents at end of year    29,951   5,952   19,574 
               
Transactions with no effects in cash flows :              
               
Provision for remediation and mine closure 11  (16,091)  33,803   68,840 

The accompanying notes are an integral part of this financial statement

F-164

Sociedad Minera Cerro Verde S.A.A.

Notes to the Financial Statements

As of December 31, 2016, 2015 and 2014

1.Identification and business activity

(a)Identification -

Sociedad Minera Cerro Verde S.A.A. (the Company) was incorporated in Peru on August 20, 1993 as a result of the privatization process of certain mining units carried out by the Peruvian State in that year. The Company’s shares were listed on the Lima Stock Exchange on November 14, 2000.

Through its subsidiary Cyprus Climax Metals Company, Freeport Minerals Corporation (FMC), a wholly owned subsidiary of Freeport-McMoRan Inc. (Freeport), owns 53.56% of the voting shares of the Company. SMM Cerro Verde Netherlands B.V. (a subsidiary of Sumitomo Metal Mining Company Ltd.) owns 21% of the voting shares of the Company, Compañía de Minas Buenaventura S.A.A. owns 19.58%, and other stakeholders own the remaining 5.86%.

The Company’s legal address is Jacinto Ibañez Street N°315 - Parque Industrial, Arequipa in the city of Arequipa and the ore deposit is located southwest of that city (Asiento Minero Cerro Verde S/N Uchumayo – Arequipa).

(b)Business activity -

The Company’s activities are regulated by the Peruvian General Mining Law and comprise the extraction, production and sale of copper concentrate and cathode.

Expansion of operations -

In September 2015, the expansion project commenced operations and achieved full capacity operating rates during the first quarter of 2016. The project, with a cost of US $5.3 billion, expanded the processing capacity from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day.

This expansion was financed with senior unsecured loans received by several banks led by Citibank N.A. and with shareholders’ loans, currently subordinated to the senior unsecured loans previously mentioned. (See Note 10)

(c)Financial statements approval –

The financial statements for the year ended December 31, 2016, were approved by the Company’s Management on February 28, 2017, and, in Management’s opinion, they will be approved without changes at the Board of Directors and Shareholders’ Meetings to be held in the first quarter of 2017. The financial statements for the year ended December 31, 2015, were approved at the Board of Directors and Shareholders’ Meetings on March 30, 2016.

F-165

Notes to the Financial Statements (continue)

2.Significant accounting principles and policies

The significant accounting policies applied in the preparation of the financial statements are summarized below:

(a)Basis of presentation -

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). IFRS includes International Accounting Standards (IAS) and pronouncements of the Interpretations Committees (SIC and IFRIC).

The financial statements have been prepared based on historical cost, except for accounts receivable and/or payable related to the embedded derivative, which have been measured at fair value (see Note 2(d)). The financial statements are presented in United States dollars (US$) and include the years ended December 31, 2016, 2015 and 2014. Unless otherwise indicated, all values have been rounded to the nearest thousand.

(b)Use of judgments, estimates and assumptions -

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions in order to determine the amounts of the assets and liabilities, and the disclosure of contingent assets and liabilities as of December 31, 2016 and 2015, and the amounts of reported revenues and expenses for the years ended December 31, 2016, 2015 and 2014.

Information about estimations and judgments by Management in the preparation of the financial statements follows:

(b.1)Judgments –

(i)Contingencies –

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential amount of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

(ii)Stripping cost –

The Company incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalized as a stripping activity asset, where certain criteria are met.

 

Once the Company has identified its production stripping for each surface mining operation, it identifies the separate components of the ore bodies for each of its mining operations. An identifiable component is a specific volume of the ore body that is made more accessible by the stripping activity. Significant judgment is required to identify and define these components, and also to determine the expected volumes (e.g., in tons) of waste to be stripped and ore to be mined in each of these components.

 

(c)F-166Functional currency -

 

The functional currency forNotes to the Company and its parent entity is the currency of the primary economic environment in which the entity operates. The Company has determined the functional currency is the US dollar. Determination of functional currency may involve certain judgments to determine the primary economic environment and the parent entity reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.Financial Statements (continue)

 

3.2(b.2)Estimates and assumptions -–

(a)(i)Determination of mineral reserves and resources -–

OreMineral reserves are estimatesthe part of thea mineral deposit ore quantity that can be economically and legally extracted from the mine concessions. The Company estimates its ore reservesmineral reserve based on information compiled by individuals qualified in reference to geological data about the size, depth and form of the ore body, and requires of geological judgments in order to interpret the data.

 

The estimation of recoverable reserves is based on factors such as estimated exchange rates,involves numerous uncertainties with respect to the ultimate geology of the ore body, including quantities, grades and recovery rates. Estimating the quantity and grade of mineral reserves requires the Company to determine the size, shape and depth of the ore body by analyzing geological data. In addition to the geology, assumptions are required to determine the economic feasibility of mining the reserves, including estimates of future commodity prices and demand, future requirements of capital and production costs, together with geological hypothesis and judgments made when estimating the size and quality of ore.estimated exchange rates. Revisions in reserve or resource estimates have an impact on the value of mining properties, property, plant and equipment, provisions for cost of mine closure, recognition of assets for deferred taxes and depreciation and amortization of assets.

Notes to the financial statements(continued)

 

(b)(ii)Units of production depreciation -–

Estimated economically recoverablemineral reserves are used in determining the depreciation and/or amortization of mine-specific assets. This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, has regard tois impacted by both its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves.

 

(c)(iii)Mine rehabilitation provision-Provision for remediation and mine closure –

The Company assesses its provision for remediation and mine closure provision annually.quarterly. It is necessary to make estimates and assumptions in determining this provision, including cost estimates of activities that are necessary for the rehabilitation of the site, technological and regulatory changes, interest rates and inflation rates. As discussed in note 2.2(h)2(k), estimated changes in the fair value of the provision for remediation and mine closure provision or the useful life of the related assets are recognized as an increase or decrease in the book value of the provision and related asset retirement cost (ARC) in accordance with IAS 16, “Property, Plant and Equipment”.

According to the Company’s accounting policies, the provision for remediation and mine closure represents the present value of the costs that are expected to be incurred in the closure period of the operating activities of the Company. Closure budgets are reviewed regularly to take into account any significant change in the studies conducted. Nevertheless, the closure costs of mining units will depend on the market prices for the closure work required, which would reflect future economic conditions. Also, the timing of disbursements depends on the useful life of the mine, which is based on estimates of future commodity prices.

If any change in the estimate results in an increase to the provision for remediation and mine closure and related ARC, the Company shall consider whether or not this is an indicator of impairment of the assets and will apply impairment tests in accordance with IAS 36, “Impairments of Assets”.

 

F-167

Notes to the Financial Statements (continue)

(d)(iv)Inventories -

Net realizable value tests are performed at least annually and represent the estimated future sales price of the product based on prevailing spot metals prices, less estimated costs to complete production and bring the inventory to sale. Additionally, in calculating the net realizable value of the Company’s long-term stockpiles, Management also considers the time value of money.

 

Mill and leach stockpiles generally contain lower grade ores that have been extracted from the ore body and are available for copper recovery. For millMill stockpiles contain sulfide ores and recovery of metal is through milling and concentrating. For leachLeach stockpiles contain oxide ores and certain secondary sulfide ores and recovery of metal is through exposure to acidic solutions that dissolve contained copper and deliverydeliver it in solution to extraction processing facilities.

 

Because it is generally impracticable to determine copper contained in mill and leach stockpiles by physical count, a reasonable estimation method is employed. The quantity of material delivered to mill and leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blastholeblast holes cuttings determine the estimated copper grades of material delivered to mill and leach stockpiles.

 

Expected copper recovery rates for mill stockpiles are determined by metallurgical sampling.testing. The recoverability ofrecoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate rapidly.almost immediately.

F-168

Notes to the Financial Statements (continue)

 

EstimatedExpected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, historical trends and other factors. Ultimatefactors, including mineralogy of the ore and rock type. Total copper recovery of copper contained in leach stockpiles can vary significantly depending on several variables, including type of copper recovery, mineralogy and the size of the rocks.rock. For newly placed material of active stockpiles, as much as 80 percent of total copper recovery may be extracted during the first year, and the remaining copper may be recovered over many years. Processes and recovery rates are monitored continuously, and recovery ratesrate estimates are adjusted periodically as additional information becomes available and as related technology changes.

Notes to the financial statements(continued)

 

(e)(v)Asset impairment –

The CompanyManagement has determined that the Cerro Verde operation consistsCompany’s operations consist of one cash generating unit, considering the operation as a whole.unit. Therefore, the Cerro Verde operation isCompany’s operations are evaluated at least annually in order to determine if there are any impairment indicators. If any such indication exists, the Company makes an estimate of the recoverable amount, which is the greater of the fair value less costs to sell and the value in use. These assessments require the use of estimates and assumptions, such as long-term commodity prices, discount rates, operating costs, and others.

 

Fair value is defined as the amount that would be obtained from the sale of the asset in an arm’s length transaction between willing and knowledgeable parties. The fair value of assets is generally determined as the current value of future cash flows derived from the continuous use of the asset, which includes estimates, such as the cost of future expansion plans and eventual disposal, while applying assumptions that an independent market participant may take into account. The cash flows are discounted by applying a discount rate that reflects the current market, the time value of money and the risks specific to the asset.

 

4.(c)Standard issue but not effectiveCurrency-

The financial statements are presented in United States (US) dollars which is also the Company’s functional currency.

Foreign currency transactions are considered to be those which are carried out in a currency other than the functional currency. Foreign currency transactions are translated into the functional currency by applying the exchange rate in force on the date the transaction takes place. Monetary assets and liabilities denominated in foreign currencies are converted using the functional currency spot rate in force at the reporting date.

Gains and losses as a result of the difference in the exchange rate when currency items are liquidated or when converting currency items at exchange rates that are different from those used for their initial recognition are recognized in the statements of comprehensive income for the year.

F-169

Notes to the Financial Statements (continue)

 

The standardsCompany uses Peruvian Sol (S/) exchange rates published by the Superintendent of Banks, Insurance and interpretations that are issued, but not yet effective, upPension Fund Administrator. The published exchange rates were S/3.352 for US$1 for buying and S/3.360 for US$1 for selling as of December 31, 2016, and S/3.408 for US$1 buying and S/3.413 for US$1 for selling as of December 31, 2015. These rates have been applied to the date of issuance of the Company’s financial statements are disclosed below. appropriate asset and liability accounts.

(d)Financial assets -

The Company intends to adopt these standards, if applicable, when they become effective.

IFRS 9 Financial Instruments

In July 2014,determines the IASB issued the final versionclassification of IFRS 9 “Financial Instruments” which reflects all phases of theits financial instruments project and replacesassets at initial recognition in accordance with IAS 39, “Financial Instruments: Recognition and Measurement”. Financial assets are recognized initially at fair value plus the direct costs attributable to the transaction. The Company’s financial assets include cash and all previous versionscash equivalents, accounts receivable and embedded derivatives.

Cash and cash equivalents -

Cash and cash equivalents are financial assets that may be liquidated immediately, such as bank checking accounts, and other liquid investments with original maturities of IFRS 9. three months or less.

Accounts Receivables -

The standard introduces new requirementsCompany’s receivables include current and long-term trade and other accounts receivable. These receivables are stated at their transaction value, net of an allowance for classificationdoubtful accounts. Trade accounts receivable are generated primarily from the Company’s concentrate and cathode sales, are denominated in US dollars, have current maturities, do not bear interest and have no specific guarantees.

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, receivables are subsequently carried at amortized cost using the effective interest method less any provision for impairment and hedge accounting. IFRS 9 is effective(i.e. allowance for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early applicationdoubtful accounts).

The Company assesses whether, as of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial applicationthe financial statements, there is before February 1, 2015. The adoptionobjective evidence of IFRS 9 would have not significant effect onimpairment in the classification and measurementvalue of the Group’sreceivable. Any resulting impairment is measured as the difference between the book value of the receivable and the present value of the estimated future cash flows, discounted at an original effective interest rate or one applicable to a similar transaction. The carrying amount of the receivable is reduced by means of an allowance account and recognized in the statements of comprehensive income.

Embedded derivatives -

The Company’s copper sales are provisionally priced at the time of shipment. The provisional prices are finalized in a specified future month based on quoted London Metal Exchange (LME) monthly average prices. The Company receives market prices based on prices in the specified future month, which results in price fluctuations recorded through revenues until the date of settlement. The Company records revenues and invoices customers at the time of shipment based on then-current LME prices, which results in an embedded derivative that is required to be separated from the main contract.

The Company’s embedded derivatives from sales are measured at fair value (based on LME spot copper prices) with subsequent changes recognized in the statements of comprehensive income until the month of settlement.

(e)Financial liabilities -

All financial assetsliabilities are recognized initially at fair value and, liabilities.in the case of accounts payable and other financial liabilities, net of directly attributable transaction costs. The Company´s financial liabilities include loans, trade and other payables, other financial liabilities and embedded derivatives.

 

F-159F-170

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

IFRS 15 Revenue from Contracts with CustomersLoans-

Loans are initially recognized at their fair value, net of directly attributable transaction costs. After initial recognition, loans are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognized as well as through the amortization process.

 

IFRS 15 was issuedAmortized cost is calculated taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortization under the effective interest rate method is included as financial costs in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017 with early adoption permitted. The Company is assessing the impactstatements of IFRS 15 and plans to adopt the new standard on the required effective date.comprehensive income.

 

5.(f)Offsetting of financial instruments –

Financial assets and financial liabilities are offset and the net amount reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and it is management’s intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

(g)Inventories -

Inventories are stated at the lower of cost or net realizable value. Inventory of materials and supplies, as well as saleable products and in-process inventory are determined using the weighted-average cost method. The cost of finished goods and in-process inventory (i.e., stockpiles) includes labor and benefits, supplies, energy and other costs related to the mining and processing of minerals. Net realizable value is the estimated future sales price based on forward metal prices (for the period they are expected to be processed in), less estimated costs to complete production and bring the inventory to sale.The current portion of work in process is determined based on the amount the Company expects to process in the next twelve months. Inventories that are not expected to be processed in the next twelve months are classified as long-term inventories.

No adjustments to inventories were required for the years ended December 31, 2016 and 2015.

F-171

Notes to the Financial Statements (continue)

Provision for obsolescence -

Obsolescence allowances are established based on an item-by-item analysis by management. Any amount of obsolescence identified is charged to the statements of comprehensive income in the period it is deemed to have occurred.

(h)Property, plant and equipment -

Property, plant and equipment are valued at historical cost, including costs that are directly attributed to the construction or acquisition of the asset, net of accumulated depreciation, amortization and impairment.

Repairs and/or improvements that increase the economic life of an asset and for which it is probable that there will be future economic benefit to the Company, are recorded as assets. All other maintenance costs are charged to expense as incurred.

Land is not depreciated. Depreciation of assets directly related to the useful life of the mine is calculated using the units-of-production (UOP) method based on the mine’s proven and probable reserves. Other assets are depreciated using the straight-line method based on the following estimated useful lives:

Years
Buildings and other constructionsBetween 5 and 35
Machinery and equipmentBetween 3 and 25
Transportation units7
Furniture and fixtures7
Other equipmentBetween 3 and 25

Critical spare parts and other parts which are directly identified with machinery or equipment are included in property, plant and equipment, and the economic life assigned corresponds to the main asset with which they are identified.

An item of property, plant and equipment is retired at the time of its disposal or when no future economic benefits are expected from its use or subsequent disposition. Any gain or loss arising at the time of retirement is calculated as the difference between the proceeds from the sale and the book value of the asset and is included in the statements of comprehensive income in the year the asset is retired.

The residual value and useful economic lives of the Company’s property, plant and equipment are reviewed, and adjusted if appropriate, at each year end.

Impairment-

At each reporting date, the Company evaluates if there is any indication that an asset could be impaired. If such an indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset is the greater of its fair value less costs to sell or its value in use and is determined for the assets of the mine as a whole, since there are no assets that generate cash revenues independently.

When the book value of an asset exceeds its recoverable amount, the asset is considered impaired and is reduced to its recoverable amount. When evaluating the value in use, the future estimated cash flows are discounted to their present value using an after-tax discount rate that reflects current market evaluations of the time value of money and the specific risks to the asset.

F-172

Notes to the Financial Statements (continue)

Losses resulting from the impairment of assets are recognized in the statements of comprehensive income under the categories of expenses consistent with the function of the impaired asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The revised valuation cannot exceed the book value that would have been determined, net of depreciation, if an impairment loss for the asset had not been recognized in a previous period. Such a reversal is recognized in the statements of comprehensive income.

There was no asset impairment loss for the Company for the years ended December 31, 2016, 2015 and 2014.

(i)Intangible Assets –

Intangible assets are recorded at cost less accumulated amortization. After the initial recognition, the intangible assets are recorded at its cost less accumulated amortization and any accumulated loss for impairment of use, if applicable.

(j)Exploration, development and stripping costs -

Exploration costs -

Mineral exploration costs, as well as drilling and other costs incurred for the purpose of converting mineral resources to proven and probable reserves, or identifying new mineral resources at development or production stage properties, are charged to the statements of comprehensive income as incurred.

Development costs- 

Development costs are capitalized when the economic and technological feasibility of the project is confirmed, which is generally when the development or project has reached a milestone in accordance with a model established by management.

Stripping cost -

In accordance with IFRIC 20, “Stripping Cost in the Production Phase of a Surface Mine,” stripping costs incurred in the production phase are capitalized as a component of property, plant and equipment (see Note 8) if the stripping activity improves access to the ore body or enhances an existing asset. The stripping activity asset is subsequently amortized using the UOP method over the life of the mine.

F-173

Notes to the Financial Statements (continue)

(k)Provisions -

General -

A provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that resources of the Company will be required to settle the obligation, and an estimate of the amount of the obligation can be calculated. The expense relating to any provision is presented in the statements of comprehensive income, net of any reimbursement, in the period the provision is established.

If the effect of the time value of money is significant, provisions are discounted by applying a discount rate that reflects, where applicable, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a financial expense in the statements of comprehensive income.

Mine closure provision -

The Company records a mine closure provision when a contractually or legally enforceable obligation arises. The Company estimates the present value of its future obligation for mine closure and increases the carrying amount of the related asset retirement cost (ARC), which is included in property, plant and equipment in the consolidated statements of financial position. Subsequently, the mine closure provision is accreted to full value over time and recognized as an interest cost considered in the initial fair value estimate. The related ARC is depreciated using the UOP method during the economic life of the mine.

The Company evaluates its mine closure provision on a quarterly basis and makes adjustments to estimates and assumptions, including scope, future costs and discount rates, as applicable. Changes in the fair value of the mine closure provision or the useful life of the related asset are recognized as an increase or decrease in the book value of the provision and the related ARC in accordance with IAS 16, “Property, Plant and Equipment.” Any decrease in the mine closure provision and related ARC cannot exceed the current book value of the asset; amounts over the current book value will be recorded in the statements of comprehensive income.

(l)Revenue recognition -

The Company primarily sells copper concentrate and cathode in accordance with sales contracts entered into with its customers. Revenues comprise the fair value of the sale of goods, net of related general sales taxes. The Company recognizes revenue when the amount can be reliably measured, it is probable that future economic benefits will flow to the Company and all significant risks (including title and insurance risk) and rewards of ownership have transferred to the customer. Revenue is not considered reliably measured until all contingencies relating to the sale have been resolved.

F-174

Notes to the Financial Statements (continue)

Sales of copper concentrate and copper cathode -

Local sales of copper cathode are recognized when the Company has delivered the goods to the shipping company designated by the customer. Revenue associated with foreign sales of copper concentrate and copper cathode is recognized when all significant risks and rewards of ownership have transferred to the customer, which is typically when the inventory has passed over the vessel’s rail at the port of loading.

As described in Note (d), the Company’s copper sales are provisionally priced at the time of shipment. The provisional prices are finalized in a specified future month in accordance with the terms specified in the related sales contract and based on quoted LME monthly average prices. The Company receives market prices in the specified future month, and these sales result in changes recorded to revenues until the specified future month. The Company records revenues and invoices customers at the time of shipment based on then-current LME prices, which results in an embedded derivative that is bifurcated from the host contract.

Beginning in 2014, the Company’s revenues are subject to OSINERGMIN (Organismo Supervisor de la Inversion en Energía y Minería) and OEFA (Organismo de Evaluación y Fiscalización Ambiental) royalties. The calculation for the OSINERGMIN contribution is 0.16% of invoiced sales for the year 2016 (0.19% for the year 2015 and 0.21% for the year 2014), and the calculation for the OEFA contribution is 0.13% of invoiced sales for the year 2016 (0.15% for the years 2015 and 2014). Those royalties are presented as a reduction of revenues (see Note 14).

(m)Income taxes, deferred taxes and other taxes

Income taxes -

Income tax assets and liabilities are measured at the amounts expected to be paid to or recovered from the tax authorities. The tax rates and tax laws that are applied to compute the amounts are those that are enacted or substantially enacted at the end of the reporting period. The Company calculates the provision for income tax in accordance with the Peruvian tax legislation in force. For the years 2016, 2015 and 2014, the Company was subject to an income tax rate of 32% (see Note 13(b)).

Deferred Taxes -

Deferred taxes are presented using the liability method for differences between the tax basis of assets and liabilities and their book value for financial reporting purposes. Deferred tax liabilities are recognized for all taxable differences. Deferred tax assets are recorded for all deductible differences when there is a probability that there could be taxable earnings against which the deductible difference could be applied.

The book value of deferred tax assets is reviewed at the end of each period and reduced to an amount that is more likely than not to be realized against taxable earnings. Deferred tax assets that are not recognized are reassessed at each period and are recognized when it is more likely than not those future taxable earnings will allow for the deferred tax asset to be recovered.

F-175

Notes to the Financial Statements (continue)

Deferred tax assets and liabilities are measured at tax rates that are expected to be applicable during the year when the assets are realized or the liabilities are liquidated, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the end of the period. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset tax assets against tax liabilities and the deferred tax is related to the same entity and the same tax authority.

Mining Taxes -

On September 29, 2011, Law N° 29788 (which amended Law N° 28528) was enacted creating a new mining tax and royalty regime in Peru. Under the new regime, companies that do not have stability agreements are subject to a royalty and a special mining tax. Cerro Verde was not subject to the royalty and special mining tax until its 1998 stability agreement expired on December 31, 2013. Under the terms of its current 15-year stability agreement (see Note 13(a)), which became effective January 1, 2014, the Company is subject to mining royalties and a special mining tax for all of its mining production (see Note 13(d)), the company pays Mining Royalties and Special Mining Tax.

Supplementary Retirement Fund –

On July 9, 2011, Law N° 29741 was enacted and established the creation of a Mining, Metallurgical and Steel Supplementary Retirement Fund (SRF), which is a social security retirement fund for mining, metals and steel industry workers. Under the terms of its current 15-year stability agreement, the Company is subject to SRF, which is calculated as 0.5% of net taxable income.

(n)Benefits to employees

Salaries and wages, bonuses, post-employment benefits and vacations are calculated in accordance with IAS 19, "Employee Benefits" and current Peruvian legislation based on the accrual principle.

Worker’s profit sharing 

The Company recognizes worker’s profit sharing in accordance with IAS 19. Worker’s profit sharing is calculated in accordance with Peruvian laws (Legislative Decree No. 892), and the Company's worker’s profit sharing rate is 8% over the taxable net base of the current year. According to Peruvian law, the limit in the worker's profit sharing that an employee could receive is equivalent to 18 months of wages, and any excess above such limit is transferred to the Regional Government and the National Fund for Employment’s Promotion and Training. The Company’s workers profit share is recognized as a liability in the statements of financial position and as operating expenses in the statements of comprehensive income.

F-176

Notes to the Financial Statements (continue)

(o)Borrowing cost -

Costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as finance cost as part of the asset. A qualifying asset is one whose value is greater than US$1 million and requires at least 12 months to be ready for its intended use. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the Company incurs in connection with the borrowing of funds.

(p)Fair value measurement -

The Company measures its embedded derivatives, at fair value at each date presented in the statement of financial position.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

-Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities

-Level 2 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly observable

-Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

(q)Basic and diluted earnings per share

Basic and diluted earnings per share have been calculated based on the weighted average number of common shares outstanding during the period. When the number of shares is modified as a result of capitalization of retained earnings, the net income per basic and diluted shares is adjusted retroactively for all of the periods reported. For the years 2016 and 2015, the Company did not have any financial instruments with dilutive effects; as a result, the basic and diluted shares are the same in all periods presented.

F-177

Notes to the Financial Statements (continue)

(r)New IFRS -

Following is a summary of improvements and amendments to IFRS that are not yet effective but will be applicable to the Company.

-IFRS 15 “Revenue from Contracts with Customers”, was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. The Company will adopt IFRS 15 on January 1, 2018, and currently expects to apply the modified retrospective approach under which any cumulative effect adjustment would be recorded as of the adoption date. The Company is currently assessing the impact of this guidance on its financial reporting and disclosures, but at this time does not expect the adoption of IFRS 15 to have a material impact on its financial statements.

-IFRS 9 “Financial Instruments, revised”, effective January 1, 2018, modifies the treatment and classification of financial assets established by IAS 39. The adoption of IFRS 9 is not expected to have a significant effect on the classification and measurement of the Company’s financial assets and liabilities.

-IFRS 16 “Leases”, effective January 1, 2019, sets out the principles for the recognition, measurement, presentation and disclosure of leases. For lessees, IFRS 16 eliminates the classification of leases as either operating or financing, and introduces a single lessee accounting model that will require the recognition of (a) assets and liabilities for most leases with a term of more than 12 months and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. Management is currently evaluating the impact IFRS 16 will have on the Company’s financial reporting and disclosures.

3.Cash and cash equivalents

This item is made up as follows:

  December 31, 2016  December 31, 2015 
  US$(000)  US$(000) 
       
Cash in banks  2,990   5,604 
Cash equivalents (a)  26,961   348 
         
   29,951   5,952 

F-178

Notes to the Financial Statements (continue)

 

(a)This item is made up as follow:

  2014  2013 
  US$(000)  US$(000) 
Cash in banks  7,698   9,527 
Cash equivalents (b)  11,876   845,043 
         
   19,574   854,570 

(b)Cash equivalents comprises a portfolio of investments in highly marketable liquid investments, (investments classified as “AAA” by Standard & Poor’s and Moody’s), which yield variable returns, and are classified as cash equivalents because they are readily convertible to known amounts of cash. Managementcash and management plans to use them for its short-term cash needs. Because of the short maturity of these investments (i.e., less than 90 days,days) the carrying amount of these investments corresponds to their fair value at the date of the financial statements. Changes in the fair value of these investments are insignificant.

 

6.4.Trade accounts receivableRelated parties

TradeAccounts receivable from related parties and accounts receivablepayable to related parties are generated primarily from the Company’s cathode and copper concentrate sales, are denominated in US dollars, have current maturities, do not bear interest and have no specific guarantees.made up as follows:

  December 31, 2016  December 31, 2015 
  US$(000)  US$(000) 
       
Accounts receivable from related parties        
Parent Company        
FMC (a)  345,609   180,024 
Other related parties        
Sumitomo Metal Mining Company, Ltd. (b)  23,552   19,344 
Climax Molybdenum Marketing Corporation (c), (d)  6,145   - 
         
   375,306   199,368 
         
Accounts payable to related parties        
Parent Company        
FMC (e)  30,353   14,435 
Other related parties        
Freeport-McMoRan Sales Company Inc.  3,134   1,684 
Minera Freeport-McMoRan South America Ltda  779   901 
Freeport Cobalt OY  -   141 
Minera Freeport-McMoRan South America S.A.C.  -   132 
Sociedad Contractual Minera El Abra  -   535 
Climax Molybdenum Marketing Corporation (d)  -   1,064 
Total accounts payable to related parties  34,266   18,892 
         
Less: accounts payable to related parties, long term  (7,132)  (6,850)
         
Total accounts payable, short term  27,134   12,042 

 

F-160F-179

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

7.(a)Other accountsAccounts receivable from FMC mainly correspond to sales of copper concentrate and cathode. On October 15, 2006, the Company signed a long-term agreement with FMC through which it committed to sell 20% of its annual copper concentrate production. These amounts exclude adjustments for embedded derivatives (see Notes 5 and 11). On October 15, 2015, the Company signed a long-term agreement with FMC through which it committed to sell between 70% and 80% of its annual copper concentrate production from January 1, 2017 to December 31, 2021. Terms of the contracts are reviewed annually.

 

(a)This item is made up as follow:

  2014  2013 
  US$(000)  US$(000) 
Other short-term accounts receivable      
Value added tax credit  222,357   24,226 
Other accounts receivable  7,000   7,605 
Prepaid expenses  5,865   2,891 
Restricted fund (e)  -   14,981 
   235,222   49,703 
         
Other long – term accounts receivable        
Other accounts receivable (b)  191,855   72,478 
Installment program (mining royalties case) (c)  39,700   - 
Prepayment of income tax (d)  21,629   40,294 
Restricted fund  (e)  -   210,019 
         
   253,184   322,791 

(b)Corresponds to the payments made byOn June 1, 2005, the Company signed a long-term agreement with Sumitomo Metal Mining Company Ltd., by which it committed to sell 50% of its annual copper concentrate production, through December 31, 2016. These amounts exclude adjustments for audits made by SUNAT forembedded derivatives (see Notes 5 and 11). On October 15, 2015, the years 2004, 2005, 2006, 2007, 2008, 2009 and 2010Company signed a long-term agreement with Sumitomo Metal Mining Company Ltd. through which management believesit committed to sell 21% of its annual copper concentrates production from January 1, 2017 to December 31, 2021. Terms of the contracts are recoverable.reviewed annually.

 

(c)Corresponds to payments made under protest byIn November 2014, the Company in connectionrenewed a long-term agreement with Climax Molybdenum Marketing Corporation (a wholly owned subsidiary of FMC) by which it committed to installment program approved by SUNAT in relation tosell 100% of its annual molybdenum concentrate production, at a price based on the mining royalties case corresponding to the years 2006 to 2008, which is described in Note 16(e)Metals Week Dealer Oxide price and under a delivery type known as CIF (cost, insurance and freight) from January 1, 2015 through December 31, 2020. These amounts exclude adjustments for embedded derivatives (see Notes 5 and 11).

 

(d)Corresponds to disbursements made byClimax Molybdenum Marketing Corporation is a subsidiary of the Company in connection with income tax pre - payments that can be offset against future tax liabilities or recovered through a refund application.parent company.

 

(e)AsAccounts payable to FMC as of December 31, 2013,2016 mainly reflects the Company hadpurchase of a certificate of time deposit made with Scotiabank for US$225 million. This time deposit bearded interest at an effective annual rate of 1.2%used shovel (US$22.3 Million). During the third-quarter 2014, the deposit was canceled as Scotiabank no longer required time deposit as collateral for the letter of credit associated with mining royalty’s dispute with SUNAT.

Employee benefits -

Short-term and long-term employee benefits are recognized as expenses during the period earned. Benefits received by key management personnel represent 0.53% of total revenues for the year 2016 (1.76% for the year 2015 and 0.66% for the year 2014). For the years 2016, 2015 and 2014, the Company had granted stock option and/or restricted stock unit benefits to certain key management personnel, the amounts of which are not significant at those dates. As of December 31, 2016 and 2015, the Company does not have any other long-term benefits.

Shareholder loans –

The Company has entered into loans with its shareholders. See Note 10(b) for a discussion of these arrangements.

Terms and transactions with related parties –

Transactions with related parties are made at normal market prices. Outstanding balances are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or received for any accounts receivables from affiliates. As of December 31, 2016 and 2015, the Company had not recorded any impairment of accounts receivable from related parties.

5.Other accounts receivable

This item is made up as follows:

  December 31,
2016		  December 31,
2015		 
  US$(000)  US$(000) 
       
Embedded derivatives (Note 21)  67,449   - 
Other  2,594   2,771 
         
   70,043   2,771 

 

F-161F-180

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

8.6.Inventories, net

This item is made up as follows:

  December 31,
2016		  December 31,
2015		 
  US$(000)  US$(000) 
       
Work-in-process (a)  448,792   445,003 
Materials and supplies  251,144   247,107 
Finished goods:        
Copper cathode  8,220   11,865 
Copper concentrate  15,073   8,948 
Molybdenum concentrate  2,763   1,292 
Materials and supplies in-transit  491   1,315 
Less: Provision for obsolescence of materials and supplies  (303)  (692)
Total  726,180   714,838 
Less : Long-term work-in-process inventories (see Note 7)  (300,614)  (319,971)
         
Current inventories  425,566   394,867 

 

(a)This item is made up as follow:

  2014  2013 
  US$(000)  US$(000) 
Finished goods:        
Copper concentrate  11,942   6,887 
Copper cathodes  8,809   8,124 
Molybdenum concentrate  1,821   787 
Balance of finished goods, see note 18  22,572   15,798 
Work-in-process  (b)  326,676   256,153 
Materials  and supplies  170,146   160,910 
Materials and supplies in transit  1,269   1,063 
Less -  Provision for obsolescence of materials and supplies  (407)  (127)
Total Inventories  520,256   433,797 
Less - Long-term inventories (b)  (287,714)  (216,797)
         
Current inventories, net  232,542   217,000 

(b)Work in processWork-in-process inventories represent mill and leach stockpiles which generally contain higher grade ores and medium and lower grade ores that have been extracted from the ore bodyopen pit and are available for copper recovery. Based on the future mine plan production the Company identifies the portion of inventory that is classified as current or long term. For mill stockpiles, recovery is through milling and concentrating. For leach stockpiles, recovery areis through exposure to acidic solutions that dissolve copper and deliver it in a solution to the extraction processing facilities (see note 3.2(d)).facilities.

F-181

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

9.7.Property, plant and equipment, netOther non-financial assets

This item is made up as follows:

  December 31,
2016		  December 31,
2015		 
  US$(000)  US$(000) 
       
Current        
Value added tax credit (a)  308,177   408,202 
Other taxes to be recovered  2,830   2,379 
Income tax prepayments (b)  -   21,718 
         
Total Current  311,007   432,299 
         
         
Non-Current        
Long term inventories (See note 6(a))  300,614   319,971 
Other Receivables (c)  180,741   180,741 
Installment program (mining royalties case) (d)  96,233   64,405 
Income tax prepayments (b)  19,550   91,879 
VAT credit  -   44,977 
         
Total Non-Current  597,138   701,973 
         
TOTAL Non-financial assets  908,145   1,134,272 

(a)Mainly attributable to purchases related to the expansion of the Company´s production unit (See Note 1(b)). As of December 31, 2016, the Company expects to recover the VAT credits within the next twelve months.

 

(a)The movement in cost and accumulated depreciation accounts as of December 31, 2014 and 2013 are shown below:

  January 1,
2013		  Additions  Retirements
and
disposals		  Transfers  December 31,
2013		  Additions  Retirements
and
disposals		  Adjustments
and
reclassifications		  Transfers  December 31,
2014		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Cost                                        
Land  1,497   -   -   240   1,737   -   -   -   13,538   15,275 
Buildings and other constructions  129,129   -   -   16,780   145,909   -   (2,710)  405   39,304   182,908 
Machinery and equipment  1,750,230   -   (549)  120,738   1,870,419   -   (25,974)  (7,525)  171,429   2,008,349 
Transportation units  12,170   -   (1,999)  4,810   14,981   -   (389)  35   2,575   17,202 
Furniture and fixtures  786   -   -   -   786   -   -   4   -   790 
Other equipment  21,707   -   (354)  866   22,219   -   (228)  -   270   22,261 
Work in progress and transit units (b)  504,758   1,073,228   -   (143,434)  1,434,552   1,771,715   -   -   (227,116)  2,979,151 
Asset remediation and mine closure, note 20(a)  79,395   504   (36,445)  -   43,454   93   -   68,840   -   112,387 
Stripping activity asset  52,619   49,938   -   -   102,557   49,122   -   -   -   151,679 
   2,552,291   1,123,670   (39,347)  -   3,636,614   1,820,930   (29,301)  61,759   -   5,490,002 
                                         
Accumulated depreciation                                        
Buildings and other constructions  31,463   3,223   -   81   34,767   4,912   (1,583)  -   220   38,316 
Machinery and equipment  648,944   99,723   (476)  (81)  748,110   111,823   (22,030)  -   (229)  837,674 
Transportation units  7,613   1,209   (1,919)  -   6,903   1,719   (383)  -   9   8,248 
Furniture and fixtures  713   58   -   -   771   5   -   -   -   776 
Other equipment  8,116   1,963   (353)  -   9,726   1,065   (228)  -   -   10,563 
Asset remediation and mine closure  3,114   1,444   -   -   4,558   560   -   -   -   5,118 
Stripping activity asset  -   -   -   -   -   44,901   -   -   -   44,901 
   699,963   107,620   (2,748)  -   804,835   164,985   (24,224)  -   -   945,596 
                                         
Net Cost  1,852,328               2,831,779                   4,544,406 

(b)As of December 31, 2014,Represents disbursementsmade by the work in progress and transit units corresponded mainlyCompany for the prepaymentofincome tax, which the Company expects to use to offset future tax obligations or will be refunded to the Expansion of Cerro Verde´s production unit forUS$3,089,000,000.See note 1(b)Company by SUNAT (see Note 13(b)).

 

(c)TheRepresents disbursement made by the Company maintains insurance onin connection with disputed tax assessments related to reviews by SUNAT (Superintendencia Nacional de Administración Tributaria) from years 2004 to 2010 (see Note 13(c) and 13(e)). According to current tax procedures and the time frame for resolving these types of claims, the Company and its principal assets in accordance with Management’s policies.legal advisors expect resolution of this matter will be favorable to the Company.

 

(d)As discussed inRepresents payments made under protest by the Company for an installment program approved by SUNAT associated with mining royalties for the period December 2006 to December 2008 (see Note 3.2(e)13(d)). Management and its legal advisors expect that the Cerro Verde operation is evaluated annually in orderresolution of this matter will be favorable to determine if there are any impairment indicators. As of December 31, 2014 and 2013, there were no impairment indicators.the Company.

F-182

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

10.8.Property, plant and equipment, net

The changes in cost and accumulated depreciation accounts as of December 31, 2016 are shown below:

  January 1,
2015		  Additions  Disposals  Adjustments and
reclassifications		  Transfers  December 31,
2015		  Additions  Adjustments  Disposals  Transfers  December 31,
2016		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                                  
Cost                                            
Land  15,275   -   -   -   5,109   20,384   -   -   -   3,299   23,683 
Buildings and other constructions  182,908   -   (1,099)  7,571   2,012,742   2,202,122   -   (11,114)  (5,633)  191,586   2,376,961 
Machinery and equipment  2,008,349   -   (19,537)  (7,571)  2,222,190   4,203,431   -   11,114   (4,427)  232,062   4,442,180 
Transportation units  17,202   -   (284)  -   2,709   19,627   -   -   (730)  213   19,110 
Furniture and fixtures  790   -   (3)  -   163   950   -   -   (1)  -   949 
Other equipment  22,261   -   (984)  -   3,451   24,728   -   -   (1,065)  1,008   24,671 
Construction in progress and in-transit units  2,979,151   1,629,271   -   -   (4,246,364)  362,058   154,876   -   -   (428,168)  88,766(a)
Stripping activity asset (see Note 2(j))  151,679   111,819   -   -   -   263,498   61,261   -   -   -   324,759 
Asset retirement costs  112,387   3,534   -   33,803   -   149,724   3,743   (16,091)      -   137,376 
                                             
   5,490,002   1,744,624   (21,907)  33,803   -   7,246,522   219,880   (16,091)  (11,856)  -   7,438,455 
                                             
Accumulated depreciation                                            
Buildings and other constructions  38,316   20,510   (1,059)  3,136   -   60,903   88,925   (30)  (4,936)  -   144,862 
Machinery and equipment  836,725   151,460   (18,524)  (3,136)  -   966,525   275,388   30   (3,964)  -   1,237,979 
Transportation units  8,248   1,741   (266)  -   -   9,723   1,828   -   (686)  -   10,865 
Furniture and fixtures  776   5   (4)  -   -   777   26   -   (1)  -   802 
Other equipment  11,512   2,054   (984)  -   -   12,582   2,423   -   (1,052)  -   13,953 
Stripping activity asset  44,901   66,651   -   -   -   111,552   97,513   -   -   -   209,065 
Asset retirement costs  5,118   2,053   -   -   -   7,171   6,018   -   -   -   13,189 
                                             
   945,596   244,474   (20,837)  -   -   1,169,233   472,121   -   (10,639)  -   1,630,715 
                                             
Net cost  4,544,406                   6,077,289                   5,807,740 

(a)As of December 31, 2016 construction in progress corresponds to the tailings cyclone relocation and one used shovel (See note 4(e)).

F-183

Notes to the Financial Statements (continue)

9.Trade accounts payable

Trade accounts payable are mainlyprimarily originated by the acquisition of materials, supplies, services and spare parts for the Company’s mining activities.parts. These obligations are mainlyprimarily denominated in USU.S. dollars, have current maturities and do not accrue interest. No guarantees have been granted. The decrease in trade accounts payable during 2016, primarily related to the completion of Cerro Verde’s production unit expansion. As of December 31, 2016, trade accounts payable includes US$12.7 million related to capital projects, compared to US$279.4 million as of December 31, 2015.

 

11.10.Workers’ profit sharingOther Financial Liabilities (debt)

The Legislative Decree N°892 (L.D. 892), issued in 1996, regulates the right of workers to participate in a company’s profits that performs activities generating third categories income and requires companies domiciled in Peru to compute and pay to employees a share of the profits generated by the companies for which they work. The Company’s liability for workers’ profit sharingThis item is recognized according to the policy described in note 2.2(l).made up as follows:

 

The workers’ profit sharing is recognized as an operating expense in the statements of comprehensive income. The amount of workers’ profit sharing paid to employees for the years 2014 and 2013 are recognized as a cost of sales of goods (see note 18). Additionally, during 2014 and 2013 no excess of workers´ profit sharing was calculated between the total workers’ profit sharing liability and the amount paid or due to employees.

12.Financial obligations
  December 31,
2016		  December 31,
2015		 
  US$(000)  US$(000) 
       
Current Debt        
Leases  161   169 
Promissory notes  -   43,000 
         
Total current debt  161   43,169 
         
Non-Current Debt        
Senior unsecured credit facility (a)  1,400,000   1,800,000 
Less : Debt issuance cost  (10,171)  (19,072)
         
Senior unsecured credit facility, net  1,389,829   1,780,928 
Shareholder loans (b)  606,014   600,907 
Leases  -   160 
         
Total non-current debt  1,995,843   2,381,995 
         
Total Debt  1,996,004   2,425,164 

 

(a)This item is made up as follow:

  2014  2013 
  US$(000)  US$(000) 
Senior unsecured credit facility, (b) and (c)  402,357   - 
Promissory notes (d)  50,000   - 
Leasings  492   5,903 
   452,849   5,903 
         
Less – current portion  (50,163)  (4,577)
         
Non – current portion  402,686   1,326 

(b)In March 2014, the Company entered into a five-year, US$1.8 billion senior unsecured credit facility with several banks led by Citibank N.A., as the administrative agent. The credit facility allowed for term loan borrowings up to the full amount of the facility, less any amounts issued and outstanding under a US$500 million letter of credit sublimit. Interest on amounts drawn under the term loan is based on London Interbank Offered Rate (LIBOR) plus a spread (currently 1.9%) based on the Company´s total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, as defined in the agreement. The disbursements were mainly used to finance a portion of the Company´s expansion project.

The credit facility allows for term loan borrowings up to the full amount of the facility, less any amounts issued and outstanding under a $500 million sublimit. Interest on amounts drawn under the term loan is based on London Interbank Offered Rate (LIBOR) plus a spread (currently 1.90%) based on the Company´s total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio as defined in the agreement. Amounts may be drawn over a two-year period to fund a portion of the Company´s expansion project and for general corporate purposes. 

Notes to the financial statements(continued)

 

The credit facility amortizes in three installments in amounts necessary for the aggregate borrowings and outstanding borrowings. The first installment must repay no less thanletters of credit not to exceed 85% of the US$1.8 billion commitment on September 30, 2017, the second installment no less than 70% on March 31, 2018, and the third installment no less than 35% on September 30, 2018, with the remaining balance due on the maturity date (Marchof March 10, 2019).

As of December 31, 2014,2019. During the year 2016, the Company has drawnrepaid US$425400 million underof the line of credit facility borrowings and no letters of credit were issued.

There As of December 31, 2016, there are no guarantees provided for the credit facility.

 

(c)As part of the commitments made in relation to the above debt, the Company must comply with the following financial ratios listed below:

Restrictive Covenants –

i.Total Net Debt to EBITDA Ratio: The Company shall not permit the Total Net Debt to EBITDA Ratio on the last day of any fiscal quarter to exceed 3.5 to 1.
ii.Interest Coverage Ratio: The Company shall not permit the Interest Coverage Ratio on the last day of any fiscal quarter to be less than 3.0 to 1.

The credit facility contains certain financial ratios mentioned above apply to financial statements ofthat the Company must comply with on a quarterly basis, including a total net debt to EBITDA ratio and an interest coverage ratio, which should be calculated as of each quarter ending in March, June, September and December of each year since 2014.

are defined by the agreement. As of December 31, 2014,2016, the Company was in compliance with all of its covenants, which are monitored by Management each quarter.covenants.

F-184

Notes to the Financial Statements (continue)

 

(d)(b)In NovemberDecember 2014, the Company signed bank promissory notesentered into shareholder loan agreements with, Bancoor affiliates of, FMC, Compañía de Credito del PeruMinas Buenaventura SAA and Sumitomo, that are currently subordinated to finance its working capital needsthe senior unsecured credit facility described in section (a) above. These agreements allow for a totalborrowings up to an amount of US$50800 million which accruein aggregate. At December 31, 2016, the Company had borrowed US$606 million under these loan agreements (including US$6 million of interest). The interest at an annualrate is currently calculated based on the LIBOR rate plus the average rate of 1.2 % and has athe senior unsecured credit facility, plus 0.5% (currently 3.17%). In the event these loans are no longer subordinated to the senior unsecured credit facility, the rate would be LIBOR plus the current spread on the credit facility. The loans mature on December 22, 2019, unless at that time there is senior financing associated with the expansion project that is senior to the loans, in which case the loans mature two years following the maturity of 180 days.    the senior financing.

 

13.11.Other accounts payable and provisionsProvisions

This item is made up as follow:follows:

 

  2014  2013 
  US$(000)  US$(000) 
Salaries payable  11,138   10,682 
Other provisions  11,060   36,626 
   22,198   47,308 
         
Less – current portion  (16,881)  (45,749)
         
Non – current portion  5,317   1,559 

Notes to the financial statements(continued)

14.Deferred income tax
  December 31,
2016		  December 31,
2015		 
  US$(000)  US$(000) 
Current:        
Provision for social commitments (a)  11,722   - 
Provisions related to services and freight not invoiced  11,231   12,520 
Provision for legal contingencies  1,505   - 
Provision for remediation and mine closure (b)  -   2,142 
Embedded derivatives (Note 21)  -   18,847 
         
   24,458   33,509 
         
Non – current:        
Provision for remediation and mine closure (b)  153,313   159,128 
Provision for social commitments (a)  4,060   - 
Other long-term liabilities  7,249   4,675 
         
   164,622   163,803 

 

(a)The Company recognizes the effect of temporary differences between the accounting baseCorresponds to provision for financial reporting purposessocial commitments associated with an irrigation project in La Joya (US$10.3 million) and the tax base. The composition of this item is made up as follows:

  January 1,
2013		  Debit (credit) to the
statements of
comprehensive income		  December 31,
2013		  Debit (credit) to the
statements of
comprehensive income		  December 31,
2014		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Income tax                    
Asset                    
Price adjustment of cathodes and copper concentrates  -   -   -   12,831   12,831 
Provision for remediation and mine closure  1,111   1,903   3,014   813   3,827 
Provision for mining taxes  6,356   (34)  6,322   (3,562)  2,760 
Unpaid vacations  -   -   -   2,625   2,625 
Cost of net asset: rollers and construction of tailing dam  -   14,258   14,258   (12,101)  2,157 
Development costs  621   (91)  530   (112)  418 
Difference in valuation of inventories  6,926   1,278   8,204   (8,204)  - 
Other provisions  86   1,487   1,573   1,437   3,010 
   15,100   18,801   33,901   (6,273)  27,628 
                     
Liability                    
Difference in depreciation method  246,538   17,753   264,291   (50,111)  214,180 
Stripping activity asset  16,578   5,200   21,778   (4,460)  17,318 
Difference in valuation of inventories  -   -   -   14,331   14,331 
Price adjustment of cathodes and copper concentrates  3,471   2,420   5,891   (5,891)  - 
   266,587   25,373   291,960   (46,131)  245,829 
                     
Deferred liabilities, net  251,487   6,572   258,059   (39,858)  218,201 
                     
Mining taxes                    
Asset                    
Price adjustment of cathodes and copper concentrates  516   (516)  -   -   - 
Exploration expenses  (492)  492   -   -   - 
Deferred asset  24   (24)  -   -   - 
                     
Supplementary Retirement Fund                    
Difference in depreciation method  -   -   -   2,452   2,452 
Other minors  -   -   -   75   75 
Deferred liability  -   -   -   2,527   2,527 
Total debited to the statements of comprehensive income  -   6,548   -   (37,331)  - 
                     
Total deferred income tax liability, net  251,511       258,059       220,728 

Notes to the financial statements(continued)

(b)For the years ended December 31, 2014 and 2013, the income tax expense recorded differs from the result of apply the legal rate to the income before income tax of the Company, as detailed below:

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Profit before income tax  616,135   946,600   1,251,140 
Income tax rate  32%  30%  30%
Expected income tax expense  197,163   283,980   375,342 
Non - deductible expenses  7,013   3,478   11,845 
Special mining burden  -   (19,348)  (28,823)
Special mining tax and mining royalties  (16,677)  -   - 
Effect of change in income tax rate to 32% due to Tax Stability Agreement effective since 2014, note 16(a)  -   398   11,583 
Others  (6,903)  1,652   (1,709)
Current and deferred income tax charges to results  180,596   270,160   368,238 
Mining taxes charged to results  52,116   63,178   86,318 
Supplementary retirement fund charged to results  5,817   -   - 
             
   238,529   333,338   454,556 
             
Effective income tax  38.71%  35.21%  36.33%

Notes to the financial statements(continued)

(c)The income tax expenses (benefit) for the years ended December 31, 2014, 2013 and 2012 is shown below:

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Income tax         
Current  220,454   263,588   295,250 
Deferred  (39,858)  6,572   72,988 
   180,596   270,160   368,238 
Mining taxes            
Current  52,116   63,202   82,467 
Deferred  -   (24)  3,851 
   52,116   63,178   86,318 
             
Supplementary retirement fund            
Current  3,290   -   - 
Deferred  2,527   -   - 
   5,817   -   - 
Income tax expense reported in the statements of comprehensive income  238,529   333,338   454,556 

15.Equity, net

(a)Issued capital -

As of December 31, 2014 and 2013 the authorized, subscribed and paid-up capital in accordance with the Company’s by-laws and its related modifications was 350,056,012 common shares.

According to the shareholders agreement of July 11, 2003, the nominal value of the shares was denominated in US dollars and amounted to US$0.54 each. As a result of the capitalization of restricted earnings associated to the tax benefit (reinvestment credit), the nominal value of the share was increased to US$2.83 each in December 2009.

As of December 31, 2014 the quoted price of these shares was US$24.00 per share (US$24.50 per share as of December 31, 2013) and the daily frequency of trading is 100%, as in 2013.

(b)Legal reserves -

In accordance with the Peruvian Companies Act, this reserve is created through the transfer of 10% of the annual net profit up to a maximum of 20% of the paid-in capital. The legal reserve must be used to offset losses, and must be replaced with future earnings. This reserve may also be used to increase capital stock but the balance must be restored from future earnings.

(c)Dividend distribution -

During 2014 and 2013, the Company did not pay dividends.

Notes to the financial statements(continued)

16.Tax situation

(a)Current tax regime -

On February 13, 1998, the Company signed an Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the Peruvian General Mining Law. Upon approval of the agreement, the Company was subject to the tax regulations in force at May 6, 1996. In addition, the Company had tax stability for a period of fifteen years beginning January 1, 1999 and with a maturity date of December 31, 2013.

On July 17, 2012, the Company entered into a new Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the General Mining Law and in connection with the Expansion of Cerro Verde´s production mining unit Project. By means of this agreement, the Company is subject to the tax regulations in force at July 17, 2012. The term of this agreement is 15 years since January 1, 2014 and matures on December 31, 2028.

By means of Law No. 30296 enacted on December 31, 2014, the Peruvian government introduced certain amendments to the Income Tax Law, effective January 1, 2015, which will be applied to the Company since the maturity of the stability agreement (January 1, 2029). The most relevant are listed below:

-There will be a gradual reduction of the corporate income tax from 30% to 28% in 2015 and 2016; to 27% in 2017 and 2018; and to 26% in 2019 and thereafter.

-There will be a gradual increase of the withholding income tax to dividends from 4.1% to 6.8% in 2015 and 2016; to 8.0% in 2017 and 2018; and to 9.3% in 2019 and thereafter. These rates will be applicable to the distributed or approved dividends, whichever first occurs, effective January 1, 2015.

-The retained earnings or other items subject to generate taxable dividends, obtained until December 31, 2014 will be subject to a rate of 4.1%repaving Alata-Congata Road (US$5.5 million).

Notes to the financial statements(continued)

 

(b)The income tax rate applicableCompany’s exploitation activities are subject to environmental protection standards. In order to comply with these standards, the Company is 32% beginning 2014 according tohas obtained the new agreement above mentioned (30% until December 31, 2013). In addition, the Company was subject to a minimum income tax equivalent to 2% of total assets until December 31, 2014, net of depreciation and amortization permitted by the stabilized income tax regime. The income tax charged to results was the higher of the income tax under the tax stability agreement and the minimum income tax until December 31, 2014. For the years ended December 31, 2014, 2013 and 2012, the taxable income according to the tax law is calculated from the profit before income tax and profit sharing for both years, and is as follows:

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Profit before income tax  616,135   946,600   1,251,140 
Workers’ profit sharing  49,175   61,690   81,708 
   665,310   1,008,290   1,332,848 
Additions:            
Fully depreciated assets  41,230   -   - 
Price adjustment of copper cathodes and concentrates  40,097   (18,408)  (11,569)
Non - deductible expenses  19,251   11,595   39,484 
Reversal of price adjustment of copper cathodes and concentrates  18,408   11,569   (75,257)
Stripping activity asset, net  11,881   (16,646)  (52,619)
Other additions, net  27,687   14,550   (1,478)
             
Deductions:            
Special mining tax and mining royalties  (43,492)  -   - 
Adjustment of inventory in process and finished goods  (41,881)  6,000   1,085 
Special mining burden  (19,781)  (64,608)  (74,891)
Deduction to due recalculation of depreciation at an annual rate of 20%  -   (46,784)  (5,564)
Water treatment plant  -   -   (91,686)
   53,400   (102,732)  (272,495)
Sub-total  718,710   905,558   1,060,353 
Workers’ profit sharing (8%)  (57,497)  (72,445)  (84,828)
Taxable income  661,213   833,113   975,525 
Supplementary retirement fund  (3,290)  -   - 
Taxable income  657,923   833,113   975,525 
             
Income tax  (210,535)  (249,934)  (292,657)
Prior years income taxes  (9,919)  (13,654)  (2,593)
Total current income taxes charged to results, note 14(c) (does not include mining taxes and supplementary retirement fund)  220,454   263,588   295,250 

Notes to the financial statements(continued)

(c)The Tax Authority has the right to examine, and, if necessary, amend the Company’s income tax provisionapproval for the last four years. The Company’s income tax filingsEnvironment Adequacy Program (PAMA) and for the years 2011 through 2013 are open to examination by the tax authorities. For value added tax, the periods open for examination are the years 2011 through 2014. To date, SUNAT has concluded its review of the Company’s tax exams through the year 2009 (for value added tax, SUNAT has completed its review through the year 2010). For years 2002 through 2010, the Company is in the claim and appeal process. The tax administration is completing the audit of income tax of the year 2010.

In Management’s and legal advisors’ opinion, there are sound legal grounds to sustain the Company’s tax positions; as a result, Management expects to obtain favorable results on these processes and any additional tax assessment would not be significant to the financial statements.

For the periods pending of examination, and due to the many possible interpretations of current legislation, it is not possible to determine whether or not future reviews will result in tax liabilities for the Company. In the event that additional taxes are payable, including interest and surcharges, as a result of the Tax Authority reviews, they will be charged to expense in the period assessed. However, in Management’s and legal advisors’ opinion, any additional tax assessment would not be significant to the financial statements.

(d)As described in note 2.2(k)Environmental Impact Studies (EIA), Law No. 29788 was enacted creating a new mining tax and royalty regime in Peru. Because the Company stabilized the tax regime in force at May 6, 1996, it was not subject to the revised royalty and special mining tax until December 31, 2013, date on which the related tax stability expired. However, the Company elected to pay a special mining burden during the remaining term of its tax stability agreement. For the years ended December 31, 2014 and 2013, the Company recorded a tax provision of US$52,116,000 and US$63,202,000, respectively,related to mining taxes.

(e)SUNAT, the Peruvian national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2007 and the years 2008 and 2009. In July 2013, the Peruvian Tax Tribunal issued two decisions affirming SUNAT's assessmentsrequired for the period December 2006 through December 2008. Decisions by the Tax Tribunal ended the administrative stageoperation of the appeal procedures for these assessments.Cerro Verde’s production unit.

In September 2013, Cerro Verde filed judiciary appeals related to the assessments for the 2006 through 2008 periods because it continues to believe that its 1998 stability agreement exempts all minerals extracted from its mining concession from royalties, irrespective of the method used for processing those minerals. With respect to the judiciary appeal related to assessments for the year 2008, on December 17, 2014, Peru's Eighteenth Contentious Administrative Court rendered its decision upholding Cerro Verde's position and nullifying the Tax Tribunal's resolution and SUNAT's assessment. On December 31, 2014, SUNAT and the Tax Tribunal appealed this decision. As of February 20, 2015, no decision had been rendered with respect to Cerro Verde's judicial appeal of assessments for the 2006 and 2007 periods.

In July 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by the Tax Tribunal for that year. Although Management believes its interpretation of the stability agreement is correct, if Cerro Verde is ultimately found responsible for these assessments, it may also be liable for penalties and interest, which accrues at rates that range from approximately 7% to 18% based on the year accrued and the currency in which the amounts would be payable.

Notes to the financial statements(continued)

In October 2013, SUNAT served Cerro Verde with a demand for payment totaling 492 million Peruvian Nuevos Soles (US$165 million based on the exchange rate at December 31, 2014, including interest and penalties of US$97 million) based on the Peruvian Tax Tribunal’s decisions for the period December 2006 through December 2008. As permitted by law, Cerro Verde requested and was granted an installment payment program that deferred payment for six months and thereafter satisfies the amount via 66 equal monthly payments. As of December 31, 2014, Cerro Verde has made payments totaling 113 million Peruvian Nuevos Soles (US$40 million based on exchange rates at the date of payment) under the installment program, which are included in other assets in the consolidated balance sheet.

As of December 31, 2014, the aggregate amount of the assessments, including interest and penalties, for the year 2009 was 226 million Peruvian Nuevos Soles (US$76 million based on the exchange rate at December 31, 2014). SUNAT may make additional assessments for mining royalties and associated penalties and interest for the years 2010 through 2013, which Cerro Verde will contest; Management believes any such assessments for the years 2010 through 2013, if made, would in the aggregate be similar to the aggregate assessments received for the periods December 2006 through December 2009.

No amounts have been accrued for these assessments or the installment payment program as of December 31, 2014, because Cerro Verde believes its 1998 stability agreement exempts it from these royalties and believes any payments will be recoverable.

Notes to the financial statements(continued)

(f)The Company has also received assessments from SUNAT for additional taxes, penalties and interest related to various audit exceptions for income and other taxes. Cerro Verde has filed or will file objections to the assessments because it believes it has properly determined and paid its taxes. A summary of these assessments follows:

Tax Year Tax Assessment  Penalty and Interest
Assessment		  Total 
  US$(000)  US$(000)  US$(000) 
2002 – 2005  16,037   49,311   65,348 
2006  6,545   45,379   51,924 
2007  12,376   17,809   30,185 
2008  20,797   12,968   33,765 
2009  58,495   49,112   107,607 
2010 (*)  62,790   84,878   147,668 
2014  5,512   -   5,512 
             
   182,552   259,457   442,009 

(*) The tax assessment for the year 2010 was issued in February 2015.

As of December 31, 2014, Cerro Verde had paid US$192,000,000 (included“Other accounts receivable – long term” in the statement of financial position) on these disputed tax assessments, which it believes are collectible. No amounts have been accrued for these assessments.

Notes to the financial statements(continued)

17.Sales of goods

(a)For the years ended December 31, 2014, 2013 and 2012, sales of goods are made up of the following:

  2014  2013  2012 
  Pounds(000)  US$(000)  Pounds(000)  US$(000)  Pounds(000)  US$(000) 
  (Unaudited)     (Unaudited)     (Unaudited)    
Copper concentrates (b)  375,688   949,459   456,116   1,316,690   469,644   1,544,647 
Copper cathodes (b)  125,647   393,112   103,479   342,773   119,077   434,290 
Other (primarily silver and molybdenum concentrates)      130,038       152,025       148,086 
                         
       1,472,609       1,811,488       2,127,023 
Less:                        
Contributions OEFA / OSINERGMIN (see note 2.2(i))      (5,512)      -       - 
                         
       1,467,097       1,811,488       2,127,023 

Sales to related parties amounted to US$1,135,042,000 for the year ended December 31, 2014 (US$1,487,186,000 and US$1,631,221,000 for the years ended December 31, 2013 and 2012, respectively), which are summarized in note 21(b).

Notes to the financial statements(continued)

(b)As described in note 2.2(b), the Company’s copper sales are provisionally priced at shipment date. As a result, as of December 31, 2014 and 2013, the Company had embedded derivatives recorded in its statement of financial position (see note 23). Adjustments to the provisional prices are recognized as gains and losses in sales of goods until the month of settlement. Copper concentrate and cathode sales include adjustments to the provisional sale value generated by the changes in the fair value of the embedded derivatives. These adjustments resulted in lower sales for US$42,805,000 in the year 2014 and higher sales for US$6,839,000 in the year 2013, respectively.

(c)The following table shows sales of goods by geographic region based for the years ended December 31, 2014, 2013 and 2012:

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Asia  883,404   1,148,607   1,267,407 
South America (mainly Peru)  304,990   275,783   389,613 
Europe  170,624   272,988   378,144 
North America  113,591   114,110   91,859 
             
   1,472,609   1,811,488   2,127,023 
Less: Contributions OEFA and OSINERGMIN  (5,512)  -   - 
             
   1,467,097   1,811,488   2,127,023 

(d)Concentration of sales –

For the year 2014, 77% of the Company’s sales were to related entities (Freeport-McMoRan Corporation, Sumitomo Metal Mining Company and Climax Molybdenum). For the years 2013 and 2012, 82% and 74% of the Company’s sales were to these related entities.

F-175

Notes to the financial statements(continued)

18.Cost of sales of goods

For the years ended December 31, 2014, 2013 and 2012, the cost of sales of goods is made up of the following:

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Opening balance of finished goods (see note 8(a))  15,798   20,394   14,908 
Raw materials and supplies  333,521   324,925   327,321 
Depreciation and amortization  166,615   109,250   95,872 
Labor  125,863   157,776   102,643 
Energy  90,172   73,907   73,136 
Third parties services  87,458   91,984   85,438 
Workers’ profit sharing  45,783   57,691   75,074 
Services provided by related parties / Management fees  4,904   5,169   18,210 
Other costs  20,462   27,740   26,125 
Variance of inventories in process  (70,523)  (57,974)  (32,544)
Ending balance of finished goods (see note 8(a))  (22,572)  (15,798)  (20,394)
             
   797,481   795,064   765,789 

19.Selling expenses

For the years ended December 31, 2014, 2013 and 2012, selling expenses are made up of the following:

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Concentrate’s freight  50,507   64,683   74,816 
Commissions  2,271   2,727   2,759 
Cathode’s freight  1,432   1,038   1,099 
             
   54,210   68,448   78,674 

20.Commitments and contingencies

(a)Environmental matters -

The Company’s mining and exploration activities are subject to environmental protection standards. In order to comply with these standards, the Company has obtained the approval for the Environment Adequacy Program (“PAMA”) and of the Environmental Impact Studies (EIA), required for the operation of Cerro Verde’s production unit.

 

On October 14, 2003, Law No.N° 28090 was enacted, which regulates the commitments and procedures that entities involved in mining activities must follow in order to prepare, file and implement a mine site closing plan, as well as the respective environmental guarantees that assure compliance with the plan in accordance with protection, conservation and restoration of the environment. On August 15, 2005, the regulations regarding this law were approved.

During 2006, in compliance with the mentioned Law,law, the Company completed the closingclosure plans for its mine site.site, and presented it to the Ministry of Energy and Mines. On October 5, 2009, the MEMMinistry of Energy and Mines issued Resolution N°No 302-2009 MEM – AAA,MEM-AAA, approving the Company’s mine closure planplan. As of the Company.

On November 20, 2013 accordingDecember 31, 2016, pursuant to what is established by Law,legal requirements, the Company presentedhas issued letters of credit to the Ministry of Energy and Mines an updatedtotaling US$28.4 million to secure mine closure plan, by means of which the Company updated its mine closure budget.plans.

F-185

Notes to the financial statementsFinancial Statements(continued) (continue)

 

The estimate of remediation and mine closing costs is based on studies prepared by independent consultants who comply with theand based on current environmental regulations. This provision corresponds mainly to the activities to be performed in order to restore the areas affected by mining activities. The main tasks to be performed include ground removal, revegetation laborsoil recovery, and dismantling of plant and equipment.

 

The table below presents the changes in the provision for remediation and mine closure:

 

US$(000)
Balance as of January 1,  201379,812
Accretion expense4,609
Changes in the estimates(36,445)
Other adjustments503
Balance as of December 31, 201348,479
Accretion expense2,536
Changes in the estimates68,840
Other adjustments93
Balance as of December 31, 2014119,948
  2016  2015 
  US$(000)  US$(000) 
       
Beginning balance  161,270   119,948 
Accretion expense  4,391   3,985 
Changes in estimates, note 8  (16,091)  33,803 
Additions, note 8  3,743   3,534 
         
Final balance  153,313   161,270 

 

According toAs of December 31, 2016, the Company’s accounting policies,provision for remediation and mine closure was US$153.3 million (reflecting the future value of the provision for remediation and mine closure represents the present value of the costs that are expected to be incurred in the closure periodUS$368.8 million, discounted using an annual risk-free rate of the operating activities of the Company. Closure budgets are reviewed regularly to take into account any significant change in the studies conducted. Nevertheless, the closure costs of mining units will depend on the market prices for the closure works required, which would reflect future economic conditions. Also, the time when the disbursements will be made depends on the useful life of the mine, which will be based on future metals prices.

2.97%). As of December 31, 2014,2015, the Company’s provision for remediation and mine closure was US$161.3 million (reflecting the future value of the provision for remediation and mine closure of mining units and environmental liabilities was US$257,451,000, which was368.8 million, discounted using thean annual risk-free rate of 2.59%, resulting in an updated liability of US$119,948,000 (as of December 31, 2013, resulted in an updated liability for US$48,479,000)2.81%). The Company considers that this liability is sufficient to meet the current environmental protection laws approved by the MEM.

Up today the Company has issued letters of credit to Ministry of Energy and Mines amounting(MEM).

F-186

Notes to US$14,851,000the Financial Statements (continue)

12.Shareholders’ equity, net

(a)Capital stock -

As of December 31, 2016, the authorized, subscribed and paid-up capital in accordance with the Company’s by-laws and its related modifications was 350,056,012 common shares.

According to secure mine closure plansthe July 11, 2003, Shareholders Agreement, the nominal value of the shares was denominated in US dollars in an amount of US$0.54 per share. As a consequence of the capitalization of restricted earnings associated with tax benefits (reinvestment credits), in December 2009, the nominal value of the shares was increased to US$2.83 per share.

The quoted price of these shares was US$19.11 per share as of December 31, 2016 (US$14.50 per share as of December 31, 2015).

As of December 31, 2016, the Company’s capital stock structure is as follows:

Percentage of individual interest in capital Number of
shareholders		  Total percentage
interest		 
       
Up to 1.00  2,860   4.37 
From 1.01 to 20.00  2   21.07 
From 20.01 to 30.00  1   21.00 
From 30.01 to 60.00  1   53.56 
         
   2,864   100.00 

(b)Other capital reserves -

Other capital reserves include the Company’s legal reserve which is in accordance with the Peruvian Companies Act, and is created through the transfer of 10% of the earnings for its mining unit.the year up to a maximum of 20% of the paid-in capital. The legal reserve must be used to compensate for losses in the absence of non-distributed earnings or non-restricted reserves, and transfers made to compensate for losses must be replaced with future earnings. This legal reserve may also be used to increase capital stock but the balance must be restored from future earnings.

(c)Dividend Distribution -

Dividends paid to shareholders, other than domiciled legal entities, are subject to retention of income tax.

On December 31, 2014, Law N° 30296 was enacted increasing the withholding tax rate to 6.8% for the years 2015 and 2016, 8.0% for 2017 and 2018 and 9.3% thereafter. On December 10, 2016, Legislative Decree was enacted reducing the withholding tax rate to 5.0% beginning January 1, 2017. For the years ended December 31, 2016, 2015 and 2014, the Company did not pay dividends.

F-187

Notes to the Financial Statements (continue)

13.Tax situation

(a)On February 13, 1998, the Company signed an Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the Peruvian General Mining Law (the 1998 Stability Agreement). Upon approval of the 1998 Stability Agreement, the Company was subject to the tax regulations in force at May 6, 1996, for a period of 15 years, beginning January 1, 1999, and ending December 31, 2013.

On July 17, 2012, the Company signed a new Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the Peruvian General Mining Law. Upon approval of this stability agreement, the Company became subject to the tax regulations in force at July 17, 2012, for a period of 15 years, beginning January 1, 2014, and ending December 31, 2028.

 

(b)Construction ofUnder its current 15-year tax stability agreement, the Waste Water Treatment Plant

During 2011, the Company completed the feasibility study for a major expansion of its Production Unit Cerro Verde (hereinafter “the Expansion”) which includes, among others, the expansion and improvements of facilities and mining process, flotation and leaching facilities, as well as expanding themPeruvian income tax rate applicable to build a concentrator and an additional leaching platform (see note 1(b)). As a result, the Company determined that the project will require the use of additional water resources apart from those currently used in the operations.

Notes to the financial statements(continued)

To carry out this investment in its production unit, the Company agreed with the authorities of Arequipa and SEDAPAR (Arequipa Sanitation Service), within the framework of the expansion, to develop and finance the engineering, construction and operation during the first two years of the Waste Water Treatment Plant (WWTP) and all its components, the same that will be used as a water source for expanded operations, supplementing the existing water resources to support the expansion.

In August 2013, the Ministry of Housing, Construction and Sanitation approved the environmental and social impact assessment of the waste water treatment plant.

This waste water treatment plant allows the viability of the Company’s Production Unit expansion project, benefiting the population of Arequipa as it will help to decontaminate the waters of the Rio Chili, and improve the health, the quality of the agricultural products, the tourism and the environment in general.

21.Transactions with related parties

(a)During this year, the Company received from Minera Freeport McMoran South America Ltda. consulting and professional services related to finance, logistics, legal, environmental, corporate affairs , IT and human resources, which are made in Chile.is 32%. As of December 31, 2014, the amount incurred by2016, prepayments of income tax, which the Company for these servicesexpects to be used to offset future income tax provisions or will be refunded by SUNAT was US$4,489,000, which has been recognized in the statement of comprehensive income (US$5,169,000 as of December 31, 2013)19.6 million (see Note 7).

 

(b)(c)DuringSUNAT has the right to examine, and, if necessary, amend the Company’s income tax provision for the last four years. The Company’s income tax and VAT for the years ended December 31, 2014, 20132012 through 2016 are open to examination by the tax authorities. The year 2011 is under review by SUNAT for both income tax and 2012,VAT. To date, SUNAT has concluded its review of the Company’s income tax and VAT exams through the year 2010, and the Company recognizedis in the following sales of goods to related parties:claim and appeal process for the years 2002 through 2010.

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Sales of goods to related parties            
Freeport-McMoRan Corporation (c)  560,211   775,775   845,417 
Sumitomo Metal Mining Company, Ltd. (d)  475,609   598,023   693,945 
Climax Molybdenum Marketing Corporation (e)  99,222   113,388   91,859 
             
Total revenues  1,135,042   1,487,186   1,631,221 

NotesDue to the many possible interpretations of current legislation, it is not possible to determine whether or not future reviews (including reviews of years pending examination) will result in additional tax liabilities for the Company. If management determines it is probable that additional taxes are payable, these amounts, including any related interest and penalties, will be charged to expense in that period. In management’s and its legal advisors’ opinions, any possible tax settlement is not expected to be significant to the financial statements(continued)statements.

(c)On October 15, 2006, the Company signed a long-term contract with FMC through in which it committed to sell 20% of its annual copper concentrate production from its primary concentrator plant. Terms of the contract are reviewed annually. For the year 2014, the sales of concentrate copper to FMC amounted to US$445,756,000 (US$687,655,000 in 2013 and US$746,721,000 in 2012).

The Company also sells copper cathodes based on availability. According to the terms of the sales of copper cathodes to FMC, agreements are made for each shipment. For the year 2014, sales of copper cathodes to FMC amounted to US$114,455,000 (US$88,120,000 in 2013 and US$98,696,000 in 2012).

 

(d)On June 1, 2005, the Company signed a long-term agreement with Sumitomo Metal Mining Company Ltd., in which it committed to sell 50% of its annual copper concentrate production from its concentrator plant, through December 31, 2016. Contract terms are revised annually.Royalties and special mining taxes –

On June 23, 2004, Law N° 28528 was approved, which requires the holder of a mineral concession to pay a royalty in return for the exploitation of metallic and non-metallic minerals. The royalty is calculated using rates ranging from 1% to 3% of the value of concentrate or its equivalent according to the international price of the commodity published by the Ministry of Energy and Mines. As described in Note 13(a), prior to January 1, 2014, these royalties were not applicable to the Company because it operated under the 1998 Stability Agreement with the Peruvian government. However, beginning January 1, 2014, the Company began paying royalties and a new special mining tax for its entire production base under its current 15-year stability agreement. See Note 13(b) for a summary of amounts recognized by the Company for special mining tax and mining royalties for the years ended December 31, 2016, 2015 and 2014.

F-188

Notes to the Financial Statements (continue)

SUNAT has assessed mining royalties on materials processed by the Company´s concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2007 and the years 2008 to September 2011.

SUNAT issued resolutions denying the claims made by the Company from December 2006 through December 2009. The Company appealed this decision to Tax Court. In July 2013, the Peruvian Tax Tribunal issued two decisions reaffirming assessments for the period December 2006 through December 2008. Decisions by the Tax Court ended the administrative stage of the appeal procedures for these assessments.

On September 18, 2013, the Company filed two administrative demands in the court system. In connection with demands for the periods 2006 to 2007 the Eighteenth Contentious Administrative Court dismissed this claim. On May 2, 2016, Cerro Verde appealed this decision.

With respect to the judiciary appeal related to the assessment for the year 2008, on December 17, 2014, the Eighteenth Contentious Administrative Court rendered its decision upholding the Company’s position and nullifying SUNAT’s assessment and the Tax Tribunal´s resolution (S/106.4 million). The Court’s position also invalidates all penalties and interest assessed by SUNAT for that period (S/139.7 million). In December 2014, SUNAT and the Tax Court appealed this decision. On January 29, 2016, the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. On February 23, 2016, the Company appealed the decision to the Supreme Court.

In September 2013, the Company filed a Constitutional claim in the court system related to the assessments because the Company believes that its 1998 Stability Agreement exempted all minerals extracted from its mining concessions from royalties, irrespective of the method used for processing those minerals. On September 15, 2016, Judiciary court dismissed the constitutional claim and on October 25, 2016, the Company appealed this decision.

On October 1, 2013, SUNAT served the Company a demand for payment totaling S/492 million (approximately US$146 million based on the December 31, 2016 exchange rate, including interest and penalties of US$86 million) based on the Tax Tribunal’s decisions for the period December 2006 to December 2008. As permitted by law, the Company requested, and was granted, an installment payment program that deferred payment for six months and thereafter satisfies the amount via 66 equal monthly payments. As of December 31, 2016, the Company has made payments totaling S/323 million (US$104 million based on the date of payment and US$96 million based on December 31, 2016 exchange rates) under the installment program, which are presented in the non-current portion of other non-financial assets in the statements of financial position (see Note 7). Based on the results rendered by the Eighteenth Contentious Administrative Court as is described in the previous paragraph, the Company requested an injunction that was accepted by the Judiciary and implied a modification of the installment program excluding the 2008 portion through SUNAT´s resolution notified to the Company on October 29, 2015. On August 18, 2016, the Sixth Superior Justice Court nullified the injunction described above and on September 28, 2016, SUNAT modified the Installment payment program to include the 2008 portion.

F-189

Notes to the Financial Statements (continue)

In July 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by the Tax Tribunal for that year. As of December 31, 2016, the amount of the assessment, including interest and penalties, for the year 2009 was S/268 million (approximately US $80 million based on the December 31, 2016 exchange rate).

In April 2016, the Company received assessments from SUNAT for the year 2010 and for January to September 2011. On May 11, 2016, the Company appealed these assessments. At December 31, 2016, the amount of assessments from SUNAT including interest and penalties for the years 2010 and January to September 2011 is S/543 million (approximately US$162 million based on the December 31, 2016 exchange rate).

As of December 31, 2016, the Company estimates that the total exposure associated with mining royalties for the period from December 2006 to December 2013, including interest and penalties, totals US$544 million (based on the December 31, 2016 exchange rate).

As of December 31, 2016, no provisions were recorded for these assessments or for the amounts paid under the installment payment program because management and its external legal advisors believe the Company’s 1998 Stability Agreement exempted it from these royalties and believes that the resolution will be favorable to the Company and any payments should be recoverable.

 

(e)On October 1, 2006, the Company signed a long-term agreement with Climax Molybdenum Marketing Corporation, a wholly owned subsidiary of FMC, in which it committed to sell 100% of its annual molybdenum concentrate production, at a price based on Metals Week Dealer Oxide price and under a delivery type known as CIF (cost, insurance and freight). Terms of the contract are reviewed annually.Assessments received from SUNAT (different than mining royalties)

The Company has also received assessments from SUNAT for additional taxes (other than the mining royalty explained in (d) above), including penalties and interest. The Company has filed or will file objections to the assessments because it believes it has properly determined and paid its taxes. A summary of these assessments follows:

Year Taxes  Penalty and
interest		  Total 
  US$(000)  US$(000)  US$(000) 
          
2002 – 2005  15,909   51,495   67,404 
2006  6,545   49,491   56,036 
2007  12,376   17,809   30,185 
2008  20,797   12,968   33,765 
2009  56,198   47,719   103,917 
2010  65,997   98,284   164,281 
2011  6,332   2,648   8,980 
2014 –2016  15,909   -   15,909 
             
   200,063   280,414   480,477 

F-190

Notes to the Financial Statements (continue)

As of December 31, 2016, the Company has paid US$180.7 million (included in “other non–financial assets-non-current” (See Note 7) in the statements of financial position) for these disputed tax assessments, which it believes is collectible. No amounts have been accrued for these assessments.

 

(f)As a result of transactions with related parties, the Company had accounts receivable and also has the following payables as of December 31, 20142016 and 2013:2015, the Company has issued letters of credit to secure tax obligations amounting to S/387.5 million (equivalent to US $115.3 million) and S/383.8 million (equivalent to US$112.5 million), respectively, of which S/372.2 million (equivalent to US$110.8 million) and S/369.3 million (equivalent to US$108.2 million) are related to mining royalties for the years ended December 31, 2016 and 2015, respectively.

 

  2014  2013 
  US$(000)  US$(000) 
Accounts receivable from related parties        
Sumitomo Metal Mining Company, Ltd.  107,464   118,104 
Freeport - McMoRan Corporation (FMC)  78,638   178,819 
Climax Molybdenum Marketing Corporation  1,838   11,563 
         
   187,940   308,486 
Accounts payable to related parties        
Freeport - McMoRan Corporation (FMC)  14,694   6,737 
Minera Freeport McMoran South America Ltda.  1,765   4,069 
Freeport - McMoRan Sales Company  1,052   1,373 
Minera Freeport – McMoRan South America S.A.C.  32   - 
Sociedad Contractual Minera El Abra  10   - 
Freeport McMoRan  South America Inc. Chilean Agency  -   94 
         
Accounts payable to related parties  17,553   12,273 
Less: Long-Term Accounts payable to related parties  (5,643)  (3,980)
         
Short - Term Accounts payable to related parties  11,910   8,293 

F-179(g)The Company recognizes the effect of temporary differences between the accounting base for financial reporting purposes and the tax base. The composition of this item is made up as follows:

  December 31, 2016  December 31, 2015 
  US$(000)  US$(000) 
Income tax        
Asset        
Provision for remediation and mine closure  9,180   5,638 
Unpaid vacations  4,055   2,515 
Provision for mining taxes  4,003   1,505 
Cost of net asset for the construction of the tailing dam  2,321   1,682 
Development costs  228   332 
Price adjustment of copper concentrates and cathode  -   7,849 
Other provisions  5,248   4,750 
         
   25,035   24,271 
         
Liability        
Difference in depreciation method  283,882   245,670 
Difference in valuation of inventories  25,087   10,997 
Price adjustment of copper concentrates and cathode  24,128   - 
Stripping activity asset  23,594   17,820 
         
   356,691   274,487 
         
Deferred liabilities, net  331,656   250,216 
         
Supplementary Retirement Fund        
Deferred liability  3,458   2,937 
         
Total deferred income tax liability, net  335,114   253,153 

 F-191

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

TermsReconciliation of the income tax rate -

For the years ended December 31, 2016, 2015 and transaction with related parties2014, the income tax expense recorded differs from the result of applying the legal rate to the Company’s profit before income tax, as detailed below:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Profit before income tax  603,989   79,530   616,135 
Income tax rate  32%  32%  32%
             
Expected income tax expense  193,276   25,450   197,163 
Non - deductible expenses  27,788   19,534   7,013 
Special mining tax and mining royalties  (12,084)  (4,672)  (16,677)
Income tax rate change effect on deferred taxes for change in Peruvian tax law once the current Stability Contract expires (from 26% to 29.5%)  13,850   -   - 
Income tax true – ups  1,677   (6,082)  (6,985)
Others  (1,913)  (3,047)  82 
             
Current and deferred income tax charges to results  222,594   31,183   180,596 
Mining taxes charged to results  37,763   14,599   52,116 
Supplementary retirement fund charged to results  2,725   464   5,817 
             
   263,082   46,246   238,529 
             
Effective income tax  43.56%  58.15%  38,71%

Income tax -

Transactions with related parties are made at normal market prices.Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash. There have been no guarantees received or providedThe income tax expenses (benefit) for any accounts receivable or payable to related parties.As ofthe years ended December 31, 2016, 2015 and 2014 and 2013is shown below:

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
Income tax            
Current  141,153   (832)  220,454 
Deferred  81,441   32,015   (39,858)
             
   222,594   31,183   180,596 
             
Mining taxes            
Current Mining Royalty and Special Mining Tax  37,763   14,599   52,116 
             
Supplementary retirement fund            
Current  2,205   54   3,290 
Deferred  520   410   2,527 
             
   2,725   464   5,817 
             
Income tax expense reported in the statements of comprehensive income  263,082   46,246   238,529 

F-192

,Notes to the Company had not recorded any impairment of accounts receivable from related parties.Financial Statements (continue)

 

22.14.Sales of goods

(a)This item is made up of the following:

  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  Pounds
(000)		  US$
(000)		  Pounds
(000)		  US$
(000)		  Pounds
(000)		  US$
(000)		 
                   
Copper concentrate  995,386   1,967,052   440,071   794,197   375,688   949,459 
Copper cathode  109,128   247,431   104,279   259,830   125,647   393,112 
Other (primarily silver and molybdenum concentrate)      176,357       65,343       130,038 
                         
Subtotal Sales      2,390,840       1,119,370       1,472,609 
Less: Royalty contributions (see Note 2(l))      (6,686)      (3,753)      (5,512)
                         
Total Net Sales      2,384,154       1,115,617       1,467,097 

Sales to related parties totaled US$2.3 billion for the year ended December 31, 2016 (US$0.9 billion and US $1.1 billion for the years ended December 31, 2015 and 2014, respectively).

As described in Note 2(d), the Company’s copper sales are provisionally priced at shipment. Adjustments to the provisional prices are recognized as gains and losses in sales of goods through the month of settlement. Adjustments to provisional priced copper and molybdenum sales resulted in an increase to net sales of goods totaling US$86.3 million and US$7.9 million for the years ended December 31, 2016 and 2015, respectively and in lower sales for US$42.8 million in the year 2014.

(b)The following table shows net sales by geographic region based on the final destination port:

  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  US$(000)  US$(000)  US$(000) 
          
Asia  1,865,346   770,272   883,404 
North America  213,002   79,244   113,591 
Europe  161,844   65,648   170,624 
South America (primarily Peru)  150,648   204,206   304,990 
             
   2,390,840   1,119,370   1,472,609 
Less: Royalty contributions (see Note 2(l))  (6,686)  (3,753)  (5,512)
             
Total Net Sales  2,384,154   1,115,617   1,467,097 

F-193

Notes to the Financial Statements (continue)

(c)Concentration of sales –

For the year ended December 31, 2016, 95% of the Company’s sales were to related entities (FMC, Sumitomo Metal Mining Company and Climax Molybdenum). For 2015 and 2014, the 80% and 77% of the Company's sales were to these related entities, respectively.

15.Cost of sales

This item is made up of the following:

  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  US$(000)  US$(000)  US$(000) 
          
Materials and supplies  496,918   364,234   333,521 
Depreciation and amortization  472,997   244,477   164,985 
Energy  229,035   118,019   91,802 
Labor (a)  215,839   146,395   171,646 
Third parties services  100,897   95,087   87,458 
Management Fees  2,793   3,565   4,904 
Change in work in process inventory  (3,789)  (118,327)  (70,523)
Change in finished goods inventory  (3,951)  467   (6,774)
Other costs  42,301   8,087   20,462 
             
   1,553,040   862,004   797,481 

(a)Labor includes an expense of US$36.8 million related to profit sharing for the year ended December 31, 2016 (credit of US$1.6 million for the year ended December 31, 2015 and expense of US$45.8 million for the year ended December 31, 2014).

In compliance with corporate policies, the Company recognizes administrative costs directly to cost of production (approximately US$23.4 million for the year ended December 31, 2016, US$19.5 million for the year ended December 31, 2015 and US$20.4 million for the year ended December 31, 2014). The effect of this policy is immaterial to the financial statements as a whole.

16.Selling Expenses

This item is made up of the following:

  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  US$(000)  US$(000)  US$(000) 
          
Concentrate freight  122,431   51,842   50,507 
Commissions  5,989   2,729   2,271 
Cathode freight  2,148   1,644   1,432 
Other  823   -   - 
             
   131,391   56,215   54,210 

F-194

Notes to the Financial Statements (continue)

17.Other operational expenses

This item is made up of the following:

  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  US$(000)  US$(000)  US$(000) 
          
Provision for Social Commitment (See Note 11)  15,782   -   - 
Start-up cost (a)  2,080   19,568   - 
Other costs, net  6,245   7,171   5,873 
             
   24,107   26,739   5,873 

(a)Corresponds to start-up costs related to the new concentrator plant in order to reach full production capacity, which was achieved during the first quarter of 2016. See Note 1(b).

18.Financial Expenses

This item is made up of the following:

  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  US$(000)  US$(000)  US$(000) 
          
Interest on Senior unsecured credit facility (Note 10(a))  51,155   35,255   11,137 
Interest shareholder loans (Note 10(b))  19,836   1,181   - 
Amortization of debt issuance cost  8,901   5,927   4,381 
Other financial expenses  1,880   7,366   1,156 
Capitalized Interest  (1,334)  (33,719)  (16,305)
             
   80,438   16,010   369 

19.Earnings per share

Basic and diluted earnings per share are computedcalculated by dividing net earnings for the period by the weighted averageweighted-average number of outstanding shares outstanding during the yearperiod. Basic and diluted earnings per common share have been determined as follows:

 

  2014  2013  2012 
Net profit for the year US$377,606,000  US$613,262,000  US$796,584,000 
Weighted average number of shares outstanding  350,056,012   350,056,012   350,056,012 
Basic and diluted earnings per share US$1.08  US$1.75  US$2.28 
  For the year ended
December 31, 2016		  For the year ended
December 31, 2015		  For the year ended
December 31, 2014		 
  US$(000)  US$(000)  US$(000) 
          
Profit for the period (US$)  340,907,000   33,284,000   377,606,000 
Weighted average number of share outstanding  350,056,012   350,056,012   350,056,012 
Basic and diluted earnings per share (US$)  0.974   0.095   1.08 

F-195

 

Notes to the financial statementsFinancial Statements(continued) (continue)

 

23.Embedded derivative

As is indicated in note 2.2 (b), the exposure to the risk of changes in the market prices of copper and molybdenum is considered as an embedded derivative and it is related to the commercial contracts. As of December 31, 2014 and 2013, provisional prices of the estimated future prices (in copper and molybdenum pounds) and their final maturity periods were as follow:

     As of December 31, 2014 
  Pounds payable (000)  Maturity Provisional
pricing		  Forward
pricing		  Fair
value		 
       US$  US$  US$(000) 
Copper:                  
Concentrate  137,906  January – April 2015  Between 2.934 and 3.193   Between 2.855 and 2.880   (26,522)
Cathode  3,749  January  2015  2.898   2.88   (70)
Molybdenum  870  February 2015  8.498   8.28   (190)
                   
                 (26,782)

     As of December 31, 2013 
  Pounds payable (000)  Maturity Provisional
pricing		  Forward
pricing		  Fair
value		 
       US$  US$  US$(000) 
Copper:                  
Concentrate  184,265  January – June 2014  Between  3.124 and 3.299   Between  3.328 and 3.344   15,961 
Cathode  5,515  January  2014  Between  3.274 and 3.323   3.344   225 
Molybdenum  8,846  January – February 2014  8.980   8.924   (163)
                   
                 16,023 

The final pricing estimated by the Company as of December 31, 2014 and 2013 were based on LME information.

Notes to the financial statements(continued)

24.20.Financial risk management

The Company’s activities are exposed to different financial risks, therisks. The main risks that could adversely affect the Company’s financial assets and liabilities or future cash flows are: the risk arising from changes in market prices of minerals, interest rate risk, liquidity risk, credit risk and capital risk. The Company’s financial risk management program focuses on mitigating potential adverse effects on its financial performance.

 

Management knows the conditions prevailing in the market and based on its knowledge and experience, reviews and manages the risks whichthat are summarized below. The Company’s Board of Directors reviews and approves the policies to manage each of these risks.

 

(a)Market risk -

Commodity price risk -

The international price of copper has a significant impact on the Company’s operating results. The price of copper has fluctuated historically and is affected by numerous factors beyond the Company’s control. The Company manages this risk through the use of sales commitments with customers. The Company does not hedge its exposure to price fluctuation.

Embedded derivative –As described in note 2.2 (b)Note 2(d), the Company has price risk through its provisionally priced sales contracts, which provide final pricing in a specified future month (generally sixthree months from the shipment date) based primarily on quoted LME monthly average prices. The Company receives market prices based on prices in the specified future period, which results in price fluctuations recorded through revenues until the date of settlement. The Company records revenues and commercial invoices customers at the time of shipment based on the currentthen-current LME prices, which results in an embedded derivative on the provisionally priced contractscontract that areis adjusted to fair value through revenues each period, using the period-end forward prices, until the date of final pricing. To the extent that final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease into revenues is recorded at each reporting period until the date of final pricing.

Notes to the financial statements(continued)pricing (see Note 21).

 

The table below summarizes the effectestimated impact on the Company’s profit before income tax caused by changes infor the copper price. This analysis isyear 2017 based on the assumption that thea 10% increase or decrease in future copper price has increased or decreased by 10% while all other variables are held constant. The 2014 positive scenario uses10% increase is based on copper prices betweenranging from US$/pound 3.14 to 3.17 (US$/pound 3.66 to 3.68 in the year 2013 and US$/pound 3.952.757 to US$/pound 3.96 in2.763, and the year 2012); whereas the negative scenario uses10% decrease is based on copper prices betweenranging from US$/pound 2.572.256 to 2.59 (US$/pound 2.99 to 3.01 in the year 2013 and US$/pound 3.23 to US$3.24 in the year 2012).2.261.

 

  Effect on profit before
income tax		 
  US$(000) 
December 31, 2014
Increase in copper international quote40,622
Decrease in copper international quote(40,622)
    
December 31, 20132016    
Increase10% increase in future copper international quoteprices  63,22588,508 
Decrease10% decrease in future copper international quoteprices  (63,225)
December 31, 2012
Increase in copper international quote61,634
Decrease in copper international quote(61,63488,508)

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Exchange rate risk –

As described in note 2.2(a),Notes to the Company’s financial statements are presented in US dollars, which is the functional and presentation currency of the Company. The Company exchange-rate risk arises mainly from deposits, taxes, salaries and other accounts payable in currencies other than the US dollar, mainly Nuevos Soles. The Company mitigates its exposure to exchange-rate risk by carrying out almost all of its transactions in its functional currency and Management maintains only small amounts in Nuevos Soles to cover its needs in this currency (i.e., taxes and salaries).Financial Statements (continue)

 

Exchange rate risk –

During 2014, the Company has recorded a gain net from exchange difference of US$2,284,000 (net loss of US$1,858,000 during the year 2013 and net gain of US$3,149,000 during the year 2012), from the translation of balances in Nuevos Soles to the US dollars.

As described in Note 2(c), the Company’s financial statements are presented in US dollars, which is the functional and presentation currency of the Company. The Company’s exchange-rate risk arises mainly frombalancesrelatedtotax payments, deposits and other accounts payable in currencies other than the US dollar, principally Soles. The Company mitigates its exposure to exchange-rate risk by carrying out almost all of its transactions in its functional currency and management maintains only small amounts in Soles to cover its immediate needs (i.e., taxes and compensation) in this currency.

 

(b)Liquidity risk -

Liquidity risk arises from situations in which cash might not be available to pay obligations when they become dueat their maturity date and at a fairreasonable cost. The Company maintains adequate liquidity by properly managing the maturities of assets and liabilities in such a way that allows the Company to maintain a structural liquidity position (cash available) enabling it to meet liquidity requirements properly. The Company sells cathode and copper and molybdenum concentrates to recognized companies in the mining sector worldwide. In addition,requirements. Additionally, the Company currently has the possibilityability to obtain funds from financial institutions if it is requiredand shareholders to meet its contractual obligations.

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Notes to the financial statementsFinancial Statements(continued) (continue)

 

The following tables show the liabilities, net of taxes and accruals with the expected aging of maturity of the Company’s obligations, excluding taxes and accruals as of December 31, 2014, 20132016 and 2012:2015:

 

 On demand Less than 3 months 3 to 12 months 1 to 5 years Total  On demand Less than 3 months 3 to 12 months 1 to 5 years Total 
 US$(000) US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) 
As of December 31, 2014                    
           
As of December 31, 2016                    
Trade accounts payable  -   398,070   -   -   398,070   -   168,244   113   -   168,357 
Accounts payable to related parties  -   11,910   -   -   11,910   -   27,134   -   7,132   34,266 
Financial obligations  -   -   50,163   402,686   452,849 
Other financial liabilities  -   -   161   1,995,843   1,996,004 
Provision related to benefits to employees  -   3,807   44,232   -   48,039 
Other accounts payable  -   9,706   1,432   -   11,138   -   2,402   1,217   -   3,619 
                                        
Total  -   419,686   51,595   402,686   873,967   -   201,587   45,723   2,002,975   2,250,285 
                                        
As of December 31, 2013                    
As of December 31, 2015                    
Trade accounts payable  -   267,971   -   -   267,971   -   432,418   -   -   432,418 
Accounts payable to related parties  -   8,293   -   3,980   12,273   -   12,042   -   6,850   18,892 
Financial obligations  -   -   4,577   1,326   5,903 
Other financial liabilities  -   -   43,169   2,381,995   2,425,164 
Provision related to benefits to employees  -   14,572   5,964   -   20,536 
Other accounts payable  -   22,369   1,335   730   24,434   -   2,112   -   -   2,112 
                                        
Total  -   298,633   5,912   6,036   310,581   -   461,144   49,133   2,388,845   2,899,122 

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Notes to the financial statementsFinancial Statements(continued) (continue)

 

(c)Credit Risk -

The Company’s exposure to credit risk arises from a customer’s inability to pay amounts in full when they are due and the failure of third parties in transactions of cash and cash equivalent transactions, whichtransactions. The risk is limited to balances deposited in banks and financial institutions and for trade accounts receivable at the date of the statementstatements of financial position.position (the Company sells copper concentrate and cathode and molybdenum concentrate to companies widely recognized in the worldwide mining sector). To manage this risk, the Company has an established a treasury policy, which only allows the deposit of surplus funds in highly rated institutions, by establishing conservative credit policies and through a constant evaluation of market conditions. Consequently, the Company does not expect to incur in losses on accounts involving potential credit risks.

The concentration of credit risk also exists when economic changes occur, in industry or geography that affects third parties in the same way. The Company’s customer portfolio is primarily concentrated in three customers, which are related companies with solid financial structures.

The credit risk is limited to the book value of financial assets on the statement of financial position date, which consists mainly of cash and cash equivalents, trade accounts receivable from third parties and trade accounts receivable from related parties. The Company does not use derivative instruments to hedge its exposure to credit risk.

 

(d)Capital riskmanagement -

The objective is to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders, and benefits for stakeholders and maintain an optimal structure that would reduce the cost of capital.

 

The Company manages its capital structure, and makes adjustments to it, in light of changes in economic market conditions. To maintain or adjust the capital structure, the Company controls dividend payments to shareholders, the return of capital to shareholders and the issueissuance of new shares. No changes were made into the objectives, policies or processes during the yearsyear ended December 31, 2014, 2013 and 2012.2016.

 

25.21.Embedded derivatives

As discussed in Note 2(d), the Company’s sales create exposure to changes in the market prices of copper and molybdenum which are considered embedded derivatives. As of December 31, 2016 and 2015, information about the Company’s embedded derivatives is as follows:

       As of December 31, 2016
  Pounds
payable		  Maturity Provisional pricing Forward pricing  Fair value
provision		 
  (000)    US$ US$  US$(000) 
              
Copper Concentrate  344,787  January 2017 to May  2017 Between 2.091 and 2.656  Between 2.507 and 2.512   68,130 
Copper Cathode  7,936  January 2017 Between 2.488 and 2.678  2.507   (1,000)
Molybdenum  3,455  January 2017 to February 2017 Between 5.431 and 5.484  5.542   319 
                 
               67,449 

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Notes to the Financial Statements (continue)

       As of December 31, 2015
  Pounds
payable		  Maturity Provisional pricing Forward pricing  Fair value
provision		 
  (000)    US$ US$  US$(000) 
              
Copper Concentrate  221,659  January 2016 to May 2016 Between 2.076 and 2.433  Between 2.134 and 2.138   (19,696)
Copper Cathode  3,970  January 2016 2.08  2.14   233 
Molybdenum  1,425  January 2016 to February 2016 Between 3.435 and 3.635  3.95   616 
                 
               (18,847)

22.Hierarchy and fair value of financial instruments

Hierarchy:

As of December 31,20142016 and 20132015,the only financial asset carried at fair value is the embedded derivative, which is generated by the sale of copper and measured at fair value based on copper prices. The value of this embedded derivative at December 31, 2014 was a liability of US$26,782,000 (an asset of US$16,023,000 as of December 31, 2013)2016, was an asset of US $67.4million (liability of US $18.8 million as of December 31, 2015). This assetembedded derivative is categorized within Level 2 of the hierarchy.The fair value of embedded derivatives is determined using valuation techniques using information directly observable in the market (forward prices of metals).

Fair value:

Financial instruments whose fair value is similar to their book value –

For financial assets and liabilities which are liquid or have short-term maturity (less than three months), such as cash and cash equivalent, accounts receivable, other accounts receivable, accounts payable, other accounts payable, and other current liabilities, it is estimated that their book value is similar to their fair value.

 

Notes to the financial statements(continued)

The fair value of embedded derivatives is determined using valuation techniques using information directly observable in the market (forward prices of metals).

Financial instruments at fixed and variable rates –

The fair value of financialFinancial assets and liabilities atwith fixed andor variablerates are recorded at amortized cost and fair value is determined by comparing the market interest rates at the time of their initial recognition to the current market rates with regard to similar financial instruments.

 

Based on the foregoing, there are no significant differences between book value and fair value of financial instruments (assets and liabilities) as of December 31, 20142016 and 2013.2015.

26.F-200Mineral reserves (unaudited)

 

As of December 31, 2014 and 2013,Notes to the Company’s proven and probable mineral reserves were:Financial Statements (continue)

  MT (000)  Grade 
  2014  2013  2014  2013 
Mineral for leaching  168,380   167,666   0.37   0.33 
Mineral for milling  3,784,854   3,879,706   0.38   0.37 

Copper production in thousands of recoverable pounds for the years ended December 31, 2014 and 2013 was as follows:

  2014  2013 
Cathodes  124,804   104,314 
Concentrates  375,438   452,925 

Average LME price per metric ton of copper for the years ended December 31, 2014 and 2013, was as follows:

  2014  2013 
  US$/MT  US$/MT 
Copper  6,860   7,322 

 

27.23.Summary of significant differences between accounting principles followed by the Company and U.S. generally accepted accounting principles

The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards which differs in certain respects from U.S. GAAP. The effects of these differences are reflected in note 2824 and are principally related to the items discussed in the following paragraphs:

 

(a)Stripping Cost – IFRIC 20

Income tax

Under IFRS, current and deferred tax assets and liabilities are measured at the tax rate applicable to undistributed profits and thus the income tax consequences of dividends are recognized when a liability to pay the dividend is recognized.

Under U.S. GAAP, with respect to the income tax consequences of undistributed earnings, the Company recognizes deferred tax liabilities at the applicable tax rate based on its tax planning strategies, and not necessarily when they are distributed. Accordingly, the Company had recorded deferred income tax liabilities related to certain undistributed earnings as of December 31, 2011, according to ASC 740 “Accounting for Income Taxes”.

Notes to the financial statements(continued)

In 2012, due to revised expected timing of dividend distributions (that were deferred beyond year 2014 and accordingly no subject to Income Tax) the Company decided to reverse the deferred income tax liability under US GAAP.

Stripping Cost – IFRIC 20

Under IFRS, the stripping cost of production that is necessary to produce the inventory is recorded as cost of production, while the one that allows access to additional amounts of reserves to be exploited in future periods are capitalized and amortized based on proved and probable reserves of each ore body (component) identified in the open pit.

 

Under U.S. GAAP, the costs of clearing removal (stripping cost of production) incurred during the production stage are recorded as part of the production cost of inventories.

 

28.(b)Inventories

Under IFRS, the cost inventory includes: the amortization of production-stripping costs and the inventories are determined using theweighted average method.

Under U.S. GAAP, the cost inventory excludes the amortization of production-stripping cost and the inventories are determined using the LIFO method.

(c)Deferred workers’ profit sharing

Under IFRS, the workers’ profit sharing is calculated based on the Company’s taxable income and is recorded as an employee benefit (cost of production or administrative expense, depending on the function of the workers).

Under US GAAP, the workers’ profit sharing is treated in a similar way as income tax since both are calculated based on the Company’s taxable income. Therefore, the Company calculates a deferred workers’ profit sharing resulting from the taxable and deductible temporary differences.

(d)Deferred income tax –

The differences between US GAAP and IFRS are re-measurements that lead to different temporary differences. According to the accounting policies in Note 2.2 (l), the Company has to account for such differences.

F-201

Notes to the Financial Statements (continue)

24.Reconciliation between net income and shareholders' equity determined under IFRS and U.S. GAAP

The following is a summary of the main adjustments to net income for the years ended December 31, 2014, 20132016, 2015 and 20122014 and to shareholders' equity as of December 31, 2014, 20132016, 2015 and 20122014 that would be required if U.S. GAAP had been applied instead of IFRS in the financial statements:

 

 2016 2015 2014 
 2014 2013 2012  US$(000) US$(000) US$(000) 
 US$(000) US$(000) US$(000)        
Net profit under IFRS  377,606   613,262   796,584   340,907   33,284   377,606 
                        
Items increasing (decreasing) reported net profit:                        
Reversal of deferred income tax - Reinvestment Benefit  -   -   240,000 
Stripping activity asset  (15,725)  (31,671)  (35,020)
Deferred tax  5,032   9,501   10,506 
Stripping activity asset, net of amortization  36,252   (45,168)  (4,221)
Inventories valuation  (19,242)  12,573   (57,744)
Asset retirement obligation  1,422   379   (796)
Deferred workers´ profit sharing  (19,007)  (6,225)  13,512 
Deferred income tax  5,013   9,470   13,329 
Other  116   (216)  (69)
            
Net income under US GAAP  366,913   591,092   1,012,070   345,461   4,097   341,617 

 

  2014  2013  2012 
  US$(000)  US$(000)  US$(000) 
Shareholders’ equity under IFRS  4,465,090   4,087,484   3,474,222 
Items increasing (decreasing) reported shareholder’s equity:            
Stripping activity asset, net of deferred tax  (82,416)  (66,691)  (35,020)
Deferred tax  25,039   20,007   10,506 
Shareholders’ equity under U.S. GAAP  4,407,713   4,040,800   3,449,708 

F-187

Notes to the financial statements(continued)

  2016  2015  2014 
  US$(000)  US$(000)  US$(000) 
          
Shareholders’ equity under IFRS  4,839,281   4,498,374   4,465,090 
Items increasing (decreasing) reported shareholder’s equity:            
Stripping activity asset, net of amortization  (63,074)  (99,326)  (54,158)
Inventories valuation  (49,940)  (30,698)  (43,271)
Asset retirement obligation  (440)  (1,862)  (2,241)
Deferred workers´ profit sharing  (27,133)  (8,126)  (1,901)
Deferred income tax  43,728   38,715   29,245 
Other  (283)  (399)  (183)
             
Shareholders’ equity under U.S. GAAP  4,742,139   4,396,678   4,392,581 

 

29.25.New U.S. GAAP Accounting Pronouncements

We doIn May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update (ASU) that provides a single comprehensive revenue recognition model, which will replace most existing revenue recognition guidance, and also requires expanded disclosures. The core principle of the model is that revenue is recognized when control of goods or services has been transferred to customers at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. For public entities, this ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, and interim reporting periods within that reporting period. The Company will adopt this ASU January 1, 2018, and currently expects to apply the modified retrospective approach under which any cumulative effect adjustment would be recorded to retained earnings as of the adoption date. The Company has not expectyet completed its final review of the provisionsimpact of recently issued accounting standards to havethis guidance; however, based on the terms of its sales contracts, The Company currently does not anticipate a significantmaterial impact on our futureits revenue recognition policies or processes. The Company continues to review the impact of the new guidance on its financial statementsreporting and disclosures.

 

F-188F-202

Notes to the Financial Statements (continue)

In January 2016, FASB issued an ASU that amends the current guidance on the classification and measurement of financial instruments. This ASU makes limited changes to existing guidance and amends certain disclosure requirements. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2017. Early adoption is not permitted, except for the provision on recording fair value changes for financial liabilities under the fair value option. The Company is currently evaluating the impact this ASU will have on its financial reporting and disclosures, but at this time does not expect the adoption of this ASU will have a material impact on its financial statements.

In February 2016, FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a term of 12 months or less and do not have a purchase option that is expected to be exercised. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. This ASU must be applied using the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact this guidance will have on its financial statements.

In March 2016, FASB issued an ASU that simplifies various aspects of the accounting for share-based payment transactions, including the income tax consequences, statutory tax withholding requirements, an accounting policy election for forfeitures and the classification on the statement of cash flows. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Each of the amendments in this ASU provides specific transition requirements. The Company will adopt this ASU effective January 1, 2017, and adoption will not have a material impact on its financial statements. This ASU requires recognition of excess tax benefits and tax deficiencies in the income statement prospectively beginning in the first quarter of 2017.

In June 2016, FASB issued an ASU that changes the impairment model for most financial assets and certain other instruments, and will also require expanded disclosures. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The provisions of the ASU must be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact this ASU will have on its financial statements.

26.Subsequent Event

There have been no subsequent significant financial and accounting events that may affect the interpretation of these financial statements.

F-203