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, 2015
2018

 

OR

 

¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

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.
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,Leandro Garcia, 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-mailTelephone, E-mail and/or facsimileFacsimile number and addressAddress of company contact person)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

Soles per share (“Common Shares”)

 

New York Stock Exchange Inc.*

Lima Stock Exchange

   
American Depositary Shares (“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*
Investment Shares nominal (par) value of S/.10.00 per share744,640

Common Shares nominal (par) value of S/.10.00 per share     274,889,924

Investment Shares nominal (par) value of S/.10.00 per share     744,640

 

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).

 

YesYesx¨     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 filerxLarge accelerated filerxAccelerated filer¨   Non-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¨

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

the International Accounting Standards Boardx

Other¨

 

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
INTRODUCTION1
   
PART I23
   
ITEM 1.Identity of Directors, Senior Management and Advisers23
   
ITEM 2.Offer Statistics and Expected Timetable23
   
ITEM 3.Key Information23
   
ITEM 4.Information on the Company1920
   
ITEM 4A.Unresolved Staff Comments6257
   
ITEM 5.Operating and Financial Review and Prospects6257
   
ITEM 6.Directors, Senior Management and Employees112108
   
ITEM 7.Major Shareholders and Related Party Transactions118114
   
ITEM 8.Financial Information119115
   
ITEM 9.The Offer and Listing122119
   
ITEM 10.Additional Information123121
   
ITEM 11.Quantitative and Qualitative Disclosures About Market Risk132
   
ITEM 12.Description of Securities Other Than Equity Securities132133
   
PART II135134
   
ITEM 13.Defaults, Dividend Arrearages and Delinquencies135134
   
ITEM 14.Material Modifications to the Rights of Security Holders and Use of Proceeds135134
   
ITEM 15.Controls and Procedures135134
   
ITEM 16A.Audit Committee Financial Expert136
   
ITEM 16B.Code of Ethics136
   
ITEM 16C.Principal Accountant Fees and Services137136
   
ITEM 16D.Exemptions from the Listing Standards for Audit Committees137136
   
ITEM 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers137136
   
ITEM 16F.Change in Registrant’s Certifying Accountant137
   
ITEM 16G.Corporate Governance137
   

i 

ITEM 16H.Mine Safety Disclosure138137
   
PART III139138
   
ITEM 17.Consolidated Financial Statements139138
   
ITEM 18.Consolidated Financial Statements139138
   
ITEM 19.Exhibits139138

 

iii 

 

 

INTRODUCTION

 

Presentation of Financial Information

 

As used in this Annual Report on Form 20-F, or “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/.,” “Sol” or “Soles” are to Peruvian Soles, the legal currency of the Republic of Peru, or “Peru.”“Peru”.

We present our consolidated financial statements (the “Consolidated Financial Statements”) in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

 

Unless otherwise specified, references to a value denominated in “t” or “tons” refersrefer to 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 GAAP.” Effective January 1, 2011, we began presenting our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”).

Pursuant to the rules of the United States Securities and Exchange Commission or the SEC,(the “SEC”), this Annual Report includes certain separate financial statements and other financial information of Minera Yanacocha S.R.L., or “Yanacocha,” and Sociedad Minera Cerro Verde S.A.A., or “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 Consolidated Financial Statements. Our partnership interest in Yanacocha was calculated at 43.65% for the yearsyear ended December 31, 2013, 20142018, 45.95% for the year ended December 31, 2017 and 2015.43.65% for the year ended December 31, 2016. As of December 31, 2013, 20142016, 2017 and 2015,2018, our equity interest in Cerro Verde was 19.58%.

 

Forward-Looking Statements

 

This Annual Report contains “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:

 

 1 

 

 

·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 Notmineralized material not in Reserve;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.

 

2

PART I

 

ITEM 1.Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

ITEM 2.Offer Statistics and Expected Timetable

 

Not applicable.

 

ITEM 3.Key Information

 

 23 

 

 

A.Selected Financial Data

Selected Financial Information and Operating Data

 

This selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements, including the notes thereto appearing elsewhere in this Annual Report. The selected financial information as of December 31, 20142017 and 20152018 and for the years ended December 31, 2013, 20142016, 2017 and 2015,2018 is derived from the consolidated statements of financial position, consolidated statements of profit or loss and consolidated statements of other comprehensive income, included in the Consolidated Financial Statements appearing elsewhere in this Annual Report. The selected financial information as of December 31, 20112014, 2015 and 2012,2016 and for the years ended December 31, 20112014 and 20122015 has been derived from a consolidated statement 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. The report of Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. (a member firm of Ernst & YoungEY Global) on our 2013, 2014Consolidated Financial Statements as of December 31, 2017 and 2015 Financial Statements2018 and for the years ended December 31, 2016, 2017 and 2018 appears elsewhere in this Annual Report. Our 2013, 2014 and 2015The Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP. 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 Consolidated Financial Statements and the related notesNotes 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, 
 2015  2014  2013(6)  2012(6)  2011(6)  2018 2017 2016 2015 2014 
 (In thousands of US$)(1)     (US$ in thousands)(1) 
Statements of profit or loss data:                                        
Continuing operations:                                        
Operating income:                                        
Net sales of goods  864,962   1,067,271   1,135,836   1,376,179   1,314,070   1,122,995   1,223,942   1,015,670   846,269   959,286 
Net sales of services  54,488   71,642   79,585   46,664   42,023   24,001   29,697   28,782   50,839   71,159 
Royalty income  32,414   36,867   44,185   67,178   62,742   20,385   20,739   24,339   32,414   36,867 
Total operating income  951,864   1,175,780   1,259,606   1,490,021   1,418,835   1,167,381   1,274,378   1,068,791   929,522   1,067,312 
                                        
Operating costs:                                        
Cost of sales of goods, excluding depreciation and amortization  (537,713)  (533,052)  (513,165)  (540,504)  (365,831)  (625,484)  (627,433)  (497,812)  (513,490)  (498,714)
Cost of services, excluding depreciation and amortization  (52,692)  (81,487)  (114,120)  (30,739)  (15,592)  (4,318)  (12,954)  (10,754)  (59,612)  (77,927)
Exploration in operating units  (91,520)  (97,852)  (101,913)  (103,215)  (77,994)  (90,343)  (94,928)  (96,149)  (89,699)  (97,357)
Depreciation and amortization  (242,465)  (208,698)  (159,140)  (111,025)  (71,392)  (241,286)  (213,722)  (192,647)  (232,583)  (172,999)
Mining royalties  (27,407)  (28,440)  (30,402)  (37,496)  (58,546)  (21,526)  (31,217)  (27,611)  (27,188)  (27,428)
Total operating costs  (951,797)  (949,529)  (918,740)  (822,979)  (589,355)  (982,957)  (980,254)  (824,973)  (922,572)  (874,425)
Gross profit  67   226,251   340,866   667,042   829,480   184,424   294,124   243,818   6,950   192,887 
                                        
Operating expenses:                    
Operating expenses, net:                    
Administrative expenses  (86,532)  (101,102)  (75,118)  (94,118)  (68,874)  (78,760)  (83,597)  (81,692)  (84,372)  (93,753)
Exploration in non-operating areas  (30,610)  (50,007)  (32,805)  (95,491)  (49,568)  (36,307)  (18,262)  (26,589)  (30,610)  (50,007)
Selling expenses  (19,481)  (16,605)  (14,842)  (15,491)  (8,214)  (27,522)  (24,088)  (21,733)  (19,365)  (16,212)
Excess of workers’ profit sharing  -   -   (704)  (2,164)  (6,221)
Impairment loss of long-lived assets  (11,255)  -   -   -   - 
Reversal (provision) for contingences and others  11,239   (13,879)  (565)  (395)  - 
Impairment recovery (loss) of long-lived assets  5,693   (21,620)  -   (3,803)  - 
Write-off of asset stripping activities  -   (13,753)  -   -   - 
Other, net  209   3,059   (2,154)  19,172   4,523   (5,012)  (13,589)  18,957   (5,340)  3,169 
Total operating expenses  (147,669)  (164,655)  (125,623)  (188,092)  (128,354)
Total operating expenses, net  (130,669)  (188,608)  (111,622)  (143,885)  (156,803)
Operating profit (loss)  (147,602)  61,596   215,243   478,950   701,126   53,755   105,516   132,196   (136,935)  36,084 
                                        
Other income (expenses), net:                                        
Share in the results of associates under equity method  (173,375)  (74,600)  (114,145)  478,987   496,769 
Share in the results of associates  (1,144)  13,207   (365,321)  (173,375)  (74,600)
Finance costs  (27,622)  (11,318)  (9,896)  (8,290)  (11,823)  (38,456)  (34,623)  (31,580)  (27,572)  (11,276)
Net gain (loss) from currency exchange difference  (13,683)  (8,452)  (7,192)  1,855   (614)  (1,366)  2,928   2,638   (13,693)  (8,457)
Gain on business combination  -   59,852   -   -   -   -   -   -   -   59,852 
Finance income  9,686   5,517   6,830   11,026   8,408 
Total other income (expenses), net  (31,280)  (12,971)  (387,433)  (203,614)  (26,073)
                    
Profit (loss) before income tax  22,475   92,545   (255,237)  (340,549)  10,011 
Current income tax  (16,928)  (23,837)  (39,444)  (14,222)  (18,815)
Deferred income tax  (9,998)  5,825   (14,060)  (541)  (47,006)
Profit (loss) from continuing operations  (4,451)  74,533   (308,741)  (355,312)  55,810)
Discontinued operations:                    
Loss from discontinued operations  (7,203)  (10,098)  (19,073)  (5,830)  (5,830)
Net profit (loss)  (11,654)  64,435   (327,814)  (375,545)  (61,640)
Attributable to equity owners of the parent  (13,445)  60,823   (323,492)  (317,210)  (76,065)
Attributable to non-controlling interest  1,791   3,612   (4,322)  (58,335)  14,425 
Net profit (loss)  (11,654)  64,435   (327,814)  (375,545)  (61,640)
Basic and diluted profit (loss) per share attributable to equity holders of the parent(2)(3)  (0.05)  0.24   (1.27)  (1.25)  (0.30)
Basic and diluted profit (loss) per ADS attributable to equity holders of the parent(2)(3)  (0.05)  0.24   (1.27)  (1.25)  (0.30)
Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations  (0.02)  0.28   (1.20)  (1.17)  (0.28)
Dividends per share  0.09   0.086   0.03   -   0.03 
Average number of common and investment shares outstanding  253,986,867   253,986,867   253,986,867   254,186,867   254,186,867 
Statement of financial position data:                    
Total assets  4,217,221   4,332,813   4,266,415   4,547,181   4,672,274 
Financial obligations  587,062   633,083   592,342   353,710   383,305 
Capital stock  750,497   750,497   750,497   750,497   750,497 
Total shareholders’ equity  3,029,565   3,063,627   3,047,213   3,389,236   3,762,125 
                    
Operating data (unaudited):                    
                    
Production(4)                    
Gold (oz.)  338,508   405,646   357,570   356,367   438,426 
Silver (oz.)  26,778,190   26,624,431   23,035,110   24,648,761   20,119,162 
Proven and probable reserves(5)                    
Gold (oz.)  1,143,418   1,246,255   1,416,000   1,185,000   1,119,000 
Silver (oz.)  202,812,212   164,220,011   160,082,090   134,391,000   139,699,000 

 

 34 

 

 

  As of and for the year ended December 31, 
  2015  2014  2013(6)  2012(6)  2011(6) 
  (In thousands of US$)(1)    
Finance income  11,026   8,408   6,621   9,486   11,827 
Total other income (expenses), net  (203,654)  (26,110)  (124,612)  482,038   496,159 
                     
Profit (loss) before income tax  (351,256)  35,486   90,631   960,988   1,197,285 
Current income tax  (14,225)  (19,006)  (57,328)  (130,507)  (168,191)
Deferred income tax  (541)  (47,006)  (29,154)  (12,451)  (42,369)
Profit (loss) from continuing operations  (366,022)  (30,526)  4,149   818,030   986,725 
Discontinued operations:                    
Profit (loss) from discontinued operations(7)  (9,523)  (31,114)  (83,885)  (57,510)  2,159 
Net profit (loss)  (375,545)  (61,640)  (79,736)  760,520   988,884 
Attributable to equity owners of the parent  (317,210)  (76,065)  (107,257)  701,100   887,333 
Attributable to non-controlling interest  (58,335)  14,425   27,521   59,420   101,551 
Net profit (loss)  (375,545)  (61,640)  (79,736)  760,520   988,884 
Basic and diluted profit (loss) per share attributable to equity holders of the parent(2)(3)  (1.25)  (0.30)  (0.42)  2.76   3.49 
Basic and diluted profit (loss) per ADS attributable to equity holders of the parent (2)(3)  (1.25)  (0.30)  (0.42)  2.76   3.49 
Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations  (1.21)  (0.18)  (0.09)  2.98   3.48 
Dividends per share  -   0.03   0.31   0.60   0.56 
Average number of common and investment shares outstanding  254,186,867   254,186,867   254,186,867   254,232,571   254,442,328 
Statement of financial position data:                    
                     
Total assets  4,547,181   4,672,274   4,552,267   4,622,447   3,969,613 
Financial obligations  353,710   383,305   234,397   179,304   106,114 
Capital stock  750,497   750,497   750,497   750,540   750,540 
Total shareholders’ equity  3,389,236   3,762,125   3,824,421   4,011,879   3,470,242 
                     
Operating data (unaudited):                    
                     
Production(4)                    
Gold (oz.)  371,344   438,426   462,856   447,472   524,101 
Silver (oz.)  23,228,392   20,119,162   19,193,075   18,884,824   16,724,717 
Proven and probable reserves(5)                    
Gold (oz.)  1,718,455   1,119,000   1,036,000   1,385,000   1,485,000 
Silver (oz.)  158,608,375   139,699,000   136,464,000   154,606,000   155,437,000 

(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, 20142017 and 2015,2018, we had 274,889,924 Common Shares outstanding, including 21,174,734 treasury shares asshares. As of December 31, 2014, 2015, 2016, 2017 and 2015. As of December 31, 2011, 2012, 2013, 2014 and 2015,2018, we had 744,640 of Investment Shares outstanding, including 61,976 treasury shares as of December 31, 2011, 231,733 treasury shares as of December 31, 2012, 272,963 treasury shares as of December 31, 2013, 2014 and 2015.2015, and 472,963 treasury shares as of December 31, 2016, 2017 and 2018.

(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 Brocal,” in which we owned a 54.07%61.43% controlling equity interest as of December 31, 2018 and 2017, 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, 2015.2018. The production data in this table reflect 100% of El Brocal’s and La Zanja’s production. For the years ended December 31, 20122015 to 2015,2018, El Brocal produced 3.13.7 million, 2.02.6 million, 2.5 million4.1 and 3.73.9 million ounces of silver, respectively, of which our equity share was 1.72.0 million, 1.11.5 million, 1.42.5 million and 2.02.4 million ounces of silver per year, respectively, and La Zanja produced 112,387, 137,395, 143,573141,071, 139,724, 127,118 and 141,07171,630 ounces of gold, respectively, of which our equity share per year was 74,852, 74,137, 67,449 and 38,007 ounces of gold, respectively, and 331,080, 217,292, 280,908 and 217,174 ounces of silver per year, respectively, of which our equity share was 59,633, 72,902, 76,180175,671, 115,295, 149,050 and 74,852 ounces of gold, and 387,877, 391,832, 422,395 and 331,080115,233 ounces of silver of which our equity share was 205,808, 207,906, 224,123per year, respectively. Amounts for 2017 and 175,671 ounces of silver.2018 exclude production coming from the operating mines classified as discontinued operations.

(5)The amounts in this table reflect the reserves of all of our consolidated subsidiaries, including El Brocal in which we owned a 54.07% controlling equity interest, and La Zanja, in which we owned a 53.06% controlling equity interest, in each case as of December 31, 2015. The conceptual framework2018. SRK Consulting Perú S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for our wholly-owned mines as of December 31, 2012Uchucchacua, Tambomayo, Tantahuatay and 2013 were reviewed byLa Zanja. Geominería S.A.C., an independent consultant, Algon Investment S.R.L. and Geomineria S.A.C. as of December 31, 2014 and 2015. The conceptual framework usedaudited the process to estimate proven and probable ore reserves for El Brocal’s mines as of December 31, 2012, 2013Orcopampa and 2014 were reviewed by an independent consultant, which is also inJulcani. Mining Plus Pty Ltd audited the process of reviewing the conceptual framework used to estimate proven and probable ore reserves for El Brocal’s mines as of December 31, 2015.Brocal.

 45 

 

(6)IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” became effective January 1, 2013. Our results for the year 2012 and 2011 include adjustments in connection with the application of IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine.”
(7)In 2014, we publicly announced our decision to dispose of our four non-operational mining units (Poracota, Recuperada, Antapite and Shila-Paula); as a consequence, they are 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) to the Financial Statements. For comparative purposes, we modified figures for 2010, 2011, 2012 and 2013 which were previously reported in our Form 20-F for the year ended December 31, 2013.

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, 20142017 and 20152018 and for the years ended December 31, 2013, 20142016, 2017 and 2015,2018, or the “YanacochaYanacocha Consolidated Financial Statements.” The report of Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. (a member firm of Ernst & YoungEY Global) on the Yanacocha 2015Consolidated Financial Statements as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018 appears elsewhere in this Annual Report. The selected financial information for Yanacocha as of December 31, 2014, 2015 and 2016, and for the years ended December 31, 2014 and 20132015 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 ReportsReport. Yanacocha’s audited consolidated financial statements as of December 31, 2014, were audited by Gaveglio, Aparicio y Asociados Sociedad Civil de Responsabilidad Limitada, a member firm of PricewaterhouseCoopers Limited. The selectedYanacocha’s audited consolidated financial informationstatements as of and for the year ended December 31, 2012 has been derived from Yanacocha’s financial statements that are not included in this Annual Report.2015, 2016, 2017 and 2018 were audited by Paredes, Burga & Asociados S. Civil de R.L. (a member firm of EY Global). The Yanacocha Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB, which differs in certain respects from U.S. GAAP,U.S.GAAP, as indicated in NoteNotes 24 and 25 to the Yanacocha Consolidated Financial Statements. The operating data presented below, which are based on 100% 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 notesNotes 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, 
 2015  2014  2013  2012  2018  2017  2016  2015  2014 
 (In thousands of US$)(1)  (US$ in thousands)(1) 
Statement of comprehensive income:                                    
Operating income:                                    
Revenue from sales (2)  1,031,174   1,165,299   1,406,825   2,146,641   635,393   645,176   761,193   1,031,174   1,165,299 
Other operating income  10,625   30,300   37,207   22,861   21,965   21,870   17,713   10,625   30,300 
Total gross income  1,041,799   1,195,599   1,444,032   2,169,502   657,358   667,046   778,906   1,041,799   1,195,599 
                                    
Costs applicable to sales  (751,736)  (920,300)  (991,264)  (832,116)  (596,164)  (746,918)  (776,394)  (758,033)  (920,300)
Other operating costs  (2,524)  (22,422)  (28,672)  (22,069)  (2,217)  (2,062)  (2,951)  (2,524)  (22,422)
Total operating costs  (754,260)  (942,722)  (1,019,936)  (854,185)  (598,381)  (748,980)  (779,345)  (760,557)  (942,722)
Gross profit  287,539   252,877   424,096   1,315,317 
Gross profit (loss)  58,977   (81,934)  (439)  281,242   252,877 
                                    
Operating expenses:                                    
                
Operating expenses, net  (82,846)  (77,781)  (77,534)  (192,869)  (76,155)  (63,514)  (71,496)  (82,846)  (77,781)
Administrative expenses  (26,325)  (38,262)  (67,064)  (70,916)  (2,783)  (4,760)  (8,780)  (20,028)  (38,262)
Selling Expenses  (3,534)  (4,458)  (3,740)  (4,498)  (2,627)  (3,921)  (3,695)  (3,534)  (4,458)
Impairment loss  ―   (541,141)  (1,038,548)  ―   -   -   (889,499)  -   (541,141)
Operating profit  174,834   (408,765)  (762,790)  1,047,034 
Operating profit (loss)  (22,588)  (154,129)  (973,909)  174,834   (408,765)
                                    
Other income (expense), net:                
Other expenses, net:                    
Finance income  673   298   720   1,019   11,448   5,831   2,132   673   298 
Finance costs  (22,734)  (23,504)  (18,745)  (13,135)  (39,024)  (23,766)  (15,107)  (22,734)  (23,504)
Net gain (loss) from currency exchange difference  (251)  1,142   2,065   (1,216)  (2,056)  3,636   (13,741)  (251)  1,142 
  (22,312)  (22,064)  (15,960)  (13,332)
Total other expenses, net  (29,632)  (14,299)  (26,716)  (22,312)  (22,064)
                                    
Income (loss) before income tax  152,522   (430,829)  (778,750)  1,033,702   (52,220)  (168,428)  (1,000,625)  152,522   (430,829)
Income tax benefit (expense)  (602,717)  30,491   203,471   (385,827)  (29,297)  (7,026)  (43,127)  (602,717)  30,491 
Loss for the year  (450,195)  (400,338)  (575,279)  647,875 
Income (loss) for the year  (81,517)  (175,454)  (1,043,752)  (450,195)  (400,338)
                                    
Comprehensive income (loss):                                    
Loss for the year  (450,195)  (400,338)  (575,279)  647,875 
Income (loss) for the year  (81,517)  (175,454)  (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  (757)  (65)  (226)  1,129   (91)  (3,244)  651   (757)  (65)
                                    
U.S. GAAP                
Gold sales  1,070,021   1,210,457   1,457,6461  2,201,815 
Net income (loss)  (252,159)  (31,914)  140,997   626,540 
                
Statement of financial position:                                    
IFRS                
Total assets  2,965,430   3,483,169   3,754,692   4,512,803   2,047,472   2,019,395   2,045,885   2,965,430   3,483,169 
Total financial obligations  ―   ―   ―   ― 
Issued capital  398,216   398,216   398,216   398,216 
Capital stock  378,505   398,216   398,216   398,216   398,216 
Total partners’ equity  2,228,825   2,679,777   3,080,050   3,655,555   583,723   659,115   885,724   2,228,825   2,679,777 
                                    
U.S. GAAP                                    
Total assets  4,209,818   4,569,497   4,511,964   4,541,535 
Net income (loss)  (69,068)  (131,243)  (1,198,139)  (260,202)  (36,293)
Total equity  3,418,989   3,671,148   3,711,461   3,570,690   1,661,800   1,683,047   1,865,445   3,394,934   3,655,284 
                                    
Operating data (unaudited)                                    
Gold produced (oz.)  917,691   969,944   1,017,259   1,345,992   514,564   534,692   654,934   917,691   969,944 
Gold proven and probable reserves (thousands of oz.)  17,639   17,436   18,345   18,500   7,420   3,830   4,362   5,057   17,429 

6

 

 

(1)Except operating data

(2)Royalties netted to sales

5

 

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, 20142017 and 20152018 and for the years ended December 31, 2013, 20142016, 2017 and 2015,2018, or the “CerroCerro Verde Financial Statements.” The selected financial information as of December 31, 2014, 2015 and 2016 and for the years ended December 31, 20112014 and 2012 has2015 have been derived from Cerro Verde’s Financial Statementsfinancial statements that are not included in this Annual Report. The report of Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. (a member firm of Ernst & YoungEY 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 2824 and Note 25 to the Cerro Verde Financial Statements. The operating data presented below, which are based on 100% 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. Operating and Financial Review and Prospects—Cerro Verde,” the Cerro Verde Financial Statements and the related notesNotes thereto and other financial information included in this Annual Report.

 

6
  As of and for the year ended December 31, 
  2018  2017  2016  2015  2014 
  (US$ in thousands)(1) 
Statement of comprehensive income:                    
Sales of goods  3,054,026   3,202,931   2,384,154   1,115,617   1,467,097 
Costs of sales of goods  (2,010,972)  (1,768,238)  (1,553,040)  (862,004)  (797,481)
Gross profit  1,043,054   1,434,693   831,114   253,613   669,616 
Operating expenses                    
Selling expenses  (137,008)  (141,669)  (131,391)  (56,215)  (54,210)
Other operating (expenses), income net  (68,683)  (258,826)  (24,107)  (26,600)  (3,629)
   (205,691)  (400,495)  (155,498)  (82,815)  (57,839)
Operating profit  837,363   1,034,198   675,616   170,798   611,777 
Other income (expenses)                    
Financial income  28,089   5,350   954   512   2,443 
Financial expenses  (426,733)  (216,912)  (80,438)  (16,010)  (369)
Exchange differences, net  6,161   13,288   7,857   (75,770)  2,284 
   (392,483)  (198,274)  (71,627)  (91,268)  4,358 
                     
Profit before income tax  444,880   835,924   603,989   79,530   616,135 
Income tax expense  (325,170)  (486,043)  (263,082)  (46,246)  (238,529)
Profit for the year  119,710   349,881   340,907   33,284   377,606 
                     
Basic and diluted earnings per share  0.342   1.000   0.974   0.095   1.078 
Dividends per share  0.571337   –   –   –   – 
                     
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  7,554,712   7,691,007   7,635,623   7,852,692   5,771,984 
Total financial obligations  1,022,810   1,268,488   1,996,004   2,425,164   452,849 
Capital Stock  990,659   990,659   990,659   990,659   990,659 
Total shareholder’s equity, net  5,108,872   5,189,162   4,839,281   4,498,374   4,465,090 
                     
U.S. GAAP                    
Profit for the year  53,280   301,431   345,461   4,097   341,617 
Total shareholder’s equity, net  4,896,850   5,043,570   4,742,139   4,396,678   4,392,581 
                     
Operating data (unaudited):                    
Production:                    
Copper (in thousands of recoverable pounds)  1,049,430   1,062,210   1,107,810   544,482   500,242 
Proven and probable reserves:                    
Copper Ore (in thousands of tons)  4,324,461   3,577,276   3,673,229   3,855,939   3,953,234 

 

  As of and for the year ended December 31, 
   2015   2014   2013(2)   2012(2)   2011(2) 
  (In thousands of US$)(1) 
Statement of comprehensive income:                    
                     
Sales of goods  1,115,617   1,467,097   1,811,488   2,127,023   2,520,050 
Costs of sales of goods  (862,004)  (797,481)  (795,064)  (765,789)  (824,700)
Gross profit  253,613   669,616   1,016,424   1,361,234   1,695,350 
Operating expenses                    
Selling expenses  (56,215)  (54,210)  (68,448)  (78,674)  (83,612)
Excess of workers’ profit sharing      -   -   -   (21,923)
Expense related to water plant      -   -   (19,606)  (13,670)
Other operating (expenses),  income net  (26,600)  (3,629)  147   (9,898)  (16,865)
   (82,815)  (57,839)  (68,301)  (108,178)  (136,070)
Operating profit  170,798   611,777   948,123   1,253,056   1,559,280 
Other income (expenses)                    
Finance income  512   2,443   2,178   1,886   1,078 
Finance costs  (16,010)  (369)  (1,843)  (6,951)  (165)
Net gain (loss) from exchange differences  (75,770)  2,284   (1,858)  3,149   1,924 
   (91,268)  4,358   (1,523)  (1,916)  2,837 
                     
Profit before income tax  79,530   616,135   946,600   1,251,140   1,562,117 
                     
Income tax expense  (46,246)  (238,529)  (333,338)  (454,556)  (483,718)
Profit for the year  33,284   377,606   613,262   796,584   1,078,399 
                     
Basic and diluted earnings per share  0.095   1.078   1.752   2.276   3.081 
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  7,852,692   5,771,984   4,828,201   4,042,771   3,196,597 
Total financial obligations  2,425,164   452,849   5,903   –   – 
Issued capital  990,659   990,659   990,659   990,659   990,659 
Total equity, net  4,498,374   4,465,090   4,087,484   3,449,708   2,677,638 
                     
Operating data (unaudited):                    
Production:                    
Copper (in thousands of recoverable pounds)  544,482   500,242   557,239   594,474   647,234 
Proven and probable reserves:                    
Copper Ore (in thousands of tons)  3,855,939   3,953,234   4,047,372   4,194,537   3,977,211 

(1)Except per share and operating data.
(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 2.2 to the Cerro Verde Financial Statements.

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 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”). The Federal Reserve Bank of New York does not report a noon buying rate for Soles.

 

 7 

 

 

Exchange Rates
(Soles per US$)(1)B.

Year High(2)  Low(2)  Average(3)  Period end(4) 
2013  2.820   2.541   2.702   2.796 
2014  2.990   2.761   2.840   2.989 
2015  3.413   2.983   3.187   3.408 

2015 High(5)  Low(5)  Average(6)  Period end(7) 
October  3.288   3.218   3.250   3.287 
November  3.385   3.287   3.339   3.376 
December  3.413   3.369   3.385   3.413 
                 
2016                
January  3.471   3.417   3.439   3.471 
February  3.538   3.478   3.508   3.527 
March  3.522   3.328   3.410   3.328 

(1)Expressed in nominal (not inflation adjusted) 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-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: Bloomberg

On April 28, 2016, the offered rate for Dollars as published by the SBS was S/.3.29 per US$1.00.

B.Capitalization and Indebtedness

 

Not applicable.

 

C.Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

8

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,” depends on Newmont Peru Limited, Peruvian Branch, or “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 expenseexpenses in enforcing our rights or pursuing remedies. We 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.”

8

 

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 and the revenues of Yanacocha, in which we have a material equity investment, are derived primarily from the sale of gold and 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; (ii) levels of supply and demand for a broad range of industrial products; (iii) the availability and price of competing commodities; (iv) international economic 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; (vii) interest rates; (viii) actions of commodity markets participants; and (ix) global or regional political 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 33 to the Consolidated Financial Statements. For information on gold and silver prices for each of the years in the five-year period ended December 31, 2015,2018, see “Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview –SalesOverview—Sales of Metal Concentrates.”

 

On December 31, 20152018 and March 31, 2016,29, 2019, the morning fixing price for gold on the London Bullion Market was US$1,060.251,271.10 per ounce and US$1,233.61,291.15 per ounce, respectively.  On December 31, 20152018 and March 31, 2016,29, 2019, the afternoon fixing spot price of silver on the London market, or “London Spot,” was US$13.8215.055 per ounce and US$15.3815.100 per ounce, respectively.  On December 31, 20152018 and March 31, 2016,29, 2019, the London Metal Exchange Settlement pricePrice for copper was US$4,702 5,964 per ton and US$4,855.5,6,485 per ton, respectively.

9

 

The world market prices of gold, silver and copper have historically fluctuated 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. If prices of gold, silver and/or copper should 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 by reducing or eliminating the profit that we currently expect from reserves. Such declines in price and/or reductions in operations could 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 (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.

 

9

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.” We 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, we 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 – Regulation, Permit and Overview—Environmental Matters.”

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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 is frequently is unsuccessful. We 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, we 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.

 

10

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.

11

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��“Item 4. Information on the Company – Buenaventura – Company—Buenaventura—B. Business Overview—Exploration,” “– Yanacocha – “—Yanacocha—B. Business Overview – Exploration,Overview—Environmental Matters,” “– 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, 2015.2018.

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.

12

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. In June 2015, El Brocal experienced a two-day work stoppage at its concentrator plant in Huaraucaca in connection with the negotiation of salary and the collective bargaining agreement. Subsequently, in May and June 2015, we experienced a strike at the Uchucchacua mine that lasted for twenty-nine days and was staged by workers’ and contractors’ unions claiming unsuitable working conditions.

 

As of December 31, 2015,2018, unions represented approximately 39% of the employees of our mining companies on a consolidated basis. Although we consider our relationship 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, YanacochaYanacocha’s and Cerro Verde’s operations are subject to political and social risks.

 

Our, YanacochaYanacocha’s 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. 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 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 Studyrestart 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.

 

There can be no assuranceDuring 2018, thePeruvian Central Governmentcontinued to support responsible mining as a vehicle for the growth and future development of Peru. However, we are unable to predict whether thePeruvian Central Governmentwill continue to take similar positions in the future. The regional government of Cajamarca and other political parties have actively opposed the Conga project in the past. We cannot predict future positions of either thePeruvian Central Governmentor regional governments towards foreign investment, mining concessions, land tenure or other regulation, or the impact that these positions or changes in law may have on Yanacocha or Conga. Such changes may include increased labor regulations, environmental and other regulatory requirements, and additional taxes and royalties. We may also be exposed to protests, community demands and road blockages. 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, the inability to develop Conga or operate at Yanacocha could have an adverse impact on our growth and production in the region.

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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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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 if 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.

14

We are exposed to behaviors incompatible with our, Yanacocha and Cerro Verde’s ethics and compliance standards.

Given the large number of contracts that we are a party to with our suppliers and partners in Yanacocha and Cerro Verde, the geographic distribution of our operations and the great variety of parties that we interact with in the course of our business, we are subject to the risk that our employees, contractors and other persons having relations with us may misappropriate our assets, manipulate our assets or information or engage in money laundering or the financing of terrorism, for such person’s personal or business advantage. Our systems for identifying and monitoring these risks may not be effective to fully mitigate them in all situations. Such acts may result in material financial losses or reputational harm to us. 

 

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 Company 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, 2015,2018, we owned a 43.65% partnership interest in Yanacocha and a 19.584%19.58% 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% 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 Securities 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.

 

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.

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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 – Social Development.Overview.”

15

 

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 (“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 before 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 or 2015. 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 – Exploration.”Overview—Environmental Matters.

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 Investors Service 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. OurCurrently, our unsecured rating from Fitch remains a “BBB.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.

 

The laws of Peru related to anti-bribery and anti-corruption are still developing and could be less stringent than those of other jurisdictions, and our risk management and internal controls may not be successful in preventing or detecting all violations of law or of company-wide policies.

Our business is subject to a significant number of laws, rules and regulations, including those relating to anti-bribery and anti-corruption. However, the Peruvian regulatory regime related to anti-bribery and anti-corruption legislation is still developing and could be less stringent than anti-bribery and anti-corruption legislation which has been implemented in other jurisdictions.

In addition, our existing compliance processes and internal control systems may not be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, contractors, agents, officers or any other persons who conduct business with or on behalf of us. We may in the future discover instances in which we have failed to comply with applicable laws and regulations or internal controls. If any of our employees, contractors, agents, officers or other persons with whom we conduct business engage in fraudulent, corrupt or other improper or unethical business practices or otherwise violate applicable laws, regulations or our own internal compliance systems, we could become subject to one or more enforcement actions by Peruvian or foreign authorities (including the U.S. Department of Justice) or otherwise be found to be in violation of such laws, which may result in penalties, fines and sanctions and in turn adversely affect our reputation, business, financial condition and results of operations.

In the past, Peru experienced significant levels of domestic terrorist activity. It is possible that a resurgence of terrorism in Peru may occur in the future, which would have a material adverse effect on the Peruvian economy and, ultimately, on us.

In the late 1980s and early 1990s, Peru experienced significant levels of terrorist activity targeted against, among others, the government and private sector. These activities were attributed mainly to two local terrorist groups,Sendero Luminoso and the Túpac Amaru Revolutionary Movement.

Both terrorist groups suffered significant defeats in the 1990s, including the arrest of their leaders, considerably limiting their activities after the 2000s. Although we believe that terrorist organizations no longer pose as significant a risk as they did in the 1980s and early 1990s, a small group of terrorists primarily engaged in drug trafficking, still operate in remote mountainous and jungle areas in central and southern Peru. Despite the suppression terrorist activity, terrorist activity and the illegal drug trade continue to be key challenges for Peruvian authorities. Any violence derived from the drug trade or a resumption of large-scale terrorist activities could hurt our operations and businesses. If a resurgence of terrorism in Peru occurs, it could affect the Peruvian economy and us.

 1516 

 

 

Another source of risk is related to political and social unrest in areas where mining, oil and gas operations take place. In recent years, Peru has experienced protests against mining projects in several regions around the country. On several occasions, local communities have opposed these operations and accused them of polluting the environment and hurting agricultural and other traditional economic activities. Social demands and conflicts may occur in the future and if they do occur they may affect our business, financial condition and the Peruvian economy.

The climatic phenomenon El Niño and other natural phenomena such as earthquakes and floods may have a material and adverse effect on us.

Peru has experienced natural phenomena in the past such as earthquakes, other geologic events and flooding. For example, on January 14, 2018, an earthquake measuring 7.1 on the Richter local magnitude scale hit the southern coast of Peru. A major earthquake could damage the infrastructure necessary for our operations. In addition, increased rainfall from the weather phenomenon known as “El Niño,” which typically occurs every two to seven years, can contribute to flooding and mudslides, which could damage roads and highways providing access to our facilities. Peru has also experienced droughts caused by low rainfall. If such events occur in the future, we may suffer damage to, or destruction of, properties and equipment, or losses not covered by our insurance policies, as well as temporary disruptions to our services, which may materially and adversely affect us. If a significant number of our employees were affected by a natural disaster, our ability to conduct business could be impaired.

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 newThe administration under President Ollanta Humala largely supported mining as a driver for the continued growth and future development of Peru. However, Peru will be holdingheld its elections for President duringin 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 wewas sworn in as president on July 28, 2016. However, Pedro Pablo Kuczynski resigned as President on March 21, 2018. His resignation was accepted by the Peruvian Congress on March 23, 2018 and on the same date he was replaced by the first Vice-President Mr. Martin Vizcarra, who previously served as the Peruvian ambassador in Canada. We cannot predict future government positions on mining concessions, land tenure, environmental regulation or taxation or assure you that future governments will 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.

 

The resignation of former President Kuczynski and the impact to the political landscape in Peru could materially and adversely affect us.

On March 22, 2018, former President Pedro Pablo Kuczynski resigned in response to allegations of corruption for vote-buying in connection with the impeachment proceedings against him. On March 23, Congress accepted his resignation and his first vice president, Martín Vizcarra, was sworn in as acting president. If President Vizcarra and the current second vice president both resign, the president of Congress would become acting president and Congress would call for new elections, which may include both new presidential and congressional elections. The political instability caused by these events could affect macroeconomic conditions in the country, including currency volatility, as well as have a material adverse effect on our business, prospects, financial condition, results of operations or cash flows. The foregoing political uncertainty and presidential decisions could further increase interest rate and currency volatility, as well as materially and adversely affect the Peruvian economy and, as a consequence, our business and financial condition.

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Inflation, reduced economic growth and fluctuations in the 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 and published byInstituto Nacional de Estadística e Informática has fallen from a high of 7,649.7% in 1990 to 4.40%2.2% in 2015. The Peruvian currency has been devalued numerous times during the last 20 years.2018. 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 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, 20152018 were US$61.5460.29 billion as compared to US$62.3563.62 billion at December 31, 2014.Although2017. 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 – A. Selected Financial Data – Exchange Rates.”

 

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.

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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 (“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. Before 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.”

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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 certain members of the Benavides Family willmay limit our stockholders’ ability to influence corporate matters.

 

As of March 31, 2016, the2019, three of our directors (and/or their spouses), Roque Benavides, family, referring to certainRaul Benavides and Jose Miguel Morales, were 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”), and held 27.22%an aggregate of 16.49% of Buenaventura’s outstanding share capital (including outstanding Common Shares and Investment Shares). In addition, certain other members of Buenaventura’s outstanding share capital.the Benavides Family are believed to hold a significant number of our Common Shares in aggregate.  While the Benavides Family is not, to our knowledge, acting together as a group to vote their Common Shares, there can be no assurance that the Benavides Family will not, in the future, form a group for the purpose of voting their Common Shares or exerting influence over the management and policies of Buenaventura.  Because of the significant aggregate ownership interest held by individual members of the Benavides Family, holds in Common Shares, the Benavides Family hascould have the power to elect a significant number of the outstanding directors and hasexercise significant influence over the outcome of substantially all matters to be decided by a vote of shareholders.

 

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In addition, under the terms of the Amendedamended and Restated Deposit Agreementrestated deposit agreement dated May 3, 2002 as(as further amended and restated as of November 12, 2003, the “Amended and Restated Deposit Agreement”), among us, The Bank of New York Mellon (formerly The Bank of New York), as depositary, or the “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 likelycould 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.

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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 Peruanas, or “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 Common Shares to be issued in such increase, by holders of Common Shares holding at least 40% 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 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.

 

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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 havehad a 43.65% partnership interest.interest as of December 31, 2018.

 

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 BreapampaTambomayo mines and have controlling interests in three other mining companies whichthat operate the Colquijirca-Marcapunta, Tantahuatay and La Zanja mines. We also own an electric power transmission company, a hydroelectric plant and a processing plant and an engineering services consulting company andas well as 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, 2015,2018, our consolidated net salesrevenues were US$919.4 1,167.4 million and our consolidated net loss was US$375.5 11.7 million.

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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 Consolidated 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) that had been 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, through sales to third parties.2015 and 2014. During 2017, we sold the Breapampa and Recuperada mining units. See NotesNote 1(e) and 2.4(x)Note 2.4(w) to the Consolidated Financial Statements.

 

The table below summarizes the total production and our equity share of production for the Julcani, Orcopampa, Uchucchacua, Julcani, Mallay, Breapampa, Colquijirca,Tambomayo, El Brocal, La Zanja, Tantahuatay, Yanacocha and Cerro Verde mines as well as certain small assets for divestment, for the year ended December 31, 2015:2018:

 

 Total Production  Buenaventura’s Equity Share of Production  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)		  

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%  562,795   204,629   -   -   -   562,795   204,629   -   -   -   100%  312,250   115,887   -   -   -   312,250   115,887   -   -   - 
Uchucchacua  100%  13,919,922   -   8,433   5,692   -   13,919,922   -   8,433   5,692   -   100%  15,420,102   -   19,122   21,840   -   15,420,102   -   19,122   21,840   - 
Julcani  100%  3,266,453   607   2,592   -   339   3,266,453   607   2,592   -   339   100%  2,482,907   71   1,048   -   169   2,482,907   71   1,048   -   169 
Mallay  100%  1,285,361   -   7,193   9,173   -   1,285,361   -   7,193   9,173       100%  514,081   319   1,768   4,151   -   514,081   319   1,768   4,151   - 
Breapampa  100%  180,277   13,757   -   -   -   180,277   13,757   -   -   - 
Tambomayo  100%  3,929,808   129,172   4,220   8,685   -   3,929,808   129,172   4,220   8,685   - 
El Brocal  54.07%  3,669,500   11,263   18,854   53,319   32,061   1,984,098   6,090   10,194   28,830   17,335   61.43%  3,901,869   21,429   20,582   45,593   46,231   2,396,918   13,164   12,644   28,008   28,400 
La Zanja  53.06%  331,080   141,071   -   -   -   175,671   74,852   -   -   -   53.06%  217,174   71,630   -   -   -   115,233   38,007   -   -   - 
Tantahuatay  40.10%  879,832   144,782   -   -   -   352,769   58,050   -   -   -   40.10%  791,181   173,192   -   -   -   317,264   69,450   -   -   - 
Yanacocha  43.65%  447,375   917,690   -   -   -   195,279   400,572   -   -   -   43.65%  1,076,492   514,564   -   -   -   469,889   224,607   -   -   - 
Cerro Verde  19.58%  1,989,059   -   -   -   246,973   389,458   -   -   -   48,357   19.58%  4,555,192   -   -   -   476,013   891,907   -   -   -   93,203 
Small assets for divestment  100%  13,005   17   63   56   -   13,005   17   63   56   - 
Total Production  -   26,544,658   1,433,816   37,135   68,240   279,373   22,325,087   758,575   28,476   43,750   66,032   100%  33,201,056  1,026,264   46,740   80,270   522,413   26,850,357   590,677   38,801   62,685   121,772 

 

Compañía de Minas Buenaventura S.A.A., asociedad anónima abierta (open stock company)(publicly held corporation) under the laws of Peru, was originally established in 1953 as asociedad anónima (stock company)(corporation) 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.

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.

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In 2014, we acquired 51% of Canteras del Hallazgo S.A.C. (“CDH”), owner of the Chucapaca Project, from Minera Gold Fields Perú S.A. (“MGFPSA”). The Chucapaca Project involved a group of mining rights originally owned by 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$2 million. 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, 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 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. Additionally, the Chucapaca Project has been renamed the San Gabriel Project. For more information about the San Gabriel Project, see “Item 4. B. Business Overview—Exploration Projects in Non-Operating Areas.”

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, Corporación 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 2015,2018, we spent US$30.636.3 million on “exploration in non-operating areas” and US$91.590.3 million on “exploration in units in operations.operating units.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Tambomayo, Alejandra,Yumpag, Marcapunta and Pisacalla projects.Emperatriz. Our “exploration in units in operations”operating units” investments were mainly focused in the Orcopampa, Uchucchacua, and Julcani mining units.

 

In 2016,2019, we intend to invest approximately US$7050 to US$8070 million in exploration in operating units (mainly in operationsTambomayo, Orcopampa and Uchucchacua) and US$10 to US$20 30 million mainly in the following explorations in non-operating areas: Tambomayo, Yumpag, Palla Pallaareas at the Trapiche and Daniela,San Gabriel projects, 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 – 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.

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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 –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, 
  2013  2014  2015 
  (US$ in thousands) 
Julcani  8,927   683   7,056 
Uchucchacua  16,038   12,668   22,140 
Orcopampa  11,023   8,963   3,340 
Ishihuinca  31   -   - 
Colquijirca and Marcapunta  216,477   105,477   55,073 
Conenhua  9,700   670   4,402 
Mallay  16,643   963   3,627 
Breapampa  16,233   2,394   3,398 
La Zanja  84,858   29,113   57,950 
Huanza  37,973   16,373   725 
Río Seco  32,863   10,064   2,487 
Molle Verde  24,166   15,641   4,049 
Total  474,931   203,009   164,247 

  Year Ended December 31, 
  2013  2014  2015 
  (US$ in thousands) 
Machinery and equipment  15,742   11,741   3,469 
Infrastructure  352,115   122,563   44,973 
Mining  91,407   61,062   27,431 
Milling  6,338   4,014   4,199 
Transportation  1,749   368   287 
Communications  704   85   77 
Environmental  339   1,251   64,528 
Other  6,538   1,925   19,283 
Total  474,932   203,009   164,247 
  Year Ended December 31, 
  2016  2017  2018 
  (US$ in thousands) 
Colquijirca and Marcapunta  51,289   61,060   29,572 
Tambomayo  230,233   131,119   18,858 
Uchucchacua  28,899   18,127   18,429 
La Zanja  14,995   17,326   13,159 
Molle Verde  1,861   1,656   10,722 
San Gabriel  23,476   12,221   6,419 
Orcopampa  3,451   12,674   6,225 
Julcani  759   1,951   2,984 
Río Seco  3,719   459   1,816 
Mallay  2,729   1,796   1,810 
Conenhua  3,779   177   111 
Huanza  457   675   7 
Others  1,197   266   1,158 
Total  366,834   259,507   111,270 

 

22

  Year Ended December 31, 
  2016  2017  2018 
  (US$ in thousands) 
Fixed assets  55,423   6,280   836 
Work in progress  210,915   165,610   67,096 
Development costs  100,496   87,617   43,338 
Total  366,834   259,507   111,270 

 

We mainly financed our capital expenditures in 2014 and 2015 with internally-generated funds. We partially funded the El Brocal Expansion and the construction of the Huanza hydroelectric power plant with leasing facilities, with aggregate amounts of US$344.4 million outstanding thereunder as of December 31, 2015 (including US$156.3 and US$188.1 million, respectively).facilities. See “Item 5. Operating and Financial Review and Prospects – Buenaventura – Prospects—Buenaventura—B. Liquidity and Capital Resources – Resources—Long-Term Debt.”

 

We have budgeted approximately US$25080 to US$300120 million for capital expenditures for 2016.2019. 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.

 

21

B.Business Overview

 

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, Tambomayo, Uchucchacua, Julcani, Mallay, Breapampa, La Zanja and Colquijirca - MarcapuntaColquijirca-Marcapunta mines by type of product for the last three years, calculated in each case on the basis of 100% 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)(2)  Year Ended December 31,(1)(2) 
 2013  2014  2015  2016  2017  2018 
Gold (oz.)  462,856   438,426   371,344   357,570   405,646   338,508 
Silver (oz.)  19,193,075   20,119,162   23,228,392   23,035,110   26,624,431   26,778,191 
Zinc (t)  46,178   26,706   68,240   75,075   74,560   80,270 
Lead (t)  29,757   22,185   37,135   33,850   44,976   46,740 
Copper (t)  27,845   43,557   32,400   49,460   45,289   46,400 

 

 

(1)The amounts in this table reflect the total production of all of our consolidated subsidiaries, including El Brocal and La Zanja.

(2)ExcludesAmounts exclude production at four non-operatingfrom 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 2015,2018, we spent US$30.636.3 million inon “exploration in non-operating areas” mainly focused in the Tambomayo, Alejandra,Yumpag, Marcapunta and PisacallaEmperatriz exploration projects, and US$91.590.3 million on “exploration in units in operations”operating units” mainly focused in the Orcopampa, Uchucchacua and Julcani mining units. During 2016,2019, we expect to invest approximately US$8050 to US$10070 million in these exploration activities.

 

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. Because of the nature of mining exploration and 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.

 

23

We have active joint venture exploration agreements with other mining companies, including Newmont Peru S.R.L., Southern Copper Corporation, Corporación 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.

 

The following table lists our principal exploration projects in non-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 20142017 and 2015.2018.

 

Exploration
Projects(1)(2)		 Buenaventura’s
Effective
Participation		  Principal
Partners		  Property
Hectares		  Observed
Mineralization		 Total Exploration
Expenditures During
2014		  Total Exploration
Expenditures During
2015		 
at March 31, 2016 Total
(Buenaventura
and Partners)		  Buenaventura  Total
(Buenaventura
and Partners)		  Buenaventura 
             (US$ in millions)  (US$ in millions) 
Buenaventura’s Projects:                              
Tambomayo  100%      3,900  Gold, silver, lead and zinc  11.51   11.51   11.19   11.19 
San Gabriel  100%      4,600  Gold, Silver and Copper  0.00   0.00   1.33   1.33 
Pisacalla  100%      2,100  Gold  0.51   0.51   0.74   0.74 
Trapiche  100%      4,600  Copper and Molybdenum  1.14   1.14   0.64   0.64 
Palla Palla  100%      3,282  Gold and Silver  0.42   0.42   0.42   0.42 
Livitaca  100%      10,600  Gold and Cooper  0.64   0.64   0.35   0.35 
San Gregorio  54.07%      4,382  Zinc  0.00   0.00   0.03   0.02 

Exploration

Projects(1)(2)

 

Buenaventura’s

Effective

Participation

  Property
Hectares		  

Observed

Mineralization

 Total Exploration
Expenditures During		 
 at March 31, 2019 2017  2018 
          (US$ in millions) 
Yumpag  100.00%  1,230  Silver  2.67   18.05 
Asuncion  100.00%  1,000  Silver, Gold  0.48   - 
Gaby  100.00%  800  Silver, Gold  0.88   - 
Mayra  100.00%  5,000  Silver, Gold  0.15   - 
Trapiche  100.00%  40,898  Copper, Molybdenum  0.54   0.31 
San Gabriel  100.00%  57,900  Gold, Silver and Copper  0.59   0.93 
San Gregorio  61.43%  4,382  Zinc  -   - 
Daniela  100.00%  18,500  Copper and Gold  0.96   0.13 
Ccelloccasa  100.00%  12,657  Gold and Silver  0.18   0.33 
Other minor            11.85   16.56 
Total exploration in non-operating areas            18.30   36.31 

 

 

(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.

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The following table lists the mines in which we directed our principal explorations efforts, mineralization of each mine and the exploration expenditures for 20142017 and 2015.2018.

 

Operating
Units		 Observed
Mineralization		 Total Exploration
Expenditures During
2014		  Total Exploration
Expenditures During
2015		 
    Total  Buenaventura  Total  Buenaventura 
    (US$in millions)  (US$in millions) 
Buenaventura’s Units:                  
Orcopampa Silver and Gold  51.82   51.82   41.71   41.71 
Uchucchacua Silver, lead and zinc  26.63   26.63   27.78   27.78 
Julcani Silver  10.98   10.98   12.70   12.70 
Mallay Zinc, lead and silver  7.81   7.81   7.54   7.54 
Breapampa Gold  0.49   0.49   1.82   1.82 
La Zanja Gold  0.12   0.12   0.04   0.04 
Marcapunta Copper & Gold  4.2   2.27   0.00   0.00 

Operating

Units

 

Observed

Mineralization

 

Total Exploration

Expenditures During

2017

  

Total Exploration

Expenditures During

2018

 
    Total  Buenaventura  Total  Buenaventura 
    (US$ in millions)  (US$ in millions) 
Buenaventura’s Units:                  
Orcopampa Silver and Gold  38.82   38.82   29.56   29.56 
Uchucchacua Silver, Lead and Zinc  27.07   27.07   20.90   20.90 
Tambomayo Gold  9.54   9.54   20.55   20.55 
Colquijirca Copper, Zinc, Lead and Silver  -   -   10.0   10.0 
Julcani Silver  13.01   13.01   8.65   8.65 
Mallay Zinc, Lead and Silver  5.62   5.62   0.61   0.61 
La Zanja Gold  0.87   0.87   0.07   0.07 
Total    94.93   94.93   90.34   90.34 

 

 2324 

 

 

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, 2015.2018.

 

 

24

 

Exploration Projects in Non-Operating Areas

TambomayoYumpag. The Tambomayo projectYumpag Project is located 50four kilometers southeastnortheast of the Orcopampa mine and includes a total of 1,600 hectares of mining properties.Uchucchacua mine. This project is a low sulfidationan epithermal silver-manganese deposit withhosted by cretaceous limestone rocks. Mineralization is structurally influenced by the Cachipampa fault, which also influences significant gold andareas of silver mineralization in veins. Asat the Uchucchacua mine.

During 2018, 1,256 meters of December 31, 2015, we had estimated resources of 1.08 million tons, with 9.4 grams per ton of gold, 9.3 ounces per ton of silver, 2.0% lead and 3.0% zinc. In addition, we had estimated a non-reserve mineralization (“NRM”) of 0.77 million tons, with 9.6 grams per ton of gold, 4.1 ounces per ton of silver, 1.8% lead and 3.3 percent zinc. The project is currently in its development phase, and the construction of the mine is well advanced with seven levelsexploration ramps were completed and with encouraging drill intercepts at lower levels. Construction permits were granted in June 2015an additional 300 meters are planned for a 1,500 tons-per-day plant.2019. The exploration ramp provided access to conduct an underground infill drilling program to the Camila vein. In 2016,2018, we will focusexecuted 10,927 meters of diamond drilling and plan to execute an additional 21,970 meters during 2019. We plan to update our exploration efforts inanalysis of available mineral resources during the Mayra and Gaby prospects. Wesecond half of 2019. In 2019, we plan to invest US$1.397.76 million to conduct geological mappingcontinue exploration of the Yumpag project.

25

Trapiche. The Trapiche project is operated by Molle Verde S.A.C, which is a wholly-owned subsidiary of Buenaventura. The project is located in the Apurimac region and sampling. In addition,belongs to the Andahuaylas-Yauri belt, which contains several iron, copper and gold deposits.  During the last quarter of 2018 we expectreached an agreement with the local community that will allow us to obtainre-start the necessary fieldwork to reach feasibility status in 2020. Our plans for 2019 will be focused on on-site metallurgic column test confirmation, as well as the completion of the environmental permitsbase line and surface rightsthe right of way for a drilling campaign at the Asuncion vein.access road and the power line. 

 

San Gabriel .. The San Gabriel project is wholly-owned by Buenaventura and encompasses 57,282 hectares of mining concessions. The project is located in theMoquegua region of Moquegua and is wholly-owned by Buenaventura.in southern Peru. This deposit is an intermediate sulfidation deposit hosted by diatreme breccia body at the sediment-intrusive contact. As of December 31, 2015 we estimated a NRM of 12.25 million tons, with an average grade of 6.5 grams per ton of gold. We began using a mine ramp in June 2015 in order to explore opportunities for additional diamond drilling inDuring 2018, the Canahuire ore bodygeomechanics model and to obtain bulk samples for metallurgical tests.the mining method were updated, reducing the overall project risk. In addition, we completed 3,418 meters of diamond drilling in the Pachacutec prospect without positive results. In 2016,2019, we plan to invest US$2.69 million to conduct diamond drilling and to carry out geological mapping and sampling to define new exploration targets.finish the pre-feasibility study.

  

Trapiche.Ccelloccasa. The TrapicheCcelloccasa project consists of 30,591 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. As of December 31, 2015, we estimated a NRM of 925 million tons for the Trapiche project, with an average grade of 0.39% of copper, 0.01% of molybdenum and 3.2 grams per ton of silver. During 2016 we expect to have a positive scoping study for a leach only alternative. We estimate there are 251 million tons of leachable material with an average grade of 0.54% copper in the project.

Pisaccalla. The Pisaccalla project consists of 11,331 hectares of mining concessionsepithermal vein deposit located in the Ayacucho region in southern Peru and isconsists of 8,717 hectares of mining concessions wholly-owned by Buenaventura. In 2015,2018, we explored 822 meters of the Accocuruz project through diamond drilling without positive results. We do not plan to conduct any further work in this project and all exploratory surface work has been remediated. On the other hand, in the geological mapping and sampling for the Ccelloccasa project, we identified 5.33 kilometers of outcropping veins with encouraging results. During 2016, we plan to carry outconducted a geophysical survey and started the process to obtain the necessary environmental and social permits in order to conduct a drilling campaign by the end of 2019.

San Gregorio.San Gregorio is located in 2017.the Cerro Pasco region. During 2018, we continued our efforts to achieve an understanding with the local community with the aim of re-activating the drilling campaign in 2019.

 

Livitaca.Tambomayo The Livitaca project is located in the Cusco region in southern Peru, 8 kilometers north:Mayra and Gaby. Despite having obtained approval of the Constancia copper project owned by Hudbay. The project consists of 9,095 hectares of mining concessions owned by Corporación Aceros Arequipa S.A., which has leased those hectaresnecessary environmental instruments, we were not able 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, we determined thatconduct the project does not have adequate potential. We do not plan to carry out any additional work at this project.

Palla Palla. Palla Palla is located in the Ayacucho region. The property consists in 6,894 hectares of mining concessions owned by Cia. de Minas Caudalosa S.A., which has leased those hectares to Minera Azola S.A.C., our wholly-owned subsidiary. We are working to obtain the environmental permit needed to execute a diamond drilling campaign of 4,000 meters atin the Cerro Runtus projectMayra and Gaby projects during the second half of 2016.

San Gregorio. The drilling program at this project continues to be suspended2018 due to the opposition of the Vicco community.social conflicts. We have resumed discussionsbeen working with the community and, duelocal governments to the active participation of the Conflict Resolution Office, an entity operating under the auspices of thePresidencia del Consejo de Ministros(“PCM”),reinitiate exploration in such discussions,these areas as soon as possible. In 2019, we expectplan to resume the drilling program at this project.invest US$3.37 million in these explorations.

 

 2526 

 

Exploration in Operating Areas

 

Uchucchacua. We are currently focusing ourDuring 2018, the 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 2015, we invested US$3.63 million and completed 8,398 meters of diamond drilling and conducted metallurgical tests with encouraging results. As of December 31, 2015 we estimated NRM of 0.63 million tons, with 26.3 ounces per ton of silver, 0.5% lead, 1.3% zinc and 19.3% manganese. In 2016, we expect to invest US$2.30 million in order to conduct 8,000 meters of diamond drilling at this project.

Orcopampa. During 2015, our main exploration focus was in the Pucay project, located 3.5 kilometers southwest of the Chipmo mine. This project consists of 2,400 hectares of mining concessions owned by SCCO, which leased those hectares to Apu Coropuna S.R.L., our newly formed wholly-owned subsidiary. In Pucay, weactivities were focused on the Anquicha project, which shows encouraging results of epithermal gold mineralization in sandstone-hosted oxidized fracturesSocorro and breccias. Preliminary column leach tests show gold recoveries of around 89%.Cachipampa mines. The Huantajalla, Carmen and Casualidad mines were explored with relative success, developing known narrow structures with high silver contents. In 2016,2019, we will continue geological mappingexploring the northeastern and sampling atdeeper extensions of the AnquichaSocorro and Huiscatori projects.Cachipampa mines.

Orcopampa.

The Alejandra - La Zanja.In April 2015, we ceased underground explorations in2018, geological exploration activities were focused on three areas: the Alejandra vein. AsPucará Sur vein area, where high-grade gold reserves were found; the Nazareno, Prosperidad and Lucy Piso vein areas, which were important for providing mineral reserves with high gold and silver grades; and the Prometida area, where the new Alondra vein was explored, which led to discovery of December 31, 2015, we estimated a NRM of 0.22 million tons, with 10.4about 10.0 grams per ton of gold with important silver values and 170 grams per tonvein widths of silver. Additionally, we invested US$6.6 millionup to conduct geological mapping, sampling and a geophysical survey in2.0 meters. In 2019, the northeast extensionexploration of the Alejandra trend, whichPucara Sur vein system will be focused on diamond drilling and mining works.

Tambomayo.During 2018, exploration focused on defining the east and west extensions of the Mirtha vein and the Paola vein system at level 4340. These explorations with underground works and diamond drilling, have contributed to the discovery of ore resources with important silver and gold grades, and have also allowed us to identifylocate two new exploration objectives with many possibilities of success, including the Catalina-Gisela area to the west of the Mirtha vein (underground) and the surface area Los Diques. In 2019, we plan to carry out a series of echelon epithermal veins with encouraging values in gold and silver. We expect to invest US$1.5 million in order to conduct 5,000 meters of diamond drilling in the second quarter of 2016.campaign focused on deepening known veins to levels below 4340.

 

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.

 

27

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-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 (“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 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, 2019 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. 
2014  1,266.40   1,263.53   19.08   18.65 
2015  1,218.45   1,151.44   16.71   15.06 
2016
(through March 31, 2016)		  1,182.56   1,107.87   14.85   13.34 
  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. 
2017  1,257.13   1,267.56   15.56   16.54 
2018  1,268.49   1,267.99   15.71   5.09 
2019 (through March 31, 2019)  1,303.79   1,300.95   15.57   15.45 

 

(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.

26

 

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 20162019 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 2014  2015  2017  2018 
 (US$ in thousands)  (US$ in thousands) 
Gold  554,805   438,585   511,434   411,926 
Silver  356,021   316,692   409,775   369,167 
Lead  39,658   55,445   94,955   89,059 
Zinc  47,653   102,110   188,023   174,048 
Copper  271,282   131,356   268,527   274,761 

 

(1)Does not include refinery charges and penalties incurred in 20152018 of US$196.2 195.9 million and in 20142017 of US$184.51253.9 million.

 

Approximately 60.12%51.7% and 62.83%52.18% of our concentrate and gold bullion sales in 20142017 and 20152018 (without considering adjustments to prior periods, embedded derivativesfair value 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 20142017 to 2015.2018.

  Percent of Concentrates and Gold Bullion Sales 
  2014  2015 
Export Sales:        
Asahi Refining Canada Ltd (former Johnson Matthey)  49.31   50.58 
N.V. Umicore SA  3.89   3.75 
Werco Trade AG  3.34   2.07 
Mercuria Energy Trading SA  0.00   1.43 
MRI Trading AG  0.00   0.99 
Lois Dreyfus Commodities Metal Suisse SA  0.00   2.06 
MCC non Ferrous Trading Inc.  2.61   0.00 
Others  0.97   1.98 
Total Export Sales  60.12%  62.86%
         
Domestic Sales:        
Andina Trade S.A.C.  0.93   0.36 
Glencore Peru S.A.C.  15.27   23.43 
Consorcio Minero SA  4.11   0.00 
Trafigura Peru S.A.C.  4.59   6.73 
Sudamericana Trading SRL  2.65   2.85 
Lois Dreyfus Commodities Peru S.R.L.  10.21   2.45 
Optamine S.A.C.  1.26   0.17 
Others  0.86   1.16 
Total Domestic Sales  39.88%  37.14%
Total Sales  100%  100%

 

 2728 

 

  Percent of Concentrates and Gold Bullion Sales 
  2017  2018 
Export Sales:        
Asahi Refining Canada Ltd and Asahi Refining USA Inc.  38.04   32.46 
IXM S.A. (formerly Louis Dreyfus Commodities Metal Suisse SA)  2.70   1.66 
Mercuria Energy Trading SA  2.37   3.25 
Metalor Technologies  1.66   2.32 
N.V. Umicore SA  1.41   0.88 
MRI Trading AG  1.66   1.09 
Others  3.86   10.52 
Total Export Sales  51.70%  52.18%
         
Domestic Sales:        
Andina Trade S.A.C.  0.98   1.10 
Glencore Peru S.A.C.  20.26   18.34 
Trafigura Peru  11.95   12.88 
Sudamericana Trading SRL  2.44   3.56 
Lois Dreyfus Commodities Peru S.R.L  7.66   9.74 
Others  5.01   2.2 
Total Domestic Sales  48.30%  47.82%
Total Sales  100%  100%

 

The following table shows our committed sales volumes of silver-lead, gold-silver and zinc concentrates from 20162019 to 2018:2021:

 

 Wet tons  Wet tons  Wet tons  Wet tons  Wet tons  Wet tons 
Concentrate 2016  2017  2018  2019  2020  2021 
Uchucchacua’s Silver-Lead  68,000   55,800   28,000   60,000   38,000   - 
Uchucchacua’s Zinc  23,800   23,900   0   45,500   38,000   - 
Julcani’s Silver-Lead(1)  7,600   3,200   4,000   2,600   -   - 
Mallay’s Silver-Lead(2)  20,000   14,700   0   -   -   - 
Mallay’s Zinc(2)  20,000   17,700   5,000   -   -   - 
Tambomayo’s Silver-Lead  9,170   4,000   - 
Tambomayo’s Zinc  15,850   15,000   - 
El Brocal’s Copper  219,000   395,000   285,000 
El Brocal’s Lead-Silver(1)  52,000   17,000   - 
El Brocal’s Zinc  157,000   10,000   - 

 

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

(1)Represents committed sales volumes from 2019 to 2020.
(2)Represents committed sales volumes for 2019.

 

We also sell refined gold, which is derived from our operations at Orcopampa, Breapampa, CoimoloacheTambomayo, Coimolache 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 2015,2018, 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.

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.

 

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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 2019, El Brocal had no outstanding hedging commitments in 2015.amounting to 2,000 metric tons of copper at an average fixed price of US$ 7,348.5 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 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 andwhere the mining concession is located or withInstituto Geológico Minero y Metalúrgico the Geological, Mining and Metallurgical Institute of Peru (“INGEMMET”)(INGEMMET).

 

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 claimedgranted 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 in any mining concession could result in the loss of one or more of thesuch mining rights.concession. 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, 2009 for mining concessions granted before October 10, 2008) could result in cancellation of the mining concessions.

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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.

 

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 before 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 as plantfor plants or facility sites. In the case ofRegarding 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. We have been actively seeking to acquire land surface deposits that can be exploited in the future and areas suitable as plant or facility sites.

 

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The possibility of developing mining activities in an urban area or urban expansion area is linked to the compatibility of such areas and mining activities. 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. To 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”) 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 (“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 toRegarding employee health and safety and employer liability in mining activities, Law No. 28964 has been amended and replaced by Law No. 29783. Such employee health and safety and employer liability and related matters are now audited by the Ministry of Labor and EmploymentMinisterio de Trabajo y Promoción del Empleo(“MINTRA”). 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 No. 003-2013—TR, MINTRA transferred its security supervisory, audit and sanctioning functions to theNational Superintendence of Labour Inspection (“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.

 

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On July 28, 2016, Supreme Decree No. 024-2016-EM relating to Occupational Health and Safety Regulations for Mining was published. These Regulations aim to prevent the occurrence of incidents, work-related accidents and occupational diseases, aiming to promote a culture of prevention of occupational hazards in mining activities. MEM through the General Directorate of Mining, is the competent authority on Occupational Health and Safety policy and regulation. In addition, SUNAFIL is the competent authority for the supervision and enforcement of compliance with legal and technical standards related to Occupational Safety and Health in Mining; while OSINERGMIN is the competent authority to supervise compliance of the legal and technical provisions related to the safety of infrastructure in mining.

 

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.

 

Each mining company that began operations before May 1993 was required to file a Preliminary Environmental Evaluation,Assessment (“EVAP”), for each of its mining units to disclose any pollution problems innegative environmental impacts of its operations and, 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 the pollution problemsnegative 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 before May 1993 were required to comply with LMP 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 LMP.

 

In May 2008, the Ministry of EnvironmentMINAM was establishedcreated by legislative decree. The principalLegislative Decree No.1013. MINAM’s main functions of the Ministry of Environment 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, the Ministry of EnvironmentMINAM enacted new water quality standards and new LMP for liquid effluents.  In 2009, all 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,enacted, 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 plansEnvironmental 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. In 2017, Supreme Decree N° 004-2017-MINAM modified the 2015 Decree and modified the water quality standards, including new water categories and new legal provisions.

 

OnRegarding soil quality, on March 26, 2013, Supreme Decree No. 002-2014-MINAM002-2013-MINAM became effective. It approvesapproved 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.impact. Subsequently, on March 25, 2014, supplementary provisions for the application of the Standards were approved through Supreme Decree No. 002-2014-MINAM. Operations of projects existingProjects operating at thatthe 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.

 

In 2017, new ECA for soils were approved by Supreme Decree No. 011-2017-MINAM, derogating the ECA approved by Supreme Decree No. 002-2013-MINAM. The new ECA are applicable to new environmental assessments that are required to carry out future mining activity in accordance with the mining regulations. With respect to the environmental assessments that were approved prior to the approval of the new ECA, Supreme Decree No. 002-2013-MINAM will remain applicable and the new ECA will only be enforced when the approved environmental assessments need to be modified or updated. In 2017 Supreme Decree No. 012-2017-MINAM replaced Supreme Decree No. 002-2014-MINAM, approving new supplementary provisions for application of the new ECA. Buenaventura and its associated companies have taken into consideration all new environmental regulations when executing its mining activities.

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 LMP from the initiation of their operations. In 2009, MINEM approved the EISd for the La Zanja, Mallay, Tantahuatay and Esperanza projects. In 2010, MINEM approved the EISd for the Angélica Rublo Chico project. In 2011, the MEM approved the EISd for our Orcopampa and Breampampa projects. MINEM approved the modified EISd for the Mallay mine and the second modified EISd for the Shila cyanidation circuit in 2012. In 2014, MINEM approved the modified EISsd of Uchucchacua. In 2015, the EISd of Tambomayo was approved.

We and our subsidiaries are subject to ongoing administrative and judicial proceedings relating to environmental matters for which we have reserved contingencies of up to US$1.2 million This amount does not include loss contingencies reserved for associates accounted for under the equity method (Yanacocha, Cerro Verde and Coimolache).

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In 2012, Peru enacted Supreme Decree No. 020-2012-EM, which added Chapter XVII to the Mining Proceedings Regulations approved by Supreme Decree No. 018-92-EM. The new provisions require the approval of the General Mining Directorate of the MEM or of the relevant Regional Government before proceeding to start and re-start exploration, development, preparation and exploitation.

Regulations governing mining explorations. In May 2008, the Peruvian government enacted DS 020-2008-EM, which governs mining exploration activities and related matters. Under DS 020-2008-EM, exploration activities fall into 2 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) (“EID”) is required. For Category II exploration activities, a Semi-detailed EISEnvironmental Assessment (Estudio de Impacto Ambiental) (“EISsd”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 EIAsd for the La Zanja, Mallay, Tantahuatay and Esperanza projects and in 2010, MEM approved the EIAsd for the Angélica Rublo Chico project. In 2011, MEM approved the EIAsd for the Orcopampa and Breampampa projects. MEM approved the modified EIAsd for the Mallay mine and the second modified EIAsd for the Shila cyanidation circuit in 2012. In 2014, MEM approved the modified EIAsd of Uchucchacua and in 2015, the EIAsd of Tambomayo was approved.

In 2012, Peru enacted Supreme Decree No. 020-2012-EM, later modified by Supreme Decree N° 037-2017-EM, which added Chapter XVII to the Mining Proceedings Regulations approved by Supreme Decree No. 018-92-EM. The new provisions require the approval of the General Mining Directorate of MEM or of the relevant regional government before proceeding to start and re-start exploration, development, preparation and exploitation. The authorizations to start and re-start mining activities may need to be pre-approved by MEM if the mining activities affect indigenous or native people.

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In addition, in December 2017, a new regulation for Solid Waste Management was approved by Supreme Decree No. 014-2017-MINAM which brought into force the new Law for Integral Management of Solid Waste, approved by Legislative Decree No. 1278 in December 2016 bringing new regulations for all the activities in Perú, including mining activities. This new Law and regulations prioritize the material and energy recovery of solid waste through different methods, including recycling, reuse and co-generation.

Regulations governing mining explorations. In May 2008, the Peruvian government enacted Supreme Decree 020-2008-EM, which governs mining exploration activities and related matters. At the end of 2017, this Supreme Decree was derogated by Supreme Decree 042-2017-EM that approved the Environmental Protection Regulation for Exploration Activities in Mining; nevertheless, this new regulation would not be in force until the format and requirements for the new Environmental Technical Report (FTA) were approved. In March 24, 2018, the regulation for the FTA was approved by Ministerial Resolution N° 108-2018-EM/DM, along with other dispositions for environmental assessment. Under Supreme Decree 042-2017-EM, exploration activities fall into two categories: Category I and Category II. Category I exploration activities are those involving no more than 40 drilling platforms or affecting a surrounding area measuring less than 10 hectares in size, while Category II exploration activities are those involving between 40 and 700 drilling platforms and affecting an area measuring greater than 10 hectares. For Category I exploration activities, an Environmental Impact Statement (Declaración de Impacto Ambiental) (“DIA”) is required whichrequired. For Category II exploration activities, an EIAsd that incorporates technical, environmental and social matters.matters is required. In addition, the new regulation requires an Environmental Technical Report (Ficha Técnica Ambiental) (“FTA”), which is a complementary environmental assessment for exploration activities that do not have significant negative impacts. Exploration activities must start within twelve months following the date that an EIDthe DIA or EISsdEIAsd is approved. BothThe DIA, the EIDEIAsd and the EISsdFTA, as applicable, must be approved before exploration activities begin. Any commitments assumed by mining companies in an EIDa DIA, EIAsd or EISsdFTA 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, the EIAsd and the EISsdFTA 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 inIn May 2008, MINEMMEM also enacted DS 028-2008Supreme Decree No. 028-2008-EM, which regulatedregulates the citizen participation process within the framework of environmental permit approval. The EIDDIA and EISsdEIAsd provide local communities with an opportunity to engage actively engage in this process.

 

The following EIDsDIAs and EISsdEIAsd were approved in 2015:2018:

 

Buenaventura
Mine/ProjectType of StudyApproving ResolutionDate of Approval
TambomayoEIAsd 2ndModification 179-2018-MEM/DGAAMSeptember 28, 2018
YumpagType of StudyEIAsd 1stModification 028-2018-MEM/DGAAMFebruary 19, 2018
AnamarayApproving ResolutionEIAsd 2ndModification Date of Approval
San Gabriel088-2018-MEM/DGAAM 3ra Modf. EIAsdRD N° 345-2015-MEM-DGAAMApril 04, – 09 - 20152018

 

La Zanja SRLCoimolache
Mine/Project Type of Study Approving Resolution Date of Approval
La ZanjaTantahuatay (Ciénaga Sur, Mirador Norte, Mirador Sur y Tantahuatay 4) 9na Modf. EIAsd RD N° 483-2015-MEM-DGAAM070-2018-MEM/DGAAM 16 – 12 - 2015April 9, 2018

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Investment Promotion Regulations.Supreme Decree 054-2013-PCM was passed 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. MINEMimprovements in exploration and exploitation activities. SENACE (EIAd) and MEM (DIA and EIAsd) will then issue a compliance waiver within no more than 15 working days from the date of submission.

 

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 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.

 

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In addition, Supreme Decree No. 020-2008-EM042-2017-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.

 

Our Closure Plans were approved by MINEMMEM for all of our mines and advanced explorations. To date, MINEM 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 following mine closure plan modifications were approved in 2015:2018:

 

Buenaventura
Mine/Project Type of Study Approving Resolution Date of Approval
JulcaniClosure Plan ModificationR.D.N°119-2015-MEM/AAM02.03.2015
Orcopampa Closure Plan 6thModification R.D.N°212-2015-MEM/AAM234-2018-MEM/DGAAM 20.05.2015December 19, 2018

Subsidiaries
MallayMine/ProjectType of StudyApproving ResolutionDate of Approval
Tantahuatay Closure Plan 3th Modification R.D.N°386-2015-MEM/AAM139-2018-MEM-DGAAM 02.10.2015
BreapampaClosure Plan UpdateR.D.N°398-2015-MEM/AAM15.10.2015
La Zanja SRL
Mine/ProjectType of StudyApproving ResolutionDate of ApprovalJuly 25, 2018
La Zanja Closure Plan Modification(Schedule modification) RD N° 237-2015-MEM/DGAAM059-2018-MEM-DGAAM 05.06.2015
Compañía Minera Coimolache S.R.L.
Mine/ProjectType of StudyApproving ResolutionDate of Approval
TantahuatayClosure Plan UpdateR.D. N° 373-2015-MEM-DGAAM22.09.2015April 3, 2018

In 2018 the final closure of the mining units of Shila - Paula and Poracota was concluded, as well as the exploration projects of Angélica - Rublo and Pariguanas.

 

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 beenvironmental certification are 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 wouldceased and contain a detailed description of all the mining facilities and activities performed without the correspondent Environmental Certification,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 MINEMMEM 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(Activities (Reglamento de Pasivos Ambientales de la Actividad Minera), were approved by Supreme Decree No. 059-2005-EM.

 

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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 Management and Protection and Management by-lawin Mining Activities was enacted (Supreme Decree 040-2014-EM), which coversregulates mining production, processing, common labor, transport and storage, andwhich sets forth a new set of environmental requirements for these activities. Going forward,According to the new regulations, social and technical teams from MINEMMEM will accompanyconduct the collectiongathering of baseline information. Early involvement of the statutory authority throughout the environmental studiesassessments process is expected to bring about shorter approval times.

 

On December 28, 2015, theServicio Nacional de Certificación Ambiental(“SENACE”), which operates under the auspices of MINAM, took responsibility for the assessment and approval of detailed EIS,EIA submitted by private, public, or mixed-capital 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.

 

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 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.

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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.

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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 1% of revenues, whichever is higher. If the mining royalty is calculated as a percentage of operating profit, marginal rates ranging from 1% to 12%, increasing 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.

 

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 2% to 8.4%, increasing 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). created by Law No. 29790. The Special Mining Duty is calculated as a percentage of operating profit, with marginal rates ranging from 4% to 13.12%, increasing that increase progressively for companies with higher operating margins.

Safety

 

During 2015,2018, we experienced 70465 reportable injuries, which were comprised of 67 lost-time injuries and 3 fatal injuries, as compared to 865 total reportablefatal injuries during 2014, which were comprised of 81 lost-time injuries and 5 fatal injuries.2017. 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.

 

The following activities and programs were implemented during 2015 in order to improve safety management system:

·C.a defensive driving course was taught to hazardous materials truck drivers;

·a Corporate Crisis Committee Operating Plan was developed and distributed;

·a compliance program was developed to minimize accidents due to rock fall, ventilation and electric shocks;

·a meeting with the Operations Vice President, the Business Development Vice President, Regional Operations Managers, Site Managers, Site Safety Managers and Safety Directors was held in Lima in order to improve visible leadership and further our safety system;

·our Operations Vice President and his team toured all sites to reinforce our safety policy;

·a score of 63% was achieved in the Annual General Safety Audit;

·the Buenaventura Integrated System was re-certified by Bureau Veritas in ISO 9001, ISO 14001 and OSHAS 18001 standards;

·the program “one production day without a lost time accident” became “five production days without a lost time accident,” reaching 50% effectiveness as we achieved 8 out of 16 weeks without a lost time accident; and

·with respect to industrial hygiene, our positions were monitored to control physical, chemical, biological, ergonomic and psychosocial hazards.

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C.Organizational Structure

 

As of March 31, 2016,2019, 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:

 

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†All entities in this chart, with the exception of Minera Julcani S.A. de C.V. (which is organized in Mexico) and Compañía de Minas Buenaventura Chile Ltda. (which is organized in Chile), 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 percent7.69% of our total common shares.

 

Intermediate Holding Companies, Subsidiaries and Equity Participations

Compañía Minera Condesa S.A.

 

Compañía Minera Condesa S.A., or “Condesa,” which is 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 S.M.R.L. Chaupiloma Dos de Cajamarca (“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% interest in us.Buenaventura.

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

 

S.M.R.L. Chaupiloma Dos de Cajamarca, or “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% interest in Chaupiloma. Newmont Peru owns the remaining 40% equity interest.

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

 

Consorcio Energético Huancavelica S.A., or “Conenhua,” is an electrical transmission company that provides a significant portion of our electrical needs through its transmission facilities. We own 100% 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.

 

To 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,” was commissioned to construct a 90.6 megawatt (“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,” 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 BISABuenaventura Ingenieros S.A. 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 affiliatesaffiliates.

Minera Julcani S.A. de C.V.

 

Minera Julcani S.A. de C.V. 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.

 

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

 

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 56.29%61.43% of El Brocal through both direct and indirect ownership interests.

Minera La Zanja S.R.L.

 

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

Compañía Minera Coimolache S.A.

 

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% interest and operate this mine, which commenced operations in mid-2011.mid-2011 as an open-pit mine producing gold and silver.

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Ferrovías Central Andino S.A.

 

We hold 10% of Ferrovías Central Andino S.A. (“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% owned by us andwith 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 allowallows mining from areas with high silver and manganese content within the Uchucchacua mine, which will improveimproving silver recovery. The Rio Seco Plant produces high purity manganese sulphate that is used in agriculture and the mining industry.

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.

YANACOCHA

A.History and Development of Yanacocha

Yanacocha was incorporated in Peru on January 14, 1992 and commenced operations in 1993. Yanacocha is currently engaged in the production, exploration and development of gold under the mining concessions it owns or that are owned by Chaupiloma. Future projects could include the production, exploration and development of copper as well.

Yanacocha is located approximately 375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca and is primarily accessible by paved roads. The Yanacocha property began production in 1993 and consists of the following open pit mines: the La Quinua Complex, the Yanacocha Complex, the Carachugo Complex and Maqui Maqui. In addition, Yanacocha has four leach pads (La Quinua, Yanacocha, Carachugo and Maqui Maqui), three gold processing plants (Pampa Larga, Yanacocha Norte and La Quinua), one limestone processing facility (China Linda) and one mill (Yanacocha Gold Mill).

In 2018, Yanacocha produced 514,564 ounces of gold, compared to 534,692 ounces of gold produced in 2017. Gold production decreased 4% primarily due to lower leach pad production as a result of material with high fines content.

 

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YANACOCHA

A. History and Development of the Company

Founded in Peru in 1992, Yanacocha is one of the largest gold producers51.35% owned by Newmont Second Capital Corporation. A 43.65% interest in South America, having produced 917,691 ounces of gold in 2015. 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, El 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.

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. There was no exploration or development of new reserves because the Conga project's development and reserve balances reported in 2014 were reclassified to mineralized material in 2015.

As of December 31, 2015, Yanacocha’s proven and probable reserves (excluding the Conga project, for which reserves were reclassified as resources or NRM as of December 31, 2015) were estimated to be 5.1 million ounces of gold, representing a 4% increase over Yanacocha’s proven and probable reserves as of December 31, 2014, which were estimated to be 4.9 million ounces of gold. The Conga project’s reserves are excluded because they were reclassified due to the expiration of the current permit.

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 reservesindirectly held 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 2015, Yanacocha produced 917,691 ounces of gold, compared to 969,944 ounces of gold produced in 2014. This decrease in gold production in 2015 as compared to 2014 was mainly attributable to:

·lower gold mill production (0.51 million ounces of gold produced in 2015 as compared to 0.46 million ounces of gold produced in 2014) due to lower feed grade (3.265 grams per ton in 2015 as compared to 3.871 grams per ton in 2014), lower recovery (80.2% in 2014 as compared to 83.2% in 2014) and lower throughput (6.1 million tons in 2015 as compared to 6.3 million tons in 2014) by the deep transitional campaigns; and

·higher leach pad production (0.41 million ounces produced in 2015 as compared to 0.33 million ounces produced in 2014) resulting from the inventory reduction campaign and increased ounce placement during the first half of 2015 (301,631 ounces in 2015 as compared to 142,946 ounces in 2014) due to increased ore mining at Yanacocha, Cerro Negro, La Quinua Sur and Tapado Oeste.

Silver production was 574,110 ounces in 2014 and 447,376 ounces in 2015. This decrease in silver production in 2015 as compared to 2014 was mainly attributable to beginning the deep transitional process with lower recovery on silver in the gold mill.

Newmont Mining owns 51.35% of Yanacocha through its wholly-owned subsidiary Newmont Second. We own 43.65% of Yanacocha through our wholly-owned subsidiary CondesaBuenaventura and the remaining 5% is ownedheld by IFC. Yanacocha is managed by Newmont Peru. See “ –Summit Global Management II VB, a wholly-owned subsidiary of Yanacocha – General Manager/Management Agreement.”Sumitomo Corporation. 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 Mining and us.Yanacocha.

 

On December 21, 2017, Yanacocha repurchased 63,922,565 of its shares owned by International Finance Corporation (“IFC”) for US$47.9 million, which represented 5% of the capital stock of Yanacocha. On February 19, 2018, the Yanacocha partners approved the reduction of 63,922,565 of the common partnership interests. On June 14, 2018, Yanacocha’s partners approved the issue and sale of 63,922,565 partnership units to Summit Global Management II BV.

B.38Business Overview

 

Capital ExpendituresDescription of Yanacocha’s Operations

Yanacocha is located near Cajamarca, Peru, and currently operates the following open pit mines: the La Quinua Complex, the Yanacocha Complex, the Carachugo Complex and Maqui Maqui. In addition, Yanacocha has four leach pads (La Quinua, Yanacocha, Carachugo and Maqui Maqui), three gold processing plants (Pampa Larga, Yanacocha Norte and La Quinua), one limestone processing facility (China Linda) and one mill (Yanacocha Gold Mill).

 

Yanacocha’s capital expenditures from its formation in 1992 through 2015 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 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 a water treatment plant at La Quinua Tailings;

·the construction of gold mill tailing pipeline and equipment components; 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, 2015 amounted to approximately US$527 million, including capital expenditures of US$311 million in 2013, US$117 million in 2014 and US$96 million in 2015.

In 2015, Yanacocha’s principal capital expenditures included:

·US$29 million associated with the initial construction of one water treatment plant at La Quinua;

·US$28 million for the expansion of storage at La Quinua Tailings and the construction of the North Tailings Dump;

·US$14 million for equipment components;

·US$5 million for equipment upgrades in the Verde Bioleach Pilot Plant;

·US$3 million for drilling activities in the Quecher project;

·US$3 million for hydrogeological activities in the Western Oxides; and

·US$17 million for other minor projects.

Yanacocha anticipates that its capital expenditures for 2016 will be approximately US$79 million, of which it plans to use approximately US$39 million for Yanacocha laybacks, US$24 million to continue with the construction of a water treatment plant at La Quinua, and US$4 million in connection with improvements in a residual water treatment plant.  The remaining capital expenditure budget has been allocated for investment in current operations. No capital will be employed at the Conga Project in 2016.

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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; Capital Expenditures.”

B.Business Overview

Description of Yanacocha’s Operations

The Yanacocha property consists of the following open-pit mines: Chaquicocha, Maqui Maqui, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado, 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.

Leach padsprocessing plants are located at Carachugo (410 million ton capacity), Maqui Maqui (70 million ton capacity), Cerro Yanacocha (470 million ton capacity) and La Quinua (640 million ton capacity, including the Western Oxides). 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.

Yanacocha has four processing facilities: Pampa Larga, Yanacocha Norte, 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 facilities 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 solution-pumping facilities and the Yanacocha Gold Mill to processprocesses high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant.plant, followed by Merrill - Crowe zinc precipitation and smelting where a final dore product is poured. The ore is then shipped offsite for refining and is sold on the international gold markets

Yanacocha Gold Mill commenced operations in March 2008, and its totalChaupiloma each have mining concessions granted by INGEMMET, which grant an exclusive and irrevocable right to carry out exploration and exploitation activities within a specified area. In order to maintain such mining concessions, Yanacocha must (i) obtain the appropriate permits and rights over the surface lands, (ii) pay annual license fees and (iii) comply with a minimum annual production obligation. For mining concessions granted prior to 2008, concessions will expire if the production obligations are not met by the end of 2028. Mining concessions granted in 2008 or later will expire if minimum production is between 5.5 and 6.0 million dry tons.  Production at the Yanacocha Gold Mill is expected to significantly impact Yanacocha’s future production capabilities, with total production measured in life-of-mine ounces at the Yanacocha Gold Mill representing 38% of the total ounces produced by Yanacocha. To balance mining production and Yanacocha Gold Mill total production capacity, Yanacocha has established ore stockpiles in which it deposits most of the orenot attained within twenty years from the pits, and feeds a small portion directly to the plant. The Yanacocha Gold Mill sources mill ore from the Yanacocha, Chaquicocha, El Tapado and Tapado Oeste pits.

Mining consistsdate 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, and results in a “pregnant” solution which drains to solution storage ponds to be transferred to the nearest recovery facility. The end product is doré bars comprised 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 Yanacocha has been obtained from the Peruvian national electricity system through a 220 kilovolt (“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, and has a design capacity of approximately 150MW.such granting.

 

In August 2011,Peru, a new 220kV called Interandina linerevised royalty and special mining tax was brought online from Carhuamayo-Paracsha–Conococha-Kiman Ayllu (Huallanca)introduced in October 2011. This tax is dependent on whether a stabilization agreement is in effect and connectedis based on a sliding scale of 1% to 12%. The Cerro Yanacocha tax stabilization agreement expired on January 1, 2015 and the Cajamarca-Norte substation. This line belongs to Abengoa and provides Yanacocha with energy and power, leaving the old transmission line with the energy flow to Trujillo.La Quinua tax stabilization agreement expired on January 1, 2019.

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Minera Yanacocha also has a 60kV double triad line and a 220kV simple triad line. Both are connected to Cajamarca-Norte Substation for the direct supply of its process plants.Quecher Main Project

 

Alternatively,This project will add oxide production at Yanacocha, leveraging existing infrastructure and enabling potential future growth at Yanacocha. First production was achieved in caselate 2018 with commercial production expected in the second half of emergency, reduced supply or other event affecting2019. The Quecher Main extends the national electrical system,life of the Yanacocha has its own power generatorsoperation to 2027 with a capacityaverage annual gold production of approximately 27MW. This system allows200,000 ounces per year (on a consolidated basis) between 2020 and 2025. Development capital costs (excluding capitalized interest) since obtaining approval were US$101million, of which $33 million related to the Company to maintain the sustainabilityfourth quarter of its operation system and reduce its operational risks. 2018.

Conga Project

 

In connection with a bidding process carried out during 2014, the supplyThe Conga project consists 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 termtwo gold-copper porphyry deposits located northeast of the contract.

In 2015, Yanacocha’s power consumption was approximately 469 Giga Watt Hours at a costYanacocha operating area in the provinces of US$28.46 million. The maximum demand was 63.3MWCelendin, Cajamarca and Hualgayoc. There is no exploration and/or development of new reserves as the project’s development and reserve balances reported in July2014 were reclassified to mineralized material in 2015.See “Item 5. Operating and Financial Review and Prospects.”

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:

  2013  2014  2015 
Mining Operations:            
Ore mined (DST):            
Cerro Yanacocha  1,477,391   883,573   6,379,952 
Carachugo  13,590,412   7,721,830   2,775,440 
Maqui Maqui  2,467,205   619,755   1,490,496 
La Quinua  21,098,589   27,414,341   17,312,927 
San José  -   -   - 
Cerro Negro  4,733,308   3,644,896   12,875,105 
Total ore mined (DST)  43,366,905   40,281,395   40,833,920 
Average gold grade of ore mined (oz./DST):            
Cerro Yanacocha  0.016   0.019   0.010 
Carachugo  0.035   0.031   0.031 
Maqui Maqui  0.020   0.025   0.066 
San José  -   -   - 
La Quinua  0.031   0.043   0.037 
Cerro Negro  0.015   0.024   0.018 
Total average gold grade of ore mined (oz./DST)  0.029   0.038   0.027 
             
Gold production (oz.):            
Cerro Yanacocha  16,393   30,713   54,677 
Carachugo  437,095   286,062   87,146 
Maqui Maqui  5,856   5,669   67,195 
San José  -   -   - 
La Quinua  530,437   595,751   596,638 
Cerro Negro  27,478   51,749   112,033 
Total gold (oz.)  1,017,259   969,944   917,690 

 

ExplorationEnvironmental Matters

 

Yanacocha’sIn early 2015, the Peruvian government agency responsible for certain environmental regulations, the MINAM, issued proposed water quality criteria for designated beneficial uses which apply to mining activities encompass 219,533 hectares,companies, including Yanacocha. These criteria would modify the in-stream water quality criteria pursuant to which are coveredYanacocha has been designing water treatment processes and infrastructure. In December 2015, MINAM issued the final regulation that modified the water quality standards. In response, in February 2017, Yanacocha submitted its proposed modification to the one previously approved by 328 mining concessionsMINEM, which is still under review. After approval, MINEM may allow up to three years to develop and applications. Of these 219,533 hectares, Chaupiloma holdsimplement the mining rights relatedmodifications to 102,803 hectares, which are covered by 138 mining concessions.the water management system. In the event Yanacocha holdsis unsuccessful in implementing the mining rights relatedmodifications in compliance with the new regulations and deadlines, it could result in fines and penalties relating to 116,730 hectares underlying 190 concessions.potential intermittent non-compliant exceedances. In addition, if accepted the treatment options will result in increased costs. These impacts may adversely affect the future cost and financial performance of our operations in Peru.

 

The Peruvian government agency responsible for environmental evaluation and inspection, OEFA, conducts periodic reviews of the Yanacocha site. In 2011, 2012, 2013, 2015, 2016, 2017 and 2018, OEFA issued notices of alleged violations of OEFA standards to Yanacocha relating to past inspections, which have been resolved with minimal or no findings of violations. In 2015 and 2016, the water authority of Cajamarca issued notices of alleged regulatory violations, and resolved some allegations in 2018 with no findings of violations. Based on our experience with OEFA and the water authority, 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 40,300 tax units and the water authority alleged violations range from zero to 10 tax units, with each tax unit amounting to approximately US$1,260 based on current exchange rates. Yanacocha is responding to all notices of alleged violations, but cannot reasonably predict the outcome of the agency allegations.

In December 2016, Yanacocha completed a comprehensive study of its long-term mining and closure plans as part of the requirement to submit an updated closure plan to Peruvian regulators every five years. There were minimal changes to the updated closure plan in 2017 prior to submitting to Peruvian regulators in September 2017. The regulators completed their review and approved the updated closure plan in November 2017.

In addition, Yanacocha is involved in several matters concerning environmental obligations associated with former mining activities. Generally, these matters concern developing and implementing remediation plans at the various sites involved. Yanacocha believes that the related environmental obligations associated with these sites are similar in nature with respect to the development of remediation plans, their risk profile and the compliance required to meet general environmental standards.

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Conga Project Constitutional Claim. On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against MINEM and Yanacocha requesting the Court to order the suspension of the Conga project as well as to declare the October 27, 2010 directorial resolution approving the Conga project EIA inapplicable. 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 was 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 an order to formally admit the case and start the judicial process in order to review the claim and the proof presented by the plaintiff. Yanacocha has answered the claim. Neither the Company nor Yanacocha can reasonably predict the outcome of this litigation.

Yanacocha Tax Dispute. In 2000, Yanacocha paid Buenaventura and Minas Conga S.R.L. a total of US$29 million to assume their respective contractual positions in mining concession agreements with Chaupiloma has assigned theseDos de Cajamarca S.M.R.L. The contractual rights allowed Yanacocha the opportunity to conduct exploration on the concessions, but not a purchase of the concessions. The tax authority alleges that the payments to Buenaventura and Minas Conga S.R.L. were acquisitions of mining concessions torequiring the amortization of the amounts under the Peru Mining Law over the life of the mine. Yanacocha pursuant to several assignmentsexpensed the amounts at issue in the initial year since the payments were not for the acquisition of mining rights, each with an initial term of 20 years and one agreement with an extension of 17 years, which are renewable at Yanacocha’s request for additional 17, 20 or 30-year terms, 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 toa concession but rather these expenses represent the payment of an annual fee based on nominal capacityintangible, and therefore, amortizable in a single year or proportionally for up to ten years according to Income Tax Law. In 2010, the processing plant. Thesetax court in Peru ruled in favor of Yanacocha and the tax authority appealed the issue to the judiciary. The first appellate court confirmed the ruling of the tax court in favor of Yanacocha. However, in November 2015, a Superior Court in Peru made an appellate decision overturning the two prior findings in favor of Yanacocha. Yanacocha has appealed the Superior Court ruling to the Peru Supreme Court. On January 18, 2019, the Peru Supreme Court issued notice that three judges support the position of the tax authority and two judges support the position of Yanacocha. Because four processing concessions includevotes are required for a final decision, an additional judge has been selected to issue a decision and the Conga project, whichparties conducted oral argument in April 2019. The potential liability in this matter is in the processform of being granted.

Advanced explorationfines and early-stage development expenditures for the Yanacocha District during 2015 totaled US$64.2 million as compared to US$8.9 millioninterest in 2014. Expenditures focused on oxide development and advanced exploration projects which included:

·reserve and resource infill drilling on the Quecher Main deposit;

·reserve conversion infill drilling on the Los Pinos layback at Yanacocha Sur;

·advanced exploration at the Marleny target;

·development support on the Verde Bioleach Demonstration Facility; and

·exploration drilling in the Antonio and Tapado deposits.

During 2016, Yanacocha expects focus on continuing exploration activities in the Yanacocha district and conducting an exploration program in the Yanacocha concession block outside of its area of operations.

Yanacocha’s exploration expenditures include all of the costs associated with exploration activities such as drilling and geological and metallurgical testing. In addition, exploration costs cover engineering and project development costs on advanced stage projects. Yanacocha prepares a budget annually and allocates an amount for exploration activities based on specific projects or regions.

Yanacocha intendsof up to continue developing other oxide and sulfide projects over$83 million. It is not possible to fully predict the next several years, while continuing to explore the remainderoutcome of the Yanacocha district along with the adjacent Solitario mineral holdings. The Conga project currently consists of two gold-copper porphyry deposits. The Conga project 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, 2015.this litigation.

For 2016, Yanacocha estimates expenditures of US$3.5 million for exploration, and an additional US$4.41 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 reserve conversion, extension drilling of known near-surface oxide inventories, sulfide exploration and early stage development within the Yanacocha district.

As of December 31, 2015, the Yanacocha district’s proven and probable reserves (excluding the Conga project’s proven and probable reserves) were estimated to be 5.1 million ounces of gold, a 4 percent increase from the Yanacocha district’s proven and probable reserves as of December 31, 2014, which were estimated to be 4.9 million ounces of gold.

As of December 31, 2015, proven and probable gold reserves were calculated using a gold price assumption of US$1,200 per ounce.

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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,” 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 before 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 fixing 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, 2015, Yanacocha had 1,745 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, 2015, independent contractors had hired 4,239 persons who were working in the Company’s operations, including the Conga Project.

In 2004, Yanacocha signed its first collective bargaining agreement with a union representing certain of its employees, which was created on December 9, 2003. In 2012, a new union was established. During 2013, direct collective bargaining agreements were signed with both unions for a three-year period (2013-2016). 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. In 2016, we expect to begin negotiating an extension of the collective bargaining agreement with the two existing unions for the following period.

In order to strengthen the relations and communication process with its employees, Yanacocha’s upper management held about four face-to-face meetings with important Yanacocha stake-holders, where they had the opportunity to listen to the business plans and operating results, as well as to raise their concerns and make suggestions.

During 2015, key development programs have been implemented in order to increase technical, leadership and management skills based on talent management analysis process at all levels in our employee population. The total number of training hours in 2015 was 161,458. One program was the First Line Supervisor Program held for 216 individual collaborators and supervisors with the support of Adolfo Ibanez University. Additionally 43 managers and superintendents attended the “Talent Management during Change Environment” run by CEB Valtera.

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Yanacocha offers its employees opportunities to collaborate, innovate and succeed in their careers. Its employee performance assessment system is associated with Yanacocha’s core values and measures its employees’ performance from a social responsibility, relationship management and leadership point of view. The work culture encompasses diversity, interacts with employees, encourages environmental and social responsibility, rewards outstanding performance and tries to develop great leaders at all levels.

Social Development

Since its creation, Yanacocha has focused on its relationship with the community and actively participating in its development. Since 1993, Yanacocha has invested US$444 million in social development programs including education, health, social infrastructure (schools and medical posts), productive infrastructure projects, rural electrification, roads, business promotion programs, local tourism programs and agricultural assistance programs.

Despite significant social investment, in recent years Yanacocha has experienced several conflicts that in some cases have affected the normal course of its operations. As a result of these conflicts, Yanacocha has increased its efforts to listen to and address the concerns and expectations of the local population.

To this end, in 2014 Yanacocha began implementing the legitimacy approach in its community engagement with a special emphasis on the following aspects: respect for Cajamarca, transparency and credibility, responsibility for water and environmental care and being a partner for development. Yanacocha believes this new engagement approach has been recognized by the community as a sign of positive change in Yanacocha.

During 2015, Yanacocha invested a total of US$5.25 million on social matters, US$4.61 million of which (including Conga Project and the Association Los Andes of Cajamarca - ALAC) were invested mainly in farming activities, the promotion of community capabilities, education and public infrastructure. Additionally, Yanacocha invested US$0.64 million in the mitigation of mining’s social impacts in its areas of operation and implemented agricultural and livestock projects, irrigation infrastructure, social development projects and the fulfillment of pending commitments with surrounding communities.

In addition, in 2015 Yanacocha invested US$2.38 million in contributions for social investment through the Cajamarca Mining Solidarity Fund. Also, Yanacocha has invested US$1.57 million on maintenance of the Kuntur Wasi road.

During 2016 Yanacocha will be focused on further improving its relationship with local communities and maximizing the value and recognition of its social investment to ensure the viability and legitimacy of its activities.

Security

Yanacocha has 11 security employees on its payroll, including five employees responsible for the security of the region as a whole. In addition, Yanacocha has a contracted security force of over 288 persons assigned to rotating shifts at its mines, its Lima offices and the city of Cajamarca. The Conga project has a total of 92 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 2015.

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.

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  24,685.32  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 Calera China Linda.

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In addition, as of December 31, 2015, 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. During 2015, the Company did not acquire any hectares. See “Yanacocha – A. History and Development of the Company.” 

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 – B. Business Overview – Regulatory Framework – Mining and Processing Concessions” and “– Buenaventura – B. Business Overview – Regulatory 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 required to submit technical documentation with respect to its mining and operations plans for the review and approval of various Peruvian government entities, including the MEM, the Ministry of Agriculture, the National and the Local Water Authorities, and the Ministry of Health. Yanacocha is required to file and obtain approval of an EIS with a Benefit Concession and Mining Permit for each of its mining operations before being 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.

The improved permit application processing times by most of the regulatory authorities observed since the third quarter of 2013 continued into 2015.  A total of 31 permits of different types were approved at Yanacocha and another four permits, mainly related to environmental controls, were approved for the Conga project. The approvals of greatest significance in 2015 were a group of several minor modifications to the existing EIS pursued throughInformes Técnicos Sustentatorios (“ITS”) for the components of Marleny Open Pit, Bioleaching Plant, China Linda and Water Treatement Plant LQ. The Beneficiation Concession Permits that were approved included the construction of the north TSF phase 1 LQ, the construction of Water Treatment Plant LQ and operation of 10 hectares of the leach pad 8A LQ. ITS for exploration of the projects of Yanacocha, San Jose 2 and Maqui Maqui were also approved, the latter includes the Chaquiocha underground project, whose modification involved the relocation of the entrance portal.

Yanacocha’s corporate policy is to operate in compliance with all applicable laws and regulations and adopt and adhere to standards that are protective of 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.

On December 20, 2015, the Ministry of Environment issued a regulation that modifies the ECA and extends the deadline for compliance. The new regulation provides 60 days to notify the authority whether the company will be able to comply with the new ECA, and a year to prepare and submit a modification of EIA – Plan Integral and a total of four years for the implementation phase.

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During 2005, Yanacocha became a signatory to the International Cyanide Management Code, which provides specific and strict standards on how to manage cyanide. The required audit process was completed in September 2007 and certification under the International Cyanide Management Code occurred during April 2008. Yanacocha commissioned and successfully completed recertification audits to maintain International Cyanide Code Certification. Another Cyanide Code recertification audit was conducted in 2014 and, after having addressed the recommendations accordingly, Yanacocha was re-certified in February 2015. The Yanacocha environmental laboratory was recertified under ISO 17025 in 2015. 

Yanacocha has informed us that its management believes that it is in compliance with all applicable regulations and international standards concerning safety. For the year ended December 31, 2015, Yanacocha experienced five lost time injuries, the same number of lost time injuries it experienced in 2014.

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 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 By-Laws.”

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% of the voting shares, none of the following may occur:

 

·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 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 before 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% 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% 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:

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·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 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 Participation,” of one or more partners, any partner has a right to acquire the Offered Participation in proportion to its holdings of partners’ capital. If the entire 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 receive 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.

Legal Proceedings

 

For a discussion of legal proceedings, see Note 2021 to the Yanacocha Consolidated Financial Statements.

 

Other than the legal proceedings described in the Yanacocha Consolidated 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.

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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. 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.

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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 2015, Yanacocha accrued fees of US$13.3 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.

 

C.D.Property, Plants and Equipment

 

Our Properties

Introduction

 

We currently have five wholly-owned operating mines (Orcopampa, Uchucchacua, Julcani, MallayTambomayo and Breapampa)Mallay) and controlling interests in twothree mining companies which operate the Colquijirca-Marcapunta, Tantahuatay 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 pay 10% of production value, subject to certain conditions. Operations started inbegan at the Orcopampa mine in 1965. In 2015,2018, we made lease payments of US$21.9 million.We12.1 million. We operated Orcopampa as a silver mine until the late 1990s, when we also began to mine gold-bearing veins.

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

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In 2015, geological exploration activities were continued on the Lucía – Julissa veins system, extension east of Prometida Ramal 1 in the Prometida mine and on the Nazareno veins system, which includes Nazareno Este, Pucará Sur, Denisse and Oliva.local river.

 

As of December 31, 2015,2018, proven and probable ore reserves totaled 648,353were 922,300 tons, with 51.3231.41 grams per ton of silver and 14.7810.30 grams per ton of gold.

 

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

 

  Year Ended December 31,(1) 
  2014  2015 
Mining Operations:        
Ore mined (t)  454,694   458,222 
Average gold grade (g/t)  14.15   14.32 
Average silver grade (g/t)  56.26   69.86 
Production:        
Gold (oz.)  203,226   204,629 
Silver (oz.)  430,494   562,795 
Recovery rate (gold) (%)  97.72   95.30 
Recovery rate (silver) (%)  51.44   53.64 
Cost applicable to sales per oz. of gold(2) US$777  US$680 
Cost applicable to sales per oz. of silver(2) US$11.29  US$8.85 

  Year Ended December 31,(1) 
  2017  2018 
Mining Operations:        
Ore mined (t)  500,580   353,891 
Average gold grade (g/t)  11.89   9.98 
Average silver grade (g/t)  37.95   32.04 
Production:        
Gold (oz.)  190,976   115,887 
Silver (oz.)  528,449   312,250 
Recovery rate (gold) (%)  97.14   97.10 
Recovery rate (silver) (%)  85.05   81.73 
Cost applicable to sales per oz. of gold(2) US$743  US$1,020 
Cost applicable to sales per oz. of silver(2) US$10.02  US$12.70 

 

(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, 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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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 currentlyremains our largest producer of silver. Uchucchacuasilver producer. It 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.

 

Uchucchacua’sThe Uchucchacua 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 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 3,8004,000 tons per day and utilizes differential flotation to obtain a lead-silver concentrate and a zinc concentrate.concentrate, using two circuits of 2,800 tons per day and 1,200 tons per day respectively. 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 local lakes.

 

46

In December 2013, we completed construction of

During 2018, the manganese sulfate plant of Rio Seco located 102 kilometers northtreated 34,840.7 tons of Lima. In January 2014, operations began with the treatment of manganese – silver concentrates from the Uchucchacua mine.During 2015, 24,065 tons were treated,mine, with 144.7ounces per ton of silver, 7.1%lead, 25.4%manganese, and following treatment 15,319 tons were obtained, with 225.0101.8 ounces per ton of silver, 10.9%13.6% lead and 4.2%26.7% manganese. Following treatment, 21,739.5 tons were obtained, with 163.7 ounces per ton of silver, 21.6% lead and 4.4% manganese. This process also allowed for the production of 14,93517,931 tons of sulfuric acid of 98.0 percent98% purity and 12,88024,623 tons of commercial grade manganese sulfate monohydrate.

50

During 2015, the main exploration focused on the Socorro mine. We also explored the Huantajalla mine, Carmen mine and Casualidad mine with relative success, finding narrow structures with high contents of silver.monohydrated.

 

AtAs of December 31, 2015,2018, proven and probable ore reserves were 4,271,22011,940,975 tons, with 444.95239.19 grams per ton of silver, 1.30%1.12% lead and 1.80%1.79% zinc.

 

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

 

  Year Ended December 31,(1) 
  2014  2015 
Mining Operations:        
Ore mined (t)  1,013,633   1,121,474 
Average silver grade (g/t)  452.87   460.33 
Average zinc grade (%)  1.04   1.05 
Average lead grade (%)  0.81   0.82 
Production:        
Silver (oz.)  12,055,570   13,919,922 
Zinc (t)  6,349   5,693 
Lead (t)  7,605   7,947 
Recovery rate (silver) (%)  81.67   83.87 
Cost applicable to sales per oz. of silver(2) US$16.34  US$13.97 
Cost applicable to sales per ton of zinc(2) US$2,478  US$2,430 
Cost applicable to sales per ton of lead(2) US$1,843  US$1,551 

  Year Ended December 31,(1) 
  2017  2018 
Mining Operations:        
Ore mined (t)  1,364,478   1,387,775 
Average silver grade (g/t)  458.15   388.17 
Average zinc grade (%)  1.80   2.23 
Average lead grade (%)  1.36   1.60 
Production:        
Silver (oz.)  16,583,698   15,420,102 
Zinc (t)  13,040   21,840 
Lead (t)  16,708   19,122 
Recovery rate (silver) (%)  82.50   87.43 
Cost applicable to sales per oz. of silver(2) US$10.61  US$10.41 
Cost applicable to sales per ton of zinc(2) US$2,951  US$1,983 
Cost applicable to sales per ton of lead(2) US$1,571  US$1,354 

 

(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, 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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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.

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 between 4,200 and 5,000 meters above sea level.

 

Julcani is a large polymetallic deposit in Central Peru, which principally produces silver that occurspresents mainly as sulpho-salts in sulfosalts in a multitude ofmany mineralogically complex veinsveins. They are hosted in dacite domes, tuffs, breccias and other tertiary volcanic rocks.

 

Ore is processed by bulk flotation to obtain a concentrate of silver-lead-copper-gold. The plant has a rated capacity of 550 tons per day. Water for operations in Julcani is obtained from mine drainage that must be previously treated with lime, from seasonal streams and a small lagoon. 

 

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 2015, we focused our exploration activities on the main mineralized structures of the Acchilla and Estela mines. In the Acchilla mine, we have begun exploration to test the deepening of silver mineralization in all main veins. We have also begun to explore for silver in an area that is adjacent to the Acchilla mine called Taype-Galindo. 

 

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AtAs of December 31, 2015,2018, total proven and probable ore reserves were 288,779251,186 tons, with 648.20664.68 grams per ton of silver, 0.500.186 grams per ton of gold, 2.52%2.04% lead and 0.55%0.47% copper.

 

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

 

 Year Ended December 31,(1)  Year Ended December 31,(1) 
 2014(2)(3)  2015(2)(3)   2017(2)(3)  2018(2)(3)
Mining Operations:                
Ore mined (t)  167,750   177,948   130,854   109,025 
Average gold grade (g/t)  0.25   0.22   0.12   0.04 
Average silver grade (g/t)  600.97   597.66   552.71   726.27 
Average lead grade (%)  1.69   1.55   1.47   1.01 
Average copper grade (%)  0.18   0.21   0.15   0.16 
Production:                
Gold (oz.)  414   607   200   71 
Silver (oz.)  3,084,347   3,266,453   2,249,527   2,482,907 
Lead (t)  2,619   2,592   1,824   1,048 
Copper (t)  275   339   192   169 
Recovery rate (silver) (%)  95.16   95.52   96.77   97.41 
Cost applicable to sales per oz. of gold(4) US$603  US$955 
Cost applicable to sales per oz. of silver(4) US$14.14  US$12.30  US$17.12  US$14.98 
Cost applicable to sales per ton of lead(4) US$1,603  US$1,425  US$2,543  US$2,191 
Cost applicable to sales per ton of copper(4) US$5,195  US$4,416  US$6,318  US$7,392 

 

(1)Includes losses due to mining dilution and recovery.

(2)Includes 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, 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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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.

Tambomayo

Tambomayo is an underground mine that is wholly-owned and operated by us. It is considered an epithermal deposit with quartz veins and mineralization mainly of gold and silver with important contents of lead and zinc. It is located in the province of Caylloma, Arequipa region, at an altitude between 4,550 and 5,000 meters above sea level.

The underground works on the main Mirtha vein and diamond drilling carried out to date show an economic mineralization that deepens up to approximately 650 meters and it expands over 1,200 horizontal meters, increasing the size of the economic mineralization area to explore. 

48

Tambomayo is connected to the Peruvian electricity grid and water for its operations comes from the damming of a stream with seasonal variations in flow.

As of December 31, 2018, total proven and probable ore reserves were 3,391,052 tons, with 129.63 grams per ton of silver, 3.74 grams per ton of gold, 0.73% lead and 1.06% zinc.

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

  Year Ended December 31,(1) 
   2017   2018(1)(2)
Mining Operations:        
Ore mined (t)  332,193   557,364 
Average gold grade (g/t)  6.99   7.75 
Average silver grade (g/t)  264.38   252.25 
Average lead grade (%)  1.72   1.49 
Average Zinc grade (%)  2.35   2.16 
Production:        
Gold (oz.)  64,175   129,172 
Silver (oz.)  1,788,219   3,929,808 
Lead (t)  2,070   4,220 
Zinc (t)  2,906   8,685 
Recovery rate (silver) (%)  62.12   85.11 
Recovery rate (gold) (%)  83.59   91.15 
Cost applicable to sales per oz. of gold(3) US$671  US$626 
Cost applicable to sales per oz. of silver(3) US$9.43  US$7.77 
Cost applicable to sales per ton of lead(3) US$1,635  US$1,186 
Cost applicable to sales per ton of Zinc(3) US$2,057  US$1,551 

(1)Includes losses due to mining dilution and recovery.

(2)Includes total Tambomayo mine production.

(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, ounce of silver, ton of lead or ton of copper consists of cost applicable to sales for gold, silver, lead or copper sold, 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 and Prospects—Buenaventura—G. Reconciliation of Costs 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.

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.limited gold values. We have recognized the following main ore structures: Isguiz body-vein (silver, lead, zinc), Pierina (gold vein)vein (gold), María (silver vein)vein (silver) and Fortuna (skarn type lead, zinc and silver).

During 2015, we continued geological exploration with tunnels and diamond drilling mainly focused on the Isguiz body-vein and the María-Dana system silver veins. In 2016, we plan to construct exploration tunnels and conduct diamond drilling on the Nicole area in the Jumasha limestones. The San Sebastian project (2.5 kilometers northeast from Isguiz) will be explored for silver, lead and zinc with at least 3,500 meters of diamond drilling in the recognized mineralized structures by geological mapping.

As of December 31, 2015, proven and probable ore reserves were 86,446 tons, with 341.21 grams per ton of silver, 0.50 grams per ton of gold, 6.35% lead and 8.93% zinc.

 

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

 

  Year Ended December 31,(1)(2) 
  2014  2015 
Mining Operations:        
Ore mined (t)  148,058   158,124 
Average silver grade (g/t)  272.77   269.48 
Average lead grade (%)  5.80   5.05 
Average zinc grade (%)  7.79   6.60 
Production:        
Silver (oz.)  1,216,064   1,285,361 
Lead (t)  7,513   7,193 
Zinc (t)  9,893   9,173 
Recovery rate (silver) (%)  93.68   93.82 
Cost applicable to sales per oz. of silver(3) US$13.76  US$13.90 
Cost applicable to sales per ton of lead(3) US$1,547  US$1,544 
Cost applicable to sales per ton of zinc(3) US$1,855  US$1,794 

  Year Ended December 31,(1)(2) 
  2017  2018 
Mining Operations:        
Ore mined (t)  170,519   92,450 
Average silver grade (g/t)  223.63   196.89 
Average lead grade (%)  2.70   2.28 
Average zinc grade (%)  4.73   5.30 
Production:        
Silver (oz.)  1,109,382   514,081 
Lead (t)  4,061   1,768 
Zinc (t)  7,102   4,151 
Recovery rate (silver) (%)  90.51   87.72 
Cost applicable to sales per oz. of silver(3) US$13.27  US$11.50 
Cost applicable to sales per ton of lead(3) US$1,889  US$1,603 
Cost applicable to sales per ton of zinc(3) US$2,416  US$2,284 

 

(1)Incorporates losses for mining dilution and recovery.

(2)Data reflect mining operations at Mallay mine.

(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, 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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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

The Breapampa mine is wholly-owned and operated by us. It is located in the district of Chumpi, province Parinacochas, department of Ayacucho. The ore deposit consists of gold and silver mineralization in an epithermal system high-sulfidation, emplaced 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.

During the productive period of Breacampa in 2014, we performed diamond drilling to update ore distribution at Parccaorcco 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.

We ceased mining activities at Breapampa in November 2014. However, in 2015 we recovered 13,757 ounces of gold from the leachpads. Currently, the mine is in closure stage.

Proven and probable ore reserves at December 31, 2015 were 519,539 tons, with 17.11 grams per ton of silver and 0.44 grams per ton of gold.

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

  Year Ended December 31,(1) 
  2014(2)  2015(3) 
Mining Operations:        
Ore mined (t)  2,264,111   — 
Average gold grade (g/t)  1.54   — 
Average silver grade (g/t)  35.02   — 
Production:        
Gold (oz.)  74,807   13,757 
Silver (oz.)  369,032   180,277 
Cost applicable to sales per oz. of silver(4) US$6.56  US$9.26 
Cost applicable to sales per oz. of gold(4) US$452  US$715 

(1)Incorporates losses for mining dilution and recovery and reflects operations through 2014.
(2)Data reflects mining operations only at Parccaorcco and its Colluvial deposit.
(3)Mining operations at Breapampa were suspended in 2014. Production data for 2015 reflects gold and silver recovered from leach pads.
(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 or ounce of silver consists of cost applicable to sales for gold or silver sold, 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—F. 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 Zanja

 

The La Zanja mine is located in the district of Pulan, province of Santa Cruz, department of 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. in La Zanja.

 

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:deposits in production: 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 CroweMerrill-Crowe circuit to recover gold from heap leach operations. The gold laden carbon is then transported to Yanacocha to continue processingbe processed into doré bars.

 

In 2013, we completed the construction2018 a total of the road to Pampa Verde, which allowed us to begin open pit mining in February 2014, coinciding with the launching12,984 meters of the Merrill Crowe plant.

During 2015, we continued tunneling and diamond drilling exploration in the Alejandra underground project. We also continued exploring with diamond drilling in other areas around San Pedro Sur, Pampa Verdethe Corredor Emperatriz project exploration area were drilled, of which 10,829 meters were made in the sector called Emperatriz Central and Alejandra, such as Cocán and Campana.2,155 meters in the Emperatriz Norte sector.

 

Additionally, a total of 1,232 meters were drilled in the Luciana project, evaluating high-grade structures of gold and silver in oxides, with grades of 10 grams per ton of gold and 5 grams per ton of silver, in widths of 1 to 3 meters.

Total proven and probable ore reserves atas of December 31, 20152018 were 11,905,1373,119,845 tons, with 4.047.07 grams per ton of silver and 0.620.364 grams per ton of gold.

 

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

 

  Year Ended December 31, 
  2014  2015 
Mining Operations:        
Ore treated (t)  7,501,654   8,576,614 
Average gold grade (g/t)  0.84   0.70 
Average silver grade (g/t)  8.71   5.97 
Production:        
Gold (oz.)  143,573   141,071 
Silver (oz.)  422,395   331,080 
Cost applicable to sales per oz. of gold(1) US$569  US$789 
Cost applicable to sales per oz. of silver(1) US$8.35  US$10.55 

  Year Ended December 31, 
  2017  2018 
Mining Operations:        
Ore treated (t)  10,694,942   5,702,881 
Average gold grade (g/t)  0.48   0.46 
Average silver grade (g/t)  6.22   7.46 
Production:        
Gold (oz.)  127,118   71,630 
Silver (oz.)  280,908   217,174 
Cost applicable to sales per oz. of gold(1) US$789  US$891 
Cost applicable to sales per oz. of silver(1) US$10.66  US$11.15 

 

(1)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, 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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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.

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 usBuenaventura and wholly-owned by Coimolache, in which we hold a 40.10%40.10 % equity interest.

 

Geologically, the Tantahuatay ore 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 belowBelow the oxides level of the Cerro Tantahuatay area, there is a significant resource of Cu-Au-Ag incopper, gold and silver associated to pyrite-enargite ore (sulphides), which isare present as disseminations and fracture fillings associated with advanced argillic alteration and multiphase breccia bodies.bodies’ multiphase.

 

During 2015, we performed2018, drilling of oxides reached 9,712 meters of diamond drilling to updatedrill holes. The operation was focused on the reserves block model of the open pits Tantahuatay 2 and Ciénaga Norte areas. Drilling was also performed at the Tantahuatay 3, Tantahuatay 5 and Azufre projects to exploreconvert resources to reserves. Another part of the drilling was aimed at exploring sulfides, which in total reached 23,787 meters. This was conducted in the areas of Tantahuatay 2, 3, 4, 5, Mirador Sur Mirador Norte, and Ciénaga Norte projects to increase mineral resources.Norte.

 

Total proven and probable ore reserves atas of December 31, 20152018 were 66,196,95357,715,191 tons, with 7.099.65 grams per ton of silver and 0.430.359 grams per ton of gold.

 

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

 

  Year Ended December 31,(1)(2) 
  2014  2015 
Mining Operations:        
Ore treated (t)  9,854,334   12,185,425 
Average gold grade (g/t)  0.57   0.50 
Average silver grade (g/t)  11.08   13.00 
Production:        
Gold (oz.)  143,643   144,782 
Silver (oz.)  754,357   879,832 
Cost applicable to sales per oz. of gold(3) US$455  US$489 
Cost applicable to sales per oz. of silver(3) US$6.71  US$6.59 
51

 

  Year Ended December 31,(1)(2) 
  2017  2018 
Mining Operations:        
Ore treated (t)  13,117,287   13,384,291 
Average gold grade (g/t)  0.46   0.58 
Average silver grade (g/t)  12.30   7.45 
Production:        
Gold (oz.)  151,454   173,192 
Silver (oz.)  800,942   791,181 
Cost applicable to sales per oz. of gold(3) US$517  US$675 
Cost applicable to sales per oz. of silver(3) US$6.98  US$8.39 

(1)Incorporates losses for mining dilution and recovery.

(2)Data reflect mining operations at the Tantahuatay 2 deposit only.and Ciénaga Norte deposits.

(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, 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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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 amortizationamortization.

55

 

ColquijircaTajo Norte (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% at61.43% as of December 31, 2015.2018.

 

The ColquijircaTajo Norte 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 ColquijircaTajo Norte 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;lead; (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% zinc, while its lead concentrate contains 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 26% copper, 4% silver and8% arsenic.

The Huaraucaca concentrator plant processes ore from both mines. In 2015,2018, average treated ore at the plant reached 13,875was 18,175 tons per day as result of increased capacity from 10,732 tons per day in the first quarter of 2015 to 16,591 tons per day in the fourth quarter of 2015 due to the completion of an expansion project. day.

The Colquijirca mineTajo Norte (Colquijirca) and Marcapunta Norte mines primarily reliesrely on a power line connected to the Peruvian national electricity grid.

 

In 2019, El Brocal has conducted an exploration program atwill continue to focus on optimizing Marcapunta’s mining method, while also seeking the Marcapunta deposit to confirm mineralizationoptimization of productivity and find possible extensions,production costs, as well as accelerating the conversion of resources 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 2015, we invested US$24 million in tailings capacity expansion and complementary equipment for a processing plant. The construction of the expansion project operations were completed in 2014 (which, since 2008, has cost US$500 million) and reached the full expected capacity of 18,000 tons per day in December 2015.In 2015, exploration was halted in prospective areas such as San Gregorio, Marcapunta Oeste and other areas to focus efforts on increasing the crushing, milling and flotation processes to the expected capacity.reserves.

 

Total proven and probable reserves of ColquijircaTajo Norte (Colquijirca) as of December 31, 20152018 were 56,200,00022,167,000 tons, with 35.1563.14 grams of silver per ton, 2.3%2.24% of zinc, 1.07% of lead and 0.85%0.11% of lead. copper.

Total proven and probable reserves of Marcapunta Norte as of December 31, 20152018 were 21,749,70024,459,000 tons with 18.97323.02 grams of silver per ton, 0.390.50 grams of gold per ton and 2.25%1.34% of copper.

 

 5652 

 

 

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

 

 Year Ended December 31,(1)  Year Ended December 31,(1) 
 2014  2015  2017  2018 
Mining Operations:                
Ore mined (t)  481,589   3,101,851   3,169,908   3,429,618 
Average silver grade (oz./t)  1.92   1.34   1.32   1.13 
Average zinc grade (%)  3.12   2.77   2.74   2.30 
Average lead grade (%)  1.20   1.03   1.13   1.11 
Production:                
Silver (oz.)  603,342   2,811,391   3,031,796   2,518,333 
Zinc (t)  10,126   53,319   51,511   45,593 
Lead (t)  3,459   18,854   20,313   20,582 
Recovery rate (silver) (%)  64.30   67.52   72.30   65.25 
Recovery rate (zinc) (%)  67.06   61.96   59.33   57.78 
Recovery rate (lead) (%)  56.42   58.73   56.71   52.41 
Cost applicable to sales per ton of mine(2)  1,369   1,601   1,915   1,569 

 

(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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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% of the mine’s production.

 

 Year Ended December 31,(1)  Year Ended December 31,(1) 
 2014  2015  2017  2018 
Mining Operations:                
Ore mined (t)  2,773,738   1,962,627   2,517,673   3,204,262 
Average silver grade (oz./t)  0.84   0.75   0.66   0.71 
Average gold grade (gr/t)  0.31   0.35   0.56   0.51 
Average copper grade (%)  1.71   1.92   1.91   1.59 
Production:                
Silver (oz.)  1,463,872   858,109   1,052,453   1,383,536 
Gold (oz.)  14,134   11,263   22,536   21,429 
Copper (t)  43,282   32,061   45,097   46,231 
Recovery rate (silver) in copper (%)  62.36   58.48   63.12   60.95 
Recovery rate (gold) in copper (%)  56.50   50.27   49.89   39.80 
Recovery rate copper (%)  86.23   87.0   93.56   90.63 
Cost applicable to sales per ton of mine(2)  5,096   5,322   5,119   5,487 

 

(1)Incorporates losses for mining dilution and recovery.

(2)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 and Prospects—Buenaventura—F.G. Reconciliation of CostCosts 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.

 

 5753 

 

 

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, 2015,2018, our total proven and probable reserves, including our equity share in the proven and probable reserves of El Brocal (54.07%(61.43%), La Zanja (53.06%), Coimolache (40.10%) and Yanacocha (43.65%), were estimated to be 3.524.39 million ounces of gold, representing a 60.23% decrease41.61% increase compared to our total proven and probable reserves as of December 31, 2014,2017, which were estimated to be 8.853.10 million ounces of gold. This decrease is primarily due to the reclassification of the Conga mine gold reserves (5.5 million ounces as of December 31, 2014) as resources or NRM as of December 31, 2015.

 

As of December 31, 2015,2018, our total proven and probable reserves, including our equity share in El Brocal (54.07%(61.43%), La Zanja (53.06%), Coimolache (Tantahuatay) (40.10%) and, Yanacocha (43.65%), and Cerro Verde (19.58%) were estimated to be 139.04265.72 million ounces of silver, representing a 17.29% decrease35.05% increase over our total proven and probable reserves as of December 31, 2014,2017, which were estimated to be 168.10196.76 million ounces of silver. This decrease is primarily due to the reclassification of the Conga mine silver reserves (37.8 million ounces as of December 31, 2014) as resources or NRM as of December 31, 2015.

 

The following table lists the100% of proven and probable ore reserves, as of December 31, 20152018, for each of our consolidated mining operations and the Tantahuatay mine, wherein which we have a 40.10% equity interest, the La Zanja mine, where we have a 53.06% equity interest, and the Colquijirca & Marcapunta (El Brocal) mines, where we have a 54.07% equity interest. The reserves showshown 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.

 

 5854 

 

 

Proven Ore Reserves atas of December 31, 20152018(1)(2)(3)(4)(5)(6)

 

 Orcopampa(3)  Uchucchacua(4)  Julcani(5)  Mallay(6)  Tambomayo(7)  Antapite(8)  Breapampa(9)  La Zanja(10)  Tantahuatay(11)  Colquijirca(12)(13)  Marcapunta(12)(14)  Total/
Average		  Orcopampa  Uchucchacua  Julcani  Tambomayo  La Zanja  Tantahuatay  Tajo Norte  Tajo Smelter  Marcapunta  Total 
                                                                     
Ore Reserves (t)  447,911   2,688,395   198,365   66,572   747,639   24,538   519,539   4,672,820   53,810,366   18,400,000   5,833,113   87,409,258   658,211   5,813,428   172,370   634,340   1,924,675   44,730,220   8,678,000   12,937,000   8,816,000   84,364,244 
                                                
Grade:                                                                                        
Gold (g/t)  14.86   -   0.53   0.50   9.01   10.16   0.45   0.63   0.45   -   0.40   0.50   10.54       0.19   3.66   0.36   0.37           0.52     
Silver (g/t)  45.97   433.42   647.91   338.86   312.92   -   17.18   4.26   6.42   30.87   18.35   29.87   30.48   252.87   667.17   251.32   7.71   8.63   66.25   19.28   24.57     
Copper (%)  -   -   0.57   -   -   -   -   -   -   0.09   2.36   0.13           0.49               0.14   1.70   1.40     
Zinc (%)  -   2.00   -   8.91   2.87   -   -   -   -   2.68   -   0.99       1.77       0.78           2.24   0.13         
Lead (%)  -   1.38   2.70   6.38   1.86   -   -   -   -   0.91   -   0.37       1.14   2.15   0.47           1.13   0.12         
                                                                                        
Content:                                                                                        
Gold (oz.)  213,918   -   3,364   1,076   216,503   8,017   7,515   94,920   782,032   -   75,016   1,402,361   222,942       1,034   74,591   22,048   531,872           146,255   998,743 
Silver (oz.)  662,012   37,461,786   4,132,117   725,265   7,521,652   -   286,981   639,878   11,107,786   18,264,000   3,441,537   84,243,014   645,017   47,289,682   3,696,846   5,125,543   477,098   12,410,067   18,484,140   8,020,940   6,964,640   103,113,973 
Copper (t)  -   -   1,135   -   -   -   -   -   -   15,840   137,661   154,636           845               12,149   219,929   123,424   356,347 
Zinc (t)  -   53,793   -   5,931   21,490   -   -   -   -   492,720   -   573,934       102,898       4,948           194,387   16,818       319,051 
Lead (t)  -   37,177   5,346   4,250   13,882   -   -   -   -   168,160   -   228,815       66,273   3,706   2,981           98,061   15,524       186,546 

 

Probable Ore Reserves atas of December 31, 20152018(1) (2)

 

 Orcopampa(3)  Uchucchacua(4)  Julcani(5)  Mallay(6)  Tambomayo(7)  Antapite(8)  Breapampa(9)  La Zanja(10)  Tantahuatay(11)  Colquijirca(12)(13)  Marcapunta(12)(14)  Total/
Average		  Orcopampa  Uchucchacua  Julcani  Tambomayo  La Zanja  Tantahuatay  Tajo Norte  Tajo Smelter  Marcapunta  Total 
                                              
Ore Reserves (t)  200,442   1,582,825   90,414   19,874   333,392   13,009   -   7,232,317   12,386,587   37,800,000   15,916,645   75,575,505   264,089   6,127,547   78,816   2,756,712   1,195,170   12,984,971   13,490,000   28,084,000   15,643,000   80,624,305 
                                                
Grade:                                                                                        
Gold (g/t)  14.64   -   0.45   0.55   10.41   10.91   -   0.61   0.35   -   0.39   0.57   9.72       0.16   3.76   0.38   0.321           0.49     
Silver (g/t)  63.69   464.58   648.82   349.19   231.88   -   -   4.02   9.99   37.17   18.97   35.63   33.90   226.12   659.39   101.63   6.03   13.17   60.96   20.84   22.08     
Copper (%)  -   -   0.50   -   -   -   -   -   -   0.42   2.21   0.93           0.42               0.09   1.69   1.30     
Zinc (%)  -   1.45   -   9.01   3.31   -   -   -   -   2.11   –   0.09       1.8       1.13           2.24   0.13         
Lead (%)  -   1.12   2.14   6.23   2.31   -   -   -   -   0.82   –   0.08       1.1   1.8   0.79           1.03   0.12         
                                                                                        
Content:                                                                                        
Gold (oz.)  94,338   -   1,295   350   111,561   4,564   -   140,705   138,450   -   199,575   690,838   82,571       394   333,645   14,506   133,951           245,432   810,499 
Silver (oz.)  410,457   23,641,913   1,886,037   223,118   2,485,514   -   -   933,664   3,979,665   45,169,000   9,709,154   88,438,522   287,857   44,547,267   1,670,899   9,007,496   231,578   5,499,945   26,440,400   18,816,280   11,106,530   117,608,252 
Copper (t)  -   -   454   -   -   -   -   -   -   157,510   351,758   509,722           331               12,141   474,620   203,359   690,451 
Zinc (t)  -   23,013   -   1,790   11,028   -   -   -   -   799,270   –   835,101       110,296       31,151           302,176   36,509       480,132 
Lead (t)  -   17,743   1,931   1,239   7,688   -   -   -   -   308,560   –   337,161       67,403   1,419   21,778           138,947   33,701       263,248 

 

(1)Geominería S.A.C.The amounts in this table reflect the reserves of all of our consolidated subsidiaries, including El Brocal and La Zanja, in each case as of December 31, 2018. SRK Consulting Perú S.A., an independent consultant, company, audits the process used to estimate proven and probable ore reserves in our wholly-owned mines, as of December 31, 2015. In 2014 MINTEC Inc., an independent consultant, updated the proven and probable reserves for El Brocal and defined the final limits of the open pit. As of December 31, 2015, we have updated topographically subtracting the 2015 production. HATCH, an independent consultant, auditsaudited the process used to estimate proven and probable ore reserves for Uchucchacua, Tambomayo, Tantahuatay and La ZanjaZanja. Geominería S.A.C., an independent consultant, audited the process to estimate proven and Tantahuatay at December 31, 2015.probable ore reserves for Orcopampa and Julcani. Mining Plus Pty Ltd audited the process to estimate proven and probable ore reserves for El Brocal.

(2)For the year ended December 31, 2015,2018, reserves for our wholly-owned and subsidiary mines, were calculated using the following prices: US$1,2501,300 per ounce of gold, US$1917 per ounce of silver, US$2,0002,500 per metric ton of zinc, US$2,0002,100 per metric ton of lead and US$5,5006,000 per metric ton of copper.

(3)TheVariable metallurgical recovery factors that impacted the calculated reserves for Orcopampa at December 31, 2015 were water quality (recycled water contains impurities that can interfere with the chemical reactionassumptions (as a function of the reagents)grade and ore grade being lower than estimated or expected.relative metal distribution in individual concentrates).

(4)The metallurgical recovery factors that impacted the calculated reserves for Uchucchacua at December 31, 2015 were the complexity of the ore, the variation of head ore grades and the high manganese content.Commercial terms based on historical data.

(5)The metallurgical recovery factors that impacted the calculated reserves for Julcani at December 31, 2015 were when the ore contained iron sulfide (Pyrite) higher than 8%Variable cut-offs estimated by mining method and the quality of water used in the processing plant.mining area and based on historical data and projected costs.

(6)The metallurgical recoveryVariable modifying factors that impacted the calculated reserves for Mallay at December 31, 2015 were the high variation in ore grade(dilution and the variation in the hardness of the host rocks.
(7)The metallurgical recovery factors that impacted the calculated reserves for Tambomayo at December 31, 2015 were the complex process to treat polymetallic oremining recoveries) based on ground conditions and the variation in the hardness of the host rocks.
(8)The metallurgical recovery factors that impacted the calculated reserves for Antapite at December 31, 2015 were the high variation in ore grade and the quality of water used in process plant.
(9)The metallurgical recovery factors that impacted the calculated reserves for Breapampa at December 31, 2015 were the clay content in ore higher than 10% and the iron sulfide (Pyrite) content in ore higher than 3%.proposed mining method.

(10)The reserves shown for La Zanja, in which we owned a 53.06% of equity interest at December 31, 2015, are the total reserves of the mine and do not indicate our equity share. 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)The reserves shown for Tantahuatay, in which we own a 40.10% of equity interest at December 31, 2015, are the total reserves for the mine and do not indicate our equity share. 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)El Brocal, in which we own 54.07% controlling equity interest at December 31, 2015, 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)The metallurgical recovery factors that impacted the calculated reserves for Colquijirca at December 31, 2015 were the high content of clay, and soluble salts in the ore.
(14)The metallurgical recovery factors that impacted the calculated reserves for Marcapunta at December 31, 2015 were the high content of arsenic in the ore and the hardness of the host rocks.

 

 5955 

 

 Yanacocha’s Properties

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.”

 

Yanacocha is located approximately 375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca and is primarily accessible by paved roads. The Yanacocha property began production in 1993 and consists of the following open pit mines: the La Quinua Complex, the Yanacocha Complex, the Carachugo – ChaquicochaComplex and Maqui Maqui. In addition, Yanacocha has four leach pads (La Quinua, Yanacocha, Carachugo and Maqui Maqui), three gold processing plants (Pampa Larga, Yanacocha Norte and La Quinua), one limestone processing facility (China Linda) and one mill (Yanacocha Gold Mill).

 

ChaquicochaYanacocha’s mining activities encompass 301,000 acres (121,810 hectares) that are covered by 185 mining concessions. MYSRL holds the mining rights related to 96,338 acres (38,987 hectares), covered by 73 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 30 years, which are renewable at Yanacocha’s request for an additional 17 to 20 year term.

The La Quinua Complex is currently mining material from the La Quinua Sur and the Tapado Oeste Layback and is an 85-hectarescheduled to finish mining operations in 2019.

The Yanacocha Complex mines material from the Yanacocha Layback and Yanacocha Pinos, which are scheduled to finish mining operations in 2019 and 2020, respectively. The Yanacocha Complex began operations in 1997 and has had limited mining operations in recent years.

The Carachugo and Maqui Maqui Complexes mined material from multiple mines that are no longer in operation and a de minimis residual leaching of gold deposit (ultimate pit)continues. In addition, the Carchugo Complex processes material from the Quecher Main project, which lies inis a new open pit within the east-central partexisting footprint of Yanacocha. This project will add oxide production at Yanacocha and will extend the life 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 was completed in late 2015.operation to 2027.

 

Carachugo is a 90-hectareYanacocha has three processing concessions from MINEM for its processing facilities: Cerro Yanacocha (La Quinua and Yanacocha leach pads, La Quinua and Yanacocha Norte 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

recovery plants and Yanacocha Gold Mill), Yanacocha (Carachugo and 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 1994pads and used the open-pit mining method.  Although mining operations at Maqui Maqui ceased in September 2000,Pampa Larga gold recovery from the leach pad continues.  The Maqui Maqui East expansion commenced operations in 2010plant) and mining at this deposit was completed in late 2015.

San José

San José is a 100-hectareChina Linda (non-metallic processing concessions). Yanacocha’s gold deposit, located 1.5 kilometers southwest of the Carachugo pit, that shares the leach pad located at Carachugo.  Mining operations at San José began 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.

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 restarted 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 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 pitsplants are located three kilometers southwestadjacent to the solution storage ponds and are used to process gold-bearing solutions from Yanacocha’s leach pads through a network of the Cerrosolution-pumping facilities. The Yanacocha pit.  Operations began in the fourth quarter of 2001 using the open-pit mining method.  AllGold Mill processes high-grade gold ore to produce a gold-bearing solution processing occurs at the Cerro Yanacocha plant followingfor treatment at the La Quinua leach padprocessing plant. The Yanacocha Gold Mill processes between 5.5 and carbon column facility.6.0 million tons per year. 

 

The La QuinuaYanacocha is an epithermal type deposit of high sulfidation hosted in volcanic rock formations. Gold is associated with iron-oxides and pyrite. Material is evaluated for gold grade and cyanide solubility and then placed on leach pads or in stockpiles for processing through the Yanacocha Gold Mill accordingly. Yanacocha’s available mining fleet consists of two shovels, four excavators, two loaders and 31 240-ton haul trucks.

Brownfield exploration and development for new reserves is ongoing including Sulfides project and the development of the Quecher Main project within the existing footprint of Yanacocha. In addition, Yanacocha continues to evaluate the potential for mining sulfide gold and copper mineralization.

Power is supplied to the operation included Cerro Negro Este, a 15-hectareby Engie Energia Peru SA.

Yanacocha’s gross property, plant and mine development at December 31, 2018 was $4,490. Yanacocha produced 515,000 ounces of gold deposit (ultimate pit)(271,000 attributable ounces of gold) in 2018 and reported 3.8 million attributable ounces of gold reserves and 740 million pounds of copper reserves at December 31, 2018.

Yanacocha also owns the Conga project, which is located six kilometers southwestapproximately 16 miles (25 kilometers) northeast of Yanacocha, which is currently in care and maintenance stages. Due to uncertainty surrounding the La Quinua pit.  Cerro Negro Este utilizedproject and political risks related to the La Quinua leach pad.  Operations beganproject’s development, the Company has allocated its exploration and development capital to other projects in April 2004 usingrecent years. Should Yanacocha be unable to develop the open-pit mining method and all solution processing occurred atConga project, Yanacocha may have to consider other alternatives for the Cerro Yanacocha plant following treatment atproject, which may result in a future impairment charge for the La Quinua leach pad and carbon column facility.  Mining operations at Cerro Negro Este ceased in March 2005.project. See “Item 3. Key Information—D. Risk Factors” for further information.

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Mining operations in Tapado Oeste was completed at the end of 2015, while the construction of the Tapado Oeste layback was approved in early 2015. The Tapado Oeste layback began mining operations in the first quarter of 2015.

Western Oxides

The Western Oxides are comprised 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 August 2011 and are scheduled to be finished in 2016. La Quinua Sur commenced mining activities in July 2014 and is scheduled to cease operations in 2019. The ore mined from this pit will be processed at the La Quinua leach 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 will restart to deepen the current pit in the first half of 2016.

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, 2015 for Yanacocha. Calculations with respect to the estimates of proven and probable reserves are based on a gold price of US$1,200 per ounce and a copper price of US$2.75 per pound as of December 31, 2015. 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 proven and probable reserves are calculated before any losses during metallurgical treatment.

  Proven and Probable Reserves at December 31, 2015ǂ 
  Tonnage
(thousands of DST)		  Average Gold Grade
(oz./DST)		  Ounces Contained
(thousands of ounces)		 
Quecher Main  96,237   0.01   1,442 
Marleny  967   0.01   9 
Yanacocha  3,986   0.04   152 
Yanacocha Layback  41,356   0.01   490 
La Quinua Sur  44,790   0.01   646 
Tapado Oeste Layback  26,428   0.04   963 
Cerro Negro  6,682   0.01   89 
Transition Stockpile  5,295   0.03   145 
Deep Transitional Stockpile  7,317   0.06   431 
Gold Mill Stockpile  2,639   0.08   218 
Maqui Maqui Leach Pad  519   0.04   23 
Carachugo Leach Pad  1,961   0.02   34 
Yanacocha Leach Pad  87   0.03   2 
La Quinua Leach Pad  21,981   0.02   410 
Total  260,244   0.02   5,057 

ǂProven and probable reserves, as of December 31, 2015, were calculated using a gold price assumption of US$1,200 per ounce.

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As of December 31, 2015,2018, Yanacocha’s total proven and probable reserves (excluding the Conga project, the reserves for which were reclassified as resources or NRM as of December 31, 2015) were estimated to be 5.17.4 million ounces of gold, representing a 4%an 94% increase over Yanacocha’s total proven and probable reserves (excluding the Conga Project) as of December 31, 2014,2017, which were estimated to be 4.93.8 million ounces of gold. Yanacocha’s total

The following tables detail proven and probable gold reserves of copper were 3.3 billion poundsfor Yanacocha as of December 31, 2015 representing no change from of copper reserves reported as of December 31, 2014.2018 and 2017:

 

Gold Reserves At December 31, 2018(1)(2) 
  Proven Reserves  Probable Reserves  Proven and Probable Reserves    
  Tonnage  Grade  Ounces  Tonnage  Grade  Ounces  Tonnage  Grade  Ounces  Metallurgical 
Deposits/Districts (in thousands)  (oz/ton)  (in thousands)  (in thousands)  (oz/ton)  (in thousands)  (in thousands)  (oz/ton)  (in thousands)  Recovery 
Yanacocha Open Pits(3)  14,606   0.020   292   217,137   0.019   4,012   231,743   0.019   4,304   64%
Yanacocha Leach Pads(4)  14,021   0.022   312   —       —   14,021   0.022   311   70%
Yanacocha Stockpiles(5)  4,479   0.035   156   3,116   0.056   175   7,595   0.044   331   80%
Yanacocha Underground(6)  —       —   12,074   0.204   2,473   12,074   0.204   2,473   97%
Total Yanacocha  33,106   0.023   760   232,327   0.029   6,660   265,433   0.028   7,420   76%

Based on the current recovery rate and estimated gold production levels in 2015, most of Yanacocha’s proven and probable reserves as of December 31, 2015 will be depleted by 2019 unless Yanacocha continues adding reserves to the production plan (such as the Quecher Main). Yanacocha’s management believes that its prospective land positions and mining concessions provide it with potential for future exploration and additions to its reserves.

Gold Reserves as of December 31, 2017(1)(2) 
  Proven Reserves  Probable Reserves  Proven and Probable Reserves    
  Tonnage  Grade  Ounces  Tonnage  Grade  Ounces  Tonnage  Grade  Ounces  Metallurgical 
Deposits/Districts (in thousands)  (oz/ton)  (in thousands)  (in thousands)  (oz/ton)  (in thousands)  (in thousands)  (oz/ton)  (in thousands)  Recovery 
Yanacocha Open Pits  23,127   0.022   500   148,936   0.018   2,683   172,063   0.018   3,182   70%
Yanacocha Leach Pad(4)  11,656   0.022   241   -       -   11,656   0.022   241   73%
Yanacocha Stockpiles(5)  9,436   0.042   407   -       -   9,436   0.042   407   56%
Total  44,218   0.026   1,147   148,936   0.018   2,683   193,154   0.020   3,830   69%

 

(1)Proven and probable reserves, as of December 31, 2018 and 2017 reserves were calculated at an estimated gold price of $1,200 and $1,600 per ounce, respectively, unless otherwise noted.

(2)The reserves shown for Yanacocha are the total reserves of the mine and do not indicate our equity share.

(3)Gold cut-off grades utilized in 2018 reserves were as follows: oxide leach material not less than 0.004 ounce per ton; oxide mill material not less than 0.013 ounce per ton; and refractory mill material not less than 0.040 ounce per ton.

(4)Leach pad material is the material on leach pads at the end of the year from which gold remains to be recovered. In-process reserves are reported separately where they exceed 100,000 ounces and are greater than 5% of the total site-reported reserves.

(5)Stockpiles are comprised primarily of material that has been set aside to allow processing of higher grade material in the mills. Stockpiles increase or decrease depending on current mine plans. Stockpile reserves are reported separately where ounces exceed 100,000 and are greater than 5% of the total site-reported reserves.

(6)Gold cut-off grades utilized in 2018 reserves not less than 0.054 ounce per ton.

ITEM 4A.Unresolved Staff Comments

 

None.

 

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% partnership interest, followed by information with respect to Cerro Verde, in which we have a 19.58% equity interest.

BUENAVENTURA

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Introduction

 

The following discussion should be read in conjunction with the Consolidated Financial Statements as of December 31, 20142017 and 20152018 and for the years ended December 31, 2013, 20142016, 2017 and 20152018 and the related notesNotes thereto included elsewhere in this Annual Report. The Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB. We present our consolidated 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:

 

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

 

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

 

·Chaupiloma, which receives a royalty payment from Yanacocha;

 

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·Condesa, which is mainly a holding company for internal investments and investments in us, 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.Historically, a substantial part of our net loss before income tax was derived from our equity interest in Yanacocha. We have a 43.65% equity participation in Yanacocha as of December 31, 2018, 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. 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 twothree major shareholders, Newmont Mining, Sumitomo and us.Buenaventura.

 

Cerro Verde.As of December 31, 2015,2018, we had a 19.58% 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.

 

Results of operations.The primary factors affecting our results of operations are:

 

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

 

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

 

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·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 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.

From January to December 2019, El Brocal has outstanding hedging commitments amounting to 2,000 metric tons of copper at an average fixed price of US$7,345 to US$7,352 per ton.

Operating costs and expenses.Operating costs and expenses consist of:

 

·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;

 

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·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 Manageroperations 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.approved the feasibility of the conceptual study of a project. 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.

 

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).

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Net income and net distributable income.Under Peruvian law, each company is required to establish a legal reserve equal to at least 20% of its paid-in capital on an unconsolidated basis. An annual contribution of at least 10% of net income must be made until such legal reserve equals 20% 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 mine. Specifically, we pay the lessor a royalty of 10% of the value of the concentrates 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, we publicly announced our decision to discontinue operations and sell any remaining assets and equipment at four of our mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, these mining units arewere presented in the Financial Statementsour consolidated financial statements as of December 31, 2014 and 2015 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. During 2016, we decided to change the classification of three mining units (Poracota, Recuperada and Shila-Paula) that had been mining units held for sale and began the final closing process for these mines. As a result, income, costs and expenses related to this mining unit were classified as discontinued operations for the years 2016, 2015 and 2014. In December 2016, we sold the Antapite mining unit and we started the final closing process for the Breapampa mining unit. During 2017, we sold the Breapampa and Recuperada mining units. See NotesNote 1(e) and 2.4(x)Note 2.4(w) to the Consolidated Financial Statements.

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Critical Accounting Policies and Estimates

 

The following is a discussion of our application of critical accounting policies that require our management, or Management,“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 consolidated 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; and

 

·fair value of contingent consideration.consideration

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Other significant accounting policies include:

 

·contingencies;

 

·development start date;

·production start date; and

 

·production start date.revenue from contracts with clients.

 

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 frameworkFor 2016, Geominería S.A.C. audited the process used to estimate proven and probable ore reserves for our wholly-owned minesOrcopampa, Uchucchacua, Julcani, Mallay and Tambomayo, 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, 2013 were reviewed by an independent consultant Algon Investments S.R.L. and Geomineria S.A.C. as of December 31, 2014 and 2015.2016. The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2013 and 2014 were2016 was reviewed by consultant Buenaventura Ingenieros S.A. As of December 31, 2017. SRK Consulting Perú S.A., an independent consultant, MINTEC Inc., which is inaudited the process of reviewing the conceptual framework used to estimate proven and probable ore reserves for Uchucchacua, Tantahuatay and La Zanja, Hatch Asociados S.A., an independent consultant, validated the model used to estimate proven and probable ore reserves for Tambomayo, Mining Plus Pty Ltd validated the model used to estimate proven and probable ore reserves for El Brocal’s mines asBrocal and Geomineria S.A.C. audited the process used to estimate proven and probable ore reserves for Orcopampa, Julcani and Mallay. As of December 31, 2015.2018, SRK Consulting Perú S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for Uchucchacua, Tambomayo, Tantahuatay and La Zanja. Geominería S.A.C., an independent consultant, audited the process to estimate proven and probable ore reserves for Orcopampa and Julcani. Mining Plus Pty Ltd audited the process to estimate proven and probable ore reserves for El Brocal.

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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.

 

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.

 

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This results in a depreciation/depreciation or 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, is determined based on both its physical life limitations and present assessments of economically recoverable reserves of the mine property at whichwhere 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.

 

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, 2015,2018, we have recorded an accrual for mine closure costs of US$166.4225.9 million to comply with governmental requirements for environmental remediation for Buenaventura and its mining subsidiaries. Please see Note 16(b)15(b) to the Consolidated Financial 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.

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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.

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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.

 

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 2013,At each reporting date, 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 and as a resultrecoveries of the provision during 2016, 2017 and 2018.

In 2017, we recorded an impairment loss for threerelated to our La Zanja mining property of ourUS$21.6 million. As a result of the sale of the Breapampa and Recuperada mining units, (Recuperada, Poracota and Antapite), which resulted inas well as 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 reflectivesale of the current environmentShila Paula mining unit assets, Buenaventura recorded a reversal of impairment losses in 2017 of US$7.4 million, US$7.1 million and Management’s projections for long-term average metal prices and operating costs.US$2.7 million, respectively.

 

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 resultIn 2018, we recorded an impairment loss for onereversal related to our La Zanja mining property of our mining units (Shila-Paula), which resulted in the recognition of asset impairment amounted to US$0.85.7 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, 2015 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.

During 2015, 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 of the analysis of the recovery amount. In addition, as a result of the disposal of assets, we recorded ana reversal in our impairment loss for twoprovision related to our Shila Paula mining unit of our mining units (La Zanja and Breapampa), which resultedUS$2.8 million. This provision was previously recorded in the recognition of asset impairment amount of US$11.2 million (recognized as an operating expense). 2016.

These impairment charges have not had noan 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 reflecting of the current environment and Management’s projections for long-term average metal prices and operating costs.

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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, 2013, 20142016, 2017 and 20152018 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.

 

63

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.

 

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, 2015, 20142016, 2017 and 2013,2018, our valuation allowance totaled US$18.237.0 million, US$4.238.9 million and US$6.4 million.40.9 million, 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;

 

64

·Insurance brokerage;

 

·Rental of mining concessions;

 

·Holding of investment in shares (mainly(primarily in our associate, Minera Yanacocha and Chaupiloma)S.R.L); 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 31 to the Consolidated Financial Statements.

 

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 Consolidated Financial Statements.

 

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

 

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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:

65

 

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.

 

Revenues

 

According to our accounting policies, revenue is recognized when control of goods or services is transferred to the extent that it is probable that the economic benefits will flowcustomer in an amount equal to us. Revenue is measured at the fair value of the consideration received, excluding discountsthat we expect to receive in exchange for those goods and other sales taxes or duty.services.

 

Revenues from sales of concentrates gold and silvermetals are recognized at the point in the time when control of the significant risks and rewards of ownership have beenasset is transferred which is considered to occur when title passes to the customer. This generally occurs when the product is physically transferredRevenues related to services, such as energy generation and transmission, industrial services, and other services, are recognized over time.

See Note 2.4(q) 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. 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.

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 21(a) and 32(b) to theConsolidated Financial Statements.

 

Results of Operations for the Years Ended December 31, 20152018 and 20142017

 

Net sales of goods.Net sales of goods decreased by 18.95%8%, from US$1,067.3 millionmainly due to a decrease in 2014 to US$865.0 millionboth volume of metal sold and average realized prices, as set forth in 2015. the chart below:

Sales of goods Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Gold (a)  511,434   411,926   (99,508)  (19)%
Silver (b)  409,775   369,167   (40,608)  (10)%
Lead (c)  94,955   89,059   (5,896)  (6)%
Zinc (d)  188,023   174,048   (13,975)  (7)%
Copper  268,527   274,761   6,234   2%
Manganese sulfate  6,317   6,655   338   5%
Indium 66   -   (66)  (100)%
   1,479,097   1,325,616   (153,481)  (10)%
Commercial deductions (e)  (253,939)  (195,865)  58,074   (23)%
Adjustments to prior period liquidations  919   857   (62)  (7)%
Fair value of accounts receivable  8,786   (6,215)  (15,001)  N.A.  % 
Hedge operations  (10,921)  (1,398)  9,523   (87)%
Total sales of goods  1,223,942   1,122,995   (100,947)  (8)%

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(a)Gold Sales. The decrease in gold sales is mainly due to decreases in the volume of gold sales, which was primarily due to decreases in the volume sold. The Orcopampa and the La Zanja mining units, partially offset by an increase in the volume sold in the the Tambomayo mining unit.

(b)Silver sales. The decrease in silver sales is mainly due to decreases in both the volume of silver sold and average realized prices. The decrease in volume sold is due to decreases in the volume sold in the Uchucchacua, Mallay, Julcani and Orcopampa mining units, partially offset by an increase in the volume sold in the Tambomayo mining unit.

(c)Lead sales. The decrease in lead sales is mainly due to decreases in average realized sale prices of lead sold.

(d)Zinc sales.The decrease in zinc sales is primarily due to decreases in average realized sale prices of zinc sold.

(e)Commercial deductions. Net sales of goods figures are obtained by deducting the refinery charges and penalties incurred. A total of US$195.9 million of refinery charges and penalties were incurred in 2018, compared to US$253.9 million incurred in 2017.

The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 20142017 and 2015,2018, as well as the variation in such average realized prices and volumes recorded for the year ended December 31, 20152018 as compared to the year ended December 31, 2014:2017:

Average Realized Price Year ended December 31, 
  2017  2018  Variation 
Gold (US$/oz.)  1,267.56   1,267.99   -%
Silver (US$/oz.)  16.54   15.09   (9)%
Lead (US$/t)  2,372.00   2,140.81   (10)%
Zinc (US$/t)  3,046.19   2,686.24   (12)%
Copper (US$/t)  6,280.47   6,277.40   -%

Volume Sold Year ended December 31, 
  2017  2018  Variation 
Gold (oz.)  403,480   324,864   (19)%
Silver (oz.)  24,773,278   24,464,648   (1)%
Lead (t)  40,032   41,600   4%
Zinc (t)  61,724   64,792   5%
Copper (t)  42,756   43,770   2%

Net sales of services.Sales of services decreased by 19%, as set forth in the chart below:

 

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Average Realized Price Year ended December 31, 
  2014  2015  Variation* 
    
Gold (US$/oz.)  1,263.32   1,151.45   (8.86)%
Silver (US$/oz.)  18.65   15.06   (19.25)%
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.)  439,093   380,899   (13.25)%
Silver (oz.)  19,088,923   21,023,873   10.14%
Lead (t)  18,820   32,389   72.10%
Zinc (t)  21,231   55,529   161.55%
Copper (t)  40,263   29,094   (27.74)%

(a)   Gold sales. Average realized sales prices for gold decreased from US$1,263.32 per ounce in 2014 to US$1,151.45 per ounce in 2015. Gold sales volume decreased from 439,093 ounces in 2014 to 380,899 ounces in 2015, mainly due to a decreased gold production at our Breapampa mining unit. The combined effect of these changes resulted in a US$112.5 million decrease in income from sales of gold in 2015 as compared to 2014.

(b)  Silver sales. Average realized sales prices for silver decreased from US$18.65 per ounce in 2014 to US$15.06 per ounce in 2015. Silver sales volume increased from 19,088,923 ounces in 2014 to 21,023,873 ounces in 2015, mainly due to increased silver production at our Uchucchacua, Colquijirca and Julcani mining units. The combined effect of these changes resulted in a US$38.5 million decrease in income from sales of silver in 2015 as compared to 2014.

(c)  Lead sales. Average realized sales prices for lead decreased from US$2,106.87 per ton in 2014 to US$1,711.87 per ton in 2015.Lead sales volume increased from 18,820 tons in 2014 to 32,389 tons in 2015, mainly due to increased lead production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$16.3 million increase in income from sales of lead in 2015 as compared to 2014.

(d)  Zinc sales. Average realized sales prices for zinc decreased from US$2,243.76 per ton in 2014 to US$1,838.86 per ton in 2015. Zinc sales volume increased from 21,231 tons in 2014 to 55,529 tons in 2015, mainly due to increased zinc production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$55.2 million increase in income from sales of zinc in 2015 as compared to 2014.

(e)  Copper sales. Average realized sales prices for copper decreased from US$6,737.78 per ton in 2014 to US$4,514.93 per ton in 2015. Copper sales volume decreased from 40,263 tons in 2014 to 29,094 tons in 2015, mainly due to decreased copper production at our Colquijirca mining unit. The combined effect of these changes resulted in a US$139.9 million decrease in income from sales of copper in 2015 as compared to 2014.

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$184.5 million incurred in 2014) and revenues from mining units held for sale (a total of US$0.4 million revenues provided from mining units held for sales in 2015, compared with US$5.1 million provided in 2014) from the gross sales of all metals sold. See Note 21(a) to the Financial Statements.

Sales of servicesdecreased by 23.9%, from US$71.6 million in 2014 to US$54.5 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.

Sales by services Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Energy generation and transmission  60,639   62,962   2,323   4%
Insurance Brokerage  14,377   14,986   609   4%
Holding of investments in shares  615   615   -   -
Construction and engineering (a)  10,603   -   (10,603)  (100)%
Industrial Activities  19,658   19,908   250   1%
Adjustments and eliminations intercompany  (76,195)  (74,470)  1,725   2%
Total sales of services  29,697   24,001   (5,696)  (19)%

 

71(a)The construction and engineering segment decrease was a result of our sale of our subsidiary, Buenaventura Ingenieros S.A., during 2018.

 

Royalty income. In 2015,2018, royalty income received by our subsidiary Chaupiloma amounted to US$32.420.4 million, representing less than a 12.1%1% decrease from the US$36.920.7 million in royalty income received in 2014.2017. 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% 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 0.2%, from US$949.5 million in 2014 to US$951.8 million2018 were in 2015, due to changesline with those of 2017 as indicated in the following components:table:

 

(a)          Cost of sales of goods, excluding depreciation and amortization, increased by 0.87%, from US$533.0 million in 2014 to US$537.7 million in 2015.

(b)          Cost of services, excluding depreciation and amortization, decreased by 35.3% from US$81.5 million in 2014 to US$52.7 million in 2015, which was mainly due to costs from our construction and engineering unit decreasing by US$20.5 million as a result of lower net sales and a lower headcount.

(c)          Exploration in operating units decreased by 6.5%, from US$97.9 million in 2014 to US$91.5 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 and Breapampa mining units, respectively, due to increased exploration efforts. See Note 23 to the Consolidated Financial Statements.

(d)          Depreciation and amortization costs increased by 16.2%, from US$208.7 million in 2014 to US$242.5 million in 2015, mainly due to:

Operating Costs Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands) 
             
Cost of sales of goods, excluding depreciation and amortization  627,433   625,484   (1,949)  -
Cost of services, excluding depreciation and amortization (a)  12,954   4,318   (8,636)  (67)%
Exploration in operating units  94,928   90,343   (4,585)  (5)%
Depreciation and amortization (b)  213,722   241,286   27,564   13%
Mining royalties (c)  31,217   21,526   (9,691)  (31)%
Total operating costs  980,254   982,957   2,703   -

 

·(a)higherCost of services, excluding depreciation and amortization costs incurred in the La Zanja mining unit of US$51.8 million, which increased from US$53.2 million in 2014 to US$105.0 million in 2015 as a result of the. The decrease in cost of services was mainly due to the reservessale of our subsidiary, Buenaventura Ingenieros S.A., during 2015.2018. During 2017, this subsidiary had a cost of sale of US$9.4 million.

 

·(b)higherDepreciation and amortization. The increase in the cost of depreciation and amortization was mainly due an increase of US$34.2 million corresponding to depreciation and amortization costs incurredof our Tambomayo mining unit (which started operations in the Colquijirca mining unitthird quarter of US$18.7 million, which increased from US$27.0 million in 2014 to US$45.7 million in 2015 as a result of the capitalization of the expansion project at the beginning of 2015.2017).

 

·(c)lower depreciation costs incurredMining royalties. The decrease in mining royalties is due to a decrease in the Breapampa mining unitcost of US$25.8 million, which decreased from US$35.7 million in 2014 to US$9.9 million in 2015 dueroyalties paid to the lower operations during 2015.Peruvian State, which in turn has a direct relationship with the decrease in our net sales.

·lower depreciation and amortization costs incurred in the Orcopampa and Mallay mining units of US$6.0 million and US$9.3 million, respectively, which decreased from US$48.0 million in 2014 to US$32.7 million in 2015 as a result of changes in the reserves during 2015.

(e)          Mining Royalties decreased by 3.6%, from US$28.4 million in 2014 to US$27.4 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$6.7 million and US$5.5 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 decreased by 10.3%, from US$164.7 million in 2014 to US$147.7 million in 2015,31% due to changes in the following components:

 

(a)          Administrative expenses decreased by 14.4%, from US$101.1 million in 2014 to US$86.5 million in 2015, mainly due to:

Operating Expenses (Income) Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Administrative expenses  83,597   78,760   (4,837)  (6)%
Exploration in non-operating areas (a)  18,262   36,307   18,045   99%
Selling expenses  24,088   27,522   3,434   14%
Impairment loss (reversal) of long-lived assets (b)  21,620   (5,693)  n.a.   n.a. 
Provision (reversal) for contingences and others (c)  13,879   (11,239)  n.a.   n.a. 
Write-off of asset stripping activities (d)  13,573   -   (13,573)  (100)%
Other, net (e)  13,589   5,012   (8,577)  (63)%
Total operating expenses  188,608   130,669   (57,939)  (31)%

 

(a)·a decreaseExploration in non-operating areas.The increase in exploration in non-operating areas is mainly due to an increase in expenditures in exploration activities, mainly in the Yumpag project in an amount of US$8.318.0 million and the Marcapunta Norte project in the construction and engineering unit due to a decrease in the contracts during 2015;an amount of US$6.7 million

 

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·(b)a decreaseImpairment reversal / loss of US$3.7 million in thelong-lived assets. During 2018, an impairment reversal related to our La Zanja mining unit dueof US$5.7 million was recorded, as a result of the analysis of the recovery amount. In 2017, La Zanja recorded an impairment loss related to a provision for environmental contingencies forits mining property of US$4.321.6 million, recorded in 2014; andas result of the depletion of its reserves.

 

·(c)Provision for contingences and others.During 2018, a decreasereversal of contingences was recorded, mainly caused by the reversal in provisions for obligations with the communities as a result of negotiations with our operating units in an amount of US$5.210.2 million. These provisions were previously recorded in 2017.

(d)Write-off of asset stripping activities. During 2018, no write-off of asset stripping activities was recorded. During 2017, El Brocal decided not to mine the western wall of the Tajo Norte, due to stability and operational design issues. According to the distribution of reserves, this area (Phase 10) contained 5.5 MT of ore and 9.2 MT of waste valued at US$13.5 million, which were written-off and withdrawn from the reserves.

(e)Other net. Other net operating expenses decreased from US$13.6 million in the Breapampa mining unit2017 to US$5.0 million in 2018, primarily due to the reductionnet effect of operations during 2015higher expenses such as (i) higher provision of impairment of value of inventory in lineUS$7.0 million, (ii) US$6.1 million loss related to write-off of assets in the Tambomayo, Orcopampa, Mallay and Uchucchacua mining units, (iii) a US$4.1 million loss related to the sale of our subsidiary, Buenaventura Ingenieros S.A., and (iv) US$1.3 million loss from allowance for expected credit losses, which were offset by a net gain by El Brocal in an amount of US$33.7 million due to the receipt of recovery income from an insurance claim. Total compensations for lost profits and consequential damages amounted to US$38.8 million, which were partially offset by costs associated with the depletionmitigation, repair and cost overruns of its reserves.US$5.1 million.

(b)          Exploration in non-operating areas decreased by 38.8 percent, 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$11.2 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 and Breapampa).

Operating profit (loss). As a result of the foregoing, we generated an operating profit of US$61.6 million in 2014 compared to an operating loss of US$147.6 million in 2015.

 

Other income (expense), net. Other income (expenses),expense, net increased by 680.0% from US$26.1 million in 2014141% due to US$203.7 million in 2015, mainly explained by:

(a)          Sharechanges in the results of associates under equity method. Loss from equity investments in associates increased by 132.4%, from US$74.6 million in 2014 to US$173.4 million in 2015,following components:

Other income (expense), net Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Shares in the results of associates (a)  13,207   (1,144)  (14,351)  N.A.%
Finance costs (b)  (34,623)  (38,456)  (3,833)  11%
Finance income (c)  5,517   9,686   4,169   76%
Net gain (loss) from currency exchange difference (d)  2,928   (1,366)  (4,294)  N.A.%
Total operating expenses, net  (12,971)  (31,280)  (18,309)  141%

(a)Shares in the results of associates. Shares in the results of associates decreased from a gain of US$13.2 million in 2017 to a loss of US$1.1 million in 2018, primarily due to decreases in the results of our associates Cerro Verde and Coimolache in an amount of 66% and 48%, respectively, which were partially offset by a 96% increase in Yanacocha’s results.

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

The decrease in our share of results in Coimolache was due to the decrease in the net income of Coimolache of US$25.2 million, mainly as a result of an increase in net loss from our equity investment in our associate company, Yanacocha,the depreciation and amortization costs (as a result of the decrease in net income from our equity investmentthe life of the mine) of US$14.0 million and higher costs relating to exploration in Cerro Verde.operating areas amounting to US$7.5 million.

 

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Net loss from our interest in Yanacocha increased by 12.5%, from US$174.7 million in 2014 to US$196.5 million in 2015. Net income from our interest in Cerro Verde decreased by 91.6 percent, from US$77.9 million in 2014 to US$6.5 million in 2015. Finally, net income from our interest in Coimolache decreased by 25.3%, from US$22.3 million in 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. (“CDH”) from Minera Gold Fields Perú S.A. (“MGFPSA”) 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 144.1%, from US$11.3 million in 2014 to US$27.6 million in 2015, primarily due to:

 

·(b)lower capitalization of borrowingsFinance costs.Finance costs of US$18.8 millionincreased primarily due to the lacknet effect of significant qualifying assetshigher interest expenses of US$4.5 million, mainly related to a long-term finance contract entered into by Buenaventura which generates higher expenses of US$7.4 million, which was partially offset by a decrease in 2015;the interest in loans in US$1.0 million.

 

·(c)Finance income.Finance income increased by 76%, from US$5.5 million in 2017 to US$9.7 million in 2018, due to a decrease of the interests of financial obligations of US$8.94.1 million partially offset by the increase of the interests of bank loans of US$4.8 million; andin income derived from interest on time deposits.

 

·(d)an increaseGain (loss) from currency exchange difference.The currency exchange difference decreased from a gain of US$2.9 million in 2017 to a loss of US$1.6 million in 2018 as a result of the financial cost related to closing mining units, due to the higher provision recordedvariations in 2015.exchange rates.

 

Income tax. Provision for income tax decreasedincreased by 77.6%33%, from US$66.018.0 million in 20142017 to US$14.826.9 million in 2015, primarily2018, due to a decrease in the provision for income tax at the El Brocal and La Zanja mining units, and at the corporate unitnet effect of US$25.7 million, US$18.1 million and US$11.3 million, respectively, due to those segments showing net losses during 2015.

·an increase of US$15.8 million in the deferred income tax expense, mainly explained by a US$14.1 million increase in the deferred expense of La Zanja (mainly due to the lower deferred asset related to the impairment of long-term assets and provision of closure mining units), and

·a decrease of US$6.9 million in the current income tax expense, primarily due to the lower income tax in La Zanja of US$6.0 million as a result of the decrease in taxable income.

Non-controlling interest income (loss). Non-controlling interest changedincome decreased from an incomea gain of US$14.43.6 million in 20142017 to a loss of US$58.31.8 million in 2015,2018, primarily due to the effect of a decrease in contribution of profits derived from the La Zanja and El Brocal units byin US$33.2 million and US$38.4 million, respectively.1.4 million. See Note 19(a)18(a) to the Consolidated Financial Statements.

 

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Net lossincome (loss). As a result of the foregoing, net loss increasedresults decreased from an income of US$61.664.4 million in 20142017 to a loss of US$375.511.7 million in 2015.2018. Net profit was 5% of revenues in 2017 and net loss was 5.2%1% of operating incomerevenues in 2014 and 39.5% of operating income in 2015.2018.

 

Results of Operations for the Years Ended December 31, 20152018 and 20142017 by Segment

 

We present the operating results for each of our operating segments for the years ended December 31, 20142017 and 20152018 in more detail in Note 31 to the Consolidated Financial Statements.

Sales of goods -Mining– 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, 20152018 and 2014,2017, as well as the variation in such volumes sold for the year ended December 31, 20152018 as compared to the year ended December 31, 2014:2017:

 

Mining Segment Volume Sold for the year ended December 31, 2015  Volume Sold for the year ended December 31, 2018 
 Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t)  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  94   3,493,166   2,478   -   103   11   2,368,497   915   -   17 
Mallay  396   1,134,528   6,612   7,482   -   40   458,671   1,632   3,368   - 
Breapampa  16,069   212,826   -   -   - 
Orcopampa  214,821   555,314   -   -   -   116,719   335,761   -   -   42 
Uchucchacua  38   12,666,673   6,560   4,750   -   216   14,443,456   17,071   16,811   - 
Tambomayo  119,211   3,570,382   3,268   7,143   - 
La Zanja  142,300   324,151   -   -   -   74,370   228,894   -   -   - 
Colquijirca  7,181   2,637,215   16,739   43,297   28,991   14,297   3,058,987   18,713   37,470   43,710 

 

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   - 
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 2015 vs 2014 Change (%) 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  683%  23%  20%  -   61%
Mallay  100%  1%  (9)%  (13)%  - 
Breapampa  (80)%  (45)%  -   -   - 
Orcopampa  5%  38%  -   -   - 
Uchucchacua  100%  6%  -   11%  - 
La Zanja  (1)%  (23)%  -   -   - 
Colquijirca  (9)%  37%  507%  441%  (28)%

Julcani. Net sales of goods increased by US$0.5 million in 2015 as compared to 2014 due to increases in the volume of silver and lead sold at that unit, partially offset by a decline in the average realized price of silver.

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.

Breapampa.Net sales of goods decreased by US$86.1 million in 2015 as compared to 2014 due to a decrease in the volume of silver and gold sold and a decline in the average realized price of those minerals.

Orcopampa. Net sales of goods decreased by US$9.9 million in 2015 as compared to 2014 due to a decline in the average realized prices of gold and silver, partially offset by a 5% increase in gold sold (from 204,862 ounces sold in 2014 to 214,821 ounces sold in 2015) and a 38% increase in silver sold (from 401,782 ounces sold in 2014 to 555,314 ounces sold in 2015) at that unit.

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Mining Segment Volume Sold for the year ended December 31, 2017 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  21   2,466,846   1,916   -   32 
Mallay  346   993,040   3,804   5,926   - 
Orcopampa  195,278   574,591   -   -   91 
Uchucchacua  201   15,583,553   13,127   10,281   - 
Tambomayo  63,130   1,621,611   1,769   2,398   - 
La Zanja  128,622   279,737   -   -   - 
Colquijirca  15,882   3,253,900   19,416   43,119   42,633 

Mining Segment 2018 vs 2017 Change (%) 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  (48)%  (4)%  (52)%  -%  (47)%
Mallay  (89)%  (54)%  (57)%  (43)%  -%
Orcopampa  (40)%  (42)%  -%  -%  (54)%
Uchucchacua  7%  (7)%  30%  64%  -%
Tambomayo  89%  120%  85%  198%  -%
La Zanja  (42)%  (18)%  -%  -%  -%
Colquijirca  (10)%  (6)%  (4)%  (13)%  3%

Uchucchacua. NetThe change in 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.

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.

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 - construction and engineering segment.Net sales for the construction and engineering segment decreased by US$18.1 million in 2015 as compared to 2014 due to a reduction in the development and construction of mining projects.

Sales of services - insurance brokerage segment.Net sales for the insurance brokerage segment increased by US$1.3 million in 2015 as compared to 2014 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$9.4 million in 2015 as compared to 2014 due to the increase in the demand of energy from our other operating segments.

Total operating expenses- Mining Segments

Orcopampa. During 2015, total operating expenses decreased by US$4.9 million due to a decrease in other income as a result of lower sales to third parties.

Julcani. During 2015, total operating expenses decreased by US$4.2 million due to other expenses of US$4.6 million compared to 2014.

Breapampa. During 2015, total operating expenses increased by US$1.7 million due to an impairment loss recorded during 2015 of US$7.5 million, offset by a decrease in administrative expenses compared to 2014 of US$5.2 million.

Colquijirca. During 2015, total operating expenses increased by US$3.7 million 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.

La Zanja. During 2015, total operating expenses decreased by US$12.9 million due to a decrease in exploration in non-operating areas of US$10.7 million which were partially offset by an increase an impairment loss by US$3.8 million, each as compared to 2014.

Uchucchacua. During 2015, total operating expenses decreased by US$2.0 million due to a decrease in administrative expenses as compared to 2014, as a result of a cost reduction plan adopted in 2014.

Mallay. During 2015, total operating expenses increased by US$0.1 million due to increases in other expenses as compared to 2014, which was partially offset by a decrease in administrative expenses and selling expenses.

Total operating expenses—construction and engineering segment. During 2015, total operating expenses for the construction and engineering segment decreased by US$7.6 million for the year ended December 31, 20152018 as compared to 2014 due to decreasethe year ended December 31, 2017 is mainly explained by the changes in administrative expenses.volume sold, as presented in the following chart:

Sales of goods – Mining Segments Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Julcani (a)  42,785   34,104   (8,681)  (20)%
Mallay (b)  36,736   16,666   (20,070)  (55)%
Orcopampa (c)  256,960   153,003   (103,957)  (40)%
Ucchuchacua (d)  272,334   257,282   (15,052)  (6)%
Tambomayo (e)  118,966   225,281   106,315   89%
La Zanja (f)  165,319   96,611   (68,708)  (42)%
Colquijirca  322,653   333,560   10,907   3%

(a)Julcani.Net sales of goods decreased by US$8.7 million in 2018 as compared to 2017 due to a 9% decrease in the average realized price and a 4% decrease in the amount of silver sold at that unit.

(b)Mallay.Net sales of goods decreased by US$20.1 million in 2018 as compared to 2017 due to a 7% decrease in the average realized price and a 54% decrease in the amount of silver sold at that unit.

(c)Orcopampa.Net sales of goods decreased by US$104.0 million in 2018 as compared to 2017 due to a 7% decrease in the average realized silver price and a 42% and 40% decrease in the amount of silver and gold sold at that unit, mainly explained by our strategy to prioritize Orcopampa’s program to reduce bottle-necking over ore extraction.

(d)Uchucchacua.Net sales of goods decreased by US$15.0 million in 2018 as compared to 2017 due to an 8% decrease in the average realized price and a 7% decrease in the amount of silver sold at that unit.

(e)Tambomayo.Net sales of goods increased by US$106.3 million in 2018 as compared to 2017 due to an 89% and 120% increase in the amount of gold and silver sold at that unit.

(f)La Zanja.Net sales of goods decreased by US$68.7 million in 2018 as compared to 2017 due to a 42% decrease in the amount of gold sold.

 

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Total operating expenses—insurance brokerage segment. During 2015, totalexpenses – Mining Segments. The change in operating expenses for the insurance brokerage segment increased by US$2.5 millionyear ended December 31, 2018 as compared to 2014 due to an increase in administrative expenses.the year ended December 31, 2017 is mainly explained by:

 

Operating Expenses – Mining Segments Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Julcani  5,346   2,983   (2,363)  (44)%
Mallay  4,474   5,948   1,474   33%
Orcopampa  20,013   19,382   (631)  (3)%
Ucchuchacua (a)  37,066   49,840   12,774   34%
Tambomayo (b)  14,917   25,204   10,287   69%
La Zanja (c)  30,525   4,254   (26,271)  (86)%
Colquijirca (d)  42,446   452   (41,994)  (99)%

(a)Uchucchacua. The increase in total operating expenses was mainly due to the net effect of (i) higher exploration expenses of US$18.0 million related to the Yumpag project, and (ii) higher administrative expenses of US$4.6 million, which were partially offset by a reversal in the provisions for contingencies of US$13.8 million mainly related to negotiations made by the Company with communities.

(b)Tambomayo. The increase in total operating expenses was mainly due to the net effect of (i) higher administrative expenses in US$8.7 million, and (ii) higher other expenses in US$5.4 million mainly due to the write-off of assets in US$2.3 million; which were partially offset by lower exploration in non-operating areas in US$3.2 million as a result of the start-up of production.

(c)La Zanja. The decrease in total operating expenses was mainly due to the reversal in the impairment provision during 2018 of US$5.7 million, compared with an increase in the provision during 2017 of US$21.6 million.

(d)Colquijirca. The decrease in total operating expenses was mainly due to the recovery income of from the insurance claim by El Brocal. During 2018, El Brocal recorded a recovery income from an insurance claim in connection with an incident that occurred in May 2017. Total compensation, lost profits and consequential damages amounted to US$38.8 million. As a result of the associated cost for mitigation, repair and cost overruns of US$5.1 million, El Brocal recorded a net gain of US$33.7 million.

Total operating expenses—energy generation and transmission segment. During 2015, total operating expenses for the energy and transmission segment decreased by US$7.6 million as compared to 2014 due to a decrease of US$8.0 million in other expenses-net.- Other Segments

Operating expenses (income) – Other Segments Year ended December 31, 
  2017  2018  Variation  Variation 
Insurance brokerage segment  12,292   11,900   (392)  (3)%
Exploration and development mining projects (a)  9,126   (242)  (9,368)  (103)%
Corporate  6,410   4,060   (2,350)  (37)%
Energy generation and transmission segment  3,469   4,639   1,170   34%
Construction and engineering segment  2,377   -   (2,377)  (100)%
Industrial activities  1,762   2,355   593   34%
Holding of investment in shares  413   (2,261)  (2,674)  (647)%
Rental of mining concessions  91   220   129   142%

(a)During 2018, the exploration and development mining projects segment recorded a decrease in its operating expenses. During 2018, a gain of US$0.2 million was recorded compared with a loss of US$9.1 million in 2017, as a result of the reversal in the contingent provisions for US$6.1 million in 2018 due to negotiations made by Molle Verde with local communities. During 2017, a loss of US$4.6 million was recorded.

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Results of Operations for the Years Ended December 31, 20142017 and 20132016

 

Net sales of goods. SalesNet sales of goods decreasedincreased by 6%21%, from US$1,135.8 millionmainly due to the increase in 2013 to US$1,067.2 millionsales of metal, as set forth in 2014. the chart below:

Sales by metal Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Gold (a)  440,603   511,434   70,831   16%
Silver (b)  385,989   409,775   23,786   6%
Lead (c)  58,690   94,955   36,265   62%
Zinc (d)  142,425   188,023   45,598   32%
Copper (e)  224,649   268,527   43,878   20%
Manganese sulfate  5,982   6,317   335   6%
Indium  -   66   66   - 
   1,258,338   1,479,097   220,759   18%
Commercial deductions (f)  (244,414)  (253,939)  (9,525)  (4)%
Adjustments to prior period liquidations  4,611   919   (3,692)  (80)%
Embedded derivatives from sale of concentrate  880   8,786   7,906   898%
Hedge operations  (3,745)  (10,921)  (7,176)  (192)%
Total sales by metal  1,015,670   1,223,942   208,272   21%

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

(b)Silver sales. The increase in silver sales is mainly due to the effect of an increase in the volume of silver sales. The increase in volume sold is due to the net effect of an increase in silver production at our Uchucchacua and Colquijirca mining units and new production at our Tambomayo mining unit, partially offset by a decrease at our Mallay and Julcani mining units.

(c)Lead sales. The increase in lead sales is mainly due to the effect of increases in the volume of lead sales and average realized sales prices for lead. The increase in volume sold is due to an increase in lead production at our Colqujirca and Uchucchacua mining units.

(d)Zinc sales.The increase in zinc sales is primarily due to the net effect of an increase in average realized sales prices for zinc and a decrease in the volume of zinc sales, mainly due to increased zinc production at our Uchucchacua and Tambomayo mining units, partially offset by a decrease in production at our Colquijirca mining unit.

(e)Copper sales.The increase in copper sales is primarily due to an increase in average realized sales prices for copper, partially offset by a decrease in the volume of copper sales, 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$253.9 million of refinery charges and penalties were incurred in 2017, compared to US$244.4 million incurred in 2016.

The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 20132016 and 2014:

Average Realized Price Year ended December 31, 
  2013  2014  Variation 
    
Gold (US$/oz.)  1,392.18   1,263.32   (9.26)%
Silver (US$/oz.)  22.33   18.65   (16.48)%
Lead (US$/t)  2,104.63   2,106.87   0.11%
Zinc (US$/t)  1,869.22   2,243.76   20.04%
Copper (US$/t)  7,179.50   6,737.78   (6.15)%

Volume Sold Year ended December 31, 
  2013  2014  Variation 
Gold (oz.)  458,499   439,093   (4.23)%
Silver (oz.)  16,329,314   19,088,923   16.90%
Lead (t)  26,584   18,820   (29.21)%
Zinc (t)  38,084   21,231   (44.25)%
Copper (t)  25,406   40,263   58.48%

(a)  Gold sales. Average2017, as well as the variation in such average realized sales prices and volumes recorded for gold decreased from US$1,392.18 per ounce in 2013 to US$1,263.32 per ounce in 2014. Gold sales volume decreased from 458,499 ounces in 2013 to 439,093 ounces in 2014, mainly due to a decreased gold production at our Orcopampa and Breapampa mining units. The combined effect of these changes resulted in a US$85.9 million decrease in income from sales of gold in 2014the year ended December 31, 2017 as compared to 2013.the year ended December 31, 2016:

 

(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$7.6 million decrease in income from sales of silver in 2014 as compared to 2013.

Average Realized Price Year ended December 31, 
  2016  2017  Variation 
Gold (US$/oz.)  1,244.24   1,267.56   2%
Silver (US$/oz.)  17.65   16.54   (6)%
Lead (US$/t)  1,977.53   2,372.00   20%
Zinc (US$/t)  2,266.85   3,046.19   34%
Copper (US$/t)  4,918.52   6,280.47   28%

 

(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 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$16.8 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$24.3 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 ton in 2013 to US$6,737.78 per 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.

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Volume Sold Year ended December 31, 
  2016  2017  Variation* 
Gold (oz.)  354,116   403,480   14%
Silver (oz.)  21,863,019   24,773,278   13%
Lead (t)  29,678   40,032   35%
Zinc (t)  62,829   61,724   (2)%
Copper (t)  45,674   42,756   (6)%

Sales of goods figures are obtained by deducting the refinery charges and penalties incurred (a total of US$184.5 million of refinery charges and penalties were incurred in 2014, compared with US$178.9 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 21(a) to the Financial Statements.

Net sales of services.Sales of Servicesdecreasedservices increased by 10%3%, from US$79.628.8 million in 20132016 to US$71.629.7 million in 2014,2017, mainly explained by the decrease of US$29.6 million in 2014 as compared to 2015 due to a reduction in the development and construction of mining projects and an increase of US$5.1 million in 2014 as compared to 2013 due to an increase in sales in the energy generationinsurance brokerage segment and transmission.a decrease in sales in the engineering segment.

 

Royalty income. In 2014,2017, royalty income received by our subsidiary Chaupiloma amounted to US$36.920.7 million, representing a 17%15% decrease from the US$44.224.3 million in royalty income received in 2013.2016. This decrease was due to a decrease in 2014 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% interest in Chaupiloma, to which Yanacocha pays a royalty that corresponds to 3% of its net sales.

 

Total operating costs. Total operating costs increased by 3%, from US$918.7 million in 2013 to US$949.5 million in 2014,19% due to changes in the following components:

 

Operating Costs Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Cost of sales of goods, excluding depreciation and amortization (a)  497,812   627,433   129,621   26%
Cost of services, excluding depreciation and amortization (b)  10,754   12,954   2,200   20%
Exploration in operating units  96,149   94,928   (1,221)  (1)%
Depreciation and amortization (c)  192,647   213,722   21,075   11%
Mining royalties (d)  27,611   31,217   3,606   13%
Total operating costs  824,973   980,254   155,281   19%

(a)  Cost of sales of goods, excluding depreciation and amortization, increased by 3.9%, from US$513.2 million in 2013 to US$533.0 million in 2014, due to:

(a)Cost of sales of goods, excluding depreciation and amortization. The increase in the cost of sales is primarily due to (i) an increase of US$53.5 million in the cost of sales at our Tambomayo mining unit, which started operations in August 2017 and (ii) an increase in the cost of sales at our Uchucchacua and Orcopampa mining units (increases of US$24.7 million and US$18.2 million, respectively) as a consequence of an 8% increase in ore milled.

(b)Cost of services, excluding depreciation and amortization. The increase in cost of services was mainly due to increases in industrial activities and the energy generation and transmission segments as a result of higher sales during 2017. The energy generation and transmission segment had an increase in personnel expenses and maintenance costs and an increase in contractor services used in the engineering services segment.

 

·(c)a US$35.6 millionDepreciation and amortization. The increase in the services rendered by third partiescost of depreciation and amortization was mainly due to the net effect of an increase of US$42.8 million in the cost of sales at the Ucchuchacuaour Tambomayo mining unit, which wasstarted operations in August 2017, partially offset by (i) a decrease of US$14.719.2 million in costs at our OrcopampaLa Zanja mining unit due to fewer services provided by third parties and a decrease in the consumption of materials and supplies.

(b)  Cost of sales of services, excluding depreciation and amortization, decreased by 28.6%, from US$114.1 million in 2013 to US$81.5 million in 2014, mainly due to:

·a decrease of US$22.8 million in our construction and engineering unit as a result of lower net sales and a lower headcount; andan increase in the life of the mine.

·(d)a decrease of US$6.2 millionMining royalties. The increase in mining royalties is due to an increase in the energy generation and transmission segment duecost of royalties paid to the declinePeruvian State, which has a direct relationship with the increase in energy purchases resulting from the Huanza hydroelectric plant beginning operations in 2014.

(c)  The cost of exploration of units in operation decreased by 4%, 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 thenet sales at our Tambomayo, 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 23 to the Financial Statements.

(d)  Depreciation and amortization costs increased by 31%, from US$159.1 million in 2013 to US$208.7 million in 2014, due to:

·higher depreciation and amortization costs incurred in the La ZanjaUchucchacua mining unit, which increased from US$27.9 million in 2013 to US$53.2 million in 2014 as a result of increased mine development costs and amortization and fixed assets purchases;

·higher depreciation and amortization costs incurred in the Julcani and Mallay mining units, which increased from US$24.9 million in 2013 to US$36.5 million in 2014 as a result of work-in-progress put into operation;

·higher depreciation costs incurred 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; andunits.

 

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·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.

(e)  Mining royalties decreased by 6.6%, 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 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 10% 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.

Total operating expenses. Operating expenses increased by 31.1%, from US$125.6 million in 2013 to US$164.7 million in 2014,69% due to changes in the following components:

 

(a)  Administrative expenses increased by 35%, from US$75.1 million in 2013 to US$101.1 million in 2014, due to an increase of administrative expenses at the corporate unit 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$7.9 million in the construction and engineering unit due to increased labor costs, which was partially offset by a decrease of US$4.3 million in the Orcopampa mining unit due to a decrease in labor expenses. See Note 25 to the Financial Statements.

Operating Expenses (Income) Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Administrative expenses  81,692   83,597   1,905   2%
Exploration in non-operating areas (a)  26,589   18,262   (8,327)  (31)%
Selling expenses (b)  21,733   24,088   2,355   10%
Impairment loss of long-lived assets (c)  -   21,620   21,620   100%
Provision for contingences and others (d)  565   13,879   13,314   2,356%
Write-off of asset stripping activities (e)  -   13,573   13,573   100%
Other, net (f)  (18,957)  13,589   32,546   N.A. 
Total operating expenses  111,622   188,608   76,986   69%

 

(a)Exploration in non-operating areas. The decrease in exploration in non-operating areas is mainly due to decreased expenditures in exploration activities, primarily in the Tambomayo project of US$4.3 million and San Gabriel project of US$6.5 million. During 2017, our main efforts were focused on the start-up of the Tambomayo mining unit.

(b)  Exploration in non-operating areas increased by 52%, 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 Alejandra and Tambomayo projects. See Note 26 to the Financial Statements.

(b)Sellingexpenses. The increase in selling expenses is mainly due to the increase in volume sold in the Tambomayo and Uchucchacua mining units.

(c)Impairment loss of long-lived assets. During 2017, La Zanja recorded an impairment loss related to its mining property of US$21.6 million. The principal factor in the impairment loss was the depletion of its reserves. During 2016, no impairment loss was recorded.

Operating profit. As a result of the foregoing, operating income decreased by 71% from US$215.2 million in 2013 to US$61.6 million in 2014.

(d)Provision for contingences and others. The increase is primarily due to an increase of US$14.6 million in provision for obligations with the communities, mainly due to the negotiations made by the Company in its operating units.

(e)Write-off of asset stripping activities.In mid-2016, a landslide occurred in the west wall of the Tajo Norte. Consequently, we decided not to mine this area due to stability and operational design issues. According to the distribution of reserves, this area (Phase 10) contained 5.5 MT of ore and 9.2 MT of waste valued at US$13.5 million, which were written-off and withdrawn from the reserves.

(f)Other net.Other net decreased from an income of US$18.9 million in 2016 to an expense of US$13.6 million in 2017, primarily due to extraordinary incomes recorded in 2016 that did not occur in 2017, including reversal of contingences in La Zanja, the sale of assets in the energy segment and reversal of provision for impairment of inventories and recovery of insurances. In addition, in 2017 the Company recorded expenses of US$3.0 million, which were mainly related to damage of equipment in El Brocal, not recognized by the insurance company, losses in sales in investments of US$1.6 million, administrative sanctions of US$1.2 million and provision for impairment of inventories of US$0.5 million, among others.

 

Other income (expense), netnet.. Other income (expenses),expense, net decreased by 79.0% from an expense of US$124.6387.4 million in 20132016 to an expense of US$26.113.0 million in 2014,2017, mainly explained by:due to:

Other income (expense) Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Shares in the results of associates under equity method (a)  (365,321)  13,207   378,528   N.A. 
Finance costs (b)  (31,580)  (34,623)  (3,043)  10%
Finance income (c)  6,830   5,517   (1,313)  (19)%
Net gain (loss) from currency exchange difference (d)  2,638   2,928   291   11%
Total operating expenses  (387,433)  (12,971)  374,462   (2,887)%

(a)        Share in the results of associates under equity method. Loss from equity investments in associates decreased by 35%, from US$114.1 million in 2013 to US$74.6 million in 2014, primarily due to a decrease in net loss from our equity investment in our associate company, Yanacocha, which was partially offset by a decrease in net income from our equity investment in Cerro Verde. Net loss from our interest in Yanacocha decreased by 30%, from US$251.1 million in 2013 to US$174.7 million in 2014. Net income from our interest in Cerro Verde decreased by 33%, from US$116.2 million in 2013 to US$77.9 million in 2014. Finally,

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(a)Shares in the results of associates under equity method. Shares in the results of associates under the equity method increased from a loss of US$365.3 million in 2016 to a gain of US$13.2 million in 2017, primarily due to (i) net loss from an 83% decrease in our interest in Yanacocha, from US$455.6 million in 2016 to US$76.6 million in 2017, (ii) net income from a 3% increase in our interest in Cerro Verde, from US$66.8 million in 2016 to US$68.5 million in 2017, and (iii) net income from a 10% decrease in our interest in Coimolache, from US$23.5 million in 2016 to US$21.3 million in 2017.

The decrease in our interest in Coimolache increasedis explained by 7%, fromthe US$20.86.1 million decrease in 2013 to US$22.3 million in 2014.

(b)         Gain on business combination. In 2014, we recognized a gainthe net income of US$59.9 million in connection with our acquisition of the controlling interest in CDH from MGFPSA 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%, from US$9.9 million in 2013 to US$11.3 million in 2014, primarilyCoimolache, mainly due to an increase of US$6.8 million in depreciation and amortization costs (as a result of the decrease in the costlife of the financial leasing facility related tomine) and a US$1.7 million increase in the constructionaccrual of the Huanza hydroelectric plant.present value for mine closure.

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 9%, from US$31.6 million in 2016 to US$34.6 million in 2017, primarily due to the net effect of higher interest expenses related to a long-term finance contract entered into by Buenaventura in June 2016. During 2017, this contract generated a US$5.8 million increase in interest, partially offset by a decrease of US$2.4 million in the fair value of the contingent consideration liability due to the fair value resulting in finance income in 2017. See Note 26 to the Consolidated Financial Statements.

(c)Finance income.Finance income decreased by 19%, from US$6.8 million in 2016 to US$5.5 million in 2017, due to the net effect of a decrease of US$2.5 million in the income from interest on loans to associates as a result of the advance payment of the long-term loan held with Sociedad Minera Cerro Verde S.A. in the second quarter of 2017, partially offset by an increase of US$1.8 million in the fair value of the contingent consideration liability due to higher projected revenues, which resulted in a lower provision in 2017 and therefore a finance income. See Note 26 to the Consolidated Financial Statements.

(d)Gain (loss) from currency exchange difference.The currency exchange difference increased from US$2.6 million in 2016 to US$2.9 million in 2017 as a result of foreign exchange variations.

Income tax. Provision for income tax decreased by 24%66%, from US$86.553.5 million in 20132016 to US$66.018.0 million in 2014, primarily2017, due to a decrease of US$19.9 million and US$15.6 million in the provision for deferred income tax at the corporate unit of US$18.1 million caused by a decrease in taxableand current income of that unit, a decreasetax, respectively. The variation in the provision fordeferred income tax is primarily due to an increase of US$10.4 million and US$7.8 million in deferred income tax at the La Zanja and Buenaventura mining unitunits, respectively, which is mainly due to the lower deferred liability related to the effect of translation into U.S. dollars.

The variation in the current income tax is primarily due to a decrease of US$16.814.7 million and a decreaseUS$7.0 million in otherthe provision at the La Zanja and at Buenaventura mining units, of US$1.1 million, which wasrespectively, partially offset by an increase of US$16.67.4 million at the Colquijirca mining unitEl Brocal due to higher sales.the results of such unit in 2017 as compared to 2016.

 

Non-controlling interest.interest income (loss). Non-controlling interest income decreased by 48%,increased from a loss of US$27.54.3 million in 20132016 to a gain of US$14.43.6 million in 2014,2017, primarily due to a decreasethe net effect of an increase in the contribution of profits from the El Brocal unit of US$17.7 million, partially offset by a decrease of US$8.3 million and US$1.1 million in the contribution of profits from La Zanja and Chaupiloma, units by US$18.0 million and US$2.1 million, respectively. See Note 19(a)18(a) to the Consolidated Financial Statements.

 

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Net profitincome (loss). As a result of the foregoing, net results increased from a loss decreased by 23%, fromof US$79.7327.8 million in 20132016 to an income of US$61.664.4 million in 2014.2017. Net loss was 7%30.7% of operating incomerevenues in 20132016 and net profit was 5% of operating incomerevenues in 2014.2017.

 

Results of Operations for the Years Ended December 31, 20142017 and 20132016 by Segment

 

We present the operating results for each of our operating segments for the years ended December 31, 20132016 and 20142017 in more detail in Note 3130 to the Consolidated 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, 20142017 and 2013,2016, as well as the variation in such volumes sold for the year ended December 31, 20142017 as compared to the year ended December 31, 2013:2016:

 

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   - 
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 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
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 2014 vs 2013 Change (%) 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
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%

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

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

Orcopampa. Net sales of goods decreased by US$60.3 million in 2014 as compared to 2013 due to a 7% 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.

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Mining Segment Volume Sold for the year ended December 31, 2017 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  21   2,466,846   1,916   -   32 
Mallay  346   993,040   3,804   5,926   - 
Orcopampa  195,278   574,591   -   -   91 
Uchucchacua  201   15,583,553   13,127   10,281   - 
Tambomayo  63,130   1,621,611   1,769   2,398   - 
La Zanja  128,622   279,737   -   -   - 
Colquijirca  15,882   3,253,900   19,416   43,119   42,633 

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 

Mining Segment 2017 vs 2016 Change (%) 
  Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t) 
Julcani  (34)%  (20)%  (28)%  -   (41)%
Mallay  (67)%  (30)%  (44)%  (32)%  - 
Orcopampa  4%  (16)%  -   -   90%
Uchucchacua  (28)%  6%  57%  94%  - 
Tambomayo  n. a.   n. a.   n. a.   n. a.   n. a. 
La Zanja  (15)%  22%  -   -   - 
Colquijirca  22%  92%  64%  (12)%  (6)%

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Uchucchacua. NetThe change in sales of goods decreased by US$2.7 million during 2014for the year ended December 31, 2017 as compared to 2013 due to decreasesthe year ended December 31, 2016 is mainly explained by the changes in volume sold, as presented in the amount of lead and zinc sold at that unit.following chart:

Sales of goods – Mining Segments Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Julcani (a)  54,666   42,785   (11,881)  (22)%
Mallay (b)  46,741   36,736   (10,005)  (21)%
Orcopampa  244,745   256,960   12,215   5%
Ucchuchacua (c)  240,470   272,334   31,864   13%
Tambomayo (d)  -   118,966   118,966   n. a. 
La Zanja (e)  178,922   165,319   (13,603)  (8)%
Colquijirca (f)  230,611   322,653   92,042   40%

(a)Julcani.Net sales of goods decreased by US$11.9 million in 2017 as compared to 2016 due to a 9% decrease in the average realized price and a 20% decrease in the amount of silver sold at that unit.

(b)Mallay.Net sales of goods decreased by US$10.0 million in 2017 as compared to 2016 due to a 6% decrease in the average realized price and a 30% decrease in the amount of silver sold at that unit.

(c)Uchucchacua.Net sales of goods increased by US$31.9 million in 2017 as compared to 2016 due to a 7% decrease in the average realized price and a 6% increase in the amount of silver sold at that unit.

(d)Tambomayo.This mining unit started commercial operations in August 2017. Net sales of goods amounted to US$119.0 million in 2017 at that unit.
(e)La Zanja.Net sales of goods decreased by US$13.6 million in 2017 as compared to 2016 due to the net effect of a 15% decrease in the amount of gold sold and an increase in the average realized gold price at that unit.
(f)Colquijirca.Net sales of goods increased by US$92.0 million in 2017 as compared to 2016 due to the net effect of an increase of 28% in the average realized copper price and a decrease of 6% in the amount of copper sold at that unit.

 

La Zanja. Net salesSales of goods decreased by US$8.0 million in 2014 as compared to 2013 due to decreases in the amount of lead and zinc sold at that unit.

services – Other Segments

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

 

Sales of services - construction and engineering segment.NetsNet sales for the construction and engineering segment decreased by US$29.71.2 million in 20142017 as compared to 20132016 due to a reductiondecrease in the development and constructionsales of mining projects.Buenaventura Ingenieros S.A..

 

Sales of services - insurance brokerage segment.Net sales for the insurance brokerage segment increased by US$2.1 million in 20152017 as compared to 20142016 due to an increase in the numbersales 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$5.1 million in 2014 as compared to 2013 due to the increase in the demand of energy from our other operating segments, in particular the Colquijirca mining unit.

Total operating expenses- Mining Segments

Orcopampa.During 2014, total operating expenses increased by US$5.1 million due to an increase in exploration in non-operating areas of US$7.2 million, which was partially offset by a decrease in administrative expenses, each as compared to 2013.

Julcani.During 2014, total operating expenses increased by US$6.5 million due to increases in administrative expenses and selling expenses, each as compared to 2013.

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$20.3 million mainly due to an increase in the exploration in non-operating areas of US$13.1 million.

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.agency commissions.

 

Total operating expenses—construction and engineering segment.expenses – Mining SegmentsDuring 2014, total. The change in operating expenses for the construction and engineering segment increased by US$0.21 million for the year ended December 31, 20142017 as compared to 2013 due to an increase in administrative expenses due to increased labor costs.the year ended December 31, 2016 is mainly explained by:

Operating Expenses – Mining Segments Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Julcani  5,983   5,346   (637)  (11)%
Mallay  4,580   4,474   (106)  (2)%
Orcopampa (a)  14,121   20,013   5,892   42%
Ucchuchacua (b)  15,632   37,066   21,434   137%
Tambomayo (c)  -   14,917   14,917   n.a 
La Zanja (d)  3,300   30,525   27,225   825%
Colquijirca (e)  24,115   42,446   18,331   76%

(a)Orcopampa. The increase in total operating expenses was mainly due to an increase in administrative expenses of US$4.5 million.

(b)Uchucchacua. The increase in total operating expenses was mainly due to an increase of US$8.2 million in provision for contingencies, an increase of US$6.2 million in administrative expenses, an increase of US$2.7 million in explorations in non-operating areas and an increase of US$1.4 million in selling expenses.

(c)Tambomayo.This mining unit started commercial operations in August 2017.

(d)La Zanja.The increase in total operating expenses was mainly due to an impairment loss of long-lived assets of US$21.6 million. See Note 11(b) of the Consolidated Financial Statements.
(e)Colquijirca. The increase in total operating expenses was mainly due to a write-off of asset stripping activities of US$13.6 million. See Note 11(e) of the Consolidated Financial Statements.

 

Total operating expenses—insurance brokerage segment.During 2014, total operating expenses for the insurance brokerage segment increased by US$1.1 million as compared to 2013 due to an increase in administrative expenses.

Total operating expenses—energy generation and transmission segment.During 2014, total operating expenses for the energy and transmission segment decreased by US$5.6 million as compared to 2013 due to a decrease of US$7.7 million in other expenses-net, which was partially offset by increases in administrative expenses and selling expenses.

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Total operating expenses - Other Segments

Operating expenses – Other Segments Year ended December 31, 
  2016  2017  Variation  Variation 
Insurance brokerage segment  (12,245)  (12,292)  (47)  - 
Exploration and development mining projects (a)  (12,554)  (9,126)  3,428   27%
Corporate  (7,158)  (6,410)  748   10%
Energy generation and transmission segment (b)  6,953   (3,469)  (10,422)  n. a. 
Construction and engineering segment  (2,580)  (2,377)  203   8%
Industrial activities  (1,243)  (1,762)  (519)  (42)%
Holding of investment in shares  (243)  (413)  (170)  (70)%
Rental of mining concessions  (101)  (91)  10   10%

 

A.(a)During 2017, the exploration and development mining projects segment recorded a decrease as a result of the net effect of a US$6.8 million decrease in the explorations in non-operating areas, partially offset by an increase of US$3.3 million in provision in contingences and others.

(b)During 2017, the energy generation and transmission segment recorded a decrease due to US$17.0 million from sales of assets to third parties and intercompany sales recorded in 2016 compared to no sales recorded in 2017.

B.Liquidity and Capital Resources

 

As of December 31, 20152018 and 2014,2017, we had cash and cash equivalents of US$78.5 million.369.2 million and of US$214.5 million, respectively.

 

Cash provided by operating activities for the years ended December 31,, 2015 2018 and 2014.2017. Net cash and cash equivalents provided by operating activities wereincreased by US$127.3133.7 million, in 2015, compared with US$162.5 million in 2014. This decrease in net cash flow provided by operating activities was primarily due to:to the changes shown in the chart below:

Operating activities cash flows Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Proceeds from sales  1,197,523   1,216,294   18,771   2%
Value-added tax recovered  102,548   106,656   4,108   4%
Dividends received (a)  9,823   46,792   36,969   376%
Proceeds from insurance claim (b)  -   38,793   38,793   100%
Royalty received  21,565   20,013   (1,552)  (7)%
Interest received  3,169   2,383   (786)  (25)%
Payments to suppliers and third parties  (872,467)  (861,282)  11,185   (1)%
Payments to employees (c)  (160,891)  (151,602)  9,289   (6)%
Income tax paid (d)  (38,121)  (30,898)  7,223   (19)%
Interest paid  (30,402)  (27,699)  2,703   (9)%
Payments of mining royalties (d)  (20,165)  (13,190)  6,975   (35)%
Net cash and cash equivalents provided by operating activities  212,582   346,260   133,678   63%

 

·(a)a decreaseThe increase in proceedsdividends received was mainly due to the US$39.2 million in dividends received from sales,Cerro Verde during 2018, (during 2017, no dividend from Cerro Verde was received) partially offset by the lower dividend received from Coimolache from US$1,144.49.8 million in 20142017 to US$965.37.6 million in 2015; and2018.

 

·(b)During 2018, El Brocal recorded a recovery income from an increaseinsurance claim that occurred in May 2017. Total compensation and lost profits and consequential damages is US$38.8 million. As a result of the interest expenses, fromassociated cost for mitigation, repair and cost overruns of US$9.45.1 million, in 2014 toEl Brocal recorded a net gain of US$21.5 million in 2015.

These changes in net cash flow were partially offset by:

·an increase in value-added tax recovered, from US$39.7 million in 2014 to US$81.7 million in 2015;33.7 million.

 

·(c)aThe decrease in the payments to suppliersemployees was mainly explained by the net effect of the new operations at the Tambomayo mining unit and third parties, from US$805.4 millionthe lower employees expenses in 2014 to US$727.0 million in 2015;La Zanja mining unit.

 

·(d)aThe decrease in the payments to workers, from US$203.5 millionincome tax and royalties paid was in 2014 to US$175.3 millionline with the decrease in 2015;the taxable income as a result of lower sales and net income.

·79a decrease in income taxes paid, from US$33.1 million in 2014 to US$22.3 million in 2015.

 

Cash provided by operating activities for the years ended December 31,, 2014 2017 and 2013.2016. Net cash and cash equivalents provided by operating activities weredecreased by US$162.5178.8 million, in 2014, compared with US$408.7 million in 2013. This decrease in net cash flow provided by operating activities was primarily due to:to the changes shown in the chart below:

Operating activities cash flows Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands) 
Proceeds from sales (a)  1,003,422   1,197,523   194,101   19%
Value-added tax recovered  117,661   102,548   (15,113)  (13)%
Royalty received  25,961   21,565   (4,396)  (17)%
Dividends received (b)  142,340   9,823   (132,517)  (93)%
Interest received  2,140   3,169   1,029   48%
Payments to suppliers and third parties (c)  (672,419)  (872,467)  (200,048)  30%
Payments to employees (d)  (138,113)  (160,891)  (22,778)  16%
Income tax paid  (35,401)  (38,121)  (2,720)  8%
Interest paid  (34,138)  (30,402)  3,736   (11)%
Payments of mining royalties  (20,052)  (20,165)  (113)  1%
Net cash and cash equivalents provided by operating activities  391,401   212,582   (178,819)  (46)%

 

·(a)a decreaseThe increase in proceeds from sales from US$1,351.4 millionwas mainly due to an increase in 2013 to US$1,144.4 million in 2014;net sales of goods during 2017.

 

·(b)aThe decrease in value-added tax recovered, fromdividends received was mainly due to the US$66.9130.9 million in 2013 to US$39.7 million in 2014;dividends received from Yanacocha during 2016. During 2017, no dividend from Yanacocha was received.

 

·(c)a decrease in royalties received from Yanacocha, from US$50.6 million in 2013 to US$31.3 million in 2014; and.

·anThe increase in payments to suppliers and third parties from US$752.8 millionwas mainly explained by an increase in 2013costs and expenses as a result of the new operation in Tambomayo, and an increase in production costs related to US$805.4 million in 2014.

These changes were partially offset by:

·a decrease in income tax paid, from US$66.4 million in 2013 to US$33.2 million in 2014;the Uchucchacua and Orcopampa mining units.

 

·(d)a decreaseThe increase in payments to workers, fromemployees was mainly explained by a US$216.813.0 million in 2013 to US$203.5 million in 2014;

·a decrease in royalty payments made, from US$30.6 million in 2013 to US$22.6 million in 2014, primarilyincrease due to fewer royalty payments made to third parties;

·an increase in dividends received from Coimolache, from US$9.8 million in 2013 to US$12.9 million in 2014; and

·a decrease in interest payments made, from US$11.5 million in 2013 to US$9.4 million in 2014.the new operations at the Tambomayo mining unit.

 

Cash used in investing activities for the years ended December 31, 20152018 and 2014.2017.Net cash and cash equivalents used in investing activities weredecreased by US$341.720.6 million in 2015, compared with US$292.7 million in 2014. The increase in net cash flow used in investing activities was primarily due to:to the changes shown in the chart below:

Investing activities cash flows Year ended December 31, 
  2017  2018  Variation  

Variation

%

 
  (US$ in thousands)    
Proceeds from sale of mining concessions, development costs, property, plant and equipment  1,962   2,240   278   14%
Additions to mining concessions, development costs, property, plant and equipment (a)  (259,507)  (111,270)  148,237   (57)%
Proceeds from collection of loans to an associate (b)  124,800   -   (124,800)  (100)%
Payments for acquisition of other assets  (5,405)  (8,529)  (3,124)  58%
Net cash and cash equivalents used in investing activities  (138,150)  (117,559)  20,591   (15)%

(a)The decrease in additions to mining concessions, development costs, property, plant and equipment was mainly due to the completion of the construction of Tambomayo mining unit in early 2017. During 2017 we invested US$131.1 million compared with US$18.8 million in 2018. See “Item 4: Information on the Company—Buenaventura—A. History and Development—Capital Expenditures.”

(b)During 2017, we received an advance payment of the long-term loan owed to us by Sociedad Minera Cerro Verde S.A., representing payment in full, and, accordingly, no collections were made during 2018.

 

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·an increase in loans granted to associates (Cerro Verde), from US$0 in 2014 to US$124.8 million in 2015;

·a decrease in proceeds from loans to associates, from US$15.5 million in 2014 to US$0 in 2015; and

·an increase in payments related to acquisitions of other assets, from US$0 in 2014 to US$10.2 million in 2015.

These changes were partially offset by:

·the payment, net of cash acquired, of US$80.3 million for the acquisition of a controlling interest in CDH made in 2014; and

·a decrease in mining concessions, development costs, and property, plant and equipment acquisitions, from US$227.6 million in 2014 to US$211.3 million in 2015.

Cash used in investing activities for the years ended December 31, 20142017 and 2013.2016.Net cash and cash equivalents used in investing activities weredecreased by US$292.7226.7 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:to the changes shown in the chart below:

Investing activities cash flows Year ended December 31, 
  2016  2017  Variation  

Variation

%

 
  (US$ in thousands)    
Proceeds from sale of mining concessions, development costs, property, plant and equipment  7,180   1,962   (5,218)  (73)%
Additions to mining concessions, development costs, property, plant and equipment (a)  (366,834)  (259,507)  107,327   (29)%
Proceeds from collection of loans to an associate (b)  -   124,800   124,800   n. a. 
Payments for acquisition of other assets  (5,222)  (5,405)  (183)  4%
Net cash and cash equivalents used in investing activities  (364,876)  (138,150)  226,726   (62)%

 

·(a)a decreaseThe increase in mining concessions, development costs, and property, plant and equipment acquisitions, from US$503.6 million in 2013additions to US$227.6 million in 2014; and

·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:

·the payment, net of cash acquired, of US$80.3 million for the acquisition of a controlling interest in CDH;

·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;

·a decrease in loan collection from Coimolache, from US$24.5 million in 2013 to US$15.6 million in 2014; and

·a decrease in income from the sale of mining concessions, development costs, property, plantsplant and equipment fromwas mainly due to the construction of the Tambomayo mining unit in 2016. During 2016, we invested US$5.0230.2 million in 2013Tambomayo’s assets as compared to US$1.7131.1 million in 2014.during 2017. See “Item 4: Information on the Company—Buenaventura—A. History and Development—Capital Expenditures.”

 

Cash provided by financing activities for the years ended December 31, 2015 and 2014. Net cash and cash equivalents provided by financing activities were US$214.4 million in 2015, compared with US$157.4 million in 2014. The increase in net cash flow provided by financing activities was primarily due to:

·(b)During 2017, we received an increase in short-term bank loans, from US$40.0 million in 2014 to US$344.5 million in 2015;advanced payment of the long-term loan held with Sociedad Minera Cerro Verde S.A.

 

·a decrease in the payment of financial obligations, from US$42.2 million in 2014 to US$29.9 million in 2015; and

·a decrease in the payment of dividends to controlling shareholders of US$8.6 million.

These changes were partially offset by:

·a decrease in proceeds from financial obligations, from US$177.1 million in 2014 to US$0.3 million in 2015;

·payments of bank loans made in 2015 of US$90.0 million; and

·an increase in the payment of dividends to non-controlling shareholders from US$8.9 million in 2014 to US$10.5 million in 2015.

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Cash provided by (used in) financing activities for the years ended December 31, 20142018 and 2013.2017.Net cash and cash equivalents provided by (used in) financing activities werechanged from a positive net amount of US$157.459.6 million in 2014, compared with2017 to a negative net amount of US$116.174.0 million in 2018, primarily due to the changes shown in the chart below:

Financing activities cash flows Year ended December 31, 
  2017  2018  Variation  Variation 
  (US$ in thousands)    
Proceeds from financial obligations  80,000   -   (80,000)  (100)%
Proceeds from bank loans  341,215   95,000   (246,215)  (72)%
Payments of bank loans  (300,000)  (95,000)  205,000   (68)%
Payments of financial obligations  (32,599)  (45,222)  (12,623)  39%
Dividends paid to controlling shareholders  (22,099)  (22,860)  (761)  3%
Dividends paid to non-controlling shareholders  (6,036)  (5,560)  476   (8)%
Acquisition of non-controlling interest  (621)  -   621   (100)%
Increase of restricted bank accounts  (285)  (410)  (125)  44%
Net cash and cash equivalents provided by (used in) financing activities  59,575   (74,052)  (133,627)  N.A.%

Cash provided by financing activities for the years ended December 31,2017 and 2016.Net cash and cash equivalents used in financing activities in 2013. The increase in net cash flow providedincreased by financing activities wasUS$84.0 million, primarily due to:to the changes shown in the chart below:

 

Financing activities cash flows Year ended December 31, 
  2016  2017  Variation  Variation 
  (US$ in thousands)    
Proceeds from financial obligations  275,210   80,000   (195,210)  (71)%
Proceeds from bank loans  200,500   341,215   140,715   70%
Payments of bank loans  (442,957)  (300,000)  142,957   (32)%
Payments of financial obligations  (33,476)  (32,599)  877   (3)%
Dividends paid to controlling shareholders  (7,621)  (22,099)  (14,478)  190%
Dividends paid to non-controlling shareholders  (7,400)  (6,036)  1,364   (18)%
Acquisition of non-controlling interest  (5,459)  (621)  4,838   (89)%
Increase of restricted bank accounts  (2,087)  (285)  1,802   (86)%
Purchase of treasury shares  (1,210)  -   1,210   (100)%
Net cash and cash equivalents provided by (used in) financing activities  (24,500)  59,575   84,075   N.A.%

·81a decrease in the payment of financial obligations, from US$260.2 million in 2013 to US$42.2 million in 2014;

 

·a decrease in the payment of dividends to shareholders, from US$78.8 million in 2013 to US$8.6 million in 2014;

·a bank loan received in 2014 for US$40.0 million;

·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

·a decrease in financial obligations, from US$237.0 million in 2013 to US$177.1 million in 2014.

 

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, 20152018 and 2014,2017, the amount outstanding under such short-term loans was US$344.595.0 million and US$40.096.2 million, respectively. In 2015,2018, we used the proceeds of such short-term loans to fund the construction of the Tambomayo project, to loan funds to Cerro Verde, to increase capital in El Brocal and for other 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 the construction of a hydroelectric power station. The lease was executed in favor of Huanza as lessee. The term of the lease is six years from August 2014 and the interest rate is three-month LIBOR plus 4.00%. As2.75% as of December 31, 2015 and 2014, the amount outstanding under this lease was US$104.1 million and US$114.2 million, respectively.

2018 (4.60% as of December 31, 2017). On June 30, 2014, Banco de CreditoCrédito del Perú 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%2.75% as of December 31, 2018 (4.70% as of December 31, 2017). As of December 31, 20152018 and 2014,2017, the amount outstanding under this lease was US$84.0147.2 million and US$85.0162.4 million, respectively.

 

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 Crédito del Perú during the fourth quarter of 2013. The second disbursement of US$63.5 million was received in January 2014. The renewable arrangement had 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 Boardboard of Directorsdirectors of El Brocal approved the modification of the saledebt and financenew payment schedule of the 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. During 2017, El Brocal restructured its financial obligations, which resulted in a reduction in the interest rates of its short and long-term loans. The quarterly lease payments have an embedded interest rate of three-month LIBOR plus 4.7%.2.75% as of December 31, 2018. 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 Crédito del Perú 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 thecertain financial ratios described aboveunder the agreements is monitored by El Brocal’s management. In 2015, Management obtainedAs of December 31, 2018 and 2017, the amount outstanding under this financing arrangement was US$93.5 million and US$118.1 million, respectively.

On October 23, 2017, El Brocal signed a waivermid-term loan agreement with the Banco de Credito del Peru for any possible breachUS$80.0 million, which accrues interest at an annual rate of 3.6% for a 5-year term. The objective of this financing was the payment of short-term financial obligations maintained with the Banco de Credito del Peru and for working capital. As part of the commitments agreed to, El Brocal must comply with certain financial indicators. Compliance with the financial ratios that occur untilunder the agreement is monitored by El Brocal’s management. As of December 31, 2016.2018 and 2017, the amount outstanding was US$75.0 million and US$80.0 million, respectively.

 

On March 28, 2014, Banco de Crédito del Perú executedJune 27, 2016, in order to repay short-term contracts held as of December 31, 2015, we entered into a financial lease agreement with BISAlong-term finance contract (the “Syndicated Term Loan”), in the amount of US$14.9275 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. Obligations under the Syndicated Term Loan are guaranteed by Condesa and Conenhua, our wholly-owned subsidiaries, and Inversiones Colquijirca S.A., for the construction of a building with administrative offices.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. On March 28, 2018 we entered into an amendment to the Syndicated Term Loan. As a result of the lease is five years and four months starting April 2014 andamendment, as of December 31, 2018, borrowings under the Syndicated Term Loan bear interest at a rate is three-monthper annum equal to LIBOR plus 4.60%2.15%. Interest and installments of principal equal to 1/7th of the aggregate principal amount borrowed are payable every six months until maturity in April 2022 (on which date all amounts outstanding shall be payable).

83

 

Exploration Costs and Capital Expenditures

 

We have budgeted approximately US$25080 to US$300120 million for capital expenditures for 2016.2019. These budgeted capital expenditures mainly include finishing the construction of the Tambomayo projectsustaining capital expenditures, and continuing with the development of the San Gabriel project.and Trapiche projects.

82

 

During 2015,2018, we spent US$30.636.3 million on “exploration in non-operating areas” and US$91.590.3 million on “exploration in units in operations.operating units.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Tambomayo, Alejandra,Yumpag, Marcapunta Norte, and PisacallaEmperatriz projects. Our “exploration in units in operations”operating units” investments were mainly focused in the Orcopampa, Uchucchacua and Julcani miningy Tambomayo units.

 

In 2016,2019, we intend to invest approximately US$70 million50 to US$8070 million in exploration of units in operation and US$10 million to US$20 million mainly in exploration of non-operating areas, including Tambomayo, Yumpag, Palla Palla and Daniela, among others.operating units.

 

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 Consolidated 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 Consolidated Financial Statements are disclosed below. We intend to adopt these standards, if applicable, when they become effective:effective.

IFRS 9 Financial Instruments

 

IFRS 9, “Financial Instruments: Classification and Measurement” In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project andthat 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.

The Group applied IFRS 9 prospectively, with an initial application date of January 1, 2018. The Group has not restated the comparative information, which continues to be reported under IAS 39.

There were no adjustments to the financial statements arising from the adoption of IFRS 9.

Adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss approach. Upon adoption of IFRS 9 would have not significant effect on theno additional impairment was recognized.

The classification and measurement requirements of our financialIFRS 9 did not have a significant impact to the Group. Upon the adoption of IFRS 9, the Group had the required or elected reclassifications as of January 1, 2018, as discussed in more detail in Note 2.3 to the Consolidated Financial Statements.

Hedge accounting –

The Group applied hedge accounting prospectively. At the date of initial application, all of the Group's existing hedging relationships were eligible to be treated as continuing hedging relationships. Upon adoption of the hedge accounting requirements of IFRS 9, the Group designates only the spot element of forward contracts as hedging instrument. The forward element is recognised in OCI and accumulated as a separate component of equity under “Other reserves of equity” caption. This change only applies prospectively from the date of initial application of IFRS 9 and has no impact on the presentation of comparative figures.

Under IFRS 9, gains and losses arising on cash flow hedges of forecast purchases of non-financial assets need to be incorporated into the initial carrying amounts of the non-financial assets. This change only applies prospectively from the date of initial application of IFRS 9 and liabilities. has no impact on the presentation of comparative figures.

IFRS 15 “RevenuesRevenue from Contracts with Customers”Customers

 

IFRS 15 was issued in May 2014, and establishes a new five-step model that will apply to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration agreed with the customer. The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of January 1, 2018. Under this method, the Group elected to which an entity expectsapply the standard only to contracts that are not completed as of January 1, 2018.

The Group concluded that there are no adjustments as a consequence of initially applying IFRS 15, therefore no effects were recognised at the date of initial application. Comparative information was not restated and continues to be entitledreported under IAS 11, IAS 18 and related Interpretations.

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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. At the commencement date of a lease, a lessee will recognize a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from current accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in exchange for transferring goods or services to a customer. The principles in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard16, which 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 requiredeffective for annual periods beginning on or after January 1, 2018. Early adoption is permitted.2019, requires lessees and lessors to make more extensive disclosures than under IAS 17. We are currently assessingevaluating the impact of IFRS 1516 to our consolidated financial statements and plansplan to adopt the new standard on the required effective date. We will elect to apply the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. We will therefore not apply the standard to contracts that were previously identified as containing a lease applying IAS 17 and IFRIC 4. Also, we will elect to use the exemptions proposed by the standard.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment -

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation is effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs are available. We are evaluating the impact IFRIC 23 may have on our consolidated financial statements and plan to adopt the new standard on the required effective date.

 

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Amendments to IFRS 10 and IAS 28,28: Sale or contributionsContribution of assetsAssets between an investorInvestor and its associateAssociate or joint venture.Joint Venture -

 

The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. We will apply these amendments when they become effective.

Annual Improvements 2015-2017 Cycle (issued in December 2017) -

These improvements include:

IFRS 3 Business Combinations

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments must be applied prospectively andwill apply on future business combinations.

IFRS 11 Joint Arrangements

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are effectivenot remeasured.

An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments are currently not applicable to us, but may apply to future transactions.

IAS 12 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2016,2019, with early adoptionapplication is permitted. TheseSince our current practice is in line with these amendments, will impact uswe do not expect any effect on our consolidated financial statements.

IAS 23 Borrowing Costs

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the extentactivities necessary to prepare that it undertakes future transactionsasset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of this nature, as this accounting approach differs from thatthe annual reporting period in which it would currently apply.the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted. Since our current practice is in line with these amendments, we do not expect any effect on our consolidated financial statements.

85

 

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 of the metals produced at any given time of the metals produced.time.

 

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.

 

E.F.Tabular Disclosure of Contractual Obligations

 

The following table shows our contractual obligations as of December 31, 2015:2018:

 

  Payments due by Period (US$ in millions) 
  Total  Less than
1 year		  1-2
years		  2-5
years		  More than
5 years		 
Long-Term Debt (principal and interest)  –   –   –   –   – 
Capital Lease Obligations (*)  414.6   47.9   92.5   274.2   – 
Open Purchase Orders  –   –   –   –   – 
Other Long-Term Obligations  –   –   –   –   – 
Total Contractual Cash Obligations  414.6   47.9   92.5   274.2   – 
  Payments due by Period (US$ in millions) 
  Total  

Less than

1 year

  

1-2

years

  

2-5

years

  

More than

5 years

 
Bank loans (principal and interest)  95.6   95.6   -   -   - 
Mid and Long-Term Debt (*)  389.6   23.5   164.6   201.5   - 
Capital lease obligations (**)  263.9   53.7   210.2   -   - 
Other Long-Term Obligations  215.8   176.8   0.6   5.9   32.5 
Total Contractual Cash Obligations  964.9   349.6   375.4   207.4   32.5 

 

(*)Capital lease obligations include: Long-Term Debt includes:

(i)US$222.8306.8 million (including US$188.1271.4 million in principal and US$34.735.4 million interest payments), which relates to long-term debt of Buenaventura.

(ii)US$82.8 million (including US$75.0 million in principal and US$7.8 million in interest payments), which relates to long-term debt of El Brocal.

(**)Capital lease obligations include:

(i)US$161.4 million (including US$147.2 million in principal and US$14.2 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; station.

(ii)US$182.6102.5 million (including US$156.394.5 million in principal and US$26.38.0 million in interest payments), which relates to a sale and leaseback arrangement between Banco de Crédito del Perú and El Brocal; and (iii) US$9.1 million, which relates to a financial lease between Banco de Crédito del Perú and BISA for construction of administrative offices.Brocal.

85

 

As of December 31, 2015,2018, 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.

 

86

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 operating 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, 20142017 and 2015,2018 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, 20142017 and 20152018 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 operating units in operations (by mine and mineral) to consolidated Cost of sales, excluding depreciation and amortization, consolidated Selling Expenses and consolidatedConsolidated Exploration in operating units in operations expenses, set forth below.

 

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,  For the year ended December 31, 
 2014  2015  2017  2018 
 (in thousands of US$)  (in thousands of US$) 
Consolidated Cost of sales excluding depreciation and amortization  614,539   590,405   640,387   629,802]
Add:                
Consolidated Exploration in units in operation  97,853   91,520 
Commercial Deductions  184,483   196,211 
Consolidated Selling expenses  16,605   19,481 
Consolidated Exploration in operating units  94,928   90,343 
Commercial Deductions*  253,923   195,865 
Consolidated Selling Expenses  24,088   27,522 
Consolidated Cost applicable to sales  913,480   897,618   1,013,326   943,532 

*2017 does not consider deductions of indium for US$16,180

 

 8687 

 

 

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, 
  2014  2015 
Cost of sales by mine and mineral (US$ in thousands) 
Julcani, Gold  3   49 
Julcani, Silver  23,117   23,135 
Julcani, Lead  1,891   1,906 
Julcani, Copper  190   242 
Mallay, Gold  0   201 
Mallay, Silver  8,135   8,014 
Mallay, Lead  5,959   5,190 
Mallay, Zinc  7,497   6,256 
Breapampa, Gold  35,389   9,780 
Breapampa, Silver  2,459   1,681 
Orcopampa, Gold  107,550   104,603 
Orcopampa, Silver  3,070   3,525 
Uchucchacua, Gold  0   25 
Uchucchacua, Silver  132,110   110,724 
Uchucchacua, Lead  8,115   6,377 
Uchucchacua, Zinc  5,618   4,841 
La Zanja, Gold  79,713   110,848 
La Zanja, Silver  3,426   3,367 
El Brocal, Gold  3,491   4,258 
El Brocal, Silver  12,331   21,024 
El Brocal, Lead  2,051   15,244 
El Brocal, Zinc  6,478   42,157 
El Brocal, Copper  96,934   68,711 
Non Mining Units  69,011   38,246 
Consolidated Cost of sales, excluding depreciation and amortization  614,539   590,405 

87

  For the year ended December 31, 
Cost of sales by mine and mineral 2017  2018 
  (US$ in thousands) 
Julcani, Gold  0   19 
Julcani, Silver  26,413   23,608 
Julcani, Lead  3,048   1,335 
Julcani, Copper  126   86 
Mallay, Gold  225   28 
Mallay, Silver  8,204   3,968 
Mallay, Lead  4,470   1,974 
Mallay, Zinc  8,696   5,285 
Orcopampa, Gold  105,848   88,942 
Orcopampa, Silver  4,097   3,127 
Orcopampa, Copper  255   0 
Uchucchacua, Gold  139   5 
Uchucchacua, Silver  103,014   99,500 
Uchucchacua, Lead  12,942   16,554 
Uchucchacua, Zinc  12,769   20,646 
Tambomayo, Gold  34,907   58,475 
Tambomayo, Silver  11,791   20,969 
Tambomayo, Lead  2,046   2,597 
Tambomayo, Zinc  3,419   7,050 
La Zanja, Gold  99,304   65,128 
La Zanja, Silver  2,922   2,499 
El Brocal, Gold  7,129   7,770 
El Brocal, Silver  19,185   19,388 
El Brocal, Lead  15,563   17,106 
El Brocal, Zinc  45,929   42,651 
El Brocal, Copper  94,021   115,752 
Non Mining Units  13,927   5,343 
Consolidated Cost of sales, excluding depreciation and amortization  640,387   629,802 

 

Set forth below is a reconciliation of Exploration in operating units in operation expenses (by mine and mineral) to consolidated Exploration in operating units in operation expenses:

 

  For the year ended December 31, 
Exploration in units in operation by mine and mineral 2014  2015 
  (US$ in thousands) 
Julcani, Gold  2   25 
Julcani, Silver  10,072   11,598 
Julcani, Lead  824   956 
Julcani, Copper  83   121 
Mallay, Gold  0   77 
Mallay, Silver  2,942   3,073 
Mallay, Lead  2,155   1,990 
Mallay, Zinc  2,711   2,399 
Breapampa, Gold  463   1,554 
Breapampa, Silver  32   267 
Orcopampa, Gold  50,378   40,307 
Orcopampa, Silver  1,438   1,358 
Uchucchacua, Gold  1   6 
Uchucchacua, Silver  24,125   25,222 
Uchucchacua, Lead  1,482   1,453 
Uchucchacua, Zinc  1,026   1,103 
La Zanja, Gold  115   11 
La Zanja, Silver  5   0 
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  97,853   91,520 

Set forth below is a reconciliation of Commercial deductions (by mine and mineral) to consolidated Commercial deductions in operation expenses:

 For the year ended December 31,  For the year ended December 31, 
Commercial Deductions in units in operation by mine and mineral 2014  2015 
Exploration in operating units by mine and mineral 2017  2018 
 (US$ in thousands)  (US$ in thousands) 
Julcani, Gold  2   14   0   6 
Julcani, Silver  6,148   7,258   11,614   8,149 
Julcani, Lead  502   591   1,340   461 
Julcani, Copper  53   81   55   30 
Mallay, Gold  0   89   58   2 
Mallay, Silver  3,687   4,098   2,134   216 
Mallay, Lead  2,620   2,655   1,163   107 
Mallay, Zinc  5,153   4,313   2,262   288 
Breapampa, Gold  99   62 
Breapampa, Silver  0   5 
Orcopampa, Gold  288   255   37,285   28,559 
Orcopampa, Silver  1   0   1,443   1,004 
Orcopampa, Copper  90   0 
Uchucchacua, Gold  0   7   29   1 
Uchucchacua, Silver  35,786   37,753   21,639   15,210 
Uchucchacua, Lead  2,248   2,161   2,719   2,531 
Uchucchacua, Zinc  3,850   5,457   2,682   3,156 
Tambomayo, Gold  6,386   13,490 
Tambomayo, Silver  2,157   4,838 
Tambomayo, Lead  374   599 
Tambomayo, Zinc  626   1,626 
La Zanja, Gold  240   194   847   71 
La Zanja, Silver  4   18   25   3 
El Brocal, Gold  3,777   4,847   0   383 
El Brocal, Silver  12,345   13,583   0   956 
El Brocal, Lead  1,317   6,669   0   844 
El Brocal, Zinc  4,105   24,622   0   2,104 
El Brocal, Copper  102,258   81,479   0   5,709 
Non Mining Units  0   0   0   0 
Consolidated Commercial Deductions in units in operation  184,483   196,211 
Consolidated Exploration in operating units  94,928   90,343 

 

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Set forth below is a reconciliation of SellingCommercial Deductions (by mine and mineral) to consolidated Commercial Deductions in operation expenses:

  For the year ended December 31, 
Commercial Deductions in operating units by mine and mineral 2017  2018 
  (US$ in thousands) 
Julcani, Gold  0   3 
Julcani, Silver  3,676   3,390 
Julcani, Lead  422   191 
Julcani, Copper  19   12 
Mallay, Gold  70   5 
Mallay, Silver  2,441   888 
Mallay, Lead  1,336   435 
Mallay, Zinc  2,940   1,853 
Orcopampa, Gold  918   778 
Orcopampa, Silver  181   107 
Orcopampa, Copper  46   (11)
Uchucchacua, Gold  41   0 
Uchucchacua, Silver  35,851   29,986 
Uchucchacua, Lead  4,350   3,092 
Uchucchacua, Zinc  14,286   8,367 
Tambomayo, Gold  110   644 
Tambomayo, Silver  1,029   1,211 
Tambomayo, Lead  419   590 
Tambomayo, Zinc  797   2,164 
La Zanja, Gold  258   319 
La Zanja, Silver  5   21 
El Brocal, Gold  9,280   7,369 
El Brocal, Silver  14,362   9,125 
El Brocal, Lead  8,592   2,446 
El Brocal, Zinc  33,905   11,459 
El Brocal, Copper  118,590   111,419 
Non Mining Units  0   0 
Consolidated Commercial Deductions in operating units  253,923   195,865 

Set forth below is a reconciliation of selling expenses (by mine and mineral) to consolidated selling expenses:

 

 For the year ended December 31,  For the year ended December 31, 
Selling expenses by mine and mineral 2014  2015  2017  2018 
 (US$ in thousands)  (US$ in thousands) 
Julcani, Gold  0   2   -   0 
Julcani, Silver  979   963   540   336 
Julcani, Lead  80   79   62   19 
Julcani, Copper  8   10   3   1 
Mallay, Gold  0   15   11   1 
Mallay, Silver  661   580   397   202 
Mallay, Lead  484   376   216   101 
Mallay, Zinc  609   453   421   270 
Breapampa, Gold  367   99 
Breapampa, Silver  26   17 
Orcopampa, Gold  929   823   976   749 
Orcopampa, Silver  27   28   38   26 
Orcopampa, Copper  2   0 
Uchucchacua, Gold  0   1   6   0 
Uchucchacua, Silver  3,099   3,228   4,824   5,596 
Uchucchacua, Lead  190   186   606   931 
Uchucchacua, Zinc  132   141   598   1,161 
Tambomayo, Gold  927   1,999 
Tambomayo, Silver  313   717 
Tambomayo, Lead  54   89 
Tambomayo, Zinc  91   241 
La Zanja, Gold  1,382   1,172   1,018   755 
La Zanja, Silver  59   36   30   29 
El Brocal, Gold  204   255   428   468 
El Brocal, Silver  722   1,258   1,152   1,167 
El Brocal, Lead  120   912   934   1,030 
El Brocal, Zinc  379   2,522   2,757   2,568 
El Brocal, Copper  5,677   4,110   5,644   6,969 
Non Mining Units  470   2,217   2,039   2,097 
Consolidated Selling expenses  16,605   19,481   24,088   27,522 

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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, 
  2014  2015  2014  2015  2014  2015  2014  2015 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  190   242   3   49   1,891   1,906   23,117   23,135 
Add:                                
Exploration in units in operation  83   121   2   25   824   956   10,072   11,598 
Commercial Deductions  53   81   2   14   502   591   6,148   7,258 
Selling expenses  8   10   0   2   80   79   979   963 
Cost applicable to sales  335   454   7   90   3,297   3,533   40,316   42,954 
Divide:                                
Volume Sold  64   103   12   94   2,057   2,478   2,851,318   3,493,166 
   5,195   4,416   603   955   1,603   1,425   14.14   12.30 

89

  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,		 
  2017  2018  2017  2018  2017  2018  2017  2018 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  126   86   -   19   3,408   1,335   26,413   23,608 
Add:                                
Exploration in units in operation  55   30   -  ��6   1,340   461   11,614   8,149 
Commercial Deductions  19   12   -   3   422   191   3,676   3,390 
Selling expenses  3   1   -   0   62   19   540   336 
Cost applicable to sales  202   128   -   28   4,873   2,006   42,243   35,483 
Divide:                                
Volume Sold  32   17   21   11   1,916   915   2,466,846   2,368,497 
Cost applicable to sales per unit of mineral sold (US$)  6,318   7,392   -   2,507   2543   2,191   17.12   14.98 

 

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, 
  2014  2015  2014  2015  2014  2015 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  5,959   5,190   8,135   8,014   7,497   6,256 
Add:                        
Exploration in units in operation  2,155   1,990   2,942   3,073   2,711   2,399 
Commercial Deductions  2,620   2,655   3,687   4,098   5,153   4,313 
Selling expenses  484   376   661   580   609   453 
Cost applicable to sales  11,217   10,211   15,425   15,766   15,970   13,421 
Divide:                        
Volume Sold  7,253   6,612   1,121,202   1,134,528   8,609   7,482 
Cost applicable to sales per unit of mineral sold (US$)  1,547   1,544   13.76   13.90   1,855   1,794 

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:

 BREAPAMPA  MALLAY 
 GOLD (oz.)  SILVER (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,		 
 2014 2015 2014 2015  2017  2018  2017  2018  2017  2018 
 (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  35,389   9,780   2,459   1,681   4,470   1,974   8,204   3,968   8,696   5,285 
Add:                                        
Exploration in units in operation  463   1,554   32   267   1,163   107   2,134   216   2,262   288 
Commercial Deductions  99   62   -   5   1,336   435   2,441   888   2,940   1,853 
Selling expenses  367   99   26   17   216   101   397   202   421   270 
Cost applicable to sales  36,318   11,495   2,517   1,970   7,185   2,617   13,176   5,275   14,318   7,695 
Divide:                                        
Volume Sold  80,358   16,069   383,733   212,826   5,926   1,633   993,040   458,671   5,926   3,369 
Cost applicable to sales per unit of mineral sold (US$)  452   795   6.56   9.26   2,416   1,603   13.27   11.50   2,416   2,284 

 

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 
  GOLD (oz.)  SILVER (oz.) 
  For the year ended December 31,  For the year ended December 31, 
  2014  2015  2014  2015 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  107,550   104,603   3,070   3,525 
Add:                
Exploration in units in operation  50,378   40,307   1,438   1,358 
Commercial Deductions  288   255   1   0 
Selling expenses  929   823   27   28 
Cost applicable to sales  159,144   145,988   4,536   4,912 
Divide:                
Volume Sold  204,862   214,821   401,782   555,314 
Cost applicable to sales per unit of mineral sold (US$)  777   680   11.29   8.85 

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  ORCOPAMPA 
 LEAD (t)  SILVER (oz.)  ZINC (t)  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,		 For the year ended
December 31,		 
 2014  2015  2014  2015  2014  2015  2017  2018  2017  2018 
 (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  8,115   6,377   132,110   110,724   5,618   4,841   105,848   88,942   4,097   3,127 
Add:                                        
Exploration in units in operation  1,482   1,453   24,125   25,222   1,026   1,103   37,285   28,559   1,443   1,004 
Commercial Deductions  2,248   2,161   35,786   37,753   3,850   5,457   918   778   181   107 
Selling expenses  190   186   3,099   3,228   132   141   976   749   38   26 
Cost applicable to sales  12,035   10,177   195,120   176,927   10,626   11,543   145,027   119,028   5,759   4,264 
Divide:                                        
Volume Sold  6,530   6,560   11,940,167   12,666,673   4,288   4,750   195,278   116,719   574,591   335,761 
Cost applicable to sales per unit of mineral sold (US$)  1,843   1,551   16.34   13.97   2,478   2,430   743   1,020   10.02   12.70 
                        

 

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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,		 
  2017  2018  2017  2018  2017  2018 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  12,942   16,554   103,014   99,500   12,769   20,646 
Add:                        
Exploration in units in operation  2,719   2,531   21,639   15,210   2,682   3,156 
Commercial Deductions  4,350   3,092   35,851   29,986   14,286   8,367 
Selling expenses  606   931   4,824   5,596   598   1,161 
Cost applicable to sales  20,617   23,108   165,329   150,293   30,336   33,330 
Divide:                        
Volume Sold  13,127   17,071   15,583,553   14,443,456   10,281   16,811 
Cost applicable to sales per unit of mineral sold (US$)  1,571   1,354   10.61   10.41   2,951   1,983 

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 Tambomayo mine:

  TAMBOMAYO 
  GOLD (oz.)  SILVER (oz.)  LEAD (t)  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,		 
  2017  2018  2017  2018  2017  2018  2017  2018 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  34,907   58,475   11,791   20,969   2,046   2,597   3,419   7,050 
Add:                                
Exploration in units in operation  6,386   13,490   2,157   4,838   374   599   626   1,626 
Commercial Deductions  110   644   1,029   1,211   419   590   797   2,164 
Selling expenses  927   1,999   313   717   54   89   91   241 
Cost applicable to sales  42,330   74,608   15,290   27,734   2,893   3,875   4,932   11,080 
Divide:                                
Volume Sold  63,130   119,211   1,621,611   3,570,382   1,769   3,268   2,398   7,143 
Cost applicable to sales per unit of mineral sold (US$)  671   626   9.43   7.77   1,635   1,186   2,057   1,551 

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,		 
 2014  2015  2014  2015  2017  2018  2017  2018 
 (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  79,713   110,848   3,426   3,367   99,304   65,128   2,922   2,499 
Add:                                
Exploration in units in operation  115   11   5   0   847   71   25   3 
Commercial Deductions  240   194   4   18   258   319   5   21 
Selling expenses  1,382   1,172   59   36   1,018   755   30   29 
Cost applicable to sales  81,450   112,224   3,495   3,421   101,427   66,274   2,982   2,552 
Divide:                                
Volume Sold  143,151   142,299   418,565   324,151   128,623   74,370   279,737   228,894 
Cost applicable to sales per unit of mineral sold (US$)  569   789   8.35   10.55   789   891   10.66   11.15 

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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,		 
 2014  2015  2014  2015  2014  2015  2014  2015  2014  2015  2017  2018  2017  2018  2017  2018  2017  2018  2017  2018 
 (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  96,934   68,711   3,491   4,258   2,051   15,244   12,331   21,024   6,478   42,157   94,021   115,752   7,129   7,770   15,563   17,106   19,185   19,388   45,929   42,651 
Add:                                                                                
Exploration in units in operation  -   -   -   -   -   -   -   -   -   -   -   5,709   -   383   -   844   -   956   -   2,104 
Commercial Deductions  102,258   81,479   3,777   4,847   1,317   6,669   12,345   13,583   4,105   24,622   118,590   111,419   9,280   7,369   8,592   2,446   14,362   9,125   33,905   11,459 
Selling expenses  5,677   4,110   204   255   120   912   722   1,258   379   2,522   5,644   6,969   428   468   934   1,030   1,152   1,167   2,757   2,568 
Cost applicable to sales  204,869   154,300   7,472   9,359   3,488   22,826   25,398   35,865   10,962   69,301   218,254   239,849   16,836   15,990   25,090   21,425   34,699   30,637   82,591   58,781 
Divide:                                                                                
Volume Sold  40,198   28,991   7,874   7,181   2,759   16,739   1,928,243   2,637,215   8,007   43,297   42,633   43,710   15,881   14,297   19,415   18,713   3,253,899   3,058,987   43,120   37,470 
Cost applicable to sales per unit of mineral sold (US$)  5,096   5,322   949   1,303   1,264   1,364   13.17   13.60   1,369   1,364   5,119   5,487   1,060   1,118   1,292   1,145   10.66   10.02   1,915   1,569 

 

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:

 

 NON-MINING UNITS  NON-MINING UNITS 
 TOTAL  TOTAL 
 For the year ended December 31,  For the year ended December 31, 
 2014 2015  2017  2018 
 (US$ in thousands)  (US$ in thousands) 
Cost of Sales, excluding depreciation and amortization  69,011   38,246   13,927   5,343 
Add:                
Exploration in units in operation  0   0   0   0 
Commercial Deductions  0   0   0   0 
Selling expenses  470   2,217   2,039   2,097 
Total Cost applicable to sales  69,481   40,463   15,966   7,440 

 

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YANACOCHA

 

Introduction

 

The following discussion should be read in conjunction with the Yanacocha Consolidated Financial Statements as of December 31, 20142017 and 20152018 and for the years ended December 31, 2013, 20142016, 2017 and 20152018 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% owned by Newmont Mining, through its wholly-owned subsidiary Newmont Second Capital Corporation, 43.65% owned by usBuenaventura through our wholly-owned subsidiary Condesa and 5% owned by IFC.Summit Global Management II VB. Yanacocha is managed by Newmont Peru S.R.L.International Services. See “Item 4. Information on the Company—Yanacocha—B. Business Overview—Management of Yanacocha—General Manager/Management Agreement.”

 

The table below highlights Yanacocha’s key financial and operating results:

 

Summary of Financial and Operating Performance

 

  Year Ended December 31, 
  2015  2014  2013 
Gold sales (in thousands of US$)  1,070,035   1,210,457   1,458,145 
Gold sold (oz.)(*)  924,175   967,970   1,023,173 
Average gold price received (US$/oz.)  1,159   1,250   1,425 
Costs applicable to sales (US$/oz.)  819   949   983 
Other expenses, net (in thousands of US$)  82,846   77,781   77,534 
Net income (loss) (in thousands of US$)  (450,195)  (400,338)  (575,279)
  Year Ended December 31, 
  2018  2017  2016 
Gold sales (in thousands of US$)  658,653   670,905   791,766 
Gold sold (oz.)  522,213   537,268   636,931 
Average gold price received (US$/oz.)  1,261   1,249   1,243 
Other operating expenses, net (in thousands of US$)  (76,155)  (63,514)  (71,496)
Loss for the year (in thousands of US$)  (81,517)  (175,454)  (1,043,752)

 

(*) Ounces sold included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.

Gold sales. Gold sales decreased by 12%2%, or US$14012 million, from 20142017 to 2015,2018, due to a decrease in the number oflower ounces sold and a decreased average realized price of gold. Lower ounces sold were proportionate to lower gold production.sold. Gold ounces produced decreased 4.5%4% due primarily to lower leach grade material placed on the leach pads containing fewer ounces. Yanacocha has not engaged in gold price hedging activities, suchpad production as forward sales or option contracts, to minimize its exposure to fluctuationsa result of higher fines in the price of gold.ore material.

 

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,depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 19%by 20% or US$170150 million from 20142017 to 2015. Ounces sold decreased by 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 2015.2018.

 

Other expense (net).operating expenses, net.Other expense (net)operating expenses, net increased by 20% or US$15.713 million from 20142017 to 2015,2018, primarily due to higher losses associated with asset sales incurred in 2015 compared to 2014.advanced project expenses.

 

Income tax benefit (expense).Yanacocha’s financial and operating results included an income and mining tax benefitexpense of US$602.729 million in 20152018 compared to an expense of US$30.57 million in 2014.2017. The difference was primarilydriven by higher income due to Yanacocha’s decreased profitability as the result of lower expenses compared to the prior year.operating costs.

Dividends. On February 15, 2016, Yanacocha’s board of directors unanimously agreed to distribute dividends in the amount of US$300 million, which corresponds to a portion of the accumulated results as of December 31, 2014, which were generated in 2011.

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Dividends. During the years ended December 31, 2014 and 2015, 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 24 to the Yanacocha Consolidated Financial Statements for a more complete listing Yanacocha’s accounting policies.

Currencyof standards issued but not effective.

 

The Yanacocha Financial Statements are stated in U.S. Dollars, Yanacocha’s functional currency, as most of its transactions are traded, collectedstandards 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

Costsinterpretations that are incurred in or benefit the productive process are accumulatedissued 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 baseddate of Yanacocha’s financial statements but not yet effective and are reasonably expected to have an impact on currentits disclosures, financial position or performance when applied at a future date, are disclosed below. Yanacocha intends to adopt these standards, if applicable, when they become effective. The standards 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 inventoriesinterpretations not expected to be processed within the next twelve monthsimpact Yanacocha’s disclosures, financial position or performance 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 upnot listed below. See Note 2.4 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 withYanacocha Consolidated Financial Statements for 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.

93

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 doré 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 before 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 before 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:

(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

94

(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 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.

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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 basiscomplete listing 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 (“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.

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.

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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, Accounting Standards Codification (“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.accounting policies.

 

Results of Operations for the Years Ended December 31, 20152018 and 20142017

Sales

 

Gold sales. Gold sales decreased by 12%2%, or US$14012 million, from 20142017 to 2015,2018, 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.volume sold. Gold ounces produced decreased 5.2%4% due primarily to a decrease in the amount oflower leach grade material placed on the leach pads compared to prior year as well as lower mill grade and recovery.pad production. 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  52,020   30,713 
Carachugo  89,635   286,062 
Maqui Maqui  47,712   5,669 
La Quinua  728,324   647,500 
Total  917,691   969,944 

(1)Ounces produced included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.

Costs relatedapplicable to sales

 

Costs relatedapplicable to sales for the year ending December 31, 20152018 and 2014 comprise:2017 comprised: 

 

 2015  2014  2018  2017 
 US$(000) US$(000)  (US$ in thousands) 
     
Beginning balance of inventories  497,669   522,596 
Beginning balance of finished goods and in-process  345,489   446,503 
Beginning balance of provision for net realizable value  (62,540)  (84,374)
Consumption of supplies  210,384   246,106   215,863   240,881 
Personnel expenses  102,867   87,290   82,645   99,702 
Other services  76,490   82,805   43,672   66,408 
Maintenance  38,646   38,526   22,585   24,033 
Power  27,713   24,942   24,203   23,565 
Depreciation and amortization  223,142   360,334   156,212   87,783 
Workers' profit participation  28,852   35,055 
Reclamation expenses related to Yanacocha leach pad  -   20,315 
Net realizable value adjustment  64,497   95,859 
Ending balance of inventories  (518,524)  (593,528)
Workers’ profit participation  3,837   1,242 
Reclamation expenses related to leach pad  16,284   124,124 
Ending balance of provisions for net realizable value  89,127   62,540 
Ending balance of finished goods and in-process  (341,213)  (345,489)
          596,164   746,918 
  751,736   920,300 

 

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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,depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 19%by 20% or US$170150 million from 20142017 to 2015. Ounces sold decreased 4.5% from 2014 to 2015.2018. Costs applicable to sales per ounce of gold decreased by 14%,18% from US$9491,390 per ounce in 20142017 to US$8191,141 per ounce in 2015.2018.

 

Operating costs decreased by 32%15% from US$674.6452 million in 20142017 to US$456.0385 million in 2015.2018. Operating costs consist primarily of drilling, blasting, loading, hauling, leaching,milling and millingmetal recovery costs. These costs decreased

Reclamation expenses related to leach pads of US$16 million are due to a non-cash charge to reclamation expenses for the year ended December 31, 2018 related to the areas of Yanacocha’s operations no longer in 2015 primarily as a resultproduction. The increase to the reclamation obligation of lower expenses relatingUS$44 million in 2018 is mainly due to surface mining costs (lower diesel pricenew disturbance from the Quecher Main development project and lower repairs and maintenance) and lower heap leaching costs, partially offset by higher milling costs (related to cyanide and lime consumption).changes in the labor cost estimation.

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Workers’ profit participation decreasedincreased by 18%209%, from US$351 million in 20142017 to US$293.8 million in 2015.2018. This decreaseincrease was directly related to the decrease in Yanacocha’s taxable income from 2014 to 2015.lower operating costs. 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 decreasedincreased from US$95.821.8 million in 2014 to US$64.526.5 million in 2015 due to lower costs of inventory comparedshort-term gold price (which amounted to the prior year.

Inventory variation decreased by 39%, from US$70.9 million in 2014 to US$20.9 million in 2015, due to lower stock of ounces at the beginning of year and lower costs$1,227 per ounce comparedas opposed to the prior year.a price of $1,275 per ounce used for purposes of calculating inventory).  

 

Depreciation, depletion and amortization decreasedincreased by 38%78% from US$36088 million in 20142017 to US$223156 million in 2015.2018. This decreaseincrease was attributable principally to lower depreciation associated with assetshigher asset retirement costs and deferred mine development.due to an increase in the higher average repair orders for the year 2017.

Administrative expenses

 

Administrative expenses for the years ended December 31, 20152018 and 2014 where comprised2017 were composed of:

 

 2018  2017 
 2015  2014  (US$ in thousands) 
Management expenses $18,108  $19,938   1,317   3,395 
Community development expenses and        
external affairs  6,297   15,653 
Other  1,920   2,671   1,466   1,365 
 $26,325  $38,262   2,783   4,760 

Other operating expenses, net

 

Other operating expense (net)

Other expenses, net for the years ended December 31, 20152018 and 20142017 were as follows:

 

 2015  2014  2018  2017 
      (US$ in thousands) 
Exploration and advance project $64,223  $58,880   62,643   51,694 
Severance program  14,904   16,438   8,678   9,419 
Disposal of fixed assets  (135)  13,530 
Other expenses  (671)  (6,149)
Tax fine  3,954   - 
Write-off of fixed assets  -   1,368 
Others, net  4,525   (4,918)  880   1,033 
 $82,846  $77,781   76,155   63,514 

 

Advanced projectsExploration and advanced project costs also increased from US$16.552 million in 20142017 to US$2263 million in 2015.2018. This increase was primarily due to lower activities in 2014 than 2015higher advanced project costs relating to feasibility studies for projects such as the Chaquicocha tunneltailing facilities and Quecher main.technical studies.

Impairment of long-lived assets

 

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In December 2017 and 2018, Yanacocha performed a formal evaluation of its cash generating units and concluded that there were no impairment indicators at December 31, 2018 and 2017, respectively.  

Impairment.

Impairment calculations were conducted for Yanacocha and the Conga project for the 2015 financial statements. Despite the lower market prices for gold and the water first approach at the Conga project, the calculations yielded no write-downs for 2015.

Income tax provision.

 

Yanacocha’s financial and operating results included income and mining tax expense of US$(602.7)29 million in 20152018 compared to US$30.57 million in 2014. The difference2017. This increase was primarily duedirectly related to the write-off of the deferredhigher taxable income tax asset of US$510 million.driven by lower operating costs.

Net loss

 

Net income.

Net incomeloss decreased by US$49.993.9 million, from net loss of US$(400.3)175 million in 20142017 to net loss of US$(450.2)81.5 million in 2015,2018, mainly explained by higherlower non-cash charge to reclamation expenses for the year ended December 31, 2018 of US$16.8 million, compared to US$109 million as December 31, 2017, related to the areas of Carachugo, Yanacocha, Maqui Maqui and Cerro Negro operations no longer 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.production.

 

Results of Operations for the Years Ended December 31, 20142017 and 20132016

Sales

 

Gold sales. Gold sales decreased by 17%15%, or US$247121 million, from 20132016 to 2014,2017, 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%18% due primarily to a decrease in the amount of leachlower gold mill production by less throughput, and less gold grade material placed on the leach pads compared to prior yearand recovery by mineral with higher soluble copper content as well as lower millleach pad production due to lower gold grade and recovery.minerals with higher fine content. 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 2014  2013  2017  2016 
 (ounces)  (ounces) 
Cerro Yanacocha  30,713   16,393   147,415   176,263 
Carachugo  286,062   437,095   61,747   124,886 
Maqui Maqui  5,669   5,858   16,990   28,105 
La Quinua  647,500   557,914   298,438   188,095 
Cerro Negro  10,102   137,584 
Total  969,944   1,017,259   534,692   654,934 

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Ounces produced included El Tapado Oeste Pit, Cerro Negro Pit, Marleny Pit production and Verde Bioleach Demonstration Facility.Costs applicable to sales

 

Costs related to sales

Costs relatedapplicable to sales for the year ending December 31, 20142017 and 2013 comprise:2016 comprised:

  2014  2013 
  US$(000)  US$(000) 
Beginning balance of inventories  522,596   545,183 
Consumption of supplies  246,106   300,792 
Personnel expenses  87,290   120,568 
Other services  82,805   66,670 
Maintenance  38,526   52,486 
Power  24,942   29,142 
Depreciation and amortization  360,334   349,760 
Workers' profit participation  35,055   49,259 
Reclamation expenses related to Yanacocha leach pad  20,315   - 
Net realizable value adjustment  95,859   146,051 
Ending balance of inventories  (593,528)  (668,647)
   920,300   991,264 

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  2017  2016 
  (US$ in thousands) 
Beginning balance of finished goods and in-process  446,503   544,325 
Beginning balance of provision for net realizable value  (84,374)  (90,298)
Consumption of supplies  240,881   228,376 
Personnel expenses  99,702   87,258 
Other services  66,408   73,779 
Maintenance  24,033   36,213 
Power  23,565   27,270 
Depreciation and amortization  87,783   140,712 
Workers’ profit participation  1,242   12,394 
Reclamation expenses related to leach pad  124,124   78,494 
Ending balance of provisions for net realizable value  62,540   84,374 
Ending balance of finished goods and in-process  (345,489)  (446,503)
   746,918   776,394 

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,depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreased 7%by 4% or US$70.929.5 million from 20132016 to 2014. Ounces sold decreased 5.4% from 2013 to 2014.2017. Costs applicable to sales per ounce of gold increased by 2%,18% from US$9741,185 in 20132016 to US$9491,397 in 2014.2017.

 

Operating costs decreasedincreased by 13%1% from US$776.1453 million in 20132016 to US$674.6455 million in 2014.2017. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs. These costs decreased in 2014 primarily as a result

Reclamation expenses related to leach pads 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 expensesUS$124 million are due to lower headcount. The volume of commercial tons mined decreased from 161.8 million DST in 2013a non-cash charge to US$118.8 million DSTreclamation expenses for the year ended December 31, 2014.2017 related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation obligation of US$46 million is mainly due to a decrease in the market-based discount rate compared to last year.

 

Workers’ profit participation decreased by 29%90%, from US$4912 million in 20132016 to US$351 million in 2014.2017. This decrease iswas directly related to the decrease in Yanacocha’s taxable income from 20132016 to 2014.2017. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislationlegislation.

 

The portion of leach pad inventory write-downs associated with costs applicable to sales decreasedincreased from US$1465.9 million in 2013 to US$95.821.8 million in 2014 due to lower costs of inventory compared to the prior year.

Inventory variation decreased by 43%, 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.higher future costs.

 

Depreciation, depletion and amortization increaseddecreased by 3%38% from US$349.7141 million in 20132016 to US$36088 million in 2014.2017. This increasedecrease was attributable principally to leach pad inventory write-downs combined higher depreciation associated with assets retirement costs and deferred mine development.the effect of impairment in the 2017 depreciation.

Administrative expenses

 

Administrative expenses for the yearyears ended December 31, 20142017 and 2013 where comprised2016 were composed of:

 

 2017  2016 
 2014  2013  (US$ in thousands) 
Management expenses $19,938  $17,480   3,395   7,191 
Community development expenses and        
external affairs  15,653   46,482 
Other  2,671   3,102   1,365   1,589 
 $38,262  $67,064   4,760   8,780 

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Other operating expenses, net

 

Other operating expense (net)

Other expenses, net for the years ended December 31, 2017 and 2016 were as follows:

 

 2017  2016 
 2014  2013  (US$ in thousands) 
Exploration and advance project $58,880  $64,510   51,694   49,580 
Severance program  16,438   19,323   9,419   9,659 
Disposal of fixed assets  13,530   6,562 
Other expenses  (6,149)  (8,924)
Write-off of fixed assets  1,368   14,036 
Others, net  (4,918)  (3,966)  1,033   (1,779)
 $77,781  $77,534   63,514   71,496 

 

Exploration and advanced project costs decreased by 23%,increased from US$20.050 million in 20132016 to US$15.452 million in 2014.2017. This decrease was attributable principally to lower drilling works in 2014 for Chaquicocha Underground and other minor exploration activities.

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Advanced projects costs also decreased from US$44.5 million in 2013 to US$43.5 million in 2014. This declineincrease was primarily due to lowerincreased drilling activities in 2014 than in 2013 for projects as Geotechnical Investigation Project and Verde Stage 2 Study project.2017.

Impairment of long-lived assets

 

Impairment.In December 2017, Yanacocha performed a formal evaluation of its cash generating units and concluded that there were no impairment indicators as of December 31, 2017.

In 2016, the Company’s management determined that there was objective evidence that its investment in Yanacocha might be impaired. During 2016, compared to prior years, Yanacocha experienced a decrease in the volume of gold produced, an increase in production costs, and a decrease in operating cash flows, all of which resulted from a depletion of Yanacocha’s gold reserves. As a result of these indicators, the Company performed an impairment test in December 2016.

 

The 2014 financial results included an impairment lossrecoverable amount of US$541million related exclusivelythe Company’s investment in Yanacocha was determined to the Conga project, compared tobe US$1,038.5528.9 million in 2013 (Yanacocha and Conga). The discount interest rate used in the impairment calculations under the fair value less costsas of sale methodology was 8.04% after taxes,December 31, 2016, which was based on a peer groupvalue in use calculation using cash flow projections from Yanacocha’s financial budgets from 2017 to 2026. As a result of mining companies adjusted for Peru country risk. The rate is a “real” versus “nominal” ratethis analysis, the Company concluded that no additional impairment loss on its investment in Yanacocha was required to be recorded as the cash flow models were not escalated for inflation. This discount rate was used for both segments Yanacocha and Conga.recoverable amount exceeded the recorded value of the investment.

 

In performing its impairment testing, the Company determined that the recoverable amount was most sensitive to the following assumptions:

·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 the 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.

·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. Estimated gold prices for the current and long-term periods were as follows: US$1,221/ounce for 2017 and US$1,300/ounce for 2018 and thereafter.

·Discount rate: In calculating the value in use, the Company applied a pre-tax discount rate of 7.1% to the pre-tax cash flows. This discount rate was derived from the Yanacocha’s post-tax weighted average cost of capital, with appropriate adjustments made to reflect the risks specific to the investment.

Income tax provision.

 

Yanacocha’s financial and operating results included income and mining tax expense of US$30.57 million in 20142017 compared to US$203.543 million in 2013. The difference2016. This decrease was primarily duedirectly related to Yanacocha’s increased profitability as the result of lower expenses compared to the prior year.taxable income.

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Net loss

 

Net income.

As a consequence of the foregoing, net loss decreased by US$868 million, from net loss of US$1,043.7 million in 2016 to net of US$175 million fromin 2017, mainly explained by the 2016 impairment of US$(575) million in 2013 to US$(400) million in 2014.889 million.

 

B. Liquidity and Capital Resources

B.Liquidity and Capital Resources

 

As of December 31, 2015,2018, Yanacocha had cash and cash equivalents of US$944723 million, substantially all of which were held in U.S. Dollars, as compared to US$787675 million as of December 31, 2014.2017.

Cash provided by operating activities

 

Yanacocha’s operationsYanacocha generated a net cash flow from operations of US$275161 million in 20152018 and US$372.295 million in 2014.2017. The net cash flow from operations in 20152018 was 34%70% or US$10166 million higher than in 2017. The increase was primarily driven by lower operating costs.

Yanacocha generated net cash flow from operations of US$95 million in 2017 and US$140 million in 2016. The net cash flow from operations in 2017 was 32% or US$45 million lower than in 2014.2016. The decrease was primarily driven by decrease in operating assets as a provision for reclamation and remediation, the write-off of fixed assets and the write-down of ore on leach padslower gold sales due to realizable value.lower gold production.

 

Cash used in investing activities

 

Net cash used in investing activities was US$117.3161 million in 2015 and2018 compared to US$17649 million in 2014.2017. The increase in cash used in investing activities was mainly due to increased capital requirements of the Quecher Main project and the availability of cash resulting from the sale of 5% of Yanacocha’s shares to Sumitomo. Under the terms of this participation sale agreement, the cash paid by Sumitomo has been placed in escrow. This balance is included in the caption Restricted Cash in the statement of financial position. The restricted cash is not available to finance our day-to-day operations and, therefore, has been excluded from cash and cash equivalents for the purposes of the statement of cash flows. It has been disclosed as a non-current asset.

 

Yanacocha’s capital expenditures from its formationNet cash used in 1992 through 2015 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; and

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·The construction of Gold Mill Tailing Pipeline and equipment components.

Yanacocha’s capital expenditures from its formation through December 31, 2014 totaled approximatelyinvesting activities was US$5,821 million, including capital expenditures of US$31149 million in 2013,2017 compared to US$117106 million in 20142016. The decrease in cash used in investing activities was mainly due to the completion of the Northern Tailings project and US$96.2 milliona decrease in 2015.investments in major replacements for our assets, predominantly due to improvements in monitoring the condition of our equipment.

 

In 2015, Yanacocha’s principal capital expenditures included:

·US$29 million associated with the initial construction of one water treatment plant at La Quinua;

·US$28 million for the storage expansion of La Quinua Tailings and the construction of North Tailings Dump;

·US$14 million for equipment components;

·US$5 million for equipment upgrade in Verde Bioleach Pilot Plant;

·US$3 million for drilling activities in Quecher project;

·US$3 million for hydrogeological activities in Western Oxides; and

·US$17 million for other minor projects.

Cash used in financing activities

Net cash generated in financing activities was US$48 million in 2018, as compared to cash used was US$48 million in 2017. The increase was due to the sale of 63,922,565 shares to Summit Global Management II VB (a wholly-owned subsidiary of Sumitomo Corporation) for US$48 million in June 2018.

 

Net cash used in financing activities was US$048 million in both 2015 and 2014.2017, as compared to US$300 million in 2016. The decrease was primarily driven by the fact that Yanacocha did not distribute dividends in 2017. In 2015 and 2014,addition, on December 22, 2017, Yanacocha carried no debt and accordingly had no financing costs.repurchased 63,922,565 shares owned by International Finance Corporation (“IFC”) for US$48 million, which represented 5% of the capital stock of Yanacocha.

 

C.Capital Expenditures

C. Research and Development

In 2018, Yanacocha’s principal capital expenditures of US$117.6 million were mainly related to the Quecher Main project.

D.Research and Development

 

Yanacocha is a mining exploration and production company and does not engage in research and development activities.

 

98

D. Trend Information

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.

 

E. Off-Balance Sheet Arrangements

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.

 

102G.Tabular Disclosure of Contractual Obligations

F. Tabular Disclosure of Contractual Obligations

 

The following table shows Yanacocha’s contractual obligations as of December 31, 2015:2018:

 

  Payments due by Period (US$ in millions) 
  Total  Less than
1 year		  1-3 years  3-5 years  More than
5 years		 
Long-Term Debt  -   -   -   -   - 
Capital Lease Obligations  -   -   -   -   - 
Reclamation and Remediation Liability  578.9   6.7   86.5   145.7   340. 
Open Purchase Orders receipt  -   -   -   -   - 
Other Long-Term Obligations(*)  29.1   -   23.2   5.9   - 
Total Contractual Cash Obligations  -   -   -   -   - 

(*)Other Long-Term Obligations includes obligations relating to social development projects and commitments.
  Payments due by Period (US$ in millions) 
  Total  Less than 1 year  1-3 years  3-5 years  More than 5 years 
Debt intruments  42   -   -   42   - 
Capital Lease Obligations  -   -   -   -   - 
Reclamation and Remediation Liability  1,294   19   86   102   1,087 
Open Purchase Orders receipt  -   -   -   -   - 
Other Long-Term Obligations  18   -   18   -   - 
Total Contractual Cash Obligations  1,354   19   104   144   1,087 

 

 10399 

 

 

CERRO VERDE

Introduction

 

The following discussion should be read in conjunction with the Cerro Verde Financial Statements as of December 31, 20142017 and 20152018 and for the years ended December 31, 2013, 2014,2016, 2017, and 20152018 and the related notesNotes 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.
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 current operations consistexpansion 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 operation consists of an open-pit copper mine, with a 120,000processing capacity of 548,500 metric tons-per-day that includes (i) concentrator facilities with a 409,500 metric ton-per-day concentratorcapacity (361,500 metric tons-per-day prior to the expansion approved by the MEM during 2018), (ii) solution extraction and electrowinning (SX/EW) leaching facilities. Leach-copperfacilities with leach copper production is derived from a 39,000 metric ton-per-day crushed leach facility and (iii) a run-of-mine (ROM) leach system.system with a capacity of 100,000 metric tons-per-day. This SX/EW leaching operation has a production capacity of approximately 200 million pounds of copper per year.

 

Cerro Verde has sufficient equipment to move an average of 308,000947,000 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, 2013, 2014,2016, 2017 and 2015:2018:

 

  As of and for the year ended December 31, 
  2013  2014  2015 
Income statement data(1)            
Sales of goods (US$ in thousands)  1,811,488   1,467,097   1,115,617 
Profit for the year (US$ in thousands)  613,262   377,606   33,284 
             
Proven and Probable Reserves(2)            
Proven:            
Leachable ore reserves (tons in thousands)  52,676   46,426   47,603 
Millable ore reserves (tons in thousands)  1,123,205   881,338   925,365 
Probable:            
Leachable ore reserves (tons in thousands)  114,990   121,954   104,963 
Millable ore reserves (tons in thousands)  2,756,501   2,903,516   2,778,009 
Average copper grade of leachable ore reserves (%)  0.33   0.37   0.35 
Average copper grade of millable ore reserves (%)  0.37   0.38   0.38 
             
Production(3)            
Cathodes (in thousands of recoverable pounds)  104,314   124,804   105,077 
Concentrates (in thousands of recoverable pounds)  452,925   375,438   439,405 
Average realized price of copper sold (US$ per pound payable)  3.24   2.93   2.26 

  As of and for the year ended December 31, 
  2016  2017  2018 
Income statement data(1)            
Sales of goods (US$ in thousands)  2,384,154   3,202,931   3,054,026 
Profit for the year (US$ in thousands)  340,907   349,881   119,710 
             
Proven and Probable Reserves(2)            
Proven:            
Leachable ore reserves (tons in thousands)  43,000   45,000   44,000 
Millable ore reserves (tons in thousands)  854,000   885,000   830,000 
Probable:            
Leachable ore reserves (tons in thousands)  78,000   61,000   89,000 
Millable ore reserves (tons in thousands)  2,698,000   2,586,000   3,361,000 
Average copper grade of leachable ore reserves (%)  0.32   0.29   0.25 
Average copper grade of millable ore reserves (%)  0.37   0.37   0.36 
             
Production(3)            
Cathodes (in thousands of recoverable pounds)  107,960   82,180   87,583 
Concentrates (in thousands of recoverable pounds)  999,850   980,030   961,846 
Average realized price of copper sold (US$ per ton payable)  4,759   6,637   6,422 

  

 104100 

 

(1)Derived from Cerro Verde’s financial statements filed with theSuperintendencia del Mercado de Valores, or the SMV.statements. See the Cerro Verde Financial Statements, including the notesNotes thereto, appearing elsewhere in this Annual Report.

(2)Reserve calculations are derived from the audited financial statements filed by Cerro Verde with the SMV.“Item 3. Key Information – A. Selected Financial Data”. Cerro Verde used US$2.002.5 per pound of copper to determine copper reserves as of December 31, 2015. See the Cerro Verde Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.2018. 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“Item 3. Key Information – A. Selected Financial Statements, including the notes thereto, appearing elsewhere in this Annual Report.Data”.

 

Cerro Verde Mining Royalties

Superintendencia Nacional de Administración Tributaria (“SUNAT”),On June 23, 2004, Law 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(d) to the Cerro Verde Financial Statements, prior to January 1, 2014, Cerro Verde determined that these royalties were not applicable because it operated under the 1998 Stability Agreement with the Peruvian nationalgovernment. However, beginning January 1, 2014, the Cerro Verde began paying royalties calculated on operating income with rates between 1% to 12% and a new special mining tax authority, hasfor its entire production base under its current 15-year stability agreement, which became effective January 1, 2014. See Note 13(d) to the Cerro Verde Financial Statements for a summary of amounts recognized by the Cerro Verde for special mining tax and mining royalties for the years ended December 31, 2018 and 2017.

SUNAT assessed mining royalties on orematerials 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, or the “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 2013,2013. Cerro Verde filed judiciary appeals related to thecontested each of these assessments because it continues to believebelieves that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concession, from royalties, irrespective of the method used for processing thosesuch minerals. With respect to the judiciary appeal related to the assessmentNo assessments can be issued 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 Tax Tribunal’s resolution (S/.106.4 million). On December 31, 2014, SUNAT and the Tax Tribunal appealed this decision. The court’s position also invalidates all penalties and interest assessed by SUNAT for that period (S/. 139.7 million). On January 29, 2016 the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court.years after 2013, as Cerro Verde will appeal the decision to the Supreme Court.began paying royalties on all of its production in January 2014 under its new 15-year stability agreement.

 

On October 1, 2013, SUNAT served Cerro Verde with a demand for payment totaling S/.492 million (US$144 million based on exchange rates as of December 31, 2015, including interest and penalties of US$85 million)Since 2014, based on the Tax Tribunal’s decisions for the period December 2006 throughto December 2008. As permitted by law,2008, Cerro Verde requested and was grantedis paying the disputed assessments under an installment payment program that defers payment for six months and thereafter satisfies the amount via sixty-sixequivalent to 66 equal monthly payments. As of December 31, 2015,2018, Cerro Verde hadhas made payments totaling S/. 219596.8 million (US$64187.7 million based on the date of payment exchange rate and US$176.6 million based on the December 31, 20152018, exchange rates) under the installment program, which are presented in the long-term portion of other non-financial assets in the statement of financial position. See Note 7rate).

With respect to the judiciary appeal related to disputed royalty assessments for the year 2006-2007, on August 9, 2017, Cerro Verde Financial Statements for further discussion. Based onfiled a cassation appeal before the results renderedSupreme Court against the resolution issued by the EighteenthSeventh Contentious Administrative Court, as describedwhich was admitted in December 2017. The oral hearing before the previous paragraph,Supreme Court took place on November 20, 2018 and their decision is pending.

In September 2018, the Peruvian Tax Tribunal confirmed SUNAT’s resolution that ordered the payment of royalties and denied the Cerro Verde’s request to waive penalties and interest for the period January 2009 through September 2011. In December 2018, Cerro Verde elected not to appeal the Tax Tribunal’s decision to the Peruvian Judiciary and is assessing alternative mechanisms to defend its rights.

In October 2018, SUNAT served Cerro Verde demands for payments totaling S/928.9 million (approximately US$274.9 million based on the December 31, 2018, exchange rate, including interest and penalties of US$165.7 million) based on the Tax Tribunal’s decisions for the period January 2009 to September 2011. Cerro Verde requested, and was granted an injunction, which modifiedtwo installment payment programs, including a six-month deferral and 66 equal monthly payments for each one, for the period January 2009 through September 2011. Total debt as of December 31, 2018 is S/947.2 million (approximately US$280.3 million based on the December 31, 2018, exchange rate, including deferral interest. interest and penalties of US$171.1 million). Payments for these installment program by excludingprograms will start in the 2008 portion throughsecond quarter of 2019.

101

On January 18, 2018, Cerro Verde received assessments from SUNAT related to mining royalties for the fourth quarter of 2011. On February 15, 2018, Cerro Verde appealed these assessments and SUNAT denied it. On November 21, 2018, Cerro Verde appealed SUNAT’s resolution provided to Cerro Verde on October 29, 2015.

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.Court. As of December 31, 20152018, the amount of the assessment,assessments from SUNAT, including interest and penalties, for the fourth quarter of 2011 is S/53.7 million (approximately US$15.9 million based on the December 31, 2018, exchange rate, including interest and penalties of US$8.7 million). Also on January 18, 2018, Cerro Verde received assessments from SUNAT related to special mining tax from the fourth quarter of 2011 to the fourth quarter of 2012. On February 15, 2018, Cerro Verde appealed these assessments and SUNAT denied it. On November 21, 2018, Cerro Verde appealed the SUNAT’s resolution to the Tax Court. As of December 31, 2018, the amount of the assessments from SUNAT, including interest and penalties, is S/234.0 million (approximately US$69.3 million based on the December 31, 2018, exchange rate, including interest and penalties of US$33.3 million).

On April 18, 2018, Cerro Verde received assessments from SUNAT related to mining royalties for the year 2012. On May 17, 2018, Cerro Verde appealed these assessments. On January 23, 2019, Cerro Verde received a resolution issued by SUNAT denying the appeal of assessments for year 2012. As of December 31, 2018, the amount of the assessments from SUNAT, including interest and penalties, for the year 2009 was2012 is S/247240.9 million (approximately US$7271.3 million based on the December 31, 20152018, exchange rates)rate, including interest and penalties of US$37.4 million).

On October 10, 2018, Cerro Verde received assessments from SUNAT related to mining royalties and special mining tax for the year 2013. On November 7, 2018, Cerro Verde appealed these assessments. As of December 31, 2015,2018, the amount of these assessments, including interests and penalties, is S/303.8 million (approximately US$89.9 million based on the December 31, 2018, exchange rate including interest and penalties of US$41.4 million).

For the year ended December 31, 2018, Cerro Verde estimates that the total exposurerecorded charges related to penalties and interests associated with disputed royalty assessments for the period from January 2009 through December 2013 totaling US$408.9 million in the statements of comprehensive income. For the year ended December 31, 2017, Cerro Verde recorded net charges totaling US$393 million in the statements of comprehensive income, associated with disputed mining royalties assessments for the period from December 2006 tothrough December 2013, including accumulated interest and penalties amounted to approximately US$500 million at December 31, 2015 exchange rates.2013.

 

AsIn December 2017, as a result of December 31, 2015, nothe unfavorable Supreme Court decision on the 2008 royalty matter, Cerro Verde requested the return of the amounts were accrued for these assessment orthat would have been paid in excess for the amounts paid underSpecial Mining Burden (GEM) (October 2012 to December 2013), FONAVI (National Housing Fund) (December 2012 to December 2013) and customs duties (2013). In December 2018, SUNAT refunded the installmentpayments in excess for GEM for the periods requested of S/254.7 million (US$76.1 million based on the date of collection and its external legal advisors believe Cerro Verde’s 1998 stability agreement exempted it from these royalties and believes that the resolution will be favorable to Cerro Verde and any payment should be recoverable.including interest of US$18.6 million).

 

The Company acted in good faith in applying the provisions of its 1998 Stability Agreement and continues to evaluate alternatives to defend its rights.

 105102 

 

 

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.

 

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.

 

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 a 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 hole 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.

 

103

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.

 

106

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(i)2(j) 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 ARCasset retirement cost (“ARC”) in accordance with IAS 16, “Property, Plant and Equipment.”

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 occur or fail to occur. The assessment of the existence and potential quantumamount of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

 

Stripping cost

 

In accordance with IFRIC 20, “Stripping Cost inCerro Verde incurs waste removal costs (stripping costs) during the Production Phasedevelopment and production phases of a Surface Mine,” stripping costs incurred inits 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 aasset stripping activities, where certain criteria are met.

104

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 of property, plant and equipment ifis the stripping activity improves access tospecific volume of the ore body or enhances an existing asset. See Note 9that is made more accessible by the stripping activity. Significant judgment is required to identify and define these components, and also to determine the Cerro Verde Financial Statements for further discussion. The stripping activity asset is subsequently amortized using the UOP method.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, 20152018 and 20142017

 

Net sales. Net sales, including and mark-to-market adjustments for pounds of copper pending settlement, decreased by 24%5%, from US$1,467.13,202.9 million in 20142017 to US$1,115,63,054.0 million in 2015,2018, principally due to a decrease in the average realized copper prices during 2014 partially offset by higher volume of copper sold.price. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 20142017 and 2015:2018:

 

107

 Year ended December 31,     Year ended December 31,    
 2014  2015  Variation  2017  2018  Variation 
Average price                        
Copper (US$ per ton) $6,452   4,518   -30%  6,637   6,422   (3)%
                        
Volume sold                        
Copper (in tons)  227,402   246,913   9%  482,587   475,574   (1)%
            

 

Average realized copper prices per ton decreased from US$6,4526,637 in 20142017 to US$4,5186,422 in 2015.2018. The volume of copper sold increaseddecreased from 227,402482,587 tons in 20142017 to 246,913475,574 tons in 2015, due to an increase in the volume of copper concentrates sold associated with Cerro Verde’s new concentrator plant that commenced operation in September 2015.2018. The combined effect of these changes resulted in a US$351.5148.9 million decrease in income from sales of copper in 20152018 compared to 2014.2017.

 

Total costs of sales of goods. Total costs of sales of goods increased from US$797.51,768.2 million in 20142017 to US$862.02,011.0 million in 2015,2018, due mainly to the net effect of the following:

 

(a)       Material and supplies consumption cost increased by 9%25%, from US$333.5556.0 million in 20142017 to US$364.2693.3 million in 2015, mainly2018 due to increased consumptionthe increase of supplies for Cerro Verde’s new concentrator plant.haul trucks and shovels fleet.

 

(b)       Labor costs, including workers’ profit sharing, decreasedincreased by 15%25%, from US$171.6286.1 million in 20142017 to US$146.4357.7 million in 2015,2018, mainly due to lower profit sharing in 2015a Union Agreement bonus payment as compared to 2014 as a resultpart of lower profits;the new collective labor agreement.

 

(c)       The variation of in process inventoriesEnergy costs increased by 11%, from US$70.5229.3 million in 20142017 to US$118.3254.2 million in 2015 as a result of higher material2018 due to the new concentrator planthigher power unit price and the current mining plan of processing high grade concentrates first and then low grade concentrates;kilowatts consumed.

  

(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 increased by 9%10%, from US$87.5144.8 million in 20142017 to US$95.1159.5 million in 2015; and

(f)  Energy costs increased by 29%, from US$91.8 million in 2014 to US$118.0 million in 2015,2018 mainly due to Cerro Verde’s new concentrator plant.higher maintenance on trucks, shovels and drills as part of the failure prevention and maintenance program.

 

Total operating expenses.Operating expenses increaseddecreased by 43%49%, from US$57.8400.5 million in 20142017 to US$82.8205.7 million in 2015,2018 due mainly to changes in the following components:following:

 

(a)       Selling expenses increaseddecreased by 4%3%, from US$54.2141.7 million in 20142017 to US$56.2137.0 million in 2015,2018, mainly due to higher copperlower concentrate sales during 2015; andocean freight rates.

 

(b)       Other expenses increaseddecreased by 73%, from US$23.0258.8 million in 20152017 to US$68.7 million in 2018, mainly due tocosts associated with commencing operations at Cerro Verde’s new concentrator plant.to lower expenses related to disputed mining royalties.

 

Income tax.tax. Income tax expense, including current and deferred expense, decreased by 81%33%, from an expense of US$238.5486.0 million in 20142017 to an expense of US$46.2325.2 million in 2015. Net current income tax expense (including mining taxes) decreased by US$262.1 million2018 primarily due to lower taxable incomeprofit generated during 2018 as a consequence of the recognition of interest and an increase in deferred tax expense by 69.8 million (mainly relatedpenalties of disputed mining royalties for the January 2009 to a temporary tax difference associated with the depreciation of fixed assets).December 2013 period.  

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Net income.income. As a result of the foregoing, net income decreased by 9%66%, from US$377.6349.9 million in 20142017 to US$33.3119.7 million in 2015.2018. As a percentage of net sales, net income was 3%4% in 2015,2018, compared with 26%to 11% in 2014.2017.

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Results of Operations for the Years Ended December 31, 20142017 and 20132016

 

Net sales. Net sales, including and mark-to-market adjustments for pounds of copper pending settlement, decreasedincreased by 19%34%, from US$1,811.52,384.1 million in 20132016 to US$1,467.13,202.9 million in 2014,2017, principally due to a decreasean increase in average realized copper prices during 2014 and lower volume of copper sold.price. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 20132016 and 2014:2017:

 

 Year ended December 31,     Year ended December 31,    
 2013  2014  Variation  2016  2017  Variation 
Average price                        
Copper (US$ per ton) $7,137  $6,452   -10%  4,759   6,637   39%
                        
Volume sold                        
Copper (in tons)  253,828   227,402   -10%  501,000   482,587   (4)%

Average realized copper prices per ton decreasedincreased from US$7,1374,759 in 20132016 to US$6,4526,637 in 2014.2017. The volume of copper sold decreased from 253,828501,000 tons in 20132016 to 227,402482,587 tons in 2014, due to a decrease in the volume of copper concentrates sold.2017. The combined effect of these changes resulted in a US$344.40.8 million decreaseincrease in income from sales of copper in 20142017 compared to 2013.2016.

 

Total costs of sales of goods. Total costs of sales of goods increased from US$795.11,553.0 million in 20132016 to US$797.51,768.2 million in 2014,2017, due mainly to the net effect of the following:

 

(a)       Labor costs, including workers’ profit sharing, increased by 33%, from US$215.8 million in 2016 to US$286.1 million in 2017, mainly due to an increase in profit sharing associated with higher income;

(b)       Material and supplies consumption cost increased by 3%12%, from US$324.9496.9 million in 20132016 to US$333.5556.0 million in 2014, mainly2017 due to increasedmajor mine components repair and higher supplies consumption of supplies in the mine area (associated with haulage and mining equipment);

(b)  Labor costs, including workers’ profit sharing, decreased by 20%, 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;concentrator plants.

 

(c)       The variation of in process inventories increased from a favorable balance of US$57.93.8 million in 20132016 to an unfavorable US$70.551.4 million in 20142017 as a result of the current mining planincreased quantity of processing highlower concentrate grade concentrates firstmaterial removed during 2017; and then low grade concentrates;

 

(d)  Depreciation and amortization costs increased by 52%, 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;

(e)       Repair and maintenance services decreasedincreased by 5%44%%, from US$91.9100.9 million in 20132016 to US$87.5144.8 million in 2014; and

(f)  Energy costs increased by 22%, 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 2013.2017.

 

Total operating expenses.Operating expenses decreasedincreased by 15%158%, from US$68.3155.5 million in 20132016 to US$57.8400.5 million in 2014,2017 due mainly to changes in the following components:following:

 

(a)       Selling expenses decreasedincreased by 21%8%, from US$68.4131.4 million in 20132016 to US$54.2141.7 million in 2014,2017, mainly due mainly to lower copper sales during 2014;higher ocean freight and higher land freight and port facilities; and

 

(b)       Other expenses increased by US$3.7234.7 million in 20142017, mainly due to disposal lossesexpenses associated with fixed assets.the royalty dispute.

 

Income tax.tax. Income tax expense, including current and deferred expense, decreasedincreased by 28%85%, from an expense of US$333.3263.1 million in 20132016 to an expense of US$238.5486.0 million in 2014.2017. Net current income tax expense (including mining taxes) decreasedincreased by US$50.9474.0 million primarily due to lower taxable incomethe dispute of mining royalties and lower deferred tax expense by 43.9 million (mainly related to a temporary tax difference associated with the depreciation of fixed assets).special mining taxes and an increase in profits in 2017.

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Net income.As a result of the foregoing, net income decreasedincreased by 38%3%, from US$613.3340.9 million in 20132016 to US$377.6349.9 million in 2014.2017. As a percentage of net sales, net income was 26%11% in 2014,2017, compared with 34%to 14% in 2013.2016.

  

B. Liquidity and Capital Resources

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B.Liquidity and Capital Resources

 

As of December 31, 2015,2018, Cerro Verde had cash and cash equivalents of US$6.0501.2 million, compared to US$19.6600.0 million atas of December 31, 2014.2017.

 

Cash provided by operating activities for the years ended December 31, 20152018 and 2014.2017.Net cash and cash equivalents provided by operating activities were US$(194.4)809 million in 2015 and2018, compared to net cash provided by operating activities of US$186.61,615 million in 2014.2017. This decreasechange in net cash flow provided by operating activities in 20152018 compared with 2014to 2017 was mainly attributable to the following factors:

 

·a decreasean increase in proceedspayments to suppliers and other operational expenses from sales from US$1,6911,645 million in 20142017 to US$1,120 million in 2015;1,912 million;

 

·a decreasean increase in paymentpayments of income tax from US$315282 million in 20142017 to US$121431 million in 2015;2018 related to royalty matter; and

 

·aan decrease in payments under protest related to tax assessmentsproceeds from SUNATsales from US$1663,198 million in 20142017 to US$353,152 million in 2015; partially offset by:2018.

 

·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 operating activities for the years ended December 31, 20142017 and 2013.2016.Net cash and cash equivalents provided by operating activities were US$186.61,615 million in 2014 and2017, compared to net cash provided in operating activities of US$768.3946 million in 2013.2016. This decreasechange in net cash flow provided by operating activities in 20142017 compared with 2013to 2016 was mainly attributable to the following factors:

 

·a decreasean increase in proceeds from sales from US$1,9762,158 million in 20132016 to US$1,6913,198 million in 2014;2017;

 

·an increase in payment of income tax from US$275 million in 2013 to US$315 million in 2014; and

·an increase in payments under protest relatedof income tax from US$69 million in 2016 to US$282 million in 2017;

·an increase in payments to suppliers and other operational expenses from US$1,503 million in 2016 to US$1,645 million; and

·a decrease in value-added tax assessments(“VAT”) refunds from SUNAT from US$44360 million in 20132016 to US$166344.4 million in 2014.2017.

 

Cash used in investing activities for the years ended December 31, 20152018 and 2014.2017.Net cash used in investing activities increased from US$1,469.4306.4 million in 20142017 to US$1,784.7457.4 million in 2015,2018, mainly due to higher payments related to the return in 2014purchase of a time deposit in the amount of US$225 million at a local bank in order to endorse a guarantee letter as an injunction to SUNAT,property, plant and an increase in stripping asset activity of US$62.7 million in 2015.equipment.

 

Cash used in investing activities for the years ended December 31, 20142017 and 2013.2016.Net cash used in investing activities increaseddecreased from US$1,340.5478.8 million in 20132016 to US$1,469.4306.4 million in 2014,2017, mainly due to an increase in purchaseslower payments related to the purchase of property, plant and equipment (mainly related to the expansion of production at Cerro Verde from US$938270 million, and an increase in stripping asset activity of US$92 million in 2013 to US$1,663.7 million in 2014), which was partially offset by the cancellation in 2014 of a time deposit in the amount of US$225 million at a local bank in order to endorse a guarantee letter as an injunction to SUNAT in 2013.2017.

 

Cash used in financing activities for the years ended December 31, 20152018 and 20142017. Net cash and cash equivalents used in financing activities was US$1,965.5450 million in 2015, 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$600 million borrowed under a shareholder loan. Net2018, compared to net cash used in financing activities wasof US$447.8738.3 million in 2014.2017. The decrease in net cash in financing activities was primarily due to a decrease in the payments of loans (including a syndicated loan and loans with affiliates), which was partially set off by a US$200 million dividend payment.

Cash used inprovided by (used in) financing activities for the years ended December 31, 20142017 and 20132016. Net cash and cash equivalents used in financing activities was US$447.8738.3 million in 2014, mainly associated with aggregate drawings of US$425 million from the US$1.8 billion available under a syndicated credit facility that Cerro Verde entered into in March 2014. Net2017, compared to net cash used in financing activities wasof US$0.8443.2 million in 2013.2016. The increase in net cash in financing activities was primarily due to a decrease in proceeds from loans under all Cerro Verde credit facilities of US$117 million, and a net increase in the repayment of loans of US$166 million (including total payments to the partners).

 

 110107 

 

 

Long-term Debt

 

As of December 31, 2015,2018, Cerro Verde had total long-term debt of US$1.81,023 million in connection with amounts drawn fromunder a a five year US$1.8 billion1,500 million unsecured credit facility and financial lease contract liability.facility.

 

C. Research and Development

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, 2015, the physical progress in the execution of the expansion project is 95.6% and Cerro Verde has invested a total of US$4.4 billion.

D.Trend Information

 

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.

E. Off-Balance Sheet Arrangements

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

F.Tabular Disclosure of Contractual Obligations

 

The following table shows Cerro Verde’s contractual obligations as of December 31, 2015:2018:

 

  Payments due by Period (US$ in millions) 
  Total  Less than 1
 year		  1-5
years		  More than 5
years		 
Provision for Remediation and Mine Closure  161   2   -   159 
Other Current and Long-Term Contractual Obligations  2,876   432   1,800   601 
Total Contractual Cash Obligations  3,037   434   1,800   760 

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  Payments due by Period (US$ in millions) 
  Total  Less than 1 year  

1-5

years

  More than 5
years		 
Provision for Remediation and Mine Closure  132   1   7   125 
Other Current and Long-Term Contractual Obligations  1,577   331   1,199   46 
Total Contractual Cash Obligations  1,709   332   1,206   171 

 

ITEMITEM 6.Directors, Senior Management and Employees

A.Board of Directors and Senior Management

 

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(the “Annual Obligatory Meeting,”Meeting”) for a three-year term. The last election took place in March 2014,2017, and the next election is scheduled for March 2017.2020. See “Item 10. Additional Information—B. Memorandum and Articles of Association.”

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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) 61 Chairman of the Board 1980 March 2017 64 Chairman of the Board 1980 March 2020
Jose Miguel Morales(1) 70 Director 2012 March 2017 73 Director 2012 March 2020
Igor Gonzales 61 Director 2014 March 2017
Felipe Ortiz-de-Zevallos 68 Director 2003 March 2017 71 Director 2003 March 2020
Carlos del Solar 75 Director 2011 March 2017
Germán Suárez 74 Director 2005 March 2017 78 Director 2005 March 2020
William Champion(2) 62 Director 2016 March 2017
William Champion 65 Director 2016 March 2020
Diego de la Torre 56 Director 2017 March 2020
Nicole Bernex 69 Director 2018 March 2020
             
Executive Officers             
Roque Benavides(1) 61 President and Chief Executive Officer 2001  
Carlos E. Gálvez 62 Vice President and Chief Financial Officer 2001  
Victor Gobitz 54 President and Chief Executive Officer 2017 
Leandro Garcia 51 Vice President and Chief Financial Officer 2017  
Raúl Benavides(1) 60 Vice President Business Development 2014   63 Vice President Business Development 1997 
Alejandro Hermoza  54 Vice President Community Relations 2008   57 Vice President Community Relations 2008 
Igor Gonzales 64 Vice President Operations 2014  
Juan Carlos Ortiz 48 Vice President Operations 2018 
Gulnara la Rosa 51 General Counsel 2012   54 General Counsel 2012 
Leandro Garcia 47 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.
(2)Mr. Champion replaced Mr. Marsden following Mr. Marsden’s resignation in December 2015. Mr. Marsden replaced Mr. Snider following Mr. Snider’s resignation in August 2015.

 

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. Before 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.his degree in Civil Engineering fromPontificia Universidad Católica del Perú (Pontifical the Pontifical Catholic University of Peru) in Lima, Peru (PUCP) in 1977 and an M.B.A.his Master of Business Administration from the Henley The Management CollegeBusiness School at the University of Brunnel UniversityReading in 1980, andthe U.K. in 1980. He also completed the Program for Management Development Program at the Harvard Business School in 1985 and the Advanced Management ProgramProgramme at Templeton College of Oxford University in 1997. He is currently the Chairman of the Board and a member of the board of directors of some of the Company’s related entities. He is also a member of the board of directors of Banco de Crédito del Perú and UNACEM, bothUNACEM. He was previously President of the Peruvian companies.Mining, Oil, and Energy Association (SNMPE) and is currently the President of the Peruvian Confederation of Private Business Institutions (CONFIEP).

 

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William Champion, Director.Mr. Champion has been a director since January 2016. 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 capacities from 1984 to 1995 where, among other duties, he was President of Phelps Dodge Chile. Mr. Champion received Bachelor of Science degrees in Chemical Engineering and Biological Sciences from the University of Arizona.

José Miguel Morales,,Director and member of the Nominating and Corporate Governance Committees. Mr. Morales was our General Counselis an attorney at law who graduated from 1973 to 2012 and was appointed a memberthe Pontifical Catholic University of the BoardPeru (PUCP) 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 the Instituto 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 the Sociedad de Minería y Petróleo del Perú (Mining and Petroleum Society of Peru) since 1998, serving as its vice chairman –from 2000 to 2002 .  He has been a director of the following non-mining related companies:  Hotel Costa del Pacífico S.A. from 1994 to present and El Pacífico—Peruana Suiza Compañía de Seguros from 1979 to 2015.  Since 1973, he also has been a partner of Estudio Aurelio García Sayán Abogados, a Lima law firm, and has been the Senior Partner since 2007.  In February 2003, Mr. Morales was elected president ofSociedad Nacional de Minería, Petróleo y Energía (National Association of Minerals, Petroleum and Energy).  On January 31, 2005, Mr. Morales ended his tenure as President ofSociedad Nacional de Minería, Petróleo y Energía and served as President of CONFIEP from March 16, 2005 until 2007.  He promoted the incorporation of Empresarios por la Educación, a non-profit organization to improve education in Peru,  serving as its President since 2007. Mr. Morales received his law degree from Pontificia Universidad Católica del Perú in 19681958 and completed the Sloan Program at Stanford University’s GraduateUniversity School of Business in 1976.

Igor Gonzales, Director, Vice President Operations He served as Chief Counsel to the Company from 1973 to 2012 and was elected as a member of the Nominating/Corporate Governance Committee.Mr. Gonzales is a Chemical Engineer from San Antonio Abad University, Cusco, Peru, with 35 yearsBoard of experience. He is currently a Managing Partner at Magris Resources.Directors in 2012. He has been a directorsenior partner at the law firm Estudio Aurelio García Sayán since February 27, 2014.2007 and has worked for the firm since 1965. He is also a member of the board of directors of some of the Company’s related entities and various other businesses. He was Vice President 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 director of Hudbay Minerals Incorporated, Sierra Metals and Minera Corona. Mr. Gonzales received an M.S. in Extractive Metallurgy from New Mexicothe Institute of Mining and Technology – Socorro, N.M U.S.A. in 1983Oil Law, the Peruvian Mining, Oil, and completedEnergy Association, and CONFIEP. He is currently the Advance Management Programme at Henley Management College-England in 2007.President of the Entrepreneurs for Education Association.

Felipe Ortiz-de-Zevallos, Director and member of the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee.Committee. Mr. Ortiz-de-Zevallos has been a directormember of the Board of Directors since August 2003. He was Presidentthe Rector of theUniversidad del Pacífico de Limafrom 2004 to 2006 and2006. He is the founder of Grupo APOYO and chairmanhas been the president of the Board ofGrupo APOYOorganization since 1977. Mr. Ortiz-de-ZevallosHe received ahis degree in Industrial Engineering from Thethe National University of Engineering in 1968, received an M.S.(UNI) (and obtained his MSc in Administration and System AnalysisSystems from the University of Rochester in 1970 and completedRochester. He graduated from the Owner/President Management programOPM Program at Harvard Business School in 1996. He was thealso served as Peruvian ambassadorAmbassador to the United States of America from September 2006 to March 2009.

 

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 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”). 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 theUniversidad de Ciencias Aplicadas (“UPC”).

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German Suárez,Director and Chairman of the Audit Committee and Compensation Committee.Committee. Mr. SuárezSuarez received his bachelor’s degree in Economics from the National University of San Marcos (UNMSM) in 1965 and received his Master of Economics degree from Columbia University in 1969. He has been a directormember of the Board of Directors since March 2005. Mr. Suárez is an economist who was employed by2015. He spent the Central Bank from 1964 to 1990. From 1979 to 1980,majority of his professional career with the BCRP, where he worked at the International Monetary Fund (the “IMF”), representing Peru, and from 1981 to 1990 he was in charge of different posts at the Ministry of Economy and Finance. Mr. Suárez served as Chairman ofBanco de la Nación from 1990 to 1992 and Chairmanchairman of the board of the Peruvian Central Reserve Bank of Peru(BCRP) from 1992 to 2001. He washas been a member of the board of directors atof Bladex, Extebandes, and Arlabank, Latin American Reserves Fund, Credicorp Ltd. and Banco de Crédito del Perú. From 1993He was the president of the Banco de la Nación, the director of various companies and a governor to 2001, Mr. Suárez served as Governor of the IMF and Alternate GovernorIDB. He presided over the G-24 for IMF and World Bank affairs.

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Diego de la Torre, Director. Mr. de la Torre holds a bachelor’s degree in Business Administration from Universidad del Pacífico in Lima and his Master in Business Administration from the London Business School in England. He is a cofounder and Chairman of the Board of La Viga and Quikrete Perú. He is also a member of the Advisory Committee of the David Rockefeller Center for Latin American Studies at Harvard University, as well as an economics columnist for the newspaper El Comercio. He was previously a professor at the Universidad del Pacífico for twelve years and a member of the board of directors of several companies and institutions, including Endeavor Perú, IPAE and Perú 2021. Since 2005, he has been the president of the United Nations Global Compact in Peru. In 2013, he received the “Empresario Integral” award given by the Latin American Business Council. Also, in 2015, he was selected among the “Top 100 Influential Leaders” by AACSB International. He has been a member of the Board of Directors since 2017.

Nicole Bernex, Director.Ms. Bernex received her PhD in Geography from the Paul Valéry University of Montpellier (France). She has served as professor of the Department of Humanities of the Pontifical Catholic University of Peru (PUCP), academic director of the Research Center in Applied Geography (CIGA) of the PUCP, president of the Geographic Society of Lima and president emeritus of the Peruvian Forum for Water (GWP Peru). Ms. Bernex is also a member of the National Academy of Sciences of Peru, the esteemed Water Program of the Inter-American Development. ForNetwork of Academies of Sciences (IANAS) and the period from 2000 to 2001, Mr. Suárez was elected ChairmanSteering Committee of 2030 WRG. She has been the director of several research projects and programs, including the “Scientific, legal and financial design of the G-24 (IMF-World Bank)Scientific Institute of Water – ICA” (CONCYTEC-IRD-PUCP) and the “Water, Climate and Development Program – PACyD” of Global Water Partnership South America. She has been published more than 160 times in many books, articles and other publications.

William Champion,Director.Mr. Champion earned his bachelor’s degree in Chemical Engineering and Biology from the University of Arizona, in Tucson, Arizona, United States. He has been a Member of the Board since January 2016 and also serves as a director of Gladiator Mining Group LLC, a private mining investment company based in the United States. With over 40 years of executive, management, and operating experience in the mining sector, Mr. Champion worked at Rio Tinto PLC from 2002 to 2014 in various positions, was managing director of Rio Tinto Coal Australia and Rio Tinto Diamonds, served as president and chief executive officer of Kennecott Utah Copper and worked at Phelps Dodge Mining Company from 1984 to 1995, where he held different positions, including president of Phelps Dodge de Chile.

Victor Gobitz, President and Chief Executive Officer. Mr. SuárezGobitz graduated in 1986 from Pontifical Catholic University of Peru, earned his Master of Business Administration from the NationalESAN School of Business in 1998. He holds specialized degrees from the Kellogg School of Management (2015) and the Wharton School at the University of San Marcos withPennsylvania (2005). With over 25 years of experience in managing mining operations and projects, Mr. Gobitz has been the general manager of Buenaventura since January 2017 and a B.S. in Economics in 1965director of Sociedad Minera El Brocal since the same year. He previously served as chief executive officer of Compañía Minera Milpo from 2013 to 2016, general manager and received an M.A. in Economicsdirector of Río Alto Mining (now Tahoe Resources) from Columbia2011 to 2013 and Castrovirreyna Compañía Minera from 2008 to 2010, operations manager of Sociedad Minera El Brocal and assistant general manager and director of Volcan Compañía Minera. He is currently the president of the Peruvian Institute of Mining Engineers (IIMP), a director of Gerens Escuela de Negocios and a professor at Pontifical Catholic University in 1969.of Peru.

Carlos E. GálvezLeandro Garcia, Vice President and Chief Financial Officer.Mr. Gálvez wasGarcia earned his bachelor’s degree in business administration and bachelor’s degree in accounting from Universidad del Pacífico and his Master of Business Administration from the Deputy Manager, FinanceUniversity of Miami in Florida and Information Systems,completed the Management Development Program at Harvard Business School in 2017. He held the position of Treasury Head at Buenaventura from 19851990 to February 2001, when he was appointed Vice President and Chief Financial Officer.1997. He servedthen worked as Deputy Managerthe finance manager at Sociedad Minera El Brocal until 2000, as general manager of our Treasury from 1980 to 1985,Boticas BTL until 2005 and as Treasurer from 1978 to 1980.general manager of Boticas Inkafarma until June 2011. Mr. Gálvez has also servedGarcia rejoined Buenaventura as director of Colquirrumi, our subsidiary, and was appointed director andController General Manager of Conenhua in 2000, Director and General Manager of Empresa de Generacion Huanza in 2007, director of Compañia 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 was named President of the Sociedad 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.  Before joining us, Mr. Gálvez served as Managerial Adjunct for Finance and Credit from 1971 to 1978 at Banco Minero del Perú (Mining Bank of Peru).July 2011. He has also served as a board memberdirector of Química Suiza Retail, the business that manages the Mifarma pharmacy chain, since January 2016.

110

Juan Carlos Ortiz,Vice President of Operations.Mr. Ortiz earned his degree in mining engineering from the Pontificia Universidad Católica del Perú in 1992. He received his Master in Engineering from Pennsylvania State University, with a specialization in Mining Engineering Management. He served as Technical Central Manager of Volcan Compañia Minera, a polymetallic mining company and one of the Comité de Operación Económica del Sistema Eléctrico Nacional (Committeelargest producers of Economic Operationzinc, lead and silver in the world, where he was responsible for the departments of Engineering, Projects, Planning and Environmental Affairs. Mr. Ortiz has also served as Corporate Operations Manager at Compañia Minera Milpo (currently part of the National Electric System).  Mr. Gálvez received his B.A.Nexa Resources Group) and was in Economics fromcharge of the Universidad Nacional Federico Villarreal in 1976, his M.B.A. fromCerro Lindo, Atacocha and El Porvenir operations. He has served as the Universidad 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.Vice President of Operations of Buenaventura since May 2018.

 

Raúl Benavides Ganoza,Vice President of Business Development.Mr. Benavides has been 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.  Before 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 ofGanoza earned his bachelor’s degree in mining administration at Pontificia Universidad Católica del Perú.  Mr. Benavides also has served as President of the Instituto de Ingenieros de Minas (Institute of Mining Engineering), was also the Founder and President of the Instituto de Seguridad Minera del Perú (Mining Safety Institute of Peru) from 1996 to 2000.  Mr. Benavides received a B.S. in Mining Engineeringengineering from the University of Missouri-Rolla in 1980, an M.S. in Mineral Engineering-ManagementMissouri—Rolla. He received his Master of Mining Administration from Pennsylvania State University in 1984 and completed the Advanced Management Program at The Harvard Business School in 2001. Since 2014, Mr. BenavidesSchool. He has assumed the managementserved as president of the Explorations Department.IIMP and was the founder and president of the Mining Safety Institute (ISEM). He is currently the president of CETEMIN, the vocational mining school. He has worked at Buenaventura since 1980, and is the Director of 11 related companies.

 

Alejandro Hermoza Maraví, Vice President of Labor, Social and Environmental Affairs. A Mechanical EngineerMr. Maraví graduated from the University of Maryland Mr. Hermoza also holds an MScwith a bachelor’s degree in Mechanical Engineering and a Master in Engineering and from the samePeruvian University and an MBA from UPC.of Applied Sciences (UPC) with a Master in Administration. He previously worked as the Development Manager for CONFIEP,of the Peruvian Confederation of Private Business Institutions (CONFIEP) and later joined us inhas worked at Buenaventura since 2003, where he began as Deputy Manager forhas held the position of community relations manager from 2008 to 2011 and deputy manager of Administration and Human Resources.Resources from 2003 to 2008. In 2011, Mr. Hermozahe completed the AdvanceAdvanced Management Program at Harvard Business School.

 

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Leandro Garcia, General Comptroller and Compliance Officer. Mr. Garcia received his Bachelor in Business Administration and Bachelor in 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,Peru, 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. Ms. La Rosa has worked at Buenaventura since 1990. She was the legal director from 2006 to 2012 and was appointed as legal manager and general counsel in July 2012. Ms. La Rosa served as the head of the Legal Department from 1997 to 2006 and as a staff attorney from 1991 to 1997.

 

B. Compensation

B.Compensation

 

During the year ended December 31, 2015,2018, the aggregate amount of compensation that we paid to all directors and executive officers was approximately US$7.8129 million, including director’s fees accrued in 20142017 and paid in 2015.2018. We do not disclose to our shareholders or otherwise make public information with respect to the compensation of our individual directors or executive officers. Please refer to Note 30 of30(d) to the Consolidated Financial Statements for further information.

 

C.
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(the “General Meeting,”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 consolidated financial statements, reviews consolidated financial statements before their presentation to theSuperintendencia del Mercado de Valores,, or the SMV“SMV” (formerly known as theComisión Nacional Supervisora de Empresas y Valores (National Supervisory Commission of Business and Securities) (“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 currently Messrs. Suárez, Ortiz-de-Zevallos and del Solar.de la Torre.

 

111

Compensation Committee

 

The Compensation Committeecompensation 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 2018 were Messrs. del Solar, Ortiz-de-Zevallos, Suárez and Suárez.de la Torre.

Nominating Committee

 

The Nominating Committee is responsible for preparing the proposals for the general meetingsGeneral Meetings in respect of the composition of the Board of Directors along with the director remuneration to be approved by the shareholders. The members of the Nominating Committee are currentlyfor 2018 were Messrs. Benavides-Ganoza,Benavides, Morales and Ortiz-de-Zevallos.

 

Corporate Governance Committee

 

The Corporate Governance Committeecorporate governance committee is responsible for monitoring issues and practices related to corporate governance and proposing necessary actions in respect thereof. The members of the Corporate Governance Committee are currentlyfor 2018 were Messrs. Benavides-Ganoza,Benavides, Morales and Ortiz-de-Zevallos.

 

115D.Employees

D. Employees

 

As of December 31, 20152018 we, including our subsidiaries and Coimolache, had 3,419 employees (including 45 employees from our mining trainee program).3,450 employees. In addition, we have entered into arrangements with independent contractors whichthat employed 11,66812,228 workers at our operations. 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, 2015,2018, the average tenure of Buenaventura’s permanent laborers was approximately 89 years.

 

Of the 2,6343,241 permanent employees employed by Buenaventura and its subsidiaries directly, approximately 39%42% are members of 1113 different labor unions (including four5 unions for clerical workers, seven8 unions for laborers), which represent all clerical workers and laborers in collective bargaining negotiations with us. There are also five7 unions for workers employed by independent contractors that were formed over the last six7 years in our mines at Uchucchacua, 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 2015,Between January and June 2017, we did not experience any strikes or stoppages. In July 2017, we recorded one day of stoppage at El Brocal and three days of stoppage at Orcopampa and Uchucchacua, all of which were due to strikes called by the Mining National Workers Federation. In October 2017, we experienced three days of stoppage at Orcopampa related to affairs with the community’s labor union. There was also an 11-day work stoppage at Uchucchacua related to affairs with the neighboring community of Oyon that continued through early November. Also in November 2017, we experienced a strike at one of our mines. Between May and June 2015, we had a strike at the Uchucchacua mine for 29 days that was staged by workers’ and contractors’ unions claiming unsuitable working conditions. The Peruvian Ministry of Labor declared the Uchucchacua workers’ work stoppages illegal. In June of 2015, El Brocal experienced two days of work stoppage at its concentrator plant in Huaraucaca in connectionOrcopampa related to affairs with the negotiation of salaries and the collective bargaining agreement.Chilcaymarca community that lasted four days.

 

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 Amountemployee profit sharing amount equivalent to 8% of the annual pre-tax profits of their employer, 50% of such profits to be distributed based on the number of days each employee worked during the preceding year and the remaining 50% 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 Amountemployee profit sharing amount and the aggregate amount paid to employees must be contributed by us to FONDOEMPLEO, a fund established to promote employment and employee training.

112

 

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.salary, and subject to the worker’s acceptance. 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 1992,1991, we deposit funds for severance payments in a special bank account selected by each employee and for the benefit of such employee, in both May and November of each year.year (approximately 50% of a monthly salary each time).

116

 

Our permanent employees receive the benefit of one of two types of pension arrangements. All workers can choose to enroll in the a public pension fund managed by the state (the “ONP” system) or in a private pension fundsfund (the “AFP” system). We are required to withhold from each of the salaries of the employees enrolled in the ONP system 13% 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% 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% 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, ourOur independent contractors are responsible for covering severance and pension payments with respect to their employees.

 

In addition, we pay ESSALUDEsSalud, the Social Health Insurance Institute of Peru, 9% 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.

 

E. Share Ownership

E.Share Ownership

 

As of March 31, 2016,2019, our directors and executive officers, as a group, owned 41,588,44841,874,206 Common Shares, representing 16.36%16.50% 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, 20162019 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 
William Champion  —   —   —   —   —   —   —   —   —   —   —   — 
José Miguel Morales †  13,813,836   5.44           13,813,836   5.43   14,133,836   5.57           14,133,836   5.57 
Igor Gonzalez  —   —   —   —   —   — 
Nicole Bernex  —   —   —   —   —   — 
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 
Carlos E. Gálvez.  48,770   0.02   —   —   48,770   0.02 
Diego de la Torre  14,528   0.01   —   —   14,528   0.01 
Gonzalo Eyzaguirre  —   —   —   —   —   — 
Alejandro Hermoza  —   —   —   —   —   —   —   —   —   —   —   — 
Gulnara la Rosa  —   —   —   —   —   —   —   —   —   —   —   — 
Leandro Garcia  —   —   —   —   —   —   —   —   —   —   —   — 
Victor Gobitz  —   —       —   —   — 
Directors and Executive Officers as a Group †  41,588,448   16.39           41,588,448   16.36   41,874,206   16.50   —   —   41,874,206   16.50 

 

†Includes Common Shares owned by the applicable Benavides family memberdirector or officer and his or her spouse.

 

 117113 

 

 

ITEM 7.Major Shareholders and Related Party Transactions

 

A. Major Shareholders

A.Major Shareholders

 

As of March 31, 2016,2019 we had 274,889,924 Common Shares outstanding, including 21,144,734of which 21,174,734 were treasury shares, and 744,640 Investment Shares, including 272,963of which 472,963 were 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, 2016,2019, 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   27.2 
Market Vectors ETF Trust Gold Miners ETF  16,866,914   6.1   —   —   16,866,914   6.1 
Templeton Asset Management Ltd. Hong Kong  8,542,95   3.1   —   —   8,542,957   3.1 
BlackRock Investment Management (UK) Ltd.  7,933,466   2.9   —   —   7,933,466   2.9 
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)		 
                   
Van Eck Associates Corp  34,093,586   13.44   —   —   34,093,586   13.44 
Blanca Benavides de Morales (5)  14,133,836   5.57   —   —   14,133,836   5.57 
Roque Benavides Ganoza  13,912,006   5.48           13,912,006   5.48 
Raul Benavides Ganoza  13,813,836   5.44           13,813,836   5.44 
Fidelity Management &  Research Company  12,736,525   5.02           12,736,525   5.02 
Azvalor Asset Management SGIIC SA  12,390,369   4.88   —   —   12,390,369   4.88 
Templeton Asset management ,LTD (Singapore)  10,069,414   3.97   —   —   10,069,414   3.97 
The Vanguard Group, Inc.  7,387,933   2.91   —   —   7,387,933   2.91 
Blackrock Fund Advisors  7,305,716   2.88   —   —   7,305,716   2.88 
T. Rowe Price Associates, INC  7,282,732   2.87   —   —   7,282,732   2.87 

 

(1)The table above excludes treasury shares. As of March 31, 20162019 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 21,447,697treasury21,647,697 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 AlbertoBlanca Benavides de la Quintana, our founder and former Chairman).Morales is the spouse of José Miguel Morales.

 

As of March 31, 2016,2019, we estimate that 185,756,736 ADSs211,437,351 Common Shares were held in the United States,U.S., which represented approximately 73.21%83.34% 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 6962 institutions.

 

114

B. Related Party Transactions

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$2.810.5 million in 20142017 and US$4.8 12.9 million in 2015.2018. Please refer to Note 30(d) to the Consolidated Financial Statements for further information.

 

Chaupiloma is the legal owner of the mineral rights operated by Yanacocha and receives a 3% royalty based on quarterly sales, after deducting refinery and transportation costs. Royalties amounted to US$44.224.3 million, US$36.920.7 million and US$32.4 20.4 million in 2013, 20142016, 2017 and 2015,2018, respectively, and are presented as royalty income in our consolidated statements of income.

 

During 2016, in 2014 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. As a result, Condesa did not receivereceived a cash dividend from Yanacocha in 2013, 2014 or 2015.of US$130.9 million. During 2017 and 2018, Condesa did not receive cash dividends.

 

We did not receive a cash dividenddividends from Cerro Verde in 2013, 2014 or 2015.2016, 2017. However, in 2018 we received cash dividends in an amount of US$ 39.16 million

118

 

We received cash dividends from Coimolache of approximately US$11.4 million in 2016, US$9.8 million in 2013,2017 and US$12.9 7.6 million in 2014 and US$6.7 million in 2015.2018.

 

In March 2002, BISA signed a technical service agreementDuring 2017, we received an advanced payment of US$124.8 million for the long-term loan held 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.Sociedad Minera Cerro Verde S.A. from 2015.

 

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. PursuantIn June 2006, an addendum to this contract extended the construction work was completed in October 2001.completion date to June 2007. Concurrently, we and Yanacocha signed a 10-year agreement covering electric energy transmission and infrastructure operation beginning in November 2001.2007. In exchange for us operating and managing the transmission project, Yanacocha pays a fee of US3.7US$3.7 million with annual maturities. The annual revenues for these services amounted to approximately US$0.9 million in each of 2013, 20142016 and 2015.US$0.4 million in 2017 and 2018.

 

C. Interests of Experts and Counsel

C.Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.Financial Information

 

A. Consolidated Statements and Other Financial Information

A.Consolidated Statements and Other Financial Information

 

Consolidated Financial Statements

 

See “Item 19. Exhibits” for a list of consolidated financial statements filed under Item 18.

115

 

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.

 

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.

 

119

The Board, of Directors, following the end of each fiscal year, makes a recommendation at the annual obligatory shareholders’ meetingAnnual Obligatory Meeting regarding the amount and timing of payments, if any, to be made as dividends on our Common Shares and Investment Shares. The Shareholders Meeting can delegate to the Board the approval to pay interim dividends.

 

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’ meetingAnnual Obligatory 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% of the total Common Shares outstanding can request a dividend of 50% 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% 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 to 28% for 2015 and 2016, to 27% for 2017 and 2018 and to 26% for 2019 and thereafter.is 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% 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% 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,the withholding tax rate is 5%. 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 withholding rate has been increasedADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to 6.8% for 2015 and 2016, to 8.0% for 2017 and 2018 and to 9.3% for 2019 and thereafter. the Depositary.

116

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% to the holders of Common Shares and 0.27% 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.

 

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 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 amountsAmounts distributed with respect to ADSs have beenwere subject until 2014 to a Peruvian withholding income tax of 4.1 percent. Such6.8% for profits earned during 2016, which was the withholding tax rate has been increasedapplicable to distributions in respect of Common Shares during 2016. The withholding tax rate decreased 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 thereafter.2016. See “Item 10. Additional Information – Information—E. Taxation – Taxation—Peruvian Tax Considerations.”

120

 

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. To 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 consolidated financial statements which show the existence of net distributable income obtained during the current fiscal year. 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.

 

117

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 20122015 to 2015.2018. Dividends with respect to the years 20122015 to 20152018 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 
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 
2015  0.000   0.000   0.000   0.000   0.000   0.000   0.000   0.000   0.000 

Year ended

December 31,(1)

 Per
Common Share		  Per
ADSs		  Per
Investment Share		 
  Interim  Final  Total  Interim  Final  Total  Interim  Final  Total 
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 
2017  0.030   0.030   0.060   0.030   0.030   0.060   0.030   0.30   0.60 
2018  0.060   0.060   0.120   0.060   0.060   0.120   0.060   0.060   0.012 

 

(1)Interim and final dividend amounts are expressed in U.S. Dollars.

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, the name of shareholders having 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.account, and that delivery of such share certificates and/or dividends is to be made within 30 days from the request. 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. SMV may apply warnings and fines between approximately US$ 1,270 and US$ 31,750 in case the Company fails to comply such provisions for the protection of minority shareholders.

 

121B.Significant Changes

B. Significant Changes

 

No significant change in our financial affairs has occurred since the date of the annual consolidated financial statements included in this Annual Report.

 

118

ITEM 9.The Offer and Listing

 

A. Offer and Listing Details

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 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                                                                        
                                                                        
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 
2014  0.44   39.80   28.11   467.73   14.82   8.64   0.001   26.00   26.00 
2015  1.31   38.8   14.35   409.75   12.37   3.88   -   -   -   1.31   38.8   14.35   409.75   12.37   3.88   0.00   0.00   0.00 
2016  1.31   38.00   14.00   410.23   12.51   3.80   0.00   0.00   0.00 
2017  0.47   48.10   35.95   350.69   14.96   10.87   0.01   24.50   22.10 
2018  0.85   54.94   39.00   325.87   16.80   11.67   0.01   22.15   19.60 
                                                                        
Quarterly highs and lows                                                                        
                                                                        
2014                                    
2017                                    
1st quarter  0.22   39.00   31.45   136.12   14.12   11.08   0.001   26.00   26.00   0.14   45.50   38.05   82.17   14.59   11.29   0.00   24.50   23.99 
2nd quarter  0.04   38.00   28.11   111.12   13.88   9.75   -   -   -   0.10   41.10   38.50   108.30   12.87   10.87   0.00   0.00   0.00 
3rd quarter  0.15   39.80   29.40   93.37   14.82   10.71   -   -   -   0.19   45.00   38.50   76.71   14.14   11.17   0.00   23.00   22.60 
4th quarter  0.02   34.00   29.40   127.130   12.28   8.64   -   -   -   0.03   48.10   41.40   83.51   14.96   12.65   0.00   23.10   22.10 
                                                                        
2015                                    
2018                                    
1st quarter  0.25   35.51   31.00   106.07   11.74   9.67   -   -   -   0.18   52.00   45.25   81.81   16.53   13.99   0.00   22.15   21.99 
2nd quarter  0.46   38.80   32.55   83.37   12.37   10.38   -   -   -   0.06   53.09   44.53   70.88   16.80   13.54   0.00   0.00   0.00 
3rd quarter  0.41   32.10   18.50   107.61   10.15   5.80   -   -   -   0.04   44.90   39.00   66.83   13.99   11.67   0.00   19.60   19.60 
4th quarter  0.20   25.46   14.00   112.68   8.22   3.88   -   -   -   0.57   54.94   44.20   106.34   16.66   12.44   0.00   0.00   0.00 
                                                                        
Monthly highs and lows                                                                        
                                                                        
2015                                    
2018                                    
October  0.071   25.46   19.43   41.49   8.22   6.09   -   -   -   0.03   47.05   44.20   24.68   14.55   12.44   0.00   0.00   0.00 
November  0.124   21.26   15.78   39.01   6.41   4.50   -   -   -   0.01   47.00   46.00   24.80   14.95   13.61   0.00   0.00   0.00 
December  0.003   14.35   14.00   32.68   5.01   3.88   -   -   -   0.54   54.94   47.90   56.86   16.66   14.24   0.00   0.00   0.00 
2016                                    
                                    
2019                                    
January  0.003   12.05   12.05   27.98   4.44   3.38   -   -   -   0.01   55.30   50.75   29.07   16.83   14.80   0.00   17.00   16.80 
February  0.084   19.17   15.60   45.36   5.49   4.14   -   -   -   0.05   54.15   52.60   25.41   17.31   15.42   0.00   0.00   0.00 
March  0.024   24.66   17.22   14.06   7.38   5.06   -   -   -   0.01   57.00   54.50   22.95   17.78   15.98   0.00   16.81   16.80 

 

(1)Source: Lima Stock Exchange

(2)Source: Bloomberg; Yahoo Finance

 

As of March 31, 2016,2019, 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% 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, 2016,2019, there were 1,1911,020 owners of record of the Common Shares and 902891 owners of record of the Investment Shares.

 

 122119 

 

B. Plan of Distribution

B.Plan of Distribution

 

Not applicable.

 

C. Markets

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

D.Selling Shareholders

 

Not applicable.

 

ITEM 10.E.Additional InformationDilution

A. Share Capital

 

Not applicable.

 

F.Expenses of the Issue

B. Memorandum and Articles of Association

Not applicable.

120

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.

 

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% of the Common Shares in the first summons and 70% 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.

 

DirectorsMembers 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.

123

 

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 withthey 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. Directors not participating in the Board meeting or that voted against the transaction are not liable.

In addition, Article 51 of the Securities Market Law contains additional prohibitions for directors and managers of companies whose shares are traded in the stock exchange. Pursuant to Article 51(a) of such law, directors and managers are forbidden to receive loans from listed companies and from using goods and services of the listed company without the Board’s authorization for their own use, in their own profit or to benefit persons related to the directors and managers. Additionally, subsection (b) thereof further provides that directors and managers are forbidden from using their positions to obtain improper benefits for them or for persons related to them.

121

 

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.

 

Regarding conflicts of interest, item (c) of Article 51 of the Securities Market Law states that companies whose shares are listed in a stock exchange, such as our case, who wish to enter into any contract or to conduct any action involving an amount greater than 5% of their assets with counterparties who are related to its directors, managers or shareholders that, directly or indirectly, hold more than 10% of the capital stock of the listed company, are required to obtain prior approval of the Board (where the relevant affiliate to the proposed counterparty will not be entitled to vote). In order to determine whether the 5% threshold is met, the latest available financial statements must be used. Likewise, in transactions in which the controlling shareholder of the listed company also controls the entity that is the counterparty of the listed company in the respective act or contract, it is further required that an external entity to the listed company review the terms of the transaction. Audit firms and other legal entities to be determined by the SMV are deemed to be external to the listed company. The reviewing external entity must not be related to any of the parties of the proposed transaction (nor shall it be directly or indirectly involved in the transaction), nor to the directors, managers or shareholders of at least 10% of the capital stock of the proposed parties to the transaction. An auditing firm that has audited the financial statements on the last two years is considered to be a related entity. In case of breach of these regulations, the company will be entitled to obtain reimbursement for any benefits obtained by the intervening parties.

Resolution SMV No. 029-2018-SMV-01, published in October 2018, regulated subsection(c) of Article 51 of the Securities Market Law. Among other aspects, this resolution established: (i) the criteria to determine which persons are to be considered related parties to the company, its shareholders, directors and managers; (ii) the requirements to be considered an external entity; (iii) that banks, stock brokers and valuation companies can also review those transactions between related parties described above; (iv) that directors shall be required to abstain from participating not only in the voting of the applicable matter, but also in the discussion thereof at the Board meeting where such transactions are discussed and in the meeting that selects the external entity for purposes of vetting the transaction terms; (v) that the external entity report shall include the analysis, and methods used to measure or value the assets and liabilities relating to the agreement or action subject to review and if the price constitutes “fair value” (as defined by IFRS 13); (vi) that the report of the external entity shall be available to the directors from the day the applicable meeting is called; and (vii) that the SMV may impose sanctions when a company fails to comply with the rules contained in Article 51 of the Securities Market Law.

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% 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,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 if 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-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.

 

Shares and Voting Rights

 

We have two classes of shares, the Common Shares and the Investment Shares. The Common Shares represent 100% 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 all be cast all for a single nominee or they may be 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.

 

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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 the SUNAT and published in the official gazette El Peruano and in a widely circulated newspaper in the city in which we are located.

 

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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.Shares, as well as to participate in increases of the Investment Shares account. 

 

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 if 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% 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.

 

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.Law, to determine whether we have incurred any breach of the Peruvian Companies Law or regulations of the SMV and to impose sanctions. 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% 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% 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 before 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% 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% 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% of our total voting shares. For the second call, the presence of shareholders holding at least 25% 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% and 70% 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. 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 Registerour share register not less than 10 days in advance of a meeting will be entitled to attend shareholders’ meetings and to exercise their rights.

 

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.

 

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, Regulation No. 05-2009-EF-94.01.1 and Regulation No. 05-2009-EF-94.01.1 of034-2025-SMV-01.of the SMV, when, an individual or financial group acquires, in one act or various successive acts, a significant percentage (more than 25%) of the voting shares of a company with shares listed in a stock exchange, as well as upon any person or group increasing its ownership above the 50 percent50% and 60% thresholds, a procedure known asOferta Pública de Adquisición, or a “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.

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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 Registershare register (matrícula de acciones) or in CAVALI ICLV S.A., unless they refer to shares that are nor listed in a stock exchange, which is not the of our shares.

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Economic Group

 

C. Material ContractsOn 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, which have been amended by Regulations 048-2016-SMV-01 and 026-2017-SMV-01, 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 with transnational active bribery. The law has been amended by Legislative Decree N° 1352, which was published on January 7, 2017 and became effective on January 1, 2018. Regulations to this law have been recently approved by Supreme Decree N°. 002-2019-JUS. The amendment expanded the definition of bribery beyond transnational active bribery to include asset laundering, illegal mining and organized crime. The law provides rules to be followed in case of a merger or spin-off and states that a legal entity is administratively liable for the above crimes when they have been committed in its name or for its benefit by its shareholders, directors, managers or employees that are subject to the control and authority of the legal entity. 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. A legal entity is not liable if its shareholders, directors, managers or employees engage in bribery or related crimes solely for their own benefit or for the benefit of third parties other than the legal entity. 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. We have prepared the prevention model required under Law N° 30424, as amended, in addition to the other compliance measures and policies we currently have. The regulations contain, among other provisions, several definitions, types of risks and the criteria to identify them, as well as the minimum elements a prevention model must contain.

Final Beneficial Owners

Legislative Decree N° 1372 was published on August 2, 2018 and became effective on August 3, 2018. Its regulations were enacted by Supreme Decree N° 003-2019-EF, published on January 8, 2019. These provisions have established an additional obligation for companies and other legal entities to inform the identity of their final beneficial owners to help fight against tax evasion and elution, money laundering and financing of terrorism. Entities are required to carry out due diligence procedures and to meet criteria to identify the final beneficial owners as contemplated in Law N° 27693 and its regulations, while they must continue to follow the regulations from the SMV and the Bank Superintendence.

A final beneficial owner is defined as the individual that finally and effectively possesses or controls a company or legal entity or the individual that finally and effectively controls a client (as defined in Law N° 27693) on which name a transaction is performed. Companies and legal entities must create an internal procedure to obtain and keep the information about the identity of their final beneficial owners. Likewise, companies are obliged to report to the tax authority the information about their final beneficial owners. The following criteria shall be used to identify the final beneficial owners of a company:

a) Individual that directly or indirectly holds at least 10% of a company. Companies shall inform who are their final beneficial owners and the chain of property.

b) Individual that acting along or jointly with other persons as a decision making unit, or through other individuals or legal entities, has the right, other than because of property, to appoint or remove the majority of the management bodies or has the power to take resolutions on financial, operative and/or commercial matters or to control in any other way the legal entity.

c) When it is not possible to identify an individual following the criteria set forth in items a) and b), the individual that holds the highest administrative position will be deemed to be the final beneficial owner of a company.

Regardless of the above, “final beneficial owner” shall be interpreted consistently with the recommendations of the FATF. Regulations to Legislative Decree N° 1372 have been approved by Supreme Decree N° 003-2019-EF.As of March 1, 2019, the Tax Authority has not issued the ruling establishing when the obliged legal entities shall file the first obligatory report

C.Material Contracts

 

Not Applicable.

 

D. Exchange Controls

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. Before 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% 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.

E.Taxation

The following summarizes the material Peruvian and United StatesU.S. federal income 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 partnerships and other entities classified as partnerships for U.S. federal income tax purposes, banks, dealers and traders in securities dealers,or foreign currencies, 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 ofwho actually or constructively own 10% or more of our voting shares.shares by either vote or value, certain taxpayers who file applicable financial statements required to recognize income no later than when the associated revenue is reflected on such financial statements and holders who acquired our ADSs or Common Shares pursuant to the exercise of any employee stock option or otherwise as compensation. This discussion does not address all aspects of U.S. federal income taxation that may be applicable to a U.S. Holder (as defined below), including gift, estate, any U.S. state or local taxes, non-U.S. taxes, other than Peruvian taxes as provided below, 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.

 

“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 aone or more U.S. fiduciarypersons (as described in Section 7701(a)(30)) of the U.S. Internal Revenue Code of 1986, as amended, “Code”) and the primary supervision of a U.S. court or that has validly elected to be treated as a U.S. person or (iv) an estate the income of which is subject to United StatesU.S. federal income taxation regardless of its source.

 

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If a partnership or other entity taxable as a partnership for U.S. federal income tax purposes holds ADSs or Common Shares, the tax treatment of a partner will generally depend on the status of the partner in such partnership and the activities of the partnership. Partners of partnerships holding ADSs or Common Shares should consult their tax advisors.

 

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% 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 originated from profits earned between January 1, 2016 and December 31, 2016, the withholding income tax rate for the dividend is paid out6.8%. If the dividend originated from our accumulated net profits earned as of December 31, 2015), when2014, the dividendwithholding income tax rate for dividends is 4.1%. 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.Asentities. 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%, if the distribution is approved during 2015 and 2016, to 8% if it is approved during 2017 and 2018, and to 9.3% 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, (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% to 6.8% in 2015 and 2016, to 8.0% in 2017 and 2018, and to 9.3% 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% 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 ITL,Income Tax Law (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.

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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, before 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 before 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) before 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% or 30%, depending where the transaction takes place. If the transaction is consummated within Peru, the Income Tax rate is 5%; if the transaction is consummated outside of Peru, capital gains are taxed at a rate of 30 percent.30%.

 

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.

 

Before December 31, 2012, for nonresident individuals, the first five Tax Unitstax 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% corporate Income Tax rate.

 

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Furthermore, before December 31, 2012, if the transferor was a resident individual, the first five Tax Unitstax 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 5% 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 shares; 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 shares; 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 after 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.

 

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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.

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 No. 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% of value sold), fees payable to the SMV (0.05% of value sold), brokers’ fees (about 0.05% to 1% of value sold) and Value Added TaxVAT (at the rate of 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 StatesAs explained in Item 10. Memorandum and Articles of Association –Final Beneficial Owners, on August 2, 2018, Legislative Decree N° 1372 was published. This law entered into effect on August 3, 2018 and its regulations were enacted by Supreme Decree N° 003-2019-EF, published on January 8, 2019. According to this law and its regulations, legal entities domiciled or established in Peru must report the identity of its ultimate beneficial owners, as a tool for law enforcement agencies to confront tax evasion, money laundering and terrorist financing. For this reporting obligation, legal entities includes any corporation, partnership or similar entity, trust, investment fund or joint venture. This obligation is also applicable to legal entities which are not domiciled in Peru but have a branch, subsidiary, joint venture or permanent establishment in Peru or, in the case of trusts, which have a grantor, settlor, beneficiaries or trustees domiciled in Peru. Ultimate beneficial owner is defined as the individual that effectively owns or controls a legal entity. For this purpose, ownership is when at least 10% of the capital of the legal entity is directly or indirectly under the ownership of an individual and its related parties. As of March 1, 2019, the Tax Authority had not issued the ruling or regulation establishing the first deadline for filing this mandatory report.

U.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 beneficial owners of the Common Shares represented by those ADSs. U.S. Holders should be aware that the U.S. Internal Revenue Service (the “IRS”) has expressed concerns that parties to whom ADSs are pre-released before common shares are delivered to the depositary, or intermediaries in the chain of ownership between holders of ADSs and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. Accordingly, the creditability of any Peruvian taxes could be affected by actions taken by such parties or intermediaries.

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Cash Dividends and Other Distributions

 

In general, distributions with respect to the ADSs or Common Shares will, to the extent made from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, constitute dividends for U.S. federal income tax purposes. If a distribution exceeds the amount of our current and accumulated earnings and profits, as so determined under U.S. federal income tax principles, the excess will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in the ADSs or Common Shares, and thereafter as capital gain. We do not intend to maintain calculations of our earnings and profits under U.S. federal income tax principles and, unless and until such calculations are made, U.S. Holders should assume all distributions are made out of earnings and profits and constitute dividend income. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.

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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 domestic corporation are not eligible for the dividends received deduction available to such corporations. Under current law, a maximum 20%reduced U.S. tax rate is imposed on the dividend income of an individual U.S. Holder 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 ifthat is not a passive foreign investment company (“PFIC”) (as discussed below) and either (i) its shares are readily tradable on an established securities market in the U.S.United States or (ii) it is eligible for benefits under a comprehensive U.S. income tax treaty. Clause (i) willshould apply with respect to the ADSs if such ADSs are readily tradable on an established securities market inas long as 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. Holder with respect to ADSs for which the minimum holding period requirement is met should be taxed at a maximum ratereduced rate. In the case of 20%. our Common Shares held directly by U.S. Holders and not underlying an ADS, it is not clear whether dividends paid with respect to such shares will represent “qualified dividend income.” U.S. Holders holding our Common Shares directly and not through an ADS are urged to consult their own independent tax advisors.

Dividends paid in 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. Dollarsdollars at that time. Any gain or loss recognized upon a subsequent sale or conversion or other taxable disposition of the Soles for a different amount of U.S. Dollarsdollars will be United StatesU.S. source ordinary income or loss.loss for U.S. federal income tax purposes. 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 generally be entitled to claim a U.S. foreign tax credit forin respect of any Peruvian taxes imposed on dividends received on our Common Shares or Common Shares represented by withholding or otherwise,ADSs, 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. U.S. Holders who do not elect to claim a credit for foreign taxes may instead claim a deduction in respect of such Peruvian taxes. Dividends received with respect to our Common Shares or Common Shares represented by ADSs will be treated as foreign source income for U.S. federal income tax purposes, and will be “passive category income” for purposes of calculating foreign tax credits in most cases, subject to various limitations. 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 StatesU.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.

 

Capital Gains

 

U.S. Holders will recognize capitaltaxable gain or loss on the sale or other taxable disposition of ADSs or Common Shares (or preemptive rights with respect to such shares) held by the U.S. Holder or by the Depositary.Depositary in an amount equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. Holders will not recognize gain or loss on deposits or withdrawals of Common SharesHolder’s adjusted tax basis in exchange forthe ADSs or on the exercise of preemptive rights. Any gain recognized by a U.S. Holder generally will be treated as United States 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.Shares. Generally, such 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 U.S. federal income tax. The deductibility of capital losses is subject to limitations under the Code. Any gain recognized by a U.S. Holder generally will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently, in the case of a sale or other taxable disposition of Common Shares or ADSs in a transaction subject to Peruvian tax, the U.S. Holder may not be able to claim a U.S. 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.

For U.S. federal income tax purposes, 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

 

A non-U.S. Holder of ADSs or Common Shares will not be subject to United StatesU.S. federal 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 States or (ii) the non-U.S. Holder is an individual who is present in the United States for at least 183 days during the taxable year of the disposition and certain other conditions are met.

 

Passive Foreign Investment Company

 

WeBased on our audited financial statements as well as relevant market and shareholder data, we believe that we arewere not and will not become a passive foreign investment companyPFIC for United StatesU.S. federal income tax purposes. purposes with respect to our 2018 taxable year. In addition, based on our audited or projected financial statements and current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2019 taxable year. However, because this determination is based on our income, assets and the nature of our business, as well as the income, assets and business of entities in which we hold at least a 25% interest, from time to time, involves the application of complex tax rules, and since our view is not binding on the courts or the IRS, no assurances can be provided that we will not be considered a PFIC for the current, or any past or future tax year. The potential application of the PFIC rules is further discussed below.

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A foreign corporation is a passive foreign investment company (“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% of its gross income is passive income or (ii) at least 50% of the average value of its assets is attributable to assets that produce passive income or are held for the production of passive income.

 

130

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% maximumreduced U.S. tax rate noted above and theabove. A U.S. Holder would also 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). unless such U.S. Holder makes an election to be taxed currently on its pro rata portion of our income, whether or not such income is distributed in the form of dividends, or otherwise makes a “mark-to-market” election with respect to the ADSs or Common Shares as permitted by the Code. 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’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. Holders 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 taxable disposition of its interest in the actual holder as gain on the sale or taxable disposition of the ADSs or Common Shares.

U.S. Holders are urged to consult their own independent tax advisors regarding the potential application of the PFIC rules and related reporting requirements to the Common Shares or ADSs and the availability and advisability of making an election to avoid the adverse tax consequences of the PFIC rules should we be considered a PFIC for any taxable year.

Information Reporting and Backup Withholding

 

Dividends in respect of the ADSs or Common Shares and the proceeds from the sale, exchange, redemption or redemptionother disposition of the ADSs or Common Shares may be reported to the United States Internal Revenue ServiceIRS 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 ServiceIRS 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 ServiceIRS Form W-8BEN or W-8BEN-E or other successorapplicable Form W-8, or (iv) otherwise establishes a basis for exemption. The amount of any backup withholding from a payment to a U.S. Holder generally willmay be allowed as a credit against the U.S. Holder’s United StatesU.S. federal income tax liability.

F. Dividends“Specified Foreign Financial Asset” Reporting

U.S Holders of “specified foreign financial assets” with an aggregate value in excess of US$50,000 (and in some circumstances, a higher threshold), may be required to file an information report with respect to such assets with their U.S. federal income tax returns. “Specified foreign financial assets” generally include any financial accounts maintained by foreign financial institutions as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and Paying Agentssecurities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities.

F.Dividends and Paying Agents

 

Not applicable.

 

G. Statement by Experts

G.Statement by Experts

 

Not applicable.

 

H. Documents on Display

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.

 

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I. Subsidiary Information

I.Subsidiary Information

 

Not applicable.

 

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$/ 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, 2016, we had no fixed price commitments for the sale of our metals. As of March 31, 2016,2019, we had no silver derivative contracts or gold convertible put option contracts in place.

From January to December 2019, El Brocal had outstanding hedging commitments amounting to 2,000 metric tons of copper at an average fixed price of US$ 7,348.5 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, 2016.2019.

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 (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(a.3) to the Consolidated 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

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

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ITEM 12.Description of Securities Other Than Equity Securities

D. American Depositary Shares

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
   
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

133

 

Fees Incurred in Past Annual Period

 

From January 1, 20152019 to April 30, 2016,2019, 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. federal 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. federal 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.

 

133

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

 

Not applicable.

 

ITEM 14.Material Modifications to the Rights of Security Holders and Use of Proceeds

 

Not applicable.

 

ITEM 15.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of December 31, 2015,2018, 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 consolidated 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, 2015.2018. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (the “COSO”) of the Treadway Commission (2013 framework) inInternal Control—Integrated FrameworkFramework.(1992).Our management concluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2015.2018.

 

Our independent registered public accounting firm Paredes, Zaldívar, Burga & Asociados S. Civil de R.L., has issued an attestation report on our internal control over financial reporting, which is included below.

  

134

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors and Shareholders of Compañía de Minas Buenaventura S.A.A. and subsidiaries

 

Opinion on Internal Control over Financial Reporting

We have audited Compañíaia de Minas Buenaventura S.A.A.’s and subsidiaries internal control over financial reporting as of December 31, 2015,2018, based on criteria established in Internal Control - Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - the(2013 framework), (the COSO criteria.criteria). In our opinion, Compañía de Minas Buenaventura S.A.A.’s and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2018 and 2017, 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, 2018, and the related notes and our report dated April 30, 2019, expressed an unqualified opinion thereon.

Basis for Opinion 

The Company’s 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’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. 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.

 

135

Definition and Limitations of Internal Control Over Financial Reporting 

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.International Financial Reporting Standards as issued by the International Accounting Standard Board. 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,International Financial Reporting Standards as issued by the International Accounting Standard Board, 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 subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, 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 subsidiaries as of December 31, 2015 and 2014, 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, 2015 of Compañía de Minas Buenaventura S.A.A. and subsidiaries and our report dated February 25, 2016, expressed an unqualified opinion thereon.

Lima, Perú

February 25, 2016

/s/ Paredes, Zaldívar, Burga & Asociados S. Civil de R.L.
Countersigned by:

A member practice of Ernst & Young Global Limited

 

/s/ Katherine Villanueva

Lima, Peru.

April 30, 2019

/s/ Victor Burga
Victor Burga
C.P.C.A. Register No. 14859135 

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting during 20152018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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, (“NYSE”), Listed Company Manual.

  

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.www.buenaventura.com. The information on our website is not a part of, nor incorporated into, this document.

 

136

ITEM 16C.Principal Accountant Fees and Services

 

The Audit Committee proposed at the General Meeting that Paredes, Zaldívar, Burga & Asociados S. Civil de R.L., a member firm of Ernst & YoungEY Global, be elected as the independent auditor for 2015.2018. Paredes, Zaldívar, Burga & Asociados S. 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, 20142017 and 2015,2018, for which audited consolidated 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. Civil de R.L. for 20142017 and 2015.2018.

 

 Year ended December 31,  Year ended December 31, 
 2014  2015  2017 2018 
Audit Fees US$1,684,569  US$1,314,910  US$1,089,169 US$1,029,235 
Tax Fees US$284,987  US$292,589  US$47,129 US$35,970 
All other fees US$4,275  US$21,845  US$88,003 US$86,080 
Total US$1,973,831  US$1,629,344  US$1,224,301 US$1,151,285 

 

Audit Fees. Audit fees in the above table are the aggregate fees billed by Paredes, Zaldívar, Burga & Asociados S. Civil de R.L. in connection with the audit of our annual consolidated financial statements, the review of our quarterly consolidated 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 20142017 and 2015.2018.

Tax Fees. Tax fees in the above table are fees billed by Paredes, Zaldívar, Burga & Asociados S. 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.” 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 before 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 20142017 and 2015.2018.

 

ITEM 16D.Exemptions from the Listing Standards for Audit Committees

 

Not applicable.

 

ITEM 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

For the year ended December 31, 2015,2018, neither we nor any person acting on our behalf made any purchase of our Common Shares.

 

136

ITEM 16F.Change in Registrant’s Certifying Accountant

 

None.

 

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.

 

137

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

 

Not applicable.

 

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PART III

 

ITEM 17.Consolidated Financial Statements

 

Not applicable.

 

ITEM 18.Consolidated Financial Statements

 

Please refer to Item 19.

 

ITEM 19.Exhibits

 

 Page
 Page
(a)Index to Consolidated Financial Statements and Schedules 
  
COMPAÑÍA DE MINAS BUENAVENTURA S.A.A. AND SUBSIDIARIESF-1
  
MINERA YANACOCHA S.R.L.F-99F-108
  
SOCIEDAD MINERA CERRO VERDE S.A.A.F-152F-177

 

(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).

 

4.12.1Credit 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 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2016, filed on May 1, 2017).

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 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).

 

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.†

 

12.2138

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.†

 

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.†

 

101Interactive Data Files†

† Filed herewith.

 

 139 

 

 

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/s/Leandro Garcia
  Carlos E. Gálvez PinillosLeandro Garcia
  Chief Financial Officer

 

Dated: May 2, 2016April 30, 2019

 

 140 

 

 

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).
   
4.12.1 Credit 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 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2016, filed on May 1, 2017).
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 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 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).
   
12.1 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.†
101Interactive Data Files†

 

† Filed herewith.

 

Exhibits

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

Consolidated Financial Statements for the years 2015, 2014 and 2013, together with the Report of Independent Registered Public Accounting Firm

 

141

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated Financial Statements for the years 2015, 20142018, 2017 and 2013,2016, together with the Report of Independent Registered Public Accounting Firm.Firm

F-1

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated Financial Statements for the years 2018, 2017 and 2016, together with the Report of Independent Registered Public Accounting Firm

ContentContent

Report of Independent Registered Public Accounting FirmF-2F-3
  
Consolidated Financial Statements 
Consolidated statements of financial positionF-4F-5
Consolidated statements of profit or lossF-5F-6
Consolidated statements of other comprehensive incomeF-6F-7
Consolidated statements of changes in equityF-7F-8
Consolidated statements of cash flowsF-8F-9
Notes to the consolidated financial statementsF-9F-10

  

  F-1F-2 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors and Shareholders of Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Introduction

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial statementsposition of Compañía de Minas Buenaventura S.A.A. (a Peruvian public corporation), and subsidiariesSubsidiaries (together the “Group”), which comprise the consolidated statements of financial positionGroup) as of December 31, 20152018 and 2014,2017, 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, 2015, 20142018, and 2013. the related notes (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) the Group´s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 30, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group's Management.Group‘s management. Our responsibility is to express an opinion on thesethe Group‘s consolidated financial statements based on our audits. We did not auditare a public accounting firm registered with the financial statements of Minera Yanacocha S.R.L (an associatePCAOB and are required to be independent with respect to the Group in whichaccordance with the Company has a 43.65% interest through its subsidiary, Compañía Minera Condesa S.A.) as of December 31, 2014 and for the years ended December 31, 2014 and 2013. In the consolidated statements of financial position, the Group’s investment in Minera Yanacocha S.R.L., is stated at US$1,186 million as of December 31, 2014,U.S. federal securities laws and the Group’s equity in the results of Minera Yanacocha S.R.L. is stated at a loss of US$175 millionapplicable rules and US$251 million for the years ended December 31, 2014 and 2013, respectively. Those statements were audited by other auditors whose reports were 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 reportsregulations of the other auditors.Securities and Exchange Commission and the PCAOB.

 

F-3

Scope

Report of Independent Registered Public Accounting Firm (continued)

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. 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 includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by Management,management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

 

Opinion

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 Subsidiaries as of December 31, 2015 and 2014, and their results of operations and their cash flows for each of the years ended on December 31, 2015, 2014 and 2013, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).

Additional information

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 internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” and our report dated February 25, 2016 expressed an unqualified opinion thereon.

 F-2

Report of Independent Registered Public Accounting Firm (continued)

Lima, Peru,

February 25, 2016

Countersigned by:

Paredes, Zaldívar, Burga & Asociados S. Civil de R.L.

A member practice of Ernst & Young Global Limited

 

/s/ Victor BurgaKatherine Villanueva 
Victor BurgaWe have served as the Group‘s auditor since 2002 
C.P.C.A. Register No. 14859Lima, Peru
April 30, 2019 

  

  F-3F-4 

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of financial position

As of December 31, 20152018 and 20142017

 

 Note 2015 2014  Note 2018 2017 
   US$(000) US$(000)    US$(000) US$(000) 
Asset          
Current asset          
       
Assets          
Current assets          
Cash and cash equivalents  7  78,519   78,512  6  369,200   214,551 
Trade and other receivables, net  8(a)  219,862   281,604  7(a)  211,715   314,308 
Inventories, net  9(a)  101,473   150,284  8(a)  135,919   132,287 
Income tax credit    45,919   53,746     24,396   23,165 
Prepaid expenses  10  8,231   16,954  9(a)  17,145   17,551 
Derivative financial instruments  32(a)  -   3,688 
Hedge derivative financial instruments 32  2,759   - 
    454,004   584,788     761,134   701,862 
Assets held for sale  1(e)  15,592   18,683 
          
    469,596   603,471 
Non-current asset          
Non-current assets          
Trade and other receivables, net  8(a)  162,567   26,651  7(a)  40,593   44,191 
Inventories, net  9(a)  26,029   34,088  8(a)  3,812   3,238 
Investments in associates  11(a)  2,043,983   2,224,381 
Income tax credit    319   3,413 
Investments in associates and joint ventures 10(a)  1,473,382   1,536,887 
Mining concessions, development costs, property, plant and equipment, net  12  1,747,624   1,715,452  11  1,847,615   1,949,555 
Investment properties, net  13  10,719   11,200     222   222 
Deferred income tax asset, net  28(b)  41,574   47,675  28(b)  38,305   43,129 
Prepaid expenses  10  29,235   -  9(a)  26,578   27,555 
Other assets    15,854   9,356 
Other asset, net 12  25,261   22,761 
    4,077,585   4,068,803     3,456,087   3,630,951 
Total assets    4,547,181   4,672,274     4,217,221   4,332,813 
          
Liabilities and shareholders’ equity, net                    
Current liabilities                    
Bank loans  14  285,302   40,000  13  95,000   96,215 
Trade and other payables  15(a)  247,114   254,000  14(a)  188,084   233,355 
Provisions  16(a)  49,829   67,895 
Provisions and contingent liabilities 15(a)  68,172   76,847 
Income tax payable    2,444   3,556     1,760   2,081 
Embedded derivatives for sale of concentrate, net  32(b)  1,694   9,072 
Financial obligations  17(a)  33,394   69,950  16(a)  46,166   83,991 
Derivative financial instruments  32(c)  10,643   - 
    630,420   444,473 
Liabilities directly associated with the assets held for sale  1(e)  20,611   28,890 
Hedge derivative financial instruments 32  -   28,705 
    651,031   473,363     399,182   521,194 
Non-current liabilities                    
Trade and other payables  15(a)  15,057   15,240  14(a)  639   663 
Provisions  16(a)  141,885   63,571 
Provisions and contingent liabilities 15(a)  199,762   164,877 
Financial obligations  17(a)  320,316   313,355  16(a)  540,896   549,092 
Contingent consideration liability  5  16,994   23,026  27(b)  15,755   17,570 
Deferred income tax liabilities, net  28(b)  12,662   21,594  28(b)  31,422   15,790 
    506,914   436,786     788,474   747,992 
Total liabilities    1,157,945   910,149     1,187,656   1,269,186 
          
Shareholders’ equity, net  18         17        
Capital stock    750,497   750,497     750,497   750,497 
Investment shares    1,396   1,396     791   791 
Additional paid-in capital    219,055   219,055     218,450   218,450 
Legal reserve    162,714   162,710     163,115   163,071 
Other reserves    269   269     269   269 
Retained earnings    2,024,895   2,328,423     1,675,909   1,728,847 
Other reserves of equity    2,240   1,755     (703)  (13,888)
Shareholders’ equity, net attributable to owners of the parent    3,161,066   3,464,105 
Shareholders ‘equity, net attributable to owners of the parent    2,808,328   2,848,037 
Non-controlling interest  19(a)  228,170   298,020  18(a)  221,237   215,590 
Total shareholders’ equity, net    3,389,236   3,762,125     3,029,565   3,063,627 
Total liabilities and shareholders’ equity, net    4,547,181   4,672,274     4,217,221   4,332,813 

  

  F-4F-5 

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of profit or loss

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

 Note 2015 2014 2013  Note 2018 2017 2016 
 US$(000) US$(000) US$(000)    US$(000) US$(000) US$(000) 
                       
Continuing operations                            
Operating income              
Operating income:              
Net sales of goods 21(a)  864,962   1,067,271   1,135,836  20(b)  1,122,995   1,223,942   1,015,670 
Net sales of services 21(a)  54,488   71,642   79,585  20(b)  24,001   29,697   28,782 
Royalty income 30(a)  32,414   36,867   44,185  20(b)  20,385   20,739   24,339 
Total operating income    951,864   1,175,780   1,259,606     1,167,381   1,274,378   1,068,791 
              
Operating costs                            
Cost of sales of goods, excluding depreciation and amortization 22(a)  (537,713)  (533,052)  (513,165) 21(a)  (625,484)  (627,433)  (497,812)
Cost of services, excluding depreciation and amortization 22(b)  (52,692)  (81,487)  (114,120) 21(b)  (4,318)  (12,954)  (10,754)
Exploration in operating units 23  (91,520)  (97,852)  (101,913) 22  (90,343)  (94,928)  (96,149)
Depreciation and amortization    (242,465)  (208,698)  (159,140)    (241,286)  (213,722)  (192,647)
Mining royalties 24  (27,407)  (28,440)  (30,402) 23  (21,526)  (31,217)  (27,611)
Total operating costs    (951,797)  (949,529)  (918,740)    (982,957)  (980,254)  (824,973)
Gross profit    67   226,251   340,866     184,424   294,124   243,818 
Operating expenses              
              
Operating expenses, net              
Administrative expenses 25  (86,532)  (101,102)  (75,118) 24  (78,760)  (83,597)  (81,692)
Exploration in non-operating areas 26  (30,610)  (50,007)  (32,805) 25  (36,307)  (18,262)  (26,589)
Selling expenses    (19,481)  (16,605)  (14,842)    (27,522)  (24,088)  (21,733)
Impairment loss of long-lived assets 12(b)  (11,255)  -   - 
Reversal (provision) and contingent liabilities 15(c)  11,239   (13,879)  (565)
Impairment recovery (loss) of long-lived assets 11(b)  5,693   (21,620)  - 
Write – off of stripping activity asset 11(e)  -   (13,573)  - 
Other, net    209   3,059   (2,858) 26  (5,012)  (13,589)  18,957 
Total operating expenses, net    (147,669)  (164,655)  (125,623)
Operating profit (loss)  (147,602)  61,596   215,243 
Total operating expenses    (130,669)  (188,608)  (111,622)
Operating profit    53,755   105,516   132,196 
              
Other income (expense), net                            
Share in the results of associates under equity method 11(b)  (173,375)  (74,600)  (114,145)
Finance costs 27  (27,622)  (11,318)  (9,896) 27  (38,456)  (34,623)  (31,580)
Net gain (loss) from currency exchange difference    (13,683)  (8,452)  (7,192)    (1,366)  2,928   2,638 
Gain on business combination 5  -   59,852   - 
Share in the results of associates 10(b)  (1,144)  13,207   (365,321)
Finance income 27  11,026   8,408   6,621  27  9,686   5,517   6,830 
Total other income (expenses), net    (203,654)  (26,110)  (124,612)    (31,280)  (12,971)  (387,433)
              
Profit (loss) before income tax    (351,256)  35,486   90,631     22,475   92,545   (255,237)
                          
Current income tax 28(c)  (14,225)  (19,006)  (57,328) 28(c)  (16,928)  (23,837)  (39,444)
Deferred income tax 28(c)  (541)  (47,006)  (29,154) 28(c)  (9,998)  5,825   (14,060)
Profit (loss) from continuing operations  (366,022)  (30,526)  4,149     (4,451)  74,533   (308,741)
                            
Discontinued operations                          
Loss from discontinued operations 1(e)  (9,523)  (31,114)  (83,885)
Loss for the year  (375,545)  (61,640)  (79,736)
Net loss from discontinued operations attributable to equity holders of the parent 1(e)  (7,203)  (10,098)  (19,073)
Profit (loss) for the year    (11,654)  64,435   (327,814)
              
Attributable to:                          
Owners of the parent    (317,210)  (76,065)  (107,257)
Equity holders of the parent    (13,445)  60,823   (323,492)
Non-controlling interest 19(a)  (58,335)  14,425   27,521  18(a)  1,791   3,612   (4,322)
    (375,545)  (61,640)  (79,736)    (11,654)  64,435   (327,814)
Basic and diluted loss per share attributable to equity holders of the parent, stated in U.S. dollars 18(e)  (1.25)  (0.30)  (0.42)
Loss for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars 18(e)  (1.21)  (0.18)  (0.09)
              
Basic and diluted profit (loss) per share attributable to equity holders of the parent, stated in U.S. dollars 17(e)  (0.05)  0.24   (1.27)
Profit (loss) for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars 17(e)  (0.02)  0.28   (1.20)

  

  F-5F-6 

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of other comprehensive income

For the years ended December 31, 2015, 20142018, 2017 and 2013 2016

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Net loss  (375,545)  (61,640)  (79,736)
Net profit (loss)  (11,654)  64,435   (327,814)
                        
Other comprehensive profit (loss):                        
Other comprehensive income to be reclassified to profit or loss in subsequent periods            
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods            
Net change in unrealized gain (loss) on cash flow hedges  (3,368)  4,781   (1,093)  31,464   (26,822)  (4,368)
Loss on available-for-sale investments  (546)  (80)  (434)
Income tax effect  3,372   (1,581)  378   (9,916)  7,963   (1,301)
Unrealized gain on investments  1,053   (427)  279 
  (542)  3,120   (1,149)  22,601   (19,286)  (5,390)
Total other comprehensive loss  (376,087)  (58,520)  (80,885)
Total other comprehensive profit (loss), net of income tax  10,947   45,149   (333,204)
                        
Attributable to:                        
Equity holders of the parent  (316,725)  (74,414)  (108,078)  (260)  48,718   (327,515)
Non-controlling interests  (59,362)  15,894   27,193   11,207   (3,569)  (5,689)
              10,947   45,149   (333,204)
  (376,087)  (58,520)  (80,885)

  

  F-6F-7 

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of changes in equity

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

  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, 2013  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 profit (loss)  -   -   -   -   -   -   (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 18(d)  -   -   -   -   -   -   (78,879)  -   (78,879)  (13,533)  (92,412)
Treasury shares purchase  (14,474)  (43)  (3)  (416)  -   -   -   -   (462)  -   (462)
As of December 31, 2013  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 18(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 loss  -   -   -   -   -   -   -   485   485   (1,027)  (542)
Total other comprehensive income  -   -   -   -   -   -   (317,210)  485   (316,725)  (59,362)  (376,087)
                                             
Dividends declared and paid, Note 19(b)  -   -   -   -   -   -   -   -   -   (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 
  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, 2016  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 income (loss)  -   -   -   -   -   -   (323,492)  (4,023)  (327,515)  (5,689)  (333,204)
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (7,621)  -   (7,621)  (7,400)  (15,021)
Expired dividends, note 17(c)  -   -   -   -   30   -   -   -   30   -   30 
Change in non-controlling interest, note 18(a)  -   -   -   -   -   -   (3,659)  -   (3,659)  11,041   7,382 
Treasury shares, note 17(b)  -   -   (605)  (605)  -   -   -   -   (1,210)  -   (1,210)
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 
                                             
Net profit  -   -   -   -   -   -   60,823   -   60,823   3,612   64,435 
Other comprehensive loss  -   -   -   -   -   -   -   (12,105)  (12,105)  (7,181)  (19,286)
Total other comprehensive income (loss)  -   -   -   -   -   -   60,823   (12,105)  48,718   (3,569)  45,149 
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (22,099)  -   (22,099)  (6,036)  (28,135)
Expired dividends, note 17(c)  -   -   -   -   327   -   -   -   327   -   327 
Change in non-controlling interest, note 18(a)  -   -   -   -   -   -   -   -   -   (927)  (927)
As of December 31,  2017  253,715,190   750,497   791   218,450   163,071   269   1,728,847   (13,888)  2,848,037   215,590   3,063,627 
                                             
Net profit (loss)  -   -   -   -   -   -   (13,445)  -   (13,445)  1,791   (11,654)
Other comprehensive loss  -   -   -   -   -   -   -   13,185   13,185   9,416   22,601 
Total other comprehensive income (loss)  -   -   -   -   -   -   (13,445)  13,185   (260)  11,207   10,947 
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (22,860)  -   (22,860)  (5,560)  (28,420)
Change in investments, note 10(b)  -   -   -   -   -   -   (16,633)  -   (16,633)  -   (16,633)
Expired dividends, note 17(c)  -   -   -   -   44   -   -   -   44   -   44 
As of December 31, 2018  253,715,190   750,497   791   218,450   163,115   269   1,675,909   (703)  2,808,328   221,237   3,029,565 

  

  F-7F-8 

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated statements of cash flows

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

 Note 2015 2014 2013    2018 2017 2016 
   US$(000) US$(000) US$(000)  Note US$(000) US$(000) US$(000) 
                       
Operating activities                            
Proceeds from sales    965,273   1,144,394   1,351,359     1,216,294   1,197,523   1,003,422 
Value added tax recovered    81,692   39,685   66,921 
Tax recovery    106,656   102,548   117,661 
Dividends received 30(a)  46,792   9,823   142,340 
Proceeds from insurance claim 7(g)  38,793   -   - 
Royalty received    38,983   31,252   50,562     20,013   21,565   25,961 
Dividends received 30  6,691   12,938   9,803 
Interest received    3,650   8,333   8,235     2,383   3,169   2,140 
Payments to suppliers and third parties    (727,017)  (805,413)  (752,770)    (861,282)  (872,467)  (672,419)
Payments to employees    (175,329)  (203,496)  (216,799)    (151,602)  (160,891)  (138,113)
Payments of mining royalties    (22,836)  (22,631)  (30,623)
Income tax paid    (22,330)  (33,161)  (66,427)    (30,898)  (38,121)  (35,401)
Interest paid    (21,518)  (9,405)  (11,494)    (27,699)  (30,402)  (34,138)
Payments of mining royalties    (13,190)  (20,165)  (20,052)
Net cash and cash equivalents provided by operating activities    127,259   162,496   408,767     346,260   212,582   391,401 
              
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 30  -   15,553   24,537 
Proceeds from sale of mining concessions, development costs, property, plant and equipment    5,481   1,681   5,010     2,240   1,962   7,180 
Additions to mining concessions, development costs, property, plant and equipment 12  (211,286)  (227,564)  (503,576) 11(a)  (111,270)  (259,507)  (366,834)
Loans to associates 30  (124,800)  -   - 
Loans to third parties 8  (829)  -   - 
Payments for acquisition of other assets    (10,238)  -   -  12  (8,529)  (5,405)  (5,222)
Payments for acquisition of shares in associate, net of cash acquired    -   (80,316)  - 
Contributions in associates    -   (2,012)  (6,988)
Proceeds from collection of loan to an associate 30(a)  -   124,800   - 
Net cash and cash equivalents used in investing activities    (341,672)  (292,658)  (428,073)    (117,559)  (138,150)  (364,876)
              
Financing activities                            
Proceeds from financial obligations 17  296   177,125   236,975 
Proceeds from bank loans 14  344,503   40,000   -  13  95,000   341,215   200,500 
Payments of bank loans 14  (90,000)  -   -  13  (95,000)  (300,000)  (442,957)
Proceeds from financial obligations 16(f)  -   80,000   275,210 
Payments of financial obligations 17  (29,891)  (42,205)  (260,231) 16(f)  (45,222)  (32,599)  (33,476)
Dividends paid to controlling shareholders 18(d)  -   (8,642)  (78,879) 14(c)  (22,860)  (22,099)  (7,621)
Dividends paid to non-controlling shareholders 19(b)  (10,488)  (8,880)  (13,533) 17(d)  (5,560)  (6,036)  (7,400)
Purchase of treasury shares    -   -   (462)
Increase of restricted bank accounts 7(e)  (410)  (285)  (2,087)
Purchase of treasury share 17(b)  -   -   (1,210)
Acquisition of non-controlling interest 18(a)  -   (621)  (5,459)
Net cash and cash equivalents provided by (used in) financing activities    214,420   157,398   (116,130)    (74,052)  59,575   (24,500)
Increase (decrease) in cash and cash equivalents for the year, net    7   27,236   (135,436)
              
Increase in cash and cash equivalents for the year, net    154,649   134,007   2,025 
Cash and cash equivalents at beginning of year    78,512   51,276   186,712     214,551   80,544   78,519 
Cash and cash equivalents at year-end    369,200   214,551   80,544 
                            
Cash and cash equivalents at year-end    78,519   78,512   51,276 
Financing and investing activities not affecting cash flows:                            
Changes in mine closures plans    74,907   398   57,657  15(b)  42,874   10,594   34,532 
Contingent consideration liability    -   23,026   -  27(b)  1,815   1,773   2,349 
Accounts receivable from sale of assets 7(a)  2,715   5,371   5,204 

  

  F-8F-9 

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Notes to the consolidated financial statements

For the years 2015, 20142018, 2017 and 20132016

 

1.Identification and business activity

(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 GroupCompany operates directly five operating mining units in Peru (Uchucchacua, Orcopampa, Julcani, Mallay and Breapampa)Tambomayo), fourtwo discontinued mining units held for sale (Poracota Recuperada, Antapite and Shila-Paula), and twoone mining unitsunit under development stage (Tambomayo and San(San Gabriel). In addition, the GroupCompany has a controlling interest in Sociedad Minera El Brocal S.A.A. (hereinafter “El Brocal”), which operates the Colquijirca mining unit; in Minera La Zanja S.R.L. (hereinafter “La Zanja”), which operates La Zanja mining unit; in El Molle Verde S.A.S.A.C. (hereinafter “Molle Verde”) which operates Trapiche, a mining unit at the development stage; and in other entities dedicated to energy generation and transmission services, construction and engineering services and other activities. All these activities are developed in Peru.

 

(c)Approval of consolidated financial statements -

The consolidated financial statements as of December 31, 20152018 were approved by the Company’s ManagementAudit Committee on February 25, 2016 and, in its opinion, will be approved without modifications in the Board of Directors and Shareholders’ Meetings within the terms established by Law.April 30, 2019.

 

The consolidated financial statements as of December 31, 20142017 were approved by the Audit Committee on February 24, 2015.April 27, 2018.

 

  F-9F-10 

 

Notes to the consolidated financial statements(continued)

  

(d)The consolidated financial statements include the financial statements of the following subsidiaries:

 

 Country of
incorporation		 Ownership  Country of
incorporation		 Ownership as of December 31, 
 and business December 31, 2015  December 31, 2014  and business 2018  2017 
   Direct Indirect Direct Indirect    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  3.19   58.24   3.19   58.24 
Inversiones Colquijirca S.A. (*) Peru  89.76   10.24   89.76   10.24 
Inversiones Colquijirca S.A. (*)(****) 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. Mexico  99.80   0.20   99.80   0.20  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  99.99   -   99.99   - 
Cerro Hablador S.A.C. Peru  99.00   1.00   99.00   1.00  Peru  99.00   1.00   99.00   1.00 
Minera Azola S.A.C. Peru  99.00   1.00   99.00   1.00  Peru  99.00   1.00   99.00   1.00 
Compañía Minera Nueva Italia S.A. Peru  -   93.36   -   93.36  Peru  -   94.27   -   93.36 
                                    
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 
Empresa de Generación Huaura S.A.C. Peru  0.01   99.99   0.01   99.99 
Empresa de Generación Huanza S.A. (****) Peru  -   100.00   -   100.00 
                                    
Construction, engineering services and insurance brokerage:                                    
Buenaventura Ingenieros S.A. Peru  100.00   -   100.00   - 
BISA Construcción S.A. (**) Peru  -   -   -   100.00 
Contacto Corredores de Seguros S.A. Peru  99.98   0.02   0.02   99.98  Peru  99.98   0.02   99.98   0.02 
BISA Argentina S.A. (antes Minera San Francisco S.A.) Argentina  56.42   43.58   56.42   43.58 
Contacto Risk Consulting S.A. Peru  -   98.00   -   -  Peru  -   98.00   -   98.00 
Buenaventura Ingenieros S.A. (**) Peru  -   -   100.00   - 
BISA Argentina S.A. (***) Argentina  -   -   56.42   43.58 
                                    
Industrial activities                  
Industrial activities:                  
Procesadora Industrial Río Seco S.A. Peru  100.00   -   100.00   -  Peru  100.00   -   100.00   - 

 

(*)As of December 31, 20152018 and 2014,2017, the participation of the Company in the voting rights of El Brocal is 53.72%.61.43 percent. Inversiones Colquijirca S.A. (hereafter “Colquijirca”), a Group’s subsidiary (99.99%(99.99 percent as of December 31, 20152018 and 2014)2017), has a 51.06%an interest in El Brocal’s capital stock, through which the GroupCompany holds an indirect participation in El Brocal of 51.36%58.24 as of December 31, 20152018 and 2014.2017.

 

(**)In December 2015,As of April 30, 2018, the Board of Directors’ and Shareholders’ Meetings ofCompany sold its investment in Buenaventura Ingenieros S.A. for US$7.1 million with a related sale costs of US$11.2 million. The transaction generates a net loss of US$4.1 million. See note 26.

(***)As of August 06, 2018, the liquidation of this subsidiary was made.

(****)As of December 31, 2018 and BISA Construcció2017, the Group's financial statements include consolidated assets and liabilities corresponding to the trust assets held as part of the financial leasing and lease back agreements maintained by El Brocal (which operates the Colquijirca mining unit) and Empresa de Generación Huanza S.A., approvedwith the merger between these subsidiaries whereby Buenaventura Ingenieros S.A. has absorbed BISA Construcción S.A.Banco de Credito del Peru, see notes 16(a) and 11(c).

 

  F-10F-11 

 

Notes to the consolidated financial statements(continued)

 

(e)Discontinued operations

In 2014,During 2017, the Group publicly announced its decision to sell its four paralyzedsold the Breapampa and Recuperada mining units mentioned in Note 1(b); asfor US$2.0 million and US$0.6 million, respectively. As a consequence, they are presented as mining units held for sale. According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”,result of such sales, the relatedGroup recorded reversals of the provision of impairment loss of long-lived assets and liabilities are presented in the consolidated statement of financial position at the lower of cost and fair value less cost to sale. There were delays during the selling process related to regulatory issues; however, management expects to complete the sale of these discontinued mining units to third parties no later than December 31, 2016.

The major classescosts for sales of assets and liabilitiessupplies, which originated a net loss of these fourUS$4.0 million.

During 2016, the Group sold the Antapite mining unit for US$1.0 million, which resulted in a net loss of US$3.0 million.

During 2017, as a result of the sales in 2017 and 2016, the Company received the confirmation from the Ministry of Energy and Mines of the transfer of its obligation for closure of mining units, held for sale aswhich generated a reversal of December 31, 2015 and 2014 are presented below:

  2015  2014 
  US$(000)  US$(000) 
       
Asset        
Cash  4   18 
Trade and other receivables, net  172   849 
Inventories, net  1,940   2,581 
Prepaid expenses  170   197 
Mining concessions, development costs, property, plant and equipment, net  13,306   15,038 
Assets classified as held for sale  15,592   18,683 
         
Liabilities        
Trade and other payables  (2,862)  (5,224)
Provisions  (17,749)  (23,666)
Liabilities directly associated with the assets held for sale  (20,611)  (28,890)

 F-11

Notes to the consolidated financial statements(continued)

The results of the four mining units held for sale for the years 2015, 2014 and 2013 are presented below:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Operating income         
Net sales  398   5,117   25,835 
Total income  398   5,117   25,835 
             
Operating costs            
Cost of sales, excluding depreciation and amortization  (8,011)  (28,566)  (26,094)
Exploration  (26)  (2,853)  (65,230)
Depreciation and amortization  -   (823)  (6,337)
Mining royalties  (4)  (47)  (221)
Total operating costs  (8,041)  (32,289)  (97,882)
Gross loss  (7,643)  (27,172)  (72,047)
Operating expenses, net            
Administrative expenses  (74)  (523)  (2,358)
Selling expenses  (2)  (201)  (1,193)
Provision for contingencies  (44)  372   (1,589)
Other, net  (1,039)  (2,929)  (5,674)
Total operating expenses  (1,159)  (3,281)  (10,814)
Operating loss  (8,802)  (30,453)  (82,861)
Other income (expenses), net            
Finance income  -   1   2 
Finance costs  (840)  (799)  (1,074)
Net gain  from currency exchange difference  119   145   180 
Total other expenses, net  (721)  (653)  (892)
Loss before income tax  (9,523)  (31,106)  (83,753)
Income tax  -   (8)  (132)
             
Loss associated with the mining units classified as held for sale  (9,523)  (31,114)  (83,885)

 F-12

Notes to the consolidated financial statements(continued)US$11.8 million.

 

The net cash flows used by the four mining units held for salewith discontinued operations for the years 2015, 20142018, 2017 and 20132016, are presented below:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Operating activities  (8)  261   5,195   (6)  (8)  (7)
Investing activities  (6)  (296)  (5,325)
Financing activities  -   -   - 
Net decrease in cash and cash equivalents during the year  (14)  (35)  (130)  (6)  (8)  (7)

F-12

 

Basic and diluted earnings per shareThe results of the discontinued operations mining units for the years 2015, 20142018, 2017 and 2013, resulting from the discontinued operations2016 are as follow:presented below:

 

  2015  2014  2013 
  US$  US$  US$ 
             
Loss from the discontinued operations, per basic and diluted share  (0.04)  (0.12)  (0.33)
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Operating income            
Net sales  -   -   1,149 
Total income  -   -   1,149 
Operating costs            
Cost of sales, excluding depreciation and amortization  -   -   (4,842)
Exploration  -   -   (3,777)
Depreciation and amortization  -   -   (5,049)
Mining royalties  -   -   (11)
Total operating costs  -   -   (13,679)
Gross loss  -   -   (12,530)
Operating income (expenses), net            
Reversal of Impairment loss of long-lived assets, note 11(b)  2,837   17,197   - 
Changes in provision for closure of mining units, note 15(b)  (6,013)  (12,701)  (3,365)
Derecognition of long-lived assets  (2,837)  -   - 
Net loss in sale of mining units  -   (18,550)  (3,014)
Administrative expenses  -   (941)  (111)
Reversal (provision) for contingencies  -   (423)  901 
Gain (loss) for sale in other assets  -   (162)  3,200 
Reversal of provision for closure of mining units for sale of mining units, note 15(b)  -   11,700   - 
Reversal of provision for impairment of inventories, note 8(c)  -   1,345   706 
Impairment loss of long-lived assets, note 11(b)  -   -   (2,043)
Others, net  (1,147)  (6,871)  (1,793)
Total operating expenses, net  (7,160)  (9,406)  (5,519)
Operating loss  (7,160)  (9,406)  (18,049)
Other income (expense), net            
Finance costs, note 15(b)  (54)  (694)  (970)
Net gain (loss)  from currency exchange difference  11   2   (50)
Total other expenses, net  (43)  (692)  (1,020)
Loss before income tax  (7,203)  (10,098)  (19,069)
Income tax  -   -   (4)
             
Loss from discontinued operations  (7,203)  (10,098)  (19,073)
             
Loss from the discontinued operations, per basic and diluted share, express in U. S. dollars  (0.03)  (0.04)  (0.07)

 

Write-down of property, plant and equipment

F-13

Before the classification of the four mining units as held for sale, the recoverable amount was estimated for certain items of property, plant and equipment and impairment loss of US$794,000 was identified in 2014 (accumulated impairment loss of US$19,805,000 as of December 31, 2013).

 

2.Basis for preparation, consolidation and accounting policies

2.1.Basis of preparation -

The consolidated financial statements of the GroupCompany 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 the derivative financial instruments and financial assets and liabilities 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 requirerequires that Management use judgments, estimates and assumptions, as detailed on the following Notenote 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 companyCompany and its subsidiaries to the date of the consolidated statements of financial position.

 F-13

Notes to the consolidated financial statements(continued)

 

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;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 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;investee.
-Rights arising from other contractual arrangements;arrangements.
-The Group’s voting rights and potential voting rights or a combination of rights.

 

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.

 

F-14

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.

 

 F-14

Notes to the consolidated financial statements(continued)

2.3.Changes in accounting policies and disclosures -

CertainThe Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. Several other amendments and amendments appliedinterpretations apply for the first time in 2015;2018; however, they did not have material impact on the annual consolidated financial statements of the Group and therefore, have not been disclosed.Thedisclosed. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

IFRS 15 Revenue from Contracts with Customers

The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of January 1, 2018. Under this method, the Group elected to apply the standard only to contracts that are not completed as of January 1, 2018.

The Group concluded that there are no adjustments as a consequence of initially applying IFRS 15, therefore no effects were recognised at the date of initial application. Comparative information was not restated and continues to be reported under IAS 11, IAS 18 and related Interpretations.

IFRS 9 Financial Instruments

The Group applied IFRS 9 prospectively, with an initial application date of January 1, 2018. The Group has not restated the comparative information, which continues to be reported under IAS 39. There were no adjustments to the financial statements arising from the adoption of IFRS 9.

Adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss approach. Upon adoption of IFRS 9 no additional impairment was recognized.

The classification and measurement requirements of IFRS 9 did not have a significant impact to the Group. Upon the adoption of IFRS 9, the Group had the following required or elected reclassifications as of January 1, 2018.

F-15

     IFRS 9 measurement category 
     Fair value
through profit
or loss		  Amortized 
cost		  Fair value
through other
profit or loss		 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
IAS 39 measurement category                
Financial Assets -                
Loans and receivables -                
Trade receivables (without provisional prices)  61,188   -   61,188   - 
Trade receivables (with provisional prices)  144,844   152,268   -   - 
Other accounts receivables  51,808   -   51,808   - 
                 
Financial assets at fair value through profit and loss -                
Embedded derivatives  7,424   -   -   - 
                 
Financial Liabilities -                
Loans and borrowings -                
Bank loans  96,215   -   96,215   - 
Financial obligations  633,083   -   633,083   - 
Trade and other payables  220,042   -   220,042   - 
                 
Financial liability at fair value through profit and loss -                
Contingent consideration liability  17,570   17,570   -   - 
                 
Fair value with changes in profit (loss) -                
Hedge derivative financial instruments  28,705   -   -   28,705 

Hedge accounting -

The Group applied hedge accounting prospectively. At the date of initial application, all of the Group’s existing hedging relationships were eligible to be treated as continuing hedging relationships. Upon adoption of the hedge accounting requirements of IFRS 9, the Group designates only the spot element of forward contracts as hedging instrument. The forward element is recognised in OCI and accumulated as a separate component of equity under “Other reserves of equity” caption. This change only applies prospectively from the date of initial application of IFRS 9 and has no impact on the presentation of comparative figures.

Under IFRS 9, gains and losses arising on cash flow hedges of forecast purchases of non-financial assets need to be incorporated into the initial carrying amounts of the non-financial assets. This change only applies prospectively from the date of initial application of IFRS 9 and has no impact on the presentation of comparative figures.

2.4.Summary of significant accounting policies –-
(a)Foreign currencies-

The consolidated financial statements are presented in U.S.US dollars, which is also the Group’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.

F-16

 

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).

 

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.

 

(b)Financial instruments - Initial recognition and subsequent measurement -

Initial recognition and 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 assetssubsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-saleloss.

The classification of financial assets or derivatives designated as hedging instruments in an effective hedge, as appropriate. Allat initial recognition depends on the financial assets are recognizedasset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial assetsasset not recorded at fair value through profit or loss, transaction costscosts.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are attributable“solely payments of principal and interest¨ on the principal amount outstanding. This assessment is performed at an instrument level.

The Group’s business model for managing financial assets refers to the acquisition ofhow it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial asset.assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date.

 

  F-15F-17 

 

Notes to the consolidated financial statements(continued)

 

Subsequent measurement -

For purposes of subsequent measurement, financial assets are classified in fourthe following categories:

 

-Financial assets at amortised cost.
-Financial assets at fair value through OCI.
-Financial assets at fair value through profit or loss;loss.

Financial assets at amortised cost -

The Group measures financial assets at amortised cost if both of the following conditions are met:

-The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and
-LoansThe contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and receivables;interest on the principal amount outstanding.
-Held-to-maturity investments;
-Available-for-sale financial investments.

Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

This category generally applies to the “Trade and other receivables, net” caption.

Financial assets at fair value through OCI -

Financial assets are classified and measured at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

This category generally applies to the “Hedge derivative financial instruments” caption.

 

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.loss or financial assets mandatorily required to be measured at fair value. 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. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as defined by IAS 39.described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

F-18

 

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.

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, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. The losses arising from impairment are recognizedrecognised in the consolidated statements of profit or loss.

 

This category generally applies to tradethe “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, 2015 and 2014.net” caption.

 

Available-for-sale financial assets -Derecognition

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 did not have these financial assets as of December 31, 2015 and 2014.

 F-16

Notes to the consolidated financial statements(continued)

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; or
-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.

 

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.

 

Impairment of financial assets-

The Group assesses,recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at each reporting date, whether there is objective evidence that a financial assetfair value through profit 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 impactloss. ECLs are based 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 futurecontractual cash flows is discountdue in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the financial asset’s original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

 

The carrying amountECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life 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 amountexposure, irrespective of the estimated impairment loss increases or decreases becausetiming 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.default (a lifetime ECL).

 

  F-17F-19 

 

 

NotesFor trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the consolidateddebtors and the economic environment.

The Group considers a financial statements(continued)asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

 

(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,loans and borrowings, payables, 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, derivativesbank loans, financial instrumentsliabilities for contingent consideration liability and embedded derivatives.

 F-18

Notes to the consolidatedhedge derivative financial statements(continued)instruments.

 

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.IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

F-20

 

Gains or losses on liabilities held for trading are recognized in the consolidated statements of profit or loss.

 

Except forFinancial liabilities designated upon initial recognition at fair value through profit or loss are designated at the embedded derivative for concentrate sales,initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Group has not designated any financial liability in this category.liabilities as at fair value through profit or loss.

 

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. This category generally applies to interest-bearing loans and borrowings.

 

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.

 

 F-19

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.hand, and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.

 

For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and short term deposits with a maturityas defined above, net of three months or less, whichoutstanding bank overdrafts as they are subject toconsidered an insignificant riskintegral part of changes in value.the Group’s cash management.

F-21

 

(d)Inventories -

MaterialsFinished goods and suppliesin process products 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 expectexpected 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).

 

(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.

 

 F-20

Notes to the consolidated financial statements(continued)

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.

acquire. 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 the consolidated statements of 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 39IFRS 9 Financial Instruments: Classification and Measurement,Instruments, 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,IFRS 9, it is measured under the fair value at the reporting date with changes in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measuredfair value recorded in the consolidated statement of profit and subsequent settlement is accounted for within equity.loss.

F-22

 

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 the consolidated statements of profit ofor loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, this difference is allocateallocated 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 acquiree,acquire, are assigned to those units.

 

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.

 

 F-21

Notes to the consolidated financial statements(continued)

(f)Investments in associates and joint ventures -

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.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group's investments in associates and joint ventures are accounted for using the equity method. Under this method, the investment in an associate or joint venture 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 and joint ventures 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 statement of profit or loss reflects the Group’s share of the results of operations of the associate.associates and joint ventures.

F-23

 

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 and joint ventures, 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 or joint venture are eliminated to the extent of the interest in the associate.associate or joint venture.

 

The aggregate of the Group´s share of profit or loss of an associate and joint ventures 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 associateassociates and joint ventures 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 investmentinvestments in the associate isassociates and joint ventures are 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.

 

Upon loss of significant influence over the associate and joint ventures, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate and joint ventures 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.

 F-22

Notes to the consolidated financial statements(continued)

 

(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, borrowing costs for qualifying assets, borrowing costs.assets. The capitalized value of a finance lease is also included in this caption.

 

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.

 

F-24

Depreciation -

Unit-of-production method:

In mining units with a long-termlong useful life,lives, depreciation of assets directly related to the operation of the mine 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 in mining units with short useful lives 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

 

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.

 

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.

 

 F-23

Notes to the consolidated financial statements(continued)

(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 fulfillmentfulfilment 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.

 

F-25

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 paymentsPayment related to operating leases are recognized as operating expenses in the statementsconsolidated statement of profit orand loss onunder a straight-line basis overamortization under the lease term.period of the lease.

 

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-24

Notes to the consolidated financial statements(continued)

 

(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.a business combination.

 

At end of each year, the Group evaluates if there is any indicator.indicator of impairment. 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.

 

F-26

(k)Exploration and mine development costs –

Exploration expenditurecosts -

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;data.
-Gathering exploration data through geophysical studies; studies.
-Exploratory drilling and sampling;sampling.
-Determining and examining the volume and grade of the resource;resource.
-Surveying transportation and infrastructure requirements;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;studies.
-Drilling and other costs necessary to delineate ore body;body.
-Removal of the initial clearing related to an ore body.

 

Development costs necessary to maintain production are expensed as incurred.

 F-25

Notes to the consolidated financial statements(continued)

 

(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:

 

F-27

-Future economic benefits are probable;probable.
-The component of the ore body for which access will be improved can be accurately identified;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 anis the accumulation of costs directly incurred to perform the stripping activity directly incurred during the stripping activity. The production stripping cost 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.

 

(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 useful life of 20 years.

 

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. The amount of consideration to be included in the gain or loss arising from the derecognition of investment property is determined in accordance with the requirements for determining the transaction price in IFRS 15.

 

Transfers are made to (or from) investment property only when there is a change in use.

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.

 

 F-26

Notes to the consolidated financial statements(continued)

(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 unitunit' (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.

F-28

 

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.

 

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

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 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.

 

(o)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.

(p)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.

  F-27F-29 

 

 

Notes to the consolidated financial statements(continued)

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.

 

(q)(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.

 

(r)(q)Revenue recognition -

Revenue from contracts with customers is recognized when control of goods or services are transferred to the extentcustomer at an amount that it is probable thatreflects the economic benefits will flowconsideration to which the Group expects to be entitled in exchange for those goods and the revenue can be reliably measured, 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:services.

 

The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in Note 3.

Sales of concentrates and metals -

Revenue from sale of concentrates and metals is recognized at the point in time when the significant risks and rewards of ownershipcontrol of the goods have passedasset is transferred to the buyer, usuallycustomer, generally on delivery of the goods. The normal credit term is 30 to 90 days upon delivery.

 

  F-28F-30 

 

 

NotesThe Group considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. The Group consider that the only performance obligation is the delivery of the goods. In determining the transaction price for the sale of concentrates and metals, the Group considers the effect of variable consideration and the existence of significant financing components.

Variable consideration -

If the consideration in the contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the consolidated financial statements(continued)customer. There variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Sales of concentrates and metals at provisionally prices include a gain (loss) to be received at the end of the quotation period (QP).

 

Contract terms forRevenue is recognized at the Company’s saleamount the Group expects to be entitled – being the estimate of the price expected to be received at the end of the quotation period (QP) using the most recently determined estimate of metal in concentrate to customers allow for a price adjustment based(based on finalinitial assay resultsresults) and the estimated forward price. The requirements in IFRS 15 on constraint estimates of the metal in concentrate by the customervariable consideration are also applied to determine the final content. These are referred to as provisional pricing arrangements and are suchamount of variable consideration that can be included in the transaction price.

Significant financing components

The Group receives short-term advances from its customers. Using the practical expedient in IFRS 15, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the selling price for metal in concentrate is based on prevailing spot prices on a specified future date after shipmentperiod between the transfer of the promised good to the customer (the quotation period). Adjustmentsand when customer pays for that good will be one year or less.

Contract Balances -

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the sales price occurs based on movements in quoted market prices upcustomer. If the Group performs by transferring goods or services to a customer before the datecustomer pays consideration or before payment is due, the Group shall present the contract as a contract asset, excluding any amounts presented as a trade receivable.

Trade receivables

A receivable represents the Group´s right to an amount of final settlement. The period between provisional invoicing and final settlement can be between one and six months.consideration that is unconditional.

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 hostContract liabilities

A contract for accounting purposes. The host contractliability is the sale of metals in concentrate, and the embedded derivative is the forward contractobligation to transfer goods or services to a customer for which the provisional saleGroup has received consideration (or an amount of consideration is subsequently adjusted with final liquidations. The embedded derivativedue) from the customer. If customer pays consideration before the Group transfer goods or services to the customer, a contract liability is originated byrecognized when the metals prices sincepayment is made or the date of issuance of issuance ofpayment is due (whichever is earlier). Contract liabilities are recognized as revenue when the provisional liquidation untilGroup performs under the date of issuance of the final liquidation.contract.

 

  F-29F-31 

 

 

NotesCost to the consolidated financial statements(continued)

obtain a contract

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 presentedGroup pays sales commissions as part of net sales. Changesthe sales of services in fair value over the quotationinsurance brokerage segment. The Group has elected to apply the optional practical expedient for cost to obtain a contract which allows the Group to immediately expense sales commissions because the amortization period and up until final settlement are estimated by reference to forward market prices.of the assets that the Group otherwise would have used is one year or less.

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.

Royalty income-

The royalty income is recognized in accordance with the accrual method considering the substance of the relevant agreements.agreement.

 

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 services performed to date as a percentage of total services to be performed 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.

 

(s)(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 CompanyGroup 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 statement of financial position and as an operating expense in the statements of comprehensive income.

 

  F-30F-32 

 

 

Notes to the consolidated financial statements(continued)

(t)(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.

 

(u)(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.

 

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.

 

F-33

Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.

 F-31

Notes to the consolidated financial statements(continued)

 

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.

 

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 tax 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:

 

(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.

 

(v)(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.

 

F-34

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-32

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;liabilities.
-Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;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.

 

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.

 

(w)(v)Derivative financial instruments and hedge accounting -

Initial recognition and subsequent measurement–-

The Group uses derivative instruments to hedge its commodity price risk (forward commodity contracts) and its foreign exchange risk (forward exchange rate contracts).risk. 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.

 

F-35

The

Before January 1, 2018, the documentation includes identification of the hedging instrument, the hedgehedged item or transaction, the nature of the risk being hedged and how the entityGroup will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or 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.

 

Beginning January 1, 2018, the documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

 F-33-There is ‘an economic relationship’ between the hedged item and the hedging instrument.

Notes to the consolidated financial statements(continued)

-The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship.
-The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

 

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, while the ineffective portion is recognized immediately in the consolidated statements of profit or loss in the finance costs caption.

 

(x)(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;
-Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
-Is a subsidiary acquired exclusively with a view to resale.

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 Notenote 1(e). All other notes to the consolidated financial statements include amounts for continuing operations, unless otherwise mentioned.

 

F-36

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.

 

 F-34

Notes to the consolidated financial statements(continued)

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.

 

 F-35

Notes to the consolidated financial statements(continued)

(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:

 

-Level of capital expenditure incurred compared to the original construction cost estimates;estimates.
-Completion of a reasonable period of testing of the mine plant and equipment;equipment.
-Ability to produce metal in saleable form (within specifications);.
-Ability to sustain ongoing production of metal.

F-37

 

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.

(d)Revenue from contracts with customers -

The Group applied the judgement for determining the timing of satisfaction of services of revenue from contracts with customers. The Group concluded that revenue related to services such as energy generation and transmission, industrial services, and other services is to be recognised over time because the customer simultaneously receives and consumes the benefits provided by the Group.

The Group determined that the output method is the best method in measuring progress of the services mentioned above due to the Group has the right to invoice an amount that corresponds directly to the performance completed to date.

 

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 mainlymaterially 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.

F-38

 

(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.

 

 F-36

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 costsdate using a discounted future cash flow method. In determining the amount of the provision, it is necessary to make significant assumptions and estimates, because there are uncertain, and cost estimates can vary in response to many factors includingthat can affect the final amount of this provision. These factors include 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.rates and periods where are expected that such costs will be incurred. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at the reporting date represents Management’s best estimate of the present value of the future rehabilitation costs required.

 

(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.

 

  F-37F-39 

 

Notes to the consolidated financial statements(continued)

 

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. 

 

(g)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.

 

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 Instruments16 Leases -

In July 2014,IFRS 16 sets out the IASB issuedprinciples for the final versionrecognition, measurement, presentation and disclosure of IFRS 9 Financial Instruments which reflectsleases and requires lessees to account for all phases of the financial instruments project and replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects ofleases under a single on-balance sheet model similar to the accounting for financial instruments project:finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets and short-term leases. At the commencement date of a lease, a lessee will recognise a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from current accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and measurement, impairmentdistinguish between two types of leases: operating and hedge accounting. finance leases.

F-40

IFRS 916, which is effective for annual periods beginning on or after January 1, 2019, requires lessees and lessors to make more extensive disclosures than under IAS 17. The Group will elect to apply the standard to contracts that were previously identified as leases applying IAS 17 and IFRIC 4. The Group will therefore not apply the standard to contracts that were not previously identified as containing a lease applying IAS 17 and IFRIC 4. Based on contracts outstanding at December 31, 2018, with early application permitted. Except for hedge accounting, retrospective application is required, but the provisionadoption of comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.new standard will result in the recognition of right-of-use assets and lease liabilities in January 2019, an amount of approximately 0.4% of consolidated total assets and approximately 1.7% of consolidated total liabilities.

 

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment -

The adoptionInterpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IFRS 9 would haveIAS 12 and does not significant effect on the classification and measurement of the Group’s financial assets and liabilities.

 F-38

Notes to the consolidated financial statements(continued)

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 contractstaxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with customers. Under IFRS 15, revenueuncertain tax treatments. The interpretation is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchangeeffective 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 reporting periods beginning on or after January 1, 2018. Early adoption is permitted.2019, but certain transition reliefs are available. The Group is currently assessingevaluating the impact of IFRS 15IFRIC 23 in its consolidated financial statements and plans to adopt the new standard on the required effective date.

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture -

The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognizedrecognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognizedrecognised only to the extent of unrelated investors’ interests in the associate or joint venture. TheseThe IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must be applied prospectivelyapply them prospectively. The Group will apply these amendments when they become effective.

Annual Improvements 2015-2017 Cycle (issued in December 2017) -

These improvements include:

IFRS 3 Business Combinations

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and are effectiveliabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual periodsreporting period beginning on or after January 1, 2016,2019, with early adoptionapplication permitted. These amendments will impact the Group to the extent that it undertakesapply on future transactions of this nature, as this accounting approach differs to that which it would currently apply.

5.Business combination

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%business combinations 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.

The purchase consideration amounted to:

US$(000)
Cash paid81,000
Contingent consideration liability23,026
As of December 31, 2014104,026

Moreover, the Group recognized a gain of US$59,852,000 in the 2014 consolidated statement 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. 

 F-39

Notes to the consolidated financial statements(continued)

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 equivalents684
Income tax credit29
Value added tax credit10,599
Mining concessions, property, plant and equipment, net202,658
213,970
Liabilities
Deferred income tax liabilities, net9,235
Trade and other payables and provisions724
9,959
Total identifiable net assets at fair value204,011

Contingent consideration -

The purchase and sale agreement considered a contingent consideration of US$23,026,000, which corresponds to the present value of the future royalty payments equivalent to 1.5% 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)208,574
Useful life of mining properties12
Discount rate (%)10

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 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 statement of profit or loss.Group.

 

  F-40

Notes to the consolidated financial statements(continued)

As of December 31, 2015, it is highly probable that the Group reaches the projected future sales. The fair value of the contingent consideration determined as of December 31, 2015 reflects this assumption and changes in metal prices. A reconciliation of fair value measurement of the contingent consideration liability is provided below:

US$(000)
As of January 1, 2014-
Liability arising on business combination23,026
As of December 31, 201423,026
Unrealized fair value changes recognized in profit or loss(6,032)
As of December 31, 201516,994

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 Company approved the merger of the Company (absorbing entity) and its subsidiary Canteras del Hallazgo S.A.C. (absorbed entity) effective December 3, 2014.

The statement of profit or loss of Canteras del Hallazgo S.A.C. for the eleven-month period ended December 3, 2014 is a follows:

US$(000)
Administrative expenses(2,344)
Net loss from currency exchange difference(2,319)
Net loss(4,663)

F-41 

 

 

NotesIFRS 11 Joint Arrangements

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after January 1,2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions.

IAS 12 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application is permitted. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements(continued)statements.

IAS 23 Borrowing Costs

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements.

 

6.5.Transactions in Soles

Transactions in Soles are completed using exchange rates published by the Superintendent of Banks, Insurance and AFP.A.F.P. As of December 31, 2015,2018, the exchange rates for U.S. dollars published by this Institution were US$0.29340.2968 for buying and US$0.29300.2959 for selling (US$0.33550.3088 for buying and US$0.33460.3082 for selling as of December 31, 2014)2017), and have been applied by the Group for the assets and liabilities accounts, respectively.

 

As of December 31, 2015 and 2014, the Group had the following assets and liabilities denominated in Soles:

  2015  2014 
  S/(000)  S/(000) 
       
Asset        
Cash and cash equivalents  53,218   30,431 
Trade and other receivables  474,442   399,914 
Income tax credit  155,014   160,647 
Prepaid expenses  36,984   68,883 
   719,658   659,875 
Liabilities        
Bank loans  (769,360)  (5,000)
Trade and other payables  (414,385)  (381,036)
Provisions  (71,264)  (78,215)
   (1,255,009)  (464,251)
         
Net asset (liability) position  (535,351)  195,624 

7.Cash and cash equivalents

This caption is made up as follows:

  2015  2014 
  US$(000)  US$(000) 
       
Cash  417   1,371 
Bank accounts  38,102   33,115 
Time deposits  40,000   44,026 
         
   78,519   78,512 

Bank accounts earn interest at floating rates based on market rates.

As of December 31, 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-42 

 

 

Notes toAs of December 31, 2018 and 2017, the consolidated financial statements(continued)Group presents the following assets and liabilities originally denominated in Soles by its equivalent in U.S. dollars:

  2018  2017 
  US$(000)  US$(000) 
       
Assets        
Cash and cash equivalents  11,526   6,233 
Trade and other receivables  88,513   154,506 
Income tax credit  24,277   24,779 
Prepaid expenses  -   1,182 
   124,316   186,700 
         
Liabilities        
Bank loans  -   (1,215)
Trade and other payables  (53,962)  (100,860)
Income tax payable  (2,080)  (7,088)
Provisions and contingent liability  (31,282)  (35,572)
   (87,324)  (144,735)
Net asset position  36,992   41,965 

 

8.6.TradeCash and other receivables, net cash equivalents

(a)This caption is made up as follows:

 

  2015  2014 
  US$(000)  US$(000) 
       
Trade receivables, net (b)        
Domestic clients  76,078   107,638 
Foreign clients  45,162   59,377 
Related entities, Note 30(b)  9,426   15,081 
         
   130,666   182,096 
Allowance for doubtful accounts (e)  (21,741)  (21,741)
         
   108,925   160,355 
Other receivables        
Related entities, Note 30(b)  125,487   334 
Value added tax credit  73,145   76,532 
Refund application of value added tax (c)  40,421   34,805 
Tax deposits (d)  12,055   13,843 
Claims to third parties  10,870   13,853 
Account receivable for sale of buildings  4,343   - 
Loans to third parties  2,041   1,212 
Interest receivable  1,879   535 
Other  3,263   6,786 
         
   273,504   147,900 
         
Total trade and other receivables, net  382,429   308,255 
Classification by maturity:        
Current portion  219,862   281,604 
Non-current portion  162,567   26,651 
         
Total trade and other receivables, net  382,429   308,255 
         
Classification by nature:        
Financial receivables  268,863   196,918 
Non-financial receivables  113,566   111,337 
         
Total trade and other receivables, net  382,429   308,255 
  2018  2017 
  US$(000)  US$(000) 
       
Cash  347   327 
Bank accounts (b)  57,078   51,953 
Time deposits (c)  311,775   162,271 
   369,200   214,551 

(b)Bank accounts earn interest at floating rates based on market rates.

(c)As of December 31, 2018 and 2017, 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 

 

 

7.Trade and other receivables, net

Notes to the consolidated financial statements(continued)

(a)Trade and other receivables, net

  2018  2017 
  US$(000)  US$(000) 
Trade receivables, net (b)        
Domestic clients  105,225   109,543 
Foreign clients  56,312   119,388 
Related entities, note 30(b)  7,177   7,348 
   168,714   236,279 
Allowance for expected credit losses (f)  (22,013)  (22,823)
   146,701   213,456 
Other receivables        
Value added tax credit  49,332   74,785 
Accounts receivables to third parties  24,625   27,859 
Advances to suppliers  7,542   1,977 
Refund applications of value added tax (c)  6,574   18,450 
Tax deposits (d)  4,769   9,733 
Account receivables from hedges derivatives  3,949   2,300 
Related entities, note 30(b)  3,705   732 
Interest receivables  3,000   1,719 
Restricted bank accounts (e)  2,782   2,372 
Due from for sales of assets  2,715   5,371 
Tax claims  2,573   2,300 
Loans to personal  1,392   1,179 
Insurance claim (g)  -   3,716 
Other minor  2,738   1,911 
Allowance for expected credit losses (f)  (10,089)  (9,361)
   105,607   145,043 
Total trade and other receivables, net  252,308   358,499 
         
Classification by maturity:        
Current portion  211,715   314,308 
Non-current portion  40,593   44,191 
Total trade and other receivables, net  252,308   358,499 
         
Classification by nature:        
Financial receivables  196,402   265,264 
Non-financial receivables  55,906   93,235 
Total trade and other receivables, net  252,308   358,499 
         
Classification by measurement :        
Trade receivables (without provisional prices)  39,152   61,188 
Trade receivables (with provisional prices)  107,549   152,268 
Other accounts receivables  105,607   145,043 
Total trade and other receivables, net  252,308   358,499 

 

(b)Trade accounts receivable are denominated in U.S. dollars, are neither due nor impaired, do not yield interest and have no specific guarantees.

 

F-44

(c)This item mainly corresponds to value added tax pending to becurrent year applications that have been refunded as of December 31, 2015 and 2014. In November 2013 and January 2015, Buenaventura filed claims procedures by S/19,500,000 (equivalent to US$6,541,000) and by S/71,100,000 (equivalent to US$20,862,000), respectively, in connection with undue offsets made by the tax authorities against tax debts of prior years. In January 2016, Buenaventura collected S/71,100,000 after the tax authorities accepted the appeal; the resolution of the appeal process related to the S/19,500,000 claim is pending.

In the opinion of the Group’s legal advisors, the tax offset made by the tax authorities have no legal support, so there are enough arguments to obtain a favorable outcome in the claim process initiated by the Group.during 2018.

 

(d)Corresponds to deposits held in the Peruvian State bank which only can be used to offset tax obligations.obligations that companies have with the Tax Authorities.

 

(e)The provisionThese balances correspond to restricted bank accounts for doubtful accounts has shown no movement during the years 2015, 2014 and 2013. In the opinion of the Group’s Management, the balance of the provision for doubtful accounts is sufficient to cover adequately the risks of failure to date of the consolidated statementpayment of financial position.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. Below is presented the movement:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  2,372   2,087   - 
Increase in restricted bank accounts  410   285   2,087 
             
Final balance  2,782   2,372   2,087 

 

9.(f)Below is presented the movement in the allowance for expected credit losses:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  32,184   31,607   26,520 
             
Provision for other receivable, note 26  1,334   -   - 
Provision for trade receivables, note 24  18   676   5,087 
Provision of the period  1,352   676   5,087 
Write off of the period  (410)  -   - 
Exchange difference  (173)  -   - 
Reversals of the period, note 26  (45)  (99)  - 
Other minor  (806)  -   - 
             
Final balance  32,102   32,184   31,607 
             
Trade receivables  22,013   22,823   22,644 
Other receivables  10,089   9,361   8,963 
             
   32,102   32,184   31,607 

In the opinion of the Group’s Management, the balance of the allowance for expected credit lossesis sufficient to cover adequately the risks of failure to date of the consolidated statement of financial position.

(g)Corresponds to the indemnity for the insurance claim of the rotor 2 of the 20X30 mill motor occurred in May 2017 of the subsidiary El Brocal. The total compensation for lost profits and consequential damages is US$38,793,000, while the associated costs for mitigation, repair and cost overruns are US$5,058,000, having a net effect on results of US$33,735,000, see note 26. As of December 31 of 2018, El Brocal has received the full amount of compensation from the insurance.

As of December 31, 2017 corresponds to the recovery income of the insurance claim that occurred in the rotor 1 of the 20x30 mill and in the conveyor belt corresponding to the incident that occurred in 2016, for approximately US$4,175,000, and the incurred cost associated amounts to US$2,985,000, resulting in a net effect of US$1,190,000.

F-45

8.Inventory, net

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Finished goods  12,787   32,375   7,715   6,151 
Products in process(b)  87,275   119,239   73,796   56,190 
Spare parts and supplies  47,912   40,493   81,383   84,787 
  147,974   192,107   162,894   147,128 
Provision for impairment of value of inventory (b)(c)  (20,472)  (7,735)  (23,163)  (11,603)
                
  127,502   184,372   139,731   135,525 
                
Classification by use:                
Current portion  101,473   150,284   135,919   132,287 
Non-current portion  26,029   34,088   3,812   3,238 
                
  127,502   184,372   139,731   135,525 

(b)Products in process include mineral deposits located in the Tajo Norte mining unit (El Brocal). The detail of this mineral as of December 31, 2018 and 2017 is presented below:

  2018  2017 
  US$(000)  DMT  US$(000)  DMT 
             
Mineral in stock piles  5,297   342,411   7,173   463,746 
Fresh mineral in plant  32,506   1,818,008   11,983   835,613 
Tail mineral  -   -   279   30,110 
   37,803   2,160,419   19,435   1,329,469 
                 
Provision for impairment of value in mineral classified in process  (1,467)  -   (1,467)  - 
   36,336   2,160,419   17,968   1,329,469 
                 
Classification by use:                
Current portion  33,383       14,730     
Non-current portion  2,953       3,238     
   36,336       17,968     

El Brocal´ Management estimates to use the non-current mineral during the years 2019 and 2020, according to the new mining plans prepared by El Brocal.

 

  F-44F-46 

 

 

Notes to the consolidated financial statements(continued)

Products in process include mineral deposits located in the Tajo Norte mining unit. The detail of this mineral as of December 31, 2015 and 2014 is presented below:

  2015  2014 
  US$(000)  DMT  US$(000)  DMT 
             
Type I and II (copper)  73   6,923   1,261   68,782 
Type III  (lead/zinc)  31,004   1,848,414   45,963   2,746,634 
Provision for impairment of value in mineral classified in process (type I, II and III)  (4,975)  -   -   - 
                 
   26,102   1,855,337   47,224   2,815,416 
                 
Classification by use:                
Current portion  73       13,136     
Non-current portion  26,029       34,088     
                 
   26,102       47,224     

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 has been treated since the first quarter of 2015.

(b)c)The provision for impairment of value of inventory had the following movement during the years 2015, 20142018, 2017 and 2013:2016:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Beginning balance  7,735   6,647   3,160   11,603   8,386   20,472 
                        
Provision for impairment of finished goods and products in process, Note 22(a)  11,621   1,152   3,931 
Provision (reversal) of provision for impairment of spare parts and supplies  1,116   (64)  (444)
Provision for impairment of finished and in progress goods, note 21(a)  4,640   2,118   - 
Reversal for impairment of finished and in progress goods (continuing operations), note 21(a)  (119)  -   (7,581)
Provision for impairment of spare parts and supplies, note 26  7,039   2,444   - 
Reversal for impairment of spare parts and supplies (discontinued operations), note 1(e)  -   (1,345)  (706)
Transfer from mining units held for sale  -   -   1,448 
Reversal in provision for impairment of inventories  -   -   (5,137)
Reversal for impairment of spare parts and supplies, note 26  -   -   (110)
                        
Final balance  20,472   7,735   6,647   23,163   11,603   8,386 

 

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-45

Notes to the consolidated financial statements(continued)

10.9.Prepaid expenses

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Prepaid rentals (b)  29,235   -   27,464   28,349 
Prepaid insurances  3,471   9,655   12,486   12,401 
Deferred costs of works for taxes  1,801   1,462   2,407   2,013 
Deferred royalties and rentals of mining concessions  463   1,697 
Other prepaid expenses  2,496   4,140   1,366   2,343 
                
  37,466   16,954   43,723   45,106 
                
Classification by maturity:                
Current portion  8,231   16,954   17,145   17,551 
Non-current portion  29,235   -   26,578   27,555 
                
  37,466   16,954   43,723   45,106 

 

(b)This item corresponds to the balance of an original prepayment of US$31,007,19031 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). since January 2015.

F-47

 

11.10.Investments in associates and joint ventures

(a)This caption is made up as follows:

 

 Share in equity     Share in equity      
 2015 2014 2015 2014  2018 2017 2018 2017 
 % % US$(000) US$(000)  % % US$(000) US$(000) 
                  
Associates                
Sociedad Minera Cerro Verde S.A.A.  19.58   19.58   1,108,284   1,124,008 
Minera Yanacocha S.R.L.  43.65   43.65   989,130   1,185,971   43.65   45.95   271,036   324,861 
Sociedad Minera Cerro Verde S.A.A.  19.584   19.584   988,725   982,206 
Compañía Minera Coimolache S.A.  40.095   40.095   62,609   52,685   40.10   40.10   89,554   86,183 
          1,468,874   1,535,052 
Other minor investments          3,519   3,519           1,835   1,835 
Joint ventures          2,673   - 
                                
          2,043,983   2,224,381           1,473,382   1,536,887 

 

(b)The table below presents the net share in profit (loss) of associates:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Minera Yanacocha S.R.L.  (196,510)  (174,747)  (251,109)
Sociedad Minera Cerro Verde S.A.A.  6,518   77,891   116,160 
Compañía Minera Coimolache S.A.  16,617   22,256   20,804 
             
   (173,375)  (74,600)  (114,145)

 F-46

Notes to the consolidated financial statements(continued)

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Minera Yanacocha S.R.L.  (35,582)  (76,585)  (455,598)
Sociedad Minera Cerro Verde S.A.A.  23,444   68,521   66,763 
Compañía Minera Coimolache S.A.  10,994   21,271   23,514 
             
   (1,144)  13,207   (365,321)

 

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 importantsignificant in relation to profits (losses) of the Group in the years 2015, 20142018, 2017 and 2013.2016. The following relevant information on these investments is as follows:

 

Investment in Minera Yanacocha S.R.L. -S.R.L.-

The Company,Group, through its subsidiary Compañía Minera Condesa S.A., has an interest of 43.65%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 itstheir own concessions or owned by S.R.M.L. Chaupiloma Dos de Cajamarca (subsidiary of the Group), with which it signed a contract forof use of mineral rights.

 

During the last several years,In addition, Yanacocha has been developingowns the Conga project which consists ofin 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).

F-48

 

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’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.

 

In December 2017, Yanacocha acquired 63.92 million of shares (share of 5%) held by International Finance Corporation (IFC) in Yanacocha, for an amount of US$47.9 million. In June 2018, Sumitomo Corporation (Sumitomo) paid US$48 million for the five percent stake in the ownership interest in Yanacocha for the proportion held prior to the repurchase of the IFC’s ownership stake in December. As a result of that acquisition, the Company recognized a lower value with respect to Yanacocha's equity participation.

The table below presents key financial data from the financial statements of Yanacocha under IFRS:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Statements of financial position as of December 31:                
Current assets  1,345,682   1,275,288   960,758   1,055,135 
Non-current assets  1,619,748   2,207,881   1,086,714   964,260 
Current liabilities  (85,033)  (189,212)  (128,170)  (123,315)
Non-current liabilities  (651,572)  (614,180)  (1,335,579)  (1,236,965)
                
Shareholders’ equity, reported  2,228,825   2,679,777   583,723   659,115 
                
Groups’ interest (43.65%)  972,882   1,169,723 
Groups’ interest  254,795   302,863 
Goodwill  16,248   16,248   16,241   21,998 
                
  989,130   1,185,971   271,036   324,861 

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
             
Net sales  657,358   645,176   761,193 
             
Net loss from continued operations  (81,517)  (175,454)  (1,043,752)
             
Share in results  (35,582)  (76,585)  (455,598)

Evaluation of impairment in investments –

During 2018 and 2017, the Yanacocha´s Management evaluated and concluded that there are no indicators of impairment of its long-lived assets; in addition, the Group’s management determined that there was no objective evidence that its investment in Yanacocha might be impaired as of December 31, 2018 and 2017.

 

  F-47F-49 

 

 

Notes toIn 2016, Yanacocha evaluated the consolidated financial statements(continued)

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss as of December 31,            
Net sales  1,031,174   1,165,299   1,406,825 
Other operating income  10,625   20,705   29,181 
Costs of sales  (751,736)  (910,705)  (983,238)
Cost of other operating income  (2,524)  (22,422)  (28,672)
Operating expenses  (82,846)  (77,781)  (77,534)
Administrative expenses  (26,325)  (38,262)  (67,064)
Selling expenses  (3,534)  (4,458)  (3,740)
Impairment loss of long-lived assets  -   (541,141)  (1,038,548)
Finance income (costs)  (22,061)  (23,206)  (18,025)
Gain (loss) from currency exchange difference  (251)  1,142   2,065 
Income (loss) before income tax  152,522   (430,829)  (778,750)
Income tax  (602,717)  30,491   203,471 
Net loss reported  (450,195)  (400,338)  (575,279)
             
Group’s interest (43.65%)  (196,510)  (174,747)  (251,109)

During the years 2014 and 2013, Yanacocha recorded impairment chargesrecoverability of its long-lived assets and determined an impairment charge, net of tax,taxes, of US$378,799,000 and US$726,984,000, respectively,889.5 million, which reduced Yanacocha´sYanacocha's net equityworth and, therefore, the equity participationinterest of the GroupCompany in this associate during the year 2016. As a result, the Company’s Management determined that there was objective evidence that its investment in those years. These impairment losses mainly resulted from the postponement of the development activities due to the serious difficulties to get the social license to operate the Conga project.

In December 2015, Yanacocha recorded charges for deferred income tax recoverability by US$510,000,000 since Management considers it improbable that taxable profit willmight be available to compensate against the deductible temporary differences.

In February 2016, the Committee agreed unanimously the distribution to the partners, in proportion to its social share, of US$ 300 million, which correspond to the portion of the retained earningsimpaired as of December 31, 2014, originated2016. During 2016, compared to prior years, Yanacocha experienced a decrease in 2011.the volume of gold produced, an increase in production costs, and a decrease in operating cash flows, all of which resulted from a depletion of Yanacocha’s gold reserves. As a result of these indicators, the Company performed an impairment test in December 2016. The recoverable amount of the Company’s investment in Yanacocha was determined to be US$528.9 million as of December 31, 2016, which was based on a value in use calculation using cash flow projections from Yanacocha’s financial budgets from 2017 to 2026. As a result of this analysis, the Company concluded that no additional impairment loss on its investment in Yanacocha was required to be recorded as the recoverable amount exceeded the recorded value of the investment.

Key assumptions

The process of determining the recoverable amount was most sensitive to the following assumptions:

-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.

-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. As of December 31, 2016, estimated gold prices for the current and long-term periods were as follows: US$1,221/ounce for 2017 and US$1,300/ounce for 2018 and thereafter.

-Discount rate: In calculating the value in use, the Company applied a pre-tax discount rate of 7.1% to the pre-tax cash flows as of December 31, 2016. This discount rate was derived from the Yanacocha’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the investment.

F-50

 

Investment in Sociedad Minera Cerro Verde S.A.A. (Cerro Verde) -

Cerro 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-48

Notes to the consolidated financial statements(continued)

The table below presents the key financial data from the financial statements of Cerro Verde under IFRS:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Statements of financial position as of December 31:                
Current assets  1,056,525   677,652   1,485,537   1,563,874 
Non-current assets  6,796,167   5,094,332   6,069,175   6,127,133 
Current liabilities  (548,517)  (552,572)  (408,754)  (510,790)
Non-current liabilities  (2,805,801)  (754,322)  (2,037,086)  (1,991,055)
                
Shareholders’ equity, reported  4,498,374   4,465,090   5,108,872   5,189,162 
                
Group’s interest (19.584%)  880,962   874,443 
Group’s interest  1,000,521   1,016,245 
Goodwill  107,763   107,763   107,763   107,763 
                
  988,725   982,206   1,108,284   1,124,008 

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
Revenue  1,115,617   1,467,097   1,811,488 
Cost of sales  (862,004)  (797,481)  (795,064)
Sales expenses  (56,215)  (54,210)  (68,448)
Other operating income (expenses)  (26,600)  (3,629)  147 
Finance costs  (16,010)  (369)  (1,843)
Finance income  512   2,443   2,178 
Net gain (loss) of exchange difference  (75,770)  2,284   (1,858)
Profit before income taxes  79,530   616,135   946,600 
Income tax  (46,246)  (238,529)  (333,338)
Net profit, reported  33,284   377,606   613,262 
Adjustments to conform to the accounting policies of the Group  -   20,124   (20,124)
Net profit, adjusted  33,284   397,730   593,138 
             
Group’s interest (19.584%)  6,518   77,891   116,160 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
             
Revenue  3,054,026   3,202,931   2,384,154 
             
Net income from continued operations  119,710   349,881   340,907 
             
Share in results  23,444   68,521   66,763 

 

Market capitalization:

As of December 31, 20152018 and 2014,2017, total market capitalization of 68,555,000 shares maintained by the Group in Cerro Verde was US$994,047,0001,426.0 million and US$1,645,319,000,2,036.0 million, respectively (market capitalization value by each share of US$14.5020.8 and US$24.00 per unit,29.70, respectively).

 

  F-49F-51 

 

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.

The table below presents the key financial data from the financial statements of Coimolache under IFRS:

 

 2018 2017 
 2015 2014  US$(000) US$(000) 
 US$(000) US$(000)      
Statements of financial position as of December 31:                
Current assets  62,823   69,640   99,887   101,668 
Non-current assets  175,351   139,421   261,782   278,866 
Current liabilities  (27,283)  (37,115)  (39,204)  (44,411)
Non-current liabilities  (35,836)  (18,607)  (86,103)  (106,332)
        
Shareholders’ equity, reported  175,055   153,339   236,362   229,791 
        
Adjustments to conform to the accounting policies of the Group  (18,901)  (21,939)  (13,003)  (14,843)
                
Shareholders’ equity, adjusted  156,154   131,400   223,359   214,948 
                
Group’s interest (40.095%)  62,609   52,685 
Group’s interest  89,554   86,183 

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
Revenue  177,347   192,369   209,636 
Cost of sales  (104,549)  (100,649)  (124,325)
Administrative expenses  (2,185)  (2,073)  (1,843)
Sales expenses  (1,111)  (1,077)  (522)
Other operating income (expenses)  765   929   779 
Finance income  23   47   335 
Finance costs  (723)  (583)  (2,385)
Exchange difference  (1,300)  (1,465)  (524)
Profit before income taxes  68,267   87,498   81,151 
Income tax  (29,861)  (36,090)  (34,156)
Net profit, reported  38,406   51,408   46,995 
Adjustments to conform to the accounting policies of the Group  3,038   4,099   4,892 
             
Net profit, adjusted  41,444   55,507   51,887 
             
Group’s interest (40.095%)  16,617   22,256   20,804 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
Revenue  225,447   203,790   198,873 
             
Net income from continued operations  25,584   50,787   56,856 
Adjustments to conform to the accounting policies  1,837   2,265   1,790 
             
Net income, adjusted  27,421   53,052   58,646 
             
Share in results  10,994   21,271   23,514 

  

  F-50F-52 

 

 

Notes to the consolidated financial statements(continued)

12.11.Mining concessions, development costs, property, plant and equipment, net

(a)Below is presented the movement in cost:movement:

 

 Balance as of
January 1, 2014		 Additions Disposals Sales Transfers Merger with
Canteras
del Hallazgo		 Transfer to
assets
held for sale		 Balance as of
December 31,
2014		 Additions Disposals Sales Transfers Balance as of
December 31,
2015		  

Balance as of

January 1,

2017

  Additions Disposals Sales Reclassifications
and transfers		  

Balance as of

December 31,
2017

  Additions Disposals Sales Reclassifications
and transfers		  

Balance as of

December 31,
2018

 
 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  12,069   10,590   (357)  -   129   130   (560)  22,001   2,293   (1,892)  -   52   22,454   22,958   -   -   -   (268)  22,690   783   (462)  -   (1,250)  21,761 
Mining lands  7,215   -   -   -   -   -   -   7,215   -   -   -   -   7,215 
Mining concessions  137,309   67   (6,061)  -   -   74,005   (14,526)  190,794   -   -   -   -   190,794   198,009   2   -   (15,000)  (31,138)  151,873   -   -   -   -   151,873 
Development costs  354,509   138,527   (2,586)  -   2,575   127,809   (89,377)  531,457   62,765   -   -   (52,459)  541,763   652,392   69,335   -   (10,107)  431   712,051   32,059   (2,656)  -   1,805   743,259 
Buildings, constructions and other  516,004   3,467   (2,222)  (1,536)  521,960   688   (40,170)  998,191   1,715   (1,690)  (168)  20,908   1,018,956   1,109,167   835   (387)  (28,751)  198,387   1,279,251   -   (2,837)  -   66,207   1,342,621 
Machinery and equipment  567,878   6,716   (6,893)  (20)  214,808   840   (33,246)  750,083   29,550   (887)  (3,799)  52,278   827,225   986,032   2,579   (3,749)  (50,097)  (5,742)  929,023   -   (182)  (9,205)  38,830   958,466 
Transportation units  13,236   484   (1,230)  (658)  78   -   (960)  10,950   491   (245)  (990)  443   10,649   10,416   11   (190)  (1,079)  788   9,946   42   (138)  (510)  1,545   10,885 
Furniture and fixtures  13,609   1,587   (79)  (5)  1,208   5   (3,300)  13,025   137   (25)  (84)  376   13,429   14,047   31   (157)  (487)  468   13,902   -   -   (193)  (403)  13,306 
Units in transit  36,474   3,233   (19,450)  -   (8,421)  -   -   11,836   15,212   (113)  -   (644)  26,291   30,051   2,822   -   -   (28,124)  4,749   11   -   -   (2,078)  2,682 
Work in progress  707,415   114,151   (30,272)  -   (732,337)  -   (1,037)  57,920   81,333   -   -   (71,130)  68,123   105,788   173,333   -   (190)  (177,809)  101,122   67,096   (3,450)  -   (108,106)  56,662 
Stripping activity asset  79,652   6,069   -   -   -   -   -   85,721   17,790   -   -   3,327   106,838 
Stripping activity asset (e)  124,467   18,282   (13,573)  -   1,271   130,447   11,279   -   -   -   141,726 
Mine closure costs  89,531   1,031   (11,464)  -   -   -   (15,012)  64,086   76,799   (2,414)  -   49,132   187,603   247,889   10,594   -   (17,195)  -   241,288   61,239   -   -   (18,365)  284,162 
  2,534,901   285,922   (80,614)  (2,219)  -   203,477   (198,188)  2,743,279   288,085   (7,266)  (5,041)  2,283   3,021,340   3,501,216   277,824   (18,056)  (122,906)  (41,736)  3,596,342   172,509   (9,725)  (9,908)  (21,815)  3,727,403 
                                                    
Accumulated depreciation and amortization                                                    
Mining lands  3,202   -   (3,202)  -   -   -   -   -   -   -   -   -   - 
Accumulated depreciation and amortization:                                            
Lands  -   -   -   -   1,249   1,249   -   -   -   (1,249)  - 
Mining concessions  84,059   5,058   -   -   -   -   (11,721)  77,396   54   -   -   -   77,450   77,466   8   -   (13,845)  (23,390)  40,239   10   -   -   -   40,249 
Development costs  231,684   35,480   (2,492)  -   -   -   (80,394)  184,278   49,771   -   -   (34,838)  199,211   241,636   30,886   -   (7,910)  (1,490)  263,122   35,433   -   -   (2)  298,553 
Buildings, construction and other  281,401   65,962   (932)  -   -   246   (32,632)  314,045   69,353   (1,915)  (81)  39   381,441   455,678   73,314   (115)  (28,208)  6,168   506,837   84,244   -   -   562   591,643 
Machinery and equipment  342,975   87,215   (5,058)  (8)  -   571   (25,934)  399,761   77,546   (277)  (1,941)  852   475,941   558,061   74,744   (2,662)  (41,595)  (6,099)  582,449   93,722   (177)  (8,659)  (1,978)  665,357 
Transportation units  8,405   842   (684)  (562)  -   -   (725)  7,276   1,385   (221)  (916)  408   7,932   8,792   837   (114)  (1,057)  (68)  8,390   745   (85)  (436)  (15)  8,599 
Furniture and fixtures  7,979   1,253   (143)  -   -   2   (2,770)  6,321   1,252   (87)  (66)  157   7,577   9,172   1,109   (152)  (236)  (13)  9,880   644   -   (187)  (214)  10,123 
Stripping activity asset  3,139   3,343   -   -   -   -   -   6,482   6,434   -   -   -   12,916   18,729   16,343   -   -   6,623   41,695   28,820   -   -   3   70,518 
Mine closure costs  37,586   4,216   (365)  -   -   -   (9,169)  32,268   33,381   (491)  -   34,835   99,993   141,275   25,254   -   (8,408)  -   158,121   10,350   -   -   -   168,471 
  1,000,430   203,369   (12,876)  (570)  -   819   (163,345)  1,027,827   239,176   (2,991)  (3,004)  1,453   1,262,461   1,510,809   222,495   (3,043)  (101,259)  (17,020)  1,611,982   253,968   (262)  (9,282)  (2,893)  1,853,513 
                                                    
Provision for impairment of long-lived assets                                                    
Mining concessions  2,805   -   -   -   -   -   (2,805)  -   3,345   -   -   -   3,345 
Property, plant and equipment  4,735   794   -   -   -   -   (5,529)  -   27   -   -   -   27 
Provision for impairment of long-lived assets:                                            
Mine closure costs  10,990   17,916   -   (8,785)  -   20,121   -   (5,693)  -   (1,221)  13,207 
Development costs  8,789   -   -   -   -   -   (8,789)  -   3,803   -   -   -   3,803   9,487   2,864   -   (2,198)  -   10,153   -   -   -   -   10,153 
Mine closure costs  1,668   -   -   -   -   -   (1,668)  -   4,080   -   -   -   4,080 
Work in progress  1,014   -   -   -   -   -   (1,014)  -   -   -   -   -   - 
Mining concessions, development costs, property, plant and other  9,905   840   -   (6,214)  -   4,531   -   (2,837)  -   1,221   2,915 
  19,011   794   -   -   -   -   (19,805)  -   11,255   -   -   -   11,255   30,382   21,620   -   (17,197)  -   34,805   -   (8,530)  -   -   26,275 
                                                                                                
Net cost  1,515,460                           1,715,452                   1,747,624   1,960,025                   1,949,555                   1,847,615 

  

  F-51F-53 

 

Notes to the consolidated financial statements(continued)

 

(b)Impairment of long-lived assets

InIn 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.

 

AsDuring 2018, as a result of the derecognition of assets in Shila mining unit, the Company recorded a reversal in the provision for impairment for US$2.8 million. The provision was initially recorded in 2016.

During 2018, La Zanja recorded a reversal for the impairment provision for US$5,693,000 (as of December 31, 2017, the Company recorded a provision for US$21,620,000) as a result of the analysis of the recoverable amountamount. The main factors considered in the impairment analysis performed duringwere reserves and mining useful lives. The recoverable amounts of La Zanja are based in Managements estimations of the year,value in use.

During 2017, as a result of the sale of the mining units of Breapampa and Recuperada, as well as the sale of the assets of the Shila Paula mining unit, the Group recognizedrecorded a reversal of impairment losses related to mine properties forby US$11,255,000,in relation to La Zanja7.4 million, US$7.1 million andBreapampamining units US$2.7 million, respectively, see note 1(e).

 

Key assumptions

The determination of value in use is most sensitive to the following key assumptions:

• Production volumes;

-Production volumes
-Commodity prices
-Discount rate

• Commodity prices;

F-54

• 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.

 

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 the estimation of proved 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.

 

 F-52

Notes to the consolidated financial statements(continued)

Estimates prices for the current and long-term periods that have been used to estimate future revenuescash flows are as follows:

 

  2016  2017  2018  2019 
  US$  US$  US$  US$ 
             
Gold  1,074/OZ  1,145/OZ  1,200/OZ  1,071/OZ
Silver  15.05/OZ  16.24/OZ  17.34/OZ  18.18/OZ
Copper  5,050/MT  5,250/MT  5,500/MT  5,194/MT
Lead  1,800/MT  1,875/MT  1,995/MT  1,819/MT
Zinc  1,830/MT  1,935/MT  2,000/MT  1,870/MT
20192020-2023
US$US$
Gold1,250 /Oz1,300 /Oz
Silver16 /Oz17 /Oz
Copper6,750 /MT7,000 /MT
Lead2,100 /MT2,100 /MT

 

Discount rate: In calculating the value in use, a pre-tax discount raterates of 10.03% was7.29%, 7.83%, and 13.32%were applied to the pre-tax cash flows. Thisflows of Buenaventura, La Zanja, and El Brocal, respectively.These discount rate isrates are derived from the Group’s post-tax weighted average cost of capital (WACC), with appropriate adjustments made to reflect the risks specific to the CGU. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on its interest bearing borrowings the Group 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, and assets under trustworthy equity (see note 1(d)), amounted to US$226,429,000at337.3 million as of December 31, 2015(US$233,826,000at2018 (US$522.0 million as of December 31, 2014)2017) and is presented in various items of property, plant and equipment. Additions duringDuring the year include US$262,000 (US$142,315,000during the year2014).2018 and 2017 no acquisitions of assets under lease agreements were made. Leased assets are pledged as security for the related finance lease liabilities.

F-55

 

(d)The amount of capitalizedDuring 2018, no finance costs during the year 2015 waswere capitalized. During 2017, US$1,307,000 (US$20,079,000during 2014)5.8 million were capitalized and is presented under investing activities in the consolidated statements of cash flows. Theflows, using an average rate usedof 4.19 percent.

(e)In mid-2016, a landslide occurred in the west wall of the Tajo Norte; consequently, it was decided not to determinemine this area due to stability and operational design issues. According to the financial costdistribution of reserves, this area (Phase 10) contained 5.5 MT of ore and 9.2 MT of waste valued at US$13,573,000, which were withdrawn from the reserves in the year 2017.

12.Other assets, net

(a)Below is presented the movement:

  

Balance as of

January 1,

2017

  Additions  Balance as of
December 31,
2017		  Additions  Transfers  Balance as of
December 31,
2018		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Cost:                        
Patents and industrial property (b)  9,558   4,122   13,680   2,642   (4,599)  11,723 
Software licenses  6,457   2,359   8,816   1,448   (96)  10,168 
Rights of use  7,331   522   7,853   4,439   -   12,292 
                         
   23,346   7,003   30,349   8,529   (4,695)  34,183 
Accumulated amortization:                        
Software licenses  1,995   383   2,378   596   -   2,974 
Rights of use  3,632   1,578   5,210   738   -   5,948 
                         
   5,627   1,961   7,588   1,334   -   8,922 
                         
Net cost  17,719       22,761           25,261 

(b)The copper plant project is a technological initiative of the Company to be capitalized was 3.90%during 2015.develop a viable technical and economic solution for the treatment of complex copper concentrates. This project comprises several stages of development from a laboratory level, pilot to a demonstration stage.

 

  F-53F-56 

 

 

Notes to the consolidated financial statements(continued)

13.Investment properties, netBank loans

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 building “Capital El Derby”, located in the district of Surco, Lima, Peru.

 

The movement of cost and accumulated depreciation for the years 2015 and 2014 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 
             
Additions  -   (481)  (481)
             
Balance as of December 31, 2015  12,103   (1,384)  10,719 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  96,215   55,000   285,302 
             
New loans  95,000   341,215   200,500 
Disbursements  (95,000)  (300,000)  (442,957)
Sale of subsidiary  (1,215)  -   - 
Exchange difference  -   -   12,155 
             
Final balance  95,000   96,215   55,000 

 

The Group does not have restrictions in the realization of its investment properties.

During 2015, the fair value of the investment property amounted to US$22,583,000 and the rental income from these investment properties amounted to US$1,670,000.

14.Bank loans

As of December 31, 2015, the Group maintains2018 and 2017, bank loans amounting to US$285,302,000, which were obtained for working capital purposes, have current maturity and accrue interest at market annual rates ranging from 1.32%2.00% to 5.61% (as3.13% as of December 31, 2014, the Group held a loan2018 (1.15% to 6.85% as of US$40,000,000, which accrued interest an annual rate of 1.5%)December 31, 2017).

 F-54

Notes to the consolidated financial statements(continued)

 

15.14.Trade and other payables

This caption is made up as follows:

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Trade payables (b)                
Domestic suppliers  209,107   206,844   154,998   194,742 
Related entities, Note 30(b)  1,175   1,794 
        
  210,282   208,638 
Related entities, note 30(b)  36   15 
          155,034   194,757 
Other payables                
Accounts payable to non-controlling interests  15,403   15,181 
Remuneration and similar benefits payable  10,409   12,879   10,531   11,585 
Taxes payable  9,320   13,409   9,102   9,405 
Interest payable  7,464   7,152 
Royalties payable to the Peruvian State  2,103   2,654   2,171   4,571 
Dividends payable  1,044   1,117 
Dividends payable (c)  663   730 
Related entities, note 30(b)  20   62 
Other liabilities  13,610   15,362   3,738   5,756 
  51,889   60,602   33,689   39,261 
                
  262,171   269,240 
Total trade and other payables  188,723   234,018 
                
Classification by maturity:                
Current portion  247,114   254,000   188,084   233,355 
Non-current portion  15,057   15,240   639   663 
                
Total trade and other payables  262,171   269,240   188,723   234,018 
                
Classification by nature:                
Financial payables  250,748   253,177   177,450   220,042 
Non-financial payables  11,423   16,063   11,273   13,976 
        
Total trade and other payables  262,171   269,240   188,723   234,018 

 

(a)(b)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-55F-57 

 

 

(c)The movement of dividends payable is presented below:

Notes to the consolidated financial statements(continued)

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  730   1,018   1,044 
Declared dividends to controlling shareholders, note 17(d)  22,860   22,099   7,621 
Dividends paid to controlling shareholders  (22,860)  (22,099)  (7,621)
Declared dividends to non-controlling shareholders  5,560   6,036   7,400 
Dividends paid to non-controlling shareholders  (5,560)  (6,036)  (7,400)
Expired dividends  (44)  (327)  (30)
Other minor  (23)  39   4 
             
Final balance  663   730   1,018 

 

16.15.Provisions and contingent liabilities

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Provision for closure of mining units and exploration projects (b)  166,403   103,010   225,877   200,183 
Provision for environmental liabilities  8,373   6,708 
Provision for bonus to employees and officers  18,620   2,331 
Provision for obligations with communities (c)  5,878   19,376 
Provision for safety contingencies  6,346   6,475   4,877   3,898 
Provision for labor contingencies  3,611   4,729   4,042   2,963 
Provision for obligations with communities  2,883   2,851 
Provision for environmental contingencies  1,259   1,092 
Provision for environmental liabilities  3,768   5,534 
Board of Directors’ participation  993   1,385   2,108   1,273 
Workers’ profit sharing payable  894   3,916   1,772   3,569 
Stock appreciation rights  330   449 
Provision for environmental contingencies  234   1,233 
Other provisions  622   851   758   1,364 
        
          267,934   241,724 
  191,714   131,466         
Classification by maturity:                
Current portion  49,829   67,895   68,172   76,847 
Non-current portion  141,885   63,571   199,762   164,877 
                
  191,714   131,466   267,934   241,724 

F-58

 

(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:

 

  2015  2014 
  US$(000)  US$(000) 
       
Beginning balance  103,010   112,042 
Changes in estimates (property, plant and equipment and development costs)  74,907   398 
Accretion expense, Note 27  3,343   1,695 
Disbursements  (14,857)  (11,125)
         
Final balance  166,403   103,010 
         
Classification by maturity:        
Current portion  31,196   44,936 
Non-current portion  135,207   58,074 
         
   166,403   103,010 

 F-56

Notes to the consolidated financial statements(continued)

  2018  2017 
  US$(000)  US$(000) 
       
Beginning balance  200,183   206,462 
         
Changes (additions and deductions) in estimates        
Continuing mining units, note 11(a)  42,874   10,594 
Discontinued mining units, note 1(e)  6,013   12,701 
Exploration projects, note 26(a)  (2,433)  891 
         
Accretion expense:        
Continuing mining units, note 27(a)  4,911   4,360 
Exploration projects, note 27(a)  71   22 
Discontinued mining units, note 1(e)  54   215 
         
Disbursements  (25,796)  (23,292)
Sale of mining units, note 1(e)  -   (11,770)
         
Final balance  225,877   200,183 
         
Classification by maturity:        
Current portion  30,524   39,826 
Non-current portion  195,353   160,357 
         
   225,877   200,183 

 

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 20162019 and 2040.2041. These estimates are based on studies prepared by independent advisers that meet the environmental regulations in effect.

 

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, 2015,2018, the future value of the provision for closure of mining units and exploration projects wasUS$212,362,000,280.3 million, which has been discounted using annual risk-free rates ranging from 0.72% minimums of 1.98 and 4.74 to5.21% a maximum of 4.74 percent in periods of 1 to24years, resulting in an updated liability ofUS$166,403,000 (US$103,010,000as of December 31, 2014). 23 years. The Group believes that this liability is sufficient to meet the current environmental protection laws approved by the Ministry of Energy and Mines.

 

F-59

As of December 31, 2015,2018, the Group has constituted letters of credit in favor of the Ministry of Energy and Mines forUS$110,403,000(US$76,808,000119.7 million (US$109.6 million as of December 31, 2014)2017) to secure current mine closure plans of its mining units.

 F-57

Notesunits and exploration projects up to the consolidated financial statements(continued)date.

 

17.(c)The provisions for obligations with the communities decrease mainly due to the negotiations made by the Company in its operating units, which begin and were recorded in 2017.

16.Financial obligations

(a)This caption is made up as follow:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Empresa de Generación Huanza S.A.        
Banco de Crédito del Perú – Finance lease (b)  188,138   199,170 
Compañía de Minas Buenaventura S.A.A.(c)        
BBVA Banco Continental  61,667   61,667 
Banco de Crédito del Perú  61,667   61,667 
CorpBanca New York Branch  61,666   61,666 
Banco Internacional del Perú  30,000   30,000 
ICBC Perú Bank  25,000   25,000 
Banco Latinoamericano de Comercio Exterior S.A.  20,000   20,000 
Banco de Sabadell, Miami Branch  15,000   15,000 
  275,000   275,000 
Debt issuance costs  (3,618)  (2,425)
          271,382   272,575 
Sociedad Minera El Brocal S.A.A.                
Banco de Crédito del Perú – Leaseback (c)  156,328   165,039 
Other obligations  -   5,000 
                
Buenaventura Ingenieros S.A.        
Banco de Crédito del Perú – Finance lease (d)  9,082   13,988 
Other obligations  69   - 
Banco de Crédito del Perú – Finance leaseback  94,490   119,464 
Debt issuance costs  (976)  (1,377)
  93,514   118,087 
Mid-term financial obligation  75,000   80,000 
  168,514   198,087 
Empresa de Generación Huanza S.A.        
Banco de Crédito del Perú – Finance lease  147,166   162,411 
                
Contacto Corredores de Seguros S.A.                
BBVA Banco Continental S.A. – Finance lease  93   108   -   10 
                
Total financial obligations  353,710   383,305   587,062   633,083 
                
Classification by maturity:                
Current portion  33,394   69,950   46,166   83,991 
Non-current portion  320,316   313,355 
Non-current portion (e)  540,896   549,092 
                
Total financial obligations  353,710   383,305   587,062   633,083 

F-60

 

(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 3 times since June 30, 2017.
(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.

On March 28, 2018, Buenaventura restructured its financial obligation by modifying some of the clauses as follows:

-Annual interest rate: Libor of three months plus 2.15% (3% as of December 31, 2017).
-Term: 4 years from April 2018, due in April 2022 (as of December 31, 2017, they were 5 years as of June 30, 2016, with final maturity on June 30, 2021).
-Amortization of credit: 5 semi-annual installments of US$55 million each since as of April 2020 (as of December 31, 2017 were 6 semi-annual installments of US$39,285,714 as of July 2018 and a final installment of US$39,285,716 in June of 2021).

The compliance of the terms described above is overseen by the Company´s Management. As of December 31, 2018 and 2017, the Company complies with the above financial ratios.

F-61

(c)Finance leaseback -

On June 9, 2015, the Board of Directors of El Brocal approved the modification of the debt and new payment schedule of the leaseback through sale contracts through the sale of assets with the same value including equipment, machinery and processing plant located in the Colquijirca mining unit. During 2017, El Brocal negotiate a reduction in the fixed rate of the finance leaseback, and agreed the modification of the payment schedule under the following terms and conditions:

-Principal: US$166,500,000.
-Annual interest rate: Nine-month Libor plus 2.75 percent.
-Term: 5.5 years since June 23, 2015, with final maturity in December 2021.
-Amortization: Through 22 quarterly variable installments.

In connection with the above financing, El Brocal must comply the following financial ratios:

(i)Debt service coverage ratio: Higher than 1.3.
(ii)Leverage ratio: Less than 1.0 times.
(iii)Debt ratio: Less than 2.0 times.

These sales agreements with a subsequent financial lease are guaranteed by a trust agreement related to collection rights, sales contracts, cash flows for sales contracts and one related to the assets indicated in the contract.

Mid-term loan contract –

On October 23, 2017, El Brocal signed a mid-term loan agreement with the Banco de Credito del Peru for US$80,000,000, which accrues interest at an annual rate of 3.65 percent, for a 5-year term. The objective of this financing was the payment of short-term financial obligations maintained with the Banco de Credito del Peru and for working capital.

As part of the commitments agreed, El Brocal must comply with the following financial indicators as of December 31, 2018 and 2017:

(i)Debt service coverage ratio: Higher than 1.3.
(ii)Leverage ratio: Less than 1.0 times.
(iii)Debt ratio: Less than a 2.25 times.

(d)On December 2, 2009, Empresa de Generación Huanza S.A. entered into a finance lease contract with Banco de Crédito del Perú, with. In the year 2017, Huanza negotiate a reduction of the fixed rate of interest and agreed a modification of the following terms and conditions:

 

-Principal: US$119,000,000.
-Annual interest rate: Three-month Libor plus 4.00%2.75 percent. (Three-month Libor plus 4.60 percent as of December 31, 2017).
-Term: 6 years since August 2014, with final maturity in November 2020.
-Guarantee: Leased equipment.
-Amortization: Through 26 quarterly variable installments and a final installmentpayment of US$44,191,000.

F-62

 

On June 30, 2014, Banco de Credito del Perú extended the finance lease contract above mentioned, through the addition of a new tranche withtranche. In the year 2017, Huanza negotiate a reduction of the fixed rate of interest and agreed a modification of the following terms and conditions:

 

-Principal: US$108,780,000.103,373,000.
-Annual interest rate: Three-month Libor plus 4.20%2.75 percent. (Three-month Libor plus 4.70 percent as of December 31, 2017).
-Term: 6 years since August 2014, with final maturity in November 2020.
-Guarantee: Leased equipment.
-Amortization: Through an initial installment of US$23,780,000,18,373,000, 26 quarterly variable installments and a final installment of US$68,905,000.

 

In addition, Huanza have granted a security interest for 100 percent of shares.

According to the lease contract mentioned above, Huanza is required to maintain the following financial ratios:

-Debt Service Coverage Ratio greater than 1.1.
-Minimum Net Worth of US$30,000,000.

(e)The long-term portion of the financial obligations held by the Group matures as follows:

  2018  2017 
  US$(000)  US$(000) 
       
Between 1 and 2 years  278,397   125,215 
Between 2 and 5 years  266,625   427,680 
   545,022   552,895 
Debt issuance costs  (4,126)  (3,803)
         
   540,896   549,092 

(f)Below is presented the movement:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  633,083   592,342   353,710 
Accrual of debt issuance costs in results, note 27(a)  1,024   909   - 
Payments  (45,222)  (32,599)  (33,476)
Increase in interest for debt restructuring  (2,207)  -   - 
Exchange difference  384   (165)  17 
New obligations  -   80,000   275,210 
Accrual of debt issuance costs capitalized  -   272   (3,119)
Sale of asset under lease agreement  -   (7,196)  - 
Increase of debt issuance costs, note 27(a)  -   (480)  - 
             
Final balance  587,062   633,083   592,342 

  F-58F-63 

 

 

Notes to the consolidated financial statements(continued)

(c)On June 9, 2015, the Board of Directors of El Brocal approved the modification of the sale and finance leaseback contract, with the following terms and conditions:

-Principal: US$166,500,000.
-Annual interest rate: Three-month Libor plus 4.75%.
-Term: 5.5 years since June 23, 2015, with final maturity in year 2020.
-Amortization: Through 22 quarterly variable installments.

The financing is secured by the fixed assets leased (equipment, machinery and processing plant located in the Colquijirca mining unit) and by a trust agreement on receivables, sales contracts and cash inflows on commercial contracts.

In connection with the above financing, El Brocal complied with the following financial ratios since the third quarter of 2015:

(i)Debt service coverage ratio: Higher than 1.3.
(ii)Leverage ratio: Less than 1.0.
(ii)Debt ratio:
(a)Less than 3.00 times as of December 31, 2015;
(b)Less than 2.75 times from January 1, 2016 to September 30, 2016;
(c)Less than 2.50 times as of December 31, 2016;
(d)Less than 2.50 times from January 1, 2017 to September 30, 2017;
(e)Less than 2.25 times as of December 31, 2017;
(f)Less than 2.00 times since January 1, 2018.

The compliance with the financial ratios described above is monitored by El Brocal’s management. In 2015, Management obtained a waiver for any possible breach of the financial ratios until December 31, 2016.

(d)On March 28, 2014, Buenaventura Ingenieros S.A. entered into a finance lease contract with Banco de Credito del Perú, for the construction of administrative offices, with the following terms and conditions:

-Principal: US$14,944,000.
-Annual interest rate: 4.60%.
-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.

 F-59

Notes to the consolidated financial statements(continued)

(e)The financial obligations held by the Group mature as follows:

Year 2015  2014 
  US$(000)  US$(000) 
       
2016  -   47,673 
2017  40,104   58,406 
2018  41,708   60,113 
2019  44,956   16,659 
2020  193,548   130,504 
         
   320,316   313,355 

18.17.Shareholders’ equity, net

(a)Capital stock -

The Group’sGroup’s share capital is stated in Soles (S/) and consists of common shares with voting rights, with a nominal amount of S/10.00 per share. The table below presents the composition of the capital stock as of December 31, 20152018 and 2014:2017:

 

 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 

 

The market value of the common shares amounted to US$4.28S/53.60 per share as of December 31, 2015 (US$10.582018 (S/45.00 per share as of December 31, 2014)2017). These shares presented apresent trading frequencyfrequencies of 100%35 and 25 percent in the year 2015 (100% in the year 2014).years 2018 and 2017, respectively.

 

(b)Investment shares -

Investment shares have a nominal value of S/10.00 per share. Holders of investment shares are neither entitled neither to exercise voting rights nor to participate in shareholders’ meetings; however, they confer upon the holders thereof the right to participate in the dividends distribution in the same manner as common shares.distribution. The table below presents the composition of the investment shares as of December 31, 20152018 and 2014:2017:

 

 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 

 

The market value of the investment shares amounted to US$4.15S/19.60 per share as of December 31, 2015 (US$8.722018 (S/22.10 per share as of December 31, 2014)2017). These shares did not present a trading frequency in 20152018 and 2014.2017.

 

 F-60

Notes toDuring 2016, the consolidated financial statements(continued)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 the additional paid-in capital.

 

(c)Legal reserve -

The Peruvian Corporations Law requires that a minimum of 10%10 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%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, the CompanyGroup increased its legal reserve by US$47,00044,000 in 2014.the year 2018 (US$327,000 and US$30,000 in the years 2017 and 2016, respectively) as a result of the expired dividends.

F-64

 

(d)Dividends declared and paid -

The table below presents the dividends declared and paid in 20142018, 2017 and 2013:2016:

 

Meetings Date Dividends
paid		 Dividend
per share		  Date 

Dividends
declared and 

paid

  Dividend 
per share		 
   US$(000) US$    US$(000) US$ 
2014 Dividends          
       
2018 Dividends          
Mandatory Annual Shareholders’ Meeting March 27  3,032   0.01  March 27  8,269   0.03 
Less - Dividends of treasury shares    (648)    
    7,621     
          
Board of Directors’ Meeting October 30  6,339   0.02  October 25  16,538   0.06 
Less - Dividends of treasury shares    (729)        (1,299)    
              15,239     
    8,642         22,860     
                    
2013 Dividends          
2017 Dividends          
Mandatory Annual Shareholders’ Meeting March 26  82,690   0.30  March 28  15,711   0.056 
Less - Dividends of treasury shares    (1,232)    
    14,479     
          
Board of Directors’ Meeting October 30  2,757   0.01  October 27  8,269   0.030 
Less - Dividends of treasury shares    (6,568)        (649)    
              7,620     
    78,879         22,099     
          
2016 Dividends          
Board of Directors’ Meeting October 27  8,269   0.03 
Less - Dividends of treasury shares    (648)    
    7,621     

 

During 2015, no dividends have been declared or paid. 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 were US$5,560,000, US$6,036,000 and US$7,400,000 for the years 2018, 2017 and 2016, respectively.

(e)Basic and diluted lossprofit (loss) per share -

LossProfit (loss) per share is calculated by dividing net profit (loss) for the period by the weighted average number of shares outstanding during the year.

 

  F-61F-65 

 

 

Notes to the consolidated financial statements(continued)

The calculation of lossprofit (loss) per share attributable to the equity holders of the parent is presented below:

 

  2015  2014  2013 
          
Loss net (numerator) - US$  (317,210,000)  (76,065,000)  (107,257,000)
Total common and investment shares (denominator)  254,186,867   254,186,867   254,186,867 
             
Loss net per basic share and diluted - US$  (1.25)  (0.30)  (0.42)
  2018  2017  2016 
          
Profit (loss) net (numerator) - US$  (13,445,000)  60,823,000   (323,492,000)
Total common and investment shares (denominator)  253,986,867   253,986,867   253,986,867 
             
Profit (loss) net per basic share and diluted - US$  (0.05)  0.24   (1.27)

 

The calculation of lossprofit (loss) per share from continuing operations attributable to the equity holders of the Parent is presented below:

 

  2015  2014  2013 
          
Loss net (numerator) - US$  (307,687,000)  (44,951,000)  (23,372,000)
Total common and investment shares (denominator)  254,186,867   254,186,867   254,186,867 
             
Loss net per basic share and diluted - US$  (1.21)  (0.18)  (0.09)
  2018  2017  2016 
          
Profit (loss) net (numerator) - US$  (6,242,000)  70,921,000   (304,419,000)
Total common and investment shares (denominator)  253,986,867   253,986,867   253,986,867 
             
Profit (loss) net per basic share and diluted - US$  (0.02)  0.28   (1.20)

 

Loss per basicThe common and diluted share isinvestment shares outstanding at the same in both cases, because there are no diluting effects on loss for the years 2015, 2014close of 2018, 2017 and 2013.

There have been no transactions involving ordinary shares or investment between December 31, 2015 and the date of issuance of these consolidated financial statements.2016 were 253,986,867.

 

19.18.Subsidiaries with material non-controlling interest

(a)Financial information of main subsidiaries that have material non-controlling interest isare provided below:

 

 Country of
incorporation and
operation		 2015 2014 2013  

Country of

incorporation
and operation

 2018 2017 2016 
   % % %    % % % 
                  
Equity interest held by non-controlling interests:                            
Sociedad Minera El Brocal S.A.A. Peru  45.93   45.93   45.93  Peru  38.57   38.57   38.67 
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 
Apu Coropuna S.R.L. Peru  30.00   30.00   30.00 

 

  F-62F-66 

 

  

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
Accumulated balances of material non-controlling interest:            
Sociedad Minera El Brocal S.A.A.  176,978   165,032   167,986 
Minera La Zanja S.R.L.  42,295   48,642   55,613 
S.M.R.L. Chaupiloma Dos de Cajamarca  1,800   1,693   1,906 
Apu Coropuna S.R.L.  164   223   678 
Other minor  -   -   (61)
             
   221,237   215,590   226,122 
             
Profit (loss) allocated to material non-controlling interest:            
S.M.R.L. Chaupiloma Dos de Cajamarca  5,667   5,827   6,950 
Sociedad Minera El Brocal S.A.A.  2,880   4,246   (13,426)
Minera La Zanja S.R.L.  (6,346)  (6,006)  2,342 
Apu Coropuna S.R.L.  (410)  (454)  (157)
Other minor  -   (1)  (31)
             
   1,791   3,612   (4,322)

Notes

During 2017, purchases of shares in the subsidiary Sociedad Minera El Brocal S.A.A. were made for US$621,000, which resulted in an increase in its shares and a dilution of non-controlling shareholders of 0.09%. During 2016, the Company, through the Lima Stock Exchange, made capital contributions to the consolidated financial statements(continued)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 for US$5.4 million equivalents to 7.26%.

    2015  2014  2013 
    US$(000)  US$(000)  US$(000) 
Accumulated balances of material non-controlling interest:              
Sociedad Minera El Brocal S.A.A. Peru  172,542   208,664   190,050 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  2,357   3,600   2,228 
Minera La Zanja S.R.L. Peru  53,271   85,756   85,029 
               
     228,170   298,020   277,307 

Profit (loss) allocated to material non-controlling interest:              
Sociedad Minera El Brocal S.A.A. Peru  (34,991)  3,450   (3,541)
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  9,244   10,250   12,302 
Minera La Zanja S.R.L. Peru  (32,486)  725   18,760 
Apu Coropuna S.R.L. Peru  (102)  -   - 
               
     (58,335)  14,425   27,521 

 

(b)The summarized financial information of these subsidiaries, before inter-company eliminations, is presented below:

 

Statements of financial position as of December 31, 2015:2018:

 

 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)  Sociedad
Minera El
Brocal
S.A.A.		 Minera
La Zanja
S.R.L.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Apu
Coropuna
S.R.L.		  

Other

minor

 
          US$(000) US$(000) US$(000) US$(000) US$(000) 
Current assets  87,676   9,381   103,540   200,597   170,274   126,878   7,154   2,263   - 
Non-current assets  652,197   16   116,792   769,005   603,280   31,841   -   182   - 
Current liabilities  (166,424)  (3,508)  (37,030)  (206,962)  (123,052)  (25,834)  (2,653)  (1,165)  - 
Non-current liabilities  (197,763)  -   (69,816)  (267,579)  (217,683)  (42,781)  -   (740)  - 
                                    
Total shareholders’ equity, net  375,686   5,889   113,486   495,061   432,819   90,104   4,501   540   - 
                    
Attributable to:                                    
Shareholders of the parent  203,144   3,532   60,215   266,891 
Shareholders of the Group  255,841   47,808   2,701   377   - 
Non-controlling interests  172,542   2,357   53,271   228,170   176,978   42,296   1,800   163   - 
                                    
  375,686   5,889   113,486   495,061   432,819   90,104   4,501   540   - 

  

  F-63F-67 

 

Notes to the consolidated financial statements(continued)

 

Statements of financial position as of December 31, 2014:2017:

 

 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)  Sociedad
Minera El
Brocal
S.A.A.		 Minera 
La Zanja 
S.R.L.		 S.M.R.L.
Chaupiloma
Dos de
Cajamarca		 Apu
Coropuna
S.R.L.		 Other
 minor		 
          US$(000) US$(000) US$(000) US$(000) US$(000) 
Current assets  110,244   14,657   119,591   244,492   146,865   134,758   6,640   1,440   665 
Non-current assets  654,819   70   159,245   814,134   645,729   55,873   -   189   30 
Current liabilities  (152,721)  (5,727)  (42,405)  (200,853)  (159,190)  (38,807)  (2,407)  (143)  (29)
Non-current liabilities  (157,996)  -   (53,742)  (211,738)  (229,709)  (48,201)  -   (740)  (2)
                                    
Total shareholders’ equity, net  454,346   9,000   182,689   646,035   403,695   103,623   4,233   746   664 
Attributable to:                                    
Shareholders of the parent  245,682   5,400   96,933   348,015   239,925   54,981   2,540   523   664 
Non-controlling interests  208,664   3,600   85,756   298,020   165,032   48,642   1,693   223   - 
                                    
  454,346   9,000   182,689   646,035   404,957   103,623   4,233   746   664 

 

Statements of profit or loss for the year ended December 31, 2015:years 2018, 2017 and 2016:

 

  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  171,294   32,414   161,007   364,715 
Cost of sales  (204,556)  (54)  (213,372)  (417,982)
Administrative expenses  (19,168)  (106)  (2,251)  (21,525)
Sales expenses  (9,056)  -   (1,207)  (10,263)
Exploration in non-operating areas  (2,366)  -   (8,954)  (11,320)
Impairment loss of long-lived assets  -   -   (3,803)  (3,803)
Other operating expense, net  (2,657)  -   (687)  (3,344)
Finance income  154   -   16   170 
Finance costs  (10,096)  (4)  (3,684)  (13,784)
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  4,109   (9,186)  5,702   625 
                 
Net profit (loss)  (76,189)  23,109   (69,206)  (122,286)
                 
Attributable to non-controlling interests  (34,991)  9,244   (32,486)  (58,233)
                 
Dividends paid to non-controlling interests  -   10,488   -   10,488 
  Sociedad
Minera El
Brocal
S.A.A.		  Minera
La Zanja
S.R.L.		  

S.M.R.L.
Chaupiloma
Dos de

Cajamarca

  Apu
Coropuna
S.R.L.		  Other
 minor		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Year 2018 -                    
Revenues  332,298   96,611   20,385   -   - 
Net profit (loss)  6,305   (13,519)  14,168   (1,369)  - 
Attributable to non-controlling interests  2,880   (6,346)  5,667   (410)  - 
                     
Year 2017 -                    
Revenues  322,653   165,319   20,739   -   - 
Net profit (loss)  10,386   (12,795)  14,568   (1,515)  386 
Attributable to non-controlling interests  4,246   (6,006)  5,827   (454)  (1)
                     
Year 2016 -                    
Revenues  230,611   178,922   24,339   -   - 
Net profit (loss)  (32,782)  4,865   17,366   (523)  (410)
Attributable to non-controlling interests  (13,426)  2,342   6,950   (157)  (31)

 

  F-64F-68 

 

 

Notes to the consolidated financial statements(continued)

Statements of profit 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.		  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 

Statements of profit or loss for the year ended December 31, 2013:

  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  187,769   44,185   193,298   425,252 
Cost of sales  (155,613)  (112)  (115,577)  (271,302)
Administrative expenses  (15,620)  (96)  (2,475)  (18,191)
Sales expenses  (8,763)  -   (528)  (9,291)
Exploration in non-operating areas  (5,220)  -   (3,446)  (8,666)
Other operating expense, net  (656)  (3)  (55)  (714)
Finance income  136   3   37   176 
Finance costs  (1,912)  (5)  (1,301)  (3,218)
Net loss for exchange difference  (2,827)  (66)  (777)  (3,670)
Profit (loss) before income tax  (2,706)  43,906   69,176   110,376 
Income tax  (5,003)  (13,151)  (29,211)  (47,365)
                 
Net profit (loss)  (7,709)  30,755   39,965   63,011 
                 
Attributable to non-controlling interests  (3,541)  12,302   18,760   27,521 
                 
Dividends paid to non-controlling interests  2,713   10,820   -   13,533 

 F-65

Notes to the consolidated financial statements(continued)

Statements of cash flow for the year ended December 31, 2015:years 2018, 2017 and 2016:

 

  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  (1,523)  26,474   30,743   55,694 
Investing activities  (28,375)  -   (26,761)  (55,136)
Financing activities  31,867   (26,220)  -   5,647 
Increase in cash and cash equivalents in the year  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)

Statements of cash flow for the year ended December 31, 2013:

  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  80,197   34,864   71,621   186,682 
Investing activities  (215,758)  7   15,079   (200,672)
Financing activities  121,202   (34,450)  (90,100)  (3,348)
Increase (decrease) in cash and cash equivalents in the year  (14,359)  421   (3,400)  (17,338)

 F-66

Notes to the consolidated financial statements(continued)

  Sociedad
Minera El
Brocal
S.A.A.		  

Minera

La Zanja
S.R.L.

  S.M.R.L.
Chaupiloma
Dos de
Cajamarca		  Apu
Coropuna
S.R.L.		 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
Year 2018 -                
Operating activities  74,985   10,323   14,066   (572)
Investing activities  (29,546)  (13,160)  -   - 
Financing activities  (29,974)  -   (13,900)  - 
                 
   15,465   (2,837)  166   (572)
                 
Year 2017 -                
Operating activities  60,525   139,155   15,093   (185)
Investing activities  (64,343)  (17,326)  -   - 
Financing activities  18,096   (32,077)  (15,090)  1,477 
                 
   14,278   89,752   3   1,292 
                 
Year 2016 -                
Operating activities  (9,151)  11,839   18,178   (1,895)
Investing activities  (37,935)  (14,994)  -   - 
Financing activities  48,021   -   (18,500)  2,717 
                 
   935   (3,155)  (322)  822 

 

20.19.Tax situation

(a)Current tax regime -

The Company and its Peruvian subsidiaries are subject to the Peruvian tax regime. In 2015, the income tax rate for enterprises is 28% over the taxable income. Non-domiciled companies in Peru or natural persons are affected to a withholding income tax of 4.1% over the dividends received.

By means of Law No. 30296N° 1261 enacted on December 31, 2014,10, 2016, the Peruvian government introduced certain amendments to the Income Tax Law, effective January 1, 2015.2017. The most relevant are listed below:

 

-There will be a gradual reduction of theA corporate income tax from 30%rate of 29.5% is set.
-A tax of 5% of the income tax is established to 28%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 has 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 27% in 2017 and 2018; andthe results obtained from January 1, 2017.
-It has been established that the distribution of dividends to 26% in 2019 and thereafter;be made corresponds to the oldest retained earnings.

 

The main tax regulations issued during 2018 are the following:

-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, effectiveSince January 1, 2015;2019, the applicable treatment of royalties and remuneration for services rendered by non-domiciled was modified (Legislative Decree No. 1369).

 

-The retained earningsrules that regulate the obligation of legal persons and / or other items that can generate taxable dividends, obtained until December 31, 2014, will be subjectlegal entities to a rateinform the identification of 4.1%.their final beneficiaries (Legislative Decree No. 1372) were established.

F-69

In July 2018, Law 30823 was published. Under this Law, the Congress delegated to the Executive Power the power to legislate on various issues, including tax and financial matters. In this sense, the main tax regulations issued are the following:

(i)The Tax Code was modified in order to provide greater guarantees to taxpayers in the application of the general anti-avoidance rule (Rule XVI of the Preliminary Title of the Tax Code); as well as to provide the Tax Administration with tools for its effective implementation.

(ii)Rules have been established for the accrual of income and expenses for tax purposes since January 1, 2019. Until 2018, there was no normative definition of this concept, so in many cases, accounting rules were used for its interpretation.

 

(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 (VAT) returns for the following years are open to review by the Tax Authorities:

 

EntityYears open to review band by the
Tax Authorities
  
Compañía de Minas Buenaventura S.A.A.2011 – 2015
Bisa Construcción S.A.2011 – 2015
Buenaventura Ingenieros S.A.2013 – 20152015-2018
Compañía Minera Condesa S.A.2011 – 20152014-2018
Compañía Minera Colquirrumi S.A.2011 – 20152014-2018
Consorcio Energético de Huancavelica S.A.2011 – 20152014-2018
Contacto Corredores de Seguros S.A.2011 – 20152014-2018
El Molle Verde S.A.C.2011 – 20152014-2018
Empresa de Generación Huanza S.A.2011 – 2015 2015-2018
Inversiones Colquijirca S.A.2011 – 20152014-2018
Minera La Zanja S.R.L. (*)2013 – 20152014,2016-2018
Sociedad Minera El Brocal S.A.A. (**)2013 – 20152014-2018
S.M.R.L. Chaupiloma Dos de Cajamarca2012 – 20152014-2018
Procesadora Industrial Río Seco S. A.2011 – 2015 2014-2018
Apu Coropuna S.R.L.2013 – 20152014-2018
Cerro Hablador S. A. C.2013 – 20152014-2018
Minera Azola S. R. L.2014 – 20152014-2018

 

 F-67

NotesAs of the date of issuance of this report, Compañía de Minas Buenaventura S.A.A. is been audited by the Tax Administration for the income tax of the year 2013 and the VAT for the period January to December 2014, and the consolidated financial statements(continued)subsidiary El Brocal is been audited for the year 2015.

 

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, 20152018 and 2014.2017.

F-70

 

The open tax process of the Group and its associates are presented in Note 29 (g)note 29(g).

 

(c)Tax-loss carryforwards -

TheAs of December 2018 and 2017, the tax-loss carryforward determined by the Group amounts to approximately S/688,178,0001,550,156,000 and S/622,419,000 as of December 31, 2015 and 2014,1,346,118,000, respectively (equivalent to US$201,634,000458,762,000 and US$208,237,000398,378,000 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%50 percent of net future taxable income.

 

The Group has decided to recognizea deferred income tax assetrelated to the tax-loss carryforwarddue to there it of those companies where is more likely than not that the tax-loss carryforward can be used to compensate future taxable net income.

 

(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 2018 and 2017.

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, 2015 and 2014.

 

  F-68F-71 

 

 

Notes to the consolidated financial statements(continued)

21.20.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 tableSet out below presentsis the net sales to customers by geographic region and product type:disaggregation of the Group’s revenue from contracts with customers:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Sales and services by geographic region:            
Metal and concentrates sales            
America  434,675   531,460   690,224 
Peru  348,523   434,958   306,693 
Europe  60,549   46,585   70,020 
Asia  21,215   54,268   67,978 
Africa  -   -   921 
             
   864,962   1,067,271   1,135,836 
Services rendered            
Peru  50,944   71,642   79,344 
America  3,544   -   - 
Asia  -   -   241 
   54,488   71,642   79,585 
             
   919,450   1,138,913   1,215,421 
             
Sales by product:            
Gold  438,585   551,132   637,032 
Silver  316,692   355,239   362,805 
Copper  131,356   271,282   182,399 
Zinc  102,110   46,903   71,187 
Lead  55,445   39,185   55,951 
   1,044,188   1,263,741   1,309,374 
             
Commercial deductions  (196,211)  (184,483)  (178,903)
Adjustments to prior period liquidations  7,506   (6,073)  (1,437)
Embedded derivatives from sale of concentrate  (337)  (9,800)  6,140 
Hedge operations  9,816   3,886   662 
   864,962   1,067,271   1,135,836 
Services rendered  54,488   71,642   79,585 
             
   919,450   1,138,913   1,215,421 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Revenues by geographic region:            
Metal and concentrates sales -            
Peru  537,816   551,243   396,733 
America  370,624   471,863   397,795 
Asia  120,519   120,719   97,467 
Europe  100,792   81,333   121,929 
             
   1,129,751   1,225,158   1,013,924 
             
Services -            
Peru  23,712   14,903   28,782 
America  289   14,794   - 
   24,001   29,697   28,782 
             
Royalties -            
Peru  20,385   20,739   24,339 
             
   1,174,137   1,275,594   1,067,045 

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Revenues by type of good or services:            
Sales by metal -            
Gold  411,926   511,434   440,603 
Silver  369,167   409,775   385,989 
Copper  274,761   268,527   224,649 
Zinc  174,048   188,023   142,425 
Lead  89,059   94,955   58,690 
Manganese sulfate  6,655   6,317   5,982 
Indium  -   66   - 
   1,325,616   1,479,097   1,258,338 
Commercial deductions  (195,865)  (253,939)  (244,414)
   1,129,751   1,225,158   1,013,924 
Sales by services -  24,001   29,697   28,782 
Royalties income -  20,385   20,739   24,339 
             
Total revenue from contracts with customers  1,174,137   1,275,594   1,067,045 
             
Revenues by timing of revenue recognition:            
Goods transferred at a point in time  1,129,751   1,225,158   1,013,924 
Services transferred over time  24,001   29,697   28,782 
Royalties at a point of time  20,385   20,739   24,339 
             
   1,174,137   1,275,594   1,067,045 

 

  F-69F-72 

 

 

(b)Set out below, is the reconciliation of the revenue from contracts with customers with the amounts disclosed in the consolidated statement of profit or loss:

Notes

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Contracts with customers for sale of goods  1,129,751   1,225,158   1,013,924 
Adjustments to prior period liquidations  857   919   4,611 
Fair value of accounts receivables  (6,215)  8,786   880 
Hedge operations  (1,398)  (10,921)  (3,745)
Net sale of goods  1,122,995   1,223,942   1,015,670 
             
Contracts with customers for sale of services  24,001   29,697   28,782 
Net sale of services  24,001   29,697   28,782 
             
Contracts with customers for royalty income  20,385   20,739   24,339 
Royalty income  20,385   20,739   24,339 
             
   1,167,381   1,274,378   1,068,791 

(c)Performance obligations -

The performance obligation of the sale of goods is satisfied upon delivery of the goods and payment is generally due within 30 to the consolidated financial statements(continued)90 days from delivery. Performance obligation of services is satisfied over-time and payment is generally due upon completion and acceptance of service.

 

(b)(d)Concentration of sales -

In 2015,2018, the twothree customers with sales of more than 10%10 percent of total net sales represented 66%32, 13 and 22%11 percent from the total net sales of the Group (62%(three customers by 28, 15 and 17%10 percent during the year 2014, 65%2017; three customers by 28, 22 and 13%22 percent during the year 2013)2016). As of December 31, 2015, 85%2018, 43 percent of the accounts receivable is relatedcorrespond to these customers (80%(49 percent as of December 31, 2014)2017). 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 long-term sales contracts that guarantee supplying them the production from the Group’s mines at prices that are based on market quotations.mines.

F-73

 

22.21.Cost of sales, without considering depreciation and amortization

 

(a)The cost of sales of goods is made up as follows:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance of finished goods and products in process, net of depreciation and amortization  124,810   114,475   129,699 
Cost of production            
Services provided by third parties  232,043   264,051   241,024 
Consumption of materials and supplies  105,144   102,270   107,073 
Direct labor  69,710   77,931   75,768 
Electricity and water  35,799   33,369   14,454 
Transport  10,261   14,189   7,207 
Maintenance and repair  9,334   6,572   6,037 
Rentals  6,768   6,241   26,516 
Insurances  5,907   7,429   8,303 
Cost of concentrate purchased to third parties  -   -   (175)
Provision for impairment of finished goods and product in progress, Note 9(b)  11,621   1,152   3,931 
Other production expenses  7,496   17,529   15,456 
Total cost of production of the period  494,083   530,733   505,594 
Final balance of products in process and finished goods, net of depreciation and amortization  (81,180)  (112,156)  (122,128)
Cost of sales of goods, without considering depreciation and amortization  537,713   533,052   513,165 

 F-70

Notes to the consolidated financial statements(continued)

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance of finished goods and products in process, net of depreciation and amortization  37,640   58,633   69,932 
             
Cost of production            
Services provided by third parties  245,705   262,195   211,325 
Consumption of materials and supplies  136,991   134,070   100,401 
Direct labor  96,612   87,886   72,344 
Electricity and water  51,226   44,345   41,989 
Transport  24,805   16,254   10,880 
Maintenance and repair  24,459   22,839   17,792 
Rentals  31,156   26,591   10,852 
Insurances  11,550   6,637   4,347 
Provision (reversal) for impairment of finished goods and product in progress, note 8(c)  4,521   2,118   (7,581)
Cost of concentrate purchased to third parties  -   439   2,958 
Other production expenses  10,025   10,464   9,789 
Total cost of production of the period  637,050   613,838   475,096 
Final balance of products in process and finished goods, net of depreciation and amortization  (49,206)  (45,038)  (47,216)
Cost of sales of goods, without considering depreciation and amortization  625,484   627,433   497,812 

 

(b)The cost of services is made up as follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Direct labor  17,278   38,186   42,922   2,128   7,398   5,983 
Consumption of materials and supplies  675   1,026   868 
Maintenance and repair  543   946   217 
Services provided by third parties  13,665   12,142   16,840   382   1,782   1,689 
Electricity and water  6,485   5,827   13,801   249   586   633 
Consumption of materials and supplies  5,506   5,958   1,678 
Transport  3,876   7,209   95 
Rentals  2,550   7,312   21,035   92   423   480 
Insurances  1,235   1,231   644   86   246   212 
Maintenance and repair  639   472   691 
Other expenses  1,458   3,150   16,414 
Cost of sales of services, without considering depreciation and amortization  52,692   81,487   114,120 
Transport  50   98   213 
Other  113   449   459 
            
  4,318   12,954   10,754 

F-74

 

23.22.Exploration in operating units

This caption is made up as follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Beginning balance of finished goods and products in process, net of depreciation and amortization  5,157   5,309   3,106 
            
Exploration in operating units            
Services provided by third parties  73,764   80,281   81,491   71,927   79,837   81,464 
Consumption of materials and supplies  10,314   10,087   13,267   8,605   8,236   12,685 
Direct labor  2,512   2,756   3,263   2,446   2,373   1,974 
Rentals  872   896   1,785   2,072   1,527   1,608 
Electricity and water  1,524   1,328   21 
Maintenance and repair  450   100   62 
Transport  275   1,201   2,180   192   587   317 
Insurance  235   159   228 
Other minor expenses  3,548   2,472   (301)
Depreciation and amortization  23   -   - 
Other  784   109   379 
Total exploration in operating units  88,023   94,097   98,510 
Final balance of products in process and finished goods, net of depreciation and amortization  (2,837)  (4,478)  (5,467)
  91,520   97,852   101,913             
Exploration in operating units  90,343   94,928   96,149 

 

24.23.Mining royalties

This caption is made up as follows:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Sindicato Minero de Orcopampa S.A., Note 29(b)  21,942   21,688   23,843 
Royalties paid to the Peruvian State  5,465   6,737   6,057 
Others  -   15   502 
             
   27,407   28,440   30,402 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Sindicato minero de Orcopampa S.A., note 29(b)  12,122   20,165   19,824 
Royalties paid to the Peruvian State  9,404   11,052   7,787 
             
   21,526   31,217   27,611 

  

  F-71F-75 

 

 

Notes to the consolidated financial statements(continued)

25.24.Administrative expenses

This caption is made up as follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Personnel expenses  39,597   37,983   40,133   34,656   36,265   29,617 
Sundry expenses  15,175   27,235   18,574 
Professional fees  10,364   13,956   7,109   15,324   12,663   11,696 
Insurance  5,105   3,726   5,443 
Sundry charges  7,450   10,375   15,295 
Rentals  4,009   3,217   1,635   5,818   5,412   4,870 
Board of Directors’ participation  3,252   1,422   1,140 
Maintenance and repairs  2,732   2,657   1,076 
Subscriptions and quotes  1,938   1,428   697 
Donations  3,336   5,034   2,884   1,617   3,006   4,280 
Communications  1,281   1,276   1,618   1,512   1,376   1,557 
Board of Directors’ participation  1,055   1,163   1,575 
Depreciation and amortization  1,295   1,146   254 
Transport  1,212   989   310 
Insurance  645   3,911   3,023 
Travel and mobility  467   1,053   914 
Consumption of materials and supplies  1,032   1,688   1,701   436   616   416 
Maintenance and repairs  973   2,720   473 
Other mining taxes  824   1,207   1,532 
Travel and mobility  787   908   7,890 
Subscriptions  540   779   802 
Valuation (reversal) of stock appreciation’s rights  (121)  89   (20,207)
Amortization of other assets  2,575   121   3,956 
Canons and tributes  388   602   1,460 
Allowance for expected credit losses, note 7(f)  18   676   5,087 
                        
  86,532   101,102   75,118   78,760   83,597   81,692 

 

26.25.Exploration in non-operating areas

This caption is made up as follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Services provided by third parties  18,852   34,582   17,801   22,764   5,401   13,629 
Personnel expenses  4,713   6,053   6,359   4,830   4,064   3,908 
Lands  1,867   1,781   - 
Rentals  1,524   1,171   578 
Consumption of materials and supplies  1,436   3,213   2,490   1,420   582   768 
Rentals  376   1,142   707 
Maintenance and repairs  87   139   122 
Insurance  84   75   60 
Transport  20   168   162 
Other expenses  5,042   4,635   5,104   3,902   5,263   7,706 
                        
  30,610   50,007   32,805   36,307   18,262   26,589 

  

  F-72F-76 

 

 

26.Other, net

Notes to the consolidated financial statements(continued)

(a)This caption is made up as follows:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Other income            
Insurance claim recovery, note 7(g)  33,735   1,190   2,936 
Sale of supplies and merchandise to third parties  46,136   54,505   50,973 
Sale of investment in subsidiary, note 1(d)  7,097   -   - 
Changes in provisions for exploration projects, note 15(b)  2,433   -   - 
Sale of assets to third parties  3,863   369   21,730 
Sale of services to third parties  3,512   2,566   1,840 
Income from previous years  1,517   2,737   1,086 
Recovery of expenses from previous years  81   68   3,171 
Income from rental of investment properties  45   235   1,821 
Expiration of allowance for expected credit losses, note 7(f)  45   99   - 
Sale of assets to related parties, note 30(a)  30   336   - 
Sale of supplies related parties, note 30(a)  27   4   1 
Sale of investment properties (b)  -   11,250   - 
Recovery of provision for depreciation of supplies, note 8(c)  -   -   110 
Other minor income  4,099   14,469   11,639 
             
   102,620   87,828   95,307 
             
Other expenses            
Disposal cost of sale of supplies and merchandise to third parties  (57,897)  (60,242)  (49,890)
Net cost of transfer of investments, note 1(d)  (11,178)  (1,706)  - 
Direct expenses  (11,000)  (5,998)  (4,350)
Provision for loss of value of supplies, note 8(c)  (7,039)  (2,444)  - 
Withdrawals and disposals of property, machinery and equipment, note 11(a)  (6,626)  (15,013)  (1,635)
Allowance for expected credit losses, note 7(f)  (1,334)  -   - 
Net cost of property, machinery and equipment to third parties  (626)  -   (2,131)
Net cost of investment properties (b)  -   (9,575)  - 
Changes in provision for exploration projects, note 15(b)  -   (891)  - 
Other minor expenses  (11,932)  (5,548)  (18,344)
             
   (107,632)  (101,417)  (76,350)
             
   (5,012)  (13,589)  18,957 

(b)During 2017 the subsidiary Buenaventura Ingenieros S.A. (hereinafter "BISA") sold to a third party its investment properties located in the El Derby Capital Building, district of Surco.

F-77

 

27.Finance costs and finance revenues

These captions are made up as follows:

(a)Finance costs and finance revenues:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Finance revenues:                        
Interests on loans to associates  2,286   2,887   3,322 
Interest on time deposits  5,176   1,050   358 
Interests on tax claims  1,297   -   -   1,701   153   487 
Interests on third parties loans  561   813   489 
Interests on loans to associates, note 30(a)  92   1,685   4,164 
Dividends income  500   2   181   -   -   589 
Interests over third parties  492   5,380   2,260 
Interest on time deposits  419   139   858 
  4,994   8,408   6,621 
Unrealized variation of the fair value related to contingent consideration liability, Note 5  6,032   -   - 
Income from financial instruments  -   -   743 
Other finance revenues  341   43   - 
                        
  11,026   8,408   6,621   7,871   3,744   6,830 
Unrealized variation of the fair value related to contingent consideration liability (b)  1,815   1,773   - 
            
Total finance revenues  9,686   5,517   6,830 
                        
Finance costs:                        
Interest on borrowings  19,182   28,058   12,706   31,538   27,052   18,668 
Banking expenses  729   552   319 
Tax on financial transactions  173   180   159 
Interest on loans  5,565   729   389   2   1,056   4,643 
Banking expenses  366   673   355 
Tax on financial transaction  312   148   271 
Increase in debt issuance costs, note 16(f)  -   480   - 
Interest on commercial obligations  120   -   -   -   5   496 
Variation of fair value of financial assets  -   -   1,565 
Other finance costs  41   94   1,680   8   7   830 
              32,450   29,332   25,115 
  25,586   29,702   16,966 
Capitalized finance cost of qualify assets  (1,307)  (20,079)  (12,706)
            
Total finance interest  24,279   9,623   4,260 
Accrual of the present value for mine and exploration project closure  3,343   1,695   5,636 
Accrual of the present value for mine closure, note 15(b)  4,982   4,382   4,116 
Accrual of debt issuance costs, note 16(f)  1,024   909   - 
Unrealized variation of the fair value related to contingent consideration liability (b)  -   -   2,349 
                        
Total finance costs  27,622   11,318   9,896   38,456   34,623   31,580 

Contingent consideration -

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.

 

  F-73F-78 

 

 

NotesThrough the fusion with Canteras del Hallazgo S.A.C, the Company is the 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.

The purchase and sale agreement considered 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 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 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 financial statements(continued)statement of profit or loss.

As of December 31, 2018, it is highly probable that the Group reaches the projected future sales. The fair value of the contingent consideration determined as of December 31, 2018 reflects this assumption and changes in metal prices.

A reconciliation of fair value measurement of the contingent consideration liability is provided below:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  17,570   19,343   16,994 
             
Variation of the fair value in results, note 27(a)  (1,815)  (1,773)  2,349 
Final balance  15,755   17,570   19,343 

Significant unobservable valuation inputs are provided below:

  2018  2017 
       
Annual average of future sales of mineral (US$000)  196,801   193,588 
Useful life of mining properties  13   13 
Pre-tax discount rate (%)  10   10 

The Group has the preferential right of acquisition of the royalty in case Gold Fields decides to sell it.

F-79

 

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,
2017		 Credit (debit) to the
Consolidated  
statement of profit
 or loss		 Credit (debit)  to
consolidated  
 statements of other
comprehensive
income		  As of
December 31,
 2017		  Credit (debit) to the
Consolidated  
statement of profit
 or loss		 Credit (debit)  to
consolidated  
 statements of other
comprehensive
income		 Others
movements		  As of 
December 31,
 2018		 
 As of January 1,
2014		 Credit (debit)  to the
Consolidated  
statement of
profit  or loss		 Credit (debit)  to
consolidated  
statements of other
comprehensive
income		 Debit to mining  
concessions
resulting from  
the merger
with  Canteras del
Hallazgo S.A.C.		 As of December 31,
2014		 Credit (debit) to the
Consolidated  
statement of
profit or loss		 Credit (debit)  to
consolidated
 statements of other
comprehensive
income		 As of December 31,
2015		  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)                  
Deferred asset for income tax included in results                                                                
Tax - loss carryforward  24,275   8,211   -   -   32,486   45,923   -   78,409   93,050   1,889   -   94,939   11,680   -   (396)  106,223 
Difference in depreciation and amortization rates  57,645   816   -   -   58,461   (6,084)  -   52,377   60,883   734   -   61,617   6,497   -   -   68,114 
Provision for closure of mining units, net  20,084   (288)  -   -   19,796   12,848   -   32,644   39,538   5,030   -   44,568   3,291   -   -   47,859 
Environmental liability for Santa Barbara mine  1,429   (190)  -   -   1,239   317   -   1,556 
Impairment loss of long-lived assets  7,592   2,328   -   9,920   (2,448)  -   -   7,472 
Other minor  20,273   (2,529)  -   -   17,744   1,954   2,565   22,263   14,650   809   -   15,459   5,369   -   (146)  20,682 
  123,706   6,020   -   -   129,726   54,958   2,565   187,249   215,713   10,790   -   226,503   24,389   -   (542)  250,350 
                                
Less - Allowance for deferred asset  (6,404)  2,167   -   -   (4,237)  (13,929)  -   (18,166)  (37,012)  (1,898)  -   (38,910)  (2,038)  -   -   (40,948)
  117,302   8,187   -   -   125,489   41,029   2,565   169,083 
                                  178,701   8,892   -   187,593   22,351   -   (542)  209,402 
Deferred asset included in retained earnings                                                                
Derivative financial instruments  328   2,212   -   -   2,540   (2,311)  -   229   1,140   -   7,963   9,103   -   (9,103)  -   - 
  117,630   10,399   -   -   128,029   38,718   2,565   169,312   179,841   8,892   7,963   196,696   22,351   (9,103)  (542)  209,401 
Deferred assets for mining royalties and special mining tax included in results                                                                
Exploration expenses  1,957   (1,509)  -   -   448   (774)  -   (326)
Other minors  180   186   -   -   366   (181)  -   185   43   80   -   123   (87)  -   -   36 
  2,137   (1,323)  -   -   814   (955)  -   (141)  43   80   -   123   (87)  -   -   36 
Total deferred asset  119,767   9,076   -   -   128,843   37,763   2,565   169,171   179,884   8,972   7,963   196,819   22,264   (9,103)  (542)  209,438 
                                                                
                                
Deferred liability for income tax included in results                                                                
Differences in amortization rates for development costs  (51,788)  6,095   -   (45,693)  (20,295)  -   -   (65,988)
Effect of translation into U.S. dollars  (8,076)  (23,417)  -   -   (31,493)  (42,044)  -   (73,537)  (70,525)  24,502   -   (46,023)  (15,248)  -   -   (61,271)
Differences in amortization rates for development costs  (18,504)  (19,345)  -   -   (37,849)  5,545       (32,304)
Other minors  (9,277)  (13,886)  (1,033)  (9,235)  (33,431)  (1,958)  807   (34,582)  (43,985)  (33,618)  -   (77,603)  3,123   -   -   (74,480)
  (35,857)  (56,648)  (1,033)  (9,235)  (102,773)  (38,457)  807   (140,423)  (166,298)  (3,021)  -   (169,319)  (32,420)  -   -   (201,739)
Deferred liability for mining royalties and special mining tax                                
Deemed cost of property, plant and equipment  (203)  38   -   -   (165)  153   -   (12)
Deferred liability for mining royalties and special mining tax included in results                                
Derivative financial instruments  -   -   -   -   -   (813)  -   (813)
  -   -   -   -   -   (813)  -   (813)
                                
Deferred assets for mining royalties and special mining tax                                
Other minors  (182)  528   (170)  -   176   -   -   176   (35)  (126)  -   (161)  158   -   -   (2)
  (385)  566   (170)  -   11   153   -   164   (35)  (126)  -   (161)  158   -   -   (2)
Total deferred liability  (36,242)  (56,082)  (1,203)  (9,235)  (102,762)  (38,304)  807   (140,259)  (166,333)  (3,147)  -   (169,480)  (32,262)  (813)  -   (202,554)
                                
Deferred income tax asset, net  83,525               26,081           28,912   13,551   5,825   7,963   27,339   (9,998)  (9,916)  (542)  6,883 

 

  F-74F-80 

 

Notes to the consolidated financial statements(continued)

 

(b)The deferred tax asset is presented in the consolidated statement of financial position:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Deferred income tax asset, net  41,574   47,675   38,305   43,129 
Deferred income tax liability, net  (12,662)  (21,594)  (31,422)  (15,790)
                
  28,912   26,081   6,883   27,339 

 

(c)The following is the composition of the provision for income taxes shown in the consolidated statement of income for the years 2015, 20142018, 2017 and 2013:2016:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Income tax            
Income tax expense            
Current  12,433   18,781   32,902 
Deferred  10,069   (5,984)  13,808 
  22,502   12,797   46,710 
Mining Royalties and Special Mining Tax            
Current  (14,225)  (19,006)  (57,328)  4,495   5,056   6,542 
Deferred  (541)  (47,006)  (29,154)  (71)  159   252 
              4,424   5,215   6,794 
  (14,766)  (66,012)  (86,482)            
Total income tax  26,926   18,012   53,504 

 

(d)Below is a reconciliation of tax expense and the accounting profit multiplied by the statutory tax rate for the years 2015, 20142018, 2017 and 2013:2016:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Profit (loss) before income tax  (351,256)  35,486   90,631 
Loss before income tax for discontinued operations  (9,523)  (31,114)  (83,885)
Profit (loss) before income tax  (360,779)  4,372   6,746 
Theoretical loss (gain) for income tax  (101,018)  1,312   2,024 
Permanent items and others:            
Share in the results of associates  48,545   22,380   34,244 
Effect of translation into U.S. dollars  42,044   30,520   22,644 
Impairment of deferred tax asset  13,929   -   - 
Effect of change in income tax rate net  2,347   327   - 
Mining royalties and special mining tax  663   413   (1,650)
Permanent items  4,450   3,824   18,545 
             
Income tax expense  10,960   58,776   75,807 
Mining Royalties and Special Mining Tax  3,806   7,236   10,675 
             
Total income tax  14,766   66,012   86,482 

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Profit (loss) before income tax  22,475   92,545   (255,327)
Loss for discontinued operations  (7,203)  (10,098)  (19,073)
Profit (loss) before income tax  15,272   82,447   (274,400)
             
Theoretical loss (gain) for income tax  4,505   24,322   (76,807)
             
Permanent items and others:            
Effect of translation into U.S. dollars  15,248   (24,502)  (3,012)
Permanent items  3,492   16,513   6,577 
Allowance of deferred tax asset  2,038   1,898   18,846 
Share in the results of associates  337   (3,896)  102,290 
Mining royalties and special mining tax  (3,118)  (1,538)  247 
Effect of change in income tax rate net  -   -   (1,431)
Income tax expense  22,502   12,797   46,710 
Mining Royalties and Special Mining Tax  4,424   5,215   6,794 
   26,926   18,012   53,504 

 

  F-75F-81 

 

Notes to the consolidated financial statements(continued)

 

(e)Related to the investment in associates, the Group has not recognized a deferred income tax asset by US$94,528,000277.0 million as of December 31, 20152018, originated by the difference between the financial and taxable basis of these investments (US$47,623,000257.3 million as of December 31, 2014)2017). Management believes that the timing differences will be reversed in the future 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).

 

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%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 24.note 23.

 

(c)Letter of guarantee granted by Buenaventura -

Letter of guarantee - Huanza

On December 2, 2009, Banco de Credito del Perú signed a finance lease contract for US$119 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-76

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.years since the year 2013. The Group has the option to lease the assets for two additional termsterm of 5 years each.

F-82

 

Future minimum rentals payable as of December 31 2015 and 2014 are the following:

 

 2015 2014  2018 2017 
 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   5,787   6,173 
More than five years  4,244   5,787   -   1,157 
                
  11,960   13,503   7,330   8,873 

 

(e)Operating lease commitments (the Group as a lessor)lessee) -

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:

 

 2015  2014  2018  2017 
 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  47,957   31,956   79,248   64,087   53,607   41,634   56,915   40,224 
After one year but not more than five years  366,637   321,685   360,132   314,218   210,252   200,019   267,962   241,652 
                                
Total minimum lease payments  414,594   353,641   439,380   378,305   263,859   241,653   324,877   281,876 
                                
Less - amounts representing finance charges  (60,953)  -   (61,075)  -   (22,206)  -   (43,001)  - 
                                
Present value of minimum lease payments  353,641   353,641   378,305   378,305   241,653   241,653   281,876   281,876 

 

Contingencies

Contingencies
(f)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 amount to US$2.9 million and US$1.1 million as of December 31, 2018 and 2017, respectively.

  F-77F-83 

 

 

Notes to the consolidated financial statements(continued)

The possible contingencies amount to US$2,031,000 and US$1,573,000 as of December 31, 2015 and 2014, respectively.

Yanacocha -

Mercury spill in ChoropampaConga project Constitutional claim -

In June 2000,On October 18, 2012, Marco Antonio Arana Zegarra filed a carrier hired byconstitutional claim against the Ministry of Energy and Mines and Yanacocha spilled approximately 151 kilogramsrequesting the Court to order the suspension of mercurythe Conga project as well as to declare not applicable the October 27, 2010 directorial resolution approving the Conga Project Environmental Impact Assessment (“EIA”).

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 vicinityadministrative proceedings; (iii) there was 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 town of Choropampa, Peru, located 85 kilometers (53 miles) southeastcase. The Civil Court of the mine. To date,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 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 held court settlements with people affected byanswered the incident. At December 31, 2015, there are 6 applicants with pending process.claim. Yanacocha cannot reasonably predict the outcome of anythis litigation.

Environmental contingences -

The Peruvian government agency responsible for environmental evaluation and inspection, Organismo Evaluacion y Fiscalizacion Ambiental (“OEFA”), conducts periodic reviews of these claims; however, itthe Yanacocha site. In 2011, 2012, 2013, 2015, 2016, 2017 and 2018, OEFA issued notices of alleged violations of OEFA standards to the Company relating to past inspections. OEFA has resolved with minimal or no findings.

In 2015 and 2016, the Autoridad Nacional del Agua of Cajamarca issued notices of alleged regulatory violations, and resolved some allegations in 2018 with no findings. The experience with OEFA and the Autoridad Nacional del Agua is estimated that in the maximum additional expense related to these demands will be US$1.5 million.

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 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 adequate40,300 tax units and balanced environment; so that Court declare the suspensionAutoridad Nacional del Agua alleged violations range from zero to 10 tax units, being each tax unit equivalent to approximately US$1,260 based on current exchange rates. Yanacocha is 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.

 

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.

F-84

 

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.

 

(g)Open tax procedures–

(g)Open tax procedures –

Buenaventura -–

-During 2012 and 2014, the tax authority (SUNAT)SUNAT reviewed the income tax for 2007 and 2008. As a result, SUNAT dodoes not recognize tax declared deductions by S/1,056,310,000 (equivalent to US$309,493,000)312,610,000) in the year 2007 and S/1,530,985,000 (equivalent to US$448,575,000) in453,088,000) for the year 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.

 

In November 2018, the Tax Court resolved the appeal proceedings not recognizing the contracts of physical deliveries and the contractual obligation and considers that the payments correspond to an advance financial settlement of Contracts of Derivative Financial Instruments and that the Company would not have accredited the purpose of hedge and the risks covered. TheCompany's Managementwith the support of its legal advisers initiated various administrative and judicial actions to present their arguments and defend their rights.

These disputes would be resolved in judicial instances in the Judicial Power. As of December 31, 2018, the total possible contingencies related to these audits amount to S/1,436 million (equivalent to US$425 million).

-During 2015, the tax authoritiesSUNAT reviewed the income tax of 2009 and 2010. As a result, they did not recognize Buenaventura declared tax deductions by S/76,023,000 (equivalent to US$22,275,000)22,499,000). 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 to S/525,921,000 (equivalent to US$154,093,000) as of December 31, 2015. In the opinion of Management and its legal counsel, the CompanyBuenaventura should get a favorable result in the initiated claim process (by 2009) and will start (by 2010).process.

In December 2018, the Tax Court resolved the appeal files confirming reparations for S/58,307,000 (equivalent to US$17,256,000) basically related to the provision for collection of doubtful debts as an expense and unfounded income unduly deducted. To date, the Company's Management, with the support of its legal advisors, has initiated administrative and judicial actions to present its arguments and make its rights prevail. These disputes would be resolved in judicial instances in the Judicial Power. As of December 31, 2018, the total possible contingencies related to these audits amount to S/621 million (equivalent to US$184 million).

 

  F-78F-85 

 

 

NotesTheCompany's Managementand its legal advisors are of the opinion that the results of the procedures in the various instances will be favorable to the consolidated financial statements(continued)Company, which is why they consider that it is not necessary to recognize any provision for these contingencies.

Subsidiaries -

-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 as well as the omission of income from transfer of fuel to suppliers, amounting to S/21,034,000 (equivalent to US$6,163,000). In addition, the tax authority requires the payment of the value added tax related to allegedly omitted revenues in the transfer of fuel to suppliers. The possible contingencies for income tax for the years 2011 and 2012 amount to S/9,471,000 (equivalent to US$2,775,000) and for the value added tax amount to S/3,467,000 (US$1,016,000) as of December 31, 2015. In the opinion of Management of this subsidiary and its legal advisors, BISA should get a favorable result in the initiated claim process (for income tax of 2011 and value added tax for the years 2011 and 2012) and in the claim to be initiated (for income tax of 2012).

 

-During the years 2014 and 2015,year 2018, the tax authority issued tax assessments forTax Administration has audited the income tax declaration for 2014. As a result of this audit, SUNAT does not recognize the subsidiary Sociedad Minera El Brocal S.A.A. (El Brocal)Company deductions declared for the years 2011 and 2012.S/94,898,000 (equivalent to US$28,085,000). The main objectionsrepairs are related to the deductionnon-deductibility of bonus paid to contractors, the ignorance of the derivative financial instruments losscompensation of tax losses that can be withheld and the tax treatmentuse of balances in favor that are not recognized by SUNAT. In the opinion of the mining royaltiesManagement and amountits legal advisors, these repairs are not supported, so that a favorable result in the claim process that they have initiated will be obtained.

Subsidiaries –

Sociedad Minera El Brocal S.A.A. –

-On May 30, 2014, SUNAT issued tax and fines assessments for the 2011 income tax of El Brocal. Within the terms of law, El Brocal filed an appeal that is pending resolution to S/11,586,000 (equivalent to US$3,395,000). With respect to the objections of 2011,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$2,442,000)2,466,000) so it can have access to a discount benefit of the fine and appealed to the Tax Court. In connection with the possible tax debt of 2012 by S/3,576,000 (equivalent to US$1,048,000), El Brocal has appealed to the Tax Court. In the opinion of Management of the subsidiary and its legal advisors, El Brocal should get a favorable result in the initiated claim process.fine. This payment is recorded as an account receivable.

 

-On January 8, 2015, SUNAT notified to the subsidiary El Brocal a tax assessment for the 2012 income tax, which was claimed by the subsidiary and rejected by SUNAT. In addition, theSUNAT notified a tax authority has issuedassessment for income tax assessments as a result of the audit of other subsidiaries of the Group bypre-payments from January to December 2012, which amounts to S/12,096,0004,030,000 (equivalent to US$3,544,000)1,193,000). InEl Brocal has filed an appeal to the opinion of Management and its legal counsel, the assessments are of possible occurrence; however, management of the subsidiaries expects to get a favorable result in the initiated claim process.Tax Court, which is pending resolution.

The possible contingencies held by El Brocal amount to S/7,641,000 (equivalent to US$2,261,000) as of December 31, 2018.

El Brocal's legal advisors believe that the outcome of these proceedings will be favorable and therefore, it is not necessary to recognize a provision for these contingencies.

Minera La Zanja S.R.L. -

During the years 2016, 2017 and 2018, SUNAT audited the income tax for the years 2013 and 2015, as a result, SUNAT does not recognize deductions declared for La Zanja. The main challenge is related to the deduction of development costs incurred for S/2,692,000 (equivalent to US$797,000) as of December 31, 2018 (S/9,344,000 equivalent to US$2,765,000 as of December 31, 2017). In Management´s opinion and its legal advisors, this interpretation is not supported and the subsidiary would obtain a favorable result in the claim process that has started.

F-86

Empresa de Generación Huanza S.A. -

During 2015, SUNAT audited the 2014 income tax of the subsidiary Empresa de Generación Huanza S.A. (Huanza). As a consequence, a portion of the depreciation of its fixed assets is not recognized for S/27,532,000 (equivalent to US$8,148,000). The possible contingency amounts to S/6,396,000 (equivalent to US$1,893,000) as of December 31, 2018 (S/5,790,000 equivalent to US$1,714,000 as of December 31, 2017). In the opinion of Huanza´ 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.

Other subsidiaries -

In addition, SUNAT has issued tax assessments as a result of the audit of income taxes of other subsidiaries for S/16,768,000 (equivalent to US$4,963,000). 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,Mining Royalties

On June 23, 2004, Law N ° 28528 - Law of Mining Royalty was approved by which the owners of the mining concessions had to be paid, as financial compensation for the exploitation of metallic and non-metallic mineral resources, a mining royalty that was determined applying rates that change between 1% and 3% on the value of the concentrate or its equivalent, according to the price quotation of the international market published by the Ministry of Energy and Mines. Based on the contract of the guarantee signed in 1998, Cerro Verde determined that the payment of mining royalties was not applicable, because it was the contribution after the signing of the contract of the Law of Conquest of the Peruvian Government. However, under the terms of its new guarantee contract, which became effective on January 1, 2014, Cerro Verde began to pay mining royalties and special mining tax authority,for all its production based on Law No. 29788, which it is calculated on the operating profit with rates that fluctuate between 1% and 12%.

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 and 2009. In July 2013, the Peruvian Tax Tribunal issued two decisions affirming 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 2013,2013. Cerro Verde filed judiciary appeals related to thecontested each of these assessments because Cerro Verdeit believes that its 1998 stability agreement exemptedexempts from royalties all minerals extracted from its mining concessions from royalties,concession, irrespective of the method used for processing thosesuch minerals. With respect to the judiciary appeal related to the assessmentNo assessments can be issued 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 Tax Tribunal´s resolution (S/.106.4 million). In December 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). On January 29, 2016, the 6th Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court.years after 2013, as Cerro Verde will appeal the decision to the Supreme Court.began paying royalties on all of its production in January, 2014 under its new 15-year stability agreement.

 

  F-79F-87 

 

 

NotesSince 2014, based on the decision of Peruvian Tax Tribunal, Cerro Verde has been paying the disputed assessments for the period from December 2006 to December 2008, under an installment program of 66 equal monthly payments. As of December 31, 2018, Cerro Verde has paid under the consolidated financial statementsinstallment program S/596.8 million (approximately US$187.7 million at the year-end exchange rate as of the payment date and US$176.6 million at the year-end exchange rate as of December 31, 2018).

In connection with demands for the periods December 2006 to December 2007 related to themining royalties,(continued)On August 9, 2017, Cerro Verde filed an appeal before the Supreme Court against the decision made by the Seventh Administrative Litigation Chamber which was admitted in December 2017. The oral hearing before the Supreme Court took place on November 20, 2018 and its decision is pending.

In September 2018, the Peruvian Tax Tribunal denied Cerro Verde’s request to waive penalties and interest for the period January 2009 through September 2011. In December 2018, Cerro Verde elected not to appeal the Peruvian Tax Tribunal's decision before the Judicial Power. Cerro Verde is continuing to evaluate alternative strategies to defend its rights.

 

On October 1, 2013,2018, SUNAT served Cerro Verde a demand for payment totaling S/.492928.9 million (approximately US$144274.9 million based onat the year-end exchange rate as of December 31, 2015 exchange rates,2018, including interest and penalties of US$85165.7 million) based on the Tax Tribunal’s decisions for the period December 2006 to December 2008. As permitted by law,January 2009 until September 2011. Cerro Verde requested and was granted, an installment payment program that deferred(deferred payment for six monthsmonths) and thereafter satisfies the amount viainstallment program (which was granted in two equivalent schedules of 66 equal monthly payments.payments). The total debt as of December 31, 2018 is for S/947.2 million (approximately US$280.3 million at the year-end exchange rate as of December 31, 2018, including interest and penalties of US$171.1 million). The payments of these installment program will begin in the second quarter of 2019.

On January 18, 2018, SUNAT notified the resolution determination for royalties for the fourth quarter of 2011, as of February 15, 2018, Cerro Verde will file a complaint with the SUNAT against said resolutions, SUNAT denied it. On November 21, 2018, Cerro Verde appealed the resolution of SUNAT against the Peruvian Tax Tribunal. As of December 31, 2015,2018, the amount of fiscal assessments by SUNAT including interest and penalties of the fourth quarter of the year 2011 is S/53.7 million (approximately US$15.9 million at the year-end exchange rate as of December 31, 2018, including interest and penalties of US$8.7 million). On January 18, 2018, SUNAT notified the resolution determination for royalties for the fourth quarter of 2011 to fourth quarter of the year 2012. On February 15, 2018, Cerro Verde has made payments totaling S/219 million (equivalent to US$64 million) underfiled a complaint with the installment program. Based onSUNAT against the results rendered by the Eighteenth Contentious Administrative Court as is described in the previous paragraph,resolutions, SUNAT denied it. On November 21, 2018 Cerro Verde requested an injunction that was accepted byappealed the Judiciary and implied a modificationresolution of SUNAT against the installment program excluding the 2008 portion through SUNAT’s resolution notified to Cerro Verde on October 29, 2015.

In July 2013, a hearing on SUNAT's assessment for 2009 was held, but no decision has been issued by thePeruvian Tax Tribunal for that year.Tribunal. As of December 31, 2015,2018, the amount of fiscal assessments by SUNAT including interest and penalties amounts to S/234.0 million (approximately US$69.3 million at the assessment,year-end exchange rate as of December 31, 2018, including interest and penalties of US$33.3 million).

F-88

On April 18, 2018, SUNAT notified the resolutions for the determination of royalties for 2012. On May 17, 2018, Cerro Verde filed a complaint with the SUNAT against said resolutions. On January 23, 2019 Cerro Verde received the resolution issued by SUNAT declaring the claim unfounded for 2012. Cerro Verde is evaluating the steps to be followed. As of December 31, 2018, the amount of fiscal assessments by SUNAT including interest and penalties for the year 2009 was2012 is S/247240.9 million (approximately US$7271.3. million based onat the year-end exchange rate as of December 31, 2015, exchange rates)2018, including interest and penalties of US$37.4 million).

On October 10, 2018, SUNAT notified the resolutions on determination of royalties and special tax on mining in 2013. On November 7, 2018, Cerro Verde filed a complaint with the SUNAT against the resolutions. As of December 31, 2015,2018, the amount of assessments including interests and penalties amounts to S/303.8 million (approximately US$89.9 million at the year-end exchange rate as of December 31, 2018, including interest and penalties of US$41.4 million).

For the year ended December 31, 2018, Cerro Verde estimates thatrecorded in the statement of profit and loss charges related to interests and penalties of fiscal assessments of royalties for the period from January 2009 to December 2013 for a total amount of US$408.9 million. For the year ended December 31, 2017, Cerro Verde recorded in the statement of profit and loss net charges for the total exposure associated with miningamount of US$393 million related to fiscal assessments of royalties for the period from December 2006 to December 2013, including accumulated interest and penalties, amounted to approximately US$500 million at December 31, 2015 exchange rates.2013.

 

AsIn December of December 31, 2015, no2017, as a result of the unfavorable decision of the Supreme Court on the case of mining royalties in 2008, Cerro Verde requested the return of the amounts were accrued for these assessments orthat it would have paid in excess for the amounts paid underSpecial Mining Tax (GEM) (October 2012 to December 2013), National Housing Fund (FONAVI) (December 2012 to December 2013) and customs duties (2013). In December of 2018 SUNAT returned the installment payment program because managementexcess payments by GEM for the periods requested for S/254.7 million (US$76.1 million based on the collection date and its external legal advisors believe Cerro Verde’s 1998 stability agreement exempted itincludes US$18.6 million of interests).

Other assessments received from these royalties and believes that the resolution will be favorable to Cerro Verde and any payments should be recoverable.SUNAT

-Other taxes

Cerro Verde has also received assessments from SUNAT for additional taxes (other than the mining royalty explained above)royalty), including penalties and interest. 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:

 

Fiscal Year Taxes Interest and fines Total 
Year Taxes Penalty and
interest		 Total 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
2002 – 2005  16,037   52,800   68,837 
2003 – 2005  12,220   46,710   58,930 
2006  6,545   47,662   54,207   10,990   51,938   62,928 
2007  12,376   17,809   30,185   12,376   17,845   30,221 
2008  20,797   12,968   33,765   20,797   12,968   33,765 
2009  56,198   47,719   103,917   56,388   51,219   107,607 
2010  65,997   89,404   155,401   62,581   105,225   167,806 
2014  5,512   -   5,512 
2015  3,753   -   3,753 
2011  49,055   65,068   114,123 
2014 - 2018  32,148   -   32,148 
                       
  187,215   268,362   455,577   256,555   350,973   607,528 

 

As of December 31, 2015,2018, Cerro Verde has paid US$180,741,000 on these disputed tax assessments,385.7 million from which it believes is collectible.Cerro Verde considers that US$183.2 million will be recovered.

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/ 12.4 million (US$ 3.6 million). In Management's and its legal counsel’s opinion, that interpretation has no support so Yanacocha should get a favorable outcome in the appeal initiated.

 

  F-80F-89 

 

 

NotesYanacocha -

The Tax Administration challenged the withholding tax rate applied on the technical assistance services provided by a non-resident supplier in the years 2002 and 2003. The services were executed in Peru and also abroad; however, Yanacocha 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%. Currently there is no contingency in this regard. The debt has been paid by Yanacocha.

The Tax Administration considers that the bonus for closing the collective agreement and the collateral benefits granted to the consolidated financial statements(continued)

-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/ 6.5 million (US$ 2 million).

unionized and non-unionized employees qualify as remunerative concepts; hence, taxed with the contribution to ESSALUD. The contingency amounts to S/12 million (US$3.5 million) for the years 2011 and 2012. In Yanacocha Management's and its legal counsel’s opinion, that interpretation has no support soand Yanacocha should getobtain a favorable outcome in thetax court appeal initiated against the tax authorities.

 

30. In 2000, Yanacocha paid a total of US$29 million to assume their respective contractual positions in mining concession agreements with Chaupiloma Dos de Cajamarca S.M.R.L. The contractual rights allowed Yanacocha the opportunity to conduct exploration on the concessions, but not a purchase of the concessions. The tax authority alleges that the payments were acquisitions of mining concessions requiring the amortization of the amounts under the Peru Mining Law over the life of the mine. Yanacocha expensed the amounts at issue in the initial year since the payments were not for the acquisition of a concession but rather these expenses represent the payment of an intangible and therefore, amortizable in a single year or proportionally for up to ten years according to Income Tax Law. In 2010, the Tax Court in Peru ruled in favor of Yanacocha and the tax authority appealed the issue to the judiciary. The first appellate court confirmed the ruling of the Tax Court in favor of Yanacocha. However, in November, 2015, a Superior Court in Peru made an appellate decision overturning the two prior findings in favor of Yanacocha. Yanacocha has appealed the Superior Court ruling to the Peru Supreme Court. On January 22 Yanacocha was notified by the Peru Supreme Court that the number of votes that the law requires for approving a resolution (4 votes) has not been reached (2 for Yanacocha’s position and 3 for SUNAT’s position), a sixth Justice of the Supreme Court has been designated to issue an additional vote and a new oral hearing has been scheduled for April 2019. The potential liability in this matter is in the form of fines and interest in an amount up to US$84 million. While Yanacocha has assessed that the likelihood of a ruling against Yanacocha in the Supreme Court as remote under a legal perspective, there is a problem in understanding the real nature of the assignment of contractual position agreement that generates that the contingency, in the face of the new evidence, would became possible. Thus, it is not possible to fully predict the outcome of this litigation.

F-90

30.Transactions with associates companies

(a)The Group has carried out the following transactions with its associates in the years 2015, 20142018, 2017 and 2013:2016:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Royalties collected to Minera Yanacocha S.R.L.:            
S.M.R.L. Chaupiloma Dos de Cajamarca (c)  32,414   36,867   44,185 
             
Services provided to Minera Yanacocha S.R.L. by:            
Consorcio Energético de Huancavelica S.A. (electric power transmission)  1,694   915   915 
Buenaventura Ingenieros S.A (execution of specific work orders)  845   699   699 
             
Dividends received by:             
Compañía Minera Coimolache S.A.  6,691   12,938   9,803 
             
Loans granted to:            
Sociedad Minera Cerro Verde S.A.A.  124,800   -   - 
             
Sales of supplies to Compañía Minera Coimolache S.A. by:            
Minera La Zanja S.R.L.  74   10   - 
Compañía de Minas Buenaventura S.A.A.  56   913   32 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Revenues from:            
Royalties  20,385   20,739   24,339 
             
Revenues from sale of:            
Energy  3,002   2,137   1,679 
Mineral  1,321   1,414   1,271 
Mining concessions, property, plant and equipment  30   336   - 
Supplies  27   4   1 
             
Purchase of:            
Supplies  44   27   21 
             
Services rendered to:            
Services of energy transmission  393   559   - 
Engineering services  348   1,119   1,001 
Operation and maintenance services  290   593   1,247 
Administrative and Management services  214   149   200 
Constructions services  -   1,332   1,152 
             
Dividends received and collected from:            
Sociedad Minera Cerro Verde S.A.A.  39,169   -   - 
Compañía Minera Coimolache S.A.  7,623   9,823   11,390 
Minera Yanacocha S.R.L.  -   -   130,950 
             
Loans collected to:            
Sociedad Minera Cerro Verde S.A.A.  -   124,800   - 
             
Interest income:            
Transportadora Callao S.A.  92   -   - 
Sociedad Minera Cerro Verde S.A.A.  -   1,685   4,161 
Compañía Minera Coimolache S.A.  -   -   3 
             
Dividends paid to non-controlling shareholders:            
Newmont Peru Limited - Sucursal del Perú  5,560   6,036   7,400 

 

  F-81F-91 

 

Notes to the consolidated financial statements(continued)

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Sales of mineral to Minera Yanacocha S.R.L. by:            
Compañía de Minas Buenaventura S.A.A.  2,114   3,258   7,146 
             
Energy sales to Compañía Minera Coimolache S.A. by:            
Empresa de Generación Huanza S.A.  1,676   233   - 
             
Interest income over loans granted by Compañía Minera Coimolache S.A. to:            
Consorcio Energético de Huancavelica S.A.A.  19   35   51 
             
Supplies purchase to Compañía Minera Coimolache S.A. by:            
Compañía de Minas Buenaventura S.A.A.  29   6   59 
Minera La Zanja S.R.L.  6   24   12 
             
Contributions and investments made to:            
Canteras del Hallazgo S.A.C.  -   2,012   6,988 

 

(b)As a result of the transactions indicated in the paragraph (a), the Group had the following accounts receivable and payable from/to associates:

 

  2015  2014 
  US$(000)  US$(000) 
       
Trade receivables -        
Minera Yanacocha S.R.L. (c)  8,760   14,566 
Compañía Minera Coimolache S.A.  666   515 
   9,426   15,081 
Other receivables        
Sociedad Minera Cerro Verde S.A.A. (d)  124,988   - 
Compañía Minera Coimolache S.A.  499   334 
   125,487   334 
         
Total trade and other receivables  134,913   15,415 
         
Classification by maturity:        
Current portion  9,925   15,415 
Non-current portion  124,988   - 
         
Total trade and other receivables  134,913   15,415 

 F-82

Notes to the consolidated financial statements(continued)

  2015  2014 
  US$(000)  US$(000) 
         
Trade payables -        
Compañía Minera Coimolache S.A.  892   1,384 
Minera Yanacocha S.R.L.  283   410 
       
Total trade and other payables  1,175   1,794 
         
Classification by maturity:        
Current portion  1,175   1,611 
Non-current portion  -   183 
         
Total trade and other payables  1,175   1,794 
  2018  2017 
  US$(000)  US$(000) 
       
Trade and other receivables        
Minera Yanacocha S.R.L.  6,791  ��6,740 
Compañía Minera Coimolache S.A.  386   592 
Sociedad Minera Cerro Verde S.A.A.  -   16 
   7,177   7,348 
Other receivables        
Transportadora Callao S.A. (e)  2,471   - 
Compañía Minera Coimolache S.A.  1,234   732 
   3,705   732 
   10,882   8,080 
         
Trade and other payables        
Compañía Minera Coimolache S.A.  36   15 
         
Other payables        
Compañía Minera Coimolache S.A.  -   42 
Other  20   20 
   20   62 
   56   77 

 

(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)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, 2015, Cerro Verde had borrowed US$600.9 million under these loan agreements (US$125 million with Buenaventura as of December 31, 2015). 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 -

As of December 31, 20152018 and 2014, directors, officers and employees of the Group have been involved, directly and indirectly, in financial transactions with certain subsidiaries. As of December 31, 2015 and 2014,2017, loans to employees, directors and key personnel amounts to US$61,00019,000 and US$27,000,47,000, 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.

 

F-92

The Group’s key executives’ compensation (including the related income taxes assumed by the Group) as of December 31, 2015for the years 2018 and 20142017 are presented below:

 

 2018 2017 
 2015 2014  US$(000) US$(000) 
 US$(000) US$(000)      
Accounts payable:                
Directors’ remuneration  2,192   1,641 
Salaries  3,381   1,225   1,057   1,257 
Directors’ compensations  1,047   1,090   2,628   1,200 
Share-based compensation plans  330   461 
Provision for bonus to officers  6,345   1,899 
                
Total  4,758   2,776   12,222   5,997 
        
Disbursements:                
Salaries  7,864   8,423   12,908   10,530 
Share-based compensation plans  -   1,599 
        
Total  7,864   10,022 

 

 F-83(e)The account receivable from Consorcio Transportadora Callao corresponds to the disbursements made between 2011 and 2013 by the subsidiary El Brocal in order to participate in the joint venture, whose objective was the construction of a fixed conveyor belt of minerals and deposits in the Port of Callao. This account receivable generates interest at an annual rate of 6.25 percent plus Libor at 3 months and it is estimated that it will be collected from the year 2023.

Notes to the consolidated financial statements(continued)

 

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;minerals
-Exploration and development activities;
-Construction and engineering services;activities
-Energy generation and transmission services;services
-Insurance brokerage;brokerage
-Rental of mining concessions;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.

 

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.

 

F-93

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;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);Tambomayo).
-Exploration activities in non-operating areas, carried out directly by the Parent company and not by the consolidated separate legal entities;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.method.

 

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 11note 10 to the consolidated financial statements;statements.

 F-84

Notes to the consolidated financial statements(continued)

-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.

 

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 and cost of sales;sales.
-The elimination of any equity pickup profit or loss of the subsidiaries of the Parent company.

 F-85

Notes to the consolidated financial statements(continued)

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;company.
-The elimination of intercompany receivables and payables.

 

Refer to Note 21 (a)20(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 21 (b)20(b) to the consolidated financial statements for information about major customers (clients representing more than 10%10 percent of the Group’s revenues).

 

All non-current assets are located in Peru.

 

  F-86

Notes to the consolidated financial statements(continued)

                                               Equity accounted investees          
  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Breapampa
(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)  US$(000) 
Year 2015                                                                                    
Results:                                                                                    
Continuing operations                                                                                    
Operating income                                                                                    
Net sale of goods  166,055   254,118   50,254   32,018   22,343   171,294   161,007   -   -   -   -   -   -   -   168,667   1,031,174   1,115,617   177,347   3,349,894   (2,484,932)  864,962 
Net sale of services  -   -   -   -   -   -   -   -   48,758   48,339   11,929   -   -   17,048   -   10,625   -   -   136,699   (82,211)  54,488 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   32,414   -   -   -   -   -   -   32,414   -   32,414 
Total operating income  166,055   254,118   50,254   32,018   22,343   171,294   161,007   -   48,758   48,339   11,929   32,414   -   17,048   168,667   1,041,799   1,115,617   177,347   3,519,007   (2,567,143)  951,864 
Operating costs                                                                                    
Cost of sales  (126,728)  (112,707)  (26,725)  (20,709)  (11,529)  (158,804)  (106,750)  -   -   -   -   -   -   -   (169,236)  (751,736)  (862,004)  (104,549)  (2,451,477)  1,913,764   (537,713)
Cost of services  -   -   -   -   -   -   -   -   (48,544)  (20,767)  -   -   -   (16,820)  -   (2,524)  -   -   (88,655)  35,963   (52,692)
Exploration in operating units  (27,784)  (41,705)  (12,699)  (7,539)  (1,821)  -   (41)  -   -   -   -   -   -   -   -   -   -   -   (91,589)  69   (91,520)
Depreciation and amortization  (15,767)  (17,313)  (11,349)  (15,439)  (9,882)  (45,752)  (104,984)  (17)  (850)  (10,260)  -   (54)  (226)  (9,545)  (1,027)  -   -   -   (242,465)  -   (242,465)
Mining royalties  (1,142)  (23,877)  (337)  (234)  (219)  -   (1,597)  -   -   -   -   -   -   -   (1)  -   -   -   (27,407)  -   (27,407)
Total operating costs  (171,421)  (195,602)  (51,110)  (43,921)  (23,451)  (204,556)  (213,372)  (17)  (49,394)  (31,027)  -   (54)  (226)  (26,365)  (170,264)  (754,260)  (862,004)  (104,549)  (2,901,593)  1,949,796   (951,797)
Gross profit (loss)  (5,366)  58,516   (856)  (11,903)  (1,108)  (33,262)  (52,365)  (17)  (636)  17,312   11,929   32,360   (226)  (9,317)  (1,597)  287,539   253,613   72,798   617,414   (617,347)  67 
Operating expenses                                                                                    
Administrative expenses  (10,739)  (16,698)  (3,623)  (2,080)  (2,160)  (19,181)  (2,251)  (1,444)  (7,859)  (3,422)  (11,296)  (106)  (209)  (654)  (11,370)  (26,325)  -   (2,185)  (121,602)  35,070   (86,532)
Exploration in non-operating areas  -   -   -   -   -   (2,366)  (8,954)  (15,892)  -   -   -   -   -   -   (5,685)  -   -   -   (32,897)  2,287   (30,610)
Selling expenses  (3,552)  (851)  (1,055)  (1,424)  (116)  (9,056)  (1,207)  -   -   (806)  -   -   -   (1,411)  (3)  (3,534)  (56,215)  (1,111)  (80,341)  60,860   (19,481)
Other, net  1,836   (1,182)  (125)  (67)  172   (2,657)  (687)  (1,095)  7,417   (305)  (4)  -   793   98   6,329   (82,846)  (26,600)  765   (98,158)  98,367   209 
Impairment loss of long-lived assets                  (7,452)  -   (3,803)  -   -   -   -   -   -   -   -   -   -   (672)  (11,927)  672   (11,255)
Total operating expenses, net  (12,455)  (18,731)  (4,803)  (3,571)  (9,556)  (33,260)  (16,902)  (18,431)  (442)  (4,533)  (11,300)  (106)  584   (1,967)  (10,729)  (112,705)  (82,815)  (3,203)  (344,925)  197,256   (147,669)
Operating profit (loss)  (17,821)  39,785   (5,659)  (15,474)  (10,664)  (66,522)  (69,267)  (18,448)  (1,078)  12,779   629   32,254   358   (11,284)  (12,326)  174,834   170,798   69,595   272,489   (420,091)  (147,602)
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  (195)  (235)  (152)  (108)  (50)  (10,096)  (3,684)  (215)  (1,413)  (8,817)  (21)  (4)  (1)  (842)  (4,043)  -22,734   (16,010)  (51)  (68,671)  41,049   (27,622)
Net gain (loss) from currency exchange difference  539   461   378   75   10   (3,832)  (1,973)  (1,797)  (1,393)  (1,586)  (165)  45   4   (2,162)  (2,287)  (251)  (75,770)  (1,300)  (91,004)  77,321   (13,683)
Finance income  5   5   2   -   -   154   16   -   182   23   13   -   -   -   10,785   673   512   23   12,393   (1,367)  11,026 
Total other income (expense), net  349   231   228   (33)  (40)  (13,774)  (5,641)  (2,012)  3,937   (9,902)  (171)  41   (187,266)  (3,004)  (264,008)  (22,312)  (91,268)  (1,328)  (595,973)  392,319   (203,654)
Profit (loss) before income tax  (17,472)  40,016   (5,431)  (15,507)  (10,704)  (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   (323,484)  (27,772)  (351,256)
Income tax  (518)  (602)  (140)  (78)  (3)  4,109   5,702   -   (4,386)  (3,887)  (299)  (9,186)  (87)  584   (5,975)  (602,717)  (46,246)  (29,861)  (693,590)  678,824   (14,766)
Profit (loss) from continued operations  (17,990)  39,414   (5,571)  (15,585)  (10,707)  (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   (1,017,074)  651,052   (366,022)
Loss from discontinued operations, see Note 1(e)                                                                                  (9,523)
Net loss                                                                                  (375,545)
                                                                                     
Total assets  -   -   -   -   -   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  -   -   -   -   -   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  -   -   -   -   -   -   -   -   -   -   -   -   -   -   3,519   989,130   988,725   62,609   2,043,983   -   2,043,983 
Additions to mining concessions, development  costs, property, plant and equipment  22,669   3,151   4,795   3,234   1,988   55,073   62,968   57,173   527   6,159   85   -   1,205   2,140   66,918   -   -   -   288,085   -   288,085 

 F-87F-94 

 

 

Notes to the consolidated financial statements (continued)

                                            Equity accounted investees          
  Uchucchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Tambomayo
(Operation)		  Colquijirca
(Operation)		  La Zanja
(Operation)		  Exploration and
development
mining projects		  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 2018                                                                                
Results:                                                                                
Continuing operations                                                                                
Operating income:                                                                                
Net sale of goods  257,282   153,003   34,104   16,666   225,281   333,560   96,611   -   -   -   -   -   6,655   -   635,393   3,054,026   225,447   5,038,028   (3,915,033)  1,122,995 
Net sale of services  -   -   -   -   -   -   -   -   62,962   14,986   -   615   19,908   -   21,965   -   -   120,436   (96,435)  24,001 
Royalty income  -   -   -   -   -   -   -   -   -   -   20,385   -   -   -   -   -   -   20,385   -   20,385 
Total operating income  257,282   153,003   34,104   16,666   225,281   333,560   96,611   -   62,962   14,986   20,385   615   26,563   -   657,358   3,054,026   225,447   5,178,849   (4,011,468)  1,167,381 
                                                                                 
Operating costs                                                                                
Cost of sales of goods, excluding depreciation and amortization  (151,817)  (97,006)  (26,558)  (12,103)  (92,829)  (216,560)  (68,993)  -   -   -   -   -   (6,280)  -   (596,164)  (2,216,663)  (170,866)  (3,655,839)  3,030,355   (625,484)
Cost of services, excluding depreciation and amortization  -   -   -   -   -   -   -   -   (25,499)  -   -   -   (8,966)  -   (2,217)  -   -   (36,682)  32,364   (4,318)
Exploration in operating units  (20,898)  (29,563)  (8,646)  (613)  (20,553)  (9,996)  (74)  -   -   -   -   -   -   -   -   -   -   (90,343)  -   (90,343)
Depreciation and amortization  (26,181)  (8,802)  (3,353)  (2,407)  (77,029)  (67,666)  (34,088)  -   (10,248)  -   -   -   (11,483)  -   -   -   -   (241,257)  (29)  (241,286)
Mining royalties  (2,243)  (13,669)  (237)  (138)  (1,936)  (2,345)  (957)  -   -   -   -   -   -   -   -   -   -   (21,525)  (1)  (21,526)
Total operating costs  (201,139)  (149,040)  (38,794)  (15,261)  (192,347)  (296,567)  (104,112)  -   (35,747)  -   -   -   (26,729)  -   (598,381)  (2,216,663)  (170,866)  (4,045,646)  3,062,689   (982,957)
Gross profit (loss)  56,143   3,963   (4,690)  1,405   32,934   36,993   (7,501)  -   27,215   14,986   20,385   615   (166)  -   58,977   837,363   54,581   1,133,203   (948,779)  184,424 
                                                                                 
Operating expenses, net                                                                                
Administrative expenses  (24,119)  (15,100)  (2,524)  (1,661)  (17,822)  (9,906)  (3,435)  (3,143)  (3,972)  (11,900)  (220)  (512)  (1,627)  2,377   (2,783)  -   (5,644)  (101,991)  23,231   (78,760)
Exploration in non-operating areas  (18,339)  -   -   -   -   (7,199)  (5,002)  (2,883)  -   -   -   -   -   (4,091)  -   -   -   (37,514)  1,207   (36,307)
Selling expenses  (8,213)  (775)  (356)  (574)  (3,046)  (12,201)  (784)  -   (1,173)  -   -   -   (924)  -   (2,627)  -   (1,135)  (31,808)  4,286   (27,522)
Provision for contingences and others  6,784   (121)  947   (9)  1,263   (3,711)  (57)  6,130   (56)  -   -   -   2   (111)  -   -   -   11,061   178   11,239 
Impairment recovery of long-lived assets  -   -   -   -   -   -   5,693   -   -   -   -   -   -   -   -   -   -   5,693   -   5,693 
Other, net  (5,953)  (3,386)  (1,050)  (3,704)  (5,599)  32,565   (669)  138   562   -       2,773   194   (2,235)  (76,155)  -   (325)  (62,844)  57,832   (5,012)
Total operating expenses, net  (49,840)  (19,382)  (2,983)  (5,948)  (25,204)  (452)  (4,254)  242   (4,639)  (11,900)  (220)  2,261   (2,355)  (4,060)  (81,565)  -   (7,104)  (217,403)  86,734   (130,669)
                                                                                 
Operating profit (loss)  6,303   (15,419)  (7,673)  (4,543)  7,730   36,541   (11,755)  242   22,576   3,086   20,165   2,876   (2,521)  (4,060)  (22,588)  837,363   47,477   915,800   (862,045)  53,755 
Other income (expense),net                                                                                
Finance costs  (308)  (395)  (95)  (34)  (262)  (10,365)  (1,946)  (222)  (7,576)  (2)  (11)  (25)  (932)  (17,194)  (39,024)  (426,733)  (2,935)  (508,059)  469,603   (38,456)
Net gain (loss) from currency exchange difference  196   168   8   19   209   108   (224)  (846)  (346)  19   18   2   (482)  (206)  (2,056)  6,161   (852)  1,896   (3,262)  (1,366)
Share in the results of associates under equity method  -   -   -   -   -   -   -   -   8,589   -   -   (25,517)  -   15,081   -   -   -   (1,847)  703   (1,144)
Finance income  -   -   -   -   -   418   1,649   -   179   -   21   8   127   9,293   11,448   28,089   358   51,590   (41,904)  9,686 
Total other income (expense), net  (112)  (227)  (87)  (15)  (53)  (9,839)  (521)  (1,068)  846   17   28   (25,532)  (1,287)  6,974   (29,632)  (392,483)  (3,429)  (456,420)  425,140   (31,280)
                                                                                 
Profit (loss) before income tax  6,191   (15,646)  (7,760)  (4,558)  7,677   26,702   (12,276)  (826)  23,422   3,103   20,193   (22,656)  (3,808)  2,914   (52,220)  444,880   44,048   459,380   (436,905)  22,475 
Income tax current  (768)  (559)  (72)  (47)  (656)  (8,332)  (24)  -   -   -   (6,025)  (444)  (2)  -   (30,368)  (325,170)  (23,405)  (395,872)  378,944   (16,928)
Income tax deferred  -   -   -   -   -   (10,803)  (1,220)  -   (7,584)  -   -   -   106   9,514   1,071   -   4,942   (3,974)  (6,024)  (9,998)
Profit (loss) from continued operations  5,423   (16,205)  (7,832)  (4,605)  7,021   7,567   (13,520)  (826)  15,838   3,103   14,168   (23,100)  (3,704)  12,428   (81,517)  119,710   25,585   59,534   (63,985)  (4,451)
                                                                                 
Loss from discontinued operations, see note 1(e)                                                                              (7,203)
Net loss                                                                              (11,654)
                                                                                 
Total assets  126,374   39,725   39,537   13,793   461,335   773,554   158,718   372,344   366,354   12,154   7,154   520,484   106,391   2,407,754   2,047,472   7,554,712   361,669   15,369,524   (11,152,303)  4,217,221 
Total liabilities  45,227   30,749   29,469   6,685   28,502   340,735   68,615   18,986   197,152   4,597   2,653   603   20,671   419,208   1,463,749   2,445,840   125,307   5,248,748   (4,061,092)  1,187,656 
Other segment information                                                                                
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   1,473,382   -   -   -   1,473,382   -   1,473,382 
Additions to mining concessions, development  costs, property, plant and equipment  18,429   6,225   2,984   1,810   18,858   29,572   13,159   17,141   118   -   -   -   1,816   1,158   -   -   -   111,270   -   111,270 

                                               Equity accounted investees          
  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Breapampa
(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)  US$(000) 
                                                                                     
Year 2014                                                                                    
Results:                               ��                                                    
Continuing operations                                                                                    
Operating income                                                                                    
Net sale of goods  202,543   264,049   49,767   42,974   108,468   210,002   185,286   -   -   -   -   -   -   -   187,503   1,165,299   1,467,097   192,369   4,075,357   (3,008,086)  1,067,271 
Net sale of services  -   -   -   -   -   -   -   -   66,853   38,906   10,608   -   -   13,976   -   20,705   -   -   151,048   (79,406)  71,642 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   36,867   -   -   -   -   -   -   36,867   -   36,867 
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  (149,251)  (113,467)  (26,364)  (22,583)  (37,897)  (122,995)  (84,381)  -   -   -   -   -   -   -   (186,650)  (910,705)  (797,481)  (100,649)  (2,552,423)  2,019,371   (533,052)
Cost of services  -   -   -   -   -   -   -   -   (68,964)  (19,252)  -   -   -   (12,703)  -   (22,422)  -   -   (123,341)  41,854   (81,487)
Exploration in operating units  (26,633)  (51,814)  (10,981)  (7,807)  (495)  -   (120)  -   -   -   -   -   -   -   (2)  -   -   -   (97,852)  -   (97,852)
Depreciation and amortization  (15,293)  -23,266   (11,769)  (24,742)  (35,699)  (26,974)  (53,158)  -   (717)  (8,683)  -   (74)  (231)  (7,224)  (868)  -   -   -   (208,698)  -   (208,698)
Mining royalties  (1,893)  (24,113)  (466)  (401)  (1,012)  -   (555)  -   -   -   -   -   -   -   -   -   -   -   (28,440)  -   (28,440)
Total operating costs  (193,070)  (212,660)  (49,580)  (55,533)  (75,103)  (149,969)  (138,214)  -   (69,681)  (27,935)  -   (74)  (231)  (19,927)  (187,520)  (933,127)  (797,481)  (100,649)  (3,010,754)  2,061,225   (949,529)
Gross profit (loss)  9,473   51,389   187   (12,559)  33,365   60,033   47,072   -   (2,828)  10,971   10,608   36,793   (231)  (5,951)  (17)  252,877   669,616   91,720   1,252,518   (1,026,267)  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  -   (7,294)  -   -   -   (5,085)  (19,689)  (14,399)  -   -   -   -   -   -   (3,540)  -   -   -   (50,007)  -   (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 of long-lived assets  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   (541,141)  -   -   (541,141)  541,141   - 
                                                                                     
Total operating expenses, net  (14,429)  (23,669)  (9,017)  (3,553)  (7,852)  (29,596)  (29,883)  (17,014)  (8,065)  3,041   (8,792)  (114)  443   (600)  (7,443)  (661,642)  (57,839)  (2,222)  (878,246)  713,591   (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  -   -   -   -   -   -   -   -   (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)
                                                                                     
Loss from discontinued 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-88F-95

                                               Equity accounted investees          
  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Tambomayo
(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)  US$(000) 
Year 2017                                                                                    
Results:                                                                                    
Continuing operations                                                                                    
Operating income                                                                                    
Net sale of goods  272,334   256,960   42,785   36,736   118,966   322,653   165,319   -   -   -   -   -   -   6,317   34,650   645,176   3,202,931   203,790   5,308,617   (4,084,675)  1,223,942 
Net sale of services  -   -   -   -   -   -   -   -   10,603   60,639   14,377   -   615   19,658   -   21,870   -   -   127,762   (98,065)  29,697 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   20,739   -   -   -   -   -   -   20,739   -   20,739 
Total operating income  272,334   256,960   42,785   36,736   118,966   322,653   165,319   -   10,603   60,639   14,377   20,739   615   25,975   34,650   667,046   3,202,931   203,790   5,457,118   (4,182,740)  1,274,378 
Operating costs                                                                                    
Cost of sales of goods, excluding depreciation and amortization  (143,288)  (115,574)  (31,190)  (22,783)  (53,555)  (193,874)  (102,474)  -   -   -   -   -   -   (6,043)  (34,029)  (746,918)  (1,768,238)  (121,021)  (3,338,987)  2,711,554   (627,433)
Cost of services, excluding depreciation and amortization  -   -   -   -   -   -   -   -   (9,393)  (25,556)  -   -   -   (9,354)  -   (2,062)  -   -   (46,365)  33,411   (12,954)
Exploration in operating units  (27,068)  (38,820)  (13,009)  (5,617)  (9,543)  -   (871)  -   -   -   -   -   -   -   -   -   -   -   (94,928)  -   (94,928)
Depreciation and amortization  (23,899)  (8,846)  (8,122)  (3,568)  (42,789)  (57,199)  (48,385)  -   (129)  (9,651)  -   -   -   (11,134)  -   -   -   -   (213,722)  -   (213,722)
Mining royalties  (2,280)  (22,436)  (354)  (333)  (998)  (3,317)  (1,499)  -   -   -   -   -   -   -   -   -   -   -   (31,217)  -   (31,217)
Total operating costs  (196,535)  (185,676)  (52,675)  (32,301)  (106,885)  (254,390)  (153,229)  -   (9,522)  (35,207)  -   -   -   (26,531)  (34,029)  (748,980)  (1,768,238)  (121,021)  (3,725,219)  2,744,965   (980,254)
Gross profit (loss)  75,799   71,284   (9,890)  4,435   12,081   68,263   12,090   -   1,081   25,432   14,377   20,739   615   (556)  621   (81,934)  1,434,693   82,769   1,731,899   (1,437,775)  294,124 
Operating expenses, net                                                                                    
Administrative expenses  (19,473)  (18,281)  (2,878)  (2,931)  (9,139)  (13,061)  (2,814)  (1,604)  (3,606)  (2,423)  (12,288)  (90)  (413)  (1,203)  443   (4,760)  -   (3,829)  (98,350)  14,753   (83,597)
Exploration in non-operating areas  (2,676)  -   -   -   (3,214)  (1,976)  (2,870)  (2,771)  -   -   -   -   -   -   (5,052)  -   -   -   (18,559)  297   (18,262)
Selling expenses  (6,078)  (1,016)  (605)  (1,045)  (1,387)  (10,914)  (881)  -   -   (1,264)  -   -   -   (775)  (167)  (3,922)  (141,669)  (946)  (170,669)  146,581   (24,088)
Impairment loss of long-lived assets  -   -   -   -   -   -   (21,620)  -   -   -   -   -   -   -   -   -   -   -   (21,620)  -   (21,620)
Provision for contingences and others  (7,040)  (1)  (460)  (139)  (1,002)  -   (1,370)  (4,657)  100   312   -   -   -   -   378   -   -   -   (13,879)  -   (13,879)
Write –off of stripping activity asset  -   -   -   -   -   (13,573)  -   -   -   -   -   -   -   -   -   -   -   -   (13,573)  -   (13,573)
Other, net  (1,799)  (715)  (1,403)  (359)  (175)  (2,922)  (970)  (94)  1,129   (94)  (4)  (1)  -   216   (2,012)  (63,512)  (258,826)  (587)  (332,128)  318,539   (13,589)
Total operating expenses, net  (37,066)  (20,013)  (5,346)  (4,474)  (14,917)  (42,446)  (30,525)  (9,126)  (2,377)  (3,469)  (12,292)  (91)  (413)  (1,762)  (6,410)  (72,194)  (400,495)  (5,362)  (668,778)  480,170   (188,608)
Operating profit (loss)  38,733   51,271   (15,236)  (39)  (2,836)  25,817   (18,435)  (9,126)  (1,296)  21,963   2,085   20,648   202   (2,318)  (5,789)  (154,128)  1,034,198   77,407   1,063,121   (957,605)  105,516 
Other income (expense),net                                                                                    
Share in the results of associates under equity method  -   -   -   -   -   -   -   -   -   8,573   -   -   (66,187)  -   21,194   -   -   -   (36,420)  49,627   13,207 
Finance income  -   -   -   -   -   179   670   -   -   139   1   7   1   79   5,614   5,831   5,350   220   18,091   (12,574)  5,517 
Net gain (loss) from currency exchange difference  31   (63)  (75)  (11)  10   310   48   537   105   294   (75)  (41)  (4)  497   1,365   3,636   13,288   (174)  19,678   (16,750)  2,928 
Finance costs  (285)  (354)  (106)  (72)  (372)  (12,017)  (1,919)  (131)  (370)  (10,354)  (6)  (2)  (2)  (941)  (8,980)  (23,766)  (216,912)  (3,304)  (279,893)  245,270   (34,623)
Total other income (expense), net  (254)  (417)  (181)  (83)  (362)  (11,528)  (1,201)  406   (265)  (1,348)  (80)  (36)  (66,192)  (365)  19,193   (14,299)  (198,274)  (3,258)  (278,544)  265,573   (12,971)
Profit (loss) before income tax  38,479   50,854   (15,417)  (122)  (3,198)  14,289   (19,636)  (8,720)  (1,561)  20,615   2,005   20,612   (65,990)  (2,683)  13,404   (168,427)  835,924   74,149   784,577   (692,032)  92,545 
Income tax  (1,101)  (1,085)  (153)  (124)  (538)  (3,903)  6,841   -   (400)  (3,491)  (742)  (6,044)  (38)  1,818   (9,052)  (7,026)  (486,043)  (23,362)  (534,443)  516,431   (18,012)
Profit (loss) from continued operations  37,378   49,769   (15,570)  (246)  (3,736)  10,386   (12,795)  (8,720)  (1,961)  17,124   1,263   14,568   (66,028)  (865)  4,352   (175,453)  349,881   50,787   250,134   (175,601)  74,533 
Loss from discontinued operations, see note 1(e)                                                                                  (10,098)
Net profit                                                                                  64,435 
Total assets  146,464   54,114   20,922   18,923   538,057   792,594   190,310   342,759   14,004   360,610   9,004   6,611   988,841   109,669   1,931,224   2,019,332   7,691,007   380,534   15,614,979   (11,282,166)  4,332,813 
Total liabilities  49,723   42,242   18,099   6,092   32,501   388,899   87,008   14,527   5,153   205,247   4,616   2,378   414   20,245   425,413   1,360,217   2,501,845   150,743   5,315,362   (4,046,176)  1,269,186 
                                                                                     
Other segment information                                                                                    
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   -   1,536,887   -   -   -   1,536,887   -   1,536,887 
Additions to mining concessions, development  costs, property, plant and equipment  18,127   12,674   1,951   1,796   131,119   61,060   17,326   13,733   3   852   14   -   -   459   393   -   -   -   259,507   -   259,507 

F-96 

 

 

Notes to the consolidated financial statements (continued)

 Ucchuchacua
(Operation)		 Orcopampa
(Operation)		 Julcani
(Operation)		 Mallay
(Operation)		 Breapampa
(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		 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)		 Tambomayo
(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)  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 2013                                                                                
                                           
Year 2016                                                                                    
Results:                                                                                                                                                                    
Continuing operations                                                                                                                                                                    
Operating income                                                                                                                                                                    
Net sale of goods  205,218   324,343   45,995   44,896   119,871   187,769   193,298   1,504   -   -   -   -   -   206,240   1,406,825   1,811,488   209,636   4,757,083   (3,621,247)  1,135,836   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  -   -   -   -   -   -   -   -   96,523   33,809   8,455   -   -   -   29,181   -   -   167,968   (88,383)  79,585   -   -   -   -   -   -   -   -   12,633   57,312   12,675   -   615   19,507   -   17,713   -   -   120,455   (91,673)  28,782 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   44,185   -   -   -   -   -   44,185   -   44,185   -   -   -   -   -   -   -   -   -   -   -   24,339   -   -   -   -   -   -   24,339   -   24,339 
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   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  (113,631)  (128,184)  (17,585)  (24,282)  (49,535)  (119,969)  (85,980)  (555)  -   -   -   -   -   (208,968)  (983,238)  (795,064)  (124,325)  (2,651,316)  2,138,151   (513,165)
Cost of services  -   -   -   -   -   -   -   -   (91,804)  (25,412)  -   -   -   -   (28,672)  -   -   (145,888)  31,768   (114,120)
Cost of sales of goods, excluding depreciation and amortization  (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, excluding depreciation and amortization  -   -   -   -   -   -   -   -   (9,732)  (25,250)  -   -   -   (8,723)  -   (2,951)  -   -   (46,656)  35,902   (10,754)
Exploration in operating units  (25,311)  (57,871)  (7,054)  (9,342)  (2,974)  -   (1,236)  (2,441)  -   -   -   -   -   -   -   -   -   (106,229)  4,316   (101,913)  (31,406)  (45,111)  (11,069)  (7,960)  -   -   (603)  -   -   -   -   -   -   -   -   -   -   -   (96,149)  -   (96,149)
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)  (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  (1,675)  (26,448)  (405)  (365)  (968)  -   (431)  (110)  -   -   -   -   -   -   -   -   -   (30,402)  -   (30,402)  (1,687)  (21,482)  (381)  (314)  -   (2,726)  (1,021)  -   -   -   -   -   -   -   -   -   -   -   (27,611)  -   (27,611)
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)  (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)  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   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                                                                                                                                                                    
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)  (13,265)  (13,810)  (4,582)  (2,708)  (3,274)  (11,802)  (1,980)  (3,750)  (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  -   -   -   -   -   (5,220)  (6,563)  (2,444)  -   -   -   -   -   (21,928)  -   -   -   (36,155)  3,350   (32,805)  -   -   -   -   (7,517)  (1,939)  (4,619)  (9,585)  -   -   -   -   -   -   (4,129)  -   -   -   (27,789)  1,200   (26,589)
Selling expenses  (3,346)  (3)  (755)  (1,423)  -   (8,763)  (528)  (10)  -   -   -   -   -   (13)  (3,740)  (68,448)  (522)  (87,551)  72,709   (14,842)  (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   - 
Provision for contingencies  1,121   (110)  (630)  49   69   -   -   (1,399)  (286)  (467)  -   -   -   -   1,088   -   -   -   (565)  -   (565)
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)  76,395   (2,858)  1,144   874   74   (372)  421   276   4,237   2,180   2,198   10,994   -   11   (16)  546   8,081   (122,151)  (24,107)  755   (114,855)  133,812   18,957 
Impairment loss of long-lived assets  -   -   -   -   -   -   -   -   -   -   -   -   -   -   (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)  (15,632)  (14,121)  (5,983)  (4,580)  (10,301)  (24,115)  (3,300)  (12,554)  (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)  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   54,643   55,303   6,844   (898)  (10,301)  (28,098)  25,583   (12,581)  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  -   -   -   -   -   -   -   -   (1,511)  (3,140)  -   -   (238,810)  (104,219)  -   -   -   (347,680)  233,535   (114,145)  -   -   -   -   -   -   -   -   -   4,579   (9)  -   (448,017)  -   (370,381)  -   -   -   (813,828)  448,507   (365,321)
Finance income  3   3   1   -   -   256   87   -   8   820   12   -   4   1   7,480   2,132   954   38   11,799   (4,969)  6,830 
Net gain (loss) from currency exchange difference  (203)  (59)  (61)  (46)  57   (270)  65   505   5   (138)  426   (93)  5   222   2,223   (13,741)  7,857   (117)  (3,363)  6,001   2,638 
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)  (379)  (197)  (87)  (41)  (137)  (12,554)  (2,614)  (163)  (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  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)
Finance income  18   29   -   -   -   -   -   1   6   -   7   3   -   4,693   720   2,178   335   7,990   (1,369)  6,621 
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)  (579)  (253)  (147)  (87)  (80)  (12,568)  (2,462)  342   (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  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   54,064   55,050   6,697   (985)  (10,381)  (40,666)  23,121   (12,239)  (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  -   -   -   -   -   (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)  (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  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   52,250   53,155   6,273   (1,350)  (10,381)  (32,815)  4,865   (12,484)  (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)                                                                              (83,885)
Loss from discontinued operations, see note 1(e)                                                                                  (19,073)
Net loss                                                                              (79,736)                                                                                  (327,814)
                                                                                                                                                                    
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   105,950   46,085   25,118   16,958   415,341   763,092   246,106   330,169   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  -   -   -   -   -   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   35,148   26,536   19,733   7,302   582   353,184   129,689   14,831   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  -   -   -   -   -   -   -   -   -   -   -   -   -   41,931   1,360,689   904,315   43,367   2,350,302   -   2,350,302   -   -   -   -   -   -   -   -   -   -   -   -   -   -   1,536,607   -   -   -   1,536,607   -   1,536,607 
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   28,899   3,451   759   2,729   230,223   51,289   14,995   25,450   27   4,236   39   -   -   3,719   1,018   -   -   -   366,834   -   366,834 

  

  F-89F-97 

 

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:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
                   
Segments loss  (1,017,074)  (176,142)  (139,561)
Segments profit (loss)  59,534   250,134   (1,397,473)
Elimination of profit of equity accounted investees, not consolidated (owned by third parties)  203,912   (108,861)  (195,573)  (63,777)  (225,215)  645,989 
Elimination of intercompany sales  (232,380)  (242,022)  (252,500)  (74,637)  (108,973)  (251,502)
Elimination of intercompany cost of sales  228,914   229,968   238,620 
Elimination of equity pick up loss of the subsidiaries and associates of the Parent company  448,691   261,514   347,680 
Elimination of cost of sales and operating expenses intercompany  76,780   106,726   250,157 
Elimination of share in the results of subsidiaries and associates  1,582   49,627   448,507 
Others  1,915   5,017   5,483   (3,933)  2,234   (4,419)
                        
Consolidated profit (loss) from continued operations  (366,022)  (30,526)  4,149   (4,451)  74,533   (308,741)

 

Reconciliation of segment assets

The reconciliation of segment assets to the consolidated assets follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Segments assets  17,303,094   16,184,466   15,272,733   15,369,524   15,614,979   15,522,247 
Elimination of assets of equity accounted investees, not consolidated (owned by third parties)  (8,128,519)  (6,727,205)  (6,108,111)  (9,963,853)  (10,090,873)  (10,016,003)
Elimination of equity pick up investments of the subsidiaries and associates of the Parent company  (4,486,717)  (4,615,191)  (4,398,677)
Elimination of the subsidiaries and associates of the Parent company  (1,184,240)  (1,186,783)  (1,047,758)
Elimination of intercompany receivables  (138,703)  (156,456)  (203,236)  (32,444)  (32,769)  (192,958)
Others  (1,974)  (13,340)  (10,442)  28,234   28,259   887 
                        
Consolidated assets  4,547,181   4,672,274   4,552,267   4,217,221   4,332,813   4,266,415 

 

Reconciliation of segment liabilities

The reconciliation of segment liabilities to the consolidated liabilities follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Segments liabilities  5,451,667   3,228,256   2,415,983   5,248,748   5,315,362   5,500,328 
Elimination of liabilities of equity accounted investees, not consolidated  (4,154,042)  (2,162,006)  (1,484,901)  (4,034,896)  (4,012,805)  (4,087,495)
Elimination of intercompany payables  (138,703)  (156,456)  (203,236)  (27,822)  (32,769)  (192,958)
Others  (977)  355   -   1,626   (602)  (673)
                        
Consolidated liabilities  1,157,945   910,149   727,846   1,187,656   1,269,186   1,219,202 

 

  F-90F-98 

 

 

Notes toDisaggregated revenue information

Set out below is the consolidated financial statements (continued)disaggregation of the Group’s revenue from contracts with customers:

  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Tambomayo
(Operation)		  Colquijirca
(Operation)		  La Zanja
(Operation)		  Energy
generation
and
transmission		  Insurance
brokerage		  Rental of
mining
concessions		  Holding of
investment in
shares		  Industrial
activities		  Corporate  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) 
Year 2018                                                                
Revenues by geographic region:                                                                
Metal and concentrates sales -                                                                
Peru  170,986   10,808   15,261   16,799   63,049   257,559   2,770   -   -   -   -   751   -   537,983   (167)  537,816 
America  -   142,432   -   -   159,530   -   67,756   -   -   -   -   906   -   370,624   -   370,624 
Asia  29,382   -   9,115   -   -   82,022   -   -   -   -   -   -   -   120,519   -   120,519 
Europe  57,472   -   9,488   -   2,760   -   26,074   -   -   -   -   4,998   -   100,792   -   100,792 
   257,840   153,240   33,864   16,799   225,339   339,581   96,600   -   -   -   -   6,655   -   1,129,918   (167)  1,129,751 
Services -                                                                
Peru  -   -   -   -   -   -   -   62,962   14,787   -   615   19,909   -   98,273   (74,561)  23,712 
America  -   -   -   -   -   -   -   -   199   -   -   -   -   199   90   289 
   -   -   -   -   -   -   -   62,962   14,986   -   615   19,909   -   98,472   (74,471)  24,001 
Royalties -                                                                
Peru  -   -   -   -   -   -   -   -   -   20,385   -   -   -   20,385   -   20,385 
Total revenue from contracts with customers  257,840   153,240   33,864   16,799   225,339   339,581   96,600   62,962   14,986   20,385   615   26,564   -   1,248,775   (74,638)  1,174,137 
                                                                 
Revenues by type of good or services:                                                                
Sales by metal -                                                                
Gold  11   149,092   28   49   150,939   18,463   93,358   -   -   -   -   -   -   411,940   (14)  411,926 
Silver  217,843   5,243   35,307   7,045   54,109   46,060   3,583   -   -   -   -   -   -   369,190   (23)  369,167 
Copper  -   (221)  129   -   -   275,119   -   -   -   -   -   -   -   275,027   (266)  274,761 
Zinc  45,194   -   -   9,382   18,197   101,275   -   -   -   -   -   -   -   174,048   -   174,048 
Lead  36,238   -   1,996   3,504   6,703   40,618   -   -   -   -   -   -   -   89,059   -   89,059 
Manganese sulfate  -   -   -   -   -   -   -   -   -   -   -   6,655   -   6,655   -   6,655 
   299,286   154,114   37,460   19,980   229,948   481,535   96,941   -   -   -   -   6,655   -   1,325,919   (303)  1,325,616 
Commercial deductions  (41,446)  (874)  (3,596)  (3,181)  (4,609)  (141,954)  (341)  -   -   -   -   -   -   (196,001)  136   (195,865)
   257,840   153,240   33,864   16,799   225,339   339,581   96,600   -   -   -   -   6,655   -   1,129,918   (167)  1,129,751 
Sales by services -  -   -   -   -   -   -   -   62,962   14,986   -   615   19,909   -   98,472   (74,471)  24,001 
Royalties income -  -   -   -   -   -   -   -   -   -   20,385   -   -   -   20,385   -   20,385 
Total revenue from contracts with customers  257,840   153,240   33,864   16,799   225,339   339,581   96,600   62,962   14,986   20,385   615   26,564   -   1,248,775   (74,638)  1,174,137 

F-99

  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Tambomayo
(Operation)		  Colquijirca
(Operation)		  La Zanja
(Operation)		  Construction
and
engineering		  Energy
generation
and
transmission		  Insurance
brokerage		  Rental of
mining
concessions		  Holding of
investment in
shares		  Industrial
activities		  Corporate  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) 
Year 2017                                                                    
Revenues by geographic region:                                                                    
Metal and concentrates sales -                                                                    
Peru  209,300   17,774   13,049   35,189   34,337   239,317   32,607   -   -   -   -   -   852   705   583,130   (31,887)  551,243 
America  -   239,183   -   -   84,039   459   125,875   -   -   -   -   -   3,776   18,531   471,863   -   471,863 
Asia  19,078   -   12,140   -   -   89,501   -   -   -   -   -   -   -   -   120,719   -   120,719 
Europe  38,104   -   15,931   1,496   -   3,820   5,513   -   -   -   -   -   1,689   14,780   81,333   -   81,333 
   266,482   256,957   41,120   36,685   118,376   333,097   163,995   -   -   -   -   -   6,317   34,016   1,257,045   (31,887)  1,225,158 
Services -                                                                    
Peru  -   -   -   -   -   -   -   10,014   60,639   14,205   -   615   19,658   -   105,131   (90,228)  14,903 
America  -   -   -   -   -   -   -   589   -   172   -   -   -   -   761   14,033   14,794 
   -   -   -   -   -   -   -   10,603   60,639   14,377   -   615   19,658   -   105,892   (76,195)  29,697 
Royalties -                                                                    
Peru  -   -   -   -   -   -   -   -   -   -   20,739   -   -   -   20,739   -   20,739 
Total revenue from contracts with customers  266,482   256,957   41,120   36,685   118,376   333,097   163,995   10,603   60,639   14,377   20,739   615   25,975   34,016   1,383,676   (108,082)  1,275,594 
                                                                     
Revenues by type of good or services:                                                                    
Sales by metal -                                                                    
Gold  345   247,909   -   452   80,796   20,301   160,489   -   -   -   -   -   -   32,875   543,167   (31,733)  511,434 
Silver  256,608   9,595   40,384   16,518   27,285   54,629   4,434   -   -   -   -   -   -   1,257   410,710   (935)  409,775 
Copper  -   598   192   -   -   267,737   -   -   -   -   -   -   -   -   268,527   -   268,527 
Zinc  31,814   -   -   17,505   7,914   130,790   -   -   -   -   -   -   -   -   188,023   -   188,023 
Lead  32,244   -   4,660   8,998   4,735   44,318   -   -   -   -   -   -   -   -   94,955   -   94,955 
Manganese sulfate  -   -   -   -   -   -   -   -   -   -   -   -   6,317   -   6,317   -   6,317 
Indium                      66   -   -   -   -   -   -   -   -   66   -   66 
   321,011   258,102   45,236   43,473   120,730   517,841   164,923   -   -   -   -   -   6,317   34,132   1,511,765   (32,668)  1,479,097 
Commercial deductions  (54,529)  (1,145)  (4,116)  (6,788)  (2,354)  (184,744)  (928)  -   -   -   -   -   -   (116)  (254,720)  781   (253,939)
   266,482   256,957   41,120   36,685   118,376   333,097   163,995   -   -   -   -   -   6,317   34,016   1,257,045   (31,887)  1,225,158 
Sales by services -  -   -   -   -   -   -   -   10,603   60,639   14,377   -   615   19,658   -   105,892   (76,195)  29,697 
Royalties income -  -   -   -   -   -   -   -   -   -   -   20,739   -   -   -   20,739   -   20,739 
Total revenue from contracts with customers  266,482   256,957   41,120   36,685   118,376   333,097   163,995   10,603   60,639   14,377   20,739   615   25,975   34,016   1,383,676   (108,082)  1,275,594 

F-100

  Ucchuchacua
(Operation)		  Orcopampa
(Operation)		  Julcani
(Operation)		  Mallay
(Operation)		  Colquijirca
(Operation)		  La Zanja
(Operation)		  Construction
and
engineering		  Energy
generation and
transmission		  Insurance
brokerage		  Rental of
mining
concessions		  Holding of
investment in
shares		  Industrial
activities		  Corporate  Total operating
segments		  Adjustments
and
eliminations		  Total 
Year 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) 
Revenues by geographic region:                                                                
Peru                                                                
Metal and concentrates sales -                                                                
Peru  194,647   14,463   13,243   44,671   125,628   180,063   -   -   -   -   -   497   2,261   575,473   (178,740)  396,733 
America  -   229,332   -   -   2191   -   -   -   -   -   -   5,485   160,787   397,795   -   397,795 
Asia  798   -   17,943   -   78,726   -   -   -   -   -   -   -   -   97,467   -   97,467 
Europe  47,379   -   24,215   1,890   19,836   -   -   -   -   -   -   -   28,609   121,929   -   121,929 
   242,824   243,795   55,401   46,561   226,381   180,063   -   -   -   -   -   5,982   191,657   1,192,664   (178,740)  1,013,924 
Services -                                                                
Peru  -   -   -   -   -   -   12,633   57,312   12,675   -   615   19,507   -   102,742   (73,960)  28,782 
   -   -   -   -   -   -   12,633   57,312   12,675   -   615   19,507   -   102,742   (73,960)  28,782 
Royalties -                                                                
Peru  -   -   -   -   -   -   -   -   -   24,339   -   -   -   24,339   -   24,339 
Total revenue from contracts with customers  242,824   243,795   55,401   46,561   226,381   180,063   12,633   57,312   12,675   24,339   615   25,489   191,657   1,319,745   252,700   1,067,045 
                                                                 
Revenues by type of good or services:                                                                
Sales by metal -                                                                
Gold  347   232,940   42   1,374   16,463   179,362   -   -   -   -   -   -   188,120   618,648   (178,045)  440,603 
Silver  260,431   11,279   55,502   25,368   29,560   3,864   -   -   -   -   -   -   3,717   389,721   (3,732)  385,989 
Copper  -   243   230   -   224,176   -   -   -   -   -   -   -   -   224,649   -   224,649 
Zinc  12,042   -   -   19,767   110,616   -   -   -   -   -   -   -   -   142,425   -   142,425 
Lead  16,281   -   5,142   13,256   24,011   -   -   -   -   -   -   -   -   58,690   -   58,690 
Manganese sulfate  -   -   -   -   -   -   -   -   -   -   -   5,982   -   5,982   -   5,982 
   289,101   244,462   60,916   59,765   404,826   183,226   -   -   -   -   -   5,982   191,837   1,440,115   (181,777)  1,258,338 
Commercial deductions  (46,277)  (667)  (5,515)  (13,204)  (178,445)  (3,163)  -   -   -   -   -   -   (180)  (247,451)  3,037   (244,414)
   242,824   243,795   55,401   46,561   226,381   180,063   -   -   -   -   -   5,982   191,657   1,192,664   (178,740)  1,013,924 
Sales by services -  -   -   -   -   -   -   12,633   57,312   12,675   -   615   19,507   -   102,742   (73,960)  28,782 
Royalties income -  -   -   -   -   -   -   -   -   -   24,339   -   -   -   24,339   -   24,339 
Total revenue from contracts with customers  242,824   243,795   55,401   46,561   226,381   180,063   12,633   57,312   12,675   24,339   615   25,489   191,657   1,319,745   (252,700)  1,067,045 

F-101

 

32.Derivative financial instruments
(a)The volatility of copper prices during the last years has caused the management of the subsidiary El Brocal to enter into future contracts. These contracts 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. Based on this strategy, no more than 50% of existing sales commitments of copper concentrate are under future contracts.

 

AsHedge derivative financial instruments -

The volatility of December 31, 2015,copper prices during the last years has caused the Management of the subsidiary El Brocal does not have opento enter into future contracts.These contractsare intended to reduce the volatility of the cash flows attributable to the fluctuations in the cooper price in accordance with existing copper concentrate sales commitments, which are related to 50 percent of the annual production of copperaccording to the risk strategy approved by the Board of Directors.

There is an economic relationship between the hedged items and the hedging instruments as the terms of the foreign exchange and commodity forward contracts (an asset of US$3,688,000 as of December 31, 2014, which balancing entry, net ofmatch the deferred income tax, amounted to a positive balance of US$2,485,000 and is presented in the “other reserves” caption of equity).

(b)Embedded derivative of 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 datesterms of the expected settlementshighly probable forecast transactions. The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the open positions as of December 31, 2015commodity forward contracts are identical to the hedged risk components. To test the hedge effectiveness, the Group uses the hypothetical derivative method and 2014. The embedded derivative does not qualify for hedge accounting; therefore,compares the changes in the fair value are recorded as an adjustmentof the hedging instruments against the changes in fair value of the hedged items attributable to net sales.the hedged risks.

 

Embedded derivatives held byThe hedge ineffectiveness can arise from:

-Differences in the timing of the cash flows of the hedged items and the hedging instruments
-Different indexes (and accordingly different curves) linked to the hedged risk of the hedged items and hedging instruments
-The counterparties’ credit risk differently impacting the fair value movements of the hedging instruments and hedged items
-Changes to the forecasted amount of cash flows of hedged items and hedging instruments

The table below presents the Groupcomposition of open transactions included in thehedge derivative financial instruments asof December 31, 2015 are:2018:

 

Quotations
MetalQuantityPeriod of quotations 2016ProvisionalFutureFair value, net
US$US$US$(000)
Copper41,359 DMTJanuary – April4,629.00 – 5,223.054,525.50 – 4,796.00(1,549)
Gold16,145 OZJanuary961.79 – 1,070.101,086.65 – 1,109.09(633)
Silver3,215,862 OZJanuary – March12.66 – 15.7114.30 – 14.31(244)
Lead16,990 DMTJanuary – April1,641.40 – 1,732.131,658.00 – 1,789.00408
Zinc12,329 DMTJanuary – March1,510.41 – 1,672.501,495.75 – 1,609.00316
Gold342 OZJanuary – April1,066.26 – 1,124.531,109.05 – 1,109.278
Total asset, net(1,694)
     Quotations    
Period of settlement MT  Fixed Futures  Fair value 
          US$(000) 
January 2019  1,000  7,345 5,961   1,381 
February 2019  1,000  7,352 5,968   1,378 
              
   2,000        2,759 

  

  F-91F-102 

 

 

Notes toThe table below presents the consolidatedcomposition of open transactions included in thehedge derivative financial statements (continued)

Embedded derivatives held by the Groupinstruments asof December 31, 2014 are:2017:

 

Quotations
MetalQuantityPeriod of
quotations 2015		ProvisionalFutureFair value, net
US$US$US$(000)
Copper67,815 DMTJanuary – June6,408.10 – 6,907.736,118.00 – 6,186.00(7,558)
Silver2,361,515 OZJanuary – April15.62 – 19.0316.35 – 16.38(631)
Lead6,975 DMTJanuary – April1,869.30 – 2,178.601,840.00 – 1,851.88(628)
Zinc13,521 DMTJanuary – March2,171.71 – 2,380.002,122.50 – 2,129.25(296)
Gold36,442 OZJanuary – February1,194.00 – 1,227.001,201.84 – 1,216.4541
Total liability, net(9,072)

(c)Hedge of the risk of fluctuation of foreign exchange rates

During 2015, the volatility of the foreign exchange rate between the Soles and the U.S. dollars, which is the functional and reporting currency of Buenaventura and El Brocal, has driven the Group’s Management to undertake hedge contracts of foreign currency exposure over their bank loans mentioned in Note 14. Buenaventura and El Brocal have signed forwards hedging contracts, which have been designated as hedging derivative cash flow because they are intended to cover the risk of fluctuations in the exchange rates of the financial obligations in soles.

Key deadlines of the hedging contract have been negotiated to match the terms and amounts of their obligations.

As of December 31, 2015, fair value of these hedge derivate financial instruments over exchange rates of current bank loans is a liability of US$10,643,000 and the effectiveness of these contracts has not been observed since it has not arisen any significant element of ineffectiveness.

     Quotations   
Period of settlement MT  Fixed Futures  Fair value 
          US$(000) 
January 2018  3,000  5,972 – 6,050 7,275   (3,787)
February 2018  3,000  5,972 – 6,050 7,260   (3,736)
March 2018  3,000  5,972 – 6,050 7,247   (3,693)
April 2018  3,000  5,805 – 6,050 7,259   (3,973)
May 2018  3,000  5,900 – 6,300 7,269   (3,484)
June 2018  3,000  5,900 – 6,325 7,277   (3,468)
July 2018  3,000  5,960 – 6,350 7,285   (3,359)
August 2018  3,000  6,520 7,290   (2,288)
September 2018  3,000  7,100 7,296   (580)
October 2018  3,000  7,200 7,300   (296)
November 2018  3,000  7,300 7,305   (13)
December 2018  3,000  7,300 7,309   (28)
              
   36,000        (28,705)

 

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, 20152018 and 2014.2017.

 

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 threefour types of risk: exchange rate risk, commodity risk, and interest rate risk.risk and other risk of price, such as the risk of the stock price. Financial instruments affected by market risks include time deposits, financial obligations, embedded derivatives and derivative financial instruments.

 

  F-92F-103 

 

Notes to the consolidated financial statements (continued)

 

The sensitivity analyses in this section relate to the positions as of December 31, 2015, 20142018 and 2013,2017 and have been prepared considering that the proportion of financial instruments in foreign currency are constant.

 

(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 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 maintains smaller amounts in Soles in order to cover its needs in this currency (primarily taxes).

 F-93

Notes to the consolidated financial statements (continued)

 

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 profit (loss)
before income tax		 
   US$(000)    US$(000) 
2015     
2018        
Exchange rate  +10%  6,233   10%  1,695 
Exchange rate  -10%  (7,618)  (10)%  (1,681)
                
2014        
2017        
Exchange rate  +10%  5,950   10%  2,474 
Exchange rate  -10%  (7,271)  (10)%  (2,459)
                
2013        
2016        
Exchange rate  +10%  20,989   10%  (924)
Exchange rate  -10%  (25,225)  (10)%  926 

 

(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.

 

F-104

(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-94

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  Increase/decrease of
Libor rate		 Effect on profit
(loss) before
income tax		 
 (percentage rates) US$(000)  (percentage rates) US$(000) 
2015     
2018        
Interest rate  +10   294   10   (227)
Interest rate  -10   (294)  -10   227 
                
2014        
2017        
Interest rate  +10   110   10   (677)
Interest rate  -10   (110)  -10   677 
                
2013        
2016        
Interest rate  +10   58   10   (333)
Interest rate  -10   (58)  -10   333 

 

(b)Credit 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 21(b)note 20(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-95

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, 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 
F-105

 

As of December 31, 2014 -                    
Bank loans  40,600   -   -   -   40,600 
Trade and other payables  237,937   -   -   15,240   253,177 
Embedded derivative for sale of concentrates  9,072   -   -   -   9,072 
Financial obligation  71,196   47,673   135,178   130,504   384,551 
Contingent consideration liability  -   -   5,463   36,156   41,619 
                     
Total  358,805   47,673   140,641   181,900   729,019 

  Less than  Between 1  Between 2  More than 5    
  1 year  and 2 years  and 5 years  years  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
As of December 31, 2018 -                    
Bank loans  95,613   -   -   -   95,613 
Trade and other payables  176,811   639   -   -   177,450 
Financial obligation  77,183   374,760   201,487   -   653,430 
Contingent consideration liability  -   -   5,904   32,472   38,376 
                     
Total  349,607   375,399   207,391   32,472   964,869 
                     
As of December 31, 2017 -                    
Bank loans  96,580   -   -   -   96,580 
Trade and other payables  219,379   663   -   -   220,042 
Derivative financial instruments  28,705   -   -   -   28,705 
Financial obligation  110,062   148,718   449,689   -   708,469 
Contingent consideration liability  -   -   9,280   28,469   37,749 
                     
Total  454,726   149,381   458,969   28,469   1,091,545 

 

(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-96

Notes to the consolidated financial statements (continued)

34.Fair value measurement

Fair value disclosure of assets and 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, 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   - 
                 
As of December 31, 2014                
Assets measured at fair value:                
Financial assets at fair value with changes in profit or loss  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 
     Fair value measurement using: 
  Total  Quoted prices
in active
markets
(Level 1)		  Quoted prices
in active
markets
(Level 2)		  Quoted prices
in active
markets
(Level 3)		 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
As of December 31, 2018 -                
Assets and liabilities measured at fair value:                
Fair value of account receivable  107,549   -   107,549   - 
Contingent consideration liability  15,755   -   -   15,755 
Hedge instruments  2,759   -   2,759   - 
                 
As of December 31, 2017 -                
Assets and liabilities measured at fair value:                
Fair value of account receivable  152,268   -   152,268   - 
Contingent consideration liability  17,570   -   -   17,570 
Hedge instruments  28,705   -   28,705   - 

F-106

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).

 

Financial instruments at fixed and variable rates -

The fair value of financial assets and liabilities at fixed and variable 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.

 

During 2018 and 2017, the fair value of the investment property amounted to US$544,000 and US$191,000, respectively.

Based on the foregoing, there are no important existing difference between the value in books and the reasonablefair value of the assets and financial liabilities as of December 31, 20152018 and 2014.2017.

 

  F-97F-107 

 

  

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated Financial Statements for the years 2015, 20142018, 2017 and 20132016, together with the Report of Independent Auditors Registered Public Accounting Firm

 

  F-98F-108 

 

 

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated Financial Statements for the years 2015, 20142018, 2017 and 2013,2016, together
with the Report of Independent AuditorsRegistered Public Accounting Firm

 

Content

 

Report of Independent AuditorsF-100F-110
 
Consolidated Financial Statements
Consolidated statements of financial positionF-102F-112
Consolidated statements of comprehensive incomeF-103F-113
Consolidated statements of changes in equityF-104F-114
Consolidated statements of cash flowsF-105F-115
Notes to the consolidated financial statementsF-106F-116

 

  F-99F-109 

 

 

Report of Independent Registered Public Accounting Firm

 

To the ShareholdersPartners and the Board of Directors of Minera Yanacocha S.R.L. and Subsidiary

Opinion on the Financial Statements

 

We have audited the accompanying financial statements of Minera Yanacocha S.R.L. (a Peruvian Company and subsidiary of Newmont Mining Corporation), which comprise the consolidated statements of financial position of Minera Yanacocha S.R.L. and subsidiary (the Company) as of December 31, 2015,2018 and the2017, and related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the yearthree years in the period ended December 31, 2015. These2018, and the related notes (collectively referred to as the “consolidated 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)statements”). 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 includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 F-100

Report of Independent Registered Public Accounting Firm (continued)

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Minera Yanacocha S.R.L. and subsidiary as ofthe Company at December 31, 2015,2018 and 2017, and the consolidated results of theirits operations and theirits cash flows for each of the year thenthree years in the period ended December 31, 2018, in accordanceconformity with International Financial Reporting Standards 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 Notenotes 24 and 25 to the consolidated financial statements).

 

Lima, Peru,Basis for Opinion

 

February 25, 2016

Countersigned by:

Paredes, Zaldívar, Burga & Asociados S. Civil de R.L.

/s/ Victor Burga 
Víctor Burga
C.P.C.C. Register No.14859

 F-101

PRICEWATERHOUSECOOPERS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

March 30, 2015

To the shareholders of

Minera Yanacocha S.R.L.

In our opinion, the accompanying balance sheet and the related income statements, statements of changes in shareholders’ equity and cash flows statements, present fairly, in all material respects, the financial position of Minera Yanacocha S.R.L at December 31, 2014, and the results of its operations and its cash flows for catch of the two years in the period ended December 31, 2014 in conformity with International Financial Reporting Standards.


These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We conducted our audits of these financial statementsare a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the International Audit Standards approved for application in Peru byU.S. federal securities laws and the Board of Deansapplicable rules and regulations of the InstituteSecurities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of Chartered Accountants of Peru.the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. Andmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.

F-110

Report of Independent Registered Public Accounting Firm(continued)

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, includeswhether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by managements, andmanagement, as well as evaluating the overall presentation of the consolidated financial statements presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

 

Paredes, Burga & Asociados S. Civil de R. L.
A member practice of Ernst & Young Global Limited

/s/ Gaveglio, Aparicio y AsociadosMayerling Zambrano R.

We have served as the Company's auditor since 2015.

Lima, Peru,

 

Countersigned byApril 30, 2019

 

/s/ Fernando Gaveglio

Fernando Gaveglio

Peruvian Public Accountant

Registration No. 01-019847

  F-102F-111 

 

 

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated statements of financial position

As of December 31, 20152018 and 20142017

 

 Note 2015 2014  Note 2018 2017 
   US$(000) US$(000)   US$(000) US$(000) 
Current assets                  
Cash and cash equivalents 5  943,761   786,624  5  723,208   675,014 
Trade and other receivables, net 6  26,389   68,231  6  32,610   36,800 
Prepaid income tax    19,239   31,945 
Value added tax credit    80,641   84,342     29,828   43,684 
Inventories, net 7  56,764   64,903  7  54,527   70,646 
Stockpiles and ore on leach pads 8  237,610   270,511 
Stockpiles and ore on leach pads, net 8  100,593   196,638 
Prepaid expenses    517   677     753   408 
          
Total current assets    1,345,682   1,275,288     960,758   1,055,135 
                    
Non-current assets                    
Available-for-sale financial assets9  15,803   16,884 
Stockpiles and ore on leach pads8  208,483   215,809 
Restricted cash 13  48,127   - 
Trade and other receivables, net 6  23,290   11,520 
Financial assets at fair value 9  22,610   23,000 
Stockpiles and ore on leach pads, net 8  138,778   60,760 
Property, plant and equipment, net 10  1,364,610   1,455,329  10  840,454   855,881 
Intangible assets, net    30,852   36,380     12,384   13,099 
Deferred income tax asset 14  -   483,479 
Deferred tax asset 15(d)  1,071   - 
          
Total non-current assets    1,619,748   2,207,881     1,086,714   964,260 
          
Total assets    2,965,430   3,483,169     2,047,472   2,019,395 
                    
Current liabilities                    
Trade and other payables 11  78,250   138,819  11  87,016   83,820 
Income tax payable    12,346   35,436 
Current provisions 12  41,961   55,585  12  41,154   39,495 
          
Total current liabilities    132,557   229,840     128,170   123,315 
Non-current liabilities          
Debt instruments 13  42,430   - 
Non-current provisions 12  1,293,149   1,236,965 
                    
Non-current liabilities          
Non-current provisions 12  604,048   573,552 
Total non-current liabilities    1,335,579   1,236,965 
Total liabilities    736,605   803,392     1,463,749   1,360,280 
                    
Partners’ equity, net          
Partners’ contributions 13  398,216   398,216 
Partners' equity, net          
Partners' contributions 14  378,505   398,216 
Additional paid-in-capital    226   226     (21,758)  (47,685)
Retained earnings    1,830,383   2,281,335     228,572   310,089 
Other reserves  (1,596)  (1,505)
          
Total equity    2,228,825   2,679,777   583,723   659,115 
          
Total liabilities and partners’ equity, net    2,965,430   3,483,169   2,047,472   2,019,395 

 

The accompanying notes are an integral part of thesethis consolidated financial statements.statement.

 

  F-103F-112 

 

 

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated statements of comprehensive income

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

 Note 2015 2014 2013  Note 2018 2017 2016 
   US$(000) US$(000) US$(000)    US$(000) US$(000) US$(000) 
                  
Operating income                          
Revenue from sales 15  1,031,174   1,165,299   1,406,825  16  635,393   645,176   761,193 
Other operating income    10,625   30,300   37,207  16  21,965   21,870   17,713 
Total gross income    1,041,799   1,195,599   1,444,032     657,358   667,046   778,906 
                            
Costs applicable to sales 16  (751,736)  (920,300)  (991,264) 17  (596,164)  (746,918)  (776,394)
Other operating costs    (2,524)  (22,422)  (28,672)    (2,217)  (2,062)  (2,951)
Total operating costs    (754,260)  (942,722)  (1,019,936)    (598,381)  (748,980)  (779,345)
Gross profit    287,539   252,877   424,096 
Gross profit (loss)    58,977   (81,934)  (439)
                            
Operating expenses                            
Operating expenses, net 17  (82,846)  (77,781)  (77,534) 18  (76,155)  (63,514)  (71,496)
Administrative expenses 18  (26,325)  (38,262)  (67,064) 19  (2,783)  (4,760)  (8,780)
Selling expenses    (3,534)  (4,458)  (3,740)    (2,627)  (3,921)  (3,695)
Impairment loss 10  -   (541,141)  (1,038,548) 10(b)  -   -   (889,499)
Total operating expenses    (81,565)  (72,195)  (973,470)
Operating loss    (22,588)  (154,129)  (973,909)
                            
Operating profit    174,834   (408,765)  (762,790)
Other income (expenses), net              
Other expenses, net              
Finance income    673   298   720     11,448   5,831   2,132 
Finance costs 19  (22,734)  (23,504)  (18,745) 20  (39,024)  (23,766)  (15,107)
Net gain (loss) from currency exchange difference    (251)  1,142   2,065 
Income (loss) before income tax    152,522   (430,829)  (778,750)
Income tax benefit (expense) 14(c)  (602,717)  30,491   203,471 
              
Net loss from currency exchange difference    (2,056)  3,636   (13,741)
Total other expenses, net    (29,632)  (14,299)  (26,716)
Loss before income tax    (52,220)  (168,428)  (1,000,625)
Income tax expense 15(c)  (29,297)  (7,026)  (43,127)
Loss for the year    (450,195)  (400,338)  (575,279)    (81,517)  (175,454)  (1,043,752)
                            
Comprehensive income (loss):              
Comprehensive loss:              
Loss for the year    (450,195)  (400,338)  (575,279)    (81,517)  (175,454)  (1,043,752)
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  (757)  65   (226)
Other comprehensive (loss) income to be reclassified as profit or loss in subsequent periods:              
Changes in the fair value of financial assets, net of tax effect    (91)  (3,244)  651 
                            
Total comprehensive loss for the year    (450,952)  (400,273)  (575,505)  (81,608)  (178,698)  (1,043,101)

 

The accompanying notes are an integral part of thesethis consolidated financial statements.statement.

 

  F-104F-113 

 

 

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated statements of changes in equity net

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

 Capital
stock		 Additional
Paid-in-capital		 Retained
earnings		 Total  Capital
stock		 Additional
Paid-in-capital		 Retained
earnings		 Other
reserves		 Total 
 US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) 
                    
As of January 1, 2013  398,216   226   3,257,113   3,655,555 
As of January 1, 2016  398,216   226   1,829,295   1,088   2,228,825 
Loss for the year  -   -   (1,043,752)  -   (1,043,752)
Other comprehensive income for the year  -   -   -   651   651 
Total comprehensive loss  -   -   (1,043,752)  651   (1,043,101)
Dividends declared and paid, note 14(c)  -   -   (300,000)  -   (300,000)
As of December 31, 2016  398,216   226   485,543   1,739   885,724 
Loss for the year  -   -   (575,279)  (575,279)  -   -   (175,454)  -   (175,454)
Other comprehensive loss for the year  -   -   (226)  (226)  -   -   -   (3,244)  (3,244)
Total comprehensive loss  -   -   (575,505)  (575,505)  -   -   (175,454)  (3,244)  (178,698)
                
As of December 31, 2013  398,216   226   2,681,608   3,080,050 
Treasury shares, note 14(a)  -   (47,911)  -   -   (47,911)
As of December 31,2017  398,216   (47,685)  310,089   (1,505)  659,115 
Loss for the year  -   -   (400,338)  (400,338)  -   -   (81,517)  -   (81,517)
Other comprehensive loss for the year  -   -   65   65   -   -   -   (91)  (91)
Total comprehensive loss  -   -   (400,273)  (400,273)  -   -   (81,517)  (91)  (81,608)
Treasury stock reduction, note 14(a)  (19,711)  19,711   -   -   - 
Proceeds from sale of shares, note 13  19,471   28,440   -   -   47,911 
Reclassification to debt instruments, note 13  (19,471)  (22,224)  -   -   (41,695)
                                    
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 
As of December 31, 2018  378,505   (21,758)  228,572   (1,596)  583,723 

 

The accompanying notes are an integral part of thesethis consolidated financial statements.statement.

 

  F-105F-114 

 

 

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated statement of cash flows

For the years ended December 31, 2015, 2014 2018, 2017and 20132016

 

 Note 2018 2017 2016 
 2015 2014 2013    US$(000) US$(000) US$(000) 
 US$(000) US$(000) US$(000)          
Cash flow from operating activities                          
Loss for the year  (450,195)  (400,338)  (575,279)    (81,517)  (175,454)  (1,043,752)
Adjustments to reconcile profit after income tax to net cash flows from operating activities:                          
Impairment loss on assets  -   541,141   1,038,548 
Impairment loss 10(b)  -   -   889,499 
Depreciation and amortization  223,142   360,334   349,760     156,212   87,783   140,712 
Deferred income tax  483,804   (168,761)  (430,624) 15(c)  (1,071)  -   - 
Unwinding of discount of the provision for reclamation  22,075   22,914   18,113  12(b)  36,015   21,769   14,104 
Unwinding of discount of debt instruments 13  735   -   - 
Write-off of fixed assets  2,411   3,520   584  18  -   1,368   14,036 
Loss (gain) for fixed asset sales  508   (1,226)  (22,526) 18  624   (603)  (311)
Write-down of ore on leach pads to realizable value  64,497   95,859   146,051 
Write-down of ore inventories to realizable value 8(b)  90,365   77,385   100,179 
Reversal of the write-down of on ore inventories to realizable value 8(b)  (63,778)  (99,219)  (106,103)
Allowance for obsolescence of materials and supplies  1,049   (736)  2,271  7(b)  439   1,804   (609)
Working capital adjustments:                          
Net (increase) decrease in operating assets:                          
Trade and other receivables  41,842   28,382   20,913     (7,580)  (7,345)  (14,586)
Prepaid income tax    12,706   (13,770)  (18,175)
Value added tax credit  3,701   36,606   23,762     13,856   29,543   7,414 
Inventories and Stockpiles and ore on leach pads  (17,180)  (64,855)  (121,868)
Inventories and stockpiles and ore on leach pads    7,120   103,334   99,237 
Prepaid expenses  160   1,650   117     (345)  (71)  180 
Available for sale financial assets  1,081   (93)  336 
Net (increase) decrease in operating liabilities:            
Financial assets at fair value 9  -   (5,000)  - 
Net increase (decrease) in operating liabilities:              
Trade and other payables  (60,569)  6,910   (31,189)    3,196   17,346   (10,654)
Income tax payable  (23,090)  (29,264)  13,862     -   -   (12,346)
Provisions  (7,779)  (46,435)  (112,172)    14,090   77,296   91,842 
Reclamation liabilities paid  (11,007)  (10,419)  (4,387) 12(b)  (19,842)  (21,376)  (10,467)
Net cash and cash equivalents provided by operating activities  274,450   375,189   316,272     161,225   94,790   140,200 
              
Cash flow from investing activities                          
Purchase of property, plant and equipment  (118,429)  (216,181)  (393,130) 10  (117,636)  (51,624)  (106,908)
Restricted cash 13  (48,127)  -   - 
Proceeds from sale of property, plant and equipment  1,116   40,651   45,772  18  4,821   2,235   471 
              
Net cash and cash equivalents used in investing activities  (117,313)  (175,530)  (347,358)    (160,942)  (49,389)  (106,437)
              
Cash flow from financing activities              
Dividends declared and paid 14(c)  -   -   (300,000)
Proceeds from sale of shares 13  47,911   -   - 
Payments for treasury shares 14(a)  -   (47,911)  - 
              
Net cash and cash equivalents used in financing activities    47,911   (47,911)  (300,000)
              
Net increase (decrease) in cash and cash equivalents  157,137   199,659   (31,086)    48,194   (2,510)  (266,237)
Cash and cash equivalents at beginning of year  786,624   586,965   618,051     675,014   677,524   943,761 
Cash and cash equivalents at end of year  943,761   786,624   586,965     723,208   675,014   677,524 
                          
Transactions with no effects in cash flows:                          
Addition of asset retirement and mine closure  10,434   64,520   44,604     27,275   97,326   351,798 

 

The accompanying notes are an integral part of thesethis consolidated financial statements.statement.

 

  F-106F-115 

 

 

Minera Yanacocha S.R.L. and Subsidiary

 

Notes to the consolidated financial statements

For the years 2015, 20142018, 2017 and 20132016

 

1.Identification and business activities 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 currently 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"). Future projects could include the production, exploration and development of copper as well.

 

The Company is 51.35% owned by Newmont Second Capital Corporation, a 100% indirectly owned subsidiary of Newmont Mining Corporation ("Newmont", the ultimate Parent company), 43.65% owned by Compañia Minera Condesa S.A., which is 100% owned by Compañia de Minas Buenaventura S.A.A. (“Buenaventura”) and 5% owned by the International Finance Corporation.Summit Global Management II VB, a wholly-owned subsidiary of Sumitomo Corporation, see note 13.

 

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 soIdsold 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 nearapproximately 375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca provinceand are primarily accessible by paved roads. The Yanacocha property began production in 1993 and consists of Peru and currently include the following open pit mines: Chaquicocha, Maqui Maqui, Cerro Yanacocha,the La Quinua Complex, (La Quinua, El Tapado, El Tapado Oeste), Cerro Negro Este, Wester Oxide pits (La Quinua Surthe Yanacocha Complex, the Carachugo Complex and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte and Marleny) and Carachugo Alto.Maqui Maqui. In addition, The Company has four leach pads (La Quinua, Yanacocha, Carachugo and Maqui Maqui), three gold processing plants (Pampa Larga, Yanacocha Norte and La Quinua), one limestone processing facility (China Linda) and one mill (Yanacocha Gold Mill).

The La Quinua Complex is currently mining material from the La Quinua Sur and the Tapado Oeste Layback and is scheduled to finish mining operations in 2019.

The Yanacocha Complex mines material from the Yanacocha Layback and Yanacocha Pinos, which are scheduled to finish mining operations in 2019 and 2020, respectively. The Yanacocha Complex began operations in 1997 and has had limited mining operations in recent years.

The Carachugo Complex and Maqui Maqui mined material from multiple mines that are no longer in operation and residual leaching of gold continues. In addition, the Carchugo Complex processes material from the Quecher Main project, which is a new open pit within the existing footprint of Yanacocha. This project will add oxide production at Yanacocha and will extend the life of the Yanacocha operation to 2027.

F-116

Notes to the consolidated financial statements (continued)

Yanacocha’s gold processing plants are located adjacent to the solution storage ponds and are used to process gold-bearing solutions from Yanacocha’s leach pads through a network of solution-pumping facilities and one mill. Gold-bearing ores are transportedthe Yanacocha Gold Mill processes high-grade gold ore to one of four leach padsproduce a gold-bearing solution for gold recovery using conventional heap-leaching or milling,treatment at the La Quinua processing plant, followed by Merrill - Crowe zinc precipitation and smelting where a final dorédore product is poured. The dorédore 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 2015, 20142018, 2017 and 2013,2016, the Company produced 0.920.52 million, 0.970.53 million and 1.020.66 million ounces of gold, respectively.

Brownfield exploration and development for new reserves is ongoing including Sulfides project and the development of the Quecher Main project within the existing footprint of Yanacocha. In addition, the Company continues to evaluate the potential for mining sulfide gold and copper mineralization.

Quecher Main project

This project will add oxide production at Yanacocha, leverage existing infrastructure and enable potential future growth at Yanacocha. First production was achieved in late 2018 with commercial production expected in the second half of 2019. The Quecher Main extends the life of the Yanacocha operation to 2027 with average annual gold production of about 200,000 ounces unaudited per year (on a consolidated basis) between 2020 and 2025. Development capital costs (excluding capitalized interest) since approval were US$101million, of which $33 million related to the fourth quarter of 2018.

 

Conga project

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. There is no exploration and/orand (or) development of new reserves, as development ofwith the project's development and reserve balances reported for Conga in 2014 were reclassified to mineralized material in 2015.

 

 F-107

Notes to the consolidated financial statements (continued)

As a result of local political and community protests, construction and developmentConstruction activities aton the Conga project were largely suspended on November 30, 2011, at the request of Peru’s central government following increasing protests in November 2011. The resultsCajamarca by anti-mining activists led by the regional president. At the request of the Peruvian Central Government’s initiated Environmental Impact Assessment (“EIA”)central government, the environmental impact assessment prepared in connection with the project, which was previously approved by the central government in October 2010, was reviewed by independent experts in an effort to resolve allegations around the environmental viability of Conga. This review were reported on April 20, 2012. The review indicatedconcluded that the project’s EIA met Peruvianenvironmental impact assessment complied with international standards and International Standards. The review madeprovided some recommendations to provide additionalimprove water capacity and social funds, whichmanagement. Yanacocha has largely accepted. Yanacocha announcedfocused on the decisionconstruction of water reservoirs prior 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 existingother project infrastructure – while maintaining optionality. Newmont will not proceed with the fullfacilities. However, development of Conga without social acceptance, solidis contingent upon generating acceptable project economicsreturns and potentially another partner to help defray costsgetting local community and risk; it is currently difficult to predict when or whether such events may occur.government support. Under the current social and political environment, the Company does not anticipate being able to develop Conga for at least the foreseeable future. The continued delaynext five years. Due to the uncertainty surrounding the project’s development, the Company has allocated its exploration and evaluation ofdevelopment capital to other projects in recent years, and the Conga project is currently in care and maintenance. 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 a potential accountingfuture impairment or further reclassificationcharge. The total assets at Conga as of Mineralized Material.December 31, 2018 and 2017 were US$484.5 million and US$494.7 million, respectively.

F-117

Notes to the consolidated financial statements (continued)

 

(c)Approval of consolidated financial statements -

The consolidated financial statements as of December 31, 20152018 were approved by the Company’s Management on February 25, 2016April 30, 2019 and, in its opinion, will be approved without changes at the Partners’ Meeting to be held within the terms established by Law.Law in the first half of 2019.

 

The consolidated financial statements as of December 31, 2014 and 20132017 were issued with the approval ofapproved by the Partners’ Meeting held on March 26, 2015.22, 2018.

 

2.Basis for preparation, consolidation and accounting policies

2.1.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 Standard Board (“ASB”IASB”) and interpretations issued by the IFRS Interpretations Committee (“IFRIC”). , in effect at December 31, 2018.

The consolidated financial statements have been prepared under the historical cost basis, except for available-for-saleaccounts receivables, financial assets at fair value and reclamation liability which are measured at their 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 requires that Management use judgments, estimates and assumptions, as detailed in Notenote 3.

 

These consolidated financial statements provide comparative information in respect of the prior periods.

 F-108

Notes to the consolidated financial statements (continued)

 

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)the end of operations at Yanacocha).

 

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:

 

F-118

Notes to the consolidated financial statements (continued)

-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;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-109

Notes to the consolidated financial statements (continued)

2.3.Changes in accounting policies and disclosures -

CertainThe Company applied IFRS 15Revenue from Contracts with Customersand IFRS 9Financial Instrumentsfor the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below. Other than the changes described below, the accounting policies adopted are consistent with those of the previous financial year.

Other amendments and amendments are effectiveinterpretations apply for annual periods beginningthe first time in 2018; however, they did not have material impact on or after January 1, 2015. However, they do not impact the annual consolidated financial statements of the Company and hence,therefore, have not been disclosed. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

F-119

Notes to the consolidated financial statements (continued)

IFRS 15 Revenue from Contracts with Customers

IFRS 15 and its related amendments supersede International Accounting Standards (“IAS”) 11 Construction Contracts, IAS 18 Revenue and related Interpretations. It applies to all revenue arising from contracts with customers and became effective for annual periods beginning on or after January 1, 2018. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. It requires revenue to be recognized when (or as) control of a good or service transfers to a customer 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.

IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires enhanced and extensive disclosures about revenue to help investors better understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers.

The Company adopted IFRS 15 using the modified retrospective method of adoption and the impact is discussed further below in this note. The Company applied the practical expedient to not disclose the effect of the transition to IFRS 15 on the current period. It did not apply any of the other available optional transition practical expedients.

Overall impact

The Company’s revenue from contracts with customers comprises two main streams being the sale of gold and copper and silver in concentrate. The Company undertook a comprehensive analysis of the impact of the new revenue standard based on a review of the contractual terms of its principal revenue streams with the primary focus being to understand whether the timing and amount of revenue recognized could differ under IFRS 15. For all of the Company’s revenue streams, the nature and timing of satisfaction of the performance obligations, and, hence, the amount and timing of revenue recognized under IFRS 15 is the same as that under IAS 18.

Impact on the consolidated statement of comprehensive income

-Gold Bullion sales: there were no changes identified with respect to the timing or amount of revenue recognition. This was because all of the Company’s gold is sold under spot sale arrangements with various banks and the timing between contract inception and the satisfaction of the performance obligation (being gold) is very short (i.e., five days), and the pricing is determined based on the gold price on the London Metal Exchange (LME) at the date specified in each spot contract.

F-120

Notes to the consolidated financial statements (continued)

-Copper and Silver concentrate sales: there were no changes identified with respect to the timing of revenue recognition in relation to metal in concentrate, as control transfers to customers (mainly smelting companies) at the date of shipment, which is consistent with the point in time when risks and rewards passed under IAS 18. There were some impacts arising from metal in concentrate sales that have provisional pricing terms (see ‘provisionally priced commodity sales’ below). These sales are included in the caption “Other operating income”.

-Provisionally priced commodity sales:some of the Company’s sales of metal in concentrate to customers contain terms that allow for price adjustments based on the market price at the end of a quotational period (“QP”) stipulated in the contract – these are referred to as “provisionally priced sales”.

Under previous accounting standards (IAS 18 Revenue and IAS 39 Financial Instruments: Recognition and Measurement), provisionally priced sales were considered to contain an embedded derivative (“ED”), which was required to be separated from the host contract for accounting purposes from the date of shipment. Revenue was initially recognized for these arrangements at the date of shipment (which was when the risks and rewards passed) and was based on the most recently determined estimate of metal in concentrate (based on initial assay results) and the estimated forward price that the entity expected to receive at the end of the QP, determined at the date of shipment. Subsequent changes in the fair value of the ED were recognized in the statement of comprehensive income each period until the end of the QP, and were presented as part of ’Other operating income’.

Under IFRS 15, the accounting for this revenue will remain unchanged. The revenue will be recognized when control passes to the customer (which will continue to be the date of shipment) and will be measured at the amount to which the Company expects to be entitled. This will be the estimate of the price expected to be received at the end of the QP, i.e. the forward price. The Company will continue presenting such movements after the date of sale in profit or loss as ‘Other operating income’ and there will be no impact on the disclosures relating to revenue from contracts with customers.

Other impacts

The changes mentioned above did not have a material impact on the consolidated statements of financial position, statements of cash flows and statements of changes in equity.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after January 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement, impairment, and hedge accounting.

The Company has applied IFRS 9 retrospectively, with the initial application date of January 1, 2018 and has adjusted the comparative information for the period beginning January 1, 2017.

There was an adjustment to the financial statements arising from the adoption of IFRS 9 related to the Available-for-sale financial assets, which are now classified as Financial assets at fair value through other comprehensive income and there were no other material impacts on the comparative balances other than a change in classification and measurement of some receivables.

F-121

Notes to the consolidated financial statements (continued)

Adoption of IFRS 9 has fundamentally changed the Company’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (“ECL”) approach. Upon adoption of IFRS 9 no additional impairment was recognized.

The classification and measurement requirements of IFRS 9 did not have a significant impact to the Company. Upon the adoption of IFRS 9, the Company had the following required or elected balances as of January 1, 2018.

January 1, 2018 -

     IFRS 9 measurement category 
     Fair value
through profit or
loss/OCI		  Amortized
cost		 
  US$(000)  US$(000)  US$(000) 
          
IAS 39 measurement category            
Financial Assets -            
Financial assets -            
Embedded derivatives  15   15   - 
Financial assets at fair value  23,000   23,000   - 
             
Receivables -            
Trade receivables  1,032   -   1,032 
Other receivables  25,557   -   25,557 
             
Financial Liabilities -            
Loans and borrowings -            
Trade and other payables  81,215   -   81,215 

F-122

Notes to the consolidated financial statements (continued)

January 1, 2017 -

     IFRS 9 measurement category 
     Fair value
through profit or
loss/OCI		  Amortized
cost		 
  US$(000)  US$(000)  US$(000) 
          
IAS 39 measurement category            
Financial Assets -            
Financial assets -            
Embedded derivatives  346   346   - 
Financial assets at fair value  16,454   16,454   - 
             
Receivables -            
Trade receivables  9,965   -   9,965 
Other receivables  24,055   -   24,055 
             
Financial Liabilities -            
Loans and borrowings -            
Trade and other payables  63,300   -   63,300 

2.4.Summary of significant accounting policies and practices -

(a)Foreign currencies -

The consolidated financial statements are statedpresented in U.S. dollars, which is also the Company's functional currency.

Transactions and balance

Transactions in foreign currency (a currency other currenciesthan functional currency) are initially recorded in U.S. dollars based onby the Company at the exchange rates prevailing at the time of such transactions. the transactions published by the Superintendence of Banking and Insurance and Pension Fund Administrators (AFP for its acronym in Spanish).

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, and any resulting gainsdates. Gains or losses from exchange differences arising from the settlement or translation of monetary assets and liabilities are reflectedrecognized in current earnings.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.

F-123

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, and subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under IFRS 15.

In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date.

Financial assets of the Company comprise cash and cash equivalents, trade and other receivables, net and financial assets at fair value through OCI with recycling of cumulative gains and losses and 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 attributableloss.

F-124

Notes to the acquisition of theconsolidated financial asset.statements (continued)

 

Subsequent measurement -

For purposes of subsequent measurement, financial assets are classified in four categories:

 

-Financial assets at amortized cost (debt instruments).
-Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments).
-Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments).
-Financial assets at fair value through profit or loss.

Financial assets at amortized cost (debt instruments) -

The Company measures financial assets at amortized cost if both of the following conditions are met:

-LoansThe financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and receivables.
-Held-to-maturity investments.
-Available-for-saleThe contractual terms of the financial investments.asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

This category generally applies to other receivables, net. See note 6 for more information on accounts receivables.

Financial assets at fair value through OCIwith recycling of cumulative gains and losses(debt instruments) -

Financial assets are classified and measured at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

The Company’s investments in the San Jose Reservoir Trust are classified as financial assets at fair value through OCI as of December 31, 2018 and 2017.

As of December 31, 2018, the Company has investments amount US$20.6 million related to the San Jose Reservoir Trust as Financial assets at fair value through OCI.

F-125

Notes to the consolidated financial statements (continued)

Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) -

Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading.

The Company doesn’t have financial assets classified in this category.

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.loss or financial assets mandatorily required to be measured at fair value. 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. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at fair value through OCI, as defined by IAS 39.

 F-110

Notes to the consolidated financial statements(continued)described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

 

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)recognized in the consolidated statements of comprehensive income.profit or loss.

 

DerivativesAs of December 31, 2018 and 2017, the Company has nominal investments related to the San Jose Reservoir Trust as financial assets at fair value through profit or loss.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, contracts areis separated from the host and accounted for as a separate derivatives and recorded at fair value if theirderivative if: the economic characteristics and risks are not closely related to thosethe host; a separate instrument with the same terms as the embedded derivative would meet the definition of the host contractsa derivative; and the host contracts arehybrid contract is not held for trading or designatedmeasured at fair value thoughthrough profit or loss. These embeddedEmbedded 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, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. The losses arising from impairment are recognized Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

F-126

Notes to the consolidated financial statements of (continued)

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.

 

This category generallyalso 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 Company has the positive intention and ability to hold them to maturity. The Company did not have any held-to-maturity investments as of December 31, 2015 and 2014.

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 (Note 9).

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.expired; or
-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’sCompany´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 recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

  F-111F-127 

 

 

Notes to the consolidated financial statements (continued)

 

Impairment of financial assets -

The Company assesses, at each reporting date, whetherECLs are recognized in two stages. For credit exposures for which there is objective evidencehas not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that a financial asset or group of financial assets is impaired. An impairment exists if one or moreresult from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has occurredbeen a significant increase in credit risk since the initial recognition, a loss allowance is required for credit losses expected over the remaining life of the asset (an incurred "loss event") has an impact on the estimated future cash flowsexposure, irrespective of the financial asset ortiming of 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.(a lifetime ECL).

 

For financialtrade receivables and contract assets, carried at amortized cost, the Company first assesses whether impairment existsapplies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for financial assets that are individually significant, or collectively for financial assets that are individually insignificant.forward-looking factors specific to the debtors and the economic environment.

 

The amount of any impairment loss is measured asCompany considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, 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 discounted at theCompany may also consider a 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 comprehensive income. Interest income (recorded as revenue in the statements of comprehensive income) continues to be accrued onin default when internal or external information indicates that the reduced carrying amount andCompany is accrued usingunlikely to receive the interest rate used to discountoutstanding contractual amounts in full before taking into account any credit enhancements held by the future cash flows for the purpose of measuring the impairment loss. Loans, together with the associated allowance, areCompany. A financial asset is written off when there is no realistic prospectreasonable expectation of a future recovery and all collateral has been realized or has been transferred torecovering the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases due to 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 comprehensive income.contractual cash flows.

 

(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,loans and borrowings, payables, 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.

 

 F-112

Notes to the consolidated financial statements (continued)

The Company’s financial liabilities include trade and other payables.

Subsequent measurement -

The measurement of financial liabilities depends on their classification. 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.

F-128

Notes to the consolidated financial statements (continued)

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 Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. 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.

Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.

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. This category generally applies to interest-bearing loans and borrowings.

Trade and other payables are subsequently measured at amortized cost.

 

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 comprehensive income.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.

 

F-129

Notes to the consolidated financial statements (continued)

(c)Current versus non-current classification

The Company presents assets and liabilities in the statement of financial position based on current or non-current classification.

An asset is classified as current when it:

-Is expected to be realized or intended to be sold or consumed in the normal operating cycle;
-Is held primarily for the purpose of trading;
-Is expected to be realized within twelve months after the reporting period, or
-Is Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period;
-The Company classifies all other assets as non-current.

A liability is current when:

-Is expected to be settled in the normal operating cycle;
-Is held primarily for the purpose of trading;
-Is due to be settled within twelve months after the reporting period
-Or:
-There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period;
-The Company classifies all other liabilities as non-current;
-Deferred tax assets and liabilities are classified as non-current assets and liabilities.

(d)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.

 

 F-113

Notes to the consolidated financial statements (continued)

(d)(e)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 weighted 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:

 

F-130

Notes to the consolidated financial statements (continued)

(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 weighted 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.operations, as well as leaching costs incurred in the leaching process. Costs are removed from ore on leach pads as ounces are recovered based on the weighted 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-114

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, theThe Company's operating results havetypically are not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads.pads in the ordinary course of business. 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.

 

F-131

Notes to the consolidated financial statements (continued)

(iii)In-processinventoryprocess 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 weighted average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/orand (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 Doré and/orDore and (or) gold bullion. Precious metals that result from the Company's mining, processing activities are valued at the weighted 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 weighted average cost or replacement value. Cost includes applicable taxes and freight.

 

(e)(f)Property, plant and equipment -

The cost of an element of property, plant and equipment comprises the following: 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;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, plant 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.

 

 F-115

Notes to the consolidated financial statements (continued)

ExpensesDisbursements 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 item, the replacement value of the new component is used to estimate the carrying amount of the assets being replaced.

 

F-132

Notes to the consolidated financial statements (continued)

Assets in the construction stage are capitalized as separate components. At their completion, the cost is transferred to the appropriate category. Work in progress isAssets under construction are 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,mine. Remaining useful lives as follows:

 

Years
Land improvements25Between 2 and 4  years
BuildingsBetween 5 and 2510 years
Plant and equipmentBetween 3 and 1510 years
VehiclesBetween 3 and 54 years
Furniture and fittingsBetween 3 and 104 years
Other equipmentBetween 3 and 104 years
Computer equipmentBetween 3 and 84 years
Assets retirement costUseful life of the mine and/orand (or) process facilities

 

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-116

Notes to the consolidated financial statements (continued)

(f)(g)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.

F-133

Notes to the consolidated financial statements (continued)

 

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 Reservesproven and Resourceprobable reserves information published annually by Newmont in its formForm 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/orand (or) undeveloped mineralized material.

 

Mineral interests are presented in the caption of property, plant and equipment.equipment, net.

 

(g)(h)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.

 

 F-117

Notes to the consolidated financial statements (continued)

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.

 

F-134

Notes to the consolidated financial statements (continued)

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 minimisthe minimum saleable materials may occur during development and are recorded as Other income, net of incremental mining and processing costs. See (h) below.

  

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.

 

(h)(i)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:

 

-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, the Company allocated the costs associated with improved access as a production stripping asset.“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.

F-135

Notes to the consolidated financial statements (continued)

 

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 tons ratio") 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.

 

 F-118

Notes to the consolidated financial statements (continued)

(i)(j)Impairment 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 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. The Company identified two separate cash generating units according to its segments;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 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.

 

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.

 

F-136

Notes to the consolidated financial statements (continued)

(j)(k)Provisions -

General-General -

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 finance cost.

 

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 expenses related to other provisions are 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.

 

 F-119

Notes to the consolidated financial statements(continued)

Asset Retirement Obligation -

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 reclamation obligation is based on when spending for an existing disturbance is expected to occur. The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation at each mine site. Reclamation costs related to an inactive mine site are recorded as expenses.

(l)Revenue from contracts with customers -

The Company is principally engaged in the business of producing gold and concentrated copper/silver. Revenue from contracts with customers is recognized when control of the goods is transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.

 

The Company has generally concluded that it is the principal in its revenue contracts because it typically controls the goods before transferring them to the customer.

(i)Contract balances -

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. The Company does not have any contract assets as performance and a right to consideration occurs within a short period of time and all rights to consideration are unconditional.

  F-120F-137 

 

Notes to the consolidated financial statements (continued)

Trade receivables

A receivable represents the Company’s right to an amount of consideration that is unconditional.

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract. As of December 31, 2018 and 2017 the Company does not have any contract liability.

 

(k)(ii)Revenue recognitionSales of gold -

Revenue fromFor gold sales, those sales are performed over unrefined gold dore that are sold under spot sales contracts with banks. The Company initially negotiates with the banks the quantity of gold bullion to be required which is delivered in terms of unrefined gold dore to a selected refiner. The performance obligation is completed once control transfers to the customer allowing the fully payment in cash according the contracts. As a result, all risk of loss and damage of the gold dore pass to customer upon reception. The only performance obligation is the sale of gold dore.

Revenue is recognized netat a point in time when the payment is ensured in the same time when control transfers to the customer. Control of treatment and refining charges,the cold credits transfers to the customer when persuasive evidence of an arrangement exists,those gold credits are transferred from the priceCompany’s gold bullion account to the customer’s account (typically cash is determinable, the product has been delivered, risk and title has been transferred to the customerCompany’s account simultaneously ). This generally occurs after the dore’s shipments are confirmed, not being required to physically delivered the gold dore to the banks. Nevertheless, the date of shipment’s confirmation and collectiondelivery might be different arising differences between the prices used. Therefore, these sales are subject to subsequent adjustments due the variation of assays. All these matters are resolved according a settlement process specified in the contract which result in the issue of debit/credit notes according the results.

With these arrangements, there are no advance payments received from the banks, no conditional rights to consideration, so no contract assets are recognised. A trade receivable is recognised at the date of sale and there is usually paid on cash once delivery confirmation is issued. The contract is entered into and the transaction price is determined at outturn by virtue of the shipment confirmation being subject to further price adjustments when difference between delivery and shipment dates arises. Also, given each spot sale represents the enforceable contract and all performance obligations are satisfied at that time, there are no remaining performance obligations (unsatisfied or partially unsatisfied) requiring disclosure.

F-138

Notes to the consolidated financial statements (continued)

(iii)Sales of concentrated copper, silver -

For the Company’s copper, silver in concentrate sold under FOB Incoterm, therefore, the only performance obligations are the provision of theproduct at the point where control passes.

The majority of the Company’s sales of copper and silver in concentrate allow for price adjustments based on the market price at the end of the relevant QP stipulated in the contract. 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. Adjustments to the sales price occur based on movements in quoted market prices up to the end of the QP. The period between provisional invoicing and the end of the QP can be between one and three months.

Revenue is reasonably assured.recognized when control passes to the customer, which occurs at a point in time when the copper, silver in concentrate is physically transferred onto a vessel, train, conveyor or other delivery mechanism. The revenue is measured at the amount to which the Company expects to be entitled, being the estimate of the price expected to be received at the end of the QP, i.e., the forward price, and a corresponding trade receivable is recognized.

For these provisional pricing arrangements, any future changes that occur over the QP are embedded within the provisionally priced trade receivables and are, therefore, within the scope of IFRS 9 and not within the scope of IFRS 15. Given the exposure to the commodity price, these provisionally priced trade receivables will fail the cash flow characteristics test within IFRS 9 and will be required to be measured at fair value through profit or loss up from initial recognition and until the date of settlement. These subsequent changes in fair value are recognized in the statement of profit or loss and other comprehensive income each period and presented in “Other operating income”. Changes in fair value over, and until the end of, the QP, are estimated by reference to updated forward market prices for gold and copper as well as taking into account relevant other fair value considerations as set out in IFRS 13, including interest rate and credit risk adjustments.

 

Sales contracts for copper, silver and carbon incorporate provisional pricing at the date of deliverysubsequent changes in fair value 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 ownershiptrade receivable are transferred topresented in 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.

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.caption “Other operating income”.

 

(l)(iv)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 comprehensive income.

F-139

Notes to the consolidated financial statements (continued)

(m)Taxes -

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. 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 -

The Company accounts for income and mining taxes 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 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.

 F-121

Notes to the consolidated financial statements (continued)

 

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 of the deferred income tax asset will not be realized (Note 14)15).

 

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.

F-140

Notes to the consolidated financial statements (continued)

 

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.

SalesValue added tax -

Expenses and assets are recognized net of the amount of salesvalue added tax, except:

 

(i)When the salesvalue added 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 value added tax included.
The net amount of sales tax included.recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statements of financial position.

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.

 

(m)(n)Fair value measurement -

The Company measures its financial instruments, such as, derivatives and embedded derivatives, at fair value as 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:

 

-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.

 F-122

Notes to the consolidated financial statements (continued)

 

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 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.

 

F-141

Notes to the consolidated financial statements (continued)

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.Significant judgments, estimates and assumptions

The preparation of the Company’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 the 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.

 

 F-123

Notes to the consolidated financial statements (continued)

3.1.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.

 

F-142

Notes to the consolidated financial statements (continued)

(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.developed based on the results of feasibility studies.

 

(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 coststhe cost of mining waste ore 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-124

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.SEC guidance. 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.

 

F-143

Notes to the consolidated financial statements (continued)

(b)Units of production depreciation -

Estimated economically recoverable reserves are used in determining the depreciation and/orand (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 -

Inventories are measured at the lower of its weighted average cost or its net realizable value. 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.

 

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.

 

 F-125

Notes to the consolidated financial statements(continued)

(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.exists (e.g. fluctuation of gold prices, community relations and social license to operate). 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.

F-144

Notes to the consolidated financial statements (continued)

 

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.

 

(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.

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 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.   

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. 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 Company has not listed other standardsstandard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and interpretations that are issued, but not yet effective,short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Subsequent to initial measurement, lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as these are not expectedan adjustment to impact the Company.right-of-use asset. Finally, lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

 

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 916, which is effective for annual periods beginning on or after January 1, 2018,2019, requires lessees and lessors to make more extensive disclosures than under IAS 17.

Transition to IFRS 16

The Company plans to adopt IFRS 16 using the modified retrospective approach with early application permitted. Except for hedge accounting, retrospective application is required, buta cumulative-effect adjustment recorded at the provisionbeginning of the period of adoption (January 1, 2019). Therefore, upon adoption, the Company will recognize and measure leases without revising comparative period information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.or disclosure.

 

  F-126F-145 

 

 

Notes to the consolidated financial statements (continued)

 

IFRS 15 Revenue from ContractsThe Company will elect to use the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying asset is of low value.

The Company has substantially completed its assessment of the new standard, including the impact on the Company’s Consolidated Financial Statements. Based on contracts outstanding at December 31, 2018, the adoption of the new standard will result in the recognition of right-of-use assets and lease liabilities approximately for US$0.3 million in January 2019. The Company will provide additional qualitative and quantitative disclosures related to leasing arrangements beginning in the period of adoption.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment -

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with Customersuncertain tax treatments. The Interpretation specifically addresses the following:

IFRS 15 was issued

-Whether an entity considers uncertain tax treatments separately
-The assumptions an entity makes about the examination of tax treatments by taxation authorities
-How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
-How an entity considers changes in facts and circumstances

In 2019, the Company is in May 2014 and establishes a five-step modelprocess of the assessment of the potential effect of this IFRIC on its consolidated financial statements

Annual Improvements 2015-2017 Cycle (issued in December 2017) -

These improvements include:

IAS 12 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amountpast transactions or events that reflects the considerationgenerated distributable profits than to whichdistributions to owners. Therefore, an entity expectsrecognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to be entitled in exchangewhere the entity originally recognized those past transactions or events. An entity applies those amendments for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual reporting periods beginning on or after January 1, 2018. Early adoption is permitted.

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between IFRS 10 Consolidated Financial Statements and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. These amendments must be applied prospectively and are effective for annual periods beginning on or after January 1, 2016,2019, with early adoptionapplication permitted. These amendments will impact the Companyare currently not applicable to the extent that it undertakesGroup, but may apply to future transactions of this nature, as this accounting approach differstransactions.

F-146

Notes to that which it would currently apply.the consolidated financial statements (continued)

 

5.Cash and cash equivalents

(a)This caption is made up as follows:

 

  2015  2014 
  US$(000)  US$(000) 
       
Petty cash  51   53 
Bank accounts  142,725   287,762 
Term deposits (b)  800,985   498,809 
         
   943,761   786,624 

The term deposits balance is made as follows:

  2015  2014 
  US$(000)  US$(000) 
       
Citi Bank  620,025   318,001 
HSBC  180,960   180,808 
         
   800,985   498,809 
  2018  2017 
  US$(000)  US$(000) 
       
Petty cash  33   34 
Bank accounts  111,319   48,995 
Term deposits (b)  611,856   625,985 
         
   723,208   675,014 

 

(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.deposit balance is made up as follows:

 

 F-127

  2018  2017 
  US$(000)  US$(000) 
       
Citi Bank  210,361   206,824 
JP Morgan  401,495   419,161 
         
   611,856   625,985 

 

NotesThe bank accounts and term deposits yield interest at market rates. The carrying amounts approximate the fair value due to the consolidated financial statements (continued)short maturity of these balances, which are less than 90 days.

 

6.Trade and other receivables, net

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Trade receivables, net                
Foreign clients  5,181   5,352   7,389   1,032 
                
Other receivables                
Advances to suppliers  13,052   14,880   16,897   20,724 
Tax claims  5,273   5,882   3,532   10,211 
Other minors  4,079   7,888 
Related entities, Note 21  248   36,017 
Credit of tax on net assets  23,290   11,520 
Other  5,382   4,032 
Related entities, note 22(b)  794   2,185 
  22,652   64,667   49,895   48,672 
                
Allowance for doubtful accounts (b)  (1,444)  (1,788)  (1,384)  (1,384)
  21,208   62,879   48,511   47,288 
                
Total trade and other receivables, net  26,389   68,231   55,900   48,320 

F-147

Notes to the consolidated financial statements (continued)

  2018  2017 
  US$(000)  US$(000) 
       
By maturity:        
Current  32,610   36,800 
Non current  23,290   11,520 
         
Total  55,900   48,320 

 

The trade receivables are related to concentrate sold (copper and other receivables have current maturities.

There are no trade receivables that are past atsilver by-products). At December 31, 20152018 and 2014.2017 there were no material collectability issues that required an allowance for the trade receivable balance.

 

(b)The allowance for doubtful accounts had the following movement during the years 2015, 20142018, 2017 and 2013:2016:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Opening balance  1,788   5,934   7,816   1,384   1,407   1,444 
Additions  88   812   717 
            
Deductions  (432)  (4,958)  (2,599)  -   (23)  (37)
                        
Ending balance  1,444   1,788   5,934   1,384   1,384   1,407 

 

In the opinion of the Company’s Management the balance ofopinion, the allowance for doubtful accounts balance is sufficient to adequately cover adequately the risksrisk of failure to collect other receivables as of the date inof the consolidated statement of financial position.

 F-128

Notes to the consolidated financial statements (continued)

 

7.Inventories, net

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Precious metals  404   3,265   6,878   15,446 
Leach in-circuit  5,950   7,269   1,835   8,057 
Mill in-circuit  1,580   815   4,002   2,048 
Materials and supplies  54,711   58,386   49,327   52,171 
  62,645   69,735   62,042   77,722 
        
Allowance for obsolescence of materials and supplies (b)  (5,881)  (4,832)  (7,515)  (7,076)
                
  56,764   64,903   54,527   70,646 

F-148

Notes to the consolidated financial statements (continued)

 

(b)The allowance for obsolescence of material and supplies had the following movement during the years 2015, 20142018, 2017 and 2013:2016:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Opening balance  4,832   5,568   3,297   7,076   5,272   5,881 
Provision for impairment of materials and supplies  5,060   2,849   2,271   1,887   2,896   3,104 
Reversal of provision for impairment of materials and supplies  (4,011)  (3,585)  -   (1,448)  (1,092)  (3,713)
                        
Ending balance  5,881   4,832   5,568   7,515   7,076   5,272 

 

8.Stockpiles and ore on leach pads, net

(a)This caption is made up as follows:

 

  2015  2014 
  US$(000)  US$(000) 
       
Current portion -        
Stockpiles  91,920   137,852 
Ore on leach pads  210,517   204,148 
Provision for net realizable value adjustment (b)  (64,827)  (71,489)
         
   237,610   270,511 
Non-current portion -        
Stockpiles  95,484   92,217 
Ore on leach pads  138,470   215,197 
Provision for net realizable value adjustment (b)  (25,471)  (91,605)
         
   208,483   215,809 

 F-129

Notes to the consolidated financial statements (continued)

  2018  2017 
  US$(000)  US$(000) 
       
Current portion -        
Stockpiles  35,065   77,296 
Ore on leach pads  106,931   159,930 
Provision for net realizable value adjustment (b)  (41,403)  (40,588)
         
   100,593   196,638 
         
Non-current portion -        
Stockpiles  41,814   32,362 
Ore on leach pads  144,688   50,350 
Provision for net realizable value adjustment (b)  (47,724)  (21,952)
         
   138,778   60,760 

 

(b)The provision for net realizable value adjustment had the following movement during the years 2015, 20142018, 2017 and 2013:2016:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Opening balance  163,094   147,342   5,375 
Opening balance, note 17  62,540   84,374   90,298 
Provision  64,497   95,859   146,051   90,365   77,385   100,179 
Reversal of provision  (137,293)  (80,107)  (4,084)  (63,778)  (99,219)  (106,103)
                        
Ending balance  90,298   163,094   147,342 
Ending balance, note 17  89,127   62,540   84,374 

F-149

Notes to the consolidated financial statements (continued)

 

9.Available-for-Sale Financial Assetsassets at fair value

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 CreditoCrédito del PeruPerú and the beneficiary is the Company; therefore, the Company consolidates the trust. As of December 31, 2015,2018, the trust total balance is US$15,803,00022.6 million and is presented as Available-for-salea financial assetsinstrument at fair value (trust total balance of US$16,884,00023 million as of December 31, 2014).

During 2015, these investments, denominated in U.S. dollars, accrued losses net of taxes2017, including an additional investment of US$757,000 (income5 million during 2017). During 2018, the change in fair value of the debt instruments was recognized in other comprehensive income for the amount of US$65,00091,000. The change in fair value of the investments in marketable stocks was recognized in profit and loss offor US$226,00010,000 in 2014 and 2013, respectively) which are included in otherthe consolidated statement of comprehensive income.

 

  F-130F-150 

 

 

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 Final balances  Opening
balance		 Additions Sales and disposals Transfer/Other
changes		 Final
balances		 
 US$(000) US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) 
                      
Year 2015                    
Year 2018                    
Cost-                                        
Land  15,335   -   (272)  233   15,296   9,459   -   -   -   9,459 
Land improvements  22,730   -   -   -   22,730   36,454   -   -   -   36,454 
Building and constructions  622,928   -   (304)  51,856   674,480   297,798   -   -   530   298,328 
Machinery and equipment  322,441   -   (25,211)  25,460   322,690   286,865   -   (72,442)  30,137   244,560 
Leach pads  571,388   -   -   -   571,388   1,722,786   -   -   484   1,723,270 
Vehicles  9,278   -   (1,186)  32   8,124   11,024   -   (1,171)  68   9,921 
Furniture and fixtures  2,031   -   -   -   2,031   2,556   -   -   -   2,556 
Other equipment  64,137   225   (58)  4,679   68,983   57,773   -   (265)  1,416   58,924 
Work in progress  593,906   99,336   -   (92,887)  600,355   400,410   117,636   -   (73,358)  444,688 
Mining rights  33,800   -   -   -   33,800   37,521   -   -   -   37,521 
Asset retirement and mine closure  245,903   10,434   -   -   256,337   507,123   27,275   -   -   534,398 
Stripping activity asset  157,649   18,868   -   -   176,517   148,487   -   -   -   148,487 
Mine development  475,441   -   -   10,491   485,932   722,355   -   -   38,292   760,647 
  3,136,967   128,863   (27,031)  (136)  3,238,663                     
                      4,240,611   144,911   (73,878)  (2,431)  4,309,213 
                    
Accumulated depreciation and amortization                                        
Land improvements  15,812   -   -   (5,334)  10,478   35,143   440   -   -   35,583 
Building and constructions  310,906   72,899   (95)  -   383,710   240,348   7,631   -   -   247,979 
Machinery and equipment  213,795   20,999   (21,732)  -   213,062   249,975   20,887   (66,607)  -   204,255 
Leach pads  519,142   26,779   -   -   545,921   1,621,266   34,736   -   -   1,656,002 
Vehicles  8,086   800   (1,111)  -   7,775   11,024   2   (1,171)  -   9,855 
Furniture and fixtures  1,991   11   -   -   2,002   2,556   -   -   -   2,556 
Other equipment  55,928   1,600   (58)  -   57,470   55,914   828   (220)  -   56,522 
Mining rights  19,744   -   -   -   19,744   29,457   -   -   -   29,457 
Asset retirement and mine closure  121,102   48,135   -   -   169,237   356,345   67,663   -   -   424,008 
Stripping activity asset  138,178   -   -   -   138,178   143,252   2,806   -   -   146,058 
Mine development  276,954   44,188   -   5,334   326,476   639,450   17,034   -   -   656,484 
  1,681,638   215,411   (22,996)  -   1,874,053                     
                      3,384,730   152,027   (67,998)  -   3,468,759 
                    
Net cost  1,455,329               1,364,610   855,881               840,454 

 

  F-131F-151 

 

 

Notes to the consolidated financial statements (continued)

 

 Opening 
balance		 Additions Sales and 
Disposals		 Impairment 
loss		 Transfer/Other changes Final balances  Opening
balance		 Additions Sales and disposals Transfer/Other
changes		 Final
balances		 
 US$(000) US$(000) US$(000) US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) 
                        
Year 2014                        
Year 2017                    
Cost-                                            
Land  21,142   -   (243)  (5,564)  -   15,335   9,459   -   -   -   9,459 
Land improvements  30,977   -   -   (8,247)  -   22,730   36,454   -   -   -   36,454 
Building and constructions  670,767   -   (1,250)  (225,977)  179,388   622,928   236,551   -   (42)  61,289   297,798 
Machinery and equipment  493,703   -   (80,982)  (116,971)  26,691   322,441   379,164   -   (92,299)  -   286,865 
Leach pads  691,535   -   -   (207,279)  87,132   571,388   1,670,835   -   -   51,951   1,722,786 
Vehicles  13,651   -   (1,011)  (3,362)  -   9,278   11,024   -   -   -   11,024 
Furniture and fixtures  2,742   -   -   (711)  -   2,031   2,556   -   -   -   2,556 
Other equipment  87,557   96   (434)  (23,262)  180   64,137   57,773   -   -   -   57,773 
Work in progress  985,759   111,598   -   (215,449)  (288,002)  593,906   483,225   51,624   -   (134,439)  400,410 
Mining rights  46,061   -   -   (12,261)  -   33,800   37,521   -   -   -   37,521 
Asset retirement and mine closure  270,589   64,520   -   (89,206)  -   245,903   409,797   97,326   -   -   507,123 
Stripping activity asset  110,349   104,487   -   (57,187)  -   157,649   148,487   -   -   -   148,487 
Mine development  644,904   -   -   (172,476)  3,013   475,441   701,156   -   -   21,199   722,355 
                                            
  4,069,736   280,701   (83,920)  (1,137,952)  8,402   3,136,967   4,184,002   148,950   (92,341)  -   4,240,611 
                                            
Accumulated depreciation and amortization                                            
Land improvements  19,080           (5,737)  2,469   15,812   35,053   90   -   -   35,143 
Building and constructions  348,455   70,578   (629)  (112,786)  5,288   310,906   235,340   5,020   (12)  -   240,348 
Machinery and equipment  302,722   28,117   (39,137)  (77,558)  (349)  213,795   329,965   8,431   (88,421)  -   249,975 
Leach pads  674,162   32,691   -   (188,326)  615   519,142   1,588,205   33,061   -   -   1,621,266 
Vehicles  10,708   432   (987)  (2,930)  863   8,086   11,003   21   -   -   11,024 
Furniture and fixtures  2,675   11   -   (697)  2   1,991   2,556   -   -   -   2,556 
Other equipment  74,731   687   (230)  (20,285)  1,025   55,928   55,645   269   -   -   55,914 
Mining rights  6,208   -   -   (7,162)  20,698   19,744   29,457   -   -   -   29,457 
Asset retirement and mine closure  126,291   39,214   -   (43,932)  (471)  121,102   337,173   19,172   -   -   356,345 
Stripping activity asset  66,029   96,785   -   (50,124)  25,488   138,178   142,170   1,082   -   -   143,252 
Mine development  342,726   85,534   -   (100,471)  (50,835)  276,954   622,604   16,846   -   -   639,450 
  1,973,787   354,049   (40,983)  (610,008)  4,793   1,681,638                     
                          3,389,171   83,992   (88,433)  -   3,384,730 
                    
Net cost  2,095,949                   1,455,329   794,831               855,881 

 

Additions to work in progress in 20152018 are primarily related to the Water treatment project and Yanacocha Laybacks Checkpoint 2A and Asset ComponetizationQuecher Main project.

 

The depreciation and amortization expense for the year ended December 31, 2015,2018 was recorded as Cost applicable to sales in the consolidated statement of comprehensive income.

 

  F-132F-152 

 

 

Notes to the consolidated financial statements (continued)

 

(b)Impairment of long-lived assets -

In accordance with itsthe 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’s: Yanacocha mine and Conga project.

In December 2017 and 2018, the Company performed a formal evaluation of its cash generating units and concluded that there were no impairment indicators at December 31, 2018 and 2017, respectively.

In December 2016, 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 an increase to the asset retirement cost asset.As a result of the recoverable amount analysis performed during 2016, 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 assessing whether impairment iswas required, the carrying value of the asset or CGU iswas 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 iswas 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 arewere 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 includeincluded quantities of recoverable minerals, production levels, operating costs and capital requirements and sourced from outthe 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 did not recognize an impairment loss related to mine properties in 2015.In 2014, the Company recorded an impairment loss amounting to US$541 million related to Conga, and no loss was recorded for Yanacocha (US$1,038 million for the year ended December 31, 2013: US$453 million related to Yanacocha and US$585 million related to Conga).

 

Key assumptions used for the impairment testing as of December 31, 2015:2016:

 

The determination of value in use iswas most sensitive to the following key assumptions:

-Production volumesvolumes.
-Commodity pricesprices.
-Discount raterate.

F-153

Notes to the consolidated financial statements (continued)

 

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-133

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 arewere 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 arewere based on management’s estimates and arewere 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 beenwere used to estimate future revenues arewere as follows:

 

  Current  Long-term 
  US$  US$ 
       
Gold (per ounce)  1,106   1,300 
Copper (per pound)  2.50   3.00 
  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 8.4%7.1% was applied to the pre-tax cash flows. This discount rate iswas 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.

 

F-154

Notes to the consolidated financial statements (continued)

11.Trade and other payables

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Trade payables (b)                
Domestic suppliers  56,447   69,788   48,847   43,108 
Related entities, Note 21  10,792   51,071 
        
Related entities, note 22  10,846   9,962 
  67,239   120,859   59,693   53,070 
                
Other payables                
Remuneration and similar benefits payable  8,981   13,390   22,907   27,419 
Royalties payable to the Peruvian State  1,541   3,758   136   726 
Taxes payable  489   812   4,280   2,605 
          27,323   30,750 
  11,011   17,960         
          87,016   83,820 
  78,250   138,819 

 

(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.

 

 F-134

Notes to the consolidated financial statements (continued)

12.Provisions

(a)This caption is made up as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Provision for closure of mining units and exploration projects (b)  578,959   557,457   1,294,464   1,234,731 
Provision of social responsibility(c)  29,083��  28,727   18,010   21,689 
Workers’ profit sharing payable (c)  19,526   31,053 
Accrual of operating costs  13,319   10,895 
Accrual of operating costs (d)  11,442   15,064 
Workers’ profit sharing payable (e)  3,920   1,733 
Accrual of capital expenditure  3,682   1,840 
Other provisions  5,122   1,005   2,785   1,403 
        
  646,009   629,137   1,334,303   1,276,460 
                
Classification by maturity:                
Current portion  41,961   55,585   41,154   39,495 
Non-current portion  604,048   573,552   1,293,149   1,236,965 
                
  646,009   629,137   1,334,303   1,276,460 

F-155

Notes to the consolidated financial statements (continued)

 

(b)Provision for closure of mining units and explorations projects.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 to be 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 2018, 2017 and 2016 is broken down as follows:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  1,234,731   1,012,888   578,959 
Additional provisions  43,560   221,450   430,292 
Payments  (19,842)  (21,376)  (10,467)
Unwinding of discount, note 20  36,015   21,769   14,104 
Final balance  1,294,464   1,234,731   1,012,888 
             
Classification by maturity            
Current portion  19,325   19,455   15,636 
Non-current portion  1,275,139   1,215,276   997,252 
             
   1,294,464   1,234,731   1,012,888 

There were minimal changes to the updated closure plan in 2017 prior to submitting to Peruvian regulators in September 2017. The regulators completed their review and approved the updated closure plan in November 2017.

As of December 31, 2018, the Company recorded an increase to the reclamation liability of US$44 million (US$206 million in 2017). The increase to the reclamation obligation resulted in an increase to the recorded asset retirement cost asset of US$27.2 million (US$97 million in 2017) related to the producing portions of the mine and a non-cash charge to reclamation expense for the year ended December 31, 2018 of US$16.3 million (US$109 million as December 31, 2017) related to the areas of Carachugo, Yanacocha, Maqui Maqui and Cerro Negro operations no longer in production. The increase of the 2018 reclamation obligation is mainly due to new disturbance from the Quecher Main development project and changes in the labor cost estimate. The increase to the 2017 reclamation obligation is mainly due to a decrease in the market-based discount rate compared to the prior year. The discount rates used in the calculation of the provision as December 31, 2018 and December 31, 2017 were between 0.3% and 2.9%.

  F-135F-156 

 

 

Notes to the consolidated financial statements (continued)

The movement of the ARO for 2015, 2014 and 2013 is broken down as follows:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  557,457   460,127   392,217 
Additional provisions  10,434   84,835   54,184 
Payments  (11,007)  (10,419)  (4,387)
Unwinding of discount, Note 19  22,075   22,914   18,113 
             
Final balance  578,959   557,457   460,127 
             
Classification by maturity            
Current portion  6,698   15,112   34,848 
Non-current portion  572,261   542,345   425,279 
             
   578,959   557,457   460,127 

The increase in the asset retirement obligation in 2015 relates to additional reclamation requirements caused by the impact of mining activities during 2015, additional costs for waste rock reclamation and new Peruvian regulatory requirements that extended the water treatment and monitoring requirements more than 20 years.

 

(c)Provision of social responsibility -

The provision of social responsibility relates to community commitments to develop projects near the mine site, including training and support for other activities such as building infrastructure and donations.

(d)Accrual of operating cost -

The accrual of operating cost relates to the provisional valuation of services received by the Company as part of its operations that were pending to be invoiced such as power, maintenance, contractors and others.

(e)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.Debt instruments

On June 14, 2018, the Company approved the sale of 63,922,565 shares of MYSRL to Summit Global Management II BV, a wholly-owned subsidiary of Sumitomo Corporation (“Sumitomo”) for US$47,911,000. The transaction resulted in Sumitomo owning 5% of MYSRL with the Newmont and Buenaventura’s ownership percentages decreasing to 51.35% and 43.65%, respectively.

Under the terms of the transaction, Sumitomo has the option to require the Company to repurchase the interest if the Yanacocha Sulfides project does not adequately progress by June 2022 or if the project is approved with an incremental rate of return below a contractually agreed upon rate. Under the terms of the sales agreement, the cash paid by Sumitomo at closing has been placed in escrow for repayment in the event the option is exercised. As of December 31, 2018, the Company holds US$48,127,000 in an escrow account with Citibank New York and generates interest at a market rate. This balance is included in the caption Restricted Cash in the consolidated statement of financial position. The restricted cash is not available to finance the Group’s day-to-day operations and, therefore, has been excluded from cash and cash equivalents for the purposes of the consolidated statement of cash flows. It has been disclosed as a non-current asset.

The shares held by Sumitomo meet the definition of a compound instrument and will be classified as a liability (with a portion recorded to equity) in the consolidated financial statements of the Company. The difference between the present value of the US$41,695,000 and the gross redemption amount of US$47,911,000 was recorded to equity of US$6,216,000 at the date of acquisition in accordance with the compound financial instrument guidance included in IAS 32. The value as of December 31, 2018 amounting to US$42,430,000 includes the unwinding of the discount recognized in the caption “Finance costs” consolidated statement of comprehensive income of US$735,000.

F-157

Notes to the consolidated financial statements (continued)

14.Partners’ equity, net

(a)Partners’ contributions -

Partners’ contributions comprise1,278,451,3041,214,528,739 common partnership interests at par value of one Peruvian Sol each, fully subscribed and paid-in. Such partnership interest includes 720,407,310 shares656,484,745 common partnership interests that are owned by foreign investors.

On December 21, 2017, Minera Yanacocha purchased back 63,922,565 partnership interests owned by International Finance Corporation (“IFC”) for US$47,910,000, which represented 5% of the capital stock of the Company. On February 19, 2018, the Board of the partners approved the reduction of 63,922,565 of the common partnership interests. On June 14, 2018, the Board of the partners approved the sale of 63,922,565 partnership units to Summit Global Management II BV, see note 13.

 

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.

 

 F-136

Notes to the consolidated financial statements (continued)

ForUntil December 31, 2017, by Law N° 30296 published on December 31, 2014, for individuals and non-resident legal entities, the applicable tax rate iswas 6.8% for dividend distributions in cash or non-monetary assets for fiscal years 2015year 2017. Pursuant to Legislative Decree N° 1261, published on December 10, 2016 and 2016; whereas during fiscal yearseffective as of January 1, 2017, and 2018 the applicable tax rate to the distribution of cash dividends and non-monetary assets for the year 2017 onwards will be 8.8%; and 9.3% from 2019, onward.5%.

 

14.(c)Dividends declared and paid -

On February 15, 2016, the Executive Committee 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 were generated in 2011.

F-158

Notes to the consolidated financial statements (continued)

15.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 25,200325, 2003

 

The Cerro Yanacocha tax stabilization agreement expired on January 1, 2015 and is no longer in effect.La Quinua tax stabilization agreement expired on January 1, 2019.

 

The agreement for La Quinua guaranteesguaranteed the Company's use of the tax regime shown in the table above and permitspermitted 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 consolidated financial statements by those items that the applicable tax legislation deems to be non-taxable or non-deductible.

 

For the year 2015, the income tax rate was 28%, except for the La Quinua mine, which was 29%.

On December 31, 2014, the Peruvian Government enacted modifications to Income Tax regulations, effective January 1,applicable beginning in 2015. Among the modifications, a progressive income tax rate reduction was approved as follows: 28% for fiscal years 2015 andyear 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%. The income tax for La Quinua is 29% according to the tax stabilization agreement entered into with the Peruvian government.

 

(b)Other mining taxes -
(i)Law No.29788,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 2015, 20142018, 2017, and 2013,2016, the amounts included in cost of production related to mining royalties were US$2,456,000, 1,273,000, US$8,291,0003,140,000 and US$7,247,000,3,742,000, respectively and during 20142018, 2017 and 2013 the2016 there were no amounts included in mining tax expense were US$ 1,714,000 and US$6,245,000, respectively.expense.

 

  F-137F-159 

 

 

Notes to the consolidated financial statements (continued)

 

(ii)Law No.29789,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.

 

The rate varies depending on the level of operating profit. During 2015, 20142018, 2017 and 20132016 the amounts included in income and mining tax expense were US$1,838,000,592,000, US$5,479,0001,418,000 and US$11,721,000,3,259,000 respectively.

 

(iii)Law No. 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 2015, 20142018, 2017 and 2013.2016. This resulted in US$19,883,000,8,230,000, US$7,156,0003,526,000 and US$22,707,000,6,945,000, respectively, of additional Income and mining tax expense.

 

(iv)Law No. 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;taxes.
-Employees will contribute 0.5% of their monthly gross salary;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 20152018, 2017 and 2014,2016, the amounts included in Income and mining tax expense amounted to US$459,00039,000, US$29,000, and US$2,288,000,141,000, respectively.

  F-138F-160 

 

 

Notes to the consolidated financial statements (continued)

 

(c)Peruvian income tax -

The Company's income tax provision consisted of the following:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Current Peruvian tax returns  98,319   123,007   175,542 
Current peruvian income tax  12,525   3,877   41,105 
Royalties and mining taxes  21,721   14,349   40,673   8,888   4,944   10,249 
Other taxes  639   914   590   55   211   323 
Income tax prior year adjustments  (1,766)  -   10,348   8,900   (2,006)  (2,092)
Income tax prior years refunds  -   -   (6,458)
Current income tax expense  118,913   138,270   227,153   30,368   7,026   43,127 
Deferred income tax expense (benefit)  483,804   (168,761)  (430,624)
Deferred income tax expenses (benefit)  (1,071)  -   - 
                        
Income tax expense (benefit)  602,717   (30,491)  (203,471)
Income tax expense  29,297   7,026   43,127 

 

(d)Deferred income tax asset -

Components of deferred income tax assets (liabilities) are as follows:

 

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Deferred income tax assets, net                
Property, plant and mine development  303,385   326,496   514,828   571,210 
Reclamation  110,633   90,573   301,492   233,843 
Accounts payable and accrued expenses  66,261   46,873   92,610   78,241 
Inventories  24,887   15,903   62,363   61,435 
Other  4,838   3,662   1,102   3,073 
  510,004   483,507   972,395   947,802 
Deferred income tax liabilities        
Other  -   (28)
  510,004   483,479 
        
Allowance of deferred income tax asset  (510,004)  -   (971,324)  (947,802)
                
Net deferred income tax asset  -   483,479   1,071   - 

 

In December 2015,2018, the Company recorded aan additional valuation allowance on its deferred income tax asset of US$51024 million (US$51 million during 2017 and US$386 million during 2016) to the extent that it is not probable that taxable profit will be available against which the deductible temporary differences can be utilized. The portion of the deferred income tax asset not affected by the allowance corresponds to additional tax credits that can be used to reduce income tax paid of open periods to review by the tax authority.

 

  F-139F-161 

 

 

Notes to the consolidated financial statements (continued)

 

(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 2015, 20142018, 2017 and 2013:2016:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Income (loss) before income tax  152,522   (430,829)  (778,750)
Loss before income tax  (52,220)  (168,428)  (1,000,625)
Peruvian statutory tax rate  28%  30%  30%  29.5%  29.5%  28%
Income tax expense (income)  42,706   (129,249)  (233,625)
Income tax income  (15,405)  (49,686)  (280,175)
Valuation allowance on deferred tax asset  510,004   -   -   23,771   50,960   386,763 
Effect of change in income tax rate net  16,576   65,020   - 
Effect of change in income tax rate      -   (66,667)
Mining taxes  15,639   10,044   40,672   6,260   3,530   7,392 
Non-deductible expenses  15,288   24,832   (8,894)  6,962   4,204   3,296 
Adjustment due to income tax rate applicable to La Quinua  2,504   (1,138)  (1,624)  (176)  (124)  (1,024)
Income tax prior years refunds / payments  7,885   (1,858)  (6,458)
                        
Total income tax expense (benefit)  602,717   (30,491)  (203,471)
Total income tax expense  29,297   7,026   43,127 

 

15.(f)Revenue from salesThe main tax regulations issued during 2018 are as follows–
(i)Modified, starting in January 1, 2019, the treatment applicable to the royalties and fees for services provided by non-domiciled recipients, eliminating the obligation to pay an amount equivalent to the withholding when the costs or expenses are booked, and must now withhold the corresponding income tax at the time of their payment or retribution accreditation (Legislative Decree N° 1369).

The Company’s revenues are mainly from sales of gold ounces. The table below presents the net sales to customers by geographic region: 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Sales and services by geographic region:            
Metal sales            
Suiza  754,335   851,577   965,934 
America  315,686   358,880   492,211 
   1,070,021   1,210,457   1,458,145 
             
Royalties (note 1)  (32,414)  (36,867)  (44,185)
Mining royalties to the government  (6,433)  (8,291)  (7,135)
             
   1,031,174   1,165,299   1,406,825 
(ii)Established rules governing the obligation of legal persons and (or) legal entities to report the identification of their final beneficiaries (Legislative Decree N° 1372). These rules are applicable to legal persons domiciled in the country, pursuant to article 7 of the Income Tax Law, and to legal entities in the country. The obligation is applicable for non-domiciled legal entities and legal entities constituted abroad while: a) have a branch, agency or another permanent establishment in the country; b) the person (natural or legal entity) who manage the autonomous patrimony or foreign investment funds, or the natural or legal person who has the quality of guard or administrator, is domiciled in the country; and, c) any part of a consortium is domiciled in the country. This obligation will be fulfilled by submitting to the tax authority of sworn statement information, which should contain the final beneficiary information and be submitted, in compliance with the regulations and in the deadlines established through a resolution of the Tax Authority.

 

  F-140F-162 

 

 

Notes to the consolidated financial statements (continued)

(iii)Changed the tax code in the implementation of the General Anti-Avoidance Rule – GAAR (Rule XVI of the preliminary title of the Tax Code (Legislative Decree N° 1422).

The GAAR is intended to prevent taxpayers from entering into transactions that would allow them to minimize their tax liabilities. The Tax authority will be entitled to apply the GAAR in ordinary tax audits since July 19, 2012; however, the tax authority will have to obtain the approval from a committee before applying the GAAR.

Other rules regarding the GAAR are:

(a)Jointly Liability of Legal Representatives – the legal representatives will be jointly liable for the tax debt as a result of the application of the GAAR by the Tax Authority.

Tax Planning approval by the Board of Directors - Up to March 29, 2019 board of Directors should approve (ratify or modify) all the tax planning of their entities since July 19, 2012. The members of the board will be liable for the tax assessment as a result of the application of the GAAR.

 

16.Revenue from sales

(a)The Company’s revenues are mainly from sales of gold ounces. The table below presents the net sales to customers by geographic region:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Sales and services by geographic region:            
Metal sales            
Switzerland  518,664   491,887   558,723 
America  139,989   179,018   233,043 
   658,653   670,905   791,766 
             
Royalties, note 1(a) and 22  (20,385)  (20,739)  (24,339)
Mining royalties to the government  (2,875)  (4,990)  (6,234)
             
   635,393   645,176   761,193 

F-163

Notes to the consolidated financial statements (continued)

(b)Other operating income is made up as follows:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Sales of copper and silver  20,442   17,509   8,136 
Others  1,523   4,361   9,577 
             
   21,965   21,870   17,713 

The amount of the subsequent changes in fair value of the trade receivable were a decrease of US$176,000, US$15,000 and US$346,000 in 2018, 2017 and 2016, respectively and are presented as part of the caption “Sales of copper and silver”.

17.Costs applicable to sales

This caption is made up as follows:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Beginning balance of inventories  497,669   522,596   545,183 
Beginning balance of finished goods and in-process  345,489   446,503   544,325 
Beginning balance of provision for net realizable value, note 8(b)  (62,540)  (84,374)  (90,298)
Consumption of supplies  210,384   246,106   300,792   215,863   240,881   228,376 
Personnel expenses  102,867   87,290   120,568   82,645   99,702   87,258 
Other services  76,490   82,805   66,670   43,672   66,408   73,779 
Maintenance  38,646   38,526   52,486   22,585   24,033   36,213 
Power  27,713   24,942   29,142   24,203   23,565   27,270 
Depreciation and amortization  223,142   360,334   349,760   156,212   87,783   140,712 
Workers' profit participation  28,852   35,055   49,259   3,837   1,242   12,394 
Reclamation expenses related to Yanacocha leach pad  -   20,315   - 
Net realizable value adjustment  64,497   95,859   146,051 
Ending balance of inventories  (518,524)  (593,528)  (668,647)
Reclamation expenses related to leach pads, note 12(b)  16,284   124,124   78,494 
Ending balance of provision for net realizable value, note 8(b)  89,127   62,540   84,374 
Ending balance of finished goods and in-process  (341,213)  (345,489)  (446,503)
                        
  751,736   920,300   991,264   596,164   746,918   776,394 

F-164

Notes to the consolidated financial statements (continued)

 

17.18.Operating expenses, net

This caption is made up as follows:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Exploration and advanced projects  62,643   51,694   49,580 
Severance program  8,678   9,419   9,659 
Cost of fixed assets sold  5,445   1,632   160 
Income from fixed assets sold  (4,821)  (2,235)  (471)
Tax fine  3,954   -   - 
Others, net  256   1,636   (1,468)
Write-off of fixed assets  -   1,368   14,036 
             
   76,155   63,514   71,496 

19.Administrative expenses

This caption is made up as follows: 

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Exploration and advanced projects  64,230   58,880   64,510 
Severance program  14,904   16,438   19,323 
Write-off of fixed assets  2,411   3,520   584 
Cost of fixed assets sold  1,624   39,425   23,246 
Income from fixed asset sales  (1,116)  (40,651)  (45,772)
Others, net  793   169   15,643 
             
   82,846   77,781   77,534 
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Management expenses  1,317   3,395   7,191 
Other  1,466   1,365   1,589 
             
   2,783   4,760   8,780 

 

18.Administrative expenses

This caption is made up as follows: 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Management expenses  18,108   19,938   17,480 
Community development expenses and external affairs  6,297   15,653   46,482 
Other  1,920   2,671   3,102 
             
   26,325   38,262   67,064 

 F-141

Notes to the consolidated financial statements (continued)

19.20.Finance costs

Financial

Finance costs for the yearsyear ended December 31, 2015, 2014 and 20132018 are mainly related to the unwinding of the discount of the reclamation and mine closure liability amounting to US$22,075,000, US$22,914,00036,015,000 (US$21,769,000, and US$18,113,000, respectively.14,104,000 for the years ended December 31, 2017 and 2016, respectively). See note 12(b).

 

20.21.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.

-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.in exploitation and others inactive.

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.

  2015  2014 
  US$(000)  US$(000) 
       
Banco de Credito del Peru  150,000   150,000 
BBVA Continental  100,068   100,000 
Scotiabank  100,000   19,000 
Interbank  -   15,300 
         
   350,068   284,300 

These four letters of guarantee shall come into force if the Company fails to execute in whole or in part the mine closure plan.

 

  F-142F-165 

 

Notes to the consolidated financial statements (continued)

Legal proceedings -

Mercury spill in ChoropampaConga project Constitutional claim -

In June 2000,On October 18, 2012, Marco Antonio Arana Zegarra filed a carrier hired by Yanacocha spilled approximately 151 kilogramsconstitutional claim against the Ministry of mercuryEnergy and Mines and the Company requesting the Court to order the suspension of the Conga project as well as to declare not applicable the October 27, 2010 directorial resolution approving the Conga project Environmental Impact Assessment (“EIA”). 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 vicinityadministrative proceedings; (iii) there was 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 town of Choropampa, Peru, located 85 kilometers (53 miles) southeastcase. The Civil Court of the mine. To date, Yanacocha has heldSuperior 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 settlements with people affectedan order to formally admit the case and start the judicial process in order to review the claim and the proofs presented by the incident. At December 31, 2015, there are 6 applicants with pending process. Yanacochaplaintiff. The Company has answered the claim. The Company 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.

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 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.

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.this litigation.

 

Environmental -

DuringThe Peruvian government 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, 2017 and 2018, OEFA issued notices of alleged violations of OEFA standards to the Company received administrative notificationsrelating 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 2018 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 two national supervisory entitieszero to 40,300 tax units and the water authority alleged violations range from zero to 10 tax units, being each tax unit equivalent to approximately US$1,260 based on current exchange rates. The Company is responding to all notices of mining investments (“OSINERGMIN”) and environmental impact (“OEFA”). The notifications are related to administrative infractionsalleged violations, but cannot reasonably predict the outcome of security and environmental standards and others. According to Law N° 30230 approved on July 11th, 2014, OEFA will notimposeadministrative fines for a period of 3 years, unless 3 exceptions: (i) serious infraction; (ii) operate without a license or in forbidden place; and (iii) recidivism. The administrative fines amounted are between a range of 1 tax impositive unit (”UIT”) to 10,000 UIT (equivalent of US$1,000 and US$11,573,000).Management's and its legal counsel’s opinion, the Company should get a favorable outcome.Based on the accounting policy, Management has not recorded a provision for this contingency.agency allegations.

Open tax yearsprocedures -

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 returnsfilings for the years 20112014 through 20152017 are open to examination by the tax authorities. For value added tax, the periods open for examination are the years 2015 through 2018. To date, National Tax Supervisor “SUNAT” has concluded its review of the Company’s tax exams through the year 2013. For years 2002 through 2007,2010, the Company is in the claim and appeal process. The tax administration is completing the audit of income tax of the year 2011.

 F-143

Notes to the consolidated financial statements (continued)

 

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.

F-166

Notes to the consolidated financial statements (continued)

 

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.

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%.  Currently there is no contingency in this regard. The amount ofdebt has been paid by the contingency involved is S/ 12.4 million (US$ 3.6 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.Company.

 

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/ 6.512 million (US$ 23.5 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 thetax court appeal initiated against the tax authorities.

 

Tax Dispute related to the amortization of the contractual rights -

In 2000, Yanacocha paid Buenaventura and Minas Conga S.R.L. a total of US$29 million to assume their respective contractual positions in mining concession agreements with Chaupiloma Dos de Cajamarca S.M.R.L. The contractual rights allowed Yanacocha the opportunity to conduct exploration on the concessions, but not a purchase of the concessions. The tax authority alleges that the payments to Buenaventura and Minas Conga S.R.L. were acquisitions of mining concessions requiring the amortization of the amounts under the Peru Mining Law over the life of the mine. Yanacocha expensed the amounts at issue in the initial year since the payments were not for the acquisition of a concession but rather these expenses represent the payment of an intangible, and therefore, amortizable in a single year or proportionally for up to ten years according to Income Tax Law. In 2010, the tax court in Peru ruled in favor of Yanacocha and the tax authority appealed the issue to the judiciary. The first appellate court confirmed the ruling of the tax court in favor of Yanacocha. However, in November 2015, a Superior Court in Peru made an appellate decision overturning the two prior findings in favor of Yanacocha. Yanacocha has appealed the Superior Court ruling to the Peru Supreme Court. On January 18, 2019, the Peru Supreme Court issued notice that three judges support the position of the tax authority and two judges support the position of Yanacocha. Because four votes are required for a final decision, an additional judge has been selected to issue a decision and the parties conducted oral argument in April 2019. The potential liability in this matter is in the form of fines and interest in an amount of up to $83 million. It is not possible to fully predict the outcome of this litigation.

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.

  F-144F-167 

 

 

Notes to the consolidated financial statements (continued)

  2018  2017 
  US$(000)  US$(000) 
       
Banco de Credito del Peru (a)  114,251   123,729 
BBVA Continental  190,000   190,000 
Scotiabank  235,000   190,000 
         
   539,251   503,729 

(a)Letters of guarantee of Banco de Credito del Peru include US$6,321,000 related to San Jose Reservoir Trust in 2017. In 2018 letters of guarantee were not required.

Letters of guarantee shall come into force if the Company fails to execute in whole or in part the mine closure plan.

 

21.22.Transactions with related parties

(a)The main transactions carried out by the Company with its related parties in the years 2015, 20142018, 2017, and 20132016 were:

 

 2015 2014 2013  2018 2017 2016 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Royalties paid:                        
S.M.R.L. Chaupiloma Dos de Cajamarca, note 1(a)  32,414   36,867   44,167 
S.M.R.L. Chaupiloma Dos de Cajamarca, note 16 and 1(a)  20,385   20,739   24,339 
                        
Services rendered by:                        
Newmont Peru S.R.L. (management services)  24,644   35,974   52,994   12,837   8,985   10,420 
Newmont USA Limited  9,076   6,192   14,458   5,381   5,607   6,438 
Newmont International Services  5,181   281   571 

F-168

Notes to the consolidated financial statements (continued)

 

(b)As a result of the transactions indicated in the paragraph (a), the Company had the following accounts receivable and payable from/from and (or) to associates:affiliates:

��

 2015 2014  2018 2017 
 US$(000) US$(000)  US$(000) US$(000) 
          
Balance receivable from related parties        
Balance receivable from related parties, note 6        
NVL, USA Limited, Delaware  321   79 
Newmont USA Limited  80   27,397   207   1,523 
Newmont Mining Services Pty Ltd  77   612 
Newmont International Services Limited  194   - 
Newmont Global Employment Limited  22   - 
Newmont Peru S.R.L.  68   70   22   10 
Newmont Technologies Limited  23   3,653 
Newmont International Service Limited  -   3,503 
Battle Mountain Gold Company  -   347 
Newmont Global Employ Limited  -   235 
Suriname Gold Company LLC  18   567 
Newmont USA Limited – Carlin  10   - 
Others  -   200   -   6 
                
  248   36,017   794   2,185 
                
Balance payable for related parties        
Balance payable for related parties, note 11        
S.M.R Chaupiloma Dos de Cajamarca  7,214   11,911   5,461   5,144 
Newmont USA Limited  1,769   28,840 
Newmont International Service Limited  2,059   42 
Newmont Peru S.R.L.  1,183   1,696   1,460   1,263 
Newmont Technologies Limited  715   4,013 
Newmont International Service Limited  77   3,485 
Newmont Mining Services Pty Ltd  -   589 
Newmont USA Limited.  1,067   2,548 
Newmont Technologies Limited.  634   960 
Newmont US Carlin Limited  163   - 
Others  14   537   2   5 
                
  10,972   51,071   10,846   9,962 

 

AIIThe sales to and purchases from related parties are made on term equivalent to those that prevail in arm’s length transactions. All the balances above are of current maturity, have no specific guarantees and are not interest bearing.

 

  F-145F-169 

 

 

Notes to the consolidated financial statements (continued)

 

22.23.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),risk, credit risk and liquidity risk.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, operatingnet income (loss) and cash flows of the Company are substantially independent from the changes in market interest rates. At December 31, 2015, the Company recognized interest income of approximately US$673,000 in connection with time deposits in financial institutions (US$499,000 in 2014 and US$489,000 in 2013).

 

(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 at fair value, 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.

 

(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 atin 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.

F-170

Notes to the consolidated financial statements (continued)

 

(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.

 

 F-146

Notes to the consolidated financial statements (continued)

The following table represents the analysis of the Company's financial liabilities, including estimated projected interests relating to financial obligations, considering the remaining period to reach such maturity as of the consolidated statement of financial position date:date (see note 11):

 

 2015 2014  2018 2017 
 Less than 1 year Less than 1 year  Less than 1 year Less than 1 year 
 US$(000) US$(000)  US$(000) US$(000) 
          
Trade accounts payable  56,447   69,788   48,847   43,108 
Accounts payable to related parties  10,792   51,071   10,846   9,962 
Remuneration and similar benefits payable  8,981   13,390   22,907   27,419 
                
  76,220   134,249   82,600   80,489 

 

(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(Level 1 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.assets and the accounts receivable from the sales of copper and silver concentrate.

 

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-171

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.

 

 F-147

Notes to the consolidated financial statements (continued)

23.Subsequent events

On February 15, 2016, The Committee agreed unanimously on a distribution of a dividend to the partners in proportion to their social participation US$300,000,000 that corresponds to a part of unrestricted accumulated earnings as of December 31, 2014, which had been generated in the year 2011.

24.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 25 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 2015, no impairment loss resulted for Yanacocha2018 and Conga cash-generating units. In 2014,2017, the Company recordeddid not recognize any impairment losses amounting to US$541 million related to Conga, and no amount for Yanacocha (US$1,038 million forloss. In 2016, the year ended December 31, 2013: US$453 millionCompany recognized an impairment loss related to Yanacocha andof US$585889 million, related to Conga)see note 10(b).

 

Under US GAAP, the Company used undiscounted cash flows to perform an impairment evaluation. NoIn 2018 and 2017, no impairment losses resultedindicators were identified for Yanacocha and Conga cash-generating units in years 2013, 2014 and 2015.units. In 2016, the Company recognized an impairment loss related to Yanacocha of US$973 million.

 

For reconciling the net income/loss and net equity from IFRSUS GAAP to US GAAP,IFRS, the Company eliminates the impairment loss and records thehigher depreciation recorded under US GAAP corresponding to the impaired assets under IFRS.

 

(b)Deferred workers’ profit participation -

Under IFRS, the workers’ profit participation is calculated based on the Company’s taxable income and is recorded as an employee benefit (costthat is recorded as cost of production or administrative expense, depending onof the function of the workers).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 IFRS to US GAAP to IFRS, the Company recognizes aeliminates the deferred workers’ profit participation and theits corresponding valuation allowance recorded in the current year.

 F-148

Notes to the consolidated financial statements (continued)

 

(c)Stripping activity asset -

Under IFRS, the stripping costs in the production phase of a surface mine are accounted for according to the accounting principleprinciples disclosed in note 2.

 

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.

F-172

Notes to the consolidated financial statements (continued)

 

(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 U.S.IFRS, the Company has to update the discount rate at the closing date, this change in the discount rate has an impact (increase/decrease) in the asset retirement cost and reclamation liability.

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.

 

Under US GAAP, there are no requirements of update the discount rate.

(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 U.S.US GAAP, the cost of inventory considersis affected by a higherdifferent depreciation since the items of property, plant and equipment have not been impaired.impairment recognized under US GAAP is different than the one recognized under IFRS.

 

(f)Deferred income tax –

The differences between U.S.US GAAP and IFRS are re-measurements that lead to different temporary differences. According to the accounting policies in noteNote 2.4 (l), the Company has to account for such differences.

 

(g)Contingencies -

During 2015,Under IFRS, a provision is recognized when:

·An entity has a present obligation (legal or constructive) as a result of a past event.
·It is probable that an outflow of resources will be required to settle the obligation.
·A reliable estimate of the obligation can be made.

For the Company recordedpurposes of IAS 37, “probable” is defined as more likely than not and refers to a valuation allowanceprobability of greater than 50%.

Under US GAAP, a loss contingency is recognized if both of the deferred income taxfollowing conditions are met: It is probable (likely to occur) that an asset recordedhad been impaired or a liability has been incurred. The amount of loss can be reasonably estimated. The meaning of “probable” under ASC 450 is “the future event or events are likely to occur” (generally interpreted as between 70%-80%).

(h)Debt instruments -

Under IFRS, which was higherthe shares held by US$321,622,000 comparedSumitomo (see note 13) meet the definition of a compound instrument according to the valuation allowance recorded under U.S. GAAP, mainlyIAS 32. As a result, it is classified as a result ofliability (with a portion recorded to equity) until the impairment losses of prior years recorded under IFRS.option expires, in which case it will be required to be classified it as equity. There is no gain or loss on conversion at maturity. In the case the option is executed, both the liability and the equity would be reversed with a credit to cash.

 

  F-149F-173 

 

 

Notes to the consolidated financial statements (continued)

Under USGAAP, the shares hold by Sumitomo are classified as temporary equity – contingently redeemable non-controlling interest (“CRNCI”) according ASC 480-10-S99-3A; as a long as the option is not expired or it is exercised The CRNCI is recorded at fair value of inception which was determined to be equal to the purchase price.

 

25.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, 2015, 20142018, 2017 and 20132016, and to partners' equity as of December 31, 20152018, 2017 and 20142016 that would be required if U.S. GAAP had been applied instead of IFRS in the consolidated financial statements:

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
(Loss) income under U.S. GAAP  (252,159)  (31,914)  140,997 
             
Items increasing  (decreasing) reported net profit:            
Impairment loss, note 24 (a)  -   541,141   1,038,548 
Depreciation of assets impaired under IFRS, note 24 (a)  (125,943)  (79,809)  - 
Elimination of the valuation allowance of the deferred workers’ profit participation, note 24 (b)  (41,909)  -   - 
Stripping activity asset, note 24 (c)  (18,868)  (23,212)  (33,861)
Reclamation and mine closure, note 24 (d)  (12,049)  427   (10,690)
Inventories, note 24 (e)  20,903   (17,428)  12,042 
Deferred workers' profit participation, note 24 (b)  2,790   29,003   28,443 
Elimination of valuation allowance of deferred income tax, note 24 (f)  321,622   -   - 
Deferred income tax of reconciliation items, note 24 (f)  43,441   (93,062)  (306,994)
Others  8,049   11,364   (11,212)
             
Loss under IFRS  (450,195)  (400,338)  (575,279)
  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Loss under U.S. GAAP (i)  (69,068)  (131,243)  (1,198,139)
Items increasing (decreasing) reported net profit:            
Impairment loss, note 24(a) and 10(b)      -   (889,499)
Reversal of depreciation of assets impaired under IFRS, note 24(a)  320,424   294,454   101,855 
Reversal of depreciation of assets impaired under USGAAP, note 24(a)  (254,006)  (237,906)  - 
Elimination of impairment loss recorded under U.S. GAAP, note 24(a)  -   -   933,200 
Stripping activity asset, note 24(c)  (18,227)  (6,360)  22,156 
Reclamation and mine closure, note 24(d) (i)  20,537   (76,963)  18,979 
Asset retirement costs, note 24(d) (i)  (89,280)  (35,911)  3,909 
Inventories, note 24(e)  10,217   17,169   (36,076)
Contingencies, note 24(g)  (1,228)  -   - 
Debt instrument interest, note 24(h)  (735)  -   - 
Recognition of account receivable to tax authority  -   2,405   - 
Others  (151)  (1,100)  (137)
             
Loss under IFRS  (81,517)  (175,455)  (1,043,752)

 

  F-150F-174 

 

 

Notes to the consolidated financial statements (continued)

 

  2015  2014 
  US$(000)  US$(000) 
       
Partners' equity under IFRS  2,228,825   2,679,777 
         
Items increasing (decreasing) reported Partners' equity:        
Impairment loss, note 24 (a)  1,579,689   1,579,689 
Depreciation of assets impaired under IFRS, note 24 (a)  (278,333)  (152,390)
Elimination of the valuation allowance of the deferred workers’ profit participation, note 24 (b)  (41,909)  - 
Stripping activity asset, note 24 (c)  (18,913)  (45)
Reclamation and mine closure, note 24 (d)  (99,102)  (87,053)
Inventories, note 24 (e)  (5,787)  (26,690)
Deferred workers' profit participation, note 24 (b)  40,935   38,145 
Elimination of valuation allowance of deferred income tax, note 24 (f)  321,622   - 
Deferred income tax related to reconciliation items, note 24 (f)  (310,341)  (353,782)
Others  2,303   (6,503)
         
Partners' equity under U.S. GAAP  3,418,989   3,671,148 
  2018  2017 (i)  2016 (i) 
  US$(000)  US$(000)  US$(000) 
          
Partners' equity under U.S. GAAP (i)  1,661,800   1,683,047   1,865,446 
Items increasing (decreasing) reported Partners' equity:            
Impairment loss, note 24(a)  (2,469,188)  (2,469,188)  (2,469,188)
Elimination of impairment loss recorded under U.S. GAAP, note 24(a)  933,200   933,200   933,200 
Reversal of depreciation of assets impaired under U.S. GAAP note 24(a)  (491,912)  (237,906)  - 
Reversal of depreciation of assets impaired under IFRS, note 24(a)  994,684   674,260   379,806 
Stripping activity asset, note 24(c)  15,773   34,000   41,069 
Asset retirement cost, note 24(d) (i)  1,026   84,671   152,037 
Reclamation and mine closure, note 24(d) (i)  (12,323)  (27,225)  18,283 
Inventories, note 24(e)  (2,903)  (13,120)  (30,289)
Deb instruments, note 24(h)  (42,430)  -   - 
Contingencies, note 24(g)  (1,228)  -   - 
Others  (2,776)  (2,624)  (4,639)
             
Partners' equity under IFRS  583,723   659,115   885,725 

 

(i)Amounts previously reported by Newmont Mining corporation for the period ended December 31, 2017, 2016 and 2015 were revised during 2018 as a results of an error discovered concerning prior period amounts.

 

26.New U.S. GAAPUSGAAP Accounting Pronouncements

Recently Issued Accounting Pronouncements -

Inventory -Leases –

In July 2015,February 2016, ASU guidanceNo. 2016-02 was issued related to inventory simplifyingleases. This new guidance modifies the subsequent measurement of inventories by replacingclassification criteria and requires leases to recognize the lower of cost or market test with a lower of costassets and net realizable value test. Theliabilities arising from most leases on the balance sheet. This update is effective in fiscal years, including interim periods, beginning after December 15, 2016,2018 and early adoption is permitted. The Company is currently evaluating this guidance andcompany will adopt the impact it will havenew standard on net equity or net results.1 January 2019.

 

Revenue recognition –

In May 2014, ASU guidanceNo. 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 Companyadoption of this accounting pronouncement is currently evaluating this guidance andconsistent with the impact it will have on net equity or net results.adoption of IFRS 15. See in note 2.3 the status of the adoption.

 

  F-151F-175 

 

Notes to the consolidated financial statements (continued)

 

Sociedad Minera Cerro Verde S.A.A.

27.Subsequent Event

 

Financial Statements forThere have been no subsequent significant financial and accounting events subsequent to December 31, 2018, that may affect the years 2015, 2014 and 2013
together with the Reportinterpretation of Independent Registered Public Accounting Firmthese consolidated financial statements.

 

  F-152F-176 

 

 

Sociedad Minera Cerro Verde S.A.A.

 

Financial Statements for the years 2015, 20142018, 2017 and 2013

2016
together with the Report of Independent Registered Public

Accounting Firm

 

ContentF-177 

Sociedad Minera Cerro Verde S.A.A.

Financial Statements for the years 2018, 2017 and 2016
together with the Report of Independent Registered Public Accounting Firm

Content

Report of Independent Registered Public Accounting FirmF-153F-179
  
Financial Statements
 
Statement of financial positionF-154F-181
Statements of comprehensive incomeF-155F-182
Statements of changes in equityF-156F-183
Statements of cash flowsF-157F-184
Notes to the financial statementsF-159F-186

 

  F-153F-178 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors and Shareholders of Sociedad Minera Cerro Verde S.A.A.

 

Opinion on the Financial Statements

We have audited the accompanying statement of financial statementsposition of Sociedad Minera Cerro Verde S.A.A. (a Peruvian company, subsidiary of Freeport-McMoRan Inc.), which comprise the statements of financial position(the Company) as of December 31, 20152018 and 2014,2017, and the related statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2015, 20142018, and 2013. the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board, which differ in certain respects from the accounting principles generally accepted in the United States of America (see notes 24 and 25 to the financial statements).

Basis for Opinion

These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Wemisstatement, whether due to error or fraud. The Company is not required to have, nor were notwe engaged to perform, an audit of the Company´sits internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding 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´sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

F-179

Report of Independent Registered Public Accounting Firm(continued)

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. 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 positionParedes, Burga & Asociados S. Civil de R.L.

A member practice of Sociedad Minera Cerro Verde S.A.A. as of December 31, 2015 and 2014, and the results of operations and its cash flows for each of the three years ended December 31, 2015, 2014 and 2013, 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 29 to the financial statements).

Lima, Peru,

February 25, 2016Ernst & Young Global Limited

 

Countersigned by:/s/ Katherine Villanueva 
We have served as the Company‘s auditor since 2007. 
Paredes, Zaldívar, Burga & Asociados S. Civil de R.L.Lima, Peru 
/s/ Victor Burga
Víctor BurgaApril 30, 2019 

C.P.C.C. Register No.14859

 

  F-154F-180 

 

 

Sociedad Minera Cerro Verde S.A.A.

StatementsStatement of financial position

As of December 31, 20152018 and 20142017

 

  Note 2015  2014 
    US$(000)  US$(000) 
Assets          
Current assets          
Cash and cash equivalents 5(a)  5,952   19,574 
Trade accounts receivable 6  13,948   2,374 
Trade accounts receivable from related parties 22(g)  199,368   187,940 
Other accounts receivable    10,091   10,146 
Non-financial assets 7(a)  432,299   225,076 
Inventories 8(a)  394,867   232,542 
     1,056,525   677,652 
Non-current assets          
Long-term non-financial assets 7(a)  382,002   253,184 
Long-term inventories 8(a)  319,971   287,714 
Property, plant and equipment, net 9(a)  6,077,289   4,544,406 
Intangible assets, net    16,905   9,028 
     6,796,167   5,094,332 
Total assets    7,852,692   5,771,984 
Liabilities and equity, net          
Current liabilities          
Trade accounts payable 10  432,418   398,070 
Accounts payable to related parties 22(g)  12,042   11,910 
Embedded derivative 24  18,847   26,782 
Income tax payable    4,731   15,492 
Employees benefits liability 11(a)  20,536   44,412 
Other financial liabilities 12(a)  43,169   50,163 
Other provisions 13(a)  14,662   2,964 
Other accounts payable    2,112   2,779 
     548,517   552,572 
Non-current liabilities          
Other financial liabilities 12(a)  2,381,995   402,686 
Accounts payable to related parties 22(g)  6,850   5,643 
Other provisions 13(a)  163,803   125,265 
Deferred income tax liability, net 14(a)  253,153   220,728 
     2,805,801   754,322 
Total liability    3,354,318   1,306,894 
Equity, net 15        
Issued capital    990,659   990,659 
Other capital reserves    198,132   198,132 
Retained earnings    3,309,583   3,276,299 
Total equity, net    4,498,374   4,465,090 
Total liabilities and equity, net    7,852,692   5,771,984 

The accompanying notes are an integral part of this financial statement.

  Note 2018  2017 
    US$(000)  US$(000) 
Assets          
Current assets          
Cash and cash equivalents 2(d),3  501,182   600,027 
Trade accounts receivable, net    1,715   5,849 
Other accounts receivable, net 2(d)  5,765   8,130 
Trade accounts receivable - Related parties 2(d),4,22  413,351   477,419 
Inventories, net 2(f),5  487,531   445,626 
Prepayments    18,418   5,741 
Other non-financial assets 6  57,575   21,082 
Total current assets    1,485,537   1,563,874 
Non - current assets          
Property, plant and equipment, net 2(g),7  5,602,902   5,678,424 
Inventories 2(f),5  255,918   248,452 
Intangible assets 2(h)  10,289   11,243 
Other non-financial assets 6  200,066   189,014 
Total non-current assets    6,069,175   6,127,133 
Total assets    7,554,712   7,691,007 
Liabilities and equity, net          
Current liabilities          
Trade accounts payable 2(e),8  231,136   194,958 
Income tax payable 13(b)  12,424   170,169 
Provision related to benefits to employees 2(m)  42,569   80,745 
Other accounts payable 2(e),9  101,254   40,182 
Accounts payable - Related parties 2(e),4  6,014   5,534 
Other provisions 2(j),11  15,357   19,202 
Total current liabilities    408,754   510,790 
Non - current liabilities          
Other financial liabilities 2(e),10  1,022,810   1,268,488 
Accounts payable - Related parties 2(e),4  8,860   8,147 
Other accounts payable 2(e),9  215,070   33,424 
Provision related to benefits to employees 2(m)  32,509   29,158 
Other provisions 2(j),11  342,331   313,663 
Deferred income tax liability, net 2(l),13(g)  228,248   166,005 
Current income tax liabilities 13(b)  187,258   172,170 
Total non-current liabilities    2,037,086   1,991,055 
Total liabilities    2,445,840   2,501,845 
Shareholders’ equity          
Capital stock 12  990,659   990,659 
Other capital reserves 12  198,132   198,132 
Retained earnings    3,920,081   4,000,371 
Total shareholders’ equity    5,108,872   5,189,162 
           
Total liabilities and shareholders’ equity    7,554,712   7,691,007 

 

  F-155F-181 

 

 

Sociedad Minera Cerro Verde S.A.A.

Statements of comprehensive income

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

  Note 2015  2014  2013 
    US$(000)  US$(000)  US$(000) 
            
Sales of goods 17(a)  1,115,617   1,467,097   1,811,488 
Cost of sales of goods 18  (862,004)  (797,481)  (795,064)
Gross profit    253,613   669,616   1,016,424 
               
Operating expenses              
Selling expenses 19  (56,215)  (54,210)  (68,448)
Other operating  income (expenses), net 20  (26,600)  (3,629)  147 
               
     (82,815)  (57,839)  (68,301)
Operating profit    170,798   611,777   948,123 
               
Other income (expenses)              
Finance income    512   2,443   2,178 
Finance costs    (16,010)  (369)  (1,843)
Net gain (loss) from exchange differences 25(a)  (75,770)  2,284   (1,858)
     (91,268)  4,358   (1,523)
               
Profit before income tax    79,530   616,135   946,600 
Income tax expense 14(b,c)  (46,246)  (238,529)  (333,338)
               
Profit for the year    33,284   377,606   613,262 
               
Basic and diluted earnings per share (stated in US dollars) 23  0.10   1.08   1.75 

The accompanying notes are an integral part of this financial statement.

  Note 2018  2017  2016 
    US$(000)  US$(000)  US$(000) 
            
Sales of goods 14 3,054,026  3,202,931  2,384,154 
Cost of sales 15  (2,010,972)  (1,768,238)  (1,553,040)
Gross Margin    1,043,054   1,434,693   831,114 
               
Operating expenses              
Selling expenses 16  (137,008)  (141,669)  (131,391)
Other operating expenses 17  (68,683)  (258,826)  (24,107)
     (205,691)  (400,495)  (155,498)
Operating Profit    837,363   1,034,198   675,616 
               
Other income (expenses)              
Financial income 19  28,089   5,350   954 
Financial expenses 18  (426,733)  (216,912)  (80,438)
Exchange differences, net    6,161   13,288   7,857 
     (392,483)  (198,274)  (71,627)
               
Profit before income tax    444,880   835,924   603,989 
               
Income tax expense 13(b)  (325,170)  (486,043)  (263,082)
               
Net profit for the year    119,710   349,881   340,907 
               
Basic and diluted profit per share    0.342   1.000   0.974 

 

  F-156F-182 

 

 

Sociedad Minera Cerro Verde S.A.A.

Statements of changes in equity

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

  Note Issued
capital		  Legal
reserve		  Retained
earnings		  Total 
    US$(000)  US$(000)  US$(000)  US$(000) 
               
Balance as of January 1 , 2013 15  990,659   198,132   2,285,431   3,474,222 
                   
Profit for the year    -   -   613,262   613,262 
Balance as of December 31, 2013 15  990,659   198,132   2,898,693   4,087,484 
                   
Profit for the year    -   -   377,606   377,606 
Balance as of December 31, 2014 15  990,659   198,132   3,276,299   4,465,090 
                   
Profit for the year    -   -   33,284   33,284 
                   
Balance as of December 31, 2015    990,659   198,132   3,309,583   4,498,374 

The accompanying notes are an integral part of this financial statement.

  Note Capital
stock		  Other capital
reserves		  Retained
earnings		  Total 
    US$(000)  US$(000)  US$(000)  US$(000) 
                   
Balance as of January 1, 2016   990,659  198,132  3,309,583  4,498,374 
                   
Net 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 
                   
Net profit for the year    -   -   349,881   349,881 
                   
Balance as of December 31, 2017 12  990,659   198,132   4,000,371   5,189,162 
                   
Cash dividends declared    -   -   (200,000)  (200,000)
Net profit for the year    -   -   119,710   119,710 
                   
Balance as of December 31, 2018 12  990,659   198,132   3,920,081   5,108,872 

 

  F-157F-183 

 

 

Sociedad Minera Cerro Verde S.A.A.

Statements of cash flows

For the years ended December 31, 2015, 20142018, 2017 and 20132016

 

    2015  2014  2013 
    US$(000)  US$(000)  US$(000) 
            
Operating activities              
Profit before income tax    79,530   616,135   946,600 
Adjustments to reconcile profit before income tax to net cash flows from operating activities:              
Depreciation of property, plant and equipment 9(a)  244,477   164,985   107,620 
Amortization of intangible assets    -   -   1,630 
Unwinding of discount on remediation and mine closure obligations  13(b)  3,985   2,537   4,609 
Provision  for inventory obsolescence    -   -   1,207 
Net loss (gain) from disposal/sale of property, plant and equipment    661   4,722   (541)
Impairment of property, plant and equipment    -   781   1,809 
               
Net changes in the accounts balances of assets and liabilities of operation:              
Net decrease (increase) in operating assets:              
Trade accounts receivable    (11,574)  5,230   (3,550)
Trade accounts receivable from related parties    (11,428)  120,546   8,218 
Other accounts receivable    55   (4,341)  (6,314)
Short and long-term inventories 8(a)  (194,582)  (86,459)  (67,942)
Short and long-term non-financial assets    (239,595)  (338,242)  (48,808)
Net increase (decrease) in operating liabilities:              
Trade accounts payable    68,813   (850)  122,154 
Accounts payable to related parties    1,339   5,280   3,897 
Embedded derivative    (7,935)  42,805   (4,454)
Employees benefits liability    (23,876)  (13,717)  (28,544)
Other accounts payable and other provisions    16,711   (17,399)  16,770 
Income tax paid    (121,027)  (315,369)  (286,036)
               
Net cash and cash equivalents (used in) provided by operating activities    (194,446)  186,644   768,325 
  Note 2018  2017  2016 
    US$(000)  US$(000)  US$(000) 
            
Operating activities              
Net profit for the year 20 119,710  349,881  340,907 
Adjustments to reconcile net profit for the year with the cash provided from operating activities for:              
Income tax expense    366,998   486,043   263,082 
Nonmonetary adjustments              
Depreciation and amortization 15  512,298   456,467   472,997 
Accretion on remediation and mine closure provision    4,322   4,595   4,391 
Net loss on sale of property, plant and equipment    964   185   982 
Mining royalty dispute    323,096   295,773   - 
Net changes in assets and liabilities              
Trade accounts receivable    67,475   (38,922)  (161,335)
Other accounts receivable    1,954   (5,776)  2,008 
Inventories 5  (49,371)  32,101   (11,341)
Other non-financial assets    (76,186)  226,969   113,355 
Trade accounts payable    29,419   (13,663)  16,229 
Other accounts payable    48,130   49,915   70,939 
Provisions related to benefits to employees    (50,440)  33,258   27,503 
Other provisions    (11,561)  70,648   (60,863)
Interest paid (not included in the financing activities)    (47,442)  (50,510)  (64,325)
Income tax    (430,810)  (282,273)  (68,557)
               
Net cash and cash equivalents provided by operating activities    808,556   1,614,691   945,972 

 

  F-158F-184 

 

 

Statements of cash flows (continued)

For the years ended December 31, 2015, 2014 and 2013

    2015  2014  2013 
    US$(000)  US$(000)  US$(000) 
            
Investing activities              
Proceeds from sale of property, plant and equipment    409   356   694 
Withdraw of time deposits    -   226,772   (225,000)
Purchase of property, plant and equipment 9(a)  (1,663,738)  (1,640,287)  (1,066,267)
Stripping activity asset 9(a)  (111,819)  (49,122)  (49,938)
Purchase of intangibles    (9,509)  (7,178)  - 
Net cash and cash equivalents used in investing activities    (1,784,657)  (1,469,459)  (1,340,511)
               
Financing activities              
Proceeds from loans 12(a)  1,896,000   475,000   - 
Proceeds from related parties loans 12(d)  600,000   -   - 
Payments of loans 12(a)  (528,000)  -     
Debt issuance costs    (2,356)  (27,024)    
Payments of finance lease    (163)  (157)  (772)
Net cash and cash equivalents provided by financing activities    1,965,481   447,819   (772)
               
Net decrease in cash and cash equivalents in the year    (13,622)  (834,996)  (572,958)
               
Cash and cash equivalents at beginning of year 5(a)  19,574   854,570   1,427,528 
               
Cash and cash equivalents at end of year    5,952   19,574   854,570 
               
Transactions with no effects in cash flows:              
Provision for remediation and mine closure 9(a) and 13(b)  33,803   68,840   (36,445)

The accompanying notes are an integral part of this financial statement

  Note 2018  2017  2016 
    US$(000)  US$(000)  US$(000) 
            
Investing activities              
Sales of property, plant and equipment   109  37  235 
Purchase of property, plant and equipment 7,8  (280,183)  (152,769)  (421,610)
Stripping activity asset    (177,327)  (153,623)  (61,261)
Other cash payments related to investing activities    -   -   3,832 
Net cash and cash equivalents used in investing activities    (457,401)  (306,355)  (478,804)
               
Financing activities              
Payments of loans 10  (250,000)  (353,333)  (793,000)
Dividends 12(c)  (200,000)  -   - 
Proceeds from loans    -   233,333   350,000 
Payments of shareholders loans    -   (606,014)  - 
Debt issuance costs    -   (12,085)  - 
Amortization of leasing    -   (161)  (169)
Net cash and cash equivalents used in financing activities    (450,000)  (738,260)  (443,169)
               
Net increase (decrease) in cash and cash equivalents    (98,845)  570,076   23,999 
Cash and cash equivalents at beginning of year    600,027   29,951   5,952 
               
Cash and cash equivalents at the end of the year 3  501,182   600,027   29,951 
               
Transactions with no effects in cash flows:              
Provision for remediation and mine closure 11(b)  32,017   3,710   16,091 

 

  F-159F-185 

 

 

Sociedad Minera Cerro Verde S.A.A.

Notes to the financial statementsFinancial Statements

As of December 31, 2015, 20142018, 2017 and 20132016

 

1.Identification and business activity of the Company

(a)Identification -
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.

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-MineralsFreeport Minerals Corporation (“FMC”)(FMC), a wholly owned subsidiary of Freeport-McMoRan Inc. (“Freeport”)(Freeport), owns 53.56% of the voting shares of the Company. SMM Cerro Verde Netherlands B.V. (a(SMM Cerro Verde), a subsidiary of Sumitomo Metal Mining Company Ltd.) (Sumitomo), owns 21% of the voting share of the Company,21.00%, Compañía de Minas Buenaventura S.A.A. (Buenaventura) owns 19.58%, and the minorityother stakeholders own the remaining 5.86%.

 

The Company’s legal address is Jacinto Ibañez Street No. 315, Parque Industrial, Arequipa City and the ore deposits are located southwest of that city (Asiento Minero Cerro Verde S/N Uchumayo – Arequipa).

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 20 miles 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 cathodes, copper concentrate and concentrates.

Expansion of operations

In September 2015, the expansion project commenced operations and is expected to reach full rates in early 2016.molybdenum concentrate.

 

The project,Cerro Verde’s operation consists of an open-pit copper mine, with a cost of US$4.6 billion, expands processing capacity of 548,500 metric ton-per-day that includes (i) concentrator facilities with a 409,500 metric ton-per-day capacity (361,500 metric ton-per-day before the expansion approved by the Ministry of Energy and Mines during 2018), (ii) solution extraction and electrowinning (SX/EW) leaching facilities with leach copper production derived from 120,000a 39,000 metric tons per dayton-per-day crushed leach facility and (iii) a run-of-mine (ROM) leach system with a capacity of ore to 360,000100,000 metric tons per day, and targets incremental annualton-per-day. This SX/EW leaching operation has a production capacity of approximately 600200 million pounds of copper per year. The leaching and 15 millionflotation process carried out at these plants are part of molybdenum.

This expansion was financed with senior unsecured loans received by several banks lead by Citibank N.A. and with shareholders’ loans, currently subordinated to the senior unsecured loans before mentioned. See Note 12.

 F-160

Notes to the financial statements (continued)benefit concession “Planta de Beneficio Cerro Verde.”

 

(c)Financial statements approval -
The financial statements for the year ended December 31, 2015 were approved by Company´s Management on February 25, 2016 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 2016. The financial statements for the year ended December 31, 2014 were approved by the Board of Directors and Shareholders’ Meetings on March 27, 2015.

The financial statements for the year ended December 31, 2018, were approved by Company’s Management on April 30, 2019. The financial statements for the year ended December 31, 2017, were approved at the Board of Directors and Shareholders’ Meetings on March 23, 2018.

F-186

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:

2.1(a)Basis of preparationpresentation -

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”),(IFRS) issued by the International Accounting Standards Board (“IASB”),(IASB). IFRS includes International Accounting Standards (IAS) and interpretations issued bypronouncements of the IFRS Interpretations Committee (“IFRIC”)Committees (SIC and IFRIC).

The financial statements have been prepared based on a historical cost, basis, except for accounts receivable and/or payable related to embedded derivatives, thatwhich have been measured at fair value.value (see Note 2(d)). The financial statements are presented in United States dollars (US$) and include the years ended December 31, 2015, 20142018, 2017 and 2013.2016. Unless otherwise indicated, all values have been rounded to the nearest thousand.

 

2.2.Summary of significant accounting policies and practices -
(a)Currency -

The financial statements are presented in US dollars, which is the Company’s functional currency.

Foreign currency transactions are those carried out in a currency other than the functional currency. Foreign currency transactions are initially recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the spot rate of exchange ruling at the reporting date.

Gains and losses as a result of the difference in the exchange rate when monetary items are liquidated or when converting monetary 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.

The Company uses exchange rates published by the Superintendent of Banks, Insurance and Pension Fund Administrator. As of December 31, 2015, the published exchange rates were S/3.408 for US$1 for buying and S/3.413 for US$1 for selling (S/2.981 for US$1 for buying and S/2.989 for US$1 as of December 31, 2014).

 F-161

Notes to the financial statements (continued)

(b)Financial instruments: Initial recognitionUse of judgments, estimates and subsequent measurementassumptions -

A financial instrument is any agreement which originates a financial asset of the entity and a financial liability or equity instruments of other entity.

(i)Financial assets -

The Company determines the classification of its financial assets at initial recognition in accordance with IAS 39, “Financial Instruments: Recognition and Measurement”.

All financial assets are recognized initially at fair value plus transaction costs that are attributable to the acquisition of the financial asset. The Company’s financial assets include accounts receivable and embedded derivatives.

Receivables -

The Company’s accounts receivables include trade accounts receivables to related parties and third parties and other accounts receivable.

Accounts receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, the accounts receivables are subsequently carried at amortized cost using the effective interest method less any provision for impairment (i.e. allowance for doubtful accounts).

The Company assesses whether, as of the date of the financial statements, there is objective evidence of impairment in the value of the receivable. 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 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.

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.

 F-162

Notes to the financial statements (continued)

(ii)Financial liability -

All financial liabilities are recognized initially at fair value and, in the case of accounts payable and other financial liabilities, net of directly attributable transaction costs. The Company´s financial liabilities include trade and other payables, other financial liabilities and embedded derivatives.

Loans-

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.

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.

(iii)Offsetting of financial instruments –

Financial assets and financial liabilities are offset and the net amount is reported in the 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.

(c)Inventories –

Inventories are stated at the lower of 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 is the estimated future sales price based on forward metal prices (at the year that are expected to be processed), less estimated costs to complete production and bring the inventory to sale.

The current portion of work in process is determined based on the expected amounts to be processed with the next twelve months. Inventories not expected to be processed within the next twelve months are classified as long-term.

No write-down of inventories was recorded as of December 31, 2015 and 2014.

Provision for obsolescence -

Obsolescence allowances are established based on an item-by-item analysis made by Management. Any amount of obsolescence is charged to the statements of comprehensive income in the year of occurrence.

 F-163

Notes to the financial statements (continued)

(d)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, including customs duties and non-reimbursable taxes, as well as any costs directly attributable to bringing the asset into operation, the initial estimate of the rehabilitation obligation and, in the case of qualifying assets, the cost of borrowing. The capitalized value of a finance lease is also included in this caption.

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, the expenditure is capitalized. All other day-to-day maintenance and repairs costs are expensed as incurred.

Where part of the asset was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced assets which is immediately written off.

Depreciation–

Land is not depreciated. Depreciation of assets directly related 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 15 and 35
Machinery and equipmentBetween 3 and 25
Transportation units7
Furniture and fixtures7
Other equipmentBetween 3 and 25

 

The asset’s residual values, useful lives and methodspreparation of depreciation are reviewed, at each reporting period and adjusted prospectively, if appropriate.

Disposals–

An item of property, plant and equipment 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 tproperty, 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.

 F-164

Notes to the financial statements (continued)

(e)Exploration and development costs –

Exploration costs -

Mineral exploration costs, as well as drilling and other costs incurred for the purpose of obtaining 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 accordanceconformity with a model established by the Company. These costs are amortized when production beings, on the units-of-production basis over the proven and probable reserves. Development costs necessary to maintain production are expensed as incurred.

(f)Stripping costs -

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 9) 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.

(g)Impairment of non-financial assets -

At each reporting date, the Company evaluates if there is any indication that an asset may be impaired. If any indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset is the higher of its fair value less costs of disposal and 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 carrying amount of an asset 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.

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 recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’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 if 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 statements of comprehensive income.

 F-165

Notes to the financial statements (continued)

(h)Intangible assets -
Intangible assets are recognized initially at cost. 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.

(i)Provisions -

General -

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, 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.

If the effect of the time value of money is material, provisions are discounted using a rate that reflects, when 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 finance costs in the statements of comprehensive income.

Provision for remediation and mine closure -

The Company records a provision for remediation and mine closure 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. 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 units-of-production method during the economic life of the mine.

The Company evaluates its provision for remediation and mine closure quarterly and makes adjustments to estimates and assumptions, including future costs and discount rates, as applicable. Changes in the fair value of provision for remediation and mine closure 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 statements of comprehensive income.

(j)Revenue recognition -

The Company primarily sells copper cathodes and concentrates in accordance with sales contracts entered into with its customers. Revenues comprise the fair value of the sale of goods, net of related sales taxes. The Company recognizes revenue when the amount can be reliably measured, 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.

 F-166

Notes to the financial statements (continued)

Sales of copper cathodes and concentrates –

Domestic sales of copper cathodes and concentrates are recognized when the Company has delivered the goods to the shipping company designated by the customer. Revenue associated with foreign sales of copper cathodes 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 rail 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 effect of the changes in such market prices are recorded as revenues until the specified future month. 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 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 entities as part of their operational budgets for the supervision of energy and mining investment and the environment. The calculation for the OSINERGMIN contribution is 0.21% of invoiced sales for 2014, 0.19% for 2015, and 0.16% for 2016, and the calculation for the OEFA contribution is 0.15% of invoiced sales for 2014 and 2015, and 0.13% for 2016. These royalties are presented as reduction of revenues (see note 17).

(k)Borrowingcost-

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$1 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 Company incurs in connection with the borrowing of funds.

(l)Income taxes, deferred taxes and other taxes-

Current income tax-

Current income tax assets and liabilities are measured at the amounts 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 substantially enacted, at the reporting period. The Company calculates the provision for current income tax based on the tax stability agreement described in Note 16(a).

 F-167

Notes to the financial statements (continued)

Deferred income tax -

Deferred income tax is provided using the liability method on temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes at their reporting date. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences, 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 assets and deferred tax liabilities are offset if a legally enforceable right to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Peruvian mining royalties and special mining tax -

On September 29, 2011, Law No. 29788 (which amended Law No. 28528) was enacted creating a new mining tax and royalty regime in Peru.

-Stability agreement effective until December 31, 2013

Under the new regime, companies that do not have stability agreements were 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 (c).

-Stability agreement effective since January 1, 2014

Beginning January 1, 2014, under the terms of the new stability agreement, the Company will pay mining royalties and special mining tax for all its production based on Law No. 29788.

 F-168

Notes to the financial statements (continued)

-Mining Royalties and Special Mining Tax are 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. Under the terms of its new 15-year stability agreement, 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.

(m)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 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 statement of financial position and as an operating expense in the statements of comprehensive income (See note 18).

(n)Basic and dilutedearningsper 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, 2015, 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.

(o)Fair value measurement -

The Company measures its embedded derivatives, at fair value at each 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.

 F-169

Notes to the financial statements (continued)

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

3.Accounting estimates, judgments and assumptions –

The preparation of the Company’s financial statements according to IFRS requires Managementmanagement to make judgments, estimates and assumptions in order to determine the reported amounts of the assets and liabilities, and the disclosure of contingent assets and liabilities toas of December 31, 2018 and 2017, and the dateamounts of financial statements, and for the reported amounts of revenues and expenses for the years finished as ofended December 31, 2015, 20142018, 2017 and 2013.

Estimates and assumptions are continuously evaluated and are based on the experience of Management and other factors, including expectations of future events that are reasonable under current circumstances; however, actual results could differ from these estimates.2016.

 

Information about estimationssignificant judgments, estimates and judgments taken into accountassumptions made by Management in the preparation of the financial statements follows:

 

3.1(b.1)Judgments -

(a)(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 quantumamount of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

 

(b)(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.

 

  F-170F-187 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

Once the Company has identified its production stripping for eachits surface mining operation, it identifies the separate components of the ore bodies for each of its mining operations.body. 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.

 

3.2(b.2)Estimates and assumptions -

(a)(i)Determination of mineral reserves and resources -

Ore

Mineral reserves are estimatesthe part of the ore quantitya mineral deposit that can be economically and legally extracted from the mine concessions. The Company 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, 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.

 

(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)Provision for remediation and mine closure-

The Company assesses its provision for remediation and mine closure 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(i)note 2(j), estimated changes in the fair value of the provision for remediation and mine closure 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”.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 are based on estimates of future commodity prices.

 

  F-171F-188 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

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”.Assets.”

 

(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 ismethods are 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 hole 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-189

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.

 

(e)(v)Asset impairment -

Management has determined that the Company’s operations consist of one cash generating unit. Therefore, the Company’s operations are evaluated at least annually in order to determine if there are 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 andof disposal or the value in use. These assessments require the use of estimates and assumptions, such asincluding long-term commodity prices, discount rates, operating costs, and others.

 F-172

Notes to the financial statements (continued)

 

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.

 

(c)Currency -

As

The financial statements are presented in United States (US) dollars which is also the Company’s functional currency.

Foreign currency transactions are those 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 declinedifference in copper prices, 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 statement of profit or loss of the period.

F-190

Notes to the Financial Statements(continue)

The Company evaluated its long-lived assetsuses Peruvian Sol (S/) exchange rates published by the Superintendent of Banks, Insurance and Pension Fund Administrators. The published exchange rates were S/3.369 for impairmentUS$1 for buying and S/3.379 for US$1 for selling as of December 31, 2015, which did not result in any impairment charges. The determination of value in use is considered to be a Level 3 fair value measurement, as it is derived from valuation techniques that include inputs that are not based on observable market data. The Company considers the inputs2018 and the valuation approach to be consistent with the approach taken by market participants.

The key assumptions/inputs used in the determination of the Company’s fair value included production volumes, copper pricesS/3.238 for US$1 buying and discount rates. Estimated production volumes are based on detailed life-of-mine plans and are dependent on a number of variables, including recoverable quantities, the production profile, production costs, and theS/3.245 for US$1 for selling price of the commodities extracted. Short-term copper prices used in determining value in use ranged from US$2.13 to US$2.16 per pound, which were based on quoted forward market prices as of December 31, 2015,2017. These rates have been applied to the appropriate asset and liability accounts.

(d)Financial assets –

Initial recognition and measurement -

At initial recognition, financial assets are classified and measured at either amortized cost, or fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company´s business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under IFRS 15, “Revenue from Contracts with Costumers.”

The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date.

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 three months or less.

Accounts Receivables -

The Company’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 expected credit lose. 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.

F-191

Notes to the Financial Statements(continue)

Subsequent measurement -

For purposes of subsequent measurement, financial assets are classified in two categories:

-Financial assets at amortized cost (debt instruments).

-Financial assets at fair value through profit or loss.

Financial assets at amortized cost (debt instruments) -

This category is the most relevant to the Company. The Company measures financial assets at amortized cost if both of the following conditions are met:

-The financial asset is held within a business model with the objective to collect contractual cash flows, and

-The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest rate method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

This category generally applies to trade and other receivables, net.

Financial assets at fair value through profit or loss -

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss or financial assets mandatorily required to be measured at fair value. 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. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model.

Financial assets at fair value through profit or loss are carried in the statements of financial position at fair value with net changes in fair value recognized in the statements of comprehensive income.

Embedded derivatives -

Copper Sales -

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 assumption was US$3.00 per pound,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) and presented as gains/losses on provisionally priced trade receivables.

F-192

Notes to the Financial Statements(continue)

Molybdenum Sales -

The Company’s molybdenum sales are also provisionally priced at the time of shipment. The Company records revenues and invoices customers at the time of shipment based on the arithmetic mean of the high and lowMetals Week Dealer Oxide (MWDO) price. The provisional prices are finalized in a future month, according to the period of quotation, which results in price fluctuations recorded through revenues until the date of settlement, which also results in as gains/losses on provisionally priced trade receivables that is required to be separated from the main contract.

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; or

-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 management’sthe rights and obligations that the Company has retained.

Impairment of financial assets -

The Company recognizes an allowance for expected credit losses for all debt instruments not held at fair value through profit or loss. Expected credit losses are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

Expected credit losses are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, expected credit losses are provided for credit losses that result from default events that are possible within the next 12-months (12-month expected credit losses). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (lifetime expected credit losses).

F-193

Notes to the Financial Statements(continue)

For trade receivables and contract assets, the Company applies a simplified approach in calculating expected credit losses. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on the financial asset’s lifetime expected credit losses at each reporting date.

The Company considers a financial asset in default when contractual payments are 180 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

(e)Financial liabilities -

All financial liabilities are recognized initially at fair value and 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 and other financial liabilities.

Loans -

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 statements of comprehensive income 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 statements of comprehensive income.

Derecognition -

A financial liability is derecognized when the associated obligation 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 are recognized in the statements of comprehensive income.

(f)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 viewinventories.

No adjustments to inventories were required for the years ended December 31, 2018 and 2017.

F-194

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 global supplyobsolescence identified is charged to the statements of comprehensive income in the period it is deemed to have occurred.

(g)Property, plant and equipment -

Property, plant and demand. In additionequipment 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 copper 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 period 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.

F-195

Notes to the Financial Statements(continue)

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 production volumes and copper price assumptions, the determinationasset. The recoverable amount of an asset is the greater of its fair value less costs to sell or its value in use was based onand 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 post-tax discount rate of 8.5% appliedasset 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; which was derivedflows 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.

Losses resulting from the weighted average costimpairment of capital,assets are recognized in the statements of comprehensive income under the categories of expenses consistent with appropriate adjustments madethe function of the impaired asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to reflectdetermine the risks specific toasset’s recoverable amount since the Company.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 as offor the years ended December 31, 20152018, and 2014.2017.

 

4.(h)StandardIntangible 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.

(i)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.

F-196

Notes to the Financial Statements(continue)

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 7) 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 component of the ore body benefitted.

(j)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 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 over the 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.

(k)Revenue recognition -

The Company primarily sells copper concentrate and copper cathode in accordance with sales contracts entered into with its customers. Revenues from contracts with customers comprise the fair value of the sale of goods, net of related general sales taxes. Revenue from contracts with customers is recognized when control of goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.

F-197

Notes to the Financial Statements(continue)

The Company considers whether there are other promises in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. The Company consider that the only performance obligation is the delivery of the goods. In determining the transaction price for the sale of copper concentrates and copper cathode, the Company considers the effect of variable consideration and the existence of significant financing components.

Variable consideration -

If the consideration in the contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Sales of concentrates and metals at provisional prices include a gain (loss) to be received at the end of the quotation period.

Revenue is recognized at the amount the entity expects to be entitled – being the estimate of the price expected to be received at the end of the quotation period using the most recently determined estimate of metal in concentrate (based on initial assay results) and the estimated forward price.

The requirements in IFRS 15 on constraint estimates of variable consideration are also applied to determine the amount of variable consideration that can be included in the transaction price.

Significant financing components -

The Company receives short-term advances from its customers. Using the practical expedient in IFRS 15, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good to the customer and when customer pays for that good will be one year or less.

The Company’s revenues are subject to OSINERGMIN (Organismo Supervisor de la Inversión en Energía y Minería) and OEFA (Organismo de Evaluación y Fiscalización Ambiental) royalties. The calculation for the OSINERGMIN contribution is 0.14% of invoiced sales for the year 2018 (0.15% for the year 2017 and 0.16% for the year 2016), and the calculation for the OEFA contribution is 0.11% of invoiced sales for the year 2018 (0.11% for the year 2017 and 0.13% for the year 2016). Those royalties are presented as a reduction of revenues (see Note 14).

F-198

Notes to the Financial Statements(continue)

(l)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 2018, 2017 and 2016, 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 each period and are recognized when it is more likely than not that those future taxable earnings will allow the deferred tax asset to be recovered.

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 29788 (which amended Law 28528) was enacted creating a new mining tax and royalty regime in Peru. Under the new regime, companies that did not have stability agreements were subject to the payment of royalties and a special mining tax. Cerro Verde believes its 1998 Stability Agreement exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing those materials, and therefore, was not subject to the payment of royalties and a special mining tax until the 1998 Stability Agreement expired on December 31, 2013. See Note 13(d) for further discussion of developments resulting in the recognition of provisions for these disputed royalties and special mining taxes for prior years. Because the Company believes it was not subject to the payment of royalties and a special mining tax, Cerro Verde was subject to special mining burden (GEM) until the expiration of its 1998 Stability Agreement 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.

F-199

Notes to the Financial Statements(continue)

Supplementary Retirement Fund -

On July 9, 2011, Law 29741 was enacted and established 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.

(m)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.

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 net taxable base of the current year. According to Peruvian law, the limit in the worker's profit sharing that an employee can 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 worker’s profit share is recognized as a liability in the statements of financial position and as an operating expense in the statements of comprehensive income.

(n)Borrowing cost -

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as finance costs 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.

(o)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 is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

F-200

Notes to the Financial Statements(continue)

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.

(p)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 because 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 2018, 2017 and 2016, 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.

(q)Changes in accounting policies and disclosures –

IFRS 15, “Revenue from Contracts with Customers” -

The Company adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of January 1, 2018.

The Company concluded that there are no adjustments as a consequence of initially applying IFRS 15, and therefore no effects were recognized at the date of initial application. Comparative information was not restated and continues to be reported under IAS 18, “Revenue” and related interpretations.

IFRS 9, “Financial Instruments” -

The Company applied IFRS 9 prospectively, with an initial application date of January 1, 2018. The Company has not restated the comparative information.

F-201

Notes to the Financial Statements(continue)

There were no adjustments to the financial statements arising from the adoption of IFRS 9 and the classification and measurement requirements of IFRS 9 did not have a significant impact to the Company. As a result of the adoption of IFRS 9, the Company classified its financial assets and financial liabilities as of January 1, 2018, as follows:

     IFRS 9 measurement category 
     Fair value through profit
or loss		  Amortised cost 
  US$(000)  US$(000)  US$(000) 
IAS 39 measurement category            
Financial assets -            
Accounts receivables and Trade accounts receivables - Related parties            
Accounts receivables and Trade accounts receivable - Related parties(without provisional prices) 1,703  -  1,703 
Accounts receivables and Trade accounts receivable - Related parties (with provisional prices)  412,829   481,565   - 
Financial assets at fair value through profit or loss - Embedded derivatives  68,736   -   - 
             
Financial liabilities  -            
Trade accounts payable  194,958   -   194,958 
Accounts payable - Related parties  13,681   -   13,681 
Other financial liabilities  1,268,488   -   1,268,488 
Provision related to benefits to employees  109,903   -   109,903 
Other accounts payable  73,606   -   73,606 

(r)Standards issued but not effective -

Following is a summary of improvements and amendments to IFRS that are not yet effective but will be applicable to the Company.Company:

-IFRS 16, “Leases” -

 

IFRS 9 Financial Instruments

In July 2014,16 introduced a single, on-balance sheet accounting model for lessees and the IASB issued the final version ofCompany adopted 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 beginning16 on or after January 1, 2019. As a result, the Company, as a lessee, has recognized right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments.

The Company has applied IFRS 16 using the modified retrospective approach, under which the comparative information presented for 2018 with early application permitted.has not been restated and it is presented, as previously reported, under IAS 17,“Leases,”and related interpretation.

Definition of a lease -

Previously, the Company determined at contract inception whether a contract was or contained a lease under IFRIC 4,“Determining Whether an Arrangement Contains a Lease.”The adoption of IFRS 9Company now assesses whether a contract is, not expected to haveor contains, a significant effectlease based on the classification and measurementnew definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the Company’s financial assets and liabilities.contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

  F-173F-202 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

On transition to IFRS 15 Revenue from Contracts with Customers

16, the Company elected to apply the practical expedient to grandfather the assessment of which arrangements are leases. It applied IFRS 15 was issued in May 201416 only to contracts that were previously identified as leases. Contract that were not identified as leases under IAS 17 and establishesIFRIC 4 were not reassessed. Therefore, the definition of a five-step modellease under IFRS 16 has been applied only 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 goodsentered into or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginningchanged on or after January 1, 2018. Early adoption2019.

At inception or on reassessment of a contract that contains a lease component, the Company allocates the considerations in the contract to each lease and non-lease component on the basis of their relative stand-alone prices.

As a lessee -

As a lessee, the Company previously classified leases as either operating and finance leases based on its assessments of whether a lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, all leases are classified as finance leases. However, the Company has elected the short-term lease exemption for all asset classes and does not report a lease liability or right-of-use asset for leases with a term of 12 months or less.

The Company presents right-of-use assets in “property, plant and equipment,” the same line item as it presents underlying assets of the same nature that it owns. Leased right-of-use assets are amounted to US$96.8 million as of January 1, 2019.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date.

Right-of-use asset -

The right-of use asset is permitted.initially measured at cost, and subsequently at cost less any accumulated depreciation and impairments losses, and adjusted for certain re-measurements of the lease liability.

The right-of-use asset is depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment.

F-203

Notes to the Financial Statements(continue)

Lease liability -

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. The Company does not have any lease contracts in which the implicit rate is readily determinable and as such used its incremental borrowing rate in all lease calculations.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is re-measured when there is a change in future lease payments arising from a change in an index rate, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase option, termination option or extension option is reasonably certain to be exercised.

Lease liabilities are presented in “other financial liabilities” and are amounted to US$95.7 million as of January 1, 2019.

Lease term -

The Company has applied judgment to determine the lease term for some lease contracts in which it is a lessee and that include renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of the lease liabilities and right-of-use assets recognized.

Also in relation to those leases under IFRS 16, the Company will recognize depreciation and interest costs which are presented in “cost of sales” and “financial expenses”.

-IFRIC 23, “Uncertainty over Income Tax Treatments”, addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Company is required to adopt IFRIC 23 as of January 1, 2019, and is progressing through its evaluation of the impact of IFRIC 23 in its financial statements.

-IAS 12, “Income Taxes”, clarifies that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events.

When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognized on or after the beginning of the earliest comparative period. The Company is currently assessingrequired to adopt IAS 12 as of January 1, 2019.

Since the impact of this guidance on its financial reporting and disclosures, but at this timeCompany’s current practice is in line with these amendments, the Company does not expect the adoption of IFRS 15 to have a material impactany effect on its financial statements.

 

5.-IAS 23, “Borrowing Costs”, clarifies that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. The Company is required to adopt IAS 23 as of January 1, 2019. Since the Company’s current practice is in line with these amendments, the Company does not expect any effect on its financial statements.

F-204

Notes to the Financial Statements(continue)

3.Cash and cash equivalents

This item is made up as follows:

  December 31,
2018		  December 31,
2017		 
  US$(000)  US$(000) 
       
Cash in banks 3,679 3,500 
Cash equivalents (a)  497,503   596,527 
         
   501,182   600,027 

(a)This item is made up as follows:

  2015  2014 
  US$(000)  US$(000) 
       
Cash in banks  5,604   7,698 
Cash equivalents (b)  348   11,876 
         
   5,952   19,574 

(b)Cash equivalents comprisesas of December 31, 2018, includes short-term deposits with Scotiabank Peru of US$125.0 million, BBVA Continental Peru of US$50.0 million, Citibank NY of US$42.9 million and Banco de Credito de Peru of US$5.9 million and a portfolio of investments in highly marketable liquid investments (investments classified as “AAA” by Standard & Poor’s and Moody’s), of US$273.7 million, which yield variable returns, and are classified as cash equivalents because they are readily convertible to known amounts of cash. During the year 2015, Management used the majority of its investmentscash 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

Trade

Accounts 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, 2018  December 31, 2017 
  US$(000)  US$(000) 
       
Accounts receivable from related parties        
Parent Company        
FMC (a) 409,688  372,327 
Other related parties        
Sumitomo Metal Mining Company, Ltd. (b)  12,918   19,900 
Climax Molybdenum Marketing Corporation (c)  10,038   19,570 
Embedded derivatives        
Embedded derivatives (d)  (19,293)  65,622 
         
Total accounts receivable from related parties  413,351   477,419 
         
Classification by measurement        
Accounts receivables from related parties (not subject to provisional pricing)  67,050   2,305 
Accounts receivables from related parties (subject to provisional pricing)  365,594   409,492 
Embedded derivatives (d)  (19,293)  65,622 
         
   413,351   477,419 

 

  F-174F-205 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

  December 31, 2018  December 31, 2017 
  US$(000)  US$(000) 
       
Accounts payable to related parties        
Parent Company        
FMC (e) 8,860 8,470 
Other related parties        
Freeport-McMoRan Sales Company Inc.  3,192   3,601 
PT Freeport Indonesia  2,301   - 
Minera Freeport-McMoRan South America Ltda  521   1,248 
Freeport Cobalt OY  -   296 
Minera Freeport-McMoRan South America S.A.C.  -   66 
Total accounts payable to related parties  14,874   13,681 
Less: accounts payable to related parties, long term  (8,860)  (8,147)
         
Total accounts payable, short term  6,014   5,534 

 

7.(a)Non-financial assetsAccounts receivable from FMC mainly correspond to sales of copper concentrate and copper cathode. The Company has a long-term agreement with FMC through which it has committed to sell between 70% and 80% of its annual copper concentrate production through December 31, 2021. Terms of the contracts are reviewed annually.
(a)This item is made up as follows:

  2015  2014 
  US$(000)  US$(000) 
Short-term        
Value added tax credit (VAT) (b)  408,202   222,357 
Income tax prepayments (c)  21,718   - 
Other taxes to be recovered  2,379   2,719 
         
   432,299   225,076 
Long-term        
Other accounts receivable (d)  180,741   182,756 
Income tax prepayments (c)  91,879   30,728 
Installment program (mining royalties case) (e)  64,405   39,700 
Value added tax credit (VAT) (b)  44,977   - 
         
   382,002   253,184 

 

(b)Mainly attributableThe Company has a long-term agreement with Sumitomo through which it has committed to purchases related to the expansionsell 21% of its annual copper concentrates production through December 31, 2021. Terms of the Company´s production unit (See Note 1(b)). The Company expects to recover the VAT credits in short and long-term.contracts are reviewed annually.

 

(c)CorrespondsThe Company has a long-term agreement with Climax Molybdenum Marketing Corporation (a wholly owned subsidiary of FMC) through which it has committed to disbursements made bysell 100% of its annual molybdenum concentrate production, at a price based on the Company related to prepayment of income tax, which the Company expects to use to offset with future tax obligations or will be refunded to the Company by the Tax Authority.Metals Week Dealer Oxide price and under a delivery type known as CIF (cost, insurance and freight) through December 31, 2020.

 

(d)Corresponds to disbursements made byReflects the Company under protest in connectionembedded derivative adjustment of US$(19.3) million as of December 31, 2018, and US$65.6 million as of December 31, 2017, associated with disputed tax assessmentsaccounts receivable from years 2004 to 2010. The most significant issues observed are:related parties (See Note 2(d) and 22).

 

-(e)DeductibilityAccounts payable to FMC as of certain management fees rendered by a related entity;
-Application of accelerated depreciation deductionDecember 31, 2018, is related to the first concentrator plantstock option benefits for US$8.9 million (US$8.1 as it claims the Company is not entitled to this benefit under its 1998 stability agreement; and
-Certain disbursements would qualify as fixed assets.of December 31, 2017).

 

These claimsShort-term and long-term employee benefits are currently under review inrecognized as expenses during the Tax Court. Accordingperiod earned. Benefits received by key management personnel represent 0.38% of total revenues for the year 2018 (0.35% for the year 2017). For the years 2018 and 2017, Freeport had granted stock option and/or restricted stock unit benefits to current tax procedurescertain key management personnel, the amounts of which are not significant at those dates. As of December 31, 2018 and time frame for resolving these types of claims,2017, the Company and its legal advisors expect favorable resolution in all cases due to the strength of their arguments.does not have any other long-term benefits.

(e)Corresponds to payments made under protest by the Company in connection to installment program approved by the tax authority associated with mining royalties for the period December 2006 to December 2008, which is described in Note 16(e). Management expects that the resolution of this matter will be favorable to the Company.

 

  F-175F-206 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

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 related parties. As of December 31, 2018 and 2017, the Company had not recorded any impairment of accounts receivable from related parties.

 

8.5.Inventories, net
(a)This item is made up as follows:

 

  2015  2014 
  US$(000)  US$(000) 
Finished goods:        
Copper concentrate  8,948   11,942 
Copper cathodes  11,865   8,809 
Molybdenum concentrate  1,292   1,821 
Balance of finished goods  22,105   22,572 
Work-in-process  (b)  445,003   326,676 
Materials  and supplies  247,107   170,146 
Materials and supplies in transit  1,315   1,269 
Less - Provision for obsolescence of materials and supplies  (692)  (407)
Total Inventories  714,838   520,256 
Less - Long-term inventories (b)  (319,971)  (287,714)
Current inventories, net  394,867   232,542 

This item is made up as follows:

  December 31,
2018		  December 31,
2017		 
  US$(000)  US$(000) 
       
Current        
Materials and supplies 308,378  273,939 
Work-in-process (WIP) (a)  149,975   148,928 
Finished goods:        
Copper concentrate  17,949   18,068 
Copper cathode  8,035   4,032 
Molybdenum concentrate  3,205   1,896 
Less: Provision for obsolescence of materials and supplies  (11)  (1,237)
   487,531   445,626 
         
Non-current        
Work-in-process (WIP) (a)  255,918   248,452 
         
Total inventories  743,449   694,078 

 

(b)(a)Work-in-process inventories represent mill and leach stockpiles, which contain higher grade ores (mill stockpiles) and medium and lower grade ores (leach stockpiles) that have been extracted from the open pit and are available for copper recovery. Based on the future mine future plan production, the Company identifies the portion of inventory that is going to be classified as shortcurrent or long term. For mill stockpiles, recovery is through milling and concentrating. For leach stockpiles, recovery is through exposure to acidic solutions that dissolve copper and deliverydeliver it in a solution to extraction processing facilities (see note 3.2(d)).facilities.

 

  F-176F-207 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

9.6.Property, plant and equipment, netOther non-financial assets

This item is made up as follows:

  December 31, 2018  December 31, 2017 
  US$(000)  US$(000) 
       
Current        
Value added tax (VAT) credit 28,081  18,153 
Income tax prepayments (a)  26,794   - 
Other taxes to be recovered  2,700   2,929 
   57,575   21,082 
         
Non-current        
Other receivables (b)  183,208   184,802 
Income tax prepayments (a)  16,858   4,212 
   200,066   189,014 
         
Total other non-financial assets  257,641   210,096 

(a)The movement in cost and accumulated depreciation accounts asRepresents disbursements made by the Company for the prepayment of December 31, 2015 and 2014 are shown below:income tax, which the Company expects to use to offset future tax obligations or will be refunded to the Company by SUNAT (Superintendencia Nacional de Administración Tributaria) (see Note 13(b)).

  January
1, 2014		  Additions  

Retirements
and

disposals

  

Adjustments
and

reclassifications

  Transfers  December
31, 2014		  Additions  

Retirements
and

disposals

  

Adjustments
and

reclassifications

  Transfers  December
31, 2015		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                                  
Cost                                            
Land  1,737   -   -   -   13,538   15,275   -   -   -   5,109   20,384 
Buildings and other constructions  145,909   -   (2,710)  405   39,304   182,908   -   (1,099)  7,571   2,012,742   2,202,122 
Machinery and equipment  1,870,419   -   (25,974)  (7,525)  171,429   2,008,349   -   (19,537)  (7,571)  2,222,190   4,203,431 
Transportation units  14,981   -   (389)  35   2,575   17,202   -   (284)  -   2,709   19,627 
Furniture and fixtures  786   -   -   4   -   790   -   (3)  -   163   950 
Other equipment  22,219   -   (228)  -   270   22,261   -   (984)  -   3,451   24,728 
Work in progress and transit units (b)  1,434,552   1,771,715   -   -   (227,116)  2,979,151   1,629,271   -   -   (4,246,364)  362,058 
Asset remediation and mine closure, note 13(b)  43,454   93   -   68,840   -   112,387   3,534   -   33,803   -   149,724 
Stripping activity asset  102,557   49,122   -   -   -   151,679   111,819   -   -   -   263,498 
   3,636,614   1,820,930   (29,301)  61,759   -   5,490,002   1,744,624   (21,907)  33,803   -   7,246,522 
                                             
Accumulated depreciation                                            
Buildings and other constructions  34,767   4,912   (1,583)  -   220   38,316   20,510   (1,059)  3,136   -   60,903 
Machinery and equipment  747,161   111,823   (22,030)  -   (229)  836,725   151,460   (18,524)  (3,136)  -   966,525 
Transportation units  6,903   1,719   (383)  -   9   8,248   1,741   (266)  -   -   9,723 
Furniture and fixtures  771   5   -   -   -   776   5   (4)  -   -   777 
Other equipment  10,675   1,065   (228)  -   -   11,512   2,054   (984)  -   -   12,582 
Asset remediation and mine closure  4,558   560   -   -   -   5,118   2,053   -   -   -   7,171 
Stripping activity asset  -   44,901   -   -   -   44,901   66,651   -   -   -   111,552 
   804,835   164,985   (24,224)  -   -   945,596   244,474   (20,837)  -   -   1,169,233 
                                             
Net Cost  2,831,779                   4,544,406                   6,077,289 

 

(b)Borrowing costRepresents disbursement made by the Company in connection with disputed tax assessments related to reviews by SUNAT from years 2003 to 2011 (see Note 13(c) and 13(e)). According to current tax procedures and the qualifying assets, which have been capitalized in “Work in progress” duringtimeframe for resolving these types of claims, management and its legal advisors expect resolution of this matter will be favorable to the period 2015 amounted to US$33,719,000 (US$16,305,000 during the year 2014).Company and amounts will be recoverable.

 

  F-177F-208 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

10.7.Property, plant and equipment, net

The changes in cost and accumulated depreciation accounts as of December 31, 2018 and 2017 are shown below:

  January 1,
2017		  Additions  Adjustments  Disposals  Transfers  December 31,
2017		  Additions  Adjustments  Disposals  Transfers  December 31,
2018		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                                  
Cost                                            
Land 23,683  -  -  -  784  24,467  -  -  -  196  24,663 
Buildings and other constructions  2,376,961   -   (13,532)  (1,169)  7,782   2,370,042   -   41,089   (9,644)  48,090   2,449,577 
Machinery and equipment  4,442,180   -   13,532   (4,540)  102,336   4,553,508   -   (41,089)  (19,426)  201,057   4,694,050 
Transportation units  19,110   -   -   (261)  1,708   20,557   -   -   (32)  2,726   23,251 
Furniture and fixtures  949   -   -   -   -   949   -   -   -   -   949 
Other equipment  24,671   -   -   (34)  340   24,977   -   -   (11)  525   25,491 
Construction in progress and in-transit units  88,766   173,845   -   -   (112,950)  149,661   288,861   -   -   (252,594)  185,928 
Stripping activity asset (see Note 2(j))  324,759   153,623   -   -   -   478,382   177,327   -   -   -   655,709 
Asset retirement costs (see Note 11(b))  137,376   2,661   (3,710)  -   -   136,327   2,724   (32,017)  -   -   107,034 
   7,438,455   330,129   (3,710)  (6,004)  -   7,758,870   468,912   (32,017)  (29,113)  -   8,166,652 
                                             
Accumulated depreciation                                            
Buildings and other constructions  144,862   86,391   (457)  (1,169)  -   229,627   96,623   5,184   (9,514)  -   321,920 
Machinery and equipment  1,237,979   283,250   457   (4,349)  -   1,517,337   292,656   (5,184)  (18,483)  -   1,786,326 
Transportation units  10,865   1,593   -   (237)  -   12,221   1,784   -   (33)  -   13,972 
Furniture and fixtures  802   32   -   -   -   834   24   -   -   -   858 
Other equipment  13,953   2,474   -   (27)  -   16,400   2,406   -   (10)  -   18,796 
Stripping activity asset  209,065   76,262   -   -   -   285,327   112,875   -   -   -   398,202 
Asset retirement costs  13,189   5,511   -   -   -   18,700   4,976   -   -   -   23,676 
   1,630,715   455,513   -   (5,782)  -   2,080,446   511,344   -   (28,040)  -   2,563,750 
                                             
Net cost  5,807,740                   5,678,424                   5,602,902 

(a)As of December 31, 2018 construction in progress primarily relates to the mine maintenance truck shop (US$90.6 million), the purchase of stators for ball mills (US$24.3 million), the purchase of used haul trucks from PT Freeport Indonesia (a related party) (US$17.2 million) and phase I of the tailing drain expansion (US$11.9 million).

F-209

Notes to the Financial Statements(continue)

8.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 US dollars, have current maturities and do not accrue interest. No guarantees have been granted. As of December 31, 2015,2018, trade accounts payable includes US$279,378,00042.4 million related to capital projects mainly associated with Cerro Verde’s production unit expansion (US$318,957,00033.7 million as of December 31, 2014)2017).

 

11.9.Employees benefits liabilityOther accounts payable

This item is made up as follows:

  December 31, 2018  December 31, 2017 
  US$(000)  US$(000) 
       
Current        
Mining royalties, interests and penalties 2006-Sept. 2011 (a)  97,263   36,113 
Other  3,991   4,069 
         
Total current  101,254   40,182 
         
Non-current        
Mining royalties, interests and penalties 2009-Sept. 2011 (b)  215,070   33,424 
         
Total other accounts payable  316,324   73,606 

(a)This item is made up as follows:As of December 31, 2018, represents the current portion of the monthly payments of the new installment programs approved by SUNAT which the Company will start paying in second-quarter 2019, related to disputed mining royalties for the period January 2009 through September 2011 of US$23.8 million and interest, deferral interest and penalties of US$41.4 million. The current amount also includes the remaining monthly payments of the installment program approved by SUNAT related to disputed mining royalties for the years 2006 to 2008 of US$13.2 million and interest and penalties of US$18.9 million (see Note 13(d)).

  2015  2014 
  US$(000)  US$(000) 
       
Wages payable  20,454   11,138 
Profit sharing payable  82   33,274 
   20,536   44,412 

The Legislative Decree No. 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 sharing is recognized according to the policy described in note 2.2(m).

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 2015, 2014 and 2013 are recognized as a cost of sales of goods (see note 18). Additionally, during 2015, 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.Other financial liabilities
(a)This item is made up as follows:

  2015  2014 
  US$(000)  US$(000) 
       
Financial obligations with financial institutions:        
Senior unsecured credit facility, (b)  1,780,928   402,357 
Promissory notes (c)  43,000   50,000 
Leasings  329   492 
   1,824,257   452,849 
Financial obligations with shareholders (d)  600,907   - 
   2,425,164   452,849 
Less – current portion  (43,169)  (50,163)
Non - current portion  2,381,995   402,686 

 

(b)As of December 31, 2018, represents the non-current portion of the monthly payments of the new installment programs related to disputed mining royalties for the period January 2009 through September 2011 of US$85.5 million and interest and penalties of US$129.6 million (see Note 13(d)).

10.Other financial liabilities (debt)

This item is made up as follows:

  December 31, 2018  December 31, 2017 
  US$(000)  US$(000) 
Non-current debt        
Senior unsecured credit facility (a)  1,030,000   1,280,000 
Less : Debt issuance cost  (7,190)  (11,512)
         
Total other financial liabilities  1,022,810   1,268,488 

(a)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 disbursements were mainly used to finance a portion of the Company´s expansion project.

 

  F-178F-210 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

In June 2017, the Company entered into an amendment to the senior unsecured credit facility, which extends the maturity and increased the outstanding amount by US$225 million. After the amendment, the balance of the total credit facility was US$1.5 billion. As of December 31, 2018, the Company had repaid US$470 million (US$220 million as of December 31, 2017).

 

The credit facility allowscalls for term loan borrowings up to the full amountamortization in four installments, with 15% of the total facility less any amounts issueddue on December 31, 2020 (fully repaid as of December 31, 2018), 15% due on June 30, 2021 (fully repaid as of December 31, 2018), 35% due on December 31, 2021 (US$505 million after the December 2018 repayment) and outstanding under a $500 million sublimit. 35% due on June 19, 2022 (US$525 million).

Interest on amounts drawn under the term loancredit facility is based on the London Interbank Offered Rate (LIBOR) plus a spread (currently 2.4 %)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 amortizesDuring the year 2018, the Company recognized charges of US$1.9 million (US$6.3 million during the year 2017) for issuance costs related to debt extinguishment caused by the early March and December 2018 payments in three installments in amounts necessary to comply the commitmentstatements of the requested amounts under the loan. The first installment should paid at least 15% (85% of the outstanding balance) as of September 30, 2017, the second installment at least 30% (70% of the outstanding balance) as of March 31, 2018, and the third installment not less than 65% (35% of the outstanding balance) as of September 30, 2018, with the remaining balance due on the maturity date of March 10, 2019.comprehensive income (see Note 18).

 

As of December 31, 2015, the Company has used the total credit line (US$1.8 billion). No letters of credit were issued.

Thereissued and there are no guarantees provided for the credit facility.facility as of December 31, 2018.

Covenants -
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 4.75 to 1 (3.5 to 1 in 2014).
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 senior unsecured 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, 2015,2018, the Company was in compliance with all of its covenants, which are monitored by Management each quarter.covenants.

(c)As of December 31, 2015 corresponds to bank promissory notes with Banco Interbank to finance its working capital needs, with an interest rate of 1.29%. The maturity date of these notes has been renewed through February 2016.

 

  F-179F-211 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

(d)In December 2014, the Company 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., that are currently subordinated to the senior unsecured credit facility (described in note 12(b)). These agreements allow for borrowings up to an amount of US$800 million in aggregate. As of December 31, 2015, the Company had borrowed US$600.9 million under these loan agreements, including US$0.9 million of interest. The interest rate is currently calculated based on the LIBOR rate plus the average rate of the senior unsecured credit facility, plus 0.5% (currently 3.13%). 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 the senior financing.

There are no guarantees providedFollowing is the movement of the changes derived from the financing activities for these loans.the year ended December 31, 2018 and 2017:

 

13.Other provisions
(a)This item is made up as follows:

  2015  2014 
  US$(000)  US$(000) 
       
Provision for remediation and mine closure (b)  161,270   119,948 
Provision for unbilled freight and services  12,520   2,964 
Other  4,675   5,317 
   178,465   128,229 
Less – current portion  (14,662)  (2,964)
         
Non - current portion  163,803   125,265 

(b)Provision for remediation and mine closure -

The table below presents the changes in the provision for remediation and mine closure:

  2015  2014 
  US$(000)  US$(000) 
       
Beginning balance  119,948   48,479 
Accretion expense  3,985   2,537 
Changes in estimates  33,803   68,840 
Other adjustments  3,534   92 
         
Final balance  161,270   119,948 
         
Classification by maturity        
Current portion  2,142   - 
Non - current portion  159,128   119,948 
         
   161,270   119,948 
  January 01, 2017  Net Cash Flow  Others  December 31,
2017		  Net Cash Flow  Others  December 31,
2018		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                      
Current:                            
Leases  161   (161)  -   -   -   -   - 
                             
Non-current:                            
Senior unsecured credit facility  1,400,000   (120,000)  -   1,280,000   (250,000)  -   1,030,000 
Shareholder loans  606,014   (606,014)  -   -             
Debt issuance cost  (10,171)  (12,085)  10,744   (11,512)  -   4,322   (7,190)
                             
Total liabilities from financing activities  1,996,004   (738,260)  10,744   1,268,488   (250,000)  4,322   1,022,810 

 

  F-180F-212 

 

 

Notes to the financial statements (continued)

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 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, 2015, the future value of the provision for remediation and mine closure and environmental liabilities was US$368,753,000, which was discounted using the annual risk-free rate of 2.81%, resulting in an updated liability of US$161,270,000 (as of December 31, 2014, the future value of the provision for remediation and mine closure and environmental liabilities was US$257,451,000, which was discounted using the annual risk-free rate of 2.59%, resulting in an updated liability of US$119,948,000). The Company considers that this liability is sufficient to meet the current environmental protection laws approved by the MEM.

As of December 31, 2015 and 2014, the Company has issued letters of credit to Ministry of Energy and Mines amounting to US$21,539,000 and US$14,851,000, respectively, to secure mine closure plans for its mining unit.

 F-181

Notes to the financial statements (continued)Financial Statements(continue)

 

14.11.Deferred income taxProvisions

This item is made up as follows:

  December 31,
2018		  December 31,
2017		 
  US$(000)  US$(000) 
       
Current:        
Provisions related to services and freight not invoiced  11,823   14,513 
Provision for social commitments (a)  1,815   2,767 
Provision for legal contingencies  1,719   1,232 
Provision for remediation and mine closure (b)  -   690 
Total current  15,357   19,202 
         
Non–current:        
Provision for royalties and mining tax (c)  191,299   133,376 
Provision for remediation and mine closure (b)  131,888   156,169 
Other long-term liabilities (d)  11,033   15,889 
Provision for social commitments (a)  8,111   8,229 
         
Total non-current  342,331   313,663 

(a)The Company recognizes the effectprovision for social commitments as 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:

  January 1,
2014		  Debit (credit) to the
statements of
comprehensive income		  December 31,
2014		  Debit (credit) to the
statements of
comprehensive income		  December 31,
2015		 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
Income tax                    
Asset                    
Price adjustment of cathodes and copper concentrates  -   12,831   12,831   (4,982)  7,849 
Provision for remediation and mine closure  3,014   813   3,827   1,811   5,638 
Provision for mining taxes  6,322   (3,562)  2,760   (1,255)  1,505 
Unpaid vacations  -   2,625   2,625   (110)  2,515 
Cost of net asset: rollers and construction of tailing dam  14,258   (12,101)  2,157   (475)  1,682 
Development costs  530   (112)  418   (86)  332 
Difference in valuation of inventories  8,204   (8,204)  -   -   - 
Other provisions  1,573   1,437   3,010   1,740   4,750 
   33,901   (6,273)  27,628   (3,357)  24,271 
                     
Liability                    
Difference in depreciation method  264,291   (50,111)  214,180   31,490   245,670 
Stripping activity asset  21,778   (4,460)  17,318   502   17,820 
Difference in valuation of inventories  -   14,331   14,331   (3,334)  10,997 
Price adjustment of cathodes and copper concentrates  5,891   (5,891)  -   -   - 
   291,960   (46,131)  245,829   28,658   274,487 
                     
Deferred liabilities, net  258,059   (39,858)  218,201   32,015   250,216 
                     
Supplementary Retirement Fund                    
Difference in depreciation method  -   2,452   2,452   410   2,862 
Other minors  -   75   75   -   75 
Deferred liability  -   2,527   2,527   410   2,937 
Total debited to the statements of comprehensive income      (37,331)      32,425     
                     
Total deferred income tax liability, net  258,059       220,728       253,153 

 F-182

Notes to the financial statements (continued)

(b)For the years ended December 31, 2015, 20142018, is associated with an irrigation project in La Joya (US$4.5 million) 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:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Profit before income tax  79,530   616,135   946,600 
Income tax rate  32%  32%  30%
Expected income tax expense  25,450   197,163   283,980 
Non-deductible expenses  19,534   7,013   3,478 
Special mining tax and mining royalties  (4,672)  (16,677)  (19,348)
Income tax true-ups  (6,082)  (6,985)  - 
Effect of change in income tax rate to 32% due to Tax Stability Agreement effective since 2014, note 16(a)  -   -   398 
Others  (3,047)  82   1,652 
Current and deferred income tax charges to results  31,183   180,596   270,160 
Mining taxes charged to results  14,599   52,116   63,178 
Supplementary retirement fund charged to results  464   5,817   - 
             
   46,246   238,529   333,338 
             
Effective income tax  58.15%  38.71%  35.21%

 F-183

Notes to the financial statements (continued)

(c)Income tax expenses (benefit) for the years ended December 31, 2015, 2014 and 2013 is shown below:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Income tax            
Current  (832)  220,454   263,588 
Deferred  32,015   (39,858)  6,572 
   31,183   180,596   270,160 
Mining taxes            
Current  14,599   52,116   63,202 
Deferred  -   -   (24)
   14,599   52,116   63,178 
             
Supplementary retirement fund            
Current  54   3,290   - 
Deferred  410   2,527   - 
   464   5,817   - 
Income tax expense reported in the statements of comprehensive income  46,246   238,529   333,338 

15.Equity, net
(a)Issued capital -

As of December 31, 2015 and 2014 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, 2015 the quoted price of these shares was US$14.50 per share (US$24.00 per share as of December 31, 2014) and the daily frequency of trading is 100%, as in 2014.

(b)Other capital 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 2015, 2014 and 2013, the Company did not pay dividends.

 F-184

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 had tax stability for a period of 15 years from January 1, 1999 to December 31, 2013 and was subject to the tax regulations in force at May 6, 1996.

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 from January 1, 2014 to 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$5.4 million).

 F-185

Notes to the financial statements (continued)

 

(b)The income tax rate applicable to the Company is 32% beginning 2014 according to the new agreement mentioned above. For the years ended December 31, 2015, 2014 and 2013, the taxable income according to the tax law is calculated from the profit before income tax and profit sharing for these years, and is as follows:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Profit before income tax  79,530   616,135   946,600 
Workers’ profit sharing  (1,639)  49,175   61,690 
   77,891   665,310   1,008,290 
Additions:            
Fully depreciated assets  42,299   41,230   - 
Price adjustment of copper cathodes and concentrates  24,529   40,097   (18,408)
Non - deductible expenses  23,766   19,251   11,595 
Expenses qualifying as assets  23,037   4,936   11,569 
Adjustment of inventory in process and finished goods  9,414   (41,881)  (16,646)
Other additions, net  32,041   25,130   14,550 
             
Deductions:            
Deduction to due recalculation of depreciation at an annual rate of 20% and 5%  (141,014)  (1,204)  - 
Reversion of price adjustment of copper cathodes and concentrates  (40,097)  18,408   - 
Capitalized interests  (25,057)  (1,175)  6,000 
Special mining tax and mining royalties  (18,521)  (43,492)  (64,608)
Effect of stripping cost activation  (2,255)  11,881   (46,784)
Special mining burden  -   (19,781)  - 
   (71,858)  53,400   (102,732)
Sub-total  6,033   718,710   905,558 
Workers’ profit sharing (8%)  (483)  (57,497)  (72,445)
Taxable income  5,550   661,213   833,113 
Supplementary retirement fund  (28)  (3,290)  - 
Taxable income  5,522   657,923   833,113 
Income tax  (1,767)  (210,535)  (249,934)
Prior years income taxes  2,599   (9,919)  (13,654)
Total current income taxes charged to results, note 14(c) (does not include mining taxes and supplementary retirement fund)  832   (220,454)  (263,588)

 F-186

Notes to the financial statements (continued)

(c)As described in Note 2.2(l), 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 notCompany’s mineral exploitation activities are subject to the revised royalty and special mining tax until December 31, 2013, date on which the related tax stability expired. However, the Company electedenvironmental protection standards. In order to pay a special mining burden during the remaining term of its tax stability agreement. For the years ended December 31, 2015, 2014 and 2013, the Company recorded a tax provision of US$14,599,000, US$52,116,000 and US$63,178,000 respectively,related to mining taxes.

(d)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 and VAT for the years 2011 through 2015 are open to examination by the tax authorities. To date, SUNAT has concluded its review of the Company’s income tax and VAT exams through the year 2010, and the Company is in the claim and appeal process for the years 2002 through 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.

(e)SUNAT, the Peruvian tax authority, 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 and 2009. In July 2013, the Peruvian Tax Tribunal issued two decisions affirming assessments for the period December 2006 through December 2008. Decisions by the Tax Tribunal ended the administrative stage of the appeal procedures forcomply with these assessments.

In September 2013, the Company filed judiciary appeals 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. 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 Soles). In December 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 Soles). On January 29, 2016, the 6th Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. Cerro Verde will appeal the decision to the Supreme Court.

 F-187

Notes to the financial statements (continued)

On October 1, 2013, SUNAT served the Company a demand for payment totaling S/492 million (approximately US$144 million based on December 31, 2015 exchange rates, including interest and penalties of US$85 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, 2015, the Company has made payments totaling S/219 million (US$64 million based on December 31, 2015, exchange rates) under the installment program, which are presented in the long term portion of Other non- financial assets in the statement 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.

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, 2015, the amount of the assessment, including interest and penalties, for the year 2009 was S/247 million (approximately US$72 million based on December 31, 2015, exchange rates). As of December 31, 2015, the Company estimates that the total exposure associated with mining royalties for the period from December 2006 to December 2013, including accumulated interest and penalties amounted to approximately US$500 million at December 31, 2015 exchange rates.

As of December 31, 2015, no amounts were accrued 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.

(f)The Company has also received assessments from SUNAT for additional taxes (other than the mining royalty explained in (e) 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  16,037   52,800   68,837 
2006  6,545   47,662   54,207 
2007  12,376   17,809   30,185 
2008  20,797   12,968   33,765 
2009  56,198   47,719   103,917 
2010  65,997   89,404   155,401 
2014  5,512   -   5,512 
2015  3,753   -   3,753 
             
   187,215   268,362   455,577 

As of December 31, 2015, the Company has paid US$180,741,000, (included“Non-financial – long term” in the statement of financial position) on these disputed tax assessments, which it believes is collectible. No amounts have been accrued for these assessments.

 F-188

Notes to the financial statements (continued)

(g)As of December 31, 2015 and 2014,standards, the Company has issued letters of credit to secure tax obligations amounting to S/383,792,000 (equivalent to US$112,450,000) and S/556,446,000 (equivalent to US$186,165,000), respectively, of which S/369,281,000 and S/542,747,000 are related to mining royaltiesobtained the approval for the years 2015Environment Adequacy Program (PAMA) and 2014, respectively.

17.Sales of goods
(a)For the years ended December 31, 2015, 2014 and 2013, sales of goods are made up of the following:

  2015  2014  2013 
  Pounds
(000)		  US$(000)  Pounds
(000)		  US$(000)  Pounds
(000)		  US$(000) 
                         
Copper concentrates (b)  440,071   794,197   375,688   949,459   456,116   1,316,690 
Copper cathodes (b)  104,279   259,830   125,647   393,112   103,479   342,773 
Other (primarily silver and molybdenum concentrates)      65,343       130,038       152,025 
       1,119,370       1,472,609       1,811,488 
Less:                        
Contributions OEFA / OSINERGMIN (see note 2.2(i))      (3,753)      (5,512)      - 
                         
       1,115,617       1,467,097       1,811,488 

Sales to related parties amounted to US$894,656,000 for the year ended December 31, 2015 (US$1,135,042,000 and US$1,487,186 for the years ended December 31, 2014 and 2013, respectively), which are summarized in note 22(b).

(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, 2015 and 2014, the Company had embedded derivatives recorded in its statement of financial position (see note 24). 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 higher sales for US$7,935,000 in the year 2015 (lower sales for US$42,805,000 and higher sales for US$6,839,000 in the years 2014 and 2013, respectively).

 F-189

Notes to the financial statements (continued)

(c)The following table shows sales of goods by geographic region based for the years ended December 31, 2015, 2014 and 2013:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Asia  770,272   883,404   1,148,607 
South America (mainly Peru)  204,206   304,990   275,783 
North America  79,244   113,591   114,110 
Europe  65,648   170,624   272,988 
             
   1,119,370   1,472,609   1,811,488 
Less: Contributions to OEFA and OSINERGMIN  (3,753)  (5,512)  - 
             
   1,115,617   1,467,097   1,811,488 

(d)Concentration of sales –

For the year 2015, 80% of the Company’s sales were to related entities (Freeport-McMoRan Corporation, Sumitomo Metal Mining Company and Climax Molybdenum). For the years 2014 and 2013, 77% and 82% of the Company’s sales were to these related entities.

18.Cost of sales of goods
(a)For the years ended December 31, 2015, 2014 and 2013, cost of sales of goods is made up of the following:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Opening balance of finished goods (see note 8(a))  22,572   15,798   20,394 
Raw materials and supplies  364,234   333,521   324,925 
Depreciation and amortization  244,477   164,985   109,250 
Labor (b)  148,031   125,863   157,776 
Energy  118,019   91,802   73,907 
Third parties services  95,087   87,458   91,984 
Services provided by related parties  3,565   4,904   5,169 
Workers’ profit sharing  (1,636)  45,783   57,691 
Other costs  8,087   20,462   27,740 
Variance of inventories in process  (118,327)  (70,523)  (57,974)
Ending balance of finished goods (see note 8(a))  (22,105)  (22,572)  (15,798)
             
   862,004   797,481   795,064 

 F-190

Notes to the financial statements (continued)

(b)Includes US$1,636,000 of workers profit sharing creditEnvironmental Impact Studies (EIA), required for the year ended December 31, 2015 associated with income tax true-ups (workers’ profit sharing expenseoperation of US$45,783,000 for the year ended December 31, 2014).Cerro Verde’s production unit.

(c)In compliance with corporate policies, the Company recognizes administrative costs directly to cost of production (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 resulted in lower cost of sales of US$3.9 million and US$3.1 million for 2015 and 2014, respectively. The accounting and presentation effects related with the application of corporate policies do not generate significant distortion for the financial statements taken as a whole.

19.Selling expenses

For the years ended December 31, 2015, 2014 and 2013, selling expenses are made up of the following:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Concentrate’s freight  51,842   50,507   64,683 
Commissions  2,729   2,271   2,727 
Cathode’s freight  1,644   1,432   1,038 
             
   56,215   54,210   68,448 

20.Other operating expenses (income), net
(a)For the years ended December 31, 2015, 2014 and 2013, other operating expenses (income) are made up to the following:

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Other expenses            
Startup costs of new concentrate plant (b)  19,568   -   - 
Tax contingencies penalties  2,796   -   317 
Loss on sale / retirement / impairment of fixed assets  661   5,503   - 
Other expenses  3,714   370   77 
             
   26,739   5,873   394 
             
Other income  (139)  (2,244)  (541)
             
   26,600   3,629   (147)

(b)Corresponds to the start-up costs related to the new concentrator plant (See note 1(b)) in order to reach full production capacity, which is expected in early 2016.

 F-191

Notes to the financial statements (continued)

21.Commitments and contingencies

Commitments

(a)Environmental matters -

The Company’s 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. On October 5, 2009site, and presented it to the MEM issued Resolution No. 302-2009 MEM – AAA, approving the mine closure planMinistry of the Company.Energy and Mines.

 

On November 20, 2013 accordingThe closure plans for its mine site was approved by Resolution No 302-2009 MEM-AAM and its modifications were approved by Resolution No 207-2012 MEM-AAM, Resolution No 186-2014 MEM-DGAAM and its last modification, Resolution No 032-2018 MEM-DGAAM. As of December 31, 2018, pursuant to what is established by Law,legal requirements, the Company presentedhas issued a letter of credit to the Ministry of Energy and Mines an updatedtotaling US$42.7 million to secure mine closure plan, by means of whichplans.

F-213

Notes to the Company updated its mine closure budget.Financial Statements(continue)

 

The estimate of remediation and mine closingclosure 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:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  156,859   153,313   161,270 
Accretion expense  4,322   4,595   4,391 
Changes in estimates, Note 7  (32,017)  (3,710)  (16,091)
Additions, Note 7  2,724   2,661   3,743 
             
Final balance  131,888   156,859   153,313 

As of December 31, 2018, the Company’s provision for remediation and mine closure was US$131.9 million (reflecting the future value of the provision for remediation and mine closure of US$374.4 million, discounted using an annual risk-free rate of 2.99%). As of December 31, 2017, the Company’s provision for remediation and mine closure was US$156.9 million (reflecting the future value of the provision for remediation and mine closure of US$374.4 million, discounted using an annual risk-free rate of 2.73%). As of December 31, 2016, the Company’s provision for remediation and mine closure was US $153.3 million (reflecting the future value of the provision for remediation and mine closure of US $368.8 million, discounted using an annual risk-free rate of 2.97%) The Company believes thatconsiders this liability is sufficient to meet the current environmental protection laws approved by the Ministry of Energy and Mines. See note 13(b)Mines (MEM).

As of December 31, 2018, changes in estimates (US$32.0 million) are mainly due to changes in the escalation ratio.

 

(b)(c)ConstructionAs of December 31, 2018, represents the Waste Water Treatment Plantnon-current portion of net assets tax (ITAN) for the years 2010, 2011 and 2013 of US$19.6 million and interest and penalties of (i) disputed mining royalties for the period October 2011 through December 2013 of US$70.0 million, (ii) special mining tax for the year 2011 through the year 2013 of US$50.8 million, (iii) income tax related to disputed mining royalties for the year 2010 of US$41.1 million and (iv) ITAN for the years 2010, 2011 and 2013 of US$9.8 million.

During

As of December 31, 2017, represents the non-current portion of disputed mining royalties for the period January 2009 through September 2011 of US$113.8 million, ITAN for the Company completed the feasibility study for a major expansionyears 2010, 2011 and 2013 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 them to build a concentrator, a tailings dam 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.US$19.6 million.

 

(d)Primarily represents SUNAT assessments for prior years related to income and non-income tax contingencies in which the Company expects to obtain an unfavorable result of US$6.2 million as of December 31, 2018 (US$11.4 million as of December 31, 2017).

To carry out this investment

12.Shareholders’ equity, net

(a)Capital stock -

As of December 31, 2018, the authorized, subscribed and paid-up capital in its production unit, the Company agreedaccordance with the authorities of ArequipaCompany’s by-laws 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.related modifications was 350,056,012 common shares.

 

  F-192F-214 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

According to the 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 Company is responsible for the operation and maintenance costquoted price of the waste water treatment plant (the plant), the drive line to the plant and the effluent discharge line. The Company will perform the operation and maintenancethese shares was US$20.80 per share as of the plant until the earlier of:

(i)A new legal framework grant commercialization of the residual water treated or for the water treatment service by the companies that provide sanitation services, and both parties agrees on the amount to be paid by the Company to SEDAPAR;
(ii)Establishment of a fee payment, compensation or other right for the water re-use and/or water treatment under the satisfaction of both parties; or
(iii)Expiration of the agreement or its extensions.

In August 2013, the MinistryDecember 31, 2018 (US$29.70 per share as of Housing, Construction and Sanitation approved the environmental and social impact assessment of the waste water treatment plant.December 31, 2017).

 

As of December 31, 2015,2018, the constructionCompany’s capital stock structure is as follows:

Percentage of individual interest in capital Number of shareholders  Total percentage interest 
       
Up to 1.00  2,811   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 
         
   2,815   100.00 

(b)Other capital reserves -

Other capital reserves includes the Company’s legal reserve, which is in accordance with the Peruvian Companies Act, and is created through the transfer of 10% of the waste water treatment plant was completed with a total investment of S/1,300 million Soles (US$382 million based at December 31, 2015 exchange rate).

In addition to allowingearnings for the viabilityyear up to a maximum of 20% of the Company’s production unit expansion project,paid-in capital. The legal reserve must be used to compensate for losses in the waste water treatment plant willabsence 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 benefitbe used to increase capital stock but the population of Arequipa as it will help to decontaminate the waters of the Rio Chili, and improve the quality of the agricultural products and the environment in general. The waste water treatment plant is expected to start full operations in early 2016.balance must be restored from future earnings.

 

(c)Letter of guarantees –Dividend Distribution -

During years 2015 and 2014,

Dividends paid to shareholders, other than domiciled legal entities, are subject to retention of income tax. On December 10, 2016, Legislative Decree 1261 was enacted reducing the Company signed letters of guarantee with Banco de Credito de Peru, Scotiabank and BBVA Banco Continental as follows:withholding tax rate to 5.0% beginning January 1, 2017.

 

  2015  2014 
  US$(000)  US$(000) 
       
Tax obligations, note 16(g)  112,450   186,165 
Mine closure, note 13(b)  21,539   14,851 
Third party obligations  23,564   20,914 
Custom taxes  12,575   9,691 
         
   170,128   231,621 

At the annual mandatory shareholders meeting held on March 23, 2018, it was approved to make a US$200 million dividend payment (US$0.571337 per common share). The total amount of these dividends was applied against retained earnings. This dividend was paid on April 24, 2018, and complied with the withholding tax rules (4.1%).

 

  F-193F-215 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

22.13.Transactions with related partiesTax situation

 

(a)During this year,On February 13, 1998, the Company received from Minera Freeport McMoran South America Ltda. consultingsigned an Agreement of Guarantees and professional services relatedMeasures to finance, logistics, legal, environmental, corporate affairs , ITPromote 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, administrative and human resources, which are madeexchange regulations in Chile. Asforce at May 6, 1996, for a period of 15 years, beginning January 1, 1999, and ending December 31, 2015, the amount incurred by the Company for these services was US$3,000,462, which has been recognized in the statement of comprehensive income (US$4,489,000 as of December 31, 2014 and US$5,169,000 as of December 31, 2013).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, administrative and exchange regulations in force at July 17, 2012, for a period of 15 years, beginning January 1, 2014, and ending December 31, 2028.

 

(b)DuringUnder its current 15-year tax stability agreement, the years endedPeruvian income tax rate applicable to the Company is 32%. As of December 31, 2015, 2014 and 2013,2018, prepayments of income tax, which the Company recognized the following sales of goodsexpects to related parties:be used to offset future income tax provisions or will be refunded by SUNAT, totaled US$43.7 million (see Note 6).

 

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
Sales of goods to related parties            
Parent Company:            
FMC (c)  513,862   560,211   775,775 
             
Other related parties:            
Sumitomo Metal Mining Company, Ltd. (d)  344,334   475,609   598,023 
Climax Molybdenum Marketing Corporation (e)  36,460   99,222   113,388 
             
Total revenues  894,656   1,135,042   1,487,186 

For the year ended December 31, 2018, the Company recognized current income tax expense of US$263.0 million (including US$34.9 million of mining royalties and US$1.5 million for the SRF partially offset by a credit of US$(28.2) million of special mining tax), and a deferred income tax expense of US$62.2 million, resulting in total income tax expense of US$325.2 million that has been included in the statements of comprehensive income.

For the year ended December 31, 2017, the Company recognized current income tax expense of US$655.1 million (including US$102.6 million of special mining tax, US$110.7 million of mining royalties and US$10.9 million for the SRF), and a deferred income tax credit of US$(169.1) million, resulting in total income tax expense of US$486.0 million that has been included in the statements of comprehensive.

For the year ended December 31, 2016, the Company recognized current income tax expense of US$181.1 million (including US$14.9 million of special mining tax, US$22.9 million of mining royalties and US$2.2 million for the SRF), and a deferred income tax expense of US$82.0 million, resulting in total income tax expense of US$263.1 million that has been included in the statements of comprehensive income.

 

(c)On October 15, 2006,SUNAT has the right to examine, and if necessary, amend the Company’s income tax return for the last four years. The Company’s income tax for the years 2012 through 2017 and VAT from December 2013 through December 2018 are open to examination by the tax authorities. To date, SUNAT has concluded its review of the Company’s income tax and VAT exams through the year 2011, and the Company signed a long-term contract with FMCis in the claim and/or appeal process for the years 2003 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 2015, the sales of concentrate copper to FMC amounted to US$394,349,000 (US$445,756,000 in 2014 and US$687,655,000 in 2013).

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 2015, sales of copper cathodes to FMC amounted to US$119,513,000 (US$114,455,000 in 2014 and US$88,120,000 in 2013).

(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.

(e)In November, 2014, the Company renewed 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).2011.

 

  F-194F-216 

 

 

Notes to the Financial Statements(continue)

Due 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 more likely than not 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 material to the financial statements (continued)statements.

 

(f)(d)Short-termRoyalties and long-term employee benefits are recognized as expenses during the period earned. Benefits received by key management personnel represent 1.76% of total revenues for 2015 (0.66% and 1.37% of total revenues for 2014 and 2013, respectively). As of December 31, 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 as of December 31, 2015 and 2014. The Company does not have other long-term benefits.special mining taxes –

 

(g)As a result of transactions with related parties, the Company had accounts receivable and also has the following payables as of December 31, 2015 and 2014:

On June 23, 2004, Law 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, the Company determined that these royalties were not applicable because it operated under the 1998 Stability Agreement with the Peruvian government. However, beginning January 1, 2014, the Company began paying royalties calculated on operating income with rates between 1% to 12% and a new special mining tax for its entire production base under its current 15-year stability agreement, which became effective January 1, 2014. 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, 2018, 2017 and 2016.

 

  2015  2014 
  US$(000)  US$(000) 
       
Accounts receivable from related parties        
Parent Company:        
FMC  180,024   78,638 
         
Other related parties:        
Sumitomo Metal Mining Company, Ltd.  19,344   107,464 
Climax Molybdenum Marketing Corporation  -   1,838 
   199,368   187,940 
Accounts payable to related parties        
Parent Company:        
FMC  14,435   14,694 
         
Other related parties:        
Freeport - McMoRan Sales Company  1,684   1,052 
Climax Molybdenum Marketing Corporation  1,064   - 
Minera Freeport McMoran South America Ltda.  901   1,765 
Sociedad Contractual Minera El Abra  535   10 
Freeport Cobalt OY  141    - 
Freeport McMoRan  South America S.A.C.  132   32 
Accounts payable to related parties  18,892   17,553 
Less: Long-Term Accounts payable to related parties  (6,850)  (5,643)
Short-Term Accounts payable to related parties  12,042   11,910 

SUNAT 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 2013. The Company contested each of these assessments because it believes that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concession, irrespective of the method used for processing such minerals. No assessments can be issued for years after 2013, as the Company began paying royalties on all of its production in January 2014 under its new 15-year stability agreement.

Terms and transaction with related parties - 

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 providedSince 2014, based on the Tax Tribunal’s decisions for any accounts receivable or payablethe period December 2006 to related parties.December 2008, the Company is paying the disputed assessments under an installment program equivalent to 66 equal monthly payments. As of December 31,2015 and 2014, 2018, the Company had not recorded any impairmenthas made payments totaling S/596.8 million (US$187.7 million based on the date of accounts receivable frompayment exchange rate and US$176.6 million based on the December 31, 2018, exchange rate).

With respect to the judiciary appeal related parties.to disputed royalty assessments for the year 2006-2007, on August 9, 2017, the Company filed a cassation appeal before the Supreme Court against the resolution issued by the Seventh Contentious Administrative Court, which was admitted in December 2017. The oral hearing before the Supreme Court took place on November 20, 2018 and their decision is pending.

 

  F-195F-217 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

23.Earnings per share

BasicIn September 2018, the Peruvian Tax Tribunal confirmed SUNAT’s resolution that ordered the payment of royalties and diluted earnings per share are computed by dividing net earningsdenied the Company’s request to waive penalties and interest for the period byJanuary 2009 through September 2011. In December 2018, the weighted average numberCompany elected not to appeal the Tax Tribunal’s decision to the Peruvian Judiciary and is assessing alternative mechanisms to defend its rights.

In October 2018, SUNAT served the Company demands for payments totaling S/928.9 million (approximately US$274.9 million based on the December 31, 2018, exchange rate, including interest and penalties of shares outstanding duringUS$165.7 million) based on the Tax Tribunal’s decisions for the period January 2009 to September 2011. The Company requested, and was granted two installment payment programs, including a six-month deferral and66 equal monthly payments for each one, for the period January 2009 through September 2011. Total debt as of December 31, 2018 is S/947.2 million(approximately US$280.3 million based on the December 31, 2018, exchange rate, including deferral interest. interest and penalties of US$171.1 million).Payments for these installment programs will start in the second quarter of 2019.

On January 18, 2018, the Company received assessments from SUNAT related to mining royalties for the fourth quarter of 2011. On February 15, 2018, the Company appealed these assessments and SUNAT denied it. On November 21, 2018, the Company appealed SUNAT’s resolution to the Tax Court. As of December 31, 2018, the amount of the assessments from SUNAT, including interest and penalties, for the fourth quarter of 2011 is S/53.7 million (approximately US$15.9 million based on the December 31, 2018, exchange rate, including interest and penalties of US$8.7 million). Also on January 18, 2018, the Company received assessments from SUNAT related to special mining tax from the fourth quarter of 2011 to the fourth quarter of 2012. On February 15, 2018, the Company appealed these assessments and SUNAT denied it. On November 21, 2018, the Company appealed the SUNAT’s resolution to the Tax Court. As of December 31, 2018, the amount of the assessments from SUNAT, including interest and penalties, is S/234.0 million (approximately US$69.3 million based on the December 31, 2018, exchange rate, including interest and penalties of US$33.3 million).

On April 18, 2018, the Company received assessments from SUNAT related to mining royalties for the year as follows:2012. On May 17, 2018, the Company appealed these assessments. On January 23, 2019, the Company received a resolution issued by SUNAT denying the appeal of assessments for year 2012. As of December 31, 2018, the amount of the assessments from SUNAT, including interest and penalties, for the year 2012 is S/240.9 million (approximately US$71.3 million based on the December 31, 2018, exchange rate, including interest and penalties of US$37.4 million).

 

  2015  2014  2013 
          
Net profit for the year US$33,284,000  US$377,606,000  US$613,262,000 
Weighted average number of shares outstanding  350,056,012   350,056,012   350,056,012 
Basic and diluted earnings per share US$0.10  US$1.08  US$1.75 

On October 10, 2018, the Company received assessments from SUNAT related to mining royalties and special mining tax for the year 2013. On November 7, 2018, the Company appealed these assessments. As of December 31, 2018, the amount of these assessments, including interests and penalties, is S/303.8 million (approximately US$89.9 million based on the December 31, 2018, exchange rate including interest and penalties of US$41.4 million).

 

  F-196F-218 

 

 

Notes to the financialFinancial Statements(continue)

For the year ended December 31, 2018, the Company recorded charges related to penalties and interests associated with disputed royalty assessments for the period from January 2009 through December 2013 totaling US$408.9 million in the statements (continued)of comprehensive income. For the year ended December 31, 2017, the Company recorded net charges totaling US$393 million in the statements of comprehensive income, associated with disputed mining royalties assessments for the period from December 2006 through December 2013.

In December 2017, as a result of the unfavorable Supreme Court decision on the 2008 royalty matter, the Company requested the return of the amounts that would have been paid in excess for the Special Mining Burden (GEM) (October 2012 to December 2013), FONAVI (National Housing Fund) (December 2012 to December 2013) and customs duties (2013). In December 2018, SUNAT refunded the payments in excess for GEM for the periods requested of S/254.7 million (US$76.1 million based on the date of collection and including interest of US$18.6 million).

 

24.(e)Embedded derivativeOther assessments received from SUNAT

As is indicated

The Company has also received assessments from SUNAT for additional taxes (other than the mining royalty and special mining tax explained in Note 2.2 (b)13(d) above), the exposureincluding penalties and interest. The Company has filed or will file objections to the riskassessments because it believes it has properly determined and paid its taxes. A summary of changes in the market prices of copper and molybdenum is considered as an embedded derivative and it is related to the commercial contracts. these assessments follows:

Year Taxes  Penalty and interest  Total 
  US$(000)  US$(000)  US$(000) 
          
2003 – 2005  12,220   46,710   58,930 
2006  10,990   51,938   62,928 
2007  12,376   17,845   30,221 
2008  20,797   12,968   33,765 
2009  56,388   51,219   107,607 
2010  62,581   105,225   167,806 
2011  49,055   65,068   114,123 
2014 –2018  32,148   -   32,148 
             
   256,555   350,973   607,528 

As of December 31, 2015 and 2014, provisional prices2018, the Company has paid US$385.7 million of which US$183.2 million is included in “other non-financial assets, non-current” (see Note 6) in the estimated future prices (in copper and molybdenum pounds) and their final maturity periods were as follows:statements of financial position for these disputed tax assessments. The Company believes this amount is recoverable.

 

     As of December 31, 2015
  Pounds payable (000)  Maturity Provisional
pricing		 Forward
pricing		 Fair
value		 
       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)
Cathode  3,970  January 2016 2.08 2.14  233 
Molybdenum  1,425  January 2016 to February 2016 Between 3.435 and 3.635 3.950  616 
               
             (18,847)

     As of December 31, 2014
  Pounds payable (000)  Maturity Provisional
pricing		 Forward
pricing		 Fair
value		 
       US$ US$ US$(000) 
             
Copper:              
Concentrate  137,906  January 2015 to 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)

The final pricing estimated by the Company as of December 31, 2015 and 2014 was based on LME information.

(f)As of December 31, 2018 and 2017, the Company has issued letters of credit to secure tax obligations amounting to S/1,137.4 million (equivalent to US$336.6 million) and S/280.8 million (equivalent to US$86.5 million), respectively, of which S/1,122.9 million (equivalent to US$332.3 million), S/266.3 million (equivalent to US$82.1 million) are related to mining royalties for the years ended December 31, 2018 and 2017, respectively.

 

  F-197F-219 

 

 

Notes to the Financial Statements(continue)

(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, 2018  December 31, 2017  December 31, 2016 
  US$(000)  US$(000)  US$(000) 
Income tax            
Asset            
Royalty accrual  109,505   127,475   - 
Provision for remediation and mine closure  15,131   12,083   9,180 
Price adjustment of copper concentrate and cathode  6,050   -   - 
Unpaid vacations  5,937   5,293   4,055 
Provision for mining taxes  4,120   8,742   4,003 
SUNAT Assessments  4,055   4,077   - 
Cost of net asset for the construction of the tailing dam  2,638   2,007   2,321 
Development costs  122   183   228 
Other provisions  10,450   4,240   5,248 
   158,008   164,100   25,035 
Liability            
Difference in depreciation method  337,642   261,434   283,882 
Stripping activity asset  27,464   22,014   23,594 
Difference in valuation of inventories  16,605   16,264   25,087 
Debt issuance costs  1,894   2,663   - 
Price adjustment of copper concentrate and cathode  -   25,840   24,128 
   383,605   328,215   356,691 
Deferred liabilities, net  225,597   164,115   331,656 
Supplementary retirement fund            
Deferred liability  2,651   1,890   3,458 
             
Total deferred income tax liability, net  228,248   166,005   335,114 

F-220

Notes to the Financial Statements(continue)

Reconciliation of the income tax rate -

For the years ended December 31, 2018, 2017 and 2016, 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:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Profit before income tax  444,880   835,924   603,989 
Income tax rate  32%  32%  32%
Expected income tax expense  142,362   267,496   193,276 
Non - deductible expenses  25,352   25,217   27,788 
Royalty case  143,728   (12,029)  - 
Special mining tax and mining royalties  (25,165)  (21,704)  (12,084)
Special mining burden (GEM)  (22,334)  -   - 
Income tax rate change effect on deferred taxes for change in Peruvian tax law once the current Stability Contract expires (from 32% to 31.18%)  (1,958)  (1,632)  13,850 
Income tax true – ups  (10,312)  10,210   1,677 
Others  4,896   (4,125)  (1,913)
Current and deferred income tax charges to results  256,569   263,433   222,594 
Mining taxes charged to results  65,055   213,280   37,763 
Supplementary retirement fund charged to results  3,546   9,330   2,725 
             
   325,170   486,043   263,082 
             
Effective income tax  73.09%  58.14%  43.56%

F-221

Notes to the Financial Statements(continue)

Income tax -

The income tax expense (benefit) for the years ended December 31, 2018, 2017 and 2016is shown below:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Income tax            
Current  254,767   430,974   141,153 
Deferred  61,483   (167,541)  81,441 
   316,250   263,433   222,594 
Mining taxes            
Current mining royalty and special mining tax  6,661   213,280   37,763 
             
Supplementary retirement fund            
Current  1,499   10,897   2,205 
Deferred  760   (1,567)  520 
   2,259   9,330   2,725 
             
Income tax expense reported in the statements of comprehensive income  325,170   486,043   263,082 

(h)The main tax regulations issued during 2018 are as follows:

(i)Modified, effective January 1, 2019, the treatment applicable to the royalties and fees for services provided by non-domiciled recipients, eliminating the obligation to pay an amount equivalent to the withholding when the costs or expenses are booked, and must now withhold the corresponding income tax at the time of their payment or retribution accreditation (Legislative Decree N ° 1369).

(ii)Established rules governing the obligation of legal persons and/or legal entities to report the identification of their final beneficiaries (Legislative Decree N ° 1372). These rules are applicable to legal persons domiciled in the country, pursuant to article 7 of the Income Tax Law, and to legal entities in the country. The obligation is applicable for non-domiciled legal entities and legal entities constituted abroad while: a) have a branch, agency or another permanent establishment in the country; b) the person (natural or legal entity) who manage the autonomous patrimony or foreign investment funds, or the natural or legal person who has quality of guard or administrator, is domiciled in the country; and, c) any part of a consortium is domiciled in the country. This obligation will be fulfilled by submitting sworn statements to the tax authority, which should contain the final beneficiary information and be submitted, in compliance with the regulations and in the deadlines established through a resolution of the Superintendence of Peruvian Tax Administration.

(iii)Changed the tax code in the implementation of the General Anti-Avoidance Rule (GAAR) (Rule XVI of the preliminary title of the Tax Code); as well as provided the tax authority with tools for its implementation (Legislative Decree N ° 1422).

The GAAR is intended to prevent taxpayers from entering into transactions that would allow them to minimize their tax liabilities. The tax authority will be entitled to apply GAAR in ordinary audits to assess taxes since July 19, 2012. The tax authority, however, will have to obtain approval from a committee before applying GAAR.

F-222

Notes to the Financial Statements(continue)

Other rules regarding GAAR are:

-Jointly Liability of Legal Representatives - Bear in mind that legal representatives will be jointly liable for the tax debt as a result of GAAR application by the tax authority.

-Tax Planning approval by the Board of Directors - Up to March 29, 2019 board of directors should approve (ratify or modify) all the tax planning of their entities since July 19, 2012. Its members will be liable for tax assessments as a result of the application of GAAR.

14.Sales of goods

(a)This item is made up as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended December
31, 2016		 
  Pounds
(000)		  US$(000)  Pounds
(000)		  US$(000)  Pounds
(000)		  US$(000) 
                   
Copper in concentrate  962,113   2,458,088   979,243   2,702,508   995,386   1,967,052 
Copper cathode  86,346   251,908   84,679   241,725   109,128   247,431 
Other (primarily silver and molybdenum concentrate)      351,934       267,033       176,357 
Subtotal Sales      3,061,930       3,211,266       2,390,840 
Less: Royalty contributions (see Note 2(k))      (7,904)      (8,335)      (6,686)
                         
Total net sales      3,054,026       3,202,931       2,384,154 

Sales to related parties totaled US$2.9 billion for the year ended December 31, 2018 (US$3.0 billion for the year ended December 31, 2017 and US$2.3 billion for the year ended December 31, 2016).

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 decrease to net sales of goods totaling US$88.8 million for the year ended December 31, 2018, an increase of US$1.3 million for the year ended December 31, 2017 and US$86.3 billion for the year ended December 31, 2016.

F-223

Notes to the Financial Statements(continue)

(b)The following table shows net sales by geographic region based on the final destination port:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$(000)  US$(000)  US$(000) 
          
Asia  2,404,530   2,416,826   1,865,346 
North America  295,448   287,174   213,002 
Europe  209,894   314,092   161,844 
South America (primarily Peru)  136,400   193,174   150,648 
Central America  15,658   -   - 
   3,061,930   3,211,266   2,390,840 
Less: Royalty contributions (see Note 2(k))  (7,904)  (8,335)  (6,686)
             
Total net sales  3,054,026   3,202,931   2,384,154 

(c)Concentration of sales -

For the years ended December 31, 2018 and 2017 94% of the Company’s sales were to related entities (FMC, Sumitomo Metal Mining Company and Climax Molybdenum). For the year ended December 31, 2016 the 95% of the Company's sales were to these related entities, respectively.

15.Cost of sales

This item is made up as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$(000)  US$(000)  US$(000) 
          
Materials and supplies  693,316   556,022   496,918 
Depreciation and amortization  512,298   456,467   472,997 
Labor (a)  357,692   286,058   215,839 
Energy  254,243   229,272   229,035 
Third parties services  159,514   144,829   100,897 
Management Fees  2,743   2,867   2,793 
Change in work in process inventory  (8,513)  51,412   (3,789)
Change in finished goods inventory  (5,723)  2,060   (3,951)
Other costs  45,402   39,251   42,301 
             
   2,010,972   1,768,238   1,553,040 

F-224

Notes to the Financial Statements(continue)

(a)Labor includes an expense of US$60.2 million related to profit sharing for the year ended December 31, 2018 (US$86.4 million for the year ended December 31, 2017 and US$36.8 million for the year ended December 31, 2016). Additionally, it includes an expense of US$69.0 million related to the Union Agreement bonus payment obtained by workers as part of the new collective labor agreement, which is effective from September 1, 2018, through August 31, 2021.

In compliance with corporate policies, the Company recognizes administrative costs directly to cost of production (approximately U$30.7 million for the year ended December 31, 2018, US$34.4 million for the year ended December 31, 2017 and US$23.4 million for the year ended December 31, 2016). The effect of this policy is immaterial to the financial statements (continued)as a whole.

 

25.16.Selling Expenses

This item is made up of as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$(000)  US$(000)  US$(000) 
          
Concentrate freight  126,670   131,528   122,431 
Commissions  6,048   6,029   5,989 
Cathode freight  1,831   1,665   2,148 
Other  2,459   2,447   823 
             
   137,008   141,669   131,391 

17.Other operating expenses

This item is made up as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$(000)  US$(000)  US$(000) 
          
Royalties, ITAN and penalties (a)  55,088   243,798   - 
Other expenses  13,595   15,028   24,107 
             
   68,683   258,826   24,107 

(a)For the year ended December 31, 2018, mainly represents penalties for income tax related to disputed mining royalties for the year 2006 through the year 2011 of US$33.8 million, penalties on disputed mining royalties for the period January 2009 through December 2013 of US$17.7 million and profit sharing adjustments related to GEM refund of US$3.6 million.

F-225

Notes to the Financial Statements(continue)

For the year ended December 31, 2017, represents disputed royalties for the period December 2006 through September 2011 of US$174.8 million, ITAN for the years 2009 to 2013 of US$33.6 million, profit sharing adjustments related to mining royalties of US$29.2 million and penalties on disputed royalties for the period December 2006 through the year 2008 of US$6.2 million. Disputed royalties and special mining taxes for the period October 2011 through the year 2013 were recognized in “income tax expense” in the statements of comprehensive income.

18.Financial expenses

This item is made up as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$(000)  US$(000)  US$(000) 
          
Interest on mining royalties (a)  370,159   144,815   - 
Interest on senior unsecured credit facility (Note 10(a))  49,551   44,678   51,155 
Other financial expenses  6,492   10,934   1,880 
Amortization debt issuance cost  2,419   4,479   8,901 
Extinguishment debt - debt issuance cost  1,902   6,266   - 
Interest on shareholder loans  -   7,992   19,836 
Capitalized Interest  (3,790)  (2,252)  (1,334)
             
   426,733   216,912   80,438 

(a)For the year ended December 31, 2018, represents interest and interest on penalties associated to (i) disputed mining royalties for the year 2009 through the year 2013 of US$218.7 million, (ii) income tax related to disputed mining royalties for the year 2006 through the year 2011 of US$75.7 million, (iii) SMT for the year 2011 through the year 2013 of US$51.0 million and (iv) ITAN for the years 2009, 2010, 2011 and 2013 of US$12.1 million, interest paid on the royalty installment payment program for the year 2006 through the year 2008 of US$6.1 million, deferral interest related to the new royalty installment payment programs for the period January 2009 through the period September 2011 of US$5.3 million and interest of amended tax return for the year 2013 for GEM refund of US$1.3 million.

For the year ended December 31, 2017, represents financial expenses related to interest on royalties, interest paid on the royalty installment payment program and interest on royalty penalties for the period December 2006 through the year 2008 of US$141.7 million and interest on ITAN 2012 of US$3.1 million.

F-226

Notes to the Financial Statements(continue)

19.Financial Income

This item is made up as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$(000)  US$(000)  US$(000) 
          
Special Mining Burden (GEM) (a)  18,574   -   - 
Other financial income  9,515   5,350   954 
             
   28,089   5,350   954 

(a)Represents interest related to the GEM refund from the period October 2012 through December 2013 of US$18.6 million (see note 13(d)).

20.Earnings per share

Basic and diluted earnings per share are calculated by dividing earnings by the weighted-average number of outstanding shares during the period. Basic and diluted earnings per common share have been determined as follows:

  For the year ended
December 31, 2018		  For the year ended
December 31, 2017		  For the year ended
December 31, 2016		 
  US$  US$  US$ 
          
Profit for the period (US$)  119,710,000   349,881,000   340,907,000 
Weighted average number of share outstanding (Note 12(a))  350,056,012   350,056,012   350,056,012 
Basic and diluted earnings per share (US$)  0.342   1.000   0.974 

21.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.

 

F-227

Notes to the Financial Statements(continue)

(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 three 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. See note 24.pricing (see Note 22).

 

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 2018 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 2015 positive scenario uses10% increase is based on copper prices betweenranging from US$/pound 2.347 to US$/ pound 2.351 (US$/pound 3.1402.974 to US$/pound 3.170 in the year 2014 and US$2.979 (US$/pound 3.6603.602 to US$/pound 3.680 in3.627 for the year 2013); whereas2017), and the negative scenario uses10% decrease is based on copper prices betweenranging from US$/pound 1.9202.433 to US$/pound 1.9242.437 (US$/pound 2.5702.947 to 2.590 inUS$/pound 2.967 for the year 2014 and US$/pound 2.990 to US$3.010 in the year 2013)2017).

 F-198

Notes to the financial statements (continued)

 

  Effect on profit before
income tax		 
  US$(000) 
    
December 31, 20152018    
Increase10% increase in future copper international quoteprices  48,18772,847 
Decrease10% decrease in future copper international quoteprices  (48,18772,847)

Effect on profit before
income tax
 US$(000)
    
December 31, 20142017    
Increase10% increase in future copper international quoteprices  40,62283,955 
Decrease10% decrease in future copper international quoteprices  (40,62283,955)

Effect on profit before
income tax
 US$(000)
    
December 31, 20132016    
Increase10% increase in future copper international quoteprices  63,22588,508 
Decrease10% decrease in future copper international quoteprices  (63,22588,508)

 

F-228

Notes to the Financial Statements(continue)

Exchange rate risk -

As described in note 2.2(a)Note 2(c), the Company’s financial statements are presented in US dollars, which is the functional and presentation currency of the Company. The CompanyCompany’s exchange-rate risk arises mainly frombalances related to tax payments, deposits taxes, salaries and other accounts payable in currencies other than the US dollar, mainly Soles.

For the year ended December 31, 2015, theprincipally soles. The Company recorded net foreign exchange losses totaling US$76 million composedmitigates its exposure to exchange-rate risk by a losscarrying out almost all of US$84 million associated with income tax, VAT creditsits transactions in its functional currency and payments relatedmanagement maintains only small amounts in soles to the Company’s royalty installment program, which is offset by income of US$8 million from exchange difference derived from other itemscover its immediate needs (i.e., taxes and compensation) in the statement of financial position (net income of US$2.3 million in 2014 and net loss of US$ 1.9 million in 2013).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 and its partners if it is requiredshareholders to meet its contractual obligations.

 

  F-199F-229 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

 

The following tables show the liabilities, excluding taxes and accruals with the expected aging of maturity of the Company’s obligations, excluding taxes and accruals, as of December 31, 20152018 and 2014:2017:

 

 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, 2015                    
As of December 31, 2018                    
Trade accounts payable  -   432,418   -   -   432,418   -   231,080   56   -   231,136 
Accounts payable to related parties  -   12,042   -   6,850   18,892 
Accounts payable - related parties  -   6,014   -   8,860   14,874 
Other financial liabilities  -   -   43,169   2,381,995   2,425,164   -   -   -   1,022,810   1,022,810 
Provision related to benefits to employees  -   14,572   5,964   -   20,536   -   24,300   18,269   32,509   75,078 
Other accounts payable  -   2,112   -   -   2,112   -   7,472   93,782   215,070   316,324 
                    
Total  -   461,144   49,133   2,388,845   2,899,122   -   268,866   112,107   1,279,249   1,660,222 
                    
As of December 31, 2014                    
As of December 31, 2017                    
Trade accounts payable  -   398,070   -   -   398,070   -   194,890   68   -   194,958 
Accounts payable to related parties  -   11,910   -   5,643   17,553 
Accounts payable - related parties  -   5,534   -   8,147   13,681 
Other financial liabilities  -   -   50,163   402,686   452,849   -   -   -   1,268,488   1,268,488 
Provision related to benefits to employees  -   9,706   34,706   -   44,412   -   64,339   16,406   29,158   109,903 
Other accounts payable  -   2,779   -   -   2,779   -   3,374   36,808   33,424   73,606 
                    
Total  -   422,465   84,869   408,329   915,663   -   268,137   53,282   1,339,217   1,660,636 

 

  F-200F-230 

 

 

Notes to the financial statements (continued)Financial Statements(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, 2015, 20142018.

22.Embedded derivatives

As discussed in Note 2(d), the Company’s sales create exposure to changes in the market prices of copper and 2013.molybdenum which are considered embedded derivatives. As of December 31, 2018 and 2017, information about the Company’s embedded derivatives is as follows:

       As of December 31, 2018 
  Pounds
payable		  Maturity Provisional pricing Forward pricing  Fair value provision 
  (000)    US$/Pound US$/Pound  US$(000) 
              
Copper Concentrate  261,530  January 2019 to May 2019 Between 2.675 and 2.834  Between 2.704 and 2.708   (18,848)
Copper Cathode  7,711  January 2019 2.810  2.704   (824)
Molybdenum  3,545  January 2019 to February 2019 Between 10.787 and 10.810  10.675   (441)
                 
               (20,113)(a)

  F-201F-231 

 

 

Notes to the financial statements (continued)Financial Statements(continue)

       As of December 31, 2017 
  Pounds
payable		  Maturity Provisional pricing Forward pricing  Fair value provision 
  (000)    US$/Pound US$/Pound  US$(000) 
              
Copper Concentrate  252,830  January 2018 to May 2018 Between 2.903 and 3.166  Between 3.274 and 3.297   62,870 
Copper Cathode  2,756  January 2018 Between 2.970 and 3.246  3.274   179 
Molybdenum  3,340  January 2018 to February 2018 Between 7.229 and 7.231  8.950   5,687 
                 
               68,736(a)

 

26.(a)Embedded derivative adjustments are recorded on the statement of financial position in “Trade account receivable – related parties” (US$(19.3) million as of December 31, 2018 and US$65.6 million as of December 31, 2017) and “Trade accounts receivable (net)” (US$(0.8) million as of December 31, 2018 and US$3.1 million as of December 31, 2017).

23.Hierarchy and fair value of financial instruments

Hierarchy:

As of December 31,20152018 and 2014,2017,the only financial assetassets carried at fair value is theare embedded derivative, derivatives, included in trade accounts receivable and related parties,which isare generated by the sale of copper and molybdenum and measured at fair value based on coppercommodity prices. The net value of this embedded derivative as of December 31, 20152018, was a liability of US$18,847,000 (liability20.1million(asset of US$26,782,000 68.7 millionas of December 31, 2014)2017). This embedded derivative isEmbedded derivatives are 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.

 

Financial instruments at fixed and variable rates –-

Financial assets and liabilities with fixed or variableratesvariable rates 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.

 

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Notes to the Financial Statements(continue)

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, 20152018 and 2014.2017.

27.Mineral reserves (unaudited)

As of December 31, 2015 and 2014, the Company’s proven and probable copper mineral reserves were:

  MT (000)  Grade (percent) 
  2015  2014  2015  2014 
             
Mineral for leaching  152,566   168,380   0.35   0.37 
Mineral for milling  3,703,373   3,784,854   0.38   0.38 

Copper production in thousands of recoverable pounds for the years ended December 31, 2015 and 2014 was as follows:

  2015  2014 
       
Cathodes  105,077   124,804 
Concentrates  439,405   375,438 

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Notes to the financial statements (continued)

Average LME price per metric ton of copper for the years ended December 31, 2015 and 2014, was as follows:

  2015  2014 
  US$/MT  US$/MT 
       
Copper  5,490   6,860 

 

28.24.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 29note 25 and are principally related to the items discussed in the following paragraphs:

 

(a)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.

 

(b)Inventories

Under IFRS, the cost inventory includes: (i) the depreciation and amortization expense, (ii) the amortization of production-stripping costs and (iii) workers´ profit participation. the inventories are determined using the weighted average method.

Under U.S. GAAP, the cost inventory excludes these items.the amortization of production-stripping cost and the inventories are determined using the LIFO method.

 

(c)Deferred workers’ profit participationsharing

Under IFRS, the workers’ profit participationsharing 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 U.S.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 participationsharing resulting from the taxable and deductible temporary differences.

 

(d)Deferred income tax –

The differences between U.S.US GAAP and IFRS are re-measurements that lead to different temporary differences. According to the accounting policies in Note 2.22 (l), the Company has to account for such differences.

 

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Notes to the Financial Statements(continue)

29.25.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, 2015, 20142018, 2017 and 20132016 and to shareholders' equity as of December 31, 2015, 20142018, 2017 and 20132016 that would be required if U.S. GAAP had been applied instead of IFRS in the financial statements:

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Net profit under IFRS  119,710   349,881   340,907 
             
Items increasing (decreasing) reported net profit:            
Stripping activity asset, net of amortization  (64,452)  (77,361)  36,252 
Inventories valuation  (29,515)  (28,804)  (19,242)
Asset retirement obligation  1,351   862   1,422 
Deferred workers´ profit sharing  (7,079)  32,349   (19,007)
Deferred income tax  33,291   24,529   5,013 
Other  (26)  (25)  116 
             
Net income under U.S. GAAP  53,280   301,431   345,461 

  2018  2017  2016 
  US$(000)  US$(000)  US$(000) 
          
Shareholders’ equity under IFRS  5,108,872   5,189,162   4,839,281 
Items increasing (decreasing) reported shareholder’s equity:            
Stripping activity asset, net of amortization  (204,887)  (140,435)  (63,074)
Inventories valuation  (108,259)  (78,744)  (49,940)
Asset retirement obligation  1,773   422   (440)
Deferred workers´ profit sharing  (1,863)  5,216   (27,133)
Deferred income tax  101,548   68,257   43,728 
Other  (334)  (308)  (283)
             
Shareholders’ equity under U.S. GAAP  4,896,850   5,043,570   4,742,139 

 

  F-203F-234 

 

 

Notes to the financial statements (continued) Financial Statements(continue)

  2015  2014  2013 
  US$(000)  US$(000)  US$(000) 
          
Net profit under IFRS  33,284   377,606   613,262 
             
Items increasing (decreasing) reported net profit:            
Stripping activity asset, net of amortization  (45,168)  (4,221)  (49,937)
Inventories valuation  12,573   (57,744)  25,517 
Asset retirement obligation  (428)  (654)  (41)
Deferred workers´ profit participation  (6,225)  13,512   2,055 
Deferred income tax  9,470   13,329   8,484 
Other  591   (211)  31 
             
Net income under U.S. GAAP  4,097   341,617   599,371 

Shareholders’ equity under IFRS  4,498,374   4,465,090   4,087,484 
Items increasing (decreasing) reported shareholder’s equity:            
Stripping activity asset, net of amortization  (99,326)  (54,158)  (49,937)
Inventories valuation  (30,698)  (43,271)  14,473 
Asset retirement obligation  (2,527)  (2,099)  (1,445)
Deferred workers´ profit participation  (8,126)  (1,901)  (15,413)
Deferred income tax  38,715   29,245   15,916 
Other  266   (325)  (114)
             
Shareholders’ equity under U.S. GAAP  4,396,678   4,392,581   4,050,964 

 

30.26.New U.S. GAAP Accounting Pronouncements

Recently Issued Accounting Pronouncements -

Inventory -  

In July 2015,February 2016, FASB issued an ASU guidance was issued relatedthat will require lessees to inventory simplifyingrecognize most leases on the subsequent measurement of inventories by replacing the lower of cost or market testbalance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a lowerterm of cost12 months or less and net realizable value test. The updatedo not have a purchase option that is expected to be exercised. For public entities, this ASU is effective in fiscal years, includingfor interim and annual reporting periods beginning after December 15, 2016, and2018, with early adoption is 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 this guidance and the impact itthis guidance will have on net equity or net results.its financial statements.

 

Revenue recognition –

In May 2014,June 2016, FASB issued an ASU guidance was issued related to revenue from contracts with customers. The new standard provides a five-step approach to be applied to all contracts with customersthat changes the impairment model for most financial assets and certain other instruments, and will also requiresrequire expanded disclosures about revenue recognition. In August 2015, thedisclosures. For public entities, this ASU is effective date was deferred tofor interim and annual reporting periods, including interim periods beginning after December 15, 2017, and will2019, with early adoption permitted. The provisions of the ASU must be applied retrospectively. Early adoptionas a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is not permitted.effective. The Company is currently evaluating this guidance and the impact itthis ASU will have on net equityits financial statements.

In August 2017, FASB issued an ASU that simplifies the current hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements. For public entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. This ASU must be applied as of the beginning of the fiscal year of adoption (that is, the initial application date). The amended presentation and disclosure guidance are required only prospectively. The Company is currently evaluating the impact this guidance will have on its financial statements.

In February 2018, FASB issued an ASU that provides entities with the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of recent U.S. tax reform to retained earnings. The Company adopted this ASU effective during the third quarter of 2018, and adoption did not have a material impact on its disclosures.

In August 2018, FASB issued an ASU that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those for capitalizing implementation costs incurred to develop or net results.obtain internal use software. For public entities, this ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. This ASU must be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact this ASU will have on its financial statements.

In August 2018, FASB issued an ASU that modifies certain disclosure requirements for fair value measurements including the elimination of i) the amount, reason for and the policy regarding transfers between level 1 and level 2 of the fair value hierarchy and ii) an entity’s valuation processes for Level 3 fair value measurements. The Company adopted this ASU effective during the third quarter of 2018, and adoption did not have a material impact on its disclosures.

 

  F-204F-235 

 

Notes to the Financial Statements(continue)

In August 2018, FASB issued an ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. For public entities, this ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. This ASU must be applied on a retrospective basis to all periods presented. The Company is currently evaluating the impact this ASU will have on its financial statements.

27.Subsequent Event

There have been no subsequent significant financial and accounting events subsequent to December 31, 2018, that may affect the interpretation of these financial statements.

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