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, 20172019

 

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.

(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)

 

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-mail and/or Facsimile number and Address of Company Contact Person)

 

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

 

Title of each class Trading
Symbol
Name of each exchange on which registered

Common shares,nominal (par) value of ten Peruvian

Soles per share (“Common Shares”)

 BVN

New York Stock Exchange Inc.*

Lima Stock Exchange

  BVN  
American Depositary Shares (“ADSs”) representing one Common Share eachBVN 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 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¨

 

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).

 

Yesx     No¨

  

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

 

Large accelerated filerxAccelerated filer¨Non-accelerated filer¨Emerging growth company¨

 

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

 

¨

 

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

 

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

 

U.S. GAAP¨

International Financial Reporting Standards as issued by

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 I3
   
ITEM 1.Identity of Directors, Senior Management and Advisers3
   
ITEM 2.Offer Statistics and Expected Timetable3
   
ITEM 3.Key Information3
   
ITEM 4.Information on the Company1922
   
ITEM 4A.Unresolved Staff Comments5556
   
ITEM 5.Operating and Financial Review and Prospects5556
   
ITEM 6.Directors, Senior Management and Employees10694
   
ITEM 7.Major Shareholders and Related Party Transactions11299
   
ITEM 8.Financial Information113101
   
ITEM 9.The Offer and Listing116104
   
ITEM 10.Additional Information117106
   
ITEM 11.Quantitative and Qualitative Disclosures About Market Risk127118
   
ITEM 12.Description of Securities Other Than Equity Securities128119
   
PART II129121
   
ITEM 13.Defaults, Dividend Arrearages and Delinquencies129121
   
ITEM 14.Material Modifications to the Rights of Security Holders and Use of Proceeds129121
   
ITEM 15.Controls and Procedures129121
   
ITEM 15A.16A.Audit Committee Financial Expert131124
   
ITEM 15B.16B.Code of Ethics131124
   
ITEM 15C.16C.Principal Accountant Fees and Services131124
   
ITEM 15D.16D.Exemptions from the Listing Standards for Audit Committees131124
   
ITEM 15E.16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers131125
   
ITEM 15F.16F.Change in Registrant’s Certifying Accountant132125
   
ITEM 15G.16G.Corporate Governance132125

   

 i

ITEM 15H.16H.Mine Safety Disclosure132125
   
PART III133126
ITEM 16.Consolidated Financial Statements133
   
ITEM 17.Consolidated Financial Statements133126
   
ITEM 18.ExhibitsConsolidated Financial Statements133126

  ii 
ITEM 19.Exhibits126

ii 

 

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” refer to 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.

 

Pursuant to the rules of the United States Securities and Exchange Commission (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 year ended December 31, 2019, 43.65% for the year ended December 31, 2018 and 45.95% for the year ended December 31, 2017 and 43.65% for the years ended December 31, 2015 and 2016.2017. As of December 31, 2015, 20162017, 2018 and 2017,2019, our equity interest in Cerro Verde was 19.58%.

 

The Company may file separate financial statements of its 40.10% equity investee, Compañía Minera Coimolache S.A.A., pursuant to Rule 3-09 of Regulation S-X, on Form 20-F/A, if required, on or before June 30, 2020.

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 not in reserve;

 

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

 

·labor relations;

 

·environmental risks; and

 

·other factors described in more detail under “Item 3. Key Information—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

 

 3 

 

 

A.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, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 20172019 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, 2013, 20142015, 2016 and 20152017 and for the years ended December 31, 20132015 and 20142016 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, Burga & Asociados S. Civil de R.L. (a member firm of EY Global)Ernst & Young Global Limited) on our Consolidated Financial Statements as of December 31, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 20172019 appears elsewhere in this Annual Report. The 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 is 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 Notes thereto and other financial information included in this Annual Report.

 

  As of and for the year ended December 31, 
  2017  2016  2015  2014  2013 
  (US$ in thousands)(1) 
Statements of profit or loss data:                    
Continuing operations:                    
Operating income:                    
Net sales of goods  1,223,942   1,015,670   846,269   959,286   1,015,966 
Net sales of services  29,697   28,782   50,839   71,159   79,585 
Royalty income  20,739   24,339   32,414   36,867   44,185 
Total operating income  1,274,378   1,068,791   929,522   1,067,312   1,139,736 
                     
Operating costs:                    
Cost of sales of goods, excluding depreciation and amortization  (627,433)  (497,812)  (513,490)  (498,714)  (463,631)
Cost of services, excluding depreciation and amortization  (12,954)  (10,754)  (59,612)  (77,927)  (114,120)
Exploration in operating units  (94,928)  (96,149)  (89,699)  (97,357)  (98,939)
Depreciation and amortization  (213,722)  (192,647)  (232,583)  (172,999)  (133,639)
Mining royalties  (31,217)  (27,611)  (27,188)  (27,428)  (29,434)
Total operating costs  (980,254)  (824,973)  (922,572)  (874,425)  (839,763)
Gross profit  294,124   243,818   6,950   192,887   299,973 
                     
Operating expenses, net:                    
Administrative expenses  (83,597)  (81,692)  (84,372)  (93,753)  (67,990)
Exploration in non-operating areas  (18,262)  (26,589)  (30,610)  (50,007)  (32,805)
Selling expenses  (24,088)  (21,733)  (19,365)  (16,212)  (14,842)
Excess of workers’ profit sharing  -   -   -   -   (704)
Impairment loss of long-lived assets  (21,620)  -   (3,803)  -   - 
Provision for contingences and others  (13,879)  (565)  (395)  -   - 
Write-off of asset stripping activities  (13,573)  -   -   -   - 
Other, net  (13,589)  18,957   (5,340)  3,169   (1,996)
Total operating expenses, net  (188,608)  (111,622)  (143,885)  (156,803)  (118,337)
Operating profit (loss)  105,516   132,196   (136,935)  36,084   181,636 
                     
Other income (expenses), net:                    
Share in the results of associates under equity method  13,207   (365,321)  (173,375)  (74,600)  (114,145)
Finance costs  (34,623)  (31,580)  (27,572)  (11,276)  (9,734)
Net gain (loss) from currency exchange difference  2,928   2,638   (13,693)  (8,457)  (7,128)
Gain on business combination  -   -   -   59,852   - 
Finance income  5,517   6,830   11,026   8,408   6,621 
Total other income (expenses), net  (12,971)  (387,433)  (203,614)  (26,073)  (124,386)
                     
Profit (loss) before income tax  92,545   (255,237)  (340,549)  10,011   57,250 
Current income tax  (23,837)  (39,444)  (14,222)  (18,815)  (56,799)
Deferred income tax  5,825   (14,060)  (541)  (47,006)  (29,154)
Profit (loss) from continuing operations  74,533   (308,741)  (355,312)  (55,810)  (28,703)
Discontinued operations:                    
Loss from discontinued operations  (10,098)  (19,073)  (20,233)  (5,830)  (51,033)
Net profit (loss)  64,435   (327,814)  (375,545)  (61,640)  (79,736)
Attributable to equity owners of the parent  60,823   (323,492)  (317,210)  (76,065)  (107,257)
Attributable to non-controlling interest  3,612   (4,322)  (58,335)  14,425   27,521 
Net profit (loss)  64,435   (327,814)  (375,545)  (61,640)  (79,736)
Basic and diluted profit (loss) per share attributable to equity holders of the parent(2)(3)  0.24   (1.27)  (1.25)  (0.30)  (0.42)
Basic and diluted profit (loss) per ADS attributable to equity holders of the parent(2)(3)  0.24   (1.27)  (1.25)  (0.30)  (0.42)
Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations  0.28   (1.20)  (1.17)  (0.28)  (0.09)
Dividends per share  0.086   0.03   -   0.03   0.31 
Average number of common and investment shares outstanding  253,986,867   253,986,867   254,186,867   254,186,867   254,186,867 
Statement of financial position data:                    
Total assets  4,332,813   4,266,415   4,547,181   4,672,274   4,552,267 
Financial obligations  633,083   592,342   353,710   383,305   234,397 
Capital stock  750,497   750,497   750,497   750,497   750,497 
Total shareholders’ equity  3,063,627   3,047,213   3,389,236   3,762,125   3,824,421 
                     
Operating data (unaudited):                    
                     
Production(4)                    
Gold (oz.)  405,646   357,570   356,367   438,426   462,856 
Silver (oz.)  26,624,431   23,035,110   24,648,761   20,119,162   19,193,075 
Proven and probable reserves(5)                    
Gold (oz.)  1,246,255   1,416,000   1,185,000   1,119,000   1,036,000 
Silver (oz.)  164,220,011   160,082,090   134,391,000   139,699,000   136,464,000 

  As of and for the year ended December 31, 
  2019  2018  2017  2016  2015 
  (US$ in thousands)(1) 
Statements of profit or loss data:                    
Continuing operations:               
Operating income:                    
Net sales of goods  821,930   1,106,329   1,187,206   1,015,670   846,269 
Sales of services  23,661   24,001   29,697   28,782   50,839 
Royalty income  22,297   20,385   20,739   24,339   32,414 
Total operating income  867,888   1,150,715   1,237,642   1,068,791   929,522 
                     
Operating costs:                    
Cost of sales of goods, excluding depreciation and amortization  (512,874)  (613,381)  (604,650)  (497,812)  (513,490)
Cost of sales of services, excluding depreciation and amortization  (3,378)  (4,318)  (12,954)  (10,754)  (59,612)
Depreciation and amortization  (226,335)  (238,879)  (210,154)  (192,647)  (232,583)
Exploration in operating units  (44,163)  (89,730)  (89,311)  (96,149)  (89,699)
Mining royalties  (12,832)  (21,388)  (30,884)  (27,611)  (27,188)
Total operating costs  (799,582)  (967,696)  (947,953)  (824,973)  (922,572)
Gross profit  68,306   183,019   289,689   243,818   6,950 
Operating expenses, net:                    
Administrative expenses  (76,297)  (77,099)  (80,666)  (81,692)  (84,372)
Selling expenses  (24,313)  (26,948)  (23,043)  (21,733)  (19,365)
Exploration in non-operating areas  (11,879)  (36,307)  (18,262)  (26,589)  (30,610)
Impairment recovery (loss) of long-lived assets  (2,083)  5,693   (21,620)  -   (3,803)
Reversal (provision) for contingences and others  2,968   11,248   (13,740)  (565)  (395)
Write-off of asset stripping activities  -   -   (13,573)  -   - 
Other, net  (14,715)  (1,308)  (13,230)  18,957   (5,340)
Total operating expenses, net  (126,319)  (124,721)  (184,134)  (111,622)  (143,885)
Operating profit (loss)  (58,013)  58,298   105,555   132,196   (136,935)
                     
Other income (expenses), net:                    
Share in the results of associates and joint ventures  47,710   (1,144)  13,207   (365,321)  (173,375)
Finance income  9,675   9,685   5,517   6,830   11,026 
Finance costs  (42,173)  (38,422)  (34,551)  (31,580)  (27,572)
Net gain (loss) from currency exchange difference  (734)  (1,384)  2,939   2,638   (13,693)
Total other income (expenses), net  14,478   (31,265)  (12,888)  (387,433)  (203,614)
                     
Profit (loss) before income tax  (43,535)  27,033   92,667   (255,237)  (340,549)
Current income tax  (11,911)  (16,882)  (23,713)  (39,444)  (14,222)
Deferred income tax  37,501   (9,997)  5,825   (14,060)  (541)
Profit (loss) from continuing operations  (17,945)  154   74,779   (308,741)  (355,312)
Discontinued operations:                    
Loss from discontinued operations(2)  (10,514)  (11,808)  (10,344)  (19,073)  (20,233)
Net profit (loss)  (28,459)  (11,654)  64,435   (327,814)  (375,545)
Attributable to equity owners of the parent  (12,208)  (13,445)  60,823   (323,492)  (317,210)
Attributable to non-controlling interest  (16,251)  1,791   3,612   (4,322)  (58,335)
Net profit (loss)  (28,459)  (11,654)  64,435   (327,814)  (375,545)
Basic and diluted profit (loss) per share attributable to equity holders of the parent(3)(4)  (0.05)  (0.05)  0.24   (1.27)  (1.25)
Basic and diluted profit (loss) per ADS attributable to equity holders of the parent(3)(4)  (0.05)  (0.05)  0.24   (1.27)  (1.25)
Basic and diluted profit (loss) per share attributable to equity holders of the parent, from continuing operations  (0.01)  (0.02)  0.28   (1.20)  (1.17)
Dividends per share  0.09   0.09   0.09   0.03   - 
Average number of common and investment shares outstanding  253,986,867   253,986,867   253,986,867   253,986,867   254,186,867 
Statement of financial position data:                    
Total assets  4,107,274   4,217,221   4,332,813   4,266,415   4,547,181 
Capital stock  750,497   750,497   750,497   750,497   750,497 
Total shareholders’ equity  2,968,200   3,029,565   3,063,627   3,047,213   3,389,236 
                     
Operating data (unaudited):                    
                     
Production(5)                    
Gold (oz.)  191,281   338,189   405,646   357,570   356,367 
Silver (oz.)  20,288,743   26,264,109   26,624,431   23,035,110   24,648,761 
Proven and probable reserves(6)                    
Gold (oz.)  2,984,673   1,001,169   1,245,213   1,403,029   1,175,724 
Silver (oz.)  200,692,359   194,214,607   147,329,793   158,428,655   132,617,631 

 

 4 

 

 

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

 

(2)(2)

During 2019, the Group decided to classify its Mallay mining unit as discontinued. According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, the Group reclassified revenues and expenses related to this mining unit for the years 2018 and 2017 to the “Net loss from discontinued operations attributable to equity holders of the parent” caption.

(3)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, 20162018 and 2017,2019, we had 274,889,924 Common Shares outstanding, including 21,174,734 treasury shares as of December 31, 2016 and 2017.shares. As of December 31, 2013, 2014, 2015, 2016, 2017, 2018 and 2017,2019, we had 744,640 of Investment Shares outstanding, including 271,733 treasury shares as of December 31, 2013, 272,963 treasury shares as of December 31, 2014, 2015, and 2016 and 472,963 treasury shares as of December 31, 2017.2016, 2017, 2018 and 2019.

 

(3)(4)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)(5)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 61.4361.43% controlling equity interest as of December 31, 2017 (61.32% controlling equity interest as of December 31, 2016)2019 and 2018, and Minera La Zanja S.R.L., or “La Zanja,” in which we owned a 53.06% controlling equity interest as of December 31, 2017.2019. The production data in this table reflect 100% of El Brocal’s and La Zanja’s production. For the years ended December 31, 20142016 to 2017,2019, El Brocal produced 2.52.6 million, 3.74.1 million, 2.63.9 million and 4.14.4 million ounces of silver, respectively, of which our equity share was 1.4 million, 2.0 million, 1.5 million, 2.5 million, 2.4 million and 2.52.7 million ounces of silver per year, respectively, and La Zanja produced 143,573, 141,071, 139,724, 127,118, 71,630 and 127,11831,500 ounces of gold, respectively, of which our equity share per year was 74,137, 67,449, 38,007 and 16,714 ounces of gold, respectively, and 217,292, 280,908, 217,174 and 97,204 ounces of silver per year, respectively, of which our equity share was 76,180, 74,852, 74,137115,295, 149,050, 115,233 and 67,449 ounces of gold, and 422,395, 331,080, 217,292 and 280,90851,576 ounces of silver of which our equity share was 224,123, 175,671, 115,295 and 149,050 ounces of silver.per year, respectively. Amounts for 20162018 and 20172019 exclude production coming from the operating mines classified as discontinued operations.

 

(5)5

(6)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, 2017. 2019.SRK Consulting Perú S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for Uchucchacua, Tambomayo, Orcopampa, El Brocal, Tantahuatay and La Zanja, Hatch Asociados S.A.,Zanja. Geominería S.A.C, 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 and Geomineria S.A.C. audited the process used to estimate proven and probable ore reserves for Orcopampa, Julcani and Mallay.Julcani.

 

5

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, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 2017,2019, or the Yanacocha Consolidated Financial Statements. The report of Paredes, Burga & Asociados S. Civil de R.L. (a member firm of EY Global) on the Yanacocha Consolidated Financial Statements as of December 31, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 20172019 appears elsewhere in this Annual Report. The selected financial information for Yanacocha as of December 31, 2013, 20142015, 2016 and 2015,2017, and for the years ended December 31, 20132015 and 20142016 has been derived from consolidated statements of financial position, consolidated statements of profit or loss and consolidated statements of other comprehensive income, respectively, which are not included in this Annual Report. Yanacocha’s audited consolidated financial statements as of December 31, 2013, 20142015, 2016, 2017, 2018 and 2015 and for the years ended December 31, 2013 and 20142019 were audited by Gaveglio, Aparicio yParedes, Burga & Asociados SociedadS. Civil de Responsabilidad Limitada, aR.L. (a member firm of PricewaterhouseCoopers Limited.Ernst & Young Global Limited). 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, as indicated in Notes 23 and 24 to the Yanacocha Consolidated Financial Statements.IASB. 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,” the Yanacocha Consolidated Financial Statements and the related Notes thereto and other financial information included in this Annual Report. . 

  As of and for the year ended December 31, 
  2019  2018  2017  2016  2015 
  (US$ in thousands)(1) 
Statement of comprehensive income:                    
Operating income:                    
Revenue from sales(2)  734,526   658,653   670,905   784,453   1,056,903 
Other operating income  4,776   21,965   21,870   17,713   10,625 
Total gross income  739,302   680,618   692,775   802,166   1,067,528 
                     
Costs applicable to sales  (692,721)  (619,424)  (772,647)  (799,654)  (783,762)
Other operating costs  (1,160)  (2,217)  (2,062)  (2,951)  (2,524)
Total operating costs  (693,881)  (621,641)  (774,709)  (802,605)  (786,286)
Gross profit (loss)  45,421   58,977   (81,934)  (439)  281,242 
                     
Operating expenses:                    
Operating expenses, net  (35,987)  (76,155)  (63,514)  (71,496)  (82,846)
Administrative expenses  (1,744)  (2,783)  (4,760)  (8,780)  (20,028)
Selling Expenses  (1,722)  (2,627)  (3,921)  (3,695)  (3,534)
Impairment loss  -   -   -   (889,499)  - 
Operating profit (loss)  5,968   (22,588)  (154,129)  (973,909)  174,834 
                     
Other expenses, net:                    
Finance income  18,430   11,448   5,831   2,132   673 
Finance costs  (57,629)  (39,024)  (23,766)  (15,107)  (22,734)
Net gain (loss) from currency exchange difference  2,902   (2,056)  3,636   (13,741)  (251)
Total other expenses, net  (36,297)  (29,632)  (14,299)  (26,716)  (22,312)
                     
Income (loss) before income tax  (30,329)  (52,220)  (168,428)  (1,000,625)  152,522 
Income taxbenefit (expense)  (64,928)  (29,297)  (7,026)  (43,127)  (602,717)
Income (loss)for the year  (95,257)  (81,517)  (175,454)  (1,043,752)  (450,195)
                     
Comprehensive income (loss):                    
Loss for the year  (95,257)  (81,517)  (175,454)  (1,043,752)  (450,195)
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  1,246   (91)  (3,244)  651   (757)
                     
Statement of financial position:                    
Total assets  2,312,072   2,047,472   2,019,395   2,045,885   2,965,430 
Capital stock  378,505   378,505   398,216   398,216   398,216 
Total partners’ equity  489,712   583,723   659,115   885,724   2,228,825 
                     
U.S. GAAP                    
Net income (loss)  3,316   (69,068)  (131,243)  (1,198,139)  (260,202)
Total equity  1,666,382   1,661,800   1,683,047   1,865,445   3,394,934 
                     
Operating data (unaudited)                    
Gold produced (oz.)  527,336   514,564   534,692   654,934   917,691 
Gold proven and probable reserves (thousands of oz.)  6,952   7,420   3,830   4,362   5,057 

 

  As of and for the year ended December 31, 
  2017  2016  2015  2014  2013 
  (US$ in thousands)(1) 
Statement of comprehensive income:                    
Operating income:                    
Revenue from sales(2)  645,176   761,193   1,031,174   1,165,299   1,406,825 
Other operating income  21,870   17,713   10,625   30,300   37,207 
Total gross income  667,046   778,906   1,041,799   1,195,599   1,444,032 
                     
Costs applicable to sales  (746,918)  (776,394)  (758,033)  (920,300)  (991,264)
Other operating costs  (2,062)  (2,951)  (2,524)  (22,422)  (28,672)
Total operating costs  (748,980)  (779,345)  (760,557)  (942,722)  (1,019,936)
Gross profit (loss)  (81,934)  (439)  281,242   252,877   424,096 
                     
Operating expenses:                    
Operating expenses, net  (63,514)  (71,496)  (82,846)  (77,781)  (77,534)
Administrative expenses  (4,760)  (8,780)  (20,028)  (38,262)  (67,064)
Selling Expenses  (3,921)  (3,695)  (3,534)  (4,458)  (3,740)
Impairment loss  -   (889,499)  -   (541,141)  (1,038,548)
Operating profit (loss)  (154,129)  (973,909)  174,834   (408,765)  (762,790)
                     
Other expenses, net:                    
Finance income  5,831   2,132   673   298   720 
Finance costs  (23,766)  (15,107)  (22,734)  (23,504)  (18,745)
Net gain (loss) from currency exchange difference  (3,636)  (13,741)  (251)  1,142   2,065 
Total other expenses, net  (14,299)  (26,716)  (22,312)  (22,064)  (15,960)
                     
Income (loss) before income tax  (168,428)  (1,000,625)  152,522   (430,829)  (778,750)
Income tax benefit (expense)  (7,026)  (43,127)  (602,717)  30,491   203,471 
Income (loss) for the year  (175,454)  (1,043,752)  (450,195)  (400,338)  (575,279)
                     
Comprehensive income (loss):                    
Income (loss) for the year  (175,454)  (1,043,752)  (450,195)  (400,338)  (575,279)
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  (3,244)  651   (757)  (65)  (226)
                     
Statement of financial position:                    
Total assets  2,019,395   2,045,885   2,965,430   3,483,169   3,754,692 
Capital stock  398,216   398,216   398,216   398,216   398,216 
Total partners’ equity  659,115   885,724   2,228,825   2,679,777   3,080,050 
                     
U.S. GAAP                    
Net income (loss)  (118,127)  (1,191,319)  (252,159)  (31,914)  140,997 
Total equity  1,759,039   1,928,321   3,418,989   3,671,148   3,711,461 
                     
Operating data (unaudited)                    
Gold produced (oz.)  534,692   654,934   917,691   969,944   1,017,259 
Gold proven and probable reserves (thousands of oz.)  3,830   4,358   5,057   17,436   18,345 
(1)Except operating data

 

(2)Royalties netted to sales

 6 

 

(1)Except operating data

(2)Royalties netted to sales

Cerro Verde Selected Financial Information and Operating Data

 

The following table presents selected financial information and operating data for Cerro Verde as of the end of and for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, Cerro Verde’s audited financial statements as of December 31, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 2017,2019, or the Cerro Verde Financial Statements. The selected financial information as of December 31, 20142015, 2016 and 2017 and for the years ended December 31, 20132015 and 20142016 have been derived from Cerro Verde’s financial statements that are not included in this Annual Report. The report of Paredes, Burga & Asociados S. Civil de R.L. (a member firm of EY Global)Ernst & Young Global Limited ) 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 24 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 Notes thereto and other financial information included in this Annual Report.

 

 As of and for the year ended December 31,  As of and for the year ended December 31, 
 2017  2016  2015  2014  2013  2019 2018 2017 2016 2015 
 (US$ in thousands)(1)  (US$ in thousands)(1) 
Statement of comprehensive income:                               
Sales of goods  3,202,931   2,384,154   1,115,617   1,467,097   1,811,488  2,890,066 3,054,026 3,202,931 2,384,154 1,115,617 
Costs of sales of goods  (1,768,238)  (1,553,040)  (862,004)  (797,481)  (795,064)  (1,954,749)  (2,010,972)  (1,768,238)  (1,553,040)  (862,004)
Gross profit  1,434,693   831,114   253,613   669,616   1,016,424   935,317  1,043,054  1,434,693  831,114  253,613 
Operating expenses                               
Selling expenses  (141,669)  (131,391)  (56,215)  (54,210)  (68,448) (109,483) (137,008) (141,669) (131,391) (56,215)
Other operating (expenses), income net  (258,826)  (24,107)  (26,600)  (3,629)  147   (37,436)  (68,683)  (258,826)  (24,107)  (26,600)
  (400,495)  (155,498)  (82,815)  (57,839)  (68,301)  (146,919)  (205,691)  (400,495)  (155,498)  (82,815)
Operating profit  1,034,198   675,616   170,798   611,777   948,123   788,398  837,363  1,034,198  675,616  170,798 
Other income (expenses)                    
Financial income  5,350   954   512   2,443   2,178  10,356 28,089 5,350 954 512 
Financial expenses  (216,912)  (80,438)  (16,010)  (369)  (1,843) (115,877) (426,733) (216,912) (80,438) (16,010)
Exchange differences, net  13,288   7,857   (75,770)  2,284   (1,858)  5,574  6,161  13,288  7,857  (75,770
  (198,274)  (71,627)  (91,268)  4,358   (1,523)
                               
Profit before income tax  835,924   603,989   79,530   616,135   946,600  688,451 444,880 835,924 603,989 79,530 
Income tax expense  (486,043)  (263,082)  (46,246)  (238,529)  (333,338)  (298,074)  (325,170)  (486,043)  (263,082)  (46,246)
Profit for the year  349,881   340,907   33,284   377,606   613,262   390,377  119,710  349,881  340,907  33,284 
                               
Basic and diluted earnings per share  1.000   0.974   0.095   1.078   1.752  1.115 0.342 1.000 0.974 0.095 
Dividends per share 0.571337              0.428503 0.571337    
                               
Weighted average number of shares outstanding  350,056,012   350,056,012   350,056,012   350,056,012   350,056,012  350,056,012 350,056,012 350,056,012 350,056,012 350,056,012 
                               
Statement of financial position data:                               
Total assets  7,691,007   7,635,623   7,852,692   5,771,984   4,828,201  7,809,424 7,554,712 7,691,007 7,635,623 7,852,692 
Total financial obligations  1,268,488   1,996,004   2,425,164   452,849   5,903 
Capital Stock  990,659   990,659   990,659   990,659   990,659  990,659 990,659 990,659 990,659 990,659 
Total shareholder’s equity, net  5,189,162   4,839,281   4,498,374   4,465,090   4,087,484 
Total shareholder’s equity 5,349,249 5,108,872 5,189,162 4,839,281 4,498,374 
                               
U.S. GAAP                               
Profit for the year  301,431   345,461   4,097   341,617   599,371  319,714 53,280 301,431 345,461 4,097 
Total shareholder’s equity, net  5,043,570   4,742,139   4,396,678   4,392,581   4,050,964 
Total shareholder’s equity 5,066,564 4,896,850 5,043,570 4,742,139 4,396,678 
                               
Operating data (unaudited):                               
Production:                               
Copper (in thousands of recoverable pounds)  1,062,210   1,107,810   544,482   500,242   557,239  1,003,776 1,049,430 1,062,210 1,107,810 544,482 
Proven and probable reserves:                               
Copper Ore (in thousands of tons)  3,577,276   3,673,229   3,855,939   3,953,234   4,047,372  4,265,232 4,324,461 3,577,276 3,673,229 3,855,939 

 

(1)Except per share and operating data.

 

 7 

 

 

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

Exchange Rates

(Soles per US$)(1)

Year 

High(2)

  

Low(2)

  

Average(3)

  

Period end(4)

 
2015  3.413   2.983   3.187   3.408 
2016  3.532   3.244   3.376   3.357 
2017  3.392   3.232   3.263   3.245 

 

High(5)

  

Low(5)

  

Average(6)

  

Period end(7)

 
2017                
October  3.273   3.235   3.252   3.25 
November  3.252   3.234   3.242   3.235 
December  3.292   3.233   3.248   3.245 
                 
2018                
January  3.230   3.208   3.217   3.217 
February  3.270   3.213   3.250   3.261 
March  3.273   3.219   3.253   3.229 

(1)Expressed in nominal (not inflation adjusted) Soles.

B.(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 26, 2018, the offered rate for Dollars as published by the SBS was S/3.24 per US$1.00.

B.Capitalization and Indebtedness

 

Not applicable.

 

C.C.Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

 8 

 

 

D.Risk Factors

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 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 expenses 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. See “Item 4. Information on the Company—Yanacocha” and “Item 4. Information on the Company—Buenaventura—B. Business Overview—Exploration.”

 

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, 2017,2019, see “Item 4. Information on the Company—Buenaventura—B. Business Overview—Sales of Metal Concentrates.”

 

On December 30, 201731, 2019 and March 31, 2018,29, 2020, the morning fixing price for gold on the London Bullion Market was US$1,291 1,523 per ounce and US$1,3241,605 per ounce, respectively. On December 29, 201731, 2019 and March 31, 2018,29, 2020, the afternoon fixing spot price of silver on the London market, or “London Spot,” was US$17.07 18.045 per ounce and US$16.3113.930 per ounce, respectively. On December 30, 201731, 2019 and March 31, 2018,29, 2020, the London Metal Exchange Settlement Price for copper was US$7,207 6,156 per ton and US$6,6794,797 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.

 

An outbreak of disease or similar public health threat, such as COVID-19 (coronavirus), could adversely affect our business, financial condition and results of operations.

Our operations are subject to risks related to outbreaks of infectious diseases. For example, the recent outbreak of coronavirus COVID-19 (coronavirus), a virus causing potentially deadly respiratory tract infections originating in China, has already and will continue to negatively cause further volatility in prices of precious metals. Additionally, a severe market disruption will likely entail decreased demand for our products and otherwise impact our operations and the operations of our customers, suppliers and other stakeholders. The Peruvian Government has issued a series of executive decrees declaring a national emergency and significantly restricting general circulation throughout the country.

In accordance with these restrictions and within the framework of the Company’s pandemic response plan, we have limited our operations to those which are strictly necessary to ensure that our mine pumping systems, water treatment plants, energy supply, hydroelectric substations, health services and overall minimum safety conditions remain in place. Other than in respect of these minimum back-up operations, as of the date of this annual report, our mining processing facilities are completely halted. The Company intends to immediately resume operations once it receives notice from the authorities that restrictions have been lifted. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on the world, the Peruvian economy, international financial markets, or ultimately on our financial condition, results of operations, production, sales, margins and cash flow from operations, our access to debt markets, covenants compliance, asset impairments, among others.

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.

 

Mining companies are also required to pay the Peruvian government mining royalties and/or mining taxes. See “Item 4. Information on the Company—Buenaventura—B. Business Overview—Regulatory 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.

 

10

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—B. Business Overview—Regulatory Framework—Environmental Matters” and “—Permits” and “Item 4. Information on the Company—Yanacocha—B. Business Overview—Environmental Matters.”

 

10

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 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.

 

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, 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—Yanacocha—C. Property, Plants and Equipment—Our Properties—Reserves,” “—Yanacocha—C. Property, Plants and Equipment—Yanacocha’s Properties—Reserves” and “Item 5. Operating and Financial Review and Prospects—Cerro 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 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.

 

11

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—Yanacocha—C. Property, Plants and Equipment—Our Properties—Reserves” and “Item 4. Information on the Company—Yanacocha—C. Property, Plants and Equipment—Yanacocha’s Properties—Reserves.”

 

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

 

As we and Yanacocha produce gold, silver, zinc and other metals, we and Yanacocha deplete our respective ore reserves for such metals. To maintain production levels, we and Yanacocha must replace depleted reserves by exploiting known ore bodies and locating new deposits. Exploration for gold, silver and the other metals produced is highly speculative in nature. Our and Yanacocha’s exploration projects involve significant risks and are often unsuccessful. Once a site is discovered with mineralization, we and Yanacocha may require several years between initial drilling and mineral production, and the economic feasibility of production may change during such period. Substantial expenditures are required to establish proven and probable reserves and to construct mining and processing facilities. There can be no assurance that current or future exploration projects will be successful and there is a risk that our depletion of reserves will not be offset by new discoveries. See “Item 4. Information on the Company—Buenaventura—B. Business Overview—Exploration,” “—Yanacocha—B. Business Overview—Environmental Matters,” “—Yanacocha—C. Property, Plants and Equipment—Our Properties,” “—Yanacocha—C. Property, Plants and Equipment—Yanacocha’s Properties,” “—Yanacocha—C. Property, Plants and Equipment—Reserves,” and “Item 5. Operating and Financial Review and Prospects—Cerro Verde—A. Operating Results” for a summary of our, Yanacocha’s and Cerro Verde’s estimated proven and probable reserves as of December 31, 2017.2019.

 

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 have 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.

 

12

Energy represents a significant portion of our production costs. Our principal energy sources are electricity, purchased petroleum products and natural 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.

 

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.

 

As of December 31, 2017,2019, unions represented approximately 22% of the employees25% of our mining companiesand our subsidiaries’ employees 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’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 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.

 

During 2019, 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.

13

 

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.

 

13

In addition, during 2011, Peru enacted Law No. 29785, the Law of Prior Consultation for Indigenous and Native Communities (Ley(Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo)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.

 

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.

 

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

14

 

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, 2017,2019, we owned a 45.95%43.65% partnership interest in Yanacocha and a 19.58% equity interest in Cerro Verde. These interests may constitute “investment securities” for purposes of the Investment Company Act.

 

14

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.

 

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—B. Business 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 EIA, independent review, announced on April 20, 2012, confirmed that Yanacocha’s initial EIA met Peruvian and international standards. The review made recommendations to provide additional water capacity and social funds, which Yanacocha has largely accepted. Yanacocha announced its decision to move the project forward on a “water first” 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 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—B. Business 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. Currently, our unsecured rating from Fitch is “BBB-.”

 

15

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.

 

We could be subject to information technology system failures, network disruptions, and breaches in data security which could negatively affect our business, financial position, results of operations, and cash flows.

As dependence on digital technologies is expanding, cyber incidents, including deliberate attacks or unintentional events have been increasing worldwide. Computers and telecommunication systems are used to conduct our exploration, development and production activities and have become an integral part of our business. We use these systems to analyze and store financial and operating data, as well as to support our internal communications and interactions with business partners. Cyber-attacks could compromise our computer and telecommunications systems and result in additional costs as well as disruptions to our business operations or the loss of our data.

A cyber-attack involving our information systems and related infrastructure, or those of our business partners, could disrupt our business and negatively impact our operations in a variety of ways, such as, among others:

an attack on the computers which control our mining operations could cause a temporary interruption of our production while contingency manual systems are brought online;

a cyber-attack on our accounting or accounts payable systems could expose us to liability to employees and third parties if their sensitive personal information is obtained;

possible loss of material information, which in turn could delay productive processes and selling efforts, causing economic losses; or

a cyber-attack on a service provider could result in supply chain disruptions, which could delay or halt our major development projects.

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.

16

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.

 

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.

 

The administration under President Ollanta Humala largely supported mining as a driver for the continued growth and future development of Peru. However, Peru held its elections for President in April 2016 in which President Ollanta Humala was ineligible to run due to constitutional term limits. With no candidate receiving a 50% majority of the vote, a run-off election was held in June 2016. Pedro Pablo Kuczynski ultimately defeated opponent Keiko Fujimori by less than half of a percentage point and was sworn in as president on July 28, 2016. 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.

 

 1617 

 

 

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.

18

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

 

Prior to 1994, Peru periodically experienced 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 1.36%1.9% in 2017.2019. 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, 20172019 were US$63.6268.2 billion as compared to US$61.6960.1 billion at December 31, 2016.2018 as per the Banco Central de Reserva. 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.

 

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—D. Exchange Controls.”

 

17

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.

 

19

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 U.S. (principally in Peru). All or a substantial portion of our assets or the assets of such persons are located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon us or upon such persons or to enforce against them in federal or state courts in the U.S. judgments predicated upon the civil liability provisions of the federal securities laws of the 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 U.S. federal securities laws and as to the enforceability in Peruvian courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the U.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 may limit our stockholders’ ability to influence corporate matters.

 

As of March 31, 2018,2020, three of our directors (and/or their spouses), Roque Benavides, Raul Benavides and Jose Miguel Morales, were members of the immediate and extended family of the late Alberto Benavides de la Quintana, our founder and former Chairman (collectively, the “Benavides Family”), and held an aggregate of 16.29%16.49% of Buenaventura’s outstanding share capital (including outstanding Common Shares and Investment Shares). In addition, certain other members of 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, the Benavides Family could have the power to elect a significant number of the outstanding directors and exercise significant influence over the outcome of substantially all matters to be decided by a vote of shareholders.

 

In addition, under the terms of the amended and restated deposit agreement dated May 3, 2002 (as further amended and restated as of November 12, 2003, 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 could 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 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 U.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 U.S. As a result, holders of our shares may face difficulty enforcing their rights.

 

 1820 

 

 

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, U.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.

 

21

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 had a 45.95%43.65% partnership interest as of December 31, 2017.2019.

 

BUENAVENTURA

 

A.History and Development

A. History and Development

 

Overview

 

We are Peru’s largest publicly traded precious metals company in terms of market cap and operating presence as we operate in 8 regions across the country. Also, we are engaged in the exploration, mining and processing of gold, silver, copper and, to a lesser extent, other metals in Peru.  We currently operate the Orcopampa, Uchucchacua, Julcani Mallay and Tambomayo mines and have controlling interests in three other mining companies that 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 as 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, 2017,2019, our consolidated net revenues were US$1,274.38 867.888 million and our consolidated net profitloss was US$64.4328.459 million.

19

Discontinued operations.In 2014, we publicly announced our decision to sell four of our mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, these mining units were 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. 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. 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 this mining unit were classified as discontinued operations for the years 2016, 2015 and 2014. During 2017, we sold the Breapampa and Recuperada mining units.

During 2019, we decided to change the classification of our Mallay mining unit as a discontinued operation for the years 2019, 2018 and 2017. See Note 1(e) and Note 2.4(w) to the Consolidated Financial Statements.

 

The table below summarizes the total production and our equity share of production for the Orcopampa, Uchucchacua, Julcani, Mallay, Tambomayo, El Brocal, La Zanja, Tantahuatay, Yanacocha and Cerro Verde mines for the year ended December 31, 2017:2019:

 

 Total Production  Buenaventura’s Equity Share of Production  Total Production (unaudited) 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%  528,449   190,976   -   -   -   528,449   190,976   -   -   -  100% 18,791 41,660       18,791 41,660      
Uchucchacua  100%  16,583,698   -   16,708   13,040   -   16,583,698   -   16,708   13,040   -  100% 10,640,913   17,635 19,144   10,640,913   17,635 19,144  
Julcani  100%  2,249,527   200   1,824   -   192   2,249,527   200   1,824   -   192  100% 2,609,006 150 966   185 2,609,006 150 966   185
Mallay  100%  1,109,382   642   4,061   7,102   -   1,109,382   642   4,061   7,102   - 
Tambomayo  100%  1,788,219   64,175   2,070   2,906   -   1,788,219   64,175   2,070   2,906   -  100% 2,556,391 99,245 7,603 9,672   2,556,391 99,245 7,603 9,672  
El Brocal  61.43%  4,084,249   22,536   20,313   51,511   45,097   2,504,461   13,819   12,456   31,587   27,654  61.43% 4,366,438 18,726 23,599 43,580 43,394 2,682,303 11,504 14,497 26,771 26,657
La Zanja  53.06%  280,908   127,118   -   -   -   149,050   67,449   -   -   -  53.06% 97,204 31,500       51,576 16,714      
Tantahuatay  40.10%  800,942   151,454   -   -   -   321,138   60,726   -   -   -  40.10% 754,306 162,196       302,439 65,032      
Yanacocha  45.95%  1,039,071   534,692   -   -   -   477,453   245,691   -   -   -  43.65% 737,239 527,337       321,805 230,183      
Cerro Verde  19.58%  3,811,292   -   -   -   481,810   746,251   -   -   -   94,338  19.58% 4,685,092       455,305 917,341       89,149
Total Production  100%  32,275,736   1,091,793   44,976   74,560   527,100   26,457,628   643,678   37,120   54,635   122,184   100%  24,465,380  880,814  49,803  72,396  498,883  20,100,565  464,488  40,701  55,587  115,990

 

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.

 

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. All of the SEC filings made electronically by the Company are available to the public on the SEC website at www.sec.gov (commission file number 1-14370).

22

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 Tambomayo mines. In addition, we made significant equity investments in Yanacocha, which operates an 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.

 

 2023 

 

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 Compañía 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 2017,2019, we spent US$18.311.879 million on “exploration in non-operating areas” and US$94.944.163 million on “exploration in operating units.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Yumpag,Yumpaq, Marcapunta Tambomayo and Emperatriz. Our “exploration in operating units” investments were mainly focused in the Orcopampa, Uchucchacua, and Julcani units.

 

In 2018,2020, we intend to invest approximately US$85.025 to US$95.035 million in exploration in operating units (mainly in Tambomayo, Orcopampa and Uchucchacua) and US$25.010 to US$35.020 million mainly in explorations in non-operating areas at the Trapiche and 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—Exploration.” We believe that maintaining our focus on mining operations complements our partnership strategy because the engineering and geological expertise gained from such operations enhances our ability to participate in and contribute to those projects.

 

Capital Expenditures

 

Our capital expenditures during the past three years have related principally to the acquisition of new mining properties, construction of new facilities and renewal of plant and equipment. Capital expenditures relating to exploration are not included in the table below and are discussed separately in “B. Business Overview— Exploration.” 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, 
  2015  2016  2017 
  (US$ in thousands) 
Tambomayo  77,093   230,223   131,119 
Colquijirca and Marcapunta  37,571   51,289   61,060 
Uchucchacua  20,245   28,899   18,127 
La Zanja  27,741   14,995   17,326 
Orcopampa  8,198   3,451   12,674 
San Gabriel  22,657   23,476   12,221 
Julcani  1,323   759   1,951 
Mallay  2,259   2,729   1,796 
Molle Verde  4,049   1,861   1,656 
Huanza  1,156   457   675 
Río Seco  2,140   3,719   459 
Conenhua  5,003   3,779   177 
Others  1,851   1,197   266 
Total  211,286   366,834   259,507 

  Year Ended December 31, 
  2017  2018  2019 
  (US$ in thousands) 
Uchucchacua  18,127   18,429   31,479 
Colquijirca and Marcapunta  61,060   29,572   28,298 
Molle Verde  1,656   10,722   16,179 
San Gabriel  12,221   6,419   10,315 
Tambomayo  131,119   18,858   9,641 
La Zanja  17,326   13,159   1,629 
Julcani  1,951   2,984   1,559 
Río Seco  459   1,816   1,443 
Orcopampa  12,674   6,225   1,323 
Mallay  1,796   1,810   - 
Conenhua  177   111   - 
Huanza  675   7   223 
Others  266   1,158   538 
Total  259,507   111,270   102,627 
 2124 

 

 

 Year Ended December 31,  Year Ended December 31, 
 2015  2016  2017  2017 2018 2019 
 (US$ in thousands)  (US$ in thousands) 
Fixed assets  49,398   55,423   6,280  6,280 836 716 
Work in progress  81,333   210,915   165,610  165,610 67,096 44,319 
Development costs  80,555   100,496   87,617   87,617  43,338  57,592 
Total  211,286   366,834   259,507   259,507  111,270  102,627 

 

We partially funded the El Brocal Expansion and the construction of the Huanza hydroelectric power plant with leasing facilities. See “Item 5. Operating and Financial Review and Prospects—Buenaventura—B. Liquidity and Capital Resources—Long-Term Debt.”

 

We have budgeted approximately US$180.085 to US$220.0105 million for capital expenditures for 2018.2020. We continuously evaluate opportunities to expand our business within Peru, as well as in other countries as opportunities arise, and expect to continue to do so in the future. We may in the future decide to acquire part or all of the equity of, or undertake other transactions with, other companies involved in the same business as us or in other related businesses. However, there can be no assurance that we will decide to pursue any such new activity or transaction.

 

B.B.Business Overview

 

We mainly 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, La Zanja and Colquijirca-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,

(Unaudited)(1)(2)

 
 2015  2016  2017  2017  2018 2019 
Gold (oz.)  356,367   357,570   405,646  405,004 338,189 191,281 
Silver (oz.)  24,648,761   23,035,110   26,624,431  25,515,049 26,264,109 20,288,743 
Zinc (t)  68,184   75,075   74,560  67,458 76,119 72,397 
Lead (t)  37,072   33,850   44,976  40,915 44,972 49,803 
Copper (t)  32,400   49,460   45,289  45,289 46,400 43,578 

 

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

 

(2)Amounts for 2015, 2016 and 2017 exclude production from the operating mines that are classified as discontinued operations.

 

Exploration

 

We view exploration as our primary means of generating value for our shareholders and we maintain a portfolio of active exploration projects at various stages of exploration for mineral resources in Peru. During 2017,2019, we spent US$18.311.879 million on “exploration in non-operating areas” mainly focused in the Tambomayo, Yumpag,Yumpaq and Marcapunta and Emperatriz exploration projects, and US$94.944.163 million on “exploration in operating units” mainly focused in the Tambomayo, Orcopampa Uchucchacua and JulcaniUchucchacua mining units. During 2018,2020, we expect to invest approximately US$85.025 to US$95.035 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.

 

22

We have active joint venture exploration agreements with other mining companies, including Newmont Peru S.R.L., Minera Barrick Misquichilca, Southern Copper Corporation, Corporación Aceros Arequipa S.A.Regulus Resources, Alianza Minerals and Compañía de Minas Caudalosa S.A.C.Minera Bateas. Additionally, we now hold 19.3% of the current outstanding shares of Tinka Resources Limited. In this way we have access to financing forpromising mining projects through exploration of our own mining properties as well as third-party properties withoutwhile sharing the costsexploration and development risks of outright acquisition, increasedwith recognized partners, and increasing our exposure to new exploration technologies, and expansion ofwhile expanding our 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.

 

25

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 20162018 and 2017.2019.

 

Exploration

Projects(1)(2)

 

Buenaventura’s

Effective

Participation

  Property
Hectares
  

Observed

Mineralization

 Total Exploration
Expenditures During
  

Buenaventura’s

Effective

Participation

  Property
Hectares
  

Observed

Mineralization

 Total Exploration
Expenditures During
 
at March 31, 2018 2016  2017 
at March 31, 2020at March 31, 2020 2018 2019 
       (US$ in millions)        (US$ in millions) 
Yumpag  100.00%   5,518  Silver  -   2.67 
Asuncion  100.00%   1,000  Silver, Gold  -   0.48 
Yumpaq  100.00% 4,426 Silver 18.05 2.53 
San Gabriel  100.00% 57,900 Gold, Silver and Copper 0.93 0.08 
Ccelloccasa  100.00% 11,123 Gold and Silver  0.33  0.03 
Trapiche  100.00% 39,595 Copper, Molybdenum 0.31 - 
Mayra  100.00% 4,767 Silver, Gold - - 
San Gregorio  61.43% 4,303 Zinc - - 
Gaby  100.00%   800  Silver, Gold  -   0.88   100.00% 800 Silver, Gold - - 
Mayra  100.00%   5,000  Silver, Gold  -   0.15 
Trapiche  100.00%   36,798  Copper, Molybdenum  0.62   0.54 
San Gabriel  100.00%   58,900  Gold, Silver and Copper  7.40   0.59 
San Gregorio    61.43%   4,382  Zinc  0.03   - 
Daniela  100.00%   18,500  Copper and Gold  0.51   0.96 
Ccelloccasa  100.00%   12,157  Gold and Silver  0.24   0.18 
Other minor          17.79   11.85       9.85  9.24 

Total exploration in non-operating areas

         26.59   18.30       36.31  

11.88

 

 

(1)In addition to these projects, we continue to conduct exploration at all of our operating mines and our subsidiaries.

 

(2)Only includes explorations conducted by Buenaventura.

 

The following table lists the mines in which we directed our principal explorations efforts, mineralization of each mine and the exploration expenditures for 20162018 and 2017.2019.

 

Operating

Units

 

Observed

Mineralization

 

Total Exploration

Expenditures During

2016

  

Total Exploration

Expenditures During

2017

  

Observed

Mineralization

 

Total Exploration

Expenditures During

2018

 

Total Exploration

Expenditures During

2019

 
   Total  Buenaventura  Total  Buenaventura    Total Buenaventura Total Buenaventura 
   (US$ in millions) (US$ in millions)    (US$ in millions) (US$ in millions) 
Buenaventura’s Units:                         
Tambomayo Gold 20.55 20.55 11.61 11.61 
Orcopampa Silver and Gold  31.41   31.41   38.82   38.82  Silver and Gold 29.56 29.56 9.04 9.04 
Uchucchacua Silver, Lead and Zinc  45.11   45.11   27.07   27.07  Silver, Lead and Zinc 20.90 20.90 8.92 8.92 
Colquijirca Copper, Zinc, Lead and Silver 10.0 10.0 8.73 8.73 
Julcani Silver  11.07   11.07   13.01   13.01  Silver 8.65 8.65 5.86 5.86 
Mallay Zinc, Lead and Silver  7.96   7.96   5.62   5.62 
Tambomayo Gold  -   -   9.54   9.54 
La Zanja Gold  0.60   0.60   0.87   0.87  Gold 0.07   0.07   0.00  0.00 
Total  96.15   96.15   94.93   94.93   89.73  89.73  44.16 44.16 

 

 2326 

 

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, 2017.2019.

 

  

 

Exploration Projects in Non-Operating Areas

YumpagYumpaq. We are currently focusing our exploration efforts on the Yumpag Project, whichThe Yumpaq project is located four kilometers northeast of the Uchucchacua mine. This project is an epithermal silver-manganese deposit hosted by cretaceous limestone rocks belonging to the Jumasha formation.Cretaceous limestone. Mineralization is structurally influenced by the Cachipampa fault, which also influences significant areas of silver mineralization at the Uchucchacua mine. We estimate NRM

The exploration ramp was completed in 2019 and is 3.42 kilometers in length. This ramp provided access to be 1.26 million tons withfacilitate an average grade of 24.9 ounces per ton of silver and 21.3% manganese inunderground infill drilling program to the Camila ore bodies.vein and was completed in June 2019. In 2018, wetotal, 18,606 meters were drilled as part of this program. SRK (Peru) prepared a mineral resource estimate in September 2019. We plan to invest US$15.31.0 million to continue exploration ofexplore other veins from the YumpagYumpaq project.

Trapiche.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 belongs to the Andahuaylas-Yauri belt, which contains several iron, copper and gold deposits. In 2017, we focused our efforts on reaching an agreement with the local community in order to improve the economic benefits to the community, which we anticipate will allow us to restart field activities and complete a prefeasibility study for a leach only alternative. The resources of leachable material is 290 million tons with an average grade of 0.51 percent copper.

 2427 

 

During 2019 we finished all the necessary drill holes to complete a pre-feasibility study with M3 and finished the on-site column test pilot plant that will be performing leaching confirmation testing thru out 2020. The environmental base line study is almost complete and will supporting the EIA submission on the second part of the year.  Currently starting power line and access road right-of-way negotiations.  

San GabrielGabriel. . The San Gabriel project is wholly-owned by Buenaventura and encompasses 57,282 hectares of mining concessions. The project is located in Moquegua region in southern Peru. This deposit is an intermediate sulfidation deposit hosted by diatreme breccia body at the sediment-intrusive contact. In 2018, we plan to invest US$10 million to conduct additional trade-off studies before moving the project to the prefeasibility stage.

Daniela.The Daniela project is located in the Arequipa region within the highly prospective coastal Iron Oxide Copper Gold deposit/Porphyry belt of southern Peru, consisting of 18,400 hectares of mining concessions, of which we own 11,700 hectares and lease 6,700 hectares from Union Mines S.A.C. In 2017, we conducted 2,093 meters of diamond drilling, which returned negative results. We do not plan to conduct any further exploration activities in 2018.

CcelloccasaSan Gregorio. The Ccelloccasa project is an epithermal vein deposit located in the Ayacucho region and consists of 8,717 hectares of mining concessions wholly-owned by Buenaventura. In 2017, we conducted 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 2018.

San Gregorio.San Gregorio is located infour kilometers south of the Cerro Pasco region. During 2017, weColquijirca mine and consists of carbonate-hosted epithermal zinc-lead deposits. We continued our efforts to achieve an understanding with the local community with the aim of re-activating exploration activities.

Ccelloccasa. In 2019, we obtained the necessary environmental and social permits from Peruvian governmental authorities to begin operations in Ccelloccasa. In 2020, we expect to obtain authorization for commencement of operations from Peruvian governmental authorities, including confirmation from Peruvian governmental authorities that the community supports the upcoming drilling campaign in 2018.program.

Tambomayo:Asunción,. Despite having obtained approval from the necessary environmental authorities, we were unable to operate the diamond drilling program under the Mayra and Gaby. During 2017, we conducted 2,279 meters of diamond drilling on the Asuncion project projects due to social conflicts. We are working with negative results. We intendlocal governments to explore the eastern end of the vein upon receipt of permission from the owner of the surface rights. We also obtained the environmental permits needed to execute a diamond drill campaign of 5,500 meters at the Gaby and Mayra projects during the second quarter of 2018. In 2018, we plan to invest US$3.0 million inreinstate exploration programs under these explorations.projects.

 

Exploration in Operating Areas

Uchucchacua. During 2017,2019, the exploration activities wereprogram was mainly focused on the Socorro, mine, earning the largest volume of mineral reserves. The Huantajalla,Cachipampa, Carmen and Casualidad minessectors. In Socorro below the Amy - Giovanna system, silver values greater than 15 ounces per ton were explored with relative success, finding narrow structuresdiscovered. By 2020, we expect exploration to be focused on (where higher levels) of this silver are easily accesible, including the Rosa, Sandra and Tension veins. In addition, we will continue to explore the Amy-Giovanna system below level 4710 for resources with high silver contents.values.

OrcopampaOrcopampa.. In 2017, geologicalDuring 2019, a program was implemented to centralize mining operations and was part of “debottlenecking” process that allowed us to reach a positive operating margin in the fourth quarter of 2019. The exploration activities wereprogram was focused on three areas:generating new targets and increasing the certainty of the resources in the Pucará Sur, vein area, where high-grade gold reserves were found; thePucara Sur Piso, Pucarina, María Isabel 2, Ocoruro and Nazareno Prosperidadveins, between levels 3690 and Andrea vein areas, which are important for providing mineral reserves with high gold and silver grades; and the Prometida area, where the new Alondra vein was explored, which has important gold and silver grades and widths of up3540. In 2020, we expect explorations to 2.0 meters.

Tambomayo. During 2017, explorationbe focused on definingOcoruro, María Isabel and Pucará Sur sectors.

Tambomayo.Explorations made to date show economic mineralization between the east4950 and west extensions4100 meters above sea level, which means 850 vertical meters and 1,200 horizontal meters. These explorations generated great geological potential for exploring in the structures of this main system. In 2019, the exploration program was focused on completing the recognition of the Mirthaveins in the operational footprint and Esperanza veinsre-categorizing and extending the Paola vein system at levelresources for this program. Three main areas, including the deepening in the area of operations, and Venturosa and Los Diques, were explored in order to open new exploration fronts between levels 4540 and 4340. These explorations have contributed ore resources with important silvernew areas yielded hints of favorable mineralization and gold grades. In 2018, we planexpect they will continue to carry out a campaign of diamond drills focused on deepening known veins to levels below 4340.be explored in 2020.

 

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.

 

25

Sales of Metal Concentrates

 

All of our metal production is sold to smelters and traders, either in concentrate or metal form, such as gold-silver concentrate, silver-lead concentrate, zinc concentrate, lead-gold-copper concentrate, gold-copper concentrate and gold and silver bullion. Our concentrates sales are made under one to three-year, U.S. Dollar-denominated contracts, pursuant to which the selling price is based on world metal prices as follows: generally, in the case of gold and silver-based concentrates, the London Spot settlement prices for gold, less certain allowances, and the London Spot or the U.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 pricesof concentrates and metal allow for aprice adjustments based on their market price at the end of the relevant quotational period (QP), 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. Sales of concentrates and metals at provisional prices include a gain (loss) to be received at the end of the QP, based on the spread between the actual price at the end of the QP and the agreed contractual average prices; this is considered a variable portion of the consideration. Changes in the price during the QP are recognized in the “Net of sales of goods” caption.

 

28

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 two years and through March 31, 20182020 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. 
2018  1,268.49   1,267.99   15.71   15.09 
2019  1,393.71   1,405.36   16.20   16.36 
2020 (through March 31, 2020)  1,582.80   1,691.81   16.90   17.16 

 

  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. 
2016  1,248.32   1,244.02   17.10   17.65 
2017  1,257.13   1,267.56   15.56   16.54 
2018
(through March 31, 2018)
  1,329.28   1,344.15   16.77   16.20 

(1)Our average annual price includes only the consolidated average annual price from our mines.

 

(2)Average annual gold prices are based on the London PM fix as provided byMetals Week.

 

(3)

Average annual silver prices are based on London Spot prices.

 

Most of the sales contracts we enter into with our customers state a specific amount of metal or concentrate the customer will purchase. We have sales commitments from various parties for nearly all of our estimated 20182020 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)

 
Product 2016  2017 
  (US$ in thousands) 
Gold  440,603   511,434 
Silver  385,989   409,745 
Lead  58,690   94,955 
Zinc  142,425   188,023 
Copper  224,649   268,527 

 

  Year ended December 31,(1) 
Product 2018  2019 
  (US$ in thousands) 
Gold  411,877   254,194 
Silver  362,122   298,171 
Lead  85,555   89,141 
Zinc  164,666   149,317 
Copper  274,761   238,304 

(1)

Does not include commercial deductions for refinery charges and penalties incurred in 20172019 of US$253.9 220.4 million and in 20162018 of US$244.4192.7 million.

 

Approximately 60.48%52.97% and 55.07%41.29% of our concentrate and gold bullion sales in 20162018 and 20172019 (without considering adjustments to prior periods embedded derivativesliquidations, fair 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 was sold to our various customers from 20162018 to 2017.2019.

 

 2629 

 

 

 Percent of Concentrates and Gold Bullion Sales  Percent of Concentrates and Gold Bullion Sales 
 2016  2017  2018 2019 
Export Sales:             
Asahi Refining Canada Ltd and Asahi Refining USA Inc.  38.53   38.04  32.96 21.12 
Lois Dreyfus Commodities Metal Suisse SA  3.43   2.70 
IXM S.A. (formerly Louis Dreyfus Commodities Metal Suisse SA) 1.69 0.3 
Mercuria Energy Trading SA  3.40   2.37  3.30 2.9 
Metalor Technologies  2.76   1.66  2.36 0.73 
N.V. Umicore SA  2.38   1.41  0.90 0.8 
MRI Trading AG  1.46   1.66  1.10 1.25 
Others  8.52   3.86   10.66  14.19 
Total Export Sales  60.48%  51.70%  52.97%  41.29%
             
Domestic Sales:             
Andina Trade S.A.C.  0.67   0.98  1.12 3.26 
Glencore Peru S.A.C.  20.74   20.26  17.40 16.27 
Trafigura Peru  7.58   11.95  12.77 24.77 
Sudamericana Trading SRL  2.14   2.44  3.61 0.64 
Lois Dreyfus Commodities Peru S.R.L  3.23   7.66 
IXM Trading Peru S.A.C. (formerly Lois Dreyfus Commodities Peru S.R.L) 9.89 11.35 
Others  5.16   5.01   0.83  2.42 
Total Domestic Sales  39.52%  48.30%  47.03%  58.71%
Total Sales  100%  100%  100%  100%

 

The following table shows our committed sales volumes of silver-lead, gold-silver and zinc concentrates from 20182020 to 2020:2022:  

 

 Wet tons  Wet tons  Wet tons  Wet tons  Wet tons  Wet tons 
Concentrate 2018  2019  2020  2020  2021  2022 
Uchucchacua’s Silver-Lead  102,000   48,000   39,000   91,200   25,600   23,000 
Uchucchacua’s Zinc  58,000   38,000   38,000   93,000   -   - 
Uchucchacua’s Silver  76,800   77,900   73,100 
Julcani’s Silver-Lead(1)  4,600   1,600   -   4,550   4,400   4,400 
Mallay’s Silver-Lead(2)  4,500   -   - 
Mallay’s Zinc(2)  5,000   -   - 
Julcani’s Silver  3,500   -   - 
Tambomayo’s Silver-Lead  8,200   8,000   4,000   15,800   5,000   5,000 
Tambomayo’s Zinc  17,000   19,000   15,000   15,300   1,500   1,500 
El Brocal’s Copper  276,000   329,000   233,000   244,000   325,700   265,000 
El Brocal’s Lead-Silver(1)  48,000   21,000   - 
El Brocal’s Zinc  104,000   89,000   28,000 

 

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

(1)Represents committed sales volumes from 20182020 to 2019.2021.
(2)Represents committed sales volumes for 2018.2020.

 

We also sell refined gold, which is derived from our operations at Orcopampa, Tambomayo, Coimolache and La Zanja to Asahi Refining, or “Asahi,” which further refines the gold. During 2017,2019, the price of 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 Asahi’s works and returned to our account for sale to third parties. Pursuant to our agreement, we are responsible for delivering the gold to Asahi’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.

 

 2730 

 

 

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 finance 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 2018,2019, El Brocal had outstanding hedging commitments amounting to 36,0002,000 metric tons of copper at an average fixed price of US$6,479 7,349 per ton and 6,000 metric tons of zinc at an average price of US$ 2,907 per ton.

 

Regulatory Framework

 

Mining and Processing Concessions

 

In Peru, as in many other countries, 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 MEM.

 

Pursuant to the General Mining Law, filers of mining claims cannot beginmust obtain a mining concession before they start any mining activity prior to obtaining a mining concession.activity. Applications for mining concessions must be filed with the regional mining directors of each regional government where the mining concession is located andor withInstituto Geológico Minero y Metalúrgico the Geological, Mining and Metallurgical Institute of Peru (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 granted 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 losscancellation of such mining 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, 20192009 for mining concessions granted before October 10, 2008) could result in cancellation of the mining concessions.

 

Our and Yanacocha’s processing concessions enjoy the same duration and tenure as our mining concessions, subject to payment of a fee based on nominal capacity of the applicable processing plant. Failure to pay processing fees for two consecutive years could result in the losscancellation 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-EMNo. 042-2017-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 for land containing prospective geological exploration target sites, deposits that can be exploited in the future and areas suitable for plants or facility sites. Regarding processing concessions, Article 35 of Supreme Decree No. 018-92-EM, as amended, 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.

 

28

The possibility of developing mining activities in an urban area or urban expansion area is directly linked to the compatibility of such areas and the mining activity.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, 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 MEM subject to the approval of municipal authorities, but cannot exceed 100 hectares.

 

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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 No. 001-2010-MINAM, OSINERGMIN transferred its environmental supervisory functions to the Environmental Evaluation and Oversight Agency (“OEFA”) in 2010.. Beginning July 22, 2010, OEFA assumed the authority to carry out unexpected audits and levy fines on companies if they fail to comply with enforceable environmental regulations and approved environmental assessments. According to Supreme Decree No. 128-2013-PCM, mining companies are required to make monetary contributions to OSINERGMIN and, according to Supreme Decree No. 130-2013-PCM, monetary contributions are also required to be made to 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 N° 009-2012—No. 003-2013—TR, MINTRA transferred its security supervisory, audit and sanctioning functions to theNational Labor Audit EntitySuperintendence 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.

 

On July 28, 2016, Supreme Decree No. 024-2016-EM, as amended by Supreme Decree No. 029-2016-EM and Supreme Decree No. 023-2017-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 Environment (“MINAM”) issued national environmental 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 regulations and their approved environmental assessments.

 

EachIn May 1993, the regulation for environmental protection under mining companyand metallurgical activities (reglamento para la proteccion ambiental en la actividad minero - metalúrgica), was published and approved by Supreme Decree No. 016-93-EM. This regulation established that every mining unit that began operations before May 1993 was required to file a Preliminary Environmental Assessment (“EVAP”) followed by a Program for each of its mining unitsEnvironmental Adequacy and Management (“PAMA”). For new operations, an EIA had to disclose any negative environmental impacts of its operations and, thereafter, to submit a follow-up Programabe submitted. In 2014, this regulation was repealed by Supreme Decree No. 040-2014-EM (reglamento de AdecuacióProtección y ManejoGestión Ambiental (“PAMA”para las Actividades de Explotación, Beneficio, Labor General, Transporte y Almacenamiento Minero) aimed at implementing measureswhich regulates mining production, processing, labor, transportation and storage and sets forth a new set of requirements for these activities. Going forward, social and technical teams from MEM will gather the baseline information to solve problems identifiedregulate these activities. Early involvement by the regulatory authority in the EVAP. Companies must correct the negative environmental impacts relatingassessments processes is expected 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.shorten approval times.

 

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In addition,1996, MEM hasalso issued regulations that establish maximum permissible levels (“LMP”LMPs”) of (i) emissions of liquid effluents emissions and (ii) elements and compounds present in gaseous emissions resulting from the mining activities. Generally, mining rights holdersMines and processing plants that were in operation before May 1993 were required to comply with LMPLMPs within 10 years. Inyears and in the meantime, mining operators arewere required to prepare Environmental Adaptation and Management Programs, or PAMAs, that set forth plans to ensure compliance with more stringent LMP.LMPs. The first General Water Law was enacted in 1969. In 2008 and 2010, MINAM enacted new water quality standards and new LMPLMPs for liquid effluents.  Ineffluents, and, in 2009, all Peruvian mining companies were required to submit updated environmental management plans to MEM that complied with water quality standards and new LMPLMPs for liquid effluents. Ateffluents to MEM. By the end of 2015, Supreme Decree No. 015-2015 - MINAM (the “2015 Decree”) was enacted, which modified themodifying water quality standards and establishedestablishing supplementary provisions related to compliance. In 2017, Environmental Quality Standards (Estándares de Calidad Ambiental) (“ECAs”) for water were modified by Supreme Decree No. 004-2017-MINAM. Permissible maximum limits approved in 2010 are still valid.

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In May 2008, the MINAM was establishedcreated by Legislative Decree No. 1013. MINAM’s main functions include formulating and implementing policies and regulations relatingrelated to environmental matters and controlling pollution control, including regulatingregulation of air and water quality standards, through supervision and education.

In 2008 and 2010, MINAM enacted new water quality standards and new LMP for liquid effluents. In 2009, all Peruvian mining companies were required to submit updated environmental management plans to MEM that complied with water quality standards and new LMP for liquid effluents.

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

  

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

 

In 2017, new ECAECAs for soils were approved by Supreme Decree No. 011-2017-2017,011-2017-MINAM, replacing the ECAECAs approved by Supreme Decree No. 002-2013-MINAM. The new ECAECAs 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,ECAs, Supreme Decree No. 002-2013-MINAM will remain applicable and the new ECAECAs 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.ECAs. 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 a Semi-detailed Environmental Assessment (Estudio de Impacto Ambiental) (“EIAsd”) before being authorized to commence operations. New mining and plant processing activities are required to comply with the LMP from the initiation of their operations. In 2009, MEM approved the 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, 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. This resulted in new regulations for all extractive productionproductions and services in Peru, including mining, which prioritize the material and energy recovery of solid waste through different methods, including recycling, reuse and co-generation.

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 modified by a new regulation for exploration activities. 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. For Category II exploration activities, an EIAsd that incorporates technical, environmental and social 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 the DIA or EIAsd is approved. The DIA, the EIAsd and the FTA, as applicable, must be approved before exploration activities begin. Any commitments assumed by mining companies in a DIA, EIAsd or FTA are mandatory and, if they are not fulfilled, OEFA has the authority to fine non-compliant mining companies. The regulation also provides that the holder of mining concessions will perform specified closure and post closure activities during exploration programs. In addition, fines can be imposed if exploration programs begin before the DIA, the EIAsd and the FTA are approved, and the approval of environmental assessments for exploration activities performed within protected natural areas requires the approval of the competent authority. Exploration in Prehispanic Archeological Sites (referred to in Supreme Decree No 004-2000-ED) is forbidden unless expressly authorized by the Ministry of Culture.

 

In May 2008, MEM also enacted Supreme Decree No 028-2008-EM, which regulates the citizen participation process within the framework of environmental permit approval. The DIA and EIAsd provide local communities with an opportunity to engage actively in this process.

 

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The following DIAs and EIAsd were approved in 2017:2019:

 

Buenaventura
Mine/Project Type of Study Approving Resolution Date of Approval
Yumpag/CaramaYumpaq EIAsd 2ndModification 111-2017-MEM-DGAAM04.11.17
GabyITS026-2017-MEM/232-2019-MINEM/DGAAM 09.13.17December 26, 2019
Trapiche DIAEIAsd 5th  Modification 316-2017-MEM/148-2019-MINEM/DGAAM 
MayraEIAsd11.10.17August  26, 2019

 

La Zania SRL
Mine/ProjectType of StudyApproving ResolutionDate of Approval
La Zanja

2nd ITS of 9th

MEIAsd

348-2017-MEM-/DGAAM06.26.17

Coimolache
Mine/ProjectType of StudyApproving ResolutionDate of Approval
Tantahuatay1st ITS of EIAsd008-2017-MEM/DGAAM01.10.17

In 2017, a new regulation for mining exploration activities was enacted, modifying various provisions and introducing new provisions. This regulation was approved by Supreme Decree No. 042-2017-EM, however, it is not yet effective because the Technical Form and Terms of Reference have not been approved. When the regulation enters into force, Category I exploration activities will be required to have no more than 40 drilling platforms, and Category II exploration activities will be required to have between 40 and 700 drilling platforms.

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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 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. This should facilitate the approval of environmental assessments for our new exploration projects and simplify the issuance of certificates of non-existence of archeological remains required for mining projects. In 2019, 25 ITSs were approved.

 

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 MEM within one year following approval of an EIA or PAMA; and inform MEM semi-annually of any progress on the conditions established in the Closure Plan. We are also required to perform the Closure Plan consistent with the schedule approved by MEM during the life of the project; and set up a financial environmental guarantee that covers the estimated amount of the Closure Plan.

In addition, Supreme Decree No. 020-2008-EM requires mining companies that perform exploration activities to conduct certain closing activities in accordance with the approved environmental 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. Supreme Decree Nº 036-2016-EM modified articles 12 and 17 and included articles 46-A y 66-A of the Supreme Decree Nº 033-2005-EM.

 

OurIn 2017, our Closure Plans were approved by MEM for all of our mines and advanced explorations.

 

The following mine closure plan modifications were approved in 2017:2019:

 

Buenaventura
Mine/Project Type of Study Approving Resolution Date of Approval
San GabrielClosure Plan081-2019-MEM-DGAAMMayo 30, 2019
TambomayoClosure Plan 1st  Modification140-2019/MINEM-DGAAMAugust 8, 2019
Julcani 6th Modification of the Mine Closure Plan 2ndUpdate 325-2017-MEM-DGAAM226-2019-/MINEM-DGAAN 11.15.17December 20, 2019
Mallay 5th Modification of the Mine Closure Plan 2ndUpdate 356-2017-MEM-DGAAM067-2019/MEM-DGAAM 12.19.17Mayo 14, 2019
UchucchacuaPozo RicoClosure Plan 1st  Modification199-2019/MINEM-DGAAMNovember 15, 2019

Subsidiaries
Mine/Project 2nd UpdateType of the Mine Closure PlanStudy 142-2017-MEM-DGAAMApproving Resolution 05.11.17Date of Approval
OrcopampaLa Zanja 2nd Update of the Mine Closure Plan 2ndUpdate 338-2017-MEM/DGAAM071-2019-MEM-DGAAM 11.28.17May 17, 2019
ColquijircaClosure Plan 2ndUpdate077-2019/MEM-DGAAMMay 23, 2019

 

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 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 can only be filed once mining activities have ceased and contain a detailed description of all mining facilities and activities performed without the correspondent environmental certification, including maps and related information, a detailed description of the environmental impacts created by such activities, a detailed description of the remediation actions, a detailed description of the compensation that is proposed to be made, a budget and schedule of the remediation activities, including their costs, and a bond in favor of MEM 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, MEM’s technical branch 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 MEM to perform any studies and work necessary to control and mitigate the risk and effects of any contamination. Regulations under Law No. 28271, Regulations of Environmental Liabilities of Mining Activities (Reglamento de Pasivos Ambientales de la Actividad Minera), were approved by Supreme Decree No. 059-2005-EM. and then modified by Supreme Decree No. 003-2009-EM.

 

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

 

On November 12, 2014, a new regulation for the Environmental Protection and Management by-law was enacted (Supreme Decree 040-4014-EM), which covers mining production, processing, common labor, transport and storage, which sets forth a new set of requirements for these activities. Going forward, social and technical teams from MEM will conduct the gathering of baseline information. Early involvement of the statutory authority throughout the environmental assessments 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 EIAEIAs submitted by private, public, or mixed-capital organizations. This development is consistent with the expansion of MINAM’s technical and regulatory capacities. In 2019 EIAs for Yumpaq and Trapiche were prepared under SENACE supervision.

Finally, the Enviromental Baseline Elaboration Guidelines

(Guía para la elaboración de la Línea Base en el marco del Sistema Nacional de Evaluación del Impacto Ambiental– SEIA) and Identification and Characterization of Environmental Impacts Guidelines (Guía para la Identificación y Caracterización de Impactos) were approved by Ministerial Resolution N0. 036-2018-MINAM in 2018.

 

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 that would require 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 to the approval of environmental 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 assessments 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– ILO 169 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. 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. In 2019, Ministerial Resolution No. 304-2019-MINEM/DM was issued, establishing the administrative procedures from the Mining Sector that require prior consultation - in case those procedures affect indigenous communities - which are: (i) processing concession; (ii) authorization to initiate or re-initiate exploration, development or exploitation activities; (iii) mineral transport; and (iv) mining labor.

 

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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.

 

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-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.

 

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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% that increase progressively for companies with higher operating margins will apply. Percentages for the distribution of proceeds from mining royalties were amended by Law No. 28323.

 

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 an 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 ranging from 2% to 8.4% that increase progressively for companies with higher operating 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% that increase progressively for companies with higher operating margins.

 

Safety

 

During 2017,2019, we experienced 89442 reportable injuries, which comprised 84 lost-time injuries and fiveincluding two fatal injuries, as compared to 67 total reportable injuries during 2016, which comprised 64 lost-time injuries and three fatal injuries.injuries in 2018. 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. Starting in 2017, we increased rows on classifications for lost time injuries and external non-mining projects (public roads, health and education facilities constructions) all of which were reported to the Bureau of Labor.

The table below shows Accident Rates based on the number of fatal and lost time accidents (Frequency) and days lost (Severity). The table shows a decreasing trend for Accident Rates between 2018 (1.90) and 2019 (1.61).

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C.Organizational Structure

 

As of March 31, 2018,2020, 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:

 

 

Compañía de Minas Buenaventura S.A.A . Compañía Minera Coimolache S.A. Contacto Corredores de Seguros S.A. Compañía Minera Colquirrumi S.A. Buenaventura Ingenieros S.A. Apu Coropuna S.R.L. Minera Julcani S.A. de C.V. Procesadora Industrial Rio Seco S.A. Compañía Minera Condesa S.A. El Molle Verde S.A.C. Soc. Minera Cerro Verde S.A.A. Ferrovías Central Andino S.A. Minera La Zanja S.R.L. S.M.R.L. Chaupiloma Dos de Cajamarca Compañía Minera Nueva Italia S.A. Minera Yanacocha S.R.L. Inversiones Colquijirca S.A. Sociedad Minera El Brocal S.A.A. Consorcio Energético de Huancavelica S.A. Empresa de Generación Huanza S.A. Cia de Minas Cerro Hablador S.A.C. 40.10% 100.00% 100.00% 99.98% 70.00% 100.00% 100.00% 100.00% 100.00% 19.58% 10.00% 53.06% 100.00% 100.00% 100.00% 2 0.00% 40.00% 40.78% 52.30% 45.95% 4.45% 58.25% 3.18% 95.55%

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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), Compañía de Minas Buenaventura Chile Ltda. (which is organized in Chile) and, BISA Argentina S.A.( which is organized in Argentina) and Tinka Resources Limited (which is organized in Argentina),Canada) are incorporated in Peru.

*Compañía Minera Condesa S.A. holds 21,160,260 common sharesCommon Shares of Compañía de Minas Buenaventura S.A.A., or approximately 7.70%7.69% of our total common shares.Common Shares.

 

Intermediate Holding Companies, Subsidiaries and Equity Participations

 

Compañía Minera Condesa S.A.

 

Compañía Minera Condesa S.A., or “Condesa,” our wholly-owned subsidiary, is a mining and facilities holding company with both direct and indirect ownership participation in Yanacocha. As a partner in Yanacocha, Condesa shares responsibility for the investments made in the Yanacocha mine. In addition, Condesa holds an equity interest in 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 Buenaventura.

 

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

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.interest

 

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 ofelectricity to our electrical needsoperations 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 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.

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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 affiliates.

 

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.  Minera Julcani S.A. de C.V. has had no exploration activities since 2014, when the exploration agreement with Surutato Mining, S.A. de C.V., to conduct exploration activities within its property located in Sinaloa, 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 61.43% of El Brocal through both direct and indirect ownership interests.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 as an open-pit mine producing gold and silver.

 

FerrovíasFerrocarril Central Andino S.A.S.A 

 

We hold 10% of FerrovíasFerrocarril Central Andino S.A. (“Ferrovías”),S.A, 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., with 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.

 

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 allows mining from areas with high silver and manganese content within the Uchucchacua mine, improving 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 “—B. Business Overview—Exploration Projects in Non-Operating Areas” above for further information about this project.

 

Tinka Resources Limited

Buenaventura holds 19.3% of Tinka Resources Limited, an exploration and development company that owns (36%) of the Ayawilca Project, located at Daniel Alcides Carrión, Pasco.

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YANACOCHA

 

A.History and Development of the CompanyYanacocha

 

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.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 2017,2019, Yanacocha produced 534,692527,336 ounces of gold, compared to 654,934514,564 ounces of gold produced in 2016.2018. Gold production decreased 18%ounces produced increased 25% due primarily due to lower mill grade,higher recovery and throughput as well as lower leach tons placed, partially due to the Yanacocha mine nearing the end of its current mining operations.from La Quinua heap leach.

 

Yanacocha is 54.05%51.35% owned by Newmont Peru. The remaining 45.95%Second Capital Corporation. A 43.65% interest in Yanacocha is indirectly held by Buenaventura.Buenaventura and the remaining 5% is held by Summit Global Management II VB, a wholly-owned subsidiary of 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.

 

On December 22,21, 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.Business Overview

 

Description of Yanacocha’s Operations

Yanacocha’s mining activities encompass 301,000 acres (121,810 hectares) that are covered by 185 mining concessions. Yanacocha 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.

 

Yanacocha is located near Cajamarca, Peru, and currently operates the following open pit mines: Chaquicocha,has three processing concessions from Peru’s MEM for its processing facilities: Cerro Yanacocha (La Quinua and Yanacocha leach pads, La Quinua Complex (La Quinua, El Tapado and El Tapado Oeste)Yanacocha Norte gold recovery plants and Yanacocha Gold Mill), Western Oxide pits (La Quinua SurYanacocha (Carachugo and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte) and Carachugo Alto. Mining activities in Maqui Maqui Marleny and Cerro Negro Este ceased in 2016. Yanacocha has four leach pads threeand Pampa Larga gold recovery plant) and China Linda (non-metallic processing facilities, one limestone processing facility (China Linda) and one mill.

concessions). 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. The Yanacocha Gold Mill processes high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant. The Yanacocha Gold Mill processes between 5.5 and 6.0 million tons per year.

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 the Yanacocha Gold Mill processes high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant, followed by Merrill-CroweMerrill - Crowe zinc precipitation and smelting where a final doredoré product is poured. The doreore is then shipped offsite for refining and is sold on the international gold market. The Yanacocha Gold Mill commenced operations in March 2008 and it processes between 5.5 and 6.0 million tons per year.markets.

 

Yanacocha and Chaupiloma each have mining concessions granted by INGEMMET, whichPeru’s Geological, Mining and Metallurgical Institute. Mining concessions grant Yanacocha an exclusive and irrevocable right to carry out exploration and exploitation activities within a specified area. In order to maintain such miningthese 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 2028.2038. Mining concessions granted inon or after 2008 or later will expire if minimum production is not attained within twenty years from the date of such granting.by 2038.

 

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In Peru, a revised royalty and special mining tax was introduced in October 2011. This tax is dependent on whether or not a stabilization agreement is in effect and is based on a sliding scale, ofbetween 1% toand 12%. A stabilization agreement is currentlywas in effect through December 2018 for operations in the La Quinua Complex.

 

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Quecher Main Project

 

This project willis expected to add oxide production at Yanacocha, leveragingleverage existing infrastructure and enablingenable potential future growth at Yanacocha. First production is expectedwas achieved in early 2019 withlate 2018 and commercial production expected in the fourth quarter ofstarted on October 2019. The Quecher Main extends the life of the Yanacocha operation to 2027 with an average annual gold production of approximatelyabout 200,000 ounces unaudited per year (on a consolidated basis) between 2020 and 2025. Development capital costs (excluding capitalized interest) since obtaining approval were US$12193 million all of which were incurred during(US$96.8 million for the fourth quarter of 2017.year 2019).

 

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/or development of new reserves as the project’s development and reserve balances reported in 2014 were reclassified to mineralized material in 2015.

 

Environmental Matters

 

In early 2015, MINAM, the Peruvian government agency responsible for certain environmental regulations, the MINAM, issued proposed water quality criteria and standards for designated beneficial uses which apply to mining companies, including Yanacocha. These criteria would modify the in-stream water quality criteria pursuant to which Yanacocha 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 to the Ministry of Energy and Mines (“MINEM”) its proposed modification to the previously approved EIAEnvironmental Impact Assessment to the MEM, which remained under review in February 2017, which2019 and evaluation is still under review.expected in 2020. After approval, MINEMMEM may allow up to three years to develop and implement the modifications to the water management system. In the event Yanacocha is unsuccessful in implementing the modifications in compliance with the new regulations and deadlines, it could result in fines and penalties relating to potential intermittent non-compliant exceedances. In addition, if accepted, the treatment modifications willoptions may result in increased costs. These impacts may adversely affectimpact the future cost and financial performance of our operations in Peru.

 

OEFAThe 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 and 2017,to 2019, OEFA issued notices of alleged violations of OEFA standards to Yanacocha and Conga relating to past inspections. OEFA has resolved some alleged violations 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 2017 with no findings. Past experiencesThe experience with OEFA and the water authority have shownis that in the case of a finding of violation, remedial action is often the outcome rather than a significant fine. The alleged OEFA violations currently range from zero to 11,31017,642 units and the water authority alleged violations range from zero to 10,05410 units, with each unit having a potential fine equivalent to approximately $.0012241,260 dollars based on current exchange rates ($with a total potential fine amount for outstanding matters of (US$0 to $26)US$22,200). Yanacocha and Conga are 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 changesAs a result, the Company recorded increases to the updatedreclamation obligation at Yanacocha in connection with an update to the Yanacocha closure plan, resulting in 2017 prioran increase to submittingthe recorded asset retirement cost related to Peruvian regulatorsthe producing areas of the mine and a non-cash charge to reclamation expense related to the areas of the mine no longer in September 2017.production. The regulators completed their reviewincrease to the reclamation obligation was primarily due to higher estimated long-term water management costs, heap leach earthworks and approved the updated closure plan in November 2017.related support activities.  

 

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 ClaimClaim.. On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against MINEMthe MEM and Yanacocha requesting the Court to order the suspension of the Conga project andas well as to declare the directorial resolution dated October 27, 2010 directorial resolution approvingwhich approved the Conga project EIAEnvironmental Impact Assessment (“EIA”) not applicable. On October 23, 2012, a Cajamarca judge dismissed the claims based on formal grounds finding that,that: (i) plaintiffs had not exhausted previous administrative proceedings,proceedings; (ii) the directorial resolution approving the Conga project EIA is valid, and was not challenged when issued in the administrative proceedings,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 andand; (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 proofevidence presented by the plaintiff. Yanacocha has answered the claim. Neither the Company nor Yanacocha can reasonably predict the outcome of this litigation.1

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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 Dos de Cajamarca S.M.R.L. The contractual rights allowed Yanacocha the opportunity to conduct exploration on the concessions, but not toa 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 are 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 was selected to issue a decision and the parties conducted oral arguments in April 2019. In early February 2020, the additional judge ruled in favor of the tax authority, finalizing a decision of the Peru Supreme Court against Yanacocha. See note 24 to the Yanacocha consolidated financial statements. Yanacocha will file an appeal in respect of the fines and interest associated with the underlying decision of the Peru Supreme Court. The potential outstanding liability in this matter is in the form of fines and interest in an amountamounts up to US$7561 million. While Yanacocha has assessed that the likelihood of a ruling against us in the Supreme Court is remote, itIt is not possible to fully predict the outcome of this litigation.

 

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.

 

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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:

·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.

 

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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 appointedis the Chairman of Yanacocha’s Executive Committee and Roque Benavides, our 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.

 

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 (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.

 

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.43

C.Property, Plants and Equipment

 

Our Properties

 

Introduction

 

We currently have fivefour wholly-owned operating mines (Orcopampa, Uchucchacua, Julcani, Tambomayo and Mallay)Tambomayo) and controlling interests in three 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—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

 

Directly Operated Properties

Orcopampa

 

The Orcopampa mine is wholly-owned and operated by Buenaventura. We lease the rights to the mining concessions of Orcopampa from a group of private investors. This lease, which expires in 2043, requires us to pay 10% of production value, subject to certain conditions. Operations began at the Orcopampa mine in 1965. In 2017,2019, we made lease payments of US$20.2 4.741 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 methods. Mine ore is processed by the carbon-in-leach method in a plant located in Orcopampa, which was also outfitted for the treatment of old tailings.Orcopampa. Electric power is primarily obtained from the Peruvian national electricity grid. Water for operations at Orcopampa is obtained from a lake and rivers.local river.

 

As of December 31, 2017,2019, proven and probable ore reserves were 851,166626,276 tons, with 38.2615.13 grams per ton of silver and 11.599.99 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)  Year Ended December 31,(1) 
 2016  2017  2018  2019 
Mining Operations:             
Ore mined (t)  464,366   500,580  353,891 127,079 
Average gold grade (g/t)  12.66   11.89  9.98 10.30 
Average silver grade (g/t)  59.72   37.95  32.04 5.93 
Production:             
Gold (oz.)  191,102   190,976  115,887 41,660 
Silver (oz.)  692,318   528,449  312,250 18,791 
Recovery rate (gold) (%)  96.33   97.14  97.10 96.75 
Recovery rate (silver) (%)  73.39   85.05  81.73 76.76 
Cost applicable to sales per oz. of gold(2) US$704  US$743  US$1,020 US$1,489 
Cost applicable to sales per oz. of silver(2) US$9.62  US$10.02  US$12.70 US$           17.98 

 

(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—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 Buenaventura. Operations began in 1975 and Uchucchacua remains our largest silver 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.

 

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The 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 and utilizes cut-and-fill stopping, shrinkage stoppingthe mechanized bench-and-fill and sublevel stoppingcut-and-fill methods. Ore is processed at a mill located at Uchucchacua. The mill has a rated capacity of 4,000 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. Water for operations at Uchucchacua is obtained from three local lakes.

 

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During 2017,2019, the manganese sulfate plant of Rio Seco treated 32,435 tons32,409 tms of concentrates from the Uchucchacua mine, with 129.467.2 ounces per ton of silver, 10.9%11.6% lead and 25.7%23.4% manganese. Following treatment, 19,86320,692 tons were obtained, with 210.4104.4 ounces per ton of silver, 17.8%17.9% lead and 3.4%3.8% manganese. This process also allowed for the production of 17,01418,463 tons of sulfuric acid of 98% purity and 21,40222,019 tons of commercial grade manganese sulfate monohydrated.

 

As of December 31, 2017,2019, proven and probable ore reserves were 4,893,59710,425,777 tons, with 410.85294.24 grams per ton of silver, 1.32%1.19% lead and 2.18%2.03% 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)  Year Ended December 31,(1) 
 2016  2017  2018 2019 
Mining Operations:             
Ore mined (t)  1,267,752   1,364,478  1,387,775 1,335,018 
Average silver grade (g/t)  473.71   458.15  388.17 281.85 
Average zinc grade (%)  1.17   1.80  2.23 2.20 
Average lead grade (%)  0.93   1.36  1.60 1.52 
Production:             
Silver (oz.)  16,212,746   16,583,698  15,420,102 10,640,913 
Zinc (t)  7,227   13,040  21,840 19,144 
Lead (t)  10,724   16,708  19,122 17,635 
Recovery rate (silver) (%)  83.95   82.50  87.43 87.96 
Cost applicable to sales per oz. of silver(2) US$11.03  US$10.61  US$10.37 US$12.15 
Cost applicable to sales per ton of zinc(2) US$2,223  US$2,951  US$1,976 US$2,071 
Cost applicable to sales per ton of lead(2) US$1,214  US$1,571  US$1,349 US$1,310 

 

(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—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.

 

46

Julcani is a large polymetallic deposit in Central Peru, which principally produces silver that presents mainly as sulpho-salts in many mineralogically complex veins. 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 seasonal stream and a small lagoon.

 

44

During 2017, exploration activities focused on the Accchilla mine, where we found approximately 100,000 tons of silver having a composition of 21.15 ounces per ton of silver. In the Estela mine, 25,383 tons of silver having a composition of 19.83 ounces per ton of silver were designated as reserves.

As of December 31, 2017,2019, total proven and probable ore reserves were 269,955255,097 tons, with 619.92653.64 grams per ton of silver, 0.220.17 grams per ton of gold, 2.13%2.00% lead and 0.47%0.43% 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 production.

 

  Year Ended December 31,(1) 
  2016(2)(3)  2017(2)(3) 
Mining Operations:        
Ore mined (t)  173,865   130,854 
Average gold grade (g/t)  0.12   0.12 
Average silver grade (g/t)  606.83   552.71 
Average lead grade (%)  1.76   1.47 
Average copper grade (%)  0.18   0.15 
Production:        
Gold (oz.)  246   200 
Silver (oz.)  3,264,420   2,249,527 
Lead (t)  2,883   1,824 
Copper (t)  291   192 
Recovery rate (silver) (%)  96.25   96.77 
Cost applicable to sales per oz. of silver(4) US$11.62  US$17.12 
Cost applicable to sales per ton of lead(4) US$1,241  US$2,543 
Cost applicable to sales per ton of copper(4) US$2,837  US$6,318 

  Year Ended December 31,(1) 
  2018(2)(3)  2019(2)(3) 
Mining Operations:        
Ore mined (t)  109,025   123,818 
Average gold grade (g/t)  0.04   0.09 
Average silver grade (g/t)  726.27   681.16 
Average lead grade (%)  1.01   0.86 
Average copper grade (%)  0.16   0.16 
Production:        
Gold (oz.)  71   150 
Silver (oz.)  2,482,907   2,609,006 
Lead (t)  1,048   966 
Copper (t)  169   185 
Recovery rate (silver) (%)  97.41   96.22 
Cost applicable to sales per oz. of silver(4) US$14.98  US$13.49 
Cost applicable to sales per ton of lead(4) US$2,191  US$            1,585 
Cost applicable to sales per ton of copper(4) US$7,392  US$            4,788 

 

(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—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.

 

Mining work

47

The underground works on the main Mirtha vein and diamond drilling carried out to date show an economic mineralization that deepens up to approximately 4,300850 meters above sea level,and it expands over 1,200 horizontal meters, increasing the size of the economic mineralization by 650 vertical meters.area to explore. Mining at Tambomayo is conducted underground and utilizes the mechanized bench-and-fill and cut-and-fill methods.

 

Tambomayo successfully completed the ramp-up process and has been operating at its maximum capacity of 1,500 metric tons per day since August 2017, thus becoming an important commercial operation for us. Tambomayo is projected to produce between 110,000 and 130,000 ounces of gold and 3,000,000 and 3,500,000 ounces of silver in 2018.

45

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, 2017,2019, total proven and probable ore reserves were 1,898,2802,445,606 tons, with 305.63138.72 grams per ton of silver, 8.763.73 grams per ton of gold, 1.25%1.27% lead and 2.50%1.66% 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)
20162017(1)(2)
Mining Operations:
Ore mined (t)-332,193
Average gold grade (g/t)-6.99
Average silver grade (g/t)-264.38
Average lead grade (%)-1.72
Average Zinc grade (%)-2.35
Production:
Gold (oz.)-64,175
Silver (oz.)-1,788,219
Lead (t)-2,070
Zinc (t)-2,906
Recovery rate (silver) (%)-62.12
Recovery rate (gold) (%)-83.59
Cost applicable to sales per oz. of gold(3)-US$671
Cost applicable to sales per oz. of silver(3)-US$9.43
Cost applicable to sales per ton of lead(3)-US$1,635
Cost applicable to sales per ton of Zinc(3)-US$2,057

  Year Ended December 31,(1) 
  2018  2019(1)(2) 
Mining Operations:        
Ore mined (t)  557,364   640,914 
Average gold grade (g/t)  7.75   5.80 
Average silver grade (g/t)  252.25   141.21 
Average lead grade (%)  1.49   1.35 
Average Zinc grade (%)  2.16   1.99 
Production:        
Gold (oz.)  129,172   99,245 
Silver (oz.)  3,929,808   2,556,391 
Lead (t)  4,220   7,603 
Zinc (t)  8,685   9,672 
Recovery rate (silver) (%)  85.11   87.76 
Recovery rate (gold) (%)  91.15   83.10 
Cost applicable to sales per oz. of gold(3) US$626  US$679 
Cost applicable to sales per oz. of silver(3) US$7.77  US$8.92 
Cost applicable to sales per ton of lead(3) US$1,186  US$1,045 
Cost applicable to sales per ton of Zinc(3) US$1,551  US$               1,876 

 

(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 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.

MallayLa Zanja

 

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

During 2017, diamond drilling focused on the 4090 level, defining mineral resources of silver, lead and zinc in the Isguize bodies system and in the Maria and Maricruz veins. In 2018, the deepening plan will continue, which had little progress this year due to the presence of water in the lower levels of the mine.

District explorations with geochemical sampling and geophysical studies (Polarized Induction and Magnetometry) have recognized the possibilities of economic mineralization in the Tres Cerros area. Three areas of interest have been identified and will be further explored with diamond drilling during 2018.

46

As of December 31, 2017, proven and probable ore reserves were 192,890 tons, with 200.58 grams per ton of silver, 0.17 grams per ton of gold, 3.58% lead and 7.55% zinc.

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) 
  2016  2017 
Mining Operations:        
Ore mined (t)  204,035   170,519 
Average silver grade (g/t)  264.07   223.63 
Average lead grade (%)  3.98   2.70 
Average zinc grade (%)  5.79   4.73 
Production:        
Silver (oz.)  1,627,246   1,109,382 
Lead (t)  7,383   4,061 
Zinc (t)  10,463   7,102 
Recovery rate (silver) (%)  93.92   90.51 
Cost applicable to sales per oz. of silver(3) US$12.78  US$13.27 
Cost applicable to sales per ton of lead(3) US$1,406  US$1,889 
Cost applicable to sales per ton of zinc(3) US$1,869  US$2,416 

(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—G. Reconciliation of Cost Applicable to Sales and Cost Applicable to Sales per Unit Sold” for a reconciliation of Cost applicable to sales per unit sold to Cost of sales, excluding depreciation and amortization.

La Zanja

The La Zanja mine is located in the district of Pulan, province of Santa Cruz, department of Cajamarca, 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 and Newmont Holdings ULC holds a 46.94% interest in La Zanja.

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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 two ore 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-Crowe circuit to recover gold from heap leach operations. The gold laden carbon is then transported to Yanacocha to be processed into doré bars.

  

During 2017, we drilled 3,069.30In 2019, a total of 2,926 meters of diamond drill holesdrilling in the explorations area were drilled, of which 2,777 meters were made in the southern sector of the copper-gold project of the Emperatriz project, where we found depositsCorridor, and 148 meters were explored by high grade gold structures in San Pedro Sur. The exploration of “sweet” copper (chalcopyrite and bornite). We also developed the Corredor de Domos and Luciana projects, where we found prospective gold and silver zones that willEmperatriz Sur is expected to be evaluated with diamond drilling beginningcompleted in 2018.2020.  

 

Total proven and probable ore reserves as of December 31, 20172019 were 10,801,144560,177 tons, with 6.358.41 grams per ton of silver and 0.470.41 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, 
  2016  2017 
Mining Operations:        
Ore treated (t)  9,317,652   10,694,942 
Average gold grade (g/t)  0.75   0.48 
Average silver grade (g/t)  3.95   6.22 
Production:        
Gold (oz.)  139,724   127,118 
Silver (oz.)  217,292   280,908 
Cost applicable to sales per oz. of gold(1) US$607  US$789 
Cost applicable to sales per oz. of silver(1) US$8.01  US$10.66 

 

  Year Ended December 31, 
  2018  2019 
Mining Operations:        
Ore treated (t)  5,702,881   1,577,645 
Average gold grade (g/t)  0.46   0.46 
Average silver grade (g/t)  7.46   6.73 
Production:        
Gold (oz.)  71,630   31,500 
Silver (oz.)  217,174   97,204 
Cost applicable to sales per oz. of gold(1) US$891  US$1,233 
Cost applicable to sales per oz. of silver(1) US$11.15  US$14.24 

(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—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 Buenaventura and wholly-owned by Coimolache, in which we hold a 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.

 

49

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 2017,2019, drilling of oxides reached 8,724.955,417 meters of diamond drill holes. The operation was focused on the Tantahuatay 2 and Ciénaga Norte areas. Drilling was also performed at the Mirador NorteAzufre and Mirador SurNorthwest projects to convert resources to reserves. Another part of the drilling was aimed at exploring sulfides, which in total reached 20,578.01 meters. This was conducted in the areas of Tantahuatay 2 (North-West Extension), Mirador Sur and Ciénaga Norte.

 

Total proven and probable ore reserves as of December 31, 20172019 were 68,099,15766,858,656 tons, with 7.157.96 grams per ton of silver and 0.380.34 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) 
  2018  2019 
Mining Operations:        
Ore treated (t)  13,384,291   13,878,907 
Average gold grade (g/t)  0.58   0.54 
Average silver grade (g/t)  7.45   10.64 
Production:        
Gold (oz.)  173,192   162,196 
Silver (oz.)  791,181   754,306 
Cost applicable to sales per oz. of gold(3) US$675  US$684 
Cost applicable to sales per oz. of silver(3) US$8.39  US$8.14 

 48

  Year Ended December 31,(1)(2) 
  2016  2017 
Mining Operations:        
Ore treated (t)  10,624,498   13,117,287 
Average gold grade (g/t)  0.56   0.46 
Average silver grade (g/t)  12.25   12.30 
Production:        
Gold (oz.)  150,816   151,454 
Silver (oz.)  711,337   800,942 
Cost applicable to sales per oz. of gold(3) US$492  US$517 
Cost applicable to sales per oz. of silver(3) US$6.71  US$6.98 

(1)Incorporates losses for mining dilution and recovery.

 

(2)Data reflect mining operations at the Tantahuatay 2 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—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.

 

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 – mainly zinc, copper, lead and silver. Our aggregate direct and indirect equity interest in El Brocal was 61.32%61.43% as of December 31, 2017.2019.

 

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 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–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.

 

50

The Huaraucaca concentrator plant processes ore from both mines. In 2017,2019, average treated ore at the plant was 15,60017,354 tons per day.

 

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

 

In 2018,2019, El Brocal willcontinued to focus on optimizing Marcapunta’s mining method, achievingwhile also seeking the optimization of productivity and production costs, as well as accelerating the conversion of resources to reserves.

 

Total proven and probable reserves of ColquijircaTajo Norte - Smelter (Colquijirca), which include the Zn-Pb-Ag zone and Cu-Ag zone, as of December 31, 20172019 were 69,781,00042,215,608 tons, with 22.1633.59 grams of silver per ton 0.86%and 1.11% of copper.

Total proven and probable reserves of Tajo Norte (Zn-Pb-Ag zone) as of December 31, 2019 were 14,756,041 tons with 2.52% of zinc 0.36%and 1.17% of lead and 1.01% of copper.lead.

 

Total proven and probable reserves of Marcapunta Norte as of December 31, 20172019 were 13,991,00034,503,283 tons with 12.6635.77 grams of silver per ton, 0.340.72 grams of gold per ton and 1.81%1.30% of copper.

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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) 
 2016  2017  2018 2019 
Mining Operations:             
Ore mined (t)  3,513,959   3,169,908  3,429,618 3,407,914 
Average silver grade (oz./t)  0.88   1.32  1.13 1.38 
Average zinc grade (%)  2.67   2.74  2.30 2.42 
Average lead grade (%)  0.77   1.13  1.11 1.26 
Production:             
Silver (oz.)  1,835,242   3,031,796  2,518,333 2,974,075 
Zinc (t)  57,385   51,511  45,593 43,580 
Lead (t)  12,860   20,313  20,582 23,599 
Recovery rate (silver) (%)  59.55   72.30  65.25 63.32 
Recovery rate (zinc) (%)  61.13   59.33  57.78 55.00 
Recovery rate (lead) (%)  47.61   56.71  52.41 54.97 
Cost applicable to sales per ton of mine(2)  1,808   1,915  1,569 2,007 

 

(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—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.

 

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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) 
 2016  2017  2018 2019 
Mining Operations:             
Ore mined (t)  2,597,926   2,517,673  3,204,262 2,926,124 
Average silver grade (oz./t)  0.59   0.66  0.71 0.77 
Average gold grade (gr/t)  0.53   0.56  0.51 0.54 
Average copper grade (%)  2.07   1.91  1.59 1.67 
Production:             
Silver (oz.)  799,497   1,052,453  1,383,536 1,392,363 
Gold (oz.)  23,511   22,536  21,429 18,726 
Copper (t)  49,170   45,097  46,231 43,394 
Recovery rate (silver) in copper (%)  62.24   63.12  60.95 62.07 
Recovery rate (gold) in copper (%)  58.91   49.89  39.80 37.03 
Recovery rate copper (%)  90.36   93.56  90.63 88.68 
Cost applicable to sales per ton of mine(2)  4,651   5,119  5,488 5,385 

 

(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—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.

 

 5052 

 

 

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, 2017,2019, our total proven and probable reserves, including our equity share in the proven and probable reserves of El Brocal (61.43%), La Zanja (53.06%), Coimolache (40.10%) and Yanacocha (45.95%(43.65%), were estimated to be 3.206.00 million ounces of gold, representing a 9.6% decrease36% increase compared to our total proven and probable reserves as of December 31, 2016,2018, which were estimated to be 3.544.40 million ounces of gold.

 

As of December 31, 2017,2019, our total proven and probable reserves, including our equity share in El Brocal (61.43%), La Zanja (53.06%), Coimolache (Tantahuatay) (40.10%), Yanacocha (45.95%(43.65%)% and Cerro Verde (19.58)%(19.58%) were estimated to be 196.61241.67 million ounces of silver, representing a 6.2% decrease2% increase over our total proven and probable reserves as of December 31, 2016,2018, which were estimated to be 209.65237.23 million ounces of silver.

 

The following table lists 100% of proven and probable ore reserves, as of December 31, 2017,2019, for each of our consolidated mining operations and the Tantahuatay mine, in which we have a 40.10% equity interest. The reserves shown in the table below are the total reserves for each mine and do not reflect our equity share of reserves in non-wholly-owned mines.

 

 5153 

 

 

Proven Ore Reserves as of December 31, 20172019(1) (2) (3) (4) (5) (6)

  Orcopampa(3)  Uchucchacua(4)  Julcani(5)  Mallay(6)  Tambomayo(7)  La Zanja(8)  Tantahuatay(9)  Colquijirca(10)(11)  Marcapunta(10)(12)  

Total/

Average

 
                               
Ore Reserves (t)  539,035   2,077,239   184,702   39,900   530,735   6,831,099   60,884,358   48,613,800   7,865,000   127,565,868 
Grade:                                        
Gold (g/t)  13.78   -   0.26   0.15   6.11   0.46   0.38   -   0.48   0.32 
Silver (g/t)  41.23   421.24   621.29   240.58   440.42   7.06   7.19   25.33   18.05   24.41 
Copper (%)  -   -   0.49   -   -   -   -   0.87   1.95   0.45 
Zinc (%)  -   2.33   -   6.98   1.43   -   -   1.15   -   0.49 
Lead (%)  -   1.34   2.18   4.45   0.95   -   -   0.47   -   0.21 
                                         
Content:                                        
Gold (oz.)  238,766   -   1,531   195   104,333   100,266   748,071   -   121,375   1,314,537 
Silver (oz.)  714,588   28,132,537   3,689,432   308,623   7,515,116   1,551,061   14,073,369   39,585,421   4,563,273   100,133,420 
Copper (t)  -   -   908   -   -   -   -   423,681   153,368   577,957 
Zinc (t)  -   48,410   -   2,784   7,576   -   -   561,401   -   620,172 
Lead (t)  -   27,903   4,020   1,777   5,028   -   -   228,072   -   266,800 

  Orcopampa(3) Uchucchacua(4) Julcani(5) Tambomayo(6) La Zanja(7) Tantahuatay(8) Colquijirca(9) Marcapunta(10) Total/Average
                   
Ore Reserves (t) 153,866 3,913,183 166,957 359,825 354,424 52,565,887 6,097,263 19,837,230 83,448,635
Grade:                  
Gold (g/t) 12.38   0.207 4.89 0.40 0.35   0.51 0.39
Silver (g/t) 18.64 266.94 654.09 104.46 9.05 6.94 65.61 25.48 0.95
Copper (%)     0.45       0.16 1.53 0.38
Zinc (%)   2.09   2.00     2.48   0.29
Lead (%)   1.25 2.09 1.48     1.19   0.16
                   
Content:                  
Gold (oz.) 61,261   1,112 56,514 4,600 590,658   322,970 1,037,116
Silver (oz.) 92,224 33,583,879 3,511,027 1,208,403 103,135 11,732,995 12,861,713 16,251,210 79,344,585
Copper (t)     748       9,756 303,163 313,667
Zinc (t)   81,791   7,186     151,029   240,006
Lead (t)   48,753 3,490 5,318     72,842   130,403

 

Probable Ore Reserves as of December 31, 20172019(1) (2) (3) (4) (5) (6)

  Orcopampa(3)  Uchucchacua(4)  Julcani(5)  Mallay(6)  Tambomayo(7)  La Zanja(8)  Tantahuatay(9)  Colquijirca(10)(11)  Marcapunta(10)(12)  

Total/

Average

 
                               
Ore Reserves (t)  312,132   2,816,358   85,253   152,990   1,367,545   3,970,045   7,214,799   21,167,200   6,126,000   43,212,322 
                                         
Grade:                                        
Gold (g/t)  15.18   -   0.15   0.17   9.79   0.49   0.32   -   0.17   0.54 
Silver (g/t)  33.06   403.18   616.96   190.19   253.32   5.12   6.78   14.92   5.60   46.13 
Copper (%)  -   -   0.43   -   -   -   -   1.33   1.63   0.88 
Zinc (%)  -   2.07   -   7.70   2.92   -   -   0.18   -   0.34 
Lead (%)  -   1.30   2.04   3.35   1.37           0.11       0.20 
                                         
Content:                                        
Gold (oz.)  152,345   -   402   847   430,228   62,484   73,081   -   33,482   752,869 
Silver (oz.)  331,780   36,507,268   1,691,040   935,519   11,137,884   653,246   1,572,089   10,154,472   1,103,293   64,086,591 
Copper (t)  -   -   370   -   -   -   -   282,059   99,854   382,283 
Zinc (t)  -   58,195   -   11,779   39,931   -   -   38,571   -   148,475 
Lead (t)  -   36,743   1,743   5,128   18,692   -       23,831   -   86,137 

 

  Orcopampa(3) Uchucchacua(4) Julcani(5) Tambomayo(6) La Zanja(7) Tantahuatay(8) Colquijirca(9) Marcapunta(10) Total/Average
                   
Ore Reserves (t) 472,409 6,512,595 88,140 2,085,782 205,741 14,292,769 8,658,777 42,125,621 74,441,833
Grade:                  
Gold (g/t) 9.219   0.113 3.549 0.423 0.32   0.48 0.49
Silver (g/t) 13.98 310.50 652.78 144.50 7.31 11.78 55.81 30.07 1.86
Copper (%)     0.38       0.11 1.47 0.84
Zinc (%)   2.00   1.60     2.54   0.52
Lead (%)   1.16 1.84 1.23     1.16   0.27
                   
Content:                  
Gold (oz.) 140,015   320 238,012 2,801 146,383   649,502 1,177,033
Silver (oz.) 212,387 65,013,963 1,849,828 9,689,847 48,386 5,412,208 15,535,733 40,730,615 138,492,966
Copper (t)     338       9,525 617,273 627,136
Zinc (t)   130,148   33,459     220,323   383,929
Lead (t)   75,606 1,618 25,684     100,442   203,350

(1)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, 2017.2019.As of December 31, 2019, SRK Consulting Perú S.A., an independent consultant,   audited the process used to estimate proven and probable ore reserves for Uchucchacua, Tambomayo,   Orcopampa, El Brocal, Tantahuatay and La Zanja, Hatch Asociados S.A.Zanja. Geominería S.A.C., 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 and Geomineria S.A.C. audited the process used to estimate   proven and probable ore reserves for Orcopampa, Julcani and Mallay.Julcani.

 

(2)For the year ended December 31, 2017,2019, reserves for our wholly-owned and operatedsubsidiary mines, were calculated using the following prices: US$1,300 per ounce of gold, US$1816.30 per ounce of silver, US$2,600 2,800 per metric ton of zinc, US$2,2502,200 per metric ton of lead and US$6,0006,200 per metric ton of copper.

 

 52

(3)The metallurgical recovery factors that impacted the calculated reserves for Orcopampa as of December 31, 2017 were water quality (recycled water contains impurities that can interfere with the chemical reaction of the reagents) and ore grade being lower than estimated or expected.

(4)The metallurgical recovery factors that impacted the calculated reserves for Uchucchacua as of December 31, 2017 were the complexity of the ore, the variation of head ore grades and the high manganese content.

(5)The metallurgical recovery factors that impacted the calculated reserves for Julcani as of December 31, 2017 were when the ore contained iron sulfide (Pyrite) higher than 8% and the quality of water used in the processing plant.

(6)The metallurgical recovery factors that impacted the calculated reserves for Mallay as of December 31, 2017 were the high variation in ore grade and the variation in the hardness of the host rocks.

(7)The metallurgical recovery factors that impacted the calculated reserves for Tambomayo as of December 31, 2017 were the complex process to treat polymetallic ore and the variation in the hardness of the host rocks.

(8)The reserves shown for La Zanja, in which we owned a 53.06% of equity interest as of December 31, 2017, are the total reserves of the mine and do not indicate our equity share. They were calculated using the following metal prices: US$1,300 per ounce of gold and US$18 per ounce of silver. The metallurgical recovery factors that impacted the calculated reserves were when the clay content in ore being higher than 10% and the copper presence in the ore.

(9)The reserves shown for Tantahuatay, in which we own a 40.10% of equity interest as of December 31, 2017, are the total reserves for the mine and do not indicate our equity share. They were calculated using the following prices: US$1,300 per ounce of gold and US$18 per ounce of silver. The metallurgical recovery factors that impacted the calculated reserves were when the clay content in ore being higher than 10% and the iron sulfide (Pyrite) content in ore being higher than 3%.

(10)El Brocal, in which we own a 61.32% controlling equity interest as of December 31, 2017, owns the Colquijirca and Marcapunta mines. The reserves for Colquijirca were calculated using the following prices: US$18 per ounce of silver, US$2,535.32 per metric ton of zinc, US$2,094 per metric ton of lead and US$6,613.87 per metric ton of copper. The reserves for Marcapunta were calculated using the following prices: US$1,250 per ounce of gold, US$18 per ounce of silver and US$6,613.87 per metric ton of copper.

(11)The metallurgical recovery factors that impacted the calculated reserves for Colquijirca as of December 31, 2017 were the high content of clay and soluble salts in the ore.

(12)The metallurgical recovery factors that impacted the calculated reserves for Marcapunta as of December 31, 2017 were the high content of arsenic in the ore and the hardness of the host rocks.

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(3)Variable metallurgical recovery assumptions (as a function of grade and relative metal distribution in individual concentrates).

(4)Commercial terms based on historical data.

(5)Variable cut-offs estimated by mining method and mining area and based on historical data and costs.

(6)Variable modifying factors (dilution and mining recoveries) based on ground conditions and proposed mining method.

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—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 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 mining activities encompass 260,212301,000 acres (105,304(121,810 hectares) that are covered by 182185 mining concessions. Yanacocha holds the mining rights related to 95,71996,338 acres (38,736(38,987 hectares), covered by 7173 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 2030 years, which isare 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 scheduled to finish mining operations in 2020.

The Yanacocha Complex mines material from the Yanacocha Layback and Yanacocha Pinos, which are scheduled to finish mining operations in 2020. 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. In addition, the Carachugo leach pad processes oxide material from the Quecher Main project, which is a new open pit within the existing footprint of Yanacocha. This project went into commercial production in October 2019 and will extend the life of the Yanacocha operation to 2027.

Yanacocha has three processing concessions from MINEMPeru’s MEM for its processing facilities: Cerro Yanacocha (La Quinua and Yanacocha leach pads, La Quinua and Yanacocha Norte gold recovery plants and Yanacocha Gold Mill), Yanacocha (Carachugo and Maqui Maqui leach pads and Pampa Larga gold recovery plant) and China Linda.Linda (non-metallic processing concessions). 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. The Yanacocha Gold Mill processes high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant. The Yanacocha Gold Mill processes between 5.5 and 6.0 million tons per year.

 

Yanacocha 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. Studies are underway to evaluate the potential for mining sulfide gold and copper mineralization. Yanacocha’s available mining fleet consists of two shovels, four excavators, two loaders and 4331 233-tonne haul trucks, which range from 140 to 240 tons.trucks.

 

Brownfield exploration and development for new reserves is ongoing includingand we continue to evaluate the development of Quecher Main within the existing footprint of Yanacocha. This oxide deposit will extend the life of the Yanacocha operation to 2027, with an average of approximately 200,000 ounces between 2020potential for mining sulfide gold and 2025. Quecher Main received full funding approval from Yanacocha’s board of directors in October 2017 and is expected to reach commercial production in the fourth quarter of 2019.copper mineralization.

55

 

Power is supplied to the operation by Engie Energia Peru SA.SA

 

Yanacocha’s gross property, plant and mine development as ofat December 31, 20172019 was $4.2 billion.$4,567. Yanacocha produced 534,691527,000 ounces of gold (270,000 attributable ounces of gold) in 20172019 and reported 3.93.6 million attributable ounces of gold reserves asand 740 million attributable pounds of copper reserves at December 31, 2017.2019. 

 

Yanacocha also owns the Conga project, which is located approximately 16 miles (25 kilometers) northeast of Yanacocha.Yanacocha and is currently in care and maintenance. Due to uncertainty surrounding the project and political risks related to the project’s development, Yanacochathe Company has allocated its exploration and development capital to other projects in recent years. Should Yanacochathe Company be unable to develop the Conga project, Yanacochathe Company may have to consider other alternatives for the project, which may result in a future impairment charge for the project.

54

Reserves

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.

 

As of December 31, 2017,2019, 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 3.96.9 million ounces of gold, representing an 11%7% decrease over Yanacocha’s total proven and probable reserves as of December 31, 2016,2018, which were estimated to be 4.47.4 million ounces of gold.

 

The following tables detail proven and probable gold reserves for Yanacocha as of December 31, 20172019 and 2016:

2018:

 

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(2)  23,127   0.022   500   148,936   0.018   2,638   172,063   0.018   3,182   70%
Yanacocha Leach Pad(3)  11,656   0.022   241   -       -   11,656   0.022   241   73%
Yanacocha Stockpiles(4)  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%

Gold Reserves At December 31, 2019(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)
Total Yanacocha 24,400 0.021 520 220,000 0.029 6,400 244,401 0.028 6,950 76%

 

Gold Reserves as of December 31, 2016(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  34,859   0.018   604  158,520   0.018   2,921   193,379   0.018   3,525  69%
Yanacocha Leach Pad(3)  16,748   0.020   331  -      -  16,748   0.020  331  67%
Yanacocha Stockpiles(4)  11,295  0.044   506  -     -  11,295   0.044  506   63%
Total  62,902   1,441  1,441  158,520   0.018   2,921  221,422   0.020  4,362   69%

Gold Reserves At December 31, 2018(1)(2)

  Proven Reserves Probable ReservesProven 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)
Total Yanacocha 33,106 0.023 760 232,327 0.029 6,660 265,433 0.028 7,420 76%

 

(1)Proven and probable reserves, as of December 31, 2017,2019 and 2018 reserves were calculated using aat an estimated gold price assumption of US$1,200$1,200 per ounce.ounce, unless otherwise noted.

 

(2)The reserves shown for Yanacocha in which we owned 45.95% and 43.65% of equity interest as of December 31, 2017 and 2016, respectively, are the total reserves of the mine and do not indicate our equity share.

 

(3)Gold cut-off grades utilized in 2017 reserves were as follows: oxide leach material not less than 0.004 ounce per ton; and oxide mill material not less than 0.011 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 they exceed 100,000 ounces and are greater than 5% of the total site-reported reserves.

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 45.95%43.65% partnership interest, followed by information with respect to Cerro Verde, in which we have a 19.58% equity interest.

As mentioned in Note 2.3 of Consolidated Financial Statements, the Group had to change its accounting policies as a resul of adopting IFRS 16 ,Leases and IFRIC 23,Uncertainty over Income Tax Treatments. New policies are presented in Note 2.4 (i) of the Consolidated Financial Statements.

 

 5556 

 

 

Introduction

 

The following discussion should be read in conjunction with the Consolidated Financial Statements as of December 31, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 20172019 and the related Notes thereto included elsewhere in this Annual Report.Report, and (ii) Item 5 to our annual report for the year ended December 31, 2018 (the “2018 20-F”). 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.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, Tambomayo, Uchucchacua and Orcopampa mining units;

 

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

 

·Chaupiloma, which receives a royalty payment from Yanacocha;

 

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

 

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

 

·other minor subsidiaries; and

 

·discontinued operations.

 

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

Yanacocha.Historically, a substantial part of our net loss before income tax was derived from our equity interest in Yanacocha. We have a 45.95%43.65% equity participation in Yanacocha as of December 31, 2017,2019, 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 Buenaventura.

Cerro Verde.As of December 31, 2017,2019, 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;

 

·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.

57

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.

 

In the case of El Brocal, it had outstanding hedging commitments amounting to 36,000 metric tons of copper at an average fixed price of US$6,479 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;

 

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

 

·selling expenses, which principally consist of freight expenses.

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

 

In addition, underground mine infrastructure, such as declines, shafts and/or dewatering/ore haulage crosscuts, that facilitate access to ore reserves are constructed and categorized as mine development. We consider such underground mine infrastructure vital to assure sustainable mine production and reserve production. The design, construction and implementation of our underground mine infrastructure are presented and supervised by our operations manager with the Board of Directors’ (the “Board”) approval. We capitalize mine development and mineral land costs incurred after we have identified proven and probable reserves.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; partial and temporary closures of mining operations; and the production of silver only as by-product of gold (such as the Orcopampa 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 an 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 sell four of our mining units: Poracota, Recuperada, Antapite and Shila-Paula. As a consequence, these mining units were 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. 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. 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 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. During 2019, we decided to change the classification of our Mallay mining unit as a discontinued operation for the years 2019, 2018 and 2017. See Note 1(e) and Note 2.4(w) to the Consolidated Financial Statements.

 

Critical Accounting Policies and Estimates

 

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

 

·mineral reserves and resources;

 

·unit-of-production depreciation;

 

·mine rehabilitationclosure of mining units provision;

 

·inventories;

 

·impairment of non-financial assets;

 

·taxes;

·fair value of contingent consideration;deferred income tax and recoverability; and

 

·segment reporting.

fair value of contingent consideration

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Other significant accounting policies include:

 

·contingencies;

 

·development start date;

 

·

production start date; and

 

·useful life of property, plant and equipment.equipment;

revenue from contracts with customers.

 

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.

 

Mineral reserves and resources

 

Recoverable proven and probable reserves are the part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The determination of reserves involves numerous uncertainties with respect to the ultimate geology of the ore bodies, including quantities, grades and recovery rates. Estimating the quantity and grade of reserves requires us to determine the size, shape and depth of our ore bodies by analyzing geological data, such as samplings of drill holes, tunnels and other underground workings. In addition to the geology of our mines, assumptions are required to determine the economic feasibility of mining these reserves, including estimates of future commodity prices and demand, the mining methods we use and the related costs incurred to develop and mine our reserves. The conceptual framework used to estimate proven and probable reserves for our wholly-owned mines as of December 31, 2015 was reviewed by independent consultant Geomineria S.A.C. For 2016, Geominería S.A.C. audited the process used to estimate proven and probable ore reserves for Orcopampa, 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, 2016. The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2015 was reviewed by independent consultant MINTEC Inc. The conceptual framework used to estimate proven and probable reserves for El Brocal’s mines as of December 31, 2016 was reviewed by consultant Buenaventura Ingenieros S.A. As of December 31, 2017.2019, SRK Consulting Perú S.A., an independent consultant, audited the process used to estimate proven and probable ore reserves for Uchucchacua, Tambomayo, Orcopampa, El Brocal, Tantahuatay and La Zanja, Hatch Asociados S.A.Zanja. Geominería S.A.C., 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 and Geomineria S.A.C. audited the process used to estimate proven and probable ore reserves for Orcopampa, Julcani and Mallay.Julcani.

 

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 or amortization charge which is 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 where 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 rehabilitationClosure of mining units 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.

 

60

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, 2017,2019, we have recorded an accrual for mine closure costs of US$200.2252.3 million to comply with governmental requirements for environmental remediation for Buenaventura and its mining subsidiaries. Please see Note 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 represents our best estimate of the present value of future costs for the closure of mining units.

 

Inventories

 

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

 

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

 

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

 

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

 

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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 value in 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.

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At each reporting date, we update 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. As a result, we recorded impairment losses and recoveries of the provision during 2015, 20162017, 2018 and 2017.2019.

 

In 2015, we recorded impairment losses for two of our mining units (La Zanja and Breapampa) of US$3.8 million (recognized as an operating expense) and US$7.5 million (recognized as a loss from discontinued operations), respectively. In 2016,2018, we recorded an impairment loss for one of our mining units (Shila-Paula) of US$2.0 million (recognized as an operating expense).

In 2017, we recorded an impairment lossreversal related to our La Zanja mining property of US$21.6 million. As5.7 million as a result of the saleanalysis of the Breapampa and Recuperada mining units,recovery amount. In addition, as well asa result of the saledisposal of theassets, we recorded a reversal in our impairment provision related to our Shila Paula mining unit assets, Buenaventuraof US$2.8 million. This provision was previously recorded in 2016.

In 2019, we recorded an impairment for US$2.1 million as a reversalresult of the analysis of the recoverable amount of our Julcani mining unit. The main factors considered in the impairment losses in 2017analysis were reserves, and life of US$7.4 million, US$7.1 million and US$2.7 million, respectively.mine.

 

These impairment charges have not had an 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.

 

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, 2015, 20162018 and 20172019 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.

 

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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, 20162018 and 2017, our valuation allowance2019, unrecognized deferred income tax assets totaled US$18.2 million, US$37.040.9 million and US$38.950.2 million, respectively.

 

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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.

 

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;

 

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·Insurance brokerage;

 

·Rental of mining concessions;

 

·Holding of investment in shares (primarily ofin our associate Minera Yanacocha 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 3031 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 28(f) and (g)29(d), (e) and(f) 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.

 

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Production start date

 

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

 

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

 

Useful life of property, plant and equipment

 

Straight-line method

 

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

 

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Property, Plant and Equipment Estimated Years of Useful Life
Buildings, constructions and other Between 6 andto 20
Machinery and equipment Between 5 andto 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 from contracts with customers

 

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 the buyer.services, such as energy generation and transmission, industrial services, and other services, are recognized over time.

 

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

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 Note 20(a) and Note 31(b)2.4(q) to the Consolidated Financial Statements.

 

Results of Operations for the Years Ended December 31, 20172019 and 20162018

Net sales of goods.Net sales of goods increaseddecreased by 21%26%, mainly due to the increasea decrease in salesboth volume of metal sold and average realized prices, as set forth in 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%
Sales of goods Year ended December 31, 
  2018  2019  Variation  Variation 
  (US$ in thousands)    
Silver (a)  362,122   298,171   (63,951)  (18)%
Gold (b)  411,877   254,194   (157,683)  (38)%
Copper (c)  274,761   238,304   (36,457)  (13)%
Zinc (d)  164,666   149,317   (15,349)  (9)%
Lead  85,555   89,141   3,586   4%
Manganese sulfate  6,655   6,046   (609)  (9)%
   1,305,636   1,035,173   (270,463)  (21)%
Commercial deductions (e)  (192,684)  (220,306)  (27,622)  14%
Hedge operations (f)  (1,398)  4,322   N.A.   N.A. 
Fair value of accounts receivable (g)  (6,013)  2,347   N.A.   N.A. 
Adjustments to prior period liquidations  788   394   (394)  (50)%
Total sales of goods  1,106,329   821,930   (284,399)  (26)%

 

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(a)Silver sales. The decrease in silver sales is mainly due to decreases in the volume of silver sales, which was primarily due to a 35% and 32% decrease in volume sold in the Tambomayo and Uchucchacua mining units, respectively, partially offset by a 15% increase in volume sold in the Colquijirca mining unit. For further information, see “Sales of goods – Mining segments”.

(b)

Gold sales.Sales. The increasedecrease in gold sales is mainly due to increasesdecreases in average realized sales prices for gold and the volume of gold sales. The increasesales, which was primarily due to a 65%, 59% and 19% decrease in the volume sold is due toin the net effect of new production at ourOrcopampa, La Zanja and 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.

units. For further information, see “Sales of goods – Mining segments”.

 

(b)(c)SilverCopper sales. The increasedecrease in silvercopper sales is mainly due to the effect of an increasedecreases in the volume of silver sales. The increasecopper sales, which was primarily due to a 6% decrease in volume sold is due toand 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)Leadaverage sales. The increase in lead sales is mainly due to the effect of increases price in the volumeunit 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.Colquijirca. For further information, see “Sales of goods – Mining segments”.

(d)Zinc sales.The increasedecrease in zinc sales is primarily due to the net effect of an increasedecreases in average realized sales prices for zinc and a decrease in the volume of zinc sales, mainlywhich was primarily due to increased zinc production at oura 9% and 2% decrease in volume sold in the Uchucchacua and TambomayoColquijirca mining units, partially offset by a decrease in production at our Colquijirca mining unit.respectively. For further information, see “Sales of goods – Mining segments”.

 

(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$253.9220.3 million of refinery charges and penalties were incurred in 2017,2019, compared to US$244.4192.7 million incurred in 2016.2018.

(f)

Hedge operations. Net sales of goods figures are obtained by considering the variation in the fair value of the hedge operations related to sales. A total of US$4.3 million were income in 2019, compared to an expense of US$1.3 million incurred in 2018.

(g)Fair value of accounts receivable. Net sales of goods figures are obtained by considering the variation in the fair value of the accounts receivable. A total of US$2.3 million were income in 2019, compared to an expense of US$6.0 million incurred in 2018.

 

The following tables reflect the average realized prices and volumes of gold, silver, lead, zinc and copper sold during the years ended December 31, 20162018 and 2017,2019, as well as the variation in such average realized prices and volumes recorded for the year ended December 31, 2017 as compared to the year ended December 31, 2016:these years:

 

Average Realized Price

 Year ended December 31,  Year ended December 31, 
 2016  2017  Variation  2018  2019  Variation 
Gold (US$/oz.)  1,244.24   1,267.56   2%  1,267.99   1,405.35   11%
Silver (US$/oz.)  17.65   16.54   (6)%  15.08   16.36   8%
Lead (US$/t)  1,977.53   2,372.00   20%  2,140.58   1,938.07   (9)%
Zinc (US$/t)  2,266.85   3,046.19   34%  2,680.81   2,490.6   (7)%
Copper (US$/t)  4,918.52   6,280.47   28%  6,277.40   5,808.47   (7)%

 

Volume Sold Year ended December 31,  Year ended December 31, 
 2016  2017  Variation*  2018  2019  Variation 
Gold (oz.)  354,116   403,480   14%  324,825   180,876   (44)%
Silver (oz.)  21,863,019   24,773,278   13%  24,004,977   18,224,320   (24)%
Lead (t)  29,678   40,032   35%  39,968   45,995   15%
Zinc (t)  62,829   61,724   (2)%  61,424   59,953   (2)%
Copper (t)  45,674   42,756   (6)%  43,770   41,027   (6)%

Net sales of services.Sales of services increased by 3%, from US$28.8 million in 2016 to US$29.7 million in 2017, mainly due to an increase in sales in the insurance brokerage segment and a decrease in sales in the engineering segment.

 

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Net sales of services.Sales of services were in line with those of 2018 as set forth in the chart below:

Sales by services Year ended December 31, 
  2018  2019  Variation  Variation 
  (US$ in thousands)    
Energy generation and transmission  62,962   59,690   (3,272)  (5)%
Industrial Activities  19,908   19,557   (351)  (2)%
Insurance Brokerage  14,986   15,687   701   5%
Holding of investments in shares  615   615   -   -%
Adjustments and eliminations intercompany  (74,470)  (71,888)  2,582   (3)%
Total sales of services  24,001   23,661   (340)  (1)%

Royalty income. In 2017,2019, royalty income received by our subsidiary Chaupiloma amounted to US$20.722.3 million, representing a 15% decreasean increase of 29% from the US$24.320.4 million in royalty income received in 2016.2018. This decreaseincrease was due to a decreaseincrease in production atthe sales of 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 19% duein 2019 decrease in 17% compared to changes2018 as indicated in the following components:table:

 

Operating Costs Year ended December 31,  Year ended December 31, 
 2016  2017  Variation  Variation  2018 2019 Variation Variation 
 (US$ in thousands)     (US$ in thousands)    
Cost of sales of goods, excluding depreciation and amortization (a)  497,812   627,433   129,621   26%  613,381   512,874   (100,507)  (16)%
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%
Cost of sales of services, excluding depreciation and amortization  4,318   3,378   (940)  (22)%
Depreciation and amortization (b)  238,879   226,335   (12,544)  (5)%
Exploration in operating units (c)  89,730   44,163   (45,567)  (51)%
Mining royalties (d)  27,611   31,217   3,606   13%  21,388   12,832   (8,556)  (40)%
Total operating costs  824,973   980,254   155,281   19%  967,696   799,582   (168,114)  (17)%

 

(a)Cost of sales of goods, excluding depreciation and amortizationamortization.. 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 increasedecrease 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.to:

 

(c)(i)a decrease of US$42.2 million in our Orcopampa mining unit primarily due to the decision made by the Company’s management to cease mine production in January 2019 and reduce it since then in order to centralize the operation; prioritizing the De-Bottlenecking Program over ore extraction;

(ii)a decrease of US$29.0 million in our La Zanja mining unit primarily due to the lower production of gold during 2019; and

(iii)a decrease of US$23.3 million in our Uchucchacua mining unit primarily due to the strike that lasted 21 days in January 2019 and the reduced ore grades during 2019.

(b)Depreciation and amortizationamortization.. The increasedecrease in the cost 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 our Tambomayo mining unit, which started operations in August 2017, partially offset by to:

(i)a decrease of US$19.225.0 million in costs at our La Zanja mining unit as a result of an increase inprimarily due to the higher useful life of the mine.mine since January 2019, which decreased the amount depreciated for the year 2019;

(ii)an increase of US$6.7 million in our Colquijirca mining unit primarily due to the lower production of gold during 2019; and

(iii)an increase of US$5.2 million in our Julcani mining unit primarily due to the higher assets of retirement obligation recorded during 2019 that increased the depreciable amount.

 

(d)(c)Mining royalties. The increase in mining royalties is due to an increase in the cost of royalties paid to the Peruvian State, which has a direct relationship with the increase in net sales at our Tambomayo, Orcopampa and Uchucchacua mining units.

Total operating expenses. Operating expenses increased by 69% due to changes in the following components:

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.operating units. The decrease in exploration in non-operating areasoperating units is mainlydue to:

(i)a decrease of US$20.5 million in our Orcopampa mining unit primarily due to decreased expendituresprioritizing the De-Bottlenecking Program over exploration;

(ii)a decrease of US$12.0 million in exploration activities,our Uchucchacua mining unit primarily due to the strike that lasted 21 days in the Tambomayo projectJanuary 2019; and

(iii)a decrease of US$4.38.9 million and San Gabriel project of US$6.5 million. During 2017,in our main efforts were focused on the start-up of the Tambomayo mining unit.unit primarily due to changes in our exploration program.

 

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(b)(d)Selling expenses.Mining royalties. The increasedecrease in selling expensesmining royalties is due to a decrease of US$7.4 million in the cost of royalties paid to the Sindicato minero de Orcopampa S.A., which in turn has a direct relationship with the decrease in our net sales in our Orcopampa mining unit.

Total operating expenses. Operating expenses in 2019 were in line with those of 2018 due to changes in the following components:

Operating Expenses, net Year ended December 31, 
  2018  2019  Variation  Variation 
  (US$ in thousands)    
Administrative expenses  77,099   76,297   (802)  (1)%
Selling expenses  26,948   24,313   (2,635)  (10)%
Exploration in non-operating areas (a)  36,307   11,879   (24,428)  (67)%
Impairment loss (reversal) of long-lived assets (b)  (5,693)  2,083   N.A.   N.A 
Provision (reversal) for contingences and others (c)  (11,248)  (2,968)  8,280   74%
Other, net (d)  1,308   14,715   13,407   1,025%
Total operating expenses, net  124,721   126,319   1,598   1%

(a)Exploration in non-operating areas. The decrease in exploration in non-operating areas expense was mainly due to:

(i)a decrease of US$15.8 million in our Uchucchacua mining unit due to since 2019 the expenses related to the increase in volume soldexploration in the TambomayoYumpaq project are considered assets of developing stage in contrast to the year 2018; and Uchucchacua

(ii)a decrease of US$5.2 million in our Colquijirca mining units.unit due to in 2018 we focused its explorations to the Marcapunta Norte project.

(b)Impairment reversal / loss of long-lived assets. During 2019, Buenaventura recorded a provision for US$2.1 million as a result of the analysis of the recoverable amount of its Julcani mining unit. The main factors considered in the impairment analysis were reserves and mining useful lives. During 2018, La Zanja mining unit recorded a reversal for the impairment provision for US$5.7 million as a result of the analysis of the recoverable amount.

 

(c)Impairment lossProvision (reversal) for contingences and others. The variation is explained mainly because during 2018 higher reversals of long-lived assets. During 2017, La Zanjacontingences was recorded an impairment loss related to its mining propertyprovisions for obligations with the communities as a result of negotiations with our operating units in an amount of US$21.610.2 million. The principal factor in the impairment loss was the depletion of its reserves. During 2016, no impairment loss was recorded.In 2019, we recorded provisions related to negotiations with communities for US$1.3 million.

 

(d)Provision for contingences and others.The increase isOther, net. Other net operating expenses increased from US$1.3 million in 2018 to US$14.7 million in 2019, 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.net effect of:

 

(e)(i)Write-offa decrease as result of asset stripping activities. In mid-2016, a landslide occurreddecrease in the west wallgains of the Tajo Norte. Consequently, we decided not to mine this areaUS$33.7 million recorded in 2018 by El Brocal due to stabilitythe receipt of recovery income from an insurance claim. Total compensations for lost profits and operational design issues. Accordingconsequential damages amounted to the distribution of reserves, this area (Phase 10) contained 5.5 MT of ore and 9.2 MT of waste valued at US$13.538.8 million, which were written-offpartially offset by costs associated with mitigation, repair and withdrawn from the reserves.cost overruns of US$5.1 million. This transaction was not repeated in 2019;

(f)(ii)Other net. Other net decreased from an increase as a result of a loss recorded in 2018 of  US$4.1 million in  related to the sale of our subsidiary, Buenaventura Ingenieros S.A. This transaction was not repeated in 2019; and

(iii)an income of US$18.914.8 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,Consorcio Energético de Huancavelica S.A. mainly explained by the sale of assetsthe systems in the energy segmentareas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and reversal of provisionLorema with Conelsur LT S.A.C. 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.21.0 million.

67

 

Other income (expense), net. Other expense,income (expense), net decreasedchanged from an expensea loss in 2018 of US$387.431.3 million to an income of US$14.5 million in 2016 to an expense of US$13.0 million in 2017, mainly due to:2019:

 

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)%
Other income (expense), net Year ended December 31, 
  2018  2019  Variation  Variation 
  (US$ in thousands)    
Shares in the results of associates and joint ventures (a)  (1,144)  47,710   N.A.   N.A.%
Finance income  9,685   9,675   (10)  -%
Finance costs  (38,422)  (42,173)  (3,751)  10%
Net gain (loss) from currency exchange difference  (1,384)  (734)  650   (47)%
Total other income (expense), net  (31,265)  14,478   N.A.   N.A.%

 

(a)Shares in the results of associates under equity method.and joint ventures. Shares in the results of associates under the equity method increasedand joint ventures changed from a loss of US$365.31.1 million in 20162018 to a gain of US$13.247.7 million in 2017,2019. The variation is primarily due to (i)the net loss fromeffect of an 83%increase of US$53.0 million in our share in results of Cerro Verde; partially offset by a US$6.0 million decrease in our interestshare in Yanacocha from US$455.6 million in 2016 to US$76.6 million in 2017, (ii) net income fromas 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.result of the higher losses of this associate.

The decrease in our interest in Coimolache is explained by the US$6.1 million decrease in the net income of Coimolache, mainly due to an increase of US$6.8 million in depreciation and amortization costs (as a result of the decrease in the life of the mine) and a US$1.7 million increase in the accrual of the 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.

 

67

(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 the variations detailed in “Item 3.—Key Information—A. Selected Financial Data—Exchange Rates.”

Income tax. ProvisionProvisions for income tax decreased by 66%,changed from an expense of US$53.526.9 million in 20162018 to an income US$18.025.6 million in 2017,2019, due to a decrease of US$19.9 million and US$15.6 million in the provision for deferred income tax and current income tax, respectively. The variation in the deferred income tax, is primarily duewhich changed from an expense of US$10.0 in 2018 to an increaseincome of US$10.4 million and US$7.8 million37.5 in deferred income tax at the La Zanja and Buenaventura mining units, respectively, which2019. The variation is mainly due to the lower deferred liability related toexplained by the effect of translationthe exchanges into U.S. dollars.dollars which were an expense of US$15.3 million in 2018 compared to an income of US$15.0 in 2019 resulting from the fluctuation of the exchange rates as well as the pretax income for each of the years analyzed from a pretax income of US$15 million in 2018, compared to a pretax loss of US$54 million in 2019.

 

The variation in the current income tax is primarily due to a decrease of US$14.7 million and US$7.0 million in the provision at the La Zanja and at Buenaventura mining units, respectively, partially offset by an increase of US$7.4 million at El Brocal due to the results of such unit in 2017 as compared to 2016.

Non-controlling interest income (loss). Non-controlling interest income increaseddecreased from a gain of US$1.8 million in 2018 to a loss of US$4.316.2 million in 2016 to a gain of US$3.6 million in 2017,2019, primarily due to the 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$1.116.3 million in the contributionnon-controlling interest of profits from La Zanja and Chaupiloma, respectively.El Brocal as a result of the net losses of this subsidiary. See Note 18(a) to the Consolidated Financial Statements.

Net income (loss). As a result of the foregoing, net results increaseddecreased from a loss of US$327.811.7 million in 20162018 to an incomea loss of US$64.428.5 million in 2017.2019. Net loss was 30.7%losses were 1% and 3% of revenues in 20162018 and net profit was 5% of revenues in 2017.2019.

 

Results of Operations for the Years Ended December 31, 20172019 and 20162018 by Segment

 

We present the operating results for each of our operating segments for the years ended December 31, 20162018 and 20172019 in more detail in Note 3031 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, 20172019 and 2016,2018, as well as the variation in such volumes sold for the year ended December 31, 20172019 as compared to the year ended December 31, 2016:2018:

 

Mining Segment Volume Sold for the year ended December 31, 2017  Volume Sold for the year ended December 31, 2019 (Unaudited) 
 Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t)  Gold (oz.) Silver (oz.) Lead (t) Zinc (t) Copper (t) 
Julcani  21   2,466,846   1,916   -   32   179   2,480,173   839   -   14 
Mallay  346   993,040   3,804   5,926   - 
Orcopampa  195,278   574,591   -   -   91   40,702  15,049  -  -  - 
Uchucchacua  201   15,583,553   13,127   10,281   -   -  9,808,791  15,347  15,315  - 
Tambomayo  63,130   1,621,611   1,769   2,398   -   96,636  2,318,435  7,211  7,850  - 
La Zanja  128,622   279,737   -   -   -   30,710  80,880       
Colquijirca  15,882   3,253,900   19,416   43,119   42,633   12,649  3,520,992  22,598  36,788  41,013 

 

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Mining Segment Volume Sold for the year ended December 31, 2016  Unaudited 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  32   3,090,967   2,679   -   54  11  2,368,497  915  -  17 
Mallay  1,041   1,426,986   6,775   8,728   - 
Orcopampa  188,511   680,708   -   -   48  116,719 335,761 - - 42 
Uchucchacua  279   14,739,128   8,349   5,295   -  216 14,443,456 17,071 16,811 - 
Tambomayo 119,211 3,570,382 3,268 7,143 - 
La Zanja  151,189   229,055   -   -   -  74,370 228,894 - - - 
Colquijirca  13,062   1,696,175   11,874   48,806   45,572  14,297 3,058,987 18,713 37,470 43,710 

 

Mining Segment 2017 vs 2016 Change (%)  2019 vs 2018 Change (%) 
 Gold (oz.)  Silver (oz.)  Lead (t)  Zinc (t)  Copper (t)  Gold (oz.) Silver (oz.) Lead (t) Zinc (t) Copper (t) 
Julcani  (34)%  (20)%  (28)%  -   (41)% 1527%  5%  -8%   %  -18%
Mallay  (67)%  (30)%  (44)%  (32)%  - 
Orcopampa  4%  (16)%  -   -   90% -65%  -96%   %   %  -100%
Uchucchacua  (28)%  6%  57%  94%  -  -100%  -32%  -10%  -9%   %
Tambomayo  n. a.   n. a.   n. a.   n. a.   n. a.  -19%  -35%  121%  10%   %
La Zanja  (15)%  22%  -   -   -  -59%  -65%   %   %   %
Colquijirca  22%  92%  64%  (12)%  (6)% -12%  15%  21%  -2%  -6%

 

The change in sales of goods for the year ended December 31, 20172019 as compared to the year ended December 31, 20162018 is mainly explained by the changes in volume sold, as presented in the following chart:

 

Sales of goods – Mining Segments Year ended December 31,  Year ended December 31, 
 2016  2017  Variation  Variation  2018  2019  Variation  Variation 
 (US$ in thousands)    (US$ in thousands)    
Julcani (a)  54,666   42,785   (11,881)  (22)%  34,104   40,082   5,978   18%
Mallay (b) ��46,741   36,736   (10,005)  (21)%
Orcopampa  244,745   256,960   12,215   5%
Orcopampa (b)  153,003   58,902   (94,101)  (62)%
Ucchuchacua (c)  240,470   272,334   31,864   13%  257,282   186,016   (71,266)  (28)%
Tambomayo (d)  -   118,966   118,966   n. a.   225,281   188,175   (37,106)  (16)%
La Zanja (e)  178,922   165,319   (13,603)  (8)%  96,611   43,520   (53,091)  (55)%
Colquijirca (f)  230,611   322,653   92,042   40%  333,560   299,252   (34,308)  (10)%

 

(a)

Julcani. Net sales of goods increased by US$6.0 million in 2019 as compared to 2018 due to an 11% increase in the average realized price and a 5% increase in the quantity of silver sold at that unit mainly explained by the higher ore milled in 14% partially offset by a 6% decrease in the ore grade (23.35 oz/mt in 2018 compared to 21.90 oz/mt in 2019).

(b)

Orcopampa. Net sales of goods decreased by US$11.994.1 million in 20172019 as compared to 20162018 due to a 9%96% and 65% decrease in the amount of silver and gold sold, respectively, at that unit, mainly explained by our strategy to prioritize Orcopampa’s De-Bottlenecking Program over ore extraction.

(c)

Uchucchacua. Net sales of goods decreased by US$71.3 million in 2019 as compared to 2018. The decreased is explained by aan 8% decrease in the average realized price and a 20%32% decrease in the amountquantity of silver sold at that unit.

unit mainly explained by the lower ounces produced due to the 21-day strike in January 2019.

 

(d)(b)Mallay.

Tambomayo. Net sales of goods decreased by US$10.037.1 million in 20172019 as compared to 2016 due to2018. The decreased is explained by a 6% decrease in the average realized price19% 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%35% 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 coppersilver sold at that unit.unit mainly explained by the lower ore grades in 2019 of 25%, compared to 44% in 2018.

 

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(e)

La Zanja. Net sales of goods decreased by US$53.1 million in 2019 as compared to 2018 due to the effect of a 59% decrease in the quantity of gold sold mainly explained by a 65% decrease in ounces produced.

Sales of services – Other Segments

Sales of services - construction and engineering segment.Net sales for the construction and engineering segment decreased by US$1.2 million in 2017 as compared to 2016 due to a decrease in sales of BISA.

Sales of services - insurance brokerage segment.Net sales for the insurance brokerage segment increased by US$2.1 million in 2017 as compared to 2016 due to an increase in sales of agency commissions.

Total operating expenses – Mining Segments. The change in operating expenses for the year ended December 31, 20172019 as compared to the year ended December 31, 20162018 is mainly explained by:

 

Operating Expenses – Mining Segments Year ended December 31,  Year ended December 31, 
 2016  2017  Variation  Variation  2018 2019 Variation Variation 
 (US$ in thousands)    (US$ in thousands)   
Julcani  5,983   5,346   (637)  (11)% 2,983 6,971 3,988 134%
Mallay  4,580   4,474   (106)  (2)%
Orcopampa (a)  14,121   20,013   5,892   42% 19,382 13,570 (5,812) (30)%
Ucchuchacua (b)  15,632   37,066   21,434   137% 49,840 29,855 (19,985)               (40)%
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%
Tambomayo 25,204 24,092 (1,112) (4)%
La Zanja 4,254 6,545 2,291 54%
Colquijirca (c) 452 26,221 25,769 5,701%

 

(a)

OrcopampaOrcopampa. The decrease in total operating expenses was mainly due to the net effect of.

(i)    lower administrative expenses in US$9.9 million; partially offset by

(ii)  higher expenses in the others net caption in US$4.7 million mainly related to the expenses incurred as a result of the cease mine production of January 2019.

(b)

Uchucchacua. The decrease in total operating expenses was mainly due to the net effect of

(i)  lower exploration in non-operating areas expenses in US$15.8 million due to expenses of the Yumpaq project are capitalized and considered as part of the caption “Mining concessions, development costs, right-of-use asset, property, plant and equipment, net” since 2019.

(ii)  lower administrative expenses in US$8.0 million; partially offset by

(iii) a reversal of US$7.0 million related to negotiations made with communities.

(c)

Colquijirca. The increase in total operating expenses was mainly due to an increase in administrative expensesthe net effect of US$4.5 million.

 

(b)

Uchucchacua. The(i)     the increase in total operating expenses in 2019 was mainly due to an increasethe recovery income of the insurance claim that occurred in El Brocal during 2018. During 2018, El Brocal recorded a recovery income of the insurance claim that occurred in the rotor 2 of the 20x30 mill and the conveyor belt related to the incident that occurred in May 2017. Total compensations, lost profits and consequential damages is US$8.238.8 million. Because 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.

(ii)    a reversal of US$2.1 million in the provision for contingencies, an increasecontingences of 2019 compared with a provision of US$6.23.7 million in administrative expenses, an increase of US$2.7 million in2018.

(iii)   lower explorations in non-operating areas and an increase ofexpenses in US$1.45.2 million in selling expenses.compared with 2018.

(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 - 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)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.
Operating expenses (income) – Other Segments Year ended December 31, 
  2018  2019  Variation  Variation 
Insurance brokerage segment  11,900   11,607   (293)  2%
Corporate (a)  4,060   11,005   6,945   171%
Exploration and development mining projects  242   2,965   2,723   1,125%
Energy generation and transmission segment (b)  4,639   (8,791)  N.A.   N.A. 
Industrial activities  2,355   2,293   (62)  3%
Holding of investment in shares  2,261   284   (1,977)  87%
Rental of mining concessions  220   53   (167)  (76)%

 

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(a)Corporate.The increase was mainly due to the net effect of higher administrative expenses of US$7.3 million; mainly explained by the higher billing of 2018 in the administrative services rendered to others compared to 2019.
(b)Energy generation and transmission segment. The variation from an expense to an income in total operating expenses was mainly due to the effect of the sale of energy transmission systems in the areas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and Lorema resulting in a net sale of US$13.3 million recorded in the “Others, net” caption in the Consolidated Financial Statements.

Results of Operations for the Years Ended December 31, 20162018 and 2015

2017 

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

 

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

n.a.

 
Total sales by metal  846,269   1,015,670   169,401   20.02%

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

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

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

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

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

(f)Commercial deductions. Net sales of goods figures are obtained by deducting the refinery charges and penalties incurred (a total of US$244.4 million of refinery charges and penalties were incurred in 2016, compared to US$196.2 million incurred in 2015) and revenues from discontinued operations (a total of US$1.1 million revenues provided from mining units held for sales in 2016, compared to US$22.7 million provided in 2015) from the gross sales of all metals sold. See Note 20(a) and Note 1(e) to the Consolidated Financial Statements.

The following tables reflect the average realized pricesSee “Item 5. Operating and volumesFinancial Review and Prospects” in our 2018 20-F for a comparative discussion of gold, silver, lead, zinc and copper sold during the years ended December 31, 2015 and 2016, as well as the variation in such average realized prices and volumes recordedour consolidated results of operations for the year ended December 31, 2016 as compared2018 and 2017.

B.Liquidity and Capital Resources

As of December 31, 2019 and 2018, we had cash and cash equivalents of US$210.0 million and of US$369.2 million, respectively.

The Group believes that maintains suitable levels of cash and cash equivalents and has sufficient credit capacity to get access to lines of credit in leading financial entities. In addition, On April 2, 2020, we entered into a second amendment to the yearSyndicated Term Loan of US$ 275 million with a 30-month grace period and semiannual installments starting in October 2022.

Cash provided by operating activities for the years ended December 31, 2015:2019 and 2018. Net cash and cash equivalents provided by operating activities decreased by US$299.2 million, primarily due to the changes shown in the chart below:

 

Average Realized Price Year ended December 31, 
  2015  2016  Variation 
Gold (US$/oz.)  1,151.44   1,244.24   8.20%
Silver (US$/oz.)  15.06   17.65   17.20%
Lead (US$/t)  1,711.87   1,977.53   15.52%
Zinc (US$/t)  1,838.86   2,266.85   23.27%
Copper (US$/t)  4,514.93   4,918.52   8.94%
Operating activities cash flows Year ended December 31, 
  2018  2019  Variation  Variation 
  (US$ in thousands)    
Proceeds from sales (a)  1,216,294   783,000   (433,294)  (36)%
Value-added tax and other taxes recovered (b)  106,656   45,712   (60,944)  (57)%
Dividends received (c)  46,792   33,388   (13,404)  (29)%
Royalty received  20,013   23,001   2,988   15%
Interest received  2,383   4,265   1,882   79%
Proceeds from insurance claim (d)  38,793   -   (38,793)  (100)%
Payments to suppliers and third parties (e)  (861,282)  (610,737)  250,545   (29)%
Payments to employees (f)  (151,602)  (137,300)  14,302   (9)%
Payments for tax litigation (g)  -   (36,322)  (36,322)  100%
Interest paid  (27,699)  (28,266)  (567)  2%
Income tax paid (h)  (30,898)  (24,935)  5,963   (19)%
Payments of mining royalties (h)  (13,190)  (4,741)  8,449   (64)%
Net cash and cash equivalents provided by (used in) operating activities  346,260   47,065   (299,195)  86%

(a)

The decrease in the proceeds from sales was mainly due to lower sales and production of the Company’s mining units, as described in Results of Operations for the Years Ended December 31, 2019 and 2018 by Segment.

 

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Volume Sold Year ended December 31, 
  2015  2016  Variation* 
Gold (oz.)  364,831   354,116   (2.94)%
Silver (oz.)  20,811,046   21,863,019   (0.05)%
Lead (t)  32,389   29,678   (8.37)%
Zinc (t)  55,529   62,829   13.15%
Copper (t)  29,094   45,674   56.99%

Net sales of services.Sales of services decreased by 43.3%, from US$50.8 million in 2015 to US$28.8 million in 2016, mainly due to a decrease in sales of services in our construction segment as a result of Bisa Construccion S.A. ceasing operations.

Royalty income. In 2016, royalty income received by our subsidiary Chaupiloma amounted to US$24.3 million, representing a 25% decrease from the US$32.4 million in royalty income received in 2015. This
(b)

The recovery of the value-added tax is affected by the variations in foreign sales. During 2019, the recovery of value-added tax decrease was due to a decrease in the average realized price of gold and a decrease in production at Yanacocha. We hold a 60% interest in Chaupiloma, to which Yanacocha pays a royalty that corresponds to 3% of its net sales.

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

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

(a)The decrease in cost of services was mainly due to reduced costs from our construction segment as a result of Bisa Construccion S.A. ceasing operationsthe Company’s lower sales from its mining units, as described in Results of Operations for the fourth quarter of 2015.Years Ended December 31, 2019 and 2018 by Segment. 

 

(b)The increase in exploration in operating units was primarily due to an increase of US$3.6 million in the Uchucchacua mining unit and an increase of US$3.4 million in the Orcopampa mining unit from exploring additional mining reserves. See Note 22 to the Consolidated Financial Statements.

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

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

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

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

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

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

N.A.

 
Total operating expenses (income)  143,885   111,622   (32,263)  (22.42)%

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

(b)The decrease in exploration in non-operating areas is mainly due to decreased expenditures in exploration activities, primarily in the Alejandra project. During 2016, our main exploration efforts were focused on the San Gabriel project, the Tambomayo project and Marcapunta Norte. See Note 25 to the Consolidated Financial Statements.

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

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

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

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

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

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

(b)Finance costs.Finance costs increased by 15%, from US$27.6 million in 2015 to US$31.6 million in 2016, primarily due to an increase of US$3.7 million in the fair value of the contingent consideration liability due to higher projected revenues. See Note 26 to the Consolidated Financial Statements.

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

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

73

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

Non-controlling interest income (loss). Non-controlling interest income increased from a loss of US$58.3 million in 2015 to a loss of US$4.3 million in 2016, primarily due to an increase in the contribution of profits from the La Zanja and El Brocal units of US$34.8 million and US$21.6 million, respectively. See Note 18(a) to the Consolidated Financial Statements.

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

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

We present the operating results for each of our operating segments for the years ended December 31, 2015 and 2016 in more detail in Note 30 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, 2016 and 2015, as well as the variation in such volumes sold for the year ended December 31, 2016 as compared to the year ended December 31, 2015:

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

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

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

74

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

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

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

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

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

Sales of services – Other Segments

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

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

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

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

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

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

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

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

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

75

Total operating expenses - Other Segments

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

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

B.Liquidity and Capital Resources

As of December 31, 2017 and 2016, we had cash and cash equivalents of US$214.5 million and of US$80.5 million, respectively.

Cash provided by operating activities for the years ended December 31, 2017 and 2016. Net cash and cash equivalents provided by operating activities decreased by US$178.8 million, primarily due 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%
Dividends received (b)  142,340   9,823   (132,517)  (93)%
Value-added tax recovered  117,661   102,548   (15,113)  (13)%
Royalty received  25,961   21,565   (4,396)  (17)%
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%
Interest paid  (34,138)  (30,402)  3,736   (11)%
Payments of mining royalties  (20,052)  (20,165)  (113)  1%
Income tax paid  (35,401)  (38,121)  (2,720)  8%
Net cash and cash equivalents provided by operating activities  391,401   212,582   (178,819)  (46)%

(a)The increase in proceeds from sales was mainly due to an increase in net sales of goods during 2017.

(b)The decrease in dividends received was mainly due to the US$130.929.4 million in dividends received from YanacochaCerro Verde during 2016. During 2017, no2019, (during 2018, we received from Cerro Verde US$39.2 million) and the lower dividend received from Yanacocha was received.Coimolache from US$7.6 million in 2018 to US$4.0 million in 2019.

(d)

 

During 2018, El Brocal recorded a recovery income from an insurance claim that occurred in May 2017. Total compensation and lost profits and consequential damages is 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.
(c)
(e)The increasedecrease in payments to suppliers and third parties wasis mainly explained by an increasethe decrease in coststhe operations and expensesore production by the Company’s mining units, as a resultdescribed in Results of Operations for the new operation in Tambomayo,Years Ended December 31, 2019 and an increase in production costs related to the Uchucchacua and Orcopampa mining units.2018 by Segment.

(d)
(f)The increasedecrease in payments to employees was mainly explained by a US$13.0 million increasethe decrease in the headcount due to the new operations at the Tambomayo mining unit.Group’s De-bottlenecking Program and related optimization of support areas.

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(g)Corresponds mainly to payments made by Buenaventura related to claims with the Tax Administration mainly with for US$36.3 million. See Note 29(e) of the Consolidated Financial Statements.
 

Cash provided by operating activities for the years ended December 31,2016 and 2015.Net cash and cash equivalents provided by operating activities increased by US$264.1 million, primarily due to the changes shown in the chart below:

Operating activities cash flows Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Proceeds from sales  965,273   1,003,422   38,149   3.95%
Dividends received (a)  6,691   142,340   135,649   2,027.34%
Value-added tax recovered  81,692   117,661   35,969   44.03%
Royalty received  38,983   25,961   (13,022)  (33.40)%
Interest received  3,650   2,140   (1,510)  (41.37)%
Payments to suppliers and third parties (b)  (727,017)  (672,419)  54,598   (7.51)%
Payments to employees (b)  (175,329)  (138,113)  37,216   (21.23)%
Interest paid  (21,518)  (34,138)  (12,620)  58.65%
Payments of mining royalties  (22,836)  (20,052)  2,784   (12.19)%
Income tax paid  (22,330)  (35,401)  (13,071)  58.54%
Net cash and cash equivalents provided by operating activities  127,259   391,401   264,142   207.56%

(a)(h)The increasedecrease in dividends receivedthe income tax and royalties paid was mainly due to a distribution toin line with the partners,decrease in proportion to their equity interests, of US$300.0 million, which correspond to the portion of the retained earningstaxable income as of December 31, 2014, that originated in 2011. As a result we received dividends of US$130.9 million in 2016.lower sales and net income.

 

(b)As part of the cost reduction and optimization program, we had lower costs related to suppliers, third parties and employees in 2016.

Cash used in investing activities for the years ended December 31,20172019 and 2016.2018.Net cash and cash equivalents used in investing activities decreased by US$226.711.9 million primarily due to the changes shown in the chart below:

 

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

Variation

%

  2018  2019  Variation  

Variation

%

 
 (US$ in thousands)   (US$ in thousands)    
Proceeds from sale of mining concessions, development costs, property, plant and equipment(a)  7,180   1,962   (5,218)  (73)%  2,240   726   (1,514)  (68)%
Additions to mining concessions, development costs, property, plant and equipment (a)(b)  (366,834)  (259,507)  107,327   (29)%  (111,270)  (102,627)  8,643   (8)%
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%  (8,529)  (3,700)  4,829   (57)%
Net cash and cash equivalents used in investing activities  (364,876)  (138,150)  226,726   (62)%
Net cash and cash equivalents provided by (used in) investing activities  (117,559)  (105,601)  11,958   (10)%

 

(a)The increaseproceeds from sale of assets decrease despite the sale of assets increased during 2019 (see Note 26(a) of the Consolidated Financial Statements). This is explained because during 2018 the Group (through its subsidiary Compañía Minera Condesa S.A.) sold and collect a sale of a property during the same year. During 2019, the Group (through its subsidiary Consorcio Energético de Huancavelica S.A.) sold energy transmission systems in the areas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and Lorema for US$21.0 million, which were collected in January 2020.

(b)The decrease in additions to mining concessions, development costs, property, plant and equipment was mainly due to the construction of thedecrease in La Zanja and Tambomayo mining unitunits for US$11.5 million and US$9.2 million, which was partially offset by an increase in 2016. During 2016, we investedthe investments in Uchucchacua mining units for US$230.2 million in Tambomayo’s assets as compared to US$131.1 million during 2017.13.0 million. See “Item 4: Information on the Company—Buenaventura—A. History and Development—Capital Expenditures.”

 

(b)During 2017, we received an advanced payment of the long-term loan held with Sociedad Minera Cerro Verde S.A.

 7772 

 

Cash used in investingprovided by (used in) financing activities for the years ended December 31,20162019 and 2015.2018.Net cash and cash equivalents usedprovided by (used in) financing activities increase from a negative net amount of US$74.0 million in investing activities increased by2018 to US$23.2100.6 million in 2019, primarily due to the changes shown in the chart below:

 

Investing activities cash flows Year ended December 31, 
  2015  2016  Variation  

Variation

%

 
  (US$ in thousands)    
Proceeds from sale of mining concessions, development costs, property, plant and equipment  5,481   7,180   1,699   31%
Additions to mining concessions, development costs, property, plant and equipment (a)  (211,286)  (366,834)  (155,548)  74%
Loans to associates  (124,800)  -   124,800   (100)%
Loans to third parties  (829)  -   829   (100)%
Payments for acquisition of other assets  (10,238)  (5,222)  5,016   (49)%
Net cash and cash equivalents used in investing activities  (341,672)  (364,876)  (23,204)  7%
Financing activities cash flows Year ended December 31, 
  2018  2019  Variation  Variation 
  (US$ in thousands)    
Proceeds from bank loans  95,000   55,000   (40,000)  (42)%
Payments of bank loans  (95,000)  (95,000)  -   -%
Proceeds from financial obligations  -   161,894   161,894   100%
Payments of financial obligations  (45,222)  (186,152)  (140,930)  312%
Short-term lease payments  -   (7,596)  (7,596)  100 
Dividends paid to controlling shareholders  (22,860)  (22,098)  762   (3)%
Dividends paid to non-controlling shareholders  (5,560)  (6,500)  (940)  17%
Increase of restricted bank accounts  (410)  (166)  244   (60)%
Net cash and cash equivalents used in financing activities  (74,052)  (100,618)  (26,566)  36%

 

(a)The increase in additions to mining concessions, development costs, property, plant and equipment was mainly due to the construction of the Tambomayo mining unit. During 2016, the Company invested US$230.2 million in Tambomayo’s assets as compared to US$77.1 million during 2015. See “Item 4: Information on the Company—Buenaventura—A. History and Development—Capital Expenditures.”

Cash provided by financing activities for the years ended December 31,2017 and 2016.Net cash and cash equivalents used in financing activities increased by US$84.0 million, primarily due 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   (343)%

Cash provided by financing activities for the years ended December 31,2016 and 2015.Net cash and cash equivalents used in financing activities decreased by US$238.90 million, primarily due to the changes shown in the chart below:

Financing activities cash flows Year ended December 31, 
  2015  2016  Variation  Variation 
  (US$ in thousands)    
Proceeds from financial obligations  296   275,210   274,914   92,876%
Proceeds from bank loans  344,503   200,500   (144,003)  (42)%
Payments of bank loans  (90,000)  (442,957)  (352,957)  392%
Payments of financial obligations  (29,891)  (33,476)  (3,585)  12%
Dividends paid to controlling shareholders  -   (7,621)  (7,621)  100%
Dividends paid to non-controlling shareholders  (10,488)  (7,400)  3,088   (29)%
Acquisition of non-controlling interest  -   (5,459)  (5,459)  100%
Increase of restricted bank accounts  -   (2,087)  (2,087)  100%
Purchase of treasury shares  -   (1,210)  (1,210)  100%
Net cash and cash equivalents used in financing activities  214,420   (24,500)  (238,920)  (111)%

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, 20172019 and 2016,2018, the amount outstanding under such short-term loans was US96.2US$55.0 million and US$55.095.0 million, respectively. In 2017,2019, we used the proceeds of such short-term loans for general working capital purposes.

 

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Long-Term Debt

 

On December 2, 2009 Banco de Crédito del Perú executed a financial lease agreement with Huanza 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 2.75% as of December 31, 2017 (three-month LIBOR plus 4.60% as of December 31, 2016).2019 and 2018. On June 30, 2014, Banco de Crédito del Perú extended this financial lease agreement with Huanza in the amount of US$103.4 million. The term of the lease is six years from August 2014 and the interest rate is three-month LIBOR plus 2.75% as of December 31, 2017 (three-month LIBOR plus 4.70% as of December 31, 2016).2019 and 2018. As of December 31, 20172019 and 2016,2018, the amount outstanding under this lease was US$162.4130.5 million and US$176.1147.2 million, respectively.

 

In 2013, El Brocal entered 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 board of directors of El Brocal approved the modification of the debt and new payment schedule of the 2013 leaseback contract in an aggregate amount of US$166.5 million. The new arrangement hashad 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 2.75% as of December 31, 2017 (three-month LIBOR plus 4.75% as of December 31, 2016). 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 certain financial ratios under the agreements is monitored by El Brocal’s management. In 2017, Management obtained a waiver for any possible breach of the financial ratios that occur until December 31, 2018. As of December 31, 2017 and 2016, the amount outstanding under this financing arrangement was US$118.1 million and US$136.8 million, respectively.

On October 23, 2017, El Brocal signed a mid-term loan agreement with the Banco de CreditoCrédito del PeruPerú for US$80.0 million, which accruesaccrued interest at an annual rate of 3.6% forover a 5-year term. The objectiveOn October 29, 2019, El Brocal entered into a new financial obligation of this financing was the payment of short-term financial obligations maintainedUS$161,893,850 with the Banco de CreditoCrédito del PeruPerú in order to repay a financial leaseback and for working capital. As parta mid-term financial obligation. The new financial obligation has the following terms and conditions:

Tranche ATranche B
PrincipalUS$113,325,695US$48,568,155
Annual interest rate3.76 percentThree-month LIBOR plus 2.39 percent
Term5 years since October 2019 until October 20247 years since October 2019 until October 2026

According to the lease contract mentioned above, El Brocal is required to maintain the following financial ratios:

(i)Debt service coverage ratio: Higher than 1.3.

(ii)Leverage Ratio: Less than 1.0 times.

(iii)Indebtedness ratio: Less than 2.25 times.

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This new financial obligation is collateralized by a security agreement in respect of assets; certain contractual rights, flows and account balances, a real estate mortgage; and a mortgage on certain mining concessions. El Brocal’s Management oversees the compliance of the commitments agreed to, El Brocal must comply with certain financial indicators. Compliance with the financial ratios under the agreement is monitored byterms described above. El Brocal’s management. In 2017, El Brocalmanagement managed and obtained from Banco de Crédito del Perú a waiver for any possible breach of the financial ratiosratio that occurs untiloccurred for the last quarter of 2019. In December 31, 2018. As of December 31, 2017,2019, El Brocal’s management managed to obtain a waiver for the amount outstanding was US$80.0 million.year 2020.

 

On June 27, 2016, in order to repay short-term contracts held as of December 31, 2015, we entered into a long-term finance contract (the “Syndicated Term Loan”), in the amount of US$275 million among us, as borrower, Condesa, Inversiones Colquijirca S.A. and Conenhua as guarantors, Banco de CreditoCrédito del Peru,Perú, as administrative agent, and the lenders party thereto. Borrowings under the Syndicated Term Loan bear interest at a rate per annum equal to LIBOR plus 3.00%. Interest and installments of principal equal to 1/7th of the aggregate principal amount borrowed are payable every six months until maturity in June 2021 (on which date all amounts outstanding shall be payable). Obligations under the Syndicated Term Loan are guaranteed by Condesa and Conenhua, our wholly-owned subsidiaries, and Inversiones Colquijirca S.A., for which we own 100%. The term loan agreement governing the Syndicated Term Loan contains certain customary covenants, including certain financial maintenance covenants, and events of default. See Exhibit 2.1. On April 2, 2020 we entered into a second amendment to the Syndicated Term Loan, pursuant to which, as of the date of this annual report, borrowings under the Syndicated Term Loan bear interest at a rate per annum equal to LIBOR plus 1.90%. Principal under the Syndicated Term Loan shall be payable in five consecutive and semi-annual installments of US$41,250,000 beginning in October 2022 and one final payment of US$68,750,000 in April 2025 (on which date all amounts outstanding shall be payable).

 

Exploration Costs and Capital Expenditures

 

We have budgeted approximately US$180 85 to US$220 105 million for capital expenditures for 2018.2020. These budgeted capital expenditures mainly include sustaining capital expenditures, and implementing a “de-bottlenecking program.” This program aims to increase the lifedevelopment of our mines by improving efficiency, reducing costs, allowing for more aggressive mine developmentthe San Gabriel and exploration programs in order to generate more visibility into our ore reserves.Trapiche projects.

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During 2017,2019, we spent US$18.3 11.9 million on “exploration in non-operating areas” and US$94.9 44.2 million on “exploration in operating units.” Our “exploration in non-operating areas” investments mainly focused on the following exploration projects: Yumpag,Yumpaq, Marcapunta Tambomayo and Emperatriz.Emperatriz projects. Our “exploration in operating units” investments were mainly focused in the Orcopampa, Uchucchacua, and Julcani units.

 

In 2018,2020, we intend to invest approximately US$85.025 to US$95.035 million in exploration in operating units (mainly in Tambomayo, Orcopampa and Uchucchacua) and US$25.0 to US$35.0 million mainly in explorations in non-operating areas at the Trapiche and San Gabriel projects, among others.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

 

Amendments to IFRS 3:

 

We prepareIn October 2018, the IASB issued amendments to the definition of a “Business” in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and presentassets is a Business. The amendments clarify the Consolidated Financial Statements in accordanceminimum requirements to be considered a Business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a Business and of outputs and introduce an optional fair value concentration test. New illustrative examples were also provided with IFRS as issued by the IASB.

The standards and interpretationsamendments. Because the amendments apply prospectively to transactions or other events that are issued, but not yet effective, up tooccur on or after the date of issuance of our Consolidated Financial Statements are disclosed below. We intend to adoptfirst application, we will not be affected by these standards, if applicable, when they become effective.amendments on the date these amendments go into effect.

 

IFRS 9 Financial InstrumentsAmendments to IAS 1 and IAS 8:

 

In July 2014,October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the final versiondefinition of IFRS 9 Financial Instruments that replaces IAS 39“Material” across the standards and all previous versions of IFRS 9. IFRS 9 brings together all threeclarify certain 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, butdefinition. Under the provision of comparativenew definition, information is not compulsory. For hedge accounting,deemed Material “if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the requirements are generally applied prospectively, with some limited exceptions.

The Company plans to adopt the new standardprimary users of general purpose financial statements make on the required effective date and will not restate comparative information.

During 2017, the Company performedbasis of those financial statements, which provide financial information about a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made availablespecific reporting entity”. The amendments to the Company in 2018 when it adopts IFRS 9. Overall, the Company expects nodefinition of Material is not expected to have a significant impact on its statement ofour consolidated financial position or equity from the adoption of IFRS 9. In addition, the Company will adopt changes in certain financial instruments.statements.

 

(a)Classification and measurement.As discussed in more detail in Note 2.1(n) to the Consolidated Financial Statements, the Company recorded an embedded derivative for its sales of metal in concentrate that is disclosed separately from the accounts receivable in the consolidated statement of financial position. Upon adoption of IFRS 9, the embedded derivative will no longer be separated from the concentrate receivables as the receivables are not expected to give rise to cash flows that solely represent payments of principal and interest. Instead, the receivables will be accounted for as one instrument and measured at fair value through profit or loss, with subsequent change in fair value recognized in the statement of profit or loss.

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There will be no impact on financial liabilities.

For other financial assets currently measured at fair value, the Company will continue to classify and measure these at fair value.

(b)Impairment.IFRS 9 requires the Company to record an expected credit loss for its debt instruments, loans and account receivables measured at fair value, regardless of the period. The Company will apply the simplified approach and record lifetime expected losses on all trade receivables measured at amortized cost. Given the short term nature of these receivables, the Company does not expect these changes will have a significant impact on the Consolidated Financial Statements of the Company.

(c)Hedge accounting.The Company has determined that all hedge transactions that are currently designated as effective hedges will continue to qualify as hedge accounting under IFRS 9. The Company has chosen not to retrospectively apply IFRS 9 at the time of transition for those hedges designated as hedges under IAS 39, as IFRS 9 does not change the main principles of how an entity should record the effective hedges, or apply the requirements of IFRS 9 on hedge accounting.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration agreed with the 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 beginning on or after January 1 2018. Early adoption is permitted.

The Company plans to adopt the new standard on the required effective date using the modified retrospective method, under which the accumulated effect of applying this new standard is presented by adjusting the beginning balance of accumulated results (January 1, 2018). During 2016, the Company performed a preliminary assessment of IFRS 15, which was followed by a more detailed analysis in 2017.

(a)Sales of mineral. For contracts with customers in which the sale of the mineral is expected to be the only performance obligation, it is expected that IFRS 15 will not have an impact on the income and results of the Company. The Company expects that the income recognition will occur at the moment in which control of the asset is transferred to the client, which generally occurs with the delivery of the goods. At the time of preparing for the adoption of IFRS 15, the Company considered the following:

(i)Provisionally priced sales – As discussed in Note 2.1(q) to the Consolidated Financial Statements, the Company recognizes an embedded derivative for its concentrates sales at provisional pricing. IFRS 15 does not change the assessment of the impact of these provisional pricing features, which are required to be accounted for in accordance with IFRS 9. Any subsequent changes that arise due to differences between initial and final assay will still be considered within the scope of IFRS 15 and will be subject to the constraint on estimates of variable consideration.

Revenue in respect of the host contract will be recognized when control passes to the customer and will be measured 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 (“QP”) using the most recently determined estimate of metal in concentrate (based on initial assay results) and the estimated forward price (which is consistent with current practice). When considering the initial assay estimate, the Company has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final assay/quality is subsequently resolved, at the end of the QP. As disclosed above, the assay differences are not usually material to the Company, hence, no change is expected when compared to the current approach. Consequently, the Company will recognize a receivable at the time the concentrate passes to the client because, at that moment, the Company has an unconditional right to consideration. This receivable will then be accounted for in accordance with IFRS 9.

81

With respect to the presentation of amounts arising from such provisionally priced contracts, IFRS 15 requires revenue from contracts with customers to be disclosed separately from other types of revenue. This means that revenue recognized from the initial sale must be separately disclosed in the consolidated financial statements from any income recognized from subsequent movements in the fair value of the related concentrate receivable. As the Company currently discloses movements in the embedded derivative in “Net sales”, this requirement will have no impact on it. Consistent with current practice, any subsequent changes that arise due to differences between initial and final assay will be recognized as an adjustment to revenue from contracts with customers.

(ii)Impact of shipping terms - The Company sells a portion of its inventories under commercial terms in which the Company is responsible of the delivery services after the date at which control of the concentrate passes to the client at the port of loading, that is when it crosses the ship´s rail. Under IAS 18, these shipping services are currently not considered to represent a separate service, hence, no revenue is allocated to them. Instead, concentrate revenue is recognized in full at the date the concentrate passes the ship’s rail, and the costs associated with shipping the goods are considered to be part of cost of sales.

Under IFRS 15, the provision of shipping services in these types of arrangements will be a distinct service (and therefore a separate performance obligation) to which a portion of the transaction price should be allocated and recognized over time as the shipping services are provided. The impact of these changes include:

·Deferral of revenue: Some of the revenue currently recognized when the concentrate passes the ship’s rail will be deferred and recognized as the shipping services are subsequently provided; and

·Disclosures: Material revenue allocated to shipping services may need to be disclosed separately from concentrate revenue, either on the statement of profit or loss and other comprehensive income or in the Notes to the Consolidated Financial Statements.

The Company has determined that while these changes will impact some of its arrangements, the overall year-to-year impact on the timing of revenue recognition will not be material and consequently such revenue will not be disclosed separately.

(b)Presentation and disclosure requirements.In addition to the presentation and disclosure requirements for provisionally priced sales discussed above, IFRS 15 contains other presentation and disclosure requirements which are more detailed than the current IFRS. The presentation requirements represent a significant change from current practice and will increase the volume of disclosure required in the Company’s consolidated financial statements. In 2017, the Company continued testing appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.

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. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted. The Company is evaluating the impact of IFRS 16 on its Consolidated Financial Statements and plans to adopt the new standard on the required effective date.

8274 

 

 

C.Research and Development

 

Not applicable.

 

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.

 

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.

 

F.Tabular Disclosure of Contractual Obligations

 

The following table shows our contractual obligations as of December 31, 2017:2019:

 

  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)()  96.6   96.6          
Mid and Long-Term Debt (*)  318.7   54.4   53.8   210.5    
Capital lease obligations (**)  389.8   55.7   94.9   239.2    
Other Long-Term Obligations  286.6   248.1   0.7   9.3   28.5 
Total Contractual Cash Obligations  1,091.7   454.8   149.4   459.0   28.5 

(*)Long-Term Debt includes:

(i)US$299.1 million (including US$272.6 million in principal and US$26.5 million interest payments), which relates to long-term debt of Buenaventura.

(ii)US$90.7 million (including US$80.0 million in principal and US$10.7 million in interest payments), which relates to long-term debt of El Brocal.

(**)Capital lease obligations include:

(i)US$188.2 million (including US$162.4 million in principal and US$25.8 million in interest payments), which relates to a financial lease between Banco de Crédito del Perú and Conenhua, Huanza and us for construction of a hydroelectric power station.

(ii)US$130.5 million (including US$119.6 million in principal and US$10.9 million in interest payments), which relates to a sale and leaseback arrangement between Banco de Crédito del Perú and El Brocal.
 Payments due by Period (US$ in millions) 
 Total  

Less than

1 year

  

1-2

years

  

2-5

years

  

More than

5 years

 
Bank loans (principal and interest) 55,486   55,486   -   -   - 
Trade and other payables 152,686   152,070   616   -   - 
Financial obligation – capital 567,398   262,088   131,588   125,154   48,568 
Financial obligation – interest 47,151   22,597   11,225   11,880   1,449 
Lease – capital 7,503   3,692   1,514   2,297   - 
Lease – interest 620   73   143   404   - 
Contingent consideration liability 40,071   -   -   4,905   35,166 
Total Contractual Cash Obligations 870,915   496,006   145,086   144,640   85,183 

 

As of December 31, 2017,2019, we had no other commercial commitments.

 

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.

 

83

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 and selling expenses in the proportion to each mineral’s commercial value (realized price multiplied by volume sold).

 

75

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, 20162017 and 20172018 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, 20162017 and 20172018 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 (by mine and mineral) to consolidated Cost of sales, excluding depreciation and amortization, consolidated Selling Expenses and Consolidated Exploration in operating units 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, 
  2016  2017 
  (in thousands of US$) 
Consolidated Cost of sales excluding depreciation and amortization  508,566   640,387 
Add:        
Consolidated Exploration in operating units  96,149   94,928 
Commercial Deductions*  244,413   253,923 
Consolidated Selling Expenses  21,733   24,088 
Consolidated Cost applicable to sales  870,861   1,013,326 
*2017 does not consider deductions of indium for US$16,180

84

  For the year ended December 31, 
  2018  2019 
  (in thousands of US$) 
Consolidated Cost of sales excluding depreciation and amortization  617,699   516,252 
Add:        
Consolidated Exploration in operating units  89,730   44,163 
Commercial Deductions*  192,683   220,306 
Consolidated Selling Expenses   26,948   24,313 
Consolidated Cost applicable to sales  927,060   805,034 

 

Set forth below is a reconciliation of Cost of sales, excluding depreciation and amortization (by mine and mineral) to consolidated Cost of sales, excluding depreciation and amortization:

 

 For the year ended December 31,  For the year ended December 31, 
Cost of sales by mine and mineral 2016  2017  2018 2019 
 (US$ in thousands)  (US$ in thousands) 
Julcani, Gold  15   0  19 166 
Julcani, Silver  20,032   26,413  23,608 24,405 
Julcani, Lead  1,855   3,048  1,335 971 
Julcani, Copper  83   126  86 47 
Mallay, Gold  512   225 
Mallay, Silver  9,461   8,204 
Mallay, Lead  4,943   4,470 
Mallay, Zinc  7,371   8,696 
Orcopampa, Gold  88,213   105,848  88,942 51,154 
Orcopampa, Silver  4,271   4,097  3,127 228 
Orcopampa, Copper  92   255  0 0 
Uchucchacua, Gold  123   139  5 0 
Uchucchacua, Silver  92,188   103,014  98,991 79,562 
Uchucchacua, Lead  5,763   12,942  16,470 14,815 
Uchucchacua, Zinc  4,262   12,769  20,540 19,004 
Tambomayo, Gold  0   34,907  58,475 47,741 
Tambomayo, Silver  0   11,791  20,969 13,540 
Tambomayo, Lead  0   2,046  2,597 4,979 
Tambomayo, Zinc  0   3,419  7,050 7,058 
La Zanja, Gold  89,816   99,304  65,128 37,445 
La Zanja, Silver  1,787   2,922  2,499 1,140 
El Brocal, Gold  6,773   7,129  7,771 8,429 
El Brocal, Silver  12,161   19,185  19,391 26,966 
El Brocal, Lead  9,878   15,563  17,108 20,388 
El Brocal, Zinc  45,506   45,929  42,658 42,537 
El Brocal, Copper  92,224   94,021  115,771 110,979 
Non Mining Units  11,237   13,927    5,160  4,697 
Consolidated Cost of sales, excluding depreciation and amortization  508,566   640,387    617,699  516,252 

76

 

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

 

  For the year ended December 31, 
Exploration in operating units by mine and mineral 2016  2017 
  (US$ in thousands) 
Julcani, Gold  8   0 
Julcani, Silver  10,086   11,614 
Julcani, Lead  934   1,340 
Julcani, Copper  42   55 
Mallay, Gold  183   58 
Mallay, Silver  3,379   2,134 
Mallay, Lead  1,765   1,163 
Mallay, Zinc  2,633   2,262 
Orcopampa, Gold  42,985   37,285 
Orcopampa, Silver  2,081   1,443 
Orcopampa, Copper  45   90 
Uchucchacua, Gold  38   29 
Uchucchacua, Silver  28,292   21,639 
Uchucchacua, Lead  1,769   2,719 
Uchucchacua, Zinc  1,308   2,682 
Tambomayo, Gold  0   6,386 
Tambomayo, Silver  0   2,157 
Tambomayo, Lead  0   374 
Tambomayo, Zinc  0   626 
La Zanja, Gold  591   847 
La Zanja, Silver  12   25 
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 operating units  96,149   94,928 

85

  For the year ended December 31, 
Exploration in operating units by mine and mineral 2018  2019 
  (US$ in thousands) 
Julcani, Gold  6   38 
Julcani, Silver  8,149   5,593 
Julcani, Lead  461   223 
Julcani, Copper  30   11 
Orcopampa, Gold  28,558   9,000 
Orcopampa, Silver  1,004   40 
Orcopampa, Copper  0   0 
Uchucchacua, Gold  1   0 
Uchucchacua, Silver  15,210   6,257 
Uchucchacua, Lead  2,531   1,165 
Uchucchacua, Zinc  3,156   1,495 
Tambomayo, Gold  13,490   7,562 
Tambomayo, Silver  4,838   2,145 
Tambomayo, Lead  599   789 
Tambomayo, Zinc  1,626   1,118 
La Zanja, Gold  71   2 
La Zanja, Silver  3   0 
El Brocal, Gold  383   351 
El Brocal, Silver  956   1,124 
El Brocal, Lead  844   850 
El Brocal, Zinc  2,104   1,774 
El Brocal, Copper  5,710   4,627 
Non Mining Units  0   0 
Consolidated Exploration in operating units  

89,730

   

44,163

 

 

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 operating units by mine and mineral 2016  2017  2018 2019 
 (US$ in thousands)  (US$ in thousands) 
Julcani, Gold  3   0  3 19 
Julcani, Silver  5,021   3,676  3,390 3,084 
Julcani, Lead  465   422  191 122 
Julcani, Copper  25   19  12 8 
Mallay, Gold  192   70 
Mallay, Silver  4,745   2,441 
Mallay, Lead  2,471   1,336 
Mallay, Zinc  5,796   2,940 
Orcopampa, Gold  496   918  778 201 
Orcopampa, Silver  149   181  107 1 
Orcopampa, Copper  21   46  (11) 0 
Uchucchacua, Gold  46   41  0 -1 
Uchucchacua, Silver  37,877   35,851  29,986 29,088 
Uchucchacua, Lead  2,348   4,350  3,092 3,324 
Uchucchacua, Zinc  6,006   14,286  8,367 10,197 
Tambomayo, Gold  0   110  644 7,786 
Tambomayo, Silver  0   1,029  1,211 4,265 
Tambomayo, Lead  0   419  590 1,497 
Tambomayo, Zinc  0   797  2,164 6,170 
La Zanja, Gold  293   258  319 102 
La Zanja, Silver  15   5  21 2 
El Brocal, Gold  9,028   9,280  7,369 7,438 
El Brocal, Silver  9,971   14,362  9,125 14,730 
El Brocal, Lead  5,490   8,592  2,446 5,495 
El Brocal, Zinc  39,944   33,905  11,459 27,302 
El Brocal, Copper  114,012   118,590  111,419 99,477 
Non Mining Units  0   0   0  0 
Consolidated Commercial Deductions in operating units  244,413   253,923  192,683  220,306 

77

 

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 2016  2017  2018 2019 
 (US$ in thousands)  (US$ in thousands) 
Julcani, Gold  1   -  0 3 
Julcani, Silver  770   540  336 384 
Julcani, Lead  71   62  19 15 
Julcani, Copper  3   3  1 1 
Mallay, Gold  36   11 
Mallay, Silver  658   397 
Mallay, Lead  344   216 
Mallay, Zinc  512   421 
Orcopampa, Gold  1,024   976  749 257 
Orcopampa, Silver  50   38  26 1 
Orcopampa, Copper  1   2  0 0 
Uchucchacua, Gold  6   6  0 0 
Uchucchacua, Silver  4,173   4,824  5,596 4,278 
Uchucchacua, Lead  261   606  931 797 
Uchucchacua, Zinc  193   598  1,161 1,022 
Tambomayo, Gold  -   927  1,999 2,566 
Tambomayo, Silver  -   313  717 728 
Tambomayo, Lead  -   54  89 268 
Tambomayo, Zinc  -   91  241 379 
La Zanja, Gold  1,032   1,018  755 312 
La Zanja, Silver  21   30  29 9 
El Brocal, Gold  419   428  468 437 
El Brocal, Silver  752   1,152  1,167 1,399 
El Brocal, Lead  611   934  1,030 1,057 
El Brocal, Zinc  2,815   2,757  2,568 2,206 
El Brocal, Copper  5,704   5,644  6,969 5,756 
Non Mining Units ��2,278   2,039   2,097  2,439 
Consolidated Selling expenses  21,733   24,088  26,948 24,313 

 

86

 

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,
 
  2016  2017  2016  2017  2016  2017  2016  2017 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  83   126   15   -   1,855   3,408   20,032   26,413 
Add:                                
Exploration in units in operation  42   55   8   -   934   1,340   10,086   11,614 
Commercial Deductions  25   19   3   -   465   422   5,021   3,676 
Selling expenses  3   3   1   -   71   62   770   540 
Cost applicable to sales  153   202   27   -   3,325   4,873   35,908   42,243 
Divide:                                
Volume Sold  54   32   32   21   2,679   1,916   3,090,967   2,466,846 
Cost applicable to sales per unit of mineral sold (US$)  2,837   6,318   825   -   1,241   2543   11.62   17.12 

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,
 
  2016  2017  2016  2017  2016  2017 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  4,943   4,470   9,461   8,204   7,371   8,696 
Add:                        
Exploration in units in operation  1,765   1,163   3,379   2,134   2,633   2,262 
Commercial Deductions  2,471   1,336   4,745   2,441   5,796   2,940 
Selling expenses  344   216   658   397   512   421 
Cost applicable to sales  9,523   7,185   18,242   13,176   16,312   14,318 
Divide:                        
Volume Sold  6,775   5,926   1,426,986   993,040   8,728   5,926 
Cost applicable to sales per unit of mineral sold (US$)  1,406   2,416   12.78   13.27   1,869   2,416 

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  JULCANI 
 GOLD (oz.)  SILVER (oz.)  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,
 For the year ended
December 31,
 For the year ended
December 31,
 
 2016  2017  2016  2017  2018 2019 2018 2019 2018 2019 2018 2019 
 (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  88,213   105,848   4,271   4,097  86 

47

 19 

166

 1,335 

971

 23,608 

24,405

 
Add:                                 
Exploration in units in operation  42,985   37,285   2,081   1,443  30 

11

 6 

38

 461 

223

 8,149 

5,593

 
Commercial Deductions  496   918   149   181  12 

8

 3 

19

 191 

122

 3,390 

3,084

 
Selling expenses  1,024   976   50   38  1 1 0 3 19 15 336 384 
Cost applicable to sales  132,718   145,027   6,552   5,759   128  66  28  225  2,006  1,585  35,483  33,467 
Divide:                                 
Volume Sold  188,511   195,278   680,708   574,591 
Volume Sold (unaudited)  17  14  11  179  915  839  2,368,497  2,480,173 
Cost applicable to sales per unit of mineral sold (US$)  704   743   9.62   10.02   7,392  

4,788

  2,507  

1,259

  2,191  

1,585

  14.98  

13.49

 

 

 8778 

 

 

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,
 
  2018  2019  2018  2019 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  88,942   51,154   3,127   228 
Add:                
Exploration in units in operation  28,558   9,000   1,004   40 
Commercial Deductions  778   201   107   1 
Selling expenses  749   257   26   1 
Cost applicable to sales  119,027   60,612   4,264   271 
Divide:                
Volume Sold (unaudited)  116,719   40,702   335,761   15,049 
Cost applicable to sales per unit of mineral sold (US$)  1,020   

1,489

   12.70   

17.98

 

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 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,
 
  2016  2017  2016  2017  2016  2017 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  5,763   12,942   92,188   103,014   4,262   12,769 
Add:                        
Exploration in units in operation  1,769   2,719   28,292   21,639   1,308   2,682 
Commercial Deductions  2,348   4,350   37,877   35,851   6,006   14,286 
Selling expenses  261   606   4,173   4,824   193   598 
Cost applicable to sales  10,140   20,617   162,529   165,329   11,770   30,336 
Divide:                        
Volume Sold  8,350   13,127   14,739,128   15,583,553   5,295   10,281 
Cost applicable to sales per unit of mineral sold (US$)  1,214   1,571   11.03   10.61   2,223   2,951 

  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,
 
  2018 2019 2018  2019 2018 2019 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  16,470   

14,815

   98,991   

79,562

   20,540   

19,004

 
Add:                        
Exploration in units in operation  2,531   

1,165

   15,210   

6,257

   3,156   

1,495

 
Commercial Deductions  3,092   3,324   29,986   29,088   8,367   10,197 
Selling expenses  931   797   5,596   4,278   1,161   1,022 
Cost applicable to sales  23,024   

20,101

   149,784   

119,184

   33,225   

31,718

 
Divide:                        
Volume Sold (unaudited)  17,071   15,347   14,443,456   9,808,791   16,811   15,315 
Cost applicable to sales per unit of mineral sold (US$)  1,349   

1,310

   10.37   

12.15

   1,976   

2,071

 

79

 

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,
 
  2016  2017  2016  2017  2016  2017  2016  2017 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization    34,907     11,791     2,046     3,419 
Add:                                
Exploration in units in
operation
      6,386       2,157       374       626 
Commercial Deductions      110       1,029       419       797 
Selling expenses      927       313       54       91 
Cost applicable to sales      42,330       15,290       2,893       4,932 
Divide:                                
Volume Sold      63,130       1,621,611       1,769       2,398 
Cost applicable to sales per unit of mineral sold (US$)      671       9.43       1,635       2,057 

  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,
 
  2018  2019  2018  2019  2018  2019  2018  2019 
  (US$ in thousands except operating and per unit data) 
Cost of Sales, excluding depreciation and amortization  58,475   

47,741

   20,969   

13,540

   2,597   

4,979

   7,050   

7,058

 
Add:                                
Exploration in units in operation  13,490   

7,562

   4,838   

2,145

   599   

789

   1,626   

1,118

 
Commercial Deductions  644   

7,786

   1,211   

4,265

   590   

1,497

   2,164   

6,170

 
Selling expenses  1,999   2,566   717   728   89   268   241   379 
Cost applicable to sales  74,608   

65,655

   27,734   

20,677

   3,875   

7,532

   11,080   

14,725

 
Divide:                                
Volume Sold (unaudited)  119,211   96,636   3,570,382   2,318,434   3,268   7,211   7,143   7,850 
Cost applicable to sales per unit of mineral sold (US$)  626   

679 

   7.77   

8.92

   1,186   

1,045

   1,551   

1,876

 

 

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,
 
 2016  2017  2016  2017  2018 2019 2018 2019 
 (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  89,816   99,304   1,787   2,922  65,128 37,445 2,499 1,140 
Add:                         
Exploration in units in operation  591   847   12   25  71 2 3 0 
Commercial Deductions  293   258   15   5  319 102 21 2 
Selling expenses  1,032   1,018   21   30  755 312 29 9 
Cost applicable to sales  91,732   101,427   1,835   2,982   66,274  37,861  2,552  1,151 
Divide:                         
Volume Sold  151,189   128,623   229,055   279,737 
Volume Sold (unaudited) 74,370 30,710 228,894 80,880 
Cost applicable to sales per unit of mineral sold (US$)  607   789   8.01   10.66  891 

1,233

 11.15 

14.24

 

 

 8880 

 

 

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,
 
 2016  2017  2016  2017  2016  2017  2016  2017  2016  2017  2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 
 (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  92,224   94,021   6,773   7,129   9,878   15,563   12,161   19,185   45,506   45,929  115,771 

110,979

 7,771 

8,429

 17,108 

20,388

 19,391 

26,966

 42,658 

42,537

 
Add:                                                             
Exploration in units in operation  -   -   -   -   -   -   -   -   -   -  5,710 

4,627

 383 

351

 844 

850

 956 

1,124

 2,104 

1,774

 
Commercial Deductions  114,012   118,590   9,028   9,280   5,490   8,592   9,971   14,362   39,944   33,905  111,419 

99,477

 7,369 

7,438

 2,446 

5,495

 9,125 

14,730

 11,459 

27,302

 
Selling expenses  5,704   5,644   419   428   611   934   752   1,152   2,815   2,757  6,969 

5,756

 468 

437

 1,030 

1,057

 1,167 

1,399

 2,568 

2,206

 
Cost applicable to sales  211,940   218,254   16,220   16,836   15,979   25,090   22,884   34,699   88,265   82,591   239,869  

220,840

  15,991  

16,656

  21,428  

27,790

  30,640  

44,219

  58,789  

73,818

 
Divide:                                                             
Volume Sold  45,572   42,633   13,062   15,881   11,874   19,415   1,696,176   3,253,899   48,806   43,120 
Volume Sold (unaudited)  43,710  41,013  14,297  12,648  18,713  22,598  3,058,987  3,520,992  37,470  36,788 
Cost applicable to sales per unit of mineral sold (US$)  4,651   5,119   1,242   1,060   1,346   1,292   13.49   10.66   1,808   1,915  5,488 

5,385

 1,118 

1,317

 1,145 

1,230

 10.02 

12.56

 1,569 

2,007

 

 

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, 
 2016  2017  2018 2019 
 (US$ in thousands)  (US$ in thousands) 
Cost of Sales, excluding depreciation and amortization  11,237   13,927  5,160 4,697 
Add:             
Exploration in units in operation  0   0  0 0 
Commercial Deductions  0   0  0 0 
Selling expenses  2,278   2,039  2,097 2,439 
Total Cost applicable to sales  13,515   15,966   7,257  7,136 

 

 8981 

 

 

YANACOCHA

 

Introduction

 

The following discussion should be read in conjunction with (i) the Yanacocha Consolidated Financial Statements as of December 31, 20162018 and 20172019 and for the years ended December 31, 2015, 20162017, 2018 and 20172019 and the related Notes thereto included elsewhere in this Annual Report.Report, and (ii) Item 5 to our 2018 20-F. The Yanacocha Consolidated Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB and in U.S. Dollars.

 

A.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 Mountains 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 54.05%51.35% owned by Newmont Mining through its wholly-owned subsidiary Newmont Second and 45.95%Capital Corporation, 43.65% owned by Buenaventura through our wholly-owned subsidiary Condesa.Condesa and 5% owned by 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,  Year Ended December 31,    
 2017  2016  2015  2019  2018 
Gold sales (in thousands of US$)  670,905   791,766   1,070,021   734,526   658,653 
Gold sold (oz.)  537,268   636,931   924,175   529,307   522,213 
Average gold price received (US$/oz.)  1,249   1,243   1,159   1,388   1,261 
Other operating expenses, net (in thousands of US$)  63,514   71,496   82,846   (35,987)  (76,155)
Loss for the year (in thousands of US$)  (175,454)  (1,043,752)  (450,195)  (95,257)  (81,517)

 

Gold sales. Gold sales decreased by 15%increased 12%, or US$12176 million, from 20162018 to 2017,2019, due to lowerhigher realized gold price and higher ounces sold as a result of lower production.sold. Gold ounces produced decreased 18%increased 25% due primarily to lower mill throughput,higher recovery and grade and lower leach tons placed at a lower grade.from La Quinua heap leach.

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) depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense, (iv) reclamation expenses and (iv)(v) other costs. Costs applicable to sales decreasedincreased by 4%12% or US$29.573 million from 20162018 to 2017. Ounces sold decreased by 15% from 2016 to 2017.2019.

Other operating expenses, net.Other operating expenses, net decreased by 11%53% or US$840 million from 20162018 to 2017,2019, primarily due to a US$12 million decrease in write-offs for fixed asset, partially offset by the increase in Explorationlower exploration and Advance Projects of US$2 million.advanced projects expense and lower severance expense.

Income tax benefit (expense).Yanacocha’s financial and operating results included an income and mining tax expense of US$765 million in 20172019 compared to an expense of US$43.129 million in 2016.2018. The difference was primarily duedriven by a lower loss before income tax in 2019 for US$ 30 million as compared to lowera loss before tax of US$ 52 millio in 2018 higher valuation allowance on deferred income tax assets in 2019 for US$ 46 million (US$ 24 million in 2018)as well as a increase of non deductible expenses in 2019 for US$13 million (US$ 7 million in 2018), as well the current income includes the income tax and lower royalties and mining taxes.

Dividendscontingencies . 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.

 

 9082 

 

 

Critical Accounting Policies

 

Yanacocha has furnished us with a discussion of its critical accounting policies or methods used in the preparation of its financial statements. Critical accounting policies are those that are reflective of significant judgments and uncertainties and could potentially impact results under different assumptions and conditions. See Note 2.44 to the Yanacocha Consolidated Financial Statements for a more complete listing of standards issued but not effective.

 

The standards and interpretations that are issued as of the date of Yanacocha’s financial statements but not yet effective and are reasonably expected to have an impact on its 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 interpretations not expected to impact Yanacocha’s disclosures, financial position or performance are not listed below. See Note 42.4 to the Yanacocha Consolidated Financial Statements for a more complete listing of Yanacocha’s accounting policies.

 

Results of Operations for the Years Ended December 31, 20172019 and 20162018

 

Sales

Gold sales. Gold sales decreased by 15%increased 12%, or US$12176 million, from 20162018 to 2017,2019, due to lower production.higher realized gold price and higher ounces sold. Gold ounces produced decreased 18%increased 25% due primarily to lower gold mill production by less throughput, and less gold grade andhigher recovery by mineral with higher soluble copper content as well as lower leach pad production due to lower gold grade and minerals with higher fine content.from La Quinua heap leach. 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.

 

Costs applicable to sales

 

Costs applicable to sales for the year ending December 31, 20172019 and 20162018 comprised:

 

 2017  2016  2019 2018 
 (US$ in thousands)  (US$ in thousands) 
Beginning balance of finished goods and in-process  446,503   544,325  341,213 345,489 
Beginning balance of provision for net realizable value  (84,374)  (90,298) (89,127) (62,540)
Royalties to related parties 22,297 20,385 
Mining royalties to the government 9,255 2,875 
Consumption of supplies  240,881   228,376  200,036 215,863 
Personnel expenses  99,702   87,258  72,325 82,645 
Other services  66,408   73,779  41,120 43,672 
Maintenance  24,033   36,213  26,645 22,585 
Power  23,565   27,270  23,619 24,203 
Depreciation and amortization  87,783   140,712  144,862 156,212 
Workers’ profit participation  1,242   12,394  12,804 3,837 
Reclamation expenses related to leach pad  124,124   78,494 
Reclamation expenses 142,129 16,284 
Ending balance of provisions for net realizable value  62,540   84,374  47,925 89,127 
Ending balance of finished goods and in-process  (345,489)  (446,503)  (302,382)  (341,213))
  746,918   776,394   692,721  619,424 

 

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) depreciation and amortization, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales decreasedincreased by 4%12% or US$29.573 million from 20162018 to 2017.2019. Costs applicable to sales per ounce of gold increased by 18%10% from US$1,1851,186 per ounce in 20162018 to US$1,3971,309 per ounce in 2017.2019.

 

Operating costs increaseddecreased by 1%6% from US$453385 million in 20162018 to US$455363 million in 2017.2019. Operating costs consist primarily of drilling, blasting, loading, hauling, leaching, milling and millingmetal recovery costs.

 

Reclamation expenses related to leach pads of US$124142 million are due to a non-cash charge to reclamation expenses for the year ended December 31, 20172019 related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation obligation of US$46126 million in 2019 is mainly due to a decrease in the market-based discount rate compared to last year.higher water treatment costs.  

 

 9183 

 

 

Workers’ profit participation decreasedincreased by 90%234%, from US$123.8 million in 20162018 to US$113 million in 2017.2019. This decreaseincrease was directly related to the decrease in Yanacocha’s taxable income from 2016 to 2017.driven by higher revenues .. Workers’ profit participation expense is calculated based on taxable net income, and in accordance with Peruvian labor legislation.

 

The portion of leach pad inventory write-downs associated with costs applicable to sales increased from US$5.926.5 million to US$21.841.2 million due to the higher future costs.stripping ratio.

 

Depreciation, depletion and amortization decreased by 38%7% from US$141156 million in 20162018 to US$88145 million in 2017.2019. This decrease was attributable principally to the effect of impairment in the 2017 depreciation.lower net book value assets and lower remain useful life.

 

Administrative expenses

 

Administrative expenses for the years ended December 31, 20172019 and 20162018 were composed of:

 

 2019 2018 
 2017  2016  (US$ in thousands) 
Management expenses $3,395  $7,191  1,341 1,317 
Other  1,365   1,589   403  1,466 
 $4,760  $8,780   1,744  2,783 

 

Other operating expenses, net

 

Other operating expenses, net for the years ended December 31, 20172019 and 20162018 were as follows:

 

 2017  2016  2019 2018 
      (US$ in thousands)  
Exploration and advance project $51,694  $49,580  33,669 62,643 
Severance program  9,419   9,659  2,210 8,678 
Cost of sales from the sale of fixed assets 2,092 5,445 
Tax fine 2,019 3,954 
Write-off of fixed assets  1,368   14,036  1,204 - 
Revenue from sale of fixed assets (8,088) (4,821) 
Others, net  1,033   (1,779)  2,881  256 
 $63,514  $71,496   35,987  76,155 

 

Exploration and advanced project costs increaseddecreased from US$5063 million in 20162018 to US$5234 million in 2017.2019. This increasedecrease was primarily due to increased drilling activitiesreserves declaration in 2017.December 2018 of Sulfides project, therefore this project is in development stage and all the cost incurred were capitalized as part of mine development.

 

Impairment of long-lived assets

 

In December 2017,2019, Yanacocha performed a formal evaluationManagement identified as an impairment indicator the significant increase of its cash generating unitsthe asset retirement and concluded that there were no impairment indicatorsmine closure, 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.

Thehad to determinate the recoverable amount offor its CGU Yanacocha. Regarding to CGU Conga 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.Management did not identify any important indicator. As a result of this analysis the Company concluded that no additional impairment loss on its investment inCGU Yanacocha was required to be recorded as the recoverable amount exceeded the recorded valuecarrying amount of the investment.CGU’s assets.

 

92

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$765 million in 20172019 compared to US$4329 million in 2016.2018. This decreaseincrease was directly related to lowerby favorable taxable income.income driver by higher revenues, as well the current income includes the income tax contingencies.

 

84

Net loss

Net loss decreasedincreased by US$86813.7 million, from net loss of US$1,043.781.5 million in 20162018 to net loss of US$17595.2 million in 2017,2019, mainly explained by the 2016 impairment of US$889 million.lower by-products, higher reclamation expenses related to non-operating areas and income tax contingencies, partially offset by higher revenues and lower operating costs

 

Results of Operations for the Years Ended December 31, 20162018 and 20152017

 

Sales

Gold sales. Gold sales decreased by 26%, or US$278 million, from 2015 to 2016, due to lower ounces sold asSee “Item 5. Operating and Financial Review and Prospects” in our 2018 20-F for a resultcomparative discussion of lower production, partially offset by the increased realized price. Gold ounces produced decreased 29% due primarily to lower mill throughput, recovery and grade and lower leach tons placed at a lower grade. Yanacocha has not engaged in gold price hedging activities, such as forward sales or option contracts, to minimize its exposure to fluctuations in the priceYanacocha’s consolidated results of gold. Production by mine was as follows:

Mine(1) 2016  2015 
  (ounces) 
Cerro Yanacocha  176,263   54,677 
Carachugo  124,886   87,146 
Maqui Maqui  28,105   67,195 
La Quinua  188,095   596,638 
Cerro Negro  137,584   112,035 
Total  654,934   917,690 

93

Costs applicable to sales

Costs applicable to salesoperations for the year ending December 31, 2016 and 2015 comprised:

  2016  2015 
  (US$ in thousands) 
Beginning balance of finished goods and in-process  544,325   660,763 
Beginning balance of provision for net realizable value  (90,298)  (163,094)
Consumption of supplies  228,376   210,384 
Personnel expenses  87,258   102,867 
Other services  73,779   76,490 
Maintenance  36,213   38,646 
Power  27,270   27,713 
Depreciation and amortization  140,712   223,142 
Workers’ profit participation  12,394   28,852 
Reclamation expenses related to leach pad  78,494   - 
Ending balance of provisions for net realizable value  84,374   90,298 
Ending balance of finished goods and in-process  (446,503)  (544,325)
   776,394   751,736 

Costs applicable to sales. Costs applicable to sales include: (i) operating costs, consisting primarily of direct production costs such as mining and treatment of the ore, which are the most significant components of costs applicable to sales, (ii) workers’ participation profit sharing of 8% of pre-tax profits based on Peruvian labor legislation, (iii) write downs of ore on leach pads to net realizable value expense and (iv) other costs. Costs applicable to sales increased by 3% or US$25 million from 2015 to 2016. Costs applicable to sales per ounce of gold increased by 49% from US$819 in 2015 to US$1,219 in 2016.

Operating costs decreased by 1% from US$456 million in 2015 to US$453 million in 2016. Operating costs consist primarily of drilling, blasting, loading, hauling and milling costs.

Reclamation expenses related to leach pads of US$78 million is due to a non-cash charge to reclamation expenses for the quarter ended December 31, 2016, related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation liability is primarily due to higher estimated long-term water management costs, heap leach earthworks2018 and related support activities.

Workers’ profit participation decreased by 57%, from US$29 million in 2015 to US$12 million in 2016. This decrease was directly related to the decrease in Yanacocha’s taxable income from 2015 to 2016. Workers’ profit participation expense is calculated based on taxable net income and in accordance with Peruvian labor legislation.

The portion of leach pad inventory write-downs associated with costs applicable to sales decreased from US$72,8 million to US$5.9 million due to the lower mineral in stock.

Inventory variation decreased by 16% from US$116.4 million in 2015 to US$97.8 million in 2016, which increased costs applicable to sales, due to lower consumption of ounces in stock offset by higher costs per ounce in stock compared to the prior year.

Depreciation, depletion and amortization decreased by 37% from US$223 million in 2015 to US$141 million in 2016. This decrease was attributable principally to lower depreciation associated with asset retirement costs and deferred mine development.

Administrative expenses

Administrative expenses for the years ended December 31, 2016 and 2015 were composed of:

  2016  2015 
Management expenses $7,191  $18,108 
Community development expenses and external affairs  -   6,297 
Other  1,589   1,920 
  $8,780  $26,325 

94

Other operating expenses, net

Other operating expenses, net for the years ended December 31, 2016 and 2015 were as follows:

  2016  2015 
Exploration and advance project $49,580  $64,230 
Severance program  9,659   14,904 
Write-off of fixed assets  14,036   2,411 
Others, net  (1,779)  1,301 
  $71,496  $82,846 

Exploration and advanced project costs decreased from US$64 million in 2015 to US$50 million in 2016. This decrease was primarily due to less drilling activity in 2016, reduction in the number of drill machines (from ten in 2015 to three in 2016) and lower headcount expenses in 2016 as compared to 2015.

Impairment of long-lived assets

As a result of the recoverable amount analysis performed during the year, Yanacocha recorded an impairment loss related to the Yanacocha mine of US$889.5 million (US$872.2 million and US$17.3 million related to property, plant and equipment and intangible assets, respectively). In 2015, Yanacocha did not recognize an impairment loss. In 2014, Yanacocha recorded an impairment loss amounting to US$541.1 million related to the Conga project, and no loss was recorded for the Yanacocha mine.

Key assumptions used for the impairment testing as of December 31, 2016 included:

Production volumes: Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines agreed by management as part of 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.

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines are computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with the reserves and resource volumes approved as part of Yanacocha’s process for the estimation of proved and probable reserves and resource estimates.

Commodity prices: Forecasted commodity prices are based on management’s estimates and are derived from forward price curves and long-term views of global supply and demand, building on past experience of the mining industry and consistent with external sources. These prices were adjusted to arrive at appropriate consistent price assumptions for the different qualities and type of commodities, or, where appropriate, contracted prices were applied. These prices are reviewed at least annually.

Estimated prices for the current and long-term periods that have been used to estimate future revenues are as follows:

  

Current

  

Long-term

 
Gold (per ounce) US$1,221  US$1,300 

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

Income tax provision.

Yanacocha’s financial and operating results included income and mining tax expense of US$43 million in 2016 compared to US$602.7 million in 2015. This decrease was directly related to the decrease in Yanacocha’s income from 2016 to 2015.

95

Net loss

Net loss increased by US$593.6 million, from net loss of US$450.2 million in 2015 to net loss of US$1,043.7 million in 2016, mainly explained by an impairment adjustment of US$889.5 million, partially offset by the write-off of the deferred income tax asset recorded in 2015 of US$483.0 million.2017.

 

B.B.Liquidity and Capital Resources

 

As of December 31, 2017,2019, Yanacocha had cash and cash equivalents of US$675819 million, substantially all of which were held in U.S. Dollars, as compared to US$677723 million as of December 31, 2016.2018.

 

Cash provided by operating activities

 

Yanacocha generated net cash flow from operations of US$95272 million in 20172019 and US$140161 million in 2016.2018. The net cash flow from operations in 20172019 was 32%69% or US$45111 million lowerhigher than in 2016.2018. The decreaseincrease was primarily driven by lowerhigher gold sales due toand lower gold production.operating costs.

 

Yanacocha generated net cash flow from operations of US$140 million in 2016 and US$274 million in 2015. The net cash flow from operations in 2016 was 49% or US$134 million lower than in 2015. The decrease was primarily driven by lower gold sales.

Cash used in investing activities

 

Net cash used in investing activities was US$49176 million in 20172019 compared to US$106161 million in 2016.2018. The decreaseincrease in cash used in investing activities was mainly due to the completion of the Northern Tailingsinvestment in Quecher Main project and a decrease in investments in major replacements for our assets, predominantly due to improvements in monitoring the condition of our equipment.

Net cash used in investing activities was US$106 million in 2016 compared to US$117 million in 2015. The decrease in cash used in investing activities was mainly due to lower costs associated with the construction of the water treatment plant located in Quinua (in 2015 the purchase of older equipment was made) and a decrease in investments in replacement components for our assets, predominantly due to improvements in monitoring the condition of our equipment, which offset higher expenses in 2016 related to the Yanacocha Laybacks Project for the construction of the Northern TailingsSulfides project.

 

Cash used in financing activities

 

Net cash used in financing activities was US$0.3 million in 2019, as compared to cash generated was US$48 million in 2017, as compared to US$300 million in 2016.2018. The decrease was primarily driven bydue to on June 14, 2018, Yanacocha’s partners approved the fact that Yanacocha did not distribute dividends in 2017. In addition, on December 22, 2017, Yancocha repurchasedissue and sale of 63,922,565 shares owned by International Finance Corporation (“IFC”) for US$48 million, which represented the 5% of the capital stock of Yanacocha.to Summit Global Management II BV.

 

Net cash used in financing activities was US$300 million in 2016, (US$0 million in 2015 and 2014). On February 15, 2016, Yanacocha’s board of directors unanimously agreed to distribute dividends in the amount of US$300 million, in proportion to each shareholder’s equity interest, which corresponds to a portion of the accumulated results as of December 31, 2014 generated in 2011.Capital Expenditures

C.Capital Expenditures

 

In 2017,2019, Yanacocha’s principal capital expenditures of US$51184 million included the access road construction at thewere mainly related to Sulfides project, Quecher project, the expansion of the tailing facilities for Yanacocha stockpiles 6Main development capital spend and 7 and major components of the mail fleet.assets.

 

C.D.Research and Development

 

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

96

 

D.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.F.Off-Balance Sheet Arrangements

 

Yanacocha has informed us that there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on Yanacocha’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

G.85

F.Tabular Disclosure of Contractual Obligations

 

The following table shows Yanacocha’s contractual obligations as of December 31, 2017:2019:

 

  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  1,235   19   56   90   1,070 
Open Purchase Orders receipt  -   -   -   -   - 
Other Long-Term Obligations  22   -   22   -   - 
Total Contractual Cash Obligations  1,257   19   78   90   1,070 
  Payments due by Period (US$ in millions) 
  Total  Less than 1 year  1-3 years  3-5 years  More than 5 years 
Debt instruments  43   -   43   -   - 
Right of use liability  0.3   0.3   -   -   - 
Trade accounts payable  46   46   -   -   - 
Other Short-Term Obligations  11   11   -   -   - 
Total Contractual Cash Obligations  100.3   57.3   43   .   - 

 

 9786 

 

 

CERRO VERDE

 

Introduction

 

The following discussion should be read in conjunction with the Cerro Verde Financial Statements as of December 31, 20162018 and 20172019 and for the years ended December 31, 2015, 2016,2017, 2018 and 20172019 and the related Notes thereto included elsewhere in this Annual Report.Report, and (ii) Item 5 to our 2018 20-F. The Cerro Verde Financial Statements are prepared and presented in accordance with IFRS as issued by the IASB.

 

A.Operating Results

 

Overview

 

We hold a 19.58% interest in Cerro Verde, which operates an open-pit copper and molybdenum mining complex located 20 miles southwest of Arequipa, Peru. The site is accessible by paved highway. The Cerro Verde mine has been in operation since 1976, and was previously owned by the Peruvian government before its privatization in 1993. Freeport-McMoRan Inc. holds a majority interest in Cerro Verde.

 

The Cerro Verde mine is a porphyry copper deposit that has leachable oxide and secondary sulfide mineralization, and millable primary sulfide mineralization. The predominant oxide copper minerals are brochantite, chrysocolla, malachite and copper “pitch.” Chalcocite and covellite are the most important secondary copper sulfide minerals. Chalcopyrite and molybdenite are the dominant primary sulfides.

 

In September 2015, Cerro Verde’s expansion project commenced operations. The project achieved full capacity operating rates during the first quarter of 2016. The project, with a cost of US$5.3 billion, expanded the processing capacity from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day.

 

Cerro Verde’s current operations consistoperation consists of an open-pit copper mine, with a 360,000processing 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, 2015, 20162017, 2018 and 2017:2019:

 

  As of and for the year ended December 31, 
  2015  2016  2017 
Income statement data(1)            
Sales of goods (US$ in thousands)  1,115,617   2,384,154   3,202,931 
Profit for the year (US$ in thousands)  33,284   340,907   349,881 
             
Proven and Probable Reserves(2)            
Proven:            
Leachable ore reserves (tons in thousands)  47,603   43,000   45,000 
Millable ore reserves (tons in thousands)  925,365   854,000   885,000 
Probable:            
Leachable ore reserves (tons in thousands)  104,963   78,000   61,000 
Millable ore reserves (tons in thousands)  2,778,009   2,698,000   2,586,000 
Average copper grade of leachable ore reserves (%)  0.35   0.32   0.29 
Average copper grade of millable ore reserves (%)  0.38   0.37   0.37 
             
Production(3)            
Cathodes (in thousands of recoverable pounds)  105,077   107,960   82,180 
Concentrates (in thousands of recoverable pounds)  439,405   999,850   980,030 
Average realized price of copper sold (US$ per ton payable)  4,518   4,759   6,637 

  As of and for the year ended December 31, 
  2018  2019 
Income statement data(1)        
Sales (US$ in thousands)  3,054,026   2,890,066 
Profit for the year (US$ in thousands)  119,710   390,377 
         
Proven and Probable Reserves(2)          
Proven:        
Leachable ore reserves (metric tons in thousands)  44,000   65,000 
Millable ore reserves (metric tons in thousands)  830,000   809,000 
Probable:        
Leachable ore reserves (metric tons in thousands)  89,000   31,000 
Millable ore reserves (tons in thousands)  3,361,000   3,361,000 
Average copper grade of leachable ore reserves (%)  0.25   0.23 
Average copper grade of millable ore reserves (%)  0.36   0.35 
         
Production(3)        
Cathodes (in thousands of recoverable pounds)  87,583   88,098 
Concentrates (in thousands of recoverable pounds)  961,846   915,678 
Average realized price of copper sold (US$ per ton payable)  6,422   6,360 

   

 9887 

 

  

(1)Derived from Cerro Verde’s financial statements. See the Cerro Verde Financial Statements, including the Notes thereto, appearing elsewhere in this Annual Report.

 

(2)Reserve calculations are derived from “Item 3. Key Information – A. Selected Financial Data”. Cerro Verde used US$2.002.5 per pound of copper to determine copper as of December 31, 2017.2019. The calculation or estimation of proven and probable ore reserves for Cerro Verde may differ in some respects from the calculations of proven and probable reserves for us and Yanacocha located elsewhere in this Annual Report. According to Cerro Verde, ore estimates for Cerro Verde are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. Cerro Verde’s ore estimates include assessments of the resource, mining and metallurgy, as well as consideration of economic, marketing, legal, environmental, social and governmental factors, including projected long-term prices for copper and molybdenum and Cerro Verde’s estimate of future cost trends.

 

(3)Derived from “Item 3. Key Information – A. Selected Financial Data”.

  

Cerro Verde Mining Royalties

 

On June 23, 2004, Law 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 MEM. As described in Note 14(a) to the Cerro Verde Financial Statements,13(a), prior to January 1, 2014, Cerro Verdethe 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, Cerro Verdethe Company began paying royalties calculated on operating income with rates between 1% andto 12% and a new special mining tax for its entire production base under its current 15-year stability agreement.agreement, which became effective January 1, 2014. See Note 14(b) to the Cerro Verde Financial Statements13(b) for a summary of amounts recognized by Cerro Verdethe Company for special mining tax and mining royalties for the years ended December 31, 2017, 20162019 and 2015.2018.

Superintendencia Nacional de Administración Tributaria (“SUNAT”), hasSUNAT assessed mining royalties on materials processed by Cerro Verde’sthe Company’s concentrator, which commenced operations in late 2006. These assessments cover the period December 2006 to December 2011.2013. 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

 

SUNAT issued resolutions denyingOn October 29, 2019, the claims made by Cerro Verde from December 2006 through December 2009. Cerro Verde appealed this decisionCompany completed the payments of disputed assessments related to tax court. On June 20, 2013, the Peruvian Tax Tribunal issued two decisions reaffirming assessmentsmining royalties for the period December 2006 through December 2008. Decisions by the tax court ended the administrative stage of the appeal procedures for these assessments.

On September 18, 2013, Cerro Verde filed two administrative demands in the court system. In connection with demands for the periods December 2006 to December 2007,2008 that were under an installment program since 2014, Under that installment program, the Twentieth TaxCompany made payments totaling S/711.1 million (US$221.9 million based on the date of payment exchange rate and Customs Specialized Contentious Administrative Court of Lima dismissed this claim. On May 2, 2016, Cerro Verde appealed this decision. The Seventh Contentious Administrative Court dismissed this claim in July 2017. On August 9, 2017, Cerro Verde appealedUS$214.4 million based on the decision to the Supreme Court.

December 31, 2019, exchange rate). With respect to the judiciary appeal related to the assessmentdisputed royalty assessments for the year 2008,2006-2007, on December 17, 2014,August 9, 2017, the EighteenthCompany filed a cassation appeal before the Supreme Court against the resolution issued by the Seventh Contentious Administrative Court, rendered itswhich was admitted in December 2017. The oral hearing before the Supreme Court took place on November 20, 2018 and their decision upholding Cerro Verde’s position and nullifying SUNAT’s assessment andis pending.

In September 2018, the Peruvian Tax Tribunal’sTribunal confirmed SUNAT’s resolution (S/106.4 million). The Court’s position also invalidates allthat ordered the payment of royalties and denied the Company’s request to waive penalties and interest assessed by SUNAT for thatthe period (S/139.7 million). In December 2014, SUNAT appealed this decision. On January 29, 2016,2009 through September 2011. The Company elected not to appeal the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. On February 23, 2016, Cerro Verde appealed theTax Tribunal’s decision to the Supreme Court. OnPeruvian Judiciary and is assessing alternative mechanisms to defend its rights.

In October 6, 2017,2018, SUNAT notified the Supreme Court issued a ruling in favor of SUNAT thatCompany demands for payments based on the assessments of mining royaltiesTax Tribunal’s decisions for the year 2008period January 2009 to September 2011. The Company requested, and was granted two 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, 2019 is S/1.0 billion (approximately US$314.1 million based on ore processed by the Cerro Verde concentrator were proper under Peruvian law.December 31, 2019, exchange rate, including deferred interest, interest and penalties of US$202.8 million). As of December 31, 2019, the Company has made payments totaling S/315.1 million (US$94.7 million based on the date of payment exchange rate and US$95.0 million based on the December 31, 2019, exchange rate).

 

 9988 

 

 

On October 1, 2013, SUNAT served Cerro Verde a demand for payment totaling S/492 million (approximately US$151.5 million based on the December 31, 2017 exchange rate, including interest and penalties of US$89.2 million) based on the Peruvian Tax Tribunal’s decisions for the period December 2006 to December 2008. As permitted by law, Cerro Verde requested, and was granted, an installment payment program that deferred payment for six months and thereafter satisfies the amount via 66 equal monthly payments. As of December 31, 2017, Cerro Verde has made payments totaling S/459.7 million (US$145.9 million based on the exchange rate on the date of payment and US$141.7 million based on December 31, 2017 exchange rates) under the installment program, which are presented in the non-current portion of other non-financial assets in the statements of financial position. See Note 14 to the Cerro Verde Financial Statements.

In July 2013, a hearing on SUNAT’s assessment for 2009 was held, but no decision has been issued by the Peruvian Tax Tribunal for that year. As of December 31, 2017, the amount of the assessment, including interest and penalties, for the year 2009 was S/289.2 million (approximately US$89.1 million based on the December 31, 2017 exchange rate, including interest and penalties of US$56.2 million).

In April 2016, Cerro Verde received assessments from SUNAT for the year 2010 and for January to September 2011. On May 11, 2016, Cerro Verde appealed these assessments. On March 1, 2017, SUNAT issued resolutions denying Cerro Verde’s claims. On March 22, 2017, Cerro Verde appealed this decision to the tax court. As of December 31, 2017, the amount of assessments from SUNAT including interest and penalties for the year 2010 and from January to September 2011 is S/586.5 million (approximately US$180.7 million based on the December 31, 2017 exchange rate, including interest and penalties of US$99.9 million).

On January 18, 2018, Cerro Verdethe Company received assessments from SUNAT related to mining royalties for the fourth quarter 2011. Cerro Verde plansof 2011, on February 15, 2018, the Company appealed these assessments and SUNAT issued resolutions denying this appeal. On November 21, 2018, the Company appealed SUNAT’s resolution to the Tax Court. On December 4, 2019, the Company received a resolution denying the appeal these assessments. As of December 31, 2017, the amount of the assessments from SUNAT including interest and penalties for the fourth quarter 2011 isof 2011. On December 18, 2019, SUNAT notified the Company of its demands for payment and on December 26, 2019, the Company paid the total debt of S/49.857.6 million (approximately(US$17.3 million based on the date of payment exchange rate and US$15.317.4 million based on the December 31, 2017,2019, exchange rate). 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. The Company appealed these assessments and SUNAT issued resolutions denying this appeal. Consequently, the Company appealed these assessments to the Tax Court which was also denied the appeal in July 2019. The Company then requested, and was granted an installment payment program, including a six-month deferral and 66 equal monthly payments, for the fourth quarter of 2011 through the fourth quarter of 2012. Total debt as of December 31, 2019, is S/255.8 million (approximately US$77.1 million based on the December 31, 2019, exchange rate, including deferred interest, interest and penalties of US$40.5 million). Payments for this installment program will start in the first quarter of 2020.

On April 18, 2018, the Company received assessments from SUNAT related to mining royalties for the year 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 the year 2012. The Company decided not to appeal these resolutions. The Company requested, and was granted an installment payment program, including a six-month deferral and 66 equal monthly payments, for the year 2012. Total debt as of December 31, 2019, is S/266.1 million (approximately US$80.2 million based on the December 31, 2019, exchange rate, including deferred interest, interest and penalties of US$45.7 million). The Company has made payments totaling S/65.7 million (US$19.5 million based on the date of payment exchange rate and US$19.8 million based on the December 31, 2019, exchange rate).

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. On May 28, 2019, the Company received resolutions issued by SUNAT denying the appeal of these assessments for the year 2013. The Company decided not to appeal these resolutions. The Company requested, and was granted two installment payment programs, including a six-month deferral and 66 equal monthly payments for each one, for the year 2013. As of December 31, 2019, the amount of these assessments, including interest and penalties for mining royalties for the year 2013 is S/183.9 million (approximately US$55.4 million based on the December 31, 2019, exchange rate including interest and penalties of US$7.829.5 million).

As a result of and for the unfavorable Supreme Court decision on the 2008 royalty matter, Cerro Verde recorded net charges totaling US$393 millionspecial mining tax for the year ended2013 is S/151.0 million (approximately US$45.5 million based on the December 31, 2017, associated with disputed royalty assessments2019, exchange rate including interest and potential royalty and related assessmentspenalties of US$22.1 million). Payments for these installment programs will start in the period December 2006 through the year 2013. See Note 14(b), Note 18 and Note 19 to the Cerro Verde Financial Statements. Cerro Verde intends to seek a waiver available under Peruvian lawfirst quarter of penalties and interest associated with this matter and has not recorded charges for potential unpaid penalties and interest totaling US$385 million as of December 31, 2017.2020.

  

In December 2017, as a result of the unfavorable Supreme Court decision on the 2008 royalty matter, Cerro Verdethe Company requested the return of the amounts that would have been paid in excess for the GEM (September 2012 to December 2013), FONAVI (National Housing Fund) (December 2012 to December 2013), GEM (fourth quarter 2011 until the fourth quarter 2012) and customs duties (2013).

 

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

  

100

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 ResourcesContingencies

 

Mineral reserves are the parts of mineral deposit ore that canBy their nature, contingencies will only be economically and legally extracted from the mine concessions. Cerro Verde estimates its mineral reserves based on information compiled by individuals qualified in referenceresolved only when one or more uncertain future events occur or fail to geological data about the size, depth and formoccur. The assessment of the ore body,existence and requires geological judgments in order to interpretpotential amount of contingencies inherently involves the data.

The estimationexercise of recoverable reserves involves numerous uncertainties with respect to the ultimate geology of the ore body, including quantities, gradessignificant judgment 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 and 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.

UOP Depreciation

Estimated mineral 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, is impacted by both its physical life limitations and present assessments of economically recoverable reserves of the mine property where the asset is located. These calculations require the use of estimates and assumptions, includingregarding the amountoutcome of recoverable reserves.future events.

 

89

Stripping cost

Cerro Verde incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalized as asset stripping activities, where certain criteria are met. 

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. Mill stockpiles contain sulfide ores and recovery of metal is through milling and concentrating. Leach 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 to extraction processing facilities.

 

Because it is generally impracticable to determine copper contained in mill and leach stockpiles by physical count, a reasonable estimation method is employed. The quantity of material delivered to mill and leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blast 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 testing. The recoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate almost immediately.

 

Determination of mineral reserves

Mineral reserves are the parts of mineral deposit ore that can be economically and legally extracted from the mine concessions. Cerro Verde estimates its mineral 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 geological judgments in order to interpret the data.

The estimation of recoverable reserves 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 and 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.

Units of production Depreciation

Estimated mineral 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, is impacted by both its physical life limitations and present assessments of economically recoverable 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.

 10190 

 

  

Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, historical trends and other factors, including mineralogy of the ore and rock type. Total copper recovery in leach stockpiles can vary significantly depending on several variables, including type of copper recovery, mineralogy and the 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 rate estimates are adjusted periodically as additional information becomes available and as related technology changes.

 

Provision for remediation and Mine Closure Provision

 

Cerro Verde 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(j) to the Cerro Verde Financial Statements, 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.”

 

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 and related ARC, Cerro Verde 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.”

 

Impairment of Long-lived Assets

 

Cerro Verde has determined that its operations consist of one cash generating unit. Therefore, Cerro Verde’s operations are evaluated at least annually in order to determine if there are 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.

 

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 amount of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

Stripping cost

Cerro Verde incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. During the production phase, stripping costs (production stripping costs) can be incurred both in relation to the production of inventory in that period and the creation of improved access and mining flexibility in relation to ore to be mined in the future. The former are included as part of the costs of inventory, while the latter are capitalized as asset stripping activities, where certain criteria are met.

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Once Cerro Verde has identified its production stripping costs for each surface mining operation, it identifies the separate components of the ore bodies for each of its mining operations. An identifiable component is the specific volume of the ore body that is made more accessible by the stripping activity. Significant judgment is required to identify and define these components, and also to determine the expected volumes (e.g., in tons) of waste to be stripped and ore to be mined in each of these components.

 

Results of Operations for the Years Ended December 31, 20172019 and 20162018

Net sales.Sales. Net sales,Sales, including and mark-to-market adjustments for pounds of copper pending settlement, increaseddecreased by 34%5%, from US$2,384.13,054.0 million in 20162018 to US$3,202.92,890.1 million in 2017,2019, principally due to an increaselower sales volume and a decrease in the average realized copper price. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 20162018 and 2017:2019:

 

 Year ended December 31,     Year ended December 31,    
 2016  2017  Variation  2018  2019  Variation 
Average price                   
Copper (US$ per ton)  4,759   6,637   28%  6,422   6,360   -1%
                        
Volume sold            
Volume sold (unaudited)            
Copper (in tons)  501,000   482,587   -4%  475,574   454,432   -4%
                        

91

 

Average realized copper prices per ton increaseddecreased from US$4,7596,422 in 20162018 to US$6,6376,360 in 2017.2019. The volume of copper sold decreased from 501,000475,574 tons in 20162018 to 482,587454,432 tons in 2017.2019. The combined effect of these changes resulted in a US$0.8164.0 million increasedecrease in income from sales of copper in 20172019 compared to 2016.2018.

Total costs of sales of goods. Total costs of sales of goods increaseddecreased from US$1,553.02,011.0 million in 20162018 to US$1,768.21,954.7 million in 2017,2019, due mainly to the net effect of the following:

 

(a)       Labor costs, including workers’ profit sharing, increaseddecreased by 33%20%, from US$215.8357.7 million in 20162018 to US$286.1285.1 million in 2017,2019, mainly due to an increasea union agreement bonus payment as part of the new collective labor agreement in profit sharing associated with higher income;2018.

 

(b)       Material and supplies consumption cost increasedEnergy costs decreased by 12%10%, from US$496.9254.2 million in 20162018 to US$556.0228.9 million in 20172019 due to major mine components repair and higher supplies consumption in concentrator plants.lower power price (0.0639 vs 0.0717 $/kwh).

 

(c)       The variation of in process inventories increased from a favorable balance of US$3.8 million in 2016 to an unfavorable US$51.4 million in 2017 as a result of increased quantity of lower concentrate grade material removed during 2017; and

(d)       Repair and maintenance services increased by 44%%14%, from US$100.9159.5 million in 20162018 to US$144.8181.2 million in 2017.2019.

(d)       Depreciation and amortization increased by 4%, from US$512.3 million in 2018 to US$535.0 million in 2019.

Total operating expenses.Operating expenses increaseddecreased by 158%29%, from US$155.5205.7 million in 20162018 to US$400.5146.9 million in 20172019 due mainly to the following:

 

(a)       Selling expenses increaseddecreased by 8%20%, from US$131.4137.0 million in 20162018 to US$141.7109.5 million in 2017,2019, mainly due to highera decrease in concentrate ocean freight, and higherlower land freight and port facilities; andfacilities as a result of lower concentrate sold.

 

(b)       Other expenses increaseddecreased by 46%, from US$234.768.7 million in 2017,2018 to US$37.4 million in 2019, mainly due to lower expenses associated with the royalty dispute.

disputed mining royalties. 

Income tax. Income tax expense, including current and deferred expense, increaseddecreased by 85%8%, from an expense of US$263.1325.2 million in 20162018 to an expense of US$486.0298.1 million in 2017. Net current income tax expense (including mining taxes) increased by US$474.0 million2019 primarily due to the dispute oflower taxable profit associated with disputed mining royalties and special mining taxes and an increase in profits in 2017.2018.

 

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Net incomeProfit of the year. As a result of the foregoing, net incomeprofit of the year increased by 3%226%, from US$340.9119.7 million in 20162018 to US$349.9390.4 million in 2017. As a percentage of net sales, net income was 11% in 2017, compared to 14% in 2016.

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

Net sales. Net sales, including and mark-to-market adjustments for pounds of copper pending settlement, increased by 114%, from US$1,115.6 million in 2015 to US$2,384.1 million in 2016, principally due to higher copper concentrate volume sold as a result of achieving full production in the new concentrator. The following table reflects the average realized price and volume sold of copper (both cathode and concentrate) during the years ended December 31, 2015 and 2016:

  Year ended December 31,    
  2015  2016  Variation 
Average price            
Copper (US$ per ton)  4,518   4,759   5%
             
Volume sold            
Copper (in tons)  246,913   501,000   103%

Average realized copper prices per ton increased from US$4,518 in 2015 to US$4,759 in 2016. The volume of copper sold increased from 246,913 tons in 2015 to 501,000 tons in 2016, due to increased production from the new concentrator, which reached maximum operating rates in the first quarter of 2016. The combined effect of these changes resulted in a US$1,268.5 million increase in income from sales of copper in 2016 compared to 2015.

Total costs of sales of goods. Total costs of sales of goods increased from US$862.0 million in 2015 to US$1,533.0 million in 2016, due mainly to the net effect of the following:

(a)       Material and supplies consumption cost increased by 36%, from US$364.2 million in 2015 to US$496.9 million in 2016, mainly due to supplies needed for Cerro Verde’s new concentrator;

(b)       Labor costs, including workers’ profit sharing, increased by 47%, from US$146.4 million in 2015 to US$215.8 million in 2016, mainly due to an increased number of employees needed to staff the new concentrator and expanded mining operations and profit sharing expenses;

(c)       The variation of in process inventories decreased from US$118.3 million in 2015 to US$3.8 million in 2016 as a result of lower concentrate grade material placed in 2016;

(d)       Depreciation and amortization costs increased by 93%, from US$244.5 million in 2015 to US$473.0 million in 2016, mainly due to higher depreciation associated with the plant and equipment related to the new concentrator;

(e)       Repair and maintenance services increased by 6%, from US$95.1 million in 2015 to US$100.9 million in 2016; and

(f)       Energy costs increased by 94%, from US$118.0 million in 2015 to US$229.0 million in 2016, mainly due to increased electricity used by the new concentrator.

Total operating expenses.Operating expenses increased by 88%, from US$82.8 million in 2015 to US$155.5 million in 2016, due mainly to the following:

(a)       Selling expenses increased by 134%, from US$56.2 million in 2015 to US$131.4 million in 2016, mainly due to a greater volume sold during 2016; and

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(b)       Other expenses decreased by US$2.6 million in 2016.

Income tax. Income tax expense, including current and deferred expense, increased by 469%, from an expense of US$46.2 million in 2015 to an expense of US$263.1 million in 2016. Net current income tax expense (including mining taxes) increased by US$167.3 million due to higher profits in 2016.

Net income.As a result of the foregoing, net income increased by 924%, from US$33.3 million in 2015 to US$340.9 million in 2016.2019. As a percentage of net sales, net income was 14% in 2016,2019, compared to 3%4% in 2015.2018.

Results of Operations for the Years Ended December 31, 2018 and 2017

See “Item 5. Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2018 for a comparative discussion of Cerro Verde’s consolidated results of operations for the year ended December 31, 2018 and 2017.

 

B.B.Liquidity and Capital Resources

 

As of December 31, 2017,2019, Cerro Verde had cash and cash equivalents of US$600.0481.5 million, compared to US$30.0501.2 million as of December 31, 2016.

Cash provided by (used in) operating activities for the years ended December 31,2017 and 2016.Net cash and cash equivalents provided by operating activities were US$1,615 million in 2017, compared to net cash used in operating activities of US$946 million in 2016. This change in net cash flow provided by operating activities in 2017 compared to 2016 was mainly attributable to the following factors:2018.

 

·an increase in proceeds from sales from US$2,158 million in 2016 to US$3,198 million in 2017;

·an increase in payments of 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 (“VAT”) refunds from SUNAT from US$360 million in 2016 to US$344.4 million in 2017.

Cash provided by operating activities for the years ended December 31,20162019 and 2015.2018.Net cash and cash equivalents provided by operating activities were US$946820 million in 2016,2019, compared to net cash used inprovided by operating activities of US$194.4809 million in 2015. 2018.

This change in net cash flow provided by operating activities in 20162019 compared to 20152018 was mainly attributable to the following factors:

 

·an increase in proceeds from sales from US$1,120 million in 2015 to US$2,158 million in 2016;

·an increase in VAT refunds from SUNAT from US$3 million in 2015 to US$360 million in 2016;

·a decrease in benefits payments of income taxto employees from US$12150.4 million in 20152018 to US$698.8 million in 2016; and2019.

a decrease in interest payments (not included in the financing activities) from US$47 million in 2018 to US$37 million in 2019.

·an increase in payments to the supplier and other operational expenses from US$1,196 million in 2015 to US$1,503 million in 2016.

 

Cash used in investing activities for the years ended December 31, 20172019 and 2016.2018.Net cash used in investing activities decreasedincreased from US$478.8457.4 million in 20162018 to US$306.4479.3 million in 2017,2019, mainly due to lowerhigher payments related to the purchase of property, plantplants and equipment of US$270 million, and an increase in stripping asset activity of US$92 million in 2017.equipment.

Cash used in investing activities for the years ended December 31, 2016 and 2015.Net cash used in investing activities decreased from US$1,784.7 million in 2015 to US$478.8 million in 2016, mainly due to lower payments related to the purchase of property, plant and equipment of US$1,242 million, primarily related to the Cerro Verde Unit Expansion Project during 2016, and a decrease in stripping asset activity of US$51 million in 2016.

Cash provided by (used in) financing activities for the years ended December 31,20172019 and 20162018. Net cash and cash equivalents used in financing activities was US$738.3360 million in 2017,2019, compared to net cash provided byused in financing activities of US$443.2450 million in 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).

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Cash provided by (used in) financing activities for the years ended December 31, 2016 and 2015. Net cash and cash equivalents used in financing activities was US$443.2 million in 2016, compared to net cash provided by financing activities of US$1,965.5 million in 2015.2018. The decrease in net cash in financing activities was primarily due to a decrease in proceeds from loans under all Cerro Verde credit facilities, including partners,(i) the syndicated loan payments and (ii) dividend payment of US$2,146 million, and an increase in repayment of loans of US$265 150 million.

 

Long-term Debt

 

As of December 31, 2017,2019, Cerro Verde had total long-term debt of US$1,268903 million mainly in connection with amounts drawn from a five year US$1.5 billionthe senior unsecured credit facility.facility and lease liabilities.

 

C.C.Research and Development

 

Not applicable.

 

D.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.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.93

F.Tabular Disclosure of Contractual Obligations

 

The following table shows Cerro Verde’s contractual obligations as of December 31, 2017:2019:

 

  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  157   1   7   149 
Other Current and Long-Term Contractual Obligations  1,475   195   1,280   - 
Total Contractual Cash Obligations  1,632   196   1,287   149 
  Payments due by Period (US$ in millions)
  Total  Less than 1 year  

1-5

years

  More than 5
years
 
Trade and other payables  224,920   224,920   -   - 
Accounts payable – related parties  14,088   4,014   10,074   - 
Other financial liabilities  911,675   8,855   825,877   76,94 
Other accounts payable  461,844   99,380   72,759   289,705 
Total Contractual Cash Obligations  1,612,527   337,169   908,710   366,648 

 

ITEM 6.Directors, Senior Management and Employees

A.A.Board of Directors and Senior Management

 

Our Board 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. The Board, which must be composed of seven members, is elected at the annual obligatory meetingAnnual Mandatory Meeting of shareholders (the “Annual ObligatoryMandatory Meeting”) for a three-year term.The lastmost recent Board election took place in March 2017 and the next electionone is scheduled for March 2020.to take place in the next Annual Mandatory Meeting, which as of the date of this report is still to be rescheduled once the current emergency restrictions on public gatherings are lifted. 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) 63 Chairman of the Board 1980 March 2020 65 Chairman of the Board 1980 March 2023
Jose Miguel Morales(1) 72 Director 2012 March 2020 74 Director 2012 March 2023
Felipe Ortiz-de-Zevallos 70 Director 2003 March 2020 72 Director 2003 March 2023
Germán Suárez 77 Director 2005 March 2020
Marco Antonio Zaldívar 59 Director 2020 March 2023
William Champion 64 Director 2016 March 2020 66 Director 2016 March 2023
Diego de la Torre 55 Director 2017 March 2020 57 Director 2017 March 2023
Nicole Bernex 68 Director 2018 March 2020 70 Director 2018 March 2023
          
Executive Officers          
Victor Gobitz 53 President and Chief Executive Officer 2017  55 President and Chief Executive Officer 2017 
Leandro Garcia 50 Vice President and Chief Financial Officer 2017   52 Vice President and Chief Financial Officer 2017  
Raúl Benavides(1) 62 Vice President Business Development 1997  64 Vice President Business Development 1997 
Alejandro Hermoza 56 Vice President Community Relations 2008  58 Vice President Community Relations 2008 
Gonzalo Eyzaguirre 48 Vice President Operations 2017 
Juan Carlos Ortiz 49 Vice President Operations 2018 
Gulnara la Rosa 53 General Counsel 2012  55 General Counsel 2012 

 

___________________

(1)Roque Benavides is the brother of Raúl Benavides, and José Miguel Morales is the brother-in-law of Roque Benavides and Raúl Benavides.

 

Set forth below is biographical information concerning members of our management.

Roque Benavides, Chairman of the Board and member of the Nominating Committee.Mr. Benavides received his degree in Civil Engineering from the Pontifical Catholic University of Peru (PUCP) in 1977 and his Master of Business Administration from the Henley Business School at the University of Reading in the U.K. in 1980. He also completed the Management Development Program at the Harvard Business School in 1985 and the Advanced Management Programme at 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. He was previously President of the Peruvian Mining, Oil, and Energy Association (SNMPE) and the Peruvian Confederation of Private Business Institutions (CONFIEP).

José Miguel Morales, Director and member of the Nominating and Corporate Governance Committees. Mr. Morales is an attorney at law who graduated from the Pontifical Catholic University of Peru (PUCP) in 1958 and completed the Sloan Program at Stanford University School of Business in 1976. He served as Chief Counsel to the Company from 1973 to 2012 and was elected as a member of the Board of Directors in 2012. He has been a senior partner at the law firm Estudio Aurelio García Sayán since 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 President of the Institute of Mining and Oil Law, the Peruvian Mining, Oil, and Energy Association, and CONFIEP. He is currently the 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 member of the Board of Directors since August 2003. He was the Rector of the Universidad del Pacífico from 20142004 to 2016.2006. He is the founder of Grupo APOYO and has been the president of the organization since 1977. He received his degree in Industrial Engineering from the National University of Engineering (UNI) (and obtained his MSc in Administration and Systems from the University of Rochester. He graduated from the OPM Program at Harvard Business School in 1996. He also served as Peruvian Ambassador to the United States from September 2006 to March 2009.

German SuárezMarco Antonio Zaldivar,Director and Chairman of the Audit Committee and Compensation Committee. Mr. Suarez received his bachelor’s degree in EconomicsZaldívar, a certified Public Accountant, graduated from the National University of San Marcos (UNMSM) in 1965Universidad de Lima. He also graduated from PAD’s the Management Development Program at the Universidad de Piura and received hisholds a Master of Economics degreeBusiness Administration from Columbia University in 1969.the Adolfo Ibáñez School of Management, USA. He has been a member of the Board of Directors since March 2015. He spent the majority of his professional career with the BCRP, where he served as chairman of the board of the Peruvian Central Reserve Bank (BCRP) from 1992 to 2001. He has beenis also a member of the board of directors of Bladex, Extebandes, Arlabank, Latin American Reserves Fund, Credicorp Ltd.various companies, including Backus & Johnston, Banco Santander and Banco de Crédito del Perú.Cementos Pacasmayo. He was the presidentpreviously Chairman of the Banco de la Nación,board of directors of the directorLima Stock Exchange and the second Vice President of various companies and a governor to the IMF and IDB. He presided over the G-24 for IMF and World Bank affairs.Confiep.

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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 Network of Academies of Sciences (IANAS) and the Steering Committee of 2030 WRG. She has been the director of several research projects and programs, including the “Scientific, legal and financial design of the 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. Gobitz has been theGeneral Manager of Buenaventura since January 2017. He has also been a Director of Sociedad Minera El Brocal since 2017. He was previously the CEO of Compañía Minera Milpo from 2013 to 2016, as well as General Manager and Director of Río Alto Mining (now Tahoe Resources). He served as General Manager and Director of Castrovirreyna Compañía Minera, Operations Manager of Sociedad Minera El Brocal, and Assistant General Manager and Director of Volcan Compañía Minera. He is currently a Director of Gerens Escuela de Negocios and a professor at Pontifical Catholic University of Peru. He was the President of the Peruvian Institute of Mining Engineers (IIMP). He graduated in 1986 from Pontifical Catholic University of Peru earnedin 1986 and received his Master of Business Administration from the ESAN School of Business in 1998. He holds specialized degrees fromhas also studied at the Kellogg School of Management (2015) and the Wharton School at the University of Pennsylvania (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 director 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 director of Río Alto Mining (now Tahoe Resources) from 2011 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 of Peru.Pennsylvania.

Leandro Garcia, Vice President and Chief Financial Officer.Mr. Garcia earned hisbachelor’s degree in business administration and a bachelor’s degree in accounting from Universidad del Pacífico and his Master of Business Administration from the University of Miami in Florida andFlorida. He completed the Management Development Program at Harvard Business School in 2017. He held the position of Treasury Head at Buenaventura from 1990 to 1997. He thenalso worked as the finance manager at Sociedad Minera El Brocal until 2000,2000. , as general manager of Boticas BTL until 2005, and as general manager of Boticas Inkafarma until June 2011. Mr. GarciaHe rejoined Buenaventura as Controller General in July 2011. He has also served as a director of Química Suiza Retail, the business that manages the Mi Farma pharmacy chain, sincefrom January 2016.2016 until January 2018. Mr. Garcia has also served as Chief Executive Officer of Consorcio Energético de Huancavelica and a director of Sociedad Minera El Brocal, Compañía Minera Condesa y Empresa de Generación Huanza.

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Gonzalo Eyzaguirre TejedaJuan Carlos Ortiz,Vice President of Operations.Mr. Tejeda has aOrtiz earned hisbachelor’s degree in mining engineering from the Pontificia Universidad Católica del Perú.Peru in 1992. He receivedalso holds a Master’s in Engineering, with a focus on Mineral Engineering Management, from Pennsylvania State University. Prior to assuming his Masternew role at Buenaventura, Mr. Ortiz was the Technical Services Manager at Volcan Compañia Minera, a polymetallic mining company and one of Business Administration from the Schulich Schoollargest producers of Businesszinc, lead and silver in Toronto, Canadathe world, where he was responsible for the departments of Engineering, Projects, Planning and completed the General Management Program at Harvard University in 2012. He served as general manager of Sociedad Minera El Brocal since October 2014,Environmental Matters as well as general managerVolcan’s Alpamarca and Cerro de Pasco operations. Prior to this post, he served Chief Operations Officer at Compañía Minera Milpo (now part of Gold Fields La Cima in Cajamarca. Mr. Tejeda has served as the Vice President of Operations of Buenaventura since July 2017.Nexa Resources Group), where he was responsible for the Cerro Lindo, Atacocha and El Porvenir operations.

Raúl Benavides Ganoza,Vice President of Business Development.Mr. Ganoza earned hisbachelor’s degreeDegree in mining engineeringMining Engineering from the University of Missouri—Rolla. He received hisRolla, Master of Mining Administration from Pennsylvania State University, and completed the Advanced Management Program at Harvard Business School.School (AMP-160). He has served as presidentPresident of the IIMP, as well as being the Founder and was the founder and presidentPresident of the Mining Safety Institute (ISEM). He is currently the presidentPresident of CETEMIN, the vocational mining school.school CETEMIN. He has worked at Buenaventura since 1980, and is the Director of 11 related companies.

96

Alejandro Hermoza Maraví, Vice President of Labor, Social and Environmental Affairs. Mr. Maraví graduated from the University of Maryland with a bachelor’s degree in Mechanical Engineering and a Master in Engineering and from the Peruvian University of Applied Sciences (UPC) with a Master in Administration. He previously worked as the Development Manager of the Peruvian Confederation of Private Business Institutions (CONFIEP) and has worked at Buenaventura since 2003, where he has held the position of community relations manager from 2008 to 2011 and deputy manager of Administration and Human Resources from 2003 to 2008. In 2011, he completed the Advanced Management Program at Harvard Business School.

Gulnara La Rosa,General Counsel. Ms. La Rosa received her law degree fromPontificia Universidad Católica del Perúin 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, 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.B.Compensation

 

During the year ended December 31, 2017,2019, the aggregate amount of compensation that we paid to all directors and executive officers was approximately US$10.514.4 million, including director’s fees accrued in 20162018 and paid in 2017.2019. 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 29(e)30(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 in the appointment of independent auditors, upon delegation of such responsibility by the shareholders at the general meeting of shareholders (the “General Meeting”) and reviewing the scope of internal and external audits. The Audit Committee also reviews compliance with internal control systems, reviews our annual and quarterly consolidated financial statements, reviews consolidated financial statements before their presentation to the Superintendencia del Mercado de Valores, or the “SMV” (formerly known as the Comisión Nacional Supervisora de Empresas y Valores (National Supervisory Commission of Business and Securities) (“CONASEV”)), the Bolsa 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 Messrs. Suárez, Ortiz-de-Zevallos and de la Torre.

 

109

Compensation Committee

 

The compensation committee is responsible for evaluating executive performance and approving executive compensation, including compensation of the chief executive officer and any stock option compensation plans. The members of the Compensation Committee for 20172019 were Messrs. Ortiz-de-Zevallos, Suárez del Solar (until March 2017) and de la Piedra (since April 2017).Torre.

 

Nominating Committee

 

The Nominating Committee is responsible for preparing the proposals for the General Meetings in respect of the composition of the Board along with the director remuneration to be approved by the shareholders. The members of the Nominating Committee for 20172019 were Messrs. Benavides, Morales and Ortiz-de-Zevallos.

 

Corporate Governance Committee

 

The corporate governance committee is responsible for monitoring issues and practices related to corporate governance and proposing necessary actions in respect thereof. The members of the Corporate Governance Committee for 20172019 were Messrs. Benavides, Morales and Ortiz-de-Zevallos.

 

D.97Employees

D.Employees

 

As of December 31, 20172019 we, including our subsidiaries and Coimolache, had 3,7173,087 employees. In addition, we have entered into arrangements with independent contractors that employed 13,5199,428 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, 2017,2019, the average tenure of Buenaventura’s permanent laborers was approximately 89 years.

 

Of the 3,1183,087 permanent employees employed by Buenaventura and its subsidiaries directly, approximately 36%49% are members of 1114 different labor unions (including fourfive unions for clerical workers sevenand nine unions for laborers), which representrepresenting all aforementioned clerical workers and laborers in collective bargaining negotiations with us.negotiations. There are also sixseven unions for workers employed by independent contractors that were formed over the last seven years in our mines at Uchucchacua, Orcopampa La Zanja,and Julcani, and El Brocal.Brocal y Tantahuatay.

 

Each of the labor unions is company-based 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.

 

BetweenIn January and June 2017,2019 we did not experience any strikes or stoppages. In July 2017, we recorded oneexperienced a 21 day of stoppage at El Brocal and three daysthe Uchucchacua mine called by the workers’ union for contractor companies. In June, we experienced a two day stoppage in Orcopampa relating to the affairs of Orcopampa’s community. In August, we experienced a 10 day stoppage in Orcopampa relating to the affairs of Chilcaymarca’s community. In September, we experienced a stoppage in Uchucchacua relating to affairs of Oyon’s community that lasted 2 days. Finally, in September, we experienced a 4 day stoppage at the Uchucchacua and Orcopampa and Uchucchacua, all of which were due to strikesMines that was called by the Mining National Workers Federation. In October 2017, we experienced three days of stoppage at Orcompampa 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, we experienced a stoppage in Orcopampa related to affairs with the 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 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 amount and the aggregate amount paid to employees must be contributed by us to FONDOEMPLEO, a fund established to promote employment and employee training.

110

 

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, 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).

 

Our permanent employees receive the benefit of one of two types of pension arrangements. All workers can choose to enroll in a public pension fund managed by the state (the “ONP” system) or in a private pension fund (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% 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.

 

98

In addition, we pay EsSalud, 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% 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.E.Share Ownership

 

As of March 31, 2018,2020, our directors and executive officers, as a group, owned 41,874,206 Common Shares, representing 16.50% of all 253,986,867 Common and Investment Shares outstanding.

 

The share ownership of the Company’s directors and executive officers on an individual basis as of March 31, 20182020 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   5.48   13,912,006   5.48           13,912,006   5.48 
William Champion                                    
José Miguel Morales †  14,133,836   5.57           14,133,836   5.57   14,133,836   5.57           14,133,836   5.57 
Nicole Bernex                                    
Felipe Ortiz-de-Zevallos                                    
Germán Suárez                                    
Raúl Benavides †  13,813,836   5.44         13,813,836   5.44   13,813,836   5.44         13,813,836   5.44 
Diego de la Torre  14,528   0.01         14,528   0.01   14,528   0.01         14,528   0.01 
Gonzalo Eyzaguirre                  
Juan Carlos Ortiz                  
Alejandro Hermoza                                    
Gulnara la Rosa                                    
Leandro Garcia                                    
Victor Gobitz                                      
Directors and Executive Officers as a Group †  41,874,206   16.50         41,874,206   16.50   41,874,206   16.50         41,874,206   16.50 

 

†      Includes Common Shares owned by the applicable director or officer and his or her spouse.

Includes Common Shares owned by the applicable director or officer and his or her spouse.

111

 

ITEM 7.Major Shareholders and Related Party Transactions

 

A.A.Major Shareholders

 

As of March 31, 2018,2020 we had 274,889,924 Common Shares outstanding, includingof which 21,174,734 were treasury shares, and 744,640 Investment Shares, includingof 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, 2018,2020, with respect to each shareholder known to us to own more than 2.5% 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)

 
                   
Blanca Benavides de Morales (5)  14,133,836   5.57         14,133,836   5.57 
Roque Benavidaes Ganoza  13,912,006   5.48           13,912,006   5.48 
Raul Benavidaes Ganoza  13,813,836   5.44           13,813,836   5.44 
Van Eck Associates Corp  12,640,749   4.98         12,640,749   4.98 
Azvalor Asset Management SGIIC SA  11,829,320   4.66         11,829,320   4.66 
Franklin Templeton Investment  8,475,792   3.34         8,475,792   3.34 
Blackrock Fund Advisors  8,123,748   3.20         8,123,748   3.20 
The Vanguard Group, Inc.  6,934,744   2.73         6,934,744   2.73 

 

99

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  28,197,615   11.11         28,197,615   11.11 
Fidelity Management &  Research Company  17,733,601   6.99         17,733,601   6.99 
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 
Blackrock Fund Advisors  8,790,373   3.46         8,790,373   3.46 
Azvalor Asset Management SGIIC SA  8,192,986   3.23         8,192,986   3.23 
The Vanguard Group, INC.  7,841,715   3.09         7,841,715   3.09 
Morgan Stanley Investment Management INC.  7,620,882   3.00         7,620,882   3.00 
State Street Global Advisors (SSGA)  6,926,923   2.73         6,926,923   2.73 
T. Rowe Price Associates, INC  6,822,710   2.69         6,822,710   2.69 

(1)The table above excludes treasury shares. As of March 31, 20182020 Buenaventura held 14,474 common shares and 1,230  Investment Shares and our wholly-owned subsidiary, Condesa, held 21,160,260 Common Shares and 471,733 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 271,677 Investment Shares outstanding, which excludes 472,963 treasury shares.

  

(4)Percentage calculated on the basis of 253,986,867 Common Shares and Investment Shares outstanding, which excludes 21,647,697 treasury shares.

 

(5)Blanca Benavides de Morales is the spouse of José Miguel Morales.

 

As of March 31, 2018,2020, we estimate that 209,096,800212,570,181 Common Shares were held in the U.S., which represented approximately 82.41%83.78% of Common Shares outstanding. The number of institutional record holders of our Common Shares (or of ADSs representing our Common Shares) in the U.S. was 6654 institutions.

  

 112B.

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.

 

100

The compensation of our key executives (including the related income taxes we assumed in connection therewith) totaled US$9.9 million in 2016 and US$10.5 million in 2017.2017, US$15.5 million in 2018 and US$14.4 million in 2019. Please refer to Note 29(e)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$32.420.7 million, US$24.320.4 million and US$20.722.3 million in 2015, 20162017, 2018 and 2017,2019, respectively, and are presented as royalty income in our consolidated statements of income.

 

During 2016, Yanacocha’s board of directors unanimously agreed to distribute to the partners, in proportion to their equity interests, US$300 million, which corresponds to the portion of the retained earnings as of December 31, 2014 that originated in 2011. As a result, Condesa received a cash dividend from Yanacocha of US$130.9 million. During 2015 and 2017, Condesa did not receive cash dividends.dividends from its investment in Yanacocha in 2017, 2018 or 2019.

 

We did not receive a cash dividends from Cerro Verde in 2015, 2016 or 2017. However, in 2018 and 2019 we received cash dividends in an amount of US$39.2 million and US$29.4 million, respectively.

 

We received cash dividends from Coimolache of approximately US$6.7 million in 2015, US$11.4 million in 2016 and US$9.8 million in 2017.2017, US$7.6 million in 2018 and US$4.0 million in 2019.

 

During 2017, we received an advanced payment of US$124.8 million for the long-term loan held with Sociedad Minera Cerro Verde S.A. from 2015. In March 2002, BISA signed a technical service agreement with Yanacocha to perform a number of specialized activities and services. Pursuant to the agreement, the services performed relate to the construction of mining projects and include completion of analysis and studies, work plan design, and functions related to planning, monitoring and administrating the infrastructure projects required by Yanacocha in its operations.

 

In November 2000, Conenhua signed an agreement with Yanacocha for the construction and operation of a 220 kW transmission line between Trujillo and Cajamarca, a 60 kW transmission line between Cajamarca and La Pajuela, and the Cajamarca Norte substation; this agreement also encompassed activities necessary to enlarge the Trujillo substation. In June 2006, an addendum to this contract extended the completion date to June 2007. Concurrently, we and Yanacocha signed a 10-year agreement covering electric energy transmission and infrastructure operation beginning in 2007. In exchange for us operating and managing the transmission project, Yanacocha pays a fee of US$3.7 million with annual maturities. The annual revenues for these services amounted to approximately US$0.9 million in 2015 and 2016, and US$0.4 million in 2017.2017 and 2018 and US$ 0.3 million in 2019.

 

C.C.Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.Financial Information

A.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.

 

113

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—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 that 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.

 

101

The Board, following the end of each fiscal year, makes a recommendation at the Annual ObligatoryMandatory 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 ObligatoryMandatory 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 was 28% for 2016. For 2017 and thereafter the tax rate increased tois 29.50%. Not less than 10% 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.capitalizations, in which case it must be replenished again. 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.

 

Dividends are subject to an additional withholding tax for shareholders that are either (i) individuals, whether domiciled or non-domiciled in Peru, or (ii) non-domiciled companies or entities. For dividends paid out of our accumulated net profits, the withholding tax rate was 6.8% for 2016. Fromis 5% when the dividend originated from profits earned on or after January 1, 2017 and thereafter, the tax rate is 5%.2017. 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.

114

 

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. Amounts distributed with respect to ADSs were subject to a Peruvian withholding income tax of 6.8% infor profits earned during 2016, which was the withholding tax rate applicable to distributions in respect of Common Shares during 2016. The withholding tax rate decreased to 5% for dividends paid out of our accumulated net profits after December 31, 2016. See “Item 10. Additional Information—E. Taxation—Peruvian Tax Considerations.”

102

 

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 10 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.

 

115

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 20142016 to 2017.2019. Dividends with respect to the years 20142016 to 20172019 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 
2014  0.023   0.000   0.023   0.023   0.000   0.023   0.023   0.000   0.023 
2015  0.000   0.000   0.000   0.000   0.000   0.000   0.000   0.000   0.000 
2016  0.030   0.057   0.087   0.030   0.057   0.087   0.030   0.057   0.087 
2017  0.030   0.030   0.060   0.030   0.030   0.060   0.030   0.30   0.60 

Year ended 

December 31,(1)

 

Per

Common Share 

  

Per 

ADSs

  

Per

Investment Share 

 
  Interim  Final  Total  Interim  Final  Total  Interim  Final  Total 
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 
2019  0.027   0.027   0.054   0.027   0.027   0.054   0.027   0.027   0.054 
                                     
(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 of public companies that aresociedades anónimas abiertas such as us and that were formerly contained in Law No. 26985, which had beenwas 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 ObligatoryMandatory Meeting, or (2) the expiration of the three-month period after the end of the prior fiscal year in which such Annual ObligatoryMandatory 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$ 1,300 and US$ 32,500 in case the Company fails to comply such provisions for the protection of non-controlling shareholders.

103

 

B.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.

 

116

ITEM 9.The Offer and Listing

A.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) 
  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) 
Annual highs and lows                                    
                                     
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   -   -   - 
2016  1.31   38.00   14.00   410.23   12.51   3.80   -   -   - 
2017  0.47   48.10   35.95   350.69   14.96   10.87   0.01   24.50   22.10 
                                     
                                     
Quarterly highs and lows                                    
                                     
2016                                    
1st quarter  0.11   24.66   12.05   136.31   7.50   3.30   -   -   - 
2nd quarter  0.54   34.55   24.60   162.14   12.00   7.02   -   -   - 
3rd quarter  0.16   53.00   33.65   95.04   16.45   11.72   0.20   25   20 
4th quarter  0.19   48.50   34.37   109.72   14.21   9.87   -   -   - 
                                     
2017                                    
1st quarter                                    
2nd quarter  0.14   45.50   38.05   82.17   14.59   11.29   0.00   24.50   23.99 
3rd quarter  0.10   41.10   38.50   108.30   12.87   10.87   0.00   -   - 
4th quarter  0.19   45.00   38.50   76.71   14.14   11.17   0.00   23.00   22.60 
   0.03   48.10   41.40   83.51   14.96   12.65   0.00   23.10   22.10 
Monthly highs and lows                                    
                                     
2017                                    
October                                    
November  0.01   48.10   43.00   29.76   14.96   12.65   0.00   23.10   23.10 
December  0.01   46.00   45.00   22.85   14.60   13.34   0.00   23.10   22.10 
                                     
2018  0.02   45.00   41.40   30.89   14.32   12.69   0.00   -   - 
January                                    
February  0.16   51.50   45.25   30.89   16.26   13.99   0.00   22.15   21.99 
March  0.02   52.00   49.40   24.21   16.18   14.13   -   -   - 

104

 

  Common Shares(1)  ADSs(2)  Investment Shares(1) 
  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) 
Annual highs and lows                                    
                                     
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 
2019  0.80   57.05   45.30   295.27   17.85   13.77   0.01   17.00   16.00 
                                     
Quarterly highs and lows                                    
                                     
2018                                    
1st quarter  0.18   52.00   45.25   81.81   16.53   13.99   0.00   22.15   21.99 
2nd quarter  0.06   53.09   44.53   70.88   16.80   13.54   0.00   0.00   0.00 
3rd quarter  0.04   44.90   39.00   66.83   13.99   11.67   0.00   19.60   19.60 
4th quarter  0.57   54.94   44.20   106.34   16.66   12.44   0.00   0.00   0.00 
                                     
2019                                    
1st quarter  0.08   57.00   50.75   77.43   17.78   14.80   0.01   17.00   16.80 
2nd quarter  0.05   57.05   49.00   68.15   17.71   14.15   0.00   16.80   16.00 
3rd quarter  0.04   55.80   47.30   82.52   17.85   13.91   0.00   0.00   0.00 
4th quarter  0.63   51.10   45.30   67.16   15.83   13.77   0.00   0.00   0.00 
                                     
Monthly highs and lows                                    
                                     
2019                                    
October  0.01   51.10   45.30   22.74   15.67   13.77   0.00   0.00   0.00 
November  0.00   51.10   49.50   19.10   15.83   14.63   0.00   0.00   0.00 
December  0.62   51.00   47.77   25.32   15.45   14.43   0.00   0.00   0.00 
                                     
2020                                    
January  0.00   42.00   42.00   22.92   15.36   12.13   0.00   0.00   0.00 
February  0.00   42.50   40.00   37.40   13.12   11.15   0.00   0.00   0.00 
March  0.00   32.40   25.00   45.79   11.68   5.12   0.00   0.00   0.00 

(1)Source: Lima Stock Exchange

(2)Source: Bloomberg; Yahoo Finance

 

As of March 31, 2018,2020, 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, 2018,2020, there were 1,089983 owners of record of the Common Shares and 903886 owners of record of the Investment Shares.

 

B.105

B.Plan of Distribution

 

Not applicable.

 

C.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.D.Selling Shareholders

 

Not applicable.

 

E.E.Dilution

 

Not applicable.

 

F.F.Expenses of the Issue

Not applicable.

116

ITEM 10.Additional Information

A.Share Capital

 

Not applicable.

 

ITEM 10.B.Additional Information

A.Share Capital

Our capital stock comprises Common Shares and investment shares. Common Shares have full voting rights while investment shares do not. As of December 31, 2019, there were 274,889,924 Common Shares outstanding, of which 21,174,734 were held in treasury. In the case of Investment Shares, there were 744,640 shares in total, of which 472,963 were held in treasury. In total there are 253,986,867 outstanding shares, and this number has not changed throughout the year 2019. The capital stock is fully subscribed and paid. Additionally, the par value per share (for both Common Shares and Investment Shares) is S/.10.

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 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, which must be composed of seven members, is elected at the Annual ObligatoryMandatory Meeting. Any changes in the Board require the approval of the shareholders. The removal of the Board 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, the Board may appoint substitute directors who will serve until the next shareholders’ meeting.

 

106

Members of the Board (“Directors”) are elected as a group for a term of three years and may be reelected indefinitely. Pursuant to Article 29 of our By-laws, Directors are not required to be shareholders. The Board, in its first meeting after the Annual ObligatoryMandatory Meeting during which elections are held, must choose from among its members a Chairman and a Vice Chairman. The Peruvian Companies Law requires that all companies (sociedades anónimas) provide for the representation of non-controlling shareholders on their Boards of Directors. To that effect, each of our Common Shares gives the holder the right to as many votes as there are directors to be elected. Each holder may pool his votes in favor of one person or distribute them among various persons. Those candidates for the Board who receive the most votes are elected directors.

 

The Board of Directors meets when called by the Chairman of the Board, who is appointed by the Board. The Board of Directors is validly convened when all Directors are present and unanimously agree to carry out the meeting for the purpose of transacting the business that has been proposed. Pursuant to Article 177 of the Peruvian Companies Law, Directors may be jointly and severally liable to us, the shareholders and third parties for their actions if they act with willful misconduct, gross negligence or abuse their powers. In addition, Article 3 of Law No. 29720, which has been in force since June 26, 2011, as amended by Law No. 30050 in force since June 27, 2013, provides that directors and managers are liable for economic damages or any other kind of damages caused to us by any transaction they have approved that favors such director’s, or a related party’s, interest instead of the company’s,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.

 

117

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.

 

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 or a shareholders’ meeting upon the request of any shareholder or any member of the Board.

 

Our By-laws also do not contain any provisions with respect to the power of the directors to vote upon matters relating to their own compensation. Nevertheless, Article 30 of the By-laws requires that the Board 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 ObligatoryMandatory 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 companyCompany 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 companyCompany 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’sCompany’s Board. Directors are jointly liable to the companyCompany and the company’sCompany’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,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.

 

107

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, where each such holder is entitled to one vote per share per nominee. Each holder’s votes may all be cast 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.

 

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% 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.

 

118

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 ObligatoryMandatory 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, 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 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% of the Common Shares, the shareholders’ meeting is not convened by the Board within 15 business days of the receipt of such request, such holders of at least 5% 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 companyCompany 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.

 

 119108 

 

 

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, 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. 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.

 

Under our By-laws, the following actions are to be taken at the annual obligatoryAnnual Mandatory 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; and any other matters submitted by the 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 our 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% 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% of our paid-in capital.

109

Changes in Capital

 

Changes in Capital

Our By-laws do not establish special conditions for increases or reductions of capital that are more stringent than is required by the Peruvian Companies Law. Furthermore, the Peruvian Companies Law forbidssociedades anónimas abiertas, such as us, from including in their By-laws stipulations limiting the transfer of their shares or restraining their trading in other ways. We cannot recognize a shareholders’ agreement that contemplates limitations, restrictions or preferential rights on the transfer of shares, even if such agreement is recorded in our share register (matrícula de acciones) or in CAVALI ICLV S.A.

120

Economic Group, unless they refer to shares that are nor listed in a stock exchange, which is not the of our shares.

 

Economic Group

On January 1, 2017 new Regulations on Indirect Property, Relation and Economic Groups (Reglamento de Propiedad Indirecta, Vinculación y Grupos Económicos) (the “Regulations”) approved by Regulation No. 019-2015-SMV-01 became effective, replacing the prior Regulations that were in effect since 2006. The new Regulations, 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 No. 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 No. 1352, which was published on January 7, 2017 and became effective on January 1, 2018. Regulations to this law are pending.have been recently approved by Supreme Decree No,. 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 companyCompany 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’sCompany’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,Company, a technical report from the SMV that analyzes the prevention model is required. We have prepared the prevention model required under Law No. 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.

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. 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.

The Board, following the end of each fiscal year, makes a recommendation at the Annual Mandatory 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 Mandatory 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.

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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 is 29.50%. Not less than 10% 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, in which case it must be replenished again.. 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.

Dividends are subject to an additional withholding tax for shareholders that are either (i) individuals, whether domiciled or non-domiciled in Peru, or (ii) non-domiciled companies or entities. For dividends paid out of our accumulated net profits, the withholding tax rate is 5%, when the dividend originated from profits earned on or after January 1,2017. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.

Dividends paid to domiciled companies or entities are not subject to such withholding tax. If any tax or other governmental charge will become payable by Scotiabank Peru, as custodian, the Depositary or us with respect to any ADR or any deposited securities represented by the ADSs evidenced by such ADR, such tax or other governmental charge will be payable by the owner or beneficial owner of such ADR to the Depositary.

Dividends on issued and outstanding Common Shares and Investment Shares are distributed in accordance with the proportion of the total capital represented by such respective shares. Dividends are distributed pro rata in accordance with the number of Common Shares or Investment Shares. Accordingly, any dividend declared would be apportioned 99.73% 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. Amounts distributed with respect to ADSs were subject to a Peruvian withholding income tax of 6.8% for profits earned during 2016, which was the withholding tax rate applicable to distributions in respect of Common Shares during 2016. The withholding tax rate decreased to 5% for dividends paid out of our accumulated net profits after December 31, 2016. See “Item 10. Additional Information—E. Taxation—Peruvian Tax Considerations.”

We issue stock dividends for value per share of our stock. The book value of our share capital is based on the nominal (par) value of each share but is adjusted to account for inflation; thus, in inflationary periods, our book value will increase while the nominal value will remain constant. 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.

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Dividends not collected within 10 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.

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 of public companies that aresociedades anónimas abiertas, such as us, and 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 Mandatory Meeting, or (2) the expiration of the three-month period after the end of the prior fiscal year in which such Annual Mandatory 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, that the holder of the shares can instruct us to deposit the dividends in a specific bank 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$ 1,300 and US$ 32,500 in case the Company fails to comply such provisions for the protection of minority shareholders.

 

C.C.Material Contracts

 

Not Applicable.

 

D.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.Taxation

 

The following summarizes the material Peruvian and U.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, holders ofwho actually or constructively own 10% or more of our shares by either vote or value, and certain taxpayers who file applicable financial statements required to recognize income no later than when the associated revenue is reflected on such financial statements.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 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 U.S. which are subject to change and possibly with retroactive effect.

 

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“U.S. Holder” means a beneficial owner of ADSs or Common Shares that is (i) a U.S. citizen or resident, (ii) a domestic corporation, (iii) a trust subject to the control of one or more U.S. persons (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 U.S. federal income taxation regardless of its source.

 

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 subject to Peruvian withholding income tax, at a rate of 5% for dividends paid or to be paid beginning January 1, 2018,2017, when the dividend originated from profits earned on or after January 1, 2017. If the dividend originated from profits earned between January 1, 2015 and December 31, 2016, the withholding income tax rate for the dividend is 6.8%. If the dividend originated from profits earned as of December 31, 2014, the withholding income tax rate for dividends is 4.1%. The dividends distribution is related to prior accumulated results. This regime is applicable on dividends that are paid to shareholders that are: (i) individuals, whether resident or nonresident in Peru or (ii) nonresident entities. As a general rule, the distribution of additional Common Shares representing profits, distribution of shares which differ from the distribution of earnings or profits, as well as the distribution of preemptive rights with respect to Common Shares, which are carried out as part of a pro rata distribution to all shareholders, will not be subject to Peruvian Income Tax or withholding taxes.

 

Capital Gains

 

Pursuant to Article 6 of the 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.

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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%.

 

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 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.

 

Furthermore, before December 31, 2012, if the transferor was a resident individual, the first five tax units (approximately US$6,800) of capital gains deriving from the transfer of securities were exempted from the Income Tax. Effective January 1, 2013, such exemption was repealed. Any capital gain earned by a resident individual is subject to the 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 5% 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.

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On September 12, 2015 Law No. 30341 was published. This law entered into effect on January 1, 2016 and states that capital gains from the disposal of ADSs or Common Shares through December 31, 2018 issued by legal entities incorporated in Peru, executed through the Lima Stock Exchange, are exempt from Peruvian Income Tax if: (i) within a period of twelve (12) months the holder and its related parties do not transfer 10% or more of the issued shares of the legal entity in one or more transactions; and (ii) the Common Shares issued by such legal entity shall have been continuously traded in the stock market (the rules to determine if such shares are continuously traded are set forth in Law 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. Law No. 30341 was amended for a second time by Urgent Decree No. 005-2019, published on October 24, 2019 and effective on January 1, 2020, which introduced minor amendments regarding to the rules to determine when shares are continuously traded; and extended this income tax exemption through December 31, 2022.

 

Other ConsiderationsExchange Transactions

 

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 VAT (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.

 

Other Considerations

As explained in Item 10. Memorandum and Articles of Association –Final Beneficial Owners, on August 2, 2018, Legislative Decree No. 1372 was published. This law entered into effect on August 3, 2018 and its regulations were enacted by Supreme Decree No. 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. On September 25, 2019, the Tax Authority issued Superintendence Resolution No. 185-2019/SUNAT, establishing rules for this mandatory report and, for the legal entities that qualify as principal taxpayers as of November 30, 2019, the first deadline for filing this mandatory report was established within the first half of December 2019. The first deadline to present the affidavit with information regarding the final beneficiaries as of November 30, 2019 was set in the first half of December 2019.

Peruvian law was amended with the objective to grant greater guarantees to the taxpayers through application of the general anti-evasive rule (Rule XVI of the Preliminary Title in the Tax Code) and with the objective of providing more tools to the Tax Administration for effective implementation of the rule.

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 U.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.

 

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’sHolder’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. holdersHolders 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 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 that is not a passive foreign investment company (“PFIC”) (as discussed below) ifand either (i) its shares are readily tradable on an established securities market in the 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 United States. 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 reduced rate. In the case of 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 U.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 U.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 U.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 CodeCode. U.S. Holders who do not elect to claim a credit for foreign taxes may instead claim a deduction in respect of 1986,such Peruvian taxes. Dividends received with respect to our Common Shares or Common Shares represented by ADSs will be treated as amended (the “Code”).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 U.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 U.S. source income. Consequently, in the case of a disposition of Common Shares or ADSs in a transaction subject to Peruvian tax, the U.S. Holder may not be able to claim the foreign tax credit for any Peruvian tax imposed on the gain unless it has sufficient foreign source income from other sources against which it can apply the credit.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 U.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.

 

116

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 U.S. federal income tax purposes with respect to our 2019 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 2020 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, including the application of proposed United States Treasury Regulations, on which we are entitled to rely until they are finalized, 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 foreseeable future. current, or any past or future tax year. The potential application of the PFIC rules is further discussed below.

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. Passive income generally includes interest, dividends, rents, royalties and certain gains (including certain commodityrelated gains), but active business gains from the sale of commodities is not considered “passive income” for purposes of determining whether a company is a PFIC. Our PFIC status for any taxable year is likely to depend upon the extent to which our gross profit from our mining activities is considered active business gains.

125

 

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 reduced U.S. tax rate noted above. 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% 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 U.S. 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 carryingcertifying 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 applicable 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 U.S. federal income tax liability.

 

117

“Specified Foreign Financial Asset” Reporting

 

OwnersU.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 securities 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.F.Dividends and Paying Agents

 

Not applicable.

 

G.G.Statement by Experts

 

Not applicable.

 

H.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 U.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.

126

 

I.I.Subsidiary Information

 

Not applicable.See “Item 4. Information of the Company Buenaventura—C. Organizational Structure”

 

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, 2018,2020, we had no silver derivative contracts or gold convertible put option contracts in place.

 

From January to December 2018,2020, El Brocal had no outstanding hedging commitments amounting to 36,000 metric tons of copper at an average fixed price of US$6,479 per ton.commitments.

 

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.

 

118

Normal Sales

 

We had no normal sales contracts with fixed or capped prices outstanding as of March 31, 2018.2020.

 

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 32b33(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.risks

127

 

ITEM 12.Description of Securities Other Than Equity Securities

 

A.A.Debt Securities

 

Not applicable.

 

B.B.Warrants and Rights

 

Not applicable.

 

C.C.Other Securities

 

Not applicable.

 

D.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:

 

119

Persons depositing or withdrawing shares must pay:

Payable to:  

For:

US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Depositary·Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
   
US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)Depositary·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 ADSsDepositary·Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders
   
Registration or transfer feesDepositary·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 DepositaryDepositary·Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
   
Expenses of the DepositaryDepositary·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 taxesDepositary·As necessary
   
Any charges incurred by the Depositary or its agents for servicing the deposited securities·     As necessary

128

Fees Incurred in Past Annual Period

 

From January 1, 20182019 to April 30, 2018,9, 2020, 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.

 

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.

 

120

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, 2017,2019, 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, 2017.2019. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) inInternal Control—Integrated Framework.Our management concluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2017.2019.

 

Our independent registered public accounting firm Paredes, Burga & Asociados S. Civil de R.L., has issued an attestation report on our internal control over financial reporting, which is included below.

 

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Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors of Compañíaia 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. and subsidiaries internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Compañíaia de Minas Buenaventura S.A.A. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, 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, 20172019 and 2016,2018, 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, 2017,2019, and the related notes and our report dated April 27, 2018,9, 2020, 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 Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 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.

122

Report of Independent Registered Public Accounting Firm(continued)

 

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 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 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.

 

Paredes, Burga & Asociados S. Civil de R.L.

A member practice of Ernst & Young Global Limited

 

/s/ Victor BurgaKatherine Villanueva

Lima, Peru.

April 27, 20189, 2020

 

 130123 

 

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in our internal control over financial reporting during 20172019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16A.ITEM 15A.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.ITEM 15B.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 at http://www.buenaventura.com. The information on our website is not a part of, nor incorporated into, this document.

 

ITEM 16C.ITEM 15C.Principal Accountant Fees and Services

 

The Audit Committee proposed at the General Meeting that Paredes, Burga & Asociados S. Civil de R.L., a member firm of EYErnst & Young Global Limited, be elected as the independent auditor for 2017.2019. Paredes, 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, 20162018 and 2017,2019, 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, Burga & Asociados S. Civil de R.L. for 20162018 and 2017.2019.

 

 Year ended December 31,  Year ended December 31, 
 2016 2017  2018 2019 
Audit Fees US$1,081,358  US$1,089,169  US$1,029,235 US$1,019,361 
Tax Fees US$262,183  US$47,129  US$35,970 US$26,000 
All other fees US$4,272  US$88,003  US$86,080 US$34,024 
Total US$1,347,813  US$1,224,301  US$1,151,285 US$1,079,385 

Audit Fees. Audit fees in the above table are the aggregate fees billed by Paredes, 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 20162018 and 2017.2019.

Tax Fees. Tax fees in the above table are fees billed by Paredes, Burga & Asociados S. Civil de R.L. in connection with review of income tax filings, transfer pricing studies and tax consultations.filings.

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 20162018 and 2017.2019.

 

ITEM 16D.ITEM 15D.Exemptions from the Listing Standards for Audit Committees

 

Not applicable.

 

124

ITEM 15E.16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

For the year ended December 31, 2017,2019, neither we nor any person acting on our behalf made any purchase of our Common Shares.

 

ITEM 16F.131

ITEM 15F.Change in Registrant’s Certifying Accountant

 

None.

 

ITEM 16G.ITEM 15G.Corporate Governance

 

There are significant differences in the corporate governance practices followed by us as compared to those followed by U.S. domestic companies under the NYSE, listing standards. The NYSE listing standards provide that the board of directors of a U.S. domestic listed company must consist of a majority of independent directors and that certain committees must consist solely of independent directors. Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of the members of the board of directors be independent.

 

The listing standards for the NYSE also require that U.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 board of directors 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 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 U.S. domestic companies to adopt and disclose corporate governance guidelines. In July 2002, the SMV and a committee composed 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.ITEM 15H.Mine Safety Disclosure

 

Not applicable.

 

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PART III

 

ITEM 17.ITEM 16.Consolidated Financial Statements

 

Not applicable.

 

ITEM 18.ITEM 17.Consolidated Financial Statements

 

Please refer to Item 19.

 

ITEM 19.ITEM 18.Exhibits

 

 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-109F-123
  
SOCIEDAD MINERA CERRO VERDE S.A.A.F-167F-201

 

(b)Index to Exhibits

 

1.1By-laws (Estatutos) of Compañía de Minas Buenaventura S.A.A., as amended April 30, 2002 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).

 

1.2By-laws (Estatutos) of Minera Yanacocha S.R.L., as amended October 18, 1999 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).

 

2.(d)Description of Securities Other Than Equity Securities†

2.1Credit and Guaranty Agreement, dated as of June 27, 2016 among Compañía de Minas Buenaventura S.A.A., as Borrower, Banco de Crédito del Perú, as Administrative Agent, Compañía Minera Condesa S.A., Inversiones Colquijirca S.A. and Consorcio Energético de Huancavelica S.A., as Guarantors, and BBVA Banco Continental, Banco de Crédito del Perú, Corpbanca New York Branch, Banco Internacional del Perú S.A.A. – Interbank, Industrial and Commercial Bank of China, Dubai (DIFC) Branch, Banco Latinoamericano de Comercio Exterior, S.A. and Banco de Sabadell, Miami Branch, as Lenders (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.†

 

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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.

 

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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/Leandro Garcia
  Leandro Garcia
  Chief Financial Officer

 

Dated: April 30, 201810, 2020 

 135128 

 

 

Exhibit Index

 

Exhibit No. Document Description
   
1.1 By-laws (Estatutos) of Compañía de Minas Buenaventura S.A.A., as amended April 30, 2002 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).
   
1.2 By-laws (Estatutos) of Minera Yanacocha S.R.L., as amended October 18, 1999 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2002, filed on June 25, 2003).
2.(d)Description of Securities Other Than Equity Securities†
   
2.1 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).
   
4.1 Shareholders Agreement among SMM Cerro Verde Netherlands B.V., Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Summit Global Management B.V., Compañía de Minas Buenaventura S.A.A., Cyprus Climax Metals Company, Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A. dated June 1, 2005 (incorporated by reference from Compañía de Minas Buenaventura S.A.A. Annual Report on Form 20-F for the year ended December 31, 2005, filed on June 6, 2006).
   
11 Code of Conduct and Ethics. (incorporated by reference from 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.†
   
101 Interactive Data Files†

† Filed herewith.

 

 Exhibits 

129

 

 

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated Financial Statements for the years 2017, 20162019, 2018 and 2015,2017, together with the Report of Independent Registered Public Accounting Firm

  

 F-1

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Consolidated Financial Statements for the years 2017, 20162019, 2018 and 2015,2017, together with the Report of Independent Registered Public Accounting Firm.

ContentFirm

 

Content

Report of Independent Registered Public Accounting Firm

F-3
  
Consolidated Financial Statements 
Consolidated statements of financial positionF-5F-7
Consolidated statements of profit or lossF-6F-8
Consolidated statements of other comprehensive incomeF-7F-9
Consolidated statements of changes in equityF-8F-10
Consolidated statements of cash flowsF-9F-11
Notes to the consolidated financial statementsF-10F-12

 F-2

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors of Compañia de Minas Buenaventura S.A.A. and subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited Compañia de Minas Buenaventura S.A.A. and subsidiaries internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Compañia de Minas Buenaventura S.A.A. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, 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, 2019 and 2018, 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, 2019, and the related notes and our report dated April 9, 2020, 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 Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 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.


Report of Independent Registered Public Accounting Firm (continued)

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 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 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.

Paredes, Burga & Asociados S. Civil de R.L.

A member practice of Ernst & Young Global Limited

/s/ Katherine Villanueva

Lima, Peru.

April 9, 2020


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Compañía de Minas Buenaventura S.A.A., and Subsidiaries (together the Group) as of December 31, 20172019 and 2016,2018, and 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, 2017,2019, and 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, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, 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’sGroup´s internal control over financial reporting as of December 31, 2017,2019, 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 27, 20189, 2020 expressed an unqualified opinion thereon.

 

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 F-3

Report of Independent Registered Public Accounting Firm(continued)

 

We conducted our audits in accordance with the standards of 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 misstatement, 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 regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 


Report of Independent Registered Public Accounting Firm (continued)

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of mining concessions, development costs, right-of-use asset, property, plant and equipment
Description of the Matter

At December 31, 2019, the net carrying value of the Group’s mining concessions, development costs, right-of-use asset, property, plant and equipment is US$1,754 million. Related disclosures are included in Note 2.4(n) and Note 11(b) to the consolidated financial statements. The Group reviews and evaluates its mining concessions, development costs, right-of-use asset, property, plant and equipment for impairment at least annually, or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable at the Cash Generating Unit level (CGUs). When the Group determines the existence of significant impairment indicators, management performs an assessment to determine whether an impairment has occurred. An impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. As result of performing its impairment tests, the Group recorded an impairment of US$2.1 million in its Julcani’s CGU as of December 31, 2019.

The impairment tests required the use of significant assumptions. These assumptions are described in note 11 (b) of the Group’s consolidated financial statements, and are based on, among others, current life of mine plans, market based commodity price assumptions, discount rates that reflect the current market assessments of the time value of money and the risks specific to the CGU, estimated quantities of recoverable minerals and operating and capital costs.

Auditing the Group’s impairment assessment for the above-noted CGUs is complex and highly judgmental; accordingly, we have determined this to be a critical audit matter.

How We Addressed the Matter in Our Audit

We performed the following procedures, among others, to audit the impairment assessment of the CGUs noted above.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Group’s process over the impairment review assessment. We tested controls over the Group’s process for identifying and evaluating potential impairment indicators, the life of mine process, and management´s review of the significant assumptions, projected financial information and methodology used to develop such estimates. During our audit we evaluated and tested significant assumptions, judgments and operating data used in the Group’s analysis to determine the recoverable amounts.

We involved our valuation specialists to assist in comparing market based commodity price assumptions against market data including a range of analysts forecasts. We also involved our valuation specialists to evaluate the discount rates against current industry and economic trends as well as Group-specific risk premiums. We performed sensitivity analyses over changes in the discount rates and commodity price assumptions to the recoverable amounts of the CGUs.

To evaluate the estimated quantity of recoverable minerals used in the impairment analyses, we obtained reports from external specialists hired by management which validate the calculations performed by management’s qualified persons. In addition, we evaluated the competency and objectivity of the external specialists and management’s qualified persons through the consideration of their professional qualifications, experience and their use of accepted industry practices.

We evaluated other publicly available information that corroborated or contradicted the estimates of quantities of recoverable material determined by Management, or indicated that production from mineral interests will not likely occur or may be significantly reduced in the future. We also assessed the future cash flows by comparing forecasted commodity prices to available market information and future planned cash flows to internal business plans to assess the projected financial information. Furthermore, we evaluated management´s estimated quantities of recoverable minerals by comparing these estimates with the historical operating performance of the CGUs.

The estimated operating and capital costs as well as the future production levels used in the impairment analyses are based on life of mine plans. To assess the accuracy of the Group’s ability to estimate future costs and future production levels, we compared historical estimates against actual results and reviewed supporting analyses underlying the estimates used within the discounted cash flows. We also involved our valuation specialists to assist in comparing operating and capital costs against current market data and historical information relating to the performance of the CGUs.

Furthermore, we evaluated the Group’s disclosure of this matter in Note 2.4(n) and Note 11(b) to the consolidated financial statements.

Paredes, Burga & Asociados S. Civil de R.L.

A member practice of Ernst & Young Global Limited

 

/s/ Victor BurgaKatherine Villanueva

[We have served as the Group’sGroup‘s auditor since 20022002]

Lima, Peru

April 27, 2018

9, 2020

 F-4

Compañía de Minas Buenaventura S.A.A. and Subsidiaries

Consolidated statements of financial position

As of December 31, 20172019 and 20162018

 

  Note 2017  2016 
    US$(000)  US$(000) 
Assets          
Current assets          
Cash and cash equivalents 6 214,551  80,544 
Trade and other receivables, net 7(a)  306,884   269,089 
Inventories, net 8(a)  132,287   120,947 
Income tax credit    23,165   19,956 
Prepaid expenses 9  17,551   11,392 
Embedded derivatives for sale of concentrate, net 31(b)  7,424   - 
     701,862   501,928 
Non-current assets          
Trade and other receivables, net 7(a)  44,191   166,048 
Inventories, net 8(a)  3,238   14,027 
Income tax credit    3,413   3,660 
Investments in associates 10(a)  1,536,887   1,536,607 
Mining concessions, development costs, property, plant and equipment, net 11  1,949,555   1,960,025 
Investment properties, net 12  222   10,089 
Deferred income tax asset, net 27(b)  43,129   25,881 
Prepaid expenses 9  27,555   30,431 
Other assets    22,761   17,719 
     3,630,951   3,764,487 
Total assets    4,332,813   4,266,415 
           
Liabilities and shareholders’ equity, net          
Current liabilities          
Bank loans 13  96,215   55,000 
Trade and other payables 14(a)  233,355   273,440 
Provisions 15(a)  76,847   62,502 
Income tax payable    2,081   8,686 
Embedded derivatives for sale of concentrate, net 31(b)  -   1,524 
Financial obligations 16(a)  83,991   40,110 
Hedge derivative financial instruments 31(a)  28,705   3,863 
     521,194   445,125 
Non-current liabilities          
Trade and other payables 14(a)  663   15,982 
Provisions 15(a)  164,877   174,190 
Financial obligations 16(a)  549,092   552,232 
Contingent consideration liability 26(b)  17,570   19,343 
Deferred income tax liabilities, net 27(b)  15,790   12,330 
     747,992   774,077 
Total liabilities    1,269,186   1,219,202 
           
Shareholders ‘equity, net 17        
Capital stock    750,497   750,497 
Investment shares    791   791 
Additional paid-in capital    218,450   218,450 
Legal reserve    163,071   162,744 
Other reserves    269   269 
Retained earnings    1,728,847   1,690,123 
Other reserves of equity    (13,888)  (1,783)
Shareholders ‘equity, net attributable to owners of the parent    2,848,037   2,821,091 
Non-controlling interest 18(a)  215,590   226,122 
Total shareholders’ equity, net    3,063,627   3,047,213 
Total liabilities and shareholders’ equity, net    4,332,813   4,266,415 

  Notes 2019  2018 
     US$(000)  US$(000) 
Assets           
Current assets           
Cash and cash equivalents  6  210,046   369,200 
Trade and other receivables, net  7(a)  287,712   211,715 
Inventories, net  8(a)  97,973   135,919 
Income tax credit     31,919   24,396 
Prepaid expenses  9(a)  20,969   17,145 
Hedge derivative financial instruments  32  -   2,759 
      648,619   761,134 
Non-current assets           
Trade and other receivables, net  7(a)  88,515   40,593 
Inventories, net  8(a)  394   3,812 
Income tax credit     -   319 
Investments in associates and joint ventures  10(a)  1,488,247   1,473,382 
Mining concessions, development costs, right-of-use asset, property, plant and equipment, net  11(a)  1,754,372   1,847,615 
Investment properties, net     204   222 
Deferred income tax asset, net  28(b)  74,556   38,305 
Prepaid expenses  9(a)  25,692   26,578 
Other assets, net  12(a)  26,675   25,261 
      3,458,655   3,456,087 
Total assets     4,107,274   4,217,221 
           ��
Liabilities and shareholders’ equity, net           
Current liabilities           
Bank loans  13  55,000   95,000 
Trade and other payables  14(a)  166,244   188,084 
Provisions, contingent liabilities and other liabilities  15(a)  72,771   68,172 
Income tax payable     5,650   1,760 
Financial obligations  16(a)  265,692   46,166 
      565,357   399,182 
Non-current liabilities           
Trade and other payables  14(a)  616   639 
Provisions, contingent liabilities and other liabilities  15(a)  221,736   199,762 
Financial obligations  16(a)  305,996   540,896 
Contingent consideration liability  27(b)  16,410   15,755 
Deferred income tax liabilities, net  28(b)  28,959   31,422 
      573,717   788,474 
Total liabilities     1,139,074   1,187,656 
            
Shareholders’ equity, net  17        
Capital stock     750,497   750,497 
Investment shares     791   791 
Additional paid-in capital     218,450   218,450 
Legal reserve     163,168   163,115 
Other reserves     269   269 
Retained earnings     1,639,658   1,675,909 
Other reserves of equity     (1,311)  (703)
Shareholders ‘equity, net attributable to owners of the parent     2,771,522   2,808,328 
Non-controlling interest  18(a)  196,678   221,237 
Total shareholders’ equity, net     2,968,200   3,029,565 
            
Total liabilities and shareholders’ equity, net     4,107,274   4,217,221 

 F-5


Compañía de Minas Buenaventura S.A.A. and Subsidiaries

Consolidated statements of profit or loss

For the years ended December 31, 2019, 2018 and 2017  2016 and 2015

  Note 2017  2016  2015 
    US$(000)  US$(000)  US$(000) 
Continuing operations              
Operating income              
Net sales of goods 20(a) 1,223,942  1,015,670  846,269 
Net sales of services 20(a)  29,697   28,782   50,839 
Royalty income 29(a)  20,739   24,339   32,414 
Total operating income    1,274,378   1,068,791   929,522 
               
Operating costs              
Cost of sales of goods, excluding depreciation and amortization 21(a)  (627,433)  (497,812)  (513,490)
Cost of services, excluding depreciation and amortization 21(b)  (12,954)  (10,754)  (59,612)
Exploration in operating units 22  (94,928)  (96,149)  (89,699)
Depreciation and amortization    (213,722)  (192,647)  (232,583)
Mining royalties 23  (31,217)  (27,611)  (27,188)
Total operating costs    (980,254)  (824,973)  (922,572)
Gross profit    294,124   243,818   6,950 
               
Operating expenses, net              
Administrative expenses 24  (83,597)  (81,692)  (84,372)
Exploration in non-operating areas 25  (18,262)  (26,589)  (30,610)
Selling expenses    (24,088)  (21,733)  (19,365)
Impairment loss of long-lived assets 11(b)  (21,620)  -   (3,803)
Provision for contingences and others 15(c)  (13,879)  (565)  (395)
Write –off of stripping activity asset 11(e)  (13,573)  -   - 
Other, net    (13,589)  18,957   (5,340)
Total operating expenses, net    (188,608)  (111,622)  (143,885)
Operating profit (loss)    105,516   132,196   (136,935)
               
Other income (expense), net              
Share in the results of associates under equity method 10(b)  13,207   (365,321)  (173,375)
Finance income 26  5,517   6,830   11,026 
Net gain (loss) from currency exchange difference    2,928   2,638   (13,693)
Finance costs 26  (34,623)  (31,580)  (27,572)
Total other income (expenses), net    (12,971)  (387,433)  (203,614)
               
Profit (loss) before income tax    92,545   (255,237)  (340,549)
Income tax              
Current 27(c)  (23,837)  (39,444)  (14,222)
Deferred 27(c)  5,825   (14,060)  (541)
Profit (loss) from continuing operations    74,533   (308,741)  (355,312)
               
Discontinued operations              
Loss from discontinued operations 1(e)  (10,098)  (19,073)  (20,233)
Profit (loss)for the year    64,435   (327,814)  (375,545)
Attributable to:              
Owners of the parent    60,823   (323,492)  (317,210)
Non-controlling interest 18(a)  3,612   (4,322)  (58,335)
     64,435   (327,814)  (375,545)
Basic and diluted profit (loss) per share attributable to equity holders of the parent, stated in U.S. dollars 17(e)  0.24   (1.27)  (1.25)
Profit (loss) for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars 17(e)  0.28   (1.20)  (1.17)

            
  Notes 2019  2018  2017 
     US$(000)  US$(000)  US$(000) 
                
Continuing operations               
Operating income               
Net sales of goods  20(b)  821,930   1,106,329   1,187,206 
Sales of services  20(b)  23,661   24,001   29,697 
Royalty income  20(b)  22,297   20,385   20,739 
Total operating income     867,888   1,150,715   1,237,642 
                
Operating costs               
Cost of sales of goods, excluding depreciation and amortization  21(a)  (512,874)  (613,381)  (604,650)
Cost of sales of services, excluding depreciation and amortization  21(b)  (3,378)  (4,318)  (12,954)
Depreciation and amortization     (226,335)  (238,879)  (210,154)
Exploration in operating units  22  (44,163)  (89,730)  (89,311)
Mining royalties  23  (12,832)  (21,388)  (30,884)
Total operating costs     (799,582)  (967,696)  (947,953)
                
Gross profit     68,306   183,019   289,689 
                
Operating expenses, net               
Administrative expenses  24  (76,297)  (77,099)  (80,666)
Selling expenses  20(e)  (24,313)  (26,948)  (23,043)
Exploration in non-operating areas  25  (11,879)  (36,307)  (18,262)
Impairment recovery (loss) of long-lived assets  11(b)  (2,083)  5,693   (21,620)
Reversal (provision) of contingent and others     2,968   11,248   (13,740)
Write – off of stripping activity asset  11(g)  -   -   (13,573)
Other, net  26  (14,715)  (1,308)  (13,230)
Total operating expenses, net     (126,319)  (124,721)  (184,134)
                
Operating profit (loss)     (58,013)  58,298   105,555 
                
Other income (expense), net               
Share in the results of associates and joint ventures  10(b)  47,710   (1,144)  13,207 
Finance income  27  9,675   9,685   5,517 
Finance costs  27  (42,173)  (38,422)  (34,551)
Net gain (loss) from currency exchange difference     (734)  (1,384)  2,939 
Total other income (expenses), net     14,478   (31,265)  (12,888)
                
Profit (loss) before income tax     (43,535)  27,033   92,667 
                
Current income tax  28(c)  (11,911)  (16,882)  (23,713)
Deferred income tax  28(c)  37,501   (9,997)  5,825 
                
Profit (loss) from continuing operations     (17,945)  154   74,779 
                
Discontinued operations               
Net loss from discontinued operations attributable to equity holders of the parent  1(e)  (10,514)  (11,808)  (10,344)
                
Profit (loss) for the year     (28,459)  (11,654)  64,435 
                
Attributable to:               
Equity holders of the parent     (12,208)  (13,445)  60,823 
Non-controlling interest  18(a)  (16,251)  1,791   3,612 
                
      (28,459)  (11,654)  64,435 
                
Basic and diluted profit (loss) per share attributable to equity holders of the parent, stated in U.S. dollars  17(a)  (0.05)  (0.05)  0.24 

Profit (loss) for continuing operations, basic and diluted per share attributable to equity holders of the parent, expressed in US dollars

  17(e)  (0.01)  (0.02)  0.28 
 F-6


Compañía de Minas Buenaventura S.A.A. and Subsidiaries

Consolidated statements of other comprehensive income

For the years ended December 31, 2017, 20162019, 2018 and 2015 2017

  

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Net profit (loss) 64,435  (327,814) (375,545)
             
Other comprehensive profit (loss):            
Other comprehensive income to be reclassified to profit or loss in subsequent periods            
Net change in unrealized gain (loss) on cash flow hedges  (26,822)  (4,368)  (3,368)
Other items in associates  (427)  279   (546)
Income tax effect  7,963   (1,301)  3,372 
             
   (19,286)  (5,390)  (542)
Total other comprehensive profit (loss)  45,149   (333,204)  (376,087)
             
Attributable to:            
Equity holders of the parent  48,718   (327,515)  (316,725)
Non-controlling interests  (3,569)  (5,689)  (59,362)
             
   45,149   (333,204)  (376,087)

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
             
Net profit (loss)  (28,459)  (11,654)  64,435 
             
Other comprehensive profit (loss):            
Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods            
Net change in unrealized gain (loss) on cash flow hedges, note 32  (2,759)  31,464   (26,822)
Income tax effect  813   (9,916)  7,963 
Unrealized gain on investments, net of income tax effect  (291)  1,053   (427)
             
   (2,237)  22,601   (19,286)
             
Total other comprehensive profit (loss), net of income tax  (30,696)  10,947   45,149 
             
Attributable to:            
Equity holders of the parent  (12,816)  (260)  48,718 
Non-controlling interests  (17,880)  11,207   (3,569)
             
   (30,696)  10,947   45,149 

  

 F-7


Compañía de Minas Buenaventura S.A.A. and Subsidiaries


Consolidated statements of changes in equity


For the years ended December 31, 2019, 2018 and 2017 2016 and 2015

  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, 2015  253,715,190   750,497   1,396   219,055   162,710   269   2,328,423   1,755   3,464,105   298,020   3,762,125 
                                             
Net loss  -   -   -   -   -   -   (317,210)  -   (317,210)  (58,335)  (375,545)
Other comprehensive profit (loss)  -   -   -   -   -   -   -   485   485   (1,027)  (542)
Total other comprehensive profit (loss)  -   -   -   -   -   -   (317,210)  485   (316,725)  (59,362)  (376,087)
                                             
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   -   -   -   (10,488)  (10,488)
Expired dividends  -   -   -   -   4   -   -   -   4   -   4 
Other items  -   -   -   -   -   -   13,682   -   13,682   -   13,682 
As of December 31, 2015  253,715,190   750,497   1,396   219,055   162,714   269   2,024,895   2,240   3,161,066   228,170   3,389,236 
                                             
Net loss  -   -   -   -   -   -   (323,492)  -   (323,492)  (4,322)  (327,814)
Other comprehensive loss  -   -   -   -   -   -   -   (4,023)  (4,023)  (1,367)  (5,390)
Total other comprehensive loss  -   -   -   -   -   -   (323,492)  (4,023)  (327,515)  (5,689)  (333,204)
                                             
Change in non-controlling interest, note 18(a)  -   -   -   -   -   -   (3,659)  -   (3,659)  11,041   7,382 
Expired dividends  -   -   -   -   30   -   -   -   30   -   30 
Treasury shares, note 17(b)  -   -   (605)  (605)  -   -   -   -   (1,210)  -   (1,210)
Dividends declared and paid, note 17(d)  -   -   -   -   -   -   (7,621)  -   (7,621)  (7,400)  (15,021)
As of December 31, 2016  253,715,190   750,497   791   218,450   162,744   269   1,690,123   (1,783)  2,821,091   226,122   3,047,213 
                                             
Net profit  -   -   -   -   -   -   60,823   -   60,823   3,612   64,435 
Other comprehensive loss  -   -   -   -   -   -   -   (12,105)  (12,105)  (7,181)  (19,286)
Total other comprehensive 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)
Change in non-controlling interest, note 18(a)  -   -   -   -   -   -   -   -   -   (927)  (927)
Expired dividends  -   -   -   -   327   -   -   -   327   -   327 
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 

                        
  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, 2017  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 income  -  -  -  -  -  -  -  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 
Effect of new standards, note 2.3  -  -  -  -  -  -  (1,160) -  (1,160) (179) (1,339)
As of January 1, 2019  253,715,190  750,497  791  218,450  163,115  269  1,674,749  (703) 2,807,168  221,058  3,028,226 
Net profit (loss)  -  -  -  -  -  -  (12,208) -  (12,208) (16,251) (28,459)
Other comprehensive loss  -  -  -  -  -  -  -  (608) (608) (1,629) (2,237)
Total other comprehensive income (loss)  -  -  -  -  -  -  (12,208) (608) (12,816) (17,880) (30,696)
                                   
Dividends declared and paid, note 17(d)  -  -  -  -  -  -  (22,098) -  (22,098) (6,500) (28,598)
Change in investments, note 10(b)  -  -  -  -  -  -  (785) -  (785) -  (785)
Expired dividends, note 17(c)  -  -  -  -  53  -  -  -  53  -  53 
As of December 31, 2019  253,715,190  750,497  791  218,450  163,168  269  1,639,658  (1,311) 2,771,522  196,678  2,968,200 
 F-8


Compañía de Minas Buenaventura S.A.A. and Subsidiaries

Consolidated statements of cash flows

For the years ended December 31, 2019, 2018 and 2017 2016 and 2015

         
 Note 2017 2016 2015    2019  2018  2017 
   US$(000) US$(000) US$(000)   Notes US$(000)  US$(000)  US$(000) 
                       
Operating activities                            
Proceeds from sales   1,197,523  1,003,422  965,273      783,000   1,216,294   1,197,523 
Recovery from value added tax and other taxes    45,712   106,656   102,548 
Dividends received 29  9,823   142,340   6,691   30(a)  33,388   46,792   9,823 
Value added tax recovered    102,548   117,661   81,692 
Royalty received    21,565   25,961   38,983     23,001   20,013   21,565 
Interest received    3,169   2,140   3,650     4,265   2,383   3,169 
Proceeds from insurance claim  26(c)  -   38,793   - 
Payments to suppliers and third parties    (872,467)  (672,419)  (727,017)    (610,737)  (861,282)  (872,467)
Payments to employees    (160,891)  (138,113)  (175,329)    (137,300)  (151,602)  (160,891)
Payments for tax litigation  7(g)  (36,322)  -   - 
Interest paid    (30,402)  (34,138)  (21,518)    (28,266)  (27,699)  (30,402)
Income tax paid    (24,935)  (30,898)  (38,121)
Payments of mining royalties    (20,165)  (20,052)  (22,836)    (4,741)  (13,190)  (20,165)
Income tax paid    (38,121)  (35,401)  (22,330)
Net cash and cash equivalents provided by operating activities    212,582   391,401   127,259     47,065   346,260   212,582 
                            
Investing activities                            
Proceeds from collection of loan to an associate 29(d)  124,800   -   - 
Proceeds from sale of mining concessions, development costs, property, plant and equipment    1,962   7,180   5,481 
Proceeds from sale of concessions, development costs, property, plant and equipment to third parties    726   2,240   1,962 
Additions to mining concessions, development costs, property, plant and equipment 11  (259,507)  (366,834)  (211,286)  11(a)  (102,627)  (111,270)  (259,507)
Payments for acquisition of other assets    (5,405)  (5,222)  (10,238)  12(a)  (3,700)  (8,529)  (5,405)
Loans to associates 29(d)  -   -   (124,800)
Loans to third parties 7  -   -   (829)
Proceeds from collection of loan to an associate  30(a)  -   -   124,800 
Net cash and cash equivalents used in investing activities    (138,150)  (364,876)  (341,672)    (105,601)  (117,559)  (138,150)
                            
Financing activities                            
Proceeds from financial obligations 16(g)  80,000   275,210   296 
Proceeds from bank loans 13  341,215   200,500   344,503   13  55,000   95,000   341,215 
Payments of bank loans 13  (300,000)  (442,957)  (90,000)  13  (95,000)  (95,000)  (300,000)
Proceeds from financial obligations  16(f)  161,894   -   80,000 
Payments of financial obligations 16(g)  (32,599)  (33,476)  (29,891)  16(f)  (186,152)  (45,222)  (32,599)
Short-term lease payments  16(f)  (7,596)  -   - 
Dividends paid to controlling shareholders 17(d)  (22,099)  (7,621)  -   14(c)  (22,098)  (22,860)  (22,099)
Dividends paid to non-controlling shareholders 18(b)  (6,036)  (7,400)  (10,488)  17(d)  (6,500)  (5,560)  (6,036)
Increase of restricted bank accounts  7(e)  (166)  (410)  (285)
Acquisition of non-controlling interest 18(a)  (621)  (5,459)  -   18(a)  -   -   (621)
Increase of restricted bank accounts 7(e)  (285)  (2,087)  - 
Purchase of treasury shares 17(b)  -   (1,210)  - 
Net cash and cash equivalents provided by (used in) financing activities    59,575   (24,500)  214,420     (100,618)  (74,052)  59,575 
Increase in cash and cash equivalents for the year, net    134,007   2,025   7 
Increase (decrease) in cash and cash equivalents for the year, net    (159,154)  154,649   134,007 
Cash and cash equivalents at beginning of year    80,544   78,519   78,512     369,200   214,551   80,544 
Cash and cash equivalents at year-end    214,551   80,544   78,519      210,046   369,200   214,551 
                            
Financing and investing activities not affecting cash flows:                            
Changes in mine closures plans    10,593   34,532   74,907 
Contingent consideration liability    1,773   2,349   6,032 
Changes in estimates of mine closures plans  15(b)  26,722   42,874   10,594 
Accounts receivable from sale of assets    5,371   5,204   -   7(a)  21,648   2,715   5,371 
Fair value for contingent consideration liability  27(b)  (655)  1,815   1,773 

 

 F-9


Compañía de Minas Buenaventura S.A.A. and Subsidiaries

 

Notes to the consolidated financial statements

For the years 2017, 20162019, 2018 and 20152017

 

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"Group”) are principally engaged in the exploration, mining, concentration, smelting and marketing of polymetallic ores and metals.

 

The GroupCompany operates directly fivefour operating mining units in Peru (Uchucchacua, Orcopampa, Julcani Mallay and Tambomayo), twothree discontinued mining units (Poracota(Mallay, Poracota and Shila-Paula), and one mining unit under development stage (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.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 developedcarried out in Peru.

 

(c)Approval of consolidated financial statements -

The consolidated financial statements as of December 31, 20172019 were approved by the Audit Committee on April 27, 2018.

The consolidated financial statements as of December 31, 2016 were approvedand authorized for issue by the Board of Directors on February 28, 2017.April 9, 2020 and subsequent events have been considered through that date. They will then be presented for approval by the Company’s shareholders meeting. Those shareholders have the authority to approve and or otherwise modify the consolidated financial statements.

 

 F-10

Notes to the consolidated financial statements(continued)

 

(d)The consolidated financial statements include the financial statements of the following subsidiaries:

 

    Ownership 
  Country of
incorporation
and business
 December 31, 2017  December 31, 2016 
    Direct  Indirect  Direct  Indirect 
    %  %  %  % 
Mining activities:                  
Compañía Minera Condesa S.A. Peru  100.00   -   100.00   - 
Compañía Minera Colquirrumi S.A. Peru  100.00   -   100.00   - 
Sociedad Minera El Brocal S.A.A. (*) Peru  3.18   58.24   3.08   58.24 
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 
Minera La Zanja S.R.L. Peru  53.06   -   53.06   - 
Minera Julcani S.A. de C.V. Mexico  99.80   0.20   99.80   0.20 
Compañía de Minas Buenaventura Chile Ltda. Chile  90.00   10.00   90.00   10.00 
El Molle Verde S.A.C. Peru  99.98   0.02   99.98   0.02 
Apu Coropuna S.R.L. Peru  70.00   -   70.00   - 
Cerro Hablador S.A.C. Peru  99.00   1.00   99.00   1.00 
Minera Azola S.A.C. Peru  99.00   1.00   99.00   1.00 
Compañía Minera Nueva Italia S.A. Peru  -   93.36   -   93.36 
                   
Energy generation and transmission services:                  
Consorcio Energético de Huancavelica S.A. 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 
                   
Construction, engineering services and insurance brokerage:                  
Buenaventura Ingenieros S.A. Peru  100.00   -   100.00   - 
Contacto Corredores de Seguros S.A. Peru  99.98   0.02   99.98   0.02 
BISA Argentina S.A. (before Minera San Francisco S.A.) Argentina  56.42   43.58   56.42   43.58 
Contacto Risk Consulting S.A. Peru  -   98.00   -   98.00 
                   
Industrial activities:                  
Procesadora Industrial Río Seco S.A. Peru  100.00   -   100.00   - 

  Country of Ownership as of December 31, 
  incorporation and 2019  2018 
  business Direct  Indirect  Direct  Indirect 
    %  %  %  % 
Mining activities:                  
Compañía Minera Condesa S.A. Peru  100.00   -   100.00   - 
Compañía Minera Colquirrumi S.A. Peru  100.00   -   100.00   - 
Sociedad Minera El Brocal S.A.A. (*) Peru  3.19   58.24   3.19   58.24 
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 
Minera La Zanja S.R.L. Peru  53.06   -   53.06   - 
Minera Julcani S.A. de C.V. Mexico  99.80   0.20   99.80   0.20 
Compañía de Minas Buenaventura Chile Ltda. Chile  90.00   10.00   90.00   10.00 
El Molle Verde S.A.C. Peru  99.98   0.02   99.98   0.02 
Apu Coropuna S.R.L. Peru  70.00   -   70.00   - 
Cerro Hablador S.A.C. Peru  99.00   1.00   99.00   1.00 
Minera Azola S.A.C. Peru  99.00   1.00   99.00   1.00 
Compañía Minera Nueva Italia S.A. Peru  -   93.36   -   93.36 
                   
Energy generation and transmission services:                  
Consorcio Energético de Huancavelica S.A. Peru  100.00   -   100.00   - 
Empresa de Generación Huanza S.A. Peru  -   100.00   -   100.00 
                   
Insurance brokerage:                  
Contacto Corredores de Seguros S.A. Peru  99.98   0.02   99.98   0.02 
Contacto Risk Consulting S.A. Peru  -   98.00   -   98.00 
                   
Industrial activities:                  
Procesadora Industrial Río Seco S.A. Peru  100.00   -   100.00   - 

 

(*)As of December 31, 20172019 and 2016,2018, the participation of the Company in the voting rights of El Brocal is 61.42 and 61.32 percent, respectively.61.43 percent. Inversiones Colquijirca S.A. (hereafter “Colquijirca”), a Group’s subsidiary (99.99 percent as of December 31, 20172019 and 2016)2018), has an interest in El Brocal’s capital stock, through which the GroupCompany holds an indirect participation in El Brocal of 58.24 percent as of December 31, 20172019 and 2016.

 F-11

Notes to the consolidated financial statements (continued)

(**)On December 29, 2016, the Board of Directors’ and Shareholders’ Meetings of Consorcio Energético de Huancavelica S.A. and Empresa de Generación Huaura S.A.C. approved the merger between these subsidiaries whereby Consorcio Energético de Huancavelica S.A. absorbed Empresa de Generación Huaura S.A.C. This merger had not effects in the consolidated financial statements.2018.

 

(e)Discontinued operations -

During 2019, the Group decided to classify its Mallay mining unit as discontinued. According to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, the Group reclassified revenues and expenses related to this mining unit for the years 2018 and 2017 to the “Net loss from discontinued operations attributable to equity holders of the parent” caption.

During 2017, the Group sold the Breapampa and Recuperada mining units for US$22.0 million and US$0.6 million, respectively. As a result of such sales, the Group recorded reversals of the provision of impairment loss of long-lived assets and costs for sales of assets and supplies, which originated a net loss of US$4,050,000.4.0 million.

 


During 2016,Notes to the Group sold the Antapite mining unit for US$1,003,000, which resulted in a net loss of US$3,014,000.consolidated financial statements(continued)

 

During 2017, as a result of the sales in 2017 and 2016, the GroupCompany received the confirmation from the Ministry of Energy and Mines of the transfer of its obligation for closure of mining units, which generated a reversal of US$11,770,000.11.8 million.

 

The net cash flows used by the mining units with discontinued operations for the years 2017, 2016 and 2015, are presented below:

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Operating activities  (8)  (7)  (8)
Investing activities  -   -   (6)
Financing activities  -   -   - 
Net decrease in cash and cash equivalents during the year  (8)  (7)  (14)

 F-12

Notes to the consolidated financial statements (continued)

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Operating activities  (2)  1,800   1,732 
Investing activities  -   (1,817)  (1,796)
             
Decrease in cash and cash equivalents for the year  (2)  (17)  (64)

 

The results of the discontinued operations mining units for the years 2017, 20162019, 2018 and 20152017 are presented below:

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
Operating income            
Net sales -  1,149  22,740 
            
Total income  -   1,149   22,740 
             
Operating costs            
Cost of sales, excluding depreciation and amortization  -   (4,842)  (19,540)
Exploration  -   (3,777)  (1,847)
Depreciation and amortization  -   (5,049)  (9,882)
Mining royalties  -   (11)  (223)
             
Total operating costs  -   (13,679)  (31,492)
             
Gross loss  -   (12,530)  (8,752)
Operating income (expenses), net            
Net loss in sale of mining units  (18,550)  (3,014)  - 
Changes in provision for closure of mining units, note 15(b)  (12,701)  (3,365)  (45)
Administrative expenses  (941)  (111)  (2,234)
Reversal (provision) for contingencies  (423)  901   (381)
Gain (loss) for sale in other assets  (162)  3,200   - 
Reversal of Impairment loss of long-lived assets for sale of mining units and other assets, note 11(a)  17,197   -   - 
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(b)  1,345   706   1,474 
Impairment loss of long-lived assets, note 11(b)  -   (2,043)  (7,452)
Other, net  (6,871)  (1,793)  (2,079)
             
Total operating expenses, net  (9,406)  (5,519)  (10,717)
             
Operating loss  (9,406)  (18,049)  (19,469)
             
Other income (expense), net            
Finance costs, note 15(b)  (694)  (970)  (890)
Net gain (loss)  from currency exchange difference  2   (50)  129 
             
Total other expenses, net  (692)  (1,020)  (761)
             
Loss before income tax  (10,098)  (19,069)  (20,230)
Income tax  -   (4)  (3)
             
Loss from discontinued operations  (10,098)  (19,073)  (20,233)
             
Loss from the discontinued operations, per basic and diluted share, express in U. S. dollars  (0.04)  (0.07)  (0.08)
  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Net sales  97   16,666   36,736 
Cost of sales  (2)  (15,261)  (32,301)
Gross profit  95   1,405   4,435 
             
Operating income (expenses), net            
Administrative expenses  (8,048)  (1,661)  (3,872)
Changes in provision for closure of mining units, note 15(b)  (1,912)  (6,013)  (12,701)
Reversal (provision) for impairment of inventories, note 8(c)  (320)  -   1,345 
Reversal (provision) for contingencies  (134)  (9)  (562)
Derecognition of long-lived assets  (44)  (5,100)  - 
Net loss in sale of mining units  -   -   (18,550)
Reversal of Impairment loss of long-lived assets, note 11(b)  -   2,837   17,197 
Reversal of provision for closure of mining units for sale of mining units  -   -   11,700 
Others, net  117   (3,162)  (8,438)
Total operating expenses, net  (10,341)  (13,108)  (13,881)
             
Operating loss  (10,246)  (11,703)  (9,446)
Other income (expense), net            
Finance costs, note 15(b)  (266)  (88)  (766)
Net gain (loss) from currency exchange difference  (2)  30   (10)
Total other expenses, net  (268)  (58)  (776)
             
Loss before income tax  (10,514)  (11,761)  (10,222)
Income tax  -   (47)  (122)
             
Loss from discontinued operations  (10,514)  (11,808)  (10,344)
             
Loss from the discontinued operations, per basic and diluted share, express in U. S. dollars  (0.04)  (0.03)  (0.04)

 

 F-13

Notes to the consolidated financial statements(continued)

 

2.Basis for preparation, consolidation and accounting policies

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.value and discontinued operations that have been valued at the lower of (i) their carrying amount and (ii) its fair value less cost to sell.

 

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 note 3.

 

These consolidated financial statements provide comparative information in respect of prior periods.

 

2.2.Basis of consolidation -

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries to the date of the consolidated statements of financial position.

 

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

 

-Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).

-Exposure, or rights, to variable returns from its involvement with the investee.

-The ability to use its power over the investee to affect its returns.

 

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

-The contractual arrangement with the other vote holders of the investee.

-Rights arising from other contractual arrangements.

-The Group’s voting rights and potential voting rights or a combination of rights.


Notes to the consolidated financial statements(continued)

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

 F-14

Notes to the consolidated financial statements (continued)

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the Parentparent 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.

 

If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.

2.3.Changes in accounting policies and disclosures -

Certain

The Group applied the following standards and amendments appliedfor the first time for their annual reporting period commencing January 1, 2019:

-IFRS 16 Leases,

-Interpretation 23 Uncertainty over Income Tax Treatments,

-Annual Improvements to IFRS Standards 2015 – 2017 Cycle.

The Group had to change its accounting policies as a result of adopting IFRS 16. The other amendments listed above did not have any impact on the amounts recognized in prior periods.

Several other amendments and interpretations apply for the first time in 2017; however, they did2019; but do not have materialan impact on the annual consolidated financial statements of the Group and therefore, have not been disclosed. The Group has not early adopted any other standard, interpretationstandards, interpretations or amendmentamendments that hashave been issued but isare not yet effective.


Notes to the consolidated financial statements(continued)

IFRS 16 Leases -

The Group adopted IFRS 16 Leases from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening statement of financial position as of January 1, 2019.

On adoption of IFRS 16, the Group recognized lease liabilities in relation to leases that had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019 (the weighted average incremental borrowing rate at transition was 5% per annum). The effect of adopting IFRS 16 is as follows:

Impact on the consolidated statement of financial position (increase / (decrease)) –

  As of
December 31,
2019
  As of
January 1,
2019
 
   US$(000)   US$(000) 
         
Assets        
Mining concessions, development costs, right-of-use asset, property, plant and equipment, net  6,185   18,528 
Deferred income tax asset, net  390   400 
Total assets  6,575   18,928 
         
Liabilities        
Financial obligations  7,503   19,885 
Total liabilities  7,503   19,885 
         
Shareholders’ equity, net        
Retained earnings  (928)  (957)
Total shareholders’ equity, net  (928)  (957)

Impact on the consolidated statement of profit or loss (income / (expense)) -

As of
December 31,
2019
US$(000)
Operating costs
Cost of sales of goods, excluding depreciation and amortization5,991
Depreciation and amortization(6,751)
Total operating costs(760)
Operating profit
Administrative expenses272
Others, net155
Total operating profit427
Other income (expense), net
Finance costs379
Profit (loss) before income tax46


Notes to the consolidated financial statements(continued)

Impact on the consolidated statement of cash flows (increase / (decrease)) -

2019
US$(000)
Short-term and low-value lease payments(24,175)
Net cash flows used in operating activities(24,175)
Short-term lease payments(7,596)
Net cash flows used in financial activities(7,596)

Practical expedients applied -

In applying IFRS 16 for the first time, the Group used the following practical expedients permitted by the standard: i) applying a single discount rate to a portfolio of leases with reasonably similar characteristics, ii) accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019 as short-term leases, iii) using hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The Group also elected the transition practical expedient to not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4.

Below is a reconciliation between the balance of assets and liabilities as of January 1, 2019 under IFRS 16 compared with operating leases under IAS 17 as of December 31, 2018:

US$(000)
Operating lease commitments disclosed as of December 31, 20187,330
New operating leases commitments under IFRS 1616,221
Exceptions:
-           Short-term leases not recognized as a liability(547)
-           Low-value leases not recognized as a liability(3,119)
Additional lease liability recognized as of January 1, 201919,885
Plus: Lease liability already recognized as of December 31, 2018241,653
Lease liability as of January 1, 2019261,538

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17, therefore the Group did not need to adjust the accounting for assets held as lessor under operating leases, as a result of the adoption of IFRS 16.


Notes to the consolidated financial statements(continued)

Interpretation 23 Uncertainty over Income Tax Treatments

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. It 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 specifically addresses the following:

-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; and

-How an entity considers changes in facts and circumstances

The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.

The Group applies significant judgement in identifying uncertainties over income tax treatments. The Group assessed whether the Interpretation had an impact on its consolidated financial statements. Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions and concluded that it is probable that the taxation authorities will accept its tax treatments.

The effect of adopting IFRIC 23 is a follow:

Impact on the consolidated statement of financial position (increase / (decrease)) –

  As of
December 31,
2019
  As of
January 1,
2019
 
   US$(000)   US$(000) 
         
Liabilities        
Income tax payable  382   382 
Total liabilities  382   382 
         
Shareholders’ equity, net        
Retained earnings  (382)  (382)
Total shareholders’ equity, net  (382)  (382)


Notes to the consolidated financial statements(continued)

Annual Improvements to IFRS Standards 2015 – 2017 Cycle

-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 to fair value. 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 did not have an impact on the consolidated financial statements of the Group, as there was no transaction in the year where joint control was obtained.

-IFRS 11 Joint Arrangements

An entity 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 the entity 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 did not have an impact on the consolidated financial statements of the Group, as there was no transaction in the year where joint control was obtained in relation of an arrangement the Group previously participated in.

-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 it originally recognized those past transactions or events.

An entity applies the amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted. When the 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.

Since the Group’s current practice is in line with these amendments, they had no impact on the consolidated financial statements of the Group.

F-20 

Notes to the consolidated financial statements(continued)

-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. The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which it first applies those amendments. The 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 the amendments, they had no impact on the consolidated financial statements of the Group.

 

2.4.Summary of significant accounting policies -

(a)Foreign currencies -

The Group´s consolidated financial statements are presented in US dollars, which is also the Group’sparent company’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. For consolidation purposes, each entity presents its financial statements in US dollars.

 

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

Differences arising from the settlement or translation of monetary assets and liabilitiesitems are recognized in profit or loss with the consolidated statementsexception of monetary items that are designated as part of a hedge. These are recognized in other comprehensive income (OCI) until the hedge items is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recognized in OCI.

 

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-15

Notes to the consolidated financial statements(continued)

 

(b)Financial instruments - Initial recognition and subsequent measurement -

Initial recognition and subsequent measurement -

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

(i)Financial assets -

Initial recognition and measurement -

Financial assets are classified, at initial recognition, as financial assetssubsequently measured at amortized cost, fair value through 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 amortized cost or fair value through OCI, it needs to give rise to cash flows that are attributable“solely payments of principal and interest (SPPI) ¨ 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 period established by regulation or convention in the market place (regular way trades) are recognized on the trade date.

 

Subsequent measurement -

For purposes of subsequent measurement, financial assets are classified in fourthe following categories:

 

-Financial assets at amortized cost.

-Financial assets at fair value through OCI.

-Financial assets at fair value through profit or loss.

F-22 

Notes to the consolidated financial statements(continued)

Financial assets at amortized cost -

The Group 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 included in the “Trade and other receivables, net” caption.

Financial assets at fair value through OCI -

Financial assets are classified and measured at fair value through OCI 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 amortized 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.

 

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 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 recognized in the consolidated statements of profit or loss.

 F-16

F-23 

 

Notes to the consolidated financial statements(continued)

 

This category generally applies to the trade receivables included in the “Trade and other receivables, net.net” caption.

 

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, 2017 and 2016.

Available-for-sale financial assets -

The available-for-sale financial assets include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions. The Group did not have these financial assets as of December 31, 2017 and 2016.

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 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,recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at each reporting date, whetherfair 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 Group 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.

ECLs 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.default (a lifetime ECL).

 

 F-17

Notes to the consolidated financial statements(continued)

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 financialtrade receivables and contract assets, carried at amortized cost, the Group first assesses whether impairment existsapplies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes 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 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 lossGroup considers a financial asset in default when contractual payments are past due according to each contract. However, in certain cases, the impairment identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discount at theGroup 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 profit or loss. Interest income (recorded as revenue in the statements of profit or loss) continues to be accrued onin default when internal or external information indicates that the reduced carrying amount andGroup 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 areGroup. 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 Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the consolidated statements of profit or loss.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

Hedge derivative financial instruments.

 

Notes to the consolidated financial statements (continued)

Subsequent measurement-

The measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or loss -

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

 

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IAS 39.IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.


Notes to the consolidated financial statements(continued)

 

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 liabilities for contingent consideration liability in this category.as at fair value through profit or loss.

 

LoansFinancial liabilities at amortized cost (loans and borrowingsborrowings) -

After initial recognition, interest-bearing loans and borrowing are subsequently measured at amortized cost using the effective interest rate method.method (EIR). Gains and losses are recognized in the consolidated statements of profit and costor loss when the liabilities are derecognized as well as through the EIR amortization process.

 

Amortized cost is calculated by 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 methodEIR. EIR amortization is included as financial costsin the “Financial costs” caption 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.

 

 F-19

Notes to the consolidated financial statements (continued)

(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.

 

(c)Cash and cash equivalents -

Cash and cash equivalentsequivalents” caption presented in the consolidated statements of financial position comprise cash at banks and on hand.hand, and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to known amount of cash and 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 termshort-term deposits with a maturityas defined above, net of three months or less, whichoutstanding bank overdrafts as they are subjectconsidered an integral part of the Group’s cash management.


Notes to an insignificant risk of changes in value.the consolidated financial statements(continued)

 

(d)Inventories -

Materials and supplies

Inventories 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.non-current.

 

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)(or reversal) for losses on the net realizable value are calculated based on a specific analysis conducted annually by the Management and is charged to incomeprofit or loss in the period in which it determines the need for the provision (reversal)(or reversal).

Any provision for obsolescence of spare parts and supplies is determined by reference to specific items of stock based on inventory turnover level. A regular review is undertaken to determine the extent of any provision for obsolescence.

 

(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.“Administrative expenses” caption.

 

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 includesinclude the separation of embedded derivatives in host contracts by the acquiree.

 F-20

Notes to the consolidated financial statements (continued)

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.acquire.

 

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-measured and subsequent settlement is accounted for within equity.fair value recorded in the consolidated statement of profit or loss.


Notes to the consolidated financial statements(continued)

 

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 or 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, 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)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.

 

 F-21

Notes to the consolidated financial statements(continued)

 

The consolidated statement of profit or loss reflects the Group’s share of the results of operations of the associates.

associates and joint ventures. Any change in other comprehensive incomeOCI 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 in the associates.associates and joint ventures.

 

The financial statements of the associates 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.associates and joint ventures. At each reporting date, the Group determines whether there is objective evidence that the investments in the associates 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.

 

(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. The capitalized value of a finance lease is also included in this caption.

 

 F-22

Notes to the consolidated financial statements(continued)

 

When significant parts of property, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Also,In addition, when a major inspection is performed, its cost is recognized in the carrying amount of plant and equipment as a replacement if the recognition criteria are satisfied. All other maintenance and repair costs are recognized in the consolidated statement of profit or loss as incurred.

 

Depreciation-

Unit-of-production method:

In mining units with long useful 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 andto 20
Machinery and equipmentBetween 5 andto 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,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.

 


Notes to the consolidated financial statements(continued)

(i)Leases -

The determination ofGroup assesses at contract inception whether an arrangementa contract is, or contains, a leaselease. That is, based onif the substance ofcontract conveys the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent onright to control the use of an identified asset for a specific asset orperiod in exchange for consideration.

Group as a lessee -

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets andrepresenting the arrangement conveys a right to use the underlying assets.

i)Right-of-use assets -

The Group recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the related assets.

If ownership of the leased asset transfers to the Group at the end of the lease term or assets, eventhe cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

ii)Lease liabilities -

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate.

Variable lease payments that right isdo not explicitly specifieddepend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs. The Group do not have variable lease payments that do depend on an arrangement.index or a rate.


Notes to the consolidated financial statements(continued)

  F-23

 

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset.

The Group’s lease liabilities are included “Financial obligation” caption.

iii)

Short-term leases and leases of low-value assets -

The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment without renew option. It also applies the lease of low-value assets recognition exemption to leases of office equipment, which are considered low value. Lease payments on short-term leases and leases of low value assets are recognized as expense on a straight-line basis over the lease term.

Group as a lessor –

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in “Other, net” in the statement of profit or loss due to its operating nature. Initial direct costs 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.

(j)

Mining concessions -

Mining concessions represent ownership of the right of exploration and exploitation to the Group on mining properties that contains ore reserves acquired. 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 granted and achievement of minimum annual production for each hectare. Mining concessions are stated at cost and are amortized on units of production method, using as the basis 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 probable of economic extraction at the time of a business combination.

At year-end, the Group evaluates if there is any indicator of impairment. If any indicator exists, the Group estimates the mining concession’s recoverable amount.

F-32 

 

 

Notes to the consolidated financial statements(continued)

Group as a lessee -

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risk and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the consolidated statements of profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognized as operating expenses in the consolidated statements of profit or loss on a straight-line basis over the lease term.

Group as a lessor -

Leases in which the Group does not transfer substantially all the risk and rewards of ownership of an asset are classified as operating leases.

Initial direct cost incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

(j)

Mining concessions -are presented in the caption of “Mining concessions, development costs, right-of-use asset, property, plant and equipment, net”.

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 a business combination.

At end of each year, the Group evaluates if there is any indicator. If any impairment indicator exists, the Group estimates the asset’s recoverable amount.

 F-24

Notes to the consolidated financial statements (continued)

Mining concessions are presented in the caption of mining concessions, development costs, property, plant and equipment, net.

 

(k)

Exploration and mine development costs -

Exploration costs -

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 costs -

Exploration costs are expensed as incurred. These costs primarily include materials and fuels used, surveying costs, drilling costs and payments made to the contractors.

Exploration and evaluation activity includes:

 

-

-

Researching and analyzing historical exploration data.

-

-

Gathering exploration data through geophysical studies.

-

-

Exploratory drilling and sampling.

-

-

Determining and examining the volume and grade of the resource.

-

-

Surveying transportation and infrastructure requirements.

-

-

Conducting market and finance studies.

Development costs –

When the Group’s Management approves the feasibility of the conceptual study of a project, the costs incurred to develop such property, including additional costs to delineate the ore body and remove impurities it contains, are capitalized as development costs under the caption mining concessions, development costs and property, plant and equipment, net. These costs are amortized when production begins, on the units-of-production basis over the proven and probable reserves.

The development costs include:

 

-

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 “Mining concessions, development costs, right-of-use asset, property, plant and equipment, net” caption. These costs are amortized when production begins, on the units-of-production basis over the proven and probable reserves.

The development costs include:

-

Metallurgical and engineering studies.

-

-

Drilling and other costs necessary to delineate ore body.

-

-

Removal of the initial clearing related to an ore body.

Development costs necessary to maintain production are expensed as incurred.

 

(l)

Development costs necessary to maintain production are expensed as incurred.

(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.

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-25

Notes to the consolidated financial statements(continued)

-

Stripping costs incurred during the production phase (production stripping costs) are generally considered to create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realized in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where the benefits are realized in the form of improved access to ore to be mined in the future, the costs are recognized as a non-current asset, referred to as a stripping activity asset, if the following criteria are met:

-

Future economic benefits are probable.

-

-

The component of the ore body for which access will be improved can be accurately identified.

-

-

The costs associated with the improved access can be reliably measured.

To identify components of deposit, the Group works closely with the operating personnel to analyze the mine plans. Mostly, an ore body can have several components. The mine plans, and therefore, the identification of components, will vary among mines for a number of reasons.

The stripping activity asset is initially measured at cost, which surges from an accumulation of costs directly incurred during the stripping activity. The production stripping cost 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)

To identify components of mineral 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 is 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, right-of-use asset, property, plant and equipment, net” caption 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 when either 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 derecognition of investment property is determined in accordance with the requirements for determining the transaction price in IFRS 15.

Investment properties are measured at cost, net of accumulated depreciation and impairment loss, if any.F-34 

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.

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)

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.

(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 (i) an asset’s or cash-generating unit’ (CGU) fair value less costs of disposal and (ii) its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a post-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 limited to the live of the mine.

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 non-financial 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.

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit' (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.F-35 

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less cost of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.

Impairment losses of continuing operations, including impairment of inventories, are recognized in the consolidated statements of profit or loss in expense categories consistent with the function of the impaired asset.

For assets in general, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses may no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset 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)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-27

 

 

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.

(p)

Treasury shares

(o)

Provisions -

General-

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

Provision for closure of mining units-

The Group records a provision for closure of mining units when a legally enforceable obligation arises, which is independent of the full depletion of the mine reserves.

The Group recognizes a provision for closure of mining units once the obligation has been properly measured. The liability is initially recognized at the present value of the estimated costs and is capitalized as part of the carrying amount of the related mining assets (property, plant and equipment). 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 closure or changes to the estimated future costs are dealt with prospectively by recognizing an adjustment to the provision for closure and a corresponding adjustment to the related mining asset. Any reduction in the provision for closure and, therefore, any deduction from the mining asset to which it relates, may not exceed the carrying amount of the mining 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 provision for closure and, therefore, an addition to the carrying value of the mining asset, the Group considers whether this is an indication of impairment of the asset as a whole, and if so, the Group performs an impairment test.

For closed mines, changes to estimated costs are immediately recognized in the consolidated statements of profit or loss.

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized as additional capital in equity. The voting rights related to treasury shares are cancelled for the Group and no dividends on such shares are allocated.F-36 

(q)Revenue recognition -

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be 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:

Sales of concentrates and metals -

Revenue from sale of concentrates and metals is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods, based on the commercial terms agreed.

 F-28

 

 

Notes to the consolidated financial statements(continued)

Contract terms for the Company’s sale of metal in concentrate to customers allow for a price adjustment based on final assay results of the metal in concentrate by the customer to determine the final content. These are referred to as provisional pricing arrangements and are such that the selling price for metal in concentrate is based on prevailing spot prices on a specified future date after shipment to the customer (the quotation period). Adjustments to the sales price occurs based on movements in quoted market prices up to the date of final settlement. The period between provisional invoicing and final settlement can be between one and six months.

Sales contracts for metal in concentrate that have provisional pricing features are considered to contain an embedded derivative, which is required to be separated from the host contract for accounting purposes. The host contract is the sale of metals in concentrate, and the embedded derivative is the forward contract for which the provisional sale is subsequently adjusted with final liquidations. The embedded derivative is originated by the metals prices since the date of issuance of issuance of the provisional liquidation until the date of issuance of the final liquidation.

The embedded derivative, which does not qualify for hedge accounting, is initially recognized at fair value with subsequent changes in the fair value recognized in the consolidated statements of profit or loss until final settlement, and presented as part of net sales. Changes in fair value over the quotation period and up until final settlement are estimated by reference to forward market prices.

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 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.

 F-29

(p)

Treasury shares -

The Group´s 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.

(q)

Revenue recognition -

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 Group expects to be entitled in exchange for those goods and services.

The Group has concluded that it is the principal in its revenue contracts because it typically controls the goods before transferring them to the customer.

The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in Note 3.

Net sales of goods (concentrates and metals) -

Revenue from sale of concentrates and metals is recognized at the point in time when control of the asset is transferred to the customer, on delivery of the goods, including transportation. The normal credit term is 30 to 90 days upon delivery.

The 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 considers 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 customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal for revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

F-37 

 

 

Notes to the consolidated financial statements(continued)

Rental income -

Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term and is included in revenue in the consolidated statement of profit or loss due to its operating nature.

(r)

Benefits

The Group´s sales of concentrates and metal allow for price adjustments based on the market price at the end of the relevant quotation period (QP) stipulated in the contract. These are referred as to employeesprovisional 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.

Sales of concentrates and metals at provisionally prices include a gain (loss) to be received at the end of QP; this is considered a variable consideration. Changes in the price during the quotation period are recognized in the “Net sales of goods” caption as fair value of accounts receivables.

For provisional pricing arrangements, any future change that occur over the QP are embedded within the provisionally price 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 cashflow characteristics test within IFRS 9 and will be required to be measured at fair value through profit or loss from initial recognition and until the date of settlement. The subsequent changes in fair value are recognized in the consolidated statements of profit or loss each period and presented separately from revenue from contracts with customer as part of “fair value gain/losses on provisionally priced trade receivables”. 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 set out in IFRS 13, including interest rate and credit risk adjustments.

Revenue is recognized at the amount the Group expects to be entitled. The estimate of the price expected to be received at the end of the QP is generally the month of, the month before, or the month following the scheduled month of shipment or delivery according to the terms of the contracts, 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.

Sales of services -

Services are recognized over time because the customer simultaneously receives and consumes the benefits provided by the Group. For measuring progress of the services, the Group used the output method in measuring progress of the services due to the Group has the right to invoice an amount that corresponds directly to the performance completed to date.

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.F-38 

Workers’ profit sharing

The Group recognizes workers’ profit sharing in accordance with IAS 19, “Employees Benefits". Workers' profit sharing is calculated in accordance with the Peruvian law (Legislative Decree No. 892), and the applicable rate is 8% over the taxable net base of current year. According to Peruvian law, the limit in the workers' profit sharing that an employee can receive is equivalent to 18 months of wages, and any excess above such limit has be transferred to the Regional Government and “National Fund for Employment’s Promotion and Training” (“FONDOEMPLEO”).

(s)Borrowing costs -

Costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as finance part of the cost of an asset. A qualifying asset is one whose value is greater than US$5 million and requires a longer period to 12 months to get ready for its intended use. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.

(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.

 F-30

 

Notes to the consolidated financial statements(continued)

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 period between the transfer of the promised good to the customer and 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 customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional.

Trade receivables

A receivable represents the Group´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 Group has received consideration (or an amount of consideration is due) from the customer. If customer pays consideration before the Group transfer 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 recognized as revenue when the Group performs under the contract.

Cost to obtain a contract

The Group pays sales commissions as part of the sales of services in the insurance 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 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.

F-39 

 

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 recognizedNotes 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.consolidated financial statements(continued)

Royalty income-

The royalty income is recognized when the later of the following events occurs: the subsequent sales occur or the performance obligation is satisfied (or partially satisfied).

Dividends-

Revenue is recognized when the Group’s right to receive the payment is established, which is generally, when shareholders approve the dividend.

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 “Other, net” in the consolidated statement of profit or loss due to its operating nature.

(r)

Benefits to employees -

Salaries and wages, bonuses and vacations are calculated in accordance with IAS 19 “Employee Benefits” and are calculated in accordance with current Peruvian legislation based on the accrual basis.

Workers’ profit sharing -

The Group recognizes workers’ profit sharing in accordance with IAS 19 “Employees Benefits”. Workers’ profit sharing is calculated in accordance with the Peruvian law (Legislative Decree No. 892), and the applicable rate is 8% over the taxable net base of current year. According to Peruvian law, the limit in the workers’ profit sharing that an employee can receive is equivalent to 18 months of wages, and any excess above such limit has be transferred to the Regional Government and “National Fund for Employment’s Promotion and Training” (“FONDOEMPLEO”).

(s)

Borrowing costs -

Costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as finance part of the cost of an asset. The Group defines a qualifying asset as one which 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.

(t)

Taxes-

Current income tax -

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid or the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting period.

Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

F-40 

 

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced

Notes to the consolidated financial statements(continued)

Deferred income tax -

Deferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred income tax liabilities are recognized for all taxable temporary differences, except for taxable temporary differences associated with investments in associates, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the near future.

Deferred income tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax items are recognized in correlation to the underlying transaction either in profit and loss, OCI or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to compensate current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Peruvian mining royalties and special mining tax –

In accordance with Law No.28258, as amended by Law No. 29788, mining royalties are either payable as the higher of as a specified percentage of operating profit or 1% of revenues. If the mining royalty is calculated as a percentage of operating profit, marginal rates ranging from 1% to 12% that increase progressively for companies with higher operating margins will apply.


Notes to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.consolidated financial statements(continued)

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right to compensate current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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 tax 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.

 

 F-31

Notes to the consolidated financial statements (continued)

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.

 

(u)Fair value measurement -

The Group measures its financial instruments such as, derivatives and embedded derivatives, at fair value at the date of the consolidated statements of financial position.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

-In the principal market for the asset or liability, or

-In the absence of a principal market, in the most advantageous market for the asset or liability.

 

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.


Notes to the consolidated financial statements(continued)

 

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described, as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

-Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

-Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

-Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 F-32

Notes to the consolidated financial statements (continued)

 

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.

 

(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.. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

 

At the inception of the hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge.

 

The documentation includes identification of the hedging instrument, the hedgehedged item, or transaction, the nature of the risk being hedged and how the entityGroup will assess the effectiveness of changes inwhether the hedging instrument’s fair value in offsettingrelationship meets the exposure to changes in cash flows attributablehedge 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-43 

Notes to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout theconsolidated financial reporting periods for which they were designated.statements(continued)

-There is ‘an economic relationship’ between the hedged item and the hedging instrument.

-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“Other equity reserves,reserves” caption, while the ineffective portion is recognized immediately in the consolidated statements of profit or loss in the finance costs“Finance costs” caption.

 

(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.

 F-33

Notes to the consolidated financial statements (continued)

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
-It is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
-It is a subsidiary acquired exclusively with a view to re sale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of profit or loss.

 

Additional disclosures are provided in note 1(e). All other notes to the consolidated financial statements include amounts for continuing operations, unless otherwise mentioned.

(x)Other assets -

Other assets represent patents and industrial property, right-of-use related to rights of way, and software licenses. Patents and industrial property and right-of-use are amortized over their useful economic lives. Software licenses are amortized over the straight-line method, using useful lives from 1 to 10 years.

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite live are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.

Internally generated intangibles, excluding capitalized development costs, are not capitalized. Instead, the related expenditure is recognized in the consolidated statement of profit or loss in the period in which the expenditure is incurred.


Notes to the consolidated financial statements(continued)

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of profit or loss when the asset is derecognized.

 

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 impactaffect the various accounting policies are described below and also in the relevant notes to the consolidated financial statements.

 

3.1.Judgments

In the process of applying the Group’s accounting policies, Management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements:

 

(a)Contingencies -

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential quantum of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

 

 F-34

Notes to the consolidated financial statements (continued)

(b)Development start date -

The Group assesses the status of each exploration project of its mining units to determine when the development phase begins. One of the criteria used to evaluate the development start date is when the Group determines that the property can be economically developed.

 

(c)Production start date -

The Group assesses the stage of each mine under development to determine when a mine moves into the production phase. The criteria used to assess the start date are determined based on the unique nature of each mining project, such as the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. Some of the criteria used to identify the production start date include, but are not limited to:

 

-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.


Notes to the consolidated financial statements(continued)

 

When a mine development /construction project moves into the production phase, the capitalization of certain mine development costs ceasescease 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)Useful life of property, plant and equipment

Depreciation is calculated under the straight-line method of accounting considering the lower of estimated useful lives of the assets or estimated reserves of the mining unit. See Note 2.4(h) for useful lives.

(e)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 recognized 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 -

Recoverable proven and probable reserves are the part of a mineral deposit than 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 the Group calculatesto determine the size, shape and depth of its ore bodies by analyzing geological data, such as sampling of drill holes, tunnes and other underground workings. In addition to the geology of the Group’s mines, assumptions are required to determine the economic feasibility of mining these reserves, usingincluding estimates of future commodity prices and demand, the mining methods generally appliedused and the related cost incurred to develop and mine its reserves. The process to estimate proven and probable ore reserves is audited by mining and industry accordingan independent consultant each year.

F-46 

Notes to international guidelines. the consolidated financial statements(continued)

All estimated reserves and resources represent estimated quantities of mineral proven and probable that under current conditions can be economically and legally processed.

 F-35

Notes to the consolidated financial statements (continued)

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 and resources 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 and resources could affect mainly affect the carrying valuedepreciation of fixed assets related directly to mining concessions, development costs and property, plant and equipment; the charges in result for depreciation and amortization; and the carrying amount ofactivity, the provision for mine closure, the assessment of mining units.the deferred asset’s recoverability and the amortization period for development costs.

 

(b)Units of production depreciation -

Estimated economically recoverable reserves

Reserves and resources are used in determining the depreciation and/orand amortization of mine-specific assets.

 

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, whichmine production. Each mine’s life is assessed at least annually has regard to both itsevaluate: (i) physical life limitations and (ii) present assessments of economically recoverable reserves of the mine property at which the asset is located.property. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes in estimates are accounted forrecorded prospectively.

 

(c)Mine rehabilitation provisionProvision for closure of mining units -

The Group assesses its mine rehabilitation provision for closure of mining units at each reporting date using a desconteddiscounted future cash flow method. In determining the amount of the provision, it is necessary to make significant assumtionsassumptions and estimates, becasusebecause exist many factors that can affect the final amount of this provision. ThisThese factors includesinclude estimates of the extent and costs of rehabilitationclosure activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates and periods in which iswhere 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 rehabilitationclosure costs required.

 

(d)Inventories net -

Inventories are classified in short and long term in accordance withas current or non-current depending on the length of time that Management estimates will startbe needed to reach the production state of the concentrate extracted from theextraction for each 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. Additionally, Management considers the time value of money in calculating the net realizable value of its non-current inventories.


Notes to the consolidated financial statements(continued)

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

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

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

 

(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 (i) the fair value less costs of disposal and (ii) 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-36

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-48 

Notes to the consolidated financial statements(continued)

(f)TaxesDeferred income tax asset and recoverability -

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 relevantCertain new accounting standards and interpretations have been published that are not mandatory for December 31, 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.

Amendments to IFRS 3: Definition of a Business -

In October 2018, the IASB issued but not yet effective, upamendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, and add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments. Since the amendments apply prospectively to transactions or other events that occur on or after the date of issuancefirst application, the Group will not be affected by these amendments on the date of the Group’s financial statements are disclosed below. The Group intendstransition.

Amendments to adopt these standards, if applicable, when they become effective.   

IAS 1 and IAS 8: Definition of Material -

IFRS 9 Financial Instruments

In July 2014,October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the final versiondefinition of IFRS 9 Financial Instruments that replaces IAS 39‘material’ across the standards and all previous versions of IFRS 9. IFRS 9 brings together all threeto clarify certain aspects of the accounting fordefinition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginningstatements make on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required, but the provisionbasis of comparativethose financial statements, which provide financial information about a specific reporting entity”. The amendments to the definition of material is not compulsory. For hedge accounting,expected to have a significant impact on the requirements are generally applied prospectively, with some limited exceptions.Group’s consolidated financial statements.

 

The Group plans to adopt the new standard on the required effective date and will not restate comparative information.

 F-37

F-49 

 

Notes to the consolidated financial statements(continued)

During 2017, the Group performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects no significant impact on its statement of financial position or equity from the adoption of IFRS 9. In addition, the Group will adopt changes in certain financial instruments.

(a)Classification and measurement

As discussed in more detail in note 2.1(n), the Group recorded an embedded derivative for its sales of metal in concentrate that is disclosure separated from the accounts receivable in the consolidated statement of financial statement. On adoption of IFRS 9, the embedded derivative will no longer be separated from the concentrate receivables as the receivables are not expected to give rise to cash flows that represent solely payments of principal and interest. Instead, the receivables will be accounted for as one instrument and measured at fair value through profit or loss, with subsequent change in fair value recognized in the statement of profit or loss.

There will be no impact on financial liabilities.

For other financial assets currently measured at fair value, the Group will continue to classify and measure these at fair value.

(b)Impairment

IFRS 9 requires the Group to record an expected credit loss for its debt instruments, loans and account receivables measured at fair value, regardless of the period. The Group will apply the simplified approach and record lifetime expected losses on all trade receivables measure at amortized cost. Given the short term nature of these receivables, the Group does not expect these changes will have a significant impact in the consolidated financial statements of the Group.

(c)Hedge accounting

The Group has determined that all hedge transactions that are currently designated as effective hedges will continue to qualify as hedge accounting under IFRS 9. The Group has chosen not to retrospectively apply IFRS 9 at the time of transition for those hedges designated as hedges under IAS 39. As IFRS 9 does not change the main principles of how an entity should record the effective hedges, or apply the requirements of IFRS 9 on hedge accounting.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration agreed with the 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 beginning on or after January 1 2018. Early adoption is permitted.

 F-38

Notes to the consolidated financial statements (continued)

The Group plans to adopt the new standard on the required effective date using the modified retrospective method, under which the accumulated effect of applying this new standard is presented adjusting the beginning balance of accumulated results (January 1, 2018). During 2016, the Group performed a preliminary assessment of IFRS 15, which was followed by a more detailed analysis in 2017.

(a)Sales of mineral

For contracts with customers in which the sale of the mineral is expected to be the only performance obligation, it is expected that IFRS 15 will not have an impact on the income and results of the Group. The Group expects that the income recognition will occur at the moment in which control of the asset is transferred to the client, which generally occurs with the delivery of the goods. At the time of preparing the adoption of IFRS 15, the Group has considered the following:

(i)Provisionally priced sales –

As discussed in note 2.1(q), the Group recognizes an embedded derivative for its concentrates sales at provisional pricing. IFRS 15 does not change the assessment of the impact of these provisional pricing features, which are required to account for in accordance with IFRS 9. Any subsequent changes that arise due to differences between initial and final assay will still be considered within the scope of IFRS 15 and will be subject to the constraint on estimates of variable consideration.

Revenue in respect of the host contract will be recognized when control passes to the customer and will be measured 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 (QP) using the most recently determined estimate of metal in concentrate (based on initial assay results) and the estimated forward price (which is consistent with current practice). When considering the initial assay estimate, the Group has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final assay/quality is subsequently resolved, at the end of the QP. As disclosed above, the assay differences are not usually material to the Group, hence, no change is expected when compared to the current approach. Consequently, at the time the concentrate passes to the client, the Group will recognize a receivable because from that time it considers it has an unconditional right to consideration. This receivable will then be accounted for in accordance with IFRS 9.

With respect to the presentation of amounts arising from such provisionally priced contracts, IFRS 15 requires revenue from contracts with customers to be disclosed separately from other types of revenue. This means that revenue recognized from the initial sale must be separately disclosed in the financial statements from any income recognized from subsequent movements in the fair value of the related concentrate receivable. As the Group currently discloses movements in the embedded derivative in “Net sales”, this requirement will have no impact on it. Consistent with current practice, any subsequent changes that arise due to differences between initial and final assay will be recognized as an adjustment to revenue from contracts with customers.

 F-39

Notes to the consolidated financial statements (continued)

(ii)Impact of shipping terms -

The Group sells a portion of its inventories under commercial terms in which the Group is responsible of the delivery services after the date at which control of the concentrate passes to the client at the port of loading, that is when it crosses the ship´s rail. Under IAS 18, these shipping services are currently not considered to represent a separate service, hence, no revenue is allocated to them. Instead, concentrate revenue is recognized in full at the date the concentrate passes the ship’s rail, and the costs associated with shipping the goods are considered to be part of cost of sales.

Under IFRS 15, the provision of shipping services in these types of arrangements will be a distinct service (and therefore a separate performance obligation) to which a portion of the transaction price should be allocated and recognized over time as the shipping services are provided. The impact of these changes include:

-Deferral of revenue: Some of the revenue currently recognized when the concentrate passes the ship’s rail will be deferred and recognized as the shipping services are subsequently provided; and
-Disclosures: The revenue allocated to shipping services may need to be disclosed separately from concentrate revenue (where material), either on the face of the statement of profit or loss and other comprehensive income or in the notes.

The Group has determined that while these changes will impact some of its arrangements, the overall year on year impact on the timing of revenue recognition will not be material and consequently such revenue will not be disclosed separately.

(b)Presentation and disclosure requirements

In addition to the presentation and disclosure requirements for provisionally priced sales discussed above, IFRS 15 contains other presentation and disclosure requirements which are more detailed than the current IFRS. The presentation requirements represent a significant change from current practice and will increase the volume of disclosures required in the Group’s financial statements. In 2017, the Group continued testing appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.

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. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted. The Group is evaluating the impact of IFRS 16 in its consolidated financial statements and plans to adopt the new standard on the required effective date.

 F-40

Notes to the consolidated financial statements (continued)

 

5.Transactions in Solessoles

 

Transactions in Solessoles are completed using exchange rates published by the Superintendent of Banks, Insurance and AFP.A.F.P. As of December 31, 2017,2019, the exchange rates for U.S. dollars published by this Institution were US$0.30880.3020 for buying and US$0.30820.3015 for selling (US$0.29830.2968 for buying and US$0.29760.2959 for selling as of December 31, 2016)2018), and have been applied by the Group for the assets and liabilities accounts, respectively.

 

As of December 31, 20172019 and 2016,2018, the Group presents the following assets and liabilities originally denominated in Solessoles by its equivalent in U.S. dollars:

 

 2017 2016  2019 2018 
 US$(000) US$(000)   US$(000)   US$(000) 
             
Assets                
Cash and cash equivalents  6,233   6,332   6,796   11,526 
Trade and other receivables  138,487   148,907   139,624   88,513 
Income tax credit  24,779   24,962   31,960   24,277 
Prepaid expenses  1,182   92 
  170,681   180,293   178,380   124,316 
                
Liabilities                
Bank loans  (1,215)  - 
Trade and other payables  (87,839)  (130,772)  (60,311)  (53,962)
Income tax payable  (7,088)  (7,262)  (5,692)  (2,080)
Provisions  (35,572)  (11,203)
  (131,714)  (149,237)
Provisions, contingent liabilities and other liabilities  (41,515)  (31,282)
          (107,518)  (87,324)
Net asset position  38,967   31,056   70,862   36,992 

 

6.Cash and cash equivalents

 

(a)This caption is made up as follows:

 

 2017 2016  2019 2018 
 US$(000) US$(000)   US$(000)   US$(000) 
             
Cash  327   290   304   347 
Bank accounts (b)  51,953   48,754   37,836   57,078 
Time deposits (c)  162,271   31,500   171,906   311,775 
          210,046   369,200 
  214,551   80,544 

 

(b)Bank accounts earn interest at floating rates based on market rates.

 

(c)As of December 31, 20172019 and 2016,2018, time deposits were kept in prime financial institutions, which generated interest at annual market rates and had originalhave current maturities, of less than 90 days, according to the immediate cash needs of the Group.

 

 F-41

F-50 

 

Notes to the consolidated financial statements(continued)

 

7.Trade and other receivables, net

 

(a)This caption is made up as follows:

 

  2017  2016 
  US$(000)  US$(000) 
Trade receivables, net (b)      
Domestic clients  102,119   89,811 
Foreign clients  119,388   77,254 
Related entities, note 29(b)  7,348   7,760 
   228,855   174,825 
Allowance for doubtful accounts (f)  (22,823)  (22,644)
         
   206,032   152,181 
Other receivables        
Value added tax credit  74,785   96,204 
Accounts payables to third parties  27,406   26,705 
Refund applications of value added tax (c)  18,450   17,037 
Tax deposits (d)  9,733   13,479 
Due from for sales of assets, note 16(e)  5,371   5,204 
Claims to third parties  3,851   113 
Claims to tax authority  2,752   2,492 
Restricted bank accounts (e)  2,372   2,087 
Accounts receivable from hedge instruments  2,300   - 
Advances to suppliers  1,977   908 
Related entities, note 29(b)  732   126,669 
Other minors  4,675   1,021 
         
   154,404   291,919 
Allowance for doubtful accounts (f)  (9,361)  (8,963)
   145,043   282,956 
Total trade and other receivables, net  351,075   435,137 
Classification by maturity:        
Current portion  306,884   269,089 
Non-current portion  44,191   166,048 
         
Total trade and other receivables, net  351,075   435,137 
         
Classification by nature:        
Financial receivables  255,088   319,454 
Non-financial receivables  95,987   115,683 
         
Total trade and other receivables, net  351,075   435,137 

 F-42

Notes to the consolidated financial statements (continued)

  2019  2018 
   US$(000)   US$(000) 
Trade receivables, net (b)        
Domestic clients  141,005   105,225 
Foreign clients  78,860   56,312 
Related entities, note 30(b)  6,247   7,177 
   226,112   168,714 
Allowance for expected credit losses (f)  (22,016)  (22,013)
   204,096   146,701 
Other receivables        
Value added tax credit  53,754   49,332 
Tax claims (g)  42,602   2,573 
Accounts receivables to third parties  31,478   24,625 
Due from for sales of assets (h)  21,648   2,715 
Advances to suppliers  9,275   7,542 
Tax deposits (d)  6,644   4,769 
Refund applications of value added tax (c)  3,643   6,574 
Interest receivable  3,244   3,000 
Related entities, note 30(b)  2,967   3,705 
Restricted bank accounts (e)  2,510   2,782 
Dividends receivable  2,501   - 
Loans to personnel  1,128   1,392 
Account receivables from hedges derivatives  -   3,949 
Other minor  743   2,738 
Allowance for expected credit losses (f)  (10,006)  (10,089)
   172,131   105,607 
Total trade and other receivables, net  376,227   252,308 
         
Classification by maturity:        
Current portion  287,712   211,715 
Non-current portion  88,515   40,593 
Total trade and other receivables, net  376,227   252,308 
         
Classification by nature:        
Financial receivables  318,830   196,402 
Non-financial receivables  57,397   55,906 
Total trade and other receivables, net  376,227   252,308 
         
Classification by measurement :        
Trade receivables (without provisional prices)  38,550   39,152 
Trade receivables (with provisional prices)  165,546   107,549 
Other accounts receivables  172,131   105,607 
Total trade and other receivables, net  376,227   252,308 

 

(b)Trade accounts receivable are denominated in U.S. dollars, are neither due nor impaired, do not yield interest and have no specific guarantees.

Notes to the consolidated financial statements(continued)

 

(c)This itemCorresponds mainly correspondsto current year applications that are pending to be refunded as of December 31, 2017. In November 2013, Buenaventura filed claims procedures by S/19,500,000 (equivalent to US$5,817,000), in connection with undue offsets made by the Tax Authorities against tax debts of prior years. As of December 31, 2017, the resolution of the appeal process related to the S/19,500,000 claim is pending.2019.

In the opinion of the Management and 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 Buenaventura.

 

(d)Corresponds to deposits held in the Peruvian State bank, which only can be used to offset tax obligations that companiesthe Group have with the Tax Authorities.

 

(e)These balances correspond mainly to collections that are charged into restricted bank accounts that only can be used for the payment of financial obligations held by the subsidiary Empresa de Generación Huanza S.A. (hereafter “Huanza”), according to the finance lease signed with Banco de Crédito del Perú in 2009. Below is presented the movement:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
Beginning balance  2,782   2,372   2,087 
Increase  166   410   285 
Decrease  (438)  -   - 
             
Final balance  2,510   2,782   2,372 

 

(f)Below is presented the movement in the allowance for doubtful accounts:expected credit losses:

 

 2017 2016 2015 
 US$(000) US$(000) US$(000)  2019 2018 2017 
         US$(000)   US$(000)   US$(000) 
Beginning balance  31,607   26,520   25,636   32,102   32,184   31,607 
Provision of the period, note 24  676   5,087   903 
Reversals of the period  (99)  -   (19)
            
Provision for other receivable, note 26  25   1,334   - 
Provision for trade receivables, note 24  -   18   676 
Provision of the period  25   1,352   676 
            
Write off of the period  (162)  (410)  - 
Exchange difference  57   (173)  - 
Reversals of the period, note 26  -   (45)  (99)
Other minor  -   (806)  - 
          - 
Final balance  32,184   31,607   26,520   32,022   32,102   32,184 
                        
Trade receivables  22,823   22,644   21,741   22,016   22,013   22,823 
Other receivables  9,361   8,963   4,779   10,006   10,089   9,361 
  32,184   31,607   26,520             
  32,022   32,102   32,184 

The allowance for expected credit losses of other receivables is related to provisions of accounts receivables to third parties.

 

In the opinion of the Group’s Management, the balance of the provisionallowance for doubtful accountsexpected credit losses is sufficient to cover adequately the risks of failure to date of the consolidated statement of financial position.

 

 F-43

Notes to the consolidated financial statements (continued)(continued)

 

8.(g)Inventory,Corresponds mainly to claims to the Tax Administration mainly with Buenaventura, El Brocal and Rio Seco for US$36.3 million, US$2.5 million and US$3.4 million, respectively. In the opinion of the Group and its legal advisors, a favorable result should be obtained in the judicial process that has been initiated, see note 29(e).

(h)On September 5, 2019, Consorcio Energético de Huancavelica S.A. entered into a contract for the sale of energy transmission systems in the areas of Huancavelica, Trujillo, Cajamarca, Callalli – Ares and Lorema with Conelsur LT S.A.C. for US$21,023,000.

8.Inventories, net

 

(a)This caption is made up as follows:

 

 2017 2016 
 US$(000) US$(000)  2019 2018 
       US$(000)   US$(000) 
Finished goods 6,151 12,763   2,084   7,715 
Products in process  56,190   66,651 
Products in process (b)  47,652   73,796 
Spare parts and supplies  84,787   63,946   74,033   81,383 
  147,128   143,360   123,769   162,894 
Provision for impairment of value of inventory (b)  (11,603)  (8,386)
        
Provision for impairment of value of inventory (c)  (25,402)  (23,163)
  135,525   134,974   98,367   139,731 
                
Classification by use:                
Current portion  132,287   120,947   97,973   135,919 
Non-current portion  3,238   14,027   394   3,812 
          98,367   139,731 
  135,525   134,974 

(b)Products in process include mainly to mineral in process of El Brocal for 1,592,905 Dried Metric Ton (DMT) amounting to US$31.2 million (2,254,874 DMT amounting to US$39.9 million as of December 31, 2018).

 

Products in process include mineral deposits located in the Tajo Norte mining unit (El Brocal). The detail of this mineral as of December 31, 2017 and 2016 is presented below:

  2017  2016 
  US$(000)  DMT  US$(000)  DMT 
             
Mineral in stock piles 7,173  463,746  16,793  1,085,696 
Fresh mineral in plant  11,983   835,613   1,248   74,260 
Tail mineral  279   30,110   203   24,629 
   19,435   1,329,469   18,244   1,184,585 
Provision for impairment of value in mineral classified in process  (1,467)  -   (123)  - 
                 
   17,968   1,329,469   18,121   1,184,585 
                 
Classification by use:                
Current portion  14,730       5,586     
Non-current portion  3,238   `   12,535     
                 
   17,968       18,121     

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.

 F-44

F-53 

 

Notes to the consolidated financial statements (continued)(continued)

 

(b)(c)The provision for impairment of value of inventory had the following movement during the years 2017, 20162019, 2018 and 2015:2017:

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  8,386   20,472   7,735 
             
Transfer from mining units held for sale  -   1,448   - 
Changes in provision for impairment of finished goods, (continuing operations), note 21(a)  2,118   (7,581)  13,096 
Changes in provision for impairment of finished goods (discontinued operations), note 1(e)  (1,345)  (706)  (1,474)
Changes in provision for impairment of spare parts and supplies  2,444   (110)  1,115 
Reversal in provision for impairment of inventories  -   (5,137)  - 
             
Final balance  11,603   8,386   20,472 
  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
Beginning balance  23,163   11,603   8,386 
             
Continuing operations:            
Provision for impairment of finished and in progress goods, note 21(a)  7,329   4,640   2,118 
Reversal for impairment of finished and in progress goods, note 21(a)  (9,472)  (119)  - 
Provision for impairment of spare parts and supplies, note 26(a)  15,703   11,704   4,814 
Reversal for impairment of spare parts and supplies, note 26(a)  (11,641)  (4,665)  (2,370)
             
Discontinued operations, note 1(e):            
Provision for impairment of spare parts and supplies  843   -   - 
Reversal for impairment of spare parts and supplies  (523)  -   (1,345)
             
Final balance  25,402   23,163   11,603 

 

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.

 

9.Prepaid expenses

 

(a)This caption is made up as follows:

 

 2017 2016  2019 2018 
 US$(000) US$(000)   US$(000)   US$(000) 
     
Prepaid rentals (b)  28,349   29,235 
Prepaid energy services(b)  26,582   27,464 
Prepaid insurances  12,401   6,055   13,568   12,486 
Deferred costs of works for taxes  2,013   1,801   4,138   2,407 
Deferred royalties and rentals of mining concessions  387   2,377 
Other prepaid expenses  1,956   2,355   2,373   1,366 
        
  45,106   41,823   46,661   43,723 
                
Classification by maturity:                
Current portion  17,551   11,392   20,969   17,145 
Non-current portion  27,555   30,431   25,692   26,578 
          46,661   43,723 
  45,106   41,823 

 

(b)This item corresponds mainly to paid in advance to EDEGEL for an original amount of US$31,007,190 corresponding to the balanceright to use the capacity of an original prepaymentthe hydraulic system of US$31 million for the lease of hydraulic installationsEDEGEL by the subsidiary Empresa de GeneracionGeneración Huanza S.A. This prepayment is being charged to results during the life of the underlying assets (35 years) since January 2015.

 

 F-45

Notes to the consolidated financial statements (continued)(continued)

 

10.Investments in associates

10.       Investments in associates and joint ventures

 

(a)This caption is made up as follows:

 

 Share in equity    Share in equity      
 2017 2016 2017 2016  2019 2018 2019 2018 
 % %  US$(000) US$(000)  % % US$(000) US$(000) 
         
Associates                
Sociedad Minera Cerro Verde S.A.A.  19.584   19.584   1,124,008   1,055,488   19.58   19.58   1,155,359   1,108,284 
Minera Yanacocha S.R.L.  45.95   43.65   324,861   402,866   43.65   43.65   230,000   271,036 
Compañía Minera Coimolache S.A.  40.095   40.095   86,183   74,734   40.10   40.10   98,426   89,554 
          1,483,785   1,468,874 
Joint venture (c)          2,627   2,673 
Other minor investments          1,835   3,519           1,835   1,835 
          1,536,887   1,536,607                 
          1,488,247   1,473,382 

 

(b)The table below presents the net share in profit (loss) of associates:investments:

 

 2017 2016 2015 
 US$(000) US$(000) US$(000)  2019 2018 2017 
         US$(000)   US$(000)   US$(000) 
Minera Yanacocha S.R.L.  (76,585)  (455,598)  (196,510)  (41,580)  (35,582)  (76,585)
Sociedad Minera Cerro Verde S.A.A.  68,521   66,763   6,518   76,451   23,444   68,521 
Compañía Minera Coimolache S.A.  21,271   23,514   16,617   12,883   10,994   21,271 
Other minor  (44)  -   - 
  13,207   (365,321)  (173,375)  47,710   (1,144)  13,207 

 

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 significant in relation to profits (losses) of the Group in the years 2017, 20162019, 2018 and 2015.2017. The following relevant information on these investments is as follows:

 

Investment in Minera Yanacocha S.R.L.-

The Company,Group, through its subsidiary Compañía Minera Condesa S.A., has an interest of 45.9543.65 percent of Minera Yanacocha S.R.L. (hereinafter “Yanacocha”). Yanacocha is engaged in gold production and exploration and development of gold and copper in their own concessions or owned by S.R.M.L. Chaupiloma Dos de Cajamarca (subsidiary of the Group), with which signed a contract of use of mineral rights.

The Quecher Main project of Yanacocha, an oxide deposit, is currently in its Execution Phase. This project extends the life of the Yanacocha operation until 2027, with average annual gold production of 200,000 ounces per year expected between 2020 and 2025. The Yanacocha Sulfides project is currently in its Definitive Feasibility Stage. In March of 2019, the Environmental Impact Assessment study was approved.


Notes to the consolidated financial statements(continued)

 

In addition, Yanacocha owns the Conga project which consists in two deposits of gold and porphyry of copper located at northeast of Yanacocha operating area in the provinces of Celendín, Cajamarca and Hualgayoc (Peru).

 

Because of local communities and political protests for potential water impacts of the project development activities and construction, the projects are suspended since November 2011. To date, Yanacocha’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.

 

 F-46

Notes to the consolidated financial statements (continued)

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. After this transaction, Buenaventura's shareIn June 2018, Sumitomo Corporation (Sumitomo) paid US$48 million for the five percent stake in the ownership interest in Yanacocha increased from 43.65 percentfor the proportion held prior to 45.95 percent.the repurchase of the IFC’s ownership stake in December. As a result of that acquisition, the Company recognized a higherlower value with respect to Yanacocha's equity participation.

On February 6, 2020, the Supreme Court resolution was published, whereby Yanacocha received notification of an unfavorable result in the Tax Dispute related to the amortization of contractual rights (see note 29(e)) for which Yanacocha recorded a liability in term of tax payable for US$8.1 million and recorded interests and penalties for US$21.0 million in its financial statements as of December 31, 2019.

 

The table below presents key financial data from the financial statements of Yanacocha under IFRS:

 

  2017  2016 
  US$(000)  US$(000) 
       
Statements of financial position as of December 31:        
Current assets  1,055,135   1,107,893 
Non-current assets  964,260   937,992 
Current liabilities  123,315   (135,136)
Non-current liabilities  (1,236,965)  (1,025,025)
Shareholders’ equity, reported  659,115   885,724 
         
Groups’ interest (45.95% in 2017 and 43.65% in 2016)  302,863   386,618 
Goodwill  21,998   16,248 
         
   324,861   402,866 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss as of December 31,            
Net sales  645,176   761,193   1,031,174 
Other operating income  21,870   17,713   10,625 
Costs of sales  (746,918)  (776,394)  (758,033)
Cost of other operating income  (2,062)  (2,951)  (2,524)
Operating expenses  (63,514)  (71,496)  (82,846)
Administrative expenses  (4,760)  (8,780)  (20,028)
Selling expenses  (3,921)  (3,695)  (3,534)
Impairment loss of long-lived assets  -   (889,499)  - 
Finance income (costs)  (17,935)  (12,975)  (22,061)
Gain (loss) from currency exchange difference  3,636   (13,741)  (251)
Income (loss) before income tax  (168,428)  (1,000,625)  152,522 
Income tax  (7,026)  (43,127)  (602,717)
Net loss reported  (175,454)  (1,043,752)  (450,195)
Group’s interest (43.65%)  (76,585)  (455,598)  (196,510)
  2019  2018 
   US$(000)   US$(000) 
Statements of financial position as of December 31:        
Current assets  1,060,455   960,758 
Non-current assets  1,251,617   1,086,714 
Current liabilities  (190,577)  (128,170)
Non-current liabilities  (1,631,783)  (1,335,579)
         
Equity  489,712   583,723 
         
Groups’ interest  213,759   254,795 
Goodwill  16,241   16,241 
         
   230,000   271,036 

 

 F-47

Notes to the consolidated financial statements (continued)(continued)

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
Statements of profit or loss for the years ended December 31:            
Revenue  739,302   657,358   667,046 
             
Loss for the year  (95,257)  (81,517)  (175,454)
             
Share in results  (41,580)  (35,582)  (76,585)

Evaluation of impairment in investments –

During 2017,the Yanacocha’s Management identified as an impairment indicator the significant increase of the asset retirement and mine closure, as a result Yanacocha determined the recoverable amount for its CGU Yanacocha. Regarding to CGU Conga, Yanacocha did not identify any important indicator. As a result of this analysis Yanacocha concluded that no additional impairment loss on CGU Yanacocha was required to be recorded as the recoverable amount exceeded the carrying amount of the CGU’s assets.

During 2018, the Yanacocha´s Management evaluated and concluded that there are no indicators of impairment of its long-lived assets; inassets.

In addition, the Group’s management determined that there was no objective evidence that its investment in Yanacocha might beis impaired as of December 31, 2017.2019 and 2018.

 

In 2016, Yanacocha evaluated the recoverability of its long-lived assets and determined an impairment charge, net of taxes, of US$889.5 million, which reduced Yanacocha's net worth and, therefore, the equity interest of the Company in this associate during the year 2016.

As a result, the Company’s Management determined that there was objective evidence that its investment in Yanacocha might be impaired as of December 31, 2016. 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 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-48

Notes to the consolidated financial statements (continued)

In December 2015, Yanacocha recorded charges for the recovery of its asset for deferred income tax for US$510,000,000 because it considers that it is not probable that there will be a future taxable profit against which deductible temporary differences can be offset.

During 2016, Yanacocha unanimously agreed to distribute dividends to the partners by US$300,000,000, in proportion to their social participation, corresponding to part of the freely available profits accumulated as of December 31, 2014, which were generated in the year 2011.

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.

 

The table below presents the key financial data from the financial statements of Cerro Verde under IFRS:

 

 2017 2016 
 US$(000) US$(000)  2019 2018 
       US$(000)   US$(000) 
Statements of financial position as of December 31:                
Current assets  1,563,874   1,218,508   1,614,928   1,455,080 
Non-current assets  6,127,133   6,417,115   6,194,496   6,099,632 
Current liabilities  (510,790)  (293,631)  (420,786)  (408,754)
Non-current liabilities  (1,991,055)  (2,502,711)  (2,039,389)  (2,037,086)
                
Shareholders’ equity, reported  5,189,162   4,839,281 
Equity  5,349,249   5,108,872 
                
Group’s interest (19.584%)  1,016,245   947,725 
Group’s interest  1,047,596   1,000,521 
Goodwill  107,763   107,763   107,763   107,763 
                
  1,124,008   1,055,488   1,155,359   1,108,284 

 

 F-49

Notes to the consolidated financial statements (continued)(continued)

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Statements of profit or loss for the years ended December 31:            
Revenue  3,202,931   2,384,154   1,115,617 
Cost of sales  (1,768,238)  (1,553,040)  (862,004)
Sales expenses  (141,669)  (131,391)  (56,215)
Other operating expenses, net  (258,826)  (24,107)  (26,600)
Finance costs  (216,912)  (80,438)  (16,010)
Finance income  5,350   954   512 
Net gain (loss) of exchange difference  13,288   7,857   (75,770)
Profit before income taxes  835,924   603,989   79,530 
Income tax  (486,043)  (263,082)  (46,246)
Net profit, reported  349,881   340,907   33,284 
             
Group’s interest (19.584%)  68,521   66,763   6,518 
  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 

Statements of comprehensive income December 31:

            
Sales  2,890,066   3,054,026   3,202,931 
             
Net profit for the year  390,377   119,710   349,881 
             
Share in results  76,451   23,444   68,521 

 

Market capitalization:

As of December 31, 20172019 and 2016,2018, total market capitalization of shares maintained by the Group in Cerro Verde was US$2,036.01,323 million and US$1,311.31,426 million, respectively (market capitalization value by each share of US$29.7019.30 and US$19.11,20.80, respectively).

 

 F-50

Notes to the consolidated financial statements (continued)

Investment in Compañía Minera Coimolache S.A. (Coimolache) -

Coimolache is involved in the production and the sales of gold and silver from its open-pit mining unit located in Cajamarca, Peru.

 

The table below presents the key financial data from the financial statements of Coimolache under IFRS:

 

 2017 2016 
 US$(000) US$(000)  2019 2018 
       US$(000)   US$(000) 
Statements of financial position as of December 31:                
Current assets  101,668   73,480   145,692   99,887 
Non-current assets  278,866   261,075   234,223   261,782 
Current liabilities  (44,411)  (28,532)  (34,028)  (39,204)
Non-current liabilities  (106,332)  (102,519)  (91,069)  (86,103)
                
Shareholders’ equity, reported  229,791   203,504 
Equity  254,818   236,362 
                
Adjustments to conform to the accounting policies of the Group  (14,843)  (17,111)  (9,330)  (13,003)
                
Shareholders’ equity, adjusted  214,948   186,393 
Equity, adjusted  245,488   223,359 
                
Group’s interest (40.095%)  86,183   74,734 
Group’s interest  98,426   89,554 

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
Statements of profit or loss for the years ended December 31:            
Revenue  203,790   198,873   177,347 
Cost of sales  (121,021)  (107,913)  (104,549)
Administrative expenses  (3,829)  (4,144)  (2,185)
Sales expenses  (946)  (1,128)  (1,111)
Other operating income (expenses), net  (587)  755   765 
Finance income  220   38   23 
Finance costs  (3,304)  (1,614)  (723)
Exchange difference  (174)  (117)  (1,300)
Profit before income taxes  74,149   84,750   68,267 
Income tax  (23,362)  (27,894)  (29,861)
Net profit, reported  50,787   56,856   38,406 
             
Adjustments to conform to the accounting policies of the Group  2,265   1,790   3,039 
             
Net profit, adjusted  53,052   58,646   41,445 
             
Group’s interest (40.095%)  21,271   23,514   16,617 
  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
Statements of profit or loss for the years ended December 31:            
Net sales  241,173   225,447   203,790 
             
Net income from continued operations  28,459   25,584   50,787 
             
Adjustments to conform to the accounting policies  3,674   1,837   2,265 
             
Net income, adjusted  32,133   27,421   53,052 
             
Share in results  12,883   10,994   21,271 

 

 F-51

Notes to the consolidated financial statements (continued)

(continued)

 

11.(c)The Group, through its subsidiary El Brocal, has an interest of 8 percent in Transportadora Callao S.A., a joint venture whose objective was the construction of a fixed conveyor belt of minerals and deposits in the Port of Callao. On May 2014, Transportadora Callao started operations and currently its main activity is the operation of that terminal.

The table below presents the key financial data from the joint venture under IFRS:

  2019  2018 
   US$(000)   US$(000) 
Current assets  11,090   17,653 
Non-current assets  100,106   107,175 
Liabilities  88,608   101,575 
Shareholders’ equity, reported  22,588   23,253 
         
Net loss from continued operations  (665)  (1,814)


Notes to the consolidated financial statements(continued)

11.Mining concessions, development costs, right-of-use asset, property, plant and equipment, net

(a)Below is presented the movement in cost:movement:

 

 Balance as of
January 1,
2016
 Additions Disposals Sales Reclassifications
of assets held for
sale
 Reclassifications
and transfers
 Balance as of
December 31,
2016
 Additions Disposals Sales Reclassifications
and transfers
 Balance as of
December 31,
2017
  

Balance as of

January 1,

2018

  Additions Disposals Sales Reclassifications and transfers  

Balance as of

December 31, 2018

  Additions Disposals Sales Reclassifications and transfers Implementation IFRS 16  

Balance as of

December 31, 2019

 
 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                                                
Cost:                                                
Lands  22,454   162   -   (6)  78   270   22,958   -   -   -   (268)  22,690   22,690   783   (462)  -   (1,250)  21,761   630   -   (135)  (4,739)  -   17,517 
Mining concessions  198,009   -   -   -   -   -   198,009   2   -   (15,000)  (31,138)  151,873 
Mining concessions (f)  151,873   -   -   -   -   151,873   -   -   -   -   -   151,873 
Development costs  541,763   82,865   -   -   31,192   (3,428)  652,392   69,335   -   (10,107)  431   712,051   712,051   32,059   (2,656)  -   1,805   743,259   46,047   (443)  -   (819)  -   788,044 
Buildings, constructions and other  1,018,956   581   -   (20)  10,458   79,192   1,109,167   835   (387)  (28,751)  198,387   1,279,251   1,279,251   -   (2,837)  -   66,207   1,342,621   39   (3,559)  (5,380)  26,120   -   1,359,841 
Machinery and equipment  827,225   46,152   (6,569)  (2,844)  9,425   112,643   986,032   2,579   (3,749)  (50,097)  (5,742)  929,023   929,023   -   (182)  (9,205)  38,830   958,466   12   (30,235)  (38,322)  22,783   -   912,704 
Transportation units  10,649   174   (341)  (396)  357   (27)  10,416   11   (190)  (1,079)  788   9,946   9,946   42   (138)  (510)  1,545   10,885   33   (540)  (1,856)  370   -   8,892 
Furniture and fixtures  13,429   89   (61)  (88)  359   319   14,047   31   (157)  (487)  468   13,902   13,902   -   -   (193)  (403)  13,306   2   (1,310)  (1)  13   -   12,010 
Units in transit  26,291   15,797   -   -   -   (12,037)  30,051   2,822   -   -   (28,124)  4,749   4,749   11   -   -   (2,078)  2,682   -   (1)  -   1,073   -   3,754 
Work in progress  68,123   210,915   (352)  -   1,037   (173,935)  105,788   173,333   -   (190)  (177,809)  101,122   101,122   67,096   (3,450)  -   (108,106)  56,662   44,319   (1,168)  (78)  (49,370)  -   50,365 
Stripping activity asset (e)  106,838   17,631   -   -   -   (2)  124,467   18,282   (13,573)  -   1,271   130,447 
Stripping activity asset  130,447   11,279   -   -   -   141,726   11,545   -   -   819   -   154,090 
Right-of-use asset (e)  -   -   -   -   -   -   3,721   (10,897)  -   -   18,528   11,352 
Mine closure costs  187,603   34,532   -   -   25,754   -   247,889   10,594   -   (17,195)  -   241,288   241,288   61,239   -   -   (18,365)  284,162   26,722   -   -   -   -   310,884 
  3,021,340   408,898   (7,323)  (3,354)  78,660   2,995   3,501,216   277,824   (18,056)  (122,906)  (41,736)  3,596,342   3,596,342   172,509   (9,725)  (9,908)  (21,815)  3,727,403   133,070   (48,153)  (45,772)  (3,750)  18,528   3,781,326 
Accumulated depreciation and amortization:                                                                                                
Mining concessions  77,450   16   -   -   -   -   77,466   8   -   (13,845)  (23,390)  40,239 
Lands  1,249   -   -   -   (1,249)  -   -   -   -   -   -   - 
Mining concessions (f)  40,239   10   -   -   -   40,249   10   -   -   -   -   40,259 
Development costs  199,211   18,225   -   -   25,596   (1,396)  241,636   30,886   -   (7,910)  (241)  264,371   263,122   35,433   -   -   (2)  298,553   29,964   -   -   -   -   328,517 
Buildings, construction and other  381,441   65,050   -   (9)  8,598   598   455,678   73,314   (115)  (28,208)  6,168   506,837   506,837   84,244   -   -   562   591,643   83,274   (3,391)  (3,569)  (638)  -   667,319 
Machinery and equipment  475,941   81,753   (5,378)  (827)  6,640   (68)  558,061   74,744   (2,662)  (41,595)  (6,099)  582,449   582,449   93,722   (177)  (8,659)  (1,978)  665,357   66,020   (28,619)  (35,459)  638   -   667,937 
Transportation units  7,932   1,103   (250)  (365)  358   14   8,792   837   (114)  (1,057)  (68)  8,390   8,390   745   (85)  (436)  (15)  8,599   744   (538)  (1,779)  -   -   7,026 
Furniture and fixtures  7,577   1,156   (60)  (22)  319   202   9,172   1,109   (152)  (236)  (13)  9,880   9,880   644   -   (187)  (214)  10,123   653   (1,172)  -   -   -   9,604 
Stripping activity asset  12,916   5,813   -   -   -   -   18,729   16,343   -   -   6,623   41,695   41,695   28,820   -   -   3   70,518   18,405   -   -   -   -   88,923 
Right-of-use asset (e)  -   -   -   -   -   -   7,778   (2,611)  -   -   -   5,167 
Mine closure costs  99,993   22,417   -   -   19,335   (470)  141,275   25,254   -   (8,408)  -   158,121   158,121   10,350   -   -   -   168,471   15,373   -   -   -   -   183,844 
  1,262,461   195,533   (5,688)  (1,223)  60,846   (1,120)  1,510,809   222,495   (3,043)  (101,259)  (17,020)  1,611,982   1,611,982   253,968   (262)  (9,282)  (2,893)  1,853,513   222,221   (36,331)  (40,807)  -   -   1,998,596 
Provision for impairment of long-lived assets:                                                                                                
Mine closure costs  4,080   -   -   -   6,910   -   10,990   17,916   -   (8,785)  -   20,121   20,121   -   (5,693)  -   (1,221)  13,207   2,083   -   -   -   -   15,290 
Development costs  3,803   -   -   -   5,684   -   9,487   2,864   -   (2,198)  -   10,153   10,153   -   -   -   -   10,153   -   -   -   -   -   10,153 
Mining concessions, development costs, property, plant and other  3,372   -   -   -   6,533   -   9,905   840   -   (6,214)  -   4,531 
Property, plant and other  4,531   -   (2,837)  -   1,221   2,915   -   -   -   -   -   2,915 
  11,255   -   -   -   19,127   -   30,382   21,620   -   (17,197)  -   34,805   34,805   -   (8,530)  -   -   26,275   2,083   -   -   -   -   28,358 
                                                                                                
Net cost  1,747,624                       1,960,025                   1,949,555   1,949,555                   1,847,615                       1,754,372 

 

 F-52

Notes to the consolidated financial statements(continued)

 

(b)Impairment of long-lived assets

In accordance with its accounting policies and processes, each asset or CGU is evaluated annually at year end,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-taxpost-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.

 

During 2017,2019, Buenaventura recorded a provision for US$2.1 million as a result of the subsidiaryanalysis of the recoverable amount of its Julcani mining unit. The main factors considered in the impairment analysis were reserves and mining useful lives. As a result of the analysis of the recoverable amount as of December 31, 2019, La Zanja has not recognized a provision or recovery for impairment of long-lived assets.

During 2018, as a result of derecognition of assets in Shila mining unit, Buenaventura recorded a reversal in the provision for impairment for US$2.8 million previously recorded in 2016. In addition, La Zanja recorded ana reversal for the impairment loss related to its mining propertyprovision for US$21,620,000.5.7 million (during 2017, La Zanja recorded a provision for US$21.6 million) as a result of the analysis of the recoverable amount. The principal factormain factors considered in the impairment loss wasanalysis were reserves and mining useful lives. The recoverable amounts of La Zanja are based in Managements estimations of the depletion of its reserves.value in use.

 

AsDuring 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 recorded in 2017 a reversal of impairment losses by US$7.4 million, US$7.1 million and US$2.7 million, respectively, see note 1(e).

 

During 2016, the Group recorded an impairment loss with respect to its Shila-Paula mining unit for US$2,043,000. As a result of the recoverable amount analysis performed as of December 31, 2015, the Group recognized impairment losses for its mining units La Zanja by US$3,803,000 and Breapampa by US$7,452,000.

Key assumptions

The determination of value in use is most sensitive to the following key assumptions:

 

-Production volumes

-Commodity prices

-Discount rate

Costs


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-53

Notes to the consolidated financial statements (continued)

 

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines are computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with the reserves and resource volumes approved as part of the Group’s process for 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.

 

Estimates prices for the current and long-term periods that have been used to estimate future cash flows are as follows:

 

  2018  2019 - 2022 
  US$  US$ 
       
Gold  1,300.00/Oz  1,300.00/Oz
Silver  17.00/Oz  18.00/Oz
Copper  6,000.00/MT  6,000.00/MT
Lead  2,250.00/MT  2,250.00/MT
Zinc  2,750.00/MT  2,600.00/MT
20202021-2025
US$US$
Gold1,500/Oz1,500/Oz
Silver17.00/Oz18.40/Oz
Copper6,000/MT6,600/MT
Lead1,950/MT2,100/MT
Zinc2,250/MT2,300/MT

 

Discount rate: In calculating the value in use, pre-taxa discount ratesrate after tax of 4.888.33%%,7.02% and5.15% (equivalent topre-taxrate of 6.92%, 9.30%9.95% and 5.89%7.31%)were applied to the pre-taxpost-tax cash flows of Buenaventura, El Brocal and La Zanja, respectively.These discount rates 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 betaBeta factors are evaluated annually based on publicly available market data.


Notes to the consolidated financial statements(continued)

 

(c)The book value of assets held under finance leases, and assets under trustworthy equity, amounted to US$522.0313.3 million as of December 31, 20172019 (US$524.6337.3 million as of December 31, 2016)2018) and is presented in various items of property, plant and equipment. During the year 20172019 and 20162018, no acquisitions of assets under lease agreements were made. Leased assets are pledged as security for the related finance lease liabilities.

 

(d)The amount of capitalizedDuring 2019 and 2018, no finance costs during the year 2017 was US$6.3 million (US$7.5 million during the year 2016) and is presented under investing activities in the consolidated statements of cash flows. The average rate used to determine the financial cost to be capitalized was 4.19 percent (3.52 percent during the year 2016).were capitalized.

 

(e)Right-of-use assets

The net assets for right in use maintained by the Group correspond:

  F-542019
US$(000)
Right in use assets
Buildings4,602
Transportation units1,112
Machinery and equipment471
6,185 

 

NotesDuring 2019, the additions to the consolidated financial statements (continued)right-of-use assets were US$3.7 million and the disposals were US$10.9 million.

 

(e)(f)Mining concessions includes the goodwill of El Brocal amounted to US$34.0 million.

(g)In mid-2016, a landslide occurred in the west wall of the Tajo Norte; consequently, it was 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$13,573,000, which were withdrawn from the reserves.reserves in the year 2017.

 

12.Investment properties, net


Notes to the consolidated financial statements(continued)

12.          Other assets, net

 

(a)As of December 31, 2017 and 2016, the investment properties included administrative offices. The movement of cost and accumulated depreciation for the years 2017 and 2016Below is presented below:the movement:

 

  Balance as of
January 1,
2016
  Addition
(reversal)
  Balance as of
December 31,
2016
  Additions  Sales  Balance as of
December 31,
2017
 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Cost  12,103   (92)  12,011   157   (11,826)  342 
Accumulated depreciation  (1,384)  (538)  (1,922)  (462)  2,264   (120)
                         
Net cost  10,719       10,089           222 
  Balance as of
January 1,
2018
  Additions  Transfers  Balance as of
December 31,
2018
  Additions  Disposals  Balance as of
December 31,
2019
 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Cost:                            
Patents and industrial property (b)  13,680   2,642   (4,599)  11,723   2,139   -   13,862 
Rights-of-use of lands right of way  7,853   4,439   -   12,292   1,319   -   13,611 
Software licenses
  8,816   1,448   (96)  10,168   242   (92)  10,318 
                             
   30,349   8,529   (4,695)  34,183   3,700   (92)  37,791 
Accumulated amortization:                            
Rights-of-use  5,210   738   -   5,948   1,486   -   7,434 
Software licenses  2,378   596   -   2,974   820   (112)  3,682 
                             
   7,588   1,334   -   8,922   2,306   (112)  11,116 
                             
Cost net  22,761           25,261           26,675 

 

(b)The Group does not have restrictions incopper plant project is a technological initiative of the realizationCompany to develop a viable technical and economic solution for the treatment of its investment properties.complex copper concentrates. This project comprises several stages of development from a laboratory level, pilot to a demonstration stage.

 

(c)13.During 2017 the fair value of the investment property amounted to US$191,086 (US$23,624,295 during 2016).

(d)As mentioned in note 16(e), 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, for US$11,250,000, with a net cost of US$9.6 million.

(e)During 2017, rental income, from these investment properties amounted to US$234,677 (US$1,821,320 and US$1,710,766 during 2016 and 2015, respectively).

13.Bank loans

 

The movement of bank loans for the years 2017, 2016 and 2015 is presented below:

 

 2017 2016 2015 
 US$(000) US$(000) US$(000)  2019 2018 2017 
        US$(000) US$(000) US$(000) 
Beginning balance  55,000   285,302   40,000  95,000  96,215  55,000 
                     
New loans  341,215   200,500   344,503  55,000  95,000  341,215 
Disbursements  (300,000)  (442,957)  (90,000) (95,000) (95,000) (300,000)
Exchange difference  -   12,155   (9,201)
Sale of subsidiary -  (1,215) - 
                     
Final balance  96,215   55,000   285,302  55,000  95,000  96,215 

 

As of December 31, 20172019 and 2016,2018, bank loans were obtained for working capital purposes, have current maturity and accrue interest at market annual rates ranging from 1.15%2% to 6.85%2.95% as of December 31, 2017 (1.92%2019 (2.00% to 4.14%3.13% as of December 31, 2016)2018).

 

 F-55

Notes to the consolidated financial statements(continued)

 

14.Trade and other payables

 

(a)This caption is made up as follows:

 

 2017 2016 
 US$(000) US$(000)  2019 2018 
      US$(000)  US$(000) 
Trade payables (b)              
Domestic suppliers  194,742   232,745  131,278  154,998 
Related entities, note 29(b)  15   1,372 
        
  194,757   234,117 
Related entities, note 30(b) 29  36 
         131,307  155,034 
Other payables              
Taxes payable 12,043  9,102 
Remuneration and similar benefits payable  11,585   9,796  11,522  10,531 
Taxes payable  9,405   16,708 
Interest payable  7,152   4,253  5,318  7,464 
Royalties payable to the Peruvian State  4,571   3,670  2,132  2,171 
Dividends payable (c)  730   1,018  604  663 
Related entities, note 29(b)  62   3 
Accounts payable to non-controlling interests  -   15,661 
Related entities, note 30(b) 51  20 
Other liabilities  5,756   4,196  3,883  3,738 
  39,261   55,305  35,553  33,689 
              
  234,018   289,422 
Total trade and other payables 166,860  188,723 
              
Classification by maturity:              
Current portion  233,355   273,440  166,244  188,084 
Non-current portion  663   15,982  616  639 
              
Total trade and other payables  234,018   289,422  166,860  188,723 
              
Classification by nature:              
Financial payables  220,042   269,044  152,686  177,450 
Non-financial payables  13,976   20,378  14,174  11,273 
        
Total trade and other payables  234,018   289,422  166,860  188,723 

 

(b)Trade payables arise mainly from the acquisition of material, supplies and spare parts and services provided by third parties. These obligations have current maturities, accrue no interest and are not secured.secure.

 

 F-56

 


Notes to the consolidated financial statements(continued)

 

(c)The movement of dividends payable for the years 2017, 2016 and 2015 is presented below:

 

 2017 2016 2015 
 US$(000) US$(000) US$(000)  2019 2018 2017 
        US$(000) US$(000) US$(000) 
Beginning balance  1,018   1,044   1,117  663  730  1,018 
Declared dividends to controlling shareholders, note 17(d)  22,099   7,621   -  22,098  22,860  22,099 
Dividends paid to controlling shareholders  (22,099)  (7,621)  -  (22,098) (22,860) (22,099)
Declared dividends to non-controlling shareholders  6,036   7,400   10,488  6,500  5,560  6,036 
Dividends paid to non-controlling shareholders  (6,036)  (7,400)  (10,488) (6,500) (5,560) (6,036)
Expired dividends  (327)  (30)  (4) (53) (44) (327)
Other minor  39   4   (69) (6) (23) 39 
                     
Final balance  730   1,018   1,044  604  663  730 

 

15.Provisions, contingent liabilities and other liabilities

 

(a)This caption is made up as follows:

 

 2017 2016  As of January 1, 2019 Changes (additions and deductions) Accretion expense Disbursements As of December 31, 2019 
 US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) US$(000) 
     
Provision for closure of mining units and exploration projects (b)  200,183   206,462 
Provision for obligations with communities (c)  19,376   4,710 
Provision for environmental liabilities  5,534   7,324 
Provision for safety contingencies  3,898   2,807 
Provision for labor contingencies  2,963   3,395 
Closure of mining units and exploration projects (b)  225,877   32,654   10,656   (16,882)  252,305 
Bonus to employees and officers  18,620   15,855   -   (15,249)  19,226 
Environmental liabilities  3,768   3,944   -   (1,407)  6,305 
Safety contingencies  4,877   1,270   -   (942)  5,205 
Labor contingencies  4,042   (258)  -   (7)  3,777 
Obligations with communities  5,878   1,306   -   (3,675)  3,509 
Board of Directors’ participation  2,108   1,736   -   (2,250)  1,594 
Environmental contingencies  234   1,343   -   (77)  1,500 
Workers’ profit sharing payable  3,569   8,398   1,772   (7)  -   (1,696)  69 
Board of Directors’ participation  1,273   1,140 
Provision for environmental contingencies  1,233   753 
Other provisions  3,695   1,703   758   259   -   -   1,017 
        
  241,724   236,692   267,934   58,102   10,656   (42,185)  294,507 
                            
Classification by maturity:                            
Current portion  76,847   62,502   68,172               72,771 
Non-current portion  164,877   174,190   199,762               221,736 
          267,934               294,507 
  241,724   236,692 

 

 F-57

Notes to the consolidated financial statements(continued)

 

(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:

 

 2017 2016 
 US$(000) US$(000)  2019 2018 
      US$(000) US$(000) 
Beginning balance  206,462   166,403   225,877   200,183 
Transfer of units held for sale  -   15,851 
Sale of mining units, note 1(e)  (11,770)  - 
                
Changes and additions in estimates:        
Changes (additions and deductions) in estimates        
Continuing mining units, note 11(a)  26,722   42,874 
Discontinued mining units, note 1(e)  12,701   3,365   1,912   6,013 
Continuing mining units, note 11(a)  10,594   34,532 
Exploration projects  891   - 
Exploration projects, note 26(a)  4,020   (2,433)
                
Accretion expense:        
Discontinued operations, note 1(e)  215   970 
Continuing mining units, note 26(a)  4,382   4,116 
Accretion expense        
Continuing mining units, note 27(a)  10,266   4,911 
Discontinued mining units, note 1(e)  266   88 
Exploration projects, note 26(a)  124   71 
                
Disbursements  (23,292)  (18,775)  (16,882)  (25,830)
                
Final balance  200,183   206,462   252,305   225,877 
                
Classification by maturity:                
Current portion  39,826   37,405   35,280   30,524 
Non-current portion  160,357   169,057   217,025   195,353 
                
  200,183   206,462   252,305   225,877 

 

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 20182020 and 2041. These estimates areThe Group recognizes the provision of closure of mining units and explorations projects based on estimates of studies prepared by independent advisersand activities that meet the environmental regulations in effect.effect and that will be approved by the Ministry of Energy and Mines. The provision of continued operations are prepared by independent advisors and provisions related to discontinue operations are prepared by internal advisors.

 

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.

 


Notes to the consolidated financial statements(continued)

As of December 31, 2017,2019, the future value of the provision for closure of mining units and exploration projects was US$230.9296.2 million, which has been discounted using annual risk-free rates from minimums of 0.27 and 0.601.79 to a maximum of 3.553.12 percent, in periods of 1 to 2422 years resulting in an updated liability of US$200.2 million (US$206.5 million as(as of December 31, 2016)2018, the provision was US$280.3 million, which has been discounted using annual risk-free rates from minimums of 1.98 and 4.74 to a maximum percent in periods of 1 to 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-58

Notes to the consolidated financial statements (continued)

As of December 31, 2017,2019, the Group has constituted letters of credit in favor of the Ministry of Energy and Mines for US$109.6121.4 million (US$117.7119.7 million as of December 31, 2016)2018) to secure current mine closure plans of its mining units and exploration projects up to date.

 

(c)The provisions for obligations with the communities increased by US$14.6 million, mainly due to the negotiations made by the Company in its operating units.

16.Financial obligations

 

(a)This caption is made up as follow:

 

 2017 2016  2019 2018 
 US$(000) US$(000)  US$(000) US$(000) 
     
Compañía de Minas Buenaventura S.A.A. (b)        
BBVA Banco Continental S.A.  61,667   61,667 
Compañía de Minas Buenaventura S.A.A.(b)        
BBVA Banco Continental  61,667   61,667 
Banco de Crédito del Perú  61,667   61,667   61,667   61,667 
CorpBanca New York Branch  61,666   61,666   61,666   61,666 
Banco Internacional del Perú  30,000   30,000   30,000   30,000 
ICBC Perú Bank  25,000   25,000   25,000   25,000 
Banco Latinoamericano de Comercio Exterior S.A.  20,000   20,000   20,000   20,000 
Banco de Sabadell, Miami Branch  15,000   15,000   15,000   15,000 
  275,000   275,000   275,000   275,000 
Debt issuance costs  (2,425)  (3,119)  (2,504)  (3,618)
  272,575   271,881   272,496   271,382 
Sociedad Minera El Brocal S.A.A.                
Banco de Crédito del Perú – Finance leaseback (c)  119,464   136,812 
Banco de Crédito del Perú – New financial obligation (c)  161,894   - 
Debt issuance costs  (1,377)  -   (709)  - 
  118,087   136,812   161,185   - 
Mid-term financial obligation (c)  80,000   173 
Banco de Crédito del Perú – Finance leaseback  -   94,490 
Debt issuance costs (c)  -   (976)
  -   93,514 
Banco de Crédito del Perú - Mid-term financial obligation (c)  -   75,000 
  198,087   136,985   161,185   168,514 
Empresa de Generación Huanza S.A.                
Banco de Crédito del Perú – Finance lease (d)  162,411   176,062   130,504   147,166 
                
Contacto Corredores de Seguros S.A.        
BBVA Banco Continental S.A. – Finance lease  10   53 
        
Buenaventura Ingenieros S.A.        
Banco de Crédito del Perú – Finance lease (e)  -   7,361 
        
Obligations for leases, note 2.3 and (g)  7,503   - 
Total financial obligations  633,083   592,342   571,688   587,062 
                
Classification by maturity:                
Current portion  83,991   40,110   265,692   46,166 
Non-current portion (f)  549,092   552,232 
Non-current portion (e)  305,996   540,896 
                
Total financial obligations  633,083   592,342   571,688   587,062 

 

 F-59

Notes to the consolidated financial statements(continued)

 

(b)On June 27, 2016, Buenaventura entered into a long-term finance contract with seven Peruvian and foreign banks, with the following terms and conditions:

 

-Principal: US$275,000,000.

-Annual interest rate: Three-month LiborLIBOR plus 3%.

-Term: 5 years since June 30, 2016, with final maturity in June 30, 2021.

-Grace Period: Two years.

-Amortization: 6six semiannual installments of US$39,285,714 sincestarting 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 43 times since June 30, 2016 until June 30, 2017 and less than 3 times since that date.2017.

(iii)Net consolidated equity value: Higher than US$2,711,388,800.

 

For the calculation of (i) and (ii), the financial obligations and EBITDAEarnings Before - Interest Depreciation and Amortization (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.Buenaventura.

 

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%.

-Term: 4 years from April 2018, due in April 2022.

-Amortization of credit: five semi-annual installments of US$55 million each since as of April 2020.

The Buenaventura´s Management oversees the compliance of the terms described above is overseen by the Company´s Management.above. As of December 31, 2017, the Company2019 and 2018, Buenaventura complies with the above financial ratios.

 


Notes to the consolidated financial statements(continued)

(c)On October 29, 2019, El Brocal entered into a new financial obligation of US$161,893,850 with Banco de Crédito del Perú in order to cancel the two previous obligations: i) Finance leaseback -leaseback; and ii) Mid-term financial obligation. The new financial obligation has the following terms and conditions:

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. The contracts have the following terms and conditions:

 

-Principal:Principal (Part A): US$166,500,000.113,325,695.

-Principal (Part B): US$48,568,155.

-Annual interest rate: Nine-month Libor plus 4.75rate (Part A): 3.76 percent.

-Term: 5.5 years since September 23, 2015, with final maturity in year 2020.Annual interest rate (Part B): Three-month LIBOR plus 2.39 percent.

-Amortization: Through 22 quarterly variable installments.Term (Part A): 5 years since October 2019 until October 2024.

-Term (Part B): 7 years since October 2019 until October 2026.

 

In connection withAccording to the lease contract mentioned above, financing, El Brocal must complyis required to maintain the following financial ratios:

 

(i)Debt service coverage ratio: Higher than 1.31.3.

(ii)Leverage ratio:Ratio: Less than1.0 times.

 F-60

Notes to the consolidated financial statements (continued)

(iii)DebtIndebtedness ratio:
a.Less than 2.50 times as of December 31, 2016;
b.Less than 2.50 times from January 1, 2017 to September 30, 2017;
c.Less than 2.25 times as of December 31, 2017;
d.Less than 2.0 times from January 1, 2018.times.

 

These sales agreements with a subsequentThis new financial lease areobligation is guaranteed by a trust agreement related to collectionsecurity guarantee contract on assets; guarantee contract on credit rights, sales contracts, cash flows for sales contracts and one related to the assets indicated in the contract.account balances; land mortgage contract; and mortgage contract on mining concessions.

 

The El Brocal´s Management of El Brocal has been restructuring its financial obligations, which resulted in a reductionoversees the compliance of the interest rates of its short and long-term loans in 2017. In September 2017, the interest rate applicable to the financial lease contract of El Brocal was modified. The new rate is three-month Libor plus 2.75 percent (three-month Libor plus 4.75 percent asterms described above. As of December 31, 2016).2019 and 2018, Buenaventura complies with the above financial ratios.

 

The compliance with the financial ratios described above is monitored by El Brocal’s Management. El Brocal’s Managementmanagement, which it managed and obtained from Banco de Crédito del Perú a one year waiver for any possible breach of the financial ratios.

Mid-term loan contract -

On October 23, 2017 El Brocal signed a mid-term loan agreement withratios that occured for the Banco de Credito del Peru for US$80,000,000, which accrues interest at an annual ratelast quarter 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 Peru2019 and for working capital.

As part of the commitments agreed, El Brocal must comply with the following financial indicators as of December 31, 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.

The compliance of the terms described above is overseen by the El Brocal´s Management. El Brocal´s Management obtained a one year waiver for any breach of the financial ratios.2020.

 

(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 negotiated 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 LiborLIBOR plus 2.75 percent (three-month Libor plus 4.60 percent in 2016).percent.

-Term: 6 years since August 2014, with final maturity in November 2020.

-Guarantee: Leased equipment.

-Amortization: Through 26 quarterly variable installments and a final payment of US$44,191,000.

 

 F-61

F-70 

 

Notes to the consolidated financial statements(continued)

 

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 2017, Huanza negotiate a reduction of the fixed rate of interest and agreed a modification of the following terms and conditions:

 

-Principal: US$103,373,000.

-Annual interest rate: Three-month LiborLIBOR plus 2.75 percent (three-month Libor plus 4.70 percent in 2016).percent.

-Term: 6 years since August 2014, with final maturity in November 2020.

-Guarantee: Leased equipment.

-Amortization: Through an initial installment of US$18,373,000, with 26 quarterly variable installments and a final installment of US$68,905,000.

 

(e)On June 9, 2015, BISA entered into a finance lease contract with Banco de Credito del Perú, for the construction of administrative offices, with the following terms and conditions:

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: Higher than 1.1.

- Minimum Net equity of US$30,000,000.

On December 2, 2009, Huanza signed a “Guarantee Trust Agreement” (hereinafter “the contract”), related to the financial lease agreement described above. In said contract, Huanza and Buenaventura are the trustors, the Bank is the trustee and La Fiduciaria S.A. is the fiduciary. The objective of the contract is the constitution of a trust equity with irrevocable character, which serves entirely as a guarantee of the total payment of the guaranteed obligations, which are based on the agreements, renewals, extensions or modifications established in the financial lease documents.

Under this contract, Huanza promised to grant the following:

 

-Principal: US$14,944,000.Trust of flows with respect to all the income of the hydroelectric power station of Huanza, including the income from sales of power and energy, through which Huanza is obliged to receive all the cash flows of commercial income through a collection account, as well as carry out certain mandatory actions that guarantee the channeling of flows mentioned above.

-Annual interest rate: 4.60 percent.Trust of assets of the station, the lands, the assets of Huanza necessary for the operation of the station that are not under the Financial Lease Agreement and the actions of Huanza, as well as the right of collection on future flows that would correspond receive Huanza before the eventual public auction of the rights and assets of the concession because of the expiration of the concession.

-Term: 5 yearsThe conditional transfer, by which Huanza assigns to the Bank the rights and 4 months since April 2014, with final maturity in July 2019.
-Guarantee: Leased property.
-Amortization: Through 64 monthly installmentsobligations derived from the agreements and contracts signed by Huanza for the construction of US$208,000 each.the Plant.

 


In October 2017, BISA sold its investment properties for US$11,250,000. Of this total, US$7,196,922 was used byNotes to the buyer to prepay, on behalf of Bisa, the finance lease contract with Banco de Credito del Peru; the remaining amount of US$4,053,078 will be collected during the first quarter of 2018.consolidated financial statements(continued)

 

(f)-Letters of Guarantee, by means of which, Buenaventura is constituted as Huanza's solidarity guarantor, guaranteeing in favor of the Bank the fulfillment of the obligations breached by Huanza.

As of December 31, 2019 and 2018, Huanza complied with these assumed commitments, including that related to the channeling of all the cash flows received for commercial income through a collection account.

(e)The long-term portion of the financial obligations held by the Group matures as follows:

 

  2017  2016 
  US$(000)  US$(000) 
       
Between 1 and 2 years  125,215   81,057 
Between 2 and 5 years  427,680   474,294 
   552,895   555,351 
Debt issuance costs  (3,803)  (3,119)
   549,092   552,232 

 F-62

Notes to the consolidated financial statements (continued)

  2019  2018 
   US$(000)   US$(000) 
         
Between 1 and 2 years  133,091   278,397 
Between 2 and 5 years  127,463   266,625 
More than 5 years  48,566   - 
         
   309,120   545,022 
Debt issuance costs  (3,124)  (4,126)
         
   305,996   540,896 

 

(g)(f)Below is presented the movement:

 

 2017 2016 2015  2019 2018 2017 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
                   
Beginning balance  592,342   353,710   383,305   587,062   633,083   592,342 
New obligations  80,000   275,210   296   161,894   -   80,000 
New lease obligations, note 2.3  19,885   -   - 
Payments of financial obligations  (186,152)  (45,222)  (32,599)
Payments of obligations for leases  (7,596)  -   - 
Increase of debt issuance costs  (728)  -   (480)
Movement of lease obligations  (4,786)  -   - 
Accrual of debt issuance costs in results, note 27(a)  2,109   1,024   909 
Exchange difference  -   384   (165)
Increase in interest for debt restructuring  -   (2,207)  - 
Accrual of debt issuance costs capitalized  272   (3,119)  -   -   -   272 
Accrual of debt issuance costs in results, note 26(a)  909   -   - 
Payments  (32,599)  (33,476)  (29,891)
Sale of asset under lease agreement (e)  (7,196)  -   - 
Increase of debt issuance costs, note 26(a)  (480)  -   - 
Exchange difference  (165)  17   - 
Sale of asset under lease agreement  -   -   (7,196)
                        
Final balance  633,083   592,342   353,710   571,688   587,062   633,083 


Notes to the consolidated financial statements(continued)

(g)Lease liabilities related to the right in use are:

2019
US$(000)
Buildings5,296
Transportation units1,429
Machinery and equipment778
7,503
Classification by maturity:
Current portion3,692
Non-current portion3,811
7,503

Buildings -

Lease liabilities related to buildings mainly correspond to a lease contract entered by Buenaventura on its administrative offices in Lima located in Las Begonias Street N°415, San Isidro, Lima, Peru, with a lease term of 10 years since the year 2013 and fixed payments. The Group has the option to lease the assets for two additional term of 5 years each.

Future minimum rentals payable as of December 31 are the following:

  2019  2018 
   US$(000)   US$(000) 
         
Within one year  1,470   1,543 
After one year but not more than five years  3,697   5,787 
   5,167   7,330 

Transportation units -

The Group has lease contracts for various items of mining vehicles used in its operations. Leases of mining vehicles generally have lease terms between one and three years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets. No contracts require the Group to maintain certain financial ratios nor includes variable lease payments.

The Group also has certain leases of assets with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the short-term lease and lease of low-value assets recognition exemptions for these leases.


Notes to the consolidated financial statements(continued)

 

17.Shareholders’ equity, net

 

(a)Capital stock -

The Group’s share capital is stated in Solessoles and consistsconsisted 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, 20172019 and 2016:2018:

 

 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 S/45.0047.77 per share as of December 31, 20172019 (S/34.3753.60 per share as of December 31,2016)31, 2018). These shares present trading frequencies of 25 and 1035 percent in the years 20172019 and 2016,2018, respectively.

 F-63

Notes to the consolidated financial statements (continued)

 

(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, 20172019 and 2016:2018:

 

 Number of
shares
 Number of
shares
 Number of
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  (472,963)  (4,730)  (1,370)  (472,963)  (4,730)  (1,370)
              271,677   2,717   791 
  271,677   2,717   791 

 

The market value of the investment shares amounted to S/22.1016.00 per share as of December 31, 20172019 (S/25.0019.60 per share as of December 31, 2016)2018). These shares did not present a trading frequency in 20172019 and 2016.

During 2016, the Group purchased 200,000 treasury shares at a market value of US$1,210,000, recording a purchase loss of US$605,000, presented as part of the additional paid-in capital.2018.

 

(c)Legal reserve -

The Peruvian Corporations Law requires that a minimum of 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 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.

 


Notes to the consolidated financial statements(continued)

Although, the balance of the legal reserve exceeded the limit mentioned above, the Group increased its legal reserve by US$53,000 in the year 2019 (US$44,000 and US$327,000 in the yearyears 2018 and 2017 (US$30,000 inrespectively) as a result of the year 2016) related to expired dividends.

 F-64

Notes According to the consolidated financial statements (continued)General Corporate Law, dividends expire ten years after the payment due.

 

(d)Dividends declared and paid -

During 2015, no dividends have been declared or paid.

The table below presents the dividends declared and paid in 20172019, 2018 and 2016:2017:

 

Meetings Date 

Dividends 

paid

 

Dividend 

per share

  Date  

Dividends declared and 

paid

 

Dividend 

per share

 
    US$(000) US$ 
       
2019 Dividends          
Mandatory Annual Shareholders’ Meeting  March 25   16,538   0.06 
Less - Dividends of treasury shares     (1,298)   
          
     15,240    
          
Board of Directors’ Meeting  October 29   7,442   0.03 
Less - Dividends of treasury shares     (584)   
     6,858    
     22,098     
          
2018 Dividends          
Mandatory Annual Shareholders’ Meeting  March 27   8,269   0.03 
Less - Dividends of treasury shares     (648)   
     7,621    
          
Board of Directors’ Meeting  October 25   16,538   0.06 
Less - Dividends of treasury shares     (1,299)   
     15,239    
   US$(000) US$      22,860    
                 
2017 Dividends                    
Mandatory Annual Shareholders’ Meeting March 28  15,711   0.056   March 28   15,711   0.06 
Less - Dividends of treasury shares    (1,232)         (1,232)   
                    
    14,479          14,479    
                    
Board of Directors’ Meeting October 27  8,269   0.030   October 27   8,269   0.03 
Less - Dividends of treasury shares    (649)         (649)   
               7,620    
    7,620          22,099    
    22,099     
2016 Dividends          
Board of Directors’ Meeting October 27  8,269   0.030 
Less - Dividends of treasury shares    (648)    
          
    7,621     

 

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$6,036,000,6,500,000, US$7,400,0005,560,000 and US$10,488,0006,036,000 for the years 2019, 2018 and 2017, 2016 and 2015, respectively.


Notes to the consolidated financial statements(continued)

 

(e)Basic and diluted profit (loss) per share -

Profit (loss) per share is calculated by dividing net profit (loss) for the period by the weighted average number of shares outstanding during the year.

The calculation of profit (loss) per share attributable to the equity holders of the parent is presented below:

 

  2017  2016  2015 
          
Profit (loss) net (numerator) - US$  60,823,000   (323,492,000)  (317,210,000)
Total common and investment shares (denominator)  253,986,867   253,986,867   254,186,867 
             
Profit (loss) net per basic share and diluted - US$  0.24   (1.27)  (1.25)

 F-65

Notes to the consolidated financial statements (continued)

  2019  2018  2017 
          
Profit (loss) net (numerator) - US$  (12,208,000)  (13,445,000)  60,823,000 
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)  (0.05)  0.24 

 

The calculation of profit (loss) per share from continuing operations attributable to the equity holders of the Parent is presented below:

 

 2017 2016 2015  2019 2018 2017 
              
Profit (loss) net (numerator) - US$  70,921,000   (304,419,000)  (296,977,000)  (1,694,000)  (1,637,000)  71,167,000 
Total common and investment shares (denominator)  253,986,867   253,986,867   254,186,867   253,986,867   253,986,867   253,986,867 
            
Profit (loss) net per basic share and diluted - US$  0.28   (1.20)  (1.17)  (0.01)  (0.02)  0.28 

 

The common and investment shares outstanding at the close of 2019, 2018 and 2017 2016 and 2015 were 253,986,867, 253,986,867 and 254,186,867, respectively.253,986,867.

A tax of 5 percent of the income tax is established to the dividends or any other form of distribution of profits.


Notes to the consolidated financial statements(continued)

 

18.Subsidiaries with material non-controlling interest

 

(a)Financial information of main subsidiaries that have material non-controlling interest are provided below:

 

  Country of
incorporation
and operation
 2017  2016  2015 
    %  %  % 
            
Equity interest held by non-controlling interests:              
Sociedad Minera El Brocal S.A.A. Peru  38.58   38.67   45.93 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  40.00   40.00   40.00 
Minera La Zanja S.R.L. Peru  46.94   46.94   46.94 

    2017  2016  2015 
    US$(000)  US$(000)  US$(000) 
Accumulated balances of material non-controlling interest:              
Sociedad Minera El Brocal S.A.A. Peru  165,032   167,986   172,542 
Minera La Zanja S.R.L. Peru  48,642   55,613   53,271 
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  1,693   1,906   2,357 
Apu Coropuna S.R.L. Peru  223   678   - 
Other minor Chile  -   (61)  - 
     215,590   226,122   228,170 
               
Profit (loss) allocated to material non-controlling interest:              
S.M.R.L. Chaupiloma Dos de Cajamarca Peru  5,827   6,950   9,244 
Sociedad Minera El Brocal S.A.A. Peru  4,246   (13,426)  (34,991)
Minera La Zanja S.R.L. Peru  (6,006)  2,342   (32,486)
Apu Coropuna S.R.L. Peru  (454)  (157)  (102)
Other minor Chile  (1)  (31)  - 
     3,612   (4,322)  (58,335)

  F-66

Country of

incorporation and operation

2019, 2018 and 2017
%
Equity interest held by non-controlling interests:
Sociedad Minera El Brocal S.A.A.Peru38.57
S.M.R.L. Chaupiloma Dos de CajamarcaPeru40.00
Minera La Zanja S.R.L.Peru46.94
Apu Coropuna S.R.L.Peru30.00 

 

Notes to the consolidated financial statements (continued)

   2019   2018   2017 
   US$(000)   US$(000)   US$(000) 
Accumulated balances of material non-controlling interest:            
Sociedad Minera El Brocal S.A.A.  161,917   176,978   165,032 
Minera La Zanja S.R.L.  33,026   42,295   48,642 
S.M.R.L. Chaupiloma Dos de Cajamarca  1,587   1,800   1,693 
Apu Coropuna S.R.L.  148   164   223 
   196,678   221,237   215,590 
Profit (loss) allocated to material non-controlling interest:            
Sociedad Minera El Brocal S.A.A.  (13,432)  2,880   4,246 
Minera La Zanja S.R.L.  (9,090)  (6,346)  (6,006)
S.M.R.L. Chaupiloma Dos de Cajamarca  6,286   5,667   5,827 
Apu Coropuna S.R.L.  (14)  (410)  (454)
Other minor  (1)  -   (1)
   (16,251)  1,791   3,612 

 

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,


Notes to the Company, through the Lima Stock Exchange, made capital contributions to its subsidiary Sociedad Minera El Brocal S.A.A. for S/63.9 million (equivalent to US$18.6 million) and US$45.2 million, which resulted in an increase in its shares and a dilution of non-controlling shareholders for US$5.4 million equivalents to 7.26%.consolidated financial statements(continued)

 

(b)The summarized financial information of these subsidiaries, before inter-company eliminations, is presented below:

 

Statements of financial position as of December 31, 2017:2019:

 

  Sociedad
Minera El
Brocal
S.A.A.
  S.M.R.L.
Chaupiloma
Dos de
Cajamarca
  Minera
La Zanja
S.R.L.
  Apu
Coropuna
S.R.L.
  Other
minor
  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Current assets  146,865   6,640   134,758   1,440   665   290,368 
Non-current assets  645,729   -   55,873   189   30   701,821 
Current liabilities  (159,190)  (2,407)  (38,807)  (143)  (29)  (200,576)
Non-current liabilities  (229,709)  -   (48,201)  (740)  (2)  (278,652)
                         
Total shareholders’ equity, net  403,695   4,233   103,623   746   664   512,961 
                         
Attributable to:                        
Shareholders of the parent  239,925   2,540   54,981   523   664   298,633 
Non-controlling interests  165,032   1,693   48,642   223   -   215,590 
                         
   404,957   4,233   103,623   746   664   514,223 

 F-67

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) 
                 
Current assets  149,945   112,420   6,252   2,141 
Non-current assets  576,028   26,038   -   185 
Current liabilities  (118,965)  (20,170)  (2,286)  (1,094)
Non-current liabilities  (210,904)  (47,930)  -   (740)
                 
Shareholders’ equity, net  396,104   70,358   3,966   492 
                 
Attributable to:                
Shareholders of the Group  234,187   37,332   2,379   344 
Non-controlling interests  161,917   33,026   1,587   148 
                 
   396,104   70,358   3,966   492 

 

Statements of financial position as of December 31, 2016:2018:

 

 Sociedad
Minera El
Brocal
S.A.A.
 S.M.R.L.
Chaupiloma
Dos de
Cajamarca
 Minera
La Zanja
S.R.L.
 Apu
Coropuna
S.R.L.
 Other
minor
 Total  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) US$(000) US$(000)  US$(000) US$(000) US$(000) US$(000) 
                             
Current assets  120,291   7,439   155,659   2,301   81   285,771   170,274   126,878   7,154   2,263 
Non-current assets  642,790   -   90,447   88   500   733,825   603,280   31,841   -   182 
Current liabilities  (184,324)  (2,684)  (40,411)  (129)  -   (227,548)  (123,052)  (25,834)  (2,653)  (1,165)
Non-current liabilities  (168,589)  -   (89,278)  -   (2)  (257,869)  (217,683)  (42,781)  -   (739)
                                        
Total shareholders’ equity, net  410,168   4,755   116,417   2,260   579   534,179 
Shareholders’ equity, net  432,819   90,104   4,501   541 
                                        
Attributable to:                                        
Shareholders of the parent  242,182   2,849   60,804   1,582   640   308,057 
Shareholders of the Group  255,841   47,809   2,701   377 
Non-controlling interests  167,986   1,906   55,613   678   (61)  226,122   176,978   42,295   1,800   164 
                                        
  410,168   4,755   116,417   2,260   579   534,179   432,819   90,104   4,501   541 

 

 F-68

Notes to the consolidated financial statements (continued)(continued)

 

Statements of profit or loss for the year ended December 31,years 2019, 2018 and 2017:

 

  Sociedad
Minera El
Brocal S.A.A.
  S.M.R.L.
Chaupiloma
Dos
de Cajamarca
  Minera
La Zanja
S.R.L.
  Apu
Coropuna
S.R.L.
  Other
minor
  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Revenues  322,653   20,739   165,319   -   -   508,711 
Cost of sales  (254,390)  -   (153,230)  -   -   (407,620)
Administrative expenses  (13,061)  (90)  (2,814)  (92)  (24)  (16,081)
Sales expenses  (10,914)  -   (881)  -   -   (11,795)
Exploration in non-operating areas  (1,975)  -   (2,871)  (680)  -   (5,526)
Other operating expense, net  (2,923)  (1)  (969)  (744)  -   (4,637)
Provision for contingencies  -   -   (1,370)  1   -  ��(1,369)
Impairment loss of long-lived assets  (13,573)  -   (21,620)  -   -   (35,193)
Finance income  179   7   670   -   -   856 
Finance costs  (12,017)  (2)  (1,918)  (1)  -   (13,938)
Net gain (loss) for exchange difference  310   (41)  48   1   410   728 
Profit (loss) before income tax  14,289   20,612   (19,636)  (1,515)  386   14,136 
Income tax  (3,903)  (6,044)  6,841   -   -   (3,106)
                         
Net profit (loss)  10,386   14,568   (12,795)  (1,515)  386   11,030 
                         
Attributable to non-controlling interests  4,246   5,827   (6,006)  (454)  (1)  3,612 
                         
Dividends paid to non-controlling interests  -   6,036   -   -   -   6,036 

 F-69

Notes to the consolidated financial statements (continued)

Statements of profit or loss for the year ended December 31, 2016:

  Sociedad
Minera El
Brocal S.A.A.
  S.M.R.L.
Chaupiloma
Dos
de Cajamarca
  Minera
La Zanja
S.R.L.
  Apu
Coropuna
S.R.L.
  Other
minor
  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Revenues  230,611   24,339   178,922   -   -   433,872 
Cost of sales  (234,594)  (16)  (150,039)  -   -   (384,649)
Administrative expenses  (11,802)  (112)  (1,980)  (4)  -   (13,898)
Sales expenses  (10,650)  -   (938)  -   -   (11,588)
Exploration in non-operating areas  (1,939)  -   (4,619)  (524)  -   (7,082)
Other operating expense, net  309   11   4,237   -   (410)  4,147 
Finance income  256   -   87   -   -   343 
Finance costs  (12,554)  (2)  (2,614)  -   -   (15,170)
Net gain (loss) for exchange difference  (270)  (93)  65   5   -   (293)
Profit (loss) before income tax  (40,633)  24,127   23,121   (523)  (410)  5,682 
Income tax  7,851   (6,761)  (18,256)  -   -   (17,166)
                         
Net profit (loss)  (32,782)  17,366   4,865   (523)  (410)  (11,484)
                         
Attributable to non-controlling interests  (13,426)  6,950   2,342   (157)  (31)  (4,322)
                         
Dividends paid to non-controlling interests  -   7,400   -   -   -   7,400 

 F-70

Notes to the consolidated financial statements (continued)

Statements of profit or loss for the year ended December 31, 2015:

  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)  (58,335)
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 2019 -                    
                     
Revenues  299,252   43,520   22,297   -   - 
Net profit (loss)  (32,855)  (19,364)  15,715   (48)  (17)
Attributable to non-controlling interests  (13,432)  (9,090)  6,286   (14)  (1)
                     
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)

 

Statements of cash flow for the year ended December 31,years 2019, 2018 and 2017:

 

 Sociedad
Minera El |
Brocal S.A.A.
 S.M.R.L.
Chaupiloma
Dos de
Cajamarca
 Minera La
Zanja S.R.L.
 Apu Coropuna
S.R.L.
 Total  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) US$(000)  US$(000) US$(000) US$(000) US$(000) 
                           
Year 2019 -                
Operating activities  60,525   15,093   139,155   (185)  214,588   1,545   (908)  16,040   - 
Investing activities  (64,343)  -   (17,326)  -   (81,669)  (28,259)  (1,629)  -   - 
Financing activities  18,096   (15,090)  (32,077)  1,477   (27,594)  (405)  (763)  (16,250)  1,032 
Increase in cash and cash equivalents in the year  14,278   3   89,752   1,292   105,325 
  (27,119)  (3,300)  (210)  1,032 
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)

 

 F-71

Notes to the consolidated financial statements (continued)(continued)

 

Statements of cash flow for the year ended December 31, 2016:

  Sociedad
Minera El
Brocal S.A.A.
  S.M.R.L.
Chaupiloma
Dos de
Cajamarca
  Minera La
Zanja S.R.L.
  Apu Coropuna
S.R.L.
  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
Operating activities  (9,151)  18,178   11,839   (1,895)  18,971 
Investing activities  (37,935)  -   (14,994)  -   (52,929)
Financing activities  48,021   (18,500)  -   2,717   32,238 
Increase (decrease) in cash and cash equivalents in the year  935   (322)  (3,155)  822   (1,720)

Statements of cash flow for the year ended December 31, 2015:

 Sociedad
Minera El
Brocal S.A.A.
 S.M.R.L.
Chaupiloma
Dos de
Cajamarca
 Minera La
Zanja S.R.L.
 Total  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)  US$(000) US$(000)  US$(000) US$(000) 
         
Year 2017 -         
Operating activities  (1,523)  26,474   30,743   55,694   60,525   139,155   15,093   (185)
Investing activities  (28,375)  -   (26,761)  (55,136)  (64,343)  (17,326)  -   - 
Financing activities  31,867   (26,220)  -   5,647   18,096   (32,077)  (15,090)  1,477 
Increase in cash and cash equivalents in the year  1,969   254   3,982   6,205 
  14,278   89,752   3   1,292 

 

19.Tax situation

 

(a)Current tax regime -

The Company and its Peruvian subsidiaries are subject to the Peruvian tax regime.

By means of Law N° 1261 enacted on December 10, 2016, the Peruvian government introduced certain amendments to the Income Tax Law, effective January 1, 2017. The most relevant are listed below:

 

-A corporate income tax rate of 29.5% is set.

-A tax of 5% of the income tax is established to the dividends or any other form of distribution of profits.
-The rate applicable to dividends will be considered taking into account the year in which the results or profits that form part of the distribution havehas been obtained,obtained. The rate will be consider according to the following: 4.1% with respect to the results obtained until December 31, 2014; 6.8% with respect to the results obtained during the years 2015 and 2016; and 5% with respect to the results obtained from January 1, 2017.

-It has been established that the distribution of dividends to be made corresponds to the oldest retained earnings.

 

 F-72

In July 2018, Law No. 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)Since January 1, 2019, the applicable treatment of royalties and remuneration for services rendered by non-domiciled was modified (Legislative Decree No. 1369).

(ii)The rules that regulate the obligation of legal persons and / or legal entities to inform the identification of their final beneficiaries (Legislative Decree No. 1372) were established.

(iii)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.

(iv)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.


Notes to the consolidated financial statements (continued)(continued)

 

(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 by the
Tax Authorities
  
Compañía de Minas Buenaventura S.A.A.2013-2017
Bisa Construcción S.A. (absorbed by Buenaventura Ingenieros S.A. in 2015)2014-2015
Buenaventura Ingenieros S.A.2013, 2015-2017
Compañía de Exploraciones, Desarrollo e Inversiones Mineras S.A.C. – CEDIMIN (absorbed by the Company in 2013)20132015-2019
Compañía Minera Condesa S.A.2013-20172015-2019
Compañía Minera Colquirrumi S.A.2013-20172015-2019
Consorcio Energético de Huancavelica S.A.2013-20172016-2019
Contacto Corredores de Seguros S.A.2014-20172014-2019
El Molle Verde S.A.C.2013-20172015-2019
Empresa de Generación Huanza S.A. 2013, 2015, 2016, 20172015-2019
Inversiones Colquijirca S.A.2013-20172015-2019
Minera La Zanja S.R.L.2014-20172016-2019
Sociedad Minera El Brocal S.A.A.2014-20172014, 2016-2019
S.M.R.L. Chaupiloma Dos de Cajamarca2014-20172015-2019
Procesadora Industrial Río Seco S. A. 2014-20172015-2019
Apu Coropuna S.R.L.2013-20172015-2019
Cerro Hablador S. A. C.2013-20172015-2019
Minera Azola S. R. L.2014-20172015-2019

As 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 2014.

 

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, 20172019 and 2016.

 F-73

Notes to the consolidated financial statements (continued)2018.

 

The open tax process of the Group and its associates are presented in note 28 (g)29(e).


Notes to the consolidated financial statements (continued)

 

(c)

Tax-loss carryforwards -

As of December 2017 and 2016, the tax-loss carryforward determined by the Group amounts to approximately S/1,337,919,000 and S/1,347,159,000, respectively (equivalent to US$412,302,000 and US$415,149,000 respectively). As permitted by the Income Tax Law, the Group has chosen a system that permits to offset these losses with an annual cap equivalent to 50 percent of net future taxable income.

The Group has decided to recognize a deferred income tax asset related to the tax-loss carryforward of those companies where is more likely than not that the tax-loss carryforward can be used to compensate future taxable net income.

 

As of December 2019 and 2018, the tax-loss carryforward determined by the Group amounts to approximately S/1,950,896,000 and S/1,550,156,000, respectively (equivalent to US$588,151,000 and US$458,762,000 respectively). As permitted by the Income Tax Law, the Group has chosen a system that permits to offset these losses with an annual cap equivalent to 50 percent of net future taxable income.

(d)

The Group recognized a deferred income tax asset related to the tax-loss carryforward of those companies where is probable that a carryforward can be used to compensate future taxable profits.

(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'sGroup’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 201731, 2019 and 2016.2018.

20.

Net sales

  F-74

Notes to the consolidated financial statements (continued)

 

20.

(a)

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:

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
Sales and services by geographic region:            
Metal and concentrates sales            
Peru  591,185   401,372   345,146 
America  464,000   410,154   419,359 
Europe  91,414   109,788   60,549 
Asia  77,343   94,356   21,215 
   1,223,942   1,015,670   846,269 
             
Services rendered            
Peru  14,903   28,782   50,839 
America  14,794   -   - 
   29,697   28,782   50,839 
   1,253,639   1,044,452   897,108 
             
Sale by metal:            
Gold  511,434   440,603   419,541 
Silver  409,775   385,989   313,418 
Copper  268,527   224,649   131,356 
Zinc  188,023   142,425   102,110 
Lead  94,955   58,690   55,445 
Manganese sulfate  6,317   5,982   3,649 
Indium  66   -   - 
   1,479,097   1,258,338   1,025,519 
             
Commercial deductions  (253,939)  (244,414)  (196,145)
Adjustments to prior period liquidations  919   4,611   7,467 
Embedded derivatives from sale of concentrate  8,786   880   (388)
Hedge operations  (10,921)  (3,745)  9,816 
   1,223,942   1,015,670   846,269 
Services rendered  29,697   28,782   50,839 
             
   1,253,639   1,044,452   897,108 

  2019  2018  2017 
  

US$(000)

  

US$(000)

  

US$(000)

 
Revenues by geographic region:            
Metal and concentrates sales -            
Peru  476,978   521,017   516,054 
America - other than Peru  171,769   370,624   471,863 
Asia  105,645   120,519   120,719 
Europe  60,475   100,792   79,837 
   814,867   1,112,952   1,188,473 
Services -            
Peru  23,501   23,712   14,903 
America - other than Peru  130   289   14,794 
Europe  30   -   - 
   23,661   24,001   29,697 
Royalties -            
Peru  22,297   20,385   20,739 
             
   860,825   1,157,338   1,238,909 
 F-75


Notes to the consolidated financial statements (continued)

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
Revenues by type of good or services:            
Sales by metal -            
Silver  298,171   362,122   393,257 
Gold  254,194   411,877   510,982 
Copper  238,304   274,761   268,527 
Zinc  149,317   164,666   170,518 
Lead  89,141   85,555   85,957 
Manganese sulfate  6,046   6,655   6,317 
Indium  -   -   66 
   1,035,173   1,305,636   1,435,624 
Commercial deductions  (220,306)  (192,684)  (247,151)
   814,867   1,112,952   1,188,473 
Sales by services -  23,661   24,001   29,697 
Royalties income -  22,297   20,385   20,739 
Total revenue from contracts with customers  860,825   1,157,338   1,238,909 
             
Revenues by type of recognition:            
Goods transferred at a point in time  814,867   1,112,952   1,188,473 
Services transferred over time  23,661   24,001   29,697 
Royalties at a point of time  22,297   20,385   20,739 
   860,825   1,157,338   1,238,909 

(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:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
Contracts with customers for sale of goods  814,867   1,112,952   1,188,473 
Hedge operations  4,322   (1,398)  (10,921)
Fair value of accounts receivables  2,347   (6,013)  8,417 
Adjustments to prior period liquidations  394   788   1,237 
Net sale of goods  821,930   1,106,329   1,187,206 
             
Net sale of services  23,661   24,001   29,697 
             
Royalty income  22,297   20,385   20,739 
             
   867,888   1,150,715   1,237,642 

(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 90 days from delivery. Performance obligation of services is satisfied over-time and payment is generally due upon completion and acceptance of service.


Notes to the consolidated financial statements (continued)

 

(b)

(d)

Concentration of sales -

In 2017, the three customers with sales of more than 10 percent of total net sales represented 28, 15 and 10 percent from the total net sales of the Group (three customers by 28, 22 and 22 percent during the year 2016 and; two customers by 66 and 22 percent during the year 2015). As of December 31, 2017, 49 percent of the accounts receivable correspond to these customers (46 percent as of December 31, 2016). These customers 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.

 

In 2019, the three customers with sales of more than 10 percent of total net sales represented 25, 16 and 11 percent from the total net sales of the Group (three customers by 32, 13 and 11 percent during 2018 and three customers by 28, 15 and 10 percent during 2017). As of December 31, 2019, 84 percent of the accounts receivable correspond to these customers (43 percent as of December 31, 2018). These customers are related to the mining business.

21.

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 with the Group that guarantee supplying them the production from the Group’s mines.

(e)

Sales expenses -

Sales expenses represent 3%, 2% and 2% of the total operating income for the years 2019, 2018 and 2017, respectively. Sales expenses corresponds mainly to transportation services and services and shipping costs. Transportation services represent 58% of the caption for the years 2019, 2018 and 2017. Shipping services and expenses represent 22%, 21% and 8% of the caption for the years 2019, 2018 and 2017.

21.

Cost of sales, without considering depreciation and amortization

 

(a)

The cost of sales of goods is made up as follows:

 

 2017 2016 2015  2019 2018 2017 
 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  58,633   69,932   105,944   49,206   37,640   58,633 
            
Cost of production                        
Services provided by third parties  262,195   211,325   230,148   196,895   243,410   254,821 
Consumption of materials and supplies  134,070   100,401   100,241   96,351   133,961   129,294 
Direct labor  87,886   72,344   66,745   79,076   93,122   82,930 
Electricity and water  44,345   41,989   34,972   44,583   50,215   42,877 
Rentals  26,591   10,852   5,783 
Transport  20,784   23,539   25,406 
Maintenance and repair  22,839   17,792   7,401   19,729   24,415   22,062 
Transport  16,254   10,880   9,502 
Short-term and low-value lease  16,341   30,819   15,498 
Insurances  6,637   4,347   5,247   12,235   11,311   5,870 
Provision (reversal) for impairment of finished goods and product in progress, note 8(b)  2,118   (7,581)  13,096 
Cost of concentrate purchased to associates  439   2,958   - 
Other production expenses  10,464   9,789   7,078 
Provision (reversal) for impairment of finished goods and product in progress, note 8(c)  (2,143)  4,521   2,118 
Other minor  11,755   9,634   10,179 
Total cost of production of the period  613,838   475,096   480,213   495,606   624,947   591,055 
Final balance of products in process and finished goods, net of depreciation and amortization  (45,038)  (47,216)  (72,667)  (31,938)  (49,206)  (45,038)
            
Cost of sales of goods, without considering depreciation and amortization  627,433   497,812   513,490   512,874   613,381   604,650 

 

 F-76

Notes to the consolidated financial statements(continued)

 

(a)(b)The cost of services is made up as follows:

 

 2017 2016 2015  2019 2018 2017 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Direct labor  7,398   5,983   18,314   1,231   2,128   7,398 
Electricity and water  589   249   586 
Consumption of materials and supplies  497   675   1,026 
Services provided by third parties  1,782   1,689   16,247   331   382   1,782 
Consumption of materials and supplies  1,026   868   7,865 
Maintenance and repair  946   217   637   186   543   946 
Electricity and water  586   633   7,134 
Rentals  423   480   2,544 
Insurances  246   212   1,233   163   86   246 
Transport  98   213   3,868   148   50   98 
Other  449   459   1,770 
Cost of sales of services, without considering depreciation and amortization  12,954   10,754   59,612 
Short-term and low-value lease  89   92   423 
Other minor  144   113   449 
            
  3,378   4,318   12,954 

 

22.

22.

Exploration in operating units

This caption is made up as follows:

This caption is made up as follows

 2017 2016 2015  2019 2018 2017 
 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  2,837   5,157   5,309 
            
Exploration in operating units            
Services provided by third parties  79,837   78,996   72,613   33,591   71,513   75,743 
Consumption of materials and supplies  8,236   12,779   10,298   3,712   8,594   7,673 
Direct labor  2,373   1,989   2,287   1,747   2,349   2,142 
Rentals  1,527   1,603   859 
Short-term and low-value lease  1,186   2,065   1,405 
Electricity and water  1,328   21   7   905   1,337   820 
Transport  587   321   238   71   192   543 
Maintenance and repair  100   62   30   10   450   98 
Insurance  -   116   135 
Other minor expenses  940   262   3,232 
Other minor  548   910   56 
Total exploration in operating units  41,770   87,410   88,480 
Final balance of products in process and finished goods, net of depreciation and amortization  (444)  (2,837)  (4,478)
  94,928   96,149   89,699             
Exploration in operating units  44,163   89,730   89,311 

 

23.Mining royalties

As of December 31, 2019, 2018 and 2017, disbursements of exploration in operating amount to US$44.2 million, US$89.7 million and US$89.3 million, respectively, which are presented in the “Payments to suppliers and third parties” caption of the consolidated statements of cash flows.

This caption is made up as follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Sindicato Minero de Orcopampa S.A., note 28(b)  20,165   19,824   21,942 
Royalties paid to the Peruvian State  11,052   7,787   5,246 
   31,217   27,611   27,188 

 F-77


Notes to the consolidated financial statements (continued)

24.Administrative expenses

This caption is made up as follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Personnel expenses  36,265   29,617   33,036 
Sundry charges  12,510   15,531   21,248 
Professional fees  12,663   11,696   10,364 
Rentals  5,412   4,870   4,009 
Insurance  3,911   3,023   5,105 
Donations  3,006   4,280   3,336 
Maintenance and repairs  2,657   1,076   973 
Subscriptions and quotes  1,428   697   540 
Board of Directors’ participation  1,422   1,140   1,055 
Communications  1,376   1,557   1,281 
Travel and mobility  1,053   914   787 
Allowance for doubtful accounts, note 7(f)  676   5,087   903 
Consumption of materials and supplies  616   416   1,032 
Canons and tributes  602   1,460   824 
Provision (reversal) of stock appreciation’s rights  -   328   (121)
   83,597   81,692   84,372 

 

23.

25.

Mining royalties 

This caption is made up as follows:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Royalties paid to the Peruvian State  8,091   9,266   10,719 
Sindicato minero de Orcopampa S.A., note 29(b)  4,741   12,122   20,165 
             
   12,832   21,388   30,884 

24.

Administrative expenses

This caption is made up as follows:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Personnel expenses  38,566   34,656   36,265 
Professional fees  13,924   15,324   12,663 
Sundry charges  7,489   3,965   4,921 
Depreciation and amortization  3,825   1,295   1,146 
Board of Directors’ compensation  2,202   3,252   1,422 
Software licenses  1,706   1,824   2,523 
Subscriptions and quotes  1,492   1,938   1,428 
Communications  1,296   1,512   1,376 
Donations  1,030   1,617��  3,006 
Short-term and low-value lease  1,011   5,818   5,412 
Maintenance and repairs  953   2,732   2,657 
Transport  878   1,212   989 
Insurance  720   645   3,911 
Consumption of materials and supplies  422   436   616 
Canons and tributes  410   388   602 
Travel and mobility  373   467   1,053 
Allowance for expected credit losses, note 7(f)  -   18   676 
   76,297   77,099   80,666 

25.

Exploration in non-operating areas

This caption is made up as follows:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Personnel expenses  3,632   4,830   4,064 
Services provided by third parties  3,611   22,764   5,401 
Lands  1,528   1,867   1,781 
Short-term and low-value lease  415   1,524   1,171 
Consumption of materials and supplies  328   1,420   582 
Other minor  2,365   3,902   5,263 
             
   11,879   36,307   18,262 

During 2019, disbursements of exploration in non-operating areas amount to US$11.9 million mainly focused in Yumpag and Marcapunta (US$36.3 million during 2018 mainly focused in Yumpag, Marcapunta and Emperatriz and US$18.3 million during 2017 mainly focused in Tambomayo, Yumpag, Marcapunta and Emperatriz exploration projects), which are presented in the “Payments to suppliers and third parties” caption of the consolidated statements of cash flows.


Notes to the consolidated financial statements(continued)

26.

Other, net

(a)

This caption is made up as follows:

 

This caption is made up as follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Services provided by third parties  5,401   13,629   18,852 
Personnel expenses  4,064   3,908   4,713 
Lands  1,781   1,691   - 
Rentals  1,171   578   376 
Consumption of materials and supplies  582   768   1,436 
Transport  144   26   20 
Maintenance and repairs  134   72   87 
Insurance  27   49   84 
Rights  -   3,457   - 
Other expenses  4,958   2,411   5,042 
   18,262   26,589   30,610 
  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Other income            
Sale of supplies and merchandise to third parties  32,228   46,128   54,496 
Sale of assets to third parties  19,405   3,863   369 
Reversal for impairment of spare parts and supplies, note 8(c)  11,641   4,665   2,370 
Sale of services to third parties  6,415   3,512   2,552 
Revenue from commercial claims  2,098   -   - 
Income from previous years  1,311   1,504   2,680 
Sale of supplies to related parties, note 30(a)  1,259   27   4 
Sale of assets to related parties, note 30(a)  11   30   336 
Insurance claim recovery (c)  -   33,735   1,190 
Sale of investment in subsidiary  -   7,097   - 
Changes in provisions for exploration projects, note 15(b)  -   2,433   - 
Recovery of expenses from previous years  -   81   68 
Income from rental of investment properties  -   45   235 
Expiration of allowance for expected credit losses, note 7(f)  -   45   99 
Sale of investment properties (b)  -   -   11,250 
Other minor  2,632   (566)  11,881 
             
   77,000   102,599   87,530 

 

 F-78


Notes to the consolidated financial statements (continued)

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
Other expenses            
Disposal cost of sale of supplies and merchandise to third parties  (33,664)  (57,897)  (60,239)
Direct expenses  (15,992)  (9,867)  (5,721)
Provision for impairment of spare parts and supplies, note 8(c)  (15,703)  (11,704)  (4,814)
Net cost of property, machinery and equipment to third parties, note 11(a)  (4,965)  (626)  - 
Changes in provisions for exploration projects, note 15(b)  (4,020)  -   (891)
Disposal cost of sale of supplies and merchandise to related parties  (2,944)  (257)  (40)
Expenses from previous years  (2,240)  (1,831)  (603)
Withdrawals and disposals of property, machinery and equipment, note 11(a)  (2,926)  (6,626)  (15,013)
Allowance for expected credit losses, note 7(f)  (25)  (1,334)  - 
Net cost of transfer of investments, note 1(d)  -   (11,178)  (1,706)
Net cost of investment properties (b)  -   -   (9,575)
Other minor  (9,236)  (2,587)  (2,158)
             
   (91,715)  (103,907)  (100,760)
             
   (14,715)  (1,308)  (13,230)

 

26.

(b)

Finance

During 2017 the Group sold to a third party its investment properties located in the El Derby Capital Building, district of Surco.

(c)

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 finance revenuescost 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 sinister 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.

 

(a)These captions are made up as follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Finance revenues:            
Interests on loans to associates, note 29(a)  1,685   4,164   2,286 
Interest on time deposits  1,050   358   419 
Interests on third parties loans  813   489   492 
Interests on tax claims  153   487   1,297 
Income from financial instruments  -   743   - 
Dividends income  -   589   500 
Other finance revenues  43   -   - 
   3,744   6,830   4,994 
Unrealized variation of the fair value related to contingent consideration liability (b)  1,773   -   6,032 
             
Total finance revenues  5,517   6,830   11,026 
             
Finance costs:            
Interest on borrowings  27,052   18,668   17,875 
Interest on loans  1,056   4,643   5,565 
Banking expenses  552   319   366 
Increase in debt issuance costs, note 16(g)  480   -   - 
Tax on financial transactions  180   159   312 
Interest on commercial obligations  5   496   120 
Other finance costs  7   830   41 
   29,332   25,115   24,279 
Accrual of debt issuance costs, note 16(g)  909   -   - 
Accrual of the present value for mine and exploration project closure, note 15(b)  4,382   4,116   3,293 
Unrealized variation of the fair value related to contingent consideration liability (b)  -   2,349   - 
             
Total finance costs  34,623   31,580   27,572 

(b)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.

Canteras del Hallazgo is a privately-held entity incorporated in 2009 and owner of the Chucapaca project, which is located in the Ichuña district, in the General Sanchez Cerro province, in the Moquegua department, Peru. According to previously performed studies, there is evidence of the existence of gold, silver, copper and antimony in the area, specifically in the Canahuire deposit.

 F-79


Notes to the consolidated financial statements (continued)

 

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 statement of profit or loss.

As of December 31, 2017, it is highly probable that the Group reaches the projected future sales. The fair value of the contingent consideration determined as of December 31, 2017 reflects this assumption and changes in metal prices.

A reconciliation of fair value measurement of the contingent consideration liability is provided below:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  19,343   16,994   23,026 
Variation of the fair value in results  (1,773)  2,349   (6,032)
             
Final balance  17,570   19,343   16,994 

Significant unobservable valuation inputs are provided below:

  2017  2016 
       
Annual average of future sales of mineral (US$000)  193,588   233,278 
Useful life of mining properties  13   13 
Discount rate (%)  10   10 

The Group has the preferential right of acquisition of the royalty in case Gold Fields decides to sell it.

27.

Finance costs and finance income 

  F-80

(a)

This caption is made up as follows:

 

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Finance income:            
Interest on time deposits  4,971   5,176   1,050 
Dividends income  3,625   -   - 
Interests on third parties loans  460   561   813 
Interests on loans to related parties, note 30(a)  86   92   1,685 
Interests on tax claims  16   1,701   153 
Other minor  517   340   43 
   9,675   7,870   3,744 
             
Unrealized variation of the fair value related to contingent consideration liability (b)  -   1,815   1,773 
             
Total finance revenues  9,675   9,685   5,517 
Finance costs:            
Interest on borrowings  28,418   31,538   28,019 
Tax on financial transactions  166   173   180 
Interest on loans  1   2   1,053 
Other minor  55   703   72 
   28,640   32,416   29,324 
             
Accretion expense for mine closure, note 15(b)  10,390   4,982   4,318 
Accrual of debt issuance costs, note 16(f)  2,109   1,024   909 
Unrealized variation of the fair value related to contingent consideration liability (b)  655   -   - 
Accretion expense of leases liability  379   -   - 
Total finance costs  42,173   38,422   34,551 

  

(b)

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.

Through the fusion with Canteras del Hallazgo S.A.C, the Group 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 of the future royalty payments was 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 statement of profit or loss.


Notes to the consolidated financial statements(continued)

As of December 31, 2019, it is highly probable that the Group reaches the projected future sales. The fair value of the contingent consideration determined as of December 31, 2019 reflects this assumption and changes in metal prices.

A reconciliation of fair value measurement of the contingent consideration liability is provided below:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  15,755   17,570   19,343 
             
Variation of the fair value in results  655   (1,815)  (1,773)
             
Final balance  16,410   15,755   17,570 

Significant unobservable valuation inputs are provided below:

  2019  2018 
       
Annual average of future sales of mineral (US$000)      190,815   193,906 
Useful life of mining properties  14   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-90 

Notes to the consolidated financial statements(continued)

 

28.

27.

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,
2016
  Credit (debit)  to the
Consolidated  
statement of
profit  or loss
  Credit (debit)  to
consolidated  
 statements of other
comprehensive
income
  As of
December 31,
2016
  Credit (debit)
to the
Consolidated  
statement of
profit or loss
  Credit (debit)  to
consolidated
 statements of
other
comprehensive
income
  As of
December 31,
2017
 
  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  78,409   14,641   -   93,050   1,889   -   94,939 
Difference in depreciation and amortization rates  52,377   8,506   -   60,883   734   -   61,617 
Provision for closure of mining units, net  32,644   6,894   -   39,538   5,030   -   44,568 
Impairment loss of long-lived assets  5,185   2,407   -   7,592   2,328   -   9,920 
Environmental liability for Santa Barbara mine  1,556   13   -   1,569   (273)  -   1,296 
Other minor  14,866   (1,785)  -   13,081   1,082   -   14,163 
   185,037   30,676   -   215,713   10,790   -   226,503 
                             
Less - Allowance for deferred asset  (18,166)  (18,846)  -   (37,012)  (1,898)  -   (38,910)
   166,871   11,830   -   178,701   8,892   -   187,593 
                             
Deferred asset included in retained earnings                            
Derivative financial instruments  2,441   -   (1,301)  1,140   -   7,963   9,103 
   169,312   11,830   (1,301)  179,841   8,892   7,963   196,696 
                             
Deferred assets for mining royalties and special mining tax included in results                            
Exploration expenses  (326)  364   -   38   (38)  -   - 
Other minors  185   (180)  -   5   118   -   123 
   (141)  184   -   43   80   -   123 
Total deferred asset  169,171   12,014   (1,301)  179,884   8,972   7,963   196,819 
                             
                             
Deferred liability for income tax included in results                            
Effect of translation into U.S. dollars  (73,537)  3,012   -   (70,525)  24,502   -   (46,023)
Differences in amortization rates for development costs  (32,304)  (19,484)  -   (51,788)  6,095   -   (45,693)
Other minors  (34,582)  (9,403)  -   (43,985)  (33,618)  -   (77,603)
   (140,423)  (25,875)  -   (166,298)  (3,021)  -   (169,319)
                             
Deferred liability for mining royalties and special mining tax                            
Other minors  164   (199)  -   (35)  (126)  -   (161)
   164   (199)  -   (35)  (126)  -   (161)
Total deferred liability  (140,259)  (26,074)  -   (166,333)  (3,147)  -   (169,480)
                             
Deferred income tax asset, net  28,912   (14,060)  (1,301)  13,551   5,825   7,963   27,339 

 F-81

  

As of
January 1,

2018

  Credit (debit) to consolidated
statement of
profit  or loss
  

Credit (debit) to
consolidated

statements of
other
comprehensive
income

  Others
movements
  

As of
December 31,

2018

  

Credit (debit) to

consolidated
statement of
profit  or loss

  

Credit (debit)
to consolidated

statements of
other
comprehensive
income

  Others
movements
  As of December 31,
2019
 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Deferred asset for income tax                                    
Tax - loss carryforward  94,939   10,919   -   (396)  105,462   25,866   -   -   131,328 
Difference in depreciation and amortization rates  47,482   1,088   -   -   48,570   37   -   -   48,607 
Provision for closure of mining units, net  19,793   7,423   -   -   27,216   3,684   -   -   30,900 
Impairment loss of long-lived assets  9,920   (2,448)  -   -   7,472   576   -   -   8,048 
Other minor  15,459   5,369   -   (147)  20,681   422   -   400   21,503 
   187,593   22,351   -   (543)  209,401   30,585   -   400   240,386 
Derivative financial instruments  9,103   -   (9,103)      -   -   -   -   - 
   196,696   22,351   (9,103)  (543)  209,401   30,585   -   400   240,386 
Deferred assets for mining royalties and special mining tax  123   (87)  -   -   36   (6)  -   -   30 
                                     
Total deferred asset  196,819   22,264   (9,103)  (543)  209,437   30,579   -   400   240,416 
                                     
                                     
Deferred liability for income tax                                    
Differences in amortization rates for development costs  (45,693)  (20,295)  -       (65,988)  (3,357)  -   -   (69,345)
Effect of translation into U.S. dollars  (46,023)  (15,248)  -       (61,271)  14,995   -   -   (46,276)
Other minors  (77,603)  3,123   -       (74,480)  (4,550)  -   -   (79,030)
   (169,319)  (32,420)  -       (201,739)  7,088   -   -   (194,651)
                                     
Derivative financial instruments  -   -   (813)      (813)  -   813   -   - 
   -   -   (813)      (813)  -   813   -   - 
                                     
Deferred liability for mining royalties and special mining tax  (161)  159   -   -   (2)  (166)  -   -   (168)
                                     
Total deferred liability  (169,480)  (32,261)  (813)      (202,554)  6,922   813   -   (194,819)
                                     
Deferred income tax asset, net  27,339   (9,997)  (9,916)  (543)  6,883   37,501   813   400   45,597 

 


Notes to the consolidated financial statements(continued)

 

(b)

The deferred tax asset is presented in the consolidated statement of financial position:

 

 2017 2016   2019 2018 
 US$(000) US$(000)   US$(000) US$(000) 
           
Deferred income tax asset, net  43,129   25,881      74,556   38,305 
Deferred income tax liability, net  (15,790)  (12,330)Deferred income tax liability, net  (28,959)  (31,422)
  27,339   13,551    45,597   6,883 

 

(c)

The following is the composition of the provision for income taxes shown in the consolidated statement of income for the years 2017, 20162019, 2018 and 2015:2017:

 

 2017 2016 2015  2019 2018 2017 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Income tax expense            
Current  (23,837)  (39,444)  (14,222)  (11,851)  (12,433)  (18,780)
Deferred  5,825   (14,060)  (541)  37,617   (10,029)  5,984 
  (18,012)  (53,504)  (14,763)  25,766   (22,462)  (12,796)
Mining Royalties and Special Mining Tax            
Current  (60)  (4,449)  (4,933)
Deferred  (116)  32   (159)
  (176)  (4,417)  (5,092)
            
Total income tax  25,590   (26,879)  (17,888)

 

(d)

Below is a reconciliation of tax expense and the accounting profit (loss) multiplied by the statutory tax rate for the years 2017, 20162019, 2018 and 2015:2017:

 

 2017 2016 2015  2019 2018 2017 
 US$(000) US$(000) US$(000)  US$(000) US$(000) US$(000) 
              
Profit (loss) before income tax  92,545   (255,237)  (340,549)  (43,535)  27,033   92,667 
Loss before income tax for discontinued operations  (10,098)  (19,073)  (20,230)
Loss for discontinued operations  (10,514)  (11,808)  (10,344)
            
Profit (loss) before income tax  82,447   (274,310)  (360,779)  (54,049)  15,225   82,323 
            
Theoretical loss (gain) for income tax  24,322   (76,807)  (101,018)  15,944   (4,491)  (24,285)
                        
Permanent items and others:                        
Effect of translation into U.S. dollars  (24,502)  (3,012)  42,044   14,995   (15,248)  24,502 
Share in the results of associates  (3,896)  102,290   48,545 
Share in the results of associates and joint ventures  14,074   (337)  3,896 
Permanent items  (9,958)  (3,466)  (16,549)
Unrecognized deferred tax asset  (9,265)  (2,038)  (1,898)
Mining royalties and special mining tax  (1,538)  247   663   (24)  3,118   1,538 
Permanent items  16,513   6,577   4,447 
Allowance of deferred tax asset  1,898   18,846   13,929 
Effect of change in income tax rate net  -   (1,431)  2,347 
Income tax expense  12,797   46,710   10,957   25,766   (22,462)  (12,796)
Mining Royalties and Special Mining Tax  5,215   6,794   3,806   (176)  (4,417)  (5,092)
Total income tax  18,012   53,504   14,763   25,590   (26,879)  (17,888)


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$257.3271.8 million as of December 31, 2017,2019, originated by the difference between the financial and taxable basis of these investments (US$257.5277.0 million as of December 31, 2016)2018). 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).

(f)

Deferred income tax asset is presented net of the portion unrecognized that the Group estimates will not be probable that taxable profits will be available against which the deferred tax asset can be utilized:

 

 F-82
  

Total deferred
tax asset

  

Unrecognized deferred tax

  

Net deferred
tax asset

 
  US$(000)  US$(000)  US$(000) 
          
As of December 31, 2019 -            
Tax - loss carryforward  139,614   (8,152)  131,462 
Difference in depreciation and amortization rates  68,151   (19,544)  48,607 
Provision for closure of mining units, net  53,418   (22,518)  30,900 
Impairment loss of long-lived assets  8,048   -   8,048 
Other minor  21,369   -   21,369 
             
Total income tax  290,600   (50,214)  240,386 
             
As of December 31, 2018 -            
Tax - loss carryforward  106,223   (761)  105,462 
Difference in depreciation and amortization rates  68,114   (19,544)  48,570 
Provision for closure of mining units, net  47,859   (20,643)  27,216 
Impairment loss of long-lived assets  7,472   -   7,472 
Other minor  20,681   -   20,681 
             
Total income tax  250,349   (40,948)  209,401 

 


Notes to the consolidated financial statements(continued)

 

29.

28.

Commitments and contingencies

Commitments

(a)

Environmental -

The Group’s exploration and exploitation activities are subject to environmental protection standards.

Law No. 28090 regulates the obligations and procedures that must be met by the holders of mining activities for the preparation, filing and implementation of Mine Closure Plans, as well as the establishment of the corresponding environmental guarantees to secure fulfillment of the investments, subject to the principles of protection, preservation and recovery of the environment.

Law No. 28271 regulates environmental liabilities in mining activities. This Law has the objective of ruling the identification of mining activity’s environmental liabilities and financing the remediation of the affected areas. According to this law, environmental liabilities refer to the impact caused to the environment by abandoned or inactive mining operations.

The Group considers that the recorded liability is sufficient to meet the current regulatory environment in Peru.

(b)

Leased concessions -

The Group pays 10 percent on the valued production of mineral obtained from the concessions leased by Sindicato Minero Orcopampa S.A. This concession is in force until the year 2043. The payments are included as royalties, see note 23.

(c)

Leases

Group as a lessee -

The Group has lease contracts for several of assets used in its operations. Leases of plant and machinery generally have lease terms between 1 and 3 years. The Group also has certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases.

The carrying amounts of the right-of-use assets and liabilities recognized and the movements during the period are presented in note 11 and note 16, respectively.

Contingencies

(d)

Legal procedures -

Buenaventura -

The Group 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.

 

Commitments

(a)Environmental -

The Group’s exploration and exploitation activities are subject to environmental protection standards.

Law No. 28090 regulates the obligations and procedures that must be met by the holders of mining activities for the preparation, filing and implementation of Mine Closure Plans, as well as the establishment of the corresponding environmental guarantees to secure fulfillment of the investments, subject to the principles of protection, preservation and recovery of the environment.

Law No. 28271 regulates environmental liabilities in mining activities. This Law has the objective of ruling the identification of mining activity’s environmental liabilities and financing the remediation of the affected areas. According to this law, environmental liabilities refer to the impact caused to the environment by abandoned or inactive mining operations.

The Group considers that the recorded liability is sufficient to meet the current regulatory environment in Peru.

(b)Leased concessions -

The Group pays 10 percent on the valued production of mineral obtained from the concessions leased by Sindicato Minero Orcopampa S.A. This concession is in force until the year 2043. See note 23.

(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-83

Notes to the consolidated financial statements(continued)

 

(d)

Operating lease commitments (the

The possible contingencies amount to US$3.0 million and US$2.9 million as of December 31, 2019 and 2018, respectively.

Yanacocha -

Conga project Constitutional claim -

On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against the Ministry of Energy and Mines and Yanacocha requesting the Court to order the suspension of the Conga project as well as to declare not applicable the October 27, 2010 directorial resolution 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 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 proofs presented by the plaintiff. Yanacocha has answered the claim. Yanacocha cannot reasonably predict the outcome of this litigation. The Group ashas not established a lessee)provision in the accompanying financial statements for a loss arising from this contingency, which it does not consider probable.

Environmental contingences -

The Peruvian government agency responsible for environmental evaluation and inspection, “Organismo Evaluacion y Fiscalizacion Ambiental” (“OEFA”), conducts periodic reviews of the Yanacocha site. From 2011 to 2019, 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 2017 with no findings. The experience with OEFA and the Autoridad Nacional del Agua is that in the case of a finding of violation, remedial action is often the outcome rather than a significant fine.

The alleged OEFA violations currently range from zero to 17,642 tax units and the Autoridad 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 agency allegations with potential fine for pending matters of US$0 to US$22.2, which it does not consider probable.

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 since the year 2013. The Group has the option to lease the assets for two additional term of 5 years each.

Future minimum rentals payable as of December 31 are the following:

  2017  2016 
  US$(000)  US$(000) 
       
Within one year  1,543   1,543 
After one year but not more than five years  6,173   6,173 
More than five years  1,157   2,701 
         
   8,873   10,417 

(e)Operating lease commitments (the Group as a 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:

  2017  2016 
  Minimum
payments
  Present
value of
payments
  Minimum
payments
  Present
value of
payments
 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
Within a year  56,915   40,224   57,592   40,428 
After one year but not more than five years  267,962   241,651   318,643   281,192 
                 
Total minimum lease payments  324,877   281,875   376,235   321,620 
                 
Less - amounts representing finance charges  (43,002)  -   (54,615)  - 
                 
Present value of minimum lease payments  281,875   281,875   321,620   321,620 

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$1.1 million and US$9.9 million as of December 31, 2017 and 2016, respectively.

 

 F-84

Notes to the consolidated financial statements(continued)

 

Minera Yanacocha S.R.L.

Conga Project Constitutional Claim

On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against the Ministry of Energy and Mines and Yanacocha requesting the Court to order the suspension of the Conga project as well as to declare not applicable the October 27, 2010 directorial resolution 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 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 proofs presented by the plaintiff. Yanacocha has answered the claim. Yanacocha cannot reasonably predict the outcome of this litigation.

(e)

Open tax procedures –

Buenaventura –

 

Environmental contingencies

The 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 and 2017, OEFA issued notices of alleged violations of OEFA standards to Yanacocha relating to past inspections. OEFA has resolved with minimal or no findings.

In 2015 and 2016, the water authority of Cajamarca issued notices of alleged regulatory violations, and resolved some allegations in 2017 with no findings. The experience with OEFA and the water authority is that in the case of a finding of violation, remedial action is often the outcome rather than a significant fine.

The alleged OEFA violations currently range from zero to 11,310 tax units and the water authority alleged violations range from zero to 10,054 tax units, being each tax unit equivalent to approximately US$1,224 based on current exchange rates. Yanacocha is responding to all notices of alleged violations, but cannot reasonably predict the outcome of the agency allegations.

(g)       Open tax procedures –

Buenaventura -

During 2012 and 2014, SUNAT reviewed the income tax for 2007 and 2008. As a result, SUNAT does not recognize tax declared deductions by S/1,056,310,000 (equivalent to US$325,516,000) in the year 2007 and S/1,530,985,000 (equivalent to US$471,798,000)

-

During 2012 and 2014, the “Superintendencia Nacional de Aduanas y de Administración Tributaria” (SUNAT) reviewed the income tax for 2007 and 2008. As a result, SUNAT does not recognize tax declared deductions by S/1,056,310,000 (equivalent to US$318,453,000) in the year 2007 and S/1,530,985,000 (equivalent to US$461,557,000) 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 31,2019,the total possible contingencies related to these audits amount toS/1,514million (equivalent toUS$456million).

-

During 2015, SUNAT 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$22,919,000) and the compensation of tax losses for S/561,758,000 (equivalent to US$169,357,000). 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. In the opinion of Management and its legal counsel, Buenaventura should get a favorable result in the initiated claim process.

In December 2018, the Tax Court resolved the appeal files confirming reparations for S/70,277,000 (equivalent to US$21,187,000) 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, 2019, the total possible contingencies related to these audits amount to S/515 million (equivalent to US$155 million).

 

 F-85

Notes to the consolidated financial statements(continued)

 

During 2015, SUNAT 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$23,428,000). 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 year 2009 and 2010 amount to S/607,721,000 (equivalent to US$187,279,000) as of December 31, 2017.

In December 2019, Tax Administration initiated actions of forced collection of interest and fines for the reliquidation that it has made of prepayments from January to December 2009 and January to February 2010. These are based on the 2007 and 2008 annual tax fiscal years, which were recalculated by SUNAT with the objections mentioned in the first and second paragraphs and which are questioned in the judicial process. On December 20, 2019, SUNAT executed the forced collection of debt amounting to S/120,262,000 (equivalent to US$36,322,000). In opinion of the legal advisors of the Company, favorable results should be obtained in the judicial process that has been initiated, therefore an account receivable have been registered in the heading “Trade and other accounts receivable, net”, see note 7(g).

-

During the year 2018, the Tax Administration has audited the income tax declaration for 2014. As a result of this audit, SUNAT does not recognize the Company deductions declared for S/94,898,000 (equivalent to US$28,610,000). The main disagreements are related to the non-deductibility of bonus paid to contractors, which also affects the compensation of tax losses that can be withheld and the use of balances in favor that are not recognized by SUNAT. In the opinion of the Management and its legal advisors, these repairs are not supported, so that a favorable result in the claim process that they have initiated will be obtained.

-

During the year 2019, the Tax Administration reviewed the income tax of the year 2013. As a result, SUNAT did not recognize Buenaventura declared tax deductions by S/148,730,000 (equivalent to US$44,839,000). The main unrecognized deductions by Buenaventura are the non-deductibility of bonuses paid to contractors, the compensation of tax losses that can be withheld and the use of balances in favor that are not recognized by SUNAT. In the opinion of Management and its legal counsel, Buenaventura should get a favorable result in the initiated claim process.

-

During the year 2019,the Tax Administration reviewed the income tax of the year2014.As a result, SUNAT did not recognize Buenaventura declared tax deductions related to the non-deductibility of bonus paid to contractorsfor S/2,067,000 (equivalent toUS$623,000).In the opinion of Management and its legal counsel, Buenaventura should get a favorable result in the initiated claim process.

TheCompany’s Managementand its legal advisors are of the opinion that the results of the procedures in the various instances will be favorable to the Company, which is why they consider that it is not necessary to recognize any provision for these contingencies.


Notes to the consolidated financial statements(continued)

 

Subsidiaries –

Buenaventura Ingenieros S.A. -

During 2015, SUNAT 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. These deductions amount to S/20,934,000 (equivalent to US$6,451,000).

In 2016, SUNAT partially resolved the claim process related to the deduction of bonuses paid to staff for S/12,611,000 (equivalent to US$3,886,000). In addition, SUNAT requires the payment of the value added tax related to presumably omitted income from transfer of fuel to suppliers, which are currently in process of appeal to the Tax Court.

The possible contingencies for income tax for the years 2011 and 2012 amount to S/6,252,000 (equivalent to US$1,927,000) and for the value added tax amount to S/4,077,000 (equivalent to US$1,256,000) as of December 31, 2017. In the opinion of Management of this subsidiary and its legal advisors, BISA should get a favorable result in the initiated claim process initiated in 2016 (for income tax of the year 2011 and 2012 and the valued added tax of the years 2011 and 2012).

Sociedad Minera El Brocal S.A.A. -

-

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 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$2,568,000)2,512,000) so it can have access to a discount benefit of the fine. This payment is recorded as anpart of account receivable.receivables as “Trade and other accounts receivable, net”, see note 7(g).

 

-

-

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, SUNAT notified a tax assessment for income tax pre-payments from January to December 2012, which amounts to S/4,030,000 (equivalent to US$1,241,000)1,215,000). El Brocal has filed an appeal to the Tax Court, which is pending resolution.

-

On June 14, 2017, the Tax Administration notified El Brocal determinations and fine resolutions as a result of the inspection procedure initiated by the 2013 income tax where the balances in favor and the taxable tax loss are repaired. These resolutions were claimed without favorable results. On January 24, 2018, El Brocal filed the appeal before the Tax Court.

-

On May 13, 2019, the Tax Court notified El Brocal through Resolution No. 3062-3-2019 that accumulated the appeal files of the taxable years 2011, 2012 and 2013; and resolves to nullify the repair of the expense for food and confirms the observations related to the loss by derivative financial instruments and the expense of the payment in mining royalties of the 2011 fiscal year and its incidence in the 2012 and 2013 fiscal years.

As a result of the resolution, the Tax Administration has notified compliance resolutions by relieving income tax and the effects on payments on account for the years 2011, 2012 and 2013. The Brocal has filed an appeal to the Tax Court.

On August 9, 2019, El Brocal filed an administrative contentious lawsuit against the decision of the Tax Court since El Brocal had credited with reliable documentation the basis for the observations on the loss in derivative financial instruments and mining royalties.

As of December 31, 2019, the possible contingencies held by El Brocal amount to S/7,014,000 (equivalent to US$2,114,000).

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.

 

The possible contingencies amount to S/7,562,000 (equivalent to US$2,330,000) as of December 31, 2017.

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.

 F-86

Notes to the consolidated financial statements(continued)

 

Minera La Zanja S.R.L. -

During the years 2016 and 2017, SUNAT audited the income tax for 2013 of the subsidiary Minera La Zanja SRL. As a result, SUNAT does not recognize deductions declared for S/42,289,000 (equivalent to US$13,032,000)

During the year 2019, the Tax Administration has reviewed the income tax stament for the year 2015. As a result of this review, SUNAT has verified on December 31, 2019 the determination and fine resolutions where it questions the depreciation rate of two tailings and the deduction of the development costs of Smelter Project for a total S/13,930,000 (equivalent to US$4,200,000) determining a debt of S /3,412,000 (equivalent to US$1,029,000). The Management of El Brocal and its legal advisors considered that the reparations are not supported by what they have started the claim process.

On January 27, 2020, El Brocal has canceled the fine resolution with the resolution to benefit from the reduction of the fine. The amount disbursed of S/1,456,000 (equivalent to US$439,000) has been recorded as an account receivable in the financial statements of El Brocal.

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/2,952,000 (equivalent to US$890,000) as of December 31, 2019 (S/2,692,000 equivalent to US$797,000 as of December 31, 2018). 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.

Empresa de Generación Huanza S.A. -

During 2015, SUNAT audited the 2014 income tax of the subsidiary Huanza. As a result, a portion of the depreciation of its fixed assets is not recognized for S/27,532,000 (equivalent to US$8,300,000). The possible contingency amounts to S/6,999,000 (equivalent to US$2,110,000) as of December 31, 2019 (S/6,396,000 equivalent to US$1,893,000 as of December 31, 2018). 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.

Río Seco S.A.-

The Customs Division of the SUNAT has determined an alleged omission in the payment of the General Sales Tax of S/1,815,000 (equivalent to US$547,000) in an import made in 2012 of certain equipment for the construction of The Industrial Plant. SUNAT supported its position that Rio Seco should have included the amount of the consideration paid by Río Seco for the engineering services provided by its suppliers abroad in the customs value. In the opinion of Management and its legal advisors, this observation is not substantiated and a favorable ruling should be obtained in the complaint and appeal process.

On March 13, 2019, the Tax Court notified Resolution No. 0844-A-2019 that confirmed the observation of the Tax Administration.


Notes to the deduction of development costs incurred for S/39,755,000 (equivalent to US$12,251,000). The possible contingency amounts to S/9,344,000 (equivalent to US$2,880,000) 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.

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$8,484,000). The possible contingency amounts to S/5,790,000 (equivalent to US$1,784,000) as of December 31, 2017. In the opinion of the Management and its legal advisors, this interpretation has no basis and therefore, Huanza would obtain a favorable result in the appeal process that has begun.consolidated financial statements(continued)

 

Other subsidiaries -

In addition, SUNAT has issued tax assessments as a result of the audit of income taxes of other subsidiaries for S/10,747,000 (equivalent to US$3,312,000). The possible contingencies amount to S/9,042,000 (equivalent to US$2,786,000) as of December 31, 2017. 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 -

On May 17, 2019, the Tax Administration initiated the coercive collection actions of the tax debt. Río Seco initiated several administrative and judicial actions to suspend the collection, without favorable results. During July to September 2019, Tax Administration has executed the forced collection of the tax debt amounting to S/11,153,000 (equivalent to US$3,368,000), see note 7(g). In the opinion of the legal advisors of Río Seco, a favorable result should be obtained in the judicial process that has been initiated, so that said collection has been recorded in the heading “Trade and other receivables, net”.

On June 13, 2019, Rio Seco has filed an administrative contentious lawsuit against the Tax Court’s Resolution so that the Judicial Power declares its nullity and ignore the Tax Administration’s objection.

Other subsidiaries -

In addition, SUNAT has issued tax assessments as a result of the audit of income taxes of other subsidiaries for S/4,654,000 (equivalent to US$1,403,000). 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

On June 23, 2004, Law N ° 28528 - Law of Mining Royalty was approved, by which requires the ownersholder of the mining concessions hada mineral concession to be paid, as financial compensationpay a royalty in return for the exploitation of metallic and non-metallic mineral resources, a miningminerals. The royalty that was determined applyingis calculated using rates that change betweenranging from 1% andto 3% onof the value of the concentrate or its equivalent according to the international price quotation of the international marketcommodity published by the Ministry of Energy and Mines. Based on the contract of the guarantee signed in 1998,Prior to January 1, 2014, Cerro Verde determined that the payment of miningthese royalties waswere not applicable because it wasoperated under the contribution after the signing of the contract of the Law of Conquest of1998 Stability Agreement with the Peruvian Government.government. However, under the terms of its new guarantee contract, which became effective onbeginning January 1, 2014, Cerro Verde began paying royalties calculated on operating income with rates between 1% to pay mining royalties12% and a new special mining tax for all its entire production based on Law No. 29788,basis under its current 15-year stability agreement, which it is calculated on the operating profit with rates that fluctuate between 1% and 12%.became effective January 1, 2014.

 

SUNAT the Peruvian tax authority, has assessed mining royalties on materials processed by the 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 September 2011.SUNAT issued resolutions declaring the claims of2013. Cerro Verde unfoundedcontested 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 the periods 2006 to 2009.processing such minerals. No assessments can be issued for years after 2013, as Cerro Verde appealed those decisionsbegan paying royalties on all of its production in January 2014 under its new 15-year stability agreement.


Notes to the consolidated financial statements(continued)

On October 29, 2019, Cerro Verde completed the payments of disputed assessments related to the Tax Court. On June 20, 2013, the Peruvian Tax Tribunal issued two decisions affirming assessmentsmining royalties for the period December 2006 throughto December 2008. Decisions by the Tax Tribunal ended the administrative stage of the appeal procedures for these assessments.

 F-87

Notes to the consolidated financial statements (continued)

On September 18, 2013,2008 that were under an installment program since 2014. Under that installment program, Cerro Verde filed two contentious administrative claims beforemade payments totaling S/711.1 million (US$221.9 million based on the judiciary againstdate of payment exchange rate and US$214.4 million based on the decisions of the Tax Court that dismissed the appeals filed. In connection with demands for the periods December 2006 to December 2007, the Twentieth Specialized Administrative Litigation Court in the Court dismissed the claim filed. On May 2, 2016, Cerro Verde filed an appeal with the Seventh Administrative Litigation Chamber. In July 2017, the Chamber resolved to confirm the decision of first instance, which declared the Cerro Verde claim unfounded. On August 9, 2017, Cerro Verde filed an appeal before the Supreme Court against this decision.31, 2019, exchange rate).

 

With respect to the judiciary appeal related to the assessmentdisputed royalty assessments for the year 2008,2006-2007, on December 17, 2014,August 9, 2017, the EighteenthCerro Verde filed a cassation appeal before the Supreme Court against the resolution issued by the Seventh Contentious Administrative Court, rendered itswhich was admitted in December 2017. The oral hearing before the Supreme Court took place on November 20, 2018 and their decision upholdingis pending.

In September 2018, the Company’s positionPeruvian Tax Tribunal confirmed SUNAT’s resolution that ordered the payment of royalties and nullifying SUNAT’s assessmentdenied the Cerro Verde’s request to waive penalties and interest for the period January 2009 through September 2011. Cerro Verde elected not to appeal the Tax Tribunal´s resolution (S/106.4 million). The Judgment also annulled all fines and interest bounded by SUNAT for that period (S/139.7 million). In December 2014, SUNAT appealed this decision. On January 29, 2016, the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. On February 23, 2016, Cerro Verde appealed theTribunal’s decision to the Supreme Court.Peruvian Judiciary and in early 2020, Cerro Verde initiated international arbitration.

 

On October 1, 2013,2018, SUNAT servednotified Cerro Verde a demanddemands for payment totaling S/492 million (approximately US$151.5 million based on the December 31, 2017 exchange rate, including interest and penalties of US$89.2 million)payments based on the Tax Tribunal’s decisions for the period December 2006January 2009 to December 2008. As permitted by law,September 2011. Cerro Verde requested, and was granted two 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, 2019 is S/1.0 billion (approximately US$314.1 million based on the December 31, 2019, exchange rate, including deferred interest, interest and penalties of US$202.8 million). As of December 31, 2019 Cerro Verde has made payments totaling S/315.1 million (US$94.7 million based on the date of payment exchange rate and US$95.0 million based on the December 31, 2019, exchange rate).

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 issued resolutions denying this appeal. On November 21, 2018, Cerro Verde appealed SUNAT’s resolution to the Tax Court. On December 4, 2019, Cerro Verde received a resolution denying the appeal of assessments for the fourth quarter of 2011. On December 18, 2019, SUNAT notified Cerro Verde of its demands for payment and on December 26, 2019, Cerro Verde paid the total debt of S/57.6 million (US$17.3 million based on the date of payment exchange rate and US$17.4 million based on the December 31, 2019, exchange rate). 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. Cerro Verde appealed these assessments and SUNAT issued resolutions denying this appeal. Consequently, Cerro Verde appealed these assessments to the Tax Court which was also denied the appeal in July 2019. Cerro Verde then requested, and was granted an installment payment program, that deferred payment for six monthsincluding a six-month deferral and thereafter satisfies the amount via 66 equal monthly payments. Aspayments, for the fourth quarter of 2011 through the fourth quarter of 2012. Total debt as of December 31, 2017, Cerro Verde has made payments totaling2019, is S/459.7 million (US$145.9 million based on the date of payment and US$141.7 million based on December 31, 2017 exchange rates),

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, 2017, the amount of the assessment, including interest and penalties, for the year 2009 was S/289.2255.8 million (approximately US$89.177.1 million based on the December 31, 2017 exchange rate).

On March 1, 2017 SUNAT declared the claim raised by Cerro Verde unfounded. On March 22, 2017, Cerro Verde filed an appeal with the Tax Court against the decision that declared the claim unfounded. As of December 31, 2017, the amount of the annotations by SUNAT including interest and penalties for the year 2010 and from January 2011 to September 2011 is S/586.5 million (approximately US$180.7 million at the closing2019, exchange rate, as of December 31, 2017, including deferred interest, interest and penalties of US$99.940.5 million).

On January 18, 2018, SUNAT notified Payments for this installment program will start in the resolution determination for royalties for the fourthfirst quarter of 2011. Cerro Verde will file a complaint with the SUNAT against said resolutions. As of December 31, 2017, the amount of the annotations by SUNAT including interest and penalties for the fourth quarter of 2011 is S/49.8 million (approximately US$15.3 million at the year-end exchange rate as of December 31, 2017, including interests and penalties for US$7.8 million).2020.

 

 F-88


 

Notes to the consolidated financial statements(continued) (continued)

 

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 the year 2012. Cerro Verde decided not to appeal these resolutions. Cerro Verde requested, and was granted an installment payment program, including a six-month deferral and 66 equal monthly payments, for the year 2012. Total debt as of December 31, 2019, is S/266.1 million (approximately US$80.2 million based on the December 31, 2019, exchange rate, including deferred interest, interest and penalties of US$45.7 million). Cerro Verde has made payments totaling S/65.7 million (US$19.5 million based on the date of payment exchange rate and US$19.8 million based on the December 31, 2019, exchange rate).

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. On May 28, 2019, Cerro Verde received resolutions issued by SUNAT denying the appeal of these assessments for the year 2013. Cerro Verde decided not to appeal these resolutions. Cerro Verde requested, and was granted two installment payment programs, including a six-month deferral and 66 equal monthly payments for each one, for the year 2013. As of December 31, 2019, the amount of these assessments, including interest and penalties for mining royalties for the year 2013 is S/183.9 million (approximately US$55.4 million based on the December 31, 2019, exchange rate including interest and penalties of US$29.5 million) and for the special mining tax for the year 2013 is S/151.0 million (approximately US$45.5 million based on the December 31, 2019, exchange rate including interest and penalties of US$22.1 million). Payments for these installment programs will start in the first quarter of 2020.

In December 2017, as a result of the unfavorable Supreme Court decision on the 2008 royalty matter, Cerro Verde requested the return of the amounts that would have been in excess for FONAVI (National Housing Fund) (December 2012 to December 2013), GEM (fourth quarter 2011 until the fourth quarter 2012) and customs duties (2013).


Notes to the consolidated financial statements(continued)

Other assessments received from SUNAT

Cerro Verde has also received assessments from SUNAT for additional taxes (other than the mining royalty and special mining tax), including penalties and interest. Cerro Verde has filed objections to the assessments because it believes it has properly determined and paid its taxes. A summary of these assessments follows:

  Taxes  Penalty and 
interest
  Total 
Year  US$(000)  US$(000)  US$(000) 
           
2003 - 2005   8,857   39,196  48,053 
2006   10,990   51,943  62,933 
2007   12,376   17,845  30,221 
2008   20,797   12,968  33,765 
2009   56,388   51,219  107,607 
2010   62,581   107,324  169,905 
2011   49,055   65,189  114,244 
2012   51,981   11,257  63,238 
2014 - 2019   38,975   -  38,975 
             
    312,000   356,941  668,941 

As of December 31, 2019, Cerro Verde has paid US$396.5 million from which US$186.6 million Cerro Verde considers will be recovered.

Yanacocha -

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 tax liability has been paid by Yanacocha.


Notes to the consolidated financial statements(continued)

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 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 was selected to issue a decision and the parties conducted oral arguments in April 2019. In early February 2020, the additional judge ruled in favor of the tax authority, finalizing a decision of the Peru Supreme Court against Yanacocha. Yanacocha will file an action objecting to the fines and interest associated with the underlying decision of the Peru Supreme Court. The potential liability in this matter is in the form of fines and interest in an amount up to US$61 million. It is not possible to fully predict the outcome of this litigation.

(f)Uncertain tax treatment –

The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty. The Group determined, based on its tax compliance and transfer pricing study that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities.

Letters of credit 

(g)Letters of credit –

The Group maintains letters of credit with regional governmets and others for US$361,000.

(h)Letters of credit solidarity –

As of December 31, 2019, the Group maintains letters of credit solidarity in favor of the Ministry of Energy and Mines for amount of US$557,000 and US$23,696,000, a favor from its subsidiary Compañía Minera Colquirrumi S.A. and its associate Compañía Minera Coimolache S.A., respectively.


Notes to the consolidated financial statements(continued)

30.Transactions with related companies

(a)The Group has carried out the following transactions with its related companies in the years 2019, 2018 and 2017:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Associates -            
Revenues from:            
Royalties  22,297   20,385   20,739 
Energy  3,181   3,002   2,137 
Supplies  1,259   27   4 
Mineral  683   1,321   1,414 
Mining concessions, property, plant and equipment  11   30   336 
             
Purchase of:            
Supplies  9   44   27 
             
Services rendered to:            
Services of energy transmission  287   393   559 
Operation and maintenance services related to energy transmission  287  ��290   593 
Administrative and Management services  359   214   149 
Engineering services  -   348   1,119 
Constructions services  4   -   1,332 
             
             
Dividends received and collected from:            
Sociedad Minera Cerro Verde S.A.A.  29,377   39,169   - 
Compañía Minera Coimolache S.A.  4,011   7,623   9,823 
             
Loans collected from:            
Sociedad Minera Cerro Verde S.A.A.  -   -   124,800 
             
Interest income:            
Sociedad Minera Cerro Verde S.A.A.  -   -   1,685 
             
Joint Venture -            
Interest income:            
Transportadora Callao S.A.  86   92   - 
             
Non-controlling shareholders -            
Dividends paid to:            
Newmont Peru Limited - Sucursal del Perú  6,500   5,560   6,036 

Terms and conditions of transactions with related parties

Purchase transactions and services with related parties are made at market prices. Outstanding balances at year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables.


Notes to the consolidated financial statements(continued)

(b)As a result of the Supreme Court's unfavorable decision regardingtransactions indicated in the mining royaltiesparagraph (a), the Group had the following accounts receivable and payable from/to associates:

  2019  2018 
  US$(000)  US$(000) 
Trade and other receivables, note 7(a)            
         
Minera Yanacocha S.R.L.  5,920   6,791 
Compañía Minera Coimolache S.A.  327   386 
   6,247   7,177 
Other receivables, note 7(a)        
Transportadora Callao S.A.  1,951   2,471 
Compañía Minera Coimolache S.A.  1,016   1,234 
   2,967   3,705 
   9,214   10,882 
Trade and other payables, note 14(a)        
Compañía Minera Coimolache S.A.  27   36 
Sociedad Minera Cerro Verde S.A.A.  2   - 
   29   36 
Other payables, note 14(a)        
Other minor  51   20 
   80   56 

As of December 31, 2019 and 2018, there is no allowance for expected credit losses related to related parties accounts.

(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)Key officers -

As of December 31, 2019 and 2018, loans to employees, directors and key personnel amounts to US$31,000 and US$19,000, 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.


Notes to the consolidated financial statements(continued)

The Group’s key executives’ compensation (including the related income taxes assumed by the Group) for the years 2019 and 2018 are presented below:

  2019  2018 
  US$(000)  US$(000) 
       
Accounts payable:            
Directors’ remuneration  1,746   2,628 
Salaries  1,020   1,057 
Provision for bonus to officers  6,205   6,345 
         
Total  8,971   10,030 
Disbursements:        
Salaries  12,690   12,908 
Directors’ compensations  1,746   2,628 
         
Total  14,436   15,536 

(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 (see note 10(c)). This account receivable generates interest at an annual rate of 2008, Cerro Verde recorded net charges for6.25 percent plus LIBOR at 3 months and it is estimated that it will be collected from the year ended December 31, 2017 for a total of US$393 million associated with the royalties assessments in dispute and potential royalties from December 2006 to 2013.

Cerro Verde intends to seek an exemption available in accordance with Peruvian laws for the penalties and interest associated with this case of mining royalties. As of December 31, 2017, Cerro Verde has not recorded charges for possible penalties and unpaid interest for a total of US$385 million.

In December of 2017, 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 that it would have paid in excess for the Special Mining Tax (GEM) (September 2012 to December 2013), National Housing Fund (FONAVI) (December 2012 to December 2013) and customs duties (2013).

Cerro Verde acted in good faith when applying provisions in accordance with its Stability Contract signed in 1998 and continues to evaluate alternatives to defend its rights.

Other assessments received from SUNAT

Cerro Verde has also received assessments from SUNAT for additional taxes (other than the mining royalty), including penalties and interest. Cerro Verde has filed or will file objections to the assessments 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) 
2003 – 2005  15,909   54,053   69,962 
2006  6,545   59,454   65,999 
2007  12,376   17,809   30,185 
2008  20,797   12,968   33,765 
2009  58,495   49,112   107,607 
2010  65,997   107,139   173,136 
2011  49,055   63,931   112,986 
2014 - 2017  23,450   -   23,450 
             
   252,624   364,466   617,090 

Yanacocha -

-SUNAT challenged the withholding tax rate applied on the technical assistance services provided by a non-resident supplier for fiscal 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%. The amount of the contingency involved is S/12.8 million (US$3.94 million). In Management's and its legal counsel’s opinion, these interpretations have no support so Yanacocha should get a favorable outcome in the appeals initiated.2023.

 

 F-89

Notes 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/11.5 million (US$3.5 million) for 2011 and 2012. In Management's and its legal counsel’s opinion, these interpretations have no support so Yanacocha should get a favorable outcome in the appeals initiated.
31.Disclosure of information on segments

 

-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. The potential liability in this matter is in the form of fines and interest in an amount up to US$82.9 million. While management has assessed that the likelihood of a ruling against the Company in the Supreme Court as remote, it is not possible to fully predict the outcome of this litigation.

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 (mining units in operation).

-Exploration and development projects.

-Energy generation and transmission services.

-Insurance brokerage.

-Rental of mining concessions.

-Holding of investment in shares (mainly in the associate company Minera Yanacocha S.R.L.).

-Industrial activities.

 

29.Transactions with associates companies

The accounting policies used by the Group in reporting segments internally are the same as those contained in the notes of the consolidated financial statements.

 

(a)The Group has carried out the following transactions with its associates in the years 2017, 2016 and 2015:

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. In addition, 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.

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Royalties collected to Minera Yanacocha S.R.L.:            
S.M.R.L. Chaupiloma Dos de Cajamarca (c)  20,739   24,339   32,414 
             
Services provided to Minera Yanacocha S.R.L. by:            
Consorcio Energético de Huancavelica S.A. (operation and maintenance)  381   915   1,694 
Buenaventura Ingenieros S.A (execution of specific work orders)  227   177   845 
Consorcio Energético de Huancavelica S.A. (energy transmission)  212   -   - 

 

 F-90

F-107 

 

Notes to the consolidated financial statements(continued) (continued)

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Dividends received by:            
Compañía Minera Coimolache S.A.  9,823   11,390   6,691 
Minera Yanacocha S.R.L.  -   130,950   - 
Loans collected (granted) to:            
Sociedad Minera Cerro Verde S.A.A.  124,800   -   (124,800)
             
Sales of supplies to Compañía Minera Coimolache S.A. by:            
Compañía de Minas Buenaventura S.A.A.  2   1   56 
Minera La Zanja S.R.L.  2   -   74 
             
Sales of mineral to Minera Yanacocha S.R.L. by:            
Minera La Zanja S.R.L.  710   -   - 
Compañía de Minas Buenaventura S.A.A.  704   1,271   2,114 
             
Interest income over loans granted by Compañía Minera Coimolache S.A. to:            
Consorcio Energético de Huancavelica S.A.A.  -   3   19 
             
Supplies purchase to Compañía Minera Coimolache S.A. by:            
Consorcio Energético de Huancavelica S.A.A.  18   10   1 
Minera La Zanja S.R.L.  6   10   6 
Buenaventura Ingenieros S.A.  4   -   - 
Compañía de Minas Buenaventura S.A.A.  -   1   29 
             
Interest income over loans granted by associates, note 26(a)  1,685   4,164   2,286 
             
Services provided to Compañía Minera Coimolache S.A. by:            
Empresa de Generación Huanza S.A. (sale of energy)  2,137   1,679   1,676 
Consorcio Energético de Huancavelica S.A. (construction services)  1,332   1,152   346 
Buenaventura Ingenieros S.A (execution of specific work orders)  835   824   471 
Consorcio Energético de Huancavelica S.A. (operation and maintenance)  178   332   559 
             
Services provided by to Sociedad Minera Cerro Verde S.A.A. by:            
Buenaventura Ingenieros S.A (execution of specific work orders)  57   -   - 

 F-91

Notes to the consolidated financial statements (continued)

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Services received by Compañía Minera Coimolache S.A. for:            

Minera La Zanja S.R.L. (administrative services)

  149   200   - 
             
Purchase of assets of Compañía Minera Coimolache S.A. from:            
Consorcio Energético de Huancavelica S.A. (operation and maintenance)  336   -   - 

 F-92

Notes to the consolidated financial statements (continued)

 

(b)As a result of the transactions indicated in the paragraph (a), the Group had the following accounts receivable and payable from/to associates:

  2017  2016 
  US$(000)  US$(000) 
       
Trade and other receivables, note 7(a) -        
Trade receivables        
Minera Yanacocha S.R.L. (c)  6,740   7,079 
Compañía Minera Coimolache S.A.  592   681 
Sociedad Minera Cerro Verde S.A.A.  16   - 
   7,348   7,760 
Other receivables        
Compañía Minera Coimolache S.A.  732   240 
Sociedad Minera Cerro Verde S.A.A. (d)  -   126,050 
Minera Yanacocha S.R.L.  -   379 
   732   126,669 
         
Total trade and other receivables  8,080   134,429 
         
Classification by maturity:        
Current portion  8,080   8,379 
Non-current portion  -   126,050 
         
Total trade and other receivables  8,080   134,429 
         
Trade and other payables, note 14(a) -        
Trade payables        
Compañía Minera Coimolache S.A.  15   25 
Minera Yanacocha S.R.L.  -   1,347 
   15   1,372 
Other payables        
Compañía Minera Coimolache S.A.  42   3 
Other  20   - 
   62   3 
         
Total trade and other payables  77   1,375 

 F-93

Notes to the consolidated financial statements (continued)

Corporate information mainly includes the following:

 

(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

In segment information of Freeport Minerals Corporation, Compañía de Minas Buenaventura S.A.A. and SMM Cerro Verde Netherlands B.V., for up to US$800 million. As of December 31, 2016, Cerro Verde had borrowed US$606 million under these loan agreements (US$800 million under these loan agreements as of December 31, 2015), US$125 million with Buenaventura. During 2017, Buenaventura received the payment in advance of the long-term loan held with Sociedad Minera Cerro Verde S.A.

(e)Key officers -

As of December 31, 2017 and 2016, directors, officers and employees of the Group have been involved, directly and indirectly, in financial transactions with certain subsidiaries. As of December 2017 and 2016, loans to employees, directors and key personnel amounts to US$47,000 and US$91,000, 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.

The Group’s key executives’ compensation (including the related income taxes assumed by the Group) for the years 2017 and 2016 are presented below:

  2017  2016 
  US$(000)  US$(000) 
       
Accounts payable:        
Directors’ remuneration  1,641   - 
Salaries  1,257   1,034 
Directors’ compensations  1,200   1,016 
Other payments to officers  1,899   598 
   5,997   2,648 
         
Disbursements:        
Salaries  10,530   9,922 

 F-94

Notes to the consolidated financial statements (continued)

30.Disclosure of information on segments

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

-Production and sale of minerals
-Exploration and development activities
-Construction and engineering services
-Energy generation and transmission services
-Insurance brokerage
-Rental of mining concessions
-Holding of investment in shares (mainly in the associate company Minera Yanacocha S.R.L. and the Group’s subsidiary S.M.R.L. Chaupiloma Dos de Cajamarca)
-Industrial activities.

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.

Corporate information mainly includes the following:

In segment information of profit and loss -

-Sales to third parties of gold purchased by the Parent company from La Zanja mining unit and the corresponding cost of sale as well as other intercompany sales.

-Administrative expenses, other income (expenses), exchange gain (loss), finance costs and income and income tax that cannot be directly allocated to the operational mining units owned by the Parent company (Uchucchacua, Orcopampa, Julcani Mallay and Tambomayo).

-Exploration activities in non-operating areas, carried out directly by the Parent company and not by the consolidated separate legal entities.

-Participation in subsidiaries and associate companies of the Parent company, which are accounted for using the equity method.

In the Parent company, which are accounted for using the equity method.

In the segment information of assets and liabilities -

-Investments in Sociedad Minera Cerro Verde S.A.A. and liabilities -

-Investments in Sociedad Minera Cerro Verde S.A.A. and Compañía Minera Coimolache S.A., associate companies whichCompañía Minera Coimolache S.A., associate companies that are directly owned by the Parent company and are accounted for using the equity method; see note 10 to the consolidated financial statements.

-Assets and liabilities of the operational mining units owned directly by the Parent company since this is the way the CODM analyzes the business. Assets and liabilities of other operating segments are allocated based on the assets and liabilities of the legal entities included in those segments.

 F-95

Notes to the consolidated financial statements (continued)

Adjustmentsoperational mining units owned directly by the Parent company since this is the way the CODM analyzes the business. Assets and eliminations mainly includeliabilities of other operating segments are allocated based on the following:

In segment informationassets and liabilities of consolidated statements of profitthe legal entities included in those segments.

Adjustments and eliminations mainly include the following: 

In segment information of consolidated statements of profit or 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.
-The elimination of any equity pickup profit or loss of the subsidiaries of the Parent company.

-The elimination of any equity pickup profit or loss of the subsidiaries of the Parent company.

In the segment information of assets and liabilities –

-The elimination of the assets and liabilities of the investments accounted for under the equity method and not consolidated, corresponding to the associate companies: Minera Yanacocha S.R.L., Sociedad Minera Cerro Verde S.A.A. and Compañía Minera Coimolache S.A.

-The elimination of any equity pickup investments of the subsidiaries of the Parent company.

-The elimination of intercompany receivables and payables.

Refer to Note 20(a) to the consolidated financial statements where the Group reports revenues from external customers for each product and service, and revenues from external customers attributed to Peru and foreign countries. The revenue information is based on the locations of customers.

Refer to Note 20(b) to the consolidated financial statements for information about major customers (clients representing more than 10 percent of the Group’s revenues).

 

Refer to Note 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 20(d) to the consolidated financial statements for information about major customers (clients representing more than 10 percent of the Group’s revenues). All non-current assets are located in Peru.

 

 F-96

F-108 

 

Notes to the consolidated financial statements(continued)

                           Equity accounted investees      
 Uchucchacua (Operation) Orcopampa (Operation) Julcani (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)
Year 2019                                     
Results:                                     
Continuing operations                                     
Operating income:                                     
Net sale of goods 186,016  58,902  40,082  188,175  299,252  43,520       6,046  734,526 2,890,066 241,173  4,687,758  (3,865,828)  821,930
Net sale of services        59,690  15,687   615  19,557  4,776    100,325  (76,664)  23,661
Royalty income          22,297        22,297   22,297
Total operating income 186,016  58,902  40,082  188,175  299,252  43,520   59,690  15,687  22,297  615  25,603  739,302 2,890,066 241,173  4,810,380  (3,942,492)  867,888
                                      
Operating costs                                     
Cost of sales of goods, excluding depreciation and amortization (128,523)  (54,739)  (26,586)  (76,827)  (223,998)  (39,693)       (8,517)  (692,721) (2,101,668) (187,156)  (3,540,428) 3,027,554  (512,874)
Cost of services, excluding depreciation and amortization        (22,209)     (6,167)  (1,160)    (29,536)  26,158  (3,378)
Depreciation and amortization (21,053)  (7,563)  (9,178)  (83,657)  (74,335)  (9,103)   (10,075)     (11,979)      (226,943)  608  (226,335)
Exploration in operating units (8,917)  (9,040)  (5,864)  (11,613)  (8,727)  (2)            (44,163)   (44,163)
Mining royalties (1,955)  (5,220)  (418)  (1,857)  (2,953)  (429)            (12,832)   (12,832)
Total operating costs (160,448)  (76,562)  (42,046)  (173,954)  (310,013)  (49,227)   (32,284)     (26,663)  (693,881) (2,101,668) (187,156)  (3,853,902)  3,054,320  (799,582)
Gross profit (loss) 25,568  (17,660)  (1,964)  14,221  (10,761)  (5,707)   27,406  15,687  22,297  615  (1,060)  45,421 788,398 54,017  956,478 (888,172)  68,306
                                      
Operating expenses, net                                     
Administrative expenses (16,115)  (5,209)  (3,561)  (16,512)  (8,865)  (2,223)  (2,416)  (4,073)  (11,607)  (188)  (363)  (1,310)  (4,894) (1,744)  (4,638)  (83,718)  7,421  (76,297)
Selling expenses (6,876)  (258)  (403)  (3,940)  (10,856)  (321)   (1,115)     (1,324)  (1,722)  (1,163)  (27,978)  3,665  (24,313)
Exploration in non-operating areas (2,534)     (2,011)  (2,784)  (90)       (4,492)     (11,911)  32  (11,879)
Impairment recovery (loss) of long-lived assets  (2,083)              (2,083)  (2,083)
Reversal (provision) of contingent and others (183)  1  (148)  127  2,079  (98)  (40)  166      1,067     2,971 (3) 2,968
Other, net (4,147)  (8,104)  (776)  (3,767)  (6,568)  (1,119)  (419)  13,813   135  79  341  (2,686) (35,987)  (5,667)  (54,872)  40,157  (14,715)
Total operating expenses, net (29,855)  (13,570)   (6,971)  (24,092)  (26,221)  (6,545)  (2,965)  8,791  (11,607)  (53)  (284)  (2,293)  (11,005) (39,453)  (11,468)  (177,591)  51,272 (126,319)
                                      
Operating profit (loss) (4,287)  (31,230)   (8,935)  (9,871)  (36,982)  (12,252)  (2,965)  36,197  4,080  22,244 331  (3,353)  (11,005) 5,968 788,398 42,549  778,887 (836,900) (58,013)
Other income (expense), net                                     
Share in the results of associates and joint ventures     (44)    10,374    (53,143)  45,778     2,965  44,745 47,710
Finance income     417  2,006  14  263  15  30  10  277  7,751 18,859 10,356 549  40,547  (30,872) 9,675
Finance costs (532)  (733)  (1,002)  (505)  (11,440)  (3,715)  (561)  (7,483)  (89)  (4)  (6)  (990)  (16,249) (58,059) (115,877) (3,598)  (220,843)  178,670  (42,173)
Net gain (loss) from currency exchange difference (124)  76  3  (12)  (191)  14  (156)  62  (119)  (9)  (9)  208  (481) 2,902 5,574 277  8,015 (8,749)  (734)
Total other income (expenses), net (656)  (657)  (999)  (517)  (11,258)  (1,695)  (703)  3,216  (193)  17  (53,148)  (505) 36,799 (36,298) (99,947) (2,772)  (169,316)  183,794  14,478
                                      
Profit (loss) before income tax (4,943)  (31,887)   (9,934)  (10,388)  (48,240)  (13,947)  (3,668)  39,413  3,887  22,261  (52,817)  (3,858) 25,794 (30,330) 688,451 39,777 609,571 (653,106) (43,535)
Current income tax     (25)  (35)   (4,044)  (1,223)  (6,546)  (39)   (64,927) (298,074) (26,335)  (401,248) 389,337  (11,911)
Deferred income tax     15,410  (5,382)   (5,515)  91    1,554  31,344   15,017  52,519 (15,018) 37,501
Profit (loss) from continuing operations (4,943)  (31,887) (9,934)  (10,388)  (32,855)  (19,364)  (3,668)  29,854  2,755  15,715  (52,856)  (2,304)  57,138 (95,257) 390,377 28,459 260,842 (278,787)  (17,945)
                10,374                      
Loss from discontinued operations                                    (10,514)
                                      
Loss for the year                                    (28,459)
                                      
Total assets 146,486  46,750  41,858  425,297  725,973  138,458  398,838  382,481  13,822  6,252 458,212  104,335 2,371,464 2,327,714 7,809,424 379,915 15,777,279 (11,670,005) 4,107,274
Total liabilities 42,265  36,945  35,045  34,142  329,869 68,100  23,223  183,426  6,007  2,286 101  20,918 407,153 1,838,002 2,460,175 125,097 5,612,754 (4,473,680) 1,139,074
Other segment information                                     
Investment in associates and joint ventures- - - -     89,786 - - 232,154 - 2,073,745    2,395,685 (907,438)  1,488,247
Capital Expenditures31,479 1,323 1,559 9,641 28,298  1,629 26,494  223 85 -   1,443 453    102,627  102,627
Changes in estimates of mine closures plans176 10,493 2,430 2,277 5,122 5,021 -     -   - 1,203       26,722  26,722
Fair value for contingent consideration liability- - - - - - - - - - - - (655)    (655)  (655)
Accounts receivable from sale of assets- - - - - - - 21,023 - - - - 625    21,648  21,648

Notes to the consolidated financial statements(continued)

                           Equity accountedinvestees      
 Uchucchacua (Operation) Orcopampa (Operation) Julcani (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)
Year 2018                                     
Results:                                     
Continuing operations                                     
Operating income:                                     
Net sale of goods 257,282  153,003  34,104  225,281  333,560  96,611       6,655  635,393 3,054,026 225,447 5,021,362 (3,915,033) 1,106,329
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  225,281  333,560  96,611   62,962  14,986  20,385  615  26,563  657,358 3,054,026 225,447 5,162,183 (4,011,468) 1,150,715
                                      
Operating costs                                     
Cost of sales of goods, excluding depreciation and amortization (151,817)  (97,006)  (26,558)  (92,829)  (216,560)  (68,993)       (6,280)  (596,164)  (2,216,663) (170,866) (3,643,736) 3,030,355 (613,381)
Cost of services, excluding depreciation and amortization        (25,499)     (8,966)   (2,217)   (36,682) 32,364 (4,318)
Depreciation and amortization (26,181)  (8,802)  (3,353)  (77,029)  (67,666)  (34,088)   (10,248)     (11,483)     (238,850) (29) (238,879)
Exploration in operating units (20,898)  (29,563)  (8,646)  (20,553)  (9,996)  (74)           (89,730)  (89,730)
Mining royalties (2,243)  (13,669)  (237)  (1,936)  (2,345)  (957)           (21,387) (1) (21,388)
Total operating costs (201,139)  (149,040)  (38,794)  (192,347)  (296,567)  (104,112)   (35,747)     (26,729)   (598,381)  (2,216,663) (170,866) (4,030,385) 3,062,689 (967,696)
Gross profit (loss) 56,143  3,963  (4,690)  32,934  36,993  (7,501)   27,215  14,986  20,385  615  (166)   58,977 837,363 54,581 1,131,798 (948,779) 183,019
                                      
Operating expenses, net                                     
Administrative expenses (24,119)  (15,100)  (2,524)  (17,822)  (9,906)  (3,435)  (3,143)  (3,972)  (11,900)  (220)  (512)  (1,627) 2,377  (2,783)   (5,644) (100,330) 23,231 (77,099)
Selling expenses (8,213)  (775)  (356)  (3,046)  (12,201)  (784)   (1,173)     (924)   (2,627)   (1,135) (31,234) 4,286 (26,948)
Exploration in non-operating areas (18,339)     (7,199)  (5,002)  (2,883)       (4,091)    (37,514) 1,207 (36,307)
Reversal (provision) of contingent and others 6,784  (121)  947  1,263  (3,711)  (57)  6,130  (56)     2  (111)    11,070 178 11,248
Impairment recovery (loss) of long-lived assets      5,693           5,693  5,693
Other, net (5,953)  (3,386)  (1,050)  (5,599)  32,565  (669) 138 562     2,773 194  (2,235) (76,155)  (325) (59,140) 57,832 (1,308)
Total operating expenses, net(49,840) (19,382) (2,983) (25,204) (452) (4,254) 242 (4,639) (11,900) (220) 2,261 (2,355) (4,060) (81,565)  (7,104) (211,455) 86,734 (124,721)
                                      
Operating profit (loss) 6,303  (15,419)  (7,673) 7,730 36,541  (11,755)  242  22,576  3,086  20,165  2,876  (2,521)  (4,060) (22,588) 837,363 47,477 920,343 (862,045) 58,298
Other income (expense), net                                     
Share in the results of associates and joint ventures        8,589    (25,517)  15,081    (1,847) 703 (1,144)
Finance income     418  1,649   179   21  8  127  9,293 11,448 28,089 357 51,589 (41,904) 9,685
Finance costs (308)  (395)  (95)  (262)  (10,365)  (1,946)  (222)  (7,576)  (2)  (11)  (25)  (932)  (17,194)  (39,024)  (426,733) (2,935) (508,025) 469,603 (38,422)
Net gain (loss) from currency exchange difference 196  168  8  209  108  (224)  (846)  (346)  19  18  2  (482)  (206) (2,056) 6,161 (852) 1,877 (3,261) (1,384)
Total other income (expenses), net (112)  (227)  (87)  (53)  (9,839)  (521)  (1,068)  846  17  28  (25,532)  (1,287) 6,974  (29,632)  (392,483)  (3,430) (456,406) 425,141 (31,265)
                                      
Profit (loss) before income tax 6,191  (15,646)  (7,760) 7,677 26,702  (12,276)  (826)  23,422  3,103  20,193  (22,656)  (3,808) 2,914  (52,220) 444,880 44,047 463,937 (436,904) 27,033
Current income tax (768)  (559)  (72)  (656)  (8,332)  (24)     (6,025)  (444)  (2)   (30,368)  (325,170)  (23,405) (395,825) 378,943 (16,882)
Deferred income tax     (10,803)  (1,220)   (7,584)     106 9,514 1,071  4,942 (3,974) (6,023) (9,997)
Profit (loss) from continuing operations 5,423  (16,205)  (7,832) 7,021 7,567  (13,520)  (826)  15,838  3,103  14,168  (23,100)  (3,704) 12,428  (81,517) 119,710 25,584 64,138 (63,984) 154
                                      
Loss from discontinued operations                                     (11,808)
                                      
Loss for the year                                     (11,654)
                                      
Total assets 126,374  39,725  39,537  461,335  773,554  158,718  372,344  366,354  12,154  7,154  520,484  106,391 2,421,547 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  28,502  340,735  68,615  18,986  197,152  4,597  2,653  603  20,671 425,893 1,463,749 2,445,840 125,307 5,248,748  (4,061,092) 1,187,656
Other segment information                                     
Investment in associates and joint ventures         −    1,473,382    1,473,382  1,473,382
Capital Expenditures 18,429  6,225  2,984  18,858  29,572  13,159  17,141  118    1,816 2,968    111,270  111,270
Changes in estimates of mine closures plans4,101 1,003 16,484 (447) 19,926 (6,915) 9,063   −    (341)     42,874   42,874
Fair value for contingent consideration liability      1,815   −        1,815  1,815
Accounts receivable from sale of assets         −  1,622  1,093    2,715  2,715
                                       

Notes to the consolidated financial statements(continued)

                                     
                              Equity accounted investees      
  Uchucchacua (Operation) 

Orcopampa 

(Operation) 

 

Julcani 

(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)
 Year 2017                                        
 Results:                                        
Continuing operations                                        
Operating income:                                        
Net sale of goods 272,334 256,960 42,785 118,966 322,653 165,319 - - - - - - 6,317 34,650 645,176 3,202,931 203,790 5,271,881 (4,084,675) 1,187,206
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 42,785 118,966 322,653 165,319 - 10,603 60,639 14,377 20,739 615 25,975 34,650 667,046 3,202,931 203,790 5,420,382 (4,182,740) 1,237,642
Operating costs                                        
Cost of sales of goods, excluding depreciation and amortization (143,288) (115,574) (31,190) (53,555) (193,874) (102,474) - - - - - - (6,043) (34,029) (746,918) (1,768,238) (121,021) (3,316,204) 2,711,554 (604,650)
Cost of services, excluding depreciation and amortization - - - - - - - (9,393) (25,556) - - - (9,354) - (2,062) - - (46,365) 33,411 (12,954)
Depreciation and amortization (23,899) (8,846) (8,122) (42,789) (57,199) (48,385) - (129) (9,651) - - - (11,134) - - - - (210,154) - (210,154)
Exploration in operating units (27,068) (38,820) (13,009) (9,543) - (871) - - - - - - - - - - - (89,311) - (89,311)
Mining royalties (2,280) (22,436) (354) (998) (3,317) (1,499) - - - - - - - - - - - (30,884) - (30,884)
Total operating costs (196,535) (185,676) (52,675) (106,885) (254,390) (153,229) - (9,522) (35,207) - - - (26,531) (34,029) (748,980) (1,768,238) (121,021) 

(3,692,918)

 

 2,744,965 

(947,953)

 

Gross profit (loss) 75,799 71,284 (9,890) 12,081 68,263 12,090 - 1,081 25,432 14,377 20,739 615 (556) 621 (81,934) 1,434,693 82,769 1,727,464 (1,437,775) 289,689
Operating expenses, net                                        
Administrative expenses (19,473) (18,281) (2,878) (9,139) (13,061) (2,814) (1,604) (3,606) (2,423) (12,288) (90) (413) (1,203) 443 (4,760) - (3,829) (95,419) 14,753 (80,666)
Selling expenses (6,078) (1,016) (605) (1,387) (10,914) (881) - - (1,264) - - - (775) (167) (3,922) (141,669) (946) (169,624) 146,581 (23,043)
Exploration in non-operating areas (2,676) - - (3,214) (1,976) (2,870) (2,771) - - - - - - (5,052) - - - (18,559) 297 (18,262)
Reversal (provision) of contingent and others (7,040) (1) (460) (1,002) - (1,370) (4,657) 100 312 - - - - 378 - - - (13,740) - (13,740)
Impairment recovery (loss) of long-lived assets - - - - - (21,620) - - - - - - - - - - - (21,620) - (21,620)
Write –off of stripping activity asset - - - - (13,573) - - - - - - - - - - - - (13,573) - (13,573)
Other, net (1,799) (715) (1,403) (175) (2,922) (970) (94) 1,129 (94) (4) (1) - 216 (2,012) (63,512) (258,826) (587) (331,769) 318,539 (13,230)
Total operating expenses, net (37,066) (20,013) (5,346) (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) (664,304) 480,170 (184,134)
Operating profit (loss) 38,733 51,271 (15,236) (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 1,063,160 (957,605) 105,555
Other income (expense),net                                        
Share in the results of associates and joint ventures - - - - - - - - 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
Finance costs (285) (354) (106) (372) (12,017) (1,919) (131) (370) (10,354) (6) (2) (2) (941) (8,980) (23,766) (216,912) (3,304) (279,821) 245,270 (34,551)
Net gain (loss) from currency exchange difference 31 (63) (75) 10 310 48 537 105 294 (75) (41) (4) 497 1,365 3,636 13,288 (174) 19,689 (16,750) 2,939
Total other income (expense), net (254) (417) (181) (362) (11,528) (1,201) 406 (265) (1,348) (80) (36) (66,192) (365) 19,193 (14,299) (198,274) (3,258) (278,461) 265,573 (12,888)
Profit (loss) before income tax 38,479 50,854 (15,417) (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 74,149 784,699 (692,032) 92,667
Income tax (1,101) (1,085) (153) (538) (3,903) 6,841 - (400) (3,491) (742) (6,044) (38) 1,818 (9,052) (7,026) (486,043) (23,362) (534,319) 516,431 (17,888)
Profit (loss) from continued operations 37,378 49,769 (15,570) (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 50,787 250,380 (175,601) 74,779
Loss from discontinued operations                                       (10,344)
 Net profit                                       64,435
Total assets 146,464 54,114 20,922 538,057 792,594 190,310 342,759 14,004 360,610 9,004 6,611 988,841 109,669 1,950,147 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 32,501 388,899 87,008 14,527 5,153 205,247 4,616 2,378 414 20,245 431,505 1,360,217 2,501,845 150,743 5,315,362 (4,046,176) 1,269,186
 Other segment information                                        
Investment in associates and joint ventures - - - - - - - - - - - - - 1,536,887 - - - 1,536,887 - 1,536,887
Capital Expenditures 18,127 12,674 1,951 131,119 61,060 17,326 13,733 3 852 14 - - 459 2,189 - - - 259,507 - 259,507
Changes in estimates of mine closures plans 1,380 3,710 (761) 404 5,326 462 67 - - - - - - 6 - - - 10,594 - 10,594
Fair value for contingent consideration liability - - - - - - - - - - - - - 1,773 - - - 1,773 - 1,773
Accounts receivable from sale of assets - - - - - - - 4,053 - - - - - 1,318 - - - 5,371 - 5,371

 


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:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Segments profit (loss)  260,842   64,138   250,380 
Elimination of profit of equity accounted investees, not consolidated (owned by third parties)  (323,578)  (63,777)  (225,215)
Elimination of intercompany sales  (71,951)  (74,637)  (108,973)
Elimination of cost of sales and operating expenses intercompany  71,697   76,780   106,726 
Elimination of share in the results of subsidiaries and associates  44,745   1,582   49,627 
Others  300   (3,932)  2,234 
Consolidated profit (loss) from continued operations  (17,945)  154   74,779 

Reconciliation of segment assets

The reconciliation of segment assets to the consolidated assets follows:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Segments assets  15,777,279   15,369,524   15,614,979 
Elimination of assets of equity accounted investees, not consolidated (owned by third parties)  (10,517,053)  (9,963,853)  (10,090,873)
Elimination of the subsidiaries and associates of the Parent company  (1,111,454)  (1,184,240)  (1,186,783)
Elimination of intercompany receivables  (64,708)  (32,444)  (32,769)
Others  23,210   28,234   28,259 
Consolidated assets  4,107,274   4,217,221   4,332,813 

Reconciliation of segment liabilities

The reconciliation of segment liabilities to the consolidated liabilities follows:

  2019  2018  2017 
   US$(000)   US$(000)��  US$(000) 
             
Segments liabilities  5,612,754   5,248,748   5,315,362 
Elimination of liabilities of equity accounted investees, not consolidated  (4,423,274)  (4,034,896)  (4,012,805)
Elimination of intercompany payables  (50,395)  (27,822)  (32,769)
Others  (11)  1,626   (602)
Consolidated liabilities  1,139,074   1,187,656   1,269,186 


Notes to the consolidated financial statements(continued)

Disaggregated revenue information

Set out below is the disaggregation of the Group’s revenue from contracts with customers:

  Uchucchacua (Operation)  

Tambomayo

(Operation)

  

Orcopampa

(Operation)

  

Julcani

(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) 
Year 2019                                                            
Revenues by type of customers:                                                            
Sales by customers -                                                            
External  184,982   186,668   58,796   39,639   294,842   43,894   -   -   -   -   6,046   -   814,867   -   814,867 
Inter-segment  -   -   -   -   62   -   -   -   -   -   -   -   62   (62)  - 
   184,982   186,668  58,796   39,639   294,904   43,894   -   -   -   -   6,046   -   814,929   (62)  814,867 
Services -                                                            
External  -   -   -   -   -   -   7,974   15,687   -   -   -   -   23,661   -   23,661 
Inter-segment  -   -   -   -   -   -   51,716   -   -   615   19,557   -   71,888   (71,888)  - 
   -   -   -   -   -   -   59,690   15,687   -   615   19,557   -   95,549   (71,888)  23,661 
Royalties -                                                            
External  -   -   -   -   -   -   -   -   22,297   -   -   -   22,297   -   22,297 
   184,982   186,668   58,796   39,639   294,904   43,894   59,690   15,687   22,297   615   25,603   -   932,775   (71,950)  860,825 
                                                             
Revenues by geographic region:                                                            
Metal and concentrates sales -                                                            
Peru  143,512   79,631   4,833   10,451   236,844   683   -   -   -   -   1,086   -   477,040   (62)  476,978 
America- other than Peru  -   79,537   53,963   -   -   37,326   -   -   -   -   943   -   171,769   -   171,769 
Asia  13,622   27,365   -   6,598   58,060   -   -   -   -   -   -   -   105,645   -   105,645 
Europe  27,848   135   -   22,590   -   5,885   -   -   -   -   4,017   -   60,475   -   60,475 
   184,982   186,668   58,796   39,639   294,904   43,894   -   -   -   -   6,046   -   814,929   (62)  814,867 
Services -                                                            
Peru  -   -   -   -   -   -   59,690   15,527   -   615   19,557   -   95,389   (71,888)  23,501 
America - other than Peru  -   -   -   -   -   -   -   130   -   -   -   -   130   -   130 
Europe  -   -   -   -   -   -   -   30   -   -   -   -   30   -   30 
   -   -   -   -   -   -   59,690   15,687   -   615   19,557   -   95,549   (71,888)  23,661 
Royalties -                                                            
Peru  -   -   -   -   -   -   -   -   22,297   -   -   -   22,297   -   22,297 
   184,982   186,668   58,796   39,639   294,904   43,894   59,690   15,687   22,297   615   25,603   -   932,775   (71,950)  860,825 
                                                             
Revenues by type of good or services:                                                            
Sales by metal -                                                            
Gold  -   134,387   58,737   278   18,104   42,698   -   -   -   -   -   -   254,204   (10)  254,194 
Silver  159,713   38,112   263   40,889   57,903   1,300   -   -   -   -   -   -   298,180   (9)  298,171 
Copper  -   -   -   79   238,327   -   -   -   -   -   -   -   238,406   (102)  238,304 
Zinc  38,143   19,867   -   -   91,307   -   -   -   -   -   -   -   149,317   -   149,317 
Lead  29,735   14,016   -   1,627   43,763   -   -   -   -   -   -   -   89,141   -   89,141 
Manganese sulfate  -   -   -   -   -   -   -   -   -   -   6,046   -   6,046   -   6,046 
   227,591   206,382   59,000   42,873   449,404   43,998   -   -   -   -   6,046   -   1,035,294   (121)  1,035,173 
Commercial deductions  (42,609)  (19,714)  (204)  (3,234)  (154,500)  (104)  -   -   -   -   -   -   (220,365)  59   (220,306)
   184,982   186,668   58,796   39,639   294,904   43,894   -   -   -   -   6,046   -   814,929   (62)  814,867 
Sales by services -  -   -   -   -   -   -   59,690   15,687   -   615   19,557   -   95,549   (71,888)  23,661 
Royalties income -  -   -   -   -   -   -   -   -   22,297   -   -   -   22,297   -   22,297 
   184,982   186,668   58,796   39,639   294,904   43,894   59,690   15,687   22,297   615   25,603   -   932,775   (71,950)  860,825 


Notes to the consolidated financial statements(continued) 

  Uchucchacua (Operation)  

Tambomayo

(Operation)

  

Orcopampa

(Operation)

  

Julcani

(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) 
Year 2018                                                            
Revenues by type of customers:                                                            
Sales by customers -                                                            
External  257,840   225,339   153,240   33,864   339,414   96,600   -   -   -   -   6,655   -   1,112,952   -   1,112,952 
Inter-segment  -   -   -   -   167   -   -   -   -   -   -   -   167   (167)  - 
   257,840   225,339   153,240   33,864   339,581   96,600   -   -   -   -   6,655   -   1,113,119   (167)  1,112,952 
                                                             
Services -                                                            
External  -   -   -   -   -   -   9,015   14,986   -   -   -   -   24,001   -   24,001 
Inter-segment  -   -   -   -   -   -   53,947   -   -   615   19,909   -   74,471   (74,471)  - 
   -   -   -   -   -   -   62,962   14,986   -   615   19,909   -   98,472   (74,471)  24,001 
Royalties -                                                            
External  -   -   -   -   -   -   -   -   20,385   -   -   -   20,385   -   20,385 
   257,840   225,339   153,240   33,864   339,581   96,600   62,962   14,986   20,385   615   26,564   -   1,231,976   (74,638)  1,157,338 
                                                             
Revenues by geographic region:                                                            
Metal and concentrates sales -                                                            
Peru  170,986   63,049   10,808   15,261   257,559   2,770   -   -   -   -   751   -   521,184   (167)  521,017 
America- other than Peru  -   159,530   142,432   -   -   67,756   -   -   -   -   906   -   370,624   -   370,624 
Asia  29,382   -   -   9,115   82,022   -   -   -   -   -   -   -   120,519   -   120,519 
Europe  57,472   2,760   -   9,488   -   26,074   -   -   -   -   4,998   -   100,792   -   100,792 
   257,840   225,339   153,240   33,864   339,581   96,600   -   -   -   -   6,655   -   1,113,119   (167)  1,112,952 
Services -                                                            
Peru  -   -   -   -   -   -   62,962   14,787   -   615   19,909   -   98,273   (74,561)  23,712 
America - other than Peru  -   -   -   -   -   -   -   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 
   257,840   225,339   153,240   33,864   339,581   96,600   62,962   14,986   20,385   615   26,564   -   1,231,976   (74,638)  1,157,338 
                                                             
                                                             
Revenues by type of good or services:                                                            
Sales by metal -                                                            
Gold  11   150,939   149,092   28   18,463   93,358   -   -   -   -   -   -   411,891   (14)  411,877 
Silver  217,843   54,109   5,243   35,307   46,060   3,583   -   -   -   -   -   -   362,145   (23)  362,122 
Copper  -   -   (221)  129   275,119   -   -   -   -   -   -   -   275,027   (266)  274,761 
Zinc  45,194   18,197   -   -   101,275   -   -   -   -   -   -   -   164,666   -   164,666 
Lead  36,238   6,703   -   1,996   40,618   -   -   -   -   -   -   -   85,555   -   85,555 
Manganese sulfate  -   -   -   -   -   -   -   -   -   -   6,655   -   6,655   -   6,655 
   299,286   229,948   154,114   37,460   481,535   96,941   -   -   -   -   6,655   -   1,305,939   (303)  1,305,636 
Commercial deductions  (41,446)  (4,609)  (874)  (3,596)  (141,954)  (341)  -   -   -   -   -   -   (192,820)  136   (192,684)
   257,840   225,339   153,240   33,864   339,581   96,600   -   -   -   -   6,655   -   1,113,119   (167)  1,112,952 
Sales by services -  -   -   -   -   -   -   62,962   14,986   -   615   19,909   -   98,472   (74,471)  24,001 
Royalties income -  -   -   -   -   -   -   -   -   20,385   -   -   -   20,385   -   20,385 
   257,840   225,339   153,240   33,864   339,581   96,600   62,962   14,986   20,385   615   26,564   -   1,231,976   (74,638)  1,157,338 


Notes to the consolidated financial statements(continued) 

                                                 
  Uchucchacua (Operation)  

Orcopampa

(Operation)

  

Julcani

(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) 
Year 2017                                                                
Revenues by type of customers:                                                                
Sales by customers -                                                                
External  266,482   256,957   41,120   118,376   333,097   132,108   -   -   -   -   -   6,317   34,016   1,188,473   -   1,188,473 
Inter-segment  -   -   -   -   -   31,887   -   -   -   -   -   -   -   31,887   (31,887)  - 
   266,482   256,957   41,120   118,376   333,097   163,995   -   -   -   -   -   6,317   34,016   1,220,360   (31,887)  1,188,473 
                                                                 
Services -                                                                
External  -   -   -   -   -   -   5,908   9,412   14,377   -   -   -   -   29,697   -   29,697 
Inter-segment  -   -   -   -   -   -   4,695   51,227   -   -   615   19,658   -   76,195   (76,195)  - 
   -   -   -   -   -   -   10,603   60,639   14,377   -   615   19,658   -   105,892   (76,195)  29,697 
Royalties -                                                                
External  -   -   -   -   -   -   -   -   -   20,739   -   -   -   20,739   -   20,739 
   266,482   256,957   41,120   118,376   333,097   163,995   10,603   60,639   14,377   20,739   615   25,975   34,016   1,346,991   (108,082)  1,238,909 
                                                                 
Revenues by geographic region:                                                                
Metal and concentrates sales -                                                                
Peru  209,300   17,774   13,049   34,337   239,317   32,607   -   -   -   -   -   852   705   547,941   (31,887)  516,054 
America - other than Peru  -   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   -   3,820   5,513   -   -   -   -   -   1,689   14,780   79,837   -   79,837 
   266,482   256,957   41,120   118,376   333,097   163,995   -   -   -   -   -   6,317   34,016   1,220,360   (31,887)  1,188,473 
Services -                                                                
Peru  -   -   -   -   -   -   10,014   60,639   14,205   -   615   19,658   -   105,131   (90,228)  14,903 
America - other than Peru  -   -   -   -   -   -   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 
   266,482   256,957   41,120   118,376   333,097   163,995   10,603   60,639   14,377   20,739   615   25,975   34,016   1,346,991   (108,082)  1,238,909 
                                                                 
Revenues by type of good or services:                                                                
Sales by metal -                                                                
Gold  345   247,909   -   80,796   20,301   160,489   -   -   -   -   -   -   32,875   542,715   (31,733)  510,982 
Silver  256,608   9,595   40,384   27,285   54,629   4,434   -   -   -   -   -   -   1,257   394,192   (935)  393,257 
Copper  -   598   192   -   267,737   -   -   -   -   -   -   -   -   268,527   -   268,527 
Zinc  31,814   -   -   7,914   130,790   -   -   -   -   -   -   -   -   170,518   -   170,518 
Lead  32,244   -   4,660   4,735   44,318   -   -   -   -   -   -   -   -   85,957   -   85,957 
Manganese sulfate  -   -   -   -   -   -   -   -   -   -   -   6,317   -   6,317   -   6,317 
Indium                  66   -   -   -   -   -   -   -   -   66   -   66 
   321,011   258,102   45,236   120,730   517,841   164,923   -   -   -   -   -   6,317   34,132   1,468,292   (32,668)  1,435,624 
Commercial deductions  (54,529)  (1,145)  (4,116)  (2,354)  (184,744)  (928)  -   -   -   -   -   -   (116)  (247,932)  781   (247,151)
   266,482   256,957   41,120   118,376   333,097   163,995   -   -   -   -   -   6,317   34,016   1,220,360   (31,887)  1,188,473 
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 
   266,482   256,957   41,120   118,376   333,097   163,995   10,603   60,639   14,377   20,739   615   25,975   34,016   1,346,991   (108,082)  1,238,909 


Notes to the consolidated financial statements(continued) 

32.Derivative financial instruments

Hedge 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 contractsare intended to reduce the volatility of the cash flows attributable to the consolidated financial statementsfluctuations in the copper and zinc price in accordance with existing copper concentrate sales commitments, which are related to 50 percent of the annual production of copper and 25 percent of the production of two years of zinc, (continued)

                                               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  (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  -   -   -   -   -   -   -   -   (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-97

Notesaccording to the consolidated financial statementsrisk strategy approved by the Board of Directors. (continued)

There is an economic relationship between the hedged items and the hedging instruments as the terms of the foreign exchange and commodity forward contracts match the terms of the expected highly probable forecast transactions. The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the commodity forward contracts are identical to the hedged risk components. To test the hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks.

The hedge ineffectiveness can arise from:

                                               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 2016                                                                                    
Results:                                                                                    
Continuing operations                                                                                    
Operating income                                                                                    
Net sale of goods  240,470   244,745   54,666   46,741   -   230,611   178,922   -   -   -   -   -   -   5,982   191,075   761,193   2,384,154   198,873   4,537,432   (3,521,762)  1,015,670 
Net sale of services  -   -   -   -   -   -   -   -   12,633   57,312   12,675   -   615   19,507   -   17,713   -   -   120,455   (91,673)  28,782 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   24,339   -   -   -   -   -   -   24,339   -   24,339 
Total operating income  240,470   244,745   54,666   46,741   -   230,611   178,922       12,633   57,312   12,675   24,339   615   25,489   191,075   778,906   2,384,154   198,873   4,682,226   (3,613,435)  1,068,791 
Operating costs                                                                                    
Cost of sales of goods  (118,561)  (97,325)  (23,633)  (23,392)  -   (178,231)  (80,873)  -   -   -   -   -   -   (2,962)  (190,041)  (725,740)  (1,553,040)  (107,913)  (3,101,711)  2,603,899   (497,812)
Cost of services  -   -   -   -   -   -   -   -   (9,732)  (25,250)  -   -   -   (8,723)  -   (2,951)  -   -   (46,656)  35,902   (10,754)
Exploration in operating units  (31,406)  (45,111)  (11,069)  (7,960)  -   -   (603)  -   -   -   -   -   -   -   -   -   -   -   (96,149)  -   (96,149)
Depreciation and amortization  (18,541)  (11,403)  (6,756)  (11,393)  -   (53,637)  (67,542)  (27)  (253)  (10,904)  -   (16)  (221)  (10,968)  (986)  -   -   -   (192,647)  -   (192,647)
Mining royalties  (1,687)  (21,482)  (381)  (314)  -   (2,726)  (1,021)  -   -   -   -   -   -   -   -   -   -   -   (27,611)  -   (27,611)
Total operating costs  (170,195)  (175,321)  (41,839)  (43,059)  -   (234,594)  (150,039)  (27)  (9,985)  (36,154)  -   (16)  (221)  (22,653)  (191,027)  (728,691)  (1,553,040)  (107,913)  (3,464,774)  2,639,801   (824,973)
Gross profit (loss)  70,275   69,424   12,827   3,682   -   (3,983)  28,883   (27)  2,648   21,158   12,675   24,323   394   2,836   48   50,215   831,114   90,960   1,217,452   (973,634)  243,818 
Operating expenses                                                                                    
Administrative expenses  (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  -   -   -   -   (7,517)  (1,939)  (4,619)  (9,585)  -   -   -   -   -   -   (4,129)  -   -   -   (27,789)  1,200   (26,589)
Selling expenses  (4,632)  (1,075)  (845)  (1,549)  -   (10,650)  (938)  -   -   (1,124)  -   -   -   (1,154)  (115)  (3,695)  (131,391)  (1,128)  (158,296)  136,563   (21,733)
Impairment loss of long-lived assets  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   (889,499)  -   -   (889,499)  889,499   - 
Provision for contingencies  1,121   (110)  (630)  49   69   -   -   (1,399)  (286)  (467)  -   -   -   -   1,088   -   -   -   (565)  -   (565)
Other, net  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 
Total operating expenses, net  (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)  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  -   -   -   -   -   -   -   -   -   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  (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)
Total other income (expense), net  (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  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  (1,814)  (1,895)  (424)  (365)  -   7,851   (18,256)  (245)  (178)  (9,224)  (245)  (6,761)  -   461   (22,409)  (43,126)  (263,082)  (27,894)  (387,606)  334,102   (53,504)
Profit (loss) from continued operations  52,250   53,155   6,273   (1,350)  (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)                                                                                  (19,073)
Net loss                                                                                  (327,814)
        ��                                                                            
Total assets  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  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  -   -   -   -   -   -   -   -   -   -   -   -   -   -   1,536,607   -   -   -   1,536,607   -   1,536,607 
Additions to mining concessions, development  costs, property, plant and equipment  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-98

-Differences in the timing of the cash flows of the hedged items and the hedging instruments

Notes
-Different indexes (and accordingly different curves) linked to the consolidated financial statements (continued)

                                               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 2015                                                                                    
Results:                                                                                    
Continuing operations                                                                                    
Operating income                                                                                    
Net sale of goods  166,055   254,118   50,254   32,018   -   171,294   161,007   -   -   -   -   -   -   3,649   168,667   1,031,174   1,115,617   177,347   3,331,200   (2,484,931)  846,269 
Net sale of services  -   -   -   -   -   -   -   -   48,758   48,339   11,929   -   -   13,399   -   10,625   -   -   133,050   (82,211)  50,839 
Royalty income  -   -   -   -   -   -   -   -   -   -   -   32,414   -   -   -   -   -   -   32,414   -   32,414 
Total operating income  166,055   254,118   50,254   32,018   -   171,294   161,007   -   48,758   48,339   11,929   32,414   -   17,048   168,667   1,041,799   1,115,617   177,347   3,496,664   (2,567,142)  929,522 
Operating costs                                                                                    
Cost of sales of goods  (126,728)  (112,707)  (26,725)  (20,709)  -   (158,804)  (106,750)  -   -   -   -   -   -   -   (169,236)  (751,736)  (862,004)  (104,549)  (2,439,948)  1,926,458   (513,490)
Cost of services  -   -   -   -   -   -   -   -   (48,544)  (20,767)  -   -   -   (16,820)  -   (2,524)  -   -   (88,655)  29,043   (59,612)
Exploration in operating units  (27,784)  (41,705)  (12,699)  (7,539)  -   -   (41)  -   -   -   -   -   -   -   -   -   -   -   (89,768)  69   (89,699)
Depreciation and amortization  (15,767)  (17,313)  (11,349)  (15,439)  -   (45,752)  (104,984)  (17)  (850)  (10,260)  -   (54)  (226)  (9,545)  (1,027)  -   -   -   (232,583)  -   (232,583)
Mining royalties  (1,142)  (23,877)  (337)  (234)  -   -   (1,597)  -   -   -   -   -   -   -   (1)  -   -   -   (27,188)  -   (27,188)
Total operating costs  (171,421)  (195,602)  (51,110)  (43,921)  -   (204,556)  (213,372)  (17)  (49,394)  (31,027)  -   (54)  (226)  (26,365)  (170,264)  (754,260)  (862,004)  (104,549)  (2,878,142)  1,955,570   (922,572)
Gross profit (loss)  (5,366)  58,516   (856)  (11,903)  -   (33,262)  (52,365)  (17)  (636)  17,312   11,929   32,360   (226)  (9,317)  (1,597)  287,539   253,613   72,798   618,522   (611,572)  6,950 
Operating expenses                                                                                    
Administrative expenses  (10,739)  (16,698)  (3,623)  (2,080)  (169)  (19,181)  (2,251)  (1,275)  (7,859)  (3,422)  (11,296)  (106)  (209)  (654)  (11,370)  (26,325)  -   (2,185)  (119,442)  35,070   (84,372)
Exploration in non-operating areas  -   -   -   -   (12,651)  (2,366)  (8,954)  (3,241)  -   -   -   -   -   -   (5,685)  -   -   -   (32,897)  2,287   (30,610)
Selling expenses  (3,552)  (851)  (1,055)  (1,424)  -   (9,056)  (1,207)  -   -   (806)  -   -   -   (1,411)  (3)  (3,534)  (56,215)  (1,111)  (80,225)  60,860   (19,365)
Impairment loss of long-lived assets  -   -   -   -   -   -   (3,803)  -   -   -   -   -   -   -   -   -   -   (672)  (4,475)  672   (3,803)
Provision for contingencies  -   -   -   -   -   -   -   -   -   (472)  -   -   -   -   77   -   -       (395)  -   (395)
Other, net  1,836   (1,182)  (125)  (67)  156   (2,657)  (687)  (1,251)  7,417   167   (4)  -   793   98   6,252   (82,846)  (26,600)  765   (97,935)  92,595   (5,340)
Total operating expenses, net  (12,455)  (18,731)  (4,803)  (3,571)  (12,664)  (33,260)  (16,902)  (5,767)  (442)  (4,533)  (11,300)  (106)  584   (1,967)  (10,729)  (112,705)  (82,815)  (3,203)  (335,369)  191,484   (143,885)
Operating profit (loss)  (17,821)  39,785   (5,659)  (15,474)  (12,664)  (66,522)  (69,267)  (5,784)  (1,078)  12,779   629   32,254   358   (11,284)  (12,326)  174,834   170,798   69,595   283,153   (420,088)  (136,935)
Other income (expense),net                                                                                    
Share in the results of associates under equity method  -   -   -   -   -   -   -   -   6,561   478   2   -   (187,269)  -   (268,463)  -   -   -   (448,691)  275,316   (173,375)
Finance income  5   5   2   -   -   154   16   -   182   23   13   -   -   -   10,785   673   512   23   12,393   (1,367)  11,026 
Net gain (loss) from currency exchange difference  539   461   378   75   (63)  (3,832)  (1,973)  (1,734)  (1,393)  (1,586)  (165)  45   4   (2,162)  (2,287)  (251)  (75,770)  (1,300)  (91,014)  77,321   (13,693)
Finance costs  (195)  (235)  (152)  (108)  (163)  (10,096)  (3,684)  (52)  (1,413)  (8,817)  (21)  (4)  (1)  (842)  (4,043)  -22,734   (16,010)  (51)  (68,621)  41,049   (27,572)
Total other income (expense), net  349   231   228   (33)  (226)  (13,774)  (5,641)  (1,786)  3,937   (9,902)  (171)  41   (187,266)  (3,004)  (264,008)  (22,312)  (91,268)  (1,328)  (595,933)  392,319   (203,614)
Profit (loss) before income tax  (17,472)  40,016   (5,431)  (15,507)  (12,890)  (80,296)  (74,908)  (7,570)  2,859   2,877   458   32,295   (186,908)  (14,288)  (276,334)  152,522   79,530   68,267   (312,780)  (27,769)  (340,549)
Income tax  (518)  (602)  (140)  (78)  -   4,109   5,702   -   (4,386)  (3,887)  (299)  (9,186)  (87)  584   (5,975)  (602,717)  (46,246)  (29,861)  (693,587)  678,824   (14,763)
Profit (loss) from continued operations  (17,990)  39,414   (5,571)  (15,585)  (12,890)  (76,187)  (69,206)  (7,570)  (1,527)  (1,010)  159   23,109   (186,995)  (13,704)  (282,309)  (450,195)  33,284   38,406   (1,006,367)  651,055   (355,312)
Loss from discontinued operations, see note 1(e)                                                                                  (20,233)
Net loss                                                                                  (375,545)
                                                                                     
Total assets  86,961   51,746   27,228   24,279   168,835   739,941   220,331   303,484   31,463   393,318   5,979   9,397   997,835   118,012   3,067,988   2,965,430   7,852,692   238,175   17,303,094   (12,755,913)  4,547,181 
Total liability  16,663   14,817   6,538   2,803   9,100   364,455   106,846   4,590   29,599   235,695   3,457   3,508   2,831   31,479   465,244   736,605   3,354,318   63,119   5,451,667   (4,293,722)  1,157,945 
                                                                                     
Other segment information                                                                                    
Investment in associates  -   -   -   -   -   -   -   -   -   -   -   -   -   -   2,043,983   -   -   -   2,043,983   -   2,043,983 
Additions to mining concessions, development  costs, property, plant and equipment  20,245   8,198   1,323   2,259   77,093   37,571   27,741   26,740   527   6,159   85   -   1,205   2,140   -   -   -   -   211,286   -   211,286 

 F-99

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:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Segments profit (loss) from continued operations  250,134   (1,397,473)  (1,006,367)
Elimination of profit of equity accounted investees, not consolidated (owned by third parties)  (225,215)  645,989   203,912 
Elimination of intercompany sales  (108,973)  (251,502)  (232,380)
Elimination of intercompany cost of sales  106,726   250,157   228,914 
Elimination of share in the results of subsidiaries and associates  49,627   448,507   448,691 
Others  2,234   (4,419)  1,918 
             
Consolidated profit (loss) from continued operations  74,533   (308,741)  (355,312)

Reconciliation of segment assets

The reconciliation of segment assets to the consolidated assets follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Segments assets  15,614,979   15,522,247   17,303,094 
Elimination of assets of equity accounted investees, not consolidated (owned by third parties)  (10,090,873)  (10,016,003)  (8,128,519)
Elimination of equity pick up investments of the subsidiaries and associates of the Parent company  (1,186,783)  (1,047,758)  (4,486,717)
Elimination of intercompany receivables  (32,769)  (192,958)  (138,703)
Others  28,259   887   (1,974)
             
Consolidated assets  4,332,813   4,266,415   4,547,181 

Reconciliation of segment liabilities

The reconciliation of segment liabilities to the consolidated liabilities follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Segments liabilities  5,315,362   5,500,328   5,451,667 
Elimination of liabilities of equity accounted investees, not consolidated  (4,012,805)  (4,087,495)  (4,154,042)
Elimination of intercompany payables  (32,769)  (192,958)  (138,703)
Others  (602)  (673)  (977)
             
Consolidated liabilities  1,269,186   1,219,202   1,157,945 

 F-100

Notes to the consolidated financial statements (continued)

31.Derivative financial instruments

Hedge 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 which are recorded under cash flow accounting, see note 2.4(v).These contracts managed during 2017 are intended to reduce the volatility of the cash flows attributable to the fluctuations in the cooper price, from January to December 2018, in accordance with existing copper concentrate sales commitments, which are related to 50 percent of the annual production of copperaccording to thehedged risk strategy approved by the Board of Directors of this subsidiary.

The counterpart fair value as of December 31, 2017, net of deferred income tax, amounts to a liability balance of US$19,602,000 (US$2,723,000 as of December 31, 2016), and it is shown in the caption "Other reserves of equity".

The table below presents the composition of open transactions included in thehedge derivative financial instruments asof December 31, 2017:

     Quotations   
Period of settlement MT  Fixed Futures  Fair value 
          US$(000) 
January 2018  3,000  5,972 – 6,050  7,275   (3,788)
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   (27)
               
   36,000         (28,705)

 F-101

Notes to the consolidated financial statements (continued)

The table below presents the composition of open transactions included in thehedge derivative financial instruments asof December 31, 2016:

     Quotations    
Period of settlement MT  Fixed  Futures  Fair value 
           US$(000) 
January 2017  2,542   4,917   5,526   (1,548)
February 2017  2,270   5,001   5,530   (1,199)
March 2017  1,795   4,860   5,535   (1,208)
April 2017  500   5,720   5,536   92 
   7,107           (3,863)

(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 dates of the expected settlements of the open positions as of December 31, 2017hedged items and 2016. hedging instruments

-The embedded derivative does not qualify for hedge accounting; therefore, changes incounterparties’ credit risk differently impacting the fair value are recorded as an adjustment to net sales.

Embedded derivatives held bymovements of the Group as of December 31, 2017 are:

Quotationshedging instruments and hedged items
MetalQuantityPeriod of
quotations
ProvisionalFutureFair value
2018US$US$US$(000)
Copper24,846 DMTJanuary – March6,645.36 – 6,841.957,112.50 – 7,275.002,508
Gold64,898 DMTJanuary – March1,256.45 – 1,317.671,258.00 – 1,317.101,066
Silver326,095 OzJanuary – April16.02 – 18.0016.07 – 17.211,815
Lead22,735 DMTJanuary – April2,333.23 – 3,110.692,488 – 2,579.75229
Zinc54,603 DMTJanuary – April3,103.72 – 3,275.473,226.50 – 3,343.501,806
Total asset, net7,424

 F-102

Notes
-Changes to the consolidated financial statements (continued)

Embedded derivatives held by the Group asforecasted amount of December 31, 2016 are:

Quotations
MetalQuantityPeriod of
quotations
ProvisionalFutureFair value
2017US$US$US$(000)
Copper29,121 DMTJanuary - April2,985.28 – 5,824.005,535.76 – 5,642.25397
Gold15,370 DMTJanuary – February1,139.75 – 1,145.901,151.00 – 1,179.40481
Silver17,124 OzJanuary - April16.32 – 19.3516.42 – 16.66(1,825)
Lead23,636 DMTJanuary - April1,871.58 – 2,380.602,017.00 – 2,080.00(801)
Zinc29,407 DMTJanuary – March2,291.08 – 2,732.102,578.00 – 2,612.50(172)
Other15,082 Oz396
Total liability, net(1,524)cash flows of hedged items and hedging instruments

 

For the years 2019, 2018 and 2017, no hedge ineffectiveness was recorded.

As of December 31, 2019, there are not any hedge contract. As of December 31, 2018, the fair value of the hedge contracts amounts to an assets of US$2.8 million. The counterparty in ORI as of December 31, 2018, net of deferred income tax, amounts to a positive balance of US$1,946,000, and it is show in the equity account of “Other reserves of equity”. During 2019, 2018 and 2017, the effect in profit or loss was a gain of US$4.3 million, loss of US$1.4 million and loss of US$10.9 million, respectively, and it is show in the “Net sales of goods” caption, see note 20(b).


Notes to the consolidated financial statements(continued) 

The table below presents the composition of open transactions included in thehedge derivative financial instruments as of December 31, 2018:

      Quotations    
Quotation period   Metric Ton  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 

32.33.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. A committee that advises on financial risks supports it. 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, 2019, 2018 and 2017.

The Board of Directors reviews and agrees policies for managing each of these risks, which are described below:

 

The Group is exposed to market
(a)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.-

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 four types of risk: exchange rate risk, commodity risk, interest rate 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.

The sensitivity analyses in this section relate to the positions as of December 31, 2019 and 2018 and have been prepared considering that the proportion of financial instruments in foreign currency are constant.


Notes to the consolidated financial statements(continued) 

 

There were no changes in the objectives, policies or processes during the years ended December 31, 2017, 2016 and 2015.

The Board of Directors reviews and agrees policies for managing each of these risks, which are described below:
(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.

 

(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 four types of risk: exchange rate risk, commodity risk, interest rate 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-103

Notes to the consolidated financial statements (continued)

The sensitivity analyses in this section relate to the positions as of December 31, 2017, 2016 and 2015, and have been prepared considering that the proportion of financial instruments in foreign currency are constant.

Excluding loans in soles, Management maintains smaller amounts in soles in order to cover its needs in this currency (primarily taxes).

 

(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.

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 profit
(loss) before
income tax

       US$(000)
       
2019        
Exchange rate  10%  4,053 
Exchange rate  (10%)  (3,545)
         
2018        
Exchange rate  10%  1,695 
Exchange rate  (10%)  (1,681)
         
2017        
Exchange rate  10%  2,474 
Exchange rate  (10%)  (2,459)

 

Excluding loans in soles, Management maintains smaller amounts in Soles in order to cover its needs in this currency (primarily taxes).
(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 affected by numerous factors beyond its control.

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 profit (loss)
before income tax
 
     US$(000) 
2017        
Exchange rate  +10%  2,474 
Exchange rate  -10%  (2,459)
         
2016        
Exchange rate  +10%  (924)
Exchange rate  -10%  926 
         
2015        
Exchange rate  +10%  6,233 
Exchange rate  -10%  (7,618)

 

(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 Group manages its commodity price risk primarily using 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 under “Other reserves of equity”. The deferred amounts were reclassified to the appropriate sales when production was sold.

 

 F-104

Notes to the consolidated financial statements (continued)

(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.

-

A table showing the effect in profit or loss of the variations of interest rates:

  Increase/decrease
of Libor rate
  Effect on results 
  (percentage rates)  US$(000) 
2017        
Interest rate  +10   (677)
Interest rate  -10   677 
         
2016        
Interest rate  +10   333 
Interest rate  -10   (333)
         
2015        
Interest rate  +10   294 
Interest rate  -10   (294)

(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.

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.


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
 Effect on profit
(loss) before
income tax
   (percentage rates)  US$(000)
2019        
Interest rate  10   (306)
Interest rate  (10)  306 
         
2018        
Interest rate  10   (277)
Interest rate  (10)  277 
         
2017        
Interest rate  10   (677)
Interest rate  (10)  677 

(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 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.


Notes to the consolidated financial statements(continued) 

Set out below is the information about the credit risk exposure on the Group’s trade and other receivables:

     Days past due    
  Current  <30 days  30 – 90 days  >90 days  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
As of December 31, 2019 -                    
Trade receivables  204,096   -   -   22,016   226,112 
Other receivables  125,409   42,390   4,332   10,006   182,137 
Expected credit loss  -   -   -   (32,022)  (32,022)
                     
Total  329,505   42,390   4,332   -   376,227 
As of December 31, 2018 -                    
Trade receivables  146,701   -   -   22,013   168,714 
Other receivables  58,584   44,773   2,250   10,089   115,696 
Expected credit loss  -   -   -   (32,102)  (32,102)
                     
Total  205,285   44,773   2,250   -   252,308 

(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 believes that 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.


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  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, 2019 -                    
Bank loans  55,486   -   -   -   55,486 
Trade and other payables  152,070   616   -   -   152,686 
Financial obligation – capital  262,088   131,588   125,154   48,568   567,398 
Financial obligation – interest  22,597   11,225   11,880   1,449   47,151 
Lease – capital  3,692   1,514   2,297   -   7,503 
Lease – interest  73   143   404   -   620 
Contingent consideration liability  -   -   4,905   35,166   40,071 
                     
Total  496,006   145,086   144,640   85,183   870,915 
                     
As of December 31, 2018 -                    
Bank loans  95,613   -   -   -   95,613 
Trade and other payables  176,811   639   -   -   177,450 
Financial obligation – capital  46,166   346,401   195,463   -   588,030 
Financial obligation – interest  31,017   28,359   6,024   -   65,400 
Contingent consideration liability  -   -   5,904   32,472   38,376 
                     
Total  349,607   375,399   207,391   32,472   964,869 

(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.


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) 

   

Observable
inputs

(Level 2)

   

Unobservable inputs

(Level 3)

 
   US$(000)   US$(000)   US$(000)   US$(000) 
                 
As of December 31, 2019 -                
Assets and liabilities measured at fair value:                
Fair value of account receivable  165,546   -   165,546   - 
Contingent consideration liability  16,410   -   -   16,410 
Hedge instruments  -   -   -   - 
                 
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   - 

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 account receivable 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.

Based on the foregoing, there are no important existing difference between the value in books and the fair value of the assets and financial liabilities as of December 31, 2019 and 2018.

There were no transfers between Level 1and Level 2 during 2019.

During 2019 and 2018, the fair value of the investment property amounted to US$544,000. There is not an independent valuation for investment property.


Notes to the consolidated financial statements(continued) 

35.Events after the reporting period

COVID-19 (Corona Virus Disease 2019)

Our operations are subject to risks related to outbreaks of infectious diseases. For example, the recent outbreak of coronavirus COVID-19, a virus causing potentially deadly respiratory tract infections originating in China, has already and will continue to negatively cause further volatility in prices of precious metals. Additionally, a severe market disruption will likely entail decreased demand for our products and otherwise impact our operations and the operations of our customers, suppliers and other stakeholders. The Peruvian Government has issued a series of executive decrees declaring a national emergency and significantly restricting general circulation throughout the country.

In accordance with these restrictions and within the framework of the Company’s pandemic response plan, we have limited our operations to those which are strictly necessary to ensure that our mine pumping systems, water treatment plants, energy supply, hydroelectric substations, health services and overall minimum safety conditions remain in place. Other than in respect of these minimum back-up operations, as of the date of this annual report, our mining processing facilities are completely halted. The company intends to immediately resume operations once it receives notice from the authorities that restrictions have been lifted. The ultimate severity of the Coronavirus outbreak is uncertain at this time and therefore we cannot predict the impact it may have on the world, the Peruvian economy, international financial markets, or ultimately on our financial condition, results of operations, production, sales, margins and cash flow from operations, our access to debt markets, covenants compliance, asset impairments, among others.

Syndicated Term Loan

On April 2, 2020, we entered into a second amendment to the Syndicated Term Loan, pursuant to which, as of the date of this annual report, borrowings under the Syndicated Term Loan bear interest at a rate per annum equal to LIBOR plus 1.90%. Principal under the Syndicated Term Loan shall be payable in five consecutive and semi-annual installments of US$41,250,000 beginning in October 2022 and one final payment of US$68,750,000 in April 2025 (on which date all amounts outstanding shall be payable).

 

 F-105

 

Notes to the consolidated financial statements (continued)

 

(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.

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 31,2017 -                    
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 
                     
As of December 31,2016 -                    
Bank loans  55,000   -   -   -   55,000 
Trade and other payables  253,062   -   -   15,982   269,044 
Derivative financial instruments  3,863   -   -   -   3,863 
Embedded derivative for sale of concentrates  1,524   -   -   -   1,524 
Financial obligation  70,420   113,070   503,029   -   686,519 
Contingent consideration liability  -   3,305   6,603   32,840   42,748 
                     
Total  383,869   116,375   509,632   48,822   1,058,698 

 F-106

Notes to the consolidated financial statements

Minera Yanacocha S.R.L. and Subsidiary (continued)

 

(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

Consolidated Financial Statements for the years 2019, 2018 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.

33.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)
  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,  2017                
Assets and liabilities measured at fair value:                
-  Embedded derivatives for concentrates sales, net  7,424   -   7,424   - 
-  Contingent consideration liability  17,570   -   -   17,570 
-  Hedge instruments  28,705   -   28,705   - 
As of December 31,  2016                
Liabilities measured at fair value:                
-  Embedded derivatives for concentrates sales, net  1,524   -   1,524   - 
-  Contingent consideration liability  19,343   -   -   19,343 
-  Hedge instruments  3,863   -   3,863   - 

Financial instruments whose fair value is similar to their book value –

For financial assets and liabilities such as cash and cash equivalents, trade and other receivables, trade and other payables that are liquid or have short-term maturities (less than three months), it is estimated that their book value is similar to their fair value. The derivatives are also recorded at the fair value so that differences do not need to be reported.

The fair value of embedded derivatives is determined using valuation techniques with information directly observable in the market (future metal quotations).

 F-107

Notes to the consolidated financial statements (continued)

Financial instruments at fixed and variable rates -

The fair value of financial assets and liabilities at fixed and 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.

Based on the foregoing, there are no important existing difference between the value in books and the fair value of the assets and financial liabilities as of December 31, 2017, and 2016.

 F-108

Minera Yanacocha S.R.L. and Subsidiary

Consolidated Financial Statements for the years 2017, 2016 and 2015, together with the Report of Independent Auditors Registered Public Accounting Firm

 

 F-109

F-124 

 

Minera Yanacocha S.R.L. and Subsidiary

Consolidated Financial Statements for the years 2017, 2016 and 2015, together with the Report of Independent Registered Public Accounting Firm

Content

Report of Independent Registered Public Accounting FirmF-111
Consolidated Financial Statements
Consolidated statements of financial positionF-113
Consolidated statements of comprehensive incomeF-114
Consolidated statements of changes in equityF-115
Consolidated statements of cash flowsF-116
Notes to the consolidated financial statementsF-117

 F-110

Report of Independent Registered Public Accounting Firm

To the Partners and the Board of Directors of Minera Yanacocha S.R.L.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Minera Yanacocha S.R.L. and subsidiary (the Company) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2017, and 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 Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, 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 23 and 24 to the consolidated financial statements).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 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, 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-111

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, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial 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/ Victor Burga

We have served as the Company’s auditor since 2015

Lima, Peru,

April 27, 2018

 F-112

Minera Yanacocha S.R.L. and Subsidiary

Consolidated statements of financial position

As of December 31, 2017 and 2016

  Note 2017  2016 
    US$(000)  US$(000) 
         
Current assets          
Cash and cash equivalents 5  675,014   677,524 
Trade and other receivables, net 6  36,800   40,975 
Prepaid income tax    31,945   18,175 
Value added tax credit    43,684   73,227 
Inventories, net 7  70,646   71,298 
Stockpiles and ore on leach pads, net 8  196,638   226,357 
Prepaid expenses    408   337 
Total current assets    1,055,135   1,107,893 
           
Non-current assets          
Trade and other receivables, net 6  11,520   - 
Available-for-sale financial assets 9  23,000   16,454 
Stockpiles and ore on leach pads, net 8  60,760   111,889 
Property, plant and equipment, net 10  855,881   794,831 
Intangible assets, net    13,099   14,818 
Total non-current assets    964,260   937,992 
Total assets    2,019,395   2,045,885 
           
Current liabilities          
Trade and other payables 11  83,820   66,474 
Current provisions 12  39,495   68,662 
Total current liabilities    123,315   135,136 
           
Non-current provisions 12  1,236,965   1,025,025 
Total liabilities    1,360,280   1,160,161 
           
Partners' equity, net          
Partners' contributions 13  398,216   398,216 
Additional paid-in-capital    (47,685)  226 
Retained earnings    308,584   487,282 
Total equity    659,115   885,724 
Total liabilities and partners’ equity, net    2,019,395   2,045,885 

The accompanying notes are an integral part of this consolidated financial statement.

 F-113

Minera Yanacocha S.R.L. and Subsidiary

Consolidated statements of comprehensive income

For the years ended December 31, 2017, 2016 and 2015

  Note 2017  2016  2015 
    US$(000)  US$(000)  US$(000) 
            
Operating income              
Revenue from sales 15  645,176   761,193   1,031,174 
Other operating income    21,870   17,713   10,625 
Total gross income    667,046   778,906   1,041,799 
               
Costs applicable to sales 16  (746,918)  (776,394)  (758,033)
Other operating costs    (2,062)  (2,951)  (2,524)
Total operating costs    (748,980)  (779,345)  (760,557)
Gross (loss) profit    (81,934)  (439)  281,242 
               
Operating expenses              
Operating expenses, net 17  (63,514)  (71,496)  (82,846)
Administrative expenses 18  (4,760)  (8,780)  (20,028)
Selling expenses    (3,921)  (3,695)  (3,534)
Impairment loss 10(b)  -   (889,499)  - 
Total operating expenses    (72,195)  (973,470)  (106,408)
Operating (loss) profit    (154,129)  (973,909)  174,834 
               
Other expenses, net              
Finance income    5,831   2,132   673 
Finance costs 19  (23,766)  (15,107)  (22,734)
Net (loss) gain from currency exchange difference    3,636   (13,741)  (251)
Total other expenses, net    (14,299)  (26,716)  (22,312)
(Loss) income before income tax    (168,428)  (1,000,625)  152,522 
Income tax expense 14(c)  (7,026)  (43,127)  (602,717)
Loss for the year    (175,454)  (1,043,752)  (450,195)
               
Comprehensive loss:              
Loss for the year    (175,454)  (1,043,752)  (450,195)
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    (3,244)  651   (757)
Total comprehensive loss for the year    (178,698)  (1,043,101)  (450,952)

The accompanying notes are an integral part of this consolidated financial statement.

 F-114

Minera Yanacocha S.R.L. and Subsidiary

 

Consolidated Financial Statements for the years 2019, 2018 and 2017, together with the Report of Independent Registered Public Accounting Firm

Content
Report of Independent AuditorsF-125
Consolidated Financial Statements
Consolidated statements of financial position F-127
Consolidated statements of comprehensive incomeF-128
Consolidated statements of changes in equity

For the years ended December 31, 2017, 2016 and 2015

  Capital
stock
  Adicional Paid-in-
capital
  Retanied earnings  Other reserves  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
As of January 1, 2015  398,216   226   2,279,490   1,845   2,679,777 
Loss for the year  -   -   (450,195)  -   (450,195)
Other comprehensive income for the year  -   -   -   (757)  (757)
Total comprehensive loss  -   -   (450,195)  (757)  (450,952)
                     
As of December 31, 2015  398,216   226   1,829,295   1,088   2,228,825 
Loss for the year  -   -   (1,043,752)  -   (1,043,752)
Other comprehensive loss for the year  -   -   -   651   651 
Total comprehensive loss  -   -   (1,043,752)  651   (1,043,101)
Dividends declared and paid, note 13(c)  -   -   (300,000)  -   (300,000)
                     
As of December 31,2016  398,216   226   485,543   1,739   885,724 
Loss for the year  -   -   (175,454)  -   (175,454)
Other comprehensive loss for the year  -   -       (3,244)  (3,244)
Total comprehensive loss  -   -   (175,454)  (3,244)  (178,698)
Treasury shares, note 1  -   (47,911)  -   -   (47,911)
As of December 31, 2017  398,216   (47,685)  310,089   (1,505)  659,115 

The accompanying notes are an integral part of this consolidated financial statement.

 F-115F-129

Minera Yanacocha S.R.L. and Subsidiary

Consolidated statementstatements of cash flows

For the years ended December 31, 2017, 2016 and 2015

  Note 2017  2016  2015 
    US$(000)  US$(000)  US$(000) 
Cash flow from operating activities           
Loss for the year    (175,454)  (1,043,752)  (450,195)
Adjustments to reconcile profit after income tax to net cash flows from operating activities:              
Impairment loss 10(b)  -   889,499   - 
Depreciation and amortization 16  87,783   140,712   223,142 
Deferred income tax 14(c)  -   -   483,804 
Unwinding of discount of the provision for reclamation 12(b)  21,769   14,104   22,075 
Write-off of fixed assets 17  1,368   14,036   2,411 
Loss (gain) for fixed asset sales    (603)  (311)  508 
Write-down of ore on leach pads to realizable value 8(b)  77,385   100,179   64,497 
Reversal of the write-down of on leach pads to realizable value 8(b)  (99,219)  (106,103)  (137,293)
Allowance for obsolescence of materials and supplies 7(b)  1,804   (609)  1,049 
Working capital adjustments:              
Net (increase) decrease in operating assets:              
Trade and other receivables    (7,345)  (14,586)  41,842 
Prepaid Income Tax    (13,770)  (18,175)  - 
Value added tax credit    29,543   7,414   3,701 
Inventories and Stockpiles and ore on leach pads    103,334   99,237   120,113 
Prepaid expenses    (71)  180   160 
Available for sale financial assets 9  (5,000)  -   - 
Net (increase) decrease in operating liabilities:              
Trade and other payables    17,346   (10,654)  (60,569)
Income tax payable    -   (12,346)  (23,090)
Provisions    77,296   91,842   (6,698)
Reclamation liabilities paid 12(b)  (21,376)  (10,467)  (11,007)
               
Net cash and cash equivalents provided by operating activities    94,790   140,200   274,450 
               
Cash flow from investing activities              
Purchase of property, plant and equipment    (51,624)  (106,908)  (118,429)
Proceeds from sale of property, plant and equipment 17  2,235   471   1,116 
               
Net cash and cash equivalents used in investing activities    (49,389)  (106,437)  (117,313)
               
Cash flow from financing activities              
Dividends declared and paid 13(c)  -   (300,000)  - 
Payments for treasury shares 1  (47,911)  -   - 
               
Net cash and cash equivalents used in financing activities    (47,911)  (300,000)  - 
               
Net (decrease) increase in cash and cash equivalents    (2,510)  (266,237)  157,137 
Cash and cash equivalents at beginning of year    677,524   943,761   786,624 
               
Cash and cash equivalents at end of year    675,014   677,524   943,761 
Transactions with no effects in cash flows:              
Addition of asset retirement and mine closure    97,326   351,798   10,434 

The accompanying notes are an integral part of this consolidated financial statement.

 F-116F-130

Minera Yanacocha S.R.L. and Subsidiary

Notes to the consolidated financial statements

For the years 2017, 2016 and 2015

F-131

Report of Independent Registered Public Accounting Firm

  

To the Partners and the Board of Directors of Minera Yanacocha S.R.L.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Minera Yanacocha S.R.L. and subsidiary (the Company) as of December 31, 2019 and 2018, and related consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and 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 Company at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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 consolidated financial statements).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 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, 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.


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, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial 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/Mayerling Zambrano R.

We have served as the Company’s auditor since 2015.

Lima, Peru,

April 8, 2020


Minera Yanacocha S.R.L. and Subsidiary

Consolidated statements of financial position

As of December 31, 2019 and 2018

  Note  2019  2018 
      US$(000)  US$(000) 
Assets            
Current assets            
Cash and cash equivalents  5   818,503   723,208 
Trade and other receivables, net  6   18,962   32,610 
Prepaid income tax      -   19,239 
Value added tax credit      32,831   29,828 
Inventories, net  7   54,245   54,527 
Stockpiles and ore on leach pads, net  8   134,923   100,593 
Prepaid expenses      991   753 
             
Total current assets      1,060,455   960,758 
             
Non-current assets            
Restricted cash  13   48,617   48,127 
Trade and other receivables, net  6   23,648   23,290 
Financial instruments at fair value  9   24,417   22,610 
Stockpiles and ore on leach pads, net  8   105,023   138,778 
Property, plant and equipment, net  10   1,038,294   840,454 
Intangible assets, net      10,547   12,384 
Deferred tax asset  15(g)  1,071   1,071 
             
Total non-current assets      1,251,617   1,086,714 
             
Total assets      2,312,072   2,047,472 
             
Liabilities and partners’ equity            
Current liabilities            
Trade and other payables  11   76,484   83,464 
Income tax payable  15(j)  23,153   3,552 
Current provisions, other accruals and liabilities  12   90,940   41,154 
             
Total current liabilities      190,577   128,170 
Non-current liabilities            
Debt instruments  13   43,927   42,430 
Non-current provisions, other accruals and liabilities  12   1,587,856   1,293,149 
             
Total non-current liabilities      1,631,783   1,335,579 
Total liabilities      1,822,360   1,463,749 
             
Partners’ equity            
Partners’ contributions  14   378,505   378,505 
Additional paid-in-capital      (21,758)  (21,758)
Retained earnings      133,315   228,572 
Other reserves      (350)  (1,596)
             
Total equity      489,712   583,723 
             
Total liabilities and partners’ equity      2,312,072   2,047,472 

The accompanying notes are an integral part of this consolidated financial statement


Minera Yanacocha S.R.L. and Subsidiary

Consolidated statements of comprehensive income

For the years ended December 31, 2019, 2018 and 2017

  Note  2019  2018  2017 
      US$(000)  US$(000)  US$(000) 
                 
Revenue from contracts with customers                
Sales  16   734,526   658,653   670,905 
Other operating revenue  16   4,776   21,965   21,870 
Total revenue      739,302   680,618   692,775 
                 
Costs applicable to sales  17   (692,721)  (619,424)  (772,647)
Other operating costs      (1,160)  (2,217)  (2,062)
Total operating costs      (693,881)  (621,641)  (774,709)
Gross profit (loss)      45,421   58,977   (81,934)
                 
Operating expenses                
Operating expenses, net  18   (35,987)  (76,155)  (63,514)
Administrative expenses  19   (1,744)  (2,783)  (4,760)
Selling expenses      (1,722)  (2,627)  (3,921)
Total operating expenses      (39,453)  (81,565)  (72,195)
Operating profit (loss)      5,968   (22,588)  (154,129)
                 
Finance income  2.4(n)(iv)  18,430   11,448   5,831 
Finance costs  20   (57,629)  (39,024)  (23,766)
Net gain (loss) from currency exchange difference      2,902   (2,056)  3,636 
Loss before income tax      (30,329)  (52,220)  (168,428)
Income tax expense  15(h)   (64,928)  (29,297)  (7,026)
Loss for the year      (95,257)  (81,517)  (175,454)
                 
Comprehensive loss:                
Loss for the year      (95,257)  (81,517)  (175,454)
Other comprehensive (loss) income to be reclassified as profit or loss in subsequent periods:                
Fair value of financial instruments      1,246   (91)  (3,244)
                 
Total comprehensive loss for the year      (94,011)  (81,608)  (178,698)

The accompanying notes are an integral part of this consolidated financial statement


Minera Yanacocha S.R.L. and Subsidiary

Consolidated statements of changes in equity

For the years ended December 31, 2019, 2018 and 2017

  Capital
stock
  

Additional

Paid-in-capital

  

Retained

earnings

  Other
reserves
  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                     
As of January 1, 2017  398,216   226   485,543   1,739   885,724 
Loss for the year  -   -   (175,454)  -   (175,454)
Other comprehensive income for the year  -   -   -   (3,244)  (3,244)
Total comprehensive loss  -   -   (175,454)  (3,244)  (178,698)
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  -   -   (81,517)  -   (81,517)
Other comprehensive loss for the year  -   -   -   (91)  (91)
Total comprehensive loss  -   -   (81,517)  (91)  (81,608)
Treasury shares reduction, note 14(a)  (19,711)  19,711   -   -   - 
Proceeds from sale of shares, note 13  19,471   28,440   -   -   47,911 
Acquisition of debt instruments, note 13  (19,471)  (22,224)  -   -   (41,695)
As of December 31,2018  378,505   (21,758)  228,572   (1,596)  583,723 
Loss for the year  -   -   (95,257)  -   (95,257)
Other comprehensive income for the year  -   -   -   1,246   1,246 
Total comprehensive loss  -   -   (95,257)  1,246   (94,011)
                     
As of December 31, 2019  378,505   (21,758)  133,315   (350)  489,712 

The accompanying notes are an integral part of this consolidated financial statement


Minera Yanacocha S.R.L. and Subsidiary

Consolidated statement of cash flows

For the years ended December 31, 2019, 2018 and 2017

  Note  2019  2018  2017 
      US$(000)  US$(000)  US$(000) 
                 
Cash flow from operating activities                
Loss for the year      (95,257)  (81,517)  (175,454)
Adjustments to reconcile profit after income tax to net cash flows from operating activities:                
Depreciation and amortization  17   144,862   156,212   87,783 
Provision of closure mines  17   142,129   16,285   124,214 
Deferred income tax  15(f)  -   (1,071)  - 
Unwinding of discount of the provision for closure mines  12(b)  36,709   36,015   21,769 
Unwinding of discount of debt instruments  20   1,497   735   - 
Write-off of fixed assets  18   1,204   -   1,368 
Loss (gain) for fixed asset sales  18   (5,996)  624   (603)
Write-down of ore inventories to realizable value  8(b)  33,464   90,365   77,385 
Reversal of the write-down of on ore inventories to realizable value  8(b)  (74,666)  (63,778)  (99,219)
Allowance for obsolescence of materials and supplies  7(b)  (1,417)  439   1,804 
Working capital adjustments:                
Net (increase) decrease in operating assets:                
Trade and other receivables      13,290   (7,580)  (7,345)
Income tax collected (paid)      19,239   14,160   5,400 
Value added tax credit      (3,003)  13,856   29,543 
Inventories and stockpiles and ore on leach pads      42,326   7,120   103,334 
Prepaid expenses      (238)  (345)  (71)
Financial assets at fair value  9   (561)  299   (5,000)
Net increase (decrease) in operating liabilities:                
Trade and other payables      (6,980)  1,708   17,800 
Income tax payable      32,201   8,897   8,287 
Provisions, other accruals and liabilities      30,082   (2,494)  (46,918)
Closure of mining units paid  12(b)  (23,889)  (19,842)  (21,376)
       284,996   170,088   122,701 
Income tax paid      (12,600)  (8,863)  (27,911)
Net cash and cash equivalents provided by operating activities      272,396   161,225   94,790 
                 
Cash flow from investing activities                
Purchase of property, plant and equipment  10   (184,403)  (117,636)  (51,624)
Restricted cash  13   (490)  (48,127)  - 
Proceeds from sale of property, plant and equipment  18   8,088   4,821   2,235 
                 
Net cash and cash equivalents used in investing activities      (176,805)  (160,942)  (49,389)
                 
Cash flow from financing activities                
Proceeds from sale of shares  13   -   47,911   - 
Payments for treasury shares  14(a)  -   -   (47,911)
Payment of principal portion of lease liabilities  2.3   (296)  -   - 
                 
Net cash and cash equivalents provided by (used in) financing activities      (296)  47,911   (47,911)
Net increase (decrease) in cash and cash equivalents      95,295   48,194   (2,510)
Cash and cash equivalents at beginning of year      723,208   675,014   677,524 
Cash and cash equivalents at end of year      818,503   723,208   675,014 
                 
Transactions with no effects in cash flows:                
Addition of asset retirement and mine closure  10   158,967   27,275   97,326 
Increase of right-of-use assets  10   1,045   -   - 

The accompanying notes are an integral part of this consolidated financial statement.


Minera Yanacocha S.R.L. and Subsidiary

Notes to the consolidated financial statements

For the years 2019, 2018 and 2017

1.1.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, exploration and development of gold under the mining concessions it owns or that are owned by S.M.R.L. Chaupiloma Dos de Cajamarca ("Chaupiloma"). Future projects include the production, exploration and development of cooper as well.

The Company is 54.05% owned by Newmont Second Capital Corporation, a 100% indirectly owned subsidiary of Newmont Mining Corporation ("Newmont", the ultimate Parent company) and 45.95% owned by Compañia Minera Condesa S.A., which is 100% owned by Compañia de Minas Buenaventura S.A.A. (“Buenaventura”).

On December 22, 2017 Minera Yanacocha S.R.L. purchased back 63,922,565 partnership interests owned by International Finance Corporation (“IFC”) for US$47,910,585, which represented the 5% of the capital stock of the Company.

The majority Partners of the Company (or their affiliates) also own the majority

(a)Identification -

Minera Yanacocha S.R.L. hereinafter “the Company” or “Yanacocha”, was incorporated in Peru on January 14, 1992 and commenced operations in 1993. The Company is currently engaged in the production, exploration and development of gold 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 Summit Global Management II VB, a wholly-owned subsidiary of Sumitomo Corporation, see note 13.

The controlling Partners of the Company (or their affiliates) also own the controlling interest in Chaupiloma. In accordance with a mining lease agreement, amended and effective on January 1, 1994, the Company pays Chaupiloma a 3% royalty based on quarterly production sold at current market prices, after deducting refinery and transportation costs. The royalty agreement expires in 2032.

 

(b)Business activities-

The Company's operations are located near Cajamarca, province of Peru and currently include the following open pit mines: Chaquicocha, Cerro Yanacocha, La Quinua Complex (La Quinua, El Tapado, El Tapado Oeste), Western Oxide pits (La Quinua Sur and Cerro Negro Oeste), Eastern Oxide pits (Quecher Norte) and Carachugo Alto. Mining activities in Maqui Maqui, Marleny and Cerro Negro Este ceased during 2016. The Company has four leach pads, three processing facilities, one limestone processing facility (China Linda) and one mill. 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 the Yanacocha Gold Mill processes high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant, followed by Merrill - Crowe zinc precipitation and smelting where a final dore product is poured. The dore is then shipped offsite for refining and is sold on the worldwide gold markets.

The Company’s legal domicile is at La Paz avenue No. 1049 office 401, Miraflores, Lima Peru.

 

(b)Business activities-

In order to perform its activities, the Company is required 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 (“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. The Company holds mining concessions which exploration and processing rights do not expires as long as the Company comply with the legal requirements. To date the Company has complied with all the applicable legal requirements related to its concession rights.

The Company’s operations are located approximately 375 miles (604 kilometers) north of Lima and 30 miles (48 kilometers) north of the city of Cajamarca and are 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, 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).

 F-117


Notes to the consolidated financial statementsNotes to the consolidated financial statements(continued)

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 2020.

The Yanacocha Complex mines material from the Yanacocha Layback and Yanacocha Pinos, which are scheduled to finish mining operations in 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. In addition, the Carachugo 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.

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 the Yanacocha Gold Mill processes high-grade gold ore to produce a gold-bearing solution for treatment at the La Quinua processing plant, followed by Merrill - Crowe zinc precipitation and smelting where a final dore product is poured. The dore 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 2019, 2018 and 2017 the Company produced 527,000, 515,000 and 660,000 ounces of gold, respectively.

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

Quecher Main project 

This project is expected to 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 started on October 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$193 million (US$96.8 million for the year 2019).

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 (or) development of new reserves, the reserve balances reported for Conga in 2014 were reclassified to mineralized material in 2015.


Notes to the consolidated financial statements(continued) 

Construction activities on the Conga project were suspended on November 30, 2011, at the request of Peru’s central government following increasing protests in Cajamarca by anti-mining activists led by the regional president. At the request of the Peruvian 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 concluded that the environmental impact assessment complied with international standards and provided some recommendations to improve water management. Yanacocha has focused on the construction of water reservoirs prior to the development of other project facilities. However, development of Conga is contingent upon generating acceptable project returns and getting local community and government support. Under the current social and political environment, the Company does not anticipate being able to develop Conga for at least the next five years. Due to the uncertainty surrounding the project’s development, the Company has allocated its exploration and development 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 future impairment charge. The total assets at Conga as of December 31, 2019 and 2018 were US$458.2 million and US$484.5 million, respectively.

Sulfides project 

This project represents a stream of sulfide resources development that will be achieved by processing high-grade metal dominant sulfide ores from Yanacocha Verde Phase 1 and Chaquicocha underground deposits within Yanacocha’s operational footprint, through an integrated process flow sheet that includes the addition of new flotation, pressure oxidation, neutralization, solvent extraction and electrowinning facilities. The Sulfides project is in the development stage, and the Company expects to begin with the construction of the project in the first quarter of the year 2021.

 

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 2017, 2016 and 2015, the Company produced 0.53 million, 0.66 million and 0.92 million ounces of gold, respectively.

Quecher Main project

This project will add oxide production at Yanacocha, leverage existing infrastructure and enable potential future growth at Yanacocha. First production is expected in early 2019 with commercial production in the fourth quarter of 2019. Quecher Main extends the life of the Yanacocha operation to 2027 with average annual gold production of about 200,000 ounces per year (on a consolidated basis) between 2020 and 2025. Development capital costs (excluding capitalized interest) since approval were US$12 million, all of which related to the fourth quarter of 2017.

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/or development of new reserves as development of the project's development and reserve balances reported for Conga in 2014 were reclassified to mineralized material in 2015.

Construction activities on Conga project were suspended on November 30, 2011, at the request of Peru’s central government following increasing protests in Cajamarca by anti-mining activists led by the regional president. At the request of the Peruvian 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 concluded that the environmental impact assessment complied with international standards and provided some recommendations to improve water management. Yanacocha has focused on the construction of water reservoirs prior to the development of other project facilities. However, development of Conga is contingent upon generating acceptable project returns and getting local community and government support. Under the current social and political environment, the Company does not anticipate being able to develop Conga for at least the next five years. Due to the uncertainty surrounding the project’s development, the Company has allocated its exploration and development 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 future impairment charge.The total assets at Conga as of December 31, 2017 and 2016 were US$494.7 million and US$502.8 million, respectively.

 F-118

Notes to the consolidated financial statements (continued)

(c)Approval of consolidated financial statements - 

The consolidated financial statements as of December 31, 2017 were approved by the Company’s Management on February 27, 2018 and, in its opinion, will be approved without changes at the Partners’ Meeting to be held within the terms established by Law.

The consolidated financial statements as of December 31, 2016 and 2015 were issued with the approval of the Partners’ Meeting held on March 31, 2017

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 (“IASB”) and interpretations issued by the IFRS Interpretations Committee (“IFRIC”), in effect at December 31, 2017.

The consolidated financial statements have been prepared under the historical cost basis, except for available-for-sale financial assets 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 note 3.-

The consolidated financial statements as of December 31, 2019 were approved by the Company’s Management on April 8, 2020, and subsequent events have been considered through that date. They will then be presented for approval by the Company’s shareholders in the first half of 2020. Those shareholders have the authority to approve and or otherwise modify the consolidated financial statements.


Notes to the consolidated financial statements(continued) 

 

These
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”) as issued by the International Accounting Standard Board (“IASB”).

The consolidated financial statements have been prepared under the historical cost basis, except for accounts receivables and financial assets 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 note 3.

The Company adopted IFRS 16, Leases on January 1, 2019, using the modified retrospective approach, and accordingly, no comparative information is included on the prior periods. See note 2.3.

Besides the comparative information arising from the application of IFRS 16 mentioned in the previous paragraph, these consolidated financial statements provide comparative information in respect of the prior periods.

 

2.2.Basis of consolidation -

The consolidated financial statements comprise the financial statements of the Company and its subsidiary (San Jose Reservoir Trust, a separate Peruvian legal entity created to ensure the continuity of the Company’s operations in the San Jose Reservoir after 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:

 

-Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee).

-Exposure, or rights, to variable returns from its involvement with the investee.

-The ability to use its power over the investee to affect its returns.

 F-119

Notes to the consolidated financial statements (continued)

 

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the 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.


Notes to the consolidated financial statements(continued) 

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.

 

When necessary, adjustments are made to the financial statements of the subsidiary to bring its
2.3.Changes in 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.disclosures -

The Company applied IFRS 16 Leases and IFRIC 23 Uncertainty over Income Tax Treatment for the first time. The nature and effect of the changes as a result of adoption of this new accounting standards is described below.

 

2.3.Changes in accounting policies and disclosures -

Certain standards and

Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the consolidated financial statements of the Company. The Company has not early adopted any standards, interpretations or amendments that have been issued but are effective for annual periods beginning on or after January 1, 2017 However, they do not impact the annual consolidated financial statements of the Company and, hence, have not been disclosed. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

IFRS 16 Leases

IFRS 16 supersedes 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. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognize most leases on the balance sheet.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 does not have an impact for leases where the Company is the lessor.


Notes to the consolidated financial statements(continued) 

The Company adopted IFRS 16 using the modified retrospective approach with accumulative-effect adjustment recorded at beginning of the period of adoption (January 1, 2019). Therefore, upon adoption, the Company recognize and measure leases without revising comparative period information or disclosure. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets).

The effect of adopting IFRS 16 is, as follows:

Impact on the consolidated statement of financial position

  

31 December

2019

  

1 January 

2019

 
   US$(000)   US$(000) 
Assets        
Right-of-use assets  584   342 
Total  584   342 
Liabilities        
Provisions and other accruals  596   362 
Total  596   362 

Impact on the consolidated statement of profit or loss

31 December

2019

US$(000)
Cost of sales (depreciation)(270)
Operating profit(270)
Finance costs(36)
Profit or loss for the period(306)

Impact on the consolidated statement of cash flows

31 December

2019

US$(000)
Lease payments(270)
Interest paid(26)
Net cash flows(296)

There is no impact on other comprehensive income.


Notes to the consolidated financial statements(continued) 

The lease liabilities were determined using an incremental borrow rate of 5.23%. In addition, the reconciliation between the balance of assets and liabilities as of January 1, 2019 under IFRS 16 compared with operating leases under IAS 17 as of December 31, 2018 is as follows:

US$(000)
Operating lease commitments disclosed as of December 31, 2018450
Exceptions:
-           Short-term leases not recognized as a liability(88)
Additional lease liability recognized as of January 1, 2019362
Plus: Lease liability already recognized as of December 31, 2018-
Lease liability as of January 1, 2019362

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 Income Taxes. It 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 specifically addresses the following:

-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.

The Company applies significant judgement in identifying uncertainties over income tax treatments. Therefore, it assessed whether the Interpretation had an impact on its consolidated financial statements. Upon adoption of the Interpretation, the Company considered whether it has any uncertain tax positions, particularly those relating to deductible expenses. The Company’s tax filings include deductions related to deductible expenses and the taxation authorities may challenge those tax treatments. The Company determined, based on its tax compliance that it is probable that its tax treatments will be accepted by the taxation authorities.

The Interpretation did not have an impact on the consolidated financial statements of the Company.

F-138 

Notes to the consolidated financial statements(continued) 

2.4.Summary of significant accounting policies and practices -
(a)Foreign currencies -

The consolidated financial statements are presented in U.S. dollars, which is also the Company's functional currency.

Transactions and balance

Transactions in foreign currency (a currency other than functional currency) are initially recorded by the Company at the exchange rates prevailing at the time of the transactions.

 F-120

Notes to the consolidated financial statements (continued)
(a)Foreign currencies -

The consolidated financial statements are presented in U.S. dollars, which is also the Company's functional currency.

Transactions and balance 

Transactions in foreign currency (a currency other than functional currency) are initially recorded by the Company at the exchange rates prevailing at the time 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 other currencies are translated into the U.S. dollar at exchange rates prevailing at the statements of financial position dates. Gains or losses from exchange differences arising from the settlement or translation of monetary assets and liabilities are recognized in the consolidated statements of comprehensive income. Non-monetary assets and liabilities recognized in terms of historical cost are translated using the exchange rates prevailing at the dates of the initial transactions.

 

Transactions in Soles (S/) 

Transactions in Soles are completed using exchange rates published by the AFP. As of December 31, 2019, the exchange rates for U.S. dollars published by this Institution were US$0.3020 for buying and US$0.3015 for selling (US$0.2968 for buying and US$0.2959 for selling as of December 31, 2018), and have been applied by the Company for the assets and liabilities accounts, respectively.

As of December 31, 2019 and 2018, the Company presents the following assets and liabilities originally denominated in Soles by its equivalent in U.S. dollars:

  2019 2018
   US$(000)   US$(000) 
         
Assets        
Cash and cash equivalents  5,140   7,563 
Trade and other receivables  27,990   27,335 
Prepaid income tax  -   19,239 
Value added tax credit  32,831   29,828 
Total assets  65,961   83,965 
         
Liabilities        
Trade and other payables  13,085   9,586 
Income tax payable  23,153   3,552 
Provisions, other accruals and liabilities
  29,633   3,970 
Total liabilities  65,871   17,108 
Net asset position  90   66,857 

F-139 

Notes to the consolidated financial statements(continued) 

For the year ended December 31, 2019, the Company recognized a net gain from currency exchange difference for US$2,902 (net loss for US$2,056 and gain for US$3,636 as of December 31, 2018 and 2017; respectively) inthe caption “Net gain (loss) from currency exchange difference” of the consolidated statements of comprehensive income.

(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 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 are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset.

Financial assets of the Company comprise cash and cash equivalents, trade and other receivables, net and available-for-sale financial assets.

Subsequent measurement -

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 as disclosed in section (n) Revenue from contracts with customers.

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.


Notes to the consolidated financial 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.
-Loans and receivables.
-Held-to-maturity investments.
-Available-for-sale financial investments.

Financial assets at fair value through profit or loss-

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39.

 F-121

Notes to the consolidated financial statements (continued)

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 comprehensive income.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value, with changes in fair value recognized in profit or loss.

Loans and receivables-

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. The losses arising from impairment are recognized in the consolidated statements of profit or loss.

This category generally applies to trade and other receivables, net. See note 6 for more information on accounts receivable.

Held-to-maturity investments -

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Company has the positive intention and ability to hold them to maturity. The Company did not have any held-to-maturity investments as of December 31, 2017 and 2016.

Available-for-sale (AFS) financial assets -

The available-for-sale financial assets include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for 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).

After initial measurement, AFS financial investments are subsequently measured at fair value with unrealized gains or losses recognized in other comprehensive income and credited in the unrealized gain on available-for-sale investments until investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the consolidated statement of profit or loss in finance costs. Interest earned whilst holding AFS financial investments is reported as interest income using the effective interest rate method.

 F-122

Notes to the consolidated financial statements (continued)

Financial assets at amortized cost (debt instruments) -

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.

 

Derecognition-

The Company’s financial assets at amortized cost includes 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) –

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the consolidated statements of comprehensive income and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit or loss.

The Company’s investments in the San Jose Reservoir Trust are classified as financial assets at fair value through OCI as of December 31, 2019 and 2018.

Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) -

Debt instruments at fair value through OCI includes investments in quoted debt instruments included under other non-current financial assets.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the statements of comprehensive income when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.


Notes to the consolidated financial statements(continued) 

The Company does not 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 are carried in the consolidated statement of financial position at fair value with net changes in fair value recognized in the consolidated statements of comprehensive income.

This category includes derivative instruments and listed equity investments which the Company had not irrevocably elected to classify at fair value through OCI. Dividends on listed equity investments are recognized as other income in the consolidated statements of comprehensive income when the right of payment has been established.

As of December 31, 2019, 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, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. 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.

This category also applies to financial assets 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; or

-The rights to receive cash flows from the asset have expired.
-The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset or, (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from anthe asset or has entered intoassumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement, it evaluates ifarrangement; and to what extent, iteither (a) the Company has retainedtransferred substantially all the riskrisks and rewards of ownership. When itthe asset or, (b) the Company has neither transferred nor retained substantially all of the risks and rewards of the asset, norbut has transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company´sasset.


Notes to the consolidated financial statements(continued) 

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent, it has retained the risk and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Impairment of financial assets -

The Company 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.

ECLs are recognized 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 exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables and contract assets, the Company applies 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 forward-looking factors specific to the debtors and the economic environment.

The Company considers a financial asset in default when contractual payments are 90 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.


Notes to the consolidated financial statements(continued) 

 

Impairment of financial assets -

The Company assesses, at each reporting date, whether there is objective evidence that a financial asset or group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred "loss event") has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in economic conditions that correlate with defaults.

(ii)Financial assets carried at amortized costliabilities-

For financial assets carried at amortized cost, the Company first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

 F-123

Notes to the consolidated financial statements (continued)

The amount of any impairment loss identified is measured as the difference between the assets’ carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of profit or loss. Interest income (recorded as finance income in the consolidated statement of profit or loss) continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. Any amount that would have been decommissioned and is subsequently recovered is recovery is credited less finance costs in the consolidated statement of profit or loss.

Available-for-sale (AFS) financial investments

For AFS financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of profit or loss is removed from other comprehensive income and recognized in the consolidated statement of profit or loss. Impairment losses on equity investment are not reversed through profit or loss; increases in their fair value after impairment are recognized in other comprehensive income.

 F-124

Notes to the consolidated financial statements (continued)

Initial recognition and measurement-

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

(ii)Financial liabilities –

Initial recognition

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Company’s financial liabilities include trade and other payables.

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 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 classified, at initial recognition, as financial liabilities at fair value through profit or loss, accounts payable, financial obligations, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of interest-bearing loans and borrowings and payables, net of directly attributable transaction costs.

The Company’s financial liabilities include trade and other payables.

Subsequent measurement -

The measurement of financial liabilities depends on their classification. Trade and other payables are subsequently measured at amortized cost.

Derecognition-

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of comprehensive income.

 

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.


Notes to the consolidated financial statements(continued) 

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.

(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.

(c)Current versus non-current classification -

The Company presents assets and liabilities in the consolidated statements 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 consolidated statementsnormal operating cycle;

-Held primarily for the purpose of financial position if theretrading;

-Expected to be realized within twelve months after the reporting period, or

-Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when it is: 

-Expected to be settled in the normal operating cycle;

-Held primarily for the purpose of trading;

-Due to be settled within twelve months after the reporting period, or

-There is a currently enforceable legalno unconditional right to offsetdefer the recognized amounts and there is an intention to settle on a net basis, to realizesettlement of the assets and settleliability for at least twelve months after the liabilities simultaneously.reporting period.

The Company classifies all other liabilities as non-current.

 


Notes to the consolidated financial statements(continued) 

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

(d)(c)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-

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 includes guarantee deposits in escrow accounts related to Sumitomo’s shares acquisition (see note 13) and is excluded from cash and cash equivalents being included in other current assets or long-term assets depending on restrictions.

 

(e) F-125

Notes to the consolidated financial statements (continued)

(d)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 -

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:

(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 and inventories-

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 net realizable value are reported as a component of costs applicable to sales. The current portion of stockpiles, ore on leach pads based on current mining costs, including applicable overhead and depreciation and amortization relating to mining 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.


Notes to the consolidated financial statements(continued) 

The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover between 50% and 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching process is complete.

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. The Company's operating results typically are not materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach 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 on a prospective basis.

(iii)In-process inventory-

In-process inventories represent materials that are currently in the process of being converted to a saleable product. Conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the weighted average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and (or) leach pads plus the in- process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.

(iv)Precious metals inventory -

Precious metals include gold dore and (or) gold bullion. Precious metals that result from the Company's mining, processing activities are valued at the 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.

(f)Property, plant and equipment -

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.


Notes to the consolidated financial statements(continued) 

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 estimate of the rehabilitation obligation and, in the case of qualified assets, the financing costs.

The purchase price or construction cost corresponds to the total amount paid and fair value of any other consideration provided to acquire the asset. Subsequent costs attributable to property, 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.

Disbursements 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.

Assets in the construction stage are capitalized on a separate caption of property plant and equipment. At their completion, the cost is transferred to the appropriate category. Assets 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 (i) that determined under the units of production method or (ii) the useful life of the mine. The useful lives as follows:

Land improvementsBetween 2 and 4 years
Buildings and constructionsBetween 5 and 10 years
Machinery and equipmentBetween 3 and 10 years
VehiclesBetween 3 and 4 years
Furniture and fixturesBetween 3 and 4 years
Other equipmentBetween 3 and 4 years
Computer equipmentBetween 3 and 4 years
Leach pads and inventories is determined based on the expected amounts to be processed within the next twelve months. Stockpiles, ore on leach padsassets retirement and inventories not expected to be processed within the next twelve months are classified as non-current. The major classifications are as follows:

(i)Stockpiles -

Stockpiles represent ore that has been extracted frommine closure

Useful life of the mine and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the number of contained ounces (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Stockpile ore tonnages are verified by periodic surveys. Costs are allocated to stockpiles based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead and depreciation and amortization relating to mining operations, and removed at each stockpile's average cost per recoverable unit as material is processed.

(ii)Ore on leach pads -

The recovery of gold from certain gold oxide ores is achieved through the heap leaching process. Under this method, oxide ore is placed on leach pads where it is treated with a chemical solution, which dissolves the gold contained in the ore. The resulting gold-bearing solution is later processed in a plant where the gold is recovered. Costs are added to ore on leach pads based on current mining costs, including applicable overhead and depreciation and amortization relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered based on the average cost per estimated recoverable ounce of gold on the leach pad.

The estimates of recoverable gold on the leach pads are calculated from the quantities of ore placed on the pads (measured tons added to the leach pads), the grade of ore placed on the leach pads (based on assay data) and a recovery percentage (based on ore type). In general, the leach pads recover between 50% and 95% of the ultimate recoverable ounces in the first year of leaching, declining each year thereafter until the leaching(or) process is complete.

 F-126facilities

F-148 

 

Notes to the consolidated financial statements(continued) 

The assets' useful lives and residual values are reviewed, and adjusted if appropriate, at each date of the consolidated statement of financial position. Any changes in these estimates are prospectively adjusted.

 

Notes to the consolidated financial statements (continued)

Although the quantities of recoverable gold placed on the leach pads are reconciled by comparing the grades of ore placed on the pads to the quantities of gold actually recovered (metallurgical balancing), the nature of the leaching process inherently limits the ability to precisely monitor inventory levels. As a result, the metallurgical balancing process is constantly monitored and estimates are refined based on actual results over time. Historically, the Company's operating results have not been materially impacted by variations between the estimated and actual recoverable quantities of gold on its leach pads. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis.

(iii)In-process inventory-

In-process inventories represent materials that are currently in the process of being converted to a saleable product. Conversion processes vary depending on the nature of the ore and the specific processing facility, and include mill in-circuit and leach in-circuit. In-process material is measured based on assays of the material fed into the process and the projected recoveries of the respective plants. In-process inventories are valued at the average cost of the material fed into the process attributable to the source material coming from the mines, stockpiles and/or leach pads plus the in- process conversion costs, including applicable amortization relating to the process facilities incurred to that point in the process.

(iv)Precious metals inventory -

Precious metals include gold Dore and/or gold bullion. Precious metals that result from the Company's mining, processing activities are valued at the average cost of the respective in-process inventories incurred prior to the refining process, plus applicable refining costs.

(v)Materials and supplies -

Materials and supplies are valued at the lower of average cost or replacement value. Cost includes applicable taxes and freight.

(e)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 estimate of the rehabilitation obligation and; in the case of qualified assets, the financing costs.

 F-127

Notes to the consolidated financial statements (continued)

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.

Disbursements 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.

Assets in the construction stage are capitalized as separate components. At their completion, the cost is transferred to the appropriate category. Work in progress is not depreciated.

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. Remaining useful lives as follows:

Land improvementsBetween 2 and 4  years
BuildingsBetween 5 and 10 years
Plant and equipmentBetween 3 and 10 years
VehiclesBetween 3 and 4 years
Furniture and fittingsBetween 3 and 4 years
Other equipmentBetween 3 and 4 years
Computer equipmentBetween 3 and 4 years
Assets retirement costUseful life of the mine and/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.

 F-128

Notes to the consolidated financial statements (continued)

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.

(g)Mining rights -

Mining rights 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 mining rights represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves.

Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material consisting of (i) mineralized material such as inferred material within pits; mineralized material with insufficient drill spacing to qualify as proven and probable reserves; and mineralized material in close proximity to proven and probable reserves; (ii) around-mine exploration potential not immediately adjacent to existing reserves and mineralization, but located within the immediate mine area; (iii) other mine-related exploration potential that is not part of current mineralized material and is comprised mainly of material outside of the immediate mine area; (iv) greenfield exploration potential that is not associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit.

Exploration costs are capitalized when reserves at the location are established and reported in the Reserves and Resource information published annually by Newmont in its Form 10-K. At this point, exploration costs are capitalized as mine development or as a component of property, plant and equipment, as appropriate.

The Company's mining rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and (or) undeveloped mineralized material.

Mining rights are presented in the caption of property, plant and equipment, net.


Notes to the consolidated financial statements(continued)

(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 are classified as proven and probable reserves are expensed as “exploration and advanced projects” as part of the “Operating expenses” caption in the consolidated statements of comprehensive income. The capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; and the activities are directed at obtaining additional information on the ore body or converting mineralized material to proven and probable reserves. AII other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of the “Costs applicable to sales” caption in the consolidated statements of comprehensive income.

 

(f)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 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 the minimum saleable materials may occur during development and related revenue is recorded as “Other operating revenue”, net of incremental mining and processing costs. See Note 2.4(i) below.

If any of the criteria are not met, the production stripping costs are charged to profit or loss as part of the “costs applicable to sales” caption in the consolidated statements of comprehensive income as they are incurred.

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.


Notes to the consolidated financial statements(continued) 

 

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.
(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:

 

Exploration stage mineral interests represent interests in properties
-It is probable that are believedthe future economic benefit (improved access 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 notore body) associated with any other production, development or exploration stage property, as described above; or (v) any acquired right to explore or extract a potential mineral deposit.

Exploration costs are capitalized when reserves at the location are declared in the Reserves and Resource information published annually by Newmont in its form 10-K. At this point, exploration costs are capitalized as mine development or as a component of property, plant and equipment, as appropriate.

The Company's mineral rights generally are enforceable regardless of whether proven and probable reserves have been established. The Company has the ability and intent to renew mineral interests where the existing term is not sufficient to recover all identified and valued proven and probable reserves and/or undeveloped mineralized material.

Mineral interests are presented in the caption of property, plant and equipment, net.

 F-129

Notesstripping activity will flow to the consolidated financial statements (continued)

(g)Mine development -

Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, and the removal of overburden to initially expose an ore body at open pit surface mines. Costs incurred before mineralization is classified as proven and probable reserves are expensed and classified as Exploration or Advanced projects, research and development expense. Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist; and the activities are directed at obtaining additional information on the ore body or converting mineralized material to proven and probable reserves. AII other drilling and related costs are expensed as incurred. Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of Costs applicable to sales.

The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase are referred to as "pre-stripping costs." Pre-stripping costs are capitalized during the development of an open-pit mine. Where multiple open pits exist at a mining 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 as Other income, net of incremental mining and processing costs. See (h) below.

The production phase of an open-pit mine commences when saleable minerals, beyond a de minimis amount, are produced. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in Costs applicable to sales in the same period as the revenue from the sale of inventory. The Company's definition of a mine and the mine's production phase may differ from that of other companies in the mining industry resulting in incomparable allocations of stripping costs to deferred mine development and production costs.

Mine development costs are amortized using the units-of production ("UOP") method based on estimated recoverable ounces in proven and probable reserves. To the extent that these costs benefit an entire ore body, they are amortized over the estimated life of the ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block or area.

Mine development costs are presented in the caption of Property, plant and equipment, net.

 F-130

Notes to the consolidated financial statements (continued)

(h)Stripping activity asset -Company;

-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 allocates the costs associated with improved access as a “stripping activity asset”. This allocation is based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body.

Costs allocated to the production stripping activity asset are subsequently depreciated. Depreciation of the production stripping asset was calculated on a systematic basis ("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.

 

Based on this analysis, the Company allocated the costs associated with improved access as a “stripping activity asset”. This allocation is based on the volume of waste and ore extracted in the period compared to expected volume life-of-mine per component of ore body.

Costs allocated to the production stripping activity asset are subsequently depreciated. Depreciation of the production stripping asset was calculated on a systematic basis ("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.

(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:-

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 (i) an asset's fair value, less costs of disposal, and (ii) 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: Yanacocha and Conga.

 F-131

Notes to the consolidated financial statements(continued)  (continued)

 

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.

(j)Provisions -

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 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 consolidated 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.

(k)Intangible assetsincludingcomputer software -

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization (calculated on a straight-line basis over their useful lives).

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite live are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statements of comprehensive income in the expense category that is consistent with the function of the intangible assets. All intangible assets of the Company have finite lives.


Notes to the consolidated financial statements(continued) 

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statements of comprehensive income when the asset is derecognized.

(l)Provisions -

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 consolidated statements 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 statements of financial position. The expenses related to other provisions are presented in the consolidated statements 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.

Provision for closure of mining units - 

The Company records a provision for mine closure when a legally enforceable obligation arises, which is independent of the full depletion of the mine reserves.

Provisions for closure of mining units or “reclamation obligations” are recognized when incurred and recorded as liabilities at the best estimate of the expenditure required to settle the obligation.

The Company recognizes a liability for closure of mining units once the obligation has been properly measured. The liability is initially recognized at the present value of the estimated costs. The liability is accreted over time for the change in present value based on discounted rates that reflects current market assessments and the risk specify to the liability 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 as “asset retirement and mine closure” or “reclamation costs” as part of the property, plant and equipment caption. 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.


Notes to the consolidated financial statements(continued) 

Changes in the estimated timing of closure or changes to the estimated future costs are dealt with prospectively by recognizing an adjustment to the provision for closure liability and a corresponding adjustment to the related mining asset. Any reduction in the provision for closure and, therefore, any deduction from the mining asset to which it relates, may not exceed the carrying amount of the mining asset. If it does, any excess over the carrying amount is taken immediately to the consolidated statements of comprehensive income.

If the change in estimate results in an increase in the provision for closure and, therefore, an addition to the carrying value of the mining asset, the Company considers whether this is an indication of impairment of the asset as a whole, and if so, the Company performs an impairment test.

Reclamation costs related to an inactive mine site are immediately recognized as expenses in the consolidated statements 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.
(m)Treasury shares -

The Company’s 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 Company’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognized as additional paid-in-capital in equity. The voting rights related to treasury shares are cancelled for the Company and no dividends on such shares are allocated.

 F-132

 

Notes to the consolidated financial statements (continued)

Asset Retirement Obligation
(n)Revenue from contracts with customers -

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.

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.

 

(k)Revenue recognition -

Revenue from the sale

The Company has concluded that it is the principal in its revenue contracts because it typically controls the goods before transferring them to the customer.

Trade receivables (not subject to provisional pricing) are non-interest bearing and are generally on terms of 30 days.

The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in note 3.


Notes to the consolidated financial statements(continued)

(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.

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.

There are not contract liabilities.

Cost to obtain a contract 

The Company’s contracts do not involve any sales commissions because its contracts are globally negotiated by its Corporate. Therefore, the Company does not recognize any costs to obtain a contract.

(ii)Sales of gold is recognized net of treatment and refining charges, when persuasive evidence of an arrangement exists, the price is determinable, the product has been delivered, risk and title has been transferred to the customer and collection of the sales price is reasonably assured.-

Gold sales relate to unrefined gold dore that is sold under spot sales contracts to banks (customer). The Company initially negotiate 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 refiner is not the customer). The performance obligation is satisfied once the shipment confirmation is issued at the time the refinery receives the dore, allowing payment from the banks to the Company in full in cash in accordance to contracts with the banks.

All risk of loss and damage of the gold dore passes to the refiner upon reception; however, control of the product does not pass to the refiner, it is simply providing processing services to the Company.


Notes to the consolidated financial statements(continued) 

The Company has identified only one performance obligation related to the sale of gold dore.

Revenue is recognized at a point in time when control passes to the bank, which is when the payment is ensured at the same time when the refinery’s shipment confirmation is issued to the bank. This generally occurs after the dore’s refinery shipments are confirmed, not being required to physically delivered the gold dore to the banks but resides in the mint. However, the bank has title, is required to pay for the gold bullion and is able to direct the use of the gold bullion by instructing the refiner to transfer metal credits to or from its metal account, and is exposed to the risks and rewards of the gold bullion.

The date of shipment’s confirmation and delivery 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 to the assays 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 it 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.

 

(iii)Sales contracts for copper, silver and carbon incorporate provisional pricing at the date of delivery of the mineral ore. The final price is an average market price for a particular future period. Revenue from provisionally priced sales of copper and silver and carbon fine is recognized when risks and rewards of ownership are transferred to the customer, generally at the date of delivery, and revenue can be measured reliably. At this date, the amount of revenue to be recognized will be estimated based on the forward market price of the commodity being sold.

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.concentrate -

Copper and silver in concentrate are sold under Free on Board (FOB) Incoterms and this represents the enforceable contract. The performance obligation is the delivery of the concentrateat the point where control passes to the customer.

 

(l)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.

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 quotation period (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.

 F-133

Notes to the consolidated financial statements (continued)

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.

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)

Notes to the consolidated financial statements(continued) 

Revenue is 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 consolidated statements of comprehensive income and other comprehensive income each period and presented in “Other operating revenue”. 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 for copper, silver and the subsequent changes in fair value of the trade receivable are presented in the caption “Other operating revenue”.

 

Deferred
(iv)Interest 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.-

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.

As of December 31, 2019, 2018 and 2017 this caption mainly includes interest from short-term money market funds and interest from current bank accounts for an amount of US$18,430, US$11,448 and US$5,831, respectively.

 

Deferred income tax assets and liabilities are offset when there is a legally enforceable right
(o)Benefits 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 netemployees -

In accordance to Peruvian laws, employees are entitled to receive one month paid vacation per year and one-month salary bonus paid in July and December.

In addition, employees are entitled to receive one -month salary per year (approximately) as severance indemnity which are deposited in advance with a bank elected by the employee.


Notes to the consolidated financial statements(continued) 

If employees are dismissed without cause, they are entitled to a mandatory severance pay that is set at 1.5 monthly salaries for each year of service. The maximum severance payment is twelve salaries.

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.

(p)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 workers’ profit sharing is recorded as part of cost applicable to sales, see note 17.

Sales tax
(q)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 that have been enacted or substantively enacted by the end of the reporting period.

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.


Notes to the consolidated financial statements(continued) 

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, and the carry-forward of unused tax credits can be utilized.

Deferred tax related to items recognized in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss.

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.

Peruvian mining royalties and special mining tax –

In accordance with Law No. 28258, as amended by Law No. 29788, mining royalties are payable as the higher of either as a specified percentage of operating profit or 1% of revenues. If the mining royalty is calculated as a percentage of operating profit, marginal rates ranging from 1% to 12% that increase progressively for companies with higher operating margins will apply.

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 tax assets and liabilities which must be measured using the average rates expected to apply to operating profit in the quarter in which the Company expects to reverse temporary differences.

Value added 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.

included.

 

(m)

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.


Notes to the consolidated financial statements(continued)

(r)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.

 F-134

Notes to the consolidated financial statements (continued)

 

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

-In the principal market for the asset or liability, or

-In the absence of a principal market, in the most advantageous market for the asset or liability.

 

The 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.

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 is unobservable.

For assets and liabilities that are recognized in the consolidated statements of financial position on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The Company's Management determines the policies and procedures for both recurring fair value measurement and non-recurring measurement. At each reporting date, the Company's Management analyzes the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company’s accounting policies.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.


Notes to the consolidated financial statements(continued) 

 

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.
(s)Leases –

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Company as a lessee

The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

 

 F-135
(i)Right-of-use assets -

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

 

Notes
-Buildings 5 to the consolidated financial statements (continued)

10 years

-2.5.Reclassifications

The Company has reclassified certain prior period amounts to conform to the 2017 presentation, including the following items:

The Company has reclassified a portion of the impairment loss as of December 31, 2016 included in Property, Plant and equipment net3 to Intangible assets, net for US$4.3 million after the conclusion of the final allocation.10 years

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (j) Impairment of non-financial assets.

 

The Company has reclassified community development costs of US$6.3 million from Administrative expense to Costs applicable to sales for the year ended December 31, 2015.
(ii)Lease liabilities -

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.

 

3.Significant judgments, estimates and assumptions

The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.


Notes to the consolidated financial statements(continued) 

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

The Company’s lease liabilities are included in other accounts payable.

 

The preparation
(iii)Short-term leases and leases of the Company’s consolidated financial statements requires Management to makelow-value assets -

The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low value assets are recognized as expense on a straight-line basis over the lease term.

(t)Reclassifications of comparative information –

Royalties expenses

The Company reclassified royalties expenses for US$23 million and US$26 million in years 2018 and 2017; respectively. Such royalties were presented reducing revenues from the “Revenue from sales” caption and now are presented as part of the “cost applicable to sales” caption.

 

2018 

As previously reported 

Reclassifications

2018 

Modified 

 US$(000)US$(000)US$(000)
    
Consolidated Statements of comprehensive income   
Sales635,39323,260658,653
Cost applicable to sales(596,164)(23,260)(619,424)

 

2017 

As previously reported 

Reclassifications

2017 

Modified 

 US$(000)US$(000)US$(000)
    
Consolidated Statements of comprehensive income   
Sales645,17625,729670,905
Cost applicable to sales(746,918)(25,729)(772,647)

Notes to the consolidated financial statements(continued)

Income tax payable

The Company reclassified the amount of US$3.5 million related to mining taxes payable. Such taxes were presented in the “Trade and other payables” caption and now are presented as part of the “Income tax payable” caption.

  

2018 

As previously reported 

 Reclassifications 

2018 

Modified 

   US$(000)   US$(000)   US$(000) 
             
Consolidated Statements of financial position            
Trade and other payables  87,016   (3,552)  83,464 
Income tax payable  -   3,552   3,552 

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.

 

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.

 

(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.-

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 based on the results of feasibility studies.

 

 F-136

Notes to the consolidated financial statements(continued) (continued)

 

(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:

 

-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 the 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.

(d)Useful life of property, plant and equipment -

Depreciation is calculated under the straight-line method of accounting considering the lower of estimated useful lives of the assets or estimated reserves of the mining unit. See Note 2.4 (f) for useful lives.

(e)Revenue from contracts with customers -

The Company applied the judgement for determining the timing of satisfaction of services of revenue from contracts with customers. The Company concluded that the performance obligation is completed once the shipment confirmation is issued when the refinery receives the Dore, allowing the fully payment in cash according the contracts. As a result, all risk of loss and damage of the gold dore pass to refiner upon reception.

 

The Company determined that the only performance obligation is the sale of gold dore.

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.

 


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.resources -

The Company calculates its reserves using methods generally applied by mining and industry according to 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-137

Notes to the consolidated financial statements (continued)

(b)Units of production depreciation -

Estimated economically recoverable reserves are used in determining the depreciation and (or) amortization of mine-specific assets.

This results in a depreciation/amortization charge proportional to the depletion of the anticipated remaining life-of-mine production. The life of each item, which is assessed at least annually, has regard to both its physical life limitations and present assessments of economically recoverable reserves of the mine property at which the asset is located. These calculations require the use of estimates and assumptions, including the amount of recoverable reserves. Changes in estimates are accounted for prospectively.

(c)Mine rehabilitation provision -

The Company assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision at reporting date represents Management’s best estimate of the present value of the future rehabilitation costs required.

(d)Inventories, net -

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. Each mine’s life is assessed at least 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 in estimates are accounted for prospectively.

(c)Provision for closure mining units -

The Company assesses its provision for closure of mining units 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 closure 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 closure costs required.

(d)Inventories -

Inventories are classified as current or non-current depending on the length of time that Management estimates will be used in the production or extraction for each mining unit.


Notes to the consolidated financial statements(continued)

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.

 

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 determine the estimated ore grades of material delivered to leach platforms.

(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.non-financial assets -

The Company assesses each asset or cash generating unit in each reporting period to determine whether any indication of impairment 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 (i) the fair value less costs of disposal and (ii) 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-138

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 its mining units Yanacocha and Conga as the cash generating units.

 

4.Standards issued but not effective

Notes to the consolidated financial statements(continued)

 

The standards and interpretations that are
4.Standards issued but not yet effective up to the date of issuance of the Company’s financial statements that the Company reasonably expects will have an impact on its disclosures, financial position or performance when applied at a future date are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective. Of the other standards and interpretations that are issued, but not yet effective, they have not been listed, as these are not expected to impact the Company.

IFRS 9 Financial Instruments -

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 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 Company plans to adopt the new standard on the required effective date and will not restate comparative information.

During 2017, the Company performed an impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Company in 2018 when the Company will adopt IFRS 9. Overall, the Company expects no significant impact on its statement of financial position or equity from the adoption of IFRS 9.

(a)Classification and measurement -

The Company does not expect a significant impact on its statement of financial position and equity on applying the classification and measurement requirements of IFRS 9.

Trade receivables are considered to be held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Company analyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.

 F-139

Notes to the consolidated financial statements (continued)

For other financial assets currently measured at fair value, e.g., available-for-sale financial assets, the Company will continue to classify and measure these at fair value.

There will be no impact on financial liabilities.

(b)Impairment -

IFRS 9 requires the Company to now use an expected credit loss model for its trade receivables measured at amortised cost, either on a 12-month or lifetime basis. The Company will apply the simplified approach and record lifetime expected losses on all trade receivables measured at amortised cost. Given the short term nature of these receivables, the Company does not expect these changes will have a significant impact.

(c)Hedge accounting -

The changes in IFRS 9 relating to hedge accounting will have no impact as the Company does not currently apply hedge accounting.

IFRS 15 Revenue from Contracts with Customers -

IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted.

The Company plans to adopt the new standard on the required effective date using the modified retrospective method. During 2016, the Company performed a preliminary assessment of IFRS 15, which was followed by a more detailed analysis in 2017.

The key issues identified, and the Company’s views and perspectives, are set out below. These are based on the Company’s current interpretation of IFRS 15 and may be subject to changes as interpretations evolve more generally. Furthermore, the Company is considering and will continue to monitor any further development.

To date, the Company has identified the following issues that require consideration.

(a)Impact of shipping terms -

The Company is responsible for shipping services until the date at which control of the refined gold passes to the customer. Under IFRS 15, these shipping activities are considered fulfilment activities, consistent with IAS 18. Therefore, the Company considers that there will not be an impact for the shipping activities on the revenue recognition.

 F-140

Notes to the consolidated financial statements (continued)

(b)Other presentation and disclosure requirements -

IFRS 15 contains other presentation and disclosure requirements which are more detailed than the current IFRS. The presentation requirements represent a significant change from current practice and will increase the volume of disclosures required in the Company’s financial statements. Many of the disclosure requirements in IFRS 15 are new.

In 2017, the Company continued testing appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less).

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15.

In 2018, the Company plans to assess the potential effect of IFRS 16 on its consolidated financial statements.

5.Cash and cash equivalents

(a)This caption is made up as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Petty cash  34   45 
Bank accounts  48,995   118,853 
Term deposits (b)  625,985   558,626 
   675,014   677,524 

(b)The term deposits balance is made as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Citi Bank  206,824   150,564 
JP Morgan  419,161   408,062 
   625,985   558,626 

(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 to their fair value.

 F-141

Notes to the consolidated financial statements (continued)

6.Trade and other receivables, net

(a)This caption is made up as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Trade receivables, net        
Foreign clients  1,032   9,965 
         
Other receivables        
Advances to suppliers  20,724   18,024 
Tax claims  10,211   6,955 
Credit of tax on net assets  11,520   - 
Other  4,032   6,623 
Related entities, note 21(b)  2,185   815 
   48,672   32,417 
         
Allowance for doubtful accounts (b)  (1,384)  (1,407)
   47,288   31,010 
Total trade and other receivables, net  48,320   40,975 
         
By maturity:        
Current  36,800   40,975 
Non Current  11,520   - 
Total  48,320   40,975 

There are no trade receivables that are due at December 31, 2017 and 2016.

(b)The allowance for doubtful accounts had the following movement during the years 2017, 2016 and 2015:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  1,407   1,444   1,788 
Additions  -   -   88 
Deductions  (23)  (37)  (432)
Ending balance  1,384   1,407   1,444 

In Company’s Management opinion, the allowance for doubtful accounts balance is sufficient to adequately cover the risks of failure as of the date of the consolidated statement of financial position.

 F-142

Notes to the consolidated financial statements (continued)

7.Inventories, net

(a)This caption is made up as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Precious metals  15,446   15,012 
Leach in-circuit  8,057   6,378 
Mill in-circuit  2,048   2,493 
Materials and supplies  52,171   52,687 
   77,722   76,570 
         
Allowance for obsolescence of materials and supplies (b)  (7,076)  (5,272)
   70,646   71,298 

(b)The allowance for obsolescence of material and supplies had the following movement during the years 2017, 2016 and 2015:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  5,272   5,881   4,832 
Provision for impairment of materials and supplies  2,896   3,104   5,060 
Reversal of provision for impairment of materials and supplies  (1,092)  (3,713)  (4,011)
Ending balance  7,076   5,272   5,881 

8.Stockpiles and ore on leach pads, net

(a)This caption is made up as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Current portion -        
Stockpiles  77,296   92,309 
Ore on leach pads  159,930   209,471 
Provision for net realizable value adjustment (b)  (40,588)  (75,423)
   196,638   226,357 
Non-current portion -        
Stockpiles  32,362   41,997 
Ore on leach pads  50,350   78,843 
Provision for net realizable value adjustment (b)  (21,952)  (8,951)
   60,760   111,889 

 F-143

Notes to the consolidated financial statements (continued)

(b)The provision for net realizable value adjustment had the following movement during the years 2017, 2016 and 2015:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Opening balance, note 16  84,374   90,298   163,094 
Provision  77,385   100,179   64,497 
Reversal of provision  (99,219)  (106,103)  (137,293)
Ending balance, note 16  62,540   84,374   90,298 

9.Available-for-sale financial assets

 

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s consolidated financial statements are disclosed below. The Company intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

The amendments to the definition of material is not expected to have a significant impact on the Company’s consolidated financial statements.

5.Cash and cash equivalents

(a)This caption is made up as follows:

  2019 2018
   US$(000)   US$(000) 
         
Petty cash  22   33 
Bank accounts  56,822   111,319 
Term deposits (b)  761,659   611,856 
         
   818,503   723,208 

(b)The term deposit balance is made up as follows:

  2019 2018
   US$(000)   US$(000) 
         
JP Morgan  501,916   401,495 
Citibank  214,282   210,361 
BNP Paribas  45,461   - 
         
   761,659   611,856 

The bank accounts and term deposits yield interest at market rates. The carrying amounts approximate the fair value due to the short maturity of these balances, which are less than 90 days.


Notes to the consolidated financial statements(continued)

6.Trade and other receivables, net

(a)This caption is made up as follows:

  2019 2018
   US$(000)   US$(000) 
         
Trade receivables, net        
Foreign clients  683   7,389 
Other receivables        
Advances to suppliers  9,872   16,897 
Tax claims  3,946   3,532 
Credit of tax on net assets  23,648   23,290 
Related entities, note 22(c)  598   794 
Other  5,247   5,382 
   43,311   49,895 
         
Allowance for expected credit losses (b)  (1,384)  (1,384)
   41,927   48,511 
         
Total trade and other receivables, net  42,610   55,900 
         
By maturity:        
Current  18,962   32,610 
Non current  23,648   23,290 
         
Total  42,610   55,900 
         
Classification by nature:        
Financial receivables  15,016   29,078 
Non-financial receivables  27,594   26,822 
         
   42,610   55,900 

The trade receivables are related to concentrate sold (copper and silver by-products). At December 31, 2019 and 2018 there were no material collectability issues that required an allowance for expected credit losses on the trade receivable balance.

Trade receivables (not subject to provisional pricing) are non-interest bearing and are generally negotiated on terms of 30 days.


Notes to the consolidated financial statements(continued)

(b)The allowance for expected credit losses had the following movement during the years 2019, 2018 and 2017:

  2019 2018 2017
   US$(000)   US$(000)   US$(000) 
             
Opening balance  1,384   1,384   1,407 
Deductions  -   -   (23)
Ending balance  1,384   1,384   1,384 

7.Inventories, net

(a)This caption is made up as follows:

  2019 2018
   US$(000)   US$(000) 
         
Precious metals  8,021   6,878 
Leach in-circuit  5,158   1,835 
Mill in-circuit  1,332   4,002 
Materials and supplies  45,832   49,327 
   60,343   62,042 
         
Allowance for obsolescence of materials and supplies (b)  (6,098)  (7,515)
         
   54,245   54,527 

(b)The allowance for obsolescence of material and supplies had the following movement during the years 2019, 2018 and 2017:

  2019 2018 2017
   US$(000)   US$(000)   US$(000) 
             
Opening balance  7,515   7,076   5,272 
Provision for impairment of materials and supplies  1,898   1,887   2,896 
Reversal of provision for impairment of materials and supplies  (3,315)  (1,448)  (1,092)
             
Ending balance  6,098   7,515   7,076 

Reversals of impaired materials are due to disposals of impaired materials that offset the accumulative provision in each period.


Notes to the consolidated financial statements(continued) 

8.

Stockpiles and ore on leach pads, net

(a)This caption is made up as follows:
  2019  2018 
  US$(000)  US$(000) 
Current portion -        
Stockpiles  23,769   35,065 
Ore on leach pads  139,991   106,931 
Net realizable value adjustment (b)  (28,837)  (41,403)
         
   134,923   100,593 
Non-current portion -        
Stockpiles  35,888   41,814 
Ore on leach pads  88,223   144,688 
Net realizable value adjustment (b)  (19,088)  (47,724)
         
   105,023   138,778 

(b)The provision for net realizable value adjustment had the following movement during the years 2019, 2018 and 2017:

   2019  2018  2017 
   US$(000)  US$(000)  US$(000) 
           
Opening balance, note 17  89,127  62,540  84,374 
Provision  33,464  90,365  77,385 
Reversal of provision  (74,666) (63,778) (99,219)
           
Ending balance, note 17  47,925  89,127  62,540 

Provision reversals correspond to improvements of the overall long-term market conditions that reduced the gap between stockpiles and leach pads’ cost and their net realizable value.


Notes to the consolidated financial statements(continued)

9.

Financial instruments at fair value

In November 2008, the Company funded the San Jose Reservoir Trust foran amount of 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, 2017,2019 and 2018, the assets in the trust total balance isamount to US$23,000,00024,417 and is presented as Available-for-saleUS$22,610, respectively and are represented by financial assets (trust total balanceinstruments at fair value.  
During the years ended December 31, 2019, 2018 and 2017, an increase in fair value of the debt instruments was recognized in other comprehensive income for the amount of US$16,454,000 as1,246, and a decrease of US$91 and US$3,244 during 2018 and 2017. During the years ended December 31, 2016).

During 2017, these2019 and 2018 the change in fair value of the investments denominated in U.S. dollars, accrued losses net of taxes ofmarketable stocks for US$3,244,000 (profit of US$651,000 in 2016821 and losses of US$757,000 in 2015) which are included(US$10), respectively, were recognized as Finance income and Finance costs in the consolidated statementstatements of comprehensive income.


Notes to the consolidated financial statements(continued) 

  F-144 

10.

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
 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                
Year 2017                    
Cost-                    
Land  9,459   -   -   -   9,459 
Land improvements  36,454   -   -   -   36,454 
Building and constructions  236,551   -   (42)  61,289   297,798 
Machinery and equipment  379,164   -   (92,299)  -   286,865 
Leach pads  1,670,835   -   -   51,951   1,722,786 
Vehicles  11,024   -   -   -   11,024 
Furniture and fixtures  2,556   -   -   -   2,556 
Other equipment  57,773   -   -   -   57,773 
Work in progress  483,225   51,624   -   (134,439)  400,410 
Mining rights  37,521   -   -   -   37,521 
Asset retirement and mine closure  409,797   97,326   -   -   507,123 
Stripping activity asset  148,487   -   -   -   148,487 
Mine development  701,156   -   -   21,199   722,355 
   4,184,002   148,950   (92,341)  -   4,240,611 
                     
Accumulated depreciation and amortization                    
Land improvements  35,053   90   -   -   35,143 
Building and constructions  235,340   5,020   (12)  -   240,348 
Machinery and equipment  329,965   8,431   (88,421)  -   249,975 
Leach pads  1,588,205   33,061   -   -   1,621,266 
Vehicles  11,003   21   -   -   11,024 
Furniture and fixtures  2,556   -   -   -   2,556 
Other equipment  55,645   269   -   -   55,914 
Mining rights  29,457   -   -   -   29,457 
Asset retirement and mine closure  337,173   19,172   -   -   356,345 
Stripping activity asset  142,170   1,082   -   -   143,252 
Mine development  622,604   16,846   -   -   639,450 
   3,389,171   83,992   (88,433)  -   3,384,730 
Net cost  794,831               855,881 

 F-145

Notes to the consolidated financial statements (continued)

  Opening
balance
  Additions  Sales and disposals  Transfer/Other
changes
  Impairment
loss
  Final
balances
 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                   
Year 2016                        
Cost-                        
Land  11,521   -   -   201   (2,263)  9,459 
Land improvements  41,909   -   -       (5,455)  36,454 
Building and constructions  274,262   -   (26,410)  26,396   (37,697)  236,551 
Machinery and equipment  511,942   -   (125,064)  22,865   (30,579)  379,164 
Leach pads  1,890,823   -   -   15,276   (235,264)  1,670,835 
Vehicles  15,198   -   (4,168)  -   (6)  11,024 
Furniture and fixtures  2,556   -   -   -   -   2,556 
Other equipment  60,462   353   -   217   (3,259)  57,773 
Work in progress  476,353   78,609   -   (70,282)  (1,455)  483,225 
Mining rights  49,544   -   (3,113)  -   (8,910)  37,521 
Asset retirement and mine closure  452,145   351,798   -   -   (394,146)  409,797 
Stripping activity asset  157,048   26,148   -   -   (34,709)  148,487 
Mine development  814,563   -   -   5,079   (118,486)  701,156 
   4,758,326   456,908   (158,755)  (248)  (872,229)  4,184,002 
                         
Accumulated depreciation and amortization                        
Land improvements  35,266   298   -   (511)  -   35,053 
Building and constructions  196,515   61,530   (22,705)  -   -   235,340 
Machinery and equipment  429,910   12,230   (112,175)  -   -   329,965 
Leach pads  1,565,508   22,697   -   -   -   1,588,205 
Vehicles  14,620   2,735   (6,352)  -   -   11,003 
Furniture and fixtures  2,547   9   -   -   -   2,556 
Other equipment  53,964   1,681   -   -   -   55,645 
Mining rights  29,457   -   -   -   -   29,457 
Asset retirement and mine closure  318,405   18,768   -   -   -   337,173 
Stripping activity asset  138,178   3,992   -   -   -   142,170 
Mine development  613,646   8,447   -   511   -   622,604 
   3,398,016   132,387   (141,232)  -   -   3,389,171 
Net cost  1,360,310                   794,831 

Additions to work in progress in 2017 are primarily related to the Water treatment project and Yanacocha Laybacks Checkpoint 2A and Asset Componentization project.

The depreciation and amortization expense for the year ended December 31, 2017 was recorded as Cost applicable to sales in the statement of comprehensive income.

 F-146

Notes to the consolidated financial statements (continued)

(b)Impairment of long-lived assets -

In accordance with its accounting policies and processes, each asset or Cash Generating Unit “CGU” is evaluated annually at year end, to determine whether there are any indications of impairment. If any such indications of impairment exist, a formal estimate of the recoverable amount is performed. The Company has two CGU: Yanacocha mine and Conga project.

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

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 the 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).net

 

In assessing whether impairment was required,

(a)Below is presented the carrying value of the asset or CGU was compared with its recoverable amount. The recoverable amount is the higher of the CGU’s fair value less costs of disposal (FVLCD) and valuemovement 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 was 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 were 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.cost:
                 
  Opening balance Additions Sales and disposals Transfer/Other changes Final  balances 
  US$(000) US$(000) US$(000) US$(000) US$(000) 
                 
Year 2019                
Cost-                
Land  9,459  -  -  7,594  17,053 
Land improvements  36,454  -  (7,472) -  28,982 
Building and constructions  298,328  -  (26,556) (218) 271,554 
Machinery and equipment  244,560  -  (46,286) 18,598  216,872 
Leach pads  1,723,270  -  -  93,956  1,817,226 
Vehicles  9,921  -  (1,043) 524  9,402 
Furniture and fixtures  2,556  -  -  -  2,556 
Other equipment  58,924  -  (3,712) 4,050  59,262 
Work in progress  444,688  184,403  -  (192,392) 436,699 
Mining rights  37,521  -  -  -  37,521 
Right of use asset  -  1,045  -  -  1,045 
Asset retirement and mine closure  534,398  158,967  -  -  693,365 
Stripping activity asset  148,487  -  -  3,007  151,494 
Mine development  760,647  -  -  63,509  824,156 
                 
   4,309,213  344,415  (85,069) (1,372) 4,567,187 
                 
Accumulated depreciation and amortization                
Land improvements  35,583  101  (7,369) -  28,315 
Building and constructions  247,979  5,702  (26,579) (973) 226,129 
Machinery and equipment  204,255  21,780  (42,978) 973  184,030 
Leach pads  1,656,002  38,286  -  -  1,694,288 
Vehicles  9,855  16  (1,043) -  8,828 
Furniture and fixtures  2,556  -  -  -  2,556 
Other equipment  56,522  1,326  (3,712) -  54,136 
Mining rights  29,457  -  -  -  29,457 
Right of use asset  -  461  -  -  461 
Asset retirement and mine closure  424,008  54,818  -  -  478,826 
Stripping activity asset  146,058  1,667  -  -  147,725 
Mine development  656,484  17,658  -  -  674,142 
                 
   3,468,759  141,815  (81,681) -  3,528,893 
                 
Net cost  840,454           1,038,294 


Notes to the consolidated financial statements(continued) 

                 
  Opening  balance Additions Sales and disposals Transfer/Other changes Final  balances 
  US$(000) US$(000) US$(000) US$(000) US$(000) 
                 
Year 2018                
Cost-                
Land  9,459  -  -  -  9,459 
Land improvements  36,454  -  -  -  36,454 
Building and constructions  297,798  -  -  530  298,328 
Machinery and equipment  286,865  -  (72,442) 30,137  244,560 
Leach pads  1,722,786  -  -  484  1,723,270 
Vehicles  11,024  -  (1,171) 68  9,921 
Furniture and fixtures  2,556  -  -  -  2,556 
Other equipment  57,773  -  (265) 1,416  58,924 
Work in progress  400,410  117,636  -  (73,358) 444,688 
Mining rights  37,521  -  -  -  37,521 
Asset retirement and mine closure  507,123  27,275  -  -  534,398 
Stripping activity asset  148,487  -  -  -  148,487 
Mine development  722,355  -  -  38,292  760,647 
                 
   4,240,611  144,911  (73,878) (2,431) 4,309,213 
                 
Accumulated depreciation and amortization                
Land improvements  35,143  440  -  -  35,583 
Building and constructions  240,348  7,631  -  -  247,979 
Machinery and equipment  249,975  20,887  (66,607) -  204,255 
Leach pads  1,621,266  34,736  -  -  1,656,002 
Vehicles  11,024  2  (1,171) -  9,855 
Furniture and fixtures  2,556  -  -  -  2,556 
Other equipment  55,914  828  (220) -  56,522 
Mining rights  29,457  -  -  -  29,457 
Asset retirement and mine closure  356,345  67,663  -  -  424,008 
Stripping activity asset  143,252  2,806  -  -  146,058 
Mine development  639,450  17,034  -  -  656,484 
                 
   3,384,730  152,027  (67,998) -  3,468,759 
                 
Net cost  855,881           840,454 

Additions to work in progress in 2018 and 2019 are primarily related to the Quecher Main project. As of December 31, 2019, the Company does not have material commitments related to this project.

The depreciation and amortization expense for the year ended December 31, 2019 and 2018 was recorded in the “Cost applicable to sales” caption in the consolidated statement of comprehensive income.


Notes to the consolidated financial statements(continued)

 

Estimates included quantities
(b)Impairment of recoverable minerals, production levels, operatinglong-lived assets -

In accordance with the 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 this assessment the Management considered that the Company had been complying with the estimated results for each year included in the last impairment calculation.

During 2019, the Company’s Management identified as an impairment indicator the significant increase of the asset retirement and mine closure, as a result the Company had to determinate the recoverable amount for its CGU Yanacocha. Regarding to CGU Conga the Management did not identify any important indicator. As a result of this analysis the Company concluded that no additional impairment loss on CGU Yanacocha was required to be recorded as the recoverable amount exceeded the carrying amount of the CGU’s assets.

In assessing whether impairment was required, the carrying value of the asset or CGU was compared with its recoverable amount. The recoverable amount is the higher of the CGU’s fair value less costs to sell (FVLCS) and capital requirements and sourced from out planning process, including the LOM plans, one-year budgets and CGU-specific studies.

Key assumptions used for the impairment testing as of December 31, 2016:

The determination of 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 was 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 were 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 included quantities of recoverable minerals, production levels, operating costs and capital requirements and sourced from the planning process, including the life of mine (LOM) plans, one-year budgets and CGU-specific studies.

Key assumptions used for the impairment testing as of December 31, 2019:

The determination of fair value less cost to sell was most sensitive to the following key assumptions:

-Production volumes

-Production volumes.
-Commodity prices

-Commodity prices.

-Discount rate

 F-147

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.

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines were 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 were based on management’s estimates and were 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.

Estimated prices for the current and long-term periods that have were used to estimate future revenues were as follows:

  Current  Long-term 
  US$  US$ 
         
Gold (per ounce)  1,221   1,300 

Discount rate: In calculating the value in use,rate.

-Cost / EBIT

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.

As each producing mining unit has specific reserve characteristics and economic circumstances, the cash flows of the mines were 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 were based on management’s estimates and were 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.

Estimated prices for the current and long-term periods that have were used to estimate future revenues were as follows:

 CurrentLong-term
 US$US$
   
Gold (per ounce)1,4811,300
Copper (per pound)3.03.0

Discount rate: In calculating the fair value less cost to sell, a pre-tax discount rate of 7.1% was applied to the pre-tax cash flows. This discount rate was derived from the Company’s pre-tax discount rate of 7.1% was applied to the pre-tax cash flows. This discount rate was 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-148

Notes to the consolidated financial statements(continued) (continued)

 

11.Trade and other payables

 

(a)This caption is made up as follows:

  2019 2018
  US$(000) US$(000)
     
Trade payables (b)    
Domestic suppliers 45,671 48,847
Related entities, note 22(c) 11,426 10,846
  57,097 59,693
Other payables    
Remuneration and similar benefits payable 11,365 22,907
Other taxes payable 5,326 728
Royalties payable to the Peruvian State 2,696 136
  19,387 23,771
  76,484 83,464

(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.

 

  2017  2016 
  US$(000)  US$(000) 
       
Trade payables (b)        
Domestic suppliers  43,108   44,634 
Related entities, note 21(b)  9,962   9,052 
   53,070   53,686 
         
Other payables        
Remuneration and similar benefits payable  27,419   8,516 
Royalties payable to the Peruvian State  726   1,098 
Taxes payable  2,605   3,174 
   30,750   12,788 
   83,820   66,474 

(b)Trade payables arise mainly from the acquisition of materials, supplies and spare parts and services provided by third parties. These obligations, have current maturities, accrue no interest, are not secured and are mostly denominated in U.S. dollars.
12.Provisions, other accruals and liabilities

 

12.Provisions

(a)This caption is made up as follows:

 

(a)This caption is made up as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Provision for closure of mining units and exploration projects (b)  1,234,731   1,012,888 
Provision of social responsability  21,689   24,335 
Workers’ profit sharing payable (c)  1,733   13,005 
Accrual of operating costs  15,064   19,650 
Other provisions  3,243   23,809 
   1,276,460   1,093,687 
         
Classification by maturity:        
Current portion  39,495   68,662 
Non-current portion  1,236,965   1,025,025 
   1,276,460   1,093,687 
  2019 2018
  US$(000) US$(000)
     
Provisions    
Provision for closure of mining units and exploration projects (b) 1,608,380 1,294,464
Provision of social responsibility (c) 18,326 18,010
Other provisions 2,484 2,785
  1,629,190 1,315,259
     
Other accruals and liabilities    
Interests payable, see note 24 16,840 -
Workers’ profit sharing payable (e) 12,793 3,920
Accrual of operating costs (d) 11,238 11,442
Accrual of capital expenditure 8,139 3,682
Right of use liability 596 -
  49,606 19,044
Total provisions, other accruals and liabilities 1,678,796 1,334,303

 

 F-149

Notes to the consolidated financial statements(continued) (continued)

 

  2019 2018
  US$(000) US$(000)
     
Classification by maturity:    
Current portion 90,940 41,154
Non-current portion 1,587,856 1,293,149
     
  1,678,796 1,334,303

(b)Provision for closure of mining units and explorations projects -

The Company's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the amount of such future expenditures. Estimated future reclamation costs are based principally on legal and regulatory requirements.

The provision for closure of mining units 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 provision for closure of mining units for 2019, 2018 and 2017 is broken down as follows:

  2019 2018 2017
  US$(000) US$(000) US$(000)
       
Opening balance 1,294,464 1,234,731 1,012,888
Additional provisions 301,096 43,560 221,450
Payments (23,889) (19,842) (21,376)
Unwinding of discount, note 20 36,709 36,015 21,769
Ending balance 1,608,380 1,294,464 1,234,731
       
Classification by maturity      
Current portion 39,156 19,325 19,455
Non-current portion 1,569,224 1,275,139 1,215,276
  1,608,380 1,294,464 1,234,731

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 2020 and 2069.


Notes to the consolidated financial statements(continued) 

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.

During the years ended December 31, 2019, 2018 and 2017, the Company recorded an increase to the reclamation liability of US$301 million, US$44 million and US$206 million, respectively. The increase to the reclamation obligation resulted in an increase to the recorded asset retirement cost asset of US$159 million (US$27.2 million and US$97 million in 2018 and 2017, respectively) related to the producing portions of the mine (see note 10) and a non-cash charge to reclamation expense for the year ended December 31, 2019 of US$142 million (US$16.3 million and US$124.1 million as December 31, 2018 and 2017, respectively) related to the areas of Carachugo, Yanacocha, Maqui Maqui and Cerro Negro operations no longer in production (see note 17). The increase of the 2019 reclamation obligation is mainly due to higher water treatment costs, whereas in 2018 the increase was mainly due to new disturbance costs from the Quecher Main project and changes in the labor cost estimate. The discount rates used in the calculation of the provision as December 31, 2019, 2018 and 2017 were between 0.2% and 0.3%.

 

The liability for reclamation or the Asset retirement obligation (“ARO”) comprises activities carried out by the Company in the restoration
(c)Provision 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.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.

The movement of the provision for social responsibility for 2019, 2018 and 2017 is broken down as follows:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Opening balance  18,010   21,689   24,335 
Additional provisions  888   -   - 
Payments  (572)  (3,679)  (2,646)
Ending balance  18,326   18,010   21,689 
             
Classification by maturity            
Current portion  761   8,351   - 
Non-current portion  17,565   9,659   21,689 
             
   18,326   18,010   21,689 

Notes to the consolidated financial statements(continued) 

 

The movement
(d)Accrual of the ARO for 2017, 2016 and 2015 is broken down as follows:operating cost -

The accrual of operating cost relates to the accruals of services received by the Company as part of its operations that were pending to be invoiced such as power, maintenance, contractors and others.

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Opening balance  1,012,888   578,959   557,457 
Additional provisions  221,450   430,292   10,434 
Payments  (21,376)  (10,467)  (11,007)
Unwinding of discount, note 19  21,769   14,104   22,075 
Final balance  1,234,731   1,012,888   578,959 
             
Classification by maturity            
Current portion  19,455   15,636   6,698 
Non-current portion  1,215,276   997,252   572,261 
   1,234,731   1,012,888   578,959 

In December 2016, the Company completed a comprehensive study of the Yanacocha long-term mining and closure plans as part of the requirement to submit an updated closure plan to Peruvian regulators every five years. As a result, the Company recorded an increase to the reclamation obligation at Yanacocha of US$430 million. The increase to the reclamation obligation resulted in an increase to the recorded asset retirement cost asset of US$352 million related to the producing portions of the mine (note 10) and a non-cash charge to reclamation expense for the year ended December 31, 2016 of US$78 million related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation obligation was primarily due to higher estimated long-term water management costs, heap leach earthworks and related support activities.
(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.

 

 F-150

Notes to the consolidated financial statements13. (continued)

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, 2017, the Company recorded an increase to the reclamation at Yanacocha of US$206 million. The increase to the reclamation obligation resulted in an increase to the recorded asset retirement cost asset of US$97 million related to the producing portions of the mine and a non-cash charge to reclamation expense for the year ended December 31, 2017 of US$109 million related to the areas of Yanacocha’s operations no longer in production. The increase to the reclamation obligation is mainly due to a decrease in the market-based discount rate compared to last year. The discount rates used in the calculation of the provision as at 31 December 2017 are between 0.3% to 2.9% (2016: between 1.4% and 4.2%).

(c)Workers' profit sharing -

In accordance with Peruvian legislation, the Company maintains an employee profit sharing plan equal to 8% of annual taxable income. Distributions to employees under the plan are based 50% on the number of days that each employee worked during the preceding year and 50% on proportionate annual salary levels.

13.Partners’ equity, netDebt instruments

 

On June 14, 2018, the Company approved the sale of 63,922,565 shares of Minera Yanacocha, S.R.L. to Summit Global Management II BV, a wholly-owned subsidiary of Sumitomo Corporation (“Sumitomo”) for a consideration of US$47,911. The transaction resulted in Sumitomo owning 5% of Minera Yanacocha, S.R.L. with Newmont Second Capital Corporation 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 5% interest in Minera Yanacocha, S.R.L. 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 an escrow for repayment in the event the option is exercised. As of December 31, 2019 and December 31, 2018, the Company holds US$48,617 and US$48,127, respectively 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 Company’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 is 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 compound instrument at the date of the transaction for an amount of US$41,695 and the gross redemption amount of US$47,911 was recorded as additional paid-in-capital in equity for an amount of US$6,216 at the date of the transaction.

The value of the compound instrument as of December 31, 2019 and December 31, 2018 amounts to US$43,927 and US$42,430, respectively. For the years ended December 31, 2019 and December 31, 2018 the unwinding of the discount was recognized in the caption “Finance costs” in the consolidated statement of comprehensive income for an amount of US$1,497 and US$735, respectively, see note 20.


Notes to the consolidated financial statements(continued) 

14.

Partners’ equity

(a)Partners’ contributions -

Partners’ contributions comprise-

As of December 31, 2019 and December 31, 2018, Partners’ contributions comprise 1,214,528,739 common partnership interests at par value of one Peruvian Sol each, fully subscribed and paid-in (equivalent to US$398,216 at the historical exchange rate). Such partnership interest includes 656,484,745 common partnership interests at par value of one Peruvian Sol each, fully subscribed and paid-in. Such partnership interest includes 656,484,745 shares 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$47,911, 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 equivalent to US$19,711. 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.

Until December 31, 2017, by Law N° 30296 published on December 31, 2014, for individuals and non-resident legal entities, the applicable tax rate was 6.8% for dividend distributions in cash or non-monetary assets for fiscal year 2017. Pursuant to Legislative Decree N° 1261, published on December 10, 2016 and effective as of January 1, 2017, the applicable tax rate to the distribution of cash dividends and non-monetary assets for the year 2017 onwards will be 5%.

 F-151

Notes to the consolidated financial statements (continued)

(c)Dividends declared and paid -

On February 15, 2016, the board of Directors unanimously agreed to distribute dividends in the amount of US$300 million, in proportion to its shareholding, which corresponds to a portion of the accumulated results as of December 31, 2014, which have been generated in 2011.

14.Tax Situation

(a)Tax stabilization agreements -

The Company has entered into the following tax stability agreements, each with a term of 15 years:

MineEffectiveDate of the Tax AgreementTax Regimes in Force
Cerro YanacochaJanuary 1, 2000September 16, 1998May 22, 1997
La QuinuaJanuary 1, 2004August 25, 2003August 25, 2003

The Cerro Yanacocha tax stabilization agreement expired on January 1, 2015 and is no longer in effect.

The agreement for La Quinua guarantees the Company's use of the tax regime shown in the table above and permits maintenance of its accounting records in U.S. dollars for tax purposes.

The Company determines taxable income based on its understanding and that of its legal advisors, of applicable tax legislation. Taxable income differs from pre-tax income disclosed within these financial statements by those items that the applicable tax legislation deems to be non-taxable or non-deductible.

On December 31, 2014, the Peruvian Government enacted modifications to Income Tax regulations, applicable beginning in 2015. Among the modifications, a progressive income tax rate reduction was approved as follows: 28% for fiscal years 2015 and 2016; 27% for fiscal years 2017 and 2018; and 26% from 2019, onward.

Pursuant to Legislative Decree N° 1261, published on December 10, 2016 and effective as of January 1, 2017, the applicable tax rate on the taxable income will be 29.5 percent. The income tax for La Quinua is 29% according to the tax stabilization agreement entered into with the Peruvian government.

 

(b)Retained earnings -

Distribution of earnings to Partners other than legal entities domiciled in Peru is subject to a withholding income tax charged to the partners.

Until December 31, 2017, by Law No. 30296 published on December 31, 2014, for individuals and non-resident legal entities, the applicable tax rate was 6.8% for dividend distributions in cash or non-monetary assets for fiscal year 2017. Pursuant to Legislative Decree No. 1261, published on December 10, 2016 and effective as of January 1, 2017, the applicable tax rate to the distribution of cash dividends and non-monetary assets for the year 2017 onwards is 5%.

(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.


Notes to the consolidated financial statements(continued) 

15.Tax Situation

(a)Current tax regime -

The Company and its subsidiary are subject to the Peruvian tax regime. The main tax regulations issued during 2018 were the following:

-Since January 1, 2019, the applicable treatment of royalties and remuneration for services rendered by non-domiciled was modified (Legislative Decree No. 1369).

-The rules that regulate the obligation of legal persons and / or legal entities to inform the identification of their final beneficiaries (Legislative Decree No. 1372) were established.

In July 2018, Law No. 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)Tax stabilization agreements -

The Company has entered into the following tax stability agreements, each with a term of 15 years:

MineEffectiveDate of the Tax AgreementTax Regimes in Force
Cerro YanacochaJanuary 1, 2000September 16, 1998May 22, 1997
La QuinuaJanuary 1, 2004August 25, 2003August 25, 2003

The Cerro Yanacocha tax stabilization agreement expired on January 1, 2015 and La Quinua tax stabilization agreement expired on January 1, 2019.

The La Quinua tax stabilization guaranteed the Company's use of the tax regime shown in the table above and permitted 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.


Notes to the consolidated financial statements(continued) 

On December 31, 2014, the Peruvian Government enacted modifications to Income Tax regulations, applicable beginning in 2015. Among the modifications, a progressive income tax rate reduction was approved as follows: 28% for fiscal year 2016; 27% for fiscal years 2017 and 2018; and 26% from 2019, onward.

Pursuant to Legislative Decree No. 1261, published on December 10, 2016 and effective as of January 1, 2017, the applicable tax rate on the taxable income is 29.5%. The income tax for La Quinua, until January 1, 2019, was 29% according to the tax stabilization agreement entered into with the Peruvian government.

(c)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 Company. In that regard, the tax returns of the years 2015 to 2019 are open to assessment. The fiscal year 2014 is under examination by the Tax Authority (SUNAT).

(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 Company's operations.

(e)Other mining taxes -
(i)Law N°

(i)Law No. 29788, Mining Royalties

On September 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 2019, 2018, and 2017, the amounts included in cost of production related to mining royalties were US$7,360, US$1,273 and US$3,140, respectively. During 2019 the amount included in mining tax expense related to mining royalties were US$1,563 and during 2018 and 2017 there were no amounts included in mining tax expense.

 

 F-152

Notes to the consolidated financial statements (continued)

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 2017, 2016, and 2015, the amounts included in cost of production related to mining royalties were US$3,140,629, US$3,742,000 and US$2,456,000, respectively and during 2017, 2016 and 2015 there were no amounts included in mining tax expense.

(ii)Law N°
(ii)Law No. 29789, Special Mining Tax

The 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.


Notes to the consolidated financial statements(continued) 

The rate varies depending on the level of operating profit. During the years ended December 31, 2019, 2018 and 2017 the amounts included in income and mining tax expense were US$9,702, US$592, and US$1,418, respectively.

 

The rate varies depending on the level of operating profit. During 2017, 2016 and 2015 the amounts included in income and mining tax expense were US$1,418,000, US$3,259,000 and US$1,838,000 respectively.

(iii)Law N°
(iii)Law No. 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 La Quinua in 2017, 2016 and 2015. This resulted in US$3,526,000, US$6,945,000 and US$19,883,000,

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 La Quinua in 2018 and 2017. This resulted in US$8,230 and US$3,526, respectively, of additional Income and mining tax expense.

(iv)Law N°
(iv)Law No. 29471, Supplementary Fund

The Supplementary Fund for retirement of mining applies to metallurgical and steel workers, affiliated to the National Pension System (“SNP”) and the Private Pension System (“PPS”); and is applicable since May 11, 2012. This Fund is formed by employee and employer contributions which are distributed according to the following detail:

 

-Employers will contribute 0.5% of the annual income before taxes.

-Employees will contribute 0.5% of their monthly gross salary.

-The employer's contributions are paid before tax; therefore these amounts are deductible expenses for the year.

The new pension fund tax is calculated based on annual income and is payable quarterly. During 2017, 2016 and 2015, the amounts included in Income and mining tax expense amounted to US$28,685, US$141,870, and US$459,000, respectively.

 F-153

Notes to the consolidated financial statements (continued)

(c)Peruvian income tax -

The Company's income tax provision consisted of the following:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Current Peruvian income tax  3,877   41,105   98,319 
Royalties and mining taxes  4,944   10,249   21,721 
Other taxes  211   323   639 
Income tax prior year adjustments  (2,006)  (2,092)  (1,766)
Income tax prior years refunds  -   (6,458)  - 
Current income tax expense  7,026   43,127   118,913 
Deferred income tax expense (benefit)  -   -   483,804 
Income tax expense  7,026   43,127   602,717 

(d)Deferred income tax asset -

Components of deferred income tax assets (liabilities) are as follows:

  2017  2016 
  US$(000)  US$(000) 
       
Deferred income tax assets, net        
Property, plant and mine development  571,210   608,783 
Reclamation  233,843   160,261 
Accounts payable and accrued expenses  78,241   64,703 
Inventories  61,435   60,018 
Other  3,073   3,077 
   947,802   896,842 
Allowance of deferred income tax asset  (947,802)  (896,842)
Net deferred income tax asset  -   - 

In December 2017, the Company recorded a valuation allowance on its deferred income tax asset of US$51 million (US$386 million during 2016 and US$510 million during 2015) to the extent that it is not probable that taxable profit will be available against which the deductible temporary differences can be utilized.

 F-154

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 2017 and 2016:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Income (loss) before income tax  (168,428)  (1,000,625)  152,522 
Peruvian statutory tax rate  29.5%  28%  28%
Income tax expense (income)  (49,686)  (280,175)  42,706 
Valuation allowance on deferred tax asset  50,960   386,763   510,004 
Effect of change in income tax rate  -   (66,667)  16,576 
Mining taxes  3,530   7,392   15,639 
Non-deductible expenses  4,204   3,296   15,288 
Adjustment due to income tax rate applicable to la Quinua  (124)  (1,024)  2,504 
Income tax prior years refunds / payments  (1,858)  (6,458)  - 
Total income tax expense  7,026   43,127   602,717 

15.Revenue from sales

 

The new pension fund tax is calculated based on annual income and is payable quarterly. During the years ended December 31, 2019, 2018 and 2017 the amounts included in Income and mining tax expense amounted to US$728, US$39 and US$29, respectively.

(f)Peruvian income tax -

The Company's income tax provision consisted of the following:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Current Peruvian income tax  42,978   12,525   3,877 
Royalties and mining taxes  11,444   8,822   4,944 
Income tax from prior years  8,459   8,900   (2,006)
Fines from previous years, note 24  4,056   -   - 
Other taxes  993   121   211 
Income tax prior years refunds (*)  (3,002)  -   - 
Current income tax expense  64,928   30,368   7,026 
Deferred income tax expenses (benefit)  -   (1,071)  - 
             
Income tax expense  64,928   29,297   7,026 

(*)Tax refunds were obtained through tax courts resolutions regarding to outstanding tax claims of the income tax payments performed on year 2004.


Notes to the consolidated financial statements(continued)

(g)Deferred income tax asset -

As of December 31, 2019 and 2018, the Company maintains a deferred income tax asset for US$1,071 recorded in year 2018. The recognized deferred income tax asset corresponds entirely to additional tax credits that can be recovered by reducing the income tax paid of open periods subject to review of the tax authority.

(h)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 2019, 2018 and 2017:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Loss before income tax  (30,329)  (52,220)  (168,428)
Peruvian statutory tax rate  29.5%  29.5%  29.5%
Income tax income  (8,947)  (15,405)  (49,686)
Valuation allowance on deferred tax asset  46,473   23,771   50,960 
Effect of change in translation to US dollars  (4,217)  -   - 
Mining taxes  8,068   6,260   3,530 
Non-deductible expenses  13,045   6,962   4,204 
Difference in income tax rate applicable to La Quinua at 29%  -   (176)  (124)
Income tax prior years (refunds) / payments  6,450   7,885   (1,858)
Fines from prior years, note 24  4,056   -   - 
             
Total income tax expense  64,928   29,297   7,026 

(i)The main tax regulations issued during 2019 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 No. 1369).

(ii)Established rules governing the obligation of legal persons and (or) legal entities to report the identification of their final beneficiaries (Legislative Decree No. 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.

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 No. 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.

(b)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.

(j)As of December 31, 2019, the Company determined a current income tax payable of US$20,276 (Prepaid income tax credit of US$19,239 as December 31, 2018) and mining taxes payable for US$2,877 (US$3,552 as December 31, 2018). The current income tax payable of year 2019 includes the current income tax offset by the credits of the period, and the income tax contingencies, see note 24, for US$7,913 and US$12,363; respectively.

16.Revenue from contracts with customers

(a)The Company’s revenues are mainly from sales of gold ounces. The table below presents the net sales to customers by geographic region:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Sales and services by geographic region:            
Metal sales            
Europe (Switzerland)  734,526   518,664   491,887 
America  -   139,989   179,018 
             
   734,526   658,653   670,905 

 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Sales and services by geographic region:            
Metal sales            
Suiza  491,887   558,723   754,335 
America  179,018   233,043   315,686 
   670,905   791,766   1,070,021 
Royalties, note 1(a) and 21  (20,739)  (24,339)  (32,414)
Mining royalties to the government  (4,990)  (6,234)  (6,433)
   645,176   761,193   1,031,174 

 F-155

Notes to the consolidated financial statements (continued)

16.Costs applicable to sales

This caption
(b)Other operating revenue is made up as follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance of finished goods and in-process  446,503   544,325   660,763 
Beginning balance of provision for net realizable value, note 8(b)  (84,374)  (90,298)  (163,094)
Consumption of supplies  240,881   228,376   210,384 
Personnel expenses  99,702   87,258   102,867 
Other services  66,408   73,779   82,787 
Maintenance  24,033   36,213   38,646 
Power  23,565   27,270   27,713 
Depreciation and amortization  87,783   140,712   223,142 
Workers' profit participation  1,242   12,394   28,852 
Reclamation expenses related to leach pads, note 12(b)  124,124   78,494   - 
Ending balance of provision for net realizable value, note 8(b)  62,540   84,374   90,298 
Ending balance of finished goods and in-process  (345,489)  (446,503)  (544,325)
  746,918   776,394   758,033 

 

17.Operating expenses, net

This caption is made up as follows:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Exploration and advanced projects  51,694   49,580   64,230 
Severance program  9,419   9,659   14,904 
Write-off of fixed assets  1,368   14,036   2,411 
Cost of fixed assets sold  1,632   160   1,624 
Income from fixed asset sales  (2,235)  (471)  (1,116)
Others, net  1,636   (1,468)  793 
   63,514   71,496   82,846 
  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Copper and silver in concentrate  4,098   20,442   17,509 
Others  678   1,523   4,361 
             
   4,776   21,965   21,870 

 

18.Administrative expenses

This caption is made up as follows: 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Management expenses  3,395   7,191   18,108 
Other  1,365   1,589   1,920 
   4,760   8,780   20,028 

 F-156

Notes to the consolidated financial statements (continued)

19.Finance costs

Financial costs for the year ended December 31, 2017 are mainly related to the unwinding of the discount of the reclamation and mine closure liability amounting to US$21,769,000 (US$14,104,000, and US$22,075,000 for the years ended December 31, 2016 and 2015, respectively). See note 12(b)

For the year ended December 31, 2019, 2018 and 2017, the amount of the subsequent changes in fair value of the trade receivable were US$176, US$15 and US$346, respectively and are presented as part of the caption “Copper and silver in concentrate”.

 

20.Commitments and contingencies

Notes to the consolidated financial statements(continued)

(c)Concentration of sales -

In 2019, the 100% of Dore sales was performed to Royal Bank of Canada consigned to Argor Hereaus (Switzerland) and no copper concentrate sales performed during the period. As of December 31, 2018, 79% to Switzerland (Scotia Mocatta consigned to Valcambi 52% and Royal Bank of Canada consigned to Argor Hereaus 27%) and 21% to United States of America (Dore across Scotia Mocatta consigned by Asahi 20% and Copper Concentrate to MCC Non Ferrous Trading 0.1%). Related to Copper Concentrate as of December 31, 2019 and 2018, 100% of accounts receivables are related to MCC Non Ferrous Trading.

The Company'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 with the Company for the supply of the production from the Company’s mines.

17.Costs applicable to sales

 

This caption is made up as follows:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Beginning balance of finished goods and in-process  341,213   345,489   446,503 
Beginning balance of provision for net realizable value, note 8(b)  (89,127)  (62,540)  (84,374)
Royalties to related parties, note 1(a) and note 22  22,297   20,385   20,739 
Mining royalties to the government  9,255   2,875   4,990 
Consumption of supplies  200,036   215,863   240,881 
Personnel expenses  72,325   82,645   99,702 
Other services  41,120   43,671   66,408 
Maintenance  26,645   22,585   24,033 
Power  23,619   24,203   23,565 
Depreciation and amortization  144,862   156,212   87,783 
Workers' profit sharing  12,804   3,837   1,242 
Provision of closure mines, note 12(b)  142,129   16,285   124,124 
Ending balance of provision for net realizable value,
note 8(b)
  47,925   89,127   62,540 
Ending balance of finished goods and in-process  (302,382)  (341,213)  (345,489)
             
   692,721   619,424   772,647 

For the years ended December 31, 2019, 2018 and 2017, the cost of inventories recognized in cost of sales was US$326,790, US$327,459 and US$456,647, respectively.


Notes to the consolidated financial statements(continued)

18.Operating expenses, net

This caption is made up as follows:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Exploration and advanced projects  33,669   62,643   51,694 
Severance program  2,210   8,678   9,419 
Cost of sales from the sale of fixed assets  2,092   5,445   1,632 
Tax fine  2,019   3,954   - 
Write-off of fixed assets  1,204   -   1,368 
Revenue from sale of fixed assets  (8,088)  (4,821)  (2,235)
Others, net  2,881   256   1,636 
   35,987   76,155   63,514 

19.Administrative expenses

This caption is made up as follows: 

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Management expenses  1,341   1,317   3,395 
Other  403   1,466   1,365 
             
   1,744   2,783   4,760 

20.Finance costs

This caption is made up as follows: 

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Unwinding of the discount of the provision for mining closure, note 12(b)  36,709   36,015   21,769 
Interests on tax contingency and others, see note 24  16,938   161   128 
Commissions of guarantee letters  2,485   2,113   1,869 
Unwinding of debt instruments, note 13  1,497   735   - 
   57,629   39,024   23,766 

F-187 

Notes to the consolidated financial statements(continued)

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 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 in exploitation and others inactive.

Legal proceedings -

Conga project Constitutional claim -

On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against the Ministry of Energy and Mines and Yanacocha requesting the Court to order the suspension of the Conga project as well as to declare not applicable the October 27, 2010, directorial resolution 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 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 proofs presented by the plaintiff. Yanacocha has answered the claim. Neither the Company nor Yanacocha can reasonably predict the outcome of this litigation.

The Company has not established a provision in the accompanying financial statements for a loss arising from this contingency, which it does not consider probable.


Notes to the consolidated financial statements(continued)

Environmental -

The Peruvian government agency responsible for environmental evaluation and inspection, Organismo Evaluacion y Fiscalizacion Ambiental (“OEFA”), conducts periodic reviews of the Yanacocha site. In 2011 to 2019, OEFA issued notices of alleged violations of OEFA standards to Yanacocha and Conga relating to past inspections. OEFA has resolved some alleged violations 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 2017 with no findings. The experience with OEFA and the water authority is that in the case of a finding of violation, remedial action is often the outcome rather than a significant fine. The alleged OEFA violations currently range from zero to 17,642 units and the water authority alleged violations range from zero to 10 units, with each unit having a potential fine equivalent to approximately 1,260 dollars based on current exchange rates with a total potential fine amount for outstanding matters of (US$0 to US$22,200). Yanacocha and Conga are responding to all notices of alleged violations, but cannot reasonably predict the outcome of the agency allegations.

The Company has not established a provision in the accompanying financial statements for a loss arising from this contingency, which it does not consider probable.

Open tax procedures -

The Tax Authority has the right to examine, and, if necessary, amend the Company’s income tax provision for the last four years. The Company’s income tax filings for the years 2014 through 2017 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 2003 and 2009, the Company is in the claim and appeal process.

In the Company Management’s and legal advisors’ opinion, there are sound legal grounds to sustain the Company’s tax positions; as a result, Management expects to obtain favorable results on these processes and any additional tax assessment would not be significant to the consolidated financial statements.

For the periods pending of examination, due to the many possible interpretations of current legislation, it is not possible to determine whether or not future reviews will result in tax liabilities for the Company. In the event that additional taxes are payable, including interest and surcharges, as a result of the Tax Authority reviews, they will be charged to expense in the period assessed. However, in Management’s and legal advisors’ opinion, any additional tax assessment would not be significant to the consolidated financial statements.

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 tax liability has been paid by the Company.


Notes to the consolidated financial statements(continued)

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 was selected to issue a decision and the parties conducted oral arguments in April 2019. In early February 2020, the additional judge ruled in favor of the tax authority, finalizing a decision of the Peru Supreme Court against Yanacocha, see note 24. Yanacocha will file an action objecting to the fines and interest associated with the underlying decision of the Peru Supreme Court. The potential outstanding liability in this matter amounts up to US$61 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.

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Scotiabank  253,317   235,000   190,000 
Pacífico Surich  200,000   -   - 
La Positiva  70,000   -   - 
Rimac (Travelers)  60,000   -   - 
Banco de Credito del Peru (a)  -   114,251   123,729 
BBVA Continental  -   190,000   190,000 
             
   583,317   539,251   503,729 

(a)Letters of guarantee of Banco de Credito del Peru include US$6,321 related to San Jose Reservoir Trust in 2017. In 2019 and 2018 letters of guarantee were not required.

Notes to the consolidated financial statements(continued)

Letters of guarantee shall come into force if the Company fails to execute in whole or in part the mine closure plan.

22.Transactions with related parties

(a)The main transactions carried out by the Company with its related parties in the years 2019, 2018 and 2017 were:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
Royalties accrued:            
Affiliates:            
S.M.R.L. Chaupiloma Dos de Cajamarca, note 17 and 1(a)  22,297   20,385   20,739 
Services rendered by:            
Affiliates:            
Newmont Peru S.R.L. (management services) (b)  10,729   12,837   8,985 
Newmont International Services  10,822   5,181   281 
Newmont USA Limited  4,118   5,381   5,607 

(b)Management services including key personnel are provided by a related party.

(c)As a result of the unitization plan carried out bytransactions indicated in the Partners,paragraph (a), the Company signed several asset transferhad the following accounts receivable 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.payable from and (or) to affiliates:

 

-The Company must pay to S.M.R.L. Coshuro (“Coshuro”) and Buenaventura, 3% of the quarterly net sales, according to the transfer agreement. The mining rights subject to this 3% royalty are those identified in the transfer agreement, and are located out of the “Area of Influence of Chaupiloma” and within the “Area of Influence of the Joint Venture”. These mining rights are currently under exploration.

-The Company must pay to Los Tapados S.A., 3% of the quarterly net sales proceeds of mineral extracted from the transferred and leased concessions of Los Tapados S.A. The transferred and leased concessions of Los Tapados S.A. are also subject to a previously existing royalty on the minerals. These mining rights are currently under exploration.

Legal proceedings -

Conga project Constitutional claim -

On October 18, 2012, Marco Antonio Arana Zegarra filed a constitutional claim against the Ministry of Energy 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 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 proofs presented by the plaintiff. The Company has answered the claim. The Company cannot reasonably predict the outcome of this litigation.

Environmental -

The 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 and 2017, 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 water authority of Cajamarca issued notices of alleged regulatory violations, and resolved some allegations in 2017 with no findings. The experience with OEFA and the water authority is that in the case of a finding of violation, remedial action is often the outcome rather than a significant fine. The alleged OEFA violations currently range from zero to 11,310 tax units and the water authority alleged violations range from zero to 10,054 tax units, being each tax unit equivalent to approximately US$1,224 based on current exchange rates. The Company is responding to all notices of alleged violations, but cannot reasonably predict the outcome of the agency allegations.

 F-157

Notes to the consolidated financial statements (continued)

Open tax procedures -

The Tax Authority has the right to examine, and, if necessary, amend the Company’s income tax provision for the last four years. The Company’s income tax filings for the years 2013 through 2017 are open to examination by the tax authorities. For value added tax, the periods open for examination are the years 2014 through 2017. To date, National Tax Supervisor “SUNAT” has concluded its review of the Company’s tax exams through the year 2011. For years 2002 through 2009, the Company is in the claim and appeal process. The tax administration is auditing the income tax from 2013.

In Management’s and legal advisors’ opinion, there are sound legal grounds to sustain the Company’s tax positions; as a result, Management expects to obtain favorable results on these processes and any additional tax assessment would not be significant to the consolidated financial statements.

For the periods pending of examination, due to the many possible interpretations of current legislation, it is not possible to determine whether or not future reviews will result in tax liabilities for the Company. In the event that additional taxes are payable, including interest and surcharges, as a result of the Tax Authority reviews, they will be charged to expense in the period assessed. However, in Management’s and legal advisors’ opinion, any additional tax assessment would not be significant to the consolidated financial statements.

Tax contingencies -

Withholding income tax for fiscal years 2002 and 2003 -

The Tax Administration challenged the withholding tax rate applied on the technical assistance services provided by a non-resident supplier. The services were executed in Peru and also abroad; however, the Company was not able to prove that during the tax audit. Based on that, the Tax Administration considers that the services were wholly executed in Peru; therefore, the withholding tax rate should be 30% instead of 12%. The amount of the contingency involved is S/12.8 million (US$3.9 million). In Management's and its legal counsel’s opinion, that consideration has no support and the Company should obtain a favorable outcome in the appeal initiated against the tax authorities.

 F-158

Notes to the consolidated financial statements (continued)

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/11.5 million (US$3.5 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 the appeal initiated against the tax authorities.

Tax Dispute related to the amortization of the contractual rights -

In 2000, the Company 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 the Company 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. The Company 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 the Company and the tax authority appealed the issue to the judiciary. The first appellate court confirmed the ruling of the Tax Court in favor of the Company. However, in November, 2015, a Superior Court in Peru made an appellate decision overturning the two prior findings in favor of the Company. The Company has appealed the Superior Court ruling to the Peru Supreme Court. The potential liability in this matter is in the form of fines and interest in an amount up to US$82.9 million. While management has assessed that the likelihood of a ruling against the Company in the Supreme Court as remote, 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. In general, these letters of guarantee are renewed annually.

  2017  2016 
  US$(000)  US$(000) 
       
Banco de Credito del Peru (a)  123,729   188,000 
BBVA Continental  190,000   120,000 
Scotiabank  190,000   120,000 
   503,729   428,000 

(a)Letters of guarantee of Banco de Credito del Peru include US$6,321,000 and US$7,626,000 related to San Jose Reservoir Trust in 2017 and 2016, respectively.

These three letters of guarantee shall come into force if the Company fails to execute in whole or in part the mine closure plan.

21.Transactions with related parties

(a)The main transactions carried out by the Company with its related parties in the years 2017, 2016, and 2015 were:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Royalties paid:            
S.M.R.L. Chaupiloma Dos de Cajamarca, note 15 and 1(a)  20,739   24,339   32,414 
             
Services rendered by:            
Newmont Peru S.R.L. (management services)  8,985   10,420   24,644 
Newmont USA Limited  5,607   6,438   9,076 

 F-159

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/to associates:

 2017 2016 
 US$(000) US$(000)  2019 2018 
      US$(000) US$(000) 
Balance receivable from related parties, note 6                
Newmont International Services Limited  168   194 
Newmont USA Limited  1,523   389   144   207 
Suriname Gold Company LLC  567   281 
Suriname Gold Company  135   - 
NVL, USA Limited, Delaware  79   -   102   321 
Newmont Peru S.R.L.  10   15   26   22 
Newmont Technologies Limited  5   120 
Newmont Global Employment Limited  20   22 
Suriname Gold Company LLC  -   18 
Newmont USA Limited – Carlin  -   10 
Others  1   10   3   - 
  2,185   815 
          598   794 
Balance payable for related parties, note 11                
S.M.R Chaupiloma Dos de Cajamarca  5,144   5,846   4,863   5,461 
Newmont USA Limited.  2,548   1,403 
Newmont International Service Limited  3,297   2,059 
Newmont Peru S.R.L.  1,263   742   1,101   1,460 
Newmont Technologies Limited.  960   1,007   1,042   634 
Newmont International Service Limited.  42   26 
Newmont USA Limited.  1,034   1,067 
Newmont US Carlin Limited  3   163 
Others  5   28   86   2 
  9,962   9,052   11,426   10,846 

 

AII the balances above are of current maturity, have no specific guarantees and are not interest bearing.

 

 F-160

Notes to the consolidated financial statements(continued) (continued)

 

22.Financial - risk management objectives and policies

For the years ended December 31, 2019, 2018 and 2017, there is no allowance for expected credit losses related to related parties accounts.

 

The Company's operations are exposed to certain financial risks: some market risks (foreign exchange
23.Financial - risk interest rate riskmanagement objectives and price risk), credit risk and liquidity risk.policies

The Company's operations are exposed to certain financial risks: some market risks (foreign exchange risk, interest rate risk and price risk, credit risk and liquidity risk). The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The most important aspects in risk management are the following:

 

(a)Market risks -

(i)Foreign exchange risk -

Foreign exchange risk -

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 exposure is limited. Management has decided to assume the exchange-

The Company does not maintain significant interest-bearing assets or liabilities; therefore, net income (loss) and cash flows of the Company are substantially independent from the changes in market interest rates.

(iv)Price risk exposure with the results of the Company's operations; therefore it has not engaged in hedging activities.-

The Company's financial instruments exposed to price risk are limited to its trade accounts receivable (exposed to gold price) and its available-for-sale financial assets, none of which show a material balance at the end of year, therefore no significant impact on the consolidated financial statements has arisen due to changes in their price that would need to be disclosed.

(b)Credit risk -

The Company evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in Canada and operate in largely independent markets. The Company's products (refined golddore) are negotiated in international markets being subject to the global demand, as a result it does not concentrate risks related to limited number of clients. The Company counts with counterparties with high credit-rating, and have not had any significant default event arising from risk concentration.

 

(ii)Interest rate risk -

The Company does not maintain significant interest-bearing assets or liabilities; therefore, net income (loss) and cash flows of the Company are substantially independent from the changes in market interest rates.


Notes to the consolidated financial statements(continued) 

 

(iii)Price risk-

The Company's financial instruments exposed to price risk are limited to its trade accounts receivable (exposed to gold price) and its available-for-sale financial assets, none of which show a material balance at the end of year, therefore no significant impact on the consolidated financial statements has arisen due to changes in their price that would need to be disclosed.

(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 in full. A credit review of the portfolio is performed quarterly to determine any deterioration in credit quality. The Company does not foresee any significant losses that may arise from this risk.

 

(c)Liquidity risk-

Set out below is the information about the credit risk exposure on the Company’s trade and other receivables:

     Days past due  

Total 

US$(000)

 
  Current
US$(000)
  < 30 days
US$(000)
  30 – 90 days
US$(000)
  > 90 days
US$(000)
    
                
As of December 31, 2019                    
Trade receivables  -   5,047   7,976   1,993   15,016 
Total      5,047   7,976   1,993   15,016 
As of December 31, 2018                    
Trade receivables  3,870   564   81   24,563   29,078 
Total  3,870   564   81   24,563   29,078 

(c)Liquidity risk -

Management administrates its exposure to liquidity risk through financing from internal operations, Company's partners and maintaining good relationships with local and foreign banks in order to maintain adequate levels of credit available. The Company currently has no existing bank lines of credit.

The following table represents the analysis of the Company's financial liabilities, considering the remaining period to reach such maturity as of the consolidated statement of financial position date (see notes 11 and 12):

  2019  2018 
  Less than 1 year  Less than 1 year 
  US$(000)  US$(000) 
       
Trade accounts payable  45,671   48,847 
Accounts payable to related parties  11,426   10,846 
Lease liabilities  290   - 
   57,387   59,693 

Notes to the consolidated financial statements(continued) 

(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.

The Company manages its capital structure and makes adjustments to meet the changing economic market conditions. The Company'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 Company may change the policy of paying dividends to shareholders, return capital to shareholders or issue new shares. No formal dividend policy exists.

(e)Fair value measurement -

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assets that are measured at fair value on a recurring basis (at least annually) correspond to the San José Reservoir Trust assets and the accounts receivable from the sales of copper and silver concentrate subject to provisional pricing.

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.

There were no transfers between Level 1and Level 2 during 2019.

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.


Notes to the consolidated financial statements(continued) 

Carrying value versus fair value

Set out below is a comparison of the carrying amount and fair value of the Company’s financial instruments, other than those which carrying amounts are reasonable approximation of fair value:

  Carrying amount  Fair value 
   2019   2018   2019   2018 
   US$(000)   US$(000)   US$(000)   US$(000) 
                 
Financial assets:                
Cash and cash equivalents  818,503   723,208   818,503   723,208 
Trade and other receivables, net  15,016   29,078   15,016   29,078 
Restricted cash  48,617   48,127   50,353   48,601 
Financial assets at fair value  23,648   23,290   23,648   23,290 
   905,784   823,703   907,520   824,177 

  Carrying amount  Fair value 
   2019   2018   2019   2018 
   US$(000)   US$(000)   US$(000)   US$(000) 
                 
Financial liabilities:                
Trade and other payables  76,484   83,464   76,484   83,464 
Provisions and other accruals  596   -   596   - 
Debt instrument  43,927   42,430   43,927   42,430 
   121,007   125,894   121,007   125,894 

Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to short-term maturities of these instruments. Trade receivables subject to provisional pricing are already carried at fair value.

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 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. Impairment loss previously recorded is reversible in subsequent periods under certain conditions.

Under IFRS, the Company recorded in 2013 and 2016 an impairment loss related to its Conga and Yanacocha CGU for US$1,126 million and US$1,342 million, respectively. In 2019, 2018 and 2017, the Company did not recognize any impairment loss.

 

 F-161


Notes to the consolidated financial statementsNotes to the consolidated financial statements(continued)

Under US GAAP, the Company used undiscounted cash flows to perform an impairment evaluation. In 2019, 2018 and 2017, no impairment indicators were identified for its Yanacocha and Conga CGU. In 2016, the Company recorded an impairment loss related to its Yanacocha CGU for US$ 933.2 million.

For reconciling the net income/loss and net equity from US GAAP to IFRS, the Company eliminates the higher depreciation recorded under US GAAP corresponding to the impaired assets under IFRS.

 

The following table represents the analysis of the Company's financial liabilities, considering the remaining period to reach such maturity as of the consolidated statement of financial position date (see note 11):
(b)Stripping activity asset -

Under IFRS, the stripping costs in the production phase of a surface mine are accounted according to the accounting principles disclosed in note 2, consequently the stripping activity asset is capitalized as stripping activity asset and has an impact in the depreciation expense.

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, accordingly, such costs are recorded on the income statement at an earlier time than IFRS.

 

  2017  2016 
  Less than 1 year  Less than 1 year 
  US$(000)  US$(000) 
       
Trade accounts payable  43,108   44,634 
Accounts payable to related parties  9,962   9,052 
Remuneration and similar benefits payable  27,419   8,516 
   80,489   62,202 
(c)Reclamation and mine closure –

Under IFRS, the liability is 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(k).

 

(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.

Under IFRS, the Company updates the discount rate used to discount its liability 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.

 

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.
(d)Inventories -

Under IFRS, the cost of inventory mainly includes a lower depreciation as a result of the reduced value of property, plant and equipment due to the impairments recorded in prior years, the impact of the stripping activity asset and workers' profit sharing.

 

(e)Fair value estimation -

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Under US GAAP, the cost of inventory is affected by a different depreciation since the impairment recognized under US GAAP is different than the one recognized under IFRS. According to US GAAP, the workers' profit sharing is excluded of the inventory costing.

 

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.
(e)Contingencies -

Under IFRS, a provision is recognized when:

 

The Company's San José Reservoir Trust assets are made up of marketable equity and debt securities that are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

The Company's impairment loss is valued using 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
An entity specific estimates as such is classified within Level 2 of the fair value hierarchy.

 F-162

Notes to the consolidated financial statements (continued)

23.Summary of significant differences between accounting principlesfollowed by the Company and U.S. Generally Accepted Accounting Principles

The Company's financial statements have been prepared in accordance with International Financial Reporting Standards which differs in certain respects from U.S. GAAP. The effects of these differences are reflected in note 24 and are principally related to the items discussed in the following paragraphs:

(a)Impairment -

Under IFRS, the Company estimates the recoverable amount of an asset whenever there is an indication that the asset may be impaired. The recoverable amount is the higher of the fair value less costs of disposal and its value in use. Value in use is thehas a present value of the future cash flows expected to be derived from an assetobligation (legal or cash-generating unit.

In 2017 and 2015, the Company did not recognize any impairment loss. In 2016, the Company recognized an impairment loss related to Yanacocha of US$889 million, see note 10(b).

Under US GAAP, the Company used undiscounted cash flows to perform an impairment evaluation. In 2016, the Company recognized an impairment loss related to Yanacocha of US$933 million. No impairment losses were determined for Yanacocha and Conga cash-generating units in 2017 or 2015.

For reconciling the net income/loss and net equity from US GAAP to IFRS, the Company eliminates the higher depreciation recorded under US GAAP corresponding to the impaired assets under IFRS.

(b)Deferred workers’ profit participation

Under IFRS, the workers’ profit participation is recorded as an employee benefit that is recorded as cost of production or administrative expense, depending of the function of the workers.

Under US GAAP, the workers’ profit sharing is treated in a similar way as income tax since both are calculated based on the Company’s taxable income. Therefore, the Company calculates a deferred workers’ profit participation resulting from the taxable and deductible temporary differences.

For reconciling the net income/loss and net equity from US GAAP to IFRS, the Company eliminates the deferred workers’ profit participation and its corresponding valuation allowance recorded in the current year.

(c)Stripping activity asset -

Under IFRS, the stripping costs in the production phase of a surface mine are accounted for according to the accounting principles disclosed in note 2.

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-163

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 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 depreciationconstructive) as a result of a past event.

It is probable that an outflow of resources will be required to settle the reduced baseobligation.

A reliable estimate of property, plant and equipment due to the impairment recorded in prior years.obligation can be made.


Notes to the consolidated financial statements(continued) 

For the purposes of IAS 37, “probable” is defined as more likely than not and refers to a probability of greater than 50%.

Under US GAAP, a loss contingency is recognized if both of the following conditions are met: It is probable (likely to occur) that an asset had 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%).

 

Under US GAAP, the cost of inventory is affected by a different depreciation since the impairment recognized under US GAAP is different than the one recognized under US GAAP.
(f)Debt instruments -

Under IFRS, the shares held by Sumitomo (see note 13) meet the definition of a compound instrument according to IAS 32. As a result, it is classified as a liability (with a portion recorded to equity) until the 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)Deferred income tax

Under USGAAP, the shares held 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.

(g)Subsequent events -

Under IFRS, the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period is an adjusting event after the reporting period.

During 2019, the Company recognized a liability in tax payable, interest and fines for US$ 29 million related to a court case in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, including the amount of the income tax to pay and the additional penalties and interests. See Note 21.

Under USGAAP, a change in facts after the reporting date but before the financial statements are issued or are available in relation to a tax position which is effectively settled through litigat ion shall be recognized in the period in which the change in facts occurs, therefore the Company recognized the tax claim in the first quarter of 2020.

(h)Deferred income tax -

The differences between US GAAP and IFRS are re-measurements that lead to different temporary differences. The Company has to account for such differences.

As the Company does not recognize deferred income tax assets, there is no differences to reconcile.

(i)Deferred workers’ profit sharing -

Under IFRS, the worker’s profit sharing is calculated based on the Company’s taxable income and is recorded as an employee benefit (cost of production or administrative expenses, depending on the function of the workers).

Under US GAAP, the workers’ profit sharing is treated in a similar way as income tax since both are calculated based on the Company’s taxable income. Therefore, the Company calculates a deferred workers’ profit sharing resulting from the taxable and deductible and deductible temporary differences. According to the accounting policies in Note 2.4 (l), the Company has to account for such differences.

During 2015, the Company recorded a valuation allowance of the deferred income tax asset recorded under IFRS which was higher by US$321.6 million compared to the valuation allowance recorded under US GAAP, mainly as a result of the impairment losses of prior years recorded under IFRS.

 

 F-164


Notes to the consolidated financial statements(continued)  (continued)

 

24.

As the Company does not recognize deferred workers’ profit sharing assets in USGAAP, there is no differences to reconcile.

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, 2017 and 2016Partners' Equity determined under IFRS and to partners' equity as of December 31, 2016 and 2015 that would be required if U.S. GAAP had been applied instead of IFRS in the consolidated financial statements:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Loss under U.S. GAAP  (118,127)  (1,191,319)  (252,159)
Items increasing (decreasing) reported net profit:            
Impairment loss, note 23(a) and 10(b)  -   (889,499)  - 
Reversal of depreciation of assets impaired under IFRS, note 23(a)  294,454   101,855   125,943 
Reversal of depreciation of assets impaired under USGAAP, note 23(a)  (237,906)  -   - 
Elimination of impairment loss recorded under U.S. GAAP, note 23(a)  -   933,200   - 
Elimination of the valuation allowance of the deferred workers’ profit participation, note 23(b)  -   -   41,909 
Stripping activity asset, note 23(c)  (6,360)  22,156   18,868 
Reclamation and mine closure, note 23(d)  (90,079)  22,278   12,049 
Asset retirement costs  (35,911)  (6,210)  (6,041)
Inventories, note 23(e)  17,169   (36,076)  (20,903)
Deferred workers' profit participation, note 23(b)  -   -   (2,790)
Valuation allowance of deferred income tax, note 23(f)  -   -   (321,622)
Deferred income tax of reconciliation items, note 23(f)  -   -   (43,441)
Recognition of account receivable to tax authority  2,405   -   - 
Others  (1,100)  (137)  (2,008)
Loss under IFRS  (175,454)  (1,043,752)  (450,195)

 F-165

The following is a summary of the adjustment to net income for the years ended December 31, 2019, 2018 and 2017, and to partners' equity as of December 31, 2019, 2018 and 2017 that would be required if U.S. GAAP had been applied instead of IFRS in the consolidated financial statements:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Income (loss) under U.S. GAAP  3,316   (69,068)  (131,243)
Items increasing (decreasing) reported net profit:            
Reversal of depreciation of assets impaired under IFRS, note 24(a)  205,653   320,424   294,454 
Reversal of depreciation of assets impaired under USGAAP, note 24(a)  (204,276)  (254,006)  (237,906)
Stripping activity asset, note 24(b)  (7,533)  (18,227)  (6,360)
Reclamation and mine closure, note 24(c)  (54,873)  20,537   (76,963)
Asset retirement costs, note 24(c)  (14,504)  (89,280)  (35,911)
Inventories, note 24(d)  7,740   10,217   17,169 
Contingencies, note 24(e)      (1,228)  - 
Debt instrument interest, note 24(f)  (1,497)  (735)  - 
Recognition of account receivable to tax authority  -   -   2,405 
Interest regarding tax claim, note 24(g)  (16,839)  -   - 
Income tax payable, including fines, note 24(g)  (12,168)  -   - 
Others  (276)  (151)  (1,099)
   (98,573)  (12,449)  (44,211)
Loss under IFRS  (95,257)  (81,517)  (175,454)
             
Contingencies, note 24(e)  (1,228)  (1228)  - 
Income tax payable contingency, including fines note 24(g)  (12,168)  -   - 
Interest regarding tax claim, note 24(g)  (16,939)  -   - 
Others  (3,072)  (2,776)  (2,624)
   (1,176,679)  (1,078,077)  (1,023,932)
Partners' equity under IFRS  489,712   583,723   659,115 

 

Notes to the consolidated financial statements (continued)

  2017  2016 
  US$(000)  US$(000) 
       
Partners' equity under U.S. GAAP  1,759,039   1,928,321 
Items increasing (decreasing) reported Partners' equity:        
Impairment loss, note 23(a)  (2,469,188)  (2,469,188)
Elimination of impairment loss recorded under U.S. GAAP, note 23(a)  933,200   933,200 
Reversal of depreciation of assets impaired under U.S. GAAP note 23(a)  (237,906)  - 
Reversal of depreciation of assets impaired under IFRS, note 23(a)  674,260   379,806 
Stripping activity asset, note 23(c)  34,709   41,069 
Asset retirement cost  116,458   152,369 
Reclamation and mine closure, note 23(d)  (135,004)  (44,925)
Inventories, note 23(e)  (13,120)  (30,289)
Others  (3,333)  (4,639)
Partners' equity under IFRS  659,115   885,724 

25.New U.S. GAAP Accounting Pronouncements

Recently Issued Accounting Pronouncements -

Statements of Cash Flows –

In August 2016, ASU No. 2016-15 was issued related to the statement of cash flows. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating this guidance and the corresponding impact.

Leases –

In February 2016, ASU No. 2016-02 was issued related to leases. This new guidance modifies the classification criteria and requires leases to recognize the assets and liabilities arising from most leases on the balance sheet. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating this guidance and the corresponding impact.

Revenue recognition –

In May 2014, ASU No. 2014-09 was issued related to revenue from contracts with customers. This ASU was further amended in August 2015, March 2016, April 2016, May 2016 and December 2016 by ASU No. 2016-08, No. 2016-10, No. 2016-12 and No. 2016-20, respectively. The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition. In August 2015, the effective date was deferred to reporting periods, including interim periods, beginning after December 15, 2017 and will be applied retrospectively. Early adoption is not permitted. The adoption of this accounting pronouncement is consistent with the adoption of IFRS 15, see in note 4 the status of the adoption.

 

 F-166

Notes to the consolidated financial statements(continued) 

 

  2019  2018  2017(i) 
   US$(000)   US$(000)   US$(000) 
             
Partners' equity under U.S. GAAP  1,666,362   1,661,800   1,683,047 
Items increasing (decreasing) reported Partners' equity:            
Impairment loss for IFRS, note 24(a)  (2,469,188)  (2,469,188)  (2,469,188)
Reversal of depreciation of assets impaired under IFRS, note 24(a)  1,200,337   994,684   674,260 
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)  (696,188)  (491,912)  (237,906)
Stripping activity asset, note 24(b)  3,729   15,773   34,000 
Asset retirement cost, note 24(c)  59,160   1,026   84,671 
Reclamation and mine closure, note 24(c)  (139,834)  (12,323)  (27,225)
Inventories, note 24(d)  4,837   (2,903)  (13,120)
Debt instruments, note 24(f)  (43,927)  (42,430)  - 
Contingencies, note 24(e)  (1,228)  (1,228)  - 
Income tax payable contingency, including fines note 24(g)  (12,168)  -   - 
Interest regarding tax claim, note 24(g)  (16,839)  -   - 
Others  1,459   (2,776)  (2,624)
   (1,176,650)  (1,078,077)  (1,023,932)
Partners' equity under IFRS  489,712   583,723   659,115 
             
Contingencies, note 24(e)  (1,228)  (1,228)  - 
Income tax payable contingency, including fines note 24(g)  (12,168)  -   - 
Interest regarding tax claim, note 24(g)  (16,839)  -   - 
Others  (3,072)  (2,776)  (2,624)
   (1,176,679)  (1,078,077)  (1,023,932)
Partners' equity under IFRS  489,712   583,723   659,115 

Sociedad Minera Cerro Verde S.A.A.
26.New USGAAP Accounting Pronouncements

Recently Issued Accounting Pronouncements -

Leases –

In February 2016, Accounting Standard Update - “ASU” No. 2016-02 was issued related to leases. This new guidance modifies the classification criteria and requires leases to recognize the assets and liabilities arising from most leases on the balance sheet. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018 and early adoption is permitted. The Company adopted this standard on 1 January 2019, no differences were noted to IFRS.

In June 2016, Financial Accounting Standards Board- “FASB” issued an ASU that changes the impairment model for most financial assets and certain other instruments, and will also require expanded disclosures. Under the expected credit loss (CECL) model, entities will be required to recognize an estimate of credit losses expected to occur over the remaining life of the financial assets, including estimating future economic conditions and the effect those conditions have on expected credit losses.

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 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 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.

In December 2019, FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For public entities, this ASU is effective for fiscal years ending after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. 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.


Notes to the consolidated financial statements(continued) 

 

27.Subsequent Event

In early February 2020, the Peru Supreme Court issued its conclusion, whereby the Company received notification of an unfavorable result in the Tax Dispute related to the amortization of contractual rights, see note 21Tax Contingencies, “Tax Dispute related to the amortization of contractual rights” for which it recorded a liability in tax payable for US$8 million and in addition recorded interest and fines for US$16.8 and US$4 million; respectively, in the consolidated financial statements as of December 31, 2019, see notes 15(f) and note 20.

Subsequent to December 31, 2019, the COVID-19 outbreak has had a material impact on the global economy, the scale and duration of which remain uncertain. Depending on the length of time and extent of the impact which could include potential mine closures, gold price volatility or supply chain disruption, this could materially impact the Company results of operations, cash flows and financial condition.


Sociedad Minera Cerro Verde S.A.A.

Financial Statements for the years 2019, 2018 and 2017 2016 and 2015
together with the Report of Independent Registered Public Accounting Firm

 

 F-167

Sociedad Minera Cerro Verde S.A.A.

 

Financial Statements for the years 2019, 2018 and 2017 2016 and 2015
together with the Report of Independent Registered Public Accounting Firm

 

Content

Report of Independent Registered Public Accounting FirmF-169
Financial Statements
Statement of financial positionF-171
Statements of comprehensive incomeF-172
Statements of changes in equityF-173
Statements of cash flowsF-174
Notes to the financial statementsF-176

 

 F-168

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Sociedad Minera Cerro Verde S.A.A.

Opinion on the

F-203
Financial Statements

We have audited the accompanying statements

Statement of financial position of Sociedad Minera Cerro Verde S.A.A., (the Company) as of December 31, 2017 and 2016, and the related statementsF-205
Statements of comprehensive incomeF-206
Statements of changes in equity andF-207
Statements of cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referredF-208
Notes 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,F-210


Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Sociedad Minera Cerro Verde S.A.A.

Opinion on the Financial Statements

We have audited the accompanying statement of financial position of Sociedad Minera Cerro Verde S.A.A., (the Company) as of December 31, 2019 and 2018, and the related statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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’s management. Our responsibility is to express an opinion on the 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 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, 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 expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

 F-169


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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial 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

 

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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial 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/ Katherine Villanueva

We have served as the Company’s auditor since 2007

2007.

Lima, Peru

April 27, 2018

9, 2020
  F-170

Sociedad Minera Cerro Verde S.A.A.

Statement of financial position

As of December 31, 2017 and 2016

  Note  2017  2016 
     US$(000)  US$(000) 
Assets            
Current assets            
Cash and cash equivalents  2(d), 3   600,027   29,951 
Trade accounts receivable, net      2,735   1,162 
Other accounts receivable, net  2(d), 5   76,866   70,043 
Trade accounts receivable - Related parties  2(d), 4   411,797   375,306 
Inventories, net  2(f), 6   445,626   425,566 
Prepayments      5,741   5,473 
Other non-financial assets  7   21,082   311,007 
             
Total current assets      1,563,874   1,218,508 
             
Non - current assets            
Property, plant and equipment, net  2(g), 8   5,678,424   5,807,740 
Inventories  2(f),6  248,452   300,614 
Intangible assets  2(h)  11,243   12,198 
Prepayments      -   39 
Other non-financial assets  7   189,014   296,524 
             
Total non-current assets      6,127,133   6,417,115 
             
Total assets      7,691,007   7,635,623 
             
Liabilities and equity, net            
Current liabilities            
Trade accounts payable  2(e), 9   194,958   168,357 
Income tax payable      170,169   21,863 
Provision related to benefits to employees      80,745   48,039 
Other accounts payable  2(e),10  40,182   3,619 
Accounts payable - Related parties  2(e), 4   5,534   27,134 
Other provisions  2(j), 12   19,202   24,458 
Other financial liabilities  2(e), 11   -   161 
             
Total current liabilities      510,790   293,631 
             
Non - current liabilities            
Other financial liabilities  2(e), 11   1,268,488   1,995,843 
Accounts payable - Related parties  2(e), 4   8,147   7,132 
Provision related to benefits to employees      29,158   - 
Other provisions  2(j), 12   347,087   164,622 
Deferred income tax liability, net  2(l),14(g)  166,005   335,114 
Current income tax liabilities  14   172,170   - 
             
Total non-current liabilities      1,991,055   2,502,711 
             
Total liabilities      2,501,845   2,796,342 
             
Shareholders’ equity  13         
Capital stock      990,659   990,659 
Other capital reserves      198,132   198,132 
Retained earnings      4,000,371   3,650,490 
             
Total shareholders’ equity      5,189,162   4,839,281 
             
Total liabilities and shareholders’ equity      7,691,007   7,635,623 

The accompanying notes are an integral part of this financial statement.

 F-171

Sociedad Minera Cerro Verde S.A.A.

Statements of comprehensive income

For the years ended December 31, 2017, 2016 and 2015

  Note  2017  2016  2015 
     US$(000)  US$(000)  US$(000) 
             
Sales of goods  15   3,202,931   2,384,154   1,115,617 
Cost of sales  16   (1,768,238)  (1,553,040)  (862,004)
Gross Margin      1,434,693   831,114   253,613 
                 
Operating expenses                
Selling expenses  17   (141,669)  (131,391)  (56,215)
Other operating expenses  18   (258,826)  (24,107)  (26,739)
Other operating income              139 
       (400,495)  (155,498)  (82,815)
Operating Profit      1,034,198   675,616   170,798 
                 
Other income (expenses)                
Financial income      5,350   954   512 
Financial expenses  19   (216,912)  (80,438)  (16,010)
Exchange differences, net      13,288   7,857   (75,770)
       (198,274)  (71,627)  (91,268)
                 
Profit before income tax      835,924   603,989   79,530 
                 
Income tax expense  14(g)  (486,043)  (263,082)  (46,246)
                 
Net Profit for the year      349,881   340,907   33,284 
                 
Basic and diluted profit per share  20   1.000   0.974   0.095 

The accompanying notes are an integral part of this financial statement.

 F-172

Sociedad Minera Cerro Verde S.A.A.

Statements of changes in equity

For the years ended December 31, 2017, 2016 and 2015

  Note  Capital
stock
  Other capital
reserves
  Retained
earnings
  Total 
     US$(000)  US$(000)  US$(000)  US$(000) 
                
Balance as of January 1, 2015  13   990,659   198,132   3,276,299   4,465,090 
                     
Net profit for the year              33,284   33,284 
                     
Balance as of December 31, 2015  13   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  13   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  13   990,659   198,132   4,000,371   5,189,162 

The accompanying notes are an integral part of this financial statement.

 F-173

Sociedad Minera Cerro Verde S.A.A.

Statements of cash flows

For the years ended December 31, 2017, 2016 and 2015

  Note  2017  2016  2015 
     US$(000)  US$(000)  US$(000) 
             
Operating activities                
Net profit for the year      349,881   340,907   33,284 
Adjustments to reconcile net profit for the year with the cash provided from operating activities for:                
Income tax expense  14(g)  486,043   263,082   46,246 
Nonmonetary adjustments                
Depreciation and amortization  16   456,467   472,997   244,477 
Accretion on remediation and mine closure provision  12(b)  4,595   4,391   3,985 
Net loss on sale of property, plant and equipment      185   982   661 
Mining royalty dispute      295,773   -     
Net changes in assets and liabilities                
Trade accounts receivable      (37,636)  (161,335)  (23,165)
Other accounts receivable      (7,062)  2,008   54 
Inventories      32,101   (11,341)  (194,582)
Other non-financial assets      226,969   113,355   (239,595)
Trade accounts payable      (13,663)  16,229   75,430 
Other accounts payable      49,915   70,939   31,360 
Provisions related to benefits to employees      33,258   27,503   (23,876)
Other provisions      70,648   (60,863)  8,535 
Interest paid (not included in the financing activities)      (50,510)  (64,325)  (36,233)
Income tax      (282,273)  (68,557)  (121,027)
Net cash and cash equivalents provided by operating activities      1,614,691   945,972   (194,446)

 F-174

Statements of cash flows(continued)

  Note  2017  2016  2015 
     US$(000)  US$(000)  US$(000) 
             
Investing activities                
Sales of property, plant and equipment      37   235   409 
Purchase of property, plant and equipment  8   (152,769)  (421,610)  (1,663,738)
Stripping activity asset  8   (153,623)  (61,261)  (111,819)
Purchase of intangibles      -   -   (9,509)
Other cash payments related to investing activities      -   3,832   -
                 
Net cash and cash equivalents used in investing activities      (306,355)  (478,804)  (1,784,657)
                 
Financing activities                
Proceeds from loans  11(b)  233,333   350,000   1,896,000 
Proceeds from shareholders loans      -   -   600,000 
Payments of loans  11(b)  (353,333)  (793,000)  (528,000)
Payments of shareholders loans  11(b)  (606,014)  -   - 
Debt issuance costs  11(b)  (12,085)  -   (2,356)
Amortization of leasings      (161)  (169)  (163)
                 
Net cash and cash equivalents used in financing activities      (738,260)  (443,169)  1,965,481 
                 
Net increase in cash and cash equivalents      570,076   23,999   (13,622)
Cash and cash equivalents at beginning of year      29,951   5,952   19,574 
                 
Cash and cash equivalents at the end of the year      600,027   29,951   5,952 
                 
Transactions with no effects in cash flows :                
Provision for remediation and mine closure  12(b)  3,710   16,091   33,803 

The accompanying notes are an integral part of this financial statement.

 F-175

Sociedad Minera Cerro Verde S.A.A.

Notes to the Financial Statements

As of December 31, 2017, 2016 and 2015

1.Identification and business activity

 

(a)Identification -

Sociedad Minera Cerro Verde S.A.A.

Statement of financial position

As of December 31, 2019 and 2018

  Note 2019  2018 
    US$(000)  US$(000) 
Assets          
Current assets          
Cash and cash equivalents 2(d),3  481,491   501,182 
Trade accounts receivable, net    1,887   1,715 
Other accounts receivable, net 2(d)  6,529   5,765 
Trade accounts receivable - Related parties 2(d),4,22  453,070   413,351 
Other non-financial assets 6  105,680   57,575 
Inventories, net 2(f),5  552,197   457,074 
Prepayments    14,074   18,418 
Total current assets    1,614,928   1,455,080 
Non - current assets          
Property, plant and equipment, net 2(g),7  5,690,851   5,602,902 
Inventories 2(f),5  255,123   286,375 
Intangible assets, net 2(h)  9,337   10,289 
Other non-financial assets 6  239,185   200,066 
Total non-current assets    6,194,496   6,099,632 
Total assets    7,809,424   7,554,712 
Liabilities and equity, net          
Current liabilities          
Other financial liabilities 2(e),10  8,855   - 
Trade accounts payable 2(e),8  224,920   231,136 
Income tax payable 13(b)  13,505   12,424 
Provision related to benefits to employees 2(m)  34,249   42,569 
Other accounts payable 2(e),9  99,380   101,254 
Accounts payable - Related parties 2(e),4  4,014   6,014 
Other provisions 2(j),11  35,863   15,357 
Total current liabilities    420,786   408,754 
Non - current liabilities          
Other financial liabilities 2(e),10  902,820   1,022,810 
Accounts payable - Related parties 2(e),4  10,074   8,860 
Other accounts payable 2(e),9  362,464   215,070 
Provision related to benefits to employees 2(m)  32,509   32,509 
Other provisions 2(j),11  278,419   342,331 
Deferred income tax liability, net 2(l),13(g)  369,789   228,248 
Income tax liabilities 13(b)  83,314   187,258 
Total non-current liabilities    2,039,389   2,037,086 
Total liabilities    2,460,175   2,445,840 
Shareholders’ equity          
Capital stock 12  990,659   990,659 
Other capital reserves 12  198,132   198,132 
Retained earnings    4,160,458   3,920,081 
Total shareholders’ equity    5,349,249   5,108,872 
           
Total liabilities and shareholders’ equity    7,809,424   7,554,712 


Sociedad Minera Cerro Verde S.A.A.

Statements of comprehensive income

For the years ended December 31, 2019, 2018 and 2017

  Note  2019  2018  2017 
     US$(000)  US$(000)  US$(000) 
             
Sales  14   2,890,066   3,054,026   3,202,931 
Cost of sales  15   (1,954,749)  (2,010,972)  (1,768,238)
Gross Margin      935,317   1,043,054   1,434,693 
                 
Operating expenses                
Selling expenses  16   (109,483)  (137,008)  (141,669)
Other operating expenses  17   (38,116)  (68,683)  (258,826)
Other operating income      680   -   - 
       (146,919)  (205,691)  (400,495)
Operating Profit      788,398   837,363   1,034,198 
                 
Financial income  19   10,356   28,089   5,350 
Financial expenses  18   (115,877)  (426,733)  (216,912)
Exchange differences, net      5,574   6,161   13,288 
       (99,947)  (392,483)  (198,274)
                 
Profit before income tax      688,451   444,880   835,924 
                 
Income tax expense  13(b)  (298,074)  (325,170)  (486,043)
                 
Net profit for the year      390,377   119,710   349,881 
                 
Basic and diluted profit per share  20   1.115   0.342   1.000 


Sociedad Minera Cerro Verde S.A.A.

Statements of changes in equity

For the years ended December 31, 2019, 2018 and 2017

  Note  Capital
stock
  Other capital
reserves
  Retained
earnings
  Total 
     US$(000)  US$(000)  US$(000)  US$(000) 
                
Balance as of January 1, 2017      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 
                     
Cash dividends declared      -   -   (150,000)  (150,000)
Net profit for the year      -   -   390,377   390,377 
                     
Balance as of December 31, 2019  12   990,659   198,132   4,160,458   5,349,249 


Sociedad Minera Cerro Verde S.A.A.

Statements of cash flows

For the years ended December 31, 2019, 2018 and 2017

  Note 2019  2018  2017 
    US$(000)  US$(000)  US$(000) 
            
Operating activities              
Net profit for the year 20  390,377   119,710   349,881 
Adjustments to reconcile net profit for the year with the cash provided from operating activities for:              
Income tax expense 13  317,205   366,998   486,043 
Nonmonetary adjustments              
Depreciation and amortization 15  535,000   512,298   456,467 
Accretion on remediation and mine closure provision 11  4,048   4,322   4,595 
Net loss on sale of property, plant and equipment    279   964   185 
Mining royalty dispute - charges 13  66,122   379,282   348,560 
Mining royalty dispute - payments    (186,953)  (56,186)  (52,787)
Net changes in assets and liabilities              
Trade accounts receivable    (39,300)  67,475   (38,922)
Other accounts receivable    3,535   1,954   (5,776)
Inventories 5  (63,871)  (49,371)  32,101 
Other non-financial assets    (38,741)  (76,186)  226,969 
Trade accounts payable    4,503   29,419   (13,663)
Other accounts payable    37,150   48,130   49,915 
Provisions related to benefits to employees    (8,276)  (50,440)  33,258 
Other provisions    52,559   (11,561)  70,648 
Interest paid (not included in the financing activities)    (37,226)  (47,442)  (50,510)
Income tax    (216,369)  (430,810)  (282,273)
Net cash and cash equivalents provided by operating activities    820,042   808,556   1,614,691 


Statements of cash flows (continued)

  Note 2019  2018  2017 
    US$(000)  US$(000)  US$(000) 
            
Investing activities              
Sales of property, plant and equipment    1,243   109   37 
Purchases of property, plant and equipment 7,8  (283,459)  (280,183)  (152,769)
Stripping activity asset    (197,038)  (177,327)  (153,623)
Net cash and cash equivalents used in investing activities    (479,254)  (457,401)  (306,355)
               
Financing activities              
Payments of loans 10(b)  (200,000)  (250,000)  (353,333)
Dividends 12(c)  (150,000)  (200,000)  - 
Payments of leasing 10(a)  (10,479)  -   (161)
Proceeds from loans    -   -   233,333 
Payments of shareholders loans    -   -   (606,014)
Debt issuance costs    -   -   (12,085)
Net cash and cash equivalents used in financing activities    (360,479)  (450,000)  (738,260)
               
Net (decrease) increase  in cash and cash equivalents    (19,691)  (98,845)  570,076 
Cash and cash equivalents at beginning of year    501,182   600,027   29,951 
               
Cash and cash equivalents at the end of the year 3  481,491   501,182   600,027 
               
Transactions with no effects in cash flows:              
Provision for remediation and mine closure 11(b)  41,130   (32,017)  (3,710)


Sociedad Minera Cerro Verde S.A.A.

Notes to the Financial Statements

As of December 31, 2019, 2018 and 2017

1.Identification and business activity

 

Sociedad Minera Cerro Verde S.A.A. (the Company) was incorporated in Peru on August 20, 1993 as a result of the privatization process of certain mining units carried out by the Peruvian State in that year. The Company’s shares were listed on the Lima Stock Exchange on November 14, 2000.

Through its subsidiary Cyprus Climax Metals Company, Freeport Minerals Corporation (FMC), a wholly owned subsidiary of Freeport-McMoRan Inc. (Freeport), owns 53.56% of the voting shares of the Company. SMM Cerro Verde Netherlands B.V. (SMM Cerro Verde), a subsidiary of Sumitomo Metal Mining Company Ltd. (Sumitomo), owns 21%
(a)Identification -

Sociedad Minera Cerro Verde S.A.A. (the Company) was incorporated in Peru on August 20, 1993, as a result of the privatization process of certain mining units carried out by the Peruvian State in that year. The Company’s shares began being listed on the Lima Stock Exchange on November 14, 2000.

Through its subsidiary Cyprus Climax Metals Company, Freeport Minerals Corporation (FMC), a wholly owned subsidiary of Freeport-McMoRan Inc. (Freeport), owns 53.56% of the voting shares of the Company. SMM Cerro Verde Netherlands B.V. (SMM Cerro Verde), a subsidiary of Sumitomo Metal Mining Company Ltd. (Sumitomo), owns 21.00%, Compañía de Minas Buenaventura S.A.A. (Buenaventura) owns 19.58%, and other stakeholders own the remaining 5.86%.

The Company’s legal address is Jacinto Ibañez Street N°315 - Parque Industrial, Arequipa in the city of Arequipa and the ore deposit is located 20 miles southwest of that city (Asiento Minero Cerro Verde S/N Uchumayo – Arequipa).

 

The Company’s legal address is Jacinto Ibañez Street N°315
(b)Business activity - Parque Industrial, Arequipa in the city

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 molybdenum concentrate.

Cerro Verde’s operation consists of an open-pit copper mine, with a 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 a 39,000 metric ton-per-day crushed leach facility and (iii) a run-of-mine (ROM) leach system with a capacity of 100,000 metric ton-per-day. This SX/EW leaching operation has a production capacity of approximately 200 million pounds of copper per year. The leaching and flotation process carried out at these plants are part of the benefit concession “Planta de Beneficio Cerro Verde.”

(c)Financial statements approval -

The financial statements for the year ended December 31, 2019, were approved by Company’s Management on April 9, 2020 and the subsequent events have been considered through those dates.


Notes to the Financial Statements(continue)

2.Significant accounting principles and policies

The significant accounting policies applied in the preparation of the financial statements are summarized below:

(a)Basis of Arequipa and the ore deposit is located 20 miles southwest of that city (Asiento Minero Cerro Verde S/N Uchumayo – Arequipa)presentation -

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). IFRS includes International Accounting Standards (IAS) and pronouncements of the Interpretations Committees (SIC and IFRIC).

 

(b)Business activity -

The Company’s activities are regulated by the Peruvian General Mining Law

The financial statements have been prepared based on historical cost, except for accounts receivable and/or payable related to embedded derivatives, which have been measured at fair value (see Note 2(d)). The financial statements are presented in United States dollars (US$) and include the years ended December 31, 2019, 2018 and comprise the extraction, production and sale of copper concentrate, copper cathode and molybdenum concentrate.

Cerro Verde’s operation consists of an open-pit copper mine, 360,000 metric ton-per-day concentrator facilities and solution extraction and electrowinning (SX/EW) leaching facilities. Leach copper production is derived from a 39,000 metric ton-per-day crushed leach facility and a run-of-mine (ROM) leach system. This SX/EW leaching operation has a production capacity of approximately 200 million pounds of copper per year. The leaching and flotation process carried out at these plants are part of the benefit concession “Planta de Beneficio Cerro Verde.”

(c)Financial statements approval -

The financial statements for the year ended December 31, 2017, were approved at the Board of Directors and Shareholders' Meetings on March 23, 2018. The financial statements for the year ended December 31, 2016, were approved at the Board of Directors and Shareholders’ Meetings on March 30, 2017.

 F-176

Notes to the Financial Statements (continued)

2.Significant accounting principles and policies

The significant accounting policies applied in the preparation of the financial statements are summarized below:

(a)Basis of presentation -

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). IFRS includes International Accounting Standards (IAS) and pronouncements of the Interpretations Committees (SIC and IFRIC).

The financial statements have been prepared based on historical cost, except for accounts receivable and/or payable related to embedded derivatives, which have been measured at fair value (see Note 2(d)). The financial statements are presented in United States dollars (US$) and include the years ended December 31, 2017 and 2016. Unless otherwise indicated, all values have been rounded to the nearest thousand.

 

(b)Use of judgments, estimates and assumptions -

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions in order to determine the amounts of the assets and liabilities, and the disclosure of contingent assets and liabilities as of December 31, 2017 and 2016, and the amounts of reported revenues and expenses for the years ended December 31, 2017 and 2016.-

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions in order to determine the amounts of the assets and liabilities, and the disclosure of contingent assets and liabilities as of December 31, 2019 and 2018, and the amounts of reported revenues and expenses for the years ended December 31, 2019, 2018 and 2017.

Information about significant judgments, estimates and assumptions made by Management in the preparation of the financial statements follows:

 

Information about significant judgments, estimates and assumptions made by Management in the preparation of the financial statements follows:

(b.1)Judgments -

(i)Contingencies -

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential amount of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

 

By their nature, contingencies will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential amount of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

(ii)Stripping cost -

The Company incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. During the production phase,
(ii)Stripping cost -

The Company incurs waste removal costs (stripping costs) during the development and production phases of its surface mining operations. Production 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, as part of the “Property, plant and equipment” caption, where certain criteria are met.

 

 F-177

Notes to the Financial Statements(continue) (continued)

 

Once the Company has identified its production stripping for its surface mining operation, it identifies the separate components of the ore 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 to determine the expected volumes (e.g., in tons) of waste to be stripped and ore to be mined in each of these components.

 

(b.2)Estimates and assumptions -

 

(i)Determination of mineral reserves -

Mineral reserves are the part of a mineral deposit that can be economically and legally extracted from the mine concessions. The Company estimates its mineral 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 geological judgments in order to interpret the data.

 

The estimation of recoverable reserves 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, and 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.

 

(ii)Units of production depreciation -

Estimated mineral 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, is 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.

 

(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(k)-

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(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.”

 

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-178

Notes to the Financial Statements(continue) (continued)

 

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.”

 

(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. Mill stockpiles contain sulfide ores and recovery of metal is through milling and concentrating. Leach stockpiles contain oxide ores and certain secondary sulfide ores and recovery of metal is through exposure to acidic solutions that dissolve contained copper and deliver it in solution to extraction processing facilities.

 

Because it is generally impracticable to determine copper contained in mill and leach stockpiles by physical count, reasonable estimation methods 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 blast 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 testing. The recoverable copper in mill stockpiles, once entered into the production process, can be produced into copper concentrate almost immediately.

 

 F-179

Notes to the Financial Statements (continued)

Notes to the Financial Statements(continue)

Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, historical trends and other factors, including mineralogy of the ore and rock type. Total copper recovery in leach stockpiles can vary significantly depending on several variables, including type of copper recovery, mineralogy and the size of the 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 rate estimates are adjusted periodically as additional information becomes available and as related technology changes.

 

Expected copper recovery rates for leach stockpiles are determined using small-scale laboratory tests, historical trends and other factors, including mineralogy of the ore and rock type. Total copper recovery in leach stockpiles can vary significantly depending on several variables, including type of copper recovery, mineralogy and the size of the 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 rate estimates are adjusted periodically as additional information becomes available and as related technology changes.

(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-

Management has determined that the Company’s operations consist of one cash generating unit. 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 higher of: (i) the fair value less costs of disposal or (ii) the value in use. These assessments require the use of estimates and assumptions, including 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.

 

(c)Currency -

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 difference in the exchange rate when currency items are liquidated or when converting currency items at exchange rates that are different from those used for their initial recognition are recognized in the statement of comprehensive income of the period.


Notes to the Financial Statements(continue)

The Company uses Peruvian Sol (S/) exchange rates published by the Superintendent of Banks, Insurance and Pension Fund Administrators. The published exchange rates were S/3.311 for US$1 for buying and S/3.317 for US$1 for selling as of December 31, 2019, and S/3.369 for US$1 buying and S/3.379 for US$1 for selling as of December 31, 2018. 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.

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.


Notes to the Financial Statements(continue)

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 the statements of comprehensive income 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 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.


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 an embedded derivative 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 the 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).


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 accounts 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 for the year.

 F-180

Notes to the Financial Statements (continued)

The Company uses Peruvian Sol (S/) exchange rates published by the Superintendent of Banks, Insurance and Pension Fund Administrator. The published exchange rates were S/3.238 for US$1 for buying and S/3.245 for US$1 for selling as of December 31, 2017, and S/3.352 for US$1 buying and S/3.360 for US$1 for selling as of December 31, 2016. These rates have been applied to the appropriate asset and liability accounts.

(d)Financial assets -

The Company determines the classification of its financial assets at initial recognition in accordance with IAS 39, “Financial Instruments: Recognition and Measurement”. Financial assets are recognized initially at fair value plus the direct costs attributable to the transaction. The Company’s financial assets include cash and cash equivalents, accounts receivable and embedded derivatives.

Cash and cash equivalents -

Cash and cash equivalents are financial assets that may be liquidated immediately, such as bank checking accounts, and other liquid investments with original maturities of 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 doubtful accounts. Trade accounts receivable are generated primarily from the Company’s concentrate and cathode sales, are denominated in US dollars, have current maturities, do not bear interest and have no specific guarantees.

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, receivables are subsequently carried at amortized cost using the effective interest rate 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 –

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 fluctuations recorded through revenues until the date of settlement. The Company records revenues and invoices customers at the time of shipment based on then-current LME prices, which results in an embedded derivative that is required to be separated from the main contract. The Company’s embedded derivatives from sales are measured at fair value (based on LME spot copper prices) with subsequent changes recognized in the statements of comprehensive income until the month of settlement.

 F-181

Notes to the Financial Statements (continued)

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 low Metals 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 an embedded derivative that is required to be separated from the main contract.

(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, 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 statements of comprehensive income.

 

(f)Inventories -

Inventories

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 stated at the lower of cost or net realizable value. Inventory of materials and supplies, as well as saleable products and in-process inventory are determined using the weighted-average cost method. The cost of finished goods and in-process inventory (i.e., stockpiles) includes labor and benefits, supplies, energy and other costs related to the mining and processing of minerals. Net realizable value is the estimated future sales price based on forward metal prices (for the period they are expected to be processed in), less estimated costs to complete production and bring the inventory to sale. The current portion of work in process is determined based on the amount the Company expects to process in the next twelve months. Inventories that are not expected to be processed in the next twelve months are classified as long-term inventories.

No adjustments to inventories were required for the years ended December 31, 2017 and 2016.

 F-182

Notes to the Financial Statements (continued)

Provision for obsolescence -

Obsolescence allowances are established based on an item-by-item analysis by management. Any amount of obsolescence identified is charged to the statements of comprehensive income in the period it is deemed to have occurred.

(g)Property, plant and equipment -

Property, plant and equipment are valued at historical cost, including costs that are directly attributed to the construction or acquisition of the asset, net of accumulated depreciation, amortization and impairment.

Repairs and/or improvements that increase the economic life of an asset and for which it is probable that there will be future economic benefit to the Company, are recorded as assets. All other maintenance costs are charged to expense as incurred.

Land is not depreciated. Depreciation of assets directly related to the useful life of the mine is calculated using the units-of-production (UOP) method based on the mine’s proven and probable 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 year the asset is retired.

The residual value and useful economic lives of the Company’s property, plant and equipment are reviewed, and adjusted if appropriate, at each year end.

 F-183

Notes to the Financial Statements (continued)

Impairment -

At each reporting date, the Company evaluates if there is any indication that an asset could be impaired. If such an indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset is the greater of its fair value less costs to sell or its value in use and is determined for the assets of the mine as a whole, since there are no assets that generate cash revenues independently.

When the book value of an asset exceeds its recoverable amount, the asset is considered impaired and is reduced to its recoverable amount. When evaluating the value in use, the future estimated cash flows are discounted to their present value using an after-tax discount rate that reflects current market evaluations of the time value of money and the specific risks to the asset.

Losses resulting from the impairment of assets are recognized in the statements of comprehensive income under the categories of expenses consistent with the function of the impaired asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The revised valuation cannot exceed the book value that would have been determined, net of depreciation, if an impairment loss for the asset had not been recognized in a previous period. Such a reversal is recognized in the statements of comprehensive income.

 

There was no asset impairment loss for the Company for the years ended December 31, 2017, 2016 and 2015.
(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 determined based on the estimated future sales price using on forward metal prices (for the period they are expected to be processed in), less estimated costs to complete production and bring the inventory to sale. The current portion of work-in-process is determined based on the amount the Company expects to process in the next twelve months. Inventories that are not expected to be processed in the next twelve months are classified as long-term inventories.

 

(h)Intangible Assets -

Intangible assets are recorded at cost less accumulated amortization. After the initial recognition, the intangible assets are recorded at its cost less accumulated amortization and any accumulated loss for impairment of use, if applicable.

(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.

No adjustments to inventories were required for the years ended December 31,2019, 2018 and 2017.

 

 F-184

Notes to the Financial Statements (continued)

Notes to the Financial Statements(continue)

Provision for obsolescence -

Obsolescence allowances are established based on an item-by-item analysis by management. Any amount of obsolescence identified is charged to the statements of comprehensive income in the period it is deemed to have occurred.

 

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,
(g)Property, plant and equipment (see Note 8) if the stripping activity improves access to the ore body or enhances an existing asset. The stripping activity asset is subsequently amortized using the UOP method over the component of the ore body benefited.-

Property, plant and equipment are valued at historical cost, including costs that are directly attributed to the construction or acquisition of the asset, net of accumulated depreciation, amortization and impairment.

 

(j)Provisions -

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.

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

General -

A provision

Buildings and other constructionsBetween 5 and 35
Machinery and equipmentBetween 2 and 30
Transportation unitsBetween 5 and 7
Furniture and fixturesBetween 7 and 10
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.

Impairment -

At each reporting date, the Company evaluates if there is any indication that an asset could be impaired. If such an indication exists, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset is the greater of (i) its fair value less costs to sell or (ii) 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.


Notes to the Financial Statements(continue)

When the book value of an asset exceeds its recoverable amount, the asset is considered impaired and is reduced to its recoverable amount. When evaluating the value in use, the future estimated cash flows are discounted to their present value using an after-tax discount rate that reflects current market evaluations of the time value of money and the specific risks to the asset.

Losses resulting from the impairment of assets are recognized in the statements of comprehensive income under the categories of expenses consistent with the function of the impaired asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The revised valuation cannot exceed the book value that would have been determined, net of depreciation, if an impairment loss for the asset had not been recognized in a previous period. Such a reversal is recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that resources of the Company will be required to settle the obligation, and an estimate of the amount of the obligation can be calculated. The expense relating to any provision is presented in the statements of comprehensive income, net of any reimbursement, in the period the provision is established.

If the effect of the time value of money is significant, provisions are discounted by applying a discount rate that reflects, where applicable, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a financial expense in the statements of comprehensive income.

Mine closure provision -

The Company records a mine closure provision when a contractually or legally enforceable obligation arises. The Company estimates the present value of its future obligation for mine closure and increases the carrying amount of the related asset retirement cost (ARC), which is included in property, plant and equipment in the consolidated statements of financial position. Subsequently, the mine closure provision is accreted to full value over time and recognized as an interest cost considered in the initial fair value estimate. The related ARC is depreciated using the UOP method 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 did not identify any indicators of impairment for the years ended December 31, 2019, and 2018.

 

The Company primarily sells copper concentrate
(h)Intangible Assets -

Intangible assets are recorded at cost less accumulated amortization. After the initial recognition, the intangible assets are recorded at its cost less accumulated amortization and any accumulated loss for impairment of use, if applicable.

(i)Exploration, development and copper cathode in accordance with sales contracts entered into with its customers. Revenues comprise the fair value of the sale of goods, net of related general sales taxes. The Company recognizes revenue when the amount can be reliably measured, it is probable that future economic benefits will flow to the Company and all significant risks (including title and insurance risk) and rewards of ownership have transferred to the customer. 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-221 

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 is not considered reliably measured until all contingencies relating to the sale have been resolved.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. As such, the Company is the principal in its revenue contracts.

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.

 

 F-185

Notes to the Financial Statements (continued)

Sales of copper concentrate and copper cathode -

Local sales of copper cathode are recognized when the Company has delivered the goods to the shipping company designated by the customer. Revenue associated with foreign sales of copper concentrate and copper cathode is recognized when all significant risks and rewards of ownership have transferred to the customer, which is typically when the inventory has passed over the vessel’s rail at the port of loading.

As described in Note (d), the Company’s copper sales are provisionally priced at the time of shipment. The provisional prices are finalized in a specified future month in accordance with the terms specified in the related sales contract and based on quoted LME monthly average prices. The Company receives market prices in the specified future month, and these sales result in changes recorded to revenues until the specified future month. The Company records revenues and invoices customers at the time of shipment based on then-current LME prices, which results in an embedded derivative that is bifurcated from the host contract.

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 0.15% of invoiced sales for the year 2017 (0.16% for the year 2016 and 0.19% for the year 2015), and the calculation for the OEFA contribution is 0.11% of invoiced sales for the year 2017 (0.13% for the year 2016 and 0.15% for the year 2015). Those royalties are presented as a reduction of revenues (see Note 15)

Notes to the Financial Statements(continue)

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 royalty contribution is 0.13% of invoiced sales for the year 2019 (0.14% for the year 2018 and 0.15% for the year 2017), and the calculation for the OEFA contribution is 0.11% of invoiced sales for the year 2019 (0.11% for the year 2018 and 0.11% for the year 2017). Such royalties contributions are presented as a reduction of revenues (see Note 14).

 

(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 2017, 2016 and 2015, the Company was subject to an income tax rate of 32% (see Note 14(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 future taxable earnings will allow for the deferred tax asset to be recovered.

 F-186

Notes to the Financial Statements(continued)

Notes to the Financial Statements(continue)

 

Deferred tax assets
(l)Income taxes, deferred taxes 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 Taxesother taxes -

On September 29, 2011, Law N° 29788 (which amended Law N° 28528) was enacted creating a new mining tax and royalty regime in Peru. Under the new regime, companies that 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. See Note 14(d) for further discussion of recent developments resulting in the recognition of provisions for these disputed prior years royalties and special mining taxes. 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 14(a)

Income taxes-

Income tax assets and liabilities are measured at the amounts expected to be paid to or recovered from the tax authorities. The amount of current tax payable or receivable is the best estimate of the tax amount to be paid or received that reflects uncertainty related to income taxes, if any. 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 2019, 2018 and 2017, 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, and reflects uncertainty related to income taxes, if any. 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.

 

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.


Notes to the Financial Statements(continue)

 

(m)Benefits to employees -

Salaries and wages, bonuses 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 (“FONDOEMPLEO”). 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 could receive is equivalent to 18 months of wages, and any excess above such limit is transferred to the Regional Government and the National Fund for Employment’s Promotion and Training. The Company’s workers profit share is recognized as a liability in the statements of financial position and as an operating expense in the statements of comprehensive income.

 

 F-187
(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.

 

Notes to the Financial Statements(continued)
(o)Fair value measurement -

The Company measures its embedded derivatives, at fair value, at each date presented in the statement of financial position.

 

(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.

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.

 

(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

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.


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 as a whole:

-Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesis directly or indirectly observable.
-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.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 -

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 2019, 2018 and 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 16, “Leases” -

IFRS 16 introduced a single, on-balance sheet accounting model for lessees and the Company adopted IFRS 16 on 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 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 Company now assesses whether a contract is, or contains, a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 F-188

Notes to the Financial Statements(continue)

On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which arrangements are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contract that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after January 1, 2019.

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. The Company has elected the exemption for leases of low-value assets as well as the short-term lease exemption for all asset classes and does not report a lease liability or right-of-use asset for leases of low-value assets or 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 presented in Note 7(b).

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 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.

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 incremental borrowing rates were determined for each lease taking into consideration factors such as the lease term, the nature of the asset, credit risk and economic environment in which the asset was located.

The weighted average incremental borrowing rate at transition was 4.704% per annum.


Notes to the Financial Statements(continue)

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.

The lease liabilities as of January 1, 2019 can be reconciled to the operating lease commitments as of December 31, 2018:

US$(000) 

Notes to

Operating lease commitments as of December 31, 2018 (undiscounted)152,866
Exclude / deduct
Contracts that do not meet the Financial Statements(continued)revised definition of a lease(25,851)
Committed leases not commenced at 1 January 2019-
Effect of discounting(31,287)
Discounted recognized lease liabilities as of January 1, 201995,728

Lease liabilities are presented in “other financial liabilities” (Note 10).

 

(q)New IFRS –

Following is a summary of improvements and amendments to IFRS that are not yet effective but will be applicable to the Company.

Lease term -

The Company has applied judgement 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.

 

-IFRS 15 “Revenue from Contracts with Customers”, issued in May 2014 and amended in April 2016, established a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new 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 beginning on or after January 1, 2018.

Beginning January 1, 2018, the Company adopted this new standard on the required effective date using the modified retrospective method, in which the cumulative effect resulting from applying this new standard will be presented by adjusting the initial balance of retained earnings (January 1, 2018)

Also in relation to those leases under IFRS 16, the Company has recognized depreciation and interest costs which are presented in “cost of sales” (Note 15) and “financial expenses” (Note 18). During 2016, the Company performed a preliminary assessment of IFRs 15, followed by a more detailed analysis in 2017.

The key issues identified, and the Company’s views and perspectives, are set out below. These are based on the Company’s current interpretation of IFRS 15 and may be subject to change as the interpretations evolve. Furthermore, the Company is considering and will continue to monitor any further development.

To date, the Company has considered the following issues:

 

(a)Mineral sales

For contracts with customers in which the sale of copper concentrate or copper cathode is expected to be the only performance obligation, it is estimated that IFRS 15 has no impact on the Company’s revenues and net profit. Management expects revenue recognition to occur at the moment control of the asset is transferred to the customer, which generally occurs with the delivery of the goods. At the time of preparing the adoption of IFRS 15, the Company has considered

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, “Income Taxes.” It 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 specifically addresses the following:

 

(i)Variable considerations
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 or loss, tax bases, unused tax losses, unused tax credits and tax rates.
How an entity considers changes in facts and circumstances.

The Company determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.

The Company applies significant judgement in identifying uncertainties over income tax treatments.


Notes to the Financial Statements(continue)

The Company adopted IFRIC 23 on January 1, 2019, at that date the Company did not record any impact by IFRIC 23. A summary of the impact from the uncertain tax treatments recognized during 2019, is showed below:

2019
US$(000)
Increase in current tax assets35,701
Increase in current tax liabilities21,920
Increase in deferred tax liabilities20,767
Increase in income taxes expense6,986

During 2019, the Company recognized uncertain tax positions, particularly those relating to depreciation of fixed assets out of the scope of feasibility study, sales commissions with non-related companies and miscellaneous information technology services, based on new information obtained and assed since January 1, 2019.

Several other amendments and interpretations applied for the first time in 2019, but did not have an impact on the financial statements of the Company and, hence have not been disclosed. The Company has not early any standards, interpretations or amendments that have been issued but not yet effective.

 

Some
(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:

-Amendments to IAS 1 and IAS 8: Definition of Material -

In October 2018, the IASB issued amendments to IAS 1, “Presentation of Financial Statements” and IAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors” to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments to the definition of material is not expected to have a significant impact on the Company’s financial statements.

3.Cash and cash equivalents

This item is made up as follows:

  December 31,
2019
  December 31,
2018
 
   US$(000)   US$(000) 
         
Cash in banks  10,119   3,679 
Cash equivalents (a)  471,372   497,503 
         
  481,491  501,182 

(a)Cash equivalents as of December 31, 2019, includes short-term deposits with Scotiabank Peru of US$125.0 million, Citibank NY of US$85.1 million, Banco BBVA Peru of US$50.0 million and a portfolio of investments in highly marketable liquid investments (investments classified as “AAA” by Standard & Poor’s and Moody’s) of US$211.3 million, which yield variable returns, and are classified as cash equivalents because they are readily convertible to known amounts of cash and management plans to use them for its short-term cash needs. Because of the Company’sshort maturity of these investments (i.e., less than 90 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.

F-229 

Notes to the Financial Statements(continue)

4.Related parties

Accounts receivable from related parties and accounts payable to related parties are made up as follows:

  December 31, 2019  December 31, 2018 
  US$(000)  US$(000) 
       
Accounts receivable from related parties        
Parent Company        
FMC (a)  401,211   409,688 
Other related parties        
Sumitomo (b)  10,760   12,918 
Climax Molybdenum Marketing Corporation (c)  5,022   10,038 
Embedded derivatives        
Embedded derivatives (d)  36,077   (19,293)
         
Total accounts receivable from related parties  453,070   413,351 
         
Classification by measurement        
Accounts receivables from related parties (not subject to provisional pricing)  121,995   67,050 
Accounts receivables from related parties (subject to provisional pricing)  294,998   365,594 
Embedded derivatives (d)  36,077   (19,293)
         
   453,070   413,351 
         
Accounts payable to related parties        
Parent Company        
FMC (e)  10,441   8,860 
Other related parties        
Freeport-McMoRan Sales Company Inc.  3,086   3,192 
Minera Freeport-McMoRan South America Ltda  561   521 
PT Freeport Indonesia  -   2,301 
Total accounts payable to related parties  14,088   14,874 
Less: accounts payable to related parties, long term  (10,074)  (8,860)
         
Total accounts payable, short term  4,014   6,014 

(a)Accounts receivable from FMC mainly correspond to sales of copper concentrate and copper cathode contain provisional pricing features which are currently considered to be embedded derivatives. Revenue is recognized at the estimated fair value of the total consideration received or receivable, net of discounts, provisions, and changes in volumes delivered at the point of destination.

Based on the “estimated fair value” approach, the Company expects that the application of the standard will not have a material impact on the financial statements.

 F-189

Notes to the Financial Statements (continued)

Revenue, in respect of the host contract, will be recognized when control passes to the customer and will be measured at the amount the entity expects to be entitled – being the estimate of the price expected to be received at the end of the QP (Quotation Period), i.e., using the most recently determined estimate of metal in concentrate (based on initial assay results) and the estimated forward price (which is consistent with current practice). When considering the initial assay estimate, the Company has considered the requirements of IFRS 15 in relation to the constraint on estimates of variable consideration. It will only include amounts in the calculation of revenue where it is highly probable that a significant revenue reversal will not occur when the uncertainty relating to final assay/quality is subsequently resolved, i.e., at the end of the QP. The assay differences are not usually material to the Company, hence, no change is expected when compared to the current approach. Consequently, at the time the concentrate passes the ship’s rail, the Company will recognize a receivable because from that time it considers it has an unconditional right to consideration. This receivable will then be accounted for in accordance with IFRS 9.

With respect to the presentation of the amounts arising from such provisionally priced contracts, IFRS 15 requires those amounts to be disclosed separately from other types of revenues. This means that the revenue recognized from the initial sale must be separately disclosed in the financial statements from any revenue/income recognized from subsequent movements in the fair value of the related concentrate receivable. The Company presents the movements in the embedded derivative separately, so this requirement will not have an impact on the presentation of the Company’s financial statements. However, the quantum of the fair value movement may be different as a result of the adoption of IFRS 9. Consistent with current practice, any subsequent changes that arise due to the differences between the initial and the final assay will be recognized as an adjustment to the revenue from contracts with customers.

(ii)Impact of shipping terms

The Company sells a portion of its copper concentrate and copper cathodes on CFR (Cost & Freight) and CIF (Cost, Insurance & Freight) Incoterms. This means that the Company is responsible for shipping services after the date at which control of the concentrate passes to the customer at the port of loading, i.e., when it crosses the ship’s rail. Under IAS 18, these shipping services are currently not considered to represent a separate service; hence, no revenue is allocated to them. Instead, concentrate revenue is recognized in full at the date the concentrate passes the ship’s rail, and the costs associated with shipping the goods are considered to be part of cost of sales.

 F-190

Notes to the Financial Statements (continued)

Under IFRS 15, the provision of shipping services in these types of arrangements will be a distinct service (and therefore a separate performance obligation) to which a portion of the transaction price should be allocated and recognized over time as the shipping services are provided. The impact of these changes include:

-Deferral of revenue: Some of the revenue currently recognized when the concentrate passes the ship’s rail will be deferred and recognized as the shipping services are subsequently provided; and

-Disaggregated disclosures: The revenue allocated to shipping services may need to be disclosed separately from concentrate revenue (where material), either on the face of the statement of comprehensive income or in the notes.

cathode. The Company has determined that while these changes will impact somea long-term agreement with FMC through which it has committed to sell between 70% and 80% of its arrangements, the overall year over year impact on the timing of revenue recognition will not be material and consequently such revenue will not be disclosed separately.

(b)Other presentation and disclosure requirements

The presentation and disclosure requirements of IFRS 15 are more detailed than the current standard. The presentation requirements represent a significant change from current practice and will increase the volume of disclosures required in the Company’s financial statements. During 2017, the Company continued testing appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.

-IFRS 9 “Financial Instruments, issued in July 2014, 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 adoption permitted. Except for hedge accounting, retrospective application is required, but the provision of comparative information is not required. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Company adopted the new standard on January 1, 2018 and will not restate comparative information.

 F-191

Notes to the Financial Statements(continued)

During 2017, the Company performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Company. Overall, the Company expects no significant impact on its statements of financial position or equity from the adoption of IFRS 9. However, there will be some changes to the classification and measurement of trade receivables relating to provisionally priced sales.

(a)Classification and measurement

Some of the Company’s sales of metal inannual copper concentrate contain provisional pricing features. Currently, these provisionally priced sales contain an embedded derivative that is separated from the host contract, i.e., the concentrate receivable, for accounting purposes under IAS 39. Accordingly, the embedded derivative, which does not qualify for hedge accounting, is recognized at fair value, with subsequent changes in fair value recognized in the statements of comprehensive income each period until final settlement. The initial estimate of fair value and subsequent changes in fair value over the quotational period (“QP”), and up until final settlement, are estimated by reference to forward market prices.

On adoption of IFRS 9, the embedded derivative will no longer be separated from the concentrate receivables as the receivables are not expected to give rise to cash flows that solely represent payments of principal and interest. Instead, the receivables will be accounted for as one instrument and measured at fair valueproduction through profit or loss with subsequent changes in fair value recognized in the statements of comprehensive income each period until final settlement. This will mean that the quantum of the fair value movements will be different because the current approach only calculates fair value movements based on changes in the relevant commodity price, whereas under IFRS 9, the fair value of the receivable will not only include commodity price changes, but it will also factor in the impact of credit and interest rates. Given the nature of the sales with provisional prices, which are not more than three months long and are made with customers that have a solid credit rating, the Company does not expect this change to have a significant impact.

Other non-provisionally priced trade receivables are considered to be held to collect contractual cash flows and are expected to give rise to cash flows solely representing payments of principal and interest. The Company analyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortized cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.

 F-192

Notes to the Financial Statements (continued)

For other financial assets currently measured at fair value, e.g., derivative financial assets, the Company will continue to classify and measure these at fair value.

There will be no impact on financial liabilities.

(b)Impairment

IFRS 9 requires the Company use an expected credit loss model for its trade receivables measured at amortized cost, either on a 12-month or lifetime basis. The Company will apply the simplified approach and record lifetime expected losses on all trade receivables measured at amortized cost. Given the short-term nature of these receivables, the Company does not expect these changes to have a significant impact.

(c)Hedge accounting

The changes in IFRS 9 relating to hedge accounting will have no impact as the Company does not currently apply hedge accounting.

-IFRS 16 “Leases”, was issued in January 2016 and 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 standard includes two recognition exemptions for lessees: leases of ‘low-value’ assets (e.g., personal computers); and short-term leases (i.e., leases with a lease term of 12 months or less). 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). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also 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 an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

 F-193

Notes to the Financial Statements(continued)

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.

IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach.

In 2017, the Company assembled a project team to begin the process of assessing the impact of the leases standard. The project team has developed its project plan, established a steering committee, identified key stakeholders, completed high level education sessions and begun to gather more information (through the use of interviews and questionnaires) with respect to the population of procurement contracts that will need to be assessed in light of the new requirements. In 2018, the Company plans to continue to assess the potential effect of IFRS 16 on its consolidated financial statements.

-IFRIC 23, “Uncertainty over Income Tax Treatments”, effective January 1, 2019, clarifies application of recognition and measurement requirements in IAS 12, “Income Taxes” when there is uncertainty over income tax treatments. Management is currently evaluating the impact IFRIC 23 will have on the Company’s financial reporting and disclosures.

3.Cash and cash equivalents

This item is made up as follows:

  December 31,
2017
  December 31,
2016
 
  US$(000)  US$(000) 
         
Cash in banks  3,500   2,990 
Cash equivalents (a)  596,527   26,961 
   600,027   29,951 

(a)Cash equivalents as of December 31, 2017, includes short-term deposits with Citibank NY of US$196 million, Scotiabank Peru of US$150 million and BBVA Continental Peru of US$50 million and a portfolio of investments in highly marketable liquid investments of US$200.5 million, (investments classified as “AAA” by Standard & Poor’s and Moody’s), which yield variable returns, and are classified as cash equivalents because they are readily convertible to known amounts of cash 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), 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.

 F-194

Notes to the Financial Statements (continued)

4.Related parties

Accounts receivable from related parties and accounts payable to related parties are made up as follows:

  December 31,
2017
  December 31,
2016
 
  US$(000)  US$(000) 
       
Accounts receivable from related parties        
Parent Company        
FMC (a)  372,327   345,609 
Other related parties        
Sumitomo Metal Mining Company, Ltd. (b)  19,900   23,552 
Climax Molybdenum Marketing Corporation (c)  19,570   6,145 
         
Total accounts receivable from related parties  411,797   375,306 
         
Accounts payable to related parties        
Parent Company        
FMC (d)  8,470   30,353 
Other related parties        
Freeport-McMoRan Sales Company Inc.  3,601   3,134 
Minera Freeport-McMoRan South America Ltda  1,248   779 
Freeport Cobalt OY  296   - 
Minera Freeport-McMoRan South America S.A.C.  66   - 
         
Total accounts payable to related parties  13,681   34,266 
         
Less: accounts payable to related parties, long term  (8,147)  (7,132)
         
Total accounts payable, short term  5,534   27,134 

(a)Accounts 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 from January 1, 2017 to December 31, 2021. These amounts exclude adjustments for embedded derivatives (see Note 5). Terms of the contracts are reviewed annually.

(b)The Company has a long-term agreement with Sumitomo through which it has committed to sell 21% of its annual copper concentrates production from January 1, 2017 to December 31, 2021. These amounts exclude adjustments for embedded derivatives (see Note 5). Terms of the contracts are reviewed annually.

 

 F-195
(b)The Company has a long-term agreement with Sumitomo through which it has committed to sell 21% of its annual copper concentrates production through December 31, 2021. Terms of the contracts are reviewed annually.

 

(c)The Company has a long-term agreement with Climax Molybdenum Marketing Corporation (a wholly owned subsidiary of FMC) through which it has committed to sell 100% of its annual molybdenum concentrate production, at a price based on MWDO and under a delivery type known as CIF (cost, insurance and freight) through December 31, 2020.

 

Notes
(d)Reflects the embedded derivative adjustment associated with accounts receivable from related parties (See Note 2(d) and 22).

(e)Accounts payable to the Financial Statements(continued)

(c)The Company has a long-term agreement with Climax Molybdenum Marketing Corporation (a wholly owned subsidiary of FMC) through which it has committed to sell 100% of its annual molybdenum concentrate production, at a price based on theMetals Week Dealer Oxide price and under a delivery type known as CIF (cost, insurance and freight) from January 1, 2015 through December 31, 2020. These amounts exclude adjustments for embedded derivatives (see Note 5)FMC is primarily related to stock option benefits (US$10.1 million as of December 31, 2019, and US$8.9 million as of December 31, 2018).

 

(d)Accounts payable to FMC

Short-term and long-term employee benefits are recognized as expenses during the period earned. Benefits received by key management personnel represent 0.42% of total revenues for the year 2019 (0.38% for the year 2018). For the years 2019, 2018 and 2017, Freeport had granted stock option and/or restricted stock unit benefits to certain key management personnel, the amounts of which are not significant at those dates. As of December 31, 2019 and 2018, the Company does not have any other long-term benefits.

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. For the years ended December 31, 2019, 2018 and 2017, is related to stock option benefits for US$8.1 million. The balance as of December 31, 2016, includes US$22.3 million for the purchase of used shovels and US$7.1 million of stock option benefits.

Short-term and long-term employee benefits are recognized as expenses during the period earned. Benefits received by key management personnel represent 0.35% of total revenues for the year 2017 (0.53% for the year 2016). For the years 2017 and 2016, Freeport had granted stock option and/or restricted stock unit benefits to certain key management personnel, the amounts of which are not significant at those dates. As of December 31, 2017 and 2016, the Company does not have any other long-term benefits.

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, 2017 and 2016, the Company had not recorded any impairment of accounts receivable from related parties.

 

5.Other accounts receivable

Notes to the Financial Statements(continue)

5.Inventories, net

This item is made up as follows:

  December 31,
2019
  December 31,
2018
 
  US$(000)  US$(000) 
       
Current        
Materials and supplies  348,035   308,378 
Work-in-process (WIP) (a)  173,190   119,518 
Finished goods:        
 Copper concentrate  23,890   17,949 
 Copper cathode  6,321   8,035 
 Molybdenum concentrate  1,268   3,205 
Less: Provision for obsolescence of materials and supplies  (507)  (11)
   552,197   457,074 
Non-current        
Work-in-process (WIP) (a)  255,123   286,375 
         
Total inventories 807,320  743,449 

(a)WIP 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 plan production, the Company identifies the portion of inventory that is classified as current or long term. For mill stockpiles, recovery is through milling and concentrating. For leach stockpiles, recovery is through exposure to acidic solutions that dissolve copper and deliver it in a solution to extraction processing facilities.

In fourth-quarter 2019, the Company changed its method of estimating the current portion of its leach and mill stockpiles and revised its December 31, 2018, balances to conform to the new methodology resulting in a US$30.5 million decrease in the current balance and increase in the long-term balance.

F-231 

Notes to the Financial Statements(continue)

6.Other non-financial assets

This item is made up as follows:

  December 31, 2019  December 31, 2018 
  US$(000)  US$(000) 
       
Current        
Income tax prepayments (a)  75,521   26,794 
Value added tax (VAT) credit  27,414   28,081 
Other taxes to be recovered  2,745   2,700 
   105,680   57,575 
         
Non-current        
Other receivables (b)  186,626   183,208 
Income tax prepayments (a)  52,559   16,858 
   239,185   200,066 
         
Total other non-financial assets 344,865  257,641 

(a)Represents disbursements made by the Companyfor theprepayment of 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)). The balance at December 31, 2019, also includes income tax benefits from the years 2013 to 2018 as part of the adoption of IFRIC 23 (see Note 2(q)).

 

This item is
(b)Represents disbursement made up as follows:

  December 31,
2017
  December 31,
2016
 
   US$(000)   US$(000) 
         
Embedded derivatives (Note 22)  68,736   67,449 
CASE and SISE contributions refund (a)  6,474   - 
Other  1,656   2,594 
         
   76,866   70,043 

(a)Corresponds to the energy and fuel invoice payments made for the years 2015 and 2016by the Company in connection with disputed tax assessments related to the Charge for Energy Security Consolidation (CASE) and the Charge for Energy Security on Hydrocarbons System (SISE). Law N°30543, passed on March 02, 2017, establishes the elimination and refund of these payments.

 F-196

Notes to reviews by SUNAT from years 2003 to 2012 (see Note 13(c) and 13(e)). According to current tax procedures and the Financial Statements(continued)

6.Inventories, net

This item is made up as follows:

  December 31,
2017
  December 31,
2016
 
  US$(000)  US$(000) 
       
Current        
Materials and supplies  273,939   251,635 
Work-in-process (WIP) (a)  148,928   148,178 
Finished goods:        
Copper concentrate  18,068   15,073 
Copper cathode  4,032   8,220 
Molybdenum concentrate  1,896   2,763 
Less: Provision for obsolescence of materials and supplies  (1,237)  (303)
Total current  445,626   425,566 
         
Non-current        
Work-in-process (WIP) (a)  248,452   300,614 
         
Total inventories  694,078   726,180 

(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 plan production, the Company identifies the portion of inventory that is classified as current or long term. For mill stockpiles, recovery is through milling and concentrating. For leach stockpiles, recovery is through exposure to acidic solutions that dissolve copper and deliver it in a solution to extraction processing facilities.

 F-197

Notes to the Financial Statements(continued)

7.Other non-financial assets

This item is made up as follows:

  December 31,
2017
  December 31,
2016
 
  US$(000)  US$(000) 
       
Current        
Value added tax (VAT) credit  18,153   308,177 
Other taxes to be recovered  2,929   2,830 
Total current  21,082   311,007 
         
Non-current        
Other receivables (a)  184,802   180,741 
Income tax prepayments (b)  4,212   19,550 
Installment program (mining royalties case) (c)  -   96,233 
Total non-current  189,014   296,524 
         
Total other non-financial assets  210,096   607,531 

(a)Represents disbursement made by the Company in connection with disputed tax assessments related to reviews by SUNAT (Superintendencia Nacional de Administración Tributaria) from years 2004 to 2011 (see Note 14(c) and 14(e)). According to current tax procedures and the time frametimeframe for resolving these types of claims, management and its legal advisors expect resolution of this matter will be favorable to the Company and amounts will be recoverable.

 

(b)Represents disbursements made by the Companyfor theprepayment of income tax, which the Company expects to use to offset future tax obligations or will be refunded to the Company by SUNAT (see Note 14(b)).

Notes to the Financial Statements(continue)

7.Property, plant and equipment, net

 

(c)The balance as of December 31, 2016, represented payments made under protest by the Company for an installment program approved by SUNAT associated with mining royalties for the period December 2006 to December 2008. As of result of the October 2017, Peruvian Supreme Court ruling on the 2008 royalty assessments, these payments were applied to the provision for royalties (see Notes 12 and 14(d)).

 F-198

Notes to the Financial Statements(continued)

Property, plant and equipment consist of owned and leased assets (right-of-use assets), and cost and accumulated depreciation accounts as of December 31, 2019 and 2018 are shown below:

 

8.Property, plant and equipment, net
  January 1,
2018
  Additions  Adjustments  Disposals  Transfers  December 31,
2018
  IFRS 16 adoption  Additions  Adjustments  Disposals  Transfers  December 31,
2019
 
  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                                                
Land  24,467   -   -   -   196   24,663   -   -   -   (80)  322   24,905 
Buildings and other constructions  2,370,042   -   41,089   (9,644)  48,090   2,449,577   -   -   544   (4,769)  102,772   2,548,124 
Machinery and equipment  4,553,508   -   (41,089)  (19,426)  201,057   4,694,050   -   -   (544)  (30,482)  191,589   4,854,613 
Transportation units  20,557   -   -   (32)  2,726   23,251   -   -   -   (32)  3,146   26,365 
Furniture and fixtures  949   -   -   -   -   949   -   -   -   -   -   949 
Other equipment  24,977   -   -   (11)  525   25,491   -   -   -   (594)  203   25,100 
Construction in progress and in-transit units  149,661   288,861   -   -   (252,594)  185,928   -   271,364(a)  (1,192)  -   (298,032)  158,068 
Stripping activity asset (see Note 2(i))  478,382   177,327   -   -   -   655,709   -   197,038   -   -   -   852,747 
Asset retirement costs (see Note 11(c))  136,327   2,724   (32,017)  -   -   107,034   -   18,834   41,130   -   -   166,998 
Right-of-use assets (b)  -   -   -   -   -   -   95,728   1,342   (700)  (929)  -   95,441 
   7,758,870   468,912   (32,017)  (29,113)  -   8,166,652   95,728   488,578   39,238   (36,886)  -   8,753,310 
                                                 
Accumulated depreciation                                                
Buildings and other constructions  229,627   96,623   5,184   (9,514)  -   321,920   -   76,199   513   (4,722)  -   393,910 
Machinery and equipment  1,517,337   292,656   (5,184)  (18,483)  -   1,786,326   -   284,097   (513)  (29,091)  -   2,040,819 
Transportation units  12,221   1,784   -   (33)  -   13,972   -   1,928   -   (28)  -   15,872 
Furniture and fixtures  834   24   -   -   -   858   -   23   -   -   -   881 
Other equipment  16,400   2,406   -   (10)  -   18,796   -   1,543   -   (594)  -   19,745 
Stripping activity asset  285,327   112,875   -   -   -   398,202   -   155,530   -   -   -   553,732 
Asset retirement costs  18,700   4,976   -   -   -   23,676   -   3,239   -   -   -   26,915 
Right-of-use assets (b)  -   -   -   -   -   -   -   11,488   -   (903)  -   10,585 
   2,080,446   511,344   -   (28,040)  -   2,563,750   -   534,047   -   (35,338)  -   3,062,459 
                                                 
Net cost 5,678,424                  5,602,902  95,728                  5,690,851 

 

The changes in cost and accumulated depreciation accounts as of
(a)For the year ended December 31, 2017 are shown below:

  January 1,
2016
  Additions  Adjustments  Disposals  Transfers  December 31,
2016
  Additions  Adjustments  Disposals  Transfers  December 31,
2017
 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                                  
Cost                                            
Land  20,384   -   -   -   3,299   23,683   -   -   -   784   24,467 
Buildings and other constructions  2,202,122   -   (11,114)  (5,633)  191,586   2,376,961   -   (13,532)  (1,169)  7,782   2,370,042 
Machinery and equipment  4,203,431   -   11,114   (4,427)  232,062   4,442,180   -   13,532   (4,540)  102,336   4,553,508 
Transportation units  19,627   -   -   (730)  213   19,110   -   -   (261)  1,708   20,557 
Furniture and fixtures  950   -   -   (1)  -   949   -   -   -   -   949 
Other equipment  24,728   -   -   (1,065)  1,008   24,671   -   -   (34)  340   24,977 
Construction in progress and in-transit units  362,058   154,876   -   -   (428,168)  88,766   173,845   -   -   (112,950)  149,661(a)
Stripping activity asset (see Note 2(j))  263,498   61,261   -   -   -   324,759   153,623   -   -   -   478,382 
Asset retirement costs (see Note 12(b)  149,724   3,743   (16,091)  -   -   137,376   2,661   (3,710)  -   -   136,327 
   7,246,522   219,880   (16,091)  (11,856)  -   7,438,455   330,129   (3,710)  (6,004)  -   7,758,870 
                                             
Accumulated depreciation                                            
Buildings and other constructions  60,903   88,925   (30)  (4,936)  -   144,862   86,391   (457)  (1,169)  -   229,627 
Machinery and equipment  966,525   275,388   30   (3,964)  -   1,237,979   283,250   457   (4,349)  -   1,517,337 
Transportation units  9,723   1,828   -   (686)  -   10,865   1,593   -   (237)  -   12,221 
Furniture and fixtures  777   26   -   (1)  -   802   32   -   -   -   834 
Other equipment  12,582   2,423   -   (1,052)  -   13,953   2,474   -   (27)  -   16,400 
Stripping activity asset  111,552   97,513   -   -   -   209,065   76,262   -   -   -   285,327 
Asset retirement costs  7,171   6,018   -   -   -   13,189   5,511   -   -   -   18,700 
   1,169,233   472,121   -   (10,639)  -   1,630,715   455,513   -   (5,782)  -   2,080,446 
                                             
Net cost  6,077,289                   5,807,740                   5,678,424 

(a)As of December 31, 2017 construction in progress relates to the tailing cyclone relocation (US$47.5 million), mine maintenance truck shop (US$38.4 million) and the purchase of used Komatsu 930E haul trucks from PT Freeport Indonesia (related party) (US$17.12019, additions to construction in progress primarily relates to (i) the mine maintenance truck shop (US$78.2 million), (ii) the purchase of used haul trucks from PT Freeport Indonesia (a related party) (US$47.1 million), (iii) the purchase of stators for ball mills (US$18.3 million), (iv) the tailing drain expansion (US$15.2 million), (v) a concentrator optimization project (US$12.3 million), (vi) the regrowth of a leach pad (US$10.9 million) and (vii) the staged flotation reactor engineering project (US$6.2 million).

 

 F-199

Notes to the Financial Statements(continue)

 

Notes to the Financial Statements(continued)
(b)The Company has lease contracts for various items of property, plant and equipment used in its operations. Leases of land have lease terms of 10 years, buildings and other constructions generally have lease terms between 1 and 14 years, and machinery and equipment generally have lease terms between 4 and 14 years.

The Company also has certain leases of machinery with lease terms of 12 months or less and leases of low-value office equipment. The Company has elected and applies the IFRS 16 exemptions for short-term leases and leases of low-value assets for these leases.

 

9.

Set out below are the carrying amounts of right-of-use assets recognized and the movements during the period:

  January 1,
2019
  Additions  Adjustments  

Disposals

  December 31, 2019 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
Cost                    
Land  11,008   -   (700)  (457)  9,851 
Buildings and other constructions  55,114   1,192   -   (370)  55,936 
Machinery and equipment  29,606   150   -   (102)  29,654 
   95,728   1,342   (700)  (929)  95,441 
Accumulated depreciation                    
Land  -   1,712   -   (457)  1,255 
Buildings and other constructions  -   6,613   -   (344)  6,269 
Machinery and equipment  -   3,163   -   (102)  3,061 
   -   11,488   -   (903)  10,585 
Net cost  95,728               84,856 

8.Trade accounts payable

 

Trade accounts payable are primarily originated by the acquisition of materials, supplies, services and spare parts. These obligations are primarily denominated in US dollars, have current maturities and do not accrue interest. No guarantees have been granted. As of December 31, 2019, trade accounts payable includes US$30.3 million related to capital projects (US$42.4 million as of December 31, 2018).


Notes to the Financial Statements(continue)

9.Other accounts payable

This item is made up as follows:

  December 31, 2019  December 31, 2018 
  US$(000)  US$(000) 
Current        
Royalties and mining taxes (a)  95,120   97,263 
Other  4,260   3,991 
         
Total current  99,380   101,254 
         
Non-current        
Royalties and mining taxes (b)  362,464   215,070 
         
Total other accounts payable 461,844  316,324 

(a)As of December 31, 2017, trade accounts payable includes2019, represents the current portion of the monthly payments of the installment programs for disputed mining royalties for the year 2013 and special mining tax for the period October 2011 through December 2013, for which payments will start in the first quarter of 2020 (US$50.1 million, including interest, deferred interest and penalties of US$33.729.1 million) and the remaining monthly payments of the installment programs for disputed mining royalties for the period January 2009 through September 2011 and for the year 2012 (US$45.0 million, related to capital projects, compared toincluding interest and penalties of US$12.7 million as of December 31, 2016.

10.Other accounts payable

This item is made up as follows:

  December 31,
2017
  December 31, 2016 
  US$(000)  US$(000) 
       
Current        
Mining royalties, interests and penalties 2006-2008 (a)  36,113   - 
Other  4,069   3,619 
         
Total current  40,182   3,619 

(a)Represents the current portion of payments under the installment program approved by SUNAT related to disputed mining royalties of US$14.9 million and interest and penalties of US$21.2 million (see Note 14(d)26.5 million) (see Note 13(d)).

 

11.Other financial liabilities (debt)

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.

 

  December 31,
2017
  December 31, 2016 
  US$(000)  US$(000) 
       
Current debt        
Leases  -   161 
         
Non-current debt        
Senior unsecured credit facility (a)  1,280,000   1,400,000 
Less : Debt issuance cost  (11,512)  (10,171)
Senior unsecured credit facility, net  1,268,488   1,389,829 
Shareholder loans (b)  -   606,014 
Total non-current debt  1,268,488   1,995,843 
         
Total other financial liabilities  1,268,488   1,996,004 
(b)As of December 31, 2019, represents the non-current portion of the monthly payments of the installment programs of disputed mining royalties for the period January 2009 through September 2011 and for the years 2012 and 2013 (US$273.8 million, including interest and penalties of US$157.5 million) and special mining tax for the period October 2011 through December 2013 (US$88.7 million (see Note 13(d)).

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.

 

 F-200

Notes to the Financial Statements(continue)

 

10.Other financial liabilities (debt)

 

Notes to the Financial Statements(continued)

This item is made up as follows:

  December 31, 2019  December 31, 2018 
  US$(000)  US$(000) 
Current debt:        
Lease liabilities (a)  8,855   - 
         
Non-current debt:        
Senior unsecured credit facility (b)  830,000   1,030,000 
Lease liabilities (a)  76,944   - 
Less: Debt issuance cost  (4,124)  (7,190)
Total non-current debt  902,820   1,022,810 
Total other financial liabilities  911,675   1,022,810 

 

(a)The lease liability consists of leased land, buildings and other constructions, and machinery and equipment which are used in mine operations. Set out below are the carrying amounts of lease liabilities and the movements during the period:

2019
US$(000)
Balance at beginning of the year:95,728
Additions550
Interest expense on lease liabilities5,242
Payments(10,479)
Payments of Interest(5,242)
Balance at end of the year85,799

The following are the amounts recognized in profit or loss:

2019
US$(000)
Depreciation charge of right-of-use assets, see Note 1511,488
Interest expense on lease liabilities, see Note 185,242
Expense relating to variable lease payments, low-value and short-term leases, see Note 157,069
23,799

The Company has certain lease contracts for machinery and equipment used in mine operations that contain variable payments based on the number of hours that machinery or equipment is used in operations.

(b)In March 2014, the Company entered into a five-year, US$1.8 billion senior unsecured credit facility with several banks led by Citibank N.A. as the administrative agent. The disbursements were mainly used to finance a portion of the Company´s expansion project. As of March 31, 2017, the Company had repaid US$525 million of the credit facility.

In June 2017, the Company entered into an amendment to thea five-year, US$1.8 billion senior unsecured credit facility which extendswith several banks led by Citibank N.A. as the maturity and increased the outstanding amount by US$225 million. After the amendment the balanceadministrative agent.The disbursements were mainly used to financea portion of the total credit facility was US$1.5 billion. Company’s expansion project.


Notes to the Financial Statements(continue)

In December 2017, the Company repaid US$220 million. The balance of the total credit facility is US$1.3 billion as of December 31, 2017.

The credit facility calls for amortization in four installments, with 15% of the total facility due on December 31, 2020 (US$5.0 million after the December 2017 repayment), 15% due on June 30, 2021 (US$225 million), 35% due on December 31, 2021 (US$525 million) and 35% due on June 19, 2022 (US$525 million).

Interest on the credit facility is based on London Interbank Offered Rate (LIBOR) plus a spread (currently 1.9%) based on the Company´s total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, as defined in the agreement.

As of result of the amended credit facility, the Company recognized charges of US$4.3 million to write off debt issuance costs and a charge of US$2.0 million for issuance costs related to debt extinguishment caused by the early December payment in the 2017 statements of comprehensive income (see Note 19).

No letters of credit were issued and there are no guarantees provided for the credit facility as of December 31, 2017.

Restrictive Covenants -

The senior unsecured credit facility contains certain financial ratios that the Company must comply with on a quarterly basis, including a total net debt to EBITDA ratio and an interest coverage ratio, which are defined by the agreement. As of December 31, 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, 2019, the Company had repaid US$670 million (US$470 million as of December 31, 2018).

The credit facility calls for amortization in four installments, with 15% of the total facility due on December 31, 2020 (fully repaid as of December 31, 2019), 15% due on June 30, 2021 (fully repaid as of December 31, 2019), 35% due on December 31, 2021 (US$305 million after the March 2019 repayment) and 35% due on June 19, 2022 (US$525 million).

Interest on the credit facility is based on the London Interbank Offered Rate (LIBOR) plus a spread (currently 1.9%) based on the Company´s total net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, as defined in the agreement.

During the year 2019, the Company recognized charges of US$1.3 million (US$1.9 million during the year 2018 and US$2.0 million during the year 2017) for issuance costs related to debt extinguishment caused by the early March 2019 in the statements of comprehensive income (see Note 18).

No letters of credit were issued and there are no guarantees provided for the credit facility as of December 31, 2019.

Restrictive Covenants -

The senior unsecured credit facility contains certain financial ratios that the Company must comply with on a quarterly basis, including a total net debt to EBITDA ratio and an interest coverage ratio, which are defined by the agreement. As of December 31, 2019, the Company was in compliance with all of its covenants.

 

(b)In December 2014, the Company entered into shareholder loan agreements with, or affiliates of, FMC, Buenaventura and Sumitomo. During 2017, the Company repaid the outstanding balances of the shareholders loans, partly with proceeds from the amended senior unsecured credit facility discussed above.

 F-201

Notes to the Financial Statements(continued)

Notes to the Financial Statements(continue)

 

(d)Following is the movement of the changes derived from the financing activities for the year ended December 31, 2017:2019 and 2018:

  January 01, 2018  Additions  Payments  Others  December 31, 2018  IFRS 16 adoption  Additions  Payments  Others  December 31, 2019 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
                               
Current:                                        
Leases, see Note 10 (a)  -   -   -   -   -   8,119   464   (10,479)  10,751   8,855 
                                         
Non-current:                                        
Senior unsecured credit facility  1,280,000   -   (250,000)  -   1,030,000   -   -   (200,000)  -   830,000 
Debt issuance cost  (11,512)  -   -   4,322   (7,190)  -   -   -   3,066   (4,124)
Leases, see Note 10 (a)  -   -   -   -   -   87,609   86   -   (10,751)  76,944 
                                         
Total liabilities from financing activities  1,268,488   -   (250,000)  4,322   1,022,810   95,728   550   (210,479)  3,066   911,675 


Notes to the Financial Statements(continue)

 

  

January 01,

2017

  Net Cash Flow  Others  December 31,
2017
 
  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 
Shareholder loans  606,014   (606,014)  -   - 
Debt issuance cost  (10,171)  (12,085)  10,744   (11,512)
                 
   1,995,843   (738,099)  10,744   1,268,488 
                 
Total liabilities from financing activities  1,996,004   (738,260)  10,744   1,268,488 

Following is the movement of the changes derived from the financing activities for the year ended December 31, 2016:

  

January 01,

2016

  Net Cash Flow  Others  

December 31,

2016

 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
Current:                
Promissory notes  43,000   (43,000)  -   - 
Leases  330   (169)  -   161 
   43,330   (43,169)  -   161 
                 
Non-current:                
Senior unsecured credit facility  1,800,000   (400,000)  -   1,400,000 
Shareholder loans  600,907   -   5,107   606,014 
Debt issuance cost  (19,072)  -   8,901   (10,171)
   2,381,835   (400,000)  14,008   1,995,843 
                 
Total liabilities from financing activities  2,425,165   (443,169)  14,008   1,996,004 

Following is the movement of the changes derived from the financing activities for the year ended December 31, 2015:

  

January 01, 

2015

  Net Cash Flow  Others  

December 31,

2015

 
  US$(000)  US$(000)  US$(000)  US$(000) 
             
Current:                
Promissory notes  50,000   (7,000)  -   43,000 
Leases  493   (163)  -   330 
   50,493   (7,163)  -   43,330 
                 
Non-current:                
Senior unsecured credit facility  425,000   1,375,000   -   1,800,000 
Shareholder loans  -   600,000   907   600,907 
Debt issuance cost  (22,643)  (2,356)  5,927   (19,072)
   402,357   1,972,644   6,831   2,381,835 
                 
Total liabilities from financing activities 452,850  1,965,481  6,831  2,425,165 

 F-202

Notes to the Financial Statements(continued)
11.Provisions

This item is made up as follows:

 

12.Provisions

This item is made up as follows:

 December 31,
2017
 December 31,
2016
  December 31,
2019
 December 31,
2018
 
 US$(000) US$(000)  US$(000) US$(000) 
          
Current:                
Provisions related to services and freight not invoiced  14,513   11,231 
Services and freight not invoiced (a)  27,945   11,823 
Provision for social commitments (a)(b)  2,767   11,722   7,677   1,815 
Provision for remediation and mine closure (c)  241   - 
Provision for legal contingencies  1,232   1,505   -   1,719 
Provision for remediation and mine closure (b)  690   - 
        
Total current  19,202   24,458   35,863   15,357 
                
Non–current:                
Provision for remediation and mine closure (b)  156,169   153,313 
Provision for royalties and mining tax (c)  148,530   - 
Provision for interest (d)  18,270   - 
Provision for remediation and mine closure (c)  195,659   131,888 
Royalties and mining tax (d)  62,797   191,299 
Other long-term liabilities (e)  15,889   7,249   12,117   11,033 
Provision for social commitments (a)  8,229   4,060 
        
Provision for legal contingencies (e)  4,800   - 
Provision for social commitments (b)  3,046   8,111 
                
Total non-current  347,087   164,622   278,419   342,331 

 

(a)The provision for social commitments as of December 31, 2017, is associated with an irrigation project in La Joya (US$5.5 million) and repaving Alata-Congata Road (US$5.5 million).

(b)The Company’s mineral exploitation 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 for the Environmental Impact Studies (EIA), required for the operation of Cerro Verde’s production unit.

On October 14, 2003, Law 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, the Company completed the closure plans for its mine site, and presented it to the Ministry of Energy and Mines. On October 5, 2009, the Ministry of Energy and Mines issued Resolution No 302-2009 MEM-AAA, approving the Company’s mine closure plan. As of December 31, 2017, pursuant2019, primarily represents the provision for services and freights not invoiced (US$20.9 million) and penalties related to legal requirements,land rights with INGEMMET (Instituto Geológico Minero y Metalúrgico), (US$7.0 million).

(b)The provision for social commitments as of December 31, 2019, is associated with repaving Alata-Congata Road (US$6.3 million) and an irrigation project in La Joya (US$4.4 million).

(c)The Company’s mineral exploitation activities are subject to environmental protection standards. In order to comply with these standards, the Company has issued lettersobtained the approval for the Environment Adequacy Program (PAMA) and for the Environmental Impact Studies (EIA), required for the operation of credit to the Ministry of Energy and Mines totaling US$35.5Cerro Verde’s production unit.

On October 14, 2003, Law 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, the Company completed the closure plans for its mine site, and presented it to the Ministry of Energy and Mines.


Notes to the Financial Statements(continue)

The 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, 2019, pursuant to legal requirements, the Company has issued a letter of credit to the Ministry of Energy and Mines totaling US$51.0 million to secure mine closure plans.

The provision for remediation and mine closure costs is based on studies prepared by independent consultants and 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, soil recovery, and dismantling of plant and equipment.

The table below presents the changes in the provision for remediation and mine closure:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Beginning balance  131,888   156,859   153,313 
Accretion expense  4,048   4,322   4,595 
Changes in estimates, Note 7  41,130   (32,017)  (3,710)
Additions, Note 7  18,834   2,724   2,661 
             
Final balance  195,900   131,888   156,859 

As of December 31, 2019, the Company’s provision for remediation and mine closure was US$195.9 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 2.28%). 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%) The Company considers this liability sufficient to meet the current environmental protection laws approved by the Ministry of Energy and Mines (MEM).

As of December 31, 2019, changes in estimates (US$41.1 million) are mainly due to changes in the escalation ratio.

 

The estimate of remediation and mine closure costs is based on studies prepared by independent consultants and 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, soil recovery, and dismantling of plant and equipment.

The table below presents the changes in the provision for remediation and mine closure:

  2017  2016 
  US$(000)  US$(000) 
       
Beginning balance  153,313   161,270 
Accretion expense  4,595   4,391 
Changes in estimates, note 8  (3,710)  (16,091)
Additions, note 8  2,661   3,743 
         
Final balance  156,859   153,313 

(d)As of December 31, 2017,2019, represents the Company’s provisionnon-current portion of net assets tax (ITAN) for remediationthe years 2010 and mine closure was US$156.9 million (reflecting the future value of the provision for remediation and mine closure2011 of US$374.412.1 million discounted using an annual risk-free rateand interest and penalties associated with (i) income tax related to disputed mining royalties for the year 2010 of 2.73%). AsUS$42.1 million, (ii) ITAN for the years 2010 and 2011 of December 31, 2016,US$6.7 million and (iii) SRF for the Company’s provision for remediation and mine closure was US $153.3 million (reflecting the future valueyear 2013 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 considers this liability sufficient to meet the current environmental protection laws approved by the Ministry of Energy and Mines (MEM).

 F-203

Notes to the Financial Statements(continued)

As of December 31, 2017, changes in estimates (US$3.7 million) are mainly due to changes in the escalation ratio.

(c)Represents the non-current portion of disputed mining royalties for the period December 2006 through September 2011 of US$127.5 million, net asset tax (ITAN) for the years 2010, 2011 and 2013 of US$19.6 million, penalties of royalties for the period December 2006 to 2008 of US$1.4 million (see Note 18(a)).

(d)Represent the non-current portion of interest and interest on penalties associated with the installment program of mining royalties for the period December 2006 through the year 2008 (see Note 14(d)).

(e)Represents prior year SUNAT assessments related to income and non-income tax contingencies in which the Company expects to obtain an unfavorable result of US$11.4US$1.9 million.

 

13.Shareholders’ equity, net

Notes to the Financial Statements(continue)

 

(a)Capital stock -

As of December 31, 2017, 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.

As of December 31, 2018, represents the non-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.

 

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.

(e)The quoted price of these shares was US$29.70 per shareprovision for legal contingencies as of December 31, 2017 (US$19.11 per share as2019 is associated with OSINERGMIN and SUNAFIL (National Superintendence of December 31, 2016).

As of December 31, 2017,Labor Inspection) fines, which have been impugned by the Company’s capital stock structure is as follows:

Percentage of individual interest in capital Number of shareholders  Total percentage interest 
       
Up to 1.00  2,835   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 
        
   2,839   100.00 

 F-204

Notes to the Financial Statements(continued)

(b)Other capital reserves -Company.

 

12.Shareholders’ equity, net

(a)Capital stock -

As of December 31, 2019, 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 July 11, 2003, Shareholders Agreement, the nominal value of the shares was denominated in US dollars in an amount of US$0.54 per share. As a consequence of the capitalization of restricted earnings associated with tax benefits (reinvestment credits), in December 2009, the nominal value of the shares was increased to US$2.83 per share.

The quoted price of these shares was US$19.3 per share as of December 31, 2019 (US$20.80 per share as of December 31, 2018).

As of December 31, 2019, the Company’s capital stock structure is as follows:

Percentage of individual interest in capital Number of shareholders  Total percentage interest 
       
Up to 1.00  2,829   4.38 
From 1.01 to 20.00  2   21.06 
From 20.01 to 30.00  1   21.00 
From 30.01 to 60.00  1   53.56 
         
   2,833   100.00 


Notes to the Financial Statements(continue)

(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 earnings for the year up to a maximum of 20% of the paid-in capital. The legal reserve must be used to compensate for losses in the absence of non-distributed earnings or non-restricted reserves, and transfers made to compensate for losses must be replaced with future earnings. This legal reserve may also be used to increase capital stock but the balance must be restored from future earnings.

(c)Dividend Distribution -

Dividends paid to shareholders, other than domiciled legal entities, are subject to retention of income tax. On December 10, 2016, Legislative Decree 1261 was enacted reducing the withholding tax rate to 5.0% beginning January 1, 2017.

 

(c)Dividend Distribution -

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 withholding tax rate to 5.0% beginning January 1, 2017 (6.8% for the year 2016 under prior law 30296)

At the annual mandatory shareholders meeting held on March 29, 2019, shareholders approved a US$150 million dividend payment (US$0.428503 per common share). The total amount of these dividends was applied against retained earnings. This dividend was paid on April 30, 2019, and complied with the withholding tax rules (4.1%). For the years ended December 31, 2017, 2016 and 2015, the Company did not pay dividends.

 

14.

At the annual mandatory shareholders meeting held on March 23, 2018, shareholders approved 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%).

13.Tax situation

(a)On February 13, 1998, the Company signed an Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the Peruvian General Mining Law (the 1998 Stability Agreement). Upon approval of the 1998 Stability Agreement, the Company was subject to the tax, administrative and exchange regulations in force at May 6, 1996, for a period of 15 years, beginning January 1, 1999, and ending December 31, 2013.

On July 17, 2012, the Company signed a new Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the Peruvian General Mining Law.Law (the 1998 Stability Agreement). Upon approval of this stability agreement,the 1998 Stability Agreement, the Company becamewas subject to the tax, administrative and exchange regulations in force at July 17, 2012,May 6, 1996, for a period of 15 years, beginning January 1, 2014,1999, and ending December 31, 2013.

On July 17, 2012, the Company signed a new Agreement of Guarantees and Measures to Promote Investments with the Government of Peru, under the Peruvian General Mining Law. Upon approval of this stability agreement, the Company became subject to the tax, 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)Under its current 15-year tax stability agreement, the Peruvian income tax rate applicable to the Company is 32%. As of December 31, 2017, prepayments of income tax, which the Company expects to be used to offset future income tax provisions or will be refunded by SUNAT, totaled US$4.2 million (see Note 7).

For the year ended December 31, 2017,2019, prepayments of income tax, which the Company recognized currentexpects to be used to offset future income tax expense ofprovisions or will be refunded by SUNAT, totaled 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 income. These amounts include the effect of the mining royalties recognition (see Note 14(d)).

 F-205

Notes to the Financial Statements(continued)

For the year ended December 31, 2017, the disputed mining royalties and special mining taxes for prior years included in current income tax expense totals US$245.9 million (including US$69 million of disputed mining royalties, US$61.7 million of special mining tax, US$5.9 million for the SRF and US$109.3 million for income tax expense), and a deferred income tax credit of US$(241.7)128.1 million (see Note 14(d))6).

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

For the year ended December 31, 2019, the Company recognized current income tax expense of US$156.5 million (including US$28.4 million of mining royalties, US$18.6 million of special mining tax and US$1.8 million for the SRF), and a deferred income tax expense of US$141.6 million, resulting in total income tax expense of US$298.1 million that has been included in the statements of comprehensive income.

 

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.


Notes to the Financial Statements(continue)

(c)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 2016 and VAT from December 2013 through December 2017 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 is in the claim and appeal process for the years 2003 through 2010. The Company has filed a claim for the year 2011.

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.

(d)Royalties and special mining taxes –

On June 23, 2004, Law N° 28528 was approved, which requires the holder of a mineral concession to pay a royalty in return for the exploitation of metallic and non-metallic minerals.last four years. 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 14(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 operatingCompany’s 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 14(b) for a summary of amounts recognized by the Company for special mining tax and mining royalties for the years ended December 31, 20172013 through 2018 are open to examination by the tax authorities. To date, SUNAT has concluded its review of the Company’s income tax and 2016.VAT exams through the year 2012, and the Company is in the claim and/or appeal process for the years 2003 through 2012.

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.

 

SUNAT has assessed
(d)Royalties and special 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 2011.taxes –

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 basis 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, 2019, 2018 and 2017.

 

 F-206

Notes to the Financial Statements(continued)

Notes to the Financial Statements(continue)

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.

On October 29, 2019, the Company completed the payments of disputed assessments related to mining royalties for the period December 2006 to December 2008 that were under an installment program since 2014, Under that installment program, the Company made payments totaling S/711.1 million (US$221.9 million based on the date of payment exchange rate and US$214.4 million based on the December 31, 2019, exchange rate).

With respect to the judiciary appeal related 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.

In September 2018, the Peruvian Tax Tribunal confirmed SUNAT’s resolution that ordered the payment of royalties and denied the Company’s request to waive penalties and interest for the period January 2009 through September 2011. The Company elected not to appeal the Tax Tribunal’s decision to the Peruvian Judiciary and in early 2020, the Company initiated international arbitration.

In October 2018, SUNAT notified the Company demands for payments 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, 2019 is S/1.0 billion(approximately US$314.1 million based on the December 31, 2019, exchange rate, including deferred interest, interest and penalties of US$202.8 million).As of December 31, 2019, the Company has made payments totaling S/315.1 million (US$94.7 million based on the date of payment exchange rate and US$95.0 million based on the December 31, 2019, exchange rate).

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 issued resolutions denying this appeal. On November 21, 2018, the Company appealed SUNAT’s resolution to the Tax Court. On December 4, 2019, the Company received a resolution denying the appeal of assessments for the fourth quarter of 2011. On December 18, 2019, SUNAT notified the Company of its demands for payment and on December 26, 2019, the Company paid the total debt of S/57.6 million (US$17.3 million based on the date of payment exchange rate and US$17.4 million based on the December 31, 2019, exchange rate). 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. The Company appealed these assessments and SUNAT issued resolutions denying this appeal. Consequently, the Company appealed these assessments to the Tax Court which was also denied the appeal in July 2019.The Company then requested, and was granted an installment payment program, including a six-month deferral and66 equal monthly payments, for the fourth quarter of 2011 through the fourth quarter of 2012. Total debt as of December 31, 2019, is S/255.8 million(approximately US$77.1 million based on theDecember 31, 2019, exchange rate, including deferred interest, interest and penalties of US$40.5 million).Payments for this installment program will start in the first quarter of 2020.


Notes to the Financial Statements(continue)

On April 18, 2018, the Company received assessments from SUNAT related to mining royalties for the year 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 the year 2012. The Company decided not to appeal these resolutions.The Company requested, and was granted an installment payment program, including a six-month deferral and66 equal monthly payments, for the year 2012. Total debt as of December 31, 2019, is S/266.1 million(approximately US$80.2 million based on theDecember31, 2019, exchange rate, including deferred interest, interest and penalties of US$45.7 million). The Company has made payments totaling S/65.7 million (US$19.5 million based on the date of payment exchange rate and US$19.8 million based on the December 31, 2019, exchange rate).

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. On May 28, 2019, the Company received resolutions issued by SUNAT denying the appeal of these assessments for the year 2013. The Company decided not to appeal these resolutions. The Company requested, and was granted two installment payment programs, including a six-month deferral and 66 equal monthly payments for each one, for the year 2013. As of December 31, 2019, the amount of these assessments, including interest and penalties for mining royalties for the year 2013 is S/183.9 million (approximately US$55.4 million based on the December 31, 2019, exchange rate including interest and penalties of US$29.5 million) and for the special mining tax for the year 2013 is S/151.0 million (approximately US$45.5 million based on the December 31, 2019, exchange rate including interest and penalties of US$22.1 million). Payments for these installment programs will start in the first quarter of 2020.

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 in excess for FONAVI (National Housing Fund) (December 2012 to December 2013), GEM (fourth quarter 2011 until the fourth quarter 2012) and customs duties (2013).


Notes to the Financial Statements(continue)

 

SUNAT issued resolutions denying the claims made by the Company
(e)Other assessments received from December 2006 through December 2009. The Company appealed this decision to Tax Court. On June 20, 2013, the Peruvian Tax Tribunal issued two decisions reaffirming assessments for the period December 2006 through December 2008. Decisions by the Tax Court ended the administrative stage of the appeal proceduresSUNAT

The Company has also received assessments from SUNAT for additional taxes (other than the mining royalty and special mining tax explained in 13(d) above), including penalties and interest. The Company has filed 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) 
              
2003 – 2005   8,857   39,196   48,053 
2006   10,990   51,943   62,933 
2007   12,376   17,845   30,221 
2008   20,797   12,968   33,765 
2009   56,388   51,219   107,607 
2010   62,581   107,324   169,905 
2011   49,055   65,189   114,244 
2012   51,981   11,257   63,238 
2014 –2019   38,975   -   38,975 
              
    312,000   356,941   668,941 

As of December 31, 2019, the Company has paid US$396.5 million of which US$186.6 million is included in “other non-financial assets, non-current” (see Note 6) in the statements of financial position for these disputed tax assessments.

 

On September 18, 2013, the Company filed two administrative demands in the court system. In connection with demands for the periods December 2006 to December 2007, the Twentieth Tax and Customs Specialized Contentious Administrative Court of Lima dismissed this claim. On May 2, 2016, Cerro Verde appealed this decision. The Seventh Contentious Administrative Court dismissed this claim in July 2017. On August 9, 2017, the Company appealed the decision to the Supreme Court.

With respect to the judiciary appeal related to the assessment for the year 2008, on December 17, 2014, the Eighteenth Contentious Administrative Court rendered its decision upholding the Company’s position and nullifying SUNAT’s assessment and the Tax Tribunal´s resolution (S/106.4 million). The Court’s position also invalidates all penalties and interest assessed by SUNAT for that period (S/139.7 million). In December 2014, SUNAT appealed this decision. On January 29, 2016, the Sixth Superior Justice Court nullified the decision of the Eighteenth Contentious Administrative Court. On February 23, 2016, the Company appealed the decision to the Supreme Court. On October 6, 2017, the Supreme Court issued a ruling in favor of SUNAT that the assessments of mining royalties for the year 2008 on ore processed by the Cerro Verde concentrator were proper under Peruvian law.

On October 1, 2013, SUNAT served the Company a demand for payment totaling S/492 million (approximately US$151.5 million based on the December 31, 2017 exchange rate, including interest and penalties of US$89.2 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.
(f)As of December 31, 2017,2019 and 2018, the Company has issued letters of credit to secure tax obligations amounting to S/1,643.9 million (equivalent to US$495.6 million) and S/1,137.4 million (equivalent to US$336.6 million), respectively, which are primarily related to royalty matter.


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 payments totaling S/459.7 million (US$145.9up as follows:

  December 31, 2019  December 31, 2018  December 31, 2017 
   US$(000)   US$(000)   US$(000) 
Deferred income tax            
Asset            
Royalty accrual  84,546   109,505   127,475 
Provision for remediation and mine closure  17,309   15,131   12,083 
Embedded derivatives for price adjustment of copper concentrate and cathode  (10,742)  6,050   - 
Unpaid vacations  6,618   5,937   5,293 
Provision for mining taxes  3,737   4,120   8,742 
SUNAT Assessments  -   4,055   4,077 
Cost of net asset for the construction of the tailing dam  1,191   2,638   2,007 
Development costs  72   122   183 
Leases net assets  (2,454)  -     
Other provisions  10,276   10,450   4,240 
   110,553   158,008   164,100 
Liability            
Property, plant and equipment depreciation  429,466   337,642   261,434 
Stripping activity asset  33,660   27,464   22,014 
Difference in valuation of inventories  14,885   16,605   16,264 
Debt issuance costs  933   1,894   2,663 
Lease liabilities  (2,860)  -   - 
Price adjustment of copper concentrate and cathode  -   -   25,840 
   476,084   383,605   328,215 
Deferred liabilities, net  365,531   225,597   164,115 
Supplementary retirement fund            
Deferred liability  4,258   2,651   1,890 
             
Total deferred income tax liability, net  369,789   228,248   166,005 


Notes to the Financial Statements(continue)

Reconciliation of the income tax rate -

For the years ended December 31, 2019, 2018 and 2017, 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:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Profit before income tax  688,451   444,880   835,924 
Income tax rate  32%  32%  32%
Expected income tax expense  220,304   142,362   267,496 
Non - deductible expenses  28,181   25,352   25,217 
Royalty case  -   143,728   (12,029)
Uncertain tax positions - IFRIC 23  20,767   -   - 
Special mining tax and mining royalties  (15,660)  (25,165)  (21,704)
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%)  (2,746)  (1,958)  (1,632)
Income tax true – ups  (10,255)  (10,312)  10,210 
Others  7,620   4,896   (4,125)
Current and deferred income tax charges to results  248,211   256,569   263,433 
Mining taxes charged to results  48,036   65,055   213,280 
Supplementary retirement fund charged to results  1,827   3,546   9,330 
             
   298,074   325,170   486,043 
             
Effective income tax  43.30%  73.09%  58.14%


Notes to the Financial Statements(continue)

Income tax -

The income tax expense (benefit) for the years ended December 31, 2019, 2018 and 2017 is shown below:

  2019  2018  2017 
   US$(000)   US$(000)   US$(000) 
             
Income tax            
Current  107,666   254,767   430,974 
Deferred  139,934   61,483   (167,541)
   247,600   316,250   263,433 
Mining taxes            
Current mining royalty and special mining tax  47,032   6,661   213,280 
             
Supplementary retirement fund            
Current  1,835   1,499   10,897 
Deferred  1,607   760   (1,567)
   3,442   2,259   9,330 
             
Income tax expense reported in the statements of comprehensive income  298,074   325,170   486,043 

14.Sales of goods
(a)This item is made up as follows:

  For the year ended
December 31, 2019
  For the year ended
December 31, 2018
  For the year ended December 31, 2017 
   Pounds
(000)
   US$(000)   Pounds
(000)
   US$(000)   Pounds
(000)
   US$(000) 
                         
Copper in concentrate  912,974   2,294,249   962,113   2,458,088   979,243   2,702,508 
Copper cathode  88,875   244,277   86,346   251,908   84,679   241,725 
Other (primarily silver and molybdenum concentrate)      358,368       351,934       267,033 
Subtotal Sales      2,896,894       3,061,930       3,211,266 
Less: Royalty contributions (see Note 2(k))      (6,828)      (7,904)      (8,335)
                         
Total net sales      2,890,066       3,054,026       3,202,931 
                         


Notes to the Financial Statements(continue)

Sales to related parties totaled US$2.7 billion for the year ended December 31, 2019 (US$2.9 billion for the year ended December 31, 2018 and US$3.0 billion for the year ended December 31, 2017).

As described in Note 2(d), the Company’s copper sales are provisionally priced at shipment. Adjustments to the provisional prices are recognized as gains and losses in sales of goods through the month of settlement. Adjustments to provisional priced copper and molybdenum sales resulted in an increase to net sales of goods totaling US$56.8 million for the year ended December 31, 2019, and a decrease of US$88.8 million for the year ended December 31, 2018.

(b)The following table shows net sales by geographic region based on the datefinal destination port:

  For the year ended December 31, 2019  For the year ended December 31, 2018  For the year ended December 31, 2017 
   US$(000)   US$(000)   US$(000) 
             
Asia  2,374,350   2,404,530   2,416,826 
North America  265,599   295,448   287,174 
South America (primarily Peru)  168,077   136,400   193,174 
Europe  77,716   209,894   314,092 
Central America  11,152   15,658   - 
   2,896,894   3,061,930   3,211,266 
Less: Royalty contributions (see Note 2(k))  (6,828)  (7,904)  (8,335)
             
Total net sales  2,890,066   3,054,026   3,202,931 

(c)Concentration of payment exchange rate and US$141.7 million based on December 31, 2017 exchange rates) under the installment program.sales -

For the year ended December 31, 2019 92% of the Company’s sales were to related entities (FMC, Sumitomo Metal Mining Company and Climax Molybdenum). For the years ended December 31,2018 and 2017 94% of the Company's sales were to these related entities, respectively.


Notes to the consolidated financial statements(continued)

 

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
15.Cost of December 31, 2017, the amountsales

This item is made up as follows:

  For the year ended
December 31, 2019
  For the year ended
December 31, 2018
  For the year ended
December 31, 2017
 
  US$(000)  US$(000)  US$(000) 
          
Materials and supplies  693,292   693,316   556,022 
Depreciation and amortization  523,512   512,298   456,467 
Labor (a)  285,081   357,692   286,058 
Energy  228,853   254,243   229,272 
Third parties services  181,215   159,514   144,829 
Depreciation for right-of-use assets (see Note 7 and 10(a))  11,488   -   - 
Variable lease payments, low-value and short-term leases (see Note 10(a))  7,069   -   - 
Management Fees  2,923   2,743   2,867 
Change in finished goods inventory  (2,290)  (5,723)  2,060 
Change in work in process inventory  (23,427)  (8,513)  51,412 
Other costs  47,033   45,402   39,251 
             
   1,954,749   2,010,972   1,768,238 

(a)Labor includes an expense of the assessment, including interest and penalties,US$32.2 million related to profit sharing for the year 2009 was S/289.2 million (approximately US$89.1 million based on theended December 31, 2017 exchange rate, including interest and penalties of US$56.2 million).

 F-207

Notes to the Financial Statements(continued)

In April 2016, the Company received assessments from SUNAT for the year 2010 and for January to September 2011. On May 11, 2016, the Company appealed these assessments. On March 1, 2017, SUNAT issued resolutions denying the claims made by the Company. On March 22, 2017, the Company appealed this decision to the Tax Court. As of December 31, 2017, the amount of assessments from SUNAT including interest and penalties for the year 2010 and from January to September 2011 is S/586.5 million (approximately US$180.7 million based on the December 31, 2017, exchange rate, including interest and penalties of US$99.9 million).

On January 18, 2018, the Company received assessments from SUNAT related to mining royalties for the fourth quarter 2011. The Company plans to appeal these assessments. As of December 31, 2017, the amount of the assessments from SUNAT including interest and penalties for the fourth quarter 2011 is S/49.8 million (approximately US$15.3 million based on the December 31, 2017, exchange rate, including interest and penalties of US$7.8 million).

As a result of the unfavorable Supreme Court decision on the 2008 royalty matter, the Company recorded net charges totaling US$3932019 (US$60.2 million for the year ended December 31, 2017, associated with disputed royalty assessments2018 and potential royalty and related assessments for the period December 2006 through the year 2013. These charges are included in “other operating expenses” (Note 18), “financial expenses” (Note 19) and “income tax expense” (Note 14(b)) in the statements of comprehensive income.

The Company intends to seek a waiver available under Peruvian law of penalties and interest associated with this matter and has not recorded charges for potential unpaid penalties and interest totaling US$385 million at December 31, 2017.

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 GEM (September 2012 to December 2013), FONAVI (National Housing Fund) (December 2012 to December 2013) and customs duties (2013).

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

 F-208

Notes to the Financial Statements(continued)

(e)Other assessments received from SUNAT

The Company has also received assessments from SUNAT for additional taxes (other than the mining royalty explained in 14(d) above), including penalties and interest. The Company has filed or will file objections to the assessments because it believes it has properly determined and paid its taxes. A summary of these assessments follows:

Year Taxes  Penalty and interest  Total 
  US$(000)  US$(000)  US$(000) 
          
2003 – 2005  15,909   54,053   69,962 
2006  6,545   59,454   65,999 
2007  12,376   17,809   30,185 
2008  20,797   12,968   33,765 
2009  58,495   49,112   107,607 
2010  65,997   107,139   173,136 
2011  49,055   63,931   112,986 
2014 –2017  23,450   -   23,450 
   252,624   364,466   617,090 

(f)As of December 31, 2017 and 2016, the Company has issued letters of credit to secure tax obligations amounting to S/280.8 million (equivalent to US$86.5 million) and S/387.5 million (equivalent to US$115.3 million), respectively, of which S/266.3 million (equivalent to US$82.1 million) and S/372.2 million (equivalent to US$110.8 million) are related to mining royalties for the years ended December 31, 2017 and 2016, respectively.

(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,
2017
  December 31,
2016
  December 31,
2015
 
  US$(000)  US$(000)  US$(000) 
          
Income tax            
Asset           
Royalty accrual  127,475   -   - 
Provision for remediation and mine closure  12,083   9,180   5,638 
Provision for mining taxes  8,742   4,003   1,505 
Unpaid vacations  5,293   4,055   2,515 
SUNAT Assessments  4,077   -   - 
Cost of net asset for the construction of the tailing dam  2,007   2,321   1,682 
Development costs  183   228   332 
Price adjustment of copper concentrates and cathode  -   -   7,849 
Other provisions  4,240   5,248   4,750 
             
   164,100   25,035   24,271 
             
             
Liability            
Difference in depreciation method  261,434   283,882   245,670 
Price adjustment of copper concentrate and cathode  25,840   24,128   - 

 F-209

Notes to the Financial Statements(continued)

  December 31,
2017
  December 31,
2016
  December 31,
2015
 
  US$(000)  US$(000)  US$(000) 
          
Stripping activity asset  22,014   23,594   17,820 
Difference in valuation of inventories  16,264   25,087   10,997 
Debt issuance costs  2,663   -   - 
             
   328,215   356,691   274,487 
Deferred liabilities, net  164,115   331,656   250,216 
             
Supplementary retirement fund            
Deferred liability  1,890   3,458   2,937 
             
             
Total deferred income tax liability, net  166,005   335,114   253,153 

Reconciliation of the income tax rate -

For the years ended December 31, 2017, 2016 and 2015, 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:

  2017  2016   2015 
  US$(000)  US$(000)   US$(000) 
           
Profit before income tax  835,924   603,989   79,530 
Income tax rate  32%  32%  32%
             
Expected income tax expense  267,496   193,276   25,450 
Non - deductible expenses  25,217   27,788   19,534 
Royalty case  (12,029)  -   - 
Special mining tax and mining royalties  (21,704)  (12,084)  (4,672)
Income tax rate change effect on deferred taxes for change in Peruvian tax law once the current Stability Contract expires (from 32% to 31.35%)  (1,632)  13,850   - 
Income tax true – ups  10,210   1,677   (6,082)
Others  (4,125)  (1,913)  (3,047)
             
Current and deferred income tax charges to results  263,433   222,594   31,183 
Mining taxes charged to results  213,280   37,763   14,599 
Supplementary retirement fund charged to results  9,330   2,725   464 
             
   486,043   263,082   46,246 
             
Effective income tax  58.14%  43.56%  58.15%

 F-210

Notes to the Financial Statements(continued)

Income tax -

The income tax expenses (benefit) for the years ended December 31, 2017, 2016 and 2015 is shown below:

  2017  2016   2015 
  US$(000)  US$(000)   US$(000) 
           
Income tax            
Current  430,974   141,153   (832)
Deferred  (167,541)  81,441   32,015 
             
   263,433   222,594   31,183 
             
Mining taxes            
Current mining royalty and special mining tax  213,280   37,763   14,599 
             
Supplementary retirement fund            
Current  10,897   2,205   54 
Deferred  (1,567)  520   410 
             
   9,330   2,725   464 
             
Income tax expense reported in the statements of comprehensive income  486,043   263,082   46,246 

 F-211

Notes to the Financial Statements(continued)

15.Sales of goods

(a)This item is made up as follows:

  For the year ended
December 31, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  Pounds(000)  US$(000)  Pounds(000)  US$(000)  Pounds(000)  US$(000) 
                   
Copper in concentrate  979,243   2,702,508   995,386   1,967,052   440,071   794,197 
Copper cathode  84,679   241,725   109,128   247,431   104,279   259,830 
Other (primarily silver and molybdenum concentrate)      267,033       176,357       65,343 
                         
Subtotal Sales      3,211,266       2,390,840       1,119,370 
Less: Royalty contributions (see Note 2(k))      (8,335)      (6,686)      (3,753)
                         
Total net sales      3,202,931       2,384,154       1,115,617 

Sales to related parties totaled US$3.0 billion for the year ended December 31, 2017 (US$2.3 billion for the year ended December 31, 2016 and US$0.9 billion for the year ended December 31, 2015).

As described in Note 2(d), the Company’s copper sales are provisionally priced at shipment. Adjustments to the provisional prices are recognized as gains and losses in sales of goods through the month of settlement. Adjustments to provisional priced copper and molybdenum sales resulted in an increase to net sales of goods totaling US$1.386.4 million for the year ended December 31, 2017, and an increase of US$86.3 million for the year ended December 31, 2016 and an increase of US$7.9 million for the year ended December 31, 2015.

(b)The following table shows net sales by geographic region based on the final destination port:

  For the year ended
December 31, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  US$(000)  US$(000)  US$(000) 
          
Asia  2,416,826   1,865,346   770,272 
Europe  314,092   161,844   65,648 
North America  287,174   213,002   79,244 
South America (primarily Peru)  193,174   150,648   204,206 
   3,211,266   2,390,840   1,119,370 
Less: Royalty contributions (see Note 2(k))  (8,335)  (6,686)  (3,753)
             
Total net sales  3,202,931   2,384,154   1,115,617 

(c)Concentration of sales -2017).

 

In compliance with corporate policies, the Company recognizes administrative costs directly to cost of production (approximately U$32 million for the year ended December 31, 2019, US$30.7 million for the year ended December 31, 2018 and US$34.4 million for the year ended December 31, 2017). The effect of this policy is immaterial to the financial statements as a whole.

16.Selling Expenses

This item is made up of as follows:

  For the year ended
December 31, 2019
  For the year ended
December 31, 2018
  For the year ended
December 31, 2017
 
  US$(000)  US$(000)  US$(000) 
          
Concentrate freight  98,933   126,670   131,528 
Commissions  5,588   6,048   6,029 
Cathode freight  1,890   1,831   1,665 
Other  3,072   2,459   2,447 
             
   109,483   137,008   141,669 

F-251 

Notes to the consolidated financial statements(continued)

17.Other operating expenses

This item is made up as follows:

  For the year ended
December 31, 2019
  For the year ended
December 31, 2018
  For the year ended
December 31, 2017
 
  US$(000)  US$(000)  US$(000) 
          
Optimization and prefeasibility/feasibility studies (a)  14,919   450   - 
Fines and penalties (b)  14,183   -   - 
Tax contingencies (c)  6,119   10,711     
Other expenses  2,895   2,434   15,028 
Royalties, ITAN and penalties (d)  -   55,088   243,798 
             
   38,116   68,683   258,826 

(a)For the year ended December 31, 2017, 94%2019, represents charges related to projects for the optimization of the Company’s sales wereoperating processes.

(b)Primarily represents land rights penalties with INGEMMET (US$6.8 million), SUNAT penalties related to 2012 income tax audit (US$4.7 million) and OSINERGMIN fines (US$2.7 million).

(c)Primarily represents non-income tax contingencies related entities (FMC, Sumitomo Metal Mining Companyto SUNAT assessments for prior years.

(d)Primarily 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 Climax Molybdenum). profit sharing adjustments related to GEM refund of US$3.6 million.

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.

F-252 

Notes to the consolidated financial statements(continued)

18.Financial expenses

This item is made up as follows:

  For the year ended
December 31, 2019
  For the year ended
December 31, 2018
  For the year ended
December 31, 2017
 
  US$(000)  US$(000)  US$(000) 
          
Interest on mining royalties (a)  68,107   370,159   144,815 
Interest on senior unsecured credit facility ( see Note 10(b))  39,083   49,551   44,678 
Interest for leases (see Note 10(a))  5,242   -   - 
Other financial expenses  4,882   6,492   10,934 
Amortization debt issuance cost  1,768   2,419   4,479 
Extinguishment debt - debt issuance cost (see Note 10(b))  1,299   1,902   6,266 
Interest on shareholder loans  -   -   7,992 
Capitalized Interest  (4,504)  (3,790)  (2,252)
             
   115,877   426,733   216,912 

(a)For the year ended December 31, 20162019, primarily represents charges of interest related to the installment payment programs for SMT for the period October 2011 through December 2013 and 2015, 95%disputed mining royalties for the period December 2006 through September 2011 and 80%, respectively,for the years 2012 and 2013 of US$53.6 million. Amount also includes interest associated with (i) ITAN for the Company’s sales wereyears 2010, 2011 and 2013 of US$10.4 million, (ii) other taxes related to these related entities.disputed mining royalty of US$2.9 million and (iii) disputed mining royalties for the period October 2011 through December 2011 of US$1.2 million.

For the year ended December 31, 2018, represents (i) interest and interest on penalties associated to 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, (iv) ITAN for the years 2009, 2010, 2011 and 2013 of US$12.1 million, (v) interest paid on the royalty installment payment program for the year 2006 through the year 2008 of US$6.1 million, (vi) 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 (vii) 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-253 

Notes to the consolidated financial statements(continued)

 

 F-212
19.Financial Income

This item is made up as follows:

  For the year ended
December 31, 2019
  For the year ended
December 31, 2018
  For the year ended
December 31, 2017
 
  US$(000)  US$(000)  US$(000) 
          
Special Mining Burden (GEM) (a)  -   18,574   - 
Other financial income  10,356   9,515   5,350 
             
   10,356   28,089   5,350 

 

Notes
(a)Represents interest related to the Financial Statements(continued)

16.Cost of salesGEM refund from the period October 2012 through December 2013.

 

This item is made up as follows:

  For the year ended
December 31, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  US$(000)  US$(000)  US$(000) 
          
Materials and supplies  556,022   496,918   

364,234

 
Depreciation and amortization  456,467   472,997   

244,477

 
Labor (a)  286,058   215,839   

146,395

 
Energy  229,272   229,035   

118,019

 
Third parties services  144,829   100,897   

95,087

 
Change in work in process inventory  51,412   (3,789)  

(118,327

)
Management Fees  2,867   2,793   

3,565

 
Change in finished goods inventory  2,060   (3,951)  

467

 
Other costs  39,251   42,301   

8,087

 
   1,768,238   1,553,040   

862,004

 

(a)Labor includes an expense of US$86.4 million related to profit sharing for the year ended December 31, 2017 (US$36.8 million for the year ended December 31, 2016 and credit of US$1.6 million for the year ended December 31, 2015).

In compliance with corporate policies, the Company recognizes administrative costs directly to cost of production (approximately U$34.4 million for the year ended December 31, 2017, and US$23.4 million for the year ended December 31, 2016 and US$19.5 million for the year ended December 31, 2015). The effect of this policy is immaterial to the financial statements as a whole.

17.Selling Expenses

This item is made up of as follows:

  For the year ended
December 31, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  US$(000)  US$(000)  US$(000) 
          
Concentrate freight  131,528   122,431   

51,842

 
Commissions  6,029   5,989   

2,729

 
Cathode freight  1,665   2,148   

1,644

 
Other  2,447   823   - 
   141,669   131,391   

56,215

 

 F-213

Notes to the Financial Statements(continued) 

18.Other operating expenses

This item is made up as follows:

  For the year ended
December 31, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  US$(000)  US$(000)  US$(000) 
          
Royalties, net of asset tax (ITAN) and penalties (a)  243,798   -   - 
Other expenses  15,028   24,107   

26,739

 
   258,826   24,107   

26,739

 

(a)Represents disputed royalties for the period December 2006 through September 2011 of US$174.8 million, net asset tax (ITAN) for the years 2009 to 2013 of US$33.6 million, profit sharing adjustments related to mining royalties of US$29.2 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 are recognized in “income tax expense” in the statements of comprehensive income (see Note 14(b)).
20.Earnings per share

 

19.Financial expenses

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, 2019
  For the year ended
December 31, 2018
  For the year ended
December 31, 2017
 
  US$  US$  US$ 
          
Profit for the period (US$)  390,377,000   119,710,000   349,881,000 
Weighted average number of share outstanding (Note 12(a))  350,056,012   350,056,012   350,056,012 
Basic and diluted earnings per share (US$)  1.115   0.342   1.000 

 

This item is made up as follows:

  For the year ended
December 31, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  US$(000)  US$(000)  US$(000) 
          
Interest on mining royalties (a)  144,815   -   -
Interest on senior unsecured credit facility (Note 11(a))  44,678   51,155   

35,255

 
Other financial expenses (b)  10,934   1,880   

7,366

 
Interest on shareholder loans (Note 11(b))  7,992   19,836   

1,181

 
Extinguishment debt - debt issuance cost  6,266   -   - 
Amortization debt issuance cost  4,479   8,901   5,927 
Capitalized Interest  (2,252)  (1,334)  

(33,719

)
   216,912   80,438   

16,010

 

(a)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 (see Note 14(d)).
21.Financial risk management

 

(b)Primarily represents interest and interest on penalties on income and non-income tax contingencies related to SUNAT assessments for prior years in which the Company expects to obtain an unfavorable result.

The Company’s activities are exposed to different financial risks. 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, credit risk and capital risk. The Company’s financial risk management program focuses on mitigating potential adverse effects on its financial performance.

 

20.Earnings per share

Management knows the conditions prevailing in the market and based on its knowledge and experience, manages the risks that are summarized below. The Company’s Board of Directors reviews and approves the policies to manage each of these risks:

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, 2017
  For the year ended
December 31, 2016
  For the year ended
December 31, 2015
 
  US$(000)  US$(000)  US$(000) 
          
Profit for the period (US$)  349,881,000   340,907,000   

33,284,000

 
Weighted average number of share outstanding (Note 13(a))  350,056,012   350,056,012   

350,056,012

 
Basic and diluted earnings per share (US$)  1.000   0.974   

0.095

 

 

 F-214

Notes to the Financial Statements

Notes to the consolidated financial statements(continued)

21.Financial risk management

The Company’s activities are exposed to different financial risks. 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, 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, manages the risks that are summarized below. The Company’s Board of Directors reviews and approves the policies to manage each of these risks.

 

(a)Market risk -

Commodity price risk -

The international price of copper has a significant impact on the Company’s operating results. The price of copper has fluctuated historically and is affected by numerous factors beyond the Company’s control. The Company does not hedge its exposure to price fluctuation.

 

As described in 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 records revenues and invoices customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on the provisionally priced contract that is 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 to revenues is recorded each reporting period until the date of final pricing (see Note 22).

 F-215

Notes to the Financial Statements(continued)

  

The table below summarizes the estimated impact on the Company’s profit before income tax for the year 2019, 2018 and 2017 based on a 10% increase or decrease in future copper price while all other variables are held constant. The 10% increase is based on copper prices ranging from US$/pound 2.865 to US$/pound 3.085 (US$/pound 2.974 to US$/pound 2.979 for the year 2018 and US$/pound 3.602 to US$/pound 3.627 for the year 2017), and the 10% decrease is based on copper prices ranging from US$/pound 2.344 to US$/pound 2.524 (US$/pound 2.433 to US$/pound 2.437 for the year 2018 and US$/pound 2.947 to US$/pound 2.967 for the year 2017)).

Effect on profit before
income tax
US$(000)
December 31, 2019
10% increase in future copper prices99,219
10% decrease in future copper price while all other variables are held constant. The 10% increase is based on copper prices ranging from US$/pound 3.602 to US$/pound 3.627, and the 10% decrease is based on copper prices ranging from US$/pound 2.947 to US$/pound 2.967.

Effect on profit before
income tax
US$(000)
December 31, 2017
10% increase in future copper prices83,955
10% decrease in future copper prices(83,955(99,219)

 

Exchange rate risk -
Effect on profit before
income tax
US$(000)
December 31, 2018
10% increase in future copper prices72,847
10% decrease in future copper prices(72,847)

As described
Effect on profit before
income tax
US$(000)
December 31, 2017
10% increase in Note 2(c), the Company’s financial statements are presentedfuture copper prices83,955
10% decrease in US dollars, which is the functional and presentation currency of the Company. The Company’s exchange-rate risk arises mainly frombalances related to tax payments, deposits and other accounts payable in currencies other than the US dollar, principally Soles. The Company mitigates its exposure to exchange-rate risk by carrying out almost all of its transactions in its functional currency and management maintains only small amounts in Solesfuture copper prices(83,955)

F-255 

Notes to the consolidated financial statements(continued)

Exchange rate risk -

As described in Note 2(c), the Company’s financial statements are presented in US dollars, which is the functional and presentation currency of the Company. The Company’s exchange-rate risk arises mainly frombalances related to tax payments, deposits and other accounts payable in currencies other than the US dollar, principally soles. The Company mitigates its exposure to exchange-rate risk by carrying out almost all of its transactions in its functional currency and management maintains only small amounts in soles to cover its immediate needs (i.e., taxes and compensation) in this currency.

 

(b)Liquidity risk -

Liquidity risk arises from situations in which cash might not be available to pay obligations at their maturity date and at a reasonable 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. Additionally, the Company has the ability to obtain funds from financial institutions and shareholders to meet its contractual obligations.

 

 F-216

Notes to the Financial Statements

Notes to the consolidated financial statements(continued)

 

The following tables show the expected aging of maturity of the Company’s obligations, excluding taxes and accruals, as of December 31, 2019 and 2018:

  On demand  Less than
3 months
  3 to 12 months  1 to 5 years  More than
5 years
  Total 
  US$(000)  US$(000)  US$(000)  US$(000)  US$(000)  US$(000) 
As of December 31, 2019                        
Trade accounts payable  -   224,675   245   -   -   224,920 
Accounts payable - related parties  -   4,014   -   10,074   -   14,088 
Other financial liabilities  -   3   8,852   825,877   76,943   911,675 
Other accounts payable  -   40,357   59,023   72,759   289,705   461,844 
Total  -   269,049   68,120   908,710   366,648   1,612,527 
As of December 31, 2018                        
Trade accounts payable  -   231,080   56   -   -   231,136 
Accounts payable - related parties  -   6,014   -   8,860   -   14,874 
Other financial liabilities  -   -   -   1,022,810   -   1,022,810 
Other accounts payable  -   7,472   93,782   183,824   31,246   316,324 
Total  -   244,566   93,838   1,215,494   31,246   1,585,144 


Notes to the consolidated financial statements(continued)

(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 cash and cash equivalent transactions. The risk is limited to balances deposited in banks and financial institutions and for trade accounts receivable at the date of the statements of financial position (the Company sells copper concentrate and cathode and molybdenum concentrate to companies widely recognized in the worldwide mining sector and collections are made within 30 days after the fulfilment of the contractual terms). To manage this risk, the Company has 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 losses on accounts involving potential credit risk.

(d)Capital management -

The objective is to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders, 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 conditions. To maintain or adjust the capital structure, the Company controls dividend payments to shareholders, the return of capital to shareholders and the issuance of new shares. No changes were made to the objectives, policies or processes during the year ended December 31, 2019.

22.Embedded derivatives

As discussed in Note 2(d), the Company’s sales create exposure to changes in the market prices of copper and molybdenum which are considered embedded derivatives. As of December 31, 2019 and 2018, information about the Company’s embedded derivatives is as follows:

       As of December 31, 2019
  Pounds
payable
  Maturity Provisional pricing Forward pricing Fair value provision 
  (000)    US$/Pound US$/Pound US$(000) 
             
Copper Concentrate  246,441  January 2020 to May 2020 Between 2.567 and 2.774 Between 2.793 and 2.804  39,727 
Copper Cathode  4,410  January 2020 2.791 2.793  9 
Molybdenum  5,370  January 2020 to February 2020 Between 7.857 and 9.724 8.025  (3,031)
               
             36,705(a)


Notes to the consolidated financial statements(continued)

       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)

(a)Embedded derivative adjustments are recorded on the statement of financial position in “Trade account receivable – related parties” (US$36.1 million as of December 31, 20172019, and 2016:

  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) 
                
As of December 31, 2017                    
Trade accounts payable  -   194,890   68   -   194,958 
Accounts payable - related parties  -   5,534   -   8,147   13,681 
Other financial liabilities  -   -   -   1,268,488   1,268,488 
Provision related to benefits to employees  -   64,339   16,406   29,158   109,903 
Other accounts payable  -   3,374   36,808   -   40,182 
                     
Total  -   268,137   53,282   1,305,793   1,627,212 
                     
As of December 31, 2016                    
Trade accounts payable  -   168,244   113   -   168,357 
Accounts payable - related parties  -   27,134   -   7,132   34,266 
Other financial liabilities  -   -   161   1,995,843   1,996,004 
Provision related to benefits to employees  -   3,807   44,232   -   48,039 
Other accounts payable  -   2,402   1,217   -   3,619 
                     
Total  -   201,587   45,723   2,002,975   2,250,285 

 F-217

Notes to the Financial Statements(continued)

(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 cash and cash equivalent transactions. The risk is limited to balances deposited in banks and financial institutions and for trade accounts receivable at the date of the statements of financial 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 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 losses on accounts involving potential credit risk.

(d)Capital management -

The objective is to safeguard the Company’s ability to continueUS$(19.3) million as a going concern in order to provide returns for shareholders, 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 conditions. To maintain or adjust the capital structure, the Company controls dividend payments to shareholders, the return of capital to shareholders and the issuance of new shares. No changes were made to the objectives, policies or processes during the year ended December 31, 2017.

22.Embedded derivatives

As discussed in Note 2(d), the Company’s sales create exposure to changes in the market prices of copper and molybdenum which are considered embedded derivatives. As of December 31, 20172018) and 2016, information about the Company’s embedded derivatives is“Trade accounts receivable (net)” (US$0.6 million as follows:

       As of December 31, 2017 
  Pounds
payable
  Maturity Provisional pricing Forward pricing  Fair value provision 
  (000)    US$ US$  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 

 F-218of December 31, 2019, and US$(0.8) million as of December 31, 2018).

Notes to the Financial Statements(continued)

       As of December 31, 2016 
  Pounds
payable
  Maturity Provisional pricing Forward pricing  Fair value provision 
  (000)    US$ US$  US$(000) 
                 
Copper Concentrate  344,787  January 2017 to  May 2017 Between 2.091 and 2.656  Between 2.507 and 2.512   68,130 
Copper Cathode  7,936  January 2017 Between 2.488 and 2.678  2.507   (1,000)
Molybdenum  3,455  January 2017 to February 2017 Between 5.431 and 5.484  5.542   319 
               67,449 

 

23.Hierarchy and fair value of financial instruments

Hierarchy:

As of December 31,2017 and 2016,the only financial assets carried at fair value are embedded derivatives, which are generated by the sale of copper and molybdenum and measured at fair value based on commodity prices. The net value of this embedded derivative as of December 31, 2017, was an asset of US$68.7million(asset of US$67.4 millionas of December 31, 2016). Embedded 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 variable 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.

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, 2017 and 2016.

Hierarchy:

As of December 31,2019 and 2018,the only financial assets carried at fair value are embedded derivatives, included in trade accounts receivable and related parties,which are generated by the sale of copper and molybdenum and measured at fair value based on commodity prices. The net value of this embedded derivative as of December 31, 2019, was an asset of US$36.7 million(liability of US$20.1 millionas of December 31, 2018). Embedded 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 variable 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.

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, 2019 and 2018.

 

24.Summary of significant differences between accounting principles followed by the Company and U.S. generally accepted accounting principles

F-259 

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)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 of inventory includes: the amortization of production-stripping costs and the inventories are determined using the weighted-average method.

Under U.S. GAAP, the cost of inventory excludes the amortization of production-stripping cost and the inventories are determined using the LIFO method.

(c)Deferred workers’ profit sharing

Under IFRS, the workers’ profit sharing is calculated based on the Company’s taxable income and is recorded as an employee benefit (cost of production or administrative expense, depending on the function of the workers).

Under US GAAP, the workers’ profit sharing is treated in a similar way as income tax since both are calculated based on the Company’s taxable income. Therefore, the Company calculates a deferred workers’ profit sharing resulting from the taxable and deductible temporary differences.

(d)Deferred income tax –

The differences between US GAAP and IFRS are re-measurements that lead to different temporary differences. According to the accounting policies in Note 2 (l), the Company has to account for such differences.

 F-219

Notes to the Financial Statements(continued)

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, 2017, 2016 and 2015 and to shareholders' equity as of December 31, 2017, 2016 and 2015 that would be required if U.S. GAAP had been applied instead of IFRS in the financial statements:

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Net profit under IFRS  349,881   340,907   33,284 
             
Items increasing (decreasing) reported net profit:            
Stripping activity asset, net of amortization  (77,361)  36,252   (45,168)
Inventories valuation  (28,804)  (19,242)  12,573 
Asset retirement obligation  862   1,422   379 
Deferred workers´ profit sharing  32,349   (19,007)  (6,225)
Deferred income tax  24,529   5,013   9,470 
Other  (25)  116   (216)
             
Net income under US GAAP  301,431   345,461   4,097 

  2017  2016  2015 
  US$(000)  US$(000)  US$(000) 
          
Shareholders’ equity under IFRS  5,189,162   4,839,281   4,498,374 
Items increasing (decreasing) reported shareholder’s equity:            
Stripping activity asset, net of amortization  (140,435)  (63,074)  (99,326)
Inventories valuation  (78,744)  (49,940)  (30,698)
Asset retirement obligation  422   (440)  (1,862)
Deferred workers´ profit sharing  5,216   (27,133)  (8,126)
Deferred income tax  68,257   43,728   38,715 
Other  (308)  (283)  (399)
             
Shareholders’ equity under U.S. GAAP  5,043,570   4,742,139   4,396,678 

 F-220

 

 

Notes to
24.Summary of significant differences between accounting principles followed by the Financial Statements(continued)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)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: the amortization of production-stripping costs and the inventories are determined using the weighted average method.

Under U.S. GAAP, the cost inventory excludes the amortization of production-stripping cost and the inventories are determined using the LIFO method.

(c)Deferred workers’ profit sharing

Under IFRS, the workers’ profit sharing is calculated based on the Company’s taxable income and is recorded as an employee benefit (cost of production or administrative expense, depending on the function of the workers).

Under US GAAP, the workers’ profit sharing is treated in a similar way as income tax since both are calculated based on the Company’s taxable income. Therefore, the Company calculates a deferred workers’ profit sharing resulting from the taxable and deductible temporary differences.

(d)Deferred income tax –

The differences between US GAAP and IFRS are re-measurements that lead to different temporary differences. According to the accounting policies in Note 2 (l), the Company has to account for such differences.


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, 2019, 2018 and 2017 and to shareholders' equity as of December 31, 2019, 2018 and 2017 that would be required if U.S. GAAP had been applied instead of IFRS in the financial statements:

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Net profit under IFRS  390,377   119,710   349,881 
             
Items increasing (decreasing) reported net profit:            
Stripping activity asset, net of amortization  (41,508)  (64,452)  (77,361)
Inventories valuation  (53,424)  (29,515)  (28,804)
Asset retirement obligation  23   1,351   862 
Deferred workers´ profit sharing  (23,449)  (7,079)  32,349 
Deferred income tax  45,759   33,291   24,529 
Other  1,937   (26)  (25)
             
Net income under U.S. GAAP  319,715   53,280   301,431 

  2019  2018  2017 
  US$(000)  US$(000)  US$(000) 
          
Shareholders’ equity under IFRS  5,349,249   5,108,872   5,189,162 
Items increasing (decreasing) reported shareholder’s equity:            
Stripping activity asset, net of amortization  (246,395)  (204,887)  (140,435)
Inventories valuation  (161,683)  (108,259)  (78,744)
Asset retirement obligation  1,797   1,773   422 
Deferred workers´ profit sharing  (25,313)  (1,863)  5,216 
Deferred income tax  147,307   101,548   68,257 
Other  1,603   (334)  (308)
             
Shareholders’ equity under U.S. GAAP  5,066,565   4,896,850   5,043,570 


26.New U.S. GAAP Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that provides a single comprehensive revenue recognition model, which replaces most existing revenue recognition guidance, and also requires expanded disclosures. The core principle of the model is that revenue is recognized when control of goods or services has been transferred to customers at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The Company adopted this ASU January 1, 2018, under the modified retrospective approach applied to contracts that remain in force at the adoption date. The Company’s revenue is primarily derived from arrangements in which the transfer of risks and rewards coincides with the fulfillment of performance obligations, and the Company has concluded that the adoption of this ASU does not result in changes to its existing revenue recognition policies or processes, and does not result in any financial statement impacts.

In January 2016, FASB issued an ASU that amends the current guidance on the classification and measurement of financial instruments. This ASU makes limited changes to existing guidance and amends certain disclosure requirements. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2017. The Company adopted this ASU effective January 1, 2018, and adoption did not have a material impact on its financial statements.

In February 2016, FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a term of 12 months or less and do not have a purchase option that is expected to be exercised. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. This ASU must be applied using the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact this guidance will have on its financial statements.

In June 2016, FASB issued an ASU that changes the impairment model for most financial assets and certain other instruments, and will also require expanded disclosures. Under the expected credit loss (CECL) model, entities will be required to recognize an estimate of credit losses expected to occur over the remaining life of the financial assets, including estimating future economic conditions and the effect those conditions have on expected credit losses. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The provisions of the ASU must be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact this ASU will have on its financial statements.

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 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 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.

In December 2019, FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For public entities, this ASU is effective for fiscal years ending after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. 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.

 

In November 2016, FASB issued an ASU that amends the classification and presentation of restricted cash and restricted cash equivalents on the statement of cash flows. The amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted this ASU effective January 1, 2018. The adoption of this ASU did not have a material impact on the Company’s financial statements.

In March 2017, FASB issued an ASU that changes how entities with a defined benefit pension or other postretirement benefit plans present net periodic benefit cost in the income statement. This ASU requires the service cost component of net periodic benefit cost to be presented in the same income statement line item or items as other compensation costs for those employees who are receiving the retirement benefit. In addition, only the service cost component is eligible for capitalization when applicable (i.e., as a cost of inventory or an internally constructed asset). The other components of net periodic benefit cost are required to be presented separately from the service cost component and outside of operating income. These other components of net periodic benefit cost are not eligible for capitalization, and the income statement line item or items must be disclosed. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted this ASU effective January 1, 2018. The adoption of this ASU did not have a material impact on the Company’s financial statements.

27.Subsequent Event

There have been no subsequent significant financial and accounting events subsequent to December 31, 2017, that may affect the interpretation of these financial statements.

 F-221

Subsequent to December 31, 2019, the COVID-19 outbreak has had a material impact on the global economy, the scale and duration of which remain uncertain. Depending on the length of time and extent, this could materially impact the Company results of operations, cash flows and financial condition.