January 21, 2005
via U.S. mail
Charles G. Preble
President and Chief Executive Officer
Peru Copper Inc.
475 West Georgia Street, Suite 920
Vancouver, British Columbia
CANADA V6B 4M9
Re: Peru Copper Inc.
Form F-1 filed December 22, 2004
File No. 333-121527
Dear Mr. Preble:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form F-1
General
1. Where comments on a section also relate to disclosure in
another
section, please make parallel changes to all affected disclosure.
This will eliminate the need for us to repeat similar comments.
2. We will need time to review all new disclosure, including all
omitted exhibits such as the opinions of counsel. You can
expedite
the review process by providing all this information and all these
documents promptly. We may have additional comments.
3. We note that several exhibits required to be filed pursuant to
Item 601 of Regulation S-K were not filed and you have not
indicated
your intention to file such exhibits at a later date. The omitted
exhibits are, for example, but not limited to, the employment
agreements with your officers, the share option plan described in
the
prospectus, and the subscription and registration rights
agreements
entered into by U.S. purchasers of securities who acquired Units
in
October 2004. Please ensure that you file all required exhibits
with
your next amendment. See Item 8 of Form F-1.
4. We note that 78.4 million shares are being offered by the
selling
securityholders and that "selling securityholders holding an
aggregate of 47 million common shares" have agreed to a lock-up
agreement with BMO Nesbitt. Disclose how many of those shares are
included in the shares registered for resale and, if any are so
included, describe the procedures in place to ensure that those
shares are not sold prior to release by BMO Nesbitt. Address also
any understandings or arrangements to release any of those shares
prior to October 6, 2006.
5. Please ensure you include the information required by Item 9.D
of
Form 20-F with respect to the selling stockholders in your next
amendment.
6. In your amendment to the registration statement, include
information as up to date as possible. We refer you to General
Instruction C (b) of Form 20-F, which states that "[U]nless an
item
directs you to provide information as of a specific date or for a
specific period, give the information in a registration statement
as
of a date reasonably close to the date of filing the registration
statement..." For example, update the information pertaining to
the
high and low exchange rates as of the last practicable date and
for
each month during the previous six months. See Item 4 of Form F-
1;
Item 3.A.3 (a) and (b) of Form 20-F.
Prospectus Cover Page (inside cover)
7. Please update the status of your application for listing with
the
American Stock Exchange.
8. Please remove the warnings on the inside front cover regarding
the
U.S. and Canadian tax consequences of owning your securities and
the
difficulty of enforcing civil liabilities arising from such
ownership
under the U.S. federal securities laws. Rather, include this
information in the appropriate section of your risk factors
discussion.
Prospectus Summary, page 1
9. In the first sentence of the Summary, please state that the
company is an exploration company. In addition, provide
disclosure,
in bold print, that informs investors of the fact that you have no
commercially viable reserves, were incorporated in February 2004,
and
currently own only one option in connection with your exploration
activities.
10. Please remove the second paragraph of the summary as it is
repetitive of disclosure found in the first paragraph and of
disclosure provided in subsequent disclosure at page 30.
11. You disclose that you conducted a diamond drilling program in
2003 and 2004. Please revise to include updated disclosure with
respect to the results of such drilling program and your current
plans for 2005 here and in the Business section of the prospectus.
12. Please consider including in the summary, a brief description
of
the equity financings you have entered since March 18, 2004
through
the current period. The summary should:
* include a description of the initial recapitalization
transaction
involving Peru Copper Syndicate Ltd (Cayman);
* include a description of the conversion transactions involving
the
Notes and special warrants that occurred concurrently with your
initial public offering in October 2004; and,
* indicate which of the above referenced securities transactions
are
related to the current offering by the selling shareholders.
Summary Consolidated Financial Data, page 5
13. Please include a line item that delineates the net revenues
for
the periods indicated. See Item 3.A.2 of Form 20-F.
Risk Factors, page 6
14. Currently, the risk factor discussion fails to adequately
convey
the relative materiality of risks in connection with your
operations
and an investment in your company. For example, under "Risks
Relating to Our Business and Industry," the risk factor titled "We
are an exploration-stage company..." on page 8 and "We currently
depend on a single mineral property..." on page 7 are seemingly
more
relevant to an investor than the risk factors that precede them.
Please prioritize your risk factors by considering the relative
level
of materiality of the risk to your operations and to an investor.
15. Some of your risk factor headings and the risk factor
discussion
that follows, do not clearly delineate the risks involved. For
example, but not limited to, "[A]dditional mining concessions...,"
on
page 6, "We may not be able...," on page 7, and "Increases in
taxes
would increase our operating costs...," on page 13. Please revise
the headings of these risk factors so that they specify the risk
involved and revise the discussion in the risk factor so that you
identify how the risk would materially and/or adversely impact
your
operations.
16. Please add a risk factor that discloses that you have
experienced
losses since your inception. Also, address, if true, that with no
reserves currently, you expect to continue to experience losses as
you have no revenues from operations that would offset such
losses.
17. Please add a risk factor that addresses your possible
treatment
as a Passive Foreign Investment Company ("PFIC"). Discuss whether
you
believe that you have been or will be assessed by the IRS to be a
passive foreign investment company and the adverse tax
consequences
to your shareholders that could result from this assessment.
18. Add a risk factor that addresses that you are subject to the
"Penny Stock" Rules of the promulgated under Rule 15g-9 of the
Securities Exchange Act of 1934 and that as a result, transactions
in
your stock may be made more cumbersome and may reduce the value of
an
investment in our stock.
19. Add a risk factor that summarizes the risks described in the
section of the prospectus entitled "Limitation On Enforcement Of
Civil Judgments".
We may not be able to access sufficient water..., page 7
20. Clarify the extent to which the supply of water and
electricity
is "limited." Are there current or anticipate shortfalls in
supply?
The copper supply industry is..., page 7
21. Expand this risk factor to identify the primary jurisdictions
that are conducting investigations into the competitive practices
in
the copper concentrate market. Also, ensure that you provide a
more
in-depth discussion of the investigations in the Regulatory
Matters
section of the prospectus.
We are an exploration company..., page 8
22. As indicated in prior comments, given the relative materiality
of
this risk factor, ensure that it is moved to the beginning of the
Risk Factor discussion. Additionally, remove the mitigating
phrase
in the last sentence in which you state "[i]t is not unusual in
new
mining operations to experience unexpected problems during the
start
up phase ..." Instead, clearly specify that such problems do
occur
at all stages of operations and indicate the adverse impact to
your
operations that result from such problems.
Our operations are subject to environmental...page 9
23. Please supplement the discussion in this risk factor by
specifying your responsibilities and assumed liabilities under
Section 10.2 of the Toromocho Option Agreement, as amended. Also,
reference the amount estimated by SVS Ingenieros S.A. as disclosed
on
page 42, in connection with possible remediation amounts.
We may not be able to ..., page 10
24. If any further developments have occurred with respect to the
request for conciliation, to the extent necessary, please provide
updated disclosure here and in the Business section on page 45.
Currency fluctuations may..., page 11
25. Disclose that your functional currency is the U.S. dollar.
We will require significant..., page 12
26. Please move the last sentence of this risk factor into a
separate
risk factor that addresses the dilutive impact that results from
future issuances. Under the heading "Risks Relating to Our Common
Shares and Warrants and the Trading Market", add a separate risk
factor that informs investors of the terms of your Articles of
Incorporation; specifically, the fact that you may issue an
unlimited
amount of common shares and preference shares and the potential
adverse dilutive impact to investors as a result of subsequent
issuances.
We are subject to the risks..., page 12
27. Expand this risk factor to disclose, as an example of Peru`s
political unrest, the recent uprising by a paramilitary group with
nationalist goals, led by a former Peruvian army officer, in an
attempt to oust Peruvian President Toledo in part for allegedly
"selling out" Peru`s business interests to foreigners. See, for
example, the Associated Press article dated January 10, 2005,
entitled "Peru`s Interior Minister Resigns".
Use of Proceeds, page 15
28. Please disclose in this section, the estimated net amount of
proceeds, broken down into each principal intended use thereof.
See
Item 4 and Item 3.C of Form 20-F for further guidance.
Capitalization, page 16
29. If there is a material change in the amount of indebtedness or
outstanding securities, update the Capitalization Table so that it
is
of a date no earlier than 60 days prior to the date of the
registration statement.
Recent Share Price History, page 17
31. Disclose when you first became listed on the Toronto Stock
Exchange. Also, revise this section to provide all of the market
price information (for example, quarterly and, if applicable,
annual
information) with respect to the common shares and warrants
required
by Form 20-F Item 9.A.4.
Exchange Rates, page 18
32. Please update the exchange rate information as of the most
recent
practicable date.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 21
Business, page 21
Results of Operations, page 22
33. Please revise the first sentence so that you clearly indicate
that you have no mineral producing properties and thus, no
revenues
generated from any mineral properties.
34. Discuss the $1million "social fund contribution" listed in
Note
10 to your financial statements.
Nine Months Ended, September 30, 2004
35. It does not appear that any of the expenses for the period
ended
September 30, 2004, were spent on exploration activities. Please
disclose this fact and provide disclosure in this section that
explains the reasons for the absence of such expenditures during
this
period.
36. We note on page F-5 in the Consolidated Statement of Cash
Flows,
a line item for a processing fee. Supplementally inform us of
what
this fee consists of. Additionally, consider disclosing how this
item is related to your current operations and the reason for the
increase from zero in the period ended December 31, 2003 to
$41,337
for the period ended September 30, 2004.
Liquidity and Capital Resources, page 23
37. Please clarify and update the disclosure regarding your past
financing transactions. For example, you reference the "Secondary
Private Placement" of Notes that occurred concurrently with the
recapitalization transaction in April 2004, yet, you do not
explain
what this was. Revise to explain, as done in the F-pages, that
the
Secondary Private Placement allowed the selling securityholders to
sell their Notes pursuant to the terms of the shareholders`
agreement. Further, update the disclosure to indicate, as done on
page F-13, that you currently have no Notes outstanding because
all
Notes automatically converted into 12,728,570 common shares at the
time of your IPO. Also indicate that the special warrants
initially
issued in March 2004, converted into 4,714,284 warrants, which
remain
outstanding.
38. Please clarify the statement that your ability to "avail
[y]ourself in the future of the financing options mentioned in the
above forward-looking statements are based on currently available
information." What are the future financing options and forward-
looking statements you are referring to? Please revise your
disclosure so that you clarify this statement.
39. Your disclosure regarding liquidity does not adequately
address
whether you have made any efforts to secure future financing,
beyond
the 18 month time frame you specify in the disclosure. Please
state
if you have or have not made any efforts to secure future
financing.
See Item 5.B. of Form 20-F.
Outlook and Capital Requirements, page 23
40. Please explain the term "validity rights" that appears in the
second paragraph and specify the amount payable by the company in
connection with such rights, by the company.
41. Please clarify that the payments made toward the Social Trust
Fund of Centromin and the Environmental Sanitation Fund of
Centromin
are in addition to the payments you are obligated to pay to
Centromin
in order to maintain the Toromocho Option in good standing.
Additionally, please indicate that should you fail to exercise the
option, Centromin is not obligated to refund amounts previously
paid.
42. Additionally, in the last paragraph in this section, you
reference the two ways in which the company may exercise the
Toromocho option, however, you do not disclose this information.
Please revise so that you briefly disclose the options available
to
you with respect to exercise of the Toromocho option.
Related Party Transactions, page 25
43. Discuss whether each of the transactions is as fair as would
have
been obtained in an arm`s length transaction.
Business, page 30
Proposed Exploration and Development Program, page 40
Phase 1 Work Program, page 40
44. Please update your disclosure in this section. Specifically,
please state how much of the 44,000 meter targeted drilling goal
you
actually completed as of December 2004. In that regard, please
update
the disclosure regarding the necessary environmental permits
required
for further drilling, as disclosed on page 48.
Legal Proceedings, page 45
45. Supplementally provide us with further clarification regarding
the dispute to date, specifically any recent developments, and the
reasons for your belief that under the circumstances, the claim by
Natividad would not apply. Provide us with an explanation for the
basis of your opinion, as disclosed on page 29, that the areas in
dispute are not material to the development of the Toromocho
Project.
In your explanation, please address the estimated dollar amount
this
potential claim would represent with respect to your operations
(i.e.
settlement costs).
46. Supplementally inform us of whether or not you have engaged
Peruvian legal counsel or if you intend to do so, based on the
results of the initial conciliation attempt. Also, inform us of
whether you believe similar claims may be made in the future by
others who may have entered into prior contractual agreements with
Centromin with respect to the concession area covered by the
Toromocho Project. We may have further comments.
Regulatory Matters, page 46
General, page 46
47. Please provide an in-depth discussion concerning the worldwide
antitrust investigations referenced in the Risk Factor section and
indicate how such investigations could materially affect your
business.
Peruvian Regulatory Environment, page 46
48. Please revise this section so that you include a description
of
the material impact of government regulations on the company`s
business and indicate the regulatory body responsible for the
administration of the regulations listed in this section. See
Item
4.B.8 of Form 20-F.
Stability Agreements, page 47
49. Given that you have not yet commenced any mining operations,
it
does not appear that the disclosure with respect to these
agreements
is applicable to you at this time. Please consider removing it or,
at
a minimum, clarify that you have not yet commenced operations but
that it is your intention to enter into such agreements, if you
ever
do commence operations.
Mine Closure and Remediation, page 48
50. Given that you do not own any mining operations at this time,
it
is not apparent that the Mine Closure Law applies to your
operations
at this time. Unless the mine closure laws are applicable to you
at
your current stage of development, consider revising the
disclosure
to state that the laws would be applicable to you to the extent
you
ever commenced operations.
Workers Participation, page 48
51. Please supplement the disclosure regarding the workers
participation expense so that an investor knows how this would be
relevant to your specific operations. Currently, it is unclear
why
the 8% fee is charged and whether it is payable by companies under
all circumstances. Identify whether you have paid this expense
and
the dollar amount of such an expense, either paid or due.
Management, page 49
Directors and Executive Officers, page 49
52. Please provide the business addresses of the named directors
and
senior management. See Item 1 of Form 20-F.
53. Rather than state that Mr. Lowell acted as a consultant for
several companies "over the course of his career", please provide
specific information, for the past five years, with respect to the
positions he held and the dates during which he held such
positions.
Further, supplementally inform us of the educational degree Chief
Financial Officer, Mr. Findley, obtained from Roanoke College in
Virginia and any other degrees he may have obtained since that
time.
Executive Compensation, page 53
54. Please file the employment agreements you reference in this
section as an exhibit to the registration statement. Additionally,
supplementally confirm you have no other employment arrangements
with
any other officers of the company.
55. Disclose the total amount set aside or accrued by you to
provide
pension, retirement or similar benefits. See Form 20-F Item 6.B.
Related Party Transactions, page 58
56. Please disclose here, as indicated on F-11, the shareholder
who
provided the collateral for the letter of credit issued to
Centromin
in order to comply with the guarantee requirements specified in
the
Toromocho Option Agreement. See Item 7.b. of Form 20-F.
57. Supplementally provide the consulting agreements entered into
between the company and Lowell Mineral Exploration and Pacific
Source
Capital Ltd.
Selling Securityholders, page 70
58. Provide the information required by Item 9.D. of Form 20-F.
Description of Capital Stock and Certain Requirements of Canadian
Legislation, page 59
Warrants, page 59
59. Disclose the total amount of common share purchase warrants
outstanding and the number of common shares such warrants are
convertible into.
Certain Income Tax Considerations, page 61
60. A U.S. investor is entitled to know of the material Canadian
federal income tax consequences regarding the ownership and
disposition of your securities and not just "certain income tax
considerations". Revise the title and first sentence of this
section
accordingly.
In addition, an investor is also entitled to rely on the tax
information provided in the registration statement since this
information is required to be accurate and material. Therefore
delete your disclaimer that "the following description of income
tax
matters is of a general nature only. . ." since it implies that an
investor should not rely on this tax information when making an
investment decision concerning your securities.
Our Status As a Passive Foreign Investment Company, page 64
61. Disclose whether you believe that the IRS would have treated
you
as a PFIC for 2003.
Limitation on Enforcement of Civil Judgments, page 73
62. Clarify whether there is doubt as to the enforceability in
Canada
in original actions or in actions for enforcement of U.S. court
judgments of liabilities predicated upon the U.S. federal
securities
laws against you and your non-U.S. resident officers and
directors.
See Regulation S-K Item 101(g).
Exhibits
63. As indicated at the commencement of this letter, please ensure
you file all required exhibits pursuant to Item 601 of Regulation
S-K
with your next amendment.
Financial Statements
64. Please update the disclosure relating to the past financing
transactions. For example, on page F-11, under "Share
subscription",
please revise to indicate the IPO has occurred and that the notes
were converted into 1.1 common shares at such time.
65. Revise the page headings for the Notes to Financial Statements
to
indicate that the footnotes are as of December 31, 2003 and that
all
interim information after that date is unaudited.
Consents
66. A currently dated accountant`s consent should be filed with
each
amendment to the registration statement.
Engineering Comments
General
Risks relating to our business and industry, page 6
67. In the fifth paragraph of page 8, you refer to" inferred
resources". We note that "mineral resources" must have
"reasonable
prospects for economic extraction." We believe this means that
any
reportable "resource" estimates must have been delimited using an
economically based "cutoff" grade to segregate "resources" from
just
"mineralization." Supplementally provide the cutoff grades used
to
delimit your tonnage estimates. Also, provide an analysis that
substantiates that the cutoffs used were based on reasonable
economic
assumptions. If the resource estimates are not based on economic
cutoffs, remove the estimates.
Mineral Resources, page 39
68. Since the cutoff grade concept is important to understanding
the
potential of your mineral properties, disclose a definition for
the
term "cutoff" that illuminates the fact that a "cutoff" grade or
tenor is used to define a mineral resource that has reasonable
prospects for economic extraction. In establishing the cut-off
grade, it must realistically reflect the location, deposit scale,
continuity, assumed mining method, metallurgical processes, costs,
and reasonable metal prices.
Proposed Exploration and Development Plan, page 40
69. Expand your disclosure about your exploration plans for your
properties.
* Disclose a brief geological justification for each of your
exploration projects written in non-technical language.
* Give a breakdown your exploration timetable and budget,
including
estimated amounts that will be required for each exploration
activity, such as geophysics, geochemistry, surface sampling,
drilling, etc. for each prospect.
* Disclose how the exploration program will be funded.
* Identify who will be conducting any proposed exploration work,
and
discuss their qualifications.
70. Please note for future filings. Canadian incorporated
companies
may disclose mineral reserve and mineral resource estimates that
are
not consistent with those defined in Industry Guide 7; however,
they
still must disclose reserve estimates consistent with Industry
Guide
7and reconcile the two reserve estimates. Additionally, Canadian
and
Industry Guide 7 definitions for mineral reserves are
substantially
different. The staff holds that:
* a "final" or "bankable" feasibility study is required to meet
the
requirements to designate reserves under Industry Guide 7;
* a historic three year average price is to be used in any reserve
or
cash flow analysis to designate reserves; and,
* to meet the "legal" part of the reserve definition, the primary
environmental analysis or document should have been submitted to
governmental authorities.
71. We note that your website and some press releases refer to or
use
the terms "measured," "indicated," and "inferred," "resources."
If
you continue to make references on your web site or press releases
to
reserve measures other than those recognized by the SEC, accompany
such disclosure with the following cautionary language, including
the
bolding and indenting:
Cautionary Note to U.S. Investors -- The United States Securities
and
Exchange Commission permits U.S. mining companies, in their
filings
with the SEC, to disclose only those mineral deposits that a
company
can economically and legally extract or produce. We use certain
terms on this website (or press release), such as "inferred",
"resources," that the SEC guidelines strictly prohibit U.S.
registered companies from including in their filings with the SEC.
U.S. Investors are urged to consider closely the disclosure in our
Form , File No. , which may be secured from us, or from the
SEC`s website at http://www.sec.gov/edgar.shtml.
Closing Comments
Please amend your registration statement in response to
these
comments. You may wish to provide us with a marked copy of the
amendment to expedite our review. Please furnish a cover letter
with
your amendment that keys your responses to our comments and
provides
any requested supplemental information. Detailed cover letters
greatly facilitate our review. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert this action as defense in any
proceeding
initiated by the Commission or any person under the federal
securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
No other review of the registration statement has been made.
All persons who are by statute responsible for the adequacy and
accuracy of the registration statement are urged to be certain
that
all information required under the Securities Act of 1933 has been
included. You are also reminded to consider applicable
requirements
regarding distribution of the preliminary prospectus.
Please direct questions regarding accounting issues and
related
disclosures to John Weitzel, at (202) 942-1807, or in his absence
to
Barry Stem, Senior Assistant Chief Accountant, at (202) 942-1919.
You may contact George K. Schuler, Mining Engineer, at (202) 824-
5527
if you have questions regarding the engineering comments.
Direct all other questions to Mellissa Campbell Duru at (202)
942-1930 or, in her absence, to the undersigned at (202) 942-1830.
Please send all correspondence to us at the following ZIP code:
20549-0405.
Sincerely,
H. Roger Schwall
Assistant Director
cc: M.Duru
K. Schuler
J. Weitzel
B. Stem
via facsimile
Christopher Schultz, Esq.
(212) 957-3983 (facsimile)
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Peru Copper Inc.
January 21, 2005
page 14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0405
DIVISION OF
CORPORATION FINANCE