cobre panama basic engineering summary report

Mina de Cobre Panama

BASIC ENGINEERING

SUMMARY REPORT

May 2012

Project Cobre Panama Status Shovel-ready, ESIA approved December 2011

Project location Panama, Colón province Products Cu-Au and Mo concentrates

Sovereign rating Investment grade Features Botija, Colina, Valle Grande open pits

Concession area 13,000 ha Gyratory crushing, grinding, flotation

Life of mine 31 years Owner port site, Panamax capable

Start of Production 1Q16 Owner 300 MW coal-fired power

Capital Cost $US6.18b Concentrate pipeline

TIER I CHARACTERISTICS AVG ANNUAL PROD. Y2-16 LOM TOTAL LOM

Average annual production (Y2-16) 298 ktonnes Cu Cu ktonnes 298 266 8,237

Average annual production (LOM) 266 ktonnes Cu Au koz 106 87 2,705

C1 cash costs (Y2-16) $US0.72/lb Cu Ag koz 1,572 1,545 47,899

C1 cash costs (LOM) $US0.82/lb Cu Mo ktonnes 3.1 2.9 90.2

Strip ratio 0.58

Design mill throughput (Y1-9) 160 ktpd

Design mill throughput (Y10-31) 240 ktpd

RESERVE & RESOURCE ktonnes Cu (%) Au (g/t) Ag (g/t) Cu ktonnes Au koz Ag koz Mo ktonnes

Proven 258,000 0.57 0.14 1.6 1,478 1,126 13,020 25

Probable 2,061,000 0.38 0.06 1.4 7,781 4,041 91,008 145

Total 2,319,000 0.40 0.07 1.4 9,258 5,167 104,028 169

Measured 262,000 0.56 0.13 1.5 1,476 1,118 12,979 24

Indicated 3,905,000 0.34 0.06 1.2 13,237 7,845 155,392 214

Total 4,167,000 0.35 0.07 1.3 14,715 8,963 168,454 238

Inferred 3,749,000 0.23 0.04 1.0 8,660 4,805 120,534 156

(resources inclusive of reserves)

CAPITAL COSTS $USm % AFTER TAX VALUATION

Mining 760 12 LT Consensus FW Curve 3Y Trl. Avg.

Process plant 1,184 19 Financed Case 1 14.3% 18.5% 19.2%

Site and services 550 9 Financed Case 2 16.7% 21.9% 22.5%

Port site 543 9 Financed Case 1 $3.2b $4.8b $6.0b

Power plant 646 10 Financed Case 2 $3.5b $5.0b $6.3b

Total Direct 3,682 59 Financed Case 1 $2.4b $3.9b $4.9b

Construction indirects 844 14 Financed Case 2 $2.8b $4.2b $5.2b

Total field costs 4,526 73 Financed Case 1 $1.8b $3.2b $4.0b

EPCM 355 6 Financed Case 2 $2.2b $3.6b $4.4b

Owner Costs 885 14

Contingency 415 7

Total project cost 6,181 100

Sustaining capex 2,916

POTENTIAL FOR UPSIDE

Expand throughput beyond max planned 240ktpd Financed Case 1: $US1.6b in debt drawn over 3.5 years

Accelerate increase to 240ktpd

Conversion of substantial resources beyond reserves Financed Case 2: $US1.6b in debt drawn over 3.5 years

$US1.2b upfront payment for 86% of MPSA precious metals

and on-going paid $400/oz Au and $6/oz Ag for PM stream

PROJECT ADVANTAGES

Low strip-ratio (one fifth of industry O/P Cu mine avg 2011 )

Ammenable to large scale, efficient mining LT Consensus: Flat $2.75/lb Cu, $15/lb Mo, $1,250/oz Au, $20/oz Ag

Powered by owner-built, 300mW coal-fired plant FW Curve: Forward curve dropping to LT Consensus

Proximity to tidewater, permitting inexpensive con transport (2016 start at $3.66/lb Cu, $1,785/oz gold and $31/oz Ag)

Clean concentrate 3Y Trail. Avg: Flat $3.42/lb Cu, $14.68/lb Mo, $1,316/oz Au, $24.90/oz Ag

Extensively reviewed by 3rd parties (capex and opex)

COBRE PANAMA FACT SHEET - PG 1

NPV10%

NPV9%

NPV8%

PROJECT DESCRIPTION

PROJECT ECONOMICS

IRR

Moly (%)

0.010

0.007

0.007

0.009

0.005

0.006

0.004

SCHEDULE UNIT COSTS ($US/t ORE MILLED) - LT CONSENSUS

Notice to proceed 2Q12 Labour Material Power Other Total LOM Total Y2-16

Mine/process construction start 2Q12 Mining 0.27 1.87 0.05 0.24 2.44 2.68

Process earthworks complete 4Q13 Processing 0.24 2.13 0.91 0.01 3.29 3.28

Plant to port road complete 4Q13 G&A 0.15 0.01 0.04 0.69 0.88 0.97

Port complete 2Q14 Site Services 0.11 0.07 0.01 0.09 0.28 0.3

Power line complete 3Q14 Total 0.77 4.08 1.01 1.03 6.88 7.23

Tailings dam complete 3Q15

Ore hits grinding lines 4Q15 UNIT COSTS ($US/t ORE MILLED)

Power plant complete 4Q15 LT Consensus FW Curve 3YR Trl. Avg.

Start of production 4Q15 Mining 2.44 2.46 2.55

Concentrate shipment 1Q16 Processing 3.29 3.36 3.60

Commercial production 2Q16 G&A 0.88 0.88 0.89

RESOURCE ADDITIONS SINCE 2010 Site Services 0.28 0.28 0.28(contained metal)

M&I FEED Increase Current

Cu (m lb) 25,800 6,641 32,441 Power($US/kWh) Y1-9 1,2 0.027 0.033 0.034

Au (k oz) 6,533 2,430 8,963 Power($US/kWh) Y10-31 2 0.05 0.05 0.055

Ag (k oz) 133,300 35,154 168,454 C1 cash cost ($US/lb) Y2-16 - Fin Case 1 0.72 0.74 0.77

Mo (m lb) 474 51 525 C1 cash cost ($US/lb) LOM - Fin Case 1 0.82 0.83 0.871-Power costs adjusted to reflect sales into grid 2-Power costs are quoted before D&A expense covering the $646m capital

INF FEED Increase Current NSR BY METAL

Cu (m lb) 16,600 2,492 19,092 Avg. Annual Avg. Annual

Au (k oz) 4,003 802 4,805 Y2-16 ($USm) LOM ($USm)

Ag (k oz) 103,100 17,434 120,534 Cu 1,557 1,389

Mo (m lb) 236 18 344 Au 121 100(resources inclusive of reserves) Ag 28 27

RESOURCE NOT IN MINE PLAN Cu ktonnes Cu mlbs Mo 93 86

Measured and Indicated 5,457 12,031 Total 1,798 1,602

Inferred 8,660 19,092

TAXATION VARIANCE FROM FEED CAPEX

Corporate tax rate 25% Capital costs $USm

Alternative minimum tax rate 1.17% FEED study estimate 4,320

Base metal royalty 5% Power plant 646

Precious metal royalty 4% Increased process plant estimate 403

Increased mining estimate 312

AVG LOM RECOVERIES Increased port site estimate 285

Copper 89.0% Other 215

Molybdnemum 53.3% Basic Engineering Estimate 6,181

Gold 52.4% Drivers:

Silver 46.1% Process Changed scope to achieve higher productivity

2 year tailings starter dam (vs. 1 prev)

CONCENTRATE ASSUMPTIONS Higher certainty of estimates

Copper TC $70/dmt Mining Fuel costs of $1.06/litre in capex (vs. $0.56 prev)

Copper RC $0.07/lb Higher certainty of earthwork estimates

Gold RC $5/oz Pre-strip costs moved from indirect to direct

Silver RC $0.50/oz BENEFITS TO PANAMA

Molybdenum roast and freight $1.49/lb $110m regional development plan to maximize sustainable socio-economic benefits

Freight $41/t wet con Increased local access to healthcare, education, sanitation and clean drinking water

Copper Con Moisture 8% Generates $US20b purchases in national economy and $US3.6b in royalties and taxes

Losses and Insurance charges 0.25% Prioritizes local hiring and job-training, total salaries $US2.2b (locals and expats):

Peak total manpower during construction of 10,000

Average total manpower during operations of 2,100

PROJECT DETAIL

OTHER USEFUL INFORMATION

COBRE PANAMA FACT SHEET - PG 2

Total 6.88 6.98 7.32

Total LOM

COBRE PANAMA

Minera Panama, S.A.

Mina de Cobre Panama Project

BASIC ENGINEERING SUMMARY REPORT

May 2012

Cautionary statement regarding forward-looking statements

This Basic Engineering Summary Report contains forward-looking statements with respect to the Cobre Panama development project (―Cobre Panama‖ or the ―Project‖), including, without limitation, information relating to future financial or operating performance, plans, outlook, financing plans, growth in cash flow and operating margin; projections, targets and expectations as to reserves, resources, results of exploration (including targets) and related expenses, mine development mine production costs, drilling activity, sampling and other data; receipt of construction permits; estimated grade levels; future recovery levels; future production levels, capital costs, costs savings, cash and total costs of operations, production of copper and other minerals; expenditures for environmental matters; projected mine life; reclamation and other post-closure obligations and estimated future expenditures for those matters; future copper, and other mineral prices (including the long-term estimated prices used in calculating mineral reserves).

All statements in this Basic Engineering Summary Report that address events or developments we expect to occur, are ―forward-looking statements.‖ Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words ―expects,‖ ―plans,‖ ―anticipates,‖ ―believes,‖ ―intends,‖ ―estimates,‖ ―projects,‖ ―potential,‖ ―target,‖ ―plan,‖ ―scheduled,‖ ―forecast,‖ ―budget‖ and similar expressions or their negative connotations, or that events or conditions ―will,‖ ―would,‖ ―may,‖ ―could,‖ ―should‖ or ―might‖ occur. All such forward-looking statements are based on our opinions and estimates as of the date such statements are made. Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to known and unknown risks, uncertainties and other factors, many of which are beyond our ability to control, that may cause the Project’s actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such factors include, without limitation:

price levels and volatility in the spot and forward markets for metals and;

access to the necessary capital to fund the development and construction of the Project;

the ability to develop and construct the Project in accordance with the currently projected budget and timeline;

the uncertainties inherent in current and future legal challenges we or the Project are or may become a party or subject to;

changes in national and local government legislation or regulations;

the lack of certainty with respect to foreign legal systems, which may not be immune from the influence of political pressure, corruption or other factors that are inconsistent with the rule of law;

the speculative nature of mineral exploration and development, including the risks of obtaining and maintaining the validity and enforceability of the necessary licenses and permits and complying with permitting requirements;

inherent hazards, risks and uncertainties associated with mining exploration, development and operations, including accidents;

diminishing quantities or grades of reserves;

discrepancies between actual and estimated production, between actual and estimated costs, between actual and estimated reserves and resources and between actual and estimated metallurgical recoveries;

geotechnical issues;

the possibility of temporary or permanent shutdown;

the actual costs of reclamation;

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May 2012

increased energy prices;

dependency of cash flow and earnings growth upon the development of our current reserve base and converting our resource base to reserves and production;

actual capital costs, operating costs and expenditures, production schedules and economic returns from the Project;

fluctuations in the international currency markets and the rates of exchange between currencies;

volatility of global financial conditions;

taxation, including with respect to tax laws and regulations that are unclear or subject to ongoing varying interpretations;

significant capital requirements and additional funding requirements;

risks associated with joint ventures;

dependence on transportation, electric and water facilities and infrastructure;

fluctuation in the cost of significant inputs including fuel;

delays or disruptions in supplies required for exploration, development, mining or processing, activities;

disruptions arising from non-performance of off-take and other counterparties;

changes in environmental laws and regulations;

potential losses, liabilities and damages related to the Project’s business which are uninsured or uninsurable;

regulation of greenhouse gas emissions and climate change issues;

labour disputes;

defective title to mineral claims or property or contests over claims to mineral properties;

competition; and

the loss of key employees and the ability to attract and retain qualified personnel.

In addition, there are risks and hazards associated with the business of mineral exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, (and the risk of inadequate insurance or inability to obtain insurance to cover these risks) as well as other risks, uncertainties and other factors.

Forward-looking statements are not guarantees of future performance, and actual results and future events could materially differ from those anticipated in such statements. All of the forward-looking statements contained in this Basic Engineering Summary Report are qualified by these cautionary statements.

Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking statements, there may be other factors that cause actual results to differ materially from those which are anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. You should not place undue reliance on forward-looking statements. We expressly disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise.

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May 2012

Market, ranking, industry data and forecasts

This Basic Engineering Summary Report includes industry data and forecasts that we obtained from industry publications and surveys, public filings and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. We cannot guarantee the accuracy or completeness of such information contained in this Basic Engineering Summary Report.

Cautionary notice regarding reserve and resource estimates

The disclosure in this Basic Engineering Summary Report uses mineral reserve and resource classification terms that comply with reporting standards in Canada, and certain mineral resource estimates are made in accordance with Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects (―NI 43-101‖). NI 43-101 is a rule developed by the Canadian Securities Administrators (the ―CSA‖) that establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Unless otherwise indicated, all reserve and resource estimates contained in this Basic Engineering Summary Report have been prepared in accordance with NI 43-101. These standards differ significantly from the mineral reserve disclosure requirements of the Securities and Exchange Commission (―SEC‖) set out in Industry Guide 7. Consequently, reserve and resource information contained in this Basic Engineering Summary Report is not comparable to similar information that would generally be disclosed by U.S. companies in accordance with the rules of the SEC.

In particular, the SEC’s Industry Guide 7 applies different standards in order to classify mineralization as a reserve. As a result, the definitions of proven and probable reserves used in NI 43-101 differ from the definitions in the SEC’s Industry Guide 7. Under SEC standards, mineralization may not be classified as a ―reserve‖ unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Among other things, all necessary permits would be required to be in hand or issuance imminent in order to classify mineralized material as reserves under the SEC standards. Accordingly, mineral reserve estimates contained in this Basic Engineering Summary Report may not qualify as ―reserves‖ under SEC standards.

In addition, this Basic Engineering Summary Report uses the terms ―mineral resources,‖ ―measured mineral resources,‖ ―indicated mineral resources‖ and ―inferred mineral resources‖ to comply with the reporting standards in Canada. The SEC’s Industry Guide 7 does not recognize mineral resources and U.S. companies are generally not permitted to disclose resources in documents they file with the SEC. Readers are specifically cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into SEC defined mineral reserves. Further, ―inferred mineral resources‖ have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Therefore, readers are also cautioned not to assume that all or any part of an inferred resource exists. In accordance with Canadian rules, estimates of ―inferred mineral resources‖ cannot form the basis of feasibility or pre-feasibility studies. It cannot be assumed that all or any part of ―mineral resources,‖ ―measured mineral resources,‖ ―indicated mineral resources‖ or ―inferred mineral resources‖ will ever be upgraded to a higher category. Readers are cautioned not to assume that any part of the reported ―mineral resources,‖ ―measured mineral resources,‖ ―indicated mineral resources‖ or ―inferred mineral resources‖ in this Basic Engineering Summary Report has demonstrated economic viability or is economically or legally mineable. In addition, the definitions of ―proven mineral reserves‖ and ―probable mineral reserves‖ under reporting standards in Canada differ in certain respects from the standards of the SEC. For the above reasons, information contained in this Basic Engineering Summary Report that describes the Project’s mineral reserve and resource estimates is not comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.

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May 2012

The Project’s proven and probable reserve estimates contained throughout this Basic Engineering Summary Report are as of March 5, 2012, and are estimated based on information compiled by or under the supervision of a ―qualified person‖ as defined under NI 43-101.

Important Notice This report shall not constitute an offer to sell or a solicitation of an offer to purchase any securities of Inmet Mining Corporation in the United States or any other jurisdiction. Any securities of Inmet Mining Corporation have not and will not be registered under the U.S Securities Act of 1933, as amended (the ―Securities Act‖), or the securities laws of any other jurisdiction and may only be offered and sold in the United States pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws

.

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Contents

1 INTRODUCTION ......................................................................................................... 15

1.1 A Tier 1 Copper Asset ........................................................................................ 16

1.2 Concession, Permits and Socio-Environmental Commitments ...................... 19

1.3 Capital Costs ...................................................................................................... 19

1.4 Operating Costs .................................................................................................. 20

1.5 Project Economics ............................................................................................. 21

1.6 Third Party Reviews ........................................................................................... 22

1.7 Risks and Opportunities .................................................................................... 23

1.8 Project Execution ............................................................................................... 25

1.9 Conclusions ........................................................................................................ 26

2 TECHNICAL SUMMARY ............................................................................................ 27

2.1 Project Description ............................................................................................. 27

2.1.1 Geology and Mineral Resources ................................................................ 29

2.1.2 Mine Plan and Mineral Reserves ................................................................ 33

2.1.3 Metallurgy ..................................................................................................... 39

2.1.4 Mine Waste Management ............................................................................ 43

2.1.5 Solid and Hazardous Waste Disposal ........................................................ 44

2.1.6 Tailings Management Facility ..................................................................... 44

2.1.7 Water Management ...................................................................................... 46

2.1.8 Power Plant .................................................................................................. 47

2.1.9 Project Infrastructure / Ancillary Facilities ................................................ 49

2.1.10 Port ............................................................................................................... 50

2.1.11 Pipelines ....................................................................................................... 51

2.1.12 Balance of Plant ........................................................................................... 52

2.2 INDEPENDENT THIRD-PARTY REVIEWS .......................................................... 52

2.2.1 Independent Tailings Review Board (ITRB) ............................................... 52

2.2.2 URS Corporation Independent Review....................................................... 53

3 PRIVILEGE TO OPERATE ......................................................................................... 54

3.1 Panama ............................................................................................................... 54

3.1.1 Mining in Panama: Changes to the Mineral Code in 2012 ........................ 56

3.1.2 Contract Law 9 ............................................................................................. 57

3.1.3 MPSA’s Panamanian Society Participation ............................................... 58

3.2 Inmet’s Approach To Corporate Responsibility ............................................... 58

3.3 Cobre Panama: Inmet’s Commitment in Action .............................................. 59

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3.3.1 Regulatory Context for Environmental and Social Impact Assessments 61

3.4 Socio-environmental Context of the Project ..................................................... 63

3.4.1 Environmental Baseline Conditions ........................................................... 63

3.4.2 Social Baseline Conditions ......................................................................... 65

3.4.3 Community Relations and Community Development Activities............... 67

3.4.4 Project Socio-environmental Actions and Benefits .................................. 69

3.4.5 Partnerships ................................................................................................. 71

4 CAPITAL COST ESTIMATE ....................................................................................... 73

4.1 Basis of Estimate ................................................................................................ 73

4.1.1 Site Investigation ......................................................................................... 74

4.2 Capital Cost (CAPEX $US) ................................................................................. 75

4.2.1 Contract budgetary incentives ................................................................... 79

4.3 Sustaining Capital (SUSEX) ............................................................................... 79

4.4 Independent Third Party Review – Capital Cost Estimate ............................... 80

5 OPERATING COST ESTIMATE ................................................................................. 82

5.1 Basis of Estimate ................................................................................................ 82

5.2 Operating Cost Estimate (OPEX) ....................................................................... 83

5.3 Brook Hunt C1 Cash Cost .................................................................................. 86

5.4 Independent Third Party Reviews ..................................................................... 88

5.4.1 Process Plant Operating Cost Estimate ..................................................... 88

5.4.2 Benchmark of Mining Cost ......................................................................... 89

5.4.3 Power Plant Operating Cost Estimate ........................................................ 89

5.4.4 Power Plant Coal Supply Analysis ............................................................. 90

6 PROJECT ECONOMICS ............................................................................................ 91

6.1 Modelling Assumptions ..................................................................................... 91

6.2 Value and Returns .............................................................................................. 93

6.3 Sensitivity Results .............................................................................................. 95

6.4 Cash Costs .......................................................................................................... 96

6.5 Net Smelter Returns ........................................................................................... 99

6.6 Project Cash Flows .......................................................................................... 101

6.6.1 Debt Case ................................................................................................... 101

6.6.2 Debt plus Stream Case .............................................................................. 102

6.7 Upside of Resource Value Not Reflected in Traditional Discounted Cash Flow

Valuation ........................................................................................................... 103

7 PROJECT FINANCING ............................................................................................. 104

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8 RISKS AND OPPORTUNITIES ................................................................................. 107

8.1 Project Risk Management ................................................................................ 107

8.1.1 Special Considerations ............................................................................. 110

8.2 Opportunities .................................................................................................... 113

9 PROJECT EXECUTION ............................................................................................ 116

9.1 Project Background.......................................................................................... 116

9.2 Project Organization......................................................................................... 116

9.3 Health and Safety ............................................................................................. 119

9.4 Environmental Management Plan .................................................................... 119

9.5 Labour Relations, Training and Hiring ............................................................ 121

9.6 Sequence of Construction ............................................................................... 122

9.6.1 EPCM Scope Under JVP ............................................................................ 122

9.6.2 EPC Scope Yet to be Awarded .................................................................. 123

9.6.3 EPC Scope Under SK E&C ........................................................................ 123

9.7 Materials Management and Logistics ............................................................. 123

9.7.1 Logistics Strategy ...................................................................................... 123

9.8 Procurement ..................................................................................................... 124

9.9 Security ............................................................................................................. 124

9.10 Project Master Schedule and Key Milestones ................................................ 124

9.11 Independent Reviews ....................................................................................... 127

9.11.1 Independent Project Schedule Review .................................................... 127

9.11.2 Independent Project Readiness Assessment .......................................... 127

9.11.3 Independent Project Controls Health Check ........................................... 127

10 OPERATIONAL READINESS ................................................................................... 129

11 MARKETING AND MARINE TRANSPORT OF CONCENTRATE ............................ 133

11.1 Scope and Summary ........................................................................................ 133

11.2 Composition of Revenue and Price Assumptions ......................................... 133

11.3 Copper Prices and Trends ............................................................................... 134

11.4 Concentrate Quality.......................................................................................... 135

11.5 Summary of Copper Concentrate and Freight Market Expectations ............ 136

11.6 Preliminary Copper Concentrate Sales Plan .................................................. 137

11.7 Summary of Molybdenum and Freight Market Expectations ........................ 138

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List of Tables

Table 1-1 Tier 1 Characteristics ................................................................................... 15

Table 1-2 Metal Production .......................................................................................... 17

Table 1-3 Cobre Panama Mineral Reserves ................................................................ 17

Table 1-4 Cobre Panama Mineral Resources .............................................................. 17

Table 1-5 Basic Engineering Capital Cost by Major Area ............................................. 20

Table 1-6 C1 Cash Costs($US/lb of Cu) at Copper Price Scenario of $US2.75/lb. ....... 20

Table 1-7 Summary of Operating Costs by Component ($US/t of ore milled) ............... 21

Table 1-8 After-Tax Economics: Debt Case ................................................................. 22

Table 1-9 After-Tax Economics: Debt plus Stream Case ............................................. 22

Table 1-10 Third Party Reviews ..................................................................................... 23

Table 1-11 Project Milestones ........................................................................................ 26

Table 2-1 Tier 1 Characteristics ................................................................................... 27

Table 2-2 Cobre Panama Mineral Resources .............................................................. 31

Table 2-3 Mine Production Schedule ........................................................................... 35

Table 2-4 Mining Schedule by Pit ................................................................................ 36

Table 2-5 Cobre Panama Mineral Reserve .................................................................. 39

Table 2-6 Recovery Forecast Algorithms ..................................................................... 40

Table 2-7 Mill Production Schedule .............................................................................. 42

Table 3-1 Cobre Panama’s Progress in Implementing the IFC Performance Standards61

Table 4-1 Basic Engineering Capital Cost by Major Area ............................................. 78

Table 4-2 FEED Study to Basic Engineering Capital Cost Estimate Variances ............ 78

Table 4-3 FEED Study to Basic Engineering Variance Description .............................. 79

Table 5-1 Total Operating Cost Summary .................................................................... 83

Table 5-2 Summary of Operating Costs per Year ($US/t of ore milled)* ....................... 83

Table 5-3 Summary of Operating Costs by Component ($US/t of ore milled)* ............. 84

Table 5-4 FEED Study vs. Basic Engineering Operating Costs .................................... 85

Table 5-5 Operating and Input Cost Estimates at Selected Copper Price Assumptions86

Table 5-6 Years 2-16 C1 Cash Cost ($US/lb) .............................................................. 87

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Table 5-7 Life of Mine C1 Cash Cost ($US/lb) ............................................................. 87

Table 5-8 Power Costs at Selected Copper Price Assumptions ($US/kWh) ................. 89

Table 6-1 Modelling Assumptions ($US) ...................................................................... 91

Table 6-2 Pre-Financing Sponsor Funding Requirement ............................................ 92

Table 6-3 Financing Assumptions ................................................................................ 93

Table 6-4 Metal Price Assumptions ($US) ................................................................... 94

Table 6-5 After-Tax Economics: Debt Case ................................................................. 94

Table 6-6 After-Tax Economics: Debt plus Stream Case ............................................. 95

Table 6-7 Years 2-16 Cash Costs Based on Payable Copper ($US/lb) ........................ 96

Table 6-8 Life of Mine Cash Costs Based on Payable Copper (US/lb) ......................... 96

Table 6-9 Year 2-16 C3 Costs ($US/lb)........................................................................ 98

Table 6-10 Life of Mine C3 Costs ($US/lb) ..................................................................... 98

Table 6-11 Life of Mine Revenues and NSR (Consensus LT Prices) ........................... 100

Table 6-12 Construction Period Funding Requirement – Debt Case ($US) .................. 101

Table 6-13 Construction Period Funding Requirement – Debt plus Stream Case ($US)

.................................................................................................................. 102

Table 7-1 Independent Funding Breakdown .............................................................. 104

Table 7-2 Inmet’s Funding Plan ................................................................................. 104

Table 7-3 Total Project Funding ................................................................................. 105

Table 8-1 Key Project Risks and Treatment Plans ..................................................... 112

Table 8-2 Potential Reserves Should Indicated Resources at Balboa and Brazo be

Converted to Reserves .............................................................................. 114

Table 9-1 Project Milestones ...................................................................................... 125

Table 10-1 Elements of and Assurance of Operational Readiness .............................. 129

Table 11-1 Forecast Copper Concentrate Commercial Terms ..................................... 138

Table 11-2 Molybdenum Concentrate NSR Calculation* .............................................. 139

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List of Figures

Figure 2-1 Site & Infrastructure Map ............................................................................. 28

Figure 2-2 Mineral Deposits and Defined Resources Plan Map .................................... 30

Figure 2-3 Increase in Resources Since FEED Study ................................................... 31

Figure 2-4 Contained Copper Endowment (resource proxy) for Undeveloped Copper

Deposits ....................................................................................................... 32


Deposits Not Controlled by >$10b Market Cap or Sovereigns ...................... 32

Figure 2-6 Summary of Mining Schedule ...................................................................... 34

Figure 2-7 Mining Schedule Shown by Type of Material Moved and by Pit ................... 34

Figure 2-8 Inferred Resource In-Pit ............................................................................... 37

Figure 2-9 Plan View of Site Infrastructure and Design Pits .......................................... 38

Figure 2-10 Plan View of TMF Including Dams ............................................................... 45

Figure 3-1 IHS Comparative Historical Risk Showing Panama’s Risk Trending Down .. 55

Figure 3-2 Estimated Cobre Panama Job Additions ...................................................... 56

Figure 3-3 Pro-Mining Demonstration of 2,500 People March 10, 2012 ........................ 67

Figure 5-1 Breakdown of Operating Costs by Function and Input Cost ......................... 84

Figure 5-2 Comparison of Cobre Panama’s C1 Cost on the 2020 Projected Brook Hunt

Cost Curve ................................................................................................... 88

Figure 6-1 NPV Sensitivities.......................................................................................... 95

Figure 6-2 Comparison of Project C1 Costs on the Projected 2020 Brook Hunt Cost

Curve ........................................................................................................... 97

Figure 6-3 Comparison of Project C3 Costs on the Projected 2020 Brook Hunt Cost

Curve ........................................................................................................... 99

Figure 6-4 Payable Cu Production and C1 Cash Cost by Year (Consensus LT Prices

Debt Case)................................................................................................. 100

Figure 6-5 Project Life After-Tax Cash Flows (Debt Case)* ........................................ 101

Figure 6-6 Project Life After-Tax Cash Flows (Debt + Stream Case)* ........................ 102

Figure 8-1 Plan of Distribution of Resources 2012 ...................................................... 113

Figure 8-2 Plan of Distribution of Resources 2012 ...................................................... 115

Figure 9-1 Project Schedule ........................................................................................ 126

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May 2012

Figure 11-1 Cobre Panama NSR by Metal Based on Long-term Consensus Prices ...... 133

Figure 11-2 Gap Between Base Case Mine Production and Demand that Needs to be

Filled with Capacity Additions .................................................................... 134

Figure 11-3 Forecast vs Actual Sources of Supply 2003-2010 ...................................... 135

Figure 11-4 Historical Trends in Treatment and Refining Changes in Real 2011 Dollars137

k thousand

m million

b billion

oz troy ounces

lb pounds

kt thousand tonnes

kTon thousand tons

ktpd thousand tonnes per day

mt million tonnes

mt/a million tonnes per annum

US$/t US dollars per tonne

Cu Copper

Au Gold

Ag Silver

Mo Molybdenum

bbl barrel

l litre

mW megawatt

kWh kilowatt hour

dmt dry metric tonne

wmt wet metric tonne

LOM life of mine

g/t grams per tonne

GLOSSARY

Minera Panama, S.A.



May 2012

1 INTRODUCTION

The Mina de Cobre Panama Project (Cobre Panama; the Project) consists of a conventional

open pit mine and the associated infrastructure to produce copper-gold and molybdenum

concentrates. The concession for the Project covers an area of 130 square kilometres (km2) and

is located in the Donoso District, Colón Province in north central Panama.

Cobre Panama’s projected significant annual production at first quartile cash costs, long mine

life, extensive mineral reserves and resources, and high proportion of net revenues from copper

all provide exceptional exposure to copper. With the Environmental and Social Impact

Assessment (ESIA) regulatory approval for the Project already received, a strong social license

and Basic Engineering completed, the Project is construction-ready. It is essentially the only

Tier 1 copper asset not in the hands of a senior mining company.

Table 1-1 Tier 1 Characteristics

Tier 1 Characteristic

Life of Mine 31 years

Capital Cost $US6.18b

Annual production (Yr 2-16)

Annual production (LOM)

298 kt

266 kt

C1 cash costs (Yr 2-16)

C1 cash costs (LOM)

$US0.72/lb Cu

$US0.82/lb Cu

Strip Ratio 0.58

Scale 160 ktpd to 240 ktpd throughput with further expansion capacity

IRR (debt financing)

NPV @ 8% ($m)

IRR (debt plus stream financing)

NPV @ 8% ($m)

Consensus Long-Term

14.3%

3,200

16.7%

3,500

Forward Curve

(declining to

consensus)

18.5%

4,800

21.9%

5,000

3YR Trailing Avg.

(SEC case)

19.2%

6,000

22.5%

6,300

Annual free cash flow

(Yr 2-16, debt financing)

Annual free cash flow

(LOM, debt financing)

$US0.90b

$US0.81b

Copper reserves*

Copper resources (M&I)*

Copper resources (Inferred)*

9.3 mt

14.7 mt

8.7 mt

Concentrate Clean concentrate not expected to draw penalties

Logistics Proximity to tidewater and Panama Canal

*See Table 1-3 and Table 1-4

Minera Panama, S.A.



May 2012

Cobre Panama would be developed as a conventional truck and shovel open pit mine with a

concentrator that uses the direct application of proven technology (crushing, grinding, flotation)

to produce copper-gold and molybdenum concentrates. A 300 mW coal-fired power plant and

ship loading port facilities are also part of the Project.

Basic Engineering was conducted by Joint Venture Panama Inc. (JVP), a joint venture led by

SNC-Lavalin Group Inc. (70%) with partners GyM S.A. (a member of Graña y Montero Group)

(15%) and Techint International Construction Corp. (15%) between November 2010 and March

2012. The purpose of Basic Engineering was to further develop the scope and execution plan

for the Project, and to serve as the basis for detailed engineering, procurement and construction.

This work builds on the March 2010 Front End Engineering Design Study (FEED) Study. Basic

Engineering provides:

• A capital cost estimate with an accuracy of +10%/-10%

• A Project Execution Plan in readiness for the full Notice to Proceed

• A detailed Level 3 Project Master Schedule

• Detailed engineering for site capture and civil works and

• Initial Work Packages and contracting strategy to support procurement activities.

The total estimated capital cost to bring the Project into operation is $US6.2b (expressed in Q3

2011 dollars), over half of which is based on firm quotes. Sustaining capital is estimated to be

$US2.9b required over the mine life. This includes an expansion in the form of adding a third

crushing and grinding line to the process plant to increase capacity from 160ktpd to 240ktpd,

which would to be ready for production in Year 10. Operating costs are estimated to be

$US6.88/t of ore milled, with mining costs benefitting from a life of mine strip ratio of 0.58 tonnes

waste per tonne of ore. The power cost of $US1.01/t of ore milled is an endorsement of the

decision in 2011 to undertake the capital cost to build a coal-fired power plant. Assuming a full

Notice to Proceed in May 2012, first concentrate would be scheduled for early 2016.

Reconciliations to the 2010 FEED Study can be found in Sections 4 (Capital Costs) and 5

(Operating Costs).

1.1 A Tier 1 Copper Asset

The Project has the key attributes of a Tier 1 copper asset with substantial exposure to copper,

projected long life, low operating costs and significant expansion potential in a geopolitically

favourable jurisdiction.

Cobre Panama’s projected average annual copper production of 298kt for Years 2-16 and 266kt

over the life of operations are indicative of a world class asset. The expected 31 year life with

these levels of output would provide exceptional exposure to copper.

Minera Panama, S.A.



May 2012

Table 1-2 Metal Production

Annual Average Years 2-16

Annual Average Life of Operations

Total Life of Operations

Copper (kt) 298 266 8,237 Molybdenum (kt) 3.1 2.9 90.2 Gold (koz) 106 87 2,705 Silver (koz) 1,572 1,545 47,899

Estimated C1 cash costs (see Section 5 for definition) of $US0.72/lb for Year 2-16 and

$US0.82/lb for the life of the operation would put the Project in the very favourable position of

being in the first quartile of the projected industry cost curve.

Table 1-3 Cobre Panama Mineral Reserves

Category Tonnes

(x 1000)

Cu

%

Au

g/t

Ag

g/t

Mo

%

Cu

(x1000)

Tonnes

Au

(x1000)

ounces

Ag

(x1000)

ounces

Mo

(x1000)

tonnes

Proven 258,000 0.57 0.14 1.6 0.010 1,478 1,126 13,020 25

Probable 2,061,000 0.38 0.06 1.4 0.007 7,781 4,041 91,008 145

Total 2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169

Table 1-4 Cobre Panama Mineral Resources

Category Tonnes

(x 1000)

Cu

%

Au

g/t

Ag

g/t

Mo

%

Cu

(x1000)

Tonnes

Au

(x1000)

ounces

Ag

(x1000)

ounces

Mo

(x1000)

tonnes

Measured 262,000 0.56 0.13 1.5 0.009 1,476 1,118 12,979 24

Indicated 3,905,000 0.34 0.06 1.2 0.005 13,237 7,845 155,392 214

Total 4,167,000 0.35 0.07 1.3 0.006 14,715 8,963 168,454 238

Inferred 3,749,000 0.23 0.04 1.0 0.004 8,660 4,805 120,534 156 Notes to mineral reserves and resources table Mineral reserves and resources are shown on a 100 percent basis for each property. Except as stated, mineral resources are exclusive of mineral reserves. The mineral reserve and resource estimates are prepared in accordance with the CIM Definition Standards On Mineral Resources and Mineral Reserves, adopted by CIM Council on November 14, 2004, and the CIM Estimation of Mineral Resources and Mineral

Minera Panama, S.A.



May 2012

Reserves Best Practice Guidelines, adopted by CIM Council on November 23, 2003, using geostatistical and/or classical methods, plus economic and mining parameters appropriate to each project. You will find the definitions and guidelines at www.cim.org. Estimates for all operations are prepared by or under the supervision of a qualified person as defined in National Instrument 43-101 (usually an engineer or geologist). There are no known environmental, permitting, legal, taxation, political or other relevant issues that would materially affect the estimates of the mineral reserves. Mineral resources which do not form part of the mineral reserves do not have demonstrated economic viability. Mineral resources as at March 5, 2012, were estimated by Robert Sim, P. Geo., of SIM Geological Inc. Mineral reserves as at December 31, 2011 were estimated by William Rose, P.E., of WLR Consulting, Inc., a qualified person under National Instrument 43-101. Reserve estimates are based on the following assumptions: - copper price: $US2.25 per pound - gold price: $US1,000 per ounce - silver price: $US16 per ounce - molybdenum price: $US13.50 per pound - Mining costs : $US1.66 per tonne of ore mined, $US 1.96 per tonne of waste mined and - Milling and general and administration cost: $US 5.27 per tonne of ore milled, average life of mine metallurgical recoveries: 89 percent for copper, 52 percent for gold, 46 percent for silver and 53 percent for molybdenum. Mineral resources include mineral reserves. Resource grades are estimated using ordinary kriging with a nominal block size of 25 metres by 25 metres by 15 metres. Resources are limited inside a pit shell defined by a copper price of $US2.60 per pound, $1.75 per tonne mining cost and $7.02 per tonne total site operating cost, and are tabulated at a cut-off grade of 0.15 percent copper

Measured and Indicated (M&I) resources have grown to approximately 32.4b lb of copper and

9.0m oz of gold. This represents a 26% increase of 6.6b lb of copper and a 37% increase of

2.4m oz of gold over the FEED Study. In addition, inferred mineral resources have grown to

19.1billion lbs of copper and 4.8m oz of gold – an increase of 2.5b lb of copper (15 percent) and

an increase of 0.8m oz gold (20 percent) over the FEED Study.

Currently there are 12b lb of contained copper in M&I mineral resources and some 19b lb of

copper in inferred mineral resources not exploited in the mine plan. While mineral resources do

not have demonstrated economic viability, based on commonly used market precedent, these

additional units of copper could potentially be valued at between $US0.03 and $US0.06/lb in the

ground, suggesting an option value on those copper units of between $US0.9b and $US1.8b.

This is especially true once the infrastructure is in place and the mine is operating.

If work progresses to allow us to move these resources into reserves, it would provide

opportunities to:

• extend mine life beyond the current 31 years; and/or

• accelerate the addition of a third line to the process plant that would increase

production in Years 3 to 9; and/or

• justify expanding the planned operation beyond 240ktpd throughput.

Cobre Panama would enjoy a number of other positive attributes. In an industry with a trend of

increasing presence of deleterious elements in concentrates, the Project would have a clean

concentrate. The port, located on tide water, would be only 30 km from the mine site, allowing

for ease of exporting concentrates as well as importing supplies. This would provide a unique

Minera Panama, S.A.



May 2012

opportunity to potentially enhance profitability through swaps to reduce transportation costs and

to share the benefit of reduced penalties with swap counterparties.

1.2 Concession, Permits and Socio-Environmental Commitments

The Project exploration and mining concession was granted under Law 9 of February 26, 1997,

promulgated by the Legislative Assembly of Panama. This, in addition to an amended Mineral

Resources Code in Panama, provides clarity on the fiscal framework for Cobre Panama. The

ESIA approval was received in December 2011 and gives the Project the right to obtain the

balance of the permits required to commence operations. Several such construction permits

have already been obtained.

MPSA has created an existing privilege to operate locally by building relationships with local

communities, an intention to comply with the International Finance Corporation’s Performance

Standards on Environmental and Social Sustainability and by meeting its responsibility to ensure

that the benefits of the Project are shared with the people of Panama.

1.3 Capital Costs

The estimated capital cost of $US6.18b is based on a comprehensive estimate comprised of

over 9,000 lines and 800 pages as well as third party reviews of the process and outcome.

Adding further to the confidence in the figures is the inclusion of lump sum turnkey contracts,

firm price estimates and vendor quotes for well over ninety per cent of the capital cost.

Minera Panama, S.A.



May 2012

Table 1-5 Basic Engineering Capital Cost by Major Area

Area CAPEX Total

($US) % of Project

Mining 760 12

Process Plant 1,184 19

Site & Services 550 9

Port Site Facilities 543 9

Power Plant 646 10

Total Direct Costs 3,682 59

Construction Indirects 844 14

Total Field Costs 4,526 73

EPCM Services 355 6

Owner Costs 885 14

Contingency* 415 7

Project Total Costs 6,181 100

Note: Totals may not add due to rounding *Contingency: The contingency table provided to the estimate reviewers had an overall Project contingency of 9.63% (as a percentage of Total Installed Cost (TIC)). When owner’s costs (mine preproduction, mine equipment and Owner’s Project Management (PM)) and contingency on owner’s costs are removed, the remaining value is 11.18%. The percentage is in line with what might be expected of an Authority for Total Cost Management (AACE) Class 2 engineering estimate which is described in Section 4.4.

1.4 Operating Costs

C1 cash costs during Years 2-16 of operation are expected to average $US0.72/lb of copper and

for the life of operations average $US0.82/lb (see Section 5 for further details). These costs

should put Cobre Panama in the first quartile of the projected industry curve and support the

economic robustness of the operation under most foreseeable market conditions.

Table 1-6 C1 Cash Costs($US/lb of Cu) at Copper Price Scenario of $US2.75/lb.

Cost Item Average Yr 2-16 Life of Operations

Mine 0.30 0.32

Plant 0.37 0.44

G&A 0.11 0.12

Site services 0.03 0.04

Offsite costs 0.30 0.30

By-product credits (0.40) (0.40)

C1* 0.72 0.82

Note: Totals may not add due to rounding

Minera Panama, S.A.



May 2012

Table 1-7 Summary of Operating Costs by Component ($US/t of ore milled)

Cost Centre Total Labour Material Power Other

Mine 2.44 0.27 1.87 0.05 0.24

Process Plant 3.29 0.24 2.13 0.91 0.01

G&A 0.88 0.15 0.01 0.04 0.69

Site Services 0.28 0.11 0.07 0.01 0.09

Total 6.88 0.77 4.08 1.01 1.03

A third party review of process plant operating costs concluded that the estimate of operating

costs was realistic and consistent with other operating concentrators. A separate reviewer

concluded that the Project’s mining productivity ratios were at the average or slightly

conservative as compared to other similar open-pit mining operations.

Analysis of costs for input commodities such as oil (diesel), freight, steel (grinding media),

ammonia (explosives) and coal (power) has demonstrated a strong correlation to the historical

price of copper. When prices of oil and other raw materials are relatively high, statistically

significant correlations demonstrate that it is reasonable to expect that the economic

environment is robust and, likewise, so presumably would be the price of copper. The cost

assumptions for these commodities can therefore linked to price assumptions for copper over

the long term. The life of mine operating costs estimate of $US6.88/t of ore milled is based on a

long-term copper price assumption of $US2.75/lb. Table 5-5 shows the various input costs used

for each metal price scenario – in the $US2.75/lb copper case oil is $US68.68/bbl, diesel is

$US0.62/l, coal is $US82.54/t, steel grinding media is $US935.25/t, explosives are $US936.21/t

and concentrate freight cost was $US41.21/t. In the $US3.42/lb copper case oil is

$US80.53/bbl, diesel is $US0.72/l, coal is $US96.93/t, steel grinding media is $US1,143.62/t,

explosives are $US1,011.18/t and concentrate freight cost was $US48.32/t.

1.5 Project Economics

Three metal price scenarios were used to evaluate the Project economics: Consensus Long-

Term ($US2.75/lb), Forward Curve, and Three Year Trailing Average ($US3.42/lb). It is our

belief that the Consensus Long-Term price is conservative and does not reflect anticipated

supply-demand dynamics (see Section 11 ―Marketing‖ for additional discussion). Two financing

structures were considered in the Project economic analysis:

1. a levered case with third party and subordinate shareholder debt, and

2. a levered case with third party and subordinate shareholder debt, plus a gold and silver

stream sale.

Minera Panama, S.A.



May 2012

These structures represent Inmet Mining Corporation’s (Inmet’s) financing assumptions applied

to 100% of the Project. All scenarios and cases appear to provide solid returns that range from

14.3% to 22.5% after-tax IRR.

Table 1-8 After-Tax Economics: Debt Case

Metal Price Scenario

($USm) Consensus Long-Term

Forward Curve

(declining to

consensus)

3-Year Trailing Average (SEC

case)

IRR 14.3% 18.5% 19.2%

NPV @ 8% 3,200 4,800 6,000

NPV @ 9% 2,400 3,900 4,900

NPV @ 10% 1,800 3,200 4,000

Table 1-9 After-Tax Economics: Debt plus Stream Case



Forward Curve

(dropping to

consensus)


case)

IRR 16.7% 21.9% 22.5%

NPV @ 8% 3,500 5,000 6,300

NPV @ 9% 2,800 4,200 5,200

NPV @ 10% 2,200 3,600 4,400

However, readers should be aware that the static Discounted Cash Flow valuation methodology

employed in the analysis does not capture the value of the optionality embedded in a long-life

asset and additional mineral resources that may be incorporated into the mine plan.

1.6 Third Party Reviews

Many recent projects in the mining industry have been impacted by unreliable capital estimates.

To ensure the reliability of Cobre Panama’s capital estimate, third party reviews of key aspects

of the Project overall were undertaken to mitigate risks and improve the confidence of estimates.

Minera Panama, S.A.



May 2012

Table 1-10 Third Party Reviews

Scope Reviewer Outcome

Overall Project Chlumsky, Ambrust & Meyer (CAM) – Independent

Engineer

Confirmative

Capex Legico-CHP Confirmative Opex AMEC Confirmative Power Sunrise Americas & Wood

Mackenzie Confirmative

Tailings URS Corporation Confirmative Tailings ITRB Confirmative Project Controls KPMG Confirmative Project Readiness IPA Confirmative

1.7 Risks and Opportunities

Cobre Panama stakeholder risks and opportunities were identified and risk mitigants put in place

as part of Basic Engineering.

Cost Escalation

Quotes to build the power plant and the process plant (together a significant component

of Project capital expenditures) were and are being written on a ―Lump Sum‖ and ―Not to

Exceed‖ basis in order to reduce the likelihood that these components will bring the

Project over budget. These quotes will be received from audited vendors with the

sophistication and balance sheet to manage costs and deliver on budget.

The advanced stage of engineering for the Project (currently 38% completed) in

combination with the large portion of firm bids received to-date (58%) should further

reduce the potential for unforeseen costs.

Panama’s use of the US currency is another positive characteristic of the Project that

should reduce the potential for material cost escalation due to foreign exchange

fluctuation.

The manner in which the ―Request for Quotation‖ process was conducted should reduce

the potential for cost overruns. The Project’s Engineering, Procurement and

Construction (EPC) and Engineering, Procurement, Construction and Management

(EPCM) contracts are designed to incent contractors to stay on budget and on schedule.

We believe the quotes obtained are materially conservative – in some cases the labour

multiplier (unit of work over unit of time) used for work on the Project is as high as three

times what would normally be employed and some of the quotes for individual work

packages have small overlaps in scope (which could potentially reduce costs).

By the end of 2012, 50% of the Project expenditures are expected to be committed

against firm quotes currently in hand.

Overall Project contingency is 9.6% (as a percentage of TIC). When owner’s costs (mine

preproduction, mine equipment and owner’s project management (PM)) and contingency

Minera Panama, S.A.



May 2012

on owner’s costs are removed, the remaining contingency level is 11.2%. This

percentage is in line with what might be expected of an AACE Class 2 engineering

estimate.

The Project is actively considering early group purchase of bulk commodities (to lock in some costs of steel, diesel, cement) for construction and passing out to suppliers.

Low Cost Production from a Low Grade Mine

Cobre Panama is amenable to large scale, open pit mining methods that should result in

the efficient handling of ore and waste.

Mining costs should benefit from a very low strip ratio, roughly one fifth of the average

(0.58 vs 2.53 – Source: Brook Hunt) for all open pit copper mines in 2011.

The Project’s proximity to the coast and the low altitude of the Project should allow the

mine and the port to be located close together, thus decreasing linear maintenance and

allowing for integrated management of remote facilities.

The project would have access to low-cost, self-generated power that takes advantage of

proximity to a coal source.

Management Depth

Inmet has developed three mines within the tenure of the current management; the Las

Cruces, Çayeli and Troilus mines.

For the Project, Inmet has recruited a strong owner’s team (detailed in Section 9) that

has relevant experience in construction and operations. Further, reputable Engineering,

Procurement and Construction contractors with a proven history of quality have been

selected.

Support for the Project

Approval of the ESIA is in our view indicative of governmental support for the Project.

Permits post-ESIA approval are being received.

Extensive engagement and cooperation at both the government and community levels.

At the community level, the current level of support in the Project area indicates that

community engagement efforts are working and a recent study shows overwhelming

support for the Project (Section 3.3.3).

Minera Panama, S.A. (MPSA) has received free prior and informed consent of the

indigenous communities who will be physically and economically displaced by the

Project.

MPSA has continuous engagement with the local communities and a broad range of

stakeholders and is delivering employment to local residents.

Mine Life

Current mineral resources are in excess of the Basic Engineering mine plan and point to

the potential for mine life extension and expansions beyond the currently planned

addition of a third crushing and grinding line to the process plant.

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May 2012

Acceleration of Third Line

Moving the third line addition forward could enhance the mill throughput by approximately

50% in Years 3 to 9 and would make Cobre Panama one of the ten largest copper mines

in the world in terms of annual production.

Further Expansion under Extended Resource

There is a significant mineral resource under the Basic Engineering plan, exclusive of

mineral reserves, that is largely near surface and proximal to the planned plant. This

could potentially support future expansion.

Exploration Potential

In late 2010 MPSA initiated a concession-wide exploration program via airborne

geophysical survey. This survey identified known shallow mineralization and generated

numerous targets. One of the first targets tested in early 2011 resulted in the discovery of

the Balboa deposit. An extensive exploration program for 2012 is underway with 36

holes testing additional targets on the concession.

1.8 Project Execution

A project execution plan has been developed to move Cobre Panama from completion of Basic

Engineering through design, construction and commissioning phases all the way to shipment of

the first concentrate anticipated in the first quarter of 2016. The MPSA Project team would grow

from 50 today to 107 members at its peak in 2013.

Milestones from the Project master schedule are presented below.

Minera Panama, S.A.



May 2012

Table 1-11 Project Milestones

Milestone Date

(Estimated)

Notice to Proceed 2Q12

Mine/Process Plant Construction Start 2Q12

Port Site Construction Camp Complete 4Q12

Process Plant Bulk Earthworks Complete 4Q13

Coast Road Open (Plant to Port Site) 4Q13

Port Dock Facility Construction Complete 2Q14

230 kV Power Transmission Line Construction Complete 3Q14

Tailings Starter Dam Construction Complete 3Q15

Introduction of Ore to Grinding Line No. 1 4Q15

Power Plant Complete – Unit No. 1 Operational 4Q15



Start of Production 4Q15

Shipment of Concentrate 1Q16

Commercial Production 2Q16

1.9 Conclusions

With Basic Engineering completed, detailed engineering underway, key permits in process, and

continued efforts to maintain and enhance its privilege to operate locally, Cobre Panama is a

construction-ready Tier 1 project. With few such assets in a construction-ready position and not

already in the hands of a senior mining company, we believe the Project has potential value

beyond what is estimated in the NPV analysis.

Minera Panama, S.A.



May 2012

2 TECHNICAL SUMMARY

2.1 Project Description

Cobre Panama would be a world-class Tier 1 asset based on projected mine life, annual

production, cash costs, scalability and annual cash flow.

Table 2-1 Tier 1 Characteristics

Tier 1 Characteristic

Life of Mine 31 years

Annual production (Yr 2-16)

Annual production (LOM)

298 kt

266 kt

C1 cash costs (Yr 2-16)

C1 cash costs (LOM)

$US0.72/lb Cu

$US0.82/lb Cu

Strip Ratio 0.58

Scale 160 ktpd to 240 ktpd throughput with

further expansion capacity

Annual free cash flow (Yr 2-16) at $US2.75/lb Cu, debt financing

Annual free cash flow (LOM) at $US2.75/lb Cu, debt financing

$US0.90b

$US0.81b

Copper reserves*

Copper resources (M&I)*

Copper resources (Inferred)*

9.3 mt

14.7 mt

8.7 mt

Concentrate Clean concentrate not expected to draw

penalties

Logistics Proximity to tidewater and Panama

Canal

*See Table 1-3 and 1-4

Cobre Panama would be developed as a conventional truck and shovel open pit mine with a

concentrator employing proven technology (crushing, grinding, flotation) to produce copper-gold

and molybdenum concentrate. A 300 mW coal-fired power plant and ship loading port facilities

would also be part of the Project.

The Project would be within an exploration and mining concession covering 130 km2 located in

the Donoso District, Colón Province in north-central Panama. The development would be close

to tidewater and would be advantaged by its proximity to the Panama Canal which provides

increased flexibility in sourcing supplies from both the Gulf of Mexico (North America) and South

America as well as providing convenient shipping of mine concentrates to global markets.

Minera Panama, S.A.



May 2012

Figure 2-1 Site & Infrastructure Map

Minera Panama, S.A.



May 2012

The Project infrastructure, ancillary support facilities and systems would include:

Three open pits (the Botija, Colina and Valle Grande deposits) which would be progressively developed;

Ore crushing, conveying and stockpiling facilities, consisting of two gyratory crushers, belt conveyors and a pad for crushed ore stockpiling for the initial Botija pit;

Provisions for a second crusher and associated conveying and stockpiling facilities to handle ore from the Colina and Valle Grande pits

A 160 ktpd process plant consisting of two lines;

Provisions for an addition of a third line in the concentrator expanding its capacity to 240 ktpd throughput in Year 10 with negligible infrastructure modifications;

A slurry pipeline to transport concentrate to the port facility;

A port facility including concentrate loading and coal offloading facilities;

A 300 megawatt coal-fired power plant;

A coast access road, connecting the process plant with the port facility;

Plant and truck repair shop;

Warehouse and tank farm;

Camp and administrative offices;

Facilities and systems for environmental monitoring and management of effluents in compliance with Project commitments; and

Transmission line from the power plant at the port facility to the process plant and switchyard, continuing south to connect with the Panamanian grid at the Llano Sanchez substation.

2.1.1 Geology and Mineral Resources

Copper-gold-molybdenum porphyry-style mineralization was discovered in central Panama

during a regional survey by the United Nations in 1968. Exploration has since outlined five large

deposits and several smaller ones on the concession. Drill programs have been conducted by

the United Nations Development Program (1968-1969), Panama Mineral Resources

Development Company (PMRD), a Japanese consortium (1970-1980), Inmet-Adrian Resources-

Teck as MPSA (1990-1997), Petaquilla Copper (2006-2008), and Inmet and Teck and then

Inmet as MPSA (2007-2009). A total of 1,275 diamond drill holes (230,555 m) have been

completed.

The relevant deposits are all porphyry copper deposits and include Botija, Colina, Medio, Valle

Grande, Brazo and Balboa. All of the porphyry-style mineralization on the property is hosted in

granodiorite, feldspar-quartz-hornblende porphyry, and adjacent andesitic volcanic rocks. The

scope of the Basic Engineering, as well as the approved ESIA, only covers the development of

the Botija, Colina, Medio and Valle Grande deposits.

Minera Panama, S.A.



May 2012

Figure 2-2 Mineral Deposits and Defined Resources Plan Map

Cobre Panama mineral resources (inclusive of reserves) were re-estimated in early 2012 to

incorporate the 171 holes completed since the 2010 FEED Study (see Table 2-2). The increase

in measured and indicated resources reflected conversion of inferred resources into indicated

resources on the Brazo deposit and the addition of the Balboa resource. Most of the increase in

inferred resources came from Balboa.

Minera Panama, S.A.



May 2012

Table 2-2 Cobre Panama Mineral Resources

Contained Metal (x1000)

Category Tonnes

(x 1000)

Cu

%

Au

g/t

Ag

g/t

Mo

%

Cu

Tonnes

Au

ounces

Ag

ounces

Mo

tonnes

Measured

Indicated

262,000

3,905,000

0.56

0.34

0.13

0.06

1.5

1.2

0.009

0.005

1,476

13,237

1,118

7,845

12,979

155,392

24

214

Total 4,167,000 0.35 0.07 1.3 0.006 14,715 8,963 168,454 238

Inferred 3,749,000 0.23 0.04 1.0 0.004 8,660 4,805 120,534 156

Mineral resources which do not form part of the mineral reserves do not have demonstrated economic viability. Mineral resources as at March 5, 2012 were estimated by Robert Sim, P. Geo., of SIM Geological Inc. Mineral resources include mineral reserves. Resource grades are estimated using ordinary kriging with a nominal block size of 25 metres by 25 metres by 15 metres. Resources are limited inside a pit shell defined by a copper price of $USUS2.60 per pound, $US1.75/t mining cost and $US7.02/t total site operating cost, and are tabulated at a cut-off grade of 0.15 percent copper.

Figure 2-3 Increase in Resources Since FEED Study

Cobre Panama has one of the largest undeveloped resources in the Metals Economics Group

(MEG) and Brook Hunt databases (see Figure 2-4). As a copper deposit not held by a major

(>$US10b market cap or sovereign), Cobre Panama stands out even more (Figure 2-5).

Minera Panama, S.A.



May 2012


Deposits

Based on MEG, Brook Hunt and in the case of Cobre Panama, Inmet databases.

Figure 2-5 Contained Copper Endowment (resource proxy) for Undeveloped

Copper Deposits Not Controlled by >$10b Market Cap or Sovereigns

Based on MEG, Brook Hunt and in the case of Cobre Panama, Inmet databases.

-

5

10

15

20

25

30

35

40

Cu

Co

nta

ine

d i

nto

tal

en

do

wm

en

t (r

eso

urc

e p

roxy

) (m

t)

Undeveloped Copper Deposits

Pre-feasibility

0

5

10

15

20

25

KSM GaloreCreek

Haquira Casino SchaftCreek

Red Chris CobrePanama

Sentinel

Cu

Co

nta

ine

d in

to

tal e

nd

ow

me

nt

(re

sou

rce

pro

xy)

(mt)

Copper Deposits not controlled by >$10b Mkt Cap or SovereignsPre-feasibility Feasibility Construction Ready

Minera Panama, S.A.



May 2012

2.1.2 Mine Plan and Mineral Reserves

The mine production schedule has been developed to maximize early revenues and improve overall

Project returns utilizing a conventional mining fleet. The economics of Cobre Panama would benefit

from a low life of mine strip ratio of 0.58 tonnes of waste for every tonne of ore. Mine operations

would be scheduled for two 12-hour shifts per day, 365 days per year.

A series of analyses were conducted for Basic Engineering to determine economic pit limits and the

mining phase development sequence for three mineral deposits in the concession area: Botija,

Colina, and Valle Grande. The concentrator site would be centrally located within 2 km of all three

deposits as well as the stockpile (Figure 2-9). A fourth smaller deposit, Medio, is about 500 m

northeast of the Colina pit. The new block model incorporates a small Medio pit which was targeted

by recent drilling and is part of the mine production schedule in Years 11-14.

The economic pit limit evaluations, open pit development sequence plans, and reserve estimates are

based on metal prices of $US2.25/lb Cu, $US13.50/lb Mo, $US1,000/oz Au, and $US16.00/oz Ag.

Over the life of the Project, forecast concentrator recoveries used are based on the revised Basic

Engineering flow sheet forecasts and should average about 89% for Cu, 53% for Mo, 52% for Au,

and 46% for Ag. Weighted average mining costs of $US1.77/t were used in the pit limit analyses,

along with base ore processing and general/administration costs of $US3.83/t and $US1.44/t,

respectively. The costs used to estimate mineral reserves are conservative compared to the Basic

Engineering final operating cost summarized in Section 5.2.

The ultimate pit plans and mining phase designs have not changed from the FEED Study of March

2010, with the exception of the Medio pit extension. The open pit development sequence has been

adjusted to reflect slightly lower effective cut-off grades that have resulted from increased copper

recoveries and higher metal prices used to define ore in the Basic Engineering Study. These minor

reserve changes resulted in an increase in ore tonnages of about 8%.

2.1.2.1 Mine Production Schedule

A third grinding circuit is planned to be added to the concentrator, which would commence operation

in Year 10, increasing the base ore processing rate capacity from 160ktpd to 240ktpd. Mine

operations would be scheduled for two 12-hour shifts per day, 365 days per year. Mining department

manning levels should vary between about 850 and 956 people during the operating years, including

both salaried and hourly workers, expatriates, and nationals. Four rotating crews would provide

continuous operator and maintenance coverage in the mine. The concentrator is anticipated to

operate an estimated 31.1 years, including the processing of about 193 mt of stockpiled ore during

Years 28 to 31 (Figure 2-6 below and Table 2-3).

Minera Panama, S.A.



May 2012

Figure 2-6 Summary of Mining Schedule

Figure 2-7 Mining Schedule Shown by Type of Material Moved and by Pit

Minera Panama, S.A.



May 2012

Table 2-3 Mine Production Schedule

Time Period Ore to ROM

Stockpile

or Mill

(kt)

To Saprock

Ore

Stockpile

(kt)

To

Low-Grade

Ore

Stockpile

(kt)

Waste

Rock

& Saprolite

(kt)

Total

Material

(kt)

Strip Ratio Contractor

(kt)

Owner

(kt)

Cu-Au (Cu

26%)

Concentrate

Production

(k dmt)

Prior to M-15* 214 1,751 766 47,552 50,282 234.41 50,282 - -

PP M-15 to M0 1,227 7,643 9,478 50,406 68,755 55.02 12,912 55,843 -

Y1 50,241 5,382 14,006 47,089 118,718 1.27 7,351 111,367 789

Y2 58,062 2,108 23,897 31,762 115,829 0.99 376 115,452 1,077

Y3 58,400 739 23,592 21,099 103,831 0.78 6,476 97,355 1,114

Y4 58,654 4,331 18,520 22,135 103,640 0.77 5,614 98,026 1,137

Y5 58,400 9,519 14,424 21,493 103,837 0.78 8,680 95,157 1,122

Y6 57,950 4,843 4,844 37,793 105,429 0.82 9,806 95,623 1,161

Y7 58,400 11,391 4,167 32,884 106,842 0.83 13,019 93,823 1,185

Y8 58,400 4,167 2,489 45,337 110,392 0.89 10,138 100,254 1,111

Y9 57,360 7,085 1,961 62,567 128,973 1.25 3,119 125,854 933

Y10 85,407 1,378 - 49,906 136,691 0.60 586 136,106 1,344

Y11-Y15 437,152 1,291 - 247,902 686,345 0.57 38,422 647,923 5,830

Y16-Y20 438,001 5,571 - 251,978 695,550 0.59 44,565 650,985 5,858

Y21-Y25 411,876 8,216 - 128,054 548,147 0.33 28,895 519,252 4,702

Y26-Y31** 428,310 - - 55,953 484,263 0.13 - 484,263 4,318

Total 2,320,054 75,414 118,145 1,153,910 3,667,523 0.58 240,238 3,427,284 31,681

*M denotes months e.g. M minus fifteen **Includes 147,957 kt of ore stockpile reclamation in Years 26 to 31

Minera Panama, S.A.



May 2012

Table 2-4 Mining Schedule by Pit

Time Total Ore Milled or to ROM Ore Stockpile To Saprock Ore Stockpile To Lowgrade Ore Stockpile Waste Rock and Saprolite Total

Period B C VG M B C VG M B C VG M B C VG M Ktonnes

Prior to M-15 214 - - - 1,751 - - - 766 - - - 47,552 - - - 50,282

PP M-15 to M-0 1,227 - - - 7,643 - - - 9,478 - - - 50,406 - - - 68,755

Y1 52,241 - - - 5,382 - - - 14,006 - - - 47,089 - - - 118,718

Y2 58,062 - - - 2,108 - - - 23,897 - - - 31,762 - - - 115,829

Y3 58,400 1 - - 49 691 - - 23,591 1 - - 9,520 11,579 - - 103,831

Y4 56,595 2,059 - - - 4,331 - - 16,818 1,702 - - 4,834 17,301 - - 103,640

Y5 46,412 11,988 - - - 9,519 - - 10,767 3,657 - - 1,507 19,986 - - 103,837

Y6 35,332 22,617 - - - 4,842 0 - 1,022 3,797 25 - 9,542 23,039 5,212 - 105,429

Y7 23,731 33,084 1,585 - - 9,814 1,577 - - 3,377 790 - 5,452 11,552 15,880 - 106,842

Y8 13,585 40,686 4,129 - 27 429 3,710 - 199 352 1,938 - 27,200 3,411 14,726 - 110,392

Y9 7,036 39,753 10,571 - 36 3,532 3,517 - 171 577 1,214 - 49,903 3,353 9,311 - 128,973

Y10 16,219 63,426 5,762 - - 690 689 - - - - - 41,006 4,050 4,850 - 136,691

Y11-Y15 164,073 164,432 91,316 17,331 49 339 903 - - - - - 147,894 74,758 5,359 19,891 686,345

Y16-Y20 272,047 164,402 1,552 - - 5,001 570 - - - - - 24,950 147,678 79,351 - 695,550

Y21-Y25 16,342 284,198 111,337 - - - 8,216 - - - - - 331 35,825 91,898 - 548,147

Y26-Y31 77,599 84,587 266,124 - - - - - - - - - - 2,023 53,930 - 484,264

Total 899,114 911,233 492,375 17,331 17,044 39,187 19,182 - 100,715 13,462 3,968 - 498,948 354,555 280,516 19,891 3,667,523

B = Botija Pit, C = Colina Pit, VG = Valle Grande Pit, M = Medio Pit

Minera Panama, S.A.



May 2012

The Cobre Panama pit design used for mineral reserve estimates is based only on M&I

resources. Inferred mineral resources, which amount to 321 Mt at 0.26% Cu within current pit

design, are treated as waste. An increased confidence level on the inferred mineral resources

could result in those being converted to mineral reserves and integrated into a revised mine

plan, which would significantly improve Project economics by both lowering the strip ratio and

benefiting from increased tonnage. Figure 2-8 illustrates the inferred resources in the current

mine plan pits.

Figure 2-8 Inferred Resource In-Pit

Note: Inferred mineral resources highlighted in pink.

Minera Panama, S.A.



May 2012

Figure 2-9 Plan View of Site Infrastructure and Design Pits

Total material within the designed ultimate pits is estimated to be 3.501bt. Contained metal from

proven and probable mineral reserves is projected to be approximately 20.4b lb of copper, 373m

lb of molybdenum, 5.17m oz of gold, and 104m oz ounces of silver.

Minera Panama, S.A.



May 2012

Table 2-5 Cobre Panama Mineral Reserve

Category Tonnes

(x 1000)

Cu

%

Au

g/t

Ag

g/t

Mo

%

Cu

(x1000)

Tonnes

Au

(x1000)

ounces

Ag

(x1000)

ounces

Mo

(x1000)

tonnes

Proven 258,000 0.57 0.14 1.6 0.010 1,478 1,126 13,020 25

Probable 2,061,000 0.38 0.06 1.4 0.007 7,781 4,041 91,008 145

Total 2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169

Mineral reserves as at December 31, 2011 were estimated by William Rose, P.E., of WLR Consulting, Inc., a qualified

person under National Instrument 43-101.

Reserve estimates are based on the following assumptions:

copper price: $US2.25 per pound

gold price: $US1,000 per ounce

silver price: $US16 per ounce

molybdenum price: $US13.50 per pound

Mining costs : $US1.66/t of ore mined, $US1.96/t of waste mined and

Milling and general and administration cost: $US5.27/t of ore milled, average life of mine metallurgical recoveries: 89

percent for copper, 52 percent for gold, 46 percent for silver and 53 percent for molybdenum.

2.1.3 Metallurgy

Extensive metallurgical test work was carried out on the Botija and Colina deposits as part of a

feasibility study completed in 1997. This work included mineralogical and geochemical ore

characterization, comminution, copper flotation, copper-molybdenum separation and dewatering

studies.

As part of the 2010 FEED Study, an extensive sampling and test program was undertaken to

bolster the knowledge from previous work and provide insight into the variability of the

comminution and flotation response. A total of 16 metallurgical holes for grinding and flotation

tests were drilled in the Botija, Valle Grande, and Colina ore bodies. Sample preparation,

flotation testing, and testing of flotation products were done primarily at G&T Metallurgical

Services, Kamloops, B.C.. Comminution work was conducted at SGS Mineral Services,

Lakefield, Ontario, and at Philips Enterprises LLC, Golden, Colorado.

During Basic Engineering, the process flowsheet was further optimized with the removal of

sodium cyanide as a pyrite depressant. Improvements to the cleaner circuits such as a reduction

of a stage and the recycling of cleaner tails to the regrind mill have improved recovery. Test work

to support these changes to the flow sheet was performed at SGS Mineral Services, Lakefield.

Minera Panama, S.A.



May 2012

The final flotation protocol selected was:

Rougher grind size P80 = 180 microns;

Rougher pH of 10 – 10.5;

Addition of Cytec 3302 at 5 g/t in the primary grind and 5 g/t in the rougher flotation;

Stage addition of 25 g/t SIPX in the rougher and flotation time of 15 minutes;

Methyl Isobutyl Carbinol (MIBC) and frother as needed;

Concentrate regrind to P80 of 30-35 μm and lime addition to have pH ~11.0 at the start of the 1st Cleaner;

Cleaning via a 1st Cleaner (3 minutes), 1st Cleaner Scavenger (5.5 minutes) and 2nd Cleaner (2 minutes) with 0.5 g/t addition of SIPX in the first stages; and

Recycling of 1st Cleaner Scavenger Concentrate and 2nd Cleaner Tail to the regrind in locked cycle tests.

The metallurgical recoveries used for the production forecasts in this Report are based on the

results from the 2010 FEED Study metallurgical program and were modified by the revised flow

sheet test work completed during Basic Engineering.

Table 2-6 Recovery Forecast Algorithms

Recovery Formula Notes

Cu 5.8287*Ln(Cu%) + 95.775 Cap at 96%. 4% (absolute) deduction for Valle Grande

Mo Fixed recovery 55.0% 3% (absolute) deduction for Valle Grande

Au 15.993*Ln(AuGPT) + 92.138

Ag Fixed recovery 47.3%

Process Plant

The Cobre Panama concentrator will be designed to use current proven technology to produce

copper and molybdenum concentrates. The Project design is based on an initial ore feed rate of

160 ktpd. The processing plant is designed with two grinding lines, each having nominal capacity

of 80 ktpd. The design also includes a planned increase to 240 ktpd in Year 10 of operations.

This expansion would include the addition of a second crusher station to crush Colina and Valle

Grande ore and a third line in the concentrator. The expansion would also include the addition of

a third grinding line, additions to bulk rougher flotation, water and air systems.

The process plant is designed to process ore at a nominal head grade of 0.5% Cu and 0.01%

Mo and maximum head grades of 0.9% Cu and 0.015% Mo.

Copper concentrate would be delivered by a 32 km slurry pipeline from the mine site to the filter

plant located at the port in Punta Rincon. After pressure filtration, the dewatered concentrate

would be stored and subsequently reclaimed and loaded onto bulk concentrate vessels for

delivery to international customers. Molybdenum concentrate would be produced from the

copper concentrate by differential flotation when the molybdenum head grade is sufficiently high

Minera Panama, S.A.



May 2012

to produce a marketable product. The molybdenum concentrate would be filtered, dried and

bagged, and then containerized for shipping.

Process Plant Design Changes in Basic Engineering

The following design changes were made during Basic Engineering from the FEED Study to

reflect current conditions and basis of design:

Changed the feed grade design criteria from 0.41% Cu nominal and 0.7% Cu design maximum to 0.5% Cu nominal and 0.9% Cu design maximum

Increased the SAG and Ball Mill sizes and motors to ensure design throughput rate is met over a range of ore hardness characteristics

Eliminated the use of cyanide in the flotation circuit by modifying the reagent suite

Revised the cleaner circuit configuration to remove the 3rd cleaner circuit

The middlings (scavenger concentrate and second cleaner tails) were rerouted to the regrind mills whilst previously they were routed to the 1st cleaner bank. This should liberate more minerals and improve recoveries

The SAG mill and ball mill discharge pumps were combined which should improve plant availability and lowering maintenance costs.

The mill maintenance workshop was relocated so as not to interfere with the installation of a third line.

Increased the size but reduced the number of units of regrind mills

Modified the molybdenum flotation circuit configuration by adding rougher feed conditioning tank, and increased number of 1st and 2nd cleaner cells

Eliminated the molybdenum regrind mill

Resized the concentrate thickeners to reflect changes in copper head grade design criteria

Increased the copper concentrate filter size

Increased throughput capacity from 150 to 160 ktpd using some of the design contingency in the crushing and grinding circuits

The initial Botija gyratory crushers have been be resized from 60‖ x 89‖ to 60‖ x 110‖

Minera Panama, S.A.



May 2012

Table 2-7 Mill Production Schedule

Ore Milled Recoveries Contained Recoverable

Time

Period (kt) Cu % Mo %

Au

(g/t)

Ag

(g/t)

Cu Rec

(%)

Mo Rec

(%)

Au Rec

(%)

Ag Rec

(%)

Cu lbs

x1000

Mo lbs

x1000

Au Troy

Oz

Ag Troy

Oz

Cu lbs

x1000

Mo lbs

x1000

Au Troy

Oz

Ag Troy

Oz

Y1 52,241 0.43 0.008 0.09 1.31 91.2 55.0 57.7 47.3 496,017 9,382 158,761 2,197,379 452,440 5,161 91,587 1,039,369

Y2 58,062 0.52 0.009 0.11 1.34 92.3 55.0 59.2 47.3 668,657 11,406 201,038 2,500,983 617,084 6,273 118,933 1,183,015

Y3 58,400 0.54 0.011 0.11 1.38 92.4 55.0 59.7 47.3 691,000 13,524 207,106 2,593,730 638,532 7,439 123,676 1,226,899

Y4 58,654 0.55 0.009 0.11 1.42 92.5 55.0 60.1 47.3 705,071 11,840 209,068 2,684,133 651,975 6,509 125,691 1,269,685

Y5 58,400 0.54 0.010 0.10 1.57 92.4 55.0 58.1 47.3 695,850 12,948 186,451 2,941,948 642,976 7,121 108,390 1,391,647

Y6 57,950 0.56 0.010 0.11 1.50 92.7 55.0 58.7 47.3 718,384 13,375 197,394 2,795,988 665,643 7,356 115,895 1,322,630

Y7 58,400 0.57 0.009 0.13 1.77 92.6 55.0 63.3 47.3 733,126 11,474 243,878 3,329,455 679,234 6,305 154,281 1,574,945

Y8 58,400 0.54 0.009 0.11 1.72 92.1 54.8 60.4 47.3 691,835 11,818 199,577 3,224,473 636,983 6,481 120,578 1,525,262

Y9 57,360 0.47 0.008 0.08 1.56 90.8 54.4 56.5 47.3 588,441 10,025 153,870 2,882,785 534,597 5,454 86,978 1,363,598

Y10 85,407 0.45 0.008 0.08 1.48 91.2 54.8 55.7 47.3 844,811 14,728 220,231 4,067,640 770,176 8,071 122,647 1,924,103

Y11-Y15 437,152 0.39 0.007 0.06 1.37 89.6 54.2 49.7 47.3 3,730,176 63,071 809,995 19,245,778 3,341,760 34,178 402,698 9,103,594

Y16-Y20 438,001 0.38 0.008 0.07 1.27 90.7 55.0 54.1 47.3 3,701,883 73,346 1,055,394 17,923,250 3,357,878 40,338 571,152 8,478,077

Y21-Y25 411,876 0.34 0.006 0.05 1.45 88.5 54.1 47.9 47.3 3,044,904 55,696 656,669 19,226,507 2,694,961 30,156 314,317 9,094,779

Y26-Y31 428,310 0.33 0.006 0.05 1.34 79.9 46.4 37.2 40.2 3,097,280 60,475 666,843 18,396,852 2,474,937 28,040 248,038 7,401,672

Total 2,318,613 0.40 0.007 0.07 1.40 89.0 53.3 52.4 46.1 20,407,435 373,108 5,166,274 104,010,901 18,159,176 198,883 2,704,862 47,899,276

Minera Panama, S.A.



May 2012

2.1.4 Mine Waste Management

Three forms of mine waste materials would be generated during the mine construction and mine

operation.

They include:

i) Pit Waste Rock

Various facilities would be constructed to stockpile and store saprolite and waste rock:

The Botija North Waste Rock Storage Facility would store the waste rock generated in the early years of mine construction and mine operation.

The Botija North Saprolite Stockpile (BNSS), constructed within the footprint of the Tailings Management Facility (TMF) during the early phase of mine construction, would receive saprolite materials excavated from the Botija Pit development.

The Botija South Waste Rock Storage Facility, as well as a low-grade ore stockpile in the Botija West area, would be constructed in the early years of mine development. Waste rock stockpiles to be constructed at a later phase in the mine operation, when required, would include the Botija West Waste Rock Storage Facility, the Colina North Waste Rock Storage Facility, and the Southwest Waste Rock Storage Facility.

Minera Panama, S.A.



May 2012

ii) Tailings

Tailings generated before Year 22 would be stored in the TMF located north of the mine area.

Tailings generated thereafter would be stored in the mined out pits under water cover. Details

are provided in Section 2.1.5

iii) Earthwork Construction Waste

This waste would be stored in the saprolite stockpile, waste rock dumps or the TMF as

appropriate.

Wastewater Treatment and Disposal

Sewage treatment plants would be provided at both the mine/plant site and the port site. During

operations, the mine site sewage treated effluent would be pumped to the TMF. The sewage

sludge cake would be burned in the incinerator.

2.1.5 Solid and Hazardous Waste Disposal

Solid waste from both the mine/plant site and the port site would be disposed of using

incinerators, waste storage buildings, a solid waste sorting facility, and sanitary landfills.

Hazardous waste would be stored in secure facilities prior to being shipped offsite to approved

disposal facilities.

2.1.6 Tailings Management Facility

The TMF would store tailings for the first 22 years of mine operation, after which tailings would

be discharged into the mined-out pits for the remainder of mine life. Water recycled from the

TMF would also provide mill process water. Tailings would be transported from the plant site

through a pump and pipeline system. The TMF is designed to store a minimum of 1.54bt tailings

produced over the first 22-year period; about 1.35bt of this will be placed in the impoundment

and the remainder used in cycloned sand embankment construction. A storage capacity of

approximately 1.0b cubic metres would be created within the impoundment area. The milling

operation produces two separate tailings streams, each of which would be deposited separately:

90% rougher tailings (non-acid generating or NAG) – deposited on the beaches and

cycloned for producing sand for dam construction; and

10% cleaner tailings (potentially acid generating material or PAG) – deposited and

maintained under submerged condition. Cleaner tailings would be deposited into the TMF

for the first 20 years and thereafter into pits.

Minera Panama, S.A.



May 2012

2.1.6.1 Site Conditions

The TMF is located in a natural basin – a valley with relatively high ground on three sides. Over

the life of the TMF a number of dams would be required to supplement natural topography to

provide the planned TMF storage capacity. The TMF would be situated north of the plant site

and the open pits and would cover an area of approximately 20 km2 and would be about 4.5 km

wide (east to west) by 4.5 km long (north to south) (Figure 2-10).

Figure 2-10 Plan View of TMF Including Dams

2.1.6.2 Design and Construction

The TMF is designed to national and international accepted standards to provide a facility for the

safe and environmentally acceptable storage of the process tailings wastes. The operational

design takes into account the requirements for closure at the end of the mine life. The TMF

would be constructed in stages with the first stage starter dams constructed before operations

begin to provide tailings storage and water management for the first two years of operation. As

dam raising would progress on the north and east side (or North Dam and East Dam), the West

Dam would be required to hold tailings waste from Year 4 production onwards.

The embankment would be raised in stages in a downstream manner as required to provide

tailings storage and water management to the end of the TMF operating period in Year 22. After

this time, tailings storage and water management would be provided in the mined-out open pits

(Botija and Colina) to the end of the estimated 31 year mine life. The maximum dam height

would be about 100 m at the end of the active TMF operations.

Minera Panama, S.A.



May 2012

Slope stability analyses have been carried out for the starter dam that indicate that stability

berms are required to meet the safety criteria due to the saprolite foundation as well as cyclic

softening under design earthquake loadings. Seepage analyses have been carried out for the

tailings North Starter Dam and the ultimate Sand Dam to support the tailings dam and drainage

design.

Basic Engineering has introduced a number of modifications to the FEED Study design of the

TMF, including: increasing the starter dam service life from one to two years; re-aligning the East

Dam so as not to impact the adjacent Pifa River basin and an adjacent community of indigenous

people; removing cyanide from the mill process circuit; relocating the supernatant pond and

pump-barge from the north-east corner to north-west corner of the TMF; tightening design

criteria to reflect more stringent earthquake and hydrology safeguards; and changing the

temporary diversion from box culvert to sequential open channel diversion. These modifications

have been endorsed by an MPSA-commissioned Independent Tailings Review Board (ITRB).

Flood routing and freeboard requirements for the TMF dams have been selected in accordance

with the Canadian Dam Association (CDA) Dam Safety Guidelines (CDA, 2007) for dam

classification of very high consequence. A tailings water pond would be formed within the tailings

storage basin.

2.1.7 Water Management

The Project area receives between 4.5 and 5 m of rain annually, making water management an

important consideration. The water management system has been designed to minimize the use

of freshwater and thereby reduce the water footprint of the Project. The principal water

management facilities incorporated into the Project design include:

Botija North Saprolite Stockpile sedimentation pond

Botija Pit sedimentation pond

Botija South Waste Rock Storage Facility collection ponds

Process Water Pond (PWP)

Botija West sedimentation pond

TMF pond and ancillary facilities (including seven seepage collection facilities at Year 5)

Fresh water ponds (one at the mine area and another at the port area)

Open pits (including Botija, Colina and Valle Grande)

Sedimentation ponds along access roads or for temporary works

These water management facilities would:

Collect potentially contaminated surface runoff or seepage

Control total suspended solids level in discharge

Alleviate the impact of runoff due to extreme rainfall events

Provide water supply for mine operations

Facilitate the dam raise operation of the TMF

Minera Panama, S.A.



May 2012

In Years 1 to 22, tailings generated would be deposited in the TMF and from Year 23 to Year 30,

tailings would be deposited in the mined-out pits under water cover.

After the mine is closed, inflows into the TMF would only be from direct precipitation, catchment

runoff and runoff from the Botija North Saprolite Stockpile. TMF outflows would include

evaporation and passive discharge to the environment. Seepage and dam runoff to the

environment would continue from the Tailings Dam. All the waste dumps and the low grade ore

stockpile would be closed. Non-contact water from the dumps would be allowed to flow to the

environment and adjacent catchment; however, contact water would still be routed through the

various collection ponds for dilution and treatment (if required) before discharging to the

environment. All mine pits would be closed and once filled with tailings, the pits discharge would

be by gravity to the environment. Evaporation from the pit lake would continue during and after

this mine phase. All modelling to-date indicates that water treatment would not be required

during construction. Adaptive management, coupled with on-going monitoring of site conditions,

would be used to ensure that Cobre Panama complies with all requirements and does not have

an adverse impact on the receiving environment during the operations phase.

2.1.7.1 Water Supply, Treatment and Distribution

At the mine/plant site, raw water for potable and other uses would be obtained from a fresh

water reservoir filled by surface water runoff and rainwater in a natural valley between the

construction and operations camps east of the Botija pit. Potable water would be supplied from a

Potable Water Treatment Plant. Fire protection water loops would be provided around all the

main facilities to supply hydrants installed at minimum 90-meter spacing. Sprinkler systems

would be installed in the accommodation facilities, administration offices, assay lab, office areas,

and warehouse areas of the equipment shops.

Process water for the plant would come from three sources: overflow water from the copper

concentrate and bulk thickeners; pit dewatering water and collection ponds water; and reclaim

water pumped from the TMF. No fresh water would be needed to be supplied to the plant as

reclaim water would be used for the higher-quality water demand.

At the port site, raw water for potable and other uses would come from a reservoir to be

constructed by damming a small channel upstream of the port site. Water from this reservoir

would be pumped to a fresh/fire water gravity head tank located along the Coast Road. Water

from the head tank would be distributed to the port site area through two independent pipelines

buried along the Coast Road. Potable water would be produced by treating water from the

fresh/fire water tank in a treatment plant.

2.1.8 Power Plant

The power plant is scheduled for construction during 2013 to 2015, concurrent with overall

project construction. It is expected to produce electric power at an average life-of-mine cost of

¢US4.43/kWh which should result in a significant cost savings compared to an approximate

average cost of ¢US10/kWh in Panama. The power plant would consist of two pulverized coal-

Minera Panama, S.A.



May 2012

fired units and associated steam turbine generators, each unit rated at 150 mW. The power plant

would be a highly efficient and reliable utility scale generating station that incorporates modern

equipment, software and features. It would operate primarily at base load and would supply

electric power via a double circuit 230 kV transmission powerline, designed and installed to the

mine switchyard 22 km from the power plant. The transmission powerline would also be

extended to connect to the Panamanian grid at Llano Sanchez, 94 km to the south of the mine

site. During the first nine years operating at steady state, the power plant should be able to

supply 100% of the mine’s electricity requirements (currently estimated peak load range is about

226 to 257 mW). Excess electricity generated by the power plant would be exported and sold

into the grid, subject to dispatch requirements. During periods of scheduled maintenance or

forced outages of the power plant, the mine would purchase electricity from the grid.

The power plant design incorporates two 150 mW conventional subcritical pulverized coal-fired

boilers, air quality control systems utilizing seawater flue gas desulfurization (FGD), continuous

emissions monitoring systems, steam turbine generators (STGs) with full condensing and reheat

capabilities, turbine water induction prevention, condenser cooling via once-through sea water,

condensate systems and boiler feed water systems.

Power Plant Capital Cost

The 300 mW gross capacity power plant capital cost is estimated to be $US676m; including EPC

capital costs of $US646m and $US30m of owner’s contingency.

Power Cost

During the first nine years of mine operation, the power plant would be able to sell excess

electricity to the grid. The average MPSA power cost during this period is estimated to be

¢US2.65/kWh after sales credits. With the addition of a third mill to the processing circuit at the

mine, MPSA would need to buy a very small amount of additional electricity from the grid starting

in Year 10. The average MPSA power cost during Years 10 to 30 of mine operation is estimated

to be ¢US4.96/kWh, including the cost of more electricity purchases from the grid. The power

plant has been designed and would be built with accommodation to further expand output should

it be required.

Power Sources

Panama’s primary source of power is hydroelectricity. The Bayano Hydro power plant 260 MW

and Fortuna 300 MW, are two of the country’s major power providers. Thermo-electric power

generation is the second major power source. The 280 wW Bahia Las Minas thermal power

plant in Colón Province refurbished its 120 MW Bunker fired unit that was converted into

Panama’s first coal-fired generator and has been in operation since 2011. Panama has an

installed capacity of 2,145 mW including many run of river hydros, and a peak demand of 1,355

mW. Approximately 14% of Panama’s population, primarily in the country’s rural areas, does not

have access to power. Potential to expand the grid is varied and includes new hydroelectric

projects, implementation of a natural gas power plant (the canal expansion will allow standard

Minera Panama, S.A.



May 2012

LNG ships to pass through) and a connection to the Colombian grid where there is an excess of

3,000 mW. There is also the 1,800 km SIEPAC 230 kV transmission line with a 300 mW

capacity that interconnects Panama with Central America. The Cobre Panama power plant

would take advantage of the abundant low sulphur, high quality coal supply from nearby

Colombia. Power plant maintenance activities would be done during the wet season when there

is an oversupply of energy on the grid.

2.1.9 Project Infrastructure / Ancillary Facilities

Project infrastructure includes:

Project Access, including roads;

Electrical power supply and distribution;

Water supply, treatment and distribution;

Wastewater treatment and disposal;

Waste disposal;

Mine/Plant site support facilities (e.g. maintenance shops, camps, offices, warehouses,

etc.);

Port Site and related support facilities;

Communications systems;

Transport and logistics; and

Tailings management facility

2.1.9.1 Project Access

The site is located in Colón Province, approximately 20 km north of the Continental Divide that

bisects the northern and southern parts of Panama. The process plant site would be located at

North 8°50’ and West 80°38’, approximately 205 km by road from Panama City. The

international airport in Panama City serves passengers as well as air freight. The Scarlett

Martinez International Airport is also under construction some 30 km from Penonomé to handle

chartered vacation flights servicing the beach resorts. Once the Project development is

completed, the new port facility at Punta Rincon will provide principal access for import of major

consumables and export of copper and molybdenum concentrates.

Roads: From Panama City, the route to the mine would first follow 140 km along the four lane

Pan-American Highway to Penonomé. From Penonomé to the site, the Llano Grande Road is

currently being upgraded by MPSA to improve longitudinal and transversal drainage,

sedimentation control and to smoothen the longitudinal slope (the route will be partially paved).

Other roads required are the Pioneer Road (up to Botija quarry), the Molejón by-pass, and the

La Pintada by-pass, all of which are currently under construction (there is already a useable

Penonomé bypass). These roads would provide ready access to the site while bypassing local

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May 2012

communities to minimize the impact of increased traffic flow. This improved infrastructure should

provide significant benefits to the population in the affected area.

The road from the mine/plant site to the new Punta Rincon port site, designated as the Coast

Road, would be 30 km long. It will be designed for the transport of freight and equipment

required for construction and operation of the mine and process plant. Use of this road should

decrease the impact of freight transportation through the towns along the southern Llano Grande

access route.

2.1.9.2 Electrical Power

Construction and Emergency Power: This would consist of diesel-electric generating units

that would be provided during the construction phase of the mine/plant and port sites. During the

operation stage of the Project, they would serve as a back-up emergency source of power.

Power Transmission: Preliminary design of the power plant assumes a base load operation,

with purchase and sale of electricity from and to the Panamanian grid. Electricity would be

delivered via a 120 km double circuit 230 kV transmission line, with interconnections at the Mine

Switchyard and Llano Sanchez Substation. Each circuit of the 230 kV transmission line would be

rated to transmit full power requirements of the plant, assuring higher reliability of the electric

power.

The grid would allow for the sale of excess power to the national grid as it is available. It would

also supply back-up power requirements for the power plant, mine/plant site and port when

needed. The transmission line interconnection has been authorized by ETESA, the government-

owned transmission line operating company.

Power Distribution: The 230 kV transmission lines from both the generating plant and the Llano

Sánchez substation would be interconnected with utility-grade 230 kV air-insulated switchyard

located 4.5 km from the mine/plant site. The switchyard includes a control house building for

protection, control and metering equipment as well as a 125 V DC battery system.

The mine/plant site 230 kV substation would be located adjacent to the concentrator building.

Secondary distribution for the process plant, mining area, TMF, and water reclaim system would

be at 34.5 kV. The 34.5 kV system would deliver power to area distribution unit substations that

would step the voltage down to 4.16 kV or 480 volts as required for the service. Each of the pits

would be supplied with power from 34.5 kV overhead lines running from the main plant site

substation to portable substations around the pit rim. The portable substations would have 34.5

kV/4.16 kV and 4.16 kV/0.48 kV transformers to provide power to the pit equipment.

2.1.10 Port

The port site would be located at Punta Rincon, Panama approximately 30 km from the mine site

on the Caribbean Coast which is located at latitude of N9°02 and longitude W80°41 . Once

construction is complete, it would become the main point of entry of supplies and equipment for

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May 2012

the entire Project site, including coal for the power plant, and it would act as the point of export

for the copper concentrate. While for the most part only 50-60 kTon freight vessels are

anticipated, the port, with its planned draft of 16-17 m, would be able to handle vessels up to

Panamax in size (requiring a 12 m draft).

Basic Engineering has been completed for the following port site facilities: a copper concentrate

filter plant; a copper concentrate storage building; a deep sea platform with ship loading facilities

for copper concentrate export; facilities for receiving coal; barge and ship facilities for receiving

fuel and operating supplies; temporary unloading facilities that are capable of receiving

construction equipment and supplies; camp facilities which include necessary utilities and

services; a power plant for the generation of electricity, together with its coal handling and

storage facilities, ash disposal and water systems; and a fuel tank farm.

2.1.11 Pipelines

Three major pipelines would run between the mine/plant site and the port site: a copper

concentrate pipeline to move the concentrate slurry from the process plant to a filter plant at the

port site; a return water pipeline to return the filtrate from the filter plant at the port site to the

tailings management facility at the mine/plant site; and a diesel fuel pipeline to deliver fuel

received at the port to the mine/plant site.

The three pipelines would be buried in a common trench along the shoulder of the Coast Road,

together with a polyethylene conduit to protect optical fibre cables that would also be run

between the mine/plant sit and the port. All pipelines would be equipped with leak detection

systems and a cathodic protection system would be installed to prevent external corrosion of

pipelines.

Along the access road, culverts would be used for most stream crossings with the exception of

larger river crossings for which bridges would be built. Two rivers will be crossed: Uvero River

and Del Medio River. The pipelines would be installed on supports attached to the beams of the

road bridges on the downstream side to provide greater protection. This configuration should

significantly reduce the risk of damage by external means, in comparison with the common

method of burying the pipes below the riverbed. For additional protection, the pipes would be

sleeved at river crossings.

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May 2012

2.1.12 Balance of Plant

The mine/plant site design includes buildings and structures for repair and maintenance of mine

and plant equipment, and the nearby Eastern Infrastructure Area includes facilities for personnel

accommodations, administration, and security. Buildings and other facilities that make up part of

the Project infrastructure at the mine/plant site would consist of:

Mine Truck Shop, Service Bays and Wash Station

Service Vehicle Shop

Fuel Oil Storage and Distribution

Mill Maintenance Shop

Blasting Agent Storage Facilities

Temporary Accommodations of 7,800 beds during construction

Permanent Accommodations of 2,400 beds for operation

Medical Clinic

Main Administration Building

Construction Administration and Operations Services Building

Training Facility

Guard House and Security Building

Panamanian Police Station

Microwave Communications System

2.2 INDEPENDENT THIRD-PARTY REVIEWS

2.2.1 Independent Tailings Review Board (ITRB)

As part of its commitment to Corporate Responsibility and incorporation of best practice in its

operations, MPSA established an ITRB in 2009 during the FEED phase of the Project. The

MPSA ITRB was established to provide on-going, independent confirmation to MPSA by

internationally-recognized experts that the design, construction, operation and closure of the

Cobre Panama TMF would conform to international best practice. The objective of establishing

the ITRB was to confirm that the TMF would ensure the operational sustainability of the mining

operation and would not pose a hazard to the environment and the local communities over the

long term. The ITRB’s mandate is to monitor the design and operating plans of the TMF to

ensure that Inmet’s Mine Waste Management Policy will be incorporated into the TMF at all

stages of the mining life cycle. The ITRB is independent of the TMF designers and the ITRB’s

scope includes reviewing, commenting, questioning and critiquing all aspects of the TMF,

including, but not limited to: engineering design, including design criteria and factors of safety

under both static and pseudo-static loads; construction practices; operation and maintenance;

closure and post-closure; stability analyses; water management and treatment, including both

surface and ground water; geochemical considerations; management systems; budget and

staffing; emergency preparedness and response planning; and community interaction. The ITRB

considers the risks and possible impacts to health and safety, environmental protection and

communities and will advise MPSA on designing and implementing mitigation strategies.

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May 2012

The ITRB will review management responses to questions it raises and will recommend practical

and achievable actions to MPSA to address identified issues. The ITRB will not have decision-

making authority with regard to the Cobre Panama TMF.

MPSA would be responsible for open and transparent communication with the ITRB, and for

responding in a responsible, considered and proactive manner to all recommendations resulting

from the work of the ITRB. MPSA would also be responsible for covering the expenses of the

ITRB.

On April 4, 2012, MPSA and JVP updated the ITRB on the Basic Engineering. Based on its

review of the Basic Engineering, the ITRB was satisfied that all significant items previously

identified had been addressed by JVP, and that the designs presented at the meeting were

adequate for Basic Engineering.

The proposed path forward for detailed engineering was presented by JVP and accepted as

appropriate by the ITRB. The ITRB then identified several sensitivities and made

recommendations regarding these for the detailed engineering phase, and advised that other

recommendations may come from it after reviewing other Basic Engineering addendums that are

to follow.

The ITRB has also noted the need for a policy statement on instrumentation (degrees of

automation) to be declared early in the process, to guide the selection of appropriate instruments

and layouts.

The involvement of the ITRB will continue as the Project moves forward and into the operations

stage.

2.2.2 URS Corporation Independent Review

URS Corporation was mandated by MPSA to independently review the plans for the Project

tailings dam.

The focus of attention of the URS report was on:

the geotechnical feasibility of the starter dam and initial diversions;

the ultimate dam base case concept; and

precedent and best practices in the construction of tailings dam in high rainfall conditions.

The URS report concluded that the TMF design criteria is in compliance with international design

standards and CDA guidelines and constitutes a robust design. The report also noted the level of

competency of the ITRB and JVP engineering and construction team and confirmed their

understanding of the significant challenges involved in the execution of the tailings dam for

Cobre Panama.

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May 2012

3 PRIVILEGE TO OPERATE

3.1 Panama

History, Geography and Political Map

Panama has a

geographically privileged

position, lying at the

narrowest part of the

Americas with a width of

only 80 km. It is also the

lowest point on the

Continental Divide,

making it the natural

location for a canal across

the isthmus. In addition,

Panama is not in the

pathways of hurricanes, major earthquakes are rare and it has no active volcanoes. The

temperature is warm year-round.

Panama’s surface territory is approximately 75,000 km2 and is bordered by Costa Rica to the

west and Colombia to the south-east. The country has nine provinces with appointed Governors

and three ―Comarcas‖ or indigenous reservations: Ngäbe Buglé, Guna Yala and Embera-

Wounaan, that are semi-autonomous, largely self-governed jurisdictions under a complex

structure of traditional indigenous and state-recognized authorities. The Concession lies entirely

in the Donoso district in the western part of the Colón Province and has no link with the

Comarcas. This is in contrast to the Cerro Colorado copper project, that is within the Ngäbe

Buglé Comarca and which has been the focus of ongoing conflict and controversy, and is

discussed in this section as well as in Section 3.4.

Panama is a multiparty constitutional democracy with a population of 3,510,045 (July 2012

estimate) people. It has been a democracy for four successive transitions of power. The Cambio

Democratico (CD, Democratic Change) party is currently in power with the next general national

election scheduled for 2014. Ricardo Martinelli is the President of the Republic.

Panama Overview and Economy

Panama has been a commercial center since colonial times when the Spanish used the Camino

de Cruces land route to transport precious metals from western South America across the

isthmus. Today the country is an international banking center and logistics hub. This

commercial culture is deeply engrained in the Panamanian psyche and helps explain the

economic vigour of the country.

http://upload.wikimedia.org/wikipedia/commons/3/36/Mapa_de_Panam%C3%A1.svg

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May 2012

Panama has become one of the most robust economies in the world with growth of 10.6% during

2011 (Panama National Institute of Statistics and Census, March 2012). The current Martinelli

government has positioned Panama on the world stage by signing free trade agreements with

Canada, United States, Taiwan, Singapore, El Salvador and Peru, and is currently exploring an

agreement with Mexico. With 2011 gross domestic product (GDP) of $US23.3b (Panama

National Institute of Statistics and Census, March 2012), Panama is a US dollar-based economy,

a stable democratic system and has earned an investment grade rating from each of the major

rating agencies. It is second only to Chile in per capita GDP in Latin America and is the second

most competitive Latin American country according to the World Economic Forum.

IHS Global Insight’s Panama economic outlook states that ―In the medium term, Panama’s

economy should benefit from several factors. The country's stable political environment, open

economy, and somewhat low interest rates make it an ideal destination for foreign direct

investment.‖ Figure 3-1 illustrates that Panama’s overall risk (a combination of political, legal,

economic, tax and operational risks) is trending downward despite an upward trend in Latin

America and the world overall.

Figure 3-1 IHS Comparative Historical Risk Showing Panama’s Risk Trending Down

Source: Country Intelligence Report – Panama, Global Insight April 2012

Recognizing Panama’s improving financial track record, particularly during the 2009 financial

crisis when Panama’s economy continued to grow, Standard & Poor’s upgraded Panama’s credit

rating in 2011 from BB+ to BBB- status. Fitch had already upgraded the country in 2010.

Cobre Panama would have a significant impact on the economy of Panama. 6,700 direct jobs

would be created during construction and 2,100 jobs during operations. Including indirect jobs,

these figures would climb to 17,900 and 6,300, respectively (Figure 3-2). It has been estimated

Higher Risk

Lower Risk 2.30

2.40

2.50

2.60

2.70

2.80

2.90

3.00

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Overall Risk, World Overall Risk, Latin America and Caribbean Overall Risk, Panama

Minera Panama, S.A.



May 2012

that over the life of the Project, it would generate purchases in the national economy of over

$US22b (Source: Economic Impact Study, May 2011, Intracorp Estrategias Empresariales. Life

of mine exports of over $US49b (based on total NSR) would contribute positively to the balance

of payments.

Figure 3-2 Estimated Cobre Panama Job Additions

The Cobre Panama Project would bring with it the introduction of large scale mining to the

country and the start of a new, major industry. The government executive has visited different

mining countries in the region and has had high level discussions with its peers. These meetings

have helped the government determine that a strong mining industry would help with the social,

technological and economic development of the country.

3.1.1 Mining in Panama: Changes to the Mineral Code in 2012

Minera Panama was granted the mineral concession to explore and exploit the property under

Law 9. Law 9 has an initial twenty-year term ending in 2017 and provisions for two consecutive

twenty-year extensions.

Under Law 9, Minera Panama has the rights to explore for, extract, exploit, beneficiate, process,

refine, transport, sell and market the gold, copper and other mining deposits on the concession.

It must pay a 2 percent royalty on all mineral product revenues to the Government of Panama.

Law 9 also grants to Minera Panama rights of way on state owned lands and easements to use

surface lands on concessions adjacent to the Law 9 concession, and the right to build, maintain

and use on such lands and easements for use to build, install, maintain and use facilities and

installations that Minera Panama deems convenient for the development of the Cobre Panama

project.

The legal regime established by Law 9 for the development of the Cobre Panama concession is

supplemented by the Mineral Resources Code of Panama (Code). In February 2011,

Jobs created by the Cobre Panama project, predominantly Panamanian(number of jobs per year)

6,700

11,200

17,900

Direct jobs Indirect jobs Annual labour overconstruction

2,080

4,200

6,280

Direct jobs Indirect jobs Annual labour overoperation

Construction Operation

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May 2012

amendments to modify the Code, including clarifications regarding the ability of foreign state-

owned entities to own interests in mineral concessions were enacted. However, such

modifications were subsequently repealed by the National Assembly of Panama and given legal

effect on March 18, 2011. The repeal recognized concerns from indigenous communities in the

Comarcas. As part of the repeal, the Government of Panama appointed a special commission to

consider and recommend to the National Assembly of Panama future modifications to the Code

in consultation with affected parties.

In April of 2012, after consultation and dialogue with indigenous representatives over the past

year, the National Assembly reached a settlement that ceded authority to the Comarcas in

determining how and when mineral deposits in their Comarca could be developed and shortly

thereafter, the Mineral Code of 2012 was passed without incident by the National Assembly,

modernizing royalties and regulation governing mining, including clarifications regarding the

ability of foreign stock-owned entities to own interests in mineral concessions.

3.1.2 Contract Law 9

MPSA has been a registered Panamanian business since 1995. It was previously called Minera

Petaquilla S.A. and was renamed in 2008.

MPSA was granted the 13,600 hectare Petaquilla concession via Contract Law 9. Being a

contract law, Law 9 requires the consent of both parties to effect any changes. Renewals are

standard and are awarded in the year of the renewal. Law 9 establishes the financial and

juridical stability arrangements with the government for the development of Cobre Panama.

Some of the benefits that MPSA would enjoy are duty-free imports, no withholding tax on exports

and dividends, fewer restrictions on the use of foreign workers and professionals and automatic

Rights-of-Way through government lands.

Two items in Law 9 will likely be changed to align with the new Code:

The current 2% royalty under Law 9 would be increased to 5% for base metals and 4%

for precious metals. A significant part of the revised royalty, 2% of the 5%, would likely go

to the local municipalities, which should help ensure strong local support for the Project.

A tax provision that currently states that no income tax would be payable for as long as

any debt exists on the Project. Recent discussions with the government would most

likely see this tax holiday eliminated. See Table 6-2 for modelled debt assumptions.

Both these anticipated revisions to Law 9 have been reflected in the financial forecasts and the

economic evaluations contained in this document.

For the changes to Law 9 to be implemented, MPSA and the government would have to agree

and then these would have to be approved by the Legislative Assembly.

Minera Panama, S.A.



May 2012

3.1.3 MPSA’s Panamanian Society Participation

Minera Panama Government Relations

MPSA maintains an active government relations function, with ongoing engagement with local,

regional and national government representatives. Furthermore, MPSA has signed agreements

with different government agencies, establishing itself as an ally in the development of the

country.

Minera Panama - Media Relations

MPSA meets regularly with editorial boards of all major print and electronic media in Panama to

provide Project information and answer questions with transparency and accountability, and

establish good working relationships with all major media and journalists covering mining.

Several Panamanian journalists have visited the Cobre Panama site and adjacent communities.

MPSA has hosted media in press conferences to explain landmark issues such as the approval

of the ESIA. This openness has been well-received by journalists and editors, and several key

media have already reflected a shift in their view and coverage as a result of receiving more

information.

Minera Panama - Civil Society Relations

MPSA has established excellent relations and presence with the main civil society groups in the

country. MPSA has members on the Boards of the American Chamber of Commerce, Sectorial

Groups of the Association of Panamanian Professionals, the Panamanian Society of

Industrialists and an Executive Forum of Panamanian CEOs. MPSA is collaborating with

different environmental NGOs to comply with the ESIA requirements. Minera Panama has also

been a co-sponsor of some of the main conferences and expositions in the country. These

activities have rooted MPSA within the fabric of the business leaders of the country.

MPSA has civil society opponents, both within Panama and internationally, as does any large

extractive project being developed today. Most of these groups object to the project on the basis

of environmental concerns and fears about impacts to the biodiversity of the area. MPSA has

reached out to these groups, seeking to better understand their concerns and describe how

Cobre Panama will address environmental concerns and serve as a catalyst for the protection of

a large area of forest that is currently under threat. Many of the environmental concerns ignore

the fact that primary forest throughout Panama and in the project area is already disappearing at

an alarming rate because of the inherent poverty of local populations, and that responsible and

sustainable economic development is the only way out of this cycle of destruction.

3.2 Inmet’s Approach To Corporate Responsibility

Inmet believes that corporate responsibility builds reputation and reputation drives value. Our

commitment to meeting leading standards of health, safety and environmental management, to

contributing to the development of sustainable communities and to being open and transparent

Minera Panama, S.A.



May 2012

in our operations enhances our reputation. This in turn makes Inmet a company that people,

communities and governments should want to do business with and that creates increased value

for all of our stakeholders. Cobre Panama is the largest project to-date in Inmet’s history of

building, owning and operating copper and base metals mines, and for that reason, Cobre

Panama would be a benchmark for Inmet’s values in action.

Voluntary Initiatives

Inmet has adopted a number of voluntary codes and participates in external initiatives

considered particularly relevant to our business. These initiatives are intended to add value to

our operations and our business; many of these have been implemented for several years.

Adoption of some of these were triggered by development of Cobre Panama:

Mining Association of Canada’s Towards Sustainable Mining Initiative;

UN Global Compact;

Carbon Disclosure Project;

Devonshire Initiative;

Fund for Peace Human Rights and Business Roundtable;

Business and Biodiversity Offsets Program;

International Finance Corporation Performance Standards on Environmental and Social Sustainability;

Voluntary Principles on Security and Human Rights;

Global Reporting Initiative Sustainability Guidelines (G3.1) A+ Reporting (2011); and

International Council on Mining and Metals (application pending).

We believe this level of outreach and activity with organizations shaping the future of sustainable

resource development is a necessity in our business. We also believe commitments to evolving

international best practice in Corporate Responsibility (CR) deliver clear business benefit to us.

3.3 Cobre Panama: Inmet’s Commitment in Action

At Cobre Panama, our goal – our responsibility – is to ensure that the benefits of our operation

are shared with the people of Panama. We are committed to leveraging the positive and helping

reduce adverse impacts of the Project. We expect that Cobre Panama would to help improve

the economic conditions of nearby residents and lead to sustainable socioeconomic

improvements throughout Panama. As well, through a rigorous focus on environmental

management, landscape-scale conservation and species-level conservation, we are confident

that the rich biodiversity of the area surrounding our operation will be protected.

An endorsement of this vision for Cobre Panama, and Inmet’s commitment to it, after several

years of presence in the area was the approval of the ESIA in December 2011. In light of the

challenging context of the Project, the ESIA approvals highlight Minera Panama’s capability to

work with local stakeholders and to develop and implement innovative approaches to deliver net

positive benefit.

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May 2012

Cobre Panama is located in an undeveloped and remote part of north-central Panama with a

complicated socio-environmental setting. The following challenging aspects of the Project have

been the focus of our actions to incorporate evolving international best practice:

Within a tropical rainforest with high biodiversity value;

Presence of threatened and endangered species of concern, some of which are endemic

to the Project footprint;

Endemic poverty of local communities;

Presence of indigenous people;

Resettlement of Latino and indigenous people;

Lack of infrastructure and access to healthcare, education, sanitation and clean drinking

water;

A country with little experience of modern mining; and

Presence of artisanal mining.

By implementing positive practices and delivering on a broad set of socio-environmental actions,

we expect Cobre Panama to produce net positive benefit, establishing itself as a model project

and building reputation for Inmet.

Minera Panama is committed to evolving national and international best practice for

environmental protection, social development, quality and safety. In line with this commitment,

Minera Panama will comply with the International Finance Corporation (IFC) Performance

Standards on Social and Environmental Sustainability. To-date, Cobre Panama has delivered on the standards summarized in Table 3-1.

Minera Panama, S.A.



May 2012

Table 3-1 Cobre Panama’s Progress in Implementing the IFC Performance Standards

INTERNATIONAL FINANCE

CORPORATION PERFORMANCE

STANDARD

OUR RESPONSE TO-DATE PAGE

1. Social and Environmental Assessment and Management Systems

Approval of ESIA which establishes the foundation on which we are building a robust and leading corporate responsibility management program

Environmental Management Plan developed in consultation with national authorities, international experts, local communities and NGOs.

Strategic Plan for Sustainable Community Development developed in consultation with national authorities, international experts, local communities and NGOs.

63-67, 112

2. Labour and Working Conditions

Application of Inmet’s Health & Safety Management System at Cobre Panama for employees and contractors

Introduction of skills training programs with a focus on health, safety and environment

112, 119, 121

3. Pollution Prevention and Abatement

Mine and plant site, port site, power plant and supporting infrastructure designed to have the least overall Project impact to deliver net positive environmental, social, technical and economic benefits.

44, 112

4. Community Health, Safety and Security

Civic safety programs introduced for local communities. Social Development Action Plan includes commitments to community health

Membership in and implementation of the Voluntary Principles on Security and Human Rights

60

5. Land Acquisition and Involuntary Resettlement

Resettlement Action Plan signed by all six Resettlement Negotiation Committees, overseen by the Government of Panama ombudsman

68

6. Biodiversity Conservation and Sustainable Natural Resource Management

Reforestation program off-site that will reforest two hectares for every hectare of original forest lost.

Support the management of two existing national parks and establishment of a new multiple-use protected area encompassing more than 290,000 hectares of primary forest.

Commitment to net positive benefit in biodiversity.

63, 112

7. Indigenous Peoples

Participation of the Ngäbe Buglé community members in preparation of the draft Indigenous People’s Development Plan

71

8. Cultural Heritage Initial recovery of all cultural heritage artefacts confirmed by Panamanian National Institute of Culture.

63

3.3.1 Regulatory Context for Environmental and Social Impact Assessments

Panama’s constitution states that it is the responsibility of the State to ensure the proper use of

natural resources and the protection of the environment for the benefit of society. Law No. 41 of

July 1, 1998 identifies the Autoridad Nacional del Ambiente (ANAM), the Panamanian

environmental regulator, as having primary responsibility for the administration of the ESIA

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May 2012

process associated with the development of mining projects. Article No. 23 of Law No. 41

establishes that any project that may generate environmental risks or impacts is subject to an

ESIA. Law No. 41 of July 1, 1998 is directly related to two regulations that pertain to ESIAs, the

first one passed as Executive Decree No. 59 in 1998, and the second passed as Executive

Decree No. 209 in 2006.

Executive Decree No. 209 contained the regulations that were applicable, and defined the

process for conducting ESIAs in Panama. Executive Decree No. 123 of 2009 now regulates

Chapter II of Title IV of Law No. 41 of July 1, 1998 (General Law of the Environment of Panama)

and repeals Executive Decree No. 209 of 2006. Article 8 of Executive Decree No. 123 of 2009

establishes that ANAM is responsible for administration of the ESIA process in accordance with

Law No. 41 of July 1, 1998.

There are three categories of projects defined in the regulation, Categories I, II and III, each

successive category representing projects with increasing scope and potential for environmental

and social impact. Mining projects are defined as Category III projects under the regulation.

The Cobre Panama Category III ESIA was submitted to ANAM in September, 2010. ANAM

approved the Cobre Panama ESIA on December 28, 2011 following a 15 month review process

involving public consultation and external review by consultants with considerable experience

evaluating large mining projects.

Once the Cobre Panama ESIA was approved, MPSA began the process of applying for the 40

sectorial permits required to start all of the earthmoving activities. Eleven of these have been

received to-date and the remaining 29 are on track to be acquired by mid-year. These permits

are for water use, water crossings, construction, seabed concession, mining plan, electrical,

sanitary and a variety of other permits typical of an industrial installation. During the process of

bringing the engineering and project planning to its current state, most of these types of permits

were received for prior, smaller-scale MPSA projects and therefore no significant issues in

obtaining the larger scale permits are expected.

MPSA requires the acquisition of a significant quantity of land for the Project area and linear

facilities. The land has diverse uses, owners and occupants. This includes Latino rural

communities, international investors as well as indigenous groups that settled in the Project area

over the last 10-15 years. In most instances the people occupy the land and do not have title.

MPSA recognizes their right to occupy land and will compensate them according to evolving

international best practice. In a process of free, prior and informed consent, all of the groups who

will by physically or economically displaced by the development of Cobre Panama signed a

Resettlement Action Plan (RAP) which describes the resettlement process and compensation

either in kind or in cash. The RAP and aforementioned compensation for resettlement are part

of MPSA’s commitments under the ESIA.

To-date MPSA’s land acquisition is very advanced with the necessary purchases of land for

resettlement largely complete and some rights-of-ways still pending contractual agreement.

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May 2012

3.4 Socio-environmental Context of the Project

MPSA conducted socio-environmental studies of the Project area to characterize baseline

conditions and to provide the basis for the ESIA. The ESIA was prepared to comply with both

Panamanian regulatory requirements and with international evolving best practice (as

represented primarily by the IFC Performance Standards on Social and Environmental

Sustainability) in a single document.

The Project ESIA work represents one of the most comprehensive studies ever undertaken of

the socio-economic environment of the Atlantic slope of Panama. Golder Associates spent more

than 40,000 person-hours of effort from June 2007 to April 2010 studying all socio-environmental

aspects of the region across the different seasons. Golder also reviewed scoping and baseline

studies from the late 1990s, studies by other researchers that identified rare, threatened and

endangered plant and animal species (species of concern) outside of the Project area that could

be affected by the Project and studies completed for ESIAs for the Petaquilla Gold Moléjon Mine

and for the Panama Canal expansion. Golder also established socio-economic and community

baselines using community surveys and fieldwork as primary sources.

3.4.1 Environmental Baseline Conditions

The Project area is located in an area of steep,

rolling hills and valleys, with elevations rising up

to 400 m. Towards the coast, the topography is

more subdued. Climate is warm and humid year-

round with approximately 4,500 mm of annual

rainfall at the proposed mine site and 5,000 mm

of annual rainfall at the Punta Rincon port site on

the Caribbean coast. (See section 2.1.6 for water

management plan.

Temperatures and relative humidity in the Project

area are high, and do not vary much during the

year. The temperature typically ranges from 20 to

32 degrees Celsius and relative humidity is generally around 80 percent. For most of the year,

the winds in Panama are generally from the north-northeast, except for in the Autumn when the

winds shift to the southwest. The average wind speeds range from about 5 kilometres per hour

(km/h) at the Colina camp to about 10 km/h at the Río Caimito River mouth. Although the

Project area has high humidity and rainfall, evaporation during the day can increase the potential

for airborne dust.

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May 2012

The proposed mine site is located within the upper catchment area of three river systems which

all eventually drain north to the Caribbean Sea. The three catchments are:

The Petaquilla River basin, which drains northwest from the west side of the mine site to

the Caribbean coast;

The Caimito River basin, which has six sub-basins: Rinconcito River (Uvero), Uvero

River (del Medio), Del Medio River (Pifá), Hoja River (Caimitón) Upper Caimito River and

Lower Caimito River, which mostly drain northward to the Caribbean coast; and

The San Juan River basin, which has four sub-basins, including the Upper San Juan,

Turbe, Limón and Botija rivers. The San Juan River basin drains eastward joining the

Cocle del Norte River basin, which drains north to the Caribbean coast, and combines

runoff from the Coclesito, Cascajal, Toabré and Cuatro Calles river basins, in addition to

that of the San Juan River basin.

The Project area features the rich biodiversity of

the Mesoamerican Biological Corridor (MBC).

The MBC is a land-use planning concept

incorporating sustainable development and

biodiversity protection that stretches from Mexico

to Colombia. Governments throughout Latin

America have recognized the concept of the MBC

and several have taken steps to make it a reality

through the creation of a network of multiple-use

protected areas. Panama has established a

hierarchical protected areas system with six

categories of protected status. National Parks

are at the top of the system. The system recognizes multiple-use protected areas that can

incorporate both conservation areas and use of areas for sustainable business use.

Approximately 34 percent of Panama’s land area has been set aside as protected within the six

categories of protected areas. Despite this

commitment to protecting Panama’s biodiversity,

the capacity to enforce protection of the areas is

generally lacking. Moreover, as an existing

background condition, it is estimated that

between 10,000 and 40,000 ha of primary forest

is lost in Panama every year, principally as a

result of slash and burn agricultural practices by

poor and landless families. There are two

national parks in the vicinity of Cobre Panama;

Omar Torrijos and Santa Fe. Both of these parks

show evidence of human impact within their

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May 2012

borders.

During the baseline studies for the ESIA, we identified 45

fauna species of concern and 211 flora species of concern

(SOC). Sixty-four flora species were identified as possibly

being new to science and additional studies were

undertaken to determine the classification. Since the time of

the original field work we have been working to identify

species of concern in protected areas off-site and

collaborating with world-recognized flora experts to confirm

how many of the 64 new species of plants are actually new

to science. The work was comprehensive and involved the

review of the SOC status based on International Union for

Conservation of Nature (IUCN) criteria for all of the SOC

flora and fauna species identified in the ESIA. This work

has narrowed our list of species of concern down to 25

species of fauna and 86 species of flora.

3.4.2 Social Baseline Conditions

The majority of the Project is within the District of Donoso,

one of the poorest rural districts in the Province of Colón and

in Panama as a whole. The Llano Grande substation,

powerline and some of the road access, and the bypasses

around the towns of Penonomé and La Pintada are within the

Coclé Province. Part of the mine area is largely inaccessible

except by foot or horseback along a system of trails, or by

boat from the coast up-river into watersheds that have their

headwaters in the Project vicinity.

There are 22 local communities that are considered affected

for the purposes of the Project. The total combined

population of these 22 communities is approximately 2,500;

most of these have populations of 200-300 persons.

Scattered Latino communities are primarily located along the

access road that extends north to the Project area from

Penonomé and La Pintada. Most of the people who live and work in these communities are

campesinos — they speak Spanish and are generally fully integrated into Panamanian society.

The coast community of Rio Caimito is located near the proposed Punta Rincon port site.

There are also three communities of indigenous Ngäbe Buglé people located close to the Project

footprint. The Government of Panama and the international community recognize the Ngäbe

Buglé as a distinct indigenous group. These people have migrated into the Project area over the

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May 2012

past 10 to 15 years from the Ngäbe Buglé

Comarca located approximately 150 km west of

the Project area. However, Cobre Panama is not

located on or close to a Comarca. Regardless,

we have recognized the customary use of land

by these indigenous residents in our resettlement

process and have ensured that their rights as

indigenous peoples are respected.

Panama has a long history of difficult indigenous

rights issues and indigenous peoples in Panama

are a vulnerable population. The Ngäbe Buglé

Comarca is characterized by conditions of endemic poverty caused by lack of economic

opportunities, unproductive land and overcrowding. The Cerro Colorado copper deposit, located

on a Comarca, has long been a source of conflict concerning indigenous rights and mining

development. Ngäbe people in the Project area migrated from the Comarca in search of land

and economic opportunity. These family groupings practice subsistence slash and burn

agriculture.

The Project area is characterized by a lack of

basic infrastructure. Healthcare and educational

services are poor and our baseline studies

demonstrate that local Latino and indigenous

communities do not have access to clean

drinking water.

Artisanal mining activities are conducted primarily

by indigenous people along the Petaquilla River

northwest of the Project footprint. These mining

activities are mainly performed using portable

pumps and sluices; no evidence has been found

indicating the use of mercury.

The social dynamic in the Cobre Panama Project area is tranquil compared to the large and

violent indigenous rights- and mining-related demonstrations over the past year in the Ngäbe

Buglé Comarca. Those demonstrations were precipitated by two instances of the Government

of Panama introducing changes to the Mineral Resources Code that were perceived as green-

lighting the development of Cerro Colorado without consulting indigenous people and ensuring

that their rights to self-determination were being respected. The Government of Panama has

recently resolved this situation through dialogue and legislative changes enshrining the rights of

indigenous people on the Comarca to self-determination.

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May 2012

There have been two instances of local demonstrations around Coclesito over the past year,

both of which were small and organized by anti-mining activists from Panama City. These short-

lived demonstrations took the form of non-violent roadblocks involving 10 to 20 people, many of

whom do not, we believe, reside in the immediate Project area. In contrast, a pro-mining

demonstration recently organized by local residents in Penonomé on March 10, 2012 involved

roughly 2,500 people.

Figure 3-3 Pro-Mining Demonstration of 2,500 People March 10, 2012

A video of the pro-mining rally can be viewed at:

http://www.youtube.com/watch?v=OidCvbM8Vnw

3.4.3 Community Relations and Community Development Activities

Building Strong Privilege to Operate

As part of its commitment to building relationships with local communities and a broad range of

stakeholders to ensure strong privilege to operate, MPSA began an intensive and continuous

program of community engagement in mid-2007 to inform local residents about the Project and

to listen to and incorporate their concerns into the project planning. During engagement we

heard that local communities were primarily concerned with local employment and environmental

protection. We now have approximately 18 community liaison officers active in the local

communities and have implemented a leading practice community feedback mechanism,

incorporating guidance from the United Nations Special Representative on Business and Human

http://www.youtube.com/watch?v=OidCvbM8Vnw

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May 2012

Rights and that is overseen by a dedicated Grievance Officer. Our dialogue extends to

organizations throughout Panamanian society, with groups that are supportive of our plans and

with those that are not.

We began resettlement-related dialogue with those who would be physically and economically

displaced by the Project in 2008. We retained recognized resettlement experts and began a

trust-building process. This culminated in 2011 with the signing of the Resettlement Action Plan

by the six Resettlement Negotiations Committees that were established by local community

members to represent them in resettlement

discussions. We have now secured title to the

replacement land for the two indigenous

communities and are moving forward with the

design of replacement homes. Our resettlement

process complies with international best practice

for Free, Prior and Informed Consent (FPIC) and

MPSA is conferring rights on local indigenous

people (for instance in terms of FPIC and land

title) that the national government has yet to fully

recognize. The national Directorate of

Indigenous Affairs has been a keen observer

and supporter of our resettlement activities.

To build trust within the local communities over the veracity of our community development

commitments, we initiated a series of phase-appropriate community development projects

starting in 2008. These projects began with school food, agricultural extension and scholarship

programs and have since expanded to include infant stimulation and nutrition, sanitation, and

micro-credit programs. Most of these programs are delivered in conjunction with non-

government organization (NGO) partners. Moreover, we have been engaging government in

partnerships to deliver improved access to healthcare and education in local communities. We

are developing a Strategic Plan for Sustainable Community Development that focuses on the

establishment of public-private partnerships. This initiative reflects our belief that sustainable

development will be best achieved through the participation of all stakeholders. We have

catalyzed creation of a regional development plan for the area involving local residents and

governments to define their vision for the region going forward. This should help ensure

measured and planned growth and help ensure that Cobre Panama will be able to meet its

regional biodiversity conservation goals.

All of our community relations and community development work over the past five years has

built trusting relationships and a strong privilege to operate locally. Our actions have also begun

to be recognized throughout Panama as we make steady progress in countering negative bias

against mining in the Panamanian press.

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May 2012

Efforts seem to be paying off and relations with the communities are, we believe, excellent. After

the ESIA for the Project was approved, MPSA held a workshop with community leaders. A

questionnaire was given regarding the leaders’ attitude towards the Project which was very

favourable. A summary of the results are shown below.

There is no doubt that the local communities expect us to deliver action and they will hold us to

the high standard that we have set for Cobre Panama.

3.4.4 Project Socio-environmental Actions and Benefits

From the outset, MPSA has recognized that strong public

actions to demonstrate compliance with evolving best

international corporate responsibility practice would be

necessary to build support for the Project within local

communities, throughout Panama and internationally.

Moreover, we strongly believe that the socio-environmental

challenges posed by the Project presented a unique

opportunity to marry economic development, social

development and biodiversity protection to deliver compelling

net positive benefit to the local region and to Panama as a

whole.

We are committed to meeting the requirements of the IFC

Performance Standards (PS) for Social and Environmental

Sustainability and the Equator Principles, regardless of the

type of financing required for the Project. Inmet is also a

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May 2012

signatory to the Voluntary Principles on Security and Human Rights.

Cobre Panama has undergone review and scrutiny by an independent engineer (IE) to

determine whether the Project complies with the requirements of the IFC PS (2006 version).

Export Development Canada has been providing strong oversight as the social and

environmental agent. Cobre Panama touches all eight PSs and a Phase II opinion from the IE

indicates that the Project is on track to demonstrate compliance with each of them.

Our actions to achieve net positive benefit are described in

our Environmental Management Plan (EMP) and Social

Development Plan (SDP). The EMP actions primarily

revolve around management of water quality and quantity

and our biodiversity action plan (BAP). Our BAP is built

around two primary actions; flora and fauna rescue and

landscape-scale conservation (LSC). We will rescue and

relocate species of concern from the Project footprint prior to

forest clearing and reintroduce them back into protected

areas off-site to ensure species survival. LSC is designed to

ensure the protection of more than 290,000 ha of primary

forest that is under threat of impact from slash and burn

agricultural practices through establishment of a new

multiple-use protected area in Donoso, conducting research

into our mitigation actions and building capacity to enforce

the protection of the Omar Torrijos and Santa Fe National Parks.

A multiple-use protected area was established by the previous government in 2009. MPSA and

other parties sought an injunction against the creation of the area because the required

consultation with them was not performed. In late 2011, the Supreme Court upheld the creation

of the area while acknowledging MPSA’s right to develop Cobre Panama. MPSA has since

sought clarification of that ruling. MPSA fully supports the establishment of a multiple use area

in Donoso and is working with ANAM to co-develop a management plan for the area. Such a

multiple-use protected area is one of the foundations of our LCS conservation approach.

Our SDP outlines our immediate and future actions to communicate, protect and potentially

improve the social well-being of stakeholders. A main focus is to build local capacity by

supporting community development in several areas, including education and training, health

and wellness and civic safety. It also calls for the creation of an independent Community

Development Foundation that will invest in development opportunities with indigenous people

and affected communities. Our vision is that the foundation, with a steady income stream from

the Project during operations, will be able to catalyze sustainable economic and community

development over the mine’s estimated 30-year life, and, if managed responsibly, for many

years after the mine is closed.

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May 2012

We are also incorporating actions to prevent in-migration into the area and to manage the social

issues that often accrue from the development of large projects. We are developing an

Indigenous Peoples Development Plan (IPDP) that, coupled with the actions contained in the

Resettlement Action Plan (RAP), will help transition indigenous people to the sustainable

livelihoods that they seek.

The actions and outcomes of the EMP, SDP, IPDP and RAP will be monitored by MPSA to

ensure that the planned outcomes are achieved. We will adapt our actions should monitoring

identify suboptimal outcomes.

3.4.5 Partnerships

Many of the actions that MPSA is undertaking now and would undertake in the future to deliver a

net positive benefit require expertise that is not central to our experience. MPSA has

incorporated partnerships with NGOs and educational institutions to bring the required expertise

to bear, build public confidence in our actions and to deliver on our actions. Partnerships will

involve both the environmental (biodiversity) and social (community development) elements and

we have already been active in establishing such relationships.

In summary, despite the challenging context, Inmet’s and MPSA’s best and next practice

approach has resulted in a clear privilege to operate. Indicators for this are summarized below.

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May 2012

Indicators Positive proof

Peaceful conditions in the Project area and local communities

MPSA Community Relations monitoring

Lack of take-up of indigenous protests taking place on the Comarca

Media report, MPSA Community Relations monitoring

March 10, 2012 demonstration supporting mining in Penonomé

Media reports

Grievance system functioning well, and complaints being addressed

MPSA Grievance Officer data

ESIA approval December 28, 2011 Government of Panama decree

Permits being issued post-ESIA Permit documents in-hand

Government support for the Project Minister of Industry and Commerce (MICI) Quijano’s statements supporting the mining industry after passing of the mineral resources code April 3, 2012. Government officials present (including Minister of Government, MICI Vice Minister) at the MPSA launch of the Donoso regional development plan April 27. Bilateral agreements between MPSA and various government institutions including health and agriculture ministries and training and human development agency.

On track to demonstrate compliance with the IFC Performance Standards on Social and Environmental Sustainability

CAM Phase II Independent Engineer’s Report

Signing of the Resettlement Action Plan by all six Resettlement Negotiation Committees, overseen by the Government of Panama ombudsman

Signed RAPs

Free, Prior and Informed Consent of the Ngäbe Buglé communities to resettlement and proceeding with the Project

MPSA Community Relations documentation on resettlement process and signed RAPs

Participation of local communities and governments in the regional development planning process

Completion of draft Regional Development Plan

Participation of Ngäbe Buglé community members in preparation of the draft Indigenous People’s Development Plan

Completion of draft Indigenous People’s Development Plan

Participation of local community members in MPSA Community Development programs

MPSA Community development monitoring

Number of local residents working for MPSA, including members of the Ngäbe Buglé community

MPSA Human Resources and Community Relations monitoring

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4 CAPITAL COST ESTIMATE

4.1 Basis of Estimate

The Basic Engineering capital cost estimate for the Cobre Panama Project is based on an initial

ore feed rate of 160 ktpd to the grinding plant. The total estimated capital cost to bring the

Project into operation is $US6.18b.

Sustaining capital, that includes a third line expansion to 240ktpd, is estimated to be $US2.92b

over the projected 31-year life of operations. All dollars in this section are third quarter 2011

United States dollars, with no allowance for escalation.

Engineering, procurement and construction scope of work for the Basic Engineering estimate

was completed to a level consistent with an Association for the Advancement of Cost

Engineering (AACE) Class 2 estimate (the Estimate) with an intended accuracy level of +/-10%,

as determined by a team of independent third party reviewers who assessed the quality of the

estimate, including quantities and productivities (see Section 4.4 for more details, including a

definition of an AACE Class 2 estimate).

The comprehensive estimate is comprised of over 9,000 lines over 800 pages. No major

omissions were identified by independent third party reviewers, and the majority of

inconsistencies identified were found to have a conservative effect. The review also produced

several recommendations, which were subsequently implemented to enhance the quality of the

estimate.

The engineering to-date is significantly advanced and has been focused on high over-run risk on

large capital spending items. An extensive amount of engineering has gone into

installation/construction planning and detail engineering for the initial activities of the execution,

ie site capture, site services and earthworks. The graphic below shows the engineering progress

by area.

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May 2012

As well, the cost estimation process includes firm price estimates for over half of the $US6.18b total

capital cost. The graphic below details the proportion of capital based on the level of pricing work

completed:

The capital estimate is not subject to significant foreign exchange fluctuations as the estimate is

based on information and quotations that were obtained mainly in US dollars (93%) and

Canadian dollars (6%). The remainder was mostly in euros, Korean won and a small degree of

Swiss francs.

Estimates regarding mining equipment, a portion of the mine stripping and owner’s costs were

provided by MPSA.

4.1.1 Site Investigation

Extensive additional site investigation activities were completed, both onshore and offshore,

during the course of Basic Engineering that lend greater certainty to the capital cost estimate.

This additional information added to previous site investigation campaigns conducted as part of

the FEED Study and previous feasibility studies.

The areas that were further investigated included: - TMF starter dam and borrow areas - Waste Rock Storage Facilities - Collection, Sedimentation and Fresh water pond dams - Plant site - Onshore and offshore portion of the port site - Eastern Infrastructure Facilities - Coast and Eastern Access roads with associated bridges

The program included drilling, test pits and was supported by geophysical surveys that consisted

of seismic refraction surveys which were completed at select transects located along the access

road alignment, TMF starter dam and borrow areas, camp site facilities and the crusher location.

JVP Estimates

$US0.57b

19 Packages

Budget

$US2.00b

74 Packages

Firm

$US3.61b

70 Packages

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May 2012

The offshore geotechnical drilling program took place between April 2011 and June 2011 at the

site of the future marine facilities at Punta Rincon. It covered both port facilities and the power

plant cooling intake and outfall pipeline locations. Seafloor sediments and bulk sampling of

beach sands in the vicinity of the proposed marine and onshore structures was also carried out.

An updated Earthquake Ground Motion Hazard Assessment established seismic parameters

that were incorporated into facilities design for the Project.

4.2 Capital Cost (CAPEX $US)

The graphics below show the total estimated capital cost by major area including allowances (where

applicable) and contingencies.

$US1,748m, 53%

$US79m, 2%

$US844m, 25%

$US26m, 1%

$US355, 11%

$US265m, 8%

Direct Costs

Growth - Direct

Indirect Costs

Growth - Indirect

EPCM

Contingency

Site Capture & Infrastructure = $US3,316m

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May 2012

$US1,027m, 80%

$US52m, 4%

$US105m, 8% $US97m, 8% Process Plant = $US1,281m

Direct Costs

Growth - Direct

EPC

Contingency

$US629m

$US17m $US30m Power Plant = $US676m

EPC - Less Camp

Black Start Option

Contingency

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May 2012

Note: Allowance of $US157m includes $52m for Process Plant growth and $105m for Mine, Port & Infrastructure growth.

$US347m, 38%

$US20m, 2%

$US386m, 43%

$US103m, 11%

$US29m, 3% $US23m, 3% Owner = $US908m

Mine Equipment

Yard Equipment

Operations

Project Team

MPSA Capex

Contingency

Mine, Port, & Infrastructure,

$US2,946m , 48%

Process Plant, $US1,132m , 18%

Power Plant, $US646m , 10%

Owner, $US885m , 14%

Allowances, $US157m , 3%

Other, $US572m , 10%

Mine, Port, & Infrastructure Process Plant Power Plant Owner Contingency Allowances

Contingency, $US415m, 7%

Total Capital Cost = $US6.18b

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Table 4-1 Basic Engineering Capital Cost by Major Area

Area CAPEX Total

($USm) % of Project

Mining 760 12

Process Plant 1,184 19

Site & Services 550 9

Port Site Facilities 543 9

Power Plant 646 10

Total Direct Costs 3682 59

Construction Indirects 844 14

Total Field Costs 4526 73

EPCM Services 355 6

Owner Costs 885 14

Contingency* 415 7

Project Total Costs 6,181 100

Note: Totals may not add due to rounding *Contingency: The contingency table provided to the estimate reviewers had an overall Project contingency of 9.63% (as a percentage of Total Installed Cost (TIC)). When owner’s costs (mine preproduction, mine equipment and owner’s Project Management (PM)) and contingency on owner’s costs are removed, the remaining value is 11.18%. The percentage is in line with what might be expected of an AACE Class 2 engineering estimate which is described in Section 4.4.

The above capital cost estimate has increased from the previously announced FEED Study estimate

of $US4.3b. A third of the change is due to the inclusion of the power plant which has a positive

internal rate of return (IRR) on the Project. The bulk of the remainder of the increase is due to

escalation in estimates from the FEED Study which was prepared during the 2009 economic crisis

and completed in March 2010 compared to the current estimate that has been prepared in light of

higher forecast commodity prices. A reconciliation of the major changes are listed in Table 4-2

below:

Table 4-2 FEED Study to Basic Engineering Capital Cost Estimate Variances

CAPEX Total

($USm)

FEED Study capital costs 4,320

Power plant 646

Increased process plant capital cost estimate 403

Increased mining capital cost estimate 312

Increased port site capital cost estimate 285

Other 215

Basic Engineering Capital Cost Estimate 6,181

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Variances from the FEED are explained in greater detail below:

Table 4-3 FEED Study to Basic Engineering Variance Description

Variance Explanation

Process Plant Higher production factors than FEED

Tailings dam increased from 1 year starter dam to 2 year starter dam

Better pricing of equipment with firm price quotes

Mining Fuel cost in FEED Study was $US0.56/l, current estimate uses $US1.06/l

Unit rates for earthworks higher based on firm price quotes

Indirect costs were allocated to direct such as camp and catering

4.2.1 Contract budgetary incentives

The power plant has been contracted at a fixed price under a lump sum engineering,

procurement and construction EPC contract with liquidated damages tied to Project completion

date. The process plant is currently in the bidding process also under a fixed price EPC contract.

The balance of the Project, under an EPCM contract with JVP, includes both penalties and

incentives tied to the Project budget, schedule and performance.

4.3 Sustaining Capital (SUSEX)

A sustaining capital cost estimate was prepared, indicating sustaining capital and including a

third line expansion, estimated at $US2.92b being over the 31-year life of operations. This

estimate allows for increasing the plant grinding capacity of 160 ktpd to 240 ktpd. The plant

expansion would be developed in two phases, with the Colina primary crushers and overland

conveyor completed by Year 5 and the third grinding line completed and ready for production in

Year 10. This expansion would significantly lower capital intensity given that the associated

infrastructure would already be in place, allowing for the expansion that should be very

economical.

Estimates are included for replacement and additional mining equipment. Other plant and port

mobile equipment is included in sustaining capital based on the replacement time cycle for each

piece of equipment.

Sustaining capital also includes costs for the continued development of the TMF, including

additional tailings pumps, tailings and reclaim pipelines. Continued development of pit

dewatering systems is also included. Additional costs are also included for expansion of the

truck shop by four bays.

Minera Panama, S.A.



May 2012

4.4 Independent Third Party Review – Capital Cost Estimate

Legico-CHP Consultants were asked to conduct an independent estimate review on behalf of

MPSA. A team of estimators and planners from Samuel Engineering of Denver and Hill

International of Las Vegas assessed the feasibility of the Project Budget Price Estimate

(consistent with AACE Class 2 estimate) (+/- 10% referred to as the ―Estimate‖) and

Construction Management Level 3 Project Schedule (referred to as the ―Schedule‖).

The review examined in detail:

Basic Project scope;

The methodology used;

Fundamental calculation errors;

Allowances for growth and contingency;

Possible duplication;

Quantities and pricing;

Basis and assumptions for estimate components;

Areas where estimate might not meet the classification criteria;

Estimate and execution plan congruence; and

Errors, omissions and any other factors that could have affected the precision and quality

of final pricing and quantities included in the original estimate.

Under to the contract with JVP, the Estimate that is submitted to MPSA for final contract

approval prior to a full Notice to Proceed must be a Class 2 estimate as defined by the AACE. At

an overall design completion of 37.6% (as calculated by JVP), Legico-CHP concluded that the

design is in the upper design threshold as a class 3 and the lower threshold for being a class 2.

An AACE Class 2 estimate describes a level of project definition required in the 30% to 70%

range. Legico concluded that most of the design documents listed as a minimum by the AACE

have been produced to the required level of completion.

Due to the large volume of earthwork for the Project, the estimate accuracy is dependent upon

the extent of civil design work completed and the contractor quotations for that work.

When dealing with unknowns (soil conditions, backfill requirements, haulage distances, erosion

control measures, electrical installations, support services, freight, etc.) Legico-CHP found that

JVP had estimated conservatively and no major omissions were identified by it.

As such, Legico-CHP found the final estimate to be within the expected accuracy of an AACE

Class 2 estimate and meets the plus/minus 10% accuracy.

Contingency: The contingency table had an overall Project contingency of 9.63% (as a

percentage of Total Installed Cost (TIC). When owner’s costs (mine preproduction, mine

equipment and owner’s PM and contingency on owner’s costs are removed, the remaining value

increases to 11.18%. The percentage is in line with what might be expected of an AACE Class 2

estimate.

Minera Panama, S.A.



May 2012

Risk Assessment: A risk analysis was performed using the risk modeling software package

@Risk, to calculate the Project’s contingency and used as a check against the contingency

value described above. The risk analysis value used as the contingency comparison figure was

taken from the P80 value. The risk analysis therefore generated a probability of 80% overall of

not exceeding a number carried in the Estimate.

Procurement: Legico-CHP examined seven major equipment ―P‖ packages and nine major

construction ―C‖ packages. They found that overall, the budget pricing obtained through the

process will be improved once a more complete and formal procurement process results in

competitive bids in the next stage of the Project.

Estimate Components: The review examined the following components of the Estimate in

detail: mechanical equipment, installation hours, built-up labour rates; mine development; site

civil work; concrete; structural steel; electrical; instrumentation; construction equipment; spare

parts; initial fills; vendor representatives; and freight.

In general, estimates were found to be conservative. The review identified a few potential areas

of cost savings and passed these recommendations along to MPSA.

The review concluded that the Project Estimate dated March 16, 2012 is acceptable and meets

the level of accuracy required for an AACE Class 2 estimate.

Minera Panama, S.A.



May 2012

5 OPERATING COST ESTIMATE

In this section, the forecast operating costs for Cobre Panama are outlined in further detail. Set

out below is a summary of operating costs both on a per tonne basis and a cash cost net of by-

products basis. In total there are two phases of the mine’s operation for which the operating

costs have been broken down. Additionally, contained within this section is a broad discussion

of the components (Mine, Plant, G&A and Site Services) that contribute most materially to the

forecast costs as well as the what inputs that contribute most materially (Material, Power,

Labour).

5.1 Basis of Estimate

The operating costs represent the estimated cash cost required during the Project’s operation

phase to process a nominal 160 ktpd (58.4 mt/a) of ore, increasing to a nominal throughput of

240 ktpd (87.6 mt/a) from Year 10 onwards. The operating cost estimate is based on a 31-year

life of mine operation. The first quarter of Year 1 is part of the ramp-up period and is therefore

excluded from the estimate.

The operating cost estimate presented herein is expressed in constant fourth quarter 2011 US

dollars with no allowances for escalation or fluctuation in exchange rates. Costs incurred before

plant start-up and during ramp-up periods are treated as capital expenditures and are included in

the capital cost estimate presented in Section 4.

Benchmarking of costs for input commodities such as oil (diesel), freight, steel (grinding media),

ammonia (explosives) and coal (power) demonstrated a strong correlation to the historical price

of copper. All of these commodities are directly related to the overall health of the global

economy. When prices of oil and other raw materials are relatively high, statistically significant

correlations demonstrate that it is reasonable to expect that the economic environment is robust

and likewise the price of copper. The cost assumptions for these commodities are therefore

linked to the price assumptions for copper over the long term, and were applied throughout Basic

Engineering to ensure internal validity and consistency of sensitivity analyses.

The operating costs were estimated on an annual basis for the 31 year life of mine. The costs

are reported in the following cost centres:

Mine operating cost;

Process plant operating cost;

General and administrative (G&A) cost; and

Site services operating cost.

By cost centers, the process plant represents almost 50% of the estimated operating costs.

Minera Panama, S.A.



May 2012

5.2 Operating Cost Estimate (OPEX)

The total operating cost is estimated at $US15,897m over the LOM for a mill feed of 2,310 mt

(excluding the 9.1 mt of feed during the ramp-up period in the first quarter of Year 1). The

overall unit operating cost would be $US6.88/t of ore milled.

The total cost for each cost centre was estimated for the LOM (Table 5-1). Average costs of

operation and the LOM weighted average are presented in Table 5-2. Table 5-3 presents the

estimated operating cost by component.

The process plant and mine operations costs would account for 83% of the total operating cost,

while G&A and site services account for the remaining 17% (Figure 5-1). Materials, which

include items such as diesel fuel, maintenance parts and supplies and explosives, etc.,

represent 59% of total operating costs while power and labour represent 15% and 11% of total

operating costs, respectively.

The peak operating cost of about $US609m would occur on Year 17. The annual average

operating cost cash flow would be about $US513m.

Table 5-1 Total Operating Cost Summary

Cost Centre $USm $US/t

Mine 5,626 2.44

Process Plant 7,600 3.29

G&A 2,035 0.88

Site Services 636 0.28

Total Operating Costs* 15,897 6.88

*Based on $US2.75/lb consensus long-term copper price

Table 5-2 Summary of Operating Costs per Year ($US/t of ore milled)*

Cost Centre Years 2-16 LOM

Mine 2.68 2.44

Process Plant 3.28 3.29

G&A 0.97 0.88

Site Services 0.30 0.28

Total 7.23 6.88

*Based on $US2.75/lb Consensus Long-Term copper price

Minera Panama, S.A.



May 2012

Table 5-3 Summary of Operating Costs by Component ($US/t of ore milled)*

Cost Centre Total Labour Material Power Other

Mine 2.44 0.27 1.87 0.05 0.24

Process Plant 3.29 0.24 2.13 0.91 0.01

G&A 0.88 0.15 0.01 0.04 0.69

Site Services 0.28 0.11 0.07 0.01 0.09

Total 6.88 0.77 4.08 1.01 1.03

*Based on $US2.75/lb Consensus Long-Term copper price

Figure 5-1 Breakdown of Operating Costs by Function and Input Cost

Minera Panama, S.A.



May 2012

Table 5-4 compares the operating cost estimates in the FEED Study with those of Basic Engineering:

Table 5-4 FEED Study vs. Basic Engineering Operating Costs

Area

FEED Study*

($US/t milled)

Basic Engineering**

($US/t milled)

Change

(%)

Mine 2.14 2.44 +14%

Process Plant

3.72 3.29 -12%

G&A 0.73 0.88 +21%

Site Services

0.64 0.28 -56%

Total 7.23 6.88 -5%

*Based on $US2.10/lb long-term copper price; **Based on $US2.75/lb Consensus Long-Term copper price

Overall, the difference in operating costs between FEED Study and Basic Engineering is a

reduction of approximately 5%. The difference can be largely attributed to higher input

commodity costs as a result of a higher base copper price assumption ($US2.10/lb in FEED

Study and $US2.75/lb in Basic Engineering) offset by power cost savings as a result of an on-

site power generating facility. The decline in Site Services cost is partially due to the removal of

a site Technical Services department from the FEED Study estimate and the subsequent

allocation of those costs to the mine and process plant. Table 5-5 illustrates the changes in unit

diesel, coal, steel grinding media, explosives and concentrate freight costs with changes in the

copper price assumption (see Table 5-5 and Table 6-3 for details of the selected metal price

scenarios).

Minera Panama, S.A.



May 2012

Table 5-5 Operating and Input Cost Estimates at Selected Copper Price Assumptions

Copper Price Assumption

Life of Mine Operating Costs

($US/tonne milled)

Consensus Long-Term

($US2.75/lb)

Forward Curve

(declining to

consensus)

3-Year Trailing Average

(SEC case -

$US3.42/lb)

Mine 2.44 2.46 2.55

Plant 3.29 3.36 3.60

G&A 0.88 0.88 0.89

Site services 0.28 0.28 0.28

Total 6.88 6.98 7.32

Estimated Input Unit Costs

Oil ($US/bbl)1,2

68.68 71.01 80.53

Diesel ($US/l)1 0.62 0.64 0.72

Coal ($US/t)1,2

82.54 85.37 96.93

Steel grinding ($US/t)1 935.25 976.27 1,143.62

Explosives ($US/t)1 936.21 950.97 1,011.18

Concentrate freight ($US/t) 41.21 43.17 48.32

1 - Total cost delivered to site;

2 - 3-Year trailing average of WTI Cushing Crude ~$US83.20/bbl and Columbia thermal coal price ~ $US84.40/t

5.3 Brook Hunt C1 Cash Cost

Brook Hunt’s C1 cash cost is a commonly used operating cost measure in the base metals

industry. It is defined by Brook Hunt as the net direct cash cost, representing the cash cost

incurred at each processing stage, from mining through to recoverable metal delivered to

market, less any net by-product credits. Tables 5-6 and 5-7 summarize Cobre Panama’s C1

cash cost at three metal price scenarios (see Table 5-5 and Table 6-3 for details of the selected

metal price scenarios).

Minera Panama, S.A.



May 2012

Table 5-6 Years 2-16 C1 Cash Cost ($US/lb)


Cost Item Consensus Long-

Term ($US2.75/lb)

Forward Curve

(declining to

consensus)

3-Year Trailing

Average (SEC case -

$US3.42/lb)

Mine 0.30 0.31 0.32

Plant 0.37 0.39 0.41

G&A 0.11 0.11 0.11


Offsite costs 0.30 0.31 0.32

By-product credits (0.40) (0.41) (0.42)

C1* 0.72 0.74 0.77

*Totals may not add due to rounding

Table 5-7 Life of Mine C1 Cash Cost ($US/lb)



Term ($US2.75/lb)

Forward Curve

(declining to

consensus)

3-Year Trailing

Average (SEC case -

$US3.42/lb)

Mine 0.32 0.33 0.34

Plant 0.44 0.45 0.48

G&A 0.12 0.12 0.12


Offsite costs 0.30 0.31 0.32

By-product credits (0.40) (0.40) (0.42)

C1* 0.82 0.83 0.87

*Totals may not add due to rounding

Cobre Panama’s C1 cost compares favourably against other copper mines expected to be in

operation by 2020. At a C1 cost of $US0.72/lb, Cobre Panama ranks in the 19th percentile

during Years 2 to 16 of production. Figure 5-2 illustrates Cobre Panama’s position on Brook

Hunt’s projected 2020 C1 cost curve.

Minera Panama, S.A.



May 2012

Figure 5-2 Comparison of Cobre Panama’s C1 Cost on the 2020 Projected Brook Hunt

Cost Curve

(1) 2020 Copper Cost League by Brook Hunt with Brook Hunt’s 2012 Q1 assumptions adjusted for

metal prices and derived input costs under the Consensus Long-Term Price Scenario

5.4 Independent Third Party Reviews

5.4.1 Process Plant Operating Cost Estimate

An independent third party review of the process plant operating cost estimate was performed.

Two approaches were used for the review:

Costs were verified for consistency against the design criteria and industry standards;

and

Costs were benchmarked against industry data, using a number of similar operations in

Chile and Peru.

The review concluded that the operating cost estimate for the process plant is realistic, and

consistent with other concentrator projects.

Minera Panama, S.A.



May 2012

5.4.2 Benchmark of Mining Cost

AMEC plc was retained to benchmark the mining costs included in the Basic Engineering

operating cost estimate. The review utilized a database of more than 20 South American open-

pit mines that operate truck fleets with similar operating parameters to those that would be used

at Cobre Panama.

Rather than using a cost-based approach that may be biased due to cost escalation, the

analysis was focused on Cobre Panama’s projected productivity ratios (i.e. output per unit of

input consumable) as compared to those of the selected South American mines. The productivity

ratios covered major components of mining costs such as diesel, power, labour, maintenance

parts, tires, and explosives.

The report concluded that, in general, Cobre Panama’s mining productivity ratios are average or

slightly conservative as compared to other similar open-pit mining operations.

5.4.3 Power Plant Operating Cost Estimate

In November 2011, MPSA mandated Sunrise Americas, LLC to conduct an analysis of MPSA’s

power plant economic model and power price estimates. Sunrise’s findings were updated in

February 2012 to reflect a revised coal price forecast based on regression analysis modeling the

correlation between copper price and coal price, a revised schedule for mine commercial

production, and updated foreign exchange rates. Overall, the power plant economic model and

power price estimates were deemed reasonable.

Coal prices comprise approximately 80% of the power cost. By performing a regression analysis

using historical price data, MPSA has developed an algorithm to predict coal prices in relation to

copper prices (Table 5-8). See Table 5-5 and Table 6-3 for details of the selected metal price

scenarios. Over the first 9 years of operation, MPSA will obtain a power credit for the excess

power sold.

Table 5-8 Power Costs at Selected Copper Price Assumptions ($US/kWh)

Copper Price Assumption

Consensus Long-Term

($US2.75/lb)

Forward Curve (declining

to consensus)

3-Year Trailing Average

(SEC case - $US3.42/lb)

Years 1-9 0.027 0.033 0.034

Years 10-LOM 0.050 0.050 0.055

Minera Panama, S.A.



May 2012

5.4.4 Power Plant Coal Supply Analysis

An analysis performed for MPSA by Wood Mackenzie in November 2011 determined that

structural changes in the US coal market have created more low-cost coal supply in the region

that should be available to the Project.

While high-growth economies in Asia, namely China and India, should continue to drive global

demand growth and shift trade flows in their direction, global thermal coal prices should retract

and stay flat, in real terms, over the short to medium term before resuming growth in the longer

term.

With a weak domestic market, United States suppliers of thermal coal should be looking for

export markets and represent a very attractive supply option to MPSA due to its delivered price

and relative proximity. Colombia, a fixture in the seaborne market, typically commands higher

prices and should compete very closely with US coal for MPSA business. Venezuela has similar

delivered costs to the US and Colombia, but is a much higher risk because of the political

situation and a lack of infrastructure.

Minera Panama, S.A.



May 2012

6 PROJECT ECONOMICS

In this section a number of standard valuation metrics are presented over multiple scenarios.

Included are project assessments based on varying metal price assumptions (and by correlation,

input costs) as well as varying project financing assumptions. Details of the different metal price

assumptions, input cost assumptions and financing scenarios are all contained in this section.

The operating cost discussion in Section 5 is expanded upon and the impact of a financing

scenario which includes a precious metals stream sale is evaluated in terms of how it would

impact cash costs after by-products. This section concludes with an analysis of the Project’s

forecasted annual and cumulative cash flows.

6.1 Modelling Assumptions

Set out below are the assumptions used to generate the financial projections for the Project.

Table 6-1 Modelling Assumptions ($US)

Item Assumption

Valuation Date March 31, 2012

Start of development 2012

Start of production First concentrate shipped in 2016

Cost inflation Capital costs in real 2011Q3 terms; operating costs

and metal prices are assumed to be in real terms as

at the Valuation Date

Technical input JVP Basic Engineering Report

Realization costs

Copper treatment charges $US70.00/t dry concentrate

Copper refining charges $US0.07/lb

Gold refining charges $US5.00/oz

Silver refining charges $US0.50/oz

Molybdenum roasting & freight charges $US1.49/lb

Freight charges $US41/t wet concentrate

Losses & insurance charges 0.25% NSR

Taxation

Corporate tax rate 25%

Royalty 5% NSR for Cu and Mo, 4% NSR for Au and Ag

Alternative minimum tax 1.17% of NSR

Depletion allowance Depletion deduction in any given year cannot exceed

50% of earnings before interest, taxes, depreciation

and amortization (―EBITDA‖)

Minera Panama, S.A.



May 2012

Withholding tax on exports and dividends None

Duty on imports None

Development capital expenditures $US6.18b (refer to Section 4)

Sustaining capital expenditures $US2.92b (refer to Section 4)

Copper concentrate moisture 8%

Mine schedule Refer to Section 2

Recovery rates Refer to Section 2

Concentrate grades Refer to Section 2

Operating costs Refer to Section 5

Total pre-financing sponsor funding requirement during the construction period (up to and

including Q1 2016) is summarized in Table 6-2. Refer to Section 6.6 for sponsor funding

requirement after considering Inmet’s financing assumptions.

Table 6-2 Pre-Financing Sponsor Funding Requirement

Item Amount ($USb)

Development capital expenditures* $6.2

Working capital** $0.1

Total $6.3 *Includes $US35m in first fills and capital spares **Includes power plant working capital items of $32m

Two financing structures are considered in the Project economic analysis (Table 6-3):

1. A levered case with third party and subordinate shareholder debt; and

2. A levered case with third party and subordinate shareholder debt, plus a gold and silver stream

sale.

These structures represent Inmet’s financing assumptions applied to 100% of the Project.

Minera Panama, S.A.



May 2012

Table 6-3 Financing Assumptions

Case Assumptions

Case 1: Debt only

(“Debt Case”)

$US1.6b of senior debt drawn over three and a half years proportionate to equity contribution with a 10-year tenor and bullet repayment

2% one-time fees and 7.25% coupon (nominal)

Incorporates use of subordinated shareholder loans

100% Project ownership

Case 2: Debt plus Precious

Metal Stream Sale

(“Debt plus Stream Case”)

Debt Case described above, plus

Sale of 86% of MPSA’s gold and silver for an upfront payment of $US1.2b drawn proportionate to equity contribution after $US1.25b has been contributed

In addition to the upfront payment, MPSA would receive $US400/oz of payable gold and $US6.00/oz of payable silver with customary inflation adjustment when delivered

6.2 Value and Returns

Three metal price scenarios are used in evaluating the Project economics:

Consensus Long-Term Prices - As determined by a broad sampling of industry

forecasters. This scenario represents a conservative view of the future metal prices.

Forward Curve Prices - The forward curve represents the future prices at which the

market is willing to transact based on the market’s current expectation of supply and

demand conditions in the short and medium terms. In theory, these future prices can be

―locked in‖ through forward sale contracts.

Three-year Trailing Average Prices- Given base metals’ tendencies to revert to

historical means, the three-year trailing average prices are also considered in our

analysis. This price scenario is also accepted by the United States Securities Exchange

Commission for regulatory filings.

Refer to Section 11 for our analysis on the copper and molybdenum market outlook. Table 6-4

sets out the metal prices used in each of the three price scenarios discussed.

Minera Panama, S.A.



May 2012

Table 6-4 Metal Price Assumptions ($US)

Metal Price Scenario Assumptions

Consensus Long-Term

$US2.75/lb copper, $US15/lb molybdenum,$US1,250/oz gold and $US20/oz

silver

Forward Curve

2016 - $US3.66/lb copper, $US1,758/oz gold and $US31/oz silver







Molybdenum prices are set at $US15/lb as no forward market exists

The Consensus Long-Term prices are used for years beyond the end of the

forward curve for each metal

Three-Year Trailing Average

$US3.42/lb copper, $US14.68/lb molybdenum,$US1,316 /oz gold and

$US24.90/oz silver

Tables 6-5 and 6-6 summarize the economics of the Project, showing the estimated internal rates of

return and the net present values for a range of price assumptions and discount rates.

Table 6-5 After-Tax Economics: Debt Case



Forward Curve

(declining to

consensus)


case)

IRR 14.3% 18.5% 19.2%

NPV @ 8% 3,200 4,800 6,000

NPV @ 9% 2,400 3,900 4,900

NPV @ 10% 1,800 3,200 4,000

Minera Panama, S.A.



May 2012

Table 6-6 After-Tax Economics: Debt plus Stream Case



Forward Curve

(declining to

consensus)


case)

IRR 16.7% 21.9% 22.5%

NPV @ 8% 3,500 5,000 6,300

NPV @ 9% 2,800 4,200 5,200

NPV @ 10% 2,200 3,600 4,400

6.3 Sensitivity Results

As could be expected, the Project is most sensitive to changes in copper price, followed by

capital costs and operating costs. The Project’s returns should not be significantly impacted by

changes in the gold price given that gold represents only 6% of total net smelter returns.

Furthermore, changes in each of the input commodity costs of oil, steel, power and explosives

should have insignificant impacts on the overall Project returns (see Figure 6-1).

Figure 6-1 NPV Sensitivities

Debt Case NPV Sensitivity Chart Debt plus Stream Case NPV Sensitivity Chart

Minera Panama, S.A.



May 2012

6.4 Cash Costs

The Project has projected operating costs in the first quartile of the industry cost curve. As

described in Section 5, the operating cost model developed during Basic Engineering treats the

price of input commodities such as diesel as a function of the copper price assumption. A higher

copper price in the financial model would therefore drive higher estimated operating expenses.

Tables 6-7 and 6-8 illustrate the sensitivity of C1 cash costs to changes in copper price under

both the Debt case and the Debt plus Stream case financing structures.

Table 6-7 Years 2-16 Cash Costs Based on Payable Copper ($US/lb)


Consensus Long-

Term

Forward Curve

(declining to

consensus)

3-Year Trailing

Average (SEC

case)

Debt Case C1* 0.72 0.74 0.77

Stream sale by-product credit adjustment 0.14 0.15 0.16

Debt plus Stream Case adjusted C1 0.86 0.89 0.93

*As defined by Brook Hunt

Table 6-8 Life of Mine Cash Costs Based on Payable Copper (US/lb)


Consensus Long-

Term

Forward Curve

(declining to

consensus)

3-Year Trailing

Average (SEC

case)

C1* 0.82 0.83 0.87

Stream sale by-product credit adjustment 0.13 0.13 0.14

Debt plus Stream Case adjusted C1 0.95 0.96 1.01

*As defined by Brook Hunt

With a gold and silver stream sale, the Project’s C1 cash cost during Years 2-16 increases from

$US0.72/lb to a stream-adjusted C1 of $US0.86/lb under the Consensus Long-Term price scenario.

As illustrated by Figure 6-2, Cobre Panama’s stream adjusted C1 still ranks favourably in the 23rd

percentile of Brook Hunt’s projected 2020 C1 cost curve.

Minera Panama, S.A.



May 2012

Figure 6-2 Comparison of Project C1 Costs on the Projected 2020 Brook Hunt Cost Curve

(1) 2020 Copper Cost League by Brook Hunt with Brook Hunt’s 2012 Q1 assumptions adjusted for

metal prices and derived input costs under the Consensus Long-Term Price Scenario

A project’s C3 cost, defined by Brook Hunt as the C1 cash cost plus depreciation expense,

closure costs, royalties, frontend taxes, interest and other indirect expenses, gives an indication

of the cost to finance, build and operate a production stream. Cobre Panama’s estimated C3

operating cost during Years 2-16 of $US1.41/lb under the Debt Case would rank in the 26th

percentile on Brook Hunt’s projected 2020 C3 cost curve, and would be attractive compared to

the consensus long-term copper price of $US2.75/lb. With a gold and silver stream sale, the

Project’s estimated C3 operating cost would increase to $US1.48/lb but would still be well below

the consensus long-term copper price of $US2.75/lb and would rank in the first half of the

projected 2020 C3 cost curve (28th percentile).

Minera Panama, S.A.



May 2012

Table 6-9 Year 2-16 C3 Costs ($US/lb)



Term

Forward Curve

(declining to

consensus)

3-Year Trailing

Average (SEC

case)

C1 0.72 0.74 0.77

Depreciation and closure 0.50 0.60 0.62

Royalty and frontend taxes 0.14 0.16 0.18

Interest cost (third-party debt only) 0.04 0.04 0.04

C3: Debt Case 1.41 1.54 1.61

Metal stream sale adjustment* 0.13 0.15 0.16

Amortization of stream upfront payment** -0.07 -0.07 -0.07

C3: Debt plus Stream Case 1.48 1.62 1.70

*Includes stream sale by-product credit adjustment and difference in the timing of depreciation expense incurred on capital assets **Upfront payment is amortized on a unit-of-production basis on precious metals production

Table 6-10 Life of Mine C3 Costs ($US/lb)



Term

Forward Curve

(declining to

consensus)

3-Year Trailing

Average (SEC

case)

C1 0.82 0.83 0.87

Depreciation and closure 0.48 0.48 0.48

Royalty and frontend taxes 0.14 0.15 0.18

Interest cost (third-party debt only) 0.03 0.03 0.03

C3: Debt Case 1.47 1.49 1.56

Metal stream sale adjustment* 0.13 0.13 0.14

Amortization of stream upfront payment ** -0.07 -0.07 -0.07

C3: Debt plus Stream Case 1.52 1.55 1.63

* Life of mine stream sale by-product credit adjustment ** Upfront payment is amortized on a unit-of-production basis on precious metals production

Minera Panama, S.A.



May 2012

Figure 6-3 Comparison of Project C3 Costs on the Projected 2020 Brook Hunt Cost Curve

(1) 2020 Copper Cost League by Brook Hunt with Brook Hunt’s 2012 Q1 assumptions adjusted for metal prices and derived

input costs under the Consensus Long-Term Price Scenario

6.5 Net Smelter Returns

Cobre Panama’s net revenues would be highly leveraged to copper prices, with copper providing

87% of net smelter returns (NSR). Current reserves yield payable metals of 17.5b lb copper,

199m lb of molybdenum, 2.5m oz of gold and 43m oz of silver. As illustrated in Table 6-11,

precious metals represent only a small portion (8%) of the Project’s estimated total NSR. Figure

6-4 summarizes Cobre Panama’s estimated annual payable copper production and C1 cash cost

over the projected life of the Project.

Minera Panama, S.A.



May 2012

Table 6-11 Life of Mine Revenues and NSR (Consensus LT Prices)

LOM Payable

Metal

Production

Gross

Revenue

($USm)

Realization

Costs

($USm)

NSR ($USm)

Copper 17.461b lb 48,017 (4,970) 43,047

Molybdenum 199m lb 2,983 (303) 2,680

Gold 2.488m oz 3,111 (20) 3,090

Silver 43.109m oz 862 (24) 839

Total 54,973 (5,317) 49,656

Figure 6-4 Payable Cu Production and C1 Cash Cost by Year (Consensus LT Prices Debt

Case)

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May 2012

6.6 Project Cash Flows

6.6.1 Debt Case

Figure 6-5 depicts the Project’s cash flow profile under the Debt Case. As outlined in Table 6-12,

net sponsor funding during the construction period (up to and including 2016 Q1) is

approximately $US5.0b. The Project is projected to generate a total undiscounted cumulative

cash flow of approximately $US20b.

Figure 6-5 Project Life After-Tax Cash Flows (Debt Case)*

Table 6-12 Construction Period Funding Requirement – Debt Case ($US)

Item Amount ($USb)



Third party debt interest and fees $0.3

Third-party debt draw down ($1.6)

Total $US5.0b *Includes $US35m in first fills and capital spares **Includes power plant working capital items of $32m

*Based on Consensus Long-Term Prices

(40)

(30)

(20)

(10)

-

10

20

(2,500)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

1,500

2012 2017 2022 2027 2032 2037 2042

Debt Case free cash flow to Inmet ($USm, LHS) Cumulative cash flow ($USb, RHS)

Minera Panama, S.A.



May 2012

6.6.2 Debt plus Stream Case

The cash flow profile of the Debt plus Stream Case is shown in Figure 6-6. Net construction

period sponsor funding is approximately $US3.8b (see Table 6-13), and the Project would be

expected to generate a total undiscounted cumulative cash flow of approximately $US19b.

Figure 6-6 Project Life After-Tax Cash Flows (Debt + Stream Case)*

Table 6-13 Construction Period Funding Requirement – Debt plus Stream Case ($US)

Item Amount ($USb)



Third party debt interest and fees $0.3

Third-party debt draw down ($1.6)

Stream sale upfront payment ($1.2)

Total $US3.8b *Includes $US35m in first fills and capital spares **Includes power plant working capital items of $32m

*Based on Consensus Long-Term Prices

(40)

(30)

(20)

(10)

-

10

20

(2,500)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

1,500

2012 2017 2022 2027 2032 2037 2042

Debt + Stream Case free cash flow to Inmet ($USm, LHS) Cumulative cash flow ($USb, RHS)

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May 2012

6.7 Upside of Resource Value Not Reflected in Traditional Discounted Cash Flow

Valuation

The static Discounted Cash Flow (DCF) valuation methodology employed in the analysis does

not fully capture the value of the optionality embedded in a long-life asset and any mineral

resources that may be incorporated into the mine plan in the future (see Section 1.7). As such,

the true, intrinsic value of Cobre Panama could be greater than the values indicated by the DCF

analyses presented herein.

One methodology to evaluate project resources is to apply a price per in-situ pound of copper

equivalent based on precedent market transactions. Employing this methodology to the

resources not included in the current mine plan results in potential resource value of $US0.9b to

$US1.8b. See Section 8 for more detail.

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May 2012

7 PROJECT FINANCING

Cobre Panama is owned 80% by Inmet and 20% by Korea Panama Mining Company (KPMC).

Each owner will fund its pro-rata share of the estimated $6.2b Project capital cost, as detailed in

Table 7-1.

Table 7-1 Independent Funding Breakdown

$USb

KPMC investment catch-up $0.2

KMPC 20% of capital $1.2

Inmet 80% of capital less KPMC investment catch-up $4.8

Total $6.2

KPMC is wholly owned by LS-Nikko Copper Inc. (LS-Nikko) and Korea Resources Corporation

(KORES). LS-Nikko owns and operates, among other business interests, the world’s second

largest smelter producing over 500 kt of blister copper annually. KORES is wholly-owned and

supported by the South Korean government and focuses on securing a long-term supply of basic

commodities for the South Korean economy.

Inmet is a Canadian based global mining company with three low cost operating mines in

geopolitically stable jurisdictions. It is listed on the Toronto Stock Exchange and has a market

capitalization of about $4b. Inmet’s funding plan is outlined in Table 7-2.

Table 7-2 Inmet’s Funding Plan

$USb

Cash on hand $1.7

Senior Unsecured Notes $1.0

Precious metals stream $1.0

Expected cash flow 2012-2015* $1.5

Total $5.2

*Includes fees and debt servicing costs for the senior unsecured notes

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May 2012

Inmet expects to authorize full Notice to Proceed for the Project upon receipt of proceeds from

the senior unsecured notes (the ―Senior Unsecured Notes‖). Inmet is conducting an offering of

$US1b principal amount of Senior Unsecured Notes.

Inmet has also commenced a process to consider a precious metals stream transaction. We are

currently engaged in discussions with interested parties to sell a portion of future gold and silver

production attributable to our 80% interest in Cobre Panama. If we are successful in completing

such precious metals stream transaction on acceptable terms, the stream transaction would

provide an additional approximately $US1 billion for our share of the capital cost of the project.

Additional funding of $US1.0b could be raised from a number of potential sources at the Inmet or

MPSA level:

Additional Senior Unsecured Notes

Bank debt such as a line of credit or revolving credit facility at the Inmet level

Equipment financing

The sale of an additional minority interest in MPSA to an off-take or strategic partner

The total Project funding plan along with the approximate proportion of funding in place is

outlined in Table 7-3 below.

Table 7-3 Total Project Funding

$USb

% Financed

(cumulative)

Capital estimate $6.2

Funding sources:

KPMC $1.4 23%

Inmet cash on hand $1.7 50%

Inmet Senior Unsecured Notes $1.0 66%

Inmet precious metals stream $1.0 82%

Inmet cash flow from operating mines 2012 - 2015 $1.5 106%

Other $1.0 123%

Total funding sources $7.6 123%

As can be seen, in short duration the Project would be approximately 82% funded or 106%

considering Inmet’s future operating cash flow. Through the balance of 2012, rather than rely on

cash flow from its operating mines, Inmet would continue to work on creating additional financing

Minera Panama, S.A.



May 2012

flexibility and assess opportunities to optimize its ultimate ownership in the Project, balancing

financing, operational and development risk with exposure to this development asset.

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May 2012

8 RISKS AND OPPORTUNITIES

8.1 Project Risk Management

Responsible risk management is a key foundation of Inmet’s corporate strategy to grow

responsibly as a base metals mining company, providing superior returns to shareholders. To

effectively and proactively manage the potential risks inherent in the execution of the Cobre

Panama Project, we have developed and implemented a Project-specific risk management

approach utilizing standardized processes, systems and tools across the entire Project. Through

regular interaction and input from the owner’s team and all major EPC/EPCM contractors, our

integrated risk management approach ensures that risks are continuously and consistently

identified, assessed, treated and monitored.

Risk Management Process and Tools

Effective risk management on the Cobre Panama Project is achieved through the consistent

application of a well-defined risk management process supported by a fully integrated web-

based Risk Register, which has been developed specifically for this Project using a Microsoft

Dynamics database. The Risk Management process includes four stages:

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May 2012

Cobre Panama Project Risk Register

The Cobre Panama Risk Register integrates risk information from Inmet, MPSA and all major

EPC/EPCM contractors including:

Infrastructure EPCM

Contractor: JVP

Power Plant EPC Contractor:

SK

Process Plant EPC

Contractor: (To Be

Determined)

Risk Identification

Risk Identification is achieved using a systematic approach including a number of different tools

and techniques such as Risk Workshops and HAZPOS, to identify both technical and non-

technical risks. A three-tiered approach is used during the identification process including:

describing the potential risk (i.e. potential failure mode); identifying the risk’s potential initiating

event(s); and finally, identifying the risk’s potential resulting effect(s).

Risk Assessment

During the Risk Assessment stage, the likelihood and consequence of each identified risk is

assessed using the Project’s predetermined scales, as defined by the Project’s standardized

Likelihood and Consequence Table. Consequences are assessed in terms of economic and

non-economic criteria that have been developed and approved specifically for the Cobre

Panama Project in the areas of: Safety and Health; Environmental; Community; Security; Human

Rights; Reputation; Loss/Damage; Financial; Production/Schedule; and Business/Project Impact.

Once the Likelihood and Consequence scores have been agreed upon, the risk’s ranking is then

determined using the Project’s 5x5 Risk Ranking matrix.

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May 2012

For each risk, three

separate risk rankings are

determined and tracked.

The Initial Risk Ranking

defines the inherent risk

that exists prior to any risk

treatment actions being

undertaken. The Actual

Risk Ranking represents

the current risk level that

exists taking into account

any existing controls that

have been implemented or risk treatment actions that have been completed to-date. Finally, the

Residual Risk Ranking represents the risk level that is anticipated to exist once all of the risk

treatment actions defined in the Risk Treatment Plan have been completed.

Risk Treatment

To effectively minimize the Project’s risk exposure to an acceptable level, a Risk Treatment Plan

is developed and implemented for each risk, reflecting the control strategy requirements

corresponding to the risk’s Actual Risk Ranking. As part of the Risk Treatment Plan approval

process, the implementation cost of each plan is evaluated in comparison to its expected results.

Each Risk Treatment Plan is made up of distinct measurable action items, each with a clearly

defined action owner, start date and finish date.

Risk Monitoring and Control

Once the Risk Treatment Plans have been developed, approved and implemented, their

progress is then monitored and compared against documented milestones and targets. In the

case that a Risk Treatment Plan is not achieving its intended result, it is reviewed and revised to

improve its effectiveness. All Risk Treatment Plan information and progress details are recorded

and tracked in the Risk Register.

As the Project progresses, all risk and Risk Treatment Plan information would be regularly

reviewed and updated to reflect the inevitable changes that have occurred on a monthly basis.

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May 2012

As Risk Treatment Plans are implemented the Actual Risk Ranking of each risk would be closely

monitored and updated accordingly. Through this continuous review and update process, our

team would have access to detailed real-time information on all currently known Project risks,

which would be accessed through an internet based Project Controls Dashboard tool.

8.1.1 Special Considerations

Cobre Panama stakeholder risks and opportunities were identified and risk mitigants put in place

as part of Basic Engineering.

Cost Escalation

Quotes to build the power plant and the process plant (together a significant component

of Project capital expenditures) were and are being written on a ―Lump Sum‖ and ―Not to

Exceed‖ basis in order to reduce the likelihood that these components will bring the

Project over budget. These quotes will be received from audited vendors with the

sophistication and balance sheet to manage costs and deliver on budget.

The advanced stage of engineering for the Project (currently 38% completed) in

combination with the large portion of firm bids received to-date (58%) should further

reduce the potential for unforeseen costs.

Panama’s use of the US currency is another positive characteristic of the Project that

should reduce the potential for material cost escalation due to foreign exchange

fluctuation.

The manner in which the ―Request for Quotation‖ process was conducted should reduce

the potential for cost overruns. The Project’s EPC and EPCM contracts are designed to

incent contractors to stay on budget and on schedule.

We believe the quotes obtained are materially conservative – in some cases the labour

multiplier (unit of work over unit of time) used for work on the Project is as high as three

times what would normally be employed and some of the quotes for individual work

packages have small overlaps in scope (which could potentially reduce costs).

By the end of 2012, 50% of the Project expenditures are expected to be committed

against firm quotes currently in hand.

Overall Project contingency is 9.6% (as a percentage of TIC). When owner’s costs (mine

preproduction, mine equipment and owner’s project management (PM)) and contingency

on owner’s costs are removed, the remaining contingency level is 11.2%. This

percentage is in line with what might be expected of an AACE Class 2 engineering

estimate.

The Project is actively considering early group purchase of bulk commodities (to lock in some costs of steel, diesel, cement) for construction and passing out to suppliers.

Minera Panama, S.A.



May 2012

Low Cost Production from a Low Grade Mine

Cobre Panama is amenable to large scale, open pit mining methods that should result in

the efficient handling of ore and waste.

Mining costs should benefit from a very low strip ratio, roughly one fifth of the average

(0.58 vs 2.53 – Source: Brook Hunt) for all open pit copper mines in 2011.

The Project’s proximity to the coast and the low altitude of the Project would allow the

mine and the port to be located close together, thus decreasing linear maintenance and

allowing for integrated management of remote facilities.

The Project would have access to low-cost, self-generated power that takes advantage of

proximity to a coal source.

Management Depth

Inmet has developed three mines within the tenure of the current management; the Las

Cruces, Çayeli and Troilus mines.

For this Project, Inmet has recruited a strong owner’s team (detailed in Section 9) that

has relevant experience in construction and operations. Further, reputable Engineering,

Procurement and Construction contractors with a proven history of quality have been

selected.

Potential for Government/Social dissatisfaction

Approval of the ESIA is in our view indicative of governmental support for the project.

Permits post-ESIA approval are being received.

Extensive engagement and cooperation at both the government and community levels

provide the best degree of control possible.

At the community level, the current level of support in the Project area indicates that

community engagement efforts are working and a recent study shows overwhelming

support for the Project (Section 3.3.3).

MPSA has received free prior and informed consent of the indigenous communities who

will be physically and economically displaced by the Project.

MPSA has continuous engagement with the local communities and a broad range of

stakeholders and is delivering employment to local residents.

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May 2012

Key Risks Risk Treatment Plan - Summary

Unplanned prolonged construction interruption due to

severe weather resulting in project delays.

Sufficient slack has been built into the schedule to account for severe weather. Based on detailed

constructability reviews, work methodologies have been developed to maximize work progress

through periods of heavy rain.

Sediment levels (TSS, TDS) down stream of project exceed

allowable limits during construction.

Robust sediment and erosion control procedures and processes have been developed and

implemented in conjunction with industry experts, using significant field tests including settling

rates, turbidity to TSS relationships, TSS runoff loading, toxicology analysis and geomorphologic

studies. The effectiveness of existing procedures and processes are carefully monitored using

stations set up at key locations both on and off the project footprint.

Loss of biodiversity in project footprint. Flora and fauna rescue and relocation programs have been developed and implemented in

conjunction with biodiversity experts, ensuring that all endangered and threatened species are

conserved . Contractors flora and fauna conservation performance is carefully monitored through

regular inspections during rescue activities.

Inadequate health, emergency services, sanitation and

education infrastructure in local communities is

overwhelmed by increased local population resulting from

project induced in migration.

Analysis of existing local infrastructure has been conducted to identify any improvements and

expansions required to support the expected increase in local population. The development of

required upgrades is being coordinated with government agencies and supported through the

provision of technical assistance to authorities.

Inability to hire sufficient front-line workforce from

immediate local communities (i.e. 22 local communities) to

meet project commitments.

Local training program has been developed and implemented in conjunction with the EPCM

contractor. Training has also been initiated with INADEH focused on construction and welding.

Local labour requirements and quantities have been clearly defined in subcontractor contracts.

Late arrival of materials/ equipment due to late delivery by

vendors, transportation and logistic issues, and/or custom

clearance delays.

Effective expediting organizations within MPSA and EPC/EPCM contractors as well as first class

customs brokers, are utilized to execute the projects procurement strategy including the proactive

expediting and monitoring of vendors based on the criticality of material/ equipment. Dedicated

EPC/EPCM procurement employees will manage custom clearance at port of Colon.

Lack of safety culture and behaviour by contractors due to

lack of qualified contractor supervision.

Comprehensive Safety Management plans and policies have been developed based on industry

best practices and implemented through extensive safety training including leadership and

supervisor training. Project safety goals and targets are clearly defined and safety performance is

carefully monitored across the entire project including all contractors working on site. Ratios of

qualified supervisors to workers has been predetermined and mandated for all project activities.

Table 8-1 Key Project Risks and Treatment Plans

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May 2012

8.2 Opportunities

Extended Mine Life and Expansion Opportunity

Mineral resources that have already been established on the Cobre Panama concession could

provide significant option value to the Project once it is built and operating. Currently there are

12b lb of contained copper in the measured and indicated mineral resource and some 19b lb of

copper in the inferred mineral resource that have not been exploited in the mine plan. Although

mineral resources do not have demonstrated economic viability, based on commonly used

market precedent, the value of these additional units of copper could be between $US0.03 and

$US0.06/lb in the ground. This would suggest an option value of those copper units of between

$US0.9b to $US1.8b.

If work progresses to move these resources into mineral reserves, they could provide

opportunities to:

extend mine life beyond the current 31 years; and/or

accelerate the third line, increasing production in Years 3 to 9; and/or

justify expanding the current operation beyond 240 ktpd throughput.

Figure 8-1 Plan of Distribution of Resources 2012

The installation and commissioning of a third line in Year 10 is part of the current Cobre Panama

design. The current preproduction capital provides for all of the civil work necessary for this third

Minera Panama, S.A.



May 2012

line. The original logic for bringing on the third line in Year 10 was to coincide with the decrease

in grade in the mine plan. Moving the third line forward could enhance the mill throughput by

approximately 50% in Years 3 to 9 of production and would make Cobre Panama one of the ten

largest copper mines in the world in terms of production. Disposal of tailings beyond the current

plan could potentially take advantage of what would be already exhausted pits. Further

engineering work to detail the plan to advance the third line is in progress.

There is an established mineral resource, exclusive of mineral reserves, that is largely near

surface and proximal to the planned plant. MPSA is currently pursuing additional technical

studies that could lead to the conversion of indicated resources at the Balboa and Brazo deposit

into reserves.

Table 8-2 Potential Reserves Should Indicated Resources at Balboa and Brazo be

Converted to Reserves

Category Tonnes

(x 1000)

Cu

%

Au

g/t

Ag

g/t

Mo

%

Cu

(x1000)

tonnes

Au

(x1000)

ounces

Ag

(x1000)

ounces

Mo

(x1000)

tonnes

Proven and

Probable

Reserves

2,319,000 0.40 0.07 1.4 0.007 9,258 5,167 104,028 169

Indicated

Resources at

Balboa and Brazo

845,000 0.36 0.10 1.2 0.002 3,041 2,586 33,261 21

Total 3,164,000 0.39 0.08 1.3 0.006 12,299 7,753 137,289 190

With a substantial and growing resource base, the operation could justify working towards

expanding beyond the current design capacity. Much of the infrastructure such as the port,

power plant, roads and camp could be leveraged by expansions so these could be very

economic capacity additions.

Exploration Activities in the Concession

In late 2010, MPSA initiated its first modern, concession-wide exploration program by flying a

recently developed airborne geophysical survey. This survey identified the known shallow

mineralization and generated numerous additional similar targets. One of the first targets tested

in early 2011 was immediately west of Colina. This drilling resulted in the discovery of the Balboa

deposit. Within a year, this discovery had established an indicated resource of 602 mt at 0.36%

copper and 0.10 g/t Au and additional inferred resource of 301 mt at 0.31% Cu and 0.08 g/t Au.

On Balboa, two intersections drilled at the most north-westerly extent of Balboa returned some of

the best grades over good widths. Hole 11-116 returned 0.85% Cu, 0.26 g/t Au over 241

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May 2012

metres and hole 11-095 returned 0.78% Cu, 0.31 g/t Au over 237 metres. The deposit remains

open to expansion in this direction (see Inmet press release dated March 5, 2012).

Figure 8-2 Plan of Distribution of Resources 2012

An extensive exploration program for 2012 is underway with some 36 holes testing additional

targets on the concession.

Minera Panama, S.A.



May 2012

9 PROJECT EXECUTION

9.1 Project Background

The Project execution plan describes the assumptions, challenges, keys to success, and

sequence of events over the Project development period from completion of the Basic

Engineering report through design to shipment of the first concentrate.

There would be several distinct and separate construction areas:

mine site, including the process plant site;

port site;

300 mW power plant;

TMF and associated infrastructure;

Botija pit;

230 kV overhead power line and upgrades from Llano Grande; and

Coast Road and pipelines.

The methodology applied during the Project quotation phase, which included the receipt of a

large portion of firm quotes, a significant degree of completion of overall engineering and the

contractual encouragement of EPC and EPCM contractors to meet budget and schedule, has

afforded the Project a relative degree of control over schedule and scope change.

9.2 Project Organization

The organization of the MPSA Project team is based on a matrix approach, commonly used in

the industry for development of major projects. The organization provides a single point

responsibility through MPSA’s Project Director to the Inmet Project Sponsor. To facilitate

management, coordination and control, the Project is broken down into three major areas: Mine,

Port and Infrastructure; Power Plant; and Process Plant.

Each area is managed by a Project Manager who is accountable to the Project Director for the

planning and coordination of all work required to deliver their respective areas on schedule, on

budget and with the required level of quality, while ensuring that safety, environmental and other

organizational objectives are met.

In performing their responsibilities, the Project Managers interface across all functional Project

groups, including health and safety, engineering, construction, procurement, environment and

Project controls. These groups are led by function managers, who also report to the Project

Director. These function managers have the responsibility to ensure that Project standards are

applied uniformly throughout the Project, and to allocate the necessary resources to deliver the

work required to meet Project objectives. The members of the Project team report to their

respective function managers, while assuming accountabilities to the Project Managers.

Inmet’s project sponsor is Fernando Martinez-Caro. Mr. Martinez-Caro brings 22 years of

experience in the engineering and construction industry primarily working in the contractor’s side

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May 2012

before joining Inmet four years ago. His experience includes large EPC projects in Canada, US,

UK and Spain working with Grupo Ferrovial.

MPSA has put together a world-class owner’s team that will provide leadership, oversight and

integration to the work delivered by the EPCMs. The team is comprised of 50 members and

would grow to include 107 at its peak in 2013. It is led by Cesar Inostroza (MPSA Project

Director), who brings to the project more than 23 years of experience in the mining, aluminum

and process industries and has worked both on the contractor and owner sides for companies

such as Rio Tinto, DuPont and SNC-Lavalin in locations around the world, including the Middle

East, North America and Western Africa.

Other key members of the MPSA team include:

Fernando Prochelle, Construction Director: Mr. Prochelle has 35 years of experience

in the construction industry working for Bechtel, Transfield, Minproc, BHP and Goldcorp

in Australia, Eastern Africa and South America.

Michel Germain. Project Controls Manager. Mr Germain has 35 years of experience in

project management and controls with Owners and EPC contractors working for Alstom,

KSH, Westinghouse and SNC-Lavalin in North America and the Middle East

David Madsen, Project Controls Manager Power Plant: Mr. Madsen has worked for 31

years in project control roles with such companies as Weyerhaeuser, Phelps Dodge,

Freeport McMoRan and Kinross in South and North America.

John Cederberg, Procurement and Logistics Manager: Mr. Cederberg has 22 years

of experience in field logistics and procurement working for Minproc, Drummond, Barrick,

Sumitomo and Washington Group, primarily in Latin America.

Leo Flanigan, Senior Engineering Manager: Mr. Flanigan’s engineering expertise has

been built over the past 31 years in positions with MIM Holdings, Minera Alumbrera, and

OK Tedi Mining in Latin America, Australia and Papua New Guinea.

Peter Erceg, Engineering Manager: Mr. Erceg’s experience includes 22 years in

engineering roles at Morrison Hershfield, URS and AECOM in Australia and North

America.

Pierre Beland. Health and Safety Manager: Mr. Beland brings 28 years of HSE

experience on large capital projects and operation management in Canada, US, Mexico

and New Caledonia working for companies like Vale, Inco and Alcoa

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May 2012

Minera Panama, S.A.



May 2012

JVP, as prime EPCM in the Cobre Panama Project, has mobilized an equally qualified team of

154 members that would peak at 361 in October 2013. The team is led by SNC-Lavalin’s Pierre

Dubuc, a seasoned executive who brings 35 years of experience in delivering major mining and

metallurgy (M&M) and aluminum projects such as Goro Nickel in New Caledonia, Mozal

Aluminum Smelter in Mozambique, and several iron ore projects for Iron Ore Company of

Canada .

Other key members of the JVP EPCM team include:

John Whitaker, Construction Director: Mr. Whitaker brings to JVP 25 years of

experience in lead construction roles at Ambatovy Nickel in Madagascar, Goro Nickel in

New Caledonia, Mozal Aluminum in Mozambique and Tanjung Bin Power in Malaysia, to

name a few.

Elie Rizk, Engineering and Controls Director: Mr. Rizk has built his experience in

project management and design over 24 years in the pulp & paper and metals industries

on projects such as the Qatalum Smelter in Qatar and Alcan-Kitimat and Alcan-

Shawinigan smelters in Canada.

9.3 Health and Safety

MPSA’s goal is Zero Harm and it aspires to ensure that every employee and contractor goes

home healthy and safe every day. To achieve a zero harm workplace, MPSA is working to

establish a culture and an environment where incident-free work is the norm. It does this

through implementation of occupational health and safety standards, safe work procedures, and

incident reporting processes and tools.

In 2011, Inmet’s operations, projects, and exploration achieved the lowest lost time injury

frequency (LTIF) in the company’s recorded history. There was also a significant improvement

in the quantity of leading indicators related to safety performance through the focus on field

leadership activities and planning work with risk assessment methodologies.

At MPSA, all work from engineering and design to on-the-ground work practices will align with

the Inmet approach. During detailed engineering and construction, each contractor will develop

its project-specific occupational health and safety program and management plans. These will

incorporate Inmet and MPSA’s occupational health and safety standards and procedures, ESIA

commitments and ensure compliance with relevant Panamanian legislation.

9.4 Environmental Management Plan

We are committed to the highest standard of environmental and social responsibility for Cobre

Panama. It is a complex project in a sensitive environment. Integrating our work with

communities and the environment is an absolute necessity, and we are working with several

groups to develop innovative ways to unite the goals of conservation and sustainable

development, so that all stakeholders benefit. MPSA’s vision for Cobre Panama is to create a

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May 2012

model mining project that incorporates evolving international best practices and standards for

ecological protection, community relations, consultation and development.

The Environmental Management Plan calls for the establishment of an Environmental

Management System, or EMS, that will comply with ANAM (National Environment Authority of

Panama) requirements, the International Finance Corporation Performance Standards on Social

and Environmental Sustainability (IFC PS), and Inmet’s Corporate Responsibility (CR)

standards; with the design of respecting the Mesoamerican Development Corridor (MBC)

objectives; and to helping Panama achieve its Millennium Development Goals through the

realization of this Project.

The ESIA identified project-related effects and mitigation strategies that serve as the initial basis

for social and environmental management planning. The EMS focuses on the processes and

plans necessary to ensure that social, health and safety, and environmental commitments and

mitigations are implemented and re-evaluated throughout the Project life. It comprises several

detailed plans, including:

Environmental Education and Training Plan

Vegetation Disposal Plan

Waste Management Plan

Water Management Plan

Construction Environmental Mitigation and Control Procedures

Air Quality and Noise Control Plan

Port Management Plan

Environmental Monitoring Plan

Environmental Recovery and Abandonment Plan

Archaeological Resources Management Plan

Biodiversity Action Plan

Reforestation Plan

Flora and Fauna Rescue and Relocation Plan

Aquatic Life Management Plan

Offsets Management Plan

Hazardous Materials Management Plan

Spill Prevention and Control Plan

Key considerations among these plans include the following:

Environmental Challenges

The Project would have a large footprint in the MBC, cleared over time, and we have made

commitments to landscape-scale conservation to enhance its biodiversity and deliver net positive

benefit.

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May 2012

Waste and Water Management

The Project area has up to five metres of rainfall annually, so responsible water management is

critical to ensure that our activities do not harm the environment.

Erosion and Sediment Control

The Erosion and Sediment Control Plan will address the control and mitigation of water runoff

during the construction activities to ensure that discharge to the environment is within acceptable

limits.

9.5 Labour Relations, Training and Hiring

Labour Relations

JVP has signed Project Labour Agreements (PLAs) with the three main Panamanian

construction unions that will provide workers for the Project: SUNTRACS, SINTRAICO and

SINTICOPP. The PLAs set an industrial relations framework across the Project and establish

homogeneous labour conditions for all contractors and subcontractors working in the Cobre

Panama Project.

Training and Hiring

MPSA is committed to maximizing the economic

and social benefit of Cobre Panama to the local

communities and to Panama as a whole. As

such, it has an obligation to prioritize the hiring of

workers from the immediate Project area and

then prioritize workers from concentric locales

around the Project. To comply with this

commitment, JVP has launched the Programa de

Desarrollo y Capacitacion Local (PDCL).

The first stage of the program would focus

exclusively on locals from the 22 target

communities immediately adjacent to the Project,

and would be introduced to contractors as ―Nuestros Vecinos Primero‖ (Our Neighbours First).

PDCL would work closely with contractors to identify and train low-skilled workers.

MPSA has been working with the Panamanian Ministry of Labour to open an immigration office

in Penonomé dedicated exclusively to the Project for issuance of work visas. A recommendation

of how to set up this Visa Coordination Centre is currently being put forward to MPSA and is

under discussion.

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May 2012

9.6 Sequence of Construction

9.6.1 EPCM Scope Under JVP

Early Works: Specific early works activities that have commenced in advance of full Notice to

Proceed include:

• Llano Grande Road Upgrade;

• Pioneer Road;

• Molejon By-pass Road; and

• La Pintada By-pass Road.

These activities will enhance the access to the Project from the existing road network south of

the mine site.

Site Capture: Flora and fauna rescue and relocation programs to ensure species-level

conservation would precede stripping and clearing of vegetation to allow for the start of

earthworks activities.

A detailed erosion, sedimentation and drainage plan would be deployed to ensure that the

Project construction meets its commitment to protect water resources.

At the port, site capture would start with the installation of a temporary landing system formed by

jacked-up barges that will facilitate access for equipment, materials and personnel shipped to

site from the port of Colón. Once the beach head is established, portable tent camps would

ensure proper accommodation in the early days.

Earthworks: Five work-fronts are planned for optimal distribution across the area:

Work-Front 1 – Port Site Mass Earthworks & Coastal Road

Work-Front 2 - Coastal Road

Work-Front 3 – Plant Site Mass Earthworks

Work-Front 4 – Tailings Management Facility

Work-Front 5 – Pre-stripping of Mine Site

Port Site facilities: These include port materials handling facilities (concentrate receiving and

the coal unloading facility), the filtration plant, a storage shed, conveying systems to berth and

shiploader, permanent port site facilities andmarine works (offshore).

Utility Corridor: As the Coastal Road becomes available, the utility corridor would be built and

would include three pipes: concentrate, diesel and filtered water return.

Transmission Line: Comprises two segments:

Llano Sanchez substation to Process Plant 230 kV switchyard and temporary power 230

kV/34 kV substation, and

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May 2012

Process Plant switchyard to the Punta Rincon Power Plant switchyard built parallel to the

Coast Road over the forest canopy.

9.6.2 EPC Scope Yet to be Awarded

Process Plant: Built under a separate EPC Contract managed by MPSA, this contractor would

only mobilize on site once bulk earthworks have been completed by JVP.

9.6.3 EPC Scope Under SK E&C

Power Plant: In July 2011, MPSA signed an Engineer Procure Construct (EPC) Agreement with

SK Engineering & Construction (SK) of Korea, making SK responsible for the design of the

power plant facility, that would include 2 x 150 mW conventional subcritical pulverized coal-fired

boilers, under a lump sum turnkey arrangement. SK’s scope of supply includes engineering

design, procurement, construction and installation of facilities, and commissioning of the units.

SK performed Basic Engineering services during the period prior to full Notice to Proceed with

the construction of the mine and its power plant.

The SK Project Management Team (PMT) would manage and oversee the work performed by its

subcontractors. Sargent and Lundy (S&L) have been subcontracted to provide complete

engineering services for the Project.

As defined in the EPC Agreement, the power plant is scheduled to be completed in 41 months

(first unit) and 44 months (second unit) from a full Notice to Proceed. Joint Venture Panama

(JVP) would provide rough grade platforms for the power plant facilities. The coal would be

imported through the marine facilities designed by JVP for delivery to the power plant.

9.7 Materials Management and Logistics

The logistics execution strategy has been designed to support construction activities for major

work on multiple fronts, many of which will be constructed concurrently.

As EPCM contractor, the scope of JVP’s seven person Logistics and Materials Management

team includes the procurement and management of equipment and materials required to support

construction at 12 project sites.

A third-party logistics provider of both off-shore and on-shore services would work under the

direction of JVP to provide all professional and technical services, equipment, personnel and

supervision required to safely execute logistics operations from several worldwide origins to the

Project site.

9.7.1 Logistics Strategy

Materials and equipment procured off-shore is estimated at 477,000 freight tons distributed over

1,500 shipments to take place over an estimated period of 54 months, starting in the Q2 2012. It

is estimated that 75% of the cargo would enter Panama via the Port of Colón, with the rest

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May 2012

entering via the Port of Balboa (with the exception of cargoes originating in Panama). Cargo

would reach the site either by truck through Coclecito, or by barge via Punta Rincón.

9.8 Procurement

During Basic Engineering, approximately 175 packages were developed. Sixty percent of these

have received firm proposals from subcontractors. The rest have received budget (indicative)

bids or were estimated in-house.

Firm contracts have been signed for the fabrication and delivery of the mills and motors

(currently in production), power plant under a Lump Sum Turnkey EPC Contract, design and

construction of the Transmission Line, site telecommunication, marine barges and temporary

and construction camps.

Site capture, earthworks, logistics support has been finalized and procurement contracts for the

intial phase of the Project will be placed shortly after full Notice to Proceed.

9.9 Security

The development of security plans, procedures and the operational structure will be based on

and aligned with:

Threat and Risk Assessments;

Vulnerability Security Assessments;

Security industry best practices;

Performance standards established by MPSA;

Applicable MPSA site and security plans/policies;

An integrated approach to security related aspects with all entities (Client security,

contractors, etc.); and

Incorporation of the Voluntary Principles on Human Rights into security planning and

training.

9.10 Project Master Schedule and Key Milestones

A Project Master Schedule has been developed that takes into account the status of Basic

Engineering completion and all aspects of the Project scope, including the power plant

execution. The schedule also considers the process plant that is to be delivered under an EPC

contract.

The Project schedule activity work breakdown structure (WBS) is paired with the WBS set out in

the capital cost estimate as are the activity resources. The Project site weather has been taken

into consideration in preparation of the schedule based on input from earthworks contractors and

their submitted production rates established during the pricing of the earthworks in the Basic

Engineering phase. The lead times of major plant equipment have been ascertained from the

numerous quotations that were obtained during Basic Engineering.

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May 2012

The engineering and procurement sections of the schedule have been developed in support of

the construction schedule. The intent, wherever possible, is to allow construction to dictate when

engineering and procurement are required.

To ensure the quality and viability of the Project schedule, a number of allowances have been

made for certain variables. For example:

The Project site weather conditions are a source of concern, with daily rain expected and

an extreme rainy season in the region from October to January, resulting in poor soil

conditions. To take these conditions into consideration in the schedule, one lost day per

week is assumed during the construction phase.

It is assumed that the local work force will be supplemented by importation of skilled

construction trades to meet the demands of the schedule.

The lead times of major plant equipment has been ascertained and built into the Project

schedule.

Project milestones are provided in Table 9-1 and Figure 9-1

Table 9-1 Project Milestones

Milestone Date

(Estimated)

Notice to Proceed 2Q12

Mine/Process Plant Construction Start 2Q12

Port Site Construction Camp Complete 4Q12

Process Plant Bulk Earthworks Complete 4Q13

Coast Road Open (Plant to Port Site) 4Q13

Port Dock Facility Construction Complete 2Q14

230 kV Power Transmission Line Construction Complete 3Q14

Tailings Starter Dam Construction Complete 3Q15





Start of Production 4Q15

Shipment of Concentrate 1Q16

Commercial Production 2Q16

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May 2012

Figure 9-1 Project Schedule

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May 2012

9.11 Independent Reviews

9.11.1 Independent Project Schedule Review

Legico-CHP Consultants were asked to conduct an independent review on behalf of MPSA of the Project master schedule. More specifically, the review targeted the following items:

- methodology applied - possible duplication of quantities and manhours - basis and assumptions for schedule components - areas where schedule might not have achieved Level 3 (deliverables required to achieve

the scope of work determined), and - errors and omissions and any other factors that could have affected the precision and

quality of the final schedule.

The report concluded that: - the logic and sequencing of activities are acceptable, - weather has been considered in the construction duration and conservative productivities

seem adequate, - the 2,991 activities in the schedule are representative of a Level 3 schedule, - long duration of certain activities will require appropriate packaging, - main activities have been levelled out and S curves for earthworks and concrete seem

appropriate, and - the overall completion times for power and process plant are comparable to other similar

facilities that the reviewers have benchmarked.

9.11.2 Independent Project Readiness Assessment

Independent Project Analysis (IPA) conducted a study in March 2012 to evaluate team

functionality and the state of completeness and robustness of key project lead indicators, project

costs and schedule outcomes. The report concluded that the overall schedules for the process

and power plants are conservative, process plant capital costs are industry average, the front

end loading index is good and aligned with industry average (though lagging Best Practical

Range) and that the Project Controls strategy for execution is well developed. The report

highlights the immediate need to focus on team alignment, integration and further development

of owner and contractor teams, as the Project ramps up for execution phase activities.

9.11.3 Independent Project Controls Health Check

KPMG LLP (KPMG) was engaged by Inmet to conduct an independent assessment of the

Project governance, controls and management processes (the Healthcheck) for the Project. The

assessment analyzed select aspects of the Project strategy, organization and administration;

cost and financial management; procurement management; Project controls and risk

management; and schedule management.

During the course of the Healthcheck and the follow-up in 2012, KPMG conducted select

interviews with current Inmet, MPSA, and JVP employees; assessed organizational roles and

responsibilities, process flow diagrams, key controls and other information provided by Cobre

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May 2012

Panama staff; reviewed and assessed current key Project policies, procedures and

documentation from each of Inmet, MPSA, and JVP; proposed monitoring approaches to help

Inmet ensure that these Project governance and management policies, procedures and control

systems operate as planned; assessed current fraud risk management controls; reviewed

planned compliance processes related to Law 9; and reviewed specific contracts and/or contract

work package template to identify any key risks.

The conclusion of the Healthcheck was that the design of the governance and project internal

control framework for the Cobre Panama Project would be sufficient to support full Notice to

Proceed.

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10 OPERATIONAL READINESS

Operational readiness is an important factor to ensure that the business does not incur value

leakage in the critical period of ramp-up and stabilizing the operation. This is a potential risk to

the Cobre Panama Project because large-scale mining operations are new to the country, the

environment is environmentally and socially challenging and the Project includes a variety of

disciplines over a significant geographic footprint.

Table 10-1 Elements of and Assurance of Operational Readiness

Experience has shown that project teams have come to understand the capital project

assurance imperative, usually applying rigorous focus to the technical design and build aspects

of the project. A similar focus on operational readiness is often neglected from the outset,

Element Plan Additonal Info

Safety

Inmet's safety standards, procedures, and incident reporting processes will be

implemented 9.3

Contractor will develop project-specific safety programs

ESIA commitments and will ensure compliance with legislation

People readiness Detailed LOM manpower model completed 9.5

Large operational and support team will be built up during construction, ready for

commisioning

By the time of commisioning operation people should be very familiar with system design

ESIA approval completed 9.4

Compliance register currently monitoring 12 EIS and various requirements of Law 9

Legal team will be comprised of existing team and permitting/land group to ensure intimate

familiarity

Current permitting and land group will be incorporated into the legal team.

License to Operate Community relations and community development programs will continue seamlessly into

operations.

3.3

ERP (SAP) system already operational with development of additonal modules on-going. 9.7

Fixed Asset Managemet, HR and Payroll systems at MPSA already using SAP.

Plant Maintenance, Warehousing and reporting modules will be rolled out in preparation for

the operations.

Metallurgical accounting software to provide real-time tracking of metal production and

variance analysis

Microwave link between the mine and Penonome capable of delivering up to 300 Mbps of

bandwidth in place

2.1

Connection from Penonome to corporate headquarters provided by a third-party carrier

through a fibre-optic cable

MPSA planning to lay fibre optic cable between Port, Mine and Penonome during the

construction, this link will become the primary means of communication for the operations

phase - microwave link will remain in place as a backup

MPSA has already implemented live connected, on-stream water quality monitors and air

monitors will be implemented as part of the project.

Warehouse designed and will start out with a year's worth of supplies 10

Will use a SAP system to track inventories and signal low levels

Critical capital spares identified and will be stored offsite

Equipment readiness Will develop a commisioning schedule for each area 10

Will test contractual requirments and PLC Interlocks

Safety margins applied to esnure production targets met and verified by third party reports

Legislative

Compliance

Services and

Infrastructure

readiness

Procurement and

supply chain readiness

System readiness

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May 2012

potentially leading to challenges in achieving the anticipated return on investment. The following

section describes the key measures MPSA has put into place to achieve operational readiness

in the Cobre Panama Project.

People Readiness

Recruitment and training programs for future Panamanian supervisors and operating personnel

have been active for some time, deploying best and next practice talent identification and

development methods.

During operations, the CEO and President of MPSA will have the following direct reports;

Operations Director, CFO, External Relations, Human Resources, Environment and Security.

With most of the team having already done similar work prior to joining MPSA and with their

years of tenure with MPSA prior to start-up, the team can be considered an ―operationally ready‖

cohesive unit.

The three phases of the start-up are; mine, power plant and process plant. Mining operations

with owner equipment would commence fifteen months prior to the start of production with owner

pre-stripping and the creation of an ore stockpile. With the start of the mine, a large operational

team and support would be in place to ensure that the support systems from Human Resources

and Accounting are in place to work out the kinks prior to commercial production.

Members of the operations team would have also participated in the Basic Engineering design of

the plant, tailings dam and infrastructure and would manage the development of the mine plan.

Operational personnel would participate in the Distributed Control System (DCS) programming

to ensure familiarity and compatibility with operational requirements. Furthermore, these

employees would be Panamanian and therefore should be long-term employees. This would

ensure familiarity and understanding of the design prior to hand-over after commissioning. It is

also anticipated that a portion of the Project team and possibly EPC and EPCM contractors will

carry over to the operational team. At the hourly worker level, they will be transferred prior to the

termination of the Project.

Labour Force

Cobre Panama would quickly ramp up personnel as required to ensure construction is not

delayed. A large component of the construction and operational staff would be drawn from

Panama’s large and diverse workforce. As of 2011, Panama’s workforce was estimated to be

1.5 million people (Source: Instituto Nacional de Estadistica y Censo Panama) and its current

population is estimated to be 3.5 million as of July 2012. Roughly 64% of Panama’s population

is of working age and 62% have at least some high school education. The country’s literacy rate

is 92%.

It is widely accepted that there is an oversupply of unskilled labour and an undersupply of skilled

labour. The Project’s training strategy would take advantage of the young labour pool by training

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May 2012

them to ensure maximize the employment Panamanian labour. Specialized labour would be

brought into the country within the immigration framework.

Training for operations would include but will not be limited to:

Pre-screening system to understand potential employees’ skills, attitudes and tolerance

for risk before training.

Classroom, Classroom Based Training (CBT) and high fidelity Simulator training for

heavy equipment operations including dozers, graders, shovels and haul trucks.

Engineering Development Program (EDP) and Graduate Development Program (GDP)

students are obtaining North American engineering degrees and getting practical

experience at places like Metso Process Technology, Hazen Metallurgical Research and

Call & Nicholas Geotechnical before re-joining MPSA in middle management roles.

Panamanian Engineering Universities would be supplying the majority of the supervisor

level of management and these staff will undergo extensive leadership training prior to

start-up of the mine and concentrator.

A program completed by Chilean Centro Entrenamiento Industrial Minero (Industrial

Mining Training Centre or CEIM) for teaching mining skills to people without experience

will be introduced. This system was implemented in Chile as the industry does not have

enough workers available to address the expansion of the industry.

Approximately 4% of the operational workforce will be in continuous training programs.

This will give the mine the ability to train workers for different functions and have a ready

―spare‖ person in case of absenteeism.

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May 2012

Equipment Readiness

The Project would implement a commissioning schedule for the different areas, in which there

will be an electrical and mechanical completion commissioning and then a wet circuit

commissioning. Commissioning will test all performance criteria against contractual

requirements and test the DCS and Programmable Logic Controller (PLC) interlock systems.

All areas would start with a maintenance management system already in place. This is to ensure

sustainable operation from day one of operations.

Equipment has been designed with a safety margin to meet budget production targets. This has

been verified by independent third party reviews.

A detailed haul truck and shovel benchmarking study has been conducted and the conclusions

made offer the lowest Net Present Cost (NPC) for the LOM equipment asset.

The plant would start with a year’s supply of equipment spares and sufficient working capital of

three months for the plant consumables.

Warehouses would be designed to keep spares in good condition so there is no wastage or

damage which could affect operability when the equipment is installed.

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11 MARKETING AND MARINE TRANSPORT OF CONCENTRATE

11.1 Scope and Summary

Cobre Panama would produce a high demand clean concentrate accessible to both the Atlantic

and Pacific markets from a concentrate export-friendly country. The Project is expected to come

on line in a robust copper price environment.

This section provides an overview of net revenue by metal (Net Smelter Return or NSR), Inmet’s

perspective on the copper market and presents the marketing plan for Cobre Panama with an

emphasis on copper and the copper concentrate.

Assumptions are based on updated metallurgical data; ongoing discussions and negotiations for

long-term off-take copper concentrate contracts with potential customers; reports commissioned

from Base Metals Marketing Services Ltd and market studies from Wood Mackenzie and CRU.

11.2 Composition of Revenue and Price Assumptions

The NSR of Cobre Panama should be primarily driven by copper (87% of NSR). The gold (6%)

and silver (2%) are recovered from the copper concentrate (95% of NSR). Therefore the copper

market fundamentals and copper concentrate realization cost will be the emphasis of this

section.

Figure 11-1 Cobre Panama NSR by Metal Based on Long-term Consensus Prices

87%

5%

6% 2% % NSR by Metal

Copper

Molybdenum

Gold

Silver

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May 2012

11.3 Copper Prices and Trends

The Project’s economic value was studied under three metal price scenarios. Further detail on

these scenarios can be found in Table 5-5 and Table 6-3 but they are, in summary:

Analyst consensus long-term prices;

Forward curves (for as long as they available and then long-term consensus); and

3-year trailing average metal price (as per SEC guidelines for regulatory filings).

These scenarios were chosen because they are transparent, objective and customary.

However, we believe copper prices should be more robust during the early years of Cobre

Panama’s operations as a result of a forecasted need for new capacity additions.

A decline in production at existing mines combined with a modest demand growth of 3.4% (the

60 year trend) should lead to a significant shortfall of copper supply without significant capacity

addition (Figure 11-2).

Figure 11-2 Gap Between Base Case Mine Production and Demand that Needs to be

Filled with Capacity Additions

The history of capacity additions from 2003-2010 suggests that although in 2003 forecasters

believed 3.5 mt of capacity would come on line from new, probable mines by 2010, only 2.0 mt

actually did come on line. Projects then, like today were challenged by permitting, financing and

project execution issues. The supply plug that stopped a massive deficit during that time was

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May 2012

unexpected sources of supply such as mine re-starts, tailings processing projects and possible

projects (Figure 11-3). Following a prolonged period of high copper prices and significant

availability of capital for copper projects, there is likely to be fewer unexpected sources of supply

going forward than there was in 2003 which was at the end of a period of really low copper

prices. There is debate amongst many forecasters about whether the copper market will be in

deficit or balance between now and 2020. However, most agree that even a balanced market will

be dependent on new capacity to stay balanced. Even a balanced market dependent on new

capacity to stay balanced should have robust prices.

Figure 11-3 Forecast vs Actual Sources of Supply 2003-2010

In the Project’s estimated remaining 25+ years of operations prices could also be robust as

grade declines that have caused the high end (price support region) of the cost curve to inflate

on a real basis relative to the average producer are expected to continue. Producing mines

would continue to deplete and so long as there is some demand growth, there could be a

periodic need to incent new capacity. Since incentive prices have seen significant escalation and

new projects are even more removed from infrastructure, this should help long-term prices.

11.4 Concentrate Quality

The copper concentrates from Cobre Panama should be of good quality with no significant

deleterious constituents. The anticipated quality of the copper and molybdenum concentrates to

be produced is based on extensive metallurgical testing carried out by Lakefield Research for

the 1998 feasibility study and by G&T Metallurgical Services for this study, and is discussed in

Section 2.1.3 Metallurgy of this report.

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11.5 Summary of Copper Concentrate and Freight Market Expectations

Smelting Market Context

Over the 10-year period from 2002 to 2011, global mine production grew at a compound annual

growth rate of 1.67%. Smelter capacity, on the other hand, grew on average by 2.6 % per annum

between 2002 and 2011, with 96% of net growth occurring in China and India. The rapid

industrialization of China has played a key role in smelter capacity expanding faster than global

mine capacity. As a result of this dislocation, smelter capacity utilization dropped from 91% in

2002 to 86% by 2011 – there were simply too many smelters competing for too little mine

production. Smelter capacity is forecast to expand further between 2012 and 2025 by around

3.2% per annum. Approximately 82% of this growth is again expected to be in China and India.

Any significant delays in mine project realization combined with the potential excess in smelter

capacity could lead to further reductions in smelter utilization rates, or even smelter closures.

Were these to occur, they would likely be in the industrialized countries, which have higher cost

structures and weaker demand expectations than developing nations.

Treatment and Refining Charges (TCRCs)

The key determinants for future treatment and refining charges are the supply/demand balance

for copper concentrates, smelter economics, and spot market activity. In recent years the market

structure has favoured concentrate producers. In the medium term, unless there is a significant

reduction in smelter capacity, there appears to be no fundamental reason for material increases

in TCRCs or changes in TCRC market dynamics. It is our view that future mine developments

will continue to be delayed and that rationalization in the smelting industry will take longer to

achieve because of the continuous addition of capacity in China and India.

The overall trend toward lower charges in real dollars is evident in Figure 11-6. Since 2000,

treatment and refining charges, excluding price participation, have averaged ¢US18.1 per

payable pound of copper for a 26% grading copper concentrate, (corresponding to a treatment

charge of $US64/t and a refining charge of ¢US6.4 per pound). In real dollar terms, the ¢US18.1

becomes ¢US16.0. The 13-year average including price participation amounted to ¢US17.9 in

real terms. This includes 2006 when price participation peaked at ¢US19.3 on the back of a

rapid rise in copper prices. After 2006, price participation was successfully negotiated out of

contracts.

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Figure 11-4 Historical Trends in Treatment and Refining Changes in Real 2011 Dollars

Some forecasts for new projects now contain price participation but with caps on the order of

¢US6.0/lb to avoid an extreme situation. Adjusting 2006 for a price participation cap of

¢US6.0/lb changes the last 13-year average, including price participation, to ¢US16.9 for a 26%

copper concentrate. Based on the historical TCRC analysis as well as our analysis of the future

supply and demand balance, the average TCRC, to be used for copper concentrates from the

Cobre Panama Project should be $US70/dmt and ¢US7.0/lb of payable copper (combined

¢US19.7/lb of payable copper for 26% copper concentrate) with no price participation.

Copper Concentrate Freight Rates

Concentrate bulk freight rates have been received for routes from Colón, Panama, to various

worldwide destinations. As with other costs in this report, these rates have been adjusted to the

prices of oil and copper.

Based on a forecast breakdown of shipping destinations and the $US2.75/lb copper price

scenario, we forecast average concentrate shipping rates to be $US41/t.

11.6 Preliminary Copper Concentrate Sales Plan

Based on discussions with potential partners and customers and with export credit agencies, as

well as an analysis of freight cost advantages, we estimate that the Cobre Panama concentrate

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May 2012

would be sold to smelters in Europe (35%) and Asia (65%) on substantially the terms shown in

Table 11-1. The concentrate production schedule should mirror the mill plan shown in Table 2-3.

Based on current market consensus long-term pricing, gold and silver prices of $US1250/oz. and

$US20/oz., respectively, have been used to calculate the by-product credits.

Table 11-1 Forecast Copper Concentrate Commercial Terms

Item Sales terms

Payable Copper 96.65 %, min deduction of 1 unit (10 kg)

Treatment Charge $US70/dmt

Refining Charges ¢US7/lb

Copper

Gold $US5/oz

Silver $US0.5/oz

Payable Gold 92%

Payable Silver 90%, if Ag>30 grams

Payment Terms:

Provisional 90% 3 days after the arrival

Final 10% 5 months after Departure

Ocean Freight Real $ Adjusted $US41/wmt

Note: All in $US

11.7 Summary of Molybdenum and Freight Market Expectations

Molybdenum price scenarios

We have used the Long-Term analyst consensus price of $US15.00/lb for Moly in price cases 1

& 2. In case 3 we used the 3 year trailing average price of $US14.68/lb. These price scenarios

are transparent, objective and customary. At this time we do not offer an Inmet perspective on

―Moly‖ price trends or forces at work.

Molybdenum NSR / price realization assumptions

Table 11-2 outlines the assumptions we have used in calculating the ―Moly‖ Net Smelter

Returns. They are based on a market study performed by a concentrate marketing consultant.

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May 2012

Table 11-2 Molybdenum Concentrate NSR Calculation*

Item $US/dmt $US/lb Mo

Metal value 17,196 15.00

Process Deductions: Leaching Fee for Copper (344) (0.30)

Processing Fee -6.5% (1,118) (0.98)

Metallurgical Loss -1% (172) (0.15)

Total Process Deductions for Conversion to Oxide (1,634) (1.43)

CIF Value 15,562 13.57

Ocean Freight (74) (0.06)

FOB Value 15,489 13.51

*Assumptions: Mo Content = 52%, Cu Content = 1.8%, Mo price: $US15/lb

Molybdenum Concentrate Sales Plan

Cobre Panama will produce a molybdenum concentrate, as opposed to any downstream

chemical products, and expects that the concentrates would be sold outright to roasters, as

opposed to being toll-roasted. It is anticipated that agreements for the entire production would be

negotiated with one or two roasting companies that have facilities to leach the high copper

content in the concentrates and to recover rhenium. Any potential, Rhenium credits have not yet

been included in our economics.

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May 2012

For questions or inquiries please contact Inmet at:

Inmet Mining Corporation

330 Bay Street

Suite 1000

Toronto, Ontario, Canada

M5H 2S8

Telephone: (416) 361-6400

Investor Relations [email protected]

cobre panama basic engineering summary report

Documents

power costs

b npv8

b npv9

reservesfinanced case

b upfront payment

cu mo ktonnes3

cu ag koz

uslb lom fin case