CASE STUDY OF A HYPOTHETICAL MINING PROJECT - CHILEAN KEY ASPECTS

• Jurisdiction: Derecho Internacional

International Mining Law and Investment in Latin America and the Caribbean
(Apr 2005)
CHAPTER 9F
CASE STUDY OF A HYPOTHETICAL MINING PROJECT - CHILEAN KEY ASPECTS
Cristi§n Quinzio S.
Quinzio, Novoa & C§a..
Santiago, Chile

Cristi´cmb;an Quinzio S. was born in Santiago, Chile, 1950. He graduated with a law degree in 1975 from the Universidad de Chile de Santiago. He is a Specialist in mining law, Professor of Mining Law at the School of Law of Universidad de Chile, Santiago, since 1991 and Universidad La Rep´cmb;ublica, since 2003. Studies of International Law at the Fletcher School (1975-76). Former Chilean Foreign officer. Former General Counsel of Phelps Dodge Corporation for its Chilean and Latin American activities.

Partner of "Quinzio, Novoa & C´cmb;ia", a Santiago law firm specialized in commercial, mining, real state, public concessions, engineering and real state and financial transactions. Mr. Quinzio specializes in mining titles, contracts, concessions, litigation's and environmental regulations applicable to mining activities, together with a broad experience in engineering services firm advice and commercial and corporate law. He also specializes in project financing, having participated as legal counsel in several major project financing in Chile.

Member of the Chilean Bar Association; of the legal committee of the National Mining Association (SONAMI) and of the association "Abogados Mineros Latinoamericanos) (AMLA). Mr. Quinzio has been a speaker in several seminars such as the Rocky Mountain Mineral Law Foundation Seminar held in Santiago, Chile in 1997 and Lima, Per´cmb;u, in 2003; Global Issues in Corporate Mining Strategy & Government Policy sponsored by the Centre for Energy, Petroleum & Mineral Law and Policy of the University of Dundee, in Dundee, Scotland, June, 2001; Pending Issues for A Mining Agenda, held in Lima, Per´cmb;u, August, 2001. He has also been Professor of Mining Law of the Judiciary Academy of Chile and at the Department of Mining Engineering of Universidad de Chile for its Graduate Program.

Santiago, Chile, March 7, 2005

Mr. Reiner Lock

Vice President and General Counsel

Compa&tildecmb;n´cmb;ia Minera Foreign

1710 Rhode Island Av. NW, Suite 300

Washington, D.C. 20036, USA

Re: Mining Project in Chile / Your E-mail of January 12, 2005

Dear Mr. Lock,

You have requested our opinion in respect to several questions related to the implementation and development by Compa&tildecmb;n´cmb;ia Minera Foreign of a new mining project in Chile comprising the X Property and which is expected to have a life span of 25 years with a capital investment of approximately US$900 million.

As you have told us in your e-mail of the reference, your company has reached an understanding with Sociedad Minera Local, partner to your wholly owned local subsidiary Compania Minera Foreign S.A. in the Farm-In Agreement structured for the exploration, pre-feasibility and feasibility stages of the X Project. Sociedad Minera Local has agreed to see its interest in the X Property dilute completely in exchange of a 0.5% net profit royalty for the first ten years of the project. As a consequence, all project assets not transferred to Compania Minera Foreign S.A. will do so by the Closing Date. Your company would like to go ahead and develop the X Project as soon as possible. Preliminary results from the feasibility study show that X Property has proven reserves of Copper and Molybdenum to be mined economically through a lifespan of 25 years. On-site facilities will comprise an open pit mine, mill, concentrator, tailings impoundment, waste dumps, access roads, ancillary installations and machinery, and a 70 km concentrate pipeline linking the mine with the nearest port, all of which would mean an approximate capital expenditure of US$900 million. Compa&tildecmb;n´cmb;ia Minera Foreign S.A. will be the unique sponsors to this venture, being the Project Company, and applying for non-recourse finance to international banks.

Following we provide our answers with respect to all of your questions raised in the e-mail in response. For this purposes we provide our answer immediately after each of your thirteen questions.

1.- Currently, exploration activities are being performed under the authority of rights issued back as far as 1999. Can we initiate operations under the authority of these same rights? If not, do we enjoy pre-emptive rights that guarantee us preference over mining rights?

A: In Chile mining exploitation concessions (denominated "pertenencias") have indefinite duration as long as an annual patent is paid by the mining concessionary. These are the only mining rights which grant the right to mine. The patent fee is of approximately of US$5 / ha comprise by the concession. The concession grants a preferential right over overlapping mining rights but the priority concessionary must exercise legal remedies granted by the mining law for solving the overlapping situation. If such remedies are not exercise in due time then the priority or preferential right can be extinguished.

2.- Are mining rights limited in time? Are water rights subject to the same regime? Can the government unilaterally modify or withdraw mining or water rights? If such is the case, on which grounds can it occur?

A: As already...