THE DEVELOPMENT OF A LARGE-SCALE MINE: THE ANTAMINA PROJECT
| Jurisdiction | Derecho Internacional |
(2001)
THE DEVELOPMENT OF A LARGE-SCALE MINE: THE ANTAMINA PROJECT
Rodrigo, Elias & Medrano
Lima, Peru
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I. INTRODUCTION
Peru has an ancient tradition on mining activities. The pre-Incas cultures that developed in the North part of the country (Mochica, Sican, Chimu, etc.1 ) as early as 600 B.C., have been known not only for their spectacular ceramic work and many beautiful temples and ruins which are currently being excavated, but also for their advanced techniques for treating gold and other metals, both for ornamental and practical purposes. Although this implied their expertise on mining activities (mainly regarding precious metals), other cultures such as the Wan and the Incas2 were even more involved in mining activities, extracting not only gold and silver but also copper.
When the Spaniards conquered America and exploited the important resources they found on our continent, mining activities developed even faster and since then, the same have been an essential source of wealth and progress for most Andean countries. This same trend continued after their independence and for Peru, as for Chile, it continued to be a very important factor of their gross national product and exports, as well as an efficient tool for decentralizing their economy.
However, our country went through a long period of stagnation (mainly from 1968 until 1991), and mining (as almost every other sector of our economy) not only slowed dramatically, but most operating companies went bankrupt or considerably reduced their activities, due to lack of investment, constant threats of terrorism and a terrible labor environment. It was only in the last decade that mining (again as several other areas of the economy) regained momentum and became again the most solid column of Peru's growth. This was obviously due to the political and economic stability derived from successfully controlling terrorist groups, converting our over-regulated economy into a more flexible and free market oriented economy and providing a clear legal framework with stability guarantees.3
A big part of this re-birth of mining as a magnet of investment attraction (specially important foreign capitals), was related to the privatization of the stated owned mining companies and assets which ranked among the most interesting of the region and even the world. Therefore, between 1992 and 1995, the Government concentrated on privatizing the projects which were already in operation and better known, such as Hierro Peru, Cerro Verde, Tintaya, among others. Through these privatization processes and due to
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exploration opportunities that exist in our country, many important mining companies and also juniors were attracted and contributed to the mining boom that Peru enjoyed in the 1990s.
As of 1995, the Government started to privatize less explored projects, among which one of the most important was Antamina. Thus, in 1996 the international bidding process for Antamina took place and the consortium formed by Rio Algom Inc. and Inmet Mining Corp. (in which each company had a 50% interest) was awarded the project by paying an initial purchase price of US$20 million and committing to an investment of US $2.5 billion for the development and implementation of the project.
Between 1996 and 1998, Rio and Inmet undertook a very aggressive exploration effort, which allowed them to increase the proven and probable reserves from a total of 120 MM tons to 500 MM tons with 1.8% copper equivalent grade, and envisioned a very interesting operation which would imply the construction of a concentrating plant to treat 70,000 tpd of concentrates (involving copper, zinc, molybdenum, etc.) per day. At that time and due to the size of the project, Inmet decided to look for a purchaser of its interest and, after several potential interested parties were contacted, in July 1998 Noranda Inc. and Teck Corp. acquired Inmet's 50% and executed a Shareholders' Agreement by which the ownership of the share capital of Compañía Minera Antamina S.A. (CMA) would end being 37.5% held by Rio Algom, 37.5% held by Noranda and 25% held by Teck.
Between July and September 1998 the three owners of CMA made an impressive effort to analyze the technical, financial, and legal issues that were involved in such a large project, in order to obtain the information they needed to adopt the decision on whether they would continue with the project (to develop it and put it in production), which according to the privatization agreement entered into with the Government in 1996, needed to be notified to the latter not later than September 16, 1998.
Fortunately for Peru, due to the courage shown by these three large Canadian mining companies in a very difficult financial environment around the globe, they decided to go ahead with the construction of the project (involving not only the preparation of the pit, the huge concentrating plant, and all auxiliary facilities, but also a new port and a very challenging 302 km. pipeline that needed to cross through the Andes). Thanks to that determination that characterizes minors, today we can see an almost completed construction period of said facilities and expect an earlier start up of the operation than foreseen by the wildest optimists.
However, from a legal standpoint, the project has involved the execution of four very important agreements with the Government or Governmental agencies, in addition to all the contracts involved in the US $1.3 billion financial facility granted by a syndicate of Export/Import Agencies and Commercial Banks from Canada, Germany, Finland, Japan, the U.S. and many other countries, and the obtainment or acquisition of several mining concessions, surface land, licenses, permits and authorizations that really make this project a unique experience for any lawyer.
Next I will analyze in depth the legal aspects of the four main agreements executed with the Government and provide a general view of the other aspects involved in the Antamina project.
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II. TRANSFER CONTRACT WITH CENTROMIN (THE PRIVATIZATION AGREEMENT)
As mentioned above, in 1996 the Government called for an international bidding process aimed at privatizing the concessions held by Empresa Minera del Centro del Perú S.A. (Centromin) related to the Antamina project.
Several companies performed a due diligence of the project, which at that time was expected to be a zinc/copper operation of approximately 30,000 tpd. Finally the consortium Río-Inmet, Noranda, and RTZ submitted an economic offer, out of which the one filed by Rio-Inmet was awarded the project. Thus, on September 6, 1996, said consortium executed the Concession Transfer Agreement with Empresa Minera del Centro del Perú —Centromin, which is the main contract derived from the privatization process related to the Antamina project.
In general, privatizations in Peru are carried out by Special Committees (called CEPRIs) created for each specific company or group of assets that are selected by the Commission for Promoting Private Investment (COPRI), which is the entity in charge of supervising all CEPRIs and establishing which state owned assets or companies are going to be privatized and how such privatization is going to be carried out.4
In the case of Antamina, the owner of the assets5 was Centromin. Therefore, first COPRI agreed to include Centromin as one of the state owned companies listed for privatization, which was ratified through Supreme Resolution N° 102-92-PCM and, afterwards, through Supreme Resolution N° 016-96-PCM, the plan for carrying out the privatization of said company in parts was also ratified.6
Consequently, on February 27, 1996, COPRI authorized the initiation of the Antamina privatization process by way of transferring the assets related to said project through a Transfer Contract to the bidder who would offer the highest amount as purchase price and the highest amount as an investment commitment to develop and implement the project.7
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The Transfer Contract was, as it has been said, the tool for providing the winning bidder with the assets that were subject to the international bidding process, but it also contains the rights and obligations that the winners undertook. As it has happened in all privatizations in Peru, although the Contract is the main document for establishing those rights and obligations, the Bid Basis and the answers to all questions posed by the participants during the inquiries stage, are deemed to be also part of the Contract and, therefore, valid documents to determine the exact scope of said rights and obligations. However, in case of any discrepancy, the Contract prevails over the Bid Basis or the answers.
Due to the above, this Transfer Agreement was essential for Rio-Inmet when undertaking the project and has been the core contractual relation between the operators and the Peruvian Government since then. In order to execute the Agreement and further construct and develop the project, the consortium Rio-Inmet incorporated Compañía Minera Antamina S.A.8
The main features of the Transfer Agreement executed regarding the Antamina privatization are the following:
A. In the Agreement, which is subject to and governed by Peruvian Law, Rio and Inmet undertook to pay to Centromin an initial purchase price of US$20 million as consideration for the transfer of assets and to invest not less than US$2.52 billion within five years as of the execution of the Transfer Agreement (that is up to September 6, 2001).
B. The investment obligations undertaken by Rio-Inmet were divided in two different phases. The first one was an exploration stage of two years (from September 6, 1996 until September 6, 1998) in which they had committed to invest not less than US$13.5 million, while the second one implied the commitment to invest the balance of...
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