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1 PERU Photograph courtesy of tpromperu Designer - Darryl Leech LAND OF GOLDEN OPPORTUNITIES (AND NOT JUST IN MINING) S1

2 Peru is an Andean country of great potential wealth thanks to its enormous resources of minerals. It enjoys spectacular mountain scenery with a rich Inca and pre-inca heritage, whose most important sites include the ancient Inca capital of Cuzco and the lost city of Machu Picchu. A closer look reveals a host of other archeological wonders from the various eras of Peru s eventful past. Yet Peru s development has faltered because of past failure by the Government in the capital Lima to tackle corruption, and social exclusion. The turning point for its 27 million people came with President Alejandro Toledo s election in June 2001 his predecessor had left the country for exile in Japan and resigned by fax. Under the new democracy, Peru is now on the rise, exploiting a window of opportunity to attract fresh foreign investors. President Toledo s victory was one of history s rare second chances to end a system that had existed practically since independence from Spain in The authoritarian rule of the past had left 54% of Peruvians living on less than $2 a day and one in two adults unemployed. Left : Alejandro Toledo -President. Center : Raul Diez Canseco - Vice President and Minister of Exterior, Commerce and Tourism Right : Jaime Quijandria Salmon - Minister of Energy and Mines President Toledo says: We were politically polarized, socially fragmented and structurally very excluded under the previous administration, but we now have a new sense of direction. The time is now ripe to build governance and stability in the region. To invest more in nutrition, health education and justice for the poor, we need to have the resources to the extent that we cannot wait another 20 years for economic growth to come. In 2002, GDP growth rebounded to 5.2%, but President Toledo realizes that Peru competes for foreign capital in a global economy. He is keen to point out the country s unique opportunities in mining, agriculture and tourism. He sees great potential in agriculture, where Peru has huge competitive advantages with more than 180 different microclimates. We can grow almost anything all year round grapes, mangos and asparagus, he adds. The time is now ripe to build governance and stability in the region President AlejandroToledo Spain is the number one investor in Peru, followed by the UK and the U.S. With private investment there is no problem, says President Toledo. Yet there is no question that the public sector needs to accompany this by building roads and providing the infrastructure. In order to raise its sights, Peru needs to improve its legal framework. Capital investment will go where there is legal stability, says the President. We need clear rules of the game that are permanent. With Peru actively reshaping its institutional framework, President Toledo believes the time is right for new investment, despite the poor shape of the global economy. This is a country which constitutes a hub of growth in Latin America connected to Asia and is expanding its market to Europe and the U.S., he says. Peru s strategic location as a gateway to and from Latin America is an advantage the Government is pushing through two promotional bodies: Prompex, focused on exports, and PromPeru on tourism. They are directed by Minister of Exterior, Commerce and Tourism, Raúl Diez Canseco Terry, who is also the First Vice President. We wish the port of entry from Asia into Latin America to be one of the Peruvian ports, thus transforming Peru into a hub, he says. This vision extends to deriving more benefit from the free trade agreements of which Peru forms a part, including the U.S.-enacted Andean Trade Preference and Drug Eradication Act (ATPDEA). The Vice President says: The quota that the ATPDEA gave to Peru is so large that even at maximum production levels, using all our installed facilities, at our current capacity we wouldn t even reach 30% of our quotas. Tourism is now treated like a business, having an expected $18 million budget next year to promote archeological, eco and adventure travel, in particular to U.S. visitors. People are not aware that there is much more to visiting Peru than Machu Picchu. The source of the Amazon river is in Peru, says the Vice President. Centre photograph courtesy of tpromperu S2

3 William M. Kallop & Cristina Newall de Kallop President of Petrotech and his wife MINING WITH A SOCIAL CONSCIENCE Peru offers a huge diversity of mineral wealth including, among others, silver, zinc, copper and gold, and is ranked third in the world in terms of geological potential, according to The Fraser Institute of Vancouver. Yet, until recently, mining took place against a legacy of past mistrust by native peoples concerned about the environmental impact of new projects. The message to portray now is one of confidence, says Minister of Energy and Mines, Jaime Quijandría. Despite difficult times, there has not been one claim against the state. Even in times of political turbulence, Peru has managed to maintain economic stability. Minister Quijandría is proud of many major projects, especially the $2.5 billion Antamina investment, the Pierina gold mine (with the second lowest production costs in the world) and the Alto Chicama project, now under way. They have created a lot of interest among prestigious international investors, he says. More South African and Australian miners have recently arrived to explore for gold. The Government credits much of the stability enjoyed by the mining companies over successive governments to the private sector, led by the Sociedad Nacional de Minería, Petróleo y Energía (SNMPE), a representative body for the industry, whose president is Dr José Miguel Morales Dasso. We now have one of the most efficient systems in the world for the granting of concessions, he says. Bankers and business executives want stability. The most important issue is to give the investor a very solid title to any mining operation that takes place. Dr Morales estimates that around $6 billion of investment is required in order to realize a portfolio of some 270 possible mining projects in Peru. Under Minister Quijandría, a rapid consolidation of projects signed and agreed by previous governments has taken place, but Peru is aiming for the long term. Investment in energy and mining is not something dependent on current market prices or even the politics of a country, says the Minister. S3

4 Compañía Minera Antamina, the world s largest copperzinc mine, is the biggest investment ever made in Peru. It accounted for 1.2% of GDP in its second year of operations, and boosted Peruvian exports by 12% that same year. Investment from construction to start-up reached $2.26 billion, with some $146 million spent on improvements to public infrastructure. The project involved huge challenges, including managing the relocation of some 60 families in an exercise regarded as a benchmark by the World Bank. Antamina s former President and CEO Ron Simkus says: We employ about 1,800 people in high caliber jobs, 97% of whom are Peruvian, and another 1,000 contractors. That has a stabilizing effect for the region. Succession planning is something we have been working heavily on replacing expatriate managers with Peruvians. Southern Peru Copper Corp (SPCC), Peru s leading integrated producer of copper, also exports cathodes, anodes, sulphuric acid, silver, gold and molybdenum. SPCC s President and COO Oscar González Rocha says: We sell in the U.S. mainly to traders, but also to the biggest companies in the cable business. In Europe we sell to Pirelli and other cable producers, and in Asia mainly to traders. SPCC s president considers that there is plenty of potential for more foreign investment in Peruvian mining. The first thing investors need to do is produce at the lowest possible cost. After that they should comply with the environmental regulations, and have a social responsibility to the communities where they operate. Minera Barrick Misquichilca s success in finding gold at Alto Chicama partly accounts for the scramble for concessions. Barrick first began producing gold at Pierina in 1998, but Alto Chicama discovered only last year will be the second or third largest producer of gold in Peru as soon as it starts production. Vice President and General Manager Igor Gonzales Galindo says: Fortunately for the region, this project is located in a high, remote and isolated area. This gives us the opportunity to co-exist with local communities and bring benefits to them. Having been through a learning curve at Pierina, Barrick is applying the lessons learned there to Alto Chicama. One of the first tasks we carried out at Alto Chicama was to send in a community relations officer, says Mr Gonzales. In the past, mining companies used to send in a geologist first. We are quite optimistic about Peru because of the potential it S4 PLUSPETROL leader of the consortium formed to develop Peru s largest gas project, CAMISEA presents. Peru exploits a very small part of its resources, and in terms of exploration, there s a long way to go. As a net importer of around 45,000 barrels per day (b/d) of crude oil, Peru remains optimistic about making a big find in hydrocarbons, despite having made none since the discovery of the Camisea gas fields, according to Minister Quijandría. What we are currently hoping for is a big find, he says. We will keep what we need to meet the country s current deficit and then outsource the remainder to a private investor for export. Petro-Tech Peruana based in Lima, Peru commenced offshore oil and gas exploration and production operations located along the northern coast of Peru in 1994 as the result of an international bidding process conducted by the government to privatize its holdings. Affiliates of Petro-Tech, which are all engaged in many phases of the international offshore hydrocarbons industry, originally commenced business in Peru in 1983, when marine support vessels were mobilized to the country to provide services in the same offshore oil and gas fields now operated by Petro-Tech. The company is now Peru s second largest hydrocarbon producer, with production of approximately 12,000 b/d of high-quality crude oil and 65 million cu ft a day of natural gas rich in valuable liquids. Several large exploratory projects are under way to expand these results, and the company is currently completing the construction of a large processing plant to extract LPG from its gas production.. Petro-Tech Chairman William M. Kallop is very pleased with the development of the company. We ve drilled 80 wells to date and any number of exploratory wells, says Kallop. We have experienced a positive level of support from all the various government entities beginning with Minister Quijandria. This is basically a business environmentally friendly area. This is a company that is totally integrated from the cornerstone, which is the geology department where we have a complete state-of-the-art computer processing installation, and onwards through drilling and production with all necessary support operations. We ve stayed here through the worst of times and we now look forward to a positive future. Deputy Chairman Barbara C. Bruce emphasizes that Petro- Tech is self-supporting in the engineering and technical areas, including its own state-of-the-art seismic vessel. Our professional staff is completely made up of Peruvians, with one exception, she says. We are one of the few companies that takes care of our employees in the education and health of their families. Cristina Newall de Kallop adds that the

5 Kallop Foundation in Talara treats 2,000 people a month. It is open to all residents of the town, not just to staff at Petro- Tech s operations center. Basic health care and midwifery is available for three new soles - less than $1, she says. CAMISEA GAS FOR POWER GENERATION Peru is expecting a major economic boost with the opening of its giant $4.5 billion Camisea natural gas project due on stream in August Camisea is home to one of Latin America s most important non-associated natural gas reserves. The Camisea project comprises the exploitation of these reserves, the construction and operation of two pipelines one for natural gas and one for natural gas liquids and the distribution network for Peruvian consumers and for export. Camisea is home to one of Latin America s most important nonassociated natural gas reserves. In February 2000, the government awarded the license for the upstream Camisea project to a consortium led by Pluspetrol Peru Corporation, Peru s largest oil producer. Later that year, Pluspetrol joined Transportadora de Gas del Perú (TGP), the consortium specifically created to operate the first part of the downstream project, constructing and operating the pipelines to transport the gas and natural gas liquids (NGL) from the wells to the coast. A third company, Gas Natural de Lima y Callao (GNLC), was set up to distribute the gas to end users in the city of Lima. BARRICK MISQUICHILCA Gold Mine Puts Community and Environment First Peru s third largest gold mine, Alto Chicama, is due to start operations soon with a planned investment of $300-$350 million by Minera Barrick Misquichilca. Barrick demonstrates a total commitment to environmental protection and engagement with the local people in Huaraz. This represents a major advance for Peruvian mining. Barrick has mined gold from the Pierina gold mine since 1998, having invested $355 million. Planned production in 2003 is 900,000 ounces. Its new Alto Chicama operation, located between Pierina and Yanacocha will also involve crushing and leaching. Igor Gonzales Galindo, Vice President and General Manager, Barrick Misquichilca, says that the main difference is the environmental program, with the new mine in a different setting to the other. The Environmental Impact Assessment has a heavy concentration on social aspects, he says. There is a series of public consultations. Nothing is hidden. You put everything on the table. Barrick is committed to international standards of environmental care using the same protocols as in Nevada and Australia. The new site is remote and isolated, but Barrick is already working on improving the 120 km access road. Any electricity it generates could be accessed by local communities. We are helping ourselves, says Mr Gonzales, but we are also helping the community and improving its infrastructure. MINERA BARRICK MISQUICHILCA S.A. PASAJE LOS DELFINES 159, 2do. Piso URB. LAS GARDENIAS, SURCO LIMA 33, PERU TEL: FAX: S5 Norberto M. Benito, General Manager of Pluspetrol Perú Corporation, says: We are developing the largest gas project ever undertaken in this country but we d still like to see another three Camiseas in Peru. As yet there is no gas culture in Peru. It ll take time but there will be development for gas consumption in electricity production and industry. TGP has faced formidable difficulties in building the pipeline, which crosses three different topographies mountains, jungle and the coast, but is also committed to working with the native communities whose hereditary lands are crossed by the link. Alejandro Segret, General Manager, TGP, says: We are making a huge effort, both human and financial, to avoid causing any social or environmental damage while we work. Moreover, we are involved in improving infrastructure and training personnel in these regions. SOUTHERN PERU COPPER CORPORATION ENVIRONMENT UPGRADE FOR COPPER SMELTER Southern Peru, Peru's top copper mining company and one of the world's 10 largest, is to invest up to $600m to upgrade its smelter by January It is majority-owned by the world's No.3 copper producer Grupo Mexico and is meeting Peruvian government deadlines. According to president and COO Oscar González Rocha, Southern Peru produced 366,961 tonnes of fine copper in 2002, selling 8% of output in Peru, with the rest going worldwide. Last year it made $61m in profit, expected to rise to $90m in The company is firmly committed to Peru's mining industry, where only 10% of the land has been explored. "There is a high degree of stability- both political and economic. It's very positive for investments," says González Rocha. Environmental Pledge Southern Peru has already spent more than $200m to fulfill an agreement with the government called PAMA - Environmental Compliance and Management Program. It aims to capture more than 92% of the smelter's sulfurous gas emissions, up from the current 33%. The modernization of the smelter will complete our environmental obligations, says González Rocha. Southern Peru Copper Corporation 2575 E. Camelback Rd, Suite 500, Phoenix, AZ 85016, U.S.A. Phone: (602) , Fax: (602) NYSE Symbol: PCU Ave. Caminos del Inca No. 171, Chacarilla del Estanque, Santiago De Surco, Lima 33, Peru. Phone: (511) , Fax: (511) Lima SE Symbol: PCU Web Page: spcc@southernperu.com.pe

6 Left : Jose A. Gandullia - CEO of AT&T Right : Javier Reategui Rossello - Minister of Transport and Communication TRANSPORT HUB FOR LATIN AMERICA Improving the infrastructure is a key challenge for Minister of Transport and Communications, Javier Reátegui Roselló, for whom regional development is an important theme. Peru is working on developing its highway infrastructure by building roads that will connect the coastline and major seaports of Peru with its neighbor Brazil to create a trans-continental road network. Peru will become a transport hub, channelling imports and exports between all of South America and Asia. Another prong to this strategy is aviation. Not only is the Jorge Chávez International Airport in Lima undergoing improvements, but more competition has entered the market. However, more flights are still required into and out of Peru. The number of flights between Lima and Madrid has not changed since 1954, says Minister Reateguí. The most important markets are the European Union, the U.S. and the rest of South America. Market penetration is still low, but is showing good potential to increase TIM Peru CEO Sergio Bartoletti LanPeru, a new airline launched in Peru in 1999, already has $60 million a year in revenue, 600 staff and two Airbus 320s serving seven domestic destinations. CEO Sergio Purcell Robinson is aiming for a 20% to 30% slice of the Lima-Madrid market through a lease arrangement with its partner LanChile, which already serves Miami, Los Angeles, New York and Santiago de Chile. The company is also a key player in the tourism industry, which aims overall to triple the number of visitors to three million by Today, we have 29 international landings a day in Peru, says Mr Purcell. To reach three million, we need to increase to 86 landings a day. Peru is a great country to discover not only Cuzco and Machu Pichu, but also Iquitos and the jungle. TELECOM - LIBERALIZATION BENEFITS USERS In dismantling state monopolies, Minister Reátegui has reduced the red tape and restrictions around investment in telecommunications a theme Peru will no doubt emphasize during the ITU Telecom World 2003 convention in Geneva in October. The liberalization process that began in 1992 has accelerated under the new Government the time when it took years to have a line installed is now a distant memory. The sale of cell phones in Peru increased to almost three million in 2002, compared to 1.8 million in December 2001 We are studying the ways in which our fixed-line players can share their infrastructure to bring benefits to the end users, says Minister Reátegui. In order to promote the development of the telecommunications infrastructure in Peru s provinces, we have reduced the state-imposed requirements of investors in this area in order to make investments more feasible. AT&T Latin America CEO José A. Gandullia a highly respected member of the telecoms community in Peru praises the innovative government strategy. He says: They opened the doors to whoever wanted to come to Peru, whereas elsewhere the authorities were more closed and protected local companies. Here, the market suddenly saw plenty of players and that resulted in lower prices and improvements in quality. Consequently, only the best companies have been able to survive. Among the most innovative telecom operators is TIM Peru, which began operations in 2001 offering GSM cell phones to the local market. We now have almost 500,000 customers and are among the top three cell phone providers in the country, says TIM Peru CEO Sergio Bartoletti, whose parent company is Telecom Italia Group. Market penetration is still low, but is showing good potential to increase. Bartoletti has a positive view of the domestic economy, describing it as stable and well regulated. Peru performed best out of all South American countries last year for growth, he S6 says. For us, stability helps to increase competition, which in turn increases our network penetration. The economy is very stable, and in terms of regulation in the industry, the same situation exists in Peru as any other country. Minister Reátegui is also bullish about the future, since, as Mr Gandullia points out, Peru has one of the lowest telephone densities in the region at around 8%, with opportunity to grow because of this low density. The market is sufficient to sustain adequate growth for all four players, according to Mr Bartoletti. Minister Reátegui says many very successful long-term investments have been made in transport and communications. He adds: Peru has the highest economic growth rate in South America with monetary stability and a respect for the rules of free trade. Foreign investors are free to expatriate their profits without restrictions and the treatment of foreign capital is identical to that of Peruvian capital.