(C) Business Potential Analysis, Light

s

AD HOC

MARKET RESEARCH

A.Valladares & Asociados

MARKET SIZE AND PROJECTIONS FOR

MILL LINERS AND SMALL GRINDING MEDIA

IN

CHILE & PERU

SAMPLE

A.VALLADARES & ASOCIADOS(antes chilebras.com)

Desde 1995 en Análisis Ad-hoc de Mercados en Chile y América del Sur - más de cien clientes internacionales atendidos exitosamente

contactos: Alejandro Valladares, e-mail: [email protected]

IMPORTANT

Contents:

The period of reserve for this study ended over three years ago. In any case,

for added protection of original client's interest, all references to its name and

purposes in relation to the target markets have been omitted.

Rights of the model study:

Our intellectual property rights on this and other models of our Ad-hoc Markets

Analysis are protected by Chilean Law No. 17,336 and international law. Copy

or use without authorization is subject to sanctions.

Contact:

Alejandro Valladares Founder & Senior Analyst at A.Valladares&Asociados

Mobile: +569 9651 4651 e-Mail: [email protected] Skype: alejandro_valladares




4

Stage 1: Analyse the market sizes and pricing practices corresponding to imported mill liners andsmall grinding media for the mining industry in Chile and Peru.

Stage 2: Investigate local producers in terms of capacity, sales and prices per product line, as wellas exports flows and end user‟s requirements of liners and small grinding media, concluding the

pricing and total market size in the last period of 12 months and a projection for 2010, in Chile andPeru.

Ad-hoc MARKET RESEARCH OBJECTIVES




5

TRADE

ANALYSIS

CLIENT

MAIN LOCAL

PRODUCERS

MARKET END USERS

MILL LINERS

IMPORTS &

EXPORTS

SMALL G. MEDIA

IMPORTS &

EXPORTS

UNDERSTANDING

CLIENT’S

MILL LINERS

UNDERSTANDING

CLIENT’S

GRINDING MEDIA

INVENTORY OF

MINING MILLS, PER

MILL TYPE / E. USER

PROD. CAPACITY,

SALES AND PRICES

FOR MILL LINERS

PROD. CAPACITY,

SALES AND PRICES

FOR SMALL G. MEDIA

INVENTORY OF

NEW PROJECTS

PER END USER

Ad-hoc MARKET RESEARCH METHODOLOGY




2

Synthesis:

LINERS:

In 2005, size of liners market was 51.8million lb (30 USD million).

Liners for SAG-type Plants, representing a77% of total mill liners consumption.

Projection: Liners‟ market will grow a 18%

aprox. between 2005 and 2010.

CHILE

.

BALLS:

In 2005, size of balls market was 583.7million lb (184 USD million). Size of small

grinding media segment was 28.4 million lb

(21 USD million), a 5% of total.

Projection: Total market and small grinding

media segment will grow a 18% between2005 and 2010.

LINERS:

In 2005, size of liners market was12,300,000 lb (6.2 USD million).

Liners for Tradicional-type Plants,representing a 67% of total consumption.

Projection: Liners market will grow a 41%

between 2005 and 2010.

PERU

.

BALLS:

In 2005, size of balls market was150,900,000 lb (41,3 USD million). Size of

small grinding media segment was

16,500,000lb (11USD million), 11% o total.

Projection: Total market and small grinding

media segment will grow a 41% between2005 and 2010.

ConclusionsEXECUTIVE SUMMARY




CHILE

Overview

Small Grinding Media

Imports&exportsLocal Production

PriceMarket size

Mill Liners

Imports&exportsLocal ProductionPrice

Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX

-Ad-hoc Market Research Objectives

-Ad-hoc Market Research Methodology

-Final Report :

6




7

FINAL REPORT - CHILE

MINING OVERVIEW:

Chilean mining is characterized by very big operations ( called Gran Mineria ) where Copper is the dominant ore.

Mineral MT* f ines Comments

Copper total 5.412.500 100%

gran minería 5.217.901 90%

other 194.599 10%

Gold 40 70% obtained as by-product in copper ores processing

Silver 1.360 100% obtained as by-product in copper and gold processing

Molibdeno 41.883 100% obtained as by-product in copper ores processing

Lead 2.286 One producer (Toqui) with two ball mills only

Mn (ore) 25.801 One producer (Atacama) with two ball mills only

Zinc 27.635 One producer (Toqui) with two ball mills only

Iron 8.003.500 One producer (CMP) with three ball mills only

* Metric Tons

PRODUCCION IN 2004

Source: Anuario Estadístico 2004, COCHILCO




8

CHILEAN MINING OVERVIEW:

There are 22 big operations, treating ore via lixiviation and/or through milling and flotation

plants also called Concentrators.

Concentrators are 19, as

Codelco Norte has 3

Escondida, Codelco Andina, Codelco

El Teniente and El Soldado have 2 each


Operation Ore%

Lixiviation

% Milling &

Flotation (*)

El Abra Copper 100% -

Zaldívar Copper 100% -

Cerro Colorado Copper 100% -

El Tesoro Copper 100% -

Quebrada Blanca Copper 100% -

Lomas Bayas Copper 100% -

Michilla-Lince Copper 100% -

Manto Verde Copper 100% -

Carmen de And. Copper 100% .

Codelco Norte (*) Copper 40% 60%

Escondida (**) Copper 15% 85%

Collahuasi Copper 20% 80%

Mantos Blancos Copper 50% 50%

Salvador Copper 30% 70%

Teniente (**) Copper - 100%

Pelambres Copper - 100%

Andina (**) Copper - 100%

Candelaria Copper - 100%

Bronces Copper - 100%

Soldado (**) Copper - 100%

Mantos de Oro (***) Gold 100%

El Peñón (***) Gold 100%

(*) Operation has 3 Concentrators

(**) Operation has 2 Concentrators

(***) Operation includes also gravity concentration stages

Sources : Operators & Anuario Estadístico 2004 COCHILCO




9


SAG Concentrators process 75% of ores while Tradicional Concentrators

responds by rest of 25%

SAG MTPD* 781000 75%

Trad MTPD 262000 25%

Total MTPD 1043000 100%

Older copper operations – all Codelco

one‟s, for example- show tradicional plants togheter with SAG plants. But newer operations use SAG schemes

only.

Most Concentrators have a regrinding stage and some of them an additional grinding and flotation plant for Moly.

MTPD: Metric Tons Per Day


Name Type MT/Day MT/Month

Codelco - Chuquicamata SAG 70.000 2.100.000

Tradicional (two) 100.000 3.000.000

Codelco - El Teniente SAG 50.000 1.500.000

Tradicional 75.000 2.250.000

Codelco - Andina SAG 35.000 1.050.000

Tradicional 35.000 1.050.000

El Soldado SAG 12.000 360.000

Tradicional 7.000 210.000

Escondida- Los Colorados SAG 120.000 3.600.000

Escondida- Laguna Seca SAG 105.000 3.150.000

Collahuasi SAG 125.000 3.750.000

Pelambres SAG 120.000 3.600.000

Candelaria SAG 70.000 2.100.000

Los Bronces SAG 55.000 1.650.000

Mantos de Oro SAG 17.000 510.000

El Peñón SAG 2.000 60.000

Codelco - Salvador Tradicional 34.000 1.020.000

Mantos Blancos Tradicional 11.000 330.000

Monthly Totals - SAG Concentrators 781.000 23.430.000

Monthly Totals - Trad Concentrators 262.000 7.860.000

Monthly Totals - Sag + Tradicional 1.043.000 31.290.000

Plant availability, estimated average 95%

Annual Totals, after availability 356.706.000

CONCENTRATOR Proccesed Mineral

Source : Operators




10


Concentrators operate 265 mills, 211 (80%) in primary &

secondary grinding and 54 (20%) in regrinding and /or molybdenum plants.

Mills used to regrind and moly,

comprises 33 balls mills and 21 vertical mills. This, associated with newer plants like as

Escondida Los Pelambres and Collahuasi.

Codelco‟s Divisions explain a

67% of mills inventory. Its „share‟ being lower in

SAG and Verticals.


Name Type SAG

Mills

Bars Mills Balls Mills Balls Mills Vertical

Mills

Chuquicamata* SAG and Tradicional 3 16 34 15 68

El Teniente* SAG and Tradicional 2 22 44 4 3 75

Andina* SAG and Tradicional 1 3 11 2 17

El Soldado SAG and Tradicional 1 4 6 2 13

Escondida LC SAG 3 7 3 13

Escondida LS SAG 1 3 4 8

Collahuasi SAG 3 4 5 12

Los Pelambres SAG 2 4 5 11

Candelaria SAG 2 4 1 1 8

Los Bronces SAG 2 3 3 8

Mantos de Oro SAG 1 2 1 4

El Peñón SAG 1 3 4

El Salvador* Tradicional 5 9 4 18

Mantos Blancos Tradicional 5 1 6

Total, units 22 50 139 33 21 265

Total, % 8% 19% 52% 12% 8% 100%

*A Division of Codelco

MILLS INVENTORY

Operation Prim&Sec Grinding Regrind&MolyTotal

SAG

Mills

Bars

Mills

Balls

Mills

Balls

Mills

Vert.

Mills

Total units 22 50 139 33 21 265

Codelco 6 46 98 25 3 178

Other 16 4 41 8 18 87

% codelco 27% 92% 71% 76% 14% 67%

% other 73% 8% 29% 24% 86% 33%

Prim&Sec Grinding Regrind&MolTotal

CODELCO

Source : Operators

Source : Operators




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

11




12

SMALL GM / IMPORTS & EXPORTS :

Chile imports 50 million pounds/year

53% cast and 47% forged

94% of total coming from Peru

Chile exports 122 million pounds/year

6 % cast and 94% forged

87% of total going to Argentineand Brazil

Price of forged GM is higher than castGM in 10% when imported and 16%when exported

The import as well as export pricesshow in general higher values in theextreme sizes (1” and 5”) versus middlesize (3”).


Flow Datos Total

IMP Weight in Lb 50.410.173

T. Fob (US$) 14.156.202

Source: CHILEBRAS.COM based on peruvian and chilean official

trade information

Fob USD/Lb 0,281

EXP Weight in Lb 122.404.739

T. Fob (US$) 38.384.149

Fob USD/Lb 0,314

CHILEAN IMPORTS AND EXPORTS PER YEAR

Size : 5" 3" 1" Total

Imp cif - 0,256 0,507 0,285

Exp fob 0,257 0,276 - 0,279

Imp cif 0,393 0,309 - 0,309

Exp fob 0,320 0,281 0,329 0,312

PRICE OF IMPORTED / EXPORTED GM (USD/LB)

CAST

FORGED

CHILE




13

SMALL GM / LOCAL

PRODUCTION:

Key players in Chile are: Molycop (forged balls), Proacer (cast balls) and local filial of spanish Santa Ana de Bolueta-Sabo (forged).

Leader, is Molycop with a local market share estimated in 69%, the highest perceived product quality and a services portfolio very appreciatted by professionals.

Forged balls explain a 81% of local consumption and cast balls a 19%.

Balls sizes that explain over an 80% of local consumption are:

5” for SAG mills

3” for bigger Balls mills, and

1 to 1 ½” for Regrinding mills.


Player

max size min size Sag mills Ball mills Regrinding

Molycop 6" 1" 5" 3" 1 1/4"

Proacer 3" 1" 5" 3" 1"

Sabo 6" 1 1/4" 5" 3" 1 1/4"

*Sizes that concentrate in the order of 80% of total productiom

Sources: Interviews and secondary data (corporative reports and news)

LOCAL PRODUCTION OF GRINDING MEDIA - SIZES (inch)

Production Range Main Sizes *

Player Capacity Production in

2004

Local Sales Imports Exports Local share

Molycop 770.925 462.555 373.357 23.480 112.678 69%

Proacer 132.159 110.132 105.328 2.064 6.868 19%

Sabo 88.106 66.079 62.921 535 3.694 12%

Forged balls 859.031 528.634 436.278 24.015 116.372 81%

Cast balls 132.159 110.132 105.328 2.064 6.868 19%

Total 991.189 638.767 541.606 26.079 123.240 100%

Sources: Interviews and secondary data (corporative reports and news)

LOCAL PRODUCTION OF GRINDING MEDIA ( k Lb / year)




14

SMALL GM / PRICES

USD 0.700 kg (0.318 /lb) was themore frequently mentioned pricebetween interwiewed persons, asbeing the actual market average,aproximately.

Regarding the difference betweenprices of cast and forged balls,ranges is 10% to 15%.

And there is also coincidence intodescribe prices as being higher inbigger and smaller balls, situationmentioned as „ the price smile‟.


Player Market Price *

5" 3" 1" ( average )

Molycop 0,341 0,318 0,363

Proacer - 0,286 0,318

Sabo not info. not info. not info.

* When asked for an average price of balls, everybody mentioned USD 700 per ton

Sources: Interviews

Price of main sizes

LOCAL PROD. OF GM - PRICES (USD /lb)

0,318




15

SMALL GM / END USERS

While a convencional milling circuit consume 0,558 Kg/MT (1.229 lb/MT) of 3” and 1 ¼” balls, aSAG circuit consume 0.742 Kg/ton (1.634 lb/MT) of 5”, 3” and 1 ½” balls.

Following table opens the information gathered from local operators by plant type and ball size. Itshows that, in average, unitary mill balls consumption is 0,696 Kg/MT (1,533 lb/MT) and size ofchilean balls market is 265,0 k MT per year (583.8 million lb /year).

Consumption of small grinding balls is 12,96 k MT (28.5 million lb) per year.


Plants Ball Size 5" 3" 1 - 1 1/2 "

SAG Kg 71.266.250 128.207.984 12.172.276 211.646.509 79,9%

781.000 MTPD Kg /MT 0,250 0,450 0,043 0,742

74,9% % 33,67% 60,58% 5,75% 100%

Tradicional Kg 52.596.500 788.948 53.385.448 20,1%

262.000 MTPD Kg /MT 0,550 0,008 0,558

25,1% % 98,52% 1,48% 100%

S+T Kg 71.266.250 180.804.484 12.961.223 265.031.957 100,0%

1043.000MTPD Kg /MT (av.) 0,187 0,475 0,034 0,696

100% % 26,89% 68,22% 4,89% 100%

Source: Operators

Total

MILL BALLS MARKET




16


Following table opens the information gathered from local operators by plant, size and price. Itshows that, balls price is 0,695 USD/Kg (0.316 USD/lb) and value of chilean balls market isapprox. 184,3 million USD per year.

And as price of small balls is 0,750 USD/Kg (0.341 USD/lb), value of segment is approx. 9,7million USD per year.


Plants Ball Size 5" 3" 1 - 1 1/2 "

SAG Kg 71.266.250 128.207.984 12.172.276 211.646.509 79,9%

781.000 tpd Kg /ton 0,250 0,450 0,043 0,742

74,9% % 33,67% 60,58% 5,75% 100%

Tradicional Kg 52.596.500 788.948 53.385.448 20,1%

262.000 tpd Kg /ton 0,550 0,008 0,558

25,1% % 98,52% 1,48% 100%

S+T Kg 71.266.250 180.804.484 12.961.223 265.031.957 100,0%

1043.000 tpdKg /ton (av.) 0,187 0,475 0,034 0,696

100% % 26,89% 68,22% 4,89% 100%

Price (Codelco) P (USD/Kg) 0,800 0,650 0,750 0,695

Market in USD Value(USD) 57.013.000 117.522.914 9.720.917 184.256.832

Source: Interviews

Total

MILL BALLS MARKET




17

SMALL GM / MARKET SIZE :

Learnings:

Small grinding media used by mining operators, range from 1” to 1 ½”

Demandcomes from regrinding and moly plants

Size of segment is 13 k MT (28.5 million lb) /year

And segment value is 9.7 million USD /year





CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

18




19

LINERS / IMPORTS & EXPORTS :

Chile imports 5.0 million pounds /year

equals FOB USD 4.7 million

as u. price is USD/ lb 0.941

And exports 0.80 million pounds/year

equals FOB USD 0.76 million

as u. price is USD/ lb 0.949


Flow Datos Total

IMPORTS Fob USD 4.708.410

Weight, Lb 5.002.203

Fob USD / Lb 0,941

EXPORTS Fob USD 755.109

Weight, Lb 795.880

Fob USD / Lb 0,949

Source: CHILEBRAS.COM based on official trade data

CHILEAN IMPORTS AND EXPORTS PER YEAR




20


LINERS / LOCAL PRODUCTON :

Elecmetal, Talleres and Aceros Chile are the key players in this area. Market leader isElecmetal+Talleres, with a market share estimated in 75%, -as from December 2003 Talleres isowned in a 60% by Elecmetal (40% remaining with Codelco).

According our information and assumptions, total local offer is in ther order of 22.500 ton (49.6million lb) that represents 28.6 million USD per year. So, in this moment, the average price is1.27 USD/Kg (0.577 USD/lb).

Company Item Total % Liners Liners

Elecmetal

Loc.Sales USD 34.200.000 40% 13.680.000

Capacity Kg 12.500.000 75% 9.375.000

Price, av. USD/Kg 1,46

Talleres

Loc.Sales USD 19.400.000 40% 7.760.000

Capacity Kg 10.000.000 75% 7.500.000


Estimated market share of Elecmetal+Talleres, % 75%

T. Players

Loc.Sales USD 28.586.667

Capacity Kg 22.500.000


MILL LINERS MARKET - LOCAL PLAYERS

Sources: Interwiews and corporative data from players




21


LINERS / PRICES :

Elecmetal and Talleres are driving a price recovery process, trying to move the price average from USD/Kg 1,000 (USD/lb 0.45) to USD/Kg 1,000 (USD/lb 0.90). According to Aceros Chile, change is showing results as new business are closed now in or near the desired price level.

However, considering average market price is still in the order of 1.27 USD/Kg (0.577 USD/lb), this process appears to need more time to accomplish a full effect. In this scenary, an average unitary price for imported liners of USD/lb 0.94 seems very high for the moment as internal prices will match its new level when new contracts impact real dispatch.

Regarding pricing practices, players mentioned they actual process will probably give marginal assteel cost is principal driver and in Chile liner business is regulated by international evolution. Theyalso mentioned that internal prices cann‟t grow over international one‟s as most mining operators

are multinational players and chileaneconomy is very open to imports.




22

LINERS / END USERS

Unitary consumption of liners is 0,064 Kg/MT (0.141 lb/MT) in SAG and 0,056 Kg/MT (0.123lb/MT) in Tradicional circuits, meaning a difference of just a 14%. However, as they grind 74,9%of total ores, a 77,3% of total liners consumption comes from SAG circuits. Tradicional circuitsexplain rest of 22,7%.

As ball mills participate in SAG and Tradicional circuits, highest consumption correspond toarmours with a 49%. Then, come SAG Lifters (25%) and Liners (16%).

Following table opens the information gathered from local operators by plant type and liner type.It shows that, in average, mill liner consumption is 0,062 Kg/MT (0.137 lb/MT) and size of chileanliners market is approx. 23,5 k MT per year (51.7 million lb/year).


LINERS Liner-type Lifters Liners Grates, o. Armours Ar. (rem) TOTAL

SAG Kg 5.964.272 3.697.293 1.874.302 6.299.937 324.689 18.160.493 77,3%

781.000 MTPD Kg /ton 0,021 0,013 0,007 0,022 0,001 0,064

74,9% % 32,84% 20,36% 10,32% 34,69% 1,79% 100%

Tradicional Kg 5.259.650 71.723 5.331.373 22,7%

262.000 MTPD Kg /ton 0,055 0,001 0,056

25,1% % 98,65% 1,35% 100%

S+T Kg 5.964.272 3.697.293 1.874.302 11.559.587 396.412 23.491.866 100%

1043.000 MTPD Kg /ton 0,016 0,010 0,005 0,030 0,001 0,062

100% % 25,39% 15,74% 7,98% 49,21% 1,69% 100%

Source: Interviews

MILL LINERS MARKET




23

*According persons f rom Alecmetal and Aceros Chile, unitary price is similar for majority of liners,

being weight the most relevant variable by far

LINERS / END USERS

Following table, opens the information gathered from local operators by plant-type, liner-type andprice. It shows that as average liners‟s price is, in this moment, estimated in around 1.27USD/Kg (0.577 USD/lb) * value of chilean liners market is approx. 29.4 million USD per year.



SAG Kg 5.964.272 3.697.293 1.874.302 6.299.937 324.689 18.160.493 77,3%

781.000 tpd Kg /ton 0,021 0,013 0,007 0,022 0,001 0,064

74,9% % 32,84% 20,36% 10,32% 34,69% 1,79% 100%

Tradicional Kg 5.259.650 71.723 5.331.373 22,7%

262.000 tpd Kg /ton 0,055 0,001 0,056

25,1% % 98,65% 1,35% 100%

S+T Kg 5.964.272 3.697.293 1.874.302 11.559.587 396.412 23.491.866 100%

1043.000 tpdKg /ton 0,016 0,010 0,005 0,030 0,001 0,062

100% % 25,39% 15,74% 7,98% 49,21% 1,69% 100%

P (USD/Kg) 1,27 1,27 1,27 1,27 1,27 1,27

Value (USD) 7.574.626 4.695.562 2.380.364 14.680.675 503.443 29.834.670

Source: Interviews

MILL LINERS MARKET




24

LINERS / MARKET SIZE :

Learnings:

Demandcomesprincipally from SAG-type plants (77,3% in weight)

Size of market is 23,5 k MT/year (51.7 million lb/year)

Market value is 29,4 million USD /year





CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

25




CHILEAN BALLS & LINERS MARKETS IN 2010

SCENARY 1 (more probable)

World copper demand stay on actual level, the country preserve its economical and political estability and, as economists

projects, chilean GDP grow a 5% per year.

Driving force for balls and liners markets –the evolution of copper proccessing Concentrators- projects strong as there is a Solid set of expansions and new projects in course. Regarding type of Concentrators to be expanded or installed, trend is tomore SAG-circuits as majority of expansions and sulphur-based projects consider that scheme; a rather good example isChuquicamata (now Codelco Norte) that will expand by increasing its SAG plant (see Codelco Norte Master Plan in Annex).

Balls and liners‟s consumption will growth in direct proportion with chilean production of copper concentrates. And accordingthe Corporación Chilena del Cobre, Cochilco, in 2010 Concentrators will be grinding 1230 k MTPD instead of actual 1043 kMTPD. An increase of 18%.

Then, both balls and liners markets will growth in aproximately a 18% in the period and, as SAG-type Concentrators includeat least one regrinding stage, the small balls (1” to 1 ½” ) consumption will also growth a 18%.

SCENARY 2 (less probable)

Internacional demand for copper falls and local Concentrators diminish its actual grinding rates. Both expansions and new

decide to wait for better times.

Again, both balls and liners markets will show the same tendency as Concentrators‟s milling rates.

FINAL REPORT




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

27




28

BALLS:

In 2005, size of balls market was 583.7

million lb (184 USD million).

Size of small grinding media segment

was 28.4 million lb (21USD million), a 5%of total.

And average price for total balls market

was 0.316 USD/lb and 0.341 USD/lb inthe case of small grinding mediasegment.

Projection, is total market and smallgrinding media segment will grow a 18%between2005 and 2010.


LINERS:

In 2005, size of liners market was 51.8

million lb (30 USD million).

Liners for SAG-type Plants, representing a

77% of total mill liners consumption.

Average price for total liners market was1.25 USD/Kg (0.577 USD/lb) .

Projection, is liners market will grow a 18%

aprox. between2005 and 2010.

CONCLUSIONS




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

29




30

Source: Ministerio de Minería del Perú

FINAL REPORT - PERU

MINING OVERVIEW :

Peru is an important producer of several mining products, but its mining represents in total only a 4% of 68 USD Billion peruvian PIB (versus the 8% of a 90 USD Billion PIB in the case of Chile).

96% of total production come from big operations (Gran Mineria).

Operator Share % Operator Share %

Southern Copper 38% Southern Copper 75%

Antamina 36% Antamina 25%

Tintaya 11%

Cº Verde 9%

Otros 6%

Total 100% Total 100%

Operator Share % Operator Share %

Antamina 19% Yanacocha 52%

Volcan 19% Barrick 12%

Quenuales 15% Otros 36%

Milpo 8%

Otros 39%

Total 100% Total 100%

COPPER PRODUCTION

ZINC PRODUCTION

MOLY PRODUCTION

GOLD PRODUCTION

SEGMENT %

GRAN MINERÍA 96%

MEDIANA 4%

LEAD 0%

TIN 100%

CONCENTRATION LEVEL

Big operators are just a few. MINERAL TON FINES IN WORLD

ZINC 1.300.000 3º

COPPER 935.000 5º

LEAD 300.000 4º

TIN 40.000 2º

MOLY 8.900 4º

SILVER 2.800 2º

GOLD 200 8º


PRODUCCION METALIC ORES, 2004





31

FINAL REPORT - PERU

MINING OVERVIEW :

Actually, major peruvian operators grind 264,3 k MTPD of copper, moly, zinc and lead ores.

Distribution per plant-type, is:

70% in Tradicional plants

30% in a SAG plant

Antamina‟s 80 k MTPD plant is the only SAG circuit operating in Peru and produces 36% of total Cu, 75% of total Mo and 19% of total Zn.

Phelps Dodge‟s 108 k MTPD Cerro Verde project will start-up in 2007, total peruvian grinding will grows up to 372.3 k MTPD and distribution per plant-type, will pass to:

79% in Tradicional plants

21% in a SAG plant

Details, in Annex.nº nº

Tradicional 11 184.300 70% 12 292.300 79%SAG 1 80.000 30% 1 80.000 21%Total 12 264.300 100% 13 372.300 100%*With Cerro Verde

MTPD

2005 2007 *

PLANTS INVENTORY

TypeMTPD

Operator Concentrator Plant-type Milling MTPD

Antamina Yanacancha SAG 80.000

Southern Cuajone Tradicional 87.000Southern Toquepala Tradicional 60.000

Tintaya Tintaya Tradicional 15.000Volcán Paragsha Tradicional 8.500

Volcán Other units Tradicional 4.500Quenuales Casapalca Tradicional 2.700

Quenuales Iscaycruz Tradicional 2.600Milpo El Porvenir Tradicional 4.000

Total 264.300

CºVerde project* Cerro Verde Tradicional 108.000Total, MTPD 372.300

* Start-up in 2007

Source: Operators, Ministerio de Minería del Peru

PLANTS INVENTORY

Operation




32

MINING OVERVIEW :

Peruvian Concentrators operate 132 mills. With Cerro Verde, number of mills will be 144, 107 (74%) in primary &

secondary grinding stages and 37 (26%) in regrinding stages.

Concentrators used to regrind with balls mills; however, Antamina already went to verticals and Cerro Verde will

install verticals too.

FINAL REPORT - PERU

SAG Rolls Bars Balls Balls Vert.

1 4 14 88 28 9 144

144

100%

MILLS INVENTORY

Prim&Sec Grinding

107

74% 26%

Total

37

Regrind & Moly

Operator Concentrator Plant-type Milling MTPD SAG

Mills

Rolls

Mills

Bars

Mills

Balls

Mills

Balls

Mills

Vert.

Mills

Antamina Yanacancha SAG 80.000 1 3 5 9

Southern Cuajone Tradicional 87.000 10 4 1 15

Southern Toquepala Tradicional 60.000 8 25 8 41

Tintaya Tintaya Tradicional 15.000 3 2 5

Volcán Paragsha Tradicional 8.500 3 5 3 11

Volcán Other units Tradicional 4.500 3 31 8 42

Quenuales Casapalca* Tradicional 2.700 0

Quenuales Iscaycruz Tradicional 2.600 3 1 4

Milpo El Porvenir Tradicional 4.000 4 1 5

Total 264.300 1 0 14 84 27 6 132

CºVerde project** Cerro Verde Tradicional 108.000 4 4 1 3 12

Total, MTPD 372.300 1 4 14 88 28 9 144

* Pending data

** Start-up in 2007

Source: Operators, Ministerio de Mineria del Peru

Operation Prim&Sec Grinding Regrind&Moly

Total

MILLS INVENTORY




33

MINING OVERVIEW :

1250 and 1000 hp vertical mills are the more frequently used.

There is no addicional information about peruvian vertical mills, but Metso Vertimills were mentioned

as equipments Cerro Verde would surely use.

FINAL REPORT - PERU

Mill-type Q HP Size

Concentrator Yanacancha Sag 1 27.000 38X21'

Circuit-type SAG Balls 3 15.000 24x36'

Capacity 80 k tpd Vertical 2 1.250

Vertical 2 1.000

Vertical 1 100

Type Q HP Size

Concentrator Cerro Verde Balls 4 16.000 24x35'

Circuit-type Tradicional Rolls 4 6.700

Capacity 108 k tpd Vertical 3 1.250

Cerro Verde Project

Vertical Mills

Antamina




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

34




35

Source: CHILEBRAS, based on official trade information

SMALL GM / IMPORTS & EXPORTS :

Peru exports 61.3 million pounds/year *.

FOB export prices being higher for 5”and 1” than for 3”. Again, a „price smile‟.

Peru imports 7.6 million pounds/year *.

77% cast (coming from China)

23% forged (c. from Chile)

CIF import price for forged balls is 0.335USD/lb and for cast balls is 0.257USD/lb.

* Details in Annex

FINAL REPORT - PERU

Size : 5" 3" 1" Total

Imp cif - - 0,226 0,257

Exp fob - 0,238 0,203 0,240

Imp cif - - 0,336 0,335

Exp fob 0,335 0,291 0,418 0,296

PRICE IMPORTED / EXPORTED GM (USD/LB)

CAST

FORGED

PERU

Flow

Imports Weight in Lb 7.637.969

T. Cif (US$) 2.129.506

Cif USD/Lb 0,279

Exports Weight in Lb 61.284.922

T. Fob (US$) 16.608.549

Fob USD/Lb 0,271

PERUVIAN IMPORTS AND EXPORTS PER YEAR

Datos

Source: CHILEBRAS, based on official trade information




36

SMALL GM / LOCAL

PRODUCTION

Key players are Molycop-Adesur (forged balls) and Mepsa (cast balls).

Molycop-Adesur is market leader, with a share estimated in 67% in value and 62% in volume.

Local balls production concentrate on following sizes:

5” for SAG mill (Antamina)

3” for bigger Balls mills

1 to 1 ½” for Regrinding mills.

As for example, Cerro Verde plans its ball consumption as follows:

87% in 3”

13% in 1”

FINAL REPORT - PERU

Molycop Mepsa Others 5% Total

67% 28% 5% 100%

MARKET SHARE, % OF USD

Molycop Mepsa Others 5%

Local 28,0 11,6 2,0 41,6 88%

Exports 2,7 2,7 0,3 5,7 12%

Total 30,8 14,3 2,3 47,3 100%

% Local 67% 28% 5% 100%

% Exports 48% 47% 5% 100%

% Total 65% 30% 5% 100%

Source: Mepsa and Proacer-Alisur Financial statments

Total

PLAYERS, IN USD

Molycop Mepsa Others 5% Total

62% 33% 5% 100%

MARKET SHARE, % OF TONS

Molycop Mepsa Others 5%

Local 38,0 20,5 2,9 61,4 86%

Exports 4,2 5,1 0,5 9,8 14%

Total 42,2 25,6 3,4 71,2 100%

% Local 62% 33% 5% 100%

% Exports 43% 52% 5% 100%

% Total 59% 36% 5% 100%

Source: Mepsa and Proacer-Alisur Financial statments

PLAYERS, IN TONS

Total




37

SMALL GM / PRICES

USD 0.340 is the price more frequently mentioned as the market average for forged balls aswell as USD 0.250/lb is mentioned in the case of cast balls. There is also a coincidence intodescribeprices as being higher in the extremes.

FINAL REPORT - PERU




38


A convencional Concentrator –with a milling circuit as it is projected for Cerro Verde- consumearound 0,439 Kg/MT (0.967 lb/MT) of 3” and 1 to 1 ½·” balls and a SAG circuit like Antamina orEscondida consume aproximately 0,742 Kg/MT (1.634 lb/MT) of 5”, 3” and 1 to 1 ½” balls, bothusing a known mix of balls sizes. Starting from that, following table shows peruvian total ballsdemand is approximately 68,5 k ton (150.9 million lb) per year.

Consumption of small grinding balls is 7,5 k MT (16.5 million lb) per year *.

FINAL REPORT - PERU

BALLS Ball Size 5" 3" 1 - 1 1/2 "

SAG Kg 7.300.000 13.140.000 1.255.600 21.695.600 31,7%

Kg /ton 0,250 0,450 0,043 0,743

% 33,67% 60,58% 5,75% 100%

Tradicional Kg 40.597.222 6.224.907 46.822.130 68,3%

Kg /ton 0,381 0,058 0,439

% 98,52% 1,48% 100%

S+T Kg 7.300.000 53.737.222 7.480.507 68.517.730 100,0%

Kg /ton 0,054 0,395 0,055 0,504

% 10,65% 78,43% 10,92% 100%

* Chinese cylpebs imported by Shougang Hierro Perú S.A., not included

Source: Operator's data

ESTIMATION OF PERUVIAN DEMAND *

Total

* 5.3 million pounds of 40x50 mm cylpebs imported by Shougang Peru f rom China are not included.




39


Following table opens the information gathered from local operators by plant-type, ball size andball price, showing that, in average, balls price is 0,603 USD/Kg (0.274 USD/lb) and value oftotal balls market is 41,3 million USD per year.

Average price of small balls is 0,660 USD/Kg (0.300 USD/lb), so value of segment is 4,9 millionUSD per year

FINAL REPORT - PERU

BALLS Ball Size 5" 3" 1 - 1 1/2 "

SAG Kg 7.300.000 13.140.000 1.255.600 21.695.600 31,7%

Kg /ton 0,250 0,450 0,043 0,743

% 33,67% 60,58% 5,75% 100%

Tradicional Kg 40.597.222 6.224.907 46.822.130 68,3%

Kg /ton 0,381 0,058 0,439

% 98,52% 1,48% 100%

S+T Kg 7.300.000 53.737.222 7.480.507 68.517.730 100,0%

Kg /ton 0,054 0,395 0,055 0,504

% 10,65% 78,43% 10,92% 100%

T.Demand Vol (Kg) 7.300.000 53.737.222 7.480.507 68.517.730

P (USD/Kg) 0,695 0,582 0,660 0,603

Value(USD) 5.075.210 31.282.124 4.938.124 41.295.458* Chinese cylpebs imported by Shougang Hierro Perú S.A., not included

Source: Operator's data

Nota : Ver Consumos unitarios-resumen peru : precio av from player's side es 0,681.

ESTIMATION OF PERUVIAN DEMAND *

Total




40

SMALL GM / MARKET SIZE :

Learnings:

Small grinding media used by mining operators, range from 1” to 1 ½”

Demandcomes from concentrate regrinding,and from moly plants

Size of this market segment is 7,5 k MT (16.5 million lb)

Av. price is 0,660 USD/Kg (0.300 USD/lb)

Segment value is 4.9 million USD /year

FINAL REPORT - PERU




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

41




42

LINERS / IMPORTS & EXPORTS :

Peru imports 4.8 million pounds /year, equals FOB

USD 4.2 million. And exports 1.1 million pounds/yearequals FOB USD 1.8 million.

FINAL REPORT - PERU

Flow Item Lb Kg

IMPORTS Fob USD 4.217.099 4.217.099

Weight 4.781.214 2.170.671

Fob USD / wt 0,882 1,94

EXPORTS Fob USD 1.815.838 1.815.838

Weight 1.146.258 520.401

Fob USD / wt 1,584 3,49

Source: CHILEBRAS.COM based on official trade data

PERUVIAN IMPORTS AND EXPORTS PER YEAR

Category Datos EXPORTS IMPORTS TOTAL % %acc

LINERS Fob USD 1.242.595 3.026.542 4.269.137 71,8% 71,8%

Weight, Lb 784.464 3.631.347 4.415.811 76,0% 76,0%

TAPES Fob USD 21.177 507.726 528.904 12,0% 83,8%

Weight, Lb 8.813 460.106 468.919 9,6% 85,6%

CILINDERS Fob USD 318.263 318.263 7,5% 91,4%

Weight, Lb 352.184 352.184 7,4% 92,9%

GRATES Fob USD 236.559 166.560 403.119 3,9% 95,3%

Weight, Lb 148.091 161.420 309.512 3,4% 96,3%

SEGMENTS Fob USD 135.335 122.099 257.434 2,9% 98,2%

Weight, Lb 83.262 146.153 229.415 3,1% 99,4%

PLATES Fob USD 149.548 65.520 215.068 1,6% 99,8%

Weight, Lb 112.228 20.884 133.112 0,4% 99,8%

RINGS Fob USD 30.625 10.388 41.013 0,2% 100,0%

Weight, Lb 9.399 9.119 18.518 0,2% 100,0%

Total Fob USD 1.815.838 4.217.099 6.032.937 100,0%

Total Weight, Lb 1.146.258 4.781.214 5.927.472 100,0%

Source: CHILEBRAS.COM based on peruvian and chilean official trade information

Mill Liners category

represent around a 70%of both exports&imports.

Aver. price of exported

liners is FOB USD/lb0.631 while aver. price ofimports is higher: 0.833.

In comparison, chilean

unitary prices for thisspecific category are FOB

USD /lb 0.921 and 0.870in average, respectively.




43

LINERS / LOCAL PRODUCTION :

The key local player in liners business is MEPSA, with a local market share estimated in 48% involume and 50% in value, followed by Fundición Callao with a share of around a 30% and other asConsorcio Metalurgico,Fima and Fundición Central explainingaproximately a 20%.

Total sales of local players are in the order of 5,6 k MT (12.4 million lb), with 80% going to internalmarket and 20% aproximatelygoing to exports, and local production value is 6,6 USD million/year.

According data in tables, in average, total market price is 1,17 USD /Kg (0.531 USD/lb) and local(or internal)market price is 1,05 USD/Kg (0.477 USD/lb).

FINAL REPORT - PERU

Mepsa Callao Others

Local 2,4 1,4 0,9 4,7 72%

Exports 0,5 0,4 0,9 1,8 28%

Total 2,8 1,9 1,9 6,6 100%

% Local 50% 30% 20% 100%

% Exports 26% 24% 50% 100%

% Total 43% 28% 28% 100%

Source: Mepsa 2004 Financial Statements, Interviews and export data

Total

PLAYERS, IN USD million

Mepsa Callao Others

Local 2,15 1,42 0,95 4,52 80%

Exports 0,29 0,27 0,56 1,11 20%

Total 2,44 1,69 1,50 5,63 100%

% Local 48% 31% 21% 100%

% Exports 26% 24% 50% 100%

% Total 43% 30% 27% 100%

Source: Mepsa 2004 Financial Statements, Interviews and export data

Total

PLAYERS, IN k MT




44

LINERS / PRICES :

According Mepsa‟s Financial Statements(copy in Annex), company begun in 2004 a price

movement to recover margins in Liners and Balls. However, due to long-term contracts normally used in this industry, prices just begun to change near the end of the year in the case of liners and in January 2005 in the case of mills balls.

Sales projection Mepsa did for 2005, reflects company‟s expectatives with regard to prices: “Para el año 2005, como consecuencia de las renovaciones y nuevos contratos con nuestros clientes

locales y del exterior, proyectamos continuar con la tendencia del incremento de nuestras ventas de un

45%. Representando las ventas de bolas un incremento de volumen del orden de 35% y mejora en los

precios de 25%; en la línea de piezas, el incremento de volumen representa el 21% y una mejora en los

precios de 25%. Esta importante mejora en las ventas de la empresa se sustenta con los contratos de

ventas cerrados con nuestros principales clientes locales y del exterior: Codelco, que participa con el 30%;

Southern Perú con el 33%; Doña Inés de Collahuasi con 10%”.

According this, Mepsa had solid reasons to expect a 25% growth in prices during 2005.

However, up to December 30th the mill liners company exported to Chile didn‟t show any advance

in volume nor in prices (details in Annex). However, as company‟s export prices grew in the case of liners exported for example to Bolivia, our impression is there is a delay in transfering new price

level to real business on chilean end.

Probably, the responsible for this situation is more Elecmetal than Mepsa.

FINAL REPORT - PERU




45

LINERS / END USERS

Unitary consumption of liners is 0.064 Kg/MT (0.141 lb/MT) in SAG and 0.056 Kg/MT (0.123lb/MT) in Tradicional circuits, meaning a difference of just a 14%. However, as in PeruTradicional grinding represent 69.7% of total grinding, a 66.8% of total liners consumption comesfrom Tradicional circuits. Antamina‟s SAG circuit explaining the rest of 33.2% of total mill linersconsumption.

In Peru as in Chile, highest consumptions correspond to armours. In this case, as SAG incidenceis lower, ball mills armours take a 77% of total mill liners consumption.

Following table opens the information by plant type and liner type, showing an average mill linerconsumption of 0.058 Kg/MT ( 0.128 lb/MT) and market size of 5,6 k MT (12.4 million lb) /year.

FINAL REPORT - PERU


SAG Kg 610.937 378.724 191.990 645.320 33.259 1.860.230 33,2%

80.000 tpd Kg /ton 0,021 0,013 0,007 0,022 0,001 0,064

30,3% % 32,84% 20,36% 10,32% 34,69% 1,79% 100%

Tradicional Kg 3.699.823 50.452 3.750.275 66,8%

184.300 tpd Kg /ton 0,055 0,001 0,056

69,7% % 98,65% 1,35% 100%

S+T Kg 610.937 378.724 191.990 4.345.143 83.711 5.610.504 100%

264.300 tpd Kg /ton 0,006 0,004 0,002 0,045 0,001 0,058

100% % 10,89% 6,75% 3,42% 77,45% 1,49% 100%

MILL LINERS MARKET




46

LINERS / END USERS

Following table, opens the information per plant-type, liner-type and price, showing that if averageliners‟s price is in the order of 1,10 USD/Kg (0.5 USD/lb), value of peruvian liners market isapproximately 6,2 million USD per year.

FINAL REPORT - PERU


SAG Kg 610.937 378.724 191.990 645.320 33.259 1.860.230 33,2%

80.000 tpd Kg /ton 0,021 0,013 0,007 0,022 0,001 0,064

30,3% % 32,84% 20,36% 10,32% 34,69% 1,79% 100%

Tradicional Kg 3.699.823 50.452 3.750.275 66,8%

184.300 tpd Kg /ton 0,055 0,001 0,056

69,7% % 98,65% 1,35% 100%

S+T Kg 610.937 378.724 191.990 4.345.143 83.711 5.610.504 100%

264.300 tpd Kg /ton 0,006 0,004 0,002 0,045 0,001 0,058

100% % 10,89% 6,75% 3,42% 77,45% 1,49% 100%

P (USD/Kg) 1,10 1,10 1,10 1,10 1,10 1,10

Value (USD) 672.031 416.596 211.189 4.779.657 92.082 6.171.555

MILL LINERS MARKET




47

LINERS / MARKET SIZE :

Learnings:

Demandcomesprincipally from Tradicional-typeplants

Armours explain a 77% of total liners consumtion

Size of market is 5,6 k MT (12.4 million lb) /year

Price is estimated in 1,10 USD/Kg (0.5 USD/lb), then

Market value is approximately6.2 million USD /year

FINAL REPORT - PERU




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

48




THE PERUVIAN BALLS AND LINERS MARKETS IN 2010

SCENARY 1 (more probable)

Zinc and copper demand stay on actual level, the country preserve its economical and political estability and, as economists

expect, peruvian GDP grow at rates between 4 and 6% per year.

Driving force for balls and liners markets –principally the evolution of zinc and copper Concentrators- projects in positiveterms as there is an important portfolio with expansions and new projects (see Annex).

Regarding Concentrators-type, trend in Peru is to more Tradicional-type circuits. See Cerro Verde‟s Concentrator in Annex.

Cerro Verde, is the biggest Concentrator projected for the period 2005-2010 and will increase the peruvian grinding capacityfrom 264 k tpd to 373 k tpd. In other words, in a 41%.

As balls and liners‟s consumption grow in direct proportion –in this case-, with production of zinc and copper concentrates,this means both balls and liners markets will grow in same 41% is mineral processing rate will. As Cerro Verde‟s projectinclude regrinding, 1” to 1 ½” balls consumption will also growth in aproximately the same rate.

SCENARY 2 (less probable)

Internacional demand for zinc and / or copper falls and local Concentrators diminish its actual grinding rates. Expansions

and new projects decide to wait for better times. Both balls and liners markets will show the same tendency as peruvian

principal plants‟s milling rates.

FINAL REPORT




50

FINAL REPORT




CHILE

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

PERU

Overview



PriceMarket size

Mill Liners


Market size

Markets in 2010

Conclusions

INDEX



-Final Report :

51




52

BALLS:

In 2005, size of balls market was

150,900,000 lb (41,3 USD million).

Size of small grinding media segment was

16,500,000 lb (11 USD million), a 11% ototal.

And average price for total balls market

was 0.27 USD/lb and 0.30 USD/lb in thecase of small grinding media segment.

Projection, is total market and small

grinding media segment will grow a 41%between 2005 and 2010. This,considering only big Cerro Verde Project

with start-up in 2007.

FINAL REPORT - PERU

LINERS:

In 2005, size of liners market was

12,300,000 lb (6.2 USD million).

Liners for Tradicional-type Plants,

representing a 67% of total mill linersconsumption.

Average price for total liners market was

1.10 USD/lb.

Projection, is liners market will grow a 41%between 2005 and 2010. This, considering

only big Cerro Verde Project with start-upplanned for 2007.

CONCLUSIONS :




IMPORTANT

Contents:

The period of reserve for this study ended over three years ago. In any case,

for added protection of original client's interest, all references to its name and

purposes in relation to the target markets have been omitted.

Rights of the model study:

Our intellectual property rights on this and other models of our Ad-hoc Markets

Analysis are protected by Chilean Law No. 17,336 and international law. Copy

or use without authorization is subject to sanctions.

Contact:

Alejandro Valladares Founder & Senior Analyst at A.Valladares&Asociados

Mobile: +569 9651 4651 e-Mail: [email protected] Skype: alejandro_valladares

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