[Page 677]
BEFORE THE INTERNATIONAL CENTRE FOR THE SETTLEMENT
OF INVESTMENT DISPUTES
- - - - - - - - - - - - - - - - - - - x
:
In the Matter of Arbitration between: :
:
FREEPORT-MCMORAN INC., :
:
Claimant, : Case No.
: ARB/20/8
v. :
:
REPUBLIC of PERÚ, :
:
Respondent. :
:
- - - - - - - - - - - - - - - - - - - x Volume 3
HEARING ON JURISDICTION, MERITS, AND QUANTUM
Wednesday, May 3, 2023
The World Bank Group
1225 Connecticut Avenue, N.W.
Conference Room C1-450
Washington, D.C. 20003
The Hearing in the above-entitled matter
came on at 9:30 a.m. before:
MS. INKA HANEFELD
President of the Tribunal
MR. GUIDO SANTIAGO TAWIL
Co-Arbitrator
MR. BERNARDO M. CREMADES
Co-Arbitrator
[Page 678]
ALSO PRESENT:
On behalf of ICSID:
MS. MARISA PLANELLS VALERO
ICSID Secretariat
MS. CHARLOTTE MATTHEWS
Assistant to the Tribunal
Realtime Stenographers:
MS. DAWN K. LARSON
Registered Diplomate Reporters (RDR)
Certified Realtime Reporters (CRR)
B&B REPORTERS WORLDWIDE REPORTING, LLP
529 14th Street, S.E.
Washington, D.C. 20003
United States of America
SR. LEANDRO IEZZI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina
(5411) 4957-0083
Interpreters:
MR. CHARLES ROBERTS
MS. SILVIA COLLA
MR. DANIEL GIGLIO
[Page 679]
APPEARANCES:
On behalf of the Claimant:
MR. DIETMAR W. PRAGER
MS. LAURA SINISTERRA
MR. NAWI UKABIALA
MR. JULIO RIVERA RIOS
MR. SEBASTIAN DUTZ
MR. FEDERICO FRAGACHÁN
MS. MICHELLE HUANG
MS. ASTRID MEDIANERO BOTTGER
MS. LUCIA RODRIGO
MR. PEDRO FERRO
MS. MARY GRACE MCEVOY
MR. REGGIE CEDENO
MR. THOMAS MCINTYRE
MR. ORRIN CASE
MR. GREGORY A. SENN
MR. CHRISTOPHER V. TRAN
Debevoise & Plimpton LLP
66 Hudson Boulevard
New York, New York 10001
United States of America
MR. LUIS CARLOS RODRIGO PRADO
MR. FRANCISCO CARDENAS PANTOJA
MR. LOURDES CASTILLO CRISOSTOMO
MR. JOSÉ GOVEA
MR. ALEJANDRO TAFUR
Rodrigo, Elias & Medrano
Av. Pardo y Aliaga 652
San Isidro 15073
Perú
Party Representatives:
MR. DAN KRAVETS
MR. SCOTT STATHAM
Freeport-McMoRan Inc.
MS. PATRICIA B. QUIROZ PACHECO
Socied Minera Cerro Verde S.A.A.
[Page 680]
APPEARANCES: (Continued)
On behalf of the Respondent:
MR. STANIMIR A. ALEXANDROV
Stanimir A. Alexandrov, PLLC
1501 K Street, N.W.
Suite C-072
Washington, D.C. 20005
United States of America
MS. JENNIFER HAWORTH MCCANDLESS
MS. MARINN CARLSON
MS. MARÍA CAROLINA DURÁN
MS. COURTNEY HIKAWA
MS. ANA MARTÍNEZ VALLS
MS. VERONICA RESTREPO
MS. ANGELA TING
MR. NICK WIGGINS
MS. NATALIA ZULETA
MR. GAVIN CUNNINGHAM
MR. KEVIN DUGAN
MS. ARA LEE
MS. SADIE CLAFLIN
MR. NOAH GOLDBERG
Sidley Austin LLP
1501 K Street, N.W.
Washington, D.C. 20005
United States of America
MR. RICARDO PUCCIO
MR. OSWALDO LOZANO
MS. SHARON FERNANDEZ TORRES
MS. ANDREA NAVEA SÁNCHEZ
MR. RENZO ESTEBAN LAVADO
Navarro & Pazos Abogados SAC
Av del Parque 195
San Isidro 15047
Lima
Perú
[Page 681]
APPEARANCES (Continued)
Party Representatives:
MS. VANESSA DEL CARMEN RIVAS PLATA
SALDARRIAGA
MR. MIJAIL FELICIANO CIENFUEGOS FALCON
Ministry of Economy and Finance
MR. EDMÓSTINES MONTOYA JARA
SUNAT, Republic of Perú
[Page 682]
APPEARANCES: (Continued)
NON-DISPUTING PARTY:
For the United States of America:
MR. ALVARO J. PERALTA
MR. DAVID M. BIGGE
Attorney-Advisers
Office of International Claims and
Investment Disputes
Office of the Legal Adviser
U.S. Department of State
Suite 203, South Building
2430 E Street, N.W.
Washington, D.C. 20037-2800
United States of America
[Page 683]
C O N T E N T S
PAGE
PRELIMINARY MATTERS.........................................684
WITNESSES:
RANDY DAVENPORT (Continued)
MARIA CHAPPUIS CARDICH
[Page 684]
P R O C E E D I N G S
PRESIDENT HANEFELD: Good morning. Welcome
to Day 3 of the Hearing.
Are there any housekeeping issues Claimant
wants to address?
MR. PRAGER: No housekeeping issues. Good
morning. I just wanted to introduce a new face at the
table, Scott Statham, who is the Vice President and
Deputy General Counsel of Freeport-McMoRan.
(Comments off microphone.)
PRESIDENT HANEFELD: Welcome. Good morning.
Anything from Respondent's side?
MS. CARLSON: No, Madam President. No
housekeeping.
PRESIDENT HANEFELD: Perfect. Then we will
continue with the cross-examination of Mr. Davenport.
RANDY DAVENPORT, CLAIMANT'S WITNESS, CALLED
(CONTINUED)
MS. CARLSON: Thanks very much.
CROSS-EXAMINATION
BY MS. CARLSON:
Q. Good morning, Mr. Davenport.
[Page 685]
A. Good morning.
Q. When we--let's see. When we left off
yesterday, I think we made it to 1987.
A. Okay.
Q. I'm going to ask that we both--because I'm
guilty of this as well--try to keep ourselves as
concise and focused as possible, both in the questions
and the answers.
A. And I was also--
Q. There's a lot to talk about. I know you
love this Project.
A. And I was also reminded by the interpreters,
if I could slow down, because it was hard for them.
Q. Right. That, too.
A. And please interrupt me if I'm talking too
fast.
Q. Okay. I am also guilty of talking too fast.
So, my apologies in advance for that.
But also, if we can just really try to keep
the answers focused on the specific questions, and if
there's a need to add more detail, we can talk about
whether it's an appropriate time to do so, but we will
[Page 686]
just be able to move faster and keep to our allotted
time as much as possible.
All right. So, 1987 is when you began
working for Phelps Dodge; correct?
A. Correct.
Q. Okay. And your positions for the next
13 years or so, until April of 2000, are in Arizona;
is that right?
A. Arizona and New Mexico.
Q. Okay. So, you joined SMCV in April of 2000
as General Manager of Operations?
A. Correct.
Q. And I think we established in February that
that was sort of a position that had been created in
the wake of Phelps Dodge's acquisition of Cyprus as
part of a process of sort of integrating the two
companies. So, you had a president of the Company who
was already in place from Cyprus, and you were going
to go there as General Manager, kind of the Number 2
position, to sort of bring the cultures together; is
that right?
A. Yes, I did. But there was nine different
[Page 687]
mines, and they tried to do that with all the
different mines.
Q. Right. So, it wasn't just this Company?
A. It wasn't just the Company. It was all of
them.
Q. Right. But shortly after you arrived, the
President actually chose to depart, and so you took on
the title of Interim President; is that right?
A. Correct.
Q. Okay. And then after a period--I think six
to nine months--you became the President?
A. Correct.
Q. Okay. And that was your first position with
Phelps Dodge outside the United States; correct?
A. That is correct.
Q. Okay. And just because it's relevant for
some of documents that we'll get to later, if I recall
correctly, you were not fluent in Spanish at that
time?
A. No, I wasn't.
Q. Okay. Although you told us that your
Spanish improved over the course of your five years
[Page 688]
there?
A. I practiced a lot. I tried to talk to
people, even if I sounded stupid, but, yeah, I worked
hard at it, and it was difficult. My kids were great
at it, but it was difficult for me.
Q. All right. And, given that, I assume that
you relied on your staff, your team at Cerro Verde,
such as Ms. Torreblanca and her colleagues, to both
keep you up-to-date on information and explain to you
the Peruvian political and legal culture; is that
right?
A. Really, I had two people. I had Julia
Torreblanca and I had Jorge Benavente, who was the
Human Resources manager, and they helped a lot, and it
was good because they kind of had differences. You
know, Jorge was maybe a little bit more reserved and
thought differently than Julia did, and so I got a
little bit of both sides of it. So, it was helpful,
yes.
Q. And did you have outside sources of
information to help you understand what was happening
around you in Perú?
[Page 689]
A. Yeah, sure. We had--there was a guy named
John Youle, who would have--he sent out a weekly email
talking about what's going on in Perú, and then once a
month he would invite a Minister or somebody in to
talk to the mining group.
I had, of course, Buenaventura, one of the
largest mines in Perú. When I visited Lima, I
generally went and talked to Don Alberto and Jorge
Benavides, and obviously they gave me some insight of
what their perspective was of what was going on in
Perú.
Q. And just to make sure that we're--for
context, Buenaventura was--I believe is the largest
Peruvian mining company operating in Perú; correct?
A. That's correct. And at the time they
owned--I think it was around 9 percent, and then they
later put in more equity, and I think they ended up
with about 20 percent--
Q. Okay. So, the--
A. --of Cerro Verde.
Q. Sorry. So, the largest mining company in
Perú is one of your Shareholders; you're in regular
[Page 690]
contact with their Chairman. That was Don Alberto
that you referred to?
A. Yeah, great guy.
Q. Okay. And I think you told us--well, sorry,
one further step.
Was SMCV--was Cerro Verde active in the
National Mining Society?
A. Yeah. That's correct. We're in the
National Mining Society.
And also, we had the General Managers of the
large mines. We would meet every two or three months
and have discussions about that. I was also on the
Board of TECSUP, which is a technical college, and the
Board people were generally heads of the mining
properties. So, I also had that communication with
those.
Q. And specific to the Mining Society, you said
you were active in the Mining Society. I assume
Buenaventura was as well?
A. Yeah. I think Roque, I think--the CEO, I
think he was the head of it there for a while.
You know, active, yes. I more or less--you
[Page 691]
know, I would maybe go to a meeting once in a while,
but I would read what they published or things like
that. And they put on, you know, seminars and that
type of thing, and they invited me to talk a few
times.
Q. And so, jumping ahead into the kind of 2004
time frame, 2003-2004, when the Royalties Law is being
discussed.
A. Umm-hmm.
Q. Were you active in the Mining Society's
efforts to lobby with respect to the proposals?
A. Well, I kept up with what they were doing.
Did I go and, you know, meet with Congress or
legislators? Obviously, no, I didn't, but they were
very involved during that time period, correct.
Q. Right.
A. As were the Ministry and the GMs at the
different properties.
Q. Right. And just for reference, I mean,
that's entirely consistent what you told us in
February, so I just want to see if we can pop up on
the screen briefly your testimony from Page--Day 3 of
[Page 692]
the Transcript, Page 662, Lines sort of 8-18 or so.
Oh, dear. That's small.
662 on Day 3.
We can even look at--if we can just zoom in
on Page 662, I think that will make it a little easier
for everybody to see.
This was, again--I asked you at the time,
you know, how are you getting your information? And
you talk about going to Lima often, part of the Mining
Society, and you refer to working--communicating with
Don Alberto to stay on top of these things?
A. Yes, and Jorge Benavente and Julia
Torreblanca and others.
Q. Right.
A. Politics in Perú were a topic. Even my
kids' friends--you know, my kids were 12, 13, 14--they
would talk politics. It was much different than I was
used to in the States.
Q. All right. So, let's talk about--let's get
to the heart of it. Let's talk about the Concentrator
Plant.
In your--and let's--this is going to be a
[Page 693]
couple of questions about things before you got there,
so outside of your direct personal knowledge, but
things that I think you testified about in your
Witness Statement and that you would have learned
about at the time. But if there's anything you don't
feel comfortable answering, just say so. Okay?
So, one of the--the first thing we know
about the idea of a concentrator in Cerro Verde is
that, in 1979, Minera Perú built a pilot concentrator;
right?
A. I believe that's the date. I'm not sure.
Q. Okay. And that was a proof of concept.
They were basically seeing if the ore and the
metallurgy and the concept would work?
A. My understanding was it was a pilot plant,
and later on they expanded to 3,000 tons a day.
Q. Okay. And you mentioned in your direct
examination with in Mr. Ukabiala yesterday that in the
1993-1994 time period, in the Share Purchase Agreement
and in the privatization process for Cerro Verde, that
there was discussion of developing towards a
Concentrator Plant in that--at that time frame; right?
[Page 694]
A. Are you saying we--are you talking about the
Pre-Feas and the Feasibility Study? I didn't follow
you.
Q. 1993-1994.
A. Oh, okay. So, repeat your question.
Q. Right. So, the time frame is 1993-1994.
A. Got it.
Q. We're talking about Minero Perú's
privatization of Cerro Verde.
A. Okay. Okay.
Q. And the--you mentioned in your discussion
yesterday that the Share Purchase Agreement at the
time had a mention of the possibility of a
Concentrator Plant.
A. Well, it had four phases. Three of them had
do with improving the--expanding the leaching
operation, and the fourth one essentially said "build
a Concentrator."
Q. Right. We can actually turn to Tab 29,
which is the SPA, the Share Purchase Agreement. It's
Exhibit CE-4, for the record. And specifically, we
are going to look at Appendix G.
[Page 695]
If you want to do the paper copy, I will say
that the Appendix G is about 20 pages into the
document. I want to say it's PDF Page 18 or so.
Perfect. There we go. Okay.
And this discussion of Phase 4, this is
where I find it, is in Appendix G. You have Phases 1,
2, and 3 on the first page, and then Phase 4 is
discussed in a single paragraph on the next page.
Right. This top paragraph where you see
"Phase IV" in quotation marks.
So, this is the discussion of the
Concentrator Plant that you're talking about here;
right?
A. Yes, Phase 4; correct.
Q. Okay. And what we see described here is
a--I think in this proceeding, we've talked about
Concentrator Plant, it's described as a "grinding and
conventional copper molybdenum flotation circuit
capable of treating 28,000 tons per day of Primary
Sulfide ore."
Flotation circuit--"flotation," as I
understand it, is another word for--or we can use
[Page 696]
interchangeably with "Concentrator"; is that right?
A. Well, I thought about this yesterday. There
was a question about--I talked quickly yesterday--I
talked about SX/EW, and it was questioned exactly what
that is.
If you want to take a few minutes, I'd be
glad to do a real quick nontechnical explanation of
the way you process copper. There's two ways.
There's flotation, and the other way is solvent
extraction and electrowinning. And the way you
probably--
Q. Right, but this is--what we're talking about
here is--
A. Yeah, to answer your question--
(Overlapping speakers.)
Q. As I said, what we were talking about here
is flotation, or the idea of the Concentrator approach
to processing Primary Sulfide?
A. Concentrator would be called "concentrator,"
"mill," "flotation circuit," yeah. They're all the
same thing.
Q. And the alternative is leaching, or the
[Page 697]
"SX/EW" is another terminology?
A. Correct. Solvent extraction and
electrowinning, SX/EW.
Q. So, what we have here is we're talking about
a flotation or a concentrator, and with a capacity of
28,000 tons; correct?
A. That's what it says.
Q. All right. What was the capacity of the
built--plant that was built in 2006?
A. The one we built?
Q. Yep.
A. 108,000 tons a day.
Q. So, nearly four times as large?
A. Yeah. I mean, when you're building a
concentrator, size is everything, and you want to
build it as much as you can, especially when you have
a Resource the size that Cerro Verde had. So,
economies of scale. Economics.
Q. Right. And what was the--I may mangle the
technical term here, but what was the grinding or
crushing terminology that was planned for the plant in
1993? Was it HPGR, high-pressure grinding rolls?
[Page 698]
A. Yeah, we looked at two circuits, a
traditional one, which is--
Q. In 1993.
A. Oh, in--oh, 1993? No. HPGRs were
not--well, they were used in different processes
like--different kinds of mineral, but for copper, no,
it wasn't used.
Q. Okay. So, in 1993, they were not planning
to use the same technology that you wound up using in
2006; correct?
A. It's pretty much the same thing. You have a
circuit that crushes--all you're trying to do is crush
this material down to sand size. So, you use a
crusher and ball mills, or you put in the HPGR, which
is a relatively new technology, but it's the same
thing.
The product is the same. You're trying to
grind it down to sand's consistency and then float the
copper.
Q. Do we know from this description what
technology they were planning to use in 1993?
A. Yes. It says conventional copper moly
[Page 699]
flotation circuit. So--
Q. What kind of--
(Overlapping speakers.)
Q. I'm sorry?
A. It would be at the time--yeah, I don't know.
I wasn't there, but at the time, in '93, Concentrators
were a typical--some might call it a semi-autogenous
grinding circuit. So, they have a big grinding mill;
then they have ball mills followed up. So, it's the
same.
I guess I'm not sure what you're driving at,
but--
Q. Well, I think, actually maybe we can--I
think what I heard you just say is semi-autonomous
ball crushers, or SABC?
A. It's--we call it "SAG mill," so
semi-autonomous grinding, yeah, like--
Q. Right.
A. Whatever they called it in the Feasibility
Study, you have it in front of you. So, that's--you
know, there was an acronym for it. I call it a sag
mill and a ball mill.
[Page 700]
Q. Okay. So, that's the technology you assumed
they were using in 1993, but in 2006, you moved on to
the newer technology, the HPGR?
A. Well, we looked at both, and--all the way
through Feasibility Study, and the reason we--
Q. But you--
(Overlapping speakers.)
A. Can I answer your question?
The reason we selected--
Q. I didn't ask you why we selected it. I just
asked you which one you used. I'm trying to--
A. Used for what?
Q. I'm trying to be concise.
A. That we constructed?
Q. Yes.
A. We constructed HPGRs, correct.
Q. Right. And in Paragraph 28 of your Witness
Statement, you explain that HPGR was a relatively new
technology for use in large copper processing plants,
and that your implementation of it would be the
largest in the world and a showcase for the Peruvian
mining industry.
[Page 701]
So, this was something new?
A. HPGRs were not new, but in a large copper
circuit they were.
Q. All right. And it was new enough that you
actually had to go to Australia to check it out?
A. Yeah. It was controversial, whether to take
a new technology and, you know, gamble on
$850 million. So, yes, we went to Australia.
I think I mentioned in my Witness Statement
we had person at Phelps Dodge who was thought to be
one of the Experts in the world on SAG mills, the
traditional way. And, you know, once he was
convinced--and the reason was because the ore at Cerro
Verde is hard. And so, the grinding was much more
efficient for power consumption. So, that's the
reason we went to HPGRs.
Q. Okay. But, again, just for process, I'm
going to ask you to focus on the question, because my
question was only: Did you go to Australia to check
it out? Right?
A. I'll try to do that.
Q. Thank you.
[Page 702]
Okay. So, taking us back to 1993, we were
talking about what they were planning in 1993.
A. Okay.
Q. Okay. Whatever they had in mind, we do know
that Phelps Dodge didn't like or didn't--didn't think
very much of the prospects for such a Concentrator
Plant in 1993; right?
A. Phelps Dodge did not bid on the Project, no.
Q. Right. And one of the reasons they did not
bid on the Project, meaning they did not bid to buy
Cerro Verde, is because, in their assessment, it was
not economical to build and operate a Concentrator
there; correct?
A. That's what the Report says.
Q. Right. And that's their evaluation--
A. Well, I mean, it wasn't just--I think maybe
you misspoke there a little bit. They thought the
Project was not economic, whether they--whether it was
Building Concentrator or fixing the leaching
operation. They just felt like it wasn't economic.
But I wasn't part of that group that
evaluated it.
[Page 703]
Q. But you testify about that in your Witness
Statement at Paragraph 16, where you say that, during
the privatization in 1993, Phelps Dodge had declined
to bid on SMCV, concluding in an internal evaluation
that: "The economic returns" from expanding SMCV's
operations to process the Primary Sulfides were
"unacceptably low."
A. Okay. But they would have looked at the
leaching operation, because it had both. So--
Q. Well, they chose not to bid on the company,
Cerro Verde?
A. Correct.
Q. Which had leaching operations in place?
A. Correct. And a mill.
Q. And they assessed the future prospects of
the Concentrator Plant, and they looked at all of that
and said "I'm not bidding"?
A. They looked at the operation and said, you
know, "Hey, can we make this work?" And, in their
opinion, they said no.
Q. Okay. So, seven years later, though,
because they acquired Cyprus, it's theirs anyway?
[Page 704]
A. Well, isn't that amazing? Yes.
Q. There had been a whole series of Feasibility
Studies in the 1970s, 1980s, and 1990s, which I think
you told us last time had sort of varying degrees of
rigor, but all of which had suggested that this was
not an economical project, to build a Concentrator?
A. Yeah. There were seven of them. Some of
them showed, you know, a return of--I don't
know--like, 14 percent. Some showed a return of,
like, 2 percent. So, they were all over the board,
but generally speaking, looking at them, you know, it
wasn't--it appeared to be not economic at the time,
no.
Q. Right. And you're aware that Cerro Verde
entered into the Stabilization Agreement in February
of 1998; right?
A. Correct.
Q. All right. And in 1998, there was even a
Feasibility Study that said that this was not
economic; correct?
A. I can't remember when the last one was. Was
that the--I think you mentioned before the Bateman
[Page 705]
one?
Q. That's correct.
A. Okay.
Q. Yeah. So, you discuss that at Paragraph 16
of your Witness Statement?
A. Yes. I don't remember what the economics
were at the time.
Q. We can look at Paragraph 16, Page 5 of your
First Witness Statement, where you describe that: "A
Feasibility Study that Bateman Engineering conducted
for SMCV in 1998"--sorry, end of the next page, last
sentence or so--"Feasibility Study that Bateman
Engineering conducted for SMCV in 1998 identified the
lack of affordable water and power as a major
challenge, even for a Concentrator that was one-fifth
the size that we eventually built."
So, actually, even smaller than they were
thinking of in 19993; right?
A. Yeah. So, it also says--the next line says
it was a negative Net Present Value. That's what I
said; I didn't remember what the economics were, but
based on that copper price, it evidently had a
[Page 706]
negative Net Present Value.
Q. I'm not an economist, but that sounds bad.
A. I'm sorry?
Q. I said, I'm not an economist, but that
sounds bad.
A. Well, it's just financial analysis. It's
not that hard.
Q. Gotcha. All right. And so, when you
arrived in 2000, you were--actually, one of the things
that you were worried about was that the Government
might make you build a Concentrator Plant, or that
they were trying to insist that you had to; right?
A. If you're referring to that they sued us
because we didn't meet the investment commitment--is
that what you're referring to?
Q. That's right.
A. Oh, yeah. Sure.
Q. All right. Because you did not want to
build a Concentrator Plant at that point?
A. Well, I think the way we looked at it is,
you know, we invested the--we met the commitment to
invest, and they sued us. And I think I talk about
[Page 707]
it--I can't remember if I talk about it in my Witness
Statement or not, but, you know, if you look at the
language, we kind of felt like, you know, "Hey, it
doesn't make sense to continue trying to force us to
invest in a project that wasn't economic."
And so, we eventually got together, the Vice
Minister helped pull us together, and we eventually
met, and they agreed that we met the commitment, and
we agreed to spend another $50 million.
And we also--they insisted on a phrase in
there saying that we will continue to evaluate the
economics of the Concentrator and look for new
technologies to make it economic.
Q. All right.
A. In hindsight, that's exactly what we did.
Q. So, as I understand the Settlement
Agreement, you agreed to spend another $50 million in
order not to be obliged to build a Concentrator Plant?
A. No, that's not the way I look at. I said we
agreed to spend $50 million in the operation because
it was a--we couldn't agree that we met the
investment. And we said, okay, well, we'll spend more
[Page 708]
money, and you will choose what to spend that money
on, and we'll continue to investigate and see if we
can figure out the Concentrator economics.
Q. Right. So, you'll choose--
A. That's how I would word it.
Q. So, you'll choose--I'm going to use your
words here--you'll choose what to spend the money on,
meaning, not necessarily on a Concentrator Plant?
A. You know, again, we would spend it on the
Cerro Verde operation.
Q. Okay.
A. And so, if that involved spending money on,
you know, some type of analysis of the Concentrator,
then we would, or if it meant that we could expand
Cerro Verde, we would.
Q. Okay. Well, let's talk about some of the
things that were happening in the Cerro Verde Project,
in your first couple of years there.
A. Okay.
Q. So, you arrive in April of 2000, and at that
point, as we've established, the operation is focused
on mining and processing Secondary Sulfides; correct?
[Page 709]
A. Correct. Leaching.
Q. Right. And you described your mandate as
being to optimize the leaching operations?
A. Optimize and look to see if we could expand
it at lower cost.
Q. Right. And that meant that, to the extent
that you--sorry, that the Project encountered Primary
Sulfides, it had to treat them as--either avoid them
or treat them as waste?
A. That's correct.
Q. Okay. Now, in your First Witness Statement,
you discuss some of the steps that you took during
your first few years to optimize the leaching
operations. And I have just a couple of quick
questions about those. So, I'm going to turn us to
Paragraph 22 of your First Witness Statement. And
here you explain that one of the things you did to
improve the leaching operations was that you increased
the cutoff grade so that each--as I understand it,
each unit of ore could be processed more efficiently.
You would get more copper out of it?
A. Well, that's not the only reason you do it.
[Page 710]
I mean, you try to set a cutoff grade. That's the
greater copper that you're going to send to the
processing plant. And so, what you try to do is
figure out what grade that is that essentially
maximizes the Net Present Value.
And so, it's a very common analysis done by
Mine Planning guys. And what you're doing is
optimizing the operation by increasing--finding the
best Net Present Value of the operation.
Is that maybe too complicated? I don't
know. But--
Q. No. Okay--
A. --it's a valuation. So, you do a set of
Mine Plans, and you run them all the way through the
end of the mine life, and what's the Net Present
Value? This. Then you raise the cutoff grade and run
the set of mine plans. Pretty soon--you keep raising
the cutoff grade, pretty soon you have way too much
waste mining, and it no longer becomes as economic as
before.
Q. So, maybe to correct myself, it would have
been more accurate to say that you're improving the
[Page 711]
Cost effectiveness of the leaching, as opposed to--I
think I said "improving its efficiency."
It's not its technical efficiency; it's its
cost-effectiveness. You're finding the optimal Net
Present Value?
A. Financially, yes.
Q. Right. Now, that did not increase the
overall capacity of the leaching process, though, so
you were not required to apply for an expansion of the
Beneficiation Concession; is that correct?
A. Well, I think I talk about two different
projects. The first one was--
Q. Yeah, I'm focused on the one in
Paragraph 22, the first one--
A. Okay.
Q. --which is just about the cutoff grade.
And you say in the last sentence that,
because those improvements did not require you to
process any more ore through the Leaching Facilities,
but, rather, allowed you to process the same amount of
ore more efficiently with a higher grade copper, you
did not have to seek approval from MINEM to expand the
[Page 712]
capacity of the existing Beneficiation Concession?
A. If I believe correctly, if you increased the
throughput, the crusher throughput, more than
10 percent, you had to expand the Beneficiation
Concession. So, we did not raise it more than
10 percent, the 31,000 tons.
Q. Right. And that's what I'm referring--the
crusher throughput is what I call "capacity."
Is that a fair terminology?
A. Well, I call it "crusher throughput" because
that's what the regulations said.
Q. Right. I'm just--I'm taking "capacity" out
of your Witness Statement, so I want to make sure that
we're on the same page.
A. Oh, okay.
Q. Right? Last line of paragraph 22?
A. "Expand the capacity." Okay.
Q. Right. If you--if the steps that you
described in Paragraph 22 had expanded the capacity or
the crusher throughput, your understanding is that you
would have needed to apply for and obtain an expansion
of the Beneficiation Concession; is that right?
[Page 713]
A. That's correct.
Q. And then in the next paragraph,
Paragraph 23, you talk about another set of
improvements that expanded one of the leaching pads,
and it did result in a capacity expansion, from 31,000
to 39,000 MT/d?
A. Correct.
Q. Okay. And so, for that one, you did have to
get an expansion of the Beneficiation Concession;
correct?
A. Correct.
Q. Okay. And for that second step, was the
purpose of expanding the Beneficiation Concession to
get--to bring that new capacity under the
Stabilization Agreement?
A. Well, at that time, in my mind, first of
all, it was the Regulation. If we increased the
capacity beyond 10 percent, we had to expand the
Concession.
Was there talk about: Does this make it
stabilized? No. It never came up. It didn't make
sense that, okay, now we're going to process 8,000
[Page 714]
more tons, and these tons would not be under the
Stability Contract.
I mean, it wasn't talked about, but I guess
it was implied, or logically you figured it was.
Q. But the improvements from the first step
that we talked about in Paragraph 22, those didn't
need--didn't involve any expansion of the
Beneficiation Concession either; right?
A. I think we already decided that. It didn't
increase the throughput more than 10 percent, so...
Q. Okay.
A. And you know, really, I explain there's two
projects. They are kind of really related. You know,
we increase the cutoff grade, and we are probably on
the limit there. We did some more analysis and said,
you know, hey, let's just increase the crusher. We
can make a lot more copper. So, that's what we did.
They are not totally separate. In a sense they were,
but they are a little bit--because we did the first
one, it allowed us to do the second one.
Q. Okay. And those two, or combined projects
had a significant impact on the copper production of
[Page 715]
the plant; right? You say that in your last sentence
of Paragraph 23.
A. Yeah. Sure. It increased the copper
production. I believe we were at 190 tons a day of
copper, and we went to 230. So, I don't know,
whatever percent that is. I see it right there. Oh,
that's operating cost.
Q. Okay. So, now, let's move on to sort of the
early stages of thinking about a concentrator project.
And you explained to us in your direct examination
with Mr. Ukabiala some of the changes in power and
water availability that made that an interesting
proposition. I want to talk about the Pre-Feasibility
Study.
So, as I understand it, you and your
colleagues--was it both Phelps Dodge and Cerro Verde
or mostly the Cerro Verde team that prepared the
Pre-Feasibility Study in 2002?
A. It was done internally with--mostly us, at
Cerro Verde. We had help from Phelps Dodge, Jim
Vanderbeek, who was our local expert on milling,
concentrating. He helped us figure out the cost for
[Page 716]
the mill. So, most of it was Cerro Verde employees.
Q. Okay. And if we think of Phelps Dodge and
Cerro Verde sort of as together, the pre-feasibility
study is done in house, and then if you go on to a
feasibility study, you turn to an outside consultant
like Fluor; is that right?
A. That is correct.
Q. So, if you get a positive readout from a
pre-feasibility study, then you go hire the outside
consultants?
A. Exactly correct.
Q. Okay. And that pre-feasibility Study, as I
understand it from when we talked in February, defines
the scope of the feasibility study. You are, in
essence, saying, we looked at this project, we think
this is really interesting, we think it's worth
checking the feasibility. So, Fluor, please go do a
more detailed or a more in-depth analysis of this
project.
A. Yeah. I think I explained the purpose of a
pre-feasibility study is, first, to see whether it's
economic to go to a feasibility study, which is a lot
[Page 717]
1 more expensive and time-consuming. The second thing
2 is define the scope because you don't want engineers
3 that you're paying on time and materials to be
4 spending a lot of money on things they should not be,
5 that is not in their scope. Then thirdly, identify
6 what you need to do additional due diligence on. So,
7 that's the three primary purposes of a pre-feasibility
8 study, and I'm starting to talk too fast, so I will
9 try to slow down.
10 Q. One question, just since you mentioned it.
11 You said that the feasibility study is a lot more
12 expensive and time-consuming. Do you recall, on an
13 order of magnitude, the cost of the Feasibility Study
14 that was done in 2004?
15 A. Yeah. In 2004, it--the Pre-Feas was--I'm
16 thinking somewhere around--it depends on what you
17 include in the cost--you know, $300,000 or $400,000,
18 and the Feasibility Study was about 5 million, is what
19 I kind of remember.
20 Q. Okay. That is a bit different.
21 A. So, it is significantly different.
22 Q. Right.
[Page 718]
1 A. I mean, the accuracy of a pre-feasibility
2 study is plus--generally plus or minus 30 percent.
3 The accuracy of a feasibility study, which is also
4 called a bankable feasibility study, is plus or minus
5 15 percent.
6 So, that's why it is more expensive.
7 Q. Sure. And since the Pre-Feasibility Study
8 is important--
9 ARBITRATOR TAWIL: Sorry. Excuse me.
10 Can--because the Transcript is probably not that
11 clear. So, you say in 2004 the Pre-Feasibility Study
12 was around what? 400,000?
13 THE WITNESS: I'm sorry. Could you repeat
14 the question?
15 ARBITRATOR TAWIL: Yeah. I mean. I'm
16 reading from the Transcript. You say in 2004 the cost
17 of the Pre-Feasibility Study was around $400,000?
18 THE WITNESS: I don't remember exactly. I
19 would say 300,000 to 400,000. It depends on whether
20 you included the exploration drilling, if you wanted
21 to include that in the cost of the Feasibility Study.
22 But--I'm speaking in generalities, it is somewhere
[Page 719]
1 around that neighborhood.
2 ARBITRATOR TAWIL: And the Feasibility Study
3 is about 5 million?
4 THE WITNESS: Yeah, about--today it would
5 probably be 10, 12 million.
6 ARBITRATOR TAWIL: Okay. Thanks.
7 Apologies.
8 MS. CARLSON: No, thank you.
9 BY MS. CARLSON:
10 Q. So, given the purpose that you have
11 described, or the role that you have described for the
12 Pre-Feasibility Study, I assume you want those
13 expensive consultants to have all of the information
14 in the Pre-Feasibility Study?
15 A. Yeah. It is important that they have the
16 information that is related to their scope. When we
17 went to Phelps Dodge in general, most companies do,
18 when you go to a feasibility study, you generally
19 assign, in our case, about 8 to 10 people of our
20 experts, experts in crushing, experts in milling,
21 electrical instrumentation. We assign them to a
22 project team, and that project team is led by a
[Page 720]
1 project leader, and so, their role is to keep the
2 engineering company on task, make sure they follow the
3 scope of work. So, anything done in the
4 pre-feasibility study related to their scope of work,
5 sure.
6 But, you know, again, like I said, you know,
7 a pre-feasibility study's accuracy is plus or minus
8 30 percent. So, some of the information was
9 important, like what we thought the size of the mill
10 should be. Fluor needed to know that. Some of the
11 early stuff we did, you know, they're going to do more
12 work and they are going to define that.
13 Q. Okay. And we established, when we talked in
14 February, that you had no reason to and did not recall
15 withholding any part of the Pre-Feasibility Study from
16 Fluor. Do you recall that?
17 A. Yeah, I think--I'm sorry. Go ahead.
18 Q. I'm sorry. My question was, do you recall
19 that?
20 A. Yes. I think what I said was that anything
21 related--that was important for them or related to
22 their scope of work--I don't know if I used the word
[Page 721]
1 "scope of work"--maybe you can pull it out on the
2 screen, but anything related to what they were
3 assigned to do, yeah, we would have shared it with
4 them.
5 Q. Well, let's look at what you did say, and
6 then I'm going to ask about the qualification that I
7 see you introducing now that you didn't introduce
8 then.
9 A. Well, I wouldn't say "qualification." But
10 go ahead.
11 Q. Okay. So, if we look at Day 2 of the
12 Transcript of the Cerro Verde Hearing, Page 655,
13 starting at Line 12. And we are going to read that
14 through to Page 656, Line 12. Starting at Line 12.
15 And let's just read through that together.
16 So, I asked you if Fluor--or I believe at
17 that point we were also talking about some other
18 consultants dealing with tailings dam and permitting,
19 would have had access to the Pre-Feasibility Study
20 analysis as well. There would have been no reason to
21 keep it from them. And you said, "There would be no
22 reason to keep it, if they needed to look at it."
[Page 722]
1 A. That's exactly what I tried to say just now.
2 If they need to look at it, if it's within their scope
3 of work.
4 Q. And, just to finish the thought, were there
5 any parts of the--my next question was: "Were there
6 any parts of the Pre-Feasibility Study that you would
7 not have shared with those entities?" And you said,
8 "Not that I can think of, no."
9 And then we had a further exchange about
10 that at Page 771, Lines 1 to 6. Again, I asked you:
11 "Do you recall excising or removing portions of the
12 Pre-Feasibility Study or its annexes before showing
13 them to Fluor?"
14 Are you--do you wish to change that
15 testimony?
16 A. I'm not changing the testimony, no, but I
17 think I need to clarify it because I think you are
18 kind of misrepresenting what I'm talking about.
19 When you asked that question, what went
20 through my mind was, you know, if we had--for example,
21 if we had metallurgical testing that showed the ore
22 was three times as hard as what the rest of them,
[Page 723]
1 would we hide that from Fluor? No. We would not hide
2 anything from Fluor. The point I made--I think I made
3 it in the redirect, I think that's the term, but in
4 the redirect is that, you know, first of all, Terry
5 Linde--had the day-to-day interaction with Fluor.
6 The Pre-Feasibility Study, I was pretty much
7 in charge of everything. When it goes to feasibility
8 study, I am in charge of my area, and that was the
9 environmental permitting, any type of social, any type
10 of legal things.
11 Terry Linde was in charge of Fluor. So, he
12 would have the day-to-day things. So, Terry Linde
13 would be the one that had the interaction, and he
14 would share that information with Fluor. We would not
15 hide something from Fluor, but again, these guys are
16 on a contract of time and materials, so that means
17 they have to stay on scope, and that's what I meant
18 earlier when I said, if they needed to look at it.
19 And I think in the indirect there, you know, did we
20 share confidential privileged information? Of course
21 not. We wouldn't share that with Fluor. We wouldn't
22 share it with anybody else. That was internal to
[Page 724]
1 Phelps Dodge and Cerro Verde, so I think that's where
2 you were getting at here, and I think I clarified that
3 in my indirect.
4 Q. Okay. And if we look at the Pre-Feasibility
5 Study itself, which is--
6 A. The Pre-Feas?
7 Q. The Pre-Feas itself, yes.
8 A. Okay.
9 Q. It was going to be in Tab 8 of the binder,
10 but I realize that what is there is an excerpt, so we
11 need to actually look at the full exhibit, which is
12 not--I apologize--printed in the binders, but it is
13 Exhibit CE--928.
14 I think this is going to be okay for you,
15 because I understand you are mostly using the screen,
16 but if you need to see a hard copy, let us know and
17 we'll try to find one.
18 So, we've got--
19 A. Okay.
20 Q. So, I want to look in particular at the
21 Executive Summary, and that starts on Page 1, which is
22 PDF Page 18. Okay. And then one of the things that
[Page 725]
1 we're talking about is if we move to Page 2, is it
2 your testimony that this is what the Pre-Feasibility
3 Study looked like when it was handed to Fluor?
4 A. I have no idea. Like I said, Terry Linde
5 would be the person that had the interaction with
6 Fluor, and again, he would give them information that
7 was relative to their scope of work. So, whether that
8 was given to Fluor, I cannot answer that.
9 Q. Do you--
10 A. I did not.
11 Q. So, you did not--
12 A. I did not hand the Pre-Feasibility to Fluor.
13 Again, that would be handled by Terry Linde, and
14 again, he would be--they are very careful in making
15 sure these engineering companies stick to their scope
16 of work, and so he would have--have done that.
17 Q. Okay. So--
18 A. I don't know if that answered your question
19 or not.
20 Q. One of the things that we've talked about
21 and we will talk about some more is the fact that the
22 Feasibility Study by Fluor assumes that the
[Page 726]
1 stabilization will extend to the Concentrator Plant?
2 A. The Feasibility Study that Fluor helped put
3 together--I mean, it is still Phelps Dodge and Cerro
4 Verde's Feasibility Study. They are the main
5 engineers, but the one that we put together, yes.
6 Q. Right. "The one that we put together"?
7 A. "We" being Cerro Verde, Phelps Dodge, with
8 the assistance of Fluor, and other engineering
9 contractors.
10 Q. The 2004 Feasibility Study?
11 A. Correct.
12 Q. Okay. So, that--
13 A. I'm just trying to clarify. It is not
14 Fluor's Feasibility Study. It is ours.
15 Q. Okay.
16 A. I mean, Fluor helped us in the engineering.
17 We did--Cerro Verde did a lot of work. Phelps Dodge
18 did a lot of work, so it's Phelps Dodge's Feasibility
19 Study. So, it is not Fluor's.
20 Q. Okay. And that Feasibility Study assumed
21 that the stabilization extended to the Concentrator
22 Plant?
[Page 727]
1 A. Correct.
2 Q. The 2002 Pre-Feasibility Study assumed that
3 the stabilization extended to the Concentrator Plant
4 as well; correct?
5 A. I believe the Pre-Feas, we were unsure about
6 the reinvestment of profits and how you would
7 repatriate those profits back, and so we decided to
8 show that as a sensitivity until we could do due
9 diligence during the Feasibility Study.
10 Q. I want to distinguish between the profit
11 reinvestment--
12 A. Okay.
13 Q. --and the application of the stabilization
14 to the Concentrator Plant going forward.
15 A. Okay. All right. You said "Stability
16 Contract," so I had assumed you were talking about
17 both.
18 Q. Okay.
19 A. So, I guess maybe you need to repeat the
20 question.
21 Q. Sure.
22 So, did the 2002 Pre-Feasibility Study
[Page 728]
1 assume that stabilization extended to the Concentrator
2 Plant itself going forward?
3 A. And in the--could you define the
4 stabilization? Does that not include the reinvestment
5 of profits or not?
6 Q. So, the profit reinvestment question is, can
7 we take profits that the Company is currently making
8 from the Leaching Pad--
9 A. I know what is. I'm asking the question.
10 Q. --and use those to build the Concentrator
11 Plant? That's one question.
12 The second question is, does the
13 Stabilization Agreement apply to the Concentrator
14 Plant going forward so that, for example, its tax
15 rates are stabilized?
16 A. Okay. Yes.
17 Q. Okay. So, distinguishing those two
18 questions--
19 A. Got it.
20 Q. --are both--which or both were assumed in
21 the 2002 Pre-Feasibility Study?
22 A. From what I remember, I think it says--well,
[Page 729]
1 maybe it's redacted. I don't know. But what I
2 remember is that the--again, you want me to separate
3 the two; correct?
4 Q. Please.
5 A. Okay. The reinvestment of profits was shown
6 as a sensitivity because we didn't fully understand
7 how we could bring the profits back--to repatriate the
8 profits back to the parent company. So, we said, hey,
9 let's show it as a sensitivity. And then during
10 feasibility where we do more due diligence, we'll
11 figure that out, how to do that.
12 Now, the second one, did it assume the tax
13 rate that was with the Stabilized Tax Regime? Yes.
14 Q. Okay. And then that same assumption, as I
15 understand it, was included in the Feasibility Study?
16 A. In the Feasibility Study we figured that
17 with clarity from the MINEM that we--how to repatriate
18 the funds so they both were shown in the Feasibility
19 Study, correct.
20 Q. Okay. So, as to the second question, the
21 application of the Stabilization Agreement, which
22 seems to have been redacted out of this document, is
[Page 730]
1 it your testimony that Fluor came up with that
2 assumption on their own?
3 A. Can you repeat what was redacted? I
4 guess...
5 Q. We don't know.
6 A. Oh, okay.
7 Q. That's the first point.
8 A. So, you're assuming what is in there, and
9 you're asking me to assume what was in there?
10 Q. Right. So, let's assume that what's
11 redacted--because in addition to the Executive
12 Summary, I should say that we see from the appendices
13 that there is a legal opinion that has been removed
14 and that we have not received the appendix about the
15 Stabilization Agreement, stabilization law.
16 So, we are assuming, as best we can guess,
17 that what is here is the legal analysis of the
18 Stabilization Agreement.
19 A. Okay. If that's what you are assuming, it
20 is redacted, so I would also assume that is privileged
21 information, so, yeah.
22 Q. Right. So, I'm trying to figure out how it
[Page 731]
1 is that in 2002 Fluor can come to a conclusion about
2 the application--
3 A. Wait, wait, wait. This is the
4 Pre-Feasibility Study. We--go ahead.
5 Q. Pardon me. I misspoke, and I'm going too
6 fast.
7 A. Okay. This is the Pre-Feasibility. Fluor
8 did not get involved in the Pre-Feasibility Study.
9 Q. All right. Yes.
10 (Interruption.)
11 Q. Right. I will repeat and correct my
12 question. I'm trying to figure out how in 2004,
13 without seeing this legal analysis, since you say that
14 you think it was redacted, Fluor came to the
15 conclusion or came to the assumption that the
16 Stabilization Agreement applied to the Concentrator
17 Plant. Because the suggestion is that they didn't get
18 this legal analysis. It was redacted this way.
19 A. Okay. What I'm looking at here is a
20 Pre-Feasibility study.
21 Q. Right.
22 A. Okay.
[Page 732]
1 Q. And you're saying that--
2 A. Now could you ask that again, so I maybe
3 understand? I shouldn't be looking at this. You're
4 talking about the Feasibility Study?
5 Q. All right.
6 A. I guess I don't follow.
7 Q. Step by step. 2002, analysis of the
8 Stabilization Agreement is, we assume, redacted, not
9 given to Fluor.
10 2004, Fluor, not having received this
11 information, makes an assumption about the application
12 of the Stabilization Agreement.
13 A. I don't know that I would word it that way.
14 You know, they--Cerro Verde and Phelps Dodge, we did
15 our due diligence, and we felt that we had
16 confirmation that the new Concentrator would be
17 stabilized, so the decision was made to include it in
18 the Feasibility Study. You know, Fluor is an
19 engineering company, you know. We pay them money to
20 go help design this Concentrator. But it is our
21 Feasibility Study. It is not Fluor's.
22 Q. Okay. One--actually, while we're here and
[Page 733]
1 because we have been talking about the Profit
2 Reinvestment Program, I want to take a look at--in
3 this same document, move on to Pages 16 and 17 of the
4 Executive Summary, and in the PDF that is Pages 35 and
5 36.
6 Here we find a nonredacted discussion of the
7 Stabilization Agreement. And this first--take the
8 time to read it if you need it.
9 A. No, I'm pretty familiar with it. Go ahead.
10 Q. Okay. So, these first paragraphs just seem
11 to describe the Stabilization Agreement, or the
12 Stabilization Agreements, I should say, in plural.
13 And then the discussion that follows on the next page
14 is all about the Profit Reinvestment Program. And if
15 we look at the first paragraph on the top of Page 17,
16 it's discussing the Profit Reinvestment Program, and
17 it's talking about the analysis of how SMCV's existing
18 profits from the leaching operations can be used
19 to--I'll summarize--pay for the new Concentrator Plant
20 in a tax-advantaged way. I'll leave it at that,
21 unless we need to go into more detail.
22 A. Well, I think that it's an incentive by the
[Page 734]
1 Government to reinvest in your mining operation. So,
2 that's what it is for.
3 Q. Right. And this Profit Reinvestment
4 Program, this option, if we see at the third
5 paragraph, sort of the third full paragraph on
6 Page 17, indicates that the availability of that
7 benefit has a significant effect on the economics of
8 the new project; right? It has a material impact on
9 the NPV.
10 Do you recall that?
11 A. I see it right there. Correct.
12 Q. Right. And you remember that--
13 A. Oh, sure.
14 Q. --that dynamic? Okay.
15 That, though, as we said, is about the
16 Profit Reinvestment Benefit; right? That's different
17 from the question of stabilizing the tax, royalties,
18 whatever else regime, of the Concentrator Plant going
19 forward.
20 A. They both had a significant effect on the
21 economics.
22 Q. But I don't see any discussion here of the
[Page 735]
1 economic impact of anything other than the Profit
2 Reinvestment Program.
3 A. Okay.
4 Q. And this is the Executive Summary of the
5 Stabilization Agreement and its relevance to this
6 Project. Am I missing anything? Do I see anything--
7 (Overlapping speakers.)
8 A. I don't know. I mean--but what is the
9 question? It talks about, we did not include this in
10 the economics, and so we made a statement there saying
11 that it could have a significant effect on the
12 economics, and that's what it says.
13 Q. Okay.
14 A. So...
15 Q. To be clear, the profit reinvestment would
16 have that--
17 A. Yeah, right, because we did not include it
18 in the economics.
19 Q. All right. So, we--so, this is the
20 Pre-Feasibility Study. I'm going to move on to the
21 Feasibility Study, which is in May of 2004, completed
22 in May of 2004.
[Page 736]
1 But I want to actually ask you about
2 Paragraph 26 of your First Witness Statement because
3 there was a phrasing here that I thought was
4 interesting. And that is that you convinced Phelps
5 Dodge to hire Fluor to do the Feasibility Study.
6 Why did they take convincing?
7 A. "I ultimately convinced Phelps Dodge to hire
8 Fluor." Well, we--well, you know, Phelps Dodge is--we
9 did Pre-Feasibility Study and, you know--when we did
10 the Pre-Feasibility Study, Cerro Verde wasn't even on
11 the radar screen to have some major expansion. It was
12 actually El Abra in Chile. And so, we did the
13 Pre-Feasibility, and I think we surprised them. Like,
14 oh, God, do want to invest that much more, you know,
15 money in Perú and everything else?
16 So, that was what I meant by "convinced"
17 them--not necessarily to hire Fluor, but to convince
18 them to do a Feasibility Study. That would have been
19 better wording than "Fluor," but that's who we ended
20 up picking.
21 Was that the confusion?
22 Q. Well, I wasn't taking that as any sort of
[Page 737]
1 condemnation of Fluor.
2 A. Okay. Right.
3 Q. I was just more interested in the fact that
4 it took some work to get them to move on to the
5 Feasibility Study.
6 A. Oh, yeah, I mean, we went to several
7 meetings and talked about it, and I said, you know,
8 we've got this opportunity here. You know, we can, we
9 can make this into a major project, a major mine. So,
10 yeah, I mean, I had a lot of discussions with them.
11 Q. All right.
12 A. And you know, of course, like I mentioned
13 before, they are somewhat of a conservative company,
14 and you know, sometimes they play the devil advocate.
15 Well, why do you want to do this? Would you invest
16 $850 million? That type of thing. So, that's where
17 the word "convince" comes from.
18 Q. And I mean, I think that is consistent with,
19 also, how you described the process of then actually
20 moving on, of course, after the Feasibility Study, to
21 the actual decision to proceed with the Project. You
22 again use that word, "convinced."
[Page 738]
1 A. Yeah, the biggest debate--I think they were
2 on board proceeding, but the biggest debate at that
3 time was, really, do we build a 50,000-ton?--at that
4 time we didn't--hadn't decided on HPGRs--but do we
5 build a 50,000-ton-a-day concentrator, or do we build
6 a 100,000-ton-a-day concentrator? So, that was the
7 biggest debate, really, with Phelps Dodge.
8 I think the results of the Feasibility
9 Study, they were convinced that, you know, hey, this
10 is a good project and we should do it. But they
11 didn't know if they wanted to spend that much more
12 money, and ultimately they went out for equity funding
13 and made it happen.
14 Q. All right. Right. Just to make sure that
15 we're on the same page, so if we look at your February
16 testimony, Day 3, Page 648, we had sort of a similar
17 discussion about the process of getting Phelps Dodge
18 on board.
19 Starting at Line 14 on Page 648. And my
20 question was, you know, we have the Feasibility Study,
21 and you have--at least you have Fluor's opinion that
22 it is feasible to proceed with the Concentrator
[Page 739]
1 Project. And then you respond that you had Phelps
2 Dodge, Cerro Verde, and Fluor's opinion. That was
3 your point about this being your Feasibility Study,
4 that showed economics, and you just needed to convince
5 Phelps Dodge to agree to build the Project.
6 A. Okay.
7 Q. So, that sounds consistent with what you
8 just told me.
9 (Overlapping speakers.)
10 A. That's kind of what I said, yeah.
11 (Interruption.)
12 (Stenographer clarification.)
13 Q. I said that sounds consistent with what you
14 just explained.
15 A. Correct.
16 Q. And back to your point about Phelps Dodge
17 being sort of conservative, I think that also echoes
18 with the discussion that we had in February about--I
19 think it came up in the context of explaining why your
20 predecessor had left. I think the phrase--
21 A. Yeah. A little bit. It was more a culture
22 thing, difference in culture between Cyprus--and I
[Page 740]
1 think maybe--let me just touch on it a little bit.
2 The predecessor left after I got there,
3 three months. You know, he--we worked together for, I
4 don't know, like 15 years, in Phelps Dodge, and we
5 were actually friends, played golf, and that type of
6 thing. And he left because he liked the culture of
7 Cyprus, and Cyprus had another guy that we used to
8 work with, Jeff Clevenger, who was the number-two guy
9 in charge. It was just a different culture, I mean,
10 it was more, let's go out and kind of figure these
11 things out and let's go have fun and do it. That was
12 the culture. That is what attracted him to Cyprus.
13 When PD bought them, he said: "I don't think I can
14 handle this. I'm going to go."
15 Q. And I think the phrase you used when we were
16 discussing this in February--just for the sake of the
17 Transcript, it is Page 606, Lines 15-18--was "old
18 fashioned." We don't need to go look at it now. Does
19 that sound right?
20 A. Yeah, I said that, and I said, you know, a
21 better word is "conservative."
22 Q. Okay. Fair enough.
[Page 741]
1 A. And you said "fair enough" then.
2 Q. Yep. All right. Okay. So, you have
3 persuaded--we are in May of 2004. You have persuaded
4 Phelps Dodge to proceed with the Feasibility Study,
5 Fluor Canada has completed it in May of 2004 and
6 decided that it would be feasible to proceed with a
7 108,000- ton--
8 A. Metric ton.
9 Q. Metric tons--apologies--capacity
10 Concentrator Plant. And that is--well, all right.
11 So, in--to circle back, when we talked about
12 it, we talked about the fact that in the 2004
13 Stabilization Agreement--sorry, 2004 Feasibility
14 Study, both the May version and then in your Witness
15 Statement you also explained that in the update later
16 in the year in September 2004, both of those assumed
17 that the Concentrator Plant would be stabilized;
18 right?
19 A. Correct.
20 Q. Okay. And that assumption principally plays
21 in through the financial analysis; correct?
22 A. Correct.
[Page 742]
1 Q. Okay. And that was a financial model
2 prepared by Phelps Dodge?
3 A. Correct, yes.
4 Q. Okay. So, Fluor doesn't claim to have
5 audited that or to--to separately have investigated
6 its tax treatment or accounting standards; right?
7 A. I don't remember how they mentioned it in
8 the Feasibility Study, but the financial model that
9 Phelps Dodge uses has been audited by Pricewaterhouse,
10 whether Fluor went there. I think--it seems I either
11 remember they said something about they checked to
12 make sure the numbers were calculating correctly, or
13 something along those lines, but I'd have to refer to
14 that document, exactly what they said.
15 Q. Sure. Well, we can take a quick look at it-
16 -
17 A. Okay.
18 Q. --just for the benefit of all involved.
19 That is at Tab 9, it's Exhibit CE-20, which
20 is the 2004 Feasibility Study and Page 14-1, which is
21 Page 3 in the excerpt that's in the binder. It is
22 actually Page 153 in the full PDF. Here it describes
[Page 743]
1 that the financial analysis is an internal proprietary
2 Phelps Dodge economic model, and Fluor specifies,
3 throws in the caveat that auditing from the standpoint
4 of taxation or accounting is not within Fluor's scope
5 of services. You said in February that PwC audited
6 the financial model, but they didn't state a view on
7 the Stabilization Agreement.
8 A. You said a lot there. Could you ask a
9 question?
10 Q. Sorry. I'll break that into pieces.
11 A. Sorry.
12 Q. Sure. So, looking at this document, this is
13 Fluor's--well, this is the Feasibility Study--
14 A. Right.
15 Q. --description of the modeling question.
16 Right. So, we were saying the financial analysis
17 model is developed by Phelps Dodge. That is up in the
18 first paragraph, first line of the first paragraph.
19 Then the first line of the second paragraph
20 says that it is a proprietary, internal Phelps Dodge
21 product that has been used for project evaluations
22 since 2001. Fluor has reviewed the model and is
[Page 744]
1 satisfied about its mathematical functions and its
2 cash flow, but that auditing from the standpoint of
3 taxation is not within Fluor's scope of services.
4 And it's been performance-tested by PwC, and
5 I think we concluded--we agreed in February that there
6 is no discussion here of PwC or Fluor having said
7 anything about the Stabilization Agreement.
8 Does that sound familiar to you?
9 A. That Fluor and Pricewaterhouse did not say
10 anything, did not say anything about the
11 stabilization?
12 Q. Well, let's take PwC, first.
13 A. Okay.
14 Q. Okay. I think for efficiency's sake, I'll
15 just throw the Transcript reference in there, because
16 I don't think we need to spend time looking.
17 A. I think I said I have no idea.
18 Q. Okay.
19 A. Is that what you want me to say?
20 (Overlapping speakers.)
21 A. Okay. I had no idea whether Pricewaterhouse
22 did anything.
[Page 745]
1 Q. Okay.
2 A. It is out of my scope.
3 Q. That's fair.
4 And the Transcript reference I have in mind,
5 I'll put in just for the record, is Day 3, Page 652,
6 Lines 15-22.
7 So, this 2004 period, though, May to
8 September of 2004, is also when you've told us that
9 there was uncertainty and concern about the scope of
10 the Stabilization Agreement internally at Phelps Dodge
11 and, as we understand, also at Sumitomo; right?
12 A. Are you talking about the political climate
13 in 2003 and '04? Is that what you're talking about?
14 Q. Well, we know that in 2004 the Company
15 decided that you needed to seek additional
16 confirmation or assurances?
17 A. Oh, okay.
18 Q. Right. Why was that?
19 A. Why was that? That was the question?
20 Q. Briefly. Please.
21 A. That's a hard question to be brief.
22 2003 and '04, I mean, here we are--we were
[Page 746]
1 doing the Feasibility Study. We were trying to
2 convince--my word--Phelps Dodge to invest in Perú. In
3 2003 and '04, it was a very difficult political
4 climate. Congress was--first of all, commodity price
5 is starting to rise. Congress was talking about, hey,
6 these mining companies are making a ton of money, we
7 need to put in Royalties. And there was even one
8 Congressman--I didn't even have to refresh my memory.
9 It was D. Canseco. He was a very outspoken
10 Congressman, and he had made statements that, you
11 know: "I don't care if these mining companies have a
12 Stability Contract. They need to pay us more money."
13 And so, obviously, that made us, the miners
14 in Perú, nervous. It made even the administration,
15 the ministers, nervous because they knew that if the
16 Government would not cancel the Stability Contracts,
17 you know, that would freeze future investments in
18 Perú. So, everybody was nervous.
19 And so, it even made Phelps Dodge and us
20 nervous, and so we said, okay, we need to make sure we
21 have some type of written confirmation that if we
22 build this concentrator it will be stabilized. So,
[Page 747]
1 that was as quick as I can do.
2 Q. I appreciate that. Thank you.
3 I mentioned--and I should set the
4 stage--Sumitomo, and I think you also set the stage
5 for it when you referenced Phelps Dodge getting an
6 equity investment.
7 As I understand it, when Phelps Dodge
8 decided to seriously consider proceeding with the
9 Concentrator plant, they decided that, to help finance
10 that or to help get the capital for that, that they
11 would get equity participation from Sumitomo. Is
12 that--
13 A. Yeah, essentially sold 40 percent of Cerro
14 Verde.
15 Q. And so, that's a stage at which you need to
16 persuade Sumitomo to bring that capital in; right?
17 A. Yeah. As I think you--or I mentioned
18 someplace, so the meetings I had with Sumitomo, you
19 refreshed my memory. During the last thing is, you
20 had a couple meetings, then--and my meetings with
21 Sumitomo dealt with, okay, what's going on at the
22 site, and then, technically, what's going--what does
[Page 748]
1 the Concentrator look like?
2 So, the financing part discussion with
3 Sumitomo I was not involved in.
4 Q. Right. But if Sumitomo isn't comfortable
5 bringing their money to the table and buying that
6 40 percent, there's no Concentrator Project here?
7 A. I can't answer that either. Whether Phelps
8 Dodge would look for additional funding someplace
9 else, or it would go to bank funding, you know, I
10 can't answer that question. I would certainly try to
11 persuade them to figure out something else, and
12 whether they would have--not, you know, it's
13 hypothetical, I guess.
14 Q. Okay. Well, I mean, in Paragraph 29 of your
15 First Witness Statement, you're talking about the
16 process of persuading Phelps Dodge, and you said that
17 the President of Phelps Dodge was skeptical about such
18 a substantial investment, but they--you decided to
19 take advantage of these economies of scale with a
20 larger capacity after securing further equity
21 partnership from Sumitomo Metal Mining and from
22 Buenaventura.
[Page 749]
1 I had--understand that that made those
2 equity investments sort of a but-for condition or a
3 necessity for proceeding with the large plant?
4 A. Well, I think it's a little bit more than
5 that. You know, that we had two cases. We had a--at
6 that time it was 50,000 or 100,000 cases, and, you
7 know, that the 50--I think--again, Tim was--he was
8 concerned about the large capacity. He was trying to
9 go for the smaller one because it wasn't putting so
10 much money in Perú, and then I think--again, I wasn't
11 involved in their--how they figured out the equity,
12 but I think he became convinced. But he said, you
13 know, hey, we'll go out and get equity.
14 But I do remember the conversation with him
15 and others. I said, you know, "if you're going to
16 Sumitomo to get equity, it's only fair that you go to
17 our other partners, Buenaventura, and offer them the
18 same thing." And whether they had thought of that or
19 not, I don't know, but I certainly made that comment
20 to Tim and others.
21 Q. But that--those--and you're right, there are
22 two. Those equity contributions are what convinces
[Page 750]
1 Phelps Dodge to go with the bigger plant; right?
2 A. I believe so. I mean, you know--I think
3 that was the hurdle, that to build a big plant was
4 really--they didn't want to put all that much money of
5 their own money, Phelps Dodge's money into Perú.
6 Q. Okay.
7 A. So, that was my understanding.
8 Q. All right. And so, at some level, that
9 means that you've got to not only reassure Phelps
10 Dodge, but you've also got to reassure Sumitomo that
11 they should feel comfortable, that this Project is
12 going to be fine?
13 A. Well, you know, the relationship between
14 Phelps Dodge and Sumitomo is a long relationship. You
15 know, they own 20 percent of Morenci, which is one of
16 the largest mines in the world, and they also invested
17 in Candelaria in Chile, when they--when Phelps Dodge
18 first built it.
19 So, I think Sumitomo was pretty comfortable
20 with Phelps Dodge, but the meetings I've had with
21 Sumitomo, they usually ask a, you know, a thousand
22 questions. They're very technical and very detailed
[Page 751]
1 in their analysis.
2 Q. But we've heard testimony, and then I think
3 it's in your Witness Statement as well, that prior to
4 this time period, you already believed that the
5 Stabilization Agreement already covered the
6 Concentrator Project, if you were to proceed with it;
7 is that right?
8 A. Prior to what time frame? Where are we at,
9 time frame?
10 (Overlapping speakers.)
11 Q. So, let's talk about 2002 and 2003.
12 A. Okay.
13 Q. So, as I understand it, in that time
14 window--well, and I'm trying to get my handle--a
15 handle on it as well, because I think we've heard
16 different explanations of how stabilization is
17 achieved. So, we've heard some testimony that the
18 Company thinks that it was--everything was already
19 stabilized under the Stabilization Agreement, the way
20 it was written, from Day 1, nothing more was needed.
21 Was that your understanding?
22 A. Well, I think I explained it yesterday, to
[Page 752]
1 me, the stabilization is pretty simple: You stabilize
2 the Concession, and in the Concession is a Mining
3 Concession and a Beneficiation Concession. As I
4 explained the reasons why, I think I had like five or
5 six of them yesterday, and, you know, the first one,
6 it's a porphyry deposit. Porphyry deposits are
7 processed either through leaching or a Concentrator or
8 both. So, I--okay.
9 Q. Right. Well, we've got those five reasons
10 on record from yesterday.
11 A. Okay. Okay. So, did I not answer the
12 question then?
13 Q. So, you said you stabilized the Concession,
14 and the Concession is Mining Concession and a
15 Beneficiation Concession.
16 So, your understanding of the Stabilization
17 Agreement is, if I get a Concession, and the
18 Concession is stabilized, everything that happens in
19 the Concession is stabilized; is that right?
20 A. That's--yes. I said what you're stabilizing
21 is the Mining Concession, which contains the porphyry
22 deposit, and the Beneficiation Concession, which
[Page 753]
1 covers the processings.
2 Q. All right. What if, on that same property,
3 Cerro Verde had decided to build a smelter? Would the
4 smelter's profits be stabilized?
5 A. So, last time you asked me, they built a rod
6 mill; now it's a smelter, huh?
7 Q. Yeah. I thought I'd try something else.
8 A. You know, and again, I kind of answered it
9 last time, you know--
10 (Overlapping speakers.)
11 MR. UKABIALA: Just very briefly, we would
12 just object to the Witness being asked to speculate
13 about what would have happened if Cerro Verde had
14 built other types of infrastructure. It's purely
15 hypothetical.
16 MS. CARLSON: I'm asking him to explain the
17 Company's understanding of how the Stabilization
18 Agreement worked. He was the President of the
19 Company. He has an understanding of how that
20 Stabilization Agreement works. I want to test the
21 boundaries of what that means.
22 BY MS. CARLSON:
[Page 754]
1 Q. So, if I understand correctly, you can
2 answer the question.
3 A. Okay. I explained to you last time, it's
4 hard for me to get my handle around a smelter, a rod
5 mill or anything else. I think a better example would
6 be is if we decided to leach the concentrate, and
7 that's exactly something we did.
8 You know, we looked at it during that time,
9 there was a process of Phelps Dodge was working on is
10 to actually leach the concentrate. So, you have a
11 Concentrator, your final product is a concentrate,
12 like it is today. And then we take that concentrate
13 and leach it, and turn it into copper cathode.
14 Now, to me, it is more relative to your
15 question. It makes more engineering-type sense, and I
16 say, yeah, there's no question.
17 Q. And would that require additional capital
18 investments, additional technology?
19 A. It would have been done same time, but, yes,
20 it would have cost more than $850 million.
21 Q. Right. Would it have expanded the capacity?
22 A. No, it would be the same, because you have
[Page 755]
1 concentrate that has X amount of pounds of copper, and
2 now you're just--you're going to leach that and make
3 those X pounds of copper.
4 Q. So, essentially anything you do--anything
5 you want to add to the plant, to the Beneficiation
6 Concession and the mining operations, that, in your
7 view, is going to be stabilized because the deposit is
8 stabilized; is that right?
9 A. Well, I guess I would word it differently.
10 The Mining Concession was stabilized. So, the mining
11 that we do inside the Concession is stabilized. The
12 Beneficiation Concession, anything we do to--in my
13 mind, anything we do in a processing plant to produce
14 a saleable product is stabilized. So, yes. That's
15 your--answers your question.
16 Q. Okay. And in your view, that was the case
17 with no further steps or permissions or approvals
18 needed from the Government? That was how the
19 Stabilization Agreement worked, as it was signed?
20 A. Well, no. You know that's not right. That
21 the--you had--if you're going to change the
22 Beneficiation Concession, if you're going to change
[Page 756]
1 that, you have to apply for--like we did--expansion of
2 the Beneficiation Concession. And that's what we did.
3 So, I guess, maybe I misunderstood your
4 question. You don't just simply say, hey, we're
5 building a Concentrator, boom, we're stabilized. No,
6 there's a process.
7 Q. In order to expand the Beneficiation
8 Concession because you're expanding the capacity, you
9 have to get approval to expand the Beneficiation
10 Concession. But as I understand your theory,
11 that--getting the expansion of the Beneficiation
12 Concession, as you did in 2001, to your theory, that
13 doesn't affect whether it's stabilized or not?
14 A. No. Again, what I said is the Government
15 has a process, and that formal process, and a lot
16 legally allowed. And if you're going to change--if
17 you want to change, like we did for the Concentrator,
18 you know, the two steps that we looked at was amending
19 the existing Concession--the Stability Contract, or
20 expand it, and what we decided was to expand it.
21 So, that was the process we had to follow.
22 It is not automatic, unless I'm misunderstanding what
[Page 757]
1 your question is.
2 Q. Well, let me ask a different question.
3 A. Okay.
4 Q. If you had--if there had been no
5 Stabilization Agreement in place, and you had decided
6 to build a Concentrator Plant, you would have had to
7 seek expansion of the Beneficiation Concession;
8 correct?
9 A. If you had no Stability Contract in place,
10 that means you have no Concession, I guess.
11 (Overlapping speakers.)
12 A. I don't follow what you're saying. Sorry.
13 Q. Well, you have a Concession. That's--you
14 have a Concession, entirely separate from the
15 existence of the--
16 A. You had no--
17 (Overlapping speakers.)
18 (Interruption.)
19 Q. So, I said, you have a Concession?
20 A. Okay.
21 Q. The existence of a Concession does not
22 depend on or cause to come into existence a
[Page 758]
1 Stabilization Agreement.
2 So, I'm taking the Stabilization Agreement
3 off the table. There is no Stabilization Agreement.
4 You just have a--you have a Mining Concession and a
5 Beneficiation Concession.
6 A. Okay.
7 Q. Okay?
8 A. So, for example, like, in this case, you
9 know if, in 2014, the Stability Contract is gone
10 because it expired.
11 Q. Right.
12 A. So, now, something like that. Okay.
13 Q. Right. So, now you want to build a
14 Concentrator Plant. You're going to have to get a
15 Beneficiation Concession expansion; correct?
16 A. You know, I don't know. We had no Stability
17 Contract. And so, I guess, if you were going to build
18 a Concentrator, you would enter into, I guess, you'd
19 enter into a new Stability Contract to stabilize a new
20 investment you're making, but--if I'm following you
21 correctly, if you don't have a Stability Contract, you
22 can build a new Concentrator, I would imagine you
[Page 759]
1 would go to the Government and say, you know: "Hey,
2 I'm going to spend $850 million, and I want a
3 Stability Contract."
4 Q. Right. But the requirement to extend the
5 Beneficiation Concession or not is separate from that
6 discussion? You have a Beneficiation Concession that
7 says you can process 39,000 MT/d. You want to process
8 150. You're going to need to get an expansion of the
9 Beneficiation Concession?
10 A. Exactly what we did, yes.
11 Q. To sort of play out the logic further, you
12 said, at the time you thought either we were going to
13 amend the Stabilization Agreement, or we're going to
14 expand the Beneficiation Concession.
15 Is it your testimony that, if you had gotten
16 the amendment, you would not have needed to expand the
17 Beneficiation Concession?
18 A. You know, the amendment was to have a new
19 Concession with the Concentrator, and then the next
20 step is for them to take that new Concession and put
21 it into your existing Beneficiation.
22 Q. Why couldn't you just amend the Contract to
[Page 760]
1 change the definition?
2 A. I'm sorry?
3 Q. It's--well, all right. I'm not going to
4 take it up with you because you're not the lawyer
5 who's coming up with the idea, as far as I know, but--
6 A. Okay. But all I'm saying is my
7 understanding, for a minute, I think I discussed it
8 yesterday, I believe, but was--anyway, so you--the
9 first step is a two-step process. The first step is
10 to create a new Beneficiation Concession that has a
11 Concentrator in it, and then the next step is to get
12 the MINEM to put that new Beneficiation Concession
13 into your existing Concession, and then it becomes
14 stabilized. That's my understanding.
15 Q. Yeah, as a lawyer, there's lots of ways to
16 amend a contract, so...
17 A. Okay.
18 (Overlapping speakers.)
19 Q. Okay. That's not your purview?
20 A. I'm just being the little technical guy.
21 Q. All right. So, but as I understand
22 it--well, again, I guess I'm still confused. In 2002
[Page 761]
1 or 2003, did you think you needed to take an
2 additional step like expanding the Beneficiation
3 Concession or amending the Stabilization Agreement?
4 A. Okay. So, I'm back in 2003, and your
5 question is, did I think about all this stuff?
6 Q. Right. Because those are extra steps.
7 A. No, they are not. I mean, we had--when we
8 went from 31 to 39, we had to expand the Concession.
9 So, when we were going from 39 to add a Concentrator
10 in there, we had to expand the Concession.
11 I think it became more highlighted because
12 of the political climate. I mean, that's what made
13 everybody, including me, nervous because, you know,
14 some of these Congress guys would say "hey, we're not
15 going to honor this Stability Contract." So, that
16 really made it more pronounced. But the step was the
17 same. I mean, you still had to expand the Concession.
18 Q. I think we'll let the lawyers argue about
19 the consequence of expanding the Concession, but let's
20 talk about this political climate that you've referred
21 to. And again, you're getting your information about
22 the political climate from the Mining Society, in
[Page 762]
1 which you're a participant, from your partners like
2 Buenaventura, from other mining Companies that you're
3 talking to. This is all coming to you--you're getting
4 this information in Arequipa, and you're passing it
5 back to Phelps Dodge; correct?
6 A. Yeah, I got it from a lot of sources. I
7 mean, it hit the news. I mean, I could read about it
8 in the paper. So, yeah, it was a very controversial
9 time. And I'm sure they read it too.
10 Q. Before--I lied. I said we were going into
11 2004, but let's talk about May or June of 2003.
12 A. Okay. 2003.
13 Q. So, you--May or June of 2003, the
14 Pre-Feasibility Study is completed. By this point
15 possibly the Feasibility Study is underway? Or not
16 until after, a little later?
17 A. Boy, you're testing my dates. You know,
18 we've talked so many dates. We completed the
19 feas--Pre-Feas--I don't know--2002-'03. I kind of
20 remember the years, whether--I don't remember the
21 months, for sure.
22 Q. December of 2002, on the face of the
[Page 763]
1 document.
2 A. What is it?
3 Q. December of 2002.
4 A. Oh, okay. So, yeah.
5 And so, then the next step was to decide
6 whether we were going to go to a Feasibility Study.
7 Q. Okay.
8 A. And so--what was your question again?
9 Sorry.
10 Q. I was just getting us oriented.
11 A. Okay.
12 Q. My question was, was the Feasibility Study
13 underway, but I don't think I actually need to know
14 the answer to that, so if you don't know off the top
15 of your head, that's fine.
16 We talked about how one of the
17 important--economically important questions in the
18 Pre-Feasibility Study was the question of the Profit
19 Reinvestment Benefit.
20 A. Correct.
21 Q. Okay. And you explained in your First
22 Witness Statement that in May or June of 2003, you
[Page 764]
1 went to talk to the Director General of Mining,
2 Ms. Chappuis, about the availability of the Profit
3 Reinvestment Benefit.
4 A. I believe so. I would think there was some
5 correspondence going on too.
6 Q. Right.
7 A. To try to understand it.
8 Q. Sure. Just to orient you, this is
9 Paragraph 33 in the First Witness Statement. Right.
10 So, you say around May or June of 2003, Julia
11 Torreblanca, then Director of Legal Affairs and I met
12 with María Chappuis, MINEM's Director General of
13 Mining. Because her office held primary
14 responsibility for supervising mining stability and
15 mineral concessions under the General Mining Law, she
16 was your main contact.
17 And then you say at that meeting,
18 Ms. Chappuis confirmed that because of the Stability
19 Agreement, SMCV was eligible to use the Profit
20 Reinvestment Benefit to construct the Concentrator, so
21 long as you complied with all the procedural
22 requirements. I'm assuming that means things like
[Page 765]
1 Construction Permits and Environmental Permits and
2 things like that?
3 A. Yeah, it means whatever their process was to
4 do this, yes.
5 Q. Okay. So, you had--at this point, you have
6 assurances directly from the Director General of the
7 Mining Ministry, Director General of Mining at MINEM,
8 that you're fine. That economically important
9 question that you had in the Pre-Feasibility Study,
10 she's told you you're all set: "Follow the process,
11 follow the procedure. You're good."
12 A. On the reinvestment of profits?
13 Q. Right.
14 A. Yes.
15 Q. Right.
16 A. You know, again, we needed clarity. We knew
17 we were eligible for it. We just needed clarity and
18 the concern was, how do you repatriate the funds back.
19 And so, we went through, okay, if I remember right, I
20 think Julia had sent some emails or letters to them
21 saying, you know, "hey, help us out on this process
22 and how do you do this?" And I think that was a
[Page 766]
1 clarity around it, but, yeah, we believed we had it.
2 We just didn't know how to repatriate funds.
3 Q. Well--okay. Because, I mean, you refer
4 to--sorry, emails or letters from Julia Torreblanca, I
5 assume. I think those are described in the next few
6 sentences of this paragraph, that are something that's
7 sent after this meeting; right? It says when we had
8 not received the document by July--and this was a
9 meeting you said happened in May or June--"then we
10 wrote to Ms. Chappuis."
11 So, are you saying that there were letters
12 before the meeting and letters after the meeting, or
13 were you referring to these letters after the meeting?
14 (Overlapping speakers.)
15 A. I assume I'm referring to this thing,
16 you're--you know, it's--we were always pretty--we
17 wanted things, like, yesterday and you know, the MINEM
18 doesn't operate that way. And so, we were always kind
19 of pushing them to--you know, hey, we asked you a
20 question, why don't you answer it? And so, that's
21 what I was referring to. We followed up.
22 Q. But you got an answer at the meeting. She
[Page 767]
1 told you you're fine?
2 (Overlapping speakers.)
3 A. Well, she said, comply with the applicable
4 procedure requirements, and that's what we were trying
5 to get clarity, what the procedural requirements were,
6 is what is my memory, but what do you--what is your
7 specific question? I'll try to answer it.
8 Q. Well, I'm trying to understand why those
9 letters were sent; right? Because you have a meeting,
10 Ms. Chappuis tells you everything's good, follow the
11 process.
12 A. Yeah .
13 Q. And then you say, afterwards, we hadn't
14 heard from them, so we write twice to the office to
15 inquire whether and how to take advantage of the
16 program.
17 A. Okay. And your question?
18 Q. What's, in your view, the purpose of
19 letters?
20 A. I guess, maybe I need to look at the letters
21 and then maybe I can help.
22 Q. Okay. All right. Sure. So, let's--we can
[Page 768]
1 take a look at the first one.
2 This is--sorry, Tab 10, Exhibit CE-394. It
3 is titled Petition Number 1418719, July 3, 2003. Now,
4 this is a letter that's in Spanish and signed by
5 Ms. Torreblanca.
6 A. Could you make it a little bit larger,
7 please.
8 Q. Yes. And what you're looking at, to be
9 clear, is the translation that's in the record for
10 this arbitration, but the original is in Spanish, and
11 it's--so, it's sent from Ms. Torreblanca to MINEM. I
12 don't know if you would have read a translation at the
13 time, or would you have just discussed the concept
14 with Ms. Torreblanca, what she was--that she was going
15 to write a letter, and what she was going to ask
16 about?
17 A. Yeah, more than likely we discussed it.
18 Yeah, we wouldn't waste the time to translate.
19 Q. Okay.
20 A. She would translate for me.
21 Q. Right. And this letter is asking for
22 clarification about whether reinvesting profits from
[Page 769]
1 the Leaching Plant into the Primary Sulphides Project,
2 the Concentrator, would be approved; right?
3 A. Yeah. Can you get back where--what are you
4 reading?
5 Q. Move us up and down wherever you like.
6 A. No. I was just trying to move to where you
7 were reading. What paragraph was that?
8 Q. It's a one-page letter, but--
9 A. Okay.
10 Q. So--sorry, not there yet. Right.
11 So, the prior paragraph says--
12 A. Yeah, okay.
13 Q. --as you're well aware, we're conducting a
14 Feasibility Study, "the decision whether or not to
15 implement the project" is directly related to this
16 reinvestment option. "Based on the assessments
17 conducted," we think that "we meet all the
18 requirements," and "will qualify to receive approval
19 of this program," but we have a question.
20 And the question comes in the next
21 paragraph. It says: "Given that our Stability
22 Agreement refers to the Leaching Project, rather than
[Page 770]
1 the Cerro Verde Project as a whole, which would also
2 include this new Primary Sulphides Project, we request
3 clarification that the Investment Program, using
4 nondistributed profits, the Profit Reinvestment Plan,
5 would be approved."
6 So, we want clarification, in advance, that
7 we can get this Profit Reinvestment Plan, even though
8 our Stabilization Agreement just refers to the
9 Leaching Project.
10 Is that your understanding of what the
11 question was?
12 A. Well, might as well jump to it. I mean, to
13 me was about the elephant in the room. Cyprus--they
14 did a Feasibility Study in '96. They called it the
15 Leaching Project. They did a Stability Contract in
16 the '98, they called it the Leaching Project. And,
17 you know, some people, particularly in Phelps Dodge
18 says, well, how can you build a Concentrator, it's
19 called a Stabilizing Leaching Project. I said, you
20 know, it's a name. That's all it is.
21 The stability is not defined by a process
22 and in the things I talked about yesterday. It's not
[Page 771]
1 defined by a process. And also the Leaching Project
2 is a name they filled out, why they picked it, I don't
3 know. But, I guess, I was thinking about--you know,
4 that the Feasibility Study in '96 was called that.
5 So, I'm assuming that's why they called it the--in the
6 Stability Contract, they call it "leaching."
7 So, this was just to make sure nobody got
8 confused by that title. That's my memory of the--why
9 this letter was sent.
10 Q. Okay.
11 A. Whether it was worded the best, you know, I
12 don't know. I didn't write it, but it was about the
13 elephant in the room.
14 Q. Okay. And then there was a second letter
15 five days later, which is Exhibit CE-395. It's in the
16 binder at Tab 11. Again, we're looking at the
17 translation here, but it's Ms. Torreblanca to
18 Ms. Chappuis.
19 This one is two pages. I would summarize it
20 as saying that there's a number of more detailed
21 questions about how the Profit Reinvestment Plan
22 works. And there's a request to clarify this and
[Page 772]
1 confirm the scope of the Profit Reinvestment Plan.
2 And so, for example, it says in the part
3 that we're just highlighting here.
4 (Interruption.)
5 Q. Sorry. For example, it says in the part
6 that we're just highlighting here on the screen, we
7 are also unclear as to whether the deadline--sorry,
8 no. Wrong text.
9 So, the request--the final request in the
10 letter is, we would appreciate if you would confirm
11 our understanding of all the features that we've just
12 specified. So, it's asked a series of detailed
13 questions about how the Profit Reinvestment Plan,
14 works and is asking for confirmation.
15 So, why did--why was the second letter
16 necessary?
17 A. I don't know. Let me--can you go up to
18 the--I'd have to read it.
19 Q. Sure.
20 A. I mean, I've looked at it before in the
21 documents that Counsel gave me, but...where does it
22 say the reason is? Does it say? "For this reason."
[Page 773]
1 (Overlapping speakers.)
2 Q. Yes. So, let's look at the paragraph that
3 says "among the provisions"?
4 A. Okay.
5 Q. As you well--so--and then in the middle it
6 says: "As you well know, we're in the process of
7 evaluating various technical, economic, and legal
8 aspects around this possible expansion of our
9 operational activities. It's essential that we know
10 with absolute certainty the scope and characteristics
11 of the Profit Reinvestment System, and for this
12 reason, we would appreciate if you would take the time
13 to confirm certain aspects of the most important
14 features of this program, in light of the stabilized
15 tax system."
16 And I don't think it matters sort of what
17 the specific questions are from this point forward.
18 You can read them. It's only a two-page letter, so I
19 have no--but in the interest of time, I think it's
20 clear that this is saying, you know, this is really
21 important to us. Please confirm that we've got it
22 right, that we understand this correctly.
[Page 774]
1 And you and Ms. Torreblanca, I assume, felt
2 that it was necessary to get this confirmation; right?
3 A. Well, we're doing our due diligence. I
4 mean, that's what you do when you, the--I guess, as I
5 mentioned before, you do Pre-Feasibility study, and
6 during the Feasibility Study, and you do due
7 diligence. And this was a due diligence that we
8 identified that we need, clearly needed to understand
9 exactly the procedure that MINEM required for us for
10 this benefit. So, that's my understanding of the
11 letter, that, to get--to make sure we get it right.
12 Because it's important.
13 Q. Okay.
14 MS. CARLSON: Madam President, I think this
15 might be a good time for a break, the 15-minute break.
16 PRESIDENT HANEFELD: Okay. We meet again in
17 15 minutes.
18 THE WITNESS: 15. Okay. Thanks.
19 MS. CARLSON: Thank you.
20 (Brief recess.)
21 PRESIDENT HANEFELD: Please proceed.
22 MS. CARLSON: Thank you, Madam President.
[Page 775]
1 BY MS. CARLSON:
2 Q. All right. Mr. Davenport, I am cursed by
3 the usual problem, which is, if you give a lawyer a
4 chance to think another minute or two, they will think
5 of another question.
6 A. Shouldn't have taken a break, huh?
7 Q. But, in this case, it's one last very simple
8 factual question to finish off our discussion of the
9 interchange with Ms. Chappuis about the Profit
10 Reinvestment Program.
11 You had a meeting with her. She said:
12 "Everything's fine." You sent letters saying: "We'd
13 like your confirmation; we'd like clarification."
14 Her office answered those letters; correct?
15 A. Yes, I believe so. If you want to show me
16 the letter, I can--
17 Q. No.
18 A. Okay.
19 Q. I mean, you say so in your Witness
20 Statement, so I assume you had--
21 A. Oh, okay.
22 Q. --confirmed that as well--
[Page 776]
1 (Overlapping speakers.)
2 (Interruption.)
3 (Stenographer clarification.)
4 Q. I just pointed out that you say as much in
5 your Witness Statement, and I'll say that that's
6 Paragraph 34 of your First Witness Statement, for the
7 record, and so I assume you would confirm that now as
8 well?
9 A. Yes.
10 Q. Okay. Thank you.
11 All right. So, I promised we would go to
12 the political context in 2003-2004, when there's the
13 discussion of the Royalties Law.
14 As I understand it, as I think you described
15 it, and as I understand--well, as I understand it,
16 there were two possible problems which was being
17 discussed in connection with the Royalty Law.
18 One was: What is this going to mean for our
19 new project, the Concentrator Project? But there was
20 also a question of: What is this political discussion
21 going to mean for our existing operations; right? Are
22 they going to, in essence, tear up our Stabilization
[Page 777]
1 Agreement and apply the Royalty Law to our existing
2 operations anyway?
3 A. That's not quite how I explain it. You
4 know, to me, they were the same thing. You know, the
5 existing operation, we put the Concentrator--new
6 Concentrator into a Beneficiation Concession, so it
7 was the same--concern for the same thing. They
8 weren't separate.
9 Q. Okay.
10 A. Because they were talking about, hey--at
11 least early on, they were talking about, "We don't
12 care if they have a Stability Contract. We want money
13 from these mining companies." So, it was the same.
14 Q. Right. So, this was a concern for you
15 whether or not you proceeded with the Concentrator
16 Project; right?
17 A. Oh, yeah, for sure.
18 Q. Okay. Setting aside what happens with the
19 Concentrator Project, though, what was the end result
20 of the Royalty Law for all of Cerro Verde's existing
21 operations?
22 A. The end result being when it was passed?
[Page 778]
1 Q. Exactly.
2 A. Yeah. And the end result being financially?
3 Q. Yes.
4 A. Oh. Well, they did not--they respected the
5 Stability Contract. Is that the question?
6 Q. Yes.
7 A. All right.
8 Q. So, all of that political fulmination from
9 Congressman Diez Canseco does not result in them
10 tearing up all the Stabilization Agreements?
11 A. Thanks goodness, huh?
12 Q. And as to all of your existing operations
13 apart from the Concentrator Plant, they continued to
14 be protected by the Stabilization Agreement, even
15 after the Royalty Law is put into place?
16 A. As far as I know, when I was there, yes.
17 Q. Okay. Now, you explained that there came a
18 time when you or Phelps Dodge or Sumitomo or some
19 combination thereof thought it was important to
20 find--to get some written confirmation of the
21 application of the Stabilization Agreement to the
22 Concentrator Project; correct?
[Page 779]
1 A. Yeah. It was, like I mentioned before, the
2 political conflict going on, it just--we needed
3 more--something more written confirmation. And so,
4 yes.
5 Q. Now, if we turn to your Witness Statement at
6 Paragraph 39 in your First Witness Statement, you
7 describe there, around mid-2004, Ms. Chappuis, who we
8 determined is the Director General of Mining at MINEM,
9 "confirmed to my team that the Stability Agreement
10 covered SMCV's Mining Unit comprising its Mining
11 Concession and sole Beneficiation Concession, and
12 explained that, once the Concentrator would be
13 included in the existing Beneficiation Concession, it
14 would benefit from the Stabilization Guarantees."
15 So, you say that you--I guess, in this case,
16 your team heard from Ms. Chappuis that you were
17 covered?
18 A. Well, I think, as I explained yesterday, you
19 know, we first were looking to try to amend it, and
20 then went through that process, and then at some point
21 in time in discussions with MEM, Ms. Chappuis' office,
22 they were the ones that said, you know: "Hey, all you
[Page 780]
1 really need to do"--I think I explained it yesterday.
2 "All you really need to do is expand the Concession."
3 And we had done that before. We knew the process.
4 And so, that was--in my mind, and I think in
5 Phelps Dodge's mind, that was a written confirmation.
6 Q. All right. But this meeting in
7 mid-2004--again, it says "confirmed to my team." So,
8 I assume this is not a meeting that you participate in
9 directly?
10 A. Yeah. I tried to remember; right? I don't
11 know whether I did or not.
12 You know, I would participate in a lot of
13 meetings. It would either be Julia Torreblanca or
14 Julia Torreblanca and myself.
15 Q. Okay. In your Second Witness Statement--and
16 we discussed this in February, however--you talk about
17 a different interaction with Ms. Chappuis that I
18 assume precedes this that was not in your First
19 Witness Statement, and that was your interaction with
20 Ms. Chappuis in June 2004.
21 In your Second Witness Statement, this is
22 Paragraph 11, where it says that your colleagues and
[Page 781]
1 you held meetings with various MINEM officials,
2 including Ms. Chappuis and, to your surprise, they did
3 not initially confirm that the Stability Agreement
4 would apply to the Concentrator.
5 Did you think it was not relevant to include
6 the full record of Ms. Chappuis' positions in your
7 testimony?
8 A. I'm sorry. I don't understand the question.
9 "The full record"? What are you talking about?
10 Q. Well, in your First Witness Statement, you
11 say: "My team met with Ms. Chappuis and she assured
12 us everything was fine"?
13 A. Yeah.
14 Q. And in your Second Statement, you say:
15 "Well, but then in June we met with her and she did
16 not say it was fine, at least not right away."
17 A. Right. So, we had this conversation before.
18 You're penalizing me for not putting it in the first
19 one.
20 You know, what I remember in the second one
21 from talking with Counsel, it was important that I
22 responded to some of your questions from my First
[Page 782]
1 Witness Statement. So, I believe--that was in
2 response to some of your questions, I believe, but I
3 don't know.
4 Q. So, we're--
5 A. In hindsight, you know, like I told you
6 before, I did two Witness Statements, and, to me,
7 together, they're one Witness Statement. And so,
8 whether I put it in the first one or the second one,
9 why I did that, you know, I'm not sure I really
10 remember or know.
11 Q. Well, I think it's important in one way,
12 which is that you say, in 2003, we met with
13 Ms. Chappuis. She told us that we were fine under the
14 Profit Reinvestment Program. We took comfort from
15 that. We thought we were all set.
16 In 2004, we meet with her again. Now she's
17 not sure about the extent of the stabilization
18 benefit. Then we hear from her it's going to be okay;
19 do the beneficiation expansion.
20 So, that's sort of an up and a down and an
21 up.
22 The way you first tell the story is,
[Page 783]
1 everything's fine all the time. And I think it is
2 relevant to tell the trajectory.
3 A. Okay. Well, let me try to explain. I
4 believe, now that I think about it a little bit, that
5 my presentation, past, present, and future, had
6 several variations--versions of it, and once we were
7 told about the Tintaya thing, I included that in that
8 version. So, I'm assuming that that's what triggered
9 this to include this and have more detail so the
10 Tribunal would understand what we were doing.
11 So, you know, it wasn't up and down. I
12 mean, we would talk to them. They talked about
13 Tintaya, and, as I mentioned before, Tintaya--I talked
14 to the General Manager. I knew him. Tintaya was
15 totally different, and once they understood the
16 difference between what we were doing and what Tintaya
17 was doing, they agreed that what we were doing
18 was--was totally different.
19 Q. So, when you say in Paragraph 39 of your
20 First Witness Statement that you had confidence in
21 what Ms. Chappuis was telling you, that was after she
22 had gotten over her hesitation that you didn't tell us
[Page 784]
1 about in the First Witness Statement?
2 A. Didn't tell you about it? Okay.
3 Q. Okay. So, timing-wise, we're right; you
4 have confidence after she first hesitates?
5 A. I think the Second Witness Statement just
6 went into more detail.
7 Q. Okay.
8 A. Expanded on the discussions.
9 Q. All right. And you were aware at the time
10 that Ms. Chappuis' view was not a uniform view in the
11 Ministry of Mines; correct?
12 A. You're talking about Vice Minister Polo?
13 Q. I am.
14 A. Okay.
15 Q. All right. So, you're aware that Vice
16 Minister Polo did not agree with Ms. Chappuis'
17 understanding; is that right?
18 A. I wouldn't word it that way.
19 I might as well get into it. Vice Minister
20 Polo, he's the mining guy like I was, or am, and we
21 had great conversations. He was supportive of the
22 Project. When I talked to him about that it was
[Page 785]
1 important that this project was stabilized, he was
2 skeptical, and Vice Minister Polo, you know, he said,
3 you know--he never really gave me a technical reason
4 or a legal reason. He was just skeptical.
5 And I think I--I think it was in my first
6 testimony that I didn't really understand why. You
7 know, he was positive. Of course, he reports to the
8 Minister, and the Minister was--Quijandría was very
9 positive about it, but in the private meetings I had,
10 or the meetings I had with César just by himself, he
11 was skeptical.
12 And, you know, I remember him even saying
13 one time is that, you know, "You guys bought this for
14 $39 million, and you guys are making a ton of money."
15 You know, "You don't need this." And I go, "God, you
16 know, that's kind of unfair," because Cyprus was the
17 only bidder, and they took the risk during a time when
18 Perú was not as stable as it is today. And they took
19 the risk and made this a real mine.
20 And so, I guess it was one of those things.
21 César--again, we got along. We were fine. We were
22 both mining guys, but on this, we did not agree.
[Page 786]
1 Q. Okay. And did you report the Vice
2 Minister's--to use your phrase--"doubts" back to
3 Phelps Dodge and Sumitomo?
4 A. Probably when they came down and visited.
5 You know, I don't--I don't remember when. I'm sure I
6 mentioned that the Vice Minister had skepticism about
7 this, but I don't remember when I did it or how I did
8 it, but probably when they visited sometime.
9 Q. Okay. And--
10 A. And part of it, too, was, you know, it's not
11 his decision. You know, that decision is really done
12 by the Director General--General Director of Mining.
13 It was done by that office.
14 César--Vice Minister Polo and the Minister,
15 you know, they are political appointees. The
16 bureaucrats really handle the process of going through
17 the process and making things--getting things done.
18 So, it wasn't his decision, as far as I was concerned.
19 So, it wasn't a concern to me.
20 Q. Is it your understanding that the General
21 Directorate of Mining is outside of the hierarchy of
22 the Vice Minister and the Minister?
[Page 787]
1 A. No, no, not at all. No. No. They go
2 up--what my point was, is that those guys are both
3 politically appointed positions. The bureaucrats
4 handle the process, and my understanding is the
5 bureaucrats--I call them "bureaucrats." I don't know
6 if that's the right word, but the technical people,
7 they handle the actual processing of the Concession
8 and the Stability Contract.
9 So, whether the Vice Minister didn't agree,
10 okay, that was important, but I knew the Minister of
11 Mining, the Minister of Agriculture, the Finance
12 Minister, who I had meetings with. They were all very
13 supportive of this. And the presentations I gave, I
14 always mentioned that, you know, the stability of this
15 Concentrator was very important to this decision by
16 Phelps Dodge.
17 Q. Vice Minister Polo, you've described him as
18 a political appointee.
19 Are you aware that he was Vice Minister
20 under multiple Ministers?
21 A. I think he was--he was the--he wasn't the
22 Vice Minister when I got there. That was Humberto
[Page 788]
1 Montes, I believe his name was. And then I'm not sure
2 why he left, but he left, and then Polo was the Vice
3 Minister, I believe, after him, and I can't remember
4 if he was still the Vice Minister when I left in 2005
5 or not.
6 Q. Well, we can obviously explore that with
7 Vice Minister Polo, but his was not a short--
8 (Overlapping speakers.)
9 Q. I said, his was not a short career in mining
10 and--
11 A. Oh, no, not at all. He's a very technical,
12 very knowledgeable mining guy.
13 I believe at the time the--Quijandría, the
14 Minister of Mining and Energy, I believe--I know he
15 wasn't a mining engineer like Polo was. I think he
16 was an economist, but also I think his background was
17 more on the energy side of things. So, yeah, he was
18 critical for that Ministry, because he was the mining
19 guy.
20 Q. Right. And he was the author of the law
21 that we're all arguing about?
22 A. I don't know.
[Page 789]
1 Q. Okay.
2 A. I know he was part of the--Minero Perú in
3 the privatization part of things, so...
4 Q. And you do know that he was Ms. Chappuis'
5 boss?
6 A. Yeah. That's the hierarchy, I understand,
7 and his boss was Minister Quijandría.
8 Q. All right. So, let's go into seeking
9 additional assurances, written assurances.
10 And I understand from both your testimony
11 and Ms. Torreblanca's that it was important to Phelps
12 Dodge and to Sumitomo to get something in writing;
13 right?
14 A. Yeah. It was really--and as I mentioned, it
15 was really driven by the political climate in Perú.
16 As I mentioned, I felt like all along, for
17 various reasons, the Concentrator would be stabilized,
18 but the political stuff going on in Congress made
19 everybody nervous and want more and more clarification
20 or certainty.
21 Q. And we discussed in February that this
22 wasn't just get something, it was get 100 percent
[Page 790]
1 confirmation in writing; right?
2 A. February of--
3 Q. When we talked in February at the prior
4 Hearing.
5 A. I'm sorry. Say that again, then.
6 Q. We discussed in February that this wasn't
7 just, you know, show me a law or show me a piece of
8 paper. We want 100 percent confirmation in writing?
9 A. I don't quite remember that question in
10 February, so maybe you need to refresh my memory.
11 I remember the hundred percent came from
12 Sumitomo notes. I don't know if that's what you're
13 referring to.
14 Q. Okay. Well, let's talk about how you tried
15 to get that confirmation.
16 So, we have on the record--well, in your
17 Second Witness Statement at Paragraph 12, just to set
18 the stage, you say that SMCV, Cerro Verde, held
19 further meetings with MINEM officials in July and
20 August of 2004 where PowerPoint presentations were
21 delivered. And we will talk about those PowerPoint
22 presentations.
[Page 791]
1 So, again, just to--"we held further
2 meetings." I assume you personally participated in
3 some of those meetings?
4 A. Yeah, I would have participated in some of
5 those meetings with MINEM, yeah.
6 Q. Do you think you probably participated in
7 most or all of them?
8 A. I don't know. Probably half. But I'm not
9 sure.
10 Q. Okay.
11 A. I was, you know, involved in a lot of
12 meetings, particularly in working on the environmental
13 permitting, so I had meetings with them, too.
14 Q. You've already referred a few times to a
15 PowerPoint presentation titled "Past, Present,
16 Future," which is on the record as Exhibit CE-450.
17 And the version that we have on the record is dated
18 July 8, 2004, and it's at Tab 15 in the binder.
19 A. July 8, 2004?
20 Q. Yes.
21 A. Okay.
22 Q. Well, so the document on its face says
[Page 792]
1 "July 2004." There is some--I remember chasing this
2 down at one point, how the date July 8, 2004, came
3 into play, but let's just call it July 2004. No need
4 to fuss over it.
5 A. Okay, yeah. And, like I said, that was my
6 presentation. I put it together myself, and there was
7 versions of it, as I mentioned earlier. Once we had
8 the Tintaya question put in, I think I added that
9 later on just so I could get clarity around it, but,
10 yeah, there are several versions of it.
11 Q. So, if I understand what you just said,
12 there is--this is--in essence, there was sort of a
13 base deck of slides that you prepared, and then it got
14 tweaked over time?
15 A. Yeah, exactly.
16 Q. But if we see something in the record that
17 looks like this--sorry, can we show the tab, because I
18 think visually it's striking.
19 So, if we see something that looks like this
20 with the "Past, Present, Future" logo--title, it's
21 likely to be some variation of your PowerPoint; right?
22 A. Yeah. You said July 8. It says July--
[Page 793]
1 Q. I know, but--
2 (Overlapping speakers.)
3 A. Oh, okay. July would have been--so I didn't
4 have to change the date every time I had a meeting,
5 and it said July, and so they wouldn't know that.
6 Q. Okay. Sure. For some reason it's in the
7 index as July 8, but it doesn't matter for our
8 purposes. We'll call it July.
9 A. Okay. Cool.
10 Q. Okay. So, we have this presentation, and I
11 want us to look at Slide 18. So, this is a
12 presentation that you're using in meetings with the
13 Ministry?
14 A. Correct. And whoever else would listen.
15 Q. Okay. And Slide 18 talks about the
16 feasibility analysis of Primary Sulfides, which I'm
17 going to take as the Concentrator Project.
18 And it says that this assumes--hold
19 on--"Important/Major Assumptions," so the last sort of
20 major bullet. "Important/Major Assumptions," number
21 one, the Profit Reinvestment Benefit. That was what
22 you discussed with Ms. Chappuis in 2003.
[Page 794]
1 And then important or major assumption
2 number two, that the Primary Sulfides--I'll call it
3 "the Concentrator Project"--is stabilized under the
4 current contract.
5 I'm going to assume that the "current
6 contract" by which you mean--it's the 1998
7 Stabilization Agreement; do you think that's right?
8 A. Yeah, pretty much. I mean, is it stabilized
9 under the existing Stability Contract and concessions.
10 Q. Right. So, these are two important, major,
11 but separate assumptions; right?
12 A. Well, they are two different activities,
13 yes.
14 Q. Okay. And then this is echoed on Slide 21,
15 which is describing the investment decision. I think
16 of this as the "go/no go," and so you say the
17 Feasibility Study has been completed. I'm not sure
18 what "marginal project" is.
19 A. Marginal means it didn't have a return of
20 50 percent. It had a return of--I believe the last
21 number was, you know, somewhere around 15 or
22 16 percent, depending on how you did it. So, you
[Page 795]
1 would say "marginal," I guess. You know, some of this
2 was--you know, I was giving this to the Ministry, and,
3 you know, it wasn't a slam dunk.
4 Q. Umm-hmm.
5 A. And so, this--it was difficult decision for
6 Phelps Dodge because it was a ton of money, and it is
7 very important that we were convinced that the
8 Concentrator would be stabilized.
9 Q. All right. So, were you trying to signal to
10 the Ministry that everything was kind of teetering on
11 what you were going to ask them for?
12 A. No, I don't think so. I mean, it's, like I
13 said, 14, 15 percent, you know, it's not a slam dunk.
14 Phelps Dodge was trying to decide if they wanted to
15 put $850 million into Perú. So, there is some tough
16 decisions there. So, that's what the "marginal
17 project" means.
18 Q. Right. And then you sort of echo that by
19 saying it's a difficult decision; it's high risk?
20 A. Yeah. It is $850 million in Perú, which is
21 clearly political risk.
22 Q. Okay. And then you say--you signal that the
[Page 796]
1 decision is going to come in October 2004, and then
2 you identify contingencies. Are those
3 contingencies--are you explaining those contingencies
4 are the things that are going to make this Project go
5 or not go?
6 A. It was--the decision would be contingent on
7 approval of the EIA. Obviously, you can't have a
8 project if you don't have approval of the EIA. And,
9 actually, you know, we submitted an EIA. We submitted
10 it the first time and there was--they had questions on
11 it, and they actually denied it, which was a total
12 surprise to us. And so, of course we quickly answered
13 their questions and resubmitted and got it approved,
14 so I think in July that was still out there, so I
15 wanted to flag the approval of EIA, certainly with
16 respect to the Stability Agreement in force and then,
17 finally, economic indicators.
18 Q. And the risk analysis in the last bullet,
19 does that also relate to the Stability Agreement or is
20 that something else?
21 A. Well, that is risk of project, so there's
22 risk on--yeah, the stability would be one of them.
[Page 797]
There would be risk on, can you really do 108,000 tons
a day, can you really get a 90 percent recovery. So,
that's the risk factor is when you do a project, you
identify those associated risks.
Q. Okay. And then if we go forward, we get
into some more detail on this. And Page 41 of the
presentation--sorry. No, Page 45. Wrong page.
This is your conclusions, this is your
wrapping up--here is what we need. And the third
bullet point, in particular, I'm going to point, it
says that "Cerro Verde requires the certainty that
only a Stability Agreement is able to give in order to
carry out this investment of more than $800 million."
And then you say that the requested addendum
provides this certainty, "a solid legal and
contractual report in accordance with decisions
previously made by MEM."
Here you're proposing to amend the
Stabilization Agreement?
A. Yeah. I think I talked to you about it
yesterday, I think. You know, originally we were
going down the path of amend. And I'll explain it to
[Page 798]
you, but I don't think I will, because you said I
don't explain it like a lawyer, but I understood it
being a two-step process. And again, my concern was
schedule. You know, when you decide to build a
concentrator, schedule drives everything. As soon as
you can get that thing built and start making a
profit, so schedule is very important for that.
So--I think I lost my train of thought.
Q. That's okay.
A. I guess it happens.
Q. I think we're clear there. You said your
main concern was timing. So...
A. Yeah. Oh--oh--
Q. And the point of that addendum was to
get--to make sure that the Stability Agreement
expressly says "this applies to the Concentrator
Plant"; right?
A. Yeah. I remember my train of thought. So,
we initially were looking at the addendum. We saw it
was a two-step process. You know, it was our legal
right to do it. I was just a little nervous about the
schedule, and then, as I explained--I think I
[Page 799]
explained yesterday, you know, later on in the
discussions with Ms. Chappuis office, it came up as
you don't need to do an addendum because that requires
the Ministry probably to do more work--a two-step
process. And all you need to do is expand the
Beneficiation Concession. And so, that was the path
we took, but initially we were looking at an addendum.
Q. All right. One difficulty I have is that
this was July of 2004. You described this sort of
transition to switching off of the addendum or the
amendment to the Contract and going instead for
expanding the Beneficiation Concession as your path
forward. Sorry, haven't asked the question yet.
A. Okay.
Q. But in August of 2004, the Phelps Dodge
Board is still being told about modifying the
Agreement. Does that sound consistent with that
switch that you've told us about?
A. Not really. Not really.
Q. All right. Well, let's look at that.
A. My timetable really is in, I believe it was
like June 2004, we started going down the path of the
[Page 800]
addendum. And then sometime in either late July or in
early August, we said, hey, let's do the expansion of
the beneficiation. That's my recollection of the
timing of it.
Q. Okay.
A. The Phelps Dodge Board, I guess I would have
to see what document you're referring to.
Q. Sure. So, let's actually look at that.
A. Okay.
Q. So, Exhibit RE-324 is--at Tab 18 of the
binder is an email from Dennis Bartlett to Timothy
Snider and "Red" Conger and Lowell Shonk that attaches
a presentation for the Board, a draft presentation for
the Board about the Cerro Verde Project.
So, what we see here is the cover email, and
then what I want to talk about is the draft
presentation that is attached to it.
First of all, how would Dennis Bartlett have
gotten the information about the Cerro Verde Project
to present to the Board?
A. So, he would either get the technical stuff,
probably, from Terry Linde, who was the manager--he
[Page 801]
managed Fluor. If there was legal/social type things,
he probably would get it from me.
Q. All right.
A. Or he came down in meeting and we discussed
it and he drew his own conclusions.
Q. So, would you have been involved in the
preparation of this PowerPoint, or would you have been
giving the information to him and he makes his own
PowerPoints?
A. I probably did a few slides. I'd have to
look at the whole thing, you know, if it had
cross-sections in it, I probably provided that.
You know, a presentation of the Board was,
you know, it's a big deal.
Q. I would assume so.
A. You know, you see in August they started to
do it, and the Board meeting was in October. So, I
know there was a lot of variations of these slides.
But some would come from me, some from Terry Linde,
and then Dennis would do his own.
Q. Okay. So, we can flip through this, but I'm
headed for Slide 5. But if you just want to sort of
[Page 802]
see what comes before that to get us there. So,
you've got some country facts about Perú.
A. That would have been my slide there.
Q. Right. The description of the Project, sort
of a summary of the economics that seem to be
projected. That is Slide 3. The next one--and here
we have the timeline.
This looks a little more detailed than what
Dennis would prepare himself. Is this something that
would have come from you?
A. It probably would have come out of the Fluor
because it is probably a spreadsheet that Fluor put
together in the Feasibility Study of the timeline.
Q. Right. I'm sorry, I should have actually--I
didn't do what I should have, which was to set the
stage. What is Dennis Bartlett's position?
A. At this time he was--I believe I reported to
"Red" Conger at this time, so he was my previous boss.
But he reported directly to Tim Snider, so I don't
remember what his title was, but he reported directly
to Tim Snider, and I think involved in the projects.
High level. High level.
[Page 803]
Q. And Tim Snider is the President of Phelps
Dodge?
A. Tim Snider is--I don't remember his title.
I think he's President of the Mining Company. He's
the number two guy in Phelps Dodge.
Q. Okay. And Dennis reports directly to him?
A. Yeah. Dennis is like a senior VP of some
sort.
Q. Okay. So, on this Slide 5, we see that
there is--it is called "Cerro Verde Sulfide Project
timeline," and one of the things that is planned to be
accomplished in Q3 of 2004, if we go down the 2004
line to about the--it is actually one of the first
white bars down, is "modify the Stability Agreement."
That is under "other activities."
Do you see that?
A. Uh-huh, I see it.
Q. So, that sounds like that is still the
amend-the-Agreement plan?
A. Well, I don't know. Can you go back up to
where the key milestones are? Counsel showed some of
these slides, and you know, they were continually
[Page 804]
updated, and some of them even said, you know, "needs
to be updated," that type of thing. And so, they
would update some slides and they wouldn't update
other slides.
So, if this was done in--if this timeline at
this date, then I would say this one isn't--this slide
hasn't been updated to the final version.
But there should be--if you go up, there
should be one that says "Milestones." I don't know
how it's--
Q. I don't think so, because I think we showed
you all the slides on the way here. So, we got
the--sorry, first, Republic of Perú--okay. Cover
page, Republic of Perú--
(Overlapping speakers.)
(Interruption.)
Q. Cover page, Republic of Perú, description of
the project, economic results, timeline.
A. That's it?
Q. And I'm happy to flip through, like, two or
three after this to see if there is more detail.
A. Okay. Why don't you do that?
[Page 805]
Q. Okay.
A. Well, there is the Stability Contract.
Q. Sorry?
A. See: "The Ministry of Mines have proposed a
process to include the Sulfide Plant in the facility
covered by the existing Stability Agreement"--
Q. So, you take that as the--that's the
beneficiation expansion?
(Overlapping speakers.)
(Interruption.)
(Stenographer clarification.)
Q. Okay. So, this maybe more accurately
reflects--you're saying that this looks to you like
the plan--the new plan to expand the Beneficiation
Concession instead?
A. Yeah. I mean, I guess, what I'm saying is
this is a big presentation. A lot of people were
feeding it. I'm sure a lot of these slides were
updated as they went, and--but I'm pretty confident
that whatever they showed the Board, it included the
most updated information, which would have been
expansion of the Beneficiation Concession.
[Page 806]
Q. Okay. So, the discrepancy between the two,
we'll just assume, is just the earlier one didn't get
updated?
A. Yeah. I think there would be no question
about that.
Q. Okay. But it is still clear that at this
point somebody thinks something has to happen to the
Stability Agreement in order for the Concentrator to
be stabilized?
A. Of course, you had to expand the
Beneficiation Concession.
Q. Okay.
A. And then the process after that is the
construction permit and build it, and then inspect the
construction--the final product.
Q. One moment, if you'll forgive me. Just a
second.
Sorry, confusion resolved.
All right.
PRESIDENT HANEFELD: May I just interrupt?
MS. CARLSON: Of course.
PRESIDENT HANEFELD: Just on this slide
[Page 807]
here, when I read: "The Mines Ministry has proposed a
process to include Sulfide Plant in the facility
covered by the existing Stability Agreement. This
will shield the sulfide operation from the Royalty."
Did you include precisely this wording into the slide?
THE WITNESS: What was the last part?
PRESIDENT HANEFELD: Did you include
precisely this wording into the slide?
THE WITNESS: You know, I can't say. If
they are talking about the Stability Agreement, I
certainly had input on it. Whether that was my
specific words, if it wasn't, it could have been,
because I would agree with what they said. This
really is in reference to, we were doing--looking down
the path of addendum, and then the meeting with
Ms. Chappuis' office. She said, well, you don't need
to do an addendum. All you have to do, expand the
concession. So, that is what this is in reference to.
Whether those are my precise words, I don't know, but
they would have been. I would have said the same
thing.
PRESIDENT HANEFELD: So, when it states "the
[Page 808]
Mines Ministry has proposed" this Beneficiation
Concession extension, then you mean Ms. Chappuis has
proposed and suggested, on your request to get
confirmation that the Concentrator is stabilized, to
do this process here?
THE WITNESS: What I'm saying by those
words--it could be my words--but what I said was we
were going down the route of doing the amendment to
the Stability Contract, and we were having discussions
with her office, and then through those discussions,
it was suggested by them. She said, you don't really
have to do an addendum. All you need to do is expand
the Concession. So, whether the word "propose" is the
correct word or not, they are saying this is a better
process--easier process--not easier process, but a
process that we had done before. So, "proposed," is
that the question? Did they propose it. Yeah, they
told us that you ought to do the expansion of the
Beneficiation Concession, rather than addendum.
PRESIDENT HANEFELD: And the second bullet
point: "This will shield the sulfide operation from
the Royalty." Was this your interpretation of the
[Page 809]
proposal, that this was the effect of the proposal, or
was also the second bullet point, "this will shield
the sulfide operation from the Royalty," expressly
stated by the Mines Ministry?
THE WITNESS: In order to answer that
question is--we expand the concession, and we put the
new Concentrator in the Beneficiation Concession, and
then now it--what is--again, as I've tried to explain,
is that what's stabilized is the Concessions, the
Mining Concession and the Beneficiation Concession.
So, once we put the Concentrator into the
Beneficiation Concession, then it's stabilized and
that protects us from a royalty.
PRESIDENT HANEFELD: I know that this is a
position in this Arbitration, and this is the
assumption of today. I want to understand what the
assumptions at the time were and what were just in
your head and what has been proposed and expressed.
So, my question, again, was, the second bullet point,
that this extension of the Beneficiation Concession
"will shield the sulfide operation from the royalty,"
something that was expressed to you by the Mines
[Page 810]
Ministry expressly, directly?
THE WITNESS: In my mind it was--again, I'll
try to answer the question better--is that once the
Concentrator is in the--the process to put the
Concentrator into the Beneficiation was to expand the
Beneficiation. You go through the paperwork, you get
a construction permit, and then after you built, they
would come back and do it.
That process would shield you because it's
in your Concession, which is stabilized.
PRESIDENT HANEFELD: But, Mr. Davenport, you
said earlier, "I'm a technical guy, not a lawyer."
THE WITNESS: Oh, good. I thought you said
you were.
(Overlapping speakers.)
PRESIDENT HANEFELD: So, it's not important
how you interpret it today and believe that it is from
a legal perspective. This is what we need to decide.
For me, it's really decisive what has been
said, what have you said, what have you heard.
And so, again, my question: Have you heard
someone expressly saying: "Okay, now, this will
[Page 811]
shield the sulfide operation from the Royalty"?
Have you heard that?
THE WITNESS: Yeah. To me it was implied,
yes.
PRESIDENT HANEFELD: Have you heard that?
"Implied" is something different. Just who said it to
you?
THE WITNESS: Well, in the meetings we had
with Ms. Chappuis--what we were trying to do was
written confirmation, and there was--in our minds,
there was two ways to do that. It was the addendum
and the expansion of the Concession, just like the
expansion is just like we did before on the 31,000 and
39,000.
So, if you do that, now all the Concession
is implied--or the Concession is stabilized. And so,
if your Concentrator is in the Concession, then it's
stabilized. And I'm not sure I'm answering your
question because I kind of said the same thing.
But...
PRESIDENT HANEFELD: And here, it's about a
lot of money, huh? And I--if this meant that this
[Page 812]
would "shield the Sulfide Operation from the Royalty,"
we are talking now here in 2004 about a lot of money.
So, if this was made express to you, this must have
been like the victory.
And was a great Report, maybe, and to Phelps
Dodge, we succeeded, now we are safe. And is this
what this presentation is about?
THE WITNESS: This is making the point is
that we are going to, again, go through the process,
expanding the Beneficiation Concession. And once we
do that, once it's approved--and it isn't actually
fully approved until you built the Concentrator, yes,
it will shield us from the royalty.
So, yeah, when this--when we--when the
discussions with MINEM, you know, once they said "all
you've got to do is expand it," I think I mentioned
yesterday, that's kind of when the lightbulb went out.
You know, that's what we did before. And we went from
31 to 39, and there's no question that that increased
production was stabilized. And so, to me, it was the
same as putting the Concentrator at--once we put it in
there, it was stabilized.
[Page 813]
PRESIDENT HANEFELD: Sorry. I didn't want
to interrupt.
MS. CARLSON: No, it was actually excellent
timing, and I was clarifying something in my own head.
BY MS. CARLSON:
Q. So, the one last question I'll ask, about
this slide in particular, is I just want to draw the
contrast between the bullet right above Stability
Agreement, which says that "Cerro Verde's existing
Stability Agreement will shield the leaching operation
from royalty."
So, it seems that, at this moment--and then
in the second bullet below you say, well, we've got to
do this additional thing to shield the Concentrator
from Royalty.
So, your understanding, at this time is, if
we get the Beneficiation Concession expanded, then the
Concentrator will be shielded. But until that point,
only the Leaching Project is shielded?
A. I think the reference about the leaching was
in reference, really, to political--the political
activities going on. And I see that it shows that
[Page 814]
they approved the sliding scale for the Royalties, so
they got off the idea of trying to cancel the
Stability Contracts. And so, I think it was just--the
Royalty for the existing operation, we weren't--we
didn't have to pay. It was protected.
And then, yes, once we do the expansion of
the Beneficiation Concession, then it also would be.
Q. Right. Because the bullet only
mentioned--the first bullet that we've got highlighted
in yellow only mentions the Leaching Project?
A. Yeah, it was in reference to the Mineral
Royalty that the Congress just passed.
Q. Okay.
A. Because I think, you know, people had to get
clarity, okay, they didn't cancel our Stability
Contract, so we're not paying Royalties.
Q. Okay. All right. So, having switched gears
to the plan to expand the Beneficiation Concession,
Cerro Verde made that request on August 27, 2004.
When they made that request, did it say
"we're doing this in order to expand the Stabilization
Agreement"?
[Page 815]
A. The request that--
(Overlapping speakers.)
Q. To expand--
A. --the paperwork that required by MINEM?
Q. The paperwork to expand the Beneficiation
Concession.
A. I don't remember. If you'd showed me, maybe
I could. But...
Q. Okay. Sorry. I'm getting multiple Post-its
from multiple directions with contradictory
suggestions.
A. Okay. Well, don't do either one.
(Comments off microphone.)
MS. CARLSON: Yeah, that would be the
alternative. Would you like to say that?
BY MS. CARLSON:
Q. Okay. I'm going to process my notes here.
I think we're actually going to move on to
what you suggested, which is let's take a quick look
at the request to expand the Beneficiation Concession
itself.
A. Okay.
[Page 816]
Q. And that is at Tab 20, which is
Exhibit CE-457. Its official title is "Petition
Number 1487019." It's dated August 27, 2004. Again,
the original, not surprisingly, is in Spanish, this is
a translation.
And the first paragraph identifies who's
asking, and the second paragraph in the middle
says: "I am requesting the Modification of the
Beneficiation Concession to expand its installed
capacity from 39,000 MT/d to 147, and the Modification
of the area of the Beneficiation Concession by 1200
and some odd hectares, both of which are required to
pursue the scheduled exploitation of our operations."
So, that's the request?
A. Okay.
Q. Expand our Beneficiation Concession, both in
terms of capacity and in terms of its geographic
footprint. All right?
A. Umm-hmm.
Q. It does not say "and in order to" apply the
stable benefits of the Stabilization Agreement to
those new operations, does it?
[Page 817]
A. It would be probably the same wording that
we used in 2001, to expand from 31 to 38. And so, to
me, expand the Beneficiation Concession, it's implied
that that's required by it, and it also means it's
stabilized. So, we tried to follow whatever MINEM
said, to--their process to do the expansion. So...
Q. Okay.
A. I mean, it was the Concession that was--I
know we don't agree with that, but it's the
Concessions that are stabilized.
Q. Okay. All right. And MINEM answered that
request and granted the expansion of the Beneficiation
Concession; correct?
A. Yes.
Q. All right. So--and the Concentrator--so,
you proceed to build the Concentrator, and it's
completed by, I think, first quarter of 2006, if I
remember correctly?
A. It's a two-year construction, so--
Q. Oh, sorry, last quarter of 2006. My bad.
A. That makes more sense.
Q. All right. Now you, if I recall correctly,
[Page 818]
left Perú in May of 2005. So, at a point where, I
guess, the construction is underway but not yet
completed.
A. Yeah. They tied me up and made me leave.
You know, we worked all this time to get this thing a
reality, and I kind of wanted to stay for a
construction, but generally they--you know, five years
is a long time to have an expat there, so in their
mind, they needed to move us around. So, I left, yes.
Q. I mean, I also had the sense from our
conversation in February that your next post was a
promotion as well.
A. Yeah. I mean, it was a title, I guess,
promotion. I don't remember them giving me a pay
raise, in that sense.
Q. Often those two things don't go together.
A. Yeah, I mean, it was kind of a different
area. It was going to the corporate office, which I'm
not thrilled with because I'm an operator, and it was,
I think, initially the title was "General Manager of
New Projects."
Q. But all of their new Projects, I mean,
[Page 819]
around the world; right?
A. Yeah. It was fun for a while, until copper
prices went down, and then what projects do you have.
You don't have any.
So, corporate life was not my joy, and as
you can see from my Statement there, you know, I
left--I don't know--four years after I got there.
Q. Right. And I believe you indicated in your
First Witness Statement that, although you didn't--or
maybe this was from our discussion in February. So,
let me confirm--that you didn't have direct
responsibilities or oversight responsibilities for the
Cerro Verde Project, but that you kind of kept an eye
on it because I think you described it as your "baby"?
A. Yeah. I didn't want them to screw it up.
How's that?
Q. Okay. And--
A. But, you know, I say that jokingly. You
know, I helped Dennis put together some slides
sometimes. He'd say, hey, get ahold of Cerro Verde,
I'm--take some pictures of construction. So, I'd do
that type of thing. As far as direct responsibility,
[Page 820]
you know, obviously, none.
I did help out on the--there's a completion
requirement when you get loans from banks, and I was
working on one at the--for Phelps Dodge on the Tenke
Project in the Congo, and so, I said, hey, why don't
you do this one also, because it's a technical
completion. So, that's about all I was involved with
at Cerro Verde.
Q. Okay. I'm going to ask to look, if we
could, at Tab 22 in the binder, which is
Exhibit CE-901, which is Phelps Dodge's 10-K form for
2004. So, it's their Report filed with the SEC in--on
March 7 of 2005, but covering the financial year of
2004, which is the year where you were still in place
in Arequipa; right?
A. In--yeah.
Q. Right. That Report, if we go to--let's
see--Page 80 of the document, which is Page 83 of the
full PDF, which is Page 5 of the excerpt that's in the
binder, it's a discussion of the Cerro Verde Project.
And we will blow it up because it is small.
And it's describing what is happening in
[Page 821]
Perú. Let's see if we can blow up the entire
June--yeah, June 2004. Sorry, we're blowing up the
paragraph that begins "on June 24 of 2004."
A. Okay.
Q. And so, this is describing the enactment of
the Royalty Law, and an amendment of the Law, and
pointing out that the Stabilization--that there's a
question about the Stabilization Agreement. It
says: "It is not clear what effect--what, if any,
effect the new Royalty Law will have on operations at
Cerro Verde."
Now, this is being said--it's being written
in March 2005, about what happened in 2004, a point at
which you got your Beneficiation Concession extended.
You were proceeding with the Concentrator Project.
You had the--you say you had the written assurances
that you needed, but they still don't know what the
Royalty Law is going to do to this Project?
A. I didn't write it. You know, I'm not
involved in Phelps Dodge's 10-K. All I can speculate
is, you know, it's just identifying political risk,
you know. That statement in there--they probably do
[Page 822]
that. They probably did it for the Chile operations,
because I think at the same time they were talking
about Royalties in Chile, or additional Royalties, so
I think it's just political risk, identifying its...
Q. Would it surprise you that that same kind of
statement shows up in the 2005--
(Overlapping speakers.)
A. It wouldn't surprise me if it showed up
today. You know, it's still political risk.
Q. Okay. So, when you left Perú, Concentrator
construction was underway, completed in the end of
2006. You're keeping an eye on your baby from afar?
A. Kind of.
Q. And at what point did you hear that not all
was well with the treatment of the Concentrator Plant?
A. You know, not sure I did. And to be honest,
I'm not sure I really did until these guys called me
and said, you know, hey, would you be willing to be a
Witness? I really didn't keep up on what was going on
with, as far as, you know, stability, and, actually, I
still don't even know what was done. So, no, I did
not keep up--I mean, nobody told me. And, again, I
[Page 823]
was busy with other work, so, no, I didn't know.
Q. Okay. I guess, then, I'm a little puzzled
by the last sentence of your First Witness Statement
in Paragraph 44, which says that: "I was surprised to
learn in 2009 that the Government had refused to honor
the commitments we had worked so hard to obtain"?
A. I know. I guess I did. Learn in 2009. I
was getting ready to leave. Okay. I don't remember
that. It's in my Statement. I guess I should have,
but I really--maybe I heard there was problems there,
but I don't know the details, and I still don't know
the details today.
Q. Right. Because the Witness Statement was
written in--
A. Yeah, I know.
Q. --2021, October of 2021.
A. Right.
Q. So, I guess, in October 2021, you remembered
Hearing in 2009, but today, you don't remember hearing
in 2009?
A. It was in my Statement, so I'm surprised
that I didn't remember saying that in 2009. I don't
[Page 824]
remember the specifics, for sure. I still don't know
them today what the specifics were, if they charged
them Royalties or what. But, yeah, I misspoke
earlier, based on my Statement.
Q. I take the fair point that you don't
remember today. I mean, I guess--
A. It's in my Statement, I should remember.
Q. Yeah. Well, and not only is that you
learned something in 2009, but it's pretty specific.
It says "the Government refused to honor the
commitments that we had worked so hard to obtain."
So, it's a pretty specific statement about
what you learned about at that time?
A. Yeah. It's in my Statement.
Q. We're just puzzled.
A. Huh?
Q. We're puzzled.
A. We're puzzled?
Q. Or should we take that out of the Statement?
A. No. I put it in there. So, in reviewing
the documents, and I must have said: "Okay, I knew
that in 2009," or I wouldn't have put that in my
[Page 825]
Statement. So, no, don't take it out.
Q. Right.
A. I had just forgotten it.
Q. Okay. Give me just a second here.
MS. CARLSON: I have excellent news for you.
I'm done.
THE WITNESS: All right. I'm going to make
Cinco de Mayo in Arizona.
MS. CARLSON: Well, I don't know. That
depends on how much redirect there is, so--or how many
questions there might be from the Tribunal. So...
THE WITNESS: Okay. Thank you.
PRESIDENT HANEFELD: Thank you very much.
So, does Claimant have questions in
redirect?
MR. UKABIALA: Madam President, could we
have just a moment to confer? Very briefly.
PRESIDENT HANEFELD: Yes.
MR. UKABIALA: Thank you.
(Brief recess.)
PRESIDENT HANEFELD: Do you have questions
in redirect?
[Page 826]
MR. UKABIALA: Yes. Just a very few brief
questions on redirect, Madam President. Thank you.
BY MR. UKABIALA:
Q. Could we just ask to go back to that
Exhibit RE-324, which was the draft presentation for
the Board in October 2004? And I believe we were
looking at Slide 6.
(Comments off microphone.)
Q. And so, Randy, I just wanted to come back to
this document, and so that there's--you can clear up
any ambiguity that might be remaining about your
discussion of what the Ministry told you about this
proposed process that's described here.
So, could you tell us exactly what the
Ministry told you the effect of expanding the
Beneficiation Concession would be?
A. Yeah. Like I said, the process was
initially to do an amendment to the Stability
Contract, and then we were going through that process
and we met with the Ministry, and they said: "Well,
you don't really have to do that. To stabilize a
[Page 827]
Concentrator, you don't really have to do that. All
you have to do is expand your Beneficiation
Concession."
And that's exactly what we did in 2001.
And, you know, that increased production was
stabilized.
Q. And the Ministry told you that, if you
expand your Beneficiation Concession, the Concentrator
would be stabilized?
A. Oh, yeah. I mean, just like we did in 2001.
Q. And was--what was your understanding at that
time as what that would mean with respect to the
application of the Royalty to the Concentrator?
A. Well, it would be treated just like the
leaching operation. It would be stabilized, and so it
would not be--as the Royalty existed at that time, it
would not be charged Royalty. And it would have the
same tax and other benefits that the Stabilized Regime
has.
Q. Thank you.
MR. UKABIALA: No further questions, Madam
President.
[Page 828]
PRESIDENT HANEFELD: Thank you.
Does Respondent have some recross questions?
MS. CARLSON: No, thank you, Madam
President.
PRESIDENT HANEFELD: No.
Then we may have some questions.
I turn to Mr. Cremades. Yes?
ARBITRATOR CREMADES: Good morning, or good
afternoon.
THE WITNESS: Good afternoon.
ARBITRATOR CREMADES: Just one question.
In these proceedings, there is a lot of
hearsay about discussions verbally with Madam
Chappuis, and you in your Report said that you have
serious doubts about Vice Minister Polo about the
whole thing.
You have insisted on different occasions
having a written confirmation. You haven't got any
answer. You were negotiating or trying to get an
addendum. You didn't get that. The impression we
could draw about that is that the Government didn't
[Page 829]
want to give you that request you wanted to stabilize
the Concentrator.
Did you--and that's my question--at any
moment say to the Government: "We are sorry, we know
that this project is very important, but we will not
go ahead investing if you don't give in writing
confirmation about what we want to be covered by this
Stabilization Agreement"?
THE WITNESS: As I tried to explain before,
that would have been best. I mean, clearly. And, as
I mentioned, with the political climate there, we are
not going to get that from the Minister because they
didn't have to.
And I think the Minister relied--the
Ministry relied on the process, and the process was
either you can do an addendum--and it's not like they
wouldn't give us an addendum. They just suggested:
"Hey, you can still do an addendum if you want." They
just suggested that, you know: "All you need to do is
expand the Concession."
But as far as to try to specifically answer
your question, I don't think it was possible in that
[Page 830]
political climate, or maybe in any climate, because
these Ministers would insist that you follow the
process. You know: "We have the law here. Here's
the process, and this process is expand the--in this
case, the Beneficiation Concession."
So, that would be my response to your
question.
Did I answer it?
ARBITRATOR CREMADES: Thank you very much.
THE WITNESS: Okay. You're welcome.
PRESIDENT HANEFELD: Maybe some sort of a
follow-up question. So, when you received this
assurance you were just asked about in 2004 that the
Concentrator was stabilized by extending the
Beneficiation Concession, and thereby exempted from
Royalties, how did you report this achievement, so to
say, that was in Phelps Dodge? How was it
communicated? Do you recall some email correspondence
or whatever on this agreement and assurance that you
had received at the time?
THE WITNESS: I'm trying to remember if I
sent a specific email. Probably. You know, we had
[Page 831]
conversations all the time, and so I think Phelps
Dodge and the people I reported to in Phelps Dodge
were clearly aware that the direction we were taking
was initially the amendment, and then once we
said--you know, talked with the MINEM, they said the
expansion.
How I communicated that to Phelps Dodge, I
don't remember. I probably either sent them an email
or called them or they were there. They knew that
that's what our direction was.
So, I don't remember specific--I mean, I
don't remember going out and saying: "Hey, let's go
out and have a few beers. We just succeeded in this."
I don't remember that part, but I'm sure I
communicated in some manner with them.
PRESIDENT HANEFELD: So, you cannot refer us
to any written documents and how, so to say, this
understanding within the company was shared and
celebrated?
THE WITNESS: Well, I guess the written
document is, you know, mostly, I guess, these
presentations that said we met with--we're doing an
[Page 832]
addendum, we've met with MINEM, and they said: "Well,
you can do that, but here's a better path to do it
than the expansion."
Whether there was a written document--I
didn't see it in the materials that I reviewed. I
don't remember that, other than the presentations I
made.
PRESIDENT HANEFELD: And did you--as a
nonlawyer, did you at that time seek legal assurance
from Outside Counsel that this oral commitment was
enough to--
THE WITNESS: Well, we used Outside Counsel.
Luis Carlos Rodrigo was my main contact there, and we
were working with them to what--what process do we
need to do to make sure the Concentrator is
stabilized? And so, it was in discussions with them:
Well, let's do an addendum. And then--
MR. UKABIALA: If we could just interrupt
very briefly.
THE WITNESS: I'm sorry.
MR. UKABIALA: The Witness should only
answer to the extent that it's--we believe that he
[Page 833]
should only answer to the extent he doesn't disclose--
(Comments off microphone.)
PRESIDENT HANEFELD: I don't hear.
MR. UKABIALA: I'm sorry. We would just
submit that the Witness should only answer to the
extent that he doesn't disclose privileged
information.
PRESIDENT HANEFELD: So, you invoke
privilege? So, he should not--does anyone--as a
technician, what he can say or not?
MR. UKABIALA: I'm sorry, Madam President.
I think that your question was completely appropriate,
and we just wanted to--for the Witness to be aware
that his answer should be limited to the question of
whether he sought legal advice and not stray into what
the content of that legal advice was.
PRESIDENT HANEFELD: Okay. Then I'm fine.
I just wanted to get confirmation on that, and I think
this is a proper question; right? Okay.
MR. UKABIALA: Yes.
THE WITNESS: That was, to me--because I got
the idea--sometimes I talk too long. Yeah, our
[Page 834]
Outside Counsel was the Rodrigo firm, and certainly we
work with them on all this path to confirmation that
the Concentrator would be stabilized.
PRESIDENT HANEFELD: Now, let me jump back
in time, my last question, and now to the time of the
Pre-Feasibility Study, 2002. Did I understand you
correctly that you were, so to say, in charge of
everything for the Pre-Feasibility Study? That was
your baby?
THE WITNESS: Pretty much. I mean, we had
some help from Phelps Dodge. We had help from the
Santiago office, which is--they were over South
America, and their help was mainly the financial
model. But other than that, we did the mine plans,
you know, the mine plans were the driver of the
economics. Jim Vanderbeek, the guy from Phelps Dodge
in Phoenix, did the work on the Concentrator. But we
did the rest, yes. And we used some outside
engineering companies when we needed to.
PRESIDENT HANEFELD: And did I understand
you correctly that in the financial model, you assumed
that the Stabilized Tax Regime would apply to the
[Page 835]
Concentrator?
THE WITNESS: Is it the model for the
Pre-Feas or the Feasibility Study?
PRESIDENT HANEFELD: For the Pre-Feas.
THE WITNESS: Yeah. We--if I remember
correctly, we assumed, yes, that the Concentrator
would be treated the same as the leaching operation.
We did not, as I mentioned before, for the
reinvestment of profits we were unsure about
repatriating those funds back to the States, and so we
left that as a sensitivity until we figured that out.
But, yeah, it was--in the economics of the Pre-Feas it
was assumed the Concentrator would be stabilized.
PRESIDENT HANEFELD: Was there also an
alternative calculation based on the assumption that
the Concentrator would not be stabilized? I do not
talk about the reinvestment of profit. I talk about
the Concentrator and income.
THE WITNESS: Would there not be an--I
didn't catch that word. Would there not be another
what?
PRESIDENT HANEFELD: We distinguished
[Page 836]
earlier on two things, and now one thing is the
reinvestment of profit.
THE WITNESS: Umm-hmm. PRESIDENT
HANEFELD: And the other one, whether the
Concentrator, when it starts to operate, is subject to
the old Stabilized Regime. And I want to better
understand for the second part, stabilization of the
Concentrator in operation, was there an alternative
calculation made, or was there only calculations in
the financial model based on the assumption that the
Concentrator was stabilized?
THE WITNESS: So, your question is, did we
do sensitivity on--
PRESIDENT HANEFELD: On that point. Yes,
financial.
THE WITNESS: I'd have to look at the
Pre-Feasibility to remember. More than likely, if it
wasn't in the Pre-Feas, I'm sure we did it because
somebody probably asked that question. I'd have to
look at the Pre-Feasibility document to be certain
whether it was in there or not. I don't remember.
PRESIDENT HANEFELD: So, you assume that
[Page 837]
such alternative calculations were made?
THE WITNESS: Well, you do sensitivities on a lot of things. You do sensitivities on copper price. You do sensitivities on the throughput, the recovery, all those. Whether it was--we did it with the stabilization, I don't remember doing it, but probably somebody asked the question, and so we said, yeah, this is the effect it will have on it.
PRESIDENT HANEFELD: And you said probably someone has asked the question. Is this what you earlier referred to, because there was this elephant in the room?
THE WITNESS: I don't know if the elephant was there at that time or it became--or the elephant became more clear in the Feasibility Study. But the elephant in the room was always people, and Phelps Dodge, I think, was the first one that always said, you know, it's called the "Leaching Project." And I would respond, you know, that's just a name. That's what they called the Feasibility Study. It doesn't mean that that project--it doesn't mean anything to do about stabilization, what is stabilized or the
[Page 838]
Concessions. So, the elephant in the room was, why in the heck did they call it the "Leaching Project."
PRESIDENT HANEFELD: And as you are a nonlawyer, just also I think it's a proper question, now, do you recall that you obtained legal advice at the time of the Pre-Feasibility Study on this very question that we just discussed?
THE WITNESS: Oh. Sure. Yes.
PRESIDENT HANEFELD: Now, this is the redacted part in the Pre-Feasibility Study?
THE WITNESS: I believe so, in Appendix--whatever it was, G or H or something. Yes.
PRESIDENT HANEFELD: Okay. E.
THE WITNESS: Yes.
PRESIDENT HANEFELD: Thank you.
ARBITRATOR TAWIL: I don't have any.
PRESIDENT HANEFELD: Then you are released as a Witness, Mr. Davenport. Thank you very much. We have no further questions.
THE WITNESS: Thank you.
PRESIDENT HANEFELD: Thank you.
THE WITNESS: Thanks.
[Page 839]
MS. CARLSON: Thank you.
(Witness steps down.)
PRESIDENT HANEFELD: So, probably it would be a good time for a lunch break; right?
(Whereupon, at 12:35 p.m., the Hearing was adjourned until 1:35 p.m., the same day.)
MARÌA CHAPPUIS CARDICH, CLAIMANT'S WITNESS, CALLED
PRESIDENT HANEFELD: Welcome back. We will now continue with the Witness testimony of Ms. Chappuis.
Welcome, Ms. Chappuis.
I'll introduce ourselves. My name is Inka Hanefeld. I'm the presiding arbitrator in this Arbitration. I'm here with my co-arbitrators, Professor Tawil and Dr. Cremades.
You have been called as a Witness in these proceedings by Claimant, and so I need you to read out the Declaration that you should have in front of you under Rule Number 35(2) of the ICSID Arbitration Rules. Can you please read it out?
THE WITNESS: Good afternoon. I'll read it
[Page 840]
in Spanish. Good afternoon, everyone.
Witness Declaration: I solemnly declare, upon my honor and conscience, that I shall speak the truth, the whole truth, and nothing but the truth.
PRESIDENT HANEFELD: Thank you very much, Ms. Chappuis.
Do you have your Witness Statements in front of you? It should be CWS-3 and 14.
THE WITNESS: Yes, I have my Witness Statements right here of 19 October 2021 and 13 September 2022.
PRESIDENT HANEFELD: Can you confirm that these are your Witness Statements and that they correspond to your recollection, or do you have any corrections to make?
THE WITNESS: I think these are them, yes.
PRESIDENT HANEFELD: Perfect. Then we can proceed.
You will first briefly be questioned by Claimant's Counsel and then the Respondent will continue.
[Page 841]
BY MR. PRAGER:
Q. Good afternoon, Ms. Chappuis.
I'm going to put some questions to you.
The first is: Could you explain when you began to work at MINEM for the first time?
A. I began to work there in August of 1990. I was assigned to the Ministry of Energy and Mines by the Tintaya Special Mining Company, a State enterprise.
Q. And could you explain for us your role in the drafting of Legislative Decree 708?
A. Based on the experience I'd had at Tintaya, I wrote, together with Mr. César Polo, all or most of the Articles in Legislative Decree 708, especially those having to do with the Tax Stability Agreements.
I had worked for three years at the Tintaya Special Mining Company, dedicated exclusively to implementing the Stability Agreement that we had. And my task was every afternoon to meet with two inspectors from the Ministry of Energy and Mines who were in an office within our company and to review with them all of the investments that we had made to
[Page 842]
build Tintaya eight years earlier.
In addition, we reviewed the investments that we were continuously making in the mine. We were exploring; we were making changes in the Concentrator. All of that I would review with the Ministry of Energy and Mines' inspectors, who were in constant contact with the SUNAT.
Q. Going back to the Ministry and the first time you were there, could you describe for us the conversations that you had with Mr. Polo regarding the scope of the Stability Guarantees?
A. Mr. Polo had come from Centromín, a State-owned mining company that did not have a Tax Stability Agreement. Moreover, it had only seven underground mines, old ones, with a lot of labor problems.
I had come from large-scale copper mining with a contract at that time--an agreement at that time. I told him of all our experience, and also the advantages, as well as the fragile aspects of the Agreements under Legislative Decree 109.
Q. Well, here in the Arbitration we talked
[Page 843]
quite a bit about what became the fourth paragraph of Article 83 of the General Law on Mining, which says that stability applies exclusively to the activities of the mining company in whose favor the investment is made.
Did you have conversations with Mr. Polo about this provision at that time?
A. Well, let me clarify that "activities," as Decree 708 says and as other mining laws say, refers exclusively to the mining activities that are exploration, mining, processing, or beneficiation, and marketing as well, and transport and mining work.
So, I sat down with Mr. Polo, and together we would write. We would sit down at a table. He was here; I was here. We would exchange information and would go forward in the drafting process. Then we had decided to include the medium-sized companies, those that could only make an investment of 2 million; the existing companies; and the companies that were State-owned and were entering into privatization processes.
So, Mr. Polo--and here I'm talking about
[Page 844]
1990. We didn't have laptops. He was writing, and he told me: "So, all of the Companies that are going to be privatized are included here. Centromín as well. But Centromín, no, it has factories."
So, in Perú, since we've had Tax Stability Agreements, and we have had them since 1890, Tax Stability Agreements were only given to mining. And he said, "No. If we are doing that, it could be that, when Centromín is privatized, the factories would also receive a Tax Stability Agreement." Now, and he corrected it and wrote that phrase, which said this would be only for mining activities of the mining company. And in this way, he sought to exclude the factories.
Now, I must clarify that the legislative decrees are signed by the Minister and the President, but afterwards they need to be ratified by the Congress, and what Minister Sánchez Albavera did not want was to have any objection whatsoever by Congress. That's why we included that paragraph at Article 11, I think it was, of Legislative Decree 708.
Q. And do you have any recollection as to
[Page 845]
whether at that time Mr. Polo mentioned that the scope of stability would be limited to an investment project?
A. No. Never. He never mentioned that.
Moreover, had he mentioned it, I would have told him: "You're crazy. You're totally wrong. That's impossible."
Mining activities, as we had written even in 708, everything is governed by concessions. If we were signing an agreement for mining activities, that agreement, based on the Articles of the General Law on Mining, had to be based on concessions, and that is so because we decided that they had to be adhesion contracts, and that Article 3 was going to make reference to Annex 1, where we were going to indicate the Concessions covered by the Stability Agreement.
And, also, as we included in 708, for investments of over 50 million, it was going to be 15 years and not one more day.
Q. And when did you leave MINEM for the first time?
A. In February of 1993.
[Page 846]
Q. And when did you return to MINEM?
A. 2001. I went back after eight or 10 years, together with Mr. Polo, who called me to come back.
Q. And what were your functions at that time as Director General of Mining?
A. 10 years had gone by. The law had been published. Many tax stability agreements had been signed. Perú, even though the copper prices were not helping us, the international price was 80, 85, 90, and it--but investment had come to Perú, and so we had to continuously review studies, applications; plus, I was in charge of the environmental aspect as well as the mining security aspect.
Q. Could you explain, during the time that you were the Director of the DGM, what was MINEM's understanding as to the scope of the tax stability agreements?
A. The understanding, the criterion, has always been that it's based on concessions. Several stability agreements had been signed, more than 20 of them, and you can review them. They are available at the website of the Ministry, and they all have the
[Page 847]
same text, because it's an adhesion contract, and they all refer to certain Concessions which are in Annex 1.
Q. Could you describe the conversations that you had with Cerro Verde in 2003 regarding reinvestment of profits?
A. In 2003, copper prices were $0.90 per pound, and then the officials of Cerro Verde came to my office and they said that the Oxides had been depleted and they were thinking about finally building the big Concentrator that was needed to process the Primary Sulfides. First, I was glad to hear it and, second, they sent me two communications where they asked whether the reinvestment of profit was in force.
Now, that tax provision had been derogated in 2000. We were in the year 2003. It was no longer the Fujimori Administration. It was the Toledo Administration.
My answer in the meetings we had was that "the Peruvian State will honor, to you, the Agreements that had been signed." They sent two letters with some inquiries. We answered them, and I think that's here in the record.
[Page 848]
Q. And what conversations did you have in 2004 with Cerro Verde regarding application of the Stability Agreement to the Concentrator?
A. In 2004, copper prices began to climb slightly. It was at $1.20, and that gave us some breathing room. The mining company's situation was not so difficult, and so they came and they said: "We have undertaken our Feasibility Study in respect of the Concentrator, and we want to know if it's going to be covered." So, we had a meeting with them where, as always, the meetings were my team with the mining companies. I never met with them alone.
So, we spoke, and they put it to us, and we told them two things: "The Peruvian State is going to respect this. It's an investment. There's no restriction in the law based on size of the investment. This has been something our country has longed for since 1979, and, finally, it is so good that the Concentrator Plant is finally going to be built."
So, we said, "Well, how is this is going to be formalized." And so, they told me that, well, they
[Page 849]
were going to file an application, that perhaps they were going to ask for an additional Beneficiation Concession." So, we told them: "You, since the Cerro Verde Mining Unit began, had a Beneficiation Concession where there was a Leaching Plant and a Concentrator. Why not include this new plant in the area of this Beneficiation Concession?
As you know, Cerro Verde had, like this table, 7,000 hectares in mining concessions, and it had a small concession of 450 hectares here that was on top of the 7,500, and that was the Beneficiation Concession where all of its treatment plants were grouped together.
And so, we told them that it could be included. All of this was, the Mining Concession and the Beneficiation Concession, were covered by the Agreement up until 2013 and not one more day.
Q. Thank you very much.
MR. PRAGER: I don't have any further questions.
PRESIDENT HANEFELD: Thank you.
Mr. Alexandrov, will you do the cross,
[Page 850]
please? Please go ahead.
MR. ALEXANDROV: Thank you very much, Madam President.
BY MR. ALEXANDROV:
Q. Good afternoon, Ms. Chappuis.
A. Good afternoon.
Q. I'll be speaking English.
A. Okay.
Q. You'll be listening to the Spanish translation, I understand.
A. Okay.
Q. You'll be responding in Spanish; correct?
A. Yes, that's right.
Q. Then I will ask you, when I ask you the question in English, make a pause before you respond so that the interpreters can catch up.
A. Fine.
Q. Once you respond, I'll do my best to make a pause myself, again, for the interpreters to catch up. I ask you that you don't take my pause as an invitation to continue talking. I will just make a
[Page 851]
pause for the interpreters to catch up.
A. Fine.
Q. I'll also ask you to keep your answers brief to the extent possible.
You testified at the Hearing in the parallel case, the Cerro Verde Case, in February; correct?
A. Yes.
Q. Did you review the Transcript of that Hearing?
A. Yes. I reviewed my Transcript.
Q. When you say--when you say your Transcript, do you mean the Transcript of your testimony?
A. I only reviewed my testimony.
Q. And nothing else?
A. Nothing else.
Q. How about the Opening Statements?
A. I did not review them.
Q. Okay. You will recall that you testified at that Hearing that you were paid for the time spent to prepare your Witness Statements and for the time spent to prepare for your testimony at the Hearing and your testimony at the Hearing. And you testified that you
[Page 852]
charged a fee of $250 per hour.
Do you remember that?
A. Yes.
Q. Are you paid the same rate to prepare your Witness Statements and prepare for and testify at the Hearing in this case?
A. Yes.
Q. How much total have you charged Cerro Verde and/or Freeport so far for preparing for the--preparing your testimony in the Cerro Verde Case and preparing your testimony and for the Hearing in Freeport v. Perú?
A. Several hours. I don't recall the exact number of hours, so I could not give you an exact figure.
I work for other institutions and other consultancies, and I have a weekly time sheet. And there I note how many hours, and I give that time sheet to my accountant.
At this time, I wouldn't want to give you an answer, because I might end up telling you a figure that's not correct.
[Page 853]
ARBITRATOR TAWIL: I almost can't hear you. Could you speak a little closer to the microphone or speak up a bit?
THE WITNESS: Okay. My apologies.
BY MR. ALEXANDROV:
Q. Now, Ms. Chappuis, we all know how this works. We record our time and then give the number of hours to an accountant who prepares the invoices.
So, you have to know how many hours you've spent or how many hours you've charged Cerro Verde and/or Freeport. Your accountant cannot come up with that number. You feed that number to the accountant.
So, you've got to know when you give those time sheets to your accountant how much time, how many hours, you've spent and you've charged for Cerro Verde and/or Freeport; isn't that right?
A. As I told you, I work for other institutions and I do consultancies for other companies. And each week I prepare a time sheet that indicates the number of hours that I spent on each job, and I give that to my accountant.
It's my understanding that in respect of
[Page 854]
this Hearing, I have to--that in this Hearing, I need to give exact, precise answers, so I could tell you at this point in time, 20 hours.
Q. And when you say "20 hours," you mean in preparing for this Hearing; correct?
A. I would like to make a note.
Q. Can you just answer my question, please?
(Overlapping speakers.)
Q. Sorry. You said: "It is my understanding that in respect of this Hearing, I have--that in this Hearing, I need to give exact, precise answers. I could tell you at this point in time, 20 hours."
So, I'm just asking you to confirm: Is it your testimony that you have spent and been paid for 20 hours for the time that it took you to prepare for this Hearing?
A. What I wanted to say, Mr. Alexandrov, is that I'm not getting the translation.
Q. Okay. Did they translate my last question?
A. Perhaps I need to press another button.
MR. ALEXANDROV: Can somebody help to make sure she's on the right channel, please?
[Page 855]
PRESIDENT HANEFELD: Yes.
You will receive assistance. My apologies if you don't receive the translations.
BY MR. ALEXANDROV:
Q. Do you hear the Spanish translation now?
A. Yes, now I do.
Q. So, you said: "In respect of this Hearing, if I need to give an exact, precise answer, I could tell at this point in time 20 hours."
So, I was just asking you to confirm that you spent 20 hours in preparing for this Hearing.
Can you confirm that?
A. Yes. More or less 20 hours.
Q. Ms. Chappuis, do you review the invoices that your accountant sends to your various clients?
A. Yes.
Q. Do you have any idea about the amounts of your invoices to Cerro Verde and/or Freeport so far?
A. I'm going to be very sincere with you, Mr. Alexandrov. I'm more concerned about the invoices that other clients delay in paying.
Q. Well, I'm glad that Cerro Verde and Freeport
[Page 856]
are paying you promptly and you're not concerned about that. Nevertheless, since you review your invoices, you must know--and you may not remember now the precise number in terms of cents, but you must have a general idea of what is the total amount of your invoices issued so far to Cerro Verde and Freeport.
So, what is it?
A. I wouldn't dare give an exact number. As I said for these last ones, 20 hours, at $250, $5,000.
Q. Well, but--I understand your math exercise. You're multiplying 20 hours by 250, but the 20 hours, I understood, was just to prepare for this Hearing.
And I'm asking you for the total amount that you have invoiced so far. Just give me a ballpark.
A. Perhaps $7,000.
Look, sir, Mr. Alexandrov, you have to recognize that, in Perú, we pay taxes. Consultants pay taxes, and we have rates, and right now I'm having an issue trying to think how much I ended up charging, because, in Perú, we do pay taxes, high taxes.
Would you like the gross or the net amount?
PRESIDENT HANEFELD: Sorry. Maybe I just
[Page 857]
misunderstood the numbers that were stated. Was it right on the Transcript? Perhaps USD 7,000? I understood something differently.
(Comments off microphone.)
PRESIDENT HANEFELD: Okay. 7,000 so far.
MR. ALEXANDROV: That's what she said, but I'm going to pursue that a little bit.
BY MR. ALEXANDROV:
Q. Well, first of all, Ms. Chappuis, I understand you pay taxes in Perú. So, I'm not questioning that. In response to your request for clarification, I'm asking you how much you have been paid so far before taxes.
So, if you want--"bruto," if you will--but let me ask you about the number $7,000, because you just said that you spent 20 hours preparing for this Hearing, which is $5,000. Are you saying that for preparing your written statements in the other case and in this case and preparing and testifying at the Hearing in the other case, you are only paid an additional $2,000?
A. No, Mr. Alexandrov. My understanding is that
[Page 858]
you asked me: How many hours did you take to prepare this Hearing today? I haven't invoiced Cerro Verde yet.
Q. Well, what I'm asking you--let's then split it into two questions.
My first question is how many hours, more or less, you have spent preparing your written Witness Statements in the other case, preparing for and testifying in the other case, preparing your Witness Statements in this case, and preparing to appear at this Hearing. Total, how many hours so far?
A. Okay. Let's split these things up.
You have asked how many hours I took to prepare this, this, and today's.
Q. I will repeat my question.
The two Witness Statements you submitted in the case of Cerro Verde v. Perú, your preparation for the Hearing that we conducted in February, your time at the Hearing, and then, in addition, how many hours you spent preparing those two Witness Statements in this case and how many hours you spent preparing for this Hearing total.
[Page 859]
A. Well, let us say that I have not submitted the time sheet for this week where I have reviewed all these documents, my testimonies, and right now I am now testifying at a hearing.
Now, if we exclude this, I think that, after taxes, Cerro Verde has paid around $7,000.
Q. I'm just waiting for the Transcript to show what you said.
Now, if I'm not mistaken--Ms. Chappuis, I'm not asking you after taxes, because I don't know and I don't want to know what taxes you are paying.
I'm asking you, before taxes, what you were paid by Cerro Verde and/or Freeport, not what you end up after paying taxes on those amounts.
So, can you answer that question, please?
A. I would have to think about a more imprecise calculation. Taxes are not based on flat figures. You know, as figures go up, the tax rate goes up.
Let's just say that perhaps $10,000, that could be an amount.
I also need to make another clarification, Mr. Alexandrov, as you are very interested in this.
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Cerro Verde covers my trip, hotel, flight, food when I am away from my country being at a hearing. So, the amount is much higher; right?
Q. To be clear, I'm not asking about your costs, your hotel and your travel. I'm asking about the remuneration you receive for your time, which you said you charge $250 per hour.
And so, if you received $10,000 so far, that by my calculation is 40 hours at the rate of 250. You said that you spent 20 hours preparing for this Hearing. It seems to me difficult to understand how you spent 20 hours preparing for this Hearing and then you spent just 20 more hours preparing your four Witness Statements and preparing for the other Hearing.
Can you explain that?
A. Mr. Alexandrov, let's see. First, this last stage, well, I haven't charged Cerro Verde anything for it. I have my time sheet that I have kept day by day, and I have written on there how much time I spent. I have not collected anything.
In connection with the 7,000, or 10,000
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before taxes, I have not included this last stage. We have not finished with Cerro Verde. My time sheet will end when I arrive on Friday at my place. And I said, okay, I used up so many hours for Cerro Verde, and I go day by day. That last calculation I have not performed yet.
Q. Okay. So, what I understand is this: You were paid $10,000, which is 40 hours of your time before you started preparing for this Hearing. For the time you spent preparing for this Hearing, you estimated 20 hours. I'm still having some difficulty understanding how is it that you spent 20 hours preparing for this Hearing, but you spent a total of 40 hours preparing for the February Hearing and then preparing four Witness Statements.
Can you explain?
A. I'm sorry, could you tell me what are the four Witness Statements that you're referring to?
Q. Well, two in the other case and two in this case.
A. No, sir. I am saying that whatever has to do with this stage that started in April and that we
[Page 862]
are concluding today, for me, at the Hearing, well, then I'm going to leave here, got to the airport, arrive at my place, and then, and only then, am I able to calculate how many hours I used. That has not been invoiced yet.
The time sheet is not completed yet. I still have to add this Hearing and my return to Lima.
Q. No, I understand that. You're saying you haven't invoiced the time you spent preparing for this Hearing. I understand that. I also understand you said you spent 20 hours preparing for this Hearing, but what you have invoiced already must be your two Witness Statements in the other case, your two Witness Statements in this case--that is four Witness Statements--plus the time you prepared for the Hearing in February and the time you spent at the Hearing in February. My question to you is: If just preparing for this Hearing took you 20 hours, which you have not yet invoiced, isn't 40 hours spending on all the rest, four Witness Statements and preparing for the other Hearing, a fairly low number?
A. Sir, I know that this is being translated,
[Page 863]
but I do not understand, I have only prepared this, this, and I have looked at this, which was my presentation, or my Statement at the February meeting where you and I met, and I started preparing for this about two weeks ago and I haven't finished completing my time sheet, and when I get to my house, I'm going to conclude filling out the time sheet. I'm going to send the invoice to Cerro Verde, including my expenses. I have to put together all my expenses, taxis, hotels, meals, et cetera.
Q. So, are you saying that the $10,000 cover the invoiced amounts in this case only, your two Witness Statements, and whatever else you did for the purposes of this case and you do not include in that number the compensation you received in preparing your two other Witness Statements in the Cerro Verde Case in your preparation for and participation in the Hearing in that case?
Is that your testimony?
A. As I said, you asked me how much Cerro Verde had already paid. From what I recall, up until February, and I was at a Hearing in February and you
[Page 864]
were also involved in that Hearing, well, up until February, the amount is around $10,000. That's just my fees, because then I have charged Cerro Verde all of the expenses related to hotels, flights, taxis, meals.
Q. Ms. Chappuis, I'm having some difficulty trying to understand how much you've been paid, and I don't know if it's my difficulty or you're not being straightforward.
Do you believe there is anything wrong that you were paid for your testimony in this case?
A. I do not, in no way.
Q. Then why don't you just say, this is what I've been paid so far, and I expect I'll be paid for the rest of my time when I invoice it?
A. I have not yet calculated how many hours. We have not finished this, Mr. Alexandrov. If you are going to ask me questions for two more days, I'm going to have to invoice two more days to Cerro Verde.
Q. Well, I was asking you what you have invoiced so far. I understand that you are yet to submit invoices. I can see that Cerro Verde is
[Page 865]
thrilled with anticipation to receive those, but in the meantime, I was asking how much you've invoiced so far. And I understand that there is some time that you have not yet invoiced, but again, how much you have invoiced in both cases so far?
A. Let me explain this to you, Mr. Alexandrov. When was the Hearing? February 5; right? February 3, February 5. Let's just say February 4 or 5. Then the Hearing ended by midday. I went to the hotel, I packed, and then I went to Lima. I arrived in Lima and I put together my invoices, all my time sheets and I sent the invoices to Cerro Verde. All of the expenses that I had made: Hotel, meals, flights, I added everything.
Now, that, of course, is taxed in a special manner. Then I included my hours Day so-so, Day such-and-such, a Hearing, we ended at 11 in the morning, so I wrote "11 in the morning," et cetera, et cetera. And I invoiced the amounts to Cerro Verde. I think I would have invoiced everything by February 15. If we look at February 15, backwards, I calculate that with the preparation of this Witness
[Page 866]
Statement and the other about $7,000. After taxes.
Q. So, Ms. Chappuis, your First Witness Statement in the Cerro Verde Case was submitted on 27 August 2001, not this one, not the other one, but the Witness Statements in the Cerro Verde Case, 27 August 2021.
MR. PRAGER: Madam President, the Witness Statement is not on the record here, so she can't verify that.
MR. ALEXANDROV: She can take my representation for that, and I'm sure you'll correct me if I get the date wrong.
BY MR. ALEXANDROV:
Q. 27 August 2021.
So, let me ask you, then, this: You're paying taxes in Perú. How much were you paid by Cerro Verde for your participation in both cases in 2021?
A. Let's see. Let's clarify something, Mr. Alexandrov. Here we have a witness statement. It appears to be the first, 19 October 2021. That's the date it appears, a year and a half ago. Then there is another Witness Statement that is a response to what
[Page 867]
other Witnesses were saying--
Q. Ms. Chappuis, sorry to interrupt, I may not have been clear. I'm not talking now about those two; right? I'm talking about your testimony in the other case in which you testified, in February. And there you also submitted two Witness Statements, and the first one was in August of 2021, not this one. Not this one, in the other case. You submitted the first one in the other case in August of 2021, so you must have done some work in August of 2021.
How much you were paid total, "brugal," (phonetic) in 2021?
A. Now I understand, Mr. Alexandrov. Just now. My apologies. Here this is a witness statement for Freeport, and the other one was a witness statement for Sumitomo. So, what I recall is that, practically speaking, they are the same. I do not recall having prepared four different Witness Statements.
Q. I understand now. Nevertheless, could you please answer the question: How much were you paid by Cerro Verde or Freeport? Who is paying your invoices? Is it Cerro Verde?
[Page 868]
A. SMCV because I issue my invoices in Perú, and that is the mining company, the Peruvian mining company that I can issue invoices to because they have a taxpayer number in Perú.
Q. How much did Cerro Verde pay you in 2021?
A. I do not recall. That is why I said that up until February, around February 15, 2023, for everything that I had done, all of these Witness Statements that you say that they are four--okay. No, now I realize that they are four. Two for Freeport and two for Sumitomo, but really there are two. There are two that are the same.
So, the approximate amount is $10,000, and after taxes, $7,000.
Q. Okay. You have testified and you responded to questions by Dr. Prager that you first joined MINEM in 1990; correct?
A. That's exactly right, August 1990--30 August 1990. 33 years ago.
Q. In your Witness Statement, you say you were a secondee to Vice Minister Polo; correct?
A. I was an advisor of the Vice Minister of
[Page 869]
Mines.
Q. And the Vice Minister was Mr. Polo?
A. Exactly. Right.
Q. Before that, you had no Government experience; correct?
A. My experience was having worked for three years for the State mining company, Tintaya.
Q. So, you worked for a State-owned company, but, to respond to my question, you did not work for the Government; correct?
A. No. I worked for a private law State-owned company.
Q. Okay. Now, your first job as a junior engineer was for Compañía Buenaventura; correct?
A. No. I was an intern. I hadn't really obtained my title as an engineer, as a mining engineer. I was a few months away from it.
Q. Okay. But that was your first job?
A. Yes. It was my first job in an underground mine that was very small in the Huancavelica Region in Perú.
Q. And Compañía de Buenaventura is the same
[Page 870]
company that in 1994 participated, together with Cyprus Minerals, in the privatization of Cerro Verde; correct?
A. That is exactly right.
Q. And you're aware, aren't you, that Compañía Buenaventura acquired 9.2 percent of the Shares in Cerro Verde at the time; correct?
A. In November 1994, yes.
Q. Okay. And you're also aware that the same company, Buenaventura, owns 40 percent in Yanacocha; correct?
A. That's exactly right.
Q. And the founding President of the Buenaventura is Mr. Alberto Benavides de la Quintana; correct?
A. That's exactly right. Well, he passed away already.
Q. Yes, the late--I should have said?
A. Yes. He died a while ago.
Q. You know his youngest son, Mr. Raúl Benavides; correct?
A. Raúl Benavides studied Mining Engineering at
[Page 871]
the Catholic University with me. He was also a student of mining engineering up until the third year, and then he left the Catholic University and he came to the U.S. to finish his engineering studies.
Q. Right. See, if I remember correctly, he was expelled, and so he came to the United States to complete his education.
Am I right?
A. At the Catholic University, you could not repeat a class a third time, because this entailed being expelled, and he repeated a class three times, so he had to leave the Catholic University.
Q. You keep in touch with him on a regular basis, don't you?
A. No, I do not.
Q. Well, you had a chat group called "Huascaminas" in which he participates; correct?
A. The School of Mines of the Catholic University is very, very small. The School of Mines is very, very small. All of the graduates, about 180 people so far, 180 professionals, well, when WhatsApp came up, we got together in a WhatsApp group that is
[Page 872]
called Huascaminas, and we exchanged news and notices.
Q. Well, in addition to interchanging communications, you also had regular meetings at the rate of once a month; correct?
A. We now hold meetings, because 20 years ago all of us were working in different mines. We were spread around throughout the country. We are now retired. We have more time.
Q. So, you do have meetings once a month; correct?
A. Well, we could say every one or two months, well, those who are able to go to the meetings go, those that are free. But it's not only meetings we hold. We also go to funerals.
Q. Unfortunately, that's life, but I'm not going to focus on that at the moment because we have more pressing things to do.
I want to show you your testimony at the Hearing in the other case, which I referred to as the Cerro Verde Case, and it is Tab 5, CE-1135. That's Day 3 of the Transcript at Page 789-790 of the English. The Spanish is 779, Lines 2-16. We will
[Page 873]
show it on the screen, if that's easier. Whatever is easier for you.
And I was asking you--I'll read from the English: "Can you tell us a little bit about this group, which I think you called--it's not in the translation, but you called 'Huascaminas'?" And you answered: "Yes. We were all graduates of the Catholic University, from the School of Mines. We call ourselves the Huascaminas, and we meet once a month. We have ceviche together."
Do you confirm your testimony?
A. I apologize. What page is that?
Q. In the Spanish it is 779, Lines 2 to 16. It's also on the screen to help you orient, Ms. Chappuis.
A. I found it.
Q. Well, do you confirm your testimony?
A. Yes.
Q. And then--
ARBITRATOR TAWIL: Mr. Alexandrov, when you say "you confirm your testimony," specifically of what you have asked? Because we are--at least I'm not
[Page 874]
aware of all her testimony, you know.
MR. ALEXANDROV: Right.
BY MR. ALEXANDROV:
Q. So, do you confirm your testimony that Mr. Raúl Benavides is a member of that group called the "Huascaminas," and you meet--that group: "We meet once a month and we have ceviche together."
Do you confirm that?
A. Yes, but let me clarify that this is an open meeting and oftentimes I do not have time, and I do not attend.
Q. Understood. And then I asked you--I asked you--and it's Day 3 at 790, and the Spanish, it's the same document, Page 780, Lines 1-4--I asked you: "Are you still in contact with him"--"him" meaning Mr. Raúl Benavides--"through this professional group or otherwise," and you answered: "Yes, I see him at meetings generally."
Can you confirm this testimony?
A. Yes.
Q. Did you know during your tenure at the Ministry, the second one, from 2001 to 2003, that he,
[Page 875]
Mr. Raúl Benavides, was a member of the Board of Directors of Cerro Verde?
A. I did not know that. I learned through you because you showed a Board resolution and he was the Director at that point.
Q. You didn't know that when you were at the MINEM?
A. As to the information as to who are the members of the Board, it is not something that we saw in the information that we reviewed in the Directorate General of Mining.
Q. Well, let me show you a document which is behind Tab 13 of your binder, which is Exhibit CE-470. This is a meeting of the Board of Directors of Cerro Verde. And when I refer to "Cerro Verde," I mean Sociedad Minera Cerro Verde.
And you see that this is Meeting Minutes of the Board of Directors of Cerro Verde, and the fifth name down the list of participants is Mr. Raúl Benavides Ganoza.
Do you see that?
A. Yes. This was the document that you showed
[Page 876]
me at the last Hearing in February. And that's when I learned that.
Q. And during your preparation for any of the two Hearings, you did not see that document?
A. No, I did not.
Q. And during your regular meetings, it never came up that Mr. Raúl Benavides is a member of the Board of Directors of Cerro Verde. Is that your testimony?
A. To begin with, based on the document that you presented, he was Director in October 2004; and, at that point in time, I was working at the Ministry, and I did not have time to attend any meeting.
Q. Well, my question was a little bit different.
You testified that you learned for the first time that Mr. Raúl Benavides was a member of the Board of Cerro Verde when I showed you this document at the February Hearing.
So, my question is slightly different: Is it your testimony that during all those regular meetings which you attended, it never came up in any
[Page 877]
conversation that Mr. Raúl Benavides was a member of the Board of Cerro Verde?
A. The periodic meetings of the group "Huascaminas" started when the WhatsApp appeared and a group was organized with the 180 graduates from Mining Engineering. So, generally, now, when there is a good number of people who are retired, meetings are organized at some restaurant and the opportunity is open so that whoever wants to go, goes. I have attended some, but not all, because I am short of time too.
Q. That group was organized in 1976; correct?
A. No. This is a WhatsApp group. When was WhatsApp created? I don't have it fresh in my mind. I guess five, six years ago.
Q. I'm not talking about the WhatsApp chat group. I'm talking about the group of graduates who started regular meetings.
A. As I mentioned before, until a few years ago, we were all working, we are all--most of us are at 66, 67 years of age, and we have been working until recently. We just started, a great deal of us started
[Page 878]
to retire and to have time to be able to meet. Before then, they were all over the country working for mines.
Q. Well, Ms. Chappuis, this is not an answer to my question.
Just to give you the background of why I'm asking, and then I will repeat my question.
We established, and you testified in the February Hearing--and you confirmed this testimony today--that there were regular meetings once a month where you had ceviche. And I'm asking you--you are giving me answers about people don't have time to go to those meetings. I'm asking you, you attended--I'm not saying you attended all of those meetings. You did testify there were regular monthly meetings. You attended--I'm not asking how many of them, you probably won't remember. But you attended at least some of those meetings, and my question was a bit more specific than what you answered.
My question was, is it your testimony that during those meetings it never came up in your conversations with Mr. Raúl Benavides that he was a
[Page 879]
member of the Board of Cerro Verde?
A. Mr. Alexandrov, Mr. Benavides, according to this document--
(Overlapping interpretation and speakers.)
Q. Can you just answer my question, yes or no, then you explain.
My question is, again, is it your testimony that during those meetings, it never came up in your conversations with Mr. Raúl Benavides that he was a member of the Board of Cerro Verde?
A. Mr. Benavides was Director of Cerro Verde in 2004 when I was the General Director of Mining, and I did not have time. Then there was no WhatsApp. There was no "Huascaminas" chat group.
At that point in time, I did not have the time to attend meetings. I stated in February that now, over the last recent months, there were some monthly meetings, and sometimes--I'm talking about 2023, when many of my colleagues have already retired. We are 66, up to 68 years of age, and we have started with these meetings. I am not talking about 2004.
As you may imagine, this meeting is held in
[Page 880]
Lima. We are Mining Engineers and 20 years ago we were 40, 45 years of age, and we were working in a mine somewhere in Perú, far from Lima.
MR. ALEXANDROV: Ms. Chappuis, I'm making a pause simply to let the Interpreters catch up. Please don't take that as an invitation to continue your answer. Thank you for your answer.
BY MR. ALEXANDROV:
Q. So, let's go to the same--actually, can we go to the same document, CE-470. I apologize for my voice. Again, this is a meeting of the Board of Cerro Verde, dated 11 October 2004, and look at Section 1. And you see that at that meeting, the Board approved the investment of $850 million for the Primary Sulfides Project, which is the Concentrator Plant.
Do you see that, Ms. Chappuis?
A. Yes.
Q. So--and we know from that same document, that Mr. Benavides was one of the five Directors who participated in that decision.
Did you know that the Board of Directors of Cerro Verde approved the investment into the
[Page 881]
Concentrator Plant in October of 2004?
A. I was not aware of that. I learned that at the February Hearing in 2023.
Q. Can we look at the testimony of Ms. Torreblanca, Second Witness Statement, CWS-21, at Paragraphs 16 and 17. And that's behind Tab 15.
(Pause.)
BY MR. ALEXANDROV:
Q. So, can we look at Ms. Torreblanca's Second Witness Statement, Paragraphs 16 and 17. You have them behind Tab 15. I'll refer to them in English. You can look at the Spanish.
So, here is what she says in Paragraph 16. She says: "Director Chappuis and other MINEM officials were sufficiently persuaded that Cerro Verde's case was distinguishable from that of Tintaya. Director Chappuis explained that, since the new Concentrator investment would form part of Cerro Verde's existing integrated Mining Unit, it would be covered by the existing Stability Agreement.
She told us that there was no need for an amendment to the Stability Agreement to include an
[Page 882]
additional Beneficiation Concession. Rather, since the investment in the Concentrator would be made within Cerro Verde's existing Mining Unit, Cerro Verde could simply apply for the expansion of the existing Beneficiation Concession that was already covered by the Stability Agreement."
Then, she continues in Paragraph 17: "In light of the DGM's confirmation that the Concentrator would be covered by the Stability Agreement if it was included in the existing Beneficiation Concession, Cerro Verde no longer saw the need to press for additional written guarantees. On 11 October 2004, Cerro Verde's Board of Directors met by telephone conference to determine whether it would approve the $850 million investment to build a Concentrator."
Then she talks about her participation. She says: "the Board of Directors decided to approve the investment, conditionally, noting that the Meeting Minutes--in the Meeting Minutes, that the final approval 'would depend on obtaining the required permits and the financing necessary for the project'."
Do you see that?
[Page 883]
A. Yes.
Q. So, it was on the basis of your oral assurances that the Board conditionally approved the $850 million investment in the Concentrator Plant.
Did you know that at the time?
A. I did not have any idea as to the steps to be followed within the Board of -Sociedad Minera Cerro Verde.
Q. Do you know that subsequently, shortly after that, Compañía Buenaventura increased its participation in Cerro Verde to about 20 percent?
A. I did not know.
Q. Can we look at Paragraph 6 of your First Witness Statement. You say, the second sentence: "Between July 1993 and November 1997, I engaged in consulting work for mining companies, including the Phelps Dodge Corporation. None of my private consulting has involved Cerro Verde."
Do you see that?
A. Yes.
Q. Let me show you Document RE-200, which is behind Tab 9. And this is your curriculum vitae; in
[Page 884]
the Spanish on Page 4, English Page 3. You explain what you have been doing under the rubric, in English--technical economic evaluations for Investment Decisions, permit management. In Spanish--technical-economic evaluation for Investment Decisions. You list several companies, including Phelps Dodge USA, 1993-1997.
Do you see that?
A. Yes.
Q. According to your CV, you worked on Technical-Economic Assessments for the purposes of Investment Decisions for Phelps Dodge between '93 to '97.
So, for four years, you were consulting Phelps Dodge on Investment Decisions. That's what your curriculum vitae says; correct?
A. During those years, yes.
Q. Can we look at Tab 18, and that is CE-318. It is a document of Phelps Dodge, and the heading is "1993 Cerro Verde Evaluation."
Do you see that?
A. Yes.
[Page 885]
Q. And then when you turn the page to the page after the title page and the Table of Contents, you see Section 1, Executive Summary, and I'll read the paragraph in English.
"Phelps Dodge Mining Company, consistent with strategic plan objectives, is interested in acquiring and developing quality mining properties in mining regions throughout the world." Phelps Dodge "initially became interested in the Cerro Verde open-pit Mineral Property in Perú because of its large copper ore reserves, the privatization of the State-owned mining concern known as Minero Perú, and the improving investment climate in Perú." A Phelps Dodge "evaluation team visited the Cerro Verde data room in Lima and the mine site in southern Perú, near the City of Arequipa in May 1993."
And then I want to show you another document, Tab 19, CE-367, which is Phelps Dodge SEC Form 10-K of the year 2000. And it's Page 38, which is the last page of the excerpt. On the PDF, it's Page 44 in the full Exhibit. It's the rubric--the heading is "PD Mining-Operations Update."
[Page 886]
And you see Phelps Dodge's reporting to the Securities and Exchange Commission, that: "On October 16, 1999, Phelps Dodge acquired Cyprus Amax Minerals Company." And then under rubric (v), "an 82 percent interest in the Cerro Verde Mine in Perú, consisting of two open-pits, a heap leach operation and an SX/EW Plant."
Do you see that?
A. Yes.
Q. So, what's happening is, Cerro Verde expresses a strong interest--I'm sorry, Phelps Dodge expresses a strong interest in Cerro Verde in 1993, to the point of entering the data room in Lima and visiting the site, and then which culminates in 1999 with the acquisition of 82 percent interest in Cerro Verde.
You were a consultant of Phelps Dodge on Investment Decisions, and your testimony is, this one big investment by Phelps Dodge in Perú, that was very seriously considered during those years, never came up in your work for Phelps Dodge; is that correct?
A. Yes. In 1993, as I mentioned before, I left
[Page 887]
the Ministry in February 1993, and approximately in June/July 1993, I was called by Phelps Dodge Exploration, Santiago de Chile office. I was called to conduct some assessments, in particular, for Tintaya, since I had worked there, and another mine, Chapi, which was a private mine.
At that meeting, Engineer Francisco Caichac from Phelps Dodge told me: "We have totally discarded Cerro Verde, because it is a disaster of a Project. The Peruvian Government would have to pay us $30 million if they want Phelps Dodge to go into that mine."
And in November that year, the privatization happened, and only Cyprus presented an offer for $30 million. Phelps Dodge did not present any offer, and none of the other 18 mining companies that had acquired documents for the privatization submitted any bid. The only one that presented a bid was Cyprus, and it was awarded the privatization.
Six years later, Phelps Dodge bought Cyprus, and those are the typical mergers among mining Companies, and Cyprus arrived with all of their
[Page 888]
assets. One of them was Cerro Verde.
Q. Well, we know those facts that Cyprus was the only one who submitted the bid, and that Phelps Dodge at that time did not.
My point is slightly different: Cerro Verde expressed a strong interest, including access in the data room and sending a team on-site.
So, clearly there was an Investment Decision to be made, whether in 1993-1994, they made a decision not to participate, it was still an Investment Decision. Eventually, they made an Investment Decision to obtain over 80 percent of Cerro Verde.
And my question is, you were their consultant on Investment Decisions. You were based in Perú. You knew the Peruvian mining sector, as you have testified, upside down, and you never advised Phelps Dodge on this Investment Decision, whether or not to acquire Cerro Verde?
Is that your testimony?
A. As I told you, Engineer Francisco Caichac called it a disaster in July 1993, and told me "It's a deposit that does not have either water or
[Page 889]
electricity."
Q. And who was that person again?
A. Francisco Caichac, who was from the engineering area in Phelps Dodge, and worked in the Santiago office. He came from Bechtel, which is one of the largest engineering firms, and he was the one who interviewed me, and in a conversation talking about Tintaya and Chapi, it came up, and he told me "Cerro Verde is totally discarded. The Peruvian Government would have to pay $30 million to Phelps Dodge for us to take on that mine, which is a disaster."
Q. So, you learned that from Phelps Dodge person in Santiago de Chile. Nobody from Phelps Dodge ever approached you in Perú to consult you on that decision? Is that your testimony?
A. Exactly. That was the only time when I heard about Cerro Verde.
Q. So, you were their advisor on Investment Decisions, and you're saying you only advised them on an Investment Decision in Chile and that was all; correct?
[Page 890]
A. No, none in Chile. I said in Tintaya and in Chapi, which is in Arequipa. Plus, I was one of the consultants. These are very large companies, these are investment decisions that entail more than $100 million, and as you could imagine, I was not the only consultant who decided whether such an investment might be made by Phelps Dodge. It was the exploration office in Santiago, and they have their base in Phoenix, I believe, where the headquarters is, and that's where all the decisions are made.
Q. Well, I understand, of course, that you are not the only consultant of Phelps Dodge. I just find it somewhat strange that they would consult you with respect to Tintaya and Chapi, but not with respect to Cerro Verde. You didn't find that strange, that they never talked to you about Cerro Verde, other than your conversation with the person in Chile?
A. As I say, that was July 1993, and it was already discarded, and that is confirmed because, in November of 1993, they did not present any bid.
Q. What happened in '95, '96, '97, when you were still their consultant on investment decisions?
[Page 891]
They never talked to you about Cerro Verde?
A. As I say, Engineer Francisco Caichac told me that that Project was a disaster. It had no water and no electricity.
Q. In 1993. I'm asking you, how about the-years '95, '96, '97, when you continued working as a consultant on investment decisions for Phelps Dodge.
Did anybody from Phelps Dodge talk to you about Cerro Verde during those years?
A. No one. That Project had been completely discarded.
MR. ALEXANDROV: Madam President, this may be a good time for a break.
PRESIDENT HANEFELD: Yes. Then we have a 15-minute break. Thank you.
(Brief recess.)
PRESIDENT HANEFELD: I think we can proceed.
MR. ALEXANDROV: Thank you, Madam President.
BY MR. ALEXANDROV:
Q. Ms. Chappuis, I want to talk a little bit about your position from 1990 to 1993 as an advisor to Vice Minister Polo, and in particular your role in
[Page 892]
drafting Decree 708, which was the Mining Law.
So, can we look at your Witness Statement, your Second Witness Statement, at Paragraph 5, which is in your--well, you have it in front of you, but for everybody else, it's behind Tab 2 of the big binder.
You can read it for yourself first, Ms. Chappuis, so that I don't read it into the record. Everybody has it. Your Second Witness Statement--it's probably easier to look at one of those, yes. 13 September 2022. Can you take a look at Paragraph 5, and then I'll ask you--Paragraph 6.
So, Paragraph 6, you say: "First of all, I was surprised to learn that Perú claims Mr. Polo's testimony in this Arbitration is 'determinative' because he supposedly 'spearheaded the drafting of the provisions of Legislative Degree 708.' This is not correct, you say. As I explained in my First Witness Statement, President Fujimori's first Minister of Energy and Mines, Fernando Sánchez Albavera, was in charge of drafting Decree 708. Around August 1990, after a few days in office, Minister Sánchez Albavera asked Mr. Alejandro Portal, financial manager for
[Page 893]
Empresa Minera Especial Tintaya, to provide a secondee with relevant experience in mining and finance to advise Vice Minister Polo on various issues, including the drafting of provisions related to the stability agreement in the Mining Reform, and Mr. Portal asked me to take that role, and I accepted."
Do you see that?
A. Excuse me. What is your question?
Q. I just want to make sure you've seen that, and then I'll proceed.
A. Yes.
Q. Well, let us look at the Transcript of the February Hearing, which is behind Tab 5, Exhibit CE-1135, which is the Transcript of Day 3, at Page 780 in the English and 864 in the Spanish. And in English, it begins on Line 6 with my question.
Oh, sorry. I apologize. It was Mr. Prager who asked that question. I'm sorry. I'm honored to be confused with you, but I'm not sure you're honored to be confused with me.
(Comments off microphone.)
Q. Apologies. Mr. Prager is asking the
[Page 894]
question, and the question is--and I'll read it into the record: "Could you describe for us the conversations that you had with Cerro Verde as to whether the Stability Agreement would apply to the Concentrator?"
And you say: "Yes. I spoke with the technical-legal team. There was no objection anywhere. Plus, I had written the law. I understood perfectly well what the spirit of it was."
Okay. So, then, we'll look at another portion of the Transcript, and it's in the English 782. Again, Day 3, Page 782. And it begins with the question again by Mr. Prager: "You said that it was clear. Can you explain what was clear?"
I'm waiting for this to appear on the screen and then I will read it into the record.
So, Line 17: "You said it was clear. Can you explain what was clear?"
And your answer is: "Well, as I have explained, I wrote this law, so I knew quite clearly that what the Company had to show was that it had complied with the $50 million investment as a
[Page 895]
minimum."
Then let us look at Page--I believe it's 806. And on Page 806, this is now me asking the question. And I say, beginning at Line 5: "Now, you said, you testified in your Witness Statement, that you drafted the Mining Law, and, in particular, Decree 708 that became the Mining Law. And, in fact, you said twice during your direct examination: 'I wrote this law.'"
And I asked you: "Do you confirm that testimony?" And you said "yes."
Now, during your direct examination this afternoon in response to questions by Mr. Prager, you explained that you and Mr. Polo, sitting together at the table next to each other, drafted the law together.
So, I want--my first question is: Which one is it? In February you said three times: "I wrote the law." Now you're saying: "Mr. Polo and I sat down at the table and together wrote the law."
Which one is it?
A. Mr. Alexandrov, you might recall that in the
[Page 896]
February Hearing, I said--I said "Mr. Polo was sitting here, and I was sitting here. There were no laptops." This was back in 1990, and he wrote things, and we discussed things constantly, article by article of the law.
As you can see if you read 708, these are very precise and very short provisions. And that's natural. A civil engineer was writing this with me, a mining engineer.
In February, at the Hearing, I also said that what we were writing was submitted to the consideration of Mr. Sánchez Albavera, who was the Minister. He was the one who decided what changes, what improvements, what things need to be added.
Q. So, if I understood your answer correctly, the statement you made three times in February, "I wrote the law," is an overstatement. You and Vice Minister Polo together participated in drafting the law; correct?
A. That's exactly right. He participated, and this legal provision was sent to the Minister, who also had a group of lawyers that were going--that was
[Page 897]
going to review what we were doing.
We spent months together every afternoon, sitting next to each other and incorporating, article by article.
Q. So, now you're saying it was not just Vice Minister Polo and yourself, but he consulted a group of lawyers; correct?
A. What I said at the Hearing in February, and I confirm that now, is that Mr. Sánchez Albavera had a team of lawyers who came from the private sector and they met every afternoon.
Not only did they review what we were doing about mining, but also about electricity, oil, gas, privatization. And evidence of this is the book of Mr. Sánchez Albavera. He tells us about that with all detail.
(Interruption.)
(Stenographer clarification.)
Q. Yes, the Minister describes that, and we'll get to that in a moment. But, for now, first of all, I don't recall you saying anything in February about the participation of private lawyers.
[Page 898]
Am I misremembering?
A. Yes. I mentioned that, and that is also clearly stated in the book by Mr. Sánchez Albavera, where he says this law had the consensus of Congress and of the Mining Society, and those lawyers came appointed by the Mining Society.
Q. Well, we're not talking about what the Minister has written in his book. We're talking about--the point I'm making is that you did not mention the participation of private lawyers when you testified in February.
And I understand now that you're saying the statements you made then, "I wrote the law," that was an overstatement; correct?
A. I've always said in February, and I say it now, that we were writing the first draft. Mr. Polo sitting here and I was sitting right here. And, starting at 4:00 in the afternoon, we spent all afternoons drafting the law.
Q. In the Transcript, again, behind Tab 5, CE-1135, Day 3, at Page, I believe, 814--I think it's Line 11--this is a question by Arbitrator Garibaldi.
[Page 899]
I will read it into the record.
A. Could you please tell me what page number in Spanish?
Q. I'm sorry. We overlapped. In Spanish, it's 805, Line 4, Page 809, and it's a question to you by Arbitrator Garibaldi. And he says: "I have a question. Mr. Polo was a civil engineer, and you are a mining engineer. Mr. Sánchez Albavera"--that's the Minister--"what was his position?"
Your answer: "Economist."
"Arbitrator Garibaldi: Economist. Now, the team that drafted, I'm going to ask you a question, but first I'd like to introduce it. Nothing that I say or ask should be understood in a negative light in any way. It's merely a question of fact. The team that drafted this law, did it include any lawyer or not?"
And your answer: "The process was as follows: We would sit down for 708, and Mr. Polo would sit down with me. Mr. Polo--well, there were no laptops. Mr. Polo had a tablet and a pen, and he would write. Then he would call this that he had
[Page 900]
written in handwriting, he would take it and he would hand it to the secretary, who would go away to a computer and type it up. Then she would come back with a typed-up version. We would make corrections, and that is what we did. That was the process, he and me."
"Arbitrator Garibaldi: So, you are saying you participated in the drafting or not?"
"The Witness"--that's you: "Yes."
"Arbitrator Garibaldi: Both of you did?"
"The Witness"--you: "Yes. As I tell you, 708, if you reread it, it's a very short provision. And if you realize--or if you look carefully, the articles are very short. Very typical of the form of discourse of an engineer to use very short sentences, because it was written by a civil engineer, Mr. Polo, together with a mining engineer, myself."
"Arbitrator Garibaldi: So, I must understand, then, that no lawyer participated in the drafting and not in the review of the text, either."
[The Witness]: "Subsequently, because it's a Legislative Decree, it has to go through the Office of
[Page 901]
Legal Counsel, but from what I recall, they did not make major changes."
Do you see that?
A. Yes. That's here.
Q. So, what you're saying here was it was just you and Vice Minister Polo. No lawyers were involved in that process of drafting. Only subsequently, it had to go through the Office of Legal Counsel, but they made only minor changes.
What I understand you to be saying now is that lawyers, including private lawyers, were involved in the actual drafting process, "private" meaning outside lawyers.
So, which one is correct, Ms. Chappuis?
A. You are confusing "drafting" with "revision." I ratify what I said in February of this year: We both sat down to draft the law, and then obviously this has to go through the Legal Counsel Office of the Ministry.
Some minor changes were made to the draft. Mr. Sánchez Albavera also met with a group of lawyers who reviewed the drafts that we were preparing.
[Page 902]
Q. Well, the Office of the Legal Counsel is within MINEM. We understand that, and we see that in your testimony in the response to Arbitrator Garibaldi. It is the first time, after four Witness Statements and one Hearing, that you are saying that private lawyers were consulted.
Did you not remember to say that in February?
A. I thought I had said it, but I'm not going to be able to at this point in time review everything. But I think I said it.
Q. I don't think so. And it's not in the Transcript, and if I am mistaken, I'm sure I'll be corrected by your lawyers.
Now, let's see. You have tried to minimize, with all due respect, the role of Vice Minister Polo in drafting that law, and I think you repeated that in your direct examination, that he did not have the relevant experience because he had no experience with stabilization agreements.
So, let's go to the--to see what Minister Sánchez Albavera said about the drafting of the law.
[Page 903]
And we'll start with the March mining forum where then-former Minister Sánchez Albavera was invited to explain the Mining Law that was enacted in '91, and please look at Tab 20, RE-183.
And if you pick up somewhere, there is a paragraph that begins with: "Dr. Fernando Sánchez Albavera," and in the sixth or seventh line, he says: "I feel responsible, together with the Engineer César Polo, who was the Vice Minister of Mining. In fact, we defend the validity of Law 708 because we are the authors of that law."
Do you see that?
A. I do.
Q. And then let's look at his book, former Minister Fernando Sánchez Albavera's book, which is Tab 21, CE-311. It's Pages 27-30, which is Page 25 to 28 of the PDF.
And it's only in Spanish. So, I will read it into the record, and you'll have to bear with me.
Let's focus on Page 26 of the PDF in the full exhibit, the paragraph that begins with: "La primera dificultad." It's Page 28 of the book. So,
[Page 904]
the pagination is off a little bit between the PDF and book, but the paragraph is highlighted on the screen.
And here, I'm not going to test everybody's ears and read it in Spanish, but the gist of it is that the Minister is speaking very highly of the qualifications of Vice Minister Polo; correct?
A. Yes, that's true.
Q. I'm reminded that--
A. They were friends.
Q. Okay. I'm reminded that I have to test everybody's ears and read it in Spanish so that it appears in English into the record, because otherwise we don't have it in English.
So, Ms. Chappuis, for the record, I'll read it in Spanish so I can get it translated. Please bear with me.
"The first difficulty that we faced was to convince two high-level officials to occupy the Vice Ministries of Mining and Energy, and Secretary General that would put things in order and would streamline as fast as possible the Administration of the Ministry. César Polo Robilliard and Ricardo Giesecke Sara-La
[Page 905]
Fosse accepted the challenge of leading the Vice Ministries of Mines and Energy respectively." "The former"--that is, César Polo--"started his professional life in the Central Bank of Reserve and garnered valuable experience later on in the National Institute for Planning."
I want to move on to another paragraph, which is the bottom of Page 28 of the book or Page 26 of the PDF. You see it at the bottom there: "César Polo was part of the generation which was also my generation. He garnered valuable experience in the assessment and preparation of investment projects. He participated also in a number of international negotiations."
And then we can skip a little bit in that paragraph to the phrase that begins with "Cuando": "When I asked him to come to the Vice Ministry of Mining, he had spent almost 10 years of his professional life in this mining colossus of the Centro. He knew mining problems in depth, and his experience in Centromín had convinced him that the corporate activity of the Government had to change
[Page 906]
radically and that its modernization required necessarily private sector assistance."
He talks about another Vice Minister, and then he says: "The Vice Ministries were in good hands, not only because of the professional quality that Giesecke and Polo had shown for many years, but also because they had vocation of service, and also they had solid morals that tested any kind of challenge."
So, it's correct, isn't it, that the former Minister here is, to use an English somewhat colloquial expression, "singing the praises" of Vice Minister Polo.
Do you agree?
A. Yes.
Q. Let's see what he says about you. I think it's the same document, Page 28 of the full exhibit. It's, I think, the second paragraph from the top.
He says: "César Polo recruited María Chappuis, who was specialized in mining economics from the Colorado School of Mines, to assist him in the Vice Ministry." The same thing happened to other
[Page 907]
individuals he is listing here.
Ms. Chappuis, he doesn't say more, and he doesn't say--he doesn't say anything about your contribution to drafting the law; isn't that correct?
A. Yes. That's how it is.
Q. Let us look at what Vice Minister Polo himself says about the process of drafting the law, and that is Tab 7, CE-1137. That's Day 5 of the February Hearing, and we will look at page, in the English--in English--
A. In the Spanish, what is it?
Q. I will tell you in a moment.
In English, it's 1190. It begins on 1190, and I'll go through 1190-1194.
In the Spanish, it begins at Page 1212, so 1,212. I believe it's Line 5 of the Spanish. But I will read it in English. So, the question to Mr. Polo--the question to Mr. Polo is: "So, Mr. Polo, is it fair to say that you drafted those provisions of the Ley 708 that were later incorporated into what became Title Nine of the Mining Law?"
And he says: "Yes, and some others."
[Page 908]
And then the question is: "Can you describe to us who the others were?"
And so, let's look at his answer. He says: "In this area of the investment projects, which was my specialty, I think it was only myself and the Minister. In these matters of investment, I discussed it with the Minister because we spoke the same language. Maybe there were some contributions by María." He later clarifies that this is you. "Bernuy did the whole part of the grids with Dr. Lastres of the private sector, the part of the grids, the part of how obligations were to be complied with, etc., etc."
"Then who else intervened? Dr. Jorge Price, who is also dead now. And he was my lawyer, because I'm an engineer. So, I was always supported by lawyers. He was my own lawyer in 1991. At that time, he was my trusted lawyer, and I named him Concessions Director, so I had all the trust, because in concessions there were problems. Now, who else?"
He talks about Oscar Bernuy. "Who else? Maybe Juan Carlos Barcellos, who also died. [] He was a geologist." He says: "I hope I'm not leaving
[Page 909]
anybody out." Here is where he clarifies that when he refers to "María," he means you.
"Question: Dr. Lastres came up several times. Can you explain who Dr. Lastres was?
"Answer: Enrique Lastres was a top lawyer in the private mining sector. We listened to the opinions of the private mining sector, and he had important contribution in that management of concessions and to order these concessions, to put it simply."
Then "Question: Did the Mining Society have any involvement, Sociedad de Minería?
"Answer: Well, under the chairmanship of the Minister, we met with them several times. Many representatives came to the Ministry. They discussed their point of view. Oh, and I also forgot Dr. Alfonso Rubio, may God rest his soul. I forgot about him, big mistake. He was a person who had a great deal of experience. I think he designed the part of the stability agreements of 109"--which is a mistake, but--"And he had his experience. He explained his experience. It was difficult, because
[Page 910]
he was very fast, but I took notes and I absorbed everything. Then I went home and I began to rewrite and put down my ideas. I wrote how I thought things were, and that is the version that I presented to the Minister, and then the Minister approved it and supported it in the presentation to the Council of Ministers."
And he talks more about this, but my question to you is this: What Mr.--what Vice Minister Polo describes is a much more inclusive process. He and the Minister talked to the industry: The Mining Society, industry representatives, private lawyers representing the private companies, lawyers that he hired specifically to assist him with the drafting law. He listened to those ideas, he put them in writing, and then he presented that version to the Minister, and the Minister approved.
And that's very different from the process that you described, that you sat down with Mr. Polo, you prepared the draft, and then eventually that draft was submitted to the Legal Department of MINEM, they had very few comments, and that was it.
[Page 911]
So, is the testimony of Vice Minister Polo incorrect?
A. I told Mr. Polo: "There are contracts that are like this [making hand gesture of "short] and others that are like this [making hand gesture of "long"]." And he said: "Okay. Then we name them adhesion contracts." Then, while I was sitting there--
Q. Can I repeat my question? My question was--
(Overlapping interpretation and speakers.)
Q. Sorry. Ms. Chappuis, my question was--I read to you the testimony of Vice Minister Polo, who describes the drafting process, and my question to you is: It's very different from your testimony and the way you describe the drafting process, so, is Vice Minister Polo's testimony incorrect? Yes or no.
A. Mr. Polo's testimony is partial. He did not know about any tax stability agreement. He did not know how these contracts were put into practice.
In Centromín, they hadn't signed a single agreement. That Company was in full bankruptcy, and that is why the only thing he was interested in was a
[Page 912]
privatization. When we sat down, I started to tell him what the problems were with the tax stability agreement. SUNAT did not like the agreements signed under 109, because they didn't have a specific term.
So, he listened to me, and he said: "Okay. 10 years for those of 2 [million] and 15 years for the others, not a single day more." And I tell him: "All the agreements are different. Ones are like this [making hand gesture of "long"] and others are like this [making hand gesture of "short"]."
And he responded: "Let's make adhesion contracts."
And then I tell him: "In Chile, they are based in agreements with an amount starting at $50 million." So, he wrote down that figure, $50 million.
That afterwards, what I wrote with him, he submitted to all these lawyers: yes, of course. But he talks about certain portions of the law, but the part about tax stability agreements, that part is practically mine.
Q. Well, we'll get to that part in a
[Page 913]
moment. But first, let me ask--
(Overlapping interpretation and speakers.)
Q. We'll get to the provisions of the law dealing with the stabilization agreements in a moment.
Let me just, while we are on it, ask you again about Exhibit CE-1137, the testimony of Mr. Polo, Vice Minister Polo, at the February Hearing, Tab 7 of your binder. And I believe this part in English is at Page 1139, beginning Line 11.
A. In the Spanish?
Q. I will tell you in a moment.
It is 1215, Line 2.
A. What number did you say in Spanish?
Q. Spanish is 1215, Line 2. Now I want to focus on: "Oh, and I also forgot."
So, in Spanish--yes. So, he says: "Oh, and I also forgot Dr. Alfonso Rubio, may God rest his soul. I forgot about him, big mistake. But he was a person who had a great deal of experience. I think he designed the part of the stability agreements of 109. And he had his experience. He explained his experience."
[Page 914]
Did you know that Dr. Alfonso Rubio was the one who negotiated the 1998 Stabilization Agreement on behalf of Cerro Verde?
A. Is that true?
Q. Well, that's what Ms. Torreblanca told us yesterday, so I'm asking you: Did you know?
A. Alfonso Rubio was the most famous person mining taxation lawyer in Peru.
Q. Ms. Chappuis, answer my question.
Did you know that Dr. Alfonso Rubio negotiated the 1998 Stabilization Agreement on behalf of Cerro Verde?
A. I apologize, Mr. Alexandrov, I am going to correct you: the tax stability agreements are not negotiated. They are adhesion contracts.
Q. Well, we know that in the form contract, there are blanks that are to be filled in by the Company. So, at least to that extent, there is a role for the Company to play.
So, I'm repeating my question. Did you know that Dr. Alfonso Rubio negotiated the Stabilization--the 1998 Stabilization Agreement on
[Page 915]
behalf of Cerro Verde?
A. No, I did not know, and I demand that the word "negotiate" be withdrawn.
Q. We have your testimony. I'm not going to withdraw it. But if you want me to--if that's the reason why you hesitate to respond to my question, let me then ask it differently.
Did you know that Dr. Alfonso Rubio was involved in the--in the 1998 Stabilization Agreement on behalf of Cerro Verde?
A. I was not at the Ministry in 1998. I am totally unaware of that.
Q. I know that.
A. I do not know.
Q. I know that you were not in the Ministry. I'm asking you: Did you know that fact or not?
A. No, I did not know.
Q. But it is significant, isn't it, that Vice Minister Polo, when drafting the Mining Law, consulted this very famous lawyer, as you said, who, on top of that, later was involved in advising Cerro Verde on the 1998 Stabilization Agreement?
[Page 916]
That means, doesn't it, that Vice Minister Polo drew on the best resources in Perú in drafting the law?
A. I am going to answer.
First, attorneys issue opinions. The decision makers are the clients. The client was the Minister and Vice Minister. Mr. Rubio may have presented many suggestions, but the decisions were made by the Minister and the Vice Minister.
In his book, Dr. Sánchez Albavera clearly said that he wanted to issue an impeccable Mining Law, so he had all the right to formulate consultations to counsel that he considered appropriate and the most well-known. But we make the decisions at the level of the Ministry.
Q. Can we look at your First Witness Statement, Paragraph 21? And you say: "We [] included an additional provision to Articles 7 and 11 of Legislative Decree 708 (which as noted above, were equivalent to Articles 79 and 83 of the Mining Law, respectively) regarding the scope of the 10- and 15-year stability agreements. In particular, I
[Page 917]
distinctly recall that Vice Minister Polo suggested that we include a provision to make clear that the 'effect of the contractual benefit'--that is, a stability agreement's guarantees--'will accrue exclusively to the activities of the mining company for which the investment is made."
So, contrary to what you just said a few minutes ago, you testify in writing here that Vice Minister Polo actually drafted some of the provisions relating to the stability agreements, and, in particular, Article 83; isn't that correct?
A. Could you repeat the question?
Q. So, contrary to what you said just a few minutes ago, here in your Witness Statement you testify in writing that Vice Minister Polo actually drafted some of the provisions relating to stabilization agreements in the law, and, in particular, Article 83; isn't that correct?
A. Could you please show Article 83 on the screen?
Q. Of course. Give us a moment, Ms. Chappuis, and we'll do it.
[Page 918]
(Comments off microphone.)
A. Or maybe better Article 11 of 708.
Q. Well, you are saying in your Witness Statement that Article 8 is equivalent to Article 83 of the Mining Law, so I think we'll put Article 83 of the Mining Law on the screen.
A. That is the original version without changes; correct?
Q. We are putting it on the screen, Ms. Chappuis, Article 83.
A. Let us read together. That article starts by indicating who will have the right to enter into the agreements, and we referred to a figure of $20 million for the start of any of the mining activities.
In the second one, we are already referring to the existing companies, and there we increase the requirement to $50 million. Then we move on to the third paragraph, and we state: "Shall also have the right to access these Contracts, the persons who make investments of $50 million in State-owned companies that are subject to the privatization process under
[Page 919]
Legislative Decree 674."
And then we move on to the fourth paragraph, whereby we clarify, because Engineer Polo clarified to me and tells me "Centromín has factories, this benefit cannot begiven to the non-mining activities of the Centromín holding."
I should clarify that Centromín was the only State-owned mining company that had factories. Tintaya only had mining activities.
Q. Let's focus on the factories. "The effect of the contractual benefit shall apply exclusively to the activities of the Mining Company in whose favor the investment is made."
And in Spanish, you can read it better than I can: "The effect of the contractual benefit shall apply exclusively to the activities of the Mining Company in whose favor the investment is made." You have that in front of you.
And what you're saying in Paragraph 21 of the Witness Statement--you distinctly recall--I'm quoting: "I distinctly recall that Vice Minister Polo suggested that we include a provision to make clear
[Page 920]
that 'the effect of the contractual benefit'"--the same words as in the law--"that is, a Stability Agreement's guarantees--'will accrue exclusively to the activities of the Mining Company for which the investment is made.'"
That, is, again, a quote from the provision of the law.
So, you distinctly remember that it was Vice Minister Polo who suggested including this particular language, the fourth paragraph of Article 83, in the Mining Law; correct?
A. Yes. Because both of us were sitting there. We were talking about the mining companies, the State-owned mining companies, and he recalls: "Centromín has factories." It was the only Mining Company owned by the State that had factories, and the factories could not--
(Overlapping speakers.)
Q. Ms. Chappuis, the factories of Centromín were not part of my question.
MR. PRAGER: Can she finish the question? She was just in the middle of the explanation.
[Page 921]
MR. ALEXANDROV: I'm sorry, but she is not answering my questions, and--
MR. PRAGER: She was answering.
MR. ALEXANDROV: No, she wasn't. I asked her whether she confirms her testimony that she distinctly remembers that that provision was included in Article 83 by Vice Minister Polo. The factories of Centromín have nothing to do with that, or, if they do, you will take this up on redirect.
THE WITNESS: Can we go back to Article 83, Article 11 of 708?
BY MR. ALEXANDROV:
Q. It's the same as Article 83, and if it's not, Counsel will take you to Article 11--
(Overlapping interpretation and speakers.)
Q. Sorry.
A. I have explained how we drafted this. We gave the mining companies that were in the privatization process--Polo finished writing this and he realizes and says: "The holding Centromín has factories, those factories cannot receive a tax stability agreement."
[Page 922]
So, he wrote and says: "This is only going to be for mining activities." And I have explained that the tax stability agreements were only received by the mining sector in Perú.
After those years, the Ministry of Economy and Finance changed the criterion and extended stability agreements for all of the sectors, but up to that point in time, only mining. And I already said that as from November 8, 1890, Perú is entering tax stability agreements with the mining companies.
Q. Ms. Chappuis, my question was-I was simply asking you to confirm your testimony in writing, which is that it was Vice Minister Polo who included this particular provision in Article 83 of the Mining Law. Can you please confirm that? Or, if not, you will explain why your testimony today differs from your testimony in your Witness Statement.
A. He finished writing and he told me: "Centromín has factories." He looked at me, and I didn't know that Centromín had factories.
Q. Ms. Chappuis, was it him who proposed that this provision be included in Article 83 of the Mining
[Page 923]
Law? Yes or no.
A. Yes. As I mentioned before, it happened like this: he told me "Centromín has factories, we need to correct this," with that fourth paragraph.
Q. Can we look at Tab 25, which is CE-395? I'm sorry, Tab 26, which is CE-398.
So, Ms. Chappuis, to give you some background, you'll remember the question of the application of the Nondistributed Profits of Cerro Verde to invest, in part tax-free, into a new Investment Project. And they sent you two letters in July, and you responded to both letters on September 8, and this is one of the two letters that I want us to look together-to look at together.
First I want to establish that this is a Legal Opinion or a Legal Report signed by two lawyers, and then it's signed by you. You find it in order and authorized that this Report be sent to Cerro Verde.
Do you see that?
A. Yes.
Q. And, of course, your signature means you agree with the legal report?
[Page 924]
A. Yes.
Q. Okay. So, can you look at Paragraph 4?
A. Yes.
Q. Where the Report says: "The application of the Stabilized Regime is granted to the Cerro Verde Leaching Project and not to the company."
Do you see that?
A. Yes. The "Cerro Verde Leaching Project" is in capital letters, corresponds to a name, and that was the name of the Stability Agreement that had been signed by Cerro Verde.
Q. Right. So, your testimony is, when this refers to the "Cerro Verde Leaching Project," your testimony now is that this means the 1998 Stabilization Agreement; is that right?
A. Even though it may sound paradoxical, every contract had a name, such as "Cajamarquilla y Otros," "Minsur," "Ampliación," and this Agreement that Cerro Verde had, and the reason why we are here, was called "Cerro Verde Leaching Project." That was the name of the Agreement.
Q. Let's look at your First Witness Statement,
[Page 925]
Paragraph 42. You see that you're saying: "In the Second Report"-that is the document we're looking at- "we addressed other questions that Cerro Verde had asked and stated that 'the application of the Stabilized Regime is granted to the Cerro Verde Leaching Project and not to the company.'" You refer to that Report in a footnote, so we know it's the same document.
And then you say: "Although in hindsight this choice of words is not entirely clear in expressing our conclusion, what we meant, referring to the language of the Stability Agreement itself uses, was that the scope of the stability applies to Cerro Verde Mining Unit and not to the company as such-that is, not to Cerro Verde. For example, if they had other Mining Units, they would not have enjoyed Stability Guarantees."
You see that statement you've made in your First Witness Statement?
A. The tax stability agreements were always referred to a Mining Unit.
Q. At the moment, I'm simply asking whether you
[Page 926]
see your written testimony.
A. I'm reading that, and at that point in time, Cerro Verde did not have another Mining Unit. They had one Mining Unit, Cerro Verde, which was comprised of one Mining Concession and one Beneficiation Concession that were in Annex I of Article 3.
Q. You see here that, in hindsight, the choice of words is not entirely clear in expressing your conclusion; correct?
A. Yes, they should have put - but I understand it - but it could have been said: "the Tax Stability Agreement called or named 'Cerro Verde Leaching Project'," they could have put it like that, in quotation marks, but it is understood. I think it is indeed understood. And it was part of the jargon that we used within the Ministry.
Q. Could you repeat? In hindsight, what words would you have used to make this clear?
A. The jargon typical of the Ministry is used. We called the stability agreements by the name they had; in other words, the agreement "Cajamarquilla and others," we referred to it as the "Cajamarquilla and
[Page 927]
others," or "Milpo expansion," "San José," "Carachugo," and this was "the Cerro Verde Leaching Project."
Q. But my question is, it says: "In hindsight, the choice of words is not entirely clear in expressing our conclusion."
So, I'm asking you, in hindsight, what choice of words--now that you've seen that, what is the choice of words that would be entirely clear? What would you have said to make this entirely clear?
A. Well, that's the reason why we are here-- that jargon, that name given to an agreement--most of you are lawyers--must sound strange to you that the agreements have a name, but, yes, they did have a name, and in the case of this Agreement of Cerro Verde that brings us here, it was called "Cerro Verde Leaching Project."
Q. Yes. We understand that. But my question is a bit more specific than that.
You say--you yourself say in your Witness Statement the choice of words in Paragraph 4 of this document "is not entirely clear in expressing our
[Page 928]
conclusion." And I'm asking you, if you're drafting--if you were drafting this today, what words would you choose to make your conclusion entirely clear?
A. I would have--
(Overlapping interpretation and speakers.)
(Interruption.)
(Stenographer clarification.)
A. I would have changed that way to call the agreements (Interruption)
Q. Could you start your answer again, please?
A. I would have changed the way to call the agreements by using a name, "Cajamarquilla and others," "Expansion." I would have assigned to each agreement a number, and when writing this, I would have answered: "In accordance with your Tax Stability Agreement Number 002224," whatever that number would be, and I would continue with my sentence.
Q. Okay. But you have the 1998 Stabilization Agreement, and it is what it is. You cannot go and change it. You cannot go back and change it. And we've established that it is up to the investor to
[Page 929]
fill in the blank in the model contract. And my question is not about what you would have changed in the 1998 Stabilization Agreement. My question is specific with respect to Paragraph 4, and I'm asking you because you said in your testimony this choice of words is not entirely clear in expressing our conclusion. And I'm asking you, if you were drafting Paragraph 4 today, what words would you have chosen to express your conclusion so that it is entirely clear?
A. I would have added what I say here: "The scope of Stability applies to the Cerro Verde Mining Unit rather than to the company as such."
Q. Okay. So, you would have said the application of the Stabilized Regime applies to the mining unit rather than to the company itself.
Well, let's look at--before we look at the next document, you testified that you always believed that the 1998 Stabilization Agreement applied to the entire Cerro Verde mining unit.
Why didn't you say so in Paragraph 4? I mean, this text was not something written on the spur of the moment. The letter to which you were
[Page 930]
responding was sent to you in early July. I think it was July 8. And you respond on September 8, so two months later. It is prepared by legal department and signed by two senior lawyers. So, it's not a text that is prepared in haste and somehow not well thought over, and you reviewed it carefully and found it suitable and in order.
So, why didn't you at the time say, the application of the Stabilized Regime is granted to Cerro Verde's mining unit and not to the company?
A. Because it was an adhesion contract. What does it mean? It means that this agreement, the text with the blanks, the template with the blanks, was published in a Supreme Decree. Then the only variation was the name of the agreement and Annex I where we included the concessions. So, my lawyers simply said: "You have signed an agreement." What agreement? All agreements were the same. "But your Agreement is called "Cerro Verde Leaching Project."" It applies to the Cerro Verde Mining Unit, which had a Mining Concession and a Beneficiation Concession. And what is the tax regime? The one that
[Page 931]
is thereby established. So, it was clear to them, and also to me, because since it was an Adhesion Contract it was clear, there was no additional clause, no specific article, nothing. All of the agreements were the same.
PRESIDENT HANEFELD: Mr. Alexandrov, may I step in for a second on this Adhesion Contract?
MR. ALEXANDROV: Of course.
PRESIDENT HANEFELD: Have you been involved in the development of this Model Stability Agreement in the development of this adhesion contract? I think we have on the record a Model Stability Agreement of 1994. It is Exhibit CE-778. Have you developed this adhesion contract, or are you familiar with it?
THE WITNESS: We drafted the law, and I told Polo: "There are some stability agreements under 109 that are like this [hand gesture of "short"] and others that are like this [hand gesture of "long"]." Then Polo told me: "To avoid problems, for us to avoid being accused of corruption when signing an agreement, we'll have an adhesion contract." That was 1991--1992. I left in February 1993, and I understand
[Page 932]
that in 1994, before the signing of the Cyprus purchase, the Supreme Decree with the text of the agreements that were going to be signed is published. I did not participate there, I was no longer with the Ministry. However, when I reviewed it, that text is quite similar to the text of the Stability Contract for Tintaya, where I worked for three years, and that was my Bible with the inspectors of the Ministry.
PRESIDENT HANEFELD: Maybe we can look to this Exhibit CE-778, which is this 1994 Model Adhesion Contract. And you explained to me how--whether I read it correctly or not, and what is your view on that.
I understand that there are some clauses that--on which the mining company has to insert wording. For example, Clause 3. Is my understanding correct?
THE WITNESS: Yes, but if you're referring--let's take it slowly. What the company has to insert is not very relevant information. For example, I don't know, what is the article?
PRESIDENT HANEFELD: I thought for example about Clause 3, but also Clause 1.3, 1.4, about the
[Page 933]
background. So, I understand there are a couple of provisions that need to be filled in by the applicant, the mining company. Is this correct? Or who fills in the form?
THE WITNESS: Yes. Actually, I've never intervened, but the company fills it out and the Ministry reviews it. But that is background.
So, it talks a little bit about what the project is about, a technical description.
PRESIDENT HANEFELD: Yeah, but for me, in particular if we look to Paragraph 1.1, my understanding was that the company could choose, now, what they applied for. So, whether it was in relation to an operational start-up or investment in, and also whether it's concessions consisting of or administrative units.
So, my impression was when reading this options that it was for the mining company to decide for what it applied, and so it could choose. That is only my understanding, and I asked you, as a witness and expert at the time, how you read it, that the mining company could make a choice whether they
[Page 934]
applied for stability for an administrative unit, for a specific whole concession, or for a specific investment.
THE WITNESS: No. It gave you the mining concession--The tax stability agreement was for all of the concessions indicated in that Annex I, all of them, completely all of them. And then I can explain to you why: because mining is a sector that deals with or manages natural resources. So, today you are extracting copper, and no one can say within two years you might change all the technology you are using and you start extracting rare-earth metals at Cerro Verde. No one can assure that that would not be possible.
Now, if you have read the Financial Times two days ago, Germany is going to reopen all of its mines to re-process them, seeking rare-earth metals because they don't want to be subject to China and Russia. That came out in the Financial Times three days ago.
So, we had a stability agreement that covered the entire concession, we granted it for 15 years, and one could not attach it to a specific
[Page 935]
investment. As I was saying, the investments covered all types of investments that the company might make over a 15-year period in that concession that had been put there as Annex 3, in all of the investments.
ARBITRATOR TAWIL: Excuse me. You're saying--when you say "concession" you're referring to a geographic area? This is in order to understand "concession."
THE WITNESS: Yes. It is a geographic area. In mining, if you review the whole law, everything refers to concessions. If you review Article 19 of Legislative Decree 708, and it clearly says "All of the activities in the mining sector are carried out through concessions."
ARBITRATOR TAWIL: Now, what you just said, if I understood properly, they might get a different ore, and they would be protected as well?
THE WITNESS: If it's within the time frame, yes, and it has happened. We have the largest tin mine, that was copper before. We had a coalmine, and then gold was extracted from it afterwards. And, as I say, at present Germany is going to go and get rare-
[Page 936]
earths metals from all the mines it has. You can read that in the Financial Times.
ARBITRATOR TAWIL: And the stability has not been called into question despite changing from one ore to another?
THE WITNESS: No, it is not called into question. This is 15 years, and 15 years it is. Just because I switched, I'm now getting rare earths, I want additional time, no.
PRESIDENT HANEFELD: So, just to come back to my original question, we will have other Witnesses and Experts on that question, so just--I want to understand how you understand it.
So, your testimony is that this adhesion contract does not provide for any options by the mining company for what specific investment it applies stability, but it automatically and mandatorily extends to the entire concession.
So, whatever will be invested at whatever point in time during the 15 years is covered. This is your testimony?
THE WITNESS: Yes. You have to recall two
[Page 937]
things. Mining is the second most capital-intensive activity after aviation. Changes are being made, technological changes are being made constantly. Large-scale investments are being made constantly.
Second, it is an industry that--it's a price-taking industry. If we ask Freeport today "what's going to be the price of copper in November?," it can't answer that.
So, since it is an activity involving natural resources that you are extracting, you have another system or another approach. These mines in Germany, in Schwarzwald, in the Black Forest, were extracting feldspar, and now it seems that they are flooded, they are closed, and now simply they are going to be reopened to look for something else, which is rare-earth minerals, for which there is a sophisticated processing plant and totally different one from what is situated at those mines.
That's why I say these agreements based on the Mining Law cover the entirety of the Concession for 15 years for all investments, technologies, changes, if they found coal, if they found gold, if
[Page 938]
they found molybdenum, if they found whatever.
Cerro Verde is a copper deposit that's very large. So, at the top there are 30-meter layers of oxides, and then you go further down and you find transitional material. But below that you have one kilometer of Primary Sulfides. One kilometer.
Cerro Verde is now one of the largest mines in the world, and it plans to close in 2040, or something like that.
Time was taken to start it up, to get it operating, because it didn't have water or electricity. As I noted, it was totally discarded by Phelps Dodge in 1993. It didn't have water. It is in the middle of the desert. If you are somewhat familiar with Northern Chile, where the copper mining companies are, it is--this is the Atacama Desert, which goes north and reaches Cerro Verde. So, Cerro Verde is a desert.
And the water is brought from a treatment plant of wastewater from the City of Arequipa. That's the solution they found.
PRESIDENT HANEFELD: But, again, just to
[Page 939]
verify that I properly understand you, so your position is, when we look at these adhesion contracts, at the moment the company decides to enter into this adhesion contract, then it is stuck with it. And then it freezes and--at the time it becomes applicable, it freezes the regime for the company, whatever it will do in the future within 15 years, so even if the tax regime becomes more favorable over time and the company wishes to make a new huge investment, it would be stuck with the old regime because it's not optional. It is just fixed in stone in the moment you enter into it, regardless of how you define your investment. It is just for the Concession. This is your testimony?
THE WITNESS: Yes. And I could narrate the cases to you in which companies have come to us and they have said "I'm going to make another large investment and I want to terminate this Agreement that has five years and start again the 15 years." And we have told them: "No. You have your tax stability agreement. There is no termination or succession of contracts."
[Page 940]
PRESIDENT HANEFELD: Thank you. This answers my question for the moment. Sorry for the interruption.
MR. ALEXANDROV: Thank you, Madam President. And I'll continue with the Reinvestment Program, but since I had this line of questions, I will follow up on the question of the President of the Tribunal while we're still on this document, which is the Model Stabilization Agreement, and it is--if you want to look at your binder it is Tab 28. You can look at the screen or your binder, and I want to look at Clause 4, the fourth clause. It talks about the Investment Plan, and it says: "The Investment Plan included in the Feasibility Study referred to in Article 85 of the Mining Law includes in detail the works, labor, and purchases necessary for the commissioning or start-up of the production process or the actual operation of the Project and also defines the benefit or the approximate additional production volume to be obtained. The Investment Plan duly approved by the General Mining Bureau for the purpose of signing this instrument is an integral part of it
[Page 941]
as Annex II."
"The total term for the accomplishment of the Investment Plan is--blank--months, which will expire on--blank. If any change is required, this may be done regarding the works and tasks yet to be accomplished, provided the final purpose of the Investment Plan is not affected and also provided that the owner of the mining company first files with the General Mining Bureau the application for approval of these amendments and/or the expansions and also without prejudice to approval by the General Mining Bureau so the amendments and/or expansions made will be validated and included in the Investment Plan."
And then 4.3 says: "Among the main works and tasks contained in the Investment Plan are the following." There is one, two, three, four, five, six, seven.
So, I have several questions on that. One, you kept saying "this is an adhesion contract, there is nothing even objected," you asked me to withdraw the word "negotiate." But we see here is that this Contract, this Stabilization Agreement, requires that
[Page 942]
the company submit a fairly detailed Investment Plan that is to be approved. So, there is something, at least here, to negotiate because the plan may not be approved or the General Directorate of Mining may request changes to the plan. And it requires a fairly detailed description of the works and the tasks to be performed. And my second question is, if, as you say, once you enter--let's say Cerro Verde enters into a stabilization agreement as it did in 1998, and it covers concession, the mining unit, why does it need to prepare such a detailed Investment Plan? All it needs to do is, say, prove with documents that it had made the minimum investment to qualify, and then it gets a stabilization agreement that covers all of its mining unit, whatever investment plans there are there, now or in the future.
Why is it necessary to present such a detailed Investment Plan that needs to be approved by what, I assume, is your Directorate? It frankly makes no sense that this requirement is there if, once you make the minimum investment required, you have an adhesion contract that automatically applies to the
[Page 943]
whole mining unit?
A. I reject the qualifying adjective "detailed," and I would ask you to show the Tax Stability Agreement of Cerro Verde and see what was included in the Investment Plan.
Q. We can do that, but you know that the Feasibility Study is attached and an integral part of that Contract, and it is quite voluminous. I don't think we have time to review the whole Feasibility Study.
Do you want to see just Section 4?
A. Section 4? Well, let's put it up. The Feasibility Study, to begin with--well, you know that the Feasibility Study has a 60-70 percent probability. Second, what is presented here is not detailed. It's an investment of $130 million.
As you can imagine, not all of the studies for an investment of 130 million are put here. So, I'd like to see what was put here. Would you be able to show that?
Q. Well, I never said all the studies for an investment of 130 million are put here. But there is
[Page 944]
a feasibility study in this particular case, a feasibility study that is an integral part of the 1998 Stabilization Agreement, and it is--I'll check in a moment how many pages. It is--
A. You could put this up and you will realize--
(Overlapping interpretation and speakers.)
Q. We could put Section 4 of the 1998 Stabilization Agreement, what we cannot put because it is hundreds of pages is the Feasibility Study.
(Overlapping interpretation and speakers.)
Q. Yes, give us a moment.
A. While you find the page, let me explain.
Q. Okay.
A. This is copper porphyry, and up above, there is a layer of oxides. And I've already said that this layer up above is only 30 meters deep. There is then transitional ore 50 meters, but here below it are the primary sulfides, which are one kilometer deep.
So, the project economics is you have to remove what is up above in order to reach this immense volume that is one kilometer deep where the primary sulfides are. But Cerro Verde began to remove these
[Page 945]
oxides. Those oxides had a very high copper content.
You can imagine that these are machines that are removing and removing the land. It's very costly, but then Cerro Verde takes those oxides and processes them in a plant dedicated to oxides--the leaching plant--and sells the copper.
Q. Ms. Chappuis, we have on the screen Section 4 of the 1998 Stabilization Agreement.
A. I'd like to see--there's the Investment Plan and then there's the list of the investments, which I'd like to see.
Q. Is that what you want to see? 4--
A. There was another one that had some numbers.
Q. Well, I'm not sure--I'm not sure what you want to see. So, tell us what you want to see, and we'll show it to you. This is Section 4.
A. If you tell me the page or where the Contract is here, I can tell you.
(Interruption.)
Q. The 1998 Stabilization--oh, sorry. I thought this was the model.
Tab 29. And Clause 4 that you wanted to see
[Page 946]
is on page--it begins on Page 6.
A. Well, to begin with, that Feasibility Study is reviewed at the DGM for a maximum period of three month, and there is positive administrative silence, and here under 4.3 it says "among the main works."
So, among the main works is the "leaching system," the "installation and infrastructure of the mine," "installation to increase the crushing," "expansion of the processing plant," "studies, construction, and sewage." Because it is as I've explained, they begin to extract the oxides, they process them by leaching, but this is also a stripping away to get to the layer of primary sulfides, which is immense.
Q. Ms. Chappuis, that is not what I'm asking you.
If you look at this Clause 4, 4.1, at the very end it says that the Investment Plan is an integral part of the Stabilization Agreement as Annex II.
Do you see that?
A. Yes, but we need the company to--if we were going to sign a 15-year stability agreement, we needed
[Page 947]
the company to present a study of at least something greater than 50 million that it was going to do. And this study presented by Cerro Verde was of works already executed.
Q. Yes.
A. And if we examine that, any mining engineer will realize that this was a stage to seek the primary sulfides.
Q. So, my question is, if you need the Feasibility Study only to demonstrate that the company has invested 50 million, why do you need the whole Feasibility Study to be an integral part of the Agreement and why do you need the description of the works in the subsequent subsections of Clause 4? All you need, if your testimony is correct--all you need is proof that the company has invested 50 million, and then you grant a stabilization agreement for the whole mining unit.
You are not interested in whether it is, according to your testimony, whether it is a Leaching Project or a stabilization plant or whatever it is. As far as they invest 50 million in the mining
[Page 948]
unit--is what your testimony means--then they have that mining unit stabilized for this investment and any future investment.
Why would you need a detailed description of what the investment is? It could be any investment in the mining unit that you refer to, as far as it is 50 million or more.
A. In part, you're right, one could make any investment. But for our purposes of the work of inspection of the Ministry, we had to have at least a study covering the initial investment that qualifies so as to then move on to the signing of the agreement. This study is submitted. It is analyzed, and then subsequently there are officials of the Ministry who go to the mine and check.
"You said here that a feasibility study was going to be undertaken for the Sulfide Plant. Where is that study?"
Here.
"You said that you were going to strip the top--or clear the top layers with 40 trucks, 80 shovels. Where is that?"
[Page 949]
Okay. It is here.
"You said you were going to build a water plant? Where is that?"
It is there.
So, everything is reviewed.
Q. Okay.
A. We have to have something on paper so that the person who is going to review it says: "Well, where is it? You made an investment of 120 million, where is it?" This, this, and this. In three days, everything is reviewed.
(Interruption.)
Q. I told you the Feasibility Study is over 100 pages. In fact, it is 223 pages, this particular Feasibility Study that became--sorry, I haven't--
(Overlapping interpretation and speakers.)
A. And I told you that it is 60 percent credible because it's not a detailed study.
Q. I am not finished. Sorry. I was just correcting the number that I gave you. And just for the record, the resubmitted Feasibility Study is CE-009.
[Page 950]
Is it your testimony that the investor--in this case Cerro Verde--could have made any investment in the mining unit that exceeded the minimum amount required to qualify for a stabilization agreement, and then automatically all the mining unit and all present and future mining activities in the mining unit would be stabilized?
Is that your testimony?
A. Yes. Once we verify that the works were there, and that that minimum amount of investment was complied with, then one proceeded to grant them a contract that stabilized for 15 years for all of the investments they might make.
Q. And the 220 pages were necessary to demonstrate that the minimum investment was made. Is that your testimony?
A. That 223-page study was reviewed, and there was a 90-day review period, and there was the rule of positive administrative silence. Plus, the mine would be visited.
Q. Right. But my question was, is it your testimony that the only purpose of this Feasibility
[Page 951]
Study was to demonstrate that the minimum investment required for the company to qualify for a stabilization agreement was made?
A. Exactly. For the studies for 10-year agreements, a feasibility study was not required. It was--it was simply required to submit an Investment Plan.
Q. Okay. So, Ms. Chappuis, to go back to where we were before we engaged in this line of questions about the Stabilization Agreement, we were talking about the Legal Opinion of September 8, 2023, on the--I'll point you to the document. I was just giving you the context of where we were. We looked at the Legal Opinion, the second one, of September 8, 2023, and you and I had a short discussion about, in hindsight, what you would have improved, if anything, to make the language clearer.
I now want to show, to show you--just to give you a bit more context, so after those two inquiries of July 2023, and the two Legal Opinions issued by the General Directorate of Mining, in January of 2004, Cerro Verde applies for the Profit
[Page 952]
Reinvestment Benefit. And that application is approved by a resolution, the document reference is CE-23, December of 2004, and it is behind Tab 27 of your binder. And I will be asking you questions about that document.
You approved that resolution, didn't you?
A. I did.
Q. Let's look at Article 1. Article 1 talks about the Investment Program--that is, the Concentrator Plant.
It refers to the amount to be invested. It refers to the pre-period of implementation, and it says, the last two lines: "Funded with retained earnings from the same financial years, which must be exclusively generated by the Cerro Verde Leaching Project."
So, in February, I asked you: "In hindsight, would you make any changes to that language to make it clearer?" And your answer was: "I cannot change the language because this is the standard language, the language is standard."
Do you confirm that testimony now? In
[Page 953]
hindsight, you would not have changed anything in that language?
MR. PRAGER: Could you, just for the record, provide a quote to where in the Transcript she said that?
BY MR. ALEXANDROV:
Q. Can you look at Tab 5, CE-1135? That is Day 3. In English, it is 834. In Spanish--sorry, in Spanish--do you have the Spanish? Counsel wanted me to show you the language. So, Spanish, it's 826:15, carrying over to 827.
And your answer, which begins in the English text on Line 9, is--
A. In Spanish?
Q. It is on the screen.
A. What I told you--
(Overlapping interpretation and speakers.)
Q. Sorry, I'm not finished yet. Let me make sure you find the language. Line 15 in the Spanish. You can see it on the screen to get--to orient yourself, if you want. In English, you say: "I cannot change the language because this is the
[Page 954]
standard language, language is standard."
And I assure Counsel that I faithfully quoted before I showed the Transcript.
Do you confirm that testimony?
A. I confirm what Page 827 says, that this Ministerial Resolution has to be read by first reading Article 2, because Article 2 is the important Article. It says here that this Ministerial Resolution has to be sent to SUNAT. After reading this, Article 1 is understood, which says that the Reinvestment Program is approved--I don't see the copy here--filed by Sociedad Minera Cerro Verde," and it says here "funded with retained earnings from the same financial years, which must be exclusively generated," by whom?, "by the Cerro Verde Leaching Project." What is that? And it's capitalized. That is the Tax Stability Agreement.
This tax provision--in December '04--was repealed since 2000, but it is being given to Cerro Verde. But why is it being given to it? Because of what we always told them: "The Government is going to honor, to you, the Tax Stability Agreement." And when
[Page 955]
they signed this Agreement, they were allowed to reinvest their profits in the same Unit, to expand production in the same Stabilized Unit, and in none other.
Q. So, your testimony is, first, you wouldn't have changed anything. You point to Article 2, because this Resolution must be sent to SUNAT. And so, your evidence is that, when SUNAT reads the phrase--when the SUNAT officials read the phrase, "funded with retained earnings from the same financial years, which must be exclusively generated by the Cerro Verde Leaching Project," SUNAT will understand this to mean, "which must be exclusively generated by the Cerro Verde mining unit."
Is that your evidence? Yes or no first? And then--
A. When a Stability Contract is entered into.
(Interruption.)
PRESIDENT HANEFELD: We cannot--we have no interpretation, and we cannot.
MR. ALEXANDROV: Sorry. Yeah, well--
PRESIDENT HANEFELD: So, maybe you'll repeat
[Page 956]
the question and then you repeat the answer.
MR. ALEXANDROV: I apologize for interrupting, but I have a strong incentive to complete as soon as possible, and I want--I don't mind the Witness giving a brief explanation after she answers my question, but I'd like first to hear the answer.
BY MR. ALEXANDROV:
Q. And my question was, is it your evidence that when SUNAT officials read the language that the retained earnings "must be exclusively generated by the Cerro Verde Leaching Project," is it your evidence that they will understand this to mean that the retained earnings must be exclusively generated by the Cerro Verde mining unit?
A. When a tax stability agreement is entered into, in this case it is called "Cerro Verde Leaching Project," SUNAT receives a copy of it.
In this Resolution, what we are saying in the resolved Section, we're saying to SUNAT in the operative part: "SUNAT, we are granting this reinvestment benefit that had been repealed in 2000.
[Page 957]
1 We are here in December 2004. We're going to give
2 this to Cerro Verde. Why? Because Cerro Verde has a
3 Stability Agreement that is called "Cerro Verde
4 Leaching Project."
5 We are going to grant it to it because of
6 that reason, and because of the fact that that profit
7 reinvestment--and, as you know, when you have a
8 Stabilized Unit that creates income, you have a tax
9 provision, and they can reserve that income for
10 four years to reinvest in the same stabilized Mining
11 Unit. So, we are saying to SUNAT, they had that tax
12 provision, and that is why we are approving this.
13 Q. You need to speak closer to the microphone.
14 So, in brief, Ms. Chappuis, what you're
15 saying is SUNAT, or anybody who has the 1998
16 Stabilization Agreement and sees this language will
17 understand that the profits must be generated
18 exclusively from the Cerro Verde mining unit, when
19 they see the language that says "exclusively from the
20 Cerro Verde Leaching Project."
21 If that is the case--if that is the case,
22 then my question is--I have two questions. One, my
[Page 958]
1 question is--my first question is, why didn't you just
2 say the Cerro Verde mining unit?
3 A. Because between the Ministry and SUNAT, we
4 speak on the basis of the names of the agreements
5 signed. This was a provision that had been repealed
6 in 2000, and we are at December 2004 here. SUNAT had
7 a copy of that Stability Agreement that it received in
8 '96--'98.
9 And we told SUNAT: "Today, we are granting
10 this tax benefit to Cerro Verde because those profits
11 that are going to be retained and reinvested, they are
12 consequence of the "Cerro Verde Leaching Project," the
13 Contract known as "Cerro Verde Leaching Project," that
14 it is made up of the Cerro Verde Mining Unit.
15 Q. Okay. Can you go to Tab 29 in your binder?
16 And that is the Stabilization Agreement CE-12.
17 I'm looking at the title of the Contract, or
18 the name of the Contract.
19 It's not the "Cerro Verde Leaching Project."
20 It says: "Contract of Guarantees and Investment
21 Promotion Measures Granted by the Peruvian State in
22 favor of Sociedad Minera Cerro Verde."
[Page 959]
1 I understand that to be the title of the
2 Contract. Am I wrong?
3 A. Let me read it and then I'm going to try to
4 find it. Just a couple of minutes, please.
5 Q. Well, yes, but we are a little bit pressed
6 for time, so, just look at the first page and the
7 title of the Contract. You say the name of the
8 Contract is the "Cerro Verde Leaching Project," and
9 I'm looking at the Contract, and I see a name that
10 says something different, which is "Contract of
11 Guarantees and Investment Promotion Measures."
12 Isn't that the name of the Contract?
13 Ms. Chappuis, can you please answer the
14 question because we are pressed for time.
15 A. What was your question, please.
16 Q. Please look at Page 1. The name of the
17 Contract is "Contract of Guarantees and Investment
18 Promotion measures granted by the Peruvian State in
19 favor of Sociedad Minera Cerro Verde."
20 The name of the Contract is not what you
21 refer to in the Resolution, which is the "Cerro Verde
22 Leaching Project."
[Page 960]
1 Again, can you confirm, please, when you
2 read this, that this is--this language is there? We
3 don't have time for you to read the whole Contract.
4 If you have a question, let me know. We will point
5 you to a provision. But I'm sorry, we don't have time
6 for you to review the Stabilization Agreement, which
7 you've testified you know, upside down.
8 A. Mr. Alexandrov, if we had signed this in
9 accordance with the 1890 law, this Contract would be
10 called "Contract of Tax Immutability." So, that name
11 "Contract of Guarantees," "Tax Stability Agreement, or
12 "Contract of Tax Immutability," all is the same.
13 Q. Well, let's go back to--let's go to one of
14 the Ministerial Resolution, Tab 27, CE-23. "The
15 retained earnings which must be exclusively generated
16 by the Cerro Verde Leaching Project," and you said
17 everybody would understand that by the "Cerro Verde
18 Leaching Project," you meant the "Cerro Verde mining
19 unit." In that case, why the word "exclusively"?
20 Everything within the mining unit is covered
21 by the Stabilization Agreement, isn't it, according to
22 your testimony?
[Page 961]
1 A. Mr. Alexandrov, I found the figures that I
2 was looking for. I was speaking to you about figures,
3 and I've found it.
4 Q. Where are you, Ms. Chappuis? So we can,
5 perhaps, put it on the screen, which page or which
6 clause of the Contract are you looking?
7 A. I'm looking at Annex 2.
8 Q. Yes. We will put it on the screen.
9 And what did you want to say about it?
10 A. This Annex 2 proves what I was
11 saying.
12 (Overlapping interpretation and speakers.)
13 (Interruption.)
14 Q. It's not your fault.
15 A. What I want to say is that in this Exhibit 2
16 shows what I was saying: that mine equipment for over
17 $40 million was included in the project. Why?
18 Because they were stripping everything, they were
19 stripping all of the Oxides to get to the great
20 deposit of Primary Sulfides, that as I told you has
21 goes one kilometer deep. And here we look at the
22 amount of mine equipment that is being purchased. We
[Page 962]
1 look at crushing, all big figures. Then you have
2 "Environmental" --it says here--and this is the
3 "Feasibility Study of the mill." This is poorly
4 translated: it is the Feasibility Study of the
5 Concentrator. And also it talks about exploration.
6 It's a big figure as well.
7 If we look at the Feasibility Study, it is
8 shown there the geology that says clearly: "We are
9 going to go to the Primary Sulfides area."
10 Now, I'm going to answer your question, but
11 please ask the question again, sir?
12 Q. Well, my question was on Article 1 of the
13 Resolution, approving the--thank you for that
14 clarification, by the way.
15 So, my question went back to Article 1 of
16 the Ministerial Resolution that approved the Profit
17 Reinvestment Program. And your testimony was that
18 when the Resolution said "the profits must be
19 generated--must be exclusively generated by the Cerro
20 Verde Leaching Project," anybody who had the 1998
21 Stabilization Agreement would know that this means the
22 profits exclusively generated by the Cerro Verde
[Page 963]
1 mining unit.
2 So, I'm asking you, then, why the word
3 "exclusively" if we're talking about Cerro Verde's
4 mining unit as a whole and all the profits generated
5 by the mining unit?
6 A. Because we are talking so that SUNAT reads
7 us. We're saying: "SUNAT, we're not allowing this
8 Company to bring in income that will benefit from this
9 tax benefit from a Concession that is not stabilized."
10 This was a tax regulation, a tax benefit, that had
11 been repealed. So, to avoid problems with SUNAT, we
12 specified this to SUNAT. We said, this is
13 nondistributed profits that are going to come from a
14 Stability Agreement called "Cerro Verde Leaching
15 Project."
16 Q. So, your testimony is that by saying
17 exclusively generated by--
18 PRESIDENT HANEFELD: Sorry for the
19 interruption, but we are just wondering whether your
20 intention is to finish with Ms. Chappuis today?
21 MR. ALEXANDROV: Can I ask just this last
22 question, which is the end of my line of questions,
[Page 964]
1 and then I want to talk to you about going forward.
2 But I'm hoping with this last question to
3 complete this line of questions.
4 PRESIDENT HANEFELD: Okay.
5 BY MR. ALEXANDROV:
6 Q. Ms. Chappuis, so, to summarize your
7 evidence, when one reads the words "exclusively
8 generated by the Cerro Verde Leaching Project," one
9 would understand this to mean exclusively generated by
10 the Cerro Verde Concessions or mining unit, and not
11 any other Concessions or any other mining units?
12 Is that your testimony?
13 A. Cerro Verde had this benefit in 2004, from
14 this repealed law, because Cerro Verde had a Stability
15 Agreement called "Cerro Verde Leaching Project," then
16 it had this benefit. And that Mining Unit generated
17 income, and that income was going to be used. If
18 Cerro Verde had had another Mining Unit, those--that
19 income would not have received that tax benefit.
20 That is what we wanted to say in these two
21 Articles.
22 Q. If they had other plants in this mining
[Page 965]
1 unit, in this Concession, would the nondistributed
2 profits from all those other plants, other than the
3 Leaching Project, would they also be reinvested in the
4 construction of the Concentrator Plant, free of tax?
5 A. I don't understand your question. Could you
6 please repeat it?
7 Q. Yes. In this mining unit, in the
8 Concessions that we are talking about that are
9 described in Annex 1 of the 1998 Stabilization
10 Agreement, Cerro Verde had a leaching plant. The
11 profits from that leaching plant could be reinvested,
12 without tax, into the construction of the Concentrator
13 Plant.
14 And I'm asking you, based on your testimony,
15 if there is, in addition to the Leaching Plant, if
16 there was another plant operating in that, what you
17 refer to "mining unit," in that Concession, would the
18 Nondistributed Profits from that other plant, could
19 they also be reinvested into the Concentrator Plant,
20 tax free?
21 A. Yes. I'm going to explain. All of this,
22 the Mining Unit-which in the States is known as Mine
[Page 966]
1 Site--was stabilized. They were producing in a
2 leaching plant, as I said, they were stripping
3 everything, stripping all the top layers to get to the
4 Primary Sulfides.
5 If at that time, let's imagine, they had
6 placed a plant to recover rare-earth minerals, that
7 plant that was treating the stabilized mineral, and
8 that was located within these stabilized Concessions,
9 would have been stabilized. And the benefit would
10 have been received by the leaching plant and by the
11 rare-earths plant.
12 Q. And that would be the case even though that
13 other plant would not be mentioned in the Feasibility
14 Study that is an integral part of the Agreement, it
15 would not be mentioned in Clause 4 of the Agreement,
16 or any other clause of the Agreement; correct?
17 A. Repeat your question, please.
18 Q. The proceeds from that other plant, in the
19 same Concession, would benefit from the 1998
20 Stabilization Agreement, you say, even though that
21 other plant is not covered by the Feasibility Study
22 that is an integral part of the 1998 Stabilization
[Page 967]
1 Agreement, and that investment in that other plant is
2 not mentioned anywhere in the 1998 Stabilization
3 Agreement; correct?
4 A. Mr. Alexandrov, throughout this afternoon, I
5 have tried for you lawyers to understand something
6 from me, the mining engineer.
7 (Interruption.)
8 Q. Sorry to interrupt, if you could please say
9 first yes or no, and then explain. It will help us a
10 lot to understand your testimony.
11 A. First, you need to understand what I'm
12 saying. We are talking about natural resources, today
13 I am taking out Oxides. Then, of course, they run
14 out. Oxides run out. I'm taking these out of a hole,
15 and then it's better to have a Concentrator Plant.
16 So, I start getting things out through the
17 Concentrator Plant, and then the price of lithium
18 shoots up, and then I have lithium, and I said, okay,
19 let's set up a lithium plant. And I mine lithium.
20 That is how mining works. I want you to
21 understand this. That is why these agreements covered
22 all types of investments: Copper, rare earths,
[Page 968]
1 lithium, whatever you want, for 15 years, and placing
2 any kind of plant you want during 15 years, but not a
3 day over.
4 It was not "just this little plant," "rare
5 earths, no," "lithium, no." No, it is all the plants.
6 Why? Because these are Beneficiation Plants. I drill
7 a hole, I have no power whatsoever on the prices set
8 by London. Today, copper is $4 and lithium $20,000.
9 I can say, okay, and lithium goes up to 80,000. So,
10 then I'm going to say: "Okay, I will mine lithium, and
11 I will set up a lithium plant here. That is what
12 mining is. That is how mining works.
13 Also, mining works with great investments,
14 it is very capital intensive.
15 MR. ALEXANDROV: Madam President--I need to
16 interrupt, I'm sorry.
17 (Interruption.)
18 MR. ALEXANDROV: I am running out of time.
19 BY MR. ALEXANDROV:
20 Q. I understand your position, and I'm asking,
21 then, that your testimony is that this is the case,
22 even though this other investment is not covered by
[Page 969]
1 the Feasibility Study, which is an integral part of
2 the Agreement, and is nowhere mentioned in the
3 Agreement.
4 And you can just confirm that this is the
5 case, even though the Agreement doesn't say anywhere,
6 including in the Feasibility Study, anything about
7 this other investment.
8 Am I correct in understanding your
9 testimony?
10 A. The Feasibility Study indicates very clearly
11 in the geology "we're going to the Primary Sulfides
12 area," and then during the mining stage, it says, very
13 clearly, "we're going to conduct pushbacks," this year
14 and this year and this year, in Cerro Verde, et
15 cetera.
16 (Interruption.)
17 Q. With all due respect, this, is again, not an
18 answer to my question. My question was--
19 (Overlapping interpretation and speakers.)
20 A. Yes, I'm answering your question.
21 Q. No, it is not.
22 (Interruption.)
[Page 970]
1 (Overlapping interpretation and speakers.)
2 A. I'm a Mining Engineer. I read "pushbacks"
3 and that means that the mine is expanded like this
4 [hand gesture of "wide"], because we're going
5 downward--
6 (Interruption.)
7 Q. It's not an answer to my question.
8 MR. ALEXANDROV: I'm sorry.
9 PRESIDENT HANEFELD: I don't get a
10 translation.
11 BY MR. ALEXANDROV:
12 Q. Yeah, I want to repeat my question.
13 My question was, if this other investment is
14 not covered by the Feasibility Study, and is nowhere
15 mentioned in the Stabilization Agreement, is it still
16 your view that this other investment, because it is in
17 the same Concession or the same mining unit, is
18 covered by the Stabilization Agreement?
19 A. What you're saying is not true. The
20 Feasibility Study in several parts mentions the
21 Sulfide Project. I'm explaining the geology.
22 Q. I'm asking you a different question.
[Page 971]
1 (Overlapping interpretation and speakers.)
2 A. I am explaining this to you. There are
3 pushbacks that are included in the Mining Plan. I'm
4 explaining that when in the sections of power and
5 energy, it says clearly "We need 800 liters per second
6 for the sulfides, and we only have a license for water
7 for 100 liters per second. We don't have water."
8 Then you cannot say that in the Feasibility
9 Study there is no mention to the sulfides project.
10 Yes, it does mention the sulfides project.
11 Q. So, your evidence is that the Concentrator
12 Plant is covered by the 1998 Stabilization Agreement
13 because there is a reference to it in the 1996
14 Feasibility Study.
15 Do I understand you correctly?
16 A. The reference of the Primary Sulfides study
17 was found in 1979 by Parsons. So, we always knew, and
18 you know very well that Cerro Verde already had a
19 Concentrator for 3,000 tons since 1974. So, always,
20 always, it was known, it was not something that came
21 out of thin air.
22 Q. All right. But your evidence is that
[Page 972]
1 because of that, it was because it was always known,
2 you say, that there will be a Concentrator--
3 (Overlapping interpretation and speakers.)
4 A. But you cannot tell me that it hasn't been
5 mentioned. I am a mining engineer, and I read
6 geology. I read pushback, and there is sulfide below.
7 Q. Can I ask you a question, though?
8 I understand you now to be saying that
9 because it was always known that there will be a
10 Concentrator Plant in the Concession, this is why the
11 1998 Stabilization Agreement covered the Concentrator
12 Plant; correct?
13 A. What I'm saying is that, if one looks at
14 this, it was there, and when I mention the figures, I
15 say "This is the mine equipment in a large quantity
16 because they are doing stripping." What are they
17 doing the stripping for? For the Primary Sulfide.
18 They're taking advantage of that stripping to send it
19 to a plant, these were Oxides, and they were processed
20 there. Tintaya carried out the stripping and piled up
21 its Oxides in a corner. So, it is a different way to
22 process. I want you to understand. This is a hole
[Page 973]
1 like this, and you start to remove from top whatever
2 you have on top, that is the Oxides that have copper,
3 a very high copper content. You move it on to the
4 leaching plant. You take out the copper, and you
5 continue to go down to get to the Primary Sulfides.
6 And those Sulfides need to be processed in
7 the Concentrator.
8 Q. I do not find in that long, long answer
9 anything that related to my question.
10 MR. ALEXANDROV: But, Madam President, I'm
11 coming back now to your point.
12 I'm not going to complete today. So, we can
13 stop now, or at any point convenient to the Tribunal.
14 I'm happy to stop now and continue tomorrow.
15 (Tribunal conferring.)
16 PRESIDENT HANEFELD: We note that Respondent
17 needs more time for cross-examination, or requires
18 more time so that we cannot complete today. Our
19 general understanding was that we try to avoid in our
20 Hearing Witnesses--now, and now also the next day.
21 So, we hope that within the next days we will catch up
22 a little bit again with our Hearing schedule, and
[Page 974]
1 keep--stick to the agenda as originally agreed between
2 the Parties. I think now it is what it is.
3 Now, we will also have some questions to
4 Ms. Chappuis, and so maybe you can tell us tomorrow
5 morning what your plan is in terms of timing.
6 MR. ALEXANDROV: Well, Madam President, so I
7 was hoping to complete tonight, but it turned out to
8 be impossible. I'm sure you and your colleagues have
9 heard that many times, and that Counsel blames the
10 Witness, but we received some long answers that I
11 don't believe were answers to my questions, so I had
12 to repeat questions over and over again.
13 I'm--if Ms. Chappuis--and I'm asking her to
14 cooperate with me and provide short answers, I'm
15 hoping to complete within one hour tomorrow. But, of
16 course, there will be redirect and questions from the
17 Tribunal. But I'm hoping that I can complete within
18 one hour tomorrow, on the assumption that Ms. Chappuis
19 cooperates with me. I'm trying to ask specific
20 questions, and I will ask her, I will plead with her,
21 to provide short answers.
22 PRESIDENT HANEFELD: This is understood.
[Page 975]
1 Any comments from Claimant's side?
2 MR. PRAGER: No. My only comments are that
3 experience from the previous arbitration shows that
4 Respondent's Witnesses are also very talkative. So,
5 we will have to deal with that.
6 But each--look, each side has an equal
7 amount of time, and each side can spend it the way
8 that they want. So, I can't promise that just because
9 Mr. Alexandrov chooses to cross-examine Ms. Chappuis
10 for longer, that just to catch up with the daily
11 schedule, we will be shorter with our Witnesses.
12 But in the end, we all are going to catch up
13 because we all have the same amount of time, and it's
14 Respondent's choice to spend more time on Fact
15 Witnesses. They're going to have less on the Experts.
16 That's a strategy choice that they have to make.
17 PRESIDENT HANEFELD: And we certainly
18 respect the strategy choice. We just wanted to make
19 the point that we want to progress.
20 MR. ALEXANDROV: Yes. Madam President, and
21 we--or maybe we misunderstood the Tribunal. We
22 understood the schedule to be tentative, in the sense
[Page 976]
1 of, we may decide to take more time with one Witness
2 and less time with another.
3 PRESIDENT HANEFELD: And yes, it was
4 tentative.
5 (Overlapping speakers.)
6 MR. ALEXANDROV: But yes, it's the chess
7 clock, we know we have a limited amount of time. So,
8 we'll have to catch up at some point in time, and we
9 will, of course, not only try to do that, but we will
10 have to do that.
11 PRESIDENT HANEFELD: Then we wish all a
12 peaceful evening, good rest, and see us tomorrow.
13 (Whereupon, at 5:37 p.m., the Hearing was
14 adjourned until 9:30 a.m. the following day.)
[Page 977]
I, Dawn K. Larson, RDR-CRR, Court
Reporter, do hereby certify that the
foregoing English-speaking proceedings were
stenographically recorded by me and
thereafter reduced to typewritten form by
computer-assisted transcription under my
direction and supervision; and that the
foregoing transcript is a true and accurate
record of the English-speaking proceedings.
I further certify that I am neither
counsel for, related to, nor employed by any
of the parties to this action in this
proceeding, nor financially or otherwise
interested in the outcome of this
litigation.
Signature
Dawn K. Larson